Wednesday, March 25, 2020

The Perspective of History

The Human Pandemic in Paris, 1940
When Hitler and his Nazis invaded France in May 1940, the Dow Jones Average fell 23% over eight days. After the Japanese surprise attack on Pearl Harbor on Sunday, Dec. 7, 1941, the Dow fell 3% on Monday and another 3% on Tuesday.

During World War I, the stock market fell over 33% from July to December 1917. However, it started to recover even in the face of the deadly Spanish Flu epidemic of 1918 that claimed up to 50 million lives worldwide. The stock market almost doubled from its low in 1917 to the end of 1918.

The US stock market has fallen over 34% in response to the coronavirus outbreak of 2020 so far.

In all cases during the outbreak of war and contagion, investors panic and unload stocks at any price. 

The stock market often serves as a thermometer for our national mood and the barometer of collective fear or hope.

These dramatic drops in stock prices usually mean one thing: smart investors are going to snap up stocks at bargain basement prices and make a fortune when the contagion passes.

During World War II, the Dow plummeted as people reacted with fear and panic that their investments were going to be wiped out entirely. People who were close to retirement had good reason to panic. They had no idea if A) World War II would end in victory or defeat for the Allies over the Axis Countries or B) the War would end in one year, five years, 10 years or ever.

When humans are confronted with the unknown, especially during war or surprise outbreaks of contagion, their “flee or fight” mechanism gets triggered to the highest order. Most flee, especially when it comes to their money. Take what you can and leave the rest is the motto in times of panic.

An ancient Persian story tells of a king who wanted something to inscribe in his ring that would make him happy whenever confronted with sadness. The inscription read “This too shall pass.”

The Peloponnesian War passed. World War I and the ensuing Spanish flu pandemic of 1918 passed. The Great Depression and World War II passed. Two atomic bombs were dropped and that passed. Brutal murderous dictators such as Hitler, Stalin and Mao, who collectively were responsible for the deaths of hundreds of millions of people during World War II and in post-war purges, eventually and thankfully passed from this temporal world as well.

Somehow, our ancestors made it through them all. All of the previously-mentioned natural and man-made catastrophes dwarf anything we have seen or will see in our lifetime. Hopefully.

The greatest fear we have today is the fear of the unknown. Once the incidence of new cases starts to flatten out, or stop — as they say has happened in China — or a vaccine is developed, the current panic should subside as it has in past financial, public policy and personal panics.

Sadly, the most troubling aspect of the coronavirus outbreak is the unknown veracity of reporting agencies. Either the World Health Organization has been completed bamboozled by Chinese officials or CDC computer models have vastly over-estimated possible deaths in the US from COVID-19.

China has “officially” reported 3,274 deaths out of more than 82,000 reported cases. 73,000 have recovered with 5,120 active cases still under treatment. Even if all of those 5,120 active cases end in death, China would report less than 10,000 deaths due to the “most deadly virus since the Spanish flu,” that claimed 50 million lives a century ago.

Social media and cable news have distributed CDC-generated estimates that 1 million Americans will die because of COVID-19. Some claim 156,000 North Carolinians alone will succumb to coronavirus.

Zero deaths have been attributed to the virus in North Carolina to date.

We are about to embark into unprecedented territory in terms of sweeping public policy to address the COVID-19 crisis. Policy-makers should consider every possible angle before committing to solutions that may be irreversible for years to come.

(first published in North State Journal 3/25/20)

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Wednesday, March 18, 2020

What Is Different This Time?

No one knows what the extent of COVID-19 will be domestically or worldwide in terms of cases, deaths or economic impact over the next 30 days, 60 days, six months or year. When this is all said and done, hopefully we will look back and say these swift closures avoided a catastrophe.

What we do know is this episode of Mother Nature versus mankind is light-years ahead of every other major viral outbreak in terms of fear and panic since the deadly 1918 Spanish Flu pandemic. Nothing close to what we are seeing today happened with other very dangerous 21st century outbreaks of SARS, MERS, Ebola and H1N1 around the globe.
The coronavirus appears to be more virulent than any of those earlier outbreaks which were all dangerous to a person’s health if contracted, especially to elderly people. COVID-19 is nothing to be trivialized and certainly not politicized.
Detection of viruses today is not a quantum leap ahead of medical technology from the start of the 21st century. Facebook (2004) and Twitter (2006) were in their relative infancy in 2009 but had the capacity to disseminate information about viral outbreaks world-wide.
Dr. Anthony Fauci, whom by chance many years ago I pulled back from walking into a speeding vehicle at 14th and Constitution in a George Bailey moment now that I think about it, was at the NIH working on infectious diseases in 2009.
What is different this time around?
For one thing, we live in hyper-politicized and hyper-partisan times. Far more than at any time in my 40 years in politics and government.
American politicians and talking heads typically kept their mouths shut and avoided making overtly political attacks at the beginning of national crises in the past. During the stock market crash in October 2008 and the tragic 9/11 terrorist attacks in 2001, elected leaders of both parties rallied around a common threat to us all and acted like adults who could lead this country through it first before blaming each other later.
Not this time. Democratic presidential hopeful, former Vice President Joe Biden said last week: “The Trump administration’s failure on testing is colossal, and it’s a failure of planning, leadership and execution.”
He might as well have said, “It is President Trump’s fault that someone in the Wuhan province of China ate a live beating heart from a bat, got infected with COVID-19, and then coughed and spread this deadly virus that is going to wipeout the human species!”
Princeton professor Eddie Glaude gleefully opined on MSNBC: “This may be Donald Trump’s Katrina.”  He might as well have added, “Just like we liberals blamed Bush 43 for a problem that was equally the fault of state and corrupt local government on top of the fact that New Orleans is below sea level and should be moved 100 miles inland to avoid any future devastation and loss of life.”
Ethics and Public Policy #NeverTrumper Peter Wehner boldly declared in The Atlantic March 13 edition, “The Trump presidency Is over” because of COVID-19. He has said the same thing after every incident in the Trump era since election night 2016.
The “swine flu” epidemic hit the United States during the first year of the Obama-Biden Administration in 2009. According to the CDC, 60.8 million Americans contracted the H1N1 virus; 273,304 went to the hospital. 12,469 people died. It wasn’t until six months later, in October, 2009, that a vaccine was approved and distributed for use.
No one can remember one single school, one college basketball game or one church service being closed due to swine flu.
No one in the media asserted that the swine flu meant “The end of the Obama Administration” or that he was an incompetent insensitive idiot because it was solely his fault that 60 million citizens contracted the swine flu.
Medical technology has improved but is essentially the same; news dissemination is more focused in social media but essentially is the same; and Dr. Fauci is still working at NIH.
Donald Trump is in the White House and Barack Obama and Joe Biden are not. That is about the only major difference from 2009 but that can’t explain the 180-degree difference in coverage or panic, can it?
Perhaps the Trump Administration and government in general learned from the swine flu pandemic that the best thing to do is to shut everything down until the virus passes and a vaccine can be developed. If that is the case, then we should have a lot to be thankful for later this year.
(first published in North State Journal 3/18/20)

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Wednesday, March 11, 2020

Boomers: You Did It To Yourselves

Many of you supported the scare tactics of Democratic Party leaders such as Chuck Schumer, Nancy Pelosi and Joe Biden in your 20s, 30s, 40s, and 50s. You heartily voted for them when they said they would “never change or touch Social Security!” You loudly cheered and applauded when Democrats and the AARP ran ads in the 1980s and 1990s showing mean old Republicans pushing Granny in her wheelchair off a cliff.
You started to become eligible for full Social Security benefits in 2012. You can look forward to getting a monthly check of around $3,000 if you contributed the maximum amount each month either as a self-employed person or were matched by your employer.
The average SS benefit Boomers will receive is $1503 per month in 2020. The last Boomer will become eligible in 2031.
What if you had had the option at age 18 to put the Old Age part of your payroll tax into a self-directed investment fund that built up equity over time?
Setting aside the Survivor (S) and Disability Insurance (DI) part of OASDI for a moment, had you been able to put the maximum amount into a private investment account annually since 1978,  you would have paid in $466,000 in combined employee/employer (or fully by self-employed) taxes over the course of your working career. With interest over time at a market average of 7%, that $466,000 in withholdings would be worth $2,186,146 today. If your spouse worked full-time and reached maximum income thresholds each year, your combined assets today could be double that or well-over $4 million in Social Security funds alone.
A middle-income couple could have retired today with close to $2 million in SS assets as well.
Exxon is paying a 7% dividend payout today. If your entire SS portfolio consisted solely of Exxon stock, you could take home close to $140,000 in your golden age retirement years and never touch the principal underlying that investment, far in excess of the $36,000 annually you can get under the current SS system.
On top of that, you would have had inheritable assets to pass along at death at any age to your spouse or to your children. There is no lump sum payment from your Social Security “contributions” to your survivors, ever. You pay the flat tax of OASDI; you get some or most of it back in retirement if you are lucky, and that is it.
The current SS system has adverse civil rights and equality issues deeply embedded in it.  If an African-American male was born between 1950 and 1970, his life expectancy at birth was around 61 years. He would have been far more likely to never get $1 dollar in SS benefits, and certainly not recoup his full “investment” into SS during retirement, due to lower expected longevity.
How fair is that?
Forced contributions into a private investment account for each working person should satisfy partisans on both extremes. Socialists should be happy that everyone gets very generous coverage during retirement. Capitalists should be happy to see a real investment fund account set up for each person made directly from the fruit of their own labors.
The biggest drawback is that some generation has to sacrifice to help with the transition.
Why not us Boomers?
Once anyone receives the maximum Social Security amount in retirement, now roughly $36,000/year, they will be frozen at that level for the rest of their lives. In return, the various earnings taxes on Social Security will be eliminated since they generate so little in tax revenue to begin with — $37 billion or 1% of all revenue. People entering the workforce would see their payroll tax to SS diminish over time to support the remaining Boomers on retirement and be allowed to start diverting increasing percentages of their payroll tax into individual accounts.
Raise the retirement age to 70 by 2030. It has to be done.
Our parents and grandparents sacrificed a lot to save us from the Nazis in WWII. Would it really be too much if Boomers became known as the “Generation that Made Social Security Really and Truly Great…For the First Time?”
(first published in North State Journal 3/11/20)

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Wednesday, March 4, 2020

Wall Street Collapse Caused Eruption of Socialism in America

"Hey, Gary! You know I cheated. I know I cheated.
But let's keep it all in the club and just act like I didn't, ok?"
Many people think that the wave of socialism we see in America today is the product of a very well-planned strategy to take over our educational system by liberals over the past 30 years. 
Which is partially correct. The foundational bricks for the eruption of socialism in America were carefully laid out by liberal strategists long ago. 
Nothing dramatically changed along the way. Socialism stayed pretty much bottled up in academia and in big city elite intellectual salons. 
What happened? 
Friday, Oct. 24, 2008, was the day when a financial bomb hit Wall Street and the major banks. The incorrect response by the federal government and our legal system led directly to the opening of the Pandora’s Box of socialism we are now witnessing. 
Stock prices for financial institutions collapsed on Oct. 24 when it became apparent that after years of executives recklessly selling junk bonds and derivative instruments to investors the world over, underlying mortgages on which those investments were made were collapsing as well and not being paid by mortgage holders. 
Bank of America and Wachovia stock prices fell as quickly as the Twin Towers in Manhattan did on 9/11. Panic ensued. Hundreds of thousands of banking employees were laid off nationwide which spread into the general economy where America suffered the worst recession since 1930. 
Businesses were destroyed because they could no longer get credit anywhere. 401k plans were decimated. Houses were foreclosed upon. Everyone in the economy was hurt by the recession.  
Except the financial titans of Wall Street and the big banks. None of them went to jail for fiduciary malfeasance. None of them were forced into bankruptcy protection when, by every standard of business ethics and justice, they should have been. The end result was that wealthy Wall Street and major bank executives, who caused the financial panic with their reckless investments, were bailed out by you, the federal taxpayer, and the Federal Reserve by expanding their balance sheet, which essentially is making up currency out of thin air. 
A friend of mine happened to be in New York City on that fateful Friday night. An investment banker friend of his, let’s call him “Sam,” who was worth well over $200 million, invited him to a dinner party at his luxurious penthouse in Manhattan. 
He took my friend out on the patio. While surveying the city landscape, he said, “See all this, Dave? It is all gone. Nothing is left. I am broke and so are all my colleagues.” 
A month later, he was worth $200 million again. All with the help of the federal government and you, the American taxpayer. 
This massive bailout of uber-wealthy people on Wall Street did not go unnoticed by the younger generation. Millennials between the ages of 20 and 25 witnessed their parents losing their jobs and financial security while financial titans of Wall Street and big banks skated by unscathed, restored to the lifestyle of the rich and famous and not going to prison. 
It made a lasting impression on Millennials. It was like watching Jack Nicklaus cheat at the Masters and still be awarded another green jacket. Any young golfer would have said to himself: “If Jack Nicklaus can get away with it without any penalty, why can’t I?” 
On Sept. 17, 2011, such pent-up anger revealed itself in the first “Occupy Wall Street” protest in New York City. Thousands came to protest the hypocrisy of bailing out wealthy tycoons with taxpayer money but not the average person who lost their job, nest egg and income security. 
If you were a young person with a lot of student debt, what do you think your reaction might have been? 
It might have been: “These rich guys got bailed out by the federal government. Why not me?” 
Nine years later, avowed socialist Bernie Sanders is leading the Democratic nomination for president.  
We can thank every elected official who let these bankers get re-enriched with taxpayer support for this explosion of support for socialism. 
(first published in North State Journal 3/4/20)

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Thursday, February 27, 2020

Victory or Death: What Would George Washington Have To Say Today?

"What the heck
is going on here?"
We visited our son, his French wife and our grandson in Fredericksburg, Virginia last weekend. As Providence would have it, Mount Vernon was celebrating the 288th birthday of George Washington on the “real” President’s Day, Feb. 22. 
Since we can see Washington’s childhood home right outside of the window of my son’s home across the Rappahannock Riverwe decided to pay a visit to “President Washington” up the road. 
We met “President Washington” and took the obligatory photo. We could imagine what had to be going on inside of his head as he watched the news and followed current events on social media 
What the heck is going on here in the United States of America todayI hear there is a socialist who is the front-runner for the Democratic nomination for president to be one of my successors. What does this word socialist’ mean as a political party anyway?” 
“Socialism wasn’t even invented until half a century after you passed away, Mr. President. Some guy named Karl Marx said things were so miserable in the industrial age in England that one day the workers of the world would unite and overthrow all of the bourgeoisie and take over control of the government and economy.” 
“Miserable? Most people I see here today at Mount Vernon appear to be well-fed and prosperous. What would the workers do if they ran a global business? Would they have the experience and talent to do so?” 
“Do you mean to tell me that we fought a bloody war against the capricious, oppressive and unfair leadership of King George III to win freedom from monarchical rule only to have a guy running for president in 2020 who wants to take over complete control of our economy and personal freedoms and make American citizens do what he wants them to do, not allow them to make their own decisions and keep their own money?” 
“That is pretty much it, Gen’l. Bernie Sanders and his followers want to take away money from successful people and give it to lower-income folks. Socialists want everyone, including rich people, to have free health care coverage; free college educations and a guaranteed minimum wage.” 
“What is a minimum wage?” 
“Forget about it, Mr. President. 
“What about free will? What about freedom of choice? Is there still the fundamental freedom to worship as you see fit, speak out loud in public as you choose, print what you want in a newspaper, or assemble with whoever you so well please?” 
“Well, Mr. President, not really. There is this thing in America today called ‘political correctness’ where a certain group of political elites have censored speakers who say or do something in the political arena with which they disagree. Many college campuses have canceled speeches by conservative speakers simply because many of the students and almost all of the faculty disagree with them.” 
“(I)f Men are to be precluded from offering their Sentiments on a matter… reason is of no use to us; the freedom of Speech may be taken away, and, dumb and silent we may be led, like sheep, to the Slaughter.” 1 
“Well-said, Mr. President. A lot of people feel the same way today. Do you have any other advice for us here in the 21st century?” 
“In politics as in philosophy, my tenets are few and simple. The leading one of which, and indeed that which embraces most others, is to be honest and just ourselves and to exact it from others, meddling as little as possible in their affairs where our own are not involved. If this maxim was generally adopted, wars would cease and our swords would soon be converted into reap hooks and our harvests be more peaceful, abundant, and happy.” 2 
“Our son almost named our grandson Rochambeau, Mr. President.” 
“I wish it had been Lafayette.” 

1. Address to the Officers of the Army | March 15, 1783 
2. Letter to James Anderson December 24, 1795 

(first published in North State Journal 2/26/20)

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Wednesday, February 19, 2020

Excessive Debt Is Like Carbon Monoxide

Too Much Debt Is Like Carbon Monoxide
There was a lamentable disco song in the 70’s that claimed “love is like oxygen.”  

That may be true. If it is, then having too much debt is like carbon monoxideDebt is colorless, odorless and deadly to anything if allowed to build up to dangerous levels. 

At some point, usually when it is too late to do anything about it, excessive debt leads to a very uncomfortable reckoning — bankruptcy. In the case of nations, it leads to currency value collapse, hyper-inflation, exorbitant interest rates and dissolution of empires and national status, if history from the past 800 years is to be believed. 

Profligate government spending and largesse has led to more nations collapsing and being replaced than all wars in history combined. Governments die with a whimper when bankruptcy happens. All of them could have survived had they stopped spending more money than they received in taxes from their population early enough to avoid economic disaster. 

It sounds simple, doesn’t it? The problem is that elected politicians value their jobs so much they continue providing bread and circuses for voters but never make the tough decisions to curtail spending. 

The only time politicians in Washington made such tough decisions in recent memory was in the 1990s. A coalition of thoughtful fiscally-responsible Republicans and Southern Democrats provided the leadership and majorities necessary to produce balanced budgets from 1998 to 2001. Congress holds 99% of the cards when it comes to balancing the budget. Presidents can propose budgets, but they can only sign or veto the final package passed by Congress, so assigning too much praise or blame on presidents is misguided and off-target. 

President Trump released his FY 2021 budget last week, which purports to reduce national debt to 66% of GDP by 2031. CBO released their analysis, which says we are going to have $1 trillion annual budget deficits for the next decade regardless of who is in the White House after the 2020, 2024 and 2028 elections. 

It is baked in the cake. We can’t run from massive budget deficits anymore. Congress has to put a 
brake on spending growth. Now. 

CBO estimates the US will owe $31 trillion in debt held by the public at the end of 2030, up 72% from $18 trillion today. America has incurred massive debt before, usually to pay for a war effort, but never in relative peacetime.  

What changed structural budget deficits forever was the passage of Medicare and Medicaid in 1965No longer would people leave federal rolls as soldiers did after wartime. Millions of seniors woulstay permanently on federal assistance on Medicare when they reached age 65.  

Average life expectancy for someone born in America in 1900 was 48 years. Most did not survive long enough to qualify for Medicare or Social Security in 1965. Average life expectancy for people born in 1955 is 74 years. Life expectancy for babies born in 2020 is 79 years. 

At a very minimum, the eligibility age for Medicare should be adjusted to correlate with the rising threshold for Social Security, now at 66 years and two months. Americans are living almost 50% longer than a century ago. Our entitlement programs should reflect that welcome and desired improvement. 

We don’t have to pay off the entire $18 trillion in national debt owed to the public in one year. We have to stop adding $1 trillion to our debt per year which we also did in 6 of the past 11 years. 

Holding overall growth in federal spending to 2% per year for a decade would be like opening the garage that has a car in it filling up with carbon monoxide. There is no sense in trying to see how much carbon monoxide a person can tolerate before expiring. 

The same is true with burgeoning national debt. Why take the chance when we can do something about it today? 

(first published in North State Journal 2/19/20)

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