Tag: economics

Budget Math

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I wish I knew where they got their deficit spending number, but KVNU’s For The People really caught my attention with the side-by-side listing of the deficit spending in the budget President Bush just signed. They claim that $240 Billion of the $555 Billion is deficit spending. That’s over 43% of the total budget being paid with imaginary cash. The original excuse for deficit spending (back in the Depression era) was that it could be used to fund emergencies, as a temporary measure to get us past tough times such as war or depression. The problem here is that no matter how great the emergency, if you are spending everything you earn plus another 76% of what you are bringing in it’s time to find a way to reduce your costs by 40% (which would still leave us with deficit spending this year of $20 Billion).

What really got me about all of this is that although we are in a war right now that war only accounts for $70 Billion so we could remove that spending completely and we would still have $170B out of the $485B being paid on promises. (That’s still 35% deficit spending.) There was $28B in domestic spending that the President didn’t want (only $142B to go) and $10B in pork earmarks. In other words, nobody even attempted to spend less than 30% of the budget with play money. If Congress had started with the budget proposed by the President and simply subtracted everything they didn’t like we would still have been spending more than $100 Billion dollars that we didn’t have. I think we can say that this government is numerically bankrupt – who cares that they exercised their power to raise their credit limit so as to prevent them from being financially bankrupt this year.

Tags economics, money

National

A Tax Debate Would Be Wise

Post author By David
Post date December 15, 2007
8 Comments on A Tax Debate Would Be Wise

Apparently the New York Times would like to have a public debate about taxes. The editorial board expresses their despair that none of the presidential candidates talk about taxes. I think that they are completely right that such a debate is necessary. Beyond that it seems that there is hardly anything that we agree about on this subject. When they turn to discussing their views as opposed to the positions and rhetoric of the candidates they start by saying:

Still, going forward, competent governance, let alone achieving great things, will require more revenue, period.

I consider it to be a very safe bet that they mean that on an perpetual basis. As a proponent of fiscal responsibility I could be sold on the idea that we need more revenue for the time being (meaning the next few decades) to help us dig ourselves out of the financial pit we are in (as a result of our spending in the last few decades). But I think that part of the solution will have to include reducing the spending on some government programs this should include increased efficiency in such programs, but wisdom dictates that it also include a reduction in some programs or services.

The editorial board suggests three opportunities that we can address in the necessary tax debate. Of those three, only one really strikes me as a real opportunity rather than empty dialog:

To create a system that does not disproportionately favor investment income over income from work.

I think we agree that the idea that the Democrats gave lip-service to when they gained the majority of both houses of Congress – paying for new programs with reductions elsewhere or new taxes – is a nice idea. The problem is that it really makes little difference if they do that without also making sure that they are actually paying for existing services as well, rather than allowing for deficit spending where it already exists.

The bias of the New York Times is irrefutable when they make statements such as:

. . . the exorbitant cost of the flat tax would likely be paid by cutting Medicare, Social Security and other bedrock government services.

If Medicare and Social Security are “bedrock government services” then I wonder how our nation survived its first 150 years without those services. Though I may easily be accused of being willing to punish poor people for being poor by cutting these government programs, I promise that I would happily support any such program if we did not have debts in the Trillions and if Congress were not deficit spending to implement the programs. Though I believe that these programs are not necessary for government, I am not one to believe that government can never do any good with such programs. The problem I see is in allowing our federal government to use illusory tricks such as deficit spending that even state governments (let alone private individuals) are not allowed to do. The fact is that if a business operated like the government the leaders of that business would be prosecuted and jailed in a truly just society.

More difficult than tax reform itself may be the search for a candidate with the political courage to speak frankly to the American people about the nation’s budget problems and the leadership skills to solve them.

There is a candidate with the political courage to speak frankly about our budget problems – his name is Ron Paul. They might decide to argue that he lacks the leadership skills to solve the problem but nobody can credibly argue that he lacks the political courage to speak frankly about it. I think that this is a debate we should have. Perhaps the New York Times could start it by hosting a debate or forum in which they could invite Dr. Paul to participate. They could also invite David Walker, the Comptroller General of the United States, who is also anything but timid in speaking about this subject. They can invite whoever they want to defend their positions where they obviously differ from these two men, but with their influence the debate would be hard to ignore once they got the ball rolling. We might even get all the candidates talking about it like they should be.

Tags economics, issues, media, New York Times, Ron Paul, taxes

National

A Lame Duck Can Bite Harder

Post author By David
Post date December 13, 2007
No Comments on A Lame Duck Can Bite Harder

As illustrated by the current budget standoff, an unpopular lame duck president has powers that often elude presidents earlier in their tenure. Prior to 2006 Bush never vetoed anything. Now he has no re-election to worry about so he has nothing to lose by vetoing every bill Congress sends that is not in line with what he wants. Eventually they have to override the veto or fall in line with his request.

Because his popularity is already low he does not have to worry about disappointing anyone by sticking to his favored position. By standing firm he takes the chance of raising his popularity. If that fails the other members of his party are already prepared to keep their distance from him. The odds are highly against this coming out good for the Democrats.

Tags Bush, economics, issues, vetoes

technology

Winning the Oil Endgame

Is there anyone who would not want to see our nation profitably end its dependence on foreign oil? I doubt that there is anyone like that (not counting the Saudis of course). If you are anything like me that idea – profitably ending our dependence – sounds like a fairytale but that is exactly what Winning the Oil Endgame is about. According to the book it is not only possible, but even relatively simple.

I learned about this through the video by one of the authors of the book (posted below) and my only two questions are – will we really do it? and is there a catch (such as did they account for the oil necessary to make the carbon-fiber materials referenced in this talk)?

Tags economics, environment

culture life

Anti-Materialism

From two very different sources today I was pointed toward two very similar views regarding our overly materialistic society. Misty Fowler linked to Winning the Rat Race by Quitting it:

We are a country obsessed with consumption, which would be fine if we seemed to be fulfilled getting bigger TVs but having less time to watch them. But, in the aggregate, that’s not the case. . .

So why the ceaseless search for stuff? In a word, competition. It’s worth it to stay ahead in the rat race. . . Winning the competition is more important than having a yard, it turns out. Which is why economists call these “positional goods” — goods whose worth is deeply tied into their position vis-a-vis your direct “competitors” (which is to say neighbors, friends, etc.).

On the other hand, not all goods are positional. Some make us happy simply because they make us happy. Another question asked whether respondents would prefer a world in which they had two weeks of vacation and everyone else got one, or a world in which they had four weeks of vacation and everyone else got eight. Here, positional concerns did not interject, and the majority chose the larger number of days off. The amount of time your neighbor spends with his family does not diminish the amount of time you spend with yours.

The problem is, positional goods tend to appear to be the most pressing purchases. . . And because money is finite, these purchases “crowd out” what you could spend on more enduring generators of happiness — forcing you, for instance, to work more hours to support a larger mortgage than you needed, thus losing the time you could otherwise spend enjoying family and friends, and leaving you less happy.

But there’s an easy solution. Stop. Pull out of the competition. Seriously ask whether you want to continue trading away your time for your stuff. And that requires ignoring what your neighbors have. It requires shutting your eyes against short-term incentives and trying to remember what actually makes you happy.

Tim Ferriss wrote about a group that is doing just that – and they have been doing it for two years.

The group called themselves The Compact, after the Mayflower Compact, and pledged that for the entire year, they would purchase secondhand or borrow everything they needed, except for food and essentials like toiletries and medicine. . .

Sounds hard? They say it wasn’t. They shopped less overall and got creative when they needed specific items. They reserved “shopping” for times when there was something they really couldn’t do without. When Perry needed a pressure cooker to prepare vegetarian dishes for his partner and their two children, he found a used one on the Internet. Pelmas and her husband, who are renovating their home, found secondhand appliances and recycled wood for baseboards and cabinets. But they were stumped by how to find used nails, screws, and hinges, and broke down and bought them new instead — the only time they cheated. Pelmas also struggled with finding sports sunglasses for rowing. Never able to find a used pair, she taped up her old ones and kept using them instead. . .
About 8,000 people have joined the e-mail list The Compact created to discuss the project, and groups modeled after The Compact have sprouted in 38 communities across the United States and in countries including Romania, New Zealand, and Japan. You can read more about The Compact on its blog at sfcompact.blogspot.com.

We have not gone so extreme as The Compact, but we have learned that we are happier as we have consciously tried to avoid falling into the trap of wanting everything we are supposed to want. I don’t need a second car and I don’t need a new computer every couple of years. Instead we try to make decisions about what will bring us happiness without reference to what anyone else has or wants.

Tags connections, economics, materialism, values

culture

SEP Subsidies

A story this morning instantly made me think about the discussion that followed when I wrote about Funding Mass Transit back in July. This story is about a driver who chose to use biofuel in his vehicle:

Bob Teixeira decided it was time to take a stand against U.S. dependence on foreign oil.

So last fall the Charlotte musician and guitar instructor spent $1,200 to convert his 1981 diesel Mercedes to run on vegetable oil. He bought soybean oil in 5-gallon jugs at Costco, spending about 30 percent more than diesel would cost.

His reward, from a state that heavily promotes alternative fuels: a $1,000 fine last month for not paying motor fuel taxes. He has been told to expect another $1,000 fine from the federal government.

To legally use veggie oil, state officials told him, he would have to first post a $2,500 bond.

SEP stands for somebody else’s problem. It refers to things that are in plain sight but we rarely (if ever) think about them. (from Douglas Adams’ Hitchhikers Guide to the Galaxy) Fuel taxes are one of those things. Because of their SEP nature we rarely think about the cost of maintaining roads. Most people drive their cars everywhere without a single thought for the wear they are putting on public infrastructure. They blithely fill their vehicle without thinking about the silent tax that they pay without question. The only time people think about gas taxes is when their is a proposal to increase them. They never think about them otherwise no matter how underfunded the roads become.

I’m not saying that this unconscious approach is necessarily bad, but it is not unlike our health care problem where we fail to recognize the actual costs associated with the types of care we partake of and thus we don’t consider whether that cost is worth the benefit that we receive. (In most cases it is, but how often do people run to the pharmacy or the operating room when a lifestyle change would be a better – though harder – solution?)

Because it is so easy to pay the fuel taxes it is difficult to accurately compare the costs of using cars vs mass transit. Until that comparison can be made we can only guess at the best approach to hit the moving target that is our traffic problem. Right now we usually only hit on a solution when traffic comes to a standstill.

Tags economics, issues, transportation

culture National State technology

The Government Hammer

My father-in-law is known for saying, “When you have a hammer everything looks like a nail.” Thomas Sowell talks about political crises created by Political “Solutions.”

Government laws and policies, especially the Community Reinvestment Act, pressured lenders to invest in people and places where they would not invest otherwise. Government also created the temporarily very low interest rates that made the mortgages seem affordable for the moment. . .

As for the flames sweeping across southern California, tragic as that is, this has happened time and again before — in the very same places in the very same time of year, just like hurricanes.

Why would people risk building million-dollar homes in the known paths of wildfires? For the same reason that people choose to live in the known paths of hurricanes. Because the government — that is, the taxpayers — will get stuck with a lot of the costs of dealing with those dangers and the costs of rebuilding.

Why is there such a huge amount of inflammable vegetation over such a wide area that fires can reach unstoppable proportions by the time they get to places where people live? Because “open space” has become a political sacred cow beyond rational discussion. . .

In other words, government preserves all the conditions for wildfires and subsidizes people who live in their path.

As for water shortages . . . The federal government’s water projects supply much of the water used in California that enables agriculture to flourish in what would otherwise be a desert.

We have created a culture where government is the solution to every every social “problem” (many times government is used to address preferences like open space which are not actually problems) just as technology is the solution to every technical problem. Lawmakers don’t intend to create crises, but crisis is the natural result when government gets involved in things that it was not designed to address (things like the cost of water or the price of home loans). In other words, if you have a hammer everything may look like a nail, but no matter how skillfully you hammer on a screw it won’t work like a screw – you need a screw driver to succeed with screws.

Tags economics, media, thoughts

National

Health Insurance Isn’t Insurance

Post author By David
Post date October 16, 2007
3 Comments on Health Insurance Isn’t Insurance

Steve Olsen started a discussion about healthcare at THE UTAH AMICUS (I’m looking forward to part II) by asking: Is “free market health insurance” a nonsense phrase? He then identifies two issues that we must face head-on if we are to have any hope of actually pursuing a solution to this problem.

We hear a little about “this is how I’m going to pay for it” in these proposals, but very little of “this is how I’m going to eliminate waste, fraud and excessive profits”. Most independent studies have estimated between 25 and 40 percent of America’s health care dollar is spent on things other than actually providing care. . .

Not only that, improving the cost efficiency of health care has become an economic necessity. Consider Chrysler Corporation. In 1998, Daimler Benz paid $38 billion to purchase Chrysler, and earlier this year, essentially paid Cerberus to take it off their hands. Why? To escape the billions of dollars in unfunded health care obligations to employees and retirees. Basically, a major American manufacturing company was driven to insolvency because America expects employers to foot the bill for health care, something no other major industrial country does.

It is interesting that everyone seems to know that inefficiency in the system needs to be removed and yet there are no concrete ideas being presented on how to do that by any of the candidates spouting their proposals. The last time I wrote about health care I said that we need consumers to become sensitive to the costs of health care services rather than being sensitive to the costs of insurance premiums. Steve’s post reminds me that most Americans has even been insulated from the costs of insurance premiums until the last decade or so. Free markets promote efficiency but we are not going to have a free market for health care until we address the second issue that Steve discusses. (This is true no matter what Health Insurance Connector Authority we may decided to create.)

I believe one thing that hamstrings our efforts to improve health care is our insistence on using the word “insurance”. Let’s look at the dictionary definition of insurance: “A means of indemnity (transferring the responsibility for loss) against occurrence of an uncertain event.” Using the conservative definition of socialism, insurance is essentially socialistic, since it transfers personal responsibility to a larger group in society. The characteristic that allows insurance (in the traditional sense) to work in a free market system, despite being socialistic, is the fact that the event insured against is both uncertain and undesirable. . . Except for isolated cases of fraud, the undesirability of the event being insured against means collection of the benefit will not be abused.

Is health care a proper fit for the insurance paradigm? There are instances of catastrophic illness or accidents that meet the definition. But, in general, most consumption of health care services is neither uncertain nor undesired. We want that daily dose of Lipitor to keep our cholesterol down. We purposely conceive children and consume the health care services necessary to bring a new baby into the world – and we also consume birth control medicine to avoid pregnancy. Whether the illness is diabetes or bi-polar disorder, health care is often a matter of planned consumption where strong and significant consumer demand exists for the product.

People should be allowed to choose the kinds of plans that currently pass as health “insurance” but we need to wake up to the rigged system that we are working with. Insurance companies make it more expensive for doctors to operate and consumers pay that price. Worse yet, patients who don’t have insurance are charged higher prices to compensate for those extra costs because the insurance companies set their own prices on what they will pay for various treatments and office visits. This may be financially beneficial in the short run, but the result is that patients want to get their money’s worth so they expect more services. More demand means higher prices. If consumers were sensitive to the prices of individual procedures the demand would level off as the procedures got too pricey. On the other hand, more demand can lead to efficiency, but the insurance companies keep paying the same price for a procedure (and never lower their premiums) whether the system is efficient or not so the costs remain high even when doctors find ways to improve the system.

One comment from Scott Thompson asks Steve to run for Congress against Rob Bishop again. I don’t know enough about Scott to vote for him (not that it matters since that’s not my district) but I am impressed that he would come out and directly identify the central fallacy that keeps us from actually fixing our health care system.

Tags economics, Elevated, health care, issues

National

Fiscal Realism

I keep returning to the sentiments of Reality Check – that we need to realize that on tough issues we will not be able to satisfy everyone and that the decisions we make must be based on what is best and not merely based on what offends the fewest people. This comes up again as I read the platform for Divided We Fail. This is an initiative of the AARP. I do not wish to accuse the AARP of not caring for the future, but I think it is fair to note that when push comes to shove the best solution for the next 5 years is going to be more favorable to the AARP than the best solution for 30 years from now.

Their platform consists of 6 points – 3 on social security and 3 on health care:

All Americans should have access to affordable health care, including prescription drugs, and these costs should not burden future generations.
- This sounds like a noble and universal sentiment.
- We can deduce from their other points that the path they envision is one of government backed health care which is not possible without being a burden on future generations so this goal is unattainable in its fullness – one part has to give.
- For more insights here go read No Free Lunch.
Wellness and prevention efforts, including changes in personal behavior such as diet and exercise, should be top national priorities.
- Absolutely. This is the one undeniable truth, and the single most influential factor in the rising costs of our current health care system. How do we go about doing this?
Americans should have choices when it comes to long-term care – allowing them to maintain their independence at home or in their communities with expanded and affordable financing options.
- Agreed. Only, what “affordable financing options” do they have in mind?
Our children and grandchildren should have an adequate quality of life when they retire. Social Security must be strengthened without burdening future generations.
- Everyone (the AARP as well as their children and grandchildren) deserves an adequate quality of life when they retire. We might need to define “adequate quality of life” because what that seems to be today may well be unsustainable.
- On the other hand, there is no possible way to strengthen social security without increasing the burden on future generations. Some generation is going to have to take the fall on this one. The program needs to receive its sunset – Sadly, I feel compelled to volunteer my generation. I don’t expect to receive social security benefits. Even if social security benefits are still available I hope not to avail myself of that benefit. (Why should I be a burden to my posterity?)
Workers should be provided with financial incentives to save, should have access to effective retirement plans, and should be able to keep working and contributing to society regardless of age.
- I agree.
Americans of all ages should have access to tools to help manage their finances, and save for the future and better, easy to understand information to help them increase their financial literacy and manage their money wisely.
- This is another point that sounds good but the pessimist in me is skeptical that we will ever really educate the majority of our population on money matters.
- I also believe that managing money more wisely requires more than financial literacy – it requires a new attitude about the value and nature of wealth. So long as we are driven to keep up with the Joneses financial literacy won’t make us wise managers of our money.

Tags economics, health care, issues, social security

National

Suggestions on Health Care

Post author By David
Post date September 20, 2007
3 Comments on Suggestions on Health Care

I have noticed a pattern lately in the articles that I have been linking to (and displaying in my sidebar) – many of them (4 out of 10 currently) deal with the issue of health care. I would like to post on all four eventually but for now I would like to discuss my thoughts on some of the general principles that I am seeing in the health care discussion.

The idea of a single payer system spells economic disaster to me.

The idea of forcing everyone to purchase insurance seems fine on the surface with the typical caveats that we subsidize that cost for low income people. On the other hand, I think that people should be able to choose to not purchase insurance if they have enough personal wealth – with the understanding that they will be fully financially liable for any care they receive. This may sound backwards since the wealthy would be the most able to purchase insurance, but imagine that I am a very healthy millionaire (I am healthy, but I do not have even a fraction of a million dollars in net worth) – there is no reason to force me to purchase an insurance policy if I am willing and able to assume the costs of my health care. Perhaps I have to sign away any right to declare bankruptcy in the face of medical bills.

There are two major things that any attempt to fix our health care system must address if they are to have any hope of success.

The first is to make people sensitive to the costs of health care. Right now most of us are only sensitive to the costs of health insurance. Once we have insurance (whether our own, through an employer, or Medicaid/Medicare) we cease to be cost-conscious because most of the cost is already paid. (High deductible plans have the advantage of keeping the consumer cost conscious.)

The second crucial change that must be made is to find ways to encourage healthy lifestyles and preventive care.

If we address these two changes the entire problem would become more manageable because we would have better health and less being spent on elective procedures. We might even hope to have fewer lawsuits driving up the cost of health care as people become more involved in making their decisions of what procedures they undergo.

Tags economics, government, health care, issues