Oct 7 2014

Income Inequality Impacts Consumption

In this post I explore the great increase in income inequality during US economic expansions. But does income inequality lead to inequality in relative consumption of necessities and luxuries? Here’s an analysis by quintile since 1984:

http://www.clevelandfed.org/research/commentary/2014/2014-18.cfm

The data overall show (quote): “for lower and middle income quintiles, the share of total inflation-adjusted (real) consumption going to purchase necessities has contracted since 1984, while the share of the total going to purchase luxuries has remained fairly constant or slightly increased. For the highest income quintile, however, there has been growth in the relative consumption of luxuries.”

Wait – lower income folks are now spending less on necessities, more on luxuries?

We are not shown the trends for individual items by quintile but when we get to the end of the piece, “implications”, we do get one example of the impact of classifying items as “necessities” or “luxuries”:

Education is classified as a necessity although parents struggling to get by and/or maintain their customary enjoyment of luxuries such as “entertainment” and “public transportation” (!) might have a different view.

(Quote): “if the necessity “education” continues to decline as a share of real consumption for all but the highest income quintile, it may exacerbate the income inequality trend over the coming years; increased education is one of the most reliable paths to increased income. However, the lowest, second-lowest, middle, and second-highest income quintiles have all seen their shares of education decline significantly over the analysis period (8.1 to 2.6 percent, 2.8 to 1.2 percent, 2.5 to 1.1 percent, and 2.6 to 1.6 percent, respectively). The highest income quintile has seen its share of education consumption remain relatively steady, declining only slightly from 3.4 to 3.2 percent.”

The devil is famously in the details.

Oct 7 2014

Capitalism, the General Welfare and Education

I’m blessed to have friends whose beliefs I do not share. They make it so much easier to see that if I believe this, I cannot also believe that.

My ideas were well tested in a discussion of this New York Times article about income inequality analyzed in the context of US economic expansions by Ms. Tcherneva, an economist at Bard College.

In the 1940s, ’50s and ’60s, most income gains from the bottom of one recession to the start of the next went to most people, i.e., the bottom 90% got a majority of the increase. But in each expansion they got a smaller share while the top 10% got increasingly more.

From 2001 to 2007, an extraordinary 98% of income gains went to the top 10% of earners.

In the first three years of the current expansion, the incomes of the bottom 90% actually fell, which meant the top 10% got a seemingly impossible 116% of all income gains.

The top 10% now gets almost half of all income. Just the top 3% got almost a third (31%) in 2013 and the next 7% got 17%. The remaining half (52%) is shared by the bottom 90%.

Making life harder for the bottom 20%, they got only 36% of federal transfer payments in 2010, down from 54% in 1979.

The short term result of rising inequality is weak economic demand. The longer term impact is lack of progress in education.

The USA is the only high-income country whose 25-34 year olds are no better educated than its 55-64 year olds. College graduation rates for the poorest increased only 4% from those born in the early 1960s to the early 1980s while the rate for the wealthiest increased by almost 20%.

Upward mobility is very limited without a college degree so high inequality in education results in children of prosperous families tending to stay well-off while children of poor families remain poor.

Ms. Tcherneva focuses on the short term issue, weak demand, and observes that our fiscal policy – lower interest rates to increase demand to create jobs – is not working. She suggests the Federal government focus directly on employment: “The manpower of the poor and the unemployed can be mobilized for the public purpose irrespective of their skill level, which in turn will be upgraded by the very work experience and educational programs that the program would offer.”

When the discussion began, a different version of the income distribution chart by Robert Reich was dismissed as “bull crap.” By the end, we agreed that income distribution really is highly unequal in the US and is growing more so. We further agreed that the trend is unsustainable. We came close to a consensus that if it continues too long, there will be civil strife.

And we ended up agreeing that our economy is undergoing structural change. Off-shoring and automation are eliminating many lower paid jobs. AI software is also replacing many higher paid jobs. Perhaps there simply will not be enough jobs humans can do better/cheaper than intelligent machines and we will in the longer term need a new economic paradigm.

When we discussed solutions for today, we disagreed about whether government should try to alter income distribution, directly create jobs, or do more to govern behavior in markets e.g., with stricter bank regulations. We disagreed about whether government should ever try to influence society in any way e.g., by tax incentives.

And we disagreed if education should be primarily private or public.

Seeking a philosophical basis for our beliefs, we discussed the Constitution’s: “We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, … promote the general Welfare …”, and its section 8, which gives the legislative branch the power “… To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the the common Defence and general Welfare of the United States.”

What, we debated, is the Federal government’s responsibility for “the general welfare” in a capitalist society?

Characteristics of all forms of capitalism include capital accumulation, competitive markets and wage labor. Piketty’s research suggests the rate of return on capital is inevitably higher than the rate of growth of wages. What government action does that suggest? To what extent should government constrain behavior in competitive markets? And is the freedom that comes with wage labor sufficient?

What preceded capitalism was slavery where slaves could not seek a better owner, and feudalism which also kept those at the bottom in place. Capitalism has no such iron-clad constraints. In pursuit of higher wages, a better boss, more interesting or safer work, we can try to get any job at all, anywhere.

Furthermore, capitalism requires property rights and other laws while in slave-owning and feudal societies, laws are the whim of the slave-owner or land-holder.

We did not dispute the ideas in the preamble to the Constitution; that central government must enable us to live in peace under the protection of the law. Hamilton in the Federalist Papers was emphatic about “a more perfect union” and “common defense”. States must not have armies, he wrote, because they would go to war with each other if they did. The nation as a whole must defend itself.

Where we disagreed was on Section 8, about the meaning of “the general welfare” and the Federal government responsibilities it implies.

My thoughts were clarified by the discussion. I believe the central government of any nation is responsible for establishing the infrastructure, broadly defined, that is necessary for the general welfare.

Infrastructure means basic facilities, services, and installations necessary for a society to function, e.g., transportation and communications systems, water and power lines. Infrastructure also includes public institutions such as schools, post offices, and prisons. And it includes protection of “the commons”, things we all need that nobody owns such as the air.

Different combinations of public and private involvement can create and maintain infrastructure, but the central government is always responsible for ensuring that current and future generations will have an infrastructure that enables the nation to remain competitive and viable.

I have long thought, for example, that our central government should lead us from dependency on Middle East (or other) oil by establishing a suitable electricity grid. What struck me in this discussion is that I think a well educated and healthy work force is also part of our infrastructure.

And I want nobody to be prevented from fulfilling their potential by the circumstances into which they are born.

That led me to two conclusions about education. First, it must be funded from the center because if it is not, welfare cannot be general. Some will be privileged by accident of birth while others who may have high intellect and/or other gifts will not get an education that enables them to fulfill their potential. Second, the curriculum must be set at the center because if it is not, our workforce will not have a dependable base of skills.

I do not mean specific work-related skills, almost all of which now have a short shelf-life because technology is advancing so fast. I mean the ability to seek out and recognize facts, to reason from facts to conclusions, and to communicate effectively with people whose ideas are different.

We are not born knowing how to do any of those things or how to act as members of society, just as we are not born knowing how to read or do arithmetic, and that’s important because we can’t have an effective democracy if voters can’t recognize facts or reason from them.

In fact, we do not have an effective democracy, and I want that to change!

My views, taken as a whole, seem to fit no label. I believe, among other things, that:

Markets should operate as the engine of creative destruction (i.e., I’m a capitalist)
Which means, for example, that too-big-to-fail financial institutions must be broken into smaller entities that can go bankrupt
And (almost?) all tax incentives should be eliminated
Individuals should be held accountable for their actions
Which means we must strengthen regulation and enforcement of individuals’ behavior in markets (i.e. prosecute criminal behavior)
Everyone should have a reasonably good opportunity to fulfill their potential (i.e., I’m a progressive)
Which means we need a progressive income tax code and high inheritance taxes
And Federally funded education with a uniform national curriculum
A reasonable amount of health care and etc should be available to all (i.e., I’m a socialist)
Which means we need a universal single-payer health system
Infrastructure investment by the central government is necessary and can be funded by borrowing (i.e., I’m not a fiscal hawk)
But spending programs should be funded with current revenue, i.e., taxes (so maybe I am a fiscal hawk)
Our misguided spending on wars should be invested productively, e.g., on an electricity grid that helps us overcome our dependency on oil and coal (i.e., I’m a peacenik)

My education left me unable to accept an entire package of ideas from anyone else, but it’s hard to avoid cognitive dissonance when you assemble your own set. It’s almost impossible to spot every inconsistency. This is why I’m so grateful to my diverse friends for helping me see more clearly.

May 17 2014

A Good Education For All

We like the words of conservatives — they focus on what’s good. Progressives make us angry because when advocating change, they tell us what’s bad. Many compound the problem with their tone — they feel, deep down, that what’s wrong never will be fully righted. Robert Reich is an exception:

“This Saturday, May 17, marks the 60th anniversary of Brown v. Board of Education, the Supreme Court’s landmark ruling overcoming “separate but equal” school segregation that the Court had approved in 1896. The Brown decision helped fuel the civil rights movement, but it failed to have a lasting effect on school segregation. America’s schools today are almost as segregated as were southern schools before Brown. That’s because the neighborhoods where most black and Latino children now live and attend school are nearly all black and Latino.

We’re segregating geographically by income and race, more dramatically than at any time in the nation’s history. Entire cities are now mostly poor and black or Latino, even though bordered by cities or counties that are largely middle class and white (consider Detroit and its neighbor, Oakland County, Michigan). But as was the case in the 1950s, separate is not equal. In order to integrate our schools we need to integrate our cities and communities. Housing policy is critical to education.”

In fact, it’s hard to see how the problem Reich describes can be overcome under our Constitution, and the problem is broader than he describes. His solution falls short but it is a good basis for discussion because his principal focus always is on a better future.

Our schools are indeed segregated by race but the deeper segregation in our society is by wealth. Schools in poor and affluent white communities look similar because both sets of kids are white. The quality of education, however, is very different. That means so also are the outcomes.

Because almost half the funding for US public schools depends on local taxes, there are inevitable large differences in education between wealthy and impoverished communities. The difference compounds over time because better educated children become higher income adults who choose to live where high property taxes fund good schools for their own children.

Looked at the other way, communities where student poverty is rare have well-funded schools, those where student poverty is rampant get much less funding.

Ours is the only first world nation that funds education based on local wealth. Other nations equalize funding or provide more for students in need. Dutch schools, for example, are funded based on the number of pupils and get almost twice as much funding per minority child and 1.25 times as much per low-income child as per middle-class child. In the US, we do the opposite. Schools for our lower-income and minority students typically receive less funds than those for middle-class white kids.

When our government structure was established by Constitution in the 18th century, most schools were financed by voluntary contributions. By the end of the 19th century most schools were funded with local property taxes. That was OK because people in most communities then had similar standards of living. But urbanization in the 20th century created ever-growing differences between affluent suburbs and poor inner cities. Parents in affluent communities could pay for better schools.

Does that differential funding make a difference? US schools with high funding and few impoverished students got achievement scores comparable to those of Hong Kong, Japan, and other top-scoring countries in a 2001 study by the International Association for the Advancement of Educational Achievement. US schools with the lowest funding and many poor students got achievement scores similar to the worst-scoring nations, Turkey, Jordan, and Iran.

This severe inequality is not likely to change soon. Most parents in affluent communities do not want to pay higher taxes to improve education in poorer communities. They certainly do not want funding to be taken away from their local schools. And in its 1973 San Antonio Independent School District v. Rodriguez ruling, the US Supreme Court found that our Constitution does not require equal funding among school districts. Today’s Court would rule the same way. That decision foreclosed federal remedies for inequitable school funding.

Nevertheless, as pragmatist philosopher and educator John Dewey’s wrote more than a century ago: “What the best and wisest parent wants for his own child, that must be what the community wants for all its children.”

Most people believe better education leads to a better future. An America where every child and teacher goes to a good school would be better.

I have a dream that we will overcome the obstacles to a better education for all our children. We will get there faster by ranting less about what’s wrong with our institutions, leaders and neighbors and focusing instead on achieving what is better.

May 8 2014

Misunderstanding Ukraine, What To Do

Reading “got some insight into my own psychology and how it colors things,” by a friend who confronted a business challenge, I recognized that what Buddhists call karma is what in the West we call psychology, our emotional and conceptual biases that lead us to misunderstand.

My focus right now is on the Nepali young woman whose education I support but I do still notice other things.

Ukraine, for example. Psychology, which is individual karma, and culture, the karma we share, shape our ideas about current affairs by connecting them with past events that we also misunderstood. Psychology, culture, karma, whatever we call it, is always distorting what we see and in ways that keep changing. What is shaping our ideas now about events in Ukraine?

Having suffered 20 million or more deaths in WW2, the Soviet Union established deep buffers against another invasion — the Baltics, Belarus, Ukraine, Poland, Czechoslovakia, Hungary, Romania, Bulgaria, all the way to the center of Germany. It lost those buffers when the Soviet Union collapsed and would face an overwhelming threat if the Baltics, Belarus or Ukraine in particular were to become hostile.

When the Baltics were admitted to NATO, the alliance advanced to less than 100 miles from St. Petersburg. If Ukraine and Belarus follow, NATO will be only 250 miles from Moscow.

NATO is weak now but Germany transformed from much greater weakness in 1932 to massive power by 1938. Russia must stop NATO from absorbing Ukraine.

Why would the US government encourage enticement of Russia’s borderland nations into NATO? Who could that benefit? Only our weapons manufacturers and military contractors.

Do they control the US government? No. But they do have influence just like other wealthy lobbyists and they have at times had insiders like former-VP Cheney whose roots are in for-profit military business. But even then military contractors do not control foreign policy. There’s more going on.

We, by which I mean we the American people, have come to believe it is our job to punish other nations. And because we did not lose our Cold War fears even though the Soviet Union collapsed, we are especially ready to believe we should punish Russia’s leader.

We do not consider President Putin’s reasons for concern about Ukraine. We simply accept the lies by our politicians and media.

Why do they lie? Some have financial incentives but most are like us, deluded.

John McCain, for example, is always eager for military action. Remember President Bush’s axis of evil — here’s McCain in that context wanting to “bomb, bomb, bomb — bomb, bomb Iran.” He later believed, as did President Obama, that we should bomb Syria. We’re fortunate he was not elected President because unlike Obama, he would not have been automatically blocked by Congress — and McCain now wants to take military action in Ukraine.

The majority of Americans oppose our military involvement in Ukraine and perhaps recognize that Russia had to maintain control over its Crimean naval base, but few see the great risk in Ukraine is civil war and it was our own and European Union governments who triggered that potential disaster.

I realize that even if he heard them, my words would not outweigh President Obama’s long-formed biases or the nonsense he’s now being told. There’s little I can do on that front.

What we all can do, however, is work every day to eliminate our own emotional habits and misconceptions. That really does make a difference.

Mar 17 2014

Our Sacrosanct Jobs Program

A news article this week brought to mind something British politician Tony Benn said, “I remember setting sail to South Africa for training [as a WW2 RAF pilot] and being part of a war aims meeting. It was the most brilliant political meeting I ever attended. One man spoke of the mass unemployment of the 1930s and said that if we could attain full employment by killing Germans, we could have full employment by building houses, schools and hospitals.”

The article is about a $643M contract with Bath Iron Works (BIW) for which Maine Senators Collins, a Republican, and King, an independent, got funding. They say it will “allow the Navy to send another DDG-51 to sea when the Navy’s fleet needs to preserve important combat capabilities in support of our national defense.” Democratic Representative Pingree said, “this is excellent news for the families who earn their living at BIW.” A shop steward who represents BIW workers said, “the contract brings more stability to the company, which employs about 5,400 people.”

So, my representatives in Washington, the BIW workers and their families, local business owners, everyone around here is happy we’re going to build more of these ships that were “originally designed to defend against Soviet aircraft, cruise missiles and nuclear attack submarines.”

What struck me is, although we don’t think of Defense that way, it has grown into an enormous jobs program. What’s more it’s a program whose rationale and scope we do not question.

President Reagan’s budget director David Stockman has points to make, however. In The Ukraine, The War Party and the Pentagon’s Swamp of Waste he writes, “the $625 billion allocated to DOD this year amounts to a colossal destruction of economic resources for no benefit whatsoever to the safety and security of the American people.”

Stockman is angry, perhaps because “About three decades ago I called the Pentagon a “swamp of waste” during an off-the-record interview that ended-up on the evening news. Presently I ended-up in President Reagan’s woodshed–explaining that, well, yes, I did say that because it was in fact true.” His article is excellent background reading.

I don’t feel emotional about this but I am equally determined to do what I can so we do question how we want to spend that $625B of tax revenue. The current program does have some benefit — it provides a lot of jobs — but as Tony Benn realized, some of them could be different jobs. Some could be jobs without the risk of being killed or maimed.

Defense spending has huge support. There was a bi-partisan agreement to cut (sequester) federal spending this year. Stockman notes that “Had every dime of the $55 billion sequester been implemented, this year’s DOD budget would have been roughly $600 billion … in 1989, the DOD budget was about $475 billion in today’s inflation-adjusted dollars.” Even though DOD spending would have been up 25% from 25 years earlier, when the time came to make the cuts, Congressman Paul Ryan and others said making them would be tantamount to surrender. So the cuts were not made.

What provoked Stockman’s article is, “Contrary to the bombast, jingoism, and shrill moralizing flowing from Washington and the mainstream media, America has no interest in the current spat between Putin and the mobs of Kiev.”

Echoing President Eisenhower’s famous warning when he left office sixty years ago, he says, “The source of the current calamity-howling about Russia is the Warfare State–that is, the existence of vast machinery of military, diplomatic and economic maneuver that is ever on the prowl for missions and mandates and that can mobilize a massive propaganda campaign on the slightest excitement.”

Stockman is outraged that we believe the propaganda and by our hypocrisy: “We have invaded every country to our South–from the Dominican Republic to Guatemala and Panama and assassinated or overthrown dozens of their leaders–all within the 60 year span since Nikita Khrushchev gifted Crimea to his minions in Kiev. So precisely which nearby borders are so sacrosanct and exactly who has done the more egregious violating?”

I’ve written before about our defense spending and military strategy over which “we the people” have no control. President Reagan greatly accelerated spending on what was in fact a spurious rationale, it dropped and stabilized in the next decade, then it was driven to extraordinary new heights by President Bush based on a new spurious rationale. The numbers below show our total defense spending, not just what is presented in the US budget defense line item but also the spending on “overseas contingency operations” i.e., the wars President Bush started in Iraq and Afghanistan.

We might be encouraged by Congress’ refusal to approve President Obama’s recent desire to take military action in Syria except that (A) Congress is currently of a mind to refuse everything he proposes and (B) everyone in Congress always wants more military spending in their district.

Important as it is to make rational changes to our defense spending and decide what kind and size jobs program we want to fund, however, we first need a government that functions, one that could debate such questions, arrive at decisions and take action.

I’m still absorbing research about how we could get such a government and, following a break where I’m hoping for sun and heat, I will report back next month.

Feb 3 2014

Protecting the Opulent Against the Majority

A few days ago, billionaire venture capitalist Tom Perkins wrote that the way progressives are starting to treat the super rich reminds him of how the Nazis treated the Jews. Soon after his letter was published in multi-billionaire Rupert Murdoch’s Wall Street Journal, he had to apologize for his politically incorrect phrasing. He would have done better to quote James Madison, “Father of the Constitution” and author of the Bill of Rights.

When the Federal Convention of 1787 turned to the question “whether the republican form shall be the basis of our government,” Madison pointed out: “In England, at this day, if elections were open to all classes of people, the property of the landed proprietors would be insecure. An agrarian law would soon take place.”

The implication, he continued, is: “If these observations be just, our government ought to secure the permanent interests of the country against innovation. Landholders ought to have a share in the government, to support these invaluable interests, and to balance and check the other. They ought to be so constituted as to protect the minority of the opulent against the majority.” (emphasis added)

A widely held belief has developed that the US Constitution offers protection for all minorities. That was not its intent. Madison’s much more limited aim was to protect the wealthy minority. Whether or not we like the result, we should recognize that our Constitution is working as intended.

How does it work? A republic is where power is held by elected representatives whose actions are bound by a Constitution. People in a republic vote for candidates who promise changes they like. The risk is that a small majority could make changes with unacceptable negative impact on the rest of the population. That’s why a Constitution is necessary, to prevent such changes by defining ‘unacceptable.’

I’m thinking about this because I’m reading Noam Chomsky. His diagnosis of why our government acts as it does, regardless which party is in power, feels spot on. He shows example after example of actions by our government that benefit the opulent minority and work against the interests of the majority here and throughout the world.

But Chomsky’s proposed solution is misguided. His central beliefs are that power corrupts and capitalism concentrates wealth, which, based on long first-hand experience and close study of history, are truths I hold to be self-evident. The question is, would his solution, anarcho-syndicalism, be better? Could it even work?

Anarcho-syndicalists are socialist libertarians. Like capitalist libertarians who enjoy President Reagan’s signature joke: “The nine most terrifying words in the English language are: ‘I’m from the government and I’m here to help'” they oppose central power. The difference is anarcho-syndicalists say the inevitable concentration of wealth by capitalism exploits the majority.

Attractive increases in freedom are promised by both kinds of libertarians. In real life, however, the system does not scale. A libertarian (i.e., unregulated) society cannot protect shared resources or universal needs: local societies often manage local resources (e.g., forests) sustainably but resources managed by non-locals are polluted and/or depleted. And small societies cannot retain freedom: they cannot defend themselves against more powerful exploiters.

It is true that a fundamental problem for large scale enterprises is that central planning cannot work: there’s too much change to comprehend at the center. An ingenious programmer I once hired was directed to model how many tractors Soviet factories should plan to build. He tried combinations of many, many factors without success before at last seeing how to produce results that pleased the planners. How? By plugging the number of tractors that were going to be built, anyway.

Big businesses fail for the same reason – they lose contact with changes in their market.

Another problem is many things that start small seem destined to grow big but central planners too often fail to identify which are worth the investment. Small societies with property managed at the local level would make better choices but they lack the necessary resources. Today’s semiconductor and internet infrastructure, medical technology and etc required enormous investment.

So history tells us that democracies with a constitution tend to be better for people than autocracies, that market-based economies tend to deliver better results than centrally planned ones, and that capitalism seems essential to generate disruptive technology and deploy it on a large scale.

Speaking in Parliament in 1947, not so long after he lost the election following WW2, Winston Churchill famously said: “Democracy is the worst form of government, except for all those other forms that have been tried from time to time.” The same looks to be true of capitalism in the economic sphere and nation states in the sphere of sovereign entities. They do all tend to concentrate power and wealth but the alternatives are worse.

So, “if these observations be just,” how can the non-opulent minorities who make up the majority get protection? Curtailing the inevitable abuses of power is achieved by incremental legislative changes that adapt Constitutional definitions to changes in society.

Because the fundamental structure of the system results in the wealth and power of the opulent minority always nudging the law’s evolution in their favor, other minorities must speak more loudly.

It is healthy that voices are now speaking loudly enough about too-high and rising inequality to be heard by Perkins and others. It indicates that our system is working as it should.

Sep 8 2013

Chemical Weapons and the Law

Syria is subject to the jurisdiction of the International Criminal Court (ICC), which makes the recent use of chemical weapons there a crime. UN Weapons investigators analyzing evidence collected in Syria need about another week to establish if the weapons were used by Syrian government forces, if Syria’s leader authorized their use or was informed later, if they were instead used by rebel forces, or if more evidence is required to make a judgment.

President Obama says Syria’s leader is responsible for the crime and proposes unilateral retaliatory military action. Congress is debating whether to authorize that. Its vote is scheduled for two days hence, before the UN team completes its analysis. President Obama says he has the authority to take military action even if Congress votes no.

Unfortunately, US governments always have placed their faith exclusively in military power and refused to accept the rule of international law. President Bush’s UN representative formally excluded the USA from ICC jurisdiction. President Obama, despite his law degree and Nobel Peace Prize, is acting the same way.

Banning chemical weapons has been a long and tortuous challenge. The first attempt was the 1925 Geneva Protocol following the use of poison gas in WW1. Another attempt was initiated following the WW2 Holocaust but was stymied by the Cold War. In 1962 the US and USSR proposed elimination of all such weapons to the UN but between then and 1971 the US sprayed nearly 20 million gallons of chemical weapons in Vietnam, Laos and Cambodia which resulted, according to the Vietnam Red Cross, in as many as 400,000 people killed or maimed, and half a million children with birth defects.

We knew Iraqi troops were routinely using chemical weapons against Iran in the early 1980s, and supplied them with a couple of batches each of anthrax and botulism bacteria in 1986. The Senate unanimously passed the Prevention of Genocide Act in 1988, which would have banned any military assistance to Iraq and import of Iraqi oil, but it did not pass in the House. We continued to supply Iraq with equipment we knew was for use in their chemical and nuclear weapons programs until Saddam Hussein misjudged our friendliness and invaded Kuwait.

In 1993, the UN called for destruction of all existing chemical weapons, no more manufacture, and an inspection body. Congress reluctantly ratified that statute in 1997 but then passed legislation so we could refuse inspections.

At last, the genocide in Yugoslavia and Rwanda sparked the UN in 1998 to initiate creation of an International Criminal Court, an enforcement mechanism. The court’s independence and jurisdiction were major issues. Could it be prevented from launching a prosecution by a veto from the US, Russia, China, the UK or France? Would it require approval to prosecute from the country where a crime was committed? Could it prosecute if there was already a court proceeding in that nation? Could it prosecute crimes committed in civil wars? Could it prosecute crimes committed before it was established?

We said we supported the ICC. In fact, we worked hard to emasculate it. We demanded that no US citizen could be indicted without our approval. We required veto power over any indictment. We insisted that the ICC could prosecute crimes only in nations that are a party to the ICC Convention. We said the ICC could have jurisdiction only if national courts failed to act. We demanded that national security and/or a superior’s orders must be accepted as grounds for defense.

Even though those severe constraints were reluctantly accepted, we voted against creation of the court. The vote was 120 in favor, 7 opposed and 21 abstentions. The court would become effective when ratified by the 60th nation. We worked hard to prevent that. In 2001, the Senate passed an act that would have prohibited us from cooperating with the ICC in any way, barred military aid to any country supporting the ICC and required us to use any means to release US citizens held by the court.

When in 2002 the 60th nation ratified the ICC and it came into force, we notified the UN that we refused to be a party to the treaty.

At this time 122 nations have ratified the ICC and 31 more, including Russia, have signed but not ratified the Statute, 3 of which, Israel, Sudan and the US, have withdrawn their signatures. 41 other UN member nations have not signed the Statute, including China and India.

Governments of nations that have refused ICC jurisdiction tend to be engaged in activities the ICC might well prosecute, e.g., Israel’s settlements, India and Pakistan’s activities in Kashmir, China’s in Tibet and Xinjiang, ours in Afghanistan, Pakistan, Yemen and etc.

The ICC has so far opened investigations only into 8 situations in Africa. It has indicted 30 people, issued arrest warrants for 21 and has 5 in custody. The atrocities being committed in Syria should be prosecuted by the ICC and we should be insisting that it do so. We should consider other options only if the ICC is barred, e.g., by a veto from Russia, from that investigation.

We should stop telling the world we are its judge and executioner and start supporting the international rule of law.

Jul 24 2013

Traveling In A Dangerous World

I emigrated from the UK to the USA, I’ve traveled on business in Belgium, Canada, Denmark, Finland, France, Germany, Italy, Mexico, the Netherlands, Norway, Portugal, Spain, Sweden, the UK, the USA and more, I’ve traveled to learn in Bhutan, Nepal, Sikkim and Tibet, I’ve traveled for pleasure in – well, I’ve moved around a lot. Here’s what I learned: almost all travel just confirms our preconceptions. We go someplace new, we see something new, we fit that into the concepts we brought with us.

Only by spending long enough in an unfamiliar world with senses and mind truly open can we notice enough detailed differences and similarities to learn from travel.

Senator King (I-ME) recently visited Syria. He’s a good man who was of course horrified by the suffering he saw at first hand. He returned wanting us to end that suffering by intervening militarily in Syria’s civil war. The suffering he saw reinforced the concept he took to Syria. Better he had not gone because military intervention is the wrong concept.

When I came to the USA, we were intervening militarily in Vietnam. One of those who was there long enough to learn, Colin Powell, was Chairman of the Joint Chiefs of Staff during the 1990/1 war in response to Iraq’s invasion of Kuwait. His doctrine, successfully applied in that war was: (1) Clear objectives, (2) Sufficient Force, (3) Exit Strategy, (4) Plan for unintended consequences.

The Powell doctrine was not applied in President Bush’s war in Iraq or President Obama’s in Afghanistan. It was partially applied in Libya where in addition to the objective of killing the nation’s leader there was an exit strategy, just stop, but no plan for the unintended consequence of civil war fought with the ex-government’s weapons that spread into neighboring Mali.

Senator King is right about many things, not about warfare. Here’s something he’s right about: On Facebook today, he links to his press release entitled: “The most serious threat to national security is the United States Congress – Senator King reiterates need for Congress to pass a budget to replace sequestration”.

A nation without a government is on an inevitable path to failure, the people we elected are not governing just arguing. As Senator King says, it’s as if they’re saying: “Have you noticed it’s raining? Yes, you’re right, it is raining” but nobody puts up an umbrella or goes inside.

So far so good. In the 7 minute video linked to from the press release, his sincerity is obvious. He went to Washington to try to get our government working. He’s questioning a defense analyst from the conservative Heritage Foundation think tank. They agree health care is the greatest challenge to our national budget. They disagree about tax strategy. The Heritage Foundation is committed to cutting the deficit by spending cuts. Senator King believes there must also be tax increases, chiefly by capping deductions on high incomes.

The press release says: “Senator King, a member of both the Budget and Armed Services Committees, worked with his colleagues earlier this year to develop and pass a FY 2014 Budget Resolution that would not only replace sequestration, but would also pave a credible path toward fiscal stability by promoting economic growth and job creation while responsibly addressing the country’s debt and deficits.” It continues: “Republican objections have stalled the budget process, however, by preventing the appointment of members to a Conference Committee that would be tasked with reconciling the Senate budget with that passed by the U.S. House of Representatives. On May 8th, Senator King called on his colleagues to proceed with the Federal budget process. 122 days have passed the Senate passed its budget.”

Here’s an article on how the budget process is meant to work and what is happening instead: “stalemates in the budget process … predictably result in bad policy outcomes … we are currently stuck with sequestration … a policy designed to be so awful that Congress was expected to go to the lengths necessary avoid it.” The Executive branch, the House and the Senate have all produced budgets but there has been no move toward agreement and little prospect of any this year.

That means sequestration will continue to force cuts in spending while those who signed Grover Norquist’s pledge will continue to block any increase in revenue. Senator King is right about all that.

Here’s where he goes wrong, what he focuses on in his press release is the effect on defense spending: “Sequestration has already resulted in a $37 billion cut in defense spending for Fiscal Year 2013. In Fiscal Year 2014 the Department of Defense is projected to face a $52 billion budget cut due to sequestration, and many high ranking officials, including Secretary of Defense Chuck Hagel, have stated that the shortfall will severely compromise national security by reducing military readiness and limiting the capacity to respond to crises.”

Senator King’s press release makes no mention of what in the video he correctly identifies as our greatest budget challenge, healthcare spending. He ends his questioning with the following prepared statement, which he also posts to Facebook: “Our country is paying a heavy national security price because of sequestration. We live in the most complex and dangerous world that any of our military and intelligence experts have seen, and at the same time, we are gutting our military and hollowing out our readiness. Like I said at a committee hearing today, I think that’s a tragedy.”

We are not gutting our military. We are not hollowing out our readiness. There is no successor to Soviet Russia that could threaten us today.

We are are also not setting a military strategy. All we’re doing is telling the heads of our defense forces to cut spending to an extent they cannot predict because it is governed by no policy.

I will soon return to the topic of these posts, Afghanistan, Pakistan, Iran and More, Evaluation of War on Terror Strategy and Military Operations Strategy. We have by an enormous margin the world’s greatest defense force, we have by far the world’s greatest warfare industry, and we have since the start of this century had Executive Branch leaders who increased demand for our warfare industry’s products and services with cripplingly expensive wars without clear objectives or exit strategy , and by encouraging ever greater weapons exports, e.g., 84 F-15 fighter jets to Saudi Arabia.

We have not one but three great threats to our national security, only two of which Senator King has identified: Congress, healthcare spending and the military/industrial complex.

May 13 2013

Campaign Finance and Free Speech

Because only bad government is possible until we reform campaign finance, I recently signed a petition supporting House Judiciary Resolution 29 (H.J.Res.29). I asked others to join me or point me to a better approach. It will be a while before I can do the necessary research to find a better approach – if there is one – so in the meantime this is an anchor for comments thus far.

H.J.Res.29 is a proposed Constitutional amendment that would make the rights extended by the Constitution apply only to natural persons and provides a basis for fundamental campaign finance reform. It was introduced in the House of Representatives on February 14, 2013 and referred to the Committee on the Judiciary. It reads:

`Section 1. The rights protected by the Constitution of the United States are the rights of natural persons only. Artificial entities, such as corporations, limited liability companies, and other entities, established by the laws of any State, the United States, or any foreign state shall have no rights under this Constitution and are subject to regulation by the People, through Federal, State, or local law. The privileges of artificial entities shall be determined by the People, through Federal, State, or local law, and shall not be construed to be inherent or inalienable.

`Section 2. Federal, State and local government shall regulate, limit, or prohibit contributions and expenditures, including a candidate’s own contributions and expenditures, for the purpose of influencing in any way the election of any candidate for public office or any ballot measure. Federal, State and local government shall require that any permissible contributions and expenditures be publicly disclosed. The judiciary shall not construe the spending of money to influence elections to be speech under the First Amendment.

`Section 3. Nothing contained in this amendment shall be construed to abridge the freedom of the press.’.

The intent of Section 1 is to establish that artificial entities such as corporations do not have constitutional rights. The intent of Section 2. is to establish that money is not free speech.

My overall view is:

(1) Our government today is unacceptably bad so we must make a substantial change

(2) A more effective form of democracy is possible, e.g., using social media technologies, that was unimaginable 250 years ago but we’re not going to change the current system

(3) Any legislative change will have negative as well as positive effects so we should make the best change we can, then make more based on future results

May 11 2013

Estate Tax and Fairness

What components must a tax and budget management system have to achieve the results we want? I’ll start with a result and a candidate that illustrate a few large issues.

It seems to me now that what I said was my biggest surprise in this post, Qualities of an Excellent Tax System, should not have been a surprise at all. The American Dream is that our freedom includes equal opportunities for all of us to achieve prosperity and success. In that case, it makes sense that nine out of ten of us would say we want a relatively equal distribution of wealth. What we mean is, we want relatively equal opportunities to become wealthy.

So, the system needs to to, “lead toward the distribution of wealth we democratically choose”. By “lead toward” I mean propel the wealth distribution on average and over time, and by “democratically choose” I mean the distribution we want could change but it should at all times be in some way explicitly approved by the electorate.

Among the indicated requirements is to diminish, “unfair opportunity based on parental wealth”. Estate taxes are a potential mechanism. How much support might there be for them, and how effectively would they support the objective?

Estate taxes would not be popular at all. The compendium of public opinion research I used for this post about our tax system shows on page 21 the results of a March 2009 Harris poll about the perceived fairness of various kinds of federal and state/local taxes. Federal estate taxes are considered the least fair of all. Two in five respondents (42%) consider them “not at all fair”. Fully two thirds (67%) consider them “somewhat or not at all fair”.

Before exploring if estate taxes could nevertheless be effective, it’s instructive to set their unpopularity in context. Every form of tax has high “somewhat or not at all fair” ratings.

At the federal level, the combined “somewhat or not at all fair” ratings for each type of tax are: estate taxes 67%, gas taxes 63%, personal income taxes 48%, corporate income taxes 42%, social security payroll taxes 40%, and cigarette, beer and wine taxes 36%. At the state/local level they are: gas taxes 62%, local property taxes 50%, motor vehicle taxes 47%, state income taxes 44%, cigarette, beer and wine taxes 38%, and retail sales taxes 37%.

I’ll come back to those statistics in future posts. One thing to consider is the seeming paradox that while gas taxes are almost as unpopular as estate taxes, retail sales taxes, which are also levied at point of sale and unlike gas taxes are shown separately and so are more visible, are considered the least unfair of taxes along with those on cigarettes, beer and wine. I’ll also address why property and motor vehicle taxes, personal and corporate income taxes, and social security payroll taxes are all considered “somewhat or not at all fair” by 40% to 50% of us. The overall message from these statistics is:

Large issue 1: While everyone wants government services, many or most of us consider every way of funding them to be “somewhat or not at all fair”. It will not be enough to establish a way of collecting revenue that is reasonably fair. We must also routinely measure its fairness, publish the results and measure public opinion about that. The long term result, if the system truly is fair, will be a steep bell curve of survey results toward the middle of the range from “Very fair” to “Not at all fair”. I’ll explore this in a future post.

Meanwhile, why are estate taxes considered most unfair of all? Because they’re associated with death. That’s why opponents call them the “death tax”. We’re pretty much terrified of death and we don’t like any taxes, anyway. Also, opponents tell us it’s double taxation: “First, they took your hard-earned money in income tax, then they want estate taxes on what’s left?!” And while in theory we want equal opportunity for all to become wealthy, we probably in reality want our kids to have a better than equal chance. The message from this statistic is:

Large issue 2: We are vulnerable to powerful fears and desires that distort our judgment about government and taxes which cannot be soothed from within the tax system. We would be happier and kinder if we accepted that we will die. It would be better to prepare our kids to work for what they most want. The tax system is powerless to help us accept and act upon such truths.

Would estate taxes nonetheless be an effective way to diminish the unfair advantage of parental wealth? The answer is again, in normal circumstances, no. Estate taxes are in reality levied on only a tiny fraction of US estates and they are easy to avoid altogether with trusts and provisions in your will. If, that is, you act on the fact that you will die.

More importantly, revenue from estate taxes fluctuates because people with equal wealth do not die at the same rate every year. That means estate taxes are unsuitable for supporting ongoing levels of spending. There is also:

Large issue 3: Wealthy people can relocate their assets. Not all US states levy estate or inheritance taxes and those that do, have different rates and thresholds. You can become a resident of a different state if you expect to leave or inherit a large estate. The same issue exists for state income taxes as this link suggests. And if you want to avoid US taxes altogether, you can renounce your citizenship and move offshore. This means tax systems must be appropriate to their competitive environment, state-wise and nation-wise.

There are, however, a couple of situations where estate taxes are effective. One is when there is a widely accepted temporary need for exceptionally high government spending. By the end of WW2, for example, the top marginal estate-tax rate, referred to as “equality of sacrifice”, was 75% in the UK and 77% in the US. In WW1 when UK men were being conscripted, very high estate taxes were termed “conscription of wealth”. The other situation is when the domination of a wealthy hereditary aristocracy is overturned. The sacrifice made necessary by WW1 gave UK social reformers that opportunity.

We should work diligently and hard to avoid the need and opportunity for such a remedy in our own society.

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