Archive for the ‘Economics’ Category

Barack H. Obama’s Legacy, Part 5

ObamaLegacyPart5 <– PDF

In closing out Mr. Obama’s domestic agenda, we come to the state of the national debt. The national debt had been growing for many years, but it reached and surpassed a critical point during Mr. Obama’s tenure.  It is true that President’s are not directly responsible for the nation’s debt (because only Congress can authorize a budget), but Presidents can use their influence to restrain the worst instincts of Congress.  Mr. Obama did nothing but encourage Congress’ reckless spending.  Figure 1 shows the nation’s GDP, total national debt, and ratio of GDP to debt for the years 1929 to 2016 in current-year dollars.  The ratio of GDP to debt is an important indicator of the nation’s liabilities compared to its total economic activity; higher is better.  These figures are not exactly in alignment, since the debt figures are for fiscal years, and the GDP values are for calendar years.  The general trend is accurate.

Figure 1: GDP, National Debt, and GDP-to-Debt Ratio, 1929 – 2016

Figure 2 shows the ratio of debt to GDP for the same interval. When Hoover entered office in 1929, the nation’s finances were in excellent shape, as the GDP-to-debt ratio was over six.  Then came the Great Depression, which nitwit Hoover made worse with his bad policies.  The GDP-to-debt declined drastically in the early 1930’s.  It was left to the even bigger nitwit Roosevelt to extend the depression to 1940 with his even worse policies, although the GDP-to-debt remained fairly static around 2.5 from 1934 to 1940.    It was not until Hitler rescued Roosevelt by starting World War II that the American economy came back to life.  The downside in financial terms is that the expansion of production was paid for by adding it onto the debt.. The GDP to debt ratio reached its all-time low in 1946 (0.82), just after the enormous debts accumulated during World War II.  From the Truman to Nixon administrations, the debt increased, but GDP increased faster, and the GDP to debt ratio steadily improved, reaching 3.16 in 1974.  It remained fairly steady until the halfway through Reagan’s first term; it then began a long slow protracted decline until halfway through the Clinton administration.  It improved a bit from there until about 2007, the second-last year of Bush Jr. administration, and then resumed its steady decline until sinking below 1.0 in 2014.  It is interesting to observe that one can draw a straight line from 1994 to 2011 and end up in the same place. It has continued a slight decline since 2014.

Many economists consider a GDP-to-debt ratio to be an accurate indicator of high risk. It is comparable to a household with debt equal to an entire year’s income.  In the long run, it is unsustainable.

So the U. S. financial condition is now about where it was in 1947.  But there is a big difference between the federal government obligations in 1947, wherein it began a long period of improvement, and now.  In 1947, there was no Medicare, no Medicaid, no Obamacare with its subsidies, no extensive social spending, no pervasive meddling bureaucracy to be paid, and Social Security was only a small item in the budget.  Mr. Obama was content to let the financial condition deteriorate without making some sort of attempt to get back on a sound financial footing.  We can only hope that Mr. Trump will not make the same mistake.

Figure 2: GDP-to-Debt Ratio, 1929-2016

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Success in America’s Major Cities

SuccessInAmericasMajorCities  <– PDF version

An examination of the economic situation in our major cities proves that you can’t argue with success.  The success I’m referring to is the political success the Democratic Party has had in winning municipal elections and controlling the economic future of our major cities, mostly in the Northeastern states.  The economic policies that have been implemented over the past two generations are laughable; the disasters are evident to anyone with even a teaspoon of common sense.  But the Democratic Party parties on in these places, continuing the same economic policies that turned industrial giants into pathetic basket cases.  Here is a list of major U. S. cities, and the durations over which the Democratic Party has been in control:

Baltimore, MD:  Continuous Democratic Party control since 1967 (48 years)

Boston, MA:  Continuous Democratic Party control since 1930 (85 years)

Buffalo, NY:  Continuous Democratic Party control since 1966 (49 years)

Chicago, IL:  Continuous Democratic Party control since 1931 (84 years)

Cincinnati, OH: Continuous Democratic Party control since 1984 (31 years)

Cleveland, OH: Continuous Democratic Party control since 1990 (25 years)

Detroit, MI: Continuous Democratic Party control since 1962 (53 years)

Erie, PA: Continuous Democratic Party control since 1966 (49 years)

Newark, NJ: Continuous Democratic Party control since 1962 (53 years)

Pittsburgh, PA: Continuous Democratic Party control since 1934 (81 years)

Philadelphia, PA: Continuous Democratic Party control since 1952 (63 years)

St. Louis, MO: Continuous Democratic Party control since 1949 (66 years)

Washington, DC: Continuous Democratic Party control since 1961 (54 years)

Our largest city, New York, requires a little explanation.  It has been ruled by Democrats continuously since 1970, with the exception of the Giuliani and Bloomberg administrations.  Both of these men were elected as Republicans, but in fact Bloomberg is as hard-core a Marxist as you will find anywhere (now that he made his fortune).  It is fair to say then, that except for the eight years of Giuliani, New York has been run by Democrats for 37 of the last 45 years.

With this list of enormous successes, we can now say for sure what the benefits of socialism amount to: a) High taxes on nearly everything; b) Stringent regulation on nearly everything; c) Reduction of business opportunities; d) Scarcity of work; e) Poor public services; f) Dangerous streets; and above all, g) An arrogant, incompetent, entrenched oligarchy at the top, living the high life.

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The Financial Status of Social Security, Part 3

FinancialStatusOfSocialSecurity_Part3   <– PDF version

Dear readers:

This is the third in a series on Social Security, covering a historical review of the tax rates and income subject to Social Security taxation.  Because of the charts in it, it is available only as a pdf file.

Thanks for reading,

EDD

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FinancialStatusOfSocialSecurity_Part2   <– PDF version

Some analysts and economists have claimed that the Social Security system is nothing more than a Ponzi scheme.  I believe I can show that there are enough differences between the two to demonstrate that this claim is incorrect.

Let’s begin by reviewing what Ponzi scheme is.  It was named for Carlo Ponzi, a Boston businessman who talked people into investing in a plan to earn a profit through arbitrage of international reply coupons (IRC).  An IRC is an international agreement by which nations agree to deliver mail from other nations within their postal system.  Ponzi’s plan was to take advantage of the difference in postal rates among the various nations participating in the IRC treaty.  His plan fell through with great losses because the overhead on each transaction was too high.  Ponzi’s plan started as a legitimate enterprise, but he turned it into a fraud when he started realizing losses.  He then diverted money provided by new investors by using it to pay off the original investors, while also taking a cut for himself.  In honor of Mr. Ponzi, any investment plan in which early investors are paid off with funds provided by new investors instead of profits is now called a Ponzi scheme.  Instead of earning money by wise investing, the fund managers camouflage their losses by sending out false financial statements.  When necessary, they make payments to the original investors by robbing the newer investors.  This continues until the management runs out of new investors, or the operators steal everything they can.  Normally, Ponzi schemes attract investors by claiming to have invented some secret stock market advantage, or by claiming to have discovered some hidden trading tactic that is always profitable. With that background in mind, here are five reasons why Social Security is not a Ponzi scheme.

1.  “Investing” in a Ponzi scheme is voluntary, “investing” in Social Security is not.  If you are working, whether for wages or in business for yourself, you are inducted into the system except for some very narrow exceptions (usually involving employment by a religious institution).

2.  A Ponzi scheme, although fraudulent, is ultimately subject to Securities regulation, thus incurring a legal obligation to conduct the business honestly (although they have no intention of doing so). Social Security is not subject to any regulation; the Social Security Administration is under no legal obligation to pay benefits: it operates solely on the whim of Congress.

3.  Because a Ponzi scheme is set up to be nominally subject to regulation, an investor can demand to get his money back at any time.  However, no one can get their Social Security “investment” back until they meet age or disability requirements set by Congress.

4.  A Ponzi scheme is based on attracting a small number of wealthy people to invest in it; thus it robs the rich when it fails.  Social Security is based on forcing a large number of poor and middle class people to participate; thus it will rob the poor and middle class when it fails.

5.  Ponzi scheme managers send out false financial statements to give the illusion that it is solvent in the short run.  The Social Security Administration publishes honest financial statements that prove that it is insolvent in the long run.

 

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