The Inmates are Running the Prison

You have all heard this comment -- the inmates are running the prison. It makes you shake your head. No, the inmates don't run the prisons. That doesn't make sense. If they ran the prison they could open the doors and let everyone out. We have prisons for a reason. If you do hear that statement it means something is wrong. 

Well, here goes. How is it possible that the same people -- the people in Congress -- set the value of both the government debt AND they decide on a debt ceiling? How is that possible? What a strange assumption about behavior. The people who create unsustainable debt would then be asked to create a debt ceiling. Would they not let the prisoners out....err I mean would they not raise the ceiling whenever the debt needs to increase again?

It mystifies me that so much press attention goes to this supposed political issue of the debt ceiling. Of course, after enough pontificating they will increase the debt ceiling. Okay maybe they will wait until they get everyone really mad, but what else are they going to do? We have a huge debt in this country and every month the government runs another budget deficit the government has to borrow. It has to sell bonds. Those bonds are the signature of the debt increase. 

Note. The government deficit in 2020 alone was $3.13 trillion. In the first eight months of 2021 it was $2.06 trillion. Those are basically one-year figures. They show how much new borrowing the government had to do to keep its activities running. Even though we took in a pile of tax revenues, we were short that much. 

Of course, we have been running such deficits each year for quite a while (since Jimmy Kiltie was knee-high to a grasshopper). The total stock of debt we have accumulated is now over $28 trillion. If you can add on your fingers or toes, they means that the debt number will increase by the sum of those recent deficits -- rising by another $5 trillion to the neighborhood of $33 trillion. Wowee. What a ride. 

Given that bit of historical background, we return to the issue of debt ceiling. If they don't increase the debt ceiling above, say $28 trillion, then the theory says the government cannot issue that extra $5 trillion of  debt. If they cannot increase the total amount of debt above $28 trillion then they have no means to pay for those annual deficits of about $5 trillion. Then what? If they can't have those annual deficits, then they either have to reduce government spending or raise taxes to erase that $5 billion debt. 

So you see why Congress would never do that to itself.  Congress cannot reduce spending nor raise taxes and still get re-elected. 

So what will they do? Of course they will extend the debt ceiling. And move our debt to $33 trillion. And they will blame Putin, Covid19, or little green people from Pandora. Each party will blame the other and Joe will blame his neurologist. 

To raise the question again. Why does Congress decide the debt and its ceiling? Why don't we have an impartial non-political institution set the ceiling? If they want I would volunteer to set the limit. Any of you want to volunteer? 

I am just hoping that none of this gets settled before next Tuesday so I can post this on my blog as news. Shoot. I will probably post it anyway. 

Moving Along

Note to the reader. This post is about death and dying. While I try to take a positive approach to this very personal and sensitive topic, it probably isn't for anyone. Take the week off if you think this might bother you. 

I am 75 now. It's no surprise. It came in bits and pieces one year at a time.

But I have to admit, it’s pretty different now and in some ways overwhelming.

We have always known that the day would come when the lights went out. When you were 14, it meant almost nothing to you. Getting a hit in your next Little League game meant a lot more.

And then life goes by. Education, love, marriage, career, fun, and so much more comes at you.  What a whirl. Some people you know die and you take a moment to process it, but it doesn’t have much to do with you. You learn to smell the roses and to take the good with the bad. You take one day at a time, but you don’t have the time or the interest to wonder about your own eventual demise and mortality.

The demise process is almost as daunting as the end. The lights going out seems scary enough. But lately I have been dwelling on the demise part. Getting run over by an Amazon delivery truck might be the way to go. It's quick and maybe your heirs can collect. You might not even know what hit you. Bam. So long.

But we all can’t be that lucky. I don’t know about you, but I must have a dozen little things that might get me in the end. When you are 75, there is one thing that is very true. Your body is 75 years old! No kidding. Your brain might think like a teen on steroids, but your body is 75 years old.

That means your skin and your organs and your glands and your bones and your teeth and all that stuff are 75 years old. It was probably meant to last 50 years but there it is – 75 years old. Sure, you can work out and you can apply creams and do a lot of things to slow the process down, but we don’t kid ourselves. These remedies apply only a bit of friction against the eventual decline of our many body parts.

My eyes started declining when I was 30. Today I can barely hear a freight train and don’t get me started on my prostate. What about all those brown aging spots? Dudes, it is all going and there is little we can do.

Luckily, a lot of these things are manageable. We can take some drugs and have surgery. I used the word demise above. We are demising for sure but the thing that sometimes keeps me awake at night is the actual process. The Amazon truck is one thing – it’s fast. But what about the slow alternatives? We all want a slow alternative that is not painful and wherein we have some brain functions left as we decline. But we have very little control over the last chapter. It might be painful. It might be perplexing and confusing. Not exactly the way we want it to end.

Some of you notice that I have ignored religion and afterlife. For many of you, there is much comfort in knowing that you will be moving along to heaven. The above is not, therefore, of much interest to you. I hope you are right, and I wish you bon voyage.

I am not sure what is left to say. I am not writing this because I have been diagnosed with something terminal. I hope to live a lot longer. I am writing this because this is a topic that no one wants to discuss. It is probably the best-kept secret out there. People who are very ill don’t want to scare everyone else. People who are worried they will soon be diminishing would rather talk about happier topics like Covid or Donald Trump.

I feel better having put my spin on Moving Along. I’d love for you to share your thoughts too.

One more point. This piece is not meant to be morbid. I don't know how you will react to it. My take is that we should enjoy that last chapter. Some people will want to fight to the very last gasp. Others will go more gently into that good night. Whichever it is, I want to be aware and I want to make the most of every moment. It might be a last chapter but it might also be a really good one. The alternative is that it will be the last chapter and a very bad one. I'd rather not go in that direction. 

Is the Fed Redundant?

Reading the newspaper lately makes me wonder if the Fed is redundant. I looked up redundant -- it means no longer needed or useful; superfluous. 

Don't get me wrong, they do provide a lot of cheap entertainment. But that's about it.

We didn't always have a Fed. It was created around 1914 by the Congress. Congress felt it was not up to the task of supervising banks and regulating the economy. Sort of like Beavis deciding to create Butt-head.  

We have other institutions that regulate banks. The Comptroller of the Currency and the Securities & Exchange Commission regulate banks and could easily take over the Fed's role of bank supervision.

And then there is the supposed role of maintaining maximum employment with stable and low inflation. The Fed was given the unique role of creating and controlling the money supply to attain economic stability. But clearly, the Congress and the President are capable of doing those things. I say that because the Fed and Congress and the President don't really care about inflation -- they essentially have taken the employment drug and and do a great impression of the Three Stooges in that regard. I cannot imagine the Congress making a bigger mess of things than the Fed does.

For example. In the paper today I read that even though the Fed has exceeded the goal inflation rate of 2%, they have made up at least a hundred excuses as to why an inflation rate of 5.4% is not higher than 2%. It is very funny. How could Congress do anything more stupid than that? At what point do they decide that 5.4% is higher than 2%? Maybe when it hits 54%?

Of course, that whole discussion is misleading. The real problem with the Fed these days is the same problem as with Congress. These people are not motivated primarily by economics -- it is all politics. One does not have to be a Trumper to see that Biden/Powell are two liberal peas in a pod. Neither Biden nor Powell would do what is necessary to control escalating inflation because it might have negative short-term impacts on employment. There might be a news headline that says -- Biden/Powell cause interest rates to rise and that hurts the housing market. Gold-forbid such a headline. 

Which brings me to one more point about the Fed. That is this fiction about Fed bond purchases and interest rates. Powell keeps saying that they are going to taper and then they are going to end bond purchases which pump money into the system. He somehow separates that tapering from the role of interest rate management. That is nuts. If the Fed reverses its activities and stops providing trillions of dollars to money markets, surely interest rates are going to rise. That is what they should be doing. But how can they do that when they see tapering as separate from interest rates? That is really weird. Where do they come up with this stuff?

They would prefer to look the camera in the eye and explain that 5.4% is not higher than 2%. If the Congress already prefers liberal/progressive economic policies, why do we need the Fed too?  Abbott and Costello for sure. Enjoy the entertainment. 

Okay. I have pontificated enough. Am I recommending that we get rid of the Fed? Of course not. They might not have anything useful to add to economic stability and bank regulation, but they sure provide a lot of entertainment. 

Taxing the Rich and National Saving

 The latest public discussions concern taxing the rich. The context is usually very narrow -- with a focus on inequality. The logic is simple. The rich, for whatever reason, have a lot more income and wealth than it takes to live. The poor don't have nearly enough. Any simple sense of fairness would argue for a redistribution. Taxing the rich, including corporations, seems to be the preferred vehicle to make things more fair in America. 

Those who argue against this logic typically get caught in the bind of one dimension -- fairness. I remember professor Adler at Georgia Tech teaching us the the idea that every policy has both direct intuitive effects AND not so obvious ones. The discussion about higher taxes on the rich and corporations must therefore widen the argument. What could go wrong if we try to do what is right? 

One thing that will clearly be affected by a policy to increase taxes on the rich is how those taxes affect national saving. National Saving? Really? It's true. This is critical. Why? Because national saving is what shows up in banks and other financial institutions and makes it possible for us to borrow. Imagine an extreme world where there were no savings sitting around in banks? When you went in for a car loan or a company went in to borrow money for a new plant, the banker would shrug and say sorry. We have no savings here and have nothing we can lend you for the plant that will employ workers or the store/plant that will sell/produce a car for you. 

Why do I single out saving? Because here is a very clear case of rich versus poor. As you might imagine, the rich do most of the saving in the US. The richest Americans who are about 1% of the population account for at least 40% of all saving. Poor people account for almost zero of it. If we decide to tax the rich a lot more, then the rich will respond by spending and saving less. The drop in spending reduces demand in the economy. The drop in saving means less money in financial institutions and less borrowing for spending and projects. 

This illustration with saving is meant to get at Prof. Adler's idea that you have to look at the obvious and the less obvious when analyzing any policy change. 

A second point concerns the efficacy. If we tax the rich more, will that really reduce income and wealth inequality? Will that tax money really be used to significantly and permanently change the condition of those with lower incomes? We have had a progressive income tax and growing entitlement programs for decades, yet this has not dented poverty and has not resulted in more equal incomes. What do we do ten years from now after we have significantly raised taxes on the rich and income inequality remains skewed? 

Does this mean there is nothing we can do? I don't think so. Maybe we are barking up the wrong tree? It might be easy for politicians to raise taxes on the rich. They can go home and sleep better. Maybe they simply are not up for the work of attacking what's really the problem?