Archive for January 2014

Beware Of Income Inequality Campaigns

January 30, 2014

President Obama has elevated “income inequality” to political talk’s top shelf.  New York City Mayor de Blasio has made income inequality one of his highest priorities.  Is this the next mission of the day?

What is, unfortunately, not clear is what each of these politicians mean by income inequality and how do they proposed to fix it?

The President has proposed raising the minimum wage from $7.25 to $10.10.  Hmmm.  Sounds like a big jump, from $15,000 a year to $21,000.  I wonder whether that would be enough if all of American industry adopted it?

With the average Fortune 500 CEO earning $15,000,000, this substantial increase may not narrow the difference much.  Even more to the point, there is nothing to suggest that next year these CEO’s would not take home $17 million or more.  What would we do then with the minimum wage, raise it again?

If we were to take a picture today of income distribution in the US, it would be crystal clear that a few make a lot of money and a lot make little or none.  The static picture, however, does not really tell the whole story.  Many of those who earn little are being fairly paid because they lack the necessary skills to earn more.  This cohort must be seen as it is and its “income inequality” treated uniquely.  For example, assisting this cohort is aimed at enabling them to survive, not buy a flat screen TV.

Another group consists of unemployed who do possess employable skills or are fully capable of retraining.  This group languishes largely because the economy is not sufficiently strong to provide full employment opportunities.  This cohort needs temporary benefits, like unemployment payments and job training programs.

The overlooked group are employed.  They are the backbone of American workers who get no subsidies and worry endlessly about the cost of their children’s education.  This cohort often calls out asking where the American dream has gone?

These later two groups are the ones where “income inequality” actually applies.  To be clear, the inequality is not that a CEO makes $15 million a year, and the average income of this group is just south of $50,000.  The boss (or owner) always earn more.  The inequality, however, rises from the discovery that the CEO’s renumeration continues to rise and the average person’s does not.

Saying this differently, the increase in productivity which results form the combined efforts of workers and executives is not divided fairly.

There are several explanations for this phenomena.  Most companies survey the local and national market and determine compensation for similar jobs.  Once the CEO’s pay begins to move up, no company board feels comfortable holding their CEO back.  With the average workers, outsourcing, increased productivity tools, and layoffs have combined to hold their pay pretty flat.  Hence the spread between the average and the top increases year after year.

In a perfect world, shareholders would hold the CEO’s feet to the fire for not taking care of employees.  But shareholders are mostly faceless and tend to be more demanding of stock appreciation.  Hmmm.

So will the minimum wage hike work?

It is doubtful if that is the only variable that is changed.  Some argue that the higher minimum wage will attract more qualified workers who will displace those current earning the $7.25.  Hmmm, maybe but that is only part of what’s likely to happen.

Raising the minimum wage will have two other impacts.  Companies that compete with low wage countries will be disadvantaged, and some may be forced out of business.  And all companies will be forced to raise prices which eventually will impact all consumers.

Surprised?  You should not be.  The stagnation of the average US income is tied to globalization and companies striving to remain competitive by holding down wages and outsourcing work.  Walmart, Target, Kohls, and so many others bring us goods and services at prices which seem to hardly change.  This benefit we all accept.  It is now becoming clearer what the unpaid costs really were.

As in all complex problems, responsibility can be spread around.  The days of high paying manual labor are over.  Auto workers need new skills.  Office workers must employ digital skills and keep them current.  Employment portability has replaced the former “life time employment” expectation.  It’s a new world, and these responsibilities lie squarely on the individual, not the government.

In the perfect world, pay policies would be adjusted to levels necessary to meet cost of living needs, and going forward would reflect a fair distribution of company earnings and productivity increases.  By necessity senior executive renumeration as a percent of total company pay must narrow with respect to the average salary.  Practically speaking, no CEO is likely to reduce their own salary but the expectation that their yearly increase per cent might be no greater than that of the average worker (and probably slight less).

The ironic aspect of these proposals is that when the average worker makes more, they will buy more goods and services, and pay more in taxes.  Increased tax revenues will take the pressure off “taxing the rich” and consuming more goods and services will improve the economy.  For the CEO’s, that’s a win-win.

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Is Gridlock A Blessing?

January 29, 2014

The GOP has made its recent living on “just say no”.  Their adamant opposition to anything President Obama proposes (even if it was originally a Republican idea) has confounded Democrats and confused the American people.  Nobody and certainly no political party is either always correct or always wrong.  So why should always “just say no” be a blessing?

Hmmm.

What if neither political party knows where first base is?  What if the core policies of Republicans or Democrats, if implemented, will not restore America to its status in the 50’s, 60’s, and 70’s?  In other words, what if both parties despite their rhetoric have not a clue where to find the American dream?

In a nutshell both Parties have ideas which by themselves lead to further degradation of America’s economic and moral leadership.  Republicans talk of reducing the size of government.  Front and center in the GOP plan is a reduction in entitlements (Medicare and Medicaid).  This might be interesting if their plan involved a true reduction in healthcare costs rather than a reduction in access to healthcare.

On all other government spending, the GOP sees reductions for most any government program that regulates.  “Regulations get in our way”, they say.  “Get out of Americans’ way and just watch the economy boom”.  Hmmm.

Where’s the evidence?  Look at where economic growth is taking place.  The top 2% are doing well while the lower 98% are holding still or losing ground.

On the other hand, Democrats simply see spending as an immediate economic lever and a vote getter.  Regardless of what the Democrat proposals are, they are almost always without sufficient funding and do not represents a shared agreement on how to solve social or economic problems.  And Democrat proposals do not attack the underlying causes of poverty, lack of education, and the creation of good jobs.

Whoa, what a mess.

The gridlock, however, has by default kept the country on the same course since there have been no government interventions that both Parties could agree upon,

Republican politicians continual demagogue over creating more jobs.  Remember the “jobs creators”?  With gridlock, rather than government picking winners, the overall economy is slowly and silently reallocating resources (the silent hand).  The US economy is growing steadily, if unspectacularly.

What our politicians are either failing to grasp or are too timid to tell Americans is that the US economy is now a part of a larger world economy.  Our major businesses do not look within America for cheaper labor.  They can produce goods in southeast asian countries (including China) with dirt cheap labor, and at world class quality standards.  Why should American businesses waste time searching for US labor (often poorly educated and motivated) when outsourcing can solve the problem?

Our politicians do not tell us that because it destroys their rosy image they claim their policies will produce as they stand there wrapping themselves in the flag and trying to sooth us with the words of how “exceptional” America is.  To be sure America may still be the most stable and potentially productive economy, but it is not the economy or the moral promise that the American dream is based upon.

Strangely, maybe it is still better that we do nothing rather than to follow the paths that Democrats or Republicans propose.  We can be sure that on either path, moneyed supporter of those parties will do well but the rest will still be standing on the sidelines.

I just do not know how long standing still will be the best options.   It’s just the best for now.

Life Is Not That Complicated

January 28, 2014

Retiring Oklahoma GOP Senator Tom Coburn said in an interview that fixing the Affordable Care Act is necessary, and not so difficult.  He alluded to a GOP proposal which enshrines the elimination of “pre-existing conditions” exclusions and provides a path for all Americans to purchase their own coverage.  He justified his proposal on the basis that some two hundred thousand have signed up for ACA while over two million have had their coverage discontinued.  Under the GOP proposal, no one would be forced to do anything, and everyone would have the opportunity to buy coverage.  Hmmm

There is no evidence to date that defending ACA at all costs is worth the effort.  The ACA is only one of many ways to reduce the injustices and the potential to cap the out of control costs that our US health care delivery system is built around.  Without a doubt there are other good alternatives available short of adopting far superior systems found in most all other developed countries.  But taking Coburn’s comments lying down only sets Americans up to buy a bridge he might have for sale next.

So what must we recognize.

The 50 million or so Americans who were uninsured prior to ACA were composed broadly of those who chose not to buy any insurance, those who could not buy adequate insurance and those would buy insurance but lacked the financial capability.  The two million Americans that Coburn estimates have lost coverage result from a wide range of generally low wage paying companies who reduced employee hours to a level where these employers were not required to provide coverage.  These companies claim they could not afford to increase their benefit costs and stay in business.  Hmmm.

Now back to the GOP plan.  Allowing the young and healthy to opt out of insurance, by simple math, means that everyone else pays more.  It also leaves open the gravy train where the uninsured still use hospital Emergency Rooms driving up the hospitals’ costs and when many uninsured fail to pay, these costs find their way to everyone else through inflated billings.

The pre-existing cohort apparently under the GOP plan can buy insurance if they can afford the premium.  The GOP seems adamant that insurance companies must offer coverage even if the customer cannot afford it.   Hmmm.

The US spends around $2.9 trillion per year for health care services.  This equates to about $9,000 per person per year, man, woman, and child.  This is roughly twice as much as any other country in the world.  Hmmm.

It is simply a shame that our politicians spend so much time arguing about the Affordable Care Act when the entire health care delivery system is built upon an unsustainable financial model.

Appreciating Global Warming

January 26, 2014

This year, winter has brought snow and cold weather to the East Coast and much of the rest of the country as well at extreme levels.  Temperatures have been below freezing in the single and double digits for unusually long periods.  Periodically, temperatures have risen above freezing giving the feeling of Spring on the way.  Then, only to fall again and give us the cold.

Many refer to this weather pattern as “Florida Weather”.  Of course the weather is totally unlike Florida but it does remind everyone why they might want to consider a long vacation or a outright move south.

The problems with this year’s weather are two fold.  First it is colder than expected and this puts in question whether one has sufficient protective clothing, and whether the insulating value of ones home is adequate.  Second, with the up and down nature of the ambient temperature, ones body has trouble in adjust properly.  The cold temperature just feels somehow colder than it should.

So, sitting around the house, bundled up in extra sweaters, listening to the furnace labor away, one must wonder whether this year’s weather is just that, just a normal variation in historical runs, or is this year’s weather a sneak preview of what’s ahead with global warming?

I have no answer to that question.  Intelligent arguments can be made both ways.  What I can say is I think it easier to cool down when hot than it is to heat up when cold.  I wonder whether I’ll remember that when summer finally comes again?

Wall Street Worries

January 25, 2014

The major stock markets have not, so far, enjoyed 2014.  Unless you sold short, this year has been a disappointment.  In fact, the big players have found themselves caught up with the herd and have followed the market averages down.  The Dow Jones has dropped over 1000 points in a little over three weeks.  While three weeks do not make a year, one still wonders whether the sky will fall next.

As usual the pundits’ explanations never deal with fundamentals, especially in a falling market.  Rather, experts are writing about “fear”.  The fear key investors are worrying about is reduced growth in the US and China.  Surprised?

You should be because there is no new information on 2014 growth for either country that was not known in December 2013 when the Market rose seemingly without limits.  Maybe this is just the “glass is half full or half empty” situation.  In December it seemed one way, now it seems the opposite.  Hmmm.

The Market has been often described as mostly a herd phenomena.  When one market maker gets a feeling or sees an opportunity, this player might buy or sell.  The rest wonder what that player knows.  In response, many of the other players “protect” their overall positions by doing the same.  Consequently when we look at market performance over time, we see a jagged line jerking up and then down, and then up again.  A logical and thoughtful study of market fundamentals when applied to buying and selling would be unlikely to yield this type of performance.

In December, when the world’s markets were rising most every day, the overall economy of Europe was anything but robust, China’s was struggling (and likely to decline further) even at a 7+% annual growth rate (down from over 10+% in the past), emerging economies were struggling, and the US was chugging along with 2% or so growth.  That is the same picture we see today.

You figure.

 

Selling A “Free” Choice

January 24, 2014

There has been much written about medical marijuana and the march of brave States to adopt it use.  So far, States have been careful in regulating the growing and sale of medical pot and seem to be eliminating one hurdle after another to ensure medical marijuana is available to all (including children) who could benefit from it.  Now on deck is recreational use.

Colorado is leading the way.  Anyone 21 or older can go to licensed stores and buy (for cash) one ounce (if they can afford it) or less.  So far there are lots of winners.  The State makes easy tax money, the store owners bring in attractive profits, and the purchasers get what they wanted.  It’s a free choice.

Naturally the use of pot like alcohol carries its own set of responsibilities.  Drinking and driving is regulated and so should be marijuana and driving.  Drinking and the use of equipment (say in a factory) is normally against safety rules.  The same should be true for marijuana.  And allowing under age people to share in ones legally acquired alcohol is against the law.  So should sharing marijuana with the under age.

Cities like Ann Arbor, Michigan have long treated marijuana possession like a parking ticket.  Most observers figured this university town was just shirking its duty and taking the easier road making peace with the students.  Maybe not.  Maybe Ann Arbor was just smart.

Philadelphia where marijuana possession is a criminal act is now considering the Ann Arbor approach.  The District Attorney has already decided to not prosecute those found with small amounts of marijuana.  The DA claims it has freed up large amounts of Court and DA time for other more serious crimes.

Philadelphia City Council is about to debate a bill which would codify the “parking ticket” approach.  Councilman Jim Kenny who is sponsoring the bill claims that it makes no sense to continue arresting people if the DA is not going to prosecute.  Kenny says that his bill will reduce the amount of police time currently devoted to arresting pot users.

Kenny does not see Pennsylvania legalizing marijuana anytime soon.  Why?  Kenny says that Pennsylvania is too conservative.  Hmmm.

The Federal Government regulates marijuana as a Class I drug right up there with heroin and cocaine.  It has long been reported by users that marijuana is far more like alcohol and not the awful drug as charged.  With all the medical marijuana States and the coming wave of recreational use States, it will soon be no longer possible to hide behind a miss labeled Federal classification.

Like with casinos, governments (State and local) who once decried the sins of gambling, are now embracing this source of revenue.  The same pattern will most likely follow marijuana.

Recreational marijuana use will not be a free lunch.  Users will pay a marked up price, reflecting regulations related costs as well as taxes.  Licensed distribution by definition restricts free competition so cost will be higher than necessary.

And for sure there will be some horrific misuses.  This must be expected.  The question might be will these horrific misuses be larger than those of alcohol or fire arms misuse?

Never the less, both social norms and the regulatory process seem finally to be moving in a sensible direction.

Missing The Target

January 23, 2014

Yesterday was the 40th anniversary of Roe v Wade.  The day marks one of rejoicing for some and a day of deep sadness for others.  Bus loads of concerned citizens descend upon Washington DC each year to demonstrate their support or dislike over the Supreme Court decision.  Organizing these bus trips are a variety of organization.  One of the most organized is the Catholic Church.    Even in bad whether, this year was no different.

Or, was it different?

A few days ago, the Chicago Archdiocese released files showing a long term practice of passing pedophile priests around from parish to parish under the cover of secrecy.  It would be left to the surprise of the unsuspecting parish to discover later that the new priest had a fondness for their children.  Never the less, those catholic demonstrators, bused in by catholic diocese from surrounding States, were anxious to show their anti pro-choice feelings.

In America we all have the right to free speech.  We do not normally, however, hear free speech advocates also endorse the need to “think through what one speaks about”.  And the pro-life contingent too often presents illogical positions.

Consider that there are no recognized “pro-choice” groups who espouse a woman’s right to choose do not present the notion that more abortions is better than fewer ones.  Most pro-choice advocates talk about unwanted pregnancies ( for a variety of reasons) and health reasons as why women choose to terminate a pregnancy.

One would think that religious groups would be the strongest advocates for family planning (preventing unwanted pregnancies) and a full protocol of women’s health services to minimize health concerns ending in an abortion.  Think again.

The same catholic church that shielded priest pedophiles also instructs (via hospital administration rules) doctors to treat pregnant women differently from other medical facilities.  For example, ectopic pregnancies are treated differently in Catholic administered hospitals than almost all other non-religious hospitals.

And hopefully a woman does not choose a Catholic Administered hospital when she is ready to deliver a baby.  In many cases, the woman may feel she has had enough children (for any reason) or been advised about the dangers of further pregnancies.  Forget about a tubal ligation in the Catholic Administered hospital even if the woman has had numerous children or has developed a medical condition where future pregnancies are life threatening.  Hmmm.

Let’s also not forget the Catholic Church’s strong objections to the Affordable Care Act’s inclusion of full women’s health care services.  The very means which could prevent unwanted pregnancies are a no-go for this church.  Hmmm.

So let’s return to the DC march.  What are these people thinking?

Hmmm.  I thought so, they simply cannot condone “free choice abortions” and have not thought through the higher moral ground of preventing unwanted pregnancies.