Debt – Part One: Personal and Business

January 5th, 2013

People like to argue about the national debt as if it were the same thing as private or business debt. That does compare apples with oranges and bananas. But let’s assume for a moment that all these fruits can be rationally compared.

Personal debt typically consists of three things: a home mortgage, a car loan and credit card debt. But let’s start with a home mortgage. Suppose a family with an income of $50,000; that is slightly below the U.S. median income. Suppose that they somehow have been able to accumulate $36,000 for the down payment on a $180,000 house – again slightly less than the median. They will have a $144,000 debt. That is 288% of their income. Typically such a family will also have other debts – a car loan and some credit card debt. Now we don’t really regard such a situation as “unsustainable.” And, in any event, the “issue” is whether or not they can “service” the debt – i.e., make timely payment over the life of the mortgage, loans and other credit. The real “risk” involved is if they should experience either loss of income – through loss of job – or catastrophic loss – such as a major illness or accident.

Businesses also typically carry some debt. They may borrow money for capital equipment, inventory and even some operating costs such as payroll. They may even carry debt incurred when private equity capitalists bought them with money borrowed against business’ assets. A business may borrow for inventory, the ability to repay depending on the eventual sale of that inventory. A manufacturer may borrow to make payroll because the revenue to pay the workers will not be realized until the goods produced by the workers are sold. The revenue produced by capital equipment also will not be realized until after the equipment has been bought and put into operation. Again, the issue is whether or not the business will be able to service the debt from revenues. It will, of course, happen from time to time that revenues do not meet expectations. When that happens over a long period of time the consequence is bankruptcy.

Debt isn’t a problem for either individuals or businesses as long as they can service that debt. That is the real issue – not whether debt, as such, is a bad thing. Yes, if a business or person runs up such a level of debt that they cannot service that debt there is a problem. If a person or business is spending more than they take in, there is a problem. In either case, the solution is twofold – increase revenue and decrease spending. Cutting expenses may or may not be a good idea. For the person, foregoing certain kinds of expenses is actually a bad idea – for example, foregoing medications, dropping health or disability insurance, even cutting food expense. Such measures may actually reduce revenue – you may not be able to work if you are sick and your expenses would go up more than the savings. The person might also increase income by taking a second job, turning a hobby into revenue, holding a garage sale, or even finding a better paying job.

There are similar examples for business. A retail store might cut expenses by laying off sales people or reducing inventory. But that could actually reduce revenue as customers find service affected or a poor selection of goods.  Or the business might actually go further in debt to open another store in another town. In other words in business, going into debt can actually increase revenue and sometimes reduce expense (e.g., a new machine might be less expensive to operate and maintain and increase output).

Generally speaking a growing economy helps both individuals and businesses deal with their debt. As the economy grows, individuals find it is an “employees’ market” – it is easier to get better paying jobs when the economy is enjoying full employment. When workers are fully employed and earning good wages, consumer demand for goods and services translates into more sales and revenue. All this good economic news can trigger inflation – which is actually good news for debtors, if not creditors. A shrinking economy (i.e., an economy in recession) has the opposite effect. It adversely affects individual income and business revenue. And, if it results in deflation, that is bad news for debtors – and good news for creditors (at least up to the point where defaults occur).

So many of the assumptions made about personal and business debt actually turn out to be misleading if not simply false. People are quite able under normal economic conditions to have debt that is two or three times their income. Businesses use debt to operate and to grow their businesses. But what about government? One major difference between individuals and businesses is that a government’s central bank can increase the money supply to pay debt. (Incidentally, that is a major difference between the U.S. and Greece, which has no central bank and whose debt is held by German and French banks so it cannot increase its supply of euros.) Yes, increasing money supply can trigger major inflation – which actually helps pay the debt! Central banks can deal with runaway inflation by shrinking the money supply; that was how the Federal Reserve under Volker stopped the runaway inflation that occurred in the U.S. in the mid-1970s.

Coming soon: Part II: U.S. Public Debt

Tags: ,
Posted in Economics, Politics, Republicans | No Comments »

On “Fixing” Social Security and Medicare

December 28th, 2012

We keep hearing about the urgency of “reforming” Social Security and Medicare. But that is a red herring. If we are to reduce deficits in the next ten years, we must address revenue and discretionary funding.

SOCIAL SECURITY

Social Security had a trust fund of $2.7 trillion dollars at the end of 2011. Generally, Social Security revenues have exceeded expenses, although in the six quarter from July 2010 through December 2011 there were three quarters in which expenses exceeded revenues. But the historic trend of a growing Social Security trust fund continues. If we do absolutely nothing, Social Security is solvent until 2035, although it will have to rely on the trust fund to meet obligations. It does not need to be “fixed” before January 2013 or even before 2014.

The proposal to end the current cost of living adjustment with a chained cost of living adjustment will extend the actuarial life of Social Security. But it will have absolutely no effect on federal deficits in 2013 – the old COLA is already in place for 2013. It most likely will have no impact on federal deficits until sometime after 2023. That impact would be that possibly Social Security would have to draw less on the trust fund to meet obligations. Since the trust fund is U.S. Treasury notes, Congress would have to repay the debt or else face default on the national debt. On the other hand the chained COLA would effectively reduce the income of those on Social Security, especially the older they become, penalizing them for living too long.

One could significantly increase the actuarial life of the Social Security program simply by lifting or eliminating the cap on income subject to the Social Security tax. (2012 income above $110,100 is not taxed for Social Security; that amount is adjusted annually for inflation.) But that doesn’t have to be done today.

MEDICARE

Medicare is a bit different. It does, however, have a $324.9 billion trust fund. It is true that Medicare expenses are exceeding revenues and are likely to continue to do so for some time. That requires the Medicare program to draw upon the trust fund to pay out their expenses. Even so, the Medicare program is actuarially solvent until 2024.

The usual proposal is to gradually raise the eligibility age (currently 65) for those under 55. Note that this will not have any effect until after 2023. Even then it will only have an small impact on the Medicare program. But it also would have the effect of increasing costs for Medicaid and Obamacare, as it would increase the numbers of people eligible for those programs. It probably would also increase the cost of medical insurance as those people who have insurance would keep it longer, even as they experience more health problems due to age.

MEDICAID

Medicaid poses other problems in that that program has no dedicated revenue source and no trust fund, so increases in Medicaid costs have a direct impact on the federal (and state) budgets. However, cutting Medicaid doesn’t really solve anything. Similarly cutting Obamacare solves nothing. As those who are outside the system of health insurance and Medicare experience illnesses and accidents requiring medical attention, they will use costly emergency rooms which drive up the cost of health care for everyone else as those costs are passed off to those paying out of pocket, through insurance and tax supported hospitals and doctors. It should also be noted that sick people are not as productive as workers and thus depress national economic growth.

AN ALTERNATIVE ‘FIX’ TO HEALTH CARE ISSUES

One solution to health care costs in the U.S. would be to do away with Medicare, Medicaid, Obamacare and health insurance programs and to adopt a modern universal, single payer health care system. Such systems provide health care for less of the GDP with generally better outcomes. It would also be a boon to employers who would be relieved of the need to provide health insurance to employees. The reason we do not have such a system is the millions of dollars that the health insurance and pharmaceutical special interests pour into lobbying and congressional campaigns.

NOTES

On the Social Security trust fund: http://www.ssa.gov/oact/progdata/assets.html. On the actuarial projections for Social Security: http://www.ssa.gov/oact/trsum/index.html.

On Medicare: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/downloads/tr2012.pdf.

 

Tags: , , , ,
Posted in Economics, Health Care, Politics | No Comments »

The Right to Keep and Bear Arms

December 26th, 2012

“A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.” (Amendment II, Constitution of the United States of America)

Would someone please explain to me the connection between what happened at Sandy Hook Elementary and a “well regulated Militia” or “the security of a free State?” Was the shooter a member of a “well regulated Militia” and acting on its behalf? How did his actions relate to “the security of a free State?” Was the shooter in that west coast shopping mall a member of a “well ordered Militia? Or the shooter in that Colorado theater? Or … maybe you get the idea.

Why did James Madison include those 13 words — “A well regulated Militia, being necessary to the security of a free State” in the 2nd Amendment? Was he simply increasing the word count? Simply padding what would seem to be a rather abrupt and terse 14 word sentence? Nearly half of the 2nd Amendment consists of “”A well regulated Militia, being necessary to the security of a free State.”

Some background would be helpful to understand what Madison was driving at. In 1786 farmers were experiencing severe financial difficulties. Because paper currency was essentially worthless (remember the expression, “not worth a Continental?”) creditors demanded gold or silver in payment of debts; states were demanding gold or silver in payment for taxes, which were heavy because the state was trying to pay down the Revolutionary War debt. Gold and silver was hard to come by if you were a subsistence farmer. In Massachusetts a group of farmers, led by one Daniel Shays, were armed and shut down county courts to stop debt and tax collection hearings. They also attempted to seize the federal armory. A militia was organized to oppose Shays’ Rebellion (as it is known to history). In this context the Constitutional Convention was called. While the convention was in session the revolt was put down. The experience of Shays’ Rebellion was fresh on American minds as the Constitution was ratified. These are not unrelated events.

In 1789, responding to requests from some state ratifying conventions, James Madison, as a member of the 1st Congress under the new Constitution, drafted 12 proposed amendments to the Constitution. Ten of those were adopted by the requisite number of states by 1791. (One was ratified to become the 27th Amendment in 1992; the other is technically still pending but will never be adopted in its present form because it would increase the size of the House of Representatives to over 6,000 members.)

But the story does not end here. While the states were considering the proposed amendments which were to become the Bill of Rights, another rebellion occurred. Congress had decided to levy an excise tax on whiskey (see Article I, Section 8, Constitution of the United States of America). In Western Pennsylvania farmers organized a rebellion attacking tax collectors. This rebellion is known to history as the Whiskey Rebellion. President Washington called governors to send militia to put down the rebellion. Washington personally led 13,000 state militiamen from Virginia, Maryland, New Jersey and Pennsylvania. The western Pennsylvania farmers wisely disbanded without confronting Washington’s troops.

The history of the 2nd amendment clearly indicates that Madison actually did see a connect between “A well regulated Militia, being necessary to the security of a free State” and “the right of the people to keep and bear Arms, shall not be infringed.” That connect had nothing whatever with some inalienable right to keep and bear arms, but had everything to do with “a well ordered Militia” being necessary for both states and the federal government to secure the nation and states against unlawful armed rebellion.

The Constitution provides a means for the people to oust tyrants – it is called “elections.” But if random, armed citizen groups are at liberty to attack our federal, state and local governments, neither freedom nor security are safe guarded. Even the most just, fair, honest government must have the capacity to defend itself and the people from armed attempts to overthrow lawful authority. The children at Sandy Hook Elementary were neither secured nor free. Their lives and liberty were not protected. It was not the intention of James Madison to empower mass murderers.

Tags: , , , , , ,
Posted in General, Politics, U. S. Constitution, U. S. History | 1 Comment »

On Debt and the Scope of Government

September 11th, 2012

A Response to William McKenzie of the Dallas Morning Nees

McKenzie wants us to focus on the $16 trillion federal debt ( “Let’s make right-sizing government the goal”). First, remember that the United States has never been out of debt. We came close in 1835. The historical trend from the beginning of the Revolutionary War to the present has been a growing debt. The size of the national government has been growing since the adoption of the Articles of Confederation. In fact, the adoption of the Constitution was a significant growth in federal government.[1]

So, let’s talk about debt in terms of presidential periods, remembering that fiscal policy involves Congress as well as presidents. I will also begin with Wilson because that era first saw a billion dollar debt. The Wilson era saw a 722% increase in the national debt, largely attributable to WWI. The last two years, as we demobilized the debt was actually reduced. That reduction continued under Coolidge (-14%) and Harding (-17%) and into the first two years of Hoover. Those debt reductions ended with the beginning of the Great Depression; the Hoover years saw the national debt increase 33%, accumulated after the 1929 crash.

Roosevelt (whom McKenzie mentions) saw the biggest debt run up – a whopping 1,048%. Some of that was the New Deal attempt to end the Great Depression; most of it was the cost of WWII – which big, deficit spending most economists agree ended the Great Depression. Yes, you can spend your way out of a depression.

Truman saw the deficits fall dramatically and even surpluses that reduced the national debt in 1947, 1948 and 1951. This era saw an increase in the national debt by 3%.

Eisenhower was the last president who saw a reduction in the national debt in 1956 and 1957, but in the entire period the debt rose 9%.

Kennedy/Johnson saw the debt rise by 22% — partly due to Great Society programs and the Vietnam War.

Nixon/Ford saw the debt rise by 98% — partly due to the Vietnam War and sharply rising inflation in Nixon’s second term.

Carter saw the debt rise 43% as inflation continued.

Reagan saw the debt rise by 186%; G.H.W. Bush by 54%.

Clinton saw the debt rise by 32%. In 2000 it rose less than 1%.

G.W. Bush saw the debt rise 105%, attributed to the tax cuts of 2001 and 2003, the prescription drug program and the Iraq and Afghanistan wars. The sharpest rises occurred in the last two fiscal years – 11% and 18%.

The first full full year of Obama’s presidency saw the increase fall to 14%.

I can only conclude that since the days of Truman, Democratic presidents have seen more fiscal restraint than Republicans. Truman 3%, Kennedy/Johnson 9%, Carter 98% and Clinton 32% compared to Eisenhower 9%, Nixon/Ford 22%, Reagan 186%, G.H.W. Bush 54% and G.W. Bush 105%.

But absolute debt isn’t a particularly useful number. If you are considering taking out a mortgage (i.e. increasing debt) to by a $500,000 house, there is a difference if your income is $50,000 or $500,000. All else being equal, the debt load for the higher income is less than for the lower. The closest comparison is national debt as a percentage of Gross Domestic Product, which serves and an indicator of the ability of the nation to service the debt.[2]

At the end of Fiscal Year 1946 the national debt stood at 121% of the GDP. That is the highest I have found going back to 1900. That debt represents the debt accumulated by the U.S. government during the Great Depression and WWII. In 1981 it had fallen to 32% of GDP. Remember this is not a reduction in the dollar amount of the national debt — that had risen by $79 billion.

Beginning with FY 1982 we see the debt as a percentage of GDP rising every year except for FYs 1996 through 2001. Thus from Truman through Carter, the trend was for the debt to GDP ratio to fall; and from Reagan through Obama, except during the Clinton years, for the debt to GDP ratio to rise.

It is generally said that the fiscal policies of the federal government during WWII created the modern middle class. That may be an exaggeration, but it is certainly true that the size of the middle class grew in those years. The debates in the early postwar period were whether or not that middle class could be sustained in a postwar economy. The remarkable thing is that it was, and it grew. Certainly things like the G.I. Bill contributed to that. Returning veterans were often the first in their families to get a college education and become “white collar professionals” instead of “blue collar laborers.” Veterans could obtain ownership of homes, cars, refrigerators, TVs, etc.

We also see in that postwar period an increase in median income and, in fact proportional increases for low, middle and high income groups. Virtually all Americans were enjoying increased prosperity. That phenomenon does seem to have slowed some in the 1970s. But beginning in the 1980s we saw something new (or rather more like what we had seen in the 1920s and even the 1890s. High income groups saw their income soar, middle income workers saw their incomes stagnate, and low income workers saw their incomes fall. The result was a radically changed income disparity and wealth disparity. Many economists do not believe this bodes well for the future. The economic precedents (e.g., 1920s and 1890s) suggest grave dangers.

Finally, I would close with an observation. I suspect that the management of the Dallas Morning News, when considering going into debt to obtain a new press will weigh both its ability to service the resulting debt and the potential increase in profit resulting from the more efficient press. It would seem to me sensible that such factors enter into the discussion when discussing federal fiscal policy. As mentioned earlier, federal investment in education (via the G.I. Bill) resulted in increased productivity and prosperity for the American people. And, although it increased debt, it more than increased the capacity of the government to service that debt and also increased government revenues. Many, many other examples of this could be cited such as the government guarantee of home loans to returning veterans in the G.I. Bill, the construction of the interstate highway system begun by Eisenhower, rural electrification and so forth. It can similarly be argued that government investment in the health of the American people is such an activity, since there can be no doubt that healthy workers are more productive than unhealthy workers.

 

[1] “Historical Debt Outsanding” In the discussion that follows I have begun the “Presidential Eras” with the first full fiscal year of their term – typically beginning in September – through the fiscal year that ends in the first year of the next president. While that may bias somewhat, I would argue that the roughly u.5 months that overlaps is more a consequence of the predecessor than the incumbent.

[2] “Revenue as Percent of GDP” I’m using the GDP figures here and the previously cited debt figures.

Posted in Conservatism, Economics, General, Politics, Republicans, Uncategorized | No Comments »

A Reading List for September and October 2012

August 19th, 2012

Here are some important books to read before the November election — when you are not out campaigning for President Obama and those running for Congress who will support him for the next four years.

The Price of Inequality: How Today’s Divided Society Endangers Our Future by Joseph E. Stiglitz.

Joseph Stiglitz is a professor of economics at Columbia University and the recipient of a John Bates Clark Medal and a Nobel Prize. He is also the former senior vice president and chief economist of the World Bank. His books include Globalization and Its Discontents, The Three Trillion Dollar War, and Making Globalization Work. He lives in New York City. Professor Stiglitz describes the rise of economic inequality, how it is achieved by a wealthy minority at the expense of the majority and why it is bad for free market economy.

End This Depression Now! by Paul Krugman

Paul Krugman is the recipient of the 2008 Nobel Prize in Economics. He writes a twice-weekly op-ed column for the New York Times and a blog named for his 2007 book “The Conscience of a Liberal.” He teaches economics at Princeton University. His books include “The Accidental Theorist,” “The Conscience of a Liberal,” “Fuzzy Math,” “The Great Unraveling,” “Peddling Prosperity,” and two editions of “The Return of Depression Economics,” both national bestsellers. Krugman argues that our economy suffers from depressed consumer demand. He shows how we can end this depression by fiscal policies known to work because they have worked in the past and elsewhere. He effectively counters the arguments coming from conservatives, again using actual examples in recent economic history. He also shows, from economic history why solutions proposed by conservatives have not worked in the past and are unlikely to work today. We know how to end the depression; our political leaders lack the will to do so.

Republic, Lost: How Money Corrupts Congress–and a Plan to Stop It by Lawrence Lessig

Lawrence Lessig is the Roy L. Furman Professor of Law and Leadership at Harvard Law School, and director of the Edmond J. Safra Center for Ethics at Harvard University. Prior to rejoining the Harvard faculty, Lessig was a professor at Stanford Law School, where he founded the school’s Center for Internet and Society, and at the University of Chicago. He clerked for Judge Richard Posner on the 7th Circuit Court of Appeals and Justice Antonin Scalia on the United States Supreme Court. Professor Lessing explains how our political process is corrupted by the way political campaigns are funded. He suggests ways in which we, the people, may break the power of money and retake our rightful place in governance.

Winner-Take-All Politics: How Washington Made the Rich Richer–and Turned Its Back on the Middle Class by Jacob Stewart Hacker and Paul Pierson

Jacob Stewart Hacker is the Director of the Institution for Social and Policy Studies and Stanley B. Resor Professor of Political Science at Yale University and has written works on social policy, health care reform, and economic insecurity in the United States. His most recent book, Winner-Take-All Politics: How Washington Made the Richer Richer–and Turned Its Back on the Middle Class (Simon & Schuster 2010), written with Paul Pierson of UC Berkeley, argues that since the late 1970s the American middle and working classes have fallen further and further behind economically because policy changes in government favor the rich and super-rich.

Paul Pierson is a professor of political science and holder of the John Gross Endowed Chair of Political Science (and he holds/held the Avice Saint Chair of Public Policy) at the University of California, Berkeley. From 2007-2010 he served at UC Berkeley as Chair of the Department of Political Science. He is noted for his research on comparative public policy and political economy, the welfare state, and American political development. Pierson is a native of Eugene, Oregon, where both of his parents taught at the University of Oregon. He graduated with a B.A. in political science from Oberlin College in 1981, and then attended graduate school at Yale University, completing an M.A. and M.Phil in 1986 and a PhD degree in political science in 1989. Pierson taught at Harvard University from 1989 to 2004, when he moved to the University of California, Berkeley.

The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too by James Kenneth Galbraith 

James Kenneth Galbraith (bois an American economist who writes frequently for mainstream and liberal publications on economic topics. He is currently a professor at the Lyndon B. Johnson School of Public Affairs and at the Department of Government, University of Texas at Austin. He is also a Senior Scholar with the Levy Economics Institute of Bard College. He is also part of the executive committee of the World Economics Association, created in 2011. Galbraith provides economic data on income and wealth disparity in a readable manner. The major problem with “free trade” is that business really does not want it. What the corporate lobby has done in the past 40 years is to “unlevel” the playing board to benefit large corporate profit.

For More Information

For more information click on the links above. Eutychus has written about Winner-Take-All Politics, Republic Lost, End This Depression Now and The Predator State in the earlier blog, Four Books to Read Before November and a longer review of Republic Lost, Book Review: Corporate Takeover of America.

Posted in Uncategorized | No Comments »

Equity Capital Is Not Venture Capital

August 16th, 2012

There is a difference between venture capital and private equity. If John Doe comes up with an idea to manufacture and market widgets, but needs $50 million startup capital for plant and labor, he goes for venture capitalists. If he is successful they will put up the capital and perhaps provide some management advice. This is very risky because probably most startups fail, but the rewards can be substantial if the startup succeeds.

Let us suppose that American Widget, LLP, (hereafter AW) is modestly successful. The private equity outfit — Watkins, Tolbert and Farmer (hereafter WTF) see AW as a good target for a leveraged takeover. So they put up $10.5 million of their capital. They then seek out partners who put up another $9.5 million. With this $20 million they go to an investment bank for a $40 million loan backed by AW’s assets and future profits. The bank takes $800,000 closing and WTF takes $800,000 “finder’s fee” for the loan and another $800,000 as a management fee. The bank has already recovered 2% of the loan, and WTF has recovered $1.6 million of its $10.5 million. With the remaining $57.6 they buy AW. Notice that AW now owes the bank $40 million plus interest. While that nets them $17.6 million new capital, it isn’t going to be used to create jobs.

It immediate goal of WTF managers is to increase the profit of AW as quickly as possible. There are a number of ways they can (and will) do this. Employee pensions and insurance programs can be eliminated. Workers can be laid off. The whole plant operation can be moved to a low wage, “right-to-work” state, thus ending any union or other labor contracts and lowering pay. Some jobs can be shipped overseas. Some operations can be shut down – typically Research and Development and Quality Assurance. Less expensive materials can be used in manufacturing.

One interesting variation is that some of that $17.6 new capital can be used for a leveraged buyout of yet some other victim. Such a merger can provide other opportunities for employee reduction, especially some of the better paid management type roles. For example, one clothing chain taken over proceeded to take over some other chains and eliminated buyer positions.

These kinds of moves will reduce costs and increase profit in the short term. AW’s “good name” will carry it forward for a while in spite of lack of innovation and declining quality – or, in the case of the clothing chain declining selections. But it is that initial increase in profit that the managers are after, not long term “good will” or success.

With the increased profit the management will contract for an analysis. Say in the first year profits increased 10%. The analysis will project profits next year of 20%, then 30%, 44%, 50% and 60% in the next five years. (Remember WTF management is paying for the analysis.) They will then go to the bank and take out yet another loan based on these projected profits. The bank will take out its fee, WTF will take out its finder’s fee, WTF will increase management fees and pay itself bonuses, and also pay dividends to itself (remember that original $10.5 million) and its friends (remember that $9.5 million).

Eventually, though, the cost cutting will affect income as quality declines and competitors come up with new and improved widgets. AW is also vulnerable to other events. For example, a recession can significantly reduce demand for widgets. More of its cash flow is absorbed by debt service. WTF may take the AW back to the bank to borrow more money (taking their finder’s fee and paying itself dividends with part of the proceeds) to service AW’s debt.

At this point WTF may actually manage to sell the company to recoup some of its investment and that of WFT’s friends. Probably that will, along with the healthy dividends paid over the few years, recoup the investment plus some profit. But for the private equity firm, the real profits were in those finder’s and management fees taken as the took AW to the cleaners. Eventually, AW will simply go bankrupt and cease operation. So much for jobs and boosting the economy.

And, of course, those profits are capital gains and dividends – taxed at 15%.

Posted in Economics, Politics | No Comments »

Republican Government – Part 2

July 29th, 2012

“No State shall … deny to any person within its jurisdiction the equal protection of the laws.” (Amendment XIV, Section 1, The Constitution of the United States of America)

The Fourteenth Amendment is one of the post Civil War amendments. There can be no doubt that the concern of the authors – and the intentions of those ratifying the amendment – was to insure the civil and political rights of former slaves – that is, citizens and literal persons. (The right of suffrage for races, color or former condition of servitude is further insured by the Fifteenth Amendment, and the obstacle of a tax requirement to vote is prohibited by the Twenty-fourth Amendment.)

In the 1960s and 1970s there was much discussion about representation in Congress, legislatures and local elected boards. Much of that discussion involved the principle that the “equal protection of the laws” involved equality at the ballot box. One citizen’s vote should have equal weight to another citizen’s vote. Part of the debate had to do with the waxing urban population and the waning rural population. The point that carried the day was that republican government represented citizens, not livestock or land area. Thus electoral districts must be approximately equal in human population.

Related to this was the concern that in many cases electoral districts were drawn so as to dilute the vote of certain groups of individuals, particularly minorities. In the context of the urban-rural division, it would deprive urban citizens of the equal protection of the laws to have their city cut up in such a way as to render them minorities in large rural districts. (This is worded this way because at the time the dominance of rural representation in legislatures resulted in this particular bias; the opposite bias is also possible.) But today we most often encounter this bias in legislatures attempting to reduce the influence of racial and ethnic minorities by breaking up areas where they are majority and combining them in White dominated districts.

But, under the Constitution of the United States, republican government is a government in which elected officials represent citizens, and those citizens have a constitutionally guaranteed right to equal protection of the laws – my vote does not have more weight in the halls of government than your vote.

The notion that somehow the Fourteenth Amendment conferred rights to corporations was not part of the discussion of its authors. That was not what this amendment was about. Republican government is representative government. And, under the Constitution of the United State what government represents is people, specifically citizens, and not some legal entity created by a government issued corporate charter. The 1888 decision of the Supreme Court in Pembina Consolidated Silver Mining Co. v. Pennsylvania granting “personhood” to corporations under the Fourteenth Amendment is clearly a case of the court legislating from the bench, and putting into the Constitution something that was not there and was never intended.

In Citizens United v. Federal Election Commission the Supreme Court of the United States bestowed upon corporations First Amendment rights of free speech, so that corporations could spend unlimited amounts of money on political campaigns. Thus, they not only misread the Fourteenth Amendment by making persons out of legal fictions, but they also upset the equal protection of the laws for real persons.

If the vote represents citizens, not livestock or farmland, then surely the vote should represent citizens not dollars. Indeed the electoral process has long been corrupted by the flow of money to elected officials. A lobbyist who can arrange for hundreds of thousands of dollars from small special interest groups or an individual who can write a check for millions to support a candidate inevitably has more weight in the halls of government than the mere citizen who only has his vote to contribute. The result is that the government no longer represents citizens, enjoying the equal protection of the laws, but rather the dollars of small groups of special interests.

What we, the people, must do is to vote those politicians who have been bought by those special interests out of office. I still have a vote; a corporation does not. I must not let my vote be bought by those corporate interests. We, the people, must also send to the Congress and our respective state legislatures representatives who will work to reestablish the equal protection of the laws for citizens and to liberate the American people from the tyranny of corporate plutocrats who have only their own self interest and not the interest of the American people.

Posted in Uncategorized | No Comments »

Republican Government – Part 1

July 26th, 2012

The United States shall guarantee to every state in this Union a Republican Form of Government…. (Article IV, Section 4, The Constitution of the United States of America)

A “republican form of government” is a representative government in which government officials represent “the people.” In the U.S. Constitution this representation is achieved through the election of members of Congress, the President and Vice-President. The House of Representatives consists of members who represent the districts which elect them. The Senate consists of member who represent the states which elect them. And the President and Vice President represent the American people who elect them.

Thus the citizen’s right to vote is essential to that republican government which the Constitution guarantees. James Madison wrote, “The definition of the right of suffrage is very justly regarded as a fundamental article of republican government.“ (The Federalist Papers, # 52) He went on to write that it would be improper to leave this definition of the right of suffrage “the occasional regulation of the Congress ” or “the legislative discretion of the States.”

To be sure, for the men who drafted the Constitution, the republican form of government represented free, adult, white, propertied males. However, in the wisdom of the American people in subsequent years, the right to suffrage has been extended to former slaves, non-whites, women, and eighteen-year-olds. The property requirement of the 18th century has been effectively abolished. All citizens of the United States are constitutionally entitled to be represented by government officers they have elected through their fundamental right to vote. This republican form of government is guaranteed by the Constitution not only at the federal level, but at the state level as well. States may not institute some other form of government.

The Constitution of the United States states, “No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States.” (Amendment XIV) Yet we see a concerted conspiracy in state legislatures across the nation to do precisely that – to erect barriers to hundreds of thousands of citizens who wish to exercise their right to vote for their representatives in Congress and state legislatures, which is the most  fundamental article of republican government. In so doing these conspirators violate Article IV, Section 4, and the 14th Amendment of the Constitution of the United States of America. They are, in a word, overthrowing the republican government they are sworn to support. (Article VI)

It is essential that those patriotic American citizens who have not yet been disenfranchised by corrupt legislators go to the polls this fall and remove those subversives from office, replacing them with legislators who will guarantee republican government consisting of representatives elected by all citizens freely exercising their most fundamental right – the right of suffrage.

Tags: , ,
Posted in Politics, U. S. Constitution | No Comments »

Book Review: Corporate Takeover of America

May 10th, 2012

Winner-Take-All Politics: How Washington Made the Rich Richer — And Turned Its Back on the Middle Class by Jacob S. Hacker & Paul Pierson

As Will Rogers famously said, “I am not a member of any organized party — I am a Democrat.”

Jacob Hacker and Paul Pierson detail how the U.S. Chamber of Commerce and the National Association of Manufacturers organized business interests to block progressive legislation in the 70s. This involved both the long affinity between corporate America and the Republican Party and intensive lobbying efforts to dissuade moderate Democrats from voting for progressive legislation in the Senate during the Carter administration.

The first part of the book outlines the contrast between the American economic and political scene after World War II and the 70s with the scene in the past 30 years. Most of this material repeats what has been shown in study after study. The authors counter the usual explanations of the change in a CSI detective style, showing that such things as education and technology do not explain the concentration of power and wealth that has occurred.

What has happened, according to Hacker and Paul Pierson  is the strengthen organization of corporate America led by the U.S. Chamber of Commerce and the National Association of Manufacturers and the weakening of organizations which represented a broad spectrum of middle America. The authors describe how the Chamber of Commerce and National Association of Manufacturers successfully lobbied to block labor laws and business regulations during the Carter administration when progressives thought that a Democratic President, Senate and House would enhance regulation of environment and work and product safety as well as eliminate impediments to labor organizations. They also describe how corporate America has transformed the Democratic Party from a pro-working class party to a pro-business party, albeit perhaps not quite as pro-business as the Republicans.

Part of the reason for corporate success in Washington is attributed to the decline in participation in labor unions and a variety of middle American organizations including the Veterans of Foreign Wars and service clubs such as Lions, Shriners and Rotary clubs all of which did provide middle America with a more unified voice in the 1940-60s.

The authors also detail the fact that, at least in the late 1970s it wasn’t necessary for the corporate interests to enact new “business-friendly” legislation or to repeal older legislation; all that was necessary was to block passage of progressive legislation. We have seen this strategy repeated both during the Clinton administration which was unable to get health care reform passed. Doing nothing was all that the health care segments required. We have also seen it in 2009 — the Republicans do not need to pass anything for corporate America. All they have to do — and they have been very successful in this — is to block progressive legislation either by threat of filibuster in the Senate, or in committee, or in the 112th Congress the House. And, in either case, we have minority rule.

Hacker and Pierson do not go into great detail about the role of corporate America money in political campaigns. For that side of the story you should read Republic, Lost: How Money Corrupts Congress — and a Plan to Stop It by Lawrence Lessig.

The authors conclude the book with a conclusion “Beating Winner-Take-All” which I must confess is rather disappointing. Having identified the problem as being the effective political organization of corporate America to oppose progressive legislation and even to roll back progressive laws, Hacker and Pierson focus more on the difficulties of getting the tens of millions of middle Americans organized to oppose the corporate takeover of the political system of America. The opposition will require that middle Americans once again organize themselves to speak in Washington — and I might add in their state capitals.

I recommend this book for those who want to have a better understanding of the American political scene today.

Posted in Book Reviews, Conservatism, Economics, Election Reform, General, Politics, Republicans, U. S. History, Uncategorized | No Comments »

Four Books to Read before November

May 4th, 2012

Forty-forty: Eras of American Political and Economic History.

Recent American political and economic history can be conveniently divided into two forty year periods: 1933-1972 (from FDR’s first term through Nixon’s first term) and 1973-2012 (Nixon’s second term through Obama’s first). The first period covers a spectacular recovery from the Great Depression dominated progressives of the Democratic Party. It was an era of an improving standard of living for all Americans and of an unprecedented absence of economic crisis. The second period is an era of economic stagnation, wildly widening income discrepancy and repeated booms and ever worsening busts, the latest of which still depresses the American economy, especially for low and middle income workers. What happened?

Winner-Take-All Politics: How Washington Made the Rich Richer — And Turned Its Back on the Middle Class by Jacob S. Hacker & Paul Pierson

This book briefly describes the economic contrast between Richistan and Broadland, two mythical countries, one of which sees the concentration of wealth in the hands of a few and the other in which economic growth is shared by all. Our second era is represented by Richistan, while Broadland is more like our first era. How did this happen? The authors use a CSI analogy to ferret out the causes, dealing effectively with the arguments for rapidly growing income and wealth disparity. They conclude that the “criminal” is government.

But how was the government transformed from a moderately progressive democratic institution to a regressive institution representing wealth? The authors provide a good historical analysis of how, at the end of our first era and beginning of the second, the American political parties came to be owned by corporate America rather than the people. This section of the book is worth the price of the book. We see the huge increase in lobbying, campaign contributions, political action committees and propaganda mills posing as think tanks in the 1970s and 1980s.

Republic, Lost: How Money Corrupts Congress — and a Plan to Stop It by Lawrence Lessig 

Lessig explains in depressing detail how money corrupts our Congress. Although dealing specifically with congressional campaign finance, it is applicable to state politics and presidential campaigns. He argues that quid quo pro bribery is actually very rare, but the need for congressmen to raise large sums of money to pay for campaigns makes them dependent on their contributors rather than on the people alone. He also details the problem created by the “revolving door” by which government officials move from the private sector and back — often to very substantial incomes — is part of the problem. Less helpful are his suggestion on how to fight this corruption, although some of his arguments have merit. The main problem is getting reform through Congress (and legislatures) dependent on corporate campaign cash.

End This Depression Now! by Paul Krugman

We know how to end this depression but our political leaders lack the will to do so. Lessons learned from the Great Depression, the New Deal, World War II, and the postwar economy in America show the way. Paul Krugman traces the causes of the current financial crises, not as an attempt to fix blame (there is plenty to go around), but so we can understand why it happened and what can be done about it. These lessons are also learned from other nations that have experienced similar conditions in the late 20th century. The reasons recovery has been so slow is that the stimulus was too little, too brief and in some cases misdirected.

The shift of focus on the deficits and debt misdirects our attention from what must be done. At the end of World War II, the national debt was 120% of Gross Domestic Product. It “fell” to about 60% by 1964, not because we had budget surpluses and paid down the debt, but because the economy grew significantly. The dollar amount of the debt had actually increased. The debt as a percentage of GDP did begin to grow in the 1970s, but did not really take off until the 1980s and following.

The slow recovery does aggravate the debt because revenues are suppressed and expenses increased. Government spending increases aggregate demand which creates jobs — which increases the GDP and revenues and reduces expenditures for unemployment compensation, nutrition programs, medicaid, housing assistance, etc. That in turn reduces both the deficits and the debt as a percentage of GDP. Prolonging the recession will have costly long term effects. Long term unemployment makes it more difficult for older workers to reenter the labor market at previous levels, much less at levels they would have achieved if employment had been continuous. Even more dire is the fact that the recession is retarding young workers entering the labor market which will have a negative effect throughout their lifetimes.

Krugman offers a way to bring the current economy up to speed and refutes the arguments of the naysayers.

The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too by James K. Galbraith

Galbraith provides economic data on income and wealth disparity in a readable manner. The major problem with “free trade” is that business really does not want it. What the corporate lobby has done in the past 40 years is to “unlevel” the playing board to benefit large corporate profit.

Posted in Book Reviews, Conservatism, Economics, Politics, Republicans, U. S. History, Uncategorized | No Comments »

« Older Entries