Our Evolving Social Contract

December 1st, 2015

Financing Good Deeds

May 8th, 2013

Here is the question. How can we as a society in the United States maximize the good things we are able to do with our wealth? One of course starts to think about the efficiency of public vs. private support of good deeds, but let’s set the efficiency issue aside for now and just deal with the main question: how can we maximize good deed creation? That is, how many good deeds can we afford?

I would propose that somewhere there is a mathematical response to this question. That is, I believe if we all create wealth without regard to worthy causes, that would not maximize the good things we are able to do. But the converse is also true – i.e., if we use all our wealth to do good deeds we will soon find we have no wealth, and realize that investment of our wealth is necessary to further grow this wealth and thus our ability to do more good things. The optimum point lies somewhere in the middle.

This presupposes a graph, a curve, with wealth creation on the x axis and good deeds on the y axis.

Forgive the standard bell-type curve. We don’t really know what the curve would look like, because no one has yet done the work. But isn’t this what our present day political discussion is all about? Some people think a lot more wealth can be taken out of the economy and used for purposes that do not create further wealth. Others think we are near that inflection point where taking more dollars out of investment and using them for consumption – i.e., doing good deeds – will push us over the top, like a roller coaster, and start us on the downward path toward less wealth and thus less ability to do good things.

In our society today it is unfashionable to do math. But maybe we need to do these calculations.


November 29th, 2012

Consider this possibility. The President is not concerned about the next four years and his legacy arising therefrom. His time frame is much longer. Let’s say 24 years. His legacy will take that much time to develop. All he has to do is keep his voting coalition together. If future candidates can count on 95% of the black vote and majorities among women and other minority groups, they will be elected. President Obama knows how to do this. He is very good at it. Electing future Presidents with this strategy will bring him immense power whether he is President or not.

Given the above, what is his short term goal? To keep his voters’ support. Over a long time. Does addressing the Fiscal Cliff help in this goal? Much better to go over the cliff and blame it on the other party, his successful strategy the previous four years. People will feel the pain of poor economic policy, but they will blame it on the Republicans. That keeps the mid-term election in play, and allows him to start – now – shooting for 2016.

Further, going over the cliff increases tax revenue greatly by taxing the middle class. And whose fault is it? Not his, under this scenario. The fault will lie with the Republicans. And a lot more tax revenue is needed if government spending is to stay at the President’s preferred 24% of GDP. Or maybe higher.

Right now it seems the Republicans are executing his play book. Far better to pass the “millionaire” tax in the house, and then check to the raiser.

Jim Hirshfield

Today in Kviv

September 30th, 2012

Sergei, our 50 something year old guide, sighed and said “They were dreamers”. He was qualified to offer an opinion. His early days spent in a commune, he later graduated University and served as a scientist for the Soviet Union. Now he was our tour guide in Kvev, Ukraine, a city of 4 million, which had been part of the USSR until twenty odd years ago. Kviv is located some 60 miles south of Chernobyl. After that meltdown, his wife took their young son and moved away from the radiation risk. They now live in Los Angeles. But Sergei is still in Kviv, trying to help people understand the difficult history of his homeland. “They wanted everyone to be equal, to have a better life”, he says. “But they were dreamers. When my mother dies I think I will become a monk. I hope to live to be 100”.


July 17th, 2012

So here are the latest numbers I have heard. In February the President said his budget proposal would entail an annual deficit of $900 billion. (I heard him say this on TV, but I don’t believe he ever submitted this as a budget). Recently he said on TV that his millionaire tax would raise $66 billion in taxes in the coming year.

So is it that difficult to do the math with these two numbers? It is clear that the millionaire tax the President proposes does little to address our national debt issue. If you don’t think our national debt is an issue that’s another problem, but even then you will have to agree that monies raised by a millionaire tax do little to address our financial needs. Right? $900 billion deficit, $66 billion tax receipts.

The other side of the coin, of course, is what this tax might do to job creation. In a $15 trillion economy, a one per cent drop in economic activity computes to a loss of $150 billion per year. Will the diversion of $66 billion from investment to taxes cause economic activity to slow a bit? Or do you believe that the government is responsible for creating economic activity and thus jobs?

And whatever you believe, the numbers seem to say that the millionaire tax would be a small part of a plan to put our national debt and thus our financial stability on a long term sustainable basis. Where is the plan for that?

Government Spending

May 20th, 2012

Federal government spending is of necessity limited by the amount of economic growth in the country.

The Hunger Games

March 31st, 2012

Last night I saw ‘Hunger Games”. You know, the movie in which a totalitarian society has an annual competition, sort of like “Survivor”, where teenagers kill each other. The movie was pretty bloody. The competition in the movie is televised, and crowds of people with funny clothing, funny hair, and funny opinions attend live shows and watch the games on TV. They are the bad guys, insensitive to the life and death struggle of the protagonists.

Most of the audience at the movie was teens. When the movie ended the audience applauded, a fairly rare movie experience. All I could think of was the audience of funny people in the movie, watching the games and applauding. I wondered how they had been transported into my movie theater.

to The Editor of the Seattle Times. Fixing the Federal deficit.

November 26th, 2011

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

Adam Smith meets Occupy Wall Street

October 19th, 2011

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?

The Present Debt Crisis

July 27th, 2011

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