Friday, December 10, 2010

Obama's Spending Growth

There are two ways to spend Federal Dollars.  Spend them on "operating costs" such as Medicare, Medicaid, Military, Social Security, interest on debt.  They may also be invested in "capital costs" such as road and rail infrastructure; replacement infrastructure for water, sewer and "wire" utilities; new sources and distribution of energy; research and development ways to derive more benefit for our dollars; education and training of the replacements and expanded staffing of our medical services.

There are two ways to raise the funds that we spend and invest.  We can tax various activities and assets to generate revenues and we can borrow the funds from people and countries that have a trade surplus with the US.  The FED issuing more dollars into the economy is merely a form of borrowing against the future. 

Borrowing to pay immediate operating expenses is really a bad decision.  It is the same for the nation is it is for an individual or family who charges a lot of expenses on a credit card when there is insufficient income to pay the balance due each month.  Many people got into difficult position with their debt when they counted on a pay increase or bonus that did not materialize.  The setback may also be attributable to an unexpected expense such as illness, injury or layoff.

Borrowing to build for the future or facilitate lower monthly expenses is a good reason to borrow.  College educations, continuing education credits, replacing an old car, replacing an old furnace all can bring about a better financial situation down the road.

Not taxing enough assets at a high enough rate for our immediate operating expenses leads to bad borrowing.  Bad borrowing leads to present people leaving a financial burden for the next generation if it is not paid up within about 20 years.  Bad borrowing is repeated each year such that the debt can never be repaid by those who benefited from it.

Borrowing to build a 50-year bridge is a reasonable debt if the balance is paid off in the 50 years that the bridge will stand.  Borrowing to build a power plant of any kind is a reasonable debt since it will keep making electricity for many decades and a second and third generation may still benefit from it.

Obama's problem today is that it is on his watch that all the neglect of several decades has come together with the reduction in revenues that the nation needs for paying the obligations.  We did not tax enough when we needed to do so.  We did not pay down our debt balances.  We spent one trillion dollars on a decade of war in two countries.  We watched millions of jobs move beyond our borders.  We allowed ourselves to have a massive trade deficit with China and the OPEC nations.  A lot of that trade deficit came back to us as credit on easy terms, therefore we were not eager to stop it.

We watched as the largest population cohort, the 79 million Baby Boomers, aged from worker status to Social Security status while doing nothing to prepare for the cost of that money.  They aged out of Blue Cross, et al, into Medicare.  2011 is the year that the floodgates open for Medicare enrollments.  As people reach 65 they become eligible to start collecting Social Security payments, too.  We can make President Obama shoulder the burden for the debts incurred on behalf of those millions of Americans.  After all it is on his watch that it starts.  Problem is that even with a second presidential term in office, the problem of retiree income and health care payments will long out live the Obama Presidency.

The growth in SSI recipients will continue through 2039.  After that year, barring any major life extending factors, the over 65 population will begin to drop.  By 2044 every Baby Boomer will be over 80 or dead.  Although the Baby Boom population will be aging out of the system, there is a second wave of future beneficiaries, not quite as large, following close on their heels.

Congress, economists, and visionaries need to figure out how we will provide for our non-working parents in their last few decades of life.  One political party wants to curtail SS and Medicare in order to contain costs.  It is ironic (read idiotic) that their mouth-pieces in the pseudo-news media are the ones who are warning that their opposition wants "death panels" that will ration health care and turn medical decisions into a government bureaucracy.  There is no faster way to kill off elderly people by the thousands than to have them starve in cold dark quarters because they have no money for food and heat or access to doctors.

It is not just the publically funded retirement income and health care that is growing without control.  The lack of control is not for a lack of trying.  The lack of control is due to the increased numbers of people who each year age out of their jobs.  Their employer funded pensions and health insurance continues to mount.  As the balance sheet accrues more retiree expenses, more of the company income must be applied to those accounts.  This means less profits for the owners and shareholders.  This means higher prices for the products and services.  Higher prices make the business less competitive in the global market where foreign laborers either get health care and pensions from their government or they get nothing at all.

The bottom line to us is that we need a new paradigm of funding our retirement and health care costs.  In our purely Capitalist system of business where all the means of production are in the hands of private citizens and private businesses, the only method of funding for our retirees and other non-working people is to levy a tax, or legislate that an employer pay all the bills.

President Obama has had the supreme misfortune to have been the man elected to the Presidency at the crossroads of global change.  He is faced with powerful forces that that no other American President has had to face.  His war legacy will be the "War on Global Economic Collapse."  It is a WWIII even though no Nukes are being hurled at each other.  The fact that only a few burning tires and minor demonstrations have yet perforated the curtain erected by partisan media on both sides is a testament to the leadership of our President and the many other national leaders who are trying to keep a smoldering world from bursting into flames.  When America went to war in Afghanistan and Iraq, the ultimate cost of doing so was unimportant to Congress.  We have spend more than a trillion dollars so far without a single tangible benefit or hope that any part of it will get paid back to the American taxpayer.  Because we borrowed that money, our descendants unto the fourth or fifth generation will be paying that bill.  Congressional  partisans quibble over a few millions in earmarked funding while demanding taxbreaks or taxes to balance a budget and not stymie the economic recovery.  In all this wrangling and rancor we loose sight of the need to find a solution to our poor budget practices and invest in ourselves.

We have been willing to spend $1 trillion on our current military wars.  How much are we willing to pay for keeping our economies from being destroyed?

Saturday, September 25, 2010

Stimulus Funds: Misdirected Efforts

In most situations one can choose to take one path or another and end up in the same place either way.  That is true for economic activities too.  If the Federal government did nothing to stimulate the economy, eventually the economy would recover all by itself. Eventually the GDP will return to pre-recession heights and the economy will be healthy once again.  If we followed that course the Milton Friedman devotees would be excited beyond belief.  With the policies that are being implemented now, the economy will recover and the Keynesian Economists will be the ones who celebrate while the Friedman say that it recovered in spite of the spending and it would have recovered faster if they were in charge.  So pick your side.

The reason we need the government to intervene with public spending is that while the economy is healing itself and returning to normal humans need to eat.  They need to stay warm in the winter and obtain medical services in order to survive until the post-recession economy once again has a place for them.

One of the problems is this country has chosen to not repair the infrastructure we built at the same rate as it is decaying.  The decay is occurring at a very predictable rate and the required spending is a calculable number.  In not keeping pace with the required repairs, the Budgetmen look like they are watching our money, but all they are doing is creating a future debt that will be passed on to our progeny.  Fiscal Conservatives claim that our monetary debt is irresponsible while ignoring the fact that the physical debt continues to mount with each day that infrastructure decay is ignored.  There is no difference between the debt obligations of borrowing money and that of ignoring the spending that will be made eventually.  Infrastructure decay will not go away on its own.

Infrastructure decay will not go away by Friedman Economics either.  There is no corporate entity in this country, no marketplace, that will benefit from replacing the broken sidewalk pavement in a city or small town.  There are no businesses who will step up and rebuild a sewage treatment plant gratis.  There are no wealthy families who seek to keep the estate tax on hiatus who will donate the untaxed assets to replace all the 100 year old water mains in the city.  For this we need taxes and legislators who have the guts to stand up and say we need to spend the money now.

Over the last couple of decades of deficit spending and debt creation we have amassed a physical debt of several trillions of dollars.  Wherein we may have needed to dedicate $200 billion to infrastructure replacements we actually allocated $100 billion.  To make matters worse we borrowed much of that money.  So for a period of ten years we have a deficit of $1 trillion to make up for.  These numbers are not exact.  No one has tracked the actual amounts nor committed to detailed studies of all the items that have been neglected.  It is only when Mississippi River Interstate bridges collapse or California gas transmission lines burst and incinerate 169 houses do we suddenly and temporarily take notice of our failings.

And like monetary debt incurring interest, physical debt incurs interest in the form of higher costs at later dates.

Stimulus spending needs to do two things.  First it needs to satisfy human needs like food and shelter.  Second, it needs to accrue value to the future.  When the Bush tax rebate of $300 was distributed, most people used it to pay a debt.  Most of the money went directly back to a credit card company.

If cash is given to a poor person, let us say a single mother with two small children, the children will get food to eat and be warm on a January night in Ohio.  That money will go to the grocery store and home heating utility company.  From there it will go to the checkout clerks and truck drivers who delivered the food.  It will also go to the utility company stockholders and gas price speculators.  At the next exchange the farmer, manufacturer and jobber will get the money for growing, producing and shipping the food. The utilities will invest some of the revenues in replacement infrastructure and use funds to buy the gas it sells.  In a greatly simplified money stream, the funds end up at the bank when all the business and mortgage loans are paid on time.

The other schema is to give the money directly to the banks and leave out the littleman.  In that process, the bank gets the money and no one else derives any benefit from it.  The economy is short circuited and the large wealthy people end up with the cash and we get nothing for it.

Let's look at $300 billion in bank bailout funding.  What did we get and what could we have gotten?  We made it possible for some very wealthy bank employees to get huge bonuses and salaries even as the economy tanked.  The intended liquidity of funds did not happen.  Yes, many of the banks paid back the money, but we got hundreds of thousands of mortgage foreclosures at the same time.  Every foreclosure means a family had to move somewhere else.  Mostly it seems they moved in with friends or relatives since the rental market tanked too.  Maybe they left the country to follow their outsourced job.

Now $300 billion disbursed to 10 million home owners would allow and average of $30,000 per mortgage.  A 3 year recession is 36 months.  That would mean that a subsidy of as much as $833 per month could have been made for each of 10 million mortgages.  It would not have to be free money.  It could be taxable.  It could be repayable at the sale of the property.   The bottom line is that all the home owners who lost their homes could have been spared the suffering had the stimulus/bailout plan placed the funding as the bottom of the scale rather than at the top.  If the money had been invested at the bottom, many people who lost jobs and therefore their homes would have been in a better position.

Stimulus politics aside, we do need to invest in our infrastructure, now or soon.  It might as well be now when we need to stimulate employment.  We need new sidewalks. We need to repair bridges.  We need to bury our overhead utilities.  We need to redevelop our energy systems.  We need to overhaul our sewage treatment plants and water distribution systems.  We need to do it today or tomorrow.  You take your pick.  Today stimulates our weak economy.  Tomorrow it is just another perfunctory project that needs to be done and there is no political strength to get it done.

Thursday, June 3, 2010

Tea Party Tuna

Jenny Beth Martin, who's the national coordinator for the Tea Party Patriots, has said the conservative grassroots movement is dedicated to furthering three core values: fiscal responsibility, constitutionally limited government, and free markets.

The founding fathers of America, the very ones who wrote the Constitution, would be the first to say that their perspective on how the country has developed was significantly limited. In the many decades since that founding 111 Congresses have struggled with balancing those three core values with varying degrees of success. On one extreme you would have a constitutionally limited government that would spend only what it was able to raise through taxation and there would be no limits on what a business could do. The limits on taxes would predicate a small government and without a governing body, businesses could do whatever they want to do.

The problem is this is exactly what was the founding conditions of this nation. There were no controls, no regulations, no unified oversight and terrible things used to take place. The government we have today was built up in response to the irresponsibility of people, communities and businesses. <>The Tea Party Patriots and the We Love America Crowd would now sacrifice the progress we have made in the past 43 decades since the founding of America. They would sacrifice it for personal gain at the expense of their fellows. They would ignore the future in order to enjoy the present. Isn’t that how we got into the mess we are in just now?

Without a strong well funded Federal government, Africans would still be property to be used to provide slave labor. It would still be legal to kill Indigenous Peoples of this continent to take their lands and secure the perimeters against retaliation. I would be allowed to dump my feces in your source of drinking water. A business could say they own a parcel of land and cut down all the trees and move on to another piece of land. Another company could dig out all the coal from under your house and let it sink into the earth. They could use up the health of thousands of miners and discard them on the principle that to take care of them would reduce profits and drive up your cost of heat and electricity.

A land owner could gate the passage through the property and demand a toll to be allowed to pass or he could deny you entirely because your complexion is not what he will allow. He could use that arbitrary decision to limit the ability of various ethnic groups from being allowed to exist in ‘his’ land. Lodging and food establishments could arbitrarily decide who they will and won’t allow to patronize their businesses. After all it is free markets at work here. There are no effective government entities that can say otherwise.

My manufacturing business makes Polychlorinated biphenyls, better known as PCBs, so that electric transmission systems can switch their high-voltages on and off. I can make a bigger profit by buying an adjacent parcel of land and burying my waste products. I can offer the industry a lower price, too. You can get less expensive electricity as the result. It is a good thing that my parcel of waste land is not in my customers’ back yards. It is in the back yard of a minority neighborhood. Even better yet, I can sell that land to a developer for low cost housing. You don’t believe me, Google “Love Canal.” I love the ineffective under-funded Federal government, that is constitutionally limited and believes in free markets. The free market will self-regulate me, NOT. If you come after me, there is always bankruptcy. I will sell off my shares of the ‘bad’ business and move on to somewhere else. Let someone else clean up the mess.

You know pigeon-poop properly mixed with my secret ingredient will cure liver spots, relieve migraine pain, allow you to live an average of 7.4 years longer and increase your memory skills by 48%. For a limited time only, a 30 day supply is only $19.95 plus Shipping and Handling. But wait… there’s more! Hey, you, stay out of my business. Your government interference is hurting my bottom line and limiting my ability to employ dozens of underpaid phone solicitors that contribute to the free market GDP.

Look at my business proposal. With a 0.1% market penetration in the American market we will have 300,000 brand loyal customers who will be with us for life. Life is defined as 10.3 years on the average. Each loyal customer will consume $50 to $100 worth of our product each day. Projected annual gross revenues is $1.095 trillion. Coca growers will work for a few Dollars per day, and our revenues are $3 billion per day. We don’t need the government making and restrictive laws that bolster prices, we can just fix them ourselves. The market will self-regulate the price and the consumption.

This is enough with extreme and outrageous example. Nobody says that they want no government at all. They just don’t want the government that they don’t want. They want to graze over the choices and fill their shopping basket with the things they like. They want free markets until the cable TV conglomerate wants to add another $10 per month to their bill. The like free markets until an airline seeks to charge an additional fee for carry-on bags. They don’t want property taxes on their houses but they do want police and fire protection that is funded by property taxes. They don’t want to pay school taxes for the failed public schools but they do believe that everyone should support themselves and their families with a job, or two or three. They want to limit spending but cannot decide who will be denied health care, food and shelter. They want high prices for what they have to sell or rent but low prices for what they need to buy and lease.

The Tea Party brigades scoff so loudly at the idea of a corporate bailout for huge financial institutions “because it rewards bad management” but fail to realize that their own pension funds might be heavily invested in those very institutions.

In the Tea Party rhetoric “constitutionally limited Federal government” and “fiscal responsibility” are euphemisms for reduced Medicaid and reduced “welfare” money for poor folk. In an interlocking way, it is also a euphemism for lower taxes on wealthy citizens. The multitudes of low income workers far outnumber the people who are chronically unemployed. For them there is little opportunity to contribute to the pool of funds that are needed to keep the country running and the economy expanding. They are the necessary recipients of the supports that other citizens pay for with their tax dollars.

Without those supports to buoy their position, the bottom socio-economic floor drops out dragging with it millions of people who reside at the cusp between middle and lower class strata. Without those supports for they who need it, the rest of us are poorer for it. If they are in need of medical attention, they become ill and the nation as a whole is sicker for it. If they are not educated, the nation is less educated on the average. If they are not upwardly mobile, they stagnate and decline in stature creating a future that is more heavily populated with less educated, less healthy and in need of more financial support. Poverty breeds need, need breeds solutions, those solutions are many times crime and violence, black markets and further degradation of the American society. If we treat people with respect for their needs then we are an honorable society. If we treat people as an opportunity to squeeze out of them a measure of labor while ignoring the things they need in order to have a decent life, then we are treating them like the Tuna that the businessman needed to be sell before it spoiled.

Fiscal responsibility. What does that really mean? To the Fiscal Conservative in the 21st century, it means only passing a bill into law that costs money if there is an offsetting reduction in spending on something else. It means not raising any tax rates nor adding any new mechanisms for revenue increases. It means that the only way to balance the budget is to cut spending on line items that Fiscal Conservatives do not like and depending on a higher GDP each year on which existing tax rates already derive revenues. In the 20th century, Fiscal Responsibility meant increasing the national debt, lowering tax rates, while continuing to accrue future obligations that were being ignored in the present.

Three of those obligations are the interest on the debt, Social Security and Medicaid. All three of those items grow in size without anyone having to do anything to make the situation worse. We do make the situation worse though.

We issue more debt because the other items in the budget exceed our ability to cut them out or cut them back. Social Security and Medicare costs increase because the unit costs of goods and services inflate, there are millions more people reaching 65 and we are creating mechanisms for individuals to live longer. Medicaid costs increase because there is such an unmet need by the American people due to the inaccessibility of medical services because it doesn’t exist at all and because they cannot get transportation to the services that do exist.

Doubly disastrous is the fact that poorer people are less healthy due to lack of health education, susceptibility to marketing campaigns that sell low nutrition consumables, the lack of transportation, and the lack of early medical intervention before routine ailments become pernicious and very costly.

Fiscal Irresponsibility. What does that really mean? If there was governing leadership that looked at what the present and future needs of the American people were, then we would be prepared to face that future without worrying about how we were going to pay for it. If a working person puts aside sufficient funds during the working years, then when retirement comes around there is comfort and security in those remaining years. If the government has a future obligation to pay and funds a part of that obligation each year until the expenditure is made, then we have Fiscal Responsibility. Otherwise we have fiscal Irresponsibility.

Since we have an unfunded obligation for all the retirees who will receive Social Security and Medicare benefits, we have Fiscal Irresponsibility. Since scarcely anyone can live on Social Security alone we have Fiscal Irresponsibility. Some people could have put aside sufficient income for a private retirement account, but most do not have that ability. Those who did put aside large amounts of income, lost it in the last two collapses of the economy (2001 and 2008.)

Fiscal Irresponsibility is in part defined by the neglect of essential systems we rely upon every day. Those systems are what keeps America from being a part of the Third World. Municipal water treatment plants, sewage treatment plants, the water distribution networks and the sewage collection infrastructures make America a superior place to live. Our roads, bridges, railroads, airports, subway, bus and paratransit systems make living in this country possible. All of those essential systems are currently in decline and THAT constitutes Fiscal Irresponsibility. It is not that paying for it with the issuance of debt or the raising of taxes that constitutes the irresponsible act. It is ignoring the decay and decline for such a long time that all of the maintenance and repair costs come at the same time.

Fiscal Irresponsibility is borrowing money to pay for operating costs. Fiscal Irresponsibility is borrowing too much too often to pay for new construction projects while neglecting the inevitable replacement of what we build. Fiscal Irresponsibility is being shortsighted in the planning process and getting stuck with a huge bill in the end.

So the Tea Party Patriots and the We Love America Crowd would now sacrifice the progress we have made in the past 43 decades since the founding of America. They would sacrifice it for personal gain at the expense of their fellows. They would ignore the future in order to enjoy the present. Isn’t that how we got into this mess we are in now?