Monday, December 30, 2013

From The 'We've Been Here Before' Vault-Second Edition

'Peabody here. You Americans should really
start learning your history!'
We love reading history, particularly accounts of consequential people who made momentous decisions and took courageous actions to let us live in a country as great as the United States of America.

From the Founding Brothers/Fathers, whatever you want to call them, such as Thomas Jefferson, James Madison and George Washington, to the ancient philosophers and leaders of Greece and Rome, we find their stories much more interesting than fiction for some reason.

Probably because what they did and said were 'true'. In many cases, what they did and said were far more 'unbelievable' than any novel we have ever tried to read and finish.

But one of the main reasons why we find history so interesting is this: We are doomed to repeat it.

Steve Turner, a favorite of one of our good friends in Washington, DC, Steven Garber, who runs the great Washington Institute in Falls Church, Virginia once said this about history:

"History repeats itself. Has to. No one listens." 
Sad, but true, isn't it?

Think of all the things mankind could have avoided had we just read the history of past fiascoes caused by hubris, egotism, megalomania and plain old human stupidity. The list is almost too long to imagine.

We have recently been reading the great biography, 'Alexander Hamilton' by Ron Chernow and heartily recommend it for you to read in the new year. Not only will it give you a fresh appreciation for the genius who was Alexander Hamilton, it will also give you a fresh appreciation for what even the most ardent advocate of a 'energetic executive' in the White House believed about the role of the federal government in our daily lives.

Namely, that it was set up to protect us from foreign invasion, promote free and uninterrupted commerce and bind us together as a nation of connected states, not a loose confederation of independent mini-nations within the confines of state borders as it was under the ineffectual Articles of  Confederation.

And....that was about it. Hamilton believed there were certain essential functions that could only be achieved by a strong national government. In no way could he or any other Founder have foreseen or even dreamed of a sprawling, purportedly omniscient and all powerful central government operating out of Washington, DC that now controls roughly 23% of our national GDP output each year and makes so many rules and regulations that there is not one single person in this country who can tell you what they all are.

'That looks positively like a top-heavy monarchical government!' they would marvel out of both sides of their mouths.

That all being said, we do find some comfort in the fact that history does repeat itself and that America somehow someway has found its way out of terrible situations in the past, many far, far more damaging to the nation and individuals alike than anything we have seen in the last 5 years. The Civil War; The Great Depression, WWII just to name a few.

Here's just one item we picked up while reading the Alexander Hamilton book by Mr. Chernow, just 1 of perhaps hundreds that have made our eyes bug out and say: 'No way that could have happened way back then in 1787; 1789; 1790 or 1796!'  

These accounts of verified history have made us appreciate the sacrifices and courage of the people who started our country and in particular, the genius of the people such as Mr. Hamilton, Mr. Madison and Mr. Jefferson who made it possible for us to live in the nation we live in today, good and bad, warts and all:

I. Care to guess what the percentage of the federal budget was for servicing the national debt in 1794, roughly 13 years after the cessation of hostilities in the Revolutionary War? The current payment of interest to service the national debt is roughly 6% of the federal budget.

Answer: 55%. 55% of the annual budget in 1794 was dedicated solely to servicing the federal debt.

That would be equivalent to close to $2 trillion being spent today on interest alone out of our $3.6 trillion federal budget. 

Don't laugh and say: 'That will never happen in America!' If interest rates returned to just what we consider historically 'normal', say to 5-6%, interest payments would soar to over $1 trillion...overnight. Just like that. 6% of $17 trillion national debt = $1.02 trillion in interest costs per year. 

Wait til our debt hits $22 trillion by will happen, no matter what we do in the next 3 years under President Obama.

Maybe we really should take heed of what the esteemed President Washington and Mr. Hamilton said over 200 years ago about the dangers of debt:

'(President) Washington (in 1794) had recently asked Congress for plans to retire the public debt and 'prevent that progressive accumulation of debt which must ultimately endanger all government'.*

'The debt of France brought about her revolution. Financial embarrassments led to those steps which led to the overthrow of the government and to all the terrible scenes (public beheadings at the guillotines) which have followed.'-Alexander Hamilton*

The difference between the great leaders we had in the past and the ones we have today is they actually had plans to deal with such tough issues as retiring the national debt. Hamilton, on his last legs before he retired as Treasury Secretary, submitted the Report on A Plan for the Further Support of Public Credit to the US Congress to extinguish the national debt within 30 years.

Today, we have no plan to 'extinguish' anything: the national debt; wasteful spending; obsolete federal programs; entitlement payments to super uber-wealthy people...nothing.

Isn't it about time we elect some leaders who will produce such plans?

Wouldn't the new year of 2014 be a good time to start by replacing all of the incumbents who have failed to do, well, ANYTHING productive on the issues that really matter to us as Americans?

* from Alexander Hamilton by Ron Chernow, p.480

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Monday, December 23, 2013

From The 'We've Been Here Before' Vault.....

'Abolish debt! Redistribute wealth!
Oh my God! They killed Kenny!'
Try to guess when, what and where the following time in America existed:
'Money problems pervaded all others. America was virtually bankrupt as the federal government and state governments found it impossible to retire the gargantuan debt inherited (from those who came before them). 'The fate of America was suspended by a hair', one noted financial expert was to say. (a)
Many Americans were as debt-ridden as their legislatures. Even as the government at the time proceeded, turmoil erupted as thousands of indebted businesses, farmers and individuals, struggling with soaring taxes and foreclosures on their property, marched in the streets, shut down courthouses and thwarted land seizures by force.
Massachusetts passed debt-relief legislation first. Many creditors and property owners were disturbed by the mounting power of government and dismayed by the impotent federal government.
An extremist movement in Rhode Island beat the drum for abolishing debt and dividing wealth equally. The Massachusetts uprising shocked many who wondered how far the rebellious movement would go. 'Good God!' exclaimed one of America's foremost leaders, aghast that some protesters regarded America's land and property 'to be the common property of all'.(b)
'They profess to aim only at a reform of the constitution and of certain abuses in the public administration, but an abolition of debts public and private and a new division of property are strongly suspected in contemplation' stated another prominent American leader.(c)*
Was it:

A) During the Great Depression when the Communist Party advanced in the US;
B) During the Obama 'Hope and Change' campaign of 2008;
C) During the first year of Ronald Reagan's Administration in 1981;
D) During the Panic of 1857; or
E) During 1787, before the US Constitution was written, ratified and in force?

The correct answer is E: 1787 during Shay's Rebellion. Gouverneur Morris said the first quote (a). None other than Gen'l George Washington said the second quote (b). James Madison, Father of the Constitution, uttered the words in quote (c).

So nothing is really ever new under the sun in American history, or human history, is it?

'Abolish all debts'. 'Share the wealth'. 'Divide up all property in the interest of 'fairness'. 

These concepts are not new to America. They existed before the United States even adopted the US Constitution, which is our second constitution, the weak-kneed Articles of Confederation being the first.

Just think about this for a moment: The fledgling independent confederation of US states, numbering 13 at the time (Quebec was invited to join but said 'non') had just recently fought the War for Independence and prevailed in 1781 over the world's most powerful land army and navy, Great Britain, and lost close to 25,000 people or 1% of the population to combat related deaths and diseases caused by wounds or in British prison.

America losing 1% of our population today would amount to 3.1 million people. 5 times more than we have lost in all of the wars in our nation's history combined.

Yet, despite all of that sacrifice for freedom, there were calls for abolition of debt, which would have destroyed America's credibility in the world financial markets before we even got started, and a redistribution of property, which would have defeated one of the reasons to rebel for freedom in the first place.

What is the point of bringing all this up right now?

American politics has always swung in a pendulum. President Obama was elected in 2008 in a period of mounting economic crisis and disfavor with a two-term president. He promised 'Hope and Change'.

He has certainly succeeded on the latter point. We are just not so sure it is ever going to be 'change for the better' for all of us, are we?

For those who are wringing your hands now saying 'Woe is Us!' (and 'ME' in particular!), we just want to point out that we have seen similar and far, far worse times in America than what we have seen in the last 5 years.

Does anyone seriously believe conditions in America today are worse than the following:

  1. The Civil War?
  2. The Great Depression? (which lasted 12 years)
  3. Any of the Panics of (name your year) 1785, 1792; 1819; 1837; 1857; 1873; 1893; 1907? 
  4. World War II?
  5. World War I?
  6. 9/11 and the ensuing 2 years of economic and physical fear?
  7. 'The Malaise Years' under Jimmy Carter from 1977-1981?
True, the prospects of a continued march down the road President Obama has set us upon 5 years ago do not seem to be bright. The first waves of the Obamacare tsunami are now breaking over the beachheads around the country. The damage and turmoil it has brought to the health insurance industry, the medical care facilities, corporate health plans and individual policy-holders is just starting to be felt in tangible ways by millions of Americans across the land.

We recently heard that the Obama Administration has suspended the individual mandate for people who had their individual plans canceled because of Obamacare....and now find that the plans to replace those canceled plans are 'too expensive', again because of Obamacare. 

'I'm gonna tie the health care system down to
the track...and watch it get run over!'
What is this, some kind of Keystone Kops movie or a dastardly plan by Snidely Whiplash to force us all into a national health plan when all private insurance plans collapse?

What we do know about Shay's Rebellion in 1787 is this: It represented a latent strand of populist DNA that flares up from time to time in American history, only to be pushed back and defeated for periods of times at length, usually when economic times improve and everyone is working again.

We think the election of Barack Obama in 2008 and 2012 represented a similar flare-up of the populist movement in American politics during similar uncertain economic times. His election, though, had far greater impact on the actual economic outlook of America than did Shay's Rebellion, although Col. Shays' rebellion caused many investors in Europe to dump American bonds in the belief the new young republic was not going to be able to govern itself in its freedom.

If you start to see foreign and domestic investors start to dump US bonds, and sell them for pennies on the dollar, you will know we have really hit rock bottom, contrary to anything Paul Krugman or any of the other apologists for the Obama Administration can cook up.

You don't want to live through such a scenario, we do know that.

If you want to help restore some sanity to the political process, consider running for office yourself. At the very minimum, get involved at the local and state level and give as much time, energy and money to candidates who support your opinion and general outlook on self-governance.

You can then say you actually were part of 'American History' and helped move the pendulum away from the Shay's Rebellion side of the dial.

* adapted from 'Alexander Hamilton' by Ron Chernow, pp.224-25, Chapter 'August and Respectable Assembly'

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Friday, December 20, 2013

'The Democratic Republican Meritocracy' of Alexander Hamilton

Quick test:

Name perhaps the only two self-made men at the 1787 Constitutional Convention in Philadelphia.

A. Ben Franklin. And Alexander Hamilton

Every other delegate appears to be a scion of one of the foremost families of the various states. 70%+ of them were lawyers (of course).  Most if not all had significant wealth, property and slaves, even in the northern states, all inherited from their fathers and grandfathers. Many of whom received large tracts of land granted to them from the King of England through the Proprietors or the royal governors for deeds done in the name and glory of England and the British Crown.

Thomas Jefferson. James Madison. George Washington. George Mason. Elbridge Gerry. Luther Martin. All of them.

John Adams billed himself as a farmer but he was also a well-respected lawyer who must have done pretty well at that. He was so good that he was selected to be the defense lawyer for the British soldiers who killed American colonists during the Boston Massacre so he must have been pretty successful as a lawyer to have the skills (and guts!) to argue in their defense for a fair trial. (They got off)

But when you think about it, Alexander Hamilton (and Ben Franklin) embodied the very essence of what the 'American Dream' was all about in the first place:
'A nation where free people can make independent decisions and lift them up as high as they want to go, and can go, based on their own hard work and merit.'
Alexander Hamilton was born of an uncertain birth and grew up in poverty and the squalor of St. Croix amidst the horrors of the Caribbean slave trade. He held strong abolitionist sentiments his entire life as a result of that upbringing as he progressed from trade clerk to lawyer to soldier and then statesman.

Colonel Hamilton always chafed at the notion of deferring to French nobles who wanted to help the Revolution who had limited experience but lots of baubles and medallions on their blue and red French uniforms. He often wrote of America being a 'meritocracy' which, come to think of it, might have been a better word to use in many ways instead of solely limiting America to a 'democratic republican' form of government or 'participatory democracy'.

A 'Democratic Republican Meritocracy' might be a better way to describe what most people believe in in America today and in the past. And we hope always in the future.

To return to Hamilton though, many conservatives recoil in horror whenever the name 'Alexander Hamilton' is brought up.

'Why?' you might say.
'It is because of Alexander Hamilton that we have this explosive monolith of a federal government today in the first place! He was damn near a monarchist who wanted central power to be controlled with a strong executive out of Washington, DC plus he was arrogant, obnoxious and he probably got what he deserved when Aaron Burr shot him in their duel at Weehauken!
And he started us down the road to the Federal Reserve by advocating for the first national bank! Plus he was a Federalist! I hate those guys!
And he is no Jefferson! Or Madison either!'
Well, who is nowadays? Or ever was, essentially because America has not been the agrarian, tiny local government paradise that Madison and Jefferson dreamed it would become. Especially not since 1933 when FDR took office and the US was in the midst of the worst depression we have seen in modern times..until 2008 that is.

Besides that, Hamilton's vision of what the American government was going to become one day in the future 'won out'. Big time over the last 2 centuries. The Jeffersonian/Madisonian dream of a far limited government has been overrun by Big Statists since 1933 but especially since the 'Great Society' days of LBJ in 1965.

Perhaps both the right and the left need to take a closer look at Hamilton's own writings and feelings about the role of government in America. It is almost impossible to read them all since he may have been perhaps the most prolific political writer America has ever seen, both on a policy basis and advocacy basis, most popularly known under his pseudonym, 'Publius' when he penned many of 'The Federalist Papers'.

Here's just a few quotes from the great biography 'Alexander Hamilton' by Ron Chernow that should give cause to everyone to rethink what even the most expansive thinker in the Founding Brothers/Fathers thought about the proper role of self-government in America. It may help bring us back to our least some:
  1. 'Previewing his Treasury tenure (in 1782, a decade before he became the first Treasury Secretary), he advocated duties on imported goods as America's best form of revenue....(He said) officials can have no temptation to abuse this power, because the motive of revenue will check its own extremes. Experience has shown that moderate duties are more productive than high ones.'  p.170 
  2. 'In contriving the smoothly running machinery of a modern nation-state--including a budget system, a funded debt, a tax system, a central bank, a customs service and a coast guard--....he articulated a clear and prescient vision of America's future political, military, and economic strength...and crafted such ingenious mechanisms to bind the nation together.' (p4)
  3. 'Tis by introducing order into our finances--by restoring public credit---not by gaining battles that we are finally to gain our object (of independence)' (p.156)
  4. 'A national debt, if not excessive, will be to us a national blessing. It will be powerful cement of our union' (p 156)
  5. 'From the same situation (The Revolution), (both Hamilton and Washington) had drawn the same conclusions (about America's future): the need for a national army; for centralized power over the states, for a strong executive and for national unity.' (p 153)
If you want to learn more about Mr. Hamilton, we strongly suggest you buy Chernow's book for yourself for Christmas, as well as his book on Washington and any of the other great books on the Founders you can find. (We will help you if you don't know where to look)

One key thing to think about this holiday season is what would both Alexander Hamilton AND Thomas Jefferson and their followers think about the profligate, wasteful spending and the interfering rules and regulations we have allowed our own federal government to use today?

We think they would be horrified.

Alexander Hamilton was Gen'l Washington's chief aide-de-camp and just itched to get into battle for 5 years before Washington offered him a post at the climactic Battle of Yorktown. He was one of our most important cogs in the American victory over imperious, capricious British rule. It can hardly be said he did all of that work and made all the sacrifices of a citizen-soldier from 1776-1781 just to replace one monarchy with another.

It is really not the 'fault' of anyone in our past that we have the spendthrift, overly expansive government we have today. Not Hamilton. Not Henry Clay. Not FDR. Not even Lyndon Baines Johnson and the Great Society.

It is the collective 'us' living today. Conservatives, liberals, independents and libertarians all need to read about what our Founders such as Alexander Hamilton and Thomas Jefferson had to say about what their vision was for self-governance in America's future.

Both of them were closer in thought and political philosophy than what you may have been led to believe.

Maybe then we can go about repairing the things that ail us.

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Monday, December 16, 2013

Miscalculations and Missed Predictions In Obamacare

'I'll get you to like Obamacare,
my pretty... and your little
dog too!'
By now, we all know that the rollout of Obamacare has been a disaster.

But what many people don't understand or fully appreciate is why it has been such a disaster.

Let's take a look at why trying to revamp 1/6th of the national economy or close to $2 trillion annually probably wasn't the best thing to try to do in one fell swoop:
  1. Passing any bill on a purely partisan basis without any, zero, nada input from the other side of the political spectrum pretty much insures that when the political tides change (and they always change in America), that bill will be nibbled to death by ducks or flat-out repealed if the pendulum swings as far to the other side as existed when it was passed.
  2. 280 Members of Congress and the US Senate plus a President in the White House and maybe a total of 200 key staff writing and passing a bill have to darn near be modern-day Nostradamuses to be able to predict every contingency in a nation of 310 million people making health decisions every single day to the tune of $2 trillion annually in 2013.
  3. 310 million people is a lot of people. Surely, every single one of them can't be expected to make decisions on a daily basis precisely as the savants who conceived and concocted the PPACA in virtual secrecy before, as Nancy Pelosi infamously declared: 'We have to pass it to see what is in it!' (What the heck?) want them to behave.
  4. Proponents of PPACA expected the vast majority of businesses to just basically lay down and comply with their edit.
  5. Fast food chains and people with lower-wage hourly workers have been slashing payroll and putting workers on 30-hour workweeks to avoid being forced to cover them with corporate health care benefits.
  6. Proponents of PPACA assumed people with individual plans would just sit back and take the cancelation of their 'non-compliant' (sic) HSA plans and just say: 'Ok. I'll do whatever they say. They must be smarter than I am because they know what I need (such as maternity care at age 57) than I do'.
  7. Proponents of PPACA assumed that there would be 'winners' and 'losers' when it came to paying for the new 'ACA-compliant' health plans, whatever that means. 'Winners' would pay less, mostly due to massive federal subsidies paid for by taxpayers; 'Losers' would pay more, mostly because the insurance companies made a deal with the Obama Administration to 'play ball with scarecrow' to get 40 million new federally-subsidized customers and that included making individual plan owners pay far more in premiums. 
  8. Proponents of PPACA presumed that said 'losers' above would keep their mouths shut and just pay the piper without griping. They were wrong. These people forced President Obama to make good on his promise that they could keep their plans if they liked it and they are going to make sure every state insurance commissioner allows them to do as well or else said insurance commissioner will be voted out of office next election.
  9. Proponents of PPACA calculated that it would force health care costs down. What they forgot to do was implement any sort of structural health care reforms in the PPACA such as federal tort reform amongst hundreds of other cost-drivers which would have actually broken the back of medical cost spiral inflation instead of just swept it under the rug.
  10. Proponents of PPACA predicted that young invincibles (so healthy they can't conceive of every getting sick enough to need insurance) would come a'runnin' to sign up for health care once it was available. But these young people....still think they are invincible! So why sign up for health insurance? Pay the paltry $90 tax penalty or maybe not even pay that because there is really no direct enforcement mechanism to collect these tax penalties!

    Many of these young people thought Obamacare was going to be free or darned near free since virtually everything President Obama has promised in the past has been free to those who got the benefits (including Wall Street execs and Detroit labor unions and feckless auto execs)
You sorta get the picture, right? For Obamacare to have had a fighting chance, thousands of things had to go exactly right and in perfect hundreds of millions of people had to act and make decisions precisely as the mensas who conceived and passed the PPACA wanted them to act and make decisions.

Americans are a unique brand of people. For some reason, maybe because of the fact that we have a Declaration of Independence declaring our freedom and a US Constitution guaranteeing that freedom for all time, we Americans feel like we have an inalienable right to be able to make our own decisions, right or wrong, good or bad. We don't want our government telling us what to do and when to do it, certainly not on issues as important or as private as our health care and which doctors we choose to administer it to us.

I just had a colonoscopy and a skin lesion removed last week in 2 separate doctor visits. Think I didn't make sure I was comfortable with each doctor before going in for each procedure?

That is what is 'wrong' with Obamacare at its heart and soul. It has forced people out of their comfort zone with something that is very personal and important. When that happens, Americans tend to get to get rebellious and angry and they fight to change things for the better.

Don't expect this to just 'blow over' no matter how many speeches President Obama delivers on the merits of the ACA from his perspective. In fact, we predict that come the 2014 elections, there will be a groundswell of opposition to anyone who voted for or supported Obamacare such that the 2014 elections will rival the 2010 mid-term elections where a ton of incumbents were swept out because they voted for it in March of 2010.

Once that happens, and the US Senate has 50+ Republican Senators in it, and the filibuster rules have been diminished due to Harry Reid's extreme myopia, that is when you will start to see significant reductions and restrictions in Obamacare and perhaps progress towards restoring some sense in the US health care system.

It might be a very bumpy road for President Obama in the last 2 years of his term in the White House.

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Wednesday, December 11, 2013

'You Aren't Paying Your 'Fair Share'...You Are Paying MORE Than Your Fair Share!'

The CBO just came out with a very interesting study where this singularly interesting nugget of information is embedded in the chart above on page 13 in this report: The Distribution of Household Income and Federal Taxes, 2010.

'The top 40% of American income tax payers are paying 106% of all federal income taxes'

What? How can that possibly be? 106%? That is more than all of it!

You need to read the entire report because it is full of fun facts and figures you can use in your daily lives and daily debates about the future course of this great nation.

The bottom-line is that the United States is a pretty generous place to live in, regardless of what the Obama Administration and other denigrators of the current American situation want you to believe.

How can certain people pay more than 100% of the total income tax paid each year?

It is simple. There are things in the current income tax code such as the Earned Income Tax Credit that essentially 'pays' lower income folks a certain amount of money that is 'transferred' to them from higher-income taxpayers in any year they qualify.

The lower 40% of income-earners in America receive 9.1% of the income tax paid from the 60% in the higher income categories. That is why they are represented by a negative sign in the chart above.

The top 20% of taxpayers pay 93% (92.9) of all income taxes paid. The next 20% pay 13% of all income taxes paid. Add the two together and you get to the magical 106% number you might be seeing on the news lately.

Is this 'fair' or is it 'not fair'? Should it be 'more'?  Or 'less'?

That is why we have politics, don't we? We get to collectively make decisions as to how to build our economy and provide for the basic needs that any great nation would want to provide for its citizens.

However, it is important to note the facts when you do engage in the political game. This chart above pretty much proves that the progressive income tax system of America is in fact 'working' in the sense that it is helping lower-income folks by taxing higher-earning income tax payers.

This is over and above ANY welfare, health or social assistance program at the federal, state or local level that provides basic services to anyone at or below the poverty level in America.

It is also over and above ANY charitable or religious donation that any lower-income person or family may receive during the year.

It is also over and above ANY income that each person may be earning from a job in the private sector, no matter how meager the salary or wages may be. The economic engine of this nation is still the best avenue for anyone making a better life for themselves and their families. We are on the side of unleashing it and letting everyone participate to the fullest extent possible.

This is not to insinuate that anyone living at or near the poverty line has it made in the shade and everyone should be trying to trade places with them. We recognize the difficult life circumstances that millions of Americans struggle with every single day.
'Easy Street' or 'Dead End'?

We are, however, trying to point out the facts of the matter that seem to conveniently elude such people as our sitting President, Barack Obama and many who helped him get elected twice.

Apparently, they believe the 106% number should be far higher in order for America to be truly 'fair'.

Our honest question is this: 'How high should it be? 125%? 150% 200%?'

Or below 100%?

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Sunday, December 8, 2013

'Bill Gates Has Done More To Help People Than Mother Teresa'

Who has 'helped' more people: Bill Gates or Mother Teresa?
We have a friend, Jon Ham, who says when he stood up in class one day long ago to make this bold assertion, he was almost stoned to death.

'Bill Gates has done more to help more people on earth than Mother Teresa ever did!'

Now, before you throw your coffee cup through this computer screen at both Mr. Ham and me, hear us out.

He was making a very important point about free enterprise, capitalism and freedom that is not being made very well today by: A) Business people; B) Capitalists; C) Conservatives; D) Republicans and E) Freedom-loving Democrats, Independents and Libertarians anywhere.

Mother Teresa did wonderful things showing the rest of the world how to care for, in a loving manner, the poor, the sick, the frail and those with AIDS through her Missions of Charity Center founded in the slums of Calcutta and then expanded through 133 countries by 4500 sisters.

There can be no doubt that she did far more than 'comfort the sick'. She showed the rest of us how to live with compassion and love for others less fortunate than us.

However, when it comes to the brass tacks of 'helping' people live better, more healthy lives and you put it on the balance scale of numbers of people helped directly, Bill Gates comes out way, way ahead.

Mother Teresa personally may have been able to touch and comfort tens of thousands of people in her lifetime. Many were brief touches of her hand and a soft prayer over their wounded heads.

The development of Microsoft software for the PC by Bill Gates has positively affected the lives of billions of people on earth. From the IT professionals and techies who make their living installing and tweaking computer programs and systems for businesses, large and small; governments; charities; churches and personal home use to the people whose lives have been made exponentially better in quality the world over.

Let's take a closer look at his argument:

Prayers and gestures of sympathy go a long way in making us human as opposed to mere animals or beasts in the wild. Many species kick their poor and frail to the sidelines to protect the pack and out-and-out leave them to be attacked by the hyenas or jackals that follow them.

But even Jesus would offer that the person such as the Good Samaritan who helps others in need in physical, tangible ways by giving them food, water and shelter while helping bind their wounds does far more than the others who offer perhaps a shallow 'God be with you' and walk along their merry way without giving them food, water, shelter or medical attention.

The miracle of free enterprise and free-market capitalism is that the vast majority of its benevolent and ameliorative benefits are accomplished by entrepreneurs and business people who have this one primary and somewhat contradictory motive in mind:

'How Can I Make A Profit Providing A Good Or Service To Other People?'

In its narrowest form, this could be taken as looking like total greed. Which is the narrative that the Obama Administration and many in the news media would like to have the majority of American citizens believe.

In actuality, it is far from it. In a more positive light, it should be considered as 'enlightened mutual benefit' between the owner of the business and the people who work for him/her and the people who buy the product or service.

Entrepreneurs, risk-takers and businessmen and women put their money and investors' money to work plus their time, energy and reputations. Without them, no one would have a job.

And we wouldn't have any taxes paid on profits generated to pay for any entitlement or government program you may like. Think about that for a moment.

Think about the things people have invented and sold that have: A) made our lives better and easier than the desultory lives most of the human population endured during the Middle Ages and times when the Black Plague wiped out close to half of the populations around the world and B) provided jobs for hundreds of millions of people who could the provide better lives for their families and send their kids to colleges where they could learn to invent and develop new technologies that produce new and better products and services.

  1. Henry Ford and the Automobile-That is an easy one to see. Imagine a life without the mobility and freedom cars provide to hundreds of millions of people in the US alone every day.
  2. Orville and Wilbur Wright and the Airplane- Same. Thing. Just a little over a century ago, heavier-than-air flight was a mere dream for humans. Today, you can fly coast-to-coast in 4 hours with some new planes being developed that can do it in 90 minutes.
  3. Any medical device or procedure-If you have ever had any sort of significant operation, you are grateful that A) you didn't live in the Middle Ages and B) that the people who knew how to make the surgical instruments and life-saving machines knew what they were doing.
  4. Bringing fresh, safe food to market- We bought some amazingly sweet cantaloupe the other day at the local Fresh Market. It had just come in from Chile or somewhere in South America where is it summertime today. Imagine that. We have men and women business-types and workers who can actually go through all that work just to get you a fresh, sweet cantaloupe in North December.
  5. Plastic Tips on your shoelaces- We are always amazed when we look at anything we use and wonder: 'Who in the world would have thought not only to have made that thing but that he/she could make a lot of money doing so? Check out the plastic tips that wrap around the end of your shoelaces sometime. No real complicated but someone had to A) think about the need for it in the first place and B) how to make billions of them C) with machines D) at the lowest cost possible.
Mother Teresa was an amazing soul. We would not be human if we didn't have people such as Mother Teresa to show us how us how to love one another in truly self-sacrificial ways.

Every single person in America would not be living in the highest standard of living the world has ever known regardless of income status without the miracle compounding effect of free people being able to think and invent new products and services to make our lives better. Thank God we have air-conditioning in the South!

We know there are plenty of bad and dishonest businesspeople who deserve to be prosecuted and thrown into jail every single day. (How many Wall Street bankers have gone to jail as a result of their malfeasance of duty that led to the Implosion of 2008? None. Zero. Nada. They should have been forced into bankruptcy before the banks were bailed out by you, the American taxpayer and then allowed to start over from scratch)

But don't get sucked into the narrative that every business is 'bad' and every business owner is 'awful'. They are not. Perhaps 95% of them do noble and important work for us every single day.

Which is why the 'Bill Gates' of the world have cumulatively done far more to help people in tangible ways than Mother Teresa ever possibly could have done on her own.

Maybe try to have a little 'Mother Teresa' in everything you do this week at work. The results may surprise you.

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Friday, November 29, 2013

When Dinosaurs Ruled The Earth

'Repeal Obamacare! Repeal Obamacare!'
Years from now, American political paleontologists may be looking back on the first part of the 21st century and marvel:

'What happened to all those big things in America back then?'

This is not just us predicting this from the wishful, wistful, small government Jeffersonian side of the political spectrum.

It is now coming from the left side of the political spectrum from a guy named Doug Sosnik, a consultant to President Bill Clinton who wrote a very important and interesting piece you really need to read today: 'Which Side of the Barricade Are You On?'

Doug, a Duke University grad, is someone we met way back in 1980 or so way before he became famous as the article is prefaced: '(H)e's famed in Washington circles for his closely held, big-think memos on the state of American politics'.

He sees a major populist movement building in American politics against all things 'big'.

We think he is onto something here, something we have been bringing to your attention for quite some time now: 'Americans are finally beginning to see the danger in 'big things'; in business, in banking, on Wall Street and certainly in government.'

Once you have read his article in full, come back and think on these things and see if you don't agree with Mr. Sosnik when he concludes with these words:
'Underneath this turmoil you can see the shape of an emerging populist movement that will, in time, either move the politicians to action or throw them out of office. The country is moving toward new types of leaders, those who will be problem-solvers....'
Let's take a look at some of the things that have happened in the past 5 years that have eroded the public's confidence in all things 'big and powerful':

  1. Congress, in its infinite wisdom, relaxed the rules and regulations governing real estate speculation and investment in America over the previous 2 decades to 'encourage more homeownership' to the point where many people qualified for loans simply by breathing and signing on the dotted line.
  2. Big Wall Street investment bankers persuaded many unsuspecting folks and national, state and local governments around the globe to invest in risky derivative investments with complicated investment structures such as credit default swaps and collateralized debt obligations and who knows what other sorts of legalese financial jargon.
  3. The real estate market collapsed like a ton of bricks in 2008. Financial panic spreads throughout the globe.
  4. Congress bailed out most of the financial investment houses and banks who got us into the mess in the first place and restores the lost wealth of CEOs and executives alike with your tax money.
  5. Over the past many decades, Detroit automakers 'negotiated' (sic) lucrative deals with big union labor bosses to the point where American cars became cost-uncompetitive or quality-uncompetitive with foreign automakers. The cost of 'Cadillac' health plans where union workers paid no copay, premium or met any deductible proliferated. The cost of health care in each automobile built in Detroit exceeded the cost of steel and aluminum in each car.
  6. The crash came. Detroit carmakers faced bankruptcy. Congress and President Obama bailed them out with your tax money. Again.
  7. The US Senate under the leadership of Majority Leader Harry Reid hasn't passed a federal budget. Ever. Now wonder we have had no control over spending.
  8. President Obama pushed for and promised health care for everyone. 'You can keep your insurance if you want to' was his bottom-line promise. Millions of Americans now face cancellation of their health insurance plans. Individual and corporate alike. A complete falsehood coming from our Chief Executive in the White House. 'A bald-faced lie' it used to be known as when public officials still had some shame in their character. People used to resign in private business and government when they did things like that in the past.
  9. Big health insurance companies worked with the Obama Administration to get Obamacare passed in 2010 ostensibly because it 'promised' to deliver up to 40 million new customers into their existing customer base, millions with substantial federal subsidies in hand. But then, for some unknown reason, the Big Health Insurance companies canceled plans in existence they say because of Obamacare! What the heck is going on here?
  10. Congress has not dealt with anything at all and come to any practical working conclusion on the major problems we face as a nation. We now just have crazed people from both sides of the aisle go on cable talk shows and scream at each other and point fingers somewhat ridiculously and in a childish manner.
Need we go on?

We disagree with Mr. Sosnik on a few things. We are not going to bang on the heads of successful people or try to exploit the 'income inequality' issue any more than it already has been exploited.

We think successful people do a common good by providing jobs, salaries and benefits for the rest of us to enjoy and support our families. We just don't want them ever to do it with taxpayer support.

We also think Mr. Sosnik might be more amenable to trying some more government programs even when Obamacare, which is now being considered as 'Medicaid Plus' by many experts, is in the process of showing everyone who is paying any attention a classic case of why centralized government fails in many regards.

We do agree with him that something big is a'brewin' in America today and it is the large swath of registered voters who are done with both established political parties. Record numbers of people in North Carolina are now not just walking but running to their local boards of election to change their registration to Unaffiliated aka Independent.

28% of them have already done so. 42% are expected to have done so by the presidential election of 2016. Who will be the 'majority party' then?

Good for them. They have finally 'seen the light' and decided to leave both parties to the extremes on both sides in hopes of electing sensible, thoughtful people in the fall elections. (Assuming they can get out of their primaries, that is which is a big, big problem on both sides nowadays)

We have already written a great deal about where we would like to see this nation turn and that is more towards individual responsibility, duty and honor versus passing all of our freedoms off to an ever-increasing central government that is now proving its limits.

Here's just a few things we think would help make this nation the land of the free again where everyone gets a chance to prosper, more so than under current restrictive, ossified systems and structures (previous articles we we have detailed such solutions):
  1. Individualized personal savings retirement plans funded by the same FICA tax now being collected from every worker on a weekly basis (
  2. Conversion of our health insurance system to a catastrophic health insurance system as opposed to a 'pre-paid health care payment plan (
  3. Means-testing and conversion of Medicare and Medicaid into income-based health support payment plans (
  4. Conversion to a consumption tax plan to replace the current confusing and sclerotic income tax system (
There are more ideas such as these that would steer us back to a far more prosperous and vibrant future where not only recent college grads but the approximately 20 million people who are either unemployed or significantly under-employed today could stand a reasonable chance of finding a job once the economy gets moving again at a 3-4% annual growth rate versus the abysmal rates of growth under existing policies.

Let's face the truth square in the face:

It just ain't working now whatever the Big Government Advocates and Aficionados have been selling lately for these past 5 years.
That is half of a decade that has been lost. For any young person who wanted to get a good job and provide for a good life, those first 5 years of employment are perhaps the most important in terms of building up funds for retirement that would compound for 45 years+. Those years are now lost forever.

Want to go for another 5 years?
The Big One That Wiped Out The Dinosaurs

The dinosaurs were wiped out by a huge meteorite that struck Earth 65 millions ago.

Will the demise of Obamacare be the self-destructive meteor that finally turns America away from the fool's gold of More Big Things as Doug Sosnik postulates in his great article?

Or will we settle again for more government, more regulations and more crony capitalism as we have seen in the Wall Street and Detroit bailouts?

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Sunday, November 24, 2013

Disintermediation and Health Care Insurance: Market Forces Still 'Work' In America

'Disintermediation: What Goes Around,
Comes Around!'
One of the more interesting things about working on Capitol Hill was learning what big words mean when luminaries such as Alan Greenspan, Paul Volcker and just about every other famous economist or technical expert came to testify in Congress.

'Disintermediation' was one of those words. We heard a lot of it on the House Banking Committee when the S&L industry melted away between 1985 and 1990. We also heard a lot of it during the financial meltdown of 2008 when commentators on CNBC repeatedly talked about the threat of 'disintermediation' on financial giants such as Wachovia (which passed away) and Bank of America (which somehow survived, albeit with massive taxpayer-supported federal help).

It started out meaning the bypassing of 'intermediaries' such as brokers or agents and 'cutting out the middleman' entirely. However, when it came to the financial industry in the late '80's and beyond, 'disintermediation' came to mean 'consumers taking a rational, cold hard look at the financial institutions in which they have entrusted their money...and withdrew it to find better, safer havens for their life savings'.

You want to chill the hearts, brains and bones of any banker? Start a 'disintermediation' campaign on Twitter and urge all your friends and their friends and their friends to take their money out of X Bank and move it all to Y Bank. Nothing gets the attention of a banker like red lights popping up all over his computer as indications of 'closed accounts' due to people moving their money elsewhere.

That is the power of the free enterprise system. Treat your clients or customers like crap and you'll see them leave you. In droves. And your business suffers and eventually dies because you need your clients/customers' cash flow to grow and survive.

The recent debacle of Obamacare causing the major health insurance companies to cancel (and then reinstate in some states) their policies to millions of hard-working, innocent people brought to mind the whole concept of 'disintermediation' in the health care insurance world in specific and in Obamacare in general.

Here's the question we all have to answer for ourselves each in our own individual way:
'Why in the world am I being held captive by President Obama and the health insurance companies in the first place?'
This is America still, isn't it? Aren't we all supposed to be free to make our own choices about what we buy; whom we will marry and how we will worship and live our lives?

If not, we have really made a drastically dangerous U-turn at Albuquerque, as Bugs Bunny would say:

Why can't we do that in health care insurance?

There are over 250 million automobiles owned by Americans and every single person who buys a car buys their own car insurance without any help from the government or their employer or anyone else. They have to have insurance to drive their car, (although you know there must be millions of uninsured drivers driving around just like there are undocumented people voting in elections....or is the driving registration system in all 50 states 'perfect' as well?)

Close to 200 million Americans live in owner-occupied homes. Every one of them have home insurance to pay for the rebuilding of the home in the case of fire or other catastrophes. None of them have the government paying for their home insurance nor do their employers pay for it either. The lender requires the insurance before authorizing the loan for the purchase of the home. The homeowner shops around and buys the type of coverage he or she is most comfortable with for their particular station in life.

What would 'disintermediation' look like in the health insurance field anyway?

For the most part, very large private health insurance companies and non-profit Big Blues (BCBS) 'own' the health insurance markets in each and every state since each state is governed by a single insurance commissioner. It is darned near a monopoly in some states; a tightly-knit oligopoly in the rest.

Since the rollout of Obamacare has become such a debacle, perhaps it is time to shift the governance of insurance from 50 states to a single Department of Insurance in Washington.

We know, we know...we are the last ones to be advocating more power going to Washington. God forbid we send 'more' power in governance to Washington after these last 5 years, yes?

However, since health insurance companies always hide behind the excuse that their hands are tied when it comes to 'interstate competition' because of the 50-state insurance commissioner excuse, let's end it right now and allow health insurance companies to expand across all 50 states and Puerto Rico and Guam if they want.

You want competition? There it is right there on a silver platter.

Secondly, in order to have a true 'free market', there have to be viable alternatives to what exists today in order to change it. There is hardly one at all under Obamacare or under the current sclerotic system.

We recently were told about alternatives that have been in effect for years now which, in essence, set up cooperative self-insurance pools as opposed to traditional fee-for-service health insurance offered through your employer or on your own in the individual market.

One, Samaritan Ministries seeks to pool people of faith together into a large enough pool so that they essentially pay for the high-end health costs of other people in their group. No insurance, no underwriting by the big insurance companies. Just a statement of faith plus a promise to live a healthy lifestyle meaning no smoking, over-drinking or drug abuse and a dedication to keeping your weight down through sensible eating and exercise.

Pretty much exactly what we have long said was the solution to 'high health insurance costs' in the first place: take care of yourselves and health care costs will absolutely plummet.

Now, this is not for everyone. The cap is $250,000 which is the top limit of health-related bills this group plan will cover. The website says it is a clear alternative to being forced into Obamacare against your will without having to pay the tax penalty each year but you should take some care to have your accountant or lawyer check this out before jumping in.

Consider this: The chances of your having a $1 million health care claim might be lower than the chance that you will be struck by lightning, which is 1 in 700,000. If that ratio holds up for the entire nation of adults, there might be 350 cases per year in the entire nation where someone's health care bill approaches $1 million.

The chances are very heavily in your favor that you will not have a $1 million health event if you don't smoke, don't over-drink, lose weight and exercise every day by walking for 30 minutes or taking the stairs to work.

The 'disintermediation' will occur when not only Obamacare but the private insurance companies are deprived of your $800-$1200/month premium which amounts to $10,000 to $15,000 per year. You will pay $10,000- $15,000 in premiums BEFORE you meet your $12,000 deductible AFTER you have met your 50/50 cost-share co-pay.

In our case, we figure it would cost us over $25,000 out-of-pocket in any year with a significant health event before BCBSNC would pay the majority of our health care claims if we took the policy they suggested we take when they canceled our previous plan (that they said they will now reinstate but we haven't seen any documentation of that yet)

Oh, we forgot to mention that the Samaritan's Ministries has never cost more than $370/month for any family of any size. Ever. $4400 per year for a family of 4 or more. Much less for a single person. Probably below what you would pay under Obamacare even with the generous subsidies.

They currently have 25,000 households (approximately 100,000 people) in their collective pool. If they get up to 1 million participants, their coverage should expand due to more financial strength and support.

Did you hear the sound of that stampeding in the background? That is the sound of everyone rushing to the Samaritan's Ministries website to sign up for their plan before the Obama Administration can come up with Obamacare Version 2.0 and the health insurance plans can figure out a way to make you pay higher premiums for your health care.

50,000 people in North Carolina opting for the Samaritan's Ministries approach would cost either the private health insurance market or Obamacare or both $600 million in annual premiums foregone.

Once Obamacare architects and health insurance actuaries start figuring out just how much money this disintermediation is going to set back their programs, maybe then elected officials will get serious about reforming health care of its internal cost-drivers that are making health care unaffordable in the first place.

Only then will we get the true 'reform' we have so desperately needed in the American health insurance market for the past 30 years.

Money talks. In any business or government program.

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Wednesday, November 20, 2013

'Risk Corridors'--Automatic Federal Bailouts for the Health Insurance Industry in Obamacare

The Shell Game of 'Risk Corridors'
You really have to wonder if President Obama knew what he was getting into when he ran for President in the first place in 2007.

Namely, if he won the White House, he was actually going to have to 'faithfully execute' his duties as Chief Executive of the federal government and administer leadership and management skills to his administration.

Unfortunately, the American people and the media failed to fully vet President Obama to see if he had any management skills, other than getting himself elected in truly masterful campaigns that will be the envy of every future presidential aspirant, such a being a former governor or executive of a business large or small.

He 'didn't know' how faulty the website was and the rollout of Obamacare was going to be. He 'wasn't briefed' about Benghazi. He 'wasn't aware of' the following: the NSA snooping on cell phones; IRS targeting of conservative groups and most importantly, 'people were actually going to lose their health insurance plans even if they liked them and wanted to keep them'!

What did he think being the President of the United States was going to be, one long golfing and vacation package?

We have found one more 'surprise' in the bill Nancy Pelosi said 'we have to pass in order to find out what is in it' (big mistake) that we are sure President Obama will deny he had any knowledge of beforehand.

They are called 'risk corridors' (click on link to learn more)

They are automatic federal payments to health care companies built into the bowels of the Obamacare legislation in case they suffer losses from enrollment targets not being hit in Obamacare.

Get ready to see your tax dollars flow towards the big health insurance companies just like they went to bail out the Big Wall Street (Robber) Barons after they helped destroy the economy in 2008 with their rampant and reckless over-speculation and excessive risk-taking with things such as credit default swaps backed by your taxpayer money.

We had a former insurance executive write to us when we asked for more explanation of how this got into Obamacare and he responded as follows:
'There is no question now that they (the health care insurance companies) were in cahoots with him, but the only people who are going to get hammered are the American people.
Does anyone seriously believe that insurance companies, who have just spent three years getting ready to comply with Obamacare unlike, apparently, the Administration, can in three weeks go back (for a year) to now outlawed policies, just because the President, in his kingly beneficence, says they can?  They will not, nor could they as a practical matter at this late date.  They made their bed, now they have to sleep in it even if Obama just pulled off the sheets, sawed off three legs and set the mattress on fire.'
Well, the problem for American taxpayers is that the health care companies, just like Wall Street and Detroit 5 years ago, have figured out that they really don't like or want a true 'free enterprise' system but rather one backed up by the federal government. Meaning you as the federal taxpayer acting as the ultimate 'backstop'.

That is why you didn't see any 'Harry and Louise' ads coming from the health insurance industry this time around to fight Obamacare tooth-and-nail like you did in 1993 to fight Hillarycare which was really Obamacare version 1.0.

It is just another case of something very troubling in America we have been writing about for the past 5 years:

'Privatizing the Upside and Socializing the Downside' for American Business.

We really don't have a true 'free market' in America in many large businesses today. Detroit and Wall Street bailouts are just the primetime examples lately.

Small business, yes, we have a free market there. They succeed and fail all the time and no one goes propping them up with your taxpayer dollars, do they? Start-up business, yes. No one ever gets a federal bailout when all their hard work, sweat equity and start-up funds go up in smoke if they are one of the 4 out of 5 new businesses that don't make it past their 5-year anniversary.

We just would like to see people who pound their chests and say they are 'free enterprisers' and wear Adam Smith bowties act like it for a change and bear the risk of their business decisions and investments up AND down.

We worked for a congressman, Alex McMillan who was CEO of Harris-Teeter Supermarkets during its formative years. We asked him one time if he would have ever gone to to Washington DC with his hat in hand with the majority owners of Harris-Teeter, Alan Dickson and Stuart Dickson, asking for a federal bailout if things went sour with Harris-Teeter somewhere along the way.

'I would have rather had both eyes gouged out with a hot poker!' was his sardonic reply.

Do you know people in business like that anymore? Please tell us you do so we can believe American free enterprise will somehow survive this rough patch of flirtation with capitalistic socialism.

Here's another article about risk corridors you might want to read as well 'CBO Never Scored Obamacare's Insurer Bailout Program'. You are probably going to be hearing more about this and other 'surprises' that are now in the bill Nancy Pelosi said they needed to pass so we can see what is in it.

We know now, don't we?

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Friday, November 15, 2013

'Why We Have Federal Deficits' by Charles Blahous

'If you don't want to be stupid,
read Chuck Blahous' report! Now!'
If you don't ever read another article or report about the US federal budget deficit after this one, you will know all there needs to know about 1) what they are; 2) how we got to where we are today; 3) why we have them and 4) what we have to do about them.

We have always been struck by the simplicity of federal budget. That is right. The 'simplicity'.

As long as we balance our budget and pay off the national debt, almost all of the truly 'bad' things that nations fear such as hyperinflation and high interest rates have next to zero chances of occurring.

Think about it: Suppose we had a balanced budget today and no national debt. Roughly $300 billion per year would not have to be collected from you, the American taxpayer, and you could keep it in your own pocket to do with what you choose. No national debt; no interest on that debt to be paid.

Add to that the fact that the Federal Reserve would become completely invisible to the general American public.  NO ONE, not even bankers, would know who Ben Bernanke was or who Alan Greenspan or who Janet Yellen is. There would not be any 'expanded' balance sheet at the Fed or QE1 or QE2 or QE1000 one day.

We strongly urge you to read every word Mr. Blahous has written here below which was published on the E21 Economics. We also almost beg you to download his full report embedded in the article below and read it in its entirety and take notes as you read it. It is so chock full of facts and common sense that we wish everyone could be forced to read it as well.

The level of American debate over the largest issue we face as a nation, solving our budget imbalance, would be significantly elevated and we would probably be able to find common solutions before it is too late.

And then tell all your friends to do the same.

'The federal deficit is a huge public policy problem that must be understood, confronted, and solved. Federal deficits run in these last five years dwarf any precedent in U.S. post-world-war history. The Congressional Budget Office (CBO)’s latest projections warn that without legislative corrections, deficits will rise to untenable levels with severe consequences for our economic well-being. There is widespread agreement among non-partisan analysts that the deficit problem is a serious one.

About the causes of deficits, however, there is much less agreement. This is partially because partisan advocates cannot resist the temptation to blame these deficits on leading figures from across the political aisle. There is practically a cottage industry of “analyses” purporting to show why a particular individual (often President Obama for conservatives, President George W. Bush for the left) is the one to blame for the deficit problem. These studies are usually meaningless because they exclude from view any policy decisions made before their targeted political figure entered office.

If we want to understand and solve the deficit problem, we need to go about our analysis in a better way. Today the Mercatus Center is releasing a comprehensive study I completed earlier this year that does just that. Instead of focusing on policy decisions made during an arbitrarily-assigned time frame, I analyzed the sources of deficits by dissecting the budget itself, identifying deficit-driving policy decisions regardless of when they were made. The study was a mammoth undertaking; it required the digestion of practically every CBO and Office of Management and Budget (OMB) budget report published over the past forty years.

The striking finding of this analysis is that more than three-quarters of our long-term fiscal problem derives from a set of policy decisions made over a period of just seven years, 1965 to 1972. 1965 saw the establishment of Medicare and Medicaid, advocated for and signed by President Lyndon B. Johnson. Both of these programs were later expanded in 1972 during the Nixon administration, as was Social Security. Thus one Democratic and later one Republican President each worked with a unified Democratic Congress to enact a fundamental worsening of our long-term budget outlook. Nothing done by any recent President or Congress carries long-term fiscal consequences as daunting as those arising from these 1965-72 decisions. Details follow.

Defining the Question: The study examined deficits from three different vantage points. The first was to analyze the specific policy decisions that led to current projections of untenable long-term deficits. The second was to analyze the policy decisions that led to the current 2013 deficit. The third analyzed which office holders ran the largest deficits in fiscal years during which they were responsible for federal budget policy.

Each of these perspectives is useful and none is inherently superior to the others. The first two perspectives track specific policy changes, assigning responsibility to those who enacted them. The third perspective evaluates general records of fiscal stewardship. This perspective is also important, to recognize that that later federal officials bear responsibility for correcting fiscally problematic practices regardless of when they were originally adopted, and that they often possess updated information that earlier officeholders lacked.

When undertaking such an analysis, it quickly becomes apparent that misleading, trivial and/or often bizarre results will arise unless reasonable methodological solutions are found. For example, consider that lawmakers must enact appropriations legislation anew each year (unlike mandatory spending, appropriations do not carry over automatically from one year to the next) and are thus responsible for current appropriations levels. Now, consider also that appropriations spending moves separately from revenue measures; it is spending without a specific revenue source. Going about this the wrong way, one could easily stumble into a framework in which one finds that Congress is always adding immensely to the deficit unless it ceases all appropriations and shuts down the government altogether. Such a method would nearly always find that current officeholders caused the current deficit, even if they had actually cut appropriations relative to previous levels, and even if there were more than enough incoming tax revenue to finance all such appropriations. The results of such an analysis would be uninformative and potentially very misleading.

These problems can be avoided by employing the technique of norming relative to historical practices. I pulled these historical norms from data published by CBO on revenue collections and spending category totals stretching back over the 1973-2012 period. As I demonstrate in the longer study, these forty years are a very good time span for establishing representative norms of federal budget behavior.  These historical norms illuminate the policy changes that caused our current deficit problem.

Specifically, federal tax revenues have consistently averaged 17.9 percent of GDP over the historical period. Only rarely has this level varied by even two percentage points (on the low side during the recent recession, and on the high side during the dot-com bubble and Clinton-era tax rates). Similar averages are seen over even longer spans of time. Hypothetically, if today we spent less than 17.9 percent of GDP, we could fairly say that our current deficit problem was not being driven by recent spending growth. The long-term data enable us to determine whether our deficits arise because of spending exceeding sustainable historical norms, or are due to tax collections falling short, or both.

And we can be even more specific than that. We can use historical budget data to determine how much spending we could have afforded in each budget category, if we kept a balanced budget and if our spending priorities remained as they were in recent decades. This enables us to determine which subsequent policy changes have caused deficits to emerge, whether they involve a specific diminution in tax revenues or an increase in a specific spending category.

The Long-Term Deficit Problem: Our long-term deficit problem turns out to be pretty simple. It consists entirely of spending growth in Medicare, Medicaid, Social Security, and the new health insurance exchanges established in the 2010 Affordable Care Act. If it were not for spending growth in these four areas, we would not have a long-term budget problem. Tax revenues under current law will well exceed historical averages, and spending in all other areas will be far less, as a percentage of GDP.  Politicians spend a lot of time debating tax policy and appropriations levels, but neither has much to do with fixing the long-term fiscal outlook.

Interest costs also play a deficit-driving role under current projections, but these too would remain well within historical norms were it not for the growth in Medicare, Medicaid, Social Security and ACA exchange outlays.

The total distribution of long-term deficit drivers is as in the accompanying pie graph. There is not space here to explain the derivation of these numbers, which can be found in the full study.

Let us review these contributors one by one:

1) Medicare. Medicare is the single biggest contributor to our long-term deficit problem. What many do not appreciate is that the vast majority of our currently projected Medicare costs derive from the program’s original enactment in 1965. There was a significant Medicare expansion in 1972, and its Part D prescription drug benefit was added in 2003. But the majority of Medicare legislation in recent decades has reined in projected cost growth rather than added to it. Thus, most of this component of the long-term problem is with us courtesy of President Johnson and the Congress of 1965.

2) Medicaid and the ACA Health Insurance Exchanges. CBO groups these together in its long-term spending projections. Around 30 percent of the projected excess spending growth in this combined category is due to the ACA, which dramatically expanded Medicaid and established new health insurance exchanges.  But again, most of the other costs derive from Medicaid’s original enactment in 1965. Medicaid also underwent an expansion in 1972, and a series of smaller-scale expansions from 1985 through 1990, but this category of spending growth is also predominantly a Johnson administration creation.

3) Social Security. If the pre-1972 Social Security benefit formula were still on the books, projected Social Security spending would be well within affordable historical norms. Legislation in 1972 during the Nixon administration increased benefits by 20 percent across the board, in addition to introducing annual COLAs and indexing the growth of benefits paid to new claimants.

The Current-year Deficit: Responsibility for the current-year deficit is more diffuse than the long-term deficit. As with the long-term deficit, growth in Medicare, Medicaid and Social Security outlays is a big part of the problem. In addition, growth in income security programs as well as lower-than-typical tax revenue collections have played a role. Again, see the accompanying pie graph, the full derivation of which can be found in the full study.

The reason that tax revenues were lower than historical norms this year was because of legislation enacted by the last outgoing Congress and signed by President Obama; without that law, tax collections would have exceeded historical averages. Some of the recent growth in income security spending is attributable to recent expansions of the earned income tax credit (EITC) and child tax credit, and extensions of unemployment insurance, all during the Obama administration. Another significant portion traces back to an expansion of the EITC enacted in 1993 under President Clinton. Notably, even with ongoing military operations abroad, all current appropriations spending (including defense) remains within levels affordable within a balanced budget assuming current interest rates; appropriated spending is simply not the main reason we have been running large deficits.

Summarizing the Policy Decisions: One of the interesting aspects of our current political dialogue is the cognitive disconnect between widespread recognition that our budget problems are rooted in the rising costs of Medicare, Medicaid and Social Security, while at the same time enormous political energies are expended arguing over the budget effects of less significant policy choices. The study assumes that 50 percent of the responsibility for fiscal policy decisions resides with the president, 25 percent with the House majority party, 20 percent with the Senate majority party, and 5 percent with the Senate minority party. Those assumptions lead to the following allocations of responsibility for our projected long-term fiscal imbalance, and for our current-year deficit, respectively. Due to rounding errors, the totals on the table do not add.

A brief glance at this table clarifies why so much of our contemporary budget debate is simply misplaced. Political opponents of President Bush have devoted tremendous energies to debating, for example, the fiscal effects of the “Bush tax cuts,” the Afghanistan and Iraq wars, and the Medicare Part D prescription drug benefit. But in the grand scheme of our budget problems these issues are sideshows; Bush tax policies have since been replaced by others signed by President Obama, and in any case the long-term deficit problem exists despite projections of higher-than-typical tax collections. Even with the ongoing costs of war, all appropriations including defense make up a smaller share of the federal budget than they did when deficits were much smaller. And while the Medicare prescription drug benefit undoubtedly added to that program’s costs, presently it constitutes 11 percent of total Medicare spending. If it makes sense to be concerned about 11 percent of Medicare spending, it makes far more sense to be concerned with the other 89 percent.

Fiscal Stewardship Track Records: The third method of evaluating federal deficits is simply to measure the sizes of the deficits run during different fiscal years and allocating responsibility among those in office at the time. For obvious reasons, this method finds that deficit responsibility shares have been much higher on an annual basis during the Obama administration than during any other studied.

As with all matters pertaining to the complex federal budget, much important information resides in the methodologies and assumptions underlying these various figures, which are provided in detail in the full study

But while the specific numbers are affected by the specific methodologies, the general picture is clear and transcends any subjective methodological choice: specifically, the fiscal problems now bedeviling policy makers are primarily those created during the seven-year span of 1965-72, when there was much less understanding of the magnitude of the spending commitments being taken on, as well as of the practical constraints binding what the federal government could responsibly promise. We will never get our deficit problem under control until we reduce our emphasis on budgetary side issues, and focus instead on scaling back our projected spending commitments for Medicare, Medicaid, Social Security and the ACA’s new health insurance exchanges. From a budgetary perspective, everything else is mere distraction.

Charles Blahous is a senior research fellow for the Mercatus Center, a research fellow for the Hoover Institution, a public trustee for Social Security and Medicare, and a contributor to e21. 

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