The Wisconsin Recall Elections

The results are in from Wisconsin's recall elections. Of the six state senate seats contested, four of them remain in the hands of the Republicans who won them in the 2010 regular election. This is considered a victory for the Republicans, who retain control of the state senate.

The concerted effort to undo the results of the last election was sparked last spring. The newly Republican legislature joined forces with the Republican governor to roll back benefits and limit union rights on benefit negotiations for state employees, including teachers. These moves sparked a firestorm or criticism, including massive demonstrations from union members.

The remaining Democratic members of the state senate actually left the state in an attempt to prevent the legislation from passing by denying a quorum. People are criticizing the tea party conservatives in the US House for not negotiating, but at least they stayed in town. Deserting your post to prevent the majority from passing legislation is bad enough. But then some chucklehead had the bright idea "hey, let's try and undo the results of the election."

It's important to remember the difference between a pure democracy, which we don't have at the state and Federal levels, and a representative democracy, which is our form of government. In a pure democracy, the populace votes directly the issues of the day. Think of a ballot referendum as an example.

In a representative system, we pick representatives for a set period of time. After their term is up, we get to decide if we want to keep them, or throw the rascals out and bring in a fresh set of rascals. If you're in the party that is on the outs, you organize, you fund raise, and you get ready for the next election. But you wait your turn.

The recall effort was the worst kind of cynical politics. The senators selected were not guilty of malfeasance. With one exception, they were not involved in scandal, and had won their elections fair and square. They were guilty of voting for the party platform they had campaigned for, and of having won by narrow margins in their districts.

The voters of Wisconsin wisely rejected this attempt at an end run around the electoral process. In a little over a year, the Democrats will get another, more legitimate chance to swing the pendulum back in their direction.

The Debt Ceiling: The Aftermath

Proving that when the chips are down, our elected representatives can craft a deal that nobody likes, the debt ceiling was successfully raised before the government ran out of cash. So, unless you’re working for the FAA, let the good times roll.

I have been stunned by the outpouring of scorn that has been heaped upon tea party Republican freshman in the House of Representatives. One op-ed piece in the New York Times actually compared them to terrorists. They have been called irresponsible for creating a crisis in Washington. How dare they threaten the full faith and credit of the US? The insolent nerve, to demand spending cuts and refuse to increase taxes! Didn’t they understand how bad a default would be? If government spending had forced to be reduced by 40% overnight, that would have been like running into a brick wall!

The attitude of the tea partiers seems to have been that it was better to run into the brick wall with $14 trillion in debt than wait ten years and run into the brick wall with $28 trillion in debt. And by run into the brick wall I mean have the Chinese government impose austerity plans on us in exchange for continued access to credit, ala the IMF and Greece. Created crisis? Certainly. Crisis that needed to be created? Maybe.

Looking at the deal that finally got done, I’m not entirely sure that it would not have been better to hit the wall now. At least that would have forced some tough choices. As it is, the deal that got signed does nothing to address entitlements and transfer payments. And the increase in the debt limit pushes the issue down the road two years, until after the next election. In two years we are going to go through all of this all over again. Only next time, the national debt will be $17 trillion, not $14.3 trillion.

So after all the Sturm and Drang, what we ended up with is pretty much business as usual. So much for hope and change.

Debt Ceiling Talks: The Scale of the Problem

We are less than a week away from hitting the debt ceiling, and there does not appear to be a bargain in sight. If both Houses of Congress and the White House do not get their act together, the US government will be limited in spending only what it receives in tax revenue. The result will be an immediate 40% cut in Federal spending.

I don’t think there has been enough said about that 40%. Congress has authorized spending for almost twice as much as they take in. Twice as much. The idea that we are going to close that gap, either by shutting down the national parks, NPR, and the State Department, as the right wishes, or by making the people in the top 10% of incomes pay another 4% of their income in taxes, as the left envisions, is ludicrous.

To close the gap on the revenue side would require the government to increase taxes by 67%. Since the top 5% of income earners pay 59% of total income tax, if you wanted to close the gap solely from that group, their taxes would have to double to about a 80% marginal rate. We would be telling people “if household income exceeds $200,000, 80 cents out of every extra dollar you earn is going to be taken away. If we did that, who would be left to contribute to politician’s reelection campaigns?

On the expense side of the equation, you would have to make huge cuts in the defense budget, along with eliminating all other discretionary spending to close the gap. No Federal prisons. No air travel, because no air traffic controllers. No repairs to the Interstate system. Nada.

Or, you could stop paying Medicare. Medicare accounts for about 40% of current Federal spending. Interestingly, most of the commentators I have been reading have assumed that Medicare spending would be a priority in the event the debt ceiling is reached, right after interest payments on the debt. But that topic is the subject of another post.

Another interesting thing about the current crisis is that it is completely made up. Created out of whole cloth. The debt ceiling has been raised 78 times in the last 50 years. It is simply a matter of Congress giving the Treasury Department permission to go out and dig the hole a little deeper. Congress could come back from lunch this afternoon and raise the debt ceiling on a voice vote. It is, as they say, merely a stroke of the pen.

The Republicans started the crisis going by declaring that the debt limit wasn’t going to go any higher until a deal was reached on spending cuts. Big spending cuts. The President then doubled down by threatening to veto any increase in the debt ceiling that didn’t include a “Grand Bargain” on spending cuts and revenue increases. The revenue increases to start right away, the spending cuts to take place sometime in the future. Preferably after the next election, when he is settling into his second term. Both sides think they can win the political game by being intransigent, and here we are.

At this point, there is not enough time left to put together major legislation on either spending cuts or revenue increases. This means that the most likely scenario is that at the eleventh hour both sides will toss in the towel and agree to increase the debt ceiling enough to get through the rest of this year, and part of next.

That only takes a stroke of the pen.

The Debt Ceiling: What happens if we hit?

We’re getting closer to our self imposed limit on the national credit card. The current debt limit is around $14 trillion. According to pronouncements from the Treasury, the government is spending money so fast that we are going to hit that limit on August 2, about two weeks away. As things stand now, neither side of the negotiations on the budget is giving way.

Once we lose the ability to continue tacking on more debt to the debt we already have, the US will default on its debt for the first time in the history of the country. The financial Apocalypse will have arrived.

Sort of. Because many people in this country have hit their individual debt limits. It’s called getting your credit card refused, or being denied for refinancing. But for a lot of those individuals, maybe most of them, being unable to dig the hole deeper doesn’t in and of itself require a default.

After all, it’s not as if the government is not still taking in tax revenues. My employer will continue tax withholding. Self employed individuals will continue making quarterly estimated tax payments. There isn’t going to be a complete shutdown of the Federal government. What there will be is a partial shutdown of the Federal government and Federal transfer payments.

One thing for sure is that the top priority for the money coming in is to continue making interest payments on existing government bonds. After all, if you stop making interest payments, the lenders won’t be too keen on loaning you more money after the debt ceiling problem is straightened out. Actually, the government will continue to sell bonds even without an increase in the debt ceiling. The money taken in from those bond sales will be used to pay off older bonds that are coming due. So first demand on the revenue will be to the bondholders.

Now, if you are making interest payments and paying off maturing bonds, I’m not even sure you can call it a default at all.

On the other hand, the Federal government is currently spending 40% more than it is taking in. Hitting the debt ceiling may not cause a default, but the immediate cuts required would entail huge disruptions to the economy. Either way, I’m not anxious to try it.

Migrant Labor as Skilled Labor

The inestimable Megan McArdle has a post on her blog over at The Atlantic where she argues that the work performed by illegal migrant workers requires more skill than we Anglos normally give credit for. Specifically, she writes about her experience at a pick-your-own raspberry farm. She noticed that a lot of the fruit was either missed or wasted, combined that with the aches and pains she felt for days afterward, and voila, picking fruit takes more skill than you realize.

Ordinarily I see Megan's point in everything she writes, and I agree with almost all of it. In this case, however, I believe the pain in her hamstrings has influenced her judgment. By her own admission, purple raspberries are an obscure, not widely grown fruit, which is more difficult to harvest than other varieties. That's probably why so few farmers grow them.

Even so, she lists only five rules for picking the fruit:

1. Get low to the ground.

2. Look under the leaves.

3. Go around to the back side of the bush.

4. A GO condition for the color--it must be purpler than some value of red, or it will be unripe.

5. A NOGO condition for gloss--the fruit cannot be too matte, or dull colored, because that means it is overripe and will mold.

By working with a skilled trainer, a sufficiently motivated trainee could learn these distinctions within about 500 iterations of the task. "That one is too dull. That one is too red. You forgot to look under all the leaves." That is a single basket of fruit. By sufficiently motivated I mean that is you cannot learn to get all of the acceptable fruit, and only the acceptable fruit off a bush, within a couple of hours, we fire you and you go back to unemployment. Once these quality control tasks are learned, the remainder of the job consists of physical conditioning and coming up to standard speed.

One week, or at most two, would be sufficient to master this job. Maybe a couple more weeks for other crops. This means the first farmer to hire an inexperienced picker suffers the losses during the learning curve, but the other farmers in the picking season will benefit thereby.

In my factory, it takes about a month to get signed off at the entry level machine operator position. With the current level of unemployment in our area, we are having no problem filling positions at a starting rate of $8/hour.

All labor is honorable, and some jobs are a lot tougher than others, but picking fruit is still unskilled labor.

Bristol Palin: Fortune's Child

I may have to revise my opinion of Bristol Palin.

My initial impression of Sarah Palin’s oldest daughter was that she is a thirty watt bulb. There’s a spark, but it is pretty dim. After all, she let herself get knocked up by Levi Johnston, who by all appearances and public statements is a pretty reprehensible character. After having her baby, she didn’t seem to be in any hurry to get back to school and continue her education past high school. I figured Bristol for a loser, another unwed mother who is supported by her parents.

But the events of the last year have made me reconsider.

First, there was the US magazine cover story, where she and Levi announced they were back together and getting engaged. Okay, the engagement lasted about three weeks, right up until Levi Johnston realized she meant it when she told him there would be no premarital sex. The public humiliation did nothing to enhance Bristol’s reputation as a sharp operator. But her share of the fee paid by US magazine for the scoop was $125,000. Not bad for a day’s work.

Meanwhile, she was the national spokesperson for an organization devoted to preventing teen pregnancy. According to USA Today, her salary for that gig was $209,000 per year. That is enough to put her compensation into the top 10% of households in the US.

Then there was “Dancing with the Stars.” Now, she was certainly not the worst dancer that season, but I watched some episodes of the show, and she was nowhere near the best. But her mother’s fan base kept her in the running, right up until the final three couples. As I understand the compensation structure of the show, you get $10,000 for the first episode, $20,000 for the second, and so on. The payout escalates the longer you survive the elimination. By my estimate, by making it to finals, Bristol grossed about $2 million that season.

Now she has written her memoir. The sum total of her life experience to date has been: getting pregnant by Levi Johnston, backstage observer on a failed political campaign, and a stint on DWTS. And she got a book deal out of it. Can you spell P U B L I S H E R’ S A D V A N C E?

At this point the lifetime earnings of this 21 year old are somewhere north of mine, and I’ve been working as a college educated professional for 30 years. You can’t argue with success, and this girl has had a ton of it in the last three years. So like I said, I’m going to have to revise my opinion of her talents upward significantly.

But damn, who’s her agent?

The Greek Crisis

The Greek capitol of Athens has been rocked by massive protests and civil unrest this week. The issue that has enraged the populace is the consideration by the Greek Parliament of a new round of tax raises and spending cuts. These “austerity measures” are the conditions placed on Greece by the IMF and the European Community Bank, in exchange for a second cash infusion that will allow the Greek government to continue to make payments on its existing debt.

At this point it looks like the politicians are going to vote in the austerity package in the face of overwhelming popular opposition, which is unusual in a democracy. Por qua? Well, the answer to that question is the politicians (or their senior advisors) can do basic math, and know what will happen is they turn down the IMF conditions. The protestors, on the other hand, are rioting for the privilege of continuing to live beyond their means, which they think is a right.

The protestors want the Greek government to cancel its debt, stiffing the mostly French and German investors who loaned the money. The dilemma the politicians face is that Greece’s current account deficit is just over 10%. For every euro the government takes in taxes, they are currently spending 1.1 euros. The austerity measures are designed to get that deficit down around a target of 3%. The IMF doesn’t require Greece to balance the budget. They just want the budget to be less unbalanced then it is right now.

If the Greek government defaults, the well founded concern is that they will be cut off from the international lending markets. Who is going to lend money to the guys who don’t pay it back? Without access to credit, there is an immediate, crisis-driven budget balancing, which means even more austerity than currently proposed.

Greece, although the cradle of Western civilization, is a small country with little industry and few natural resources. In today’s world, that is a recipe for being poor. Joining the Euro zone allowed Greece, for a few years, to live like they were richer than they really were. Facing the readjustment back to being poor is the root cause of the civil unrest currently wracking the country. But you can’t wish away the math by rioting in the streets.

Austerity? We don't need no stinking austerity!

Paul Krugman has put out an op-ed piece in the New York Times accusing governments on both sides of the Atlantic of not doing enough to provide jobs for the unemployed. He believes that governments are sacrificing the welfare of their citizens because they are giving undue influence to the owners of capital. The interests of bondholders are being protected at the expense of ordinary people. He doesn’t quite use the phrase “sinister cabal of international financiers,” but he comes close.

I know the guy has a Nobel Prize in Economics and I don’t, but really, I think he’s overstating his case. Krugman argues that as long as the unemployment rate is high, governments need to do more deficit spending, even if printing money to pay the bondholders kicks off a higher inflation rate. And if a few governments have to default on their loans, well, that’s a small price to pay. Sure, the bankers will take losses, but look how much good they’ve done!

Maybe the politicians are reluctant to dig the financial hole deeper because they remember their grandmother’s telling them to always spend a little less than they earn. Maybe the politicians don’t want to saddle their children with huge debt payments. You know, principled arguments against taking on too much debt. Aw, who am I kidding, these are politicians I’m talking about. They probably are listening to the bankers.

Still, there is nothing sinister about not wanting to lose money. I’m not an international financier, but I’m not wild about losing money on bad investments. Let’s picture a conversation between an International Financier and a Liberal Politician:

LP: I know we’re borrowing 40% of every dollar we spend, but I’m thinking we need to increase our spending.
IF: If you continue to increase your debt, there’s a good chance you won’t be able to pay back the money you’re borrowing. If I don’t think I’m going to be paid back, I’m not going to loan you any more money.
LP: But you have to keep loaning me money. Even after this crisis is past, we’re still going to be spending more than we take in taxes.
IF: You’re very telegenic, and you’ve got charisma coming out your ears, but I don’t think you heard me. If I don’t think I’m going to be paid back, I’m going to stop loaning you money.
LP: But people need jobs!
IF: Not my problem. My problem is getting paid back with interest. If I loan you too much money, you won’t be able to pay it all back.
LP: You will get paid back! I own a printing press, and I can just print off more money. Problem solved.
IF: *sigh* If you print more money, than you set off inflation. If you have 8% inflation, and my bonds are drawing 4% interest, that is a negative 4% return. I don’t loan people money in order to lose it.
LP: So you’re telling me that if I increase our deficit spending, you’re going to cut me off.
IF: In a nutshell, yes.
LP: Well, I guess I can’t increase the amount of deficit spending then, even though I want to.

There is no great conspiracy here. Just a lot of people pointing out that even great nations have to eventually pay back the money they borrow, and that it is a bad idea to dig that hole deeper then you can climb out of.

It doesn’t really take a Nobel Prize to figure that out.

Libya: Mission Creep

As part of the “Arab Spring,” the Libyan uprising against the government of Moammar Gadhafi was supposed to be over in only a few weeks, especially after NATO forces used airpower to enforce a no fly zone over the country. It is now almost summer, and there are very few signs of the regime folding its tents and going away. Instead, it now begins to look like NATO is supporting one side in what is shaping up as a civil war between the western and eastern halves of the country.

Of course, NATO’s military involvement has been about much more than just grounding the Libyan air force, right from the get go. Under the guise of a humanitarian mission, NATO aircraft (mostly from France and Britain) have been striking at Gadhafi’s military whenever targets present themselves. However, the fighter aircraft deployed are not the most effective weapon to use for close air support of the rebellion’s ground forces. It is hard to hit scattered artillery pieces when you are moving 500 miles an hour at a height of 2000 feet, even with precision guided munitions. So this week France announced that a force of attack helicopters would be sent to Libya to support the rebellion.

But it would only be twelve choppers. That’s not much of an investment, is it?

Well, not so fast. The twelve helicopters and their crews represent NATO’s fist. But it takes a lot of muscle to drive that fist. First of all, they have to be refueled after every mission, so you need fuel handlers and fuel storage. Second, when the choppers break, you’ve got to fix them, so you need a complement of aircraft mechanics and avionics technicians at the air base. On hot missions you fire off weapons, so you need ordinance personnel to store ammo and reload the guns. And because you need to house and feed all these guys, military units almost always carry their own logistical capability with them when they deploy.

Bottom line, when the politicians talk about sending twelve helicopters, they are really talking about sending a whole unit, a squadron. This means that the French will have about 250 of their airmen involved in the conflict. Once they are on the ground, they become legitimate military targets for Gadhafi’s forces. How much do you want to bet that as soon as the squadron commander sees the half trained militia providing security for his unit, he’ll start lobbying for more troops to protect his air base?

NATO is escalating its forces in Libya. From a US perspective, the only good thing about the situation is that the Obama administration has pushed this mess off onto the Europeans. Because once you start escalation, each incremental step gets easier and easier. And we still have our hands full in Iraq and Afghanistan.

High Gas Prices: Who's to Blame?

I spent over $65 filling up the gas tank of my car the other day. Six months ago that would have cost me less than $50. Gasoline prices have shot up over the past year, and are well over $4.00 a gallon in many parts of the country.

The rapid rise in prices is putting a squeeze on many household budgets. Inevitably, people tend to hate on the big oil companies, blaming them for the increase in energy costs. And those companies are reporting high profits. Rather than blaming the oil companies for high prices, however, we need to look deeper to understand what is driving the costs of a barrel of oil upward. After all, when oil prices drop, so do gasoline prices. Not always as fast a drop as when they go up in lockstep with cost increases, but if oil prices were to fall substantially, gas prices would eventually follow.

The first of the forces pushing upwards on the cost of oil is the Federal Reserve’s program of Quantitative Easing. In order to try and stimulate the economy, the Fed has been printing money and putting it in circulation. $600 billion on this round, and this is QE II. The theory is that flooding the economy with money will jumpstart spending, because people will have more cash to spend.

Another term for quantitative easing is devaluing the currency, but that would be politically incorrect to say, so no one in Washington is using that term. Devaluation does help expand exports, so in that sense it does stimulate the economy. But it also makes imports more expensive. As the dollar becomes worth less, because there are more of them around, commodities that trade on global markets, like oil or gold or cotton, go up in dollar terms. Printing money is a big chunk of why gas prices ascended to the stratosphere in the last six months or so. But it’s not the whole story.

The other piece of the puzzle to higher gas prices is financial speculation. There is a very active market in oil and gas futures. These are contracts where you can lock in a price for future deliveries of oil at a specified price. If you don’t need to take delivery of the oil, you can resell the contract and pocket a gain or loss, depending on what direction oil prices have moved since the original contract was purchased.

There are bona fide purchasers of oil futures, companies like airlines and large trucking companies. These guys like the stability of knowing what their fuel costs are going to be six months down the road. There are also speculators trading in contracts for profit. They never intend to take delivery of the oil, but merely to resell the contract. Traders perform an important market function. They provide the liquidity that makes the market function.

But when speculative trading outweighs bona fide purchases, then the market is driven by speculation, and not the underlying fundamentals of supply and demand for the actual commodity being traded. Fueled by borrowed money, Wall Street hedge funds are now buying and selling more oil contracts then bona fide oil users.

We are seeing straightforward momentum investing driving oil prices these days. Rising oil prices make futures contracts more valuable. Other investors see the profits, and leap into the market as well, driving the price higher. The higher prices make the new contracts profitable, pulling more money into the market. The result is a price spiral that continues as long as money pours into the market, and with borrowed funds, money can pour in for a long time.

The villains at the gas pump are not the oil companies. It is a combination of government debasing the coinage, and Wall Street speculation that is pushing up prices at the pump.

In the face of large impersonal forces beyond my control, I’m not shaking my fist and cursing at the oil companies, or even at the hedge funds running the game. I’m trading in my gas hog for a small car that gets better milage.

Raising Taxes on Oil Companies

All the signs of spring are here. The grass has started growing again, the birds are singing, and the sap has started rising in Washington.

As a response to high gasoline prices, legislation has been proposed to increase taxes on the five largest oil companies. It is being billed as the removal of tax breaks, which strikes me as terribly disingenuous. If you are raising revenue, that is a tax increase.

The news reports I have read are short on details about what specific subsidies are being changed or lifted. Apparently some of the provisions under review have been part of the tax code since the 1920’s.

The biggest piece of the puzzle, however, is undoing a change to the tax code that was made in 2005. This change lowered the maximum income tax rate from 35% to 32% for companies in certain manufacturing industries. The proposed legislation raises the income tax rate for these five companies from the current 32% to 35%. This tax increase provides $18 billion of the total $21 billion increased tax revenue of the whole package.

First off, when the government changes your tax rate from 32% to 35%, that’s not eliminating a subsidy, that is a tax increase. The next point of contention I have with this is why single out the oil and gas industry? Why not increase taxes on the car companies, or paper products manufacturers? And then there is the question of what makes these five companies so special? That proviso has Supreme Court challenge written all over it.

The most amazing thing about this proposed legislation, however, is that it will do nothing to reduce gas prices. High gas prices are what made these companies a target in the first place.

So let’s take a concern of the citizenry, use that as an excuse to raise taxes by scapegoating the largest players in an industry. Ignore the reality that what you propose is probably unconstitutional. Sell it by claiming you are eliminating subsidies, instead of calling it an increase. And finally, the actions you propose will do nothing to address the original concern of the citizens. That’s our Congress for you!

There are times when I despair for the future of the republic.

Osama Bin Laden Sleeps with the Fishes

Well, it took ten years, but justice finally caught up with Osama Bin Laden. Chalk one up for the good guys.

I’m intrigued by what appears to be unseemly haste in disposing of the carcass. I understand the desire to appear responsive to the Islamic world’s sensibilities, but it was less than twelve hours after the news broke that the first deniers and conspiracy theorists began making pronouncements that the whole incident had been faked. I would have dumped the body in a freezer until an independent authority could verify the identification process. Then weight the corpse and deep six it.

For me, the revelation that Bin Laden wasn’t hiding out in a cave is the most fascinating and disturbing part of the whole story. Abbottabad is only forty miles outside of Islamabad, the capital of Pakistan. One of the interesting wrinkles is that the entire operation was a massive violation of Pakistani territorial sovereignty. This was not a drone missile strike in the tribal areas along the border with Afghanistan, where the central government’s control is honored more in the breach than the observance. We flew multiple helicopters deep inside Pakistan for a smash and grab operation. I would like to see more reporting on the Pakistan reaction to our unilateral military action inside their borders.

The big news is that it really calls our Afghanistan strategy into question. We invaded Afghanistan nine years ago for two purposes: bring Bin Laden to justice, and prevent al Qaeda from using the country as a staging ground for terrorist attacks on the US. It now turns out that for the last few years, all of our efforts in Afghanistan seem to have been wasted in advancing those goals. Bin Laden wasn’t in Afghanistan to find, and the locus of terrorist planning has shifted to other countries, such as Yemen.

We are involved in a hugely expensive exercise in state building in Afghanistan, working at the end of extremely long supply lines, and after nine years we have little to show for our efforts to build up Afghan institutions. If we stopped propping up the Karzai government with both money and troops, I have little doubt it would collapse like a house of cards. We may be accomplishing small incremental gains in nation building over there, but from what I read, there is nothing like self sustaining development occurring in Afghanistan.

We have achieved our war aims in Afghanistan. It is time to declare victory and go home.

Not working, and not looking for work

Whenever I read anything about the unemployment rate in this country, it usually includes the caveat that the official statistics for unemployment only include people who are looking for a job. There follows a comment to the effect that the true unemployment rate is actually higher, because people who have gotten discouraged and quit looking for a job are not counted.

I can never quite figure out how that works. If you've "gotten discouraged" and "quit looking for a job," the implication is that you have no income, and you are not actively seeking income. The implication of the articles I read is that there are a lot of these people.

What do they eat?

I wake up hungry every morning. Furthermore, approximately six hours after my last meal, I can predict that I will be hungry again. As far as I can tell, we are all in the same boat.

Now, there may be some hunter-gatherers living out in the bush in Alaska who provide all their subsistence from foraging, but the rest of are getting our calories in the form of groceries from the supermarket. That takes money.

I'm also addicted to electricity. When I turn that switch, I for sure want the lights to come on. Okay, maybe I can get by without the lights, but by God that TV better come on. Now the discouraged people without jobs might be able to get off the electrical grid. All it takes is adopting the lifestyle of a medieval peasant. But I can't think of any way that somebody can beat their own metabolism.

And yet we are supposed to believe that large numbers of people are dropping out of the labor force. I just wonder how they make that work.

The Shores of Tripoli

Remember the Powell Doctrine? This was the set of principles to guide the use of military force, developed by General Colin Powell out of his experience in Viet Nam. There were basically three tenets to the doctrine; actually more like three tests to be met before using military force.
1. Can the mission be accomplished with military force? Don’t look for political solutions to be imposed by soldiers.
2. Are we going in with overwhelming force? Once the shooting starts, you better have enough guns to finish the job.
3. Is there a defined exit strategy? Once you have committed to the use of force, how are you going to extricate your troops? Democracies make poor occupying powers.

The first Gulf War was a classic application of this doctrine. We kicked the Iraqis out of Kuwait, and then we went home. The countervailing examples are Iraq and Afghanistan, of course. Nine years later we are still trying to build stable democratic societies so we can get out.

To show that we never seem to learn from our mistakes, consider the military involvement in Libya. Part of the mission seems clear enough, and militarily feasible: our war aim is to end the regime of Moammar Gadhafi. But who do we want to end up in charge over there? Our policy is a little vague on that score, since we don’t seem to be able to identify exactly who the rebels are.

As an aside, in a classic bit of Orwellian Newspeak, our military intervention has been labeled “a humanitarian mission.” Sure, because nothing says you are overflowing with the milk of human kindness like firing off 160 cruise missiles.

Although the NATO forces have complete air supremacy, the Gadhafi regime has not obliged us by folding up their tents and moving into exile. We control the skies, but the regime is reextending its hold on the ground. So we’re in a shooting war, but we haven’t committed the forces required to win.

Finally, what is our exit strategy? Since we don’t have any ground forces committed, we could just end the mission and send the planes and ships home. But after shooting at Gadhafi, what do we do then? If we leave him still in charge, doesn’t that make the humanitarian problem worse? After all, now that the rebels have announced themselves, I don’t think he’ll be satisfied with a live and let live policy.

The time to think about these issues is before you commit military force. Instead, our policy was based on optimistically assuming that the regime would quietly surrender, or go into exile, or some undefined happy outcome. Happy for us, that is. Not so great for Gadhafi or his family.

From where I’m sitting, the situation in Libya looks like a fiasco unfolding in slow motion.

Government Shutdown Averted!

I didn't look at the news much this weekend. As I matter of fact, I pretty much ignored outside events from Thursday afternoon until Sunday night. So I jumped directly from headlines about an imminent government shutdown to headlines that the crisis had been temporarily averted. The Republicans and Democrats had come up with a compromise to keep the Federal government running, at least on a short term basis. My thought was "Crisis? What crisis?" In my average day, I don't interact with the Federal government. It could have been shut down over the weekend, and I would not even have noticed. It makes me wonder: how long could I have gone without the Federal government in operation before it impinged on my life? One way to answer that question is to hope that it would be a good long time before I noticed the lack. In the week of brinkmanship leading up to the final compromise, the media was full of stories about how bad it would be if the shutdown happened. In the television coverage I saw, the unanimous position was that a shutdown would be a Very Bad Thing. But when you really examine the stories, they mostly boil down to this: the National Parks would have to close down for the duration. Oh, the humanity! I went to Yosemite National Park last summer. It was terrific. Not going back this year, though. I don't want to argue that we don't need a central government, and we need to fund the operations of that government. But in determining the level of that funding, there is some instructional value in realizing that it would take awhile to miss it if it was gone.

Japan's Nuclear Nightmare

It takes a lot to overshadow a natural disaster that kills 10,000 people in a First World country like Japan. The specter of a nuclear reactor melting down, with a corresponding massive release of radiation will do it, however. The prospect of five nukes blowing up will really focus your attention.

At this point it is impossible to say just how bad the situation at the Japanese nuclear power plant will end up being. The best guess is that it will be somewhere between the US experience at Three Mile Island (small radiation release, no public harm documented), and the Russian experience in Chernobyl (massive radiation release, thousands of deaths attributable to the accident).

Clearly, the contingency planning on the part of Tokyo Electric was fatally flawed. It looks like their earthquake preparation actually worked as intended. At the first tremor, the reactors shut themselves down. The problems seemed to have a root cause in the tsunami that accompanied the earthquake.

Once a reactor of the type in question is shut down, it still needs circulation of cooling water for days afterward to carry away the residual heat of the nuclear reaction. The circulation is done by big, electrically powered pumps. But when the reactor shuts down, it stops generating power for the all important pumps. The design solution is to install diesel powered backup generators on-site. These generators automatically kick in when the reactor shuts down. In the case of the Fukushima Daiichi plant, these diesel generators were located in a low lying area. They, and the switches that route the electricity, were flooded out by the big wave.

In the aftermath of this crisis, we will face a fork in the road with regard to the peaceful use of atomic energy. One path is to decide that nuclear power is too dangerous to use, that the risks are not worth the rewards. People who follow this path will say “See, we listened to the experts, and they were wrong. They promised us it was completely safe, and now there has been a radiation release. We have to shut down all the nuclear power plants right now.”

This appears to be the position of the German government. This week they shut down seven reactors, and plans are afoot to close another ten. Since nuclear power provides about 25% of Germany’s electricity, that will leave a large gap to fill. The Germans are acting as is there is an imminent failure risk, in spite of the fact that Germany is tectonically stable, and has never been known to suffer from tidal waves.

The other path is to learn from this situation, and apply those lessons going forward. There is an old saying that experience is what you get when things go wrong. Plenty has gone wrong at the Fukushima Daiichi power station. But we can learn from the mistakes, whether they be mistakes of planning or of execution.

In light of concerns with global warming and oil depletion, due to the uncertainty of wind and the inability to store solar energy for nighttime use, nuclear power is one of our best bets for a secure, reliable energy future. We can close the systemic gaps revealed by the current Japanese disaster, and strengthen the safety systems going forward. But we have to have the will to face the problems, instead of turning our backs to the technology.

We have Democratic and Republican parties. We have Green parties and Tea parties. I’d like to see a Let’s Keep the Lights On party.

Strategize This!

Embedded into our notion of what “character” means is the concept of consistency. When we talk about a person’s character, to some extent we mean predictability. Your character shapes your response to a changing situation. By knowing someone’s character, we can have confidence in how that individual will react to circumstances. If we speak of someone as brave, we would be surprised if they ran from danger. If we speak of someone as cowardly, the surprise would be if that person stood up to danger.

I bring this up because the Obama administration is behaving out of character with regard to the recent rise in gas prices. The President has made statements indicating that he is considering opening up the Strategic Petroleum Reserve and selling oil to bring down gasoline prices.

These comments make me think that the administration is having a hard time with the concept of a “strategic” reserve. Strategy implies a long term orientation. In the case of the Strategic Petroleum Reserve, it was established to ensure a US based source of oil in the event of a major supply disruption, like the OPEC oil embargo.

There is no evidence of any supply interruption occurring in today’s situation. There are no shortages of gasoline being reported. Instead, smoothly working market mechanisms have driven up oil pricing in response to the Federal government printing money (the Fed’s quantitative easing II), and geopolitical instability, particularly the civil war in Libya.

I like low gas prices as much as the next guy. But when gas prices go up, I tend to try and find ways to drive less. When pump prices cracked past $3.25 per gallon, we cancelled that tractor pull set up for next week. This is normal market behavior. When the price of a commodity increases, buyers begin to use less of that commodity. Long Sunday drives: bad; long Sunday crossword puzzles: good.

The reason I find the Obama administration’s reaction to high gas prices inconsistent is because they want us to use less gasoline. Internal combustion engines are a major source of greenhouse gas emissions. If you’re opposed to the prospect of global warming, you should celebrate increases in gas prices. Every nickel rise in gasoline prices moves another thousand hybrid vehicles off showroom floors. Pumping oil out of the Reserve to lower gas prices works directly against that situation. So you can see why it appears out of character for this administration.

Unless the true character of the administration is to pander to the voters in every possible way. The President’s statements are perfectly in character with that end.

Politicians on the Lam

Wisconsin’s Democratic state senators are still missing in action. They fled the state a couple of weeks ago to deny a quorum, preventing the incoming Republican majority from passing legislation that would eliminate the right of state employees to bargain for fringe benefits. Since a large chunk of the union dues paid in the state flow directly into Democratic campaign coffers, The Democrats’ desperation to defend their power base, as well as the Republicans’ determination to reduce union power are both understandable.

When the Dems first bolted across the border to Illinois, I appreciated the free entertainment. I enjoy a good piece of political theater as much as the next man, and it was good of our fellow countrymen in the great white north to provide a terrific piece of grandstanding. It reminded me of professional wrestling. The same histrionics. The same larger than life conflicts. And ultimately, the same preordained conclusion. After all, the Republicans had the votes.

By going on the lam, the Democratic senators focused a lot of media attention on the issue. They also bought time to try and swing public support to their side. All well and good, and for the first few days, entertainment value aside, I thought the desertion a legitimate delaying tactic.

That changed when the Democrats realized they could stay away indefinitely, and began issuing demands for their return. They would return to the state capitol, but only if the offending legislation was removed from consideration. That is not only profoundly undemocratic, but it sets a dangerous precedent as well.

Representative democracy is primarily a matter of majority rule. If you get 50% plus one vote on an issue, the gavel comes down, and it is the law. 100% of the citizens must comply. There are two types of exceptions to the rule of the majority. First are rights that are built into the state or Federal constitution. These rights, such as freedom of speech and religion, are unalterable by a majority, no matter how large. A minority of one gets to practice his right of free speech, no matter how repellent that speech is, and 100% of the citizens must allow that. An independent judiciary acts as the safeguard of those rights.

You can also have preset procedural rules requiring a greater than 50% plus one majority for certain purposes. Three quarters of the states have to ratify an amendment to the US constitution. In the US Senate, 60% of the Senators must agree to stop debate before a measure can be voted on. California has a rule that two thirds of the legislature has to approve a tax increase before it can take effect. The key to these procedural safeguards against change are that they must be put in place before they take effect.

What the Wisconsin Democrats are doing is demanding a power be ceded to them, the power to block legislation they don’t like, even though they are in the minority. Regardless of your stand on their objections to the law in question, this tactic is a power grab, plain and simple. It goes beyond partisanship into a tribal level of identity politics.

It also provides a dangerous precedent. Until recently, Wisconsin was a majority Democrat state, with the Republicans in the minority. If, during the Republicans time of ascendency, this refusal to participate actually bears fruit for the Democrats, they will find the taste of that fruit bitter indeed, and sure to prove indigestible.

After all, what is sauce for the goose is sauce for the gander. Should the current Democratic tactics work, then the Republicans will surely adopt them when next the political pendulum swings to the other party.

We will have moved from principled disagreement and potential compromise to the political equivalent of hostage taking.

Better Living Through Tax Credits

Middle class and upper middle class people are always astonished when I tell them that the battle to redistribute income is over, and they lost decades ago. The Federal government does a massive amount of income redistribution, and has for a long time. Nobody is even talking about limiting this.

I’m referring to the Earned Income Credit, and the Additional Child Tax Credit, which are two of the big tools the government uses to hand out money to the lower class. Consider a single mother with two children, making $19350 a year as a nurse’s aide. Assume she pays $1935 in withholding a year.

First, her standard deduction as Head of Household, combined with three personal exemptions, reduces her taxable income to $0. Most people don’t have a problem with this. If you don’t make much money, we’ll give you a pass on paying income tax. After all, everyone else gets those same opportunities to avoid taxes, based on their household scenario. So this woman will get a full refund of the money withheld from her paychecks, $1935.

But we’re not anywhere close to done. She has two kids, which is a tax advantaged situation. If she had owed taxes, she would have been eligible for the Child Tax Credit, a nonrefundable credit of $1000 per child. Since she doesn’t owe taxes, instead she qualifies for the Additional Child Tax Credit, a refundable credit of $1000 per child. This boosts her refund by $2000. Her refund check is now up to $3935.

Now let’s look at the Earned Income Credit. The amount of the credit varies with the number of children (up to three) and the amount of earned income. As income goes up, so does the credit, until it reaches a plateau. As income continues to go up, the credit begins to phase out. In our example, with earned income of $19350 and two children, the amount of EIC will be $4427.

As the piece de resistance, let’s not forget to add in her Making Work Pay Credit. This $400 credit is part of the Obama stimulus package, and will not be part of the tax code next year. It is essentially a refund of the Social Security taxes you pay on the first $6000 of earned income.

Let’s add it all together:
Withholding $1935
Add’l Child Tax Credit $2000
Earned Income Credit $4427
Making Work Pay $ 400
Total Refund $8762

In our example, our hypothetical tax filer got $6427 from the government, in addition to $2335 returned to her from paycheck withholding. That’s a wage increase of 33%. Where does that 33% increase in pay come from? Why, it comes from the taxes that higher income taxpayers put into the system. Or even from the taxes that lower income taxpayers without minor children pay into the system. Or from the taxes that married couples that both work pay.

But however you slice it, the government is taking money away from some individuals, and handing it over to other individuals, without asking anything in return. That is the income redistribution that is at the heart of socialism.

Adventures in Taxland

True conversation with a tax client:
“How come I’m not getting as big a refund? Last year I got almost $6000, and you’re telling me that this year I only get $1000.”

“Well, sir, last year you claimed your daughter and granddaughter as dependents. The child entitled you to the Additional Child Tax Credit and the Earned Income Credit on your wife’s earnings. That made the difference.”

“Why can’t I claim my daughter and granddaughter this year?”

“Your wife told me that they moved out after living with you for only five months last year. They have to live with you at least half the year to claim them as dependents.”

“I’m just going to make a call to my daughter, and then we’re going to get that changed. She’ll tell you she lived with us all year long.”

“Sir, I’m not going to change this return. Before you got here your wife gave me this information, and you can’t unring a bell. If I knowingly falsify a tax return, I could lose my license.”

“Then I’m just going to get my return done somewhere else.”

Here is where we deviate from what actually happened. What I would have liked to have said:
“Sir, sit your ass back down. I have your social security number, and your wife’s social security number. I also have the 800 number the IRS uses to report tax fraud. Unlike you, I actually pay taxes, and I’m offended by your attempt to defraud the system. Now, we’re going to file your tax return as it stands, and you’re going to sit there and sign it.”

Of course, blackmailing your clients probably isn’t a good business model in the long run. What I actually said:
“It’s your prerogative to get your taxes done anywhere you want. Here is your wife’s W-2 form.”

You can’t always get what you want.