Voder-Vocoder

October 1, 1991 – October 1, 2011

0) More than anything, today's biggest economic problem is high unemployment.

1) More than anything, the banking industry's risky investments during the bubble caused the crash and the current high levels of unemployment. If the government had not bailed them out, most major banks would have gone bankrupt. We don't oppose banks or bailouts, but banks should be held accountable: strong regulation to prevent these things in the future, taxes to pay for future bailouts, and smaller banks that aren't “too big to fail.”

2) Federal tax and labor policy over the past thirty years has favored the super-rich (top 0.1%) at the expense of the median household. Too much of our productivity gains over this time period has gone to make the super-rich richer, and not enough has gone to the average American. Compare to the previous thirty years, when all Americans benefited more evenly from productivity gains.

3) Monetary policy is serving the super-rich (creditors) at the expense of the average American (debtors) If we were to raise the medium-term inflation targets from a current 1–2% to a modest 4–5%, we could relieve the debt burden of the average American, stimulate investment, and reduce unemployment. This is opposed by the super-rich and those who are confused about the utility of a strong currency.

4) Austerity (cutting government spending in the face of high unemployment) hurts more than it helps, especially when our long-term intrest rates are so low. The best way to balance the budget is to return to full employment and tax capital gains like any other income. And we don't need to balance the budget until we return to full employment.

August 1, 1991 – August 1, 2011

To get back to where we were in 2003, we need 11.6 million jobs.

July 1991 – July 2011

Every so often, I meet someone who claims to be a libertarian. When I was young and stupid, I held these same beliefs; so I have to suppress the urge to educate them. Instead, I’ll rant on my blog.

The following is from the Libertarian Party’s platform

We support a clean and healthy environment and sensible use of our natural resources. Private landowners and conservation groups have a vested interest in maintaining natural resources. Pollution and misuse of resources cause damage to our ecosystem. Governments, unlike private businesses, are unaccountable for such damage done to our environment and have a terrible track record when it comes to environmental protection. Protecting the environment requires a clear definition and enforcement of individual rights in resources like land, water, air, and wildlife. Free markets and property rights stimulate the technological innovations and behavioral changes required to protect our environment and ecosystems. We realize that our planet’s climate is constantly changing, but environmental advocates and social pressure are the most effective means of changing public behavior.

(source)

That’s crazy. To begin with, it goes against every bit of real-world evidence on the subject. Here’s why. If you own a business, it makes sense to organize it as a limited liability company; this shields your family’s assets from the liabilities of the business. You can also grow the business faster by selling shares. Suddenly, you have a corporation and officers of the corporation have a single duty: to make as much money as possible for the shareholders by any legal means. In the absence of environmental laws and regulations, that will often mean lots of pollution. To protect itself from lawsuits, the corporation can create a second corporation to do the actual polluting. That second corporation will have very few assets. If it gets sued by those hurt by the pollution, it can go bankrupt, leaving the shareholders of the first corporation reaping the profits, shielded by limited liability.

Strong property rights are no substitute for regulations, unless you want to eliminate the corporation.

New idea. We reinstitute pay-as-you-go to the federal budget on a permanent basis, with the exception that it doesn’t apply in years where the unemployment rate is over 6%

Need a catchy slogan. This won’t do: What do we want? A stimulus big enough to close the output gap! When do we want it? Six months ago!

We may be out of the recession (in that gross domestic product is no longer shrinking), but with a growing population, people delaying retirement because investments failed, and increases in productivity (GDP-per-worker) unemployment rates will continue inching upward. The stimulus package was not big enough to return us to full employment. So once the stimulus spends itself out next year, we may be in worse shape.

What do we need to do?

1) Fix the fundamental issues with our economy.

1.a) Encourage energy efficiency with a Pigovian tax on carbon emissions. This will reduce energy imports, help our trade deficit, and bring jobs home. Instituting a border carbon tax adjustment will help.

1.b) Keep health-care from rising more. Subsidize health-care for the lower-middle class. Regulate health insurance to get rid of the preexisting condition unfairness. Nationalize the insurance companies if they refuse to play nice.

1.c) Insure the insurers. Just like the FDIC insures banks and charges a premium to pay for potential bailout costs, do the same for insurance companies. Call it the Federal Insurance Insurance Corporation (FIIC). So even in the worst disasters, where insurance companies can go bankrupt, there would be an institution that can step in and make things right. The FIIC would refuse to re-insure a company like AIG , keeping it from becoming too-big-to-fail.

1.d) Get serious about other reforms of the financial markets. Does the financial system really deserve to make such huge profits? Do they add that much value to the economy as a whole? You will know that a financial system is properly regulated when investment bankers make the same salary as an accountant.

2) Continue with the monetary stimulus until we see real indications of inflation. So far, there are no indications, so we are not printing cash fast enough.

3) A new fiscal stimulus bill big enough to close the unemployment gap within 12 months. If we paid people to dig ditches and fill them back in, that would have the desired effect, but we can do better. Let us invest in more energy-efficiency projects, like the cash-for-guzzlers program. Let us start with a high-speed rail from Miami to Montréal. I know it is not shovel-ready, but it could be if we threw enough dollars and workers at it.

4) I have said it before: Short-term cyclic deficits are good, long-term systemic deficits are bad. We need to get rid of the our systemic deficit. I do not think we can reign in spending. Left-wing Democrats have got to realize that we have to be the world's policeman and that is not going to be cheap. And Republics should (but will not) admit that wars and defense spending must be paid for with taxes on the rich. Running a federal deficit during the bubble years was inexcusable. In fact, higher taxes would have kept the bubble in check, to some extent. So we should immediately pass higher taxes on the highest bracket, along with a provision that they will be automatically reduced to current levels for as long as national unemployment is over 6%.

(discussion)

(I’m reading a book on recent economics. It’s in the current affairs section of the store and is written by the son of a famous economist.)

The conventional wisdom is that: “We can get away with running trade deficits because foreigners are willing to hold onto dollars.”

But the reality is (maybe): “Foreigners insist on holding onto dollars (and US investments), causing a trade deficit.”

They have some dollars in their hand and what do they do with them? Do they buy American goods and services? Nope. They invest them in the US government (T-bills) and in US business (stocks and bonds). This causes a trade deficit, and that’s not a bad thing. What are we going to do, force them to buy American? It’s not that American goods are shoddy or something, it’s that the US dollar and US investments are so shiny. If the dollar wasn’t shiny and if American goods and services weren’t any good, then foreigners would buy commodities from us at market value and make the deficit go away.

Furthermore, [US Trade Deficit] = [US government budget deficit] + [US business deficit] + [US household deficit]. When the budget was balanced in the late 90s, it forced the private sector to run big deficits and we saw negative household savings for the first time ever. (maybe?)

I’m not sure I can wrap my head around this yet.

UPDATE: I missed a variable. The correct equation is:

And since Net Savings is negative these days,

Rules of the game:

You can change anything you want about the federal tax code, but your changes must be revenue-neutral. No starve-the-beast proposals.

* * *

My suggestion.

–> Let A be the annual income a full-time (40-hour/week) minimum-wage worker would make.

–> Let B be the annual income of the median worker. (50% of Americans make less than him, 50% more.)

–> Let C be the income of the 67-percentile worker. (66.7% of Americans make less than him, 33.3% more.)

Replace current federal taxes with the following:

1) Increase the EITC (earned income tax credit) to a very large level. Make it 0 at zero income, maximum at A, and get down to 0 again at B.

2) Income tax of 50% on all income greater than C, minus philanthropic donations.

3) A huge tax on carbon emissions. On the order of $10 per gallon of gasoline, with an carbon-equivalent tax on coal, diesel, natural gas, etc.

4) A general policy that negative externalities are taxed equal to the indirect cost to society. Carbon emissions are the biggest part of this at the moment, but I like the idea of pollution taxes greater than the cost of totally cleaning up the pollution. And a big tax on non-reusable goods.

* * *

UPDATE: Hey, there’s a website for revenue-neutral carbon taxes!

“Switchgrass has the potential to produce the biomass required for production of up to 1000 gallon of ethanol per acre.”

Each American, on average consumes 1023 gallons of oil per year.

As of 1997, there was 1.4 acres of farmland per person in america.

You can either eat meat OR drive cars once we run out of petroleum.

I got into an argument with a certain unnamed environmentalist the other day. I was arguing that when we (humanity) start to run low on petroleum and natural gas over the next thirty years, we will have to become more reliant of nuclear fission as a source of energy.

The only other options are:

1) Reliance on coal. Unfortunately, coal releases more CO2 into the environment per unit of energy than natural gas, so the more that we rely on coal, the more we accelerate global warming. Burning sulfur-​containing coal also contributes to acid rain. If you don’t think that acid rain is a bigger problem than radioactive waste, go visit Appalachia.

That said, we will have to use more coal whether we like it or not.

2) Reliance on wind and solar. These will have to be a big part of our plans, but the infrastructure will be expensive and take a long time to build. Kunstler argues that these things can not be built without cheap energy and so will never be built. I am less pessimistic than he. In an ideal world, the feds would be creating a TVA-like organization to issue bonds and start building, even it they won’t turn a profit for fifty years.

3) Using a lot less energy. We can save a lot of energy just by doing two things: outlawing pizza delivery and forcing everyone to take the bus to work. (TWAJS.) But in the end, we need a lot of energy to fix nitrogen to fertilize crops to feed the six+ billion people on the planet. The only other option is to allow a few billion to starve to death. Is that what you want?

Organic farming will never feed six billion people. (Dear organic farmers, please prove me wrong.)

4) Wait for fusion. Good plan. Santa Clause will put it in you stocking next Christmas. With the Toothfairy’s help. (Dear plasma physicists, please prove me wrong.)

5) The hydrogen economy. That Was A Joke Son.

No, I am not stuck in 1950. Nuclear energy is not cheap and does produce toxic byproducts. But we can deal with those byproducts. It’s just radioactivity. Stay away and keep it out of the atmosphere, groundwater, and the hands of terrorists.

No, I’m not an environmentalist any more. I am a realist. We should do what we have to do to keep billions of people from starving.