3 Things 4-24

Thing One Having lived a good portion of his life, the famous Italian physicist and astronomer, Galileo, is reported to have said, “If I were again beginning my studies, I would follow the advice of Plato and start with mathematics.” Galileo died in 1642, but if we could indulge in hypotheticals as he did, we’d say that if he were alive today, he would still feel the same way about the importance of mathematics. And on that basis, he would declare that a crisis more imminent and ominous than any being promoted by the various powers that be in the present day exists in Baltimore (and likely in many other cities around the country). We make that argument based on the following headline that has somehow escaped the national spotlight: “23 Baltimore Schools Have No Students Proficient In Math”. According to a local Fox News affiliate, “Project Baltimore combed through the scores at all 150 City Schools where the state math test was given. Their investigation found, in 23 Baltimore City schools, there were zero students who tested proficient in math. Not a single student. Among the list of 23 schools, there are 10 high schools, eight elementary schools, three Middle/High schools and two Elementary/Middle schools. Exactly 2,000 students, in total, took the state math test at these schools. Not one could do math at grade level. Project Baltimore also found three additional schools where zero students tested proficient in math, which we did not include in the list of 23. One of those schools is for incarcerated youth, and the other two are for students with disabilities. And it’s important to note, another 20 Baltimore City Schools had just one or two students test proficient in math.” Even if it were just these 2,000 students, this would be a bigger school tragedy than any that have ever been in the headlines, and it would be a bigger crisis than any we have been told to fret about by our public servants. That is not to belittle school shootings, for example, which are inarguably tragic, but at least the undeserved punishment is swift and final for the immediate victims in those instances. In the case of the students being undeservedly punished by the adults who run these school systems and are supposed to be there to serve them, they are robbed of their futures as well, but condemned to live out their lives on the lower rungs of the economic ladder, totally dependent on the same system that initially victimized them and totally unaware of the identity of their assailants. But it’s not just these 2,000 students (and we know it’s not just a Maryland phenomenon). Project Baltimore found in all of Baltimore City, “Just 7 percent of third through eighth graders testing proficient in math, meaning 93 percent could not do math at grade level.” Without dramatic intervention – the kind that the governments and school systems are incapable of conceiving, much less administering - the negative effects of these deficiencies will just compound in these young people’s lives. So, instead of these kids learning the fundamentals of math and then eventually applying them to adult concepts like budgets, investments, compound interest, risk management, etc., they forgo those lessons and (eventually) learn that it’s one political party or the other that is the determinant of the quality of their lives. And because they can’t do the math for themselves, they believe the story their supposed political saviors spin for them about how their peers who have applied the mathematical concepts to their lives to degrees of success far beyond their own, are just villains and cheats who have somehow claimed more than their "fair share". School choice, anyone?

Thing Two The Debt Ceiling Debates In the next week or so, we’ll learn whether the US treasury took in enough during tax season to keep the deadline for agreement on the debt ceiling out in September or whether it moves up to more like June. It all hinges on when the debt ceiling “binds” or is breached. At that point, the US Treasury does not have the money to pay its obligations. Hopefully we avoid that worst-case scenario, but in case we don’t, we thought it would be good to cover the topic. With that in mind, the following excerpt from brookings.edu, provides a good summary of the debt ceiling issue: “The debt limit caps the total amount of allowable outstanding U.S. federal debt. The U.S. hit that limit—$31.4 trillion—on January 19, 2023, but the Department of the Treasury has been undertaking a set of “extraordinary measures” so that the debt limit does not yet bind. The Treasury estimates that those measures will be sufficient at least through early June. Sometime after that, unless Congress raises or suspends the debt limit before June, the federal government will lack the cash to pay all its obligations. Those obligations are the result of laws previously enacted by Congress. As our colleagues Len Burman and Bill Gale wrote in a recent Brookings piece, “Raising the debt limit is not about new spending; it is about paying for previous choices policymakers legislated.” The economic effects of such an unprecedented event would surely be negative. However, there is an enormous amount of uncertainty surrounding the speed and magnitude of the damage the U.S. economy will incur if the U.S. government is unable to pay all its bills for a time—it depends on how long the situation lasts, how it is managed, and the extent to which investors alter their views about the safety of U.S. Treasuries… If the debt limit binds, and the Treasury were to make interest payments, then other outlays will have to be cut in an average month by about 20%. That would be necessary because over this period as a whole, the Congressional Budget Office expects close to 20 cents of every dollar of non-interest outlays to be financed by borrowing. However, the size of the cuts would vary from month to month because infusions of cash to the Treasury from tax revenues vary greatly by month. Tax revenues in July and August tend to be fairly muted. Thus, the required cuts to federal spending when an increase in federal debt is precluded are particularly large during these months. If Treasury wanted to be certain that it always had sufficient cash on hand to cover all interest payments, it might need to cut non-interest spending by 35% or more...” As for the specifics on the damage to the economy all this could cause, Ryan Ermy of CNBC reports that, “…Aside from stock market volatility, you’d see ramifications across the economy. Any ding in the U.S. credit rating would likely raise rates on other types of debt, such as mortgages and auto loans, to account for additional risk. And don’t forget that government spending (which would be cut under a default scenario) contributes to the overall economy, which is already in a precarious position — one that many experts say could soon tip things into recession territory…”. But far from being all doom and gloom, he ends his report by suggesting that we shouldn’t worry too much, “Because we’ve been here before. The debt ceiling has been raised 45 times in the last 40 years. And while past debt ceiling crises have roiled markets — the S&P 500 shed 17% in 2011 — their effects haven’t lasted long. This is not going to significantly damage the credit rating of the U.S. over time, and it’s not going to derail stock markets. We will likely get a deal, and if we don’t, there are things we can do. And even if we go to default, it will be a technical, political default — not an economic one…” So, there you have it. Hopefully we’ll avoid the pain, but if it comes, perhaps we can use the prospect that we always seem to bounce back as way to endure it without becoming too despondent or acting too drastically.

Thing Three Just A Thought "The government solution to a problem is usually as bad as the problem." - Milton Friedman