The Rise of Willful Ignorance

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This is the third in a series of posts that discuss in more detail what I perceive to be threats to humanity today. It expands upon the discussion started in my original post that covered seven different risks. It concerns the rise of willful ignorance. This is a disease that may yet cause the extinction of the human race. We can see the effects when the government of a nation consists of individuals who are proud to admit that they are disregarding all scientific evidence, since after all, the scientists have their political agendas that just may show that the preferred action to avoid tragedy will cost a favored political ally some money. And we can’t have that. The recent superb book, The Fifth Risk by Michael Lewis, shows what risks are increased if an administration takes over the reins of power of our complex government without any interest in the functions of the government agencies they now administer. Not only do they not have interest, they exhibit no curiosity as to what might happen if the risks they are supposedly managing actually bear fruit. They actively campaign to reverse the work undertaken during previous administrations aimed at reducing risk, like when they proposed spending 20% less on global nuclear materials security in a recent budget proposal.

We as a civilization have created an extremely complex network of interdependencies. We have managed to limit risk to our population through the process of regulations, and through the transparency of government actions. Unfortunately, the mindset of many currently serving in government is that all regulation is wrong, and we must hide the truth from the citizens of our nation so that the increased risk we are taking does not become evident to our citizenry.

Part of what has led to this attitude came from those in the nation who reject all claims of knowledge by experts. Just because someone has dedicated their life to the pursuit of knowledge, whether within a government agency, or at a university, why should we believe that they know more about a subject that we do? We don’t need no steenkin’ math or science, do we? If we can’t learn all we need to know with a 5-minute perusal of the internet, then the subject has been made too complex and anyone’s opinion is just as good as anyone else’s. Thus we have government spokespeople coming out in support of alternate facts. We have conspiracy theories for beliefs that are easily disproven by an examination of the facts, but of course, those facts were reported by the main street media and they are biased and since they are saying that these are facts, we must believe the opposite.

This type of belief system is self-reinforcing. Psychologically, it is very comforting to enshroud yourself in a mantle of community, where all believe the same thing and are able to reinforce that belief through daily interactions. It is known as an echo chamber. The internet has played a huge role in allowing these communities to develop, and those who belong to these communities are nigh unto impossible to convince that their beliefs are wrong. This is what convinces individuals to drive hundreds of miles to a pizza restaurant in Washington and fire a gun in order to bring down the evil child sex trafficking ring known to exist in the basement of a building without a basement. It is why many believe there is an active military operation to spread aluminum salts and other mind-altering substances behind jet aircraft, leading to the chemtrails many swear are meant to numb the brains of honest Americans. It is what convinces many to believe that human emissions of greenhouse gases could never be responsible for any kind of adverse effect.

 

Of all of the risks that humanity faces, this may be the most intractable. Other problems may yield to research, or to spending money, or to creating a better climate for administering programs. But this one goes to the heart of humanity. That is, the belief that my knowledge is good, and since it is good, if you oppose it, you are evil. The psychological reassurance you get when an entire community of like believers reinforces you for being a part of the group who is truly in the know. The only known antidote to this sort of willful ignorance is to increase the scientific and mathematical literacy of the population as a whole, so that the folly of the beliefs of the former group becomes evident. However, it is hard to teach this type of literacy when we as a society continue to struggle to teach a basic standard of literacy. Look at communication means such as Twitter. By trying to limit public discourse to a maximum of (now) 280 characters, they contribute to the belief that all discussion can be simplified to fit within that type of strait-jacket. No one needs to understand anything at more than a superficial level, since the entire world is doing just fine using Twitter to conduct our national political discourse. One quote of H. L. Mencken comes to mind from nearly a century ago. He said, “As democracy is perfected, the office of President represents, more and more closely, the inner soul of the people. On some great and glorious day, the plain folks of the land will reach their heart’s desire at last and the White House will be adorned by a downright moron.” Would he be happy to know that at last, his prophesy had been fulfilled?

 

 

We’ve Been Had!

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One year ago, I wrote a post titled You’ve Been Had!, highlighting the people that the administration had placed in positions of high responsibility, and detailing their (un)fitness for those same positions. It is now time to revisit this administration, showing how much (or little) progress has occurred in support of the stated objectives of Donald Trump, with a special emphasis upon how the actions taken are diametrically opposed to the goals espoused during the campaign. I would write more about the people involved, but most of the original list are either under indictment, or have left the administration in order to crawl back under the most convenient rock.

So what were the pledges that Donald Trump made that fully excited his base and enabled him to claim victory through the vicissitudes of the Electoral College. Here’s what I took away from the campaign in terms of pledges.

  • Build the wall. Build a physical barrier along the southern border of the US in order to reduce the 50% of the illegal immigrants to the country who physically cross the border
  • Lock her up. Appoint a special prosecutor in order to determine the basis for prosecuting Hillary Clinton for her E-mail pecadillos.
  • Drain the swamp. Run an administration that works for the forgotten people of this country who have been dominated by those coastal elites, who are probably Jewish
  • Eliminate all traces of the actions of that traitor, Obama

There were more, but these were the pledges that resonated most strongly with the base during the campaign events in 2016 (and 2017 and 2018). So now that we are two years into this administration, how are things going? How well have these pledges been fulfilled? Note that we are not discounting the one true accomplishment of this administration, that of turning our judicial branch of government over to the Federalist society to be remade in its own image. That is one that has been overwhelmingly successful, probably to the long-term detriment of the citizens of the US.

Build the Wall. Ban Muslims. Stop the invasion of the US by undocumented others. Well, after two full years, we have seen prototypes of physical wall designs installed near San Diego. We’ve fixed some of the existing barriers on the southern border. And we’ve sent thousands of active duty military to the Texas border where they are sitting awaiting the onslaught of, women and children and men who form a rag-tag army of pestilence aimed at inflicting gang violence upon an unprepared nation. Or so we heard in the lead-up to the mid-term election.

We’ve not had any fiscal authorization for a physical wall, even though Republicans have held a majority in both houses of Congress to this point. Maybe it is because even those Republicans who have had to link arms with the President in order to survive his famous tweets, realize that building a physical wall across thousands of miles of arid landscape makes zero sense. Who knows? But with the legendary negotiating skills of the Snowflake-In-Chief, we can expect a braying noise to begin hitting the airwaves about the absolute necessity to authorize funds for the wall. This is in order to allow a continuing resolution to be passed that will keep the Federal government operating in the near future.

We’ve seen incredible incompetence in the implementation of the zero tolerance policy earlier this year leading to the family separation debacle. To think that children would be separated from their families without even a rudimentary way to connect the parties after separation occurred! To think that, if concern for children being brought into the country for exploitation was a reason for this policy, they would not have had a genetic testing program in place to confirm familial relationships. No, what we the people got in the implementation of this program was a totally incompetent effort that was fatally flawed in order to demonstrate the toughness of this administration. Incompetence that is continuing with the show of military force at the Texas border.

So all of the effort we see is aimed at the interdiction of people physically coming over the border from Mexico. Meanwhile, we see zero activity aimed at stopping the roughly 50% of those who are in the nation illegally due to overstaying their legitimate visas. That’s about par for this administration. Devote outlandish attention to their incompetence with one half of the problem while totally ignoring the other half of the problem as if it doesn’t exist. The people of the US applaud the efforts of this administration to rid us of the flood of illegals who are forcing us to eat tacos.

Lock her up! We will show the nation what we value by assigning a special prosecutor to take down that noted criminal, Hillary Clinton. What she did by exposing the secrets of this nation to the risk of discovery by having her unsecured e-mail server is a traitorous act. So how’s this effort going? Uhh, there doesn’t seem to be a special prosecutor anywhere in sight for Hillary, but the effort by Robert Mueller seems to be giving this President fits at this time. I never realized that the word collusion had to be preceded by the word no, but now I cannot separate the two words in my mind. Seems like the walls are closing in on this President, much like the walls of the garbage compactor in the first Star Wars movie. Once Roger Stone is indicted, and the facts show that he indeed was the link between the Russian operatives and the Trump campaign, feeding them tidbits about the upcoming release of scores of e-mails, the loop will be closed, and we will see the collusion duck waddle and quack in a very duck-like manner. But it is amazing how the line of Lock Her Up still elicits uproarious shouts each time it is brought out at one of the hundreds of copy-cat rallies this President uses to get his adrenaline fix.

Drain the swamp! Yeah, that isn’t quite working like people may have thought. Who could have foreseen that by draining the swamp, that would include gutting the efforts to enable for-profit college students who were defrauded by institutions that scarfed down the Federal student loans of their marks  students, from being able to gain relief from these loans? Why, didn’t Betsy DeVos appoint a program dean from DeVry University as head of the Student Aid Enforcement Agency? What could be better than to have someone intimately involved with one of the for-profit colleges being sued, to serve in an oversight and enforcement role for the debt forgiveness program? Is not the fox the best guard of the hen house?

Ok, maybe this was an isolated case. Let’s look at something that really does affect many of Donald Trump’s core supporters. Those who are suffering financial distress, and have to turn to payday lenders in order to meet an immediate need for cash. Unfortunately, due to the excessive fees and interest charges for these loans, many who use them as their last resort find themselves trapped in an endless series of rolled-over loans, each with additional service fees added. It is the perfect mechanism to squeeze profits out of those least able to pay.

The Federal agency working on behalf of consumers, the Consumer Financial Protection Bureau (CFPB) issued regulations on October of last year that provided at least some regulation of this new financial product offering. The regulations would have ensured that the lenders make an assessment as to whether the person seeking the loan could pay it back, and set a limit on the number of times that a loan could be rolled over. Alas, the regulations were not to become effective until August of 2019.

In July of this year, Treasury Department urged the CFPB to rescind the rule, stating that it was not needed. The administrators of the Treasury Department, who have only the hearts and well-being of the public in mind, insist that it is the proper role of the states to set guidelines for the payday loan industry. Just like they had done so thoroughly before the Federal effort to set regulations in this area. Guess that the swamp drain got clogged up with all of those donations from the payday loan industry to receptive swampers.

Oh well, I guess it is going to be difficult to find cases where the swamp is actually being drained. Let’s go on to the last of our items, erasing all traces of Obama from the government. On this pledge, we can unequivocally state that the pledge is well on the way to being fulfilled. From the Iran nuclear deal, to the non-binding Paris Climate accord, to the Trans-Pacific Partnership, and through a myriad of other actions, Donald Trump is demolishing all traces of his predecessor in office. And he’s not through there. He’s demolishing all traces of the past 73 years of the post-war diplomatic environment. Through his blatant disregard for diplomacy and for the necessity to understand that words have consequences, this china shop bull has smashed the crockery higgledy-piggledy. Throwing the weight of the US around, he unilaterally withdrew the US from the Iran nuclear control pact. Iran is now unencumbered from adhering to the limits and inspections imposed by the pact, and could restart their nuclear program.

But Iran is small potatoes compared to the signal diplomatic achievement of the Trump presidency to date. That is the love affair he is conducting with Kim Jong Un of North Korea. Who can forget the statements of affection between Donald and Kim? “A very worthy, smart negotiator, absolutely,” in the aftermath of the June meeting between the two men in Singapore. And, who can ever forget what was said in Wheeling, West Virginia in late September. “I was really being tough, and so was he. And we would go back and forth. And then we fell in love, okay? No, really. He wrote me beautiful letters, and they’re great letters. We fell in love.” Of course, other than not conducting actual nuclear explosion tests, or new ballistic missile tests, there is absolutely no evidence that North Korea is taking any steps to denuclearize. Our inexperienced diplomat-in-chief, who knows more than all of the rest of the government put together, would never let himself be snookered by a tyrant whose only ambition is to keep his regime in power. I would bet that Kim has actually read Machiavelli. He certainly is using the playbook very well as he uses flattery to disarm the leader of the US until he can make his nuclear arsenal and its deployment a “fait accompli.”

No, even more so than when I wrote it in November 2017, it is clear that “We’ve been had.” The track record of nearly two years shows that we can only expect worse and worse as we wind our way to the next election cycle. At least there will be one chamber of the legislature that will not bow down to the leader of our nation, who is so afraid of a bad hair day that he would forego a centenary observance of the end of the first world war.

 

Trump’s Greatest Hits!

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The time: A late night in early October, 2018. The place: A windowless room deep in the bowels of the White House. The players: The brain trust for the 2018 mid-term election.

“We’ve got to get back to the basics,” said the thin, balding man. “There is no way we can permit this revolution to fail.”

“Well, we’ve managed to make a martyr out of Brett. That should keep our base mollified.” A lone woman in the room gave her single contribution to the discussion.

The thin, balding man cleared his throat. “Yes, but once the vote’s taken, they’ll forget. They’ll be satisfied. And satisfaction is the last thing we want for our side. We want them afraid, and angry.”

The man in the immaculate suit and the neatly trimmed white hair raised his arms up in an air of supplication. “Stephen, why can we not go with what won before? Surely they haven’t wised up to us by now, have they?”

The thin, balding man looked over at the white haired man. He brought his hand up and stroked his chin, trying to think about this most critical month of the administration. Then, slowly, a smirk stole across his face. He spoke. “You know, it just may work. All we have to do is get the fear factor back. You there!” He pointed to a faceless form in the shadows. “What have you heard about a new group of migrants in central America starting to form up?”

The aide who had been summoned clicked on his laptop, then replied. “It looks like there’s a group in Honduras that may be ready to march soon. We’ve intercepted some communications that they are ready to begin as early as next week.”

The balding man smiled. “Is there anything we can do to help them? You know, without anyone finding out? The last thing we want is our fingerprints on their march.”

The aide, looked back at his computer, then said. “I’m sure we can manage a bit of logistical support behind the scenes. No one ever looks at how these things form.”

The white haired man said, “I’ll just bet if we work it right, we can blame a new caravan on Soros.”

The balding man replied, “Damn straight. We’ll tar him with this one just like we’ve done the last five times.”

Suddenly, the rumpled figure over in the corner stirred himself to life. His scraggly hair hung over his face, but he seemed scarcely to care that he appeared so slovenly. “Yes, that will be good. Revive the fear of the other. It would be good if we were able to deploy the military to the border before the election.”

The aide dared to speak up. “Sir, if these folks started tomorrow, it will be January before they reach any border.”

The rumpled figure glared in the aide’s direction. Then he turned to the balding man, “So much the better. The longer we can keep this in front of the public, the better for us.” He paused, then added “If we could just conflate this group of migrants with Arab terrorism, we’d get twice the pop out of this.”

The aide said, “I’m on it, sir.”

The rumpled figure got up from his chair, and brushed his hair back away from his eyes. “You guys asked me back in here because of how I managed the last campaign. Well, if you want my help, you have to be willing to do what I say. Is this a go?”

The white haired man said, “I can speak for him. We need you. We’ll do what you say. Anything but Nancy Pelosi leading the House again.”

The rumpled figure then started pacing back and forth, waiting for the words to form in his head. He started to speak as he crossed the room. “Ok, we’re in a bad place with this thing about pre-existing conditions. It seems that’s something even our crowd likes. We have to convince everyone that we are the folks who will keep this in place.”

Another aide who had been in the shadows spoke up. “How can we do that when we’ve been telling everyone we want to repeal and replace?”

The rumpled figure raised a finger at the offending voice. “You. Out. You have no place here.”

The second aide scurried to gather his things, and left the room, his back to the door so as to not ever show his back to the assembled crowd.

The rumpled figure stopped pacing, and held onto the back of one of the enormous office chairs around the conference table. “I have no patience for people like him. Why is it folks can’t see that it doesn’t matter what we’ve done in the past, all we have to do is come up with a common story and stick to it. Lying? That word doesn’t exist. If we say it often enough, they will believe. We’ve destroyed their ability to believe anything other than what we say.”

The balding man spoke. “There must be something we can do with all of these folks who are accosting our friends in restaurants, staging sit-down protests in the Capitol, yelling at us.”

The rumpled figure smiled. “I’ve thought of that. Let me see what you think of this. ‘Jobs Not Mobs’. I can see that plastered on signs at every rally he holds.”

The white haired man looked pleased. “I know I can sell that one to him. It’s short – he’ll remember it. Before we’re through, we’ll have convinced people that the Democrats are evil creatures, wanting only to seize power in order to make us the Venezuela of the north. I’m sure we can convince some of our friends to foot the bill for some really good visuals on TV.”

The rumpled figure nodded his head in agreement. “There’s one more thing that bothers me, though. That tax thing we did last year, it’s not polling well. Even our base has seen right through it. And it hasn’t resulted in more revenues – when that deficit figure hits, we’ll have to work hard to convince folks everything will be fine.” He paused. Then he resumed, “I’ve got it. Middle of this month, we have him talk about a middle class tax cut. Make it, oh, let’s see – 10%. Have him claim that it’ll be in effect by the election.”

The balding man spoke. “That’s genius! How have we done without you this past year.”

The rumpled man gathered his coat, and got ready to leave the meeting. “You weren’t too successful. May I just mention family separation? That was a royal mess. You needed me to reconnect with the people. Don’t you forget that. I’ll be waiting for your next call.” And the rumpled man left the room, while the others remaining were beaming with the knowledge that they had the game plan for the return of Trump’s Greatest Hits.

What Country Actually Manufactured This Product?

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The issue of international trade is in the headlines with the imposition of tariffs by the US administration, followed by reciprocal tariffs from the trading partners of the US. I am in a unique position to comment on international trade issues, because for years I worked for a large multi-national corporation on global supply chain issues. In fact, I helped to implement the computer infrastructure that enabled my employer to minimize global taxes on shipments that went from continent to continent. It makes it very difficult to determine, where is a product actually made? I will try to explain one supply chain I was involved with and hope that the readers can follow the product trail.

This particular supply chain started with an intermediate chemical compound. That is, one that took a good bit of chemistry to create, but was not a finished product. We either produced that material within our company in the US, or purchased it from a third party located in China.

That intermediate chemical was shipped to our affiliated company legal entity in Puerto Rico. This requires an understanding of what constituted a legal entity in our company. A legal entity is a wholly owned subsidiary that is incorporated under the laws of its location. Since Puerto Rico had different tax structures and tax benefits than the rest of the US, we had established a Puerto Rican legal entity for the manufacturing plants we used there. Our intermediate chemical underwent a complex reaction there in order to become an active herbicide. Then the active materials were packaged into bulk containers (mainly drums), and were set to be exported to other locations where they would be formulated into finished products.

But. It was not as simple as shipping directly from Puerto Rico to our locations in France, and Australia. For the product going to the US, it was shipped directly, but for the others, the transaction was done through a legal entity located in Switzerland. That legal entity assumed responsibility for securing the transportation of the chemical and dealing with all customs payments. All in exchange for a markup fee, which raised the price of the active chemical in the formulating location. Since the price at the formulating location is higher than the cost of the chemical plus transportation fees, the Switzerland subsidiary booked a profit. Did I mention that Switzerland has a low tax rate? So for the corporation as a whole, a portion of the profit for the material was taxed at a very low rate, thus benefiting the economics for the company as a whole.

I was involved in the first setup of what were called trading companies. When we in the SAP (SAP = business enterprise software used to transact business globally) group first heard about it, our legal antenna went up, and we specifically asked “Is this legal?” Because to us, this seemed like a lot of work in order to avoid paying taxes in the countries where we really did physical work on the material. We were assured that it was legal, and we went ahead and set up the first of several trading companies. When you hear about the use of low tax countries to shelter profits, this is one way it is accomplished.

So the material has been shipped from the last manufacturing location to the country where it is formulated. The transaction to move the material was handled by the Swiss entity, but the material never touched Swiss soil. Instead, the material was unloaded at our plant in France. Now any agricultural herbicide or pesticide is a combination of one or more active ingredients, blended together with inactive ingredients, or adjuvants. These materials help in the dispersion of the product so that it may be applied, or dissolved within a spray tank, and then applied to farm fields. This process is known as formulation, and can be very involved with may different ingredients involved. The plant in France then packages the material. first in a large container (for us, multiple kilogram containers). Then, for countries close to France, they will package the material into finished products at the French plant which contain all of the country-specific labeling and use instructions, and then the materials are shipped to the countries in pallet quantities for distribution and sales. The trading company is not used for these transactions.

Logistically, it may make more sense to ship the larger containers to another country directly, where it may be transferred to country-specific packaging. Often contracters are used to accomplish this. Where an individual country market is large enough, like Russia or Ukraine, this is the preferred method for the final stage, where a finished product that will be purchased by a consumer is created.

Given all of these steps, where is the product manufactured? You can see that this becomes a difficult question to answer definitively, because with the exception of the trading company, there were manufacturing operations at all of these locations. The first two manufacturing steps where the intermediate was produced and then converted to the active ingredient added the most value to the finished product, but then even that material may have been originally manufactured in the US, or it may have been sourced from China. So take today’s situation – a tariff may be applied to a material if it were sourced from China, but not if it were manufactured in the US. Then a material is exported from Puerto Rico to Europe. Is Puerto Rico considered part of the US for the application of tariffs in Europe?

For the product I’ve traced, the system is easy in the US. The material is sent directly from Puerto Rico to the US without involving the trading company. It then is formulated and packaged for the specific US market at our plant in Illinois. By the way, did you know that there are multiple packages for use within the US? Often with herbicides and pesticides, it is necessary to have product labeling and use instructions for specific states, since some of them have requirements that are in addition to those from the Federal government. Each of these finished products have a specific bill of material, and each piece of paper or cardboard box used to hold the product had its own SKU (Stock Keeping Unit) that was included in the bill.

That was the world I worked in for the last 15 years of my career. Looking back on this process, I realized I was gaining quite a sophisticated knowledge of international business. I could look at the requirements by country, and I realized that those who complain in the US about overweening regulations stifling business activity, had never done business in Brasil. In that nation they require tracking of everything – copiers, pens, paper, costumes for demonstrations of insects, scientific instruments. Each of those things gained a material number so that they could be tracked coming into and going from their locations. I joked that I was surprised that they didn’t require bar codes on items flushed down their toilets. I was joking, but barely.

The world has become integrated by trans-national corporations. Supply chains stretch across multiple continents, and the systems are legally gamed to minimize taxes. Given all of these conditions, it is very questionable whether you could return to a process where a product is manufactured in a single country, out of components manufactured in that country, and sold not only in the country of manufacture, but exported to other countries and regions for the benefit of the country of manufacture. With the products I’ve described, I have difficulty in stating where the product was actually manufactured. Was it the last step where the product was packaged for the individual farmer? Or was it the location where the complex chemistry was performed? Or was it at the location where it was blended with its other inert ingredients? Each of those steps is a manufacturing operation. You tell me if it makes sense to identify a single origin for this material, and apply taxes and tariffs accordingly?

 

The Amateur Hour

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Amateur – 3. A person inexperienced or unskilled in a particular activity

The United States is conducting an experiment. An experiment that affects each and every person inside of the country, and many others around the world. This experiment involves turning over the operation of the executive branch of government to a group of amateurs, and observing what happens when amateurs are turned loose upon the gears of diplomacy, economics, and the military.

So far, the results have not been catastrophic. Taking the issue of the economy for example, the trends established since the economy bottomed in 2009 are continuing to result in gains in employment, and in measured economic growth. Despite claims of exceptional performance under the current administration, GDP growth averaged 2.2% from 2010 through 2016, while GDP growth during the current administration has been 2.6%. Using the statistical t-test, the two sets of data (past administration vs. current administration) are equivalent. There is not a statistically significant difference between 2.2% and 2.6% growth. But the one knob that this administration has turned, the tax cut, has yet to factor into the performance of the economy. The tax cut does have the potential to increase the rate of GDP growth significantly. However, the tax cut comes with a cost that has yet to be reckoned. The estimated deficits will increase greatly due to reduced tax revenues, and if there is an economic downturn in the next few years, the normal response of loosening fiscal policy to boost the economy will likely not be available. So we are at the mercy of the amateurs in the administration who believe it to be prudent fiscal policy to significantly cut taxes at a late stage in an economic recovery that has entered its ninth year. But what do experts know, anyway?

If you consider diplomacy, there is certainly a mixed bag to date. It does appear that twitter tirades and brazen bluster did result in at least enabling an initial meeting between North Korea and the US, with a generic agreement being signed. If this is indeed a first step towards a ratcheting down of tensions on the Korean peninsula, then this administration will have accomplished a worthwhile and noteworthy goal. But if the North Koreans continue playing Lucy with the football to the US’s Charley Brown, then relations may end up worse off than if there was no meeting.

That is the good news on the diplomacy front. Elsewhere, it is evident that this administration has zero respect for, and zero admitted need for diplomatic experience and expertise. Witness the exodus of State Department veterans over the first year of this administration. As of last November, 60% of the top management of the State Department had left government service, according to the American Foreign Service Association. A hiring freeze instituted under Rex Tillerson has been lifted by his successor, but nothing will replace the institutional memory and experience of those who were driven out by the bias of the current administration against subject matter expertise. The supporters of this President would say that this reduction in long-time employees is “draining the swamp”. What they do not realize is that this world is complex, and the diplomats at the front line in embassies around the world are essential in preventing US interests from being damaged. There will be costs, some of them severe, in the years to come due to the sabotaging of the diplomatic corps.

Meanwhile, the diplomatic style of this President was fully on display at the recent meeting of the G-7. The petty nature of the response to Prime Minister Trudeau’s press conference, replete with the denunciation of Trudeau as having “stabbed the US in the back” by declaring that Canada would not be bullied by the US, shows how much of this President’s actions are guided by his personal perception of slights. The threats unfurled against the strongest allies and trading partners of the US show that he has a vanishingly small knowledge of international trade and the risks to the economy of the world, by insisting on retreating to an era when America may have been great, but by imposing tariffs, we helped to drag the world into depression shortly thereafter.

Militarily, we are repeating the follies that have bedeviled military planners ever since military technology began changing year by year. That is, we are fighting the last war, not the next war. Thus the huge increase in the military budget over the coming years is earmarked for more ships, more fighters, more bombers, more in-air refueling capabilities, and keeping older hardware systems running. Meanwhile, the funding for cyber security ends up with a scant 4% increase when all of the ups and downs of spending by department are added up. Undoubtedly, there is a need for building ships to replace those that are near the end of their useful life. Likewise, replacement aircraft are needed. But the budget funds multiple generations of new weapons systems with no apparent overall strategy on what the military force of the future should look like.

The wars of the future will increasingly be economic or cyber in nature, and seeing funds spent on hardening the electric grid, purchasing large numbers of replacement transformers that could quickly be put in service should a grid disruption occur, these funds would be well invested for our economic and physical security. In fact, just as we used to have strategic metals reserves in case our supply got cut off, we should have a strategic transformer reserve, where these substation-level transformers that will be fried in an EMP (Electro-Magnetic Pulse) event can be quickly replaced. The best way to provide such a reserve was investigated by the Department of Energy and the report was issued to Congress in March of 2017. It does not call for a Federally owned reserve, but calls instead for increased coordination across utility companies. It does call for an increased reserve but one that is maintained and controlled by utility companies. Will such a program work when it is called upon? No one knows. But we do know that the huge increase in military spending is not going for what can happen in the present or future. No, it is going to the weaponry of the past.

Once again, the amateurs determining the strategy for national defense are insistent upon spending large to procure the weapons of the past, while ignoring the needs for the defense of our nation and our lifestyle from the real threats that we face.

The concept of amateurism is good. In athletics, we maintained the façade of amateurism for many decades, but eventually it was broken down. In tennis, in the Olympics, in all sports, it is recognized that if you wish to have excellence in performance, it is necessary to have people who can dedicate their lives to the sport by being paid for their efforts. We followed the same principles in our government. Those who were willing to sacrifice much larger private sector paychecks for the limited compensation of government positions were recognized and honored for their expertise and their service. But in this misguided administration, we have sacrificed those who developed their expertise over decades, in order to promote the agendas of the amateurs who struggle against the current of events in their fields. The problem is that there are real consequences that come from having amateurs deal with issues that can cost real money, and real damage to international relations, and cost lives when dealing with the military.

 

Social Security – the Personal Option

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One of the greatest problems that we face as a country in the US, is that too many people end their working life without assets they can use for their years after work. Another issue is that many people do not benefit from overall improvements in the economy. They have no stake in the game. And a third problem is that Social Security will exhaust its trust fund within a small number of years. For the third problem, there are solutions that will push the day of reckoning for Social Security out decades longer into the future (raise the taxable base, limit further the benefits paid to workers who earn well above the median wage, small increase in the Social Security tax rate). But I’ve not seen any proposal to solve the first two problems. This post provides a potential solution for these critical issues.

First, some background. The Standard & Poor’s 500 stock index, known as the S&P 500, is an index of the largest companies by stock valuation that trade in the US. Since 1926, it has included at least 90 companies, so that its performance is nearly a century old. Since 1957, it has contained 500 stocks. If you invested money in the index in 1928, just before the Great Depression, it would have earned an average of 9.6% per year if you continued to reinvest the dividends. So over time, the investment earned at a higher rate than investing in bonds, and that covers all of the stock market declines since then. Other stock indexes exist that track US corporations, and they show similar rates of growth over time.

The proposal is this. Out of the current 12.4% of employee contribution (split evenly between employee and employer) that currently goes into the Social Security fund, allocate 2% of new employee contributions into a personal account that invests in a stock index fund of companies based in the US. All dividends from the stocks will be reinvested into the personal account. At the time when a person takes Social Security payments, this person will have the option of converting the account to an IRA rollover, or converting it to an annuity.

A simple spreadsheet model shows the potential value of this approach. For someone at the lower end of the income spectrum, a person with salary income of $30,000 per year whose salary increased by 3% per year for a 40 year working career, the personal account would be worth $220,000 assuming that the accounts earn an average 8% per year. The 8% is less than the 9.6% average of the S&P for the past 90 years. This would enable someone who retires to have a significant account that reflects the growth of the economy during their working years. If they choose to select the security of an annuity, it would be administered by the Social Security system in order to avoid additional expenses of going through an insurance provider. Using an annuity calculator, the income for a 67 year old investing $220,000 would be about $1200 per month. This would be a significant increase in the benefit available as compared to the Social Security benefit for an individual.

The Social Security benefit would need to be reduced to reflect the smaller amount of tax revenue that is allocated to the standard benefit pool. But that reduction would take into account the length of time that a person has paid into the personal account fund. Social Security uses a 35 year working career as its basis for calculating benefits. Therefore, someone who has paid into the personal account for 35 years would have a benefit reduction of 16%, since they paid 16% less into the program(2% going to personal account / 12.4 % going to Social Security originally). For those who paid into the personal account for fewer years, the benefit reduction would be approximately 0.5% per year that they paid into the personal account.

What would the effect be of this money being funneled into the stock market? It would be relatively small. In 2016, the amount of money going into the Social Security system accounts from wages was about $700 billion. The proposed personal account would be about $110 billion per year. That amount of increased demand for stocks would raise valuations somewhat, but the investment markets should be able to absorb the incremental demand for investment. This would need to be modeled by real economists, instead of armchair analysts armed with Excel spreadsheets.

Those who are wary of stock investment will point to the inherent risk of stocks. And yes, there will be times when the value of personal accounts will go down on a year over year basis. But the nature of the equity markets has tended to go up when viewed on a longer timescale, such as a person’s working career. Perhaps there could be a personal option for those who are philosophically opposed to investing in stocks, but it would be one that people would have to select, instead of being the default option.

Those of us who have had the fortune to be able to invest over a lifetime, know the benefits of our economic system. We’ve been able to build up our pile of equity. But many folks will work their entire lives and have little to nothing to show for it, except for a Social Security payment. This suggestion would allow for everyone to have a stake in the economy, and would allow for individuals to either opt for the security of annuity payments for their lifetime, or to assume control of a personal account for their own benefit, and for the benefit of their heirs. I believe it is time to think outside of the box in order to attack some of the intransigent problems that this country faces.

Back during the administration of G. W. Bush, Social Security privatization was proposed, and quickly abandoned due to the outcry from many supporters of the system. Those proposals included more diversion of accounts than this proposal, and added more complexity in terms of investment choices. This approach keeps it simple, stupid. And since it rolls out so gradually, everyone would see how well their accounts are doing over time, and should be pleased with the long-term performance of their fund. It’s been nearly 15 years since the last attempt was made to enable private accounts. It is past time to reconsider the approach, and recognize that this is a populist proposal instead of a free ride for Wall Street.