Category Archives: Economics

Tried and Untrue

British Prime Minister Liz Truss announced her resignation Thursday after six turbulent weeks in office, making her the shortest-serving prime minister in British history.

Washington Post/October 20, 2022

Within hours of the announcement two Washington Post columnists added their two cents. The first was conservative and Trump apologist Henry Olsen in a piece titled, “Liz Truss’ Resignation Is a Warning for Republicans.” And what was that warning?

Failing to prepare public opinion for her proposals meant there was no widespread support for them in any segment of British society.

Henry Olsen/October 20, 2022

As Shakespeare might say, “Ah, there’s the rub!” Not that deep tax cuts for the rich under the guise of trickle-down economics has never been the growth engine Arthur Laffer and his lemmings claimed. Truss’ sin was not spending enough time and energy spinning the web of BS needed to once again con the middle class to vote against their own self interests.

The counter-argument by former Republican and never-Trumper Jennifer Rubin immediately cleared the air. In a piece titled, “Republicans’ Inflation Plan: Tax Cuts That’d Make Liz Truss Blush,” Rubin warns a GOP Congress has already promised Truss-like policies including extending key provision’s of the Trump tax cuts.

This should end any talk that the election is a choice between addressing inflation or protecting democracy. In reality, it’s about whether Republicans will be granted power to make inflation worse and to threaten democracy.

At a moment when Republicans are hollering about fiscal irresponsibility, it is bewildering that they are doubling down on the same tax cuts.

Jennifer Rubin, October 20, 2022

Once again the United States and its neighbor across the pond affirm Churchill’s variation of the George Bernard Shaw adage, “Americans and the British are one people separated by a common language.” Today’s events in London suggest, however, our English counterparts no longer have a common belief in “voodoo economics.” It took Tories and Laborites just 44 days to tell the powers that be, “You cannot fool us again.”

Americans of all political persuasions have 26 days to send the same message to the leadership of the political party formerly known as the Republicans. If not, Brits and Yankees may again be united under a common form of government. Except one will have a constitutional monarchy in which the “crown” is only head of state. The other will have a monarchy in which the “crown” is both head of state and autocrat-in-chief.

Inflation is temporary. Gas prices will always fluctuate. In contrast, democracy, once gone, is lost for generations if not forever. More tax cuts and trickle down economics is the epitomy of Einstein’s definition of insanity, doing the same thing over and over expecting a different result.

There remain only two questions. How long will it take for American voters to have British-like buyer’s remorse? And will it be too late?

For what it’s worth.

The Case for Inflation

If you’re wondering whether I am going to argue the current rate of inflation is not an issue, do not worry. Temperatures here in the Great White North have run 10 to 15 degrees above normal, so brain freeze is not at fault. Inflation, especially excessive inflation, affects the economy and the general population. Unless you’re Barre Seid, the Chicago businessman who just gave $1.6 billion to a GOP PAC to prop up the flailing campaigns of Dr. Oz, J.D. Vance, Hershel Walker and Ron Johnson. Inflation needs to be alot higher than seven or eight percent before Mr. Seid misses a meal or has to sell one of his many multi-million dollar homes.

This post is about the parable of a frog in a pot of boiling water. As long as the water temperature rises incrementally, the frog does not notice until it is too late. But turn up the heat all at once and you’re looking at a reptile revolt. Such is the case with inflation over the past quarter century.

For the 12 years (1997-2008) the average annual rate of inflation was 2.67 percent. Eight of those twelve years, the GOP controlled the White House and the Senate. I do not recall any Republican complaining about inflation when they were in power. Because that was normal. An inflation rate between two and three percent is considered acceptable.

In contrast, the average annual inflation rate for the next 12 years (2009-2020) was 1.42 percent. Which means, for a dozen years, inflation was on average 1.25 percent less than accepted or normal. Much of that decline resulted from two global phenomena, first the Great Recession followed by a worldwide pandemic. Think of it as a volcano where the magma is heating up below the surface with no place to go. Eventually there is a crack in the magma dome and the volcano erupts.

If prices had increased at a typical inflation rate for the past 12 years, prices would be where they are today, maybe even higher. Like the frog in hot water we would not have panicked. But when that burner is turned up to high all at once, it shocks us.

When I worked at the National Governors Association we were in the middle of what was called the “new economy,” based on technology and information. Then Colorado Governor Roy Romer was the chair and invited his son Paul, a future Nobel Prize winning economist, to address his colleagues at the NGA annual meeting. Paul’s message. “The new economy still operates under old economy rules.” There will still be business cycles with alternating periods of economic growth and recessions. Despite gains in productivity there will still be inflation.

In 2018 Paul Romer and William Nordhaus won the Nobel Prize in economics for their work on long term growth and its relationship to climate change. That day back in 1993, he earned one for speaking the simple truth. We should have listened better.

And While I’m At It…

A similar principle applies to the cost of a college education and why the Biden student debt forgiveness program not only makes sense, it is a necessary realignment in public education resulting from state abdication of its past commitment. According to The Chronicle of Higher Education, 25 years ago aggregate state funding for public colleges and universities was 140 percent above federal spending for the same purpose. Little by little that commitment fell to 12 percent today. Not because federal spending rose which it has not, but due to state budget reductions during the great recesssion followed by attacks on higher education by the leader of the political party who openly admitted, “I love the uneducated.”

In other words, public colleges and universities have gone from state-funded to state-supported to barely state subsidized. To stay in business, there was only one choice. RAISE TUITION. And that is where the frog in boiling water comes in. Incremental increases in tuition over 25 years spread out the pain until students got the bill in the form of their student loan principal when they graduated.

Public support of higher education is “pay it forward” at its best. General tax revenue appropriated for this purpose was the price we all used to pay to keep tuition affordable for future generations. As states cut higher education budgets, we shifted that burden onto the backs of individual students.

I’ll use my own experience to demonstrate the impact. In 1971, my in-state annual tuiton at the University of Virgina was $1,600. Today, it is $18,900. “Isn’t that the cost of inflation?” you ask. My $1,600 annual tuition would cost $11,705 today. In other words, each new in-state student pays $7,195 above inflation. That’s almost $30,000 over four years. And the numbers increase exponentially if you include graduate or professional school.

Is it totally fair to those who already paid off their student loans or to those with a taxable annual income exceeding $125,000? Probably not, but nothing is ever totally fair when it comes to funding formulas. But it is significantly more equitable than asking matriculating students to make up the entire shortfall for the decline in public support for higher education.

For what it’s worth.

The Invisible Brand


Italian artist Salvatore Garau recently auctioned an invisible sculpture for 15,000 euros ($18,300). According to, the sculpture’s initial price was set between 6,000 and 9,000 euros; however, the price was raised after several bids were placed.

~Newsweek/June 1, 2021

Was there a typo in the dateline?  Did the story actually come from the April 1, 2021 issue of Newsweek?  Or more likely, is Salvatore Garau an Italian descendent of P. T. Barnum or Mark Twain?

Artist sells invisible sculpture for over $18KOnce the story was verified, my interest shifted from Signore Garau to those who had bid on his non-sculpture sculpture.  And what would the unidentified owner do with his/her newly obtained “masterpiece?”  Would he/she loan it to the Galleria dell’Accademia in Florence, Italy where it would occupy its own alcove next to that of Michelangelo’s David?   Would it find a permanent home among the statuary in the gardens behind the owner’s villa, overlooking a pond filled with equally invisible fish?

As is so often the case, it was a totally unrelated story that caused me to break out in a cover of Johnny Nash’s 1972 hit, “I Can See Clearly Now.”  The headline?  “In a world first, El Salvador makes bitcoin legal tender.” (Reuters/June 9, 2021)  Salvatore Garau had brilliantly demonstrated art’s ability, if not responsibility, to help us better understand and appreciate the human experience through imaginative representations.  The purchase of an invisible statue was a creative, yet logical, extension of cryptocurrency.  Garau ‘s statue “I Am” was nothing more than a metaphor for invisible money being pursued by millions of investors and now a sovereign nation.

The only remaining question is whether other art forms will follow suit.  If Johnny Nash were still with us (he died on October 6, 2020) would he, ala Harry Chapin’s sequel to his hit “Taxi” titled (drum roll) “Sequel,” produce an updated version of his 1972 recording and call it, “I Cannot See It Clearly Now?”  Or will some modern-day satirist publish The NEW Adventures of Tom Sawyer with the following revised text in Chapter II in which young Tom practices what he learned as a finance major at a prestigious American university, how to create wealth without creating value.

CHAPTER II–Tom and the Magic Piggy Bank

One Saturday morning, Tom appeared on the steps of his home holding a piggy bank when his friend Jim came skipping by humming “Buffalo Gals.”  Jim stopped for a moment and saw what appeared to be Tom dropping coins into the slot.  However, there was no sound, and on closer examination, Jim realized there was nothing between Tom’s thumb and forefinger each time he positioned his hand over the porcine vessel.

“What are you doin’ Tom?” Jim asked.

“Getting rich,” Tom replied.  “I put these invisible coins in my bank, and magically, they are worth more every day.  Do you want in on it?”

“What do I have to do?  Can I just pretend to drop money in the bank like you do?”

“No, of course not.  Someone has to manage the process.  You buy the invisible coins from me with regular money and I drop them in the bank.”

“How do I get my money back?”

“You don’t actually get it back.  You wait until someone else thinks the invisible coins will be worth more than you paid for them and buys them from you.  They never actually leave the piggy bank.  And the more people who want to buy your coins the more you make.”

And sure ‘nough, another friend Ben stopped on his way to the swimming hole. “Wanna join me?” Ben asked.

“Nah, Tom and me is getting rich,” Jim replied.

By sundown, everyone in St. Petersburg, Missouri had gathered in front of Aunt Polly’s house, clamoring to get a share of the invisible coinage.  None noticed how there was no limit to the number of imperceptible discs the bank could hold.  And each left dreaming about how they would buy a new car, boat or villa in El Salvador with their new-found wealth.

CHAPTER III–Tom Relocates to the Cayman Islands

For what it’s worth.


The Gospel According to Warren


The Invisible Back of the Hand

Invisible hand, metaphor, introduced by the 18th-century Scottish philosopher and economist Adam Smith, that characterizes the mechanisms through which beneficial social and economic outcomes may arise from the accumulated self-interested actions of individuals, none of whom intends to bring about such outcomes.

~F. Eugene Heath/Encyclopedia Britannica

Elizabeth Warren Slams JPMorgan Chase's Jamie Dimon on Overdraft Fees - Rolling StoneYesterday, a verbal sparring match between Senator Elizabeth Warren (D-MA) and JP Morgan CEO Jamie Dimon dominated the business news cycle.  At the center of the exchange (excerpted below) was Warren’s contention that JP Morgan’s excessive overdraft fees took advantage of customers at a time of high financial distress among their clientele.

WarrenSo Mr. Dimon, how much did JP Morgan collect in overdraft fees from their consumers in 2020?
Dimon: Well, I think your numbers are totally inaccurate, but we’ll have to sit down privately and go through that.
Warren: These are public numbers.  Can you just answer my question?  How much did JP Morgan collect?
Dimon I don’t know the number in front of me. Upon request we waived the fees.
WarrenWell, I actually have it in front of me. $1.463 billion. 

Sadly, this was the least of the moral lapses exhibited by large banks in 2020.  To counter the risk associated with loans to struggling business, the Coronavirus Aid, Relief and Economic Security Act (CARES), signed into law on March 31, 2020, included $349 billion for banks to lend to their small business customers.  To further support riskier lending, the act included certain regulatory relief.

There was one caveat.  Banks were prohibited from using the newly available funds for stock buybacks.  The following chart displays the difference in actual lending during 2020 by independently owned community banks (orange line) and large national banks (blue line).  Note that smaller banks used these resources to increase their year-to-year loan generation by more than 40 percent for an extended period of time.  In contrast, corporate banking giants showed an initial 25 percent increase which quickly fell to pre-COVID levels.  Why?  Anticipation the stock buyback exclusion would eventually be lifted, which it was in December 2020.  And right on cue, these corporate entities used their cash reserves for buybacks, enriching stockholders and corporate officers.


In response Warren has proposed the The Accountability Capitalism Act, best characterized as a return to classic Adam Smith economics based on his belief giant corporations should look out for American interests.  It is not socialism or Marxism.  It does not involve nationalization of ANY industry.  It relies on the “benefit corporation” model, which according to Warren, “gives businesses fiduciary responsibilities beyond their shareholders.”  In other words, Senator Warren is suggesting America is better served by an open invisible hand than a slap in the face with the back side of one.

From the People Who Brought You Trickle Down Economics

Where could the practices of exploiting a pandemic by imposing outrageous overdraft fees or using public assistance for stock buybacks possibly have originated?  That is a tough question to pin down.  What we do know is the timeline.  In 1981, the Business Roundtable, comprised of CEOs of the nation’s largest and most profitable institutions recognized their broader social and community obligations, issuing the following statement.

Corporations have a responsibility, first of all, to make available to the public quality goods and services at fair prices, thereby earning a profit that attracts investment to continue and enhance the enterprise, provide jobs, and build the economy.

However, by 1997, their tune had morphed into a different prime directive orchestrated by conservative economists such as Milton Friedman, who espoused the theory corporate directors had ONLY one obligation; to maximize shareholder returns.  What was the impact of the Roundtable’s adoption of this “us first” approach, “The principal objective of a business enterprise is to generate economic returns to its owners?”  In an August 2018 Wall Street Journal op-ed, Senator Warren provides the following clues.

  • In the 1980s, large U.S. companies returned less than half their earnings to shareholders.  Between 2007 and 2016, those same companies “dedicated 93 percent of their earnings to stockholders.”
  • Pre-1991, wages and productivity grew at about the same rate.  Over the past three decades, wages have stagnated while productivity continues to grow.
  • Shareholder maximization translated into an explosion in CEO compensation.  In the 1980s, executive compensation rarely included equity in the company.  “Today, it accounts for 62 percent of their pay.”
  • In 1980, the average CEO compensation was 42 times that of an average worker.  Today that ratio is 361:1.

So, to all of her critics who ask, “When and why did Elizabeth Warren abandon capitalism,” the better question might be, “When and why did the modern day barons of industry abandon Adam Smith’s vision of capitalism?”

How Dare Workers Act in Their Own Self-Interests

So corporate America loves to justify their business model as the consequence of a free market.  However, when these same forces produce an outcome inconsistent with the desired goals of conservative economists, they cry foul.  The best example is right wing media’s uproar over extended unemployment benefits.

Instead of accusing the labor force of laziness by choosing unemployment over a job, consider the following.  If you had a choice of staying home for $15/hour without the cost of transportation and day care versus $7.25/hour further eroded by associated expenses, what would you do?  Imagine the following policy statement from a hypothetical Work Force Roundtable.  “The principle objective of heads of households is to maximize return to one’s family.”

Where are the proponents of free market, invisible hand economics now?  Is this not an opportunity to test how elastic or inelastic the price of labor is?  If higher wages or better benefits bring workers back into the labor force, there is your answer.  Workers are merely stating the obvious.  Our time and well-being has a value.  And there is a price point where your demand for my value intersects with my willingness to supply it.

In other words, when the laws of supply and demand, elasticity, et. al. explain economic and social inequality and injustice, corporate America and conservative economists turn a blind eye, they claim the system is out of balance, that the “LEFT hand” is overly dominant.  But when those economic principles justify their greed, these same financial experts argue the “RIGHT hand” should not only be dominant, it should be adorned with gold plated brass knuckles.

Corporate Accountability, Not Marxist

When progressives like Elizabeth Warren raise these issues, they are not, as GOP talking points suggest, promoting Marxism or communism.  They are only preaching a reverse variation of St. Augustine’s declaration cum dilectione hominum et odio vitiorum (With love of mankind and hatred of sins), which evolved into the present day adage “Love the sinner; hate the sin.”  In pursuit of economic and social justice, they are merely stating, “Love Adam Smith’s theory of capitalism, but abhor false prophets who misuse it.”

For what it’s worth.


A Capital Idea


This morning I decided it was time to address the “big lie.”  No, not the one that has dominated the news since the November 2020 election.  Not the one about elections or politics, but the one about federal versus state and local government.  Or the related one about federal government versus the private sector or the average American household.

The timing for this entry is the coming barrage of Republican and conservative arguments why Americans cannot afford President Joe Biden’s “Build Back Better” infrastructure program.  (Or as Carol Tucker-Foreman, director of the Consumer Federation of America’s Food Policy Institute suggested, “You can irradiate poop, but it’s still poop.”)  Primary among them is the “big lie,” the federal government, when it comes to budgeting, should be held to the same standard as state and local governments, many of which are required by law to pass a balanced budget each year.  Or, the even more populist argument, why should the federal government continue deficit spending when every family in America knows it should spend not more than it takes in.

There is room for legitimate debate whether all of the items on Biden’s wish list meet the definition of infrastructure, but the “re-woke” pay-as-you-go Tea Party Caucus would rather focus on the proposal’s impact on the federal deficit.  Their argument being, the timetable for spending and revenues is a radical socialist plot which will bankrupt America and destroy our grandchildren’s future.  Who could possibly believe allocating $2.2 trillion in improvements over eight years and then taking 15 years to recover the costs is a good idea?  Ooh, ooh, I know the answer.  EVERYBODY!!!  State government.  Local government.  Business.  And the overwhelming majority of American households.

Ready?  It is called “capital budgeting.”  Why does everyone except the federal government provide for it?  Because it makes sense from an economic perspective, connecting the cost of major purchases or improvements to the timeframe required to recover the initial investment.  Does anyone believe Delta Airlines writes a check for $100 million dollars every time it purchases a Boeing 757?  It either finances or leases the equipment, making payments over the expected useful life of the aircraft.  Is that not the same as deficit spending?

Or that a state or local government pays cash when it builds a new firehouse or upgrades water and sewer facilities?  They issue municipal bonds which are paid off over the “shelf-life” of those improvements. Again, sounds an awful lot like deficit spending to me. These examples are based on the very same economic principles a bank employs when it lends you money for 30 years to purchase a house.  Which, speaking of inter-generational obligations, becomes a liability for your heirs if not paid off before you die.

This is not a new idea, and if it has value, why has there been no movement to adopt it?  Non-believers offer a rationale for their position that deserves an Oscar for most inconsistent argument of all time.  On one hand, they claim the government needs to be run more like a business.  So, when they see a one-time payment of $1.7 billion for 17 additional F35 fighter planes in Donald Trump’s FY2021 budget, you would think they might ask, as does the CFO of Delta Airlines, “Does it make sense to fully pay for them at the time of purchase rather than spread the cost over the life of the equipment?”

Charles L. Schultze, economist in two Democratic administrations, dies at 91 - The Washington PostBut wait.  One of the primary reasons they are skeptics of federal capital budgeting is their belief (you guessed it) government does not operate like the business sector.  It does not respond to the same stimuli and incentives as private enterprise.  The underlying theory behind this position, held by both liberal and conservative economists, is the public sector is not subject to the same competitive forces in the marketplace when making decisions about capital expenditures.  In 1998, the late Charles L. Schultz, director of the Office of Management and Budget under Jimmy Carter, wrote the following:

In the case of private investment, competitive forces and the search for profits automatically exert some discipline over the quality of projects selected by private investors.

Of course, this is the same Charles L. Schultz, who as a member of Carter’s Council of Economic Advisors, warned the U.S. was losing its competitive advantage in the global marketplace to countries like Japan.  Some things do not change.  This is the same hypocrisy voiced today by those who decry how Chinese investment to grow their economy creates an unlevel playing field, but will not even debate the Biden infrastructure proposal.

What if we approach this issue from the opposite perspective?  If capital budgeting is such a bad idea, why not eliminate its use as an accepted accounting principle for everyone.  Business would have to pay for major improvements in the same year the costs are incurred.  School districts and local governments could not issue municipal bonds to cover school buildings or fire equipment.  You and I would have no option other than to pay cash for a new car, boat or home.  It does not require much imagination to realize what would happen.  In economic terms, America would become a dystopian society even Hollywood is yet to imagine. If such a film were made, I suggest it be titled, “Mad Mitch: Beyond Blunder Dome.”

For what it’s worth.