Sunday, July 27, 2014

No. 000061 100 years ago today, the first shots were fired in WWI

It should not surprise us that historians cannot agree on when WWI started.
This day, July 27, 1914 saw deaths in Mitrovitza, Serbia as Austria invaded a day prior to its formal declaration of war.  Francis Joseph Reynolds, II The Story of the Great War: History of the European War 291 (1916):
The first great campaign on the southeastern battle grounds of the Great War began on July 27, 1914, when the Austrian troops undertook their first invasion of Serbia. They crossed the Serbian border at Mitrovitza, about fifty miles northwest of Belgrade, driving the Serbians before them. The first real hostilities of the war opened with the bombardment of Belgrade by the Austrians on July 29, 1914 - six days before the beginning of the campaigns on the western battle fields.
In 1920 Francis William Rolt-Wheeler, wrote also of the first shots. The Boys’ Book of the World War, at 51:
On July 27, although  war had not yet been declared, the Austrians invaded Serbia, crossing the border at Mitrovitza on the Save. With the foe actually over their borders, the Serbians took a decisive step. They blew Up the great International Bridge across the Danube, at Belgrade, and, simultaneously, shots were exchanged between the troops on the Austrian and the Serbian banks of the river. Though Austria did not declare war until the following day, these shots at Belgrade, on July 27, 1914, were regarded as the opening fire of the Great War.
On July 28, 1914 Austria-Hungary, alleging that Serbia had not answered its demands in a “satisfactory manner,” declared war at 11:10 a.m. in a telegram to Serbian Prime Minister Nikola Pasic.

The next day, on July 29, 1914, Austro-Hungarian navy ships began bombarding Serbia’s capital, Belgrade.
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No. 000060 An open letter about the Taylor Rule, Keynes and Minsky

Sunday, July 27, 2014
Dr. Miles Kimball
Dr. Brad Delong
Dr. Noah Smith
Dr. Roger Farmer
Dr. David Andolfatto
The Taylor Rule, Keynes and Minsky
A letter to suggest that thought or investigation be given to questions about the Taylor Rule.

Interest rates should be as low as possible

In his General Theory Keynes argued for Government to work for the greatest possible reduction of interest rates at all times to encourage private investment as far as possible.
His arguments were so forceful I have always expected Professor Kimball to write a post or article relying on Keynes to support his argument for negative interest rates.

Republicans advocating for statutory Taylor Rule

Recently, the Republican Party has advocated statutory adoption of the Taylor Rule for the Federal Reserve.
This seems to me to beg this question:
Does the Taylor Rule lead to the greatest possible reduction of interest rates?

2008 Minsky Moment

Since we had a profound Minsky moment in 2008 (and a Federal Reserve which did not see such coming)[1] we certainly have what the GOP/Taylor/Cochrane group would call causation by the Taylor Rule as one event followed the other.[2]
That is to say that, following a prolonged period of application of the Taylor Rule interest rates were too high and debtors could no longer service their debts, resulting in a Minsky moment.
Has the Taylor Rule Been Investigated?
So my question is, does the Taylor Rule price interest rates too high? 
In closing I think it important to recall the lesson of Professor Taleb for all of this. Professor Taylor has cherry picked his data in support of his rule. His time frames are not long enough for us to say with confidence that he has included all the relevant data.
A work that supports this point of view is an OECD publication in 1999, EMU Facts, Challenges and Policies.
On page 54 the authors use the Taylor Rule to argue that interest rates set by the EMU were too high.
I think it important to use this dated work for the authors could not cherry pick their point of view on the Taylor Rule as they did not know the future and what we have learned from experience and observation in the last 15 years.

Of course, we now know, based on first hand experience, that both the EMU and Taylor Rule rates were too high from 1990 on and throughout the decade, resulting in a deep recession from which the United States never fully recovered before the Lesser Depression of 2008.
In that OECD study the Taylor Rule rates crossed over the EMU short term rates in mid-1999, showing or tending to show that the Taylor Rule sets interest rates too high.
However, that does not mean that the time frames are not long enough for others to show that his rule set interest rates too high.
John L. Davidson

[2] Brad Delong, The Return of Hyman Minsky (May 18, 2009) (labeling events of 2008 as Minsky Moment).

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No. 000059 Most important Post of six months Frances Coppola's "America's Greatest Export Is It's Debt"

While the theme of this blog is Missouri state economics and attendant politics, there is a piece so important to understanding Missouri's place in the World that I must recognize it as the most important post on economics in the last six months.

America's greatest export is its debt

That piece is by Great Britain's Ms. Frances Coppola, "America's greatest export is its debt," for it explains why Missouri's economic problems are so intractable. Ms. Coppola and I frequently argue over her conclusion. She argues that the U.S. cannot eliminate its trade deficit without serious damage to the world financial system. Being a Hamiltonian Mercantilist, first, I argue the world financial system be damned, we need to eliminate the U.S. trade deficit and put people in Missouri back to work at jobs that provide for a growing and constantly improving standard of living.

What are the main points.

Trade with China costs jobs and income.

First, contrary to the free traders and the arguments for free trade you find throughout the economic literature, there is no evidence that free trade without capital restrictions improves the lives of Americans. The literature is consistent and uniform: free trade destroys jobs and incomes. More to the point, trade with China has destroyed jobs, incomes, and lives in Missouri. 

If someone is interested in the subtly of the matter start with Larry Summers here. Ask yourself whether the secular stagnation that surrounds us is real. And, ask yourself, does the ability of capital to move freely to the lowest wage country drive secular stagnation. When I listen to Mr. Summers that is what I hear him saying.

US has promoted Free Trade without the consent of its citizens.

Second, for political purposes, the United States has found it extremely advantageous to the United States dollar function as the World's Reserve Currency. Further, for political purposes, the United States has found it extremely advantageous to increase the standard of living of the Chinese people at the expense of most people living in Missouri. 

In both instances these policies have been pursued with the same level or skill and deception that assured the American public there were WMD's in Iraq. 

Ms. Coppola, as an observe across the Atlantic, is able to be very blunt on this point, writing
The trade deficit is a long-standing problem that is not easily solved: It principally arises from the world's demand for dollars. The U.S. dollar is the world's reserve currency mainly because much of the world's trade is settled in dollars, and all commodities and currencies are priced in relation to dollars. Since the world demand for dollars far exceeds the ability of the U.S. to produce enough goods and services to meet that demand, the U.S. imports far more than it exports.

It is often argued that the U.S. could cut its trade deficit by restricting imports and increasing exports. But this would seriously restrict dollar liquidity in the world. Back in the 1960s, Robert Triffin pointed out that the U.S.'s position as provider of liquidity to the world would force it to run substantial trade deficits. He was right. And the existence of such large trade deficits also forces the U.S. government to run fiscal deficits most of the time. The few times in recent years that the U.S. government has managed to run fiscal surpluses, the cost has been a significant reduction in private sector saving … Yet we want the private sector to save. We want corporations to have profits. We want households to provide for their futures. We bewail the lack of saving by U.S. households, and we call for more investment by corporations. None of these are compatible with the goal of running fiscal surpluses when there is a trade deficit — and the trade deficit cannot be eliminated without serious damage to the world financial system. Like it or not, the U.S. is stuck with its deficits.
In short, Ms. Coppola recognizes that US political goals have a cost; they appear to create a paradox. We can pursue our political  goals in the eyes of Ms. Coppola only at the cost economic ruin at home, ruin caused by the twin imbalances of higher debt and ever greater trade deficits. 

Tea Party has attacked both the quality and quantity of the safe assets we offer the World.

Ms. Coppola then makes two telling arguments about the know-nothings of the Tea Party: 
But in fact, the deficits are not nearly as serious a problem as many seem to think. The enormous trade deficit makes the U.S. a massive net importer of capital. And the world loves this. The U.S. government is the market leader in the provision of safe assets to the global financial system. And it is the number one provider of quality investment products for the world's savers. That's where the "glut of capital" that Ben Bernanke talks about comes from. The savings of the world come to America. It is the world's biggest investment fund.
Except that it doesn't behave like it. What investment fund would try to discourage people from investing in it? And what investment fund would set out to destroy its own credibility by undermining the quality of its investments? Yet the U.S. does both of these things. Deficit reduction discourages people from investing. And flirting with debt default undermines its quality. Look what happened to the yields on U.S. debt as the stalemate in Congress over the federal budget intensified through the summer and fall of 2013, finally ending after a two-week shutdown in October:

But the fact is that despite awful mismanagement by U.S. politicians, U.S. government debt remains the savings vehicle of choice for the world. It is America's greatest export.

Strength through Strength or Strength through more fiscal and trade deficits.

Ms. Coppola ends her piece by recognizing that our fiscal and trade deficits have taken an enormous toll on America. Her solution is more debt. 
Embrace your debt, America. You are already the world's central bank: Your destiny is to be the world's savings bank as well. Expand your production to meet the world's demand for quality savings products. Forget this idea that deficits must be eliminated and debt must be reduced. That is not what the world is saying to you. No, the world is saying, "More! Give us more!"

But, of course, you need to take steps to ensure that the savings products you create remain the best in the world. You don't want to compromise your market leading position by cutting corners. Unfortunately, too many people seem to think that cutting corners is the best way of preserving the quality of your products. The Bank for International Settlements, for example, argues that you should always run a fiscal surplus to ensure that you can pay the interest on your savings products. And the IMF talks about achieving "fiscal sustainability" through medium-term fiscal consolidation. This is crazy. You are a bank. Do banks cut back lending in order to pay the interest on savings accounts? Hardly. They invest the money they have borrowed in productive enterprises. The money they make on their investment enables them to pay the interest on their debt, and pay their workforce handsomely, and have large expensive offices in prime locations, and STILL make a profit. You do not need "debt reduction measures." You need to invest what you borrow in productive enterprises.

America, you should spend the money you borrow on things that create real value. Invest in both physical and human capital. Build bridges and roads. Create the best education system in the world. Create the best healthcare system in the world. Develop new ways of capturing and storing the free abundant energy that is available to us from the sun, the wind, and the sea. Invest in technologies that will bring people long life, health, and prosperity.

And above all, think big. Large, long-term projects, the more grandiose the better. This is what we know and love you for — taking on the seemingly impossible and making it happen. Let's have a new space program. Or a deep-sea exploration program — since we know even less about the depths of the ocean than we do about Mars. Create a new Atlantis. Colonize the Moon. Build the Death Star. And establish trade links with Alpha Centauri. For even if none of these things in themselves generate value, the research and development done in the course of them may in the end create greater value than we could possibly imagine.

Now why does Ms. Coppola urge this view?

Ms. Coppola is not an American; she is British, interested in promoting the vital interests of Great Britain. Those interests do not align with the US interests.  London, and for 17 years she was a London Banker, has an enormous interest in maintaining the current World Financial System.

What do Warren Buffet and Charlie Munger say in response to Ms Coppola?

We’re like an incredibly rich family. We sit on the porch of our huge farm – so big that we can’t even see the end of it – and each year, we consume 6% more than the farm produces. To pay for this, each year we sell or mortgage a little bit of the farm that we can’t see, so we don’t even notice. We’re very, very rich and the rest of the world is happy to buy from us or lend to us, so each year they take a piece of our valuable assets – and they work very hard. But we will have to service this. If it goes on for a long time, our children will pay. 

My answer: Strength through Strength 

I do not believe, in light of current events in Iraq, Syria, Israel, and Libya, the Ukraine, and Afghanistan that Ms. Coppola would write her piece today. 

World events have accelerated the moment of truth of which Messers. Buffett and Munger so simply speak. Within the past month we have learned that our deficit financed military cannot provide the World with peace and stability. 

The bitter lesson for the former Christians of Mosul is that a debt financed U.S. military permits no policy mistakes. 

More narrowly, Great Britain and Europe have learned that their inability to finance a meaningful military presence has opened the door to renewed Russian dominance of European and Mediterranean  and Middle Eastern affairs. 

Like Ms. Coppola, I believe we in the US should be spending government funds that create real value. We are a rich big country, one that could easily tax itself and pay for the investments of which Ms. Coppola speaks if, as Mr. Minsky demanded, we put everyone to work

Moreover, my point of view is supported by Keynes. As Ms. Coppola knows, the country in the World that should be running trade and fiscal deficits now is China, not the US. Contrary to common myth, Keynes did not argue for deficit spending in Great Britain to solve the Great Depression. He argued for deficit spending in the United States, because it had a trade surplus with Great Britain

As a Keynesian, that is the policy I support today: deficit spending in China, where they should be because it has a trade surplus with the US.

Contrary to the views of Ms. Coppola, countries are not banks. When a country borrows money it is not acting as a bank; it is acting as a debtor. Every dollar you borrow cedes more power to your creditors. 

The flaw in Ms. Coppola's analogy is that countries do not lend the funds they borrow at a premium over their cost of borrowing. Countries are merely agents of their principals--spending on their behalf. The US fiscal and trade deficit is nothing but consumption spending for which the US is unwilling to pay in taxes. The US writes checks to US transfer payment recipients. These recipients use the checks to buy goods from China. China takes the $$$ and buys US government debt. There is no US investment in the cycle. It is mere consumption financing, nothing more.

More particularly, it is time to stop the World from taking a piece of our valuable assets each year through trade deficits. We are now energy self sufficient, able for the first time in 40 years to export oil. 

Ms. Coppola knows what we should do. It is exactly what Hamilton and Franklin and Morris planned and executed 225 years ago and would do today. Their ideas are as relevant today as Smith's (who after all was tutored by Franklin).

Saturday, July 26, 2014

No. 000058 Economists affiliated with the University of Missouri Kansas City

This is going to a be a "shoe box" post, developed over time.

Several economists with the University of Missouri Kansas City ask important questions and make important arguments especially regarding Money, Banking, Finance and the Federal Debt and Deficit.

The Missouri reader should know of their interests and contributions and, if any offers insights applicable to the theme of this blog, I will do my best to note them.

In no particular order:

Michael Hudson

L. Randall Wray

William K. Black

Stephanie Kelton

I believe it fair to say that all share a common, counter-intuitive insight: Savings do not and cannot generate productive business investment; is is the other way around: investments generate savings.

In fact, if lawyers could write perfect contracts of future performance that were freely assignable an economy would require no capital for future earnings would pay for present "investment."

No. 000057 Criminal Gangs, Written Constitutions, Hole in One Insurance, and Debt: The First 5000 Years

Rhett Butler softening his sentence by playing poker with his Guards.

Yesterday, David Andolfatto shared his thoughts on David Graeber’s Debt: The First 5000 Years.  It is always interesting to see Economists struggle with the facts of history, anthropology, and sociology (they wholly lack the tools to gain insights into economics from the Law) for such exposes the macro economic learning for what it is: thought experiments supported by data cherry picked for a favored outcome rather than science. Graeber's book does this.

What makes this post particularly worthy is that Mr. Andolfatto has taken this lesson to heart. Everyone should read this blog for its honesty and self-reflection on the shortcomings of macro economics. In contrast to our other St. Louis economics blogger, everyone can learn from every word penned by Mr. Andolfatto.

I thought this post worth of comment for what it doesn't discuss, in two ways.

First, it doesn't deal with the chicken and egg issue as to who invented debt (including does the chicken and egg issue matter)?

Who asked for Religion?

Who asked religion to enforce promises and debt? Was it Don Trump the 1st who went to his uncle and said, “Next sermon, can you add a few sentences in your talk to the Congregation to the effect that if you don’t pay your debts Gods Nos. 3, 5, 7, and 9 will make your afterlife a tough one?  I am going to be asking Old Joe to let me have 4 goats on credit that I can take up to the new mountain meadow this Spring and I don’t want to give any collateral, that is for my loan with Bill for using his two slaves to build a rock wall for my goat auction house. Or, was it Old Joe who said to his Brother. I am too old to take my goats to the new mountain meadow this spring. Can you add a few sentences in your talk to the Congregation to the effect that if you don’t pay your debts Gods Nos. 3, 5, 7, and 9 will make your afterlife a tough one?  Next week I am going to ask Don Trump if he would like to try his hand at goat raising.

As we can see, both creditor and debtor benefit if religion enforces debt so who knows, nor does it matter who first thought of the idea. That is the great insight here. 

Once you figure all that all life is negotiation none of this matters. There is nothing a priori going on except that, contrary to what the Austrians or Libertarians teach, every human institution, public or private, is subject to being rigged and manipulated by all the participants for their own ends as a part of the unfolding negotiation of life as we each struggle to control it on our own terms.

There is no escaping this fundamental axiom of life. Music men or women who sell simple solutions are doing nothing more than attempting to rig negotiations to their favor. Economists who sell “the gold standard,” or the “Taylor Rule,” or that “deficits matter, but for buying the F-35,” are merely descendants of Don Trump the 1st engaged in a different gig.

Can you tell the Players without a Scorecard?

Further, one sitting in the audience never knows by whom you are being played. If you were present for the first debt sermon it might appear to you in the audience as a divine revelation. Merely because you are there and witnessed something doesn’t mean you know what happened. Truth be known, who is to say that wily religious leader wasn’t playing both sides against the middle!

“Government” emerged to deal with real life promises.

This thought experiment also permits us to see the role of government and the Law emerging. Creditors may offer (or debtors demand) consequences in this life, and not the afterlife, for not paying one’s debts.

In the Law this is a mere evidence problem. Oral promises to pay debt are easily enforceable when there are numerous witnesses or when custom and usage are well know and established.

But, She Who Must be Obeyed (whomever she is) must always be obeyed. Thus free riders and worse will always plot against custom and usage:
Other golfers admit to fearing the wrath of a spouse if they treat the clubhouse, and therefore having agreed with golfing buddies to slip away quietly without telling the clubhouse if anyone scores a hole in one. It’s a rather sad result of the tradition -- instead of celebrating a hole in one like the once in a lifetime accomplishment that it is (the odds of getting a hole in one, very roughly, are 12,500 to 1 for an amateur and 7,500 to 1 for a professional), it pushes golfers to slink away like they crashed a golf cart in a sand trap.
Thus, even when custom and usage are well established, people (for their own purposes) will avoid customs and usages.

A solution, in  Japan, is hole in one insurance for golfers.

Knowing this, we again have a chicken and egg problem.

Debtors are being refused credit because creditors are being stiffed by debtors who are buying silks for their spouse to keep peace at home instead of paying their debts. Thus, was it a debtor who first said, if I don’t repay my debt when I return from the mountain meadow this Fall, you can put me in the clink for 30 days or was it a creditor who made the demand? The debtor, in the spirit of Rhett Butler above, may not have feared the clink. He may have been thinking, Old Joe won’t put me in the clink for he would have to build one and he would have to feed me, give me water, and clean up my muck.

Bad Guys and Written Constitutions

One of the more amusing moments in law school are the cases on illegal bargains. It does not occur to many that those with enough chutzpath will ask a court to enforce an illegal contract or bargain. In fact, among the hardest cases for judges as flawed services cases against non-lawyers who have proved legal services to a consumer who knowingly hired a non-lawyer to draft a will or contract.

Colonel John Boyd, The Strategic Game of ? and ?

This leads us to Criminal Prison Gangs and Written Constitutions. 

People badly confuse the familiar with the necessary. They believe that merely because there are people and countries in most places on earth that we are not forming new cultures and societies which can be observed at the moment of formation. That is not true. Open a new prison and you have formed, in effect, a new country. Watch what happens inside that prison and you will see the formation of a new society or culture to survive, on ones one terms, or to improve one's capacity for action.

One of the common features with people is that, as soon as they need or see the benefits of collective action, they will form a new government within a prison, using the tool of a written constitution. 

Prison is not a place where you find strong beliefs in the evils that will befall us in the afterlife and so existence of a government is very important.

David Skarbek has explored this in his new work, The Social Order of the Underworld: How Prison Gangs Govern the American Penal System:
When most people think of prison gangs, they think of chaotic bands of violent, racist thugs. Few people think of gangs as sophisticated organizations (often with elaborate written constitutions) that regulate the prison black market, adjudicate conflicts, and strategically balance the competing demands of inmates, gang members, and correctional officers. 
Thomas Schelling, Nobel Laureate in Economics (2005) writes in his review:
"This is a fascinating study of what the title suggests. It is also a remarkable study of a "natural experiment" in the evolution of government. Put a couple of thousand men, not of the nicest kind, into close confinement with limited communication facilities and little government, and see what happens. What happens is government, based largely on ethnic gangs, with hierarchy, rules, and sometimes written constitutions. The basic problem to be solved is the management of the market for drugs, and solving that leads to genuine institutions. A great read." 

The Sum of It All 

Why is the chicken and egg problem so important? Because only by seeing it do we come to understand that we may be confusing the familiar with the necessary and with reality.

Ask most Missourians why we have crimes and violence in Saint Louis and they will respond because you have gangs. 

But, ask gang members why they are in gangs and they will tell you because government does not protect them from violence.
Organized criminal enterprises often act as quasi-governments, protecting property rights and enforcing contracts when legitimate governments are not capable or willing to do so (Anderson 1979; Baumol 1995; Skaperdas and Syropoulos 1995). Skaperdas (2001) surveys the historical experiences of organized crime in several countries and concludes that it arises in power vacuums to fill the need for property protection. Gambetta’s (1993) detailed study shows that the Sicilian Mafia primarily provided businesses with private protection services when the government was unable to. Sobel and Osoba (2008) find empirically that membership in Los Angeles street gangs are a response to violence rather than precipitating it, suggesting that members join to protect themselves when the legitimate government does not.

No. 000056 Gregg Keller exposed by Twitter

Read carefully and note Twitter offers to translate his unintelligible ranting.



Friday, July 25, 2014

No. 000055 reason #1 Why Catherine Hanaway should be our last choice for Governor

Report from Joplin

The Joplin Globe is reporting on an unwelcome visit from another hot air storm. Eight Hundred Dollar Hanaway blew into town to promote here 2016 run for Missouri Governor. Unable to present anyone in Joplin who benefited (except herself) from her prior public service, she instead offered his platform for economic growth for 2017:

Hanaway focused her remarks on how to improve the state’s economy. She pledged she would seek three things: making Missouri a “right-to-work” state, which would disallow unions from charging representation dues to non-union employees; elimination of the state’s income tax and transition to a “consumption tax” model; and reform of the state’s tort laws by placing a cap on damages.

Let’s take the last agenda item first. Hanaway apparently hasn’t been through a check out line recently. If she had she would have noticed that by the time her prayed for term starts we are going to be well into the driverless car revolution and with it the disappearance of most tort cases.

Motor vehicles accidents cost a staggering $871 billion a year according to Lloyds Insurance. But that loss is all going away.

Colin Lewis, writing at, reminds us that conservative legislators have always stood in the way of rapid adoption of new technologies:

When the first steam powered cars (or locomotives as they were then called) first took to the roads in the early 1860’s it was feared that engines and their trailers might endanger the safety of the public, cause fatal accidents, block narrow lanes, and disturb the locals by operating at night. Many complained the cars were scaring the horses meanwhile the farmers were shooting the cars!

To allay the concerns, restrictions and speed limits were imposed by the Locomotive Act of 1865 (more popularly known as the “Red Flag Act“) which required all road locomotives, which included automobiles, to travel at a maximum of 4 mph (6.4 km/h) in the country and 2 mph (3.2 km/h) in the city – as well as requiring a man carrying a red flag or lantern to walk in front of road vehicles. The Act also included such matters as “Damage caused by locomotives to bridges to be made good by the vehicle owners.” However it was soon discovered that the steam carriages’ brakes and their wide tyres caused less damage to the roads than horse-drawn carriages because of the absence of horses’ hooves striking the road and wheels which did not lock and drag as they did on horse drawn carriages.

In the latter part of the 1800’s the British Motor Syndicate began a public relations campaign to lobby for the repeal of the Locomotive Act, which was declared the main obstacle to wider adoption of the car in Britain. The Act of 1865 was repealed in 1896.

Almost 120 years later we stand at the precipice of a new dawn in the age of the automobile – self-driving cars. Everything, from how we move goods to how we move ourselves around, is ripe for change.

Self-driving cars will require legislators to make new amendments to the current Highways Acts in place. There is already considerable debate surrounding the legal issues of driverless cars, the ethical concerns and questions over the liability of who to sue when a driverless car is involved in an accident.

The mere fact that Hanaway spoke of the past rather than the future legal issues of tort law is the No. 1 Reason to just say, NO!

Wednesday, July 23, 2014

No. 000054 The Hancock Amendment: What it has cost Missouri

What was the Hancock Amendment?

In 1980, the Missouri constitution was amended to include a taxing and expenditure limitation, Mo. Const. Art. X, § 18, which is commonly known as the Hancock Amendment.

The Hancock Amendment requires the state to refund money to income tax payers when revenues are in excess of a percentage based upon the personal income of Missourians. If, in any given year, there is a revenue surplus greater than 1% of the revenue limitation, the state must refund the money to taxpayers.

There were refunds in the late 1990s, but it is unlikely that the refund provision will be invoked any time soon because the state is at least $3.9 billion dollars below the revenue threshold.

Further, the Hancock amendment limits the overall amount of new annual revenue that the legislature may raise in any one year without voter approval.

Because Missouri currently only raises about $8.75 billions in total state revenue, Audtior Thomas Schweich has calculated taxes would need to be raised about 40% to reach the 1980 Hancock base year ratio of Missouri personal income of 5.6395 %.

How does the Hancock Amendment limit the power of the General Assembly to tax?

The Hancock Amendment, as amended in 1996 ( Mo. Const. Art. X, § 18(e)),  also limits the power of the General Assembly to tax.

Missouri State Auditor The Hancock Amendment also requires voter approval before taxes or fees can be increased by the General Assembly beyond a certain annual limit.

Based upon the calculation provided by the Office of dministration,
Division of Budget and Planning, the relevant annual revenue limit for fiscal year 2012 was $80.2 million.

Thursday, July 17, 2014

No. 000053 The Absurdity Doctrine, here of the Post Editorial Board and the ACLU

Everyone has accepted that Charlie Dooley has overstayed his welcome as County Executive and should move along, everyone that is but Charlie Dooley who has been watching too many re-runs of Boss.

What is unfortunate is that his numerous opponents have lost trust in the electorate voting with common sense so they are, like hourly billing attorneys, leaving no stone unturned. 

This has lead to the farce and absurdity of the ACLU filing a Sunshine Act lawsuit to obtain an FBI report on how Edward Mueth's embezzlement of $3.4 million went undetected for as long as it did.

While the Editorial Board of the Post is generally slower than molasses, it wasted no time in joining this absurdity supporting the lawsuit.

But, Is the lawsuit a good idea?  

The lawsuit concedes that, in the hands of the Federal Government, the FBI report is beyond the reach of the Freedom of Information Act, the federal law which governs access to Federal Records.

Now, if our state courts hold that merely because an agency of the Federal Government shared a non-accessible Federal Record with a state or local office that such becomes accessible under Missouri's Sunshine Law, isn't the likely result that agencies of the Federal Government will stop sharing information with state and local offices?

Wouldn't that be the absurd result of the ACLU lawsuit? Access, one time, to one record!

In its bottomless pit of a lack of wisdom, the ACLU, joined by long time Dooley foe County Prosecuting Attorney  Robert McCulloch, defend their lawsuit on the grounds that the text of the Sunshine Law doesn't reflect such a common sense reading.

While I disagree, let's assume our Sunshine Law, as drafted, fails to exempt Federal Records, not otherwise subject to disclosure, from disclosure.

That is where The Absurdity Doctrine comes into play. 
[I] t is a venerable principle that a law will not be interpreted to produce absurd results. "The common sense of man approves the judgment mentioned by Puffendorf, that the Bolognian law which enacted 'that whoever drew blood in the streets should be punished with the utmost severity,' did not extend to the surgeon who opened the vein of a person that fell down in the street in a fit. The same common sense accepts the ruling, cited by Plowden, that the statute of 1st Edward II, which enacts that a prisoner who breaks prison shall be guilty of felony, does not extend to a prisoner who breaks out when the prison is on fire—for he is not to be hanged because he would not stay to be burnt."'
Now why the mention of The Absurdity Doctrine on such a narrow battle. Simply put, because most of the legislation passed by our legislature in the last two sessions have been intended to produce absurd results but if Democrats want to take advantage of the power of the doctrine they need to exercise self-restraint and avoid litigating to obtain a useless or absurd result.

Wednesday, July 16, 2014

No. 000052 The Special Mendacity and Hypocrisy of Senator John Lamping and the Tea Party

The reason to Vote NO on 7 is simple. About a billion dollars in sales taxes will be collected in the Saint Louis region and spent in out-state Missouri, a form of tribute having very bad economic consequences for the Saint Louis region.

Taxes collected here but spent elsewhere will decrease St. Louis incomes, employment, and property values.

The taxes should be raised by a land tax or income tax and they should be spent in the Saint Louis region not on public transit for Jefferson City to Columbia

The treat about the Amendment 7 Debate is that it exposes the  Mendacity and Hypocrisy of Senator John Lamping and the Tea Party.

The thorough reader will recall that Senator John Lamping opposes Amendment 7 because it uses a regressive sales tax. 

Inquiring minds wonder why Senator Lamping never offered amendments for changing Amendment 7 from a sales to a land or income tax he could support as Senator.

The simple truth is that Senator Lamping was one of the most ineffective members in the history of the Missouri Senate.  He really did not get anything done or accomplished during his service.

As for the Tea Party and Tea Partier Hennessy, no the purpose of infrastructure spending in the City of Saint Louis is not to make your trips from "Wildwood to Scottrade and back any faster or safer." Our sprawl to Wildwood and beyond is a substantial reason why our region is no longer growing economically.

Mayor Slay properly wants to improve the livability of  the City to encourage in migration.

Last, that the Tea Party loves TEA is yet another distraction. If the Missouri General Assembly had control over Federal gasoline taxes, for sure those funds would not be returned to the Saint Louis region. The Missouri legislature is not going to spend Saint Louis taxes on Saint Louis and until we solve that problem giving the legislature more our our money to spend it not a step forward.

Thursday, July 3, 2014

No. 000051 We can all agree

“Even a dog knows the difference between being kicked and being stumbled over.”

Pattonville has followed Missouri law and refused to re-admit Normandy transfer students for 2014-15.

But, when Public Education has friends like Michael A. Fulton, Ed.D., Superintendent of Pattonville Schools, who needs enemies.

The letter informing of the decision is not personalized but is addressed: 

Dear Parent/Guardian:

Not an in-person meeting, not a personal handwritten note, no use of mail merge showing you had bothered to have a spreadsheet of names and addresses (and perhaps reports on student progress) but read the last sentence if you want to be walked on:
Our staff will work with the Normandy Schools Collaborative to ensure a smooth transition, including communicating with Normandy about the services and supports your child needs to be successful.

No. 000050 Missouri Economic and Political Writers A's and F's

Mr. Charles Munger, America's greatest living Economist, Lawyer, and Businessperson—the more than 50 year partner of Warren Buffett— uses and advocates the use of filters to exclude a great deal of information which he knows will be confusing and obfuscating at best, and often deceptive. Simply put, he counsels against paying any attention to anyone with incentive caused bias. The Psychology of Human Misjudgment

I use a letter grading system, read A's and warn others of F's:

A's in Missouri (only listed are people having a substantial connection to Missouri)

If you are not on this list you made an "F"

Here is the archive of his work.
If the titans of finance had only been paying attention, they would have seen that former Washington University in St. Louis economics Professor Hyman P. Minsky, PhD, had predicted the Great Recession decades before it happened.
Well, at least he predicted the factors that led to it, explains Steven Fazzari, PhD, professor of economics in Arts & Sciences and associate director of the Murray Weidenbaum Center on the Economy, Government, and Public Policy.
The lecture, titled “The Legacy of Hyman Minsky and the Great Recession,” is free and open to the public.
As a young faculty member, Fazzari often heard the occasionally gruff Minsky talk about his Financial Instability Hypothesis. Minsky, who retired from the university in 1990 after 25 years, described his ideas in a book of essays published in 1982 about the Great Depression, Can “It” Happen Again?
His final book in 1986, Stabilizing an Unstable Economy, explored his hypotheses further.
“For most of his career, Minsky was somewhat obscure,” Fazzari says. “People were aware of his work, and some took it seriously, but he was largely out of the mainstream. He was a bit of a voice crying out in the wilderness.”
Minsky theorized that the modern financial system made capitalism inherently unstable, which contrasted with the evolving thinking in mainstream economics during most of his years at the university.
Although Minsky’s ideas were formed by the study of factors that led to the Great Depression, he found elements of financial instability leading up to the recessions of 1980-82 (energy lending), 1990-91 (the savings and loan crisis) and 2001 (the bursting of the tech bubble).
Minsky predicted that the credit cycle goes through five stages before a major downturn occurs: displacement, boom, euphoria, profit taking and panic.

J. Bradford DeLong (Kaufman Foundation, Kansas City)

His best sentences: 
But I, at least, cannot help but interpret the declining intellectual fortunes of Milton Friedman's doctrine over the past generation as in large part a reflection of the fact that the Friedman-Keynes position is unstable: that one either follows today's Republican Party and Prescottian Chicago School and becomes a market fundamentalist and thus for consistency deny that the government can do any good, or one moves toward a comprehensive skepticism of markets without an additional clever technocratic layer of regulation imposed in addition to property, contract, tort, criminal, and clever macroeconomic policy to make Say's Law true in theory even though it is not true in practice.
Why this is the case I do not know. I am trying to think about it...

David Andolfatto (Saint Louis Federal Reserve Bank)

His best sentences:
Now, individuals regularly make deposits and withdrawals of cash into and out of their bank accounts. The net flow of withdrawals minus deposits determines by how currency in circulation grows over time. Banks do not lend out their cash. When a bank makes a loan, it issues a deposit liability that is redeemable for cash on demand. The demand deposit liabilities can be used as a payment instrument (they constitute money, and are counted as part of a broader measure of money supply, e.g., M1). The key observation here is that the way currency enters the economy is through the net withdrawal activity of bank customers--it has nothing to dow with banks lending out their reserves.
Alright, so why is understanding all this important? Well, for one thing, it is an accurate description of the way money and banking actually works (as opposed to the traditional "money multiplier" story that is commonly told in undergraduate textbooks). It is the right place to start when thinking of policy questions.
In terms of thinking about the inflation risk associated with the size of the Fed's balance sheet, it guides us away from examining how bank lending (the money multiplier) may react to various shocks. Banks can try to lend out their reserves all they want (create new loans). But if the public is satisfied with their currency holdings, any money injected into the system in this manner would have no effect on bank sector reserves. Since it is bank customers that determine how much cash is withdrawn from reserves, we should instead think about the type of shocks that may potentially alter this redemption decision.
Ann Marie Marciarille (Associate Professor of Law at the University of Missouri--Kansas City)

Her best sentences:
My recent visit to the Truman Libray has sent me back to reread Harry Truman's proposed Economic Bill of Rights and his November 19, 1945 message to Congress on that proposal You can read the whole text here: The Truman Library and archives are a national treasure.
 The invocation of the national interest in a healthy conscript pool is striking in light of what we know about current deficiencies in the military recruit population. Specifically, I am reminded of the 2010 report "Too Fat to Fight" ( and wonder if our own lack of conscripted military service has served to shield many truths from ourselves, including the truth of our lack of fitness to defend ourselves
F's, total failures who should never be read (except by someone like me tasked with correcting their incentive induced errors).

ShowMe Institute (all the opinions are purchased by Rex Sinquefield the only billionaire with his own PR website)

Stephen Williamson (Saint Louis Federal Reserve). The sole apparent purpose of this blog appears to be to assure that ShowMe never finishes last. Williamson has a great deal of Tea Party style jealously and envy of Paul Krugman. He also believes macro economics is a healthy science. Do not read.

No. 000049 Will Rod Blagojevich Be Spared? - Natasha Korecki - POLITICO Magazine

Will Rod Be Spared? - Natasha Korecki - POLITICO Magazine: has an important piece on a forgotten news story, the appeal of Illinois Governor Rod Blagojevich.
Blagojevich stared right at me.
“Good luck keeping your integrity in your profession,” he said in a tone thick with condescension. Then, pausing for effect: “Really, good luck.”
Does a man that honest about journalist belong in prison? Soon he may be free. 
During appellate arguments, which I watched in December, U.S. Appeals Judge Frank Easterbrook, formerly the chief judge of the panel, grilled government attorneys on some of the basics of the case. It was almost jarring to watch justices question the very essence of charges that had been under a public microscope for five years. Easterbrook appeared incredulous after asking if prosecutors could cite “any criminal conviction in U.S. history” other than Blagojevich’s in which a politician was convicted for trying to trade one job for another.
“I’m aware of none,” responded prosecutor Debra Bonamici.
“Where is the line that differentiates legal horse-trading from a federal offense that puts you in prison?” another appeals judge, Illana Rovner, asked.
It wasn't that cut and dried, Bonamici said. The jury concluded Blagojevich was trying to obtain more than a job. Still, it was clear the appeals judges had issues with fundamental aspects of the case.
Read more:

You tell me, is the following a crime?

A and B agree to form a political party. B says to A, I will give you $10,000 for your campaign if you promise to appoint me a judge, if elected.  As a judge, I can rule on issues important to us.

Or, isn't this the essence of political freedom?

Wednesday, July 2, 2014

No. 000048 Economics for Charlie Brennan # 3 Simple Steps to Making St. Louis a World Class City

1. As you said Monday, “People come to St. Louis because of our schools.”

We are unique in the World. We are the only City in the World with light rail connecting our Airport, three major universities, downtown, and major suburban center (Clayton).

For the next 20 years spend 1/3rd of 1% of our State's GDP—$1 billion a year—on UMSL and SLU to make both, with Washington University, top 30 institutions of higher education in the World.

Make education at UMSL free to all Missouri citizens and free to the top 5% of students from the World.

Keep the General Assembly out of higher Education by creating the educational equivalent of the Missouri Department of Conservation complete with a dedicated source of funding not capped by Hancock.

2. Get our income and state taxes back from the State of Missouri. Put those resources in crime prevention and deterrence and good jobs with benefits.

It is Democratic Party imperative that the fit work.

3. Consolidate all our local cities and special purpose districts into a strong and robust regional government.

Doing such will: