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Archive for May, 2012

On the Debt Limit

It appears that the necessity to raise the debt limit is again becoming a looming issue for Congress, and just like the last time, I think this whole debate is stupid and easily avoidable. Just to get the simplest points out of the way, here are a few things I feel are obvious and true about the debt limit:

  • Not increasing the debt limit leads directly to a failure to pay obligations to which Congress and the United States Government have already agreed.
  • The budget (and associated appropriations bills) determine and authorizes government expenditures, while the debt limit simply allows us to pay for those expenditures which have already been approved and allocated.
  • Due to inflation and economic growth, as long as the debt limit is given in terms of a dollar amount, that limit will always have to increase, ad nauseam; always.

Let’s address that last bullet. First of all, history shows that this is accurate. Under Ronald Reagan, the debt limit was increased 14 times in eight years.  Under George W. Bush, it was increased seven times over eight years. Sometimes, it was a pretty big Congressional fight, to be sure. However, the brinkmanship of the 2011 debt limit fight appears to be fairly new. Also new is the idea that raising the debt limit should be conditional upon spending cuts. As I said in my second bullet point, when crafting a budget, spending levels are determined and authorized. A failure to increase the debt limit accordingly only means that you are failing to meet the financial obligations that you have already approved.  (You, in that case, being any Congressperson). So the debt limit has always needed frequent increases, and will always need frequent increases. Making it a big fight seems very counterproductive in the most literal sense–as fighting over the debt limit literally takes time away from accomplishing anything else in Congress (such as passing a budget).

Fighting over the debt limit and using brinksmanship has other counterproductive results, as well. For instance, by creating a serious doubt as to whether or not the United States will repay its debts and pay its interest on time, the credit rating of the United States Government was downgraded by Standard and Poor and by a Chinese ratings agency for the first time. Such a move could, in theory, lead to the United States being charged higher interest rates on its borrowing, therefore increasing government spending on interest payments and actually working counter to the desire to decrease the debt. And just to be clear, it was not the level of debt held by the United States that led to these downgrades. It was the scare that the debt may not be paid for and the incompetence of Congress, as specifically stated by Guan Jianzhong, the chairman of the Chinese ratings agency:

“The squabbling between the two political parties on raising the U.S. debt ceiling reflected an irreversible trend on the United States’ declining ability to repay its debts. The two parties acted in a very irresponsible way and their actions greatly exposed the negative impact of the U.S. political system on its economic fundamentals.”

So I think we have established here that the debt limit will always have to increase when it is listed as a dollar figure, that it historically has been increased several times, that attaching spending cuts to the increase is a new phenomenon that should be handled during negotiations on the budget, and that fighting over its increase is highly counterproductive to U.S. interests. Now for the most frustrating part: the solution is simple. I mean, it’s really simple. I can’t take any credit for thinking of it, because several countries already use such a system. Here it is: The debt limit should be set at a percentage of Gross Domestic Product (GDP). This way, as inflation increases, the debt limit does not have to be changed by Congress. As the economy grows, the debt limit does not have to be changed by Congress.

The simple solution actually makes so much sense that you have to wonder if Congress has avoided it because they particularly enjoy their infighting. It’s pretty clear that many Republicans are operating under the confused notion that standing up against the debt limit increase is the same as standing up against the debt. However, as has been repeatedly stated, they are only standing up against meeting already-agreed-upon financial obligations.

Recently, the level of U.S. central government debt surpassed 100% of GDP. This is of course troubling news, and especially so when you look at research performed by economists from Harvard and the University of Maryland that states that reaching 90% of GDP begins to be problematic even in advanced economies. Obviously, a defender against debt would want to see that number lowered, so any proposed debt-to-GDP ratio could be imposed such that it is realistic in the short term, but could be walked down to a more tenable number in the long-term.

I would suggest that a limit of 105% could be imposed with that number beginning to decrease by one or two percentage points per year in a couple of years until it reaches 70%. Yes, that is around a twenty-year plan. The most current estimate I can find for debt-to-GDP is 101.5%. It figures that it would take afew years to slow the growth of that number responsibly, and from that point on, once growth is restored to a lagging economy, there should be a focus on reducing that percentage. By putting the gradual reduction into one plan, however, the near-annual debate in Congress could be tabled for quite some time.

Personally, I would target an actual debt level of 60% debt-to-GDP, with a limit of 70%. If a country spends too close to its limit when times are good, there is little or no wiggle room when times get tough. This sounds unrealistic, though, to believe that Congress would ever have the foresight and discipline to spend less than their mandated limit. That would require a level of Congressional competence I haven’t seen in my short adult life. One can only dream, I suppose. But getting rid of this whole embarrassing fight about whether or not to pay our nation’s bills on time? That, I think, even the simplest of Congresses should be able to handle.

On Capitalism and Self Interest

May 23, 2012 1 comment

“Help somebody when they are in trouble and they will remember you when they are in trouble again.”

“You’ve gotta look out for number one.”

“Greed is good.”

I’m a big proponent of free speech. However, it frequently occurred to me while listening to Rush Limbaugh that certain types of speech and certain opinions can be repeated so often and so vigorously that they eventually can turn from speech into an ideology with real-world implications. That can be a good thing. My fear while listening to Rush Limbaugh, though, was that so much fear and anger on the radio would eventually permeate into fear and anger so deep within some listeners that it becomes actionable, and that those actions might turn violent. The results, however, are not always so obvious.

One unfortunate example of speech turning into an ideology and changing behavior is our love for capitalism. I think that we’ve all come to a general consensus that markets are a good thing. We love markets. Yes, there are still some socialists in the world (and some still being elected in Europe). But here in America, even those demonized for their socialist ways (read: Obama) are still hiring Wall St bankers to important posts in his administration. So we’re basically all on board: markets are good. The dispute comes only into how often, how much and in what ways should markets be improved upon or intervened into.

However, the rhetoric that accompanies capitalism or that is used to justify some of its darker moments has had a side effect; it has led to quotes such as the ones above. The rhetoric of the free market and capitalism has led to selfishness; to cynicism. Of course, selfishness is not new, nor is it unique to capitalist countries. Capitalism did not give birth to these traits. However, when the fictional Gordon Gekko uttered “Greed is Good” in the 1987 film, “Wall Street,” he burned into popular culture the notion that what was once frowned upon in society could be virtuous. He took the idea that selfishness and self-reliance are par for the course–if not necessary survival skills–out of the boardroom and into the main stream. He, along with a steady stream of supporting associated rhetoric, made greed good.

It all starts with the “invisible hand;” Adam Smith’s famous metaphor that by acting within their own self interest, people would guide the markets to direct resources appropriately and efficiently. It’s a flawed model, as is any, but the premise is generally sound, and I won’t take issue with it here (though I could envision another post addressing this more fully). I obviously didn’t know Adam Smith and can only presume here, but I’d be willing to bet that when Adam Smith crafted those words, he had an entirely different view of self interest than we do today.

Self interest is not selfishness. Self interest is not greed. Most importantly, self interest can still exist within the knowledge that we are all a part of something bigger–of a society; a community. In fact, one could say that selfishness is self interest in a vacuum, and that greed is self interest in excess and at the expense of others. But we do not live in a vacuum. I am not the only person affected by my choices. My self interest does not have to be at the expense of someone else’s. Our self interests might actually be better-served cooperatively or through short-term sacrifice by one party or another.

A capitalist society functions based on the whims of those within it. When things go awry, many might point to capitalism or to the system, but I also point to the whims–and the rhetoric that changed them. Years of reinforcement have us convinced that taking the most that we can, relying only on ourselves, and sacrificing only in the rarest of circumstances somehow actually enhances the quality and efficiency of our marketplace. The sooner that we, as a capitalist society, understand that our own self interests are better served within the reality that we exist not simply as individuals, but as individuals within a society, the better will be the outcome of the invisible hand.

On the NFL and Labor Unions

May 7, 2012 1 comment

Before I cared so deeply about politics, I cared about the NFL. I studied Sports Business at the University of Georgia and unsuccessfully pursued employment with the NFL league office and a handful of teams for a couple of years. And though I didn’t get the jobs, I paid very close attention to the inner workings of the league (and wrote about it for an online message board that decided it wanted to expand to a source of original content). I don’t follow the NFL’s business side quite as closely as I used to, but I do still follow it and care about it. It is due to unfortunate circumstances now, though, that I feel that I can write some about the league without it seeming out of place in a blog such as this.

The NFL has not had its best week in the press. After the Saints’ bounty scandal, the league’s appeals process is coming under attack. More importantly, as suicides among disabled league retirees are publicized, the idea of a pay-to-injure scheme operating in the NFL at a time when the league faces over 50 different lawsuits made up of over 1,000 former players claiming that the league did not do enough to protect the players, a question is arising as to whether or not the league is capable of continuing on while keeping its players safe. Many people are calling for the league to do more to enhance player safety, reduce head injuries and take care of its retired players. However, as is astutely pointed out by Mike Florio of Pro Football Talk, the league has been making such efforts for at least three years now, and the fans and players have been the ones resisting.  To further that point, I would argue that the current state of the league’s retired players, lawsuits, head trauma, suspension-appeals process, and overall public relations nightmare falls mostly in the hands of the players’ union, the NFLPA.

This may sound like a “blame the victim” argument, and I’m not even talking about the standard line that “these players know the risks and now they face the consequences.” That, to me, is an effort to ignore what is a real problem. What I am arguing is that all of these issues are subject to collective bargaining and could have already been addressed. However, the NFLPA has been asking for all of the wrong things.

In 2006, the NFL and the NFLPA went through a round of labor negotiations. The result was a deal that was widely regarded as a huge win for the players and the head of the union, Gene Upshaw. The players managed to convince the league to expand the pool of shared revenue and to increase the percentage of that revenue pool that goes to the players. All of this came on the heels of a massive new television deal that had already increased the amount of money going toward both sides. Shortly following the deal, Upshaw was unanimously re-elected as the head of the union. At that time, in April of 2007, I wrote that he should not have been re-elected due to numerous missed opportunities of the bargaining process. Included in those missed opportunities, I listed increased medical care for retirees and addressing the issue of head traumas, as well as a number of contractual issues. I also predicted an increasing divide between the players and management due to some of those issues.

You see, each of these objects is a bargaining chip. While the union put all of its chips into increased salary expenditures for the current players with a focus on the short term, it necessarily played those chips instead of diverting money elsewhere, into the longer-term goals. And while the NFL has (and is actively working on) an obligation to its players, it has finite resources, and that obligation to the players is bargained for on every level.  The players–or at least their union leadership–chose salary increases over any other such gain.

When the NFL and the NFLPA, both under new leadership, underwent their more recent and uglier round of labor negotiations in 2010-2011 much rhetoric was given to other issues, but the crux of the negotiations again boiled down to player salaries and the percentage of revenue pools, with minimal gains for retired players and very few structural changes to issues about which the players routinely complain. If I were to write a “missed opportunities” article this time around, I would have pointed out the NFL commissioner’s role as both punisher and the sole course of appeal for most disciplinary issues among the top issues. And yet, that system was maintained by the collective bargaining process, and now is likely to face legal challenges.

Twice, in 2006 and again in 2011, the NFLPA had the opportunity to sacrifice gains in current salaries in exchange for resolution on issues that now plague the league. (Note that I am not even saying the NFLPA should accept lower salaries to get these options, but simply accept smaller increases.) Twice, the union chose instead to push for more money now and less help later. So now, the league is coming under fire and the very industry through which these union members make their living may begin to decline thanks in no small part to priority decisions made by the NFLPA.

To me, this is indicative of the state of labor unions as a whole. I recently read “Take This Job and Ship It,” by Senator Byron Dorgan. In it, the fight for labor rights in this country is detailed. I was surprised to learn that using the phrase “fight for labor rights” is so literal. This was not a fight that was fought in academia or on the floor of Congress. There were riots; there was bloodshed. The fight against the most powerful was incredibly difficult and dragged out. And very few honest historians or economists would argue the fact that the rise of labor unions played a major role in building and sustaining a strong middle class and the level of consumerism needed to fuel strong growth in the 1950’s and 1960’s.

And yet, today, labor unions are on the decline and many Republican legislatures are attempting to reduce bargaining rights. Labor unions are blamed for everything from the state of education to the decline of the American auto industry. But the right to collectively bargain itself and to form labor unions should not be under attack. I would imagine that if the rounds of negotiations that take place in the auto industries or the public sector were examined as I have examined the NFL negotiations, it would not be difficult to pick out specific choices that were made by the unions that helped contribute to long-term negative outcomes.

Labor unions served such an important role in the building of the modern version of our nation, and could continue to serve an important role as we move forward. But if labor unions continue to prioritize short-term gains over the long-term health of the industry in which their members work, their role will continue to diminish and their popularity wane. Much like in the case of the NFL, it’s not necessarily that the country needs fewer unions; it’s that the country needs better union leadership with smarter priorities.