America: Who Pays the Bills?

I remember a couple of years ago, Michelle Obama urge an assembled crowd of adoring college students not to "sell out" by working at a private company. She wanted them to do things like work at non-profits. Gee, I thought, what if they all took her advice? Who the heck would pay the bills?

This got me wondering: how many people, do you suppose, are actually supporting this country? By that, I mean how many people are actually producing the wealth on which everyone relies, in one form or another? I didn't know, so I decided to find out.

Most jobs "pay for" themselves because they produce definable excess wealth. For instance, a factory owner will pay x to a worker because the value of person's work is worth more than x (this is also known as surplus value, a concept that Marx found contemptible). These are jobs that produce wealth. No one must contribute to that worker's salary out of the goodness of their hearts, or through taxation.

Other professions, such as government workers, teachers, clergy, foundation professionals, etc., rely money that must be taken from others via taxation or persuaded from others via charity.

So, how many people are footing the bill?

Our starting point is the number of employed people in the U.S.:

154 million

From this, we subtract

State and local government workers (incl. teachers) - 16 million

Federal workers - 4.4 million

Non-profit health care workers - 5.7 million

Higher Ed professionals - 3 million

Clergy and other religion professionals - 1.6 million

Civic, social , and fraternal organizations - 0.5 million

Arts and culture foundations - 0.35 million

Total: 31.6 million

This is the number of people who have jobs, but whose jobs must be funded through taxation or charity. Subtracting this from 154 million, we get 122.4 million as the number of workers who are producing wealth.

But there are lots of other people, too, principally the young, the old, the sick, and the unemployed. These groups do not produce wealth and must also, in all or in part, rely on funds from others.

The population of the United States is 311 million. There are 122 million people keeping the ship afloat. Also ponder this: for every three working age Americans with a job there are two without. I would suggest these things are unsustainable all by themselves, but it's only going to get worse. Ten thousand baby boomers retire each and every day.

I will sum up the Obama administration's approach to this for the next four years: "Nothing to see here. Move along."

(Note: this piece is not meant to suggest that professions such as teaching provide no value, of course they do. I taught myself, and I'd like to think I wasn't wasting my time. It is simply meant to point out some very harsh economic realities. My data source was the Bureau of Labor Statistics.)

Election 2012 - Atlas Has Shrugged

The Naked Dollar Electoral Model correctly predicted that Barack Obama would secure re-election. It is now three-for-three.

This is of scant comfort. Sort of like the old joke, second prize is two weeks in Philadelphia. But this is why one creates dispassionate models, because they refuse to factor in emotion. I personally was wrong about the election, primarily because I underestimated turnout in Democrat precincts.

What I also overestimated was any determination on the part of the American people to choose liberty over dependence, and this is a very sad thing. The takers now outnumber the makers.

I tried to read Atlas Shrugged in high school. I think I got through about sixty pages. Atlas is not an easy book. About three years ago, I picked it up again and forced my self to get through it. It gets easier once you get past page sixty, as it turns out.

If you haven't read it, it about a United States in an advancing state of redistributive socialism. The redistribution is as much about crony capitalism as it's about transfer payments to the poor. One by one, the great capitalists - the ones who don't want to play a rigged game - start disappearing. No one knows why or to where. They have decided to go on "strike," having been getting milked dry by a corrupt system that at once despises them and yet needs them to survive. Government actions were justified under the banner of "fairness." After all, the rich didn't get their wealth by honest means. They must have taken it somehow. Others are more deserving.

Any of this sound familiar?

The capitalists decide they won't play the game anymore. The only solution is to withdraw from the very system that they were holding up. The inevitable collapse needed to be hastened, so the country could start anew from the ashes. The capitalist heroes walk away from their factories, implicitly saying to the socialists and bureaucrats, "Here, if you think it's so easy, you try it."

As Margaret Thatcher famously said, "Socialism works only until you run out of other people's money."

Let me tell you what I'm hearing. One very wealthy friend of mine - a truly successful capitalist - told me he is ceasing all venture investing as well as all charitable giving. He is also reorganizing his investments in the most defensive manner possible. Think things like non-dollar cash. Another friend is ceasing all giving to schools. He views - correctly - these gifts as feeding the problem, with schools indoctrinating our kids with the very ideology that makes a Barack Obama possible. (Indeed, a college acquaintance of mine who is now a professor informed me the day after the election, on Facebook, that wealth is not created, it is simply "aggregated." Translation: you didn't make that, you took it.) A charity I know had five six-figure donors last year. All bowed out after the election, fearing significant tax hikes. Hell, let the government solve that problem.

These people I'm talking about are fighters, too, but they seemed to now be resigned to our country's fate. That is profoundly sad and more than a little frightening.

Around 1790, a historian named Alexander Tyler listed the eight phases of democracy:

1. From Bondage to spiritual faith;
2. From spiritual faith to great courage;
3. From courage to liberty;
4. From liberty to abundance;
5. From abundance to complacency;
6. From complacency to apathy;
7. From apathy to dependence;
8. From dependence back into bondage.

Where do you think we are on this list? Arguably, seven. And while eight seems farfetched - come on, this is America! - there is nothing special about our country that makes us immune from the impartial hand of economics. In truth, we have been commiting slow-motion suicide since FDR. Ponder the growth of government spending relative to GDP:

Ignore the spike for wars, because those always scale back quickly. Focus on the baseline growth, because that's what's near impossible to stop as more and more people become addicted to the system. Under Obama, our suicide has hastened itself, the tipping point to insolvency now likely having been reached. (In his bid for re-election, Obama didn't even suggest a solution for any of this. Give the man points for being honest.)

What's so upsetting was that America seems to have collectively decided that this is all okay. The choice was quite a stark one, after all, and certainly no one was abused with the notion that our president was doing a bang-up job on the economy. But that's okay, as long as no one messes with my check. The culture of dependency has now been fully - and willingly - embraced. Gone is the America of rugged individualism. Gone is American exceptionalism, and we will now witness a more persistent decline in our personal liberties. I fear even if we wake up four years from now, there's no turning this ship around. Oh, there will be some sort of economic recovery, but it won't be a great one, and the downward cycle now seems written in stone.

Ironically, I am writing this from Colorado. I say ironically because it is to a small, hidden town in Colorado that all the industrial heroes in Atlas create their capitalist utopia.

Does anyone know where I can find it?

2012 Election Models - The Final Call

First, the electoral prediction. In 2004, this model hit the totals on the head. In 2008, it was really, really, close. To understand how this model is constructed, click here.

The call this year is Obama 281, Romney 257. Here's the time series:

Holy cow, does this look close. One medium size state sways it. May I say, I pray to God the model is wrong this time. On Wednesday, I'll either be pleased for the country or pleased for the model. I'll take country. Personally, I believe Romney will win.

Some better news can be gleaned from our momentum model, where all the late mo belongs to Republicans:

And the cumulative...

(To understand this model, click here.)

Republicans have had a huge surge since the first debate, one that has actually accelerated lately, if quietly. I say "quietly" because it has happened while presidential polling hasn't move a whole lot. But, perhaps, there is an underlying current here. The last surge is the most important. It doesn't guarantee anything, mind you. Gerald Ford had a big late move in 1976 but needed one more day.

We shall see. Buckle up.

Who Will Show Up on Election Day?

Who will show up to vote? By this, I mean what will the breakdown be between Republicans, Democrats, and Independents? This is the only question that matters right now, because other things are known with a high degree of certainty. We know, for instance, that virtually all partisans will vote for their guy and that independents will split towards Romney by a minimum of +5 but more likely close to +10. All polling confirms this.

So, you tell me who's going to show up on election day, and I'll tell you who's going to win.

HUGE reputational bets on both sides are being made right now on this question. You have mavens like Nate Silver and Sam Wang on the left and Dick Morris and Michael Barone on the right, both agreeing about everything but who will show up.

Take Ohio. A Marist poll released today gives Obama a whopping six-point lead. Time for Mitt to pack it in, right? Not so fast. In 2008, a huge wave election for Dems, the turnout in Ohio was D+5. In 2004, it was R+5. What would you say a reasonable assumption might be for this year? Remember, every poll confirms that Republicans are way more fired up to vote than Democrats. So, what then? D+2 might seem reasonable, maybe even a draw.

Marist's poll has a sample of D+9, almost twice the turnout Dems got in '08. While it is true we just don't know yet, this seems ridiculous on its face. The argument on the other side is that long term demographic changes (i.e. the "browning" of America) are creating an inexorable trend where 2008 was merely a way-station.

This is a difficult argument to buy, given we all know there were vast numbers of people - youth and minorities in particular - that never voted before '08 and won't this time, particularly since they checked the transcendent, history-making box last time.

Nonetheless, polls have definitely tightened in the last couple of days as Obama seems to be enjoying a Sandy-bounce. This is far from a done deal for either side.

Election Models Update

As I write, Sandy is pounding on us, so I will try to get this out before we lose power. During Irene, we lost power for five days. Ugh.

Here's how the pulse index looks:

And the cumulative...

(For an explanation of this, click here.)

It's worth noting there have been three large, definable trends during this campaign. First, a huge upswing for Republicans during the summer, something that went unnoticed by the MSM. This trend was stopped in its tracks by The Democrat convention, which erased fully half the summer's gains for Republicans (this was very much noticed by the MSM.) More recently, there was a Republican uptrend since the first debate. Interestingly, this trend appeared halting at first, but has actually picked up momentum very recently. If Dems can't reverse this soon, they will be very unhappy on election day. Arguably, the most important trend is the last one.

On the other hand, after Romney pulling even a few days ago, Obama has bounced back some in our Electoral College Model, and he now leads 283 to 255:

This is very odd, indeed. Two models, one based on polls, the other based on people making bets, seem to be telling us two different things. More thoughts on this to come.

SNL Nails It

SNL has summed up the Naked Dollar's view of undecideds nicely:

http://www.nbc.com/saturday-night-live/video/undecided-voter/1418227

Have Conservatives Warmed to Mitt?

All through the primaries, conservatives, including this one, kept searching for the anti-Mitt. Just about everyone got to take a cut, and in the end, Romney won a battle of attrition. But consider this: while 30% of the country is Republican, 40% consider themselves to be conservative. This is why Republicans tend to win base-driven elections (Reagan) and lose battles for the center (Ford, Dole, McCain).

Despite the word "extreme" ushering forth from every Democrat talking head, no serious analyst considers Romney to be ideologically conservative. Conservatives themselves certainly don't. And yet, my non-scientific observation is that they have embraced the governor. It would be tempting to say that this is a marriage of convenience, that conservatives would vote for a toaster if it meant dispensing with Obama, but no, I don't that quite covers it. I think there is genuine conservative enthusiasm behind Romney at this point. I feel it myself.

So, why? Is this a case of wishful thinking? It may be, but I think there's something else going on. Mitt Romney is being embraced not as an conservative ideologue, but as a problem solver. His entire background paints a picture not of a thinker but as a doer. Not as someone who views the world as a struggle between ideas, but as a series of problems to be solved.

Romney was a consultant, of course, and then an exceptionally successful private equity executive. Both jobs are about fixing things that are broken. Olympics? Another problem to solve. By all accounts, he even views winning the election as yet another problem to be broken down into component parts and solved. Define the problem, put a plan in place, execute.

Let me be clear that it is always a concern when the non-ideological Republicans are elected president. It gives us Nixons, Fords, and Bush 1s. Ineffective all, and a lack of philosophical bearing was a problem common to each of them. Romney himself had a problematic stint as Massachusetts governor, at least from a conservative perspective (Romneycare!). I'll go a step further and suggest that Romney would have made a poor president if he'd been elected in, say 1996. This is not a man you want for the good times. Left with no major problems, who knows where someone with no compass goes.

But now, the man and the moment might just be a splendid match. America's problems are acute and definable. Romney can see them, and he will attack them like the problem solver he is, and in doing so, will also be aligning himself with conservative economic priorities. I think this explains the new love affair between Romney and his former detractors.

No one planned it this way, but it's a good thing for Mitt it's working out like this. He won't win if conservatives don't show up next week, but show they will.

Independents Are Not What You Think They Are

Most independents have no idea what's going on. Okay, that's a controversial thing to say, but bear with me for a couple of minutes. It has something to do with cocktail parties.

Conventional wisdom is that independents control the tipping point of every election. Politicians ignore them at their peril! But who are these folks? It seems to matter, because the media gives us breathless reports on them almost hourly. The message I hear is that they are the thoughtful voters, the ones who carefully weigh every candidate on the issues, and then come down from the mount close to election time, brows furrowed with the weight of all that cogitation, to deliver their verdict.

What a pant load. 

Before I get into exactly why, let me say there are some smart, informed independents out there. Many of them have grown weary of one party or the other and have thrown in the towel, and I am somewhat sympathetic of this decision. But on the whole, I don’t think they are the enlightened bunch they are made out to be. 

I am on to them.

Here’s why. Have you ever noticed that when two people sit opposite each other, they tend to copy each other's postures? One leans back, the other leans back. One crosses their legs, so does the other, without conscious thought. This is a well documented phenomenon known among behavioral psychologists as postural mirroring.

The same precise effect happens with preference sets. People tend to gauge the viewpoints and behavior of others around them and modify their own positions accordingly. Over time, certain viewpoints or behaviors will become acceptable that weren't previously. Blogger Glenn Reynolds once pointed out, by way of example, the sudden appearance of American flags across our landscape (particularly on cars) post-9/11. Were people suddenly more patriotic? Probably not, but opinions and behavior are highly contagious. Once a few opinion leaders started waving the flag, others took this as an "all clear" signal that they could overtly display their patriotism, and they did. This is sometimes called a "preference cascade."

A year later, the flags were gone as the process reversed itself. Investment bubbles and fashion trends come and go in much the same way.

Nowhere is this phenomenon more acute than in the realm of politics and political issues. The explanation is rooted in the fact that most people don't pay much attention, but they don't want other people to catch on to this fact. No one wants to appear uninformed.

This is where my cocktail party theory comes in. 

I know this doesn't describe anyone reading The Naked Dollar, but let's pretend for a moment that you are that uninformed person, and you find yourself at a party. Suddenly, much to your horror, the conversation turns to politics. You very much don't want to look like an idiot. What to do?

The answer, short of staying silent, is to take a position as close as possible to those around you - the cocktail party center. No one will challenge you if you're agreeing with them. Disagree, however, and you might be forced to back up your opinion with facts or logical argument. That would be risky, especially since you don't know any. So, you gravitate to the views of those around you, and pretty soon you own those views.

This ends up being self-reinforcing: the more you observe and mimic others, particularly from your own social milieu, the more you end up truly embracing their opinions, and the more you, in turn, tend to then influence others.

In my own hometown, this phenomenon was rampant in the last presidential election cycle. Probably around 2005, it became unfashionable to voice support for George Bush. Not our kind, dear. Can’t even pronounce “nuclear.” I watched as the independents and more than a few Republicans quickly modified their views to reflect those of progressive opinion leaders, who were pumping up the volume at the same time that conservatives turned mute.

When Obama came along, the table was already set. Supporting him was "enlightened" and "sophisticated." Nod your head and watch your social stock rise.

Now, especially in the last few weeks, the process has completely reversed. Progressives (aka "liberals") are dispirited and conservatives are making the most noise. The prevailing view is that Obama has been a disappointment. "I voted for him, but he hasn't lived up to my expectations," is now the precise cocktail party center. The preference cascade has flipped, and Mitt Romney is the beneficiary. (With two weeks to go before the election, I doubt it can flip again.)

So, with regards to independents, I don't begrudge the uninformed. Okay, maybe a little. Okay, actually a lot. Some people want to live their lives and not spend hours figuring out the pros and cons of every issue and candidate. That's their prerogative. But hey, let's stop pretending they're Stephen Hawking.

Breaking News - Naked Dollar Electoral Model Shows Exact Tie!

After a comfortable lead all year for Obama, the Naked Dollar Electoral Model (NDEM) now shows the race at an exact tie in the electoral college, 269-269. Also, the Intrade Obama contract has plummeted to 56%. Naked Dollar readers should have made a lot of money if they read previous posts about the gross mispricing between the "big" presidential contracts and the state-by-state contracts. Interestingly, this arbitrage still exists because the state contracts (on which our model is based) say it's a 50/50 race, and yet the Obama contract is still at 56%. Look for further adjustment soon. Still a lot of easy money to be made on Intrade this cycle.

(To understand the NDEM, click here.)

Here's an historical view of Obama's contract. Note that the "price" can be interpreted as the odds of winning.

By the way, New York Times and media darling Nate Silver still has the president at a 68% probability of winning. In Silver's defense, he nailed the last election, but he's really out on a limb this time. In 2008, he looked smart because he thought Obama would do better than did just about anyone else, pretty much where he is today. But does he simply have a liberal bias? It's hard to look at the totality of what's going on and conclude that Obama is a 68% favorite right now. Silver is making a HUGE reputational bet.

Let's check in with the Naked Dollar Pulse Index:

And the cumulative...

A lot of volatility lately, mostly favoring Republicans. It remains true that while Romney gains momentum, the same cannot be said for Republican candidates nationwide, at least since the Democrat convention.

(To understand the Pulse Model, click here.)

More Polling Nonsense in Ohio

See, this is what I'm talking about. Today a CBS News/Quinnipiac poll was released for Ohio showing Obama up 50-45. Bad news for Romney, right? Hmm, maybe not. Here's the sample they used:

Republican      26%
Democrat        35%
Independent    34%
Other/DK         5%

CBS outsampled Democrats by 9%. In 2008, Democrats had a 7% turnout advantage in Ohio. Is there anyone on the planet that can make an argument that 2012 turnout will be better for Democrats than 2008?

In 2004, Republicans and Democrats were evenly split. In 2010 it was the same. As I argued previously, you could make the case that this year might be something like D+2. So, what happens to the CBS survey if you adjust it for this assumption? Here's what you get*:

Romney       48%
Obama         47%
Other/DK      5%

With Romney's huge lead among independents, I would argue he might get the lion's share of the "Other/DK" also.

This is some serious polling malpractice, something CBS/Quinnipiac has been guilty of this whole cycle. Here's a prediction: look for their samples to get much more reasonable at the very last minute, because the last poll is the one you're judged by.

A second poll came out today by PPP, a Democrat polling firm, that shows Obama leading Ohio 49-48. Seems reasonable, right? Sure, until you get to the fine print. PPP used a D+8 sample. I'm not the only one squawking about this stuff, and it's easy to dismiss as partisan whining until you lift up the hood and do the analysis for yourself. These pollsters have a lot of 'splainin to do.

*Assumptions: all Republicans vote for Romney, Dems for Obama, independents split +8.5 for Romney, consistent with recent national polling.