Practice Good Theory

My intent in this post is to question if the U.S. really has a large amount of debt. Some people think we are just years away from a breakdown in the credit of the government. Others think we've gone through bad times in the past and will "grow out of" our problems again. To keep this post simple, all debt figures are "gross". "Gross debt" includes the amounts owed by the government to the Fed and to the Social Security "trust funds". Also, all figures are nominal dollars (i.e. no adjustments have been made for price-increases). [Other, better, measures will have to wait till a future post.] Scary chart: This chart of the "gross" U.S. government debt since   looks scary in the way the amount of debt seems to be shooting up exponentially. Remember the number $16 Trillion dollars. That is the approximate level of gross federal government debt. The total GDP of the U.S., is also about $16 trillion. Has been scary for deca...

The chart below shows the number of seats in the House of Representatives held by the Democratic party and by the GOP, since the early 1900's. For most of this century, the Democratic party has had a majority of seats in the House (out of a total of about 435 seats). The chart starts with a GOP majority, which changes after the stock market crash. During Roosevelt's term the Democrats take a huge lead, and they keep this lead (with two exceptions) all the way to 1994, even through Reagan's presidency. Finally, during Bill Clinton's time -- in 1994 -- the GOP gets the majority back and has held it except for two terms after the recent market crash. [ Source: Numbers come from various articles on the Wikipedia .] I also wanted to understand what would happen if the house had something similar to the filibuster rules of the Senate. About 260 seats is 60% of the total -- see the grey shaded area running across the top. A lot of the time, the ma...

Every year, Gallup conducts a poll where they ask people across the U.S. whether they would call themselves "Liberal", "Moderate" or "Conservative". For the last 5 years, percentages have been fairly stable. Without reading further, can you guess what percentage would call themselves "moderate", and how conservative/liberal would be split? Here is a link to the latest results .  About 37% say they're moderate, about 39% say they're conservative, and about 22% say they're liberal. Since the country's voters divide about 50:50 when it comes to voting for Republicans and for Democrats, it's safe to conclude that moderates lean democrat. If we were to make some rough assumptions and say that voter turnout is equal among the groups and and that "conservatives" vote GOP and "liberals" vote Dem, then a 50:50 vote result would imply that the 37% who call themselves moderate break down into: 10% moderate but le...

Lenders to governments run two types of risks: credit risk (the country won't pay back 100% of the loan), and currency risk (a country borrowing in its own currency can pay back the loan by "printing money"). Developing countries often borrow loans denominated in a currency like the US $, to remove currency-risk. Despite this, they have to pay higher rates of interest because they are not great credit risks. Countries have defaulted throughout history. Yet, consider the chart on the left. After European countries joined the Euro, interest rates on their borrowing became almost equal. And, notice how that finally ended around 2008, with the "great recession". Why were rates nearly equal for about 9 years? Under the Euro, countries agreed not to default (default was not envisaged).  They also agreed to stick to certain deficit limits  Finally, there was a good possibility that the EU and the ECB would come to the aid of any country in trouble, bail...

The Mediterranean Maghreb , along with Egypt and the Levant , has been rocked by the "Arab Spring". Once part of the Roman Empire , North Africa went through a period of Islamic rule, Turkish Imperialism, and European colonialism, followed by independence under mostly dictatorial regimes. The Arab spring marks a new turning point. " A moment comes, which comes but rarely in history, when we step out from the old to the new; when an age ends; and when the soul of a nation long suppressed finds utterance ." - Nehru What will "the new" look like in North Africa? Some fear the next phase will be Iranian-style Islamic rule, others are cheering for Democracy. Probably, the next phase will vary across the four countries of the region, ranging between strong authoritarian (possibly Islamic) rule and more liberal democracies that implement a few Islamic rules in family-law and related areas. Later, with a generation or two, that too  may pass. I think it...

In the middle of the "fiscal cliff" stand-off, there are stories about a  "milk cliff" . If Congress does not act, milk prices might rise substantially -- potentially doubling. Price support programs  have been around for decades. Herbert Hoover desperately tried to keep prices from falling, and was fairly successful at doing so (prolonging the great depression). The intellectual root comes from monetarist economists who want the government to ensure the stability of prices, in order to fight deflation. [Today, some of these are cheering Japan's new Prime Minister Abe who says he wants prices to rise at least by 2% per year.] Roosevelt doubled down on the madness. In 1933,  millions of pigs were slaughtered . They were not handed out to the hungry poor struggling to get by. Instead, they were buried in mass graves. Posterity will not believe this. The Dairy Product Price Support Program makes the government buy milk. The current program dates from 1949. ...

In this 2-minute video, CNBC's, Maria Caruso Cabrera demonstrates the abysmal quality of mainstream business reporting: First, Cabrera implies that Democrats are wrong in a wanting to raise tax-rates on the rich. Then, with no sense of irony, she suggests means testing for Medicare. She ought to know that means testing is as much a progressive tax as the Dems push to raise the marginal rates. The GOP want to tax the rich just as the Dems do...they just want to pretend they don't. Payroll tax are taxes:  Today's social-security system is very progressive. Richer folk are paid out more than the poor; but,  proportionally the rich are paid out far less. We have  Alan Greenspan to thank for this . Medicare is even worse. The rich pay in far more and get nothing extra -- not even a better walking-stick -- in return. The  Simpson-Bowles  plan would shore up social security. In part, it would do so by raising payroll taxes on the rich, but only pay...