2019-06-20

AI & Asset Allocation, Part 2

Second part of an opinion in three parts


Snapshot of Edwin Lefevre in 1907
"You remember Dickson G. Watts' story about the man who was so nervous that a friend asked him what was the matter.
'I can't sleep,' answered the nervous one.
'Why not?' asked the friend.
'I am carrying so much cotton that I can't sleep thinking about it. It is wearing me out. What can I do?'
'Sell down to the sleeping point,' answered the friend."
-- Edwin Lefevre in 1923


<Part 1 | Part 2 | Part 3>

In Part 1, we considered and opined about: 
1. The strenuous life on the beach of your kind of long-term investor.
2. It’s hard to consistently beat the investment performance of the S&P 500 in the long term.
3. Questioning the value of AI (artificial intelligence) for tax-loss harvesting, 
4. Doubtful value of AI’s daily portfolio rebalancing.
5. AI portfolio choice, of specific investments, not proven, yet.
6. Costuming assessment of investor’s risk preferences to look like AI.
7. We don’t know AI’s adequacy for the next big crash.
8. Bond values fall when interest rates rise, and vice versa.
9. You probably already own some bond equivalents, like Social Security.

Continuing from Part 1 with our discussion of bonds...

Have a good, clear reason for buying bonds, otherwise you forfeit the higher return available in, say, stocks. Verify your good, clear reason with someone whose financial advice you respect. (If you wouldn’t ask a hairdresser if you need a haircut, then why ask a person who sells bonds if you need to buy bonds? The person who urges you to buy bonds from them may have much wisdom and may be the most honest person you know, but if they get a commission on the sale, then let's bear in mind their conflict of interest.) 

about ETFs…

An ETF (Exchange Traded Fund) is a pool of assets in the care of a manager who issues share certificates in the pool and who buys and sells investments for the pool consistent with the prospectus (every ETF has a prospectus, a document stating the organization of the ETF). Each certificate represents a proportional claim on the assets of the pool. The shares trade on an exchange, such as the NYSE (New York Stock Exchange) or NASDAQ, so you can buy or sell them like stock certificates. In this article, we consider three kinds of ETFs:

Bond index ETFs - The manager buys and sells bonds for the pool to match the performance of an independently determined index. There exist many indexes, but we are interested in indexes of broad classes of government or high grade corporate bonds.

Sector index ETFs - The pools contain common stocks managed to match the performance of an independently determined index of a particular industry, country or other narrow category. For instance, you can buy sector index ETFs to match the performance of the health care, telecommunications, real estate, and petroleum industries, and of the publicly traded companies in Switzerland, China, Japan, United Kingdom, Eurozone, and Chile, and of many other countries and industries.

Broad Stock index ETFs - The pools contain common stocks managed to match the performance of an index reasonably defined to specify “the entire market”. The classic, oldest examples are S&P500 index funds VOO and SPY, which match the 500 largest companies traded in the US. There are broad stock index ETFs that attempt to match all the publicly traded companies in the world, and more specialized in the largest companies of particular countries (indistinguishable from country sector index ETFs), and in large-capitalization (big) companies, small-capitalization (little) companies, and mid-cap (medium sized) companies. Also, we find “growth” stock variations, which contain the cross-section of companies with low book-to-price ratios, and “vaue” index ETFs, which contain companies with high book-to-price ratios.

On the other hand, as long-term investors, we have little interest in ETFs which aren’t managed to match the performance of an index, but which are managed according to the manager’s judgement, also called “actively-managed” or sometimes “hedge” funds.
If you decide to buy bonds, then buy bond index ETFs (Exchange Traded Funds), plain vanilla bond index funds invested in US govt securities or high-grade US corporate bonds, such as ticker symbols SCHZ, ILTB, SPTL or VTIP. Use ETFs, because selecting individual bonds is tedious and arcane, requires frequent attention to your holdings to reinvest on maturity of a bond, and because only those who trade hundreds of thousands of dollars in each trade can justify the time spent on this work. With ETFs, you avoid those concerns. 
If your concern about whether you have enough invested in bonds and cash keeps you awake at night, then buy enough bond ETFs that you can sleep at night. Cash has nearly no investment return, but it won’t lose its face value, so many regard it as extremely low risk. If you are more than 30 years old, then keep enough cash to pay your living expenses for 3 to 6 months, and invest the rest of your cash in something.

That leaves us with stocks...

A definition ... when talking about stocks, "cap" is "capitalization", which is the number of shares multiplied by the price.

To get significant rewards, you must take risks. Use diversification of investments and long-term holding periods to moderate the risks you must take.

For investments outside of the US: Mr. Mark Hulbert has found that returns on US versus ex-US stock indexes ran, historically, in long 5+ year episodes where one is higher than the other. Generally, there is no reason to buy ex-US stock ETFs at this time.

Your portfolio should consist of ETFs of broadly diversified stock index funds and perhaps some bond funds (see warning about bonds above), unless you want to invest in some individual stocks (see Part 3), in which case, reduce the stock ETFs to 95% of your stock investments, or to 90%, if you must. 

If you are shy about risking fluctuating prices, then buy a S&P500-indexed large cap fund like VOO or SPY to avoid extreme fluctuations. If getting as much increase in value as you can reasonably expect interests you more, then get a large cap growth index fund like VUG or a small cap growth index fund like SLYG. Higher rates of growth come with increasingly large expectations of fluctuations of prices over the next 2 or 3 years, but if you are going for the long 5+ years horizon, then your long 5+ years holding period mitigates the price fluctuation risk. The relative return advantage of a growth fund, such as VUG, is significant over a ten-year period, compared with its vanilla siblings, such as VOO. Small cap growth funds show only small return advantage versus large cap growth variants.

So, for broadly diversified stock index ETFs, in order from higher rates of value increase (return) to lower:
1. Small cap growth -- expect highest price fluctuations, highest rates of growth in value.
2. Mid cap growth.
3. Large cap growth. 
4. Large cap S&P 500 -- expect lower price fluctuations, lower rate of growth in value.

You can also buy value index ETFs, instead of "blend" growth+value (plain vanilla like the S&P500) index ETFs or growth index ETFs. I don't think the value index ETFs are worth the price fluctuation risk forgone, but if you are worried, put 2%-points of your stock portfolio in bond ETFs and buy growth index ETFs.



My recommendation for stock index ETFs: Go for growth. 

Exception: if you expect high (a large part of your personal budget) and rising medical expenses, then you might like to have an investment that would increase in value with your medical expenses, and then you might substitute health-and-pharma sector funds (for example XBI, IHF or VHT) for a large portion (up to 1/4) of your investment in broad stock index funds.

For choosing broad stock index funds, I have found these metrics relevant: 

“When forced to choose, I will not trade even a night’s
sleep for the chance of extra profits.” -- Warren Buffett
1a. 10-yr growth of price (credibility weighted, giving more credibility to all-funds average versus specific fund observation for funds younger than 10 years, and if you can't do that calculation, then ignore this metric, and ignore funds younger than 10 years),
1b. 10-yr growth of price (ignore funds younger than 10 years),

2. Book value divided by price (inverse of price divided by book). Book value divided by price correlates negatively with future performance, that is, a low score is better, as in golf.

Sensibility and Prudence: It's sensible and prudent and low in effort to put 100% of your stock portfolio into ETFs of broadly diversified stock index funds. You may give up a percent point or two of returns in many years, but the 100% solution is a lot easier and a lot less labor than trying to get just a little more return. If you choose this 100% solution, then you can make your portfolio choices, order your trades, and never sell. (And if it allows you sleep better, put a portion of it in bond funds, but see warning about bonds above). Then go outside and play, and stop reading here.

On placing small bets on sector funds and individual stocks… see Part 3.



Disclosure

I own shares of VTIP, XBI, VOO, VUG, SLYG and VHT.





I want to thank my proofreader, 
whose corrections and comments were 
indispensible.





<Part 1
 | Part 2 | Part 3>



Images, notes and sources

See complete list in Part 1.










Wild foxglove. Gig Harbor, Washington, USA, June 2019.
Image by Daniel Brockman.


2019-05-24

AI & Asset Allocation, Part 1

First part of an opinion in three parts




<Part 1 | Part 2 | Part 3>

The Turk marvelously won at chess
Imagine the sun warming you on the beach. You check the financial headlines on your mobile phone. A down day. You put the phone under the umbrella and take a dip in the sea. Returning to the umbrella, you ask the waiter to bring another cold one for you and your companion. This feels good. The next day, you check the financial headlines on your mobile phone. Stocks gained on the exchange. You log in to your brokerage. A few down and a few up, and a respectable increase overall for the last few years. You put the phone under the umbrella and take a dip in the sea. Returning to the umbrella, you ask the waiter to bring another cold one for you and your companion. This feels good. Just another couple of days for your kind of investor.





This triplet of articles is about the roles of AI (Artificial Intelligence), cash, pensions and Social Security, bond funds, stock funds, and individual stocks in your personal investment portfolio, that is, asset allocation.

Ample research shows almost no humans can consistently beat the S&P500 in the long term, when adjusted for risk (price fluctuation). Those humans who seem to do so (Warren Buffet, George Soros, a few others) can be explained by the luck of the draw.

I'm skeptical about the value of AI investing.

Parijat Garg asks good questions about AI investing. Considering the Turing Test, the message I take away is that when robots choose stocks like humans choose stocks, then we should expect similar results.

To take one example, some of the benefits identified by Schwab, a highly reputable firm, for their “Intelligent Portfolios” product include these (enhanced by my opinion):

1. Tax-loss harvesting: it's probably good during relatively stable markets, but I doubt what value this provides, compared with waiting till the end of the year, selling your losers, waiting long enough to avoid IRS wash-sale rules, then buying them back. I wonder what effect tax-loss harvesting will have on your net worth during a crash and recovery.

2. Daily portfolio rebalancing: Rebalancing assures portfolio allocation to avoid excessive concentrations of relatively risky assets. I question whether there's significant value produced, compared with quarterly rebalancing, and I doubt the value of quarterly versus annually, and even if you miss a year, there's not much to gain by remembering it instead. An advanced researcher at Mellon, Mr. Jeff Ricker, studied the effect of rebalancing and asset reallocation on taxable accounts and found negative effects on portfolio value. That is, the implicit advice is: Make the best decision available to you when you buy, then don't sell (unless you have major personal need for cash or major change in investment strategy). If you think rebalancing gets more valuable with increasing frequency, then rebalance daily, or perhaps hourly, and AI robotic methods do rebalance correctly with little cost.

3. Portfolio content selection: Using AI has no value compared with human choices or buying a copy of Barron's and throwing darts at the stock list pages. There is some dispute about the value of choosing investments by throwing darts (Mr. Ricker, when at Wells Fargo Investment Advisors, preferred a professional competition grade blowgun) or taking financial advice from blindfolded chimpanzees. Rick Ferri writes in Forbes that the monkeys easily beat the Dow Jones Industrials, time after time. Alex Mayyasi writes that the professionals beat the monkeys, though maybe by having their picks published in the Wall Street Journal or by taking risks or by cheating.

I skeptically want to see how AI portfolio management does in a crash before I do anything more than a minimal exploratory speculative investment.

Before putting you into their AI product or any other investment product, your broker, with some prudence and regulatory compliance, puts you through a risk preference interview or checklist. If called "AI", that is pure marketing nonsense. Some one or some computer looks up your answers in a table or chart or calculates a simple linear formula or merely applies human judgement to the risk and reward preferences of a person “like you”. Very like putting a small person inside an "automaton" that marvelously wins at chess.

My own advice for fortunes under $10m in the USA, taking a long 5+ years view:

Bonds and cash...

Your Social Security (national pension in the United States) and other pension payments provide the effect of a long-term government bond with the present value of the future payments. You already own these future payments. An investment in bonds will do no better for you. Bond prices fall when interest rates rise, a mathematical equivalence. Currently we remain at generational low levels of interest rates. The rate on a 30-year US Treasury bond is about 3% at April 30, 2019. Expect bond values to fall as interest rates rise in the future. Even if there is no change in rates and value, you may want a higher return on your invested money. If your social security payment is $1,000 per month, and if you want 5% per year or more from your investments, then your future social security payments are about equal to a bond that pays $12,000 per year forever (or until your death, whichever comes first), and the value of your forever bond is about $240,000 (=$1,000*12/.05), or very slightly less for the probability of death in 30 years or so. If you aren’t old enough to collect Social Security, then the forever bond is worth somewhat less, and will grow as you approach the qualifying age.

In Part 2, we will consider using Bond ETFs (Exchange Traded Funds) and Stock ETFs.

<Part 1 | Part 2 | Part 3>





Images

Mark Hirschey, Warren Buffett portrait (2005, used with permission, retrieved Jun 14, 2019 from https://en.wikipedia.org/wiki/Warren_Buffett#/media/File:Warren_Buffett_KU_Visit.jpg)

Edwin Lefevre snapshot (published in “The Bookman”, v.25, 1907, Public Domain, retrieved Jun 14, 2019 from http://babel.hathitrust.org/cgi/pt?id=uc1.$b623112;view=1up;seq=137;size=200)

"The Turk:, engraving, published in Gottlieb von Windisch, "Inanimate Reason" (1784, Wikipedia, https://en.wikipedia.org/wiki/The_Turk, retrieved May 24, 2019, Public Domain)


Sources


Warren Buffett, Chairman’s Letter to Sharelholders, Feb 27, 2009 (published in Berkshire Hathaway, Inc., “2008 Annual Report”, letter copyright 2009 by Warren Buffett, retrieved Jun 14, 2019 from http://www.berkshirehathaway.com/2008ar/2008ar.pdf)

Department of the Treasury, “Daily Treasury Yield Curve Rates”, (https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield, retrieved Apr 30, 2019)

Rick Ferri, “Any Monkey Can Beat The Market” (Dec 20, 2012, Forbes, https://www.forbes.com/sites/rickferri/2012/12/20/any-monkey-can-beat-the-market/#4acf7191630a, retrieved Apr 29, 2019)

Parjat Garg, “Discretionary Investing in the Age of Artificial Intelligence” (retrieved Apr 29, 2019, CFA Institute, https://www.the-right-question.org/en/discretionary-investing-in-the-age-of-artificial-intelligence/)


Johnathan Hoenig, “Find Your Stock Market 'Sleeping Point'” (May 9, 2011, Marketwatch, retrieved Jun 16, 2019 from https://www.marketwatch.com/story/find-your-stock-market-sleeping-point-1304958203774)


Edwin Lefevre, “Reminiscences of a Stock Operator” (1923, https://www.amazon.com/Reminiscences-Stock-Operator-Edwin-Lefèvre/dp/0471770884/ retrieved Jun 14, 2019)

Burton G. Malkiel, “A Random Walk Down Wall Street” (1973-2019, https://smile.amazon.com/Random-Walk-Down-Wall-Street/dp/1324002182)

Alex Mayyasi, “How Well Do Blindfolded Monkeys Play the Stock Market” (Jan 31, 2014, https://priceonomics.com/how-well-do-blindfolded-monkeys-play-the-stock/, retrieved Apr 29, 2019)

Charles Schwab & Co., "Intelligent Portfolios" (2019, https://intelligent.schwab.com/)

Alan Turing, pp. 3-5 (1951, transcript, BBC broadcast 1952, conversation with M.H.A. Newman, AMT, Sir Geoffrey Jefferson and R.B. Braithwaite, The Turing Archive, http://www.turingarchive.org/viewer/?id=460&title=5)

Dickson G. Watts, “Speculation as a Fine Art (, https://www.amazon.com/dp/1607962659, retrieved Jun 14, 2019) ; nb. The story has been retold many times, of course, and attributed to various persons, no doubt apocryphally, and may predate Watts by centuries. As Watts told it, it's much more terse: "One man told another that he could not sleep on account of his position in the market; his friend judiciously and laconically replied: 'Sell down to a sleeping point.'" As the legend came down to me, a man approached J.P. Morgan on Wall Street, saying "I worry I am overinvested in bonds. Is the market going down? Should I sell it all and hold the cash? Please tell me what to do, Mr. Morgan. I can't sleep at night!". Morgan replied "Sell until you can sleep at night." And Mr. Hoenig, writing in Marketwatch, seems to have heard the same attribution, but a slightly different story than I. 

Wikipedia, “The Turk” (retrieved Apr 29, 2019, https://en.wikipedia.org/wiki/The_Turk)



Image by Daniel Brockman, May 2019

2019-03-24

The Fairy Tale of Capitalism: Growth and Income Disparity


FTC is a dramatization and a comedy. 



FTC Ring: <Previous | Next>

“Income disparity is something we must address.” 
-- Nancy Pelosi, Speaker of the United States House of Representatives 

“The income disparity deal is real in our country, and the question is, 
‘What are we going to do about it?’” 
-- Bill Haslam, Governor of Tennessee 

“The rapid rise of oligarchy and wealth and income inequality 
is the great moral, economic, and political issue of our time.” 
-- Bernie Sanders, United States Senator


GDP approximates the income of the Society. The amount of GDP, average or per capita GDP, and  rate of increase of GDP tell us nothing about the disparity of income in the Society.

When we hear the news announcer say something like “GDP grew at an annual rate of 3.4% during the 3rd quarter of 2018”, it seems good news. The Professors sing “Growth of GDP”, a perennial hit. Politicians brag about it. GDP is “the economy”. GDP growth is good. 

GDP is Gross Domestic Product. People who measure GDP collaborated on the SNA System of National Accounts, 664 pages defining GDP and its components.

GDP equals GNI Gross National Income, all the income of a national subset of the Society, plus the depreciation of capital equipment, usually about 16% of GDP, plus all the stuff sold to foreigners, less all the stuff bought from foreigners (these foreign transactions adjustments net +/- 1% or 2% of GDP for the larger countries). When we consider the things that will make a big change in GDP or GNI, the main idea is

GDP = GNI + depreciation = the value of all the stuff produced in a country

GNI = GDP - depreciation = about 84% of GDP

The remaining value of a large asset is, for accountants, the purchase price less prior depreciation. Accountants deduct from income a fraction of the purchase price each year as depreciation. Accountants put appreciation in income when and if the owner sells the asset. But that’s another story.

GNP Gross National Product includes the worldwide income of citizens and excludes the local income of foreigners. GNP differs a little bit from GDP, but that’s another story.

The news announcer seldom mentions how we distribute GDP unevenly. According to the World Inequality Lab, in the United States, the average real after-tax income of the 50 Percent grew 21% during the 35-year period from 1980 to 2014. For the 40 Percent it grew 49%, for the Ten Percent it doubled, for the One Percent it tripled, and for the top 0.001 Percent, average real post-tax income increased 616%.

Some people get much more income than others. We call this “income disparity”. The OWS Occupy Wall Street movement circa 2011-2 called it “income inequality”, a phrase that caught on. Some dictionary definitions of “inequality” connote unfairness, leading to conversational confusion over small, insignificant differences. Both “income inequality” and “income disparity” mean about the same thing, that is, a possibly unfair difference in incomes, with “disparity” connoting a large difference and a disregard for fair insignificant differences. 

From birth, individuals have differing talents, life experiences, and desires. As adult participants in the Society, their incomes aren’t mathematically equal. 

The differences among incomes are consistent, we may suppose, with the condition of our ancestors when they descended from the trees. If we can imagine ourselves there with them, one member of the tribe is good at hunting antelope, while another is good at sharpening arrows. Then the sharpener trades some arrows to the hunter for antelope meat. The sharpener gets food, and the hunter gets good arrows with which to kill more antelope. Together, they have more food to eat, and they are better equipped, than before they traded, but they aren’t equally provisioned with meat and arrows. 

The motif of trade recurs ubiquitously in FTC. The participants in a trade each exchange something they have for something else they want more. After the trade, each has more of that they valued more highly. 

A trade changes the distribution of goods in the Society. The Society can’t maintain equality of incomes, if ever achieved. We haven’t good reason to expect mathematical equality. Individuals will find things to trade

GDP and GNI in the United States being roughly the same thing, we can map out fuzzily how GDP and GNI apportion disparately in the Society... 



…, figures +/-5%, depending on the year. Thus, we can see there are significant subdivisions of GDP by who receives it, and in FTC we call them GDP01, GDP10 (= GDP09 + GDP01), GDP90 (= GDP40 + GDP50), the 2-digit number indicating the income stratum that gets the subdivision of GDP. See “The Fairy Tale of Capitalism: Workers, GDP and Economists” for details.

When GDP grows, who gets the benefits? During the 38 years from 1980 to 2018, in the United States, about one-half of growth was captured by the Ten Percent, and the other half by the 40 Percent, together the half of the people with the higher incomes. The bottom 50 percent got about zero, and some less than that. In her book “The Divine Right of Capital”, journalist Ms. Marjorie Kelly calculated that some groups’ slow-growing slices of the pie enabled the corporate profits slice to grow three times as fast as GDP in the United States in the late 20th century. 

The Staffs of the Ingenious Innovative Job Creators and the Aristocracy asserted that GDP growth brings a bright future. They urged lowering levels of taxes to cause growth of GDP, enabling the Downward Trickle (the waste stream of the Aristocracy) to distribute abundance to all. There were significant income tax reductions in the time of Reagan and thereafter through 2017. Moderate GDP growth occurred, though at gradually lower rates than earlier in the period that followed the Great Wars. Ordinary fluctuations accompanied the moderate growth, plus two booms and three big crashes. In the early period of the Great Wars, in the time of Harding, the United States Congress lowered taxes markedly. A boom ensued, then the Crash of 1929, and then the Great Depression.

In our enlightened modern era, GDP growth enlarges the pie, but about a fifth of the people get less pie ultimately, only half the people get any additional pie at all, only one tenth get significantly much, and one percent get abundance.

Professor Younkins didn’t mention Growth of GDP, nor its distribution, in his hymnbook “Commerce and Capitalism”, although FTC benefits from his many contributions. But that’s another story.

As evening turns to night, in our current Society, the Aristocracy lullabies their babies with “Competition among Workers makes certain that no one is underpaid” and other lines from the song “No One is Underpaid”, included in Professor Younkins’ hymnbook.  

FTC Ring: <Previous | Next>



I am indebted to my kind family members and friends who provided comments, guidance and critiques that shaped this article. 


Images

“Cumulative Growth in Average Incomes” (Congressional Budget Office, https://www.cbo.gov/)

“Share of growth captured by income groups, 1980-2016” (WID.world 2017, World Inequality Lab, wir2018.wid.world

“Top 10% National Income Share across the world, 2016” (2018, World Inequality Report, https://wir2018.wid.world/files/download/wir2018-full-report-english.pdf)

“US GDP in billions of chained 2012 dollars” (US Dept of Commerce, bea.gov)



Notes and Sources

Definitions of “inequality” and “disparity”:


Daniel Brockman, “The Fairy Tale of Capitalism”, topics addressed in other articles:

Bureau of Economic Analysis, Department of Commerce, “Measuring the Economy” (2015, Public Domain, https://www.bea.gov/sites/default/files/methodologies/nipa_primer.pdf)

Bureau of Economic Analysis, Department of Commerce, “News Release, Gross Domestic Product” (Dec 21, 2018, Public Domain, https://www.bea.gov/system/files/2018-12/gdp3q18_3rd_1.pdf)

Jose DelReal, “Pelosi defends income equality push” (Jan 8, 2014, Politico, Fair Use, https://www.politico.com/story/2014/01/nancy-pelosi-income-inequality-101899, retrieved Mar 1, 2019) 

European Commission, et al, “System of National Accounts 2008” (2009, https://unstats.un.org/unsd/nationalaccount/docs/SNA2008.pdf)

Marjorie Kelly, “The Divine Right of Capital” (2003, Berrett-Koehler, Fair Use, https://www.amazon.com/Divine-Right-Capital-Dethroning-Aristocracy/dp/1576752372)

Bernie Sanders, United States Senator (Mar 16, 2018, The Guardian, https://www.theguardian.com/commentisfree/2018/mar/16/corporate-media-oligarchy-bernie-sanders, retrieved Mar 1, 2019)

Shobhit Seth, "GDP vs. GNP: What's the Difference?" (Mar 10, 2019, Investopedia, https://www.investopedia.com/ask/answers/030415/what-functional-difference-between-gdp-and-gnp.asp)

Benjamin Wermund, “The red state that loves free college” (Jan 16, 2019, Politico, Fair Use, https://www.politico.com/agenda/story/2019/01/16/tennessee-free-college-000867, retrieved Mar 1, 2019)

The World Bank, GDP & GNI data series (retrieved Jan 28, 2019, https://databank.worldbank.org/data/reports.aspx?source=2&series=NY.GNS.ICTR.ZS#)

World Inequality Lab, “World Inequality Report 2018” (Non-commercial use by CC license  https://creativecommons.org/licenses/by-nc-sa/4.0/https://wir2018.wid.world/files/download/wir2018-full-report-english.pdf)

Edward Y. Younkins, “Capitalism and Commerce” (2002, Lexington Books, Fair Use, https://www.amazon.com/dp/0739103814)


Mt. Rainier, 2019, image: Daniel Brockman




2018-12-21

Draft Articles of Impeachment


Draft Articles of Impeachment
Against Donald John Trump, President of the United States




Donald Trump Jan 28 2017

1. DIGNITY. Mr. Donald John Trump, unmindful of the high duties of his high office and the dignity and proprieties thereof, and of the harmony and courtesies which ought to exist and be maintained, has, in speeches to gatherings of citizenry, in messages to the general public (especially with the electronic media of Facebook and Twitter), denounced his political opposition, and especially members of the Democratic Party, individually and as a group, with utterances, declarations, threats and harangues, which utterances, declarations, threats and harangues, highly censurable in any, are particularly indecent and unbecoming in the Chief Magistrate of the United States, by means whereof the said Mr. Trump has brought the high office of the President of the United States into contempt, ridicule and disgrace, to the great scandal of all good citizens, whereby said Mr. Trump did commit, and was then and there guilty of a high misdemeanor in office.


2. DISCRIMINATION. Mr. Trump has excited and incited discrimination against persons according to their race, national origin, ancestry, religion especially the religion of Islam, and sex and sexual preferences, thereby intentionally impairing justice and mitigating the right of these persons to equal treatment under the laws.


3. MISTREATMENT OF PRISONERS. Mr. Trump has urged mistreatment and harm to prisoners and detainees. He has urged police and military officers to treat persons in custody “rough” and to torture them, and to punish them without lawful authority, in violation of the Constitution and several treaties to which the United States is party, including the Geneva Conventions and the Universal Declaration of Human Rights.

4. GLOBAL WARMING PERIL. Mr. Trump has refused to acknowledge the human causes of the globally warming climate, including the release of carbon dioxide and other gases into the atmosphere and oceans, despite nearly universal scientific findings affirming these gases trap heat, imperiling the United States and all human life. He has withdrawn the United States from participation in the Paris Climate Agreement and other international agreements to act to remedy the warming. He has declined to heed the severe national security implications of global warming identified by the Defense Department. He has curtailed scientific investigation into climate by United States government agencies.

Trial of Andrew Johnson in the Senate, Mar 13, 1868. Senate Collection.

5. NUCLEAR WEAPONS PERIL. Mr. Trump has withdrawn or evidenced intention to withdraw from agreements with Russia and Iran to regulate the development and use of nuclear weapons, imperiling the United States and all human life.


6. NATO ALLIANCE. Mr. Trump has threatened to refuse to defend allies in NATO, North American Treaty Organization, should they come under attack, disrupting the most powerful alliance that defends the United States, thus weakening the defense of the United States.


7. FREEDOM OF THE PRESS. Mr. Trump has repeatedly denounced journalists, individually and as a group, even declaring them enemies, in direct retaliation against them for publishing articles unflattering to him. Thus has Mr. Trump endangered journalists and acted with animosity to the Constitutional protection of the press.


8. EMOLUMENTS. Mr. Trump has used the office of the President, exchanging changes in public policy for personal financial enrichment. Cloaked as commercial transactions, Mr Trump has received emoluments from the governments of Saudi Arabia, Russia and other countries, either directly, or via family members or compromised commercial organizations. Mr. Trump privately negotiated a business deal in Moscow for his personal profit. At the same time, he advocated relieving Russia of economic sanctions that were intended to impress upon the government of Russia the policy of the government of the United States.


9. TRADE WITH CLOSE ALLIES. Mr. Trump has used the powers granted to him by the Congress to disrupt Trade agreements with our most trusted, peaceful and democratic friendly governments, imposing harsh tariffs on imports from those regions, arousing unnecessary concern among them, with adverse effects on the strategic defense and economic vitality of the United States.


10. TRADE WITH CHINA. Mr. Trump has imposed tariffs on goods imported from China. The tariffs interfere with private commercial transactions, and increase the effective cost of goods to Americans. The cost of steel, for example, is higher under the tariff, but products of American steel producers are favored, which protects employment and profitability in United States steel companies. Predictably, the higher cost of steel increases the cost of producing automobiles, reducing the profitability and employment of automobile production. The government of China, predictably, retaliated with tariffs on agricultural and other products from the United States, effectively reducing the market and the profitability for American farmers. Thus the tariffs on imports from China have been predictably detrimental to the people of the United States.

Nixon presents transcripts of taped conversations. Apr 29, 1974.

11. WALL ON THE BORDER WITH MEXICO. Mr. Trump advocates for the United States government to build a large wall to block the passage of civilians from Mexico to the United States, despite the United States having proudly opposed the presence of a large wall in Berlin to block the passage of civilians from East Berlin to West Berlin. He has separated children from their parents at the border, harming those children and families, to provide a disincentive to potential migrants hither, in violation of the United Nations Declaration of Human Rights. Defending individual liberty and justice as fundamental elements of democracy, and defending the Constitution as the method of democracy in the United States, requires the President to oppose such walls.


12. ABUNDANT FALSE STATEMENTS. Throughout his presidency, Mr. Trump has nearly every day made false statements to the public and the news media. Often, he has not bothered to check the truthfulness of statements before he asserted them as facts. Often, he has contradicted his own statements made not long previously. Often, he has spoken words he knew were false when he spoke them. Often, he has negotiated agreements with members of Congress, cabinet members and other government officials, then violated those agreements within days. His betrays no intention to tell the truth.


13. RELIGION. Mr. Trump proclaimed executive orders to deprive Muslims of equal treatment under law, especially with regard to their entry to the United States from other countries, without any authority granted to him by Congress, and without Congress having any authority to grant him that authority, due to the First Amendment to the Constitution prohibiting recognition of establishment of religion, and without significant hostile threat to national security.


14. DECLARATION OF DEMOCRATIC PARTY AS ENEMY. Mr. Trump, in his public statements, has declared the Democratic Party as enemy of the nation, a direct threat to the right of the people to representation by persons they elect, a direct threat to democracy and republican form of government, a direct violation of Article 4, Section 4 of the Constitution.


15. THREATS TO POLITICAL OPPONENTS. Mr. Trump has multiple times threatened to imprison Ms. Hillary Clinton, his political opponent, a direct threat to democracy and republican form of government, a direct violation of Article 4, Section 4 of the Constitution.


Bill Clinton by Bob McNeely
16. OBSTRUCTION OF JUSTICE - FLYNN. Mr. Trump sought to obstruct justice by asking the FBI, Federal Bureau of Investigation, to abandon its investigation of Mr. Michael Flynn’s activities with persons associated with the government of Russia.


17. OBSTRUCTION OF JUSTICE - COMEY. Mr. Trump sought to obstruct justice when he fired the director of the FBI, Mr. James Comey, when Mr. Comey did not cease investigation of persons, including Mr. Flynn, associated with Mr. Trump’s political campaign for President.


18. OBSTRUCTION OF JUSTICE - SESSIONS. Mr. Trump sought to obstruct justice when he harassed the Attorney General Mr. Jeff Sessions for recusing himself from the FBI investigation of illicit interaction of Mr. Trump’s political campaign organization with agents of the government of Russia, though Mr. Sessions was part of Mr. Trump’s campaign organization.


19. SLANDER. Mr. Trump has often charged Mexicans, Guatemalans & Hondurans with murder, rape and other grave crimes without evidence, a grave slander on the character of innocent people.


20. REFUGEES. Mr. Trump has refused to grant refugees safe haven, and failed to expeditiously administer their applications for refuge and asylum. He has imprisoned many of them for long periods of time, pending administrative processing of their applications, and without probable cause or threat to national security, denying them rightful liberty and simple justice.


21. IMMIGRANTS. Mr. Trump has imprisoned immigrants without trial, including children, without probable cause or threat to national security, denying them rightful liberty and simple justice.


22. PUTIN OF RUSSIA. Mr. Trump has, on several occasions, shown deference to Mr. Putin, the autocrat of Russia. Mr. Putin is known to the Congress and should be known to Mr. Trump as antagonistic to the interests of the United States, antagonistic to NATO, antagonistic to the European democracies, vital defender of the autocrat of Syria, and rivalrous contender for dominance in Syria. Mr. Trump proposed a joint investigation by Russian and United States government agencies to investigate Russian efforts to influence the outcome of the United States presidential election in 2016. Mr. Trump revealed United States national secrets to the ambassador and the foreign minister of Russia. In withdrawing United States forces from Syria, Mr. Trump yields strategic advantage to Mr. Putin. Mr. Trump has astonished his friends and his critics by his persistent accommodation and generosity toward Mr. Putin.
 
23. GRATUITOUS ABRIDGEMENTS OF LIBERTY. Mr. Trump gratuitously used his office to criticize and discourage NFL, National Football League, players from exercising their rights of free expression by urging their employers to terminate their employment and discharge those who declined to stand during the national anthem, despite the employers’ protections from their property, their businesses, being taken for public use without just compensation, in violation of Amendment 5 of the Constitution, and despite the players’ protection of free speech and expression, in violation of Amendment 1 of the Constitution.


Andrew Johnson
24. FAILED EXECUTION OF OFFICE. Mr. Trump, as described in others of these articles of impeachment, has failed to faithfully execute the Office of President, in apparent lack of understanding of the Constitution, in violation of the President’s oath to preserve, protect and defend the Constitution of the United States, as specified in Article 2, Section 1 of the Constitution.


25. SYRIA. Mr. Trump, has misused the Constitutional power of the President as Commander in Chief of the armed forces by ordering United States forces to withdraw from Syria, on the ostensible but false pretext that United States forces have defeated the Islamic State. In withdrawing forces, he abandons our allies in the region. He renders doubts in the reliability of the United States among allies. He leaves the fierce religious autocracy, Islamic State, capable of recovering significant power in the region, thus giving Islamic State the opportunity to establish a base of operations from which they can threaten our allies and the United States. He surrenders the territory to the autocrats with whom United States forces have contended there, including Islamic State, Mr. Assad of Syria, Mr. Putin of Russia, Hezbollah of Lebanon, the high imams of Iran, and he leaves the ultimate outcome to their decisions. He fails to protect the population of Syria and leaves them at the mercy of autocrats. He has failed to establish democracy in those parts of Syria controlled by United States forces and allies. Snatching defeat from the jaws of victory, he has failed to reap the benefit of the military gains achieved by United States forces, rendering futile that expenditure of treasure and blood.



Afterword

I intend by the above draft to provide a checklist against which the members of the House of Representatives may compare the Articles of Impeachment that I hope they will write.

I have omitted lists of descriptions of specific acts of the president, which were part of the articles for presidents Johnson, Nixon and Clinton. I’m hopeful the Congress has well-qualified staff who will supply those essential elements.

Also, I trust those staff will combine the Articles I’ve written with proposed Articles written by others, and to edit the combined Articles, correcting my errors and omissions, and assuring understandability, accuracy, effectiveness, and legality.

Finally, I’ll explicitly state my opinion. Mr. Trump’s High Crimes and Misdemeanors are abundant and obvious. He is, by far, the most impeachable president in the history of the US. Let ours be an example to all the world of the workings of a great democracy. Through the fundamental document they left to us, with the checks and balances, the founders of the republic charge the Senate to perform its role and remove this president.

Donald Trump on 150th Anniversary of Trial of Andrew Johnson Mar 13, 2018



References

Constitution. https://www.law.cornell.edu/constitution
Declaration. https://www.archives.gov/founding-docs/declaration-transcript

Articles of Impeachment:




Green’s Articles. https://algreen.house.gov/press-release/articles-impeachment-against-donald-j-trump-president-united-states





Images

Joyce N. Boghosian, Donald Trump on 150th Anniversary of Trial of Andrew Johnson (March 13, 2018, Official White House Photo, https://www.whitehouse.gov/briefings-statements/photos-of-the-week-2/. Public Domain.)

Trial of Andrew Johnson, President of the United States, in the Senate, 1868 (Frank Leslie's Illustrated Newspaper, 1868. Collection of the United States Senate. Copyright expired. https://www.senate.gov/artandhistory/art/common/image/Ga_chamber_38_00290.htm)

Nixon presents transcripts of taped conversations. Apr 29, 1974. (Wikipedia. Public Domain. https://en.wikipedia.org/wiki/File:Nixon_edited_transcripts.jpg)

Bill Clinton by Bob McNeely (Official White House Photo. Public Domain. Wikipedia. https://commons.wikimedia.org/wiki/File:Bill_Clinton.jpg)

Donald Trump Jan 28 2017, (White House. Wikimedia. Public Domain. https://commons.wikimedia.org/wiki/File:Trump_first_weekly_address_(cropped).jpg)






2018-06-17

The Fairy Tale of Capitalism: The Old Ones and the 50 Percent

Each person judges for themselves the truth and meaning of FTC.


FTC Ring: <Previous | Next>


David Ricardo
by Thomas Phillips (1821)
The grandest characters of FTC, the Fairy Tale of Capitalism, are the four Old Ones Adam Smith, David Ricardo, Karl Marx, and Friedrich Engels, Marx’s collaborator. The Old Ones wrote the most significant early Tales, in immense volumes of unintelligible prose.

The capitalists of political view often call Smith the originator of capitalism, but they exaggerate. Smith sketched out profound economic components and dynamics. Ricardo, Marx and Engels cited Smith’s works, disputed some minor points, refined and elaborated others, and used Smith’s terms, and all four agreed on the nature of the economic system, which Marx and Engels named "capitalism" in their book “Capital” in 1867. Marx and Engels articulated the political ideology of “Communism” in their book “Manifesto of the Communist Party” in 1858.

Smith describes how the wages of Labor merely suffice for the Worker to subsist. Under stable conditions, he writes, a man and his wife, both employed, have just enough income to maintain themselves and four children, two of whom die before adulthood. Employers choose among Workers bidding against one another for employment, and competition among Workers keeps their wages to a “scanty subsistence”, he wrote.

Friedrich Engels
by William Hall (1879)
Adam Smith
by John Kay (1790)

When employers expand production rapidly, their need for Workers increases, writes Smith. Wages may rise a little, a comfort encouraging some Workers to marry and have children. If Labor becomes abundant, due to expanded population, introduction of improved machines or a decline in production, then employers dismiss Workers, and wages decline. Smith describes prevalent beggary, crime, starvation, and death among the unemployed until the population declines sufficiently that revenue from production can maintain it.

Smith writes “The liberal reward of labour, therefore, as it is the necessary effect, ... is the natural symptom of increasing national wealth. The scanty maintenance of the labouring poor, on the other hand, is the natural symptom that things are at a stand, and their starving condition, that they are going fast backwards.” 

Ricardo echoes Smith. “The natural price of labour is that price which is necessary to enable the labourers, one with another, to subsist and to perpetuate their race, without either increase or diminution.” The prices of food and necessities determine the natural wage level. And “When the market price of labour is below its natural price, the condition of the labourers is most wretched: then poverty deprives them of those comforts which custom renders absolute necessaries.”


Marx and Engels echo Smith. “The value of labour-power is determined by the value of the necessaries of life habitually required by the average labourer.”

The Tales of Marx and Engels are consistent with the concepts articulated by Smith and Ricardo. The capitalist advances Capital (which Smith calls “stock”) for equipment, for materials and for employment of Labor, they write. Labor transforms the means of production into product sold in the market. The product fetches a price sufficient to reimburse expenditures on Labor and equipment and materials, plus a little more, because otherwise production stops. For Marx and Engels the “plus a little more” is “surplus value”, the residuum, after replacing production expenditures. The capitalist claims the surplus value, increasing the Capital. Smith and Ricardo would have agreed fully and called surplus value the capitalist’s profit. Marx and Engels say the capitalist should share surplus value, which is Capital and Labor transformed, with the Worker. Marx and Engels write that capitalism requires many Workers to live in conditions so desperate that some of them die, while the capitalist lives in comfort.

Karl Marx
by John Jabez Edwin Mayall (1870)
Marx and Engels fully agreed with Ricardo and Smith on the functioning of the existing general economic system, which they described in great detail and named "capitalism" in their book "Capital". In their book "Manifesto", they called for abolition of private property. That call immediately aroused a political movement opposing communism, Engels, Marx, and everything associated with them, including, alas, people who wrote about them. Engels and Marx became the high villains of FTC. The political movement opposed to communism adopted the name "capitalism", instantly conflating the movement with the economic system, and the members called themselves "capitalists", whether they personally owned significant capital or not.

In their Tale of the Yeoman, Marx and Engels write that the Crown granted nobles authority to clear their domains of families that had cultivated small inherited plots since antiquity. The Land clearing coincided with invention of new machines, such as automated looms, centralized in urban factories where the displaced country people sought employment. Marx and Engels suggest there was no poverty in England before capitalism introduced modern employment in the factories.

Marx and Engels romanticize the good old days. Poverty long predated capitalism. In Seville, at the time Christopher Columbus landed in America, the predawn of capitalism, about 50 Percent of the people weren’t wealthy enough to tax. In our enlightened era, the 50 Percent are the least wealthy half of Society. In 2012, Mitt Romney, the unsuccessful Republican candidate for U.S. President, said 47 percent of the people don’t pay income taxes. Most of the 50 Percent don’t have enough income to tax, because taxing the 50 Percent could raise political problems by starving many constituents and their children. Indeed, some are starving without taxation. In the United States, 1/8th (12%) of households were food-insecure in 2016. 1/20th (5%) had “very low food security”, meaning they didn’t have enough food at times during the year for lack of money or other resources.

A fair trade, as between a buyer and a seller, produces benefits for both parties. Smith and Ricardo saw the deaths of some Workers as the natural, necessary and useful result of a complex system of production and distribution which benefits the entire Society by increasing the wealth of the nation. Marx and Engels wrote, with outrage, that the customary trade of Labor for wages was unfair to the Worker; systematically unfair, because no trade could be fair when the death of one of the parties so frequently results.



Note: In 2016, the U.S. Census Bureau poverty level for a household of 4 people was about $24k, which is, coincidentally, approximately the highest household income in the 20th percentile of incomes, and also, $24K is about the 2018 level of the U.S. Department of Health & Human Services poverty guideline (determining eligibility for various government programs) for a 4-person household. The U.S. Department of Agriculture estimates, based on census data, state proportions of people in poverty, ranging from 8% in New Hampshire to 21% in Mississippi, and of children in poverty, from 9% in New Hampshire to 30% in Mississippi, as of 2016.



My gratitude goes to my friends who encouraged me and helped me clarify the text to better convey the meaning.



FTC Ring: <Previous | Next>



Images

William Hall, “Friedrich Engels” (1879, Brighton, Public Domain, Wikimedia, https://commons.wikimedia.org/wiki/File:Friedrich_Engels_portrait_(cropped).jpg)

John Kay, “Adam Smith” (1790, Library of Congress, Public Domain, Wikimedia, https://commons.wikimedia.org/wiki/File:AdamSmith1790b.jpg)

John Jabez Edwin Mayall, “Karl Marx” (circa 1870, UK National Portrait Gallery, http://www.npg.org.uk/collections/search/portrait/mw75680/Karl-Marx, Public Domain in USA, https://commons.wikimedia.org/wiki/File:Karl_Marx_by_Mayall_c1870.jpg)

Thomas Phillips, “David Ricardo” (1821, National Portrait Gallery, Public Domain, Wikipedia, https://en.wikipedia.org/wiki/David_Ricardo#/media/File:Portrait_of_David_Ricardo_by_Thomas_Phillips.jpg)

United States Census Bureau, Current Population Survey (2016 and 2017 Annual Social and Economic Supplements, https://www2.census.gov/programs-surveys/demo/tables/p60/259/table2.xls

U.S. Department of Agriculture, “U.S. households by food security status, 2016” (https://www.ers.usda.gov/topics/food-nutrition-assistance/food-security-in-the-us/key-statistics-graphics.aspx)



Sources

Gerald Auten & Geoffrey Gee, “Income Mobility in the United States: New Evidence from Income Tax Data” (June 2009, National Tax Journal, https://www.ntanet.org/NTJ/62/2/ntj-v62n02p301-28-income-mobility-united-states.pdf)

Gerald Auten & David Splinter, “Income Inequality in the United States: Using Tax Data to Measure Long-term Trends” (2018, New York University, http://www.law.nyu.edu/sites/default/files/upload_documents/Income%20Inequality%20in%20the%20United%20States%20-%20Auten_1.pdf)

Daniel Brockman, “Demonstrating Disparity” (April 2018, https://daniel-brockman.blogspot.com/2018/04/demonstrating-disparity.html)

Daniel Brockman, “The Fairy Tale of Capitalism: The 90 Percent" (November 2016, https://daniel-brockman.blogspot.com/2016/11/the-fairy-tale-of-capitalism-90-percent.html)

Daniel Brockman, “The Fairy Tale of Capitalism: The Buyer of Labor and the Nine Percent” (March 2017, https://daniel-brockman.blogspot.com/2017/03/the-fairy-tale-of-capitalism-buyer-of.html)

Daniel Brockman, “The Fairy Tale of Capitalism: Land and Ricardo” (April 2017, https://daniel-brockman.blogspot.com/2017/04/FTC-Land-and-Ricardo.html)

Daniel Brockman, “The Fairy Tale of Capitalism: Managers, Professors and Engels” (June 2017, https://daniel-brockman.blogspot.com/2017/06/ftc-managers-professors-engels.html)

Daniel Brockman, “The Fairy Tale of Capitalism: Rand, Marx and the Downward Trickle” (November 2017, https://daniel-brockman.blogspot.com/2017/11/FTC-rand-marx-downward-trickle.html)

Friedrich Engels, “The Condition of the Working Class in England” (1845, Penguin, http://a.co/6DAD9JW)

Robert Farley, “Dependency and Romney’s 47 Percenters” (September 2012, FactCheck.org, https://www.factcheck.org/2012/09/dependency-and-romneys-47-percenters/)

Felipe Fernandez-Armesto, “Amerigo: The Man Who Gave His Name to America” (2007, Random House, http://a.co/cI3Q6mw

Jacob Goldstein & Lam Thuy Vo, “The 47 Percent, In One Graphic” (September 2012, National Public Radio, https://www.npr.org/sections/money/2012/09/18/161337343/the-47-percent-in-one-graphic)

Thomas Piketty, Emmanuel Saez, Gabriel Zucman, "Distributional National Accounts: Methods and Estimates for the United States" (May 2018, Quarterly Journal of Economics, https://eml.berkeley.edu/~saez/PSZ2018QJE.pdf)

Karl Marx & Friedrich Engels, “Capital” (1867, http://a.co/fdu68Kb)

Karl Marx and Friedrich Engels, "Manifesto of the Communist Party" (1858, 1908 New York Labor News Edition, http://amzn.to/2hl0LCS)

Molly Moorhead, “Mitt Romney says 47 percent of Americans pay no income tax” (September 2012, Politifact, http://www.politifact.com/truth-o-meter/statements/2012/sep/18/mitt-romney/romney-says-47-percent-americans-pay-no-income-tax/)

David Ricardo, “On the Principles of Political Economy and Taxation” (1823, http://a.co/9BOWay8)

Adam Smith, “An Inquiry into the Nature and Causes of the Wealth of Nations” (1776, http://a.co/e3KmVXG

Adam Smith, “The Theory of Moral Sentiments” (1759, 2010 republication by Digireads, http://amzn.to/2ADCAYL)





U.S. Census Bureau, “Number in Poverty and Poverty Rate: 1959 to 2016” (1960 to 2017, Current Population Survey, https://census.gov/content/dam/Census/library/visualizations/2017/demo/p60-259/figure4.pdf)




United States Department of Agriculture, Economic Research Service, “Key Statistics & Graphics, Food Security Status of U.S. Households in 2016” (https://www.ers.usda.gov/topics/food-nutrition-assistance/food-security-in-the-us/key-statistics-graphics.aspx)


United States Department of Agriculture, Economic Research Service, “Poverty, Percent of total population in poverty, 2016” (retrieved Jun 11, 2018,

United States Department of Health & Human Services, “U.S. FEDERAL POVERTY GUIDELINES USED TO DETERMINE FINANCIAL ELIGIBILITY FOR CERTAIN FEDERAL PROGRAMS” (retrieved Jun 11, 2018, https://aspe.hhs.gov/poverty-guidelines)