Tuesday, December 31, 2013

Duck Divided

I have to admit I feel a bit silly even commenting on this story at all.  I don't watch Duck Dynasty and I certainly spend very little time thinking about it.  I have passing familiarity with the premise of the show and with the family whose antics it portrays.  I know their story, and I know that they are very popular in some circles, for various reasons.

By now you almost certainly know that A&E has "caved," announcing that Phil Robertson would return to the show.  I have a hard time believing that this whole affair was something other than a publicity stunt, designed to get people talking about the show in advance of the upcoming fifth season premiere.  The main reason why I suspect a stunt is A&E's disproportionate initial response.  Let's face it:  Phil didn't say anything that he's never said before, at least in character if not verbatim, and he's never made any secret of his claim to adhere to the Bible in forming his opinions about matters like homosexuality.  There is simply no reason why A&E would act as it did now after all of these years.  So the most likely explanation is that it was a set-up.*

* - I suspect that there is some sort of internal war at A&E over this show.  Despite the fact that DD makes A&E a lot of money, there are very likely some powerful people at the network who really don't like holding these people up as paragons of wholesomeness, and someone seized on an opportunity to use the network to make a statement about their own values.

This incident, however, has nonetheless provided an opportunity to talk about some aspects of our society in which there is a seemingly intractable conflict and prompted some people to speak about things of which they have lately been silent.

Phil's supporters were quick to howl about A&E's supposed infringement of his free speech rights.  I can tell you as a lawyer that the First Amendment protects against government action, and A&E is a private company.  Phil can say what he wants to say and he's not going to jail for it, but A&E is just as free to fire him for saying those things. 

But that's mostly a diversion.  The larger outcry is from the people who (1) agree with the sentiments he expressed, (2) heard him called a bigot, and (3) don't like being called bigots, even by implication.  Those people took the further step of claiming to be the oppressed party in our society, a group of people with old-fashioned ideas about values and sexuality who (apparently) want to denigrate, in the crudest of terms, those whose proclivities and activities fall outside their own, yet cannot freely express themselves without being called names.

The old "PC" canard even made an appearance.  I have been hearing the term "politically correct" for something like 25 years.  In all of that time, I have never heard that term used by anyone as something aspirational (as in "I really wish you would make your comments more politically correct"). 

Instead, the term "politically correct" is used by people who want to be free to express bigotry without being called bigots for it.   It's true that one of the overarching goals of the modern progressive movement is to convince people to be less bigoted.  But the speech you use is merely a by-product of what you think.  I am really not interested in people hiding their bigotry; there is no need to modify your speech to reflect something you don't believe.

That is, I think it's better for the Phil Robertsons of the world to make it clear, for example, that they view homosexuality and bestiality as pretty much the same thing (and, oddly, the source of sin), or that blacks were better off and happier under Jim Crow.  If people hide their wrongheaded views, they tend to fester because we never know to respond to them. 

Oliver Wendell Holmes, Sr.** wrote once that "The mind of a bigot is like the pupil of the eye; the more light you pour upon it, the more it will contract."

 ** - Holmes, Sr. was the father, quite naturally, of Oliver Wendell Holmes, Jr., one of the great Supreme Court justices and a close friend of Louis Brandeis, about whom I have written previously.

By derisively calling respect for others "political correctness," bigots seek to undermine the power of the central progressive message:  that we're all in this together.

As I was discussing this issue with a longtime friend, one who is a big fan of Duck Dynasty and who shares those religious sensibilities, I found myself making a meta-argument in trying to explain to her that she was mischaracterizing my side's position.  I realized at that point that the fundamental problem here isn't that the two sides don't understand each other.  It's that there are sides in the first place.

Don't get me wrong; I'm not against "sides" per se.  But here's an illustration of the problem:  Sarah Palin, the half-term governor turned professional loudmouth, was quick to Phil Robertson's defense, talking about how A&E was oppressing him for his Christian beliefs and violating his free speech rights.  Later, she admitted that she hadn't even read the comments she was defending.  He could have been advocating for the summary execution of homosexuals, for all she knew.  But she knew one thing:  In her worldview, you're either with her or you're with the enemy, and Phil Robertson was definitely with her.

This is a problem, not because Sarah Palin's a halfwit, but because it's symptomatic of the sort of tribalism that is tearing this country apart.  When you have one party controlled by a core group of people who are fiercely dedicated to the propositions that our nation works best as a theocracy and that compromise is the worst swear word you can say, our whole system is in danger.  When James Madison and his crew were writing the Constitution, they were operating from a set of initial conditions in which the various factions disagreed about policy, often vigorously, but were willing to accept the validity of a democratic framework as a mechanism for resolving those differences and moving forward together.  They understood that the fabric of our nation was knit from the structure of our governance, not from commonality of religion or of heritage or of class or of interest.

That framework has been often tested, and it has been found wanting only once:  When our nation became so divided against itself that we took up arms against each other.  The darkening clouds of division and insurrection led Abraham Lincoln in 1858, when accepting the Republican nomination for Senator from Illinois, famously to paraphrase Mark 3:25:  "A house divided against itself cannot stand."  Fortunately, our Union survived that test, but it took everything we had and then some.

The problem with Phil Robertson's comments is not that he makes them but that he believes them and in all that they imply.  His whole belief structure appears to be built around the idea that there is an "other," a person who differs from him and who is therefore less deserving than he is of respect, of participation, of equality.  You can be sure that he doesn't truly believe he is equal to homosexuals--or, for that matter, to the kind of uppity black folks who demand things like equal rights instead of just happily singing in the fields.

That makes him a bigot.  And there is nothing wrong with calling him a bigot, or with calling his ideas bigoted, or with saying that he is free, but wrong, to believe as he does and speak as he does, not so much because of the content of those ideas but because they are designed to separate American from American, to separate human from human, without any reason other than to lift up Phil Robertson by pushing others down.  That makes him the oppressor, not the oppressed.

Wednesday, December 25, 2013

Et in terra pax

In the Gospel According to Luke the story of the birth of Jesus is told in chapter two.  There is a particular passage there that I have always found to be meaningful.  Near the birthplace of Jesus, on the night, there were shepherds tending their flocks, when an angel appeared to them. Picking up at verse 9:

9 And, lo, the angel of the Lord came upon them, and the glory of the Lord shone round about them: and they were sore afraid.
10 And the angel said unto them, Fear not: for, behold, I bring you good tidings of great joy, which shall be to all people.
11 For unto you is born this day in the city of David a Saviour, which is Christ the Lord.
12 And this shall be a sign unto you; Ye shall find the babe wrapped in swaddling clothes, lying in a manger.
13 And suddenly there was with the angel a multitude of the heavenly host praising God, and saying,
14 Glory to God in the highest, and on earth peace, good will toward men.
(The above is from the King James Version, which I prefer for this passage.)

If someone were to ask me to sum up Christianity in a single sentence, the last line would be a strong candidate.  Gloria in excelsis Deo, it reads in Latin. Et in terra pax hominibus bonae voluntatis.  Peace on Earth, good will toward men.

You don't need to be a Christian, or even to have any religion at all, to see the value of that sentiment.

For me, the Christmas story is—unexpectedly—a wonderful metaphor, full of hope for humankind.  I see many, many people who are waiting on God to solve the problems of the world, but the solutions are in us, in our work, in our will, in our strength.  In the story even God could not, or did not, will the world's problems away, but had to (or chose to) act through a man.

That means that the capacity is within us all to effect the result promised by the angel of the Christmas story.  It begins with small acts of peace, forgetting old hatreds, atoning for our transgressions, and committing ourselves anew to the cause of peace and good will.  But it continues with self-examination. What have you done for peace in your neighborhood, in your community?  What good will have you shown to others?  As a nation, have we been for peace, or for our own interests?  Has our will toward others been good or ill?  Have we been the author of our own problems?

We can choose peace.  We can choose good will to our fellow man, even to those who would wish us harm.  The responsibility to do so lies within us.

For all those who are celebrating today, Merry Christmas.  Et in terra pax, for all of us.

Wednesday, December 11, 2013

Maybe there is a free lunch after all, or could have been

A few months ago I wrote about the saying "there's no free lunch" in the context of so-called "free" services that require users to surrender their privacy as a condition of use.  Today I'm writing about a different kind of free lunch, but I wanted to make clear that I'm not talking about the same thing just because I use similar language.

Today's Good Counsel is about economics, and more particularly about the role of the government in the economy.  I should preface this by saying that I have next to zero formal education in economics, so I'm approaching this as a layperson. I have read a great deal about the subject.  I also don't think that you need to hold a Ph.D. in Economics to grasp policy issues even as you leave the maths and hard-core theory to others.  In fact, one of the more important things I've read is that economics education tends to be extremely orthodox and conservative in its orientation, and if you know anything about me you should know that I am an enemy of orthodoxy in almost everything (I remain opposed to the use of the designated hitter, but that is a topic for another day).

I should also say that this is an enormously complicated subject, and one that can't be distilled into a single blog post of reasonable length.  But we can try.

Finally, I should further say that while this entry is long, I think the payoff is worth it, in that this is something that not many people really understand, and we are pretty much being victimized by a huge screw job.

That diversion aside, let's get down to business.

We have a rather weird set of current conditions. 

By some measures, the American economy is roaring.  The stock market is at record levels.  Gross national income is up.  The unemployment rate is down.   

By other measures, the American economy is stagnant.  Job-creation is limping along at moderate levels, at about 200,000 new jobs a month.  (A basic fact of the American economy is that we need about 150,000 new jobs each month to keep up with population growth, because that many workers enter the workforce, net of those who leave it due to retirement, death, or other reasons.)

By still other measures, the American economy is in recession.  There are millions of long-term unemployed people--otherwise healthy and available for work--whose unemployment insurance benefits have run out or soon will.  These are people who have been out of work and actively seeking work for at least 99 weeks--that's almost two years.  Years of stimulus of various types have failed to move the needle on inflation, which is historically low.  And interest rates are at the rock-bottom.

And I think if you asked the average person on the street what they thought of the economy, that person would say, "Hey, times are tough."  That may be the most important indicator of all.

One of the weirder consequences of all of this is that despite that fact basic fact--that a lot of people think we're mired in a long-term down period--the political will in Washington is to do things that are really counter to what needs to be done here.  Now, I'm the first to acknowledge that what Washington thinks and what the people think are often out-of-sync.  But official Washington, and especially people who ought to know better, seem to think that it's government spending that is the cause of our ills.

Thus we get genuinely stupid economic policy, like the sequester, and artificial fiscal constructs, like the debt limit, that serve literally no prudent purpose.

We are attempting to fight with both hands tied behind our back, so to speak.  Here's why:

Principle 1:  The government fisc is not like your family's budget.

If you want to spend money, whether it's to buy a box of noodles for your supper or to buy a house, you first have to get the money.  You can get that money by working, or by receiving it as a gift, or by receiving a return on an investment, or by borrowing it.  Your spending is limited by your capacity in each of those areas.  You can get more money by increasing your work or by increasing your borrowing, but if you spend freely you will eventually reach a point at which you will be maxed out.

For that reason, you MUST constrain yourself, foregoing things that you might like to have to ensure that you have enough resources for things you need.

But, as I have said previously, the federal government doesn't have any such restriction, because the federal government can create money at will.  You can't do that; you have to convince other people to give you money (usually in exchange for services) in order to have money.

Principle 2:  What most people think of as "money" is just symbolic of value.

I mentioned before that there are some artificial restrictions on the government with regard to monetary policy.  One of them is the control that Congress exerts over fiscal policy, through the budgeting and appropriations processes.  That's actually a good artificial restriction, because we are a representative democracy, and we like to make sure that our decision-making process is democratic in nature.  We also have the federal debt limit.  We have the Federal Reserve, which controls monetary policy in a less democratic way, using authority delegated to it by Congress.

It's important to recognize that just because the government can create money at will, in the sense of having the ability, does not mean that it does or should, in the sense of having the desire, or may, in the sense of having the authority.  But I am not really talking about those things as real restrictions on the ability to act.

Suppose I cut a piece of paper into the size of a dollar bill, drew a portrait of myself on it, and wrote that it had a value equal to "One Hundred Harringtons" on it.  If I went to Kroger, filled up my grocery basket, and went to the register, what are the chances that the cashier would accept my paper as payment for my groceries?  The answer obviously is zero.  That paper has no value.
Of course, if I handed them a $100 Federal Reserve Note with a picture of Benjamin Franklin on it, the cashier would (after ascertaining that it was real) likely give me my groceries, and, if I'm lucky, hand me a few Federal Reserve Notes and maybe some coins back as change.

Obviously there is a difference between my 100-Harringtons bill and American currency, but it's not exactly the difference you think.  To show you why, consider what would happen if I cut a small slip of paper out of the Sunday newspaper that offers me a free candy bar, and presented that to the cashier in exchange for a Twix.  That transaction would probably go through without difficulty.

The reason why Kroger accepts my $100 dollar bill and free-Twix coupon is that Kroger has a great deal of confidence that it will be able to give that bill (or that coupon) to someone else and get $100 (or the cost of a Twix) in value for it.

But there really isn't any substantive difference between my 100-Harringtons bill and my writing Kroger a personal check for the amount due, either.  A check is an instruction to my bank to pay Kroger the amount of the check, but Kroger has no way of knowing whether my bank will actually honor the check--they are willing to take it because, if the check is dishonored, they can activate a robust structural response that is likely to result in them being paid--everything from private collections efforts, to reporting to check bureaus, to bringing criminal charges, if necessary.

If you took away or significantly modified that structural response--which is a creation and function of government (although, in this case, for convenience's sake it's mostly state government)--then check acceptance would become a thing of the past.  But that doesn't mean that checks and dollar bills are substantively different from each other.

In a way, the government's establishment of the concept of "recourse" in check-writing--the ability of a financially wronged party to force the other party to make good on a transaction--is effectively the same as creating a private currency system.  Just as dollar bills symbolize holdings, so do checks, just with more flexibility.

On the other hand, the value associated with dollar bills is transferred with the bills themselves.  You could think of dollar bills as checks payable to the person who holds them--the "bearer"--for specified amounts.

Principle 3:  There are only two meaningful restrictions on a government's ability to create money.

The government creates money.  It does so in complicated ways that are beyond the scope of this entry, and we impose a lot of restrictions on the way money gets created, ostensibly in order to prevent abuse of the process.  Suffice it to say that the government creates dollars as symbols of value and injects them into the economy for use as a medium of exchange--a go-between that allows all goods and services to be priced using a consistent unit so that market participants can engage in greater specialization without harming their ability to trade.

The dollar has value by reference to what it will buy at a given point in time.  A dollar might buy six minutes of unskilled labor or a quarter-pound of ground beef or one day of wireless telephone service.  The precise numbers don't matter and are in fact in constant flux, but the point is that tradesmen accept dollars for their labor or ground beef or telephone service because they know that they can use those dollars to buy other things they need.

For that reason, the effectiveness of money depends on (a) whether it is accepted and (b) at what rate for a given trade.  The government's interest is in ensuring that trades can happen as easily as possible (as a general rule; the government uses other tools, such as taxation, to regulate trading), which means that it must put enough money into circulation to account for the transactions that are likely to occur, but not so much that tradesmen won't accept it or demand too much of it for given trades.  Finding that balance can be difficult.

The two meaningful restrictions on the government's ability to create money, therefore, are acceptance, sometimes known as confidence, and inflation.

On the broader scale, the dollar enjoys broad acceptance, not just in the United States, but worldwide. For large purchases, like a tanker of oil, the dollar is used as the medium of exchange even when the U.S. isn't involved in the transaction.  Moreover, when foreign governments need to park money for a while--a process known as currency reserve--they generally park it in dollar-denominated bank accounts. 

The reason for all this confidence is because the dollar is viewed as the most stable currency; it is viewed as such because the American economy is the strongest in the world and because, despite all of our gridlock in Washington, we still have the most stable and responsible process for managing our monetary policy.

If we do things that undermine confidence in the dollar--especially among foreign nations--then acceptance of the dollar will go down and it will cost more dollars to obtain the same goods and services.  That is therefore a real restriction on the government's ability to create money.

The other real restriction on money creation is inflation.  Most people have a grasp of inflation in the sense that they understand that the cost of things gets higher over time.  Many people also understand, in the abstract, that to the extent that the government prints money that is not backed by anything--in other words, handing out money for nothing in return--then inflation will result.

They don't really understand why that is.  But they understand that inflation is bad because it makes things cost more dollars.  Too much inflation can also be bad because it undermines acceptance; if people believe their dollars will be worth a lot less in the future, they are less likely to accept dollars (which is another way of saying that they will demand more dollars for their goods or services).

Principle 4:  The government has been enormously unfair in the way it has been increasing the money supply.

So, what does this mean for monetary policy?

With the way our monetary system, the Federal Reserve System, is set up, the government has the ability to create money simply by increasing the value of private banks' accounts at the Federal Reserve.  As a practical matter, the Federal Reserve accounts for these transactions as loans to banks that carry interest and will eventually require repayment.  But there is no inherent, structural reason why repayment has to be required.

There is a political reason why repayment has to be required--namely, that providing free money to banks that are already enormously wealthy is, one would hope, a terrible political loser.  Yet there is very little difference between the "bailout" of 2008-09 (which continues to this day) and the giving of free money to banks, because the money was lent at virtually no interest and with no collateral. Banks, not individuals, benefited from the increase in the money supply--but it's all Americans who bear the burden of inflation and reduced acceptance of dollars.  After all, we rely on the value of the dollars we have and earn to pay for things we need to live.

In fact, it's even worse than that.  One of the other things the Fed has been doing over the last few years is a project known as "quantitative easing."  Essentially, the Fed uses its money-creation ability to buy financial assets on the open market--things like government bonds, mortgage-backed securities, etc.--as a method of propping up asset prices.  The "easing" refers to the cushioning of the "blow" of falling asset prices.

The Fed has spent an astonishing $3.3 trillion through three rounds of quantitative easing. That's just over $10,000 for every man, woman, and child in the U.S.

Now, I think the Federal Reserve System is, by and large, a good system that has a lot of benefits.  You will not find me aligning myself with the dilettantes who oppose the Fed and seek a financial system based on the gold standard.  I have news for those people:  Gold no more has intrinsic value than anything else.

However, I find quantitative easing, as the Fed has practiced it, to be enormously unfair for a couple of reasons.  One, it bails banks out of bad assets by paying them at par--full nominal value!--for assets that are likely bad, which eliminates the incentives that banks have to avoid making those kinds of loans in the first place.  (Witness what happened when the Fed announced earlier this year that it would scale back QE in 2014--the stock market fell over 4% in a few days.  That tells me that the upper end of the financial system knows it is getting a great deal.)  Two, that program favors the kinds of people who hold those kinds of assets in the first place--people who have lots of money to begin with--to the exclusion of people of modest means.

It didn't have to be that way.  In fact, it could have been done in a way that would give the same net result to the banks while allowing all Americans to benefit.  Rather than handing $3.3 trillion, mostly to banks, the Fed could have handed $10,000 to each of us.  Most of us would have spent it by buying goods or paying off debts, which would have stimulated the economy, helped banks out of bad assets (loans), and had a multiplying effect throughout the economy, creating millions of jobs and ending the federal budget deficit.

Instead, we got nothing for it.  Except precisely what we have, as noted at the outset:  Some parts of the economy--the high end of the financial system--are roaring, while the broad swath of people are suffering.

Time will tell whether this activity will have a real cost to the economy in terms of monetary policy.  The bankers' lunch may or may not have been free.  (Signs point to continued low inflation.)  But this long explanation will have been worth it if you, the reader, recognize that relative to where we are now, we could have had a "free lunch."  We had an opportunity to use monetary policy to improve the financial lives of all Americans on a more-or-less equal basis, while still getting all of the benefits we got anyway (in terms of economic stability), and that opportunity has been wasted.

It should make you angry.  If more people understood the basic facts, they'd be angry, too.  I know I am.

Sunday, December 8, 2013

Farewell, Madiba

There is not a lot I can say about Nelson Mandela that hasn't already been said since his death a few days ago, so this is more of a memoir entry than anything.

I was in elementary school when I first heard about the system of racial segregation practiced in South Africa and known by the name apartheid.  When you are seven or eight years old, and adults are presenting uncomfortable and incomprehensible subject matter to you, they tend to stick to bare facts, divorced from context or consequence.  That meant that while we were told that apartheid means "apartness" and that whites were about 20% of the population but controlled the whole government and that blacks were unhappy with (and protesting) the system, there was very little of the why discussed.  Moreover, the only conclusion presented to us about the consequences of this system was that whites and blacks could not interact socially, which was of course false.

I was a weird child, far more interested in "adult" matters than my peers, and there were lots of aspects of these explanations that simply made no sense.  How, I wondered, could a minority of a population exercise oppress the majority?  Why, I wondered, would anyone care whether blacks and whites could interact socially?  I grew up in racially mixed schools, without any evident racial strife, so it was strange to me that anyone would think it important to keep blacks and whites separated.

My understanding of the issue was further confounded by a very real disconnect between the values that were being inculcated in my civics classes at the time--freedom, equality, voting, public participation in political affairs--and an American government, the Reagan administration, that seemed to be supporting the very opposite of these things in South Africa.  Weren't we supposed to be in favor of democracy and equality? 

As I grew older and learned more facts, it became less confusing.  The white minority that ran South Africa was able to do so through force--a white military, white bureaucracy, white courts and police, and a government elected exclusively by whites all acting in concert to preserve white privilege.  It was not until I studied the subject in college that I made the connection with our own American apartheid, a system enforced through all of the same mechanisms.  All of a sudden, the Reagan administration's support of apartheid made sense.  Reagan was elected while subtly, or maybe not so subtly, nodding toward racism in the South; he kicked off his 1980 campaign in Mississippi and railed against Cadillac-driving welfare queens and steak-eating "young bucks" who preyed upon vulnerable white women.  Like Richard Nixon before him, he used the "Southern Strategy" to win election by appealing to the kinds of people who had thought that having "whites only" and "colored" water fountains wasn't a bad idea.

At some point, I became aware of Nelson Mandela as a symbol of the anti-apartheid movement.  I'm not sure when that occurred; it was probably in the context of statements from black American cultural leaders who gained new prominence in the 1980s--people like Bill Cosby and Quincy Jones, to name a couple, but there were many of them:  black people who became powerful in our culture through the entertainment field, and who used that power to shine a light on Africa and African issues.  Not just apartheid, either, but famine in Ethiopia and new American colonial-style interference in African affairs.  "Free Mandela" was a liberal watchword of the 1980s; just who this "Mandela" was, was somewhat undiscovered.  And those who supported apartheid sought to fill in the blanks with the usual suspects.

Mandela, they said, was a communist*, a Marxist.  He was a black crusader.  He was a murderer, having resorted to planning and carrying out violence in an attempt to overthrow the rightful government of South Africa.  He wanted to bring about rule by the black majority so that blacks could oppress the white minority.  He wanted to steal white industry and white land.  He wanted to drive whites out of Africa entirely.  He was insane and wanted to be a dictator in the mold of Robert Mugabe in Zimbabwe or Mobutu Sese Seko in Zaire (although Mobutu was "our man," a distinction lost on the racists who were driving the meme).

* - Mandela was not a communist, and he laughed at the suggestion: "Perhaps the most striking is the cooperation between Great Britain, the United States and the Soviet Union in the fight against Hitler. Nobody but Hitler would have dared to suggest that such cooperation turned Churchill or Roosevelt into communists. Theoretical differences amongst those fighting against oppression is a luxury we cannot afford at this stage."  I've always found it funny, not humorously, but fishy, that everyone we perceive as being against us is, miraculously, an insane communist dictator, even if they show no signs of any of those things and may in fact have been popularly elected or enjoy majority support.

I will leave to others to identify which of those hoarsely whispered criticisms were accurate and which were not.  But the last few days have shown that Mandela was able to transcend, if not overcome, the calculated campaign against him, to become a man of nearly universal acclaim in his own country.  Sadly, I have seen too much commentary from Americans that we might charitably call uninformed, but is in reality more likely unmitigated racism, that seeks to be iconoclastic toward Mandela based upon those same whispered criticisms.  But it was heart-warming to see racially mixed crowds in South Africa celebrating the life of Madiba, the clan name by which Mandela is known there.  In some ways they have come much further in the twenty years since Mandela became president than we have in the nearly fifty years since the Civil Rights Act of 1964 became law.  One need only look at the histrionics exhibited by some people to the election of Barack Obama to see that.

Nelson Mandela was not a perfect man.  Like everyone, he was human.  He was certainly guilty of the crimes of which he was convicted.  He seems superhuman largely because of the restraint he showed when the change he sought was finally brought about. But if you had been in the courtroom on the day Mandela spoke from the dock, and paying attention, you would have seen that what he achieved was simply what he set out to do:
Above all, we want equal political rights, because without them our disabilities will be permanent. I know this sounds revolutionary to the whites in this country, because the majority of voters will be Africans. This makes the white man fear democracy. But this fear cannot be allowed to stand in the way of the only solution which will guarantee racial harmony and freedom for all. It is not true that the enfranchisement of all will result in racial domination. Political division, based on colour, is entirely artificial and, when it disappears, so will the domination of one colour group by another. The ANC has spent half a century fighting against racialism. When it triumphs it will not change that policy.

This then is what the ANC is fighting. Their struggle is a truly national one. It is a struggle of the African people, inspired by their own suffering and their own experience. It is a struggle for the right to live. During my lifetime I have dedicated myself to this struggle of the African people. I have fought against white domination, and I have fought against black domination. I have cherished the ideal of a democratic and free society in which all persons live together in harmony and with equal opportunities. It is an ideal which I hope to live for and to achieve. But if needs be, it is an ideal for which I am prepared to die.
There is much we could learn from those words even today.  The whole thing is worth a read, by the way, and I encourage you to give it a look.

Thursday, November 21, 2013

A victory for intellectual property rights

Christmas cinema is a genre that's been done ad nauseam (did we really need The Santa Clause 3?), but for my money, there's no better than the classic It's a Wonderful Life.  James Stewart, of course, plays George Bailey, the everyman, the dreamer, who's thrust into a life he didn't want, running the family Building & Loan, by his father's untimely demise.  The film covers an amazing swath of a lifetime of giving to others--the saving of George's brother from drowning, catching the pharmacist's mistake, fending off a bank run by pledging his honeymoon cash, and running his business for the good of the community instead of for big profits.

George is living a blessed life until a mistake brings him to the brink of losing everything.  At the end of his rope on Christmas Eve, George treads out onto a bridge, intent on throwing himself into the icy water below.  But Clarence, an angel seeking to earn his wings, is looking out for him.  When George confesses that he wishes he'd never been born, Clarence arranges for him to see what his little town would be like without him.  When he sees the impact of his life on others through the prism of his absence, George realizes that he does indeed have a wonderful life, too precious to throw away because of some financial trouble.  In the end, the friendships he's made save him.

It's a great film--funny, romantic, dramatic, emotive--and although it's the product of a different, less cynical, more credulous time in American history, it's still among my favorites.  You don't have to believe in angels to get the message.

Earlier this week, it was announced in Variety that a sequel is in the works, this time featuring George Bailey's grandson (also George Bailey, and as-yet uncast) as the near-suicidal man on the brink, and Karolyn Grimes, who played Zuzu in the original, as his guardian angel.  In a twist, the younger George is unloved and unlikable, in contrast to his universally acclaimed grandfather, and the alternate reality he sees will show him how much better the world would be if he'd never been born.

Presumably the goal would be to reform him, although the AV Club--a project of the satirical newspaper The Onion--suggested that the message might be, "Go ahead and kill yourself, the world will be better off."  Not exactly a fine Christmas message.

I happen to think that this is potentially the biggest sequel-related Hollywood atrocity since The Lion King 2½, and maybe since Another Stakeout..

It may well be that It's a Wonderful Life story needs refreshing.  I wasn't happy when they re-booted Star Trek, but I have to admit that the franchise has been re-energized by the process.  The recent Batman films have far exceeded the Michael Keaton original as filmcraft.  And remakes are hardly a new concept.

But I'm concerned that producing a sequel to It's a Wonderful Life will almost certainly lead to a cotton-candy sentimental story that lacks the emotional depth of the original.  Bringing back Zuzu--which means she's dead, by the way--strikes me as a gimmick staged to make a buck rather than to craft an enduring film.  It cannot help but cheapen the original.

To put it another way, this is a stunt you could easily see on the Hallmark Channel.

Fortunately, Paramount Pictures, which controls the rights to the original, has stepped up to indicate, if somewhat obliquely, that this project will not go forward.  Paramount made it clear that any sequel would need official licensing and that it would vigorously defend its rights in the original.  That's code language for "over our dead bodies."

So, intellectual property rights to the rescue.  The world is saved from this hideous barbarity.

Wednesday, November 20, 2013

In defense of the Methodists

When I was 12, my family moved from Pine Bluff, Arkansas, then a city of about 60,000, to Sheridan, a town of about 3,000 some 30 miles away, where my dad's parents lived, where my dad grew up, and where my parents had met.

We had been Presbyterians in Pine Bluff, but there was no Presbyterian church in Sheridan.  As we were a churchgoing family, it would not do to stay home on Sunday, so we tried the Baptist church where my grandparents were members.  It was nice enough, and large enough to have plenty of kids my and my brother's ages, but there were some problems.  In Pine Bluff, our church was what passed for liberal in a small Southern city. It had even begun to desegregate and had hired a female associate pastor, but even more than that, it was doctrinally liberal, consistent with the national denomination's ideological bent toward social justice.  The Baptists, however, were the opposite of that, as befits most Baptists--though it was less so in the 1980s than today.  In a meeting with the Baptist pastor, my parents were encouraged to try out the Methodist church down the street--not out of any rancor, but out of the recognition that we would find the Methodists more in line spiritually with what my family was used to.

So that's where we landed.

I have written on this page about where I stand today, but in those days, it was as good a fit as might be expected.  I am lucky to have grown up in a tradition in which careful examination and scholarship are to be valued even when they challenge the old ways of thinking, and I tend to think of myself as Presbyterian in my approach to policy if not in my conclusions, especially about spiritual matters.  I have always found the Methodists similarly to be thoughtful and intentional when it was important to be so, but in my experience, most Methodists are content to be easygoing, open to all, and nonjudgmental.  They dislike strife even as Baptists seem to thrive on it. 

There is a great struggle within the old-line main-line denominations--the Presbyterians, the Methodists, the Lutherans, the Episcopalians, and so forth--about how to deal with the rapid changes our society is experiencing.  These denominations, for various reasons but largely because of their focus upon scholarship over evangelism as means for developing faith, have tended to be more accepting of social change than their more conservative brethren, even if some have come more slowly to that status.  (There is a great line in Norman Maclean's A River Runs Through It and Other Stories in which Maclean's father, a Presbyterian minister, is said to regard Methodists, contemptuously, as "Baptists who can read.")  It is to their credit that it's a struggle, because in the more evangelical branches of Christianity, it's not a struggle in the slightest.  It's hardly even a question.

That struggle has brought the Methodists into the news lately.  Rev. Frank Schaefer is the pastor of the Zion United Methodist Church of Iona in Lebanon, Pa.  In 2007, he officiated at the wedding of his son in Massachusetts.  The controversy is that his son is gay and married a man, an act that was legal in Massachusetts but not recognized in Pennsylvania.

After a complaint brought by a parishoner, Rev. Schaefer was charged under the rules specified in the Book of Discipline, a Methodist doctrinal document that carries the force of law as far as the church is concerned, with officiating at a same-sex wedding and with being disobedient to the order and discipline of the church.  On Tuesday, a panel of 13 ordained Methodists voted unanimously to find him guilty of the charges and to impose upon him a 30-day suspension.  The judgment also carries the proviso that if Rev. Schaefer officiates at a future same-sex wedding, he will be defrocked.

Anyone who reads my blog or who interacts with me regularly in any other way will know that I have been a long-time supporter of the legal recognition of same-sex marriage, dating even to before Vermont passed the first-ever "civil unions" statute.  Rev. Schaefer's decision to officiate at his son's wedding was undertaken with the knowledge that doing so violated the rules of his church.  It was a brave act and a loving act for which he is to be commended.  The church's decision to discipline him for doing so is merely the latest in a long parade of horribles through which Christian churches have sought to stem the tide of social change.  In the abstract, I oppose their decision.  I wish they would be better people than they are.

Nevertheless, I am writing today to defend them, and I write also today to defend everyone who chooses to say "no" in their private lives to gay marriage on the basis of a principled objection to it.  I believe that the law should recognize same-sex marriage on the same terms as different-sex marriage, and I am convinced that in a short time, the law will do so.  The freedom of all Americans--not just people who want to enter into same-sex marriages, but all of us--depends upon the extension of the freedoms that recognition of same-sex marriage provides.

But our freedom also depends upon the rights of conscience and the free exercise of religion.  We cannot advance ourselves by forcing one group to step aside from their rights in favor of another.  Religious people must remain free to decline to participate--not to have their beliefs codified in the law, but to determine for themselves how they themselves act.  As such, the Methodists must remain free to discipline their clergy for violating church doctrine, as long as that discipline carries no legal consequences.

For the record, I don't think this concept is necessarily limited to churches.  I am not comfortable with private service providers being forced, through the law, to accommodate customers whose business violates the service providers' conscience.  It should not be illegal for a baker to refuse to furnish a cake to a same-sex wedding party, for example.  On the other hand, should a reception hall that is in the business of renting out space for weddings as a public accommodation (like a restaurant or hotel is a public accommodation) be permitted, under the law, to discriminate against same-sex couples, when they would not be permitted to discriminate against mixed-race couples or (more broadly) minority couples?  Should a pharmacist be permitted to refuse to dispense birth control on the basis of a religious objection?  My gut reaction is no to both.  In the latter case, the problem I have with it is that the law reposes special trust and licensing in the pharmacist and restricts access to drugs on that basis, but overall, I have trouble figuring out where the line should be drawn and on what basis.

That does not mean that these folks are immune from criticism.  I believe their doctrinal decision is foolish, short-sighted, and wrong, and I don't mind saying so.  But that's hardly the only thing, or even the most important thing, over which we disagree.

And it doesn't leave Rev. Schaefer without recourse.  He can use this opportunity to show how his church is wrong, and perhaps his efforts will lead to change.  If not, it is certainly no blot on his record to have been defrocked as the result of an unjust policy.

Thursday, November 7, 2013

Are you on drugs?

If you don't watch the news, or the Daily Show, or read the newspaper, or watch late-night talk shows, or if you otherwise live in a cave, then you might not have heard about Toronto (yes, the one in Canada) mayor Rob Ford.

To call Mayor Ford "embattled" is putting it mildly.  Already derided as a notorious binge drinker enveloped in a cloud of continual controversy, Mayor Ford came under new scrutiny back in May when the Gawker website announced that it had been offered video that purported to show Ford  smoking crack cocaine and sought to raise money to buy the video. 

I am not sure precisely where "crack" falls in the ranked order of drugs that are bad for you to do, especially if you are a politician, but let's say that it, heroin, powder cocaine, and crystal methamphetamine are 1, 1A, 1B, and 1C.

In fact, crack is such a notoriously bad drug that at some point it became a perfectly normal response to ask, following someone's obviously wrong observation, whether the speaker was on crack:

A:  "George W. Bush is the greatest president of my lifetime."
B:  "Are you on crack?"

Anyway, this would have been a pretty easy thing to deny.  First of all, do they even have crack in Canada?  And besides, Rob Ford is, like most Canadians, a middle-aged white guy, and if there is anything we know about middle-aged white guys, it is that they prefer powder cocaine if they are rich and meth if they are not.  So what if he pounds a fifth of Seagram's VO every evening?  That's just a poor life choice.  Crack is for people who are referred to as "Canadians" (warning: NSFW; see definition 2) by the waitstaff in American restaurants, not actual Canadians.

And Ford did deny it, and said that there wasn't a video because it never happened.

Except.  Turns out, a few months later, that a video did surface, showing a guy who looked an awful lot like Rob Ford smoking something that looked an awful lot like crack cocaine from something that looked an awful lot like a crack pipe.

Now, at that point, once he knew there was a video, His Honor probably would have been well advised to throw in the towel.  In fact, he was advised to do just that.  Unfortunately, as the video establishes, Ford is actually a crack smoker, and that might have impaired his judgment just a wee bit.

So he denied it.  I belong to the school of public relations that says that one should admit that which cannot be denied, and deny that which cannot be admitted.  I have to admit that if, at that point, Rob Ford believed he had any chance at all at keeping his job, he needed to apply the second part of that rule.

But it was on video.  On video.

So the first part of the rule got applied yesterday, when the Mayor finally admitted that yes, it was entirely possible, just a chance, mind you, but in the fog of one of his drunken stupors, yes, in fact, that crack pipe just might have touched his lips once or twice, but he just didn't remember it ever happening, probably because of the alcohol.

Now, this is just me, but if you are drinking so much that you can't seem to remember whether you smoked crack or not, you might want to back off a bit.

And if Rob Ford had had the good sense to resign, like any decent person would have done, that probably would have been the end of it.  Soon he would recede into the fog of our distant collective memory, eventually showing up only as part of a Daily Double on Jeopardy! ("I'll take Whacked-Out Canadian Mayors for $800, Alex").

Of course, as we've already established, Rob Ford is a crack smoker.  Resign?  Pshaw.  Never.  He's sticking it out for Team Ford!  In fact, he used his latest press conference as an opportunity to announce his bid for re-election.

Hey, you've got to respect the guy's persistence.  When your behavior is so bad that "I was in a drunken stupor at the time" seems like the relatively better thing to admit, managing to get out of bed each day really ought to be considered a personal triumph.

But Rob Ford has some powerful enemies.  I'm sure those enemies thought that the drug allegation (with video!) would be enough to do him in, kind of like when you find that creepy centipede you found in the corner of your shower and hope that a spray of water will be enough to flush him down the drain.  But today, after seeing Ford clinging to the drain for dear life, they brought out the Raid.

During the drug saga, Ford was filmed coming out of his residence in front of a gaggle of reporters.  He politely asked them to get off his property, and when they didn't immediately comply, he went totally bat-s--- insane on them, screaming like they were stabbing out his eyeballs to GET THE *&^#$ OFF MY @#(*$()* )(*$*(^$_)# @#$)$)(!#$*#*(!  The blue streak could be seen and heard* from the International Space Station.  To show it on American TV, CBS had to borrow the censor button usually reserved for making Eminem's raps suitable for radio play.

* - As Gravity reminds us, there is no sound in space. This is dramatic license.

That was bad enough.  But let's go back to the videotape.  Today, a new video surfaced in which His Honor is waxing poetic on what he is planning to do to someone, presumably one of his political opponents, or maybe a reporter, or an aide.  Or, who knows, maybe just some random person on the street because--I've mentioned this before--he's a crack smoker:

I'm going to kill that f---ing guy. I'm telling you it's first-degree murder ... He dies or I die, brother. ... When he's down, I'll rip his f---ing throat out. ... I'll poke his eyes out. ... I'll make sure that motherf-----'s dead. ... No one is [going to] f--- around with me. ... Don't tell me we're liars.
Now, who among us hasn't wanted to kill a motherf-----?  We just usually have the good sense not to admit to it on video. 

But Rob Ford has an excuse.  He was "extremely, extremely inebriated."  I'll bet.

I suppose it could have been worse.  He could have been the mayor of San Diego.

Wednesday, November 6, 2013

A Lesson Learned

I have not yet seen "12 Years a Slave," a new film from Steve McQueen (not the long-dead action-movie star, but a British writer-director whose work I'm not familiar with), so my commentary today isn't about that.  I am told, however, that the film is stunning, even "concussively powerful"--see below--in its depiction of slavery.

For those who aren't familiar with the story, a brief synopsis:  In the 1840s, a free black musician from New York, Solomon Northup, is lured to Washington, D.C., where he is kidnapped and sold into slavery.  The loss of freedom and property is total; he is held in bondage for 12 years before being released when his status as a freeman is verified.

It is hard to express in words the visceral disgust I feel regarding this American's treatment.  And yet, at the same time, his treatment was no worse than that doled out to millions before, during, and after his enslavement.  Perhaps it hurt him more to have been free and to have it taken away from him, but those who were born into slavery were no less robbed than he was.  For them there was no happy ending except through the barrel of a gun.

I am prompted to write about this subject by a column in today's Washington Post by Richard Cohen.  I'm not a fan to begin with, but his words today left me shaking my head.

Apparently, Richard Cohen has been laboring his whole life under the belief that slavery, while philosophically horrible and against our highest values, was mostly a benign institution under which mostly benevolent white people merely exploited the labor of mostly content black people.

I find this to be a bizarre view.

I suppose congratulations are due Mr. Cohen in some small measure for righting a wrongness in his thinking, and he can't, of course, help what he was taught.  We might even expect such a sanitized view of slavery to be taught in the more rural reaches of the Deep South--still inexcusable, but not unexpected--but Richard Cohen grew up on Long Island.

Lest there be any confusion, let's be clear:  Slavery was a crime against humanity on par with the Holocaust.  That it was tolerated for so long, and defended by so many, is a stain on our forebears. 

I have lived my entire life in states where slavery was legal 150 years ago--Arkansas, Maryland, North Carolina.  Growing up, I heard the lesser lights trotting out the familiar tropes of Southern martyrdom:  If we'd-a won the war, we'd-a been a lot better off.  Hank Williams, Jr. turned that into a hit song, even.

That kind of attitude has always sickened me.  "We" did win the Civil War.  In no way do I identify with a group of people who engaged in armed insurrection against the Union, who turned their backs on the Constitution, and who did it in defense of the stomach-turning idea that one man may properly own another as property.  I stand with the Constitution, now and forever.  I am an American, first, last, and only.

I have heard my whole life about how the Southern rebels were "honorable people," "fighting for principle and their way of life."  Their way of life was a betrayal of our most sacred concept:  that the rights to life, liberty, and the pursuit of happiness are inalienable and inviolate.  (Yes, I recognize the huge irony that the man most responsible for putting that concept onto paper at our founding was himself a slaveowner. He had a blind spot, and it stains him, too.)

It is hard to conceive of a situation under which any thinking person could think of slavery as something less awful than that.

So I am, to some extent, shocked to hear that Richard Cohen is only now coming around to the reality of what slavery was.

At the same time, perhaps it explains why certain people have spent the last 150 years working as hard as they could to keep their boots on the necks of those who would have been their slaves.  Perhaps they simply don't realize how degrading to them their support of slavery and its progeny really is.

Thursday, October 31, 2013

No, the Federal Debt Doesn't Matter. Really.

If you can only afford the time to pay attention to one blog entry from October, I'd ask that you make it this one, because this stuff is the second most important thing that almost everybody is wrong about.  

This entry is about the public debt and private debt. Most people think they ought to be concerned about how much money the federal government owes and happily borrow themselves into a risky position.  They have both parts dead wrong.

The Treasury tells me that the public debt as of the close of business on October 29, 2013, stands at $17,090,753,527,402.48.  That's $17.09 trillion.  It's a lot of money.  In fact, it's so much money that the wealth of the richest man in the world--Carlos Slim of Mexico,* who made most of his money in a company called América Móvil, is worth about $73 billion--is basically a rounding error.  In other words, if you confiscated Slim's holdings and used them to pay down the debt, the debt would still be $17 trillion.

* - Forbes tells me that Bill Gates recently eclipsed Carlos Slim to regain the title of the richest man in the world, with $72 billion.  I'm too lazy to resolve the discrepancy.  Choose Gates or Slim; I don't care.

It's easy to get lost in the numbers.  It's the same thing that keeps people from understanding astronomical distances. (I mean "astronomical" in the sense of actual astronomy, not in the sense of "outrageously huge.")  For example, Earth is relatively close to Mars in astronomical terms--close enough that we've sent a few rovers there and will probably send a manned mission in my lifetime. It seems close. But on average, Mars is about 225 million kilometers away from us.  Let's say that we send humans to Mars.  Let's think about what a radio conversation with those astronauts would be like.  Radio waves travel at the speed of light, and between here and Mars is mostly a vacuum (it matters; trust me), so words spoken here would travel to Mars at 300,000 kilometers per second (slightly less, actually, but we'll round up).  That's pretty fast, and in fact nothing can travel any faster than that.  So the words "Mars Expedition, Houston here, how are things going?" will get to Mars 12.5 minutes later, and the response, "Houston, Mars Expedition, things are going great," will get back to Earth 12.5 minutes after that.

Can you imagine having a meaningful conversation where every exchange takes a minimum of 25 minutes?  It will be excruciating.

Anyway, back to the public debt.  Yes, it's $17 trillion.  However, the "real" debt is about $12.1 trillion; the rest of the debt, almost $5 trillion, is owed to the government.  (Yes, the government lends itself money. The reasons are complicated.)  It's a lot of money.

But let's set that aside for a moment.

When you and I borrow money, we become obligated to do two things:  (1) to pay interest on the outstanding balance of the loan, at some specified rate, and (2) to pay off the principal, either a little at a time or all at once or some combination of the two.  When I was younger, I thought that borrowing was a really good idea, because it meant I could enjoy things now that I couldn't afford without borrowing, and because I had a relatively high capacity for generating income.

And income is what you need to manage both halves of the borrower's obligation.

In fact, income is really the only significant factor affecting your obligations as a borrower; either you have it (or can get it), or you don't, and no amount of other maneuvering will make your borrowing effective for anything but a short period of time.

Now that I'm older, I realize now that my attitude about borrowing was entirely wrong.  For individuals, borrowing money is a bad idea most of the time.  Borrowing is most wisely confined to two areas of your life.  One is buying a house.  Everyone needs shelter, so unless you can couch-surf with friends for years, you're either going to be renting or buying.  Borrowing to buy a house makes good sense, as long as you can put down a significant down payment and you have the income necessary to make the payments, because presumably that house can be sold later to recoup your money.  That doesn't make renting a bad idea; in fact, it can be a very, very good idea.  But borrowing reasonably to buy a house is a good choice, with the caveats listed above.

The other area where borrowing makes sense is where it is necessary to enable you to earn income.  I think it's not a good idea to borrow money to buy a new car, but if you need transportation so that you can work, it can be a good idea to borrow money to buy a sensible used car--as long as you pay it off as quickly as you can.

That being said, borrowing to go to college is generally a bad idea, at least for an undergraduate degree.  If necessary, get a job and go to community college.  Pay your way.  It may take longer, and you may miss out on the "college experience," but when you graduate, you won't be burdened by a crushing debt.

Borrowing to consume is a horrible idea.  If you can't pay cash to go on vacation, don't go. It's not worth it.  If you can't afford your "dream wedding" without borrowing, there are plenty of ways to get married that cost almost nothing.  I assure you that in 10 years, assuming you're still married, it won't be important. If you're not still married in 10 years, then it definitely won't be important.

A few years ago, Michelle and I decided to stop borrowing money entirely.  We cut up our credit cards and decided to live on what we made.  We downsized our housing situation to cut our monthly expenditure, got rid of cable TV, sold off a lot of the things we'd accumulated over (then) 14 years of marriage, and resolved to live more simply.

The one hesitation I had was in my business travel.  I travel a lot for clients, which means paying for things like hotel rooms, plane tickets, and rental cars.  The last one was the toughest to deal with:  What if I needed to rent a car, and the rental agency wouldn't accept my check card, even though I had plenty of money in the account?

It turns out that it really doesn't matter. I've never once been turned down for a rental because I don't have a credit card.  (And believe me, I rent a lot of cars.)  In fact, nobody asks anymore.  Oh, sure, they'll take an extra $200 authorization, but I can live with that.  After a couple of days, my bank puts the money back in.

Now, I still owe a lot of money, but I'm working on it, and I'm a lot happier because those numbers aren't getting bigger anymore.  Of course, I drive old cars--models from 2004 and 2001--but they're paid for and they get me where I need to go.

So, it might surprise you to hear that my attitude about the federal debt is exactly the opposite.  But it is, and with good reason, which I'll explain.

It's a bad idea for individuals to rack up too much debt, and I'll even add businesses and state and local governments to that list, also.  We all have to live prudently within our means, or we risk some pretty tough situations. But the federal government is a different animal, because the federal government can do one thing that neither you nor I, nor any business, nor any state or local government, can do.

The federal government can create money.

In fact, the federal government does create money.  It created every dollar you have, every dollar in the bank where you keep your savings, and every dollar in every other bank in the U.S.

Remember what I said earlier about income and debt?  "Income is what you need to manage both halves of the borrower's obligation."  To the extent that the federal government borrows money, it has the obligation to pay interest and to return the principal at the end of the term.  The government does earn "income" in various ways--it takes tax revenue, and it receives user fees for everything from patent applications to national park admission fees.  But the federal government has options for managing its borrower's obligation that you don't have.  Rather than earning income to pay principal and interest, the government can simply create money to use to pay those obligations.

For that reason, it really doesn't make a lot of sense to think of the federal government's spending and borrowing in the same way that we think about a family budget.

To understand what I'm talking about, let's consider how the government borrows money.

Let's say the government needs to raise some money.  The way we do that typically is as follows:  The Treasury will offer in bonds in a public auction.  Rather than specifying a fixed rate of interest, the Treasury offers bonds that have a fixed face value payable at a certain time, and they figure the interest based on the difference between what that bond sells for and what it will be worth at redemption.  Let's say there is a bond with a face value of $10,000, payable in five years.  A bidder offers $9000 for that bond.  That means that the bidder will receive $10,000--his principal of $9000 plus $1000 in interest--in five years.  A simple form of calculating the interest would be to take the total interest paid, $1000, and divide it by 5 years, to get $200 per year, on a $9000 principal.  That works out to 2.222% interest per year.  If the next bidder offers $9100, he'll get $900 in interest, or 1.978%.  The next bidder offers $9200, which translates to 1.739% interest.  The higher the bid, the lower the interest rate the government will pay.

Let's say that $9200 was the top bid.  The government gets $9200 today.  In five years, it will have to pay $10,000.  The buyer gets a bond--a piece of paper that he can present to the government in five years and receive $10,000.  The buyer can turn around and sell that bond to someone else if he likes, and that can happen as many times as there are buyers, and it can happen at any point.  Then, when the redemption date comes, whoever holds the bond can redeem it and get the money.

All you have to do is add the appropriate number of zeroes to get to the area where the numbers make sense for governmental operations.

Now, there are two key factors in this transaction.  First, the Constitution requires that the money owed be paid when specified; the validity of that debt, the Fourteenth Amendment says, shall not be questioned.  That's a pretty strong guarantee, because the Constitution is the supreme law of the land--we have no higher law, and most people interpret that part of the Constitution as requiring that current obligations be paid first, before anything else.

The second factor is that there has never been a substantial default on any obligation of the federal government, in more than 200 years of borrowing money.  That was true even before the Fourteenth Amendment was adopted (1868).  (There has been a technical default, once back in the late 1970s, when Congress was late in extending the debt limit and the Treasury simply couldn't physically run the checks necessary to make payments in time, but no one lost any money.)

The truth is that now, even with all the partisan gridlock in Washington, even with our uncertain economic future, even with our deficit spending, our government bonds are considered the safest investment in the world.  People are willing to lend the federal government money for interest rates that approach zero, just to have a safe place to park their money when they're not using it.

These factors would be enough for us to say, "Hey, the debt doesn't really matter all that much," because the "income" needed to service the debt--to pay the ongoing interest--is very, very small by comparison.

(You might be wondering why the government has to pay "ongoing" interest when it only has to pay a fixed amount at the end of the bond term. The government sells bonds every day, and bondholders redeem bonds every day, which means we have to "book" interest every day, even if any particular interest obligation may not be currently due.)

Are you with me so far?  Because here's where it gets (more) interesting.

Imagine that the federal government ran a large bank, and that the government's large bank maintained accounts for every actual bank in the U.S., from Bank of America and Citibank on down to the First Bank of Podunk.  Let's call that large bank a central bank, and the government has its account there.  Each of the constituent banks would also be required to keep money on deposit in an account at the central bank according to a couple of factors: (1) the amount of money on deposit with the constituent bank (and therefore owed to accountholders), and (2) the amount of loans outstanding to borrowers (and therefore owed to the bank by those borrowers).  Whatever that number happened to be, the constituent bank would have to meet it or, if it couldn't, it would have to borrow the money from other banks (who have money to lend), or from the central bank (which is owned by the government).  Because banks have to pay interest out of their own pockets (the profits of the bank) on the money they borrow from other banks or the government, they are hopefully very careful about managing their loan and deposit portfolios. 

That's called a "reserve requirement," and basically it is a requirement that guarantees that banks don't lend out more money than is prudent.  It prevents bank failures and provides stability to the banking system by making sure that depositors' money is available in the event that they need it for something, while providing rules for how the bank lends out the money.

Now, all of this is Banking 101, and it's really not controversial.**  We actually have this kind of system:  It's called the Federal Reserve System ("the Fed"), and it's been operating for about 100 years.

** - Except to people who don't really understand how it works or who believe in conspiracy theories.

Let's think back to the bond sale transaction.  The government has to get $9200 from Charlie Bondbuyer.  So Charlie tells his bank to put that money from his bank into the government's account, and the government sends him a nice piece of paper that says how much money he gets and when.  Then, in five years, Charlie goes to the government, presents the bond, and says, "I'd like my $10,000, please."  The government moves $10,000 from its account into Charlie's account and it rips up the bond.***

*** - Literally.  Or maybe they just stamp it "canceled" like a postage stamp.  It really doesn't matter.

Note, by the way, that during all of the time that Charlie holds the bond, he doesn't have the use of the money.  He can sell the bond, but he might only get what he paid for it, or even less, if market interest rates have gone up.  But it doesn't have to be that way.

Remember what I said about the government creating money?  How does it do that, exactly?  

The Federal Reserve does not have to have money to deposit money into a bank's account.  At its simplest, the dollar has value because the Federal Reserve says it does, and everyone pretty much agrees, because they will accept the dollar as payment for goods and services.  That's called a fiat currency, because we can't call things by English names that describe what they really are.  

We used to be on something called the "gold standard."  Paper dollars had a fixed exchange rate for a particular amount of gold. For a long time in the U.S., the exchange rate was one Troy ounce of gold for $20.67.  In the 1930s, the dollar was devalued, and the exchange rate was changed to $35 per ounce.  In 1976, we removed ourselves from the gold standard entirely, meaning that the price of gold was allowed to float according to market conditions.   

The bottom line is that while the government does have quite a lot of gold at its depositories, that is not the basis for the Federal Reserve's ability to create money.  Today, the Fed creates money by increasing the balance of a bank's account at the Fed--by loaning money to a bank.

Every dollar that exists today was created by virtue of a loan to a bank by the Federal Reserve.†

† - Well, almost, sort of.  Some dollars were created by the U.S. Mint through coinage. But those coins got to the bank because they were purchased using dollars that were created by the Fed.

So, let's go back to our transaction.  Let's say the government needs $9200.  It could go through the hassle and expense of selling a $10,000 bond to Charlie.  Or, it turns out, it could just direct the Federal Reserve to increase the government's account by $9200.  The government could then cut checks out of that account to pay whomever it needed to from that $9200.  It doesn't need to borrow the money from anyone.

Now, I know what you're thinking...if the government just creates money like that in order to spend it, won't that result in inflation?

And the short answer to your question is, yes.

Or you might be thinking...if the government can just create money like that, why have any taxes at all?

And that question is answered by a long discourse on modern monetary theory, which holds essentially that the sole purpose of taxation is to take money out of the money supply.  The short answer, I guess, is that the government could spend only newly created money, but we would still need taxes for their regulatory effect. I think that answer is mostly right, but it's hard even for economists to understand, or at least explain.

Anyway...here's the deal with this approach.

There is an amount of "value" in the world--the value of all goods and services and land and labor--that exists.  That value is very hard to measure because you need a yardstick to measure it. But how long do you make your yardstick?  (Easy: one yard.  But how long is a yard?  Easy:  36 inches.  And how long is an inch?  I can do this all day.)

One way that the dollar is useful is that it provides a unit of measurement.  That way, we know that a Big Mac is worth $3.50 and a Hyundai Sonata is worth $15,000 and a house is worth $247,000.  But the thing that makes those things valuable is their utility.  A Big Mac is worth $3.50 because it satisfies a need or want that corresponds to the amount of labor or capital required to pay for it.

If we added up all of the value in the world and divided it by the number of dollars that were held in private accounts, then we could describe that as a unit that defines what a dollar is worth.  If we increase the number of dollars held in private accounts, then that makes the value of a dollar go down, relative to before.

(We don't need actually to do any of those calculations unless we're trying to measure the worth of a dollar or the size of the economy, because for individuals, a dollar is worth whatever it's worth based on what it can buy in a real transaction.)

Confused?  Here's a simpler example.  Let's say I am running a BINGO game in which there are 1,000 people playing for a pot of $1,000.  After I call 10 numbers, there are five winners.  Each winning card gets $200, because there is $1,000 in the pot and we're dividing it five ways.  Another way of saying that would be that each winning card is worth $200.  We run the game a second time, and this time, there are 10 winners.  Each winning card is now worth only $100, because we have increased the number of winning cards.  Dollars are like winning cards.

Or, here's another example.  I have a chocolate cake to sell, but instead of selling the whole thing to someone, I'm going to sell it in pieces.  The price per piece is $1, but there's a catch:  I will sell as many shares in the cakes as there are people who will buy them.  I will then divide the cake into the appropriate number of pieces and distribute them.  The more people who buy shares, the less each share is worth--and, by extension, the less each dollar is worth.

In the same way, putting more money into private hands reduces the value of each dollar.  Economists call this "increasing the money supply." (It works in reverse, too--taking money out of private hands reduces the money supply.  As I said before, that's what taxes do.)  Managing the money supply is one of the Fed's responsibilities.  The Fed does that through a number of mechanisms, but all of them essentially involve providing incentives for banks to borrow more or less money, depending on what the Fed wants to happen.

Inflation can be a problem.  In fact, it can be a big problem.  Consider Germany after its defeat in World War I.  Germany's entire economic system was destroyed by two factors.  One, virtually its entire means of production was destroyed by the war.  Two, the Allies demanded that Germany pay "war reparations"--payments designed to compensate the Allies for the damage and expense that the war had caused. Before Germany's defeat, it had issued quite a lot of money.  Afterward, because of all of the damage and loss and the uncertain future, the total value of the Germany economy quickly crashed to near zero; divided by all those billions of Deutschmarks, the value of one DM plunged to nearly zero, to the point where paper DM were more valuable to use as fuel or insulation than as money.  That's called hyperinflation.

But right now, inflation just isn't a big problem.  Our economy, though weak, is still huge, in fact bigger than everyone else's.  We aren't in danger of incurring a real loss in a war anytime soon.  We have bountiful natural resources that we could tap if necessary.  And, most importantly, the world puts its confidence in us.

Some economists argue that we need higher inflation to stimulate spending and economic growth.  Others take note of our population growth and argue that we need more money to account for that.  Money is said right now to be too tight--and there are a lot of reasons for that, but interest rates are nearly at zero, and the Federal Reserve can't do much more, if anything, to encourage banks to borrow more than they already are.

By the way, managing inflation is part of the Fed's responsibility, too.  (Unemployment, which is generally seen as the flip side of inflation, is the other thing the Fed is supposed to manage through policy decisions.)

What's really amazing at this point is that despite the government spending about a trillion dollars each year more than it takes in through non-borrowed sources--that's the size of the "budget deficit," the amount of money the government has to borrow to cover its spending--we are essentially in an inflation-free era.  Still.  Large deficits almost always produce inflation, but they're not, not this time.

Now, let's go back to the transaction with Charlie.  Suppose that 5 years ago, Charlie bought a $10,000 bond from the government, and it's now due.  How do we pay for that?  Well, we could pay for it out of tax revenues.  Or we could borrow money from somebody else and pay off Charlie.

Or we could just arrange to credit our own account at the Fed and cut him a check.

And here's where most people get it wrong, and why the federal debt doesn't matter.

A lot of people who worry about the federal debt worry about it because "our children and grandchildren will have to pay this off someday."  It's really scary, because if you divided the debt by the number of Americans, you'd get a large figure...about $55,000 for every man, woman, and child.  And it's scary when you think that if you took everything Carlos Slim owns, it wouldn't make a dent.  In fact, the 400 richest Americans have a collective net worth of about $2 trillion.

That's a lot of money.

But your children and grandchildren don't have to pay a penny of it.  We could deal with it by simply creating money to pay off the bonds as they come due, and they would eventually reach zero.

And for that reason it's genuinely foolish to worry about it.  It just doesn't matter, not in the way that most people think.

That doesn't mean that we shouldn't try to rein in public spending, cut deficits, and pay down the debt through taxation.  But those tools aren't the exclusive mechanisms for dealing with the debt, and it's time to stop treating them as though they are.  And in fact it might be tremendously detrimental to use them.  The reason is that cutting government spending and raising taxes both take money out of private hands.  If we turn around and use that money to pay off bonds, that money comes back into private hands.  But cutting government spending and raising taxes can reduce economic growth, leading to higher unemployment and greater pressure on government spending programs, depending on how those things are used to change the nation's debt position.

One of the biggest problems is that we have huge a trade imbalance--a trade deficit--in that a lot of money is leaving our economy, to China and other places, in exchange for consumable goods.  Once those goods are used up, we don't have them or the money used to buy them.  Growing the economy should involve working to reduce the trade deficit.

We should also work on making our government spending more efficient.  We've all heard stories of $500 hammers.  Making government dollars buy more means that we have fewer of these decisions to make in the long run.

But dealing with the debt isn't pressing, as long as we have the political will to leverage all of our economic tools to manage that debt.  It can be done.

Wednesday, October 23, 2013

Is civility dead?

Since October 1, I've spent a good deal of time on political topics, including the GOP government shutdown and default crisis and the ACA (Obamacare), not just on here but on Facebook as well.

I know that a lot of people don't like talking about politics on Facebook, but I figure that people can easily unfriend or hide me if it bothers them that much, or even send me a private message.  I do try to limit myself, but especially on the ACA stuff, it is important to get accurate information out there.

It would probably not be necessary to do that, except that there is a well funded effort that is determined to sow seeds of opposition to Obamacare by any means, including by outright lying.  There are a lot of people who are frightened to death that Obamacare will succeed.

I have some rules for Facebook political stuff, and really for Facebook in general, that I find tend to make the process go more smoothly.  They are:

  1. When seeking to inform, be informative with accurate information.
  2. Keep your sense of humor. Be funny when you can be, but never let being funny get in the way of being kind.
  3. Treat everyone as your intellectual equal and your social better, even when they aren't.
  4. Never say anything you wouldn't want your mother to read, even if you've fought hard to keep her off Facebook.
  5. Be patient with people who disagree with you, even if they are ill-informed. 
  6. Nobody likes to be told they're wrong, even when the facts show that they're wrong. If you must correct someone, be diplomatic about it, even if you have to insist.
  7. Remember that there are many people who may read your comments, not just the person whom you are addressing directly.
  8. Allow for the possibility that you're wrong and someone else is right. Nobody's right about everything.  Even people who appear to be ill-informed or malicious will occasionally have the right side of things.  Therefore, you must keep an open mind.
  9. Try hard to put yourself in the other person's shoes, both while you are commenting and where that person is likely to be after reading your comment.
  10. Above all, remain civil. If someone insults you, respond with kindness, or at least with disappointment, instead of with insults. Be slow to take offense and quick to apologize.  And remember that the people you are addressing are at least nominally your friends.
I don't always comply fully with these rules, but I do try to, and when I do, the results are better.

Two things prompted me to put this in writing. One was a private note from a friend, sent during a long discussion with another friend about Obamacare, remarking on my apparent patience.  The truth is that even though I might have an impulse to be something other than nice to people and patient with them, even when they disagree with me, I have long believed that being rude to people tends to undermine any chance of winning them over. 

The other thing was a news item in which it was reported, according to Democratic Sen. Dick Durbin, who is the Senate Democratic Whip, that during negotiations over the government shutdown, one of the Republican House leaders who attended those negotiations told President Obama, outright and to his face, that "I cannot even stand to look at you."

It is difficult to imagine saying something that rude to anyone.  (Perhaps to a child whose behavior was extremely disappointing?)

It is simply unfathomable that someone would say that to the President of the United States.

I don't think it is a secret to anyone that I wasn't George W. Bush's biggest fan.  I have never found myself in the same room with Mr. Bush, so I've never had an opportunity to test whether I could be a bigger person than the anonymous Republican House leader was to Obama.  I do have a lot of anger toward him, and, with reason, at least for his first term, I do not believe he was the legitimately elected President.

However, there are no such reasons available to this extremely rude anonymous Republican.  Obama's elections weren't tainted by anything.

But what has become tainted over the last five years is the Republican attitude toward Obama.

They have charged that he was not born in the United States.  He was.

They have charged that he is a secret Muslim. He's not. He professes to be a Christian.

They have charged that he is a Socialist.  He isn't.  He has utterly failed to advocate in any real way for any socialist policy.  Even the ACA is a model capitalist approach to health care financing, and Obama pushed a blue-ribbon commission that recommended that Social Security essentially be gutted in order to "save" it.

They have charged that he was planning to seize guns, to the point at which perhaps millions of fearful gun nuts spent the last five years loading up on weapons and ammunition, to the point where ammunition became so scarce that stores could not keep it in stock.  To date, he has not advocated any serious gun-law reform, and he has not seized anyone's weapons.

Perhaps the most serious, if largely unvoiced, complaint that Republicans have about Obama is that he's black.  They got that one right.  And that one might explain why Republicans like Joe "You Lie!" Wilson, Republican of South Carolina, feels free to scream epithets at the President during the State of the Union Address, or why this anonymous GOP leader could tell Obama that he couldn't even stand to look at him.

What gives these Republicans the self-permission to behave so incivilly?  What cause have they to be so rude, so personal?

Perhaps they believe their own lies.

Perhaps they believe that Obama really is a foreign-born Socialist/Communist/Marxist/Fascist/Hitler Admirer/Muslim who is hell-bent on destroying the Constitution.

Perhaps they believe these things despite all evidence to the contrary.

Perhaps they believe these things despite the fact that no one could simultaneously be all of the things they charge Obama with being--a condition that suggests, at a minimum, that these are just random insults, not informed by any real understanding of what the words mean (other than that they are bad).  They might as well have called him a nose-picker or a pornographer.

Perhaps it doesn't matter.  If they believe their own lies, they don't deserve a place in government because of the mental malfunction required to get to that point.  And if they feel entitled to be rude, they don't deserve a place in government because of the mental malfunction required to generate the narcissism necessary to feel that way.

And that is why they must never be placed in a position of authority, ever again.

Monday, October 21, 2013

Kind of a big "oops"

Last week, the conservative "think" tank Heritage Foundation released a report of a study they had completed about Obamacare and its costs.  If you have been paying attention, you might recognize that yes, this is the same Heritage Foundation that actually designed the reforms that we now call "Obamacare" back in the mid-1990s.  Twenty years on, they recognize that their patrons have goose-stepped considerably toward the right-most extreme, so their past advocacy of these reforms--to borrow a Nixon-era phrase--is "no longer operative."

The thrust of the Heritage report was that among people who use the new health insurance exchanges to purchase their health care coverage, most will pay more than they would than if that Kenyan Communist Fascist Socialist Muslim (black!) Dictator hadn't hypnotized the Congress into passing the ACA in the first place.

And the right-wing echo chamber trumpeted that report up, down, and sideways.  Because of course.

This morning, however--once people had time to read and fully digest the report, and check out its methodology and the assertions of fact on which Heritage relied--it turns out that there was a glaring error in it.

They left out the tax-credit subsidy that will offset a significant portion of the premium cost for people who buy through the exchanges.

Under the ACA, if you purchase health insurance through an exchange, and your adjusted gross income is less than 400% of the federal poverty level for your household size, then you will receive a tax credit that offsets a portion of your premium cost.  The amount of the credit depends on your income; the lower your income, the more you'll get, on a sliding scale.

For the math-impaired, that means that if you make less than four times the poverty level, you'll get some tax credit.

That 400%-of-poverty-level doesn't seem like it would be a lot of money, but it turns out that it is, actually.  For 2013, the poverty level for a family of four is $23,550, so 400% of that is $92,400, just for reference.  Two thirds of all Americans have family-unit income below that line, 400% of the federal poverty level.  In Arkansas, it's three-quarters.  Even in the best-off state, New Hampshire, it's 53%.

When you factor in the subsidy, it turns out that most people who buy through the exchanges will pay less, some drastically less, than without the ACA.

Leaving that factor out wasn't the "oops," though--they did that on purpose.  Heritage claims it was trying to measure insurance companies' pricing activity in the marketplace, not whether the actual cost to consumers would be higher or lower.  It didn't make that clear in the report, however, and that was the "oops."

And it's kind of a big one, because people who are legitimately trying to make health insurance decisions don't care what the "list" price is, any more than they care what the sticker price is on a car they want to buy.  They care what the actual cost is.

I know of one retailer that routinely sells jewelry at 80% or 90% off the "list" price, because of the psychology of the apparent deal.  Never mind that no one actually pays the list price.

It's true that some people will pay more, post-ACA.  That's what happens when fair-market controls are placed on a formerly unfair market.  But the people who will pay more are the younger, healthier people--the ones the insurance company wants to insure.  Those people will still get the benefit of competitive pressure on prices.

* * * * *

Speaking of "oops," there was another one on Fox last week.  (Not just one, but this was a big one.)  Noted college dropout and professional television ideologue Sean Hannity interviewed three couples who were supposedly getting screwed by Obamacare, whose stories "aren't being told by the liberal media." 

A couple from North Carolina claimed that Obamacare has kept them from growing their construction business and forced them to cut hours to keep their employees part-time.  Another couple--where they are from wasn't specified--complained that their insurance company was canceling their current insurance and replacing it with a (presumably more expensive) ACA-compliant plan.  A third couple, from Tennessee, complained that their insurance agent had notified them that their premium would increase by 50-75%.

Now, at this point, I have to interject that if I had something to complain about, I would probably not go on national television to air my complaint.  But if for some reason I decided to do so, I would do two things.  First, I would make sure that I didn't have a better method of getting relief for my complaint.  Second, I would make sure that I had performed at least--at LEAST--a cursory examination of the applicable facts.

Eric Stern, writing for Salon.com, decided to do a bit of fact-checking, tracking down and interviewing the three couples.  I think you know where this is headed.  After all, it's Fox News ("Relatively Fact-Free Since 1996"), and it's Sean Hannity ("Limbaugh, Minus the Pills and Ex-Wives").

It turns out that the construction business the first couple runs has a grand total of four employees.  The substantive requirements of the ACA start to kick in at 50 employees. The only requirement the ACA has imposed on that couple's business is to inform their four employees that "healthcare.gov" exists.  So the ACA has had ZERO impact on this business, except to make it somewhat more likely that if their employees get sick, they will go to the doctor instead of toughing it out until it becomes an emergency.  On a positive note, I can think of four people who today can say "My boss is an idiot" and definitely mean it.

Stern learned in his interview that the second couple's present insurance costs $13,000 a year, carries a $2500 deductible, and doesn't cover one of their children or the woman's unspecified pre-existing condition (although they could spend $7000 more a year for the latter coverage if they chose).  But it turns out that they had not even checked the exchange website to see if they could get coverage for less!  (She heard the website was down, which is a fair complaint, but still.)  I have not decided whether I am surprised or not surprised, but my eye-rolling muscles were fully engaged when I learned about that fact.

Stern did the shopping for them, using the figures they'd provided, and even without a subsidy, they could buy a plan through the exchange that would cover all four family members and the wife's pre-existing condition, with the same deductible.   The cost?  $6,700 a year, just over half what they currently pay.

And the third couple?  They pay about $10,000 a year for insurance and expect it to go to $15,000 to $17,500, according to their insurance agent.*  What about the exchange price?  Don't know, don't care, hate Obama, won't look.  But Stern looked...$3,700 a year, without any subsidies and the same coverage.

* - This is not the first instance I've heard of insurance agents talking up how expensive the health insurance plans are about to become.  Makes me wonder if there isn't a bit of fearmongering going on among those people, in part because they make a good commission on insurance plans they sell directly but make nothing if their customers go to the exchange.

So Hannity's batting average is way worse than even Dan Uggla's.**  But, then again, you already knew that.

** - Dan Uggla was paid $13.1 million by the Atlanta Braves this year to hit .179, nearly 30 points lower than the next-lowest position player with at least 502 plate appearances. He collected $164,336.78 in salary for each of his 80 hits. Miguel Cabrera, who led the Majors this year, collected $108,808.29 for each of his 193 hits.

If you have a principled objection to Obamacare, I suppose it's OK for you to follow your heart and spend money you don't have to spend just to make a point.  (Actually, when people spend more than they have to spend for coverage, that is a form of subsidy for the rest of us, which makes it even more likely that the ACA will succeed.  Chew on that for a bit.)  The problem is when your principled (or unprincipled) objection to Obamacare leads you to unprincipled actions, like lying to people about its impact on you, or sticking your fingers in your ears and yelling "la, la, la" at the top of your lungs rather than hearing that the facts are other than what you've been told or what you assumed they would be.  Worse still is a deliberate, calculated effort to mislead people in order to stir up anger against the President.

(This whole thing reminds me of the conservative rationale for eliminating the estate tax--the family farm that was lost because the patriarch died and they couldn't pay the estate taxes without selling the farm.  Trouble is, they couldn't find anyone that had actually happened to.)  

I have long held that it is perfectly fine for anyone to hold an opinion I disagree with.  All I ask is that people inform themselves as best they can, with real information from real sources, analyzed critically.  Because, really, if you're not doing that, what does it matter what you think?