Your Nov 25th editorial says “the solution to multi-trillion dollar [federal] deficits has to be a mix of revenue and spending cuts . . .” Like most people, it appears you do not do math. Here it is, briefly. These numbers are from the N Y Post article of August 28, 2011. The President wants a 13% tax increase (from 35 to 39.5%) on rich people. In 2009 people reporting over $1 million in taxable income paid $200 million in taxes. Static analysis computes a 13% increase as bringing in $26 million – a bit over $2 billion per month. From other sources I believe the same analysis of incomes over $250,000 brings in some $6 billion per month. The deficit in August was $160 billion. Average for the year is expected to be roughly $130 billion per month.

So let’s see. Will $6 billion be an important part of reducing a monthly deficit of $130 billion? That doesn’t even pass the smirk test. But here is the important part. In a 15 trillion economy ($15 billion times a thousand), even a small decrease in economic activity arising from this tax increase could have much greater impact than the $6 bil a month collected and recycled by the government.

So Obama’s tax increase will have little effect on deficit reduction, but a potentially significant impact on GDP if it motivates wealth to sit on the sidelines. Of course the entire analysis assumes that you understand government recycles money but does not create jobs. If you on the other side of that assertion, then you have a lot more math to do.

Jim Hirshfield

Some 235 years ago Adam Smith wrote about what we call “the invisible hand”. Smith said that as each individual works to improve his or her own personal situation this results in an improvement for the economy as a whole, and thus improves everyone’s welfare. This principle has become recognized as one of the key drivers of the enormous wealth created over the last 200 years, and the consequent improvement in living standards for all who live in societies so guided.

This improvement in living conditions is sometimes hard to grasp. I was at a history lecture a few years ago where the lecturing Professor was asked “Did wealthy people 100 years ago live as well as wealthy people do today?” His response was that “100 years ago no one in our country lived as well as the poorest of us today”. We forget that a bath was a bi annual affair. Inside plumbing was just coming into use, as were cars, airplanes, and electricity. Radio, TV and things such as cell phones were a distant dream.

So what does Adam Smith have to do with the Occupy Wall Street protests? The protesters have varied objectives, but it seems that one recurring theme is to get rid of “corporate greed”. A corporation is, of course, a legal person allowed by law for the purpose of aggregating wealth for use in pursuing expensive ventures. Corporate greed? The invisible hand? Sounds like the same thing to me.

Do the Occupy Wall Street protestors want to throw out this approach to creating national wealth, and the consequent benefits it has accrued in recent centuries? People like Karl Marx also wanted to throw out this approach, but he offered an alternative. Unfortunately for his adherents, his alternative was a colossal failure in countries that tried it. But the question remains, what do these protestors want as an alternative?

One adage we hear a lot these days is not to quit your job until you have another one lined up. Shouldn’t we say the same thing about replacing economic system that lies at the base of our long term growth in prosperity?

When I was in business, I used to have a cartoon I would post in the office from time to time. It showed an anguished face, literally pulling his hair out, and was captioned “Oh no, you did just what I told you to do”. The point, of course, was the folly of putting together a solution before defining the problem.

In today’s government debt “crisis”, the parties seem to suffer from the same affliction. What problem is this “crisis” supposed to solve? The media says we are trying to avoid default, but that is silly. We should all understand that it would be difficult to default on existing debt unless done so willfully. Government commitments could not be met, but the debt part of it is fairly easy. So what is going on?

Simply put, the problem to be solved is “What portion of GDP should the federal government spend?”. The President seems to want 25%, the House Republicans 18%. Historic tax income has broadly been in the 18 to 19% of GDP range. So how do you spend 25%? Raise more tax revenue. The President’s prescription for this is to tax “wealthy” people at a higher rate, and thus bring an increased percent of GDP into federal coffers. The opposition says that this will not raise more revenues, as people will avoid paying more tax at the cost of economic activity and jobs. Their argument is that if economic activity slows due to rate increases tax revenues will go down, not up. The President says this is not the case, that economic activity will continue regardless of changes in the tax rate.

So draw your own conclusions. But do so in the context of the actual problem being discussed – not all the silliness you see on TV and in the papers these days. What portion of GDP should the federal government spend?

Jim Hirshfield

Editor:

Ok, I am calling BS on the silliness of the debt limit “debate”.. We are told that our nation will default on its debt if the limit on the amount of debt allowed is not raised. Why would that be so? We could continue to borrow up to the present limit, so there is no need to default on repayment of principal. And interest? It presently constitutes less than ten per cent of annual expenditures. Why would the government fail to pay interest due? I guess because they are already borrowing 40 cents of every dollar of government expenditure, and they would elect to default rather than pay interest. But that’s a choice. As to default being the consequence of failing to raise the debt limit? It’s another story of The Emperor’s New Clothes.

1. Relative to what? We all have opinions, but they are all relative to some base assumptions that we often do not choose to examine.

2. Who are they? The infamous “they”. When a business representative, referring to another area of his or her company, says “they will/will not . . . “, how do you feel?

3. When should I do it? How about now?

4. How do I get people to listen to me? Is it the quality of the information, or how it is presented? Or where? Or to whom, which is usually how this question is directed.

Jim Hirshfield
May 26, 2011

Jim

Some bright economist ought to give us a formula with which to analyze how much wealth and income can be taken out of the productive economy and used to deal with non-economic needs in a society. It seems obvious that any country has enough wealth to do a bit of non-economic investing, such as defense, justice systems, and welfare. The issue is to define the “sweet spot”.

While any country can do a bit of investing to satisfy other needs, it also seems logical that for each country there is a point at which such investing takes enough resources away from the productive economy that not only will the productive economy decline, but with this decline the availability of monies to do those unproductive but necessary things will shut down as well. This is what I call the “sweet spot”.

It is a complicated and, for that reason, a fun problem. For one, you could not create this formula with an analysis fixed in time, as governments seem to be good at borrowing against the future. So you would have to consider the cumulative effects over time, and the sweet spot would be defined not only as a per cent of GDP and a per cent of accumulated wealth, but also as a place in time in the future.

A second interesting consideration is how much of the non-economic funding is to be done by government vs. by the productive (i.e., private) sector. This would involve a whole sub-formula, it would seem, and a “loop” that analyzes whether to maximize the public or private sector funding of these needs first, using the other source as an alternative once the primary source stops growing.

But what a great tool it would be! We could see when things are projected to shut down per the formula, and then just argue about the assumptions shaping the inputs. I see that as a lot more clarity of discussion than we have now in our society. And that would be good!

Jim Hirshfield

So here’s a good one. I emailed my local (large) newspaper yesterday, The Seattle Times, and asked when the paper was supposed to be delivered to my home in the morning. They gave me the times for weekday and weekend. I then emailed back and asked that my paper arrive by those times. They responded “We will notify your carrier”.

Two issues in one. First, Customer Service. Shouldn’t they have said “We will ensure that your paper arrives on time”? The principle here is that customer service should take the problem from the customer and resolve it – not bounce it to some other part of the organization as if they were somehow different. In the eyes of the customer they are all the same.

Second, we have the issue of Product Delivery. What other large organizations rely on independent contractors to leave their product on your driveway (or in the bushes, out in the rain, etc.), hopefully in time to be of use?

Is this a useful business model for the 21st century?

Jim

Silent Majority” is a term we have been hearing for a long time. It identifies a sometimes large group of citizens who do not involve themselves in politics until some major issue comes to the fore. Does this group exist? I think so. Why are they silent? Easy. They are too busy raising families, working hard to make ends meet and to execute their life plans, to become involved in public issues. Or so they think.

If one does not plan to have a career in politics or public service, it is all too easy to fail to put anything about politics into your life plan. This is a mistake. What goes on in the world of politics affects all of us. As someone said, elections have consequences. But sometime, when people rise up, become vocal, and express their concern about what is happening in the country, those in the political world are surprised. They shouldn’t be.

So take a look at your life plan, and see what it contains regarding politics. Don’t have a life plan? Make one. My book will help, if you want help. But do it. Avoid being an eternal member of the silent majority by putting into your life plan the need to understand and respond to things political.

Jim

Any organization that serves others must provide what is commonly called Customer Service. That is, when a customer has an issue, they need some one to call who will get the issue resolved. Here are some thoughts on providing excellent Customer Service:

1. Don’t give the customer any reason to call. That is, anticipate and fix problems before the customer ever sees their effects. We used to hold top level weekly meetings where we reviewed all unsolved customer service problems. More often than not these were new issues, often easily solved, but things the customer service people had not been trained to address.
2. Get rid of those extensive call director menus, and allow your customer to talk to a real person, quickly. I know this is a cost issue. My solution? Allow the customer to self select into a longer automated queue if they are comfortable doing so.
3. Have your Customer Service people take charge of the customer’s problem, lift it off of the customer’s shoulders, give your people a procedure for dealing with these things, and compensate them for doing so. Get back to the customer when a solution is provided.
4. Training, training, training. How can you expect your customer service people to know the answers to all the problems that might come up if you do not gather information company wide, craft solutions, and inform your people about them?
5. Compensation. Craft a structure to pay good employees for good work, as an incentive compensation plan laid over base wage.

Remember, you will not receive a call from your customer when he switches to your competitor.