. A beginning, not an end

This Presidential preference campaign has been exciting, and I want to commend editor Jim Nintzel for his efforts to help all of the Project White House candidates.   I also want to thank all of the people who voted for me. 

My own campaign has emphasized “change for the better” and also “conservatively trying to keep the US from self-destructing”.  If a society does not learn from the past – it follows that when such a society is heading downhill, there are many impulses to continue doing the things that are self-destructive.   

For example, since 1971, the US Federal Government has been mostly following president Nixon’s statement, “We are all Keynesians now.”  But Keynesian economics is essentially a price-supporting tool, not a method of stimulating the productive part of a nation’s economy.  Keynesian economics tends to make the long-term outlook much worse, in exchange for a very small benefit in the present time.  

By contrast, Adam Smith’s economics is the proper and effective method to use when trying to stimulate a nation’s economy, and Smithian economics was used successfully in the US from 1776 to 1971.   

Eventually the Federal Government will either drop Keynesian economics (i.e. personal tax cuts and rebates to stimulate only the “demand” side of the US economy), and switch back to Adam Smith’s economic principles — or the US will soon collapse under a mountain of debt, and a shortage of Productive activity.     

My campaign has been trying to educate the general public, including the media, that the US needs to have its political candidates declare that they intend to follow Adam Smith’s economic principles.   I have been showing where and how Adam Smith’s principles can be applied.   It would not be proper for me to concede on these campaign principles.   

On another topic, I want to draw attention to a very positive trend in Republican politics this year on the national level.  A Republican candidate with a comparatively small budget, and none of the traditional Republican spin-strategists, is gathering big percentages of the Republican primary votes in several states.  That candidate is Mike Huckabee, former Governor of Arkansas. 

Due to the “favorite son” phenomenon of John McCain in Arizona,  Huckabee did not draw a large percentage of Republican votes in Arizona.  But let’s not be misled by our local Arizona situation for Huckabee (opposing a favorite son candidate).  A big change appears to be taking place in Republican politics at the national level, where modest funding can produce big results.   

For future encores of Project White House, I feel it would be beneficial to partially imitate this year’s campaign of Mike Huckabee.  By that I mean starting substantially earlier before the preference election, obtaining small amounts of public and/or private funding for Project White House from activist organizations, and making more public appearances.   

This year’s campaign has been a beginning – a constructive beginning.  The future can be even better.                       

Resetting the US economic engine to where it was headed in 1983-1986

 My “New Square Deal” economic plan involves resetting the US economic engine to approximately the condition, and the outlook, that existed for 1983-1986.    The following paragraphs explain why it is both wise and desirable to put liquidity back into the economy by returning to Adam Smith’s economic principles (which were followed in the US until the 1970′s and 1980′s). 

The New Square Deal aims to place $4 Trillion of additional new working capital into the hands of US Productive workers, and to make some entitlements reforms that have been highlighted by the GAO’s “Wake Up” tour.  In addition to upgrading the current US manufacturing jobs, new manufacturing jobs need to be created for about 3% of the US workforce.   Productive enterprises need to receive as much respect in the US as they receive in other countries, to prevent US manufacturing jobs from going overseas.  

Recently, the US work force has been earning approximately 43% to 53% annual return on the nation’s corporate capital.  The following table summarizes how capitalism is working in the US.                                            

year  2002     2003     2004     2005     2006    2007/Q3    

Nonfarm, nonfinancial, Corporate Assets  

($billion of debt plus net worth)        

high  19473    20064   21662   23731   25418    26866

low   16952    17293   18404   19785   20687    21490

  

Personal Income                                        

($ billion) 8882     9164      9731   10239   10883       ?

  

Annual Personal Income/Capital                   

(as % of corporate capital)          

low   46%     46%       45%     43%    43%

high  52%     53%       53%     52%    53%      

(references:  Federal Reserve data at   

http://www.census.gov/compendia/statab/tables/08s0651.xls and  http://federalreserve.gov/Releases/z1/CURRENT/z1r-5.pdf )

Personal Income for the whole US population is generally proportional to the amount of Working Capital in the hands of our Productive workers, via the corporate employers.  More specifically, the above table shows that our US work force (in recent years) earns between 43% and 53% annual return on the overall amount of Capital which is utilized by the non-financial US corporations.  The Incomes/Capital ratio is not cast in concrete; but it is what it is.  

This concept of capitalism was the centerpiece of the program used by president Franklin Roosevelt during 1940-1945 to prepare the US for entering World War II.  President Roosevelt had the US Federal Government quintuple the US National Debt, during 1940-1945, while subsidizing a carefully coordinated creation of many large US manufacturing plants.  (reference for quintupling the National debt during 1940-1945:    http://www.census.gov/compendia/statab/tables/08s0651.xls )  

The above-described concept of capitalism was also used by president Kennedy in 1961 when he originated the Capital ITC (Investment Tax Credit), to fulfill his campaign pledge to “get America moving again”.   

There is no more efficient way to improve the income of a society than to put additional capital in the hands of that society’s Productive workers, via the successful businesses which make that society’s products.  The economic successes which presidents Franklin Roosevelt and John Kennedy achieved are pure examples of the economic principles of Adam Smith.   

President Kennedy’s Capital ITC started out as a 7% tax credit.   In 1975 the Capital ITC was increased to a 10% tax credit by Republican president Ford.  The Capital ITC remained at 10% during 1975-1986.     

With other nations becoming stronger economically in recent decades the US has consistently needed more Working Capital (as a percentage of GNP) to hold our lifestyles intact. 

   (reference:  http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2000/20000420.htm )      

The above chart clearly shows that after October 1979, when the Fed banking system switched to its new paradigm of higher interest rates, capital investment in the US broke down and fell out of the trend which had occurred between 1961 and 1979.  

For the period after the year 2000, Business investment has been low: After reaching 12.6 percent of gross domestic product in 2000, business investment fell to 9.7 percent in March 2004, its lowest level since September 1992. Business investment then rebounded, reaching a level of 10.7 percent of GDP in the third quarter of 2006, before declining to 10.5 percent in the first quarter of 2007….   Businesses used money for share repurchases and dividends instead of capital expenditures: The share of pre-tax profits used for net share repurchases and dividend payouts was 84.2 percent during the current business cycle, larger than it was for any previous business cycle. The share of after-tax profits used for net share repurchases and dividend payouts was 120.7 percent, another record high for any business cycle. (reference:  http://www.americanprogress.org/issues/2007/08/productivity_report.html )      

Almost immediately after president Reagan eliminated the 10% Capital ITC in 1986, US manufacturers went into a tail spin, and began “downsizing” their workforces.  The administration of George Bush Sr (1989-1992) shows itself, in the above chart, as a continuous tragedy for US capital investment.  US employers were hopeful that the incoming Democrat president Clinton would revive the Capital ITC (because the Capital ITC originally was a Democrat innovation; and the Capital ITC had been killed by a Republican Presidential administration).  But president Clinton made only a half-hearted effort to restore a Capital ITC, and proposed one which was a nightmare of complexity.  Congress voted down Clinton’s complex version of a Capital ITC.  After Clinton’s failure to restore the needed Capital ITC, businesses began a decade long drive to move manufacturing operations out of the US.   

If the original 10% Capital ITC had remained in force during 1986 to 2006, US corporations today could have about $2 Trillion more capital Net Worth.  And consequently, Personal Income in the US should be about $1 Trillion higher every year.  By contrast, eliminating the 10% Capital ITC after 1986 has led to a loss of approximately 9% of the purchasing power for each US household in 2006.   Losing the Capital ITC also caused of most of the decline in US Personal Saving rates (which dropped from 8% in 1986 to -1.5% in 2007).   

In 1993 when Bill Clinton first became the US President, Personal Savings in the US had already declined to 5.8% of GNP  — which was substantially lower than the Personal Savings rate that existed when president Kennedy came into office (i.e. 7.3% Personal Savings in 1960).  Global manufacturing competitors of the US in 1993 had already become stronger competitors than what the US faced in Kennedy’s era.    During the Clinton administration a rapidly declining US Personal Savings rate (which dropped from 5.8% in 1993, to 2.3% in 2000) should been a strong warning that the US already needed substantially more capital at that time. 

       SAVINGS PLUMMET – a record low

The chart at the left shows a 48 year trend of that part of disposable income that has been saved – - called ‘personal savings rate’.

                               

Simple arithmetic indicates that if the Capital ITC had been set at 15.4%, and if it was applied in the US for a 13 year period 1993-2006  —  that would have increased the total amount of US working capital by approximately the same cumulative effect as if a 20-year period (1986-2006) had used a 10% Capital ITC.  (i.e. 20 * 10 = 13 * 15.4)    

But today the US manufacturing base has already been devastated, and many of our Productive jobs have been wiped out.   Adam Smith’s economic principles indicate that we need to stimulate only the Productive jobs in the US.  We already have too many Unproductive jobs in the US; so the most effective use of capital today is to stimulate only manufacturing jobs.   

Manufacturing jobs in the US have declined too rapidly.  This is blatantly obvious when considering the long term trend of the US Trade deficit. 

Causes of Trade Deficit = manufacturing decline plus rising oil imports                 ( reference:  http://mwhodges.home.att.net/reserves_a.htm#manufacturing )                  

The US Trade Deficit mostly involves manufactured products, and consequently it can be used as a “yardstick” to measure when our economy has placed a fair and competitive amount of working capital in the hands of our Productive workers.  When a society’s Trade Deficit is zero, then that society’s government has been treating its Productive workers (and Productive enterprises) equitably, in comparison with the ways other countries treat their Productive sectors.  But today the US has a huge Trade Deficit, which demonstrates that US Productive workers are under-capitalized, struggling, and under-appreciated.   

The New Square Deal program is trying to increase the number of US manufacturing jobs to 14% of the US work force, approximately equivalent to the ratio in 1990.  This represents a 25% increase for US manufacturing jobs relative to 2006.  But it only involves shifting 3% of the US work force back into manufacturing.  The GNP of the US might rise by 6% as a result of gaining 3% more manufacturing jobs.  And GNP might rise by an additional 12% as a result of putting better working capital in the hands of the current US manufacturing jobs.   

Adam Smith’s economics indicates that a good and benevolent government should always give its Productive workers the prime importance when public policy is being debated.  All the people who hold Unproductive positions in a society should be cooperating with their Productive counterparts.  It is important for the Unproductive people to grow up with an education about why the Productive people are so important to any society as a whole.  

Adam Smith wrote his classic textbook, Wealth of Nations, shortly after Louis XVI had become king of France (1774-1792).  Louis XVI  was driving his country into bankruptcy and chaos by claiming that an Unproductive king of France was “entitled” to automatically skim off a large fraction of his nation’s GNP for his own consumption.   The defective attitude of Louis XVI centered around an idea that history’s great kings (and Great Societies) had been created by ignoring the condition of their productive workers, while perpetuating a large purchasing power in the hands of the Unproductive sector of a national economy.  The reign of Louis XVI is called the failure of French Mercantilism in economics textbooks.  Louis XVI turned an ever increasing fraction of his French countrymen into shepherds (to generate the “entitlement” of spending power which Louis XVI desired).  This set the stage for the French Revolution.   

In recent decades, “Great Society” government programs in the US have basically replicated the economic failure of French mercantilism.  Our US central government today is not a kingdom; it is called both Congress and the Executive branch of the US government.  But in recent decades our US Federal government been as blind to the declining status of its young Productive people as what the king of France did during the failure of French Mercantilism.  Once again, a blind allegiance to “entitlements” has been treated as the primary task of a central government.  And once again, a strong industrial society has been rapidly impoverished.  The great irony today is that the US Federal Government maintains so much data that the current trend of US economic problems could have been identified and counteracted many years ago.  

A $2 Trillion capital infusion into US corporate capital will tend to offset the loss of the Capital ITC since 1986, when the 10% Capital ITC was canceled.  And it will also strengthen the over-leveraged Balance Sheets of average US corporations, lifting many US corporations out of Junk Bond status.  

But the Social Security Trust Fund, which was established as part of the 1983 Greenspan Commission’s  reform of Social Security, also involves $2 Trillion of personal savings.  And this $2 trilliion should have been used to strengthen the US economy, before the Baby Boomer generation started to draw Social Security payments.   It has been profoundly evil for the US to pre-spend all of the Baby Boomers’ retirement savings funds BEFORE the Baby Boomers retire.  But putting $2 Trillion of Baby Boomer savings into a mattress (or “lock box”, as Al Gore’s stump speeches called it during the 2000 campaign) would not have strengthened the US economy for either the present or for the future period when those retirement savings will be needed.  

One importat part of my New Square Deal involves increasing the US Corporate working capital by two increments of 9% each.  One of those increments is $2 Trillion, which corresponds to the misplaced 10% Capital ITC during 1986-2006. And the other increment corresponds to the misplaced $2 Trillion of the 1983 Social Security Trust Fund which was intended to finance Baby Boomer retirements.   

Presuming that the incremental $4 Trillion of new US working capital will be arranged over an 8 year period, this means that the Federal Government would be creating $500 Billion of new tax credits for US businesses in each year of an 8 year plan, and resetting the US economic engine to where the US was heading during 1983-1986.  

A rational expectation is that this plan would ramp up US productivity by 2.2%  during each year within the 8 year planning period.  This plan aims to return the US to 8% Personal Savings rate, and to end up with Personal Income 18% above the current trajectory for Personal Income.  

However, merely increasing the amount of US working capital by 18% today is still not enough to resolve all the distortions which have crept into the US since 1983. The US entitlement programs deserve to be reformed along the lines recommended by the GAO’s “Wake Up” tour. 

Therefore the “New Square Deal” calls for both a 9% reduction in all Social Security benefits to all current recipients, and also a 1.5 year delay for people to start drawing payments from Social Security in the future.  Of course, the Medicare program should stop being a blank check (as the GAO’s David Walker calls it).  So the New Square Deal program also calls for cutting the costs of Medicare in half, and reallocating HALF of the Medicare savings to provide a bare bones (i.e. strictly limited amount) of free healthcare to US citizens in their most Productive years, ages 20-50 years old.  The New Square Deal calls for reducing overall US Healthcare costs to 11% of GNP (down from its current 16%).                               

My report on Tucson’s event in the GAO’s “Wake Up” tour

  On Jan 31, 2008, David Walker’s presentation of his “Wake Up” tour was delivered in Tucson to a fully packed auditorium.  Congresswoman Gabrielle Giffords arranged for David Walker (the head of the Government Accountability Office) to come to Tucson and give us his “Fiscal Responsibility Wake Up” seminar. 

While the crowd was drifting into the auditorium, Congresswoman Giffords sought me out in the crowd to say “Hello”.  She said she had read on our blog that I would be attending the presentation.   

The audience was very receptive to David Walker’s message.   His role in this “Wake Up” tour is to be impartial and to show that Federal “big-spending” programs are tearing our country apart.  The timetable which he offered during his Tucson presentation is that the US will be bankrupt somewhere between 5 and 10 years in the future, if we do not get major reforms immediately for the so-called entitlement programs.  He expressed concern that Congress lacks major bipartisan effort today for dealing with these bankrupting issues.   

One of his points was that Medicare in the US has been organized as a “blank check”; and he pointed out that no other country runs its health care programs without a pre-defined budget.  He suggested that Medicare probably needs to be reformed 4 times to bring it under stable cost control .  I was very pleased to hear this comment about Medicare, because my own Square Deal program has recommended 4 rounds of cost-cutting for Medicare.   

Also David Walker emphasized that the US needs its President to use the visibility of the presidential office as a “bully Pulpit”, if necessary, to get Congress to reform itself and adopt fiscal responsibility.   

The audience had dozens of questions for David Walker during the Question and Answer part of the presentation.    

The question that I asked was whether I can submit my Presidential program’s economic reforms to be evaluated by the GAO.  David Walker’s answer was no — because the GAO does not take any positions on political issues.   

This response to my question was both interesting and disturbing.  It demonstrates that members of the Federal Government (including also the new candidates for public offices) are somehow forbidden to receive feedback about which government policies are fiscally self-destructive.    Although this is very disturbing, I believe it explains why various candidates for public office are still recommending expensive Federal activities, at a time when the Federal Government needs to be adopting austerity programs if the US is to survive in its present form.            

GAO “Wake Up” tour is in Tucson Jan 31 at 10 AM

My Presidential campaign will be attending this GAO event.  And everyone who is interested in the future of the United States should also attend:       Thursday Jan 31, 2008 at 10 AM  

David Walker’s presentation in Tucson tomorrow Jan 31 is likely to be similar to his GAO presentation Jan 9, 2008, which is outlined on the internet as a collection of 35 images:  http://www.gao.gov/cghome/d08417cg.pdf  

Here is David Walker’s image # 19 in that set of 35 images.    

THE WAY FORWARD:
FUNDAMENTALLY REEXAMINE & TRANSFORM  

• Restructure existing entitlement programs
• Reexamine and restructure the base of all other spending
• Review & revise existing tax policy, including tax preferences and enforcement programs
• Expand scrutiny of all proposed new programs, policies, or activities
• Reengineer internal agency structures and processes, including more emphasis on long-term planning, integrating federal activities, and partnering with others both domestically and internationally
• Strengthen and systematize Congressional oversight processes
• Increase transparency associated with government contracts and other selected items
• Consider a capable, credible, bi-partisan budget, entitlement, and tax reform commission

http://www.tucsoncitizen.com/ss/all_headlines/75346   Published: 01.29.2008 IN BRIEF

Briefs: GAO chief to talk about fed budget

Tucson Citizen
edge@tucsoncitizen.com Head of GAO to talk on downturn, U.S. budget David Walker, U.S. Comptroller General and director of the Government Accountability Office, will discuss the economic downturn and the status of the federal budget at 10 a.m. Thursday at the YWCA Auditorium, 525 N. Bonita Ave. The lecture is part of the national Fiscal Wake-Up Tour, sponsored by the GAO, the Brookings Institution, the Heritage Foundation and several other entities. RSVPs are requested by 10 a.m. Wednesday by calling 881-3588. Congresswoman Gabrielle Giffords is hosting the event. Citizen Staff Report          

Hello world!

The founding fathers of the USA wanted this country to be governed based on simple rules and laws.  But with the passage of time, our country has lost that initial spark of simplicity.  Therefore I, Charles Skelley, am declaring myself a candidate for the office of President in these United States in the 2008 election.

One of my guiding principles for this campaign is to say nothing negative about any specific candidate from either the Republican or Democratic parties.  They all are trying to be good people. 

But I distinguish my own campaign because I offer real solutions (that can get real results) by confronting problems which are really serious.  The US needs a new Square Deal.

INTRODUCTION 

Before getting into specific details for the Skelley 2008 Presidential campaign, I want to review some general background information about US politics, showing why the Republican party has not helped big US cities enough in recent decades.  In this introduction, I will also sketch out a logical way to stop US politics from being counter-productive.

In US Presidential elections, the rural counties (with low population density) usually give their votes to Republicans.  But the counties which contain large cities usually give their votes to Democrats.   Here is a link which tabulates the recent power centers for Republicans (which are mapped in red).

quote from:  http://www.usatoday.com/news/politicselections/vote2004/countymap.htm

Latest vote, county by county   Colored counties are those where a candidate has won with 100% of precincts counted.   Purchase keepsake map Square miles of counties won Bush 2.54 million Kerry 592,000 Population (2003) of counties won Bush 159,2 million Kerry 130.9 million Counties won by less than 5 percentage points Bush 164 Kerry 146 Note: County election data is not reported for Alaska,Source: the Associated Press, ESRI Inc. USATODAY analysis by Paul Overberg. endquote

About 78% of all US counties vote Republican; and about 81% of the land area in the US votes Republican. 

But about 45% of US voters consistently support the Democratic party, concentrated especially in the biggest US cities.

In the Civil War era, when the Republican party was young, 80% of all US voters lived in rural counties and produced food.  The Republican party became the dominant political party during 1860-1932 by representing the rural regions of the USA.  But today only 2% of the US population receives most of their income from producing food, which was the original power base of the Republican Party.

This radical change in demographics has also changed the political landscape.  The Republican party continues to support the formation of capital for the purposes of US food production.  Since the US exports a lot of food, the Republican party has traditionally favored free-trade —trying to get foreign countries to lower their import taxes on food, thus stimulating food exports from the rural regions of the US.  Our politicians have tended to talk about ”eliminating corporate welfare” when the government wants to drain Working Capital out of the cities.  For example, president Reagan eliminated the Investment Tax Credit in 1986, leading to a long round if “corporate downsizing” during 1986-1992, followed by a decline of manufacturing in most US cities during 1992-2007.

Population in the Democratic party’s traditional power base, big US cities, has grown continuously during the last two centuries.   Around 1932, when the New Deal came into effect, city dwellers had increased to about 50% of the US population. 

Ever since 1932, it is fair to say that the Democratic party should have been responsible for creating adequate Working Capital in their political strongholds, the large cities.  Some Democratic presidents have done this:  the names Franklin Roosevelt and John Kennedy come easily to mind, in regard to stimulating Capital formation in big US cities.  But in general, the Democrat presidents after Kennedy have not appreciated the importance of stimulating Capital formation in their own powerbase, the US cities.  For example President Bill Clinton made a half-hearted effort in 1993 to restore the Investment Tax Credit, but then abandoned this singly most effective economic policy in the US since World War II.

It is now time for the Republicans to reach out a helping hand to the cities, and to help Productive Workers all across the US, not just in the rural counties.   Population will continue to grow faster in US cities than in rural areas.  So the Republican party will continue to lose influence for US politics unless the Republicans gain more support in US cities.  My presidential campaign aims to recapture more than 6% of the US city voters from the Democrats, thus giving the Republicans 60% support throughout the US as a whole.

Most of the Democratic and Republican economists say that income inequality was lowest in the US when we had an abundance of Working Capital in the cities, i.e. shortly after World War II.   Presumably the experts mostly understand that now is the time to end “Corporate Badfare” in the US cities.   Today US manufacturing is under-capitalized and is not competitive with other nations.  So free-trade agreements now penalize a wide variety of Productive jobs in the US cities. 

In recent decades, politicians in both major parties have been raising large amounts of campaign money.  And those political campaign funds have been coming from people and voters who disagree with each other on most issues, but do agree that it would be nice if the Federal politicians could give their voters ”something for nothing”.   A “something for nothing” mentality might have made sense when the US had huge Trade Surpluses shortly after World War II. 

But after the US economy deteriorated into consistently worsening Trade Deficits, starting in the 1971 (reference:   http://www.census.gov/foreign-trade/statistics/historical/gands.txt ), US politicians in both of the major political parties should have stopped trying to give away “something for nothing” to the US voters.  Today the USA sincerely needs to stop taking things away from groups who are:  a) too young to vote, or b) existing as corporations which never get to vote, or c) working in a US industry which competes with foreign manufacturers.

I aim to organize three Federal economic districts in the US, each with roughly 100 million US residents.   One composed of the very largest Core Based Statistical Areas (reference data:  http://www.charlottechamber.com/index.php?category=Demo_ecoProfile&ref=MSAsRankedbyTotalPopulation&src=gendocs&submenu=msa_ranked_population )

, where Democrat economics is likely to run the show.  A second autonomous economic district with 100 million US residents will contain the underpopulated regions of the US, and Republican economics can be responsible for its destiny.  My third economic district will also contain 100 million US residents and will exhibit bipartisan politics, presumably aligning with the viewpoints of the “Independent” US voters.

Each of these 3 new Federal economic regions should have its own banking system, replacing the currently single US Federal Reserve Bank.    That way if one-third of the US continues to focus on unwise economic activities  – it can bankrupt itself, while leaving 2/3 of the US unharmed.