Winston had this to say about American *sequester*

“We can always count on the Americans to do the right thing, after they have exhausted all the other possibilities.”

― Winston Churchill

Little history from the GREAT DEPRESSION!~(

The question recently came up as to "I still have never gotten a great description how we got into the Great Depression?"

The truth is, it wasn't easy.

But one of the best 4 minute explanations ever is on this YouTube video: Causes of the Great Depression.

John Maynard Keynes, the king of Keynesian economics, would call these expansions and contractions, not recessions. You get them free with a capitalist economic system. With the exception of China, it seems that you may only get the contractions in communist systems (like USSR, Cuba, S. Korea and Venezuela).

Read more on the Great Depression at Wikipedia. As it pertains specifically to the USA, it is pretty heavy reading, though.

You can look at the similarities of the recessions of 2000 (the DotCom bomb) and the Great Recession of 2007-200x. In all cases there were financial bubbles at work. But the Great Recession was bubble-bulging in housing and financial markets throughout the USA and beyond. It effected all US industries and and all US States. No place to run from it, and no place to hide from it.

Apply called The Great Recession, it is a generational recession. That is, economists argue that you should only see such a recession about once in your lifetime.  Note the massive overhang of shadow banking and the increase in uncertainty (including the use of derivatives).

Of course, you should only experience a hurricane about once in your lifetime or see a massive flood about every 500 years. Sometimes historical precedent does not accurately foretell the future?

You should expect markets to overshoot, maybe wildly, in the future. The overshoot will be to down side and to the up, as well.

Keep going up, but carry a parachute.

BTW. Check out this article about doing the same-old, same old, after a recession obviously suggests that a new approach is needed. Creating the same college degrees as if there would be jobs for them is, well, not smart!

Hall, E. (2010). Lessons of recessions: Sustainability education and jobs may be the answer. Journal of Sustainability and Green Management. Jacksonville, FL: Academic and Business Research Institute. Retrieved from: http://www.aabri.com/OC2010Manuscripts/OC10079.pdf  

Keywords: recession, Recovery, Great Depression, Great Recession, Keynes, Sustainable Eduction

Broken Business Models for NetFlix, Pandora and Sirius

This Company Just Admitted Its Business Model Is Broken - AMZN, NFLX, P, SIRI - Foolish Blogging Network:

Broken as designed. It is always fun to see a business model that is broken.

How long before the company run out of cash?

This is reminiscent of the DotCom Bomb where all these Internet companies had no income and no profits. They got lots of funding, though. So this run through of cash was referred to as "burn rate": how many months of cash did the company have before it completely runs out.

Ouch! :-( 

As the bubble burst, all funding for all of the DocCom companies evaporated. Even worse, the margin calls for all of the investors forced investors to sell everything resulting in a reinforcing downward spiral. 

Double Ouch.

One thought, of course is that the increased volume/subscribers will result in the ability to change the paradigm.

 I don't see how you fix Amazon into this mix however. Jeff Bezos makes a killing off of every book sold, even if the author doesn't.

Keywords: Amazon, AMNZ, NetFlix, Pandora, business model, broken model. burn rate
First blogged at www.SustainZine.com 'via Blog this'

Wisdom for Kids from Warren Buffet. Even the Gov might understand.

Warren Buffet had these pearls of wisdom to share with Kids:

1. Never spend more than you have.
2. Save for the unexpected
3. Never borrow without a payback plan

I like it. Short. Sweet. Accurate. Simple.

So simple even cavemen could understand it.

I'm thinking that we need to transmit this repeatedly up to our friends in the Federal Government (and maybe even to the States).

Never spend more than you have. Boy do we break this rule. And we have broken it so long that it somehow seems normal. Over decades, there has only been a couple years during the Clinton era that we haven't run an annual deficit. Of course, debt builds over time (unless you go bankrupt).

Make no doubt about it, there are any number of things that will make our current level of borrowing infinitely worse than it is right now. Slower, lower or negative economic growth. Interest and inflation could sink us based on the percentage of government revenues that goes to interest on the debt (debt-servicing). On average we are probably paying about 1% interest on government debt, and that represents about 9-10% of the government revenues. (I hate to use the word revenues for the intake of taxes, let's call it government inflows.)

Sooo, if interest rates go up to 10% that would mean that almost all of the gov inflows would immediately become outflows to service the debt.

That brings us to #2, save for the unexpected. Ops. Didn't do that, did we!

That brings us to #3, never borrow without a payback plan. Ops. Didn't do that, did we!

Now we are in a sequester situation. That is a lot like your parents cutting off your credit cards. . . Painful. Not very sophisticated. Only partially effective. Lot's of side effects.

And that is our after-the-fact payback plan? It's not even a plan; it was the trap door contingency that legislators came up with for the unlikely event that they couldn't come up with a plan.

Keywords: Sustainable and non-sustainable (gov) spending, deficit, interest, payback, funding, budgeting.
(See www.SustainZine.com.)

Two Cows...Take Your Pick -

Two Cows...Take Your Pick - Howard Lindzon | Howard Lindzon:

Oh, boy.  Here's the tail -- I mean -- tale of two cows under different governments.

Funny, but true.

Visual Version of it below.!:-)

'via Blog this'

Us Debt Clock... Ticking in the new year & 2016 too...

Check out the blog about the US Debt and the US Debt clock over in SustainZine.

http://sustainzine.blogspot.com/2013/01/us-national-debt-clock-now-and-then-2016.html

Taxes, This is No Laffing Matter.

Taxes, This is No Laffing Matter...

A general Republican philosophy is that cutting taxes will lead to increased investment, increased economic growth AND ultimately to increased tax revenue to the government. Empirical evidence, including the article(s) discussed here bear only part of that out. True, true and not necessarily true. Reducing taxes does increase the private sector investment and it does increase economic growth. The end result of this does not necessarily result in more money for the federal government. It depends.

In the midst of this debate is the Laffer curve. It is a visual approach to killing the golden goose. As the government taxes more and more, the people/companies start working less and less. If the government taxes at 100% it is very reasonable to expect zero output and zero tax revenues. At what point, then do you raise taxes so high that you kill off the productive and entrepreneurial spirit. At what point does the increase in taxes cause the government revenues to actually go down because people actually produce less, take more vacations (move to another country or lie/cheat about their taxes).

Here’s a great video about the famous Laffer Curve. But the source within it is what got me and a lot of other people thinking.

Video on Laffer Curve:  http://www.youtube.com/watch?v=ayad5mbSSrU (5:52 min, Dr. Groseclose)

This video has the following description:

Published on Sep 9, 2012. If you raise taxes does it automatically follow that you'll raise more revenue? Is there a point at which tax rates become counterproductive? UCLA Economics professor, Tim Groseclose, answers these questions and poses some fascinating new ones.

And it references an article/research by Romer & Romer (2007, 2010) to establish the “hump” of the Laffer curve at 33%. Unfortunately, that’s not what the article by Romer & Romer say.  Here’s the actual article (draft) and a great discussion about the video & the article by EconoCat (Penny Wise & Euro Foolish).

·         Romer & Romer article: http://elsa.berkeley.edu/~cromer/RomerDraft307.pdf

·         EconoCat Discussion of the Groseclose video on Laffer Curve: http://econocat.wordpress.com/2012/11/04/not-the-laffer-curve-again/

Note that Romer and Romer’s  research does not include the Great Recession since it was written in 2007 based on statistics from prior years.

First, there is no evidence, certainly not in this article to suggest that 33% is the hump in the Laffer Curve. But Groseclose is right in that we, and our friends from other countries, seem to be discovering the hump. He says that his text book from (early) college thought the hump might be at 70%. I’ve always seen it drawn very symmetrically at 50%. Intuitively, 50% certainly works as a cutoff point; once the government wants to take half of whatever I make (in profits), I really become less motivated to make more.  Plus, at that level, the disruptions to the economy (and the deadweight costs) become huge and disruptive... France, trying to institute a 75% top-end tax bracket (personal) has obviously failed, in more ways than constitutionally; actors, for example, simply move to another country (in Europe, where the tax rates are a paltry 50% or less). See Fouquet and Katz (2012).

At low rates of tax, say 5% to 15% there is typically very little disruption to the market (or economy). It doesn’t typically change investments to make otherwise good projects unprofitable, or significantly disrupt “normal” behavior. Probably 20% to 25% is more disruptive to a market (or the economy).

The findings of Romer & Romer (2007) do strongly suggest that tax increases do reduce economic output (and vice versa).  There doesn’t really seem to be a direct tie of this output to the government revenues. The evidence strongly suggests that increasing taxes with the explicit purpose of long-term debt reduction works pretty well. Short-term change in the tax levels  (to help through recessions and such) appear to be far less effective.

Ahah. The 2010 article that is the final version published by Romer & Romer (2010) looks much more readable with the graphs in place within the article. It seems a little stronger on the impact on output (GDP) from tax cuts. But it still does not take any steps to directly address the Laffer curve concepts of government revenue. As well, there is no indication, if each of the tax change occurs before the hump, or after it.

More on Taxes

One of the issues that I have with the whole Laffer curve thing, is effective rates, marginal rates and tax-code rates. The very high earners pay less than 30% income tax rates. It’s the middle and upper-middle class that get wacked with the highest tax rates.

We could easily have the tax code simpler, straight forward and at lower rates and still generate more income/revenue to the government.  Laffer curve or no laffer curve. Also, not all taxes are created equal; and a big influence of the full impact of taxes is what’s done with the money raised.

It should not take the average person 20 hours to a week or more to do taxes. The costs associated with incomprehensible tax codes are huge.

No matter what you think is the “hump” in the Laffer curve, everyone everywhere has to appreciate that there is no tax rate that will solve our federal deficit. It the optimum (short-term or longer-term) is a little low, or a little higher, that still doesn’t make much difference in the federal deficit. At some point the out-of-control spending has to be addressed. At some point, the federal deficit has to be meaningfully reduced.

The Elephant in the Room, is NOT Tax Revenues…

One way to reduce the deficit is through growth. One is through increased tax revenues (this debate). One is through spending cuts and controlled fiscal discipline. The first two are closely tied obviously; and it depends somewhat how effective the government spending is as to how impactful that increased tax revenues are to the overall economy.

There’s no solution ever, however, without controlling spending. The out of control healthcare costs will (Medicare, Medicate and private) will bankrupt the nation within a decade or two. Check out the Debt Clock to get an idea of what our really deficit is; when you consider the unfunded mandates the US owes. The unfunded mandates of Social Security, Federal Drug program and Medicare are about $122T, fully 7 times our current GDP. The deficit we are always talking about ($16.4T) is only 1 times our GDP ($16.3T).

·         US Debt Clock: http://www.usdebtclock.org/

The problem is that the unfunded mandates are growing at a very fast rate, and they will continue to do so until/unless we address them. This is so non-sustainable that you don’t know whether to laugh or to cry. And, at this time, we have a lot of elected leaders fiddling in Rome – I mean D.C.

Check out the article by Hall & Knab (2012) entitled Social irresponsibility provides opportunity for the win-win-win of Sustainable Leadership.

It’s too bad we didn’t get a good, clear indicator of the hump in Laffer’s Curve. It would help settle the tax levels for countries, a point that only the foolish and the French would attempt to exceed. Then government could focus attention on the really important issues at hand and start to aim for sustainable practices.

Anything else would be, well, irresponsible.

References

Hall, E., & Knab, E.F. (2012, July). Social irresponsibility provides opportunity for the win-win-win of Sustainable Leadership. In C. A. Lentz (Ed.), The Refractive Thinker: Vol. 7. Social responsibility (pp. 197-220). Las Vegas, NV: The Lentz Leadership Institute.
(Available from www.RefractiveThinker.com, ISBN: 978-0-9840054-2-0)

Fouquet, H., & Katz, A. (2012, December 29). French court says 75% tax rate is unconstitutional. Bloomberg. Retrieved from http://www.bloomberg.com/news/2012-12-29/french-court-says-75-tax-rate-on-wealthy-is-unconstitutional.html

Romer, C. D., and Romer, D. H. (2007, March). The macroeconomic effects of tax changes: Estimates based on a new measure of fiscal shocks. University of California, Berkeley. Retrieved from:  http://elsa.berkeley.edu/~cromer/RomerDraft307.pdf

Romer, C. D., & Romer, D. H. (2010). The macroeconomic effects of tax changes: Estimates based on a new measure of fiscal shocks.  American Economic Review, 100(3), 763-801. doi:http://dx.doi.org.ezproxy.apollolibrary.com/10.1257/aer.100.3.763