The Energy Future is Here! (if we want it)

Wind Farm

Many of us hear about the problems we have facing our nation and the world when it comes to energy. We hear about the pollution; the large amounts of CO2 added to the atmosphere, the tons of mercury and sulfur dioxide released from burning coal. While some may contest the reasons for climate change, no one can deny the environmental hazards of oil spills and coal mining. On top of this, we are reminded of the world’s growing population. Hundreds of millions of people from China, India and Brazil are emerging out of poverty, all becoming Westernized consumers, which puts a further strain on our demand for energy.

            For generations we have been burning coal and drilling for oil to meet our energy demands. Much of our society is deeply rooted in these industries and the culture they have helped to create. Then come along these “scientists” that say we can make energy from wind and solar panels. A number of other technological ideas have presented themselves as well, some more feasible than others. These ideas many seem like something out of a sci-fi movie in the future. Imagine an entire world run off of renewable energy. Seems like a world that only Gene Rodenberry could give us on the big screen.

But this world is closer than you may think. We have the technology and everyday we are getting better and more efficient at creating energy from renewables.

This year, worldwide wind production has surpassed 250 gigawatts. In the U.S. we produce 49.8 gigawatts now from wind.  How much is this? In the U.S. we have about 490 coal-firing plants, each producing on average 667 megawatts. Coal plant So, our current energy produced by wind power in the U.S. is equivalent to about 73 coal plants. Wind power usage has grown about 25% in the past two years. If this trend were to continue consistently, in just 10 years wind power could replace all electricity that is currently produced by burning coal.

Denmark has the largest percentage of its energy powered by the wind. 28% of Denmark’s energy now comes from wind. China and India are the other 2 largest producers of wind energy.

            Then let us not forget solar power too. Germany is number 1 when it comes to using solar power. Germany gets 40% of its electrical energy from solar power now. Over 22 gigawatts, which is equivalent to about 20 nuclear power plants. After the Fukushima disaster, Germany put in place a plan that is well underway to close all their nuclear power plants by 2020. Spain gets 10% of their energy from the sun and Italy is a close second at 9%. Currently the U.S. makes 4.2 gigawatts from solar energy, which is the equivalent to

Blyth Solar

another six coal- burning power plants. Our use of solar is increasing as well. There currently are plans for other large-scale solar farms, which will add another 4 gigawatts in the next 2 years. In California, Governor Jerry Brown set a standard for 33% of California’s power demands to come from renewables. Factor in the rate of growth from solar power, between wind and solar, coal-burning plants could be a thing of the past in as little as 8 years.

While replacing coal is desirable for a number of reasons, the bigger issue on most people’s minds today is gas and oil. Especially their prices, what we pay at the pump and how rising oil prices also increases the price of all our consumer goods. Oil prices have risen for one reason. Demand! Not only our increasing demand from 320 million Americans, but add another 3 billion people from the growing economies of China, Brazil, India and others, and you have almost 10 times more people demanding oil than there were 10 years ago. This is a big problem as well.  There simply aren’t enough oil resources throughout the world to keep up with this growing demand. It’s a good thing too, because of all the added emissions that will be released from the exponential growth of oil use. So, what’s to be done?

            In the U.S. about 40% of our oil is used for electric power, 29% for transportation, 21% industrial and 10% is residential and other commercial use. First, imagine if we could eliminate the 40% used for electrical generation and replace it with wind and solar. Then there is the recent emergence of electric and hybrid vehicles. Yes, they are expensive now, but so were the VCR, home computer, cell phone and DVD player when they all first appeared on the market. Again, these things will get cheaper and more efficient as time moves on.

The biggest question is how fast will we make these technologies cheaper and more efficient? Will we support policies to further promote our clean energy future, or do we just want cheaper gasoline. The problem with just pursuing cheaper gasoline is that it will slow and prolong the growth of green energy. The recent advances in wind, solar and electric cars have been sped up in part because of the rising cost of oil and gasoline. Higher oil prices have pushed us to pursue and expand on these renewable technologies. If gas prices are lowered, our complacency operating under an unsustainable path of dirty fuels will continue.

To help encourage and advance these renewable energy sources, various tax credits have been given. As we argue about our current budget deficit, are these tax credits that encourage market growth for renewables in danger? Over the past few years the Department of Energy has initiated programs that give grants to developers of renewable energy for further R&D, all which has helped make these technologies even more efficient and cheaper. In addition the Obama administration has doubled the fuel efficiency of cars to 54.5 MPG by 2025, again in an effort to reduce demand and make driving more cost efficient.

The technology is here. All around the world countries are employing green energy and energy efficient technologies at a staggering rate. Walking in the streets of Beijing, hundreds of old diesel motorbikes are now replaced by electric bikes. We’ve developed numerous other energy saving appliances such as water heaters and air-conditioners. Again, the technology is here. It’s in our hands. Do we continue to expand our energy security, while promoting a cleaner environment by making use of resources that are unlimited and free for the entire world? Or do we look for the cheap way out, continuing to pollute, continuing to fight over locations for fossil fuels, all which carry other large expenses. Cheaper gas and coal may be easy in the short term, but result in heavy extraneous costs in the long term. It is just that we can’t continue this path forever and we all know it. We will eventually have to change our ways. Do we change now or later? We can and are doing it now, creating jobs along the way.  One of the big questions in the coming election is how much of an effort are we going to put forth towards our future. Are we going to lead the way for the world, or will we let China and India lead in these technologies? They already have a head start on us, but we are in a perfect position to catch up and surpass them all.

energy debate

Education; “An Economic Necessity”

failing grade

 

Education and Immigration. In our world of politics the parties of the left and right have been arguing over education and immigration policy.   Republicans on the right, while using rhetoric on the importance of education, have spoken against the need for further funding in this area and for increases in immigrant visas. For education, the recent budget proposal by Paul Ryan asked for a 30% cut in federal spending on education.

The majority of education funding in America comes from state taxes. However over the past 10 years, states have severely cut budgets across the board for all types of funding. Over the past 3 years, 34 states have cut funding for K-12 education and 43 states have cut funding for colleges and universities. For a full understanding to the severity of these cuts look at the report from the Center on Budget and Policy Priorities. http://www.cbpp.org/cms/index.cfm?fa=view&id=1214

The federal allotment towards education gives states some help but mostly goes to fund loans and scholarships for higher education.

So we need to cut spending?  According to the Ryan budget he wants to cut education spending by 30%.  Kind of confusing since Mitt has stated in his last debate that he wouldn’t cut education at all. Even though Obama has increased education spending at the federal level, state budgets that make up the majority of education expenditures have been falling drastically.

So how much does the U.S. government (federal, state and local) spend on education? This chart lists the figures that various countries spend on education as a percentage of edu_spendingGDP per capita in 2009.  Primary education is typically K-8th grades. Secondary is 9th through 12 grades and Tertiary is advanced schooling such as college, university and other advanced vocational studies. Out of all these developed countries, the United States is the only one that spends less on Tertiary education.  How much less?  On average all these other countries spend 12 percentage points more on tertiary education than their secondary education. We in the U.S. spend 5.8% less on our higher education.

OECD test scores

Lets compare the above spending chart with this chart of OECD test scores in Math, Science and Reading. All the countries here that spent more on tertiary education have scored higher in all three categories of reading, math and sciences. The only exception being Iceland and Norway, which scored slightly lower than the U.S. in science.

It is clear we have a problem with a failing education system.  Many would like to blame our teachers. Attracting competent teachers is definitely part of the equation and great steps are being made to ensure better competency in our teachers. A recent article in the New York Times points out measures of improvement in our evaluation of teachers.

http://www.nytimes.com/2012/10/16/education/seeking-aid-more-districts-change-teacher-evaluations.html

But can we rely on reforms to teacher evaluation as the sole reason for our declining scores in education?  Are the charts above compelling enough that we need to be spending more on education, especially higher education.

Why is education such an important component? President Obama has called increased funding for education an “economic necessity”, and it is.

In my book I make reference to a study by the U.S. Manufacturing Institute in early 2012 that estimates 600,000 jobs are available in the U.S. but unable to be filled because of a lack of qualified workers.

When we think of outsourcing jobs, we typically think of outsourcing low-skilled jobs that anyone can do in countries with cheap labor markets. This has been mostly true from the start of expanded outsourcing in the 1980s. Defendants of outsourcing have always used such arguments in support of these practices:

“Moving low-skilled, low paying jobs overseas, increases higher skilled jobs among our own work force.”

This may have been true at one point, but it no longer holds any meaning. Companies are outsourcing high skilled, higher paying jobs as well now. Jobs such as Data Analysts, Computer Programmers, Engineers, Drafters, Financial and Accounting positions, is just the tip of the iceberg in a long list of jobs moving overseas. Goldman Sachs recently announced it was moving 1,000 jobs to Singapore. You think they are hiring low-wage, low-skilled people in Singapore to do their Market Analysis? Look again above at what Singapore spends on education compared to us and look at Singapore’s OECD test results.

Just about every major U.S. company or firm has high-skilled, high-paid employees abroad. Everyone from GE to Alcoa to IBM, together employ hundreds of thousands of high skilled workers around the globe. None of this is done because of cheap labor. It has to do more with where the skilled people are. They are increasingly not in the U.S.

Our immigration system doesn’t help much either. We limit the number of H1B visas to 65 thousand per year. On the surface, people have argued that we shouldn’t allow more foreign workers to come to the U.S. cause it takes away American jobs. My first response would be, “Foreigners are taking our jobs anyway, whether we allow them to work in the U.S. or not.” The other point I would make is that many of these foreigners with H1B visas stay in the U.S. and start businesses. A study from the Kaufmann Center estimates that between 1995-2005(the tech boom) 52% of Silicon Valley start-up companies were started by immigrants on H1B visas. Silicon Valley and the tech boom isn’t the only phenomena where we have benefited from attracting foreign talent. Our entire economic history has been drastically improved from the contributions of foreign talent. (And I don’t just mean back in the late 1800s and early 1900s when we had huge waves of immigrants.) Thousands of today’s companies are the result of immigrant ingenuity.

Alexander Gram Bell was from Scotland; William Boeing was from Germany, as well as Albert Einstein. William Procter and James Gamble of Proctor and Gamble are English and Irish immigrants. More recent foreign contributors are those such as Sergey Brin, who cofounded Google. Sergey was also a H1B immigrant who went to the University of Maryland.  Then there’s Pierre Omindyar who started eBay, both Fortune 500 companies. And the list goes on and on.

Either way, between immigration and our own education system, America is experiencing a severe “brain drain”. We aren’t attracting enough foreign talent, nor are we doing enough to educate our own.  Whether it is immigration or education, we can look at our history and our current policies as compared to the rest of the world. When we do this, we should gain a clear direction in which to follow if we are to ensure our economic prosperity.

When Promises and the Math Don’t Add Up.

The first presidential debate just held in Colorado had President Obama going head to head for the first time with Mitt Romney. Most accept and believe Romney was the clear winner of this debate.  After the debate was over, fact checkers went into high speed, working on the various figures thrown out by the two contestants.

Romney seemed to win in part because he told the American people things they wanted to hear, whether their was any basis for them or not. Obama however seemed to get too bogged down in the grim details of the situation our nation faces.

Of all the great things Romney promised, he said he would balance the budget. At the same time he said he wouldn’t raise any new taxes. In fact he proposed lowering taxes and closing loopholes, but doing so in a manner that remained revenue neutral. This means the government wouldn’t get any additional money. Obama agreed with closing loopholes and being able to lower the corporate tax rate, but stands by the idea that we still have to raise some more revenue from somewhere. (He said preferably from the wealthy. Those who are able to afford it.)

So Romney promised to balance the budget and not raise any taxes. He also said he wouldn’t cut Medicare, wouldn’t cut education and wouldn’t cut the military. So if he won’t raise taxes and won’t cut from any of our biggest expenditures, how does he plan on balancing the budget?  He did say he’d cut funding for PBS. Funding for PBS is hardly a large expense that would balance the budget.

What is Romney’s plan for balancing the budget if he won’t raise taxes or cut any big expenses?  His idea and that of his constituents is to focus on growing the economy. The increased jobs and wealth created would mean more revenue for the government without raising tax rates. And he is right. When you grow the economy and more people are working, the government is able to raise more revenue. This reasoning makes perfect sense.

However there is one big problem with this reasoning that the fact checkers and pundits have overlooked. The thing standing in Mitt’s way for this plan to work is MATH and history. This is where we need to get out our calculators.

Over yearly federal deficit is 1.5 trillion dollars. We spend 1.5 trillion dollars more than we take in from tax revenue. So for Mitt to balance the budget without raising taxes and without major cuts, he needs to raise 1.5 trillion dollars. He suggests doing this by growing the economy. So how much will the economy have to grow in order to raise 1.5 trillion? Under current tax rates, the government earns 16% of GDP in tax revenue. If keeping the same net tax rates, the economy will have to grow by 9.3 trillion dollars in order to raise 1.5 trillion in additional tax revenue. How much is 9.3 trillion? In order to increase our current GDP of 14 trillion by 9.3 trillion, GDP would have to grow consistently at 16% for the next four years. This has never happened anywhere in the world! Even China’s largest growth rate was only 14% just before the recession hit.

Ok, so we give Mitt eight years to balance the budget under this philosophy and GDP would need to grow 8% for eight years straight. Again, this has never happened! Our average growth over the past 50 years is around 4% and we’ve had one-year peak growth at 8.5% in 1966 and 1984. Never before have we grown 8% for more than a year straight.

So far this doesn’t seem anything close to a plausible path towards balancing the budget without raising tax rates or making drastic cuts.

Ok, so let’s say Mitt does decide to make a bunch of cuts and is able to cut 500 billion out of the federal budget. (500 billion is about 14% of the total federal budget).

If he cuts 500 billion, we still have a trillion dollar deficit. Again, without raising taxes, how much does the economy need to grow so that we can increase tax revenue by 1 trillion dollars? We would need to add 6.25 trillion dollars to our GDP. It’s not as bad as our previous example, but GDP would still have to grow 11% for 4 years straight to raise an additional 1 trillion in revenue. Again, if we give Mitt eight years to balance the budget with 500 billion cut from the yearly deficit, GDP would still need to grow 5.5% for eight years straight. This sounds a bit more possible, but again very unlikely. Even during the boom years of the 90s, GDP growth averaged at 3.5% and peaked at 7% twice.

Even in this liberal example, where we cut 14% of government spending and give Mitt eight years to balance the budget by growing the economy at 5.5% each year seems highly improbable.

So if Mitt promises not to cut Medicare, military or education, then there are only two other options left to balance the budget.

1-severly gut our government functions by cutting 40% of government                                     spending in other areas.

2-Raise tax rates.

I for one believe in the “balanced” approach Mr. Obama has so often mentioned. Some cuts and some tax increases. That is what balance means. A little of both. But how can there be balance when people in the GOP adamantly insists on no new revenue?

How Capitalistic Are We? A comparative look.

Why Social Capitalism? What does that mean?  First there is capitalism, which is the private ownership of the means of production and the creation of goods for profit. In theory, pure capitalism is free of all government interference. Then there are the ideas of socialism, where the government controls certain aspects of the economy.  So which economic system do we adhere to in the United States? We certainly are capitalists with private enterprise, but we also apply socialist practices with government controls and spending. Economists define our economic system as a “mixed economy”. Well, a mix of what? It’s a mix of capitalism and socialism, which is why I like to call it social capitalism.

While we can argue the exact definitions of each theory, one cannot deny that we have always employed some balance of both theories. The main question is what should that balance be? Most of our political arguments today are based on how much of each theory we should apply to our economy. Republicans believe we should apply more capitalistic practices and Democrats believe in applying more socialist ideals. While we can go on and on arguing about different policies, here I wanted to try and see how capitalistic or socialist America is compared to other countries.

largest economies

We can start by measuring how capitalist or socialist a country is by looking at how much of a country’s GDP is controlled by the government. In the following chart, I list the top 21 countries in the world with the largest economies. I also list each country’s total government spending as a percentage of their GDP.

In this table we see the U.S. is still the largest economy in the world followed by China, Japan, Germany, France, etc. all the way down to Saudi Arabia. In the United States our government spends 38.9% of our GDP. These figures account for all government spending: federal, state and local. (Current federal spending in the U.S. is about 25% of GDP)

We can see some countries spend a higher percentage than the U.S, and some spend a lower percentage. If we arrange this list in order of spending as a percentage of GDP, we can see that France spends the highest percentage at 52% of GDP.  Indonesia is the lowest at 19.2%. top spendersWhere does the U.S.  sit comparatively? We are right in the middle. Half of the world’s largest economies spend higher percentages than us and half spend less. So we certainly aren’t near any extreme when compared to the government spending of others. Is any of this information really useful?

Before we look deeper into what these numbers may mean, I would like to first make sure we are all on the same page with the same goal. I continue with the assumption that we are all looking to improve our country’s economy with the hopes of benefiting everyone in our country.  In our quest for balance we ask if we should we be leaning further towards conservative ideals with less government spending or should we lean more towards liberal ideals with increased government spending? If we are looking to improve our economy what can these numbers tell us?

First, out of the 177 nations for which there are records (there are 206 nations total), 55 governments spend a higher percentage of GDP than America does and 121 countries spend less. If we look at the world’s top 21 economies, 9 of them spend more and 11 spend less than the U.S. This means that 16% of all the governments that spend higher portions of GDP are among the top 21 economies. In converse only 9% of countries that spend a smaller percentage of GDP have made it into the top 21 economies.

However, the overall size of a country’s economy can be largely based on shear physical size and population, as opposed to just a government’s economic policies. In order to account for population we can take the same list of countries and organize them according to GDP per capita. GDP per capita or PPP is a country’s GDP divided by the population. This gives a more accurate representation of how wealthy a country is, relative to its size and population.

GDP per capitaIf you look at this table, you’ll notice that the U.S. is only number 7 in terms of GDP per capita. The countries not on this list whose PPP is higher than that of the largest world economies are all tiny countries. Qatar, Brunei and Singapore are all countries with a higher PPP because of thier small populations that have emense oil resources or other strategic resources.

What else can we see when looking at GDP per capita for the top 21 economies? The United States still has the highest GDP per capita among the world’s biggest economies. India comes in last because its GDP is divided among a large population.

If we do some math we can see that those countries who’s governments spent higher percentages of GDP have an average GDP per capita of $32,585. Of those economies that spent a smaller share of GDP, their PPP is only $22,211, about $10,000 less per person.  If we look further we can see that out of the top ten on this list, seven countries spend more than the U.S. and only three spend less. The reverse is also true for the bottom 10 on the list. Of the bottom 10, only two countries spent higher percentages of GDP and eight of them spent less than America.

Now, government spending is only one factor that can affect economic growth.  There’s certainly other comparisons to look at, such as overall debt, areas or sectors that money is spent on, tax rates, investment policies and strategies, all of which I hope to examine in future articles.

But here, when we simply look at the top world economies, there is an undeniable trend. Those who have spent higher percentages of GDP than the U.S. are about 4 times more likely to have higher GDP than those who spend a smaller percentage compared to the U.S.

Again this isn’t a 100% conclusive cause and effect relationship. There are many other factors to consider, but government spending is a big factor, which shouldn’t be overlooked or denied.

Understanding China: What it Can Teach Us.

polluted river in chinaEnvironmental, worker and consumer protections have been considered by many conservatives and capitalists to be a form of socialist policy.  Commentators on FOX News and GOP henchmen alike have all tried equating regulation by government to be a form of socialism. Laws that protect the environment, workers and consumers may limit free-market practices. Because these regulations are seen as anti-capitalistic they automatically assume that these laws must be the opposite of capitalism, which is socialism. So, is having government impose regulations on businesses a form of socialism? To answer this we need to look no further than China.

First, what is China? People refer to China as communist, neo-capitalist and socialist. So which is it?  China is all these things! Its complicated but we must first recognize the difference between a system of government and the economic system practiced by that government. China’s government is made up of a single party, authoritarian government that retains power with oppression and suppression.  From 1949 up until 1979, China practiced strict communism under the heavy-handed rule of the Chinese Communist Party. Shortly after the death of Mao Tse-tung the ruling Communist Party began initiating drastic economic reforms by embracing capitalism to a point. Currently 40-50% of China’s GDP is still run by state-controlled industry. Economists have widely begun to define China’s economic system as that of “state-capitalism”, meaning that while private citizens are able produce and earn freely, there are still many industries under the complete control of the state. In China most power generation, oil, telecommunications, aviation and shipping enterprises are still under the control of its authoritarian government. Almost all other industries operate under free-market capitalism, as we know it. Under this system of state-capitalism, China’s average growth on average has been about 10% per year, peaking at 14% just before the great recession. (Double that of the U.S. economy.) Also, over the past 20 years, millions of Chinese have been lifted out of poverty. (Millions more still remain impoverished.)

Here in America and around the world, people are amazed at China’s huge growth in such a short period of time. Economist and politicians like to argue which parts of China’s “state-capitalism” are responsible for this growth. Some will say it is solely due to their embracing of free-market practices. Others will point towards the huge government initiatives, which involve enormous government spending on infrastructure. Especially with the recent “Great Recession”, people in the West are beginning to wonder if our own economic woes are the result of our Western style  laissez-faire capitalism.  People may praise China for achieving unprecedented economic growth, but there is a huge negative side to it that no one can ignore, especially those who live in China; POLLUTION.

While the U.S. is still the largest polluter in terms of emissions per capita, China’s total emissions and waste have surpassed that of the U.S. The result in China is nothing short of catastrophic. 400,000 people die each year prematurely from lung disease alone. Cancer is now China’s number one cause of death. 16 of the world’s top 20 polluted cities China air quality chartare in China.  But the problem isn’t only in the cities. The air quality is horrible throughout the country. The main cause of air pollution has been increased coal burning to keep up with China’s continually rising demand for electricity. Most coal burning plants in China are half as efficient as those in the U.S. and twice as dirty. Other contributors to air pollution are industrial emissions and the millions of cars added, many of which operate on low-grade gasoline.  The air quality in most of China’s cities is 3 times above what most would consider safe levels. I’ve been to China a number of times and I can tell you how horrible it is. The haze on some days is so dense it can literally block the view of an entire building just across the street.  After one week in the country, I was coughing horribly. I couldn’t wait to get out of there and felt pity for the millions who can’t leave.

China also has a huge pollution problem with their water supply. About 500 million people don’t have access to clean drinking water. 80% of China lacks sewage treatment facilities. 90% of China drinks water that either contains some arsenic, fluorine or sulfites.  The World Bank estimates that 750,000 people die prematurely each year in China from either lung, cardiovascular, or stomach and bladder cancers caused by drinking polluted water. Fertilizers, industrial waste and human sewage are the main causes of water pollution in China.  Thousands of instances have been reported where industry is seen dumpling toxic waste into China’s waterways and there are continued reports of mass death and sickness in villages along these polluted waterways.

Another problem in China is their lack of worker protections. We have all heard stories about China’s cheap labor force, where people work long hours in horrible conditions. Just this past week there were massive riots at the now famous Foxconn factory, which makes Apple products.  This is only one instance reported on Western news. The Chinese government has suppressed many other instances of worker protests.

So who’s to blame for all of this?  China’s embracing of capitalism has certainly increased their economic growth and hence their emissions and waste. It is also China’s cheap labor force and lack of safety regulations that has attracted many foreign businesses. But China still operates half of its economy according to socialist practices. Shouldn’t the socialist facet of their economic strategy impose stricter guidelines to curb this massive pollution and protect workers? Well, not really. China’s lack of regulation isn’t the result of their adherence to free-market capitalism. Nor is it a result of their continued use of socialism. In China there is a lack of regulation because there is an authoritarian government!  The people of China, while dying and complaining about their country’s pollution and working conditions have no voice to force the government into protecting the people.  The Chinese people do not get a chance to vote and therefore aren’t able to hold their government officials accountable when government doesn’t act in the best interests of the people. Because China’s ruling Communist Party has absolute control, they have little interest in protecting the public.  Regulations are only the result of democracy, a democracy that the people of China don’t have.

In an effort to sustain China’s quick economic growth and superpower status, they are slow to implement regulations that could impede this growth.  However, the people of China are getting fed up. If the ruling communist party wishes to retain power and prolong their inevitable overthrow, they will need to appease the people with some form of pollution control and labor standards. Whether it’s in the national interests, the interests of the people or just their own interests to retain power, the leaders of China have recently stepped up efforts to curb pollution.  China today is actually the largest developer and user of renewable energy.  But it may still be too little too late for millions of Chinese people.

What can we learn from all of this here in the U.S?  Whether they are stricter pollution standards or increased worker safety laws, regulations can slow down economic growth by cutting into business’s profits. Because of this, people think of these regulations as being anti-capitalistic.  But just because regulations may slow growth by cutting into profits does not make them socialist actions either.  Socialism is the state-control of production and markets. China has a mix of capitalism, socialism and little to no regulatory system.  Their lack of a regulatory system is because their authoritarian government lacks the motive to protect the people and is not a result of their market practices. We in the U.S. have regulations, but it’s not due to capitalism or socialism. We have regulations because we are a democracy. People in the U.S. have a voice where the government works for the people. The people of the United States demanded protections and then our elected officials were obliged to act on our demands.

Americans use of the word “socialism” comes with serious negative connotations. Why? Because we are used to equating socialism with authoritarian style governments such as those of China, the former Soviet Union and North Korea. But the two ideas of socialism and unelected governments have nothing to do with one another.

It just happens that the authoritarian governments of China, and the former Soviet Republic practiced communism, which is in essence an extreme form of socialism.  But just because these regimes practiced socialism, doesn’t make socialism authoritarian. Nor does capitalism and free-markets automatically turn governments into democracies. There is a difference between socialism practiced in China and the former U.S.S.R. verses how socialism is practiced in the U.S. and Europe. One is run by authoritarian governments and the other is practiced by democratic governments, elected by the people. Democracies can and do implement parts of socialism. The exact form of socialism and its purpose depends on the will of the people.  In the converse there are also many dictatorships or authoritarian governments that practice capitalism.  When opposing socialist policies, conservatives in the U.S. love to cite the atrocities of socialist regimes like Hitler, Stalin, and Mao. But this argument ignores the fact that these were oppressive, authoritarian governments that imposed strict socialism on its people. These situations cannot be used to compare our democratically elected government using aspects of socialism to counteract any negative results of laissez-faire capitalism.

We don’t have government regulations that protect the environment and worker protection laws because of an oppressive government run by a dictator or authoritarian party. We have regulations because our democratically elected government functions for the people and has an interest in protecting the people. This is the key.  Americans have to get out of their head the idea that socialist practices automatically equals authoritative rule.  We must also understand that our regulations are not a form of socialism, they are a result of our democracy.

Wealth Redistribution: It’s a two way street.

During this campaign season, members of the GOP are trying to frame the Democratic Party’s platform of raising taxes on the wealthy and spending on entitlements as a form of “wealth redistribution”, and they are right. It is wealth redistribution!

How do you redistribute wealth? You tax one class of people and use the funds to assist people of other classes. The funds may be used as direct payouts to programs such as welfare or unemployment. We issue low cost loans for home purchases or school loans on a need basis. We have also implemented many tax credits that pay out to certain tax filers. There are tax credits for those who have children and there was also the recent Making Work Pay credit, which gave $500 to all tax filers who worked. (This tax credit recently expired under the Recovery and Investment Act).

Government Spending on Entitlements

In 2011 we spent 230 billion on Medicaid, 106 billion dollars on unemployment insurance, 64 billion on HUD and 103 billion on Food & Nutrition, which includes the food stamp program. These four programs together cost us 503 billion dollars in 2011. There are some other entitlement programs, but these ones I’ve listed have the largest budgets. (I do not include Social Security and Medicare in this chart because those programs are paid for with the separate system of payroll taxes, which every worker pays for.) While it is hard to come up with an accurate total number of people benefiting from these programs, the chart above lists a known number of direct beneficiaries.  Most of the beneficiaries to these programs are low-income Americans. While unemployment, welfare and food stamps cover mostly those Americans without jobs, Medicaid covers about 50 million poor and elderly.

The GOP disagrees with spending money on these “entitlements”.  They’ve called it a form of wealth redistribution when we use tax dollars to pay for these programs. But these “entitlement” programs aren’t the only forms of wealth redistribution in our country. We have a long history of using other forms of wealth redistribution. Here are a few recent examples.

The T.A.R.P. program under George W. Bush gave $475 Billion dollars to financial corporations. Here’s a list of the top beneficiaries

TARP Beneficiaries

An additional $100 Billion has been spent on private contracts in Iraq to companies such as Halliburton and Bechtel who’ve each received multi-billion dollar contracts.  Halliburton is another company whose yearly profits range in the billions of dollars. Bechtel is not a publicly traded company and doesn’t make their profit margins public, but it’s probably in line with those of Halliburton.

You may say that helping these companies increase their profits benefits all shareholders. But who are the shareholders? It’s mostly people from the upper income bracket.  80% of tax filers who make over $250K per year, earn income from dividends. Only 20% of tax filers who make under $250K, have dividend earnings. A total of only 30 million tax filers have income from dividends and a fewer number earned income from those companies that received government contracts or bailouts.  (30 million tax filers reported dividend income in 2011. More may have benefited from stocks tied to retirement accounts, but this doesn’t benefit anyone in the short term.)

The combined cost of Medicare, Unemployment, Food Stamps and Housing per year, which benefits over 60 million low-income Americans, is less than what was spent on TARP and Iraqi contracts combined. Then consider that our tax dollars spent on TARP and Iraq contracts benefited less than half the number of people than the above listed “entitlements” do. This form of “corporate welfare” benefits a larger percentage of people from the upper income brackets.

With taxation the government collects wealth. Then depending on economic conditions and our national interests, the government distributes these resources depending on what is best for the public good.  Spending on things such as Medicaid, Housing, Food and unemployment is not simply wasted on those who need it. First, it fulfills the moral objective to help those in need. Secondly, it is money that goes straight back into our economy.

The TARP program, while highly controversial, was also an economic necessity. It helped to keep large financial houses afloat. If these banks went under, it could have caused catastrophic ripples through our economy. But the biggest beneficiaries to the TARP program were shareholders, people who disproportionally come from the higher income bracket. The same is true for the shareholders of companies such as Halliburton. Companies that have received large government contracts and report billions in profit only benefit a small number of Americans who are disproportionately represented by the upper classes.

The programs I’ve mentioned here aren’t the only ones. There are numerous other forms of welfare for low-income Americans and other programs that benefit corporations and the upper income earners. Wealth Redistribution isn’t just a practice reserved for the poor. Wealth has always been redistributed upwards as well.

If you are opposed to wealth redistribution in the form of “entitlements” to help people in their time of need, you should be as vehemently opposed to wealth redistribution for private industry.

So what are our choices? Either the government doesn’t tax and spend at all, where we blindly hope all will sort itself out or we can put some faith in the government and our elected officials to distribute funds in a manner that looks to benefit our entire country as a whole. One day our priorities may be to help more individuals because there is high unemployment and another day we may need to subsidize industry to keep the markets healthy. Either way, these are all forms of wealth redistribution that America has participated in.

article by: Lawrence F. Mignogna

Mitt’s Dependency Blunder. It’s not what you’d think!

News headlines in recent days have included a video released that shows Mitt Romney talking to a group of supporters at some private function.  His words which have become controversal are the statements he made accusing

47% of Americans as being dependent on government and therefore automatically going to vote for Obama. (Read the NY Times article here) Many other things were said that you may or may not agree with. Here I would like to focus on this 47% number for a moment. While Mitt and others may believe 47% are dependent on government, I would argue the number is a much higher. How high? How many people are dependent on government? How about 100%? That’s right, 100% of Americans are dependent on government.

100% of us depend on the security government provides

100% of us drive on roads maintained by the government

100% of us may need to call 911 at anytime

100% of us, regardless of how hard we work, may fall ill or lose a job where we may require assistance to help pick us back up.

100% of us depend on or profit from technological innovations that was developed in full or in part by the government.

100% of us depend on society’s infrastructure

100% of us have either been educated in public schools or depend on others (such as employees) who have be educated in public schools.

100% of us may get stuck in a flood, fire, or earthquake. Is this the best time to search through the Yellow Pages looking for the best company to come help you? “Will you be using Visa or Mastercard to purchase this rescue?”

Now I know Mitt was thinking of and referring to programs such as food stamps, welfare and unemployment insurance. But his 47% figure includes those who receive Social Security and Medicare which all workers have paid for, regardless if they pay federal income tax or not. (More on this argument in my book Social Capitalism). However, these aren’t the only things we spend money on. In 2010 we spent about 720 billion dollars on the military which we all depend on.  Another 400 billion was spent in 2010 on other government functions, infrastructure and R&D, not including entitlements.

I have never been on food stamps, collected welfare or unemployment. I’m lucky enough that I’ve never needed to. But I am still glad that these systems are in place if I were to ever have a spur of bad luck. So, while I’m not part of Mitt’s 47% who he believes is dependent on government, I am part of Social Capitalism’s 100% that is dependent on government for a long list of other services.

Can you recognize yourself as part of the 100% that is dependent on government?

 

Income Disparity; what it should mean.

income disparity graphLet me explain or shall I say ask. I certainly do not hold all the answers, but have many questions to be answered, as do we all. My writing this is to just help progress our understanding and debate.

This graph that I made titled “Income Disparity vs. Wealth Disparity” is the result of my skepticism. Many of us have seen graphic representations depicting income and wealth disparity. Most of the time when I see these kinds of pictures I’m skeptical at the data used and the accuracy of these graphs. So, I decided to try it myself. I researched data directly from the IRS data tables. Then when making the graph, I took great concern to preserve the accuracy of size increases relative to the data. When I say, “the average top 1% earns 29.3% more than the average bottom 99%”, the red circle in the graph is exactly 29.3 times bigger than the blue circle.

So now that I have a graph which I can trust, we can look at it and see what it says to us. Obviously we see that some people earn a great deal more than others. To be more specific, the data I used compiled by the IRS took into account 141 million tax filings from 2007. The top 1% is made up of 1.4 million tax filers, and the bottom 99% has 139.6 million tax filers. The average income of the top 1% was $1,429,000 while the average bottom 99% earned $48,710.

The first thing I say to myself is, “So what if some people earn more than others”. People are allowed to earn more, especially if they worked harder.  Being the centrist that I am, I certainly don’t have a problem with some people making more money than others. The people who do really well probably did work harder, went to school longer, are just smarter or had some great ideas that they turned into a profitable business. I for one see no problem with some people earning more.

But the biggest question in my mind that I can’t ignore is this…

If the top 1% earns 29 times more than the average, did they work 29 times longer or harder?

There are a few things to consider here. First lets look at the value of time. If the average person works 40 hours a week, then someone who earned 29 times as much should have worked 1,172 hours per week. Of course this is physically impossible. There are only 168 hours in a week.

Next let us figure in the factors of efficiency. Certainly people can earn more and be more productive by being more efficient with their time. Some people can work harder and smarter making the value of their time worth more. So let’s say someone in the top 1% can increase the value of their time by a factor of 3.  They can accomplish 3 times as much as the average person by being smarter with their time and by working faster and harder.  This would bring their 1,172-hour workweek down to 391 hours. This is still physically impossible.

Let’s stop for a moment to consider what IS physically possible. There are 168 hours in a week. Certainly all this time can’t be spent working. We still need to sleep, eat and go to the bathroom. Let’s assume someone only takes 6 hours out of the day to sleep, eat, poop, and works the other 18 hours each day towards earning money. That leaves only 126 hours possible to work each week.

After we’ve figured in the value of time and the greater efficiency that someone may work with, we came up with 391 hours needed to work in order to earn 29 times as much. If it’s only possible to work 126 hours a week, we subtract this from 391 hours and we are left with 265 hours to account for.

So, we have someone in the top 1%, who works 18 hours a day, 7 days a week and works 3 times more efficient than the average person. But they still earn 265 hours more per week than the average 99%. How do we account for this?  The other factors we have not yet considered are innovation, ingenuity and talent. These are much harder to account for. How do you place a value on innovation or ingenuity?  How much should someone be rewarded for coming up with the next best invention? According to our figures here, assuming someone in the top 1% works 126 physical hours at 3 times the efficiency, they are then rewarded in addition to their time, another 6.6 times more than the average worker. Is this right? Maybe, maybe not? (The above is just an example to consider. We could change the numbers to say that someone in the top 1% still only works 40 hours per week at twice the efficiency, which would be a value of 80 hours per week. This would mean that their innovations or ingenuity earned them an additional 1,092 hours per week or 27 times more than the average person.)

While we don’t want to punish hard work and innovation, we need to be mindful of what can happen to our economy and society when a few people earn exponentially more than the average worker.  This situation can and has had drastic effects on inflation, the cost of living, job creation and can also affect new start-up companies. All of these topics and problems we address further in my book Social Capitalism.

The above are just questions that look to find the right balance between rewards and the work or innovations that people put into the system.  Then there are questions concerning  how taxes and tax fairness play into all of this.  While I believe people should be rewarded more for working harder or smarter, there are many problems that arise in an economy where there is a largely disproportionate system of rewards and concentrations of wealth in the hands of the few.

Does this mean that the wealthy are earning too much or is the average worker earning too little?  In order for the average worker to earn a bit more it has to come from somewhere, typically out of the high profits and earnings of the top 1%. While many would call higher taxes on the wealthy a form of wealth redistribution (which it is), we need to also ask, “Is higher taxes on the wealthy punishing the rich or is it a necessity to ensure a balanced, healthy system and society?”

What do you think?

 

 

GPS “Talk about Job Creation!”

GPS Technology, also known as Global Positioning System is a technology that affects almost everyone today in America. We all have GPS on our smart phones or in our cars.
GPS-constellationWhile these are some of the more basic uses that many of us encounter daily, GPS is used by a wide variety of other industries that affect our lives. Aviation, construction, banking and farming are just a few other industries that extensively use GPS technology. Entire markets have been created and many private companies have profited and benefited from the development of GPS. IBM, Apple, AT&T, Verizon, Boeing, Lockheed Martin, GE, Qualcomm, Sprint, Nokia, ExxonMobile, are just some of the more popular companies that have been a part of or benefit from the GPS market. There are thousands of more companies that use GPS.  The emergence of GPS and the markets it has created also led to the creation of thousands of jobs and billions of dollars in GDP growth and profits for private companies.
So, where did GPS come from? It was developed mostly in the 1960s by the U.S. Department of Defense. After being developed for military purposes, its benefits to society for other applications was realized and therefore shared with the public. The GPS system is still run by the government and the satellites in use by the GPS are all government provided.
That’s right, it’s your tax dollars that helped develop and bring to light this amazing technology. Every time you click your “Maps” program on your phone or enter in an address while driving, remember it’s your tax dollars which allows you to do these wonderful things.  Everyone whose job involves GPS, every shareholder for every company that profits from the use of GPS, should realize that this is all possible because of our collective tax dollars and government spending.
Spending which may have seemed like a waste at the time but eventually benefits everyone, public and private.