Category: Analysis

Anything that I have tested empirically, or explain with detailed calculations, or just generally bother to get all the facts straight.

Post #1688: Winning the Game of Razors-and-Blades.

 

When I started this series of posts, I was bewildered by the market for wet shaving.    Four questions stood out.  Really, two pairs:  One about economics, one about performance:

  1. Why do manufacturers keep coming up with ever-more-absurd gimmicks for shaving cartridges?
  2. Why does a shaving cartridge typically cost a buck or more, but a double-edged razor blade costs ten cents?
  3. Why do some people report getting a ludicrously high number of shaves from a single blade or cartridge, while others report re-use in the low single digits, for the exact same blade or cartridge?
  4. Is any of the folklore around ways to extend the life of a razor blade true?

After doing my research, I reached a state of razor enlightenment.  It all makes perfect sense.  So let me start by ‘splaining what I think I know.  Then finish with a short discussion of stropping. Continue reading Post #1688: Winning the Game of Razors-and-Blades.

Post #1687: Razor blades, some economic footnotes

 

I set out to compare modern prices for razor blades to prices from earlier eras.  I got a lot more than I bargained for.  Turns out, there really is nothing new under the sun.  Except that razor blades have gotten a lot cheaper over time.

The basic question is, how cheap are modern razor blades?  Compared to what they would have cost historically, that is.

But the fun part is the 1918 Sears & Roebuck catalog.  This post is worth it for that alone.

 

They cost how much?

If you wanted to know about historical food prices, or typical rents, or average family income, or the cost of gasoline from bygone eras, you can find that information.  Those were all important commodities, and their prices were duly tracked and recorded.

By contrast, there’s no such luck for a cheap disposable product like a razor blade.  Nobody really much cared about them, in the sense of preserving their prices for history.  Nobody systematically recorded information about them.  And that makes it hard to find out what they used to cost, way back when.

Initially, all I could do was look for bits and pieces of advertising.

Even then, the only razor company modern historians much care about is Gillette.  And Gillette was not only a super-premium product, Gillette also played fast-and-loose with their pricing, owing to patents on some key aspects of safety razors early in that era.

In fact, there is a term-of-art in economics called “razors-and-blades“, to discuss profit-maximizing strategies for companies who sell razor handles that will only fit their razor blades.  Think inkjet cartridge pricing, and you’ll get the gist of it.  And, sure enough, once you’re locked into a handle, the manufacturer tries to extract the as much money as possible in the cartridges.

Let me start with Gillette’s list price for blades.

I am supposed to say something like “Gillette introduced the safety razor in 1904”, but that’s not even remotely true.   One can find ads for “safety razors” for many decades prior to that, all with the same basic design of a blade contained in some sort of housing, to make it hard to cut yourself.

What Gillette actually invented was the cheap, stamped-steel disposable razor blade (per Wikipedia).  And, of course, the razors that would use those blades.  Before Gillette, most safety razors had a permanent blade, designed to be re-sharpened.  Gillette got the idea to do away with a permanent, knife-like razor and substitute a disposable blade.

At that time, Gillette’s razor was marketed as a superior and more sanitary way to shave, owing to the reduced likelihood of nicks and cuts from shaving.  It commanded an appropriately premium price.

From 1904, until his patents ran out around 1924, Gillette razor blades were priced at 12 for a dollar, or 8.3 cents per blade.  That was the list price, and some sources suggest that discounting was common.

But taking that 8.3 cents at face value, I’ll translate that to current dollars using the BLS inflation calculator.  That only goes back to 1913, but it tells us that 8.3 cents, in 1913, is the equivalent of just over $2.50 in today’s (December 2022) money.  Per blade.

As noted in prior posts, current prices on double-edge razor blades range from about 5 cents each at the low end, to about 40 cents each for high-end Japanese Feather brand blades.   It’s reasonable to say you have your pick of medium-quality blades around 10 cents each.  (Those are all Amazon prices for lots of 100 blades.)

Thus a modern stainless-steel quality razor blade costs about 4 percent of what a name-brand, list-price Gillette razor blade originally cost.

But wait, there’s more.  Average (family, I think) income in that era was about 750 dollars per year.  (Based on various sources).  Median family income today is about $71,000.  So, as a fraction of a year’s income, a modern 10-cent razor blade is just 1.3 percent as costly as Gillette’s original 8.3 cent blade.

Thank goodness for Sears & Roebuck.

But wait:  Gillette was not the only blade on the market, it was just the best-advertised.  And likely the most expensive.  A comparison to the Gillette list price overstates how costly razor blades were, on average, at the dawn of the disposable razor blade.  Unfortunately, the earliest pricing I can find on other blades dates to the WWI era.

I stumbled across a University of Missouri collection of old mail-order catalogs, all scanned and available on-line.  You can get access to from this URL:  https://libraryguides.missouri.edu/pricesandwages/1910-1919.

With that in hand, it’s just a question of looking up razors in any year’s catalog and see what’s on offer in the Sears & Roebuck.  And it’s a real eye-opener.

Let me take the 1918 Sears and Roebuck catalog, despite that being in the middle of WWI.  The source for all the images below is page 1321 of the 1918 Sears and Roebuck catalog, via the University of Illinois.  Clicking this link should take you to a page that’s about 20 pages earlier in the catalog.  Just page down to get to razors.

The first surprise is that stainless steel blade are NOT a 1960s invention.  Check out this 1918 Sears & Roebuck ad, for a razor and 12 chromium steel blades.  While technically incorrect, the term “chromium steel” is often used interchangeably with “stainless steel”, for the simple reason that it behaves like common stainless.  It’s very hard, and it’s rust-proof.

Second, as is true today, you could also purchase carbon steel blades.  Oddly, you will note that the chrome steel blades are NOT a premium product.  At 12 for 38 cents, they are actually cheaper than the “crucible steel” blades at 5 for 20 cents.  (I believe that, in that era, “crucible steel” was a catch-all term for higher-quality steel carbon steel, free of inclusions or impurities.)

Third, Gillette’s stuff was, indeed, pricey.  Here you can see Gillette blades at 6 for 39 cents.  That’s about twice the price of the most expensive blade on the illustration above.  The complete shaving outfit from Gillette was four times the price of a similar outfit from the off brand.  (Also, what’s with “We do not exchange old blades.”?)

Finally, re-sharpening blades by stropping must have been common practice.  Not only do most of the razor outfits include “stropping handles”, Sears sold two different stropping devices, one to fit Gillette blades and one to fit most other blades.  This comports with the findings from my tests, where stropping definitely cleaned up and re-formed the razor edge of a used blade.

I now wonder whether stropping might have been more effective on old-style (softer) carbon-steel blades, than on chromium steel.  That’s sure the case with knife sharpening.  It’s vastly easier to sharpen a high-carbon steel blade on a whetstone than it is to sharpen a stainless blade.  Perhaps that explains the lack of premium pricing for chromium steel blades in that era?

The calculation, redone.

The cheapest blades offered above appear to be the 12-for-38-cent chromium steel ones, or about 3 cents per blade. In addition, with all that stropping going on, I bet those blades were used longer than modern blades are.  But I have no way to factor that into my calculation, absent any data on average shaves per blade in that era.

At face value, then, the best bargain on blades in the 1918 Sears & Roebuck catalog translates to about 66 cents per blade in modern money (using January 1918 as the basis for pricing, WWI saw a brief but very sharp round of inflation in the U.S.)

Or, crazily enough, just about what a low-end name-brand disposable cartridge costs today.  Still a good bit of money relative to the average family income.  But not nearly as expensive as the list price for Gillette blades would have suggested.

Really, almost the only structural difference between the 1918 market and the modern market is that disposable blades had not yet been standardized.  Gillette blades fit Gillette razors.  (Again, just like disposable cartridges today.)  Other brands seemed to have adopted a more-nearly-interchangeable standard.

If I had to point to one subtle-but-important difference, it’s in the quantities.  Recall, this is a mail-order catalog, with all the time lags that implies.  And yet, no razor blades were offered in lots larger than 12.  And everybody seemed to offer either a stropping machine or a manual strop for use on their blades.  Together, this suggests to me that you were expected to use each blade for quite a long time.

As opposed to Amazon, today, where almost any blade you’d care to buy can be had in a box of 100.  And “strops” for disposable razor blades are niche-market oddities.  Which both suggest that we probably re-use blades a lot less in the modern world than they did back in 1918.

Post #1686: Three shaving myths, tested.

 

Starting back in Post #1672, I decided to test internet-based advice on how to extend the life of razor blades and disposable razors. EDIT:  And I’ve had to change some of the answers, after further, research, as shown below.

At this point, the answers are obvious, and I’m kind of tired of having razor blades sitting around all over my bathroom.  So I’m calling it a day and presenting the results.  Despite not having done the purest possible tests, I’ve done enough to be confident that I have the facts straight.

It boils down to this, for three commonly-offered suggestions for extending the life of a razor blade or disposable shaver.

  • Carefully dry your razor blade after use:  BUSTED. CONFIRMED
  • Strop your razor blade to re-sharpen it:  PLAUSIBLE BUSTED
  • Soften your beard/lubricate your face:  CONFIRMED

Details follow.

Carefully dry your razor blade after use:  BUSTED, for rust, but CONFIRMED for hard-water spots.

If this were 1960, “dry your blade” would be excellent advice.  At that time, most razor blades were made from a hard carbon-steel alloy.  Carbon steel rusts.  And rust will surely destroy the delicate edge of a razor blade.  But these days, you are hard-pressed to find double-edged razor blades that aren’t made of stainless steel.   (Treet brand is the only one I know of.)

The key point is that stainless steel doesn’t rust.  (Well, decent-quality stainless will not rust in the bathroom.  Some stainless, in some environments, will rust.)  In particular, there’s no rust on the blades I use (Persona), despite sitting around in a damp “used razor blade bank” for years.

My guess is that “dry your blade after use” is folk wisdom that was passed from parent to child. Once upon a time, it was good advice.  But I’m pretty sure that it has been made irrelevant by the switch to stainless steel.  It remains good advice only for the rare blade that is still made out of rust-able carbon steel.

At any rate, I decided to test this one “backwards”, so to speak.  If keeping a razor blade wet for long periods of time does not harm it, then, as a matter of logic, drying it off does it no good.

So I took some razor blades — some new, some used — and kept them wet.  The razor blades pictured above have spent the last week with one edge wet and one edge dry.  They were either continuously wet (in a wet sponge) or periodically wet, and allowed to dry by sitting around at room temperature.  The other edge of each blade was either kept dry, or dry-and-oiled.  Presumably for extra protection.

Below see microscope view of the results.  Each photo contrasts one blade edge that was subject to the “abuse” of being kept wet, for the better part of a week.  The other blade edge was carefully kept dry.

Can you guess which one is the abused, wet edge, and which is the carefully-cared-for dry edge?

 

 

In all three cases, the wet, abused edge is on top.  I surely see no difference between the two edges.

I then tested both edges of the dry-and-oiled blade on my crude D-I-Y sharpness tester (Post #1684).  This latest version of the sharpness tester has considerable variance from test to test, but by taking five samples on each edge, I ended up with an average of this much pressure required to split a stout thread:

  • Dry-and-oiled edge:  17 grams
  • Continuously wet edge:  18 grams

In other words, the two edges are equally sharp, within the limits of of resolution of my crude testing setup.  Keeping the edge wet for a week did nothing, compared to keeping the edge carefully dry and oiled.

Caveats:  Of course, I can’t test every possibility.  Plausibly, you might be unlucky enough to have purchased carbon-steel blades.  Perhaps your water is so acidic that it can eat stainless steel.  And so on.

But there’s a simple-enough test.  Leave your blades wet.  If your blades rust, then you need to dry them carefully after each use.  If they don’t, not.

Conclusion:  For the typical shaver, with normal tap water, leaving a stainless steel razor blade wet does absolutely nothing to it.  Doesn’t rust it.  Doesn’t pit the edge.  Doesn’t dull the edge.  That’s not a surprise because that’s exactly what’s supposed to happen with stainless steel.  But, if keeping them wet all the time does nothing, then keeping them dry also does nothing.  By inference, the notion that razor blades will last longer if you carefully dry them is simply out-of-date.  Great advice for shaving in 1960.  Irrelevant for modern stainless-steel blades.

EDIT 2/26/2024:   But that method — keep the edge wet — only tests for rust.  As it turns out, rust isn’t the issue.   The issue is water spots.  If you have even moderately hard water, and you don’t dry your blade, the evaporating water will leave behind thin deposits of calcium carbonate, a.k.a., water spots.  And, goofy as it sounds, a water spot is a hard mineral deposit that is much thicker than the edge of a razor blade. As a result, if you let water spots form on your razor blades, you’ll get a lousy shave.  That’s laid out and tested in Post #1699. 

The upshot is that “dry your blade” is good advice for most people, but not due to rust or oxidation.  (Not if you use stainless-steel blades.)  That’s because most tap water contains enough dissolved minerals (“hardness”) to form water spots. 

That said, all of the other goofy advice aimed at blade oxidation — keep your blade in oil, keep it in the freezer, and so on — is useless.  At least for modern stainless-steel blades.  You don’t need to go to extremes to prevent oxidation, because they simply don’t oxidize under normal bathroom conditions.

Strop your razor blade to re-sharpen it:  PLAUSIBLE, but ultimately, BUSTED

Here, I’ll just refer you back to Post #1673.  Stropping a used blade on an improvised leather strop definitely changed the edge of the blade.  Below, you see the same used blade, before and after stropping.

 

After stropping, the edge is much smoother and almost returns to a like-new appearance.

Unfortunately, stropping also appears to remove the double-faceted aspect of the factory edge.  (Which makes sense, when you think about it.  You can only strop it at one angle.)

In the end, neither my crude sharpness tester nor my face could tell that the stropped blade was better than the original used blade.  Maybe that’s because I wasn’t using my blades very long — see third section below.  So I find it plausible that if you wore a blade down to where it was un-usable, stropping could restore the edge enough that you could continue to use it.  For some additional time, at least.  Maybe?

But, as with a straight razor or a knife, stropping has its limits.  If the edge gets sufficiently worn, you have to re-sharpen it, which is a different process entirely.  So I don’t think stropping will allow you to use a blade indefinitely.

Conclusion:  I didn’t prove it, but it’s plausible that stropping a razor blade extends its usable life.  That’s based on the much fresher-looking edge that stropping creates, as shown above.  Straight razors get stropped to refresh the edge.  There’s no reason that wouldn’t work on razor blades.  With the caveat that stropping a razor blade will eventually eliminate the factory double-faceted cut of the razor edge.

Edit 2/24/2024:  I have since gone on to try wide variety of different methods for stropping a stainless-steel razor blade, up to and including buying an actual razor strop and stropping compound, as well as stropping a blade on a knife steel.  Stropping a modern stainless-steel blade makes the edge look better, but it absolutely does not restore a dull blade to usability.  I think my last post in that series is Post #1692.  My post-stropping conclusion was “still doesn’t shave worth a damn”.  And that’s what I’m sticking with.

In the end, the practice of stropping razor blades died out as stainless-steel blades took over the market, and I think there’s a good reason for that.  Those blades are just too hard. 

For sure, all the goofy internet advice (strop it in the back of your arm, or on your jeans trouser leg, or on the inside of a glass, …) is wrong.  For stainless-steel blades.  Stainless is just too hard for that to have any effect.  But I went the extra mile, and used what should have been the right materials for stropping.  In this post, I used a knife steel, and in a prior post, I used an actual leather razor strop and compound.  (Which is what you would use on, say, a stainless-steel straight razor.)  And none of that restored a dull stainless blade to sharpness.

Soften your beard/lubricate your face:  CONFIRMED

If nothing else, this razor blade test has broken me of a life-long bad shaving habit.  I shave(d) with soap.  Most recently I’ve been using Dove, because that’s supposed to have more emollients in it and be generally nicer to your skin.

And, not unrelated, I’d typically get three shaves out of a blade before I got the urge to replace it.  Maybe five, at the outside.  But by the time I got through that fifth shave, it required multiple passes of the blade and, basically, it hurt.

For this final test, I decided to shave half my face using Dove soap, and half with Barbasol.  The main active ingredient in Barbasol is stearic acid.  That’s the same as the main fat in coconut oil, and it is frequently recommended as a beard softening agent.  (And, as it turns out, almost all shaving creams have almost exactly the same main ingredient — see the end section of Post #1688.)

Three things happened.

1:  After the first shave, I was sold on Barbasol.  Immediately, unambiguously, and obviously better.  Vastly less skin irritation than shaving with Dove soap.

2:  But, weirdly, as time wore on, the difference between Barbasol and soap seemed less pronounced.  And the two edges of the razor blade (one for soap, one for Barbasol) did not appear materially different.  I’m pretty sure that’s because the active ingredient in Barbasol penetrates the skin and hair follicles.  In effect, it softens not just the hair above the skin but the hair below the skin as well.  And by swapping which side of my face got the Barbasol, with each shave, I was actually providing some residual protection to both sides of my face, all the time.

3:  I just got through my sixth shave with Barbasol.  One blade, six shaves, no problems.  No irritation.  No nothing.  That never happened with soap.

And, as importantly, almost no visible blade wear yet.  Here are two microscope views of a new blade next to a blade after six shaves with Barbasol.

 

Tough to tell which is which, isn’t it?  The new blade is on the left, the used blade is on the right.  My used blades never looked like that when I shaved with soap.

So, I screwed up the formal testing on this one, by alternating which side of my face got the Barbasol.  But the results are clear enough.  Despite the lack of controlled test, I’m calling this one confirmed.  I’ll keep counting shaves, and at some point, I’ll edit this for the final count.  But I’ve already exceeded what I can get out of a blade with soap.  And I’m at about twice the number of shaves I normally get out of a blade, with soap.

Whether this occurs solely due to the reduced blade wear shown above, or in addition to the increased comfort of the better-lubricated shave itself, I can’t say.  But, for sure, the combined effect is to give me a lot more shaves per blade.

YMMV.  I don’t have a particularly tough beard to start with.  And my comparison is off-the-shelf Dove bar soap.

I guess real shaving aficionados laugh at something as pedestrian as Barbasol.  I should be using yak butter, or some such.  I don’t care.  It’s been around forever.  It’s made in America.  It’s a few bucks a can, which works out to maybe 2 cents a shave.  And it works.

I see no reason to look any further.

Here’s the kicker:  Not only is shaving with Barbasol a lot more comfortable, it’s almost certainly cheaper than shaving with soap.  The per-shave cost of the Barbasol (about two cents, best guess) is more-than-offset by the reduction in per-shave cost of the blade wear-and-tear.

As a result, I now realize that the way I shaved for my entire life (up to now) was both more painful and more expensive.  Oh for dumb.

Conclusion:  I can’t speak to every possible way to soften your beard or lubricate your skin.  But Barbasol obviously extends the usable life of razor blades, for me.  Relative to shaving with Dove soap.

Conclusion

I could have done this whole analysis better.  But I think I did it well enough to know what’s what.

And, there are almost certainly other tricks that might or might not work.  For example, some people carefully flip the blade between shaves, presumably so that both sides of each edge get equal wear.  But this expert says no dice on that one.  You get the same number of shaves either way.  Which makes sense to me.

The final upshot is that I know as much about this topic as I will ever need to know.

The whole reason I started this experiment — the need to buy my next tranche of razor blades — no longer exists.  By switching from soap to Barbasol, it will be years before I’ll have to buy more blades.

Post #1685: Razor blade experiment, unexpected results, and a redo.

 

I’m currently performing a brief experiment to see whether softening my beard prior to shaving will prolong the useful life of the razor blade.

See if you can spot what I screwed up in my experimental design:

  • I have one safety razor and one blade.
  • I marked one edge of the blade with “Barbasol”.
  • Each day I shave half my face with Dove soap, and the other half with Barbasol.
  • I always use the Barbasol edge of the blade on the side of my face with Barbasol on it.
  • I alternate sides to eliminate any left-right differences (in my face, in holding the razor).  One day, Barbasol goes on the left side, the next day, on the right.
  • I rinse both sides of my face with tap water when I am done.

Here’s a hint.  On the first day of the experiment, I became an instant Barbasol convert.  The side shaved with Dove soap stung quite noticeably.  No sting on the Barbasol side.  But as the experiment has progressed, somehow, the soap side still stings a bit, but not nearly as much as it did at the outset.

In any case, after four shaves, I expected the soap side of the blade to be worn out, because that’s roughly normal for me.  You can see microphotographs of worn blades in my earlier posts in this series.  That’s what I expected to see.

To my surprise, when viewed under a microscope, there’s no material difference between the soap and Barbasol sides of the blade, at the four-shave mark.  And both sides are still in very good shape.

What?  That can’t be right.

Now that I have read a bit more about beard softening agents, I believe my mistake was in alternating sides of my face.  As it turns out, oils commonly used as beard softeners, including stearic acid (the principal active ingredient in Barbasol):

  • Penetrate the surface of the skin (e.g., reference).
  • Penetrate into the hair follicle
  • Penetrate the shaft of the hair to some degree
  • Enough so that they actually have measurable effects on hair metabolism (e.g., reference).

I’m pretty sure the upshot of all that is that it’s a mistake to swap sides of the face each day.  The most straightforward explanation of the lack of difference between two sides of the blade is that I’ve been accidentally softening the beard on both sides of my face.

Basically, Barbasol leaves enough softening “residue” to mess up the experiment, if you alternate sides of the face.  It not only softens the beard AT skin level, it probably softens the beard BELOW skin level.  Which then becomes tomorrow’s shave-able beard.  And it softens the entire top layer of the skin, to boot.

To do this right, I have to change the protocol and not switch sides from day to day.  Which I will do henceforth.  But this clearly delays the final results.

Live and learn.  Or draw incorrect conclusions from faulty experimental method.

Post #1683: The Great Razor Blade Experiment, stopping early for benefit.

 

This is part of an ongoing series to test various internet-based suggestions for extending the life of a razor blade.  You can see the background for this in the Post #1672.  The setup for this experiment is given in Post #1677.  Start of experiment is given in Post #1679 Continue reading Post #1683: The Great Razor Blade Experiment, stopping early for benefit.

Post #1681: Debt ceiling, Part 1

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.

That’s generally attributed to Will Rogers, but it’s probably apocryphal.

I was going to write one post on the topic of the debt ceiling.  But every time I peeled back the onion on this topic, it stank even worse.  And made me cry even harder.  So it’s going to take a few posts to get through this.

Like most Americans, have been kind-of laughing off the threat of a default on U.S. government debt.  Default, as a consequence of failing to raise the U.S. debt ceiling.

For most of us, “It’s like déjà vu all over again.”  I’m 64.  Per the Wikipedia article, the U.S. debt ceiling has been increased or suspended no fewer than 86 times, in my lifetime.

So, on the one hand, how many times can the U.S. Congress cry “wolf” before nobody pays attention any more?  On the other hand, recall that in Aesop’s fable, the sheep do, in fact, get eaten.

So, as is my habit, I decided to get my thinking straight about this.  Like most Americans, I’m a little fuzzy on the details of just how, exactly, this whole  legislated-increase-in-the-debt-ceiling works.

Personally, I’m not so much a fiscal conservative as a fiscal realist.  Or, pessimist, depending on your orientation.  On a personal note, I took Social Security at age 62, figuring that the current benefit levels could not possibly be sustained for much longer.  And I’m taking a lot of taxable income from investments, under the assumption that tax rates cannot possibly remain where they are now.

In a nutshell, I think you’d have to be crazy not to see that we’re well into the process of the poop hitting the fan, fiscally speaking.  It’s just a question of whether or not we’re going to so something rational about that.  Or whether we’re just going to govern through chaos.

To cut to the chase, the more I looked, the more I realized that I completely misunderstood the basic facts of the current debt limit situation.  And the less sure I was that the U.S. would avoid default this time.  I’ve been sure that the problem is squarely attributable to the Republicans.  And, on balance, I’m still in that camp.  But now, eh, there’s an element of doubt.   And that’s what I find most unsettling.  Given restraints on how legislation has to get passed, it’s no longer clear to me that either party has what it will take to raise the debt ceiling.

In short, this time, I think we actually are going to default.  Or, at least, run out of money.  Fail to issue enough new debt to cover all currently promised payments.  That doesn’t necessarily mean literal default on the federal debt.  The Federal government would have no trouble continuing to make interest payments on its debt.  As long as its willing to make large cuts in something else.  I just have a very hard time seeing that happening.

Take that FWIW.  Guard your sheep or not, as you see fit.

Instant recession:  The Federal government is really, really big.

For this first post, I just want to get a few magnitudes down.

  • The U.S. GDP is about US $ 23 trillion (reference).
  • Total Federal spending is around $ 6 trillion (reference).
  • The FY 2022 Federal budget deficit was $ 1.4 trillion (reference).
  • Best guess, the FY 2023 deficit will be about the same.

So, from the get-go, realize that the Federal government is large, compared to the entire U.S. economy.  From the above, Federal spending amounts to about (6/23 =~)  one-quarter of the U.S. GDP. 

Let me be clear, most of that spending is not, directly, itself, counted as part of the GDP.  

For example, the single largest item in the budget is Social Security, accounting for 19% of the federal budget, per the U.S. Treasury.  That’s a “transfer payment”.  It takes money out of one pocket and puts it in another.  Transfer payments are not counted as part of GDP.  So those Social Security payments are not directly counted as part of the U.S. GDP.

But continuing that example, those Social Security payments are what allow a lot of seniors to (e.g.) buy food and such.  And those purchase of food ARE counted in the GDP.  So while Social Security itself is not directly counted as part of the GDP, you had better believe that Social Security payments fund a big chunk of what gets counted as GDP.

If we finally, truly, really hit the debt ceiling, that means that Federal spending will have to fall by roughly the amount of the annual Federal deficit.  That is not, actually, 100% correct, because the increase in the public debt is not the same as the annual budget deficit.  (That is due, among other things, to various Federal trust funds.)  But it’s close enough.

So, how big is the annual Federal deficit, these days, relative to GDP?  All things equal, if at some point the Federal government can no longer borrow money to finance that deficit, that means that payments equal to roughly (1.4/23 =~) 6% of GDP will instantly stop flowing.

Now, some of those are payments to foreigners.  For example, foreigners now hold about one-third of the public debt, per the Congressional Research Service.  So, about a third of interest payments on the debt go to foreigners.  But that’s really a drop in the bucket.  Most of that money is paid out in the U.S.

Again, some of that — like interest payments to U.S. citizens and other entities — may have a relatively minor impact on final demand for U.S. GDP.  The wealthy have a notoriously low marginal propensity to consume out of current income.  Just because you cut off $1000 in bond payments doesn’t mean that you’re going to see a $1000 drop in final demand for GDP.

Finally, I must note that thanks to COVID relief spending, virtually all U.S. states had record-breaking budget surpluses these past couple of years.  (See Post #1316).  And so, it’s not clear that cuts to payments made to states would translate dollar-for-dollar into cuts in payments that the states themselves make to others.  But that would require states to pass new budgets to account for those changes.

So, let’s conservatively guess that the FY 2023 budget deficit accounts for … one way or the other … payments to U.S. entities equaling … ah, call it roughly 5% of GDP. And that if Uncle Sugar stops paying that money, then final demand for goods and services in the U.S. will drop by … ah, somewhere around 5% of GDP.

Just spitballing.  It only has to be ballpark.  Because we can find a credible source that says the following, emphasis mine.

Routine recessions can cause the GDP to decline 2%, while severe ones might set an economy back 5%, according to the IMF.

Source: Investopedia.

And so, if we actually go through with not raising the debt ceiling, and none of the various gimmicks for getting around that are deemed legal, and the “extraordinary measures” get used up, and payments stop flowing, we are instantly in “severe recession” territory. 

That’s before any “multiplier” effects.  Before the folks who didn’t get paid by Uncle Sugar stop paying their suppliers.   And so on.  And if those effects snowball — as classical economic theory tells us they will — it’s hard to say where that will end up.

Bear in mind, this is all before we even talk about defaulting on Federal debt or not.  This is before we even recognize that the “automatic stabilizers” in the Federal budget will automatically translate that decline in GDP into an even bigger increase in the Federal deficit, vicious-circle style.

This ain’t rocket science. All I did was get a round-number estimate of first-order spending impact of hitting the debt ceiling for real.  It just requires acknowledging how large Federal payments are, compared to U.S. GDP.  Stopping that amount of payment, in the U.S. economy, is not something you should do on a whim.  Or in a snit.

Conclusion:  End of Part 1

This ended up being an odd post, because I started by researching the actual Congressional budget process.  And every time I turned around, I had to go further back the chain/peel another layer from the onion.  From the debt ceiling legislation, to filibuster, to budget reconciliation not subject to filibuster, to the annual budget resolution that drives budget reconciliation, to the President’s budget, to “the budget deficit”.  And on and on.

And ended up with what you see above.

Just to focus on one point,the most recent increase in the debt ceiling occurred in December 2021.  That was only possible because Senate Republicans agree to make a one-time exception to filibuster rules, in exchange for increasing the debt limit enough to get us past mid-term elections.  This one-time exception allowed the debt ceiling legislation to pass, while  simultaneously allowing all Senate Republicans to vote against it.   (On paper, at least.  The reality is that agreeing to the filibuster exception is what allowed it to pass.)  It then passed in the Democrat-majority House.  And that got us from December 2021 to where we are now.

Now, here’s where it gets frightening.  I thought that the reason the Democrats didn’t take care of this again, in December 2022, when they had majorities in both Houses was, in fact, those Senate filibuster rules.

Turns out, that’s not exactly true.  In theory, they could (and in the past, the Congress has) put an increase in the debt limit into annual budget reconciliation, not subject to filibuster.   It’s not crystal clear that it would work but it has been done in the past.  There is no precedent on whether or not members could raise “a point of order” to object to inclusion of this in the budget reconciliation bill.

But the Democrats didn’t put it into budget reconciliation.  More importantly, they didn’t even try to put it there.  And here’s where it gets a bit weird.  The best analysis I read says that they didn’t, because if they had, the Democrats would not have had the votes to pass budget reconciliation.

Don’t know if that’s true or not.  But now, with a Republican majority in the House, and a stated unwillingness to provide a “clean” increase in the debt ceiling … it sure looks to me like there’s no way to get it done.  If the above is true then neither party has the majority required for a clean increase in the debt limit in the Senate.  And the House is basically running amok, and on the face of it, just isn’t gonna play ball, no matter what.

Which means that neither house of Congress can (or will) get this done?  That’s kind of where I ended up.

The rest of the posts in this series will now unspool in the other direction.  Ending up with, how in the world is the U.S. Congress going to raise the debt ceiling, under the current circumstances?  I’ve been looking at that pretty intensely for a couple of days now, and I’m still not seeing it.

Post#1678: What ever happened to GATT, and when did protectionist policies become legal again?

 

Part of the problem with getting old is that sometimes you can’t tell if the world has changed (and nobody sent you the memo), or if you merely mis-remember history.

A case in point is our current extended bout of economic protectionism (or industrial policy, or trade wars, or whatever you want to call it.)

Most recently, we had the CHIPs act to subsidize domestic production of computer chips.  The Inflation Reduction Act provided significant subsidies for electric vehicles via the tax code, but unlike the legislation that replaces, those subsidies are now for domestically-assembled cars only.  The Biden infrastructure bill has a pretty strong “buy American” clause.

(I know that last one because I recall all the right-wingers from Fox on down pissing all over those buy-America clauses.  Which just … seemed odd, to say the least.  Because we need to hate China, but we have to buy Chinese steel?  Beats me.  I don’t think internal consistency is necessarily their strong point in the best of times.)

And then, of course, the prior President appeared to impose new tariffs almost at random, or based on whoever spoke to him last.  With some obviously made-up national security pretext.  So we had ourselves a mini trade war with Canada?  Yeah, Canada.  Because they were a threat to U.S. national security?

Let me put aside whether I’m for or against such things.  Put aside the knee-jerk reaction of a classically trained economist.  Or even whether you think the best of these constitute good economic policy.

My only question is:  Didn’t that used to be illegal? 

For example, didn’t the General Agreement on Tariffs and Trade (GATT) forbid that sort of non-level-playing-field behavior?  Is GATT still in force?  If not, what replaced it?

I’m sure I can recall the U.S. claiming that (e.g.) Canadian subsidies for softwood lumber were illegal.   And having anti-dumping penalties imposed on Japanese chips.  And so on and so forth.  I’m pretty sure I didn’t make those up.  Pretty sure they actually occurred.

What changed?

GATT and the WTO.  There is no legal or illegal. There is only power, and those too weak to use it.

The answer to my question is that international trade law is just one great big game of “So, sue me”.

First, I appear to be a touch out of date.  GATT was a set of treaties in force between 1947 and 1995.  GATT was effectively replaced by the World Trade Organization (WTO) at that point.

But, in theory, the guiding principles of the WTO are the same as GATT.  In a nutshell, they are for removing tariffs and other barriers to trade.

So, what’s legal and what’s not legal, under the WTO?

Despite several attempts to figure out just what, exactly, the WTO is and does, I have decided that all documents pertaining to the WTO are required to be written in impenetrable bafflegab.  Half an hour of reading, from multiple sources, and I still have no idea what’s legal and what’s not.  I have no idea whether the concept of “legal” even applies to policies affecting international trade.

I’m clearly going to have to have an expert dumb it down for me.

OK, to be concrete.  The Biden infrastructure bill has some fairly strong “Buy American” clauses in it.   And yet, the U.S. is party to a WTO agreement requiring that government purchases operate on a level playing field, that is, without preference for domestic over foreign manufacturers.  How can those two things both be true?

The law firm of Aiken, Gump offers this explanation.

Below, the GPA is the WTO agreement, of which we are part, which “… prohibits the U.S. from discriminating against the goods, services and suppliers of parties to those agreements for procurement.”

The article closes with a review of the implications of the GPA on the IIJA’s Buy America requirement. The authors note that many state agencies implementing IIJA-funded projects may be unaware of the implications of the U.S.’s GPA commitments on their procurement because previous federal funding similarly subject to Buy America requirements was “generally covered by exceptions to these commitments,” as they discuss in the article.

They conclude by noting, among other benefits and risks, that “[T]he Buy America expansion in the IIJA could significantly complicate the administration of procurements for infrastructure projects for covered states. Unlike with previous federal funding, states agencies will now have to consider whether the procurement for each infrastructure project is subject to U.S. GPA commitments via consideration of the factors listed above.”

Source:  The law firm of Aiken, Gump 

Clear as mud.  As I read it:

  • The U.S. government cannot discriminate against foreign suppliers.
  • But the U.S. government is handing the money to the states.
  • The states can discriminate against foreign suppliers, even if that’s at the explicit direction of the Federal government.
  • Except maybe they can’t.

Well, OK, then how about the CHIPS act?  Here’s a reasonably intelligible writeup of that, from somebody I don’t recognize.  A key paragraph, emphasis mine:

"Under WTO law, the Chips Act is a “domestic subsidy” because it is targeted at a particular industry and makes financial contributions to that industry through direct payments and tax subsidies. Such subsidies are not prohibited but are potentially “actionable” at the WTO if they cause injury to foreign producers of semiconductors seeking to sell into the U.S. market or some third country market in competition with subsidized products. In addition, if chips produced by subsidized facilities or firms are exported, they are potentially subject to “countervailing duties” imposed by the importing country if their presence in the export market causes “material injury” to producers in that market.

Source:  Stanford University Law School

Aha.  The penny drops.

There is no clear-cut legal and illegal under WTO agreements.  There are some vague general principles that we’ve agreed to.  And then, they way these things are settled is that if some country or industry doesn’t like what you’ve done, they sue you over it.   And … I guess the WTO kind of functions like an international court of law.

So, for example, the domestic subsidy is only one of several controversial parts of the CHIPs act.  The most controversial is that it bars U.S. producers from expanding production of certain types of chips in China.  And it appears that China is getting ready to sue us, via the WTO, over that (per this reference).

When I was a child, I talked like a child, I thought like a child, I reasoned like a child.

I think I finally get it.

As a young man, I naively thought that there were, you know, laws and stuff, governing international trade.

Now, as an old man, I’m pretty sure that’s wrong.  There are agreements, but these aren’t laws they way (e.g.) criminal laws are laws.  They kind of outline the things that you can sue somebody else for, if they do them.  I think.

So, international trade is governed by some general principles — with numerous exceptions.  Each country and industry is free to do whatever it wants to.  And if somebody else doesn’t like it, they can take them to court.  With, I guess, the WTO being the court, that is, supervising the dispute.

And that’s why the U.S. can sign a treaty that bars discrimination against foreign-made goods in government procurement.  And then sign laws requiring discrimination against foreign-made goods in government procurement.

It’s up to foreign governments and industries to sue us if they don’t like it.  Given how swiftly the law moves in general, I cannot even imagine how long that takes under international law.

Maybe a decade from now, we’ll be found to be in violation of our WTO treaty.  But by then, that big chunk of infrastructure money will have been spent.

In any case, I think I get it now.  When it comes to tariffs, domestic subsidies, and Buy American legislation, there are no laws.  It’s all just a game of whatever you can get away with.

Post #1677: Planning the rest of my razor blade experiment.

 

This is part of an ongoing series to test various internet-based suggestions for extending the life of a razor blade.  You can see the background for this in the Post #1672.

I suppose that any group of people obsessed with the minutia of some activity will seem a bit odd to the rest of us. But the more I dive into on-line shaving culture, and on-line blade-sharpening culture, the weirder it gets.

Continue reading Post #1677: Planning the rest of my razor blade experiment.