Introduction

What did George Washington say about institutions like Wikipedia?

"Promote, then, as an object of primary importance, institutions for the general diffusion of knowledge. In proportion as the structure of government gives force to public opinion, it is essential that public opinion should be enlightened."

Some info about Farcaster

Some articles I've worked on

What this page is about

Wikipedia articles have to be fact-based with credible sources. However, this is a user page. I get to opine on whatever I want here. As I learn about a topic and find particular sources helpful, I put the info here or in the subject article. It helps me connect the current events dots. Further, the edit history gives me a record of how my views have evolved and changed over time. Writing them out helps me get my own thinking straight on the topic.

Cool things people can do

Now bring on the politics and economics!

A comment on the "post-truth" world (December 2016)

It's difficult to have a constructive argument or solve problems when people are shouting unsupported opinions past each other. Effective argument requires that a claim (opinion) be supported by credible statements (premises) that bear on the claim. In formal logic, an argument consists of two parts:

In addition, the concept of a fact is important:

For example, here is a simple argument in terms of structure:

The fact contained in the premise is irrefutable; everyone can look it up and see that is indeed what the CBO reported. That makes it a fact; everyone can agree that is a true statement. Whether you agree or disagree with the claim is your own opinion. To me, the premise provides a high level of evidence that the claim is true as well. However, the truth of a claim is often a matter of probability; often only the Supreme Being knows the truth of the matter.

In the immortal words attributed to Daniel Patrick Moynihan: "You are entitled to your own opinions, but not your own facts." Facts are a common resource that everyone can draw upon and agree on; otherwise they are not facts. Without a solid fact base, our ability to solve problems is diminished and we create much more heat than light.

The NYT sums up the risks of a post-truth world here nicely: NYT-Truth and Lies in the Age of Trump

What is going on anyway?

The U.S. is transitioning from a Cold War strategy to the Globalization era. The past was about big geopolitical and military competition vs. the Soviet Union. The future is about economic competition with emerging nations, managing our changing demographics, managing the risk of failed states, and clean energy.

The near-collapse of our economy in 2008, narrowly averted by massive government borrowing and credit easing by the Fed, was a serious warning that Cold War policies won't cut it in the age of globalization. David Brooks wrote in the NYT: "The U.S. now has an economy shifted too much toward consumption, debt and imports and too little toward production, innovation and exports. It now has a mounting federal debt that creates present indulgence and future hardship." Thomas Friedman argues that "nation building at home" should be the key theme of American renewal for the 21st century.

Globalization

While globalization represents a form of economic pressure, it can be countered by policy choices. The U.S. has decided in favor of corporations and against labor as of 2012 in its regulations. There are few incentives or penalties against off-shoring labor or sourcing inputs domestically. This is leading to higher unemployment, stagnating wages, higher income inequality, higher safety net costs (and corresponding budget deficits) and concerns of corporate oligarchy.

Corporatism

Unemployment, income inequality and wage stagnation

Globalization and deregulation are shifting ever-more income to the top of the income spectrum. One example of the transmission mechanism is a CEO off-shoring (or sourcing overseas) thousands of jobs and holding wages constant, to earn a sizable bonus by hitting corporate profitability targets. Wages have stagnated for most of the population, with rising healthcare costs displacing wage increases. There are policy decisions related to trade, healthcare costs, and taxation that can help address the problem.

The nature of things is that the rich / "capital" will take whatever they can get from the middle class / "labor" and so government exists to keep things from getting out of hand. So allowing corporate money in politics defeats the very purpose of government in the first place. So class warfare is well-underway and the middle class is losing big-time. Just laugh extra hard when you hear a Republican saying how Obama is preaching class warfare.

Bruce Bartlett has provided a nice summary of who pays the taxes and who gets government benefits.[2]

Demographics and fiscal sustainability

In terms of domestic policy, we must respond to the aging of America, with demographics changing from 5 workers per retiree in 1960, to 3.3 in 2009, to 2.1 by 2040. These changes require significant policy adjustments. We have no choice but to get back to a steeply progressive tax system for both individuals and corporations. We also have to throw every good idea at Medicare/ healthcare reform and reduce future cost of living adjustments in the Social Security program. If we don't, these programs ultimately absorb all government revenue and will squeeze out more and more other types of spending each year. The major government financial watchdogs (GAO and CBO) call our current fiscal path "unsustainable."

Financial instability

Due to the pressures of globalization and a consumer culture, U.S. household debt increased dramatically after 1980, rising from around 50% GDP to about 100% GDP by 2008. Much of the increase after 2000 was due to housing price increases. When the flow of credit was cut off in 2008, the banking system collapsed and a deep recession resulted. Recovery from financial crises often take a decade or longer, as consumers and businesses pay down debt ("de-leverage") rather than consuming and investing.

Views from the experts on U.S. strategy

Here are some thought-leaders on what to do next:

Polarization

As of early 2013, the U.S. Congress was the most polarized it has ever been. There are only about 10% moderates in the House. Voting is increasingly along party lines.[3]

Mann & Orstein put it well: "We have been studying Washington politics and Congress for more than 40 years, and never have we seen them this dysfunctional. In our past writings, we have criticized both parties when we believed it was warranted. Today, however, we have no choice but to acknowledge that the core of the problem lies with the Republican Party. The GOP has become an insurgent outlier in American politics. It is ideologically extreme; scornful of compromise; unmoved by conventional understanding of facts, evidence and science; and dismissive of the legitimacy of its political opposition. When one party moves this far from the mainstream, it makes it nearly impossible for the political system to deal constructively with the country’s challenges."[4]

It's on the Republicans to bring themselves back to center and the independent voters to avoid them until they do.

Initiatives

In my view, the key strategic approaches or initiatives are:

These initiatives will reduce our $740 billion goods trade deficit significantly, avoid damage from the inevitable spikes in oil prices that create periodic recessions, and reduce our interests in the Middle East, which are incredibly costly in lives and treasure. Our ability to balance our budget over time depends significantly on our ability to compete globally, which is hampered by our dependence on both foreign oil and imports.

President Obama said on January 8, 2010: "Building a robust clean energy sector is how we will create the jobs of the future -- jobs that pay well and can't be outsourced. But it's also how we will reduce our dangerous dependence on foreign oil, a dependence that endangers our economy and our security. And it is how we will combat the threat of climate change and leave our children a planet that's safer than the one we inherited."

Fareed Zakaria wrote: "Our entire economic conversation these days is about the country's debt, which is understandable and appropriate because our debt is unsustainable in the long run. But we also need to find ways to solve the unemployment problem, or everything else, including the debt problem, will get much worse. Without more workers, we will never have the tax revenue we need to fund even limited government. Right now we have our priorities badly skewed. We spend far too much on retirement and health care programs for the elderly, the Defense Department and tax exceptions and deductions for the middle and upper classes. But we spend far too little on the investment programs that will create good new jobs for the future. We need to do both in a grand national rebalancing — and we need to do it fast." Fareed Zakaria - A Flight Plan for the American Economy - May 2011

China is building 50 nuclear power plants. See Friedman-China & Clean Energy

A second-term agenda for President Obama

Budget / Fiscal responsibility

Some good overviews of the budget situation:

What to do:

Clean energy

Corporate governance and banking reform

Employment and trade policy

Domestic / social policies

Military and Foreign Policy

Understanding the financial and economic crisis

Introduction

Trying to figure this thing out is one of my hobbies. Much of that journey is recorded in the Subprime mortgage crisis and Unemployment in the United States articles. Why did the world suddenly stop lending to us? Why was our system so vulnerable? Why aren't we creating jobs like we used to? Why didn't we see it coming? What do we do next?

It's arguable whether our economic model is working. Free trade with low wage countries and rapid progress in automation have slowed our jobs engine too much to keep our economy going. So the government has been borrowing a ton of money and the Federal Reserve has dialed-up the money printing presses.

Automation supporting a variety of self-service applications (e.g., banking via ATM, self-checkout in retail, online ordering, etc), plus industries such as manufacturing and logistics, are destroying jobs faster than they are being created. The truth is we haven't created jobs fast enough since about 2000, even with the bubble. Nobody seems to have a good answer yet and we spend far too much time arguing over "results" (budget deficits and unemployment) rather than causes (e.g., free trade and automation).

Causes

U.S. Subprime lending expanded dramatically 2004-2006
Leverage Ratios of Investment Banks Increased Significantly 2003–2007

Understanding the primary causes is a key first step. Financial innovation and easy credit conditions, among other factors, connected the $70 trillion global pool of fixed income investments to the housing markets of developed nations, driving an enormous debt and housing bubble. Subprime lending went from a historical level under 10% of originations, to 20% each year between 2004 and 2006, as lenders and regulators removed traditional controls such as a 20% housing down payment and income verification, to service demand from the global pool. During that time, major investment banks increased their leverage ratios from around 20, to over 30, taking on enormous risks yet getting huge rewards. These big 5 investment banks, 3 of which are now gone and the last 2 of which are now chartered as regular banks so the Fed could give them a lifeline, invented the complex and difficult to value financial instruments that brought the financial world to its knees. It was the private, barely regulated rating agencies with rampant conflicts of interest, that rated the toxic, garbage instruments "AAA" so investors all over the world would buy them. This funded the housing boom, which then became self reinforcing. Homeowners began to treat their homes as ATM machines, accumulating record personal debt levels. When the housing price bubble burst, the value of housing and related assets collapsed while the debt remained at full price, making many homeowners and financial institutions insolvent. Concerns over this insolvency caused credit markets to shut down. Since "too-big-to-fail" institutions existed that the government could not (or would not) shut-down with the proper hit taken by equity and bondholders, taxpayers had to step in.

In general, the nature of the resulting crisis is that the economy is resetting at a lower level because our debt-financed consumption binge is unsustainable. This crisis is better described as the "Great Reset" rather than the "Great Recession" as some call it. We cannot maintain a higher standard of living than the rest of the world, when foreign labor is increasingly competitive at much lower cost and barriers to free trade are removed. We have attempted to forestall this inevitable decline in our standard of living by borrowing. Individuals, banks, and corporations are over-leveraged, meaning they are carrying too much debt and are now defaulting. Therefore, short-term solutions should focus on reducing debt burdens, while financial reforms should focus on reinstating the key controls lacking or removed from the system due to deregulation. That's the easy part. The hard part is learning how to compete again, which will involve significant reductions in wages, consumption and imports and improving our educational system. GM is the warning shot that should wake us all up to this reality. If that isn't enough, consider the $12 trillion our nation has borrowed to finance our standard of living, the current huge budget shortfalls at the state level, or the unimaginably huge unfunded liabilities in the Medicare and Social Security programs, which our government cannot possibly honor.

Steve Pearlstein summarized this nicely: "But it's also important to remember that culpability for the crisis extends well beyond Wall Street bankers to asleep-at-the-switch regulators, conflicted rating agencies, sleazy brokers, greedy mortgage bankers, reckless money managers and millions of clueless homeowners, along with an entire country that insisted on living beyond its means." See Pearlstein-Washington Post

Solutions

If We Don't Tackle These Two Vicious Cycles, The Crisis Will Continue

The best use of government stimulus or bailout funds is to stabilize the banking system and help people avoid foreclosure, so that private capital can return to salvage the banks' balance sheets. The second best use of government funds is to make the U.S. energy independent, so that we don't send so much wealth overseas. To the extent a stimulus package addresses these objectives, it makes sense. Otherwise, save the remainder for the social safety net (i.e., unemployment, food stamps, and universal health insurance).

It is the inability of homeowners to pay their mortgages that causes mortgage-backed securities to become "toxic" on the banks balance sheets. To use an analogy, it is the "upstream" problem of homeowners defaulting that creates toxic assets and banking insolvency "downstream." By assisting homeowners "upstream" at the core of the problem, banks would be assisted "downstream," helping both parties with the same set of funds. However, the government's primary assistance through April 2009 has been to the banks, helping only the "downstream" party rather than both.

The big short-term "to do's" to solve this:

The big long-term "to do's" to prevent this from happening again involve putting the key leverage controls back into the system via regulation:

Learning to compete again:

Addressing the budget deficit and debt

See: United States federal budget

2010 Budget: Projected Deficits and Debt Increases
Entitlement Spending Risks
Budget deficits, projected through 2022. The "CBO Baseline" (in red) shows the effects of the fiscal cliff under current law. The "Alternative Scenario" (in blue) represents what could happen if Congress extends the Bush tax cuts and repeals the Budget Control Act-mandated spending reductions.

Describing the problem

There is no immediate budget crisis as of early 2013, as interest rates were near record lows. The U.S. has enough demand for its securities or the Fed can buy them without significant risk of inflation while the economy recovers. However, the most serious long-term threat the U.S. faces is financial over-extension. Demographics and healthcare costs per person are driving entitlement costs to a level that cannot possibly be funded. Defense spending is entirely out of control. CBO projections of a $10 trillion national debt increase over the 2013-2022 decade under current policies indicate substantial risk, due to extremely high interest costs and increasing risk of a fiscal crisis, in which financial markets stop buying our debt. This issue has been ignored for years despite dire warnings from the CBO and GAO, which have called the fiscal path "unsustainable."

Congress often passes laws that would reduce the deficit then reverses them before the pain hits. For example, the Bush tax cuts were supposed to expire in 2010, but then were extended indefinitely for all but the wealthiest taxpayers via the American Taxpayer Relief Act of 2012, thereby avoiding the United States fiscal cliff. Further, the defense and non-defense discretionary spending cuts in the Budget Control Act of 2011 (also known as the sequester) are expected to be avoided.

CBO estimates of future spending and revenue relative to GDP assume strong growth (3-4%) over the 2013-2022 period. However, we are a mature economy and with globalization making the world more competitive, we would be lucky to have a 2% real GDP growth rate in the absence of gigantic government borrowing. Politicians cling to the belief that we can outgrow some or all of our problems, offering painless solutions, which is simply not realistic. Further, economic growth from around 1990 to 2008 was significantly financed by increasing levels of household debt, which is not sustainable.

Folks have to get prepared for spending cuts and tax increases. The sooner we act, the less drastic the changes from the status quo have to be.

Solutions

The goal is a sustainable budget deficit, roughly 2-3% GDP. We'll have to run a budget deficit roughly the same size as our trade deficit; see sectoral analysis for more information.

  1. Eliminate tax expenditures for the top 1%, roughly $300 billion/year. Eliminate some of the $550 billion/year that the next 19% get.
  2. Put Social Security on sound financial footing. The solutions are well-known. The most popular (or least despised) options are: a) Raising the level of income subject to the payroll tax from around $128,000 to infinity (so all income is taxed); b) Raise the payroll tax about 1 percentage point.
  3. Freeze defense spending so it falls to 3% GDP and maintain it at that level. The sequester would do this, if allowed to proceed. We last balanced the budget when defense spending was 3% GDP under Clinton; it was around 5-6% GDP in 2012. Focus on things that actually keep us safe from the threats we face; there is a terrible mismatch of spend and risk at present.
  4. Raise top income tax rates to 40% for income over $500,000 and 50% for income over $1 million.
  5. Tax stock buybacks, initially at 25% and increasing over time to 50%.
  6. Throw every good idea at Medicare and healthcare reform regardless of source. The key cost drivers are: obesity, defensive medicine, incentives that reward more care instead of better care, expensive intervention vs. inexpensive hospice, a shortage of doctors and nurses, fraud, redundant payment systems, and insurance company overhead. The 2010 debate was really about coverage; the key cost issues have yet to be addressed. Make it clear that if Medicare expenses hit a certain ratio of GDP, we begin the transition to a single-payer/rationing system similar to other developed countries that get similar results at half the cost. Give the private system one last chance to cut costs to the bone.

Do these solutions sound somewhat radical to some of you? Well, the choices get more painful the longer we wait. There are no free lunches; the credible experts say we cannot outgrow the problem and tax cuts increase deficits. Further, does a budget proposal that we add a trillion dollars a year indefinitely to our debt without detailed reform plans for Social Security, Defense, and Medicare sound a bit strange to you?

Our national debt of $21 trillion represents goods and services we have enjoyed beyond our national income. The government's plan to increase this debt by over $1 trillion each year for the indefinite future is a serious abdication of responsibility by our leaders. Those of you who oppose higher taxes and lower entitlement and defense spending are a huge part of the problem and need to begin to deal with the reality of the modern global economic competition the U.S. faces.

A great place for additional information on the budget crisis: GAO Presentation - January 2008 - Yep, Pre Obama

Federal Reserve Vice-Chair Janet Yellen described the risks of growing deficits and debt in December, 2010:[6]

"A failure to address these fiscal challenges would expose the United States to serious economic costs and risks. A high and rising level of government debt relative to national income is likely to eventually put upward pressure on interest rates, thereby restraining capital formation, productivity, and economic growth. Indeed, once the economy has recovered from its downturn, fiscal deficits will crowd out private spending. Large fiscal deficits will also likely put upward pressure on our current account deficits with the rest of the world; the associated greater reliance on borrowing from abroad means that an increasing share of our future income will be required to make interest payments on federal debt held abroad, thereby reducing the amount of income available for domestic spending and investment. A large federal debt will also limit the ability and flexibility of policymakers to address future economic stresses and other emergencies, a risk that is underscored by the critical fiscal policy actions that were taken to buffer the effects of the recent recession and stabilize financial markets in the wake of the crisis. And a prolonged failure by policymakers to address America's fiscal challenges could eventually undermine confidence in U.S. economic management."

Tax Policy

A few facts about U.S. taxation:

Do tax cuts increase deficits?

U.S. Federal budget deficit as % of GDP assuming continuation of certain policies for 2012–2022. The baseline deficit indicates the scenario with the fiscal cliff, meaning tax cuts expiring and spending cuts applied. Avoiding the "fiscal cliff" increased the projected deficit.

Duh, yes.

Sources of budget info

Dealing with Terrorism & Al Qaeda

The goal of Al Qaeda is to bankrupt the U.S. It wins if we either over-spend trying to pursue an elusive enemy or let ourselves fall prey to fear and sacrifice our free way of life.

Fareed Zakaria put it brilliantly here: Zakaria-Perspective on Reacting to Terrorism

"The purpose of terrorism is not to kill the few hundred that are attacked, but to terrorize the tens upon tens of millions who watch. Terrorism is unique as a military strategy, in that it depends for its effectiveness on the response of the society. For it to work, all of us have to respond with fear and hysteria. So far, we're doing just that. I don't mean to suggest by this that the system worked. Obviously, it didn't. When U.S. officials got information from the terrorist's father, they should have immediately checked if he had a visa, or put him on a no-fly list. They should not have allowed him to enter an airplane with a bomb, a make-shift bomb. These are all mistakes. They should be fixed. But there will be other mistakes uncovered over the years as we continue going through this process. And we must have the ability to calmly, seriously and effectively react to these problems, improve the system, so that it gets better and better every year, rather than going crazy. The atmosphere in Washington these days, the media calls the political wrangling, the calls for heads to roll, these are all indications of panic -- and partisanship. And over-reacting will produce the worst policy responses -- large, broad-brush, expensive efforts, pat down thousands of more grandmothers every day, get the military involved in every place that claims they have al Qaeda. But these might not be the most effective fixes. We need less grandstanding from everyone, including the president of the United States, and more sober efforts to simply improve security and resilience within this country."

President Eisenhower said: "We will bankrupt ourselves in the vain search for absolute security." With the resources we have, we're likely to be able to afford to have trainers along with our special forces operating out of bases with drones helping spot and take out targets. We don't have the money to put 100,000+ plus troops on the ground indefinitely to win over a population in a place like Afghanistan. We need to do more nation building at home, while getting our troops and interests out of the Middle East by reducing our dependence on oil.

Healthcare reform

U.S. healthcare costs were approximately $3.2 trillion or nearly $10,000 per person on average in 2015. Major categories of expense include hospital care (32%), physician and clinical services (20%), and prescription drugs (10%).[7] U.S. costs in 2016 were substantially higher than other OECD countries, at 17.2% GDP versus 12.4% GDP for the next most expensive country (Switzerland).[8] For scale, a 5% GDP difference represents about $1 trillion or $3,000 per person. Some of the many reasons cited for the cost differential with other countries include: Higher administrative costs of a private system with multiple payment processes; higher costs for the same products and services; more expensive volume/mix of services with higher usage of more expensive specialists; aggressive treatment of very sick elderly versus palliative care; less use of government intervention in pricing; and higher income levels driving greater demand for healthcare.[9][10][11] Healthcare costs are a fundamental driver of health insurance costs, which leads to coverage affordability challenges for millions of families. There is ongoing debate whether the current law (ACA/Obamacare) and the Republican alternatives (AHCA and BCRA) do enough to address the cost challenge.[12]

Introduction

U.S. healthcare costs exceed those of other countries, relative to the size of the economy or GDP.

Read this and be more informed than anyone else you know on this topic: New Yorker - Atul Gawande - The Cost Conundrum and New Yorker - Atul Gawande - Testing Testing

Delivery and payment systems

Think about healthcare reform in two parts:

The delivery system is the most critical and difficult one to solve. Experts recommend setting up an independent panel (like a Federal Reserve only for medicine) to analyze the significant variation in costs across different geographies and hospital systems, both per person and for particular ailments. This would help doctors make the most cost-effective decisions. This requires better healthcare technology, statistical studies that examine treatment alternative cost-effectiveness, process improvements, mechanisms for sharing best practices, and incentives changes (e.g., salary instead of pay-for-service). This will be an iterative, empirical process that will take a decade or more according to experts before significant savings appears.

In the short run, we can tackle the payments system, which is a straightforward technical challenge but major political challenge. First, we should go to a single-payer system to minimize administrative costs. Replacing our private insurance system (1,300 companies) with one provider (Uncle Sam) would save $200 billion per year according to Paul Krugman, by removing insurance company overhead. There is a bill called the United States National Health Care Act that proposes this, which is what Americans should be fighting for right now. You pick your doctor and the government picks up the tab...its really simple from an administrative standpoint. If we cannot get this bill passed, then a public option is critical to beginning the transition. The complexity in this debate arises because we are trying to preserve the private insurance system. See Krugman on Single Payer

Medicare costs are not sustainable

Providing Medicare to 47 million uninsured will create an incremental cost of between $120 and $160 billion per year. Bear in mind we are already covering emergency care for these folks in the form of higher insurance premiums; the incremental costs are preventive care. Paul Krugman points out this would cost the Treasury less than the 2001 and 2003 Bush tax cuts. Further, it is close to what we are presently spending each year in Iraq and Afghanistan. Understand also that at present 47 million Americans are excluded from insurance coverage based on their income, nature of employment (corporate or otherwise) or pre-existing conditions. THIS IS RATIONING. I would much rather see rationing based on quality and quantity of life that is gained by incremental expense. Ultimately, we must assign a value to human life, as awful a task as that is, if we try to cover everyone. A prime example is Alzheimer's, which costs us an estimated $150 billion per year and growing rapidly. We should all be able to voluntarily sign a living will early in life that allows us to be put down with dignity once the disease hits a certain stage.

Solution options

Expert opinions

It is amazing that conservatives can fight so hard against universal insurance, yet advocate ANNUAL trillion dollar defense-related spending (Department of Defense, Homeland Security, and Veteran's Affairs). In other words, covering the 47 million without insurance coverage costs about 10-15% of what our national defense costs us. As I discuss elsewhere here, what threat justifies such a trade-off?

Talking Points & Strategies for Healthcare Reform

Key strategies for addressing healthcare reform are summarized in: Healthcare reform strategies

State the goals

There are three key goals:

  1. How to provide universal coverage, to ensure all Americans have access to quality preventive care and cannot have it taken away;
  2. Reducing healthcare delivery system costs, those services provided by your doctors, nurses, and hospitals, without compromising quality;
  3. Reducing payment system costs, those administrative or overhead costs related to billing and payments, which are about 30% of total costs.

Make the case for reform

Summarize the compelling case for reform. Key points:

Explain why Medicare reform is essential and that tough choices are ahead: The U.S. is $12 trillion in debt now. The increasing costs of services provided by Medicare (due to an aging population and higher costs per person) make the program unsustainable in its present form. Eventually, Medicare absorbs all federal tax revenues. It has already begun forcing us to borrow, because we have yet to reduce other major spending categories like defense, social security, or education.

We are faced now difficult choices: Borrowing increasing amounts from other countries, big cuts in other spending categories like Social Security, Defense and Education, and large tax increases.

Mention that other developed countries have reformed their healthcare in a way popular with their citizens, such that quality care is being delivered at considerably lower cost than our system. Others have completed the path that we must undertake. We have entered an important debate in how best to do that. There are many with an interest in maintaining the status quo, but even they know that status quo is not sustainable. Time is not our ally; the longer we wait, the more painful the choices get.

Issue #1-Providing universal coverage

Explain the moral argument for covering all citizens. Every other developed country does it. No one should be excluded from insurance coverage due to pre-existing conditions. Explain how many Americans will lose their insurance, as more and more small companies are dropping coverage as costs increase. Explain how millions of Americans have only partial coverage. Be realistic that this is a new entitlement, which will cost about $100 billion per year, about 4% of our tax receipts in 2008. Explain that letting the Bush tax cuts expire on schedule will more than pay for this, as will our eventual draw-down in Iraq and Afghanistan. Since emergency care for the uninsured is represented in higher insurance premiums for those presently insured, you may see some relief in your premiums also.

It is the right thing to do for our fellow Americans, and it is affordable.

Issue #2-Reforming healthcare service delivery

Many experts believe the major cost-driver is the over-utilization of care. Doctors may over-prescribe tests, medicine, or procedures for a variety of reasons, some of which make sense and some of which do not. We must establish a sustainable process for systematically analyzing costs and outcomes and making sure we enable doctors to make the most cost-effective treatment decisions. Some experts believe it will take a decade or more years of hard work to reduce these costs, so we need to get started now. Propose a panel of doctors and other experts to oversee such analysis and recommend the most cost-effective treatment options.

There are various strategies for reforming service delivery: 1) Change doctor incentives, basing their compensation on salary and bonuses for value (quality relative to cost), rather than fee-for-services; 2) Establish a panel of experts to analyze medical spending across the country, to identify treatments that work at the most cost-effective price. 3) Improve technology, to make both delivery of services and paperwork processing more efficient; 4) Establish incentives for Americans to make healthy choices; 5) Encourage realistic discussions about end-of-life treatment options; 6) Tort reform; 7) Regulatory changes to encourage competition among insurers, who tend to have near-monopolies over particular geographies; and 8) Tax reform, to begin taxing some healthcare benefits as income.

Key cost drivers include:

Issue #3-Reducing payment system costs

Mention also that under our current system, we are all essentially paying a 30% markup in our insurance premiums to cover health insurer overhead. Perhaps half of that could be saved with a more efficient administrative model, as other countries have done with a single payer system. Drive this improvement with two key concepts:

  1. Require insurance companies to form a handful of regional or national payment clearinghouses, to significantly reduce overhead. This might take on a form like VISA or Mastercard, co-operatives that are mostly owned by banks but run as separate entities. All billing and payments could be routed through them, allowing streamlining of processes and automation. This would be a private-sector version of a single-payer entity;
  2. If the above does not reduce administrative costs sufficiently (say a 40% reduction in five years), then include a "trigger" to create a government option. This would encourage private insurers to dramatically reduce overhead and begin a transition to a single-payer system should it be necessary to more aggressively contain costs in the long-run.

Say that we may have no choice eventually but to go to a single payer model anyway, to reduce these overhead costs to minimize any further rationing of care. We may also have to set a budget or limit on annual Medicare expenditure, prioritizing treatment accordingly based on objective criteria, as is done in the UK.

This may be avoidable to a lesser or greater extent if other efforts are successful. Most other developed countries have single-payer systems to keep their costs low, as we do with Medicare and the V.A. system. If we use a public option, we could use these existing programs for those out of work or working for smaller companies, while those at large companies would be required to be part of that company's program. Tax or other incentives would have to be structured to keep as many under the private insurance option of big companies, keeping the public option for those out of work or at smaller companies.

Global warming: What you need to know

See: Scientific opinion on climate change

Scientific consensus

The scientific consensus is that climate change is real and man-influenced, with few or no scientific organizations dissenting formally from that consensus. The National Oceanic and Atomospheric Administration wrote in 2011:

"Human activity has been increasing the concentration of greenhouse gases in the atmosphere (mostly carbon dioxide from combustion of coal, oil, and gas; plus a few other trace gases). There is no scientific debate on this point. Pre-industrial levels of carbon dioxide (prior to the start of the Industrial Revolution) were about 280 parts per million by volume (ppmv), and current levels are greater than 380 ppmv and increasing at a rate of 1.9 ppm yr-1 since 2000. The global concentration of CO2 in our atmosphere today far exceeds the natural range over the last 650,000 years of 180 to 300 ppmv. According to the IPCC Special Report on Emission Scenarios (SRES), by the end of the 21st century, we could expect to see carbon dioxide concentrations of anywhere from 490 to 1260 ppm (75-350% above the pre-industrial concentration)." In other words, we are playing with fire.

Commentator views

Here's how Tom Friedman put it: See Friedman-Climate "When I see a problem that has even a 1 percent probability of occurring and is “irreversible” and potentially “catastrophic,” I buy insurance. That is what taking climate change seriously is all about. If we prepare for climate change by building a clean-power economy, but climate change turns out to be a hoax, what would be the result? Well, during a transition period, we would have higher energy prices. But gradually we would be driving battery-powered electric cars and powering more and more of our homes and factories with wind, solar, nuclear and second-generation biofuels. We would be much less dependent on oil dictators who have drawn a bull’s-eye on our backs; our trade deficit would improve; the dollar would strengthen; and the air we breathe would be cleaner. In short, as a country, we would be stronger, more innovative and more energy independent."

Friedman also said: "If you start the conversation with “climate” you might get half of America to sign up for action. If you start the conversation with giving birth to a “whole new industry” — one that will make us more energy independent, prosperous, secure, innovative, respected and able to out-green China in the next great global industry — you get the country." See Friedman-Denmark's Best Practices

Mayor Bloomberg: "...number one, the science is clear. But let's just make a simple argument that will convince you to go ahead and do something about the environment. There's four possibilities, the combinations of we're damaging the planet or we're not damaging the planet and we do something or we don't do something about it. One of those four combinations is deadly. And if we run the risk that, in fact, there is -- we say there's nothing wrong and it turns out that there was something wrong but we didn't do anything about it, it may very well be so irreversible and have such terrible consequences for people all over this globe, it's not an intelligent risk to run...We need a carbon tax, plain and simple. Nobody wants to hear it, but if you had a carbon tax, you would reduce the total amount of carbon put in the air." See Bloomberg on CNN

Here is the CBO: "Human activities around the world are producing increasingly large quantities of greenhouse gases, particularly carbon dioxide (CO2) resulting from the consumption of fossil fuels and deforestation. Most experts expect that the accumulation of such gases in the atmosphere will result in a variety of environmental changes over time, including a gradual warming of the global climate, extensive changes in regional weather patterns, and significant shifts in the chemistry of the oceans.1 Although the magnitude and consequences of such developments are highly uncertain, researchers generally conclude that a continued increase in atmospheric concentrations of greenhouse gases would have serious and costly effects." See CBO on Global Warming

International trade and competitiveness

U.S. Current Account or Trade Deficit

Computing the trade deficit

The trade deficit is imports greater than exports. Since foreign workers make the goods we import, a large trade deficit means a lot of jobs overseas instead of here. Our trade deficit is a net number, calculated from a goods deficit of about $740 billion and a services surplus of $180 billion, for a net $560 billion trade deficit in 2011.

Effect on employment

Since $150 billion is 1% GDP, the trade deficit was about 4% GDP in 2011. This represents about 4 million jobs. For scale, we had about 4 million fewer jobs at the end of 2012 than at the pre-crisis peak in January 2008.

Contribution to financial instability

One interesting tidbit is something called the balance of payments identity. It basically means that a net importer (i.e., a country running a trade or current account deficit) like the U.S. must borrow the money from abroad to finance these imports. In other words, we use "vendor financing" to purchase them in the words of historian Niall Ferguson. This begs an interesting question: If China stops lending to us, can we buy their goods? Is there a credible threat then of them doing so?

These huge trade deficits, which peaked at $800 billion in 2006, coincided with the peak in the housing bubble. They are related, although the mechanism is complex. Essentially, we send money to China and they send us goods. They then lend the money back to us, buying U.S. treasury bonds, Fannie Mae and Freddie Mac mortgage securities. Purchases of these mortgage-backed securities helped finance the housing bubble. A couple of sources I've found helpful in learning about this:

Hidden costs of a trade deficit

Costs are created when we buy foreign goods that are not always readily apparent:

Currency manipulation

Paul Krugman has estimated that Chinese exchange rate policies cost the U.S. 1.4 million jobs. The Chinese currency should be allowed to appreciate, which is what typically happens when a country is running a large trade surplus. This would help the exports of other economies, as China's cheap currency makes their exports relatively more attractive. See Krugman - Chinese Mercantilism

Clean energy and competitiveness implications

Thomas Friedman wrote: "Andy Grove, co-founder of Intel, liked to say that companies come to “strategic inflection points,” where the fundamentals of a business change and they either make the hard decision to invest in a down cycle and take a more promising trajectory or do nothing and wither. The same is true for countries. The U.S. is at just such a strategic inflection point. We are either going to put in place a price on carbon and the right regulatory incentives to ensure that America is China’s main competitor/partner in the E.T. revolution, or we are going to gradually cede this industry to Beijing and the good jobs and energy security that would go with it." See Friedman-China & Green Energy

What is China up to? Friedman again: "In the last year alone, so many new solar panel makers emerged in China that the price of solar power has fallen from roughly 59 cents a kilowatt hour to 16 cents, according to The Times’s bureau chief here, Keith Bradsher. Meanwhile, China last week tested the fastest bullet train in the world — 217 miles per hour — from Wuhan to Guangzhou. As Bradsher noted, China “has nearly finished the construction of a high-speed rail route from Beijing to Shanghai at a cost of $23.5 billion. Trains will cover the 700-mile route in just five hours, compared with 12 hours today. By comparison, Amtrak trains require at least 18 hours to travel a similar distance from New York to Chicago.” China is also engaged in the world’s most rapid expansion of nuclear power. It is expected to build some 50 new nuclear reactors by 2020; the rest of the world combined might build 15."

Combating Dangerous Republican / Conservative Ideology

The myths and rebuttals

A short list of conservative nonsense commonly heard in the media, along with the rebuttal.

Why conservatives make this stuff up

We liberals know the above are myths that conservatives use to argue for their ideology. The conservative philosophy is low taxes, smaller government, except for big defense spending, with minimal restriction to the free market and international trade. Under this philosophy, people are supposed to fend for themselves, with the federal government primarily concerning itself with international relations and defense. This philosophy works well for the wealthiest two-thirds of us, for whom capitalism works. By nature however, there are winners and losers in a free market environment. And increasingly, our fates are intertwined as has become more apparent with the current crisis. When the poor or unemployed cannot pay their mortgages, more fortunate folks pocketbooks take a hit. Further, the more income and wealth becomes concentrated with the few rather than spread among the many, the less overall buy-in to the system exists. If the poor and middle-classes see the fruits of their increasingly productive labor captured by a wealthy elite, the system will eventually collapse.

In addition, energy independence and environmental protection do not have effective free market incentives. Cheap oil drives bad behavior. The U.S. consumes energy resources disproportionally to its population and is among the largest polluters. Whether we believe in the science of global warming or not, world opinion is very negative against us regarding these issues and we have been an impediment to progress, rather than a leader. The government can provide helpful incentives, through auto mile-per-gallon (mpg) and emission standards, carbon cap & trade regimes, funding for nuclear plants and clean energy, etc.

Revenue and Expense as % GDP

Nevertheless, Republican philosophy increasingly revolves around tax cuts, because they think eventually this should "starve the [big government] beast." This really means they want big cuts in Social Security and Medicare, as these are the big-ticket items in the budget that compete with defense and require significant taxes. (President Bush tried to do this with his ridiculous privatization proposal, for example). In addition, these programs represent an enormous wealth transfer from the rich to the poor. They try to conceal this agenda, saying tax cuts are about economic growth. They often cite Reagan, saying his tax cuts grew the economy. Well, see the charts on this page for the truth there; Reagan was a huge spender (over 22% of GDP on average). Keynes would argue it was this spending that grew the economy. Income tax revenues declined under Bush 43 after his 2001 & 2003 tax cuts and did not regain their 2000 peak until 2006, the peak of an unsustainable debt-financed economic boom. Deficits and debt increases under Reagan and Bush 43 were significant. There is clear historical evidence tax cuts increased government deficits dramatically from these administrations. Studies from CBO, Treasury and Harvard say a dollar of tax cuts increases the deficit from 50 cents to 90 cents. Why? Since tax revenues are about 20% of GDP, it would take nearly 5 dollars of incremental GDP growth to offset a dollar of tax cuts. Nobody credible believes that happens.

Unfortunately, the U.S. just borrows money instead of cutting spending, surrendering control over our future to foreign countries and pushing the burden and risk of a weaker financial position to our kids. We need to tax to cover our spending, period. Not taxing sufficiently also adds money to the system during boom times, bidding up asset prices and causing bubbles to develop. We need to get back to the steeply graduated tax system the U.S. had in the past, which worked quite well. This means the wealthy need to pay a lot more--they've got the money. We might also consider a counter-cyclical tax regime, in which taxes increase when economic growth exceeds a particular rate.

Other Conservative diversions

Republican strategists also use various diversionary tactics that are easy to rebut with a bit of explanation:

In short, if you vote Republican you are not voting for policies that make rational sense. We cannot all win in a capitalist society and those of us better off can no longer ignore the poor in an interconnected world.

Rebuttal talking points

Republican says: "Tax cuts will help grow the economy" or "Tax cuts pay for themselves." Informed person says: "Under Reagan and Bush 43, tax cuts dramatically increased government deficits and debt. Conventional economic wisdom is that a dollar of government spending increases GDP by more than $1, but a tax cut does not, intuitively because some of the latter is saved or used to pay down debt. Under Clinton, we had surpluses and economic growth was excellent, due in-part to tax hikes under Bush 41. Studies from CBO, Treasury and Harvard say a dollar of tax cuts increases the deficit from 50 cents to 90 cents. There is no free lunch. We either pay the taxes or we borrow from foreign nations and pass the buck (or lack thereof) to our kids. By the way, we are paying 15 cents of every tax dollar towards interest on the debt already, another form of tax, due to our $11 trillion in debt. There is talk of our debt causing the U.S. to lose its AAA credit rating."

Republican says: "Social Security is bankrupt." Informed person says: "Nope, it is fully funded until 2037. Then, it will get cut to 75% or so of the scheduled payouts and hold that level thereafter. It is a legally-mandated program and therefore will be paid prior to defense spending or other non-mandatory programs. Moderate tax increases or spending cuts can make it pay all its commitments for the remainder of the century."

Republican says: "We need to spend $750 billion a year to keep us safe." Informed person just bursts out laughing, picks self off ground after a couple of minutes and says: "How do our 10+ aircraft carrier groups protect us from terrorists? Or the F-22 Raptor? Or high-tech artillery? Or having troops on Arab land, the one thing that drives them the craziest? What is the threat that merits this type of payout, considering 40,000 of us die every year in car accidents? The real War on Terror is about economics. In the long-run, we can be no stronger than our finances. We surrender our sovereignty when we borrow and lessen our security. Let's save the money until real military threats emerge. As George Washington said, "...avoid the necessity of overgrown military establishments, which, under any form of government, are inauspicious to liberty..."

Republican says: "Don't socialize medicine." Informed person says: "Our system is just too expensive as is and must be reformed. We will all have to wait longer for treatment and some very difficult rationing decisions will have to be made for all. Right now healthcare is rationed based on wealth; about 45 million people cannot afford insurance, so we pay anyway when they go to the emergency room only at 5 times the rate we should. Hundreds of private corporations out to maximize profit involved in processing healthcare claims means a lot of overhead vs. a single payer system."

Steve Pearlstein summarized this nicely: "...allow me to bring a bit of old-fashioned journalistic skepticism to the rants of Republican politicians and talk-radio bullies who are trying to pass themselves off as born-again deficit hawks. These are many of the same folks who saw no problem running up record deficits in the middle of an economic boom by pushing through the biggest tax cut in history, increasing entitlement spending, and waging a terribly long and costly war. Their recent moralizing about the evils of government debt has the distinct odor of hypocrisy and political opportunism."

If you want to skip the complex arguments, keep it simple: President Eisenhower, a Republican, called the forerunners of the modern conservative movement "stupid." Republican President George H.W. Bush (#41) called conservative economic philosophy "voodoo economics" and raised taxes, perhaps costing him his second term but enabling Clinton to have budget surpluses.

Top strategic threats the U.S.A. faces, in priority order

I offer the following for any politician brave enough to act on them:

  1. Anemic growth and high unemployment, primarily due to offshoring jobs to developing countries and because of high debt levels that deter consumption. U.S. corporations have huge financial incentives to send the jobs overseas and are sitting on record cash hoards. We had a $740 billion goods trade deficit in 2011, which represents 4-6 million jobs overseas making our goods. We only created 2 million net new jobs 2000-2010, vs. about 20 million in each of the prior decades. About one-third of our deficit problem is due to unemployment, which cuts tax revenues and raises safety net / automatic stabilizer spending. Consumers are carrying a debt to disposable income ratio of 127% as of 2007 vs. 80% in 1990. We'll need tax and tariff policies that offset both the wage differential / living standard difference as well as currency manipulation that is common in developing countries.
  2. Unsustainable, structural financial deficits due to exploding entitlements, ridiculous levels of military spending, and misguided tax cuts. REPUBLICANS TAKE NOTE - YES, TAX CUTS INCREASE DEFICITS. We will be in serious trouble if no action is taken according to the GAO, OMB, and Treasury Department. Social Security solutions are easy but the politics is hard. Medicare and Medicaid are a bigger problem, roughly five times as severe as Social Security. Healthcare reform will involve serious sacrifices because the costs (over $7K per person) are extremely difficult to control. The Federal government is spending $1.20-$1.30 for every $1.00 in taxes, pushing the interest and debt to our kids and surrendering our sovereignty to foreign countries that bankroll us. The dollar is also at risk, as other nations begin to transition to other currencies as their reserve currency.
  3. Global warming / energy independence. Duh! If the planet doesn't support life, the rest doesn't matter now, does it? We have some time to fix this, but need to get started. Use eminent domain if we must to make 100 nuclear plants, more if we have to. This is a national security issue as well as an economic issue; we are transferring enormous wealth to countries with very different value systems. Get to electric cars ASAP. Raise fuel efficiency standards for cars. Require companies to allow telecommuting 3-5 days per month, where feasible. Implement a carbon tax. Everyone should have a financial incentive to be more responsible and to encourage innovation.
  4. Global pandemic or other natural disaster. Are we ready? Who are the doctors on the response list? Who will set up the logistics and how will corporations pitch in? How will volunteers be mobilized? How will we restore order?
  5. Failed states. We let a state fail and its only a matter of time until a terrorist from there hits us. Is our military and state department apparatus built to address this? Responding to failed states requires many departments of government; who will coordinate this? Are our alliance partners on board with our approach and how do we coordinate with them?
  6. Nuclear or biological terrorist attack. It takes a country to build such a weapon. They should all be on notice that if such a weapon comes from their country, their population will suffer quid-pro-quo. Let citizens of the world know it is their job to secure their nuclear weapons, as they will be held accountable. Preventing this is an intelligence, diplomatic, police, and special forces matter. Our policies are just as important to keeping us safe as our defenses.
  7. Israeli-Palestinian Crisis. Need a two-state solution. Condition aid to both parties on good behavior (e.g., remove settlements) and progress in negotiations. Set up milestones and give $ when these milestones are achieved and verified. Use our soldiers to clear the settlements if we have to, as Israeli politics gives undue weight to their radical expansionists.
  8. Fear. We can take anything terrorists can dish out. What we cannot do is run scared as a frightened population, one of the unfortunate legacies of the Bush presidency that we must overcome. FDR said it right. Further, we cannot spend $700 billion per year fighting an idea, which will cripple our ability to fight more serious threats in the future.
  9. Loss of moral high-ground. Our principles allow us to lead by example. As we sacrificed them (as evidenced by Katrina, illegal wiretapping, Abu Ghraib, Guantanamo, torture, etc.) our standing in the world and ability to lead was affected. We need good leadership to set the right example.
  10. Leadership deficit. Congress has a well-deserved, abysmal approval rating. Term limits are way overdue. Thomas Jefferson would be rolling in his grave knowing that we've got professional politicians running the place, mortgaging our kids future and giving our wealth to foreign nations. Only the President should stand for re-election. Everybody else gets one term. We have been ill-served by the status-quo.

See Thomas Friedman on the Three Bombs: Friedman-Nuclear, Climate, and Debt Bombs

Note that Iran is not on this list; controlled states under the rule of law are not a threat, as we can hold them accountable. There are plenty of countries with nuclear weapons. Iraq and Afghanistan are potential failed states so we must help them both.

What this means, if you want to be patriotic and help your country, is: save your money (so the state doesn't have to support your retirement) and get in shape (to limit your medical expenses). Then volunteer with any community service program or disaster response team and get related training.

Book recommendations

If you like to write, you probably enjoy reading and here are some books I always recommend. Most of these are award-winning or best-sellers...

Non-fiction

Science fiction

Fantasy

Tunes

Some great stuff from the masters...

The hard stuff with a twist...

And from the talented next generation...

Here are a few treats...

George Washington's Farewell Address

George Washington's Farewell Address in 1796 had no shortage of wisdom, which we have ignored at our peril. See the entire speech at Washington's Farewell Address Here are a few zingers:

Some Favorite Quotes

Appendix

Big Picture Implications of the Crisis and Globalization Generally

U.S. Current Account or Trade Deficit
Real After Tax Income Changes Skewed to Top 1%

Clean energy: If we don't become clean energy independent and fully enter the nuclear age (building 100-300 nuclear plants and ending our dependence on foreign oil and use of the combustion engine for cars) we will become a second-tier power by the end of the 21st century. Independence is entirely achievable by a President and Congress that focus on the long-term, rather than the election cycle.

Tom Friedman puts it well here: "We need a greener economy, not just to mitigate climate change, but because a world growing from 6.7 billion people to 9.2 billion by 2050 is going to demand more and more clean energy and water, and the country that develops the most clean technologies is going to have the most energy security, national security, economic security, innovative companies and global respect."

Sustainable fiscal policy: If the U.S. has been borrowing in an unsustainable way to maintain its growth, what happens when it stops doing so? How big should the U.S. economy be? It peaked just over $14 trillion, but if you take out home equity advances (say $500 billion per year) and $1.5 trillion budget deficits, shouldn't it really be around $12 trillion in size? The U.S. economy is now so large (about $14 trillion) relative to Federal government tax collections (about $2.5 trillion) that the government can no longer determine the course of economic events through sustainable deficit spending. Large deficit spending will have minimal effect on employment. However, it could be used to help make the U.S. energy independent, a worthwhile investment.

Global economy: There are several critical factors that will inhibit the ability of the world economy to grow as it has in the past, primarily the enormous debt load affecting consumers, corporations, and now governments in the developed world. Governments have not taken the action required to de-leverage or reduce the debt burden carried by these groups, through bondholder haircuts and mortgage debt for equity conversions.See Roubini - Ten Risks to Global Growth

Competitiveness: GE CEO Jeff Immelt laid it out for us. The U.S. should establish specific goals for the future. The U.S. should become a net exporter, with energy security via nuclear power and an expanded manufacturing base (20% of economy vs. 10%). See Immelt on Charlie Rose

Income equality: Free trade creates wealth, but that wealth is increasingly captured by the rich. Only 4% of Americans (highly educated professionals, primarily) had real wage increases during most of the Bush administration. See this: A New Deal for Globalization A sharply progressive tax system (like we had when the U.S. was growing quite well) is needed. Once you start making over a million a year, your company should match that amount with a check to Uncle Sam. And its time for Golden parachutes to go away.

U.S. living standards: The U.S. has the highest standard of living in the world. With free trade removing the barriers between us and other countries, our standard of living must decline. Some will be out of work in industries that die off (e.g., auto manufacturing), and nearly all of us will face declining or stagnant wages, as has been the case over the past eight years. We have some difficult decisions to make, as we are presently sacrificing our own workers and standard of living for other countries. Our country has the resource endowment necessary to be effectively independent of the rest of the world. Will we go down that path?

Layoffs: An estimated 30 million Americans are unemployed or underemployed. Corporations tend to choose layoffs rather than broad-based reductions in wages. This approach should change, as corporations have overpaid their employees (particularly senior management) for far too long, borrowing money to do so.

Collective action vs. sovereignty: Economic, social and political problems often spill over borders, yet the solutions tend to lie with national governments that jealously guard their sovereignty. Unless we solve this basic problem, we should expect more crises of various kinds." See Zakaria

Corporate board reform: We have seen yet again that corporate boards cannot effectively monitor the enterprise to protect shareholders from bad management. Boards are ineffective agents of the shareholder. Company board members should be trained and certified every 3 years. If they cannot pass the test, why should they be getting $35K to $100K to attend a few meetings every year? What good have they done here? Board members should be subject to annual shareholder votes; this can be administered via the internet, to keep the costs of a proxy fight down. A government agency could build the system for all to use. An obvious first step is to split CEO and Chairman of the Board roles; management and the board should be separated. About 40% of companies do this now, although many former CEO's became Chairman of the Board. Boards need to ensure management is as focused on the balance sheet (maintaining prudent levels of debt relative to equity) as opposed to just managing the growth in accounting profits. We live in a complex world that is rapidly changing and cannot anticipate all the risks that may impact us. Companies need a financial cushion sufficient to roll with the punches.

Living standards: U.S. companies and individuals will be forced to live within their means. On Wall St., they call that "deleveraging." Part of the reason that nobody is lending is because nobody is borrowing. Many companies that made money living on the spread between the interest rates at which they borrow and lend will go out of business. Many profitable companies that constantly churn debt will learn to live without it. Just imagine how much cheaper homes will be if credit is not so widely available. Imagine if nobody could borrow to pay college costs; they also would drop. We have created a world where everybody must be in debt to afford to live.

Human capital allocation: Take a hard look at the value of having many of our best minds on Wall Street, instead of as doctors, engineers, or scientists. To paraphrase the other great line from the movie Wall Street you don't often hear: "It is better to create, than to live off the buying and selling of others." Reform in compensation, taxes, and risk management will make Wall St. considerably less glamorous, diverting the intellectual first round draft choices to more useful endeavors.

Media: When is the media going to get back to facts instead of sensationalism and sound bites? It's really hurting us, because it helps get thoughtless people elected. I'm tired of hearing Republican "experts" say tax cuts increase government revenues (baloney), Social Security is bankrupt (utter baloney), and we need to spend $700 billion a year on defense just to sleep at night (while China spends about $50-100 billion and laughs at us). When the facts are brought to light, people will make the right decisions. Here is a prime example of how the media is focused on the "interesting" politics instead of the details of healthcare reform, which is the most important issue facing the country by a mile: L.A. Times-Media Critique

Short-selling America: Short-selling or otherwise betting against companies needs to go. What real value does it add? If you don't like the stock, sell it. But now that there are hedge funds and mutual funds betting on the failure of particular companies, creating fear, its time they go away. This ruining of companies has a name--its called a "Bear raid." Unacceptable. I'm trying to buy stocks that will help me retire and don't need some nameless firm trying to damage those same companies. It does not benefit society to have huge bets going AGAINST our companies.

Buy & hold: Why is "buy stocks and hold them for the long run" only advice for individual investors? How about a law that says when you buy a stock you must hold it for a year? Or, simply tax each stock trade say $5 or short-term capital gains at say 50%. Let's stop the churning, which adds no value and significantly hurts mutual fund investors, who have to pay these (none-too transparent) costs.

Farcaster's sloshing capital theory: One of the side effects of enormous government borrowing and global trade imbalances is liquidity in the system. This was a major contributor to the subprime crisis and the sequence of bubbles (Dot-com, Housing, Commodities) in such a short time. Capital is sloshing around the container and is spilling out in dangerous ways. Its easy to fix...balance the budget with an appropriate tax and spending policy.

Strengthen the U.S. balance sheet: The weaker the U.S. financial position becomes, the more we surrender our sovereignty. Companies and wealthy countries are bailing us out. The more indebted we become, the less control over our future we retain. Borrowing now for major defense spending means our country will be less safe and less free in the future.

Financial Market

Just How Bad Is It? Some Wealth Data

Housing Market

We can blame lots of people for this crisis, but the primary blame is looking us back in the mirror. We got caught up in a bubble, as we do over and over again. It is part of the human condition and free choice. Prudent regulation can minimize the damage when the bubble bursts. See Blodget-The Atlantic

The average cost of serious bailouts is 13% of GDP; that is about $1.7 trillion. With 10% of mortgages delinquent and a $12 trillion mortgage market, that is about $1.2 trillion. That may be a more accurate range of the cost of this bailout. Bear in mind that delinquencies and foreclosures will continue to rise, which will cause hundreds of billions of dollars of mortgage backed securities that are currently "non-toxic" to become "toxic." The current bailout does not address the wave of delinquencies that are coming! The good news is the major subprime issuance was during 2004-2006, so this thing has a 3-year total life. The clock started ticking in August 2007, so this will go on until August 2010 to some degree while these "pigs" travel through the proverbial python. The government can stop this cycle by recapitalizing the banks and helping people pay their mortgages. However, things won't boom again like they used to, due to the massive amount of credit that fueled spending. See Krugman

The Charts

One of my favorite things is to add graphics or charts to Wikipedia (sometimes by others, sometimes originals) to clarify some tricky concepts. Click on each and look at the discussion page or related articles for more information. Here are a few:

Deficit and Debt Increases 2001-2008

Projected Deficits in 2010 Budget

A diagram of the elements of the subprime crisis

Subprime Crisis Cause & Effect Diagram

Foreclosure Statistics

Common Equity to Total Assets Ratios for Major USA Banks

Vicious Cycles in the Subprime Mortgage Crisis

References

  1. ^ NYT-Robert Reich-The Limping Middle Class-September2011
  2. ^ NYT-Bartlett-Who Pays the Taxes and Who Gets the Benefits-December 2013
  3. ^ Voteview.com January 2013
  4. ^ Washington Post-Mann & Ornstein-Let's Just Say It: The Republicans are the Problem-April 2012
  5. ^ Urban Institute-Retirementpolicy.org-Retrived December 2013
  6. ^ Federal Reserve - Vice Chair Janet L. Yellen - Fiscal Responsibility and Global Rebalancing - December 1, 2010
  7. ^ CDC-National Center for Health Statistics-Retrieved July 2, 2017
  8. ^ OECD Health Stats-Health Expenditure and Financing-Retrieved July 2, 2017
  9. ^ PBS-Why does health care cost so muc in America? Ask Harvard's David Cutler-November 19, 2013
  10. ^ Forbes-Todd Hixon-Why Are U.S. Health Care Costs So High?-March 1, 2012
  11. ^ The Atlantic-Why Do Other Rich Nations Spend So Much Less on Healthcare?-July 23, 2014
  12. ^ Vox-Sarah Kliff-The Senate bill does nothing to fix America's biggest health care problem-June 30, 2017
  13. ^ NYT-In Class Warfare, Guess Which Class is Winning-Ben Stein-Warren Buffett-2006

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