Archive for November 2012

Wasted Political Capital

November 30, 2012

Yesterday the UN voted to grant non-member State status to the Palestinians.  The vote does little, other than moral pressure, to change events on the ground.  Never the less, Palestinians hailed the vote as a mark of affirmation.

The US, using talking points identical to Israel’s, denounced the Palestinians and reiterated that statehood could come only from negotiations between the parties.  With 138 nations voting in favor and 41 abstaining, the US position did not seem to carry much weight.  Israel has threatened all sorts of proportionate responses (what ever that means).

It is for sure that lasting peace (or peace of any kind) can only come about if there is a negotiated settlement.  That is clear.  What is not clear is why denying the Palestinians statehood would make any difference.  Both parties will continue to act as before anyways.  Hardball negotiation tactics, however, see it differently.

In practical terms, Statehood will change little.  Israel still holds military superiority and the Palestinians are still highly influenced by “pre-modernists” who are intent on disrupting events in order to attain personal wealth and power.  The hidden hand of Iran (and possibly Russia) can be felt if not seen.  The key to Middle East peace lies in an Israeli-Palestinian settlement.  The UN vote will make no difference.  Only a change of heart by Israel or total withdrawal of third parties (no support for Hamas and Hezbollah, and a much shorter rope for Israel) will change the ground for negotiations.  I simply don’t see that coming soon.

Es Gibt Kein Kostenlos Mittagsessen

November 29, 2012

Germany has one of the best health care delivery systems in the world.  It normally ranks number 1 or 2.  Germany’s system covers all residents, regardless of age or a history of pre-existing conditions.  Their medical expertise is leading edge and the care is compassionate.  And, lest we forget.  The German health care delivery system cost about one half the per capita cost found in the US.

Germany has a national health care system.  The Germans recognized that “es gibt kein kostenlos Mittagsessen” (there is no free lunch).  Health care must be paid for, but health care should not be a place whose objectives are profits.

In their national system, doctors, hospitals, and drug companies remain private.  They have both private and national insurance but the role of both is to administer and pay claims.  Everyone participates through taxes they pay.  All Germans (and their health conditions) are “pooled”.  Rates are set on the entire pool reflecting no difference between sex, age, or marital status.

Wait, you mean that all Germans must have health care coverage?

Well, here in America, that would be taking away my rights to choose.  Suppose I don’t want to buy insurance?  Suppose I don’t want to pay higher rates when I am in great shape and hardly ever visit a doctor?  Suppose I don’t want to pay for others who can’t pay for themselves?  Suppose I want to go to the doctor (or hospital) when I want to and not have to wait?  Suppose, suppose, suppose.

The deficit debate that is raging now is coming awful close to making Americans wake up and realize their health care delivery system is not as good as they think it is.

The spotlight has been on raising taxes on the top 2%.  Neither party has proposed how to address the largest single component of the deficit, Medicare and Medicaid.  The GOP’s “Ryan Plan” has proposed block grants to States as a method of slowing the rise in Medicaid costs.  In essence, the GOP plan just passes the problem on to States who may solve their problem by changing qualification requirements.  This could be done at the Federal level just as easily.  Block grants also misses the point on whether citizens are entitled to health care coverage (access) and how that care should be covered (costs).

This week, a few GOP members have offered ideas aimed at lowering Medicare costs.  Their solution would be to change the onset age from the current 65 to maybe 67 or so gradually over the next few years.  The math guys confirm that over a 10 year window, the amount of government spending on Medicare would shrink.  Is that the “kostenlos Mittagsessen” solution?

Critics are quick to point out that there would be many problems.  First, as the age where Medicare began increased, those people not covered would still need coverage.  Where would they get it and how much would it cost?  Ironically the rest of the Medicare pool, say those older than 67 would generate even higher per capita health care costs (since it was an older group).

So, if the goal is to lower what the government spends (in excess of what is collected in wage taxes), the solution of raising the beginning age for Medicare might make sense.

It is tempting to say that there is another approach.  For example, tax working citizens more.  The concept behind Medicare is in fact that workers pay in and when they retire and are on fixed incomes, their health care costs are covered at a rate they can afford.  So why not just increase Medicare taxes?

Back to “kostenlos Mittagsessen”.  Asking everyone to pay more in taxes might be fairer to those suddenly without Medicare (ages 65-67) but that approach is not without problems.  If increasing Medicare taxes was the only tool used,  the medical industry would be delighted knowing that what ever they charged, Medicare would pay.  Even worse, the US would be missing world class cost information.

US Health care costs, regardless of whether one compares per capita costs or costs are a percent of GDP are off the charts.  The deficit is the canary in the mine.  Our politicians need to stop fighting over tax levels and look for permanent solutions to the underlying problems.  Transitioning from the US health care delivery system to one like Germany’s will be complicated and take some time.

Wasting time now looking for the expensive “free lunch” is time poorly spent.

Bush Tax Cuts

November 28, 2012

The Bush Tax Cuts will expire at year end.  Most reporters add, “unless Congress agrees to extend them”.  There should be by now little confusion.  The Bush Tax Cuts will expire at year end.

From what GOP and Democrat party members have said publicly, there is simply no grounds for any type of compromise.  Even more to the point, there is no politician who dislikes granting tax reductions, so if the Bush tax cuts expire, then there is ample opportunity to reduce taxes again.

The GOP position that there should be no tax rate increases is shameful and unsupportable on the basis of historical fact.  According to most economists, increasing taxes on the top 2% will have no effect upon job growth nor investment.

The GOP argues that changing the tax code deductions is a better course.  While most people would agree that the tax code is far too complicated, which deductions to eliminate has little common agreement.  If sweeping revisions were made, the resulting increased tax revenue would impact the discretionary income of the middle class more than the top 2%.

You might say, “so what, everyone will be effectively paying more in taxes”.  So let’s look at the other half of the bargain, entilements.

The largest segment (about half) of the annual deficit comes from Medicare and Medicaid expenditures (in excess of how much is collected in wage taxes).  The excess expenditures are in the range of $500 billion per year.  How can the deficit be brought under control without modifying in some manner these programs?

Democrats are divided on this subject (no modifications to a little to a lot), and it is highly unlikely any agreement amongst them will be reached in the next few weeks.  Any movement on entitlements must impact the discretionary income of the Middle Class greater than the top 2%.  Hmmm.  More taxes and more Medicare payments…  I don’t predict Democrat support without the cover of the rich paying more.

So, no movement on entitlements, no movement on taxes.  Plain and simple.  QED, Bush Tax Cuts expire.

It is also unlikely either the President or Democrat Congressional leaders will outline their ideas until January.  In January, one might anticipate Congress agreeing upon cuts in Medicare (meaning recipients would have to pay more) and Medicaid, and offsetting these increased costs with lower taxes for the Middle Class.

Hmmm, sounds like funny money.


Congress’ Lost Opportunity Cost

November 27, 2012

Do you remember or have you seen pictures of the great cars produced in Detroit in the 50’s and 60’s?  These automobiles were things of beauty.  They excited the buyer and delighted the driver.  They also lasted about 3 years and then were destined for the scrap heap.  The quality of these beauties was woeful.

Then came a wake up call.

The Japanese arrived and reintroduced cost/quality to Americans.  The Japanese showed that someone else could produce high quality at low prices.

It took some painful years and mighty boardroom hand wringing before American industry decided to relearn what American quality experts had taught the Japanese in the early 50’s.  Drs Deming and Juran teachings had returned, and slowly American manufacturers accepted quality principles.

So what has that got to do with Congress and lost opportunity costs?

Well, it turns out that quality management techniques are universal and can be learned by anyone, not just the Japanese.  So, if the Japanese could make great cameras, televisions, and cars at hight quality and lower prices, why couldn’t the Taiwanese or Koreans?  There was no reason and the US market gobbled up these great products.

American manufacturers say opportunities for themselves also.  They could design and market their products with jobs based in the US and outsource to a low wage country like China to manufacture them.  Soon all manufacturers saw the same opportunities and even Japanese, Taiwanese, and Koran manufacturers looked for low wage countries and outsourced some of their production.  With quality principles, no consumers could tell where a product was made.

So where does Congress fit in?

We are living today in a global economy where goods and services can be produced at high quality anyplace in the world.  American manufacturers do not need the crutch of tax or tariff advantages.  They need instead better educated and more skilled workers, a sound flexible road network, and well equipped shipping ports.  They need to tools to do business, not tax and tariff crutches that encourage doing the minimum and making the most.

So, Congress needs to move on and get this fiscal cliff issue off the table.  Congress needs to deal with the physical and social infrastructure that will allow free enterprise to blossom again.

The Three Shell Game?

November 26, 2012

The Fiscal Cliff continues to be the focus of much political talk.  The GOP, however, is now putting forward speakers who suggest a willingness to increase tax revenues without increasing marginal tax rates.  This type of talk is a day late and a dollar short.

The GOP has argued that entitlements must be on the table.  Most liberals take the opposite position.  That is the makings of impasse right there.  But wait there’s more.

The President is calling for “balanced cuts”.  This is interpreted to mean increased tax revenues, especially with the wealthy paying more, and decreased government spending, with maybe some changes to Medicare and Medicaid.  If so, why no compromise and why not now?

The top 2% are worried about their marginal tax rate and also their current favorable capital gains and interest/dividend rates.  The more wealthy one is, the more these rates influence how much tax one actually pays.  So here’s the game.

The top 2% (especially the top 1/2 of 1% who make the largest donations to both parties) want to see changes in income tax exclusions, deductions, and credits.  Keep the rates the same, collect more tax revenue because deductions are reduced. Hmmm. What’s wrong with that if it could deliver the same amount of increased revenue?

Trickery, like in the three shell game.

The game operator moves the shells quickly and you must guess under which shell is the bean.  In the no tax rate increase game where tax revenues increase because deductions etc are reduced, one shell is labeled “write new deductions quickly”.  The second shell carries the label “marginal tax increases are worth more than deductions”.  The third shell sports the words “protect low tax rates on capital gains and dividend/interest at all cost”.

If the game operator gets his way, the bean will end up under “write new deductions quickly” shell.  The wealthy will wring their hands and lament the loss of deductions even though these losses will impact their discretionary income in a minor way.

The fiscal cliff drama is about keeping the economy growing while taking a step towards deficit reduction.  There is another problem, as large a systemic problem as the debt/deficit, in the form of widening income/wealth distribution.  Simply said the very wealth are getting wealthier faster than all those earning less.

Revising the marginal tax rates (and preferably, raising the capital gains and dividend/interest tax rates) will help the deficit struggle while simultaneously slowing (if not narrowing) the growth in income distribution spread.

Why do I continue to think Congress is playing the three shell game?



November 24, 2012

Following the reelection of President Obama, or saying it differently, the election defeat of Mitt Romney and all that his election would have stood for, there has been a fairly wide spread call from certain quarters to again secede from the Union.

The secession proponents fit a certain mold.  They exhibit a paranoia based upon the delusion that the rest of America is scheming about how to take from them and give to others.   They also hold a distorted view of the relationship of State sovereignty and the benefits of a strong national government.  Their understanding of history or current world events seems totally absent.

So, don’t these people crying for secession realize that elections have consequences.  A majority of voters selected on candidate over the other.  In the next period of time the winning candidate will have the opportunity to advance the policies he/she campaigned upon.  Then there will be another election and voters will get to decide again.  All that is required is for the losing side to wait, make their case again, and ask voters to pick them this time.

I just wonder where secession fits in?

I also wonder whether the secessionists have heard of Egypt?  I wonder whether they know that in an open election, a member of the Muslim Brotherhood won a narrow victory.  I wonder whether they know that this person has ordered the writing of a new Constitution (changing the rules of how the game is played).  And I wonder whether they know this person has decided not to wait for the new Constitution and just assumed new sweeping powers.

The US secessionists do not represent a majority and their secession cries do not ring true for most Americans.  Secessionists are at peace with the Union as long as they are in charge.  If they lose an election, then they want new rules.

Egypt should be a wake up call for Americans.  We take for granted that elections have consequences with regards to laws and policies but we assume the overall electoral process will remain unchanged.  If the winner fails to deliver, the next election is the time to correct.  Secession does not fit in our system, nor should it fit in any democratic process.


November 22, 2012

Today is the holiday where Americans give thanks for their good fortune.  For sure the bountifulness of each American’s good fortune varies.  So good fortunes is often augmented with hopes.

This year I am giving thanks or hoping for:

  • The reelection of Barack Obama and his steady, moderate path.  The Country has dodged a right bent Administration where the privileged got more while the rest were left behind.
  • Capitalism’s silent hand is reallocating resources.  A balanced, slow growth economy will be more resistant to sudden retrenchments.  In an ever more globally competitive world, the US needs to stability of a stable economy.
  • Affordable Care Act will get a chance to prove itself.  Questions surrounding full access to health care, with dignity and fairness will be answered.  The role of “for profit” insurance companies will be addressed as will the adequacy of the entire health care delivery system.  Will ACA be seen as an improvement and/or a step towards universal health care?
  • Religious freedom is rightly being seen as the individual right of everyone to practice their faith providing such practice does not infringe upon others.
  • The growing recognition that only a woman can be responsible for her reproductive health decisions.  In parallel, there is an emerging consensus also to avoid abortions, where ever possible, by eliminating unwanted pregnancies.
  • The full recognition of sexual orientation and that committed couples should not face discrimination is becoming the norm.  It will not be long before Federal, State, and Local governments get out of the marriage business and instead focus upon civil unions between committed couples.
  • The Supreme Court will not tilt more to the right should there be a vacancy and the need for a new Justice appointment.  The current court has established itself as an “activist court”.  There is hope, if the Court has read the last election correctly, of a less activist and more past precedent oriented body.

There are the thoughts for which I am grateful and in some cases hopeful for further gains.  Lest I forget, I wonder whether the Red Sox will make a comeback and whether the University of Michigan football team will return to the top ten?