THE ZERO-SUM AND MICRO - MACRO GAMES

I never lost a game. I just ran out of time.. ~ Bobby Lane

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

No, these aren't new events at the upcoming X Games. They've been played for quite some time in our nation's capitol. Washington continues live in its own self-contained bubble where priorities are all discordantly political and too rarely founded on what once-upon-a-long-time ago were termed the public interest - providing the greatest good for the greatest number of citizens. Instead, policy objectives are fractionalized, not collective, and principally aimed at narrow, special interests rather than a broad, public interest.

This private-interest political regimen is fundamentally different from policy-making for common interest, and is exemplified by the Republican's two focal points: (1) aiding the top 1% or 2% of income-earning citizens; and (2) significantly reducing government expenditures. Adding to the dissonance is the growing notion that "something has to be done" to get the country back on track towards greater economic growth, but it can't cost much, and certainly not me.

I think the metastasis of groups like the tea party is founded on the belief of more and more folks that the economic game is fixed against them, and they're losing. These people believe they're in a zero-sum game, where one person's (or group's) gains in an activity (say their participation in our economy) is balanced by the losses of other participants. In other words, there is not enough slices of the (economic) pie to go around for everyone who wants a piece so if one person/group takes a larger slice, that means there's smaller slices available for all other folks. It didn't use to be this way.

In more benevolent times, more people believed there was a positive-sum game, where everyone can benefit; when all participants end up with more than they started with – a bigger pie. A rising tide (of a sustainably growing economy) raises all boats. This is why President Obama's and Congress' principal policy goal should be to raise US economic growth sustainably and equitably to at least 3.2%.

But for the past 4 years, the US economy hasn't substantively grown; the average annual real GDP growth rate is a wretched 0.75%. In addition, 12.2 million people remain unemployed; the length of unemployment now is, on average, 38.1 weeks, that's almost ¾ of a year. Average productivity has risen over 38% during the past 16 years, but median wages have stagnated and increased only 16% since 1995.

So it's understandable why more people are seeing their future darkly. Aware of this anxiety, some politicians, offering fearful views of the future, proselytize that only by drastically reducing the burdensome government [except for entitlements like Social Security and Medicare-Medicaid], can individuals regain their economic well-being. What's one of the means such politicians are making their points? By playing the micro-macro game.

There is usually a big difference between macroeconomic policies' effects on us as individuals (micro effects) and on us all together as a nation (macro effects). The micro-macro game comes in many versions and is often played by politicians of various persuasions to confuse and distort the effects of proposed policy changes.

A prime example is the macro "fact" illustrated by the abysmally low overall (macro) rating that Congress gets from the public at large; only 9% of polled people now approve of Congress' performance – my real surprise is that it's as high as 9%. But, within the very "micro" voting booth, citizens continue to overwhelmingly re-elect their incumbent Congress-person. In 2010, 85% of incumbent House members were re-elected and 84% of Senators. As many commentators have said, Congress as an institution is held in very low regard, but in this gerrymandered world it's all the "other" Congress-people that's the problem, not my representative. Go figure.

The micro-macro game is constantly played by both parties in the policy arena as well. Consider the discussion that's occurring about the federal budget deficit and debt. The Repubs concentrate only on the macro future and dismiss the nation's current economic situation that has been adversely affecting large numbers of individual middle-class individuals and families. The Repubs' focus on now reducing discretionary federal expenditures to ameliorate our possible future macro debt (to "save the Republic" among other fantastic rationales) would magnify individual middle-class members' already-dire economic straits. Similarly, the Repubs insistence (until yesterday) on holding the US hostage by their threats to not renew the debt ceiling represent no sensible view of future consequences. By contrast, the Dems focus on the micro effects of changes to entitlement programs – like Social Security and Medicare-Medicaid – to reject any consideration of needed macro policy modifications so the programs can survive in the future.

The Dems dismiss the macro future (that shows ever-increasing entitlement expenditures due to aging Boomers and fewer Gen X'ers and Y'ers) when they utterly reject any consideration of incremental changes to these programs. They (mistakenly) state since there are no problems now with Social Security (SS) and these alterations would adversely affect individual senior citizens, no changes should be now made.  

Their over-emphasis of the current micro costs of changes is akin to a 5-year old threatening to hold her breath until she gets what she wants. After she is soon forced to gasp for a breath before passing out, she's in worse shape than before. [Sort of what happened yesterday when the Repubs, realizing they've been idiots about their debt ceiling shenanigans, finally caved – but only for 3 more months.]

A change that could help avoid Social Security (SS) and Medicare collapse is to make these benefits means-tested (eg, dependent on income level). Making such a change represents a fundamental adjustment to such entitlements, and thus goes against Democratic orthodoxy. But if the Dems continue to play the micro-macro game and refuse any changes to entitlements, the rest of us (like the 5 year old) will be much worse off afterwards.

Consider making incremental changes that involve means-testing entitlement benefits, say reducing Social Security benefits by 15% only for individuals making more than $120,000 per year. Such a change can have useful macro effects over time via the magic of fiscal multipliers. My guestimate of possible direct macro savings for Social Security is 3% of total SS benefits paid or $236M/year, not small change. But for these high-income individuals the effects will almost certainly be very modest. The 15% Social Security benefit reduction sounds sizeable , however for people earning more than $120k/yr will not likely be more than $377/month, since the maximum monthly Social Security benefit currently allowed now is capped at $2,513 for the highest-income people [$377 is 15% of $2,513]. This $377 reduction in monthly SS benefits is unlikely to meaningfully affect these high-income recipients of Social Security, because their monthly gross income is more than $10,000.
Will such a change "save" Social Security? Not by itself, but it would represent an important step. Achieving real savings in SS costs will require broader reductions in benefits, increases in the qualifying age, and/or removal of the ceiling on income that is subject to FICA (Social Security) tax. Any of these steps are an anathema for Dems.

Thus, saying that economically well-off high-income people will be hurt by minor benefit cuts – and a reason for not undertaking some form of means-testing SS benefits – is simply mistaken. However, the politics of such a marginal change in entitlement benefits, of course, are anything but incremental. And Dems seem willing to keep using the micro-macro game to waylay needed changes to entitlements, the same way Repubs do it for tax and spending changes.

Finally, politicians on both sides of the isle also use a variant of the Micro-Macro game to dismiss alterations that could benefit our longer-term (macro) structural deficit – or other issues. You hear it when a politician or a self-interested talking head states, "This possible change in policy is too small to solve our problem with [fill in the blank here], so we need to think of some other, more significant solution." My example above to begin means-testing SS benefits – just like the suggestion that SS benefits should be subject to a different COLA – would initially be met with howls of rage from Dems because changing anything to do with entitlements is verboten. But after that, politicians would (and did) say the new COLA, or my proposal, should be dismissed because it doesn't really solve the problem; its effect is too small for this large issue. You have to start somewhere, even if it's a small step.

This logical incongruence – stopping smaller changes because they're not large enough to "count", but not allowing consideration of significant changes – is used to stop any remedy from happening – just what the status quo, looking-only-at-the-present politicians want.

I guess we will continue to keep holding our breath.

EDU DISCONNECT

Education is not the filling of a pail, but the lighting of a fire. ~ William Butler Yates

Social, cultural and educational forces have reinforced the idea that success and a college degree go hand in hand. College is the academic coda to the American Dream, since in many people's minds college graduation can make the Dream inter-generational. In 2010, 5.9 million Americans between 25 and 34 years old have post-secondary degrees. Looking forward, however, I'm not so sure this educational mantra will remain true for every high-school student now considering college.

President Obama, like every politician worth his salt, rightly states that getting a good education (with emphasis on a college education) is a ticket to a brighter future. He's correct in many ways. Currently, US unemployment is a historically-miserable 7.7%. However, for folks with a BA or more, it's half the national number, 3.8%; and for those with less than a high-school degree it's a wretched 12.2%. College graduates earn during their working lifetime, on average, nearly $1 million more than people who don't go to college.

However, the popular perception that a BA creates an ever-increasing monetary bonus is no longer true. Over the past decade, the wage premium from receiving a BA has been a steady 60% more than people without a BA. Impressive and meaningful, but this premium has not grown as it has in the past; it's been constant. The BA wage premium has been maintained in no small part because the wages offered to people with only a high-school degree or less have actually decreased.

It's hard to expect that this premium would now increase as more and more young people receive college degrees. Between 1992 and 2008, the number of BAs awarded increased by 50% to more than 1.6 million. However, the wage premium provided to people with advanced degrees (masters, professional and PhD's) has progressively increased. Because of the increasing supply of graduates with BAs, those with advanced degrees are as distinguishing now as BAs were in the 1970's and 1980's. Nevertheless, our increasingly well-educated citizenry has broadly benefited our nation and its citizens, not only with income growth, but in many other equally-positive, important ways.

But for all too many recent 2- or 4-year college graduates, their post-graduate world has collided with the reality of the nation's extended economic doldrums. Just ask any graduate who's waiting on restaurant tables and/or living with his/her parents to save money to pay off student loans. About two-thirds of BA recipients take out loans to finance their education. Student loans now total more than $1 trillion (more than credit card debt), and one in 6 student borrowers are in default.

During our continuing labor market weakness employers can afford to be much pickier about what they require of applicants, who they hire and how much they offer as starting wages. A recent article illustrates this "up-credentialing" trend, where more employers now require a job applicant to have a college degree that didn't in the past. For example, 65% of ads for claims adjusters now state that a BA is required, only 48% did in 2007. The dream of achieving success through a BA is starting to seem chimerical for more graduates.

Underemployment of college graduates – in jobs that require a BA, but do not need college-level knowledge or skills – has spread widely. This expanded "trickle-down" of a prerequisite BA makes it even more difficult for job entrants without a college degree to now find meaningful work. I believe this is part of an educational disconnect perpetrated by the educational industry.

Yet not just college students and graduates are dealing with changed financial circumstances. The fiscal challenges facing colleges and universities themselves are manifest. Colleges have heavily borrowed over the past decade, following the edifice complex, to upgrade their facilities. College debt levels have doubled – now at $205 billion – in the decade ending 2011; but their pledged gifts and investments received have dropped by more than 40%. Here are a few telling statistics that show how colleges have allocated their thinning financial resources: long-term debt at US nonprofit colleges grew 12% per year from 2002 to 2008; interest costs (on their debt) increased 9% per year. Instructional costs increased only 5%. 

Despite underemployment of perhaps 50% of college graduates, an increasing number of media articles mention the "skills gap" that employers bemoan makes it impossible to hire as many skilled workers as they have need. Although there are undoubtedly firms that can't find workers with needed skills, skills that often require STEM knowhow (Science, Technology, Engineering and/or Mathematics), other firms lamenting a lack of employable workers continue to offer these skilled jobs at rock-bottom wages – starting salaries around $10/hr. If there's truly a "skills gap" in our labor market, then common sense (and extensive historical data) argues it can be lessened by raising wages/salaries to attract more qualified applicants. Why would a high-school or junior-college student with nascent STEM skills apply for such jobs that pay $10 to $15/hr when a McDonalds shift manager can make about $14/hr, and does not need any STEM knowledge? Good question.

A more fundamental question is: are high-schools and colleges producing graduates with skills needed in today's economy? When it comes to non-college-attending high-school graduates and manufacturers the answer seems to be, not really. Far too few people graduate from high school knowing the basic technical, math and science skills that more and more firms (including modern, heavily computer- controlled manufacturers) need.

Not enough newly-minted graduates have gained the skills to lay claim to the expanding job opportunities in modern manufacturing, modern science, modern engineering and modern quantitative analysis jobs. Why are job opportunities increasing for skilled, quantitatively-trained people? In part, because the average age of high-skilled factory workers is now more than 55 years old. And because quantitative methods have become necessary and expected in more and more jobs as on-line systems collect and assemble ever-more Big Data that needs to be properly analyzed and assessed.

For several reasons, today's labor market – that supplies workers to employers who hopefully demand them as employees – seems increasingly dysfunctional. This is not really a skills gap in the labor market; it's a really supply shortage of skilled workers coming into the labor market from schools, a lack of interest by students to learn such skills and a reluctance of some employers to increase wage offerings for higher-skilled workers.

First, various employers seem unwilling to understand that if they want workers with relevant skills they have to pay more than $10/hr to attract them. Second, students and potential workers must understand that in order to gain jobs in today's economy they will increasingly need skills beyond general studies and liberal arts. Although education in the liberal arts remains a necessary foundation for understanding modern society, quantitative, STEM-based skills are fast becoming necessary for a far broader array of jobs.

Finally, educational institutions that now seem disconnected from job market needs must up-date and revise their curricula to reflect these evolving needs in the labor market. This is especially true for high-schools whose non-college-attending graduates find themselves with no readably employable skills.

Basic economics explains a fair amount of this new state of affairs in the education labor market. This disconnect may result from being stuck in "the good old days" when having a college degree was truly exceptional, no matter what you majored in. It still is, but much, much less so. Now, your choice of college major makes an ever-larger difference in finding a worthwhile job.

I grew up in the 1950's and 1960's in a household where both my mother and father were college graduates. I didn't realize how unusual that circumstance was until recently. It seems in the 1960's only 3% of US households had both parents being college-educated. In fact, when my mother and father completed college in the heart of the Great Depression, less than 1% of females received a BA and less than 4% of all young people had college degrees. They were truly exceptional. In those times, as well as into the late 1960's when I graduated from college, having a BA remained very distinctive. In 1970, 11% of people over 25 years had college degrees. In 2012, for the first time 30% of young adults report having a college degree. In April, the Bureau of Labor Statistics reported that 68.3% of high-school graduates were enrolled in colleges or universities.

The difference between 11% and 30% may not seem that large, but over the past 20 years the promotion of college as one's ticket to (especially financial) success has been persistent and widely adopted. With more and more young people graduating from college having a BA remains distinguishing, but much less so than in the past – especially when combined with the effects of a slow-growth, high-unemployment macroeconomy. Yet understandably demand for post-high school education remains very strong and quite price inelastic, especially at so-called "selective schools." In my view, this continued growth in demand for tertiary education has lessened the incentives for colleges to modernize their curricula.

During the past decades, as the supply of young people in colleges and receiving degrees has significantly increased, the economic "law of diminishing returns" has become relevant. The return from receiving a BA probably has diminished compared to a decade or two ago; prompting articles with titles such as "Is college a rotten investment?" [This article's unsurprising answer: no, it's not a rotten investment. But some schools offer much lower returns – specifically on-line and for-profit – than others.] In other words, college-graduates' expectations about striking it rich just because they've got a BA needs some revision. The college return increasingly depends on exactly what skills/courses graduates gain, not the BA diploma itself.

What's happened with US education, relative to the rest of the educational universe? Perhaps most significant, over the past several decades US education has fallen from its top-tier perch of educational performance relative to other nations. After WWII, the US led the world in broadening and improving its citizens' educational attainment. This broadening was founded on passage of the 1944 G.I. Bill that sent ex-soldiers to college and on the Sputnik-inspired 1958 National Defense Education Act, which increased Federal spending on schools at all levels and created subsidized student loans for post-high-school education. Later legislation, like the 1997 Taxpayer Relief Act, further broadened tax breaks and subsidies for college education. Gradually other nations saw the wisdom of such policies and eventually either caught up or surpassed us. US education now badly needs to catch up.

By 2010, 21 OECD nations (out of the 37 member countries) have high-school graduation rates higher than the US, including the Czech republic. In 2010 the US ranked 9^th in university-level education entry rates among OECD nations. In 2011 US high-school students fell behind 31 countries in math proficiency and behind 16 countries in reading proficiency. The US ranks a grim 43^rd in the world, right behind Morocco, when comparing public education expenditures as a percent of GDP. This mediocre performance of our students bodes ill for our continued ability to compete against ever-stronger international rivals.

The US needs to counter this slipping performance if we want to benefit to our citizens and grow our economy. Here are 4 actions I suggest the US education system needs adopt to improve and become less disconnected.

1.       High schools and employers must start talking together and re-emphasize vocational education as a viable option for 18-19 year old people interesting in employment directly after graduating. Such communication, together with specific programs, has begun closing the gap between education and employment, has shown promise. I'm not talking about dusting off the shop benches and auto repair facilities that were shuttered long ago when vocational ed was swept under the educational rug and pre-college academics was put on its pedestal. We seem willing to forget that even now at least one-third of high-school graduates don't enter college and their job prospects have never been less likely or less rewarding. Many of these graduates may do better through vocational-technical-apprentice programs in high-school and 2-yr colleges. These programs have worked in the past and can again, especially when affiliated with employers who need skilled workers. These programs need to become far more practiced and widespread. The costs of providing vocational ed are declining through the use of technology that effectively inter-connects students and teachers.

2.       High-schools should mandate that all graduates must master two basic skills; writing cogent, well-constructed expositional prose with word-processing software, and knowing what I call "practical mathematics." Practical math refers to knowing how to use algebra, knowing how to graphically represent algebraic formulas, knowing how to use computer spreadsheets and understanding introductory statistics. Every graduating high-school senior needs these skills in order to be employable.

3.       Junior/Community colleges must augment these writing and math skills so graduates with associate degrees entering the workforce can be understood and can easily deal with numbers and data that surround virtually every new non-minimum wage job.

4.       Colleges and universities have been stultified into thinking no substantive changes in their curricula or programs are needed due to the ever-increasing tide of applicants. After all, students keep knocking at their front doors, almost begging to be admitted, why do anything different. Such colleges proudly display single-digit acceptance rates with tuitions and fees dutifully raised. That thinking is misguided and unsustainable for 2 reasons. (A) Although 68.3% of high-school graduates are now enrolled in colleges, only 56% of college students complete 4-year degrees within 6 years, and only 29% of those who start 2-year degrees finish them within 3 years according to a Harvard study. US college dropout rates remain distressingly high.[1] (B) US failure to graduate rates are highest among any of the 18 nations tracked by the OECD. In other words, too many US colleges aren't terribly good at what the purport to do – produce graduates. Has such mediocre performance caused a re-assessment in college presidents' compensation? Apparently not. A NYTimes article states that the number of presidents earning in excess of $500,000/yr more than tripled to 157 over the past 8 years.

What can be done at the college level? First, start by being honest with applicants and explicitly saying that gaining a BA is not a ticket for guaranteed financial and personal success. It requires significant work. It's education, not a job card. Getting a BA will involve studying hard and making strategic choices. A BA may be necessary for all too many jobs (at least half of which really don't require college-level thinking), but it's not sufficient.

The motivation for going to college needs to include interest in gaining a range of knowledge per se, not simply (or only) mastering the rec center's climbing wall and getting hired by the likes of Google, Apple or Genentech. I know, going to college to gain and expand one's knowledge may be so yesterday. But for decades college administrators have sold their service as if it were a credential for success. Middle-class families, employers and most importantly federal  and state governments have swallowed this hook, line and sinker. In this educational variant of the American Dream, governments have continuously expanded subsidized loan programs so more students can afford college, which in turn has lessened the need for colleges to moderate their ever-escalating tuition and fees. Virtually everyone by now knows that the cost of a college education has followed a ballistic trajectory over time: rising 4 times as fast as all other goods and services since 1995.

Federal and state governments should leverage their large power of the purse to force colleges to adopt 3 needed, transformative changes. Colleges can receive continued financial and research support from the government only after they accomplished the following. (A) Higher education must create publicly-available standards of academic quality. These standards, which do not exist now, would be applied to colleges' degree programs allowing prospective students and others to assess a particular college, relative to the standards' norms. (B) Numerous colleges need to enter the 21^st century by vacating the 19^th through modernizing both administrative and educational fiefdoms. Too many colleges have as many administrators as instructors. The current management, operational and administrative structure of colleges (as well as K-12 schools) hasn't really changed in ages and all too often contains bureaucratic inefficiencies. By their nature, such bureaucracies will be reluctant to adjust. The carrot and stick of government funding may make them see the "value" of modernizing and improving.

 It goes without saying that Harvard is an exceptional university and practically without peer academically. Like many colleges, Harvard has heavily invested to maintain its exalted position; debt has increased $7.4 billion in the last decade (the largest increase in the nation). It graduates 97% of its undergraduate students within 6 years. And yet, this university seems a decent example of a bureaucratic mausoleum. Harvard comprises 11 separate academic units and 10 faculties—that teach 6,700 undergrads and 3,900 grad students. It offers 46 undergraduate majors, 134 graduate degrees and 32 professional degrees. In other words, even exceptional colleges will likely benefit from modernizing their operations and realizing efficiencies that private industry has practiced for generations.

(C) Colleges must adopt and use modern educational technologies that support MOOCs (massively open online courses) and other innovations that can reduce cost and improve efficiency, flexibility and accessibility. I expect MOOCs and their associated infrastructure will exert a disruptively positive, broadening and re-connecting force on tertiary education.

With these changes more young people will receive more value from their high-school and  post-high-school educational experiences. Education will become more connected and more effective, for everyone's benefit.

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[1] The dropout (or failure to graduate) rate for private for-profit colleges is an astonishing 78%; for private nonprofit colleges it's 35%, for public nonprofit schools it's 45%.

BEYOND THE CLIFF, A QUARTET FOR GROWTH

"The growth and development of people is the highest calling of leadership." ~ Harvey S. Firestone

With considerable justification the Democrats have been gleefully pleased with last Tuesday's election events and been pointedly stating that Republicans have no hope of future electoral success.[1] President Obama has been re-elected and the Dems have managed to retain control of the Senate. And for what it's worth, the Dems filled 2 more seats in the House. This is both a relief and good for the USofA.

Nevertheless, it's entirely understandable why the President hasn't been shouting "gotcha" from the Oval Office. As he properly mentioned in his victory address, there's still a lot of work to do. Most immediately, this political work involves spurring the country's economic growth in a more balanced and sustainable manner.

The President and Republicans will need to first resolve the December 31^st "fiscal cliff." I hope Mr Obama will not now begin actual negotiations with John Boehner about the Cliff. The Cliff's curtailments are large, over $650 billion. Unsurprisingly, the Congressional Budget Office has stated the obvious, that if such spending reductions and tax increases are allowed to remain in place for a while, they could drag the economy back into another recession. So there are strong incentives for a political agreement to be forthcoming promptly.

But the President should not negotiate the Cliff; he should use the Cliff to negotiate a broader agreement to foster sustainable and balanced growth. Negotiating in mid-November would diminish the President's leverage, which will only grow as the clock keeps on ticking towards New Years. Instead, he should continue to make clear public statements emphasizing his flexibility and absolutely adhere to increasing taxes on the rich and wealthy. The House Republicans, despite their flimsy denials, are in a self-constructed cage with nefarious help from folks like Grover Norquist. They should not quickly escape the consequences of being caged in by unsuitable policy and dogmatism that lost them the election. And the President should take full advantage of this.

I recommend that President Obama forcefully support a quartet of economic actions that will produce needed economic growth, reduce of our structural deficit and detour the Cliff. These actions are presented below in my November 8^th letter to the President. Will the Democrats and Republicans have to make some compromises for this agreement to be successful? Yes, as my letter illustrates. The rich/wealthy must pay more tax, education must be improved and entitlements must be more means-based.

 If Republicans remain intransigent (not an unlikely possibility), Mr Obama should be fully prepared to jump off the cliff, let the Bush tax cuts expire and have the sequestered budget reductions proceed. No worries, he's got an election victory and broad public support to act as his parachute. In other words, please Mr President don't blink before the clock strikes 12 on New Year's Eve unless you have received an acceptable and binding agreement from Mr Boehner and Mr McConnell to resolve the nation's broader economic challenges. This Cliff is made for you Mr President and it can be the opportunity that fosters our nation's longer-term economic progress. Here's my letter.

November 8, 2012

President Barack Obama

1600 Pennsylvania Ave., NW

Washington, D.C.  20500

Dear President Obama:

First, congratulations on your impressive re-election win yesterday. Now you are facing the challenge of moving our macroeconomy forward to promote both greater growth and greater equity. This letter offers several ideas about how you (and Congress) can accomplish this.

Like others, I believe your campaign's economic goals are correct; the US needs to increase our economy's growth in a sustainable, equitable fashion that benefits all citizens, not just the richest and wealthiest. I believe sustainable and equitable are necessary descriptors for any macroeconomic policy objectives you may be considering.

I hope you give serious thought to the following quartet of macroeconomic policy actions that I propose for legislation that Congress should pass and be executed by you by Feb. 28^th, 2013. I believe these actions will get the US moving in the right direction and involve everybody (including you and me) making changes and sacrifices needed to create this essential macroeconomic re-balancing.

These actions will promote broad gains from higher, fairer GDP growth. As you know, returning to substantive and balanced economic growth will resolve many issues we are now facing as a nation. Increased growth is the most effective antidote for elevated unemployment, middle-class income stagnation and lack of consumer and business confidence.

This quartet of actions focuses on achieving two important, inter-related goals: (1) improving the economic well-being for the majority of citizens (not just the top 1%); and (2) encouraging the GDP to grow more sustainably, at least 3.2% per year. Here are my 4 fiscal policy actions.

1.  Improve economic fairness.  (A) Individuals with annual gross incomes exceeding $250,000 will be subject to a minimum Federal tax rate of 35% on all income, regardless of source - the current effective tax rate for many wealthy people who earn most of their income from investment returns (rather than wages) is in the range of 14-20%. (B) The social security (FICA-payroll) tax will apply to all earned income, and not be limited (as it is now) to the first $110,100 earned, with no FICA tax applied thereafter. This needed change will accomplish two important objectives, provide more funding for Social Security (see #2 below) and require those most able (richer tax-payers) to pay more for this keystone program. (C) Payroll taxes for employees and independent contractors with incomes less than $70,000/yr (roughly the US median family income) will be cut by 3% for up to 2 years or when the unemployment rate is 7% or below. (D) Salaries and expenses of Congress members and the President will be immediately reduced by 8.1% (see below). Starting Jan 1, 2014, these leaders' salaries will be adjusted yearly by the annual change in median US household income. What's happened to the incomes of Joe and Jane America will equitably happen to our leaders as well. This adjustment will provide a modest fiscal incentive for public leaders like you to create policies that actually increase median income, something that hasn't happened in too long a time.  [US real median household income in 2011 was 8.1% less than real median income in 2007.] 

2.  Remember Sandy: enhance environmental quality, now.  Beginning October 1, 2013, the Federal government will institute a national carbon consumption tax. This charge will apply to all fossil-fuel usage that produces air and/or water pollution that is subject to EPA air- and water-quality standards. My proposed tax on fossil fuel usage would be in proportion to the fuel's carbon content and no lower than $100/ton of CO2 produced. The carbon charge will be annually adjusted using the CPI energy cost index. This tax's potentially regressive impact on lower-income people will be reduced by providing an income tax credit (from funds received from the carbon tax) to families whose annual income is 200% or less of the poverty line. [In 2012, the annual income for a family of 4 people earning 200% of the Federal poverty line is $46,100.] Twenty-eight percent (28%) of revenues from the tax will be spent on research and development for non-fossil technologies (e.g., solar, wind, geothermal).  [This charge will provide significant economic incentives for fossil-fuel users to switch to greener technologies.] 

3.  Reduce entitlement program costs fairly.  Medicare and Social Security benefits will be reduced by 4% for all people earning more than $250,000/year, by 2% for people earning less than $250,000 but more than $70,000, and no reduction for people earning less than $70,000. In addition, minimum qualifying retirement age for Social Security will be increased by two (2) years starting Oct 2013.  [Federal, state and local governments' expenditures on pensions and health care represent 13.6% - $1.96 trillion – of all govt expenditures, the single largest (and fastest growing) type of govt spending. These expenditures are a principal cause of the nation's structural deficit. They need to be trimmed to promote long-term fiscal health and growth.] 

4.  Implement fiscal policy actions to promote durable economic growth.  (A) The Dept of Education will coordinate $50.4 billion of increased spending to invest in teaching and improve the effectiveness of public K-12 schools and public two- and four-year colleges-universities in qualifying states. To qualify, states must first commit to increase their public education funding by at least 5% based on their 2010 public education expenditures. The cost of these government education expenditures will be partially balanced by imposing a 0.03% (a rate of $3 per $10,000) financial transactions tax effective Feb 1, 2013.  As Nelson Mandela correctly observed, "Education is the most powerful weapon which you can use to change the world.”  [This quite tiny tax has been termed by some the "Robin Hood" tax. It could raise $35B in tax revenues per year. Improved public education will magnify our citizens' economic prospects.]

(B) The Dept of Commerce will administer $40.2 billion of spending to upgrade US internet infrastructure (II). This will include requiring telecommunications and internet providers to install 4G Wi-Fi and broadband fiber-optic cable directly to consumer's residences during the next 30 months. These expenditures will partially fund this needed electronic infrastructure investment by private providers. Internet providers will receive a 5% investment tax credit (ITC – a type of subsidy for business investment) on this new investment to encourage telecommunications/internet providers to implement these needed improvements. This funding will be allocated based on the 2010 population of each state and its population density; the more populous and dense the state, the more funds will be proportionately allocated. With these subsidies, individual customers' internet service charges will not increase more than the annual change in the CPI over the next 3 years. The cost of these government II expenditures will also be partially financed by increasing the Federal Universal Service Charge (telephone) tax and the FCC User Fee by 5%.  [US "data highways" are in woeful shape; our internet speeds rank 26th in the world, just behind Hungary. Overall, US speeds are only one-quarter as fast as the top-ranked nation, South Korea. We must do better if we want domestic commerce to grow substantially during the coming decade.]

Thank you.

                                                                                                  Sincerely yours,

                                                                        Bruce A. Smith

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[1] The Dems can be forgiven for their glee, but will do well to remember that politics is always kaleidoscopic and changing; just like life in general, nothing is permanent.

COLORS OF PEOPLE

Always do right. This will gratify some people and astonish the rest. ~ Mark Twain

So the prophetic is happening, the two major candidates for President are running neck-and-neck; a rather disquieting image. Frankly, I'll be overjoyed when Wednesday, Nov 7^th finally arrives so we and others can get back to actually doing things to improve our economy and our natural environment, rather than having candidates obliquely talking about how to achieve other, fabricated goals. I'll also greatly appreciate being free of useless phone-bank solicitations to vote for proposition Q or state senator Jones and stop killing any more trees for candidates' lawn signs and bulk mail election-day appeals.

Because of the presidential race's closeness in key states, we have been hearing-seeing-reading "experts" state it will be decided by these swing states' voters of any number of specific colors and types. These people types include blue-collar white men, black folks, non-Cuban Hispanics, women with and without B.A.'s, young people, old people and suburban Walmart customers. Did I leave anyone out? Surprisingly, I have yet to hear any mention that the election could be decided by votes of 23 to 41 year-old agnostic soybean farmers in the upper mid-west. You get the idea; the talking heads have gone way, way beyond well-known (but now boring) generational labels like Boomers, Gen X and Gen Y.

Despite frenetic media dispatches that hype voter super-segmentation, the election will be decided (as always) by voters of every color, type, age and persuasion. The more, the merrier.

These efforts to subdivide citizens got me thinking how to more interestingly categorize our impressively diverse population. Forget red republicans and blue democrats, especially in these last all-too- politically-focused days. So I've come up with a couple of ideas, beyond soybeans, for classifying people based on my on-going observations of the public at large in my very narrow slice of America.

v  Visor types.  Haven't you noticed? There are 5 types of visor people.

Ø  Visor-less folks – those who don't wear hats, a seemingly ever-smaller minority, given trends over the recent past.

Ø   Curved-visor folks – those who wear baseball caps whose visors are curved. Think of these people as "traditionalists" in the baseball cap wearer scheme of things; CVFs are more likely over 31, some of whom have spent a fair amount of time carefully curving their cap's visor just so to hyperbolic perfection. Quite impressive, yes?

Ø  Straight-visor folks – those who wear baseball caps whose visors are completely straight across, and often adorned with various mostly round stickers. The vast majority of the SVFs are much younger than CVFs, mostly school- and college-age under 25. Perhaps a chronologic dividing line?

Ø  Twisters – a subset of CVFs and SVFs who rotate their caps so the visor is not directly aligned with their face. There are roughly 175 ways to characterize these people – starting with those who subtlety "displace" their cap only 5 degrees away from "normal" alignment, to those who wear their visor directly behind their head, covering their neck (aka, 180ers). My observations indicate the correlation between twisters and CVFs is less than that of twisters and SVFs.

Ø  Fedora folks and porkpiers – so far a minority of hatters, but growing; those who wear either a renewed-classic fedora or a renewed-classic porkpie hat. Yes, they're once again back in style, just like they were more than 60 years ago. One of my regrets as we closed my parents' home was not having kept at least one of my father's fine fedora hats that he faithfully wore to work when (and after) they were in great mid-century style.

v  Wristwatching.  From noticing peoples' wrists, there are 3 types of wrist people.[1]

Ø  Wristwatchers – people who wear wristwatches. This used to include virtually everyone who wanted to keep personal track of the time. Wristwatches became very popular in the 1920's when the multi-century era of pocket watches ran out of time. Digital wristwatches were introduced in the 1970's. Most wristwatchers, being right-handed, wear their watches on their left wrist. Why are there no right-wrist-compatible watches for left-handed folks? So it goes.

Ø  Timeless wristers – with the advent of first-generation mobile-cell phones in the 1980s, it became possible for people to know the time using their cell phone rather than wearing a wristwatch. As cell phone saturation rapidly grew after 2000 (by 2010 there were over 6 billion cell phone subscribers on Earth, led by China Mobile with 500 million customers), more and more wrists were (once more) timeless. Again, demographics play a noticeable role in this characterization. Younger, cell-phone carrying people have far more timeless wrists, to the significant consternation of volume watch manufacturers like Timex and Casio. Timeless wristers instead often become…

Ø  Braceletters – many wrists hold bracelets of hugely different designs, functions and forms. Traditionally, braceletters were mainly female, but with the (once again) growing appearance of male jewelry, more male wrists are being surrounded by bracelets and other non-chronometric adornments.

v  Glass halvers.  You've met these two types of people in a variety of circumstances and places.

Ø  Optimistas – folks who have a natural predilection for believing the glass is at least half-full and will soon get fuller. These people are much more interesting to be around and generally have brightened many a day for me.

Ø  Pessimistas – people who believe the glass is half-empty (at best) for any number of reasons, some semi-obvious, more very obscure. In the extreme, they can have trouble believing the sun will rise again tomorrow no matter what kind of bracelet they are wearing. They're not really fun to socialize with for any extended period of time, and can seem to be mad hatters. If you discern that someone nearby is a pessimista, I'd suggest filling their glass completely full, just on general principle, and hope for a momentary conversion.

One final observation. This week, Sherry reminded all of us once again of an eternal truth: Mother nature bats last. And, in the words of Wendell Barry, “Whether we and our politicians know it or not, Nature is party to all our deals and decisions, and she has more votes, a longer memory, and a sterner sense of justice than we do.” I hope we do right in remembering this on Nov 6^th and 7^th as well as every day thereafter.

Onward to voting (if you haven't already); as a CVF, wristwatched optimista, I'm hoping for the best…

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[1] I initially considered a 4^th category – naked wristers – but at this point in time there seems to be an overwhelmingly strong aversion to nakedness, wrist-wise. At least one wrist is usually "covered"(if only with a rubber band), so I dropped it as a possible category.