Sunday, July 26, 2015

Education policy post 1

(Creative title, I know)

We need to reform how we teach high school. As I was going for a walk today I was thinking about how to learn effectively and how I have found mathematics to be the most important subject in my education in terms of the tools it has given me. All of the most important tools I have learned in political economy are ultimately mathematical. From these tools comes the rest of the work I do and it allows me to understand fields I have never studied intensely because I understand the underlying logic of what they are arguing.

A big issue for me through school was making sure I got enough math to continue to the next step in my education so I can get to where I need to go. This was extremely frustrating for me, and left me without the mathematical tools I needed to continue my science education.

But what about English? As I was thinking about this today on my daily walk the books we were reading in English had large philosophical backdrops to them which were barely covered in school. The process of effectively writing is used in every class, and should be integrated as such. When it comes to literature however, they are based deeply in philosophy. I think while teaching such subjects we should introduce students to the major schools of thought so they can start to put the pieces together and understand what other books these authors were reading so that students can make the connection between the different books and time periods. The other subject literature comes from is history. If one is reading a books based in a time and place, there are probably political overtones to it, and in order to pick those up one needs to understand what was happening in that time and place. Reading books from Latin America is all well and good (we read a few in my IB English class) but doesn't do any good if you are not at the same time learning about the history of that region. I didn't take the history class at the same time, but feel like if I had taken it I would have understood the books a lot more, like the year before when history and English went through the same events at the same time.

To fully understand the books I think it would be useful to read them in chronological order and talk about the schools of thought as they evolve in conjunction with history class since literature is so based on history which helps readers see the trends underlying the books we are reading, since in high school this is all new information to most students.

So, literature is based off of history and philosophy and in order to fully understand the literature one must understand the history. Now, to understand history at a deeper level one must understand the political and economic forces underlying those classes. To fully understand this one would then need to understand some basic political science and economics. The political science would cover basic political theory (which starts with the same philosophers as one would use to understand the underlying themes in literature), American government (which we already do to a point), international relations (so one can understand war and why they occur), along with comparative politics (so one can actually understand what was happening on Britain's side of the American Revolution or how Germany fell into the Third Reich) are the four fundamental bases to political science and would greatly supplement the studying of history and increase understanding of what is happening.

Economics as well is necessary, and would not take a lot of time to cover the basic underlying principles such as supply and demand, elasticity, monopoly, oligopoly, perfect competition, and GDP among others. This of course would be done throughout the year and would help students understand the evolution of economic history and history as a whole because economics is such a fundamental part of society and how we live day to day.

And the really beautiful thing about this is in order to fully understand what economics is and do the problems in a way so that you can apply them to history you need to understand mathematics. This is one of the primary reasons why if a middle schooler asked me for advice about their education I would say to make certain they learn their mathematics at as high a level as possible because practically everything else they will ever study will ultimately be ultimately based on mathematics.

This is why I think of mathematics is the fundamental building block to most of our education. In order to understand literature you need to understand history and philosophy. In order to understand history you need to understand economics. A great deal of philosophy has to do with economics. In order to understand economics you need to understand mathematics. The patterns in music and art can be represented using mathematics which show the patterns which we perceive as beauty. The only fundamental part of a well rounded education that does not revolve around mathematics is learning foreign languages.

Mathematics truly is the language of the universe.

Saturday, July 25, 2015

Vote like your life depended on it

The Guardian published an article today by an African American claiming that he won't be voting in American elections anymore because there is racism in our system.

The problem with this article is that he is taking the worst route. Let's say we have a system for ranking parties on their social values from liberal (+10) to conservative (-10) and you look at your ballot and you have one party which ranks as a -1 and another which ranks as a -5. As long as your personal ideological score is -2.5 or higher you are always better off voting for the liberal party. Sure, you might not get everything you want and there will be more progress to be made, but you need to recognize that you can start to push the election system back to where you want it to be whether it be 2.5 or 10.

In economics we have a concept known as the Production Possibilities Frontier. The concept is that when making decisions there are factors that I cannot change. If I am a firm deciding how much I want to produce in the short run I need to work with the fixed capital (buildings, machines, etc.) that I have. I might want to have 10 factories, but it doesn't matter if I only have 5 in making my immediate decision of my next step. The same applies in political science. I might want to have a party which will smash the legacy of slavery into the dustbin of history overnight and bring equality of opportunity to all Americans next year making us a completely egalitarian land, but in the short run this is irrelevant if I don't have that utopian party. More than that, even if a utopian party existed it would take more than one election cycle at this point in history to eliminate the inequities. This does not mean I should not stop fighting for this honorable goal, and by voting for the better of two options I am doing just that.

We are faced with a situation today where the Republican Party denies global warming, denies that issue of police violence, does not recognize the barriers to people making a life for themselves and is directly in the hands of the Koch Brothers and similar individuals. The Democratic Party also takes money from corporate elites (for similar reasons as to why people need to vote even if neither party is absolutely perfect) but also takes a lot of money from unions and are brought into this system from the start which has so many inequities. They have made progress with social welfare programs which disproportionately benefit minorities along with more direct legislation like affirmative action while Republicans have only moved us backwards.

This article makes a major fallacy in that he is looking at the system as it stands today when judging Democratic politicians and not how the system has changed under such individuals. He brings up Governor Martin O'Malley and claims he has no right to talk about criminal justice reform because Maryland still has major incarceration problems. This is however a major mistake for two reasons: 1. The Governor (pr President) may not, cannot, and has not unilaterally decide to overturn decades of law at the stroke of a pen. Such action requires the legislature. To do so without them would completely undermine the Federal constitution or constitution of any state. 2. Our system by design makes it incredibly difficult to get legislation through. These are both extremely good things. While I agree it would be nice to simply overturn legislation because it is immoral (which is what the courts have done in many instances eg Brown v. Board) it would come at a horrible cost because a Republican President could dismantle Social Security at the whiff of a pen. Our system is designed to be inefficient so that we can't have one politician undo the progress that has been made, which is the flip side of what would definitely happen if O'Malley could simply completely overturn the racism of Maryland's long-standing institutions. (it was a slave state after all before the Civil War) What has frequently happened in State legislatures and Congress is that the President will frequently propose legislation which is then significantly diluted by Congress, on both sides of the aisle. The most striking recent example is the Affordable Care Act which stands as a testament to this balance. On the flip side we also have the Americans With Disabilities Act which was vetoed by President George H.W. Bush but was fortunately overriden by Congress. His simple analysis of this issue gives him the wrong results and makes me wonder how much he really understands of how our government works.

This existence of a system set up for deadlock is not empty promises as he goes on about but instead a protection against us from things like C-51 which passed easily in Canada, and is a complete erosion of Canadian Civil Liberties by Stephen Harper.

He is correct however that grassroots activism is a useful tactic in getting politicians to listen, but it will only work in the end if they use their political leverage to force the politicians to respond. If they then just get more Republicans elected to state legislatures in the Deep South you can bet that they will not respond to such movements. Changing the guard and replacing the legislature like he mentions happened in Reconstruction however is a fundamentally different scenario.

History teaches us that we need to use our voices and need to vote to make a significant difference. If the Quakers had abstained in 1860 in protest for James Buchanan's racism Stephen Douglas would have become President and nothing would have changed. That is however not happened with the Civil War, 13th, 14th, and 15th amendments and Reconstruction which lasted until people stopped voting for liberal Republican candidates and Hayes was elected ending Reconstruction. It was disengagement which ended reconstruction, and postponed the healing of our country. I have no reason to believe another Republican President is going to make our country better relative to a Democratic President, even in the now unlikely chance that person is Hillary Clinton.

So, fine, don't vote if you want to. But when you don't vote you are in effect increasing the margin of victory for the worst party and shooting the civil rights movement in the foot. This makes it so they will move us even further from where we want to go which is what happened in 2000 when people didn't vote for President and we got our worst President in history (judging based on the changes he made from where we started and where we ended up).

I maybe white, but my Quaker ancestors did not get the 13th amendment passed simply through the Underground Railroad (my great-grandfather's hometown of Richmond, Indiana was one of the most important hubs in the network), but we got it done in the end because we had strong people in Congress such as Thaddeus Stevens and President Lincoln who got the job done. I continue to do what I can to make this country a better place every day. That is the only way we have ever made the world better in a way that is very difficult if not impossible to simply revert in 4 or 8 years. This author's choosing not to vote only shoots our movement in the foot and is giving up on centuries of very hard work which I find personally insulting. This is why I find the author's giving up on our country's future so absolutely despicable.

Friday, July 24, 2015

Rational compassion

Often when I am talking with people about my profession, I will have some people who will consistently get upset with me because I usually don't get as visually riled up as other people do. I almost never scream, I almost never use the much too common authority fallacy, and more often than not am able to stay calm when discussing very difficult and important issues be it global warming, corruption, police brutality, you name it.

There is a very deliberate reason for trying to argue for something in this way. I frequently see people both in my personal life and in public life argue only from the heart, which means they are not arguing from understanding the issues at play in a way so that they can effectively make an argument that will not create unintended consequences. This is most common right now in the minimum wage debate, or talking about other worker's rights which people are (rightfully) very invested in, like I last posted about.

Even when talking about such issues I still try to stay away from arguing from emotion because than I am likely to make an argument that will not work as promised. I always get suspicious when people continue to argue for policies which have been demonstrated to not work as advertised even after the evidence becomes completely overwhelming. When I see people continue to argue from ignorance about issues it makes me think less of them and trust them less. When looking at any issue it is important to understand what will really go on.

The best example I can think of right now is when people talk about free trade. The research in political economy is essentially unanimous that free trade for poor countries helps lift people out of poverty. People who work for foreign firms make more than people who work for domestically owned firms, it brings in needed capital to the country, and this pushes real wages up, increasing the quality of living for people in the country. (In economics, Real means that the price, in this case the wage, is adjusted for inflation) Despite the overwhelming evidence of how free trade is better for workers than protectionism people still will tell me that we need to protect our workers, and the best way to do that is to close the borders. By arguing from ignorance and frequently accusing all scientific research on the subject as being part of some sinister plot they are closing their minds to what is really going on and when the evidence is against their case revert to anecdotal case studies to support their idea. The absolute ignorance of the research that has been done and downright unwillingness to do more research to defend their claims makes it the economic equivalent of creationism. Do these people mean well? They claim they do. But when people do not even try to understand arguments from another perspective and continue to support policies that hurt people it becomes very difficult to believe they really want to make the world a better place and I always then suspect some alterior motive.

This is a problem across the world too, I observe it in the media all the time where you have the talking heads, one "liberal' and one conservative who bicker and after blathering on for 5-10 minutes haven't said anything reasonable or realistic.

Because I believe irrational compassion is dangerous to the progressive movement as a whole, I try very hard to make sure I have some evidence behind my claims and that I stay planted to reality so that my proposals can actually work. Then I can have an adult conversation with people which then can open doors and increase understanding overall. Irrational compassion is incapable of this.

So, next time you are talking with someone, keep your values close to your heart but make certain you don't become removed from reality because then it takes more time to get to where we need to go in making the world a better place.

Amiti, Mary, and Donald R. Davis. "Trade, firms, and wages: Theory and evidence." The Review of economic studies 79.1 (2012): 1-36.
Irwin, Douglas A. Free trade under fire. Princeton University Press, 2015.

Thursday, July 23, 2015

Overtime pay

The Hill
Today the big issue which came to the fore again is the issue of overtime pay. Democrats want to make it so that companies hire people for more reasonable hours while Republicans claim this will indeed cost millions.

Both are wrong.

The reality of the situation is we are dealing with a free market which is more or less in equilibrium which is what the research has found. The reality is that the market will always find a way to equilibrium, and when regulations like this are put in the market then readjusts to the new situation eliminating the benefits we originally saw. Employers will end up cutting wages back to where employees work the same number of hours for the same pay as they did before. I wish it were this simple to bring people's working hours back to a reasonable level, but it just isn't.

The issue here is we need more employers competing for workers. Labor is not a very valuable commodity, which is part of why we have unemployment. Making laws is not going to change the situation.

There are three ways I know that might be able to reduce overtime hours. One way would be to completely ban overtime altogether, but this might end up reducing the salaries of the employees which would be a cost. Research is needed on this question. A quick Google scholar search does not yield many relevant results.

Another method would be to increase the number of firms. This would force them to compete more for the same number of employees driving the wages up. This will encourage more people to the profession which will fix part of the problem of not having enough people with such skills. A basic principle in economics is that if you have a deficit of a good (such as someone's time they work) than the price is probably too low and not enough people are selling the good. Increasing the wage will attract more people to such professions. An added benefit is if there are numerous firms competing for workers than they will have to offer better pay packages, better benefits, and it is a race to attract the most skilled workers. If I was looking for work as an economist and one firm required overtime and another didn't, my decision should be fairly obvious in which one I would take. We need more companies competing for workers which will effectively raise the wage and decrease overtime in an effort to attract the best workers. The advantage to this is as soon as a firm starts to require its employees to put more time in without adequately compensating them that firm will lose its ability to compete and be a place where the least competent employees will land, making it the worst decision for the firm.

Finally, unions could be useful in decreasing overtime while at the same time keeping wages high through their arsenal of tools like strikes. This is found to be a significant effect of unionization across industries.

That is how we will reduce overtime, simply requiring an increase in overtime pay in the past has not made people better off nor increased costs for employers and there is no reason it will do so this time as well.

Trejo, Stephen J. "Does the statutory overtime premium discourage long workweeks?." Industrial & Labor Relations Review 56.3 (2003): 530-551.
Trejo, Stephen J. "The effects of overtime pay regulation on worker compensation." The American Economic Review (1991): 719-740.
Trejo, Stephen J. "Overtime pay, overtime hours, and labor unions." Journal of Labor Economics (1993): 253-278.

Tuesday, July 21, 2015

Ceilings, Floors, Taxes, Subsidies and Inequality, Oh my!

In popular economics and the field as a whole inequality is one of the hot button issues everyone has emotions about and thinks about. The question of how to deal with such inequality is one of the big questions in economics, with a lot of questions about how to weigh the costs and the benefits of each, along with understanding what things we view as costs and benefits is at issue as well. There are of course several major ways people deal with inequality, the most popular being the minimum wage and progressive income tax. These do reduce inequality, but have other effects as well.

So, basic economic theory uses the supply and demand diagram to analyze the effects of various policies. The minimum wage is one of the most studied as a way of introducing this concept to people new to the subject so I will start there. The minimum wage is a price floor, meaning that it then is illegal for a firm or individual to pay someone less than that amount. The line in the following diagram demonstrates what this creates:

This diagram clearly demonstrates what we generally find is the effect of a minimum wage. First of all we observe a raise in the wage, which is of course the goal, but this isn't free and comes at the cost of unemployment. At a minimum wage above the equilibrium (where supply meets demand) more people are willing to work (the supply of labor) than people are willing to hire them. This creates unemployment. While it does increase wages it does so at a real cost.

The idea of a maximum wage has the opposite problem, for the same reason. Capping CEO salaries means the number of firms seeking high value added individuals cannot find enough individuals with those skills to match market demand, meaning a reduction in productivity.
This is similar to the idea proposed to Milton Friedman of the Earned Income Tax Credit. We can raise real incomes to the same level as we could do with a minimum wage but we get an increase in labor which means a reduction in unemployment and a bigger overall boost to the economy and reduction in inequality than we would have with a minimum wage (assuming the funds to fund such a plan are done in a reasonable way). Imagine if you can make your pie and eat it to? Welcome to the world of the EITC.
Finally, because this post couldn't be complete without it is the impacts of an income tax. It increases the cost of hiring for firms as well as reducing overall income employees receive. The overall number of workers at this new point is lower than it would have had at equilibrium creating a reduction in the work force. (which is technically different from unemployment) The only other question remaining is what the government does with the revenue in who will ultimately benefit from such policies.

There you are, the four major ways the government can effect the labor market with taxes, subsidies, floors and ceilings.

Tuesday, July 14, 2015

Congress's Choice

I'm really happy about the Iran deal, and looking at the international politics makes it really clear this is the right decision. 1. We are strengthening the President of Iran relative to the Supreme Leader, strengthening Iranian democracy. 2. The government which gave birth to al Qaeda with probably the worst women's rights record in the world which is openly led by the radical perversion of Islam called Wahabbism, this of course being Saudi Arabia, is unhappy. 3. Liberals in Israel are happy and Netanyahu is furious. 4. We are going to have more oil in the market, pushing down prices further hurting the government of the world's largest petrostate, which is Russia. 5. Increasing trade with Iran is going to open economic opportunities for the average Iranian people. (all of the evidence in IPE points in this direction) 6. We are going to have a more open dialogue with Iran, whose President is the only leader in the Muslim world who I have seen consistently uphold values of tolerance and seeking peace over the last decade.

For these reasons, this was definitely the right decision and this will help make the world a safer place where we will have less religious extremism and a more tolerant planet. Sanctions only increase violence and discontent. A basic message of international relations research is that trade and communication are the major bringers of peace in the world, and this decision is going to increase both.

Now it is time for Congress to choose between peace and war, tolerance and intolerance, dialogue and distrust. I hope that enough members of congress will see what is really happening.

The international lobby as well is going to be very stark with Sweden lobbying for increasing trade while the Wahabbi state of Saudi Arabia is going to be lobbying for increasing sanctions. The government of Israel is going to be lobbying against the deal while liberal Israelis are going to be lobbying in favor of the deal. They have a choice between increasing the oil market share of Putin or decreasing the oil market share of Putin. The right answer should be obvious to anyone who looks at the international consequences of this decision. At the bare minimum Iran will open to Europe which will severely hurt the political elite of Russia.

Friday, July 10, 2015

Viva la Europa

We are currently witnessing the biggest play of fools in the history of the world in Europe. These mistakes happened 100 years ago when trade broke down across Europe leading to one of the largest wars the world had seen to that point.

In international politics there are some major theories which talk about how to bring peace to the world. One which has some support is the Democratic peace theory which (as the name implies) is the theory that democracies don't go to war with each other.

However, the theory which has very solid support is the interdependent peace theory. The idea is that if you trade with other countries you will not go to war with them. The strength to this theory is it explains why Europe doesn't go to war with Russia while given tensions democratic peace theory predicts war. European leaders have no incentive to go to war because of the imports and exports they have with Russia.

Now when it comes to the ongoing austerity crisis and depression in Greece, this theory implies a lot for the future. If Greece severed it's connections with the European Union they will very likely find another ally. Given their treatment by the EPP I don't see too many short term incentives for them to stay in the EU.

Putin is currently very interested in expanding his power and we have seen him reach out to Greece in particular as being his next target in his power grab. Given the human rights records of the other countries he has close relations with,  Kazakhstan, Iran, Belarus, Syria, and North Korea being the most impressive examples, I find no reason to believe this change in international relations will bring anything good to Greece or Europe. If this pattern were to continue than than I see no reason Putin would then try in a carrot and stick approach to expand to Italy, Spain, and Portugal. Adding over 50 million people to his alliance is something I can see him do.

Now, this is far more than just a shift in power relations and who the biggest ally of these medium sized nations will be. I expect that as Putin grows his relationship with these countries we will see the same pattern of a reduction in the validity and transparency of elections like we see in Russia today. This will be a massive reduction in the human rights in those countries just like the Franco regime. I see nothing besides EU membership standing in the way.

We also see another trend in the EU today which is already eroding their rights. What is happening today in Hungary is very disturbing and hopefully won't expand to other countries. The current prime minister of Hungary has been accused of undermining human rights by multiple human rights organizations. The EPP is not willing to hold their member accountable to the laws of the European Union, further proof of their true intentions of undermining liberalism and the EU. This was never about Greece's debt from the start. It was about undermining the largest barrier to fascism in Europe.

Before the EPP gained power in the EU we did not see the problems in Greece and Hungary that are happening today. I love Europe and don't want to see an erosion in their liberties or a failure of one of the greatest political experiments in human history. None of this was inevitable and it was all artificially manufactured. It is time for those who love Europe to stand up to the EPP and Putin and save the EU.

The last two breakdowns in trade was in the years prior to the first and second world wars. The current erosion of trade and human rights is a threat to world peace and must be stopped.

Thursday, July 9, 2015

Schools Of Thought In Modern Politics: Part 3: Understanding the theoretical roots of economic policy

In my final post about different schools of thought and modern politics, a central question is how do we determine whether countries are more liberal or socialist in their policies while still maintaining the academic meaning of those words, which I have already defined by analyzing the views of the people who founded these schools of thought.

Before determining which school of thought dominates the country's economic policies, we first must construct a test to determine which school it most represents.

  1. Does this country have price controls? How ubiquitous are they? (Price controls are a feature of mercantilism and socialism. Liberals oppose price controls.)
  2. What percentage of manufacturing does your country control? (Control of manufacturing by the government is a feature of socialism. It can be a feature of mercantilism. Liberals favor private industry in competitive markets, but generally support intervention in monopolies.)
  3. Does your government protect businesses from competition? (Mercantilists and Socialists oppose the free market. Liberals favor low barriers to entry to the market.)
  4. Where do parties stand on interracial issues, if interracial issues exist in your country? (Liberals are concerned about ending such inequalities, Fascists are opposed to minorities, Socialists believe the real division is between classes)
  5. How much influence does the average person have in government? (This determines how much corruption there is in government, Corruption Perceptions Index is a good metric)

Some questions are not defining features of any major school of thought and only controversial in sub-branches. The regulation of monopolies has been favored by most liberal economists since Adam Smith for example, and public education was a prominent feature of John Stuart Mill's extremely liberal writings, so I have omitted such issues. These four questions aim towards the root differences in today's world.

If we were then to analyze different country's policies, and more importantly the difference between different parties domestically and international, we can get a general idea of the ideological leanings of the major world players.

In the United States, each party is ambiguous about price controls. Democrats generally push for policies which will push prices down for the poor, but this is a completely separate and very liberal mechanism. Republicans do not support price controls, so this makes them look liberal. The second question also puts both parties as liberal. The third question however is where the picture gets more complicated. A number of politicians will support reforms like minimum wages, but minimum wages have disadvantages like other price controls, which is normally seen in a surplus of labor from our basic supply and demand graph. The other word for this surplus is unemployment. Another form of price controls we frequently see is in agriculture. The government keeps the supply of food low to keep the price high enough to support farmers profit yields. This is definitely not a neoliberal policy (who would generally support no price controls) and creates inefficiencies, while there are other issues with agriculture like food security that makes it a much more complicated issue.

When it comes to having a more open or closed market, this is similarly ambiguous.
In conclusion for the series. Today's politics has seen a  rapid reduction in true socialists who would call for the collectivization of production.

When it comes to racial inequality, we start to see some divergence between parties on ethnic questions. Democrats are far more likely to support human rights legislation than the Republican party, and most Republicans view such legislation which reaches out to minorities as being "bailouts" or other disparaging terms. Fascism still has some influence in terms of immigration policy in the US and Europe, and how different regions respond to issues like police shootings which have a massive racial component.

The other major issue today which we observe with the influence of the average person in government is widely apparent with far more Democrats supporting campaign finance reform than Republicans. This is one wedge issue which paints a difference in access to government between our two parties. This wedge pits politicians who support a government which works for all and is based in liberty against politicians who exist to serve their higher-ups and are corrupt. It definitely is not a guarantee that a member of either party will fit cleanly in the organization, but is a trend which makes them clearly different from each other to close observers.

This conflict between liberty and corruption is the true ideological conflict between parties in American and European politics today. The idea of access to the economy and government for all people is a fundamental distinction between the two major parties. There is still some role for fascist vs. liberal thought in modern politics as a significant driver, but this does not extend to the questions of campaign finance and how the government spends most of its money.

Tuesday, July 7, 2015

Smooth income tax

As I was coming home on October 7th this year, I thought of my tax code which I have designed, and found one flaw. The corporate income tax part is fine, and will be smoothed as well, but I wanted to make it a more elegant equation.

A Daily Kos author beat me to the punch by several years (probably due to being older than me) and wrote a beautiful equation. I have made a few tweaks to it, first of all I removed his 20% increase at the end and reduced the maximum rate to 50%. This reduces the maximum rate and increases the number of people who get money from the government, which will be a big boost to the economy since they spend close to 100% of their income.

The only other issue is how the government will be able to afford everything. The one thing with his calculation is that he probably didn't include capital gains as regular income, which I do. I need to do some work on to see what the impact will be of this policy change in the future, but I expect that treating capital gains as regular income, since they make up most of the income of millionaires, will make a tremendous difference to the government budget.

The only other thing is I increased the number of people who would pay a negative income tax. Using Census bureau data from Wikipedia it is then very easy to calculate how much revenue the government will receive from any tax code.

My equation looks like this: (Maximum Rate*Taxable Income/0% Tax threshold-Subtractor)/Square root(Divisor+(Taxable Income/0% Tax threshold)^2. This is basically the same as the equation proposed in the Daily Kos article, but made so the variables are undefined so they are easily changed. The values I used make the equation look like this: (0.50*Taxable Income/Cost of living for your family in your state - 4)/Square Root(50+(Taxable Income/Cost of living for your family in your state)^2.

For this equation this means that the average family making under roughly $142,000 will receive money as opposed to paying taxes, because of how unequal our distribution of wealth is, and everyone above that number will pay taxes. The Actual tax rate's lowest amount with these numbers is -28.28% and it increases forever approaching but never touching and never exceeding 50%. There will be a few deductions for things such as health care and education as well.

For a family in the 98th percentile they will pay around 15% of their income in total Federal income tax. Even while paying for the negative income tax for 86% of all Americans they will still have close to $5 trillion in income to pay for our expenses (I say our because they are public projects). For comparison the Federal government spent $3.5 trillion last year. This will mean we can either increase the amount of transfer payments people receive or pay off the deficit, whatever will be best for the economy.

When it come to income inequality this tax code will make a tremendous difference. The top 2% of wage earners currently make approximately 58.2% of all income is my estimation in the spreadsheet I used to model this, after tax income for them will then be reduced to 39.5% of income, for almost a 20% reduction. This will help make us a much more equal society.

This has a direct impact to poorer regions in the United States. Let's say you live in a county where the median household income is $40,000. The average tax rate in this county will be approximately -9.8%, meaning a stimulus of approximately $4,000 per person in the county. This tax code will help stimulate the economies of rural areas which will help small businesses across the nation by putting money in the hands of customers who will then spend that money in these local stores. If we look at the economy of Spokane County, Washington (for a random example) they have a median household income of $37,308 and a population of 471,428. This means an economic stimulus of $900 million to their economy, or $2000 per person. Every county in America will receive a stimulus since the top 7% who will pay taxes are dispersed across America and spend only a small percent of their income, and every county's median income is below the 0% threshold.

On the extreme side, Owsley county, Kentucky is the third poorest county in the nation with a median household income of $15,000, a per capita income of $10,000 and a population of 4,600 would have an average tax rate of roughly -25% meaning they would receive approximately $2500 per person for a grand total of $1.2 million. This will stimulate local businesses in these regions which are constantly in depression and move them towards a better future. This is what a tax code should do.

We need a more progressive tax structure, and one of the easiest ways to alleviate poverty and create a more equitable distribution of income is to give people money. This is hardly a Marxist idea since it was proposed by Milton Friedman of all people, and is something that we should all agree on to make our nation a better place. When one looks at what countries use taxation, the vast majority have a progressive tax structure, with the majority of countries with flat taxes being former Warsaw Pact nations, which are hardly known for their successful economic policies. If you want to stimulate an economy you have to look at the multiplier effect on the people your policies are going to effect, and this means that you want to tax the poor who spend the highest percent of their income the least (since consumption has the highest available multiplier, and they use almost all their income for consumption) while those who make the largest amount of money use most of their money for investment which has a lower multiplier than consumption. This is a basic fact of modern economics, and essential to conducting good policy. So, a good tax policy will tax the most on places and people which have lowest impact on overall productivity and tax the least on places and people which use almost all of their income for consumption. This is because the added benefit of one more unit of consumption decreases the more I own. Going from having no lunch to one lunch makes me very happy. Getting a second bite to eat might make me more happy if I am still slightly hungry, but there will come a point where I am going to be full, and at that point getting more to eat might actually make me worse off than just not eating more food. This is satiation. Satiation is why people who make more money save more money as a percentage of their total income than people who make less. This is the reason why we want to have a progressive income tax which means government investment doesn't cut too much into consumption but means that public sector investment is mostly displacing private investment as opposed to consumption, though it will always displace some consumption such an effect is minimized.

I have designed the whole code and here is what the effect on income inequality would be like based on US Census Bureau Data on American Income Inequality:

This shows that while the effect for the my tax code will be relatively small for most people, it will significantly reduce the wealth inequality at the top. This will yield $4.2 trillion of revenue after tax transfers. The income of the top 1% which currently sits at 58.2% of national income will reduce to 40.6% of after-tax income.

This is a good thing because short-term economic growth comes from consumption, and if we cut that too much we could trigger a current recession. The government expenditure should mostly be focused on long-term investment in normal non-recessionary times anyways, meaning it has minimized its disturbance in the economy. This is why we want a progressive income tax.

Monday, July 6, 2015

How to fix a problem

Colorado has successfully reduced teenage pregnancies by 40% in the last over the last 6 years. This is one issue very few people would disagree that teenage pregnancies are a problem (given the cost of young women having to raise a kids when they would otherwise be in school and other issues) but the solutions continues to be debated. The way Colorado did it was very simple, make it so people don't get pregnant by offering free IUDs. This is currently being debated in their legislature where the Republican majority is trying to end the program. The startling part of this is that we while teenage pregnancies are down, abortions are down too because they are not getting pregnant in the first place. New York Times

This has a massive lesson for all policies, and especially for activists, which the fairly simple notion that if there is a problem you are trying to correct you should aim at the root of the problem, just like in the garden where you need to pull the roots in order to get the plant. If you want to reduce abortions, you should make it so women don't get pregnant in the first place by providing IUDs. It is far cheaper for society to provide an IUD for a young woman than the increase in welfare payments that could occur if the woman gets pregnant. Here are a few more examples of this type of thinking:
  1. If you are concerned about income inequality, the Earned Income Tax Credit is successful at reducing poverty because it alleviates low incomes with more income. Effective tax credits make it so you have an incentive to earn an extra dollar.
  2. If you want to fix global warming, you need to reduce carbon emissions. If you want to reduce carbon emissions (or really reduce any bad), you want to tax it to make it more expensive.
  3. When trying to help third-world countries develop while aid can be effective the root cause of the poverty needs to be the goal of advocacy efforts. Working to fight corruption in governments, build high-quality nationwide systems, and build infrastructure which prevent their economies from developing alongside immediate aid will help move these countries to a point where poverty can finally end.
Any time an advocate comes to me with an issue telling me what they want to do, if I agree with their overall goals, I always ask the question of how they are going to go about fixing the issue. In order to make sure the remedy is actually going to solve the problem you need to understand how the problem came about in the first place, and you need to understand the processes behind the issue so that you can effectively remedy the problem. Not doing so frequently leads to remedies which are along the lines of "your forehead is hot because you have a fever, so in order to stop the fever we only need to cool your forehead and the fever will go away." While cooling the forehead is a first step it will not by itself end the fever and in order to supplement our natural response mechanisms you need a more direct remedy to fight the virus. The same principle applies in fixing social problems where in order to really fix the problem we need to understand it and attack it at the root, because if we don't fix the root of the problem we will be caught up in a very expensive never ending battle.

This is where solutions like what Colorado did to end teenage pregnancy is really effective because they fought the issue at the root which was far more effective than other methods, like abstinence-only sex education. In order to be effective advocates we need more policies like this.

Sunday, July 5, 2015

Schools Of Thought In Modern Politics: Part 2: Who are the Neoliberals?

Building off my last post which defended liberalism as opposed to socialism and fascism, I want to look at the economies of Europe and determine whether their economic policies are more liberal, socialist, or mercantilist. Before I post on that, I need to clearly define the different schools of thought within liberalism by looking at the writings of the authors themselves. Keynesians are fairly easy to define, but the school of thought most misrepresented in today's political arena is that of the neoliberals of von Mises, Hayek, and Friedman and their followers.

Most other issues are not wedge issues between Marxists and Liberals as competing ideologies in their policies.  When it comes to the regulation of monopolies classical liberals are unified about the necessity to prevent one company from having too much power. Even Friedrich Hayek (who is one of the most libertarian economists out there) agreed that social insurance and public health are important services of the government. (Road to Serfdom, chapter 9) Milton Friedman also saw a role for the government and envisioned the Earned Income Tax Credit, the largest transfer of wealth to the poor in America. 1 Clearly, government intervention is not opposed by even the Austrian or Chicago Schools of thought. The Austrian and Chicago schools definitely supported less direct government intervention than Keynesians and are not the same, but their support of negative income taxes and transfers of wealth from the rich to the poor are antithetical to the modern conservative movement across the world. They advised the conservative parties in their respective countries as well, and deeply influenced the policies of their governments. The politicians then selectively listened to the parts of their arguments they liked and discarded the rest. To emphasize this point, Milton Friedman used Hong Kong, a territory with public education and single-payer health care, as a preeminent example of free market capitalism. Reading their writings and looking at the policies of the conservative parties across the world I see a lot of disconnect and selective listening.

The closest you get in 20th century thought to her radical nature is Ludwig von Mises who influenced politicians but has few true followers in economics who didn't distort what they actually said. Many people claim that Friedman and Hayek follow him, but reading their writings, Mises was more radical than these Austrian School thinkers for multiple reasons. First of all, Mises has little to no interest in fighting income inequality, contrary to Hayek and Friedman who wrote extensively on this point.

Then how do you categorize the current right-wing in America and Europe which has become radicalized over the last 30 years to the point of making Hayek look like an ardent Keynesian? If you look at who is behind the funding of the political campaigns of both parties on Open Secrets you find it is large businesses which are attempting to benefit themselves at the expense of others. Economic thought has never endorsed such an opinion, and is widely credited from economists ranging from Smith to Hayek to Mills to Keynes as being a gross misunderstanding of how the economy works. In economics we observe that the expenditure of one person is the income of another. This is about as close to an absolute truth as you can get within the field. The individuals who fund political campaigns behind this radical ideology are far more in line with Ayn Rand's view of the world which now dominates parties across the world, the Republican Party in America, Conservative Party in Britain, CDU in Germany, Liberal Party in Australia, and Conservatives in Canada. The denial of global warming and idea that we are not connected to one another is contrary to everything economics has ever learned and delusional. It is the ideology of Ayn Rand, who had little to no understanding of economics, and proposed that we are separate from everyone around us. This idea is opposed to all serious economic thought left or right in the world, and there is no evidence for it.

The leaders of this movement who are put forward by these monied interests took some ideas from Hayek and Friedman with little to no understanding of economic theory and then twisted their ideas to fit their own ends. We saw the erosion of the public sector in both Britain and the United States by politicians who do not understand the way the economy is connected into a radical form from popular books that were written by these laissez-faire economists. They took the parts which vindicated government intervention from their non-academic works and then ran with it to an extreme that none of them ever fully advocated in their scholarly works. We see the rise of people like the Koch brothers who fund these organizations to destroy all state intervention and are not liberal in their economic thought at all. These people are simply corrupt and do not closely fit in any modern Western philosophical tradition, unless if you counted objectivism as a philosophical tradition in which case they fit almost perfectly. The closest form of thought they are to is mercantilism because they support policies which improve their businesses but hurt others, support trade when beneficial to themselves in the short run while at all other times oppose trade through legal barriers such as extensively long copyright and patent periods. All of these policies have been demonstrated to be detrimental to the economy in the long run. This is why I am convinced the people these individuals listen to are not economists but the people who pay their campaign funds.

So, in conclusion, the modern Republican Party is not a neoliberal party but an objectivist party. One finds very selective following of the advice of Friedman and Hayek but the most influential individual in them who they did not selectively listen to is Ayn Rand, and the monied interests today who take her writings to heart.

Saturday, July 4, 2015

Schools Of Thought In Modern Politics: Part 1: Defining and understanding the modern schools

A question I have been wondering for a while now is how to defend liberalism in a logical way vs. the two other major modern schools of thought which are fascism and communism. the major schools I am going to analyze are liberalism. socialism/communism, fascism, and mercantilism because all four have substantial influence in modern politics.

First, definitions. I am trying to make these the most basic possible, and each of these schools are very diverse, but each idea has basic tenants in common which unite them, primarily the idea of who the primary actor of society is which is a fundamental assertion of all of these major schools of political thought and an easy way of discerning between competing branches.

Liberalism is going to be understood as being focused on the individual as the primary actor in history and is focused on expanding individual rights. Different liberals will interpret this differently (Mill's utilitarianism and Rawls' Justice as Fairness for example) but they all agree on those basic tenants. Liberal economics proposes a system which emphasizes individual liberty balanced with a role for the state (which almost all liberals from Adam Smith to John Maynard Keynes base it on to different levels). The solution to economic justice then is a system where people are able to trade freely (with some exceptions) and social justice where you cannot be restrained from doing actions which do not harm others. In this way almost all liberals focus on justice more than freedom. Most liberals also are not primarily opposed to government intervention. Liberals going back as far as Adam Smith advocated for government intervention in the maintenance of monopolies, and 70 years later Mill argued for public education and other public services which were become more important as capital grew in importance and the labor theory of value was insufficient to explain economic growth (as it mostly was during Smith's time). Liberalism is like a ninja (as one of my teachers likes to say) in that it has substantially evolved over time, but liberals continue to agree with who the primary actor of society is and generally that we should work with market forces and have a generally free market.

Marx is focused on economic classes as the primary drivers of history and history is seen by him as being a conflict between the bourgeois and proletariat. The bourgeois take advantage of the proletariat and the solution is for the proletariat to supplant the bourgeois and create a dictatorship of the proletariat. Marxism must be understood as an evolution of the economy through various stages beyond the current form of capitalism.
  1. The economy would be centrally controlled by this dictatorship of the proletariat. the example used by Joseph Weydemeyer is that of Oliver Cromwell in England (who as any Irishman knows was far from benign) and the French leadership which succeeded the French Revolution in 1791 (also known as the Reign of Terror). As a sidenote, next time you are constructing a school of thought, don't use the Reign of Terror as an example of what your theory will recreate, however briefly. The states where the proletariat take over the means of production then should expand their rule to spread the dictatorship of the proletariat to other nations.
  2. As society progresses (according to Marxist thought) the dictatorship will then turn into a society where everyone is completely equal in their ownership of the means of production in what Marx called a socialist society. socialism is a society where the means of production are owned directly through the people jointly or indirectly through a government, where all decisions will ultimately be made by the workers.
  3. As the socialism progresses all people will become equal and then the society will evolve into a communist society. This communist society is where everyone will have equal ownership over the means of production and there will be no government and no social classes. In the countries where the dictatorship of the proletariat has been established it has failed to progress to a completely communist society in all of the places which have attempted it. The transition will now be complete and everyone will be equal.

Fascists view races as the primary drivers of history and history is the struggle between ethnicities. The way to make peace is make your ethnic group the most superior of all which is the philosophical background to the classic fascist states of history. Race is a socially constructed phenomenon based on how power relates to people's heritage. A system where all ethnic groups are equal, such as Bavarians and Berliners are politically equal, would then be of the same race, while a system where Bavarians and Berliners are fighting between each other would have the Bavarian Race and Berliner Race. Race is in this way completely unnatural and a fully social construction. The way we see the history of the Irish in America for instance confirms this interpretation. Any time you hear a politician make an argument against an ethnic group or argue that people from different ethnic groups cannot cooperate their argument has its roots in fascism.

The fourth major school of Economic thought is that of Mercantilism. Mercantilists are all about protecting the businesses of the state from foreign and domestic competition, and believe that trade represents weakness because they argue it makes you vulnerable to invasion from the countries with which you trade. First of all, I must point out there is scant to no evidence the economy actually functions this way, and economists today almost unanimously agree that this is a way to reduce growth and increase inequality and it is really hard to get economists to agree on anything. I include Mercantilism on this list because it is the school of thought which impacts policies regarding agriculture, laws which prohibit imports in an attempt to boost domestic industry (see the protections against foreign auto manufacturers which were scrapped in the early 1990s) and rigorous multivariable research on the impacts of these policies almost universally agrees that these policies end up hurting the economy in the end. I really have nothing good to say about mercantilism, but it continues to pay an important role in economic policy around the world.

For me I am definitely a liberal. The best reason is what is when a Marxist dictatorship of the proletariat or Fascist state is established the response then is the class or race which is supplanted to then supplant the new master race (literally meaning the race of masters) or upper class. They lack balance of power which leads to a concentration which breeds corruption. There is no solution ever in these and a constant cycle of one group fighting another. Turning a dictatorship into a democracy is a long and arduous process, and it has never been done overnight.

Liberalism on the other hand doesn't have such a problem. Since we live in a world where nobody is 100% from one continent or another according to DNA evidence there is no biological background to the concept of a race except one that includes all humanities, except as a purely social construction. We are all people, so fascism makes no sense. When it comes to Marxism we see the development of Marxist states such as the Soviet Union and China see only the creation of a new bourgeois class supplanting the old bourgeois class, while most people remain proletariat.  We have no example in history where a dictatorship has ever voluntarily given up its power. There is no solution in Marxism and the classes are not natural nor inevitable.

A truly liberal world would on the other hand recognize the humanity of all people and build a world where everyone has the same political rights as everyone else. More liberal states are closer to such an ideal than others and don't see a contradiction with an upper or lower class compared to Marxist or Fascist states. If someone were to create a society where people would be unequal, they would not be following the basic overarching concept that unites all liberals, and would stop being a liberal. For me this represents a strength of liberalism which the other schools fail to succeed in. Truly liberal states (such as Scandinavia, New Zealand, Post-WWII West Germany, Pre-Thatcher Britain) have had generally liberal economic policies and saw the largest decreases in income inequality the world has ever seen. Countries which tried the central planning approach failed to reach these levels of personal freedom and material well-being which are two major factors in determining quality of life.

The final defense of liberalism must be that the economic policies of Reagan and Thatcher are not liberal. Liberal economics, if we are going to use the term as political theorists use it regards a market where firms can freely enter and exit, the government does not pick winners or losers, and everyone has a level playing field with equality of opportunity. this is what was written by Adam Smith, added onto by John Stuart Mill (who advocated for equality of education and other leveling factors) and then with John Maynard Keynes who of course advocated for government to be involved more heavily in recessions and less in times of expansion in countercyclical policy. All of these three major liberal thinkers agreed however that the government should generally be uninvolved in the day to day operation of the economy besides the basic necessities and natural monopolies, as opposed to the interventionist policies of Marxists and Mercantilists. the policies of Thatcher and Reagan (etc.) led to the reduction in private competition by favoring certain businesses over others, which is opposed to everything that the great liberal economic thinkers proposed. The policies they did which favored some businesses over others (tying into the idea of that the government should not pick winners and losers) led to a less competitive economy and is actually mercantilist, which is exactly the school of though which liberalism was founded in order to oppose. I take their actions more seriously than their words (as I do for every political leader) and given how this was their approach I must say they fit closer to the Mercantilist camp. Their policies to break public organizing is opposed to liberalism (especially the works of Mill) because it was the government intervening in the economy to regulate how workers can and cannot act to protect one class over another which was exactly the picking winners and losers liberals love to hate and mercantilists advocate.

So, in conclusion of this first installment in what has rapidly become a series of three articles, the modern Republican Party and other similar parties across the world is not a liberal party. Also, liberalism is the only major ideology in the world which does not contradict itself in major ways. Because of these reasons, we should base our economic policies on liberal ideas.

We need to fix global warming now

We are currently witnessing the hottest year on record in the history of man. 1 This is so apparent since we are witnessing heat waves in South Asia right now as I write this and the Pacific Northwest is receiving heat wave warnings, like I received earlier today. I have never received a heat wave warning before in my life here in the Great State of Washington on the West side. We received no snow last winter, which was extremely unusual and I am personally scared of a drought in the near future. We get most of our water from groundwater here which has never been a problem before, but this would become a problem in the future if we continue to see lower levels of snow.

There is no time to waste, and the longer we wait the worse it is going to become. All of the predictions say so. According to we can still fix global warming, and research has demonstrated this is possible.

I also do not see the connection between how this would shut down innovation to go to a more sustainable economy. The economy has not always been structured the way it is today and there is no reason to assume it will remain so in the future. With the development of electric cars by Tesla motors and other car companies it is clear to me that we can develop sustainable technologies, and with recycling significantly reduce our impact on global warming. The real danger to our economy is if we do not address climate change. The reduction in labor and deaths of millions will definitely cause a reduction in GDP and GDP per capita growth at that point is irrelevant because people are dying right now in the massive heat waves in South Asia.

Whether it is reversible is right now a big question which is not clearly answered. It is clear that to reverse global warming will take more than just shutting off our consumption of carbon (which is essential if we are to survive) 2 but what this study left out is if we pursued policies to actively reverse global warming and deacidify the oceans.

A little good news is that we have seen reductions in carbon emissions since 2000. This has been due mostly to moving from coal to natural gas for electricity production. 3 and 4 we see switching onto natural gas as well as a reduction in demand for oil as the major contributing factors to reduce ourcarbon emissions. Every state but Iowa has seen a decrease in per capita carbon emissions. We have seen a 8.3% decline in total carbon emissions nationwide, which translates to a 16.9% total carbon emissions per capita decline from 2000 to 2011. (the latest year for which I find data) This is a very important trend, and we need to make it continue into the future.

When designing policies, we need to work alongside market forces in order to maximize our potential gain. Working against supply and demand create unintended consequences which reduce the effectiveness of policies.

There are big actions we can do right now  as a society to stop global warming. Individual actions are helpful, and if you can afford a Tesla and have something to charge it with, that is a wonderful thing to do, but small actions alone will not be enough to reverse global warming. The question of whether we can is currently hotly debated in the scientific community, but there are a few major things we can do as a planet to stop global warming.

  1. Tax Carbon. This is the best way to fight global warming right now. It will increase the cost on utility companies which get their power from non-renewables (which is the single largest contributor to global warming in the United States) 5 and make it more expensive to use gasoline to get between places, giving electric cars an advantage. Carbon taxes are more effective than cap and trade policies at reducing emissions because they tax the entire amount of carbon emitted, not just part of it.
  2. Increase grants for research which connects to energy use. One of the most important fields today which needs investment is battery power. With our devices today almost everything has become smaller and more efficient, but batteries are relatively primitive. Increasing their efficiency will reduce the demand for electricity which will help reduce carbon emissions in areas which get their power from fossil fuels. We need to continue research into solar panels as well.
  3. Increase subsidies for renewable energy and efficiency. We already have a substantial amount of money going towards renewable energy and efficiency 6 but we can still invest more money.
  4. Increase the amount of money going towards science education. In order to face the challenges of global warming and have the engineers and scientists to analyze these issues, be it from my perspective as a young political economist or as an engineer, we need to have more people with the education and the tool sets to fully combat the problems we have today. Without that human capital we won't get the ingenuity we need to save our world. We need to work with teachers in developing effective teaching methods for all sciences (mathematics, natural sciences, and social sciences) so that as many students as possible can grow to love and understand these fields so they can go on to have excellent careers healing our world. The rest of my points will not happen without a large number of people who have the tool sets to fix these problems.
The overall plan is to increase the cost of using carbon intensive ways of transportation and electricity generation and at the same time reduce the cost of renewables to a point where they are the economically viable option. We have seen significant decreases in the cost of solar over the last few years, and with the right policies and innovation both public and private we can push the price down even further. Then we will see a massive increase in renewable energy as soon as they are less expensive than carbon emitting technologies. This is the ticket to building a sustainable world, and do it faster than alternative ways.