Archive for May 2012

What Can Two Parties Do?

May 31, 2012

America has a modern history of two major political parties.  Current Democrats have morphed into the Liberal Party while Republicans have become the Conservatives.  Liberal and Conservative we are told are opposites.  One party drives the Country left and then the other drives it right.  As the Country moves forward, the left-right forces keeps the country bouncing around a balanced path. Therein lies the strength of two parties.

What?

American culture has consistently presented life as opposites and offered heros to champion the good side.  In movies, good cowboys wore white hats, bad ones wore black.  Countries which the US opposed were sinister and evil while those the US supported were brave and peace loving.  Marijuana was the first step to drug dependency, while Valium (and other prescription drugs) was a medicine.

Most of us know better than to accept these sterio-types.  We know that life is more complicated.  So why in this election, where the economy is the number one issue, do we think someone who says he has the experience to fix it (getting the economy growing), why would we believe him?

Wouldn’t people realize that the last time jobs were plentiful was when lots of Americans were employed by financial institutions who could afford these employees because they were charging copious amounts of fees (most of which took advantage of the less knowing) and were lending money to leverage levels the banks could not tolerate in a down turn.

The next largest sector comprised those who built buildings and houses (and all their suppliers).  This is honest work and with overtime certainly represents good jobs.  The problem is that so many houses and buildings have been built, we will not see another housing bubble for some time (and who likes bubbles anyways).

Not to be overlooked is that our Country’s credit limit is dangerously close to “tilt”.  Government spending on new areas that could create jobs is out of the question.  Manufacturers could repatriate some jobs that went overseas but wages would be low and what incentives would be necessary to make business sense?

A snap shot of the world today finds India and Russia struggling, Europe on the verge of recession, and China’s growth rate declining sharply.  Why?

For a number of years, the world has seemed to either want to live on credit or export their way to the good life.  Over recent history, the US has always stepped up in situations like we see now.  The US would act like the economic engine that got other economies going.  It did so by importing goods and services from other countries and paid for these imports by essentially printing more money.

Since the 2008 recession, there have been no strong economies.  Looking around we see that most of Europe is in as bad or worse shape with their national debt as is the US.   So  could the US again become the global economic engine?   To be clear, this is not about the US making products and exporting.  No one is willing or able to buy.  This would be about the US consuming far more imports than we export, and in that way stimulating other economies.

It’s not going to happen.  The US and the world are going to have to learn how to prosper on a different basis.  Each must get its own financial house in order and then find ways to trade efficiently.

Clearly China needs to learn to live on a 2-4% growth rate (down from 10+%), countries like Ireland, Portugal, Spain, Italy, and Greece need to find ways to reduce their unemployment rates from double digits to mid single digits while reducing their debt.  And the US needs to solve its deficit conundrum while gradually finding good jobs for more people.

This idea that the US can continue to act as if it is on an island, that job growth here is dependent only upon domestic policies, and that financial regulations are irrelevant, is false.  The two parties have a wonderful opportunity to propose ways to overcome the current hurdles if they abandon the good guy/bad guy approach.

The “hero” option (my Bain experience informs me) is not one of the ways that will help.   The problem is far more nuanced.

 

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China’s Long Arms

May 30, 2012

China and the Philippines announced recently that they were both committed to not allowing the current disagreement over the Scarborough Shoals to escalate.  These Shoals are about 600 miles from the nearest Chinese province and about 150 miles from the Philippines.  History apparently trumps logic.

The Chinese say their claim to this territory has been firm since the founding of modern China in 1947.  The Philippines point to the normal 200 mile international limits for ones territorial waters for their proof of ownership.

Why should anyone care?

The answer is easy.  Barring any other intervention, China is the biggest kid on the block and will use force to seize the area in question.   This could lead to war.

There are reports of oil, gas and minerals in the waters sometimes called the South

China and the Philippines announced recently that they were both committed to not allowing the current disagreement over the Scarborough Shoals to escalate.  These Shoals are about 600 miles from the nearest Chinese province and about 150 miles from the Philippines.  History apparently trumps logic.

The Chinese say their claim to this territory has been firm since the founding of modern China in 1947.  The Philippines point to the normal 200 mile international limits for ones territorial waters for their proof of ownership.

Why should anyone care?

The answer is easy.  There are reports of oil, gas and minerals in these South China Sea waters.  Both Vietnam and the Philippines contest these claims on the basis that their countries lie much closer.  Neither country is big enough to assert its claim against China.

Is this a slippery slope I see?

President Obama, Defense Secretary Panetta, and Secretary of State Clinton have all spoken out about China’s potential use of force.  While the US claims neutrality, it is following a course aimed at keeping the South East Pacific ocean open for the free flow of ocean vessels.  That could put, however, the US on a collision course with China should one of China’s disagreements with Vietnam or the Philippines turn violent.

For sure there was a time in history that China ruled these waters.  The Chinese have a grand history while these other countries never attained the status of a China.  But these are modern times, and modern Countries must make agreements that respect modern conditions.

China, of course, is consumed with securing energy and minerals to fuel their economy.  It is also consumed with its history and remembers (from books) when China’s word was law.  These are hard emotions to curb.

The US role in these waters so far away from home is unclear.  Our leaders speak of keeping navigable waters open, but what does that mean?  Does it mean the US would fire upon Chinese vessels?

I would imagine the US is playing for time.  The longer “live confrontation” can be avoided, there is hope that a settlement can be worked out.  Showing the American flag will undoubtably be one measure the US will use.  Showing the flag also presents a target.

This international conflict, not unlike Britain and Argentina with the Falkland Islands, seems clear that either self determination or proximity ought to rule the day.  If a disputed area lies in the internationally recognized waters of a Country and the residents do not seek to be independent, than that country ought to have rights to claim the waters if it chooses.

Great Britain and China apparently see it differently.

 

Memorial Day Warriors

May 29, 2012

Both President Obama and likely GOP challenger, Mitt Romney were out making speeches on Memorial Day.  Their targets were veterans.  With modern methods of dissecting opinion polls, political strategists can slice and dice the numbers and determine that veterans prefer Romney over Obama by 10 points.  Who would have thought?

Romney told his audience that he would not cut Defense Spending and called Senator John McCann “a national treasure”.  Romney said the US had a choice to “continue” down the path Europe is following, and cut Defense spending in favor of social programs.  He promised to keep America strong, second to none.  Everyone cheered.

I wondered what Veterans are thinking?

Romney has said he will cut taxes for both citizens and corporations.  It is hard to understand such a statement in view of his pledge to cut the deficit too. Cutting tax rates would seem possible providing deductions and exemptions were cut by an equal and off-setting amount.  But why go through the bother if there is no revenue gain?

Veterans, more than anyone, should be able to assess whether their time in uniform served a greater purpose.  They should be able to assess whether a strong defense was a good idea.  (Please note, no one is calling for a weak defense, just a less expensive one)

Cold War veterans probably can conclude their time was well spent.  Vietnam, Iraq, and Afghanistan vets must in their heart of hearts know their service was either a waste of resources and/or the evidence of faulty government policies.  Trying to hold back the ocean tides is well known as both a thankless and fruitless task.

The aftermath of Vietnam revealed the “fog of war” where confused field reports triggered larger and larger troop deployments.  Both sides traded lives for land, and then land for lives.  In the end, after we had declared victory (the clever side of Richard Nixon), the victorious North Vietnamese went about unifying the country and putting it on a path to growth and stability.  Vietnam is today a tourist destination.

Iraq is even more troubling.  While still engaged in combat in Afghanistan, the Bush Administration trumped up a case against Saddam Hussein and invaded Iraq.  The hastily planned invasion overlooked what the US might do to keep the peace after the fighting stopped.  The insurgency that resulted revealed a naivety of monumental proportions.  How can an Iraqi vet feel good about his service?

Afghanistan is a war of two faces. The first face which involved toppling the Taliban regime and ousting al Qaeda from its training camps was necessary, went well, and was over quickly.  The second and unnecessary face, the nation building-anti insurgent war that followed, has delivered no positive results.

Now wait.  These poor outcomes have nothing to do with the veterans who fought and served in them.  For the most part, they were honest, courageous, and honorable Americans.  Many paid the ultimate price and in Iraq and Afghanistan, many have come home crippled and severely wounded (probably damaged for life).  These men did the job they were asked to do.

They deserve our respect and thanks for their service.  They also deserve our apologies for supporting and electing people who continue to support disproportionately large defense budgets.

If the US is to be courageous, sensible, and wise, it will get its fiscal and monetary house in order.  To do so will call for the US to pursue a course of national shared sacrifice.

Fixing the fiscal ills of the country will require more tax revenues, not less.  It will require trimming back entitlements not eliminating them, and it will require discretionary spending (including defense) to be part of the national belt tightening.

There is an ocean of room to reduce defense spending without the risk of becoming a second rate military power.  There may be less room convincing Congress and political leaders that they could employ other methods to serve our national interests than brute military strength.

Sadly we must remember, that weaning the defense industry members (who so generously contribute to Congressional campaigns) is not a slam on veterans but instead a really heroic deed.

 

Whose New Century?

May 28, 2012

Today is Memorial Day.   Many Americans have stopped to recognize those who have fallen in past wars.  Each of them had been asked to serve in order to make America a better place.  Each did serve but none signed up to die.  It was just an occupational hazard.

Because of these fallen heros, the 20th Century has been called America’s century.  During those 10 decades, America rose from an important but second tier country position to the greatest military, economic, and industrial power in the world.  The life we enjoy today, despite what many politicians claim is the result of the hard work and sacrifices of many who came before us.

As Y2K approached, “geopoliticals” argued the 21st century would belong to the Chinese just as the 19th century had belonged to the Europeans.  China was in the midst of an economic, cultural, national (peaceful) revolution.  The Chinese economy was growing at double digit rates and would continue to grow that fast for over 10 years.  Cities like Shanghai and Beijing would suddenly look like the most modern in the world. Of course, the 21st Century would be the Chinese Century.

In a scant 12 years, however, the question is not as settled as originally thought.

China managed its transformation through “State Capitalism” and “low cost labor”.  With a planned economy salted with plenty of opportunity for private wealth accumulation, China has managed to move more than half of its 1.3 billion citizens to living standards above the poverty level.  The engine for this amazing accomplishment has been China’s ability to manufacture what ever the world wants cheaper than any other country.

Now there are signs that this transformation is hitting some rough spots.

The Chinese growth rate of 10+% per year is unsustainable.  There are not enough markets in the world for the Chinese to take over that can sustain that rate of growth.  Within China the remaining peasant labor is too dispersed to continue to easily supply new hands for making things cheaply.  Even more of a problem is the current “low cost” labor pool wants better working conditions and more pay.  These are not fertile conditions to sustain a “low cost” labor work force.

With China easing its currency controls, and the cost of labor rising, the Chinese growth rate must slow.  Slower growth rates given China’s vast size and current economic position does not suggest China will be hard pressed to maintain its current position and not likely overtake the US as an economic power anytime soon.

So whose century will it be if not the Chinese?

Forget about Russia and India.  Each has enormous problems providing basic services to its people today, not to mention the endemic graft and corruption that linger from the past.  How about Europe?

The European Union has been advertised as a threat to America’s economic dominance.  A single currency and about 380 million consumers should be able to rival the US.  But look around.  What’s going on in Europe today?

European countries want their cake and eat it too.  They like a single currency but most countries want to use their own fiscal policies to satisfy strictly national political ends.  There is no sense of being “European” and doing whats best for the “union”.  A number of EU countries (including France) have simply borrowed to maintain a grand way of living.  Greece, Italy, Spain, Portugal, and Ireland enjoyed growth and prosperity for years under the Euro, all the while not spending wisely.  Now when it is time to repay these loans there is not enough euros generated in their local economies to pay the bond holders.  And no one wants to sacrifice.

What a surprise.  No one wants to sacrifice because they know the “other person” is not sacrificing or are undeserving of their current government benefit.  This European disease sounds a lot like the one that has gripped the US too.

So back to the US.  Will the 21st century belong to America?

All I can say is that it might, or it might not.  It is simply too early to tell.

The US economy and infrastructure are sufficiently larger than Europe’s or China’s that without sustained decline in the US or super human growth in the others, the US should continue to dominate.  Even more important, there are lessons at our door step which culturally we should be able to absorb.  (No one likes to be told what’s best, but in truth we all need reminders.)

The 21st century winner will be the country/region that returns to steady modest growth (3-4%), pays its way, and learns to live within a budget that provides a safety net while still investing in productive measures.

The winner might be just the country/region that doesn’t lose.

 

The Less Secret Service

May 25, 2012

One can tell instantly whether anything is really happening in Washington by what issues are being discussed in Committee.  Important matters are normally discussed behind doors and even if open to the public, no one is making press statements.  Not so with the incident surrounding President Obama’s recent trip to Columbia.

For Congress which is hopeless throttled because it an election year and because there is two large an ideological divide, finds rich rewards in investigating whether the Secret Service members who rendezvoused with local prostitutes did so for the first time or not.  Legislation that would move America forward is not on their radar screens.  Sex is.  I wonder why?

The issue is not whether the Congressional questioners are far off the mark.  Rather it is “so what”.  So what if grown men choose to spend their money on women?  Prostitution did not attain its reputation as the “oldest profession” for nothing.

On top, the Congressional motivation is all over the map.   Just linking President Obama’s Administration to something the public doesn’t understand but may think wrong, is worthwhile.

For others, it is simply face time with TV and news media.   Exposure may be helpful in the fall’s elections.  And, I am sure there are a few who really do wonder how the US could have, on a critical mission, dispatch such a large group of party animals who had so little class as to welch on paying a working women.

The incident does suggest that these Secret Service elements who are charged with the “pre-Presidential visit” preparations may not have enough to do.  It is not a big leap to conclude that if there is time to party, maybe there is time to scrimp on doing the real work (sort of like a long weekend).

Secret Service Director Mark Sullivan has escaped, so far, the call for his resignation.  I wonder whether that is because he is viewed as an effective Director or whether he holds “secrets” about Congress members and their nights on the town?

Why No One Is About To Get Serious About Healthcare

May 23, 2012

We are hearing a lot of noise about the “size of government” and about the “mounting debt under President Obama.  We hear too a lot about “getting Government out of Americans’ way”.  We also know the government’s annual budget is about $3 trillion and its yearly deficit is about $1 trillion.  So I guess the size of government must be the cause.

Really?

What we are not hearing discussed is the largest single contributor to the debt and the deficit is the extra money the government spends upon Medicare and Medicaid compared to what it collects in wage deductions.  In the 2013 proposed budget, Medicare and Medicaid will contribute about $500 billion to the deficit.  This amount flows from laws passed long ago combining with the demographics of more people living longer.  This situation is not the fault of the Affordable Care Act.

Let’s think about this.

Estimates put the annual US health care expenditures (from all sources including Medicare and Medicaid) at about $2.9 trillion.  With a population of about 320 million, this means the US spends about $9000 per person per year on health care.  That’s just math.  Typically most people spend little when they are young and more as they age.

Looking at this differently, an unmarried worker should be paying about $9000 a year for medical coverage (if he were to pay the average each year).  So, if this worker were earning $20,000 per year, the $9000 would be 45% of his salary before taxes.  Or if this worker were married and had two children, he would in principle owe $36,000.  In order to owe 45% (as in the first case), this worker would need to earn $80,000. Most of us do not, however, pay close to that amount per year.

So why in this world are we wasting time talking about the “individual mandate” or the inclusion of “birth control” in the Affordable Care Act?

In census bureau figures, in 2009, the US spent $2.3 trillion on health care with the top three areas being hospitals ($750 billion), doctors ($500 billion) and drugs ($250 billion).  These three represent about two thirds of the total healthcare expenditure.

So what are these numbers saying?

The US has a huge problem with the cost of healthcare.  When compared  to the per capita costs for countries like Germany, France, Italy, Japan, and Canada.  The US is consuming almost twice as much cost for healthcare outcomes that are not as good as these other countries.  The problem is not individual mandates or birth control.

These comparison countries provide healthcare for everyone not just those who can afford private insurance.  (It is also true that these countries all face rising health care costs and are all concerned about the percent of their GDP which healthcare represents.  They are just at a totally lower level when compared to the US.)

Arguing about the individual mandate and birth control coverage is distracting from the real reforms that are necessary.  There is no one silver bullet but it would be surprising if  elimination of “for profit” private insurers and reduced payments to doctors, hospitals, and drug companies are not part of the solution.  All Americans paying more seems obvious too.

Individual responsibility where Americans seek preventive care and follow medical advice would also seem appropriate.

The problem, of course, is that doctors, hospitals, and drug companies will fight any move to reduce their fees tooth and nail, and the notion that individuals bare some responsibility will be seen as more government intrusion.

The numbers, however, are the numbers.  The US is on a course where healthcare will become a greater and greater part of the deficit and the debt will crowd out other government services.

We can build thousands of “bridges to no where” with the unfunded health care expense.  And please note, American businesses are not going to become more competitive with ever mounting health care insurance costs.  Jobs will stagnate if not decline.

The path we are on is ugly and no amount of lipstick will help.

It is time to shout down the politicians and church leaders who champion “repeal and replace” UNLESS these politicians provides data on today’s costs and how he/she would move to an all inclusive, lower cost health care model with equal or better outcomes.

Getting Priorities Backwards

May 22, 2012

Yesterday, 43 Catholic Church affiliated groups including universities and hospitals sued the Federal Government over the Affordable Care Act’s requirement to provide birth control as part of health coverage.  Notre Dame headlined the coordinated court filings.

Notre Dame’s President, Father John Jenkins issued a statement summarizing his view of the Church’s position.

Let me say very clearly what this lawsuit is not about: it is not about preventing women from having access to contraception, nor even about preventing the Government from providing such services” .

“Many of our faculty, staff and students — both Catholic and non-Catholic — have made conscientious decisions to use contraceptives. As we assert the right to follow our conscience, we respect their right to follow theirs. And we believe that, if the Government wishes to provide such services, means are available that do not compel religious organizations to serve as its agents”.

“We do not seek to impose our religious beliefs on others; we simply ask that the Government not impose its values on the University when those values conflict with our religious teachings.

Reading this, it strikes me as a reasoned and reasonable position.  It is reassuring to read that the Church is not trying to force its views on others.

Reverend Jenkins’ words also highlights to poor choice the President made in accepting a path which included existing insurance companies and companies as the main purchaser of health care plans.  A properly funded, Medicare-like universal plan, which might have had its own demons, would have avoided this conflict.

Or would it have?

The key is “properly funded”.  Healthcare must be paid for under any system.  In a Medicare-like plan, Church affiliated institutions would have had to pay part of the fees (as now) in a wage deduction scheme.  Also, were there to be a national sales tax, the church and its affiliated units would also be contributing since they would need to purchase all sorts of supplies.

Hmmm.  Sounds to me like the church in a universal healthcare system would also be supporting healthcare that included birth control methods.  A violation of religious freedom?

The Church seems to have a selective conscience.  Before the Affordable Care Act, millions of Americans had no health care.  Those who were covered could be denied coverage were they to become unemployed if they had some pre-existing condition which the insurance companies did not want to cover.  Which is the greater good, providing coverage to millions and saving lives, or enforcing a religious teaching by denying birth control access?  (A person could, of course, at their own expense, obtain birth control privately.  But why should an employee of a catholic affiliated institution be subjected to these extra hurdles?)

Reverend Jenkins has not offered ideas on how to provide birth control to those employees who want it.  As a result he has left the situation to where a favorable court ruling would allow the affiliates to deny birth control coverage which would seem to me “to impose our religious beliefs on others”.

I wonder what the coaching staff of Notre Dames $65+ million annual revenue generating football team are thinking?