Category Archives: Economics

The Greene New Deal


The sustainability of any business depends on its ability to either maintain and grow its current consumer base or develop and market new products and services to attract a previously untapped market.  Or sometimes both as has been the case of the Ford Mustang.  Facing competition from other automobile manufacturers for the “family car” buyer which had been the mainstay of its success,  Ford introduced the Mustang at the New York Worlds Fair in April 1964.  First year sales totaled 618,000 vehicles, more than five times the company’s pro forma projection.  For many of these initial model year owners, the Mustang was their first new-car purchase.

Image result for mustang mach eMore than a half century later, the average age of Mustang buyers is 51 years old.  As they became empty-nesters, many loyal Ford owners have stuck with the Dearborn-based company, trading in their Escapes and Explorers for the latest version of the “muscle car” including the 2020 Mustang Mach-E, an electric SUV crossover (pictured here).  In other words, Ford used the Mustang brand to first attract the untapped youth market and later to recreate that experience for an older generation.

Based on an article in this morning’s edition of USA Today, I realized the same principle applies to political parties.  When their traditional base begins to dwindle they have the same choices.  Tap a new market, provide policies and programs that appeal to long-time loyalists or both.  Such is the case with the Republican party.  To fully appreciate its transformation, the first task is to ask, “What happened to the traditional base which produced presidential victories in all but four years (Jimmy Carter’s single term) between 1968 and 1992?”

The answer is pretty simple.  Between 1950 and 1980, real family income rose almost equally for all households regardless of economic status.  Since that time families in the top five percent have seen real income increase by 180 percent which median income gains equal 130 percent and lower income growth is less than 120 percent.  (Source:  Center for Budget and Policy Priorities based on U.S. Census data)  In partisan terms, for the first three decades after World War II, an overwhelming majority of Americans were benefiting from the post-war boom and viewed the GOP as the conservative force that would protect those gains.

As upper class households continued to flourish while middle and lower class family income was stagnant, the percentage of voters who identified as and voted for Republicans decreased.  Best evidence?  The GOP won the popular vote for president once (2004) in the last 28 years.  The Republican party was the partisan equivalent of Ford Motor Company in the mid-1960s.  To continue its viability on the national scene it had to stop the loss of traditional voters and fill the gap with new voters.

Which brings me to this morning’s report on a mid-February Suffolk University/USA Today poll of 1,000 Trump voters.  It suggests, even though the GOP hoped to hold on to upper income voters with tax cuts and deregulation, its ability to make the 2020 election closer than predicted is largely due to an increase in voter participation by Donald Trump cultists.  Consider the following Statista exit poll data for 2016 and 2020.  In 2016, voters with annual income between $50,000 and $99,9999 supported Trump by a margin of 50 to 46 percent.  Compare that to a 2020 Biden advantage of 56-43 percent for the same demographic.

But for one income cohort, the tax and deregulation strategy worked.  The 2020 margin of Trump support among voters with an annual income of $100,000 or more increased by almost 10 percent (54-43) compared to a less than two percent margin in 2016.  Unfortunately for the GOP, those voters made up a smaller percentage of the total vote in 2020.

With the decrease in voting power among upper income voters, the GOP needed to look elsewhere to make up the difference.  The USA Today  analysis by Susan Page and Sarah Elbeshbishi makes it pretty clear where they came from.

  • 73 percent of Trump voters still say Joe Biden was not legitimately elected.
  • Trump voters by a margin of 46 to 27 percent would abandon the GOP and join a Trump party if he decided to create one.  A similar margin believes the Republican party should be more supportive of Trump.
  • 80 percent think the seven GOP senators who voted to convict Trump “were motivated by political calculations, not their consciences.”
  • 58 percent believe the January 6th attack on the U.S. Capitol was “antifa-inspired.”
  • 76 percent would support Trump for the 2024 Republican nomination for president and 85 percent would vote for him in the general election.

If half the 2020 Trump vote totals came from those whose first loyalty was to the candidate, not the party, it explains both the continuing hold Trump has over the GOP and the willingness of Republican officials to dance with him and down-ballot candidates like Lauren Boebart and Marjorie Taylor Greene.  If you think Texans were left out in the cold by an increase in renewable energy, that is nothing compared to what the GOP will face if its future is fueled by renewable conspiracy theories which are at the heart of this other “Greene New Deal.”

For what it’s worth.


WealthFare Queens


The question of the day: “Why is it so hard to come up with solutions to the nation’s most pressing problems?”  Hopefully, the following example sheds some light on this often voiced critique of government as each option requires balancing opposing objectives.

A recent conversation with a long time friend and colleague focused on the pending COVID-19 relief package.  While we agreed those who had suffered the most economically during the pandemic need additional help, he asked the question most fiscal conservatives have ignored the past four years, “Who is going to pay for it?”  He then challenged me to come up with a way to pay down the national debt.

Within 24 hours I gave him one option based on the following facts and assumptions.

  • The national debt is approaching $28 trillion.  With the addition of a $1.9 trillion relief package it will top $30 trillion in the coming fiscal year even with an anticipated rebound in GDP and employment.
  • Labor is already heavily taxed when you take into account income tax, social security and Medicare.
  • Non-labor income has had a relatively free ride.  Dividends and capital gains are taxed at a lower rate than labor-based income.  Hedge fund managers (you know, those people who bet AGAINST the U.S. economy) can defer income and have it treated as capital gains rather than management fees.
  • Increasing government revenue is about more than tax rates.  It also depends on the base, i.e. the goods and services to which the rate is applied.  States and localities, most of which are required to balance their annual budgets, have added once tax-free commodities (e.g. downloaded software) to the list of taxed items to meet their constitutional requirement to match revenues and expenditures.

These facts and assumptions set the direction in which I sought a solution to the debt.  Was there a  currently un-taxed good or service that could generate enough revenue to pay off the national debt?  If so, could it be taxed and how?  And finally, would such revenue source infringe on state and local receipts?

The answer to the first question was easy.  How is buying stock different from purchasing a computer, car or clothing?  And stock transactions are not taxed by state or local governments.  The logical conclusion?  Impose a sales tax on the value of a stock purchase.  But would it generate enough income to eliminate the debt.  To determine this, I looked at the data about stock transactions on one day (December 31, 2020).

  • The value of all stock sales (including all U.S. exchanges) totaled $411.2 billion.  I chose New Years Eve because sales volume is historically lower than an average day making any annual projection more conservative than might be expected.
  • A 2.5 percent national sales tax would generate $10.3 billion on that one day.
  • The markets are open 253 days annually.
  • The annual revenue from the sales tax would be $2.6 trillion.
  • At this rate, the current debt of $28 trillion could be paid off in less than 11 years.

If, however, you thought a 2.5 percent rate was too high, lower it to 1.0 percent.   Annual receipts would fall to $1.04 trillion, eliminating the current debt in just under 27 years.

I then applied it to my own stock transition history for calendar year 2020.  I had purchased stock valued at $30,053.  At 2.5 percent my contribution to debt relief would be $751 for 2020.  That seemed to make sense as a fair share for someone with our net worth.

My friend, who lives on the other side of the tracks (the good side), suggested his 2020 contribution would have been $300,000, to which he added the word, ‘Gulp!”  But, if you do the math, that meant he purchased $12 million in stock value last year.  To which I replied I doubted anyone who could spend $12 million on stock in a single year would miss a meal because of the new tax.  And then asked, “Would you prefer we treat dividends and capital gains as regular income subject to your marginal rate?”  He did not even reply to that inquiry.

Image result for social securityI then anticipated an additional objection.  Any new tax, regardless of its initial purpose, would be more federal revenue and would only lead to more spending, not debt reduction.  So, I suggested any new tax must be dedicated to that specific purpose.  Right on cue, he asked, “Wasn’t that supposed to be the case with Social Security.  Yet Congress raids it constantly to cover the deficit?”  Yes, that is why this new tax should be created by amending the constitution as was the case with the income tax.  The 16th Amendment put restrictions on the imposition of a federal income tax.

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

Those restrictions have been upheld time and time again by the courts.  Therefore, the “power to lay and collect taxes” on the value of stock purchases for the sole of purpose of paying down the national debt could have the same judicial weight if violated by any future Congress.

After he shared my idea with several wealth managers, my colleague said their message was crystal clear.  Wall Street will never accept a tax.  I needed to focus on fees.  He recommended a $1.00 fee on transactions over $100.  Unfortunately this option had two drawbacks.  First, even if the $1.00 fee was applied to all transactions, the total daily revenue would be approximately two billion dollars, one fifth of that generated by the 2.5 percent sales tax.  Therefore, eliminating the current debt would take 55 as opposed to 11 years.  Second, a fee per transaction is highly regressive.  If I buy one share of IBM at $128, the fee would be equal to 0.7 percent of my purchase.  If my colleague buys one share of Berkshire Hathaway Class A stock for $365,000, his fee is 0.00027 percent of his transaction.

He came back with a suggestion the fee apply only to transactions over $1,000.  Okay, that makes it a little less regressive.  However, the average value of all transaction is approximately $117.60 (total dollar volume divided by block volume). In other words, the cost of making any fee less regressive is a corresponding decline in the revenue needed to erase the debt.

Which brings me to the title of this post.  After raising the more regressive nature of the fee over a percentage tax on transaction value, my friend responds, “Life isn’t fair.”  To which I reply, “You’re right about life not being fair.  But it’s fairer if you are rich and have lobbyists.”  Let me explain.

We hear a lot from fiscal conservatives about the cost of the social safety net.  Of course there are abuses, but the general principle is the “net” is designed as a hand up, not a hand-out, especially when Americans fall on hard times.  What we never hear about is the “corporate safety net.”  Consider the following occasions on which corporate America turned to the government for assistance which responded with the associated federal outlays.

  • 1980s savings and loan crisis ($132.1 billion)
  • 2008 subprime crisis ($700 billion)
  • 2018 tax act yearly impact on corporate tax receipts ($116 billion/Source: Forbes)
  • 2019 farm crisis due to Trump tariffs ($41 billion)
  • 2020 pandemic relief to major industries in the CARES Act ($208 billion)

Image result for fossil fuel industry subsidyIn contrast, the FY2020 federal budget included $16 billion for Temporary Assistance for Needy Families (TANF). $66 billion for Supplemental Nutritional Assistance Program (SNAP) and $60 billion for HUD Housing Assistance.  Compare that to the estimated $649 billion in direct and indirect U.S. subsidies to the fossil fuel industry in 2015.  (Source: International Monetary Fund).

So, the next time you hear a politician rail about entitlements and the welfare state being responsible for the national debt, those living in poverty are not the only beneficiaries.  Or when you hear Republicans accuse Democrats of wanting to give everything away for free, think about who else is currently on a free or heavily subsidized ride in America.

Deficit hawks who constantly preach about the critical need to bring down the national debt are no better than those they claim are living off the American taxpayer.  They want to balance the budget and eliminate the national debt.  But please, please do not ask them to pay to do it.  That is what makes them “WealthFare Queens.”

For what it’s worth.


UNhidden Figures

Many times, things that are easy to measure are unimportant, and things that are important are hard to measure.

~Michie Slaughter

MICHIE SLAUGHTER Obituary (1941 - 2014) - Kansas City StarThe above quote was made in reference to understanding the impact of charitable investments (i.e. grants, research and programs) by the Kauffman Center for Entrepreneurial Leadership for which Slaughter served as its first president.  I was reminded of this warning as I watched the on-going congressional deadlock over the size of COVID-19 stimulus checks.  My first epiphany was I had often paid attention to only half of what my colleague and friend was trying to tell us.  Being a trained empirical social scientist, my focus had been on data collection and analytical methodology.  But that was just one side of the equation.  Too often I assumed I already knew what was important.  But in this case I was not so sure.  In other words, one needs not only to establish the method by which something is measured, but the why.  Why would anyone want to expend time and effort measuring something in the first place?

As is so often the case, coming up with the right answer depends first on asking the right question.  In this case, the debate in Washington centered on the size of the checks, the current $600 per eligible recipient versus the proposed increase to $2,000 per recipient. In both the initial CARES Act last March and the recently passed COVID Relief Act, eligibility was defined as $75,000 of total adjusted income for a single individual and $150,000 for a married couple filing jointly for the 2019 tax year.  This information is easily obtained from Line 8b of the 2019 IRS Form 1040.

If this was the only available metric one could argue it makes sense.  Unless you ask another question.  Does this data point tell you who is most in need of supplemental income during the current economic recession?  To answer that question you need to examine the range of revenue streams which make up total adjusted income.

  • Line 1: Wages, salaries, tips, etc.
  • Line 2a: Tax-exempt interest
  • Line 3a: Qualified dividends
  • Line 4a: IRA Distributions
  • Line 4c: Pensions and annuities
  • Line 5a: Social security benefits
  • Line 6: Capital gain (or loss)
  • Line 7: Other income

Now, think about which of these subcategories are most likely to be affected by an economic slowdown.  The stock market has more than recovered from the March 2020 crash; so your qualified dividends and capital gains more likely rose in 2020.  Mandated 2021 IRA distributions should also increase as the value of an IRA account also grew this past year.  Social security payments are unaffected, increasing one percent for 2021.  And most pensions and annuities are likely to remain relatively stable.

This information already exists for every American taxpayer and is readily retrievable with a flick of a switch.  So, if the goal is to help the most vulnerable, we now have both the desired outcome and a trove of data.  The final task is to determine the weight of each data point to achieve that outcome.

This is not rocket science, but I find it hard to believe if mathematicians and analysts can program a reusable rocket to land on a platform at sea or instruct a space probe to retrieve dust from an asteroid traveling at  63,000/hour, there is not an algorithm that would match the mission of aiding those most in need of supplemental income.  Consider the following as one approach.

The $600 stimulus checks are history; so, let’s leave them out of the equation and focus on the currently proposed $1,400 per eligible recipient which is projected to cost $460 billion. Let’s call that the “relief pool”.  Using the established benchmarks for total adjusted income of $75k/individual filer and $150k/joint filers, approximately 153 million Americans would be entitled to a “share” of the “relief pool.”  However, not all shares would have the same value.  For example, someone whose entire total adjusted income came from wages or salary (Line 1 of their 2019 return) would receive a full share.  At the other extreme, the share of someone whose total revenues resulted from other than earned income (e.g. dividends, pensions, social security) would have no value as they are likely unaffected at all by the downturn.  For the record, our household falls into this second category, and we are fine with that.

The shares of all other filers would be equal to a percentage of income derived from all non-earned income sources (Lines 2a-6) divided by total adjusted income (Line 8b).  If the $460 billion appropriation is used, each non-zero shareholder would get a proportionate share of the pool with one exception.  No individual would be entitled to more than their total earned income in 2019.  For example, even if a full share was worth $5,000, an individual or joint filer with $3,000 in wages and salaries, would only be eligible for the latter amount.

Is the formula perfect?  Probably not.  The specifics should be subject to the usual policy debates.  The amount of the total “relief pool” can also be addressed.  What is not arguable is the fact the data to test this formula and alternatives is readily available.  All we need is the right people developing the corresponding algorithms.  Where are Dorothy Vaughan, Mary Jackson and Katherine Johnson (the original “hidden figures”) when we really need them?

POSTSCRIPT:  I cannot leave this discussion without commenting on Miser Mitch McConnell’s description of the $2,000 stimulus checks as “socialism for rich people.”  In the style of a Shakespeare sonnet, “How wrong can Mitch be; let me count the ways.”  There is no coordinated production, public or cooperative ownership of capital as Karl Marx described.  There is no redistribution of wealth based on the principle “to each according to his need, from each according to his ability.”  If anything, Mitch is the leading proponent of reverse socialism, cutting the social safety net while giving massive tax breaks to the rich.  This morning’s news featured a number of stories about food lines where volunteers were serving holiday meals.  I wonder how many of these aid recipients asked,  “Do I get tax-deductible martinis with this?”

For what it’s worth.


Vanity Unfair


Mnuchin says he will talk to lawmakers about PPP disclosureAmong the issues holding up passage of a second federal COVID-19 relief package is whether additional financial assistance to individuals should come in the form of extended unemployment benefits to approximately 13.5 million displaced workers or a second round of stimulus checks similar to the $1,200 per adult and child in round one.  On Tuesday, Treasury Secretary Steven Mnuchin laid out the administration’s preference.

  • Extend supplemental unemployment at a reduced amount of $300 per week versus the $600 per week in round one.
  • Another round of stimulus checks at $600 per adult and child.

In contrast, a proposal drafted by a bi-partisan, ad hoc group of nine senators, now supported by House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer, prioritizes unemployment benefits and does not include additional stimulus payments.  A third framework supported by Senate Majority Leader Mitch McConnell also favors help for the unemployed in lieu of stimulus checks.

My question is, “Why would the T**** administration prefer stimulus checks over unemployment benefits?”  Here are three potential economic arguments.

  • The reduced unemployment payments in Mnuchin’s proposal would have less impact on spending and the deficit, reducing the cost to $40 billion compared to the provisions in the bi-partisan plan totaling $130 billion.
  • Stimulus checks will put more money into the economy more quickly.
  • More Americans would benefit from the stimulus program.  As of August 31, 2020, the IRS had issued over 153 million direct payments compared to the 13.5 million long-term unemployment recipients.

Makes sense until you look at the other side of the ledger.  Let’s take each of the above rationales for the administration’s preference for stimulus checks one at a time.

Yes, taxpayer costs for the reduced unemployment benefits would save $90 billion.  However, the first round of stimulus payments total $269 billion.  Even when you halve it, as Mnuchin proposed, the cost would be an additional $135 billion, a net increase in the deficit of $45 billion over the bi-partisan unemployment provisions.

A large percentage of the April 2020 stimulus checks did NOT contribute to consumer spending.  Why?  Because many Americans, myself included, received a payment they did not need.  My evidence? The U.S. Bureau of Economic Analysis reported, following distribution of the first stimulus checks in early-April , the personal savings rate soared to a historic high of 33 percent compared to 12.7 percent a month earlier.  In other words, for a large share of the stimulus recipients, it made no difference in their spending habits.

Finally, when it comes to the impact of federal transfer payments, sometimes the key is not how many, but who.  For example, individuals invested in the stock market got richer during the pandemic.  Older Americans whose expenditures were based on pensions and Social Security saw little if any change in net income.  The unemployed have taken the brunt of the economic downturn and are facing immediate consequences as mortgages, rent or other household expenses come due.

But let’s be honest.  Neither relieving hardship and suffering nor empirical evidence have been a motivating factor for the current administration.  What excites T****?  Seeing his signature in print (except on checks to porn stars).  Therefore, we should not be surprised the administration is more interested in stimulus checks with a facsimile of the Sharpie-in-chief’s John Hancock than unemployment checks which are distributed through state employment agencies.  Just one more example of VANITY UNFAIR which will fortunately be history in 40 days, 1 hour, 32 minutes and 43 seconds or sooner, depending when you read this entry.

For what it’s worth.


Chuck E. Trump


BLOGGER’S NOTE: If length were not an issue, today’s post would have been, “Everything I Needed to Know about Women Voters in 2020, I Learned from Chuck E. Cheese.”

Wednesday’s  ABC/Washington Post poll results in Michigan and Wisconsin affirm what may be the defining difference between this year’s election and 2016, a gender gap of historical proportions.  In Michigan, Biden’s lead among women is 24 percentage points.  In Wisconsin, 30 percentage points.  And the pundits have had a heyday analyzing this defection by females, the latest being the threat to reproductive rights following the appointment of Amy Coney Barrett to the Supreme Court.

Chuck E. Cheese might be trying to hide who they are, but Orlando still  owes a lot to this mouse | BlogsBut, as is so often the case, current events are echoes of past experience if only we pay attention.  In this case, the ultimate clue that foreshadowed the propensity of women to reject Donald Trump in 2020, lies outside the political area.  Instead it is embedded in a 1998 business case involving the licensing of the Chuck E. Cheese  (CEC) brand by American Sales and Marketing (ASM) for the purpose of creating a line of retail food products to be sold in grocery stores, much like those offered by Boston Market and P. F. Chang.

Before executing the license agreement, ASM did its due diligence, contracting with a market research firm to provide concept guidance related to the children’s food market and the Chuck E. Cheese brand name.  John Fox Consulting conducted 200 mall intercept interviews in Baltimore, Jacksonville, Chicago and Los Angeles in mid-January, 1998.  The targeted interview subjects were females with at least one child age 3-12 who had purchased a frozen entrée, snack or pizza in the past month.  Based on these interviews, Fox Consulting recommended ASM develop a line of CEC frozen food products.  Specific items were selected through taste-tests in mid-March, 1998.  Based on this analysis and projected revenues and costs, ASM executed the license and introduced the initial products in early 1999 via a subsidiary of ASM called CCF Brands (CCF being shorthand for Chuck E. Cheese Foods).

At the end of two years, annual sales reached $8.8 million, significantly less than the  $33 million projected in the 1999 business plan.  The problem lay not in the product itself or the initial marketing.  The number of first time buyers exceeded expectations with favorable reviews related to quality and value.  The problem was a dramatic fall-off of repeat customers.  ASM conducted additional research to isolate the issue.

It was the findings from that analysis which also explain the migration of female voters from the Trump column.  The fatal flaw in the original research was failing to understand the attitudes toward Chuck E. Cheese between a three year old and a twelve year old are quite different.  In households where there were children with a gap in age, the introduction of CCF products produced chaos.  While the younger child was an eager consumer, the older sibling wanted something more age appropriate.  In one case, a mother reported the older child chided his younger brother repeatedly chanting, “Chuck E. Cheese is for babies.”  Before I am accused of perpetuating the dated stereotype of housewives Trump has voiced in the last days of this campaign, most of the females who initially bought the product were working mothers who saw the frozen foods as a convenience, an easily prepared meal or snack.  Instead, the sibling conflict produced the exact opposite effect adding to the mother’s roles as arbiter and disciplinarian.

All you have to do is substitute the name Donald Trump for CCF Brands and you could have seen the gender gap coming.  In 2005, I conducted an interview with ASM president Kevin Connor in which he identified three mistakes which sealed the fate of this venture.

  1. Conducting mall intercepts, especially pulling aside a woman with one child, did not replicate the conditions in a typical household with multiple offspring.  In concept it made sense.  Injecting the products into real world environments created previously unforeseen problems.
  2. The marketing campaign promoted “bringing the fun of a Chuck E. Cheese restaurant into your home.”  Instead, it resulted in anything but fun.
  3. Having a CCF Brand product in the freezer would make live easier.  In reality, parents either had to prepare two different meals or spend time de-escalating sibling conflict.

So, in 2016, all of the excitement and enthusiasm at a Trump rally felt good.  America First in concept was a relatively easy sell in arenas and on TV.  But once tested in homes and the marketplace, the sheen quickly wore off.  Trump claimed “we would get tired of all the winning,” but many of us are still waiting.  And has the Trump era made life easier for most women?  Ask any mother who cannot go back to work because her children are still at home taking remote classes.  Or the women worried about aging parents, afraid they might be the next COVID casualties.  Even before COVID, women understood they had to be peacemakers at family gatherings or social events where any moment there could be outbursts between Trump supporters and resisters. Walking on eggshells is itself exhausting.

For many women, life before Trump was turbulent enough.  Many of the causes were beyond their control.  Such is not the case with Trump.  That is why women will make the difference in 2020.  And hopefully, the next time Americans are faced with a similar choice, instead of looking to Rachel Maddow or Sean Hannity for guidance, they first seek out an animatronic rodent named Chuck E. Cheese.

For what it’s worth.