Startups in America: Beware of Geeks Bearing Gifts

Authors note: This blog, for the most part, is focused on Healthcare and related topics. Perhaps I am stretching the concept of related topics a bit with this post because so much of the Silicon Valley startup industry has rapidly migrated to healthcare.  I now get numerous calls, or Linked-In requests, every week to look at some healthcare or health-tech startup. I have been interested in writing a paper on the state of the startup industry for a long time and this has provided a good excuse to put my ideas down in pixels.

StartupPaperCover

Click the image above to download this paper for free

I have spent many years in the fabled Silicon Valley, working with startups and investors to develop new businesses in many different industries. Along the way I have seen a lot, some good and some not so good. I have seen good entrepreneurs and investors, and I have lived through a few really bad ones as well.

While much has changed, much has not. Some things have gotten better and others much worse. What has stayed the same is that it is still very difficult to conceptualize, finance and build a business to maturity in a way that is good for founders, employees and investors.

To a great extent I think that the system today is simply stacked against all of us.

I have come to the conclusion it could be much easier and much more effective if we simply did a few things a bit differently. This paper is a little of what I think! Click the graphic above to download your free copy.

America has long been a land of invention and innovation. Having lived through the entire PC revolution, I can see that we have been blessed with massive change to the U.S. and the world due to both technological innovation and a business climate that supported risk capital investment. For the past 30 years or so, this engine of change has been based on the startup business industry. In more recent history the engine has showed signs that it no longer may be what it seems. Some have said as early as 2012 that it is fundamentally and forever broken. Yet, from the pace of young entrepreneurs out trying to start businesses to again change the world, one would never know there is a problem. You’d never know, that is, unless you actually looked a little below the surface.

Entrepreneurs trying to raise money in order to start a business are faced with numerous pitfalls, posers, crooks, charlatans and RPRTrs (Right Place Right Timers) all scattered along what is, for many, little more than a boulevard of broken dreams. We have a cast of characters in both the good, and not so good meaning of the word. We have entrepreneurs, serial entrepreneurs, venture capitalists, angel investors, angel investment groups, super angels, crowd funding, facilitators, “consultants,” deal syndicators, incubators, accelerators and many others. All of these entities want the entrepreneur, or the investor, to think they are “The Answer.”  Some of them may be — many more end up being their worst nightmare.

In this paper I try to give an overview of where these characters came from, what benefits they can bring and the kind of harm they can render if we are not careful. I also try to track come of the changes and show how they have built the current dynamic environment. I also ask some questions for you, the reader to think about.

In my opinion, from the entrepreneur’s perspective, the access to smart money has never been easy. More importantly, from the investor’s perspective, it has not been hard enough. We believe a lot of things about the value of the hi-tech, biotech and Internet industries. We also believe that startups are key to our economic future.  I am not sure that all we believe is correct. I do think there are some fundamental questions we should answer.

First and foremost, if we are going to have a robust startup business industry, we need to understand not only why startups fail, but how to help them not fail and to bring them longer term viability. You will find, if you read this paper, that there are some things we can do to improve how we develop startup businesses that I thank can have significant long term effects and are relatively simple to do.

This paper reflects on my historical perspective working with startups and investors, what I have observed that worked, and what I have learned that does not.  I have condensed a number of very good research papers as to both the evolution and current state of capital access from VCs, angel investors and other sources as well as some excellent reports on why startups succeed and why they fail.

Overall, my conclusion is there are a number of things we should do differently if we want to continue to have a robust startup industry in the years to come. I make a few suggestions at the end.

I hope you will either click the link above or the title and download your free copy.  I only ask one thing!  If you feel this has merit, forward to people you know and let them read it also.  As I said this paper is free and I hope it will circulate and open up some needed discussions.

Startups in America – Beware of Geeks Bearing Gifts (revised)

And as always, I appreciate you reading my blog and hope you find things of value here.

— Tom

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Why the Middle Class is Still Getting Crushed: Lets look back!

It is now crystal clear that the middle class are being destroyed. Politician’s explanations are based on pure biased rhetoric. The real reason is much simpler. It is the mechanics of how we are trying to fix the economy.

This is a reprint of an earlier Article, originally published September of 2013, on some of the reasons the middle class in America are declining. At the end of the article will be links to a couple other articles relating to this issue.

man_question_mark DemoCare demolishes America’s Middle Class

The Affordable Care Act is often called ObamaCare but I think from now on it should be called “DemoCare” because it’s going to demolish care in America and along with that demolish America’s Middle Class.

There are quite a lot of things about the way this law works that make it undesirable.  Mostly, the causes are not in the debate that we hear so much about nor are they in the parade of facts that we are about to be inundated with over the next 90 days from those selling the benefits or arguing against them.  Like most debates the truth in the rhetoric is somewhere between the extremes. There are many flaws, there are some benefits but there are massive amounts of unintended consequences. This is why, I do not call for its repeal.  I call for amendment and alteration. Continue reading

4 Straight Years of Slowing Health Care Costs: Really?

man_question_mark

U.S. Marks 4 Straight Years of Slowing Health Costs(click to read the article) so blasts the headline from ABC News today, January 7, 2013. Like so much of the debate over Healthcare reform, many that read the article will walk away believing that things relating to healthcare costs are really improving—along with the economy. After all the article proudly says that the percentage that healthcare costs make upon of the Gross Domestic Product (GDP) has declined for the fourth straight year. This must be a good thing—one would think! But, like so much of the reporting Continue reading

President Trumpets Obamacare Rebates as Deadline Approaches: Beware of Greeks Bearing Gifts!

President Trumpets Obamacare Rebates as Deadline Approaches - Time Swampland

President Trumpets Obamacare Rebates as Deadline Approaches – Time Swampland

Nought from the Greeks towards me hath sped well. So now I find that ancient proverb true, Foes’ gifts are no gifts: profit bring they none.” So observed the great philosopher and teacher Sophocles about 430 BCE.  Today we loosely translate this as, “Beware of Greeks bearing gifts!

No quote could be more apropos in regard to the supposed $500 million in insurance rebates being sent to 8 million Americans under #Obamacare. Like most ponzi schemes, at first blush this appears to be a great deal for America and Americans. Continue reading

States make ‘disturbing cuts’ to unemployment benefits: Ya’ll want it fixed? Just ask a redneck!

Unemployment BenefitsAn interesting article caught my attention this morning titled, States make ‘disturbing cuts’ to unemployment benefits, authored by Jake Grovum, Pew/Stateline Staff Writer. You can read the article by clicking the link of the photo above from the article.

The irony of this article, is that the continued stretching of unemployment benefits have, in the words on some economists, perpetuated unemployment. How can this be? people ask!

On the one hand, some people (how many I do not know — likely not the majority) just do not really seek work once they get on unemployment Continue reading

Tax Code Driving ObamaCare Implementation: California’s ACA Odyssey Preview

Click to access the Original Article by John Gonzales

John M. Gonzales reporting for the California Healthcare Foundation Center for Health Reporting wrote a must read article called, How the U.S. tax code will drive Obamacare implementation, starting April 15. I strongly suggest all read it.

The negative effects of Obamacare on costs and care were immediate, and the ongoing negative effects are just starting to be disclosed and to build. Yesterday, I participated at a Health Care Summit put on by Continue reading

The President’s Plan and the Story of Sam!

Uncle Sam's Pickle

Uncle Sam’s Pickle

The President’s Plan

In the State of the Union speech last evening, the president said many things.  He offered a real plethora, yes a plethora, of programs, benefits, stimulus, taxes, and other things that he believes will improve the lot of Americans–at least some Americans. Many were struck thoughout his speech by the breadth and depth of the things the president wants to spend money on.  He offered programs for immigrants, college students, environmentalists, women, minorities, the elderly, the sick, the middle class, teachers, the unions, the poor, the underserved, the military and just about every Continue reading

The problem with “The Chart”

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

On Football, Smoking, Soda and Obamacare: There is a spending problem!

Yes Football is a violent sport!

Yes Football is a violent sport!

After reading a recent spate of articles on how the president should, could or would ban or regulate football, I started to wonder what my father or grandfather might say? Then I wondered, how we got to this place where things that others choose to do to themselves is now our responsibility to monitor, manage, restrict and pay for?

50 years ago if we  spoke to our parents about the federal government making laws regulating football, or restricting peoples access to cigarettes and punitively taxing soda, they would think we had lost our minds.  Cleary, Continue reading

More Challenges to the ACA (Obamacare)

No Taxation Without Representation!

No Taxation Without Representation!

From Boston Massachusetts

By now, we all know that the Supreme Court upheld the insurance mandate of the Affordable Care Act (ACA) also known as Obamacare.  To recap, 26 states brought action to have the mandate, declared as an unconstitutional expansion of federal power under the commerce clause, the necessary and proper clause, and as a minor point its taxing authority.  The Supreme Court agreed with the states and found the mandate unconstitutional under the commerce clause, and the necessary and proper clause. However, in what many felt was a stunning decision by Justice Roberts­—and judicial over reach, the court upheld the mandate as a Continue reading

Fiscal Cliff: Does Familiarity breed contempt?

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Maybe its best if we just jump!

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

QE3 will crush the middle class: What appears as good news may not be after all

Quantitative Easing Crushes the Middle Class

The recent action by the fed caps a series of bad decisions that have had a demonstrably devastating effect on the middle-class in America.  An Article by Martin Crutsinger of the Associate Press, appearing in U.S. News Weekly screams, “Fed unveils bold, open-ended steps to aid economy.” Another paper that reprinted this article’s sub-head says, ” Move to buy $40 billion a month in mortgage bonds hopes to spur home buying, consumer spending.  While for many, this will look like it is a fantastic decision—the Federal Reserve is stepping up to once again to help “stimulate” the economy—the key question, that no one is asking, is will this actually help?  The answer to the question, unfortunately, depends on who is asking the question.  From the Government’s perspective, this is necessary. From the bank’s perspective Continue reading

Debunking The Clinton Budget Surplus Myth

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

President Obama describes his role for the middle class

On July 24, 2012, the San Jose Mercury News ran an article by Josh Richman and Matthew Artz, “Obama’s campaign hits Oakland. “Obama campaign hits Oakland.”

The article covers the typical campaign rhetoric. It has its requisite Romney and republican bashing, has the required promises that he will give us all everything we want if we just give him one more chance, how everything would be better already if it was not for those other guys, and of course it was all wrapped up with a large dose of scare tactics to convince those present in Oakland that the bogymen conservatives were about to take away their babies, Continue reading

The Truth About Medicare/Medicaid and Social Security: Ok What Do We Do Now?

President Roosevelt signs the Social Security Act of 1935

“We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which gives some measure of protection to the average citizen and his family against the loss of a job and against poverty-ridden old age.”

President Franklin Delano Roosevelt said as he signed the Social Security Act into law August 14, 1935.

“Care for the sick. Serenity for the fearful”

were the words Lyndon Johnson expressed some thirty years later Continue reading

The Supreme Court Decision: It hurts to be wrong-but it hurts more to be right and still wrong!

Now that we have all heard the decision by the Supreme Court on the Patient Protection and Affordable Care Act (Obamacare), perhaps it is time for some reflection.  I know as I read the decision Thursday morning, while I was waiting in the queue preparing for a radio interview on the issue, I felt both vindicated in my initial analysis, but also left wanting and inadequate for not seeing the sideways tax justification for its declared constitutionality.

First a recap

There were four questions heard by the Supreme Court in this case. Continue reading

12 Year Old Victoria Grant explains Canada (and U.S.) economy problem!

I do not typically put up video for my site as it does not typically fit with what I feel my mission is, but in this case I will make an exception.  My friend Ellen Brown, President and Chairman of the Public Banking Institute, and the author of Web Of Debt had this young girl as a keynote speaker at her recent Public Banking Conference in Philadelphia.

Every one should see this video.  Ellen’s latest article,Out of the Mouths of Babes, shows that Victoria’s message was framed so well that now even adults can understand it.  Maybe, this is why the video has gone viral, with over 1 million views and climbing. Victoria patiently explains to all of us, with clearly less cognition than she,  that when private banks create money out of thin air and lend it to people or to the central government at interest it makes little sense.

This 12 year old explained to all in the room that it made much more sense for the government to create the money directly and not have the banks in the middle charging for the privilege of creating our money for us and then lending it back to us. You see she correctly explains that in Canada, and also in the U.S., the banks create the money out of thin air and then loan it to the government with interest and then all of us have to pay the interest.  She also realizes that the government could create the money directly and not pay the banks interest for the phoney creation process.  Why is it this 12 year old gets clearly what most adults do not?  I have been having this discussion with people for years.

I encourage all to watch this video and then talk to your kids.  Clearly they are a heck of a lot smarter than we are.

Facebook: the IPO of the century – Really!

Ok, I guess now I can ask the question my publicist urged me not to ask two weeks ago. You see the snake oil is still flowing and I want to know why we never learn! The question is…

 What is the thing about Facebook that makes it worth $108 billion since it is entirely based on intangible values?

Well it looks like the jury is in and the answer is nothing. Sometime, relatively soon people will wake up and realize that the problem with the Dot-Com successes are that unless they can create a tangible and necessary value proposition in a down economic period,  then the value of a company like Facebook is not just speculative; it is simply ludicrous.

Worse, I suspect there is hidden in the recesses of this offering the same attitude that was pervasive in the last Dot-Com bubble burst. The most important thing to the original investors, the Venture Capitalists that funded this company is not value it is simply liquidity.  The good thing for these investors is, once again what is driving the public is perceived value not real value. In effect, what a lot of the “public” is willing to pay for does not have to equate to real value—ever.

You see, venture capitalists are paid to return value to their investors, not the future public owners. P. T. Barnum said it best, “There is a sucker born every minute!” So to all those that purchased this snake oil, there is a Latin phrase you should learn, “caveat emptor.”

This has been a carefully orchestrated dance with the devil ever since the first big money went in the door.  Rumors of government intelligence connections have been rampant for years, mostly as water-cooler as excuses to try to justify the ever climbing stratospheric price, but the reality has been a very simple one.  It is the same thing we who have lived in or near this tech-money world have seen for years.  It is the siren song of untold riches, if you just buy a few of the baubles, these simple slips of paper, that will grow, that simply must grow don’t you think. These that just can’t fail because after all it is “Excite@Home (oops that’s a bad one), or it is AOL (opps again) or it‘s Netscape (oops), I mean, you know what I mean, because, you know, they simply must grow to ever higher levels—its technology after all. If you get in now you too can be the next “Tim Drapers, or Brook Byers.”  Just buy a few, for a small investment, a pittance really, this dream can all be yours!

I live right in the promised land of private equity investors—Silicon Valley, CA.  I have spent much of my career around VC’s and Angel investors. Private Equity is a great thing. Without it much of the things we take for granted today would not even exist. It is the basis for the growth economy we have had for years. Along with Real Estate it has formed the basis of the so called FIRE economy that gave us the rapid rise in currency from a mere $500 billion in 1972 to over $16 trillion today. And while many of the dollars created went to real products, tangible products, things you could touch and feel in your hands, much recently has gone to companies based as much on perceived value as any tangible calculation. In this modern world there is no regulation that will protect people from the avarice of wall street, nor should there be. The onus is on all of us to keep both of our eyes open and both hands on our wallets.

Alas, now will come the predictable filing of lawsuits by those who will blame everyone for the unrequited love, the incredible get rich quick scheme that was the Facebook juggernaut. Here’s a news flash, you have no one to blame but yourself. You should know that if it sounds too good to be true it is. Get a freak’n clue! This was a liquidity game, played by major league players from the get go and Mr. Barnum definitely ruled this day and many people will likely soon feel like they got caught at a church picnic with their pants down out behind the barn with Mary Sue.

Now, those who are watching this intangible value-based company decline by the day can pray that it pulls a trans-formative move and, like Amazon did years before, maybe become a true value supply chain player. Years ago there were those of us who saw the original Amazon business plan and just knew then that the original ‘no brick and mortar warehouse, drop ship from publisher’s model’ was not going to work.   All of us then learned a valuable lesson. The lesson we learned was that it was liquidity, not value, which was the play.

As my 13 year old son now says, “you all got schooled!” You know what?  He’s Right!

Socialism again triumphs in France and Greece: Is America next?

Socialism trumps austerity in Greece, and France, is America next?

“Socialist Francois Hollande elected in France”

So, in both France and Greece, voters rejected the backers of austerity measures—Surprise, Surprise! This is no doubt the thought that most Americans had as they saw this headline in their morning paper.  For some the next question may be, “Is America going to be next?”

The two headed snake

America faces two major problems that could lead us to a French or Grecian style disaster. One is that we have the same problem in our economy; albeit we have been able to forestall, some say cover up, the problem since 1972. The second issue is we are deviating from the basic premises and rules our founding fathers established to preserve the American Republic and our engine of prosperity—capitalism.

Economic Collapse

America is very likely already at risk.  Our economic issues, the rapid unaccountable increase in currency since 1972, have caused a significant “hidden” inflation.  We have been able to avoid dealing with the fiscal realities because once we were off the gold standard and as a result of being the world’s benchmark currency most countries have had a vested interest in not calling us on the carpet.  While we have increased the amount of money in circulation from $500 Billion in 1972 to over $16 Trillion today, by most accounts an increase of over thirty-five times, no one believes that we have at the same time really increased the tangible net worth of the U.S. economy thirty-five times. Even accounting for the gains driven by technology, most would project only a $5 – 7 trillion economy at this point.

Constitutional Erosion

We were formed as a constitutional republic, specifically not as a democracy.  While early in General Washington’s first term as President of the new republic, a schism opened between John Adams, Alexander Hamilton, and other “Federalists” who believed in a strong central government structure vs. Thomas Jefferson, James Madison, and other “Democrats” who believed strongly in resting much of the power in the hands of the states; none of these protagonists were advocates for a change in the U.S. Constitution to that of a democracy.  All of the founding fathers knew that democracies simply did not survive.  They realized that while the idea of democratic principles had a place in government to preserve the voices of, and provide protection for, the people; only a republic, backed by a constitution could provide the pragmatic offset to self-serving rules benefiting the masses at the long term expense of the republic itself.  They knew from history that democracies had a way of falling into revolution on the one hand and anarchy, socialism, or communism on the other.

While it can be said that the U.S. Constitution has served us well and that the strength of the republic carried us though many international crises since our founding, it has not protected us against ourselves and our own instincts to seek an easier road to survival or a weakening of our requirements for personal responsibility.  Beginning in the early 1900’s the so called progressive movement attempted to re-frame our nation as a democracy.  Slowly, our own view of our role as Americans has shifted from what we can do for our country, to what we expect to have our country provide for us.  This shift became so dramatically clear after World War II, that on January 20th, 1961, then President John, F. Kennedy in his inaugural speech felt it necessary to try to remind America’s youth that there was a higher ideal they should aspire to. He said clearly, to all Americans, “And so, my fellow Americans: ask not what your country can do for you— ask what you can do for your country.”

Many scholars now believe that there has been a steady erosion of the constitutional basis for our republic as a result of many historical actions to affect short term problems.  Conspiracy theorists believe there has been a conscious effort to change us from a republic to a democracy by those in the Democratic Party.   Conspiracy theories are hard to fathom because it would need to attribute way more intellect and forethought to human beings that experience and evidence suggests.  History simply shows us that a series of decisions and events, each made for short term pragmatic reasons, have culminated in an ever increasing loss of core values.  You see core values are hard, they require sacrifice, they require risk, they require adherence to principals larger than us. It is by their very difficult nature that we define these values as part of one’s character, and it is this reason that we innately want to find ways to rationalize away these very responsibilities.

For about 100 years, we have been rationalizing away these values.  We have softened our education system and stopped teaching the detail of what it means to be a republic or an American.  Ask any American, under the age of sixty, what form of government we have and more often than not you will hear that we are a democracy.  If you press the point and ask what being a democracy means, they will say that the majority is supposed to rule. Interesting is it not that an ideal that brought unanimous approval to the Constitution of the United States by the founding fathers is now a tenant of which most of us are woefully unaware!

What is even more illustrative of the change to our national values and psyche, is the fact that Jefferson, Madison, and others, who were the foundation of the original Democratic Party, were strong advocates for a weak central government and felt that governing power needed to be as close to the people as possible thereby vested in each state. Also, I find it fascinating that the term “progressive”, now used as an invective by republicans as a cudgel to hammer democrats was originally an outgrowth of the republican ideals of the early 1900s. How is it that the party personalities can have so radically changed yet we remain blissfully unaware that the way we encapsulate ourselves is so transient?

Is America next?

While many of the same people who today believe we are a democracy—and believe that democrats stand for big government, that republicans want to hurt the middle class for the benefit of the rich and have no interest in helping the poor—also believe that there is no way that America will suffer the same fate as Greece, or France, or many other countries. Maybe it is time we asked ourselves some hard questions:

  • Have so weakened our own understanding of who we are, what our country is founded on, and what it is that protects us from such a declination that we no longer know how wrong we are about our own base assumptions?
  • Have we allowed this gradual debasement of personal responsibility, in favor of government entitlement and forced corporate reallocation of wealth, to go so far that a fundamental shift away from the principals of our own constitutional republican form of government is unrecognizable?
  • Are we electing leaders that are doing what is in the best long term interest of America, or are they simply willing to do whatever will get them the votes to be re-elected?
  • Do we really believe that a safety net for the helpless is the same as entitled services for all including the clueless and the worthless (fraudsters)? And do they believe that after years of hyperinflation of the currency we can continue to just print money out of thin air to pay for it or that the so called “rich” in America have enough to pay for everyone else?
  • Are we really immune to the fate of these other countries, or have we already suffered the economic collapse and have just been covering it up by printing more money and manipulating our economy to rationalize the perception of great gain?
  • When will this all come crashing down on us, or has it already started and we are just ignoring it? Is this why it is now so much fun to watch reality TV and revel in the catastrophes of other’s lives because it allows us to feel we are still better than them? Is it possible that is why the spectacle of the Coliseum in ancient Rome became so popular, because it helped hide their reality of the oncoming demise?

One last point to ponder!  If you think that we really have not lost a national understanding as to how our government functions, think of this.  No one can explain why we still have the election of the President of the United States conducted by an electoral college instead of by popular vote.  There are many who argue this is an anachronism, a relic of days before computers, and broadcast media but this is sophistry that would make the ancient Greek philosopher, Zeno, very proud. The electors have always had a duty to vote for the best candidate, not the most popular, and not the one that promised the most free-stuff.  The best candidate, the one that was best for all of America is the responsibility that rested in the elector’s hands. Now, many states have changed their laws to alter the rules for the electors to now only vote for the candidate that receives the majority of the popular vote—winner take all.  What happens if that candidate commits a heinous crime, or it is discovered that he is morally corrupt, or that he or she is conspiring to damage the country?  Are they still bound?  They did not used to be!

The final question is, “Are we about to become France, and Greece, or have we already suffered the same fate, and all that is left is the counting?”

Phillips $10 million dollar $60 light bulb: just your average government project part 4

Phillips $10 million - $60.00 light bulb

Each morning I look forward to reading the morning paper.  Since she got an iPad, a little over a year ago, my wife keeps saying why don’t you cancel the paper and just read the paper on-line.  It is a routine, I know, but this habit helps me start the day and get my mind in gear—usually.  And maybe now I am ooooollllllddddd fashioned.  Or perhaps just old, but I really appreciate the ritual—ritual sounds much more mature than routine and lends an air of distinction to this anachronistic practice don’t you think?

Well, as I was reading once again I am presented with yet one more justification on why we need to have a serious discussion about the national economy, the role of government in the economy, and why we need to move much of the ‘new found’ federal responsibility back to the states, and the private sector; as if any more justification was needed on top of, Cartagena Hooker-gate, GSA let’s all meet and have a party at the taxpayer’s expense-gate, and Solyndra-gate.

The point of today’s reflection is an article, in the Boston Globe by Peter Svensson, “Rebates to ease shock of a $60.00 light bulb.”  I think everyone needs to read this article, if you have not done so already.

Having been in the technology sector for many years, and having a few friends who have either invested in or started, “green” energy companies, I have a passing familiarity with the basis for the creation of this bulb.  There was a $10 million contest, sponsored by our federal government to stimulate the production of more energy efficient light bulbs, driven by political pandering to the let’s save the environment from the evils of incandescent light bulbs crowd.

The justification was that incandescent bulbs convert a large amount of energy to heat, therefore it is wasted.  This is a valid point.  Another point is that from these group’s figures, the average life span of a 60 watt incandescent bulb is 1,500 hours and therefore the contest was for not only a green bulb but one that lasts longer so the cost could be justified.

The contest rules were for a bulb that lasted much longer and it had to cost $22.00, or less, in the first year, with the assumption that the price would go down as adoption and production increased.  Oh yea, it was an American program, and you would think it was also to stimulate American jobs and American business? Nope!  Only one company, Phillips, and if you don’t know Phillips is based in the Netherlands, entered the contest.  Of course they won.  But there is a catch!

The bulb will cost $60.00 not $22.00 or less.  Of course the argument from the groups is they are forcing electric companies to provide rebates for the purchase of the bulb so the price will be offset by $20 or $30 dollars, but if my math is correct $60 – $30 is still $30 which is more than $22.00, last I checked.  And now, as this is coming to light (so to speak), Phillips says they will offer an initial discounted price of $50.00 so the price will be in the $20 to $30 range… Great deal isn’t it?  They got $10 million so you can bet the discount will last until they sell the first million bulbs (that’s $10 million divided by the $10 dollar discount). And let’s not even ask the question if the chemistry in these bulbs might be more hazardous to the environment once they are disposed of.

The thing that gets me about this whole program is that all of this “savings” are coming from us in the first place, so we are not saving anything.  The rebates are charged back to us in the form of higher cost per kilowatt, and the $10 million came from us in taxes.  Most importantly, we are increasing the cost of light bulbs from about $1.10 per bulb to over $50.00. And this is predicated on saving the planet, lowering our energy costs, and stimulating the American Job market . . .  Well forget the American Job market part I guess . . .

Last point I have on this subject is, if the statistics I hear quoted about incandescent bulbs are accurate, then I am the luckiest S.O.B. in the whole world because . . .

The earth killing $1.11 incandescent light bulb

They claim that an incandescent bulb only lasts for 1,500 hours.  I have by a quick count at least twenty-eight, 40 – 60 watt incandescent bulbs in my house now.  I have been in this house for over ten years. I replace on average two bulbs a year. Most of the lights in my house burn five hours a day, some more, some less, but this is my best guess on the average.  So, my lights are lit about 1,825 hours per year.  Given the 1500 hour average life, according to these green groups, I should be buying and replacing about thirty bulbs a year.  But you know what, I don’t . . .  I never have.  In fact, the reason that incandescent bulbs burn out as quickly as they do, albeit much more slowly for lucky me, is because the vacuum in the bulb at manufacture is not as complete as it could be.  And it only costs me $1.11 cents to buy these evil, world destroying, 60 watt bulbs, or $2.20 per year.  This means, I theoretically change them all once every fourteen years.

Now, if I buy twenty-eight of these new bulbs that are supposed to last twenty years, even with the discount, it will cost me $840.00.  I can buy 756 of my old bulbs for that price, which would have lasted fifty-four years at my current replacement rate.

Light bulb manufacturers, all the way back to old Tom Edison, knew they could make bulbs that lasted for a long, long, time—10 to 30 years. In fact, they have, by accident and random chance.  My grandfather’s house had some of the original Edison bulbs with a base the size of a ping pong ball and a filament that looked as thick as a pencil lead.  If they were not broken over time, they would all probable be burning today. Good for homeowners, but bad for GE, Sylvania, etc.  These guys new that bulbs could be cheap because you bought a lot of them every year, and if you only buy a few every twenty years then they will cost a whole lot more.  And guess what, they were correct back then and they are correct now!

Since I am now living in California, and I can’t buy many incandescent bulbs because they have been outlawed, I have a few CFL bulbs, and so far I have had to replace these bulbs at least once a year and in one case, in the globe ceiling fixture in my closet that has two 40 watt bulbs, much more frequently.  In fact, if one of these suckers blows out in the fixture, the other one dies, seemly out of sympathy, in just a few days.

Due primarily to labor and benefits costs, and secondarily because we have a dwindling lower wage labor pool because everyone must go to college, we are already non-competitive in manufacturing.  Now, we will begin increasing the cost of lighting by almost fifty times as we move to these “save the planet” bulbs.  Many supporters of these bulbs argue that in the long run we are going to save so much more in costs of energy because of their efficiencies.  Well, due to past experience I am both skeptical of the claim, and dubious that the short term increase of costs on an already non-competitive economic structure will ever be offset.  And even if it theoretically will lower costs in the long run, I am starting to doubt we will be around as a vibrant economy for it to matter anyway; which means we won’t be buying a lot of $60 light bulbs because we won’t be able to afford them.

While I am all for limiting the impact we have on the environment, like everything else in life we need to also maintain some viability.  In this case, the viability is tied to our cumulative cost and its impact on our economic i.e. national and cultural viability. Perhaps If we really want to save the planet then we should likely all agree to commit suicide now.  Then we will no longer have an impact.  I guess, that is, after the ecosystem once again returns to stasis after the population blooms of bacteria, predators, carrion feeders, etc. — all go through their own population explosion-die off cycles as the excess food sources from the rotting polluting corpses we leave behind are finally consumed and absorbed into the ecosystem.  On second thought, this will likely be a bigger polluting source that all the incandescent bulbs so maybe we should just keep the incandescent bulb and balance it by what we save by not committing suicide in the first place—Cap n’ Trade at its finest.

Oh yea, can’t use cap n’ trade, cause the state is going to use that to pay for the High-Speed Rail to nowhere!

Medicare-Medicaid: A Chicken in Every Pot

“. . . I think we’ve got you something that we won’t only run on in ’66, but we’ll run on from hereafter!” - Wilbur Mills to President Johnson on Medicare in 1965.

As Congressman Wilbur Mills commented to President Lyndon Johnson, in a taped private conversation in 1965, he was encapsulating the primary benefit that the democrats of the day felt they would gain from the Medicaid and Medicare extension to the Social Security Act of 1935, and the primary reason that President Johnson and his team pushed so hard for the reform to include new entitlement programs for the elderly, the disaffected, and disillusioned.

The Historical Perspective

Wilbur Daigh Mills, democratic member of the U.S. House of Representatives, and the chairman of the powerful Ways and Means Committee, was considered, by many, to be the only person in Congress who truly understood the actuarial basis of Social Security, and was recognized as the Congress’s primary tax expert.  At the start of the war on poverty in 1964, Mills had serious concerns as to the affordability of the existing Social Security Act of 1935 for the nation, let alone any extension of the current benefits to include what was then viewed as a health care “safety-net” for the underserved and the elderly.

Mills did not believe that the nation’s tax system could fund the liability of Medicare.  In his paper, “The Origins of Medicare,” published in 1999, Robert B. Helms writes,

Even in the face of strong political pressure from other Democrats, Mills had been so consistent in his opposition to adding a medical benefit to Social Security that many suspected him of being sympathetic to the AMA’s socialized medicine arguments. He used his detailed knowledge of Social Security to question both the Kennedy and Johnson administrations’ cost estimates and to point out that estimating future medical costs was a much more difficult task than estimating the future costs of a cash benefit.

In a 1964 speech, Mills said: “In practical terms, this meant that if the hospital insurance system which would be created by the bill was to remain sound, the taxable wage base would have to be increased by $150 each year. Clearly, this would be a case of the tail wagging the dog.” (The taxable wage base increased an average of $46 per year from 1959 to 1964)

In that same speech, he pointed out that hospital costs were increasing at a rate of 6.7 percent, while average earnings were increasing at only 4 percent (1955 – 1963), and that he saw no reason to assume that the situation would change. His support for the final version of Medicare in 1965 was apparently due to the effects of Democratic gains in the House in the elections of 1964, President Johnson’s personal appeals for support, and the many technical changes that he was personally able to insert into the bill during its various stages of development.

We now know that Chairman Mills’ skepticism was justified: In 1964, the administration projected that Medicare, in 1990, would cost about $12 billion in 26 years (which included an allowance for inflation); the actual cost was $110 billion. We may not know until the year 2025 if today’s actuaries are any more accurate than those in 1964 in making twenty-six-year projections, but at least the current crew is leaving no stone unturned to tell everyone who will listen that the Medicare Part A trust fund does not meet their standards for short-term or long-term actuarial soundness.

Despite Mills’ dire warnings, and his correct calculation that the wage base would have to increase by 300% each year over the existing rate to afford this new entitlement, Johnson felt he was swept in with a clear mandate from the people due to his landslide victory in the 1964 election. So, to help drive increases in the Democratic Party majority in congress, he made the push for Medicare one of his primary platform goals. Johnson was so focused on getting Medicare pushed through congress, he was willing to leverage anyone, and everyone, with every tool he had at his disposal to get this divisive legislation approved. The following transcript, of a taped meeting with his Vice President, Hubert Humphrey, in the first days after the election, is quite telling.

Johnson: “They are bogged down. The House had nothing this week-all god-damn week. You and Moyers and Larry O’Brien have got to get something for them. And the Senate had nothing . . .  So we just wasted three weeks . . .  Now we are here in the first week in March, and we have just got to get these things passed . . .  The ones that I’m really interested in . . .  one of them is education, one of them is Medicare, and one of them is Appalachia . . .  I think the medical care will go through like a dose of salt through a widow-woman . . .  You’ve got to look each week and say, what is the Senate doing in Committee this week and when will they be through, what is the House doing . . .  You’ve got to be running into these guys in the halls, and going over and having a drink with them in the evenings . . .  I want that program carried. I’ll put every Cabinet officer behind you, I’ll put every banker behind you, I’ll put every organization that I can deliver behind you . . .  I’ll put the labor unions behind you.

Johnson’s election didn’t just change the Democratic Congress’s advantage over Republicans; it also changed Mills’ political view. Seeing the writing on the wall, Mills made another speech where he announced, “I can support a payroll tax for financing health benefits just as I have supported a payroll tax for cash benefits (meaning social security).”
Thus, began what has been termed by many as the greatest Ponzi scheme to ever be foisted on the American people. With Mills’ support, the measure passed. There were still several hurdles to overcome, but in the end, Johnson got the legislation he wanted, regardless of the consequences. On March 23, 1965, Johnson’s Oval Office taping system records the call he has been waiting for from Wilbur Cohen (architect of much of Social Security and Medicare), Wilbur Mills (Chairman of the Ways and Means Committee), Carl Albert (Democratic Majority Leader) and John McCormack (Speaker of the House) telling him the bill has just passed out of the Ways and Means Committee. It is the first time Johnson finds out what Cohen has just actually agreed to in Johnson’s name: (Listen to the Johnson Tapes on-Line)

Mills: We wound up, and I got instructions, we’ll introduce the bill at noon tomorrow, and will report it at 12:15 . . .  I think, we’ve got you something that we won’t only run on in ‘66 but we’ll run on from here after.
Johnson: Wonderful. Thank you, Wilbur.
Mills: Now here is Wilbur Cohen.
Johnson: When you going to take it up?
Mills: We could have it on late next week, if not, early the following week.
Johnson: For God sakes, let’s get it before Easter.
Mills: Oh, there’s no doubt about that.
Johnson: . . . I sure do congratulate you on getting this one out . . .  I congratulate you and thank you.
Cohen: I think it’s a great bill Mr. President.
Johnson: Is that right?
Cohen: Yes sir. I think you got not only everything that you wanted, but we got a lot more . . .  It’s a real comprehensive bill.
Johnson: How much does it cost our budget over what we estimated?
Cohen: Well, it would be, I would say, around $450 million more than what you estimated for the net cost of this supplementary program.
Johnson: What do they do under that? How is that handled? Explain that to me again, over and above the King-Anderson, this supplementary that you stole from Byrnes.
Cohen: Well, generally speaking, it’s physician’s services.
Johnson: Physicians. All right, now my doctor that I go out and he pumps my stomach out to see if I’ve got any ulcers, is that physicians?
Cohen: That’s right.
Johnson: Any medical services that are M.D. services?
Cohen: Any M.D. services.
Johnson: Does he charge what he wants to?
Cohen: No, he can’t quite charge what he wants to because this has been put in a separate fund and what the Secretary of HEW would have to do is make some kind of agreement with somebody like Blue Shield, let’s say, and it would be their responsibility . . .  that they would regulate the fees paid to the doctor. What he tried to do was make sure the government wasn’t regulating the fees directly . . .  the bill provides that the doctor can only charge the reasonable charges, but this intermediary, the Blue Shield, would have to do all the policing so that the government wouldn’t have its long hand . . .
Johnson: That’s good. Now what does it do for you the patient, on doctors. It says you can have doctor’s bills paid up to what extent or how much? Is there any limit?
Cohen: The individual patient has to pay the first $50 deductible, then he’s got to pay 20 percent . . .  of everything after that . . .
Johnson: That keeps your hypochondriacs out?
Cohen: That will keep the hypochondriacs out. At the same time, for most of the people it will provide the overwhelming portion of their physician’s costs.
Johnson: Yes sir, and that’s something nearly everyone could endure. They could borrow that much, or their folks could get them that much to pay their part . . .  I think that’s wonderful. Now remember this, nine out of ten things I get in trouble on is because they lay around. Tell the Speaker, and Wilbur, to please, get a rule just the moment they can . . .  That damn near killed my education bill, letting it lay around. It stinks. It’s just like a dead cat on the door. When a Committee reports it, you better either bury that cat or get it some life.

In the end, Medicare and Medicaid became the law of the land. And, as can now know, Mills was correct to have his doubts about the actuarial basis of Medicare, Medicaid, and Social Security when the bill was passed in 1965. But, like the Social Security Act of 1935, the 1965 Act was not an ending, but a beginning of a perpetual series of expansions of the benefits provided by these programs.

It is now painfully clear that Wilbur Mills was correct in his initial assumptions about both the solvency of the original Social Security Act of 1935 and its unprecedented expansion in the 1965 amendment that pushed through for significantly political reasons by President Johnson.  Mills estimates of what would be required in real taxable earnings gains in order to fund this “safety net” were eerily prescient. By 1974, the failure of the GDP to support the nation’s expenses for these entitlements, and the accumulating trade deficit, had placed the country in a significant cash shortage with few means of escape.

President Richard Nixon took us off the gold-standard, and by the late 1980s the significant, arbitrary increases in the currency had elevated almost everyone’s wage base to where they began to feel prosperous once again.  But, the costs were just being temporarily outpaced by the injection of this new currency, the day of reckoning was still coming and finally hit with a vengeance in 2009. It is now starting to become clear that the feeling of prosperity we all experienced was not the reality of our economy just the benefit of more baseless cash.

The Modern Perspective

Enter a few days ago our current President, Barack Obama. In the past few days, it is clear to me that the president still believes what Wilbur Mills told President Johnson in 1965.  He clearly believes that he should be able to run on the entitlements of Medicare and Medicaid to secure the votes for this free stuff, just like President Johnson.  The concept of “a chicken in every pot,” i.e. votes for free stuff, was not as much the hallmark of the Democratic Party prior to President Johnson.

Although President Franklin D. Roosevelt leveraged these ideals to help the country rise out of the Great Depression and prepare for WWII, and Herbert Hoover is often credited with the phrase; “A Chicken in Every Pot” is a quotation that is perhaps one of the most mis-attributed in American political history. Variously assigned to each of four presidents serving in the years between 1920 and 1936, it is most often associated with Herbert Hoover. In fact, the phrase has its origins in seventeenth century France; Henry IV reputedly wished that each of his peasants would enjoy “a chicken in his pot every Sunday.” Although Hoover never uttered the phrase, the Republican Party did use it in a 1928 campaign advertisement touting a period of “Republican prosperity” that had provided a “chicken in every pot—and a car in every backyard, to boot.” You see, we need to understand that political duplicity is not a democratic or republican affectation; it is a politician’s con.

But here we are once again, and even though President Obama is not uttering this phrase, it is clear that this is what he sees as his ticket to re-election.  Perhaps I am too cynical, but reading transcripts of committee hearings on what became the Affordable Care Act, listening to our congressional leadership saying things about the legislation like, “this is the path to a federal single payer system,” or “we need to pass it so we can see what’s in it,” and other equally ludicrous statements, and listening to the political agendas so blatantly expressed in the Johnson, or Nixon, tapes can do that to a person!

Based on my own experience, and backed up by the historical record all the way back to Mr. Mills, it is clear that the current system simply cannot work.  Frankly, and I don’t think I am telling anything out of school, none of our elected officials think it can work either.  They are currently almost evenly split between the “we know it can’t work and we need to fix it crowd,” and the “We know it can’t work but we can run on it again, and again, and again… crowd.” Regardless, to everyone it should now be clear that it can’t work.

So, it is astounding to me that the President of the United States, Barack Obama, now stands before the American people and making a reverse Robin Hood argument declares that the other party, Republicans, in this case, those evil people, want to take everything you have away and give it to the rich!  And what is more astounding is he says this is not class warfare!  People seriously can’t believe that such a bald faced lie can be true, can they? I have met many of our congressional leaders; republican and democrat.  I have not met one that was not concerned about all Americans.

To make a statement that one political party is dedicated to the destruction of poor and helpless people is beyond unconscionable it is simply irresponsible.  And it would be equally irresponsible for similar invectives to come from the other side as well.  We are in a significant national, social and economic crisis.  If our leaders do not get serious about solving the problems then we need to get new leadership.  If all we have left when someone talks of hard choices is to damn them as a pawn for the rich, then I do not see how we will survive.

As we move beyond this primary election cycle toward the presidential election, we need to elect a leader that will realize that he can’t promise America that there will not be a chicken in every pot.  You see Mr. Obama; the chickens have finally come home to roost!

(for those of you who may be interested in more on this issue, it is discussed in more detail in my upcoming book, “The History and Evolution of Healthcare in America,” go to my website at www.loker.com and sign up to receive notice of its release.)

$25 billion in foreclosure relief: Will Americans really benefit?

(this article originally  ran in California Political Review it is re-posted here with permission.)

Median Housing Price compared to CinC 1960 to 2009

While the news today is full of various articles touting the $25 billion government settlement between the nation’s biggest banks and homeowners there is one big question for the nation’s citizens, and in my local case Californians—will this really be a benefit? While I am looking at this from a California perspective, this really is the same for the country as a whole.

In examining this question, there are at least three things to consider:

  1. Will the initial settlement amount become a meaningful amount for homeowners and truly affect their current financial situation?
  2. What are the long term implications of this settlement for mortgage holders?
  3. Will this settlement resolve the underlying problem in housing prices and declining values?

Before I get into this topic, first let us commend California’s Attorney General, Camilla Harris, for her efforts at getting a better deal for Californians.

Meaningful Amount

Question number 1 is perhaps the most current.  Clearly, this is the question on anyone’s mind who owns a home in California.  Will the $25 billion really have a material effect on my mortgage problems?  California has the most homes underwater of any state, according to Santa Ana-based data firm CoreLogic.  There were as of September 2011, more than two-million homeowners that owe more on their homes than they are worth.  By percentage, California ranks fifth with 30.2% of all homes upside down in value.  Compare this with the national average of 22.5% and you will see there is a big problem here.

If you take the national total of 10.9 million home owners spread across the $25 billion, and you apply a “historical fairness” standard where everyone gets treated equally, you get an average payment to each homeowner of $2,293.58—not very meaningful is it? Now, some believe that the “rich” do not need, or deserve, the extra money, so using a “revised fairness” standard, and the fact that some significant number of people will not apply for the funds, the settlement group estimates that the average amount granted to those participating will be more like $20,000.00.  This number sounds better but, there is a big but attached. The combined negative equity of all US homes is over $700 billion meaning that the average homeowner is underwater by at least $50,000.00.  And higher priced homes, like those owned by the rich, often are underwater by a significantly higher percentage.  Adding in the fees and other charges that will get levied by the banks for the processing of these claims and the effective gain drops even more.  So on a national basis, some could take the cynical view that this is not a meaningful amount—but, what about for Californians?

California, by the CoreLogic study has about 2.06 million homes underwater.  The state is targeted to get about $430 million. Using the same comparison above, the “historical fairness” allocation would be $208.74 cents per homeowner and the “revised fairness,” amount, where the rich don’t get any help, will equate to about $3,779.82.  Since California’s market has been hit harder than many other states and its average home price is much higher, the proportional amount negative equity is also likely higher.  So, one could argue that Californians may not only feel the amount is meaningless, they may also feel it is not fair overall!

Long Term Implications

Like most things revolving around government driven programs and settlements, we need to think about the long term consequences.  Where does the money come from that makes up the settlement?  Well it comes from the banks—right?  As the last stop before it gets paid into the settlement that is correct.  But, while this may be the end of the story, as usual, it is not the whole story.  The money comes from us via two primary routes; one visible and understandable and the other confusing and relatively insidious.  First, it comes from the bank’s profits, if any.  And of course their profits, if they have them, come from the fees they charge us, and if the bank’s costs go up they charge more fees to us and we pay them.  So in this route the money comes from us.  The second main route, the more insidious one, is from loans made to the bank by the Federal Reserve to help the banks maintain liquidity or inject more cash into circulation, sometimes called “quantitative easing.” In this case, the money is created out of thin air by the Federal Reserve increasing the total amount of money in circulation—with no increase in value of the underlying assets—passed down to the banks to pay out to us to reset our loans and it reduces the real value of our money.  The result is; goods increase in price, the money we earn goes less far, and we in effect are even poorer.

The cynics among us, who have concluded long ago that there is no free lunch, realize that no matter what the money we get is really coming from us. They may argue that the long term implications from this program are not very good.  The reality is, there really is no free lunch and we can expect that this particular settlement will not work out well for any of us in the long run.  Since many of the people who have the worst upside down mortgages would appear to many other to have been rich, it is not clear that this program would even be a model for the execution of “income redistribution” that some proffer as a solution to all of our ills.

The Underlying Problem

If you look at the graph at the top of this article you will see that the route of our underlying problem goes much deeper than it first appears.  While some argue the cause is the profiteering of the rich and corporations, and others charge it is the irresponsibility of people borrowing to buy houses they could not afford, the real root of the issue is the underlying basis of our economy.  Prior to 1972, the total amount of currency in circulation, referred to as the CinC, was about $500 billion dollars.  The amount of actual currency was restricted by a mandate that each dollar had to be backed up by a set amount of gold.  By 1972, this had become a huge problem as we could not increase the amount of currency and the government, therefore we,  did not have enough cash to pay for all the expenses the country was racking up like War, Social Security, Medicare, Medicaid and myriad other subsidy programs.  Also we were accumulating an increasingly large trade deficit.

But in 1972, then President Nixon, removed the country from this check and balance. By today we have increased the amount of money in circulation to about $16 trillion.  This is a thirty-five times increase in the total amount of the money supply.  No one will argue that the total value of the US assets has also increased thirty-five times—hence the problem.  If you look at the chart, you will see that the median home price in 1972 was about $24,224.  At the peak of the housing bubble in 2005-2006 the median price had risen almost point for point with the increase in the money supply to $298,500.  If you now look at what the median home price would have been if we had not done this, the median price projects to be more like $115,734. The point is that if it is true that the amount of money in circulation is not representative of the real value of American assets, then our total economy, is overvalued.  Even with the tech gains from our NASA investment in the 1960’s and 1970s, the economy would project to be about a $5 to 6 trillion economy not $16 trillion.  Housing, under this calculation, would have to decline another 46% in order for all to match up.

Even if these calculations are off and the relative value of our assets has increased at a rate higher than the pre 1972 rate, there is likely still a large correction coming to our economy in general and housing in particular.  California will be the eye of this perfect storm.  I submit that this mortgage fix neither addresses the underlying problem nor ameliorates Californian’s personal and current dilemmas.  I think it may really do the exact opposite and compound our problems with false hopes, false senses of security and increasing debt based on inflated values that are doomed to correct.

Regardless, this is an unbalanced fix in that it is trying to fix the debt side for a few and ignoring the unbalanced asset value side for everyone else.  Even if pumping more arbitrarily printed money into the economy buoys the market in the short term, the continued unrealistically inflated values will again decline and once again we will be faced with the same problem. This will promulgate more borrowing against what likely will continue to be declining values in an overvalued economy—potentially spelling disaster. The only fix that will work is to address both sides of the problem across the board resetting both the Debt and Equity Value side at the same time.  Perhaps it is time for either the Federal Government, or California, to consider a “Land Bank” system of mortgage financing.  We need to address the balance sheet of the bank and homeowners at the same time we address the asset value side of the equation. Only then can we truly, fairly, and equitably address the fundamental problem.

So in the end is this deal a good deal for Americans?  For Californians? And the more important question we all need to start asking is this!

Regardless of the impact to me personally, is this the right thing for America?

I keep wondering why this is so hard!

Headline screams – Once-hot profits may be cooling for big business: Is there more to the story?

Associated Press reporter, Bernard Condon, wrote an interesting piece this morning. My local paper, the San Ramon Valley Times, headline was “Once-hot profits may be cooling for big business.” The US. News and Word Report picked up the article as, “Corporate profits aren’t what they seem.” The subtitle is the telling point.  Growth appears to ebb as firms find less to cut, dollar strengthens.

This is a good article because the author correctly brings to light that the once mighty engine of America’s prosperity is faltering.  It is not a great article because the author misses the real cause of the decline in profits, and like most others,misses the point that we critically need to understand in order to rectify the real problem. America’s prosperity engine faltered quite a while ago.  We have been living on years of the banks and the Federal Reserve, steadily increasing the amounts of money in circulation with no regard for real value.  While many of us feel like we have prospered because we have continued to get more money and buy more stuff, the amount of our “prosperity” has not kept up with our spending and has left us a very large hole to fill.  As my brother-in-law, who was a farmer and a waterman, used to say, “It ain’t no good to want them Cadillacs when you can barely afford one of them Ford Pintos.”

As you have seen me report many times before.  We have raised the total amount of money in circulation from $500 billion in 1972 to over $16 trillion today with no real and equal corresponding increase in the total asset value of the U.S. As a result, we have drastically increased the perception of constantly rising profits, because we have simply increased the amount of the benchmark item, U.S. Dollars, that we use to measure our worth.  Lest we start to think that perhaps we really have increased the relative net worth of all the value of the U.S. in excess of thirty-five times since 1972, let us remember that we have been buying from other countries much more than we have sold to the other countries since 1972 accumulating over $12 trillion in trade deficits.  In other words, our collective house spent $12 trillion more than it took in in the same period.

Thank God for the banks, huh? Their ten-to-one fractional-reserve lending system, and the Fed’s ability to just inject whatever amount of cash was necessary into the banks to make everyone feel like they were earning more money and getting richer has really saved the day—don’t you think?.  Without the drastic program of printing new money with no governing checks and balances, we would have faulted long ago—right?  It’s just a great thing that they could keep printing money with no real tie to tangible values—wasn’t it?

So in case you did not clearly get the sarcasm… NO,  it was not good!  In fact, our economy did fault long ago.  We have been living on dreams, wishes and baseless valuations for at least forty years. Depending on how you consider the issues, the problems that caused our decline could be argued to trace back almost seventy years.

In order to conceptually grasp the issue let us simplify the problem.  Let us go back in time to when there were just a few settlements in America.  In this hypothetical example I will use a place near and dear to my heart, St. Mary’s, Maryland founded in 1632.  In our hypothetical example, the year is now 1636.  The colony has grown to 100 people.  The money was Maryland dollars that were acceptable in England at an exchange rate set in agreement between the King and Lord Calvert—the founder of the Maryland Colony. (yes, I know this is not historically accurate, none of it is, this is all made up to illustrate a point).  There were only a total of $10,000 printed Maryland dollars available to the residents of St. Mary’s, there was no credit, no electronic money, and no barter.

Since they had been living in the area, they had been focused on building out their community.  As such, they had harvested resources like trees, clay, iron, etc., and converted those into lumber, bricks and nails to build their structures.  They had planted and harvested crops, hunted and raised animals for food and generally eked out a basic existence. While they had been able to make many things, they had had to purchase as many more through Lord Calvert’s Maryland Company to vendors back in England. Items like dishes, glasses and tankards, patent medicines, fine tools, cloth, clothing, and many others had to be ordered and shipped from other countries to the Maryland colonists.

Since they had been completely consumed with building the infrastructure they need for basic survival, they had yet to develop any industry.  They had , as yet, had no excess production of any kind and as such they had been sending their money to England to pay for their goods and, had not sold anything to England to bring these dollars back to the colony. Pretty soon, the colony had spent almost the entirety of their $10,000 Maryland dollars in England and there were only a few hundred Maryland dollars left collectively among all the colonists.

The leaders in St. Mary’s called a meeting of the town to discuss what to do about the pending disaster.  In the meeting a member of the town council, Mr. John Connally—a pig farmer and great speaker, suggested they use their last $300.00 to buy a printing press.  Then they could print more dollars and they would be able to pay for more goods in England and avoid the pending crisis. Since, Mr Connally’s words were so well spoken and the solutions seemed so simple almost all immediately agreed. All, that is, except Mr. Burns—a clerk, who said that he was concerned that this would not work.  As he began to explain his concern, the Governor, Mr. Nixon, interrupted him, told him they would proceed with the purchase since the majority had agreed, and that Mr. Burns would now report directly to Mr. Connally with any of his concerns.  Mr. Connally would not longer be a pig-farmer, he  would now be in charge of all the money.

The printing press was ordered from the Gutenberg company in Germany, it arrived in time and all seemed to be working perfectly.  Mr. Connally, no longer a pig farmer was now the chairman of the central bank and was printing money as fast as it was needed.  The new money was going to England to buy goods and everything looks just hunky dory. By about the third purchase of goods in England, with about $2,000 in new money printed and sent to England to pay for the purchases, the settlers were informed that the prices of the goods were going up by 25%.  No matter, said Mr. Connally, I will print us some more money and again all will be right with the world. A few months later, another $2,000 is put in circulation, more goods are purchased and the price once again increased by 25%.  Again, Mr. Connally printed $2,000 more, they bought even more goods and the prices went up another 25%.

Every time, they got to the point that only $300.00 was remaining, Mr. Connally printed another $2000. All the people were happy!  They had been able to buy bigger windows, more and better china, flat screen TVs, new sound systems, GPS for their fishing boats and buggies.  They were starting to really feel like they had finally arrived.  With all the building and purchasing they still had not gotten around to producing much to sell back to England.  In fact, they now wanted to get some indentured servants to do the manual labor because working in the fields, on the water, in the brick yards, and the forests, was hard dirty work and the constant tracking of dirt and grime into their new larger and much finer homes was making their new furniture, and clothing dirty, uncomfortable, and it wore out much faster. The women-folk were getting tired of keeping up these bigger homes and their nice clothing really did not lend it self to domestic work.  They wanted more time to get together with the other women-folk to discuss new ways to improve their lives even further. It became fait a’ compli that now that they had money, they could simply get some immigrant workers to do all the hard and dirty work.  Getting these indentured servants from other countries, who will be glad just to get out of their slums, would free the colonists and their wives to focus on this productivity thing, that they needed to do, and they wouldn’t have their fine homes and goods soiled and and their wives wouldn’t get so worn out. Evey one was much happier!

Sometime in early 1639, Lord Calvert was informed that his company had in their safe $26,700 Maryland Dollars.  Lord Calvert was now very concerned because he had no idea where the extra money came from.  His deal with the crown was that Maryland could have $10,000 and the King would back that against 10,000 ounces of gold.  That meant that each Maryland Dollar was worth one ounce of gold.  The King only provided the 10,000 ounces of gold, no more and no less. Calvert was responsible for any other costs.  As the Marylander’s demand for goods increased, the vendors in England charged more so he was getting less and spending more dollars, this was a big problem because the difference was coming out of his pocket.  His accounts were in effect making up the short fall and he was losing big money.  Let’s take a look at his calculations;

Lord Calvert’s Accounting

Date Maryland $ Kings Gold in oz. Exchange Rate in oz. of Gold Demand Price Inflation Lord Calvert’s Loss in Gold oz.
1632  $  10,000.00    10,000.00 1.00 0  0.00
1634  $  10,000.00    10,000.00 1.00 0  0.00
1636  $  12,000.00    10,000.00 0.83 25%     5,000.00
1640  $  17,600.00    10,000.00 0.57 95%   12,000.00
1642  $  26,700.00    10,000.00 0.37 209%   23,375.00

So Lord Calvert books the first ship he can find to come visit the good citizens of Maryland and find out what the hell is going on.  When he gets there he finds out about the press, the the leaders decisions.  He is told by the citizens about how great everything is going.  He sees that they have bigger houses, servants, Flat Screens, GPS systems, he is told how all this is helping production.  He sees the new servants toiling away and while he initially was pissed, he starts to see that it may all work out.  Feeling comfortable, he books passage back to England, and tells his partners and the King don’t worry these guys got it all together.  This is going to be just great!  You should see all the fine stuff they have, all the people working in the fields and factories.  They are going to do just great.  We will have so much new stuff to sell back here in England, we will all be rich!

Then the goods start to arrive from Maryland; tobacco, corn, pork bellies, cotton, iron, and many more.  Initially, the people of England purchase everything they can get because it is all new and hey, it is from Maryland and everybody knows those guys got it goin’ on! But then it all starts to unravel.  First with tobacco.  New plantations in other places, like Virginia, start to grow more of it.  And their quality is just as good and the cost is much cheaper because they are not paying the laborers as much. Soon no one wants to buy Maryland tobacco. Rapidly the costing problem extends to the other products as well.  Fisheries, Lumber, Grain, Steel, Textiles, Oil, and the other core exports from Maryland stop selling because they are too expensive.  Even the people in Maryland are importing some of the same goods from the other places because they cant afford to buy the stuff they are producing.  And it is all getting paid with the dollars they are freely printing.

The next thing Lord Calvert knows, no one wants Maryland goods nor Maryland dollars. They all want to redeem their Maryland dollars for something that has real value. Now, there are over $934,500 Maryland dollars in circulation around the world and Lord Calvert has to come up with gold, or something just as valuable, to pay everybody back for the now worthless dollars they have. When all is said and done he has to come up with 1,158,124 ounces of gold, plus he has to pay back the King an additional 10,000 ounces of gold plus interest.  Lord Calvert feels perfectly and totally screwed!

He agrees to “lend” the Marylanders the gold to pay for the debt.  Since he is on the hook anyway he has no real choice.  The Marylanders agree to pay taxes to Lord Calvert and to  pay all the money back with interest.  And where does the money come from?

Mr. Connally prints it—of course!

For this fictional Maryland story, as you can imagine, there is no happy ending!

Since in the last 50 years America has purchased $12 trillion more in goods than we have sold, you need to ask yourself one more question.

“Where did all the reported large profits in recent years actually come from?”

To quote the famous song,

There was a farmer had a dog, And Bingo was his name-o.

Robbing Peter to pay Paul becomes robbing Peter and Paul to pay Peter and Paul

Rob Peter pay Paul

Does the practice of robbing Peter (taxing the top tier) to pay Paul (subsidizing the poor) have a theoretical limit?  If so where is the tipping point?  Like the luxury liner, Costa Concordia, are we already seeing the signs of capsize? Are our captain and crew already in the lifeboats, “coordinating” the rescue of the passengers?

I am starting to think that while the governmental practice of robbing Peter to pay Paul, has worked for quite a while, in the past few years we have reached some tipping point that has moved the paradigm into a new dynamic.  While I accept that the motivations for the practice are grounded in human decency and the desire to provide for the helpless and the downtrodden, at some point it has become part of our collective existence and not a real safety-net for the helpless.

It seems to me that at a point, perhaps when the Pauls become more than one-half of the population that the efficacy and sustainability of the process fall apart.  In fact, I would argue the tipping point is, at least mathematically, less than 50% because the system consumes resources to pay for the process itself.  Even if it is highly efficient, the cost to pay for the bureaucracy to provide the robbing and paying is at least 5%.  The basic grade-school  math says that one-half (50%) minus the 5% cost would yield the ability to only pay for 45% of the Pauls.  Today, the Peters are already paying a significant amount to about 48% of the Pauls.  Roughly, 48% of the people in America are getting almost half of their income from some form of federal subsidy, directly or indirectly.

The second observation is that we are no longer subsidizing just the poor in America.  In fact our continually expanding set of ideals is drastically changing.  In the 1930s it became obvious to many that something needed to be done to help the poor in America and the government took action.  In the 1950s the government took more actions, and in the 1960’s President Johnson declared the War on Poverty and took even more actions.  We have been waging this War on Poverty for many years and have spent huge amounts of money–it seems that no effective gains on helping the poor have been realized.  They are still poor and we are simply increasingly subsidizing the poverty.

The disturbing trend is that it was the rich and the middle-class Peters that felt it was their duty to help pay the poor Pauls.  But now the dialog has shifted.  The president wants to add the middle-class to the list of paid Pauls.  In fact, the middle-class started to become Pauls when the government began providing program eligibility at the 200% 300% and 400% of poverty level.

It appears to me that at some point, robbing Peter to pay Paul becomes robbing Peter and Paul to pay Peter and Paul.  I would submit we are either at this point or damn close to it already.  Not only are we now shifting our classification of who needs help in America to include the middle-class, but we already have numerous programs that indirectly are subsidizing even the highest echelons of the Peters because we provide incentives (subsidies) for many industries and business segments where we are not competitive on the world stage and we are proposing to add more subsidies. So almost all Americans, if not all Americans, are getting some or much of their ‘revenue’ from the federal government.  If you look at the unqualified increase in the amount of currency since 1974 it can be said that almost all of our money has come from nothing other that taking something from all of us in terms of devaluation of the currency and giving back a disproportionate share to selective groups–not all of them the poor.

Have we arrived at the point where we are just robbing ourselves to pay ourselves?  If so when do we really address this problem?  I think we clearly are at at least at the doorstep of this dilemma, and more likely our toes have already crossed the threshold.

The State of Whose Union?

The President Reads the State of the Union Address

I have tried to resist responding to the State of the Union Address last night.  I really have tried!  But, you guessed it, I can’t.  I was so astounded by much of the rhetoric that passed through the President’s lips as unassailable facts I still can’t believe much of it.

As I am want to do, let’s review some real facts for a few minutes….

The President said the State of the Union was getting stronger

Well this really depends on what you choose as your measures and of course how hard you decide to spin them.  Here are some key statistics that were not highlighted in the speech.

Some of the pundits, immediately after the president’s speech, were very quick to remind everyone that President Obama inherited this bad situation.  That’s true, and so have every president since President Lyndon Johnson. in 1964.  The fact that they all have inherited it is not the relevant fact.  It is the fact that every one of them neither fixed it, nor improved it one iota.  In fact here is another little fact.  Everyone of them in some way or another actually contributed to making the situation worse-Republican and Democrat.  All they did was find ways to patch it, give more to those they thought deserved it (meaning would give votes to get it),  printed more money to pay for it, and hoped it didn’t all come apart before they got their golden parachute.  Well it has come apart now, hasn’t it.

“Fairness for all, Responsibility from all”
– President Obama 1/24/2012

Part of the problem I have with last night’s speech is the President stating he is going to make sure there is “fairness” for all.  It is not his wanting for people to have a fair shot that bothers me.  Everyone I know, if asked, would say they want fairness.  But fairness like many other things in life is a frangible and perspective driven concept.  It means different things to different people, and sometimes different things to the same people on different days depending on where they are and whether they are the beneficiary of the supposed fair treatment or not.

I just do not think anyone can give another fairness.  Often, the act of a group, or government, attempting to make something fair takes the form of redistribution or reallocation of something from one group or individual to another.  Look at the controversy surrounding Affirmative Action in Education and the implementation of quotas to make it fair. I am not challenging whether this was a good idea or not,  I am pointing out that in creating a quota to make it “fair” for one person or group, you simply are redirecting the opportunity from another person to this person.  If the person your took it from had nothing to do with the disparity in the first place then they now are being placed in disparity. Even in California, one of the strongholds of humanistic belief and liberal thought, some of our most liberal politicians have recently stated that we all need to get used to disparity.  That after 40 years of public life she now understands disparity must exist ; no mater the cost it cant be eliminated. It seldom works to try to make something fair by treating others unfairly—ask any six year old!

Frankly, if you look at other countries and other systems of government, America is just about as fair as anything could be given human nature in the first place.  I mean really, you think most of Africa is fair?  How about China?  Russia? Saudi Arabia?  Most other places are decidedly less fair than America.  So when people say we have some very deeply built-in unfairness, they usually are speaking in narrow terms.

Historically, if you look at our specific history in a vacuum, we’ve had periods where specific classes, specific races, and specific genders were treated unfairly.  This is very true and not something to be proud of in our newest age of enlightenment.  But once again, the facts are, that while we had these uncomfortable periods of our history, contemporaneously America was still head and shoulders above the rest of the world at the time.  We can always strive to do better , to be better people, to be better to each other, but no government can impose fairness nor can it replace the personal responsibility and character we should all instill in ourselves and our families.

Responsibilities from all

He used the term, “Responsibilities from all”.  The phraseology struck me oddly.  While I suppose it is grammatically correct to say that responsibility comes from somewhere or someone, I am not comfortable with this statement.  After thinking about it this morning, I realize this is because I believe responsibility should be innate in each of us.  That responsibility does not come “from” anywhere.  I feel that responsibility is part of our character and while it may flow from us it does not flow to us.  To try to illustrate this point, let me say that part of my responsibility, as I see it, is to help others.  In fact if I do help others I am being responsible.  I also feel that if I throw a baseball and it bounces and breaks your window, I should be responsible to fix the window. Fault in actions are in some way offset (not excused) by the exercise of responsibility for the fault by, or within, the individual.

I do not feel, however, that if you robbed a liquor store that it becomes my responsibility to pay for it. I assume most feel the same way.  But, I also feel that I am not responsible for any of the third party circumstances that you may have encountered in your life that led you to rob the liquor store.  I worry that the president believes that we are responsible for what others choose to do.  That somehow it is our responsibility to make sure they do not do something harmful or at least find themselves in circumstances that lead them to do something wrong.

In my life,  I have listened to many people justify their bad actions based on some set of circumstances that led them to do what they did.  I have heard things like; I was abused by my parents, my mother was an alcoholic, my tire blew out and because of my crack addiction I did not have enough money to get a cab so I could not get to work. Often, somewhere in each of these excuses became an attempt to transfer the responsibility to me or others because we somehow allowed the parental abuse, the mothers alcoholism, or the existence of crack cocaine– all of which if eliminated from this persons past would have somehow supposedly stopped the bad action in the first place so therefore–ipso facto– it is my fault, or your fault,  they did whatever they did.

I think these are some of the fundamental differences that divide us today.  I think the concept is attractive to take the position that everything that affects me is someone else’s fault or greed. Words like compassion and fair-share sound so good against the backdrop of greed, oppression, poverty and sacrifice.  But frankly, this is not what the fundamental issues we face are about.  It is now about our viability–national and economic.  We have destroyed our economy, and our viability, because we have systematically, over the past 100 years, made decisions for self gratification and personal appeasement of abstract goals that have affected our production, our cost effectiveness and our competitiveness in this new one-world economy.

We used to be the world leader in fisheries, agriculture, clothing, steel, oil, coal, automobiles, aircraft, raw production, basic manufacturing and many others.  But we have made decisions that have altered our ability to be in these industries at all or to be competitive in them.  Child labor laws killed the textile industry in New England, increasing labor costs and environmental laws killed coal, steel, oil and fisheries. Increasing labor costs, over production and now subsidies have effectively killed agriculture.  And overall for the rest the increasing costs in general, including labor costs, taxes, mandated benefits and shrinking labor pool (skilled and unskilled) have killed much of the rest.  Along the way, we have become a nation or middlemen, service providers, who purchase most of what we consume from other countries than we make ourselves.  Each year we bleed cash from our treasury to other nations workers.  Since 1972 this has exceeded $12 trillion.  That 12 trillion dollars more spent in buying stuff from other countries than we have sold to other countries.  This is one huge reason, but by no means the only reason, that we are circling the drain the way we are.

We have abandoned many industries because we felt there was just cause to do so.  Again, I am not saying any of these decisions were good or bad.  You need to make that call for yourself.  But, we have willingly walked away from most of the industries that led us to our short lived prosperity.  As we have embraced the “one-world economy,” we have killed our own production, rapidly and drastically increased our costs, and decided that we no longer can try to influence who goes to college (destined for middle management) and who works in the fields, the factories, and the plants.  In order to feel good, everyone has to go to college.  When we need labor, we relay with a wink, wink — nod-nod on immigration.  Since legal immigration is expensive and takes a long time we have a large illegal immigration problem–and we sit and wonder why!

As we have been indiscriminately printing money since 1974 we have lived in a fantasy land.  It is a wonderful place to be, don’t you see:

  • Everyone goes to college
  • Everyone can own a house
  • Everyone gets a car
  • Everything is fair
  • Everyone is a millionaire
  • Everyone has everything they want
  • No one needs to worry about getting sick
  • No one needs to save – in fact we need to borrow and spend more
  • Someone else will build it
  • Someone else will maintain it and clean it
  • Someone else will pay for it

In this fantasy land, the government will see to it that all the above just happens.  We don’t need to worry or pretty little heads just pay the taxes it will all be fair.

Shrinking Middle Class

The president has brought this up over and over recently.  Our president is a master at using language to infer that the middle class is suffering because of individual greed, because of Wall Street, because of corporations, because of millionaires and billionaires…. The truth of this is that the middle class are suffering because they have lost the value of what they earn disproportionately to everyone else–poor and rich. They are not poor enough to get in on the gravy train that is now the myriad government subsidies that over one-half of the population receive, nor are they rich enough to use investments to hedge the loss of value by playing the inflated earnings game that has been the finance,  investment, and real estate (FIRE) economy game for the past 40 years.  They have been screwed!  One reason the number of the middle class in the population is declining is we are raising the level of eligibility of programs for the poor. And along with that the cost of the additional program subsidies is coming from the middle-class and the rich in the form of taxes and higher costs, the rich just don;t feel it as much because they can invest enough of their money to offset the loss of value. Like the subsidies for industries and the poor, some portion of the new money ends up as liquidity in the stock market because the banks put it there! Can you say Quantitative Easing?

What was not mentioned by the president is equally telling

The Affordable Protection Act, his singularly biggest achievement — if you count it that way, was only mentioned in passing.  His own administration has had to admit that there are many things in the legislation that are either unfordable like CLASS, unworkable like the Medicare M.D. fix and the plan to have the IRS as the reporting agency, or potentially unconstitutional like the insurance mandate.

Medicaid, Medicare, and Social Security, like many other things are items that this president inherited.  Unlike most they are the biggest, and most insidious, causes of the loss of value to the middle-class and the destruction of our economy.  Once again, I am not making a value judgement on these programs or whether or not they should exist.  They simply have become what many feared at the time of their creation, much larger drains on our economy then was planned for.  Also, since most of the money that was created since 1974 has been needed to pay for these entitlements, along with the accumulating trade deficit, they are collectively the main reason that the money came into being and as such the main reason that the real value of the middle class has declined so drastically.

In the end, you have to ask yourself why the president spent so my time decrying the state of our economy, our industry and our people but then offered as a solution a panacea, of no pain, more money, more taxes, more subsidies, more for the poor, more from the rich, more subsidies for non-profitable industries no plan for increasing domestic primary production, and nothing about solutions for the real problems we face?  Well I guess it really is about re-elections not solutions.

In Closing

While the president may have appeared to be the brunt of my ire in this piece, it really is extended to all members of the full-time-professional-political class.  DNC or GOP the rhetoric and practice of opponent vilification and liberal application of what amounts to noting but wall paper paste needs to stop. Real solutions need to be proposed and vetted in this election process.  As a Mugwump, if a candidate does not start to tell me how they are going to fix the real issue and elucidate exactly what the pain points will be for everyone, then I am not voting for them regardless of the party.

If there ends up being no one; then I may not vote for anyone.  If that happens then it probably won’t matter because it will be too late.

The Middle Class Myth: Let’s try this again

The Old -- New Middle-class

I have written a couple articles trying to explain the problem with the economy for the middle-class in America. If you listen to the current rhetoric, now apparently from both sides of the isle, you would come to believe that it is the fault of either the political right working to give the rich an unfair proportion of all the money, or it is the fault of the political left in America for running up the debt and increasing significantly the expenses of government.

Of course there are many other flavors of the arguments but, they all center on how someone else is causing the plight of the middle-class and only our side is looking out for you.  Oh yea, one more point…. they do it on purpose because they don’t like you and they want to hurt you, or they just don’t care about you! Have you heard this drivel recently?  Do you really believe that any leader in America is only looking out for one class of people?  If you believe this, I have to say. I feel sorry for both you, and America, as we have lost all reason, understanding, and any opportunity for compromise through tolerance.

I want to tell you that unequivocally I believe, all the crap you are hearing is simply not true!

Why is the Middle Class Suffering Then?

This is the key question isn’t it?  And, since we agree this is the “key” question being raised by both parties now, ad naseum, have you happened to notice the issue is not focused as much on the poor?  Hum???  Wonder why this is?

Being Poor in America

Well the poor in America have many programs already doing a great job of redistributing income back to them to help them survive. Before, you guys start to say that it is really bad to be poor — I agree it is not a good thing to be poor.  But if you are going to be poor, it is better to be poor in America at this time, than any other place, or time, in history.

The U.S. “givernment” and all our states have many, many, programs to help people classified as poor.  The definition of poor used to be people earning below the federal poverty level (FPL) which today is roughly less than $25,000 per year.  But, this is mostly a myth.  Many programs, if not all programs — I can’t verify that any programs work only at the federal poverty level — start their eligibility levels as 200 to 300 percent of FPL.  While you may not be legally designated as poor from the FPL definition, practically you are treated as poor if you earn $50,000 or in some cases $75,000 per year.  And due to the fact that these programs are not mandated to coordinate their care and benefits across any and all sources, somewhere between 20 and 40 percent of the money for services is paid to program participants more than once for the same need.  Meaning, in plain English, they double dip.  In some cases, this is nothing more than gaming the system — purposeful fraud.  In other cases, it is because they just don’t realize it — hard to believe, but true non-the-less.

Drug Rebates

A hidden redistribution program!

Few people know, and even fewer people understand, that the government, both state and federal, requires drug manufacturers to pay back to the government rebates on all drugs purchased through most state and federal programs. This is just one example of subversive hidden taxes that we get hit with every day. How can a rebate cost us money you ask? Well in this case it is because the price you are paying is where the rebate dollars come from in the first place. So what happens with drug pricing is this: There are various prices for any given drug, unlike most other industries which have Manufacturer Suggested Retail Prices (MSRPs), all the various drug prices are based on an arbitrary number like Average Wholesale Price (AWP) or Wholesale Acquisition Cost(WAC).
On top of this, there are rebates – rebates for distributors, rebates for pharmacies, rebates for others, and most importantly rebates to the state or federal government. It is the governmental mandated rebates that are the main problem. In other industries rebates paid in the retail path to the customer are checked by the MSRP and the customer’s willingness to buy. Government rebates simply inflate the price paid. And where does this money go? It goes back to the government, sometimes to the programs, and is reallocated to support the government costs or the programs that generate the fee in the first place. So you are paying more in prices that flow back to the government so it can distribute the money back to the people it wants to give it to. It is simply one of the many hidden taxes, perhaps more hidden than most. It also helps the government have flexibility in the disclosure of the real cost of the programs they offer.
These rebates are inflationary, they obscure transparency, and they are not, by any means, the only mechanisms that redirect your hard earned money to others that you just do not know about.

I have documented this in earlier posts, but as a reminder; we are now at a point that almost 50 percent of the population is getting almost one-half of their income from some form of federal subsidy — directly, or indirectly.  This is one half of the important facts we all need to consider as we try to move the country forward.

Being Rich in America

How about the other half? While it makes for great copy to vilify the rich as somehow taking the food out of the mouths of the poor in America it is just not true.  Sure, there have been people who have gained illegally and profited on the suffering of others.  But these despicable people do not represent the norm for rich in America.  The title Rich itself is a very frangible determinant.  If you are truly poor, meaning you earn at the FPL, then someone earning $75,000 per year could seem rich. But, this person you see as rich is often now just as eligible as you are for federal subsidies.  So are they rich?

Many try to classify the rich as millionaires and billionaires.  But this is a very problematic determination in itself.  There is a 1,000 fold difference between a millionaire and a billionaire. Further many millionaires do not earn a million dollars a year in income.  This represents what they have in equity, home, savings, investments etc.  Another problem with the designation is that, Millionaires and Billionaires make up a very small percentage of the population and our economy.  Less than 5% of the population.  They earn about 18% of the total income in the U.S.  Sure, this is a large number but, it is not as disproportionally large as many would have thought.  And, the “rich” pay over 40 percent of the taxes to the government.  Much of which goes to support the programs for the other 50 percent receiving some subsidy.

Romney’s 15% Tax Rate Shows they don’t pay their fair share!

As a very quick point, as I have been working on this article, the Mitt Romney 15% tax fiasco has come to the surface.  Once again the argument is false and stupid from both sides.  The 15 percent rate is not all the tax paid on these earnings.  For the most part, the 15 percent represents the tax paid on the earnings from the money he has invested. Where did he get the money?  Well some he likely earned as ordinary income and paid taxes on it at the time of earning of between 22 and 38 percent.  Some, he may have earned before as investment income and could have paid between the 15 percent and 22 percent based on when he earned it.  Lets say he inherited some of it.  Well he would have paid a significantly larger tax on that at the time he received it based on the estate tax (so called death tax) in effect at the time.

Because he chose to invest, or re-invest, these monies, he has paid taxes multiple times on the money.  If you want to be jealous of the fact that Mitt Romney has a lot of money, OK, I support your right to be jealous.  But, if that is your objection then the rest of your arguments are worthless.  This is America, what makes it great is anyone has the ability to get rich.  Yep, some will say this ability is not distributed equally.  That’s true! But, if you make it truly equal, then no one will have the opportunity to get rich!  As I  pointed out in the earlier section; rich vs poor is a relative state.  You see, if all are truly equal, then everyone has exactly the same — no rich and no poor.  Some argue this would be a good thing because they feel that everyone would have enough.  History challenges this assertion and it defies human nature. It is the opportunity for disparity, like it or not, that makes people work harder and innovation really happen.

So back to the question; why are the middle-class suffering disproportionately?

Two main points.  First, the middle-class is shrinking in number.  If you need to be poor to get subsidies from the government then part of the historic middle-class is being subsumed by the subsidies for the poor.  You could say that they are becoming poor because they are earning less and can afford less and that they need the programs to survive.  That is one way to look at it but, it is the symptom not the cause. In fact, the middle-class, like most of the rest of America, have seen their incomes grow drastically in dollars over the past 40 years. Second, The middle-class do not have the excess equity, cash or assets, to hedge their loss of buying power.

The middle-class are suffering a huge disproportionate loss of buying power in America because they are disproportionately shouldering the burden of the loss of value of the dollar —  you can call it inflation or deflation, the point is the same.  If you live in the middle-class, you are not eligible for subsidies and you do not have the excess assets, like the rich, to hedge your buying power against the loss of value in the dollar by investment, savings interest, and purchase of long term tangible assets.  As a result over the past 40 years, while you have been getting raises, like everyone else, and seeming to live a bit better like many, for you it has been a bigger falsehood than for most others.

In 1974, there was a total of $500 billion of currency (money) in circulation when President Nixon took us off the gold standard.  Today, by various estimates, there is over $16 trillion.  The real value of the combined worth of the U.S. has simply not increased 32 times in 40 years.  It is even harder to believe there was really any increase when you understand that during the same period we have accumulated a combined trade deficit — purchased more from other countries than we produced and sold — of over $12 trillion.

So, this means that all the things we own, all the money we made, all the stuff we buy, the wages, the prices, the stock market, etc,  have been inflated to levels that simply are not real.  If you are poor, the government has compensated for this by giving you more subsidies in one form or another.  If you were rich, you have been able to keep some form of pace with this devaluation problem because you could invest in housing, or businesses or the stock market.  And, if you were rich, the loss of buying power may have affected your discretionary purchases but  often not your day to day ability to live and pay your bills.

The middle-class, as I laid out before, do not have the assets to offset the increases in the amount of currency without an increase in real value of what they own, and they did not get subsidies either.  So the issues of taxes comes to the front now.  The rich have been paying much more in real taxes — revenue to the government —  during this whole period.

The middle-class have heard over and over how they were getting a tax cut!  How come you say the middle-class are bearing the burden? Well, the truth is, that there are Taxes and there are taxes….  Taxes are those things assessed by the government that we pay to support government programs directly through taxation.  “taxes” are those things we pay that indirectly are increasing the price of goods and services, increasing the prices in the economy to artificially inflate the amount or money we can claim is in circulation.  So you get paid more in wages, your company charges more for its goods and services and the economy appears to rise in value.  You get more benefits, you get more vacation days, etc, and each of these things translates in some way to an increase in prices or spending and therefore the economy supposedly was growing.  All that is necessary is for the government to be able to print more of that green-stuff to allow you to count it.

But, there is a fly in the ointment.  It is a zero sum game.  We are not making money as a country we are spending money as a country. So, as you thought that you had more money to buy new cars, new homes, take vacations, get more stuff, and the government has encouraged to do this– and on top of it borrow as much as you can to buy as much as you can — these new dollars were actually reducing in value.  The good news is that we are not alone.  Most of Europe has been doing the same thing in one form or another.  If you were a net exporter, like China, it was not a problem. If you convert natural resources to high margin goods like much of the Arabian peninsula — no problem either.   If not? Oh Well– bad for you!

As long as we were buying, most recently houses, and having the prices continue to go up, we could print more money, and no one was the wiser.  But, due to increasingly dumb decisions we finally made the mistake of over doing it and it all fell apart. The values we think we have are far different from the real values that we have.  Looking at median home prices from 1974 to today, with and without the gold standard, is is clear that we are still 20 to 30 percent too high in real values of homes.  If you look at the economy it is much worse.  We have $16 trillion in currency circulating in what is really a $5 trillion, maybe $6 trillion, economy.

Conclusion

The middle-class is, and has been getting hosed for a long time.  Those in the middle-class have suffered from not enough to be rich and protected, and too much to be poor and subsidized.  Further, as prices have risen, they have paid more with less real value and as such have indirectly, and disproportionately, paid for the programs for the poor.

And who is to blame for this?  All of us!  We have been asleep at the switch for too long.  We have allowed all of our administrations, and elected officials to do dumb things — things that defied our own common sense.  We allowed it because we all felt we were gaining. In the end, and once again, we will learn there is no free lunch!

Republicans, Democrats, Socialists, and Independents have all been elected to our government in the past 40 years and all have continued to perpetuate these myths and underlying problems.  Were they doing this consciously?  No more than any of the rest of us! It is not a Tax Problem alone, it is not a spending problem alone, it is a systemic problem.

We need to stop diversion to prurient, ad hominum, vilification of others ideas, and focus on a pragmatic solution founded in tolerance more than compromise.  In the end, we must all face the reality that, it will only be a broad based mutual solution that will solve the problems underlying the economic disaster we are now in.

  • We need to become competitive in the world from a total costs, benefits, and wages perspective
  • We need to get back to manufacturing in the U.S. products for the U.S. and others to consume
  • We need to stop subsidizing the existence of such a large portion of our population based solely on the desire to keep them thinking they are doing so much better and that  the products we make are competitive and  affordable.  (subsidizing production to make it affordable so we can pay inflated prices to support inflated costs and wages so we all feel good is not a good thing.)
  • We need to eliminate government redirection of monies to support hidden redistribution schemes.  (Example: mandated Drug rebate programs see sidebar)
  • We need to solve the problem with home equity, home mortgages and home prices in one holistic and complete fashion balancing the problem equally for all parts of society and the economy
  • We need to get back to primary production from our own natural resources.
  • We need to reduce what we purchase from other countries and buy more here —  but this cannot be subsidized to make it affordable or our economy remains false.

I believe it is fixable!  It is going to take a fundamental shift in what we all expect and, to some extent, how we view ourselves as Americans.  We needed to start this five years ago.  It may not be too late now, but it very likely will be in another four or five years.

Since the power of our government is derived from the people in this constitutional republic we call America: It is up to us!

Delusional Ravings of a Lunatic Mind receives good reviews!

Praise for the Delusional Ravings of a Lunatic Mind

“Outstanding reasoning. I was surprised to find out you weren’t a lawyer in the middle of the text. It is chock full of interesting insights and observations.”
–Kyle Becker, Author and Publisher of Rogue Government Blog

“Wow, You have too much common sense!.”
–James P. Finn, Author and Publisher of Thought Continue reading

David Brook’s Take on the Progressive Era is Right On

Teddy Roosevelt(R) the Progressive Candidate

David Brooks wrote a great article comparing today’s America with that of the progressive era called, “Midlife Crisis Economics“.  In it, Mr. Brooks provides a very cogent analysis of the fallacy in comparing initiatives from the progressive era with those of today.  He notes that the current administration, long enamored with comparisons to the New Deal era, has now realized that this period comparison has led to many false paths and much political baggage and is now promulgating  comparison to the Progressive Era.  Mr. Brooks very capably points out why these analogies are also in error.  I will not rewrite Mr. Brooks article as I encourage you to click the title above and read his more than capable work. However, I would like to discuss this seemingly current trend in a much broader context. While the current administration may have taken the historical analogy as justification for current actions to a new and perhaps much more dangerous level; this is more likely the culmination of a long term trend in seeking justification for a continually failing set of policies.  While it is very easy to bash democrats for this at this point in time because they are the party of the current occupant of the White House, this is in no way just a one party problem.  Both sides of our professional political class have tried to capture the glory days of their bygone eras as rhetoric to stir the masses to their cause in this current period. The main problem, as Mr. Brooks points out so well in his article, is the times have changed and along with the times; the character of our country, underlying economy, and issues that we are solving for have also changed.  Further, the entirety of our government has morphed into that of a professional political class.

I don’t know about you but I am sick to death of the phrase, “the greatest financial crisis since the great depression!”

At the height of the progressive era, a republican, Teddy Roosevelt, was the spur in the rump of the American Horse.  The ideals of progressive-ism were targeting specific sets of problems and solutions using a specific and timely set of tools and actions. If you look forward to the period of “the Great Depression” you find the same thing. The methods that were chosen to try to solve the problems under F. D. Roosevelt’s reign were also specific and timely.  One of the biggest laughs I get out of discussions about the current economic or health care crisis is when modernists begin to espouse what F.D.R.’s position would be.  Since I have spent quite a bit of time on the issues of healthcare I will point to one example. Over the past couple of years, as the debate for “universal healthcare” centered on a national governmental healthcare system, so called “single-payer” system, one pundit after another, and in some cases supposedly well respected congressmen and women, have said this is what F.D.R wanted.  Well that is just so much–what was it the ‘Stormin’ Norman Schwarzkopf called it?  Oh Yeah, Bovine Scatology!  Franklin D. Roosevelt was fully and distinctly anti socialist and anti communist.  While he proposed many programs that historically we now see in some kind of socialist light, in almost every case what he was advocating for and what we have now are not comparable.  Some of the recognizable  stalwarts, like Social Security, he advocated for but as  temporary solutions. In the area of healthcare, the distinctions are even more stark.  Roosevelt was not solving for the problems we have today.  In fact, it is likely that from his historical perspective he would marvel at how well our current system has improved over the problems he faced in the provision of healthcare to the country.  During this period, the big problems were access to care, and the quality of the care being provided.  While cities could economically support hospitals and therefore provided good places for doctors to congregate, conduct research and solve the needs of the populace, rural areas could not. The profession of physician and doctor had merged into one, hospitals had become vitally necessary for most of them to practice comprehensive quality care and they were expensive to build and maintain. During Teddy Roosevelt’s era physicians could finally charge for services rendered at hospitals. Rural hospitals were few and far between and the few that did exist were often staffed with the substandard physicians who could not get hired in the cities or in other more egregious cases–outright charlatans.    Compounding the problem was that cash and money payment in rural communities was still not a wide spread practice. Both as a result of custom, and the depression, cash was not a favored form of transaction in rural communities. Many people simply did not have cash or ready access to it. Many still bartered for goods and services.  It was nearly impossible to construct a hospital, fund its expenses, and attract good physicians to an economy where cash played an often secondary role. F.D.R. was solving for access to quality healthcare in rural communities. He failed to get his proposed solutions through congress in his second New Deal legislation before his death.  It was Harry Trueman who finally got the Hill Burton Act passed that stimulated the construction of rural hospitals and helped increase the quality and availability of care in these under-served areas.  It is very easy to say, as Michael Jackson did in his song, “They Don’t Really Care About Us” ‘that if Roosevelt was livin’ he wouldn’t let this be, No No No….’ But it is probably just not true.  In the song, Jackson is referring to racism, but even in this area, historians point out that Roosevelt was not quite the staunch humanist we now perceive him to be; and in fact contemporaneously was repeatedly accused of being racist. In the end, it is never a good idea to believe that historical figures would immediately support any of the solutions we propose today. Often, they would marvel at what we have achieved and find ridiculous some of the ideas our politicians now choose to rail about. From racism to healthcare, from the economy to poverty, historical figures would probably strongly suggest we appreciate a bit more of what we have.  They would be lost in a world where political correctness gets parsed to which words are used to reference a problem.  They would be horrified at the areas we are allocating so much of our money–spending huge amounts to support politically correct causes while allowing many other real problems to get under-funded or unfunded. None of these historical progressives believed in debt, nor in the deference to those who lack personal responsibility.  While our historical figures were long on helping the downtrodden and the helpless, they had no patience for the avaricious nor the clueless.

“Don’t pee on my leg and tell me its raining!”

We should look to history to review the things that were tried and whether or not they succeeded. But the blanket application of those historical fixes and the dishonest misrepresentation of the issues and the solutions from then to today are dangerous and duplicitous.  We need more than this kind of behavior from all of our politicians today.  Perhaps, we need to get rid of the professional political class we know have and go back to the very same type of citizen politician who they now wish us to say they emulate. We need leaders that can propose solutions!  We need leaders that have learned the lessons from history and can apply those lessons to the problems we face today and help us come to the hard realizations we need to make in order to pull ourselves back to a viable path.  We need those who can both tell us the truth and apply the learning not just rehash the historical solution because as both Mr. Brooks and Bob Dylan said,

“The times they are a changin”

What we all need to focus our attention on is eliminating (please pardon the crude analogy–but I think it applies) any political party or professional politician, who simply “pees on our leg and tell us its raining!”

Time for something new: How about WE?

This article could also be titled…. “If the Occupy movement wants an argument that will resonate, and work — this is an idea!”

America has had a kind heart

America historically has had a kind heart.  In the past, when friends and neighbors were in need we have risen as one to help each other.  We are a nation that was founded on the belief that with tolerance for opposing ideas, and being united in a common cause, we could rise from the oppression of our rulers in a foreign land and take control of our own destiny.Thomas Paine was enlisted to help unite the people in this view and he coined the phrase, “an island cannot rule a nation!”. While at the time of the American Revolution there was not 100% unity in the desire for separation—or even universal agreement that separation from England was a good and economically viable idea. In the end, our founding fathers strung together enough of an argument that if we remained true to the ideals established in our Declaration of Independence and if we crafted the proper covenants of governance as later codified in our Constitution of the United States and if we practiced tolerance for each others separate and distinct; needs, wants, desires, and religious beliefs we could not only survive but perhaps thrive; and in so doing become a model for a new method of common governance—a constitutional republic—a very separate and distinct system from a historical democracy.

As a nation, in effect we made a promise to ourselves to believe in our own future, to be vigilant in the preparation of our government for the succeeding generations, and to develop within the constraints of our new found republic rules and regulations to promote various individual freedoms — earned based on our own personal and collective responsibilities. In the era of the citizen politician, this system has worked remarkably well. However, as we are by our nature, human, and as such subject to our own failings, we have made mistakes.  These mistakes, often in the form of ill-conceived and poorly framed decisions to solve the pressing problems of the various historic periods, have often changed our understandings, altered our perspective or removed the need to maintain our own personal responsibility for our life and our own decisions.

In the 1930’s we began a series of what at the time appeared innocuous decisions that fundamentally altered who we are and how we think of ourselves and Americans. It is my belief, that in each case the decisions were made for valid reasons. But in the nature of the deliberations at the time, we were faced with the age old dilemma: the conflict between practical pragmatism and ideological morality.  As we began once again to find some prosperity, we have more and more consistently chosen the moral side of the equation. And who can really argue with such choices?

The rise of the full time professional political class

In the days of the citizen politician, when congressional and executive service to the country was part time, and in the end those that served gained little and gave much, decisions tended to become more tempered with pragmatism because the laws passed more directly and immediately affected our legislators just as they did the rest of the citizenry.  As we moved through the 1930’s and 1940’s short term decisions to extend the period of congressional duty to more of a full time period set us on a path to the development of a full time legislative role and later to the establishment of the professional politician.  As this role changed, not only did we end up with full time politicians, we ended up with what now is a legislature full of professional politicians—a Full Time Professional Political Class.  A new level of American who’s class gives them exemption from many laws but more importantly that by gaining election into this elite class become, by and large, exempt from the pressures of life that affect the rest of the “normal” people. The prize of elected office is now exemption.

As I have discussed in earlier articles, the currency of this class is votes and the goods exchanged are now our own hard won assets, taken by the professional political class to equalize the injustices, both real and perceived of those not of the professional political class.  Whether the flow is from the wealthy few to the “huddled masses” or from the masses back to the wealth few to stimulate programs to fund the huddled masses, in this zero sum game we are continuing to lose economically.

For the last seventy or eighty years these decisions have appeared to work, with little or few consequences.  I have discussed a number of these points in prior articles and will not rehash these decisions here.  I expect my readers are capable of doing their own research and forming their own opinions.  What I will remind you of, is that as the underlying dynamic of our political system changed and this new class rose, often those short term legislative solution, affected to solve the immediate problems of any given period, became permanent sales pitches to sell these often short term programs as now permanent gains for the huddled masses in exchange for votes.

The Political Class is broken

Unfortunately though, today the professional political class, like the people they are supposed to serve, are stuck! Our political system is stalled! As a result, WE are stymied! That’s right, it seems we as a nation are at an impasse, spinning in circles and getting nowhere.  Yes, it seems we are trying to pry open a door that just won’t open.

The evidence of this, of course, shows in the inability of Congress to come to resolution in order to solve things like universal health care crisis, the financial crisis, the economic crisis, the immigration crisis, the jobs crisis, the energy crisis, the stock market crisis—the list can go on and on…. Any solution is long overdue.

Though it can often appear that the powers-that-be in Washington are making an attempt to provide such solutions, the historical record of real fixes and real reform is just not there. That’s right, if WE read and listen to the daily news, WE realize that what Washington has on the table ultimately will not, and cannot, work.

Washington has had many opportunities for the past 80 years to design and pass legislation that would fix our problem, they just can’t get the job done.  They can’t because we are asking them to fix something that is simply not in their purview to fix.  WE seem to keep asking them to fix the problems created by our own lack of personal responsibility and accountability.  We want the government to make it so that no matter what we do they must take care of us—make it all better.

I asked you a couple of paragraphs ago, “Who can really argue with such choices?”.  From a moralistic standpoint who really wants to argue against providing care for all who need it?  Or, who wants to argue in support of not helping people about to become homeless?  No one, in either the huddled masses (both the 99% and the 1%) class or the professional political class (all the rest) wants to make these arguments!  Despite the truth that no one is out to harm a fellow human being, isn’t it nice that we constantly beat this drum about how so-and-so wants to harm the other guy? In our hearts we know this is true but we allow these surrogates of others to beat this drum until some of us start to believe it. Who was it that said, “If you tell a lie big enough and keep repeating it, people will eventually come to believe it!”? Oh yea, it was attributed to Joseph Goebbels, although it is more likely a misquote of Adolf Hitler’s big lie passage in Mein Kampf.  One of the big issues today is that our Professional Political Class will not, in fact they can not, make such an argument.  The checks and balances that govern their existence prohibit them from making this argument. Their livelihoods are predicated on them NOT making such arguments. We have built a political system where they get compensated, quite handsomely, for promising to give us stuff for nothing-in effect lying to us.

Two minds but one heart

While I believe we all truly have one caring heart. I would submit, with no real evidence, that we as a species are of two sociological, perhaps genetic, minds on this issue.  About one half of the species sides on the moral and the other half sides on the pragmatic.  One side sees the argument as moral and cannot fathom any decision that would go along with sustaining the emotional pain of watching a neighbor fail.  The other side sees the problem as a survival issue, economic or otherwise.

Today, no one disputes there are millions in need in America, and more so in the world as a whole.  Seeing our governments inability to solve America’s problems is downright frustrating when you consider we are a nation that can mobilize in an instant to help people all over the world—like in Haiti or Sri Lanka—or how about the help we’ve given to various villages and communities in Bosnia, Bangladesh—or the impoverished countries in Africa. If we can do that then why can’t we take care of our own? Why can’t we help those who need, and most certainly deserve, to be treated with consideration and priority when it comes to physical and mental health and well being? While we should try to help the world, I for one would like to concentrate first on our own neighbors; as their suffering has a much more direct bearing on our own needs, wants and responsibilities.  I also subscribe to the belief that if I give someone in need $1.00 they get $1.00.  If I give it to the government the needy net about $0.35.  These are not my numbers but the governments in various forms.

We need an Answer

We need an answer. But to get one, we need momentum. And, to create momentum, I believe that if each one of us did a part—if we mobilize, all of us, pushed in our own individual way—we might very well force the door to solutions open, even if we do so only a little at a time.

I guess you could say that my philosophy toward solving the healthcare issue, and most of the other issues we face as a nation, can best be summed up in the words of that ever-popular Michael Jackson hit, Man in the Mirror, in which he and his co-writers Siedah Garrett and Glen Ballard, stated, “…I’m starting with the man in the mirror, I’m asking him to change his ways/no message could have been any clearer/ if you want to make the world a better place/take a look at yourself/and then make a change…”  In other words, it starts with each of us taking responsibility for both ourselves and our neighbors and a closer look at what every one of us can do to effect change.

While I was at Ramsell, I started a non-profit called the WE Movement.  In creating the WE Movement I believed that we could all do something, each of us to help Washington get the job done. While I was working on healthcare reform in Washington I learned a few things  about how our professional political class try to make sausage.  Having grown up in St. Mary’s County, Maryland, I know a thing or two about making sausage and Washington DC knows nothing about making sausage.  I would submit to you that we would be much better of in the long run if we went back to the days of part time citizen politicians, many of whom could be real sausage makers and we would find that our government would be much improved. If not improved, at least our daily diet of bad news would taste a bit better!

Let’s talk about health care for a minute.

We have learned that we in the United States are a generous people—all of us, whether we are Republican, Democrat, Independent—conservative or progressive. We also have learned that the majority of us wish that all people could and should have access to the health care they need.

Sadly, we have also learned that the scope of healthcare we want everyone to have is simply unattainable—the economic cost for it well beyond what we can provide—or more importantly—what we are willing to allocate to pay for it.  It is not an issue of taking money here to pay for it there.  It is an economic issues in that the more we pay for care to workers the less competitive we become in the world stage.

I have come to be of the mind that there are two very important universal truths that have emerged from this recent health care bill proposal:

  1. We can’t afford what we want (and need) and,
  2. the prevailing atmosphere of “Us” vs. “Them” has been a recurring theme and extremely corrosive to the ideals we have set.

For example, the goal of Universal Healthcare was to include:

  • Affordable coverage for 100% of all Americans
  • A mandated minimum standard of care
  • Access to all, regardless of illness, state of disease or pre-existing condition
  • Reduction of the overall cost of care to all Americans
  • The elimination of “care disparity”
  • And assurance of coverage for the underserved

All good ideas; lofty goals, yes, but A) we can’t afford this “vision” package because the implementation and subsidy costs alone total $1.55 trillion, and only 155 million people are getting paychecks out of the 338 million Americans who need them, and B) under the suggested guidelines, the cost of care for individuals will rise between $1000 a year to $3000 a year.

Next, it seems we’re faced with an “Us” versus “them” mentality: For example, coverage for 96% of Americans is requested (although 94% were already covered before the proposed legislation). The actual goal was to provide coverage for the uninsured or under-insured. And, the 2% additionally insured breaks out like this:

  • O.8 percent are between 18 and 29 years old
  • 0.4 percent are elderly—those that previously were not enrolled in Medicare
  • The dilemma is where this leaves the uninsured and under-insured

The problem is that the minimum mandates for care were watered down; changes were made geared to garner support from AMA, AARP, Unions, and others such as the Medicare Advantage program which was effectively curtailed to get AARP support. Also, the cost to the nation will rise significantly; the curve does not bend down under full utilization, however. And, also the ideal to eliminate disparity has resulted in restrictions of options for “them” that can afford it, not an increase in options for the “us” that cannot.  In other words, it’s as though this bill has pitted two groups against one another rather than providing a plan that works for the good of the whole. The end result: we’re getting nowhere. As I said, we are stuck, stalled, stymied…the situation has created a sense of inertia precluding us from moving forward in any direction.

Here are some other statistics that need to be understood and made known:

  • Medicare and Medicaid account for 1.3 trillion in health care spending this year
  • Total health care spending in 2010 exceeded $2.8 trillion. Interestingly, some studies have shown that as much as 39% is lost to waste, defined as “duplication of services” and “unnecessary services.”  Other studies tell us that as much as 20% is lost to fraud and abuse.
  • Ultimately, estimates suggest that over $800-billion per year is lost due to waste, fraud, errors and inefficiencies.

So, you may be asking: What can we do about it?

I believe that a simple form of coordination of care and benefits across all available sources will save at least 10% of the total cost of healthcare, and by eliminating duplication of services we can provide increased capacity within the existing networks.  Yes, it is possible, and what a way to begin to open that door!  And it is not simply in healthcare where these benefits can be attained.  It will work in virtually any area where those that have a re providing benefits to those that need.

It is staggering as we try to comprehend that $800-billion dollars in waste exists in the healthcare system across the United States today. What do you think is happening in other segments of government run programs?

Can you imagine what we could do with that amount of money if it were available for health care purposes—if we put this money to better use? And it’s not just the money that we can put to better use; it is the resources as well.  If we eliminate duplicate visits and other services we will free up resources to treat the others who wait in lines.

This is just one way to begin to solve the problem—better appropriation of resources and the spending of funds that are currently available. I believe there are a number of other ways to begin to solve the health care plan dilemma and we must because, just like you, most of us are out of patience with those who wish to make the health care issue, and all the others, a political playground. I think we can all agree that we are fed up as we stand by and wait for a resolution to a problem that is really quite solvable.

WE need to eliminate the “them” versus “us” mentality. We need a platform for those who wish to help each other—to be able to quickly and easily find those in need.  We need a method to filter the truly helpless from the clueless; or worse from the charlatans who simply want to get everything for nothing. Washington can play a key role, an appropriate role, in helping to develop such a system.  A virtual place for people to post what they are willing to provide so they can be matched with those in need. This becomes a “them” and “us” –that culminates in a “WE” solution.

I believe there are many others just like us who are willing to participate, and help each other in the collective crises we face if we can be assured that the needy are appropriately vetted.  Lets face it our government has a horrible track record in this regard.  Their own data shows that Medicaid and Medicare provide only about 35 cents on every dollar to care and we know that there is between a 15 and 20% rate of fraud in the system. Regardless of the percentage due to inefficiency this is at least a 50% improvement just in duplication and reduction of systemic fraud which we know from history the government just can’t do. We need a public private partnership to provide the core system.  Fortunately there are many choices.  Social networking is not far from being able to provide an effective infrastructure. Companies like LinkedIn and Facebook, already have flexible platforms.  MySpace not only has the platform but could rebuild their suffering brand by providing such a valuable option.  Of course there is also Google +, offerings from Microsoft, and many others.  It need not be just one provider.  Why not something in each and every infrastructure?

Webster defines “them” as “a group of people other than the speaker or people addressed.”

Webster also defines “us” in a similar fashion: “another person or other people.”

Presently, the mood in Washington is one of pitting “us” against “them.”
But the word, and collective consciousness we must all adopt in order to find resolution to the health care crisis, is “WE.”

Webster defines “we” as “you and I and others;”

It is all inclusive and that’s exactly how we must all be thinking in order to solve this health care  problem—with a “WE” mind-set. And, we need to tell Washington that this is where we stand as a nation.

For lack of a better analogy: If the Occupy Movement wants to find a message perhaps they need to become more about the WE and less about the 99% vs. the 1%. The truth is that this is not where the problem lies. It was basic grass-roots campaigns that grew rapidly in the 60’s when thousands took to the streets to put pressure on those in Washington who could not agree on how and when to end the Vietnam “war.” But this outcry spanned the classes and with a small exception did not pit one economic segment against the other as a way to curry favor in the majority. Clearly it has been shown that voices who cry out in unison with a unified, consistent, effective message  combined with an obtainable goal shared in every city, township and state can be very effective.  The speakers need also to be in every industry, economic strata, and profession—every company and corporation—and they need to gather and be heard. They cannot be disruptive nor divisive.

Our constitutional republic was set up so that our leaders would make the proper and just decisions for the good of the country as a whole.  The framers know that if we were only a “democracy” that in the end the system would fail.  That the mass of people would in the end vote more for laws that provide to their own benefit regardless of the overall bad effect to the nation.  The point of the constitutional republic was to set up our representatives so that they would be able to make the best decisions with little consequence and the bad decision would provide no gain.  In the past 80 years we have gone a long way to destroying that subtlety.  Historically, the concepts of fairness and equality for all did not equate to unequal burden nor benefit for anyone.  Today the entire concept of fairness and equality is conditionalized first on who has what.

WE need to take these messages to Washington.  We need to make it clear to our elected leaders what we think the effective role truly is for government.  To do that, we need to agree ourselves.  Abraham Lincoln said, “a house divided against itself cannot stand”.   Does anyone today doubt that we are a divided nation?  Even within our political parties we are divided.  I submit that it is no longer our politics that divide us; it is a much more simple philosophic divide.  We seem to be a nation of thirds.  One third morally driven (termed liberal), one third pragmatically driven (termed conservative), and one third combining the best (or worst—depending on your point of view) of both. Lincoln would likely be horrified.

When addressing the most fundamental rights—those of life, liberty and the pursuit of happiness, the authors of The Declaration of Independence started that document with the words “WE the people….” They went on to write: “…to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed—That whenever any Form of Government becomes destructive to these ends, it is the Right of the People to alter or to abolish it…” I am not advocating its abolition.  I am advocating we recoup our original national character.

I think we need to invite all of us— the collective WE—those young and old; well and ill; others within the healthcare and other business communities—to speak out—and to help the government find a way to solve these problems.

No one should be asking for money to do this. Existing infrastructures should be encouraged to build the support tools in their existing systems. Others should be determining what they can provide to tie into these support tools.  The government should be encouraging us all to do this, to adopt this philosophy and to establish some standards and guidelines to facilitate the private sector to participate right along with our part time citizen politicians in constructing a viable solution that works. To date, we have people saying, “We are fed up.” We are in need of a healthcare, financial help, economic recovery, jobs etc. initiative that works for the good of the ‘governed’. And, “We are tired of the bickering in Washington.”

Occupy, or any other organizations, should all hope to collect a groundswell of support—one that makes a powerful collective statement and an impact on Washington, one that will cause those in charge to listen to alternatives as to how to approach and conquer these dilemmas and also as a means to utilize such virtual matching and help systems free of charge to serve others who are less fortunate.

In the words of Stevie Wonder, those who decided to unite as WE should be determined to “… keep on tryin’/till WE reach the highest ground.”

What do you think?” Do you know anyone who has something to offer? Do you know someone in need of something?  Wouldn’t it be great if we could have a place to go match one with the other? Some place were the helpless can be identified, and the clueless and the fraudulent can be identified and filtered out.   I am not proposing the Government take the role of the determinant of who and who is not eligible.  I am proposing the government take the role of encouraging, promoting and defining the standards, that then allow private industry to combine their systems to help and put such determinations in the hands of the people offering the help.  I don’t mean we should get rid of our safety nets; but we should change the cost structures to a more efficient system and get the government at least partially out of picking winners and losers.  The  collective WE can identify the helpless, and work in virtual teams-virtual villages, to help each and everyone in need.  Virtually coordinating our efforts around the one person in need–placing them in the center of the world that is teaming up to help them.  This is the solution.  This virtual teaming approach will reduce, and perhaps in many cases, eliminate the waste due to duplication of efforts and could go a long way to identifying and reducing fraud and abuse.

In the end my message is–this is all up to WE.  We can continue to delude ourselves that the government can provide this effectively and efficiently but 80 years of history says otherwise.  So is it us–as in the US government as our collective surrogate,  or WE–as in all of us as individuals, that is best suited to do this?

That decision is yours regardless, the only difference is whether or not we all accept the individual responsibility– the duty–to do it or we push it off to the collective others.

Latest Book: Delusional Ravings of A Lunatic Mind by Tom Loker

new book by Tom Loker

As I wait for the eventual completion of my book on health care, currently in rewrite, I have put together a book of my best articles from this past year on this blog. The book is now available as an e-pub on Kindle and Amazon and others in the growing list below. (check back here as the list grows) The paperback version will be available in the next few weeks so stay tuned. I will put up the various links as they become available.

We put this book together for those of you how like the blog and Tom’s articles to share with your friends and relatives. And if you don’t like Tom’s writings we would like to point out this book will also make a great gift for those people you don’t like as well! Inside the pages you will find articles about healthcare, history, politics, the economy and a few creative pieces centered on St. Mary’s County Maryland, where Tom grew up. We do hope you enjoy the the stories!

e-Book Links:

Amazon – Kindle http://www.amazon.com/dp/B006G2Q9OC

Barns & Noble – Nook http://tinyurl.com/7cg9mew

Powell’s Books http://tinyurl.com/83ven8p

Diesel Bookstore http://tinyurl.com/74agmps

eBookMall http://tinyurl.com/7jbhl9s

Printed Book Links

Just released to print… Dec 15, 2011

NOW available at Amazon B&N and other booksellers.