Unless you've been living under a rock for the last several weeks; you've been exposed to the latest battlefront in the class warfare between the haves and the have nots commonly referred to as "Occupy Wall St." If for some reason you haven't been paying attention; here is the closest thing I've found to a mission statement from www.occupywallst.org.
"Occupy Wall Street is a people-powered movement that began on September 17, 2011 in Liberty Square in Manhattan’s Financial District, and has spread to over 100 cities in the United States and actions in over 1,500 cities globally. #OWS is fighting back against the corrosive power of major banks and multinational corporations over the democratic process, and the role of Wall Street in creating an economic collapse that has caused the greatest recession in generations. The movement is inspired by popular uprisings in Egypt and Tunisia, and aims to expose how the richest 1% of people are writing the rules of an unfair global economy that is foreclosing on our future."
I've read that gibberish several times now, and I'll be damned if I can find anything in that word salad that even remotely resembles anything that isn't a jingo laden talking point, but what I take away from it is essentially that the entities that have the wealth are the ones who can effectively peddle influence and power within society. Upon putting this thought from virtual pen to virtual paper; two questions arise:
1.) In exactly what developed and generally wealthy society has this NOT been true?
2.) What exactly would you suggest we do about it?
The answer to the first one is largely rhetorical, because in the history of Western Civilization I cannot think a single instance where wealth and power were not highly correlated (which is why my PERSONAL ideology is one based in individual people developing their OWN wealth and power base, but that's another blog for another day). However, the answer to question two; once all is said and done has only one solution*...the mass redistribution of wealth.
Let me be clear, when I say "mass redistribution of wealth" I mean exactly that. You see; have nots have been pissed off at haves ever since the first cow farmer traded for a long horn. There is a lot of money and power to be made by continually pointing out that there is always someone who has more than you; and despite what your mother told you when you were seven "It's not fair" IS a valid argument when the issue at stake is microeconomics.
The Raw Data
From www.usdebtclock.org as of this writing:
- M2 Money Supply: $9,435,272,000,000
- US Gross Domestic Product: $14,979,449,000,000
- US Total Debt: $54,562,973,000,000
- US Population: 312,471,569
- US Households: 82,384,689
For our purposes, we'll consider M2 Money Supply to be the liquid dollar value of all Cash-Cash equivalent assets held within U.S. borders, and Gross Domestic Product as its usual income/standard of living corollary. Both numbers are rounded (along with Total Debt) to the 1 millions position for calculations purposes.
Economic Reset Button:
Now that we've pulled our data, lets redistribute some wealth. Let's start with the fun stuff; the cash!
M2$S/USPop = $9,435,272,000,000/312,471,569 = $30,195.62 per person.
M2$S/USH = $9,435,272,000,000/82,384,689 = $114,527.00 per household.
Now, with these to simple equations (which BTW, are effective corollaries for individual and household GROSS worth), we have already determined our own inequality. Households are defined and determined from Census data; and as most know, my household consists of only myself...do I get a check for $30,195.62 or do I get a check for $114,527.00? Meanwhile, a household with 4 or more persons; presumably some of them under the age of 18, and thus not legally adults, meaning the "head of household" could feasibly end up with custodial custody of $30k*number of persons within the household.
Now, if we're going to socialize our assets, we must also socialize our liabilities. After all, we're all in this together.
USTD/USPop =$54,562,973,000,000/312,471,569 = $174,617.40 debt per person
USTD/USH = $54,562,973,000,000/82,384,689 = $662,295.07 debt per household
Wow, this shouldn't surprise me (since I did a whole series on the major debt problem in this country on the macro level, but I had NO idea that there was such a discrepancy at the microlevel). Again, these calculations are corollaries for per capita averages; meaning if your personal/household numbers are BELOW the above, congratulations, you're better than average.
So we now have our new GROSS worth per person/household, and our debt per person/household; lets calculate our new NET worth (Gross worth - debts).
M2/Capita - Debt/Capita = $30,195.62 - $174,617.40 = -$144,421.78 per capita net worth.
M2/Household - Debt/household = $114,527.00 - $662,295.07 = -$547,768.07
Doing the math this way, are you better off? Lets run the checklist:
Who Loses in our Robin Hood Game?
As an individual, is your gross worth more than $30,195.62?
Is your household gross worth more than $114,527.00?
As an individual, is your debt LESS than $174,617.40?
Is your household debt LESS than $662,295.07? (this number still blows my mind)
And finally...
Is your personal net worth more than -$144,421.78 (BTW, if you have a job and a car, it probably is)
Is your household net worth more than -$547,768.07 (if you own the computer you are reading this blog on, it is essentially mathematically impossible for you, your household, and your entire EXTENDED FAMILY to have a net worth of NEGATIVE A HALF MILLION DOLLARS COMBINED!)
But wait, there's more!
Notice the mathematics above only considers fixed assets; we're not considering income. So let's do that really quickly.
USGDP/Capita = $14,979,449,000,000//312,471,569 = $47,938.60 per person
USGDP/Household = $14,979,449,000,000/82,384,689 = $181,823.21 per household.
Now, this is more than likely where movements like Occupy Wall St, gain their steam and following; because I know several people who live in households not earning 181k, and several individuals not earning 48k. It's that evil 1% who is skewing the data upwards; real people don't make that much money. So lets reconsider what effects our redistribution of wealth with have on the income situation in America:
USGDP*/Capita = $0/312,471,569 = $0.00 per person
USGDP*/household = *0/312,471,569 = $0.00 per person.
Some of you out there are surely screaming loudly at your monitors at my calculations above. Allow me to enlighten you. Producers need resources to produce goods to bring to market. However, we have literally just reallocated every cash equivalent resource in America; this means that the producers will only be able to sell the goods they currently hold in inventory; and hopefully they can earn enough from those sales to meet their payroll at the end of the week to keep the employees producing the NEXT batch of inventory to sell so they can meet another payroll; and so on and so forth.
The Tank Says This...
So let's consider what "Occupy Wall St" is actually clamoring for. Stealing from any one person who happens to have more than 30,000 in the bank or family with 115,000 in nominal terms; burdening EVERYONE with numbers that ensure every single person will get slapped with 176,000 in individual debt and over a HALF OF A MILLION dollars in household debt. This of course, by definition means that the net worth of every person/household in America will be decimated, but not to worry because every American company will have to shut down because they have no cash to pay their workers with. Sure everyone will essentially be bankrupt, but at least the crushing grip of poverty is "equal"
I propose this. Our founding fathers boldly declared that "All men are created equal". That statement means only one thing to me; we all come into the world cold, naked and screaming; after that what we do with it is up to us. Rather than standing out on the sidewalk holding a sign and tweeting all day, invest in yourself, go to trade school; develop a skill. If you lack the skill set to be a productive member of society in the year of our Lord 2011; then that is unfortunate; but the law of the jungle has always been to weed out the weak; and the day is fast approaching when you chomp down entirely too hard on the hand that feeds you; and the response is going to be for that hand to make a fist...then for you it's all downhill from there. You'll have a choice to make, evolve or perish.
Because after all, life isn't fair.
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Wednesday, October 19, 2011
Friday, September 23, 2011
The Blog every American who thinks Elizabeth Warren speaks to (or better yet, FOR) them needs to see..
FULL DISCLOSURE: As many who know me are aware, I lean largely conservative in my political ideology; however I have long since placed my politics behind my ability to think, to reason, and most of all to do basic mathematics. If the sentiments I express here echo those of someone else in the pundit sphere (Limbaugh, Beck, O'Reilly, Savage etc.) It's sheer coincidence. I am many things; but I do not blindly follow zealotry; nor do I plagiarize for that matter. Anyway, on to the blog.
If you have a Facebook account, you've more than likely seen someone link to a picture from left wing political website www.moveon.org that details "The Elizabeth Warren Quote Every American Needs to See." The quote itself follows below:
"There's nobody in this country who got rich on his own. Nobody. You built a factory out there - Good for you. But I want to be clear. You moved your goods to market on roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory... Now look. You built a factory and it turned into something terrific or a great idea - God bless! Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along."
I copied and pasted because I really didn't feel like giving moveon.org any more hits than were necessary, but if anyone wants to double check me and verify my transcription, be my guest. It's copied verbatim from here.
Most of the people I've seen linking to this quotation seem to be in support of it. After all, what isn't to support. The greedy, evil factory owner making millions of profits off the sweat of the brow and the back of the overworked, underpaid proletariat of Karl Marx. It's a good story; which sadly is ruined by Mrs. Warren's completely ineffective word choice, sentence structure; ideology; and of course, those silly little things called FACTS that always ruin good stories.
Because it would be far too cumbersome and probably devolve into gibberish to respond to the entire statement at once; let's break it down into pieces and go from there.
"There's nobody on this country who got rich on his own."
This of course, is a true statement, if in no other sense but the literal one. It's quite the safe assumption that (insert rich person here) was brought into this world by way of his mother who copulated with his father, and of course the birth was performed by a doctor and a medical staff; so that's at least 3 or more people that already the rich person is aided by; never mind a life long journey from crapping in a diaper and napping to becoming a titan of industry assisted by professors; friends, family, business partners, whatever. It is literally impossible to do anything in this world with out the assistance of one other person; because frankly, you come into this world indebted to at least 3 people. So the appropriate response to this statement is "Yeah, so what?"
"Nobody."
Don't sentences need to be at least two words long? A noun and a verb. Granted I don't have a law degree from Rutgers; but I do remember 3rd grade English.
"You built a factory out there - Good for you."
Actually, good for everybody. The factory is presumably going to make things right? In order to make things we need to purchase raw materials and equipment from distributors so that's good for them. We need to hire skilled labor to transform those raw materials into said final product so we can sell it; so it's good for the new employees' family who were living on the breadline yesterday. We're going to sell our product to someone right? That's good for either the merchants who sell our goods AND the general public at large who now has another product choice in an open marketplace. More choices generally means higher elasticity; higher elasticity means LOWER PRICES. In the grand scheme of things, the owner of the factory is actually the guy who gets hurt the most in the short run; but we'll come back to that later.
"But I want to be clear."
Sounds like a plan to me Beth; I'm assuming what follows will be very basic, simple premises that will not at all be contradictory or confusing. Let's see what you got.
"You moved your goods to market on roads the rest of us paid for."
I'm more than half way through my second year of business administration studies and I've studied the different forms businesses can be formed under many, MANY times at this point; I completely missed the type of business that not only was completely exempt from state and local taxes; but also granted the FOUNDER of the company the same exemption on a personal level.
Roads are considered a common good. They are non-exclusive and rival. This means that essentially an entity cannot provide them to one without providing them to many; but as anyone who has sat in rush hour traffic in a major metro will tell you, the more people that use them, the less surplus each individual has in terms of their usage. To put it another way, I enjoy using the roads more when it's wide open and I can do 80 miles an hour with nobody within a half mile of either bumper than I do sitting at a dead stop for half hour boxed in by cars on every side of me. Though my usage of the good can be affected; my costs are not. . . .regardless of whether or not I build a factory.
"You hired workers the rest of us paid to educate."
Oh, you want to recognize that fact now do you? You are acknowledging that my factory does in fact create those jobs that you love to harp and screech about because you think the world owes you a living? Okay, just checking.
The argument in general remains the same; I'm still not sure how opening my factory means I'm not paying my state and local taxes that go to pay for these schools. However, I am more than a little curious what makes you think that Education should be a common good in this country anyway.
By definition; "education" is a private transaction. Think of it this way; you want to learn karate, the piano, salsa dancing, etc; you enroll in a class, you pay the instructor, and you have gained the skills. Very simple, very basic, very PRIVATE transaction. Education is of course in a free market, a private good in that I can provide the service/have it provided to me (exclusive) and rival in that the quality of education I'm going to receive has correlation to the amount of persons I am sharing the good with; meaning my use of the good effects someone else's use in another way. Given that you work at Harvard (a private school), you should certainly not need me to explain this to you.
The fact that our employees not only WANT, but given our economy now; we NEED skilled labor is the major reason we've transformed education from a private good to a common one. The simple fact of the matter is that there is a massive correlation between the education level of our workforce and the performance of our economy; that correlation is only growing as the competitive advantages grow for China, Japan, India and all the other countries we have make our cheap crap while we're busy building Space Shuttles, Airplanes and providing services to the rest of the world. Those workers need we hired not only went to school, they performed, went further than they had to, developed a skill set, and continued performing AFTER they were hired. However, without my factory here to hire them; they would just be very educated people still living in log cabins and foraging for food in the wilderness.
"You were safe in your factory because of police forces and fire forces that the rest of us paid for."
Again with the us vs them. You know Beth, a more cynical person would think that you were subtly hinting that because I decided to create a business that I cease being a private citizen of the state and town I live in. Of course, this is rubbish; I'm still paying their salaries (and in some cases, I'm doing so voluntarily) as both services could be considered private goods under the right circumstances. If you don't believe me, pick out any Bond movie at random and consider the amount of evil henchmen surrounding the villain at all times. As for the fire department; there literally is nothing stopping them from ignoring the alarm; or even better yet, driving to the fire in question, and watching it burn. What I'm getting at Beth is that this statement is absolutely irrelevant rubbish and you know it.
"You didn't have to worry that marauding bands would come and seize everything at your factory..."
Yeah; it's called an alarm system at least and a completely competent security force at most. The only people I'm worried about seizing anything from my factory are the government who are hell bent on making it impossible to conduct business in a profitable manor; if for no reason then I get a lecture from some Harvard dingbat lawyer who wants to make sure every American person gives me a guilt trip for having the audacity to think that I should be entitled to see a return on my investment of time, resources and risk; because we all know that if *I* should see a profit, that makes me a whole other kind of evil. . .
"Now look. You built a factory and it turned into something terrific or a great idea - God bless!"
I told you earlier, my factory didn't have to be "turned into something terrific" it just had to meet its intended purpose. The "great idea" is not a product of the factory, the factory is a product of the idea. If I create a factory to produce tuna fish flavored gummy bears; I'm probably not going to be in business very long. My responsibility as an entrepreneur is to create, develop and bring to market something that people want and need enough that they will pay for me to continue making it. That would be how an economy WORKS. People are willing to pay Y for good X; I need to be able to MAKE AND SELL Y for some number greater than X and less than or equal to Y. If I can do that, I can stay in business. Not a real difficult idea. And don't get me wrong, as much as I love God and appreciate the many blessings he bestows upon us all daily; a good idea and sound business plans can succeed in spite of him (remember, it's data kids, not ideology).
"Keep a big hunk of it."
Thanks, I appreciate you letting me keep a bunch of my earnings after I'm the one who came up with the idea for the product. The one who obtained, budgeted and utilized the resources in an efficient and effective manner. The one built the team around me (after all, nobody gets rich alone, remember) who implemented and perfected this plan. Finally, I especially thank you for letting me keep a "big hunk" of my earnings because I'm the one who takes all the RISK!
If I'm a small entrepreneur and my idea tanks; I still owe the bank for my start up loan. I still owe rent to the landlord for my office for the terms of my lease. I still have to make payments on my equipment that I used. If starting a business were as easy as you make it out to be Mrs. Warren; then everyone would send in an application, file their DBA tomorrow and just wait for the checks to roll in, and based on the current unemployment numbers, that's NOT how it is. So again, thank you so much for giving me permission to keep a big hunk of my money that I earned; now kindly feel free to kiss my ass.
"But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along."
I'm curious as to why the quote cuts off here, because frankly I really want to see what her ideas for "paying forward" include. Whatever they are, they seem to be inferred that the societal positives of creating unemployment and lowering prices on a good/service that (by definition) people want and need. It also has to be something in addition to the LONG RUN cumulative benefits that come from the free market. . .
Suppose in my factory I hire a machinist who was previously working as a part-time fry cook at McDonald's. My full time position doubles his workload and quadruples his pay. Now because he was skilled labor who has left an underemployment position to one that is commensurate with his skill level; he has more income to spend and save in his personal budget. Because he was diligent with his budgeting and savings; his son goes to Georgia Tech instead of Pellisippi State and earns his masters degree in engineering; then HE opens his own factory; meaning the process continues.
The Tank Says This:
So for all of her bile, venom, and (in this case, LITERAL) "us vs them" propaganda; there is actually more teamwork in the workplace than there is in this mindset. The next time you cash your paycheck; remember exactly what you did to EARN it. It's not charity, your employer isn't giving it to you because of some "social contract" they are giving it to you because you traded your time and your skill set for an agreed upon amount. If this makes you mad; then don't be mad at the bosses who are providing you with a way to earn a living and put food on the table; be mad at yourself; then take action to do something about it so you can help yourself, and really pay it forward by helping everyone else too.
If you have a Facebook account, you've more than likely seen someone link to a picture from left wing political website www.moveon.org that details "The Elizabeth Warren Quote Every American Needs to See." The quote itself follows below:
"There's nobody in this country who got rich on his own. Nobody. You built a factory out there - Good for you. But I want to be clear. You moved your goods to market on roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory... Now look. You built a factory and it turned into something terrific or a great idea - God bless! Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along."
I copied and pasted because I really didn't feel like giving moveon.org any more hits than were necessary, but if anyone wants to double check me and verify my transcription, be my guest. It's copied verbatim from here.
Most of the people I've seen linking to this quotation seem to be in support of it. After all, what isn't to support. The greedy, evil factory owner making millions of profits off the sweat of the brow and the back of the overworked, underpaid proletariat of Karl Marx. It's a good story; which sadly is ruined by Mrs. Warren's completely ineffective word choice, sentence structure; ideology; and of course, those silly little things called FACTS that always ruin good stories.
Because it would be far too cumbersome and probably devolve into gibberish to respond to the entire statement at once; let's break it down into pieces and go from there.
"There's nobody on this country who got rich on his own."
This of course, is a true statement, if in no other sense but the literal one. It's quite the safe assumption that (insert rich person here) was brought into this world by way of his mother who copulated with his father, and of course the birth was performed by a doctor and a medical staff; so that's at least 3 or more people that already the rich person is aided by; never mind a life long journey from crapping in a diaper and napping to becoming a titan of industry assisted by professors; friends, family, business partners, whatever. It is literally impossible to do anything in this world with out the assistance of one other person; because frankly, you come into this world indebted to at least 3 people. So the appropriate response to this statement is "Yeah, so what?"
"Nobody."
Don't sentences need to be at least two words long? A noun and a verb. Granted I don't have a law degree from Rutgers; but I do remember 3rd grade English.
"You built a factory out there - Good for you."
Actually, good for everybody. The factory is presumably going to make things right? In order to make things we need to purchase raw materials and equipment from distributors so that's good for them. We need to hire skilled labor to transform those raw materials into said final product so we can sell it; so it's good for the new employees' family who were living on the breadline yesterday. We're going to sell our product to someone right? That's good for either the merchants who sell our goods AND the general public at large who now has another product choice in an open marketplace. More choices generally means higher elasticity; higher elasticity means LOWER PRICES. In the grand scheme of things, the owner of the factory is actually the guy who gets hurt the most in the short run; but we'll come back to that later.
"But I want to be clear."
Sounds like a plan to me Beth; I'm assuming what follows will be very basic, simple premises that will not at all be contradictory or confusing. Let's see what you got.
"You moved your goods to market on roads the rest of us paid for."
I'm more than half way through my second year of business administration studies and I've studied the different forms businesses can be formed under many, MANY times at this point; I completely missed the type of business that not only was completely exempt from state and local taxes; but also granted the FOUNDER of the company the same exemption on a personal level.
Roads are considered a common good. They are non-exclusive and rival. This means that essentially an entity cannot provide them to one without providing them to many; but as anyone who has sat in rush hour traffic in a major metro will tell you, the more people that use them, the less surplus each individual has in terms of their usage. To put it another way, I enjoy using the roads more when it's wide open and I can do 80 miles an hour with nobody within a half mile of either bumper than I do sitting at a dead stop for half hour boxed in by cars on every side of me. Though my usage of the good can be affected; my costs are not. . . .regardless of whether or not I build a factory.
"You hired workers the rest of us paid to educate."
Oh, you want to recognize that fact now do you? You are acknowledging that my factory does in fact create those jobs that you love to harp and screech about because you think the world owes you a living? Okay, just checking.
The argument in general remains the same; I'm still not sure how opening my factory means I'm not paying my state and local taxes that go to pay for these schools. However, I am more than a little curious what makes you think that Education should be a common good in this country anyway.
By definition; "education" is a private transaction. Think of it this way; you want to learn karate, the piano, salsa dancing, etc; you enroll in a class, you pay the instructor, and you have gained the skills. Very simple, very basic, very PRIVATE transaction. Education is of course in a free market, a private good in that I can provide the service/have it provided to me (exclusive) and rival in that the quality of education I'm going to receive has correlation to the amount of persons I am sharing the good with; meaning my use of the good effects someone else's use in another way. Given that you work at Harvard (a private school), you should certainly not need me to explain this to you.
The fact that our employees not only WANT, but given our economy now; we NEED skilled labor is the major reason we've transformed education from a private good to a common one. The simple fact of the matter is that there is a massive correlation between the education level of our workforce and the performance of our economy; that correlation is only growing as the competitive advantages grow for China, Japan, India and all the other countries we have make our cheap crap while we're busy building Space Shuttles, Airplanes and providing services to the rest of the world. Those workers need we hired not only went to school, they performed, went further than they had to, developed a skill set, and continued performing AFTER they were hired. However, without my factory here to hire them; they would just be very educated people still living in log cabins and foraging for food in the wilderness.
"You were safe in your factory because of police forces and fire forces that the rest of us paid for."
Again with the us vs them. You know Beth, a more cynical person would think that you were subtly hinting that because I decided to create a business that I cease being a private citizen of the state and town I live in. Of course, this is rubbish; I'm still paying their salaries (and in some cases, I'm doing so voluntarily) as both services could be considered private goods under the right circumstances. If you don't believe me, pick out any Bond movie at random and consider the amount of evil henchmen surrounding the villain at all times. As for the fire department; there literally is nothing stopping them from ignoring the alarm; or even better yet, driving to the fire in question, and watching it burn. What I'm getting at Beth is that this statement is absolutely irrelevant rubbish and you know it.
"You didn't have to worry that marauding bands would come and seize everything at your factory..."
Yeah; it's called an alarm system at least and a completely competent security force at most. The only people I'm worried about seizing anything from my factory are the government who are hell bent on making it impossible to conduct business in a profitable manor; if for no reason then I get a lecture from some Harvard dingbat lawyer who wants to make sure every American person gives me a guilt trip for having the audacity to think that I should be entitled to see a return on my investment of time, resources and risk; because we all know that if *I* should see a profit, that makes me a whole other kind of evil. . .
"Now look. You built a factory and it turned into something terrific or a great idea - God bless!"
I told you earlier, my factory didn't have to be "turned into something terrific" it just had to meet its intended purpose. The "great idea" is not a product of the factory, the factory is a product of the idea. If I create a factory to produce tuna fish flavored gummy bears; I'm probably not going to be in business very long. My responsibility as an entrepreneur is to create, develop and bring to market something that people want and need enough that they will pay for me to continue making it. That would be how an economy WORKS. People are willing to pay Y for good X; I need to be able to MAKE AND SELL Y for some number greater than X and less than or equal to Y. If I can do that, I can stay in business. Not a real difficult idea. And don't get me wrong, as much as I love God and appreciate the many blessings he bestows upon us all daily; a good idea and sound business plans can succeed in spite of him (remember, it's data kids, not ideology).
"Keep a big hunk of it."
Thanks, I appreciate you letting me keep a bunch of my earnings after I'm the one who came up with the idea for the product. The one who obtained, budgeted and utilized the resources in an efficient and effective manner. The one built the team around me (after all, nobody gets rich alone, remember) who implemented and perfected this plan. Finally, I especially thank you for letting me keep a "big hunk" of my earnings because I'm the one who takes all the RISK!
If I'm a small entrepreneur and my idea tanks; I still owe the bank for my start up loan. I still owe rent to the landlord for my office for the terms of my lease. I still have to make payments on my equipment that I used. If starting a business were as easy as you make it out to be Mrs. Warren; then everyone would send in an application, file their DBA tomorrow and just wait for the checks to roll in, and based on the current unemployment numbers, that's NOT how it is. So again, thank you so much for giving me permission to keep a big hunk of my money that I earned; now kindly feel free to kiss my ass.
"But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along."
I'm curious as to why the quote cuts off here, because frankly I really want to see what her ideas for "paying forward" include. Whatever they are, they seem to be inferred that the societal positives of creating unemployment and lowering prices on a good/service that (by definition) people want and need. It also has to be something in addition to the LONG RUN cumulative benefits that come from the free market. . .
Suppose in my factory I hire a machinist who was previously working as a part-time fry cook at McDonald's. My full time position doubles his workload and quadruples his pay. Now because he was skilled labor who has left an underemployment position to one that is commensurate with his skill level; he has more income to spend and save in his personal budget. Because he was diligent with his budgeting and savings; his son goes to Georgia Tech instead of Pellisippi State and earns his masters degree in engineering; then HE opens his own factory; meaning the process continues.
The Tank Says This:
Like most others who share her world view; Mrs. Warren is more than content to espouse class warfare and jealousy than to face the simple fact that we all make choices in our lives and that the greatest correlation in the history of statistics is the one between risk and reward. The one major criteria in the fry cook example above is that he has to have the appropriate skills to take the machinists job in the first place. This means he took RISK in educating himself in a skill that might someday not be marketable. This means *I* took a RISK (in addition to all the others listed above) in hiring him even with the skill set, because how do I know his skills are still applicable; or he's not become resentful or turned to drugs and alcohol? If he works out, great! If not, I risk ruining my product, or creating a poor work environment on my production floor. If it works out, we both win; if it doesn't we both lose.
So for all of her bile, venom, and (in this case, LITERAL) "us vs them" propaganda; there is actually more teamwork in the workplace than there is in this mindset. The next time you cash your paycheck; remember exactly what you did to EARN it. It's not charity, your employer isn't giving it to you because of some "social contract" they are giving it to you because you traded your time and your skill set for an agreed upon amount. If this makes you mad; then don't be mad at the bosses who are providing you with a way to earn a living and put food on the table; be mad at yourself; then take action to do something about it so you can help yourself, and really pay it forward by helping everyone else too.
Sunday, August 7, 2011
The Debt Ceiling: Life at the Intersection of Metaphors and Mathematics (The Aftermath)
Far and away, the question I get asked about the downgrade is what does it mean for us in real terms. Like everything else in economics; it requires some explanation and will get you at the end of the day to the trademark economist answer of "it depends."
In Part Two of this series; we broke down the budget in terms of what it would be like if the government were a single household unit living off tax revenue as income and spending money through budgeted expenditures. Because we were spending more than we were collecting in tax revenue; the difference was made up by borrowing. Now, in the aftermath of the downgrade is where it's important to know exactly how we "borrow" money.
Unlike you and I, countries and businesses don't REALLY borrow from each other on handshakes and promises to pick up the first round next time; there has to be a paper trail. As such; federal governments and other business entities issue bonds to account for how much they owe. As some of you may remember from 6th grade Civics class; anyone can buy a bond (you, me, the shady guy that hangs out in your bushes while you shower, and of course, other countries). So, when we say that "China loaned us $100,000 last week"; that means they bought $100,000 of our bonds. Now, for their $100,000 in cash we receive today; they receive some amount that is based on a ratio of time and interest defined in the terms outlined at the time of purchase.
For example. Let's say the above Chinese $100,000 loan is comprised of the purchase entirely in 10-year treasury bonds. The current rate (as of this writing) for that instrument is 2.565%. Therefore, the Chinese can exchange those bonds for $125,650 on August 7, 2021. However, the major distinction between a stock and a bond is that the Chinese can also redeem their bonds for the actual accrued value at anytime before the maturity date. Unlike stocks, Bonds have no risk of loss of principle. If the Chinese wanted to do so; they could buy the bonds today and redeem them tomorrow to earn a whopping $7.26 on their investment; but they'll never LOSE money on the deal (so long as the issuer of the bond remains in existence and doesn't welch on the debt.) This is why bonds are considered a "safe" investment tool.
Now, also like corporations; governments credit worthiness isn't really determined by cash-flow and budgeting issues (at least, not directly). As anybody who has taken a survey level accounting course will tell you; it's more about your general business viability (are you selling a product that people want to buy and doing so in a way that you are profitable long term) that determines if you are a good credit risk or not. Much like Experian, Equifax, and Transunion maintain and evaluate the credit worthiness of private individuals for lenders to determine amounts and rates for mortgages, auto loans, and credit card payments; governments and businesses are monitored and evaluated by Moody's, Fitch and (the folks of the hour) Standard and Poor's (S&P)
Let's consider our previous example:
We've discussed in depth HOW the debt issue got so out of hand so quickly; what we've not really touched on is WHY it was able to happen. Our hypothetical private individual used to symbolize the US was clearly outspending his means; but we never really touched on how they got in that mess in the first place. Imagine if you will that there someone out there in the world who is so credit worthy that lender's from Portland, Oregon to Portland, Maine would send them pre-activated, ready to use unlimited lines of credit on a near daily basis. This man had a good history of paying his bills on time and in fact, lived in the nicest house in the neighborhood. The neighbors who like him, love him, but those who don't; despise his decadent arrogance (but they don't count, because the rest of the neighborhood doesn't care much about them anyway). Anyway; the long and short of the story is that this man has never had a problem securing credit when he needs it; and never really had a problem paying what he owes; because of these two things, he's really stopped keeping a budget all together and is just kind of "winging it" figuring that any problems would work themselves out in time. This cycle went on in perpetuity. . . until it didn't anymore. Things started to go bad for this man; and rather than step back, get serious about getting his financial house in order; he doubled down on borrowing to try and stimulate his household budget. Finally, after about 3 years of this, one of the three credit bureaus dropped his credit score from 850 to 823. (There are 20 levels on the S&P rating system, for those wondering where that number came from). After this happens; as you can imagine; the pre-approved card offers STILL rolled in on a daily basis. However, the man now was puzzled to see that he could no longer just swipe the card and start spending; he had to call and activate it. Even more confusing was the interest rates he was having to pay to use the credit lines. Instead of 2-3% the rates were now 4.5% - 6% (side note, these numbers are completely made up; but I assume in the ball park for what a lender would charge a super-prime credit score individual). In short; the man had just as many people willing to lend him money; but he was having to jump through a few more hoops (and pay a LOT more money) to do it.
Are you starting to get it?
So just like our hypothetical man above; the United States has had one of the three credit monitoring services (called rating services in the treasury world) ding our score. By their completely arbitrary standards and algorithms, they have determined that our financial situation is not as good now as it was the last time they reviewed it; and therefore they are reporting to the World at large that IN THEIR OPINION, they believe that our treasury bonds are more risky now than they were previously. This is important because the whole reason to buy bonds over stocks is to purchase that security against default. With greater RISK of loss, a greater REWARD (called a RETURN in the financial world) is expected.
As such, investors (who tend to have a crazy tendency to base their evaluations in data rather than the promises of politics); are going to expect to be compensated at a higher rate for the money they are parting with today. At a AAA level, meaning the safest haven possible; you can get away with a 2.565% interest rate in a global economic trough; however now that the instrument is slightly less secure; I'll need to be compensated a a higher rate to be motivated to purchase the instrument. What this boils down to for the United States Federal Government at the end of the day is that it plain and simple is going to cost them more to use that increase in the debt ceiling they worked so hard to get. After all; with out it, we ran the risk of being downgraded. . .
(end of Part 4)
(Author's Note: I really was planning for part 4 to be the end of the series; just like I planned for part 3 to be the end of it before that, but this issue is obviously so timely and relevant for everyone right now who I assume cares enough about these matters to read this blog; so plans change. However, I promise that Part 5 WILL wrap this series up and we'll move on to other matters. I have a good 5-7 blogs I want to write that have been percolating for a while now, and I also know exactly how I want the conclusion to this series to end. My hope is to post it Wednesday or Thursday of this week and then we'll move forward. Thank you all for your support in this endeavor. As passionate as I am about these topics, writing 2500 words is a monstrous investment in time and energy; so your feedback and your spreading the word makes it all worth it. I appreciate it and I appreciate you all. . . Tank)
In Part Two of this series; we broke down the budget in terms of what it would be like if the government were a single household unit living off tax revenue as income and spending money through budgeted expenditures. Because we were spending more than we were collecting in tax revenue; the difference was made up by borrowing. Now, in the aftermath of the downgrade is where it's important to know exactly how we "borrow" money.
Unlike you and I, countries and businesses don't REALLY borrow from each other on handshakes and promises to pick up the first round next time; there has to be a paper trail. As such; federal governments and other business entities issue bonds to account for how much they owe. As some of you may remember from 6th grade Civics class; anyone can buy a bond (you, me, the shady guy that hangs out in your bushes while you shower, and of course, other countries). So, when we say that "China loaned us $100,000 last week"; that means they bought $100,000 of our bonds. Now, for their $100,000 in cash we receive today; they receive some amount that is based on a ratio of time and interest defined in the terms outlined at the time of purchase.
For example. Let's say the above Chinese $100,000 loan is comprised of the purchase entirely in 10-year treasury bonds. The current rate (as of this writing) for that instrument is 2.565%. Therefore, the Chinese can exchange those bonds for $125,650 on August 7, 2021. However, the major distinction between a stock and a bond is that the Chinese can also redeem their bonds for the actual accrued value at anytime before the maturity date. Unlike stocks, Bonds have no risk of loss of principle. If the Chinese wanted to do so; they could buy the bonds today and redeem them tomorrow to earn a whopping $7.26 on their investment; but they'll never LOSE money on the deal (so long as the issuer of the bond remains in existence and doesn't welch on the debt.) This is why bonds are considered a "safe" investment tool.
Now, also like corporations; governments credit worthiness isn't really determined by cash-flow and budgeting issues (at least, not directly). As anybody who has taken a survey level accounting course will tell you; it's more about your general business viability (are you selling a product that people want to buy and doing so in a way that you are profitable long term) that determines if you are a good credit risk or not. Much like Experian, Equifax, and Transunion maintain and evaluate the credit worthiness of private individuals for lenders to determine amounts and rates for mortgages, auto loans, and credit card payments; governments and businesses are monitored and evaluated by Moody's, Fitch and (the folks of the hour) Standard and Poor's (S&P)
Let's consider our previous example:
We've discussed in depth HOW the debt issue got so out of hand so quickly; what we've not really touched on is WHY it was able to happen. Our hypothetical private individual used to symbolize the US was clearly outspending his means; but we never really touched on how they got in that mess in the first place. Imagine if you will that there someone out there in the world who is so credit worthy that lender's from Portland, Oregon to Portland, Maine would send them pre-activated, ready to use unlimited lines of credit on a near daily basis. This man had a good history of paying his bills on time and in fact, lived in the nicest house in the neighborhood. The neighbors who like him, love him, but those who don't; despise his decadent arrogance (but they don't count, because the rest of the neighborhood doesn't care much about them anyway). Anyway; the long and short of the story is that this man has never had a problem securing credit when he needs it; and never really had a problem paying what he owes; because of these two things, he's really stopped keeping a budget all together and is just kind of "winging it" figuring that any problems would work themselves out in time. This cycle went on in perpetuity. . . until it didn't anymore. Things started to go bad for this man; and rather than step back, get serious about getting his financial house in order; he doubled down on borrowing to try and stimulate his household budget. Finally, after about 3 years of this, one of the three credit bureaus dropped his credit score from 850 to 823. (There are 20 levels on the S&P rating system, for those wondering where that number came from). After this happens; as you can imagine; the pre-approved card offers STILL rolled in on a daily basis. However, the man now was puzzled to see that he could no longer just swipe the card and start spending; he had to call and activate it. Even more confusing was the interest rates he was having to pay to use the credit lines. Instead of 2-3% the rates were now 4.5% - 6% (side note, these numbers are completely made up; but I assume in the ball park for what a lender would charge a super-prime credit score individual). In short; the man had just as many people willing to lend him money; but he was having to jump through a few more hoops (and pay a LOT more money) to do it.
Are you starting to get it?
So just like our hypothetical man above; the United States has had one of the three credit monitoring services (called rating services in the treasury world) ding our score. By their completely arbitrary standards and algorithms, they have determined that our financial situation is not as good now as it was the last time they reviewed it; and therefore they are reporting to the World at large that IN THEIR OPINION, they believe that our treasury bonds are more risky now than they were previously. This is important because the whole reason to buy bonds over stocks is to purchase that security against default. With greater RISK of loss, a greater REWARD (called a RETURN in the financial world) is expected.
As such, investors (who tend to have a crazy tendency to base their evaluations in data rather than the promises of politics); are going to expect to be compensated at a higher rate for the money they are parting with today. At a AAA level, meaning the safest haven possible; you can get away with a 2.565% interest rate in a global economic trough; however now that the instrument is slightly less secure; I'll need to be compensated a a higher rate to be motivated to purchase the instrument. What this boils down to for the United States Federal Government at the end of the day is that it plain and simple is going to cost them more to use that increase in the debt ceiling they worked so hard to get. After all; with out it, we ran the risk of being downgraded. . .
(end of Part 4)
(Author's Note: I really was planning for part 4 to be the end of the series; just like I planned for part 3 to be the end of it before that, but this issue is obviously so timely and relevant for everyone right now who I assume cares enough about these matters to read this blog; so plans change. However, I promise that Part 5 WILL wrap this series up and we'll move on to other matters. I have a good 5-7 blogs I want to write that have been percolating for a while now, and I also know exactly how I want the conclusion to this series to end. My hope is to post it Wednesday or Thursday of this week and then we'll move forward. Thank you all for your support in this endeavor. As passionate as I am about these topics, writing 2500 words is a monstrous investment in time and energy; so your feedback and your spreading the word makes it all worth it. I appreciate it and I appreciate you all. . . Tank)
Sunday, July 31, 2011
The Debt Ceiling: Life at the Intersection of Metaphors and Mathematics (Part 3)
When last we left:
Earlier this summer; our "Debt Ceiling" was reached and breached, this effectively means that our government is much like our hypothetical single citizen at the end of part two who is literally now spending NONE of his cash on his monthly budget; as it is all going to pay his existing expenditures. In a real world example; this would be equivalent to someone who is literally living off of his maxed out credit card, he pays his entire paycheck to the credit card company each and every month; which gives him a little bit more room to spend until the next pay day. I believe the fancy pants common sense term for this is "buying time." However, as anyone who spent the better part of their mid-late 20's without a line of credit from the First Parental Bank will tell you, this shell game can only go on so long; because we are still outliving and outspending our income; eventually we can't pay enough to the credit card company to make sure our bills all get paid by credit card. If you believe U.S. Secretary of Treasury Timothy Geithner, then the United States as an entity cannot keep playing THEIR shell game of debt and income past August 2nd, 2011.
One of the ominous and scary words that the talking heads on the moving picture box likes to throw around during this discussion is "default," At the end of the day, "defaulting" is just a fancy pants term for a welch. You said you'd pay and you are not going to. It's an extremely common occurrence when you spend money you don't have. I realize it's a pretty complex idea; but it seems to be one that allegedly smart people (Sean Hannity I'm looking at you) seem to have trouble grasping. If you have promised to pay something and you don't have the money to do it; so you don't, THAT is a default.
The political game of football going around is that the zealots on the left believe that default will mean complete economic collapse and financial Armageddon. Meanwhile, the zealots on the right (again, I'm looking at you Hannity) are going so far as to say that this is unrealistic fear-mongering and default is not even remotely close to a possibility. I actually saw Stuart Varney claim that their was a distinct possibility that the Federal Reserve would FLOAT our payments and essentially let the defaulted payments BOUNCE. With a straight face and being deadly serious, a supposedly learned "businessman" said that we're going to have our bank keep our currency and good faith from being worthless by essentially sweeping the issue under the rug; completely oblivious to the fact that doing so would only accelerate the process we're in this discussion to try and prevent.
So who isn't getting paid?
Remember in part one I pulled the data so we had a constant reference point. Here's where we put it to use; because the question now becomes who does NOT get paid without a debt ceiling increase. Lets look at the bills we have to pay from largest to smallest (note, if you want more information on WHAT these programs are; either wait for my forthcoming, in-depth blogs on each, or Google them, at the moment I'm trying to plow through the math:
1. Medicare/Medicaid:
Annualized Costs (as of May 19, 2011): $813,270,000,000.00. Medicare is far and away our largest budgetary item and our gravest spending concern going forward; as the above number is a whopping 23% of all spending and an even MORE whopping 37% of all revenue collected.
2. Social Security Recipients:
Annualized Costs (as of May 19, 2011): $710,944,000,000.00 In Medicare/Medicaid, I used the words "far and away", but Social Security looks pretty close; what gives? Quite simply, the rate of persons using Social Security is high and rapidly growing; but not NEARLY at the rate Medicare/Medicaid. One of the major arguments of both Obamacare and the Paul Ryan budget plan is that the sheer level of both estimated usage and the level of frauds and inefficiencies within the program itself from both a supplier and a consumer standpoint will have the rate of growth increase very rapidly. Though Social Security is a flawed program with tremendous costs today (20% of all spending, 33% of revenue); it's costs and implementation are largely static and manageable for the time being. The biggest concern is the baby boom generation who is about to begin collecting benefits and we simply do not have the workforce (Unemployment would have to drop to zero tomorrow and stay there for the next 20 years or so to even be close to making the program sustainable in its current form).
Has anyone else noticed, that we've already spent 70% of our tax revenue collected in these two programs?
3) Defense:
Annualized Costs (as of May 19, 2011): $697,797,000,000.00 There is a strong tradition of military service within my family and several of my friends; and there is very little that stirs the emotions within the fiber of every American more than our brave fighting men and women who devote their lives to protecting our freedoms. However, as you've guessed by now; the spending is NOT in line with our revenue. Defense spending is also 20% of our total spending; but it is only 32% of our total revenue collected. (yay rounding). So yes, not only do our brave fighting men and women have to leave their loved ones and put their lives on the line on a daily basis; they officially put us over the top on our cash holdings and we have to start borrowing to keep them functional; but what's even better is that they are also the largest DISCRETIONARY expenditure on the books; which means they are usually the first place cuts come from when budget time rolls around. (I'll discuss this more in detail later)
Again, please note from this point forward; please note that we are OUT of cash revenue; meaning we are borrowing 100% of the funds to pay for every initiative that follows:
4. Income Security (disability and unemployment benefits)
Annualized Costs (as of May 19, 2011): $426,907,000,000.00. This is pretty self explanatory; so not a lot of elaboration will follow. This number is 12% of all spending and 19% of total revenue. However, in the interest of fairness; this number is the ONE number that is dropping (I assume as people's 99 weeks of unemployment benefits run out); but doing some quick calculations shows that the percentages don't have any significant change.
5. Interest on existing debt
Annualized Costs (as of May 19, 2011): $207,709,000,000.00 Again, this is pretty simple idea. We've borrowed and continue to borrow; here's the money it costs us to borrow money. If it makes it more simple to understand, think of it in terms of your credit card's interest rate; as for the purposes of our discussion (at this point anyway), they are the same thing, so as of right now; our interest rate is 5.8% of our total spending; and 9.5% of our total revenue.
6. Federal Pensions and Benefits:
Annualized Costs (as of May 19, 2011): $207,327,000,000.00 I've been largely successful keeping my political opinions and thoughts out of the thoughts I've placed here; but you can probably imagine how I feel about the fact that veterans health care and retirement benefits are apparently grouped with congressmen and women's retirement nest egg. I guess I'll let you all decide how you feel about this number being 5.8% of all of our spending and 9.5% of our revenue.
7. Everything Else
Annualized Costs (as of May 19, 2011): $488,424,000,000. This number is calculated by subtracting the sum total of the above "Big 6" items from the Total Spending annualized budget. (Total Spending-Big 6). This number translates to 15% of total spending and 22% of total revenue.
Number 7 is also where a lot of the "Tea Party" logos, ethos and pathos come from. Literally ANYTHING you want to talk about funding with government funds that's not included in the Big 6 can be easily paid for with only 22% of the amount of money that the United States had collected as of May 19th, 2011; meaning the remaining 78% could be used to either pay down the debt, return to the taxpayer, or some combination of the two. If you want to go full-monty Libertarian; you could argue that by the time you trim some serious fat off of "everything else" you could easily cut that number in half; if not more. However, this blog isn't in the business of speculating; we deal in data; not ideology.
And therein lies the rub. . .
Of our 6 largest single budget item allocations; the 3 highest are costing us more than the rest of our government combined. This entire "crisis" is based on the fact that someone is not going to get paid if we can't keep racking up debt; therefore we have to decide how we are going to allocate our funding going forward; but of course, that's a whole other story.
(end of Part 3)
Earlier this summer; our "Debt Ceiling" was reached and breached, this effectively means that our government is much like our hypothetical single citizen at the end of part two who is literally now spending NONE of his cash on his monthly budget; as it is all going to pay his existing expenditures. In a real world example; this would be equivalent to someone who is literally living off of his maxed out credit card, he pays his entire paycheck to the credit card company each and every month; which gives him a little bit more room to spend until the next pay day. I believe the fancy pants common sense term for this is "buying time." However, as anyone who spent the better part of their mid-late 20's without a line of credit from the First Parental Bank will tell you, this shell game can only go on so long; because we are still outliving and outspending our income; eventually we can't pay enough to the credit card company to make sure our bills all get paid by credit card. If you believe U.S. Secretary of Treasury Timothy Geithner, then the United States as an entity cannot keep playing THEIR shell game of debt and income past August 2nd, 2011.
One of the ominous and scary words that the talking heads on the moving picture box likes to throw around during this discussion is "default," At the end of the day, "defaulting" is just a fancy pants term for a welch. You said you'd pay and you are not going to. It's an extremely common occurrence when you spend money you don't have. I realize it's a pretty complex idea; but it seems to be one that allegedly smart people (Sean Hannity I'm looking at you) seem to have trouble grasping. If you have promised to pay something and you don't have the money to do it; so you don't, THAT is a default.
The political game of football going around is that the zealots on the left believe that default will mean complete economic collapse and financial Armageddon. Meanwhile, the zealots on the right (again, I'm looking at you Hannity) are going so far as to say that this is unrealistic fear-mongering and default is not even remotely close to a possibility. I actually saw Stuart Varney claim that their was a distinct possibility that the Federal Reserve would FLOAT our payments and essentially let the defaulted payments BOUNCE. With a straight face and being deadly serious, a supposedly learned "businessman" said that we're going to have our bank keep our currency and good faith from being worthless by essentially sweeping the issue under the rug; completely oblivious to the fact that doing so would only accelerate the process we're in this discussion to try and prevent.
So who isn't getting paid?
Remember in part one I pulled the data so we had a constant reference point. Here's where we put it to use; because the question now becomes who does NOT get paid without a debt ceiling increase. Lets look at the bills we have to pay from largest to smallest (note, if you want more information on WHAT these programs are; either wait for my forthcoming, in-depth blogs on each, or Google them, at the moment I'm trying to plow through the math:
1. Medicare/Medicaid:
Annualized Costs (as of May 19, 2011): $813,270,000,000.00. Medicare is far and away our largest budgetary item and our gravest spending concern going forward; as the above number is a whopping 23% of all spending and an even MORE whopping 37% of all revenue collected.
2. Social Security Recipients:
Annualized Costs (as of May 19, 2011): $710,944,000,000.00 In Medicare/Medicaid, I used the words "far and away", but Social Security looks pretty close; what gives? Quite simply, the rate of persons using Social Security is high and rapidly growing; but not NEARLY at the rate Medicare/Medicaid. One of the major arguments of both Obamacare and the Paul Ryan budget plan is that the sheer level of both estimated usage and the level of frauds and inefficiencies within the program itself from both a supplier and a consumer standpoint will have the rate of growth increase very rapidly. Though Social Security is a flawed program with tremendous costs today (20% of all spending, 33% of revenue); it's costs and implementation are largely static and manageable for the time being. The biggest concern is the baby boom generation who is about to begin collecting benefits and we simply do not have the workforce (Unemployment would have to drop to zero tomorrow and stay there for the next 20 years or so to even be close to making the program sustainable in its current form).
Has anyone else noticed, that we've already spent 70% of our tax revenue collected in these two programs?
3) Defense:
Annualized Costs (as of May 19, 2011): $697,797,000,000.00 There is a strong tradition of military service within my family and several of my friends; and there is very little that stirs the emotions within the fiber of every American more than our brave fighting men and women who devote their lives to protecting our freedoms. However, as you've guessed by now; the spending is NOT in line with our revenue. Defense spending is also 20% of our total spending; but it is only 32% of our total revenue collected. (yay rounding). So yes, not only do our brave fighting men and women have to leave their loved ones and put their lives on the line on a daily basis; they officially put us over the top on our cash holdings and we have to start borrowing to keep them functional; but what's even better is that they are also the largest DISCRETIONARY expenditure on the books; which means they are usually the first place cuts come from when budget time rolls around. (I'll discuss this more in detail later)
Again, please note from this point forward; please note that we are OUT of cash revenue; meaning we are borrowing 100% of the funds to pay for every initiative that follows:
4. Income Security (disability and unemployment benefits)
Annualized Costs (as of May 19, 2011): $426,907,000,000.00. This is pretty self explanatory; so not a lot of elaboration will follow. This number is 12% of all spending and 19% of total revenue. However, in the interest of fairness; this number is the ONE number that is dropping (I assume as people's 99 weeks of unemployment benefits run out); but doing some quick calculations shows that the percentages don't have any significant change.
5. Interest on existing debt
Annualized Costs (as of May 19, 2011): $207,709,000,000.00 Again, this is pretty simple idea. We've borrowed and continue to borrow; here's the money it costs us to borrow money. If it makes it more simple to understand, think of it in terms of your credit card's interest rate; as for the purposes of our discussion (at this point anyway), they are the same thing, so as of right now; our interest rate is 5.8% of our total spending; and 9.5% of our total revenue.
6. Federal Pensions and Benefits:
Annualized Costs (as of May 19, 2011): $207,327,000,000.00 I've been largely successful keeping my political opinions and thoughts out of the thoughts I've placed here; but you can probably imagine how I feel about the fact that veterans health care and retirement benefits are apparently grouped with congressmen and women's retirement nest egg. I guess I'll let you all decide how you feel about this number being 5.8% of all of our spending and 9.5% of our revenue.
7. Everything Else
Annualized Costs (as of May 19, 2011): $488,424,000,000. This number is calculated by subtracting the sum total of the above "Big 6" items from the Total Spending annualized budget. (Total Spending-Big 6). This number translates to 15% of total spending and 22% of total revenue.
Number 7 is also where a lot of the "Tea Party" logos, ethos and pathos come from. Literally ANYTHING you want to talk about funding with government funds that's not included in the Big 6 can be easily paid for with only 22% of the amount of money that the United States had collected as of May 19th, 2011; meaning the remaining 78% could be used to either pay down the debt, return to the taxpayer, or some combination of the two. If you want to go full-monty Libertarian; you could argue that by the time you trim some serious fat off of "everything else" you could easily cut that number in half; if not more. However, this blog isn't in the business of speculating; we deal in data; not ideology.
And therein lies the rub. . .
Of our 6 largest single budget item allocations; the 3 highest are costing us more than the rest of our government combined. This entire "crisis" is based on the fact that someone is not going to get paid if we can't keep racking up debt; therefore we have to decide how we are going to allocate our funding going forward; but of course, that's a whole other story.
(end of Part 3)
Sunday, June 5, 2011
The Debt Ceiling: Life at the Intersection of Metaphors and Mathematics (Part 2)
In case you missed part one of this series, enjoy the link below:
Previously on The Tank Says. . . .
As we pointed out, the United States Federal government is borrowing (by my math; this varies by who rounds where etc.) 38 cents out of every dollar it is spending. For this part of the series, let's use the following logic to put this in real-life, micro level terms:
-Per Capita GDP is usually around $40,000.00; we'll consider this 36,000 for mathematical purposes.
-Monthly balanced annual budgeting = 36,000.00/12 = $3,000.00/month
-Applying Federal Government Style budgeting: 3,000*.62 = $1860.00, 3,000*.38= $1,140.00
So for our purposes; this household is burning through every cent of the 1860.00 they earn in cash (which in terms of gross income assuming a 160 hour work weeks is only 11.25/hour) then running up an additional 1,140.00 in borrowed funds (keeping with the household example; we'll consider this revolving debt such as Credit Cards or a HELOC). Current credit card debt in the United States (as of this writing) is approximately $800,189,000,000.000; which when divided by our population number of $311,384,344 gives us a value of approximately $2,569.78 in credit card debt per U.S. Citizen. For the sake of mathematics we will round this up to $3,000. All three credit bureaus consider carrying balances that are less than half the total limit = good credit score worthy; so lets double this number and say that our household credit card has a $6,000 limit. Now, finally lets finally multiply our $6,000 limit times four (as www,CreditCards.com lists that most American households have 3.5 cards per household. by doing this math; we now have our personal credit limit (aka our Debt Ceiling) at $24,000.
Now, let's just reset out household spending situation:
- We're budgeting to spend $36,000/year or $3,000/month
- We have enough cash to to spend $22,320/year or $1,860/month
- To make up the difference; we have to borrow $13,680/year or $1,140.00/month.
- The amount we can borrow is capped at $24,000.00
For our purposes, let's begin this budget with a starting debt of $0.00 (something that has never been true in the history of United States; BTW) and for mathematical purposes; we'll ignore the interest on the debt; as it is factored into our cash expenditures on the back end. (In other words, we have to make a minimum payment every month with Credit Card Debt; since we're in a zero sum situation with our cash expenditures; the two effectively cancel each other out in this example.)
So, we have $24,000.00 we can borrow and we are doing so at $1,140.00/month. Some 3rd grade math tells us that 24,000.00/1,140 = 21 months is the longest we can operate on these terms. The fancy-pants economics term for this is "unsustainable"; as in operating within this system cannot continue in perpetuity; and in fact will likely overheat and collapse upon itself.
Let's put this unsustainable system in terms of a lifetime:
- Average projected life expectancy in 2010 (per the most recent Census data) is 78 years of age.
- We'll deduct the first 22 years of life as "growing up" for a person who completes college.
- We'll also deduct the last 13 years of life as "Social Security/Medicaid/Medicare" golden parachute years.
-78-(22+13)=78-35= 43 "productive" years
-43*12= 516 months; (21/516)*100 = 4.07%.
Bottom line: if a real person were to implement the same budgeting system that our Federal Government is currently using and current mathematical data and projections; it would be possible for a whopping 4% of their productive lives.
Operating under these terms now has us in a very real situation in terms of our Federal Budget. Essentially; what we're doing at the moment is consistently paying down our debts as tax revenues roll in to LITERALLY is to buy more time. In addition to doing so we're also constantly doing balance transfers across our 4 cards to keep everyone paid until we find someone to give us access to more borrowing power (imagine one or more credit cards giving us a credit limit increase) just to keep the lights on until we can really get serious about finding a better way. But that's a whole other story. . . .
(end of part two)
Previously on The Tank Says. . . .
As we pointed out, the United States Federal government is borrowing (by my math; this varies by who rounds where etc.) 38 cents out of every dollar it is spending. For this part of the series, let's use the following logic to put this in real-life, micro level terms:
-Per Capita GDP is usually around $40,000.00; we'll consider this 36,000 for mathematical purposes.
-Monthly balanced annual budgeting = 36,000.00/12 = $3,000.00/month
-Applying Federal Government Style budgeting: 3,000*.62 = $1860.00, 3,000*.38= $1,140.00
So for our purposes; this household is burning through every cent of the 1860.00 they earn in cash (which in terms of gross income assuming a 160 hour work weeks is only 11.25/hour) then running up an additional 1,140.00 in borrowed funds (keeping with the household example; we'll consider this revolving debt such as Credit Cards or a HELOC). Current credit card debt in the United States (as of this writing) is approximately $800,189,000,000.000; which when divided by our population number of $311,384,344 gives us a value of approximately $2,569.78 in credit card debt per U.S. Citizen. For the sake of mathematics we will round this up to $3,000. All three credit bureaus consider carrying balances that are less than half the total limit = good credit score worthy; so lets double this number and say that our household credit card has a $6,000 limit. Now, finally lets finally multiply our $6,000 limit times four (as www,CreditCards.com lists that most American households have 3.5 cards per household. by doing this math; we now have our personal credit limit (aka our Debt Ceiling) at $24,000.
Now, let's just reset out household spending situation:
- We're budgeting to spend $36,000/year or $3,000/month
- We have enough cash to to spend $22,320/year or $1,860/month
- To make up the difference; we have to borrow $13,680/year or $1,140.00/month.
- The amount we can borrow is capped at $24,000.00
For our purposes, let's begin this budget with a starting debt of $0.00 (something that has never been true in the history of United States; BTW) and for mathematical purposes; we'll ignore the interest on the debt; as it is factored into our cash expenditures on the back end. (In other words, we have to make a minimum payment every month with Credit Card Debt; since we're in a zero sum situation with our cash expenditures; the two effectively cancel each other out in this example.)
So, we have $24,000.00 we can borrow and we are doing so at $1,140.00/month. Some 3rd grade math tells us that 24,000.00/1,140 = 21 months is the longest we can operate on these terms. The fancy-pants economics term for this is "unsustainable"; as in operating within this system cannot continue in perpetuity; and in fact will likely overheat and collapse upon itself.
Let's put this unsustainable system in terms of a lifetime:
- Average projected life expectancy in 2010 (per the most recent Census data) is 78 years of age.
- We'll deduct the first 22 years of life as "growing up" for a person who completes college.
- We'll also deduct the last 13 years of life as "Social Security/Medicaid/Medicare" golden parachute years.
-78-(22+13)=78-35= 43 "productive" years
-43*12= 516 months; (21/516)*100 = 4.07%.
Bottom line: if a real person were to implement the same budgeting system that our Federal Government is currently using and current mathematical data and projections; it would be possible for a whopping 4% of their productive lives.
Operating under these terms now has us in a very real situation in terms of our Federal Budget. Essentially; what we're doing at the moment is consistently paying down our debts as tax revenues roll in to LITERALLY is to buy more time. In addition to doing so we're also constantly doing balance transfers across our 4 cards to keep everyone paid until we find someone to give us access to more borrowing power (imagine one or more credit cards giving us a credit limit increase) just to keep the lights on until we can really get serious about finding a better way. But that's a whole other story. . . .
(end of part two)
Thursday, May 19, 2011
The Debt Ceiling: Life at the Intersection of Metaphors and Mathematics (Part 1)
"You can do the math a thousand ways but you can't erase the facts - "Pink - "I'm Not Dead"
"In God we trust; everyone else must bring data" - W. Edwards Deming - "Out of the Crisis"
The above quotes are some of my favorite ideals as it relates to mathematics; and as such they are fitting starting points for this first part of my "Life at the Intersection of Metaphors and Mathematics" This series (not sure how many parts it will be yet); is inspired out of two simple premises:
1.) America is operating at a level that is completely unsustainable based on the level of revenue collected and the amount of budgeted expenditure.
2.) The spin doctoring from politicians, lobbyists, and many media outlets with regards to item #1 is irresponsible and reprehensible.
Pick a newscaster or a politician and play the drunken blame game; I'm not listing any of the idiocy here because frankly this post is long enough for me to split as it is, and I try my best to make a habit of ignoring idiocy whenever possible. I only mention the practice at all to tell you that the words found throughout this series will not come from opinions based rhetoric or naive idealism; it's going to be pragmatic reality. In other words; we're not going to talk about how things SHOULD be; we're going to talk about how things ARE and what we need to do to keep them this way.
The Ground Rules (aka"raw Data")
- All numbers are being pulled from The United States Debt Clock as of May 19, 2011 in U.S. Dollars.
- All dollar values are rounded to the single millions position.
- The National Debt is a lifetime; gross amount. All other amounts are annualized for fiscal year 2011
- All census/quantitative data is exact as of the time of review for this writing.
- The Monetary Data being used is as follows:
National Debt: $14 trillion, 386 billion, 370 million ($14,386,370,000,000.00)
Federal Spending: 3 trillion, 552 billion, 378 million. ($3,552,378,000,000.00)
Federal Revenue (Taxes Collected): 2 trillion, 187 billion, 242 million ($2,187,242,000,000.00)
Federal Deficit (calculated from above): 1 trillion, 365 billion, 135 million ($1,365,135,000,000.00)
M2 Money Supply: 9 trillion, 68 billion 453 million ($9,068,453,000,000.00)
The Big 6:(see itemized list below): 3 trillion, 63 billion, 954 million
1. Medicare/Medicaid - 813 billion, 270 million ($813,270,000,000.00)
2. Social Security - 710 billion, 944 million, ($710,944,000,000.00)
3. Defense - 697 billion, 797 million, ($697,797,000,000.00)
4. Income Security (i.e. Unemployment): 426 billion, 907 million ($426,907,000,000.00)
5. Interest on National Debt: 207 billion, 709 million ($207,709,000,000.00)
6. Federal Pensions and Benefits: 207 billion, 327 million ($207,327,000,000.00)
-The Census/Quantitative data being used is as follows:
U.S. Population: Three hundred eleven million: (311,384,344)
U.S. Taxpayers: One hundred eleven million; (111,403,195)
U.S. Households: Eighty-One million (81,940,278)
U.S. Retirees and Disability Benefit recipients: Sixty-Five million (65,315,100)
U.S. Food Stamp recipients: Forty-Three million (43,939,257)
A little perspective:
After all that raw data; lets step back and put the situation in terms that actually mean something. The choice to round the the monetary numbers to the single millions position was a calculated move for reasons both practical (as it is the best place to do the math) and psychological; as it is a number that all of us can relate to.
An average ordinary "millionaire" seems to be the person at the crux of the issue from those on the opposing sides. One side operates under a premise that millionaires are soulless; evil people who have prospered by the broken backs and sweat covered brows of the average working man; and has since bought and sold the government to keep their ill gotten gains to themselves for as long as possible. The other side espouses that the millionaires are the lifeblood of existence; "When is the last time a poor person hired someone" they scream loudly and proudly. They are the beneficiaries of mathematics and SOMEONE making the most of the opportunities and gifts bestowed upon them; after all; we all come into the world cold, naked and hungry; and it usually gets worse from there. The one thing that everyone can agree on is that one million dollars is a lot of money; yet it is the absolute smallest amount we are considering for our analysis.
America's Budget
Any financial person worth his salt will tell you the single most important aspect of fiscal success is the budget. A thoughtful; well planned and executed budget will all but guarantee prosperity while a poor budget or a great budget that goes ignored will most assuredly result in poverty for someone that doesn't inherit or win wealth.
For our purposes a budget is very simply a written accounting of X (How much money we have coming in over (Z) period of time vs Y (How much money we are spending over (Z) period of time. Budgets exist in 3 states; a surplus (X-Y>0), a deficit (X-Y<0) or balanced (X-Y=0). The number one objective for almost any financial planner is to balance a budget (as most folks with money issues are operating at a deficit) and slowly grow a surplus. If we take this same approach with the United States of America's budget; here is what we find:
Revenue - Spending = $2,187,242,000,000.00 - $3,552,378,000,000.00 = $ -1,365,135,000,000.00
In plain English; we are spending $1,365,135,000,000.00 more over the course of (Z) than we are earning. (Remember, Z=fiscal year 2011). In terms of percentages; ([R/{R-S}]*100) our deficit is a whopping 62.4% of our revenue generation; meaning to pay all the bills we have racked up in our daily operations, we need to borrow 37.6% of what we are spending.
Put it another way, in real world terms; how long do you think you could survive if you spent every penny you earned; then borrowed another 38% on your credit cards to keep your household functioning; how long could you make it operating that way? What would you do when you couldn't borrow anymore?
This is the question that the United States of America will soon have to answer. . .
(end of Part One)
"In God we trust; everyone else must bring data" - W. Edwards Deming - "Out of the Crisis" The above quotes are some of my favorite ideals as it relates to mathematics; and as such they are fitting starting points for this first part of my "Life at the Intersection of Metaphors and Mathematics" This series (not sure how many parts it will be yet); is inspired out of two simple premises:
1.) America is operating at a level that is completely unsustainable based on the level of revenue collected and the amount of budgeted expenditure.
2.) The spin doctoring from politicians, lobbyists, and many media outlets with regards to item #1 is irresponsible and reprehensible.
Pick a newscaster or a politician and play the drunken blame game; I'm not listing any of the idiocy here because frankly this post is long enough for me to split as it is, and I try my best to make a habit of ignoring idiocy whenever possible. I only mention the practice at all to tell you that the words found throughout this series will not come from opinions based rhetoric or naive idealism; it's going to be pragmatic reality. In other words; we're not going to talk about how things SHOULD be; we're going to talk about how things ARE and what we need to do to keep them this way.
The Ground Rules (aka"raw Data")
- All numbers are being pulled from The United States Debt Clock as of May 19, 2011 in U.S. Dollars.
- All dollar values are rounded to the single millions position.
- The National Debt is a lifetime; gross amount. All other amounts are annualized for fiscal year 2011
- All census/quantitative data is exact as of the time of review for this writing.
- The Monetary Data being used is as follows:
National Debt: $14 trillion, 386 billion, 370 million ($14,386,370,000,000.00)
Federal Spending: 3 trillion, 552 billion, 378 million. ($3,552,378,000,000.00)
Federal Revenue (Taxes Collected): 2 trillion, 187 billion, 242 million ($2,187,242,000,000.00)
Federal Deficit (calculated from above): 1 trillion, 365 billion, 135 million ($1,365,135,000,000.00)
M2 Money Supply: 9 trillion, 68 billion 453 million ($9,068,453,000,000.00)
The Big 6:(see itemized list below): 3 trillion, 63 billion, 954 million
1. Medicare/Medicaid - 813 billion, 270 million ($813,270,000,000.00)
2. Social Security - 710 billion, 944 million, ($710,944,000,000.00)
3. Defense - 697 billion, 797 million, ($697,797,000,000.00)
4. Income Security (i.e. Unemployment): 426 billion, 907 million ($426,907,000,000.00)
5. Interest on National Debt: 207 billion, 709 million ($207,709,000,000.00)
6. Federal Pensions and Benefits: 207 billion, 327 million ($207,327,000,000.00)
-The Census/Quantitative data being used is as follows:
U.S. Population: Three hundred eleven million: (311,384,344)
U.S. Taxpayers: One hundred eleven million; (111,403,195)
U.S. Households: Eighty-One million (81,940,278)
U.S. Retirees and Disability Benefit recipients: Sixty-Five million (65,315,100)
U.S. Food Stamp recipients: Forty-Three million (43,939,257)
A little perspective:
After all that raw data; lets step back and put the situation in terms that actually mean something. The choice to round the the monetary numbers to the single millions position was a calculated move for reasons both practical (as it is the best place to do the math) and psychological; as it is a number that all of us can relate to.
An average ordinary "millionaire" seems to be the person at the crux of the issue from those on the opposing sides. One side operates under a premise that millionaires are soulless; evil people who have prospered by the broken backs and sweat covered brows of the average working man; and has since bought and sold the government to keep their ill gotten gains to themselves for as long as possible. The other side espouses that the millionaires are the lifeblood of existence; "When is the last time a poor person hired someone" they scream loudly and proudly. They are the beneficiaries of mathematics and SOMEONE making the most of the opportunities and gifts bestowed upon them; after all; we all come into the world cold, naked and hungry; and it usually gets worse from there. The one thing that everyone can agree on is that one million dollars is a lot of money; yet it is the absolute smallest amount we are considering for our analysis.
America's Budget
Any financial person worth his salt will tell you the single most important aspect of fiscal success is the budget. A thoughtful; well planned and executed budget will all but guarantee prosperity while a poor budget or a great budget that goes ignored will most assuredly result in poverty for someone that doesn't inherit or win wealth.
For our purposes a budget is very simply a written accounting of X (How much money we have coming in over (Z) period of time vs Y (How much money we are spending over (Z) period of time. Budgets exist in 3 states; a surplus (X-Y>0), a deficit (X-Y<0) or balanced (X-Y=0). The number one objective for almost any financial planner is to balance a budget (as most folks with money issues are operating at a deficit) and slowly grow a surplus. If we take this same approach with the United States of America's budget; here is what we find:
Revenue - Spending = $2,187,242,000,000.00 - $3,552,378,000,000.00 = $ -1,365,135,000,000.00
In plain English; we are spending $1,365,135,000,000.00 more over the course of (Z) than we are earning. (Remember, Z=fiscal year 2011). In terms of percentages; ([R/{R-S}]*100) our deficit is a whopping 62.4% of our revenue generation; meaning to pay all the bills we have racked up in our daily operations, we need to borrow 37.6% of what we are spending.
Put it another way, in real world terms; how long do you think you could survive if you spent every penny you earned; then borrowed another 38% on your credit cards to keep your household functioning; how long could you make it operating that way? What would you do when you couldn't borrow anymore?
This is the question that the United States of America will soon have to answer. . .
(end of Part One)
Monday, March 21, 2011
Et Tu Bruce?
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Let's get the full disclosure issues out of the way:
1.) I am currently working on obtaining my second degree from the University of Tennessee; I love my school and all those who actively fly the flag to bring her pride and glory.
2.) In another life, I worked in sports media, specifically covering UT athletics. As such I am well versed in keeping my personal feelings separate from my objective analysis; so I'm going to write is going to be in that vain, or at least I'm going to try my best.
3.) Though this is an economics blog; there is a LOT of backstory that I need to set up my points to discuss the economics of this decision; as such you just have to wade through some history that is probably well known to most reading; but in the end I think the refresher of history will help make my arguments. Trust me, I'm making this monster as tangent free as I possibly can.
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Those who regularly listen to Knoxville sports talk radio know the roster of callers to the various shows; those who listen RELIGIOUSLY can hit the callers talking points before they even say a word. It's a very tight community. Given the path my life has taken over the last couple of years and my time away, I'm giving credit for glossing former University of Tennessee Men's Basketball Coach Bruce Pearl "The Total Package" to regular caller Hitch; because a more appropriate nickname there has never been.
For those not in the know; the University of Tennessee has always been a football school. Athletic Director Mike Hamilton's predecessor in that job was former Florida Quarterback and UF/UT football coach Doug Dickey. Like many "football coach" AD's of that generation; Dickey believed that the money was made on a gridiron between September and January and anything else that lined the coffers was just beer money. Outside of legendary coach Ray Mears in the 60's and 70's and Don DeVoe in the 80's, UT basketball had little fanfare and recognition. Here's a quick rundown of Men's basketball coaches UT has had on payroll since I moved to Knoxville in 1995.
Kevin O'Neill (3 seasons, 36-47) - Best finish was the NIT first round. Hard nosed defensive coach; swore like a sailor and put a product out on the court that was laughably dull and contrived. After looking over his career record; I'm amazed he keeps getting coaching jobs (including his current one at the University of Southern California; where I hear their football coach had some issues with UT as well. . . hmm); but in the mid 90's he was very much the next big thing. Became a pariah in Knoxville after he bolted for the Northwestern job; which was at best a lateral move, and really in the grand scheme of things; more than a few steps backward.
Jerry Green (4 seasons, 89-36) - Best finish was the sweet 16 in 1999. The Anti-Kevin O'Neill. Green ran an up-tempo hockey on the hardwood offense that was incredibly fun to watch; but something was never quite right but nobody really wanted to say anything about it because the wins were piling up. . . then Hall of Fame Knoxville News Sentinel Writer the late Gary Lundy said what everyone was thinking when he called star point guard Tony Harris a "punk" for sprinting down the court to join in a brawl that started up on the oppositions bench. Why is this a bad thing you may ask? Because Harris was in street clothes at the time, complete with baggy jeans and flashy jewelery, with an "injured ankle". Lundy rightly pointed out that Green had let a player dupe him into a night off when he clearly was fine to play. The wheels came off right then and there. Fan support dwindled as Vol fans realized that there was nothing more to see here and that while Green's style of play might get more Sportscenter highlights; his lack of leadership would mean it would only be a matter of time before the train derailed. The final nail in the coffin was Green responding that UT fans could "Go to K-Mart" for all he cared; when asked about dwindling support for the program. Green "resigned" via letter on March 21st, 2001 after a 22-11 season.
Buzz Peterson (4 Seasons, 61-59) - Best Finish NIT first round twice; though it could be argued that the best thing Buzz Peterson ever brought to Knoxville was his exit. After the PR nightmare that was Jerry Green; Coach Dickey went out yet again and found a coach that was the antithesis of his predecessor. Buzz Peterson was a gentlemen's gentleman. An openly devout Christian who required regular Sunday Church attendance from his players, Buzz was brought in with a promise to restore respectable behavior to a program in dire need of stability and control. Unfortunately, nobody stopped to think that the buzzer MIGHT just be in over his head. Peterson had two main selling points as a coach when Tennessee hired him. First, he had just taken Tulsa to the NIT Championship, beating two SEC teams in the process in Ole Miss and Alabama. Secondly, he was Michael Jordan's roommate at North Carolina. . . in other words, this hire was given about as much thought process as; well as an old football coach with one foot out the door could be bothered to make. Granted, Wikipedia wasn't around in 2001; as most of the free world was still on dial up; but I know that media guides and almanacs existed; and had Coach Dickey taken the two seconds to consider that the 2000 Tulsa Men's basketball team was an Elite 8 team (coached by current Kansas Head Coach Bill Self), so the NIT championship a year later was a bit of a downer. (While he was at it, Coach Dickey could have observed that the buzzer himself got waxed by Ohio State while coaching at Appalachian St. in that same 2000 tournament) Secondly, it really seems silly now to think back on it, but there were honest to God people who thought that Buzz was going to use the whole "I used to sleep in the same room as MJ" line to fill UT's roster with McDonald's All-Americans. Did I mention that UT has always been a football school? New Athletic Director Mike Hamilton finally put Buzz out of everyone's misery in 2005 after a 14-17 season. The consensus opinion throughout the Big Orange Nation was the same; Buzz was a great guy who had no business coaching on the SEC level (he's since bounced around mid majors through the southeast, and serves as a special advisor to the Charlotte Bobcats. . . he used to room with their owner you know!)
Bruce Pearl - (6 seasons, 145-61) - Best Finish - Elite 8. And that brings us to today. "The Total Package" earned his nickname because he is a master salesmen. He immediately indoctrinated himself to the Tennessee family and let it be known this was his destination job. Off the court he could be found in standing on tables in the cafeteria firing up the student body or at a Lady Vols tournament game with his shirt off with a giant letter V painted on his chest. On the court; he took what little talent was left in the cupboard by the Peterson regime and turned them into winners. Talented players C.J. Watson and Chris Lofton played with the intensity to match their talents; and long standing BGWG (Big Goofy White Guy) Dane Bradshaw suddenly became the basketball equivalent of a utility player showing incredibly hustle, work ethic and teamwork. When the Volunteer faithful saw largely the same group of players that went 14-17 the year before finish 22-8 and win their division; the rout was on. Before anyone knew it; Thompson Bowling Arena (long criticized as being cavernous, over-sized, and sterile) was undergoing renovations that made it into one of the best home court advantages in the nation. The Pratt Paviliion Basketball practice facility was built from the ground up; and is one of the more impressive structures on campus. With unusually bad seasons in Football and the Lane Kiffin debacle; Tennessee fans pushed themselves even more into what was becoming incredibly easy; accepting the fact that the University of Tennessee was now a basketball school; nobody was even thinking about the other shoe that had not even begun to drop.
In September, 2010 an impromptu basketball press conference was called. Bruce Pearl had admitted to not only hosting a backyard BBQ for players and parents he was recruiting at the time (none of which came to Tennessee), but lying to NCAA officials when asked directly about it. There were also incidents of contact via telephone during dead periods; again which Pearl and his staff lied about. Tennessee penalized the coaching staff by salary reductions and limitations on recruiting. The southeastern conference later added an 8 conference game suspension for Pearl, effectively barring him from team activities on gamedays. Most Tennessee fans were unconcerned to begin with. The pay cut was a little light probably (not to mention beneficial to the Tennessee's bottom line) but the 8 game SEC suspension surely would settle the bill; if not be a little excessive in hindsight. How wrong we would be. As more and more time went on the mysterious "Letter of Allegation" that was constantly en route from the NCAA investigative officers. As it turns out, the longer the wait, the more nervous everyone involved became. We all got unnerved last week when Jimmy Hyams asked Mike Hamilton "will Bruce Pearl be the coach next year" and Mike's response wasn't "He's our basketball coach." No elaboration, no explanation; just plain and simple we're with him and that's it. Instead Mike hemmed and hawed and went on about how he'd be evaluated after the season; which as it turned out was less than 48 hours later when the team got blown out by 30 points by Michigan. The weekend was filled with Facebook groups and Twitter bombs flying all over of the Volunteer fans swearing allegiance; and vowing that whatever sanctions came from the NCAA we'd deal with them together as a family. However, in the end it wasn't enough as University Chancellor Jimmy Cheek let word leak to key boosters that Bruce was out.
The Economics of the Decision
The SEC - Let's go ahead and get the conspiracy theories out of the way. The speculation is that the SEC Commissioner Mike Slive has had a bulls-eye on Hamilton's back for the way the Lane Kiffin fiasco STARTED. Slive was delighted to see Ed Orgeron out of the league when Ole Miss dismissed him as head coach; and didn't really want him back in an SEC program. It didn't help matters when Kiffin and his staff all turned out to be walking secondary violations. Considering Hamilton was on extremely thin ice after the Kiffin hire and replacing respected but under-performing Baseball coach Rod DelMonico with Todd Raleigh, who has shown no signs of building anything of substance in his time here, Slive could easily force the powers that be at Tennessee to make a change by taking out the only leg Hamilton had to stand on during his time as Athletic Director. . . Bruce Pearl. (Side Note, if you buy into this theory, there is strong evidence of success, as many of the Volunteer fans are calling for Hamilton's ouster, and rumor has it that Cheek has wheels in motion)
The NCAA - Conspiracy theory number two. Every sporting league has it's breadwinner franchise. Baseball is better when the Yankees and Red Sox are good (and the Cubs are bad); David Stern would LOVE for the Lakers to play either the Knicks or Celtics every year; and though we all hate it, the Dallas Cowboys are America's team for a reason (I reluctantly admit, I kind of miss the 49er's being the dominant franchise in the NFC). Anyway, in NCAA basketball; the breadwinner programs are Duke (Durham, NC), the University of North Carolina (Chapel Hill, NC), the University of Kentucky (Lexington, KY), and Indiana University (Bloomington, IN). IU is already mired deep in a quagmire of irrelevance. Kentucky has made a deal with the devil to delay the same inevitable fate (ask UMASS and Memphis fans how well they like life post Calipari). As for the Tar Heels, five words: Bill Guthridge then Matt Doherty. All of these schools are close enough to have realistic border wars with a nationally prominent Tennessee program with first class facilities and a track record of success. These factors combined with the above issues from the SEC and Bruce's enemies within the power structure of the NCAA over ratting out Jimmy Collins years back (an incident which lead to him being blackballed from Division I and toiling at Southern Indiana before getting the opportunity at UW-Milwaukee).
The University of Tennessee - Normally when a head coach is fired; the benefit to the program is in the long run; especially in Basketball where one or two players have an immediate impact (hence the reason the NBA is the only major sports league that uses a draft lottery to avoid teams throwing games). The logic is that the players have either tuned out the coach and their assistants; so the new coaches are expected to re-energize the inherited players. Recruits are largely considered a wash, as those committed to the old program/school are probably about as likely to follow the new coach to the new school as those committed to the old program are to stick around or follow suit, and even if the team making the change ends up totally out in the cold; the optimism of a change in leadership usually boils over into a mentality along the lines of "Hey, that's just more scholarships for next year!" However, as we've discussed in depth; this is not your ordinary firing; as really the only logical reason to keep Bruce is long run (more on this when I discuss the economics of the fan below). The biggest concern was that the NCAA was going to administer a penalty of "with cause" to Bruce; which essentially is a one man death penalty. While the NCAA doesn't have the jurisdiction to fire the employee of a member institution; they can force the institution to explain themselves at every opportunity as to why they feel justified in employing someone whose presence is believed to be detrimental to the sport. In short, they can make it to where it's just not worth it to keep the employee on. Anytime the words "with cause" are even hinted at, the member institution has balked; because the NCAA is the mother of all monopolies. Without the infrastructure the NCAA provides; your program ceases to exist; as any fan of the SMU Mustangs who is old enough to remember 1989 will happily tell you. The other factors are inconsequential by comparison; but in the short term there will be some monetary gain; as the University will regain compensation packages previously allocated to contracts that are no longer in place, plus years of prosperity will give them some cushion on the potential fan blowback. Their costs however, are going to be huge; as Tennessee will now have some major PR work to do after shoving Coach Pearl under the bus in this incident. The likely replacement candidates will be some hot shot young guy who is taking care of business in the tournament. It's nice to remember that's how Bruce got hired at UT; but for every Bruce Pearl that works out; there is a Stan Heath, a John Pelfrey, a Jeff Lebo or a Buzz Peterson. . .
Bruce Pearl - Ironically, for the guy being fired; he's actually the one who comes out with the most upside. He'll end up with a nice cash settlement and if it turns out he by some chance doesn't end up with a "with cause" tag attached (God help UT if that happens); he'll be one of the hottest commodities in college basketball at any level. If he IS saddled with the label then he gets a two year vacation to see how his assistant coaching tree develops (how Tony Jones isn't already hired somewhere is a mystery, and if things hadn't gone down at Tennessee the way they had, I'd say he'd be ideal here; but he'd never betray Bruce like that) and see how things play out. He reportedly has good connections with the Haslam family (one of which currently resides in the governor's mansion) and has worked long and hard to restore the university's relationship with Ernie Grunfeld (former Vol and current general manager of the NBA's Washington Wizards), so much so that he was rumored to be a candidate for their recently open head coaching job the last time around. In short, while Bruce may not be UT's basketball coach anymore, he can still be a coach somewhere if he wants to, and if he doesn't he can be a father and husband for a while until he figures something out. His old transgressions are ancient history; and at the end of the day these transgressions aren't that big a deal. He had a BBQ, made some extra phone calls, and then lied about it to people who don't like being lied to. He's already come back from worse.
The University of Tennessee Basketball Fans - I said while commenting on a friends Facebook status that this didn't feel like a coach was being fired; it felt like a family member died. 4 hours and 40,000 characters later; I still feel that way, probably more so. This seems so unfair to us. All of the factors above don't mean anything to us. Bruce Pearl did the unthinkable; he made us buy in all the way. Those who have been screaming to the heavens that Tennessee has everything it needs to be a real player in basketball have had their faith rewarded while those who just love their university have had another reason to proudly proclaim our love and support for the school on a hallowed hill in Tennessee. Jerry Green taught us that there was more to the game than wins and losses while Buzz Peterson reminded us that nice guys finish last; what will the next guy teach us? What lesson can be worth this feeling of loss permeating throughout the community; and from an economic standpoint; who can the powers that be bring in here that will make us forget that being a perfect fit sometimes isn't even good enough? Who can make us put ourselves out there again?
Godspeed Coach Pearl. I wish you the best of blessings, and I feel safe in speaking for everyone who has made it this far down in this monstrosity of a writing, that wherever you go and whatever you do from here we'll be cheering and hoping for the best. You made mistakes, you've owned up to them; and no matter where you go; you are leaving as one of us, and no matter what, we are proud of you.
And that's what the Tank says. . .
Let's get the full disclosure issues out of the way:
1.) I am currently working on obtaining my second degree from the University of Tennessee; I love my school and all those who actively fly the flag to bring her pride and glory.
2.) In another life, I worked in sports media, specifically covering UT athletics. As such I am well versed in keeping my personal feelings separate from my objective analysis; so I'm going to write is going to be in that vain, or at least I'm going to try my best.
3.) Though this is an economics blog; there is a LOT of backstory that I need to set up my points to discuss the economics of this decision; as such you just have to wade through some history that is probably well known to most reading; but in the end I think the refresher of history will help make my arguments. Trust me, I'm making this monster as tangent free as I possibly can.
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Those who regularly listen to Knoxville sports talk radio know the roster of callers to the various shows; those who listen RELIGIOUSLY can hit the callers talking points before they even say a word. It's a very tight community. Given the path my life has taken over the last couple of years and my time away, I'm giving credit for glossing former University of Tennessee Men's Basketball Coach Bruce Pearl "The Total Package" to regular caller Hitch; because a more appropriate nickname there has never been.
For those not in the know; the University of Tennessee has always been a football school. Athletic Director Mike Hamilton's predecessor in that job was former Florida Quarterback and UF/UT football coach Doug Dickey. Like many "football coach" AD's of that generation; Dickey believed that the money was made on a gridiron between September and January and anything else that lined the coffers was just beer money. Outside of legendary coach Ray Mears in the 60's and 70's and Don DeVoe in the 80's, UT basketball had little fanfare and recognition. Here's a quick rundown of Men's basketball coaches UT has had on payroll since I moved to Knoxville in 1995.
Kevin O'Neill (3 seasons, 36-47) - Best finish was the NIT first round. Hard nosed defensive coach; swore like a sailor and put a product out on the court that was laughably dull and contrived. After looking over his career record; I'm amazed he keeps getting coaching jobs (including his current one at the University of Southern California; where I hear their football coach had some issues with UT as well. . . hmm); but in the mid 90's he was very much the next big thing. Became a pariah in Knoxville after he bolted for the Northwestern job; which was at best a lateral move, and really in the grand scheme of things; more than a few steps backward.
Jerry Green (4 seasons, 89-36) - Best finish was the sweet 16 in 1999. The Anti-Kevin O'Neill. Green ran an up-tempo hockey on the hardwood offense that was incredibly fun to watch; but something was never quite right but nobody really wanted to say anything about it because the wins were piling up. . . then Hall of Fame Knoxville News Sentinel Writer the late Gary Lundy said what everyone was thinking when he called star point guard Tony Harris a "punk" for sprinting down the court to join in a brawl that started up on the oppositions bench. Why is this a bad thing you may ask? Because Harris was in street clothes at the time, complete with baggy jeans and flashy jewelery, with an "injured ankle". Lundy rightly pointed out that Green had let a player dupe him into a night off when he clearly was fine to play. The wheels came off right then and there. Fan support dwindled as Vol fans realized that there was nothing more to see here and that while Green's style of play might get more Sportscenter highlights; his lack of leadership would mean it would only be a matter of time before the train derailed. The final nail in the coffin was Green responding that UT fans could "Go to K-Mart" for all he cared; when asked about dwindling support for the program. Green "resigned" via letter on March 21st, 2001 after a 22-11 season.
Buzz Peterson (4 Seasons, 61-59) - Best Finish NIT first round twice; though it could be argued that the best thing Buzz Peterson ever brought to Knoxville was his exit. After the PR nightmare that was Jerry Green; Coach Dickey went out yet again and found a coach that was the antithesis of his predecessor. Buzz Peterson was a gentlemen's gentleman. An openly devout Christian who required regular Sunday Church attendance from his players, Buzz was brought in with a promise to restore respectable behavior to a program in dire need of stability and control. Unfortunately, nobody stopped to think that the buzzer MIGHT just be in over his head. Peterson had two main selling points as a coach when Tennessee hired him. First, he had just taken Tulsa to the NIT Championship, beating two SEC teams in the process in Ole Miss and Alabama. Secondly, he was Michael Jordan's roommate at North Carolina. . . in other words, this hire was given about as much thought process as; well as an old football coach with one foot out the door could be bothered to make. Granted, Wikipedia wasn't around in 2001; as most of the free world was still on dial up; but I know that media guides and almanacs existed; and had Coach Dickey taken the two seconds to consider that the 2000 Tulsa Men's basketball team was an Elite 8 team (coached by current Kansas Head Coach Bill Self), so the NIT championship a year later was a bit of a downer. (While he was at it, Coach Dickey could have observed that the buzzer himself got waxed by Ohio State while coaching at Appalachian St. in that same 2000 tournament) Secondly, it really seems silly now to think back on it, but there were honest to God people who thought that Buzz was going to use the whole "I used to sleep in the same room as MJ" line to fill UT's roster with McDonald's All-Americans. Did I mention that UT has always been a football school? New Athletic Director Mike Hamilton finally put Buzz out of everyone's misery in 2005 after a 14-17 season. The consensus opinion throughout the Big Orange Nation was the same; Buzz was a great guy who had no business coaching on the SEC level (he's since bounced around mid majors through the southeast, and serves as a special advisor to the Charlotte Bobcats. . . he used to room with their owner you know!)
Bruce Pearl - (6 seasons, 145-61) - Best Finish - Elite 8. And that brings us to today. "The Total Package" earned his nickname because he is a master salesmen. He immediately indoctrinated himself to the Tennessee family and let it be known this was his destination job. Off the court he could be found in standing on tables in the cafeteria firing up the student body or at a Lady Vols tournament game with his shirt off with a giant letter V painted on his chest. On the court; he took what little talent was left in the cupboard by the Peterson regime and turned them into winners. Talented players C.J. Watson and Chris Lofton played with the intensity to match their talents; and long standing BGWG (Big Goofy White Guy) Dane Bradshaw suddenly became the basketball equivalent of a utility player showing incredibly hustle, work ethic and teamwork. When the Volunteer faithful saw largely the same group of players that went 14-17 the year before finish 22-8 and win their division; the rout was on. Before anyone knew it; Thompson Bowling Arena (long criticized as being cavernous, over-sized, and sterile) was undergoing renovations that made it into one of the best home court advantages in the nation. The Pratt Paviliion Basketball practice facility was built from the ground up; and is one of the more impressive structures on campus. With unusually bad seasons in Football and the Lane Kiffin debacle; Tennessee fans pushed themselves even more into what was becoming incredibly easy; accepting the fact that the University of Tennessee was now a basketball school; nobody was even thinking about the other shoe that had not even begun to drop.
In September, 2010 an impromptu basketball press conference was called. Bruce Pearl had admitted to not only hosting a backyard BBQ for players and parents he was recruiting at the time (none of which came to Tennessee), but lying to NCAA officials when asked directly about it. There were also incidents of contact via telephone during dead periods; again which Pearl and his staff lied about. Tennessee penalized the coaching staff by salary reductions and limitations on recruiting. The southeastern conference later added an 8 conference game suspension for Pearl, effectively barring him from team activities on gamedays. Most Tennessee fans were unconcerned to begin with. The pay cut was a little light probably (not to mention beneficial to the Tennessee's bottom line) but the 8 game SEC suspension surely would settle the bill; if not be a little excessive in hindsight. How wrong we would be. As more and more time went on the mysterious "Letter of Allegation" that was constantly en route from the NCAA investigative officers. As it turns out, the longer the wait, the more nervous everyone involved became. We all got unnerved last week when Jimmy Hyams asked Mike Hamilton "will Bruce Pearl be the coach next year" and Mike's response wasn't "He's our basketball coach." No elaboration, no explanation; just plain and simple we're with him and that's it. Instead Mike hemmed and hawed and went on about how he'd be evaluated after the season; which as it turned out was less than 48 hours later when the team got blown out by 30 points by Michigan. The weekend was filled with Facebook groups and Twitter bombs flying all over of the Volunteer fans swearing allegiance; and vowing that whatever sanctions came from the NCAA we'd deal with them together as a family. However, in the end it wasn't enough as University Chancellor Jimmy Cheek let word leak to key boosters that Bruce was out.
The Economics of the Decision
The SEC - Let's go ahead and get the conspiracy theories out of the way. The speculation is that the SEC Commissioner Mike Slive has had a bulls-eye on Hamilton's back for the way the Lane Kiffin fiasco STARTED. Slive was delighted to see Ed Orgeron out of the league when Ole Miss dismissed him as head coach; and didn't really want him back in an SEC program. It didn't help matters when Kiffin and his staff all turned out to be walking secondary violations. Considering Hamilton was on extremely thin ice after the Kiffin hire and replacing respected but under-performing Baseball coach Rod DelMonico with Todd Raleigh, who has shown no signs of building anything of substance in his time here, Slive could easily force the powers that be at Tennessee to make a change by taking out the only leg Hamilton had to stand on during his time as Athletic Director. . . Bruce Pearl. (Side Note, if you buy into this theory, there is strong evidence of success, as many of the Volunteer fans are calling for Hamilton's ouster, and rumor has it that Cheek has wheels in motion)
The NCAA - Conspiracy theory number two. Every sporting league has it's breadwinner franchise. Baseball is better when the Yankees and Red Sox are good (and the Cubs are bad); David Stern would LOVE for the Lakers to play either the Knicks or Celtics every year; and though we all hate it, the Dallas Cowboys are America's team for a reason (I reluctantly admit, I kind of miss the 49er's being the dominant franchise in the NFC). Anyway, in NCAA basketball; the breadwinner programs are Duke (Durham, NC), the University of North Carolina (Chapel Hill, NC), the University of Kentucky (Lexington, KY), and Indiana University (Bloomington, IN). IU is already mired deep in a quagmire of irrelevance. Kentucky has made a deal with the devil to delay the same inevitable fate (ask UMASS and Memphis fans how well they like life post Calipari). As for the Tar Heels, five words: Bill Guthridge then Matt Doherty. All of these schools are close enough to have realistic border wars with a nationally prominent Tennessee program with first class facilities and a track record of success. These factors combined with the above issues from the SEC and Bruce's enemies within the power structure of the NCAA over ratting out Jimmy Collins years back (an incident which lead to him being blackballed from Division I and toiling at Southern Indiana before getting the opportunity at UW-Milwaukee).
The University of Tennessee - Normally when a head coach is fired; the benefit to the program is in the long run; especially in Basketball where one or two players have an immediate impact (hence the reason the NBA is the only major sports league that uses a draft lottery to avoid teams throwing games). The logic is that the players have either tuned out the coach and their assistants; so the new coaches are expected to re-energize the inherited players. Recruits are largely considered a wash, as those committed to the old program/school are probably about as likely to follow the new coach to the new school as those committed to the old program are to stick around or follow suit, and even if the team making the change ends up totally out in the cold; the optimism of a change in leadership usually boils over into a mentality along the lines of "Hey, that's just more scholarships for next year!" However, as we've discussed in depth; this is not your ordinary firing; as really the only logical reason to keep Bruce is long run (more on this when I discuss the economics of the fan below). The biggest concern was that the NCAA was going to administer a penalty of "with cause" to Bruce; which essentially is a one man death penalty. While the NCAA doesn't have the jurisdiction to fire the employee of a member institution; they can force the institution to explain themselves at every opportunity as to why they feel justified in employing someone whose presence is believed to be detrimental to the sport. In short, they can make it to where it's just not worth it to keep the employee on. Anytime the words "with cause" are even hinted at, the member institution has balked; because the NCAA is the mother of all monopolies. Without the infrastructure the NCAA provides; your program ceases to exist; as any fan of the SMU Mustangs who is old enough to remember 1989 will happily tell you. The other factors are inconsequential by comparison; but in the short term there will be some monetary gain; as the University will regain compensation packages previously allocated to contracts that are no longer in place, plus years of prosperity will give them some cushion on the potential fan blowback. Their costs however, are going to be huge; as Tennessee will now have some major PR work to do after shoving Coach Pearl under the bus in this incident. The likely replacement candidates will be some hot shot young guy who is taking care of business in the tournament. It's nice to remember that's how Bruce got hired at UT; but for every Bruce Pearl that works out; there is a Stan Heath, a John Pelfrey, a Jeff Lebo or a Buzz Peterson. . .
Bruce Pearl - Ironically, for the guy being fired; he's actually the one who comes out with the most upside. He'll end up with a nice cash settlement and if it turns out he by some chance doesn't end up with a "with cause" tag attached (God help UT if that happens); he'll be one of the hottest commodities in college basketball at any level. If he IS saddled with the label then he gets a two year vacation to see how his assistant coaching tree develops (how Tony Jones isn't already hired somewhere is a mystery, and if things hadn't gone down at Tennessee the way they had, I'd say he'd be ideal here; but he'd never betray Bruce like that) and see how things play out. He reportedly has good connections with the Haslam family (one of which currently resides in the governor's mansion) and has worked long and hard to restore the university's relationship with Ernie Grunfeld (former Vol and current general manager of the NBA's Washington Wizards), so much so that he was rumored to be a candidate for their recently open head coaching job the last time around. In short, while Bruce may not be UT's basketball coach anymore, he can still be a coach somewhere if he wants to, and if he doesn't he can be a father and husband for a while until he figures something out. His old transgressions are ancient history; and at the end of the day these transgressions aren't that big a deal. He had a BBQ, made some extra phone calls, and then lied about it to people who don't like being lied to. He's already come back from worse.
The University of Tennessee Basketball Fans - I said while commenting on a friends Facebook status that this didn't feel like a coach was being fired; it felt like a family member died. 4 hours and 40,000 characters later; I still feel that way, probably more so. This seems so unfair to us. All of the factors above don't mean anything to us. Bruce Pearl did the unthinkable; he made us buy in all the way. Those who have been screaming to the heavens that Tennessee has everything it needs to be a real player in basketball have had their faith rewarded while those who just love their university have had another reason to proudly proclaim our love and support for the school on a hallowed hill in Tennessee. Jerry Green taught us that there was more to the game than wins and losses while Buzz Peterson reminded us that nice guys finish last; what will the next guy teach us? What lesson can be worth this feeling of loss permeating throughout the community; and from an economic standpoint; who can the powers that be bring in here that will make us forget that being a perfect fit sometimes isn't even good enough? Who can make us put ourselves out there again?
Godspeed Coach Pearl. I wish you the best of blessings, and I feel safe in speaking for everyone who has made it this far down in this monstrosity of a writing, that wherever you go and whatever you do from here we'll be cheering and hoping for the best. You made mistakes, you've owned up to them; and no matter where you go; you are leaving as one of us, and no matter what, we are proud of you.
And that's what the Tank says. . .
Friday, January 7, 2011
The Economy: Not Just Fun and Games. . .
In this inaugural blog post; I'd be remiss if I didn't begin by hoping everyone had a blessed holiday season and offering wishes of nothing but the most abundant blessings of peace and prosperity in 2011. I truly hope that the very best of 2010 makes up the very worst of 2011 and beyond.
Anyone who has been paying attention for the last few years hasn't been able to get away from ideas like "Capitalism", "Socialism", "Communism" and the new personal favorite; "Marxism". Pundits on all sides of the political and economic spectrum have not been afraid to toss these terms about freely; however if anyone has actually taken the time to EXPLAIN these systems and exactly why these ideologies are important to have at least a basic understanding of in order to at least determine what is and is not valued when developing personal belief structures. Given the number of columns; YouTube videos; blog postings; TV segments etc devoted to calling persons on the other side of the argument names ranging from ill-informed zealots to idealogical windbags; but still from what I've seen; nobody has taken the time to really explain WHAT each of these labels means and why they are good or bad. I was pondering upon this recently and then the solution hit me. . . .
Monopoly. . . (yes; that Monopoly
)
In the interest of full disclosure; my high school marketing teacher used Monopoly to to educate our class about the differences between these economic systems several years ago; however I now find flaws in her methods at the time which were essentially as follows:
Captialism: Play Monopoly without deviation to the standard rules.
Socialism: Players are not allowed to purchase the utility tiles or the railroads.
Communism: Players are not allowed to purchase anything; and pay the banker any rents due for landing on a property.
At the high school level; this is actually a fairly effective teaching process; however it's not quite accurate and has the added benefit of making Socialism "not that bad" (insert indoctrination conspiracy commentary here) because its not that different from capitalism. Well dear reader; nothing could be further from the truth. Furthermore, communism is portrayed for the terrible atrocity it is; but not in it's proper scale. I intend to remedy both of these errors with this post.
Communist Monopoly
The owner of the game issues the playing pieces to the players by whatever criteria they see fit (Wanna be the racecar? TFB, you get the thimble and you like it!). The players then take turns rolling the dice and moving their pieces around the board. There will be no purchasing or trading of properties. However, this doesn't matter because there will be no rent collected (even by the banker) because housing is a basic and essential need which is provided in the communist system. Likewise there will be no payments rendered for traveling on the railroads or paying the utilities. The Chance and Community Chest cards are pulled from the board and the cost to get out of jail is every dollar you have. Finally if you complain about the game being "boring", "unfair", "rigged" or demand to quit; you are shot execution style through the back of the head.
So lets look at what this game essentially is. Roll the dice over and over again until you pass go then collect your $200 each turn. However, the money itself is USELESS for you as the only purpose it serves is to get you out of jail should you end up there; which in and of itself is an interesting choice because which would you rather do; sit in a cell counting your a resource you can do nothing with or part with said worthless resource for "freedom" which consists of mindlessly sleepwalking around a board. Money has no value; life has no purpose. Man's existence is reduced to nil; he's a cog in the machine. The fact that he's "poor" means nothing because he cares not for money because it means nothing to him; however it means EVERYTHING to the banker because they realize the value of having government wealth when dealing with other governments.
Socialist Monopoly
Every player in the game chips in an equal amount of real cash to buy the game and the game is only opened at a neutral site so as to not give any one player an advantage. All players must submit to an IQ test before being allowed to play, the results of which are public knowledge to every other player. The person with the highest IQ is considered the tie-breaker in the event of unresolvable dispute. All matters must be voted upon by the players. Who gets to be the banker? Players hold an election. Wanna stake a claim to the doggie token? Better be ready to start wheeling and dealing to barter influence to get what you want. Every property is sold at auction once landed upon (though theoretically this can be done at the start of the game; the players can hold it to a vote to decide I suppose) and all trades must be approved by a vote of all other players. Fees and rewards paid to/by chance and community chance cards are divided equally among all players; as are fees to get out of jail. Finally, each player pays a percentage of their salary back to the banker (based on their cash and property holdings) each trip past GO! for the upkeep of the railroads, utilities, "free" parking and the jailhouse (naturally the railroads and utilities are nationalized; and not for sale).
If there is any game less fun to play than the communist Monopoly; Socialist Monopoly has nailed it. Imagine how long this game will take to play and the piles of ledger books that will be piling up just a few turns in. Before too long; the net result is the same as the communist Monopoly a bunch of people handing useless paper back and forth; settling into a groove that the system will never let them out of. How exactly is player A going to trade Park Place to Player B (who has Boardwalk) in exchange for New York and Tennessee Ave (to complete player A's orange block) when the whims and desires of every other player at the board have to be met because "It's for the good of the game". In short; you have people who are not involved in the transaction meddling and interfering with the affairs of two parties who are trying to conduct business. The game becomes a completely muddled quagmire that is completely unmanageable and overly complex.
Capitalist Monopoly
Play Monopoly. The owner of the game can set whatever house rules they like (side note, my personal House Rules are pretty damn close to perfect IMHO; but that's another post); anyone who does not want to play by those rules is free to not participate in the market of the Monopoly game. As it is, Monopoly is a pretty damn solid example of free market capitalism. The owner of the game setting house rules (within reason) doesn't necessarily give him/her a decisive advantage over the other players. This is the beauty of capitalism; it's the only TRUE system where the potential exists for an individual entity to; for lack of a better word, WIN. In all other versions of the game; not only does nobody win; at the end of the day, EVERYONE loses. Case in point; get a group of X people together and play Y number of games; I'm willing to bet that the likelihood of unique winners for the number of games is greater than the number of repeat winners (unless there is a Monopoly MASTER of something within the group). There is a clear cut winner and losers and any time there are winners and losers; you have inequality; and everyone being equally impoverished is preferable to those who have the skill; the decision making; and the just plain old fashioned good fortune to achieve greatness being free to do so because "It's not fair".
Those who disapprove of the capitalist system will use my Monopoly example for something like this. Every game of Monopoly ends when someone LITERALLY owns the entire board (as players are eliminated the person who eliminated them takes over their assets). If the eliminated players were to be replaced with new players at the end of a completed game; their "game" will be basically rounding the board paying the winner of the previous game; the only way to have a competitive system is for the banker to eventually put everything back in the box and start over; which leads us to the final variation of the game. . .
Marxist Monopoly
Marxist Monopoly cannot be played fresh; it can only be played after a game of Capitalist Monopoly; as Marx himself has long declared his system only works when built upon the carcass of failed capitalism. The Marxist Monopoly rule will be an organized redistribution of wealth from the person who won the last game to the new players joining the table. Something to the effect of; at the end of each turn; the person with the highest worth in properties and cash reallocates an equal portion of his assets to the person with the lowest worth to make the lowest worth player equal with the 2nd lowest; and so on and so forth until all are of equal net value. "From each according to his ability, to each according to his need"
Some reading are at least thinking "Wait, that doesn't seem so bad, Marx might be on to something there!" If this describes you, do me a favor and bite your tongue. The problem with Marxism is that it (much like communism and socialism) removes the victory condition. If you are constantly shifting assets and resources amongst the table based on need rather than ability; there is only one way to continue to gain; and that is to grow your need and reduce your ability. Eventually this system means that everyone will be the one who has the greatest amount of ability will be penalized for the sake of those who have the greatest amount of need. Greatness and achievement are penalized; talents and abilities are not gifts from God; but rather curses that are exploited for "the greater good".
So there you have it. The best examples I can offer of the different economic ideologies being slung around by everyone with a keyboard; a camera or a microphone. Is Capitalism perfect? No of course not; there will always be issues of dishonest and unethical firms that complicate the free market; but in my opinion; it's the best option for those who are motivated to keep rolling the dice and collecting 200 every trip around the board. In other words; capitalism is the way to go for those that have the ability, the drive, and the ethic to keep playing the game.
That's what The Tank Says. . .
Anyone who has been paying attention for the last few years hasn't been able to get away from ideas like "Capitalism", "Socialism", "Communism" and the new personal favorite; "Marxism". Pundits on all sides of the political and economic spectrum have not been afraid to toss these terms about freely; however if anyone has actually taken the time to EXPLAIN these systems and exactly why these ideologies are important to have at least a basic understanding of in order to at least determine what is and is not valued when developing personal belief structures. Given the number of columns; YouTube videos; blog postings; TV segments etc devoted to calling persons on the other side of the argument names ranging from ill-informed zealots to idealogical windbags; but still from what I've seen; nobody has taken the time to really explain WHAT each of these labels means and why they are good or bad. I was pondering upon this recently and then the solution hit me. . . .
Monopoly. . . (yes; that Monopoly
)In the interest of full disclosure; my high school marketing teacher used Monopoly to to educate our class about the differences between these economic systems several years ago; however I now find flaws in her methods at the time which were essentially as follows:
Captialism: Play Monopoly without deviation to the standard rules.
Socialism: Players are not allowed to purchase the utility tiles or the railroads.
Communism: Players are not allowed to purchase anything; and pay the banker any rents due for landing on a property.
At the high school level; this is actually a fairly effective teaching process; however it's not quite accurate and has the added benefit of making Socialism "not that bad" (insert indoctrination conspiracy commentary here) because its not that different from capitalism. Well dear reader; nothing could be further from the truth. Furthermore, communism is portrayed for the terrible atrocity it is; but not in it's proper scale. I intend to remedy both of these errors with this post.
Communist Monopoly
The owner of the game issues the playing pieces to the players by whatever criteria they see fit (Wanna be the racecar? TFB, you get the thimble and you like it!). The players then take turns rolling the dice and moving their pieces around the board. There will be no purchasing or trading of properties. However, this doesn't matter because there will be no rent collected (even by the banker) because housing is a basic and essential need which is provided in the communist system. Likewise there will be no payments rendered for traveling on the railroads or paying the utilities. The Chance and Community Chest cards are pulled from the board and the cost to get out of jail is every dollar you have. Finally if you complain about the game being "boring", "unfair", "rigged" or demand to quit; you are shot execution style through the back of the head.
So lets look at what this game essentially is. Roll the dice over and over again until you pass go then collect your $200 each turn. However, the money itself is USELESS for you as the only purpose it serves is to get you out of jail should you end up there; which in and of itself is an interesting choice because which would you rather do; sit in a cell counting your a resource you can do nothing with or part with said worthless resource for "freedom" which consists of mindlessly sleepwalking around a board. Money has no value; life has no purpose. Man's existence is reduced to nil; he's a cog in the machine. The fact that he's "poor" means nothing because he cares not for money because it means nothing to him; however it means EVERYTHING to the banker because they realize the value of having government wealth when dealing with other governments.
Socialist Monopoly
Every player in the game chips in an equal amount of real cash to buy the game and the game is only opened at a neutral site so as to not give any one player an advantage. All players must submit to an IQ test before being allowed to play, the results of which are public knowledge to every other player. The person with the highest IQ is considered the tie-breaker in the event of unresolvable dispute. All matters must be voted upon by the players. Who gets to be the banker? Players hold an election. Wanna stake a claim to the doggie token? Better be ready to start wheeling and dealing to barter influence to get what you want. Every property is sold at auction once landed upon (though theoretically this can be done at the start of the game; the players can hold it to a vote to decide I suppose) and all trades must be approved by a vote of all other players. Fees and rewards paid to/by chance and community chance cards are divided equally among all players; as are fees to get out of jail. Finally, each player pays a percentage of their salary back to the banker (based on their cash and property holdings) each trip past GO! for the upkeep of the railroads, utilities, "free" parking and the jailhouse (naturally the railroads and utilities are nationalized; and not for sale).
If there is any game less fun to play than the communist Monopoly; Socialist Monopoly has nailed it. Imagine how long this game will take to play and the piles of ledger books that will be piling up just a few turns in. Before too long; the net result is the same as the communist Monopoly a bunch of people handing useless paper back and forth; settling into a groove that the system will never let them out of. How exactly is player A going to trade Park Place to Player B (who has Boardwalk) in exchange for New York and Tennessee Ave (to complete player A's orange block) when the whims and desires of every other player at the board have to be met because "It's for the good of the game". In short; you have people who are not involved in the transaction meddling and interfering with the affairs of two parties who are trying to conduct business. The game becomes a completely muddled quagmire that is completely unmanageable and overly complex.
Capitalist Monopoly
Play Monopoly. The owner of the game can set whatever house rules they like (side note, my personal House Rules are pretty damn close to perfect IMHO; but that's another post); anyone who does not want to play by those rules is free to not participate in the market of the Monopoly game. As it is, Monopoly is a pretty damn solid example of free market capitalism. The owner of the game setting house rules (within reason) doesn't necessarily give him/her a decisive advantage over the other players. This is the beauty of capitalism; it's the only TRUE system where the potential exists for an individual entity to; for lack of a better word, WIN. In all other versions of the game; not only does nobody win; at the end of the day, EVERYONE loses. Case in point; get a group of X people together and play Y number of games; I'm willing to bet that the likelihood of unique winners for the number of games is greater than the number of repeat winners (unless there is a Monopoly MASTER of something within the group). There is a clear cut winner and losers and any time there are winners and losers; you have inequality; and everyone being equally impoverished is preferable to those who have the skill; the decision making; and the just plain old fashioned good fortune to achieve greatness being free to do so because "It's not fair".
Those who disapprove of the capitalist system will use my Monopoly example for something like this. Every game of Monopoly ends when someone LITERALLY owns the entire board (as players are eliminated the person who eliminated them takes over their assets). If the eliminated players were to be replaced with new players at the end of a completed game; their "game" will be basically rounding the board paying the winner of the previous game; the only way to have a competitive system is for the banker to eventually put everything back in the box and start over; which leads us to the final variation of the game. . .
Marxist Monopoly
Marxist Monopoly cannot be played fresh; it can only be played after a game of Capitalist Monopoly; as Marx himself has long declared his system only works when built upon the carcass of failed capitalism. The Marxist Monopoly rule will be an organized redistribution of wealth from the person who won the last game to the new players joining the table. Something to the effect of; at the end of each turn; the person with the highest worth in properties and cash reallocates an equal portion of his assets to the person with the lowest worth to make the lowest worth player equal with the 2nd lowest; and so on and so forth until all are of equal net value. "From each according to his ability, to each according to his need"
Some reading are at least thinking "Wait, that doesn't seem so bad, Marx might be on to something there!" If this describes you, do me a favor and bite your tongue. The problem with Marxism is that it (much like communism and socialism) removes the victory condition. If you are constantly shifting assets and resources amongst the table based on need rather than ability; there is only one way to continue to gain; and that is to grow your need and reduce your ability. Eventually this system means that everyone will be the one who has the greatest amount of ability will be penalized for the sake of those who have the greatest amount of need. Greatness and achievement are penalized; talents and abilities are not gifts from God; but rather curses that are exploited for "the greater good".
So there you have it. The best examples I can offer of the different economic ideologies being slung around by everyone with a keyboard; a camera or a microphone. Is Capitalism perfect? No of course not; there will always be issues of dishonest and unethical firms that complicate the free market; but in my opinion; it's the best option for those who are motivated to keep rolling the dice and collecting 200 every trip around the board. In other words; capitalism is the way to go for those that have the ability, the drive, and the ethic to keep playing the game.
That's what The Tank Says. . .
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