Equity and Equality

This week the debate over the minimum wage continued in the Senate, on C-Span, other news outlets and social media. The Wall St. Journal presented the minimum wage in Big Mac terms. In 1968, it took 18 minutes of minimum wage to buy that iconic hamburger. Today, it takes 30 minutes of minimum wage. Using that as a guideline, the minimum wage should be at least $12.

Why don’t Democrat politicians propose a minimum wage that varies according to each region’s cost of living (COL)? According to survey data, Colorado’s COL is 73% of California’s COL (MERIC, 2021). Using that as a guideline, Colorado’s minimum wage would be about $11, the same as the current minimum. Missouri’s minimum would be $8.35, which is LESS than the state’s current minimum of $8.60. Many states have implemented a $15 COL-adjusted minimum wage.  

Advocates for a uniform minimum wage argue that they want to erase some of the disparity between urban areas and low paid rural regions, many of which are black or Hispanic. Those in rural areas worry that small businesses will lay off workers, driving the unemployment rate higher than it already is. Others worry that businesses will raise their prices, making it more difficult for those on fixed incomes. In that case, the minimum wage would benefit some at the expense of others.

Twenty years ago, an analysis of minimum wage increases and employment data found only one statistically significant correlation: increases had a minimal effect on teenage employment (Burkhauser, Couch, & Wittenburg, 2000). Other studies have found no effect on employment in the fast-food industry. A recent study examined minimum wage increases in the states and found that increases greater than a $1 had a negative impact of 1% on low-skill employment (Clemens & Strain, 2018). Smaller increases had either no effect or a positive impact. How can we have an informed debate if history does not provide a clear lesson?

Since Plato’s time 2500 years ago, we have wrestled with equality, equity, and justice. Equity measures by outcome, varying the inputs until the outcomes are about the same. Equality measures by inputs; if everyone gets the same chance, the same inputs, then equality is satisfied. Plato argued that justice was an individual functioning well within community. Some of his companions in The Republic argued for alternate versions of justice: that it was the interests of the stronger, that it was helping friends and harming enemies, or telling the truth and paying your debts.

John Maeda posted a Tony Ruth graphic that depicts these concepts of inequality, equality, equity, and justice (2019). Two kids stand on opposite sides under a leaning apple tree so that one kid below the overhang gets most of the apples that fall. That is inequality. They are both given a ladder of equal height; since they each have the equal tools, that is equality. The kid below the overhang is given a shorter ladder to compensate for his better opportunity at picking apples; that is equity. Justice is the equalization of opportunity and tools; using braces and ropes, the tree is straightened, and each kid is given the same size ladder. Justice is both equity and equality.

As a society we often can’t straighten the tree; if we could, who pays for the labor, braces, and ropes? Who owns the ladders? Writing 500 years ago, Machiavelli said that a republic is the best form of government because the two main political classes of society constantly wrestle with these issues. The two groups may be labeled nobles and common people, or Republicans and Democrats, but they are essentially a tug of war between these notions of equity and equality. One group champions equity over equality; the other fights for equality as a priority above equity.

As we listen to debates in Congress, the workplace, and our households, we can identify those two elements. The argument then evolves into the particulars of process, and this is used to justify either side of the equity / equality debate. Machiavelli wrote that people make fewer mistakes when they focus on the particulars. In working out the details we uncover the broad issues that we tussle over. The road of history is curved; to keep from running off the road, we adjust the steering wheel left and right, repeatedly correcting our previous course corrections. This is a time for correction.

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Photo by Splint on Unsplash

Burkhauser, R. V., Couch, K. A., & Wittenburg, D. C. (2000). A reassessment of the New economics of the minimum Wage literature with monthly data from the current population survey. Journal of Labor Economics, 18(4), 653-680. doi:10.1086/209972

Clemens, J., & Strain, M. R. (2018). The short-run employment effects of recent minimum wage changes: Evidence from the American community survey. Contemporary Economic Policy, 36(4), 711-722. doi:10.1111/coep.12279

Maeda, J. (2019, March 11). Design in Tech Report 2019 | Section 6 | Addressing Imbalance. Retrieved March 06, 2021, from https://designintech.report/2019/03/11/%F0%9F%93%B1design-in-tech-report-2019-section-6-addressing-imbalance/

MERIC. (2021). Cost of living data series. Retrieved March 06, 2021, from https://meric.mo.gov/data/cost-living-data-series

A Nation of Storytellers

February 28, 2021

by Steve Stofka

In our national narrative, the sheriff comes to town and the virtuous town folk walk without fear. Four years ago, President Trump promised to be that sheriff, routing out the miscreants that lived in the Washington swamp. When he was the unlikely winner of the 2016 election, religious romantics attributed his victory to God, not the arcane rules of the Electoral College. When he lost the 2020 election, God was nowhere to be found. He had been chased off by cheaters who had stolen the election from their candidate. Hollywood could only have been invented in America. We are storytellers.

On January 6th, a group of self-dubbed patriots attacked the Capitol building in Washington. In their eyes, the lawmakers in that building were illegitimate, and the vigilantes assumed their Constitutional duty to unseat those lawmakers. They were the Tea Party attacking the British in Boston Harbor more than two hundred years ago. Through social media they had amplified their role in the American myth, taking center stage in a fight for freedom.

America is a game of Prisoner’s Dilemma, the game theory scenario where two prisoners, each in a separate interrogation room, must decide whether to confess to a crime. If neither confesses (they cooperate), they get off with a light sentence. If one confesses and the other doesn’t, one goes scot free and the other is given a harsh sentence. If they both confess, they are both given a medium-term sentence. The players have a choice to cooperate (neither confesses) or defect (confess). If the game is played once, it is better for each prisoner to defect. If the game is played multiple times and there is a memory between games, the prisoners should cooperate.

American politics is not a cooperative game. Within a decade after the ratification of the Constitution, the founders realized, to their dismay, that they had created a vicious party system. In 1800, the founders themselves were engaged in an electoral battle, ready to smear each other’s reputations and the honor of their families to gain the power of the Presidency.

In the halls of Congress, the prisoners meet in committee rooms. They confess to the crime of representing their constituents. They confess to the sin of defending their principles. They handcuff themselves together with rules of order, then come out fighting. They play this game every day, each party unable to cooperate with each other, but telling themselves a story that they are cooperating with the rules. Outside the halls of Congress, their constituents are fighting without rules. The breach of the Capitol building brought the fight inside.

We are storytellers. After World War 2, many Americans lost their jobs and careers on suspicion that they were Communist sympathizers. Today a common phrase is “if you see something, say something.” The campaign began as a response to the 9-11 attack but has been extended to mean any suspicious activity. The “see something, say something” campaign means to promote predator awareness – those who would victimize children and women. Trayvon Martin and Ahmaud Arbery were two men who looked suspicious and were gunned down by white vigilantes who interpreted the Constitution to give them the right to defend their community against suspicious people.

Hong Kong is an island off mainland China that was formerly under British rule and prized its independence from Communist rule on the mainland. They are telling a different kind of story – turning on each other. As part of a campaign by the mainland Communist Party to repress street protests in Hong Kong, the government set up a hotline to report suspected violators of new security laws aimed to restrict criticism of the government in the media. 40,000 virtuous and vigilant residents have squealed on their neighbors.

Myths connect people but our stories are tearing us apart. Our media is saturated with a mixtape of opinion, lies and carefully filtered facts to present some Americans as the “other.” The Chinese government encourages Hong Kong residents to turn on each other. In our country, the media does the same job. We are proud of those freedoms even if they destroy our civility and our cohesiveness as a society.

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Photo by Patrick Tomasso on Unsplash

A Policy Pivot?

February 21, 2021

by Steve Stofka

Climate change induces more erratic weather patterns. More dry and wet; colder and hotter. California has been hit by persistent drought. Texas and other southern states got walloped this week. Several dozen Texans lost their lives when electricity generation failed for several days this week. For two decades, Texas has adopted a relaxed regulatory policy that does not incentivize or require power generators to prepare for unusual events like this week’s cold snap. Texas legislators argued that these policies reduced costs and lowered bills for Texans. Other states with more stringent regulations weathered the cold snap because power operators beef up their generation system to withstand extremes.

Natural gas supplies 46% of Texas’ electricity generation. The valves and regulators on those lines froze because of a lack of heating equipment. Wind turbines supply 23% of Texans electricity but had no heaters installed as they do in other states. Because Texas has its own electricity grid, it has no power balancing arrangements with other states. Texans pride themselves on their self-reliance to the point of arrogance. They are the Lone Star State, Texans first, Americans second.

Through district gerrymandering a minority of Republican voters in Texas control policy. The state has a constitutionally weak governor with little power. The legislature promotes someone to the post who will be agreeable. Politics is heavily influenced by the oil and gas industry whose rights are senior to property owners. If a gas company wants to run a pipeline through someone’s property, an owner has a difficult fight.

Because Texas was part of Mexico until the 1840s, its laws and culture are influenced by the hacienda system set up by Spain in Latin and South America during the 17th century. In that colonial period, the Spanish monarchy took control away from parliament, imposed a uniform religion and a rigid centralized bureaucracy. Land in the Americas was parceled out in large tracts called haciendas to those who were loyal to the crown. This promoted a system of personal relations among landowners, people over principle, and a lack of growth and technological improvement. Like cuttings on a plant, the culture of white settlers in Texas were grafted onto this system. Texans adopted the “good old boy club” that has plagued politics in Latin America for centuries and made it their own.

Northern states were initially settled by colonists from England. In the 17th century, the English Parliament took power from the monarchy, a power shift opposite that in Spain. Religious and political diversity carried over from the motherland to the colonies and became institutionalized. Property rights, and the products of property could be conveyed to others. This encouraged a system of principle over person, a more impersonal exchange that fostered technological development.

Texas culture relies on tradition more than innovation, but the state provides a fertile and friendly atmosphere for innovative businesses from other states. Business growth relies on a flourishing human capital. Texas’ K-12 schools rank in the middle of the 50 states and above California, both with large immigrant populations and low English fluency (McCann, 2020). However, a state that cannot manage its power grid is not an attractive environment for business.

Will this crisis spark a shift in policy? Texas has long been captured by special interests, who are antagonistic to change. The past few years Texas politicians have stood proud, calling to California businesses, “Come here and get away from those regulations.” That cheery welcome has been tarnished this week. Business executives might wonder if Texas has other infrastructure problems. Texans hope that the fast-moving news cycle will turn its attention elsewhere.

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Photo by Alexander Schimmeck on Unsplash

McCann, A. (2020, July 27). States with the best & worst school systems. Retrieved February 20, 2021, from https://wallethub.com/edu/e/states-with-the-best-schools/5335

Finding the Right Wires

February 14, 2021

by Steve Stofka

Since WW2, households have traditionally held more debt than the federal government as a percent of GDP. I’ll call it %Debt. The biggest component of household debt is mortgages, and includes car loans, student loans, credit card debt, etc. A decade ago, Federal %Debt surpassed households, effectively allowing households to reduce their debt level and put it on the federal balance sheet.

Federal debt spiked during the pandemic while household debt levels have risen only 1.5%. For decades, deficit hawks have long warned that rising federal debt levels could cause an economic implosion that would make the Great Depression look tame by comparison. They may be right – finally.

There are two ways that the federal %Debt can go down. The first is to grow the economy; that’s the GDP in the denominator of Debt / GDP. The second way is to reduce the level of Debt, the numerator. It is unlikely that Congress is going to raise taxes enough to reduce the debt, so that leaves only one way to reduce %Debt – grow the economy faster than the growth in federal debt.

To do that, consumers need to spend money because their spending makes up 70% of GDP. There are three ways to increase spending. The first is to increase incomes faster than economic growth but that has not been happening for several decades. The real growth in middle class incomes over the past 30 years is only 15%, or 1/2% per year average.

The non-partisan Congressional Budget Office projects that total incomes will increase by an average of $33B per year over the next decade if the minimum wage is raised to $15 over the next five years (CBO, 2021). That increase of 1.5% in GDP will not change the federal %Debt by much.

The second way to increase GDP is for consumers to take on more debt. A rise in housing prices has lifted the net worth of many households, who can tap into that equity to increase their spending. However, households are already choked with debt. The two largest generations, the Millennials and the Boomers are offsetting each other’s spending. Older Boomers are reducing spending as Millennials increase their purchases. The Millennials have been crushed by the financial crisis a decade ago and again with the Covid crisis. Many feel like they came along at the wrong time in history and are cautious. When consumers pay down debt, they spend less and that lowers GDP growth.

The third way is probably the trend of the future. The federal government will continue to pile debt on its balance sheet and shift income onto households in the hopes that consumers will spend money and grow the economy faster than the rise in federal debt. There is a concept called the multiplier and economists argue over its value. It is the total effect of spending in an economy when the government spends $1. That depends on consumer and business confidence, which depends on the amount of debt each sector holds. The IMF estimates that the multiplier is about 1.5, so that $1 of spending equals $1.50. If so, deficit spending might grow the economy faster than the federal debt grows.

I’ll return to a proposal I discarded earlier – increasing taxes, particularly on the top 10% who don’t spend as much of their incomes on consumer goods as the bottom 90%. Under the Budget Reconciliation rule in the Senate, the Democrats could pass tax legislation that undoes the 2017 tax cuts that the Republicans passed using that reconciliation process. In his campaign proposals, President Biden limited any tax increases to those making $400,000 or more, a small sliver of the population.

Income distribution is skewed toward the upper 5%, who will fight vigorously to keep what they have. They will complain – and they have a point – that they are already paying higher taxes in the form of lost income because interest rates are so low. Those with savings are being paid a paltry amount in interest but the low rates reduce the interest on the debt that the federal government pays each year. Boomers on fixed incomes are having to reduce their savings faster  to meet monthly expenses.

The structure of income distribution is weak. No, it’s not a problem with capitalism, as some like to claim. This is a problem with political policy which pre-dates capitalism. A small group of people in a nation take command of the distribution levers and direct more of the nation’s income to themselves. In the 1700s, the problem was thought to originate with monarchy and aristocracy. Democracy was going to cure the problem, but it didn’t. Communism was going to cure the problem and it didn’t. Socialism – the middle way between capitalism and communism – was going to solve the problem, but the EU demonstrates that socialism simply slows growth, increases structural unemployment, and does little to solve the persistent problem of distributional inequalities.

Governments worry about exogenous factors like Covid, war, or a dramatic shift in commodity prices. While those do produce crises, they do so because of endogenous factors – weaknesses in a nation’s political and economic system that award property rights in such a way as to exacerbate social tensions. The Great Depression and Financial Crisis were examples.

Since the Financial Crisis a decade ago, people in nations around the world have been raising their fists and their voices. The productivity gains that capitalism promoted had ameliorated the centuries old problem of political oligarchies, but no economic system can solve what is fundamentally a political problem.

Those who voted for former President Trump in 2016 did so thinking that he was a political outsider who could “drain the swamp,” i.e., bust up the political oligarchy that controls Washington. He became part of that oligarchy, feeding the monster, because it relied on his lack of political expertise.

Those who voted for President Biden hope that his decency and moderation will help craft legislation that unlooses the grip that the oligarchy has on our political process. Which wires do we pull to disconnect the oligarchy?

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Photo by Victor Barrios on Unsplash

Congressional Budget Office (CBO). (2021, February 08). The budgetary effects of the raise the Wage act of 2021. Retrieved February 13, 2021, from https://www.cbo.gov/publication/56975

Tax Policy Center. (2020, May). What is reconciliation? Retrieved February 13, 2021, from https://www.taxpolicycenter.org/briefing-book/what-reconciliation

Social Brain

February 7, 2021

by Steve Stofka

On C-Span’s Washington Journal call-in show, I  heard a caller say that they were glad to see the government back at work. The show allows callers to briefly say their peace. Roughly half of the people in this country don’t want the government in Washington to work, half do. Because of  the show’s early morning airtime, callers in the eastern time zone are overrepresented and most are mature. Regardless of one’s political affiliation, most appreciate the show’s unfiltered approach.

The Greek philosopher Plato observed that we are social creatures by nature. Each of us has the capability of reasoning – it is the distinguishing feature of human beings – but an individual walks around in a cloud of misperception. Only through dialog with our neighbors do we arrive at some universal truths.

Indoctrinated since childhood in an egalitarian, individualistic society, we reject this “group think,” but the founders of Facebook and Twitter have made billions creating a social platform for us to interact. Whether we unfriend a family member on Facebook or engage in a spirited debate with a stranger on Twitter, we are demonstrating the Platonic notion that we try to arrive at truths in our dialog with others. The Social Dilemma documentary explores the techniques of manipulation by those who wrote the code.

Some people hate capitalism. “It turns people into numbers!” We don’t think of money as a dialog. Bitcoin is worth $40,000 or it is worthless. The marketplace is a dialog. There is a group of “investors” on Reddit who are one-share owners of the volatile stock GameStop. One share. When one investor sold his shares – he had much more than one – he missed the sense of community with others. Yes, he had made several hundred thousand dollars, but he felt as though he had betrayed the community by selling.

We are human beings with big brains, but our fundamental character is that of individuals in a monkey troop. We assess danger by looking at our neighbors. Are others afraid or is it me? This berry tastes good. Has anyone else gotten sick eating it? We may choose to isolate ourselves from the group, but we don’t like to be isolated by the group.

In Star Trek: TNG, a race of cybernetic beings act as a hive of bees, a collective coordinated in thought and action. They convert U.S.S. Enterprise Captain Picard into a Borg member to communicate with other humans. Picard must endure the withdrawal of the Borg implants and never fully recovers from the psychological wounds of being part of that collective.

Plato’s take on this process is different. We communicate with and understand the world through the group. We are like the Borg in that sense, a collective of creatures, whose distinctive feature is their reasoning. We are intrigued by the social life of bees and ants, who use chemical clues and dancing to inform their fellows about the world.

Bees dance. Ants share chemicals. We dance by talking and writing, by tapping on our phones. We aren’t sensitive to pheromones, so we wear clothes and adopt lifestyles that signal our position in the group. In the new world of tech and social media, the chemicals we share are our data: what we ate, what we bought, what our moods are.

What do Plato and social programming engineers at Facebook have in common? We are Borg. We form a social contract not because it is convenient but because it is in our nature.

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Photo by Boba Jaglicic on Unsplash

A Tale of Caution

January 31, 2021

by Steve Stofka

The trading in GameStop (GME) has spurred romantic visions; a mob of peasants has stormed the castle and the nobles have fled! Huzzah! This love of the romantic convinced a bunch of peasants to storm the Capitol on January 6th. We are human beings; we love stories. The truth is less appealing or ordinary.

At a press conferences this week, the well-prepared and even-tempered White House Press Secretary, Jen Psaki, was asked if President Biden planned to speak to the issue of the volatile trading in GameStop (GME). She said that it was a new age; the President was not going to speak to issues he had no expertise in. Imagine that. We will miss the enjoyment of watching former President Trump standing in the White House driveway and opining to reporters on every topic under the sun.

Reporter: “Mr. President, what’s your source on that?”

Mr. Trump: “My mind. I have a very smart mind.”

Without the daily source of ridicule that Mr. Trump provided, comedians are having to write new material.

But I digress. GameStop. Twenty-five years ago, internet stocks were taking off. Message boards at AOL, CompuServe and others lit up with stories of “Ten baggers,” the holy grail of stock investing. Buy a stock for a $1 and watch it rise to $10. Those in Bitcoin have experienced the heady feeling.

That romance incentivized peasants to join the Crusades; there was gold in Solomon’s Temple at Jerusalem. Thousands poured into the California gold fields in the hopes of striking it rich. The people who get rich are the ones selling pickaxes and panning tools to the miners. The gold is not in the hills but in the people digging up the hills.

On message boards in the 1990s we learned about options. Instead of buying Microsoft stock, an investor can buy options to buy Microsoft’s stock. If Microsoft’s stock is selling for $25, it costs $2500 to buy a 100 shares, the minimum lot. At that time, buying less than a 100 shares cost a lot more in commissions. If an option were selling for $1, an investor could buy 2500 options! If the price went up $5 you could quintuple your money. Imagine making $10,000 in a few weeks.

People quit their jobs to day trade. The successful ones were cautious, taking profits quickly, not taking too many risks. Someone with a family to feed and rent to pay must be responsible. A modestly successful trader can convince themselves that they have a well-balanced strategy.

About a year before the internet stock bubble blew up, someone posted a rather long post on a message board. Since he was in the options business, a family member had asked him for his advice. Aware for the first time that inexperienced retail traders were taking positions, he offered his advice, which I will paraphrase. A few points stuck with me.

Options are tools. 94% of options trades expire worthless. Professional traders use options like car insurance. Yes, there are some companies who take risks, but most of those in the business use options to mitigate risk.

Understand that multi-national companies pour hundreds of thousands of dollars into news gathering, sophisticated computers and programming by very smart people to develop and deploy options strategies. They are on the other side of the trade.

A retail trader may get lucky. The prospects for Company A improve, the stock goes up and the trader makes money. A company using options aims to make money whether the prospects for Company A improve or deteriorate. A successful racetrack makes money no matter what horse wins.

Gamblers at a racetrack can rush the window in the closing moments before a race begins and cause the track to lose money on that race because the track doesn’t have the time to change the odds to layoff the bets. With the advent of the internet, a group of retail options traders could do the same with a hedge fund, who can’t lay off the bets fast enough. It could be done but it would be difficult.

25 years later, it has become much easier for gamblers to rush the betting window. The success of those traders will no doubt inspire others to try the same strategy. An industry which uses options to mitigate risk on trillions of dollars will not let a few retail traders upset that market for long, so don’t gamble with the rent money.

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Photo by Kay on Unsplash

Forgiveness

January 24, 2021

by Steve Stofka

Some members of the Democratic Party have called for a forgiveness of all student debt, which the Federal Reserve estimates at more than $1.7 trillion, which has doubled since the onset of the financial crisis and recession in 2007-8. On the campaign trail, President Biden seemed receptive to a forgiveness of $10,000 as a uniform application of policy (Urban, 2020).

Many of us react instinctually to debt forgiveness, ready to condemn the idea outright because we were taught as children to pay our debts. The ancient Greeks committed individuals and families to slavery for failure to pay their debts (ABI, n.d.). The Romans allowed creditors to dismember debtors. American colonists had debtors flogged, ears cut off and imprisoned.

Our laws have become more forgiving in the past three centuries, but the attitudes of many Americans have not improved as much. In the depths of the 2009 recession, CNBC reporter Rick Santelli criticized a mortgage debt relief program and ignited a storm of passion that contributed to the formation of the Tea Party movement. Will a student debt forgiveness program arouse similar sentiments?

A week before Congress passed the CARES act on March 27, 2020, Education Secretary Betsy DeVos suspended payments on federal student loans payments (DOE, 2021). The CARES act formalized that suspension but only for six months. President Trump then directed her to continue the suspension of payments and waiver of interest. President Biden has continued that policy until September 2021.

Who got the loan money? Some of it went to for-profit institutions. Students at for-profit institutions total two million, less than 5% of the 42 million students enrolled in higher education (Bennett et al., 2010). During the financial crisis, for-profits received a lot of criticism for abusive recruitment practices, low graduation rates, high default rates and poor student outcomes. Under tightened regulations during the Obama administration, several lost eligibility for federal student loans and subsequently shut down.

Ok, goes the argument, some students got a bad deal. Shouldn’t they still have to honor their contracts? What if the government forgave all debts involving a product or service which did not perform as promised? The buyer would no longer have to be diligent about quality. Eventually the quality of goods and services would decrease. Those who use this argument see debt forgiveness of any kind as a slippery slope to the downfall of the entire economy and the impoverishment of society.

The bulk of the $1.7 trillion of outstanding debt was paid to public educational institutions, who have raised tuition far above the general rate of inflation. Since 1985, inflation adjusted tuition has doubled (NCES, 2021). Over the past two decades, states have cut back their funding for higher education, throwing the extra burden onto students. In analyzing the shift, Douglas Webber found that the student burden had tripled since 2000 (2017).

Where did the money go? To state institutions. Imagine each student wearing a backpack loaded with 10 pounds of debt. State governments took 20 pounds of weight off their books and put it in the backpacks of the students, those least able to bear that burden. A forgiveness of debt, total or partial, would take some or all that weight out of the backpacks of each student and put it on the Federal balance sheet.

At its core, debt is about justice, a subject that we struggle to discuss rationally because we are social animals who process the subject of fairness with our monkey brains. In 18th century England, the punishment for crimes, including debt, was in proportion to the outrage of society at the criminal. In a more rational approach, the philosopher and legislator Jeremy Bentham introduced a “felicity calculus” that would guide legislators and judges to enact punishments that were proportional to the consequences of a crime and the profit of the crime to the criminal.

Our laws no longer treat debtors as criminals, but in the case of a student’s debt, how is society to judge the profit that a student will earn over a lifetime from their education? On average they will make a higher income and pay higher taxes. If all student debt is forgiven, one student will receive a benefit of $100,000 while another will receive a $30,000 benefit. Is that just? I personally think a $10,000 uniform forgiveness is more just. A debt forgiven cannot be unforgiven; moderation is the key.

We can never agree on issues of distribution of benefits. Small children argue whether they got the same amount of chocolate milk if the glasses are shaped differently. In the parable of the workers in the vineyard, workers who only worked one hour received the same amount of money as those who had worked all day. Is that fair? The landowner insisted that it was his money to do whatever he wanted.

In a democracy, we have an instinctual sense that the Federal government’s money does not belong to the government. Some of us claim an equal say in how that money is spent, whether we pay a small amount or a large amount of federal tax. Some of us decide the justice of debt forgiveness as though the debt was owed to us personally. Some of us don’t see this as a personal issue; the federal debt is as remote as the Andromeda galaxy. Those two groups cannot agree.

In a democracy, we argue about the rules. We compete to elect the people who make the rules. Half of us like the rules; half don’t. A democracy survives only as long as each half can forgive the other half for their tyranny while they were in the majority. As long as each half feels that they are getting a turn at making the rules, there is a grudging tolerance, if not forgiveness, and a democracy survives. When one half of the people feel as though they are shut out of the rule making process, the fighting starts. If we can’t practice some forgiveness we don’t deserve a democracy. Tyranny and aristocracy are the political choices of those who don’t forgive. I’ll take democracy.

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Notes:

Photo by Pang Yuhao on Unsplash

American Bankruptcy Institute (ABI). (n.d.). A (Very) Brief History of Bankruptcy and Debt in the West. Retrieved January 23, 2021, from https://www.abi.org/feed-item/a-very-brief-history-of-bankruptcy-and-debt-in-the-west

Bennett, D., Lucchesi, A., & Vedder, R. (2010, June 30). For-Profit Higher Education: Growth, Innovation and Regulation. Retrieved January 23, 2021, from https://eric.ed.gov/?id=ED536282

NCES. (2021). The NCES Fast Facts Tool provides quick answers to many education questions (National Center for Education Statistics). Retrieved January 23, 2021, from https://nces.ed.gov/fastfacts/display.asp?id=76

Urban Institute & Brookings Institute, Tax Policy Center (Urban). (2020, October 15). An Updated Analysis of Former Vic President Biden’s Tax Proposals. [PDF]. Retrieved from https://www.urban.org/sites/default/files/publication/103075/an_updated_analysis_of_former_vice_president_bidens_tax_proposals_1.pdf

U.S. Dept. of Education (DOE). (2021). Coronavirus and Forbearance Info for Students, Borrowers, and Parents. Retrieved January 23, 2021, from https://studentaid.gov/announcements-events/coronavirus

Webber, D. A. (2017). State divestment and tuition at public institutions. Economics of Education Review, 60, 1-4. doi:10.1016/j.econedurev.2017.07.007

The Lion’s Roar

January 17, 2021

by Steve Stofka

After encouraging a rush on the Capitol building, the man whom the Russians helped get elected in 2016 is stepping down. 25,000 troops have been deployed to protect the area around the seat of power during Inauguration week, turning Washington, D.C. into a green zone like that of Baghdad in the aftermath of the Iraq invasion in 2003.

Around the country, governors have deployed troops to protect state capitols against threats of violence. At a news conference this week, Ohio’s governor was asked how many groups had applied for permits to peacefully demonstrate. His answer – none.  He promised an aggressive response from troops stationed around the capitol in Columbus.

On the C-Span call-in show Washington Journal some callers made an equivalence between BLM protestors defacing statues and breaking into stores with the assault on Congress. Fox News posted a graphic comparing the summation of hundreds of summer protests with one event on January 6th, pointing out that Jan. 6th wasn’t so bad. Hundreds equals one.

The Russians had a small influence in Mr. Trump’s 2016 election. The media – mainstream and not so mainstream – gave him the megaphone, the broadcast time and let him roar. Anderson Cooper of CNN explained that he was available when other presidential candidates were not. Media channels need to fill airtime and retain viewers. That’s the way it is.

Mr. Trump’s entire presidency has been a media feast. He likens himself to a lion, paying particular attention to his mane. He spent four years roaring his thoughts and emotions on social media, then watched them echoed on Fox News an hour later. He surrounded himself with sycophants seduced by the chance to pull the strings of the nation’s dancing puppets. He gloried in his power to dominate but lamented the fact that his pride of supporters were so low class. A great lion deserves a good pride.

By his own account, he was the greatest president. He was certainly a president without precedent. Being impeached twice in one term earns him a place in the history books. He inherited a low unemployment rate of 4.6% from the previous administration and, before the Covid crisis, helped lower it to 3.6%. Presidents have far less influence over the broad economy, but they are the ones that wear the crown of roses when the economy is good, and the dunce cap when it is not so good.

During the four years of the Trump administration, the country will likely come close to the $6.8T deficits that it accumulated under eight years of President Obama. Mr. Trump inherited a healthy economy from his predecessor but wanted robust growth, besting some of the growth during the Reagan years. He gambled that big tax cuts for the wealthy would induce them to invest in more domestic manufacturing, that the economic growth would compensate for the loss of tax revenue. It didn’t.  

Christian Nationalists applauded him for moving the capital of Israel to Jerusalem and appointing a roster of right-wing judges to the courts. Their project is to turn the U.S. into a theocracy like Israel, Iran, and Iraq, ruled by leaders of one religious sect. Mr. Trump was a warrior king, like David, and like that ancient Biblical figure, was driven by his character flaws. Instead of white KKK bedsheets, his followers donned horns and capes and grabbed pitchforks as they stormed the castle of Congress, determined to turn the Capitol into the cathedral of a white Christian nation, the New Jerusalem.

Mr. Trump certainly got our attention. Americans are a hard-working bunch, yet we found time to jab him with rancor or praise his pitchfork rhetoric. He was either a menace or mensch. His was not a neighborly disposition; he shoveled coal into the flames that power the engine of American politics.

After touching the snarling beast that hides within our body politic, we now turn to a more measured man, Mr. Biden, in the hopes that there is some sense of cooperation left in our soul.  We see our Capitol surrounded by barriers and remember the words that Mr. Rogers sang, “Won’t you be my neighbor?”

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Photo by Catherine Merlin on Unsplash

The Conservative Project

January 10, 2021

by Steve Stofka

In response to the storming of the Capitol building on Wednesday, a Republican Congressman attacked the actions of the rioters as the opposite of conservative values. In his mind, those values were respect for law and order, a strong military, personal responsibility and freedom, fiscal responsibility, limited government, free markets, and respect for traditional institutions. As I will show, these principles form a wish list of unattainable ideals because one principle subverts another. Without a cohesive supporting structure, conservatism suffers from the same ills as utopian philosophies.

I’ll cover two of these principles: responsibility and freedom. Responsibility can’t incorporate freedom without limiting it in some way. Responsibility is a social covenant – the limiting principle of freedom. All too often, we protect our own freedom and restrict the freedom of others. Some conservatives who believe in personal freedom reject a responsibility for others. The wearing of masks has highlighted this issue. Freedom without responsibility is anarchy.

Too often we reach for solutions that restrict the freedoms of those who are not “us.” Conservatives who advocate for individual freedom reject liberty for those who believe differently than they do. They define human life as the joining of two microscopic cells at conception, then admit no freedom to those who define human life differently. In their support of a progressive income tax, liberals favor the institutional freedom of government over the individual freedom to reap the rewards of one’s labor. Each of us points to the mote in our neighbor’s eye, oblivious to the faults of our own arguments, principles, and perceptions.

At its heart democracy is a contest to control the rule making process. It is prone to mob rule, the changing of the rules to advantage a particular group of people. The conservative Pennsylvania state legislature changed the rules shortly before the election so that mail-in ballots could not be counted until after the polling station ballots were counted. They encouraged Republican voters in the state, most of them rural and with shorter lines at polling stations, to vote in person. On election night, they presented results that excluded most Democratic mail in ballots and later claimed that only ballots cast in person were legitimate. Was this motived by some conservative principle? No, it was prompted by political survival.

Mitch McConnell, the Republican Senate Leader, is a political strategist above all else. He has pointed out that Republicans have not held a filibuster proof majority in the Senate for more than a hundred years. The shift of the population from rural to urban areas has led Republicans to adopt street fighting legal and political tactics to command a voice in state and federal politics. For decades, some states resisted redrawing their voting districts so that rural communities would have far more power than their dwindling population.  Freedom is power. The first principle of a political party is to survive, and to do that conservatives have had to curtail the freedom of others so that they can maintain their own freedom and power.

Both the conservative and liberal projects exclude inconvenient aspects of current events because reality is complex and inconvenient for partisan purposes. Like a scientist who makes simplifying assumptions to model a process, political factions distort events to justify their perceptions and beliefs – if facts don’t fit their political narrative, change the facts.

The master fact-shaper is Rupert Murdoch. Over the first five years of building the news bubble called Fox News, he lost almost a half-billion dollars. The network’s audience is less than a fifth of just one major network, but its controversial hosts leverage their impact by taking controversial positions.

Seeing the success of the Fox model, One America Network has presented an even more polarized version of events, hoping to pull viewers away from Fox. Politicians are wary of a challenge from a small cadre on the extreme wing of each side, so they embrace the extreme to avoid “getting primaried.” In the fractured media landscape, some are imitating that polarizing process, rushing to the extremes to gain an audience.

The Republican Party was the champion of anti-slavery during the Civil War. Members of that party now want to preserve the statues of Confederate generals who fought to protect slavery. Why? After the Civil War, the cause of the Confederacy was repackaged by Southern elites as a cultural and historical institution; conservatives defend some cultural institutions while rejecting others as invalid. They champion the family and the institution of marriage but get divorced as much as the rest of the population. They support the Constitution’s protection of religious institutions if they are Christian, but barely tolerate its protection of other religions.

Unlike the liberal philosophy, the conservative project must ever be a reactionary ideology, a cadre of self-proclaimed elitists who resist the normal and healthy change of human institutions. Like utopian philosophies, its goal is stasis.

Although conservatism espouses freedom, it cannot incorporate the liberty of the human will into its philosophy. Without that freedom, personal responsibility is but a set of behavioral rules, conventions imposed on the majority by a minority. It is a strategy, not a philosophy. Because it cannot absorb change, it is a lifeless shell that other ideologies inhabit for a time, then discard, like the hermit crab.

In the 19th century, Republicans first found and inhabited the shell. In the past forty years Libertarian groups, Christian groups, the Tea Party, and conspiracy theorists have donned the empty shells of conservatism, only to be frustrated by the very rigidity of the ideology. Those who are comfortable in the shell are the political strategists like Mitch McConnell who use it quite ably as a shield from political attack.

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Photo by Jan Zikán on Unsplash

A Public Sense of Duty

Each New Year we renew our hope in the future, but have we lost our sense of duty to the future? Following World War 2, the U.S. and Russia engaged in a protracted Cold War of competing ideologies. We fought proxy wars in Vietnam and Indochina, South and Central America. Instrumental to the battle against Communism, America invested in our children’s education.

In 1978, the homeowners of California revolted against the rising property taxes that funded public schools. Since then, our per capita spending on children and young adults has steadily declined.

China’s spending on education has risen dramatically in the past two decades but it still lags the U.S. in spending as a percent of GDP. For how long? Do Americans have the “fire in the belly,” that focused desire to best the enemy, that we did seventy years ago?

In our technological society, the level of education of one’s parents has become a class distinction. The National Center for Children in Poverty (NCCP) reports that 80% of low-income families are headed by parents without a high school diploma. With a high school diploma, kids still have a 60% probability of being born into a low-income family (NCCP, 2021).

A child born in a middle-class suburb will receive a better education than one born in a poor neighborhood, where many residents are renters. Property taxes fund public schools, but landlords don’t live in those neighborhoods and want low property taxes. They have an influential voice in local politics.

Two years ago, I wrote about the post-war surge in college degrees (Stofka, 2018). Before WW2, only 5% of children earned college degrees; more than a third of children now earn college degrees (NCES, 1993). Is our society paying for that learning and experience? Despite their educational skills, teachers in charter schools make the same $53K average as all employees in private industry (NCES, 2020, Table 5). The pay in charter schools is 15% less than public schools (Table 5); that may explain the much higher ratio of black and Hispanic teachers in charter schools (Table 1).

An NCES survey in 2003-4 showed a national student teacher ratio of almost 15. The ratio in a 2018 survey was 21 students per teacher (NCES, 2020). Our educational system is asking our teachers to do more, to have a bigger and more expensive skill set, but does not pay them for their talent and hard work.

Construction workers average $63K per year, higher than public school teachers (BLS Series CES2000000011). 50% of teachers in traditional public schools have a master’s degree, in charter schools it is 39% (Table 4). Do half of all construction workers have a master’s degree? No, of course not. Why does our society value a painter or a carpenter more than a public-school teacher?

Construction workers provide mostly private goods, where private parties benefit from their work. Teachers provide public goods; the immediate benefit is only to the parents of the children in school. The provisioning of public goods and the caretaking of natural resources are only possible when a community has a sense of public duty. Has it declined in the past few decades?

Americans once built a sense of community in opposition to the common enemy of Communism. Covid-19 might have been that common enemy; it has highlighted just how fractured our society is. The common enemy is us, our neighbors, our professionals, and institutions.

The erosion of trust began in the 1960s but culminated in the financial crisis a decade ago. We learned that our institutions were run by pirates, whose duty was chiefly to other pirates, the elites who knew how to work the system. Under President Obama, Attorney-General Eric Holder did not want to waste public money on prosecuting financial crimes when there was a small chance of conviction. Neither he nor Mr. Obama understood the damage of that policy. The American people watched as the pirates were let off with a slap on the hand. Washington was awash with scoundrels.

In 2016, Americans elected an outsider, a pirate in the real estate industry who pledged to rid Washington of pirates. The Trump administration proved to be little more than a carousel of pirates. The Senate, in a shambles under the leadership of Mitch McConnell, held few confirmation hearings for department chiefs. Why bother? Most had temporary titles as acting heads of departments and agencies for a few months before another Twitter outrage from the pirate in chief tossed them overboard.

President-elect Joe Biden can avoid the policies of the Trump administration that so undermined the trust of the American people, but can he avoid those policies of the Obama administration which caused many Americans to abandon any hope for fairness in Federal policy? When public trust and public duty are so greatly diminished, the country declines – its spirit, its institutions and its infrastructure. Will we – can we – recapture that sense of public duty?

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Photo by Dan Russo on Unsplash

NCCP. (2021). United States Demographics of Low-Income Children. Retrieved January 02, 2021, from https://www.nccp.org/demographic/?state=US

NCES. (1993, January). 120 Years of American Education: A Statistical Portrait. Retrieved January 02, 2021, from https://nces.ed.gov/pubs93/93442.pdf#page=17

NCES. (2020, September). Characteristics of Public and Private Elementary and Secondary School Teachers in the United States. Retrieved January 02, 2021, from https://nces.ed.gov/pubs2020/2020142rev.pdf

Stofka, S. (2018, June 12). Study Dollars. Retrieved January 02, 2021, from https://innocentinvestor.com/2018/06/10/study-dollars/