Letters 4/29/21

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Waldorf Finance

In my career I served as a national, institutional-level commercial real estate appraiser, and earlier as a staff economist for an $18 billion regional bell company. In Brett Kingstone’s April 15 letter about the U.S. fiscal position, he mixes apples and walnuts. While that may be useful in a Waldorf salad, it does not help us understand national or personal budgets, finance, debt or expenditures.

I’m not a fan of debt; I don’t use it. But I share in a way in the liabilities and assets of the public sector. It is important to remember first that privately held wealth is not taxed in the U.S. Private income is. The former is known as a stock, while the latter is a flow. If one’s income is taxed at an effective rate of 25%, and that income represents even 4% of the stock of wealth (a reasonable rate in today’s environment), then 1% of a “wealth” pool is being shared with us all. The citizen keeps 3%.

We all get the highways, airport and the rest of the institutional and infrastructure items we must have. If the rate of total return on my assets exceeds my personal rate of inflation, then I can probably remain solvent. Even the Peoples’ Republic of China, late to the quasi-capitalist game, knows that a country also must keep its citizenry well and satisfied, for no man will revolt so easily over politics as he will over hunger.

Second, the national debt is continuously rolled over, essentially refinanced through the issuance of replacement debt. Vice President Cheney famously said, “Deficits don’t matter.” The above suggests that no true “balance sheet” can be stated for the U.S.

We elect our Congressional representatives; this is akin to an agency relationship, similar to a limited power of attorney. But outlays can exceed appropriations. Consider the Pentagon’s budget, up at a 4.45% annual rate since 2000. What we’ve bought with much of that is the hatred of a noticeable portion of the world’s people. Asset or liability?
The time value of money is also important. The longer we defray outlays to build new facilities or fund growing social needs (see “citizenry,” above), the more costly. Inflation does not sit still, even if the Bureau of Labor Statistics may say so.

Deferred maintenance of national assets such as the Interstate Highway system incurs the wrath of weather, upheavals of an adolescent Earth, plus wear and tear. Upkeep on St. Peter’s Basilica in Rome, nearly 500 years old, offers a point: Its upkeep runs roughly $27.5 million for an edifice the replacement cost of which is reportedly about $5.5 billion.
Government doesn’t seek profit or operate like a business. It provides services that are not sold. And those aren’t getting any cheaper.

Gregory Iwan/Longmont 

The meaning of progress?

As the world moves forward into the 21st century, many nations seem in a cultural retrograde to earlier forms. Vladimir Putin has created an oligarchy of wealth and serfdom not far different from that of the rule of Russian tsars. Beyond Brexit, the European Union is struggling with renewed squabbling and grievances of cultural and national sovereignty. China is flexing its new-found wealth with ambitions of Empire, with the Communist Party acting essentially as an Imperial Court. The United States has yet to resolve the bipolar ambivalence of the Founders’ declaration that “all men are created equal” and their embrace of slavery and white supremacy. Over the centuries, how much “progress” actually has been achieved?    

Robert Porath/Boulder