One of my favorite places to vacation in the U.S. is Arizona, particularly at Spring Break. The boys and I can escape the cold March weather, and head out to sunny Phoenix (or Scottsdale!), and expect a week of 75 degree temps, no humidity, sunshine everyday, spring training baseball, and a heated pool at the resort. Plus lots of March Madness to fill the dead space. There are other attractions, namely the Grand Canyon, about 4 1/2 hours north, which is simply the most amazing thing I have ever seen. I do want to stop in Sedona sometime, as I have heard so many good things about it, as well as see the desert and perhaps some sidewinder rattlesnakes (from a safe distance!).
So it is with a degree of sadness that I see Arizona embroiled in controversy over the recently passed immigration bill. While I am not convinced that the law is the right answer, I am so disappointed by the reaction to this bill, both by those for the bill and those against it. The fact is that the state has seen a dramatic rise in violent crime being perpetrated by those who are in the country illegally. The vast majority of the crime is done by those associated with drug cartels who find Arizona's porous border an easy entry into the U.S. In passing the law, what Arizona hoped to accomplish was to reduce and cut out this violent crime. While I do not think this bill does the trick, what I also strongly believe is that Arizona sent out a cry for help.
Clearly, Arizona feels overwhelmed by the illegal immigration going on within the state. Yet the people within the state also clearly believe that the federal government in Washington did not care to help. So the Arizona legislature took matters into its own hands, basically copied the federal immigration law and signed it into state law as well. This is an issue which both Republicans and Democrats in Washington let down the state of Arizona.
The reaction to this bill on all fronts is hugely disappointing. The Obama Administration basically bitch-slapped the people of Arizona. Arizona is asking for help and the federal government is suing the state. The Republican response is equally puzzling, painting all illegal immigrants as sub-human, and boy America is no place for immigrants! Of course, since Hispanics are the fastest growing minority in the U.S. it is puzzling why the Republicans are doing all they can to ensure that none of them ever votes their way.
There has to be a different path. First, I tend to divide immigrants into two different classes. First, you have the migrants. These are the people who come to this country to escape the oppression in their own country (primarily Mexico). They come to this country seeking a better life, seeking opportunity. These people are hard working, generally they are socially conservative, they do not come looking for government handouts, and they are not generally criminals. They have nothing in Mexico, so they have nothing to lose by coming to this country. They are also dirty, they are uneducated, they generally have a darker skin complexion and they do not speak English, so we look down on them. The second class of illegal immigrant is the drug cartel associate. They do the bidding of the drug lords in Mexico. They are violent, they are ruthless and they are criminals. While their crime is generally against other Hispanics in Arizona, their actions have scared the entire state population.
I keep looking to the first group, the migrants. These are the very people that the American dream is all about. They come seeking opportunity and seeking work. They are seeking a better life for themselves and their families. They generally work jobs that most Americans would not touch. Quite frankly, the economy needs them. Yet, all forms of legal immigration are closed off to these people. Should we allow their children in our schools? I would want their children to learn about this nation, its history, its boundless love of freedom. I would also want these children to learn to speak English. This will be important for them as they grow older. I would love to see these children grow to be productive American citizens. As for the drug cartel associates, I have no sympathy for them. Give them the harsh, swift hand of justice. But how do you separate the two?
Should we allow these people in? I look at it from a secular perspective and a spiritual perspective. The secular perspective I mentioned in the previous paragraph. Looking at this spiritually, I take my cue from Jesus Christ in the New Testament. The Jesus of the New Testament spoke often of the need to minister to the poor, to feed the hungry, and most of all, to give hope to the downtrodden. He took compassion on those that society forgot, or those that society wished to cast away. He welcomed those who came to him. Jesus never once spoke of the need to secure borders.
This issue is far more complex than today's leaders make this out to be. A presidential administration has turned its back on its own citizens. Yet the opposition's action remind me of the Pharisees in Jesus's day. In the end, I have no answers. Just the rambling musings of someone looking for answers and not finding them. This issue is far more complex than I have even presented here. Answers are not easy to come by.
Wednesday, July 14, 2010
Saturday, April 24, 2010
It Is Well
When peace like a river attendeth my way
When sorrows like sea billows roll
Whatever my lot, thou has taught me to say
It is well, it is well with my soul.
Horatio Spafford, 1873
Horatio Spafford became a fairly prominent attorney in Chicago in the 1860's, but starting in 1870, tragedy enveloped this man's life in spades. In 1870, he lost one of his children to disease, then in 1871 he lost all his real estate investments in the great Chicago fire. But it all climaxed for him in 1873, as he and his family were set to sail across the Atlantic for a European vacation. Last minute business kept him from going with his family, but he promised to catch up in a couple of days. The ship his wife and chilren were on sunk just off the coast of France, and each of his remaining children perished. He received a telegram from his wife that simply said "saved alone." A few days later, when he passed near the spot where his children went down, he felt inspired by the Holy Spirit and it was at the time that Mr. Spafford wrote this classic hymn.
Which brings me to today. Tuesday, April 27 is my nineteenth wedding anniversary, only I won't be celebrating with my wife, who passed away nearly 11 years ago. For me, it is a day of reflection as I look back on a marriage so strong that was cut so woefully short. Yet in spite of the tragedy, I find hope in the words penned by Horatio Spafford some 137 years ago. Each of us endures tragedy, yet where is our strength and our hope to survive such awful tragedies? I remember a loving woman, a beautiful wife and a terrific mother who is still needed by her sons today. Even so, it is well with my soul.
It was never a part of my life's plan to be widowed at 32. There was so much more to do. Raising our two sons together, our dreams for travel, all the laughs along the way as well as all the aggravations. Instead of living those dreams, I spent several years afterwards looking into the darkness. My life simply wasn't supposed to be like this. I didn't ask for this. In my own way, I screamed out, "My God, my God why have you forsaken me?" Where did I find hope among the hopelessness I felt? Ultimately I found it in my faith, but a faith that was shaken, torn and left to be reconstructed. I learned to accept Angie's death. More importantly, I learned to accept myself again, albeit one that was different than before. While I would never wish single parenthood on anyone, I am blessed by my sons each day. And I got some great advice along the way. Mostly that God is still listening. And that hope still exists. And I learned that it is well with my soul.
This, too, shall never pass, but life will go on. Today, I look to a future more full of hope than ever before. I have two wonderful boys who are going into (sometimes) fine young men. I take great joy in watching them grow. I also look to my own life, one that is renewed, one that sees faith grow everyday. I have hit bottom in my life and it was not pretty. I realize what a monster depression can be, and how hard it is to climb out of that hole. Perhaps more, I have come to faith that is truly my own, shaky as it still may be. I don't know how else to explain, except to say that I've come by it honestly, through trial and tribulation. This doesn't make me a hero, just a guy who is trying to make his way in this world, and needs help from a God who will love and protect me. And like Job in the Old Testament, I put my faith and hope in a God that will restore life.
During my darkest days, I was fortunate to have many people praying for me. Your prayers sustained me. Thank you one and all for your prayers and all the kindness that I was shown during those dark days. There were people who did many kind things for me, yet I was so emotionally numb and detached that I could not muster the strength to say "Thank you." But know this: I could not have made it without you. And today, it is well with my soul.
Monday, March 22, 2010
Thoughts on Health Care
With the passage of the historic health care bill, and with all the rhetoric, both for and against, I have taken some time to see the good and the bad in this bill. There is a lot to like and there is a lot to dislike. Some of the provisions that govern insurance industry are good, and needed to be done. However, the vast government oversight, and the resulting costs could prove to be quite disasterous.
Insurance Industry Governance
The main thrusts of this bill concern regulation of health insurance and some of these provisions are good. First, insurance companies cannot cancel health insurance of someone simply because they get sick. This is simply unconscionable and needed to be corrected. In addition, lifetime caps will eliminated. As an aside, life insurance companies need the same thing imposed on them. Life insurance policies should not be canceled for people who are terminally ill. Children will not be denied insurance due to pre-existing conditions. While this is good, it comes at a price. Uninsured children will be able to stay on their parents plan until they are 26. Uninsured adults with pre-existing conditions will be able to purchase insurance. Ultimately, insurance companies will not be able to deny health insurance to those with pre-existing conditions. There are many other provisions as well. However, one must be aware that many of these provisions do add to an insurance industry's cost, and these costs will be passed on to the consumer.
Cost Containment
Supporters of the health care bill point out that the bill will reduce the deficit by $138 billion over the next 10 years. Let me say upfront that I utterly reject this figure and the methodology that produced it. I do not blame the Congressional Budget Office (CBO) that put out this figure. The people at the CBO do good work, but their output is only as good as their input. And the input was simply awful. This is a classic case of garbage in, garbage out. What are touted by supporters as "savings" are in fact, taking excess monies from one program (such as Social Security which has $52 billion in higher tax revenues counted as offsets on the health care bill) to count as "savings" for this bill. When you strip out the total cost of these offsets and gimmicks, the bill is actually projected to increase the deficit by $460 billion in the first 10 years and by $1.4 trillion in the second 10 years. And this figure does not include the "doc fix" (the restoration of Medicare cuts), which costs $371 billion. This made the "score" look bad, so it was removed from the health care bill and added to a different piece of legislation.
This bill also assumes approximately $500 billion in Medicare cuts over the next 10 years. What is going to be cut? Over the next 10 years, the population of those 65 and over will soar as the Baby Boomer generation ages, and the demand for health care services will soar along with it. How can you cut so much money from a program that will demand so much more in services? How can you cut so much money from a program that is already running a $38 trillion (yes, trillion!) unfunded liability deficit? This makes no sense and I do not expect these cuts to materialize.
What about this bill's ability to provide affordable health care? Throughout his 2008 presidential campaign, Barack Obama promised to put forth a plan that would save the average American family $2,500/year in health insurance costs? Where in this bill are those savings? Provisions such as the elimination of pre-existing conditions and lifetime caps are costly to insurance companies and they will not absorb the costs. These costs will be passed to policyholders. Businesses with 50 or more employees that do not offer health insurance will incur stiff fines. There are many restaurants that fall into this category that will face fines of up to $2,000 per employee. Either way, this is costly. Starting in 2014, insurance companies will have to pay a fee (actually, a tax) to the government, based on market share. The same thing will be applied to major pharmaceutical companies. This will add to the cost of insurance premiums and add to the cost of prescription drugs. There are no provisions in this bill that aim to rein in insurance costs, no provisions in this bill for tort reform. In short, I see no cost containment of any kind in this bill.
Overall Cost Effect
If you add back the $600 billion in gimmicks described above, the $500 billion in Medicare cuts that I do not see materializing and the $371 billion "doc fix", this bill will actually add closer to $1.3 trillion to the deficit. When you add this to the $1 trillion/year budget deficits the government is already projected to run, it becomes easy to see a black hole. So do I trust the government's numbers? Well, when Medicare was originally passed in 1965, the program was projected to spend $9 billion in 1990 for hospital reimbursements. How much did the government actually spend that year on hospital reimbursements? Sixty-six billion dollars! The government's actuaries were a little off. So, why should I trust the government's numbers this time? As we are entering a time when demand for health care will explode, it is hard to believe that costs will be well contained. Especially from an organization that runs a bankrupt Social Security program, bankrupt Medicare and Medicaid programs, a money bleeding post office, and whose Freddie Mac and Fannie Mae programs were Ground Zero for the financial crisis we just endured and are still paying for.
All this extra cost has a price. Yields on some high grade corporate debt is now lower than yields on Treasury securities. This may indicate that investors no longer look at Treasury securities as AAA rated securities, no matter what Moody's and S&P say. As an aside, Moody's and S&P are whores to the companies and governments they rate anyway, so if the US government loses its AAA rating, the government will simply buy it. Savvy investors will know better. What this means is that the cost of borrowing will ratchet up higher just through poor credit quality. This will likely lead to a weaker dollar and even higher interest rates. And our leaders think we need to spend lots and lots of money on a new entitlement program? I do not get it. God help us if short-term interest rates go to 5%.
Supply of Healthcare Providers
This bill supporters claim this new bill will add 32 million people to the health insurance rolls in this country. That is great that we can make the healthcare system more accessible to all these people. But, what about the supply of healthcare workers to meet all this new demand? Medicare's actuary projects that approximately 20 percent of all Medicare beneficiaries will either go out of business or stop seeing new Medicare patients. Of course, we have all heard anecdotal stories of doctors who will quit practicing medicine if this bill passes. Meanwhile, will medical schools crank out enough doctors to meet the increased demand? Maybe. Not a reassuring answer, but that's the best answer available right now. Will they crank out enough quality doctors to increase the quality of overall care in the system? Not likely. I do not blame the doctors for this. Many doctors are already working long days, seeing patients in a cattle call type of fashion. It is the best they can do. This situation will not be relieved by the new bill. It will be made worse. Doctors will need to be more highly compensated for their extra time. Once again, this will add to the overall cost of healthcare.
Summary
Healthcare reform (or more accurately, health insurance reform) is something most Americans desire. Freedom to choose their own doctors (which this plan provides), freedom to choose your own plans (which this bill does not provide). But one with massive government involvement is something we as a people do not want. Opinion polls about this healthcare bill consistently showed that about 70% of the population was against it. This bill will provide layers of bureaucracy, permanently higher taxes, astronomical debts that our children, grandchildren and generations of our families will inherit just from this bill alone. Simply put, this was a bad bill, and health insurance reform could have been accomplished much more simply and inexpensively.
Insurance Industry Governance
The main thrusts of this bill concern regulation of health insurance and some of these provisions are good. First, insurance companies cannot cancel health insurance of someone simply because they get sick. This is simply unconscionable and needed to be corrected. In addition, lifetime caps will eliminated. As an aside, life insurance companies need the same thing imposed on them. Life insurance policies should not be canceled for people who are terminally ill. Children will not be denied insurance due to pre-existing conditions. While this is good, it comes at a price. Uninsured children will be able to stay on their parents plan until they are 26. Uninsured adults with pre-existing conditions will be able to purchase insurance. Ultimately, insurance companies will not be able to deny health insurance to those with pre-existing conditions. There are many other provisions as well. However, one must be aware that many of these provisions do add to an insurance industry's cost, and these costs will be passed on to the consumer.
Cost Containment
Supporters of the health care bill point out that the bill will reduce the deficit by $138 billion over the next 10 years. Let me say upfront that I utterly reject this figure and the methodology that produced it. I do not blame the Congressional Budget Office (CBO) that put out this figure. The people at the CBO do good work, but their output is only as good as their input. And the input was simply awful. This is a classic case of garbage in, garbage out. What are touted by supporters as "savings" are in fact, taking excess monies from one program (such as Social Security which has $52 billion in higher tax revenues counted as offsets on the health care bill) to count as "savings" for this bill. When you strip out the total cost of these offsets and gimmicks, the bill is actually projected to increase the deficit by $460 billion in the first 10 years and by $1.4 trillion in the second 10 years. And this figure does not include the "doc fix" (the restoration of Medicare cuts), which costs $371 billion. This made the "score" look bad, so it was removed from the health care bill and added to a different piece of legislation.
This bill also assumes approximately $500 billion in Medicare cuts over the next 10 years. What is going to be cut? Over the next 10 years, the population of those 65 and over will soar as the Baby Boomer generation ages, and the demand for health care services will soar along with it. How can you cut so much money from a program that will demand so much more in services? How can you cut so much money from a program that is already running a $38 trillion (yes, trillion!) unfunded liability deficit? This makes no sense and I do not expect these cuts to materialize.
What about this bill's ability to provide affordable health care? Throughout his 2008 presidential campaign, Barack Obama promised to put forth a plan that would save the average American family $2,500/year in health insurance costs? Where in this bill are those savings? Provisions such as the elimination of pre-existing conditions and lifetime caps are costly to insurance companies and they will not absorb the costs. These costs will be passed to policyholders. Businesses with 50 or more employees that do not offer health insurance will incur stiff fines. There are many restaurants that fall into this category that will face fines of up to $2,000 per employee. Either way, this is costly. Starting in 2014, insurance companies will have to pay a fee (actually, a tax) to the government, based on market share. The same thing will be applied to major pharmaceutical companies. This will add to the cost of insurance premiums and add to the cost of prescription drugs. There are no provisions in this bill that aim to rein in insurance costs, no provisions in this bill for tort reform. In short, I see no cost containment of any kind in this bill.
Overall Cost Effect
If you add back the $600 billion in gimmicks described above, the $500 billion in Medicare cuts that I do not see materializing and the $371 billion "doc fix", this bill will actually add closer to $1.3 trillion to the deficit. When you add this to the $1 trillion/year budget deficits the government is already projected to run, it becomes easy to see a black hole. So do I trust the government's numbers? Well, when Medicare was originally passed in 1965, the program was projected to spend $9 billion in 1990 for hospital reimbursements. How much did the government actually spend that year on hospital reimbursements? Sixty-six billion dollars! The government's actuaries were a little off. So, why should I trust the government's numbers this time? As we are entering a time when demand for health care will explode, it is hard to believe that costs will be well contained. Especially from an organization that runs a bankrupt Social Security program, bankrupt Medicare and Medicaid programs, a money bleeding post office, and whose Freddie Mac and Fannie Mae programs were Ground Zero for the financial crisis we just endured and are still paying for.
All this extra cost has a price. Yields on some high grade corporate debt is now lower than yields on Treasury securities. This may indicate that investors no longer look at Treasury securities as AAA rated securities, no matter what Moody's and S&P say. As an aside, Moody's and S&P are whores to the companies and governments they rate anyway, so if the US government loses its AAA rating, the government will simply buy it. Savvy investors will know better. What this means is that the cost of borrowing will ratchet up higher just through poor credit quality. This will likely lead to a weaker dollar and even higher interest rates. And our leaders think we need to spend lots and lots of money on a new entitlement program? I do not get it. God help us if short-term interest rates go to 5%.
Supply of Healthcare Providers
This bill supporters claim this new bill will add 32 million people to the health insurance rolls in this country. That is great that we can make the healthcare system more accessible to all these people. But, what about the supply of healthcare workers to meet all this new demand? Medicare's actuary projects that approximately 20 percent of all Medicare beneficiaries will either go out of business or stop seeing new Medicare patients. Of course, we have all heard anecdotal stories of doctors who will quit practicing medicine if this bill passes. Meanwhile, will medical schools crank out enough doctors to meet the increased demand? Maybe. Not a reassuring answer, but that's the best answer available right now. Will they crank out enough quality doctors to increase the quality of overall care in the system? Not likely. I do not blame the doctors for this. Many doctors are already working long days, seeing patients in a cattle call type of fashion. It is the best they can do. This situation will not be relieved by the new bill. It will be made worse. Doctors will need to be more highly compensated for their extra time. Once again, this will add to the overall cost of healthcare.
Summary
Healthcare reform (or more accurately, health insurance reform) is something most Americans desire. Freedom to choose their own doctors (which this plan provides), freedom to choose your own plans (which this bill does not provide). But one with massive government involvement is something we as a people do not want. Opinion polls about this healthcare bill consistently showed that about 70% of the population was against it. This bill will provide layers of bureaucracy, permanently higher taxes, astronomical debts that our children, grandchildren and generations of our families will inherit just from this bill alone. Simply put, this was a bad bill, and health insurance reform could have been accomplished much more simply and inexpensively.
Monday, December 21, 2009
The New American Economy?
I recently read Bruce Bartlett's new book The New American Economy, which is a fascinating read if you're schooled in economic theory, or at least have taken an Economics class in college. What first struck me about this book is that Bartlett, a conservative, takes on conservatives and says they have it all wrong. I am not sure if I agree with Bartlett's observations, but I greatly respect his opinions, particularly since he puts much thought and research into what he writes.
Bartlett, like many other economists, states that the current financial crisis is much like the Great Depression. The most striking similarity is that we have experienced a largely deflationary cycle, which Bartlett demonstrates is just as bad as an inflationary cycle. His belief is that Keysian economic theory offers better solutions to the crisis than supply side economics. Although modern conservatives abhor Keynes's theories, Bartlett goes to great lengths to show that Keynes was quite conservative. After reading his book, I tend to agree that Keynes offers better solutions in this environment than supply side economics.
Right now, we need to back up a bit and explain the theories a bit. Lord Keynes believed that stimulating demand was the best way to grow an economy. He stated that this was done in two ways: 1) monetary policy, which includes large injections of capital into the economy by the central bank; 2) fiscal stimulus to increase the velocity of money. GDP is the product of the money supply and the velocity of money. Supply side economics focuses on the supply side of the demand/supply curve, as the name suggests. Supply side is concerned with stimulating supply to get the economy moving. In a general sense, Keynesian economics works best in a deflationary environment, supply side works best in an inflationary environment. With unemployment at 10%, with housing prices down, with auto sales in the dumps, with retail sales in general sluggish, demand needs to be stimulated.
What Part of George W Bush Was Conservative?
Where did we go so wrong as an economy in the first place? In general, I place more blame on the Republicans, particularly during the George W Bush years. Let's face it, we know Democrats like to spend taxpayers' money lavishly on crap that winds up with disastrous results. What is really disappointing is that Republicans took on this same persona during the GWB years. I laugh when people describe GWB as a conservative. I ask "What part of George W Bush was conservative?" I believe that the principles of conservative government involve three aspects: 1) Limited government (this above all else!); 2) Fiscal responsibility; 3) Judicial restraint. Limited government? Bush created a new cabinet level post that is still largely undefined to this day. Fiscal responsibility? Record deficits (although Obama has since obliterated this). 3) Judicial restraint? I hand you the Terri Schaivo case. The saddest part of the Bush years is that most of the self-proclaimed conseratives went along with all of it. So, the conclusion is that we went wrong as an economy because the Republicans abandoned their principles in the name of political expediency.
In the 2004 campaign, Bush proudly proclaimed "the ownership society" and used record home ownership as the shining example. However, this was a house of cards, built by Federal Reserve chairman Alan Greenspan's easy money, the purchase of Democratic politicians (particularly Senator Christopher Dodd and Rep. Barney Frank) by Freddie Mac and Fannie Mae, and the Republicans, led by Bush, playing along. Fannie and Freddie became Ground Zero in the housing crisis, fostered by Greenspan's easy money (which was too easy for too long), and Bush's "ownership society." Of course, I cannot help but laugh at President Obama trying to scold "greedy Wall Street bankers" for not lending money. Who are they going to lend to? Are the banks supposed to make the same stupid loans that got us all in this mess in the first place? Also, for the record, those "greedy Wall Street bankers" were the second largest contributors to Obama's 2008 campaign, behind only trial lawyers.
Stimulus and Republican Irrelevancy
Back to Bartlett's book, he states that the $787 billion fiscal stimulus passed by Congress earlier this year was the right thing to do for the economy. Further, he states that the Republicans will only become more and more irrelevant if they stick to their cutting taxes and cutting spending themes. He may be right for today, but what we are seeing from the Democrats today leads me to believe that we will have a huge inflation problem in a few short years.
Where Bartlett's book really falls short is in describing what all this means for the future. He does a great job of researching Keynes, and lays it out in reasonably good laymen's terms. But what the application of these theories holds for future growth is sorely lacking in this book.
Sub-Optimizing Growth
Historically, government is a terrible allocator of resources. To suggest that we are going to optimize long-run economic growth simply by government stimulus is pure fiction. As the government becomes more pervavise in the economy, we can only assume that long-run growth will be sub-optimized. Since the end of World War II, the US economy has grown by about 3.2% annually. However, a larger government sector can only lesson this long-run average. Waste, corruption, the power to tax and the power to run large annual budget deficits as far as the eye can see will ensure that the economy will grow at a lower level of annual growth, which will translate into lower standards of living for Americans across the board.
So, stimulate the economy to get us out of this mess. Flood the system with money. Then get the hell out of the way. Keynes believed in fiscal stimulus, but he also believed that government should pull all the stimulus and get out of the way as the economy recovered. Otherwise, get ready for another round of double digit inflation, combined with high unemployment and bring on the supply side economics.
Bartlett, like many other economists, states that the current financial crisis is much like the Great Depression. The most striking similarity is that we have experienced a largely deflationary cycle, which Bartlett demonstrates is just as bad as an inflationary cycle. His belief is that Keysian economic theory offers better solutions to the crisis than supply side economics. Although modern conservatives abhor Keynes's theories, Bartlett goes to great lengths to show that Keynes was quite conservative. After reading his book, I tend to agree that Keynes offers better solutions in this environment than supply side economics.
Right now, we need to back up a bit and explain the theories a bit. Lord Keynes believed that stimulating demand was the best way to grow an economy. He stated that this was done in two ways: 1) monetary policy, which includes large injections of capital into the economy by the central bank; 2) fiscal stimulus to increase the velocity of money. GDP is the product of the money supply and the velocity of money. Supply side economics focuses on the supply side of the demand/supply curve, as the name suggests. Supply side is concerned with stimulating supply to get the economy moving. In a general sense, Keynesian economics works best in a deflationary environment, supply side works best in an inflationary environment. With unemployment at 10%, with housing prices down, with auto sales in the dumps, with retail sales in general sluggish, demand needs to be stimulated.
What Part of George W Bush Was Conservative?
Where did we go so wrong as an economy in the first place? In general, I place more blame on the Republicans, particularly during the George W Bush years. Let's face it, we know Democrats like to spend taxpayers' money lavishly on crap that winds up with disastrous results. What is really disappointing is that Republicans took on this same persona during the GWB years. I laugh when people describe GWB as a conservative. I ask "What part of George W Bush was conservative?" I believe that the principles of conservative government involve three aspects: 1) Limited government (this above all else!); 2) Fiscal responsibility; 3) Judicial restraint. Limited government? Bush created a new cabinet level post that is still largely undefined to this day. Fiscal responsibility? Record deficits (although Obama has since obliterated this). 3) Judicial restraint? I hand you the Terri Schaivo case. The saddest part of the Bush years is that most of the self-proclaimed conseratives went along with all of it. So, the conclusion is that we went wrong as an economy because the Republicans abandoned their principles in the name of political expediency.
In the 2004 campaign, Bush proudly proclaimed "the ownership society" and used record home ownership as the shining example. However, this was a house of cards, built by Federal Reserve chairman Alan Greenspan's easy money, the purchase of Democratic politicians (particularly Senator Christopher Dodd and Rep. Barney Frank) by Freddie Mac and Fannie Mae, and the Republicans, led by Bush, playing along. Fannie and Freddie became Ground Zero in the housing crisis, fostered by Greenspan's easy money (which was too easy for too long), and Bush's "ownership society." Of course, I cannot help but laugh at President Obama trying to scold "greedy Wall Street bankers" for not lending money. Who are they going to lend to? Are the banks supposed to make the same stupid loans that got us all in this mess in the first place? Also, for the record, those "greedy Wall Street bankers" were the second largest contributors to Obama's 2008 campaign, behind only trial lawyers.
Stimulus and Republican Irrelevancy
Back to Bartlett's book, he states that the $787 billion fiscal stimulus passed by Congress earlier this year was the right thing to do for the economy. Further, he states that the Republicans will only become more and more irrelevant if they stick to their cutting taxes and cutting spending themes. He may be right for today, but what we are seeing from the Democrats today leads me to believe that we will have a huge inflation problem in a few short years.
Where Bartlett's book really falls short is in describing what all this means for the future. He does a great job of researching Keynes, and lays it out in reasonably good laymen's terms. But what the application of these theories holds for future growth is sorely lacking in this book.
Sub-Optimizing Growth
Historically, government is a terrible allocator of resources. To suggest that we are going to optimize long-run economic growth simply by government stimulus is pure fiction. As the government becomes more pervavise in the economy, we can only assume that long-run growth will be sub-optimized. Since the end of World War II, the US economy has grown by about 3.2% annually. However, a larger government sector can only lesson this long-run average. Waste, corruption, the power to tax and the power to run large annual budget deficits as far as the eye can see will ensure that the economy will grow at a lower level of annual growth, which will translate into lower standards of living for Americans across the board.
So, stimulate the economy to get us out of this mess. Flood the system with money. Then get the hell out of the way. Keynes believed in fiscal stimulus, but he also believed that government should pull all the stimulus and get out of the way as the economy recovered. Otherwise, get ready for another round of double digit inflation, combined with high unemployment and bring on the supply side economics.
Saturday, December 5, 2009
10 Surprises for 2010
Those who work in the investment business anticipate a piece about this time every year from Byron Wien, former strategist at Morgan Stanley entitled "10 Surprises". His 10 surprises reflect events that he believes will happen in the upcoming year that, at the time of writing them, are well outside the consensus thinking. His events usually focus on financical market, economic and political events (for instance, he called Barack Obama's victory in 2008 while the consensus held that Hilary Clinton would be the Democrat's nominee for President). In that spirit I'll launch my top 10 surprises. I make no promises that my top 10 surprises are outside the consensus thinking. If you have any you'd like to add, feel free. Enjoy!
1. The economy will show a brief recovery before falling back into a "double dip" recession. Unemployment will stay persistently high, only dropping to about 9 percent before heading back up to 10 percent.
2. Inflation and interest rates stay at historically low levels. With the economy in the tank, bank assets continue to decline, easing any inflation fears and keeping interest rates in check. The price of gold will drop dramatically, while stock prices will decline 3 to 5 percent in 2010.
3. With opposition to health care reform high, moderate Democrats in the Senate will keep Congress from passing any meaningful health care reform, and the issue is essentially done for the remainder of President Obama's term.
4. At least one major department store chain will go out of business in 2010, likely a mid-range department store chain.
5. The American car companies, particularly GM, will show surprising strength in 2010, with sales coming in better than expected. Sales of imported cars will slow dramatically.
6. The U.S. housing market remains in the doldrums. Housing starts will rise slightly in the first half of the year, but housing prices will remain low. Housing starts will taper off again in the second half of the year.
7. The dollar will remain weak, the deficit will run at another record, and in the fall 2010, politicians, bankers and investors will be discussing the government's ability to borrow further, and fears of a government default on its debt will create a mini-panic on Wall Street.
8. The U.S. will remain mired in a stalemate in Afghanistan, with no discernible progress. President Obama will be pressured by his own party to get out, while the Republicans of all people will be supportive of his policy to remain in the worn torn country.
9. Republicans will pick up significant seats in both houses of Congress, but will fail to win a majority in either house. Republicans will pick up at least 25 seats in the house, and maybe 4 in the Senate.
10. Finally, 99 percent of us will break our New Year's resolutions within the first two weeks of the new year. But not to worry, for tomorrow is another day.
1. The economy will show a brief recovery before falling back into a "double dip" recession. Unemployment will stay persistently high, only dropping to about 9 percent before heading back up to 10 percent.
2. Inflation and interest rates stay at historically low levels. With the economy in the tank, bank assets continue to decline, easing any inflation fears and keeping interest rates in check. The price of gold will drop dramatically, while stock prices will decline 3 to 5 percent in 2010.
3. With opposition to health care reform high, moderate Democrats in the Senate will keep Congress from passing any meaningful health care reform, and the issue is essentially done for the remainder of President Obama's term.
4. At least one major department store chain will go out of business in 2010, likely a mid-range department store chain.
5. The American car companies, particularly GM, will show surprising strength in 2010, with sales coming in better than expected. Sales of imported cars will slow dramatically.
6. The U.S. housing market remains in the doldrums. Housing starts will rise slightly in the first half of the year, but housing prices will remain low. Housing starts will taper off again in the second half of the year.
7. The dollar will remain weak, the deficit will run at another record, and in the fall 2010, politicians, bankers and investors will be discussing the government's ability to borrow further, and fears of a government default on its debt will create a mini-panic on Wall Street.
8. The U.S. will remain mired in a stalemate in Afghanistan, with no discernible progress. President Obama will be pressured by his own party to get out, while the Republicans of all people will be supportive of his policy to remain in the worn torn country.
9. Republicans will pick up significant seats in both houses of Congress, but will fail to win a majority in either house. Republicans will pick up at least 25 seats in the house, and maybe 4 in the Senate.
10. Finally, 99 percent of us will break our New Year's resolutions within the first two weeks of the new year. But not to worry, for tomorrow is another day.
Friday, November 20, 2009
On Being A "Part Texan"
Recently, my grandmother passed away at the ripe old age of 91, and my Mom and sister went to her funeral in Amarillo, Texas. What struck me upon their return was the way my Mom spoke so fondly of Texans, and their friendliness in particular. Her nostalgia got me to thinking about my days in Texas and my recollections of Texans.
My memories of Texas are far different than my Mom's. She was born in Amarillo and spent much of her childhood there. I went to college in Waco, graduating from Baylor in 1989. Her world was west Texas, mine was central Texas. But even though those two towns are worlds apart, my guess is that our impressions of Texans are quite similar.
My biggest impression of Texans is that they are a very proud people. I remember the prevailing thinking of the Shawnee Mission South students from my high school days being "I can't wait to get out of here and get out of Kansas." Yet the Texans I knew did not want to leave Texas. They were proud of their state, and their heritage and they wanted to stay. Of course Texans are not perfect. They talk funny. For instance, they use the word "Y'all" a lot. In Texas, the word "fixin" means preparing, not repairing. For example, they would say they were "fixin" to go to dinner. I would start thinking "what's wrong with the dinner?" and how they would go about fixing it. Finally, the one natural resource that is most responsible for the wealth in Texas is oil (pronounced oy-ul). Yet Texans simply don't know how to pronounce it. They say "ul". You'd think they would know how to pronounce the name of the resource that is responsible for so much of the state's wealth! But my funniest memory is the time my Dad was introduced to the mother of my good friend, Chris Pattillo. She introduced herself by saying "Hi, I'm Janet Pattillo," in the thickest east Texas accent I've ever heard. My Dad didn't understand a word she said! I had to finally tell him what her name was. Clearly, my Dad was out of his element.
Of course my biggest memory from Texas was meeting my wife. That made all the lonely days away from home worthwhile. I also made some good friendships for which I am thankful. Other memories of Texas include kicker dancing, chicken fried steak, cowboy boots, and a religion known as high school football. To this day, I consider the Baylor campus my second home. This really hit me on a Spring Break trip in 2007, when I took my boys to the campus. I was so happy that the core of the campus was largely the same as I remember it. About the only thing that had changed is that the "rocket launcher" sculpture had been taken out. Pat Neff Hall looked as majestic as ever. I took a walk through the Hamkamer School of Business (Hamkamer High to non-business types).
No particular point to this except I'm waxing nostalgic about my past, an exercise we all do from time to time. I know that Kansas City is my home, but I also know that my time in Texas is a big part of who I am and I am thankful for that time in my life. I am a Kansan and I'm proud of that. In a way, I am also at least part Texan and proud of that as well.
My memories of Texas are far different than my Mom's. She was born in Amarillo and spent much of her childhood there. I went to college in Waco, graduating from Baylor in 1989. Her world was west Texas, mine was central Texas. But even though those two towns are worlds apart, my guess is that our impressions of Texans are quite similar.
My biggest impression of Texans is that they are a very proud people. I remember the prevailing thinking of the Shawnee Mission South students from my high school days being "I can't wait to get out of here and get out of Kansas." Yet the Texans I knew did not want to leave Texas. They were proud of their state, and their heritage and they wanted to stay. Of course Texans are not perfect. They talk funny. For instance, they use the word "Y'all" a lot. In Texas, the word "fixin" means preparing, not repairing. For example, they would say they were "fixin" to go to dinner. I would start thinking "what's wrong with the dinner?" and how they would go about fixing it. Finally, the one natural resource that is most responsible for the wealth in Texas is oil (pronounced oy-ul). Yet Texans simply don't know how to pronounce it. They say "ul". You'd think they would know how to pronounce the name of the resource that is responsible for so much of the state's wealth! But my funniest memory is the time my Dad was introduced to the mother of my good friend, Chris Pattillo. She introduced herself by saying "Hi, I'm Janet Pattillo," in the thickest east Texas accent I've ever heard. My Dad didn't understand a word she said! I had to finally tell him what her name was. Clearly, my Dad was out of his element.
Of course my biggest memory from Texas was meeting my wife. That made all the lonely days away from home worthwhile. I also made some good friendships for which I am thankful. Other memories of Texas include kicker dancing, chicken fried steak, cowboy boots, and a religion known as high school football. To this day, I consider the Baylor campus my second home. This really hit me on a Spring Break trip in 2007, when I took my boys to the campus. I was so happy that the core of the campus was largely the same as I remember it. About the only thing that had changed is that the "rocket launcher" sculpture had been taken out. Pat Neff Hall looked as majestic as ever. I took a walk through the Hamkamer School of Business (Hamkamer High to non-business types).
No particular point to this except I'm waxing nostalgic about my past, an exercise we all do from time to time. I know that Kansas City is my home, but I also know that my time in Texas is a big part of who I am and I am thankful for that time in my life. I am a Kansan and I'm proud of that. In a way, I am also at least part Texan and proud of that as well.
Friday, September 4, 2009
Thoughts on Health Care
The health care debate continues to generate a lot of noise, which has caused me to stop and ponder what will work and what will not. I approach this from a number of different angles: as a business owner, as a matter of faith, and from my own education in the area of government and economics.
From a purely economic perspective, the idea of a single-payer health care system is a disaster waiting to happen. A government monopoly (or any monopoly for that matter) will become bloated, costly, inefficient and unresponsive. There is no incentive to behave otherwise. The beauty of competition is that keeps people sharp, ensures maximum effort, and keeps costs low. So when I hear the President or anyone in Congress tell us that a single-payer health care will save money, I don't know whether to laugh hysterically or hide my money under a mattress. A look at other government monopolies such as Medicare for the elderly, or the Post Office tell us that their history of operating monopolies is not good.
The other truth about government subsidies is that when a government subsidizes something -anything - you get more of it than you ever planned for. We subsidized retirement with Social Security, and now we have more retirement than we can handle as a society. We fought a "war on poverty" under the Johnson and Nixon Administrations with welfare - and poverty won! If the government subsidizes healthcare, we will get more demand for healthcare services than our system can handle. This will result in long waits for some procedures, and yes, it will inevitably lead to rationed healthcare. From a purely economic standpoint, single-payer healthcare is a loser.
But what about from a faith perspective. I was particularly intrigued when the pastor of my church, Adam Hamilton, urged the congregation to think about this from the prespective of Jesus who would admonish us to care for the sick and the poor. I do not believe that Jesus would have any comment about the economic ramifications, or the evils of single-payer healthcare. He really didn't have much to say about government, except pay your taxes. I have to admit, this is where I struggle because I do not know what contribution I can make. Perhaps my role as a business owner helps. I do offer my employees, and their families, health insurance. Not all of them take it. Under the Obama plan, my business would have to pay a 2-6% payroll tax, which would be crippling to my business.
Conservatives are right to criticize the President's plan. I do not believe that a government-run system is the answer. Opening up competition to more insurance companies, on a state-by-state basis, would be a good first step. The best way to reduce costs is by increasing competition. But what about increased access? Millions still cannot afford health care services. This conundrum between economics and faith leaves me twisted on the subject. If I follow my faith 100% on this, I would neglect the economic side. With the economy in a very weakened state, the added burden of increased healthcare costs could sink the entire system. But if I follow my purely economic instincts, then I am just plain cold hearted.
Bottom line, increasing access to the system will increase costs to society. It will also stress the healthcare system. We have addressed the subject of increasing access, but what about increasing suppliers of healthcare services (i.e. doctors)? If you are looking to cut health costs, it seems to me there is little incentive to go become a doctor, particularly a primary care physician. Increased demand combined with steady supply leads to shortages, long lead times (waiting 6 months for an operation), etc...and ultimately to rationed care.
There are no easy answers. Right now, I do not have the answer. I think I have a better idea of what I do not want to see versus what I do want to see.
From a purely economic perspective, the idea of a single-payer health care system is a disaster waiting to happen. A government monopoly (or any monopoly for that matter) will become bloated, costly, inefficient and unresponsive. There is no incentive to behave otherwise. The beauty of competition is that keeps people sharp, ensures maximum effort, and keeps costs low. So when I hear the President or anyone in Congress tell us that a single-payer health care will save money, I don't know whether to laugh hysterically or hide my money under a mattress. A look at other government monopolies such as Medicare for the elderly, or the Post Office tell us that their history of operating monopolies is not good.
The other truth about government subsidies is that when a government subsidizes something -anything - you get more of it than you ever planned for. We subsidized retirement with Social Security, and now we have more retirement than we can handle as a society. We fought a "war on poverty" under the Johnson and Nixon Administrations with welfare - and poverty won! If the government subsidizes healthcare, we will get more demand for healthcare services than our system can handle. This will result in long waits for some procedures, and yes, it will inevitably lead to rationed healthcare. From a purely economic standpoint, single-payer healthcare is a loser.
But what about from a faith perspective. I was particularly intrigued when the pastor of my church, Adam Hamilton, urged the congregation to think about this from the prespective of Jesus who would admonish us to care for the sick and the poor. I do not believe that Jesus would have any comment about the economic ramifications, or the evils of single-payer healthcare. He really didn't have much to say about government, except pay your taxes. I have to admit, this is where I struggle because I do not know what contribution I can make. Perhaps my role as a business owner helps. I do offer my employees, and their families, health insurance. Not all of them take it. Under the Obama plan, my business would have to pay a 2-6% payroll tax, which would be crippling to my business.
Conservatives are right to criticize the President's plan. I do not believe that a government-run system is the answer. Opening up competition to more insurance companies, on a state-by-state basis, would be a good first step. The best way to reduce costs is by increasing competition. But what about increased access? Millions still cannot afford health care services. This conundrum between economics and faith leaves me twisted on the subject. If I follow my faith 100% on this, I would neglect the economic side. With the economy in a very weakened state, the added burden of increased healthcare costs could sink the entire system. But if I follow my purely economic instincts, then I am just plain cold hearted.
Bottom line, increasing access to the system will increase costs to society. It will also stress the healthcare system. We have addressed the subject of increasing access, but what about increasing suppliers of healthcare services (i.e. doctors)? If you are looking to cut health costs, it seems to me there is little incentive to go become a doctor, particularly a primary care physician. Increased demand combined with steady supply leads to shortages, long lead times (waiting 6 months for an operation), etc...and ultimately to rationed care.
There are no easy answers. Right now, I do not have the answer. I think I have a better idea of what I do not want to see versus what I do want to see.
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