Amazon Reviews

Amazon changed what it shows for book reviews. Below a review asks whether or not the reader found the review helpful or not. The writer of the review could see how many people found the review helpful and how many did not. For example, it would say 6 people out of 10 found this review helpful, implying 4 did not. Now Amazon only shows how many people found it helpful, making how many did not unavailable.

I don't know why the change was made. I expect the folks at Amazon decided too many people checked 'did not' and they believed the lower star ratings made by the reviewers was enough to discourage purchases.

Tax Cuts and Jobs Act #2

I was a little surprised by AT&T and Comcast announcing they would pay most of their employees a $1,000 bonus after The Tax Cuts And Jobs Act becomes law. My surprise was only because such bonuses are rare. It's easy to expect that the money will be offset by lower future taxes. Indeed, considering only the amount of money, these bonuses will be easily covered by lower 2018 taxes only. Then I realized there is another reason for the bonuses being even more affordable.

AT&T says about 200,000 front line and non-executive employees will get the bonus. Comcast says more than 100,000 front line and non-executive employees will get the bonus. That means $200 million dollars for AT&T and $100 million dollars for Comcast. That's cash. The effect on the companies' financial statements will be driven by GAAP accounting, which isn't only the cash.

AT&T's 2016 provision for income tax was $6,479 million. Comcast's was $5,308 million. (Numbers from Morningstar.) Assuming the same pre-tax earnings in 2018 and a tax rate of 21% instead of 35%, the provisions for income tax will be $3,887 million for AT&T and $3,185 million for Comcast. The reduction for income taxes --  $2,592 million for AT&T and $2,123 million for Comcast -- dwarfs the amount of bonuses for both.

Moreover, the new lower tax rate will induce a big one-year earnings boost. It will reduce the amount of deferred tax liability on their balance sheets. AT&T's was $60,128 million ($60 billion) at the end of 2016. Comcast's was $34,854 million ($35 billion) at the end of 2016. Assume the same amounts at the end of 2017 and modify them for a tax rate of 21% instead of 35%. Those deferred tax liabilities fall to about $36 billion for AT&T and $21 billion for Comcast. Since a liability reduction increases income, it implies $24 billion extra income for AT&T and $14 billion extra income for Comcast. Although non-recurring, they are big numbers compared to AT&T's 2016 net income of $13 billion and Comcast's 2016 net income of $12 billion. AT&T's income nearly triples. Comcast's income more than doubles.

I wondered if anybody else thought of this. MarketWatch did.

Tax Cuts and Jobs Act #1

The U.S. Senate and House of Representatives have both approved changing the tax code. The Tax Cuts and Jobs Act now awaits President Trump's signature to take effect. The biggest change is the corporate income tax rate is reduced from (mostly) 35% to 21%. Personal income tax rates are modestly reduced for most people.

Chuck Schumer, Nancy Pelosi, and Bernie Sanders have attacked the Act as a give-away to the rich that won't benefit the middle class. Of course, they are demagogues, as usual. For example, AT&T and Comcast have said they will pay $1,000 bonuses to most of their employees after it becomes law. Fifth Third Bancorp said it will also hand out employee bonuses and raise the minimum wage, while Wells Fargo announced it is raising its minimum wage. Link.

The Federalist has quite a different opinion -- 4 Of The Biggest Myths About The Tax Cuts And Jobs Act.

In addition the demagogues ignore the many middle-class people who own stock in those rich corporations and share buybacks typically increase the value of a stock.

Senate tax bill #2

The US Senate passed its tax bill late yesterday (link). The final vote was 51 to 49, with one Republican and all Democrats voting against it. Another Washington Post article describes the major provisions.

The provisions are much like I described here. Two things I didn't mention there are the alternative minimum tax (AMT) -- the threshold is raised -- and the bill repeals the individual mandate from the Affordable Care Act. It reduces estate taxes. Deficit concerns curtailed prior efforts to eliminate estate taxes (in 2025) and the AMT.

A major change is reducing the corporate tax rate from (mostly) 35% to 20%. The Senate bill has this starting in 2019. The House bill has it starting in 2018. This and other provisions need to be reconciled with the earlier House-passed version before being sent to President Trump. Republican leaders still aim to get a final bill on Trump’s desk before Christmas.

End Corporate Income Tax? #2

My previous post briefly addressed what would likely happen if the corporate income tax were eliminated. Even lowering the corporate tax rate to the proposed 20% when personal income tax rates are higher can create disparities. The current corporate income tax rate being (mostly) 35% and the top personal income tax rate being 39.6% makes some disparities, but lowering the 35% to 20% makes disparities much larger. Like I said in my prior post, this is likely why proposals to change the taxation of pass-through entities have become a significant part of tax reform.

For example, suppose a C corporation and a pass through entity each earn $10,000 more pre-tax. If the C corp simply retains it, the extra tax is $2,000. If the C corp pays it as compensation, the C corp pays no extra tax and the recipient(s) pay tax on it at whatever rate applies, which could be up to 39.6%. Very likely it will be higher than 20% and in some cases 39.6%. It could be taxed an additional 0.9% (as wages) or 3.8% (as investment income) for Medicare. For 2017 the 39.6% tax bracket starts at $500,000 for each filing status. $500,000 may seem like a lot for personal consumption, but quite often the income is planned for business purposes (link, link). If the C corp opts to pay it as a dividend, the $2,000 tax still applies, since dividends are not deductible, leaving $8,000 as dividends. The recipients pay whatever tax rate applies to dividends, which may be somewhat lower than applies to compensation. 

The tax bills proposed by the House of Representatives and the Senate Finance Committee are yet more complicated because they (a) limit interest deductions in computing income and (b) split income between capital and wage-related and apply a lower tax to the former or exempt a portion of total income (link).

End Corporate Income Tax? #1

Occasionally I read or hear there should be no corporate income tax, “corporations don’t pay taxes, people do”, and similar assertions. Examples:

“As most good economists and knowledgeable others understand, the world would experience a better allocation of resources and more job creation if the corporate income tax was abolished. … The so-called revenue loss would be made up by taxes on the dividend and capital gains increases, and by the extra economic growth and employment that would result from ending the corporate tax.” Link #1.

“Rather, the corporate income tax is actually “paid” by workers in the form of lower wages, and consumers in the form of higher prices. Cut this tax, and workers will both earn and spend more.” Link #2.

Neither source recognizes what would likely happen if the corporate income tax were abolished. With no other changes, it would be foolish to not incorporate and corporations would become tax havens. The corporation could spend its earnings on actual capital investment, pay higher wages, etc., very soon or it could retain the money for any indeterminate use for years. The last one would make an attractive tax haven.  A pass-through entity would not have the last alternative -- the ability to retain earnings. All earnings pass through to the owners, and they pay the income tax on them at whatever rates apply. Profits being retrospective and investment spending plans being prospective compounds the problem.

Under current tax law it’s important that amounts passed through to owners be categorized as dividends, capital gains, ordinary investment income, or compensation (wages or bonuses) because the tax treatment for each is different. For example, capital gains tax rates are lower, and compensation is subject to FICA taxes for Social Security and Medicare, whereas the others are not. (There is some extra income tax that goes to Medicare when income exceeds $200,000 for single filers or $250,000 for married filing jointly.)

The current proposal to reduce the corporate tax rate from 35% to 20% is likely why proposals to change the taxation of pass-through entities have become a significant part of tax reform. I will say more about this in my next post.

By the way, the corporate income tax is not a huge revenue source for the federal government. In 2016 the federal government’s income tax revenue was about 16% corporate and 84% personal. Link #3.

Senate tax bill

The U.S. Senate Finance Committee revealed its own tax bill, and it differs from the House bill (which passed) in several respects. The following are the major differences.

1. The Senate bill has 7 tax brackets ranging from 10% to 38.5% versus the House bill's 4 brackets ranging from 12% to 39.6%.
2. The Senate bill preserves the estate tax while doubling the current $5.49 million exemption for individuals. The House bill ends the estate tax after 2024. Until then, the current $5.49 million exemption for individuals would be doubled.
3. The Senate bill preserves the existing mortgage-interest deduction for home purchases for up to $1 million of debt. The House bill would reduce the maximum to $500,000 of debt for new purchases and would limit the deduction to one principal home, ending the deduction for second homes.
4. The Senate bill preserves the deduction for medical expenses. The House bill ends it.
5. The House bill would not change taxation of capital gains. The initial Senate bill would, and investors protested. Currently, if an investor buys shares of stock in the same company at different times and then sells part of them, the investor can choose which ones are being sold. Selling the highest cost shares would minimize capital gains, and thus the tax. The Senate bill proposed first in, first out, or FIFO, which would in many cases be the lowest cost shares, resulting in the largest gain and tax. This would apply to individuals and mutual funds (including exchange-traded funds or ETFs) selling individual company shares. Individuals selling mutual fund shares would compute the capital gain using the average cost of the shares held.
     An tax annoyance for people who invest in mutual funds is capital gains distributions. This occurs on  "taxable" accounts (not IRAs, 401k's, etc.) when the mutual fund sells shares even if the holder of  the mutual fund shares doesn't sell. The holder gets a 1099 form from the fund or his/her broker reporting the amount of capital gains, which must be included on the holder's next federal income tax return. Such amounts in the future would generally be larger with the FIFO treatment for the mutual fund.
   After protests from some mutual fund companies, the Senate bill was modified to not apply FIFO to mutual funds.

Sources: CNBC, Bloomberg, Fox Business

Battling Alzheimer's

Forbes magazine has an interesting article about efforts to fine a cure for and treat Alzheimer's disease. The main points are:
- Bill Gates recently vowed to donate more than $50 million to fund Alzheimer’s research.
- Gates and the Rand Corporation both say that due to the aging of the population, the population of Alzheimer’s patients is growing so rapidly the healthcare system isn’t equipped to handle it.
- Some drug companies such as Biogen and Merck are working on cures. Biogen has a drug undergoing Phase 3 clinical testing expected to be complete in late 2019. Ditto for Merck except 2020. This page describes the different phases of clinical testing (Step 4 section).
- A PET scan is required to diagnose whether or not a person has Alzheimer's. The current supply of PET scan machines and geriatricians capable of diagnosing the results are low compared to the number of people who could be suspected of having Alzheimer's in the next 20 years or so. Thus Gates' and the Rand Corporation's concern about demand much greater than supply.
- The notion that amyloid is the main culprit in Alzheimer’s has come under question recently. Gates will support efforts to look beyond amyloid, investing his money in the Dementia Discovery Fund, which seeds companies pursuing much different theories about what drives the disease.

Still, there are other forms of dementia. Wikipedia says that Alzheimer's is the most common form, being 50-70% of the cases. Dementia also appears in late stages of Parkinson's disease. Forecasts of the number of people with Parkinson's disease also are high. Science Daily reports that new research shows that the number will soon grow to pandemic proportions.

Guns and Gun Laws

The December 2017 issue of Reason magazine includes an article, How To Talk With Your Kids About Guns. It begins with two statements.
"1. The number of privately held firearms in America has nearly doubled in tthe last two decades while the number of gun murders per capita was cut in half.
2. The number of kids abducted by strangers in 2011 was 105, out of approximately 73 million children in the United States. That's down slightly from 115 two decades ago."

"Too often absent from both sides of the debate are well-parsed statistics. Restrictionists will cite the 33,000 annual gun deaths in America." "Two-thirds of gun deaths are suicides." Next most are young men aged 15-34 killed in homicides, often gang-related. The 1,700 women murdered each year are usually a result of domestic violence.

Attempts to restrict gun sales in order to catch a minority of misusers yield all kinds of unintended consequences.

Every time an incident such as Stephen Paddock killing 58 people at a concert in Las Vegas happens, political demagogues, and like-minded folks, want more legal restrictions on guns. Unintended consequences and the effectiveness of such laws -- including if they get enforced or not -- in preventing future homicides matter very little. What matters most is the advocates' intent. They seem to believe that passing another law with a new provision that conceivably might have prevented the most recent homicide will prevent future ones. Reality just doesn't work that way.

Trump's Tax Plan and Demagogues

I read about the proposed President Trump-Republican income tax bill. The most significant part is reducing the corporate tax rate from 35% to 20%. Personal income taxes get a small cut. It simplifies tax computation a bit, by removing the alternative minimum tax and fewer people will itemize deductions. Republicans say the bill will increase the deficit by $1.5 trillion over the next 10 years. Dividing $0.15 trillion (for one year) by 2018 federal revenues of $3.7 trillion yields about a 4% cut.

Simplifying enough to allow filing a postcard return shown by some Republican politicians is absurd. The postcard doesn't have separate lines for interest, dividends, capital gains, pensions, IRAs, Social Security, and several other income and subtractions from income on current tax forms.

A controversial and complicating part is a special 25% tax rate for "pass-through entities" (usually small businesses structured as a partnership, LLC, or S corporation that report business income on personal returns). The controversy comes from the distinction between "active" and "passive" owners. The tax rate on "passive" activities and the "capital" income of "active" owners is capped at 25%.

I made a spreadsheet to calculate personal income taxes per the President Trump-Republican bill to compare the results to 2017 tax amounts. I did so for $10,000 ordinary income up to $250,000 income and every $10,000 increment between, for both single and married filing jointly. The resulting tax per the Trump-Republican plan was less in every case when the 2017 tax was greater than $0. For most cases the tax reduction was between 2% and 3% of income. Married filing jointly with income less than than $100,000 and filing single with income less than $50,000 showed somewhat smaller tax cuts.

The spreadsheet overlooks a few outliers that have large deductions that will no longer exist under the Trump-Republican bill and were not limited by the alternative minimum tax. However, it is predictably a tiny percent. For lower middle income filers with children, they will lose the extra personal exemptions for the children, but that will be much offset by a higher child tax credit.

Earlier Trump proposed to cut the top rate from 39.6% to 35%, but the latest proposal keeps the 39.6%. Michael Kitces says the bill creates another bracket of 45.6% (=39.6% + 6%) for a segment of income above $1,000,000 (link). It phases out the 12% bracket for those with income above that threshold. Also, earlier Trump proposed ending the favorable treatment of "carried interest." That is not in the bill.  Edit: I later learned that the bill reduces favored treatment somewhat. It would increase the minimum time assets would have to be held to qualify for the capital gains rate from one year to three years.       .

It didn't take long after the proposal was made for Democrats like Nancy Pelosi to trash it. This story from CNANews says: "Pelosi said Republicans are unveiling a tax bill "designed to plunder the middle class" in order to put more money into the pockets of the wealthiest one percent." She obviously has only an iota of understanding of what's in the bill. (Recall what she said about Obamacare: "We need to pass this bill to see what's in it.") Many in the middle class will pay lower taxes under the bill. My spreadsheet shows that "plundering the middle class" is pure, ignorant demagoguery.

CNSNews had another story titled Tax Plan May Kill Deduction Taken by 95% of Itemizers. Well, whoop-de-do! Firstly, only about 30% of tax returns filed itemize deductions, and most that do itemize have higher incomes. The higher the income, the more likely to itemize. Second, the story  ignores the higher standard deduction in the Trump-Republican plan, which will more than offset any lost state and local income or sales tax deduction in many cases. Lastly, per the Tax Foundation, almost 90 percent of the deductions for those who claim it go to those with incomes in excess of $100,000.

The bill eliminates deductions for medical expenses. So far I haven't seen much criticism of this, but it might surface.

The lesser corporate tax rate will, of course, put more money in the hands of producers rather than grubby non-productive politicians like Pelosi and Bernie Sanders and will likely lead to some tax revenue from repatriation of corporate funds overseas partly offsetting the overall lower corporate rate.

Amazon HQ2 #3

Amazon said this week it had received proposals from 238 cities and regions across North America that are vying for its new, second headquarters, HQ2.

The leading contenders appear to be Atlanta, Austin, Denver, and Washington, D.C. In the news I read not much was said about explicit financial incentives to Amazon. The city of Austin's bid stated none at all. Austin in its bid asked Amazon: “What if your new headquarters was more than just a building or a campus, but rather an integral part of the economic, cultural, and social fabric and future of an entire city?” (link). Incentives might be made more explicit as the decision process continues. Amazon will make site visits to a short list of contenders, and a final decision is probably a year or so away.

Epic Systems

We did a long weekend trip to visit friends in Verona, WI. With them we did a self-guided tour of the Epic Systems campus in Verona. I had not known anything about Epic, since it is privately-held and its business is medical records. The campus is a beautiful site with lots of unique, quirky decor (and many offices). Visitors can tour the site for free. We were told Epic has about 9,500 employees world-wide, with about 7,500 at the Verona campus.

Our visiting some interesting place in or near Verona has become a pattern. During our previous visit we toured an aquaponics farm owned and operated by our friends' daughter and her husband. The microgreens amazed us. Maybe we will visit the National Mustard Museum the next time.

Trump's "Across State Lines" Baloney

By executive order President Trump "is expected to direct a trio of agencies to rewrite federal rules to allow trade associations and other groups [to] offer their own health plans" (link). "They will be able to buy, they'll be able to cross state lines and they will get great competitive health care and it will cost the United States nothing," Trump said today.

Baloney to his implying that group rates are inherently cheap. Group insurance has been sold across state lanes for decades. The major kind is employers who buy insurance for their employees who live and work in multiple states. Employers with many employees all in the same state also buy group insurance. For decades state insurance departments or state legislators decided what makes a legitimate group. The criteria has become less strict. Now Trump and others want the federal government to decide what makes a legitimate group, and it's likely no rules at all.

However, this will have little or no effect on insurance underwriting. Insurers will continue to evaluate members of small groups individually. Imagine a group consisting mostly of people in very poor health, e.g. most have had heart attacks. If it offers coverage, a rational insurer will do so with a very high premium, one commensurate with the poor health of the individual members. There is no miraculously cheap rate simply as a result of making a group. Also, why would a relatively healthy person -- even if he/she is a member of the group -- buy this high-priced group insurance when he/she could buy cheaper individual insurance?

http://www.factcheck.org/2017/07/selling-insurance-across-state-lines/

Trump's move is not near radical enough. The medical insurance market for individuals under age 65 is a lousy market because the risk pool is too small. The risk pool is too small because millions of individuals have medical insurance via his/her employer's group insurance. That is a result of irrational government policy. The radical move would be to change employer-paid medical insurance like I said here.

In contrast the individual insurance market for individuals over age 65 is large, vibrant and competitive. Many retired people buy Medicare supplement or Medigap or Medicare Advantage policies because they don't have an employer buying post-retirement medical insurance for them.

Sports contests

I was very disappointed that the Cleveland Indians lost 3 games to the New York Yankees, and thus the series, after winning the first 2 games. The Indians had the best W-L record in the American League during the regular season, thanks in part to 22 consecutive wins, an all-time record, during late August to mid-September. Hopes were high for Indians fans.

The thrill of victory… and the agony of defeat - Jim McKay/ABC Sports.

Now it's Cubs vs. Dodgers and Astros vs. Yankees to see who plays in the World Series. Go, Astros!

I finished in first place in my CBS Sports Fantasy Baseball League this year.  I was in the middle of the pack until almost mid-season, suddenly jumped to first, and fell back to 7th in early September. I was fortunate to have Paul Goldschmidt, Carlos Correa, Willson Contreras, Corey Kluber, and Kenley Jensen all season (minus short stints on the disabled list). I grabbed Ryan Zimmerman as a Free Agent early in the season. Zimmerman had a career best year after disappointing ones in 2014-16. I also grabbed Trevor Bauer as a Free Agent for about the last 6 weeks of the season. During those 6 weeks he W5-L1 with an ERA of 3.19.

Amazon HQ2 #2

State and local governments surely want HQ2 for an expanded tax base and economic prosperity. Many are willing to give tax breaks, other subsidies and/or privileges to Amazon to get what they want. How much they give in tax breaks and subsidies, or spend on more infrastructure, may make an overall good deal or bad deal financially speaking for existing residents. More often than not politicians will be more generous to Amazon or another company since they are spending other people's money, not their own.

See The Math Won't Add Up For Winner In Amazon HQ2 Contest by Jeffrey Dorfman at Forbes for more about this. An article in today's Cleveland Plain-Dealer about HQ2 is titled Like love-sick puppies, cities woo Amazon. The article begins with 52 cities that are the author's top 52 candidates. She narrows the candidates in stages and finally down to one. That is Denver because it has the space and "willingness to pay to play." Such willingness is to provide tax breaks and other subsidies and/or privileges.

Often the state or local government incurs debt in its effort to attract something like HQ2. The debt and interest thereon add to the burden of taxpayers.

Some locals may get jobs or higher pay at Amazon. Their net benefit will be high. Others may benefit indirectly such as increased revenue to local businesses. Of course, there will the nuisances of more traffic, higher real estate taxes for schools or other infrastructure, etc. Some folks, e.g. retired people on fixed incomes, may receive little or no benefits, or net disadvantage, from HQ2.

Amazon HQ2 #1

Amazon is looking to have a second headquarters (HQ2). It is expected to be a $5 billion investment and offer up to 50,000 jobs. The folks in many cities would like it to be in their city. In choosing the location for HQ2, Amazon has a preference for:
-Metropolitan areas with more than one million people
-A stable and business-friendly environment
-Urban or suburban locations with the potential to attract and retain strong technical talent
-Communities that think big and creatively when considering locations and real estate options

HQ2 could be, but does not have to be:
-An urban or downtown campus
-A similar layout to Amazon’s Seattle campus
-A development-prepped site (link).

That is very sketchy. But several websites have given opinions about the leading candidates. According to BloombergView, there are six possible cities that are most likely to become the home of HQ2: Toronto, Boston, Washington, Atlanta, Dallas and Denver. Along with some candidates, this one shows a neat table of data for different criteria, such as tech talent rank and office price per square foot.

My metro area Cleveland is not a leading contender, but its Plain-Dealer on Sep 24 had an interesting article about some of the considerations that Amazon will face at some time. Cleveland's airport at present doesn't have the kind of capacity that could handle a big increase in flights and number of passengers.

Wherever HQ2 goes it will likely boost housing prices.

There is the issue of state and local governments providing incentives, especially tax breaks, to Amazon for locating HQ2 in their state or local area. Amazon has been awarded more than $1 billion in state and local subsidies since 2000, according to estimates by watchdog Good Jobs First.

My next post will consider the pluses and minuses of having HQ2 nearby at a more individual level.

Burns & Novick's The Vietnam War #3

Episodes 8-10 aired and covered events from April, 1969 on. The series is now complete. All episodes are now online here. The film was very well done. I enjoyed it a lot, even though it deeply saddened me a few times. Thank you, Ken Burns, Lynn Novick, and many others involved.

Episode 8 topics include:

-President Nixon starts withdrawing US troops but escalates bombing

-North Vietnam's treatment of POW and South Vietnamese

-Woodstock

-Hispanics in US Army

-Fragging by US soldiers

-Ho Chi Minh dies and his successor Le Duan repeats his mission -- unification of Vietnam under one party rule by the Communist Party

-Start of lottery for draft

-Weathermen violence, more protesting

-North Vietnam leaders portray US as nothing but cruel invaders

-My Lai incident hits the media

-Antiwar protests increase, plight of vets

-Negotiations in Paris 

-US troops enter Cambodia, which reignites antiwar movement

-Kent State incident, followed by more campus protests

-Post traumatic stress disorder.

Episode 9, May 1970-March 1973, topics include:

-Treatment of vets after they come home from Vietnam

-Trial of Lt. Calley and others for My Lai

-North Vietnamese coerce prisoners of war to make antiwar statements and call USA a criminal nation

-Vietnam vets against the war, John Kerry testifies before Congress

-May Day tribe, Rennie Davis

-Pentagon Papers, which revealed US gov't leaders knew South Vietnamese were very weak and how strong the enemy was. 

-Documents stolen by Daniel Ellsberg and leaked to press

-Nixon formed "plumbers" to get info on Ellsberg and his co-operatives

-Use of defoliage Agent Orange 

-Rigged election in South Vietnam

-Nixon's great concern about war with the upcoming 1972 election

-Negotiations between US and North Vietnam, US withdrawal and POWs

-One POW, Dr. Kushner,  critical of Kerry testimony

-Dr. Kushner's wife had exceptional views, which North Vietnamese expolited

-1972 invasion by North Vietnam supported by USSR, China

-ARVN collapsing, US resumes bombing, which was very successful

-Huge loss of other Vietnamese lives didn't matter to North Vietnamese leaders

-Nixon orders land mines in water around Hanoi to halt incoming supplies. USSR protested but did nothing.  

-Famous photo of naked South Vietnamese girl  running after bombing

-Wife of POW Kushner speaks at 1972 DNC, supports and nominates McGovern.

-McGovern lied about intervening in peace negotiaions 

-Watergate breakin

-Jane Fonda in Hanoi denouncing POWs for war crimes and USA for aggression and atrocities

-1972 Republican National Convention. Nixon wins reelection

Episode 10
-POWs invited to White House.
-March 1973 last American troops left Vietnam, except a few Marines to guard the American embassy. Brutal civil war between North and South resumed.
-John Dean testifies about Watergate breakin.
-Russia and China more reliable allies to North Vietnam. South Vietnam too poor to alone withstand North Vietnam takeover. ARVN soldiers abandoned their duties. President Thieu resigned and fled country.
-Many South Vietnamese tried to escape Vietnam, expecting the worse from the North.
-North Vietnam established re-education camps.
-China invades North Vietnam.
-Post-traumatic stress disorder
-Vietnam Memorial. Many liked but one vet calls it a black scar.
-In 1985 a USA vet visits Vietnam. Economy regaining prosperity and people welcomed him. USA wanted accounting of POWs/MIAs and Vietnam refused. They relinquished in 1994 and USA lifted embargo.
-Another vet's return trip.
-What became of people interviewed for the film. 

Burns & Novick's The Vietnam War #2

Episodes 6-7 covered the events of 1968 (an exception noted below). What a year! The Tet Offensive starting January 30, the mini-Tet offensive in May, North Vietnam's massacre of South Vietnamese in Hue, Martin Luther King's assassination, Bobby Kennedy's assassination, the Democratic National Convention in Chicago with the attending riots and violence, Nixon winning the presidential election, attempted peace talks including arguing about tables.

Mostly news to me was the extent of North Vietnam propaganda and lies to Vietnamese people, and the cruel treatment of them, hordes of women included, sending them off to battle.

The testimony of a Japanese-American U.S. Army officer in Episode 7 was very powerful.

Also in Episode 7 was a hilarious comment about General Creighton Abrams, who took over command of U.S. operations in the Vietnam War in 1968 (after General Westmoreland). Abrams was a "soldier's soldier", and "the kind of guy who could inspire aggression in a begonia."

The My Lai Massacre occurred in 1968 but was not included. There is a brief mention of it in the summary for Episode 8, covering April 1969-May 1970, which airs tonight. I suppose the film makers put it there because it didn't hit the news until about 18 months after it happened.

Burns & Novick's The Vietnam War #1

We have been watching the film series, The Vietnam War, Episodes 1-5 the latest 5 days, Sun-Thu. There will be 5 more episodes Sun-Thu next week. They can be viewed on PBS's website shortly after they are aired on television. The whole series is 18 hours.
http://www.pbs.org/kenburns/the-vietnam-war/home/

I didn't care much for Episode 1, maybe because of the time span covered. But 2-5 have been excellent. I learned quite a bit from them, especially the USA inside politics the press didn't report at the time. LBJ was an awful human being. Yet he was funny with the colorful Texan language and idioms he used. I found some scenes unpleasant, even gruesome. I am amazed at some of the scenes captured by video cameras -- how somebody managed to be filming in those particular circumstances and Burns et al got and used their film. Episode 5's time frame ends just before the 1968 Tet Offensive. Having been there during that peak period of the war, the next episodes will be interesting.

Back in the USA, a coincidence occurred without my being aware of it at the time. I visited some friends in St. Louis about 2 weeks ago. I was headed home at the St. Louis airport, walking from the central part to the gate where my flight was to be. Walking toward me was Ken Burns. I didn't do anything to show that I recognized him. I didn't know then about the film series. If I had known, I probably would have said something to him and that I was a Vietnam vet.

Infinitesimal #4

A intellectual war involving math and politics also occurred between Thomas Hobbes and John Willis. Near the end of the English Civil War (1642-1651) Hobbes wrote Leviathan. In it Hobbes argued for a social contract and rule by an absolute sovereign. He wrote that civil war and a brutal state of nature ("the war of all against all") could only be avoided by strong, undivided government.

Hobbes also was a geometer of some repute. Similar to the Jesuits, he believed that the answer to uncertaity and chaos was absolute certainty and eternal order. They believed the key to both was Euclidean geometry. He set about trying to "square the circle" and solve two other long-standing geometry problems. "Square the circle", or "quadrature the circle," means construct a square with area exactly equal to the area of a given circle. (It can be done with great, but not perfect, precision.) Under the traditional restrictions of using only a compass and straight edge, this had been proven impossible. Hobbes tried anyway. Mathematician John Willis was well prepared to discredit any solution Hobbes proposed. Willis' political attitudes also reflected the chaotic years in England, but he believed in a state that would allow for a plurality of views and wide scope for dissent. Willis also sided with those who supported the use of infinitesimals.

Hobbes was also a sharp critic of the mathematical works of Willis. For Hobbes the infinitely small was an unwelcome intruder in mathematics. In contrast Willis considered practically all the features of the infinitely small to be clear advantages. His math was for investigating the world as it is. The world could be a little mysterious, unexplored, and ambiguous, but it invited new investigation and new discovery (p. 287).

Infinitesimal #3

For centuries before the Reformation the Roman Catholic Church had reigned supreme in western Europe. Empires rose and fell. There had been invasions and occupations, heresies and plagues, but the Church had survived and thrived. The Church oversaw the lives of Europeans and gave order, meaning and purpose to their existence, and ruled on everything from the date of Easter to the motion of Earth and much else (p. 24). The Reformation was a challenge to all that.

The Jesuits, formed in 1540, were not much interested in mathematics in their first few decades. The founder, St. Ignatius, had little interest in mathematics. But as they built their education system, they became committed to Euclidean geometry. "It was the core of their teaching and the foundation of their mathematical practice. ... [T]he whole point of studying and teaching mathematics was that it demonstrated how universal truth imposed itself upon the world -- rationally, hierarchically, and inescapably. Ideally, the Jesuits believed, the truths of religion would be imposed on the world just like geometrical theorems, leaving no room for avoidance or denial by Protestants or other heretics and leading to the ultimate triumph of the Church. For the Jesuits, mathematics must be studied according to the principles and procedures of Euclid, or it should not be studied at all. A mathematics that ran counter to these practices not only was useless to their purposes, but it would challenge their unconquerable faith that truth, handed down through the hierarchy of the universal catholic Church, would inevitably prevail" (p. 74). Infinitesimals are not part of Euclid's Elements.

"The Jesuits valued mathematics for the strict rational order it imposed on an unruly universe. Mathematics, particularly Euclidean, represented the triumph of mind over matter and reason over the untamed material world, and reflected the Jesuit ideal not only in mathematics but also in religious and even political matters" (p. 91).

"Euclidean geometry was the embodiment of order. Its demonstrations began with the universal self-evident assumptions, and then proceed step by logical step to describe fixed and necessary relations between geometrical objects: the sum of the angles in a triangle is always equal to two right angles ... These relations are absolute, and cannot be denied by any rational being" (p. 119). A group of five Jesuits, the Rectors, had a strong control over what was taught, and it issued prohibitions on the teaching and promotion of infinitesimals (p. 122).

Cavalieri's and Galileo's ideas ran counter to that. They held that lines were comprised of indivisible points, planes of indivisible lines, and solids of indivisible planes. Thus these geometrical objects  were little different from the material objects we see around us (p. 91). Instead of mathematical reason imposing order on the physical world, pure mathematical objects are created in the image of physical ones. They wanted to study the world and find the order within. They were willing to accept some ambiguity and even paradox as long as it led to a deeper understanding (p. 177).

In Discourses (or Two New Sciences) Galileo made use of Aristotle's wheel paradox (link) to arrive "at a radical and paradoxical conclusion: a continuous line is composed of an infinite number of indivisible points separated by an infinite number of minuscule empty spaces. This supported both his theory of the structure of matter and his view that material objects are held together by the vacuum that pervades them" (p. 89-91). How Galileo thought about the wheel paradox is described here.

Infinitesimal #2

What are infinitesimals? That term was coined around 1670. A related term is indivisibles.  The author of Infinitesimal says: "To understand why the struggle over indivisibles became so critical, we need to take a close look at the concept itself, which appears deceptively simple but is in fact deeply problematic. In its simplest form the doctrine states that every line is composed of a string of points, or "indivisibles," which are the line's building blocks, and which cannot themselves be divided" (p. 8-9).

Some mathematicians, especially Cavalieri, held that a line is composed of an "infinite" number of points, a plane is composed of an "infinite" number of lines laid parallel and a solid is composed of an "infinite" number of planes laid parallel. Of course, for any polygon, sets of parallel lines can be drawn in different directions, e.g. vertical or horizontal or diagonal, which gives a different number of lines.

Infinitesimal mentions that the math symbol used for infinity, ∞, was invented by John Wallis (who has a prominent role in the book). Wikipedia confirms this. Wallis used 1/∞ for an infinitesimal.

One conundrum is how many indivisibles (or points) there are in a given line and how small they are. Assume a given line has a huge, yet finite, number, we can call a gazillion. That suggests each indivisible is 1/gazillion in size. Problems start arising when considering other lines of different length. A "deep" problem -- discovered by the Greeks -- is that some lines can not be subdivided into an integer number of uniform-sized units, no matter how small they are. For example, the square root of two length units (e.g. inches) cannot be converted to an integer number of anything, because the square root of two is an irrational number. Ditto for pi, the circumference of a circle with a diameter of 1 length unit, and Euler's number e, the base base of natural logarithms.

A related topic is the continuum. The usual meaning of continuous is “unbroken” or “uninterrupted.” Thus a continuous entity—a continuum—has no “gaps.” Aristotle addressed it in book 6 of his Physics. He concluded that the concept of infinitesimals was erroneous, and that continuous magnitudes can be divided ad infinitum (p. 10). The Jesuit Benito Pereia proposed the thesis that a line is composed of separate points and presented all the arguments in its favor by others. He then demolished them one by one, and concluded, like Aristotle, that the continuum is infinitely divisible, and not composed of  indivisibles (p. 121). The Jesuits thought Cavalieri's were untenable.

The Epilogue of Infinitesimal describes how the use of "infinitesimals" later grew to have a prominent part of mathematics. I believe it would have been improved if it explained the concept of a limit as used in math, such as in calculus. Said concept was developed in the 19th century. It involves, but is not identical to, "infinitesimals" as described in the book. The similarity is stronger in integral calculus.

A much longer history of infinitesimals and related topics is here. The historical period the book is mainly about is a very small part of it.

Infinitesimal #1

I read the book Infinitesimal: How A Dangerous Mathematical Theory Shaped The Modern World. In mathematics, infinitesimals are things so small that there is no way to measure them. I thought the history in Infinitesimal – both political-religious and mathematics from about 1500 to 1675 – was very interesting. I believe the author makes the tie between them stronger than what they actually were, but there were parallel ideas - parties opposing one another in two very different realms.

The Society of Jesus, more commonly called the Jesuits, has a prominent role. Before Martin Luther initiated the Protestant Reformation, the Catholic Church was the dominant power in society. Kings and their lower ranking brethren depended on approval by the Catholic clergy. The anti-Reformists believed that the Reformation would bring about disorder and war. The Jesuits became the leading defenders of Catholicism. In large part their success was due to their building of educational institutions.

A leading Jesuit, Christopher Clavius, was almost single-handedly responsible for the adoption of a rigorous mathematics curriculum – Euclidean based -- in an age where mathematics was often ridiculed by philosophers and religious authorities. While Clavius clearly opposed the heliocentric model of Copernicus, it was mainly other Jesuits who opposed infinitesimals.

A leading proponent of infinitesimals was mathematician Bonaventura Cavalieri. He was a Jesuat, which is different from a Jesuit.

Except as noted below, the author summarizes the book's thesis very well as follows.

"Why did the best minds of the early modern world fight so fiercely over the infinitely small? The reason was that much more was at stake than an obscure mathematical concept. The fight was over the face of the modern world. Two camps confronted each other over the infinitesmal. On the one side were ranged the forces of heirarchy and order – Jesuits, Hobbesians, French royal courtiers, and High Chuch Anglicans. They believed in a unified and fixed order in the world, both natural and human, and were fiercely opposed to infinitesmals. On the other side were comparative "liberalizers" such as Galileo, [John] Wallis, and the Newtonians. They believed in a more pluralistic and flexible order, one that might accommodate a range of views and diverse centers of power, and championed infinitesmals and their use in mathematics. The lines were drawn, and a victory for one side or the other would leave its imprint on the world for centuries to come" (p. 8).

Most of the history presented in the book happened before Isaac Newton published his revolutionary Principia  in 1687, so Cavalieri instead of "the Newtonians" arguably fits better.

The Cost of Rights

In my August 27 post I said Passions and Constraint was unclear about where the author stood on controversial rights and how far government can go to reach its goals. I said maybe his answer is in another book, The Cost of Rights: Why Liberty Depends on Taxes, co-authored with Cass Sunstein. It wasn't there.

The Introduction holds that there are two kinds of rights – moral rights and legal rights. It has little to say about moral rights and says they are "toothless by definition." There is nothing about natural rights along the lines of John Locke. In contrast legal rights have "teeth." They are defined and enforced by governments. The authors claim that legally enforcing rights costs money, but this is "ignored by almost everyone." Really? Is almost everyone ignorant of total government spending is now about 36% of GDP, was 41% in 2009, and 40% in 2010-11? Is almost everyone ignorant about taxes?

The authors continually confound rights with enforcement of rights.

Chapter 1 claims that all rights are positive, and that the common distinction between negative rights and positive rights is inadequate because “all legally enforced rights are necessarily positive rights.” Usually negative rights are meant to prohibit what others can do to you. Positive rights are meant to require actions by others on your behalf. They portray the views of others correctly: “Negative rights ban and exclude government; positive ones invite and demand government.” “Negative rights protect liberty; positive rights typically promote equality.” However, these and others are only  “storybook distinctions” in the authors’ opinion (p. 41). They belittle the difference between rights as limiting the actions of government and limiting the actions between private persons. Co-author Holmes in Passions and Constraint wrote about factions and the Founding Fathers’ great concern about the encroachment of government on the rights of citizen. The book says nothing about Founding Fathers, Madison, or Jefferson.

As I expected, the authors laud welfare rights as they construe them. The Cost of Rights reads like a puff piece for Progressivism. I was not surprised to find more 1-star reviews than 5-star reviews on Amazon.

On Peikoff's ‘Fact and Value’

I wrote the following 28 years ago. At that time I gave copies to a few people, but did not publish it. The forthcoming book referred to in the last paragraph is Objectivism: The Philosophy of Ayn Rand. 'Fact and Value' had the lead role in the Objectivist schism of 1989. Most other comments about the schism have been about whether Objectivism is closed or open, or about sanctioning. I considered that a mere "turf war" then, and still do.

ON PEIKOFF’S ‘FACT AND VALUE’

by Merlin Jetton        July 27, 1989

The series of articles by Peter Schwartz, David Kelley, and Leonard Peikoff was both interesting and disappointing to read. It amazes me that such a heated exchange could arise from the mere event of David Kelley making a speech.

I have come to expect such behavior from Schwartz. He has a history of making straw men and burning them. He sometimes makes bizarre judgments. He did that in this instance, operating under the principle that one should judge a speech by its audience and its content is irrelevant. But to me Peikoff’s article ‘Fact and Value’ was the most disturbing part of the exchange. It was not just that he put words in Kelley’s mouth and was unfair in judging him. There are probably many people who would agree with that. There will probably be much said and written about it, so I shall, for the most part, leave that subject for others. The most disturbing part of Mr. Peikoff’s article was the illogical statements. He is the most prominent living spokesman for Objectivism, a philosophy which is committed to reason and logic. As such, I would expect from him a more acute attention to logic.

I considered calling this article “The All or Nothing Syndrome”, which is an affliction of Mr. Peikoff’s. It refers to the tendency to obliterate the distinction between “some” and “all” (or between “none” and “some”), which is an extremely important one in logic. There are several instances of it in Peikoff’s article.

He says, “In my judgment, Kelley’s paper is a repudiation of the fundamental principles of Objectivism.” Kelley and Peikoff clearly have different views about the relationship between fact and value. But did Kelley repudiate “A is A”? Does disagreement on just one principle imply disagreement on all of them?

He argues for the principle: Every “is” implies an “ought”. Note that the first word is “every”, not “some”. The word “every” makes it an overstatement. It baffles me to hear that any trivial, irrelevant fact implies an “ought.” There is the always applicable one that I ought to regard it as a fact, but that is far from the principle’s intended meaning.

He claims that the good is a species of the true and that evil is a species of the false. This is an apparently profound idea, so I did not take it lightly. Consider the logic of this statement. It says if X has the attribute “good”, then X necessarily also has the attribute “true”, and that if X has the attribute “evil”, then X necessarily also has the attribute “false”. I have a few comments:

Some X being both good and true does not imply that any X which is good is also true; similarly for both evil and false.

Hitler was evil. Would Peikoff also say he was “false”? If so, that is bizarre.

It implies there is no such thing as an evil truth. Is the fact that Hitler and the Nazis murdered millions of people not an evil truth? And Peikoff later gives examples of bad truths, such as too much exposure to the sun is bad and getting caught in a tidal wave is bad, which are inconsistent with the claim.

Similarly, it implies there is no such thing as a good falsehood, for which a counterexample easily comes to mind. Suppose A tells a lie to B to protect C, where B has malicious intent and C is innocent of wrongdoing.

It is muddled. There are truths about what is good for us and about what is bad for us. It is good for us to know these truths. There are falsehoods about what is good for us and what is bad for us. It may be or is (the right verb depends on the case) bad for us if we believe these falsehoods. This makes sense, but it is far from what he wrote.

I checked Ayn Rand’s writing for an idea having any resemblance to it and found nothing. And Peikoff exhorts the reader to not rewrite Objectivism!

He correctly paraphrases Kelley as saying: Truth and falsity apply primarily to ideas, and good and evil primarily to actions. Note that Kelley uses the word “primarily”, not “exclusively” or “only”. Yet Peikoff launches an extended polemic as if Kelley had said one of the latter. Admittedly Kelley gave a couple of poor examples in discussing the subject. Kelley also failed to make it clear that no dichotomy can be drawn between a man’s ideas and his actions. But did Peikoff deliberately misrepresent Kelley to set up his polemic? Or did he fail to note the logical import of the word “primarily” means there are exceptions? Either way, it does not speak well for Mr. Peikoff.

He devotes a substantial part of his article to his ideas about the connection between fact and value, between cognition and evaluation. He summarizes his view in a single principle -- cognition implies evaluation -- which he says is the main point of his article. In my opinion, when he was writing this, he was so eager to railroad Kelley that he let his emotions interfere with his reasoning and clear communication. (Does this mean that his evaluation implied his cognition?) This is a topic on which I have not spent sufficient time to articulate well my own ideas, but I shall not let that stop me from making a few comments:

I found it difficult understanding clearly what he said and I attribute it to his lack of clarification of key concepts. For example, “evaluation” may mean a judgment about true/false or about good/bad. Ayn Rand more than once said that to properly evaluate what someone says or writes, look for the definitions. Well, I found none in Peikoff’s exposition.

I will presume that he meant by his principle something like this: one should properly understand the phenomena or idea (Objectivist epistemology), then decide whether it is good or bad based on one’s understanding (and act accordingly). If this is even close, then I believe he made a poor choice of words by using “imply”. This is a term of logic and generally means the consequence follows necessarily from the premise(s). But cognition and evaluation are volitional, so evaluation is not a necessary, automatic consequence of cognition. Cognition and evaluation can only be connected logically by thinking, which is volitional.

Mr. Peikoff said “every cognition implies an evaluation”, using “evaluation” in the sense of good/bad. If he really believes that, then I say his belief is seriously flawed. It would be a gross overstatement. If the instance of cognition were one of learning a new subject or idea and the knowledge gained were not instantaneously integrated, it would be a gross mistake to make such an evaluation. Facing reality and making good judgments also requires proper recognition of one’s state of knowledge.

Now imagine a person who believes that every cognition demands moral evaluation and who is afflicted with the all-or-nothing syndrome. That person would be overzealous to pass moral judgment and would do so on a fragment of evidence, evading any evidence which would indicate a different judgment.

Mr. Peikoff may have impressed a few readers by pointing out the contrapositive of his principle, i.e. that non-evaluation implies non-cognition, but I saw it as a misuse of logic. One of my previous comments was about the use of “imply” in this context. Another pointed out an obvious counterexample to ‘all cognition implies evaluation’. His contrapositive applied to that counterexample is: If the person did not pass moral judgment, then the person learned nothing!

Mr. Peikoff tries to posit a much more extensive connection between true/false and good/evil, between “is” and “ought”, and between fact and value than can be reasonably substantiated. It was both innovative and revolutionary for Ayn Rand to hold that there was such a connection, considering that Hume and many later philosophers held that there was absolutely no connection. However, the negation of “none” is “some”, not “all”.

Peikoff says “Kelley’s viewpoint is an explicit defense of a dichotomy between fact and value, or between cognition and evaluation, and thus between mind and body.” Here is misrepresentation and a non sequitor in the same sentence! Kelley defended a difference or distinction between fact and value, but hardly a dichotomy. Even if Kelley had defended a dichotomy between cognition and evaluation, it would be a dichotomy between two functions of mind, which clearly would not imply a dichotomy between mind and body.

Mr. Peikoff says, “a proper philosophy is an integrated whole, any change in any element of which would destroy the entire system.” I have two comments:

It implies no one philosophical principle is stronger than any other. In other words, every philosophical principle is equally important. I find this notion totally contrary to Peikoff’s often repeated claim that knowledge is hierarchical.

It seems to say you either have it all right or none of it right. It is another instance of the all-or-nothing syndrome.

He did not discuss the Libertarians like Schwartz did, but he did say he completely agreed with Schwartz, who is also much afflicted with the all-or-nothing syndrome. An example is: Some Libertarians are anarchist-subjectivists. They are morally reprehensible. Therefore, any Libertarian is morally reprehensible.

Mr. Peikoff’s all-or-nothing syndrome appears again in his closing paragraphs. He tells readers, in effect, to agree with him totally or disassociate themselves with Objectivism. This article makes me wonder how Objectivism will flourish with him carrying the torch. Logical flaws and the all-or-nothing syndrome make poor impressions. The all-or-nothing syndrome may come in handy in polemics and politics, but it is anti-logic and anti-reason. I believe it is inappropriate for anyone who considers himself/herself to be objective.

I have made some strong criticisms of Mr. Peikoff here, so it seems appropriate that my closing be tolerant, and I shall not pass judgment on him solely on the basis of ‘Fact and Value’ and be guilty of the all-or-nothing syndrome. I did agree with parts of his description of Objectivism. I have appreciated his past lectures. I shall probably be tolerant enough to buy his forthcoming book.

Passions and Constraint (book) #2

In short, the author of Passions and Constraint champions the need of government to recognize rights, and keep the peace (constrain violence). However, he is unclear on where he stands on controversial rights and how far government can go to reach its goals. Maybe his answer is in another book, The Cost of Rights: Why Liberty Depends on Taxes, co-authored with Cass Sunstein.

He cites Friedrich Hayek and Milton Friedman as too much on the anti-tyranny side. He says Hayek's negative constitutionalism is nothing but a device for limiting the power of government (p. 135). He says Friedman treated welfare measures as profoundly illiberal -- they seek through government to force people to act against their own immediate interests in order to promote a supposedly general interest.

However, neither Hayek nor Friedman were against assisting the poor or helpless as much as Holmes says. With regard to a safety net, Hayek advocated "some provision for those threatened by the extremes of indigence or starvation, be if only in the interest of those who require protection against acts of desperation on the part of the needy." He also wrote "there is no reason why ... the state should not help to organize a comprehensive system of social insurance" (link). Friedman at one time proposed a negative income tax (link).

Holmes portrays welfare to the indigent as payment for refraining from crimes against others. He asks a challenging question: "If criminals who are apprehended are given food and shelter, then how, for safety's sake, can the noncriminal poor be guaranteed any less?" (p. 253). In other word, it's a provision for safety.

Passions and Constraint (book) #1

Passions and Constraint: On the Theory of Liberal Democracy is a book on political theory by Stephen Holmes. I had not heard of the author and there are no reviews on Amazon, so I decided to try it. The publisher's description and the book's sections are here.

It says that classical liberals such as Locke, Montesquieu, Hume, Adam Smith, and J. S. Mill did not regard humans as wholly rational egoists, and that human motives are commonly passion, custom and impulse. These liberal theorists recognized such motives in their political theories. They feared tyranny because of the latitude it gives to unconstrained passions. They did not identify freedom with unconstrained capacity. Passions often result in factionalism. Factionalism was a great worry of James Madison, as The Federalist Papers shows.

"As our list of representative liberal theorists suggests, liberalism should not be considered principally an antistatist philosophy of limited government. The fact is, liberals were as wary of anarchy as of tyranny. They advocated not merely freedom from government, but also order through government. Security is impossible without a state monopoly of the legitimate use of violence. ... [S]overeign power, organized on liberal lines, is an indispensable instrument of freedom" (p. 241).

Markets do not provide everything people need. The vital public goods of law and order and "stable political frontiers" (it wasn't clear what that term means) are not found there. The absence of these leads to factionalism and even anarchy, rule by mobs and widespread rights violations. The liberal-democratic solution is constitutionalism. It is meant to solve the problems of tyranny and anarchy within a single and coherent system of rules determined by deliberation. It is implemented by elections and by separation of power with checks and balances within government.

The USA's Founding Fathers aimed not only to prevent tyranny, but also to create an energetic government with the capacity to govern, rule effectively and "promote the general welfare." They devised the US Constitution after a period of frustration with a weak central government under the Articles of Confederation.

One chapter is about "gag rules," a term not commonly used. It means rules that "exclude certain emotionally charged and rationally irresolvable issues from the public agenda."

Executive Pay and Taxes

This article about the subject was written 5 years ago, but it remains relevant. All quotes that follow are from it.

The Internal Revenue Code was changed about 24 years ago while Bill Clinton was President to change the taxation of executive pay. Section 162(m), which applies to publicly traded corporations, limits the corporation's deduction for executive compensation to $1 million per covered individual, with an exception for "qualified performance-based compensation." That means things like stock options and stock appreciation rights. See the Components table at the above linked page.

After a few years Section 162(m) was criticized for its unintended consequences and encouraging the proliferation of stock options. "[B]oth academic and practitioner research has shown a dramatic increase in executive compensation, with little evidence that it is more closely tied to performance than before. ...   Seemingly tax-sophisticated corporations seem not to care about the restrictions on deductions and continue to pay nondeductible executive salaries." ... "For all that Section 162(m) is intended to limit excessive executive compensation, it is the shareholders and the U.S. Treasury who have suffered financial losses." It has "more holes than Swiss cheese." 

The deduction limit only applies to compensation to the CEO and the next three highest paid individuals. Bonuses, which would seem to offer the most direct way of rewarding performance, are not considered pay for performance under Section 162(m) and are thus subject to the limit. What sort of idea is that?

Executive pay was down significantly in 2008-10, but that was the Great Recession. Lower stock prices lead to both fewer options being exercised and the gain from exercising them less. Suppose an executive has an option with a strike/exercise price of $70. With the stock at $100 per share, the option gain is $30 per share. With the stock at $80 per share, the gain is $10 per share. A 20% lower stock price translates to a 66.67% lower gain on the option.

"The belief of this author is that executive compensation will recover in the near future, exceeding levels seen in 2007. Some of that increase will be in the form of deductible performance-based compensation, but the level of non-performance-based compensation will increase as well." His prediction was good. Stock prices have risen dramatically since 2012. The value of options rose more. Executive pay has probably likewise risen. (Witness the amount of talk about income inequality and income of the top 1%.)

See the graph of federal government revenues here. There is a strong correlation between stock prices and federal income tax revenues. Higher stock prices lead to more taxable income from realized capital gains and stock option exercises. (Bill Clinton is often given credit for reducing the federal deficit, but I believe most of the credit goes to the stock market.) I suspect the correlation is much stronger than the (negative) correlation between unemployment rates and federal income tax revenues. Media folks often assume the latter correlation is strong.

Presidential Tweets

Barack Obama tweeted about the incident in Charlottesville, VA. The New York Times reported it as the Most-Liked Tweet Ever. What did he say? Obama: "No one is born hating another person because of the color of his skin or his background or his religion..."

Duh! No one is born hating anybody, period. That's typical Obama talk -- flowery, shallow, pablum. Also, he took it from Nelson Mandela's autobiography. I'm confident Obama meant it about alt-right people. Would he say it as well about Antifa people or Islamic terrorists?

The Times' motto is: "All the news that's fit to print."  ❗😉

In order to not be accused of bias (hopefully), I will comment on some tweets by President Trump, too. Another New York Times story concerns his tweets about Amazon's paying taxes. The Times is far more correct about this than the President's falsehoods and half-truths. President Trump probably feels the need to take pot shots at Amazon because Amazon's founder-chairman-CEO Jeff Bezos owns the Washington Post (since 2013), a nemesis of Trump.

Ballot Issue on Drug Prices

On the ballot in November in Ohio will be this issue. The linked page defines the issue and what groups are urging yes and no votes. The Yes on Issue 2 group and No on Issue 2 group have been sponsoring many televisions ads urging viewers to vote for their side.

One of the ads for the No on Issue 2 group is deceptive. If you click on the ‘Who’s Behind the Ballot Issue’ and ‘Who’s Paying for the Yes Campaign’ on this webpage, it describes Yes supporter and bill author Michael Weinstein. He is the president of a non-profit that buys and sells drugs mainly to AIDS patients, but the ad says he is the CEO and omits saying non-profit. It says his company gets 80% of its revenues from selling drugs, AIDS not mentioned. It can give the impression that his organization is a high-priced drug manufacturer. 

I am not defending Weinstein. He has no qualms about using the strong arm of government to impose price controls on drug manufacturers. He pushed the same ballot issue in California, where it lost. His foundation, which is tax-exempt, operates pharmacies in competition with drug stores that are not tax-exempt. 80% of its revenues are from the pharmacies.  In 2015 revenues minus expenses, i.e. profit, was $55 million (link). He has brought anti-trust and other lawsuits against drug manufacturers. The No side claims his foundation uses funds for political purposes unrelated to the foundation's purposes. His foundation has provided near all the monetary support for the Yes side.

The spokesman on one of the ads by the Yes on Issue 2 group is Bernie Sanders. It shows several people who allegedly can’t afford to pay for their life-saving drugs. He describes drug manufacturers as only greedy (like Weinstein does) and gives them no credit for making life-saving drugs.

I’ve seen different ads by the No on Issue 2 group (website). Spokespersons include veterans, nurses, doctors, and pharmacists. One of the supporting groups is the Ohio Pharmacists Association (OPA). This webpage states their view of the issue. It shows how complicated the market for prescription drugs is, with so many parties involved, reimbursements, and discounts. The OPA mentions that passage of Issue 2 would adversely affect reimbursement amounts to pharmacies, but I don’t know how that works.

On first seeing deceit in some No on Issue 2 ads, I was repelled more than attracted to that side. Then I saw the ad from the other side with Bernie Sanders, which I found more deceptive and repulsive. His message is that passing Issue 2 will “take on the greed of the drug companies and significantly lower the cost of prescription drugs” (link) for the companies' "victims." Neither pharmacies nor insurers (who pay for most drugs) are mentioned. He is an expert demagogue.

The guy is a simple-minded wanna-be-dictator who shows no understanding of economics and markets. He sees a "pie," decides how much he feels government is entitled to take or take control in order to help “the victims.” He believes the pie will always be there, no smaller than before. He probably has no idea why or how the pie exists other than there are drug manufacturers. Like Weinstein, he has no qualms about using the strong arm of government to impose price controls on drug manufacturers. Of course, he doesn’t say passing Issue 2 will (allegedly) drive prices lower to rich people who buy and use prescription drugs, too. 😉

Such simple-mindedness also overlooks the complexity. The difference between what the ultimate consumer pays and what the drug manufacturer gets are lost in that complexity.* Medicare, Medicaid, whatever other insurance the consumer has, co-pays, deductibles, discounts, distributors, and pharmacy benefit managers are all involved.

On the other side, the No on Issue 2 ads tell people that the consequence of Issue 2 passing will be to raise the price of the drugs generally. However, there is no explanation of why that’s so in terms of markets -- supply and demand and price formation. It doesn't say that government dictating maximum prices too low leads to shortages. (In print the No side does say passing Issue 2 will reduce patients’ access to needed medicines.) Of course, I recognize the time constraint for television ads, and the No on Issue 2 website says more about the economics. 

* This reminded me of a TV ad for Hillary Clinton’s 2016 presidential campaign. Clinton verbally attacked “predatory drug pricing” and said she would crack down on it. Then she introduced a woman who was taking a drug for which there was a big price hike by the manufacturer or distributor. What wasn’t revealed was that most of the cost was being paid by the woman’s insurer. Not only that, she had refused a much cheaper generic substitute. She said she didn’t care what her insurer had to pay. When the deceit was noticed and critics responded, they stopped showing the ad.