The Amateur Financier

Well, it’s coming up (again); the United States government needs to vote to increase its own borrowing authority in order to keep functioning.  There’s also that whole congressional super committee, down to their last week to put together a major plan to balance the deficit.  Now, with all this going on, I thought it would be a good time to take a closer look at just how big a problem it will be to get the national budget balanced.  After all, if it were quick and easy to get this budget balanced, even an organization as prone to distractions and infighting as the US congress should be able to get it under control.

A note before we get any further: there is a difference between the national deficit and the national debt; the former is simply the difference between what we as a nation spend each year and what we take in, the latter is the total debt accumulated from decades of unbalanced budgets.  To compare it to your household expenses, the deficit is the equivalent of you spending more than you earned one month, while the debt is akin to the credit card balance you built up by going over budget for many months in the past and using your card to cover the difference.  So far, all the discussions, at least that I’ve heard, have been on eliminating the deficit, with nobody really talking about cutting down the national debt, which will be a much larger task (just in case you thought the current arguments were as bad as this conversation could get).

What the Deficit Really Means

But back to the deficit.  It’s not that hard to find out just where the deficit stands; let’s start by looking at the expected national income for the year of 2012, taken from the federal budget.  (Yes, I’m getting my data from Wikipedia; luckily, not too many people are interested in messing with an entry like this.)  We should get a better idea of where the financial situation stands if we look closer.  Some of the prime income sources included are:

• Individual Income Tax: $1,141 Billion
• Social Security and Payroll Taxes: $925 Billion
• Corporate Income Tax: $329 Billion
• Excise Tax: $103 Billion
• Other Taxes (Excise Tax, Custom Duties, Estate Taxes, Etc.): $130 Billion

Not too bad, not too bad; definitely an impressive amount of income.  All told, the federal government is expected to bring in $2.6 TRILLION dollars, an impressive amount by nearly any standard.  With that much money coming in, how could there be anything even resembling a deficit?

Celebrate Good Times, Come on!

But even trillions in income can be surpassed; for fiscal year 2012, the President’s budget hovers around $3.7 trillion, an even larger amount.    Some of the biggest parts of the budget include:

• Social Security: $761 Billion
• Unemployment and Welfare: $612 Billion
• Department of Defense: $553 Billion
• Medicare: $485 Billion
• Medicaid and State Children’s Health Insurance Program: $269 Billion
• Interest on the National Debt: $242 Billion
• Overseas Contingency Operations (War on Terror Operations): $118 Billion
• Other Operations (Total): $605 Billion

That other operations portion of the budget, by the way, includes everything else the government does: from the Department of State to the Department of Energy to the Department of Labor (all under $100 billion dollars, the cut off point I set for listing an item separately).  So, if you hear any talk about getting rid of two or three departments and balancing the budget, that’s…not really possible.

So, all told, we’re spending $3.7 trillion, and taking in $2.6 trillion, for a deficit of $1.1 trillion.  That shouldn’t be too hard for intelligent, well reasoned people to do, right?

Why It’s Hard to Balance the Budget

It doesn’t look like it should be, but just looking over the budget shows that it’s not that simple a task.  Try to find something sizable to cut that you CAN cut without major political impact (a not small point of consideration for career politicians).  You could get to $1.1 trillion by completely dropping Social Security and Medicare, but try to do that all at once and just see how many people rise up to vote you out of office.  You could switch out the Department of Defense for the Medicare, but now you have a similar uprising from the right side of the aisle also after you.  Dropping all the ‘smaller’ functions of the government would get you about halfway there, but (a) you’d still have to find half a trillion dollars in the budget to completely balance the budget, risking those ‘uprisings’ again, (b) the chances of finding agreement on eliminating programs as diverse as the Department of Homeland Security and the Environmental Protection Agency is very, very slim, even in a more agreeable political environment, and (c) if you think unemployment is bad now, wait until millions of federal employees join the unemployment lines.

Alright, so cutting the budget is harder than it seems; how about raising taxes?  You’re not going to have much more luck there, I’m afraid.  You’d have to raise personal income tax rates (and/or cut down the personal deductions) to the point where you are bringing in twice as much money via taxes.  If you think you can pull that off in the current political climate and not have an angry mob after you, you are braver than I.  There’s not too much more possibility with payroll taxes; as employees watch their paychecks fall and employers see their profits decrease, you can kiss any political good will goodbye.  Increasing the corporate tax (and cutting down the amount of deductions) makes for good politics, but when you’d need to quintuple the tax income to do the trick, it’s pretty much a non-starter.

Why am I saying all this?  Basically, there is a tendency for many commentators to make it sound like balancing the budget is an easy task that politicians don’t do out of, say, laziness.  A few cuts to unpopular programs here, a few small tax increases and/or tax break alterations (always affecting groups the commentator dislikes, of course), and bang!  The budget is balanced.  It’s not that simple, though; a true balanced budget is likely to require a lot of nuanced moves, including tax increases, larger numbers of people paying said taxes, cuts to some government programs and outright elimination of others, as well as more than a little pain from both sides of the spectrum.  I just wanted to help put some of those issues into perspective as we think about eliminating the deficit.

Now, when we start to tackle the national debt…

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Note: I realize that by venturing into the political arena, particularly when taking on a subject that raises as much emotion on both sides of the issue as affirmative action, there is a good chance that my position on the issue is different than yours.  I hope that, rather than hurling insults and pejoratives at each other, we can agree to disagree, and come together to discuss this calmly, and perhaps, even give each other some more insight in how the other side of the issue thinks, and why they believe the way that they do.  Thank you for not simply tossing out insults and going on your way.

We’re in an odd place in history, at least when it comes to race relationships.  The scars of institutionalized discrimination still linger; heck, most of our lawmakers and politicians are old enough to have suffered under the policies of segregation (or conversely, to have tried to enforce them).  Even the youngest among us don’t have to go back further than our grandparents to find a time when ‘Whites Only’ drinking fountains and schools were the law of the land.

On the other hand, in the past fifty or so years, great progress has been made towards the goal of judging people ‘not on the color of their skin, but on the content of their character’.  Legalized discrimination has disappeared from the national stage, minority men and women are ascending to the tops of their chosen fields, and hey, did you hear that we have a black man (or, as I’m sure Financial Samurai would be happy to remind us, a man who is half white, half black) as President of the United States now?

Yup, the guy with the funky O logo

In fact, more than a few people would maintain that we’ve actually gone too far in the other direction, that affirmative action and other attempts to give minorities and others who were (and sometimes still are) discriminated against are actually leading to ‘reverse discrimination’, discriminating against those in the majority.  Evan’s (of My Journey to Millions fame) story of one particular example is what inspired this post in the first place.

Given these conflicting messages, the question becomes, what should we do about affirmative action?  Should we call it done and relegate affirmative action to the dustbin of history, or are the scars of past injustices still fresh enough that we require more salve to soothe them?  Let’s take a closer look at the arguments on both sides.

We Still Need It

Let’s start with something most people on both sides of the debate can agree with: whatever the appropriate place for affirmative action is now, it definitely served a needed purpose in the past.  When the policies were first put into place in the sixties, there were still laws on the books preventing ‘colored’ people from partaking of the same opportunities available to whites.  Discriminatory laws were just being struck down (or were still in force in many places) and the official policies by many schools, businesses and governments was to exclude African-Americans and others from learning, working or participating.

Supporters of continuing affirmative action maintain that things aren’t too much better today.   African-American and other minority members today still experience income inequality, difficulty getting employment, and other problems that Caucasian students and workers do not.  Even without direct discrimination, the legacy of slavery and the following discrimination still puts them at a disadvantage; to cite but one example, it’s hard to be much of a ‘legacy’ student if your grandparents weren’t even allowed to come on the campus.

There’s also the issue of diversity, and the attempts to promote it.  Particularly in college, exposing students to other races and cultures can give them a better appreciation of groups other than their own, and help them better function in the broader world.  Without affirmative action to help minority students get into traditionally white colleges (and vice versa), it’s more likely that students will go to colleges where their own race (or religion, or other trait) is overwhelming prevalent, or even the only one represented, preventing them from broadening their horizons.

It’s Time To End It

While there is little denying that the deck has been stacked against minority groups back in the old days, opponents of affirmative action argue that things  have changed greatly since then.  Whereas discrimination and segregation were the official policies of the past, you’d be hard pressed to find anyone under the age of 60 arguing that viewing the color of someone’s skin allows you to determine their abilities and skills.  (For that matter, you’d be unlikely to find too many people over the age of 60 expressing that opinion nowadays, at least out loud.)

Instead,  the issue many opponents worry about is reverse discrimination.  With schools and businesses so eager to increase the number of minority or otherwise discriminated against students or workers they have, they can end up recruiting less qualified minority candidates while passing over more qualified white students or employees (particularly with some of the older ‘quota’ systems that were in place all but forcing them to get more minority candidates, regardless of skill level).  You end up with the white candidates feeling discriminated against and blaming the minority candidates for not getting in.

It’s not much better for the minorities who are accepted.  Not only must they deal with snide comments behind their back that they ‘only got in because of affirmative action’, but they have to work even harder in order to combat this perception.  Affirmative action also serves as a barrier to a truly colorblind society; if we continue to treat people differently according to the color of their skin, regardless of whether it helps or hinders the people who were victimized in the past, we’re just continuing to reinforce the idea that differences in skin color really DO affect intelligence or other attributes that influence a person’s ability to work.

My Views

As I said at the opening of this post, we are at a weird juncture in history.  We are not yet at the point where skin color doesn’t matter, where society as a whole is able to ignore a person’s race when evaluating his or her skills, but we are far beyond the time when your race could limit you to a second class lifestyle for your entire life.  As we continue along the path from the latter to the former, we’re going to have to change and re-evaluate how we, as a society, view issues of race and equality, and how we react.

That’s why I propose that we end most of the public affirmative action programs we currently have in place.  There are ways to ensure that disadvantaged students, whether their disadvantage comes as a result of their race or some other factor, can get into school.  (Case in point, looking at a student’s socio-economic background rather than his or her race can provide a much more accurate picture of the difficulty he or she has faced throughout their lifetime.)

There will, I am sure, be places, be they universities, businesses, or government offices, that will try to discriminate against one group or another, to add only members of their preferred race(s) to their membership.  But at this point in our society’s growth, any but the smallest, most remote places that attempted such discrimination would quickly find themselves on the wrong end of a boycott by not only the minority community, but also a sizable portion of the white population as well (myself included).  Leaving punishment for discrimination to a well-informed public seems like a much better approach for our current society.

I will admit, such a plan might not work; it’s quite possible that we are not as far along as I believe that we are.  (Not suffering directly from discrimination, I might have a skewed perception on this subject.)  If this is the case, and years from now, we find that without affirmative action, we are headed back away from a fair and equal society, I will be amongst the first calling to reinstate it.  For now, though, I think we can do more good than harm by ending affirmative action.

Readers, what are your views on affirmative action?  Am I missing any advantages that make affirmative action indispensable?  Or any disadvantages that make it even less desirable than I’ve portrayed here?

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I have a secret to share.  It’s one of the most important secrets in politics, one which most commentators are reluctant to share, but which can, once you hear it, color every political discussion you hear.  The secret is this: Most people, regardless of their political leanings, are logical, rational, intelligent people who have come to their political positions through reasons and rationality.  To put it another way:

Your political opponents are not idiots, delusional, brainwashed, or evil; they simply differ from you in their views.

Now, there are those who are are ill-informed, irrational, or just plain crazy; even though they seem to get an exceptional amount of media coverage (normally because they are much more entertaining than the well-informed, rational, sane supporters of a particular position), the crazy ones  don’t represent all, or even the majority, of the members of any sizable political organization.  Judging an entire position on the basis of a few supporters gives just as biased a view as judging all the members of a race based on a few members thereof.

Limbaugh and Moore: Biased, but apparently talented member of a colonial era band

The Trouble With Political Commentary

So why does it continue to happen?  Well, as mentioned, the crazy, irrational commentators get a lot more press, and make for much more entertaining show hosts for the wide variety of political talk shows out there (at least, for those who agree with the political positions espoused in said shows).    As Cracked notes, for a successful talk show, you need to have both a consistent thesis (liberals are taking your freedoms, conservatives are selling out your freedoms to big business, aliens are kidnapping our puppies, etc.) and commentary on current events; unfortunately, the former tends to overshadow the latter.

Of course, it doesn’t help matters that there are numerous issues that are naturally divisive.  From abortion to homosexual marriage, there are some issues where due to differing religious, moral, and/or ethical views, coming to an agreement that satisfies all parties is difficult, if not impossible.  Some issues, by their very nature, lead parties with different views into conflict (if you believe that life begins as conception, abortion will always be tantamount to murder; likewise, if you believe that women should have absolute control over their own bodies, forcing a woman to carry a pregnancy to term will always seem like slavery; finding a middle ground is hard, if not impossible), other issues bring the desires of a minority into conflict with the will of the majority (does the majority of a city or state have the right to prevent a homosexual couple from marrying, or does the couple’s rights to privacy and to do what they wish in their own bedroom over ride majority objections?); in either event, you end up with a situation in which intelligent, well-meaning, educated people disagree.

Once the issue gets into the media echo chamber and distorted by each side in attempts to appeal to their base, it’s even harder for those rational people to create a concensus among all the groups trying to shout each other down.  At best, you end up with at least one group horribly disappointed when the other group gets their way; more often, you end up with everyone disappointed by the eventual agreement that is reached.

What to Do

On a national level, there’s little that one person can do change the current state of politics.  (Unless that one person is someone like Glen Beck or Keith Olbermann; in theory, they hold the kind of power and influence needed to change the entire tone of politics in the country.)  There is quite a bit you can do on the individual level, though, to avoid falling into the worst pitfalls of the political realm, such as:

1) Remember that those who believe different things politically aren’t delusional or evil: The same comment I used to open this article is one of your strongest defenses against falling into the belief that your way of looking at issue, and only your way, is the only logical conclusion one can draw about an issue.  Although it may not always make sense to you, they likely have their own reasons for their particular beliefs.

2) Expose yourself to alternative viewpoints: If you’re like most people, this could be as simple as going to a family reunion and starting any vaguely politically motivated conversation.  In case you would rather not subject yourself to the angry yelling of your relatives (at you or each other), there’s plenty of other ways to find out about viewpoints outside of your own.  If you are a conservative who wants more knowledge of left-leaning views, Alternet is a good place to start; for those of us on the left, I’ve heard good things about RedState.  (Although, honestly, I need to take more of my own advice on this point and try to follow more conservative thinking.)  At the very least, you’ll gain a valuable insight into how your ‘enemies’ think.

3) Realize that you might be wrong: Hard as it might be to admit, we are all fallible.  Perhaps, as you’re doing your research into what other political beliefs, you’ll find information that you hadn’t considered before, or viewpoints that you didn’t hear before.  Your position might prove to be partially or entirely misguided, and you might need alter your views.  If you keep an open mind, who knows; you might just develop a new view of the world around you.

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Every so often, I have a stunning flash of brilliance.  An idea that is so simple, seems so obvious, that I’m sure there’s something that I’m missing.   An idea that, if implemented, seems to solve not one, but several large social problems at once, making me a huge hero to the entire country, or possibly the world.

But then I take a step back, and really think about how that would work.  How could I, a normal mid-twenties guy, come up with a solution that’s alluded our policy makers and government leaders?  (On second thought, don’t tell; I’m pessimistic enough about the government already.)

In the spirit of sharing my money insights (one of the goals of this blog, after all), here’s the idea I recently had to fix unemployment and government spending, all in one swoop.  If I’m missing something, or being too optimistic about how some of these changes would actually affect things, be sure to let me know; I can’t present my new proposals to President Obama and the Congress if it’s filled with obvious bugs.  Here we go:

1) End the minimum wage: There are plenty of companies out there that would gladly employ more people if it didn’t cost them so much.  It’s Econ 101: the higher the cost, the lower the demand, and it works for employees as well as other goods and services.  If you’re forced to pay $7 an hour per employee, you as a business owner are going to want fewer employees than if you can only pay $4 an hour, which in turn is fewer than you would have if you could pay $1 an hour.  (Don’t worry, minimum wage workers, we’ll get you more money in just a bit.)

2) End current federal welfare programs: There’s currently a morass of federal programs that provide aid to the poor and those in the lower middle class.  (Although, there’s some argument about that point.)  Eliminate all those disparate programs (with the possible exception of Social Security, which is based on how much money you put into the system, at least in theory), to clear the way for something much simpler.  (For that matter, if you can eliminate most or all of the state and local welfare spending, we can really attempt to streamline the process.)

3) Change the poverty line: As mentioned yesterday, there’s much disagreement about the current poverty lines, which are just the inflation adjusted poverty lines first calculated back in the 1960′s.  Society and our spending habits have greatly changed in the mean time, and the previous poverty line levels don’t seem to be accurate (to say nothing of the fact that they don’t provide much in the way of adjusting for the different costs of living in different parts of the country).  The likely result will be to increase the poverty threshold, also increasing the number of people considered to be living in poverty.

4) Create a new benefits system: Now, if we want to make a simpler, easier system for public benefits, the easiest thing to do is to set up a single welfare program that will give out weekly (or biweekly, or monthly) checks to everyone who is unemployed or unable to work.  These checks will add up to the new poverty line for each person, which should (if we set a more realistic poverty line) be enough to allow them a decent chance to make a place for themselves.

5) Encourage work: Too many programs currently in existence suffer because they promote less work from recipients; if you work and bring home money, you end up getting less in government benefits.  To combat this, our new welfare program should encourage work, allowing people to increase their total income by working.

As the number of hours worked increases, the total amount the person earns (in wages plus benefits) should rise as well.  If someone is working twenty hours or less, the benefits they get should bring their total income to an amount higher than the poverty line, say 110% of the poverty line.  Working twenty-one to thirty-nine hours a week, and you’re guaranteed total compensation of 130% of the poverty line, while working forty or more hours a week (that is, full time) ensures that you’ll get 150% of the poverty line.  (Note: this would be total work time; if someone found two twenty hour a week part time jobs, they’d be able to collect the full-time benefits.)  No more worrying that working will decrease your government benefits; any job you take, no matter what the pay, will increase the money you take home.

6) Change who pays for welfare: You might have noticed one fly in the ointment up to this point: with the government covering the slack for businesses who pay their employments a wage less than the poverty line and no minimum wage, there’s not much incentive for companies to increase their wages.  They can pay $1 an hour, and their workers won’t complain (well, more than workers normally complain) because the government (that is, taxpayers) will pick up the tab.  Great news for businesses, not so great for tax payers.

To make this whole thing work without sticking it to the taxpayers, we need to change who is paying for this whole thing.  Our new welfare program will be paid for with taxes on corporate profits, for all corporations.  If discount stores and other currently minimum wage employers drive down wages for their employees, the tax that they, and all other corporations, pay will have to rise as a result.  Between the tax burden on their own bottom line, the tax advantages of paying out more money as wages (since they’d be company expenses and above the line deductions) and pressure from other companies who want to lower their taxes, there should (hopefully) be a fairly small drop in what companies actually pay their emplyees, even those on the bottom rungs of the corporate ladder.

Altogether, this plan should increase the number of people who are employed, simplify government spending, and encourage work, all while minimizing the tax implications for individuals.  Not bad for a sudden flash I had late last night, eh?

So there you have it; my plan in a nutshell.  Are there any flaw that I’ve missed?  Has anyone proposed a plan like this that I simply haven’t heard before?  Anyone have something they’d consider changing or adding?

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