Is America a socialist country? And if it is, so what?

Lawrence O’Donnell, host of MSNBC’s The Last Word appeared on C-SPAN’s Washington Journal this morning. One of the callers chastised him and Alexandria Ocasio-Cortez for supporting socialism. Ms. Ocasio-Cortez last week defeated Representative Joseph Crowley in the primaries for the 14th district. The 14th district is heavily Democratic, having favored Democratic presidential candidates all the way back to William J. Clinton. Sixty-one percent of the 14th district’s voter population is black or Latino. Ms. Ocasio-Cortez is favored to win and Establishment Democrats are not too excited about a Bernie Sanders supporter (Ms. Ocasio-Cortez worked on Senator Sanders’ campaign) infiltrating the halls of Congress.

Republicans may see this single win as a virus that is about to spread through the Democratic Party and may position themselves as the cure. While Nancy Pelosi may express outwardly a lack of concern about a democratic socialist win in a single district, democratic socialism has attracted more attention since the November 2016 election as an alternative to a Democratic Party that has been enjoying a quarter of a century of corporatization.

No doubt Establishment Republicans are enjoying the schism being caused by a socialist insurgency, but I sense run-of-the mill conservatives within and outside the Republican Party like the C-SPAN caller are concerned that a seemingly increasing number of young people are moving toward socialist philosophy. Mr. O’Donnell adroitly addressed the caller’s vitriol arguing that the United States has a political economy that mixes certain aspects of market and centrally planned economies. Conservatives tend to focus on the anti-freedom approaches of socialism such as limited speech, and a lack of universal suffrage at the voting booth. They focus on the brutality of a socialist State toward dissidents, currency manipulation, and closed access to economic markets. They assume that socialism is the only top-down, lock down system on the planet.

They are wrong.

Just one look at America’s monetary system alone should tell a critical thinker that the economy of the United States is top-down and centrally planned. Most people do not issue their own currency. That job is for America’s central bank, the Federal Reserve. See mortgage rates going up and you can reasonably tie some action by the Fed to your pain. And while Republican members of Congress scream about free markets and alleviating the tax burdens of entrepreneurs, they add to the entrepreneur’s burdens by increasing budget deficits creating spending gaps that have to be filled by more borrowing which increases demand for loanable funds which leads to higher interest rates which leads to businesses facing increased barriers to entry into the credit markets. This is top down, centrally planned, oppressive economics in American form.

And let’s not forget our tax system. Talk about centrally planned. Have you ever been asked to give direct insight and opinion on whether your marginal tax rate or effective tax rate should be increased? Of course not. America’s version of the National People’s Congress does that, with the only difference between China’s legislative body and America’s is the frequency of meetings and the amount of checks they place on their executive.

Conservatives would argue that the American electoral system is indicative of an open democracy. That fallacy has been exposed twice in the past eighteen years where the “people’s choice” lost because a small body of unknown electors decided five weeks after a presidential election who the winner was and had that decision certified three weeks later by members of Congress. Top-down. Centrally planned.

Lastly, if Obamacare didn’t convince you that your healthcare finance system is centrally planned, then the history of Medicare should inform you as to the impact and influence the federal government has on the insurance industry. Medicare opened up two markets for the private insurance industry: the administrative services market, where private insurers invested in and provided the administrative infrastructure for serving an influx of newer patients, and underserved market of people over the age of 65 and medical insurance supplemental market, where insurance services gaps in Medicare are filled by private insurers. It is hard for conservatives to argue that the free market met these needs when on the contrary government action created the markets and the opportunity for private insurers to increase revenues.

You can probably find more examples, but the point here is that too many Americans express their lack of economic literacy when wailing about the ills of central planning. While I don’t want to give liberals credit for much, they do make a point when clarifying that the United States’ economy is a mixed one and expose the irony that many critics are likely enjoying some of these socialist programs themselves.

When asked to choose an “ism”, my response is either one, whether socialism or capitalism, represents top down suppression of individual choice because government exercises an inordinate amount of influence under either paradigm. The individual has no say in the crafting of policy in either framework. It is a take it or leave it scenario either way. The questions conservatives should be asking themselves is, can I create a better benefit for myself on my own terms?

What Woodrow Wilson left out of the definition of public administration: capital

Back in 1887, Woodrow Wilson wrote an essay on the importance of the study of administration of government. Mr. Wilson, who would go on to become president of the United States, is usually referred to as the father of public administration. By his definition:

“Administration is the most obvious part of government; it is government in action; it is he executive, the operative, the most visible side of government, and is of course as old as government itself. It is the object of administrative study to discover, first, what government can properly and successfully do, and secondly, how it can do these things with the utmost efficiency and the least possible cost either of money or of energy.”
Other scholars have offered their tweaks on the definition. Charles H. Levine, B. Guy Peters, and Frank J. Thompson define public administration as:

“[T]he implementation of government policy and an academic discipline that studies this implementation and that prepares civil servants for this work.” It is “centrally concerned with the organization of government policies and programs as well as the behavior of officials (usually non-elected) formally responsible for their conduct.”

George J. Gordon and Michael E. Milakovich define public administration as:

“… all processes, organizations, and individuals (the latter acting in official positions and roles) associated with carrying out laws and other rules adopted or issued by legislatures, executives, and courts.”

And Melvin J. Dubnick and Barbara S. Romzek provide the following take on this branch of political science:

“The practice of public administration involves the dynamic reconciliation of various forces in government’s efforts to manage public policies and programs.”

Looking back on my public administration studies and my time as a practitioner, I can say that the above definitions capture the various facets of the discipline; that academics and practitioners do not vary much from these definitions when either studying the administration of public policy or carrying out public policy and managing institutional systems. The problem, however, with the study and practice of public administration in a market-oriented political economy is that the study of public administration rarely if ever addresses public administration’s impact on private capital, specifically, how management of public capital positively impacts returns to private capital.

In getting to his description of public versus private capital, Thomas Piketty first describes national capital “as the total market value of everything owned by the residents and government of a given country at a given point in time, provided it can be traded on some market.” National wealth includes land, dwellings, commercial inventory, other buildings, machinery, infrastructure, patents, bank accounts, mutual funds, stocks, bonds. Mr Piketty found that public capital or public wealth are assets and liabilities held by government and other social entities including towns and other social insurance agencies while private capital or wealth is made up of assets and liabilities held by individuals.

One question that public administration does not address is how best to deploy public capital to boost returns to private capital. While there is literature discussing how public sector spending can boost gross domestic product or even productivity, the study of public administration silos itself by discussing fiscal policy, infrastructure, and public goods, and leaving the discussion of private capital to the markets.

Why is this discussion necessary? Public sector spending needs discipline. How many of us have asked the federal government to provide a cost analysis of each tax dollar we spend and then provide some data on returns on that tax dollar? I wager none. But if public spending on the public goods that act as inputs for private sector production was done at low cost to the tax payer while providing a low cost input for the private sector, could public administration play a more meaningful role in the production of returns on private capital?

It is a question worth pursuing.

A Black political strategy for debt markets. Stay out of them.

You cannot resolve poverty within the black population by attempting to put more blacks into credit markets. Poverty is a function of capital: the less capital you have, the greater the likelihood that you that you will be poor.  Specifically, the more income-generating capital you own, the less likely that you will be poor.  The black political elite believe that if more middle income and poor blacks can borrow money, they would be able to purchase homes, cars, appliances, and the other trappings of consumer life; thus, living the American dream while claiming a stake in assets.  This approach is wrong because it fails to properly address the first act that was necessary for capital acquisition in America and also fails to reconcile the original acts of acquisition with the current barriers to capital acquisition and the alternatives available especially to non-affluent blacks.

Original capital acquisition in America was the result of theft.  This may sound cynical unless you have looked at the history of capital acquisition in America from the beginning of its colonization by European countries.  Take for example the language used by U.S. Supreme Court chief justice Marshall in Johnson v. McIntosh when discussing the principle of acquisition of discovery:

“While the different nations of Europe respected the right of the natives, as occupants, they asserted the ultimate dominion to be in themselves; and claimed and exercised, as a consequence of this ultimate dominion, a power to grant the soil, while yet in the possession of the natives.  These grants have been understood by all, to convey a title to the grantees, subject only to the Indian right of occupancy. The history of America, from its discovery to the present day, proves, we think, the universal recognition of these principles.”

Chief Justice Marshall then goes on to describe how England went about implementing this universal law:

“So early as the year 1496, her monarch granted a commission to the Cabots, to discover countries then unknown to Christian people, and to take possession of them in the name of the king of England. In this first effort made by the English government to acquire territory on this continent, we perceive a complete recognition of the principle which has been mentioned. The right of discovery given by this commission, is confined to countries ‘then unknown to all Christian people’; and of these countries Cabot was empowered to take possession in the name of the king of England.  Thus, asserting a right to take possession, notwithstanding the occupancy of the natives, who were heathens, and at the same time, admitting the prior title of any Christian people who may have made a previous discovery.”

In short, we came and discovered the place. The natural capital lying above and below the land is ours and you leave when we say so.  Chief Justice Marshall said as much when he continued:

“Discovery gave an exclusive right to extinguish the Indian title of occupancy, either by purchase or by conquest … The title by conquest is acquired and maintained by force.  The conqueror prescribes its limits.”

This acquisition by discovery drove, in my opinion, the philosophy of manifest destiny; that white America was destined to spread western civilization and republican democracy to unoccupied territories from whence Native Americans had either been eliminated or removed. The Homestead Act of 1862 and resulting grants of land, this time from the American government, put into the hands of people of European descent more natural resources including land and access to minerals and fuel sources for little or nothing.

Americans of European descent had a considerable head start. But other than establishing that original land acquisition in America is mostly the result of theft, what does this have to do with capital and credit markets? Because land and other natural resources are the anchors for debt markets. They serve as the collateral that backs up loans that are invested into the debt markets. In other words, they create the funding used to underwrite consumer and other debt.  Make the wrong bet and you could lose the family farm. Make the right bet and you have expanded your commercial enterprise from farming into other lines of business.  Occupying the credit generator/underwriter portion of the debt market is where the wealth creation takes place. Asking blacks to occupy the consumer portion of this market, especially when blacks do not have substantial land or mineral resources ownership is the same as putting blacks back on the plantation.

The black political elite cannot take the black population back in time where blacks can set up their own system of original theft in North America.  The black political elite could discourage blacks from entering a credit system that charges them an interest rate on loans that exceeds those as whites, that treats a black couple looking for a mortgage as a credit risk even when that couple has more than sufficient income to qualify for a loan.

One policy recommendation is that while blacks pursue as many income opportunities as possible that they avoid credit markets.  Blacks do not have the political power nor does the rest of America have the political will to offer up another “Oklahoma land rush” specifically tailored for black Americans.  Blacks do have more control over their spending. Paying off debt (much easier said than done) and not purchasing any more money not only leaves more money in the pocketbooks of black people, but sends a message to the bond markets and eventually the U.S. government that if either the markets or the government want blacks to get back into the consumption game, then there will have to be major changes in capital allocation policy.

Understanding your country as a payment system

A macroeconomy is a payment system. Historically, the first payment system was the one where an individual paid himself. His effort i.e. getting up in the morning, finding something to eat, killing it and cooking it, was exchanged for survival i.e. eating, housing, and sex. As he sought comfort, convenience, or security, man decided to enter into an extended payment system called trade with people outside of himself. The results of his efforts represented by a portion exceeding the amount necessary for his survival could now be exchanged for additional comfort, convenience, or security.

The payment system has expanded with trade, becoming local, then regional, now global. The value of the trader’s effort is now represented by hard and digital currency.  But the system is also imbalanced.  It is bloated having been converted into an extraction conveyor belt excavating more out of natural and human resources.  The bankers depicted in Pieter van der Heyden’s The Battle about Money have programmed the conveyor belt to extract more from one’s effort in exchange for access to units of survival that have been increasingly expensive.

This imbalance has led to a widening of the income and wealth gap. The imbalance has also led to a macro payment system that intrudes on the privacy and civil liberties of the individual in order to extract more of his effort and more of his financial resources. It surveils him in order to market items to him that will persuade him to spend more of his coin.

The imbalance has spawned political, social, and economic factions based not on familial ties or lineage but on artificial classes of haves and have nots. Why do I say artificial? Because the reasons usually presented by the political elite for the existence of these classes never takes into account the hoarding of capital, an activity political elites take a heavy hand in.  For if the political elites were truly concerned about reducing these gaps, they would promote initiatives that promote getting into the hands of current consumers the technology that would make them self-sufficient.

Such promotion may result in getting the individual off of the payment system plantation, an end result the elite is not interested in.

Some thoughts on how I model the economy

This is still a work in progress. The old saying is money makes the world go ‘round. Spoken from a consumerist view, the conclusion I can understand. You want to eat, sleep, and shit in relative peace and safety you need coin. Lately I have been taken a harder look at my role in this political-economic ecosystem. I have concluded that we are merely extraction points for tax and sales revenues with intravenous tubing going into one side of our bodies and coming out of the other.

This may sound cynical but I suspect most heads of households feel this way as they try to balance their budgets with increasing expenses.  Will I be able to send my son to college? Can I pay that medical bill?  Will I meet my mortgage?  The frustration stemming from increasing difficulty to obtain the basics is like a stroke, sneaking up on Americans.  In a credit-driven economy, that heart attack may be on the horizon.

Forty-five economists surveyed by the National Association for Business Economics today have a less rosy outlook on the 2018 economy versus three months ago. Although expected growth in gross domestic product is still positive at 2.8%, the forecast is down from a previous forecast of 2.9%.  Current trade policies, according to economists surveyed, will have a drag on future growth with 82% of economists expecting a recession by 2019.

As I discussed in an earlier blog post, data from the Federal Reserve and the International Monetary Fund are not holding out the sunniest expectations for the economy over the next two years.  Inflation is expected to peak at 2.8% in 2018 but fall to 2.4% and 2.0% in 2019 and 2020, respectively. The years 2021 and 2022 will see inflation at 1.9% climbing slightly to 2.0% in 2023.

Also constraining spending will be the rise in interest rates as the Federal Reserve exceeds its targeted 2% federal funds rate goal. America runs on credit and the more expensive is to purchase, the less of it Americans have to spend.  According to IMF data, the ten-year bond rate ended at 2.4% in 2017. The rate on a ten-year note sets the interest rates for lending in the United States. By the end of 2018, the rate on the ten year is expected to climb to 3.2%; in 2019, 3.7%; and in 2020, 3.8%.  The rate will then level off to 3.6% in 2021 and 2022; and hit 3.7% in 2023.

If the last decade is any indication of how well household incomes keep up with inflation, then many American households are in trouble. Average annual growth in household incomes for the lower (.70%); second (.64%); third (.29%), and fourth (.90%) quantile of household income are all growing at rates lower than expected inflation. The top quantile is seeing growth in annual income at a rate exceeding inflation (2.8%).

Many Americans would be upset with this scenario. Why can’t we get ahead? Why this gap in wealth and income? As I mentioned earlier, we are extraction points. We sit, along with natural resources, at the start point of a conveyor belt. At the other end of the conveyor belt is capital made up of coin and credit.  The conveyor belt is fueled or supported by a transportation, communications, and energy infrastructure. Riding on top of the belt are the components trade, government rules, markets, and money. They are to the conveyor belt as application programming interface is to a computer network; a go-between that enables work and income to be extracted from human resources and transported to the eventual owners of capital.

For example, human resources enter markets in order to sell labor or buy goods. Government rules determine the level of tax revenue that will be extracted from human resources.  The amount of money held by a human resource transmits information about that resources economic and financial value; her spending power.

Communications networks provide the conduits for transmitting information about a human resources value. Transportation networks move human resources to areas of employment where human resources convert natural and other resources into goods and services. Transportation networks also move the goods and services produced to end users. The facilities that create goods and services and the vehicles that transport goods and services run on various forms and sources of energy, including coal, nuclear, oil, electricity, solar, wind, and geothermal.

The top 20 percent occupy the capital side of the belt. Social justice warriors who argue the use of politics in order to close the gap between the top 20 percent and everyone else are making a losing argument. Politics is ineffective as a wealth and income gap closer because of the grasp that capital has on the conveyor belt. Central bankers and treasury ministers derive their influence and prestige from ensuring the conveyor belt (which we can also call a tax and payments system) operates at optimal to deliver returns (income) to the conveyor belt’s bond holders. Capital invests resources in lobbying, advocating, and the electoral process to ensure there are politicians in place that will make rules that do not impede the conveyor belt.

Those who are fed up with being extraction points want to stay off of the conveyor belt. We want to limit or eliminate our use of the communications, energy, and transportation networks that power the conveyor belt. Use of unlicensed spectrum to create our own networks; use of renewable energy sources in order to remain off grid; avoiding the purchase of vehicles in order to avoid the taxes and surveillance that are attached to them should be a goal.

I do not endorse living like a hermit (although I have no problem with prolonged peace and quiet), but we should pursue self-sustainability in order to minimize the consumerism that pulls us into unnecessary trade and market engagement.  We will free ourselves to accumulate more capital while starving the beast that created the imbalance in wealth and income in the first place.

Too bad the Democrats chose to politicize today’s EB-5 immigrant investor hearings

I am always reminded when watching a congressional hearing that the first duty of Congress is to keep the Executive in check. Today was no exception as I tuned into the U.S. Senate Committee on the Judiciary’s hearing on the Employment Based Immigrant-Fifth Preference Program. The chairman of the committee, Senator Chuck Grassley, Republican of Iowa, called the meeting to discuss the problem of fraud in the program.

The EB-5 immigrant investor program promotes foreign direct investment in the United States by granting a green card (permanent residency) to an immigrant and his or her family where the immigrant invests $1 million or $500,000 in an investment that targets rural or underserved urban areas.

I was less interested in the fraud aspect, hoping that between any discussion of the downside of theft that the panel and its lone witness would shed some light on its benefits.

I should have known better….

A number of Democratic members of the panel, Senator Dick Durbin, Democrat of Illinois, and Senator Diane Feinstein, Democrat of California, decided to go off script and ask questions that had more to do with the issue of children being separated from parents detained at a Mexican-U.S. border non-port of entry versus how to tweak an investment program so that underserved communities in the United States get some economic attention.

It is no wonder that Congress gets blamed for not getting things done. One could argue that one thing these senators could have gotten done was ask why there were no immigrant investor regional centers in the United States Virgin Islands or Puerto Rico. Given the high rates of poverty in both territories and the need for more economic development, attracting investment to underserved areas like U.S. Caribbean territories should have been among the committee’s priorities.  If they had any sense of awareness, one look at the calendar should have told them that it was that time of the year where Caribbean territories are preparing for another hurricane season.  Maybe one of those foreign immigrants they give so much credit to as innovators could be incentivized to invest a million or so dollars in the USVI or Puerto Rico in exchange for a visa….

… but that’s asking too much …

The political takeaway here is that criticism of any sitting president’s policy is the “doing something” that Congress is best at. You have to apply an entropy effect approach to understanding congressional politics. Taking time to conflate the EB-5 program with President Trump’s “zero tolerance” policy on immigrants trying to enter the U.S. without a visa should not be a surprise. It should be expected.

Immigrants coming from the Caribbean and Latin America to the United States over the next two years should prepare for a rough patch thereafter.

The International Monetary Fund today released a report describing a robust 2017 and 2018 U.S. economy, but 2019 and 2020 may be brutal for Americans as the economy is expected to taper off during those two years.

First the good news. Growth in gross domestic product was 2.3% in 2017 and is expected to climb by 2.9% in 2018. In 2019, the United States will see a slight tapering off in GDP growth at a growth rate of 2.7%.

Now, the bad news.  By 2020, the next presidential election year, growth will fall off almost abysmally when Americans see a GDP growth rate of 1.9%. It won’t get better in 2021, 2022, or 2023 as the growth rate continues to decline with growth rates projected at 1.7%, 1.5%, and 1.4% respectively.

At first blush the unemployment rates may look good during those periods. For example, by the end of 2017, the unemployment rate was 4.1% which is considered an indicator of an economy at full employment. The numbers, at least on the surface get better. In 2018, unemployment is expected to be at 3.5%, under the historical full employment mark. The U.S. will continue to see low unemployment in 2019(3.5%), 2020(3.4%), 2021(3.5%), 2022(3.7%), and 2023(3.8%); all figures again reflecting full employment.

Now we have to reconcile the low unemployment rate with low GDP growth. I suspect that more members of the tail end of the Baby Boom will contemplate retirement and may opt for leaving the workforce. As more people leave the workforce, all other things remaining equal, the number treated as unemployed also falls. Also, as the population ages, people on fixed incomes will adjust their budgets to reflect their new spending realities. Reduced spending by Baby Boomers will contribute will contribute to the slowdown in growth.

Also constraining spending will be the rise in interest rates as the Federal Reserve exceeds its targeted 2% federal funds rate goal. America runs on credit and the more expensive is to purchase, the less of it Americans have to spend.  According to IMF data, the ten-year bond rate ended at 2.4% in 2017. The rate on a ten-year note sets the interest rates for lending in the United States. By the end of 2018, the rate on the ten year is expected to climb to 3.2%; in 2019, 3.7%; and in 2020, 3.8%.  The rate will then level off to 3.6% in 2021 and 2022; and hit 3.7% in 2023.

Inflation is expected to peak at 2.8% in 2018 but fall to 2.4% and 2.0% in 2019 and 2020, respectively. The years 2021 and 2022 will see inflation at 1.9% climbing slightly to 2.0% in 2023.

While the economy will be in a sluggish mode, immigrants should be mindful of the social mood. A lot of the animosity toward undocumented immigrants has been tossed at immigrants from Mexico and Central America. Today, media is honing in on the Trump administration’s preferred policy to separate parents attempting to enter the U.S. across its border with Mexico without visas from their children.  I suspect this treatment will be carried out at all points and ports of entry. But given the animosity hurled at immigrants during booming years of an American economy, the social fabric may be a bit worn and the welcome less warm during a sluggish one.