The World According to Opa

Like an overloaded airplane at high density altitude, our economy is underpowered and burdened with unproductive drag.

Years ago, as a student pilot vying for a commercial fixed-wing license, my wife and I were flying cross country in a rented Piper Arrow. As a requirement for my new license, I had to log a number of solo cross country hours anyway, so we were taking advantage of the requirement to enjoy a little get-away. My VA educational benefits were paying for the flight hours. Thank you, Uncle Sam.

After three glorious days at South Shore Tahoe where the altitude above sea level is 6,237 feet, we were taking off again on the next leg of our trip. It was mid-afternoon, warmer and more humid than usual. A storm was approaching so the “density altitude” must have been at least 10,000 feet.

With us on this flight was another young couple, a full load of fuel, and at least one suitcase for each of us. We were too heavy and I should have known better. Cecil? Helen? If you’re reading this now, I’m sorry. I screwed up!

The stall horn started sounding almost immediately after breaking ground following a long take-off roll. I never should have rotated, but I was committed now. My wife asked, “What’s that noise?” At the same time, a tower operator advised me over the radio that there was a golf course to the right just off my nose if I needed it. With flaps and landing gear still down, I was struggling to gain altitude and ponderosa conifers at the base of Sierra Nevada mountains were coming up fast. Our couple friends in the back were oblivious to the looming disaster.

Zoom forward. It’s today. We’re still alive.

I recently responded to several comments posted by a reader of my blog who is skeptical about our nation’s need for healthcare reform. His major point is that we are in the midst of a serious recession and that healthcare reform will cost more than a trillion dollars over the next ten years. He, like many Americans, are fearful of the impact of a growing national debt on our already sick economy and he expressed an unwillingness to do his part to address the problem — arguably one of the biggest reasons our economy is struggling to gain altitude.

Like an overloaded airplane at high density altitude, our economy is underpowered and burdened with unproductive drag. The drag is our outmoded, out-of-date, managed care system for compensating doctors, hospitals and the rest of the health care community — or should I say “industry”. So our economic airplane is losing altitude even as a range of mountains looms ahead. I’m speaking of course of the baby-boom generation fast approaching retirement age. There are other sources of drag on our economy, like our dependency on foreign oil which may be as big a problem as health care. But that’s another issue. Minimizing the health care drag is something that we can do today without having to invent or perfect new technologies and replace much of our energy infrastructure.

SHOUTAmerica, a non-profit organization committed to culti- vating sustainable solutions and policies that address today’s healthcare crisis with a conscience for tomorrow, has created an excellent video designed to grab our attention about the need for healthcare reform. If you haven’t yet watched it, I think you’ll find it both informative and compelling.

Despite the serious nature of this crisis situation, the CPR (Conservatives for Patients’ Rights) is airing infomercials suggesting that the government’s plans for healthcare reform will actually raise costs and pit “government bureaucrat” gatekeepers between us and our doctors. Well, gee, don’t we already have gatekeepers employed by commercial insurance companies standing between us and our doctors (see Republican Arguments Against Health Care Reform ~ The Ammunition of Myths)? If we are lucky enough to still have insurance, and 46 million people living in America do not, whether we have opted for a lower cost HMO or a higher cost PPO, this is true. Notwithstanding, CPR’s efforts seem to be having their intended effect. Public support for reform and the political will to get it done, according to some independent polls, seem to be slipping. That’s why the President wants Congress to act swiftly. The politics of fear worked for private interests last time around with the Harry and Louise infomercials. Let’s not let it happen again.

I apologize for my own scare tactics… act decisively or crash ‘n burn. But sometimes one must fight fire with fire.

Oh yeah, you are wondering how we survived the looming disaster years ago at South Shore Tahoe. Well, I decisively risked a might more back pressure on the airplane’s yoke and started a slow, cautious bank to the right (I wish I could say to the left, my analogy falters here somewhat, but that’s not the geography at South Shore Tahoe). After barely clearing the trees, I pushed the yoke forward to gain enough airspeed over the clearing afforded by the golf course so that retracting the landing gear and flaps wouldn’t add too much more drag. We gained altitude, slowly but it was enough so that I could wind our way up the steep valleys ahead of us and eventually clear the mountain tops. The golf course proved to be our salvation and I learned several important lessons about flying that day:  plan a good flight considering all relevant factors, and then fly the plan; if the plan doesn’t work out, innovate smartly and decisively; get your head out of the cockpit and trust good advise from unbiased experts. The tower operator that day was not in the airplane with us that day, but he sure knew what he was talking about. Likewise… trust the good advise from unbiased experts on the need for health care reform. Who are the biased experts? Those whose ears are had by those who profit by the status quo.

Health care reform, as advocated by the President, like the golf course at South Shore Tahoe, will be our economy’s salvation. But we cannot hesitate to act decisively.

I invite your comments, whether you support the President’s plan or not.

We here in the United States have had it pretty doggone good for a long, long time. We’ve been riding the gravy train for decades, borrowing from tomorrow so that we can have it all today…

April 18, 2009 — In the wake of nation-wide “tea parties” on Tax Day this year, another teacher and I had occasion to discuss our different views.  In as much as his political persuasion is strongly conservative and mine is more liberal, I celebrate the fact that we are able to have civil, respectful discussions like this. He, by the way, used to teach advanced macroeconomics at the high school level while I teach the same subject currently.

My colleague said that he thought these protest demonstrations (they were a pretty big deal for conservative voters here in Texas) were entirely appropriate. My position was that they were less about taxing and spending and more about protesting the fact that Democrats have taken control of Washington and are now in a position to push their liberal agenda on a wide range of issues. Based on some of the protest signs I saw in news coverage by the various networks including Fox, I also said that I thought many attended because of the outrage they feel at having an African American in the White House. He disagreed saying that he thought the primary focus of the demonstrations was on the economy and that the right thing to do to combat the recession would be to reduce taxes even more and to tighten governments’ belts: local, state and federal.

I reminded my colleague that this is exactly what government did prior to and during Hoover’s one term as president. This was during the recession that took hold of us in the 1920s, the resession that bloomed into the Great Depression of the 1930s. We have learned from that experience, at least some of us have, that tightening the money supply and reducing government spending only serves to exacerbate the decline of aggregate demand, and it is aggregate demand that drives the economy, not aggregate supply. Supply only follows demand or the anticipation of improved market conditions as businesses  have no motivation to produce goods and services that cannot be sold — hence higher unemployment during recessions. My colleague teaches U.S. History now, by the way.

My colleague countered with the view that raising taxes on people who earn $200,000-plus, which is what he said the president’s tax provisions in the current budget plan will do, will hurt small businesses causing them to have to scale back on production and services.

Hmmm… no one, it seems, enjoys having to pay taxes, but — and I pointed this out to my colleague — the Obama administration and the Congress is not raising taxes this year on people making more than $200,000. Their taxes will not change until after the Bush/Cheney tax cuts expire, and that won’t happen until the end of the year. When it does, their marginal rate will increase by only 2 percent. This year, everyone making less than $200,000 will see their federal taxes decline.

We here in the United States have had it pretty doggone good for a long, long time. We’ve been riding the gravy train for decades, borrowing from tomorrow so that we can have it all today, which has allowed the rich to get ever richer while the earning power for all the rest of us has actually declined. Investment bankers and senior executives of major corporations are laughing all the way to their off-shore, numbered bank accounts. According to the text book from which I teach my high school seniors, because of inflation and the demise of manufacturing in the United States, the minimum wage, as a percent of average manufacturing wages, buys only about 70 percent of what it did in 1968.

On the right is a listing of countries’ average taxes paid in 2007 by citizens as a percentage of their GDPs. Notice how the United States is ranked. I found this information on the Internet at Wikipedia. The data came from a publication by the Organization for Cooperation and Economic Development. After Obama’s tax cuts for 95 percent of the population are approved and implemented for 2010, we will probably be paying slightly more than South Africans do. Can you even imagine what Japan’s taxes would be like if they had anything like the defense budget to fund that we have? Further, since Obama’s cuts target the preponderance of citizens who have the highest propensity to consume, our aggregate demand will increase and short-range aggregate supply will respond returning us to full employment — eventually, all of which is text book macroeconomics. So, I told my colleague, I can’t quite understand why Republicans and Libertarians believe that making the Bush/Cheney tax cuts for the super rich permanent would be a good thing for the economy, unless y’all still believe in Say’s Law, i.e., that supply creates its own demand. Trickle-down/supply-side economics has failed us. That is why we are in our current situation. That is why it is time for change, time for us to adopt the bottom-up approach that Obama and all his economic advisors support.

Yeah, but what about the massive government spending in the Democrats’ budget plan for 2010? It’ll generate a 1.2 trillion dollar deficit at projected revenue levels. Yes it will. But where was the conservative base of the Republican Party for the previous eight years? Why weren’t they protesting the spending that exceeded revenues during the Bush/Cheney years, years when we weren’t having a recession, years when we should have been balancing the budget or better yet, paying down the national debt — saving for the next business cycle decline. During the Bush/Cheney years  the national debt grew from $5.66 trillion to $10.62 trillion? So, the only truly conservative president we’ve had in recent years was Bill Clinton.

Yes, once we are out of this recession, it is reasonable to anticipate that tax levels will rise for those who can afford it, especially if reasonable leaders are still in power and if we don’t get control of rising health, energy and education costs. But we’ve a debt to repay to future Americans, my sons and daughters and yours.  We need to be about repaying it — and I for one think that those who can do more should do more.

No, the tea parties were not about taxing and spending — big government vs. small government.  No matter what the demonstration organizers claim, the demonstrations were about a whole host of “social” conservative-value wedge issues, issues like abortion, gay rights, gun control and… sadly, race. Yes, race. The demonstrations were about consolidating elements of the GOP that have been fragmented by the last two elections. The demonstrations were about salvaging the Republican Party in advance of the mid-term elections in 2010. And if some in attendance actually thought they were there about taxing and spending, they were misinformed — misled by the money interests in this country, which are the real base of the Republican Party.

When the Bush/Cheney tax cuts expire in 2010, the rich will still be rich and everybody will be better off with the economy on the mend.

I invite your comments whether pro or con.

Obviously, individuals, even individual industries, acting as we do in “rational” self-interest, are incapable of effective measures to correct the overall situation.

My students are asking, “Are we going to have another Great Depression, Mr. Garry?” When they do, I try to reassure them. Things are bad, yes, and they’re likely to get worse before they get better. However, thanks to measures taken by the government during the 1930s, things like unemployment compensation, Social Security and Medicare, and empowerment of the Federal Reserve to regulate banking and the nation’s money supply, it’s hardly conceivable that we will ever have to go through things anywhere near as bad as they were during the Great Depression. But with unemployment and foreclosures skyrocketing, the stock market in the ditch and headed farther downstream, and consumer confidence at its lowest level since the early ’50s, economists and economic commentators (not exactly the same) are already beginning to call our current situation the “Great Recession.”

So, what are we — our government — to do about it? Obviously, individuals, even individual industries, acting as we do in “rational” self-interest, are incapable of effective measures to correct the overall situation. In fact, as we take individual measures to conserve, we are actually making the aggregate situation worse.  So government must act — it cannot just leave things alone and expect recovery in the , as President-elect and very soon now, our 44th President has been doing, paying less attention to what voters are saying and more attention to what the preponderance of noted economists saying — economists like Nobel Prize winner and professor of Economics and International Affairs at Princeton University Paul Krugman. Supply-side economists are very much in the minority these days, by the way. Perhaps you’ve noticed.

No, perhaps it’s not a good time to be raising taxes — on anybody. But neither is it a good time to be trying to balance the budget. It is a good time, however, for each of us to be doing more for our fellow man.

At the following link is a report on an interview with Professor Krugman published by ABC News. I found it to be both an enlightening and comforting read.  ABC News: Nobel Prize Winner’s Recession Solution

Comments are welcome, whether you agree or disagree.

Warren Buffet and I are in total agreement that bankruptcy would be a wasteful, totally inefficient way to force the imposition of a new business model on U.S. automakers.

The plight of U.S. Auto manufacturers, General Motors, Ford and Chrysler, and inaction by Congress to date on the industry’s collective request for a loan of $25 billion to stay afloat during these economic hard times has been a topic of discussion in my economics classes lately. My students have offered various opinions on what should be done, but almost all agree that something should be done. After all, they point out; billions have already been given to the financial sector to little or no avail. They ask, isn’t the manufacturing sector worth saving too?

My students seem to sense that failure to act and to act soon, letting this other linchpin of our domestic economy fail altogether, would be reckless and would, at a minimum, add insult to injury to the economy. In my own opinion, Congress should act and do so soon. Abandoning General Motors, Ford and Chrysler at this critical time would seal their fate — bankruptcy — which would give foreign automakers already in this country just the opening they need to permanently dominate the “world” market for automobiles. In addition, it would cost America millions of jobs. The unemployment these workers would draw following the industry’s demise could easily cost the government more than the $25 billion for which the automakers are initially asking.

So… it’s a pay-me-now or pay-me-later situation, right? But, how should Congress act, and what kind of package can the Democratic leadership in the House put together that would have sufficient minority support in the Senate to avoid an almost certain veto from President Bush? Can the automakers hold-on until after Obama’s Inauguration on January 20^th 2009? Maybe, just barely.

One of my personal heroes, an important economic advisor to the Obama Transition Team, is Warren Buffett. Buffett, if you don’t already know, is a legendary American investor, businessman, and philanthropist. He is the largest shareholder and CEO of Berkshire Hathaway and was ranked by Forbes during the first half of 2008 as the richest man in the world with an estimated net worth of $62.0 billion. Often called the “Oracle of Omaha”, Buffett is noted for his adherence to a value investing philosophy and for personal frugality despite his immense wealth. Buffett is also a notable philanthropist. In 2006, he announced a plan to give away his fortune to charity, with 83% of it going to the Bill & Melinda Gates Foundation. In 2007, he was listed among Time‘s 100 Most Influential People in The World. So, what would Buffet suggest?

In a recent interview with FoxBusiness, Buffet said, “I would drive a deal like I would drive myself if I were buying a business.  And I think, I would say there’s plan A or plan B.  And if you don’t want to do it this way, you know, then… take bankruptcy. I would make the CEOs buy in.  I would say, you know, the United States government is willing to put in X dollars, but we’re going to have you put in a certain percentage of your net worth right along with us. We’ll give you more upside, but you’re going to lose if we lose.”

I like that approach, making the industry’s executives buy-in, but rather than allowing them the choice of taking bankruptcy, which they just might do rather than risk their personal fortunes, I would propose a middle road. How about buying them out? Yes, rescuing the industry by partially nationalizing it, actually buying into the business as Buffet alluded to in his interview, at least temporarily. Sound un-American? Smack of socialism? Yes, but desperate situations call for desperate measures. The U.S. Treasury has already established a president for this by recently purchasing stock in the beleaguered insurance giant AIG.

Warren Buffet and I are in total agreement that bankruptcy is a wasteful, totally inefficient way to force the imposition of a new business model on U.S. automakers. But I think it is impractical to expect industry executives to put their personal nets worth into the companies they currently run. They all know, as many in Congress seem to know, that their money, and ours if given in a no-strings-attached bailout, will be used up in no time supporting liabilities on existing union contracts and on retired employees’ pensions. Who knows how long the current recession will last and how long it will be before Americans start spending again? So, unless their companies do go through bankruptcy, is there any option left to us other than nationalization?

With representatives of President Elect Obama’s Car Czar, Professor Daniel Tarullo of Georgetown University, temporarily providing direction and oversight on the industry’s Boards of Directors and with the United Autoworkers’ (UAW) union cooperating fully (perhaps the only way to avoid bankruptcy and collapse of the union altogether), a more practical way to save the industry might be possible. A pay system based on company performance from the top down would have to be implemented with union contracts renegotiated in the process. Everyone, in fact, would have to sacrifice with base salaries and benefits set to the same levels as those offered by Toyota and Honda with quarterly or year-end bonuses paid only if the companies do well. This way, everyone involved would be motivated to save company money and to be more productive and more innovative. This way the playing field would be leveled giving U.S. manufacturers an equal chance to compete in the new international marketplace and, this way, the government might just get the taxpayers’ money back someday.

I invite your comments regardless of your views.

“Teach a parrot how to say the terms, ‘Demand and Supply,’ and he’ll think he’s an economist.”

Thomas Carlyle

October 4, 2008  —  I had just started introducing the subject of the day’s lesson to my high school economics students when I noticed one of our vice principals standing just inside the classroom entrance – there for what reason I did not know. I caught his eye, anticipating that he needed to see one of my students for something. But when he said nothing, I decided that he was just stopping by to observe. Accordingly, I continued with my introduction.

“Mr. Garry?” one of my brighter students asked, raising her hand for a question.

“Yes, Tra’Nisha?”

“With the price of oil down now to around a hundred dollars a barrel, why are gas prices still so high? I thought you told us last week that when the price of production inputs fall, producers will produce more.”

“Thank you for the question, Tra’Nisha,” I said. “It’s a good one, but recall all that I said… that producers will normally produce more when the price of production inputs fall. The Law of Supply, you see, is not infallible. It’s not a hard-and-fast law. The reason for this is that markets are not all alike. In markets with less than sufficient supplier competition, Adam Smith’s invisible hand is hindered; it doesn’t work like it should.

“Less than sufficient supplier competition?  I don’t get it,” said Tra’Nisha;” there are lots of different gas stations.”

“Yes, Tra’Nisha… but most of these are independent retailers. They buy their gas and other petroleum products from one of the few big oil companies still doing business in the United States – Exxon/Mobile, Chevron/Texaco, Conoco/Philips, Dutch Royal Shell and British Petroleum, all of which have vertically aligned business models. They control all aspects of production, from resource exploration, drilling and recovery, to transportation, to refining and finally, to distribution. It is these, the wholesalers, more so than the retailers, who set the price. The retailers just add-on to wholesale prices what they need add so as to make a small profit and still be competitive in their communities. The big profits are retained farther “upstream” by the majors, and they, few as there are anymore, are able to control wholesale prices with interdependent behavior by controlling supply. This interdepen- dent behavior is called collusion. We’ll get into this more in a later lesson on competition and market structure. But when only a few large businesses dominate an industry like petro-chemical, it’s called an oligopoly.

“So what is the problem, Mr. Garry?” this from the vice principal who was still standing just inside the doorway. “Is it a supply problem?”

“No, sir, I don’t think it’s a supply problem. I think it’s a greed problem.” At this, he smiled, then walked out leaving me to further explain what I meant by this to my students. So much for what I had come prepared to teach…

Last Spring, when oil was trading on the International market near $140 per barrel, I told my economics students that the only way to bring down the price of gas at the pump would be for Americans to reduce our demand for the product – drive less, buy smaller more fuel-efficient cars, etc.  Most economists were saying the same thing, and Americans did just that. Demand today is way down now. In its weekly inventory report, the Energy Department’s Energy Information Administration said that gasoline demand fell by 6.4 million barrels to 202.8 million barrels for the week that ended August 8^th.  This is nearly three times more than the 2.2 million barrel drop that analysts had expected. In response to this drop in demand, oil companies have cut way back on production, shutting down refineries. And who can blame them? Why should they produce something in amounts that exceed the quantity demanded?

But, if Big Oil acted fairly and responsibly, and market forces worked like they are suppose to, not even considering the above mentioned decline in demand, gasoline prices should be lower. With oil’s price down from a high of $147 in July to less than $100 in mid-September, a 32 percent decrease, gas prices should have dropped by the same amount — right? So, let’s see… the national average price for regular unleaded in July was near $4.00. Today it’s something like $3.55. Therefore, the price of regular unleaded has dropped just 11 percent. Hmmm… perhaps our decline in demand actually worked to consumers’ disadvantage. Accordingly, I told my students that, even though I teach this stuff, I’m very much like Thomas Carlyle’s parrot. I just think I’m an economist. And that’s why economics is called, the dismal science. We do a pretty good job of explaining what’s already happened, but we’re not so good at predicting the future.

Another student asked, “How are they able to control supply so easily, Mr. Garry?”

In response, I reminded my class about our lessons on demand and supply elasticity, which is a measure of how responsive demand and supply are to changes in price levels. Demand for gasoline is very “inelastic,” or less susceptible to price changes. This is because we depend on it, there are no adequate substitutes for it, we can’t delay our purchases of it (when our tanks are dry we’ve got to buy), and it takes up a considerable amount of our disposable incomes. The elasticity of supply for gasoline, on the other hand, is very elastic. This is because producers, with the excess refining capacity they have today, can respond quite rapidly to market forces. When the price they have to pay for crude increases, they pay whatever they must, then just pass the additional cost on down-stream where the consumer ultimately makes up the difference. When demand for their product falls, they close refineries and lay-off employees so as to protect profits and take care of their shareholders. To do otherwise, they would be giving money away, and for-profit corporations hate to give money away.

This situation is illustrated in the demand/supply graph for gasoline at the right (hypo- thetical), wherein the demand curve (in blue), representing all possible prices and corresponding quantities demanded at each price, is relatively steep and down-sloping. This shows an indirect relationship between price and quantity, the Law of Demand (the lower the price the more people are willing and able to buy). But responsiveness to changes in price, either up or down, is small. On the other hand, the supply curve (in red), representing all possible prices and corresponding quantities supplied at each price, is relatively shallow and up-sloping. This shows a direct relationship between price and quantity on the supply side, the Law of Supply (the higher the price, the more producers would normally be willing to supply). But, unlike in the case of demand, respon- siveness to price changes for the supply of gasoline is relatively large, which means it is elastic, at least in the short-run. Notwithstanding, because oil companies can and, in my opionion, do act in collusion, they are able to rapidly adjust to market forces and control market supply. Therefore, prices can be controlled. In the example illustrated, demand and supply have both declined; the demand and supply curves both shifting to the left in equal amounts. Markets both before and after the shifts are at equilibrium where demand and supply curves intersect. So now one can readily see that, had the price of oil not declined in recent months (ceteris paribus), we could actually be paying more per gallon for gasoline as a result of our reduced demand for it.

So, my student was right to ask her question.  Congress has asked the major oil companies’ CEOs the same thing over and over again in recent years. The answer they always get from industry leaders, however, is this: “We don’t set gasoline prices, the market does.” But the market isn’t operating today on a level playing field, and Congress knows it isn’t. It’s slanted in Big Oil’s favor, and it’s government’s fault, in the name of FREE trade, for having allowed the oil industry to organize itself so efficiently. This is why Big Oil is able to generate the huge profits we’ve been hearing about lately, profits that are at the expense of every other aspect of our economy. They have done this through a series of many mergers over the years, mergers that administrations, both Republican and Democrat, have allowed even though Treasury Department economic analysts have advised against it. Why? Well, I don’t know, I just think I’m an economist. But, as a free thinker, I’m pretty sure the answer can be found at the end of the money trail.

It is time for change — the right kind of change — change that we can believe in, which does not, in my opinion, include giving Big Oil more freedom to control prices and drag down the rest of our economy. Tax breaks for Big Oil will not lead to greater supply and lowering prices for consumers. Tax breaks for Big Oil will simply lead to higher profits for Big Oil.

I invite your comments, both pro and con.

Like flies attracted to garbage, it seems that we Americans have less time for the real issues and for digging out the facts than we have for listening to unsubstantiated claims and political slogans… 

September 13, 2008  —  The latest hullabaloo over Barack Obama’s use of the “lipstick on a pig” phrase during a recent campaign speech is clear evidence to me that Americans are less interested in facts and issues and more impressed with myth and even outright lies told by the party of their particular persuasion.

Com’on, folks… Obama wasn’t alluding to Governor Sarah Palin and the pit-bull joke she made at the Republican national convention. Her’s was a great speech that resonated with millions of like-thinking voters and helped to give a significant “bounce” in the polls for the Republican ticket this year. There’s no denying that. But, if you listened to Obama’s speech, you would know that he was talking about Senator McCain’s proposed economic policy when he uttered this common phrase. He wasn’t talking about Governor Palin.  This same phrase, by the way, was used by Senator McCain no less than three different times in his campaign earlier this year when speaking about Senator Clinton’s proposals for a national health care program.

Like flies attracted to garbage, it seems that we Americans have less time for the real issues and for digging out the facts than we have for listening to unsubstantiated claims and political slogans like No Child Left Behind, Straight Talk Express, and Change Is Coming. Gee, that one sounds familiar.

Many of us, it seems to me, care more about wedge-issues like gun control, immigration, abortion, or the gender, race or religion of a candidate than we do about larger the issues like the economy and national security. We support whichever party claims to champion our heart-felt causes, usually the same party our parents have supported, then we believe unfailingly in whatever other claims our parties make. According to the Pew Research Center, social status and religious backgrounds influence American political persuasions more than reason.

I don’t often read articles in the ContinUUm, a magazine that my alma mater, the University of Utah, sends to me every month hoping that I will contribute to their Alumni Fund. But the most recent edition had some interesting articles in it about the state of our nation’s health care system. Thumbing through the pages one morning this week while sipping my first cup of coffee, one particular article just jumped out and grabbed me. It was written by a fellow alumnus, Carl R. Summers. Carl, who graduated ten years after me, is a scientist today working as a researcher with the Defense and Veterans Traumatic Brain Injury Center at Walter Reed Hospital. But his article wasn’t about brain injuries. It was about political myths. His hobby being statistics, he decided that a scientific look at real numbers might help to substantiate or debunk some of our two major parties’ basic claims… Interesting. Very interesting indeed.

You can find more on the actual numbers that Carl crunched and the methodologies he used on-line in a series of articles he has published at OutsidersDC (www.outsidersdc.com).

We are told that the Republican Party is the party of business and small government, lower taxes and reduced government regulation. The Democratic Party, we are reminded over and over  again by Republican Party politicians and right-wing pundits like Rush Limbaugh, is the party of big government, high taxes, big give-away spending, and bleeding-heart, wasteful social programs for the down and out. Right? Well, if this is true, would it not follow then that the nation’s growth in output of goods and services, the real (adjusted for inflation) Gross Domestic Product (GDP) would be higher year after successive year during Republican rather than Democratic administrations? Wouldn’t it also follow that average taxes paid would be lower during Republican administrations and in years that Congress was controlled by the Republican Party? After all, Congress, not the President, has the most to say about taxes and spending. Shouldn’t we also expect less government spending by conservative lawmakers?  In as much as every Republican administration since Reagan has embraced some form of the “trickle-down,” supply-side economic theory in formulating tax policies, shouldn’t everybody be better-off with more after-tax income to spend and shouldn’t there be more and better jobs?

Asking himself these questions, Carl looked at readily available data and scientifically compared the performance of Republicans and Democrats occupying the White House every year since 1950. He also looked at records on taxing and spending when each party had control of the Senate and House of Representatives. What he found was surprising, even to me, a “fiscal” conservative and teacher of economics.  He discovered that the average real increase in GDP for Republicans was 2.8 percent per year. The average increase for Democrats was 4.4 percent. So, despite claims to the contrary, business performed 57 percent better on average under Democratic administrations than under Republican administrations.

What about unemployment?  Remember, Democrats are supposed to be the party of the working class. Carl discovered that the average unemployment rate under Republican administrations has been 6.1 percent. That’s what the Bureau of Labor Statistics is currently reporting. Under Democratic administrations, the average was 5.1 percent. So, the Democratic claim is substantiated.

Carl asked himself — If the trickle-down theory has any validity, if lowering business taxes, capital gains, and individual income taxes on the wealthiest of Americans encourages investment and creates jobs (a rising tide lifting all boats), then shouldn’t this raise the value of corporations? Shouldn’t this be reflected by gains in broad stock indexes like the Dow Jones Industrial Average (DJIA) and the Standard and Poor’s 500? To answer this issue, he looked at respected business data over the years and concluded that the average change, or increase in stock prices grew 7.4 percent during Republican administrations. Not too shabby, you say?  Well, stock prices grew 10.4 during Democratic administrations. Furthermore, he noted that during Democratic years, the Dow showed relatively small, somewhat consistent ups and downs, what economists call normal business cycles.  During Republican years, the Dow was, in his words, “… like a roller coaster ride with large, unpredictable peaks and valleys.”

On the issue of which party favors low taxes and which party favors high, Carl normalized “federal receipt” data by comparing it over the years as a percentage of real GDP. He did this to compen- sate for variations in the economy like inflation, population growth and tax policies. What he found out was that when Republicans were in the White House, government taxed at the rate of 18.9 percent of real GDP while, when Democrats were in the White House, government taxed at 19.1 percent. Yes, Democratic administrations did tax at a slightly higher rate, but the two-tenths of one percent difference, he says, is statistically too close to call. But remember, it is Congress, more so than the President, that controls our nation’s purse strings. In the years that Republicans controlled the Senate, government collected 18.5 of real GDP compared to 17.7 percent when Democrats ruled. In the House of Representatives, when Republicans ruled, government collected 18.7 compared to the same 17.7 percent when Democrats were in control.  This difference is statistically relevant and it means that, after all these years of Republican claims about Democrats raising taxes, the reality is that taxes are almost exactly the same regardless of the President’s party, but they are actually higher when Republicans have control of the House and/or Senate.

Ok, you say, but what about spending? Well, treating expenditures the same way he did revenues, as a percent of our nation’s real GDP, Carl discovered that Republican administrations spent 20.2 percent while Democratic administrations spent significantly less, 19.2. This is a 5.2 percent difference, folks!

So, now you know. Based on fact rather than myth, the real tax-and-spend party has been… well, its mascot, like Pinocchio, has a prominent proboscis.

I invite your comments, pro or con.

Discouraging the BIG OIL and COAL industries from continuing business-as-usual/high profit operations at the expense of the environment and the health of the nation, just might motivate them to think more “out of the box” on energy alternatives.

Being a member of and contributor to environmental organizations, I get emails from them often, heightening my aware- ness of things, asking for donations, and encouraging me to send letters and emails to my representatives Washington asking them to support earth-friendly legis- lation.  I got one from the Environmental Defense Fund today asking for energy saving ideas, big and small (something different this time) – on how I, my family, and our country can rethink the way we live and work in this age of not-so-cheap oil. So I went to their weblog and found some interesting observations and perspectives already posted there. I left the following comment of my own:

On the home front, the wife and I are already limiting our trips, combining errands whenever possible. The wife is carpooling now 3 or 4 days a week, and I hope to find someone with whom to carpool too once school restarts this year (I teach high school economics, and so am off for the summer). When I drive my ’05 Dodge Magnum, I hypermile, which nets me about 4 to 5 extra miles per gallon. Hypermiling includes driving slower, accelerating gradually, and making sure my tires are properly inflated, a common sense thing Barack Obama advocates that we all do, which John McCain has made fun of lately. But, hey – every little bit helps — right? I’m riding a motorcycle when it’s not too hot and when it otherwise makes sense to do so. Our summer getaways this year were fewer and to closer destinations, and we don’t anticipate traveling as much in the future either, even if the price of gas comes down substantially. When next it is time to buy or lease, we plan to make mileage the number-one priority. And we are going GREEN in many other ways too… we have switched our electric company to Green Mountain Energy, which generates 100% of its power from renewable sources. Their price per kwh is very competitive, by the way.

At the local level where natural gas is plentiful like it is here in Texas, and becoming more plentiful all the time with drilling into the Barnett Shale, I would recommend public transit, and especially school buses, be converted to run on this fuel as an interim alternative to diesel until better, more environmentally friendly technologies become available, such as electric fuel cell hybrids. Near term cost benefits might be negligible for this, but there are health benefits to consider, and doing so would reduce our demand for foreign oil. Hopefully too, the growing demand for mass transit will stimulate the expansion of existing systems and the development of new ones. Suburban communities, larger cities and state governments really should welcome and encourage this.

At state and national levels, every effort to support the devel- opment of alternative energy sources should be promoted as a priority over new drilling — anywhere. More oil just perpetuates our addiction to it and continues pumping CO2 into the atmos- phere. Wind and solar farms should definitely be in the mix, and I would not rule-out new nuclear power plants where demand is highest and real estate is limited. New coal-fired plants should be discouraged, in my opinion, unless carbon sequestering technol- ogies are incorporated.  Discouraging the BIG OIL and COAL industries from continuing business-as-usual/high profit oper- ations at the expense of the environment and the health of the nation, just might motivate them to think more “out of the box” on energy alternatives. Although it would be competing with the private sector, I admit, i.e., the airlines, I believe that there should be government efforts to promote the return and update of passenger rail systems.

Finally, I would advocate and support the idea of governments offering individual tax credits and other incentives for people and businesses to weatherize and upgrade to new, “made in the U.S.A.,” highly efficient, environmental systems. Government should back T. Boone Pickens’ energy plan too, stimulating the manufacture of millions more state-of-the-art wind gener- ators. Not only would these things save energy, but they would generate jobs for people put out of work by offshoring and the decline in demand for new homes and American-made automo- biles. These would be jobs that could not be exported. With people going back to work, consumption would increase, as would the tax base. With more money spent on American-made items, the trade deficit would decline and our economy might just start to improve like a rising tide, “lifting all boats” this time, not just those of the rich. This, I think, would make a whole lot more sense as a fiscal policy for Washington than short-term stimulus checks and tax cuts for businesses that are already posting record profits.

I invite your comments, supportive or un, and ideas of your own.