Daniel Brockman

The Public Response to an Artificial Disaster

2011-12-25T00:26:00.001-08:00

One in Six Floridians Now Depends on Food Stamps (http://articles.sun-sentinel.com/2011-12-21/business/fl-food-stamp-surge-distress-20111220_1_food-stamps-supplemental-nutrition-assistance-program-food-banks retrieved 2011-12-24).

The problem is real. In addition to adults, it affects many children. Half of all food stamp beneficiaries are children
(p.15, M. Ver Ploeg and K. Ralston, "Food Stamps and Obesity" (USDA, 2008-Mar,http://www.ers.usda.gov/publications/eib34/eib34.pdf retrieved 2011-12-24). According to persons who want to abolish the food stamp program, in 2009 the federal food stamp program cost $56b including $6b of administrative costs and $3b of fraud and 28m recipients (all poor), and the federal free school breakfast (8m children) and lunch program (30m children) cost $16b, and the federal WIC (Special Supplemental Nutrition Program for Women, Infants, and Children) cost $7b while serving 6m women (http://www.downsizinggovernment.org/agriculture/food-subsidies retrieved 2011-12-24). In the US, in 2007, 8 percent of households with children didn't have consistent access to food for the children (p.i., Nord, Mark. Food Insecurity in Households with Children: Prevalence, Severity, and Household Characteristics. EIB-56. U.S. Dept. of
Agriculture, Econ. Res. Serv. September 2009 http://www.ers.usda.gov/publications/eib56/eib56.pdf retrieved 2011-12-24 also Chris Emery, "Half of American Children Receive Food Stamps" http://www.medpagetoday.com/Pediatrics/GeneralPediatrics/16752 retrieved 2011-12-24).

If a big hurricane went through Florida and put 1/6 of the population to standing in food lines, then what would be the appropriate response, both on a personal and public basis?

Labor productivity has increased in almost every year since the end of WW2. Since 1980, more than 80% of the benefit of increased productivity has been redistributed to (or converted to additional income for) the One Percent, and the 99% have divided the rest of the benefit (http://daniel-brockman.blogspot.com/2011_03_01_archive.html). For the poorest persons, real income declined since 1980 (http://daniel-brockman.blogspot.com/2010/06/income-inequities.html).

Individual employers establish policies requiring workers to work a minimum of 28 or 30 or 32 hours per week to qualify for the benefits of full-time employment, such as medical insurance for the worker and the worker's children, retirement plan, ESOP, and others. Rare exceptions include Starbucks and Peets which require 18 or 20 hours per week. So, nearly all workers want full-time 40-hour-per week employment, so much that they feel they can't accept fewer hours per week.

Our economy can produce sufficient products and services to meet demand without full employment, that being the status quo today, December 25, 2011. Another way of looking at this is that there aren't enough 40-hour-per-week jobs to go around. This is important because the job is the connector of the person with the economy, the vehicle by which an individual directly acquires a portion of the distribution of goods and services, all other means available to individuals (which excludes acts of Congress) being much more expensive or difficult for someone.

One way to extend the basic connection to those currently unemployed would be legislation to require employers to provide full-time benefits to persons working at least, say, 20 hours per week. Then workers would be satisfied with the minimum plus a buffer, say, 28 hours per week. Then they would have the opportunity to leave their current employer to accept a shorter work week with another employer. Among employers, some would be glad to hire a person for 28 hours per week for a job that couldn't justify hiring a person for 40 hours per week, and they would profitably do so. Some other employers would begin to notice attrition among their work force and fewer applicants willing to accept a "full" workweek more than, say, 32 hours long. Their costs for existing workers would not increase, unless they would choose to convert to a shorter work week. Some other employers anguish over laying off 10 percent of their workforce, and they would have the opportunity to convert to a shorter work week instead.

A shorter full-time work week would virtually eliminate the crisis of unemployment. (http://daniel-brockman.blogspot.com/2010/07/35-hour-work-week-remedy-for.html, http://daniel-brockman.blogspot.com/2010/11/french-experience.html, http://daniel-brockman.blogspot.com/2010/12/california-experience.html).

Policies that intentionally or directly make people work harder or longer to produce a unit of goods or services should be avoided. They would reduce the size of the pie, rather than distribute the slices more widely. And transfers to the unemployed and underemployed don't affect the structure of the economy which causes their unemployment and underemployment.

However, transfers to the unemployed and underemployed are an urgent and vitally necessary stopgap action. They indirectly prevent many children from suffering. They provide urgent economic sustenance to many adults as well.

Repeating our earlier question: If a big hurricane went through Florida and put 1/6 of the population to standing in food lines, then what would be the appropriate response, both on a personal and public basis? What if the crisis that puts 1/6th to standing in food lines is not a natural disaster? What if it results from our social conventions for determination of the definitions of property and ownership and distribution of the fruits of productivity improvements and distribution of income? What if the unwillingness of the Tea Party to tax the One Percent more heavily impairs our public response? What if the demand of the Tea Party for expansion of the Capital Gains income tax loophole, for the benefit of the One Percent, succeeds in starving the beast and, incidentally, the children?

The 1% and the 99%

2011-11-13T18:43:00.000-08:00

The Occupy Wall Street movement distinguishes between the 1% (who have a lot of money) and the 99% (who have less). Just how rich are the 1%? Income tax data for the 2008 tax year, published by the Internal Revenue Service, gives us a perspective.

That spike running up the right-hand edge of the graphic chart is the average income of tax filers in the 1%.

A quintile is a fifth, 20%. The upper quintile of US tax returns is a set of returns with higher incomes than the other four-fifths of returns. A percentile is a hundredth.

The chart shows the average incomes by quintiles, with the upper quintile broken into the 19% not-quite-rich and the 1%.

If you lined up 100 people representative of the quintiles and the 1%, and you stacked up their 2008 income in dollar bills, in a nice orderly row, then it would look something like the chart.

The income of the 1% person is bigger than the combined incomes of the 80 people in the lower 4 quintiles. The income of the 1% person is bigger than the combined incomes of half the other people in the 5^th quintile.

If you are in the 1%, then your annual income is at least $500,000. The average income for the 1% is a little more than $1.4 million.

If you are in the upper, or fifth, quintile, but not in the 1%, then your annual income is more than $75,000, with an average of $97,000 for this group.

Quintile	Avg Taxable Inc $000	Min Adj Grs Inc $000	Aggregate Taxable Inc $bil	1% of Aggr $bil
1 %	$1,414	$500	$1,271	$13
V ex 1%	$97	$75	$2,819	$28
IV	$34	$40	$1,038	$10
III	$16	$25	$368	$4
II	$5	$10	$150	$2
I	$0	$0	$6	$0

If the government increases everybody's overall income tax rate by 1%, then the 1% will pay $13 billion more, and the other 19% will pay $28 billion more, and the other 80% will pay $16 billion more.

(If you are interested, email me and I'll send you a copy of the detailed calculations using the IRS data.)

Sources:

Tables 1 and 2 for 2008, http://www.irs.gov/taxstats/indtaxstats/article/0,,id=96981,00.html (retrieved 13-Nov-2011).

The Fairer Marginal Tax Rate Principle

2011-10-08T12:30:00.000-07:00

In 1986, the top 1% (ranked by AGI - Adjusted Gross Income) of individual U.S. income tax returns aggregated 11% of the total AGI of all individual returns. And the tax for the top 1% was 26% of the total tax. In 2008, the income of the top 1% doubled to 20% of all income, and the tax for the top 1% had grown by only half to 38%.

This suggests the Fairer Tax Marginal Rate Principle: For individuals with incomes exceeding $1 million (2011 dollars, adjusted for inflation), the marginal tax on income will be twice the share, for their income percentile, of total income for the previous tax year.

Source:
File 08in05tr.xls (retrieved 8 Oct. 2011 from
http://www.irs.gov/taxstats/indtaxstats/article/0,,id=133521,00.html).

(This article written by the pool in La Jolla, California.)

How to Really Wreck the Economy

2011-09-12T20:13:00.000-07:00

Robert Barro

Dr. Robert J. Barro's prescription for "How to Really Save the Economy" would save it for only 20% of the people, if that many. His standard for a good idea is: if it benefits persons with annual incomes exceeding 2 million dollars, then it's a good idea.

Where Dr. Barro's prescription breaks down is in the definition of what is an economy. If an economy is the thing that produces GDP, and if a growing GDP is a saved economy, then Dr. Barro's prescription may well grow the economy by increasing the incomes of the very wealthy. If the incomes of the wealthy increase fast enough, then the people with incomes less than $2 million can have their incomes stagnate or even decline a bit, because the GDP will still grow, and by this definition the economy will have been saved.

But if the definition of an economy is the engine of production and distribution by which all persons obtain the goods and services they need, then Dr. Barro's prescription is for "How to Really Wreck the Economy", because the poorer 80% of the people would not benefit from his prescription, and many of them would be worse off.

Dr. Barro is wrong or partially wrong on all six counts:

1. Increasing the ages of eligibility for Social Security and Medicare.
This would enable workers to spend more of their lives working without necessarily increasing their lifetime incomes. For persons with incomes greater than $2 million per year, few of whom have to work in any case, Social Security and Medicare are trivial sources of income.

2. Phase-out deductions for mortgage interest rates, state & local taxes, and employer expenses for health care.
Without deductibility of employee's health expenses, most businesses will discontinue health care benefits. Since 20% of the income of the very wealthy comes from businesses, this helps the wealthy. But it increases the burden of health care costs for the employees of the business. Medical costs are a trivial part of the incomes of the very wealthy. Also, for people who have three or four houses, and for people who can pay cash for a house, the mortgage interest deduction has no value.

3. Lower marginal income tax rate for individuals.
If the marginal rate drops below 25%, then capital gains and dividend income will be taxed at zero percent, according to the tax law on these kinds of income. Since 60% of the income of the very wealthy comes from investment income, this benefits the wealthy who pay a 15% rate on capital gains and dividends under current law. The wealthy have had lower marginal rates for the last ten years, and the lower rate hasn't saved the economy yet, so it's hardly evident that lowering marginal rates will save the economy. Also, labor will still be taxed at non-zero rates.

4. Reverse the excessive spending practices of the Bush & Obama administrations.
The excessive spending in the Bush years for the subsidy of war profiteers and pharmaceutical companies was prolific, unwise and unnecessary. The deficit spending in the Obama years is for Keynesian sustenance of the workers. Even Keynes didn't expect that deficit spending would do more than halt the decline until business people felt confident of undertaking new ventures. The Obama expenditures keep the hull of the lifeboat intact. Obama proposes spending on public schools. But then, what is the future of the public schools in America to a person whose children attend private schools in Switzerland? Obama proposes extending unemployment compensation. And unemployment compensation is a trivial component in the incomes of the very wealthy.

5. VAT.
Dr. Barro would impose a nationwide Value-Added-Tax, increasing the cost of milk and shoes and gasoline for a family that hasn't enough money to buy gasoline to make the drive to work and shoes for the 7-yr old who has outgrown her old pair and milk for the baby. But wealthy people don't face decisions like this, since the cost of food and shoes and gasoline is a very small part of their incomes. In fact, any expenditure to which VAT would apply is but a small part of the incomes of the very wealthy, since most of their incomes is invested. VAT would take a significant part of the incomes of the poor, and a trivial part of the incomes of the very wealthy.

6. Abolishing corporate & estate taxes.
Estate taxes apply only to the estates of a few very wealthy people, and once the deceased's estate has suffered the tax haircut, there remains what 80% of the population would describe as a very substantial piece of wealth. Abolishing the corporate income tax would allow the wealthiest people to have their lawyers and accountants reconfigure their income streams to flow through their personal corporations. It's only a matter of paperwork. For 80% of the population, to continue their income as a corporation instead of as a human, they would have to forgo such protections as labor laws afford, provided they could persuade their employer to go along with the deal, even for a reduced level of income. For most workers, the opportunity to receive their income through their corporation simply won't exist in any practical way. So reducing the corporate income tax to zero gives the wealthiest persons a way to reduce their personal income tax to zero, with little or no benefit for the workers.

Sources:

Robert J. Barro, How to Really Save the Economy, New York Times (September 11, 2011)
http://www.nytimes.com/2011/09/11/opinion/sunday/how-to-really-save-the-economy.html

Keynes, J. M., The World's Economic Outlook, The Atlantic (May 1932, downloaded August 27, 2011) http://www.theatlantic.com/past/docs/unbound/flashbks/budget/keynesf.htm

Internal Revenue Service, Publication 17 (2010), Your Federal Income Tax, 8. Dividends and Other Distributions, Qualified dividends, http://www.irs.gov/publications/p17/ch08.html#en_US_2010_publink1000171584

Internal Revenue Service, Publication 17 (2010), Your Federal Income Tax, 16. Reporting Gains and Losses, Capital gain tax rates,
http://www.irs.gov/publications/p17/ch16.html#en_US_2010_publink1000172517

Internal Revenue Service, Publication 17 (2010), Your Federal Income Tax, Publication 17 - Additional Material, 2010 Tax Computation Worksheet—Line 44,
http://www.irs.gov/publications/p17/ar02.html#en_US_2010_publink1000175003

Daniel Brockman, Share of Income (June 9, 2010), http://daniel-brockman.blogspot.com/2010/06/share-of-income.html

Daniel Brockman, Distribution of Income by Source in 2009 (August 21, 2011), http://daniel-brockman.blogspot.com/2011/08/distribution-of-income-from-investments.html

What Did Ben Bernanke Say? - Part Deux

2011-09-03T18:05:00.000-07:00

Dr. Ben S. Bernanke (Image: FRS/Wikipedia)

Dr. Ben S. Bernanke, appointed byPresident George W. Bush to the Chair of the Federal Reserve System, spoke in Jackson Hole, Wyoming on Friday, August 26, 2011.

Dr. Bernanke studied the Great Depression extensively (Essays on the Great Depression). Among other insights, he found that the countries recovering most rapidly (Britain, Germany) were those that unlinked their currencies from the gold standard. Those that adhered to the gold standard (France, United States) didn't recover until they unlinked. Today, economists generally acknowledge that economist John Maynard Keynes got it right in urging soft money(abandoning the gold standard) and deficit spending by governments, thereby sustaining the population until economic vigor can return. Today, the world-wide hard money standard is the US dollar. Unlinking from hard money is equivalent to expanding the money supply, that is, QE, "quantitative easing", the current
euphemism. The downside of unlinking is eventual inflation, the loss of currency value. Under Dr. Bernanke's leadership, the Fed has pursued a strategy consistent with preventing inflation by carefully contracting the money supply when economic growth emerges in the future, while expanding the money supply now by purchasing government bonds, to enable current economic growth. This is a new strategy, one not yet attempted intentionally by any central bank.

I suggested to a friend that she read Dr. Bernanke's speech. She did read a bit of it. Then she said "English, please. What did he say?"

(For a glossary of terms used in the speech, click here.)

In this article, with apologies to Dr. Bernanke, I'll try to tweet down the remarks to their most basic messages, plainly stated. (Click here for the original speech.)

So modified, here is the speech:

Some ask: Have the advanced economies stagnated?

I say no. Given our fundamental capacities, growth will return.

The job of policymakers, that is regulators and lawmakers like me, is to, first, help the recovery and, second, promote long-term growth.

The crisis of 2008-9 was the worst since the Great Depression.

After 2009, the global economy grew. Emerging markets led.

U.S. manufacturing is up 15%. The trade deficit is way down. Households save more and borrow less.

The recession is worse, and the recovery weaker than we thought. Output hasn't come back. Unemployment persists. We have long-term problems.

In earlier recessions, production fell and people cut back on purchases. After a while, they bought some things they had put off. Sales increased. Businesses hired. Production increased. Profits improved.

The current recession is bad. It's global. It hit housing hard. It came with a historic financial crisis.

Housing powered previous recoveries, but not this time. Homeowners feel financial stress.

Volatility and risk aversion hit financial markets worried about European government debt and the U.S. budget deficit. Households and businesses lost confidence, which put future growth at risk.

In the FOMC Federal Open Market Committee, we expect a continuing, strengthening, moderate recovery, with long-term inflation under 2 percent, a rate consistent with the Federal Reserve mandate.

The FOMC will hold interest rates near zero through mid-2013.

The FOMC monitors economic conditions. The FOMC will choose from among its many monetary stimulus tools and use the right tool at the right time for a strong recovery with price stability.

Long-term, the crisis and recession won't affect growth potential, if – and I stress if – we take necessary steps. We need good housing policy for stable housing growth in the medium term. Households must save more and borrow less. Businesses must invest and leverage recent productivity gains. Europeans must address effectively the difficult issues they face.

Recovery will take a while. The U.S. economy is big with fundamental market strengths. But the population is aging. The K-12 public schools poorly serve many people. Healthcare costs are highest in the world without commensurately better health outcomes. We must intensify efforts to address these long-term problems.

Policymakers must promote macroeconomic stability, financial stability, effective tax, trade and regulatory policies, development of a skilled workforce, public and private investment, research and adoption of new technologies.

The Fed promotes long-term economic performance by keeping inflation low, by macroeconomic stability and by acting as lender of last resort.

Extraordinarily high unemployment makes a perfect moment in which putting people back to work in the short term reduces hardship, keeps productive resources from lying fallow, avoids long-term loss of skills and avoids long-term detachment of workers from the labor force.

We urgently need recovery of employment.

Most policies for robust long-term growth lie outside central banking.

For economic and financial stability, U.S. government debt must decline. Otherwise, federal government finances will spiral out of control, with severe economic damage.

Fiscal policymakers should urgently seek sustainability. They should plan to reduce future deficits without derailing the current fragile recovery.

Fiscal policymakers must design tax and spending policies that give incentives to work and save. Growth won't fix our fiscal imbalances.

This summer, fiscal negotiations disrupted financial markets and the economy. If this happens again, it will cool world markets for U.S. securities.

The Federal Reserve will pursue high rates of growth and employment in the context of price stability.

Sources:

Washington Post, Ben S. Bernanke Profile (November 14, 2005, downloaded August 27, 2011) http://www.washingtonpost.com/wp-dyn/content/article/2005/10/24/AR2005102400893.html
Bernanke, B., Essays on the Great Depression (2000, Princeton University Press) Essays on the Great Depression.
Bernanke, B., Speech of Chairman Ben S. Bernanke at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming (August 26, 2011) http://www.federalreserve.gov/newsevents/speech/bernanke20110826a.htm.
Keynes, J. M., The World's Economic Outlook, The Atlantic (May 1932, downloaded August 27, 2011) http://www.theatlantic.com/past/docs/unbound/flashbks/budget/keynesf.htm

What Did Ben Bernanke Say?

2011-09-03T13:39:00.000-07:00

Dr. Ben S. Bernanke (Image: FRS/Wikipedia)

Dr. Ben S. Bernanke, appointed by President George W. Bush to the Chair of the Federal Reserve System, spoke in Jackson Hole, Wyoming on Friday, August 26, 2011.

When I suggested to a friend that she read the speech, she read a bit of it and said "English, please. What did he say?"

(For a highly condensed summary of the speech, see Part Deux.)

Her comment inspired this glossary of economic and financial terms Dr. Bernanke used in his speech. Almost without exception, these terms are loosely defined in this glossary, as used by Dr. Bernanke, and in general use.

Advanced Economies – Europe, U.S. and Canada, Japan, Australia.

Asset – A real asset or a financial asset. See Balance Sheet.

Balance Sheet – An itemized list showing on the left the values of assets (cash, investments, receivables or amounts owed by customers, inventories of supplies and products, equipment and real estate), and on the right the values of claims against those assets. The upper part of the right side lists the liabilities, the debts of the company (suppliers, banks, mortgages, long-term lenders and taxes), and the lower part is the equity, the value for the owners, which always equals the total assets minus the total liabilities.

Balance Sheet Strength – A strong balance sheet shows liabilities relatively small compared with assets. A strong balance sheet usually implies liabilities less than 30% of assets. A strong balance sheet shows short-term assets (cash, marketable securities, receivables, inventories) relatively large compared with liabilities, especially Short-Term liabilities (amounts coming due within one year). Characteristics of strength vary from industry to industry, and individual circumstances can warrant exceptions.

Bond – A certificate representing promise to pay a specific amount (traditionally $1,000 in US markets) at a specific time, generally long-term, and interest payments (semiannual in US markets). Governments and large corporations use bonds as a way to borrow money. The purchaser of a bond (the lender) may sell the bond to another person who then receives the payments. The bond is an asset for the lender and a liability for the borrower.

Capital, Banking – Owner's equity on the balance sheet, and (depending on context) sometimes includes very long-term debt.

Capital Formation – Gathering some money to create or run a business.

Central Bank – Usually, a department of government that issues and maintains the national currency. To that end, the central bank regulates the soundness of financial institutions and lends money to the best borrowers when no one else will. See Federal Reserve.

Commodity – Usually refers to goods sold in large quantities, where the distinction between individual elements isn't important in context. For example, limestone, rice and gold are commodities, but Carlsbad Caverns (which are made of limestone), a mushroom risotto at Luigi's Restaurant, and your grandmother's engagement ring are not commodities.

Consumer Durables – Household appliances, beds, motorcycles and passenger cars purchased without intent to use them principally to produce income.

Credit Availability – If a person of good character with willingness and ability to repay can easily find a willing lender, then credit availability is good. Usually coincides with liquidity.

Credit, Tight Conditions – The opposite of credit availability

Cyclical – Of or pertaining to a recurrent (or presumed to be recurrent) event affecting most of the economy.

Default – Inability or unwillingness to make a promised payment, so that the payment doesn't occur.

Deficit, Trade – For a national economy, the amount by which the value of imports in a year exceeds exports.

Deficit, Fiscal – For a government, the amount by which the expenditures in a year exceed tax revenues.

Delinquency – Lateness in making promised payment.

Demand – The aggregate desire for something, usually considered as the quantity of the article sold, or the number of willing buyers emerging, during a time interval when the article is offered at a particular price.

Demand, Pent-up – An accumulation of demand delayed by some impeding condition.

Depression – A bad recession. The last depression that politicians will acknowledge was the Great Depression of the 1930s.

Economy – The system of production and distribution of goods and services. We sometimes find a little comfort or momentary convenience in the illusion of economies with geographic boundaries, but in truth there is only one economy.

Emerging Market – The world other than the advanced economies.

Expansion – a good word to use when you tire of using “growth”.

Extension of Credit – Lending or willingness to lend.

Equity – Total assets minus total liabilities. See Balance Sheet.

The Fed – Federal Reserve.

Federal Reserve – a.k.a. The Fed. The central bank of the United States, managing the money supply, regulating banks and having a legal mandate to promote sound banking, economic growth and full employment. Formally organized as a company with the commercial banks in each region owning shares in the regional Fed, and the regional reserve banks acting as a syndicated Federal Reserve System. In practice, the Fed is an autonomous department of the government.

Financial – Of or pertaining to money or claims on assets.

Financial Assets – Cash, stocks, bonds, mortgages, etc.

Financial Crisis – A financial problem becomes a crisis when it significantly disturbs or prevents the distribution or movement of real assets. A financial crisis is a loss of signal, in the sense that an amount of money offered in a particular place and time provides a signal directing the distribution and movement of real assets. A financial problem such as inability to get a cashier's check when the bank is closed for the weekend isn't a financial crisis (for the community).

Federal Funds – Money, usually from deposits, which a bank can use to satisfy US regulatory daily reserve requirements. A bank with deposits in excess of requirement can lend or trade the money to a bank that hasn't enough. A lively market in federal funds exists among banks. The Federal Reserve participates as a trader in the federal funds market to influence interest rates and the quantities of money in circulation.

Fiscal – Pertaining to revenues and expenditures, especially of governments.

Flexible Capital Market – When businesses can easily acquire loan or equity funds with minimal impediment from policy or custom, and lenders and equity investors can easily make investments with minimal impediment from policy or custom.

Flexible Labor Market – When employers can easily hire or discharge employees with minimal impediment from policy or custom, and workers can easily leave current employers and find new employment with minimal impediment from policy or custom.

Forward Guidance – What we expect to happen, but we won't call it a forecast or prediction, because we don't want you to sue us if it doesn't come true or if we change our minds tomorrow.

GDP – Gross Domestic Product. The total of all incomes in an economy during one calendar year.

Growth – Increasing levels of GDP.

Growth Fundamentals – Key productive economic characteristics for an economy. For the U.S. these include size of economy, diversity of industry, international competitiveness, open markets for products, flexible capital markets, flexible labor markets, research, entrepreneurial culture.

Guidance – A hint (usually reluctantly given) from a regulator how the regulated persons might comply with a regulation, except see Forward Guidance.

Healthy Growth – Sustainable growth, without significant speculative bubbles.

Historical – Of or pertaining to a known previous event.

Income – Revenues, minus costs.

Investment – Buying something in anticipation that it will produce future income exceeding the cost.

Level – Usually, a quantity or number. For example, the employment level is the number of people employed.

Liability – A requirement or promise to pay.

Liquidity – The ability to sell an asset for cash within a week. Usually coincides with credit availability.

Long-run – Long-term.

Long-term – In finance: more than five years. In economics: more than two years in the future or more than five years in the past.

Market – A real or virtual place where buyers and sellers meet and agree to trade (such as the bazaar in Tunis). Also, the aggregate of trades in a range of articles traded (such as the potato market) or a limited interval (such as this summer's market for camping equipment) or a geographic location (such as the Australian market). Also, the conditions or moods prevailing among buyers and sellers (for example, a “hot” market for entertainment equipment).

Monetary policy – Policy pertaining to the amount of money in circulation, how rapidly it passes from person to person, and rates of interest.

National Income – GDP

Policy – Laws, regulations and procedures of government.

Productivity – The ability of a business or worker to create value exceeding the cost of creation.

Profit – Income.

Real Asset – Something valuable that you can bite (such as a producing peach orchard or a gold ingot), and not a financial claim on an asset (such as a stock certificate).

Recession – A period of reduced commercial and industrial activity, marked by GDP declining for two or more consecutive calendar quarters.

Recovery – An interval between recessions. Also, general economic activity leading to growth after a recession.

Resource Utilization – How much stuff we use to make products.

Revenue – Money coming in, usually from sales. For charities, money from donations. For governments, money from taxes.

Risk – A condition combining value and uncertainty. Low risk implies either little value or little uncertainty. A blizzard in Honolulu is a low risk event. Even though the blizzard would have high value because it would impose large costs on the community, we have no uncertainty about the blizzard occurring. If there is no uncertainty, then there is no risk. If you leave a common pencil on a table at your neighborhood cafe and depart for a 6-week tour of Italy, then you can't be certain you will find the pencil when you return. But there is low risk, because the pencil has little value. If there is no value, then there is no risk. If you leave $25,000 in 100-dollar bills on the cafe table, there will be higher value at stake, so the risk will be higher.

Scenario – A story, usually about the next two or three years.

Shock – A sudden event in which many people lose significant value, money or future income.

Short-run – Short-term.

Short-term – In finance: less than 1 year. In economics: shorter than long-term.

Sovereign Debt – Government debt.

Stagnation – Several consecutive years of high unemployment, low manufacturing output, low growth.

Structural reform – Change in the kinds of institutions and the nature of transactions they effect. For example, until 1978, the Civil Aeronautics Board set prices for airlines in the US. Deregulation, allowing each airline to independently set its own prices, without government approval, was a structural reform. For another example, in 1999 the US Congress repealed the Glass-Steagall Act of 1933, which had prohibited banks from dealing in investment securities, and the Glass-Steagall Act was a structural reform, and its repeal was a structural reform.

Supply chain – All the workers and equipment and regulations and techniques in the sequence of events between the original sources and the final use of a product.

Sustainable growth – Growth under conditions that can or will persist indefinitely.

Systemic – Of or pertaining to an object or characteristic that we can't remove from a system without permanently and significantly changing the system. In the financial crisis of 2008-2009, controversy arose over whether the financial firms Lehman Brothers and Bear Stearns had systemic importance.

Trade Policy – Usually, policy governing transactions between persons in different nations.

Transparent – opposite of “mysterious.”

Underwater – A mortgage is underwater when the house is worth less than the loan.

Volatility – Price increases and decreases within an interval of time. Large, rapid price changes characterize high volatility. Prices will fluctuate.

"...will fluctuate."
J.P. Morgan (1837-1913)
Image: Public Domain, Wikipedia

Sources:

Ben S. Bernanke, Washington Post (Nov. 14, 2005, http://www.washingtonpost.com/wp-dyn/content/article/2005/10/24/AR2005102400893.html retrieved Sep. 3, 2011).
Bernanke, Ben S., The Near- and Longer-Term Prospects for the U.S. Economy, Federal Reserve System (Aug. 26, 2011, http://www.federalreserve.gov/newsevents/speech/bernanke20110826a.htm retrieved Sep. 3, 2011).

Distribution of Income by Source in 2009

2011-08-21T19:59:00.000-07:00

Investment income (mostly dividends and capital gains taxed at a rate of 15% , and interest), is 60% of the income of the wealthiest taxpayers, according to IRS data for 2009. Business income is about 20%. Salaries and wages are about 20%. Other sources of income are insignificant for the wealthiest as a group.

Salaries and wages, taxed at rates up to 33%, are over half the income of people with incomes less than $500,000 per year. Other important sources for these taxpayers are Social Security, pensions and annuities, and business income.

Source: http://www.irs.gov/taxstats/indtaxstats/article/0,,id=134951,00.html

Favorable Taxation for the Wealthy in 2009

2011-08-13T11:23:00.000-07:00

The United States Internal Revenue Service has released 2009 tax statistics for individuals. Persons with incomes greater than $10 million pay income tax at a lower rate (22%) than those earning between $500,000 and $10 million (24% to 26%). Also, those with incomes less than $5,000 pay a higher rate (5%) than those with incomes between $5,000 and $25,000. Patterns of taxation in 2009 were similar to 2008.

How Income Tax Rates Affect the Marginal Cost of Job Creation

2011-07-30T17:11:00.000-07:00

An employer's marginal income tax rate influences his or her incentives for hiring new employees.

	Our Universe	Alternate Universe
Marginal Tax Rate of Joe's Employer	25%	75%
Joe Gets a Raise	5,000	5,000
Additional cost of Joe's raise to Employer after tax	3,750	1,250
New Employee Salary	50,000	50,000
New Employee Payroll taxes	15,000	15,000
New Employee Equipment & Real Estate	35,000	35,000
Total Pre-tax cost of New Employee for one year	100,000	100,000
Total After-tax cost of New Employee for one year	75,000	25,000

Lower Tax Rates Apply to Highest Incomes

2011-07-30T16:32:00.000-07:00

US taxpayers with incomes greater than $10 million and corporations pay income tax at a lower rate than persons with incomes between $500,000 and $10 million.

Paul Ryan's Budget Proposal

2011-05-02T17:15:00.000-07:00

Mr. Paul Ryan is a Republican Representative from Wisconsin and Chair of the House Budget Committee. On April 5, 2011, he released The Path to Prosperity, a document that introduces and defends his proposed budget resolution for the US Federal government. Path selectively ignores the EBS “Extended-Baseline Scenario” of the CBO Congressional Budget Office. EBS, which allows the Bush tax cuts to expire, and which avoids drastic spending cuts, produces no significant future deficits.

With Path, Mr. Ryan plays a complex rhetorical shell game. Path assumes from the start that the Bush tax cuts for the wealthy will continue. That is, Path assumes that Path passes the Congress. If Path doesn’t pass,
then EBS will occur without deficits. The CBO projects that allowing the Bush tax cuts to continue under Path will produce massive debt at current levels of spending. Path proposes to prevent massive debt by cutting spending. Path shows a set of spending cuts that will produce budget surplus while maintaining low tax rates on wealthy taxpayers.

On page 8, Path shows two charts. One chart compares spending projections, as a percent of GDP, of the “Current Path”, which is the CBO projection of spending, and of the “Path to Prosperity”, which is what Ryan proposes.

The other chart on page 8 compares projections of the level of federal debt, as a percent of “The Economy”. (Path uses the expressions “GDP” and “The Economy” interchangeably.) One projection shows the “Current Path”, which is the AFS “Alternative Fiscal Scenario” of the CBO. The second projection shows the “Path to Prosperity”.

The assumptions underlying the AFS include maintenance of tax revenues at low levels by legislation not specified. The other CBO projection, which Path ignores, is the EBS. The EBS assumes continuations of current law, including expiry of the Bush tax cuts, including application of the AMT Alternative Minimum Tax to increasing numbers of households, and including implementation of the health care reform legislation of 2010, the ACA Affordable Care Act.

Resources:

1. Paul Ryan, The Path to Prosperity, proposed Budget Resolution
for Fiscal Year 2012 (April 5, 2011, retrieved April 29, 2011),
http://paulryan.house.gov/UploadedFiles/PathToProsperityFY2012.pdf

2. Congressional Budget Office, Long-Term Budget Outlook (revised August 2010, retrieved April 29, 2011), http://www.cbo.gov/ftpdocs/115xx/doc11579/06-30-LTBO.pdf

3. Social Security Administration,The 2010 Annual Report of the Board of
Trustees (August 9, 2010, retrieved April 29, 2010), http://www.ssa.gov/oact/TR/2010/tr2010.pdf

Productivity: Who Gets the Benefit?

2011-03-17T01:24:00.000-07:00

The chart compares labor output with household income in the United States in the 20 years from 1987 to 2007. We see that the labor productivity increased. The output from an hour of labor increased 55%.

Labor provides the income for most households in the United States. During the same 20 years, median household income increased 10%.

Output per hour of labor increased markedly, but the rewards to labor increased only modestly. We ask:
1. Is it fair that workers didn’t get a share of the increases in the productivity of their labor?
2. Who took the workers’ share?

Let us consider the second question first. The proportion of total income that our economy distributes to wealthy people corresponds with the increase in productivity. As productivity increased, so did the incomes of the wealthy. Generally, the incomes of the workers increased little. The rich took the additional value that workers produced.

Regarding fairness, our economy is an artificial distribution engine. It distributes useful goods and services and wealth to the population. Collectively, we created the rules and customs of our economy. If the economy doesn’t distribute goods and services and wealth fairly, then we can change it.

References:

1. United States Census Bureau, Historical Income Tables (http://www.census.gov/hhes/www/income/data/historical/index.html, retrieved March 16, 2011).
2. United States Bureau of Labor Statistics, Multifactor Productivity Total Economy (http://www.bls.gov/mfp/mprdload.htm, retrieved March 10, 2011).
3. Daniel Brockman, Share of Income (http://daniel-brockman.blogspot.com/2010/06/share-of-income.html, June 9, 2010).
4. Daniel Brockman, Income Inequities (http://daniel-brockman.blogspot.com/2010/06/income-inequities.html, June 2, 2010).

Disclosure: At this writing, Daniel Brockman owns shares in NASDAQ:PEET.

The California Experience

2010-12-19T16:20:00.000-08:00

On December 19, 2008, Governor Arnold Schwarzenegger ordered California state workers to take 1 day per month as an unpaid furlough, beginning in February 2009. That has grown to 3 days per month at December 19, 2010, roughly a 15% decrease in pay and working hours. The California Supreme Court ruled on October 4, 2010 that the governor may not order furloughs and pay cuts for state employees, but these decisions require the legislature to act. A few days later, the California legislature passed the budget with an $896 million cut in pay for state workers and with furloughs.

Some workers covered by collective bargaining contracts have their pay reduced under different terms. Different agencies and departments use different approaches. Some agencies simply shut down three days per month. Others schedule individual workers' furloughs for different days. Sonoma State University told instructors to
keep the same classroom hours and take the furlough time by reducing office hours.

The affected employees express mixed feelings. They welcome the additional time to spend on personal interests and with their families. At the same time, they struggle with the pay cuts.

"A number of states are imposing furloughs and/or pay cuts for some state employees. These include Arizona, California, Colorado, Connecticut, Delaware, Georgia, Hawaii, Idaho, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New Mexico, North Carolina, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, Utah, Virginia, and Wisconsin," according to the Center on Budget and Policy Priorities.

When an organization experiences reduced ability to pay for labor, it can respond by laying off workers. This sacrifices the public good of employment. Further, the organization survives at the expense of the laid-off workers. There are alternatives, and the State of California sets a good example for all employers, including private businesses. This approach minimizes unemployment.

The state's furloughs are roughly equivalent to instituting a 34-hour work week. If all organizations, whether prosperous or struggling, reduced the number of working hours to 34 per week, then they would have to hire additional workers to maintain the present level of output that results from a "standard" 40-hour week. Reducing the work week to a new "standard" 34 hours would truly create new jobs sufficient to solve completely our current unemployment problem.

Resources (retrieved December 19, 2010, except as noted):

California Department of Personnel Administration, Furlough Program - Answers to Employee Questions (http://www.dpa.ca.gov/personnel-policies/furloughs/answers-to-employee-questions.htm).

Johnson, N., Oliff, P. and Williams, E., An Update on State Budget Cuts (Center on Budget and Policy Priorities, April 19, 2010, http://www.mobilelottery.com/wp-content/uploads/2010/05/Update-On-State-Budget-Cuts.pdf).

Ortiz, J., The State Worker: Furloughs about to become Brown's headache, (The Sacramento Bee, December 16, 2010, http://www.sacbee.com/2010/12/16/3261515/the-state-worker-furloughs-about.html).

The French Experience

2010-11-10T08:28:00.000-08:00

Chart by G. Trumbull (2001)

The govt of France wanted to reduce unemployment. They reduced the standard legal workweek from 39 hours to 35 hours. The change occurred on January 1, 2000. The new law provided significant disincentives for overtime work. Working under the old 39-hour standard, 8 workers would account for 312 hours of work per week. Under the new 35-hour standard, the same amount of work would require about 9 workers. Was the 35-hour week successful?

Intense political controversy makes it difficult to judge the economic effects of the reduction of the standard work week. People differ in opinions. Opponents of the shorter week argued that an energetic person has a right to work more to make more money. Proponents of the shorter week argued that allowing an employee and an employer to agree to a longer week creates a serious unemployment problem for the general society, what economists call a “negative externality”.

The results are mixed. In the early years, employment increased. In 2007, unemployment returned. Also, they changed the law again. In 2008, the Sarkozy govt passed a new law requiring 25% extra pay for the first 8 hours of overtime, except that a collective bargaining agreement could set a lower rate, but not less than 10%. Estevão and Sá (2008) say it wasn’t successful, because the disadvantages offset the advantages. According to Jeremy Rifkin (2005), it would have been more successful if the law had provided better incentives for working less than 35 hours per week. Michon (2009), Husson (2002), Roger et al (2004) say it was successful, and employment increased due to the reduction of working hours.

References (Internet sources retrieved August 29, 2010, except as noted):

Paul Boffartigue et Jacques Bouteiller, A propos des normes du temps de travail (Institut de Recherches Economiques et Sociales, http://www.ires-fr.org/IMG/File/R425.pdf).

Marcello Estevão and Filipa Sá, The 35-hour workweek in
France: Straightjacket or welfare improvement? (Economic Policy, 2008, http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0327.2008.00204.x/pdf).

Jeanne Fagnani and Marie-Therese Letablier, Work and Family Life Balance: The Impact of the 35-Hour laws in France (Work Employment and Society, September 2004, http://wes.sagepub.com/content/18/3/551.abstract).

Michel Husson, Réduction du temps de travail et emploi : une nouvelle evaluation (Institut de Recherches Economiques et Sociales, 2002).

Francois Michon, From Working Less for More Jobs to Working More for More Money (The Japan Institute for Labour Policy and Training, Working Time, 2009, http://www.jil.go.jp/english/reports/documents/jilpt-reports/no.7.pdf#page=8 ).

Jeremy Rifkin, The End of Work (Spiegel, 2005, http://www.foet.org/press/interviews/Spiegel-%20August%203%202005.pdf).

Muriel Roger, Catherine Bloch-London, Philippe Ashkenazy, La réduction du temps de travail 1997-2003 : dynamique de construction des lois « Aubry » et premières evaluations, (Economie et Statistique, 2004, http://www.persee.fr/web/revues/home/prescript/article/estat_0336-1454_2004_num_376_1_7587#).

Gunnar Trumbull, chart relating employment to 35-hour work week in France (Brookings Institution, 2001, http://www.brookings.edu/fp/cusf/analysis/images/trumbull.gif).

Wikipedia (http://fr.wikipedia.org/wiki/35_heures,
http://fr.wikipedia.org/wiki/Heures_supplémentaires).

Election Results

2010-11-07T15:58:00.000-08:00

Jerry Brown

In my last article, I recommended ballot choices
for voters in Petaluma, Sonoma County, California, USA in the election on November 2, 2010. Here is a review of those recommendations, and how the election worked out.

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Contest	Governor
Result	Brown
My Choice	Brown

Contest	Lieutenant Governor
Result	Newsom
My Choice	Newsom

Contest	Secretary of State
Result	Bowen
My Choice	Bowen

Contest	Controller
Result	Chiang
My Choice	Chiang

Contest	Treasurer
Result	Lockyer
My Choice	Lockyer

Contest	Attorney General
Result	Undecided. Cooley leads by 0.3% at Nov 7, 2010. (Los Angeles Times, Nov 7, 2010)
My Choice	Allen

Contest	Insurance Commissioner
Result	Jones
My Choice	Padilla

Contest	Member, Board of Equalization, 1st District
Result	Yee
My Choice	Borg

Contest	U.S. Senator
Result	Boxer
My Choice	Boxer

Contest	U.S. Representative, 6th District
Result	Woolsey
My Choice	Woolsey

Contest	Member, State Assembly
Result	Huffman
My Choice	Huffman

Contest	Judicial, Superior Court, Office # 2
Result	Broderick
My Choice	Broderick

Contest	19 - Legalize Marijuana
Result	No
My Choice	Yes

Contest	20 - Redistricting Commission
Result	Yes
My Choice	Yes

Contest	21 - Car tax to fund state parks
Result	No
My Choice	Yes

Contest	22 - Blocks state from commandeering local funds
Result	Yes
My Choice	No

Contest	23 - Suspend implementation of AB32 air pollution mitigation pending decline of unemployment
Result	No
My Choice	No

Contest	24 - Repeal certain business income tax law changes of 2008 and 2009
Result	No
My Choice	No

Contest	25 - Majority vote to pass state budget
Result	Yes
My Choice	Yes

Contest	26 - 2/3 majority for fees: No
Result	Yes
My Choice	No

Contest	27 - Redistricting by Legislature
Result	No
My Choice	No

Contest	State Superintendent of Public Instruction
Result	Torlakson
My Choice	Torlakson

Contest	Petaluma Joint Union High School District
Result	Chlebowski, Tennyson, Baddeley
My Choice	Walking Bear, Kauk, Baddeley

Contest	County Supervisor, 2nd District
Result	Rabbitt
My Choice	Torliatt

Contest	City of Petaluma, Mayor
Result	Glass
My Choice	Mayne

Contest	City of Petaluma, City Council
Result	Harris, Barrett, Albertson
My Choice	Bunker, Albertson, Davies

Contest	N - County of Sonoma - Change "Personnel" to "Human Resources"
Result	Yes
My Choice	No

Contest	T - City of Petaluma - Extend expiry of Urban Growth Boundary to 2025
Result	Yes
My Choice	Yes

Contest	U - City of Petaluma - Reduce wastewater service rates
Result	No
My Choice	No

Contest	W - Sonoma County Transport Authority - $10 Car Fee
Result	No
My Choice	Yes

Credits:

Photo of Jerry Brown: courtesy of
InlandPolitics.com (Mar 22, 2010,
retrieved 20101107)

Green and red thumbs-up and thumbs-down icons: courtesy of
College of Agriculture and Natural
Resources, University of Maryland (retrieved 20101107)

State election results:
Secretary of State, State of
California

Sonoma County election results:
Registrar of Voters, Sonoma County

Article on contest for Attorney General:
Los Angeles Times (November 7, 2010)

How to Vote in Petaluma, California, USA on November 2, 2010

2010-10-27T03:57:00.000-07:00

Candidates for office

Governor: Brown

Brown has extensive experience in government, including a very successful prior term as governor, and pledges no tax increases without approval of the voters. Opponent Whitman, a very wealthy person completely inexperienced in politics, intends to prevent increased taxes on the incomes of very wealthy people.

Lieutenant Governor: Newsom

Newsom, as Mayor of San Francisco, created a universal health care system for all residents of that city. He led the city through difficult economic times with balanced budgets.

Secretary of State: Bowen

Bowen audited electoral systems. She found and corrected a number of problems that compromised ballot integrity. She insists on fair elections.

Controller: Chiang

Chiang’s skillful management enabled the state to maintain credit and to continue paying for essential services despite great financial stress in recent years.

Treasurer: Lockyer

Lockyer managed state pension funds wisely and well, avoiding severe losses during severe economic conditions.

Attorney General: Allen

Allen favors legalization of marijuana and ending the death penalty.

Insurance Commissioner: Padilla

Padilla considers good health care more important than insurance.

Member, Board of Equalization, 1^st District: Borg

“Tax the corporations.” – Borg

U.S. Senator: Boxer

Boxer voted for health care reform, the HIRE act reducing costs of employment for small businesses, and for financial regulation reform. Opponent Fiorina, a very wealthy person, laid off thousands of less well-paid workers at Hewlett-Packard. The fortunes of Lucent and HP were erratic and troubled with losses during Fiorina’s executive tenure in those companies.

U.S. Representative, 6^th District: Woolsey

Woolsey voted for health care reform, the HIRE act reducing costs of employment for small businesses, and for financial regulation reform.

Member, State Assembly: Huffman

Huffman is a Democrat, and so he is preferable to a Republican. The Tea Party has captured control of Republican Party. A Republican victory would make more likely the banishment of the theory of evolution from public schools, extensive deregulation of businesses, reduction of income taxes for very wealthy people, acceleration of the shift of income to very wealthy people, repeal of universal health care, unrestrained deficit spending, and the return of economic policies that brought about the current economic depression.

Judicial, Supreme Court and Appellate Court: Yes on all

Judicial, Superior Court, Office # 2: Broderick

Either candidate would be a good choice. Broderick balances the theory and practice of justice better.

State Propositions

19 - Legalize Marijuana: Yes

Repeal prohibition by voting “yes” on 19. The illegality of marijuana creates economic opportunities for criminal organizations that endanger lives and property and contend for political control of parts of Mexico. Governments have better use for the money they expend on police and prisons to enforce prohibition of marijuana.

20 – Redistricting Commission: Yes

Removes all redistricting decisions from the legislature to an independent commission. The legislature isn’t competent.

21 – Car tax to fund state parks: Yes

A law that taxes a specific activity to fund another completely unrelated specific activity impairs flexible decisions in government. However, in this case, it’s a good activity to tax and it’s a good activity to fund, the proposition is simple in construction, and the legislature is incompetent. Under the circumstances, this is a good law.

22 – Blocks state from commandeering local funds: No

Under this law, the state couldn’t use gasoline taxes to repay previously issued transportation bonds. In addition, this law voids any conflicting law passed between October 20, 2009 and November 2, 2010, which is very uncertain. A good law would assure repayment of previously issued bonds and would repeal only specified laws. Proposition 22 has much merit but fatal flaws.

23 – Suspend implementation of AB32 air pollution mitigation pending decline of unemployment: No

This law would suspend climate change mitigation laws until the rate of unemployment declines to less than 5.5%, which could be many years. The premise is that air pollution controls cause unemployment, an assertion for which there is no evidence. This law would enrich a few individuals by replacing privately carried costs of pollution control with the generally higher costs of pollution remediation, including public health costs, which the public would then have to bear. So it reduces private costs by increasing public costs.This law would defeat implementation of cap-and-trade controls on greenhouse gases and further delay response to global warming.

24 – Repeal certain business income tax law changes of 2008 and 2009: No

The tax law changes were reasonable and fair.

25 – Majority vote to pass state budget: Yes

2/3 (current law) is too high a bar for the legislature to meet. Simple majority probably sets the bar a little too low. 55% might get closer to perfection, but 50% is better than what we have.

26 – 2/3 majority for fees: No

2/3 is too high. This law would void existing unspecified laws, with uncertain effects.

27 – Redistricting by Legislature: No

This law would dissolve the independent commission and make redistricting a legislative task, thereby reintroducing gerrymandering just in time for the results of the 2010 census.

Candidates

State Superintendent of Public Instruction: Torlakson

We have two good candidates from which to choose.

Petaluma Joint Union High School District: Walking Bear, Kauk, Baddeley

These three candidates have or have had children in the Petaluma public schools. Good education depends on decisions by local people with active interest in the children.

County Supervisor, 2^nd District: Torliatt

Torliatt is sympathetic to bicyclists and immigrants. Opponent Rabbitt would sacrifice other objectives for the comfort of drivers of private automobiles.

City of Petaluma, Mayor: Mayne

Opponent Glass merely wants to widen Highway 101, sacrificing other objectives for the comfort of drivers of private automobiles.

City of Petaluma, City Council: Bunker, Albertson, Davies

Bunker and Albertson are the only candidates who don’t appear enthralled by the comfort of drivers of private automobiles and the compulsion to widen Highway 101. Davies is the only candidate who explicitly calls for extending and improving bicycle lanes and walking paths.

Local Measures

N – County of Sonoma – Change “Personnel” to “Human Resources”: No

This is a nearly trivial measure to change the civil servant “Director of Personnel” into the appointed “Director of Human Resources”. This would buttress the aristocracy of the appointed department heads. People should not be labeled with the demeaning and exploitative term “Human Resources”. There is no clear value in passing this measure.

T – City of Petaluma – Extend expiry of Urban Growth Boundary to 2025: Yes

The UGB makes Petaluma a better place by concentrating urbanization for economy and preservation of open space. Measure T is unopposed in the ballot handbook.

U – City of Petaluma – Reduce wastewater service rates: No

This law would shift sewer costs to the general fund without a corresponding revenue source.

W – Sonoma County Transport Authority - $10 Car Fee: Yes

This is the first transportation legislation yet seen that doesn’t spend money on new roads or widening of Highway 101. Measure W would spend the revenue on maintenance of existing roads, transit service expansion, bicycle and pedestrian paths, and Safe Routes to Schools. This is excellent transportation law.

Questionnaire Results

2010-10-23T00:16:00.000-07:00

Thank you for your responses to the questionnaire posted last month. Your thoughts and opinions provide useful guidance. Here I will summarize the results.

Most of you are female, and you are well educated, with a Master’s degree or equivalent, and you live in North America. Almost all of you have a Facebook profile, and most of you have a Twitter profile.

For you, topics that matter are Nuclear Weapons, Human Effects on Climate and the Environment, Inequity of Incomes, National Debt, and Poverty.

About a third of you self-identify as Republican, and about two-thirds as Democrat. You are evenly divided among Conservatives, Liberals and Neither.

Important 3-minute questionnaire

2010-09-22T21:35:00.000-07:00

Tell me what is important to you.

Please answer some questions. This will take less than 3 minutes. Completely confidential. Click here to take the questionnaire.

Check back here in a few weeks for the summary of results.

Thank you!

Image: Emperor Shah Jahan, Museum of Modern Art, New York

Electricity Isn't a Commodity

2010-08-25T02:30:00.000-07:00

PG&E can meet the competitive challenge presented by CCAs. Electricity is no longer a commodity. PG&E can offer a line of electricity products differentiated by source.

PG&E, Pacific Gas & Electric Company (NYSE: PCG) was the thinly veiled backer of Proposition 16. California voters rejected the Prop. 16 ballot initiative in the election of June 8, 2010.

In May 2010, the MCE Marin Clean Energy program began operation. MCE is an electric service consortium of local governments in Marin County. Prop. 16 would have required two-thirds voter approval for local governments to start an electric service or to expand an existing electric service.

Extensive advertising promoted Prop. 16 as the "Taxpayers Right to Vote Act". The cumbrous official name was "Imposes new two-thirds voter approval requirement for local public electricity providers. Initiative constitutional amendment." The advertised short name was easier to pronounce, spell and think. Prop. 16 was about regulating electric utility service. It wasn’t about extending voting rights. It wasn’t about taxes.

MCE is a CCA Community Choice Aggregation, a kind of local utility authority contrived by state law. A CCA contracts to receive power from some independent electricity generator. The CCA sells the power to customers in the local jurisdiction. Customers can choose to continue receiving electricity from PG&E. PG&E continues to maintain the distribution grid and to bill the customers.

PG&E can compete by appealing to the green motive. PG&E can offer customers power with a guaranteed mix of 100% from renewable sources or with a mix of 50% renewable. (The Marin CCA offers these two mixes.) PG&E can price their own offering appropriately, with regulatory concurrence. PG&E might even offer to an individual customer a predominantly geothermal mix, or a nuclear mix, or a hydro mix, or a natural gas mix, or a wind mix, or a "value" mix of whatever is left over. PG&E can brand the different mixes and promote them to customers who want them.

PG&E’s customers voted against Prop. 16. By their vote, they expressed a desire for electricity differentiated by source. PG&E, with its regulator, the CPUC California Public Utilities Commission, can satisfy that desire.

Why should a community endure the significant efforts and risks of running a CCA to get green power, when they can arrange with PG&E to the same effect?

Competing with the CCAs need not involve a difficult political struggle at the ballot box. PG&E has an opportunity to better satisfy the customers, to enjoy a prosperous future and to create substantial new goodwill in the communities the company serves.

Pacific Gas and Electric Company

Born in the USA - Part 2

2010-07-21T21:11:00.000-07:00

Photo: http://carondelet.net (2010)

We continue our discussion of a proposed amendment to the US Constitution (Congress, S.J. Res. 6, 2009) that would end the claim to US citizenship of any person born on US soil. In my post of July 14, 2010, I traced out the implications of the amendment. I stated that this amendment would deny to certain infants and pregnant women rights that they would otherwise enjoy. I explained how this amendment would be contrary to the spirit of universal human rights set forth in the Declaration of Independence.

Proponents of the amendment presume that foreigners without proper visas are dangerous to the United States or injurious to Americans by their existence, which is a misapprehension. The most often claimed injury is that foreigners take the jobs of Americans. Yet if 1 out of 10 persons in San Diego was deported, then
1 out of 10 grocery stores in San Diego would have to close due to loss of customers, and similarly for other businesses, and 1 out of 10 jobs in San Diego would disappear. The number of jobs isn’t limited to some fixed number. It is proportional to the population. Conversely, if the population of San Diego increases, then the number of jobs in San Diego will increase in about the same proportion.

The second most often claimed injury is an alleged breaking and entering, the description of which is usually posed as an analogy to an uninvited guest taking up occupancy in your home and doing nothing in return for sleeping in your guest room, eating your food, watching your television and drinking your liquor. And the analogy breaks down for immigration. Immigrants bring their labor, which is valuable, and they exchange it fairly for lodging, food, television and all other goods and services they consume. One or two adults provide sufficient labor to compensate for the expenses of a family. The jurisdiction of the govt in Washington isn’t the property of anyone. You can’t buy more of it or sell it or derive income from renting it, and you can’t throw it away, and it won’t burn up, and no immigrant can steal it, because it isn’t property. And typically, immigrants don’t forcefully move into anyone’s house, and they rent or buy their own home, quite as Americans do.

There are a hundred further spurious objections to foreigners and no sound ones of which I have yet become aware. We will examine some of them in future posts.

To be continued…

Born in the USA - Part 1

2010-07-14T20:35:00.000-07:00

Q: Is it a good idea to amend the [US] Constitution to remove the birthright citizenship in view of the current and ongoing illegal immigration problems?

A: No. No harm arises from recognizing all persons born in the US as citizens. The proposed amendment
runs counter to the rights proclaimed in the Declaration of Independence. Immigration is a tough problem for us Americans at this time, but we must not give up just because it is tough. And the proposed amendment amounts to giving up. For Americans, govt exists to protect human rights. We shouldn’t use the Constitution to deny rights. It falls to us to make America work.

In the vernacular of our age, the Declaration is the vision statement, and the Constitution is the operating manual.

I descended from my ancestor Henry Brockman who settled in the Maryland Colony in the 17^th century, and from his progeny who were born in what is now the United States. I was born in the State of North Carolina. I am more American than was Alexander Hamilton, who was born on the island of Nevis, in 1757, a British subject. He immigrated to New York in 1772. Had current immigration laws existed at that time, Hamilton would likely not have been able to get a visa for at least ten years, since he was from the Caribbean, thus he would have been late for the Revolution.

Let’s be plain about the implications of this amendment. For people who want to deport foreign women who give birth in the United States, this amendment would remove the impediment that is the baby citizen. The would-be deporters want to prevent foreign women from living in the United States. They want to deny to those women the right to liberty, that is, to go peacefully where they please, and the right to the pursuit of happiness, that is, to peaceful activity without prior permit. Further, to thwart these women, the proponents would also deny the rights of the newborn child, a person entirely innocent, with whom no one can find fault. Yet liberty and pursuit of happiness are unalienable human rights. There isn’t a conflict of rights in which we must make an unfortunate choice. We can sustain the rights of both the woman and the child, and that is the proper role for govt.

We note that among the grievances against the King listed in the Declaration was his interference with “migrations hither”.

To be continued...

The 35-Hour Work Week: Remedy for Unemployment

2010-07-07T02:16:00.000-07:00

Reduce the standard working hours per week from 40 to 35.

Each week, the 310 million people of the United States produce, by their labor, a quantity of goods and services that more or less suffices to satisfy the wants and needs of

themselves. They apportion the burden of labor unequally to half of them, about 160 million people, 100 million working “full time”. The average number of hours of work per day, for a person who works on a weekday, is about eight. They work about 40 hours per week.

Among people who work, the distribution isn’t uniform. In 2007, about 77% worked 40 hours or more per week and 5% worked less than 25 hours per week.

The people who would work, but can’t find a job are about 10%, or 15 million people, of the labor force according to the Bureau of Labor Statistics.

As a first-order calculation, if the people worked 7 hours per day, instead of 8, then they would produce 7/8 as much stuff as they now do. If they also hire an additional person for each 7 persons now working, they would make up the difference in production, and they would employ most of the 15 million now seeking work.

If you have a car with a leaking engine, you might keep it going a few more miles by adding oil. However, this won’t fix the problem. To fix it, you must make structural changes. Similarly, the govt stimulus program will save some people from destitution, but it won't fix the economic troubles of the United States. The society, led by the govt, must seek structural changes to reduce income inequities, spread income more evenly, and thereby fix the economy.

Reducing work to 35 or fewer hours per week per worker is one structural change that tends to spread income more evenly among the population. In future posts, I will discuss related topics. I will address ways to accomplish the change in working hours and the concerns of the constituency of the 40-hour week. I will review the Californian and French experiences with revised working hours. And I will discuss other structural changes to fix the United States economy.

How Big is General Motors?

2010-06-30T12:50:00.000-07:00

On June 23, 2010, articles on Reuters and Bloomberg said GM General Motors plans an IPO Initial Public Offering. Some of the major stockholders will sell some of their shares.

I shared the articles with my friend Dr. Doug Stetson, an acute observer currently inspiring insights for the govt in Washington, who always has something interesting to say. He pointed out that many people, for instance us, weren’t aware that (1) GM isn’t a publicly traded company, and (2) Toyota (NYSE:TM) is twice the size of GM as the Reuters article asserts. I looked into it, and verified both are true.

GM stock doesn’t trade publicly. There are exactly 4 stockholders currently (General Motors, 2009 Annual Report on Form 10-K ):

61% UST United States Treasury

12% EDC Export Development Canada, an agency of the govt of Canada

18% New VEBA Voluntary Employees’ Beneficiary Association, a trust administering benefits for the UAW United Auto Workers union

10% MLC Motors Liquidation Company (OTC:MTLQQ)

MLC is the post-bankruptcy rump of the old General Motors Company, selling off divested assets (including a church in Bedford, Indiana) and satisfying the claims of certain creditors. MLC stock trades publicly (Possibly worthless, investigate carefully before you trade.). New VEBA and MLC also have warrants (long-term options) to purchase stock in GM in the future at specified prices. UST, EDC and New VEBA also hold preferred stock (in this case, essentially a form of debt) and debt.

Toyota sales were $209bn in the fiscal year ending March 2010, approximately twice General Motors sales of $105bn in the fiscal year ending December 2009. Honda and Ford are much smaller than either Toyota or GM. All figures in the following table are billions of US dollars.

Company	Ticker	Revenues			Mkt Cap June 2010
		FY 2009	FY 2008	FY 2007
General Motors	[none]	105	149	178	[note]
		FY 2010	FY 2009	FY 2008
Toyota	NYSE:TM	209	262	203	112
		FY 2010	FY 2009	FY 2008
Honda	NYSE:HMC	101	120	94	54
		FY 2009	FY 2008	FY 2007
Ford	NYSE:F	118	146	172	38

Note: GM stockholders equity = $22bn at Dec 31, 2009.
For TM and HMC, fiscal year 2010 ends March 2010. For F and GM, fiscal year 2009 ends December 2009. For GM, all figures come from the 2009 Annual Report on Form 10-K. For other companies, Revenues come from Marketwatch, and Market Capitalization is from Standard and Poors.

In preparing this post, I got help from

What should we do about BP?

2010-06-23T17:16:00.000-07:00

In a democracy, the people or their representatives decide how to respond to great problems. The Deepwater Horizon oil well explosion on April 20 and spill in the GOM Gulf of Mexico counts as a great problem. It has caused loss of income to fishermen. As oil comes ashore, people who depend on tourism and outdoor sports will suffer, and it will degrade the quality of life for communities near the water. It has caused immense fouling of water and wildlife habitats. Eleven people died in the explosion. The U.S. government’s prudent suspension of exploratory drilling in GOM interrupts the incomes of industry workers. Today, two months after the explosion, the broken well continues to emit large quantities of oil, most of which, in late June, is captured or burned. This fragile jury-rigged stopgap will try to catch emerging oil for two more months until drillers complete the relief well.

First, is this a situation for government action? Or should private parties work out remedies among themselves? Some people allege reckless working decisions that created the unsafe conditions aboard the Deepwater Horizon which led to the explosion. This suggests possible criminal charges. It might be possible for private parties to negotiate agreements or more likely sue each other to work out compensating payments and other remedies. We could expect delayed responses, unfair independent settlements and congestion of the courts. For these reasons, government can address this better than private parties.

What then should the government do? It’s helpful to imagine a hypothetical company, the DoRight Oil Company, which does everything right. DoRight is a major oil company with deep water exploratory drilling operations in GOM. DoRight adheres meticulously to all regulations and standards of safety and responsible good practice. DoRight earns good profits. Employees, customers, suppliers and shareholders value their relationship with DoRight. Unfortunately, despite careful work of high quality, one of their wells exploded, killing eleven people and releasing huge quantities of oil uncontrollably into the environment. What should we do about DoRight?

In deciding what to do about BP, we should ask whether we would do the same with DoRight. Unless there is good reason to do otherwise, the government should treat BP as well as it would treat the honest and worthy corporate citizen DoRight.

From the start, BP promised to pay all “legitimate” claims. DoRight would do exactly the same. We wouldn’t expect DoRight to pay fraudulent claims, nor should we expect BP to pay fraudulent claims.

A portion of the electorate feels that these extraordinary circumstances require the government to nationalize BP. Would the government nationalize DoRight? We think not. The U.S. Supreme Court overruled President Harry Truman’s attempt to nationalize the steel industry. The U.S. government doesn’t have a successful precedent for nationalizing profitable companies. Further, government ownership wouldn’t prevent blowouts of exploratory wells in GOM. The Ixtoc I oil well was owned by the government of Mexico.

Others feel the government should seize the assets of BP and dissolve the company, to punish the company and teach the industry a lesson. The U.S. Constitution, Amendment V, would require payments to BP shareholders to compensate them fairly for the assets seized. Those payments would equal the money raised by the sale of the assets. Other large energy companies would buy the auctioned assets. If courts could be persuaded the seizure was legal, then logos would change, but the operations of the properties would continue much as before. The net value would be zero.

Some people believe the costs will be so large that they will bankrupt BP. However, BP has profits of about USD 20 billion per year. The company could pay out USD 10 billion per year for ten years and remain profitable.

I think our society and the world will be best served if the government assures these are accomplished:
1. With urgency, act to stop the oil leak.
2. Repair damage, clean the water and shore, restore wildlife habitats.
3. BP will compensate people fully for loss of income and damages, and BP will compensate the government for its costs.
4. Investigate the disaster to understand the sequence of events and the causes.
5. If appropriate, bring criminal charges and regulatory remedies based on the findings of the investigations.
6. Revise law and regulation to prevent future occurrences.
7. Decentralize the organization of disaster responses to local GOM communities to mitigate future occurrences.

Disclosure: Daniel Brockman is a shareholder of BP.

Peak Oil and Peak Demand

2010-06-17T20:00:00.000-07:00

I enjoy reading the essays of Gregor Macdonald. Mr. Macdonald asserts the Peak Oil hypothesis. He has amassed a collection of supporting factual detail. The Peak Oil hypothesis holds that worldwide annual petroleum production increased to a peak in the first decade of the third millennium, and annual production will decline hereafter.

Why the peak? There are several explanations, and here are some of them. They aren’t mutually exclusive.

1. "Global oil supply ran into geological constraints." -- Gregor MacDonald

2. All the easily extractable oil has been found. What now remains is the more difficult oil.

3. The marginal cost of a newly extracted barrel has increased dramatically.

4. People would rather use a less costly fuel. In many cases, coal has become the fuel of choice.

5. We can roughly estimate the oil produced from a well in any year is 1/10th the remaining oil in the well. This rule of thumb, which I picked up back when I worked for an oil company, models a declining level of production from each well that resembles observations. With each existing well producing less each year, increases in aggregate production can only come from additional new wells. Humanity can’t feasibly drill so many wells.

6. The oil consumers have chosen to use less oil. This is a watershed event, an epochal societal change. This is the Peak Demand hypothesis, which Mr. MacDonald scorns.

Mr. MacDonald is due a great deal of our respect. His astute analyses aren’t easily gainsaid. I may agree with him ultimately, but for now, I prefer to wait and see.

I think we have alternate explanations for a production decline. The cost of petroleum has increased dramatically during the last decade. In 1998, a BTU of energy from oil cost twice as much as a BTU of energy from coal. In 2008, an oil BTU cost ten times as much as a coal BTU. U.S. Department of Energy charts and graphs show this clearly. The value of fossil fuels consumed in the U.S. reached USD 382 billion in 2008, the highest level of expenditure ever. About 10% went to coal and 45% went to oil.

Under these circumstances, we can easily imagine consumers choosing to substitute coal for oil, simply to reduce their very significant energy costs. This might occur as a simple day-to-day budget rebalancing by those who can most easily change their preferred energy source. If this is true, then both Peak Oil and Peak Demand are unnecessary explanations.