Invisible Hand? Or Government Intervention?

Most Economists are true believers in Adam Smith's notion that economy's are best run by the "invisible hand" of the market.  In Economic theory as the unemployment rate drops, wages should rise as workers become more in demand.  That hasn't happened since the Great Recession.  Even as unemployment has dropped steadily to near historic lows, workers wages have stayed stagnent.

Believers in the infallability of the invisible hand, noting that wages have ticked up slightly in the last few months, started arguing this is the invisible hand reflecting the fact the economy is starting to pick up.

I wonder.  For the last couple years local and state governments, in the absence of federal action, have been enacting gradual scheduled increases in the minimum wage within their jurisdictions.  The jurisdictions enacting gradual minimum wage increases include many of the largest and most dynamic areas of the country.  Does the economic data the Economist's are relying on showing an uptick in wages control for increases resulting from government mandated increases in the minimum wage?

It makes me also wonder if the high productivity and low income inequality from the mid-1950's through the early 1980's reflect the "invisible hand"?  Or did it reflect Democratic control of Congress for 24 straight years with fairly regular increases in the minimum wage and strong support for Labor Unions?  Once the Reagan Republican revolution, hostile to Labor Unions, wrested control of Congress from the Democrats wage growth slowed and inequality began rising - which it has done ever since.

Not to suggest Labor Unions are a great thing.  They tend to evolve into organizations that are antithetical to efficiency and productivity.  But Labor Unions are really just an extension of the "invisible hand".  They evolved from individual members of the economy banding together to stop management from exploiting their lack of power as individuals.  For the first decades of the labor movement, government action tended to protect management.  Even in the heyday of Labor Unions government was acting more as a referee than a planner - government never attempted to find a way to balance the power of management and labor that aligned both interests rather than making them opposing forces.

At it's core modern economic theory, including the "invisible hand", is simply survival of the fittest carried over into economic transactions.  Our evolving civilization has the demonstrated the ability to use our creativity and growing knowledge to modify "survival of the fittest" - recognizing that even in matters of self-interest cooperation is usually better than confrontation.  Economic's needs to catch up.

Democrats and the Republican Tax Plan

There is broad agreement among non-partisans the Republican tax plan is going to further blow up the deficit and undermine the strength of our economy.  Unfortunately Democrats demonizing corporations have provided cover for decades that has allowed Republicans to avoid facing the real problem.  

Corporations and Corporate taxes are not our primary economic problem.  Could they improved?  Of course.  But US economic history over the last 50 years demonstrates our fundamental economic problem isn't high corporate taxes, it is the distribution of income.

Ever since the Reagan tax cuts in 1984 our economy has been marked by two characteristics.  Rising economic inequality and asset bubbles.   Who ever heard the word "bubble" before Reagan? (Except in history books).  Constant inflation in the price of assets in the face of muted broader inflation. 

As people gather wealth at a certain point they literally have every product and service they could need or want.  What do they do with the money they receive beyond their personal wants?  They invest in existing assets.  They buy another property, or pay scores or hundreds of millions for a painting, or a rare old car.  That spending doesn't create many jobs or contribute to real growth.  In terms of generating economic growth they might as well bury that money in their backyard. 

The wealthy folks that control corporations can control the distribution of money out of the corporation.  From 1945 to 1985, when the highest tax rates for high earners in the US ranged from 70 to 90%  we had a falling deficit and a very healthy economy.  Dare we suppose it was because rich folks were loath to pay 70 to 90% of the money being paid out to them to Uncle Sam, so they left the money in the business where they could grow their wealth without such onerous tax consequences?

Economists say high marginal tax rates don't generate much income for the government.  They miss the point.  High marginal rates change behavior.  They keep more money in the circulating economy and less ends up buried in asset inflation.

Rethinking Immigration Law

At some level immigration law has always struck me as vaguely un-American.  

My basic vision of what America should be is each individual is free to do what he wants, unless his activities impact other people.  If there is potential conflict between different individuals activities, government mediates by setting rules.   So in my idealistic vision America is should be about protecting individuals from groups of people banding to use government to control the lives of other people whose activities aren't really impacting others.

The notion of "controlling our borders" is an artifact we inherited from the age of Kings and dictators who ruled by force of arms.  Certainly border checkpoints are justified where we try to identify and weed out terrorists, or smugglers, or other persons bent on fraud, theft or violence.  But why do we work so hard to keep out regular folks coming to try to improve life for their families?  That part of immigration law is always based on the most crass form of lifeboat ethics - I  got mine and I'm not sharing.  It is rooted in a view that life is a zero sum game where new folks will take from the existing population, rather than the reality in which immigrants add value to a greater society.

I think it is entirely reasonable to  have citizens who have committed to this country have the sole privilege to vote, or receive other benefits from citizenship.  But I don't think it is reasonable to set up hurdles to stop people who seek economic, political or religious freedom from coming, and staying, in this country.  

Freedom of movement about the world is is a moral issue for which we should be leader, not a naysayer.

Abortion - The Dispute that is Undermining our Democracy

Politicians have harvested the votes of folks opposed to the Roe v. Wade decision for three decades. Their resulting ability to name very conservative justices to the Supreme Court has led to the very wealthy gaining ever more power to ignore the fundamental precepts of democracy. Anonymous corporations can now pour millions of dollars into advertising to elect the candidates of their choice, even as those candidates work at making it harder for regular folks to vote. The rich get richer while regular folks often can't afford to buy a house.

(I ask my friends and relatives with whom I have agreed to disagree in the past to read and consider the following)

Please decide whether you think the following statements are true or false:

Is giving the Government the power to force women to bear children consistent with our values?  Where does an individual’s right to pursue “life, liberty and the pursuit of happiness” stop and governments control of a citizen’s life begin?

If we force a women to carry through a pregnancy don’t we owe some duty to that child to insure it has an opportunity for a good life?

Our form of government is in essence an agreement that we will each be free except to the extent our activities impact other persons.

The Ten Commandments say “thou shalt not..”   They do not say “Thou shalt not allow others to…” The 10 Commandments are God’s instructions to each of us on what we must do be meet God’s standards.  

God is the judge of whether we meet his standards, he did not delegate authority to judge sins to us.  Rather like when you leave the house and tell your kids to stay out of the cookie jar, you are telling them each as individuals the conduct you expect from them, you are not deputizing them to prevent their siblings from raiding the cookie jar - because that would surely lead to a fight.

After Moses came down with the 10 Commandments Moses people started coming to Moses with complaints about other people’s behavior and suggesting punishments.  Thus began Leviticus, an incredible collection of laws imposed, not as an agreement between the governed, but as laws of God to be enforced by man.

What made Jesus a revolutionary threat in the eyes of the Temple leaders was he rejected that notion that man was deputized to enforce God’s laws. But Jesus could directly repudiate Leviticus because the religious leaders in his time did not want their power threatened and would quickly convict him of heresy and execute him if they had enough evidence.

So Jesus did not directly repudiate Leviticus.  Instead he preached what God does want us to do - love your neighbor and live by the Golden rule.  His message was focus on your own relationship with God and stop judging others.  But occasionally Jesus couldn’t resist pointing out the silliness of all the rules that grew out of the notion in Leviticus  that God authorized man to judge what is a sins against God.  In the Sermon on the Mount, far from the Temple he let himself go a little and ridiculed a lot of the minor rules that grew out of the Leviticus notion men could determine what God wanted.

When Jesus later arrived in Jerusalem (John Chapter 8) the Temple leaders took a woman who had been found committing adultery to Jesus. They said to Jesus Leviticus says this women should be stoned to death, what do you say we should do?  Jesus realized they were trying to get him to directly repudiate Leviticus so they could imprison him. So at first he just said nothing.   They kept insisting, demanding an answer.  So Jesus gave them an answer that instead of rejecting Leviticus told them why Leviticus was wrong.  Let the person who is without sin cast the first stone.

Quite simply, Jesus's fundamental message was the laws of God are to be judged by God, not us.  Our job is to focus on our own behavior.

God has no problem with us creating laws among ourselves to create a harmonious society where people are free to pursue their life without interference from others.  God gave us a brain, he gave us the ability to be happy and enjoy life.  But those laws are rooted in protecting our ability to live the life we choose, not in judging and punishing others for their life choices.

Sometimes our laws overlap with Gods.  We have laws against conduct  - like murder, or theft - that has a negative impact on other people because when one person commits such an act against another person it creates anger and leads to a like response. And it interferes with the victims right to live their life. But we must guard against doing exactly what Jesus advised against - assuming the right to judge sin.

If a women in your community has an abortion it has no negative consequences on any other person in the community - it does not generally raise the possibility of someone lashing out in anger or seeking revenge.   It may be a sin but it is God who will judge that sin.

You may be concerned about the life of the fetus. You think it is somehow your duty to save the fetus. Here are some questions about that view.

1. Is not God all powerful? Does he need your help to deal with an abortion in his own way?

2. Does a fetus have a soul? If you believe the answer is yes ask yourself :
Does the soul of an aborted fetus go to heaven, or to hell?
How can a fetus commit a sin?
If it can't commit a sin do you believe God will condemn the fetus for the sins of the mother?

If an aborted fetus is going to heaven - what are you saving it for?
The chance to live life with a mother than doesn't want it so it can commit some sin and go to hell?

b. If the fetus does not have a soul until, as Genesis suggests, God breathes in the breath of life, it is the mother's soul who is at risk, and you are choosing to stand in judgment and take away the mother's right to make choices in life.

Compare to the issue of control A gun is a tool whose only real purpose is to take life.  Tens of thousands of children and adults lose their life each year to gun violence.  Regulating guns is a legitimate subject for law because it impacts living souls.

When you focus your efforts using the power of government to force a change in the behavior of women whom you judge are about to commit a sin, you reject Jesus in the same way the Temple establishment rejected Jesus.  You are focusing on forcing people not to sin instead of focusing on the Golden Rule and treating others as you would like to be treated.  

Health Care is not a Right

Saying health care is a right is drives a wedge down the middle of the health care debate rather than pulling people together for a solution.  

In our democracy rights are what we should all be absolutely entitled to do as part of being able to control our own life.  Rights are absolute except to the extent our exercise of our rights impinges on the rights of some other person or persons.  In that case the parties negotiate a compromise, or society sets up rules to govern how the competing rights balance.

Health care, by definition, is one person being helped by another person. 

Forcing a person or persons to provide health care for someone else is - well - dictatorial. Smacks of slavery.  It is a denial of the other person's rights to make their own choices about life.

That's not to say universal health care is not a laudable goal and an enlightened idea.  But it is not a right, it is something we as a society chose to do because we perceive t benefits us all.

Congress - Fix the Housing Market You Broke

In 1996, having just taken control of both houses of Congress for the first time in 40 years, Republicans pushed through a big tax cut bill.  One of the provisions buried in the bill that didn't get a lot of attention was a big change in how a personal residence is taxed.

Prior to 1996 if you bought a house and then sold it for a gain, you had to pay Capital Gains taxes.  However, if the home was your personal residence and you used the sale proceeds to buy a new personal residence you had no tax obligation.  For generations regular folk had bought a house, as the family grew or their needs changed they were free to upgrade to a bigger house without paying Capital Gains taxes when they rolled the money over into a better house.  Once they were over 55 homeowners had a one time opportunity to downsize to a smaller home, and they could keep up to hundreds of thousands of dollars of what they got in the sale that exceeded the cost of their new home to fund their retirement.  It was a big part of how regular people funded their retirement.

Speculators, on the other hand, prior to 1996, had to pay Capital Gains taxes when they bought houses and rolled them over to make a profit, which discouraged speculation on housing.

Republicans dumped this system that had worked for generations.  Their new system allowed you to sell your house at any point in life and $250,000 (or more) in gain was exempt from taxes.  

So what does history reveal about the wisdom of this change? 

Speculators almost immediately spotted the opportunity.   The price of the average house began rising far faster than average income because speculators were buying houses to flip to take advantage of this huge tax benefit.  Within a couple years you could hardly change a channel on the television without finding another program about how to get rich flipping houses.  People wanting to buy a house to live in had to take bigger and bigger loans to afford a house, and the frenzy in the housing market was one of the most direct causes for the financial collapse that began in 2006.

The financial collapse brought housing prices down considerably (although prices were still significantly higher than the long term average of price to income).   A lot of the house flippers got clobbered and lost places to foreclosure along with a lot of regular folks just trying to afford a house.  But the landlords sitting on the sidelines saw a great opportunity and began snatching up houses to rent and driving the prices back up again.  

Now, 20 years later, people who want to buy a house pay a much bigger chunk of their income, and have far less left over, than their parents or grandparents, and the only reason they can afford to buy at all is because interest rates are the lowest they have been in modern times.  Yet, despite historically low interest rates the percentage of people who own a home is well below the percentage of our parents or grandparents who owned a home.

In some markets some of the people who own a house are essentially trapped in their house. Prices have jumped so much if they want to sell to move they will have a Capital gains tax obligation that may preclude them from affording to buy another house in their neighborhood.  So folks hold on to houses way to big for them until they die, reducing supply and further driving up prices.

The worst may be yet to come.  When interest rates ever start going up housing prices will collapse.   The price of a house a family can afford is a lot less when the interest is 5% or 6% than it is at 3% or 4%.  So we will once again have big chunks of folks underwater on their houses.

It has also been apparent for years pension funds across the country are vastly underfunded.  

The retirement future for many folks in the US does not look rosy.

The economic health of our country is at risk and regular folks are getting screwed because in 1996 Republicans wanted to close a budget deficit at the expense of regular folk instead of taxing people with real wealth.

Trump - Part 4 - Less regulation

President Trump and the Republican Congress, as the supplement to their claim reducing taxes will boost the economy, say we also need to reduce regulation.  This idea also has been a Republican staple since at least the 1920's..

While the notion tax cuts are what we need right now is a fantasy, there is some merit to looking at reducing legislation.  However, we first have to draw a distinction.  

Nobody who has ever dealt with a government agency has any illusions that what they are doing is being done as efficiently as possible.  But making government agencies more efficient is time consuming drudgery, so generally that is not what politicians want to do.  They want to just abolish or cripple the regulatory effectiveness of agencies they oppose for ideological reasons.

Historically the two biggest financial collapses in our country grew directly out of ideological undermining of financial regulation.  Republicans took control of Congress in 1919 ideologically committed to "freeing" banks and financial institutions from government regulation and the promptly acted on that belief.  Greed and market pressure soon prevailed over good sense and we ended up in the great depression of the 1930's where 5000 banks failed (and their depositors lost all their savings), millions of homes were foreclosed upon, and unemployment soared to 25% of the workforce by 1933.

The next time the Republicans gained control of the Congress for a period more than two years was in 1996.  Again Republicans ideologically committed to  - yes, you guessed it - "freeing banks from burdensome regulation" - went at it with gusto.  10 years later we were sliding into the Great Recession, where huge banks had to be saved by infusions of taxpayer cash to avoid a full on depression.

Now Republicans are again claiming business needs to be free of burdensome regulations.  Given their history I can only imagine they are going to cut what works and leave alone what doesn't work.