Monday, February 27, 2012

Ob-La-Di Ob-La-Da

How does your history shape your views?

I generally do not spend a lot of time talking about myself, I prefer the Don Draper approach.  And while I will admit a lot of my "finely tuned" policy comes from reading books and cruising the Internet, my most deep seeded beliefs come from my experiences of the last 35 years.  Yes, my history is a huge factor in my future choices, and I'm sure that most of you are the same way.  Therefore, I think sharing a tiny bit about some of those experiences can give some good insights into why I have come to believe so passionately in the power and strength of the individual over the warm embrace of big government dependence. 

I grew up in a typical family.  My dad was an accountant and my mom a retired kindergarten teacher and homemaker, a regular slice of American pie.  We had pizza night on Saturdays and I lived for my older brother's high school football games.  That all changed when I was eight years old, my dad died.  The situation was immediate and ominous.  How was my mom going to make a living and care for four boys at the same time?  How was she going to get out of bed with a tidal wave of reality waiting to crash down on her? 

My dad left us with a life insurance policy, a paid off house, some rental income and investments.  While we were no where near easy street, he did leave us with a solid fighting chance.  My mom, kicked to the dirt, was left with two options.  Pick herself up, dust herself off and move forward, or checkout and hope someone else would step in and care for us.  The funny thing is I don't think that my mom ever considered giving up as an option, its just not in her DNA.  So, my mom found a job, worked all day everyday, and found a way to provide for us.

So, what is the lesson?  Its quite simple.  You take care of your obligations.  Period.  My father made sure he left us without the noose of debt hanging around our necks as he understood the importance of financial security, and my mom showed me that no matter the circumstances, you find a way to support those who depend on you.  If I am ever able to say I provided the same level of care for my kids as my parents did for me, I will have been a great father.

So how did we turn out?  My brothers are all successful on any scale, and this is no small tribute to the traits I admire in each of them.  I have one brother who succeeds through sheer drive and force of will, another through entrepreneurial spirit and risk taking, and a third through an overwhelming combination of intelligence and personality.  They have different means to a similar end, which is their ability to provide for themselves and their families through their own choices.  Me?  I am the the perfect amalgam of all of them.  Not really, but I am doing just fine.

Now before we finish singing the praises of the human spirit over adversity, I should note that we are not exactly what you would consider a well adjusted family.  In some ways, we are all bat-shit crazy and have made plenty of wrong turns.  Holiday reunions and family weddings are both joyous and highly volatile affairs.  But I do think that even with the emotional scars we all carry, it is probably a tribute to my mom's example of perseverance that we could overcome these things and end up good providers and productive members of society. 

I was born and raised in a small town in Appalachia.  God Bless the "Burg." This is a town so small that I was a football team captain, valedictorian, and lead in the class play without exceeding size, speed, or intelligence while certainly lacking any artistic ability.  I mention this mostly to brag about my glory days, but also to illustrate that I was in a town where everyone participated in everything, because there wasn't a whole lot else going on, and thus everyone knew everyone else.

The point is there was little ability to totally homogenize your interactions.  I live in a neighborhood now where everyone is a professional and most work for some huge corporation or have their own small business.  Where I grew up, my friends parents were dentists, mechanics, teachers, laborers, small business owners, union members, etc.  You knew everyone and they were from all walks.  When a business closed, you knew who was affected. And in rural southern Ohio, businesses were always closing, rarely opening or growing.

I got to observe first hand the affects of economic decline on people, where over the last 80 years dying industry is slowly giving way to reliance on service and government funded jobs.  The results of which have been crippling as the area increasingly deals with high unemployment, rampant drug use, and abject poverty.  My home is testament to what happens when industry is replaced with government, and why people, families, and communities are better off when private industry is coveted and cultivated.

My college days were pretty typical, but one of my classmates and best friends had a big effect on my outlook.  He was a fellow electrical engineering nerd and we took virtually all of our classes together.  What I noticed about him as he aced class after class (blowing curve after curve), was that he consistently drove to find solutions, didn't search for easy angles, never looked for any special treatment or favoritism from professors, and always put in the work to succeed.  Ultimately, he got a masters degree and went on to design communication systems for a defense contractor.  I will always admire his self-reliance and motivation to succeed.  Oh yeah, he's deaf.    

The bottom line is that my views of self-reliance, meeting your obligations, and the force of private enterprise are laced throughout my experiences, and help me greatly when deliberating about how I would like to see my family, community, and nation proceed.  I have seen people put in extraordinarily difficult circumstances and find ways to survive and thrive through their own determination, as I am sure all of you have as well.

I encourage you to reflect on your past when trying to chart the course for your future.  These experiences have shaped you whether you realize it or not, understanding the lessons of these experiences will give you a lot of clarity.  In a political season where 90% of what you hear is total BS, its good to know your ideals and understand their origins.

Saturday, February 18, 2012

Baby, You're a Rich Man

Do we really put our kids first?

If I asked most of you point blank if you cared more about your child's future than the current well-being of other less fortunate Americans, most of you would pick your kids. The rest of you would lie to me, and give me some humanitarian clap trap, just before going out and spending $150 bucks for your family to go see "The Fresh Beat Band" live, knowing full well that money could be used for medicine or food for some poor family.  I certainly do not blame any of you for this behavior (I got my tickets already).  I believe its natural and commendable to put your children first and hope for a bright and secure future for them. 

However, I also believe that many of you passively and unwittingly choose others people's needs of today over your own kids.  When you vote for those who want to increase spending thru increased taxation you have to know that they are taking money from you that could be used help secure your children's future to redistribute it to others.  Further, when you vote for those who want to increase spending thru increased borrowing, you have to know they are taking money from your kids in the form of either huge future taxes or massive austerity.  Why would we choose to put this burden on our children?

"Come on Andy you are exaggerating, I gladly pay taxes to keep my kids safe and free and educated."  Do you?  The fact of the matter is that the U.S. Government spends very little of your tax dollars worrying about your kids:

% of Federal Spending:
1) 20% to Social Security
2) 12% to Medicare
3) 13% to discretionary stuff (pick 'em category - i.e.federal employee salaries)
4) 16% to Other Mandatory Commitments (Federal Worker Retirement, Veteran Affairs, Agriculture Subsides, etc...)
5) 7% to interest on borrowed money

That is almost 70% of the budget that has ZERO to do with your children.  The other 30% spent mainly Defense (23%) and Medicaid (7%) could potentially benefit your kids (though I would argue these have so much waste in them, you are not getting much value for your dollar here).  Let us also remember that we only take in about 70% of what we spend, we borrow the rest with the promise of future taxes to pay them back (our kids taxes).

So to over simplify this thing, you could argue that the current workforce pays for all of the commitments not related to our children, very responsible.  We only ask our children to accept the bill for the things they may benefit from, little things like the national defense and health care.  Thank god our kids are watching out for us, so who's watching out for them?

If you truly care for the well being of your children, you have to stand up for those who are willing to cut spending on all things.  Require government to quit passing off problems to the future so nothing has to be sacrificed today.  Your kids will thank you for it.

Monday, February 13, 2012

Eight Days a Week

Does the government have a math problem?

The short answer is yes, but I should probably give you some idea of what I am talking about.  President Obama released a budget plan today that insures he will run greater than $1 TRILLION DOLLAR deficits each of his four years in office (Bravo, Mr. President).  The most troubling part of this "plan" is the inability to even acknowledge the pair of nooses around the neck of this countries future: Social Security and Medicare spending

So where does this math problem come into play:

From the chart above, you can see the trajectory of deficits over the next 75 years.  I used the overly optimistic predictions from the OMB to determine what our spending and revenue is going to look like for our grand kids:

Revenue - 20% of GDP $3 Trillion in today's dollars 
Spending - 30% of GDP $4.5 Trillion in today's dollars
Deficit - 10% of GDP $1.5 Trillion in today's dollars

"Wow Andy, that is a lot of money, appears we will need rich people to dig deeper into their pockets and fork over that extra 10% worth of GDP.  its only fair, we all know they don't need that money."  That sounds like a fantastic idea!  Oh wait, I forgot to tell you that since World War II we have had tax rates on the rich of up to 90%, and tax revenues were virtually unchanged and basically always range from 17-20% of GDP:

"You mean that even at 90% tax rates we only collected 18% of GDP in revenue, should we go to 100%? What about a 'giant wealth tax' or a 'pick rich people up by the ankles and shake their pockets clean tax' or could we just imprison the rich and have all that fat undeserved money mailed straight to the government?"  The truth is that no matter what tax rates are across a wide variety of options (income, capital gains, death taxes, etc..) we have NEVER collected more than 20.6% of GDP in taxes since WWII.  There are a lot of reasons for this, but the reasons do not matter as much as the reality, no matter what the tax structure, we should NOT expect to collect more than 20.6% in taxes.  Even Obama's plan with his massive millionaire's tax and Bush tax cut expiration on the rich only claims to confiscate another $1Trillion of revenue over 10 years (that's $150B/year or 1% of GDP).  

"OK, so you are telling me that we have already baked in the most optimistic possible assumption for average future revenues.  Good thing this will likely be our last recession ever, what about spending?"  Glad you asked.  Lets look at the spending assumptions above.  The projections assume we are on path to reduce discretionary spending (this includes military) to 5% of GDP.  Lets forget the fact that discretionary spending has rarely been that low, and just assume our trusted comrades in Washington will make it happen.  We will also assume that we can reduce other mandatory spending (like federal pensions and salaries) by 25% to less than 3% of GDP. (Yeah, ok, right).  So we are left with 3 things that still drive government deficits:

Social Security: 5% to 6%
Medicare: 3% to 5%
Medicaid: 2% to 3%

These 3 items are predicted to increase federal spending by 4% of GDP.  The other 6% long term gap comes from the massive interest build up of running continuous deficits that add to our debt.

THIS IS THE MATH PROBLEM.  Obama and company are completely focused on raising taxes, which at a maximum can improve GDP by 1% (and I don't even believe that).  Even if they would happen to be right, we still have a 9% long term deficit problem to address.  The solution can ONLY come from spending reductions and MUST include entitlement reform.  Spending cuts are truly only way.

"So if we need to reduce spending by 10% of GDP, how do we get there? are you sure we can't just make all rich people earn their MD's and force them to donate all of their time to giving free health care to the elderly?"

The key to beating the debt issue is to vote for those who are brave enough to tackle entitlement reform.  Please understand that those who are solely focused on the revenue side are failing both basic math and history tests.  THAT WILL NOT WORK.

Honestly, we have fairly easy to understand solutions for these issues:

1) Soc Sec - Raise the retirement age to 70 for those under 55, and move to "price indexing" instead of "wage indexing".  All price indexing does is insure people get the same benefit in real dollar terms that their parents got.  Currently each generation gets a bigger benefit in real dollar terms than their parents.  Why?

2) Medicaid: Block grant it to the States. Done.  States have a way better chance of figuring this out than Washington.

3) Medicare: More difficult, but moving to higher deductibles and co-pays are a great start.  Currently doctors and patients don't give a flip about what procedure to use because they do not pay for it, Joe Taxpayer does.  "More Anything? More Everything!"  Get them to have more skin in the game and this begins to curb costs.

4) Cap discretionary spending at 5%.  What a joke that we assume that this will be 5% in the future when we see in the past it has always been much higher.  Force tough choices, and quit mortgaging our futures to pay for stuff now.  This is the only way to keep down our future biggest problem:  Interest payments.

"OK Andy, I get it, too much spending.  But what do I care, can't we just keep printing money to fund our debts.  I mean the government must own a huge printing press?"  Sure we can keep printing money, and keep printing money, and keep printing money.  The result is a worthless dollar, (i.e. $1000/gallon gas kind of worthless).  And then you leave your children with a worthless dollar to go along with an oppressive debt obligation, just so you wouldn't have to live with a few dollars less benefits today.

At the end of the day, no matter what your most pressing cause: education, gay rights, the environment, abortion, human rights, do you think any of this gets any real attention if we can't pay the light bill?  It doesn't.  The best thing you can do for this country (and your favorite issue) is to vote for those who will put the fiscal house in order.  As a family, as an individual, you know that you cannot be free to pursue you interests until you have taken care your obligations.  Why would our country be any different?

We are talking about the future of our country.  Don't let those who ignore our future to buy votes today lead us into a critical chapter in American history.

Thursday, February 9, 2012

Paperback Writer

What Makes Our Country Grow?

I just finished reading a book with a unique point of view point on how policy impacts economic growth.  Obviously the most important and watched measure of our countries economic success is Gross Domestic Product, which is measured by summing all of the spending in the economy:

consumer spending + business investment + government spending + trade balance (exports - imports).

The book is called Seeds of Destruction (real optimisms, huh), and I like this book because it evaluates policy on its effectiveness in maximizing GDP growth, and since GDP growth has the dual affect of increasing employment and reducing dependency on government, it truly is the rising tide that lifts all boats. 

(Now before you go running to the bookstore and find that this book is from 2010, please note that I like to read books that are a few years old because if their theories could not hold up over that short amount of time then I can just quit reading them, also, I'm cheap and the public library is my main source of material).

Here are some of the high level themes:

Consumers Spending (70% of GDP):
Personal consumption has moved higher from its historic and optimal point at 66% (you'll have to trust me on this, read the book if you want to know why).  The reason it has gone higher is monetary and fiscal policies that encourage spending over savings.  Ultimately the way to bring this back into balance is to have monetary policy that is less inflationary and strengthens the dollar (higher interest rates).

Further, eliminating tax deductions on heavy spending like homes, and reducing the tax burden on investment would create more incentive to save, which is better for long term sustainable growth.

Business Investment (15% of GDP):
Business investment is the driving force of the economy and as such needs to be encouraged in as many ways as possible.  Reducing taxes on corporations and investors while limiting regulation are very simple and easy paths to higher levels of investment.

Government spending (20% of GDP):
The key concept to government spending is how it crowds out productive investment.  Limiting spending and balancing budgets provide a path to sustainable growth.  Health care is singled out as one of the driving factors needing addressed, and the book is critical of Obama's health care mandate because it does not address exploding care costs.

Trade Balance (-5% of GDP):
The vast majority of our trade deficit is comprised of 2 factors:  Dependence on foreign oil and Chinese trade practices.  Reducing foreign oil dependence and pushing for fair trade practices with China (currency manipulation, technology piracy, tariffs, etc...) will eliminate imbalances and provide net growth for the economy.

Below is a good blog comparing two very different recoveries from deep recessions in terms of GDP growth (Reagan v. Obama):

Reagan path:
Strengthen Dollar
Reduce Tax Burden
Reduce Regulation Burden
Strong foreign policy

Obama Path:
Weak Dollar
Increase Tax Burden
Increase Regulation
Increase Spending
Weak foreign policy

Bottom line is that this is a contrast of how government policy matched up with growth coming out of a recession.  We had a strong blueprint for recovering very rapidly and have chosen to go down a different path.  The result has been a very weak to non-existent recovery. 

This book illustrates in what ways we could be doing it better to improve economic growth.  I am not saying I would endorse all of the ideas for fixing GDP from this book, but at least they propose tangible actions to be considered.  If you truly want to see improvement in ALL AREAS of society, the singular path is thru economic growth.  This is a book that shows ways to get there (and how to screw it up).  Again, a rising tide lifts all boats.