Sunday, July 27, 2014

How Exactly Does A Rich Person Making All That Money Affect You On A Daily Basis, Again?

We have been struck by the number of people we have run into lately who have espoused the following sentiment:

'The filthy really well-off rich people in America have totally ripped the rest of us off! They have totally gamed the system where they win all the time and the rest of us don't win anything!'

One guy called them all 'Plutocrats'.

We know what he meant. He meant it as a pejorative term slamming all the rich people 'who have all the money', 'all the luck' and 'all the (fill in the blank)'.

Without being completely disrespectful of his sincere opinion, we couldn't help but wonder if he meant someone from Planet Pluto or perhaps even 'Pluto', the lovable dog from Disney World.

The label 'Plutocrats' just doesn't fit anymore. Not in such a wealth-democratized civilization as the United States of America, that is.

We believe all of this 'class warfare' is pretty over-blown, merely for political purposes. It used to be a real tangible problem at the turn of the 20th Century when the Robber Barons ruled the roost in America and the labor laws were virtually non-existent or non-enforceable for the most part.

Let's take just two of the most wealthy individuals the world has ever known, Bill Gates and Warren Buffett and see just how, if any way possible, they could be 'ripping us off' in any way, shape or form on a daily basis:

Bill Gates made his fortune writing software for personal computers. He started out with nothing and struggled for years before hitting the mother lode and founding Microsoft.

We are pretty sure he and his intrepid band of software pioneers must have been close to bankruptcy many times in the early stages of working together. Nobody would have ever noticed had they crashed and burned like the founders of Atari or Commodore or any of the other early tech companies.

It still had years and years to go before it became 'MICROSOFT' and he was off to making billions of dollars.

Did he personally 'rob' you to make you buy his software? Did he hold a gun to your head and threaten you within an inch of your life if you don't buy his software? Is there any direct way he has ever influenced you or any of your personal decision-making over the past 34 years?

Think about it. The only way Bill Gates has ever directly affected your life is probably in this device you are using right now to read this blog about him. He invented a new way of delivering information in digital form and you bought it either directly or embedded in any PC, laptop or handheld device you have purchased or your company purchased for you to use at work.

Those were 'free transactions'. Meaning 'freely committed and mutually agreed-to deals where you received a service, his software, and he received your money'.

The fact that he has amassed a fortune of over $80 billion is immaterial to you and me on a daily basis except for this unassailable fact:

Microsoft has helped unleash more creativity and democracy in the workplace than at any time in previously recorded mankind history.

Think about that the next time you send an email from the beach to a colleague in Timbuktu.

How about Warren Buffett? What has he done to 'steal' from the likes of you and me to amass his fortune, valued at almost $63 billion?

He has been a shrewd investor along the lines of Benjamin Graham, the legendary value investor.

Some could assert that he has really not made any single product or service himself that has benefitted mankind save one important thing: He has created wealth for hundreds of thousands, if not millions of workers in his portfolio companies and shareholders around the globe.

Warren Buffett is a 'wealth creator'.

Not solely for himself but for millions of other people fortunate enough to work for one of the companies in which he owns a majority share. Or for the people and investment managers who were foresighted enough to buy 1 of his Berkshire Hathaway shares in 1990 for $7700 which is now worth north of $190,000. Per share.

Millions of people have an indirect share of that wealth generation through their 401k plans and IRAs simply because they own a mutual fund that has Berkshire Hathaway as one of the holdings.

Is that a 'good thing' or a 'bad thing'? We think that is a good thing by a country mile.

We readily admit there are some real jerks in private business. Just like there are some 'real jerks' in every aspect of life: athletics, law, government, politicians and even the clergy, sad to say.

And Wall Street! The fact that most of the men and women who were at the upper echelons of high finance pre-2008 when the meltdown occurred are not behind bars after being forced into bankruptcy for their role in the over-speculation and irresponsible leveraging of assets is simply beyond the boundaries of fair play and justice in America.

If you are a 'true capitalist pig', you should want to emulate true golfers who play by the rules of the game and don't try to make things up to their advantage as things play out. You make bad investments that go sour, you lose: you lose your net worth, you lose your assets, you lose your job and prestige.

If you win, you get to keep it all.

Stop privatizing the upside solely because of your 'genius' as you say and socializing the downside on the rest of us for your imbecilic behavior when things go wrong.

American free enterprise and capitalism will be far better off and healthier if we adopt that as the Golden Rule of financial activity in America going forward.

For the most part, however, American 'rich' people have done nothing but help make out lives much more enjoyable, easy and prosperous. Simply because of the way our system is set up to share such bounties through employment in the private sector and the American stock market which somehow seems to keep chugging along despite it all.

Think about that the next time you hear anyone rail about the Big, Bad Boogeymen of the Wealthy in America as if they are some sort of Michael Myers or Jason waiting to slit your throat and take all your possessions.

You might become a wealthy person one day too, you know. You can give away all your wealth if you want to. or you can re-invest it and keep producing new jobs and opportunities for the rest of us in a never-ending cycle of win-win-win for all of us.

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Wednesday, July 23, 2014

What Is Good For The President Goose Is Also Good For The Governor Gander

'You Got A Job! Good For You!
Rob Christensen, political observer and commentator for the Raleigh News and Observer, wrote a column on Sunday, July 20 downplaying the efforts of Governor Pat McCrory and the North Carolina General Assembly to reduce unemployment in the state.

We have written about this before because it is one of our extreme pet-peeves: 'Gilding the lily' when it comes to describing what one political person has done versus another depending solely on whether the writer agrees with the politician philosophically or not.

Or flat-out 'lying' so the already confused American voter can be further confused by being told so many times by so many politicians: 'Vote for me and I will set you free!'

Especially in the confusing world of unemployment statistics.

Question: 'What is the most important thing about any debate on 'unemployment'?'

Answer: 'How we can enact policies that will allow the private sector to employ the highest number of people without igniting inflation'

The key thing to keep in mind is the difference between the 'official unemployment rate' and the number of people who are working at any snapshot in time.

The official unemployment rate put out by the Bureau of Labor Statistics measures the number of able-bodied people who are not working relative to the number of able-bodied people who are actively looking for work.

It does NOT count the number of people who have stopped looking for work.  And it is all based on a monthly statistical survey so there is some variance up-or-down from the stated monthly rate.

The 'labor participation rate' DOES count the number of people who are actively looking for work.

We think a better way would be to buy a super-duper Jumbotron scoreboard the size of any scoreboard in any NFL stadium and put it over the Commerce Department with the following tally every day:

'How many people are working today?'

We need to focus on the number of people who are actually employed, not on the number unemployed. That number can more easily be manipulated than an absolute number declaring how many people are actually working.

Today the scoreboard would read: 146,221,000 PEOPLE ARE WORKING TODAY!

Tomorrow, hopefully it would read: 146,222,000 and so on.

At least it would be more easily understood by an American public which understands who wins and who loses by looking at a scoreboard.

Below is a re-write of Mr. Christensen's column with our edits in red to show where he could have just as easily applied the same line of reasoning and facts to President Obama when the White House touts the reduction in the unemployment rate lately.

You hardly ever see such a distinction in the major newspaper and media outlets, yes? The main reason is that journalists and people in the media tend to be supportive of President Obama and they tend not to be enamored of Republican Governors and policies country-wide. It is almost 100% predictable each time the new unemployment numbers come out each month.

(To his credit, Mr. Christensen did write back to me soon after I sent him an email Sunday pointing out this discrepancy and said I had a 'valid point'. The only problem with that is that only one person saw those words, 'You have a valid point' whereas thousands of others just bought what Mr. Christensen had to say hook, line and sinker)
Rob Christensen's column of July 20, 2014

'Before we get too far down the road of the McCrory presidential boomlet, we should perhaps take a closer look at the claims.

Varney noted that North Carolina’s unemployment rate, which was 8.8 percent when McCrory took office in January 2013, had dropped to 6.4 percent in May. The rate remained the same when June data was released on Friday.

McCrory touts the sweeping reforms in North Carolina’s unemployment laws that went into effect last July as a major reason why the state’s unemployment rate is declining.

President Obama touts his economic policies as the major reason why North Carolina’s unemployment rate is declining.

The cuts lowered the maximum benefit checks from $535 a week to $350 a week, while the maximum length of benefits was cut from 26 weeks to a sliding scale that is now 14 weeks – the lowest in the nation.

To put that in historical perspective, Gov. Kerr Scott signed a bill lengthening unemployment insurance from 20 weeks to 26 weeks in 1951. So we are essentially back to an era when men wore caps and denim bibs to work as far as the laws trying to provide some cushion for the average working person who loses a job through no fault of his or her own.

Labor force declining

The number of North Carolina workers who receive unemployment benefits has dropped from 90,858 in May 2013 to 42,382 this May. Now this means one of two things: Either there are thousands of people suffering, or there are thousands of people who have found employment.

McCrory thinks it’s the latter. So does President Obama.

“People are taking jobs that are being offered, whereas in the past, employers were telling us people were not taking, especially, entry-level jobs because they were waiting for the unemployment to be extended,” McCrory told Varney.

I asked Patrick Conway, the Princeton-educated economist who is chairman of the economics department at UNC-Chapel Hill, about what the numbers show.

Conway said the evidence suggests that the sharp drop in the unemployment rate is being driven, in part, by people no longer looking for work, and therefore no longer counted as among the unemployed. Only those who apply for unemployment insurance are counted in the unemployment rate, Conway said.

The labor participation rate has dropped steadily every year since President Obama took office in January 2009 from 66% to 62.8% today. Part of it can be explained by demographics and Baby Boomer retirements. Most of it can not be explained away by demographics. (see

North Carolina’s unemployment rate has dropped since the law was changed, but there has been no sharp increase in people in the labor force. In fact, Conway produced a graphic, showing a rapid decline in the size of the North Carolina labor force relative to the U.S. labor force.

“The (North Carolina) labor force has been falling throughout that period,” he said. “The only explanation that makes sense is that people who were unemployed stopped looking for work. When that happens, what we call the unemployment rate is picking up that fact and registering that as a fall in unemployment.”

No better than neighbors

North Carolina was particularly hard hit by the recession, as were other Southeastern states. During that time, North Carolina saw its unemployment rate rise from 4.6 percent in February 1996 to 11.1 percent in April 2010.

It had declined from 11.1 percent to 8.8 percent by the time McCrory took office as governor in January 2013. By the time the changes in the unemployment insurance laws had taken effect in July 2013, the unemployment rate had fallen to 8.1 percent.

Even if the drop in the unemployment rate was real – that is people who were formerly unemployed are now holding down jobs – North Carolina’s experience is hardly extraordinary. It fits into what has been going on in the region.

I looked at what was happening during the same period in three states, in part because the U.S. Bureau of Labor Statistics has an interactive chart comparing North Carolina, South Carolina and Georgia over time.

If the unemployment law changes were spurring people to go back to work, you would expect a major difference between North Carolina and its neighbors. But that wasn’t so.

If the policies of President Obama were spurring people to go back to work, you would expect to see a major increase in the number of people actively looking for work.

As North Carolina’s unemployment rate dropped from last July’s 8.1 percent to June’s 6.4 percent, South Carolina’s rate dropped from 7.7 percent to 5.3 percent. Georgia’s declined from 8.3 percent to 7.4 percent.

So North Carolina’s unemployment picture has been pretty much performing like that of its neighbors, rising and falling as the recession came and went.

So before we move from Mayor Pat to Governor Pat to President Pat, we need to make sure the unemployment improvements are both real and something special – and not just another case of the crowing rooster claiming he made the sun rise.

So before we move to the coronation of President Obama as the ‘Jobs President’, we need to make sure the unemployment improvements are both real and something special – and not just another case of the crowing rooster in the White House claiming he made the sun rise.

Christensen: 919-829-4532 or rchristensen@

Read more here:

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Friday, July 18, 2014

If You Are A Gen-Xer, Millennial or Anyone Under The Age of 40, You Better Read This. Now.

We read this stuff so you won't have to.

But we hope you will anyway.

If you click on the title below, that will take you to the full 134 pages of the CBO Long-Term Budget Outlook document. Go ahead; we dare you to tell anyone that you actually have read every word in this report by next Friday. You will deserve a Congressional Gold Star for your forehead for being such a good student and patriot.

If you are just a visual learner and don't want to read all these words and budget jargon, take a look at this slide show and see 26 slides that if they were a Disney Ride, they would probably be called the 'Tower of Terror' because they are so scary.

If you just want to breeze through and read the highlights of the highlights (or the 'lowlights of the lowlights'), just skim through the document below we have highlighted in red or blue and be on your merry way.

There is a lot of work to do. We need serious citizen-politicians to run and get elected and make these important decisions for the rest of us before it is too late. According to CBO, we just don't know when it may happen but if we let the Debt Hounds from Hades loose, it may be sooner than you would think.

July 15, 2014

Between 2009 and 2012, the federal government recorded the largest budget deficits relative to the size of the economy since 1946, (because of WWII) causing its debt to soar. The total amount of federal debt held by the public is now equivalent to about 74 percent of the economy’s annual output, or gross domestic product (GDP)—a higher percentage than at any point in U.S. history except a brief period around World War II and almost twice the percentage at the end of 2008.

If current laws remained generally unchanged in the future, federal debt held by the public would decline slightly relative to GDP over the next few years, CBO projects. After that, however, growing budget deficits would push debt back to and above its current high level. Twenty-five years from now, in 2039, federal debt held by the public would exceed 100 percent of GDP, CBO projects. Moreover, debt would be on an upward path relative to the size of the economy, a trend that could not be sustained indefinitely.

What Is the Outlook for the Budget in the Next 10 Years?

The economy’s gradual recovery from the 2007–2009 recession, the waning budgetary effects of policies enacted in response to the weak economy, and other changes to tax and spending laws have caused the deficit to shrink this year to its smallest size since 2007: roughly 3 percent of GDP, compared with a peak of almost 10 percent in 2009. If current laws governing taxes and spending stayed generally the same—an assumption that underlies CBO’s 10-year baseline budget projections—the anticipated further strengthening of the economy and constraints on federal spending built into law would keep deficits between 2½ percent and 3 percent of GDP from 2015 through 2018, CBO estimates.

In succeeding years, however, deficits would become notably larger under current law. The pressures stemming from an aging population, rising health care costs, and an expansion of federal subsidies for health insurance (Obamacare) would cause spending for some of the largest federal programs to increase relative to GDP.

Moreover, CBO expects interest rates to rebound in coming years from their current unusually low levels, raising the government’s interest payments. That additional spending would contribute to larger budget deficits—equaling close to 4 percent of GDP—toward the end of the 10-year period spanned by the baseline, CBO anticipates. Altogether, deficits during that 2015–2024 period would total about $7.6 trillion.

With deficits expected to remain close to their current percentage of GDP for the next few years, federal debt held by the public is projected to stay between 72 percent and 74 percent of GDP from 2015 through 2020. Thereafter, larger deficits would boost debt to 78 percent of GDP by the end of 2024.

What Is the Outlook for the Budget in the Long Term?

CBO has extrapolated its baseline projections through 2039 (and, with even greater uncertainty, through later decades) by producing an extended baseline that generally reflects current law. The extended baseline projections show a substantial imbalance in the federal budget over the long term, with revenues falling well short of spending (see the figure below). As a result, budget deficits are projected to rise steadily and, by 2039, to push federal debt held by the public up to a percentage of GDP seen only once before in U.S. history (just after World War II). The harm that such growing debt would cause to the economy is not factored into CBO’s detailed long-term projections but is considered in further analysis presented in this report.

Components of Total Spending

Federal spending would increase to 26 percent of GDP by 2039 under the assumptions of the extended baseline, CBO projects, compared with 21 percent in 2013 and an average of 20½ percent over the past 40 years. That increase reflects the following projected paths for various types of federal spending if current laws remained generally unchanged (see the figure above):

Federal spending for Social Security and the government’s major health care programs—Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies for health insurance purchased through the exchanges created under the Affordable Care Act—would rise sharply, to a total of 14 percent of GDP by 2039, twice the 7 percent average seen over the past 40 years. That boost in spending is expected to occur because of the aging of the population, growth in per capita spending on health care, and an expansion of federal health care programs. (Baby Boomers will say that the younger generations will have been 'berry, berry good to me!' during that whole period of time as 'Chico Escuela' would say on SNL) 

The government’s net interest payments would grow to 4½ percent of GDP by 2039, compared with an average of 2 percent over the past four decades. Net interest payments would be larger than that average mainly because federal debt would be much larger.

In contrast, total spending on everything other than Social Security, the major health care programs, and net interest payments would decline to 7 percent of GDP by 2039—well below the 11 percent average of the past 40 years and a smaller share of the economy than at any time since the late 1930s. (Domestic programs will take it on the chin)

Components of Total Revenues

Federal revenues would also increase relative to GDP under current law, but much more slowly than federal spending (see the figure above). (Why? Because of 'bracket creep' where people are pushed into higher tax brackets solely by inflation. Not real increases in real earnings from real wages)

Revenues would equal 19½ percent of GDP by 2039, CBO projects, compared with an average of 17½ percent over the past four decades. In the next 10 years, revenues are projected to rise to 18½ percent of GDP, from 16½ percent last year, reflecting structural features of the tax system and the ongoing economic recovery. (AND EVEN THEN WITH MUCH HIGHER REVENUES, WE WILL STILL NOT BE ABLE TO BALANCE THE BUDGET!!! (Our emphasis added)

((parenthetically speaking, us talking again) you can never balance the budget counting on higher tax revenues, mainly because people will find ways to avoid paying the higher taxes either legally with tax shelters or illegally in the black market. You can always find ways to balance the budget by controlling spending. It is the only surefire way to save us from fiscal disaster later. (see Budget Act of 1990 and the Balanced Budget Act of 1997 or any year under President Calving Coolidge referenced in other posts))

After 2024, revenues would increase gradually relative to GDP under the assumptions of the extended baseline, mainly because people’s income is expected to grow faster than the rate of inflation, pushing more income into higher tax brackets over time.

The gap between federal spending and revenues would widen after 2015 under the assumptions of the extended baseline, CBO projects. By 2039, the deficit would equal 6½ percent of GDP, larger than in any year between 1947 and 2008, and federal debt held by the public would reach 106 percent of GDP, more than in any year except 1946—even without factoring in the economic effects of growing debt.

Moreover, the harmful effects that such large debt would have on the economy would worsen the budget outlook. Under current law, the increase in debt relative to the size of the economy, combined with a gradual increase in marginal tax rates (the rates that would apply to an additional dollar of income), would reduce economic output and raise interest rates, compared with the benchmark economic projections that CBO used in producing the extended baseline. Those economic effects in turn would lead to lower federal revenues and higher interest payments on the debt. With those effects included, federal debt held by the public under the extended baseline would rise to 111 percent of GDP in 2039.

Beyond the next 25 years, the pressures caused by rising budget deficits and debt would become even greater unless laws governing taxes and spending were changed. With deficits as big as the ones that CBO projects, federal debt would be growing faster than GDP, a path that would ultimately be unsustainable.

What Consequences Would a Large and Growing Federal Debt Have?

How long the nation could sustain such growth in federal debt is impossible to predict with any confidence.

At some point, investors would begin to doubt the government’s willingness or ability to pay its debt obligations, which would require the government to pay much higher interest costs to borrow money. Such a fiscal crisis would present policymakers with extremely difficult choices and would probably have a substantial negative impact on the country. (duh!)

Even before that point was reached, the high and rising amount of federal debt that CBO projects under the extended baseline would have significant negative consequences for both the economy and the federal budget:

The large amount of federal borrowing would draw money away from private investment in productive capital in the long term, because the portion of people’s savings used to buy government securities would not be available to finance private investment. The result would be a smaller stock of capital and lower output and income than would otherwise be the case, all else being equal. (Despite those reductions, the continued growth of productivity would make output and income per person, adjusted for inflation, higher in the future than they are now.)

Federal spending on interest payments would rise, thus requiring higher taxes, lower spending for benefits and services, or both to achieve any chosen targets for budget deficits and debt.

The large amount of debt would restrict policymakers’ ability to use tax and spending policies to respond to unexpected challenges, such as economic downturns or financial crises. As a result, those challenges would tend to have larger negative effects on the economy and on people’s well-being than they would otherwise. The large amount of debt could also compromise national security by constraining defense spending in times of international crisis or by limiting the country’s ability to prepare for such a crisis (such as today in Russia and the Middle East)

What Effects Would Alternative Fiscal Policies Have?
Most of the projections in this report are based on the assumption that laws governing federal taxes and spending will remain generally the same over time—not because CBO expects that to occur but because the budgetary and economic implications of current law are a useful benchmark for policymakers when they consider changing laws. If tax and spending policies differed significantly from those specified in current law, budgetary and economic outcomes could differ substantially as well. To illustrate some possible differences, CBO analyzed the effects of three additional sets of fiscal policies.

Under one set of alternative policies (1)—referred to as the extended alternative fiscal scenario—certain policies that are now in place but are scheduled to change under current law would be continued, and some provisions of law that might be difficult to sustain for a long period would be modified. With those changes to current law, deficits excluding interest payments would be about $2 trillion higher over the next decade than in CBO’s baseline; in subsequent years, such deficits would exceed those projected in the extended baseline by rapidly growing amounts. The harmful effects on the economy from the resulting increase in federal debt would be partly offset by the lower marginal tax rates that would be in place under that scenario. Nevertheless, in the long term, economic output would be lower and interest rates would be higher under that set of policies than under the extended baseline. With those economic changes incorporated, federal debt held by the public would exceed 180 percent of GDP in 2039, CBO projects.

Under a different scenario (2), budget deficits would be smaller than those projected under current law: Deficit reduction would be phased in such that deficits excluding interest payments would be a total of $2 trillion lower through 2024 than in CBO’s baseline, and the amount of deficit reduction as a percentage of GDP in 2024 would be continued in later years. In that case, output would be higher and interest rates would be lower in the long term than under the extended baseline. Factoring in the effects of those economic changes on the budget, CBO projects that federal debt held by the public would equal about 75 percent of GDP in 2039, close to its percentage in 2013.

Under yet another scenario (3), with twice as much deficit reduction—a total decrease of $4 trillion in deficits excluding interest payments through 2024—CBO projects that federal debt held by the public would fall to 42 percent of GDP in 2039. That percentage would be slightly above the ratio of debt to GDP in 2008 and the average ratio over the past 40 years (both 39 percent). As in the preceding scenario, output would be higher and interest rates would be lower in the long term than under the extended baseline.

Such alternative fiscal policies would have differing effects on the economy in the short term as well as in the long term, reflecting the short-term impact of tax and spending policies on the demand for goods and services. The spending increases and tax reductions in the alternative fiscal scenario (relative to what would happen under current law) would increase the demand for goods and services and thereby raise output and employment in the next few years. The deficit reduction under the other scenarios, by contrast, would decrease the demand for goods and services and thus reduce output and employment in the next few years.

How Uncertain Are the Long-Term Budget Projections?

Even if future tax and spending policies match what is specified in current law, budgetary outcomes will undoubtedly differ from CBO’s projections because of unexpected changes in the economy, demographics, and other factors. To illustrate the uncertainty of its projections, CBO examined how altering its estimates of future mortality rates, productivity, interest rates on federal debt, and federal spending on health care would affect the projections in the extended baseline. For that purpose, CBO projected budgetary outcomes with those factors varying by amounts that are based on their past variation as well as on CBO’s consideration of possible future developments. Those estimates show the following:

1) In cases in which only one of those factors varies from the values used for the extended baseline, CBO’s projections of federal debt held by the public in 2039 range from about 90 percent of GDP to 135 percent, compared with 111 percent under the extended baseline including the economic effects of future fiscal policies.

2) In a case in which all four factors vary simultaneously in a way that raises projected deficits, but they vary only half as much as in the individual cases, federal debt is projected to reach about 160 percent of GDP in 2039. 3) Conversely, in a case in which all four factors vary in a way that lowers deficits but, again, vary by only half as much as in the individual cases, debt in 2039 is projected to equal 75 percent of GDP, about what it is now.

Those calculations do not cover the full range of possible outcomes, nor do they address other sources of uncertainty in the budget projections, such as the risk of an economic depression or major war or the possibility of unexpected changes in birth rates, immigration, or labor force participation. Nonetheless, CBO’s analysis shows that the main implication of the central estimates in this report applies under a wide range of possible values for some key factors that influence federal spending and revenues. That implication is that if current laws remained generally unchanged, federal debt, which is already high by historical standards, would be at least as high and probably much higher 25 years from now.

What Choices Do Policymakers Have?

The unsustainable nature of the federal tax and spending policies specified in current law presents lawmakers and the public with difficult choices. Unless substantial changes are made to the major health care programs and Social Security, spending for those programs will equal a much larger percentage of GDP in the future than it has in the past. At the same time, under current law, spending for all other federal benefits and services would be on track to make up a smaller percentage of GDP by 2024 than at any point in more than 70 years.

Federal revenues would also represent a larger percentage of GDP in the future than they have, on average, in the past few decades. Even so, spending would soon start to outpace revenues by increasing amounts (relative to GDP), generating rising budget deficits. As a result, federal debt held by the public is projected to grow faster than the economy starting a few years from now, and because debt is already unusually high relative to GDP, further increases could be especially harmful.

To put the federal budget on a sustainable path for the long term, lawmakers would have to make significant changes to tax and spending policies: reducing spending for large benefit programs below the projected levels, letting revenues rise more than they would under current law, or adopting some combination of those approaches.

The size of such changes would depend on the amount of federal debt that lawmakers considered appropriate. For example, lawmakers might set a goal of bringing debt held by the public back down to the average percentage of GDP seen over the past 40 years—39 percent. Meeting that goal by 2039 would require a combination of increases in revenues and cuts in noninterest spending, relative to current law, totaling 2.6 percent of GDP in each year beginning in 2015 (without accounting for the economic effects of the reduction in debt or of the policy changes that might be used to achieve it); in 2015, 2.6 percent of GDP would equal about $465 billion. If those changes came entirely from revenues, they would represent an increase of 14 percent from the revenues projected for the 2015–2039 period under the extended baseline.

If the changes came entirely from noninterest spending, they would represent a cut of 13 percent from the amount of noninterest spending projected for that period. A similar level of debt in 2039 would result under the third scenario discussed above (a $4 trillion total reduction in deficits excluding interest payments through 2024, with the amount of deficit reduction in 2024 as a percentage of GDP continuing in later years).

In deciding how quickly to carry out policies to put federal debt on a sustainable path, lawmakers face trade-offs:

  • The sooner significant deficit reduction was implemented, the smaller the government’s accumulated debt would be, the smaller policy changes would need to be to achieve a particular long-term outcome, and the less uncertainty there would be about what policies would be adopted. However, if lawmakers implemented spending cuts or tax increases quickly, people would have little time to plan and adjust to the policy changes, and those changes would weaken the economic expansion during the next few years.
  • Reductions in federal spending or increases in taxes that were implemented several years from now would have a smaller effect on output and employment in the short term. However, waiting for some time before reducing federal spending or increasing taxes would result in a greater accumulation of debt, which would represent a greater drag on output and income in the long term and would increase the size of the policy changes needed to reach any chosen target for debt.
  • If lawmakers wanted to minimize both the short-term economic costs of reducing deficits quickly and the longer-term costs of running large deficits, they could enact a combination of changes in tax and spending policies that increased the deficit in the next few years relative to what it would be under current law but reduced the deficit thereafter.

Even if policy changes to shrink deficits in the long term were not implemented for several years, making decisions about them sooner rather than later would offer significant advantages. If decisions were reached sooner, people would have more time to alter their behavior to be prepared for the time when the changes would be carried out. In addition, decisions about policy changes that would reduce future debt relative to the amounts projected under current law would tend to increase output and employment in the next few years by holding down longer-term interest rates, reducing uncertainty, and enhancing businesses’ and consumers’ confidence.

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Tuesday, July 15, 2014

The 'Debbie Downer' 'Slow Growth Economy' of President Obama vs. Jimmy Carter's 'Malaise'

The Obama Economy: 'Wah-Wah!'
Ardent supporters of the President will point to the new stock market highs, the falling unemployment rate and a few other economic reports and say: 'See? His policies worked! All we needed to do was more of the same and think about how great things would be today!'

If that is true, how come so many people feel so despondent about the future of America today?

Even a newspaper that has been literally in the tank for President Obama since before his election in 2008, The (Venerable) New York Times, says things are not going so great in this recent article:

U.S. Economic Growth Looks Distant As Growth Stalls

Here's just a few choice quotes from this article:
  • 'If you’re 40 now,' Mr. Cowen said, 'I don’t see why you ever see (faster economic growth), or enjoy it as a worker.'
  • 'The share of adults with jobs fell sharply during the recession and has rebounded only slightly because many people have simply stopped looking for work'
  • 'The Federal Reserve, persistently optimistic in its previous forecasts, said in March that it no longer expected a full recovery in the foreseeable future.'
Talk about a 'Debbie Downer' for our future American economic prospects! (click through title link if you can't see video)

We have been struck not only by this recent NY Times article but also by the somewhat amazing general downbeat feeling in economic activity and general spirits in the US economy since 2008.

Granted, President Obama did not cause the economic meltdown. Wall Street seemed pretty capable of doing that by themselves not unlike many other times in our history, roughly about every 20 years or so once you dig into it more deeply.

However, since Presidents generally get the lion's share of the credit when things go well in the economy (Reagan, Clinton), they also, unfairly or not, get the lion's share of the blame when things do not go well in the economy (Hoover, Bush 41).

We think the current economic cycle under President Obama strangely resembles the desultory years under President Jimmy Carter who didn't know what to do to get us out of a really bad downward economic spiral from 1977-1981.

Many of you are too young to remember those halcyon days. When we graduated from college, we graduated into an economic pullback of huge proportions caused by the triple threats of high inflation (12%/year); high interest rates (21%) and gasoline shortages and sky-rocketing (at the time) prices at the pump.

A period of loose monetary policy coupled with an international crisis, the taking of American hostages in the embassy in Tehran, combined to produce one of the worst recessions the United States had experienced since the Great Depression.

We don't know for sure but that recession which lasted until 1982 sure seemed like one of the historically worst ones, even compared to the most recent Great Recession we all experienced.

President Jimmy Carter somewhat clumsily took to the airwaves in 1979 to deliver what was supposed to be a 'comforting' speech on our economic prospects. 'We are in this together. We will face any burden together and come out of it on the other side stronger and more united and prosperous than ever'. That sort of pep talk speech.

It could not have come out any worse. President Carter's 'Crisis of Confidence' speech turned out to be known as his 'malaise' speech although he never used that word.

In short, it became a laundry list of all of the reasons why the American people had come to lose confidence, not in their ability to live prosperous lives but in his ability to lead the nation.

Carter went on to lose in a landslide in 1980 to an optimistic Ronald Reagan who told us that 'our brightest days are ahead of us, not behind us'.

It was the largest landslide ever over an incumbent sitting president in US history. The American people had had enough under President Carter and his defeatist approach to America's future.

Based on the comments noted in the New York Times article above by President Obama's advisors, it appears that we have another President who seems to think America has settled into a 'new normal' of below historical economic growth rates and job creation. The desultory sluggish economy, and the fact that the Middle East seems to have fallen apart during Obama's reign reminds many old-timers of Ayatollah Khomeini in Iran and, unfortunately, of Jimmy Carter's ineptitude as President of the United States of America in the late 1970's.

We have repeatedly said that we think America's best days are ahead of us.

We have met and worked with any number of very exceptionally talented undergrads who see the new technologies budding before their very eyes and can't wait to set out to use them to develop new products and services for the world to see, buy and use. Younger doctors we know are confident they will see the end to the scourge of most cancers.

We believe they will achieve it. We believe the policies of this President have thrown a wet blanket on the otherwise dynamic American free enterprise system and so stifled it that it can't grow and produce new jobs as we have seen after virtually every serious recession in America. We should be in the midst of a 4-5% economic boom to our GDP today given the depths of where this past recession took us. Not ~2% per annum.

We recently re-financed 2 mortgages into one. The process that normally should have taken 30-45 days took 4 months and over 500 different emails, phone calls and submissions of faxes and other documents to their website.

That is no way to fuel the fires of economic growth and expansion. The banking industry is now so saddled with rules and regulations from Washington that they seem to be afraid to make a loan and make a profit which is the core of their business.

Even Debbie Downer sounds like Pollyanna the Eternal Optimist compared to these Obama advisors and President Obama himself most days. Maybe she should run in 2016.

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Saturday, July 12, 2014

'Intervention: Will North Carolina Clean Up its Medicaid Program?'

Louisiana Governor Bobby Jindal:
'MCOs are good!'
Forbes magazine has an article we highly commend to you to read today if you care about the following things in North Carolina:

  • Higher teacher pay for public education
  • The University of North Carolina higher education system
  • The Community College System of North Carolina
  • Tax cuts
  • Better health care outcomes for Medicaid patients
Not necessarily in that order.

What does the Medicaid program in North Carolina, or any state in the Union for that matter, have to with public education or tax cuts?

Everything it turns out.

We have written extensively about the massive growth in the federal health care programs, Medicare and Medicaid over the past 30 years. Not only have both been the primary drivers in the reason why we have massive budget deficits in Washington, Medicaid has been the primary driver behind the reason why public school teachers have not been afforded major pay increases as well. Plus any other constraints on investments in higher education or the other major duties of the state legislature.

Medicaid cost overruns soak up all of the financial resources (your tax money) that could be used to pay for the other essential functions of state government.

(Somehow, roads keep being built and repaved throughout all this, ostensibly because it has had a 'dedicated funding source', the gas tax at the state and federal level. But even that fund is falling short now as more and more cars get more efficient and use less gas to go more miles)

In this Forbes article, you will clearly see and understand why North Carolina has to join the other 37 states in the Union and adopt a MCO model for Medicaid, or Managed Care Organizations.

Put very simply, MCOs are private corporations that come into states and then contract out with the state to manage the care of the patient. They assume full financial risk for that patient and get paid a previously-agreed upon amount of money per patient (capitated) each month to monitor that patient's health care.

When we say 'full financial risk', what that means is the private company takes that risk from the taxpayer (you) and puts it on their shareholders and financial reserves. No more running back to the legislature every summer for an additional $500 million to pay for unexpected and un-budgeted Medicaid cost overruns.

We just saw in the last post how much waste, fraud and abuse actually occurs in both the Medicaid and Medicare programs anyway. These managed care companies also take over the implementation of the bill-paying to the doctors and the hospitals so it becomes important to them that none of this money is wasted or abused in the first place.

We met Louisiana Governor Bobby Jindal this past week at a function for Thom Tillis who is running for the US Senate in North Carolina. He said the most important thing they did early in his term as Governor was to pass and implement the MCO system in Louisiana.

Listen to what Governor Jindal had to say:
'The most important thing was not that we started to save $100M per year in the State of Louisiana. The most important thing that happened that we started to see much better health care being delivered to our poorest citizens.
MCOs targeted each individual and dealt with their problems on an individual basis with assigned caseworkers and case management systems. 
We had hundreds of premature babies before MCOs that went into hospitals and cost the state Medicaid program millions of dollars. After MCOs started, we were able to effectively deal with the health problems and conditions of these pregnant mothers who were on Medicaid and help them bring their babies to full-term and much healthier birth weights and that saved the state millions of dollars each year'

Notice the direct correlation here. "Better Health Outcomes' leading to 'Saved Taxpayer Dollars'.

All of which could be spent on: A) higher teacher salaries in North Carolina this year; B) more investment in research facilities or professor pay in all of the UNC System universities or 3) tax cuts for you, the steady and beleaguered North Carolina taxpayer.

Or anything else the General Assembly wants to spend those savings on.

North Carolina has always been a leader in many ways as The New South took over from the Old South.

This is one area where North Carolina sadly lags far, far behind 37 other states which have already taken the steps towards providing more effective health care for its most at-risk citizens while saving money at the same time.

It seems to be a 'no-brainer', doesn't it?

Read the Forbes article in detail. Call and write your elected representative to tell him or her that you agree that North Carolina should move to MCOs as soon as possible.

*disclaimer: we have been working to help pass Managed Care in North Carolina for the past year but we would not be doing so if we believed it was going to cost the state more money or not help Medicaid patients receive better care

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Wednesday, July 9, 2014

$106 Billion in Improper Federal Payments. In 2013. Alone.

The GAO (General Accounting Office) just came out with a report that ought to curl your hair, boil your grits and infuriate you no end:

'The US Federal Government Made $106 BILLION In Improper Payments in 2013. Alone.

Here's the news report; read it for yourself.

Here's the full actual GAO Report. Read it and weep.

What does this mean exactly?

It means that over the past decade, over $1 TRILLION of your tax dollars have been wasted, spit into the wind, taken from you for no reason other than to waste it.

$1 Trillion.

Know what some of the largest tax increases in history have amounted to?
About $1 trillion over 10 years.

Know what the wars in Iraq and Afghanistan cost over a 10-year period?

About $1 trillion or so, give or take a $100 billion either way.

The US federal government has just admitted that they have frittered away the monetary equivalent of what the United States of America spent prosecuting the War on Terror in the Middle East for the past 13 years.

Doesn't that just fry your bacon?

If it doesn't, then something is seriously wrong.

Guess what the bad news is? Most of these improper payments last year occurred in the largest federal health care program, Medicare. Guess what program will one day exceed Medicare?

Obamacare. Think that will be run any more efficiently than Medicare?

Doubtful. Highly improbable.

For one thing, this report points out that many people received incorrect tax credits when they really were not eligible for them. Know what is at the core of Obamacare?

That is right:  Federal subsidy payment credits based on self-reported income.

The chances of Obamacare being run better than Medicare is slim to none. Look at the start of the program itself! You think it is going to all of a sudden become some paradigm of efficiency the longer it stays in effect?

The next time someone advocates raising taxes on anyone, print this GAO report out and give it to them on a silver platter. Highlight the most damning findings in yellow highlighter so they will be absolutely sure to read them.

Then ask them this silly question:

'Why are you supporting higher taxes when all it is going to go towards is more waste, fraud and abuse?'

There is no justification for any tax increase as long as $1 is unaccounted for by the federal government. Not a single solitary reason.

We have to admit: This is one report we just couldn't finish in its entirety by reading it all.

Our grits have just been turned to toast.

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Friday, July 4, 2014

Dico Tibi Verum, Libertas Optima Rerum: Nunquam Servili Sub Nexu Vivito, Fili

'You Will Never Take Our Freedom!'
'My Son, Freedom is best, I tell thee true, of all things to be won. Then never live within the Bond of Slavery.* 

The Latin quote is a direct quote attributable to William Wallace, the patron saint of freedom for Scotland.

The speech by Mel Gibson on horseback in the movie 'Braveheart' is a Hollywood adaptation of what William Wallace may have been like back in 1297 before the Battle of Stirling Bridge, the first victory over the British towards Scottish independence.

We bring this up on this Independence Day in America, the 238th in a row in a remarkable string of survival despite all sorts of wars, pestilence, economic depressions and less-than-stellar national leadership for far too many years and times.

'Freedom!' for us in relatively safe and calm 2014 America was purchased by many brave souls over the years who sought freedom from tyranny and injustice.

We take it far too lightly, don't we? Those of us who never wore the uniform of a soldier in combat or faced an enemy bullet, cannonball or IED planted in a road in distant Afghanistan or Iraq have a huge debt owed to those who did that we can never really ever fully repay.

We bring this up because of some interesting conversations we had this week with some old friends. We talked about how life's paths had taken us various ways through the ups-and-downs none of us ever really expected life to throw at us.

And, of course, we talked about politics at the state and federal level.

One thing that struck us once again is how no one ever really equates 'freedom!' with being 'free from the uncertainty of massive federal debt!' and the catastrophic impact it has had on various republics, democracies, monarchies and dictatorships over the past millennia of human history.

There is a presumption out there in the public's mind that 'every dollar spent on federal programs is essential!' and therefore, 'we must raise taxes to pay for it, mainly only on the rich!'

We have pointed out the fallacy of any effort to pay off our annual deficits and national debt solely by raising taxes many times. For one thing, there is not enough revenue to collect from the Bill Gates and Warren Buffetts of the world; we could confiscate both of their entire mass of wealth and run the federal government for perhaps 3 days.

One way to look at our federal deficit is to look at it from the other end of the telescope. Perhaps we don't need to raise any more tax revenue to pay for federal programs (or borrow money ever again from the Chinese or the Saudis etc).

Perhaps all we need to do is reduce federal spending. As we continuously pare down not only the rate of growth and increase across-the-board in every federal program but also in actual amounts year-over-year, wouldn't that in and of itself obviate the need to raise taxes from their current level on anyone?

As we talked, we told them that we had been on the House Budget Committee for 4 years in Congress and had read every page of the federal budget at least once during that time. Beyond that, we had read dozens if not hundreds of CBO publications, documents and reports about the federal budget and felt comfortable saying that we had some cursory knowledge of every federal line-item function in the federal budget.

We made this bold claim:

'50% of the federal budget could be reformed, reduced or eliminated.....and we would STILL have an effective national defense capability; a reasonable safety net and the funds to build roads and do the other necessary functions our Founders wanted the federal government to do'

No one believed it.

We'll amend it to 80% of the federal budget if that makes it any more believable. But it can be done with some serious effort by serious people.

The amount of waste and redundancy in the federal budget is beyond comprehension to the average person who only soaks up information on the federal budget from 'their' side of the slanted news media be it MSNBC for the left or Fox News for the right.

Many times, if not all of the time, the news media producers and assistants have not read the base core documents either about the federal budget! They read the talking points given them by the staff assistants on the Democrat or Republican Policy Committee teams of the various congressional committees or national political party apparatus, most of whom have not read the core documents either!

We really do have a case of 'the blind leading the blind who are also leading the blind'. The elected officials don't read the core documents; the news media doesn't read the core documents and the public doesn't read the core documents!

How can we really have a reasoned national debate when everybody doesn't know anything about nothing?

We believe our freedom is directly tied to getting our fiscal and financial house in order. We had hoped President Obama would take a stronger step towards financial and fiscal sanity leadership than President Bush but we have been miserably disappointed along now with the majority of Americans in that regard.

Congress has to be the arm of our federal government to take the lead on spending priorities. For decades, under both Republican and Democratic control, Congress has been hampered in doing much to reduce the amount of federal spending primarily because of their abject fear and loathing of having to do anything with federal entitlement spending in Medicare and Medicaid, primarily and then Social Security and the other mandatory programs.

What can be done?

Well, the only thing left that can make a difference is for the American voting public (sad to say this again but if you are not registered to vote, you really don't figure into the calculus of elections at all) to become educated on ways that the federal government can be controlled and reformed and run more efficiently.

And that means reading and understanding and getting up to speed on the federal budget and all of its components.

One friend somewhat facetiously suggested that we start an on-line tutorial where every night, we start flipping through the pages of the federal budget and go through it in a year like some people go through reading the Bible in a year during their morning devotional readings.

We might do this, assuming there is any interest in it. We could charge $5 to be a part of this course and MOOC (Massive Open Online Course) it to all parts of the nation.

You will not believe how much fluff is in the federal budget until you actually read it for yourself. We would be honored to be your sherpa guide through it all.

Here's the link to the federal budget once again if you want to get a head-start on the class:

Benjamin Franklin was approached by Mrs. Powel once the signing of the Declaration of Independence was completed on July 2, 1776 (not the 4th as many people believe).

“Well, Doctor, what have we got, a republic or a monarchy?”

With no hesitation whatsoever, the sage Mr. Franklin responded: 
'A Republic. If you can keep it'

Freedom. We have it today. As long as we can keep it. (yes, that means you, too!)

Getting our fiscal house in order would be a monumental step in that right direction. Let's start putting pressure on our elected officials to do the right thing this July 4, 2014 by learning how to do it after reading the federal budget.

*As quoted in William Wallace, Guardian of Scotland (1948) by Sir James Fergusson, p. 4
** If you don't see the clip from 'Braveheart', click on the title and that will take you to the website where you can see it

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