Thursday, November 13, 2014

Bank regulation proposal

  1. A bank which fails will be taken over by the FDIC regardless of size, the Federal Reserve will have the full authority to print money as needed to cover deposits. There will be no bailouts of any company.
  2. A bank which is shut down that is within one state will be handled by the Federal Reserve bank it is located in and will be bought out by other bank(s). It may only be bought out by banks which do not have interstate operations. This is to keep diversity within the financial system with lots of lending institutions.
  3. A bank which is shut down which crosses state lines will be divided by state, and be bought out by banks which do not have interstate operations. This is to insure diversity of the banking system and prevent any one bank getting too big to be a systemic risk. It will also increase the number of banks which is an essential part of a fully functional market.
  4. Banks will be allowed to form in any region based on the credentials of that one bank’s operations regardless of the other banks operating in that region. A historic problem has been restricting the growth of the banking sector which has stifled the number of banks in this country from what we can have. One key to a successful market is having lots of sellers and this will ensure that will occur.
  5. Current regulations that require banks to meet certain thresholds of reserves will continue and be more thoroughly enforced. Banks will have an extra penalty on loans they cannot collect on that will be paid into the FDIC fund.
  6. A bank must retain at least 10% of the loans they make on their books. A bank may not sell a package of mortgages or other loans without information on the creditworthiness of the people and businesses in the package. The failure to do so after a long time will make it so they must pay higher interest rates when borrowing from the Federal Reserve and will be fined proportionately to the bank's asset value.
  7. A bank must leave all of their investments on their balance sheet. If the regulator discovers a bank left investments off of its balance sheet for 3 different inspections will have its charter revoked and be treated like a failed bank. Every member of the Board of Directors, the CEO, CFO, and other people in charge of leading the bank will be charged with fraud as a felony and serve time in prison.
  8. The FDIC will have full authority to invest and use its funds as needed. There is no reason not to use these funds and have them grow to create a strong fund.
  9. Interbank lending will be fully insured up to 2% of deposits for all banks, so when one bank fails it won’t spread to other financial institutions. This is so future bank crises won't spread. They spread because banks lend to other banks, so if one bank fails and another bank has a large amount of deposits in another this creates an imbalance in the bank's balance sheet which is how banks fail. This is meant to protect well-functioning banks from a few bad apples because our economy is (and should be) highly interconnected.
  10. Stricter regulation of credit rating agencies to ensure they accurately rate financial tools. The regulator will have full authority to punish credit rating agencies when they inaccurately rate financial instruments.
This is because if we bail out banks we create a problem that they cannot lose if they make bad decisions and will then take more risk than they can handle (Economists call this moral hazard). We need to keep the managers of banking institutions accountable to their actions, and this requires that we do not bail out banks when they start to fail because it means they will be more likely to put their institutions at risk. We need to protect depositors money, while still keeping the managers of the banks responsible for their actions. Otherwise we will have more banking crises because they will take more risk than they can handle which will create a larger financial crisis.

The other problem with this is the key to a successful free market is having a lot of sellers of goods and servies, and bailing out big banks creates a concentration of power where there should be many different types of banks. This policy outline aims to create a more diverse banking sector which will benefit lenders, borrowers, and also benefit banks because there will be more options to borrow with one another which leads to a more stable financial system. Bailing out banks defeats this important piece of the economy which harms everyone when lending and borrowing freezes.

I have also omitted the major parts of Glass-Steagall legislation (restricting types of banking and where banks can be formed) because it restricted competition between banks and restricted consumer choice. It also had the negative impact of increasing the price of loans for consumers without significantly stabilizing the financial sector. No other country in the world has ever done this type of legislation, and the proposals outlined above are designed to get the stability of banking without the costs of high lending fees and lack of choice that Glass-Steagall created. It is a very simple equation in economics, if you reduce supply this will increase price and this is always bad for consumers.

To be clear, this isn't about being pro-bank or anti-bank. This about ensuring that banks have the resources they need to operate without being destructive to the financial system, and ensure that borrowers and depositors are protected. In this way this plan tries to strike a balance between policies which are pro-lender, pro-bank, pro-borrower, and pro-investor. I think I have made the proper balance for a stable financial system which will lead to a stronger economy for America and protect everyone regardless of income level of profession.

Wednesday, November 12, 2014

More on Visa Policy

Since George W. Bush was in office the United States has mad large efforts to alienate us from the rest of the world, to the point where only Canadians, Palauans, Marshall Islanders, and Micronesians can enter the United States without some sort of visa. There are two ways this happens, either through the "Visa-Waiver Program" which is a misnomer, and through the normal visa system.
For those who don't know, the Visa-Waiver program is offered to 38 countries, and this requires people to sign up before they land in the United States (one major characteristic of a visa) and they pay a fine of $14 (it is basically a special type of visa). This has no real effect on catching terrorists (the people who bombed the World Trade Center and Boston Bombers all had visas) but only serves to inconvenience people who want to visit the United States by making them have to pay more money and spend more time before arriving. It is more expensive meaning more processing time for people across the world without actually protecting us.
Now Canada is going to start their own Visa Waiver Program, for everyone except the US (because we're friends) which will seriously inconvenience people who are able to visit Canada without providing any realistic benefit. I am not Canadian, but they should not give in the United States government on this issue. Unless if we were starting a customs union with Canada (which would be a very good thing for both countries) this action is completely counterproductive for Canadians.

Instead of further tightening of our border what we should do is eliminate the Visa Waiver Program altogether and institute visa-free travel from all the countries currently under it which requires no pre-registration, like every other free country except Australia practices today. Individuals who are known to be dangerous from foreign countries we have a visa-free regime with will be blocked from entry, and their passports will be blocked, and this has the advantage of blocking those we do want to block without inconveniencing everyone else. I personally am on the ultra-liberal side of having as few restrictions on travel for this issue, because I see it as a tool for furthering goodwill among nations and making for a better world altogether. I also don't see the threat when the total number of terrorist attack in every other country that has an economy like the United States and doesn't have a large group of home-grown extremists doesn't see large numbers of terrorist attacks.

I don't see any reason to believe that this prescreening works at all, and see no reason to ask people from our closest allies to fork over money to visit America when we don't have to do the same in their country. Plus, we already scan everyone's passports when the enter the country (like every other country I know of that isn't participating in a customs union with other union members) which means we will have records of who is coming in.

In general, this is the wrong direction for Canada and America. We need to fully analyze the costs of having pre-authorization for people from Europe, Japan, Australia, Taiwan, South Korea, and other highly developed stable democracies and not go backwards on such issues.

We will only know peace when the majority of people can meet people from other cultures and know that we are all human. This is how we fight extremism, and we do this by allowing as many people as possible to travel freely.


For further information, read about the "Perimeter Security and Economic Competitiveness Action Plan" which is the official policy between the US and Canada.

Monday, November 10, 2014

Obama's record

We have two and a half years left until President Obama will retire... and he has had a mixed presidency. He can repair his presidency and is starting to by speaking his mind. I am convinced that President Obama has been doing what President Clinton did during his presidency (according to Locked in the Cabinet by Robert Reich) where he has been listening to his advisors who are telling him to move to the right to capture votes, which hasn't worked once in the last 21 years the Democrats have been trying the strategy, and Elizabeth Warren has diverted from the strategy and is now the most popular politician in the country. So, how would I rank Obama today and how can he make his presidency count?

There are some problems:

  1. His hunting Edward Snowden (who is a whistleblower) is unconstitutional. He should immediately grant Edward Snowden a pardon.
  2. He has not stood against the vast bulk surveillance of the NSA which is unconstitutional. 

There are some issues he has struggled with:

  1. The Affordable Care Act was not as strong as it could have been and could/should have been implemented 4 years ago, not this last January.

There are some major successes:

  1. The Affordable Care Act increases competition between insurance companies by allowing people to switch more frequently (which reduces prices) and increases the ability to purchase medications at lower prices.
  2. Congress has increased taxes on the wealthy while he is president which he signed into law and his party actually passed. I am not certain whether he could have vetoed this bill because he cannot veto budgets.
  3. His environmental policy is flawless. After years of people speculating on Keystone XL he has stood his ground and he halted petroleum exploration in the Arctic.
  4. The so-called "bailout" of the automotive industry was paid back in full, and we still have a large automotive industry with new management which is profitable.
  5. He raised the minimum wage for federal government employees and contractors. Source

He has been blocked on some initiatives:

  1. He passed an executive order to put all prisoners at Guantanamo Bay on trial on 22 January 2009, but this was overturned on 27 January 2009. Text of order and details
  2. Immigration reform stalled in the Senate since he entered office and there is no chance of it getting passed a Republican controlled House.
Finally, when looking at President Obama's record we must take into account the response of Congress to all likely initiatives which means that we need to keep this reality in our analysis. With the resistance to his every action, it explains why the approval rating of Congress is 30 points below the President, showing people somewhere know where the real problem lies on why so many of these issues have stalled.

I stand with my President, he is a true progressive. I stand with Denny Heck and Elizabeth Warren as well.

I stand against the Democrats who try to appear liberal but are just in corporate hands which include Pelosi, Reid, Sanders, Murray, Cantwell, and most members of the Democratic Party.

A true progressive is not determined by his membership in a caucus but his voting record.

Saturday, November 8, 2014

2014 election and implications

The 2014 election on Tuesday is following some extremely predictable patterns of American politics. It saw the lowest turnout since 1940, which is probably due to the general malaise of people saying "both parties are the same", which has some truth with some members of the Democratic Party being right-wing, such as Landrieu of Louisiana, and a few others who lost on Tuesday, but this malaise is likely a symptom of single-winner districts and first past the post. I have more information below.

NCSBE and Election Project along with US News have good data

This turn to voting for another party despite being partially cause by low turnout is also a recurring pattern in American politics known as the Six year itch.

Section 1: Turnout
If we wanted to measure how turnout decreased and where it decreased we would want to have the following information, which I have already done in a spreadsheet:

  1. We will want to know if having a governor's election increased turnout substantially.
  2. We will want to also know if having a senator's election increased turnout substantially.
  3. We will want to know if political alignment of a state changes voter turnout.
  4. We will want to know if political polarization of a state changes voter turnout, whether a state like Ohio and Florida which are extremely close in number of Democrats and Republicans will have a different turnout than a state like Hawaii or Utah.
There are more types of things we can do when it comes to seeing what effects turnout, but these are the four measures I am going to choose to analyze.

I took this data and measured in a spreadsheet the data based on them, here are my results:
  1. States with governor elections had a voter turnout of 37.44% (with a standard deviation of 8.2%) versus a turnout of 36.17% (with a standard deviation of 6.4%) for states that had no governor with a correlation of 16.7%. This demonstrates a very weak correlation between voting for governor and people turning out. The long-term average shows a turnout increase of 3% (governor = 43% vs. non-governor of 40%) with a standard deviation of 5% with elections and 7% without elections. Their correlation is 19%. This demonstrates that having governors elections still has a weak correlation. The other way we can measure correlation is to take two elections and find the correlation between them for each state, and the correlation between 2010 and 2014 for all 50 states is 78.3%, which is very strong. This means voters in states tend to vote year after year or not, with a little dependence on whether they are electing their governor. Lurking variables include voter access laws, and state corruption.
  2. States electing a senator had a voter turnout of 38.3% versus 35.9% for states that were not electing a senator with a correlation of 23%.
  3. Political alignment has a correlation of 27.04% with voter turnout. Political polarization has a correlation of 27.50%. The more polarized a state is the more likely it is people will vote, so this empirically demonstrates that one way to increase voter turnout is to have competitive districts as opposed to safe seats.
So in order to increase turnout we should implement an election system which ensures that every vote counts which means every district must be competitive. The best way to do this is STV, which I have written about a lot.

Section 2: 2016 (focused on strategy options)
History tells us that when one party takes over congress in the 6th year of a presidency it is almost always followed by a changing of the party in the next election, This has in fact occurred 14 times now in American history (out of 16 two-term presidents) which is a rate of 87.5%.

This type of arrangement where Congress is controlled by one party and the President is controlled by another has occured now 11 times (including this new instance), and out of 10 previous occurrences only one of them has not seen the Presidency flip parties, which started in 1946 and ended in 1948 when both houses of Congress became controlled by the Democrats and President Truman was reelected. This bodes well for the Republicans if history repeats itself again.

Then if the Democrats want to maintain control of the Presidency it is prudent to study President Truman and the Republicans of the late 1940s. It was a time of economic recovery, and there was a recession after World War II which helped the Republicans a lot in 1946. An economic recovery would then probably help the Democrats a lot. President Truman was also up for reelection which is different from this time. The election of 1988 is also pertinent since the last two years of Reagan's presidency saw the Democrats dominate both houses, and all of George HW Bush's presidency for a total of 6 years, which is unusual because out of the past 10 times this arrangement has happened 5 have lasted only 2 years, 1 lasted 4 years, 3 lasted 6 years, and the longest lasted 8 years. This is in other words a very unstable political arrangement. This means there is a 50% chance that 2016 will see a new party arrangement.

For the Republicans, the best they can do is have a charismatic leader who can capitalize on their advantage and take the Presidency. They need a strong Vice Presidential candidate who can turn on centrists as opposed to Sarah Palin and Paul Ryan. For the House they want the map to stay the way it is, which will not happen since Florida is already going to change. 

For the Democrats, they want a politician who people can look up to. They need someone who can get people to turn out to vote and vote for their local representatives. Turnout is going to be key, and they need to run strong candidates in every congressional district in the country to try to take as many seats as possible. Florida is going to be forced to redraw their districts to not be so gerrymandered in favor of the Republicans, and there are other states where this can be done, such as Ohio, Pennsylvania, North Carolina and Texas which will make the house elections much more balanced in the next election. They need to appear more liberal than the Republicans and not complacent in their demands. Getting new faces into the party who are from the progressive wing would be useful, and speaking to women, African Americans, and Hispanics would help get the vote out. Hopefully there will be a primary season with candidates who have experience to move the party back in line with their voter base. This will give the Democrats a massive advantage in the next election. Pushing for ranked voting would be another very smart move.

Section 3: Policy
The next two years will be difficult, and the Republicans will put forward budgets which will be from the interests they represent. Fortunately, President Obama has a veto pen and will hopefully use it. The only danger is that since we do not have a Line-item veto it is likely the Republicans will put things into budget bills that Obama would veto, but since he does not have the authority to veto budgets they will pass. People will inevitably blame the President for this Congressional decision, but it will not change the fact of who makes these changes. Gay marriage will continue to move through the court system, and the Supreme Court will likely support gay marriage in the very near future. Supreme Court nominations from Obama over the next two years will need to be moderate to get past Congress, I however doubt that there will be any retirees or deaths.

It is not going to be an exciting two years away from the courts, and there will hopefully not be a lot of court action on economics given the economic makeup of the court of 1 libertarian and 4 conservatives. This is very favorable to conservatives, so even though it will be dangerous it is likely more decisions like Citizens United v. FEC will be filed.

Friday, November 7, 2014

Presidential Poll

Democracy For America is an organization committed to moving the Democratic Party back from its base and away from the special interests which dominate Washington today. I voted in the poll, and my choices were Warren (of course) followed by Russ Feingold and then Brian Schweitzer to round off my ballot (because he is a very great governor when it comes to health care policy and is not corrupt). The number one candidate on the poll is Elizabeth Warren, meaning that it is not just me but a large number of people who want her to be president in two years.

I did not vote for Bernie Sanders because he is dishonest on a number of issues, which I have outlined earlier.

I would not look to either Harry Reid or Nancy Pelosi because they were terrible at leading their party when they had a majority of both houses in 2009 and everything took too long and was too little. The same with any of the other dominant Democratic Politicians.

I did not pick my senators because
Robert Reich would probably be my 4th choice out of the candidates on this list.

Deval Patrick and Julian Castro would probably be my 5th and 6th choices if I could have filled out more places.

The only two individuals I would look at for being Presidential candidates would be Jay Inslee (Governor of the great state of Washington), Jerry Brown (Governor of the great state of California), and Representatives Denny Heck and Jim McDermott of Washington who have shown great leadership. That fills out my top 10 choices for President of the United States. I could go on why I would not put other prominent people. Most other governors I do not know enough about to put on my list of people I would look to for becoming President.

Still, it is nice to see that Elizabeth Warren is so loved by so many people and that gives me hope about the future that the Democratic voter base loves her more than anyone else, and Quinnipiac agrees as well.

Wednesday, October 22, 2014

Bernie Sanders' Record

Bernie Sanders is one of the most publicized senators in Congress by left-wing pages on Facebook and the press. He calls himself a socialist and claims he decrees all the corruption in congress... but after looking at his record, it is really hard to believe anything he says.

Bernie Sanders has been the Senator from Vermont since 2007 and was the sole Representative of Vermont from 1991 until he became a Senator. In this time period he has voted on many important bills that have effected the United States, and I am going to here analyze his record by looking at the rolls of important bills since 1991 that he has had a chance to vote on.

  • Civil Rights Act of 1991: Yea
  • Motor Votor Act: Yea
  • NAFTA: Nay (more detail below)
  • Digital Millenium Copyright Act and Sonny Bono Copyright Act: Unknown
  • Gramm-Leach-Bliley: Nay
  • No Child Left Behind Act: Yea (see below)
  • Closing Guantanamo Bay: NAY,
NAFTA was the first vote where he voted against the working class. This is because it shuts down the demand for high-value added professions. My earlier blog post on the details of NAFTA goes into depth on why Bernie Sanders made a mistake on this.

He voted for the No Child Left Behind Act which limits funds to public schools unless if they go through regulations which pulls money from productive activities and wastes class time. 

He voted against the closure of Guantanamo Bay, creating an extra hurdle to block what he had been calling for for years beforehand. 

Most of his votes as we can see from his record are in line with what he claims, but when it comes to the most important bills of the last 23 years there are a few major issues where his walk and his talk are not in line. Generally though he has been one of the better members of Congress in terms of his honesty.

The biggest problem of all of course comes from his current discussions regarding Obama's presidency which make me lose most of his respect for him. He is talking about how Obama has betrayed the American people with the tax reform packages, such as the 2010 Tax Relief and how bankers have not been sent to jail.

It is true that most speeches are meant to please the base of a politician but this is unusually so. The Affordable Care Act and Obama's first act as President, to close Guantanamo Bay, when they left his desk to go to Congress as proposals were very progressive. The ACA was deeply modeled after the German Health Care System which functions as Universal Health Care, and closing GITMO's prison is one of the biggest embarrassments of this country today. However, the ACA was watered down significantly by Congress and the closing of GITMO's prison was blocked completely. The bill that was sent to the President included it as one line and if the President was going to send the bill back to Congress where over 80 Democrats in the Senate voted on passage the military would have been unfunded and it is highly unlikely that these Democrats would have passed the bill. We don't have a line-item veto in this country so this also prevents the President from sending particular parts of the bill back to Congress which is a flaw. When we consider the situation the President is in with his own party tearing apart the legislation they say they support on the campaign trail the President doesn't have much he can do. Instead of ripping on the President who can't choose which parts of the bills he supports and which he doesn't, Bernie Sanders should tear into his opponents in Congress who are blocking the actions the President passes and proposes who are preventing him from acting. This would be an honest response and focus on where the real problem lies, and he is being dishonest to his supports when he blames the wrong branch of government, even though he is usually one of the good guys.

There are three ways to fix the bundling of legislation, requiring bills to stay to a single subject which is problematic because many issues are interconnected and telling which things are and are not connected are subject to interpretation. Another potential is to have a word limit on how long bills will be, but since large programs can't be written in 250 characters are less this would be more problematic. The final solution is to have a line-item veto, and this is actually a very reasonable proposal.

Requiring the President to pass the whole bill or only part of it frequently puts him into a Prisoner's dilemma where he can either vote for the whole bill or none of it which means he frequently gets blame that he doesn't deserve and can easily have his reputation damaged when Congress passes him bills which he would oppose lumped in with bills that he is forced to sign. This will save the President from being blamed for things that he doesn't want to do but is effectively being forced to, giving him the ability to always do what he believes to be right ending any question of where he stands. Some of President Obama's most controversial actions on the left (GITMO, wiretapping by the NSA) are due to being bundled with things that are necessary. These problems will be fixed by a line-item veto. However, it isn't a cure all since the government's failure to expand AMTRAK as proposed is due to Congress not providing him funding, A line-item veto won't fix the entire problem, but it is a step to getting a government that is less confusing to the masses and is easier for people to point the finger at the people who are truly causing the problem, and it is a big step forward.

Wednesday, October 8, 2014

China is the world's largest in one way

The IMF today announced China now has the world's largest economy in terms of purchasing power, but jumping to the conclusion that China is number one also needs to take into account a lot of other factors:

  1. In terms of the raw size of the economy calculated by real GDP they are still only around $10 trillion versus America's $17 trillion.
  2. China and the United States have roughly the same distribution of income. This will have long-term effects on the power dynamics of China's government and access to opportunity.

Other things about China's economy I must point out:
  1. China's GDP was 44% from industry in 2013. It has been in the 40s since about the 1980s, which shows that their economic growth has been unusually even across all industries. This is probably due partially to keeping their currency artificially deflated by printing lots of currency to keep it cheap relative to the US dollar, which is probably the largest dispute between the two countries today. This is very different from the narrative that we often hear about China. (IMF)
  2. Their GDP per capita PPP is currently around $13,000 while the US is around $54,000. There is no question that the US beats China on this metric and it is going to take a long time for China to catch up to us on this. GDP matters for geopolitics, but China won't be a really serious contender for being the world's strongest power until their GDP per capita gets above the middle income stage, which is where it is right now. (IMF)
  3. Leaving inequality aside, and using statistics that sidestep this issue, America currently has the 4th highest median household income (which controls for inequality) in the world at around $31,000 (World Bank), while China's median household income is around $4,600 (27000 RMB) which shows a massive difference in the income of people in the United States and China. China has a long way to go to meet us on this mark.
  4. When it comes to Household final expenditure per capita the United States is currently around $31,000 and China is at $1,300. China is rapidly rising and hopefully will continue to rise in the future. (World Bank)
  5. They rank 91st on the Ease of Doing Business Index, the United States ranks 4. The best city in China to start a business is Hangzhou and it takes an average of 31 days to start a business, which is close to the national average, versus an average of 5 days in the United States. The amount of capital you need to pay in on average is 71% of national income in China versus 0% in the United States. This has a very real effect in the ability of entrepeneurs who are not well connected and already wealthy to start a business.
  6. The rate of poverty in China below $5 a day remains above 50%, though the rate of poverty under $1.25 a day has plummeted from around 63% in 1992 to 6% today (adjusted for price inflation). China has come a long ways in the reduction of poverty and there is still a long ways to go in its reduction still. The trend however is towards less poverty.
  7. China currently has large problems with corruption, ranking at number 80, while the United States ranks at number 19. This is a deep threat to the economic and social stability of China.
IMF data:

So the future of the global economy is going to see China continue to grow, and this will be a good thing for people in China. The following policy changes would fix or at least start to fix the current problems:

  1. Make it easier to start a business. This will immediately increase the demand for workers, push wages up, which will decrease their GINI coefficient, which will increase their multiplier, which will in the medium run increase their GDP growth again.
  2. Open up private banking to increase investment opportunities.
  3. Bring back the state health care system.
  4. Increase access to education in rural areas.
  5. Repeal all restrictions on migration around the country to increase the ability of people to seek out new economic opportunities.
  6. Implement trial by public jury to separate the courts from the political process. This will help reduce corruption.
There is still enough room for development of the political and economic situation to merely say that China has overtaken the United States is rather silly, and misses most of the picture. Hopefully China will continue to develop and see it move forward even further.

Given that China has a population over 4 times that of the United States it was inevitable that they would someday overtake us in one GDP metric or another soon, and is actually a good thing because it allows their economy to grow so their GDP per capita can start to approach a developed level, and hopefully continue to see a rapid decrease in poverty along with other problems.