George Rebane
[This is the transcript of my regular KVMR commentary broadcast on 27 January 2012. In it I gently introduce the beginnings of monetary utility and mention fair division algorithms about both of which I intend to expand in future posts.]
In last Tuesday’s State of the Union speech President Obama made clear that he will not run for re-election on his record – it would be a disaster if he did. With an historical congressional majority he has been able to pass all of his programs save the cap and trade bill which his own Democrats killed. In spite of this, the resulting numbers are damning.
At a little above 60%, the fraction of productive age Americans in the workforce, working or looking for work, is the lowest ever. Even with population growth, our economy has fewer jobs today than in January 2009. And this after the so-called stimulus spending has increased our national debt by over $4T or about 40% in just three years, and costing $1.5M for every job that the administration claims to have created. (Radio does not allow us to pause here for a minute or two to absorb this little statistic.) Putting a ribbon around the whole thing, our employment rate at 8.5% is still higher than the 7.9% than the President inherited, while the major costs of Obamacare, hanging tax hikes, and the new costly EPA regulations have yet to kick in. Running on his record is a definite no-no.
But not to worry, the political pyrotechnics locker is still chuck full of good stuff to loft into the air, there to create great eye candy in the sky, and take the voters’ mind off our real problems here on the ground. The first thing to launch is the ‘fair share’ argument for the vilified 1%, with poster child none other than leading Republican contender Mitt Romney.
Before considering anything as complex as ‘fair share’, we recall that, according to the National Center for Education Statistics, in the aggregate the audience for this message is surprisingly illiterate, disinterested, almost totally innumerate, and a stranger to the issues. In short they comprise a population that is vulnerable to what we may call sound-bite bait. Campaign funding war chests and gotcha politics promise again to carry the day.
Actually, the average voter doesn’t think twice about the notion of fairness or fair share. Don’t we all know what is fair? Aren’t we all born with the same dipstick that measures fairness? Well, actually no. There is a whole area of decision science that deals with fairness, and what are called fair division algorithms. It’s quite an important and complex area, much more than the familiar pie division rule – one cuts, the other chooses.
When we talk about taking money from someone by threat of force, and then giving it to others, the ground can start shaking. The folks with their hands out consider only the dollar amounts to be taxed, which all look huge and appear to be more than any ‘fair-minded person’ needs. But please play a little game with me. If you had to decide between keeping, say, $10,000 in Treasury bills, or taking an investment risk that can double or lose the whole thing, you’d want to know the odds favoring your success.
If the odds worked out to 9 out of 10, then you’d probably invest. But with success at only 1 out of 10, you’d keep the Treasury bills. Somewhere in between there is a threshold, that if exceeded, you’d invest. And that threshold is different for different people depending on their situation. So let’s say your threshold for the deal that doubles the $10,000 is 7 out of 10, and you decide that the actual odds of success are about that. You’ve done your homework, you’re ready to cash in the Treasury and put it into the business venture.
But then you hear on the radio that the feds have changed the tax code and/or regulatory environment so that your reward, instead of doubling your investment, is reduced to making just 80%. Please note here, the odds for success are still a little above 7 out of 10. That hasn’t changed, but your reward has. Your decision to invest was based on both the risk and the reward. With the reward being reduced from a return of $10,000 to just $8,000, you decide not to make the investment. To you it no longer is a ‘fair deal’ for the money you would have to place at that level of risk. Perhaps to someone else it still might be, but you get the idea.
Most certainly the workers and those on the dole who were expecting your investment to create jobs and pay taxes on profits, both those groups of people still think that your $8,000 return would be utterly fair. For them you’re just a selfish ‘rich guy’ who doesn’t care for the middle class or those less fortunate. And that’s why they will vote for politicians who promise to go after even the $10,000 Treasury bill that you have already paid taxes on and squirreled away. Welcome to 2012.
My name is Rebane, and I also expand on these and other themes in my Union columns, and on georgerebane.com where this transcript appears. These opinions are not necessarily shared by KVMR. Thank you for listening.
rebanesruminations.com 
Leave a comment