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  1. A citizenship questionnaire: To become a naturalized citizen of the U.S. one must pass a quiz. The questions are all known in advance. The government publishes a list of 100 questions. Applicants are quizzed on about 10, randomly picked. They must get at least 7 right, to pass. The majority of the questions on the quiz are procedural ("Who is the commander in chief of the armed forces?" "If the President can no longer serve, who becomes President?" "What are the colors in our flag?") Check this site for examples. They have recently tried to add some more conceptual notions (see this list). In general, I think a citizenship test is a good idea. I think pre-published questions are a good idea. However, the questions ought to test the applicants understanding of the major principles of government, and nothing else. One danger of a test is that the government could reject people who answer in ways they do not like. So, the correct answer ought to be published as well. [Here, "correct" means: answers that reflect what the constitution says, not what it ought to say.] In fact, if the questions are fundamental enough, the answers should come from a pretty straightforward interpretation of the constitution. Here's an idea: a good constitution would include a simple (say 10 - 20 question) test of its principles. The answers would be in there too. And, the answers would be multiple-choice. The wrong answers (in the multiple-choice) would be useful too. The framers of the constitution could use them to better delineate their ideas. Example: Question: Under our constitution, what is the primary purpose of government? Choose one. a. To ensure that laws are by the people and for the people b. To protect individual rights c. To promote the common welfare d. To encourage or enforce rational behavior of its citizens e. To help people live, work and pursue happiness Given the time I spent on designing the answers, I'm sure they could be much improved. That's not my point here: that is something the framers of a constitution would do as part of writing a constitution. The point is that a set of questions with wrong answers coupled with the right ones could help mark out the key principles of government. There ought to be a question that highlights the primary purpose of government. In addition, there ought to be a question that illustrates that democracy is nowhere near individual rights in underlying moral government. Also, something that shows that rights are not limited to anything enumerated in the constitution, but the other way around: it is the government that is limited to enumerated powers. Such a questionnaire ought to be written so that it is an integral part of the constitution, with courts able to treat it as such. If the questionnaire is objective, principled and integrated into the constitution, I think it should also be made a requirement to vote. Why limit it to naturalized citizens? Why not extend it to people born in the country, and make it a requirement for voting? One would need laws to ensure that this cannot become a way of excluding qualified people from voting. However, the principle is this: understanding the most fundamental ideas of the constitution -- understanding, not agreeing -- ought to be a basic requirement for voting. Blog cross-posted with permission. See link at top of post for original.
  2. How much Social Security will you receive?: Ever wondered if you will receive any social security at all? Not the country, not some others in some unknown future, but you yourself? If you're preparing for the worst, good for you; but, what's the most likely way in which this will unfold? How are "benefits" calculated? Social security was always a Ponzi scheme by design, but was made to resemble the structure of an actual pension scheme where people save money and then draw out their savings in retirement. Actually, the money "put aside" is paid out to current retirees, and anything that remains is used for general government expenses. Secondly, what you put in is not proportional to what you are promised. The payments by the Social Security administration (called "benefits") are "progressive". Here's a rough calculation: first, estimate your average annual salary over your lifetime (up to the max. of about $100K, after which payroll taxes are not deducted). You are promised $90 for each $100 of average earning, but only for the first $9000. Then, for the next "slab" you are promised 30% of your average earning. And, for anything over $55K, it is 15%. (Benefits are indexed to CPI. These numbers assume 2010-equivalent dollars.) Sample calculation: Suppose you just retired, having started working in the late 1960s. Your peak earning years were probably around 1990. Let's say you earned an average of about $ 32,000 per year. Adjusting for inflation, that would be about $60,000 per year in 2010 dollars. Look at the blue line in this graph. For an average of $32,000, which becomes $60,000 after inflation adjustment [x-axis], you are promised a benefit of around $25,000 a year [y-axis]. Notice that while the $60,000 person gets $25,000; someone who earned $100,000 gets just $30,000 in benefits. Simpson Bowles (Dec 2010): A bi-partisan congressional group proposed changes in social-security, in order to extend its life. The red line in the diagram above shows their proposed benefits. If passed, the person who averaged $50,000 is promised about $18,000 instead of $21,000 a year. The person who averaged $80,000 is promised $20,000 instead of $26,000 per year. Simpson-Bowles makes the benefit-schedule more progressive, which is why the person with the higher average earnings will "lose" a larger amount. Depending on your level of income, instead of the current promise to pay you 30% - 42% of your average salary, the new promise will be to pay you about 20% - 35%. [Note: These changes are phased in gradually. The promises will be lowered a bit each year.] Other Simpson-Bowles recommendations: Raise retirement age: under current law, it will rise to 67 year. They propose it keeps rising, linked to life-expectancy. They expect the retirement age to be 68 year in 2050. Raise the maximum salary cap that has to pay payroll-tax, from the current $107,000 to the equivalent of about $170,000. This means that people earning above $107,000 in salary will pay a 13% tax when they otherwise would not. Use a "chained-CPI" cost-of-living formula that increases benefits at a rate that is slightly lower than the standard CPI (Consumer price index). Paul Ryan's proposal: GOP Congressman Paul Ryan also proposes to raise payroll taxes (without changing the rate) as a side-effect of making employer-provided health-care benefits a part of income for social-security calculations. He will also lower promised benefits for those 55 and below today, particularly higher-earners. He proposes raising the retirement age. In addition, there is a minimum payout for those at the lowest end, somewhat analogous to the minimum wage. Free-market proposal: Paul Ryan's proposal also contains something that Republicans might see as a free-market component. It allows retirees under 55 to save one third of their social-security taxes in a savings account. This would be something like an IRA, but it would come with a government guarantee that the account will not lose money. The only way the government can make such a guarantee is if it limits the types of investments in such an account. This is definitely not a free-market solution. The government should not be ensuring that people save. Further, the government should not be choosing where we can invest our savings. The danger is that investment vehicles vie for whatever government certification is required. We've seen what a poor job the FDIC has done ensuring the safety of bank deposits. We've also seen how poorly the government-approved credit-rating agencies performed. Given this history, a pseudo free-market system versus a fully and honestly government-run system is a a poor choice of options. Rand Paul's proposal: Representative Rand Paul, who positions himself as a libertarian-leaning GOP politician has a proposal too. He would increase the retirement age and means-test the benefits. What will become law? Currently, no concrete plan has substantial support, but the proposals above give us some idea of how things will transpire. Simpson-Bowles was a bi-partisan commission. Paul Ryan and Rand Paul are seen as more "pro-freemarket" than the average Republican. All three of these proposals have two common themes: Cut benefits in some "progressive"/means-tested way Raise the retirement age Though there is no political will to tackle the issue of social-security today, it is almost certain that these two ideas will dominate any plan that evolves when voters finally want Congress to act. In addition, it is quite likely that payroll taxes will be increased at least for higher-earners, by raising the max. salary to which payroll-taxes apply. Slower cost-of-living increases are also likely. How much will you receive? Go back to the diagram and see what you are promised under the Simpson-Bowles proposal. I suggest that anybody who is 50 or younger should not expect to receive any more than this. If you just started working, and if you will retire in 40 years, I have no guess as to what's in store for social security. The context of the Federal budget: Entitlements are the really serious threat to the U.S. Federal budget. However, within entitlements -- believe it or not -- Social Security is the easy problem to tackle. Mathematically, Medicare -- with its sky-rocketing costs -- is the bigger problem by far. That'll have to wait for another post. Means testing and lowered-benefits are coming: If there is enough pressure from voters, we will probably end up with something like Bowles-Simpson, which will kick the issue many decades into the future. Don't bank on any promise that is more than 20% of your average life-time income: you might get less than the Bowles-Simpson proposals, but its hard to see how you could get better. Blog cross-posted with permission. See link at top of post for original.
  3. Federal Debt projections: Background: This is the fourth post in a series looking at U.S. government debt. In previous posts I considered the official U.S. Federal debt ($10 Tr.), the liabilities for "entitlements" ($6 Tr. over the next 12 years) and other liabilities ($4.5 Tr). The official debt is over 60% of GDP. Adding entitlements, we're at 100% of GDP. Adding it all, we are nearer 150% of GDP. These levels are high, but the bigger issue is that there is no plan to change this trend. Neither major political party has any plans to reduce the debt in the next decade. Under current plans, we will add another $9 Tr. in debt. over the next 12 years. The U.S. is planning to go bankrupt, some time in the future. Crying wolf? But, haven't we heard all this before? In the 1970s, people were already warning about U.S. debt levels, and in the 1980's and 1990s. So, isn't the fear of bankruptcy just "crying wolf"? Historical debt levels: This graph shows the historical Taxes, Spending and Debt to public of the U.S., expressed as a percent of GDP. The green debt line shows that the trend in debt has been getting worse. After a brief respite during the dot.com days, debt-to-GDP has continued its upward trend. This could go on for a while. Japan's experience shows that it can go on for two decades. So, while it is "crying wolf" to say that a collapse is just around the corner, it is accurate to say that we are planning for it: though we cannot say how far out. It is almost common knowledge that Medicare, Medicaid a Social security are unsustainable as currently designed. There are even plans from both parties to make them last a little longer, to postpone the date of reckoning. Yet, neither party dares to make such plans a central focus of the coming election. This tells me that voters still do not want to tackle this problem. Voters still want to evade... at least for one more election, even though they know the problem gets worse every year. GDP Growth: Look at the mid-1970's, where spending started to be a few percent more than taxes. This gap is an annual build-up of debt. Notice how debt rose consistently as the gap remained, until the dot.com bubble. However, also notice how debt (as a % of GDP) fell sharply in the late 1990s. Taxes did rise above spending, but only very briefly: not enough to explain this drop. This sharp drop illustrates how rising nominal GDP can lower the debt as a percentage of GDP. When nominal GDP rises faster than the rise in debt, the level of debt comes down -- as a % of GDP. This effect is best illustrated by the post-WW2 period. Look at the 1950's and 1960s'. Relative to that war and to today, the U.S. ran a nearly-balanced budget. The growth of debt was significantly less than the growth of GDP, causing debt to plummet as a percent of GDP. Current budget: Here are the projections if voters do nothing to change their country. These are numbers from the Congressional Budget Office, not from some street-corner rabble-rouser. Notice how WW-II looks dwarfed. Notice how we will be back to WW-II levels of Debt-to-GDP before 2030. This is not a forecast. It is a description of the current plan. (It is important to point out here that I do not expect soaring consumer prices or a plummeting dollar over the next few years. In many ways, my views for the short-term are just the opposite.) What can change? Mathematically, there are basically three ways to bring down the Debt-to-GDP ratio: Cut spending Raise taxes Grow GDP faster that growing the debt When and how will voters act? I think that anyone planning to live for a few more decades, must formulate some guess of likely scenarios. How will voters react? Will we still have social-security? Will we have rampant inflation? I'll leave that speculation for a future post. Blog cross-posted with permission. See link at top of post for original.
  4. Greece Defaults: Here is a time-line ( from John Maudlin): 2009 Dec: European Central Bank (ECB) president says there is "no possibility" of a Greek default 2010 Jan: European monetary commissioner says there is "no Plan B" for Greece because it will not default 2010 Sep: Greek Finance minister says there will be no restructuring of debt 2012 Mar: Greek defaults on its debt, changing some laws with retroactive effect Consider that it took over two years from when a default seemed a so likely that it was being denied officially, to the time it actually occurred. Sometimes these things can take a while to unravel. Mostly, this was wasted time... but, that's how things play out on the political stage. Defaulting on one's debt is not a good thing. However, there's a good reason for bankruptcy law: if a debtor simply cannot pay his bills, there comes a point where the best solution is to recognize reality. Similarly, it sometimes makes sense for a creditor to write off a portion of a country's debt, and agree on a lesser payment. Recognizing reality allows the debtor to work toward a realistic goal, and allows the creditor to stop banking on hope, and move on with a more realistic balance-sheet. So, did this happen with Greek's default? Resoundingly, no. Before the default, Greek debt was selling for a few cents on the Euro. Greece restructured, and now each creditor who was previously owed 100 euro will be owed 50 euro, but this is still far more than the market realistically expects. The brand new Greek debt is already selling for 20 cents on the Euro. So, Greece has shifted from an unrealistic amount owed to a smaller, but still very unrealistic, amount owed. Hardly worth the effort. This strikes me as extremely odd. I have to wonder why Germany would go through this charade. Commentator Mish Shedlock thinks Germany's end game is to push Greece out of the Euro, but it wants to give its own banks time to write off Greek debt. A lot of Europeans think that rolling back the Euro would be a step backward; so, they want to help Greece -- with tax-payer funds -- as much as they can. From what one hears of Greek politics, there does not seem to be much chance they'll fix anything soon. Greece is in the middle of a deep depression, with 21% unemployment, 30% of Athens' shops shut, government salaries cut by 25% with plans to reduce some by 40% by 2014, and no end in sight. There's a fair chance this is just an early chapter in the morphing of the Euro-zone into a new political landscape in Europe. And yet, one never can say for sure in human affairs. Time after time, countries that are spiraling downward with destructive policies do turn around. The Greeks may double-down on statism, or they may decide it is time they got their act together. Either way, we live in interesting times. Blog cross-posted with permission. See link at top of post for original.
  5. Objectivist Roundup Mar 8th, 2012: Welcome to the Weekly Objectivist round-up of March 8th, 2012. This is the first edition hosted on this blog, so a warm welcome to any newcomers. First, a thought for the day: "You don't work like that just to make money. It's something else. It's a great, driving energy -- a creative energy? -- no, it's the principle of creation itself. It's what makes everything in the world." [Guess the source. See footnote for answer.] And, without ado, from your favorite bloggers: Rituparna Basu presents Campus Media Response: The Iranian Threat—In Their Own Words | The Undercurrent posted at The Undercurrent, saying, "This Campus Media Response, written by Max Butler, addresses the erroneous assertions of Iran's apologists." C.W. presents Inflation Update: First Quarter, 2012 posted at Krazy Economy, saying, "Things aren't good. What is going to happen next? The sky isn't falling, but it is close." Rachel Miner presents Book Review: "Tea Party Patriots: The Second American Revolution" posted at The Playful Spirit, saying, "I share my thoughts on this book which offers us a key opportunity for activism. The Tea Party Patriots are asking for feedback on how they can propose a better plan for America's next forty years." Edward Cline presents Occupy the Money posted at The Rule of Reason, saying, "Who would have thought, three or four decades ago, that Communist activists and terrorists such as Bill Ayers, Bernadine Dohrn, Van Jones, Anita Dunn, David Axelrod, Valerie Jarrett, Tom Haydn, Jane Fonda, and a gallery of other protégés, associates, appointees, and fellow travelers would become the social and political elite to formulate, determine and oversee domestic and foreign policies of the United States?" Rituparna Basu presents Don’t Be Content with Contentedness | The Undercurrent posted at The Undercurrent, saying, "The Daily Kansan’s Alexis Knutsen claims there are two kinds of happiness: exuberance and contentedness, and that we should settle for the latter. In this piece written for The Undercurrent, Josh Windham argues otherwise." Rituparna Basu presents Regulated to Death: Cap-and-Trade Suffocates a Life Well-lived | The Undercurrent posted at The Undercurrent, saying, "Alexander Hrin examines the dangers of cumbersome, restrictive energy policies and highlights the unparalleled value that carbon-based energy provides." John Drake presents Re-reading Getting Things Done posted at Try Reason!, saying, "Getting Things Done really does help get things done. Upon re-reading David Allen's book, I discovered that the areas in my organizational system where I was struggling are the same areas where I have not fully implemented GTD. Let that be a lesson to me." Santiago and Kelly Valenzuela presents New Feature: Immigration Image of the Week posted at Mother of Exiles, saying, "Thanks to one of my readers sending me a photo related to immigration, I've decided to add a new, weekly feature to the blog. Check it out!" Ross England presents This R-Word Thing posted at Think Twice, saying, "Some thoughts on this R-word campaign which people have been spreading on facebook." Diana Hsieh presents Video: Responding to Requests for Prayers posted at NoodleFood, saying, "In Sunday's Philosophy in Action Webcast, I answered the question, "What is the proper response to requests for prayers?" Watch the video of my reply here." Darius Cooper presents Feeding the Mind saying "Lewis Carroll is blogging here now. This post is all his." That concludes this edition. Submit your blog article to the next edition of objectivist round up using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page. [source of the introductory Rand quote: "The Simplest Thing in the World", part of "The Romantic Manifesto"] Blog cross-posted with permission. See link at top of post for original.
  6. Feeding the Mind - by Lewis Carroll: Lewis Carroll is blogging here now. This post is all his. (Archive.org has multiple formats of this short essay, including Kindle, PDF etc.) BREAKFAST, dinner, tea; in extreme cases, breakfast,luncheon, dinner, tea, supper, and a glass of something hot at bedtime. What care we take about feeding the lucky body! Which of us does as much for his mind? And what causes the difference? Is the body so much the more important of the two? By no means: but life depends on the body being fed, whereas we can continue to exist as animals (scarcely as men) though the mind be utterly starved and neglected. Therefore Nature provides that, in case of serious neglect of the body, such terrible consequences of discomfort and pain shall ensue, as will soon bring us back to a sense of our duty: and some of the functions necessary to life she does for us altogether, leaving us no choice in the matter. It would fare but ill with many of us if we were left to superintend our own digestion and circulation. ‘Bless me!' one would cry, ' I forgot to wind up my heart this morning! To think that it has been standing still for the last three hours!' ‘I can't walk with you this afternoon,' a friend would say, ' as I have no less than eleven dinners to digest. I had to let them stand over from last week, being so busy, and my doctor says he will not answer for the consequences if I wait any longer!' Well, it is, I say, for us that the consequences of neglecting the body can be clearly seen and felt ; and it might be well for some if the mind were equally visible and tangible if we could take it, say, to the doctor, and have its pulse felt. "Why, what have you been doing with this mind lately? How have you fed it? It looks pale, and the pulse is very slow.""Well, doctor, it has not had much regular food lately. I gave it a lot of sugar-plums yesterday." ""Sugar-plums! What kind?"" "Well, they were a parcel of conundrums, sir." "Ah, I thought so. Now just mind this: if you go on playing tricks like that, you'll spoil all its teeth, and get laid up with mental indigestion. You must have nothing but the plainest reading for the next few days. Take care now! No novels on any account!" Considering the amount of painful experience many of us have had in feeding and dosing the body, it would, I think, be quite worth our while to try and translate some of the rules into corresponding ones for the mind. First, then, we should set ourselves to provide for our mind its proper kind of food. We very soon learn what will, and what will not, agree with the body, and find little difficulty in refusing a piece of the tempting pudding or pie which is associated in our memory with that terrible attack of indigestion, and whose very name irresistibly recalls rhubarb and magnesia; but it takes a great many lessons to convince us how indigestible some of our favourite lines of reading are, and again and again we make a meal of the unwholesome novel, sure to be followed by its usual train of low spirits, unwillingness to work, weariness of existence in fact, by mental nightmare. Then we should be careful to provide this wholesome food in proper amount. Mental gluttony, or over-reading, is a dangerous propensity, tending to weakness of digestive power, and in some cases to loss of appetite: we know that bread is a good and wholesome food, but who would like to try the experiment of eating two or three loaves at a sitting? I have heard a physician telling his patient whose complaint was merely gluttony and want of exercise - that ' the earliest symptom of hyper-nutrition is a deposition of adipose tissue,' and no doubt the fine long words greatly consoled the poor man under his increasing load of fat. I wonder if there is such a thing in nature as a FAT MIND? I really think I have met with one or two: minds which could not keep up with the slowest trot in conversation; could not jump over a logical fence, to save their lives; always got stuck fast in a narrow argument; and, in short, were fit for nothing but to waddle helplessly through the world. Then, again, though the food be wholesome and in proper amount, we know that we must not consume too many kinds at once. Take the thirsty a quart of beer, or a quart of cider, or even a quart of cold tea, and he will probably thank you (though not so heartily in the last case!). But what think you his feelings would be if you offered him a tray containing a little mug of beer, a little mug of cider, another of cold tea, one of hot tea, one of coffee, one of cocoa, and corresponding vessels of milk, water, brandy-and-water, and butter-milk ? The sum total might be a quart, but would it be the same thing to the haymaker? Having settled the proper kind, amount, and variety of our mental food, it remains that we should be careful to allow proper intervals between meal and meal, and not swallow the food hastily without mastication, so that it may be thoroughly digested; both which rules, for the body, are also applicable at once to the mind. First, as to the intervals : these are as really necessary as they are for the body, with this difference only, that while the body requires three or four hours' rest before it is ready for another meal, the mind will in many cases do with three or four minutes. I believe that the interval required is much shorter than is generally supposed, and from personal experience, I would recommend anyone, who has to devote several hours together to one subject of thought, to try the effect of such a break, say once an hour, leaving off for five minutes only each time, but taking care to throw the mind absolutely ' out of gear ' for those five minutes, and to turn it entirely to other subjects. It is astonishing what an amount of impetus and elasticity the mind recovers during those short periods of rest. And then, as to the mastication of the food, the mental process answering to this is simply thinking over what we read. This is a very much greater exertion of mind than the mere passive taking in the contents of our Author. So much greater an exertion is it, that, as Coleridge says, the mind often ' angrily refuses ' to put itself to such trouble so much greater, that we are far too apt to neglect it altogether, and go on pouring in fresh food on the top of the undigested masses already lying there, till the unfortunate mind is fairly swamped under the flood. But the greater the exertion the more valuable, we may be sure, is the effect. One hour of steady thinking over a subject (a solitary walk is as good an opportunity for the process as any other) is worth two or three of reading only. And just consider another effect of this thorough digestion of the books we read ; I mean the arranging and 'ticketing,' so to speak, of the subjects in our minds, so that we can readily refer to them when we want them. Sam Slick tells us that he has learnt several languages in his life, but somehow “couldn’t keep the parcels sorted ' in his mind. And many a mind that hurries through book after book, without waiting to digest or arrange anything, gets into that sort of condition, and the unfortunate owner finds himself far from fit really to support the character all his friends give him. A thoroughly well-read man. Just you try him in any subject, now. You can't puzzle him.' You turn to the thoroughly well-read man. You ask him a question, say, in English history (he is understood to have just finished reading Macaulay). He smiles good-naturedly, tries to look as if he knew all about it, and proceeds to dive into his mind for the answer. Up comes a handful of very promising facts, but on examination they turn out to belong to the wrong century, and are pitched in again. A second haul brings up a fact much more like the real thing, but, unfortunately, along with it comes a tangle of other things a fact in political economy, a rule in arithmetic, the ages of his brother's children, and a stanza of Gray's 6 Elegy,' and among all these, the fact he wants has got hopelessly twisted up and entangled. Meanwhile, everyone is waiting for his reply, and, as the silence is getting more and more awkward, our well-read friend has to stammer out some half- answer at last, not nearly so clear or so satisfactory as an ordinary schoolboy would have given. And all this for want of making up his knowledge into proper bundles and ticketing them. Do you know the unfortunate victim of ill-judged mental feeding when you see him? Can you doubt him? Look at him drearily wandering round a reading-room, tasting dish after dish we beg his pardon, book after book keeping to none. First a mouthful of novel; but no, faugh! he has had nothing but that to eat for the last week, and is quite tired of the taste. Then a slice of science; but you know at once what the result of that will be ah, of course, much too tough for his teeth. And so on through the whole weary round, which he tried (and failed in) yesterday, and will probably try and fail in to-morrow. Mr. Oliver Wendell Holmes, in his very amusing book, "The Professor at the Breakfast Table", gives the following rule for knowing whether a human being is young or old : ' The crucial experiment is this offer a bulky bun to the suspected individual just ten minutes before dinner. If this is easily accepted and devoured, the fact of youth is established.' He tells us that a human being, ' if young, will eat anything at any hour of the day or night.' To ascertain the healthiness of the mental appetite of a human animal, place in its hands a short, well-written, but not exciting treatise on some popular subject a mental bun, in fact. If it is read with eager interest and perfect attention, and if the reader can answer questions on the subject afterwards, the mind is in first-rate working order. If it be politely laid down again, or perhaps lounged over for a few minutes, and then, ' I can't read this stupid book! Would you hand me the second volume of “The Mysterious Murder “?' you may be equally sure that there is something wrong in the mental digestion. If this paper has given you any useful hints on the important subject of reading, and made you see that it is one's duty no less than one's interest to 'read, mark, learn, and inwardly digest' the good books that fall in your, way, its purpose will be fulfilled. Blog cross-posted with permission. See link at top of post for original.
  7. A modest Platform - On Employment Policy: To solve the problem of unemployment in the U.S., the government must end statist intervention. Lot's can be done (more accurately, undone). Here are some modest proposals -- not completely free-market ideas for the Federal government, but transitional steps. Abolish the Federal minimum wage rate of $7.25 per hour. With exquisitely bad timing, Congress increased this at the peak of the housing bubble in 2007, from the previous minimum of $5.15 per hour. At some level the rate becomes academic; so, lowering it enough would be almost as good as abolishing it. Here's an even more modest proposal: every 6 months, this minimum wage will be reduced by another 50 cents if the youth (16-19 years) unemployment rate has not fallen by at least 1% during the previous 6 months. An, even more modest: a multi-year moratorium from the minimum wage. Many states have minimum-wages higher than the federal rate. Lowering the Federal rate will increase the wage-differential between such states and others. That is a good thing. Phase out "Emergency Unemployment Compensation" and "Extended Benefits" and return to pre-recession rules regarding Unemployment Insurance payments. Repeal the Bacon-Davis Act. The government should attempt to get the best deal in every contract it negotiates even if that means negotiating for a deal that implies paying lower than prevailing wages. Repeal the cuts in payroll taxes, and return to pre-recession rates. The cuts have the effect of increasing nominal wages at a time when there is no reason to do so. As long as the spending remains unchanged, tax-cuts are not tax-cuts at all. They merely push the tax-collection into the future. These tax cuts without changes in spending add to the debt, and that imply more tax has to be collected in the future. Blog cross-posted with permission. See link at top of post for original.
  8. People vs. Government: It is very popular to blame our government and our politicians for our problems. Here's a poster that speaks to the idea. Yes, there are many people in almost every country who are ideologically close to me. There are millions of Iranians who are not radical Islamists. There are thousands of Iranians who are well-educated, widely-read, and truly cosmopolitan, yearning for much greater freedom. Ideologically, this minority of Iranians even hold better ideas than the average American. Left to their devices they would elect a better government than the average American would. The graphic asks the reader to focus on this concrete truth, and draws its appeal from that truth. The world over, true lovers of freedom are brethren in spirit. They are closer to each other than to most of their fellow countrymen. Don't generalize: However, it is also important not to generalize this as being true of all Iranians. The government of Iran is not like North Korea. While it is a dictatorship that might well be thrown out in a free-election, it also has a sizable -- if minority -- base among its population. Yes, the "people vs. government" meme has a basis, but we must not exaggerate the divide. The Iranian government did not appear by magic, quite apart from the wishes of a certain sizable number of its people. Many of these people are poor, ignorant folk, but ... their ignorance does not change the fact that they are the cause behind the existence of the regime. Most of them are not the prime-movers, but they have thrown their support behind those who are. The U.S. gets the government it deserves: As for the U.S., the "people vs. government" meme breaks down completely. The U.S. gets the government it deserves. The U.S. government is a mix that is generally representative of the ideological mix of the voters. Applied to the U.S., I particularly dislike the "government vs. people" meme because it throws blame upon the wrong people: i.e. politicians. Don't simply blame Obama or Sarah Palin or Gingrich or Romney. There are voters who found Obama inspiring, and voters who find Sarah Palin inspiring. These people are the truly guilty. These people are the ones for whom that poster above does *not* ring true. Regular Americans: And then there are many American voters who do not find any politicians inspiring and do not even like most of them. Yet, neither do they have a firm and moral idea of what the politics of their country ought to be. Instead, they hold a grab-bag of good and bad ideas absorbed over the years: some ideas about freedom, mixed in with a lot of statist ideas. As a whole, the vast majority of Americans (and Iranians) have an incorrect notion of the nature and purpose of government. The ignorance of regular Americans does not change the fact that they are the cause behind the existence of their government. Their false idea about the very nature and purpose of government is the bedrock that makes their specific governments and laws possible. It is the vast majority of voters who are responsible, for holding these ideas and for acting on them. These are not some schemingly-evil people; these are my acquaintances and friends who think their ideas are just and moral. In the U.S., this vast majority give us the government we have. Given freedom in Iran, their vast majority would give them a government that is statist too (even if it were much freer than what they have today). Support for statist policies is everywhere: Social security will go bankrupt if it is not changed; yet, it is the "third rail" or American politics. Voters pay lip-service to cutting deficits, but even many "tea-party" supporters don't really want too many cuts. They think social security is a fundamentally moral idea. A large percentage of American voters want to restrict a woman's right to an abortion. They think that abortion is unjust; even murder. There is widespread support for the idea that the government should fund K-12 education. There is widespread support for progressive taxes: on "millionaires". They see this as just and moral. One can go on.. voters want to force employers to pay a minimum wage, they want to keep out immigrants to seek jobs in the U.S., and so on. The bottom line: if you live in the U.S., your government has been brought to you courtesy of all your neighbors, and fellow students, and co-workers. If you have to blame someone, start with them. Blog cross-posted with permission. See link at top of post for original.
  9. Labor Turnover: One of my favorite jobs-related graphs comes from JOLTS "(Job Openings and Labor Turnover Summary"). It shows how dynamic the economy really is, underneath the net numbers. Net New Jobs (monthly): First some background. Every month, the government reports how many net new jobs were created. The last month, they reported about 250 K net new jobs. In a month like January, there is a huge seasonality adjustment in these numbers. Still, if we were to average 250K per month, it would be good news. How about if we added 50,000 jobs each month? While it would be better than zero, it would end up raising the unemployment rate. Level to keep the unemployment rate from rising: Here's a back-of-envelope calculation. The U.S. has 300 million people, but only 155 million are working or want work. (Children, retirees, college-goers, housewives, and a few bums account for the rest). The population growth rate is about 0.85% per year. If we ignore age-distributions etc., the labor force will grow at that rate too. So, about 1.3 million people will enter the labor force each year: a little more than 100,000 new people each month. (The number is a little higher when one adjusts for people who are currently dejected about looking for a job.) So, next month, when you hear the number of net jobs added, evaluate it this way: below 100 K is bad, 100K - 150K is coasting, 150K - 200K is good, but we need better for a while, to get out of the hole we're in Initial Weekly Unemployment Claims: Now, on to the quandary. Every week, we also get a report of new claims for unemployment insurance. These are around 400K each week! In fact, these rarely fall below 300K even going back to the 1980s. Here's a relevant graph (sharper one at Calculated Risk). At that rate, there are more than a million people seeking initial unemployment claims each month. In fact, it is even higher because not all people who are fired or laid off get unemployment compensation. A separate survey called "JOLTS" reports that about 2 million people were laid off or discharged each month, and that number has varied in the 2 - 2.5 million a month range since at least 2001. So, what gives? How to reconcile the notion that the economy added (say) 250K jobs in the month with the notion that 2 million people were discharged? New Jobs started: The answer is: people are also finding new jobs. In the past year, we have seen about 4 million new jobs each month. Not net new jobs, just the total gross number. Here are the very rough numbers for a typical month of the last decade: 2 million people are fired or laid off 2 million quit 4 million+ start new jobs Net impact = zero + a few net new jobs. In Jan 2012, as an example, and we see (still pretty roughly): 2 million fired or laid off 1.9 million quit 4 million started new jobs Net impact = (4 - 2 - 1.9) = 100,000 net new jobs in the economy. Once more, I turn to Calculated Risk for the picture (sharper image here). Labor Turnover: In our global political context, high labor turnover is usually a good thing. It is usually a sign of less government intervention in the labor market. Some studies claim that Europe has a lower labor turnover than the U.S. This means uneconomical jobs are retained rather than having people on something more productive. In summary: When you hear weekly and monthly job numbers, don't pay too much attention to the unemployment rate itself. The number of net new private sector jobs created is the important number. Be aware that in some months this number has a huge seasonal component that makes it almost worthless unless we're having a very "typical year". More than 200 K net new private sector jobs is good news, if it stays consistently that high. Jobless claims around 300K - 320K are a good sign. (Aside: Another good sign is a high number of "quits". People start to quit jobs when they feel confident about the economy.) Blog cross-posted with permission. See link at top of post for original.
  10. How're we doing on Unemployment? (Feb 2012 Edition): In October I posted some GDP graphs from the excellent Calculated Risk blog. In summary, "Real Personal Income" was still 5% below the pre-recession peak when ignoring "transfer payments". Additionaly, in four years of recession, the population has grown, and the numbers look worse on a per-capita basis. In this post, I switch my focus to unemployment. Unemployment rate has bottomed: Here is a graph (sharper original on Calculated Risk), comparing the rise of unemployment (downward in the graph) in past recessions, and how soon the rate recovered to its pre-recession level. Post WW-II, the unemployment rate has never turned so weak nor has it remained weak for so long. Based on historical patterns, it is optimistic to think unemployment will return to its recent pre-recession low (about 5%) any time in the next 2 years. Participation rate falling: One problem with the unemployment rate is that it under-counts dejected workers who have given up looking. The unemployment survey asks something like this: "Did you make specific efforts to look for a job in the last 4 weeks?". Anyone who is not looking is not counted either as employed or as unemployed, but simply as not looking for a job. While the survey does document people who would like a job but have not tried to find one recently, and people working part-time who want a full-time job, the main number -- the official "Unemployment Rate" that is widely reported in the press ignores such people. In this recession, we have seen a falling "participation rate" (percent of people who are either employed or say they actively sought work in the last 4 weeks). The next chart (click for original) offers a perspective. The blue line shows that only 64% of adults are working or actively looking for work: this is called the "participation index". This is down from 67% at the peak of the dot.com boom. Notice that even though the unemployment rate (red line) has fallen, the percentage of the population that has jobs (black line) has flat lined. Who is dropping out: Most of the recent fall in the labor force is among young people (16 to 19 years old). According to the BLS about a million less people in that age group were looking for jobs in 2011 compared to 2008. This explains almost the complete drop in the total labor force. Didn't we just have a good report? The report published in the first week of Feb showed that jobs increased by 243,000. If jobs actually do increase consistently at that rate, it would indeed be good news. However, the unemployment report contains huge amounts of seasonal adjustment. Fund manager John Hussman explains: "Total non-farm employment in the U.S., before seasonal adjustments, fell by 2,689,000 jobs in January. However, because it's typical for the economy to lose a large number of jobs after the holidays, largely in retail trade, construction, and manufacturing, the BLS estimated that the "normal" seasonal decline in employment should have been 2,932,000 jobs in January. The difference between the two numbers, of course, was 243,000 jobs, which was reported as an increase in employment." Now, there is nothing wrong with seasonal adjustments -- it is the correct procedure. However, the implication is that there is a huge amount of estimation and a huge potential for error when one looks at a just one or two reports. We cannot say with any confidence that employment is actually rising significantly. Summary: Employment has stopped falling and has become flat. From 2007 to 2010, employment dropped sharply. For the last two years, it has been flat. The good news: The total number of people employed has started to increase The bad news: The increase has not kept pace with the growing population Blog cross-posted with permission. See link at top of post for original.
  11. Are "Soft Landings" really softer?: Falling off a roof, I'd rather have a soft landing than a hard one; but, does the metaphor translate to economies? Example: Imagine two countries -- Redland and Blueland -- both with unemployment around 5%. Next, imagine unemployment shoots up to 14% in "Blueland" while "Redland" has a far milder rise to 8%. However, the rate of unemployment comes back to 5% much sooner in Blueland, while it lingers at a 8% for a while in Redland. Is there any reason to think Redland is better off in this example? Even if we accept the notion that governments can and may engineer a soft-landing, it is far from clear that a shallower recession is a good thing, if it means extending its duration. Think of individuals: Would you rather be unemployed for 1 year or for 3 years? It's a no-brainer! A laid-off dad from my son's school told me his savings could last him six months before he starts getting desperate. For him, a short sharp downturn would be softer. A worse rate of employment is the softer landing for the person who is unemployed, if it means a short unemployment. To some extent, those thinking about a soft-landing in the conventional way are committing a fallacy of composition. Softer for some: The political support for soft-landings comes from those who think it will save their job or put them back to work. Imagine a company which is about to fire 10 employees due to budget cuts. Then, the government provides some type of aid and they only fire 5. The 5 who still have their jobs are pleased. Not just them: the 200 other employees in the company breathe more easily too. Even the injured are positive: The 5 fired employees who will end up being out of work for longer -- because the wealth for the 5 "saved" jobs has to come from somewhere else -- are not pleased, but they often think positively about the soft-landing that "at least saved some jobs". Instead of being against soft-landings, they're the ones thinking the government ought to have done more. (If the government could work miracles by creating wealth out of thin air, why wouldn't they simply save each and every job lost anytime, anywhere.) New reality: A bust happens when people around the economy change some very fundamental assumptions, and react to these changes. Finally, the economy will adjust to the new assumptions. Generally, the faster the adjustment, the better. Panic vs. Adjustment: Even so, there is an argument for soft-landings which must be addressed. This is an economic argument that can be called "panic vs. adjustment", and it goes like this: it is true that the economy has to adjust and the sooner the better, but if this happens in a state of panic, it causes additional more damage. Take the example from above, of a company that was going to lay off 10 employees, but the government "saves 5 jobs". The argument would be made as follows: the panic has sent things below the point where they're finally going to end up. If the company fires 10 employees today, in a year or two -- when things are stable -- they will want to hire back 5. Why fire those 5 employees today and risk having them shift to some other occupation; then, hire 5 others employees in a year or two? Vulture investors: There's an element of plausibility to the premises of that argument. Emotions run high in booms and in busts. Yet, in every boom, there are also some investors who hold back when they think optimism has run too high. During a bust, these people are happy to step in and put money into areas that they think are going cheap. Even a bankrupt company often has investors ready to pick up the pieces. In fact, since bankruptcy removes various legal obligations to pay its debts, a failing company becomes more attractive to buyers once it has gone through bankruptcy. The government often touts the GM turnaround as a success, but it is no such thing. When governments attempt rescues, their eyes are on votes rather than profitability. GM would not have disappeared in a bankruptcy. Instead, it would have been owned by people who were formerly its creditors. Relieved of debt, the new owners would have invested in their assets. Instead, the government virtually ripped up the creditors' contract and gave the unions concessions. In doing so, they gained votes, but ended up with a company that is saved for now, but weaker than it would have been post-bankruptcy. By robbing the creditors, the government also makes it more costly for similar firms to borrow from creditors in the future. Morgan vs. the Fed: In the late 1800's and early 1900's, J.P. Morgan had a reputation for very safe investments. Yet, in a bust, he also had the reputation of being a "lender of last resort". This means, when everyone else was in a panic, Morgan would make a rapid judgement of the assets of a firm and step in with money, if he thought he could profit from doing so. In comparison, when the government -- e.g. the Fed -- steps in, they are far less discriminate, and happy to save the unprofitable along with the good. By doing so, the government extends the duration of the recession. Unemployment compensation: There was a time when workers formed union-like societies which helped in times of trouble: basically, offering various types of insurance. During a downturn, some of these groups would pay laid-off workers a stipend. If a large fraction of their members were laid off, these societies were often motivated to negotiate lower wages for all, if it meant more workers could be put back to work. Then, the government took over the unemployment-insurance business, and co-workers no longer had that incentive to accept lower wages. Once again, government intervention smothered emerging private solutions, and created a system where adjustments are long and drawn out. A moral argument for soft-landings: Somewhat of an aside, but one can also make a moral argument that the government got the economy into the mess it is in and so it has a responsibility to help those whom it harmed. This is not an argument one hears from statists though; if it were, we be on our way to success and would only be discussing how best to transition. Summary: Economist George Reisman uses the metaphor of a spring. As jobs, credit and businesses are "liquidated" during a downturn, and as their prices fall, they become increasingly attractive for investors. Government action -- by and large -- slows down the correction. By making the recession more shallow, the spring of attractive-valuations is not compressed enough, and the bounce-back is slower to emerge. Blog cross-posted with permission. See link at top of post for original.
  12. U.S. - Other unfunded liabilities: Background: This is the third post in a series looking at U.S. government debt. In previous posts I considered the official U.S. Federal debt and the "off balance sheet" liabilities for "entitlements". In summary, the debt owed to public is about $10 Tr. and the amount owed on entitlements will be about $6 Tr. for the next 12 years (3 presidential terms). Together, this is larger than the annual GDP of the U.S. And there's more: Besides these, the U.S. Federal government has taken on other obligation. For example, Fannie and Freddie guarantee about $5 Tr. worth of mortgages, and even though the government long insisted that it was not liable for these, when push came to shove the government stepped in to support these "government-sponsored entities". With these guarantees, one can know the maximum possible liability, but the actual liability is difficult to estimate. Thankfully, the actual liability will be lower. For instance, Fannie and Freddie will not have to pay up on every loan they insure, not even on a majority of such loans. Let's consider the maximum amounts that have been guaranteed (Figures are from this very readable 2009 Econbrowser post -- the author, James Hamilton, is not a free-market advocate, but he is reliable on data and not given to hyperbole). FDIC $ 5 Tr. Fannie and Freddie $ 5 Tr. Federal Home loan banks $ 1 Tr. Ginnie Mae $ 0.5 Tr. FHA $ 0.5 Tr. *** TOTAL *** $ 12 Tr. It is extremely unlikely that the Federal government will have to pay out even half of that maximum guarantee. On the other hand, those number are from 2009. According to Comstock, the FHA guarantees now amount to $1 Tr. It is probably conservative to say that this, along with any additional guarantees over the next few years, will amount to (say) $2 Tr of actual, potential liability. [Fannie and Freddie are the biggest, but their loans tend to be of decent quality. On the other hand, the FHA loans are poor quality, but the total amount is "just" a trillion.] Pensions: There's also an issue with state pension liabilities. These are under-funded. While these are not federal, they're still governmental. It is quite possible that the Federal government will step in with funding to shore these up at some point. These are under-funded by $2.5 Tr., according to an NBER research paper. The government's Pension Guaranty Corp (PBGC) also under-writes private pensions, but the liabilities here are likely to be a few tens of billions... which is a "rounding error" when we're at this order of magnitude. Total: Adding it all together, the U.S. government owes about $ 20.5 Tr. This is 136% of the annual GDP of $15 Tr. It also amounts to 35% of all the wealth in the U.S. What this means is that 35% of all homes, all stocks, all bank accounts, all ownership stakes in businesses, all added up is what the U.S. government owes. And, this with the critical assumption that we're looking just 12 years out. If we assume entitlements will not change, and we look out a few decades... ... the numbers are mind-boggling. Blog cross-posted with permission. See link at top of post for original.
  13. Are Americans spendthrifts?: Low savings rate: The "personal savings rate" was 10% in the 70's; but, it fell to a low of 2% recently. "Wealth Effect" / Confidence in the future: Take a closer look at the chart. The savings rate rose a bit in the 1970s, compared to the 1960s. The 70's were an economically-troubled decade. When people feel less certain about their future, and when they feel their wealth has been eroded, they try to save more. This is a rational response. Perhaps this explains the slightly increased savings rates of the 1970s'. The chart then shows a drop in the savings rate starting in the early-1980s. Could this be because people felt better about their wealth and about their future? This second chart also shows Personal Wealth as a multiple of current GDP. I chose this as a very rough proxy for how wealthy the "average person" feels. In the early 1960's wealth was over 3 times GDP (see the right-side axis). By 1975, wealth had dropped under 3 times GDP while the savings rate rose . Then, wealth came back to about 3.5 times GDP and the savings rate dropped back. Around 1995, we see wealth rising (taking in its stride a short, sharp drop for the "dot.com bust") till it was over 4.5 times GDP before our recent "housing bust". Meanwhile, the savings rate plunged. Wealth and GDP are both expressed in nominal dollars (i.e. not adjusted for inflation). When the prices of long-held assets (like the stock market or home prices) go up, nominal wealth rises. Feeling richer, many people figure they're saving enough. Clearly, many people did not anticipate the sharp fall in asset valuations of the current recession. (This is different from outright profligacy or spending regardless of one's level of wealth.) Stimulus dampens savings: Government stimulus cushions blows and redistributes losses. In the short run, there is less urgency to act. The reduced urgency must surely mean people save less. A person who thinks "this will blow over in a year or two" will have less urgency compared to someone who thinks we will have a decade-long slowdown. Similarly, if fiscal and monetary stimulus keep the stock market and home prices from falling even lower, it raises the nominal value of wealth without increasing real wealth. This creates a false sense of comfort. In this sense, worse news would have been better news. More accurately, if people understand how bad things are, they are more likely to act to fix things (Note 1). Consider the dot.com bust of 2001. The chart shows relative wealth dropping, and saving rising slightly. Then, Greenspan rode in to save the day by lowering interest rates and championing equity-extraction, creating the housing bubble. Rising home prices meant rising wealth and the saving rate dipped again. Next up, a turning point? Now look the the extreme right of the chart. We see the savings rate bottomed around 2%, but has since turned upward (left-hand side axis). The recent recession has unsettled many people. People are saving a little more than they were doing a few years ago, bringing the rate up to 5%. it is hard to say where this will go. If the fiscal and monetary stimulus keeps asset prices up, we might see less worry and the saving rate may not increase as much as needed. On the other hand, if the economy slows -- as it seems it will in 2012 -- wealth may flat line or even fall and people will probably save more. So are Americans spendthrifts? Clearly that are many people who live beyond their means. However, this anecdotal evidence is not necessarily representative. Since 50% of credit-card holders claim to pay their bills in full each month, perhaps there are just as many people who are conservative about money, as not. Perhaps people living through the dot.com boom and the housing boom should have realized that we're in something of a "relative boom" (i.e. it looks like a bottom, but only because the bungee cord of government-spending kicked in). However, thinking "this time is different" is not quite the same thing as wanton profligacy. Summary: Americans have not been saving enough, partly because they were carried away by the enthusiasm of a multi-decade credit-driven boom. They have now begun to save a wee bit more, but still not enough. Caveat: Other factors play a role in determining the rate of savings: demographics, interest-rates, rates of return ("factor productivity"). As the population ages, one would expect lower savings rates [retirement years are years when people spend wealth that was previously saved]. Note 1: This is like the metaphor of a "spring" used by George Reisman. Often, things seem to "spiral downward", but the process is often like compressing a spring, which continues to gather more force to counter the downward move. Blog cross-posted with permission. See link at top of post for original.
  14. US "Entitlement" programs - Impact on debt: In a previous post, I looked at the U.S. Federal debt. In this one, I look at "unfunded" liabilities for "entitlements". Some people unfunded liabilities for entitlements by assuming an "infinite time horizon" ; such estimates are over $50 trillion. The trustees themselves use a 75-year horizon, and come up with lower numbers, which are still mind-boggling: around $19 T. This chart from my previous post shows that the U.S. Federal debt is $10 trillion, if one excludes the $4.5 T officially owed to "Trust Funds". So, the $19 T (the 75 year estimate) is twice what the U.S. government owes on everything else. Trust-funds are an obscuring fiction: Readers here know that the "entitlement trust funds" are an accounting fiction. About 30% of the costs of entitlement programs are already funded from general funds, not from the payroll tax (roughly 10% is "interest" the government pays on the "trust funds" and about 20% is money paid toward "Supplementary medical Insurance", for which no payroll tax is taken.) Think outflows: It's best not to treat entitlements as if they're separate from other Federal Government expenditures: in other words, the point at which social security starts to "draw down" its "trust fund", or the point at which the trust fund goes to zero are pretty irrelevant dates. Think flow: the impact of entitlements is the increasing annual spending planned by the government. Outflow -- an increasing Annual Drain: According to the trustees, outflows for entitlements will grow from $1.3 T today to $2.2 T in 2020. If payroll taxes do not change at all, this will add up to an additional expenditure of about $3.7 T over that period of 9 years. Payroll taxes will rise somewhat with GDP. If we assume 4-5% GDP growth a year, we would offset more than half the rise in expenses. On the other hand, medical expenses grow faster than GDP, and this means every year the gap gets worse. To pull an approximation out of a hat (a quick spreadsheet I threw together), I think we would add about $6 T in total government expenditures over the next 12 years (three presidential terms). The chart on the left shows the growth of the debt on account of entitlements, for different time horizons. Sensitivity analysis: If benefits are cut to (say) 80% of what they are today, we're still looking at $4 or $5 T over 12 years. Similarly, raising payroll taxes (or income taxes) by 1% of wages probably bring the number down to under $4-$5 T. For comparison, letting the "Bush tax cuts" expire would raise taxes by about $1 - $2 trillion over a decade. SSA Estimates: Using a 75 year horizon, the trustees of the SSA estimate that raising the payroll tax by a little over 3% of payroll: i.e. from 15.3% to about 18.5% of wages will cover the next 75 years. [P.S. right now, the rate is temporarily around 13.3%, because of the "payroll tax cut"]. Estimates like these must make assumptions about future rates of economic growth. If we see a few decades of slower growth combined with historically higher unemployment (thus less payroll taxes), the actual damage will be higher. To make matters worse, the baby boomers are just starting to retire and this means the major growth in outflows comes in the next 30 years. In other words, the 3% works by making up for the next few decades during the decades that follow: which is typical political "front-loading" of spending and "back-loading" of taxes. Not enough worry: Entitlement programs are a Ponzi scheme, not designed to pay what's promised. Ponzi schemes can last for a while. How long before things get serious enough that there is widespread voter-agreement that something must be done? When Rick Perry called Social Security a Ponzi scheme Romney criticized him. So, the GOP -- posturing as more fiscally sound than the Democrats -- are unwilling to be honest about entitlements. This tells me that -- for all the noise about social security not being around for the kids -- voters are not yet ready to address entitlements seriously: they're still in "extend and pretend" mode. Anyhow, this post is mainly to document the extent of the problem, not to make predictions. And there's more: In addition to federal debt documented in an earlier post, and entitlement debt documented in this one, the U.S. also has some other unfunded liabilities: for instance the guarantees that it has given to Freddie and Fannie, on which it may have to make good. Those will need a separate post. Summary: The total U.S. Federal debt is $10 T, but in the next 12 years we will have to incur about $6 T more just on entitlements, even if we get all other expenditures under control. Our GDP is about $15 T. So, we're going to owe about 100% of GDP pretty soon (we already do if we think of entitlements as a "debt to ourselves", but in 12 years we will owe it in the form of actual issued government bonds -- which does make a difference). Also see: This Thrutch post that shows Unfunded liabilities for different countries. Blog cross-posted with permission. See link at top of post for original.
  15. Raise taxes please!: In 2011, payroll taxes were 13% of wages instead of the usual 15%. Obama wants to reduce it to 12% for 2012. I think this is stupid, short-term thinking. I'd be happy to see payroll taxes stopped entirely if the system is being wound down. We could pay existing retirees from general taxes; pay people near retirement some amount too; phase it out somehow or the other... but it makes no sense to keep the whole system in place and merely take in less taxes. Cut spending stupid: If we're not cutting spending, reducing taxes simply means more government debt. Essentially what the government is doing to the average wage-earner is saying: "Keep an extra $1,000 every year, and we'll take on an extra $1,000 of debt in your name." I do not want that. First cut the spending! If the government comes up with a credible plan to cut spending over the long term, I wouldn't even mind a short-term tax hike. I will not cheer lower taxes today when it means higher taxes tomorrow. More importantly, I will not cheer lower taxes that create a false illusion today, and creates false incentives to spend. Keynesian-ism: Keynesians want the middle class to keep an extra $1000 a year, hoping it will boost consumption. Actually, it might well do so in the short-term. A few strict monetarist may argue that deficit spending simply brings higher-prices, without stimulating real spending; but, this is wrong. The Austrians do realize that spending does not impact all transactions at once. Its uneven nature can create sector-specific booms without a pull-back in other sectors. It can take a while -- say, a year -- for all the flow-through to reveal that the boom was temporary, that it caused mal-investments and delayed necessary adjustments. So, stimulus can stimulate real "mal-spending" and "mal-production". Fiscal spending can put cash in people's pockets. If people have more money, some will spend it; businesses may not fire as many employees. To the extent that this does work, it does so by giving people a false sense of security. In essence, the effect is similar to excessive credit-creation. The government is taking on the loan here, and people are left with more money in hand. Stimulus can make recessions less deep, but only by prolonging them, by causing more long-term fiscal problems, and by redistributing wealth. Instead of allowing readjustment, stimulus underwrites the status quo, slowing the processes that allow for readjustment. The GOP's tax-cut mantra: The GOP resisted the extension of the payroll tax cut before finally giving in. Yet, the GOP was for the "Bush income tax cuts", without insisting that they "be paid for". The Democrats rightly accuse the GOP of being inconsistent, and accuse them of being for tax-cuts for the rich while resisting tax-cuts for the middle class. It really serves the GOP right, because they have adopted a mantra of tax-cuts being a solution to our problems, while they really ought to focus on spending cuts. Payroll tax-cut implies a future tax on the rich: I suppose the American voter is not ready for serious spending cuts just yet. Instead, he'd rather "extend and pretend". The truth is that the burden will not just be passed on to his children. Like always, when push comes to shove, a disproportionate burden will fall on those who are rich. Every time we vote to cut taxes and increase our debt, we are really planning to raise taxes on those who are wealthier than us... a decade or two hence. Blog cross-posted with permission. See link at top of post for original.
  16. TARP: The Daily Show Get More: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook (Link, in case the video above does not play) In the video above, the Daily Show slams the Fed for giving banks $7.7 trillion in secret. This is a gross misrepresentation that started with a shoddy Bloomberg story and was later echoed elsewhere in the Blogosphere. Simply put, the Fed did not lend anywhere near $7.7 trillion. It was closer to $2 Trillion. Secondly, this total was widely publicized at the time. (What was kept secret was the details about which banks got funds and how much. Everyone knew the details were not being disclosed, and some politicians were quite vocal asking for the details.) The Fed responded to Bloomberg's article, and Bloomberg says they "stand by their reporting", but the details of their clarification show that they were at least guilty of writing in a way that readers might easily be misled. As much as I would like to see the Fed wound down, this sensationalist approach is not the way to tackle the issue. TARP was mostly good: Here's the most important thing: given our context, in general terms, the Fed did the right thing when they provided lots of liquidity to the banks. Let me explain... Since 1913, the Fed has been the lender of last resort. When the banking system is hit by a run, a lender of last resort provides liquidity against good assets (which cannot be readily converted to cash). Without this, the run can actually bring down banks that are solvent and sound in the long-term, but not liquid. The collapse of a banking system is not a pretty sight. Someone who wants extreme pain, confusion and suffering -- perhaps under the delusion that a better system would be born from the ashes -- might think a widespread bank run is a good thing. Anyone who thinks collapse is bad, would not want a bank run. Under our current system, the Fed is the only institution that can prevent a run. Collapse is not the path to the ideal: Yes, if we had a good banking system, the Fed would not be a lender of last resort, because we would not have a Fed. If the Fed is to be closed down, if fractional banking is to be reduced or modified, if the FDIC is to stop insuring deposits, then these must be done thoughtfully. It makes no sense to pull away all the scaffolding that has been erected over decades and simply walk away. Having all those structures in place, it makes no sense to say that the Fed should not act as a lender of last resort. TARP has enough bad aspects: The legitimate criticism of bail-outs ought to focus on questions like this: did the Fed provide funds to institutions that were actually insolvent (not just ill-liquid)? did the Fed extend cover to non-banks that were ill-liquid, and to what extent was that legitimate? what role did political -- as opposed to economic -- considerations play a role in deciding whom to bail out? Focusing on the actual provision of liquidity is pointless. That's the good part -- given our context. (Aside: Daily Show cognitive confusion: The video above is quite typical of the Daily Show's critiques.Their pretense at being partly a comedy-show means that they can shrug off hyperbole and do shoddy fact-checking. This is unfortunate because their pretense at being partly a news show means viewers think that much of what they say is true. Is it a surprise that people who listen to the Daily Show think the system is ripping them off and that "Occupy Wall Street" is a worthy cause? ) Blog cross-posted with permission. See link at top of post for original.
  17. von Mises on the Quantity Theory of Money: Reading von Mises a while ago, I was surprised to see him speak against the Quantity theory of Money, but what he said made a lot of sense. A recent Facebook comment sent me back looking for the source, and I decided to blog a few choice quotes, because others may find it interesting. My summary of von Mises's position is as follows: The supply of money is an important factor in its value. This is the element of truth in the Quantity Theory However demand for money is the other factor. The quantity theory gives short shrift to demand for money. (One must look to individual decision-making processes and their objective context to understand the demand for money. One cannot start with the aggregate demand for money.) Even if supply were the only factor, it is wrong to assume the value of money will change in direct proportion to the change in supply It is also wrong to assume that an increase in supply of money changes all prices generally and similarly A good theory of the value of money will also consider money-substitutes. The availability of and confidence in money substitutes can impact the demand for money The quantity theory may appear right in a context where new supply is constantly being created and most other factors around demand are not varying much. However, in panics, the demand for money can increase drastically and say the velocity has changed explains nothing Source: The Theory of Money and Credit - by Ludwig von Mises (that online text "corresponds to the 1953 Yale University Press Edition, New Haven."). Below are some selected quotes from a single section. For anyone interested in Economics, I strongly suggest you read all of section 6 in chapter 8, to get the entire flavor. Introducing the facts behind Demand and Supply "curves": Introducing the Quantity Theory: On the element of truth in theory: Against the idea that changes in the value of money are proportionate to the changes in the quantity of money: Objecting that we do not get demand for money by starting with the aggregate: Sometimes demand for money can increase: . Blog cross-posted with permission. Click here for original.
  18. von Mises on the Quantity Theory of Money: Reading von Mises a while ago, I was surprised to see him speak against the Quantity theory of Money, but what he said made a lot of sense. A recent Facebook comment sent me back looking for the source, and I decided to blog a few choice quotes, because others may find it interesting. My summary of von Mises's position is as follows: The supply of money is an important factor in its value. This is the element of truth in the Quantity Theory However demand for money is the other factor. The quantity theory gives short shrift to demand for money. (One must look to individual decision-making processes and their objective context to understand the demand for money. One cannot start with the aggregate demand for money.) Even if supply were the only factor, it is wrong to assume the value of money will change in direct proportion to the change in supply It is also wrong to assume that an increase in supply of money changes all prices generally and similarly A good theory of the value of money will also consider money-substitutes. The availability of and confidence in money substitutes can impact the demand for money The quantity theory may appear right in a context where new supply is constantly being created and most other factors around demand are not varying much. However, in panics, the demand for money can increase drastically and say the velocity has changed explains nothing Source: The Theory of Money and Credit - by Ludwig von Mises (that online text "corresponds to the 1953 Yale University Press Edition, New Haven."). Below are some selected quotes from a single section. For anyone interested in Economics, I strongly suggest you read all of section 6 in chapter 8, to get the entire flavor. Introducing the facts behind Demand and Supply "curves": "When the determinants of the exchange ratios between economic goods were first inquired into, attention was early devoted to two factors whose importance for the pricing process was not to be denied. It was impossible to overlook the well-known connection between variations in the available quantity of goods and variations in prices, and the proposition was soon formulated that a good would rise in price if the available quantity of it diminished. ... ... Thus, a mechanical theory of price determination was arrived at—the doctrine of supply and demand, which until very recently held such a prominent position in our science. Of all explanations of prices it is the oldest. " Introducing the Quantity Theory: "It was an obvious step to take this theory, that had been constructed to explain the reciprocal exchange ratios of commodities, and apply it to fluctuations in the relative values of commodities and money also." On the element of truth in theory: "... one fundamental idea contained in the quantity theory, the idea that a connection exists between variations in the value of money on the one hand and variations in the relations between the demand for money and the supply of it on the other hand, ... ... constitutes that core of truth in the theory which even the modern investigator can and must recognize as useful. Although the historian of economic theory may find this formulation inexact and produce quotations to refute it, ... ... Beyond this proposition, the quantity theory can provide us with nothing. " Against the idea that changes in the value of money are proportionate to the changes in the quantity of money: "It was not difficult to prove that the supposition that changes in the value of money must be proportionate to changes in the quantity of money, so that for example a doubling of the quantity of money would lead to a doubling of prices also, was not in accordance with facts and could not be theoretically established in any way whatever. It was still simpler to show the untenability of the naive version of the theory which regarded the total quantity of money and the total stock of money as equivalent." ... ... "There is no justification whatever for the widespread belief that variations in the quantity of money must lead to inversely proportionate variations in the objective exchange value of money, so that, for example, a doubling of the quantity of money must lead to a halving of the purchasing power of money." Objecting that we do not get demand for money by starting with the aggregate: "For a long time it was believed that the demand for money was a quantity determined by objective factors and independently of subjective considerations. It was thought that the demand for money in an economic community was determined, on the one hand by the total quantity of commodities that had to be paid for during a given period, and on the other hand by the velocity of circulation of the money. There is an error in the very starting point of this way of regarding the matter, which was first successfully attacked by Menger. ... If we start with a formula that attempts to explain the demand for money from the point of view of the community instead of from that of the individual, we shall fail to discover the connection between the stock of money and the subjective valuations of individuals—the foundation of all economic activity." Sometimes demand for money can increase: "... ... cases do occur in which the demand for money in the narrower sense increases suddenly and to an unusually large degree, so that the prices of commodities drop suddenly. Such cases occur when the public loses faith in an issuer of fiduciary media at a time of crisis, and the fiduciary media cease to be capable of circulation. Many examples of this sort are known to history (one of them is provided by the experiences of the United States in the late autumn of 1907), and it is possible that similar cases may occur in the future. " Blog cross-posted with permission. See link at top of post for original.
  19. Uncle Tom's Cabin: Uncle Tom is a slave. He is also a Christian hero. He is strong in adversity, and he can to take sorrow in his stride, always trusting that God has a larger plan for him. His belief in eternity keeps him resolute; brutal beatings leave him bloody, but unbowed. "Sublime is the dominion of the mind over the body, that, for a time, can make flesh and nerve impregnable, and string the sinews like steel, so that the weak become so mighty." Don't let the Christian theme or the physical violence (which does not pervade the book) dissuade you. This is a well-crafted and interesting book. Placing Tom with various masters, the author paints a broad picture of the diverse experiences of slaves and devises a plot with enough twists and turns to hold the reader's interest. We meet some interesting characters: a well-meaning white slave-owning couple who fall on bad times. A slave-trader with "that swaggering air of pretension which marks a low man who is trying to elbow his way upward in the world." We meet a rich pampered wife claiming to be in constant suffering, a conscientious New England spinster, and more. The strongest character of them all is the protagonist: Tom. The author's clarity of style helps one picture the scenes: "Imagine a tall, dignified, spiritual woman, whose clear muslin cap shades waves of silvery hair, parted on a broad, clear forehead, which overarches thoughtful gray eyes. A snowy handkerchief of lisse crape is folded neatly across her bosom; her glossy brown silk dress rustles peacefully, as she glides up and down the chamber." The author is critical of the churches in the south trying to find justification for slavery in the Bible. We see St. Clare, exclaim: "Religion! Is what you hear at church, religion?... ... Is that religion which is less scrupulous, less generous, less just, less considerate for man, than even my own ungodly, worldly, blinded nature? No! When I look for a religion, I must look for something above me, and not something beneath." Meanwhile,Tom finds himself in a scene that evokes the Temptation of Christ. With the devil's voice, his tormentor taunts him thus: "instead of getting cut up and thrashed, every day or two, ye might have had liberty to lord it round, and cut up the other niggers; and ye might have had, now and then, a good warming of whiskey punch. Come, Tom, don't you think you'd better be reasonable?--heave that ar old pack of trash in the fire, and join my church!... This yer religion is all a mess of lying trumpery, Tom." We see that Tom is truly more Christian than many of the hypocritical whites -- not just the Southern slave-owners, but even Northerners who disapprove of slavery while looking down on blacks. "O, ye who visit the distressed, do ye know that everything your money can buy, given with a cold, averted face, is not worth one honest tear shed in real sympathy? " This is not a naturalistic book, it is full-blown Christian Romanticism, with each character shaping his own soul and action. Of Tom, Stowe reminds us: "Pity him not! Such a life and death is not for pity!" Other notes: The author is not free of racism when she assumes that certain traits of character are genetic ("the African race has peculiarities... which... may prove to be. morally, of ... higher type"). Near the end, she praises Liberia as a solution for freed slaves, but for the wrong reasons. However, this occasional commentary does not detract much from this good novel. I could not help thinking of the view ascribed to Nietzsche: that Christianity -- with its malevolent view of this world, and its glorification of suffering and fortitude -- is a fitting religion for slaves, but not for free men It's easy to see why this book swayed public opinion. It is not a caricature. It does not show slave-owners as obviously brutal. Instead, by unraveling the underlying evil of the best and most well-meaning of the slave owners, it remains honest and impossible to evade. Blog cross-posted with permission. See link at top of post for original.
  20. I picked up Herman Melville's short story "Bartleby, the Scriverer" because the subtitle interested me: "A Story of Wall Street". I was listening to an audio version read with good humor. Though it had nothing to do with Wall Street, it was about an odd-ball character and I was intrigued and wanted to see how it would turn out. Bartelby is a clerk to a lawyer -- the narrator. Though he inexplicably refuses to do certain types of work, his boss tolerates his idiosyncrasies. Bartleby is not argumentative; just the opposite: he is a study in passivity. His boss is passive too: in his failure - stemming from pity, perplexity and "niceness"- to rid himself of this odd (and, increasingly unproductive) employee. The reader is given some explanation for the narrator's passivity, but kept guessing about the Bartleby's (lack of) motivation. "Why is Bartleby acting like this?" With that question hanging in the air, the story held my interest almost till the end. Melville let's his reader down by providing no answer. He does not give us a choice off possible explanations (except a really silly one that comes almost as an after thought). He just teases the reader with Bartleby's odd behavior, and then walks away, like he's saying "Hmm! I'm not sure how to wind this thing up!" Some commentators say the story reflects Melville going through a phase of depression and also his refusal to write as people expected him to. Fair enough: if that's true, the story belonged in his journal among other unpublished finger-exercises. As such, the story was pointless -- a waste of a few hours! Blog cross-posted with permission
  21. It might seem odd to step back and take a fresh look at the merits of something so incontestably beneficial as practice, but a couple of things I ran across recently make me want to do just that. First, I ran across a trick comedian Jerry Seinfeld used to overcome mental inertia on days he did not feel like writing jokes: [seinfeld] told me to get a big wall calendar that has a whole year on one page and hang it on a prominent wall. The next step was to get a big red magic marker. He said for each day that I do my task of writing, I get to put a big red X over that day. "After a few days you'll have a chain. Just keep at it and the chain will grow longer every day. You'll like seeing that chain, especially when you get a few weeks under your belt. Your only job next is to not break the chain." "Don't break the chain," he said again for emphasis. The technique strikes me as akin to the tactic of breaking large tasks up into smaller, achievable steps, or of finding "next actions" as productivity guru David Allen repeatedly advises, except that here, a short-term goal is grafted onto an ongoing chore, and serves the same motivating role as a next action or a small sub-goal. Making the chain grow -- or if you find some other way to make performing a practice session into a game, otherwise "scoring" or "winning" -- is an immediately achievable goal that is relatively easily reached. Rather than simply missing some practice session that would not, alone make or break his slim chance of having a rewarding comedic career, Seinfeld would break the chain now if he failed to write. This is a rather clever way to make a tendency called hyperbolic discounting work to one's own advantage. The second productivity hack relates to overcoming a tendency to not have presence of mind in certain stressful situations. Carolyn Hax, advising a woman who found being stared at in public to be unnerving, says the following: Ask yourself, now, what you can realistically hope to do in these situations, then prepare the words, gestures and/or actions. Say your plans out loud in the shower (seriously); repeat them to your friends by telling them the restaurant story and spelling out what you wish you had done. Even when practicing feels stupid, use repetition to teach your brain where the path is. In time, you'll be able to find it no matter how rattled you get. I did something similar long ago to overcome a childhood fear of medium-sized to large dogs. Looking back, it seems that the automatized beginnings of a rational course of action give the mind a sort of anchor, and this, in turn, enables increasingly longer periods of freedom from the paralysis caused by overwhelming emotion. That freedom permits one to think and, therefore, better deal with the upsetting situation successfully -- which will build confidence and result in more calmness the next time. I don't recall how long it took me to overcome that fear, but there eventually came a day when I walked past a pretty large dog and remembered how scared I used to be of such encounters, regardless of whether the dog seemed friendly or not. Both techniques involve establishing beneficial habits by overcoming emotional hurdles to performing small actions whose real benefits will accrue only over time, and after multiple repetitions. Practice may make perfect, in terms of skill, but it also creates good habits, and without those, all the talent or skill on earth can come to naught. -- CAV Blog cross-posted with permission
  22. "The Great Famine (PBS documentary)" hit Soviet Russia in 1921, when war and communist mismanagement exacerbated a period of bad weather. The scenes were pitiful: hungry people looking like skeletons from the Nazi camps, 10 million dead, and stories of cannibalism. The U.S. came to the rescue, sending tonnes of food to Soviet Russia. While "American Relief Association" had people in Russia, managing the supplies, local commissars often managed to use the food as a political tool to favor some and deprive others. The U.S. helped the Soviets, until the Lenin realized that he needed to allow a little more economic freedom with his "New Economic Plan". In the U.S., leftist journalists helped the Soviet cause. They said food aid should not be used to help just ideas and people who were more amenable to U.S. policies. So, in truly christian style, the U.S. should turn the other cheek, love its enemies, and help all alike. Herbert Hoover led the organization of the relief effort, proving that his handling of the stock market crash of 1929 was not his first piece of great management skills being strategically misdirected to cause more pain. ( More from Wikipedia) Overall, an interesting documentary. Blog cross-posted with permission
  23. Conventional economic theory says that over-supply typically causes a fall in price, and this cheaper price will cause more demand, till there is no longer any over-supply. Applied to the labor market, when a recession throws people out of jobs, wages should fall, the lower wages should make previous employment levels profitable to businesses, and the unemployment rate should fall back to its norm. Yet, this does not happen. By and large, managers prefer to fire people rather than reduce wages. Imagine that a recession hits and the unemployed find they must take an average 10% cut in their wages to get similar work. If a firm wants to cut its wage costs by 10%, it seems logical (in a Vulcan way) that the management would force a 10% wage-cut rather than letting 10% of its workforce go. However, managements mostly choose the latter. Understandably, such managements prefer to cause pain to a few people who are then no longer with the company, rather than cause pain across the board to a whole lot of people who remain. Whatever the cause, wages are "sticky" on the way down. Against this backdrop, consider the government's decision to cut payroll taxes for 1 year, claiming this would spur job creation and fight against recession. On the surface, it may seem that a tax-break should encourage demand for the thing on which the tax-break is given. However, the context of the payroll tax-break is that it is temporary (even if it is extended by another year), and that businesses are already in a mode where they want to reduce labor costs. The tax cut is raising nominal salaries in an environment where those salaries are already higher than they would be absent "frictional" cost of change. Therefore, the payroll cut does almost nothing to spur employment, and simply acts as fiscal stimulus, putting a little more money into the hands of consumers. The government ought to stay out of this area completely, but if they want to meddle, it would be more sensible to raise the employee's portion of the payroll tax, not lower it. Even with no change in anything else, it would be a good thing to make the hidden payroll tax paid by employers more visible. Someone who earns a salary of $1000 sees $80 being deducted as payroll tax, but the employer pays another $80 which does not show up on the payslip. In reality, the employee is earning $1080, and the tax is $160: that is how it ought to show up, to make the truth of the situation explicit. If the government is going to meddle, rather than cut the tax, it should say that the entire payroll tax will now come from employee's salaries. It can point out that any employer who wishes to keep things unchanged has simply to adjust nominal salaries upward to bring things back to what they were. If all employers did re-adjust, there'd be no change. However, it is likely that some will use the political cover to make only partial adjustments, thus cutting the average wages of their employees. If so, that can only help end the recession sooner rather than later. Notes: 1) At the start of the Great depression, Hoover called on industrialists not to fire workers, and not to reduce wages. Many actually moved to work-share schemes where each employee got less hours of work, so that each person earned less but more could be retained in employment. This was a bad idea, because it did not lower the cost to the firm. It would have been better either to fire workers or to reduce their wage-rates with no reduction in the hours worked. 2) There are a few more important things that ought to be done in the arena of wages: unemployment payments should not be extended further, and the maximum duration should be reduced back to pre-recession numbers the minimum wage laws should be pulled back Bacon-Davis labor laws ought to be revisited and rolled back States can do many things: they should issue guidelines on salary levels of city employees, and any higher salaries should be allowed only if passed by a ballot; they can also lay down rules that disallow cities from today's fraudulent pension schemes which place burdens on future taxpayers (if a city wants to offer pensions, they should cost it in a way that makes it rock solid, and does not assume away future costs) 3) Of course, I'd rather see spending cuts, not tax increases. Blog cross-posted with permission
  24. Schooled outside the U.S., I only just got to reading "The Scarlet Letter". Hawthorne takes us to puritanical New England, where a woman is outcast and forced to wear a letter "A" to mark her crime of adultery. However, the story is not primarily about evil social norms. Rather, it is an exploration of openness and guilt. The woman refuses to name her lover. She allows him to escape social stigma -- or much worse. On the face of things, it seems he did better of the two, but Hawthorne explores the notion that a life of constant pretense can wear a person down. How much more carefree is the woman who has nothing more to hide. Self-esteem is tied to openness about oneself. A man with much to hide, who keeps pretending to be something he isn't, constantly chips away at his sense of self. The woman's lover is tormented by this lack of visibility to other people. "Thou little knowest what a relief it is", he confides to her, "after the torment of a seven years' cheat, to look into an eye that recognises me for what I am! Had I one friend--or were it my worst enemy!--to whom, when sickened with the praises of all other men, I could daily betake myself, and be known as the vilest of all sinners, methinks my soul might keep itself alive thereby." Hawthorne makes his message explicit: "Be true!... Show freely to the world, if not your worst, yet some trait whereby the worst may be inferred." Surely, interesting advice to ponder: honesty about your worst, sets you free from pandering to the expectations of others. In short: be yourself. It's a short, novel with a narrow theme, but well plotted, well written and well worth reading. Misc notes: It might be interesting to compare and contrast this exploration of guilt, with Dostoevsky's similar exploration in "Crime and Punishment". Hawthorne's use of whispered legend is an interesting device. it reminds me of Rand's later use of the John Galt legends. For instance, "It was reported, and believed by many, that an Indian had drawn his arrow against the badge, and that the missile struck it, and fell harmless to the ground." Blog cross-posted with permission
  25. I like this constitutional check from Britain. The Army Act is only ratified for a year at a time From Wikipedia ... that the maintenance of a standing army in time of peace, unless with the consent of parliament, is against law. Each session therefore the text of the act had to be passed through both Houses clause by clause and line by line. The Army Act, on the other hand, is a fixed permanent code. But constitutional traditions are fully respected by the insertion in it of a section providing that it shall come into force only by virtue of an annual act of parliament. This annual act recites the illegality of a standing army in time of peace unless with the consent of parliament, and the necessity nevertheless of maintaining a certain number of land forces (exclusive of those serving in India) and a body of royal marine forces on shore, and of keeping them in exact discipline, and it brings into force the Army Act for one year. Blog cross-posted with permission
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