Self-Regulation

There’s been a lot of talk in the media lately about “self-regulation.”  Despite broad support from the business community and a large number of our learned legislators, can it be possible that the contraction is a dangerous contradiction?  To wit:

  • The counter salesperson at Sunrise Tactical Supply was self-regulating when he or she sold an AR-15 assault rifle to a mentally unstable nineteen-year-old, who then murdered three Parkland teachers and fourteen high-school students with it.  Civilian ownership of semiautomatic assault rifles was banned until 2004, when an enlightened Congress overturned the law and let self-regulation take over.
  • President George Walker Bush (43) was self-regulating when he ordered the invasion of Iraq.  More than 4,000 American soldiers and 100,000 Iraqi civilians died in the war.  For the record, Congress hasn’t issued a formal Declaration of War since 1941.  Maybe they should rethink their approach.
  • The FDIC, aka the Federal Deposit Insurance Company, shuttered more than 350 banks in the three years after the Crash of 2009.  The bankrupt banks self-regulated themselves out of business.
  • Congress was self-regulating when they awarded themselves lifetime pensions at age 62 after five years of service.  Presumably, America’s workforce can expect to benefit from similar legislation in the near future.
  • Self-regulation is working in Idaho, where the maximum interest rate that payday lenders may charge their customers is unlimited by law.  Thanks to the government’s hands-off, laissez faire policy, the average payday loan in the state carries an annualized interest rate of only 582%.
  • Cain was self-regulating when he killed Abel.  The Ten Commandments came later.

For the record, we don’t believe it makes sense to regulate every little act of meanness or stupidity.  Picking one’s nose at the dinner table and dipping the outcome in the clam chowder will have a detrimental effect on most appetites, but Congress doesn’t need to pass a law that forbids it and create another three-initial bureaucracy to enforce it.

At the opposite end of the spectrum, there’s a word that means the absence of regulation.  It’s called “anarchy. “  A civilized society like ours has to draw the line between anarchy and a four-hundred-year-old body of law that is suffocating, ambiguous, contradictory, and costly.  But when we redraw the line, we need to be honest with ourselves.

Self-regulation is a myth, a con.  It’s identical to no regulation.  If you still have doubts, ask the surviving students and faculty at Santa Fe High School.

Republicans v. Democrats, Round 1: The National Debt

Believe it or not, there was a time in the not too distant past when moderates walked the halls of Congress and the policies of the the two parties overlapped––which meant that the passage of legislation was not only possible, it was commonplace.  Then the Civil Rights Act was signed into law by President Lyndon Johnson, and that was the tipping point. Conservative Southern Democrats began to cross the aisle, the Southern Democrats who didn’t were beaten, and once-fertile legislative ground was displaced by a yawning, barren gap.  (See Notes below.)

Now it appears that representatives from the two parties can barely speak to each other, and the passage of an actual bill is a media-worthy event.  On the other side of the coin, to borrow a phrase, it’s easier to tell the parties apart, or rather it’s easier for the two parties to distinguish themselves in the minds of voters.

In particular, we’re often told that Republican administrations are better at stimulating the economy and cutting the deficit.  If punditry and campaign rhetoric are indicators, the Democrats appear to have turned the cheek on both accounts, but they claim they’re the better job creators.  Which party are voters to believe?  Are the Republicans really better at stimulating the economy (see “Trickle Down: The Lost Alternative”) and cutting the deficit, and are the Democrats better “job creators,” or not?

The Other Side of Obvious is like a foster home for skeptics; we’re not inclined to believe anything we’re told by politicians or pundits or pedicurists or anybody else.  If the position or the assertion matters, and if it’s testable, we test it.

This is the first article of three that compares the relative economic performance of the last three Republican administrations against the last three Democratic administrations.  Each article uses a single criterion––in this case the reduction or containment of the federal budget deficit.  The next two articles measure relative stock-market and job performance over the same period of time.

For the purpose of this first comparison, we researched the incoming and exit deficits of each presidential administration since fiscal year 1978, when Jimmy Carter approved his first federal budget.  The comparison ends on September 30, 2018, which was the last day of the last fiscal budget approved by Barack Obama.

It’s a simple approach, we admit, but it has the three advantages: it’s numeric; it’s simple; and it’s fair to both sides.  The incoming and outgoing deficits by administration were as follows (in rounded billions):

President  Party   Fiscal Years    Incoming Debt    Exit Debt    Increase   Percent

Carter       Dem.     1978-1982                $772                $1,142          $370          48%           

Reagan      Rep.      1983-1990             $1,142               $3,233        $2,091       183%

Bush I        Rep.      1991-1994              $3233               $4,693        $1,459         45%

Clinton      Dem.     1995-2002             $4,693               $6,228        $1,535         33%

Bush II      Rep.       2003-2010             $6,228             $13,562        $7,333       118%

Obama      Dem.     2011-2018           $13,562             $21,735        $7,813         58%

Reading across the top line, the chart shows that President Carter inherited a national debt of $772 billion.  The debt had reached $1.142 billion by the end his last budget year, which was an increase of $370 billion, or 48% more than the debt he inherited.

In aggregate, the data tell us that the national debt increased by $10,884 billion during the last three Republican administrations and by $9,719 billion during the last three Democratic administrations.  In other words, Republican presidents increased the national debt by $1.16 trillion more than Democratic presidents, or a mere $58 billion per year.

In the same period, the average Republican administration increased the national debt by 115%, and the average Democratic administration increased the national debt by 46%.

Draw your own conclusions.

Unless the moon is indeed made of cheese, the Republicans will yell foul and produce their own “unbiased” analysis.  That is not to say that Democrats use proven, unbiased data, and Republicans get theirs from a twelve-year-old “statistician” who flunked math and who happens to be the daughter of an NRA lobbyist.  Sadly, the politicians in both parties appear to be equally skilled in the arts of exaggeration, manipulation of data, and use of well known logical fallacies.  If, however, you have qualms about the result, then change the dates, find a better barometer, and run your own numbers.  The Republicans will doubtless be grateful––if you can produce a materially different result.

It can also be argued that White House occupancy is a poor basis for the comparison because Congress passes the budget and the president merely approves it.  In fact, the executive branch creates the budget at the president’s direction, he and Congress negotiate it, the president signs the final bill, and then he manages federal expenditures for the entirety of the fiscal year.

Full disclosure:  Despite the passage of the recent tax cut, the federal debt is expected to increase by a relatively modest 22.5% over the next four fiscal years.  If the CBO forecast holds, the federal debt will exceed $26 trillion by then, or about $77,000 per US citizen, including children, the unemployed, retirees, and bloggers.

Notes:

1)  According to The Economist, only one Congressional legislator from the great state of Georgia was a Republican in 1981, a promising young man named Newt Gingrich.  As of this writing, the Georgia delegation is 100% Republican.

2)  The forty-year period beginning with the Carter presidency in 1977 and ending with the Obama presidency was not chosen at random.  The first use of the term “post-industrial society” was attributed to Alain Touraine in 1969.  A comparable analysis of the Second Industrial Age would begin circa 1850 and end circa 1970.

3)  Between 1977 and 2017, Republican presidents occupied the White House for twenty years and Democratic presidents occupied the White House for twenty years.  In both cases, two presidents served two terms and one president served one.

4)  The sources for the budget deficits and other data are the US government and Statista.  Nothing in this article came from Cambridge Analytica.

5)  Their claims notwithstanding, neither party produced an annual budget surplus except for the last two fiscal years of the Clinton administration.  That’s 38 years of deficits versus two years of surpluses.

6)  For the record, yr. hmbl. srvnt. has been a proud Independent since 1973.  I’m not fond of either party, although I’m currently less fond of one than the other.  (See About Us.)

Republicans v. Democrats, Round 2: The Stock Market

This is the second article in a series of three which examines the relative economic performance of Republican and Democratic administrations over the last forty years.  If you haven’t already done so, start with the first article, which compares management of the federal debt––a contest the underdog Democrats won, and not by a small margin.

In this article, we determine which party has been the better steward of economic growth, also from 1977 to 2017.  There are a lot of ways to gauge economic growth, but most are arguable or complicated or both.  (See Notes below.)  For the purpose of this comparison, we’ve chosen yet another simple, agnostic, and numeric yardstick: relative stock-market performance during each party’s administrations.

The three major market indices are the Dow Jones Industrial Average, the Standard and Poor 500 Index, and the Russell 2000 Index.  The markets tend to move together, thus any one would be a fair measure, but, to misquote Goldilocks, “The Dow is too small, and the Russell 2000 is too big, but the S&P 500 is just right.”

Forthwith, the incoming and outgoing S&P 500 indices by Republican and Democratic administration were as follows:

President                  Party          In Office       Opening S&P   Closing S&P    Change

Jimmy Carter            Dem.        1977-1981           101.00            128.40           +27.1%

Ronald Reagan         Rep.          1981-1989           128.40            294.00         +129.0%

Bush I                         Rep.          1989-1993           294.00            441.70           +50.2%

Bill Clinton                Dem.         1993-2001            441.70         1305.75         +195.6%

Bush II                       Rep.          2001-2009          1305.75            805.22            -61.7%

Barack Obama         Dem.         2009-2017            805.22         2329.91         +189.4%

On average, the S&P 500 index increased by 13.6% during the last three Republican administrations.  In comparison, the average S&P 500 index increased by 137.4% during the last three Democratic administrations.

Using the S&P 500 as a benchmark, the last three Democratic administrations beat the last three Republican administrations––by a factor of ten.  

The next time someone tells you that the Republicans are better stewards of the economy than the Democrats, ask them, “By what measure?”

Full disclosure: From February 1, 2017 to February 1, 2018, the S&P 500 index increased from 2329.91 to 2816.45, or 20.9%, but that’s one year on the Trumpian calendar.  The performance of the last three Republican administrations suggests that the index will close at 2648 on February 1, 2021 or 2025, or 225 points below the market peak of 2873 reached on January 26 of this year.  Fortunately, and by that I refer to the value of our fortunes, past isn’t always prologue.

Note:

1)  The comparison begins on February 1, 1977, twelve days after Jimmy Carter was inaugurated, and continues through February 1, 2017, twelve days after Barack Obama left office.

It could be argued that the impact of each incoming president’s policies are not reflected in the indices until a year or so after his inauguration, although Donald Trump would disagree.  In this (rare) instance, it is probably fairer to agree with The Donald because: a) market performance anticipates the policies of the incoming administration, and b) the numbers reflect the impact of the president’s policies at different therefore debatable times after his inauguration.  If, however, you feel the need, then by all means change the dates and/or indices and run your own comparison.  It’s unlikely though that the pendulum will swing more than a few degrees, and it may swing in either direction.

2)  The commonest economic metrics we might have chosen but didn’t were pre capita income and gross domestic product (GDP) growth.  Since 1977, per capita income has increased every year except 1991, 2002, and 2009, but the majority of that growth favored the wealthy––which may make it the Republican party’s favorite benchmark (although Republican presidents were in office all three years), but not ours.  The other candidate was GDP growth, but this measure by its nature has a long policy tail.  There’s no reasonable way to approximate the beginning and end points of each administration’s influence, and the length of the tails will vary.

The bottom line is that every measure has its plusses and minuses.  We chose what we chose; choose what you will.

Republicans v. Democrats, Round 3: Jobs

This is the third and final article in a series of three that examine the relative economic performance of Republican and Democratic administrations since the end of the Second Industrial Age.  If you haven’t already done so, read the first and second articles, which compare federal debt and stock-market performance since the proximate end of the Second Industrial Age.  Spoiler alert: the underdog Democrats defeated the overdog Republicans in both instances, and neither outcome was a close call.

In this piece, we attempt to determine which party has been the better “job creator” over the last four decades.  As in the last two comparisons, there are a number of metrics that can be used to measure relative job creation, but the simplest, most widely understood, and least obscured by a growing economy is the unemployment rate.

The incoming and outgoing unemployment rates by administration were as follows:

President                  Party          In Office     Incoming Rate  Exit Rate    Change

Jimmy Carter            Dem.         1977-1981            8.5%             8.0%          -0.5%

Ronald Reagan         Rep.          1981-1989             8.0%             5.6%           -2.4%

Bush the First           Rep.          1989-1993             5.6%             7.8%          +2.2%

Bill Clinton                Dem.        1993-2001              7.8%             4.1%          +2.9%

Bush the Second      Rep.          2001-2009             4.1%              8.6%         +4.5%

Barack Obama         Dem.         2009-2017             8.6%              4.9%          -3.7%

On average, the unemployment rate increased from 5.9% to 7.3% during the last three Republican administrations.  On average, the unemployment rate decreased from 8.3% to 5.7% during the last three Democratic administrations.

Another way to gauge the difference: the unemployment rate increased by an average of 24% during the average Republican administration; it decreased by an average of 32% during the average Democratic administration.

That’s a difference of tens of millions of jobs over the last forty years.

Full disclosure:  From February 2017 to February 2018, US unemployment decreased from 4.9% to 4.4%.  The trend line suggests, however, that the unemployment rate will be materially higher by February of 2021, or maybe The Donald is channeling Ronald Reagan.  We’ll know in a few more years.

Notes:

(1)  The unemployment data are from Bureau of Labor Statistics.

(2)  The comparison assumes that each incoming president was responsible for the economy from the first February after his inauguration until the first February after his successor’s inauguration, which is why incoming and exit figures are identical.

 

The Ban on AR-15’s: By the Numbers

Lately, in the wake of the Parkland high school massacre, there’s been a lot of talk in the nation’s capitols about limiting the sale of the killer’s weapon––a modified AR-15 type assault rifle––to buyers 21 and over who can pass background checks.  The objective, presumably, is something that Democrats and Republicans can agree on: to minimize the number of innocent Americans murdered by AR-15 wielding gunmen.

According to ABC News, there were 345 mass murders in the US in 2017, or nearly one per day, so it’s nigh on impossible to argue with the objective.  (The definition of a mass shooting varies, but in general it means that three or more people were killed or at least two were killed and two were wounded in the same attack.)  We on The Other Side of Obvious tend to be skeptical about any sort of solution that gets bandied about in the halls of Congress.  We’d rather examine its efficacy through the lens of the most reliable numbers extant.

According to the National Shooting Sports Foundation, somewhere between five and ten million AR-15 type firearms are currently owned by American citizens.  We can’t speak for you, but our confidence level doesn’t soar when the range of informed estimates is two to one.  Regardless, let’s settle on the midpoint: 7.5 million rifles capable of being converted into semi-automatic weapons.  The population of the US is around 323 million, which means that about one in 43 Americans owns an AR-15 or similar weapon.

Now that we’re equipped with best-source data, let’s revisit a few massacres where the killers were equipped with AR-15 type firearms:

  • The population of Sutherland Springs, Texas, where 26 worshippers were murdered and ten were wounded, is around 600.  If the averages hold, then the town’s residents owned 14 AR-15 type weapons at the time of the massacre.
  • The population of Parkland, Florida, where 17 high-school students and teachers were murdered and 14 were wounded, is about 31,000.  If the averages hold, then the city’s residents owned 738 AR-15’s or equivalents at the time of the massacre.
  • The population of the Las Vegas metropolitan area, where 58 concert goers were murdered and 851 were wounded, is approximately 1,950,000.  If the averages hold, then area residents owned 45,000 AR-15 type rifles at the time of the massacre.

Banning the sale of AR-15 or similar firearms to Americans under the age of 21, whether they can pass background checks or not, will have zero effect on the millions of guns already in circulation.  Moreover, the banning of all future sales of AR-15’s will hardly contain the supply for those bent on murdering scores of innocents.

Notably, civilian ownership of AR-15 type semiautomatic rifles was prohibited until 2004, when the ban was lifted by a Republican-controlled Congress.  By the numbers, it’s inescapably clear that nothing less than reinstatement and enforcement of the ban will make a serious dent in the frequency of mass shootings.

We’re well aware that a significant percentage of AR-15’s would not be turned in if the 2004 ban was reinstated.  Many would be locked away in gun safes, and some would disappear into black markets.  According to John Maynard Keynes and Milton Friedman, however, price increases when supply is constrained, and that means that all but the well-healed crazies would be forced to brandish less lethal weapons.

We on The Other Side have every hope that the movement started by the students of Marjory Stoneham Douglas High School will cause material, life-saving change, but we’re not holding our breath.  Given the current political climate, we expect that there will many more massacres before some future Congress has the courage to defy the NRA and protect their constituents––if only from this one, extraordinarily dangerous firearm.

Trickle Down: The Lost Alternative

At one time or another, most of us have heard the phrase “trickle-down economics.”  It is, in the conservative mind, the best way to stimulate the economy, thus it was the basis for the 2018 tax reform bill authored by Congress and signed into law by the president.  But, before we on The Other Side of Obvious can accept that “trickle-down” works admirably well, we are compelled to examine how it works, if for no other reason than we aspire to be sentient.

In an economic context, “trickle down” means that tax incentives aimed at the wealthiest of the economy will work their way down to the middle and lower classes.  However, a tax break for a wealthy man, or more rarely a woman, is discretionary.  He can spend it on an American-made business jet or a Norwegian yacht.  She can invest the money in an asphalt plant in Pittsburgh or a cement factory in Vietnam.  He can buy a thousand acres of farmland in Nebraska or in Surinam.  She can invest in an American hedge fund, or Eurobonds, or bitcoin.

Moreover, the wealthy need never be in a hurry because, well, they’re wealthy.  Hence the phrase “trickle down,” which, to review, means that a lot of money is given to the wealthy in the form of tax breaks, and then it trickles down to the middle and lower classes, except for the parts that are invested overseas or put aside for a rainy day, possibly in the Caymans.

It would seem from a cursory examination of trickle-down economics that there’s room for improvement, if only in theory.  So let’s imagine for a moment that instead of giving another tax break to the wealthy, Congress voted to cut taxes for the middle class and to increase subsidies like food stamps and Medicaid for the economically disadvantaged.  Unlike the rich, the lower classes don’t have any money to save, and the middle classes don’t bother (with few exceptions).  Instead, they spend it on essentials like heat, healthcare, video games, and pop tarts, and they can’t afford to wait.

In other words, the money enters the economy quickly, and then it gushes up the economic food chain: from the retail stores to the companies that own the retail stores, to the hedge funds that own most of the stock in retail store companies, and on to the men and women who invest in hedge funds.  In the end the wealthy get it anyway, but at least the middle and lower classes had it for a while––and pop-tart sales skyrocketed.

Sadly, the phrase “gush up” sounds too much like vomit.  It never caught on, which explains why the rich get all the tax breaks.