Archive for April 2010

The Snake’s Spots

April 30, 2010

The American public has an amazingly low opinion of Congress. Many reasons are giving ranging from they get nothing done to they do too much. What is most worrisome, however, is the low regard for Congressional members’ personal integrity. The public views that all these members are for sale and their words cannot be trusted. Time for a change?

On May 18, Pennsylvania voters will get a chance to choose between 5 term, 80 year old Arlen Specter and two term Representative, 57 year old Joe Sestak. Specter has had a storied career, mostly as a Republican, and Sestak has had a distinguished Naval career (graduated second in his class at the Naval Academy) rising to the rank of a 3 star Admiral. Both face the possibility of running in the general election against a conservative, friend of big business republican who polls say may beat either of them.

What a time to campaign over issues that will impact Pennsylvanians as means of separating ones candidacy from the intrenched and disliked politicians. No brainer, right?

Unfortunately no. Specter has used two separate TV spots to go negative. The first impugned Sestak’s military career and the second deals with the relatively low pay of Sestak’s campaign staff. What has these claims have to do with (1) how effective Specter might be, if elected, in the next 6 years? (2) How would these claims inform about how Sestak might be, if elected, during the next 6 years?

Specter’s intent is clear. Focus the light away from him and the limited potential he can be effective in the next 6 years.

Voters do not like negative adds, especially when they are not related to any legislative issue. I wonder whether voters will recognize the evil ways of Karl Rove and Lee Atwater behind this style of negative campaigning?

The Big Questions

April 29, 2010

There are a lot of voices saying things like Obamacare is going to wreck the economy, or that the taxes are too high, the deficit is too large, and we have to cut spending. These voice, however, do not offer any idea how to accomplish this, or what the consequences might be.

Healthcare impacts the budget in too ways. First, employer provided health care (which most Americans have) is not taxed. As a result, the employer pays less tax on his profits and the employee pays less income tax. Second, the government has recently extended financial support so that most Americans can purchase coverage and join those already covered under Medicare and Medicaid. This is now a larger tax payer covered expense.

So the first set of big questions is if we are going to reduce government costs, should all Americans lose their tax break? Should some Americans also lose any type of government health care financial support? (This would include Medicare, Medicaid, and the recently enacted provisions to help those denied coverage for a pre-existing condition find coverage.) How should we decide who should lose?

With respect to the overall budget, if you simply exclude the entitlements (social security and Medicare/Medicaid) and the payroll taxes that go with them, the rest of the 2010 budget is unbalanced by almost $1 trillion.

Surprise, surprise, a similar picture unfolds with the non-healthcare portions. There must be more tax revenue or there must be substantial cuts in government spending, or both.

The defense budget, by itself, is more than $ 900 billion, and is 10 times larger than the next largest defense budget (Russia) and in total equals all other countries combined. Why? What does a budget this size provide?

The second batch of big questions goes like this. Why does the US need to be financing two major wars? If maintaining a large defense capability is necessary to ensure American businesses are able to compete globally, why do large globally operating businesses (and doing business in the US) not pay more taxes? Why can not the government find a much lower costing combination of State Department and Defense Department funding that provides significant reductions to the overall budget? Why cannot the marginal tax rates return to those that were in place during the Clinton years? And finally, with 47% of American taxpayers not paying any tax (because they earn too little), why does the implementation of value added tax (national sales tax) not make sense?

The heated rhetoric we hear every day now from the Tea Baggers and other conservative groups are truly a disservice unless they begin to add an explanation on who and how.

Progressive Delusions

April 28, 2010

Progressivism is a difficult term to pin down. Some call it a fancy name for being liberal. Others call it the code word for socialism. And the Tea Party, conservatives, and most republicans say it is about tax and spend. But in truth, it is about America and what America has stood for over the years.

When the founding fathers wrote the Declaration of Independence and the Constitution, these documents were like no others in their time. These were progressive documents (relative to those found elsewhere) that recognize the rights of man. Over the 200 plus years of our Country’s existence, our laws (and out Constitution) has evolved to reflect the needs of citizens as the world also changed. With the exception of the Civil War, where regional differences split the Country and war resulted, the US has gradually evolved in a progressive direction when choice was presented. (Today, no one would say that slavery should have been allowed to continue, so the side that favored abolition was in fact progressive).

With the notion of “right is on our side”, progressive are ready to push hard and further to see the US adopt more progressive ideas. Health care reform is a recent example where some progressive measures were enacted but others remained unheeded. Congressional Democrats tell us that the reform passed was the best that could be agreed to by Congress. The additional unheeded progressive ideas will have to wait for another time.

Democrats and progressives need to take notice of the resistance that is building rapidly to their legislative agenda. The opposition speaks generally in irrational terms and often speaks of totally different issues when opposing progressive ideas. We hear about “government is too big” or “this is a states right issue” or some hysteria about “communism, socialism, or fascism”. Rationally, progressive proposals are none of these, of course, but never the less, opponents are mad as hell.

There are two issues, I believe, underlying this dialogue. First, the Country as a whole is not creating wealth as it once did and it is not distributing the wealth it does create in ways people have been lead to believe the American dream is supposed to deliver. Other than the very rich, incomes are stagnated and costs are increasing all around. People are feeling squeezed.

The second issue relates to existing government costs (including the debt) and the taxes we pay. Most people have no complete picture of what taxes are collected and where these taxes go. The suggestion that taxes must increase simply can not be understood.

Progressives must recognize that they cannot implement any further (and needed) reforms until citizens are comfortable that the amount of taxes they pay is fair for the services they receive. That demands that the Country fully explains its expenditures and its taxes. These explanations should cascade down to States, Counties, and local jurisdictions. This will be a massive study and by its shear complexity call loudly for a drastic reform of the tax code. Progressive should (but probably won’t) take the lead on tax reform. In doing so, they will take a giant step towards putting America on a fiscally sounder footing and demonstrate to the population that progressives can lead in a responsible manner.

Tea Party Delusions

April 27, 2010

Tea Party members are said to be mostly educated, older, and relatively speaking well off Americans. They rail against taxes and government over reach. Their enemy is the Federal Government, their friend is the Constitution. Most adherents are pleasant and reasonable citizens on most all matters outside of politics. Why this huge change?

Last evening I was in the company of a couple I have known for over 40 years. They are descendants of Ukrainian immigrants who settled in Canada. Following their Canadian education, they relocated to the US and have lived here since. The husband had a successful career as a research chemists and his wife held a variety of jobs including running her own restaurant business. They are now ardent Tea Party believers. Why?

You get all the usual arguments. The debt is too large. Obama is a communists. (Why?) He has taken over banks and private industry. States rights are gone. The Constitution has been forgotten. The health care reform bill violates the Constitution. And, on and on.

If you try and discuss one of the issues like health care, the discussion descends. The debts too large, we have to balance the budget. Taxes are too high, we have to cut spending. Medicare and Medicaid, which are part of the US health care spend, are way underfunded already so how can you cut them? No answer,

In my opinion, at the heart of the Tea Party movement are citizens who see themselves on fixed income (even though compared to the average American they are well off). These Tea Party-ers feel the pinch of rising costs impinging on the good life they felt the American dream had promised.

The irony of the Tea Party is that it is all about them. If they were to somehow get relief from the tax burdens they decry, so many other people would immediately be adversely impacted.

The Tea Party is not about the Constitution, it is about “me”.

Already Discounted

April 26, 2010

Headlines in todays papers cry that the “signs” all point to the end of the recession. You might ask, especially if you are unemployed or a public service employee awaiting a pending layoff due to budget shortfalls, what “signs”?

One sign is the stock market which is now above 11,000 and looks like it still has a lot of momentum. The sages say the stock market is always priced at what the near future will bring, they say it has already discounted the recovery and its high price reflects that.  If the market keeps rising, sages predict a stronger economy and more jobs.

More traditional economists point to factory inventory levels and orders placed upon these factories. These indicators, too, are positive because inventories are low and orders are beginning to mount up. Businessmen do not want to lose orders and will react by running their factories more. In short they will hire workers and buy more from others who in turn must hire more workers.

Memories are short. Most workers remember the last boom driven by the housing industry. New homes coupled with the real estate boom combined to both employ a lot of Americans and to create the allure of increased wealth through property appreciation. The lesson that should have been learned is that there are only so many houses that Americans can afford so building more does no one a favor. Another lesson is your house or property is worth only what someone else will pay for it. I wonder whether the market has discounted these realities too?

Balance holds the keys to the future. Our economy needs some value creating engines that will produce earnings and enable workers to buy other goods and services. We can’t all work at Starbucks, and we also cannot all build houses.

Alternative energy projects offer one of the greatest areas of new jobs and new wealth creation. From sequestering carbon dioxide from the burning of coal to the conversion of wind and solar energy into electricity to power our cars, heat our homes, and light our paths, these type of projects can be game changers.

General manufacturing (anything from underwear to toys to furniture to garden equipment) should also be a candidate for new jobs. These jobs probably won’t look like the ones that once existed here before exiting to China and other southeast Asian locations. They will need to have a higher “tech” component that in turn will allow manufacture at quality and productivity levels that can support good pay and competitive prices.

Both of these sources of new jobs will not be overnight happenings. They both require time and patience. They both will require a steady hand to guide the necessary investments with a promise of an adequate return. They both can support an American manufacturing rebirth.

I wonder whether the market has discounted these too?

The Race to Second Class

April 25, 2010

There is much to admire about Europe.  Europeans enjoy public transportation that takes them almost everywhere for a reasonable amount. They have the best health care in the world (maybe Japan is better than some) and all residents are included. They live in clean and safe cities. They all remember their country’s proud pasts and try to forget the tyrannies and destructive wars that once raged.

Most of Europeans have made a choice about how they want to live their lives today, and everything else must fit into that mold. While these countries are tolerant of most visitors, they are picky about who gets to reside long term. Whether this is cause and effect or not, the growth rate of European economies has generally lagged the US for years.

Many American pundits gleefully point out how the American way and our form of democracy is so superior to any other country.  They pronounce that it is the basis for America’s wealth, power, and success.

This may not be the case. While the pluralism of America has undoubtedly played an important role, other factors like geographic separation, richness in raw materials, and a kind climate also have played an important role. But is that all?

What about education? What about the honor of work? What about the goal of property ownership for utility (or productivity) and not as an investment? What about public service as a duty and not a possibility for personal gain?

Our leaders once spoke of what could be (from hard work), and of a chance for all (mostly all, African Americans were not in this equation). Our leaders did not do the work for Americans but somehow they inspired Americans to do the work and reap the benefits later.

Today we seem to be in a race to become a second class nation. Our leaders are in it for what is good for them (their supporters and their friends) personally. Americans now believe what they see on television or the movie screen as reality and some how miss the message of hard work being involved. Universities graduate rather than teach. Students pay and then hang out rather than struggle to learn. Job seekers flit from one job to another if it will pay more, rather than work their way up. And when things go wrong, the blame spews forth so that it is clear “it’s not my fault”.

Is the Tea Party the answer? Will Republicans reform and assume prudent leadership? Is there any hope that Democrats can find the handle on fiscal responsible progressivism? I do not know but I do know all these groups are currently leading us to second class.

Comprehensive Immigration Reform

April 24, 2010

Comprehensive Immigration Reform is about undocumented Mexicans who reside in the US. Of course the language of the bill will be broader, but current laws and practices are generally good enough to control all other immigrant groups. Why comprehensive, why now?

If only from a pragmatic viewpoint, Mexicans present a special set of challenges. Mexicans are good, no make that great, workers and they live very close by. In Mexico, most are very poor and even at low US wages, Mexican workers can support a large family at home in Mexico.

Mexico and the US share a long boarder.  Already without illegal immigration, there is huge cross boarder travel. Mexican shops and resorts are attractive to Americans, and the reverse is true for wealthy Mexicans. Add on top of this, the need for seasonal agriculture workers, we can look around and see thousands of documented Mexican workers.

For many, the “comprehensive” word is code for a route to citizenship for the estimate 12 million illegal immigrants who have lived for years in the US. Comprehensive, however, should be considered in a much broader context. It should cover

  • US documents. The US government should establish clear and simple rules to obtain travel and temporary residency permits through out Mexico. In other words there should be no excuse for anyone crossing the boarder without documents.
  • Sealed Boarders. In cooperation with the Mexican government, the US needs to seriously seal the boarder to undocumented crossings.
  • Employer requirements. Since all Mexican workers should have proper papers, US employers should be held accountable for only hiring “temporary” and documented Mexican workers. Failure to do so should result in large fines. In addition, unless the Mexican worker is on a green card path, their temporary residency permit should be for a temporary period, for example 3-12 months. Following this temporary period the Mexican must return to Mexico and remain there for some period (maybe 6 months) before returning to a different job.
  • Green card and legacy citizenship. Economic hardship are not grounds to obtain a green card (permanent residency). Rather the ability to contribute a skill should be the basis. With respect to those Mexicans already in the US and without documentation, a clear and simple pathway should be laid out for these immigrants to register for legacy citizenship. No number limitation (the number of new citizens per year, for example) should be placed upon these legacy immigrants although the process could take a number of years (maybe 5).  During this 5 year period, the pathway to citizenship should involve English lessons, proof of compliance with federal and state tax laws, and possibly general studies of US history.

Opponents are many, and for many different reason. Unions fear their members being displaced at job sites. Some fear the rapid rise in Hispanic voters and simply do not want another 12 million voters added to the roles.   Still others simply harbor ethnic and racial prejudices. One need only look at Europe to see what the free flow of documented labor looks like.

To those, however, who only want a country made of people who look like them, I suggest it is too late.  There is a big problem trying to explain why comprehensive immigration reform is necessary and in the end, good for this group. They fail to see that each new immigrant is another person to pay taxes and to buy goods and services. They fail to see Mexico, itself, represents a 80 million person market for American businesses and the jobs that could go with it. They fail to see that Mexico won’t go away and will remain the US’ next door neighbor no matter what we do.

But most important, they fail to see that doing nothing will not work either. Hispanics are a growing minority within the US already. Projection show that Hispanics will become the largest minority within 5 years and will soon threaten the white majority in 50 years.

It appears this battle will begin again this summer. I wonder how comprehensive the politicians will see this issue?

The New Economy

April 23, 2010

Every so often a forest is reduced to charred stubs of trees. At first this looks sad but soon new growth emerges and in hardly any time, a vibrant new forest takes over. Will that be the case with our economy?

The recession that began in late 2007, early 2008, and blossomed in 2009, has resulted in a lot of jobs being eliminated. Companies have found that they could produce their goods or services more productively with fewer people. Some of that is the result of simply computers and the internet catching up with commerce. In other cases, lower wage workers have replaced longer term (often unionized) workers. All the while, consumers have resisted the urge to purchase or enter into new debt. Now there appears to be cracks in the stalemate.

Some of the mindless media assumes the recovered economy will look just as it looked before and American buying habits will revert to the pre-recession ways. I wonder if that will be the case.

The jobs that have been lost in this recession are gone for ever at the wages or salaries that existed before. Workers will have to settle for less (in pay or benefits, or both). As this unfolds, Americans will wake up to the fact that these newly reemployed workers can not earn enough to meet the American dream. Everything from education to health care to simply spending money on oneself will not be possible. You may be able to buy one thing, but no longer everything.

Pretty bleak but is that how the story ends?

Maybe if the Tea Party and Health Care deniers maintain their senseless positions. Their arguments long for an America that has died slowly in the years since WWII. There remain no new frontiers for American expansion, nor are their anymore garages to put a new automobile in. America as well as the civilized world in general has grown too complex and interconnected that one player can march to its own drum without regard to the others.

There remains untapped productivity and value creation in growing, mining, and making. Ocean farming, solar and wind energy, and manufacturing using renewable materials can provide “good jobs” opportunities. Getting there will undoubtably be a problem with the financial sector taking such a huge piece of corporate profitability and Congress as dysfunctional as it is. If nothing happens, the cry from continued high unemployment will be deafening.

Specter versus Sestak

April 22, 2010

This week Arlen Specter broadened his campaign attack upon Joe Sestak. Senator Specter, who turned 80 on Februrary 12, 2010, shifted his campaign to a “take no prisoners” style. In a TV spot, Specter demeaned the 31 year, 3 star admiral career of Sestak. Why would he go so negative, so early?

One reason may be that Specter, a five term Republican Senator from Pennsylvania, picked up too many bad habits from the likes of Karl Rove and Lee Atwater. Another reason might be that Specter has never shaken off his “attack” style that made his a successful DA, oh so many years ago. Still possibly Specter’s camp is worried about Congressman Sestak’s appeal to independent thinking voters and have become worried.

Five terms or 80 years old seems like a long enough stay. It seems long enough to have made your mark and maybe not so long as to have gotten terribly out of touch with voters. In short, 5 terms or 80 years is a good time to say enough is enough.

Senator Specter has chosen, however, to seek another term. Public opinion polls describe voters as disillusioned with Congress. Negative advertising does the public no service in helping them decide which candidate is more equipped to deal with the challenges facing America. Negative ads are designed, in fact, to take the voters’ eye off the real issues, and distract their attention on misinformation.

Will this early use of mean spirited advertising backfire?

The Worm Turns

April 21, 2010

Republicans Senate leaders Mitch McConnell and Judd Gregg shifted their tone effortlessly yesterday as public feedback indicated general support for some kind of Wall Street reform. In the process, a little more light has been shed upon what is really behind Republican opposition. Would you believe bankers’ money?

The Senate is still evolving their version but the only draft on the table so far contains a tax on institutions that undertake both a commercial operation (like taking our money in savings accounts), and that partake in derivatives. In essence the draft Senate bill is saying, if a bank wishes to take FIDC insured funds and place “bets” using derivatives, then there must be a tax so that the Government can create a fund “just in case” these derivatives go sour. Senator Gregg focused his opposition to the bill by saying the US should not “weaken” the financial institutions and make it harder for Americans to get credit.

In fact nothing could be better for the credit markets than to split Wall Street financial houses again into two separate entities, one commercial and one investment. Prior to the financial meltdown in 2008, most of the capital circulating on Wall Street was not going into the credit markets that involve Main Street. So taxing financial institutions need not adversely impact credit availability although I would not rule out some big banks from trying to send a message by holding back on credit.

A word about credit. We should think about “normal credit” and “too much credit”. In the normal situation, there is sufficient capital available for credit cards, car loans, and mortgages (as well as business loans such as working capital and sound equipment investments), and this credit is at a reasonable, risk related interest rate. Normal market forces will work to spread this capital around and the resulting growth will be normal (say 2-4%).

In a “too much credit” market, as seen in the US from 2000 on, or in Ireland, Spain, Portugal and Greece around the same time, life can be quite good as money flows freely.   Bankers can not find enough sound investments to use all the capital they have received, so they lower their standards.  Remember, banks do not create capital, someone has to first give them the money and that person expects a return. The banks gets their fees by taking the money, loaning it, and then paying interest to the depositor. When a market is flooded with capital, bad investments are made, and defaults are soon to follow.

It is time to stop the charade that banks create value and therefore should earn huge rewards. Banks are terribly important, to be sure, but it is only through their investments in farming, mining, and manufacturing (and directly related service industries) that value is actually created.

It is good to hear the Republicans have changed their tune. That is progress. We should not be worried about Senator Gregg’s latest claim either. Most likely in a few days he will change that too (once Wall Street sees the noose tightening).