Government too big or too little? Make up your mind!

Republicans seem to be at the forefront in complaining about "big government".  Then they turn around and complain about the Federal government not doing enough.

The attack ads and phone calls from Republicans are overwhelming about the overreach of the Affordable Care Act (Obamacare),  Among their statements are the Federal government should not be between you and your doctor.

Now Republicans in Congress are complaining that the Federal government is not doing enough about ebola.  In other words, the Federal government should get between ebola patients and their doctors.

See "Congress Scrutinizes Handling of Ebola Cases in Texas", New York Times, 2014-10-16.

If Texas secedes from the United States…

Will Texans be allowed into the United States without visas?  Will Congress be calling for stricter border controls?  Will gates have to be put at the border of the Interstates and other highways?  How long would the wait be to get from Texas into the United States on I-35 or I-10.  Would it be anything like the crossings from Canada at Sault St. Marie and the Ambassador Bridge?

Maybe many large corporations will headquarter in Texas for lower taxes and fewer regulations.  But will they have the schools and highways that have been subsidized by the United States government?  Will many Americans outside of Texas want to move to a “foreign” country?

Will Texas survive without the Federal government largesse for military bases, NASA, and border control?

These questions were raised in my mind by “From Kurdistan To Texax, Scots Spur Separatists”, Katrin Bennhold, New York Times, 2014-09-10.

Whistleblowers deflate bloated bureaucracies

There are those who think Edward Snowden and Bradley Manning have betrayed trust, and there are those who think they exposed excessive and misguided government actions.

Although an organization depends on all involved following certain rules, what should an honorable person do when he or she feels that the organization is working against the public interest?  Will reporting the problem up through the hierarchy eventually solve it?  Or will somebody block it?

In more mundane terms, think of all the problems you have had with products and services.  If you report them to the company or organization, do you really believe that you will find a champion who will right what you think is wrong?  If you think that the reported wrong will be righted, take a peek at support boards of products.  There are some problems that have been going on for years and haven't been fixed yet.

For a better look at this problem in far worse situations than inefficient software, see "The Banality of Systemic Evil", Peter Ludlow, New York Times, 2013-09-15.

A bureaucracy develops own set of rules to function "smoothly".  Think of the bureaucracy of the Titanic.  From the president of White Star Lines to Captain Edward Smith down to deck hands.  Each person had a certain set of responsibilities, but almost none of them had all the information they really needed.  Were they ready to listen to any warning advice?  Was anybody willing to report upward anything that was amiss for a safe voyage?

Did anybody make a big fuss about forward observers not having adequate lights?  Did anybody question the command "women and children only" in the partly full lifeboats?  Did anyone question the locked doors trapping steerage passengers?

Patriotism is the ultimate "bureaucracy".  Not enough of us question why we are using military force.  It is considered unpatriotic to question the government in times of war.  Amazingly, many "patriots" don't think the government can run a post office or devise regulations to protect the public.  But few of them consider that "snafu" is a military term started by the troops.  See "Military Slang", Wikipedia.

Some have said true patriots are those who resist supporting military action.  I'll leave it to you to decide whether Snowden and Manning are patriots or scoundrels.

Bring on the sequester

I really would rather not say so, but I think the sequester might be a good idea in the long term.  It might really put an end to the arguments about smaller government.

Think about it.  If the number of air traffic controllers and checkin security people are cut back, it might make air travel by business people even longer.  If the amount of money allocated to states to clear the Interstate system of snow was reduced, it might make shipping by truck more expensive.  If the number of FDA inspectors were cut back, it might cut into the sales and profits of food processing companies.  If the number of customs agents were cut back, it would reduce the volume of imported goods that so many merchants depend on.  If the number of patent examiners were cut back, it would take even longer for companies to get patents.  If the number of Federal court employees were cut back, it would take even longer for companies to make their billion-dollar suits against their competitors.

Too many people ignore all the important services that government provides for people and corporations alike.  A sequester might lead to rude awakening that we can't do without government.

Pessimistic quote of the day: responsibility for business success or failure

A small BBQ chain in Richmond went out of business.  Mitt Romney used it as an example of how the Obama administration is bad for business.  He ignores that another BBQ in Richmond is quite successful, but Romney won't give the Obama credit for its success.

"Mr. Romney’s take on Bill’s seems perfectly representative of his general outlook. If a business succeeds, the government can’t share the credit. If it fails, it’s the government’s fault."

See "Bad Barbecue? Blame Obama", Juliet Lapados, New York Times, 2012-11-02.

Can't corporations live within their means?

Many complain about government borrowing and say that government should live within its means.  But few complain about corporate borrowing.  Shouldn't corporations live within their means?

From the semi-annual report of the AllianceBernstein Income Fund (Ticker AWF):

AT&T, 6.50%, due 2037
Ford Motor Co., 7.45%, due 2031
Citigroup, 8.50%, due 2019
Pacific Life Insurance Co., 9.25%, due 2039
Weyerhauser Co., 7.375%, due 2032

Borrowing does have its purposes, among other things having the capital for expansion or to smooth out cash flows.  But how much borrowing is too much?

For example, Citigroup as of June 2012 had a debt to equity ratio of 3.024, that is, it owed bondholders three times as much as the value of shareholders' stock.  See http://ycharts.com/companies/C/debt_equity_ratio.  On the better side, General Motors had a debt to equity ratio of 0.3555.  See http://ycharts.com/companies/GM/debt_equity_ratio.  On the worse side, Ferrellgas Partners has a debt to Equity Ratio of 25.36.  See http://ycharts.com/companies/FGP.

But why is Citigroup paying bondholders 8.50% when it pays savers 2% or less?  See "Taking a Look At Citigroup's Latest Fixed-Income Prospectus", Rajiv Tarigopula, Seeking Alpha, 2012-07-11.  Remember when savings and loans were required to pay 5% by law (which they used to justify not paying more)?  And this 2% is not being paid for demand deposits, but three-month notes.

It gets even a bit screwier.  Citigroup does offer a fixed-rate 15-year mortgage at 4.375 percent.  So, it is borrowing at 8.50% to finance mortgages returning 4.375%.  That doesn't sound like it's living within its means!  See "Who Are the Best Mortgage Lenders for Bad Credit", Beth Lytle, eHow Contributor, no date.

Gloom and doom or bloom and boom?

Even among well-off people one hears talk of the bad economy.  Yes, there are too many people without jobs or too many people that are earning far less than they would like.  This is not good.  But not all people are without jobs and not all people are earning less than they would like.  These are not only the one percent.

As I read about manufacturing increasing, about companies not finding enough skilled employees, about all the new brew pubs being opened, seeing so many apps for iPhones being produced, and so, so many people with cell phones, lap tops, and tablets, the economy can't be that bad.

Of course it's bad if you've been kicked out of your house and lost all your equity.  But there are many others still in their houses.

Daniel Gross wrote "Good News for Jobs: Rising Demand", Yahoo Finance, 2012-03-28, giving numbers for increased housing starts, increased remodeling permits, and increased sit-down restaurant business.

As more people are working, more people are spending money, which puts more people to work.

Did Bush's or Obama's stimulus packages lead to this improvement?  Probably not.  Well, stabilization of a bad situation helped, and once things are stable they can improve.  Did high taxes hinder this improvement or low taxes encourage this improvement?  Probably not.  Many economic ups and downs happen independently of the tax situation.

I've often said that the government shouldn't be providing tax breaks for certain industries or subsidizing others.  These often have limited impact and often backfire.  What it should do is increase and target its buying.  Replace vehicles and computers more frequently.  Want higher gas mileage nationally, increase the fuel economy requirement for government cars.  Want to promote alternative energy; put alternative energy sources on government property, even if they are only supplements.  Alternative energy was set way back when Reagan took Carter's solar panels from the White House.

I think the problem is that we expect Presidents to micro-manage, not govern.  That is, favor this group or that group instead of providing a broad, stable framework for people to make decisions.

"The media" and Occupy Wall St.

I was at a meeting about politics earlier this week, and some people who can be counted on to take a "strong left" opinion complained bitterly that "the media" had not covered the Occupy Wall St. demonstrations.

From the Coffee Party http://www.coffeepartyusa.com I knew that it was in the planning stages, and I knew when it began, and I knew when major newspapers started covering it.

But is every large newspaper or news network supposed to cover every demonstration anywhere in the U. S. when only a dozen or so people show up. It's sort of like people complaining that their event wasn't covered in the local newspaper. Did any of the event organizers let the newspaper know? What competing stories were covered at that time?

Now the Occupy Wall St. movement has gained critical mass and even editorials are being written about it. As opposed to the Tea Party complaint about "an excessively powerful federal government","an active and angry band of citizens is insisting that the concentrated power most Americans need to fear exists on Wall Street and in the financial system." - E. J. Dionne, Jr., Washington Post, reprinted in the Star Tribune as "The conservative tide ebbs, the progressive tide flows", 2011-10-06.

Here we go again with "fair share" undefined

President Obama has been speaking of "fair share" with regard to taxes, but as many other proponents of "fair share" he does no more than talk about percentage of income paid in taxes.

But this is the wrong argument.

Suppose we have a small town with most people earning a decent income and one person earning over a million dollars a year. The town is small enough that it uses the county sheriff for law enforcement, the regional fire department for fires and first responders, the regional school system, and the county library. Its only major expenses are its streets and a city park. All of its revenues are paid by property taxes. The property taxes are based on market value.

So what is a fair share for everybody?

The millionaire lives in a house whose valuation is such that he pays five percent of the city budget. The town is large enough that most people pay one percent of their income in city property taxes. However, the millionaire only pays a half percent of his income.

Now let's assume that the millionaire earns all of his income investing online in national corporations. He doesn't use any of the city services more than anyone else and maybe even less. In this case, isn't his paying a larger portion of the city taxes a fair share irrelevant?

On the other hand, let's assume that the millionaire earns most of his income being the CEO of a large company in the state. What is his fair share of tax at the state and federal level? He is now using a long list of government services, sometimes directly and sometimes indirectly. If he depends on moving goods from place to place, isn't his income dependent on a good road system? If he has many educated employees, isn't his income dependent on a good school system that will educate future employees? On and on it goes that this millionaire is dependent on a long list of government services to be successful, even some he doesn't like. For example, if he processes food the state or federal inspections may seem bothersome, but he also wins because his customers have more assurance of the safety of the food his company produces. Few have any idea what his "fair share" of state and federal taxes is.

It could be far less than some fixed percentage. It could be a far greater percentage than most people pay. Nobody knows for sure and very few are even considering the real meaning of "fair share".

Why do we have "out-of-control" government spending?

One reason is our state of permanent war.  Wars as envisioned by the bright minds of the Pentagon bureaucracy and the best Congress money can buy don't come cheap.

In 2009, The Washington Post reported that the war in Afghanistan was costing two billion dollars a month ("Obama Plans More Funding For Afghan War", Karen DeYoung, 2009-03-27http://www.washingtonpost.com/wp-dyn/content/article/2009/03/26/AR2009032602135.html).  Gosh, if Afghanistan has a population of 28.4 million, that means the U.S. could just give every man, woman, and child in Afghanistan $70/month or $840/year.  That's pretty damn good for a country with a gross national per capita income of $250/year (http://www.unicef.org/infobycountry/afghanistan_statistics.html).

Ironically, many of the deficit hawks are for a "strong defense", but against foreign aid and taxes.

A second reason is that we vote for Congressional candidates who will "bring home the bacon" to our districts.  Alaska is home to a large number of anti-tax people, but Alaskans get more per capita in federal money than in any other state.  Isn't bacon another form of pork?

Or maybe it is that not enough of us vote.  If 25-40% of the registered (or eligible) voters don't bother to show up, we are going to have candidates elected by a plurality rather than a majority.  And we are going to be left with candidates who either want to spend a gazillion on wars and pork or want to spend a gazillion on social programs and pork.

Don't knock government, it is a stimulus itself

Business needs government, people need government, we all need government. We don't need to drown government in the bathtub and we don't need a know-it-all, do it-all government. We need a government that helps business and people achieve their legitimate goals.

From the earliest days of this country we needed town governments to stop criminals and build roads. The U.S. Constitution calls for the federal government to establish post offices and post roads. Business needed a postal system that will cover the country; it was much more efficient than sending every message by your own courier. Business needed the post roads to move goods beyond the local towns. Farmers needed good roads to get their produce to market.

The national economy took a quantum leap with the building of the railroads. They would have been delayed many years without various government concessions and subsidies.

Flying would be a nightmare without government provided airports and traffic control.

The Interstate highway system changed the economy in many ways. The downside is all the locally taxable property that disappeared. The upside is the greater easy of moving people and goods around the country. A business could send a truckload of goods to a specific destination without having to wait for a boxcar to be attached and detached to various trains.

The Defense Department financed some of the development of the Web through research grants to develop ARPANet. How many businesses have been created and fortunes made because of the Internet? Are you old enough to remember CompuServe and similar services that were only accessible to subscribers at costs that could accumulate very rapidly? I remember having to have at least three email accounts so that customers could reach me.

GPS was a military system that was used by individuals but only with distorted signals. President Clinton began relaxing these controls. This spawned "a $6 billion ecosystem of location-based companies." See Wired link below. And some accuse the Democrats of being business-unfriendly.

Have you used Google Earth? Would this be possible without all the government provided pictures?

Now President Obama is ready to open up government data that, if it wasn't kept buried in some obscure government office, was in some overwhelming form that made it hard for many people to understand. As the government moves to standard formats for much of its data, private companies will reformat it in forms that their customers can use. The formation of these companies or the new business for existing companies will be a stimulus in itself.

See "Wired-o-Nomics: Transparency as a Stimulus" for more.