19 August 2011

Lies, Damned Lies and....Averages

Mark Twain famously said that there are three kinds of lies: Lies, Damned Lies and Statistics.* I'd amend that: Lies, Damned Lies and Averages. Averages hide a multitude of sins, lies and distortions, especially in politics. Consider a statement like this:

"My fellow Americans, consider the past ten years: on average household income has increased 28%. The average American now has 49% more money invested in stocks."**

People nod and agree how wonderful things must be on paper, even if personally they do not feel richer or better off....and with good reason. Consider the analogous situation:

I have 100 pies. You have 2 pies. On average we have 51 pies, even though I have 50 times more pies than you do. Tomorrow I get ten more pies and you lose one pie. On AVERAGE, pie ownership has increased almost nine percent. On AVERAGE, we each have more pies than yesterday and on AVERAGE (and at aggregate level), the total number of pies is going up. But are you better off that you were yesterday? Certainly not. Oh, well....at least 'on average' things are going swimmingly.

When wealth in this country is finding its way into fewer and fewer hands and as the gap between the richest and poorest continues to grow, dishonest people distract from this by touting averages in exactly these ways, proving once again that in the hands of talented political consultants, even the truth can be used to lie. Until people start learning to dig deeper, we will continue to be bamboozled by people who assure us that on average, things are going well, even when it's just a tiny sliver of the population that is benefiting.


*Actually, he attributed the quote to someone else, but there's no evidence that person ever said it, so we may as well call it Twain.

**These are not the actual figures; this is just an example.

13 August 2011

Of Gracchi, Gross Domestic Product and Growing Unrest

Looking at the riots in the UK and (earlier this year) Greece, I have to say that I am reminded of Rome in the final days of the Republic. The gulf between rich and poor was growing ever wider, more and more people were dispossessed even as the wealthiest patricians grew ever richer. A revolution was stirring and two brothers, the Gracchi, hoped to ride it by leveraging the power of the plebes to effect change. They were each in turn murdered by a patrician class determined to preserve its power. Within another century, the Republic was swept away in favor of empire and the aspirations of plebes were dashed for another couple of thousand years. In short, there was a revolution and it was successful: it was a revolution by the ruling class to ensure their power would be cemented for a very long time to come. And it worked.

In the early 20th century, the 'plebes' tried again. This time they were successful. And that turned out even worse! We got three generations of mind-numbing, soul-crushing, oppressive dictatorships in the name (but scarcely to the credit or benefit of) the working classes. So revolution from the bottom up was just as helpful as from the top down.*

So perhaps instead of revolutions from either direction, we could perhaps have the wisdom to see the telltale signs of growing disaffection and take rational, reasonable, measured steps to stave off any radical moves from the top or from the bottom? Maybe Western governments need to take the British and Greek riots as wake-up calls and address the underlying causes of discontent . Across the developed world, people are fed up with the working and middle classes having to bail out and pay the price for what is increasingly looking like an oligarchic kakistocracy.

And as far as telltale signs go, how is the looting the poor in London committed different from the looting the banks did of that (and my) country? They were bailed out by everyone (poor included) while their executives were receiving huge bonuses and while the politicians who were supposed to be regulating them were at best absent, at worst complicit. If that's not looting, what is? Why is that morally better than smashing a window and grabbing a TV? My point is not to condone the rioting. It was wrong, period. But I just don't think it was that much morally worse than what the patrician class was already doing (and the riots caused a lot less monetary damage than the bailouts). But how many of those bankers went to jail? Again, I am not - REPEAT NOT - condoning the riots and their violence and destruction. I merely question the wisdom of our society's decision to condemn them while accepting other, equally immoral acts.

I do not say this to rabble-rouse. I am no Bolshevik or revolutionary for any class of people. I mean this as a warning sign: if we kill the Gracchi OR the czars, either way the story ends in blood and tears.

*This is of course a gross oversimplification, but what do you want? It's a blog and I summed it up in two paragraphs!

09 August 2011

Remember Rule No. 1: Don't Panic

As the markets melt down, remember Rule No. 1: Don't Panic! Going along with the herd and selling equities at a time like this is foolish. Personally, not only am I not selling, but I am buying and will continue to do so as prices fall, because equities are like anything else: the lower the price (assuming it's a sound company), the better for you in the long term.

The only scenario in which it makes sense to sell right now is if you honestly, truly believe that the world is coming to an end and stock prices will therefore never, ever recover. Barring that, though, this is the perfect time to buy stocks and I will be doing so aggressively as the slide continues. When the panic stops (and remember, it always does eventually) and stocks begin to recover, I will have taken advantage of buying in at much lower prices, while the herd will have dumped all theirs at the bottom and start buying again at the higher price points.

06 August 2011

Personal Genome Project: Update August 2011

As you may recall from one of my first posts back in January, I decided to participate in the Personal Genome Project. Well, it's finally underway and I am among the first 100 participants! I received my DNA sample collection kit from Dr. Church's lab this past week and returned it. I also had to fill out some surveys and other information and link to my GoogleHealth page, as well as upload my 23andme.com genetic profile. Thanks again to Mark Stevenson and his book, An Optimist's Tour of the Future, for telling me about this amazing project.

While scientific curiosity and fascination with the possibilities are what drove my decision to participate, I must also confess that there is just a wonderful 'cool factor' here. How many people in the world have had their entire genomes sequenced? Not a lot. It's thrilling and, yes, I admit it, a little scary, too.

I am not certain when I will start to hear about results and findings, but I will update this blog as I learn more.

05 August 2011

The Debt Deal: Three days old and already a failure....so let's fix it

Well, we got a deal. And what a deal it was. No new revenue, nothing to create (and a lot to kill) jobs, no reform of entitlements, no long-term solutions to the underlying debt issues. In short, the perfect Republican deal. Obama caved yet again. And three days later, it has already failed: S&P is cutting our rating anyway, claiming we still don't have our debt act together.

So why did we fail? It's because we accepted a false premise. Ever since Obama caved last year on Bush tax cuts for the wealthy – despite the fact that a huge majority of Americans supported his position that the wealthy shouldn’t get more tax breaks – the left has essentially ceded the point that lower taxes=more growth. This idea, which became popular under Reagan, persists to this day as the gospel truth. There's only one small little problem: it's never been supported by facts. But it is so appealing on an intuitive level that few people question it. It just makes sense: government takes less, people spend and invest more, more jobs are created. And if it weren't for the pesky little fact that there is no evidence to support this thesis (and plenty to refute it), I'd agree with it. But if you stop for a moment and give it further thought (something inconvenient in a world of sound-bites, I know), it really doesn't make all that much sense. Consider the reasoning more closely: if I raise taxes and leverage them to create a more redistributive system, lower, middle and upper-middle families get more, the wealthiest get less. Now consider what happens when I give an extra dollar to a wealthy family: they don't need this money to pay bills or even buy new things; their material needs are already met. So they can just put it aside and keep it on the side lines (along with the trillions in wealth already sidelined in this country). But a family lower down the scale will run out and spend it on all the things they need and/or want.

Ah, but the Republicans counter, it's the wealthy who create jobs! It will trickle down. Well, except they don't. Corporations create jobs; the wealthy just benefit from the profits of those corporations through their investments. So it's corporations we should stop taxing altogether and the wealthy we should tax more, to the degree necessary to balance the budget and give more to the lower classes who will actually go out and spend that money to create jobs. In short, it's the lower through upper-middle classes (through their spending) and the corporations (driven by that demand from said spending) who are creating jobs in this country, while the wealthiest simply reap the benefits. So why is it Republicans want to give the most to this class that needs the least and contributes the least? Because, as George Bush said in a rare moment of frankness, that's their base.

If Obama were miraculously to grow a spine, he should propose this to save our credit rating: 1) Eliminate the corporate tax entirely (leaving just the payroll tax). 2) Raise marginal income tax rates on all households whose annual income from all sources is greater than $200,000 (and include an automatic inflation index) so that it starts where it is now for $200,000 and ramps up slowly such that at the highest end of the margin, the rates are up to 75%. (Don’t panic! That’s the marginal rate, the rate you pay only on that part of the income that falls into that bracket, not on all your income once you enter that bracket.) Make the corresponding brackets for dividends and capital gains increase at the same brackets, but make them slightly lower, in order to encourage investment. 3) Raise the Social Security and Medicare retirement age to 70, with the change phased in over time, and introduce means-testing for families with net worth over $10 million (in 2011 dollars, pegged to CPI).

That would be sound fiscal policy and would not only eliminate the year-on-year deficits, but actually put us into a position to slowly eliminate the overall deficit. What's more, it would be pro-growth. In exchange for agreeing to this overhaul, Democrats could even agree to a balanced-budget amendment, assuming it contained responsible language to make exceptions under certain circumstances (e.g. war, certain economic conditions, etc.).