2013

This entry will talk about taxes in the United States.  I know that sometimes it is hard to understand the numbers, so hopefully I can pose it in a way that the numbers make sense.  After all, what is a Trillion Dollars? 

The US economy is forecast, according to US Debt Clock, to be over $15 Trillion dollars for 2012.  We have been running Trillion dollar deficits, that is new debt for the last 4 years.  So as you can see,  almost one third of our GDP has been borrowed over the last 4 years.  Our debt as a nation is over $16 Trillion, or more than we produce in a year.  Of course, long term debt can some times exceed yearly income.  In our personal lives, we may buy a house with borrowed money.  To use myself as an example, we bought a house in 2005 for $200,000.  My income is no where near that.  The result is a mortgage, so in 2005, I spent more than my income, however since that time I have paid the morgage, not refinanced the debt.

While it is not necessarily a bad thing to spend more than your income, you still need to be sensible.  You need to have a way to pay back the loan.  In government's economy, they have tax revenues.  But  they haven't stayed within their means for many years.  It would be like my family buying another house every year.  It is unsustainable.  Don't take my word for it, ask the Greeks, or the Italians, or the Spaniards. 

During the campaign season, both candidates say "I have a plan".  But what is that plan?  Do you know?  The Desmoines Register interviewed President Obama, and here is a quote from that transcript:
"Q: Great. Mr. President, we know that John Boehner and the House Republicans have not been easy to work with, and certainly you’ve had some obstacles in the Senate, even though it’s been controlled by the Democrats. At the time, whenever -- we talked a lot about, in 2008, hope and change. I’m curious about what you see your role is in terms of changing the tone and the perception that Washington is broken. But particularly, sir, if you were granted a second term, how do you implode this partisan gridlock that has gripped Washington and Congress and basically our entire political structure right now?

THE PRESIDENT: Well, Rick, let me answer you short term and long term. In the short term, the good news is that there’s going to be a forcing mechanism to deal with what is the central ideological argument in Washington right now, and that is: How much government do we have and how do we pay for it?

So when you combine the Bush tax cuts expiring, the sequester in place, the commitment of both myself and my opponent -- at least Governor Romney claims that he wants to reduce the deficit -- but we’re going to be in a position where I believe in the first six months we are going to solve that big piece of business.

It will probably be messy. It won’t be pleasant."*Desmoines Register

Let's look at the answer.  "So when you combine the Bush tax cuts expiring, the sequester in place...  I believe in the first six months we are going to solve that big piece of business."  Hmm, seems that as tax payers, if the president is re-elected we can expect a huge tax hike, almost  a half trillion dollars.  And, the sequester calls for 1.2 Trillion dollars in automatic budget cuts, with defense getting hit with almost half that figure.  Let's face it, we can not cut interest expense.  There are certain things we also can do little about, like Social Security and Medicare, contrary to the political commercials I've seen.  So where on Earth do we find the other cuts?  Are you ready to give up your mortgage deduction?  Health and Human Services, Housing and Urban Development and the Justice Department will all be slashed.  It's nice that we hear we need more teachers, and police, but the reality is we will lose them with this plan.

When you add the Bush Era Tax Cuts (and I really don't like that title) and the Sequester, there will be just under $2 Trillion dollars ripped from the private sector. Or about 1/7 th of our national income (GDP).  In the weak economy that we are enduring today, that would be devastating, not merely messy and unpleasant.  At the same time, if you are a regular reader, medium income is down by $4,000 and health care costs are up by almost $3,000, and gas prices have doubled.  And the rhetoric of tax the rich is not a solution.  If you confiscate all their assets it would not run the government for one year, in fact much less.  After that they would be broke, guess who's next?

Before we can heal this economy two things need to happen.  First, Congress needs to receive a physcological examination, as to why they think they have no bottom to the pile of money coming in to Washington.  And second, the President needs to accept that you can not grow an economy by taxing money away from the people.  However, by growing the economy the pie will get larger.  The excess in revenue collections should be pledged to paying down debt, not some ear mark or attempted vote buying scheme hatched by Washington insiders.

From 1981 until 2000 the economy was relatively good, few ups and downs, but overall good.  Why during that time was the debt not paid?  Why do we find ourselves over $50,000 in debt per person?  Why haven't our politicians been better managers of the money sent to them in taxes?  Let's hope that it is not too late for US to change our ways!

October Surprise

It is political season in the United States.  Politics and economics are incestuously intertwined and the very root of our civilization.  Elections in the US are based primarily on economics, there are occasional deviations, but We the People will look out for our own welfare when deciding who to vote for or what to vote for.  As such, often times in October incumbents will try to reinforce that they are good for the economy, and challengers will dispute the incumbents ability to lead the economy.  2012 is a classic year.

As we look back, the last 5 years have been rather tough economically in the US.  Gas prices have more than doubled.  Health care costs are up.  Unemployment is up, real unemployment not the unemployment that is being reported by major media.  GDP growth is lethargic.  Food Stamp or SNAP participation is up.  There are more people on disability.  Women's income is down.  Lower earning individuals have been stressed.  Mortgages are being foreclosed.  Do I need to continue?

So what will be the October surprise?  I believe I saw an inkling today, gas prices are forecast to drop by 50 cents a gallon over the next few months.  And this may work.  As I touched on in previous posts, gas prices may be the most important economic statistic when it comes to voters.  All voters are affected by energy prices in general, and gas prices in particular.  Gas prices are advertised on many street corners throughout the land.  And high prices hurt the most economically vulnerable first.

Why do these economically vulnerable get hurt worse?  Primarily because they are least able to afford rising costs of anything.  They generally drive older, less efficient cars, and often times when energy prices rise, sales fall bringing lay offs.  High energy prices drag our economy, like it or not we are an energy based economy, and the energy that we use most is petroleum and other fossil fuels.  This is what makes President Obama's refusal to encourage more oil production on our own territory perplexing.  I know that President Obama is a progressive or liberal, or what ever the label is today.  Progressives see oil as the cause of global warming and environmental destruction.  Oil is what drives our economy at this point in history, and the price of oil can determine the outcome of our elections.

Bill Clinton may have said it better than any other President, or candidate I remember, "its the economy, stupid".  And since the price of oil is so integrally part of the economy, it could be modified to say its the price of oil, stupid.  President Obama has said it is previous administrations that have caused our troubles, however, after four years of his leadership, why hasn't it gotten better?  Is not the overall economy the most important thing a President works on?  Has that not been the case since the inception of our Republic?  Think about all the issues of the past, they all have an economic basis.  Slavery and the civil war.  The whiskey rebellion.  And even before we were a country, the Stamp Act, Boston Tea Party, and our Revolution where all economically based.

Those doing well, generally do not want change.  We had loyalists during the Revolution.  Today we have what Mitt Romney called the 47%.  There is a difference, but the safety nets installed since the 60's have made people more dependent on government.  So to economically offer them more stuff; free contraception, health care, more food stamps, cell phones, or other largess, means you in effect buy their vote.  They are voting by their personal economic standing.  They are the ones most affected by energy price increases, and they are the ones that feel betrayed right now by the current administration.  That being said, the opposition scares them.  The opposition wants them to take more responsibility for their economic lives. 

Today we are more economically caste than in previous generations.  Henry Ford did not have a lot of money, until he used the assembly line.  Frank Woolworth went bust twice before he opened what we know as the Woolworth Dime Store.  August Busch almost went out of business during the prohibition.  Today, to open a modest business is very costly, many people cannot afford it.  So they are forced to "work for the man", which they feel doesn't care for them.  The current American Caste system is keeping people from thriving as in past years.

And that caste system is a political problem.  Government is a user of economic resources, not a producer.  The bigger our government gets, the less resources are available to fuel our economy.  When the government attacks the price of energy, by raising CAFE standards, it actually hurts the economy by making cars more expensive.  More expensive cars equates to less sales, and less employment, and doesn't really accomplish what the desire is, lower energy prices.  To bow to a Saudi Prince offends our sense of nationalism.  There is a simpler answer.  Control our own energy resources.  Start now by drilling, or mining.  Work toward other technologies like solar or wind, but they must be home grown.  Balance the two so as not to affect the economy, balance the budget.

Allow those who do the heavy lifting to benefit.  Do not try to pick winners.  There are still people out in their garages, working after work to find a way to harvest other energy sources.  And one day, if we do it right, petroleum and fossil fuels will be like the buggy whip of the 1800's.  But until the internal combustion engine was manufactured cheaper than the up keep on a horse and wagon, the buggy whip was a good investment.  Government didn't lead that transformation, and as much as they like to think they can lead the next, they can't, it is not what they do best.

Be a doer!

”"Do or do not, there is no try. "Yoda Jedi master
from the Star Wars film series

This is one of my favorite quotes, and yes I know Yoda is a fictional character.  But it says it all.  Last night as I listened to the Presidential debate between Mitt Romney and Barack Obama, I thought of this quote.  Ironically today, I opened my email, and there it was again.  So I was inspired to write this post.

Let's review the last four years, from an economic perspective.  First, the medium income in our country has decreased by around $4,000.  This means that people are making less money.  It also means that they have less disposable income to spend and stimulate the economy.  They are primarily living and holding back on everything else.  What else can they do?  We have to get to work, so we buy gas and a few cars.  We have to eat, so we buy food, but even there we stick to survival basics, and have not been visiting restraunts as frequently as the economy needs us to visit them.  This affects the bottom line of food sellers, restricting their expansion, and hindering employment, which stands at 23 million people.

Healthcare costs are up $2500 per year.  More stress on our incomes, but what if we get sick?  Yet our politicians spend their time trying to "help" us by mandating healthcare.  Yet they let us get sidetracked by the contraception arguement.  That is a minor issue, but is preventing us from taking care of the major issue.  Contraception is cheap, even if you do not have healthcare.   Walmart lists Trojan condems at $7.47 for 10, or 75 cents each.  Many pharmacies offer the "pill" for around $10 per month.  And, because of peoples passions and religious beliefs, we are easily sidetracked and lose sight of the larger picture.  Personally, if $10 a month is too much, you probably shouldn't be procreating.

Food costs are increasing, and they will increase more over the next year.  Besides using corn to put in our gas tank, driving up the price of corn, we have the results of the midwest drought to contend with.  More stress on our individual budgets.  But we have to eat...

Because of the unemployement rate there is more supply and demand pressure to keep wages down.  If you need a job, and have been earning $50,000 a year, in this economy if you are offered a job for $45,000, would you take it?  What if your unemployement insurance ran out, then how much would you accept?  Anything to feed your family?  Remember there are 23 million unemployed, and many million more who gave up on finding work.

There is no disposable income left for vacations, amusement park or any other liesure activity.  Its these elective things that can drive our economy. 

 

So how does the quote lead back?  Our current President took the stand that he was trying.  He "inherited" a bad economy.  Its not his fault.  But Mr. President it has been four years, how many more do you need to "fix" the economy?  I believe it is just a matter of economics.  The President is a follower of Keynes.  Keynes believes, like Marx, that the government can plan the economy.  At no time in history has this planning worked.  Is our President too hard headed to realize this?  I have been told the definition of insanity is doing the same thing over and over again and expecting it to work.

It didn't work at Plymouth rock, we celebrate the end of that experiment on Thanksgiving Day.  It didn't work in the former Soviet Union and eastern Europe.  It isn't working in Cuba or Venezuela.  Europe is a mess.  China is moving toward a more open economy.  Why are we going the other direction?

It's Not Just Economics

I read a news report today about a poll.  Not a political poll in the sense of the horse race, but rather a poll on our Federal Government, done by Pew Reasearch.  In this poll a full 86% of citizens are frustrated with the Federal Government.  Governments can cause this frustration several ways.

In a royal society, as France was in the late 1700's the monarch can cause it by not caring for his people, using them as cannon fodder or just as a source for his opulence.  The famous non quote from that time was "let them eat cake".  The society revolted in a bloody revolution which saw the introduction of the guillotine.  It was not a good thing.  Royalty always passes the government from generation to generation in one family line.  Eventually, there will be a stupid king, it is inevitable.

Like royal society, there are dictators.  Dictators are like royals, except they do not come from a select blood line.  North Korea is an example of a dictatorship.  In these societies, again, the people are looked at as a source of income, or an army to procure more land or riches for the dictator.  Again, and usually sooner than in a royal system, the dictator is deposed by the people.

There are tyrannies in all forms of government.  The Romans started as a republic, and devolved into royalty.  And the blood line failures eventually invited invasion, and the down fall of the empire.

In the United States, our Founding Fathers set up a republic based on commonly held virtues; Life, Liberty, and the Pursuit of Happiness.  All great societies must be vigilant to keep true to their principals, it is when these principals are abandoned that the country weakens. 

There is a second thing to notice in the above.  All the failed societies failed primarily because of economics.  They say that to ignore history is to repeat it.  This is why I write these blogs.  We as citizens of the United States still have one thing that none of those failed societies had, and that is the vote.

But our vote is threatened today.  Fraud in elections, negative advertising, out right lying about opponents is a threat to our vote.  In our busy world many people rely to heavily on political ads to form their opinions, some of these ads are outright lies.  In Missouri, one candidate for governor is actually suing the other one for lying.  In the mean time, who is watching the economy?  It seems that politicians in general do not care about the economy, just getting re-elected.  Promise to spend money, and you're a shue in.  Most congressional districts seem to judge their congress person by how much comes back to the district.  This is NOT good economic policy, it is one of the reasons we have such massive debt.

The election is getting closer, protect your right to vote by doing at least minimal research on the choices you have.  Please do not let the politicians confuse us and cost us this election.  Bottom line, I do not care who anyone votes for, but I do look down on them if they don't know why... and "because X Party is for Y" is not a good reason.  Vote Democrat, Republican, or other parties, but do so because the represent your ideals, and research to know why you are in sync with them.  I love my grandfather, but there was one thing he told me that never made sense in my adult life.  He said:  "...This voting thing is easy, just go in to the booth, close the curtain, and yank the donkey's tail."  while I am my grandfather's grandson, I respect him more than he ever knew, on this one thing we disagree.  Vote for the man or woman that represents your ideals and hold them to those ideals when they go to the jungle that is Washington DC.  And last, vote for the candidate that in your opinion is the strongest on the economy, it may save our country from failure experienced by other great societies.

The Debate

I love to observe things around me.  And while this isn't economics, who wins the Presidency does determine the tack that our economic policy will take.  Rather than try to figure out what each candidate will promote, I thought it cold be fun to try to see how different networks might cover it... Let's see if I'm right :)

This is my observations on tonight's debate, of the different networks.

 

Let's look at ABC first.

 

They will probably concede, that president Obama won the debate. They would probably point to specific questions that president answered in a way that they are in agreement with.  They will specifically point to green energy and the differences between the rich and poor in a effort to accentuate the differences between progressives and conservatives. They will ignore the fact that Romney is more in the middle of the political spectrum.

 

CBS

 

CBS will probably do a lot of what ABC does; will do with more restrained style. They will probably have a number of reporters off-site perhaps in debate watch parties primarily on the east and west coasts. Of course these people will be predisposed to favor the current administration. Their will be a lot of partying, and that will be there way of showing the president obviously won the debate.

 

NBC

 

NBC will probably suggest you go check out MSNBC, where Chris Matthews will have another tingle running up his leg. They will suggest that Romney had a horrible debate appearance, which is too bad for his campaign. They will once again play the 47% tape for the audience to hear.

 

CNN

CNN will have a score on a debate showing president Obama scored a knockout. They will probably promote the latest CNN poll showing the president with a 10 or 15% lead.  And a large map, mostly blue in color saying the election is in the bag.

 

FOX

 

Fox news will have a roundtable discussion including Juan Williams, Sean Hannity and perhaps one of their other hosts. I really don't know how they will score the debate. Fox news may even show the newest Obama tape from the last election, the tape that shows him at a speech in 2007 with Jeremiah Wright and other black leaders were even his accent changed from normal.

 

Local news

 

Local stations will follow the debate with their newscasts. Most will play clips primarily showing how the president won the debate. Then they will move on to other local things including weather and sports.

Not only Gas

In a previous post we discussed why gas prices, really oil in general, can affect the economy.  There was a story yesterday on the Federal government 'fining' hospitals if patients are readmitted to frequently. 

How many of you know where hospitals get the money to pay those fines?  And the fines are expected to average about $125,000 the first year.  Hospitals make money by seeing patients.  If they are fined for readmitting too frequently, they will do a couple things.  First, they might just refuse the business if it involves a government health care program like Medicare.  Some seniors have found that doctors no longer wish to accept patients on Medicare because of the low pay, slow pay time, and other red tape involved.  It makes it unprofitable.  Will hospitals be next? 

While the government may impose fines, they also tell the hospital how much they will pay per occurrence.  Hospitals are unable to raise rates to cover the fines, at least on government sponsored health care.  They would have some latitude to raise prices on those patients who pay cash, or are privately insured, causing those people's costs to go up.  Health care insurers, who also need profit to stay in business would have to raise rates to their subscribers to cover increased costs.  That hits the majority of people.  Is that one of the hidden taxes of health care reform?  And don't forget, if you do not have health insurance, there will be a fine collected by the IRS when you file your taxes, effectively holding up the market for insurance.  The rich and big corporations can side step this by self insuring, then carefully picking their employees to minimize risk.  The middle class will pay once again.

It is government meddling in the market that has caused health care costs to rise, government meddling will not solve the problem now.  Prior to World War II health insurance was rare.  For the most part people paid the doctor when they went to see him, or made arrangements to pay the provider if they could not afford the lump sum, remember the stories about paying with a chicken?  In World War II the government imposed wage freezes, meaning that to attract quality employees, companies could not offer more money, they could offer benefits though and the big one was health insurance. 

As more people were exposed to health insurance, they found it was a useful benefit.  After the war, insurance companies fought for those dollars and consumers benefited.  As more people used health insurance, however, it took more and more of them out of the reality of actually paying a doctor, that's what the insurance company did.  If the child sneezed, off to the doctor demand skyrocketed.  Doctors and other providers found that the insurance company did not argue much back then, just wrote the check, and doctors gradually increased their fees.  There was no market force to control costs.  At first there were slight premium increases, but as the machine started rolling the increases accelerated. 

Along came HMO's, who reduced costs by trying to control costs paid to doctors, they had negotiated rates for particular services.  HMO's could have helped reinstall the market place, but for the most part they found it was easy to pass along price increases and this never eventuated to a major degree.  As costs spiraled up ward, more and more people were being priced out of the market.  Now when they need emergency help, they show up at an ER, who are required to stabilize them and if they don't pay... whatevverrr.  So now along comes government, to try to fix the problem they created.  Regulations have not controlled costs but pushed more people off the insurance rolls.  And as mentioned earlier prevented some seniors from seeing the doctor of their choice.

Today we have a major problem, before WWII doctors were primarily middle class.  Today, they are  upper middle to upper class.  To take money away from them would discourage them from staying in the industry and others from joining it.  But if the pre WWII market forces were still in effect, we probably would not need to be discussing this as much.  To try at this point to reinstall the market forces would actually force us to declare health insurance illegal.  Then individuals would be forced to monitor their own costs, and choose health care like anything else.  But that would harm millions of peoples access to health care and I'm not sure this is a viable option anymore.

In the last 3 1/2 years median income has decreased by over $3000.  Gas prices have doubled, health care will go up soon, and the drought across the heartland this summer will push up food prices.  This will reduce disposable income and it is possible, perhaps probable that we dip in to recession, or even depression.  Even if reforms are made, the economic hurt will probably harm the economy.  But our leaders will try to do what they always do, push off the really hard things as long as they can, then set up a bipartisan commission to study the problem, then reject the suggestions of that commission.  It isn't good for getting votes...