August 22, 2014

Spending, not guns, on our minds

barack_obama_gun_control_ap_328A funny thing happened to President Obama on his way to increasing federal regulation of firearms. Members of Congress noticed that gun control wasn’t a top priority for their constituents and handed the President his first major legislative loss.

Instead, Americans are still more concerned about the economy and the state of our fiscal house. From the “Editor-in-chief” over at Gallup:

Only 4% of Americans say that gun violence or gun issues constitute the most important problem facing the country today, based on our April 4-7 monthly update of the “most important problem” measure. This puts guns in the same 4% category as immigration issues, education, and the situation with North Korea.

To be clear, the 4% of Americans for whom gun violence is a top issue were no where to be found before Newport, Connecticut happened. Prior to the Sandy Hook massacre, gun violence didn’t register on the scale.

At all.

Instead, Americans’ top five issues are, in order:

  1. The economy (in general)
  2. Unemployment/jobs
  3. Dissatisfaction with government  (whatever this means)
  4. Federal budget deficit/federal debt, and
  5. Healthcare (which is declining in importance over the last three months)

You can’t see gun violence appear in the list for another four rows, and then it’s tied with worry about threats from North Korea, a country that is begging Mongolia to provide food aid for its starving people. The drug lords of Juarez, Mexico pose a greater threat to the United States.  (See the full chart below.)Gallup Issues

With worries about the economy, our ability to maintain a standard of living, provide for ourselves, and so on, weighing on us, why should anyone, let alone Obama who also has these polling numbers, be surprised that Congress, with lower approval ratings than the President, has no fear about thumbing their collective noses at his push to require universal background checks?

It’s still the economy, stupid. And it will be until we change how we’ve been doing things.

Not that I want to rely upon Hollywood for an example, or anything, but I’m going to do just that. I’ve been watching Andrew Sorkin’s West Wing lately, set in the bright years of the 1990s (or so). Repeatedly I hear the same talking points and arguments that are being made–today–by liberals and Democrats in favor of their pet programs and policies.  Whether it’s for gun control, expansion of governments role in healthcare, fiscal and tax policy, or the first amendment, the arguments have not changed.

The difference is that elected officials, all too often, act like our collective memory is too short to remember what they are doing now has been done before, has been said before, and, well, got us into the mess we’re in now. But does anyone remember? Are we going to keep doing the same thing and expect different results?

I can’t claim to understand the arcane workings of federal programs, but I do know the pinch on my pocketbook, on my family, when I look at my pay stub and the withholdings there. I do see the taxes I pay at the fuel pump when I look at my receipt. I do recognize how much cheaper and easier it is to buy a book online from Amazon compared to Barnes and Nobles’ brick and mortar and what will happen if the government starts taxing that purchase. I do see how difficult it is to buy a home, still, five years after the housing market collapsed, largely because of governmental meddling in the housing market. And I know that I am not in the minority–Americans think about the price of a home, of a car (remember what “cash for clunkers” did to all those perfectly fine used cars that we could still be driving?), of a meal, of a vacation…or the lack thereof.

And that’s on my mind more than is gun violence. Stop being so surprised and peeved that you didn’t get your way, Mr. President. It’s government for, by and of the people–and the people are concerned about the economy.


Publius Online is participating in the Blogging from A to Z Challenge, a month-long quest to post every day (I know…I’ve missed a few days). Each day should match a letter of the alphabet. Today is the letter S, as in Spending.

 Related articles

Financially, we’re not better off, says the US Census. Especially young workers.

According to data in the US Census released today, most Americans are not better off financially after Barack Obama’s first term as President of the United States. Whether this will translate at the polls in November remains to be seen.

The median household income for families dropped 1.7 percent from 2010 to 2011 to $62,273. That’s 8.1 percent lower than in 2007, the year before a collapse in the housing market led to what has been the longest recession in a generation. According to the report, income rates among all race groups have not recovered from highs experienced previous to the 2001 recession caused by the collapse of the dot-com bubble.

Hardest hit by the slow growth are families led by women, with 31.2 percent of families with a female householder living under the poverty line while only 16.1 of families with a male householder living in poverty. Nationwide 46.2 million people, or 1 in 6 Americans, remain in poverty, the highest in the half century that records have been kept and at 15 percent at about the same rate as it was in 1993.

The effect of the recession has been felt in Utah, as well, despite weathering the recession better than most states.

“We compare favorably to other states,” said Utah state demographer Juliette Tennert in an article in the Salt Lake Tribune. “But compared to our history, our poverty rate is up.” Tennert noted that while Utah had lost 80,000 jobs since the beginning of the recession, 60,000 of those have returned.

However, warns Pam Perlich a senior research economist at the University of Utah, those jobs have not all been at the same wages as those lost.

“There have been tremendous job losses, and many of the new jobs that are being created are not at as high of a wage level as the jobs that were lost,” Perlich told the Salt Lake Tribune. “It’s more than a recession, it’s an economic restructuring.”

In a blog post, the White House noted there is more work to be done.

“While we have made progress digging our way out of the worst economic crisis since the Great Depression, too many families are still struggling and Congress must act on the policies President Obama has put forward to strengthen the middle class and those trying to get into it,” the White House post said.

How America’s continuing economic struggle will play out politically remains to be seen. After a slight bump in the polls after the Democratic National Convention, Obama and Republican challenger Mitt Romney are polling neck and neck.

With 53 percent of 18-24 year olds living back at home with their parents, it should come as no surprise that support among the young for Obama has fallen. Young voters between ages 18 and 29 have been among the groups hit hardest by the recession, with 12.7 percent unemployed and nearly a third underemployed. Support for Obama in this group has fallen from 49 percent to just 41%, a blow to a group that was important to the President’s 2008 win.

Should the rich pay more taxes (than they already do)?

What is your “fair share” of taxes?

President Obama’s plan to balancing the budget, if I don’t mistake it, is to raise taxes on the wealthy. His argument is that the wealthy are not paying their fair share of taxes. If they were, we could pay down our debt and put our fiscal house in order.

As I’ve cited before, this is the crux of his “You didn’t build that” speech, an attack on successful Americans everywhere.

“There are a lot of wealthy, successful Americans who agree with me because they want to give something back,” he said in a speech in Roanoke, Va., that set off dueling campaign ads. “Look, if you’ve been successful, you didn’t get there on your own.”

Private opinions can disagree, though, and they do. Says Joseph Thordike, a tax historian to the Wall Street Journal:

“Who’s right: Obama or Romney? Both. Or neither,” says Joseph Thorndike, a tax historian. “When it comes to taxing the rich, there is no single, objectively correct answer. You can talk all you want about asking rich people to pay ‘their fair’ share,’ but don’t kid yourself. You’re just trying to turn private opinions into public policy.”

“I’m struck” he adds, “how the facts can be used selectively by either side.”

[Emphasis added]

If where the “fair share” line is up to private opinion, what does it say about President Obama’s opinion that, when the economy is struggling and unemployment is high, he wants to take wealth out of our country to balance the debt? Wouldn’t it be better to grow the economy and lower the cost of government? Why would we soak the rich–most of them owners of businesses and investors in businesses–at the very time capital is most needed to grow business and expand?

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INTERLUDE

I recall, in an election past, attending a fundraiser for a candidate for President. The candidate himself was there, and though I was only there to help (hand out name tags, direct traffic, etc), I shook his hand and got a picture with him.  While a good man and a patriot, he was not the person supported for the party nomination. However, he could be the next president of the United States and that, I thought, was cool.

The fundraiser was small–probably less than a hundred donors–and was held in one of those spacious homes up on Salt Lake Valley’s bench. The door knobs were probably worth more than my undergraduate education, and the chandelier might have funded law school. A stairway lifted out of the main room where the donors were gathered and the candidate climbed up a few steps to speak. Among other things, he said something that has stuck with me:

“This sure is a nice place,” he said, and donors chuckled at the understatement. “In fact, it’s part of why I am running for President. My opponent wants to take this away and spread out the wealth. I’m running because I think everyone in America should have a place like this.  But you don’t get a place like this by taking it away from those who have earned it.”

Hyperbole or rhetoric, or both, fast forward now a few years, or more, and we find ourselves with a President who appears increasingly out of touch with the reality of what it takes to increase wealth, and that’s what it’s all about, right? Increasing wealth?

We’re not talking just about the level of unemployment, though that’s a great indicator. We’re talking about our national wealth–as a country and as individuals.  Whether we are talking about how much debt the federal government is carrying or the average wealth of Americans, the high and lingering level of unemployment (anywhere between 12 and 23 million people, depending whether you include underemployed and those who have stopped looking, and whether you say it’s 8.3% or 8.254% unemployment) is a mark that our country is not growing.

In fact, economic growth was at only 1.5% from April to June. That’s abysmal. Even while the rest of the world is picking up, last year the US growth at only 1.7%, while China grew at 9.2% and India at 7.2%. Lest you blame it on cheap labor available to those developing countries, note that even Canada grew at 2.5% last year and Germany at 3.1%. If we’re going to turn the economy around, we’ve got to start growing again.  Growth won’t happen by taking the fruits of success away from those who earned them.

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TAXES OVER TIME

David Wessel, in the same article that cites Thorndike above, makes a few salient points: How much are the successful (‘wealthy” in President Obama’s parlance)  paying in taxes now in comparison with past years?

  • The top 5%, top 1% and top 0.1% of Americans have been getting a bigger slice of all the income and paying a growing share of federal taxes,  and the corollary: the share of taxes paid by the bottom 40% of the population has been shrinking along with their share of income..

As my friend “Steve” would argue, the gap between the rich and the poor (or the rich and the middle-class) is getting bigger. Granted. But so is the share of taxes paid by the rich, too.

From Ronald Reagan to Barack Obama, the tax code has been tweaked and the economy has had its ups and downs, and the share of federal taxes paid by the top 5% and the top 1% has risen faster than their share of income:

In the 1980s, the top 5% averaged 22.6% of income and paid 28.5% of taxes.

In the 1990s, the top 5% averaged 25.3% of income and paid 34.3% of taxes

In the 2000s, the top 5% averaged 28.4% of the income and paid 40.3% of the taxes.

Do you see a pattern?

  • Average tax rates have come down for everyone. On average, the tax bite on the rich is bigger—except for those whose income mainly comes from capital gains and dividends.
Everyone is paying fewer taxes, but the wealthy are giving a bigger share of their income to the government. It’s why we call our tax system “graduated.” The higher on the income scale, the more taxes you pay, while the on the bottom (as much as half of Americans) pay almost no income taxes (though they pay a relatively higher share in sales tax…but that’s another story).

In 2011, according to the Tax Policy Center, about 46% of households didn’t pay any U.S. income taxes, a proportion swollen because so many have seen paychecks shrink or evaporate. But even in the better years of the mid-2000s, roughly 40% of households didn’t pay any federal income tax.

  • The tax system narrows the gap between economic winners and losers, but not enough to stop the gap from widening.

Our tax system does provide a safety net to those who do not succeed, but not as much as the Obama campaign wants it to.  Narrowing the gap is not enough, though; the Obama Presidency is aiming to eliminate it, not by lifting up the bottom, but by redistributing the property held by the top to those below them.

Unfortunately, we’re saddled with a President who is more concerned with a healthcare solution that will increase our taxes than an economic solution that will increase wealth so we can afford health care. It’s no unlike killing the golden goose to feed your family instead of just selling the golden eggs.

Golden eggs or rotten eggs, the question about fairness of taxes comes down to opinion resolvable only by a “show of hands.”

Losing sight of the forest for the trees

It’s August. While we’re still a month away from the full swing of election season, traditionally beginning after Labor Day, there’s enough politics in the news that the rhetoric is already starting to wear thin.

And maybe that’s the problem: too much rhetoric. Too much empty rhetoric.

If it’s not clear to the legions of consultants advising the Romney and Obama campaigns, yet, the economy, and the lack of recovery thereof, is center ring issue of this election.  Instead of an honest and forthright discussion about the role of government with regards to the economy, though, we’ve been treated to a series of sideshows,  a parade of misfits and sideshows that distract from that discussion.

Whether it is Obama’s “evolving” stance on gay marriage (he’s for it, now), attacks on Bain, calling for Mitt Romney to give up more tax returns, or Romney’s gaffe in London, voters have been treated to more tit for tat than substantive discussion.  Even the Supreme Court’s ruling on the Affordable Care Act (aka “Obamacare”) seemed to reveal that neither side was willing to grapple with the effect the law will have on the economy in the form of new taxes. Obama seemed more interested in reiterating that “we won” and Romney’s team seemed afraid to attack, unless it’s something so glaringly obvious as Obama’s telling  entrepreneurs and business people that “you didn’t build that.”

Why is unemployment still high? Why has the Obama plan failed? Unless we want to constantly fight a battle of trying to win the least educated and most volatile voters–and continue to see the selection of inexperienced politicians who will say anything to get elected–we need to see a clear exposition of why it is important to vote Republican in November.

In other words, where’s the vision?  The candidates are clearly different individuals with a different view of the role of government, but are voters hearing that difference?  “Both men’s positions have been contorted by each other’s attack ads,” as a piece in The Economist recently described,

 But there is a real left-right division, personified by the two candidates. Mr Obama, who has spent most of his life in the public sector, academia or community work, plainly thinks the state has a bigger role to play—in galvanising the economy when demand collapses (as in 2008) and in moderating inequality. By contrast, Mr Romney, who made $200m or so in private equity, believes that the best thing that government can do is to get out of the way—by cutting taxes, reducing regulations and leaving people to build their businesses.

And what will the winner face?

The winner of the November election will immediately be faced with the problem of the “fiscal cliff”—a preset $400 billion tax increase, with the expiry of various tax cuts, and a $100-billion-a-year cut in spending—which could push the economy back into recession. Looming over that is the gaping deficit. And over that, America’s schizophrenia: it taxes itself like a small-government country, but spends like a big-government one.

The state of the debate, says the Economist, is poor, though. On the right, taxes can never balance the deficit (even though the Economist cites Milton Friedman just a sentence before) and expansive spending is justified for prisons, national security, and big business subsidies. On the left, reform is impossible, with Obama methodically “unpicking welfare reform” passed over the last twenty years, including under President Clinton‘s administration. Further, “Mr Obama seems to think the public sector is inherently more moral than the private one. Companies are at best cows to be milked, at worst prey to be hunted.”

Read the full article here.

[The Economist]

Presidents ranked by job creation [infographic] [via Political Math]

Hat tip to Matthias Shapiro, a friend and local policy wonk who’s got a penchant for making numbers make sense.

First, his infographic:

Second, the caveats (ask Matthias states them):

  • No, it’s not fair. President Obama hasn’t finished his first term, yet (but neither had Kennedy). On the other hand, if he’s going to get out of last place, the economy has to add 300k jobs per month until January.
  • President Obama started things in the hole.
  • Do Presidents’ really have that much control over economic growth? (No, but yes. Actually, maybe…)

Catch Matthias’ full post here and follow him on Twitter. He’s always entertaining, not to mention insightful.

One does not simply lose 129,000 millionaires…

The first thing that came to mind when I saw the headline was: “What? Where did we put them? Are they under the couch cushions?”

It’s no joke, though. Because of losses on the stock market, America is down 129,000 millionaires, while the rest of the world added 175,000 millionaires. Growth is happening, evidently, in the “emerging markets” of the world.  Just not here at home.

The population of U.S. millionaire households (households with investible assets of $1 million or more) fell to 5,134,000 from 5,263,000 in 2011, according to The Boston Consulting Group’s Global Wealth study.

Total private wealth in North America fell by 0.9 percent, to $38 trillion.

The ultra-rich were the largest losers in dollar terms. Households in North America with investible assets of more than $100 million saw their wealth decline 2.4 percent. Their population declined slightly to 2,928 from 2,989.

The main reason for all this wealth loss? Stocks.

Also, in case you were wondering, the highest population density of millionaires is in Singapore. Who knew?

[CNBC]

Book Review: “The Big Short: Inside the Doomsday Machine” by Michael Lewis

The Big Short: Inside the Doomsday Machine

Michael Lewis can tell a story like no other.  In fact, even before I finished reading his “The Big Short,” I wanted to work the book into every conversation I had. The story was that interesting and compelling.  Anyone who can take the financial crisis of the last few years, find a story in it that centers around subprime mortgages and shorting the market (if you understand what that means and how to do it, you’re more than a step ahead of me and about anyone else I’ve mentioned it to over the last couple weeks), and then make it interesting to the lay reader deserves to be read.

In many ways (if not all ways), the stock market is a giant enigma to me, which suggests how Winston Churchill once described Russia: “I cannot forecast to you the action of Russia. It is a riddle, wrapped in a mystery, inside an enigma; but perhaps there is a key. That key is Russian national interest.” If there is a key to the enigma, with that riddle wrapped in a mystery inside it, that is the stock market, perhaps the key is found in the self-interest of the individuals participating in the market. Not just the stock and bond traders that made up the named characters of “The Big Short,” but even the home buyers and owners that took out second, third, and fourth mortgages, bought two, three, and four “investment” properties, the loan originators who sought them out and offered no interest loans, and the banks that sliced up the loans to fill tranches (there’s another cryptic word for you) for trading as bonds to and between the financial houses on Wall Street.

In other words, as Gordon Gecko might say: greed. Greed of bonds traders, floor traders, home buyers, loan originators, strawberry pickers, and house cleaners. Greed by just about everyone involved, from the top all the way down to the bottom.

Lewis, known for his writing in “The Blind Side” and in “Money Ball,” with “The Big Short: Inside the Doomsday Machine” returns to his original stomping ground covered in “Liar’s Poker: Rising Through the Wreckage on Wall Street.” Finding the few who saw the crash coming, he pulls together a narrative about those who anticipated the crash and saw it coming. While so many were getting rich off trading subprime mortgage based bonds, a few individuals realized that the underlying assets to the housing bubble were not stable and predicted that as interest rates on adjustable rate mortgages became due, defaults would sky-rocket and the bonds’ values would crash.

And then they bet against it, cashing in lucratively when the predicted defaults began.

, author of the best-sellers Moneyball, The Ne...

Michael Lewis, author of the best-sellers Moneyball, The New, New Thing, Liar's Poker, and others at a Hudson Union Society event in 2009. (Photo credit: Wikipedia)

What makes the story fascinating, of course, is the attention to the often colorful and more than slightly eccentric personalities that comprised the handful of individuals in the story. The stock market is difficult to understand for a simple reason–its workings are data driven and few pay the price to understand the numbers and analysis behind the market. In contrast, those who did, and those who got lucky, were often driven by a narrow-minded focus the data. From a neurologist turned hedge fund manager diagnosed with Aspergers in the midst of the story to a couple of young college grads who all but lucked into it, to a loud mouthed malcontent who made a habit of sticking it to the big wigs on Wall Street who lost investors money to the crisis, the “The Big Short” is replete with Lewis’s deft story telling.

Whether you are interested in finance or just looking for a great story, “The Big Short” is worth the time to read. I listened to it in the car, and often found myself sitting in the driveway waiting for the end of a section. More, it introduced me to concepts and interests that I’m exploring further in other books. Read in conjunction with “Too Big to Fail,” which I read last year, it provides an up close look at what was going on and why our economy is dragging through the longest recession in a generation.

One last observation: one aspect that this book noted that continues to shock me no matter how many times I hear it over the last four years is how people with little or no credit history or ability managed to get so much financing. From immigrant strawberry pickers in California with $750,000 mortgages to house cleaners in Brooklyn with four and five town homes, obtuse financial incentives to originators and investors alike distorted the market in ways that were dangerous to all of us. While I look forward to other financial histories for other perspectives, Lewis seems to make clear that it wasn’t so much the free market that failed, but the financial incentives that were built into it. In the end, the old adages “if it’s too good to be true, it probably is” and “there’s no such thing as a free lunch” seem even more relevant today than ever. Be careful when the snake oil salesman comes calling. He may not have your best interests at heart, and he may not even know it himself.

View all my reviews