Recession and Inflation by president

This data is from St Louis Federal Reserve's "FRED" data.  Numbers are computed annually. 

Nixon1  1 recession 5.8%  peak inflation, 4.7% average, inherited 4.3%

Nixon2 1 recession, 11.1% peak inflation, 8.6% average, inherited 3.3%

Ford    0 recessions, 7.6% peak inflation 7.4% average, inherited 5.7%

Carter    1 recession, 13.5% peak inflation, 9.7% average, inherited 5.7%

Reagan11 recession  10.3% peak inflation, 5.7% average, inherited 13.5 

Reagan2 0 recessions 4.1% peak inflation, 3.3% average inherited 3.5%

Bush    1 recession, 5.4% peak inflation, 4.4% average, inherited 4.0

Clinton1    0 recessions, 2.9% peak inflation, 2.8% average, inherited 3.0%

Clinton2 0 recessions, 3.4% peak inflation, 2.4% average, inherited 2.9%

Bush1    1 recession, 3.4% peak inflation, 2.4% average, inherited 3.8%

Bush2    1 recession, 3.8% peak inflation, 3.3% average, inherited 2.6%

Obama1    0 recessions, 3.1% peak inflation, 1.4% average, inherited 3.8%

Obama2    0 recessions, 1.6% inflation, 1.1% average, inherited 2%

Trump1    1 recession, 2.4% peak inflation, 1.9% average, inherited 1.2%

Biden    0 recessions, 8% peak inflation, 4.9% average, inherited 4.6%

The Nixon, Carter, Reagan inflation was all very directly related to the OPEC crisis:
In October 1973, several Arab countries did a surprise attack on Israel, which, unlike the '67 attack, took a few months for Israel to push back.  Nixon threw his support wholeheartedly behind Israel, and the Arab countries formed an organization they called "the Organization of Petroleum Exporting Countries" and sharply reduced supplies to the US and other countries that had supported Israel.  OPEC continued to blockade oil until well into the 1980s, with the result of 3 recessions and a decade of high inflation.   All US presidents carefully kowtowed to OPEC since then.

 

 

Sustainable Ponzi Schemes

https://en.wikipedia.org/wiki/File:Ponzi1920.jpg Charles Ponzi, 1882-1949 was a swindler who made $millions in the 1920s by promising investors huge  returns if they would send him money to invest.  They did, and early investors did get these huge returns: Ponzi was giving early investors money from later investors.   He didn't invent the swindle that today bears his name, but he was an effective publicist who got caught.  Many people have tried it, both before and after.  Such swindles cannot work over the long term, because eventually you will run out of investors, but they certainly can in the short term.

 Many people have pointed out that US Social Security is such a Ponzi scheme.  Well, yes and no.  If the scheme is set up so that it can never run out of investors, it can run indefinitely, and by doing so, it can generate a lot of value for people in the mean time by using the float wisely.  The stock market, and ultimately, the entire economy are also such schemes.   The trick to success is providing enough of a win that most people agree it's a good idea, while not really hurting anybody in the process.  In other words: truly giving value for money to the investors while not screwing anybody.

 Social Security works because as long as new people keep being born, and retirees eventually die, there is an indefinite supply of new investors to keep up with the growing pool of retirees.  The managers need to keep a positive balance, and to date, they always have.   As I write this, they'll be forced to reduce payments after 2034, but by increasing income a small amount, they'll be able to extend this easily.  Historically, they've mostly done this by increasing the cap on payroll deductions.  It's presently $184,500.  20 years ago, it was $94,200.  CPI over that time grew from 201 to 335, so this is faster than baseline inflation (which would have it at $157K), but not much.

The stock market is also such a "swindle".  Stock shares are ultimately worthless, but because investors have a chance to profit, through dividends, in the success of the underlying company, they'll buy in.  So many people have done this that there's a significant market for companies that do not pay dividends, called "growth stocks", which is entirely supported by speculation in the stock shares themselves.   At present time, the value of these shares (called market capitalization) of the world stock markets is about double GDP for the entire world (called Gross World Product or GWP).    Is this sustainable?  Probably not.  Most billionaires (possibly all) and a lot of millionaires are that wealthy solely because they own stock with that much market capitalization, and for a lot of them, their net worth would be highly negative if they were forced to live on the actual profits of the businesses they own.  This is especially true for businesses like "Private Equity" and "Hedge Funds".     E.g.: Tesla/SpaceX owner Elon Musk owns a $trillion in market cap, but these businesses all together brought in around $8B in profit last year.  And these are companies that are actually producing something.  Elon owns less than 15% of Tesla and 42% of SpaceX, so his actual value is well under $1B.  Hedge funds are even worse:  they produce nothing but the financial return.

 With all this market cap, owners are able to borrow against the asset to buy things, so without actually spending the asset, they are able to buy other things, such as yachts, broadcasting networks, sports teams, etc.  Every time they do this, they dilute the real value of both the shares they own and the things they're buying.   Dilution is very bad for the overall economy, because the people who actually do produce things: the workers, have a smaller and smaller share of the total money supply.  Eventually, there will be a comeuppance, and I don't see it being anything other than very ugly.    Millions will probably die, as died in previous "corrections", such as the English and US civil wars, WWI and II, various revolutions, etc.   

 We need to get this thing in balance.  The Wealth Tax, as proposed by Elizabeth Warren, is one way, but it taxes in a way that's uncontrollable, which can cause unintended harm.   I think income taxes should be very much higher on high incomes (presently capital gains are taxed at less than half what earned income is), and there should be a high tax on borrowing against appreciated assets over some high amount.   (presently it's actually a tax exemption). 

How To End US "Decline"

The Orange Terrorist, in his inauguration speech today, said he will end US decline.  Sorry, Dim Don, you, more than anyone else, represent US decline.  Here are some things that will actually reverse the things your voters have been complaining about

Raise the minimum wage.  Lots of evidence (Kruger and Card, etc), proves that at least for moderate changes, raising the minimum wage helps the economy, and there's essentially no evidence that it hurts, even for substantial raises.

Increase taxes on the rich.  From before the great depression until the 1960s, the top marginal tax rate was above 90% and even after Kennedy's cuts, the top rate was over 70%.   This does not seem to have hurt the US economy at all.  Every single case of a tax cut for the rich supposedly improving the economy can be debunked.  For example, Reagan's 1983 cut caused people (mostly businesses) to change the timing of expenses to optimize for the tax change, but after the dust had settled, the economy returned to the mean it had been on before.   It's also important to realize that the extremely high tax rates were only a marginal rate.  For example, in 1955, a married couple earning over $400K owed 91% of their earnings over $400K to the IRS.  A $400K income in 1955 is equivalent to $4.7M today.  But this is only a marginal rate.  The median family income in 1955 was $4400, and the tax on that was $940.  Our $400K earner was actually only paying about a 70% effective rate.

Laffer and others argue that there is a threshold tax rate beyond which, there is no incentive to invest or expand businesses.  Lots of research has been done on this, and there's no evidence at all of such an effect below about 70% effective tax rate.   It's important to realize that when we had these extremely high tax rates, that all of the people who were paying them were getting huge no-bid contracts from the government.  You don't hear much about Howard Hughes and Henry Kaiser trying to lower tax rates.   You hear a lot about them trying to avoid realizing dividends and gains so they wouldn't get taxed, and making big investments and loans so they could call that an expense.

All income should be taxed at the same rate.  Today, long term capital gains and a few other things are taxed at a much lower rate.  I think the right way to do this is to exempt all income below some level, appropriate for where the person lives, and tax all income above that at the same rate.  The marginal tax rate system was an attempt to do that, but I think it's outlived it's usefulness.    I'm ok with long term gains being adjusted by a CPI correction.  40 years ago, this would have been painful to compute, but nobody does their taxes by hand anymore.  The computer can figure it out.

Effectively ban non-productive profiteering.   The value of the economy is the value of all the goods and services in it.   If it is possible to make money without providing a service, this is a drain on the economy. Examples of this include high-velocity trading, private equity, hedge funds, and several others.  Insurance has become largely a scam, especially health insurance.   Some of these things do provide an actual service, but the drag on the economy far outweighs their Return on Investment.   Countries which have nationalized health care pay less than half what the US does.

I'm pretty sure we could devise a scheme which taxes businesses at a rate inversely proportional to the number of employees.    So a private equity or high speed trading firm employs about 20 people and brings in a $billion a year, they should be taxed at 99%.  If a factory employs 10,000 people and brings in that same $billion, they should be taxed at 10 or 20%.   If a small shop employs 20 people and brings in $250K, it should be taxed at $10% or less.

Tax for-profit churches.  If a church engages in politics, proselytizing or any of a host of other for profit operations, they should lose their tax exempt status.  If a church (or any other organization) sponsors a food bank or other actual charity, they should get an exemption for that, but not for funding the preacher's gold mines in Africa.  A significant fraction of the Orange Terrorists support comes from for-profit churches telling their congregants that opposing him is a threat to our freedom.  The truth is pretty close to the opposite.  Simply taxing them will make a lot of them go away.

Support and encourage unions.  The time that America worked best was the 30 years after WWII.  At that time, about 30% of workers were in a trade union.  Trade unions give workers bargaining power which most workers lack.

Build/Rebuild infrastructure.   This employs a lot of people.  The ROI on infrastructure is extremely high.

Adjust the zoning laws to make sure there's profitable low-income housing and healthy food everywhere.  For example, places like South Lake Union here in Seattle used to be a warren of moderate priced apartments.  The rules need to make sure that the moderate income people who work downtown have a place to live.  Tax the bejezus out of luxury condos, etc., and make it cheap to have low-cost restaurants and other shops.

I'm a fan of transit, but we cannot make people use transit by making the alternative miserable.  Some people cannot ride the bus to work--a repairman, a consultant who works a different place every day, etc.

Separate run-of-the-mill banking from Investment Banking.  Until it was overturned in 1996, the Glass Steagal act gave protections to ordinary banks, called "Savings and Loans", including federally insured deposits.  They also did regular inspections of banks and closed them if they violated certain rules.  This meant that for the period that Glass-Steagall was in effect, S&Ls gave a reliable 5% or so interest and nobody lost everything.  Investment banks wanted the government protection, without the limitations, so they convinced congress to overturn this sensible protection.  11 years later, the economy collapsed. Banking and the building industry are very important.  Nobody was making big profits out of S&Ls unless thy were scammers, but it kept a huge part of the economy healthy.

We need to make it as cheap and healthy as possible to be poor.  Whether this is Universal Basic Income, Housing subsidies, or something else, we can't have poor people starving or homeless.

In the same way, we need to make sure that everyone has a safety net.  Rich people claim that only rich people start businesses.  Historically, this is not true.  The people who start businesses are in a situation where they know that failure doesn't make their family destitute.  Whether that's extended family, government programs or something else is beside the point.  At the present time, this does mean that only rich people can start businesses

Why Large Scale Communism is Impossible

For purposes of this discussion, communism a method of of social and economic organization such that all means of production is controlled by the public.  Socialism is quite different, in that some of the means of production is publicly controlled, but some is controlled by individuals or limited groups.  Laissez faire is a form of society where none of the means of production are controlled by the public.   Capitalism is a means of doing trade, and is at least nominally a part of all of these.

Just as there have been no successful large scale societies that have been Laissez faire, there have been none that have been communist.  The nearest are Castro's Cuba and Mao's China.  Provided that the dictator is benevolent, people can have good lives in them, and if the dictator is willing to share most of his or her power, they can even be successful at some level.  But without a strong leader, there are too many people in a large society that lust for power, that benevolence cannot last long.  All successful communist societies, such as the Kibbutzes of Israel or small communes around the world, have been small enough that the lust for power can be overcome...generally by a leader who is both strong enough and benevolent enough to keep it in check.   Just about all communist groups have a dominant leader--whether life in the commune is good or bad depends almost entirely on that person's benevolence and degree of influence.   I am far from the first to make this point. The earliest I know of is Will Durant, writing about 100 years ago about the then brand new Soviet Union, but I'd be surprised if he was the first.

Laissez-faire is even worse: an excess of Lassez-faire quickly leads to corruption and banditry.  Individual groups attempting to create something useful invariably need to put a very large share of their resources into basic security, and there's nobody building basic infrastructure.  It is fair refer to Laissez-fair as equivalent to Anarchy or a Dark Dark age.

What I'm calling socialism is the only compromise that can work for a group of more than a few hundred individuals or the political lifetime of an individual.  All successful societies, ancient and modern, have some central authority providing security, standards of trade, judiciary, etc.    How much of that is optimal varies with history and psychology.  All we really have to figure it out is trial and error.  When there are market failures, we need a little more government intervention.  But when this happens, there are losers, so we want to minimize this intervention, and where possible, realign things so that the old participants play fairly and productively without losing too much.


There are lots of cases where this was successful: the consent decree that allowed AT&T to retain a strongly regulated monopoly, the USRA that rebuilt the railroads and restored them to profitability during WWI, the breakup of Standard Oil, many, many more. 

The Spectrum

Here's the way I see the present economic spectrum

Communist:
  There hasn't ever been a communist with national political creds in the United States. The nearest is probably the Wobblys (IWW) of the John Reed era or Longshore chief Harry Bridges.  There have been numerous small communes that were somewhat successful over the years, but they are imbeded in the larger culture.  By Communist, I mean that most or all of the means of production is owned and controlled by "the people", meaning the state.  Whether this state is democratic, authoritarian or something else is a separate issue, although the large ones have all been authoritarian.  Significant free enterprise is not allowed although there may be small businesses with government licenses.

Socialist:
 There have been a few socialist politicians with national credibility.  The most important was probably Eugene Debs. Most of the present national people who call themselves socialists really are Democratic Socialists.  By Socialist, I mean that a sizable share of the means of production is owned by the state, but significant free enterprise is allowed although with regulation.  Again, whether the state is democratic, authoritarian or something else is a separate issue.

Democratic Socialist:
  Most successful countries over the last century have been Democratic Socialists.  Major US leadership figures include Franklin Roosevelt, Bernie Sanders, Elizabeth Warren, and arguably, Abraham Lincoln.   By Democratic Socialism, I mean that the majority of the means of production is free enterprise, but a significant amount are operated by the government or at least strongly regulated.  Usually these are those industries that have been in some sort of market failure. The associate government is democratic or republican.

Capitalist:
   Most successful countries have passed through a capitalist phase.  By capitalist, I mean that the vast majority of the means of production is individually owned, there is little regulation, and there are few industries in market failure.  It is inherently an unstable circumstance: businesses will try to grow and dominate markets, and without limits, some will succeed and drive the others out.  It also tends to breed various labor abuses, including chattel slavery, wage slavery, debt slavery.  The capitalist era in the US ended with the rise of  "the guilded age" after the civil war.  Most "businesses" were family farms and most industries were small and isolated enough that there was no monopoly.  Interestingly some of the most successful were substantially sponsored by the government, e.g. the Springfield Armory.

  Those that profited most, and those who see only the opportunity to maximize profit and not the collateral damage of capitalism and the unique circumstances that make it possible are always trying to "revert" to capitalism.  Capitalism is highly transitional and can only thrive while there are literally hundreds of businesses in each market: enough to allow true competition and natural selection.

Oligarchist:
  What happens when a capitalist society fails to deal with market failure.  Individual businesses grow so large and powerful that they dominate their markets--often with tacit or explicit collusion from their competitors.  Before long they can afford to buy any regulation they may face.  Sometimes growth is for the good, but more often, the giant prioritizes profit over providing good service or decent wages.

Laissez Faire:
  There has never been a successful Laissez Faire society.  There are two failure modes: Chile and several others gave it a try but it went so badly they needed to put down near constant rebellions with extreme force, including secret disappearances.   The other way tends to last longer: it's called A Dark Age.  The tools of civil society break down--banditry is rampant and there is little or no distinction between bandits and police.  There is no rule of law. There are people who claim to advocate Laissez Faire.  They're profoundly ignorant.

There's also a political axis.  How leaders are selected and replaced, what powers they have, how they respond to popular opinion, etc.

Authoritarian:
   Leaders grab power by force, are free to do anything they want including manipulate the selection process.  They invariably are subject to frequent coups d'etat, especially after a previous leader dies.  There is usually extensive manipulation of media to quell almost constant grumbling from the powerless.  How the economy works, whether there is rule of law or not, etc., are separate issues.

Aristocracy:
  Leaders initially gain power by force but agree that replacement will be based on some predictable scheme, usually hereditary.  This tends to reduce the violence after a leader has died.   Again, the workings of the economy is separate.  Monarchy is a different name for the same thing.

Republic:
   Representatives gather and make decisions about what to do.  How the representatives are selected is based on various mechanisms--sometimes they're elected, sometimes they are land owners, Ancient Athens drew lots to decide who would lead, various other systems have been used.

Constitutional Monarchy:
   The same as a Republic but there is an aristocratic figurehead who may or may not have some power.

Democracy:
  The people vote on most things.  There have been no successful democracies larger than a few hundred voters.   All have either regressed in some way or have functionally been a republic.



Fascism is Authoritarian Oligarchy:  a dominant leader grabs and maintains power through alliance with monopolist or near monopolist businesses.  There are some stylistic things that usually accompany fascism: persecuted people who are supposedly the cause of all of these problems, state control of an extremely dishonest media, etc.  Technically, there are other ways to be Authoritarian Oligarchist, but fascism is the most common.

Chinese and Soviet Communism is Authoritarian Communism or Socialism.

There are several democratic socialist monarchies in western Europe: Holland, Sweden, etc.  Politically, these are republics but they retain a figurehead.  For example, functionally the German and Swedish political systems are pretty similar, but Sweden has a ceremonial king.  Saudi Arabia is an oligarchic aristocracy.  The US has regressed to its second oligarchic phase, having advanced to democratic socialism for most of the 20th century.   The current president has very, very strong authoritarian tendencies and we may go all the way to Fascism if we're not careful.

  

Natural Selection and the Tillman Act

Noam Chomsky calls the Republican Party the most dangerous organization in the history of the world.  We humans now have it in our power to destroy all human life on the planet in two different ways (global warming and nuclear holocaust--bioweapons may be a third) and the Republican are actively standing in the way of doing anything to fix either--indeed they seem to be pursing policies designed to make both situations profoundly more serious.  Chomsky is right about the danger of the Republicans, and they need to be eliminated from government, but I think we need to keep in mind Hanlon's Razor: Never attribute to malice that which can be explained by stupidity.

The entities that are doing the damage are mostly corporations.  A corporation is an entity which is created to organize some project or projects (usually making money for its owners) and limit their legal liability should something go wrong.  It is like an animal that has no brain: it lives in an environment (the economy) governed by a set of rules which provide automatic response to a wide range of situations (usually to maximize profits or shareholder value) but need active intervention by the board of directors to make any consequential change to those rules.   Natural selection tends to breed corporations that do the best job of maximizing short term profit, irrespective of long term consequences.

Within the corporation are humans who do have brains, but their power is limited to their ability to sway a majority of votes on the board of directors.  Many large shareholders (e.g. endowments and large trusts) maintain an official policy of abstaining, and small shareholders usually abstain too, so garnering an actual majority to overturn a destructive policy is very, very difficult.   Over the years there have been a number of laws and policies devised to minimize the consequences of this--e.g. anti monopoly law, restraint of trade laws, the Tillman Act of 1907 (which makes it illegal for corporations to donate to political campaigns), the Glass-Steagall law (which imposed a wall between speculative banking and mainstream banking), but most of them have been overturned or emasculated by short sighted politicians in the pay of corporations in recent years, or their judicial puppets.

A brainless corporation can be very powerful, and it is not limited by human lifespans, and it may have effective employees serving its short sighted goals as strongly as they can, without necessarily recognizing their destructiveness.  The Russian word for such people is "Apparatchiks", and if they are allowed to do it, these apparatchiks may be members of congress and and executives of the government.  The reason the Republican party is so dangerous is because many of them are apparatchiks, serving the goals of the brainless corporations and nothing else.  For oil and coal companies, a way to maximize profits is to maximize the production of greenhouse gasses and minimize controls on pollution.  For banks, the way to maximize profits is to minimize limitations on the sorts of investments they can do, without regard to possible consequences.  For most companies, getting government payouts is a good thing.

We need to restore limits on corporate power.   Things like the Tillman act limited the brainless corporations power in government.  Their apparatchiks could still participate in politics, but they were personally involved, which imposed limits.  The Citizens United decision effectively eliminated this control, and without it Natural Selection effectively forces corporations to become bad actors.  We need to adjust things so corporations or at least their employees have a strong incentive to look out for the long term health of the environment and economy.  This probably means breaking up large corporations, taxing harmful behaviors like polluting, mandating that they provide clean safe transit for the communities they serve, and so forth.  I think there are a number of industries which are almost purely harmful and should either be eliminated or nationalized.  For example, high frequency trading of stocks does nothing productive at all except make money, and it distorts the stock market.  It should be banned.  Health insurance serves no purpose but to make health care more expensive and harder to obtain.  It should be nationalized and made available free for all.  Lots more.

 Ultimately, what we need to do is make corporations act like good citizens. Their limited liability is central to their ability to do serious harm.  One of the most powerful things we can do is make sure corporate officers are liable for the harmful things they do.  If an executive tells an employee to get rid of this toxic stuff, and does not offer any direction to do it a responsible way, the executive needs to be punished.  If an executive bribes a politician, whether tacit or explicit, direct or indirect, that executive should be punished severely enough that they will not be able to do it again.

We Need A Better Word for Democratic Socialist

First the spectrum, as I see it.  At one extreme is communism, where the means of production and all control of it are by "the workers". The reality of this is that it is impossible.   If the group is too large, decisionmaking becomes dangerously unweildy and in too many cases (the presidential election of 2016 is illustrative) easily subverted by shortsighted manipulations.  Attempts to implement this have invariably led to brutal dictatorships.  At the other end is laissez faire capitalism.  This too is impossible.  If cheating is tolerated, cheaters will win, which rarely works out for the rest of us.  All attempts at being too capitalist have also ended in dictatorship (e.g. mid-70s Chile).

The right answer, therefor, lies somewhere in the middle.  Enough free enterprise to foster innovation, but enough regulation to inhibit market failures, such as monopoly or inadequate service, and to take over industries when market failure has occurred.

There are plainly some industries which cannot be left to the free market.  National defense is an example.  Private armies are either too powerful to be allowed to serve their own selfish purposes, or too weak to be useful in a real crisis.  A good case can be made that Rome fell and ended western civilization for a millennium because it had private armies.  Fire safety has a similar problem.  Many people go through life without ever needing the services of the fire department.  But when they do, they need them in a hurry and they need a lot of expensive service.  Lots of people, if allowed to make the choice, would choose to not pay for a private fire department and most of them would get away with it.  But because fires tend to spread, we cannot allow this.  At the same time, there are lots of industries that do perfectly well in a competitive free market, including ones that provide services and equipment to the nationalized industries.  Think of companies that build fire trucks and military transports.

This middle ground does not really have a good name.  The best is "Democratic Socialist", or sometimes "Social Democrat", but that's both too long and misses the target.  True Socialism would have public ownership of too much of business.  Democracy too is impossible for groups larger than a few hundred: we need to have a representative democracy, also known as a Republic.

I don't have a good suggestion for a better name: for now Democratic Socialist will have to do.  It's important to recognize that as a Democratic Socialist I'm advocating the least amount of national ownership of the means of production as possible while preventing market failure.  Capitalism, within limits, is a very good thing.  But only through active, competent regulation can market failures be minimized, and only through active, competent management can those failures be corrected.

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The list of industries which have had market failures is extremely long.  Here are a few:

The military, Police and Fire departments.  Thomas Jefferson and others thought these functions could be served by a militia.   It didn't work.  The civil war was the crisis that ended the illusion.

Highways.  Without government highways, we'd have very few of them.   They help the economy enormously, but few would pay for them.

Transit.  There are no urban transit systems which pay for themselves, but a large fraction of people are dependent upon them.

Railroads are so amazingly efficient that they can almost make it on their own, even competing with government funded highways.  US railroads have had numerous market failures over the years which have required government intervention.

Telecommunications is most efficient as a monopoly, but this leads to gouging and other problems.  Regulation worked brilliantly in the middle part of the 20th century, but we're back to monopolies again.

Medical insurance.  Attempting to leave it to private insurance has doubled the cost and left about around 1/3rd of the population under or un insured.  Nearly all insurance is in market failure, but medical is the worst.

Ice

My dad grew up on the North Shore of the Boston area, and when he was a child, there were still ice houses in operation.  They would cut up the ice in the from frozen ponds there,  transporting it on big sleds into bigger buildings where it would be stored, packed in sawdust, until it could be shipped all around the world.

Frederic Tudor (1783-1864) dreamt up the scheme when he was 22, thinking to sell ice to rich plantation owners in the American south and the Caribbean.   Ships would come to Boston and the North Shore with cotton and other raw materials for New England manufacturing, and return with finished goods, which occupied less space and weighed much less.  So he could buy space on those return trips for very little.  It took him several attempts to overcome skepticism, and figure out how to keep the ice from melting, losing thousands of dollars at each attempt, until he figured it out.  But eventually he did figure it out, and ponds all over the north shore were used, and New England ice was shipped as far away as India.   Tudor became known as "The Ice King".   Walden Pond was one of the sources of ice they used and Henry David Thoreau wrote admiringly about the ice harvest in Walden.

When it was discovered that food packed in ice would stay fresh a lot longer, other businesses copied the practice, and in the 1850s, ice houses began to be built around the country, especially along railroad tracks.  Special cars, called Refrigerator Cars, were built insulated sides and ice bunkers on their ends, and filled with meat and other perishables.  The ice would melt and drain out, so they needed to be refilled every few hundred miles along their trip.   In addition, most homes had an "Icebox", which was just an insulated box into which ice and food was placed.  Although invented much earlier, mechanical refrigeration finally became practical in the 1920s with the widespread adoption of electricity, but it took a long time for it to be accepted.  My grandfather was a relatively early adopter, buying a mechanical refrigerator in the 1930s, despite living in the home of worldwide ice, and my father barely remembers a time when they didn't have a mechanical refrigerator.  Yet my grandfather continued to call the refrigerator an "Icebox" until he died in the late 1970s.

The ice business illustrates several interesting things about economics.  The first is about entrepreneurship.  Tudor was born into a family that was already very wealthy.  Each of his early failed attempts to ship ice cost thousands of dollars, in a time when $500 a year was a 90th percentile income.   In today's money, he lost half a million dollars each time he failed, and he failed a lot.  He spent time as late as 1813 in debtors prison, until his family bailed him out and he tried again.  Finally, by 1816 it was a going concern, and by 1825 he was a very wealthy man.  Something similar is true today: there are very few successful entrepreneurs who are making bets that would result in their families going hungry.  They may have a bankroll earned in a previous job, a rich relative,  outside investors.  But if they lose, they lose only what they put in.  Their families don't starve to death.  This safety net is critically important.

Secondly, several times in the 150 year timeline of natural ice refrigeration, big businesses continued to do things in the old fashioned, labor intensive, much more expensive way despite the obvious superiority of the new way.  I'll mention two:  prior to 1850, food needed to be used very close to where it was harvested.  In the case of meat, this meant shipping the animals alive to a slaughterhouse near where it would be eaten.  This was very hard on the animals and unless they gave them rest, food and exercise, a lot would die in route, spoiling a lot of the rest.  This was time consuming and expensive.  The ice refrigerator became practical in the late 1850s and the basic design was in place by 1880 and would last into the 1970s.  Yet shipments of livestock continued until well into the 1930s.  The railroads had a monopoly though.  (part of this was that they'd centralized meatpacking in Chicago: live animals would be shipped to Chicago.  Meat would be distributed on ice from Chicago to the rest of the country)

In 1940, a man named Fred Jones received a patent for for a portable mechanical refrigeration unit that would eventually be the basis for what railroads and trucks would use to this day.  He and a businessman friend (Joe Numero) founded a company called ThermoKing. In the late 1940s, the fleet of ice refrigerator railroad cars was pretty much worn out, their usual cycle of replacement being interrupted by the war.  Pacific Fruit Express, which owned the largest number of those cars, decided to replace them with updated ice refrigerator cars, requiring the physical plant and labor to be continued, even though ThermoKing's product was obviously completely viable and a lot cheaper, and PFE's near monopoly meant that ice refrigerators continued to be used on American railroads into the 1970s.  (That Jones was an African American may have contributed to this, although most likely it's just ordinary conservatism).    There was no such monopoly on the highways however, and many trucking companies installed ThermoKing refrigerators on their trucks.  Despite the gigantic advantages of the railroads in driving costs, fuel and more, this was sufficient to move the refrigerated transport business almost entirely to the roads, where it persists to this day.

At the same time, passenger service was also moving from rail to highway, and also to air, and the interstate highway system made shipping of unrefrigerated freight by road closer to cost and time competitive with rail.  Together, this came very close to killing the railroads despite their gigantic inherent advantages.  Through consolidation and government subsidy, they've survived, but it was a near thing.

Seattle Minimum Wage

There's a widely held belief that the minimum wage hurts low wage employment.  There's basically no evidence of this.

Washington state has one of the highest minimum wages in the country and among the lowest unemployment.  The statewide was $9.19 in 2013 and rose to $9.47 at the start of 2015.

Seattle is one of several cities that's voted in a gradual rise to a $15 minimum wage.  Prior to 1Apr2015, it was the same as the state, $9.47.  On that date, it went up to $10 for small businesses and $11 for big ones.  1Jan2016, it went up a further dollar to $11 for small businesses and $12 for big ones (big is defined by 500 or more workers).

Conservatives insisted that this would surely cause a spike in unemployment.  And sure enough, they managed to find one.  The very conservative "American Enterprise Institute" put together BLS data that seemed to show it and conservatives and business columnists around the country jumped on board.  Here's one from Forbes.   Ooh, scary, 9 months (8 actually, but we all know conservatives aren't good with anything that involves numbers) of declining employment.

But wait:  here's the same data, charted out to August this year

 Note that the climb in unemployment seems to have ended, and by August (the latest that data has been compiled for, it was back down almost to the low.  Well then, couldn't it have been lower without the burden of the high minimum wage?  Perhaps, but notice that the biggest declines took place after the second hike, which was almost double the size of the first hike.  And mysteriously, the sharpest drop occurred after the statewide wage hike that took place that January.

But here's the regional data.  Seattle (population 630K) is the biggest city in King County (pop 2M), and the whole thing is in the Seattle Tacoma Bellevue Metropolitan Statistical Area (pop 3.7M)

The pattern is almost exactly the same, and the rest of the MSA only got the statewide wage hike, not the city one.  Note also that Seattle's unemployment is almost a point lower than the regional, despite the higher wage, and the difference seems to be the same, irrespective of what Seattle's minimum wage is.    From these data, we can't be exactly sure what's causing these fluctuations, but this is pretty good evidence that it's not the minimum wage.  It's plainly dominated by events that are taking place at a much larger scale than the city itself.  Seattle is the biggest employment hub in the region, but it's not a large enough share to have this universal effect.  And of the 5 minimum wage hikes captured in these graphs (1Jan2013, 1Jan2014, 1Jan2015, 1Apr 2015, 1Jan2016), only one of them correlates with climbing unemployment.

This author makes a pretty good case that the insistence is not, and never has been, about the minimum wage depressing employment, but about employers wanting to keep their workers a little bit scared and desperate.  Scared and desperate workers don't make waves, like demanding better wages or safer working conditions.

Did America Stop Being Great?

We didn't stop being great,  not really, but there's a real collection of problems that are making life not so great for a lot of people.  The picture below shows a particularly important manifestation of this.  It's from this article:
http://www.eoionline.org/blog/x-marks-the-spot-where-inequality-took-root-dig-here/
article

from that article

Something significant happened in the '70s to produce that shocking and very consequential discontinuity.

several things happened all at once: ever since the reforms that followed the great depression, the people that felt they had been hurt by those reforms (they are few in number, but they're very very rich) had been trying to undermine them and the gigantic success of the economic theory that worked extremely well for almost half a century. in the mid '70s, several things happened all at once:

1. OPEC created an artificial shortage of oil¹. this created an unusual type of recession, called a supply side recession, which is accompanied by high inflation, where normal, demand side recessions have deflation or deflationary pressure. The Fed was not able to do anything to restore the oil supply, so the problem persisted and president Nixon thrashed around with ineffective policies like price controls that just made everything worse.
2. Milton Friedman won the Nobel in 1976, giving him a potent platform, despite the obvious, catastrophic failure of his ideas when implemented² in Chile³, Argentina, Brazil, Iran. Reagan embraced them wholeheartedly and began implementing them here as fast as he could: killing unions and infrastructure projects, giving away government resources (especially forests) willy nilly⁴, allowing the minimum wage to fall behind inflation, etc.  But they'd learned how important propaganda is and they used it well. Obama is the first president since then to admit some skepticism.
3. One of those ideas was that shareholder value⁵ was the only thing that mattered, and that such issues as product quality, responsible behavior in the community, how they treat employees, etc., are accurately reflected in the stock price. This is one of a collection of ideas that are collectively called the Efficient Markets Hypothesis. It is wrong, catastrophically so, but the double whammy of the Nobel and the OPEC-caused recession seemed to give it credibility.  It tended to encourage self serving or sometimes even fraudulent behavior to prop up the stock price, instead of better products and better corporate behavior.  And it tended to make the sort of people who can afford to buy influence even richer, so they chose to buy influence that reinforced the idea.
4. In 1978, the supreme court ruled⁶ that banks can charge up to whatever the interest limit is, in the state in which they are chartered no matter what the rules are where the business is being done. this immediately led to several states eliminating their usury laws and made the predatory lending business possible, as well as the only slightly less predatory credit card business.
5. availability of effective air conditioning made it practical to employ industrial and office workers in the south, so many industries moved their worker base to "right to work" states, where it was legal for businesses to obstruct union organizers. This was a long trend but the '70s marks a big transition.
6. containerized shipping made it practical to outsource manufacturing to far away places, where they have even fewer worker protections and lower wages than in the American South.
7. Free Trade agreements exacerbated the ease of outsourcing.
8. the people who were old enough to remember and understand the great depression first hand started dying off.   Policies like Glass-Steagall, the Securities Act of 1933, and the Securities Exchange Act of 1934 were enormously effective and they were all weakened in the 70s through 90s.

during the 30s through 70s, we did such a good job with infrastructure that it took decades for the damage the EMH and the rest had caused to be obvious. The middle class had plenty of savings, the roads were built looking ahead to 30 years or so of growth and wear, and so forth. But now it's gone. if we actually do want to restore the things that were good about the 40s-90s, we need to unwind as much of this as we can.

There's probably not much we can do about shipping. But all of the rest are conscious choices we have made.  The most catastrophic was the election of Reagan, but we can repudiate the changes he made to union rights, to public infrastructure support, to management of public resources. 

We need to make regulations that force private corporations to be good citizens: minimum wage, union protections, environmental protection. Once one business in a market has begun cheating, they all need to, in order to compete.  We need to break that cycle.  Business groups might be able to do this but their track record is abysmal.  Regulation, unfortunately, is the only way.  If done right, it will hurt all by exactly the same amount, which means all will keep their present markets.

We need to reverse Marquette v First of Omaha somehow.   Probably the only way is a national usury law.  I'm thinking it should be flexible and adaptive.  For example, the Prime Lending Rate plus 6.  presently the prime is about 3.5%, so this would be a 9.5% cap on loan interest.  During more normal times, the prime is closer to 7% so this would be 13% cap.  If predatory lenders can't make a profit at that rate, that's a good thing: they won't be making ruinous loans.  Credit card companies are doing good business at 13% today.

Note that Donald Trump is a supporter of many of the things that have made us less great.  To the Donald, making America great again is about making Donald Trump rich at the expense of everybody else.



¹   The reason OPEC did is because the US gave its whole-hearted support to Israel in the 1973 Yom Kippur war.   OPEC is very dominated by Saudi Arabia.  After a second shortage in the late '70s, the US administration changed its policy to kowtow to the Saudis at every opportunity.  Reagan's point man on this policy was George HW Bush.

²   A lot of South America had been dominated by "the Chicago Boys", a group of economists who got their training under Friedman at the University of Chicago.

³   The 1973 coup in Chile was to remove (and murder) a popular and effective socialist (Allende) and replace him with a puppet that was friendly to Friedman's ideas (Pinochet) who deregulated much of Chile's business.   As usually happens when this is tried, economy quickly collapsed.   Well, they said, the only thing for it is even more freedom for business.  when the people squawked about mass unemployment and poverty wages for the few jobs there were, where before the coup they'd had good jobs and a booming economy, the leaders of the rebellion were "disappeared".  7 years later, Pinochet was soundly defeated in an election, so Pinochet rewrote the constitution to let him keep power.  Pinochet and his administration is gone now but Chile has not recovered from the damage he did.   This was the most egregious example, but Brazil, Argentina, Greece, Iran and several others were subjected to similar "experiments" in capitalism which all failed miserably.  Pretty much all of the trouble we've been having with Iran stem from our similar 1953 coup.

⁴   Lincoln had given massive tracts of land to the railroads and homesteaders.  There was a strategy behind this, about expanding infrastructure and opportunity for millions of Americans, and the country got far more in return than it gave up.  But what Reagan did was give away forests and mineral reserves to businesses who wanted despoil the land and take the profits for themselves, leaving the rest of us worse off than we were before.

⁵   Jack Welch, long time president of GE, was during his tenure a major supporter of this idea.  Since he retired, he's realized the error of his ways and has taken to calling it "the dumbest idea in the world".  http://www.forbes.com/sites/stevedenning/2011/11/28/maximizing-shareholder-value-the-dumbest-idea-in-the-world/#152d2c682224.   I'm loath to use superlatives, especially when there are so many other incredibly dumb ideas to choose from, but it's possible he might be right. 

⁶   https://en.wikipedia.org/wiki/Marquette_National_Bank_of_Minneapolis_v._First_of_Omaha_Service_Corp.
 

10 Essential Economic.....

I just stumbled upon a little bit of absolute rubbish in the pages of Forbes.  10 Essential Economic Truths Liberals Need to Learn.  It's been there for a couple of years.  All of these ten "truths" are false, many egregiously so.

1: Government cannot create wealth, jobs, or income.     Dorfman doesn't understand what money is.  government can obviously create jobs, by hiring teachers, soldiers, police, etc.  They create money too.  The purpose of money is to create liquidity in markets.  If money didn't exist or didn't have a competent government behind it, nobody would be wealthy except a few bandits.

2: Income inequality does not affect the economy.  Of course it does.  Inequality takes the value of the labor of the poor and gives it to the rich.  The rich don't spend all of it, so it's out of the economy.  Parking money (saving) doesn't help the economy at all, except insofar as some of it is used for real investment.    He understands the difference but he is absurdly wrong.

3: Low wages are not corporate exploitation.  Of course they are, although he's got the causality arrow backwards.  Low wages are about disenfranchisement.  If you have poor bargaining power, your wages tend to be low.  As a consequence, you have few choices but to take whatever abuse the employer wants to dish out.  Low wages are not the only abuse the employer might impose but they're a big one.

4: Environmental over-regulation is a regressive tax that falls hardest on the poor.  He takes a little germ of truth and turns it into a giant strawman.  Over-regulation might be a problem but nothing like that is happening, anywhere in the world.  Again, his almost complete ignorance of what money is misleads him.  Regulation does increase prices, across the board.   But because it's across the board, it's nominally fair.   The poor pay a much higher extrinsic cost for pollution.  Lead is a case in point.  From Tetra Ethyl Lead to lead pipes in Flint, to unmitigated lead paint, the children of the poor pay a much higher price.

5: Education is not a public good.  Of course it is.  Education can provide bargaining power, among other things, which leads to higher wages, not to mention increased ability to rebut ignoramuses like Dorfman.

6: High CEO pay is no worse than high pay to athletes or movie stars.  This is a strawman.  It's technically true: both are harmful.  These people have higher bargaining power and are thus able to get more money.  They spend some of it buying fancy clothes, fancy houses, etc.,  which does help the economy.  But a lot of it is simply parked.  See #2.

7: Consumer spending is not what drives the economy.    Yes it is.  Dorfman confuses GDP with "the economy".   Trade is mostly driven by consumer spending...most of what is not is driven by government: the military for example.  Big business buys from each other to make consumer products.    He is right to be concerned by consumer debt, but that's not what he says is wrong.  consumer debt is a big part of GDP, which is dangerous and in the long term harmful for the economy, although it makes a few people very rich.

8: When government provides things for free, they will end up being low quality, cost more than they should, and may disappear when most needed.     Only if you let idiots run the government.   There are actually very few cases of this.  For example, US public schools used to be of very high quality, and still are in many cases.  The fire department.  The military.  DARPA.  NSF.  NOAA.  it goes on and on.

9: Government cannot correct cosmic injustice.  No, but it can mitigate the consequences. "every time government fixes or eases a cosmic injustice, it creates a new one by sticking somebody with the bill."   So?   Compared to the problems, the bill is trivial.  The number of people with terrible debilities is fairly small, and assisting them creates jobs.   The multiplier effect almost pays for this by itself: these are low paying jobs, so all the money goes into housing and food and such.

10: There is no such thing as a free lunch. In a literal sense this is true, but the cost to society, for example of having hungry students in classes, is far greater than the cost of buying them lunch.  12 years of school lunch at $5 each costs about $12,000.   If that raises the student's GPA 1/2 point, that's worth several thousand dollars a year in income, every year, for 40 years.  It only takes 5 or so break even.  If the student would have been really hungry, it probably raises GPA more than that.  The student is also significantly less likely to need the dole later in life.

Bernie Sanders Tax Rates

Several sources are talking about how much Bernie Sanders would raise your taxes.  For just about everybody, he would, but you get a lot more for them: free health care, free college, better bank regulation, lots more.  The only people who are getting hit hard are people who have been treated very gently for the last 30 years.  Here are a few hypothetical households and how they would fare:

Single, $20K income, 3 kids. (e.g. a single parent earning $10/hr)
  2016 tax: $155, 0.8% effective rate
  Bernie tax: $189.1, 0.9% effective rate.
Such a household is probably already on medicaid.  if they had college loans, this is would be a huge savings.  These are the people (and especially their children) who will be helped most: they will have an opportunity to go to college, where unless they get a "free ride" scholarship, they presently do not.

Single, $50K income, no dependents, no investment income or deductions  (i.e. a recent college grad)
  2016 tax: $5719, effective rate 11.4%
  Bernie tax: 1131.55+4880.50+1373.60=7385.65  14.8%
  2016 tax+$2K for medical insurance for a 26 year old: $7719 a 15.4% effective rate.
  +5K for college loans: $12719.

Married, 2 kids, $50K income, no investment income or deductions  (a "typical" family)
  2016 tax: $3468, effective rate 6.9%
  Bernie tax: 2263.10+1849=$4112.10, effective rate 8.2%
  2016 tax+$3600 for medical insurance for 36 year old parents and young kids $7468: 14.9% effective rate.  Bernie saves $3300 a year.
  +5K for college loans $12468

Married, 2 kids, $100K income, no investment income or deductions  (a 96th percentile family)
  2016 tax: $11368, effective rate 11.4%
  Bernie tax: 2263.10+9761+1088=$13112.10, effective rate 13.1%
  2016 tax+$3600 for medical insurance for 36 year old parents and young kids $14968: 15% effective rate.  Bernie saves $1800 a year.
  +5K for college loans $19968

Married, 2 kids, $1M ordinary income, $200K investment income, $100K deductions (a typical 0.1% family, e.g. a very successful doctor or lawyer or upper manager in a big company)
  2016 tax: $333,869, effective rate 27.8%
  Bernie tax:  2263.10+9761+20,835.2+24,024.1+6529.6+98K+229,584.36=384,467.76 or 32% effective rate.
  Health care and college loan costs are negligible on this income.  Bernie costs them a few percent.

Single, no ordinary income, $10M investment income, no deductions (a wealthy, stingy widow)
  2016 tax: $1,972,340.    19.2% effective rate.
  Bernie tax:  2263.10+9761+20,835.2+24,024.1+6529.6+98K+678K+4,012,837.4=$4,852,250.4 or 48.5% effective rate.

Single, no ordinary income, $10M investment income, $4M deductions (a wealthy, generous widow)
  2016 tax: $1,173,600.    11.7% effective rate.
  Bernie tax:  2263.10+9761+20,835.2+24,024.1+6529.6+98K+678K+2,610,400=$3,449,813 or 34.5% effective rate.

Single, $20M ordinary income, no investments or deductions (I can't imagine anyone like this; it's constructed to create the extreme case)
  2016 tax: $7,868,864,  39.3% effective rate.
  Bernie tax: 2263.10+9761+20,835.2+24,024.1+6529.6+98K+678K+4016K+5,355,800.1 =$10,211,213.1 or  51.1% effective rate

I found several sources bogusly claiming Bernie would raise your taxes to over 90%.  I can't work out any version where this would be correct.  The nearest I can come is someone using the "imputed income" scam to add corporate income taxes to personal income and add percentages with different bases rather than dollars.

I found some more credible sources computing numbers in the 70s by adding payroll taxes (on which Bernie would lift the cap.  It's presently $117K) and state income taxes.  e.g., california's top marginal rate is 13.1%, and the payroll tax on my imaginary $20M ordinary income earner would be on the whole thing, where today it's only on 5% of it:  51.1+13.1+6.2 = 70.4%.  But this is at best an apples to oranges comparison.  None of the incomes above include payroll or state (or property) tax.  Even if you imagine this to be correct, this person ends up with $6M of after tax income.   They should use some of it to hire an accountant who is not as incompetent as they are...

sources:
http://www.moneychimp.com/features/tax_calculator.htm
http://taxfoundation.org/article/details-and-analysis-senator-bernie-sanders-s-tax-plan
https://www.wahealthplanfinder.org/HBEWeb/Annon_DisplayHomePage.action

Monocausality

Much of the bad thinking in the world come from monocausality: thinking that every event just has a single cause.  Once in a while, this happens, but it's pretty rare.

Conservatives tell us that if we raise the minimum wage, unemployment will spike and the economy will decline--because if the price for employers goes up, demand will go down.  Yet, in literally thousands of practical experiments, not only has this never happened, but in quite a few of them, the economy and employment situations have actually improved significantly.  What must be happening is that some other factor--for example, perhaps, the extra disposable income of low wage workers that the hike provides--is stimulating the economy enough to overcome the downward pressure on low wage employment that the wage hike is causing.

Another popular example is the claim that the reparations after WWI caused WWII.  While this is certainly a large factor, there are others.  A big one that doesn't get much recognition is that large german businesses allied themselves with Hitler when they realized he intended to create a large mass of extremely cheap workers and violate the weapons limitations agreed to at Versailles.  Hitler's policies were great for them...for a little while.  There were lots of other factors too, of course.

Another example is that it is claimed that printing lots of "fiat currency" will surely cause hyperinflation.  It did in Weimar Germany, Zimbabwe, Argentina, etc.  But it didn't in the US during either the great depression or the recent "great recession."  It hasn't in Europe either.  Non economists and "classicals" insist there must be something else going on, such as the currency being un-backed, for example by a Gold Standard.  But this also has near perfect track record of failure.   Keynes explained this:  It's not the backing or the ultimate supply of currency, it's demand relative to supply.  If there's very high demand for currency but not for goods and services, the value of the money will stay high while accompanied with little inflation or even deflation.  Those who can, will hoard currency.  In the recent recession, this is exactly what happened.  Investors suddenly flipped from being hot on subprime and other high debt instruments, especially those based on real estate, to being terrified of them...including the ones they'd bet on heavily, and wanted to sell them and move into cash.

Another example is the so called Laffer Curve.  The concept predates Arthur Laffer by at least a century but he advised the Reagan administration when it became very popular.  Simply put, it's that taxes put a downward influence on the economy.  This is surely true, but the empirical data that we have tells us the almost exact opposite.  Reduced taxation almost always correlates with downturns and increased with upticks.  What's probably happening is that the spending that's done with the tax money is significantly more stimulative than the taxation is de-stimulative.  For most people and business, this seems to go right up to 70% taxation and higher...the 91% marginal tax rate they were paying didn't cause Howard Hughes or J Paul Getty or Henry Kaiser to pull out of business.  The Laffer curve may well be correct, but conservatives seem to only look at the part to the right of the peak...the part that would justify their tax cuts...but we're not dealing with that part.  To left of the peak says that taxes should be higher.

There are lots more examples.  The causes of these events are numerous and interact in complex ways.  In mathematics, we call these sort of equations "equilibrium" equations and they are generally not trivially solvable and tend to end up having several solutions or a solution which itself is a fairly complex equation.   Simplifying models, such as Hick's IS-LM and the Phillips and Laffer Curves in economics can be very useful--provided you actually look at these curves correctly and understand them and their limitations.  They're not a perfect answer by any means, but trying to solve these complex problems by ignoring important--perhaps dominant--factors is unhelpfu.

added 26 Apr 2015
Greg Mankiw argues here , astonishingly, that there is only one pertinent point of the proposed trans pacific trade agreement and that is that freer trade is is better.  What if, for example, the freer trade causes millions of job losses (through, for example, outsourcing) and the new trade only generates a fraction as many new opportunities?  What if the freer trade grants patent violators the right to sell cheaper products competing directly against those that funded the R&D with impunity?  Of all people, Mankiw should understand that nothing is ever so simple.

Inequality and Islamic Terrorism

This week's monstrous acts in France have left a lot of people wondering if there's something wrong with Islam that leads to Islamic terrorism.  I think this is a naive misunderstanding.  The acts stem from poverty and inequality in the Islamic world, both in the middle east and in Europe.

In the 8th through 12th centuries, the Islamic countries were the most advanced in the world.  A lot of this was the result of enlightened leadership, in the parts of the Abbasid and Umayyad dynasties and in no small part the wisdom and inspiration of prophet Muhammad himself.  These leaders were at once aggressively expansionist, and exceptionally tolerant of the groups that they incorporated; Jews and Christians of several sects were not just tolerated, but given extraordinary intellectual and commercial freedom.  Meanwhile China had entered an isolationist period, while Western Europe had effectively abandoned civilization in favor of religious extremism.

The Islamic enlightenment ended the same way the Greek/Roman one did: religious zealotry undermined the multicultural unity, opening the door for ruthless warlords to vandalize and steal the fruits of its intellectual advances, while reversing many of them and making it nearly impossible for new ideas to flourish.   Simultaneously, the Mongol invasions from the east and growing unification in the west in the form of Charlemagne's empire and the Crusades, further reduced range and influence of the once-advanced Islamic culture.

The Renaissance started in Islam's close neighbor and trading partner Italy, and was in no small part inspired by and benefited from the Islamic enlightenment, but left the Islamic world far behind.  When the period we call the Enlightenment and the Industrial Revolution came along, the Islamic countries were too far behind, and the gross inequities of what remained of their culture prevented the benefits from reaching them, in most cases opening them up to colonization.   The Ottoman Empire, for 600 years the great power in the region, collapsed in a morass of corruption, punctuated in the aftermath of World War I with the Sykes-Picot treaty drawing political boundaries that had no reference to national identities of the time, installing royalty which had no connection at all to the states that they were governing apart from a thin, albeit plausible family connection with the prophet Muhammad and assistance to the allies in World War I.  Except for in Arabia, the rich and powerful had no connection at all with the people they were governing.  Except in Jordan, these Hashemite kings were all deposed within 30 years of their installation and replaced with people who were even more vicious and money grabbing.

The bottom line is that the Islamic world has been almost completely left behind by the intellectual and technological developments of the last 300 years, and the resulting societies are desperately poor and badly educated.  The former colonizers are sympathetic, but at the same time they are still trying to extract what they can...so many of them have allowed large amounts of immigration from these impoverished places.  But they're post-enlightenment countries, so they don't feel they can impose their religions and ideas onto the new immigrants.  So the immigrants tend to develop enclaves where they are slightly better off than in the old country, but are still desperately poor and ignorant, still very much living in the pre-enlightenment world.

So they lash out.  The worst violence is committed not by the desperately poor, but by people who have an affiliation with them (through religion in this case) and are acting in sympathy with them.  The truly desperate don't have the resources to do even that.  This was how 19 middle class Saudi guys, with sponsorship from one of the richest people in the world, committed one of the most horrific acts of our time.   It's how a handful of reasonably comfortable Algerian/French guys (it's still not quite clear how many at this point) committed a horrific act in the name of their prophet which was in direct violation of his teaching.  And so on. 

The driving force behind Islamic terrorism, and most other kinds too, is inequality.  Certain Islamic peoples feel, with some justification, that they are trapped on the bottom rung of the ladder, and can't get up.  Immigration didn't work.  Oil wealth didn't work.  These things just heightened--and highlighted--the inequality.

The solution is to reduce inequality.   That's not the real target--the real target is the terrible desperation of the impoverished--but it's the best handle we have.  We need to give these peoples (and the Muslims are not the only ones) a hand up, out of poverty.  Meaningful universal education is the most effective.  So are programs which help people to live their lives more easily, such as small business loans, improved water supplies, more efficient cooking, secure places to live, universal medical care.  All of these things provide what economists call liquidity.  They make it easier to live, and to better yourself, even if you are desperately poor.

We need for it to be easier to live in poverty.   People who start successful businesses--be they a small farm or an industrial giant--are not worried about where their next meal is coming from.  The way to reduce the problems of inequality is to give people a comfortable floor which they can't fall below, no matter how bad things get, and to give them a hand up to the next level: Education and things like microlending.

Liquidity

Liquidity, in economics, is measure of people's willingness to spend for something.  If the thing seems expensive for them, they are unwilling to buy.  In barter economies, when there's a substantial price differential for something, there's inherently low liquidity.  For example if one person has a milk cow to trade and would like some dishes to eat from, some intermediate deal must be cooked up.  A milk cow can't be divided, so the only solution is to buy enough dishes to be a fair trade for the cow, and then try to find somebody else who wants your extra dishes.   Granular currency increases liquidity a great deal.  You can sell the cow for $500 and buy $100 worth of dishes.

There are other things that increase liquidity.  Having good roads makes the things transported by road cheaper.  Having policing, to keep you safe from bandits and fraudsters, does too.

Sometimes, something happens that changes the price of things.  The Arab oil embargo of the 1970s was such an event.  Saudi Arabia and a few others were angry at the unqualified US support for Israel during the Yom Kippur War of 1973, and punished the US by reducing our oil supply.  This caused the price of fuel to skyrocket and a series of recessions and inflation.

A recession is when there a broad reduction in liquidity for a lot of things.  Inflation is one way this can happen, but it's more often caused by some event that damages people's confidence. Keynes called this a change in "Liquidity Preference", meaning people prefer to save money rather than spend it on things.

The way out of recessions is to do what is necessary to create a broad based increase in liquidity.  When the problem is that the banks are scared--for example of unsound debts owed them--the bankers preference is to not lend.  This changes the liquidity of everything downward, so anything that presses liquidity upwards will help us out of the situation.   Since the bankers reticence results in making businesses afraid to a risk, the only remaining solution is for government to do it.  Government can do lots of things to increase liquidity.  Increasing the amount of money in circulation has an effect, but simply giving the banks more money to not lend is not especially helpful.  Buying up unsound loans would be much better: it reduces the thing the banks are scared of while putting money in bankers and homeowners hands.  Just doing stuff that gives people a paycheck is also very useful. Having money significantly increases their willingness to spend.  And if done wisely, so does things like build roads and educate people, which increases liquidity greatly downstream.

The Most Harmful Philosopher

I've read the works of quite a few philosophers and people who think of themselves as philosophers.  All, I think, mean well,  but quite a few had ideas which can be taken to justify people doing really harmful things, often flatly contradicting the intent of the philosopher themselves.

Socrates, Aristotle, Hobbes, Leibnitz, Kant and the other ontological philosophers really don't rate as harmful.  Socrates objection to elective democracy has been borne out by the corruption of the western countries in the last few decades.  His suggested improvement was benevolent dictators. A few dictators have been benevolent but mostly not.  Many of the others wrote about politics too, but their ideas have been predominantly used for good, with a few exceptions.

Locke and his heirs are responsible for the ideology that led to the American political system that worked so well for two centuries.

Descartes, Berkeley, Hegel, Sartre and the other epistemological philosophers are even less harmful.  They're interested in how we understand things.  Their direct effect on the world is pretty minor, although the consequences on how we think about things can be profound.  Newton, for example, figured out what we call the Scientific Method, which is an approach to proof and elimination of confirmation bias.  Heidegger was a big booster of the Nazis, but his own philosophical ideas were irrelevant to their project.

Finally we come to the political and religious philosophers.  There are surprisingly few important ones.   The Abrahamic arc includes Moses, Jesus, Paul, Augustine, Mohammed, etc.  The modern political arc starts with Locke and includes many of his disciples, such as Jefferson, as well as other thinkers, such as Nietzsche.  The economic arc includes Smith, Marx, Keynes, Hayek, Rand.

Moses and Jesus were very much men of their time, recognizing what was wrong and advocating ways to improve it.  Both stood against religious institutions being exploited for profit, and were wholly well intentioned and it's hard to find positions in their thought which were directly used for evil.  But their subsequent disciples incorporate some bad thinking...Paul's silliness with the afterlife, and Augustine's with universal conformity--by force if necessary--led to many of the worst atrocities of all time.  The inquisition, the crusades, and much more, including the Nazi horror to some extent, stem directly from Augustine.

Locke, I think, was wholly well intentioned and most of his disciples were too.  American political theory almost entirely stems from his thought, and while there has been lots of corruption, I think it is the opposite of stemming from his or his disciples thought.

Nietzsche is interesting.  Like Socrates, he's an elitist.  Like Socrates, he's deeply interested in the welfare of society, even to the cost of some of its members, including eugenics and a number of other controversial ideas.  Hitler used the germ of his thinking to rationalize his eugenic programs, but he didn't really understand Nietzsche, and Hitler's elites were what Nietzsche would have regarded as lowbrow thugs. An imaginary version of Nietzsche played a role in the Nazi origin fantasy, no more real than Siegfried or the Valkyries or other heroic Germanic fantasies.

Smith and Keynes were scientists, and with Marx and Newton, the only ones on this list.  They figured out how a lot of the economy works and came up with the beginnings of a system to make it work better. Smith was opposed to laissez faire--he understood that a too-free market will promptly be corrupted.  Something similar is the case with Marx: he was primarily a sociologist but he came to a new understanding of the social dynamics of the forces at work in the economy.  One of his lesser ideas has been taken to be the mainstream of his thought and many societies have purportedly been based on it.  It's not really fair to tar Marx with the harm that the ideology derived from this has caused, but Augustine didn't mean ill either.

Friedrich von Hayek was considered an economist by a lot of people, including many bankers and political conservatives.  He was a pretty bad one though...in the face of lots of empirical data, his theories have pretty much flunked.  He wrote an influential book called "The Road to Serfdom" which suggests that political liberalism will lead inevitably to government control of everything and ultimately the enserfment of almost everybody, and that the unregulated free market is the only solution.  As Smith pointed out, the unregulated free market leads only to corruption and monopoly--a much more direct path to serfdom than via liberalism. 

Hayek's contemporary Ayn Rand wrote a series of fantasy novels which have been taken as economic gospel by an amazing number of people, especially on the far right.  Their appeal is mainly to teenagers, desperate to break from parental and societal control. Alan Greenspan was a particularly devoted admirer and through dishonesty, corruption and a great deal of schmoozing, was one of the major causes of the economic crisis of 2008.  Rand's world has no particular bearing on reality and the characters are totally unrealistic.  In particular, in her world, Gresham's Law does not hold and the Efficient Markets Hypothesis does--the opposite of reality.

My ranking:

Nietzsche's ideas were a tiny part of the Fascist horror that killed tens of millions--but being incredibly generous I can only give him 5% credit or so, so he ranks in a distant 4th place.

Ayn Rand and Hayek have killed tens of millions so far and have ruined the lives of hundreds of millions and will kill lots more before they are done.   I give them a solid third place with a real chance to move up.   It's important to recognize that their followers are applying their ideas as they were intended, which is wholly different than what's going on with Nietzsche and Marx.

Marx was only a small part of the communist ideology that's killed about 100 million, and more appropriately applied in Sweden and Cuba and other places, those same ideas have saved millions.  But places like North Korea, and Cuba to a lesser extent are still misapplying his ideas and will kill plenty more before they are through.

St Augustine's ideas have been behind over half of the religious wars that have occurred since his lifetime, 1600 years ago.  He's in effect killed hundreds of millions, in the hands people following a fairly literal version of his ideology.  Lots of others--Muslim, Hindu and Buddhist fanatics, have behaved in ways that fit his ideas.  The Augustinian Heresy: that you must believe as some authority demands or die, is easily the most harmful idea. Augustine himself would have been horrified, and I'm sure would have reversed course had he comprehended.

The Economic Spectrum

The traditional "left" vs "right" distinction came up during the French Revolution, when supporters of the King sat on the right in the National Assembly, and supporters of the revolution to the left.  This distinction has persisted in many parliaments and legislatures throughout the world, including our own.

Trying to put an individuals political leanings onto a simple one dimensional spectrum is doomed to fail.  How we select and replace leaders and representatives (the issue that the French National Assembly was concerned with) is completely different than how we run our economy.
  
I'll define the economic spectrum as half a circle.  I'll define "everybody is totally equal" communism to be at -90 degrees, and "no rules at all" laissez faire at +90.   There really haven't been such societies.  A few communes have come close, probably -80 or so...but every such society has had leaders.  There have been lots of societies that pass through +90, but it can't last more than a few days before someone with weapons and supporters takes over.  The dark ages hummed along at +45 or so--a new bandit or tyrant rising every few months to make everybody miserable. Somalia was probably about +75 in its darkest, most anarchistic days.    Soviet and Chinese communism in their heyday, I'll put at about -30, Korean maybe -60.  European Socialism, with democratically elected leaders, people working for wages appropriate to skill and demand, but a lot of redistribution, at about -10.  

America is the farthest right successful country in the world.  Lots of countries have been farther right, but they are disasters--as will America be if we continue on our present rightward tack.  Chile under Pinochet, Greece under the generals, and so forth.  Here are where a few famous Americans are, I think:  Obama, Clinton, Nixon, GHWB, Eisenhower are all at about +10. Reagan about +15, GWB claimed to be about +10 when he was running for office, but actually governed at +25--very much to our cost. The Kochs and other John Birchers are at about +50, and America will be over if they get more power than they already have. Bernie Sanders about -5. Noam Chomsky is at about -15, Angela Davis -30.

If you ask Americans to rate themselves on this scale, the Gaussian peak is probably about +15 with a standard deviation of about 5. However, if you ask people questions about specific issues--minimum wage, union rights, clean air, health insurance, etc., they'll come out pretty close to 0, again with a fairly narrow SD. This difference showed itself in the recent election in a number of places where they voted in higher minimum wage, marijuana legalization, gay rights and other "liberal" things, yet sent someone to congress who is dead set against all of those those.
 
Obama and Clinton are the most right wing democrats to have been president since the 19th century. Only the bubble presidents: Harding, Coolidge, Hoover, Reagan, GWB, are to their right.  Obama has done NOTHING to warrant the description "socialist".  The PPACA is very much a pro-business, pro-insurance, pro-free-market piece of legislation.  What came before had many of the bad aspects of monopoly, and in many cases, literally was a monopoly: price gouging, trapped consumers, poor service.

I'm pretty sure that no economic system that's more than about 15 away from zero on my chart can be stable without a pretty ruthless dictatorship. Friedman/Pinochet's Chile tried to be at about +30 and it didn't work.  China between 1949 and 1972 was at about -30 with the same effect.