When my good friend Ellen Brown speaks I listen! You should also. I do not often reference others works as it is so easy to rely on the efforts of others to build a blog. I believe that one should do their own thinking and work. But sometimes, there are articles, like this one by Ellen, that say it all so well and elegantly, that Continue reading
This morning as I did my news walk, I came across this article talking about the most important chart in American politics. And as you can imagine it caught my eye. I find charts and graphs to be either extremely informative or extremely deceptive. Seldom is there a middle-ground. Often the deceptive charts are constructed specifically for that purpose. It is seldom a surprise to find such charts in an article about politics.
This chart was one of the exceptions that prove the rule. But not in the way you might imagine. “The Chart” is deceptive, but I do not believe it is purposeful in its deceit. Why not, you may ask? Because the story it is trying to communicate would be stronger if the authors actually new the truth behind the problem. But, like so much today, the surface suffices to make an argument. The other details make the argument more difficult to communicate as the story can get Continue reading
About four years ago, I was working as an executive in a company where it became clear just such cuts needed to be made. I counseled one of the many division presidents who reported to me that the horrible outcomes they were predicting would not happen, and as distasteful and unpleasant as the process was, in the end, her division would be much improved, her employee’s futures more secure, and the morale in her division would also improve. Needless to say, the president, and likely many of her colleagues—although no others would openly tell me their feelings— did not share this view! She shared this view willingly, passionately, with me on numerous Continue reading
By now most Americans have heard that our national economy is in deep trouble. With increasing frequency, articles are appearing discussing the steadily accumulating massive debt, the looming insolvency of Social Security, Medicare and Medicaid, the inability of our congressional leaders to rein in spending, an increase in pending bankruptcies of many municipalities and perhaps soon some states, and the overall impact of this crisis on our own personal finance and lifestyle. Yet for most of us, it seems completely abstract—more like a dream. Many simply ignore the facts, believing it will just go away. After all, we have Continue reading
A Sorry State
We, America, are in a sorry state. This appears, on the surface, to be something with which most people agree. But the surface can be quite deceiving. Pierce the flesh of America’s electoral body and you start to see massive disagreement as to what is needed. Most importantly, and currently very concerning, is that everyone feels the solution involves steps to be taken by the other guys – you know, those who are not in OUR group! You know – The O T H E R guys; the non-white, non-black, non-Hispanic, non-immigrant, non-migrant, non-middle class, non-union, non-civil servant, non-farmer, non-medical professional, non-patient, non-majority, non-minority, non-lawyer, non-judiciary, non-legislative, non-administrative, non-professional, non-politician, non-unemployed, non-under-employed, non-employed, non-disabled, non-enabled, non-educated, non-uneducated, non-tolerant, non-intolerant, non-poor, non-rich, non-government, non-private sector… you know the Other Guys! – The ones whose fault all this is!!!
You know – everyone other than us! All those (whispered) other people, who have (caused the problem) (profited at our expense) (stolen our money) (spent too much) (worked too little) (think they are smarter than us) (are uneducated and lazy) (expect too much) (do too little) Circle the correct answer(s).
Also disturbing is that we are allowing our professional political class to drive, not only our debate, but out thinking as well. All you need to do is read the news and you will be fed the continuous supply of sound bite, talking points so you yourself can help frame what needs to be done to make the OTHER guys do their fair share. And of course, these talking points – these would be mantras for us to recite each day ad infinitum until they become ingrained in our psyche and we think nothing else – are not just in conflict with each other, they are diabolically and diametrically opposed. They are crafted to foment the most discontent and the most innate conflict. This is what our political process has become. Led my our professional political class; stirring up a minority to a feverish pitch so the bulk of the country will become afraid, or simply exhausted and in the end capitulate with what ever patch, or band-aid, the politicians decide to apply.
Community activists know that the way you get big gains for minority positions is to frighten or exhaust the bulk of the population. You see activists understand that most people don’t really care about much beyond their own day to day lives and basic existence. They know that when the average person feels threatened, or if the story gets annoying and tiresome – in the end they will just want their leaders to make it go away. They just don’t want to hear it anymore! This process is not about the right solution – it is about any solution that delivers me peacefully back to my mythical happy life. And you know what? It has worked every single time! It is all predicated on the right rhetoric -the right mantras.
The Current Mantras
- We need to cut pensions costs We need better retirement benefits
- We need higher wages We need lower manufacturing costs
- We need more high paying jobs We need more labor jobs
- We need universal health care We need low cost health care We need more free health care
- We need to help people keep their homes We need to have the market sort itself out
- We need to lower health insurance cost We need better insurance benefits
- We need to stimulate the housing market We need the banks to lend more
- We need to raise housing prices We need more affordable housing
- We need more money We need less federal debt
- We need more social assistance programs We need to lower government debt
- We need a higher minimum wage We need competitive prices
- We need to eliminate illegal immigration We need more cheap labor
- We need to get the top 1% to pay more We need the top 1% to spend more
- We need to lower government spending We need more government spending
- We need more charitable giving we need to raise taxes and eliminate charitable deductions
- The poor are getting poorer The rich are getting richer
- The middle class is suffering We all need to sacrifice
Debunking the Myths
Most of the mantras in the list imply that fixing or making a change in one of these areas will repair what is wrong and remand us once again to the peaceful day-to-day happiness (even if it is just an illusion) that we all desire. While, depending on your personal political profile of course, all of these mantras appear reasonable, there is one underlying problem with each and every one of them. There is a set of fundamental myths that needs to be debunked. In debunking these myths, we give rise to the lies that are inherent in these supposed solutions.
To understand these fundamental myths we need to take a look at some assumptions.
The poor are getting poorer! Who are the poor? We often use the term under-served, interchangeably with the term poor. Historically, we really have not wanted to clearly define the poor for a whole host of reasons. Defining a problem, or a segment of a problem, is not politically attractive. Well defined problems either yield impossible solutions, or easy solutions, and make it difficult for redefinition on the fly without political consequence. For a family to be described as poor and eligible for social programs the must fall within the Federal Poverty Level (FPL) or some multiple of the FPL.
The FPL for a family of four for the year 2011 ranges from $22,350 in the 48 contiguous states, to $25,710 in Hawaii and $27,940 in Alaska. Seems simple enough doesn’t it? well like most things governmental, its really not. So if the poor are those who earn less than, lets say $25,000 to keep it simple, than all aid for the poor would be for this group of people. About 18.79% of the U.S. population earned less than the FPL in 2010. This equates to about 58,332,000 people. But the provision of social programs is not targeted just at the poor. They are in fact often predicate on 200%, 300% even 350% of FPL for eligibility for some state and federal program eligibility. So most programs eligibility starts at $50,000.00 in income to as much as $85,000 in some cases. This in turn equates to almost 79.8% of the population according to the latest census data.
Now in reality, not all of the population draw programs support at 350% of the FPL. Only a smaller amount of programs offer eligibility at that level. The number today falls at about 50% of the population of the U.S. is eligible for federal and state program subsidies and currently takes advantage of these programs. Either alarming, or relieving, depending on your point of view, this 50% is getting slightly more than 1/2 of their annual income from programs and/or subsidies provided by the federal government. 84.1 million people (27.1% of the population) earned under $50,000 per year (200% of FPL). Together they earned in aggregate $1,591,640,000 of the U.S. total personal income economy of $4.915 trillion in 2009 – about 32%. So 32% of the money earned went to the lower 27% of the population and about 1/2 of their earnings came from money paid directly or indirectly by the federal government that came from taxes paid by the rest of the tax payers.
The biggest assumption of all with this segment of the population is that they are suffering more than they have in the past. While it is true the poor in America earn significantly less than much of the rest of the population, they also have the largest amount of eligibility for programs to offset what they don’t or won’t earn. In realty, while they earn less in real income, they have at least as much if not more in discretionary spending income because few if any of their needs go unmet. They receive a wide availability of care options, both Medicare, Medicaid and state based, as well as other federal and state programs for housing, mental health, addiction, job counseling and training, as well as numerous faith based and institutional charity programs as well as philanthropic programs. This is not to say it is pleasant to be poor. Simply to point out that the “poor” have a large array of services that are making up for what they actually do or do not earn. It is better to be poor in America than in much of the rest of the world.
The Poor are the Under-served, is the core of assumption number 2. Anyone who has spent time working or volunteering in the areas of public health will quickly tell you that the under-served are not the poor we classically think of. The poor in America, as we discussed in the last assumption, are neither under-served, nor are they un-served. The bulk of the under-served are people earning between $50,000 and $110,000 per year. They have jobs, pay some taxes, send their kids to school, pay their rent sometimes late, or have a home, likely upside down in equity, and perhaps bordering on, or in default. Historically, they are two person family earners, and one of them has recently lost their job, increasingly one of their adult children is still living at home and has earnings insufficient to support independence, are still on their parents insurance, and one of the family members has a chronic illness.
The under-served are “working poor.” They don’t make enough to pay for all that they need and want. They make, or have made short term decisions regarding purchases, vacations, and or investments, that have come back to haunt them. If they have a chronic illness, they are making weekly, sometimes daily decisions between the proper treatment, or medication, and food, education, housing or clothing for their family. Often, health related costs are playing second priority, as a result their illness is getting worse, or in the worst case scenario, the untreated disease, bacteriological or virus infection is not becoming more resistant to the medication due to improper treatment levels – a potential public health hazard.
The under-served in America are squarely in the middle class. There is typically only one small incidental difference between basic prosperity and tragedy. A loss of one income, a chronic illness, a catastrophic accident, an unplanned pregnancy in inopportune bit of extravagance. Even without one of these incidental differences, the middle class are finding they have less and less discretionary income. More and more, even with raises, company healthcare, bonuses and perks, they just have not been getting ahead. They are earning more but are also more and more at risk.
The 29.6 million (about 9.55% of the population) under-served (a majority of the middle class) earned a total of $2.282 trillion (46.4%) of the personal income in the U.S. They earn on average $76,650.00 per year.
Assumption 2 is one of the main tell-tails to one of the major fundamental problems that if we do not come to grips with, will be the undoing of our economy, society, and ourselves.
The rich are getting richer on the back of the middle class and the poor. Said another way the 1% are taking, through inappropriate or ill-gotten means, what is rightfully the 99%’s. Clearly the rich have taken in much more cash in the past 40 years. But when you look at the percentages they have gained it is not really a significant difference, as a percentage, than in previous years. But first let’s take a look at the top 1% and find out how they stack up against the rest of the population. The top 1% (about 3.9 million people) earn on average 275,000 per year. The total combined earnings for the top 1% equals $850 billion per year or about 16.5% of the combined total. Conversely the 99% earned a total of $4.103 trillion or about 83.5% of the combined earnings.
Clearly there is disparity, but I was surprised to see that the disparity was not quite as large as I expected it to be given the rhetoric. As Dianna Dooley, the Secretary of the Department of Health and Human Services for the State of California, said in one of her first public meetings after assuming office in 2011, “We all need to understand that disparity will exist.” Ms. Dooley was making the point that we cannot legislate away disparity. Disparity does not exist simply because of ill treatment or lack of opportunity. Sometimes disparity exists because people have made choices to not do certain things, not work, not get an education, not apply for available services. What percentage of the U.S. population does this characteristic apply to? It is had to say statistically because the census data does not measure motivations. We can use some numbers from a Thompson Reuters report in 2009 on the national health cares spend and we will find that about 20% of the monies spent go to people that have made such choices. I can’t say whether or not this is a valid measure for the economy as a whole. If I had to hazard a guess based on my life’s observations, I would think this is a reasonable estimate.
It does not seem to hold true that the rich are statistically getting richer, nor are the poor getting poorer. Both segments are getting more and more currency each year. The problem is not the amount of money they are receiving it is in the real value of the money they have. This is another clue as to the major fundamental problem, we will discuss shortly.
We have had up until recently a vibrant economy, America has been very prosperous, and if not for the actions of this political party or their policy (depending on your political affiliations it is always the other party and their policies), all would be just fine. Said another way, when so-and-so was the President (again, depending on your political affiliations it is always the other party and their policies) everything was just fine!
In my last article Republicans & Democrats: Division destroys WE, I outlined a series of events since 1935 that have had major impacts on the current state of our economy. It was not meant to be all inclusive. In fact, I have heard from a number of readers who have suggested numerous other events, legislation, decisions, policies and actions that they also feel should be included. I prepared this article to point out that it was not one parties policies that have brought us to the precipice. It has been both parties. In effect it has been us, our decisions, our demands for more of this and that, and it has been our willingness to accept a gradual migration from the citizen politician, envisioned by or founding fathers to a professional political class whose rule we embrace today.
Those of us who learned American history after 1937 have been indoctrinated with the belief of “American Exceptional-ism.” As President Franklin Roosevelt prepared America to enter the war he needed to break the back of the isolationist tendencies we have developed after WWI. Part of the method to do this was building pride, patriotism and the belief that America was innately exceptional. As a result the history that was taught after 1937 was quite different from the history we would have learned before. I have advocated in earlier articles using Google Books, and searching for history tomes written before 1900. There as I was writing, “The History and Evolution of Health Care in America” I found a very different recollection of America than the one I carried in my head.
America has had a long history of economic trials and tribulations. Almost immediately upon the signing of the armistice at the end of the American revolution, the United States went from waging physical war to suffering under an economic war waged by England, France, Germany and other European nations and banking interests. By 1800 the American dollar had dropped to worth about 48 cents. It was the War of 1812 and our decisions to temporarily drop the international gold standard that allowed us at the end of the war to reset the dollars value when we went back on this standard. We dropped out of the gold standard a number of times based on the excuse of War all the way through World War I.
The first time we did not drop off the gold standard as a result of war was World War II when the Federal Reserve refused Presidents Roosevelt request to do so. FDR’s first request came at the beginning of the depression and also was refused. Some economists believe this single action is what caused the great depression, others simply believe it increased the severity. As a quick note, it was not the the Stock Market Crash of 1929 that caused the depression but the great dust bowl and drought. The stock market had recovered much of its losses within 4 months. Once again our history, post 1937 often seems to not reflect the realities of the past.
If we go back and take a good look at our real history, with the exception of the benefit we gained from the massive amount of gold reserves we accumulated during World War II, the real source of our prosperity into the mid 1960′s, America’s economy has not been as stellar a performer as we have been lead to believe.
The Dirty Truth
There is a fundamental problem with our economy. It is truly fundamental in every sense of the word. And although is not “Fun” you are guaranteed to feel both brain dead “Duh” and “Mental” if you try to understand it.
We believe that we have had a robust and growing economy though most of our lives. Even at the current limits of human life span most of Americans were born after 1928. Most of us have come of age after World War II. And almost all of us working today were born after 1950. We have for the most part lived through what we believe is the hay-day of America’s economic history. And our perception is false!
While we had significant prosperity after World War II, it was largely the result of the cash and carry policies that FDR put in place with western Europe for the sale of war materials by America. FDR enacted two major policies; lend-lease, and cash and carry. Under Cash and Carry, much of what we sold to the allies was paid for in gold. By the end of the war America held in Fort Knox a majority of the gold in the world. I have seen estimates of as high as 82% of the world’s gold. After the war and as we moved into the 1950s America was booming and we had a large amount of room to expand the amount of currency in circulation since we had most of the gold. But by the 1960s, our policy of allowing other countries to redeem U.S. Dollars in gold had seen our reserves significantly depleted as most of our Allies, England, France and Germany had systematically redeemed their dollars for our gold. By the mid 60s we again were having problems maintaining enough currency to support the perception of our growing economy.
By 1972 President Nixon had a cash problem. We did not have enough currency in circulation for the government to continue to pay its bills, including Social Security, Medicare and Medicaid, as well as pay for the war in Vietnam, and the ongoing cost of the cold war with the soviets. As a result, the Federal Reserve advised the President to remove the American Dollar from the gold standard. In doing so we gained the ability to create more currency to fund the cash needs of the government and the nation. But, there was still a problem.
While the elimination of the gold standard, did free the economy from the physical limits of the gold standard, it did not free the banks, where new currency, actually is created, from the limitations of the fractional reserve banking system. Banks under our form of banking can create ten dollars of currency for every dollar of assets (or debt) they have of record. While this was far better than the practical physical limit we had on the gold standard, the growth of debt by the government and obligations under federal programs, defense, logistics and entitlements were growing much faster than the asset base. Debt, the other method to grow the amount of currency became the main method.
In 1972, America had, according to the St. Louis Federal Reserve Banks, about $500 billion of currency in circulation. Currency, prior to this period had grown on a fairly steady low growth rate from the $73.7 billion in circulation in 1940. While the rate of new money in circulation increased from 1940 to 1972 increased over the prior years the growth was still predicated on the tie back to the gold standard and as such most of the growth was real in relation to the bulk of the world currency and tied directly to the asset base of the U.S. In other words it was mostly real economic growth.
From right after 1972 to about 1986 the growth in currency supply was driven by increases in credit card debt and the ability of the Federal Reserve and banks to leverage that debt growth with new money at the rate of ten to one. You will also see from the above chart that we were steadily increasing both federal spending and accumulating losses due to the ongoing trade imbalance. The main restriction on the growth of new money was the fact that the bulk of the main debt in the U.S. (mortgage debt) was in the hands of S&Ls and other non-banks. You can see from the chart as the S&L’s failed as a result of the changes in rules for realizing asset values, like the mark to market rules, and the banks gained control of these mortgages – and the underlying ability to leverage them at ten to one, much more currency came into existence. Of course as the currency materializes the federal spending increases as well. By the time we get to 2010 we have increased the amount of currency from the meager $500 billion in circulation in 1927 to over $15 trillion in 2009, a thirty times increase. One simply needs to ask themselves did we really increase the values of all the assets of the U.S. thirty times since 1972? I don’t see how!
And of course by 2009 we have also accumulated a combined debt based on federal spending and the steadily accumulating trade deficit of over $11 trillion. Even harder to imagine a thirty-fold gain in relative net worth of America isn’t it?
So where did this new money go?
As I discussed in a previous article entitled, President Obama’s Speech: Critical Question Continued, this new money was disproportionately spent in the areas of federal program spending and housing costs. The effect this has had on our economy has been catastrophic. If you look at the chart in the prior section, the amount of spending has almost equaled the new money created. An interesting statistical note is if you look at a simple projection of what our economy would be today if we had stayed on the Gold Standard it would be about a $5 1/2 trillion economy instead of $15 trillion or more as we currently see it. This could just be a statistical coincidence, I will leave it to the professional economists to explain this – although when they do I seldom trust them.
So one of the fundamental problems is that our economy is simply not worth the paper we have printed to count it. We have significantly overvalued our economy, alnong with much of the rest of western Europe. If everyone in the world did this the same way it would be irrelevant. But China and Russia, among a few smaller others, have not banked this way. While we like to complain that China is “manipulating their currency” the truth is they simply are allowing their currency to stand at its value and are not increasing the amount of their currency and thereby artificially inflating salaries or benefits in the country. As a result, China, and many others cost significantly less to make stuff for the rest of the world.
You see what we have been lead to believe about our prosperity over the past 30 years has been an artifice, a mere contrivance. While we have all felt like we were getting richer, and our elected officials have been telling us to spend more, and borrow more on credit, and how we should all buy houses. The reality is what they were doing is getting us to go further and further into debt to provide fuel to the fire of our own economic destruction. So while our borrowing, spending and mortgage debt allowed them to increase the amount of money in circulation, the new money had no more value. It was all a facade.
This brings me to the current argument of the 99% against the 1%. The reality is, it is not the 1% who have done anything to take the value from the 99%. I think we effectively debunked most of that myth in the prior sections. The real issues effect the middle class the most. The poor and the rich have been effected exactly the same but they have not felt the effect the same as the middle class – the under-served.
The reason the middle-class have been so devastated is a result of the following two points. First, the rich have larger amounts of discretionary monies. These are monies that are not consumed by the cost of basic day to day living. The rich also have more savings and a larger portion of their earnings come from investment. Therefore when the purchasing power of their dollars falls they have a lot more drop to go before the true value falls below this basic day to day cost level, even at their higher costs as a result of more lavish life styles. In other words, they are not taking more they just don’t show the effects because they are not yet felt.
Second, the poor, as we discussed before, get at least half of their income from the federal government, so as the value of the dollar drops, the government is just printing more money and providing more benefits to the poor in America. The source for the spending is only in part taxes. So while it is clear that even if you took 100% of the earnings from the top 1% it would not even put a small dent in the economic issues we face, and taxing the rich politically sounds really good, in the end it is not solving the problem.
Taxes are neither the problem nor the solution. The problem is we have simply created at least twenty times more currency that we have real value in the economy. And as such the middle class, equaling 19.2% of the population, 59.8 million people, are feeling the crunch. Our professional political class, with the best of intentions at every singe step, have gotten them to take on debt they could not afford, buy homes they could not afford, hire employees companies could not afford, pay salaries we cant afford, provide free stuff, that we can afford, and purchase products and services that we can’t afford. They have built a national economic system that is predicated on federal subsidies – through the creation of more valueless dollars – to lull us into a false sense of security.
Americans today, cost too much, spend too much, borrow too much, expect too much and often work and produce too little per capita relative to the rest of the world economy. We speak of creating more jobs, but then we focus them in areas that do not bring our nations strategic value. Yes paying people to fix decaying infrastructure is necessary, but it is not the same creation of new value as when FDR created the WPA in the 1930s. Having an entire nation of college graduates makes us all warm and fuzzy and makes us feel really superior to countries like Mexico, and Singapore, but they have cheap labor and less per capita expense for laborers. As a result their goods cost less and we buy much more than we sell as a nation from these nations.
We make all our companies provide tremendous benefits for being an American employee but these also increase the cost of the development of goods and services and price our products out of the world economic market. We tout our abilities as the innovators of the world, yet the profits from innovation are dwarfed by the profits from the manufacturing of the products we have innovated. And now other countries are surpassing us as innovators. Their education systems are producing superior students because not everyone goes to college. Some are tracked for labor, some skilled labor, and only a few go to college – often American colleges. We have no labor pool to speak of and we have invested way too much in many of those that end up in labor related jobs because we sent them to college only to find there were no jobs for their level of education. Further, there is an argument that we have weakened the quality of an American college education because so much of our dollars are spread across so many.
Yes, overall we are in a very sad state. I am not an economist – just an individual who has asked some questions and tried to find my own answers. Are my answers the right ones? – the only ones? Perhaps not! But for me they have begun a path – so I can draw my own conclusions. I do know this! Until we address some of these fundamental questions, most particularly the big one of our highly inflated economic values, we will continue our decline, and likely will continue to seek solace by letting our professional political class print more money and lull us back to sleep.
It is time to wake up from our 40 year dream of profligate prosperity and face reality. The concept that the other guys need to sacrifice but not me is a false one. The sad part is we already have sacrificed. Our prosperity is already gone. The only thing left is the counting! Oh yea, and class warfare, revolution and destruction if that is what we really want?
What do you want?
This article is in response to a recent letter to the editor in my local paper. In this letter entitled, ” GOP debt”, the writer makes his point that the U.S. debt is the Republican’s fault – that most of the debt incurred has happened under their watch, as a result of their programs. He blames the current problems of America and its economy on thirty years of their dominance over Washington DC. This article is not intended to challenge any of his assertions, or to attack the credibility of any of his arguments. Fundamentally, it will not make any difference whether or not, he is correct as to who was actually controlling our government during the past 30 years. The end point would have been the same.
Instead, I think it is time for all of us to take a hard look at a timeline for the past 76 years. I have assembled a brief one here. This is not meant to be inclusive of every single event, nor could it, as many would debate the events themselves. I also have not intended this to try, by the volume or magnitude of events for either side, to lead anyone to the conclusion that one side is more at fault than the other – although I am sure some who read this will still complain of bias and that intent.
WE is us – We the People. Not Republican, Not Democrat – neither liberal nor conservative. It is simply WE. Unless, or until, WE again congregate as one in purpose, we all will lose!
I have simply taken my own personal stroll through history and picked the particular events I felt were important, pivotal, in our long and involved – often entangled process – to arrive at the door of what may be America’s economic collapse. We are at this doorway as a result of numerous decisions and actions. We have made many many decisions in this period. Most of the decisions were originally contemplated to fix contemporaneous problems of the day. In this time we have developed a nasty habit of enacting short term programs with an intention to replace the programs with other solutions later, only to have the replacement step get lost along the way as we allowed the growth of a professional political class and the virtual elimination of the citizen politician on which the country was founded.
I don’t know if a professional politician is better for us in the long run than a citizen politician. I can see advantages on either side. History and the electorate soon will make that determination. I do believe that at each step, for the most part, the politicians were attempting to fix the problem in a way they thought was best both for the country as a whole, their constituency, and their own re-electability. While I can idealize a desire for so much more in the decisions of my representative, I must concede and accept the nature of humanity after all in this process. It becomes my responsibility to elect the best person in support of the best solution. In effect to be a Mugwump.
In the end, it makes little difference. Until we truly understand the mechanisms and fundamentals of our current situation – and correct them, we will continue to glide through the open door of disaster – slipping at some point into the empty maw of the economic abyss.
A Time-Line of Key Events
- 1935: Social Security Act – Franklin Roosevelt (D)
- 1965: Extension to Social Security Act (Medicare & Medicaid) – Lyndon Johnson (D)
- 1972: Elimination of the Gold Standard – Richard Nixon (R)
- 1974: Equal Credit Opportunity Act – Stimulates credit purchases – Gerald Ford (R)
- 1977: Community Reinvestment Act – Jimmy Carter (D)
- 1980: Depository Institutions Deregulation and Monetary Control Act – Jimmy Carter (D)
- 1981: Initial Application of the Mark to Market Rule – Ronald Regan (R)
- 1985: Home State Savings Bank begins to fail – Ronald Regan (R)
- 1986: Tax Reform Act – Ronald Regan (R)
- 1995: End of S&L Collapse – Assets sold to Banks – RTC cost $87.9 Billion – Bill Clinton (D)
- 1995: National Homeownership Strategy Announced – Bill Clinton (D)
- 1999: Fannie Mae eases the credit requirements to encourage banks to extend home mortgages to individuals whose credit is not good enough to qualify for conventional loans.
The Gramm-Leach-Bliley Act repeals the Glass-Steagall Act of 1933 – Bill Clinton (D)
- 2000: Lenders originating $160 billion worth of subprime, up from $40 billion in 1994. Fannie Mae buys $600 million of subprime mortgages, primarily on a flow basis. Freddie Mac, in that same year, purchases $18.6 billion worth of subprime loans, mostly Alt A and A- mortgages. Freddie Mac guarantees another $7.7 billion worth of subprime mortgages in structured transactions.
Credit Suisse develops the first mortgage-backed Derivative (CDO).
Commodity Futures Modernization Act of 2000 declares credit default swaps (and other derivatives) to be unregulated, banning the SEC, Fed, CTFC, state insurance companies, and others from meaningful oversight. – Bill Clinton (D)
- 2003: Federal Reserve Chair Alan Greenspan lowers Federal Reserve’s key interest rate to 1%, the lowest in 45 years – George W. Bush (R)
- 2008: Global Financial Crisis Begins – Feds Take over Fannie Mae Freddie Mac and guarantee $6trillion of mortgages, Fed Reserve Lends $85 Billion to AIG, $700 Billion TARP Program goes into effect, Fed lends $1.3 Trillion to companies outside financial sector – $900 Billion loans to banks and buys $540 billion in short term mutual find debt – Fed Loans 133 Billion to foreign banks, Fed pledges $800 Billion more to buy mortgage bonds from Fannie and Freddie – George W. Bush (R)
- 2009: Fed increases support of AIG by $182.5 Billion, U.S. Government supports various Auto Manufacturers with $34 billion bailout package, Fed Injects approximately $2 trillion into the economy in new currency under term Quantitative Easing. – Barack Obama (D)
- 2010: Federal Reserve continues injecting money into market under quantitative easing of $1.5 trillion, Banks begin to repay Govt. Loans, Patient Protection and Affordable Care Act is passed – Barack Obama (D)
Whats The Point
When I was contemplating writing this article, I had thought I would explain the relevance of each of the events I have listed. In the end, I decided it is not up to me to tell you what to think. It is your right, your privilege, and your obligation to find that out for yourself. Should any of you wish to ask my opinion, or to tell me what you think, you may feel free to post in the comment section. I will tell you my thoughts and conclusions and of course listen to your point of view. Perhaps along with the others who read here we can continue to refine and get closer to a solution – get closer to WE.
The aforementioned timeline is by no means each and every issue that has drawn us into the potential collapse of our economy that we face today. What is evident from even this brief review, is that the bad decisions were all short term fixes to solve contemporaneous imminent problems of the day – they span all parties and administrations.
Our economic problems are neither Republican nor Democrat, they are only American. We have done this to ourselves. Only if we are united in this purpose, can truly fix them!
My Request of You
I ask each of you, who are kind enough to read my writings, to please circulate this to others if you feel it is valuable. I believe we can all make a difference if we come together. I know I can’t do it alone. I ask you, my readers, to help at least get others to consider that there is something here bigger than ourselves and our politics.
Reader Warning, this may be a long one! Please be patient. No sound bites here!
In his speech today, President Obama, once again called for congress to pass his jobs bill – NOW!. The President stated that if they do not pass his jobs bill, which he views as perfect – without any flaw – and will, in his opinion, inevitably return us to prosperity, then the American people, who he states are overwhelmingly on his side, will harshly judge the republicans who are simply resisting for idealistic reasons. He implied that the American people are tired of the republicans looking out for millionaires and billionaires. He chose his words very carefully to imply that the Solyndra loan was the result of the prior administration’s programs – that he doesn’t own this one. In doing so, once again he uses language to obscure this administration’s role in this specific loan. A loan that was denied by the prior administration and recommended by his own administration as not ready to be funded – but yet was funded anyway!
If one were to challenge the Presidents statement based on the inference inherent in the phrasing and timing of the language he used, his administration will seek the cover that was carefully crafted into this statement. Jay Carney likely will respond, “that is not what he said…” “What he said is that the “loan program” was begun under the prior administration…” Continuing with the obfuscation, the President then presents “his” argument that this program is designed to make America competitive again. As he makes this statement it is phrased so that he now owns this ideal of making America competitive. He would like us to believe that now “He” is making America competitive again. But is he?
He also repeated his mantra that, we need to make education more accessible and affordable and make sure every American goes to college. His Education tzar, Arnie Duncan, in a recent radio interview, stated, that it is the U.S. governments responsibility to “provide a cradle to career assurance!” Is it?
In his speech he goes on to state that they are funding these loans to subsidize industries in order to get us “competitive” in a world where we no longer can compete. He continues to state that we can’t compete against China who “subsidizes” their industries. But if you talk to the manufacturers in China, as I have, – who the President claims the Chinese communist government is subsidizing – they will laugh at this assertion. Again if you dig below the Presidents rhetoric, or if you challenge him on this statement, you find again that his words have been chosen most carefully. The President’s administration will tell you that what he means is that China, through its Central Bank, is unfairly manipulating its currency. Why, because they refuse to artificially inflate their currency, and overpay or over-benefit their workers to become uncompetitive in the one world economy?
In a whitepaper published by McKinsey & Company – September 14, 2011, written by Lowell Bryan, Sven Smit, and John Horn; They state that the current economic fundamentals remain unfixed. Some of their main points include:
- Even if the developed governments, including the U.S. government, had been able to pass greater stimulus measures earlier – including isolating toxic assets – this would not have fixed the longer term fundamentals.
- The recent focus on debt ceilings in the U.S. and the sovereign debt crisis in southern Europe has also overwhelmed the public debate and shifted away from the failing economic fundamentals.
- In the U.S., the downward trend in labor participation has become pronounced.
- Structural economic fixes are needed such as;
- Stimulating private investment and savings
- Undertake an orderly de-leveraging of households (i.e. get Americans to stop borrowing and start saving – the exact opposite of what we are doing)
- Increase participation of labor (production level jobs) in the economy (as opposed to middle-level management and non-producing jobs)
- Reform long-term entitlement programs and tax policies to reduce the uncompetitive economic cost structure of American Businesses
- Reform education to produce more skilled labor
- Reform legislation to simplify and speed commercialization of innovation
- Rebuild failing infrastructure.
Like the Affordable Care Act, the President wants us to force congress to pass this legislation quickly before, as former speaker of the House, Nancy Pelosi, said we can read what is in it. More importantly, it is not the reading – but the understanding of whether or not this will work. The President is becoming very long on his implied -”trust me” plans. He seems to either not recognize, or not care, that the majority of Americans no longer trust him or his advisers as their track record is putrid at this point.
While the focused effort at fomenting insurrection based on converting class envy into class warfare is getting quite a bit of play in the main stream media, it is not really playing in Peoria, or Winnemucca. How will Americans feel if this concerted effort to stir up hate and discontent in the willingly disenfranchised boils over into a true insurrection?
The Presidents Jobs Bill, is being resisted, not because of republicans love for millionaires and billionaires or a reliance on them for campaign funding. All of our professional political class (republicans AND democrats) loves, courts, and whores themselves to the so called millionaires and billionaires. The bill is being resisted because most economists – outside of the presidents supporters – and good common sense find serious flaw with much of the underlying logic of his plan. Further, history, including very recent history, shows that many of these approaches are not addressing the fundamentals and do not work.
The Kaiser Excuse
The Solyndra loan is one that this administration, the President, and the Vice President, own lock-stock-and-barrel! The prior administration had clearly and distinctly passed on this “so-called” investment. Upon arrival in DC, and after some very in-judicious meetings with the lead investor – and big Obama bundler – George Kaiser; the administration decided not to simply revive this investment opportunity, but to expedite it and use it as a major public relations asset for both the Vice President and the President.
Now that this issue has blown up in the face of the President, his press secretary has characterized the meetings between George Kaiser and the President as discussions on his “non-profit ‘family foundation’” gifts program. Once again they use carefully constructed phraseology to obscure the issue. In this seemingly simple statement, most Americans will draw the connection to the Kaiser Family Foundation. The Kaiser Family Foundation is a venerated non-profit known for its tremendous philanthropy and commitment to health care and the primary legacy of Henry J. Kaiser.
Houston we have a problem! George Kaiser is no relation to Henry J. Kaiser nor is he connected in any way to the Kaiser Family Foundation. He does have a family foundation, and he is a big contributor to charities including his Tulsa Community Foundation. It is perhaps simply convenience that the administration chose this term to refer to his meetings and our own bad judgement to draw the conclusion that it was not “the” Kaiser Family Foundation – our bad!
All Jobs Are Not Created Equal in Fixing the Economy!
As the President is pushing his Jobs Bill he is really pushing Union jobs. He is speaking about infrastructure, make work jobs. Yes, it is true the infrastructure in America is in disrepair and needs to be rehabbed but this does not translate into making America competitive.
In his lecture to America this morning, he stressed the need to make us competitive again in the new world economy which he strongly supports. We clearly need to become competitive again. And it is also very clear, that we are not competitive with China, Singapore, Taiwan, India, Hong Kong, Malaysia, Mexico, and many other nations around the world. But will Union jobs and government subsidies really bring us back to being competitive? The short answer is, no! Looking at the U.S. Economy on the whole, taking tax money from the U.S., in any form, and passing some of that money back to companies to lower their specific costs or to provide incentives to people in America to buy their products does not make America any more competitive to the rest of the world. It is just a zero sum game.
Think of this as your own piggy bank. You have ten pennies in the bank. If you pull 5 of them out of the bank to give to your friend to buy a stick of gum from you (that you paid three cents for) and you put them back in your piggy bank. You still have only ten pennies in that bank. Yet, you not only did not make a profit on the gum, you lost three cents overall. This is the same shell game. Lets take a look at some more realistic numbers.
The cost per man-hour to build a car varies widely in the world and even here in the U.S. No matter whether you are building a luxury car or an inexpensive bare bones vehicle, the cost per man-hour is relatively the same. It is the number of man-hours, and the price of the basic materials that changes the total cost of the car. If you look to Detroit, the estimated costs for labor are approximately $85.00 per man-hour to make a car in this shining star of American manufacturing (at least according to the current administration). If you look to Japan the per man-hour cost averages about $46.00. If you look to Alabama, where some Japanese car manufacturers have moved their manufacturing the cost is about $28.00. And some estimate the cost in India, at $18.00. Is it any wonder that Detroit cars are not competitive in the world market? And why the difference between Alabama factories and Detroit? Can you say Unions?
Now I am not against unions – nor am I against union workers. Unions have done some very good things historically for America’s labor pool – particularly related to dangerous employment conditions and mistreatment. But Unions have also done some very bad things, perhaps knowingly, to America’s ability to compete in a one world market.
To coin a phrase, this is something we are “fundamentally” ignoring! Our problem with being labor competitive comes in two basic areas:
- We have almost no natural labor pool left
- The labor pool we have costs way too much compared to the rest of the world.
There are other things that impact our competitive position in the world like, we no longer produce much in the way of raw materials, much of our business is based on middle-man transactions. And most of what we produce at the higher costs are sold at home doing little to reduce the steadily increasing trade deficit. While these things are also very important, let us hold them for a later article. The intent of this article is to focus on jobs and labor and the Presidents increasingly unfathomable position.
Why no labor pool?
Along with the focused drive, since 1972, by the banks and government to get us to stop saving and start spending, and the modification of the push to foster credit based purchasing, we have also been purposely closing trade schools and tech centers and redirecting those who would have gone into the skilled labor category to go to college. We are now a nation that does not value the base laborer. The person who creates valuable goods and services with their own hands has been left in the dust and become a second class citizen in a nation of college educated plumbers, welders, carpenters, cabinet makers, taxi drivers, and fast food managers. I have repeatedly seen companies requiring a college degree for many professions like basic sales that should be more reliant on people skills simply to reduce the number of applications. Most of the top sales people I have know in my career were without a college degree. They learned their skills at the school of hard knocks. I saw at least one such individual rise to one of the top sales positions in one of the top tech companies. He almost single handedly took this company from a start up spin out to one of the premier producers in its class. In the end he was displaced by a policy decision that now required all executives to have a college degree. It is no coincidence that within a few years they fell from favor in the market. In some cases “book learnin’” does not compensate for real in the market experience.
While it is emotionally fulfilling to know these people have gone to college and perhaps studied the teachings of Confucius, or the writings of Chaucer; but has this made them better plumbers of has it just added to the expense of training them and increased their expectations and lifestyle and driven up their cost structures? Is there value to them from this education? Of course there is, but is there really value economically to America in their labor role? No, it is in fact an unnecessary expense economically. Please remember I am not making a moral judgement here and I am not saying people who choose to, or end up forced to, practice a trade should not be allowed to go to college. I am simply pointing out that this may not be the best economic solution for our world competitiveness problems.
While America has fostered the “everyone goes to college” mantra, closed its labor and trade schools and become dependent on immigration, legal and otherwise, to provide the required base level workers; places like Singapore still track a large percentage of their youth into labor and trade related programs. Only a select few get stimulated to go to college. Is this better morally? Who knows, let the philosophers sort that out. But economically, they are one of the countries kicking our asses, and we can’t blame that on the “subsidies of communism.” By the way, kids that really want to go to college can choose to do that in Singapore, they are simply encouraged to go into trades and they venerate their trade workers and laborers.
So why is the President fostering class warfare, cradle to career assurance, union based infrastructure jobs and subsidizing industries to be competitive in the one world market? Come to think of it why is the President such a supporter of this one world view?
To start with, who is this guy we elected? Was he a prominent businessman? No! Was he a skilled civic executive? No! Was he a well know economic theorist? No! Was he a person who was well schooled in international relations? No! Was he an accomplished leader of any sort? No! Well Maybe, if you consider he was elected as a state senator and then as a U.S. senator – in both capacities he quickly focused on the next step of his career but he had few accomplishments other than electability.
Look, I am not saying President Obama is incompetent! I am pointing out that in the related experience he has little to qualify his views on this subject or to make some of the decisions that he appears to be making. He is in fact relying on others to tell him what to do and these others, like most of our professional political class are corrupted by hidden agenda.
The President was trained as a community activist. He apparently was very good at that. What is the primary tool of a community activist? It is to disrupt the status quo by using class envy as the pivot to foment unrest. By convincing those that have less, that the ones that have more have attained it to their detriment. In propagating this issue they gain the leverage, the power, to force changes. These forced changes do not come about because they have been derived based on reason, due diligence and careful consideration. They are forced into the stream based solely on the emotion of the moment. Good community activists can get the minority so agitated that even the mere mention of due diligence or careful consideration becomes more evidence of the supposed evil intent of those who have more.
So why are we surprised to see this now? And more importantly, why are we so blind to the real implications and the lack of focus on the economic fundamentals? Could it be that another fundamental issue that is failing us is our education system? McKinsey seems to think so, but I am not sure their reason coincides with mine or perhaps yours.
Additionally, our President has aspired, in fact worked hard, to become part of our professional political class. He has in fact obtained the pinnacle of this class. By doing so, he has assured that his future is taken care of by, and on the backs of, the same people that elected him to this office. He is beholding to all that got him elected in the first place and is further constrained in his actions by those he will need to get himself reelected. As I have said before in a prior article “Our Professional Political Class: An Island Cannot Rule a Continent!“, his currency is votes, and he appears willing to pay all of our collective equity in order to continue to gain these votes.
I started this essay with the supposition that Unions and Immigration are two sides of the same coin. While it has taken me much longer than normal to come back to this point, I feel in this case the preamble was both necessary and poignant. Further, I think that the preamble is where we will find solutions – if we really want to solve this.
Since we have all but eliminated our labor class through the closure of trade schools, technical schools, and primary production industries (like farming, fishing, mining, oil and steel) and attrition through the aging of our population. We have created a false expectation that everyone should go to college and our economy can not only absorb the expense but also have appropriate jobs available for these college graduates who all expect to be doctors, lawyers, Indian chiefs etc. – anything but “common laborers.”
We are left with no where to go but immigration to find those willing to work in the jobs we don’t want and at wages we can afford to pay, and still find you college educated plumbers willing to buy America’s goods and services. We have unions who are, by their own claims – their own mantras, only looking out for the workers not American competitiveness. But many of the workers they increasingly represent are not laborers but middle managers and low level executives. The Unions, it appears, are dead set against immigration to solve the labor dilemma and they are dead set against relying on one world competitive wages as it would decimate the wages of the working class and the resulting stream of dues the leadership survive on.
Caught in the middle is the President. If our hypothetical coin is a quarter, then the President represents the low grade copper core. On one side he has the silver representing the unions, the silver on the other side – immigration. He can actually solve neither and have the solution be in the best interest of Americans. He is left with obfuscation, and diversion. He is in crisis mode as his pole numbers collapse. And in crises he is falling back to the tried and true tool-set of community activists world wide – class warfare. We cannot count on this President, nor this congress, to solve this one.
In the end if we don’t solve it – we will all suffer! At least he has acknowledged, that we are not competitive in the one world economy. That is a step. Not a step for the President, who can’t see or refuses to see the real implications of what he is advocating. It is a step in that it take one more vague disingenuous argument off the table. It takes the recently repeated ad nauseaum statement that “we are the most competitive nation in the world” – off the table.
We, now recognize that we need to become competitive again or we lose to those throughout the rest of the world who are willing to do the menial, tough, hard, exhausting jobs that we wont. We also recognize that most of the rest of the world will do the jobs that we are actually willing to do for far less than we will! . Until we begin to again rebuild primary production and manufacturing in America, and are able to staff the jobs with workers that are willing to not only do the job efficiently, but also at a pay rate that allows the American production to be cost competitive in the one world economy, we will fail. No amount of robbing Peter to pay Paul, to build it, or buy it in America, will bring us back to successfully compete with those that will do what it takes for less.
America has an inordinately long row to hoe to get back to where we were. We need to discontinue myth building, and begin to focus on the pragmatic. We need to reject the community activist play book of class envy – come – class warfare and focus on resetting expectations. We need to retrain many workers in production level jobs. We need to review our educational policies and reopen trade schools. We need to change the mind-set that everyone should go to college. Not everyone should go to college. Sending everyone to college lowers the standards of a college education and in the end lowers the value of education in general. It is not necessary to get a good base education through the end of high school if everyone is also going to go to college. Also, after we send these kids to college they expect to be pad at rate commensurate with their education and its expense/investment. We need guidance counselors to again guide students into the most appropriate occupations.
Finally, we need to venerate the workers in America – the laborers in America. We need to reduce the occupation of these required labor jobs by those expensive, excessively educated and overly trained persons with people appropriately costed and trained. We need to once again elevate the community value of the individuals that convert the raw materials to valuable products, who convert their raw talent and effort to desired commodities. We need to have the unions and all groups, cartels, associations and members to recognize that unless we begin to put our nations ability to compete ahead of entitlements, grants, gifts, gimmes, and subsidies, we will become yet another backwater on the road of history.
I will leave you with this final thought.
It has been estimate that over 1/2 of all Americans receive at least 50% of their compensation directly or indirectly from the federal government or government sponsored programs. By 2016, it is also estimated that this number will grow to a whopping 65% of the population receiving over 70%. Our combined trade deficit since 1972 is almost $12 trillion. In other words, we have purchased from the rest of the world $12 trillion more than we have sold to them. How long can the business, that is the United States of America, continue to take in so much less than we sell. This has been the case since prior to 1972, and in order to survive we simply increased the $500 billion in total currency then to over $16 trillion today. But our piggy bank is empty, since most of this newly created currency has just gone to pay, by today’s numbers, 50% of the population 50% of their wages so they didn’t really notice there was a problem and the professional political class could continue to get their votes.
As Hot-Rod Swales said to me one day in 1965, “It do make you think – don’t it?”
Please bear with me on this article. in contrast to the best advice for writing, I have not put the conclusion at the start. I am assuming you are all thinking Americans, and you are willing to make a short journey with me to find your own answers at the end!
Unequivocally, we have developed a professional political class. We, the people, have created this new ruling class of professional legislators – or at least allowed them to evolve – over the past 72 years. Like most of our entanglements in modern history, this consequence was driven by little more than a series of short term decisions that were made to accomplish short term goals with no thought to the long term impacts of these actions.
Why not a national sales tax on all political sales(contributions)?
Up until the early 1900s, politicians were citizens first. They were regular people, living and working alongside their neighbors. They had local jobs, farms, or businesses and each and every piece of legislation they passed affected the citizen politician exactly the same way it did their neighbors. Since the wages and expenses that they derived from their service in state or federal government was both part time and not meant to provide a living wage; their motivations were to be productive members of their localities, emphasis on production in whatever capacity, as it was the best path to wealth and prosperity.
Since these citizen politicians, could not make their livings relying on the payment from government, the various legislatures were part-time with the sessions restricted to just a few months each year. While in session, citizen politicians also made sure they got as much done as possible, and their supporting staffs and expenses were kept well in check because often the governmental stipends did not adequately support them, so the citizen politicians often came out of their own pockets for at least some of their staff. A great way to assure dedicated representation.
As we move through the early 1900s we see a gradual and steady increase in the salaries, perks, and reimbursable expenses that our legislatures received. Like all of our historical short sited decisions, there was strong rationalization to such increases. Some of the citizen politicians, living with the constant drain on their personal funds, were susceptible to graft and corruption by the men hanging out in the lobby of the Willard Hotel in Washington, DC (origin of the term lobbyist) – where most stayed during the legislative sessions. Of course, it was argued by the legislators that if they received better wages, more liberal expense budgets, and perquisites in office, they would be less susceptible to corruption.
(Business / Commerce) the activity embracing all forms of the purchase and sale of goods and services[from Latin commercium trade, from commercārī, from mercārī to trade, from merx merchandise]
The next step, taken in the middle of the 1900s, was to extend the legislature. Again, it was rationalized that the part-time legislatures, were critical to the growth and prosperity of the country, or the states, and there was so much work to be done that they needed to increase their time in session. These arguments, like all of the rationalizations before them, were seen as reasonable and necessary. As a result, buy the end of the century, we have, with few exception, full-time state and federal legislatures, and most importantly, a full-time, professional political class. Their livelihoods significantly disconnected from the legislation passed and its effects on their local communities.
While in the past, our citizen politicians life and liberty was supported by their own personal productivity in their local communities as farmers, shop owners, business owners, manufacturers, and professionals like doctors and lawyers; for the most part today’s professional political class trades in votes and legislation for the specific benefit of those who can get them re-elected.
It is an easy statement to say that there is a direct relationship from big corporate money and the payments the professional political class receive, through various means both legitimate and illegitimate. While corporate interests play a part, the aggregation of small money interests plays at least as significant a role through unions, political action committees, professional organizations, and the strength of the various parties, among others. Regardless of the source, the money alone is not the focus of the trade – in the end it is about the votes!
Votes themselves are the stock and trade of professional politicians. All the money paid into the various campaigns is exchanged for this tangible, valuable item – the vote. Since we no longer have citizen politicians and most of our state and federal legislatures are the full time employers of this new professional political class – who employ by far much more than half of all the people in America, why don’t we recognize this for what it is? This is nothing more than a commercial enterprise! No different than Google, Linkedin, Facebook, the AARP, or many other national organizations. It can be argued that the parties themselves as simply franchisors.
“Obama visit nets millions: Next stop – LinkedIn for town hall meeting”
- Contra Costa Times, 9/26/2011
President Obama, arguably the top franchisee of the Democratic party, was in the San Francisco Bay area this weekend selling his wares. He collected, somewhere between, $3.5 and $5.5 million in back to back fundraisers. Think about all the money that is being paid for these goods and services sold by our professional political class. It begins to boggle the mind; does it not?
When we had part-time citizen politicians it was appropriate to call these campaign contributions. But I think today we can all agree that calling them political sales is more accurate in this day and age.
Perhaps we should have a national sales tax! But it may not be necessary to assess this tax on all segments of commerce in our economy. We only need to assess a “National Political Sales Tax” (NPST) on the one segment of the economy that is clearly generating most of the “commerce” in the nation. We should implement a national sales tax on these political sales.
In the long run we may get some real benefit. We could see a significant reduction in our state’s and national debts in the short run as the massive amounts of money flow into the various coffers. We may also begin to see the reduction is the constant din of political advertizing, direct marketing and evening phone call solicitations. If for some reason this benefit does not rise, or rise fast enough, then we could extend the NPST to cover all political purchases as well. At a 10% tax rate, the purchase of one of those $19.00 muffins would yield $1.90 in revenue to the federal and/or state coffers. How many muffins do these guys consume in a year? Looking at Jerrold Nadler, Barney Frank, Chris Christie, Haley Barbour, and many, many others this alone could wipe out lots of debt!
Of course many are just not going to like this idea! No one wants to see their livelihood threatened by taxes. I would suggest that if they object to the tax then we should demand a return to the citizen politician, and the part time legislatures of the past. In the long run I think it could be one of the most beneficial changes we could make for our country.
Hey, I’m just asking!
Understanding Step 1
This chart from the New York Times, is very interesting. The data presented is very telling but perhaps not in the way the author intended.
When you look at these charts what do you see? After you look and answer the question for yourself go to the next step.
Understanding Step 2
See this article for more information: President Obama’s Speech: Critical Question Continued.
What I see when I look at the data is very different from what I think the author’s point is. We are all tainted by our biases. We look at data, compose charts and in the end we see what we want and often construct the defense of the reality we want to see.
What I see when I look given the discussion in my prior article is first that Productivity tracks point for point with the increases in currency from 1972 on. This should not be any surprise. The way we measure Productivity is directly related to currency. The question is in this case the old one, “which came first the chicken of the egg?” In this debate one side will say chicken and the other will say the egg. One side will be firmly of the mind that the productivity drove the increase in currency according to economic theory, the other side will say the increases in currency inflated the productivity numbers. Either may be correct and both are at this point irrelevant. Which drove what now pales in comparison to the question of is the current net value of the U.S. supportive of the amount of currency (value) we have applied to it. This is 1/2 of the most important questions. The other 1/2 is - if not, how do we fix it?
The next thing I see in the charts, is that Wages did not track to the rise in currency nor did the gains of the wealthy. While you see some trending with the increases in either prosperity or currency, you should expect to see that. Wealthy people have the ability to derive more of their worth from long-term gains and theoretically should capture more of the currency in the economy. Again the argument of fair or not fair, while a fun and spirited debate does not change the fact that the trend-line of the data does not correlate to the Currency in circulation chart in the prior article anywhere nearly as closely as Health Care Costs or Housing Costs. It is these subtle differences that suggest an alternate cause for the increases of prosperity. Further it is the timing of the trends.
Finally, I see that the debt line that is shown in the chart is not indicative of the true debt but in fact the result of the application of the increased capital to pay off part of the debt that accumulated from 1972 due to the trade imbalances. We have accumulated over $12 trillion in trade deficits to the world since 1972 when we dropped the gold standard. If you plot that curve against the Currency in Circulation curve again they are almost a point for point match. The debt curve reported is not a point for point match. It is the result of result of the combination of the two.
Understanding Step 3
Remember Mark Twain said, “there are lies, damn lies and statistics!” All of these numbers need to be suspect – mine included. But in the end this is not a republican issue nor democrat issue – it is an American issue and it will take all of us to address it.
In his speech last night president Obama asked a key question.
President Obama asked, “Where would America be if we had not passed Medicare and Medicaid?”
As I said in my post last night, “President Obama’s Critical Question,” the president’s question should not have been be a feel-good throw-away line, as it is the underpinning of the base argument, that Medicare and Medicaid have been good for us as a people and for the country. Clearly, the president believes that the answer to these questions is in the affirmative. But, what if the answer is not? These are areas that I think many need to analyze.
Those who have been reading my articles know that I have a strong concern that the underlying issues in our health care system and our economy are systemic and the areas we are focusing on are, in effect, addressing the symptoms of the problems – not the root causes. In my upcoming book, “The History and Evolution of Health Care in America: The untold back-story of where we’ve been, where we are, and why health care needs more reform!” I look at the relationship between the rising costs of health care and trace in part one cause to the large expansion of government programs like Medicaid and Medicare. I also found correlations between the rapid increase in the amount of currency we created, after we jettisoned the gold standard in 1972, and the disproportionate allocations of these new monies to health care and other government subsidized programs like housing.
The relationship of the Total Money Supply (M3) to our current economic issues I will cover in a later article, but for now look at the direct, almost point for point, correlation of the rise in the total health care spend in the U.S. and the increase in the money supply. I think there is no doubt that the significant increase in the amount of currency in circulation and the rapid rise of health care costs run hand in hand. It is very clear, as Sancho said to his master, Don Quixote de la Mancha,
“Whether the stone hit the pitcher or the pitcher hit the stone – it was going to be bad for the pitcher!”
In this case, we can argue later whether the increase in currency drove the increase in costs or the increase in costs drove the need to increase the currency, it was the expansion of Government programs like Medicaid and Medicare that drove the increase in costs.
Housing also rose in a point for point correlation as well. Unlike with health care, you can see it was an advance indicator. This make sense, according to economic theory and the basic premise of fractional reserve banking because our the engine of economic expansion (the creation of new money) is debt. Most preferably mortgage debt. If housing prices did not rise and new homes and the resultant mortgages did not happen then the banks would have become rapidly out of covenant if the new money existed before the new mortgages were there to leverage against.
Lastly in this article, I include a chart of a few other cost histories, lest we think that all parts of the economy had the same correlation to the increase in the money supply. Clearly, wheat corn and eggs did not experience the same effect from the increase in the money supply – nor does it appear they led the need to increase the supply. I believe that most peoples practical experience is that not all things have risen in value twenty times in the past forty years. Herein is the potential rub!
I will continue the discussion related to the presidents key question in my next article. In that I will focus on how the creation of Medicaid and Medicare changed our personal character related to our view of our personal responsibility for our health care and how this change has affected our fiscal habits and our purchasing patterns and trends.
Please feel free to comment on this article or send it to others. As I have said many times this is not a republican nor democrat issue. I think this is an American issue. I am not an economist just someone trying to understand why these things are happening now. We need pragmatic solutions not demagoguery so lets find out what is the truth and then how we can fix it!
There has been a bunch of reposts of three charts showing the relative deficits and spending increases from Both President Obama and President Bush. While this gives great fodder for the let’s bash each other and show just how bad the other guys were crowd, the charts themselves are a waste of ink and lung power to debate.
While the charts, are interesting, and like most statistics represent the adage that,
“there are lies, damn lies and statistics”
popularized by Mark Twain and originally a quote from Benjamin Disraeli; they are irrelevant to the bigger problem. While we can argue about one president solving the budget problem and the other one making it worse, all were relying on the underlying bad economic engine to make it all right.
Those who have read my posts on the subject, know I believe there is a deeper problem. The massive increase in currency since 1972, which in my opinion has given rise to a national crisis of false and inflated values and costs for subsidized programs, health care costs and housing I believe, is the real problem. Perhaps, it is our own underlying valuation of our economy and our assets that are the problem?
Since we all seem to like charts, I will pose my own here. I am not posting this to assign blame, we have way too much of that going around. Nor, am I saying this is an infallible calculation - as I myself am not sure. I will leave it to others to wrangle with that debate. I am posting it to have you see what I saw as I was studying the rising costs of health care and started looking at other segments of the economy. I have a number of charts that will appear in my book. In the meantime here is the one that started me thinking.
This chart is relatively simple. It is the M3 (the total money supply calculated by the Fed) from 1900 up to 2010. From 2006 on the Federal Reserve decided to no longer report the M3, the M3 then had to be estimated. There are a number of different estimates, their only variance is the shape of the curve after 2007. And they don’t make much difference in the current problems.
There was about $500 billion in currency in 1972. Today estimates put that number at somewhere between $10 trillion and $15 trillion. What doesn’t change much regardless of the trend, forecast or growth calculation you apply is what the projected economy would be if we had remained on the trend-line as it was prior to 1972. This line will project about $3 trillion on the baseline economy for today – assuming we had continued on the Gold Standard. If you factor in the gains we would still likely have had in the technical sectors as a result of the investment in NASA, the curve shows additional growth to somewhere between $5 and 6 trillion. This is still a far cry from the unbelievable 20 to 30 times we have multiplied the economy during this period. Remember, “lies, damn lies and statistics!” I hope you treat this projection with the same scrutiny as all the others!
I am simply suggesting that we need to look deeply at this issue and diligently consider it’s effects if this supposition is even remotely correct!
In a recent letter to the editor, yet another writer wants to make the point that the current economic problem is President Bush’ fault. He uses all of his 200 words to carefully craft a picture of why it was Bush’ fault.
Yesterday, I saw the same thing as to why it was President Obama’s fault. Again, all two hundred words carefully selected to make this seemingly very important point.
Having written a few letters to the editor, I can tell you from first hand experience it is not usually for me a five-minute thing. Two hundred words is a very narrow field to present a counterpoint to some point you are debating. Usually it takes almost half of the space to frame the issue in the first place.
These two writers are not alone. I see tens, if not hundreds, of these dialogs each day. Each side spending an inordinate amount of time to present the case why this person, or this party was wrong, wrong, wrong…
Clearly, the sheer volume of people, and the amount of time, bandwidth and ink devoted to this subject would indicate it is of the most extreme importance. Well it’s not!
The big issue at the moment is solving the problem. And solving this in a pragmatic way – not partisan way. unfortunately, it is not just the new mayor of Chicago who thinks no crisis should go to waste. It seems to be the philosophy of many of us if not most of us.
Each issue appears not to be an issue we need to solve – more it seems they are issues we should exploit for some other benefit. This has been the pattern since the early 1960s. The Great Society was not just to find solutions to help the poor, it was as stated by Lyndon Johnson on a phone call with Wilber Mills and Carl Albert,
“something that we (democrats) can run on for the rest of the century.” (listen to the President Johnson Tapes online, search on medicare)
And we can’t leave republicans out of this either. They have played the same games over the years.
Since everyone seems to think we need to assign blame before we solve the problem, let’s do this. Lets agree to start at the beginning of the root causes…
- It is Franklin Roosevelt’s fault for describing Social Security in 1935 without recognizing that the transition to a private annuity system as he described would be lost to the winds of entitlement fever.
- It is Truman’s fault for both extending the coverage and not addressing the concerns of the legislators at the time that argued about future insolvency.
- It is Eisenhower’s fault for also increasing benefits and coverage while again not addressing the growing concerns over solvency
- It is Kennedy’s fault for again extending the coverage and entitlements and getting assassinated before he could begin to affect some of the changes he saw needed to be done.
- It is Johnson’s fault for extending the original act to include Medicare and Medicaid, ignoring the advice of the experts in congress including Wilbur Mills who repeatedly warned this scheme would not work, and then codifying the grants and gifts to the poor as the method to ensure democratic election and instituting the class warfare approach that is now the norm.
- It is Nixon’s fault for removing the country from the gold standard instead of extending the standard to all precious metals.
- It is Carter, Regan, Bush and Clinton that further reduced the restrictions on the banks, changed the regulations like the Mark to Market Rule and eliminated the Glass Steagle Act that multiplied the fiscal problem and continued the course of expanding entitlements.
- And it was both Bush and Obama that again compounded the problem by consenting to the short-term solutions and compounding debt based fixes.
- Further, it is all the congresses, bankers and federal reserve leaders that are also at fault for not addressing the issues, using them to fulfill other agenda and promulgating their self interests ahead of strategic solutions.
- And finally, it is us for not paying attention and reveling in the constant, and unrealistic, expansion of our wages, home values, benefits, and desire for more without looking for or listening to concerned opinions.
Did all of these actors in this damnable play behave badly for their own self-interest? Not really. Where there certain hooks that were included at each phase to get their consent that were in their best interest? Of course! In every case there was justifications for why, and many times good arguments on why in the short-term this solution, or that solution, made sense. The problem was, they also knew in the long-term there would be a problem and did, or could do, nothing at the time to fix it. Of course, once the issue was temporarily solved – no one else chose to address it so it was pushed to the future to deal with it. And now it is ours. And it is, in fact ours. It is not our children’s as we like to think. We have run out of time and circumstance. That is why the symptoms of the disease are again raising their ugly heads with a vengeance.
Now that we have discussed blame, let us all tolerate the blame assigned to our favorite figures as we relish the blame in those we don’t like. If we simply agree the blame is inclusive and historically almost all-encompassing, then perhaps we can stop the blame debate, at least for some of us, and focus on solving the current dilemma.
This problem is a collective problem. One – many years, many parties and many administrations in the making. It is at our doorstep and will either define the next stage of our prosperity as a nation or our inevitable decline. We must all stop trying to focus on who it was that is at fault and how we can use it to foist our “pure” ideology on the other side. We simply must find a good pragmatic solution.
As Ben Franklin said, ” it is thus compromise, based on tolerance of others opinions that leads us to the best solution!”
Word games – we all love to play them. On occasion it is fun to pit ones intelligence against another and use words to obscure what we are saying or twist another’s words into something they clearly would never have said. But, has an intellectual challenge for some, become a threat to our national existence?
we have lost connection with the little engine that for over two centuries made us, that little engine that could…
It seems the word games we all learned to play as children have become the weapons of war on ourselves, wrought by others for their own gain and power. The diatribe that is now offered as debate in all phases and venues of our public discourse – from the popular media to the halls of our congress (once the proud battlement of high ideals and lofty goals) has become a bitter, petty and self-serving process. Its practitioners now use language to obfuscate, confuse, deflect, disguise, denigrate, excoriate, and disrupt anyone and anything, usually in pursuit of goals that no clear majority would support.
As a result of this semantic game, we have lost connection with the little engine that for over two centuries made us, that little engine that could. By using words to cloak and obscure the faults in our economic systems, created by years of short-sighted decisions and weak temporary corrections, the economic crisis some have long predicted appears to be on our door step at last. But unlike 70 years ago, the “our” is no longer the American “our.” It is now most of the world’s “our!”
A reader commented - without the government subsidizing this purchase, regardless of the long-term economic sense of the investment, the industry would not exist…
In 2007, Ellen Hodson Brown, J.D. published a book titled, “Web of Debt.” In it she chronicles the rise of the fractional reserve banking systems, how this historical standard architecture was flawed, and how we could expect to see evidence of its predictable mathematical failure. This book is a very good read, whether or not you are an economist or even mathematically inclined. It will get you thinking, and whether you agree with Ms. Brown’s conclusions or not, she will help you see some things you have yet to see about one of the main processes that provide us our modern existence.
Recently, in a brief post I wrote relating to a local news article on the purchasing of solar panels for Yosemite National Park, a reader responded with the comment that I was failing to see the whole picture. He stated that, without the government subsidizing this purchase, regardless of the long-term economic sense of the investment, the industry would not exist as no one would be able to afford the products and therefore we would not get the benefits from them or have these options for future generations.
This got “me-to-thinkin’” as they used to say where I grew up. Is it possible that, what I see as desperately flawed logic could make some sense? Even though many of my recent posts appear to be more based on our economy, what I am most focused on is our health care system, or lack of a system to be more precise.
As I researched my upcoming book, “The History and Evolution of Health Care in America: The untold backstory of where we’ve been, where we are, and why health care needs more reform,” I learned that many of the drivers of our currently unsustainable health care system have their roots in; semantic based obfuscations, bad economic policy decisions of the past and the political fostering of the entitlement philosophy we have today.
In the area of health care, and retirement, we are now of the mind that these are our due. We believe we should be able to receive any care we want, at any time that we want, and if we can’t afford it then the government, i.e. everyone else, owes this to us. And just between you and me – we never really can afford it, can we? I mean, with all the modern conveniences we also want; like the large flat panel, and the vacation every year, and the new car, and the second home, and for all of our kids to go to college and become doctors and lawyers; I mean it’s not right to expect us to not have these things in order to pay for retirement or health care later now is it?
…have the government subsidize the cost of the product so we can buy it. Now, in a vacuum this logic can make some sense…
Thinkin’ more on this, I also came to the belief that another flaw of this logic is the base economics of the decision itself. To recap, we can’t build the product at a price that people are willing, or able to pay. Therefore, we need to have the government subsidize the cost of the product so we can buy it. Now, in a vacuum this logic can make some sense. If the consequence of these decisions was not exclusionary to other things we need then, assuming we all agreed, taking some money from each of us to pay the cost of a non-sustaining industry with the hope that it would become sustaining, may be something we would choose to do. But we are not in a vacuum. Every decision we make in our economy to subsidize one industry is taking monies we need for other things-like health care and retirement.
The larger problem today, is that we have inflated our domestic costs so much already, in this new world economy, few, if any, of the things we build here in the U.S. are cost-effective. Solar is yet another great example. Comparing the cost of U.S. designed and built solar panels with those made in China shows a stark reality. We are in the long run subsidizing a business we will never gain from. This is exactly what we have been doing for the last 75 years. First Japan, then China, next Indochina, now India, we have subjugated ourselves to being pioneers in technology, and letting the rest of the word dominate by base production. Their base production margins dwarf our pioneering margins. In this new world economy, we are now in competition to all others. Throughout the past 75 years we have either lost, or purposely abandoned, many of the market segments that gave rise to our industrial and economic power.
So in our semantic fed delusion, first, let’s tax, or fine, some group, who we can use semantics to argue has more than us and if possible demonize how they got it from us unfairly in the first place. Next, since, according to the semantic, they abused us in some way to get it, the government needs to subsidize it because a different, and semantically disadvantaged, abused, and often relatively small group wants it be paid for, at least in part so they can have it. One other key to this semantic process of entitlement is this group must be, or have a semantic appeal to another group, large enough to represent a significant voting bloc.
Now, just like the Yosemite solar panels someone, actually all of us, must pay for them. Some say, “We all pay for them!” Others say, “Oh no! We will make the ‘Rich’ pay for them!” This brings up other faults in this tortured logic tree. Whether it is taxes, fines or fees, the additional costs reduce profits, increasing prices, decreasing discretionary spending, lowering domestic sales, increasing relative costs, lowing profits, driving down wages, and shifting higher margin to other countries production. This very observable and familiar Zero Sum Game process now requires more subsidies. This progression is referred to by a very technical term (CTD) “Circling the Drain.” If you have any difficulty grasping this problem, you can go back to the beginning of the paragraph and repeat, reading until it becomes clear. For some this clarity happens just after they hear the big flushing sound! Woooooooooooossssssshhhhhh!
As I thought more about this issue, I realized if Ellen Brown is correct, and I suspect she is, continuing to apply this logic is not only dangerous, it is fatal economically. Normally, when a government prints new money, it is not inflationary, but stimulative, as historically this new currency is offset by real work product with real value that has a lingering effect in our domestic economy.
I just wonder if this new world economy, combined with our current lack of competitive margin based productivity, exacerbated by the governments current practice of allocating new currency to be created for non-value based activities like paying interest, or for goods and services where the bulk of the effect of the capital is being transferred to those countries manufacturing the goods. These are the same countries where the components or primary materials yield high margins due to their significantly lower costs.
I am starting to wonder if this process is causing that WOOOSSSSSSHHHH’ing sound I am hearing? Or maybe it’s just the semantic wind, whistling though the solar panels.
If you are starting to find the overall situation increasingly frustrating and perhaps scary come check out
(yes that’s CO not COM)
These early citizen statesmen, tended to relate the effects of everything they did to the impact on themselves, their family and the community.
The collective display that was put on last night by our elected officials shows that we have allowed political privilege to supersede the role of elected legislator. Historically, our elected officials were for the most part volunteers. Up until the mid-1930′s congress operate largely on an alternating 3 month then 6 month period in order to allow the legislators to go back home and tend to their farms, and businesses. As such, they stayed quite engaged in community and reality.
These early citizen statesmen, tended to relate the effects of everything they did to the impact on themselves, their family and the community. Their ideals appeared larger and more discrete. Likely to our mind they also had more character and commitment since they served, often and significant cost, not benefit, to family and business. Of course there was corruption, but that form of corruption was more visible, as the delta between those partaking in graft, stood out like beacons from those who did not.
A citizen statesman returning home to a significant increase in prosperity as a result of his short time in Washington tended to send tongues ‘a-waggin’ if you know what I mean. Today our professional class politician is tacitly expected to find his fortune in the words and ideals he may sell to the most or the richest. Like comparing a Maybach to a Volkswagen Beetle, we have politicians who are the ‘Volks-Vagon’ the people’s car; and those who are the Maybach Laundolet the car where “the customers’ wishes come first.”
In the case of the ‘Volks-lature’, they focus their message and sales pitch more towards the masses. They chose the low-cost high volume strategy and offer to convey as many as possible to the nirvana they seek. On the other hand, we have the ‘Maybach-lature’ who have selected to sell to a very few with much higher margins. Unlike the Volks-lature who feed in the troughs with the rest of the masses, the Maybach-lature have chosen to feed in the food chain of the rarefied air, at the table with the best linen and the finest wine. And in realty they are no different, just existing in a different part of the econ-system.
In the end it is we who are providing their existence and much of the things they do are in fact self-fulfilling activities, calculated to continue their reign and enhance their equity.
You see, for the most part, they both exist to do one thing. Sell us our dreams in return for their livelihood and existence. Sure, some still have ideals and the drive to make a difference, but it is more the sirens song of wealth and power that has captured most of their hearts minds and more importantly – practice. Even the most ideological fall rapidly under the spell of the professional political class in Washington, who control their moments, provide their thoughts and calculate their longevity with a keenness that would have made Mr. Gillette very proud. The tools of each, are one as with the other, as their weapons are all class focused. For one it is envy – for the other - fear. In either case, it is the other classes that are the fault, and only theirs can save those that matter!
Overall, it ends up the same for us all regardless of whether we eat at the trough or at the fine table. In the end, it is we who are providing their existence and much of the things they do are in fact self-fulfilling activities, calculated to continue their reign and enhance their equity. It is we who pay for it and it is we who are now suffering for it.
This is one reason I have declared: I am a Mugwump. Further frustrating is the fact that the overall debate continues to be focused on who should get what from whom as opposed to what we need to do for ourselves and our neighbors. There are those that argue anyone that has more should be forced to give it up to all of those that have less. Then there are those who also argue that there are some who need a safety net and that we should provide systems and some government intervention for those who can’t – not those that won’t. See Was Shakespeare Correct.
Looking sharply at the debate you see similar ideals in the grand area but in the graphite at the point of the pencil the line is obscure – not so fine. The real debate is in the definition of who should get the benefits of government intervention and at what point personal responsibility ends and public responsibility begins. Further debate centers on the dividing point between personal philanthropic charity and government mandate over personal property redistribution.
In the end, the biggest problem is that we have allowed our political system to degenerate to the point where the body politic, once a largely part-time and voluntary collection of average citizens – making laws and regulations for themselves as well as their neighbors – and in whom little direct benefit of the laws they passed held influence, has been replaced by a full-time professional class legislature with little influence from the laws they pass and maximum influence, in fact their livelihood, comes from the direct (in the form of compensation), and indirect (in the form of votes and campaign contributions). It is this that is their lifeblood driving the legislation they make – specific to any and all vested interest.
So whether you are a conscript of the Volks-lature or an acolyte of the Maybach-lature, we have all ended here at the same point. We have been sold a significant bill of goods by those we trusted to protect us and it will, regardless of what they do or don’t do in the next few days, be on our shoulders to again pay the bills. All of our shoulders! Because never in the history of mankind has a political system been able to provide a way for everyone to get everything – with no one doing nothing.
It is a damnable shame!