Wednesday, November 28, 2012

Yes! The Repubs' 'Fiscal Cliff' Position is Based on the Pareto!

"Assume a collectivity made up of a wolf and a sheep. The happiness of the wolf consists in eating the sheep, that of the sheep in not being eaten. How is this collectivity to be made happy?"
- Vilfredo Pareto

I've been asked repeatedly lately what over-arching paradigm might underpin the Republican position in regards to the dealing over the "fiscal cliff". To bring readers up to speed (especially after the DOW dumped nearly 90 points yesterday) let me summarize:
The Repukes have proclaimed that they are still interested in "raising revenues" as part of a "Grand Bargain". After teasing Obama with the possibility of real increases in tax RATES - as opposed to closing ambiguous loopholes, the Reeps are now dug in and maintain that "revenues would be raised through later tax reform" - and this, btw, is with NO 'trigger' in place to enforce it. And in return for that vague, ambiguous promise of fiscal rectitude they demand:

- The upcoming defense sequestration be cancelled, i.e. no cuts for the Big D

- The age for Medicare eligibility increase to 67, or 68

- And changes be made to Social Security, namely by way of re-calculating its benefits via a lower COLA - to cut them.

Are they fuckin' nuts? Or haven't they seen the results of the just finished election? Do they not see they were the LOSERS? So how can they insinuate that THEIR plans to carve out social insurance benefits are the ones the voters chose?

As a separate issue, these fuckers want to address the debt ceiling issue separately, or translation: they want to have the power - as they did last year- to send this country hurtling over a REAL cliff of default! This time, however, Obama appears to possess the stones to not let these knuckle-dragging morons roll him in a back alley - like he did last year. Sometimes it takes time for Dems to grow a spine, what can I say?

Okay, now where does this come from? Some may say partly from adhering to Grover Norquist's no tax increase "pledge" and they may be right. But a more fundamental basis is to impose the Pareto Distribution of resources across the land. To refresh readers' minds, Vilfredo Pareto is the one who basically put forward the Pareto distribution, and also the form of economic efficiency known as Pareto efficiency.

The basic insights may be derived from the Cumulative form of the Pareto distribution which is shown in the graphic. Basically, we are graphing "utils" or nominal units of "utility" on the vertical axis, vs. value of dollars used or consumed along the horizontal. The curves are displayed for two populations, one "rich" (say earning in the top 1% or $340,000/yr.) and the other "poor" (earning about $14,000/yr.). The key aspect to note is the width corresponding to the "delta x" portion of the gradient (delta U over delta x) which translates into the net dollar's worth for each population. As readers can see from inspection, the width of $1 for the rich is significantly longer than the one for the poor. This translates into the argument that the buck is worth more to the rich man, and hence, any transfer from the rich to the poor hurts the rich more than it helps the poor (especially as the 'utils' for the poor man is also rather smaller by comparison).

Thus, by Pareto's original example (in quotes): Allowing the wolf in the wolf-sheep collective to EAT the sheep expresses less overall "hurt" or pain on it than permitting the sheep to remain unscathed, thereby merrily prancing away eating its grass while the poor wolf starves. Of course, let me hasten to add here, that nowhere is Pareto's original quote on the wolf-sheep combo given in any standard university economics texts. God forbid any students draw the wrong conclusion and infer that modern economics is consigning the poor to be sheep for the rich wolves. But, as a matter of fact, that's fairly close to the truth!

To sum things up in a crude nutshell: Applying the Pareto model for efficiency ensures that money will be circulated and spent by the highest quality producers and generators. This was subsequently imbibed by Arch Capitalist Milton Friedman of the "Chicago School" of economics as Naomi Klein notes in her book, The Shock Doctrine. As she notes (p. 68), Friedman asserted (in his book  ‘Capitalism and Freedom’ ) that "everything went wrong with the New Deal".

To Friedman all government social protections that were unearned, either from speculation in the markets or protracted hard work, had to be negated. Also, any gov't based medical programs like Medicare needed to be outsourced to corporations or the private sector. No one could have any "handouts" ...whatsoever, and oh, by the way, the minimum wage had to be abolished as well! (Workers could then individually compete for the best wages based on innate talents) As Klein further noted (p. 70): Friedman's tracts "though cloaked in the language of math and science" were in fact being passed on from multinationals and corporate interests with a lot at stake. Hello, serfs, meet the new Overlords!

Social Security payments? They pour more money into the economy, but not via real time productive labor or market indices, returns. People receive their checks merely by existing and breathing day to day, and having paid into the system with FICA deductions. Even then, they receive far more in benefits than actually paid in, making a total mess of "utils" earned. In a way, the Social security recipient (in the eyes of this Pareto-riguer bunch) are like the rent subsidized couple with their "consumer surplus". Worse, the S.S. COLAs increase the non-productive payments each year, one reason why – back in 1997 –  Alan Greenspan demanded an artificially much lower COLA increase than had originally been proposed.

No surprise that this COLA is exactly what the Reeps are proposing now. It is also fueled by propaganda put out by assheads and morons like Lloyd Blankfein, who on CSB news recently made the remark we "can't afford people living off of entitlements for 30 plus years." This slimey bankster rat lied and fortunately Ed Schultz corrected the slimeball on a subsequent show, noting the average American worker lives roughly 16.3 years depending on Social Security!  This during a period when medical costs are likely to explode, as well as the likelihood of being in a nursing home.

So what alternative does the Pareto Distribution demand and which Repukes are secretly pushing? Easy! Removing the money allotted from Social Security will force oldsters to gamble in a risky stock market casino in which we now know flash trading and fractional stock taking dominates (subject of a future blog) and the little guy suffers. Even as Boehner and McConnell wheel and deal, Maul Street's unscrupulous money managers salivate like Pavlovian dogs over reaping major rewards for themselves via deceptive fees. With a growing population of elderly Americans afflicted by Alzheimer’s, the fine-print artists peddling deceptive retirement products will have a field day. THIS is what the Reeps are bargaining for!

Make no mistake here that though the well-funded campaign to partly privatize Social Security under George W. Bush (in 2005)  failed, the same forces are at it again using the "fiscal cliff" BS as a leverage point. Now, they want to achieve the same result indirectly, by getting Obama and enough conservative Democrats in Congress (kowns as DINOS) , along with the GOP, to cut Social Security. Their manifest objective is to comply with every Fed Chairman's wet dream and compel Americans to try to make up the losses in public benefits by gambling more with their savings in mutual funds ( from which hefty profits will be skimmed by overpaid money managers.)  Wall Street will then become even richer than it now is relative to Main Street, as the Pareto Pirates gloat.

This we cannot allow! Every sensate being in the nation needs to keep on his reps' butts and make sure they do the right thing. If you have a weakling or wavering wimp, be sure to tell it like it is and assert that (far from cutting anything) we need to expand the stable, efficient, low-overhead public part of America’s retirement security system — Social Security. 

Meanwhile, we pare back on the risky alternatives like 401ks wherein workers must fend for themselves. (The other alternative is to provide a government "match" - for every dollar saved, i.e. in a money market or fixed income fund,  and not lost in a 401k via speculating).

Meanwhile, any reinforcements or added steps we do have to make to Social Security and Medicare, to ensure their integrity,  can be made independently next year. This would be after the fiscal cliff hysteria has passed and the Reepos can no longer exploit it for their own ends. Let us not be held hostage to the Reeps' alleged guns now, as we were last year with their disreputable debt ceiling brinksmanship!

One last point: I disagree with Obama barnstorming around the country and asking the Middle class to complain to reps about losing up to $2200 a year or more if the fiscal cliff is hit without Repups cooperating. To me this plays into the Reeps' hands and uses unnecessary scare-mongering. Hence, I agree with Robert Reich's take in today:

"So rather than stoking middle-class fears about this, the White House ought to be doing the opposite – reassuring most Americans they can survive the fall. In fact, to use his trump card effectively, Obama needs to convince Republicans that the middle class is willing to jump over the cliff."

Indeed, and for my money, the fact Americans could afford to splurge to the tune of some $55 BILLION on 'Black Friday' and "Cyber Monday" shows me they have disposable income to survive the "fall". In addition, the scare mongering sets liberals nerves on edge because it implies Obama & Co. might teeter over if the standoff is protracted. Keep the stiff upper lip, Mr. Prez. And understand that if going over this "cliff" is what we must do to finally get actual tax rate hikes on the rich, they we do it. And we LOVE doing it! Why? Because it'll make the Repukes (and that turd Grover Norquist) puke!

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