Category Archives: Economics

Musings on how we make decisions, how we got here and what to do.

Economics, Politics

Raisin Raison

“They [The makers of our Constitution] … conferred the right to be let alone—the most comprehensive of rights and the right most valued by civilized men.” – Justice Louis Bradeis, dissenting Olmstead v. United States [1]

To what are we entitled?  To what do we have a right?  If someone works earnestly and diligently at their job, came to the position honestly, fulfills all the requirements of that job and gets a great performance review … every year… well, should they get to keep that job?

What if you run a business that manufactures, produces or supplies a product or service?  What if, at some point during the year the government could come and demand a percentage of what you produce?  Up to 47% of your output?  And what if they could pay you whatever they wanted for that confiscation?  Even down to zero dollars and zero cents?

Last month the Supreme Court was in the news. The news frenzy and activist buzzing about the two Same-sex Marriage cases caused most to miss a case of some importance – the Raisin Case, or Horne v United States Department of Agriculture.

Raisins?  Really?  Yes.

California is the most prolific grape producing region in the world.  They produce over 99.5% of the US and over 40% of the world’s supply.  And, surprisingly, more of those grapes go to producing raisins than wine.  Each year, raisin “handlers” are required to “transfer” to the US Government whatever percentage the Raisin Administration Committee (RAC) dictates.

Who is the RAC?  It operates within the Agricultural Marketing Service.  Who are they?  Part of the United States Department of Agriculture.  What do they do with the raisins?  Whatever they want, including destroy them.  More often they are given away, quite often to school lunch programs.

How much do they pay the raisin producers for the product they take?  As little as they want.  Some years it is nothing, nil, nada, nichts, niente.  Zip. Zero. Rien for the raisins.

How is this even possible?  Way back during the Great Depression the US Government executed control grabs of large parts of the economy.  The Agricultural Marketing Agreement Act of 1937 strengthened the marketing agreement segment of the first Agricultural Agreement Act of 1933, allowing the government to basically do anything in terms of setting prices – including controlling production, storage, supply and demand of most agricultural products.  Including raisins.

By controlling the prices of produce – through central planning – the government believed they could keep farmers from going broke and city people from starving.  The 1930s were terrible and awful and I’m not about to blame the FDR New Dealers for trying to intercede. But that was 80 years ago.

The price of raisins – actually monitoring the price and nudging the price by controlling supply and demand – has remained a government function ever since.

California farmers Mavin and Laura Horne had to turn over 47% of their crop in 2002.  That year they changed their business model so that – they believed – they could keep the fruits of their labor.  In 2003 the set-aside was 30%.  The Hornes sold their product and didn’t turn anything over to the government. They put all 3 tons of raisins on the market.

They were promptly charged nearly half a million dollars by the government, for the projected market value of 30% of their raisins, and an additional $200,000 in fines.

Their case ended up in front of the San Francisco based 9th Circuit Court of Appeals, pretty widely regarded as the most liberal court in the country [2].  The Court ruled that the Horne’s had no standing in court (meaning they might be right or wrong, but it doesn’t matter since their case does not belong in court) since they never paid the fee or the fine ~:-\.  In other words, they had to pay the fees and fines (a lot of money) and THEN go to court.

The case, including their standing, finally made it to the Supreme Court last month.  A key part of the argument is the 5th Amendment’s “takings clause” —  and that is “… nor shall private property be taken for public use, without just compensation.”

The Supreme Court has a history of standing on its head to support expanded powers for government, from local to federal.  In the last significant “takings” case, the court supported a forced transfer from one private individual to another private individual when done by a municipality [Kelo v New London (CT)].  In 1942 the court upheld the USDA’s dictating that a farmer could not even grow wheat to feed to his livestock (Wickard v Filburn) and in 2012 the court upheld the PPACA (Patient Protection and Affordable Care Act) by loosely interpreting a payment clearly intended to be a penalty as, instead, a tax.

That is to say: Don’t expect a sweeping decision in favor of individual rights, and in favor of the Hornes and the raisin producers and handlers of California, many of them family businesses like the Hornes’.

But even the court’s liberals realize that there probably should be some practical limits to the scope of government’s powers.  Elena Kagan said that it was “either unconstitutional, or it’s the world’s most outdated law.”  Stephen Breyer: ““I can’t believe that Congress wanted the taxpayers to pay for a program that’s going to mean they have to pay higher prices as consumers.”

I expect a narrow ruling. The court will send the case back to the 9th Circuit with instructions that the Hornes do indeed have standing.  In other words: the Hornes might have been wronged.  But this is only one unique case and the government retains broad sweeping power to take property, control supply, prop up demand and run a centrally planned economy if they think it’s the right thing to do and in our best interest.

Back to Stephen Breyer’s very insightful comments.  We as taxpayers are paying for this confiscation program.  We pay for salaries, and office space and computers and IT personnel and lawyers.

We can agree that everyone at the Raisin Administration committee probably works hard and is a good person, but – sorry for the pun – just what is their raison d’ etre?  Surely a job that produces nothing – but takes, confiscates, re-distributes – and puts a drag on the economy while suppressing individual freedom needs to be eliminated.

And one wonders: how many more of these committees and administrations and agencies are hidden within our gargantuan government?

“Experience should teach us to be most on our guard to protect liberty when the Government’s purposes are beneficent. … The greatest dangers to liberty lurk in insidious encroachment by men of zeal, well-meaning, but without understanding.” –  Justice Louis D. Brandeis, dissenting, Olmstead v. United States

I wish you peace and freedom.  Including freedom from oppressive Government

Joe Girard © 2013

[1] Olmstead v. United States, Dissenting Opinion, 277 U.S. 438 (1928)

[2] http://www.calcontrk.org/news/1086-april-2012/1954-us-supreme-court-rejects-most-decisions-by-the-us-9th-circuit-court-of-appeals

[3] http://reason.com/archives/2013/03/23/supreme-court-may-put-an-end-to-governme

Current Events, Economics

Street Dancing

Driving around Arlington and Falls Church, VA today, only a spit from the District, especially with gusty winds.  One thing we spotted around town, as back home in Colorado, was panhandlers at traffic lights, looking pathetic and holding up signs “Homeless, Hungry, please help”, “Anything Helps.  God Bless” and the like.  What was interesting is that in many cases just across the street, or  50 meters down the street, was another person dressed up like the Statue of Liberty, or Uncle Sam, or a Giant Dollar Bill, or an Eagle, also with signs, encouraging passersby to drop in and get their income tax forms filled out by a tax service.

There seems to be some controversy as to how long the tax code is.  The US tax code — that is Title 26 of the US Code of Federal Regulations — is some 13,000 pages long (Reference here, and at www.gpo.gov).  But to really understand it, you’ll need to read all the commentary on adjudications and judgments, bringing the tally to nearly 80,000 pages.

Really?  No wonder people are intimidated and feel like they have to succumb to a solicitation of someone dressed up like a statue.  Ironic, isn’t it, that the “sign flipper” encouraging people to drop in to get their Form 1040, Schedule A, B, C and D, and perhaps all those 1099 forms sorted out is dressed up like the STATUE of LIBERTY — the very symbol of freedom in America?  And we are so beholden to a tax code so long and incomprehensible — and a federal organization so intimidating: The IRS — that we pay billions of dollars to such companies like H&R Block and Liberty Taxes to help ensure that we compute our taxes correctly and don’t end up in a small room with an IRS auditor.

I don’t know if Herman Cain’s 9-9-9 plan would have worked.  Maybe 17-17-9 (sounds like a fertilizer maybe, no?).  But a massive overhaul and simplification has got to be in everyone’s best interest — except of course the “special interests.”  And it would free up more money for investment and saving.  The Laffer Center estimates the cost of confusing and convoluted tax regulation at close to half a trillion dollars a year, over $30 billion of which goes to professional services like the company paying the guy to dress up like a statue and flip signs.  No wonder they can afford to pay someone $8 or $10 per hour to stand out in the cold wind and flip signs while looking silly.

I’m  looking at the homeless guys on street corners holding signs in a whole new light.  At least they don’t represent legal efforts to unproductively suck billions of dollars from the economy.

I’d still rather just give them a pair of socks and a granola bar.  A lot less than my accountant.

Joe Girard © 2013

 

 

Economics

Lucy the Ciggy

(Berkeley Springs, WV) I really enjoy having intelligent adult children.  I learn a lot from them; if I can get them to talk; and if I can shut up long enough to really listen.

_______________________________________________________________

One of the quaint and pleasant things I enjoy about traveling is listening to how people politely address a stranger.  In the Midwest, it is often a simple “hey.”  In some parts of Texas it is a “How-DEE”, almost like a question.  In southern England you might get plenty of love: “yes love”, “can I help you love?”  Pre-noon in German towns it is a sing-songy “morgen” — short for Guten Morgen, with the voice going up on the second syllable, again, almost like a question.

Here in the hills of the Northeast corner of West Virginia, you are likely to be called “honey” by just about any lady in any store or restaurant.  A polite and simple way to say “hey”, “how-DEE” or “love.”

In New York City, greetings between strangers might go something like “how about a Loosey?”  (Pronounced “Lucy”).  This would be a single cigarette, a “loose” cigarette, out of its pack … perhaps even a Marlborough, America’s most popular brand.

Of course, a dollar would be expected in exchange.  The going price for a Lucy.  A tip for a good provider might bring him $2.

New York has the highest price for a pack of cigarettes in the nation.  Due to its taxation. Add on to that an additional tax imposed by the City, and New Yorkers pay about $13 per pack of cigarettes.  Across the river in New Jersey, the cost is about $6 or $7.

Homeless residents of the area transport cigarettes across the river and sell them at a 200% mark up, selling them one at a time, a buck a piece (fetching $20/pack by selling $1 at a time, for an average $6.50 investment).  This is an economic niche created by high taxation, truly an unintended consequence.  The ad hoc distribution system serves multiple needs, joining providers and consumers in a beauty that surely brings a smile to Adam Smith’s ghost.

First, it provides low-risk income to homeless.  They distribute it from serve-yourself pockets on the sides of their backpacks.  Transactions are cash only.  They can spend, save or re-invest anyway they choose.  They provide a service and product, and get paid in return.  The downside is minimal, as court dockets are jammed with petty criminal cases.  At worst, it’s a night in jail, complete with warm bed, shower, and a couple of meals.

Second, it provides casual smokers — those who seek a moment of secret pleasure on the way from home to work, or vice versa, or between meetings — a chance to suck down a quick smoke.  A complete pack would be too large an investment, too difficult to hide.  Too cumbersome to carry around.

Third, it provides an outlet for loose cash that would otherwise go to simple beggars and street car window washers.

In this way, the governments of the city and state of New York have essentially subsidized the state of New Jersey at their own expense (by sending cigarette sales across the river), spawned a homeless-based supply industry, and provided extra cigarettes to casual and light smokers who might otherwise be smoking less — or not at all.  And by raising taxes so high, they have tremendously raised taxes on the working poor, those who can least afford it; raised taxes on those who can’t afford a buck a smoke and can’t afford the time or money to go across the river.  But can’t stop smoking, nonetheless.

As the NYC Lucy smuggling industry grows, no doubt there will be growing pains.  There will be conflicts. Territory wars and battles will break out.  More homeless will descend on NYC.  The courts will be ever more burdened by enforcement of feel-good freedom-restricting legislation.  All for our own good.  Right.

This is not unlike so many other government efforts to make things better, only to achieve the opposite … or at least gain pitiful minor progress toward the expressed goal, with pathetic underachievements when measured against the funds and social capital expended.  This list includes rent control, affordable housing, minimum wage, racial quotas and the Department of Education.

I love the law of unintended consequences.  And I love having brilliant children.

Joe Girard © 2013

Note: with gratitude for my sons Aaron and Kurt, who had the patience to explain most of this to me.  And to Thomas Sowell, for clearly explaining, over-and-over, how the good intentions in Government action often blind us to the negative consequences of those actions.

Additional Sources:

[1] Cigarettes and Taxes in NY state and city. — NY Times

[2] Cit Taxes in NY State and City — NY State Gov’t

[3] 60% of Cigarettes sold in NY are smuggled — CNN

Current Events, Economics

Sowell on Sequestration

Thomas Sowell has a way of explaining things to bring them into clearer focus. Even though most of us weren’t lucky enough to be among his students in our own college careers, he still writes columns and books, giving us the opportunity to be his students now.

Budget Politics
by Thomas Sowell

“Back in my teaching days, many years ago, one of the things I liked to ask the class to consider was this: Imagine a government agency with only two tasks: (1) building statues of Benedict Arnold and (2) providing life-saving medications to children. If this agency’s budget were cut, what would it do?”

Read the rest at TownHall

Economics

Sequester This!

Ok, I admit I was wrong.  The strategy might have been correct, but the tactic was not.

I was thinking that this never-ending financial morass could be approached by finding a way to get everyone to have “skin in the game.”   Where we stand now is that everyone thinks that everyone else is the problem.  For example, here’s President Obama at a press conference today (3/1/2013) to (finally) address the “sequestration.”

“I’m presenting a fair deal. The fact that they don’t take it means that I should somehow, ah, uh, you know, do a Jedi Mind Meld with these folks and convince them to do what’s right.” [4]

Let’s overlook the fact the president somehow mixed Star Wars with Star Trek and observe that it’s really not surprising at all that he is still convinced he’s right and “these folks [Republicans]” are wrong.  It’s emblematic of our nation at large that our leader has not changed his “I’m right; you’re wrong” and “I won; you lost” tune since he took office in 2009 and told the opposition to “eat your peas.”  He’s no better or worse than all of us.

Way back in 2001, when Republicans were gleefully spiking the football after successfully passing the so-called “Bush Tax cuts” – via reconciliation mind you (actually the Economic Growth and Tax Relief Reconciliation Act of 2001) — the taxes paid by many Americans fell to effectively zero.  Many others in the middle class fell so low that, as they say, they had no skin in the game.

Social liberals were screaming about the billionaires’ tax cuts, without mentioning these factoids.  Tax rates fell so much that the percentage of income tax paid by “the rich” (top 1% of earners) went from 29% to 33.7% of all individual income tax collected.  And the top 50% of earners paid virtually 100% of all income tax.[1]

And tax hawks were soon crowing about the fact that government revenues were not significantly affected.  Removing the effects of the 2000-01 recession and the shock waves of the 9/11 attacks, and revenues were back on track with where they had been.  By 2006 and 2007, government tax receipts were at record levels.[2]   

So what happened?  We spent.  And spent. And spent.  The double war adventure cost over $1 trillion. Where did the rest go?  We expanded government.  Raised salaries.  Bush himself had a failed stimulus in May 2008 when he and Treasury persuaded congress to give huge checks to most families and wage earners.  That Republican delusional dump cost us over $150 Billion in one fell swoop.  Who even remembers that, or what they did with the money?[3]   I’m not saying all of that was bad.  What was bad was this: we set up the expectation that someone else would pay for it.  All of it.

 

Now we over-spend and under-tax.  Government spending is up 115% since 2000.  Even with all the “Bush cuts”, revenue is up 43% [2].

 

I think I am still right about “skin in the game.”  The thing is, we need to face this all together, like we handled World War II.  Right up to Pearl Harbor, our population was rife with vehement isolationists and America Firsters.  Yeah, Hitler and Hirohito and el Duce were evil, but it was none of our business.  Then December 7.  We rallied.  We sacrificed.  We rationed everything, from sugar, to metal to gasoline.  For four years.

Now there is no shared sacrifice and a pervasive attitude that it’s someone else, or some other class that needs to pay more in taxes.  It’s the other side (“these people”) who are unreasonable.

It’s not that I was wrong in thinking everyone needs to pay more taxes, this in an effort to get everyone to pay more attention to our government’s dismal budgetary failure as much as raise revenue. It’s that I was silly to think this was remotely possible in the current acrimonious partisan circus we call American politics.

That’s why I’ve come to think that this Sequestration is actually a fantastic idea.  And the weird corollary is that Obama should actually be taking credit for it.

Problem statement: We’ll spend $4 Trillion, but will collect about $3 Trillion in revenue (very round numbers) this year.  Only about 40% of spending is discretionary.  Solution statement: Cut 3% of discretionary spending now.  Then next year, when again there is no meaningful deal, cut another 3%.  Next year, cut another 3%.  At some point there will be real human pain, and justified howls – not the wolf crying we heard from the White House this past week, a feeble and pathetic substitute for actual leadership.

When we all start to feel pain and shame — long TSA lines, defunded highway refurbishment, delayed tax refunds and social security checks, battleships at the bottom of the ocean — American ingenuity, energy and pride will once again kick in.  We’ll pull together and get something done.  We can do it.  We just need one big old embarrassing kick in the pants.

Until then we’ll continue the blame game.  It’s a game we can’t afford to be playing much longer, regardless of who wins.

Keep the faith.

Joe Girard © 2013

Other Essays at Essays

Obama-squestraition-double-speak

[1] Who pays the most income tax? http://usgovinfo.about.com/od/incometaxandtheirs/a/whopaysmost.htm

[2] Summary of Receipts, Outlays and Surpluses or Deficits, 1789-2017; Table 1.1; http://www.whitehouse.gov/omb/budget/Historicals

[3] Republicans’ and Bush’s wasteful delusional stimulus of 2008: http://www.americanprogressaction.org/issues/economy/news/2011/08/31/10212/republicans-loved-stimulus-when-bush-was-in-the-white-house/

[4] President Obama Press Conference, 3/1/13: Jedhi Mindmeld.  http://www.argusleader.com/viewart/20130301/UPDATES/130301017/Videos-Obama-says-he-can-t-Jedi-mind-meld-budget-deal-

Economics, Uncategorized
Image

February 23, 2013


Regarding this recent BBC article Abenomics

    First, isn’t it time to admit that Paul Krugman is a total freaking “spend all you want, we’ll print more” ideologue, and an insolent propagator of idiocy who — with some regularity — shames the Nobel committee for selecting him in 2008?

     “Don’t like what’s trending?  Try more spending.”

     “Out of cash, and that sounds rash? Borrow like there’s no tomorrow.” 

     Historically speaking, at least in the US, flat prices to slight deflation were the general rule in this country until we had the Fed.  Why?  Easy: as we became more productive and more efficient, many prices naturally fell. 

     So, what’s good about that scene?  It encourages saving and postponing reward.  If you save a dollar today and it buys $1.01 worth of stuff next year, then why buy something if you don’t really need it?  

     This model avoids bubbles — like the tech bubble that burst in 2000-1 and the housing/stock bubble that burst in 2007-9.  It promotes investing only in things that have a good chance of paying off.  It encourages careful investment and due diligence.

     How many people invested in things they didn’t understand during the roaring 1990s and then again after 9/11 when the market went way up again?

      I’m not saying inflation is bad.  I’m saying planned inflation is bad.  It has the opposite effect.  It encourages buying NOW, since something you might want will almost assuredly be more expensive next month.  It encourages investing NOW, since the market is a bull and running away from you.  In short, it encourages less due diligence and more spontaneous buying and investing, since your savings are constantly losing money.  It discourages saving.

     I’m not saying government profligate spending is bad.  I’m saying that spending for the sake of spending — with faith that “the multiplier effect” will save us— is bad.  The US Federal government’s investing in dams in the 1930s is still paying off today!  And building the interstates system resulted in cheap truck-based transportation of goods from almost anywhere to anywhere in the country for almost 60 years now.

  The myopic belief that government spending leads to economic prosperity is partly rooted in the misguided belief that FDR’s New Deal spending and the even more massive spending during World War II led to the economic rise to powerhouse status of the halcyon 40s, 50s and 60s.

     FDR had his own recession in 1938.  The thing about massive government spending to stimulate the economy is: you don’t really know when to stop.  In the meanwhile, the spending has generated countless powerful special interests who are, literally, addicted to that money.  When FDR backed off a bit, the Depression sat upon us once again.

     World War Two gave us a wonderful economy?  Let’s see.  Couldn’t buy a new car, new tires for that car, or a new house.  Couldn’t buy nylon stockings.  Nor anything made with rubber or steel.

     Gasoline was rationed to four (that’s 4) gallons per week.  Drivers were strongly encouraged to limit speeds to 35mph.  (the Victory Speed!)

     Food? Strict rationing on meat, sugar, and cheese.  Even butter.  Shoes. Coffee.  The list is almost endless.  

     This was economic prosperity?  Sure everyone had a job and was making money.  What did they spend it on?  A lot of it went right back to the government to purchase War Bonds.  There were seven major Bond drives during the war.  And they saved.  They saved for the time when that pent up demand could be freed.

     So what led to great half-century of US economic dominance that followed?  Was it Eisenhower?  Was it the unions?  Was it the 90% marginal tax rate on high earners?  No, no and no.  When all those saved up dollars finally went to buy the cars, the houses, the nylons, the shoes, the bicycles, the dresses and slacks and coats and caps … where did they go?  

     Those dollars went to the only place they could go. To companies — and their employees and share holders — based right in the United States.  Why?  Because every other country that we know of who produces these products today were either non-producing Third World countries then (China, India, Viet Nam, Indonesia), or they had been bombed such that their industry and infrastructure were non-existent.  

     It’s time to call out Inflationists like Krugman — he who has called for an imaginary alien invasion to get the governments of the world to spend, spend, spend; he who called for the Fed’s Greenspan to inflate a housing bubble to get us out of the (mild) economic malaise we were in in 2000-2001.

Here’s to the future.  We certainly can’t go back to the past.  Prost!

Joe Girard © 2013

joe@girardmeister.com

My main essay link is still at: Essays