I ran into an article in Democracy that stated a Sovereign Wealth Fund, would prompt Americans to log in to participate in its Collective Governance, as well as increase our "dismal" savings rate.
Unfortunately, he talk in terms of a board of directors rather than participatory democracy in making decisions.
Dr. Rittholtz just had a wonderful post written by John Maudlin which went through a lot of issues from this blog. First of all, the problem with bank credit lines and bank loans that could be called. The second is a discussion of how stability breeds instability and a reference to Hyman Minsky about whom I wrote earlier.
However, as I have pointed out earlier, if they have a right to live in the house, have their families live there after they leave the area or pass on, or to rent it out themselves, that will give them a sense of connectivity to their residence and all the psychological advantages of renting. (I recall a Wall Street Journal article that reported on a natural experiment in Argentina of giving some people the right to live in their own home, and that found that those who owned their own home did much better in life. I found articles that found those who got land tenure in Uruguay avoided certain diseases. In Buenos Aires, a similar natural experiment, found that those who got title to their property were more likely to believe that "effort pays off" and that "money is important to be happy."
We need closer monitoring of charities as well as donations, which I discussed briefly in the context of charitable deductions being deductable.
The share economy is the perfect solution for underwater mortgages. And sortition juries are the way to decide which mortgage holders should get financial relief or a bailout. Many mortgage defaults are strategic defaults.
Dr. Ritholtz talked on NPR that propping up price gains in homes, one is making it harder for people to get into their first home. Of course the interest rate is also in effect. (For the mortgage buyer, it doesn't matter much whether they are paying six per cent on $100,000 or three percent on $200,000.00. At least at the beginning only a small percentage of the mortgage payment is paying down the equity.)
The comments indicate that an important thing is allowing a family to stay in their home until the end of the school year. "But no sympathy for the mortgage flippers.")
Robert Heilbroner and Peter Bernstein, The Debt and the Deficit 1989, WW. Norton, New York
Arguments over our debt being too big are not new! As our book pointed out, when Kennedy proposed a ten billion deficit to deal with what we would now consider a mild recession, people were aghast. In 1988, a poll of the American People said that the deficit was the number one issue (by fourty-four percent to the next closest, "protecting jobs from foreign competition.)
At the time of the book, the deficit was 2.6 trillion or ten thousand dollars for every man, women and child. Now, the United States household debt (including mortgages and credit card balances) is 13.5 trillion and the federal government debt is about seven trillion (1) or about 20 trillion. That works out to $43,874 and $30,000 per United States Resident. Or more realistically, as some people are not working, about $60,000.00 per worker for the public debt and $30,000.00 for private debt. The average student graduates with about $23,000.00 student loans outstanding.
Drs. Heilbroner and Bernstein also pointed out:
Also, they observed that perhaps the trade deficit caused the federal deficit. Note that in the late nineties when we had a balanced Federal budget, there was still a bad trade deficit. Table Eleven ranked the major economies on the basis of government debt and on their trade deficit. The United States was six out of seven on the federal deficit size and the worst on the trade deficit.
And, of course, the United States is by no means the highest on the list of countries, when ranked by public debt as a percentage of GNP. Japan is the highest at 198 per cent (excluding Zimbabwe). My University college of business and Technology ethics day had a talk on sovereign debt. They pointed out that although Japan had a very high public debt, 90% of this was held by Japanese. The United States was at 61.5 percent and is comparable to countries such as Canada, Germany, France.
Scary Numbers!
But what if we converted our debt to a share economy, dividing that figure by five per cent. And make it a share of income. Average income is $30,000.00 in the United States. Assume that this income is for the next twenty years. Or we are left with about a ten percent share. That means the United States worker would be free of all debts and worries, The median Salary in the United States for men is $45,000 and $35,000 for women. They would just pay about ten percent of their income.
Dr. Krugman looks at the federal deficit differently. Currently, the Federal Government pays 1.5 percent on ten-year debt. Even if our total debt was equal to our gross domestic product, then the cost per individual is 1.5%--probably not even noticable. Paul Krugman pointed out the danger of relying on short term debt and a commentor pointed out the folly of relying on ten year bonds--what happens in ten years? We may not be able to renew the debt. This is why the share economy calls for the end of arbitrary time restrictions on contracts. We saw what happens to reliable companies when debt becomes due at some arbitrary time that has no relation to the real world.
Whichever percentage and way one looks at, the debt holder would be in about the same position. There is no interest but assuming wages or income rises with inflation, the debt holder would not be damaged by inflation. And the debt holder also benefits from the natural growth of the economy, improvement in productivity, assuming same are reflected in the wages.
Many states and nations are turning to small excisse taxes to help finance. And we learn from Dr. Buchanan that even back in the sixties, people were less likely to favor government programs, if they were explicitly told that taxes would be raised to pay for them. And now, individuals are in favor of having everyone insured but not having increased charges, and they are in favor of everyone having health insurance but are against a penalty for those who choose to remain uninsured..
Of course, we should go to a general badness tax on all goods.
Meron Benvenisti made a pronouncement that 'the fight for the two-state solution is obsolete'" because of settlement pressure.
I will do a Thoughtful Thursday on The Constitution Construction Kit.
Thanks to the Juries blog for the link.
Sortition juries should approve investments as having social purpose. We would replace the complex of retirement mechanisms (IRA, Roth IRA's, Simplified Employee Pension plans, 401, 457) with a simple statement, money going into approved investments is not considered income. Money taken out of such is considered income. Note that the The Brookings Institution called for us to streamline not only retirement savings, but education savings, and other tax preferences such as for energy conservation and efficiency. And this simple rule would do the same as well. Certainly, many tuition and college expenditures are good--sending one's child to nursing school, for eamples. But there certainly are parents who are using college as a "finishing school" and many college students who are pursuing degrees with no job prospects such as an increse in music majors and enrollment in conservatories. Note a sortition jury can distinguish between the next Validimir Horowitz or Pablo Casals going to Juliard and an over-indulgent parent allowing their kid to pursue an unrealistic dream.
But now one can purchase gold bullion for one's IRA in spite of the environmental damage done by gold mining. And carbon credits are being given out for dubious investments. And money in an IRA can support suburban sprawl and McMansions. (In 2003, there are 3.2 million homes with over four thousand square feet and they can cost five thousand dollars a year to heat and cool.)
On money being loaned to an individual, the sortition jury can better determine whether it is needed or not and to prevent againsts usurious use. Thus, if A wanted to buy the house from someone needing to go to a nursing home, this would likely to get approved investments, for the social benefit to this person. And many other personal loans would get approved, but those for frivolous purposes could be denied.
Investing in United States treasuries would automatically be considered an approved investment; this should hopefully reduce the percentage of this debt that is owned by foreigners and make us less reliant on foreign governments to buy our bonds. (Currently half of United States debt is owned by the United States Government itself! Of the remaining half, half are owned by citizens of this country and the other half are owned by foreign entities.
In a later post, I will discuss using this to deal with out of control executive compensation and retroactive estate taxes.
Thanks to Rick Ungar and his policy page for linking to the new article from the Los Angeles Times.
The States are not the only entities that are looking into small excise taxes and fees to balance their budgets. European governments are as well, often clothing them as badness taxes. They include Finland and Denmark taxing junk food. And governments are finding they have to refund taxes on business; France is taxing sea food (invertebrates) so as to give a rebate on fuel tax for fisherpersons. The V.A.T. tax is 19.8 percent in Britain this year and slaighted to go beyond 20 ercnet.
And France is introducing a carbon tax, Britain is taxing airline tickets, billing it as good for the environment.
A combinatorial auction allows one to say that they value a set of objects that are being offered for auction. Imagine that Ms. Smith was browsing on eBay and saw a set of chairs and a table that she liked and she wanted to buy together for her dining room. However, she doesn't want the table without the chairs or the chairs without the table. There is no way she could do this now. If eBay would implement a combinatorial auction, then Ms. Smith could say or bid that she would pay $150 for both the table and chairs. Assume that Mr. Johnston bids $75.00 for just the table and Mr. Nixon bids $59.00 for just the set of chairs. The combinatorial auction system would realize that the best use (and the most money for the auction company) would happen if the pair of items were given to Ms. Smith. Had Mr. Johnston bid $75.00 and Mr. Nixon bid $76.00 for the set of chairs, the auction system would give each of these to the individual bidders and Ms. Smith would not win anything.
A lot of time in public choice is spent on dealing with multi-candidate elections. How do we deal with an election involving N, B and G and we want to allow people to say I really like N, but if it is a choice between B and G, then give me G? How do people specify their preferences. How does the election system computer decide who won? And how can we make the system strategy-proof? That is, we don't want a person who really prefers N to feel that if they rank N belong B or G, they are more likely to get N elected. One of the impressive things in Dr. Conitzer's article is the Kemeny Rule for elections. Let each person simply give each ranking. The election computer would compute a complete set of ranks that minimizes the total number of disagreements. One "disagreement" occurs when one voter ranking candidate i above candidate j and the election system ranks candidate j above candidate i. It would be great if we could do this for all kinds of things, like which bridge design do the members of the region prefer or what tax code do we prefer. Computing this is NP-complete. That means (I won't go into all the provisos here) any computer algorithm purporting to solve it for all possible sets of rankings will take time proportional to some power of the number of alternatives. In other words, for modest size problems, it is impossible to solve this generally even with computers much faster than the impressive ones that are available today. However, getting a problem proved NP-complete does not mean that an algorithm might not solve it efficiently most of the time or for most practical cases. And Dr. Conitzer reported they use CPLEX for ranking one hundred Ph.D. candidates to their Computer Science department by the Kemeny method. Dr. Conitzer analyzed many voting systems in a masterful Journal of the ACM article. In particular, although he showed that many schemes are NP-compatible to manipulate, that does not mean that one could not find an algorithm that will manipulate most practical elections as he demonstrated with an algorithm at the end of the article.
However, there are many who advocate for simply having each voter assigning a score within a range. say -1 to 1 or 0 to 100, to each candidate and the one with the highest average wins. (I will do a Thoughtful Thursday Post on Wally Smith's simulation and theorems.)
And I was impressed by the work on kidney exchanges. Assume A wants to donate a kidney to B and C wants to donate a kidney to D. Unfortunately A is not compatible with B, C is not compatable with D, but A is compatible with D and C is compatible with B. The computer system at Carnegie Mellon finds the proper matching and constructs a chain out of a set of all the people who would like to exchange kidneys with each other. However, it tries to minimize the chains.
These are examples of choice problems that don't use money. I sometimes wonder, and I will talk about this in another posting, whether this kind of technique could be used to minimize the necessity of money. As a poster on The Oil Drum put it, "Money is the lubricant in the economic engine and without enough of it that engine will seize up as it did in the 1930's when farmers dumped milk they couldn't sell into ditches while others were starving for want of the money to buy food." Could a program such this find the chains between the person working at Intel building parts for computers and the farmer without using a currencies or a numeraire?
Jean Thilmany, "Green Decisons" Mechanical Engineering Volume 132, Number Three, Pages 40 to 42
This blog's first article talked about a badness tax, applied by sortition, to each product. Engineers are developing software and data collections track the energy, cadmium, lead and other hazardous substances in the components of the things they build. This includes accounting for the energy/carbon/etc. in transporting the goods. As I am sure everyone knows, we now have sophisticated supply chain management systems. As the article says, when companies buy a product, they will be paying for the supply chain records of everything that went into it. The standards for a product to be "green" are less advanced than for a building to get certified. However, te Europeans do have standards for hazardous materials in automotive parts and disposing of electronic waste (Restriction of Hazardous Substances Directive and Waste Electrical and Electronic Equipment Directive) which is the impetus for some of this software development. Carnegie Mellon's Green Design Institute uses Input-output analysis to estimate the energy and other inputs into any product. Thus, one can look at a car, and it tracks the energy and knows how energy is used in the major parts, and transportation of each of these parts.
A sortition-based consumption tax system would allow different firms to compete on information collection and the jury can be reasonable in what it demands. unlike a regulatory agency. Toyota wold be expected to do more research on the energy costs of its cars and the components therein, than a small company making a small run of a specialized tool.
I proposed such a solution a while ago when many States were confronting (and now are) facing red ink and difficulties in achieving the political will to confront their budget problem. One can vote for the taxes to support all public goods combined. One also votes independently on how the money is to be spent.
However, another option is for the voting system to have the voters vote separately for each public good and for the taxes to carry them out. This was implicit in the discussion of Lindahl Equilibrium Dr. Buchanan has some graphical and algebraic models of the differences. I will create my own set for this group.(But I will probably do it during a break when I am not teaching.) In 1963, 41 per cent of state tax collections to specific functions and it was over fifty percent in the 1950's. Buchanan showed that the general fund mechanism gave a suboptimal voting and people would be more likely to get the amount of expenditures they wanted if they could vote independently for the taxes for each of two public goods. The Libertarian Right believes that having taxes earmarked for specific expenditures would better inform voters of what each public benefit from government truly costs. (This reminds me of "Every one wants to live at the expense of the state. They forget that the state counts to live at the expense of everyone" Frederic Bastiat 1801-1850 which is the essay for the 2010 Sir John W. Templeton Fellowship.) In fact, it would lead to more of a participatory democracy. And, from a participatory democracy approach, feminist, green and Catholic Social Thinkers also advocating more earmarking with specific voting for each category or type of expenditure.
Way back in 1963, Mueller surveyed individuals whether the government should spend more on various programs. Separately, they survry whether more should spent on the same programs, "even if taxes must be raises." The latter had a dramatic decrease in expenditures. Help for older people dropped by half from 70 percent to 34 percent Highways dropped from 29 to 10 percent. We see the same thing in health care today 67% of Americans said that everyone should have at least some health insurance yet 64% are opposed to a tax penalty.
James Q. Wilson and Edward Banfield looked at votes for spending in municipalities. Both low and high-income people voted for public spending--the middle income group tended to vote against taxes and spending.
People's Knowledge of their taxes is somewhat limited. When asked what they paid in their tax, seventy percent can name a number within twenty-five percent of their true liability. Of course, now people would have better access. I would propose that they bring up their Turbo Tax or whatever tax program they use when they vote. Researchers found that lower-income tax payers tended to overestimate the bite from taxation. A study in Germany found that people had even less of a knowledge of excise taxes. And a study in Britain found that the public had a very poor knowledge of how much was spent by the government on each area and overestimated the percentage of government paid by user fees, e. g. Medicare Recipient's pay some copays as well as some of the cost of Medicare Part B. How much of the total Medicare expenditures do these fees cover?
Dr. Buchanan talks about fiscal constitutionalism, the tendency to keep the same tax mechanisms. One would not expect country A to tax by property taxes and a VAT tax in 2010 and then switch to a personal income tax and an income tax in 2011 and then switch again in 2012. The rates may change, and of course, loopholes and "tax expenditures" or new credits will be added from year to year.
Thus, there are two levels of choices in participatory democracy. A month-to-month or year-to-year choice on the levels of things: should the income tax rate on those earning $70,000 to $80,000 be fifteen percent or eighteen percent, should a retiree on social security under these circumstances earn $13,000.00 per year or $13,473.00 per year? And there might be bigger choices when a country is being formed--should we have an income tax at all, how should the big decisons be made. How do we structure a participatory democracy Constitutional Convention?
Classical Economists view a tax on a specific product as a distortion as individuals will change their choices of which goods to buy independent of the purchase. (I saw this argument in my Intermediate Economics textbook "The Deadweight Loss of Excise Taxation" in Edward K. Browning and Mark A. Zupan, MicroEconomics 8/e, page 273 to 275) They would argue that an excise tax or consumption tax might create distortions while an income or direct tax would less. Alternatives are
Now, let us look at intertemporal distribution. Individuals can always lend to the government at the government rate--they can buy treasury bills. However, if they need to borrow, they will pay more interest. In this situation, a person woudl prefer a proportional rate when they expect their income to vary more than their spending.
My very first article was on a sortition based consumption tax. One of its advantages was that it did not favor imports the way a carbon tax or cap and trade system does.
A corporate tax that covers profits made abroad discourages exports as shown in two articles on the new corporate tax proposals that President Obama proposed. In particular, it adds twelve billion in taxes on businesses' overseas income.
Story argues that carbon dioxide should be applied to imports and exports, something I have argued here in the sortition-based badness tax. (Suprisingly , China and India argued vociferously for this at Copenhagen.)
General Growth declared bankruptcy. A bunch of speculators bought their bonds at three cents on the dollar. Those same bonds are selling above par and the speculators made a dramatic profit.
Aristotle and many in the United States believed that the middle class represent a liberal strength. But in many developing nations, the emerging middle class is doing things that would not be considered liberal. See this informative statistics-laden article in Newsweek. Sadly, it seems from this article they would be even less likely to support participatory democracy than Americans.
One of the complaints about political news is that more time is spent on what is called the "horse race" than on the substance of the proposals, contents of bills, candidate positons and advantages and disadvantages of same. NPR did an excellent, well balanced, and nuanced piece examining this, the relationship between President Obama and his Chief of Staff, Rahm Emanuel, and the relationship between The West Wing and the real life in the White House now.
He cited the statistics that the financial sector generates fourty percent of all the profits in the country, rising quickly of 2.5 percent to 6.5% of the GNP
Yet, Volcker says that the commercial banks do provide a real service, and run the payment system. I will address whether there are not more efficient alternatives.
