Ballot Test

In 1964 the Twenty-Fourth Amendment to the Constitution was ratified, it eliminated a Poll Tax as a requirement to cast a ballot in any Federal election. In the next few years the United States Supreme Court knocked down as unconstitutional under the 14th Amendment's equal protection clause the imposition of Poll Taxes for state or local elections. By 1966 Poll Taxes were eliminated in all states through Federal lawsuits. The purpose of a Poll Tax is to limit the size of an electorate, only those who can afford to buy a ballot could cast one.

Another way to limit access to ballot boxes is the use of a literacy test. Before receiving a ballot a voter must proof he or she can read in English. The justification being that if you cannot read how can you properly vote and know for whom you are voting? Literacy tests while not specifically banned in the Constitution as Poll Taxes are have been ruled unconstitutional, for the most part, by the courts.

Laws and judicial rulings protect the right of American citizens to vote. It is the most fundamental and important right of all citizens, our voice in determining who shall govern us. But who are we voting for? What, if any, restrictions are there on who can be placed on a ballot?

In general the only requirements for most jurisdictions to be eligible for a ballot are age, citizenship, eligibility to vote, residency and whatever the local rules are for getting on the ballot by collecting signatures and/or paying a filing fee.

It seems simple to me. To become a fire fighter or police officer you must pass a series of exams and have a minimum qualification criteria. To enlist in the military you must take the Armed Services Vocational Aptitude Battery exam. To work for most branches of government you must take and pass a Civil Service exam or similar aptitude test. To argue a law case on behalf of another before a judge representing the judicial branch of the government you must pass a state bar exam.

But to govern and make rules and policies for fire fighters and police officers there is not test. To hold office and determine the budgets or duty of our military personnel there is not test. To preside over the management of civil servants, appoint and/or confirm judges, and make the laws upon which they rule, you merely need to win an election.

Shouldn't there be some intellectual standard, some basic knowledge, some degree of exhibiting an understanding of our Constitution and simple principles of economics before someone is eligible to govern us? In looking at the laws passed, the statements made, the arguments made in debates by elected officials, from local through national, I am amazed at the seeming lack of understanding of basic economics or the Constitution by many of them.

I propose that before someone is eligible to be placed on a ballot to be elected to represent any citizens of the United States that they pass a basic test, or at minimum take the test with their results made public. The test should include topics that are relevant to their jurisdiction and representation and should encompass economics to show an understanding of budgets and fiscal policy, the Constitution and government, United States history and geography.

Here are some sample questions I propose, feel free to add your own in the Comments section below:

• How many amendments are there to the U.S. Constitution?
• Name four states considered in the United States Midwest.
• If demand is constant and supply increases what happens to prices?
• What is the Bill of Rights?
• Name two causes of inflation.
• The primary source of illegal immigration into the United States is from its Southern or Northern borders?
• Who were our Allies in World War II?
• What is the "velocity of the dollar" and is better during times of recession to have a high or low velocity?
• Are our income tax laws regressive or progressive?
• Are sales taxes regressive or progressive?
• Which Amendment to the U.S. Constitution states "their shall be a separation of Church and State?"
• Name five states that border Canada.
• Can/do tax revenues increase if gradual income tax rates are reduced?
• What are the three branches of government?
• Why do we have an Electoral College?
• How is the Constitution amended?
• What is the size of the city/county/state/federal debt?
• What is GDP?
• Which of the following are specific rights enumerated in the Constitution: education, health care, ownership of a gun, retirement/social security benefits, privacy?
• Which branch of the government is most important and why?
• Increasing the number of individuals employed by the government is good for the economy in the short and long term. True or false and why?

Should our political candidates who will be voting to tax us, to restrict our liberties with more and more legislation, soon to be controlling our access to health care, determining the debt our children and grandchildren will be burdened with, should they not have some equal and level examination by which the voters can measure them? Rather than endorsements and fliers from the standard groups would you not rather receive a copy of their Ballot Test Results and answers to a wide variety of questions?

What questions do you feel someone should be able to answer before representing you?

DCS05102010

MONEY

In January 1981 I began my second semester of college. In the fall semester I had taken, and passed, Macroeconomics to fulfill part of the required course list for my major; now in the spring semester I would be taking Microeconomics. Both courses were taught by on campus legend Harvey Botwin who leaned on a text book written by economist Paul Samuelson. While Samuelson himself has become somewhat famous in economic circles for wildly missing on his macroeconomic predictions, his textbook, and Professor Botwin's lectures, provided a solid foundation of economic understanding and tools for economic analysis.

A significant portion of our Microeconomics class was spent on money. The exchange ones goods or services of greater value than the goods or services being offered in trade led most cultures to develop a system of currency so economic activity could occur. For currency to be effective it must be universally recognized as valid currency, its value must be universally accepted and it must be portable--one must be able to transfer the currency in order to complete a transaction.

Of great interest to me was the development of the currency system on the Island of Yap. Located in Micronesia, Yap is famous among college students for the term, "the stone money of Yap." The people of Yap, isolated from Western culture, economy and trade developed their own currency. The currency was easily recognized and accepted, the value was easily apparent and it was portable, as can be seen in the picture at the top of this post. In Yap the money was made of stone, hewn into circles with a hole in the middle. In Yap the larger the stone the more value the unit of exchange and units ranged from the size of our quarters and half dollars to the huge wheels seen in the picture. The holes allowed a pole to be placed through the "coin" and transported from payor to payee. It was effective as its value was recognized and accepted and it was portable. Did the people of Yap experience inflation? Certainly scarcity and over supply impacted the island economy, but to what extent I do not know.

Further exploring money in my college career I learned about inflation, the increase in prices in an economy not through scarcity of products but as a result of over-supply of money in the economy. With more money available to consumers more money can be bid on the goods and services for sale, resulting in inflation. If there is an extreme over supply of money in the economy then "hyper-inflation" occurs, think the Weimar Republic in the 1920s, Argentina in the 1980s and early 1990s, Zimbabwe recently. Hyper-inflation is when prices are rising over 50% per year, in many cases it runs away to inflation rates of 100-200% per year. The cost of a loaf of bread in the morning is $1.00, at the end of the day the same loaf of bread is selling for $1.20. Currency becomes almost worthless in hyperinflated economies because instead of $1.00 for a loaf of bread it is $100 or even $1000.

The amount of money in an economy is controlled by the government--it has the printing presses to create currency. By printing more money the government adds currency to the economy and devalues the currency currently in circulation--the $100 bill you have in your pocket is worth less if the government prints puts more $100 into circulation than are taken out of circulation. To much printing and the government is creating inflation in the economy as each $100 has less value, more than $100 is needed to purchase the goods or services that used to cost $100.

Monetary supply by printing is not the only way the government impacts the economy. The other way is the taking on of debt and issuing debt obligations--called bonds. Bonds are sold to investors and investors expect a rate of return on their investment--interest payments. The rate of return, or interest, is dependant on the amount of bonds that are available for investors to purchase. In order to get investors to buy their bonds a rate of interest must be offered by the issuer that is attractive to the investor who must balance the risk of not being repaid the bond, the other investment opportunities available and the rate of return being offered. The more bonds that are available on the market the higher the rate of return that must be offered to investors to entice them to purchase the investment. If there are only 100 bonds available from a really strong company that almost certainly will pay off the bond when it is due, then the scarcity of the bonds will create a high price--and subsequently a low rate of return. Conversely if the company were to issue 1000 bonds more investors would be able to purchase the bonds, there is not scarcity so the company would need to offer a higher rate of return to sell the 1000th bond. More bonds on the market higher interest rates.

If I said you could invest in a company for $1000.00 and it was somewhat risky if you would get your money back, and also when the bond is to pay off in five years there would be significant inflation in the economy--making your $1000.00 today worth only $900.00 then--would you demand a lower or higher rate of return on your $1000? Of course you would demand a rate of return at least as high as the expected inflation, plus a premium for the risk involved in the investment. Instead of a 5% rate, you would probably factor in a 10% rate of inflation, plus the risk that the investment may not be paid off in five years so you would want a higher return early on to make up for that risk, so to invest you may require 15%, 17%, 20% return on your $1000 to be paid in five years.

Yesterday the United States Supreme Court upheld the Obama Administration's orchestration of thetake over of Chrysler by the United States government, giving some of the company to the United Auto Workers and some of the company to Italian automaker Fiat. In the process investors who held millions of dollars of bonds issued by Chrysler saw their investments wiped out--zero return.

General Motors was restructued through bankruptcy by the Obama Administration. In the restructuring tier one investors in General Motors who had invested in hundreds of millions of dollars of bonds issued by the company were given less than thirty cents on the dollar--a discount of 70% of their investment; while the Federal government was given 60% of the company and the United Auto Workers approximately 20% of the company.

In the past five and one half months the Obama Administration and Congress have passed spending bills and budgets that surpass $2 trillion. Which means that the United States government will put two trillion additional dollars into the economy and put over two trillion dollars of bonds into the investment market.

Economies depend on investment to grow. Investors depend on risk-reward scenarios that will ensure a reasonable expectation that their investments will pay-off, the less reasonable the expectation the higher the rate of return they will demand. Financing high interest debt to grow a company is very risky and most companies are not willing to take on the risk and the high debt payments, along with salaries, rent, cost of goods, etc. that are rising in an inflationary economy.

With the wiping out of Chrysler and GM bond holders investments the Obama Administration has signalled to all investors in the U.S. economy that their investments in American corporations are at significant risk, not because of economic factors but because of political whim and power. This risk of government taking your investment and giving it to another entity, such as a labor union or a foreign company, adds considerably to the rate of return companies raising capital for growth and expansion will to pay to attract investors; i.e. higher interest rates.

With the addition of trillions of dollars into the United States economy the government is putting a huge supply of currency into the economy, making the currency in your pocketbook worth a little less every day. With the addition of trillions of dollars of debt into the capital markets, the government is creating a huge oversupply of bonds, in order to attract investments those bonds will have to have higher and higher rates of return, i.e. higher interest rates.

With the knowledge that corporate debt is riskier due to government intervention, that there will be an oversupply of currency in the economy and that there will be an oversupply of debt in the capital markets, investors are already demanding higher rates of return on their investments to account for inflation that will erode their returns.

Money, we all have it, we all need it. How much we have and how much we need are the results of many factors, including the actions of the United States President and Congress. Given their actions the last five months we will need a lot more it in the near future just to buy what we are able to buy today--that is what inflation is all about, look for it at your neighborhood grocery store soon. If we lived in Yap we would all be out in the yard looking for bigger stones to buy a carton of eggs.