A Good Economy

A point of universal agreement during every election year is that we need a good economy. Voters are offered an assortment of propaganda about why each particular candidate’s agenda is best for the economy. Obviously the United States and the world have major problems with the economy. Europe and Japan are trying negative interest rates, an economic poultice that has never been tried before. And so far it is not working.

We need to first think about what it means to have a good economy, and then we can correctly evaluate how each candidate might get us where we want to be.

For Whom?

For working Americans

Those who work for a company or in their own business producing valuable goods and services for customers, a Good Economy is when working Americans have a full time job matched to their skills and abilities and they are receiving middle class wages. When everyone has middle class wages they purchase homes and lots of things for them, automobiles, travel and entertainment – things that make life enjoyable. All of these purchases generate economic activity that allows other Americans to earn middle class wages. This is the consumer economy and it makes up about 70% of all economic activity in the United States.

For professional investors

For the pros, a Good Economy is when things are set up to make the stock market go up. As the stock market goes up, stock investors get richer. Stocks go up for a lot of reasons, some financial and some emotional. Improving financial performance of publicly traded companies causes their stock price to rise. Reduction in interest rates increases the value of future cash flows which also tends to cause stock prices to rise. Emotional feelings also move the stock market; optimism about future economic conditions fuels stock price increases, whereas concerns about the future may trigger a sell-off.

For Corporations

A Good Economy is when things are set up to allow profits to increase. Profits can increase through higher prices, lower costs, or increased volume of business. Corporate profits also benefit from lower taxes.

For Billionaires

For individual billionaires, a Good Economy can mean several different conditions. Billionaires often have a large stake in a single enterprise, such as Bill Gate’s ownership of a large chunk of Microsoft, or Larry Ellison’s ownership of Oracle. Policies that help Microsoft or Oracle stock to go up are good for those particular billionaires. Billionaires are investors. Billionaires like policies that make stocks go up. The income tax bill for a billionaire can be staggeringly large, so it is not surprising billionaires may focus on policies that reduce taxes as being good for the economy.

However Steve Forbes and Warren Buffet both said that it doesn’t much matter who is in Washington because they will do all right no matter who is running the country. Or to put it another way, the smartest billionaires are rich because they know how to prosper in any environment.

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These goals are often in conflict. Reduced costs for a corporation mean lower wages for American workers. Reduced taxes for the rich mean higher taxes for the not rich.

These different (and conflicting) definitions of a Good Economy are the reason that politicians use a lot of vague promises to get elected. A Republican candidate can stand in front of any group of voters and promise to enact policies to promote a Good Economy, allowing the voters to fill in their own definition of what he or she means.

Since the Great Recession America has experienced an unprecedented economic phenomenon. The Gross Domestic Product and corporate profits have recovered from 2009 levels, driving the stock market to new highs, but wages for working Americans have not risen. This is the fundamental problem with the economy today. The consumer economy that is supported by the purchases of ordinary Americans is anemic because Americans do not have as much money to spend, relative to the economy as a whole, as they had in previous eras. Fed action to lower short term interest rates to 0% had very little effect on the economy. Many economists with vision firmly planted in the rear view mirror predicted that the zero percent interest rates would spawn runaway inflation, but the dreaded inflation never materialized. Fed minutes are now littered with arguments to justify raising (normalizing) interest rates on the grounds that the members believe that the economy can probably tolerate a rate increase, rather than to to throttle an overheated economy that the hawks predicted would occur about five years ago.

The healthiest economic period in modern American history is the period from the end of World War II in 1945 until the early 1980’s. During that time, wages and the standard of living for ordinary working Americans consistently rose and fueled the American consumer economy which was the envy of the world. The biggest gold mine on the planet was the American consumers. If a company developed a product that American consumers wanted,  the economic rewards were enormous.

The prosperity of the 1945 – 1985 period was based on an economic measure called Wage Share. Wage Share is the proportion of Gross Domestic Product that is paid out in wages to American workers and other developed nations every year.

Wage Share chart

The graph above illustrates Wage Share as a percent of GDP for the United States and other nations for the period from 1960 to 2012. As indicated by the red line, Wage Share in the United States peaked at 73% in 1969, declined slightly to 72% in the early 1970s, and then declined continuously to less than 65% at the lowest point on the chart in 2012.  Over the same period of time, corporate earnings, earnings of the richest people in the world, and the stock markets have all grown to new records highs.

The fact of the concentration of wealth in the hand of very few individuals has been documented in the last few years by many credible sources. A neutral summary of the situation is available in Wikipedia in the article Income Inequality in the United States. Citing data from several sources, the article reports that the proportion of the wealth produced in American that is paid to the top 1% has risen from about 10% in 1970 to almost 25% today.

There are several fundamental facts to keep in mind when discussing the economy.

First, the wealth of the nation is valuable goods and services that are produced by all economically active producers. Monetary amounts are used to measure the wealth, but the measurement only has meaning when it is conceived in terms of the desirable things that the money can buy.  Every valuable good or service is produced by a person who is doing productive work. This is an economic fact that many would like to suppress. Because if you acknowledge this inescapable truth, then it follows that the people who do the work and produce the valuable goods and services have a legitimate claim to receive a fair share of the wealth they produce.

But there is another argument in favor of a more fair distribution of wealth between workers and the one-percenters that doesn’t rely on idealism and fair play; almost everyone’s good economy needs consumers with money to spend.

Suppose you imagine a future where technology has advanced and a handful of Silicon Valley geniuses have created a huge sophisticated computerized company that can create any product completely automatically without the need for labor. Pipelines bring in raw materials from near and far. Computers control 3D printers and automated fabrication machines that can make clothes, automobiles, food, medicine, even complete homes. Products are delivered by a fleet of computerized trucks that drive themselves and automatically load and unload the goods. Online animated characters interact with humans over the Internet to provide personal services like health care. Over twenty years the geniuses enhance and refine the automatons until they can produce almost everything that the nation needs. In this futureworld, the Silicon Valley titans end up owning virtually the entire GDP of the nation.

But there is a problem. The customers have no money.

Billionaire genius Elon Musk as expressed some interesting thoughts about the future effects of technology advances.

The Secrets of Business Success

Business schools lack the temerity to publicly say what the game of business is really all about. The late George Carlin got it right and said so before he died:

Everybody knows by now, all businessmen are completely full of shit; just the worst kind of low-life, criminal, cocksuckers you could ever wanna’ run into – a fuckin’ piece of shit businessman. And the proof of it, the proof of it is, they don’t even trust each other. They don’t trust one another. When a business man sits down to negotiate a deal, the first thing he does is to automatically assume that the other guy is a complete lying prick who’s trying to fuck him outta his money. So he’s gotta do everything he can to fuck the other guy a little bit faster and a little bit harder. And he’s gotta do it with a big smile on his face. You know that big, bullshit businessman smile? And if you’re a customer – Whoah! – that’s when you get the really big smile. Customer always gets that really big smile, as the businessman carefully positions himself directly behind the customer, and unzips his pants, and proceeds to service…the…account.

Business success means winning by any means that you can get away with.

Business Schools wisely refrain from offering degrees in becoming a ruthless financial predator, in part because a lot of moms would not be comfortable with that, but mostly because they cannot actually turn anyone into a successful financial predator. So they make money by moving junior along for four enjoyable years while he sits through a lot of courses that are not too challenging for most people.

But the truth about business is there for all to see.

Near the turn of the century it became vogue for corporate business executives to portray themselves as supermen who could use their unique genius to transform a mediocre company into spectacular profitability in only a few years if the board of directors would agree to pay them a billion dollars. After a few years of this game it finally became clear to lawmakers that all these experts were doing was corrupting the accounting system so they could publish fake financial reports with a lot of big impressive sales and profit numbers, reap their billions, and cash out and move to Florida. The government eventually caught up and passed Sarbanes-Oxley to shut down this particular swindle, but don’t believe for one second that the Sarbox legislation ended the game.

So here in shockingly frank terms are the real skills needed to succeed in business.

1. Bragging

Brag. You must constantly tell everyone how great you are. No one ever made it to the top on pure untouted virtue. Bragging may have been the primary skill that elevated General Douglas MacArthur to become a five star general and ultimately the Viceroy of Japan. Both he and his mother wrote letters endlessly to generals and politicians telling them how great Douglas was.

2. Bullying

You must be a bully and you must be a bigger bully than your opponent. You must have the personality and the large intimidating physical presence to intimidate people to do what you want them to do, and to prevent them from doing that to you.

This fact explains the dearth of women at the highest levels of corporate management. Women can charm your socks off or nag you to death but in a genuine brutish fight they aren’t worth a flip at bullying. You will note that most women are, fundamentally, pussies.

3. Bullshitting

Of course. To succeed in business you must be able to convincingly bullshit anyone at any time about anything.

4. Bluffing

Another of the essential arts of deception. The successful corporate executive must be able to win a hand from time to time merely by bluffing opponents out of the game.

5. Brown Nosing

Or in corporate-speak, cultivating strategic relationships. This is primarily a skill that one needs to climb the corporate ladder and to have one’s way with the Board of Directors. The late great F. Ross Johnson used his excellent brown nosing skills to climb the corporate ladder all the way to the CEO’s chair in every company where he worked. Ross was a master at using corporate resources to bribe his superiors and directors to get them to do whatever he wanted them to do, without them feeling bribed. Amazing.

6. Back Stabbing

And of course, one must be able to destroy your opponents, particularly opponents who are smarter than you are. This is accomplished by attacking them in ways that all fall under the allegorically named category of back-stabbing.

Back stabbing techniques ranges from merely heaping ridicule upon an opponent to running a play where one baits the opponent into compromising behavior and then exposes them.

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So there you have it. Tom’s B-School. The real package of skills necessary to rise to the top of the corporate jungle and eat meat with the big dogs. Harvard can help but you really need to be born with predator DNA to win this game.

Lest you leave thinking this is all one big joke let me call your attention to the career of Al Dunlap. “Chainsaw” Al Dunlap made a reputation in the 1980’s as corporate business genius. Bring Al into any mediocre business and he would use his sharp business genius to find ways to increase sales and cut costs in ways that no other mortal could. Hire Al and in no time the financial reports would show terrific increased sales, margins, and profits as Al sliced through the company and cut out waste with his cold efficient genius. But in the end Al was found to be a fraud. Although he would fire a lot of people (often good diligent long term employees) the spectacular financial results were found to be the result of nothing more than fraudulent accounting. Al was cooking the books. He was a professional financial reporting fraud artist who used Bragging, Bullshitting, and Bluffing to make a huge pile of money.

Al was on the front of the wave in financial reporting fraud. He got out of the game with a pile of money and a slap on the wrist before the government got really mad and put some of the fraudsters in prison like Bernie Ebbers of WorldCom and  Jeff Skilling of Enron for doing more or less the same things that Al did.

But this is the United States of America where money talks. Al Dunlap is now retired in Florida where his name is proudly plastered on a building in the school of business at Florida State University. I kid you not.

 

 

 

The Juror’s Handbook

Quite a few years ago when I was a highly confident 31 year old man I was summoned for jury duty. I responded and appeared in the courthouse at the appointed time only to be selected to sit on a jury to try a serious felony case despite my best efforts to appear undesirable to the prosecution and the defense. The trial took a little less that a week and we the jury reached a verdict after about 8 hours of deliberation. Over the years since that experience the impression of how ill prepared I was for the task has only grown stronger. I walked into the criminal judicial arena that day with only a television drama viewer’s knowledge of our system of law enforcement and criminal justice. If I had it to do over again with the benefit of the wisdom gained over a full lifetime of living the defendant would receive a different verdict.

Most cops, prosecutors, and judges in America are fair and honest and they do a good job of keeping our communities safe for law abiding citizens. I am especially grateful to cops, the front line soldiers who go wherever they have to go 24/7/365 and deal with whatever is there, often placing themselves at risk of personal injury and death.

Somewhat over 1,000,000 individuals are convicted of a felony in state court every year in the United States. Overwhelmingly, the system charges the right person with the crime but errors do happen. John Grisham did an excellent job explaining how an innocent man’s life was ruined by the incompetence and corruption in law enforcement, prosecution, and the court system in his excellent non-fiction book The Innocent Man. In that case misdeeds by the police officers, investigators, forensic experts, and the prosecutor that led to the wrongful conviction were so egregious that it is impossible for me to believe that some of it was not intentional. As of June 2017, the Innocence Project has helped to exonerate 2052 individuals who were convicted and imprisoned for crimes they did not commit; estimates are that there are many more such individuals still behind bars. The damage done to the lives of these people cannot be undone. It is impossible to restore a person’s life after they have been wrongfully convicted and imprisoned.

Problems with criminal courts and juries swing both ways. In the Casey Anthony trial a young Florida mom was tried for the death of her baby girl (Caylee). The prosecution presented evidence that supported the conclusion that Casey Anthony killed her daughter, and went a long way to establish when, how, and why she did the deed. The defense offered some far-fetched explanations for Casey Anthony’s behavior around the time when the little girl disappeared and was killed. The jury gave her a not guilty verdict and set her free. A serious misunderstanding by the jurors of the meaning of “reasonable doubt” is the only plausible explanation.

Serving on jury for a criminal trial is a weighty responsibility. The jury must stand up for civilization and vote guilty to protect society from those who refuse to conform to society’s rules and live in peace with their neighbors. The jury must also serve as the is the last hope for the wrongfully accused who regretfully appear in courts somewhere in America every month.

When the jury finds the defendant guilty (convicts), the decision is subject to review (appeals) at several levels. When the jury finds the defendant not guilty (acquits) the decision is final.

1. A Crime Occurred

The first thing the prosecution must prove is that the stated crime actually occurred.

A defendant must be charged with committing one or more actions that violate a specific criminal statute according to the literal text of the law. Merely doing something that is morally wrong or behaving in an uncivilized manner is not sufficient grounds to convict a person of a crime. The prosecutor must identify a specific criminal statute that the defendant is charged with violating in order to establish grounds to impose punishment.

In cases where there is no physical evidence and no objective witnesses, the jury may find that they have questions about whether the specific crime that is charged actually occurred. Sometimes prosecutors are lazy or bend the rules to suit themselves. There have been prosecutors who decided that whenever any citizen discharged a firearm in public then they must be arrested and charged with a crime. In these cases the prosecutor would charge a defendant with a cornucopia of violent offenses in the hope that the defendant would plead guilty to something rather than incur the expense and risk of a trial.

Early in the deliberations the jury must find that they are all convinced beyond a reasonable doubt that the specific crime(s) that are charged actually occurred. If they are not convinced that the charged crime occurred then the defendant cannot possibly be found guilty.

2. The Defendant Did It

If the prosecution establishes that a crime occurred, the next task is to introduce and defend evidence that the accused committed the crime. Here the prosecution has a huge advantage over the defendant. The police officers, detectives, and crime scene technicians are all government employees who may be utilized by the prosecutor to gather evidence and build the case. The defendant usually has no prior experience with crime technology and certainly has no on-call staff available to gather their own exculpatory evidence or to review the work of the state to find errors. Few defendants will have the personal financial resources to hire a team to mount an effective challenge to the state’s experts. Although the judge is supposed to be impartial, juries should not ignore the fact that the judge is also a state employee. It is impossible for judges to not get familiar with prosecutors, police officers, detectives, and crime technicians. They work together year after year.

When as often happens the defendant has few personal resources, the state will assign a public defender. I admire public defenders. They perform a task that will never earn them admiration from the rest of the criminal justice staff. A defendant relying on a public defender is at a

3. The Burden of Proof

The prosecutor must provide the jury with convincing evidence that a crime occurred and the defendant committed the criminal act.

The prosecution has wide discretion to decide whether to charge an individual with a crime. Although elected officials and newspapers may clamor for the cops and prosecutors to “do something” about a crime problem, criminal charges should only be filed when the prosecutor has reliable evidence that a crime occurred and that a specific individual engaged in behavior that violated a specific criminal statute. As such the entire burden of providing the jury with convincing evidence to support a guilty verdict rests squarely upon the prosecutor. The prosecutor has the resources of the police officers, investigators, crime scene technicians, and forensic experts to work to gather evidence to solve the crime.

If during deliberations the jury finds that there are unanswered questions about whether the crime occurred or whether the accused committed the crime then the jury should regard this as a failure by the prosecution to prove its case. The jury has no duty to fill in the gaps. The prosecution should tell a convincing story supported by evidence about how the defendant committed the crime and explain any gaps in the narrative with respect to things that matter to determine guilt or innocence.

4. Reliable Evidence: Who Do You Believe?

 

Studies with video recordings of events show that eyewitness accounts of what happened when witnesses saw a staged crime event are far from perfect. When watching a crime scene most people do not perceive everything that happens within their field of view. They tend to focus on one part of the scene and fail to observe other activity happening in the area. They may blink or flinch and miss critical moments. They may be intentionally distracted from seeing the criminal act.

Even eyewitness identifications have proven to be marginally reliable. At the time a crime occurs very few people will carefully scrutinize the criminal. Due to the stress of the encounter the victim is focused on survival. The criminal may do things to obscure his identity. The crime may take place under poor lighting conditions. The victim may have a general idea of what the criminal looked like but unless the criminal has a unique distinguishing feature (purple hair) the victim will not be able to identify the criminal from a group of similar looking men with any reliability. Additionally, studies of wrongful convictions have shown that line-ups can be manipulated to guide a victim to select a particular candidate.

Our memories are not perfect. The best witness accounts are those that are recorded as soon as possible after the event such as words spoken on a recorded 9-1-1 call or a statement made to an investigating officer writing his report shortly after a crime occurs. As time goes by recollections by witnesses tend to fade or become modified in their memory.

And of course people lie. Everybody lies. When your wife asks “Honey, do you think I look fat” what do you do? If a cop or an attorney is found to have lied to the court they face severe adverse professional consequences and criminal prosecution. But they may omit details that they know are relevant in order to try to steer the jury to a conclusion.

Because of these problems jurors should adopt a skeptical demeanor while listening to testimony. Watch the witness’s eyes to see if he looks down or to the side before he speaks, which is an indication that he is measuring his words rather than plainly reciting what he saw.

Physical evidence is extremely useful to provide a foundation of reality that jurors can depend on. Crime scene technicians who gather and analyze physical evidence are usually one or more steps removed from the actors in the crime and investigation. Although they may make mistakes they are very unlikely to be drawn into a conspiracy to suppress or alter evidence. In a trial of a major crime it would be very difficult to convince me to vote to convict someone without providing physical evidence that a crime occurred and that ties the defendant to the crime.

The defense should work to expose weaknesses in the prosecution’s case. A skillful defense attorney is very effective at identifying inconsistencies in testimony and pointing out the limitations in expert opinions and technical errors in the physical evidence.

5. Beyond a Reasonable Doubt

At this point please take a moment to note that in life it is nearly impossible to be absolutely certain about matters concerning the behavior of other human beings. Absolute certainty means beyond the possibility of the slightest doubt. Absolute certainty is rarely attainable in life and never in court. Jurors will always have some doubt when they decide a case.

How convincing must the prosecution’s case be? The threshold for the burden of proof in a criminal case is beyond a reasonable doubt. To find a defendant guilty the jury must decide beyond a reasonable doubt that the crime occurred and that the defendant is guilty as charged. It is very important that jurors in a criminal trial have a clear and precise understanding of what is and is not reasonable doubt.

So what is reasonable doubt? Reasonable doubt exists when there is a reasonable explanation for all of the evidence without the defendant being guilty of the crime.

 

Reasonable doubt cannot:

  • Depend on magic, miracles, or supernatural events.
  • Rely on the occurrence of extremely unlikely events without strong proof that the unlikely events happened in this case.
  • Be founded on a theory of conspiracy among the cops, technicians, prosecutor and judge unless there is strong evidence presented in this trial that such a conspiracy exists.
  • Be founded on anecdotes about similar cases that occurred in the past.

If the prosecution’s story leads you to conclude the defendant did it, and the evidence cannot be explained away without relying on one of the unreasonable elements above, then the case is proven beyond a reasonable doubt and a guilty verdict is supported.

 

6. Civil Matters

The foregoing concerns criminal trials where the defendant may lose his freedom or even his life based on the jury’s decision.

You may also be called to serve on a jury for a civil matter. Civil matters are usually lawsuits where one party is seeking compensation (money) from another party. It is a money fight. It is theoretically possible to file a lawsuit and ask the judge to order the other party to take certain action, like sign a deed, but that is rare. The state is not involved in civil trials beyond the fact that the trial is conducted in a state courtroom staffed by a judge who is a state employee.

The standard of proof in a civil matter is the preponderance of the evidence.  Preponderance is the legal way of saying the jury should decide which side has more convincing evidence that the jury believes has more truthfulness and accuracy than the other side. This statement implies that there will be some attempted deception during the proceedings.