GO AHEAD, SHUT IT DOWN

Time is an illusion, lunchtime doubly so. ~ Douglas Adams

Reality is merely an illusion, albeit a very persistent one. ~ Albert Einstein

So here we are edging ever-closer to yet another fiscal confrontation for the Federal government. You remember, a week ago we were told that unless the Republicans and Democrats agreed to a budget for the current fiscal year (that started on Oct 1^st, 2010) the government would stop functioning at midnight Mar 4^th. Well, that date has come and gone with no shutdown because the politicians unsurprisingly agreed to a temporary postponement in the form of a continuing Federal budget for the next two weeks. This agreement was labeled by the media as a "win" for the Republicans for reasons obscure to those of us who live beyond the Washington, D.C. beltway. Are we supposed to be happy the politicos managed to keep the government operating for all of two more weeks? I think not.

It's not a win at all. It's an all too solid example of how NOT to run a government. Here we are 19 weeks into the government's fiscal year, and Congress still hasn't passed a budget. [President Obama recently submitted his proposed budget on schedule for the next fiscal year, starting Oct 1^st, 2011 for Congress' consideration.] Given the level of fiscal malfeasance that Republicans, Democrats and every other form of politician (at every level of government) have perpetrated over the past decades, it's a wonder why we public citizens let them keep playing us as pawns while at the same time hugely benefiting the kings and queens of narrow, private interests.

The wonder might be explained as a five-star example of fiscal illusion, a macroeconomic term that describes people being not as "aware" of government tax revenues as they are of government expenditures, since many voters visibly benefit from government expenditure programs (funded by "hidden" revenues). People don't (or can't) link these benefits to the taxes they pay. Thus, fiscal illusion makes the cost of government appear less expensive, especially when financed by deficits, than it actually is. This has provided incentives to politicians of both parties to expand government expenditures but not raise revenues to pay for them. In this sense, we citizens share in the responsibility for our nation's fiscal calamities. In a general sense we continue to want a level and range of government-funded programs that we're not willing to completely pay for. "Shared sacrifice" is an alien concept that doesn't need to apply to me, only others.

These folks who we've voted into office have so often kicked the fiscal can down the road and played off competing interests by saying that someone else wants your piece of the remaining economic pie, they really have no sense of adopting an alternative approach. That's as outrageous as it is depressing. And these familiar fiscal tactics – tactics that got us into this mess – are now again being displayed and discussed in Washington and elsewhere. An apt characterization of them is attributed to Jennifer Brunner, a former Ohio secretary of state: "A dozen cookies are put down in front of a CEO, a union member and a tea-partier. The CEO takes 11, and then says to the tea-partier, 'That union guy wants yours.' "

Given that politicians are going to use only politics not rational thought to decide what programs should be cut and what taxes should be increased, what should we do? Begin by recognizing that neither party has any incentive to truly put all options on the negotiating table that actually could resolve much fiscal difficulty. Considering entitlement reductions (a heresy for Democrats), tax increases (an apostasy for Republicans) and defense cuts (similar for both Republicans and many Democrats) pale in political importance when compared to promising cuts in public broadcasting, planned parenthood and faith-based programs. Next, we should acknowledge that neither political party will be willing to seek and support meaningful fiscal solutions as long as political campaigning is happening – and there is always campaigning occurring. Sub-standard, short-term solutions from conventional fiscal politics have shackled the nation and thus require us to seek other answers.

Given that politics cannot be cast aside, I'm now in favor of moving "out of the fiscal box" and just shut down the government and end the charade that a meaningful fiscal resolution will be enacted by politicians. Fiscal illusion rests on the presumption that government expenditures/programs are more visible than the taxes that finance them. Let's see what happens when government programs disappear. Perhaps naively, a shutdown might be scandalous enough to clear the mindset of both Congress and the President so they can start using reason and logic. Better late than never, but given what happened on Mar 4^th, the Democrats more likely will simply fall on their shrinking sword and let the Republicans define the terms. As shocking as shutting the government down might be, it will pale in comparison to what the US will need to do if our politicians can't soundly resolve our longer-term fiscal problems. When (not if) this happens, global bond markets will start telling the Treasury Dept that US government bonds will need to carry a much higher yield –not has high as Greek 10-yr bonds' 12% yield today (after Moody's downgraded Greek debt), but likely higher than the current Treasury Note yield of 3.4% This avoidable eventuality will ultimately cost every citizen more fiscal pain, even if it's illusory to most.

THE REPUBLICANS DESERVE 2 OSCARS or THE CASE OF POLITICAL AND SOCIETAL SCHIZOPHRENIA ON THE RISE

Penny-wise is often pound-foolish ~ 17^th century English proverb



The Republicans deserve 2 special-category Oscars at tonight's Academy Awards show. One for patently false proselytizing (aka, acting) and the second for fully-erroneous (screen) writing. To some degree all politicians are impostors, but the Republicans' continuing charade qualifies them for this rare, double Oscar award. The Academy Awards would thus expose the Republicans for what they are, political and economic charlatans.

I had a breakthrough today. As you've seen if you've read my blog, I've been increasingly dismayed at the growing disconnect between economic reality (at least as I interpret it) and how others, especially those of a politically conservative nature see it (including those who now have the authority to change economic policy). Republicans are closet plutocrats. How can such a fundamental disconnect have occurred and can anything be done about it?

My insight is we are suffering from an oozing, collective case of schizophrenia. Not medical schizophrenia, but a percolating spread of economic and political schizophrenia. [The Mayo Clinic states schizophrenia is a group of severe brain disorders in which people interpret reality abnormally. And that Schizophrenia may result in some combination of hallucinations, delusions and disordered thinking and behavior.]

I think this diagnosis fits the Republican view of what is "reality" to a T. The Republicans' perception of reality is definitely "abnormal", "delusional", and "disordered" to say the least. They propose to fix our economic problems with policies that are either misguided, have failed in the past, or will cause significant future damage.

Republicans in Congress and state/local governments haven't gotten to this elevated state of schizophrenia (and plutocracy) without help. No, many others have assisted, including the much-ballyhooed "grass-roots" tea-partiers. The TP'ers are just as schizoid as their leaders. In spite of the tea-party's alleged "populist" aims, Republican economic policy has been laser-like in focusing on benefiting broad corporate interests and those of the top one to two percent of income-earners and wealth-holders. Republicans' latest fights against unions' collective-bargaining rights are yet another example in a long line of narrow, self-serving policy proscriptions. This all too successful false acting and writing merits the Republicans' Oscars tonight.

This really isn't "news" since corporate and Republican interests have gone hand-in-glove for decades. The surprise is that so many small-timers (including TP'ers) seem to mistakenly believe the Republicans will help them out. How these folks actually believe their economic lives will be improved after the Republicans privatize Social Security and Medicare, eliminate regulatory oversight and decimate "wasteful" government programs can only be explained medically, not rationally. Republicans have been saying they want to do this since Regan, but to date have only managed to vastly increase the public deficit and benefit the rich.

What can we do about this? This is a problem because it's unlikely Republicans would knowingly agree to a regime of antipsychotic drugs such as Thorozine, Clozapine or Ativan that medical doctors can proscribe for schizophrenics. Without such drugs, I think we can only hope the more rational, non-schizophrenic Democrats will more actively and effectively fight for the well-being of the "bottom 99%" of the public. Unfortunately, it's a faint hope. And this means the Democrats can't give away the store before the political negotiations commence.

You remember the "checks and balances" we dutifully learned in school that serve as a keystone to our democratic form of government. Where is it when we need it? Because the Democrats have time and again proven too timid and unfocused, we've become all too unchecked and unbalanced. Here's but one example. I just read Jeffrey Toobin's book about our Supreme Court, The Nine. He documents the clear shift over the past six years to a conservative majority on the Court that will have legal, economic and political implications for years to come. (Chief Justice John Roberts is 56 years old.) To regain effective checks and balances, we need the Democrats to stop being shrinking violets and uniformly and publicly protect our national strengths such as a vibrant middle class and educational infrastructure.

Given the Democrats recent track record, I'm not overly confident this will happen. Ultimately, the Democrats need to reassert their role as active, united checkers and balancers against the Republican onslaught. I'm dismayed that President Obama's tactics to get something done have made him stray way too far from the hopes he engendered during his campaign. After all, he told us he would create "Change We Can Believe In." When I voted for him, I thought I was voting for responsible progress for more than the top 1% of Americans. So far, the change he's created is mere pennies on the dollar.

THE TIN CUP HALF EMPTY

We've now seen the President's FY2012 proposed budget and heard the Republican's misguided response. It's thoroughly depressing. Why? Because the political blather from the Republicans and Democrats who will be making fiscal decisions on next year's budget (and this year's, since the Congress ineptly hasn't even passed a budget for this fiscal year that began Oct 1^st, 2010) have vacuously promised to "reduce the deficit" without continuing to deal with the simple fact there's 9% unemployment or taking any consequential action on the main causes of the long-term (structural) deficit – the relentless growth of entitlements like Social Security, Medicare, Medicaid and of defense spending.

How can they get away with it? Because US citizens are too unknowing (a polite way of saying too dim) about what really ails us fiscally speaking. We may say we want the government to cut expenditures and to get "more efficient," but we really don't know what benefit this will produce or why it matters at all – except facetiously expecting our taxes to be reduced. We seem to think that cutting foreign aid or community development grants (which together account for about a tenth of 1% of total spending) will somehow make a momentous difference for our Federal deficit. It won't.

Realistically, the US public doesn't want the Federal deficit reduced. We want to continue enjoying the personal advantages of receiving our Social Security, our Medicare and other deficit-financed benefits without worrying about the tomorrows, especially if those tomorrows involve making any sort of financial sacrifice personally or collectively. In this sense, we're too selfish to care about the future. We want our government's largesse to continue, but don't want to pay for much of it. We talk about the future meaning something, but we don't act that way at all. We want our government to continue living beyond its means, and instead let our kids pay for our deficits.

As usual, and with the public's encouragement, politicians are aiming their fiscal guns at the wrong targets. The only way to meaningfully reduce our long-term deficit is to significantly cut mandated entitlements spending and security-defense spending that the military-industrial complex has all too successfully made most of us believe is "required" spending (which together account for an astonishing 80% of Federal government expenditures; and over 100% of government revenues). Security-defense spending has roughly doubled in real terms since 2001, to over $870 billion in FY2011. Has any politician walked the political plank and said we need to meaningfully reduce mandated spending? No; because they see no benefit in making such truthful statements; they want to stay in office. They only feel safe talking about cutting really minor amounts of discretionary spending that will have no effect in remedying our long-term structural deficit or focusing on ancillary issues like public pensions (a state or local issue, not a federal one).

As a consequence we, the allegedly strongest nation on Earth, will continue to pass our fiscal tin cup around the world's capital markets in search of investors to finance our ever-increasing deficits. The Chinese and others have been obliging in the recent past. Will they in the future? Hard to say, but just like Greece and Ireland, sooner or later such investors will demand more return (higher interest rates on US bonds) from a nation that does not have its longer-term fiscal house in order. When they do, overdue painful changes will be required.

How Recessions, Together with Contractionary Fiscal Policy, Can Be Green

Are Republicans closet environmentalists? Perhaps. Will they admit it? Probably not.

This brief assessment shows how contractionary fiscal policy (such as that espoused by Republicans) can have significant positive environmental consequences. It is yet another illustration of how inter-connected everything is. After looking at some of the latest available data on the US's production of greenhouse gases (GHG), it occurred to me I had not fully considered how macroeconomic policies – principally fiscal policies (government expenditure and tax procedures enacted by Congress and the President) – can directly affect our environment. Matthew Wald's Jan 16th New York Times article also examined this relationship. Here is what I found.

Greenhouse gas (GHG) emissions have been steadily and, from my perspective, all too rapidly growing for a long time, as fossil-fueled economic production has increased. Worldwide, atmospheric carbon has increased 23.8% over the last 60 years. In 2008, total U.S. greenhouse gas emissions were 6,956.8 million metric tons (CO2 Equivalent). However, since 2008 the rate of increase has dropped, as the nation's growth of fossil-fuel usage has diminished, directly due to the effects of our enduring "Great Recession."

Thus, our recession has provided an unexpected and important benefit – a cleaner environment. This reduction in national output, combined with increased use of more energy- and environmentally-efficient technologies, and increased use of natural gas (the cleanest fossil fuel – much more so than coal) can have a positive effect in mitigating atmospheric emissions. The Dept. of Energy's "Reference Case" shows carbon and nitrogen emissions in 2025 to be lower than in 2008.

To determine what the relationship has been between our deteriorated national economy and our relatively improved air quality, I created a variant of what New Zealand economist A.W. Phillips first examined in the late 1950s, showing how a nation's rate of unemployment was indirectly related to its inflation rate. This became known as the Phillips Curve. I easily commandeered a data series between 1991 and 2008 for the annual change in the US unemployment rate and for the annual change in GHG emissions . My chart, and its linear regression line, illustrates the expected indirect relationship between the change in GHG emissions and in the unemployment rate. [Sorry I couldn't just insert this chart in this blog - Blogspot seems only to allow insertion of image files, not Excel charts. To view it, go to the "chart" link.] Thus, as the unemployment rate is reduced (and more workers are employed), GHG emissions increase. I have immodestly called this the Smith Line.  

So, given the Smith Line, I might be more willing to applaud the Republicans' incessant (and ill-timed) demands for reducing the size of "the government" by drastically reducing government expenditures (their proposed $100B contractionary fiscal policy; contractionary macroeconomic policy is undertaken when the economy is growing too rapidly - hardly the case now), since it likely will further increase unemployment and thus improve our environment. Speaker of the House John Boehner turns out to be a closeted true-green environmentalist. Who'd of guessed? Could we suggest he change his name to "Bonair?"

MMXI's RESOLUTIONS

Hasty resolutions are of the nature of vows, and to be equally avoided. ~ William Penn

Greetings. Here are a dozen resolutions I'm making and recommend to improve my well-being and this nation's over the coming year. As you'll easily see, most are stunningly fantastic – meaning the chance of their being adopted is next to nil. So it goes... Numbers 1 and 12 are far more possible, personally speaking. However, one can always wish – and that's the power and pleasure of setting such vows on New Year's, whether they're hasty or not. Hope springs eternal, especially on Jan 1^st.

1.  Probably most relevant and important, I urge me and others, especially public commenters and decision-makers, to have more patience and perspective. Sure, 2011's media will allow anyone to instantaneously broadcast her/his opinion on anything. But I'd advise pausing, taking a few deep breaths and consider what's going on that you want to comment on before you opine. And yes, I admit being way too impatient about any number of things both personal and professional. My adopting additional patience and perspective will be a most positive advancement for me. Wish me luck. I think it will help other folks as well.

2.  The Senate will eliminate the all too pervasive use of the filibuster as a mechanism for the minority to assume virtual majority power. This alteration commences the first of many changes needed for our ramshackle Federal, state and local processes of governance to become more representative and responsive. The unwarranted overuse of the filibuster is a national embarrassment that should be brought to a halt in January. Our governance system has shown itself to be in serious need of improvement –it seems unaccountably intent on operating in the 21^st century by clinging to the 19^th.

3.  A comprehensive, systematic energy bill passes the Congress and the President signs it. This includes some of my old favorites like eliminating hugely inefficient subsidies for domestic petroleum/natural gas and ethanol production and distribution, removing tariffs on imported cane ethanol, increasing the Federal gasoline/diesel tax by a $1/gal, imposing a verifiable limit on national production of green-house gases, and last but by no means least, instituting a systematic, inclusive carbon tax on all forms of fossil energy consumption. Now we're talkin'.

4.  Institute a Federal law that decriminalizes the consumption and production of marijuana and retroactively release the thousands of non-violent prisoners incarcerated for small-time marijuana consumption. As long as I'm at this one, have the Feds declare the marijuana division of the "War on Drugs" officially completed. Have the perpetrators of this insane portion of the WoD declare a "victory" as a sop to whatever misguided public and private authorities who see black as white. And end all funding for marijuana-related enforcement at the Federal, State and local levels. Also, economic and personal hypocrisy, way too often publicly practiced by Republicans, will become a DEA Schedule I illegal drug.

5.  Simplify and change the Federal and state tax laws so several inter-related transformations occur: income-based taxes become (once again) progressive thereby eventually contributing to narrowing the all too substantial gap between the rich and the rest of us; eliminate the tax subsidies for borrowing by individuals (e.g., mortgages) and firms (e.g., debt-financing for M&A activities); make tax rules and regulations simpler, fairer and more equitable. Ideally, these transformations would be adopted by each of the G-20 nations so the effects on international capital flows are mitigated. If only.

6.  Reinstitute binding PAYGO standards for the Congress and the President beginning in January, and implemented by Sept 30^th. And I don't mean the voodoo magic version of PAYGO the House Republicans want to introduce this month, where revenues lost from tax cuts don't have to be accounted for; talk about needing perspective.

7.  A compulsory national Legislative and Executive Plan for Long-term Deficit Reduction (LEPLDR – Not too catchy is it? Perhaps you can come up with a better acronym.) will be passed by the Congress and signed by the President by June 1^st with an explicit, binding timetable, so our strategically-important structural budget deficit will be reduced over time. This plan will necessarily involve substantial expenditure cuts to heretofore "sacred" programs like entitlements and defense, as well as tax increases (see #5). Try to balance the budget yourself using the NYTimes' clever, interactive budget puzzle. 

8.  China will meaningfully appreciate their Renminbi by April 1^st. The Renminbi appreciation will help the US some, but won't by itself solve our balance of trade nor our other international economic issues. In tandem with China's currency revaluation, Congress and the President will cease and desist all statements that accuse China and other foreign nations of "stealing our jobs," and recognize that national job trends are subject to many divergent, long-running forces. Over the past half-century, the US has gained far, far more jobs internationally through immigration and exports than we've lost during the past decade. Perspective helps here.

9.  We need to modify our spending and saving behavior, starting with the folks at the top. Enforce a protocol that every publicly-elected official – from the local city council members and State legislators/governors to Federal Congress-people and the President – must emphatically state (again and again) that individual citizens' economic behavior is perhaps the most important means of making our nation a better place for all to live. Every publicly-elected official will be required to make a personal statement by February 1^st how they individually will be changing their behavior to be consistent with the 3 principles shown below, including what personal sacrifices they have already made for the greater good. In other words, we recognize and agree that "there's no longer a free lunch that someone else will pay for at some point." Our economic behavior needs to change in several key ways:

a.       Stop blaming others for the consequences of our own misbehavior – in my mind, this means each of us needs to abide by the following standard, "I'm responsible for my own actions and mistakes and don't expect others to bail me out." Victimization will cease to be a national preoccupation of blame and irresponsibility. Mittens will be required to be worn at all times so finger-pointing becomes impossible.

b.      Recognize that shared sacrifice is a non-negotiable, necessary part to getting this nation back on track. Each of us will need to "pay" in some fashion for our individual and collective profligacy and mistakes. No one wears a white hat in this.

c.       Start behaving as if the future really matters. Don't keep "kicking the economic problems down the road" (for our children and grandchildren to face). In purely arcane, economic terms, our social discount rate needs to fall significantly, unless we want our kids and their kids to enjoy a lower standard of living. Do we? I hope not.

10.  Recognize that "too big to fail" is itself a first-order policy failure that has understandably alienated citizens and continues to cause substantial economic harm for everyone. No private firm is too big to fail. The unanswered question is: At some distant point in the past the banks and financial sector have transformed from being considered the lubrication system for the engine of our economy to being treated as the engine itself. How did this happen? It must stop, now. The banks create nothing permanent, yet they siphon off significant amounts of undistributed wealth. So, my wish is that the Federal Trade Commission and Dept. of Justice actually start enforcing current law – say the antitrust laws for a start – and reign in the hugely disproportionate influence the financial sector has on our economy. While they're breaking up the BofA, Citibank and Wells Fargo to make the financial services sector more competitive and responsive to actual people's needs, why not aim for the fences and have the FTC and DOJ also go after other huge firms like Exxon-Mobil, AT&T, Wal-Mart, Chevron, United Health, Blue Cross and Humana, just to mention a few. Where's Sen. John Sherman (R-Ohio), the father of the 1890 Sherman Antitrust Act, when we need him?

11.  Commit to making significant private and public investments in 3 strengths that have afforded our success so far: technological innovation, strengthening our physical and human capital, and harnessing our diverse talents and effort towards future achievement.

12.  Finally, I recommend everyone perform what I call the "glass half-full minute" at least once a day. Focus on something that you personally believe is a good (and perhaps new) thing for you, or something you've taken for granted that's nevertheless important for you. Savor the thought for a minute. The benefit of this minute is derived from gaining patience and perspective. It's healthy to remember that we American citizens, despite all the commentary and criticism, reside in the best nation around. We have benefited for a long time from a multitude of great strengths, springing from our neighbors, friends and many, many others in this country. When nurtured, these strengths can found our continued success. With any luck, performing the glass half-full minute won't be too challenging and will offer a small step for subsequent achievements and better times in the future.

Happy New Year!

THE MIRRORS OF NOW AND THEN

Mirror, mirror on the wall, who's the fairest of all? ~

The Wicked Queen in Snow White

   As 2010 draws to a close, I find myself reflecting on mirrors. As objects of reflective self-admiration (or loathing – see Wicked Queen), mirrors have existed since ancient times. Obsidian mirrors from 6000BC have been found in Anatolia (Turkey); metal-coated mirrors were invented in Sidon (Lebanon) during the 1^st century AD; China made silver-mercury mirrors as early as 500AD. And Venice became a center of mirror-making with tin-mercury by the 16^th century.

   In centuries past, national mirrors reflecting the "fairest nation of all" have shown Britain and France and at other times Germany and France vying for European predominance. Greece and Rome and later the Danes/Norse contended for domination farther long ago. For many reasons, in times gone by it was exceedingly uncommon for one nation to solely be the fairest of all for very long. Most often, several nations actively sought and competed for this position.

   The US has been this quite atypical fairest of all nations – certainly in terms of economic and military authority – for practically three generations. It is rare that one nation can rise to the heights of regional-continental-global supremacy and remain unchallenged for any long time. I think the US is collectively beginning to realize this historic run of lone fairest one may be concluding. And unsurprisingly it is most unsettling since we've had a reasonably good course of superpower supremacy since the end of WWII and more so since the USSR began its collapse in mid-1980's and dissolved in 1991. There is now at least one new kid on the global block for the US to deal with substantively; not yet as an equal, but as a new entrant in the realm of powerful nations.

   This entrant for international authority sweepstakes is the People's Republic of China. As more and more people know, over the past five years, China has grown significantly in both economic and political terms. Its economy overtook Japan's last year to become the second largest in the world, after the US. [China's GDP is now about 1/3 as large as ours.] In many strategic areas, the era of the US being the sole global superpower probably is drawing to an end. In other words, the world is moving back to the long-established norm of multiple nations vying for preeminence. Using the mirror analogy I've adopted here, during the past several decades when the US asked the mirror on the wall the Wicked Queen's famous question, it was invariably answered, "It is you, oh mighty United States." Over the past several years, the mirror's answer probably shows another now-visually smaller nation racing forward, China fast approaching the fairest one – the US.

   It's useful to be clear about just how "fair" China is at this point. Despite rising anxiety from certain groups in the US like the military (which is always fearful of some other nation having more of something, like missiles or whatever) or traditionalist conservatives (who want the clocks to somehow stop ticking say in 2006 to forever preserve our sole superpower status), I don't believe China is anywhere near to being the fairest one at this point. Although we're no longer the undisputed, solitary fairest one, we're not close to losing our fairest crown. [If you sort nations by a composite ranking of their GDP, their GDP/capita, and their Human Development Index – calculated by the United Nations Development Programme – the US remains the fairest of all by a considerable margin. China is way down the list, below Canada, South Korea, Mexico and Brazil, among other nations.]

   However, the US and China offer an interesting mirror image of each other, in terms of how the economy of each could adapt in the near future. In the US, to grow out of our "great recession" we should increase our domestic investment (about 15% of our GDP), tone down our fixation on consumption (about 70% of GDP), and increase exports. China, on the other hand could enhance its long-term growth by doing the following (this according to Western economic thinking): re-prioritize its fixation on domestic investment (about 50% of its GDP) towards consumption (about 35% of GDP); increase its imports (hopefully including from Western producers like the US) and reduce its obsession on exports. Although there are a multitude of genuine differences between China and the US, these prescriptive changes are almost mirror images of one another.

   The US's position as no longer the solitary fairest one is perhaps a bit like being a first-born child and then being confronted by the subsequent birth of a sister or brother – at a rather fundamental level your world has significantly changed since undivided parental attention is no longer in the cards. Some first-borns deal with this better than others. Going way beyond an individual family situation, to a "national family," I liken my Baby Boomer generation as now having to deal with a new, fast-growing and demanding sibling of sorts – China. Unsurprisingly, we don't like this recent international addition; just as we don't like our own Gen Xers and Gen Yers coming into their own as we Boomers start heading for the retirement sidelines. The clock keeps ticking...

   Throughout our lives we Boomers have enjoyed the historically unique advantage of growing up and living in a nation that's been always recognized as a world superpower, and since the latter 1980's as the world superpower. We almost take it as a birthright that the US is always to be numero uno – fairest of all – since that's the way it's been for quite a while.

   I think a fair amount of our anguish-anxiety-worry-fear about China's entrance into the "fairest" sweepstakes is simply that we've not experienced such competition for so long. From the US's parochial perspective, this rivalry is unnatural – why can't it just be the way it was before; say when China was inward-focused during its chaotic Cultural Revolution and the Berlin Wall had fallen? Because the world, China and we have changed significantly since the late 1970's. And on balance, this change has been for the better.

   The sooner we citizens of the US realize our historically unique era as sole superpower is changing – as is inevitable – the sooner we can be successful in competing with the new kids on the block – like China – in a meaningful and successful way that can further improve our lives. Defensively wishing for the past will not realize this success; building on our strengths will. These significant strengths include our long record of successful technological innovation, investing wisely in strengthening our physical and human capital, and harnessing our diverse talents, perspectives and effort towards achievement of the seemingly impossible.

   By employing and fortifying our strengths as we have time and time again, we will still be satisfied with the mirror's answer when we ask it in the future, who's the fairest of all?

It's All About Distribution – The Big D

Money is flat and meant to be piled up. ~ Scottish proverb

When money speaks the truth is silent. ~ Proverb

Money talks...but all mine ever says is good-bye. ~ Anon.

The fallout from the Nov. election is finally dying down, sort of – Keith Olbermann is back on the silver screen apparently without any bruises, which cannot be said about his employer MSNBC, President Obama is on a long-ish tour (escape?) to Asia, and we're breathlessly awaiting the beginning of the lame-duck session of our beloved Congress. How much more exciting can it get? We're fast returning back to a political reality distinctively defined by Washington's strange, discordant view of how stuff happens inside the beltway. Unfortunately, Washington continues to be its own fairly self-contained world.

In my mind the election results once again showed  the importance of a single, key characteristic – voter age. Sure, geographic location is important – witness the interesting distinction in results on the east and (especially) west coasts as compared with almost everywhere else – but unsurprisingly older voters again voted distinctively differently from younger voters. The most important distinction is that older voters actually voted this November, as they consistently do, whereas younger people (especially 18-24 year olds) don't vote nearly as often or consistently – much to the chagrin of more liberal, Democratic candidates. Unlike the 2008 presidential election, where a multitude of young people first voted (that the media dutifully then reported as an "important new trend"), this November was shown to return to the norm. This time, because the still-charismatic Obama wasn't on any ballot, "the kids" mostly stayed away from the voting booths as they mostly do; so much for the important new trend.

Speaking of Washington, I believe the newly-empowered Republicans will defy the President's stated hope that they seek some accommodations with Senate Democrats to "get stuff done." I hope the President will take a harder (and perhaps uncharacteristically aggressive), more focused position about talking with House and Senate Republicans. I for one don't want you Mr. President to be as cerebral, calm and detached as you've been to date. I want you to stand up for your and your administration's many substantive accomplishments so far. [For an interesting and a bit too-late-for-the-election listing of such accomplishments, see a website produced not by the administration (as it should have been) but by three individuals that had a few hours to kill.] And, please Mr. President don't give away the administration store before you get something worthwhile in return from the likes of soon-to-be House Speaker John Boehner.

Now that I've officially entered the Medicare generation, and become aware how uninformed I am about the vast majority of "central topics" of interest to folks under 30 years old (should I really feel that bad that I'm not part of Team Coco?), I can increasingly feel the diffidence cast by media/advertising forces on my age bracket. [I've never really understood why the media weighs youth so heavily when older folks (including youths' parents like me) actually control the majority of economic resources – so it goes.] For Baby Boomers like moi it's a new and disturbing sensation. And as I've mentioned before, we Boomers will be accounting for a disproportionate share of longer-term deficit spending because of entitlement receipts – principally Medicare, Medicaid and, of course, Social Security.

Here's what I see as facts regarding the first piece of the Big D, Demographics...

Demographics.  As I mentioned in a previous Grey Paper, Generations of Progress, there are three (3) demographic groupings that soon will be struggling with one another about how to allocate stretched fiscal resources in the US. [If the elected tea partiers really can reduce the size of federal and state government expenditures – not at all a sure thing once they take their relatively small number seats of power – then this struggle will be that much more raucous.] Unsurprisingly, this struggle will focus on the fairly generous entitlements that are now starting to be provided to us Boomers, and that will be mostly paid by Gen X and Gen Y.

·  Baby Boomers - folks born in 1946-1964 inclusively; in 2010, aged 46-64, ~78M people, account for 29% of the US population; remain the majority of the work force; and since Boomers came on the scene, remain the largest age-related demographic the nation has ever seen. Although technically I missed Boomerdom by about 5 weeks, I've always considered myself a (leading edge) Boomer. Needless-to-say, we're very used to wielding influence and power and getting attention.

·  Generation X - (aka, Gen X, the Baby Bust Generation and the 13^th Generation (the 13^th generation since the US was created)) – folks born right after Boomers, 1965-1981 inclusively; in 2010, aged 29-45, ~46M people.

· Millennials - (aka, Gen Y and Echo Boomers) – folks born in 1982-2001 inclusively; in 2010, aged 9-28, ~60M people. Gen Y is composed mostly of kids of Boomers.

I hope for the nation's sake we Boomers take a broader, less self-serving view than we have before of what's realistic and needed for our collective national health (fiscal and otherwise). If we want progress, all of us – the Boomers, Gen X and Millennial generations – will need to provide some fiscal sacrifice. If we Boomers obstinately refuse to budge, everyone including us will suffer.

Income.  The distribution of income across the US population is not often a front-page topic of discussion, but it does occupy some thought space when macroeconomic trends are judged to be out of balance – as they've been for a while in the US. Income distribution is especially relevant when government expenditures and tax policy become more prominent issues in the next sessions of Congress with the soon-to-be expiring Bush income tax cuts and needed increase in the federal debt limit. Here are some of the relevant facts related to the current US income distribution.

· The richest 1% of income-earners (folks now earning over $368k/yr) receive 21% to 24% of total US income, depending on who you talk with. This proportion has steadily increased for some time; in 1976 the richest 1% received about 9% of total income. Timothy Noah has written an extensive assessment of changes in income distribution that he and Paul Krugman call the Great Divergence. He states this very select group's income share has more than doubled since the 1980's.

·  The share of national income going to the top 0.1% (the richest of the rich, who make over $1 million/yr) has increased nearly fourfold according to Noah and account for almost 8% of total income. Never in the past have the super-rich had such a large share of national income.

·  Most interestingly from my perspective, from 1980 through 2005, more than 80% of the total gains in US national income went to the richest 1% of earners. And who said the Republican-sponsored tax cuts haven't re-distributed income big time?

As an example of how different income groups have been affected by these changes in income distribution, the ratio of a typical CEO's income to an average worker's income has increased more than an order of magnitude – from a "mere" 42 times as large in 1980 to a beyond astounding 531 times as large as a worker's in 2001. The above facts lay bare the complete hypocrisy behind the alleged popular support for the Republicans' single-minded demand to extend after Dec 31^st the Bush tax cuts for the top 2% of earners. In my mind this demand wins a Gordon Gekko Gold Star award for excessive greed to the already-richest people. While crowds of tea-partiers (including  seemingly thick folks like Joe the Plumber) claim to want much smaller, less oppressive government, they apparently (once again) want "their" politicians to vote against the own economic self-interests and not venture to redistribute income (to them). I guess it's a good thing tea-partiers don't seem to understand economic irony of any sort.

Wealth.  Discussions about wealth distribution in the US (or almost any other nation) are less common than income. In part this is because most people are understandably confused about the difference economists make between income and wealth. Income and wealth are not interchangeable. Income is a "flow variable," it's measured over a particular period of time, say a year; thus Jane Doe's annual income of $81,000 in 2009 is a flow variable. On the other hand, wealth is a "stock variable" in that is measured at a specific moment in time, and represents the accumulated value of existing assets at that particular point in time (say, December 31, 2009), that have accumulated during the past. Jane's wealth of $171,000 is the accumulated value of what she owned on that Dec 31^st. Unlike income, wealth measures are more challenging to come by – taxpayers have to state what their annual income is on their 1040 form, but there is no uniform reporting of their wealth. Also, wealth can be measured as a person's net worth (their assets' value minus their liabilities (what they owe)), e.g., the market value of Jane's home minus the value of her mortgage). Nevertheless, here are a few facts regarding the distribution of wealth in America.

·  Given the disparity in income distribution shown above, it's no surprise that the distribution of wealth is even more top-heavy than income. According to Mr. Noah, the richest 1% of Americans account for 35% of the nation's net worth; if you subtract housing from net worth (which is the most-often owned large-value asset in the US), then the richest 1% share of wealth rises to 43%. In 1913, this number was 18%.

·  The richest 20% of Americans account for an astonishing 85% of our nation's net worth; if you subtract housing, this net worth share rises to 93%. Unlike the income distribution, the distribution of wealth has been relatively stable and hasn't changed much in several decades.

Why aren't the majority of (unwealthy) Americans more vociferous about this significant wealth (and income) disparity? Perhaps because most Americans remain (or choose to be) ignorant about the Big D. Surveys that asked respondents to estimate what how much wealth the top 20% of Americans owned guessed about 60% (the answer is 85%, from above). Does that mean Americans are more or less OK with a small number of folks owning virtually all of the nation's wealth? Who knows, but I expect the Big D should become a far more prominent facet of political discourse over the next year or so. Why?

Because as the lame-duck and subsequent Congressional sessions are forced to considers changing entitlement, tax, government expenditure policies to reduce the deficit (a stated major goal of Republicans), the Big D will need to be understood - assuming factual reality has a place in political dialog and policy. Every policy change will, as always, have consequences and likely affect different generations, groups of income-earners and wealth-holders quite distinctly. Knowing the facts about the Big D hopefully will allow more informed policy to be created.

The Nov 10^th announcement by the two chairmen of the Debt Commission is witness to the underlying importance of the Big D, and of the fact that after unemployment subsides some, it's unlikely local, state and Federal government in the US can continue to spend that so exceeds our revenues. The Chairmen's very draft proposal includes spending cuts, tax increases and changes/cuts in Social Security. In the abstract, most of their ideas make sense; but the politics of eventually enacting such changes will involve much effort and require perspective about the Big D. Even though this proposal is "a starting point" (duh), the stridency of instantaneous comments by politicians and interest groups is regrettable, but not surprising. Now as a beneficiary of Medicare and eventually Social Security, I could be directly affected. I expect to be. My July 2010 paper, Economic Eyeglasses for Our Fiscal Myopia (see my July post below), recommended a number of changes similar to those identified by the Chairmen.

We citizens and politicians (not just the 12 on the Debt Commission) need to discover the good sense and courage to serve the broad public interest (not just one generation or one income grouping), put our economy more into balance and allow the US to move forward in a positive and influential manner. Should I hold my breath? I hope so.