The New America ElectorateIndependent Voters

And Trying to Decide…Who is to Blame For

Unemployment, Income Inequality, Global Warming, Continuing War, Large Deficits, A Large Trade Deficit, Unfair Tax Rates, Government Spending, A Static

Gross Domestic Product, A Shrinking Labor Participation Rate, The Closing of Factories, The Homeless, Bad Roads, Inflation, Gerrymandering, Big Money

Biased Politicians, The High Cost of Health Care, Measles, Dandruff, Hemorrhoids, and Everything Else Bad That Happens.

And What Determines Economic Strength?

By

Jim Cunningham

July 2015

Preface

We Begin By Pointing Out Changes in the American Electorate.

Despite spending an estimated $5 billion in the current election cycle, the two major political parties have both lost control of the forthcoming election outcome.

Those with solid allegiance to the Republicans or Democrats have shrunk away until the independents or swing voters are now the majority. Poles today find these people constitute 39 to 43% of the voters. This group will decide who will reside in the next Congress and who will be the next President.

Furthermore, the American electorate is so fed up with our polarized government that today only about half of those eligible will actually vote.

Those who lean to the Left or Right are subjected to such a torrent of verbal abuse and angry claptrap that the independent voter’s choice is often basically not one of deciding who is more qualified, but who might be least objectionable.

For Example. From our Recent Past

From The Left

“He's a man [George W. Bush] who is lucky to be governor of Texas. He is a man who is unusually incurious, abnormally unintelligent, amazingly inarticulate, fantastically uncultured, extraordinarily uneducated, and apparently quite proud of all these things.” ― Christopher Hitchens

“We thought it was nice of you to let him have a go, because, in England, he wouldn't be trusted with a pair of scissors.” ― Russell Brand

From The Right

“So what does Obama do, he says, boy… I'm just out of stuff to do. What else could I possibly do to the American people? President Obama, why don't you just set us on fire? For the love of Pete, what are you doing? Do you not hear -- do you not hear the cries of people who are saying stop? We would like some sanity in our country for a second….We didn't vote to lose the republic. We didn't vote for any of this stuff.”--Glenn Beck

Ann Coulter @Ann Coulter “I highly approve of Romney's decision to be kind and gentle to the retard.”--Ann Coulter, 2012

"President Obama has done everything he knows how to do to beat himself. The reason people have little confidence in President Obama's policies, they're just not working. Everything is worse: 2 million people unemployed after he took office. Gas prices are 100 percent higher. Home values are down. Debt is up by 35 percent. --Lindsey Graham, November, 2012

Perhaps even more remarkable than this poop-storm of negativity is that out of today’s record-breaking list of 27 Republican candidates for President, the group appears primarily composed far-Right gospel preachers, carnival barkers and chow dogs. Not surprisingly thus far in the early campaigning, the only candidate who even tries to speak the honest truth is Democrat Bernie Sanders – a man who is quite obviously unelectable since he hates that we have outsourced our middle class to China, a practice simply adored both by our large corporations and our big-

moneyed fat cat CEOs. No high money support for this guy. But not to worry, gray haired Sanders will never get nominated.

So? What is the poor independent voter to do in 2016? Probably the same thing he did in 2012 – try to throw out the old Congress or the old President or both. But again, the problem is not who to vote for, but rather which one or which party is to blame less than the other.

The Typical American Blame Game

But who is to blame? Maybe it depends on who you ask. Here in America the answer is often quite straight forward. If you ask the Left, it’s the fault of the Right. If you ask the Right it’s the fault of the Left. But some Americans need an even simpler explanation for economic problems and such. They are not stupid. They know who made all these messes -- why it’s the President of course. Isn’t he the guy in charge?

Speaking For the Left -- everything that has gone bad for the past 14 years is the fault of one man—George W. Bush.

Speaking For the Right -- everything that has gone bad for the past 6 years is the fault of one man—Barack Obama.

But wait just a darn minute here…………

Introduction

"It's the economy, stupid"---James Carville

And of course the above Preface is a bit silly. So what actually does determine economic success? Shouldn’t that information help us in voting? Perhaps we can find out by looking at the rest of the world.

It turns out that there is an enormous range of economic successes. Some nations are fabulously rich, while others are tragically impoverished.

Let’s look at some examples, and then try and glean some reasons for the huge spread. The data below is mostly for 2014.

The Very Rich

Luxembourg $110k GDP per capita Norway 97Switzerland 84.7Australia 61.9Denmark 60.6Sweden 58.8Singapore 56.2United States 54.6Kuwait 53.5Canada 52.7Netherlands 51

The Impoverished

Afghanistan $0.66k Ethiopia 0.56Liberia 0.46Nepal 0.70Rwanda 0.65Uganda 0.68Togo 0.65

The range from top to bottom is a factor of 260. People in Liberia on average consume 20 cents an hour assuming 40-hour week. In Luxembourg, by comparison, they squeak by on $51 an hour

Explanations for the Very Rich and the Very Poor

There must be logical explanations for this vast spread of economic success. There is one organization who claims to have it all figured out, This is the strongly conservative Heritage Foundation in Washington DC. Their theory is straight forward. It’s all based on Economic Freedom. Free societies flourish. Restrained and oppressed ones languish. It mostly depends on government policies. And the President. Of course.

“Barack Obama’s ultraliberal agenda to transform the United States has been catastrophic!...His policies have destroyed jobs,”…. He “wrecked our health care

system,”…He “encouraged a flood of illegal immigrants to cross our southern border.”--- Heritage Foundation, 2015

The Heritage Foundation people have developed an Index of Economic Freedom which varies from 0 to 100. A zero means no freedom. A 100 means total freedom. They incorporate ten factors which are averaged to calculate their final index. Every year they publish their findings on some 177 countries in the world. Below are their factors. Most are quite reasonable. But a few are straight out of the Republican’s Second Edition of VooDoo Economics.

1. Individuals must be able to freely accumulate property rights.2. Governments must be free of corruption.3. In order to maximize “Fiscal Freedom” the overall tax burden must be low. 4. High government spending lowers the Freedom Index5. Excessive government regulation lowers the Freedom score6. Corporations must have freedom to set wages, hours and have freedom to

initiate layoffs, and so on.7. Government must keep inflation low and not initiate price controls.8. The nation must encourage free trade and have low or no tariffs.9. There should be no constraints on the flow of investment capital.10. Government regulation of financial services must be at minimum.

So. How does their Index Perform? Does it really predict economic success? Does it accurately predict the above list of rich and poor countries? So some extent, yes. But with poor accuracy.

Their average Freedom score for the eleven rich countries listed above was 76.9. The poor ones averaged 55.5. Not that different. Their top score of 89.4 went to Singapore with a per capita GDP of $56.3k in 2014 -- not the top country. Not counting pathetic N. Korea, their lowest score of 34.2 went to Venezuela with a per capita GDP of $16.5k. Not that low. They awarded a fairly high score of 58.6 to Burkina Faso, one of the poorest nations in the world. I am not impressed. There must be other causative factors at work. Or something is wrong with some of their factors. Something is.

Below is their graph of GDP per capita vs. their Index. The GDP numbers do roughly rise as their index rises. If you use your imagination their data does seem to move in the expected direction. But the data scatter is high. And there is no way

their data predicts their parabolic “trend line” which soars as their index moves above about 80. Again, something is amiss.

What is amiss is at least two of their basic assumptions are incorrect. For example, within limits, government spending does not weaken economies in nations around the world. Nor do higher taxes. Again within limits. Let’s prove this.

First let’s plot the Heritage Foundation “Government Spending “individual index” numbers whish they publish for the over 170 studied countries This graph appears below. The per capita GDP for each county is taken from the Work Bank numbers for 2014. Again, the index used in the graph is their own data.

There is no discernable trend shown in the graph below. There is no correlation. These are scattered data points blasted out of a shotgun.

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Heritage Foundation Index of "GovernmentSpending".Data for 160 countries. 2015

Per Capita GDPfor 2014 fromWorld Bank,$1000

On the other hand, if you plot the actual government spending as a percent of GDP against per capita GDP you do see a trend. In the opposite direction! It suggests the more you spend the stronger is the economy. See the graph below.

This is the graph, seen below.

Government spending as percent of GDPin 2012 for 105 nations. Source: World Bank

Per Capita GDP in2012 from WorldBank,. $1000

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This graph and correlation are easy to explain. The Heritage Foundation simply has the cause and effect assumptions in reverse. A strong economy is able to spend more, simply because it has more. More revenues for a myriad of arguably beneficial programs: infrastructure, R&D, healthcare, education, defense and so forth.

But an economy is of course strengthened by other factors.

We point out yet another error. The Heritage Foundation has also got its assumption about taxes upside down. Below is a graph plotting the tax burden against per capita GDP. The data includes 103 countries around the world. The red data point is for the US.

Central government tax revenues as a percent ofGDP, World Bank, 2012

Per Capita GDP, WorldBank, 2012, $1000'

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Although quite scattered, a computer plot of this data, not shown, suggests that as tax revenues increase so does the per capita GDP. This is just the opposite position assumed by the Heritage Foundation. Furthermore it denigrates one of the more cherished principles of the political Right—that lower taxers stimulates the economy. Within limits, they do not, but the data scatter does suggest that other more powerful causative factors are more strongly controlling the strength of the economy. One of these is, of course, education.

The explanation why the Republican lower-tax theory is not operative is that tax revenues are not withdrawn from the economy as some Republicans naively charge, but are invested immediately back into the economy by the financing of

various government programs. On the other hand it must be admitted that some of this spending is unwise or inefficient. The US is the red point. Older tax data plotted in similar fashion, shows tax revenues have no effect on per capita GDP.

The above graph presents total tax revenue as a percent of GDP vs. per capita GDP for countries around the world during 2005-2006.

But Be Careful When You Vote in 2016.

The Index of Political Hokum may soon reach new highs:

“Lower taxes, less government spending on domestic programs and fewer regulations mean a better economy for everybody.”--Larry Elder, Republican TV personality

WASHINGTON -- Wisconsin Gov. Scott Walker (R) said Saturday that eliminating the federal income tax sounded like a pretty appealing idea. "I haven't proposed that, although it sounds pretty tempting right now. Particularly in this state, I'd love that," Walker said, speaking to a group of Republicans in New Hampshire.

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Tax revenue as a percent of GDP

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Effects of Infrastructure on Economic Success

The World Bank since 2006 has surveyed most of the nations in the world for a capability they term Logistics Performance. An index varying from about 1 to 5 is determined by studying the efficiency of the various points of infrastructure necessary for imports, exports and the overall delivery of products. Actives such as customs and border control, the quality of roads, ports and other transport means are evaluated; this includes also the cost of shipping, record keeping, and timeliness. When plotting the index against the per capita GDP, the correlation is remarkably tight, with little scatter in the data points.

Since this function is largely the purview and responsibility of government, the World Bank methodology provides an interesting measure of the effectiveness of governments around the world. Many perform poorly at substantial injury to their economies.

But it may be argued that this is not entirely a causative factor. A very poor economy may not have the funds to establish a proper infrastructure. Worse, in recent years a number of economists have argued that once nation falls below a certain level of poverty they can never climb out their economic hole.

A plot for 90 countries is show below. The red data point is for the U.S.

The green trend line is a computer plotted best fit of the data. The correlation is clear.

World Bank Index of Logistics Performancein 2014

Per Capita GDP in 2014,$1000 by World Bank

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Benefits of Economic Strength

Leaving the theme of criticism for a period, let us mention some of the benefits that a strong economy brings to its citizens; longer life, better nutrition, improved life satisfaction and improved infant mortality.

These benefits are illustrated in the four charts below.

Longer life.

Improved healthcare. Better nutrition. Better access to information.

Better life satisfaction.

Improved infant mortality

Other theories on economic success.

But of course there are outliers out there who have other theories, other explanations for failure. Let’s look a one by a fellow named La Griffey du Lion in his 2002 blog. He blamed it all on race. His theory? Just look around the world. Some races are simply dumb. He presented the graph below. He has data from about 62 countries represented,

His blacks are mostly from central Africa. The whites European and East Asian. But Mr. du Lion has made a grievous error in his conclusion of a cause and effect relationship between IQ and economics. IQ is not the driving force here. The driving force is education

In order to prove this point, we show below that IQ test results are highly dependent on education. It may indeed be impossible to devise an IQ test where education does not affect the score.

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Index of Eduction for 78 countiiesFron UN 2013

Avg, IQ fromseveralstudiesabout 2008

Many studies may be cited which show the dependence of Education and per capita GDP. Below two example are shown. The second is a measure of the years in school. Looking carefully, this second chart shows that the lower numbers for time in school are for the Africans. This is probably because they cannot afford any more.

The graph above shows science test scores of 15-year old students vs. per capita GDP. Data for 43 countries. [Source: Programmed For International Student Assessment (PISA), 2006]. This is a fundamental cause and effect relationship.

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The graph below shows the powerful effects of education on economic performance. It plots the number of years in school for each country against the per capita GDP. Data for 2008.

The correlation between GDP per capita and education is very well known.

Religion and Its Effects on an Economy

Well known is the correlation between religiosity and economic success. Below is a chart showing GDP per capita and religiosity as measured by Gallup in 2006.

The more religious a nation, the lower is its economic performance.

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Common sense might suggest that a society that focuses its energy on religion might spend less effort on matters of career, business, industry, innovation, education, engineering and economics.

Education

Of several factors which might more quantitatively explain the above graph, one is the fact that highly religious societies tend to have a lower quality of education. Consider the following data taken from a United Nations study, referred to as The Human Development Education Index. The index was calculated from the mean years of schooling. The study includes data for 195 counties in 2013.

Education Index average from 37-countries with 0.3% or less of the Muslim faith.

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Education Index average of 21-countries of Muslims populations of 90% or greater.

0.463. This is 40% below the above number for the non-Muslim nations.

The highest score was from New Zealand at 0.917

The lowest score was from Niger at 0.193 with a population 98.3% Muslim

In Iran, one estimate of the effort young people spent studying Islam was that it took one fourth of all school time.

Corruption

A study by Transparency International was published in 2008 on public sector corruption. The company determined a "Corruption Perception Index" for 180 countries. Each score involved combining 3 to 8 separate surveys. A score of ten is "highly clean" and a zero is "highly corrupt. The top three countries were Denmark, Sweden and New Zealand all scoring 9.3. The bottom three were Iraq 1.3, Myanmar 1.3 and Somalia 1.0. The U.S. scored 7.3, 18th from the top. [http://www.transparency.org/policy_research/survey_indicies/cpi/2008]

This data is plotted below against per capita GDP for 80 countries. The resulting data fit reasonably well against a computer generated curve fit.

An index of public corruption vs. per capita GDP.

The top least corrupt nations were: Denmark 9.3, Sweden 9.3, New Zealand 9.3, and Singapore 9.2. Most corrupt were: Haiti 1.4, Iraq 1.3, Myanmar 1.3, and Somalia 1.0. The U.S. scored 7.3, 18th from the top.

Summary

A strong economy brings great benefits to its citizens. Countries with strong economies have highly educated citizens; little public or private corruption; a highly developed infrastructure for serving business, industry and shipping; and a modest level of religiosity. The theory by the political Right that lower taxes and reduced government spending will strengthen the economy is not supported by analysis of the world economies. Other usually less important factors may of

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course may be listed, not analyzed here, which negatively affect economic performance such as: high levels of crime, limited availability of credit and high interest rates, low industrial productivity, excessive government regulation, excessive levels of debt, very high levels of inflation, a poor climate, out of control immigration, archaic types of government, and worst of all -- war. The government and the electorate sometimes confuse cause and effect; examples include high unemployment rates, income inequality and the employment participation rates, trade deficits, the closing of factories, government deficits, and a shrinking middle class -- all of which are effects not causes.

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