Tax Lingo for Dummies
The End Of The Boom/Bust Cycle?
'Do It For The Children': School Choice
Ice Cream, Hurricanes & 'Price Gouging'
Maybe Artificial Intelligence Can Expose Artificial Tax Arguments
It's been a pretty good year, considering I didn't actually write anything until May. But here they are, chronologically, in their most prominent settings:
Tax Lingo for Dummies
The End Of The Boom/Bust Cycle?
'Do It For The Children': School Choice
Ice Cream, Hurricanes & 'Price Gouging'
Maybe Artificial Intelligence Can Expose Artificial Tax Arguments
I’ve been caught in a lie.
For a while now I’ve been telling friends, family & classes “don’t fear the robots. They’ll only make our lives easier, better. If we don’t have jobs & income, we won’t be able to buy anything the robots make.” Some folks have taken the “Terminator” movies’ Cyberdine Systems’ Skynet too seriously.
After some more thought though, maybe we should fear them. Maybe we should be wary of the ones that create misleading headlines & flimsy stories. The ones programmed to manufacture self-righteousness warrant suspicion. Worst of all are the cyborgs designed by their masters (more familiar to us as politicians elected by voters) to confiscate private resources from us once they’ve tied our hands.
These particular robots have recently set their sights on tax reform.
As if on cue, the politically cynical concern about the federal budget deficit is back in vogue. This has come and gone as long as I remember. Who is concerned at the moment depends on who is in power. These days, it’s democrats who feign such anxiety since republicans hold all levers of federal control. A few years back, republicans were the worry warts, and a few years before that it was democrats who were all hot and bothered by the red ink. And so on and so on.
Republicans’ problem is that they can no longer be taken seriously when it comes to curtailing spending, (itself a tax on productive society), which is the real problem. Not only do some of them favor more, whether it be on defense, propping up Obamacare or building a border wall, but they’re not even willing to rein in the bloated leviathan that’s been built up over the last century.
And as for democrats, no one who seriously thinks ‘the rich’ can fund the vast majority of government operations, and that such spending has a wealth-producing multiplier, could possibly know enough to care about budget deficits.
Watching these two parties compete to show the most concern about the deficit is like watching a democrat leech and a republican leech attached to the American citizen arguing who’s responsible for the patient’s deficit of blood.
Alas, too many in the media dig a good story, even if they don’t get to juice it up a little …
Meanwhile, you’re probably aware of the different, though predictable takes on tax reform proposals put forth by the usual suspects amongst the punditocracy, political class, etc.: the left wing thinks we shouldn’t enact ‘tax cuts (for the rich) at the expense of vital federal government programs’, while the right wing generally supports reform as a way to ‘kickstart the economy that will pay for itself’.
But before the House GOP released their detailed plan, the aforementioned media had all they needed with the president’s 9-page “framework”. MarketWatch even put out a calculator (which was also based partially on republican proposals of prior years) so folks could figure out how the guideline would affect them. The story that grabbed my attention however, was on National Public Radio’s website. It had the clickbait headline cautioning Americans not to pin their hopes on the “promised $4,000 raise from the GOP tax plan”. In fairness, the piece clarified that there was no such promise, but that’s like T.V. lawyers who get to say something outrageous even if the remarks are ‘officially’ stricken from the record.
It seemed to reinforce this persistent notion that we live in a static society. It’s that concept after all that informs the Congressional Budget Office’s predictions of the effects of legislation; $1 of tax cuts equals $1 of tax revenue lost by the government. There’s no ripple effect whatsoever. Private citizen’s behavior is unchanged. In this case, a report by the president’s Council of Economic Advisers regarding reform of the corporate tax code was implied in the headline to predict an exact effect on individuals.
Nothing can be forecasted perfectly in a relatively free, dynamic economy, especially with so many other exogenous influences: new discoveries/inventions, business creation/closure, the regulatory state (a bright spot in the Trump administration), trade policy (a dark spot in the same), other legislation, events closer to home or on the other side of the world, alien invasion, etc. I maintain faith that most productive members of society aren’t gullible enough to think that as soon as any corporate tax reform passes, they can expect a subsequent raise soon thereafter. They know raises will continue to be based on the same core principles: how diligent are you at work, how much value are you adding to your company, how is your company doing, how is your industry doing, how is the economy doing, etc. These kinds of things aren’t as easily predictable as a government handout.
Another headline that jumped out at me came from ABC News’ website that reported “60% of Americans say Trump tax plan will benefit wealthy”. Well, duh. In the interests of equal treatment for all, it stands to reason that those who pay progressively more would realize more after-tax income as a result of ideal reform. Apparently some wealthy folks not only want no part of it, but think no one else in their tax brackets should benefit from reduction and/or simplification either.
Berkshire Hathaway CEO Warren Buffet, who once famously claimed that his secretary pays a higher rate of tax than he does, recently said “I don’t think I need a tax cut.” Former hedge fund manager Tom Steyer piped in pleading “I’m a billionaire. Please raise my taxes.” And Morris Pearl, head of an outfit called Patriotic Millionaires, said that only the “poorest among us … should have tax cuts.”
Mr. Buffett’s secretary claim was sufficiently debunked by none other than Politifact, citing reasons that are apparently lost on Mr. Pearl; not only do most folks at such income levels fall into lower tax brackets, but they end up paying little-to-no net income taxes thanks to deductions and various loopholes. Yet according to Mr. Steyer, it has been “at the expense of working families” that “upper-income people in the United States have done disproportionately well … for 35 years.” I don’t know about you dear reader, but I’m struggling to remember the last time I felt “taken advantage of by the richest Americans.”
Surely with a political science degree from Yale, Mr. Steyer isn’t referring to cuts in the size of government. After my weekly consultation with USDebtClock.org just now, I see that Uncle Sam is spending more than $4 trillion, is in a $20 trillion hole, and has $109 trillion in unfunded liabilities. Regardless of the extra-constitutional functions for which he fears the deprivation of funds, it appears Uncle Sam’s operations continue apace.
And certainly as the holder also of an economics degree, he’s familiar with the concept of deadweight loss. As John Stossel recently pointed out, the latest count is 7 billion hours that we devote to filing our taxes, “the equivalent of 3.7 million people working 40-hour weeks.” If they are so eager to pay more taxes, I bet they could save some of that time and money by refraining from exploiting all the legal loopholes available to us all. Failing that, the Bureau of the Fiscal Service is happy to accept “gifts and unconditional donations” on behalf of the federal government (whether or not such a donation is tax deductible is unclear).
Whether such folks feel a little guilty for skillfully navigating the system as it is set up, or would perhaps prefer to maintain their perch atop the same for which they might have lobbied, or whether they just don’t get it is anyone’s guess. The core principle of this whole debate is a sensible one: the tax burden on laborers and wealth-creating entities should be as miniscule and simple as possible.
In a recent essay in the Wall Street Journal, Dr. Christoph Koch, chief scientist and president of the Allen Institute of Brain Science, explained the research that he’s been leading to “create technologies to enhance the processing and learning capabilities of the human brain” in response to AI (artificial intelligence, i.e. robots). Such work he hopes could turn “anyone into a programmer” who could create a “precise and error-free piece of digital code … at the speed of thought”.
Hopefully the general public figures out how to use such technology in order to better decode the nonsense fed to us by public opinion makers and spinners.
I have a weakness for ice cream. Years ago regional favorite Blue Bell put out the most divine flavor to grace my palette; Caramel Sundae Crunch; vanilla ice cream swirled with caramel and chocolate-covered crushed-up bits of ice cream cones … it was the BOMB!
And then it was gone. The little creamery in Brenham just ... stopped ... making it. I considered special ordering it, but I drew the line at paying something like 10X what I did in the store. I didn’t value it THAT much.
Fast-forward to this year. I decided to give Blue Bell’s Sea Salt Caramel a try. I love caramel, but marrying sugars and salts doesn’t do it for me. I’m glad I took the dive though, because that’s some good stuff.
And now IT has disappeared. I haven’t been able to find it at any nearby grocery store for the last few weeks. You'd think I'd have learned my lesson and stocked up like Elaine Benes hoarding sponges on “Seinfeld.” But no, I didn't.
Alas, if I had, you can bet there would have been a premium put on every bite, for both my daughters AND me. Who knows when, or IF Blue Bell would ever make it again?? It would have been my version of a fine wine that you break open only on a special occasion. Its scarcity has increased its value.
Now imagine it’s YOUR favorite food, and you did have the foresight to stock up in anticipation of such a possible shortage. But instead of consuming it, you rely on selling it to make a living. That's the dilemma vendors of water, gasoline, batteries and the like face when a hurricane like Harvey is heading their way. They don't know when their next supply shipments are coming, or IF they’re coming. They don't even know if their place of business will still be standing post-landfall.
Keep this in mind when demagogues start screaming about price gouging. These vendors are humans just like us, humans with strong enough nerve to risk a LOT to supply us with everything we want AND need. And now, just like the rest of us, they’re facing what is hopefully just a temporary disruption of an important part of their life. They don’t raise prices to screw consumers, but rather to defend their livelihood.
Or take for instance the guy who was filmed selling bottles of water out of the back of his truck in the parking lot of a WalMart in Houston as Harvey was bearing down. The man filming the video berates him, presuming to know what he and his family needs, telling him he “should be ashamed of himself.”
But why? No one is forced to buy from him. If someone values the water enough, they’ll pay for it, no coercion involved. So what if he marks it up more than usual?? The whole episode invariably ends up being pro-consumer: either no one will buy the water and he’ll be forced to drop his price, or people will scoop all of it up, thereby luring in other suppliers who’ll offer a lower price in order to gain the business. Some of my students seemed to know this on the first night of class last night.
Buyers and sellers, acting independently, will always bring about a result that is satisfactory to all parties. We shouldn’t allow our emotions, our sense of envy or insecurity, or presumptuousness of others’ business, to demonize someone making a profit, especially when it’s fleeting and short-term. The only individuals who profit from such intellectual and emotional gullibility are politicians, from BOTH major parties, wanting to look heroic. The worst of them are only too happy to hook up some more dependents to the State.
In the meantime, HEB does more to endear itself to Texans by sending caravans of food, supplies, etc. to my hometown of Victoria, and other communities in the area hardest hit by Harvey. As the mosque burning earlier in the year demonstrated, the free market of charity is as effective as any government action at helping people truly in need.
Especially here in the great Lone Star State.
I was pleasantly surprised earlier this year when I learned that my oldest daughter would have a choice of magnet schools here in San Antonio: health careers near the medical center, business at Holmes, science & engineering at Jay, communications at Taft and construction at Warren.
Also around this time, Betsy DeVos was girding for a contentious confirmation battle over her appointment as Secretary of Education. She faced hostile opposition both from senate democrats still sore about the presidential election, and from teachers unions and ‘public school’ advocates who oppose what Mrs. DeVos has pushed for years; more freedom of choice & parental control in K-12 education.
The Department of Education arguably shouldn’t even exist in the first place. It is a prime example of those “powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people” as per the 10th amendment. If the only thing Secretary DeVos ever did was fold that department, she would be a success. Short of that, promoting more school choice is a close second.
From t-ball to cheerleading, music lessons to gymnastics, my girls have run the gamut of extracurricular activities. They’ve been as far away as the Y.M.C.A. downtown, or as nearby as baseball fields in Westover Hills. Distance has never mattered as much as the organization with whom we signed up.
Why can’t we have the same choice with their schools? Because at least here in Texas, where you pay property tax for your primary residence determines the public schools for your children.
This issue didn’t appear on my radar until I took Dr. John Merrifield’s urban & regional economics course at UTSA. He has spilled a lot of ink on this topic, including a few books, most notably perhaps 2001’s “The School Choice Wars”. Having just become a father at the time only heightened my interest.
We do have some semblance of choice here. In addition to the magnet schools, children can literally be ‘grandfathered’ in to the NISD if their grandparents live here and provide "significant after-school care". One of my daughter’s friends was able to go to the same elementary school because that’s where her mother taught. Transfers are possible for a handful of other reasons, but “are generally denied due to lack of space”.
If parents were allowed however, to use a proportionate amount of public revenue earmarked for education, they could send their kids to any school they choose, assuming it meets a minimum level of state-approved criteria (mastering certain levels of basic subjects by a certain grades). Beyond that, the schools would be free to specialize however they see fit: art schools for musicians, painters & actors; schools that cater to kids who like to build things; culinary schools when Easy-Bake Ovens will no longer do; technology schools for computer geeks. The possibilities are limitless.
These schools would be free to set their own tuition: more than, less than or equal to the amount allotted to each child by the state. But those prices would be unlikely to stay put. For example, if a particular metro area turned out to have a higher concentration of young would-be engineers than schools to serve them, the price of tuition would in all likelihood rise … in the short term. Parents might have to decide whether or not they value those schools enough to make up the difference. As Dr. Merrifield reiterated to me recently, that’s one reason the current system is flawed; it lacks such price signals.
One point I stress in my classes is that suppliers react differently to prices than demanders do. We’re all demanders, and thus familiar with that angle: price goes up, we buy less. However, only a handful of us are suppliers (excluding the labor we supply when we go to work), and thus not wholly in-tune with how they react.
Those higher prices would emit a signal of opportunity for enterprising entrepreneurs. To enter the market competitively, they’d have to charge lower tuition, offer more for the same price, or some combination of both. To stay competitive, the existing schools might expand. They also might extend financial assistance to those excelling students of lesser means. What could be better for a school’s reputation than educating the best & brightest?
More choices, lower prices, better quality … what’s not for a consumer to like??
All this assumes of course, a light, basic regulatory touch. Otherwise, innovation would be dulled, disincentives would arise, current market participants would become entrenched, etc. In other words, a wet blanket thrown on progress.
Alas, as it stands now the only price signal that exists in grammar school education is … real estate??
We’re all familiar with good sides of town, and not-so-good sides of town. The latter tend to be run-down, more susceptible to crime, gangs, etc. Perhaps not surprisingly, that negatively impacts property values, and in turn minimizes property tax collections.
According to the Texas Education Agency, about 50% of public school funding derives from property taxes (roughly 10% comes from Uncle Sam, while around 40% comes from the Lone Star). It hardly seems fair that a child’s education, the ultimate example of equality of opportunity, should be restricted by a socioeconomic situation not of his/her making.
The state legislature tried to remedy this a generation ago by passing what is commonly known as ‘Robin Hood’, whereby a school district that has “wealth per student that exceeds” a certain level subsequently has that excess “recaptured” and redirected to property-poor districts.
And a generation later, public school funding in Texas is still an issue.
Perhaps an alternative to property taxes could be a county or metro-area sales tax, a rate that would apply to ALL areas of town & the local economy uniformly. This would be a most efficient way to pull the funds. No more artificial inflation of property values. One less inefficiency in the rental market. A lesser tendency to build arguably exorbitant facilities tied as much to property wealth as student outcomes.
The Texas constitution states that the legislature “shall … make suitable provision for the support and maintenance of an efficient system of public free schools,” so some traditional ‘public’ schools would remain. Some parents may prefer the convenience of the nearby school. Some may simply not be able to get a bead on what it is their child has a particular knack for.
It also states that “a general diffusion of knowledge” is “essential to the preservation of the liberties and rights of the people.” Education has spillover benefits. The knowledge & skills a student attains benefit the general public when employed on the push toward greater progress & prosperity.
No one is more vested, or has a greater interest in this venture than we the parents. My daughters are my best opportunity to make a positive impact on society. Their mother & I are as integral to their education as anyone or anything. It should be an option for us to fund their education with some portion of the taxes we pay, at whichever school we see fit.
A market of millions of parents can’t be wrong.
I was pleasantly surprised earlier this year when I learned that, upon entering high school, my oldest daughter would have a choice of magnet schools here in San Antonio: Northside Health Careers near the medical center, Business Careers at Oliver Wendell Holmes HS, Science & Engineering at John Jay HS, Communication Arts at William Howard Taft HS and Construction Careers at Earl Warren HS. Ever since she & her sisters were born, their mother & I have always kept our eyes open for any & all options available to us regarding their education.
Also around this time, philanthropist & activist Betsy DeVos was girding for a contentious confirmation battle over her appointment as President Donald Trump’s education secretary. She faced hostile opposition both from senate democrats still quite sore about the president’s electoral defeat of their nominee, Hillary Clinton, and from teachers unions and ‘public school’ advocates who oppose what Mrs. DeVos has pushed for years; more freedom of choice & parental control in K-12 education.
Let’s dispense with something first & foremost; the federal department of education arguably should not exist in the first place. Nowhere in the U.S. Constitution is “education” or “school” mentioned. It is one of the best examples of those “powers … reserved to the States respectively, or to the people” as per the 10th amendment. If the only thing Secretary DeVos ever achieved while in office was to carry out Kentucky congressman Thomas Massie’s bill to abolish the DoE, she would rightly be hailed as a most successful public servant. Short of that, promoting more school choice is a close second.
From swim lessons, to t-ball, to cheerleading, to music lessons, to gymnastics … you name it, my girls have done it, with multiple organizations, some as far as 10-15 miles away from home. We even chose as our pediatrician a doctor whose office was further away than that. Not only has her replacement upon retirement been just as pleasant, but now she’s just a couple miles from the house.
We personally would be lucky if doctors were ‘assigned’ to us the same way public schools are; place of residence. But why should it be that way? Why can’t we pick from a variety of schools like we do extracurricular activities? Because at least here in Texas, where you pay property tax for your primary residence determines the public schools for your children. That might be the only thing I like less about my great home state than the climate.
This mystery didn’t occur to me until I took Dr. John Merrifield’s urban & regional economics course at UTSA. He has spilled a lot of ink on the topic of school choice, including a few books, most notably perhaps 2001’s “The School Choice Wars”. The fact that my first daughter was a toddler and her first sister was on the way at the same time only served to heighten my interest.
We do have some semblance of choice here, exemplified in part by the aforementioned magnet schools. Children can also literally be ‘grandfathered’ in to our district if their grandparents live within its borders and provide "significant after-school care". One of my oldest daughter’s friends back in elementary school went there because that’s where her mother taught. Transfers are possible for a handful of other reasons, but “are generally denied due to lack of space”.
If parents were allowed however, to use as their initial round of funding, a proportionate amount of public revenue earmarked for that specific purpose, they could send their kids to any school they chose, assuming it meets a minimum level of state-approved criteria (children should be able to master a certain level of math by a certain grade, reading comprehension by a certain grade, knowledge of history, etc.) Beyond that, the schools would be free to specialize however they AND the market sees fit.
At an early age her mother & I noticed that our second-born liked putting things together. Nowadays she has taken an interest in cooking & baking. Our third daughter is somewhat athletically-inclined, while our fourth is kinda artsy. Our oldest daughter is musically inclined, playing the baritone in high school band while taking piano lessons on the side.
Those are just a few specialties around which schools could focus. Maybe some of the places we patronize(d) would expand or merge their operations to include general schooling. Some already provide after-school care. The possibilities are limited only by our imagination, and that of enterprising entrepreneurs.
Such schools would be free to set tuition at whatever level they deem appropriate: more than, less than or equal to the amount of the vouchers (NOT the dirty word demagogues make it out to be) allotted to each child. But those prices would be unlikely to stay put. For example, if a particular metro area turned out to have a higher concentration of young would-be engineers than schools to serve them, the price of tuition would in all likelihood rise to find a new market equilibrium. Parents would have to decide whether or not they value those schools enough to make up the difference. As Dr. Merrifield reiterated to me recently, that’s one reason the current system is flawed; a lack of price signals. The subsequent shift in the balance of the market would be temporary, setting off an adjustment.
As I’ve alluded to before regarding recent changes in the bee population, prices are not just the cost it takes for us to buy something. There is a plethora of information wrapped up in the price of a good: the supply & demand of/for a good, cost of inputs, the availability of substitutes, preference for a particular good, etc.
One point I stress in my classes, THROUGHOUT the semester, is that suppliers react differently to prices than demanders do. Since the entire population plays the part of a demander almost daily, we’re all familiar with that angle. However, only a handful of us are suppliers (excluding the labor we supply when we go to work), and thus not wholly in-tune with how they react.
Those aforementioned higher tuition prices would emit a signal; an opportunity for profit (another word soiled by irresponsible linguistic manipulators). That would likely lure others to open up such schools. In order to be competitive, the new market entrants would charge lower tuition, offer more for the same price, or some combination of both.
To stay competitive, the existing schools might expand. They also might extend financial assistance in the form of grants or scholarships to those excelling students of lesser means. What could be better for a school’s reputation than educating the best & brightest?
In any event, what used to be a producer surplus would turn into a consumer surplus, as the market would be cleansed of inefficient/ineffective operators, all the while benefitting parents & children.
All this assumes of course, a light regulatory touch. As in nearly all markets, the more a public bureaucracy grows, the more innovation is dulled. Disincentives arise. The more standards are augmented, or altered, the more likely current market participants become entrenched at the expense of prospective new entrants (see the current debate over licensing). All these would constitute a wet blanket that suppresses the price signals that fuel progress.
Alas, as it stands now the only price signal that exists in grammar school education is … real estate??
Even growing up in modestly-sized Victoria, TX (population 50,000), I learned there are good sides of town, and not-so-good sides of town. The latter tend to be run-down, more susceptible to crime, illicit drug-related activity, gangs, etc. Perhaps not surprisingly, that negatively impacts property values, and in turn suppresses property tax collections.
According to the Texas Education Agency, about 50% of public school funding derives from property taxes (roughly 10% comes from Uncle Sam, while around 40% comes from the Lone Star). That hardly seems fair to those children born & raised in such property-poor settings. Children’s education is the ultimate example of equality of opportunity, and it shouldn’t be restricted by a socioeconomic situation that was not of their making.
A generation ago, after a couple of efforts by the legislature to remedy the situation were rejected by the state Supreme Court, the court eventually blessed what is commonly known as ‘Robin Hood’ (technically referred to as Chapter 41 Wealth Equalization). A school district that has “wealth per student that exceeds” a certain level subsequently has that excess “recaptured” and redirected to property-poor districts.
And a generation later, public school funding in Texas is still an issue.
To make up the local component of funding for public education, perhaps an alternative to property taxes could be a county or metro-area sales tax that would be inclusive of ALL areas of town & the local economy. This would be the most efficient, direct way to pull the funds. No more artificial inflation of property values & taxes for childless homeowners and seniors on fixed incomes. It would remove an inefficiency from the rental market. It might also curtail the construction of arguably exorbitant facilities that are as tied to property wealth as they are to student outcomes.
The Texas constitution states that “a general diffusion of knowledge” is “essential to the preservation of the liberties and rights of the people,” a point few would dispute. Education is a prime example of a positive externality; the knowledge, skills & general human capital a student attains benefits society as a whole when employed on the push toward greater prosperity.
The constitution also states that the state legislature “shall … make suitable provision for the support and maintenance of an efficient system of public free schools.” Some number of traditional ‘public’ schools would remain where an education could be attained for the face value of the individual vouchers. Moreover, some parents may prefer the convenience of the nearby school. Some may simply not be able to get a bead on what it is their child has a particular knack for.
At the end of the day, no one is more vested, or has a greater interest in a child’s well-being & enlightenment than his/her parents. My daughters are my best opportunity to have a positive impact on society. Their mother & I are as integral to their upbringing & education as anyone or anything else. Still, it should be an option for us to fund their education with some portion of the taxes we pay, at whichever school we see fit. Every parent should have that option.
A market of millions of parents can’t be wrong.
"Let’s start talking about the economic benefits of universal health care instead of debating the morality of entitlements. Not only would universal health care save money by fostering a healthier population through preventative care, it would lead to peak performance of our workforce, with people choosing careers based on their passions rather than which company offers the best benefits package. Health is freedom.
"Free higher education and career-ready skills training are likewise integral to our economic growth. Rather than being a handout, education is an investment in our most valuable resource: human capital. Our country later reaps the dividends of this investment through economic growth."
So says progressive candidate for congress Chris Perri.
I'm curious about a couple things. What type of 'freedom' is it that requires people who demand less of a service, to pay the same amount as those who demand more, via a system run by an inefficient national government 1000s of miles away?? How can you detest "corporations that have overtaken our economy, replacing small businesses" on the one hand, but propose to allow decisions about individuals' health care be administered by Uncle Sam?
Given the (recent) history on the effects of government involvement in certain sectors of the economy, it appears he supports higher & higher prices/costs for such services as education. And, the way he states it, it seems he believes society develops from the top down. How else to explain his wording regarding education? It's all about "our". Prosperity derives from allowing the individual chart his/her own course, free from government meddling. Hasn't this been proven?
The irony of labeling yourself as a 'progressive' ...
The good, the bad & the ugly from the show last night.
The good: they sounded good. It is, after all, Metallica. You don’t do stadium tours unless you’re doing something right. The stage production was pretty cool: the lasers, the flames, the videos they played with the songs, especially recreating the album cover of “Master Of Puppets”. They also kept solos to a minimum, and made them count, especially what might have been my favorite moment; Robert Trujillo’s bass solo. That solo just happened to be “(Anesthesia) Pulling Teeth”, a Cliff Burton track of their first album “Kill ‘Em All”. I won’t lie; my eyes watered & my heart swelled when they showed Cliff playing the Day On The Green concert back in 1985. Good stuff.
The bad: the venue. This was only the third concert I’ve seen in a stadium, and it could be my last. If not for Metallica, I’m not likely to pay more than we did last night to get down on the floor. Regardless of the ginormity of the video screens, the stage still seemed so far away. I’ve been spoiled the last few years in that most of the shows we’ve seen have been in theaters. We’ll be able to make an immediate comparison when we see Iron Maiden at the AT&T Center next Saturday.
The ugly: the setlist. I talk about this all the time with my coworker Mark, who happened to be there last night, also. This is another thing that’ll be on our minds at the Maiden show. First off let me say that I’m glad these bands make new music if they have it in them. Invariably however, some other older songs get dropped from shows in favor of songs from the album they’re promoting. That said, thank goodness a few of these bands (Slayer included) do occasional ‘classics’ tours, where all they play is older stuff. Fortunately, I like all the new ones Metallica played last night (though they could drop the mega-bongo part from “Now That We’re Dead”), the roving flame shoring up the weakest one, “Moth Into A Flame”. I know the black album is where Metallica made it big, but at least “Wherever I May Roam” and “Unforgiven” could have been replaced with any number of better tunes. Maybe “Nothing Else Matters”, too. Alas, I’m realistic about it.
It’s fascinating how much of an effect people allow a ‘big boogeyman’ to have on their psyche, especially those we can ignore if we choose to: whether it’s the ‘big, bad rich guy’, or the ‘big, evil corporation’, or the ‘big foreign strongman leader’, etc. Throw OPEC into this mix. Some feared they would totally crush the reborn U.S. energy industry when they declined to cut production a couple years ago. The price duel was indeed costly for all parties, but we’re still here, and we’re not likely going anywhere.
Our continual improvements kept domestic production on the upswing for more than a year after the price of oil started tumbling in June 2014. Over that time, the active rig count was dropping by almost two-thirds, assets were being sold off and the first waves of layoffs were occurring. Yet our oil kept flowing. It wasn’t until July 2015, eight months after OPEC made the fateful decision not to support prices, that U.S. output started experiencing a downward trend.
U.S. Crude Oil Production (thousand barrels per day)
(Source: U.S. Energy Information Administration)
By that time, the gutting of prices had been done. The increased productivity that resulted from the hydraulic fracturing (fracking) innovation converged with OPEC’s defense of market share to totally overwhelm demand to the point of pushing the price all the way down to $26 in February 2016. Adjusted for inflation, oil & gas were at historic lows. More asset sales, layoffs (by now numbering in the hundreds of thousands) and even bankruptcies ensued. Within OPEC, dissension started to stir.
As 2015 gave way to 2016, the non-Arab contingent of OPEC, who didn’t have near the savings to draw on during this market correction as Arab members, started to push for organized output cuts. Everyone had lost a piece of the pie to the shale producers, and were now possibly set to lose more as the U.S. government lifted the oil export ban in December 2015.
At last, in late 2016, as a slight recovery had already taken hold, OPEC & Russia agreed to remove more than a million barrels of oil per day from the market. Since then, the price has fluctuated around $50.
Perhaps as a result of this massive market adjustment, a prospect unimaginable just a decade ago has started rising above a whisper; the ‘end of OPEC’. Whether or not that happens remains to be seen. It might be more likely that we’re witnessing a taming of the boom-bust nature of the industry.
The Organization of Petroleum Exporting Countries was formed in 1960 “to coordinate and unify … policies … and ensure the stabilization of oil markets in order to secure a … regular supply of petroleum to consumers, a steady income to producers and a fair return on capital for those investing in the petroleum industry.” It’s a cartel, something we don’t see in the U.S. because it’s illegal for firms to collude in price/supply fixing.
Oil is a perfectly competitive good. It’s a homogenous product in that it differs very little from one producer to another. ‘Your oil is like my oil is like his oil.’ A producer in such an industry is a price taker, and in a perfectly competitive market free of collusion, all profit is eventually drilled away. Moreover, as are many other commodities (agricultural products), oil is an inelastic good. Demand is less sensitive to price because food & energy are more valuable to consumers than say, another pair of sneakers or earrings or T.V.
Combine those two characteristics, and one motivation for OPEC’s formation becomes apparent. Add a flexible & nimble independent wild card like shale producers, and the result is the 2-year battle for market share from which we’ve only recently begun to emerge.
Perhaps the catalyst to OPEC’s current predicament was the growth of the developing world, the various international skirmishes & conflicts and dollar weakness during the dawn of this century. These forces came together to push the price of oil up to almost $150 in 2008. Compounding matters was the particularly low level of spare capacity it had, precluding its ability to bring the price down with more supply. This turned out to be the price signal that was needed to make fracking viable. And once that genie was out of the bottle, there was no putting it back.
OPEC Spare Production Capacity (million barrels per day)
(Source: U.S. Energy Information Administration)
From the current juncture, there are multiple directions price could go.
According to OPEC’s website, the oil industry makes up an average of almost half of the gross domestic product of member countries, and accounts for 90% of export revenues. Some plan, or have attempted to put their economic eggs into other baskets.
Under the direction of King Salman’s son, Crown Prince Mohammed bin Salman, Saudi Arabia last year announced a plan with the goal of diversifying its economy so that it relies less on oil. It appears as much social advances (more women in the workplace and defanging religious police) as financial ones, the latter of which includes expanding their sovereign wealth fund into the world’s biggest, and selling almost 5% of the state-owned oil company, Saudi Arabian Oil company (Saudi Aramco).
If other countries succeeded in such efforts, as Nigeria has tried for a number of years in developing their digital economy industry & mining of other natural resources, the supply of oil could theoretically decline, as inputs such as capital & labor would be pulled in other, possibly more lucrative directions. That’s what shale producers are facing as they attempt to respond to a firming market; laid-off workers have moved on, in some cases picking up stakes & moving to other states altogether. This raises expenses beyond which some companies can afford. Hence, supply dries up, and upward pressure on oil prices is felt.
On the other hand, some non-OPEC countries have opened the door to foreign participation in their respective industries.
In 2014, Mexico did so for a small portion of its proven reserves, and a large chunk of exploration for new resources. There also may be opportunities for these firms to work with the state company, Petroleos Mexicanos (PEMEX). While down on the other side of the equator in Latin America, Petróleo Brasileiro SA (Petrobras), Brazil’s scandal-plagued, mostly-state-owned petroleum company, has fielded interest from Shell et al regarding the so-called pre-salt oil fields in the deep waters off its coast.
Even Russia’s state-controlled company Rosneft is selling off chunks of itself. And while Russia does have significant shale resources, international partnerships to exploit them ground to a halt as a result of diplomatic sanctions put in place after its annexation of the Ukranian territory of Crimea. As it is, the most prominent case of diffusion of fracking technology looks set to take off in the Vaca Muerta region of a more business-friendly post-Kirchner Argentina.
If such foreign direct investment bears fruit, it would likely introduce efficiencies into the sectors of the respective countries. Consequentially, they would realize the dropping breakeven points experienced here. Hence, more product would flow into the international market thereby pushing the price down.
Conversely, if they suffered the same fate of asset seizure that many companies of varying industries have experienced in Venezuela (most recently GM), this would tend to restrict supply, sending prices in the other direction.
Venezuela is an extreme case in that it has been poorly governed under the late Hugo Chavez and his successor, Nicolas Maduro. They have so mismanaged the largest reserves in the world that they can barely afford to bring any to market. Theirs is a classic case of the distortions introduced into an economy by government meddling; their production should have been on an upward trend until prices tanked. As it is, they serve to put a floor under prices. And if Venezuelans continue to ramp up their dissent in the face of increased government efforts to ineffectively assuage (six hikes of the minimum wage in the last year!) and/or suppress it, the result could be something that causes further drops in production; armed conflict.
Nigeria & Libya were exempted from the recent OPEC cuts for just such reasons. The former has suffered attacks mainly from the terrorist group Boko Harem, while the latter endures civil strife in the battle to control production since Muammar Gaddafi was deposed in 2011. Closer to home, Mexico has experienced a surge of pipeline thefts recently, partially at the hands of the notorious drug cartels that operate within its borders. All these countries have experienced drop-offs in production, which pushes the price up.
All the while, the U.S. shale producers have emerged as a new type of ‘swing producer’.
We have a comparatively stable society where the risk of armed conflict is low, and the chance to strike it rich with technological innovation is encouraged by the presence of intellectual property protection. And now, not only do we have the opportunity to export that know-how, but for the first time in a couple generations we can export some of our resultant abundance to the rest of the world (not to mention possibly a little more security to our allies, subsequently fostering more peace).
The lifting of the export ban enhanced efficiency by reintroducing the U.S. as a major international player, comprised itself of hundreds of autonomous participants. It provoked what was, for all intents & purposes, a free market response from OPEC in the fight for market share.
The evolving nature of our industry could actually serve to stabilize prices from here forward. As the Wall Street Journal reported a month ago, a recent 4-month trading range of oil was the tightest such stretch in 14 years.
Moreover, our industry isn’t directly burdened with the responsibility of funding the state; it makes up only 5-10% of our diverse economy. We have been able to produce more & more at less & less cost, while redeploying resources that got us here to the other 90+%. OPEC countries et al can no longer afford the higher breakeven prices necessary to support their relatively more bloated bureaucracies.
OPEC’s next official meeting is May 25th. It’s looking to be somewhat anti-climactic however, given the signs they have been sending lately pointing to continuing the cuts instituted last November. While we are certainly witnessing the end of the old OPEC, the organization itself probably isn’t going anywhere. Given its recent outreach to Egypt & Turkmenistan, not to mention its closer cooperation with Russia, its ranks might actually swell a bit.
U.S. shale producers aren’t going anywhere either. In fact, we’re likely going to keep on improving. Just the other day, I toured a 2-year old rig that’s even more nimble than our 4- & 5-year old rigs. Technology does not recede; it only advances.
In the past, some of the U.S.’ competitors blamed ‘the Great Satan’ for theirs & the world’s ills. Ironically enough, they would be correct this time, but for all the right reasons.
Years ago, I saw that word in a George Will column and was intrigued; “what does THAT mean??” I found the answer using a fairly simple exercise; I consulted a dictionary: “to widen in scope, increase in size or intensity”. These days, I have my Dictionary app handy whenever a word stumps me. When that doesn’t work, I simply go to the website itself.
In a sign that our stagnating educational outcomes of recent decades might start at the top, those who shape & influence our public policy in government and the media seem too often to be grammatically-challenged. In few places does this manifest itself more than in discussing & debating tax policy.
“The rich are now paying their fair share in taxes.”
“Across-the-board income tax cuts would benefit the wealthy disproportionately.”
The U.S. has a progressive income tax structure, with seven rates ranging from 10% to 39.6%; the more you earn in wages & salary, the greater the percentage you pay in taxes. As a result, one-fifth of American households pay roughly two-thirds of federal income taxes. We’re already in ‘disproportionate’ territory. Logic dictates therefore, that those who pay more would experience a greater absolute ‘benefit’ from an ‘across-the-board’ cut in income taxes. Although one might say that ‘benefitting’ from Uncle Sam taking less of our earnings is akin to ‘benefitting’ from him spying on us less.
Moreover, the concept of ‘across-the-board’ income tax cuts is itself erroneous when almost half of all Americans pay no net income tax (either they have no taxable income, or it’s cancelled out by all the deductions, exemptions, credits & other loopholes). It’d be more accurate to say ‘halfway-across-the-board’, though that admittedly doesn’t roll off the tongue as smoothly.
“The border adjustment tax … is needed to help pay for a steep cut in corporate and income taxes.”
“… costs a great deal of revenue …”
“I just don’t see how we can afford these tax cuts.”
Taxpayers ‘can afford’ to fund the National Institute of Health’s study of tobacco use in Russia, the National Park Services research into how bugs respond to lights, and the National Science Foundation’s $1.6 million project programming robots to dress senior citizens and see how well it works in their dating life (all info courtesy of Oklahoma Senator James Lankford’s “Federal Fumbles” report) … but we have to find a way to ‘pay’ for the ‘revenue’ forgone when we forcibly extract (by threat of imprisonment) less from productive citizens??
The poor essentially subsidize the rich via the National Endowment Of The Arts, but it ‘costs’ Uncle Sam to withhold less from our paychecks? In a world of seemingly infinite television channels, tax dollars support PBS, but we have to find a way to ‘pay’ to be taxed less? The federal government spends $70 billion yearly on the department of education (constitutionally a state responsibility), but our elected representatives don’t think we ‘can afford’ to allow graduates to realize the full rewards of the skills/intellectual capital they gained??
“Tax cuts pay for themselves.”
Indulging the notion for argument’s sake, it’s hard to tell for sure whether or not tax cuts ‘pay for themselves’. The Congressional Budget Office doesn’t even try, preferring the use of static scoring to predict the effects; a tax cut of $1 necessarily means a loss of revenue for Uncle Sam of $1.
However, it’s probably safe to say that the vast majority of us do not take any increased disposable income and simply stuff it under the proverbial mattress. And by virtue of that fact alone, it contributes to increased economic activity no matter what we do with it. Many of us may go shopping (we are Americans after all; we buy so much ‘stuff’ we have to rent storage in which to put said ‘stuff’). My uncle stuffed most all his lifetime raises into savings, which banks typically turn around & lend to those who have a more immediate use for it. And then there are folks like a couple friends of mine.
In the last couple years, they have branched out, either expanding an existing business to another location, or opening another different business altogether. That requires buying capital equipment, wiring a new building for electricity, water & the like, and hiring new staff. That new staff will pay some income taxes (not to mention payroll & sales taxes). If they left another job, it’s possible they were lured away by higher pay. And the jobs they left vacant maybe had to be filled.
It’s activities like those that have historically produced greater revenues in the wake of income tax cuts than the CBO originally predicted.
“Tax cuts cause deficits”
When a person’s income declines (as has happened to many in my industry in the last few years), his credit card balance doesn’t automatically increase as a result. It increases only if he doesn’t reduce his level of credit expenditures.
It’s spending that ‘causes deficits’; not lower tax rates.
“Tax cuts” vs. “tax reform”.
These are not the same thing.
The former now seems to require the use of budget reconciliation in the Senate to get around the sixty-votes necessary to invoke cloture (i.e. breaking a filibuster), and pass with a simple majority. The problem is that the tax rates must revert to their former levels in ten years should deficits increase (see ‘tax cuts cause deficits’ above) over that time, thereby introducing impediments to peoples’ & entities’ long-term planning.
The latter on the other hand, would require all sides to marshal up a filibuster-proof majority who could resist the urge of social engineering via the tax code and agree on one rate that would apply equally to all citizens (something that might even be a challenge in the House, where few hurdles to a majority vote exist).
The former can be used to bestow favoritism on this demographic or that, while the latter takes political courage to eliminate such benefits that arguably shouldn’t have been conferred in the first place.
The former has therefore turned into political red-meat, something on which to campaign nearly every congressional cycle, while a comprehensive, ideal version of the latter would strip busy-bodies of something ‘to do’, allowing us to shift our collective attention to real issues.
On one side opposing true ‘tax reform’ you have folks like ‘conservative’ talk show host Hugh Hewitt, who recently wrote in The Wall Street Journal that “Generations of Americans have relied on (mortgage interest, charitable contribution and state taxes) deductions in making enormously consequential decisions(.)” In an unscientific poll of my friends, I found that little (though not totally zero) attention is paid to the charitable deduction in that vein. Same goes for the mortgage deduction. As my wife & I near closing on a house, that consideration never came up.
On another side of opposition you have the likes of former presidential candidate Bernie Sanders, who doesn’t think ‘the rich’ pay enough in taxes. One of the first & most regular things I tell all my classes is to see things from the supply side. ‘The rich’ that are invariably in these crosshairs aren’t always the mansion-dwelling, sports-car-driving, private-jet-owning people we see on T.V. They are just as likely to be my students’ employers. “We’re all demanders” I tell them; we already know how prices & incentives work on us. For every extra dollar their managers have to pay in taxes or tax-preparation however, they’re that much closer to hiring one less employee.
“Taxes are the price we pay to live in a civilized society.”
This quote is attributed to an opinion rendered by Supreme Court Justice Oliver Wendell Holmes, Jr. in a 1927 court case about business insurance premiums in the Philippines, which was a U.S. territory at the time. Before it was bandied about as a rationalization for the size of our government (by some who don’t even pay net income taxes; see above), ‘civilized society’ had a simpler meaning: to protect the private property that fosters widespread prosperity; to provide a police force & court system to take the place of duels in settling disputes; to carry out a democracy & setting up a government.
Is it really ‘civilized’ for someone to commandeer the earnings of her neighbor to pay for her pet project, when what the coerced is really paying for is her requisitioner’s haughtiness & lack of initiative?
Part of effective communication is ensuring the message gets across. It’s a fine line between being understood, and using the most accurate, appropriate word possible. I feel it’s my duty as an educator to talk UP to people. Even though our (elected) leaders are primarily an extension of us, they should rise above the heated fray & carry out the best, fairest public policy. A good start in conveying what that might be is using accurate, objective terminology.
Last year one of my friends posted on Facebook “I fear there is too much eleutherophobia in our society today.” When I looked up ‘eleutherophobia’, I discovered that it’s an ancient Greek term for a “fear of freedom”. I countered with “you could add epistemophobia & hypengiaphobia to the mix.”
Don’t know what those words mean?? Prove me wrong & look ‘em up.
Raising awareness to the beauty of freedom, the fulfillment of self-sufficiency, the awesomeness of the Baecker girls & thepower of metal.