The Spending Crisis: Reductio ad Absurdum

Given current trends, the annual interest on our debt will exceed GDP; let that marinate!

The Spending Crisis: Reductio ad Absurdum

By: George Noga – May 10, 2020

OF THE 600 POSTS I HAVE AUTHORED DURING THE PAST 13 YEARS, NONE IS MORE CONSEQUENTIAL THAN THIS ONE! Usually I limit posts to 600-700 words but did not wish to break this one into two parts; hence, it is twice the normal length. I used my time at home due to coronavirus restrictions to research and to prepare an expanded, fresh and gripping analysis of the spending crisis.

       For the first time, I employ an apagogical argument that proves a contention by deriving an absurdity from its denial. Specifically, reductio ad absurdum disproves an argument by following its implications to an absurd conclusion. The fallacy lies in the argument that can be reduced to absurdity; reductio ad absurdum merely exposes the fallacy, in this case that the US can continue spending and borrowing.

       What makes this analysis so different and riveting? (1) I have taken a much deeper dive into the data; (2) Assumptions about the composition of the debt are changed; (3) Realistic assumptions are used instead of optimistic ones; (4) More recent data are available; (5) The reduction to absurdity argument is adduced; and (6) It explains why, at its beating heart, the spending crisis is moral rather than economic.

Assumptions About GDP

       GDP for 2019 was 21.4T (trillion); for 2020 I used the latest Goldman Sachs forecast – a 6.3% reduction from 2019. For the first time, I assume mild recessions (4% contractions) once a decade in 2026-27, 2036-37 and 2044-45. Other than recession years, I assume GDP grows at 2%, in line with the past decade, and then slowing to 1.5% in later years. These are middle-of-the-road, Goldilocks assumptions.

Assumptions About Debt

      Public debt at year-end 2019 was $17.2T. To that I add coronavirus spending Phases I, II and III of $2.3T (total) and my Phase IV (infrastructure, etc.) estimate of another $2.0T. I also must add the 2020 structural deficit of $1.0T and the additional operational deficit due to coronavirus of $0.8T. This results in a public debt of $23.8T at year-end 2020. For future years, I assume the debt grows at a rate in line with the trend of recent years – with appropriate adjustments for recession years.

“Before long, public debt and total debt will be one and the same.”
Public Debt Versus Total Debt

         Here I make a notable departure from the past. Previously I have counted only the public portion of the debt, which is $7T less than the total debt. The difference consists of intragovernmental debt owed to Social Security, FHA and other agencies. Before now I excluded such debt because it is non-marketable, accrues (but does not pay) interest and is notional in nature. Before long however, the government must begin issuing public debt to fund the intragovernmental debt for, inter alia, paying future Social Security benefits. Therefore, I now assume that intragovernmental debt of $1.0T is converted to public debt each year from 2021 through 2027. Thus, public debt and total debt will be one and the same by the end of 2027.

Government Sponsored Enterprises (“GSEs”)

        Fannie Mae (FNMA), Freddie Mac (FHLMC) and a few other GSEs are owned by the federal government. In a rational universe, they would be consolidated into the accounts of the federal government. Although the feds are not legally liable for the debts of Fannie and Freddie, there is an industrial-strength implicit guarantee based on precedent. Fannie and Freddie guarantee $7T of debt; in a crisis they would need trillions in bailouts. For this analysis, I have not included any debt for GSEs.

Unfunded Liabilities and Obligations

       The Treasury Department estimates federal unfunded liabilities are $122T; this means the government has made promises to pay that amount without providing any funding. Over time, these obligations come due and must be financed with – you guessed it – more debt. I have not counted any of this $122T in this analysis. I once studied unfunded liabilities and concluded that a more realistic estimate is double the Treasury number, or one-quarter of a quadrillion dollars. In even more cheery news, state and local governments have another $10T in unfunded pension liabilities.

Reduction To Absurdity

        Based on the assumptions described supra, following are the Debt/GDP ratios for select years. The GDP and debt are in trillions of dollars. Data for 2019 are actual.

Year             GDP              Debt             Ratio
2019             21.4               17.2                80%
2020             20.1               23.8              119%
2025             22.2               37.5              169%
2030             22.6               59.7              264%
2040             24.4             161.2              659%
2050             26.4             588.4           2,226%

       In five years the ratio is projected to be 169%; within a decade it is 264%. In twenty years the ratio skyrockets to an absurd 659%, while in 2050 it is a preposterous 2,226%. The US has passed the point-of no-return. The Titanic has hit the iceberg and there is no way to unhit it; now it is but a matter of time until the inevitable happens. Because of the humongous coronavirus spending, the advent of the crisis has been advanced by five to ten years – all in just the past few months.

       By reducing to absurdity the future spending and debt, this analysis proves it is impossible to sustain our spending and borrowing for much longer. It is risible that the US can have a ratio of 2,226%, or even 659%. Moreover, the 2030 ratio of 264% is tinctured with absurdity; even the 2025 ratio of 169% is problematic. Even with a powerful tailwind from MMT, it seems like we have fewer than 10 years left.

        While trafficking in the absurd, let’s peek at interest on the debt. At the current US composite rate on its debt (2.5%), annual interest on the debt will reach $1 trillion circa 2026 – in just over five years. If the interest rate to service our debt increases to 4.5% (a low number historically) interest payments would exceed GDP by 2050. Let that metric percolate for a while; our annual interest on the debt would exceed GDP!

“We always chose the easy path. As a nation, we failed morally.”

        It is impossible to look at the data and analysis presented herein and to imagine we have more than five or ten years left before the spending crisis reaches critical mass and discombobulates our lives for the next 20-25 years, i.e. a lost generation. It will be worse than the dot-com bubble, the great financial crisis and coronavirus combined. Great and sustained sacrifice will be required until all the excess debt is purged. The gargantuan spending cuts necessary (20% to 30%) will rend the social fabric of our nation; we will be lucky to avoid anarchy and to maintain the rule of law.

The Moral Root of the Crisis

        Ever since I began writing about the spending crisis, I have posited that, at bottom, it is a moral crisis, not an economic one. Historically, the US has borrowed heavily only to finance wars. Our national debt in 1980 was less than $1 trillion and our debt ratio was under 30%. Inexplicably, that’s when we began our debt binge.

       We gave some segments of the population huge tax cuts to beguile them into accepting massive spending on other segments of the population. We spent vast sums on certain cohorts of Americans to bewitch them into tolerating the tax cuts on other cohorts of Americans. We have repeated this pattern up to the present in a futile  attempt to avoid tough choices and to buy social peace via massive borrowing.

         The decades of the 1980s and 1990s were prosperous. There were no major wars, natural disasters, pandemics or financial meltdowns. The baby boom generation constituted 38% of the population and was in its peak productive years. There were few retirees and Social Security and Medicare generated massive fiscal surpluses. The Berlin Wall fell and the USSR collapsed, unleashing an enormous peace dividend.

         The period since 1980 should have been the easiest time in American history to balance the budget; instead, we kept borrowing feverishly and never stopped. We danced while the band played on. We must plumb the depths of our souls to understand why we became so addled and addicted to spending and borrowing. For whatever reasons, we always chose the easy path and, as a nation, we failed morally.

       We believed politicians who promised us the moon was Stilton, wishes were horses and pigs had wings. They promised abundance for all by robbing Peter (our children and grandchildren) to pay Paul. They promised social peace by avoiding the confrontations inherent in making choices. They promised no man must ever pay for his sins. But even in this brave new world, water will wet us and fire will burn, and the Gods of the Copybook Headings, with terror and slaughter, will return!


The final paragraph uses snippets from Kipling’s, The Gods of the Copybook Headings.
Next on May 17th, we blog about school choice and the LGBTQ issue.  
More Liberty Less Government  –  mllg@mllg.us  –  www.mllg.us

Modern Monetary Theory and Coronavirus

MMT likely will influence the amount the US can spend and borrow before crisis begins.

Modern Monetary Theory and Coronavirus
By: George Noga – May 3, 2020

          We have long planned a post about Modern Monetary Theory (“MMT”) as part of our intermittent series analyzing the issues in the 2020 election. The coronavirus epidemic has added a palpable sense of urgency to plumbing the depths of MMT because the untold trillions in new money being created by the government in response to Covid-19 will provide an acid test of MMT much sooner than contemplated. This post focuses on explaining and analyzing MMT – a daunting task even for us.

Our next post May 10th is among the most consequential of the 600 posts we have written over the past 13 years! It presents an up-to-the-minute projection of the US Debt-to-GDP ratio incorporating the multi-year impact of the mammoth new debt and deficits that result from the effects of coronavirus. The analysis in the May 10th post is new and different than anything we previously have written about the spending crisis. This truly is a blockbuster and one you definitely don’t want to miss.

Just What is Modern Monetary Theory?

        First off, MMT is not so modern; the accepted origin is a book “Soft Currency Economics” by economist Warren Mosler published in 1993. However, as with most economic theories, its underpinnings can be traced back for centuries.

         The main tenet of MMT is that any government that issues its own fiat currency can create and spend unlimited amounts without the need to finance it via either tax revenue or debt instruments. Such a government can never be forced to default on debt denominated in its own currency. Further, any such monetization does not compete with the private sector or cause higher interest rates. The only problem acknowledged by MMT proponents is that inflation can get out of hand under some conditions.

        In layman’s terms, MMT asserts that the USA has much more leeway to spend money than previously thought; it can’t ever go broke; and the debt to GDP ratio is immaterial – provided inflation is managed. Progressives like Sanders, Warren and AOC believe MMT is the Holy Grail of economics which can be used to finance the green new deal and the rest of the progressive wish list – all at once. Beware however, MMT makes for strange bedfellows and it also has many conservative adherents.

Is MMT Valid and Does It Work?

        The strongest case against MMT is millennia of human experience. From Rome to today, many countries with their own fiat currency have defaulted or suffered other terrible economic fates, MMT notwithstanding; the lengthy list includes, inter alia,  Weimar Germany, Argentina and Zimbabwe. Logically, MMT defies understanding; how can we create and spend money ad infinitum without adverse consequences? If MMT works, why doesn’t every country use it? It appears to be pie-in-the-sky or like finding a unicorn at the end of a rainbow. Many top economists and businessmen including Bill Gates, Jerome Powell and Warren Buffet believe MMT is claptrap.

      To its credit, MMT explains certain economic phenomena better than classical economics. The USA and Japan among others have seen budget deficits skyrocket and bond markets respond in accord with MMT; yields on government bonds decreased despite sluiced up supply and trillions of dollars of quantitative easing. Massive government borrowing has not crowded out corporate debt or raised interest rates. Simply, some markets are acting in ways that can best (only) be explained by MMT. The chief economists for Goldman Sachs, Pimco and Nomura believe MMT is valid. The top investor of our era, Ray Dalio, attributes much of his success to MMT.

         So, how can such diametrically conflicting theories, logic and data be reconciled? Economic principles that have stood for millennia are not going to be replaced by MMT nor will countries be able to borrow unlimited amounts. Nonetheless, thanks to MMT nations may be able to borrow more – much more – than previously thought possible. Moreover, the recent behavior of bond markets and interest rates can’t be reconciled with other economic theories. MMT provides much better explanations for what is happening. In short, MMT works in certain areas where other theories don’t.

         Although MMT may permit more borrowing, this is a double-edged sword. The increased debt will make the resultant crisis deeper and longer. Another disastrous result of MMT is that it vastly diminishes the power of markets and central banks to allocate money and credit and to control the money supply and interest rates. To a corresponding degree, MMT increases the power of politicians. Progressive politicians could use such power to control the entire economy and spend the USA into oblivion.


DO NOT MISS OUR NEXT POST ON MAY 10TH; IT IS A BLOCKBUSTER!
More Liberty Less Government  –  mllg@mllg.us  –  www.mllg.us

Wanted: More Millionaires and Billionaires

Newly minted millionaires and billionaires are essential for a thriving society.
Wanted: More Millionaires and Billionaires
By: George Noga – April 7, 2019

         Alexandria Ocasio-Cortez condemned “a system that allows billionaires to exist“. Her chief of staff tweeted “Every billionaire is a policy mistake.” Pocahontas called billionaires “freeloaders“. Bernie Sanders said “Billionaires’ insatiable greed is having an unbelievably negative impact on the fabric of our country“. The economic illiteracy of such people is staggering. Even the laughable commie economists (oxymoron) of the old USSR understood that new millionaires were vital to economic success.

      In a market economy, one becomes rich only by creating a product or service voluntarily purchased by sovereign consumers. The more people helped, the greater the wealth. Sam Walton, Bill Gates, Steve Jobs and Jeff Bezos became billionaires by improving the lives of hundreds of millions, or even billions, of people. Newly created wealth is the best metric for gauging how well a society is innovating and serving the needs of its people. A society with no new wealth creation is stagnating.

        Many who well understand that wealth creators are vital to America’s prosperity, nonetheless believe inherited wealth is evil. They are wrong; however, we leave that issue for another day. We do note however that almost all great wealth is dissipated within three generations due to the ever-increasing number of heirs, estate taxes, charitable bequests and poor decision making. Also, much of the motivation of the original wealth creators was to provide financial security for future generations.

        Not only is the latte left dead wrong about wealth creation, its positions on many other economic issues – tax rates, minimum wage, free college, Medicare for all and rent control – are voodoo economics and nothing short of modern day witchcraft.

Income tax rates/minimum wage: These were subjects of full postings on March 3 and 10 respectively and are available on our website: www.mllg.us. In those posts, we showed that higher tax rates do not result in more tax revenue and that minimum wages are insidious and harmful, especially to the people they purport to help.

Free college: Social science degrees from overcrowded schools, with courses taught by graduate assistants, are cruel hoaxes. The inevitable result is a surfeit of psychology, sociology and hyphenated-studies majors driving for Uber. Free college devalues all college degrees and the added competition from more degrees suppresses wages. There will be more degreed people seeking the same number of jobs requiring degrees.

Rent Control: Government creates housing shortages by restricting development and then compounds it by enacting rent control. They blame landlords when the problem is due entirely to government failures. Ultimately, it leads to more homelessness.

Medicare for all: The bill Democrats introduced in Congress provides for rationing and reinstitutes the dreaded Obamacare death panels. Even the Canadian system, which is better than many, is a failure; see our July 22, 2018 post entitled “Canadians Flock to Whitefish“. In Canada, the median wait time between referral and treatment is 21 weeks and years in some provinces. Over one million Canadians (3%) are on wait lists when same day service is inexpensive and readily available in the USA.

        Progressives prefer to attack the wealthy rather than to improve the lot of the poor; they care more about appearances, class warfare and political talking points than about results; it is much easier to demagogue billionaires than it is to reduce poverty. Instead of billionaires being policy mistakes, good economic policy fosters creation of more billionaires. Most Americans don’t resent success, they want to achieve it!


Our next post challenges Hillary Clinton’s claim to winning the 2016 popular vote.

The $15 Minimum Wage

Progressives believe putting poor people out of work is now a moral imperative.
The $15 Minimum Wage
By: George Noga – March 10, 2019

        Jerry Brown said raising the minimum wage “puts a lot of poor people out of work”. He elaborated, “Economically, minimum wages don’t make sense, but morally, socially and politically it makes sense“. This was a rare moment of truth for liberals, who believe creating unemployment among the poor now is a moral imperative.

         The minimum wage has been a liberal leitmotif for 80 years, since its inception in 1938 at $.25 per hour, even though it is antiempirical and thoroughly discredited by economists of all persuasions, who are near unanimous that it is economic poison, harming the people it purports to help. Even children with lemonade stands understand when the price of anything (labor) goes up, there will be demand for less of it.

        As with all progressive causes, there are two groups of supporters. At the core, there always are special interests, in this case labor unions, whose contracts contain automatic differentials over minimum wage. Unions also support it because it prices the poor and minorities out of the labor market, thereby reducing competition for lower paying jobs. The second group are virtue signallers doing it for self esteem. Like all other warm, fuzzy, feel-good bromides, it enables soft hearted and soft headed liberals to retreat into their plastic bubbles and to revel in their pristine intentions.

         Following are but five of the problems with the minimum wage:

1. It is bad economics, disproportionately harming the poor, minorities, young and low skilled by putting them out of work. Every time the minimum wage goes up, hundreds of thousands of jobs are lost. Each increase further incentivizes businesses to relocate and/or to automate. More robots anyone? It leads to greater inequality in America.

2. It involves less than 1% of workers. Most who earn minimum wage do so for six months or less; virtually no heads of household or full time workers are affected.

3. Most minimum wage workers are not poor. The average household income for a family with someone earning the minimum wage is over $50,000; they are spouses and teenagers living at home – like the kid who delivers pizza to buy gas for his BMW.

4. Those in poverty need jobs, not a higher minimum wage. A majority of those in poverty don’t work and raising the minimum wage makes it harder for them to find jobs. Remember: the real minimum wage always is zero, zilch, nada, niente.

5. The earned income tax credit is reduced. By lowering the EITC, the benefit of a higher minimum wage is substantially negated and creates disincentives to work. Moreover, those receiving unemployment and welfare do not benefit in any way.

          In our last post on Hauser’s Law (on our website: www.mllg.us) and this post on minimum wage, we sought to address timely economic issues in an insightful, factual, principled manner not usually found in the media; I hope we succeeded. Please feel free to email us at mllg@cfl.rr.com with any questions or comments; we will try to respond, but please allow some time as we do not frequently check that email.

       Of course, we couldn’t resist taking our usual jabs at progressive politics even though we have many left-leaning readers, who I appreciate and from whom I hear regularly. I would like to believe that this blog prompted some of them to reconsider their positions about raising marginal tax rates and the minimum wage.


Next on March 17th: SunRail, AOC, Covington KY students and incivility.

Hauser’s Law: Why You Can’t Soak the Rich

Taxpayers are not sheep docilely waiting to be shorn.
Hauser’s Law: Why You Can’t Soak the Rich
By: George Noga – March 3, 2019

        There are 7 reasons it is impossible to soak the rich by raising income tax rates; there is only one way it can be done – revealed herein. Full disclosure: I have firsthand knowledge of this by virtue of being a CPA tax professional and, during the 1970s and 1980s, the founder and CEO of one of the largest tax shelter firms in America.

Why You Can’t Soak the Rich With Higher Tax Rates 

1.  Hauser’s Law: Tax revenue remains constant at 18% of GDP (20% in good times, 16% in bad times) regardless if the top rate is 28% or 92%. This has been true for the 75 years since WWII. Later in this post we explain why Hauser’s Law works.

2. Elasticity of Taxable Income: ETI is a variant of Hauser’s Law and is measured by comparing tax returns before and after tax increases. For incomes above $500,000 the ETI is -1.2, which means the higher rate collected less money than before. For capital gains and dividends, the ETI shows that virtually no added tax is collected.

3. The rich are not the same people: The highest bracket taxpayers are not the same people each year. Someone who runs a family business with modest income suddenly becomes rich for one year when the business is sold. It is precisely such ordinary people (rich for one year only) who get caught in the crosshairs of high tax rates.

4. There is no way to identify the rich: Government (thankfully) has no data on wealth, only on certain types of income – which is a poor surrogate for wealth. It is impossible to soak the rich if there is no way to know who they are. Also see #3 supra.

5. Corporate taxes are not paid by owners: Businesses and corporations collect taxes but the money they pass along to government is not their money. Nearly all business taxes are passed along to consumers as higher prices – extremely regressive.

6. There aren’t enough rich: Not only are they different people from year to year, there just are too few of them to make soaking them worthwhile. The only way to raise significantly more revenue within the current tax code is to tax the middle class.

7. The income of the truly rich is not taxed as ordinary income; it is capital gains.

Why Hauser’s Law Works and ETI is Negative

        Hauser’s Law appears counterintuitive; why would government collect the same percentage of taxes when the top rate is 92% as it collects when it is 28%? The answer lies in human behavior; people are not sheep docilely waiting to be shorn. Higher rates incentivize people to go to great lengths to reduce taxes. They will work, save and invest less; barter, retire earlier; hide, defer and underreport income, convert ordinary income to capital gains and not realize capital gains without offsetting losses.

        They employ tax shelters; shift income to lower bracket family members; seek out tax-free income; change the amount, location and composition of taxable income; exploit ambiguities and loopholes; shift income to corporations; lobby aggressively for tax breaks, move from one place to another – even outside the US; move into the occult economy; employ top tax lawyers and accountants and much more – mostly legal.

How to  Soak the Rich – Using the Tax Code

       There is only one way to soak the rich and that is with lower tax rates. It works for the same reasons that Hauser’s Law works; the rich become disincentivized to take measures to reduce their tax bill. Whenever rates drop, the rich pay a much higher share of taxes than before. The 2003 Bush tax cuts resulted in the largest tax increase on the rich in American history; they paid over double what they paid when Carter was president. It works every time, but you won’t hear it from AOC and her compadres.


Our next post debunks another liberal shibboleth, the $15 minimum wage.  

American Birthright Accounts: Readers Respond

This post compares American Birthright Accounts to Social Security and responds to readers’ questions about seeming too good to be true.
American Birthright Accounts: Readers Respond
By: George Noga – June 17, 2018

       Reaction to our May 20th post about American Birthright Accounts (“ABA”) was extensive and spirited. If you missed the original post or wish to reread it, you easily can access it on our website: www.mllg.us; however, we provide a summary in the next two paragraphs. Reader responses (addressed herein) centered on (1) comparisons with Social Security; and (2) questioning whether ABAs were too good to be true.

       American Birthright Accounts are an original MLLG idea, although the name is borrowed. ABAs are simple and affordable. Every child born in the USA receives a professionally managed, tax-free account funded by government for $5,000 at birth and $500 per year thereafter until age 65. If the account grows at 7% net of inflation, which mirrors the average annual performance of markets since 1930, the account will exceed $1 million at age 65 and generate $6,000 per month of retirement income.

         A retired couple, both with ABAs, receives $12,000 a month tax-free, equivalent to $200,000 per year taxable. They own their own accounts and have $2 million to bequeath to their heirs – all tax-free and in today’s dollars. The cost to the government is equal to one-half of one percent of the federal budget, or 25% of what we will spend this year just on food stamps. ABAs also would vastly reduce inequality in America!

How Do ABAs Compare with Social Security?

       An American working from age 20 to 67 earning the median income ($60,000) pays $430,000 into Social Security (“SS”) and receives a real (net of inflation) rate of return of 1.2% (per Heritage Foundation) resulting in a notional value of $738,000 at retirement. The average SS beneficiary receives $16,000 per year, or a rate of return of 2.2%. Because SS is 85% taxable, the benefit is equivalent to $13,000 after tax – equal to a real return of 1.8%. Finally, SS benefits are unsustainable at their present level and after circa 2030 beneficiaries can expect to receive only 75% of present benefits.

        Let’s put SS side by side with an ABA. The average cost of SS is $430,000, for an ABA it is only $37,500 ($5,000 at birth and $500 a year for 65 years). Average SS benefits are $13,000 per year after tax; for ABAs the comparable number is $72,000. At death, the value of your SS account is zero, zilch, nada; the value of your ABA is over $1 million. Everyone benefits equally from an ABA, whereas the benefits vary wildly for SS. I could go on ad infinitum in this vein, but I believe you get the drift.

Are ABAs Too Good to be True?

      Some readers had trouble with the mathematics of ABAs, wondering how it is possible for everyone to be a millionaire? The math is straightforward; the initial $5,000 increases to $435,000 and the $500 per year grows to $573,000 for a total of $1,008,000, all computed from standard compound interest formulas. ABAs compound from birth for 65 years, whereas SS doesn’t begin until 20 years later. ABAs grow at a market rate, while SS grows at the much lower short-term government bond rate.

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

      There is a much larger lesson here. ABAs succeed due to the power of markets, while SS fails because of the evils of government. Progressives oppose privatizing SS, fearing market success will turn workers into nascent capitalists by giving them a big stake in the free-market economy. Liberal poseurs oppose making everyone rich because it doesn’t fit their nihilist, tribalist, class warfare, identity group narrative.


Next up: The Supreme Court decision to permit sports betting. 

MLLG Collection of Ultra-Short Posts

Education spending before and after the lottery – Hate crimes really are political crime. Thirty reasons why Hillary lost – Participation trophies –  Americans’ New Way of Life
MLLG Collection of Ultra-Short Posts
By: George Noga – May 27, 2018

       From time to time we bale together a short stack of pithy topics that, although blog-worthy, cannot justify an entire 500-word posting; this is one of those times.

Lottery and Education: MLLG compared Florida’s per pupil spending on education before and after the lottery. The year before voters approved the lottery (1985), Florida spent $4,060 per pupil – equivalent to $8,000 in 2017.  Actual 2016-17 spending was $7,500 on a comparable basis – $500 less per student than before the lottery. This is unsurprising; anyone with a modicum of walking-around sense knew lottery money would supplant other money over time. What’s truly pitiable is that clueless teachers, who fervently bought in to this three-card monte, are still teaching our kids.

Why Hillary Lost: Hillary has proffered myriad reasons why she lost; following are a few she omitted: Marc Rich pardon, sniper fire in Bosnia, trashing Jennifer Flowers, Paula Jones, Kathleen Willey, Monica Lewinsky, calling half of America deplorable, cheating Bernie Sanders, Vince Foster, travelgate, Whitewater, cattlegate, troopergate, $15 million Chelsea condo with campaign funds, Loretta Lynch interference, accepting stolen debate questions, secret server, deleting 30,000 subpoenaed emails, destroying phones and hard drives, Benghazi, Haitian thefts, Russian uranium deal, Wikileaks, Anthony Weiner, compromising top secret data, Clinton Foundation pay for play, avoiding Michigan and Wisconsin and just being an all-around horrid person.

Self Esteem and Participation Trophys: Self esteem is unearned confidence and hence a lie. American students fed self esteem rate themselves high even though they score below average. Such students will feel good about themselves as they flip burgers while their foreign counterparts own the place. I once supported a charter school in a tough neighborhood. The students were indoctrinated in self esteem and bought into the hype as did their parents. Unfortunately, they learned nothing else; the school’s test scores tanked; the school failed and the students were even worse off than before but they had their participation trophies. Self esteem must be earned through achievement.

New American way of life: A guy with a girlfriend and 2 children receives $90,000 per year as follows. Buy a house, live with your girlfriend, don’t get married and continue to use your parents’ address. Rent to your girlfriend for $900/month paid by Section 8. Your girlfriend receives Obamacare, cell phone and utilities, $600/month food stamps and free college tuition. You each claim one child on your tax return and both claim head of household for credits of $1,800. Your girlfriend claims disability (easy) for another $1,800/month. Married couples get none of these benefits but by following this plan, as many now do, they receive $90,000/year. Is this a great country or what?

Airbnb and Uber Under Attack: Deep blue cities and states continue attacking Airbnb and Uber at the behest of their unionist paymasters. Progressives insist any two people can share a marriage but are adamantly opposed to two people sharing a ride or an apartment. Liberals likewise believe in a woman’s right to choose provided her choice is not about where to school her children, owning a gun, joining a union, buying health insurance and obviously not about sharing a ride or apartment. While Uber and Airbnb were investing in transformative technology, taxi owners were investing in politicians and morphed into powerful, politically connected, state-sponsored cartels.

Hate Crimes are Political Crimes: Millennia of conflict and confrontation were needed to purge the world of the notion that a crime against one person should be treated differently than the same crime against another person. Hate crime laws diminish the actual crime and contain different standards of justice for different victims. Whether or not a crime is a hate crime is purely a political decision which ultimately depends on whether charging a hate crime advances a certain political narrative. Hate crimes, thought crimes and hate speech are throwbacks to the middle ages and the inquisition.


Next: The second anniversary of the Pulse nightclub tragedy. Do not miss this one!

The Seen Versus the Unseen

What we see is frequently far less important than what we don’t see. This is true
particularly for economic growth, international trade, climate change and poverty.
The Seen Versus the Unseen
By: George Noga – October 23, 2016

       Election issues, both real and fake, are viewed through the prism of what is readily seen and are juxtaposed against what is opaque or occult to most Americans. The seen versus the unseen is singularly germane for economic growth. The data Americans readily see are many years of positive economic growth and unemployment rates approaching historic lows. Looking only at what is seen, many people conclude the US economy is performing satisfactorily. But let’s look at the unseen.

     The US, in its eighth year of economic recovery, is averaging 2.0% growth in real GDP. Real economic growth since 1945 averages 3.3% and is 4.3% for the years following the prior 10 recessions. Had the US grown at the 4.3% post-recession average from 2009 onward, today real GDP would be $10,300 higher for every man, woman and child in America. The unseen 900-pound gorilla of economic growth is the $26,700 that is missing from every American household each and every year – forever. Had Obama simply achieved average results, we would be infinitely better off.

For foreign trade deals, what we can see are job losses, harm to affected industries and deleterious effects on communities impacted. The pain is visible, immediate, and concentrated, whereas the benefits are unseen, long term, opaque and diffuse. Every American household benefits $2,500 per year just from China – even if they manipulate their currency, subsidize exports and use cheap labor. The unseen benefits to Americans from foreign trade vastly outweigh short-term job losses and other impacts.

     For climate change, we see media reports of warming, melting glaciers, polar bears on ice flows, extreme weather events and receding arctic icecaps. The largely unseen is: (1) no warming for 20 years; (2) glaciers receding for the past 150 years; (3) record polar bear populations; (4) no increase globally in insurance claims for weather events; and (5) an increasing antarctic icecap which is 10 times the size of the arctic icecap. Completely unseen are the immediate benefits to humanity that could be realized if the trillions now being totally wasted on infinitesimal reductions in temperature were diverted to human needs such as disease eradication, clean water supply and nutrition.

     We are bombarded by media reports and images of poverty, homelessness and hunger although none of these conditions exist per se in America today. What we don’t see is that these conditions (which do still exist) result nearly exclusively from untreated mental illness and from a small cohort of Americans of low ability, i.e. those who struggle to fill out a simple form. These conditions, and their attendant social pathologies, are what result in poverty, hunger and homelessness. Political correctness prevents us from identifying and addressing the real underlying problems.

     We see gun violence whenever there is a shooting; we don’t see the 2.5 million times each year guns are used lawfully to prevent or to stop crime. We see that more Americans have health insurance; we don’t see the armies of under employed 29ers and 49ers and the high premiums, deductibles and co-pays. We see the spending but the debt and deficits go largely unseen. We see what is reported by the media; we don’t see many stories covered that run counter to the progressive narrative. We see what we recycle; we don’t see it going into the same landfill as all our other garbage.

What we see is often vapid and illusory and intended to beguile us into accepting progressive shibboleths and dogma. The unseen is frequently much more important.


The next post in our 2016 election series is scheduled for October 30.

Hurricane Warning!

Hurricane season began on June 1 and provides the common thread for this post. It addresses hurricanes, climate change, price gouging and economics of storms

By: George Noga – June 5, 2016

    To observe the beginning of hurricane season, we address a trio of hurricane related topics: (1) climate change; (2) storm economics; and (3) price gouging. As you have come to expect, our analysis of these issues is not the usual pap you find elsewhere.

Hurricanes and Climate Change

    The last hurricane to hit Florida was Wilma in 2005. This 10-year hurricane-free streak dwarfs the prior record of 5 years that stood for 165 years. This is especially remarkable considering 40% of all hurricanes impact Florida. This decade of  clement weather follows dire predictions by global warmists that hurricanes would be more frequent, last longer, have stronger and more intense winds and cause more damage.

    Warmists also warned of  many more severe weather events worldwide. Munich Re, one of the world’s leading reinsurance companies, performed the first ever analysis of global weather-related losses incorporating normalization adjustments for inflation, population growth, wealth increases and other variables. Its study concluded there was “no statistically significant trend for total weather-related events in the past 20 years“.

    Let’s suppose a hurricane hits Florida. Global warmists and their media sycophants instantly will cite it as incontrovertible evidence of climate change. I hope we avoid hurricanes again in 2016; but if one should hit, brace yourself for the inevitable onslaught of self righteous prattle – but remember, it has been 165 years since there have been fewer hurricanes and weather losses are trending downward worldwide.

Hurricanes and Putative Economic Benefits

    It is a testament to economic illiteracy that this question persists in the 21st century. Yet, in the aftermath of any disaster, the media trot out this fusty canard. A reductio ad absurdum is all that is needed to give it the lie. If a mega-disaster struck destroying everything, we clearly are worse off despite any increased economic activity it may spawn in the short run. Following is an example of the relevant economic analysis.

    Postulate there is a small island with aggregate wealth of $1 million in homes and property. Economic growth is slow and some on the island are unemployed. A storm destroys the entire wealth of the island. The whole population works for one year and succeeds in rebuilding everything. Looking at statistics, GDP was $1 million, much higher than normal, and unemployment was zero. Yet the overall wealth of the island is unchanged and, in fact, is much less than it would have been without the storm.

Hurricanes and Price Gouging

    Americans accept that prices for the same product vary under different conditions. They understand why hotel rooms in small college towns cost more the weekend of a big game and why tickets for the big game cost more than a regular game. We readily accept all these things; why should it be any different following hurricanes?

    Take the case of generators. Entrepreneurs, at some peril, drive to other cities to buy generators to sell for what buyers willingly pay. Some may pay a lot if they stand to lose thousands of dollars of food stored in freezers; some just may want the convenience of electricity. Every decision and price is voluntary and non-coercive. Soon, the price of generators returns to equilibrium. With anti-gouging laws, everyone does without generators; any intrepid souls who supplied them are subject to arrest, public scorn and to pandering by economically illiterate politicians and media.

    There is no such thing as price gouging. Prices in free markets convey accurate, truthful and valuable information about the value of a good or service at a point in time. In contrast, government prices (think: rent control, rationing) always are lies. In which kind of society would you rather live – one based on voluntary cooperation of people in free markets or one based on government lies, force and coercion?


The next post on June 12th revisits the 2016 US national election.

Inequality in America III – The $15 Minimum Wage

Advocates of the $15 minimum wage agree it is bad economics but justify their support on moral grounds. What is moral about putting poor people out of work?

By: George Noga – May 15, 2016

   The reference in the preheader is to California Governor Jerry Brown. His actual quote is: “Economically, minimum wages may not make sense but morally, socially and politically it makes sense. . . .” The previous year Brown stated raising the minimum wage would “put a lot of poor people out of work“. It seems that for progressives, creating more unemployment among the poor now has become a moral imperative.

    Governor Brown has company. As with all progressive causes, there are two groups of supporters. At the core there always are special interests, in this case labor unions. Many union contracts contain automatic built-in differentials over minimum wage. Unions also support it because it prices the poor and minorities out of the labor market, reducing competition for lower paying jobs. The second group consists of do-gooders who are both soft-hearted and soft-headed; they are, in-effect, shilling for the unions.

    Minimum wage has been a leitmotif in America since 1938 when it began at $.25 per hour. In nearly eight decades since, it has been thoroughly studied by economists and there is virtual unanimity among them that the economic effects are harmful. Economics doesn’t get more basic than when the price of anything (labor) is increased, there will be less of it. Children with lemonade stands understand this. Following are some other things you may not know about minimum wages in America.

1. Minimum wage affects less than one percent of all workers and most who earn the minimum wage do so for six months or less before receiving raises. Virtually no heads of households or full time workers earn the minimum wage.

2. The average household income for a family with someone earning the minimum wage is $50,000. Most receiving the minimum wage aren’t poor; they are spouses or teenagers living at home, like the kid who delivers pizza to buy gas for his BMW.

3. A majority of those in poverty don’t work; they need jobs, not a higher minimum wage. Raising the minimum wage makes it much harder for them to find jobs.

4. The young, poor, minorities and unskilled are disproportionately harmed by raising the minimum wage. Raising the minimum reduces the EITC (earned income tax credit) thereby negating much or all of the benefit of a higher minimum wage.

5. There is consistent and copious empirical evidence that raising the minimum is a death-knell for the poor and minorities; every time it goes up, they lose hundreds of thousands of jobs. With each increase, business has more incentive to automate or to relocate (if it is a state increase) and to put even more people out of work.

    It seems clear enough that raising the minimum wage does not reduce inequality in America; it does the opposite. Even though only one percent of workers earn the minimum, that still amounts to 1.25 million people. The last increase resulted in over 300,000 jobs lost – nearly all poor and minority. That is a recipe for more inequality.

    Progressives claim a moral imperative to raise the minimum wage, even knowing it puts poor people out of work. They do this for their own self esteem. However, the real minimum wage always is zero, zilch, nada and not what progressive kool-aid drinkers deign to make it. And zero, zilch, nada is exactly the wage many more poor people will receive with a $15 minimum wage. I have one word to describe this: immoral!


Part IV of Inequality in America – Reality versus Rhetoric – will be posted May 22.