How Federal Budget Policy Affects Generations

Today I’m giving a public talk to and for the Michigan Intergenerational Network. I’ll be discussing how government budget policies and priorities are affecting the generations. This is a topic worthy of an entire college course or even a MOOC, but unfortunately I’ve only got a couple hours at most.  This post isn’t a full explanation and is far from a script for that presentation.  I’m only going to try to list some of the highlights and give the slides.

Budget & Intergenerational Issues

This time it’s different

diagram of earning power vs age for typical person. earning power is concentrated in middle age and transfers needed to childhood and old ageIntergenerational transfers are social programs (usually governmental for good reasons) that collect resources from the working generation(s) in a given year and transfer that value to generations at either end of the lifespan – seniors or children.

In the past when I’ve discussed intergenerational transfers in the Federal budget, I’ve emphasized how the hype about the “insolvency” of Social Security or its supposed impending bankruptcy was overblown. There is no real economic or necessary budgetary/monetary reason why Social Security or Medicare or public education or any of the other intergenerational programs should be in jeopardy.  Things are different now. I wasn’t wrong then. Financially, the system is operating fairly well. As I’ve said for years, there’s a strong chance of needing to make some minor tweaks in maybe 5-10 years, but it’s nothing that should cause us to panic and cut benefits now.  There still isn’t a financial reason.

Instead of keep calm and look at the facts, a sign for "be concerned and get active"But there’s political reasons for fear now. So instead of keeping calm (always good advice, BTW) I’m switching to “be concerned and get active”.

To understand why we need to get active and be concerned, we need to understand how political budget rhetoric and processes suck us into a big game, a game that pits each generation against the others instead of bonding.

Budget and Policy

There’s a gap between the supposed process for creating the federal budget and the actual process. Supposedly,  both houses of Congress, reacting to a recommendation proposal from the President, create a budget resolution that sets out spending and tai xing parameters and goals. Then many committees in both houses of Congress spend most of each year preparing detailed appropriations bills that eventually the President signs and then federal agencies are authorized to spend the money.

In reality, there’s increasingly a heated rhetoric amongst politicians using emotionally-laden trigger words to posture for political advantage. Meanwhile high-paid lobbyists work with Congressional staffers behind closed doors and craft the actual language of the spending bills. Usually Congress can’t get this done in time and kicks the can down the road with short-term “continuing resolutions” until, like this 2018 fiscal year, it finally passes an “Omnibus” spending bill for 2018 almost half-way through the year. When they vote on the bill virtually no one is able to read the actual language of the 2000 plus bill before voting.

All this matters because we really only have 3 broad categories of policy with which the government can strongly affect macroecomomics performance: fiscal spending, tax, and monetary (interest rates) policies.  The budget covers fiscal spending and taxing. The Federal Reserve handles monetary.

Taxes for 2018

The big news for 2018 was the comprehensive, or at least wide-ranging, tax reform bill passed in December 2017 for effect in calendar year 2018. This bill continues and greatly accelerates a long-run trend dating back to the sixties of decreasing corporate taxes and a significant shift towards regressive, payroll taxes.  In 1967, corporations paid as much as in taxes, approximately 24% as workers did via payroll taxes. In addition, workers also shouldered  42% of federal revenues via income taxes.  Today, corporations are well below 10% and dropping.  Meanwhile the workers now pay for over 80% of federal taxes via a mix of income and payroll taxes.

Tax policy long ago ceased to be a highly effective macroeconomic growth tool. This is because tax rates were repeatedly lowered over 4 decades to the point where tax rates really don’t effect growth-related investment or consumer spending decisions as they once might have. Yet political rhetoric remains that somehow tax cuts and tax rate cuts in particular for the wealthy and for corporations are somehow growth inducing.  They are not anymore. We’d have to go back to the fifties or sixties to see that.

Instead, tax cuts are about redistribution. While claiming this tax bill will stimulate growth, the reality is it won’t. Even the very conservative, free-market, neo-classical model-based forecasts of Barro and Furman foresee only a +0.4% increase in real GDP over 10 years. Real GDP growth rate only increases 0.04 percentage points.  Not much.

Instead, this tax bill is about redistribution. It overwhelmingly shifts money towards the very wealthy and towards corporate owners. Tax breaks are now the larger than federal discretionary spending.

Spending – Ok this year, but….

The Omnibus Spending Bill for 2018 was just passed a couple days ago and signed yesterday to cover $1.208 in discretionary spending. This is an increase over 2017 of 12.9% and it largely reflects two political realities.  Despite having majorities in both houses and controlling the White House, Republicans cannot assemble the votes necessary to implement the domestic spending cuts they have been pushing.  Both parties are now looking to the 2018 midterm elections and spending cuts won’t get anybody re-elected.

The military, homeland security, state, foreign operations, and energy (think nuclear weapons) are the biggest winners with increases in the 12-15% range, but even domestic programs and agencies such as Labor, HHS, and Education manage to get a 10% increase.   Essentially, 2018 is similar to the spending budgets of the last few years in terms of priorities.  No particular major cuts. Yet.

However, the 2018 budget proposal that President Trump put forward last year has now pretty much become the 2019 budget proposal.  We will get more details in coming weeks.  This budget proposal is indeed drastic. It calls for very serious, very deep cuts in a wide range of discretionary programs that are important intergenerational transfers, such as education, Medicare and Medicaid information and research, senior housing support, senior nutrition, and non-entitlement health spending.

Whether or not the 2019 Trump budget priorities become the 2019 federal budget depends more than ever on political activism.  The election of 2018 and the polls leading up to it will drive a lot of what actually happens.

The Deficit and The Game

As bad as the 2019 budget proposals are for discretionary intergeneration transfer programs, the rhetoric and political objectives of the currently ruling Republican leaders in Congress portend an even worse possibility.  For generations, the idea of cutting Social Security or other significant transfer entitlement programs was considered political suicide.  As Speaker of the House Paul Ryan’s comments openly targeting reductions in Social Security and Medicare benefits indicate, political leaders are now trying what was once considered unthinkable:  cutting, eliminating, or privatizing Social Security, Medicare, Medicaid, and public education.

This is where an enormous rhetoric game ensues. Politicians such as Ryan drove the large tax cuts.  Ryan and Company falsely claimed the tax cuts wouldn’t cut Federal revenues because they supposedly would spur dramatic growth. But they weren’t structured to do that. The tax cuts were really massive redistribution of income to the wealthy.  In the process, the reduced tax revenues open a larger federal deficit. Ryan and Co. then use the increased deficit to argue that we must cut entitlement spending in order to balance the budget.  They depend on people being both afraid of the concept of government deficits and confusion between deficits-debt and between public and private debt.

The reality is that the federal deficit doesn’t really need to be closed. In fact, a balanced federal budget (i.e. no deficit) means the private sector, households and firms, will not in aggregate be able to accumulate risk-free financial assets like government bonds for pensions. Deficits and public debt aren’t really problems as long as the economy has the real resources to produce. They are actually a reflection of a growing, healthy economy with a bright future.  Growth of private debt, however, can be risky problem for the macroeconomy as it was in 2007-08. But cutting federal spending and entitlements long run will not fix Social Security solvency issues. It will, however, create risky private debt problems.  The federal government is not a household and such analogies fail and misguide policy.

An Alternative:  Build Intergenerational Productivity

picture of a cat reading newspaper saying "I should increase my factors of production"

The current political rhetoric which is based on fear- and a false, but emotion-laden analogy of the government’s budget to a household budget ultimately pits one generation against another.  Millennials see baby boomers as taking their future SS benefits. Boomer seniors tend in increasing numbers to vote for cuts in schools because they don’t have school kids themselves.

There is a way out.  Every generation works its way through its lifespan. When young, it needs subsidies. When middle-aged it works and generates the economic value that supports everybody at the time. When aged, they need support again – even if only to have a younger generation work and generate profits to pay the dividends for a private pension scheme.

If people want to insist on thinking of the federal budget as a “household” then we need to see all the generations as equal members of a dynamic family – our national family.  That means we need the intergenerational transfers. But transferring economic support from a working generation to either children or seniors doesn’t have to mean the working generation does with less.

Rather if we support the working generation and the soon-to-be-working generation, we can make our collective production greater, boosting the welfare of all generations.

For example, three proposals that at first glance appear to be irrelevant or even budgetarily competitive for seniors and children are anything but.  Seniors and children should actively support the following proposals:

  • Immediate boost of the minimum wage to at least $15 per hour and to restore the real purchasing power of minimum wage to late 1960’s levels.  How would this help seniors?  It is estimated that as much as 31% of the workforce would see a payroll boost from this proposal.  Empirical studies in the last 30 years of minimum wage boosts indicate that product prices and inflation would not follow.  Rather, the higher payrolls would mean greater Social Security and Medicare payroll tax collections.  Some analyses have indicated that the minimum wage boost alone might be enough to prevent the medium-scenario projected depletion of the SS Trust Fund in the 2030’s.   Workers win. Seniors win.
  • Free college or at least free Community College.  Making it easier for more people to get college degrees and certificates will dramatically boost workforce productivity. Productivity increases, over time, boost GDP and boost tax collections. More importantly, they increase the real resources and capacity available in the economy, making intergenerational transfers more feasible.
  • Student Loan forgiveness. While at first glance, this proposal sounds like a give-away to the Millennial generation, the generation most saddled with the greatest student loan debt, it’s actually win-win.  The Millennial generation is having difficulty with household formation and home buying. This is largely due to heavy student loan repayment burdens.  Eliminating that burden will boost spending and aggregate demand, increasing GDP – and payroll taxes with it.  It will also increase home buying and house construction, which in turn, will strengthen property values. Stronger property values and stronger household formation each, in turn, lead to greater property tax collections and more support for schools.  Kids win too.  Then those kids become highly productive adults and fund the next generation after them.

Our ability to fund intergenerational transfers is limited only by the availability of real resources and will, not by current year government budget policies and rhetoric.

Slides for the Presentation.

If these slides do no display properly here, feel free to open the Google Slide file in a new window.

Additional links to some selected budget resources for 2018-19:

 

Blockchain in Higher Ed: Guided Pathways and Bitcoins

Both blockchain and bitcoin (I know they’re not the same, but they’re related) enthusiasts are, shall we say, “passionate”.  They’re true believers. It’s a cult.  For proof, I would suggest you read the comments for any post/ article that’s even just skeptical of blockchain-based manias, but I value our friendship and I don’t want you to put yourself through that experience.  Unfortunately, I have, against my better judgement, done exactly that. I’ve read the comments from some of the true believers.

forbidden-151987_1280Warning: I’m making a huge mistake. I know it. I’m going to write a post that mentions blockchain and bitcoin. I’m going to violate the first rule of having a sane, manageable blog: “Don’t Feed the Trolls”.  To make it worse, I suspect most will think the title is clickbait. That’s because they’ll see “blockchain” and “higher ed” and assume it’s another fawning futuristic piece about how techie heroes will rescue higher ed from itself by riding in on their gleaming horse named blockchain.  If you’re looking for that or for some puff piece worshiping our supposed blockchain future, go away. Don’t reach for the comments button.

What strikes me about the discussions of blockchain or bitcoin (I’m going to use bitcoin to refer generically to all blockchain-based cryptocurrencies) is how similar the discussions are to so many change initiatives in higher ed.  It’s not about solving a problem or making things better, it’s really about an ideology and a particular rhetorical/philosophical position. In the voices of blockchain/bitcoin enthusiasts I hear the echoes of higher ed administrators and “leaders”.

First, if you’re curious about blockchain and/or the possibilities for it’s application in higher ed, you’re better off reading these posts first.  The first two are by Audrey Watters. Whenever the question is edtech, you should always start by reading Audrey Watters. The second two are very good analyses of blockchain technology and it’s status as a technology in search of a problem it can solve.

Second, let me be clear about blockchain and bitcoin as I see them.  I’m not going to make the full argument now. I’ll likely have to do that later this semester since students in my econ classes are asking. Some are saying bitcoin isn’t a currency, it’s a speculative asset. It’s definitely not a currency and doesn’t have the potential to become one. It’s not liquid, it fails as a unit of account, it has no state (with taxing power) to compel it’s use as money, and it’s not a useful store of value. In short, it’s not money.

Meanwhile, blockchain technology is a solution in search of a problem. The Stinchcombe and Kernohan articles do a great job of explaining this. Supposedly, blockchain distributed ledger technology solves a problem of trust between anonymous or distant transactors. But it doesn’t do it very efficiently. What’s more, it doesn’t really solve the trust issue. It just moves the trust questions to another level. A technology can’t really solve a trust issue because trust isn’t a technology problem. It’s a people, behavior, context, and institutional problem. A technology for “solving” a trust problem is simply a technology that changes some behavior, incentives, or information for some people. It inevitably opens new or different trust problems. It’s trust issues all the way down (sounds like a commentary on psycho-analysis). There is no magic tech or silver bullet to solve people’s trust issues. Trust can’t be established in the universal. Trust can only be established in the specific, in context, with actual humans.

The Stinchcombe article does a particularly good job of analyzing how blockchain has failed in so many use cases. For example, blockchain and bitcoin/cryptocurrrencies were supposed to revolutionize electronic payments by eliminating the middle man processors like Visa and MasterCard International. As Stinchcombe points out, those middleman processors are still here because institutionally they function well and provide real value. That’s the theme throughout Stinchcombe.

The entities blockchain was supposed to disrupt and replace are useful institutions that provide real, valuable services. Of course, the techno-enthusiasts that jumped on the blockchain/bitcoin mania haven’t seen the value of those institutions. That’s because they operate from a limited ideological viewpoint (see Audrey’s and Kernohoan’s posts) that’s both a distorted view of the world (usually a Randian-style libertarian fantasy) and that discounts any knowledge or field they aren’t experts in. The techies don’t know their history or their sociology or institutional analysis or  economics in any real depth. They know code and they have a simplistic fantasy ideology of how the world works. Details and rich understandings are hard and take time.  And, getting back to their comments on threads, they don’t respect those other knowledges so they discount all the voices that say “hey, maybe this isn’t going to work that way”. They have to shout down and denigrate as Luddites any one with some richer analysis or context.

And that reminds me of the change efforts in higher ed. For one example (there are many) most anyone at a community college, and even university, is likely familiar with the push for Guided Pathways. The education guru establishment, funded by folks like the Gates Foundation and led by foundations, consultants, and ed tech companies, sells some “innovative” concept that will “solve” some supposed serious problem in higher ed. In the case of Guided Pathways, the perceived problem is a mix of  excessive number of drop-outs, “wasted” credits when transferring, and the accepted “fact” that students “don’t do optional”.  Administrators and sycophantic, ambitious faculty embrace the new solution credo and discount all the faculty voices that say “wait a minute, it’s not that simple.”  Who needs context or analysis when you’ve got the true solution? Instead, faculty and staff are urged to get on-board lest they miss the train the same way investors are urged to buy their bitcoin lest they miss out on the promised future of all riches.

Of course, these problems are themselves only problems through a particular lens. Deeper critical thinking may or may not lead us to reject the solution, but it will certainly lead to a more effective solution. What do we mean by “wasted credits”? Are we saying the students may have learned “too much”? What standard is learning enough, then? Or is perhaps the real problem that students take more classes than we want them to or maybe than they can afford but they don’t know they can afford? Perhaps the real problem is the cost structure and financing of higher ed. Do students really “not do optional”? Or do they simply get lost and make poor choices because we don’t provide readable, usable curricular guides?  If they persistently make poor choices, isn’t that a teaching opportunity to teach them how to make a better choice? How do they learn how to choose if we won’t let them choose? Asking questions like these in a college is like asking the bitcoin salesman questions about the sociology, economic institutional structures, and liquidity problems bitcoin is supposed to solve. In the long-run, it would be a better use of school resources and avoid some waste, but in the short-run it makes the salesman feel stupid. Don’t question that emperor’s clothes. They’re beautiful.

 

 

A New Year. Auspicious loneliness.

So much. So much.

It’s a New Year.  It’s an arbitrary day out of the year, but culturally we use the Gregorian calendar and select it for new beginnings. Resolutions. New determination. Where I live north of the equator, we’re 12 days past the winter solstice. Days are getting longer (finally). There’s a trickle of additional daylight each day suggesting hope.  It’s auspicious.

I’m coming off break. Almost two weeks with little work done. I should clarify and say market-driven for my employer/profession. There’s always personal, household, and commons work being done but our culture doesn’t acknowledge that work.  Only exchange for money matters. The fact that I’m talking this way is also auspicious.  There were many powerful moments in the past year that I treasure.  Two of them were listening to David Bollier speak about the commons at OpenEd17 and whatever moment last year I was inspired to describe the Open Learning Lab work I’m doing at LCC as building a “Commons of Our Own”.

There were many other epiphanies, for example, almost anytime I read something from Sean Michael Morris.   If my culturally-conditioned new year’s resolutions stick, I’ll be writing much more about these epiphanies and insights as this year unfolds.  There were also amazing experiences. OER17 in London. Domains17 in Oklahoma City. OpenEd17 in Anaheim. Two OER Summits in Michigan. All of it sparked an amazing amount of learning, insight, creativity, and excitement for the change I can help make in the coming year and years.

An auspicious beginning for 2018.

But I’m stuck. I’ll be back on campus tomorrow. There’s no required f-2-f work today for me. So while the campus comes to life today, I’m staying in my home office and slogging my way through enterprise an LMS and “syllabus management” system and reading the emails. A message from payroll playing gotcha about the break and my interns. Reminder of how the LMS and syllabus management system are paragons of the learning prevention genre of systems.

I’m reminded of the budget, organizational, and policy battles I face when I’m back. Open learning hangs by a thread. It’s a spider’s thread to be sure, but it’s a thread nonetheless. I realize that all those epiphanies, all those insights, all that empathy, and all that transformation I’ve experienced over the past few years with the help of the open learning community were mine. The others on campus haven’t had them. Most of them don’t want them. Too hard. It might mean doing and not just complaining. Everyone’s too busy doing and being, well, busy to learn or change.

The more I learn and more I change, the greater distance I feel from my colleagues. Physically I am still at the same place. But mentally, spiritually, emotionally, and soul-fully, I’ve journeyed far.  I feel increasingly like a man from Mars on the campus.  And that loneliness, my friends, is inauspicious.

 

From MS Word to WordPress

The other day I made a guest post at my good friend Deborah Edwards-Onoro’s blog  about a little-known way to write posts for WordPress with Microsoft Word.  The full post is at Lireo.com and is titled Using Microsoft Word to Post to WordPress.

Basically, it’s instructions for how to connect Microsoft Word to your WordPress sites(s) using a Word template called “Blog Post”.  It enables you write and compose in Word, including inserting images, and then one-click publish to your WordPress sites.  If you use MS Word a lot, it’s pretty slick.

Here’s an additional link for the official Microsoft instructions for blogging from Word.

Mythbusting Immigration – Presentation Slides

If the embedded slides don’t display, you can access the file in Google Slides at https://docs.google.com/presentation/d/1uZeLVGcMYcsnxLKmpNRw9-TcJey5Kcfch6u4fGPrnj0/pub?start=false&loop=false&delayms=3000

A last minute addition to the readings from Vox: http://www.vox.com/the-big-idea/2017/3/17/14951590/nas-report-immigration-economy-taxpayers-trump

 

Death of the American Dream

Note: This post is for both my talk at the Lansing Community College Centre for Engagement and for this week’s class discussions in Comparative Systems.

lady_madonnaFor those of us who have grown up in the late 20th century or the early 21st century, the American Dream has been a familiar relative – an Uncle Sam that was always there. The American Dream was the myth that united us. More than any other nation perhaps, the U.S. has always been defined more by concepts and ideals – these myths or stories – than by the traditions of blood, tribal roots, or land that defined so many other nations throughout history.

It can be argued that the American Dream, or at least our modern conception of it, was born in 1931 in pages written by James Truslow Adams.  Wikipedia recounts for us:

The American Dream is a national ethos of the United States, the set of ideals (democracy, rights, liberty, opportunity, and equality) in which freedom includes the opportunity for prosperity and success, and an upward social mobility for the family and children, achieved through hard work in a society with few barriers. In the definition of the American Dream by James Truslow Adams in 1931, “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement” regardless of social class or circumstances of birth.[1]

The American Dream is rooted in the Declaration of Independence, which proclaims that “all men are created equal” with the right to “life, liberty and the pursuit of happiness.”[2]

There are lot of ways to operationalize the concept of the American Dream, but for these purposes I’m going to basically identify three features, all of which are primarily economic.

The “American Dream” meant that anybody in America, regardless of birth or station or inheritance, could through ordinary hard work do the following:

  • “do better than Dad”. In other words, income and wealth for each succeeding generation should be significantly higher.  In inflation adjusted terms, sons and daughters should make more money and have more wealth than their dad or mother did at the same age.
  • homeownership – Americans should have their own property -usually a freestanding house.
  • upward mobility – it should be possible through strength of character and hard work – “merit” – to rise up to higher income and social classes than what a person was born into.  This is the classic Horatio Alger story.

If the American Dream were a person born in 1931 when Adams coined the phrase, then by these criteria we can describe his (her) life as:

  • a hard scrabble childhood in the Depresssion
  • emerging as a teenager in 1945 from World War II, the American Dream hits a stride.  The dream was real, if unevenly distributed across races, between 1946 and roughly 1980.
  • Starting around 1980, our midlife Dream now begins to slow down. It is increasingly faking it by borrowing money to keep up appearances of success but not really making it happen.
  • In this century, the Dream collapses.  Slow economic growth, rising income inequality, and massive shifts in economic policies mean then end of the American Dream.

By the time the Millenials arrive on the scene as young adults, the concept of American Dream is more a nightmare or cruel joke than a dream.

From here I’m going to try to explain what has happened using mostly data and graphs.  First we’re going to look at the evidence that indeed, upward mobility and the ability to “earn more than dad” are dead.  For the next section here, I’m going to use graphs from

Next, we’ll take a look at the specifics of how that has affected so-called “millennials”:

If we have time, I’ll speculate on the causes and what can be done.

My slides that I’ll use in addition to the graphs in the above links are here.  If this embedded view won’t display in your browser or allow you to download, use this link:

https://docs.google.com/presentation/d/1JHK58hHQvQcGeqP3YRnW9dzDIJsz5tWf5vly6z_TfnQ/pub?start=false&loop=false&delayms=3000

Cannot Remain Silent

Bill McBride at Calculated Risk and the New York Times today capture my thoughts:

These are not normal times, and I can’t just post economic data and remain silent on other issues.

Mr. Trump’s executive order is un-American, not Christian, and hopefully unconstitutional. This is a shameful act and no good person can remain silent.

From the NY Times: Donald Trump’s Muslim Ban Is Cowardly and Dangerous

The first casualties of this bigoted, cowardly, self-defeating policy were detained early Saturday at American airports just hours after the executive order, ludicrously titled “Protecting the Nation From Foreign Terrorist Entry Into the United States,” went into effect. It must have felt like the worst trick of fate for these refugees to hit the wall of Donald Trump’s political posturing at the very last step of a years long, rigorous vetting process. This ban will also disrupt the lives and careers of potentially hundreds of thousands of immigrants who have been cleared to live in America under visas or permanent residency permits.

That the order, breathtaking in scope and inflammatory in tone, was issued on Holocaust Remembrance Day spoke of the president’s callousness and indifference to history, to America’s deepest lessons about its own values.

The order lacks any logic. It invokes the attacks of Sept. 11 as a rationale, while exempting the countries of origin of all the hijackers who carried out that plot and also, perhaps not coincidentally, several countries where the Trump family does business. The document does not explicitly mention any religion, yet it sets a blatantly unconstitutional standard by excluding Muslims while giving government officials the discretion to admit people of other faiths.

Republicans in Congress who remain quiet or tacitly supportive of the ban should recognize that history will remember them as cowards.