Big Banks

The official policy of the AWCP would be that there is no such thing as a bank too big to fail. If any bank were to become insolvent the FDIC would step in and clean up things as much as possible under the existing laws and regulations. The only way the federal government would inject any capitol into an insolvent bank would be in return for sufficient equity in the bank to give the government control of the bank.¹

Once the government had control of the bank it would not operate the bank but it would fire all of the top management and then break the bank up into three to five regional banks which would be prohibited from becoming part of any nationwide bank in the future.

Another reason for making it official policy that there was no such thing as a bank to big to fail is that I read a while back that there were companies with links to the banks such that if the bank failed the company would fail. It is tempting to think that the CEOs of any such companies were incompetent, but I suspect that the bank gave them a financial incentive to do so, all the while assuring them that the government considered them to be a bank too big to fail. By stating this policy in advance the government would be encouraging the companies to break any such links they have to the banks.

Any administration that would implement such a policy would have to consider the possibility that the companies with links the the big banks would not sever those       links but that rather that the companies and banks would present a united front basically saying that if the bank goes bankrupt the companies go bankrupt.

Obviously an administration cannot either buy out or bail out a bank unless Congress appropriates sufficient money. There are four things Congress could do:

  1. Congress could do nothing, that is Congress would not allocate any money for either buying out the bank or bailing out the big bank. This would not be the ideal solution but it would be acceptable. It may well cause financial chaos, but it would rid the country of a bank too big to fail.
  2. Congress could allocate money only for buying out the bank. This would be the ideal solution.
  3. Congress could allocate money and leave it up to the President whether to buy out the bank or bail out the bank. On a practical basis this would be the same as #2 above.
  4. Congress could allocate money but specify that it can only be used to bail out the bank. You might think that this would force an adminstration’s hand but that is most probably not true. When Congress passes a bill and sends it to the President he has ten days to either sign the bill or veto it. This means that a president could wait until the tenth day before vetoing the bill and sending it back to Congress. Since there is no such thing as a slow-motion financial crisis this would have the effect of being the same as #1 above.

As you can see an administration that wants to rid the country of banks too big to fail would be in control in the event of a financial crisis. Note that in the event of a financial crisis not all of the big banks would fail at exactly the same time. This would mean that a President who stood his ground when the first bank failed would be in a much stronger position vis-a-vis Congress when the other big banks failed.

¹ I am assuming that the process of buying out a bank would consist of buying a majority of the shares on the open market.

Industrial Plan

As soon as you say the words ‘Industrial Plan’ the Republicans will start screaming ‘government interference in the economy’ at the top of their lungs. But the fact of the matter is that we already have an industrial plan. But it’s a plan that has been implemented piecemeal over a few decades with little or no thought about how the pieces fit together.

For example, there is a federal subsidy of home installation of solar panels. In a rational world that would be considered part of an industrial plan. So would the federal subsidy of methanol. So far so good, we are subsidizing a renewable source of energy and a bio fuel.¹ But we also subsidize oil, it’s called the oil depletion allowance and it is a tax deduction available to owners of oil stocks. Now those three subsidies combined make no sense, but as I said there has been little or no thought as to how the pieces fit together.

So the first step in developing the AWCP industrial plan would be to research and document the existing industrial plan. Once that is complete the next step would be to simplify the existing industrial plan as much as possible. Only then would there be any move by the AWCP to make any additions to the industrial plan and you can make a good case for making no additions, just let the market determine the winners and losers without any interference from the government.

 

The American Working Class Party Platform

The American Working Class Party (AWCP) is a purely hypothetical party I created so I could control the AWCP platform.

This post lists the proposed planks in the AWCP platform. When I write up the details for a plank, I will update this post to provide a link to the post for that plank. I may also occasionally update this post to add new planks.

By the time I have completed AWCP platform you will have a very good idea of what what my political beliefs are.

Secession Procedure

War Tax

New Social Security System

Libel Reform

Industrial Plan

Big Banks

National ID

High School Curriculum Reform

Tax Reform

Corporate Short Term Thinking

Value Added Tax – Part 1

Value Added Tax – Part 2

NAFTA

Medicaid

Gun Control

Guaranteed Minimum Income

Illegal Drugs

Workers Rights

Military Spending

Ideas already out there which I support

  • Free College
  • 15$ Minimum Wage
  • Single Payer

 

 

 

Libel Reform

Under current libel law there are two classes of people, public and non-public. If someone publishes¹ something about you which is not true and you are a non-public person you can sue for libel and win if you can prove that what was said about you was not true. If you are a public person you can still sue for libel but you have a distinctly higher standard to meet. You must not only prove that what was published was not true but also prove actual malice on the part of the publisher, or, to put it another way, you must prove that the publisher knew it was not true but published the story anyway².

The problem is that people have figured out how to libel a public person and remain impervious to a libel suit. Here’s how it works. Say I am a radio personality, such as Rush Limbaugh, and I want to malign a public person, such as Hillary Clinton. I can’t simply make something up without potentially leaving myself open to a libel suit so what I do is take something sent to me by a demented listener and publish that without making any attempt to verify the information. In that way I can honestly say that I didn’t know that the information was false which makes me virtually invulnerable to a libel suit. This has led to a situation where all manner of obviously untrue things are published about people who are public persons with little fear of being sued.³

My proposed solution is allow a public person to sue using the same criteria as a non-public person, but not for damages. They could only ask the court to force the person/organization to issue a retraction of the libelous statement and an apology. The key thing here is that the retraction and apology must be as prominent as the original statement. For example, if a newspaper prints a libelous statement on the front page of the Sunday edition then the retraction and apology must take up the same amount of space on the front page of the Sunday edition. If a radio show host goes on for two minutes at 8 PM on a weeknight then the retraction and apology must last for two minutes and be broadcast in the same time slot. If the original statement is repeated then the retraction and apology must be repeated the same number of times.

What effect would such a reform have? I obviously can’t be certain, but I can’t imagine that Rush Limbaugh, if forced to make a genuine retraction and apology, would not be at least a little more cautious about what he said on the air. In any case I think we need to do something to tone down some of the ridiculous things being broadcast and printed.

 

  1. I am using the word publish to include any method of conveying information to include print media, radio, TV,  the internet, and speech.
  2. I am not a lawyer so if my terminology or my description of the current libel system is a little off take my non-legal background into consideration. The details of the current libel system are not as important as the fact that there are two different criteria for a public and non-public person to prove libel and recover damages.
  3. You can’t get much goofier than the accusation that Hillary Clinton and John Podesta were operating a child pedophile ring out of the basement of a suburban Maryland pizzeria. If nothing else, the pizzeria in question didn’t even have a basement. It sits on a concrete slab. Also, in this case, the totally false accusation had real world consequences since a man with a gun showed up at the pizzeria in question and started firing shots into the ceiling demanding to be shown the room where the child pedophile ring supposedly existed.

Secession Procedure

Article IV Section 3  of the U.S. Constitution states:

New States may be admitted by the Congress into this Union; but no new State shall be formed or erected within the Jurisdiction of any other State; nor any State be formed by the Junction of two or more States, or Parts of States, without the Consent of the Legislatures of the States concerned as well as of the Congress.

Note that the criteria for admitting a new state to the Union is strictly up to Congress unless it involves an existing state at which point  the state legislatures become involved. Note also that the Constitution is silent on the issue of seceding from the Union.¹ This proposal would create a formal procedure for a state to peacefully secede from the Union. The steps in this proposal are as follows:

  1. Only those states which border on another country or have a coast line on the Pacific Ocean, Atlantic Ocean or the Gulf of Mexico would be eligible to secede. The purpose of this restriction is to avoid a state seceding and creating a new country which is completely surrounded by the the remaining United States. As such the states initially eligible to secede would be: Maine, New Hampshire, Massachusetts, Rhode Island, Connecticut, New York, Delaware, New Jersey, Maryland, Virginia, North Carolina, South Carolina, Georgia, Florida, Alabama, Mississippi, Louisiana, Texas, New Mexico, Arizona, California, Oregon, Washington, Idaho, Montana, North Dakota, Minnesota, Michigan, Vermont, Alaska, and Hawaii (31 states). Those states not initially eligible to secede would be Nevada, Utah, Wyoming, Colorado, South Dakota, Nebraska, Kansas, Oklahoma, Iowa, Missouri, Arkansas, Wisconsin, Illinois, Indiana, Ohio, Pennsylvania, West Virginia, Tennessee, and Kentucky (19 states). If a state were to secede that would change the above lists. For example, if Texas were to secede that would make Oklahoma and Arkansas eligible to secede.
  2.  The state wanting to secede would hold a referendum on the issue. The votes in favor of secession must be at least 55% of the votes cast. (the exact per cent required is less important than that it be a significant super majority; you’re not going to break up the union on a fifty per cent plus one basis). There must be at least three months notification of the date of the referendum.
  3. No voter suppression is allowed. Any U.S. citizen who is a resident of the state in question would be allowed to vote. There would be federal monitors at all precincts to observe only. If their observations result in a finding that the was any significant voter suppression then the results would be thrown out.
  4. If the referendum fails, or the results are thrown out due to voter suppression or any other irregularities a new referendum could not be scheduled for at least one year.
  5. If the referendum succeeds then Congress must also approve of the secession by the same super majority as the referendum. The reality is, however, that I cannot imagine the Congress rejecting the secession if the referendum passes with a super majority.
  6. If the referendum passes and Congress approves then the secession process would proceed over a three year period.

Consequences of secession:

  • All federal offices in the seceding state would close. This would include all military bases, Coast Guard bases, VA facilities, and border posts. All aircraft, vehicles, ships, etc. would be removed to the U.S. but all federal facilities would remain intact including any infrastructure such as radar units, network cabling etc.
  • There would be no dual citizenship. Anyone who becomes a citizen of the seceding state would forfeit his/her U.S. citizenship. If you dislike the Union so much that you want to secede then it makes no sense to allow you to continue to remain a U.S. citizen. Any U.S. citizen who is a resident of the seceding state who does not become a citizen of that state would remain a U.S. citizen but would obviously have to obtain a U.S. passport some time in the three year period if they did not already have one.
  • The seceding state would have to agree in advance to pay half of the moving expenses of any resident of the state who would not want to be a resident after secession. If any of the red states were to secede I cannot think of a good reason why any member of a minority group would want to remain a resident of that state after the three year transition period.
  • There are two programs in particular that anyone voting in a secession referendum should be aware of.
    • Social Security – You can receive social security if you are living outside of the U.S. but I don’t know if you can have the payments direct deposited in a foreign bank account. In any case that is an issue which could be negotiated during the three year transition period. The real problem is that as soon as you stop paying into the social security fund the amount would receive when you retire starts to decline and someone who is middle aged or a young adult would not get very much when they reach retirement age.
    • Medicare – This is a bigger problem since Medicare will not pay for any treatment outside of the United States. This means that even if you are already enrolled in Medicare and you are a resident of a state that secedes you would have to travel back to the U.S. for treatment or pay for it yourself.
  • There are many other issues involved in a secession such as where do you draw the offshore boundaries for a state such as North Carolina. Most of these would be settled as part of a negotiating process during the three year transition period.

While I am completely serious about creating a formal procedure for a state to secede from the Union I will admit to having an ulterior motive for establishing such a procedure. Current Governor Abbot and his predecessor Gov. Perry have both said they would consider having Texas secede from the Union. I want to call their bluff because I think they are both modern Texas cowboys – all hat and no cattle.² Implementing a formal procedure would send a message to Gov. Abbott to either put up or shut up. Unfortunately I don’t think he would either put up or shut up.³

  1. It is important to note that at the beginning of the secession process which started the Civil War the seceding states made no attempt to secede peacefully. They started the process by shelling Fort Sumter and killing Union soldiers. In short, they wanted a civil war, not simply to secede.
  2. It would be interesting to find out how many people in Texas wear cowboy hats compared to the number of Texans who are actually cowboys. The ration has to 1000 to 1 at least.
  3. The fact is that most of the red states are moocher states. I am using Mitt Romney’s definition of a moocher which is anyone who receives more in Federal benefits than they pay in Federal taxes. Most red states, Texas in particular, receive more in Federal spending than the residents pay in Federal taxes. In the case of Texas, consider San Antonio which has five military base in the area. If Texas were to secede those five bases would all close and San Antonio would dry up and blow away.

 

 

 

 

 

………..

War Tax

My proposed war tax would consist of up to a five percentage point increase of the income tax rate for the second highest tax bracket and up to a ten percentage point increase for the highest tax bracket in the event of the United States going to war with another country or becoming involved in a war within another country.

The United States would be considered at war with or within another country if either of the following conditions are met:

  1. Three or more American military personnel or mercenary forces are killed within that country for three consecutive months.
  2. Ten or more people are killed by American military personnel or by American mercenary forces or by any group at war within that country to which the U.S. Government is supplying weapons or by U.S. drones for three consecutive months.

The exact amount of the tax increase would depend on the cost of the war. The current drone war is not costing nearly as much as either the Iraq or Afghanistan wars so the tax increase needed to pay for that drone war would not be anywhere near the five or ten percentage points. If the five and ten percentage point increases are not enough to pay for the war then the increases would remain in place until the war is completely paid for.

Now, why the definition of a war? Think back to the beginning of the Iraq war. George Bush would never have agreed to a tax increase on the rich under any conditions so he would have come up with some explanation, no matter how ridiculous, as to why our invasion and subsequent occupation of Iraq was not a war. Even with a definition of a war you still would have to depend on honest accounting by whatever administration is in power of the cost of the war both in terms of casualties and dollars.

The poor and middle class of the United States are already paying for our wars with the blood and lives of their children, fathers, mothers, etc. The rich are the ones pushing the most to get us into these wars, so let the rich pay for these wars with their gold.

One more thing, I think you can make a case for applying such a tax increase for as long as necessary to pay for the Iraq and Afghanistan wars, the entire cost both of which were put on the good old U.S. credit card without a peep out of those folks who love to complain about government deficits.

Update:

First of all I want to explain in more detail how the tax would work. Consider the Afghanistan war. After 9/11 George Bush sent troops into Afghanistan, a move which I agree with. At the end of the fiscal year the government would calculate the exact amount of the tax increase on the top two brackets, maintaining the two to one ratio, based on how much the war had cost in the previous year and the estimated tax revenues from the top two brackets. The five and ten percentage point amounts represent the maximum increase for any year.

I also want to add that I believe this proposed war tax, if implemented, would greatly reduce the likelihood that the U.S. would get into another unnecessary war. If the rich knew, in advance, that they would have to pay for the war they would work very hard to keep us out of that war.

Next up: Secession Procedure

 

A Modest Proposal

This proposal is for a new retirement system. This is not a reform of the current Social Security system, but rather a complete replacement of it.

How would it work?

The basic idea is this: At birth every child who is a natural born citizen citizen¹ would have the government put $8,000 into a retirement fund. The money in that fund would be invested in an index fund such as an S&P 500 or Russell 3000 index fund (I would prefer a Russell 3000 fund). This takes advantage of both the high rate of return of these index funds and the power of compounding when started at the earliest possible age. For example, if the future average real annual growth in the fund is 6%, then for every $1,000 invested there would be, in inflation adjusted terms, ~$44,000 65 years later.

What would be the amount of the annual benefit?

The amount of the annual benefit would be determined by the fund administrators. The administrators would set the amount based of the total amount in the fund relative to the number of recipients. That would make this system a cross-breed between a traditional company pension fund, which would be called a defined benefit plan, and a retirement system based on IRAs and 401ks, which would be called a defined contribution plan. The plan administrators should be somewhat conservative in setting the amount of the annual benefit so as to allow for downturns in the economy when the total principal amount in the fund would decrease. At regular intervals the plan administrators would review the health of the fund and increase amount of the payments as appropriate.

Why an index fund?

A 2010 study showed that an S&P 500 index fund outperformed 99.4 % of all mutual funds. Historically the Russell 3000 index has modestly outperformed the S&P 500 index. So it stands to reason that a Russell 3000 index fund would outperform a slightly larger percentage of all mutual funds.

What would be the expected future annual growth rate?

Good question. The Russell 3000 index went from 888.89 on January 3, 1995 to 6792.93 on January 3, 2017. Inflation for the same period was 61.57%. This results in an annual real growth rate 6.19%. Since January 1, 2013 the index has  increased by more than 65%, more than twice the average previous rate, with no significant change in the economy to justify such a large increase. Now, if you include the period since 2013 in the long term average you get an annual growth rate of over 8%. If you don’t include 2013 you get the annual rate of 6.19% referenced above. 6.19% seems a little low while 8% is definitely too high, especially when you consider that the average PE ratio for S&P 500 is more 24. Since the long term average for the S&P 500 PE ration is around 16 it would seem the the stock market is currently overpriced. So I will make an educated guess and say 6.5%, a little above 6.19% and well below 8%. The reality is that there is so much uncertainty about the future that any such estimate would have a huge error bar associated with it.

Why a fund and not an individual account?

It seems reasonable to assume that even smaller a percentage of individuals who are not financial managers would be able to outperform an S&P 500 index fund. An individual account which would allow trading would simply be an excuse for the banks and/or Wall Street to syphon off 1% of the principal in the fund annually. I did consider individual account without a trading option which would pay benefits based on the principal amount in the account, but I realized there was a problem with that idea. Consider two children. One is born on December 9, 2007, the day the stock market peaked just before the housing bubble broke. The other is born on March 9, 2009, the day the market bottomed-out following the bubble. At that point the first child’s principal amount would have declined to $4,292.37. From that point on they would have exactly the same growth in their accounts, but the first child would end up with only 43% of the annual benefit of the second child. In fact, it would be even worse since, if they both retire at the same age, the second child would benefit from an additional 15 months of growth in the fund. It would be very unfair to have such a large difference in the benefit received based solely a person’s date of birth. The only way I can see that would allow for people retiring at the same age receiving the same benefit is for all of the initial money to go into a fund.

Inheritability

One of the key features of this proposed system is that the benefit would be inheritable. But instead of inheriting the annual payments, the heirs would inherit the amount of principal necessary to pay that benefit. I would propose that the benefit would only be inheritable by the children of the person receiving the benefit. That would mean that not only would everyone covered by this plan would have a decent income in retirement, buy also that the second generation of people covered by this plan would inherit a reasonable amount of money from their parents.

Funding of the new system

In the long term the funding of this proposed system would be much easier than the current system, requiring an employee payroll tax between .6 and .8 per cent with no employer contribution needed. Now, when I say long term, I mean long term – 65 to 70 years. This is because of the need to continue funding the current system until the last group of people eligible for the current system reach retirement age. At that point the payroll tax can be gradually reduced for employees and gradually eliminated for employers. But that is for the long term. For the short term there is a very real funding problem since the first people entering the new system will not enter the work force, and thus start paying the payroll tax, for some number of years.

I can think of a number of ways of solving this initial funding problem.

One is to have the Treasury loan the money to the new trust fund, to be repaid as the people in the new system start paying the payroll tax. This has the advantage of requiring no money other than that coming from the employee payroll tax. It has the disadvantage of diverting money away from the current OASI trust fund, which already has funding problems to resolve.

Another is to increase the payroll tax by .5%, .a .25% increase for both the employee and employer. This is probably not a good idea in a sluggish economy and is also probably a political non-starter.

The third way is to initially fund the system from general revenue. This is the option which I would prefer. This would divert no money away from the current OASI trust fund, which would mean that any funding problems with that trust fund are problems they would have anyway. The obvious problem is that this would be a new spending program. What would be unusual about this spending program is that there would be a fairly definite date in the future, albeit 65 years in the future, when the spending would end.

Transition from the current Social Security to the new one

There are actually two transitions required.

The first is a bureaucratic transition, new forms, procedures, etc. While a non-trivial problem, it is readily resolved. Bureaucrats know how to do this sort of thing and it should not be a significant problem.

The second is the financial transition. If the public funding option mentioned above is implemented, then the financial transition is trivial. The funding problems for the current OASI trust fund would be no greater than they already are. If any funding option for my proposed new system is implemented which diverts any payroll tax money away from the current system, then the funding problems for the current OASI trust fund would be greater, probably significantly greater. So while there would be no legal linkage between the new and old systems, there would be financial and political linkages.

What about other savings for retirement?

The only other retirement savings program I would keep would be the 401K program and then only to the extent that there is a company matching amount. All of the rest of the current retirement programs, including the 401K contributions beyond the amount matched by the company are really primarily beneficial to people who have sufficient income that they should not need any government assistance in their savings effort. I would encourage people to save for retirement beyond what this program would provide, it’s just that I don’t think the government should be involved in since such involvement has a strong tendency to end up benefiting the financially better off portion of the population.

Note: I have another proposal coming up which would interact with and almost certainly cause changes to this proposal. I will discuss those interactions and changes when I post the other item.

  1. The Supreme Court has never ruled on what is meant by the phrase ‘natural born citizen’. I think it is obvious, a natural born citizen is anyone who is a citizen of the United States by reason of their birth, that is, either their father or mother is a U.S. citizen or they are born in the United States.