Bad Decision Epidemic

There seems to be an epidemic of bad decisions recently.  No we are not talking about Jussie Smollett.  Wow, Jussie’s problems have really gotten worse since we started this post.  Individuals, not just Jussie but all of us, make lots of bad decisions.  Most of the time, like when we make a bad decision at the bridge table, the impact is limited unless partner goes postal.

Sidebar: Sometimes you escape the ramifications of bad decisions.  Thursday we made what we felt was an epic defense error causing our score to go from plus 50 to minus 140.  But under ordinal scoring it made no difference as there were no scores between those two outcomes so we got two out of three despite our error.  End Sidebar.

Epically bad business decisions are usually zero-sum games.  When Montgomery Ward (see Decline) anticipated the recession that never came after World War II, it was bad for them but good for Sears and JC Penny. Most really bad decisions come from government because the can enforce them because they have the means.

We are not saying we have collected all of the really bad decisions but we would look at The Donald’s state of emergency, NYC and Amazon, NY state and energy, and Marco Rubio and innovation.

The Donald paid homage to his immediate predecessor by declaring a state of emergency to build some fence on the southern boarder.  It is a terrible idea because it harks back to the previous administration and its tendency to make decisions with a phone and a pen rather than legislating.  As the NRO editors tell us it is bad but not all bad because:

He will also access other pots of money that don’t require a declaration of emergency, and here he may be on much firmer ground legally.

We hope he loses every legal challenge related to the state of emergency.  Otherwise, every president will use it.  Kamala will cause even more mischief.

Amazon has abandoned its plans to have a headquarters in NYC.  The Washington Examiner headline says this is a win for [the media darling (MD)] and a black eye for the NYC mayor and NY governor.  The Examiner has second thoughts about MD:

Then again, maybe “triumph” should come with an asterisk next to it. Gianaris and [MD] may have gotten their way, besting far more powerful political figures, but at the cost of the estimated 25,000 jobs that the Amazon deal was projected to bring to their part of the city.

Since NY and NYC tax folks and things in every way they can think of they are in need of folks with jobs and assets.  It was a bad idea to give lots of incentives to Amazon and an even worse idea to chase them away.  Holman at the WSJ thinks it will cause difficulties for the NY left.  It couldn’t happen to a nicer group. [Alert: satire]

NY has some strange energy policies.  The costs of these policies are coming home to roost.  Robert Bryce has a story at the WSJ that you should read several time to soak it all up.  NY state has banned fracking.  To help with the comparison, Pennsylvania has not.  NY has also blocked or delayed gas pipelines.  Here is Robert’s summary:

In 2008 New York drillers produced about 150 million cubic feet of natural gas a day—not enough to meet all the state’s needs, but still a substantial amount. That same year legislators in Albany passed a moratorium on hydraulic fracturing, the process used to wring oil and gas out of underground rock formations. In 2015 the Cuomo administration made the moratorium permanent. By 2018 New York’s gas production had declined so much that the Energy Information Administration quit publishing numbers on it.

In some areas of NY, Consolidated Edison is no longer accepting new customers.   How are things in PA?  Robert tells us:

At the end of 2018, Pennsylvania drillers were producing about 18 billion cubic feet of gas a day. That’s more gas than Canada now produces. [That is more than 100 times what NY was producing ten years ago]

By keeping its natural gas in the ground, New York has lost out on jobs and tax revenue. By 2015, some 106,000 people were directly employed by Pennsylvania’s oil and gas industry, making it a bigger employer than the state’s famous steel sector. This year Pennsylvania’s state government is expected to take in some $247 million in gas-related fees.

Beyond the fees there is lots of income and spending for PA to tax too.

At NRO Samuel Hammond tells us that Marco Rubio wants a national innovation strategy.  Marco is the chair of the Senate Small Business Committee.  Samuel summarizes a report from the committee that supports industrial policy:

“This report’s central conclusion is that the U.S. cannot escape or avoid decisions about industrial policy,” its authors write, after opening with an extended quotation from Alexander Hamilton’s “Report on Manufactures.”

The committee doesn’t get its conclusions exactly wrong but it is close:

But what makes the report interesting, particularly from a Republican-chaired committee, is its suggestion that America shouldn’t merely punish China for unfair trade practices, but also should pursue a national innovation strategy of similar ambition.

The WTO should punish China.  The federal government should stay out of the market and the punishing countries business. Please say it isn’t so Marco (and Samuel).  This is the Green New Deal for the GOP.  It is a really foolish idea that might have some electoral resonance.

Our summary is that the bad decisions by NYC and NY are less of a problem because folks can freely leave NYC and NY.  Of course, these decisions are worse on the poor because it is more difficult for them to relocate.  The good news is that the comparison between NY and PA help us avoid the Green New Deal.

Fake states of emergency and industrial policy at the federal level are much more worrisome than the foibles of NY politics.  NY has instructed us on what not to do at the federal level.  When we do foolish things at the federal level folks and organizations have a much more difficult time leaving or adapting.

 

 

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The Debt Crisis And Selective Memory

With all the oxygen being sucked up by the Green New Deal (GND) scam, at least some folks are trying to talk about serious stuff like the debt crisis.  The problem is that there is more emphasis on score settling than serious solutions.  Steven Rattner from the administration of the 44th president lets us know in the NYT  that your grandchildren are already in debt.  Steve is right and we are delighted that a leftist mentions the entitlement problem but:

In a perfect world, those programs would function like insurance; each generation’s annual premiums would pay for support received during its golden years. That principle was abandoned long ago. Based on the current demographics of the American populationwe would need to set aside $49 trillion to make the Medicare and Social Security Trust Funds truly solvent. [Emphasis added]

The problem with the principle in bold is that it was never adopted.  Many a Facebook post suggest it is a principle but it is not.  W tried to get us there some years ago on Social Security but neither party bought his pitch.

John Phelan from the Center for the American Experiment lets us know in the Star Tribune that The US Is (Still) Heading For A Debt Crisis.  John is also right.  John and Steve are on opposite sides of the aisle so this seems great.

It is not.  Steve is all about taxes.  GOP tax cuts, according to Steve, are the cause of the deficits.  He wants higher taxes on the rich.  He has a neat chart of the deficit but he never mentions that the first four annual deficits of a trillion dollars happened under his watch.  And there are some spending issues related to his time in office.

John punctures Steve’s proposal:

A currently popular answer is to raise taxes, particularly on “the rich.” But historical evidence suggests that doing so will have little impact on federal government revenue.

So for John it is a spending problem and he also zeros in on entitlements:

The problem diagnosed by the CBO is not a shortage of revenue but an excess of spending. To avoid spiraling federal debt and all the problems this will bring, substantial entitlement reforms are necessary. Indeed, it will be hard to give the Trump administration a passing grade if it takes no action on this front. Without it, the nation has little hope of avoiding a fiscal crisis.

The 44th president got his second term, in part, because his opponent wanted to defuse the debt crisis and he didn’t.  In 2016, both candidates pledged to make the debt crisis worse.  Well, that is not what they said exactly but it is what they pledged.  We need to convince the electorate that the debt crisis is the most pressing problem for the US federal government.  Steve and John only help a little by agreeing that entitlements are part of the debt crisis.  We need bipartisan support to solve a real crisis.

We need a compromise that increases taxes and decreases spending to get real support.  We still advocate eliminating the gas tax and replacing it with a carbon tax that does not raise the price of gas.  Our estimate is about $20 a ton.  We eliminate all funding for alternative energy and means test Social Security.  It is not a complete solution to the debt crisis but it would be a significant step in the right direction.

 

Compromise And A Carbon Tax

Back in August, you can look it up as we don’t cite ourselves, we supported a US carbon tax to replace the gas tax and find some other compromises including means testing Social Security.  Holman W. Jenkins, jr, at the WSJ had some similar ideas.  Now Kevin Williamson at NRO is trending with us:

A modest carbon tax in exchange for meaningful entitlement reform and broader rationalization of the tax regime — a compromise whose components would together do a great deal to put the country on more-stable long-term fiscal footing? That looks to me like the beginning of a pretty good deal.

Kevin doesn’t mention killing the gas tax as part of the deal and we think that is crucial to gaining political support.  We are also unsure of what is broader rationalization of the tax regime.  We are willing to consider entitlement reform other than means testing for Social Security but we don’t see a deal anywhere else.  We would like to think that “rationalization of the tax regime” in concert with a carbon tax means eliminating the gas tax and the reduction and eventual elimination of subsidies for alternative energy.

Our rough estimate is that a carbon tax of $5 per ton and elimination of the federal gas tax would be revenue neutral.  A carbon tax of $20 per ton would leave the the price of gas unchanged.

Sidebar: Even if we have made some dreadful calculation error there is substantial space for negotiation.  End Sidebar.

We end up with a carbon tax of $20 or less, social security is fixed, a little infrastructure spending, reduction in alternative energy subsidies, and some deficit reduction.  What a great deal!  How come everyone isn’t on board?

It is a great deal for the left.  They tax the carbon emitters, eliminate the gas tax (perhaps the net price of gas goes down), and take Social Security money away from rich folks.  We could write the stump speech for the candidate.  It is such a good deal that there needs to be something given up by the left like a reduction in alternative energy subsidies.  Yes, there is a problem with changing their tune on Social Security but given their control of the press it really isn’t a problem.

It is a good deal for the right as it reduces the deficit immediately and long term.  It also gives reasonable (we are not sure they are correct) incentives based on the risk caused by carbon.  Kevin’s article is about risk and the political risk of this deal is largely borne by the right.  Some on the left would love an onerous carbon tax rather than the moderate one that is supported by Kevin, MWG, and others.  How can the right be sure that the carbon tax does not become onerous?  It is a risk and a reason to walk away from the deal.  One of the commenters on Kevin’s article pointed out the risk that the excess revenue would be wasted.  It is another risk.  It is highly likely that some new revenue will be wasted.  Saving some of the money now spent on subsidies for alternative energy would reduce that risk.

We agree with Kevin that the country is not on stable long-term fiscal footing.  We are open to other deals that move towards a stable long-term fiscal footing..  We think that this is the outline for a reasonable deal.  Expecting the other side to capitulate is not a reasonable deal and time is running out.  Folks might disagree on why time is running out but as long as everyone agrees that time is running out there might be a political compromise in the works.

 

Venezuela Revolts

Speaking of socialism, as we were recently with the Media Darling, the place that tried it, Venezuela, it trying to undo it.  We wish them luck because it will take much good luck along with insight and guts to oust the socialists.  It is good to see The Donald, unlike his immediate predecessor, siding with the good guys.

We agree with the WSJ:

There may be a lot of ruin in a nation, as Adam Smith said, but Venezuela now lies in ruins. It’s tempting to think the U.S. should send in troops, a la Panama in 1989, to assist the rebellion. But Venezuelans have to win their freedom themselves, and if they do they are likely to prize it all the more.

What a great paragraph.  Do read the whole thing.  A country rich with oil lies in ruins because of socialism.  But they voted in the socialism that ruined them.  Although recent elections were fixed at least one was not.  Venezuela needs to pick political and economic freedom for themselves.  We can’t do it for them but we can and should do it for ourselves.

 

Big Risks And Easy Solutions

Jim Geraghty’ Jolt reminds us that government workers are in a difficult situation during the shutdown.  We agree with him when he says:

You’re seeing some conservatives argue that the American government is functioning fine during the shutdown, demonstrating that the “nonessential” workers are genuinely unneeded and that this proves that there’s no real need to bring the shutdown to an end.

This is a pretty poorly informed reaction. Some of the most important duties of the federal government are continuing to function because hundreds of thousands of federal employees are working without pay and hoping that they get paid for their labor once the shutdown ends.

Kevin Williamson reminds us that there are much bigger problems out there.  As he puts it he shutdown is a blip and the debt crisis is an atomic bomb.  Kevin notes that government jobs are more highly paid than their private sector counterparts.  Kevin is right but there are two problems with his comment.  He doesn’t cite his source but is likely that a substantial part of that difference is post-employment income that can’t be used to buy peanut butter.  The fact that we have our Medicare supplement paid for until we are 115 is great now but didn’t make it any easier when we were an assistant professor making five figures.  The second part is connected to our low salary early in our career.  Most of us, and certainly almost all government workers, have life cycle earnings that start low and increase over time.  The new employees now have the same problems we had 40 years ago.  Conservatives need to have some sympathy for federal workers.  We need The Donald and Nancy to work out their problem and get on to the serious stuff.

The serious stuff, as Kevin tells us, is the combination of government debt and entitlements that he refers to as the debt crisis.  If you are worried about climate change then you should be terrified about the debt crisis.  The math for climate change is very complicated, the evidence is mixed (we will agree it tends to support it), and the sign of the net outcome is uncertain.  That is, there are positive outcomes from climate change like longer growing seasons as well as negative outcomes.  It is also likely but not certain that any solution to climate change will become cheaper later.  It is certain that solutions to the debt crisis get more expensive every hour.  Kevin puts the fiscal crisis like so:

Which is to say: If the federal government does not do something to reform its long-term finances, then a fiscal crisis of some sort is inevitable. No one knows exactly what it will look like, and no one knows what the consequences will be when a country responsible for about a quarter of the human race’s total economic output becomes insolvent. Hard to say, really, how that will shake out. Safe to say it will be ugly.

There are three main parts to the problem: government debt, Social Security, and Medicare/Medicaid.  Social security we can solve this evening.  The other two are very difficult problems.  We need means testing for Social Security.  If we are going to solve it this evening we need to start phasing in means testing now.  The challenge is devising the means testing system.  Something from your individual tax return like Gross Income or Taxable Income seems like an obvious choice but individuals can have assets or income that are not taxed.  Let’s suppose that Warren Buffett is not paid a salary.  How can we see that one of the world’s richest men does not get a social security check?  it might take slightly longer than this evening but we can get it done this year.  Let’s deal with the shutdown and start on the serious problems and take care of the easy one first.

 

 

 

 

 

Mr. Donald and Dr. Donald

Veronique De Rugy properly takes The Donald to task at The Corner on NRO for the silly things he said about General Motors.

Alert: We are heading off-continent with limited Internet access and this might be our last post for several weeks.  End Alert.

Do read the whole thing but here is a fairly big taste of Veronique:

To be sure, I can see why the president is so upset. Because he has made the revival of American manufacturing the centerpiece of his campaign and presidency, a weird goal considering the incredibly high manufacturing output that the U.S. has experienced in recent years, every American company that doesn’t go with the plan is chastised publicly, sometimes even threatened. Remember Harley Davidson, which the president threatened with a boycott from its consumers? On Monday, the president told GM that it “better get back in” Ohio “soon,” and that “They better put something else in” the Lordstown, Ohio, plant that is now slated to be closed.

Is this what it has come to that the president is meddling with the productive assets of a private company? And don’t get me started on the president’s threat to cut all GM subsidies. I oppose all forms of subsidies to the private sector but I am also appalled by the use of subsidies as a way for the president to get companies to do what he thinks that they should be doing.  [Emphasis added]

We agree with Veronique on her analysis and that the threats made by The Donald are a real distraction to serious issues.  His threat to end GM’s subsidy is a non-starter.  Wikipedia defines a bill of attainder as:

bill of attainder (also known as an act of attainder or writ of attainder or bill of pains and penalties) is an act of a legislature declaring a person or group of persons guilty of some crime and punishing them, often without a trial.

We, with our lack of legal expertise, see The Donald’s action as exactly outlined above.  Such bills do not meet constitutional muster.  It indicates the problem of having a person like The Donald as president.

We, unlike Veronique, see Dr. Donald in this action.  We don’t think he is playing three dimensional chess but there could be a good outcome.  Since they can’t end subsidies for just GM they would need to end subsidies for all companies.  We, like Veronique, want to end subsidies.  Electric cars would be a good place to start.  If this craziness end some subsidies for all companies then we are not happy about the discussion but willing to absorb the silliness of The Donald.  Weird things happen with The Donald.   We await the final accounting of this episode.

 

 

Sober Democrats

George Will is looking for a sober Democrat.  We think it would be somebody he could disagree on most policy issues but still vote for in 2020.  Showing the difficulty of George’s search, the 44th President was in the news recently:

The former U.S. President said during a talk at the Obama Foundation summit in Chicago that world leaders must solve problems around climate change, education, agriculture, among others, which according to him are not as hard to deal with as they may seem. As reported by the Daily Mail, [the 44th President] didn’t mention [The Donald] by name, but he did say that the world “badly needs remaking” and that “the reason we don’t do it is because we are still confused, blind, shrouded with hate, anger, racism, mommy issues.”

The joy of being a progressive is that you can attack The Donald and the press will say perhaps it was an attack on … well, it might be somebody else.  So the immediate past president would have a hard time making the list of sober Democrats.  George has identified John Delany, an entrepreneur and a Congressman from Maryland, as a reasonable choice for the Democrat presidential nomination in 2020.  He is, as George demonstrates, a progressive:

He checks various boxes that might mollify all but the most fastidious progressives: He likes early-childhood education, a carbon tax, a $15 minimum wage, and extending the Social Security tax to higher incomes. He dislikes the NRA, the Supreme Court’s Citizens United decision, high interest rates on student loans, and “outrageous” drug prices. He would achieve “universal” health care by offering Medicaid for all, and for those who choose to opt for private programs, as he thinks most people would, there would be federal subsidies for those who need them.

The only point of possible agreement for us in that list is the carbon tax.  We are willing to support a carbon tax at a reasonable level that replaces the gas tax.  It is not much to keep a conservative interested but, according to George, he is pleasingly adult compared to the candidates from the Senate.  George is right but it is an exceeding low bar to clear to be declared adult compared to Cory and Kamala.  George says the Democrats could do much worse and probably will.  We agree with him that it helps The Donald.  We would like to see a sober Democrat leader again in our lifetime but it doesn’t look good.  It is too bad because there is an opening for sober leaders.