Greenberg’s Laws

Universal truths about the world around us.

Putin Says Iran Military Strike to Be ‘Truly Catastrophic’

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Business Week has the story Putin Says Iran Military Strike to Be ‘Truly Catastrophic’

His remarks about Iran and North Korea were interesting, but I find his remarks about Syria worth quoting.

Syria has come under mounting international pressure as a result of President Bashar Al-Assad’s crackdown on protesters, which is nearing its one-year mark.

Putin said that the resolution would be possible if the UN demanded not only from Assad to withdraw his forces but also from opposition to take away militant units from towns. “Refusal to do so is cynical,” Putin said.

It is no so much whether I agree or disagree with what he says here.  The marvel is that this is the first time I have read what he was thinking when Russia vetoed the plan of the other countries to put more pressure on Assad.

Maybe I need to add another law – Greenberg’s Law of Inexplicable Behavior – “When the media report on the existence of some seemingly inexplicable behavior, they owe us a report on what are the reasons that the actor uses to justify this behavior. Until you are able to read such explanation, you have to realize that the media is not reporting the whole story.”

Who Woulda Thought – A Manufactured ‘Crisis’ At The Post Office

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File this under the category, “Who woulda thought …”

In the article A Manufactured ‘Crisis’: Congress Can Let The Post Office Save Itself Without Mass Layoffs Or Service Reductions, we have:

Major media coverage points to the rise of email or Internet services and the inefficiency of the post model as the major culprits.

This is so obvious that it goes without saying, right?  Oh wait, “major media coverage” is a dead give away.  What if the obvious weren’t so true?  Here is the rest of that paragraph or two:

While these factors may cause some fiscal pain, almost all of the postal service’s losses over the last four years can be traced back to a single, artificial restriction forced onto the Post Office by the Republican-led Congress in 2006.

At the very end of that year, Congress passed the Postal Accountability and Enhancement Act of 2006 (PAEA). Under PAEA, USPS was forced to “prefund its future health care benefit payments to retirees for the next 75 years in an astonishing ten-year time span” — meaning that it had to put aside billions of dollars to pay for the health benefits of employees it hasn’t even hired yet, something “that no other government or private corporation is required to do.”

Who would have thought that Congress would purposely sabotage a quasi-government program just to prove that government doesn’t work?

H.R. 6407: Postal Accountability and Enhancement Act

109th Congress: 2005-2006

Senate House
Congress Years Total Dems Reps Others Vacant Total Dems Reps Others Vacant
109th 2005–2007 100 44 55 1 — 435 202 231 1 1

I wonder if the Democrats realized what a booby trap was in the bill?

Fact-Checking the Fact-Checkers: The AP Releases Misleading Analysis of Obama’s Tax Plan

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Fact-Checking the Fact-Checkers: The AP Releases Misleading Analysis of Obama’s Tax Plan says the following:

As Hanlon noted, “AP’s ‘fact check’ misses the point of the Buffett rule. The point is not to ensure that rich people on average pay higher taxes than middle-class people on average,” but “to ensure that all households with incomes above $1 million pay at least what middle-class families are paying.”

This is not the first time this month that the AP’s “fact-checkers” have bungled the facts regarding Obama’s economic plans. At this rate, they should think about opening a new division to fact-check the fact-checkers.

This is no surprise to me.  When I saw the headline for the AP story, I didn’t even bother to read the story.  I knew that it would be a distortion.

After reading the exposé, I decided to follow the link to the AP story, FACT CHECK: Are rich taxed less than secretaries? Here is the red-flag.

On average, the wealthiest people in America pay a lot more taxes than the middle class or the poor, according to private and government data. They pay at a higher rate, and as a group, they contribute a much larger share of the overall taxes collected by the federal government.

What does that even mean?  How did they take the average?  Did they average the percentages of all the included taxpayers?  Did they weight the averages by the amount of income earned by each tax payer? When the income of people making more than $1 million ranges from that $1 million to several billion dollars, then the average weighted by income is quite skewed from the average weighted by the numbers of taxpayers in each category.

When the article uses such imprecise terms, you know the article is an example covered by Greenberg’s Law Of The Media.

Another of the many red flags in the article include:

The 10 percent of households with the highest incomes pay more than half of all federal taxes. They pay more than 70 percent of federal income taxes, according to the Congressional Budget Office.

That is what I call half a statistic.  They don’t say it, but they obviously want you to infer that 10% of the households paying 70% of the federal income taxes is too much taxation.  To know if this inference is correct, you’d have to know what fraction of the income these 10% of households make, but they don’t tell you that.  Even if they did tell you about the declared income, they would be leaving out the unrealized capital gains of these wealthy people which may dwarf the income the IRS requires them to report as income. So to paraphrase Bill Clinton “It all depends on what the meaning of income is.”

Of course the quote is not going to emphasize that paying only 50% of federal taxes while paying 70% of all federal income taxes means that there are other hefty federal taxes other than income taxes that the less wealthy pay in larger percentages than the wealthy.

To use these tricks in their article, you would almost have to conclude that the article is purposely distorting the facts or the authors are totally ignorant of how they are misusing the numbers.  Personally, I don’t need people to report the news who know less about it than I do.  I certainly don’t need reporters who tell lies in their reports.

Click on the link under categories at the right side of this window for Greenberg’s Law Of The Media to see other articles in that category.  In the set of articles that come up, you might notice Associated Press the Faux Noise of the Print Media.

Ed Koch and NY-9

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I was looking for some news story about Ed Koch’s reaction to the loss of the Democratic candidate in NY District 9 so that I could comment on what he said.  I suppose the article Ed Koch and NY-9 in The National Review will have to stand in for the video clip of Koch’s remarks that I saw.  I wouldn’t normally quote The National Review, but if you want to show somebody saying something weird, this is as good a place as any to go.

The article first refers back to a March 29, 2010 A Passover Message to Americans from Ed Koch posted on a blog by Ron Radosh.  In part the message states:

President Obama’s abysmal attitude toward the State of Israel and his humiliating treatment of Prime Minister Benjamin Netanyahu is shocking.  In the Washington Post on March 24th, Jackson Diehl wrote, “Obama has added more poison to a U.S.-Israeli relationship that already was at its lowest point in two decades.  Tuesday night the White House refused to allow non-official photographers record the president’s meeting with Netanyahu; no statement was issued afterward.  Netanyahu is being treated as if he were an unsavory Third World dictator, needed for strategic reasons but conspicuously held at arms length.  That is something the rest of the world will be quick to notice and respond to.”

“As if?”  If it walks like a duck and talks like a duck, then it is probably a duck.

The National Review article goes on to say:

Koch also clearly believes that Obama has broken with the supportive stance toward Israel shown by every previous president. Koch ends by saying: “Supporters of Israel who gave their votes to candidate Obama–78 percent of the Jewish community did–believing he would provide the same support as John McCain, this is the time to speak out and tell the President of your disappointment in him.”

Well, this Jew believed that Obama would give Israel better support than John McCain because, unlike McCain, we would have the guts to tell Israel the truth about their self-destructive behavior.  In this regard the Obama administration has lived up to most of its promise.

I know that many in the Jewish community tend to justify any action that Israel takes, just because it is Israel.  I don’t agree.  Friends don’t let friends be self-destructive without trying to at least say something. True friends don’t even give hints to the self-destructive friend that the behavior is good or acceptable.

To think that Koch would vote against the best interests of the United State in order to support Israel reminds me of the the stereotypical claim about Jews.  The claim is that we have greater allegiance to Israel than to the United States.  Perhaps this is not what Koch is demonstrating in that Koch is truly way more conservative than the mainstream Democratic party even in regard to American domestic policy.

It is too bad that Israel does not seem recognize the similarity between its relation to the Palestinians and the relation of an abusive parent to a child.  No matter what provocation a child may have committed, there is no excuse for the parent to be abusive.  Moreover, the abuse often just inures the child to abuse and torture.  Rather than reform the child’s behavior, the abusive way the child is treated is taken as the lesson in how to interact with others.

Certainly one might talk about, I won’t argue justify, the current Israeli position as a role reversal with how they were treated by the Palestinians in the beginning.  Their current attitude could be thought of as the result of abusive treatment I described above.

So, on both sides, a distant observer can see where the behavior might be coming from.  That does not commit that observer to agree that the behavior is acceptable.  Each observer needs to try to change the behavior of the side on which the observer has the best chance of exerting influence.  So if this Jew excoriates the behavior of Israel, there is no need to come back at me with, “Yes, but look at what the other side did or does.”  I  have very little influence in the matter, but if I have any chance and even a modicum of credibility on changing one side’s behavior, it is on the actions of Israel where I must concentrate.

If I can just convince one or two of Israel’s supporters in this country to consider the fact that Israel’s behavior is counterproductive or that Greenberg’s Law of Counterproductive Behavior needs to be applied, then perhaps I will have accomplished something.

Republican’s Refusal On Raising Taxes Costs The Wealthy $7.8 Trillion

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The article Global Bonds Gain $132 Billion as Stock Rout Cuts $7.8 Trillion says (among other things),

… yesterday’s stock rout wiped out about $2.5 trillion in global equity values, extending total losses since July 26 to $7.8 trillion.

Put this together with the words in the Standard & Poors downgrade of the US credit rating:

Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.

I think that S & P is only looking for a couple of trillion dollars more of deficit reduction. Wouldn’t it have been cheaper even for the wealthy to have raised their taxes instead of making them lose trillions of dollars in the stock market?

My friend JohnK said the following:

I think any increase in consumer interest rates as a result of the downgrade should be called the “Tea Party Tax Increase, or, in Washington parlance, the “TPTI”.

I would just change that to say that this loss of wealth could be dubbed the TPTI.

Notice that I classify this post under the category of Greenberg’s Law of The Media which states that “if a news item has a number in it, then it is probably misleading.”

S & P – Decide Answer, Then Look For Evidence

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I find the following from the Bloomberg News report as published in The Boston Globe article, Treasury official faults credit rating downgrade:

S&P made a $2 trillion calculating mistake and then changed the rationale for its decision, raising “fundamental questions about the credibility and integrity of S&P’s ratings action,’’ John Bellows, acting assistant secretary for economic policy, wrote in a Treasury blog post.

The dispute stems from how S&P used figures from the Congressional Budget Office. The discrepancy didn’t change the downgrade decision, S&P officials said, because Treasury’s $2 trillion figure was derived by calculating government debt over a 10-year period while S&P’s ratings are determined using a three- to five-year timetable.

It appears that S & P may have come to the conclusion that it needed to downgrade the US credit rating and then went searching for the evidence that would justify the foregone conclusion.

In making hypotheses, I suppose there can be circumstances where your gut tells you what the hypothesis should be before you find the evidence to support it.  However, especially in this case where the hypothesis came before a formal search for evidence, you must be extremely diligent to not look only for supporting evidence.  You must be as diligent in searching for any evidence that would contradict your hypothesis.

As pointed out by Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable, it doesn’t make any difference how many swans that you see that are white, seeing just one black swan is enough to convince you that not all swans are white.  Even before you see the black swan, you ought to be cautious about claiming all swans are white.

Yes, I know,  if I am to follow my own logic, I should look for evidence that S & P did not make its decision to stick by its original conclusion because of  confirmation bias.  I’ll leave that as an exercise for the reader.  After all, I don’t get paid millions of dollars for writing these blog posts.  I would say millions of dollars may be at stake for S & P if they should lose their reputation, what reputation they have left, for making good calls on the creditworthiness of investments.  Remember their investment grade rating of banks’ mortgage backed securities.

August 8, 2011 9:00 AM

As mentioned in the post Resistance To Revenue Increase Causes S & P Downgrade, I was able to read the full S&P report.

I can’t tell if I was reading the original report or the corrected one, but it does look to me as if the quote mentioned above from John Bellows on the Treasury blog may have been very self-serving.

Perhaps S & P didn’t so much as make a mistake as they did use different assumptions from the CBO report from which they took their numbers.  I don’t know if this difference was mentioned in the original report, but it is very clearly stated in the report that I read.

I think this shows that you cannot trust what either political side has to say about the report.  You have to read the report and decide for yourself what you think it says and what you think it means.

Here is the link where you can read the full 8 page S & P Report.

Resistance To Revenue Increase Causes S & P Downgrade

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According to the article Mainstream Media Ignores S&P Attack On Republicans:

Page 4 of the official Standard & Poors “Research Update”

…

We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.

I did a Google search and could find no mention of this except in a comment on an article on one newspaper web site.  Of course, I only checked the first few of the 33,600 entries from the search S & P Downgrade “raise revenue”.  I had hoped for a link to the actual report so I could read it myself.

See if you can do any better finding this information.

I did a Google search on Reason US Downgrade.  Again I only found the reason in comments on news stories.  One of the comments cited the same article as I cited above.

In the article from Bloomberg News that I read in The Boston Globe, Treasury official faults credit rating downgrade, I did find the following paragraphs:

S&P reduced the US rating one grade to AA+ while keeping the outlook at “negative,’’ saying it was less confident that Congress would end Bush-era tax cuts or tackle spending on entitlements.
…
S&P was looking for $4 trillion in budget cuts over 10 years. The deal that passed Congress Tuesday would bring $2.1 trillion to $2.4 trillion in cuts over that time.

It is concerned that lawmakers and the administration might fail to make those cuts because Democrats and Republicans are divided over how to implement them. Republicans are refusing to raise taxes in any deficit-cutting deal while Democrats are fighting to protect entitlement programs such as Social Security and Medicare.

August 7, 2011, 11:03 PM.

I have now read the full 8 page S & P Report as have millions of other investors.

The original article from which I quoted left out an important sentence that makes the quote even more damaging in my opinion.  In the quote below, I put in the missing sentence along with the original.

Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act.

Putting the missing sentence together with the original extracted quote makes it clear that S & P does not believe that President Obama will be able to prevent the Republics from making the Bush tax cuts for the wealthy a permanent fixture of our tax laws.  All Congressional Budget Office analyses assume a base line scenario that the Bush tax cuts will expire.  The CBO analysis of any proposed congressional legislation only rates what that legislation will do when compared to existing law.  The existing law says that the Bush tax cuts will expire in their entirety.  Even President Obama wants to keep the tax cuts for the middle class.

I am not faulting the CBO for their assumptions.  The job of the CBO is to make objective analyses without introducing any political speculations.  So the best thing they can do is to to not second guess the political process and clearly state their assumptions.  With the assumptions clearly stated, the reader can then make whatever different assumptions they want to make and then adjust the results as appropriate.  This seems to be exactly what S & P did.

No wonder the S & P is so upset with the prospects for our getting control of the budgeting process and appropriately adjusting the results of the  CBO report.

Misunderstanding The Nation’s Debt

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McClatchy has published an article, Debt-limit friction a bad omen for tackling bigger crisis, which purports to explain the difference between internal and external debt and how that measures the seriousness of the current problem.

The article uses the following histogram to make some point. I am sure you are going to hear more about this chart in the coming days, so I thought I would give you a chance to try to figure out if there is any substantive meaning in it.

This graph raises more questions than it answers.  The graph is used by Alex Brill, an economist with the American Enterprise Institute, a conservative research center in Washington, which puts the whole thing into question right there. American Enterprise Institute, indeed.  The article also quotes Christopher Frenze, a former staff director of the American Action Forum, a conservative policy institute in Washington.

Greece, Italy, and Portugal are all countries that are considered to be on the verge of huge problems because of their debt.  They all have a debt as a percentage of GDP that is larger than the US.  However, Ireland and Spain are frequently lumped in with Greece, Italy, and Portugal as having problems, yet Ireland and Spain have lower debt to GDP ratios than the US.

Moreover, Japan, which is known to have very little external debt seems to have the largest ratio of external debt to GDP.  I looked up The Economy of Japan in Wikipedia.

For 2010 Wikipedia says Japan has GDP of $5.458 trillion, gross external debt of $2.2146 trillion and public debt of 225.8% of GDP.

So this works out to a gross external debt of 41.1% of GDP and a public debt of $12.324 trillion.  None of these numbers remotely correspond to anything in the chart used by McClatchy.

On second thought, the public debt of 225% from Wikipedia is in the ballpark of the 185% in the chart. Perhaps what OECD is calling external debt is what Wikipedia calls public debt. Perhaps this shows that no matter what you call it, the measure used in this article is not relevant as a measure of the seriousness of an economy’s immediate problems.

In analyzing private companies there is something known as the Quick Ratio. Investopedia provides the following definition:

Quick Ratio
An indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company.

The quick ratio is calculated as:

Quick Ratio

Also known as the “acid-test ratio” or the “quick assets ratio”

Perhaps we need a measure such as this to look at the country’s financial situation.

Greenberg’s Law Of Economic Progress (and its corollary)

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Here is my new law:

Any measure of economic growth that counts progress as an increase in the total amount of wealth in the country while a large number of people are still unemployed is a faulty measure.

It may be hard to figure out the exact right measure.  It is easier to figure out when a measure is wrong.  I suppose a corollary to the above law would be:

Any measure of economic growth that counts progress as achieving full employment while decreasing everybody’s wealth to the poverty level is a faulty measure.