Four Economic Mandates Examined: Oil Speculation

This is a continuation of Four Economic Mandates Examined:  Mortgage Modification.  This series focuces on four economic mandates proposed by Robert Reich.

Mr. Reich has recommended to the President, as his second of four mandates that he should

“…condemn oil speculators for keeping gas prices high – demanding that the oil companies allow the Commodity Futures Trading Corporation to set limits on such speculation and instructing the Justice Department to investigate and prosecute oil price manipulation.”

What the hell is a speculator and why are they keeping gas prices high?

An oil speculator is someone who purchases oil today at today’s prices, stores the oil in hopes that the future price of oil will be higher and then sells the oil at some future date in hopes of making a profit.  This is simplified but the principles are the same.  The speculator may pay someone else to store the oil or the speculator may buy a futures contract.  For more details on how speculation works, see “The Social Function of Futures Markets” and “The Social Function of Call and Put Options”. Read the rest of this entry »

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Posted by on May 16, 2012 in Uncategorized


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Four Economic Mandates Examined: Mortgage Modification

I caught a small portion of the Daily Show with Jon Stewart.  He had Robert Reich as a guest.  Robert Reich is the Chancellor’s Professor of Public Policy at the University of California at Berkeley and was the Secretary of Labor in the Clinton Administration.  On the Daily Show, Mr. Reich proclaims that “investments” need to be made in infrastructure (even creating an “infrastructure bank”), education, research and development in the sciences, and “job creation”.  And, says Mr. Reich, government is the only entity to do these things.

To set the baseline of discussion and skew the issue in the “big spending” camp’s favor, Mr. Reich calls Congressman Paul Ryan’s budget proposal “wildly regressive”.  In truth, the Ryan plan is moderate at best.  According to the Ryan Plan’s own numbers, the federal government will run a fiscal deficit until 2038.  So even taking the estimates at face value, the Ryan Plan will not actually balance the budget for almost 30 years.  I am not sure, exactly, what “wildly regressive” means at Berkeley, but if we are in a debt crisis and facing a second downgrade, does it seem like we have 30 years to get to a point when we can start PAYING off our debt – ever increasing for the next 30 years?  I do not have a degree from Berkeley, but “wildly regressive” seems misleading at best.  But hey, I am not the Chancellor’s Professor of Public Policy either. Read the rest of this entry »

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Posted by on May 10, 2012 in Uncategorized


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479: The Letter A

479 is the number of U.S. Government Departments and Agencies.  That does not include the state and local government departments and agencies.  At first I pause and reflect on the length of the U.S. Constitution and wonder if there are more words in the names of our current Federal agencies and departments than there are in the very document that supposedly authorizes their existence.  Let’s say that, on average, there are five words in a government agency name.  That gives us a total of 2395 words.  There are 4543 words in the original, unamended Constitution.  So almost half.  But I digress.

So what could 479 agencies and departments be called and what could they all be doing?  It must be important – they are government agencies after all.  Let us start with the 35 agencies that start with the letter “A”.  One that sticks out is the Administration on Aging (AoA).  This cozy little group advocates for older persons and their concerns.  They work to heighten awareness among other Federal agencies and the public about how valuable older people are and the contributions they can make.  How nice.  Could anyone be against this?  I should think not.

Another one that sticks out is the African Development Foundation.  So what does this group do?  They provide grants to community groups and small enterprises that benefit under-served and marginalized groups in Africa.  So they take money from the tax revenue and give it away to help the poor in another country.  Who could be against this?   Read the rest of this entry »

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Posted by on February 7, 2012 in Uncategorized


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The Economics of Taking and Giving

I often hear, when talking to people about government debt and deficits, that social programs are vital to our society and provide great benefits.  This always gives me pause as I try to break this down in my mind of how exactly government social programs benefit society and what are the costs and benefits.  First, and the most easily recognizable benefit, is that some people receive assistance – food subsidies, healthcare subsidies, housing subsidies, and direct money transfers.  It is good that people who need help can get help, but then I start to brood over how exactly this is accomplished and if they are truly beneficial.

The government can only give what it first must take.  This is the side of social programs people rarely examine in any great detail because the surface level observation is that people are getting help and this makes people feel good.  If the government is to deliver one dollar of assistance, it must first extract that dollar out of the economy.  So how does the government extract money out of the economy and what effects does this have?

Most often, people assume that a dollar can be taken from one person and given to another with a costless mechanism.  That is, there are no costs associated with the gathering, accounting, and delivery of the dollar to be transferred.  According to James R. Edwards, in his essay “The Costs of Public Income Redistribution and Private Charity”…

…public income redistribution agencies are estimated to absorb about two-thirds of each dollar budgeted to them in overhead costs, and in some cases as much as three-quarters of each dollar. Using government data, Robert L. Woodson (1989, p. 63) calculated that, on average, 70 cents of each dollar budgeted for government assistance goes not to the poor, but to the members of the welfare bureaucracy and others serving the poor. Michael Tanner (1996, p. 136 n. 18) cites regional studies supporting this 70/30 split. Read the rest of this entry »

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Posted by on January 14, 2012 in Uncategorized


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Constitutional Intent Perverted

In 1823 John Taylor (of Caroline) wrote a book titled “New Views of the Constitution of the United States.”  A strange title for a book written so close to the ratification of the US Constitution, I had originally thought, however, after reading the book the title is very appropriate.  The secret journals of the Constitutional Convention were not published until 1821 and it was these journals, in my opinion, that spurred John Taylor into writing this book.

Had the journal of the convention which framed the constitution of the United States, though obscure and incomplete, been published immediately after its ratification, it would have furnished lights towards a true construction, sufficiently clear to have prevented several trespasses upon its principles, and tendencies towards its subversion. Perhaps it may not be yet too late to lay before the publick the important evidence it furnishes.

It was the opinion of John Taylor that the same men who promoted and argued for a consolidated national government during the convention were the same men who, after the ratification, were attempting to interpret and “construct” meanings from the document that were never intended.  His book aimed to do one thing (albeit complicated):

I shall attempt to ascertain the nature of our form of government, and the existence of a project to alter it.   

Prior to the release of the journals, Patrick Henry (who was not present at the Convention of 1787) warned against the consolidation of power and an end to the confederation in 1788 during the Virginia Ratifying Convention:

I am sure they were fully impressed with the necessity of forming a great consolidated Government, instead of a confederation. That this is a consolidated Government is demonstrably clear, and the danger of such a Government, is, to my mind, very striking. I have the highest veneration of those Gentlemen,–but, Sir, give me leave to demand, what right had they to say, We, the People.

It is this view of a consolidated National Government that John Taylor analyzes and exposes in his book.  The new view is that instead of the limited, federal government the Constitution was meant to create, the constructionists “project” was to break down the barriers put in place and expand the powers of the Federal Government into a national consolidated body with power over the several states.  Read the rest of this entry »

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Posted by on January 3, 2012 in Uncategorized


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Red Ink Rising, December 14, 2009

Below is a summary of The Peterson-Pew Commission on Budget Reform report titled “Red Ink Rising:  A Call to Action to Stem the Mounting Federal Debt” released in December 2009.  The debt is now close to 100% of GDP and the debt continues to worsen.  I have posted this two year old material to illustrate that the situation is very serious and politicians in Washington are not serious about solving the debt problem. 

According to the Executive Summary, the public debt of the United States rose from 41% to 53% of Gross Domestic Product (GDP) in 2009.  Considering the current spending and revenue projections, the Peterson-Pew Commission expects this debt to continue to grow faster than the economy, eventually leaving a debt greater than the GDP.  The Commission calls on Congress and the Whitehouse to make serious changes to fiscal and monetary policy that will include specific policies to stabilize debt and set annual debt targets.  Without major changes in US fiscal policy, the debt will continue to grow to unprecedented levels and this will lead to a debt crisis that will have serious effects for all Americans.  In order to stabilize the debt, the Commission recommends six steps.  First, commit to stabilize the debt at 60% of GDP by 2018.  Second, develop a specific and credible debt stabilization package in 2010.  Third, begin to phase in policy changes in 2012.  Fourth, review annual progress and implement an enforcement plan.  Fifth, stabilize the debt by 2018 and lastly, continue to reduce the debt as a share of the economy over the long run.

A major contributor to the debt problem was the government’s response to the economic downturn and the decreased revenue from a shrinking GDP.  The economy will recover, but the effects on the budget may continue to be felt for the next 30 years or longer.  The government’s current high borrowing habits are not sustainable and will create a number of problems.  The interest alone from such high borrowing will continue to grow and become a larger portion of our over all debt which will lead to the crowding out of other important spending.  “An ever growing debt would likely hurt the American standard of living by fueling inflation, forcing up interest rates, dampening wages, slowing economic growth and job creation…” (p7) The greatest contributor to the ever widening gap between spending and revenue is the ever increasing government spending.  Much of this spending is due to the demographic shift toward an older population, which will call for increases in Medicare, Medicaid, and Social Security.  According to the Commission, these areas of spending will be where government can have the best chance for savings and provide opportunities to stabilize the debt.

Something must be done now because the risks of inaction are too great.  Without action, living standards could fall, interest payments will continue to grow, future investment in America will decline, the dollar could lose value, and future generations will pay for today’s spending.  The future viability of the United States and future generations of Americans depend on debt stabilization and it is the federal government’s responsibility to begin solving this problem now.

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Posted by on December 30, 2011 in Uncategorized


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“To the Size of States There is a Limit”

What is a Republic and does it contain an element of representation?  In the US Constitutional context, James Madison defined republic as “…a government in which the scheme of representation takes place…” and “…the delegation of the government, in the latter [republic], to a small number of citizens elected by the rest…” –Federalist #10.  John Adams defined republic as “…a government, in which all men, rich and poor, magistrates and subjects, officers and people, masters and servants, the first citizen and the last, are equally subject to the laws.”  Also, the word republic was used specifically to describe a non-monarchical constitution during the writing and ratifying of the US Constitution. 

According to Donald Livingston, in his lecture Size, Scale, and American Republicanism, in the Greek traditions of republican governments, a republic requires three things:

1)      The citizens make the laws in which they live under;

2)      Legislation must be in accord with inherited tradition or common law, which they do not make – The Rule of Law;

3)      Human Scale – that is they must be small.

In a classical sense of the term representation does not appear to be a requisite for a republican form of government.  It might be inferred that because the citizens make the laws that representation is required, however it is not required that citizens be represented in order for them to participate in the lawmaking.  In the United States under the Constitution, a republican form of government was defined to include representation as a mode of citizen participation in the lawmaking process. 

So what does Donald Livingston mean when he refers to laws being made in accord with inherited tradition?  Read the rest of this entry »

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Posted by on December 22, 2011 in Uncategorized


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