Posted tagged ‘Economics’

Socialism Misunderstood

September 13, 2018

Several candidate running in the mid-term election have either avowed or allowed others to paint them as “socialist”.  These candidates often speak to “medicare for all”, “free” college education, “housing for all”, “retirement with dignity for all”, and “progressive taxes”.  Conservative opponents reach quickly for the words “socialism” or “socialist” and brand these candidates with the heavy hint that communism will be next.  Hmmm.

Socialism is defined as a political and economic theory of social organization that advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole.  

I do not hear these candidates advocating for government ownership of businesses or total regulation of them either, but rather I hear a search for income inequality cures, particularly from businesses where productivity gains are not shared (fairly).  These candidates see too many Americans who cannot afford healthcare, get a good education they can afford, find housing that fits in their budget, or can expect to live on their retirement benefits.  These Americans do not hear the words socialism or socialist either.  What they hear, however, is a solution to a situation where for them the American Dream has turned to a nightmare.

Think about the world that these Americans see:

  • Fortune 500 CEO’s average over $10 million per year in renumeration and the top 10 average over $50 million.  Average earnings for all Americans remains about $55,000 per year, minimum wage is about $15,000 per year.  Hmmm
  • Most Americans receive their healthcare insurance through their employers.  Should any America become unemployment, these Americans experience higher costs if they can obtain healthcare insurance at all.  In addition, “pre-existing conditions” are often used by insurers to deny coverage (or charge exorbitantly premiums) essentially putting insurance out of reach for more and more Americans.  Obamacare, to some extent, helps but the present Administration is attempting to eliminate this coverage.
  • Americans are told the value of a college education at every turn in the road.  The only aspect not mentioned is the cost and the amount of debt a student will get with their degree.
  • For many Americans the cost to buy a home and/or the cost to operate a home (utilities, maintenance, and taxes) are squeezing them out of home ownership or ability to rent.
  • Social Security benefits do not provide for much of a retirement.  Combining social security with a pension, for most, makes retirement possible.  But pensions are vanishing and a growing number of Americans are thinking that neither social security or a decent pension will be available when it is their turn to retire.

So, it should be no wonder that when many Americans hear a politician promising “Medicare For All”, or “college education” one can afford, or any type of assistance which will help the voter have a better retirement experience, these promise attract attention. 

The knee jerk reaction of opponents has been to label such promises as “socialism” as if socialism was worse than having healthcare coverage, a decent retirement, or affording college.  What do you want, apple pie or a sharp stick in your eye?

Sooner or later Democrat candidates will sharpen their game and correct their conservative opponents. 

  • “Medicare for all” is about providing all Americans with superior healthcare at a global best price. 
  • “Medicare for all” is about adopting policies which have enabled over 20 other countries to provide better healthcare outcomes than the US at 1/2 the cost. 
  • These countries are “social democracies” and do not own all the means of production, distribution, and sales within their country. 
  • Counties such as Germany, France, Belgium, Denmark, Sweden, Canada, and Japan can provide example after example.

But why is it at all necessary to look to other countries for “best practice” examples?

The most obvious reason is that America’s democracy and capitalist economy is not working for all Americans.  A rising economy is not raising all boats as politicians are prone to promise.  Human nature is such that “self regulation”, that is those seeking more and more profits (and of course larger personal renumeration) just are not likely to exercise constraint.  As long as the music is playing these leaders want to keep dancing.

The answer will not be simply to tax the wealthy and give it to the rest.  The durable answer must lie in looking at what a well working society should be and asking why America is not.  Then, progressive taxes combined with consumption taxes and fees must be voted upon “upfront” so that all Americans know what they should be receiving and how it will be paid for.

Social democracy with a healthy mix of financial conservatives, critical independents, and imaginative progressives could steer America back to a fairer but still vibrant society.   


Pass The Bullets

November 16, 2014

Joint Chiefs of Staff Chairman, Martin Dempsey, candidly testified before Congress that he would look favorably upon a request to send ground (read combat) troops into Iraq. Their purpose, to take back ground already taken by ISIS. So is General Dempsey just being honest or is he trying to goad his superiors or subordinates to make the request?

It would appear that General Dempsey knows his role. The military is suppose to carry out civilian orders.  The military’s role includes recommending the most appropriate strategy and executing it to accomplish these civilian goals. Anyone who has been in the business as long as General Dempsey also knows that in a political world, he can influence sometimes both the goal and the strategy. Maybe that what’s behind the General’s comments.

Whether the US should pursue ISIS is not a trivial decision. Pursuit requires resources and attention that could have been placed elsewhere. Were there to be more important uses for the military, for example confronting other situations which actually represent threats to vital national interests, America’s response might not be as good as necessary.

The current “pro-fight ISIS” cohort sound similar to those who argued for invading Iraq or doubling down with the “surge”. Behind every tree could be a terrorist and if we want to prevent that, the US must take the fight to them. Hmmm.

This argument raises skepticism. There seems to be no end of these groups who hate the West (especially the US) and love Allah (their way). Today the concentration of these Muslim extremists lies from Afghanistan to Libya. Less publicized groups, however, lie scattered across Africa and South East Asia including the Philippines. Are we to look forward to decades of “crusades” to strike down each of these religious zealots once they figure out how to hold others hostage for ransom?

America has traditional been an isolationist country. WWI and WWII shook the nation out of this way and since then, America has accepted the role of world policeman.

The fundamental business model being used by the likes of ISIS, the Taliban, al Qaeda, and Boko Harum do not need religion to thrive. In the past we have label similar groups as insurgents, pirates, or renegades. There seems to always be one of these groups active someplace in the world. Should the US prepare to fight them all?

With the inevitable rise of China and the apparent resurgence of Russia, America needs to lead with diplomacy rather than the military in order to secure its commercial ambitions. To that end, there is also no better time than now to focus on North America and South America to foster civil relationships. In this way, America can focus upon how to deal with opposing economic philosophies so that the American economy can continue to grow.

Recognition that dealing with the ISIS crowd is irrelevant in the pursuit of American economic growth might be a good place to start.

Summer Recess

July 19, 2014

Congress is lumbering into its summer recess. This is the time our Senators and Representatives use to recharge their batteries, attend fund raisers, and otherwise plan for their next Congressional session.

The notebook that contains their fall upcoming plans is bare of substance, unfortunately.

For Representatives, a plan book might correctly reflect certain needs of their district. They are, of course, “representatives” of those who elected them. “Must do’s” which raid the public trough and return tax dollars to their local district will help the district and get each representative reelected.

But is that short sighted?

Without knowing the specific wish list each Representative has developed, it is safe to say their list is incomplete. There are important legislative bills that impact all districts, some directly and others indirectly. Immigration reform is an obvious challenge which may seem remote to some districts yet the way the US handles economic refugees says a lot about who the citizens of our 50 States have become.

Another top of the list bill should be a broad list of infrastructure projects aimed at maintaining roads, bridges, railways, and rivers. At the heart of this essential work would be appropriate taxes to pay for it (no free lunch). While it does not matter which tax is increased or newly added in order to afford infrastructure repair, gasoline is an ideal place to begin.

The idea of raising gasoline taxes, unfortunately, is “off the table” and that says the worst about our representatives. The US and a few other third world countries still offer gasoline at the $4 a gallon or less (an unsustainable appeasement to voters).  The modern industrialize world, on the other hand, have all increased gasoline taxes in order to covered road related expense and to encourage more fuel efficient transportation.

Even an exceptional country like the US would do well to consider this. It is not a sure bet that our Representatives will even consider infrastructure maintenance, much less how to pay for it.

Our representatives’ tactics (as opposed to a strategy of ensuring a sound infrastructure for maximum economic results) simply do not include taxes to pay for necessary services.

If you were to ask them, however, about the role of productive assets and depreciation write offs each business uses, my guess is they would be able to cite chapter and verse. He might say, “a business invests in machinery and equipment and receives a tax deduction from its revenue equal to a prorated portion of an assets value based upon the asset’s productive life”.

The representative knows a wise businessman/woman would save this deducted amount so that they could maintain the asset (say a machine or truck) so it would last a long time, and when it was too old to be useful, there would be enough money to replace it.

The fundamental law is that assets wear out and must be repaired and ultimately replaced. Why cannot our Representatives comprehend the US public productive assets the same way?

One might think these public servants were absent from class when depreciation was taught.

Toughest Job In The Nation

June 9, 2014

Most people might say that President Obama has the toughest job in the nation. Certainly the Presidency is a tough job and if toughness is measured in positive poll numbers, President Obama has a tough job.

But President Obama does not have the toughest job or the toughest task in America. Hmmm.

If not the President, then who?

In my book, the toughest job belongs to Mark Emmert, President of the NCAA.

The highly successful organization of college sports activities has grown so large and profitable that simply keeping the wealth from others (like the athletes upon whose performance the money stream is based) makes his job the most difficult.

In the olden days, there was a well developed notion of amateurism. Athletes competed for both the honor and exhilaration of competitive sports. Colleges picked up on this theme, and hence, followed the “student-athlete”. Receiving compensation was a dirty idea and broadly discouraged. If someone wanted to make money, they should turn professional, it was reasoned.

One success lead to another and many colleges and universities found that if they provided tuition and living expenses support, they could attract better athletes. Better athletes, in turn, produced even better winning teams. Winning teams produced sporting events that people would pay to see, and while attending these event, fans would buy souvenirs too. Along came ESPN, and the ideal of amateurism moved into the category of buggy whip.

Emmert’s organization is trying to defend then NCAA against a suit brought by college football players.  These players have had the names and images used to promote the NCAA (bringing in millions in TV revenue) without any student compensation or permission. Hmmm.

Emmert’s position is no way is the NCAA going to share these revenues. Students are students the NCAA alleges.

The NCAA legal team has put forward the notion that students should not receive a cut because not all colleges could afford to share their NCAA profit portion. Hmmm.

Let’s think about that. How far would that argument go if a school said it could not afford to pay the printer who produced college advertisements, or could not afford to pay the gardeners who made the campus so attractive?

To be sure, how much to pay student athletes is not an easy question to answer. It could be a flat fee (sort of like a more generous scholarship), or it could be more like the real world (like a percent of what the student athlete brings in).

Once this debate is opened, all the other real world issues will pop up, like strikes and lock outs etc.

My guess is that a wise Emmert would find some way to create a “fund” where all student athletes received a notional percent of the NCAA’s take. Upon graduation or at least four years, each student athlete would receive their “share”. The Johnny Maziel’s of the world would not like such a formula. These stars would opt for some formula that more closely tied performance to payout.

Never the less, offering to create an after graduation payout would put the NCAA on the “high” ground, rather than the hypocritical swamp they currently are clinging too.

Head To Tail Strategies

February 23, 2014

Leaders almost always have question when it comes to selecting their policies.  It will be a leader’s policies that lead to specific strategies.   Should the leader select a strategy that he/she expect to work for the next short period of time (and maximize his/her chances to gaining popular support), or should the leader pick one that aims at long term objectives (and run the risk of leaving the public less satisfied)?

The short term approach has distinct advantages in terms of prediction and results.  So much more is known about today than what the future may bring.  Some leaders, however, seem to lack the capacity to imagine the future and are adrift when it comes to forming policies which are by their nature long term.

So, how do short term thinkers, or those who wish to maximize the public’s short term satisfaction deal with long term needs?  One idea is utilizing “head to tail” thinking.

A “head to tail” strategy begins with setting relatively short term goals, and when the “short term’ expires, setting a new, more timely and assumed appropriate strategy, and moving on.  The problem with “head to tail” is that there is no way to assure that a desired long term direction is being followed.  Everything turns out to be what seems right at the time.

Recent reports indicate that President Obama will present a “spending” budget to Congress.  After years of austerity, “sequestration”, and political arguments over a balanced budget, a spending budget seems like a disconnect.  And, in fact, it is a disconnect.  Why?

Political pundits suggest that since the GOP has offered no hope of a “grand bargain” (a political compromise path to reducing the deficit), why should the President continue to offer entitlement compromises?  Why?

Pundits say a spending budget will appeal to liberals, and that feels right at this time.  Hmmm.

There are three potentially serious weaknesses with the Presidents new direction.

  • First, this type of policy will reinforce the “tax and spend” label the GOP likes to place on Democrats.
  • Second, this austerity to spending leads no place, since there will not be revenue to offset the increased spending.    The GOP controlled House will never agree to increased spending and for sure will block any new taxes.
  • Third, a governance process which involves changing strategic goals on a whim is doomed to failure.  Continuity of purpose is key to long term success.

Great leaders and certainly great Presidents all had long term visions which guided their short term tactics.  President Obama’s closest political advisors live in the here and now.  Their advice and counsel is all about the short term.  Unfortunately, adopting the head to tail strategy approach is inconsistent with achieving long term visions.

Admittedly this post is holding President Obama to a higher standard.  Most Presidents enter their first term with only one objective, getting a second term.  Along the way they subjugate their noble campaign goals for short term gains.  And little or no progress towards those campaign goals become unintended consequences.

President Obama should know better.  Even if he thinks his specific proposals are worthy, he has failed us if at the same time, he has not said “I want to cut sufficient waste from existing programs to substantially fund this new policy”.

Surprisingly such an approach would catch the GOP off guard.  The GOP has as yet voiced no governance strategy that encompasses the middle class.  The GOP prefers to cite endless cuts to government spending without describing the end point or the impact their cuts would have on Americans.

I wonder whether the GOP is thinking that a strategy of “cut, cut, cut” today is wise, and following elections, especially if they can capture the White House, a new policy of increased investment (read more spending) would be even wiser?  Maybe “head to tail” thinking is the way of the future.


Parallel Universes

February 11, 2014

Yesterday, the GOP House members met and attempted to agree on a path forward which avoids US debt default.  Ahead of the meeting, pundits predicted members were close to an agreement and would decide maybe even that day.  The meeting has come and gone and no agreement has emerged.

The only thing clear today is that the GOP appears more like a child in a candy story (or a sailor in….), they simply cannot decide like other adults.

For some members, increasing the debt limit is a non-starter regardless of the consequences.  Some of these people do not believe there will be serious consequences because they think the US can pay their debts later when it suits us.  After all we are the biggest, most powerful, and wealthiest country in the world.  Hmmm.

Another faction do not want the country to default but see this vote as the only method they have to force a minority view on the majority.  For this group turning the deficit around is key and this vote might allow them to change entitlement formulas (in return for raising the debt ceiling) and accomplish what they feel is important.  Hmmm.

So, not unlike the negotiating box the GOP put themselves in last fall.  Those negotiation lead to the Government shutdown and accomplished nothing.  As then, John Boehner was seen as unable to control his members.  Some members have gone as far to say that if Boehner were to allow an open vote, they would vote to replace him as Speaker.

Entitlements do represent a huge problem.  Entitlements are easy to demagogue, and most politicians are delighted to take credit if it buys them votes.  Unfortunately, the underlying math doesn’t work.  Healthcare costs, and its impact upon Medicare and Medicaid are on course to bankrupt the Country.  If those GOP members opposed to increasing the debt ceiling were true to their positions, they would be active in developing a comprehensive solution… some path with new taxes and entitlement reforms.

How do we think Medicare and Medicaid recipients will react to a reduction in these benefits if Congress so mandated?  Like most complex problems, no one is ever happy to have a benefit reduced.  This is especially true if Americans think the deficit is a shared problem looking for a shared solution.

Americans are in the end people.  Most people are reasonable and inclined to look for what is fair.  When Congress is so divided, and both political sides seem to lack interest in the common good, Americans have, at this time, no example around which to rally.

Should deadlock persist and default come to be, there is no telling what exactly will happen.  Most business leaders, bankers, and economists have warned against treating default lightly.

John Boehner has a rare chance to stand up for what is sensible and in the Country’s best interest.  The question is will he?

Reasons For Optimism?

October 12, 2013

There is an air of optimism pervading Washington.  An agreement to avoid defaulting on the national debt and reopening the Government seems near.  Details are lacking but not optimism.  Why?

Most (but not all) Americans are disgusted with what they are seeing taking place in Congress.  The rhetoric is both foolish and non-sensical.  Worse still is the consequences, which would be wide spread and unpredictable, seem of no concern to most Congressional members (Democrats and Republicans both).

Members of Congress who appear at conventions or even on Sunday talk shows does not reveal the underlying problems.  “The President will not negotiate, nor will he even meet with us”, cry Republicans.  “Republicans are holding the Government hostage and wants to gain concessions for not closing government or defaulting on the debt.  No way.”, say Democrats.

So what is behind all this?

That is a tough question to answer.  On one level it is selfish and self centered objectives.  Both Democrats and Republicans are first and foremost interested in retaining their elected office.  Everything else is window trimmings.  So scoring “points” at the other party’s expense is par for the course.

On a different level, there are some basic philosophic and ideological differences.  Ironically to balance the budget (or even put the budget on a path to becoming balanced) requires taking money out of the economy.  The consequence if done too quickly or too deeply could result in an economic slowdown. and could increase unemployment.  It’s both a math issue and a rate issue… how much and how fast.  Both sides understand this.

Pursuing this budget balancing exercise reveals the incompatibility of these philosophic and ideological differences… just how to do it.  Should we cut expenditures, raise taxes, or some combination?

Cutting expenditures begs agreement on which ones (big problem), and raising taxes begs how much and who pays (just as tough a problem).  Some combination seems clearly the most logical path but this runs into two obstacles.

  • (1) On principle, Republicans oppose any tax increase, even in combinations with expenditure reductions.
  • (2) For similar principles, Democrats oppose any cuts to entitlements without a shared effort from new taxes and non-entitlement programs (like defense or farm support).

Republicans visions of balancing the budget run squarely through entitlements reductions, and envision no new taxes.  Democrats see “mouse bite size” spending cuts combined with new taxes.  Hmmm.

Unfortunately neither party seems willing to admit to evident realities.  The tax code is far too complicated, and generally is written to favor the well off (who largely provide financial support for our elected officials).

The largest parts of entitlements (Medicare and Medicaid) are dependent upon the most expensive healthcare system in the world.  Cutting these entitlements simply pushes costs elsewhere or leads to some Americans receiving less healthcare.

It is relatively straight forward to see that increases in tax revenues or entitlement expenditure reductions without first addressing their fundamental dysfunction seems a wasteful exercise.  Finding any agreeable path forward seems like work (a large effort), and that is not an oft observed Congressional habit.

So, as kicking cans goes, there might be reason for optimism.