CULT BELIEF VERSUS ECONOMIC FACT

          Many   prominent Republican party members have  made  vicious statements about how unfit -- even dangerous -- Trump would be if re-elected. Then they flip to say they will vote for him!    

         Case in point: Bill Barr, one of the Attorneys General during Trump's presidential term, resigned rather than support Trump's assertions that the 2020 election was stolen. In fact, he has testified under oath that before resigning he had told Trump that his assertion of voter fraud was "bullshit."  More recently, Barr has asserted that Trump is a "consummate narcissist," and that voting for Trump in 2024 is "like playing Russian Roulette;" that Trump would return chaos to the White House; it would be a "horror show." 

         Still, he claims he would vote for the "republican ticket" in 2024. Why? To avoid the "Progressive Agenda."   

The Reigning Flip-flop Champ: Chris Sununu

          But, high atop this year's flip/flop leaderboard  is New Hampshire Governor Chris Sununu who chose to flip on national television when he appeared  on the ABC Sunday show This Week, with George Stephanopoulos.  Stephanopoulos summarized  a long list of  past statements that Sununu had made to describe Trump as  unfit for office:  he has been continually lying about the election;  he is incapable of a coherent thought once he looks  away from the teleprompter;  he took classified  government documents and would not return them when ordered to do so; he was convicted of business fraud in the State of New York; played a major role in calling for the insurrection of January 6th, 2021;  and refused to call   off that insurrection when lives of members of Congress were in danger and his own vice president was being threatened with hanging.

           Sununu agreed with Stephanopoulos that he had made this incredibly damning list of statements but nonetheless would vote for Trump.  What would motivate such a prominent individual to hold such contradictory positions?

 Personal Incentives to Flip

          In addition to a strong incentive to maintain opportunities within the party, as well as social connections with colleagues, at clubs, and at dinner-party circuits, there are monetary rewards to flip-flopping.  This is no accident; the plan to discourage strays and to welcome back those who repent is spelled out well in the Powell Memo of 1971, written by Virginia business attorney Lewis Powell (https://scholarlycommons.law.wlu.edu/powellmemo/1/).  (Powell was later appointed by President Nixon to the US Supreme Court.)   

         The Powell memo laid out a strategy to maintain the party loyalty of prominent republican office holders long after the end of their terms.  The plan includes a continuance of financial and prestigious rewards, including  paid positions on boards of corporations and think tanks, endowed positions on  university faculties and think tanks, lucrative speaking fees offered by conservative  speakers bureaus and book deals with conservative publishing companies, ghost-co-authored to reduce the burden of writing.  This array of awards awaits the flip-flopper; the alternative is oblivion back in the home district running the aluminum siding company.   The plan was to harness the interests of the donor class; the money they save through lower taxes and less regulation of businesses greatly outweighs the cost to them of financing the Powell plan.  

 How to explain to the public

         Of course, it is best not to state in public the personal rewards of  flipping; better to pretend it’s for the good of the nation!   Accordingly, this preference for the "Republican ticket" and against the "progressive agenda"  exploits the long-held common misconception that the economy performs better when a Republican, rather than a Democrat, holds the White House/administrative branch.  

            As if on cue, a new paper (April 2, 2024) is circulating by Josh Bivens, the chief economist at the Economic Policy Institute.  Bivens has undertaken the huge task of assembling government data on the economic performance, using standard categories of comparison, for each administration going back to 'Give'em Hell Harry.' 

         In the summary of the paper, Economic performance is stronger when Democrats hold the White House (https://www.epi.org/publication/econ-performance-pres-admin/), Bivens states: "The economy performs much better during Democratic presidential administrations than during Republican ones.  

 Since 1949, there has been a Democratic advantage in the average performance of key macroeconomic indicators measuring economic health, including: Gross Domestic Product (GDP) growth; Job growth; Unemployment rate; Growth in inflation-adjusted wages; Growth of market-based incomes per capita; Inflation; Interest rates. This Democratic advantage is across the board in all variables we measure but strongest in private-sector outcomes—notably, business investment, job growth, and the growth of market-based incomes."

         Bivens anticipates a complaint:   inclusion of data all the way back to Harry Truman's first elected term in 1949 would dilute the data from the purported dynamism of the Reagan Revolution. The Gospel according to Reaganomics is that those policies  produced economic performance superior to both prior Democratic and Republican administrations. Therefore, Bivens provides  a second pair of charts which differs from the first by omitting the years 1949 - 1980, i.e., omitting the data from Republicans Eisenhower, Nixon, Ford, as well as Democrats Kennedy, Johnson, and Carter.  (See all four charts in the Appendix below.)

         The incredible result is that for both pairs of charts the economic performance in each category is superior for Democrats as compared to  Republicans.  Household income growth (adjusted for inflation) was faster on average during Democratic administrations, and the Democratic advantage shows up for every income decile.

         These results are not a trade-off where Democrats better serve certain income categories while the Republicans better serve others: Democrats perform better for all income deciles, even after taxes and transfers are accounted for. This applies even to the "one percenters," i.e., the top ten percent of the top decile.  Result:  The second pair of charts show no change in the overall result: in each of the categories income earners still do better when Democrats hold the White House.   

 

 

 

 

 

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PAYING FOR THE BRIDGE

         The collapse of the Francis Scott Key Bridge in Baltimore closed one of the largest ports in the world, with important implications for world trade and for rubber tire vehicle traffic in the Baltimore area.  For example, it is both an import platform for car and farm equipment parts headed for assembly plants in the Midwest, and a platform for coal exports to Europe, particularly vital while Putin uses Russian energy as leverage.         

         The bridge itself was one of three ways to drive through the Baltimore area for the high-volume traffic from Washington DC to New York City and on up to Boston.  On a typical weekday, the bridge carried 34,000 cars and trucks that must now be jammed onto the other two arteries.   

         The initial cost estimate of the disaster is 15 million dollars per day in lost economic activity plus three billion to replace the bridge.  Although the ship owner will likely be liable to contribute to cost recovery eventually, settling such a claim will take years.  Therefore,   President Biden announced that he will direct the federal government to immediately commit to covering all costs, including salary replacement for the estimated 8,000 port workers who are temporarily without work.

         Some entity has to bear the cost in the interim pending settlement with the ship owner.  The federal government has a comparative advantage in paying up front and attempting future reimbursement. But how will it get the money for immediate spending? Answer: where it gets all its money: taxes and borrowing.  The loss of those two productive assets -- the bridge and the port -- made the country poorer.  The borrowing enables recovery of that loss. 

         But why the federal government? Why not states or private entities?  First, the shutdown of the Baltimore harbor has national implications.   The federal government can recognize those national benefits and costs and spread the costs of the bridge collapse across each citizen. Essentially, through its taxing authority, the federal government is the insurer of last resort. In this role of insurer, the federal government has another advantage: lower interest rates.  The cost of the bridge is massive,  only the federal government can borrow such sums at reasonable interest rates and terms. Since the federal government has taxing authority that states do not have, and has never been in default on its debt, the citizens/taxpayers have earned this advantage. On behalf of those citizens, the government uses the resulting cost advantage when paying the costs of accidents and natural disasters such as earthquakes, tornadoes, hurricanes, floods, pandemics, as well as  the Key Bridge collapse.

         In its customary reflex against federal spending, the congressional "Freedom Caucus" responded to Biden's recovery plan by pointing out that the government is already $34 trillion in debt, 120 percent of national income.    They propose that rather than borrow, adding to debt, the government should find ways to cut  somewhere else in the budget.  But is extracting money from previously enacted legislation really better than borrowing?

            Does that debt balance -- 34 Trillion dollars in debt due to past borrowing -- change the decision to borrow or cut other spending?    Actually, the debt is a "sunk cost."  Future borrowing decisions should depend on a comparison of the additional future benefit net of the additional future cost of the additional borrowing.

         In other words, the decision to borrow extra money does not depend on total borrowing done in the past.  The decision to borrow for additional investments depends on a comparison of additional liabilities to additional asset values obtained by that borrowing.    The bridge and port are assets.  They will be enjoyed for years to come, and passed on to future generations, with value  many multiples of the costs to restore them after this accident.     

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FAIR LEGISLATIVE MAPS: CONTIGUITY AND PARTISAN PRIVILEGE

         In the Wisconsin gerrymandering case, Rebecca Clarke v. Wisconsin Election Commission, the Wisconsin Supreme Court ruled that the current map of state assembly and state senate district boundaries violates the constitution because it contains a large number of districts that are not "contiguous."  That is, some districts contain parts disconnected from other parts.      

         Although contiguity was the key constitutional issue, the additional motivation for the lawsuit was to change those legislative district boundaries that systematically lead to   non-representative government: the ratio of legislative seats held by the different political parties is wildly out of proportion to the ratio of voter preferences for candidates from those parties.   Over the past four election cycles, for example, the voters expressed a preference for Democrats by over 50%,  but Democratic party candidates held a mere 36% of the Assembly seats, and had no chance of gaining a majority of seats in the state legislature.  Ideally, the district boundaries of the 99 assembly seats  and the 33 state senate seats would be neutral, i.e.,  directly reflecting the statewide party make-up of the voting electorate.  With neutral district boundaries, elections would be determined by  candidate  quality, voter policy preferences, and the energy and commitment of the supporters.     

 

 Now for the Hard Part:  Choosing the Map

            The court offered the parties to the lawsuit  the opportunity to submit remedial  maps that cure the contiguity  problem.    The court will sift through submitted maps while bearing in mind this key sentence that appears within the majority opinion:    "We do not have free license to enact maps that privilege one political party over another."     Accordingly,  the task is to choose the map with minimum -- ideally zero -- "privilege" of one political party over another.  

Outside Expertise and Technical Requirements

          For technical assistance, the court has appointed two experienced consultants:  Dr. Bernard Grofman of the University of California at Irvine, and Dr. Jonathan Cervas of Carnegie-Mellon University.     They list seven technical requirements for map proposals:  districts must have  nearly equal population; have minimal splitting of existing political subdivisions, such as county and city lines;   display complete contiguity; have acceptable compactness;  comply with federal law of equal protection and voting rights;  consider communities of interest; and address political neutrality. 

         The consultants  require that proposed maps be submitted to DavesRedistricting.org, a website established to add transparency to the redistricting process.   DavesRedistricting.org  provides a place to compare maps both visually and with numerical scores for each of the criteria listed by the consultants.      

 Demystifying Modern Map-making

          The high-tech methodology being used by the mapmakers and the consultants can be puzzling. That puzzlement can be alleviated somewhat by reading the Amicus Brief submitted on November 8, 2023 by Professor Matthew Petering of the UW-Milwaukee College of Engineering. In that brief, Petering described a complex computer algorithm he designed to create a map that optimizes the seven criteria.  

         Because Petering  is not a party to the lawsuit, his maps are not being considered by the court or its consultants. Nonetheless,  he submitted a map to DavesReedistricting.org so it could be scored and displayed alongside  the six maps submitted by the parties.  In turn, Urban Milwaukee's Bruce Thompson has  greatly simplified the job of comparing the seven maps by reducing the numerical scores to colored bar charts.  

Data

         As Dr. Petering explains, his  algorithms must be programmed    using voting data from recent statewide elections in Wisconsin, i.e., data not affected by the gerrymandering.  Petering has also shown that because Democratic voters are more clustered in urbanized areas than the more widely-dispersed Republican voters, the algorithms must use ward-level election data from recent statewide elections to get a fair map. be programmed with data on  voter residential patterns.  (Of course, data on individual voters is not used and is not available.)   This use of data is in agreement with the opinions expressed by Judge Adelman and Fred Kessler, two learned scholars of the problems of map making (see Further Readings below). 

   

          To illustrate numerically the importance of using ward-level data, Petering provides maps with and without using that data from recent statewide elections.  To compare the results,  he plugged both maps into the DavesRedistricting.org scoring system.  With that data, the DavesRedistricting.org estimates that Petering’s map provides Democrats with 51 seats in the Assembly, proportional to their statewide share of votes.  Without the data, that drops well below their proportional share to about 43  seats with a very low likelihood of a legislative majority, a result that locks in the partisan privilege the Republicans have enjoyed.  In other words, the use of election data to make maps does not introduce partisan bias; it is the failure to use that  data that results in partisan bias. 

 "Natural Gerrymandering" Debunked

         It is a statistical fact that Dem voters live in a more concentrated residential pattern than Republican voters.  This has led to a plausible but wrong notion called  "Natural Gerrymandering"  i.e.,  because of the greater concentration of Democrats, partisan privilege cannot be eliminated.    If true, this hypothesis implies that Democratic Party  policies and proposals will forever be in the minority. Dr. Petering has debunked this defeatist notion in the best way possible: counter example. He produced a map with proportional representation, the equivalent of zero partisan privilege.  As the bar graphs in Bruce Thompson's article so vividly show,  Petering's map is better on minimizing partisan privilege than any  map under consideration by the court.  His maps earn especially strong scores of 99 and 100 (100 is best) for proportionality in the Assembly and Senate, respectively,   indicating  virtually no privilege FOR EITHER PARTY.  Although for  procedural reasons his map cannot be included among those considered by the court, Petering's achievement shows that  neither the Court nor its consultants should accept incomplete solutions of the partisan privilege problem.

Further reading   

 "Political Fairness in Redistricting: What Wisconsin’s Experience Teaches," The University of Memphis Law Review, Vol 49, 2019, Judge Lynn Adelman

 "How to Draw Fair Maps in Wisconsin," Capitol Times, Nov 14, 2020. Fred Kessler, former legislator and re-districting expert.

"Ranking the 7 Proposed Legislative  Maps" by Bruce Thompson, Urban Milwaukee, Jan 17,  2024.

District Solutions LLC  www.districtsolutions.net, Amicus Briefs of Matthew  Petering, Clerk of Wisconsin Supreme Court 11-08-23 and 01-22-24.

 

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NOTES ON FAIR MAPS

          Ever since the district boundaries for the assembly and state Senate districts were devised in 2011,   Wisconsin Democrats have been complaining about the unfairness of the district boundaries and their influence on the makeup of the state assembly and senate.   Prior to that republicans complained about the reverse unfairness imposed by Democrats.  Clearly, the state needs a fair procedure;      Step one is an examination of key terms.  

Influence of District Boundaries

         The district boundaries have great influence over not one but two outcomes.  First, they influence the competitiveness within a district, and can even be crafted to make a district "safe" for a candidate of the favored party.  Second,  they influence the statewide array of wins and losses, which determines how many seats each party wins within the 99 seats of the  Assembly and the 33 seats in the State Senate.  Shifts in district boundaries can influence which party will gain a majority in the Assembly or the Senate or both. In turn,  majority status provides access to the tools of legislative power, i.e., committee assignments, the flow of legislation, as well as whether to open or close a legislative session and to permanently "table" legislation. The majority can also determine what can go on the advisory ballots so the voters can express a more direct opinion.  

         In the current case,  the legislature seat count is far less than proportional to the Democratic vote count in statewide elections.  The Democrats hold 36% of the Assembly seats while in state-wide elections -- i.e., those that cannot be gerrymandered  -- the voters expressed a preference for Democrats by over 50%. 

         Non-representative government has led to unrepresentative policy:  Post-Dobbs reversion to the antiquated 1849 state law on reproductive rights; blocking a referendum to let the voters express their preferences on reproductive law as did the voters in Kansas and Ohio; reducing state funding per student in the UW system to 46th in the nation,   including refusal to fund the much-needed Engineering building for the UW-Madison campus; and continuing to  reject federal money for railroads and Medicaid,  thereby costing Wisconsin taxpayers billions.

Standard requirements of fairness

          Modern design of district boundaries must meet a complex array of requirements.  The districts must have roughly the same population;  they must be compact (not stretched out like a salamander);  they must be contiguous;  and they must adhere to the requirements of the federal voting rights act.  To simultaneously meet all these requirements requires use of computer algorithms.  Fortunately, there are experts in the design and use of these algorithms at Duke, Princeton, and University of Wisconsin - Milwaukee where Professor Matthew Petering has established District Solutions LLC to house his efforts to create fair maps through his FASTMAP algorithm.

    

Tools of Gerrymandering.  Packing and Cracking

          Fair maps would reverse the anti-representative effect of gerrymandering. Therefore, to understand fair maps requires understanding the two key tools of gerrymandering:   packing and cracking.  Both of these strategies involve shifting district boundaries that affect the margin of victory within a district, and consequently affect the proportion of legislative seats for each party.      

         Packing refers to opportunistically shifting some district boundaries to corral an excess of Democratic voters, ensuring that within that district the Democratic candidate will win far more votes than needed to win that seat, thereby "wasting" the unnecessary votes.  Cracking refers to shifting some Democratic voters into districts where Republican candidates typically win by large margins.  The idea here is to subtract Dem votes from a district to convert it from a win to a loss and to spend those votes for the Democratic candidate in a district the Republican is expected to win, making sure that the shifted votes are not enough for the Dem to win there. Instead, the Republican candidate still wins, albeit by a smaller margin, "wasting" fewer Republican votes and more Democratic votes.   

Achieving  Proportionality

         First, a simple definition of proportionality. Proportionality in the design of district boundaries yields a party a 50-50 chance of the same proportion of seats in the Assembly and State Senate as that party's proportion in statewide elections. Under this definition of fairness, a party with, say, 30 percent of the state-wide vote should have a fifty-fifty chance at 30 percent of the seats.  Or, as in the present case, since the Democrats typically earn around 51 -54 percent of the state-wide vote, they should have a fifty-fifty chance of that proportion of the legislative seats.

           Second,   algorithms can construct maps on the basis of the usual requirements plus proportional representation. Its maps project a fair outcome with Democrats having a 50-50 chance of earning a majority in either chamber, or both, in proportion to the statewide vote.  Moreover,  the algorithm can rate other maps on the basis of the proportionality standard, as well as any of the other necessary requirements.  For instance,  the District Solutions algorithm analyzed the map proposed by the Wisconsin Senate Democrats in November 2021 and projects that map would provide the Democrats with just a 1.7% chance of winning a majority in the Assembly and an 18.9% chance of a majority in the state Senate.

         Third, two learned scholars of the problem of fair maps, Judge Lynn Adelman and Fred Kessler,   have opined that any construction of fair maps must include the use of data on where voters live. (see Further Readings below). Why?  Democratic voters are more clustered in cities than the more widely dispersed Republican voters. Consequently, if the algorithm is not provided residency data, it will operate as if voters had random locations and would perform its task of overlaying district boundaries only according to the other requirements of fairness. District Solutions LLC provides quantitative demonstration of the political and legal conclusion of Kessler and Adelman: Without residency data, readily available from recent state-wide elections, the algorithm cannot be calibrated to construct maps that produce proportional representation for voters of both parties. 

          To highlight the importance of using residency data,  District Solutions has used its algorithm to estimate results obtainable without using the data.  They show that, despite winning roughly 53% of the statewide vote, the most likely outcome for Democratic voters would be to win about 45% of the seats with very low likelihood of a majority in either chamber. While that is better than the current allocation of 36% of seats, it falls well short of "fair."

In other words, the use of voter data is not partisan; it is the failure to use voter data that results in partisan bias.  Proceeding without such data would yield maps biased in favor of Republicans and would preserve most of the imbalance now built into the current array of maps, as we see in neighboring Iowa (see Thompson in the "Further Readings" below).

FURTHER READING:  

"Political Fairness in Redistricting: What Wisconsin’s Experience Teaches," The University of Memphis Law Review, Vol 49, 2019, Judge Lynn Adelman

 "How to Draw Fair Maps in Wisconsin," Capitol Times, Nov 14, 2020. Fred Kessler, former legislator and re-districting expert.

"Why That 'Iowa Redistricting Plan Was Unfair" by Bruce Thompson, Urban Milwaukee, Oct 4, 2023.)

District Solutions LLC  www.districtsolutions.net, Amicus Brief of Matthew          Petering, Clerk of Wisconsin Supreme Court 11-08-23

 

 

 

   

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SCOTT WALKER JOINS THE REPUBLICAN WAR ON STUDENT VOTING

          The Republican Party has declared war on voting by college students.   One of the latest to enlist is former Wisconsin

Governor Scott Walker, who declared that the overwhelming victory by Janet Protasiewicz in the recent Wisconsin Supreme Court election was due to the brainwashing of young college students by "campus radicals." UW students did indeed vote overwhelmingly for "Judge Janet," particularly at the Madison, Milwaukee, and Green Bay campuses. Walker is now determined to "undo years of liberal indoctrination."  To achieve this he has announced a new donor-financed initiative:  "I am leading a new effort at Young America Foundation to counter the impact of radicals on campus..."

Indoctrination? Really?

         This allegation of youthful gullibility should be more closely examined.  A few policy issues of acute interest to young people generally (not just those in college) point to more likely reasons why young voters are repelled by Republican policy positions.   

Guns

         It can hardly be chalked up to indoctrination that today's college students -- the generation that practiced "active shooter drills" in school, some having survived the real thing -- have concluded that the Republicans are doing nothing about guns.   Like most Americans, they are frustrated by the inaction, especially since Justice Scalia's 2008 interpretation of the Second Amendment reaffirmed that gun ownership is a regulated right: red-flag laws, waiting periods before purchase, background checks, restrictions on ownership of certain types of weapons,  are indeed constitutional.   Republicans have had plenty of opportunity to diverge from the NRA position to endorse at minimum red-flag laws and background checks.  

Abortion

         Nor does it require indoctrination to conclude that the Republicans are caving in to religious organizations on abortion restrictions. In furtherance of this unpopular policy, unrepresentative gerrymandered state legislatures impose strict regulations on abortion and other reproductive medical decisions,  endanger women in medical emergencies, restrict interstate travel for less-restricted care,  and attempt to ban a proven drug for treatment of miscarriages that also can induce abortions. 

 Voting Rights

         It does not require indoctrination for students to understand the Republican strategy to suppress their vote.   Republican strategist Cleta Mitchell was caught on tape speaking at a Republican strategy session outlining a comprehensive plan to suppress voting by those unlikely to vote for Republican candidates.  The plan includes limiting voting days and hours, eliminating on-campus voting places, denying the use of student ID as proof of voter eligibility, and keeping off the ballot any referendum whose likely outcome would be to demonstrate the unpopularity of Republican policy positions.  

         As if to justify suppressing the college vote, Mitchell  described college students as lazy, coddled by the convenience of on-campus voting:  "They basically put the polling place next to the student dorm so they just have to roll out of bed, vote, and go back to bed.”  The alternative would be to register and vote near the family home, dozens if not hundreds of miles away.    Of course, hers is a mischaracterization of modern students who work very hard just to qualify for admission to college and then proceed to take challenging coursework that encapsulates thousands of years of learning.    Most students are also compelled to earn money during their college days to pay today's greater student share of the cost.  Besides, the 26th Amendment to the Constitution (1971) that enabled 18-year-olds to vote did not specify greater inconvenience to exercise that right. 

            Certainly, increased time and travel costs will suppress the vote. Together with gerrymandering, high time costs are part of the overall strategy to solidify minority rule.   By contrast,  representative government requires allocating voting resources -- polling places, days and hours, voting machines, secure drop boxes, mail-ballot procedures, and, yes, on-campus voting --  so that all eligible demographics, including college students, experience roughly the same time and resource cost of voting.     

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WHICH MARKETS SHOULD BE “FREE”

          Since just about every public policy issue of our age has an important economic component, surely upcoming debates will feature differing opinions about how to organize the economic interests of 330 million people. Office seekers will take sides on key questions, such as when government should be involved in the production and distribution of certain goods and services, versus when private markets be relied upon.  This is a good time to review some basic economic concepts and demand that office seekers understand them.

            Any such review could begin by examining a  core teaching of economics: that competition among profit-seekers leads to the betterment of society as a whole, even though it is profit, not serving the larger society, that motivates the decision-makers in the market.    It is this belief in “free markets” that forms the basis for much of public policy, the rebuttable presumption that markets are superior to government in the production and distribution of goods, services and assets. But it is in the rebutting that the conflict lies: when the pre-conditions for competition do not exist,   markets will not self-regulate for the public good. Without keener knowledge of how markets work, politicians can’t propose efficient regulations, including when to leave markets alone to self-regulate.  

  Exceptions to Free Market Efficiency

 Initiated by Adam Smith,  a large body of knowledge has been developed to describe the circumstances under which market allocations driven by profit-seekers are superior to government programs and when they are not. Examples of the latter include:

 Monopoly power: some of our most important services are sold to us by public utility monopolies - distribution of electricity, natural gas, water, cable TV, internet connectivity, sewer services.  Although the competitive process cannot work for these incredibly important goods and services, the properties of the market can be used to guide their regulation.  For example, the price of these services is usually regulated to provide the same sort of competitive rate of return on investment that one would find in a competitive market.  

 Patents: the government grants inventors temporary protection from competition so that, during that temporary period, monopoly profits are the reward for inventive and creative activity. When that period is over, the secret behind the invention is supposed to become public knowledge so that competitive markets can bring the benefit of the invention to consumers at prices that better reflect costs.  When this doesn't work, as in the case of insulin, the government can step in and regulate the price. For example, President Biden's Inflation Reduction Act includes a $35 per month price cap on insulin.

 Information asymmetries: when buyers or sellers can be taken advantage of because they are acting with different information about the safety, durability, or performance characteristics of a product, regulation is required to bring markets to the level of efficiency a free citizenry expects. For example, the Food and Drug Administration tests food for safety and drugs for efficacy, tasks well beyond the expertise of consumers. 

Risk Spreading: primarily this is done through insurance, mostly through private insurance companies who charge a premium to pool the premiums of a very large number of people. This pool enables the insurer to write checks for those who suffer insured-against events -- car accidents, home fires, burglary -- out of the money gained by the premiums of those who have better luck.   The premiums of the accident-prone are higher than the premiums of those without a record of problems. Hence, lousy drivers pay higher premiums than safer drivers, and sick people pay higher premiums than healthy people. The Affordable Care Act is a regulatory response to this latter example: the perversion of pricing the sick out of access to the medical care they need to get healthier.

  Public goods: goods that the unregulated market cannot allocate well because profit-seeking firms cannot expect to earn a profit by providing the efficient amount of them. Examples range from public parks to police and fire protection to national defense, and they are paid for with taxes. Also included are public infrastructure assets that enable the private market to work more efficiently but which the market will not produce for itself.  Included in this category are streets, roads, highways, bridges, tunnels, water and sewer systems, harbors and airports, and many others.

   External costs: These are costs not paid for by the buyers or sellers in a market exchange, and there is no market-driven incentive to control them; they require regulation. Pollution is an example; the market actively encourages pollution because it reduces costs to the polluter. To address climate change while growing the economy, the power of the market to produce wealth must be harnessed and redirected to produce wealth with fewer emissions of greenhouse gases.  The tools for doing this include taxes on those activities that produce emissions, emission quotas or bans, or subsidies for those producers whose activity results in fewer emissions.

Moderation of the Business cycle:  A key role of government policy is to manage total spending so as to keep the economy running at full employment without inflation. During recessions, for example, the spending of the nation’s consumers and business investors is too small to employ all those who want to work. Government spending can fight a recession with investments that build and maintain government-owned productive assets -- streets, roads, broadband, police stations, ports, communication satellites, etc. -- and employ people in the process.  Society can use these long-lived productive assets for many decades.  Of course, government should avoid spending on goods that produce little of lasting value, such as weapons systems that the Pentagon does not want or “bridges to nowhere.” 

 Using Prices in the Public Sector:    the public sector can achieve greater efficiency by implementing some free-market principles. Chief among these is to use prices when enabling people to use public assets such as highways and airport landing rights. For example, gasoline taxes require road users to pay for the roads.  Similarly, carbon taxes can be used to require carbon emitters to pay for their harm to the environment. Both of these taxes use the price system in the same way price is used in private-sector markets: to organize incentives and to require people to pay for what they use.  

Epilog:  The country needs its office-seekers to compete in the marketplace of ideas, especially about economics.  Our politicians should be conversant in the basic ideas of economics, starting with those illustrated here. Voters should root out and replace members of state legislatures and Congress who are ignorant of these principles in economics to help ensure that public policy best serves the majority of our citizens.

 

 

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BIDENOMICS IS PRO-MARKET

            Joe Biden is finally touting his accomplishments: record-breaking job "creation," a drastic reduction in the annual deficit,  a long streak in reducing the inflation rate, and heavy investment in infrastructure.  Finally, billboards are going up at federally funded infrastructure projects around the country, explaining to passersby that these much-needed construction repair and replacement projects supporting local and state economies are due to the bi-partisan infrastructure bill promoted by President Biden.   In other words, voters are finally being alerted to how Bidenomics is benefiting them personally.  

Backlash Litany

            Much of what has become known as "Bidenomics" involves direct involvement of the government in the workings of the economy.  This has prompted Republican pundits and politicians to bemoan the expansion of government, reflexively using the standard litany: wasteful government spending, tax and spend liberalism, and, when they're really lathered up, "Socialism."   And yet they are first in line when the ribbon cuttings are in their state!

            Because this reflexive litany, particularly the socialist label, is so prevalent in republican discourse, we can infer that it must earn substantial acceptance in focus groups.  Actually, however, Bidenomics is pro-capitalism.  Modern capitalism requires an efficient public sector.  Bidenomics invests in public sector projects designed to aid the functioning of the private market system; these are investments the private market won’t make on its own.    

 Consider a few examples of how Bidenomics complements the market.       

             Streets, roads, and bridges.    Transportation networks complement the market system by enabling the movement of goods, services, and people.  Society has chosen in nearly every case to have these transportation elements provided by government.  Moreover, unlike market goods that typically are financed with revenue from prices buyers pay, these transportation elements are paid for by taxes.    Unlike President Trump, who kept promising -- but not delivering -- "infrastructure week," President Biden has begun to deliver an infrastructure decade.

            Broadband internet service.  The result of providing Internet by private firms was predictable: putting people in rural areas as well as poor people in urban areas at a great disadvantage in business competition and educational achievement. In rural areas there are typically great distances between people; the market "cost-recovery" price would have to be very high to stretch the service to them.  Although urban citizens live more compactly, for many affordability is still a problem.  

            Under Bidenomics, serving all these people becomes a public responsibility.  The largest asset the nation has is the talent of its people, and internet access is crucial to the development of that talent. 

            Wind and solar energy.  The "free market model" developed over 250 years beginning with Adam Smith makes it clear that competitive firms have an incentive to reduce the cost of production and distribution of their products by emitting greenhouse gases.   A competitive free market will not control emissions;  just the opposite.  The quality of the atmosphere is a public good; preserving it becomes a public responsibility.

            Those same principles of economics suggest two ways to address the emissions problem, either by taxing emissions to reduce their profitability or by subsidizing substitute cleaner forms of energy.   The first option meets with public hostility, so Bidenomics addresses the emissions problem by subsidizing the installation of wind and solar energy sources in order to speed up the transition away from fossil fuels.  

            Battery Technology.  One part of the Bidenomics project is to subsidize US firms to speed up the discovery and rapid development of battery technology.  The policy aim is to permit a motorist to charge the EV battery in a matter of minutes and to get a much longer range between charges. Why won't the free market produce batteries for the increasingly popular electric vehicles, or "EVs?"   A couple of reasons. First is the emergency nature of the effort to reduce carbon dioxide emissions by fifty percent by 2030.  Secondly, some of the rare earth metals necessary to make batteries come from unstable and hostile parts of the world. Consequently, what is needed is an effort the scale and scope of the Manhattan Project.    There will be plenty of work for the firms in a competitive marketplace once the battery discoveries are made available.  

            On shoring and "Friend shoring" of MicroChips.   Most modern appliances and heavy equipment -- washing machines, refrigerators, new cars, and farm equipment -- are controlled by microchips.   The Peoples Republic of China is capable of providing all the chips to meet the US Industry and military needs and do it at lower costs than other trading partners.   However, as was demonstrated during the pandemic, microchips from China are vulnerable to cut-off.  Such cutoffs would recur in a new pandemic, and certainly if hostilities broke out.   As free-market principles demonstrate, we cannot leave such strategic matters up to the free market.   Consequently, part of Bidenomics includes expanding the manufacturing of chips within the United States.

            $35 Price cap on insulin.  Insulin is a lifesaving drug for diabetics. Despite being invented over 100 years ago, contemporary variants of insulin are patented, providing producers with protection from competition.  Before Bidenomics, the price of insulin was very high, often $1000 a month, well above what's necessary for a fair rate of return.  Diabetic patients clearly do not enjoy the benefits of a free market, competitive ideal.  Instead, a government-imposed price ceiling of $35 per month can produce the ideal outcome when the monopolized market mechanism will not. 

Bidenomics is Pro Market

            The United States economy has always been an interrelationship between the public and private sectors. As the free-market principles of economics demonstrate, one cannot rely on free markets when the preconditions for efficiency do not exist. Much of the public debate is over how economic responsibilities are divided between the two sectors.

            As the above examples show, Bidenomics blends the powerful forces of the market with government investment in the provision of physical and social infrastructure, as well as regulations that redirect these market forces to the common good.  This happens best when the public sector is directed by representative government, while the private sector is directed by the price system.

             

 

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INVEST IN UW; INVEST IN WISCONSIN'S FUTURE

             The University of Wisconsin-Madison is recognized throughout the world as a premier research university.  Sixty years ago, to serve the growing post-WWII demand created by a more complex economy, this grand university was joined by two- and four-year college campuses to form the UW System of universities that also became one of the best in the United States.   Now  State Assembly Speaker Robin Vos has declared that he is "embarrassed" to be a graduate of the UW system. His reason: DEI, the system’s extraordinary efforts to attract, retain and educate students from deprived backgrounds  through its program of "Diversity, Equity, and Inclusion."  The goal of DEI is to increase access and achievement through targeted advising on courses, study skills, tutoring, opportunities, and skills for thriving in the huge, unusual environment of a modern research university.    

             What the Speaker should be embarrassed about is the state's underfunding of the faculty and facilities of the system.   Funding per student in the UW System now ranks 43rd in the nation with no relief in sight in the recently-passed state budget.  Moreover, despite the pandemic-induced inflation of roughly 13% over 18 months, the faculty and staff were awarded a mere 2% salary increase in the current budget, even after a decade without any salary increase.   Chronic underfunding will continue to cause serious damage to the competitive position of the University in the academic world. In turn, it will diminish the opportunities for the business community to hire highly-educated graduates, and  to engage in collaborative projects with university personnel.   

Two Episodes of Disinvestment

            Two recent episodes illustrate this hostility to the UW system and its missions of research, teaching, and service:  denial of funding for the proposed UW Madison  Engineering Building, and the deteriorating budget for UWM.                         

            Proposed UW Engineering Building  

            Despite the state’s current surplus of $7 billion, the gerrymandered, non-representative legislature has failed to include in the current budget UW-Madison’s proposal to construct a new state-of-the-art engineering facility.     Currently, Wisconsin has hundreds of students in the queue seeking training in engineering, and employers wanting to hire them; this new facility would add significantly to the capacity to meet that demand.

            UWM

            Meanwhile,  UW Milwaukee is one of the greatest institutions in the country for the upward mobility of its graduates.   Moreover, the Carnegie Foundation now ranks UWM Research Tier One, the top ranking  (aka "R-1").   Despite its success,  UW – Milwaukee’s budget is being seriously neglected.  Between 2015 and 2020, its main-campus faculty numbers dropped by 24%.     One consequence:   the highly productive Milwaukee Institute of Drug Discovery once had a seasoned, full-time leader with expertise in translating bench research into new drugs.  Today,  an excellent faculty member struggles part-time to lead the Institute.  Another:  the space-strapped University received no support for its plan to renovate a vacant former hospital as new space for its College of Health Sciences. 

                Former UW-System President Ray Cross once observed that the future of Wisconsin runs through UW-Milwaukee, recognizing the centrality of Milwaukee in Wisconsin’s economy.  That future seems a long way off unless the University receives needed funding. 

 Research multiplier

            Often overlooked:  because  UW research professors collaborate with researchers around the world, they provide a kind of multiplier effect supporting the local and regional economy.     These relationships expand the scale and scope of the knowledge resources available to the home state university and its stakeholders, including the business community that wants and needs to hire its graduates.    Cutting-edge education is particularly important for advanced manufacturing and technology firms that want to locate within the state but to do so require a robust supply of engineering and science graduates.   

            The 21st-century economy is a knowledge-based economy in which universities and colleges play the central role in preparing the future workforce.  Competition within this global economy certainly does occur between nations.  But it also takes place between states and communities within nations. Wise investments in vocational and technical schools has brought that spending up to 4rth in the nation on a per student basis. State Investment in the UW should be brought up to the same standard:  up from 43rd to 44th.

            Another facet of the competition:  universities elsewhere have made sustained, cutting-edge investment in their engineering & science programs, an attractor of top students from Wisconsin.    Once top students earn degrees in other states, they seldom return to Wisconsin to pursue their careers, raise families, and contribute to local economies.

 Surplus is transitory; invest in educational assets

              The state  $7 B budget surplus was due to the in-pouring of federal stimulus money in response to the pandemic.  Surpluses generated by such emergencies are unlikely in the future.      Fortunately, a transitory surplus can be converted to a more permanent economic benefit by investing in long-lived productive assets.   The proposed engineering school at Madison and a restored and expanded UWM are just such investments.     

             

  

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THE THREAT OF DEFAULT AS POLITICAL STRATEGY: THE POLITICAL BUSINESS CYCLE

           The debt ceiling issue has been resolved for now. But before we move on from this episode, let’s reflect on the recent history of the debt-ceiling law and its negative impact on rational economic policy. Perhaps a clearer understanding of the law would help us get rid of it. 

         First,  the debt ceiling law is a cap on the amount the government can borrow even when borrowing would be necessary to meet all the spending commitments Congress has made. The cap would force the government to renege, or "default," on its obligations. The nation came close to default in early June 2023, but this was forestalled by bipartisan agreement to lift the ceiling until 2025.  

         Second, the nation was brought to this crisis by Republicans. That is, the application of the law is asymmetric: Democrats do not impose pre-conditions for raising the ceiling when Republicans occupy the White House, yet  Republicans do impose pre-conditions when Democrats occupy the White House.   This practice is long-standing and has become known as "the political business cycle."

         For example, prior to this latest default threat, the debt ceiling was raised three times during the Trump administration, in 2017, 2018, and 2019, without any default threat at all. The first two of these debt-ceiling increases were approved on a bipartisan basis without any pre-conditions; the 2019 increase was approved on a bipartisan basis, offset by a $77 billion cut in administrative spending.

 

The Economics Behind the Strategy

          This asymmetric political business cycle strategy relies on macroeconomics, a branch of economics designed as a tool for good -- achieving full employment with low inflation – – but which, like any tool,  can be abused. 

A closer look at core economic principles will show why the political business cycle works.  First, national product equals the total value of all the goods and services that people produce and distribute. This total derives from the huge number of daily trades between foreign and domestic individuals, business firms, and government agencies.  

          Second, all spending is someone's income. When a good or service is purchased, money is exchanged to reward the people who made, distributed, and provided for the sale of that good or service.

         Third, all spending is comprised of four categories: consumption, private sector investment, government spending, and net exports. If the total of these spending categories rises, the total demand for goods and services rises, thereby generating more jobs and income for those producing the goods and services.    In this scenario, the improvement in economic conditions improves the political prospects for the party in the White House.

         If, on the other hand, the rate of total spending is decreased, then the opposite is true; demand for goods and services will decline, as will the demand for the people who produce those goods and services.  Here the political prospects worsen for the party in the White House.

         The political business cycle strategy works because government spending -- a key component of total spending – is determined by policy.  Sure enough,   during Republican presidential administrations -- Reagan/Bush '41,  Bush '43, and Trump -- the debt ceiling was raised and spending on defense and non-defense categories rose.  By contrast, during Democratic presidential administrations --Clinton,  Obama and the Biden years thus far -- we have a curtailment in the rate of spending and, in the case of Obama, an out-right decline.     Moreover, those increases in the debt ceiling during Republican administrations --  three times during the Trump administration and several times during the Reagan Bush and GW Bush administrations -- were all with bi-partisan votes.  So, the debt ceiling weapon is available to both parties, but only one uses it.

 Return to "Regular Order"

         Regular order is the systematic assembling of information prior to legislative action. During regular order congressional committees gather supporting documentation and hold hearings compiling expert testimony from specialist members of Congress, experts within the federal agencies, and from think tanks and universities.  During regular order, each bill that is considered has a fiscal note or scorecard provided by the Congressional Budget Office so Congress knows the price of what they are proposing and how it will be financed.

          The ability to impose a debt ceiling enables members of Congress with far less expertise on any given subject to nullify the more rigorous procedures of regular order. The debt-ceiling law enables less qualified members to sabotage the work of those who participate in regular order.   

         To paraphrase Henry the Second, " Will No One Rid Us of this Meddlesome Law?"        

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Fiscal Insurrection

         

As the nation approached it's 31.4 trillion dollar debt limit, Steve Scalise (R-LA) House Majority Leader and leading figure in the "Freedom Caucus," stepped up to a bank of microphones and in 90 seconds demonstrated dangerous economic misunderstanding about borrowing and the debt.   He asserted that the nation must stop borrowing money it does not have; it must live within its limits like a family with a credit card limit; and that somehow Joe Biden is the one responsible for the size of run-away deficits.

         Because failure to raise the debt ceiling would cause a worldwide economic disaster, ceilings have always been raised, sometimes with 11th-hour deals.  However, this time seems different:  never before have such ignorant legislators,  with such powerful anti-government reflexes, wielded such strong influence.   Perhaps a fail-safe exists among the 18 republican members of Congress who won their elections narrowly in districts that Joe Biden carried in 2020. Perhaps enough of these members – – it would only take six – – could be persuaded to vote with the 212 democratic members to pass legislation to raise the debt ceiling. 

          

It's About Time

         Scalise exhibited no understanding of the debt ceiling, nor any understanding of the role of borrowing in a market economy.  He announced that the country must stop spending money we don't have. This statement reflects a fundamental misunderstanding of what borrowing is! All borrowed money is money the borrower doesn't have; the lender has it.  If the borrower is willing to pay the lender a price   – – called interest – –  for the privilege of using the lender's money for an agreed amount of time, then the borrower can spend that amount much earlier than would be possible without the loan.   The "capital market" enables borrowers and lenders to create a mutually advantageous trade, e.g., when a borrower purchases a home or a car and the lender earns interest payments and the eventual return of the borrowed money. Borrowers borrow precisely because they don't have the money but do have an important investment opportunity.  

Credit card balance limits are raised all the time

         Scalise also sought an analogy in the limit on credit card balances as if they serve as immutable limits on consumer credit. They don't; credit card limits are raised regularly for the very important reason that lenders want to earn more within reasonable risk. When family incomes grow,  the total credit available in the banking system can be increased, especially to borrow money for long-lived productive assets like houses, cars, and education. Such assets enhance borrower productivity and income, raising living standards as well as the ability to repay the loan.

         Among all the advanced economies, often referred to as the Group of Seven, or "G7," the United States has the lowest post-pandemic inflation rate, the highest economic growth rate,  the lowest unemployment rate, and a robust rate of innovation in such key areas as computer software and mRNA vaccines.  Consequently, like the household that earns increases in its credit card limits, the United States government regularly demonstrates its credit worthiness around the world, as is reflected in the low-interest rate it is now paying in order to borrow; a condition that would be reversed should the US breach the debt ceiling.

          To curtail spending, Scalise and the Freedom Caucus want to cut the "runaway spending" of the Biden administration, including the $1.7 trillion infrastructure spending over 10 years.    However, borrowing to finance the building, maintenance, and repair of long-lived productive assets -- e.g.,  streets roads, sewer water, public buildings, ports harbors, bridges -- Home figure quit fucking around send it borrowing makes a great deal of sense. Such productive public assets will last a long time and when in good repair, they add to the national productivity, income, and wealth.  It makes sense to borrow and let future generations help to repay the cost of the infrastructure as they use it.   

 

Blaming Biden for Deficits while Ignoring Trump's much larger deficits.   How convenient!

         Contrary to Scalise's assertion, the Biden administration has brought the deficit down by a greater amount and faster than any administration in history. Of course, that is because Trump drove up the debt by a greater amount and faster than any administration in history.   Trump added over $8 trillion to the national debt in just four years. Trump's pre-pandemic deficit was $3.1 Trillion for Fiscal Year 2020 (10/1/2019 to 9/30/2020; Federal Fiscal Years run from October 1 of the preceding calendar year to September 30). His final budget included his final deficit of $2.8 Trillion for FY 2021.  The first Biden budget resulted in an FY 2022 deficit of only $118 Billion dollars,  cutting it by more than half in just one fiscal year, just what the Freedom Caucus claims it wants.    

 

William L. Holahan is Emeritus Professor and former Chair of Economics at the University of Wisconsin-Milwaukee.

  

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