Taking Candy From A Baby

Why are youth so liberal?

A mystery that has never sat well with me is understanding the youth vote.  In case you didn't know, 18-29 year-old Americans tend to vote in the progressive camp, with about a 67%-33% edge to Obama in 2012.  This tidbit is where my knowledge of the youth vote stops.  In general, I assume that America's youth is more idealistic and open to change than their parents, wanting to see stuff like gay marriage or legalized marijuana become the law of the land.  I was raised in a house that first and foremost taught self-reliance and rarely extolled the virtues of smoking pot, so I never experienced this liberal leaning first hand.

Now, in general, I don't have a problem with the civil liberties crowd.  If you are not trampling on others freedom, you should be free to do whatever you want.  However, the problem I have pertains to the spectacular economic freedoms the young trade in to join the coalition supporting these civil liberties and I wonder if they truly understand the massive costs being laid at their feet.  Lets look at the most damning issues that disproportionately hurt the young.

Retirement Entitlements:

At a federal level, today's younger are paying to fund retirement and health care of today's elderly.  Because of leftist policy to fight making adjustments to those benefits, the youth will continue to pay higher and higher taxes to support the current retirees while seeing their chance to receive benefits sink. And don't be fooled into thinking that we can just borrow more (read print money) to make up the difference. You will be had by a reduced benefit or reduced purchasing power, either way, the young lose.

Maybe even more tragic is at the state and local level where huge percentages of tax dollars are going to pay pensions and health care for those retired.  Since these states and localities have to balance budgets they must cut current services thus leading to things like less police and fire protection. 

Because of sickening union leader - politician coalitions that have allowed unfunded liabilities to go unchecked for decades, the youth will get higher taxes, lower services and reduced pension plans of their own.  Check out Detroit, they are finally paying the piper for 50 years of bad decisions on bloated public employee compensation, and its going to be bloody for everyone.  At least the retired had a good run for 40 or 50 years.  Now they are handing the young the bill for the party.  Disgusting.

(If you want more info on the impact of unfunded liabilities on states, read Meredith Whitney's 'Fate of the States' book).

Obama-care:

Quite simply a screw job to any and all healthy young people who are being asked to buy more insurance coverage than they need to cover the costs of the older and sicker. Further, you are losing the opportunity to get jobs as employers sit out hiring while they determine the health care cost implications of Obamacare.  This is all lose-lose for the young as they end up paying for services they do not consume with jobs that they cannot get.

Environment:

What does reducing CO2 emissions actually do?  Lets say it does reduce global warming.  What does that mean for the earth 50 - 100 years from now?  I have searched for an answer but I still cannot really say.  We can say absolutely that there are increased costs thru both energy prices and job reductions that need to be paid today to achieve these lower emissions.  Again this hits youth at a disproportionally high rate, because they are the ones most sensitive to higher energy costs as energy is a larger portion of their discetionary spending and job cuts.

Things like delaying the Keystone Pipeline and reducing drilling on federal lands seem to serve an abstract liberal goal of reducing global warming, but there are VERY REAL costs in jobs and energy prices that are attached to that goal.  Lets be clear, I am all for going green, but just like anything else, we have to weigh the cost to the benefit.  And right now the costs are high and the benefits unclear.

Education:

How do you get the best product for the lowest cost?  Competition.  Where is there little to no competition? Education.  We give teachers de facto permanent positions where their pay and employment has little to no link to merit.  Further, vast majorities of our education budgets go toward paying for pensions and health care of RETIRED teachers.  How in the world does this help young families?  Liberals always talk about investing in the future.  However, their policies seem to run out of other peoples money fulfilling the promises of current government largesse long before they get around to actually investing in our future.

Minimum Wage:

Minimum wage laws systematically raises unemployment for youth.  Who makes minimum wage?  People with low skill levels.  Who has low skill levels?  Young people.  How do you make more money in your job?  Increase your skills.  How do you get skills?  Get a job.  What do employers need to do to offer more jobs?  Lower wages.  So basically, minimum wage laws reduce the amount of youth employed reducing their overall skill level and ability to grow their wages.    

Maybe we teach too many philosophy classes and not enough math classes in our schools.   However, we cannot let good intentions trump rational thinking.  Caring for the elderly, providing health care to all, saving the environment and giving our public servants strong job security all sound like great ideas in a vacuum, but we don't live in a vacuum.  You MUST CONSIDER THE COSTS of providing these services and understand the impact.

And the impact is clear. The youth are paying the bill for those that came before them.  This is neither fair nor sustainable, but it is the democratic platform.  I hope we are imparting in our kids that there is NO SUCH THING AS A FREE LUNCH.  You cannot borrow against the future and claim to be investing in the future at the same time.  The choices are hard, but if we dedicate ourselves to electing those who actually believe in investing in a sustainable future vs. buying off the past while teaching our children to think beyond the benefit being advertized and examine the cost, we will over time give our youth a chance to have the great opportunities their parents were able to realize.

The Perils of Big Government

What do all of these government hijinks actually mean? 

Normally, I'm not one for caring too much about the "he said / she said" part of the political landscape that would engulf anything that is called a "scandal".  In the end, these things have very little effect on the American people at large, and have virtually no lasting impact. (Are you worse off today because Willy couldn't keep it in his pants? probably not.)     

However, the overarching theme of these "mishaps" are excellent examples of the untended consequences of large government bureaucracies.  First lets get the 'who's responsible' factor out of the way first because that's easy.  Our executive branch is setup to run the day to day operations of the federal government.  We vote for one man who is then in charge of appointing his department heads (Like Secretary of State, Attorney General, IRS Commissioner, etc...).  So, Mr. President, whether you have any clue what is going on, you are still the singular accountable body to the voters.  Lets have a look at this sterling leadership of YOUR administration and see what it means.

In Benghazi, I pretty much don't care about the part where better decisions could have potentially saved lives.  We may not have made a great choice, but those calls are probably murder to make in the heat of the moment and while the situation was tragic, it is very tough to Monday Morning Quarterback these things.  However, I do care that the administration clearly put out false information following the attacks for political gain.  It doesn't matter what department decided to lie, the fact is they did.  And if my government is more concerned with their own political life than the truth, how am I suppose to trust they are going to serve me in good faith?

On the AP, I will allow that there is probably a large amount of grey area in the national security v. free press debate.  However, the troubling portion of this is the complete abdication of responsibility of the President (and the Attorney General).  They just shrug and say "I didn't know about it."  So now I have a leader who is both willing to lie for political gain AND incapable or unwilling to control the bureaucracy he is in charge of running.

And finally on the IRS, I am almost speechless.  This targeting of conservative groups to delay their tax status went on for years unchecked, and officials asked for information from these groups that would make a fascist cringe. Dishonesty.  Check.  Political Bias.  Check.  Abdication of Leadership. Check.  From above, we already knew the administration was willing to be dishonest and certainly had set the tone that they would not effectively run a large bureaucracy.  This one has the added benefit of allowing low level bureaucrats to act in their own best interests, which can only happen in a large and unwieldy organization too big to have proper checks and balances.

In all honestly, I cannot blame Obama too much for his impossibly low bar of leadership.  Did anyone vote for this guy because they thought: "Wow, that professor / community organizer / one-term Senator is just oozing with executive leadership experience."  Of course not, they voted for him because they believed expansive government furthers their favorite causes.  So, I do not particularly want the focus to be on Obama's "What the (bleep) Just Happened" leadership style.  I would rather we pay attention to the larger point, which is that governments are going to have less corruption and less invasion of rights when they are smaller, and these recent troubles are excellent anecdotes of that reality. 

If you are one of the people who advocate large government or are on the fence about the size and scope of government, you should be re-evaluating your belief system today.  Just because a new law or agency sounds good in theory or has a catchy name does not mean it will fix the problem it was born to fix.  Good intentions are not the same as solutions, and we all have to live with, or worse be punished by, the unintended consequences.  Is it worth it?   

So now lets Bring on Obama-care.  Bet the government will run that like a Gulfstream or maybe like a flying bag of doo.  Sadly, Obama won't know how its going unless the New York Times writes an article on it.  If it is a huge failure, is it good enough that they meant well?  

Let the Good Times Roll

Time to ride the bull?

Despite my best efforts to look for silver linings, my blogs tend to feel negative, because I generally disagree with the policies and philosophies being implemented (higher taxes, Obama-care, etc...).  However, I wanted to spend some time pointing out very positive signs for our economic prospects to highlight hopes of better economic times around the corner:

1) Interest Rates will remain low.  Low interest rates encourage investment and spending which is a major plus to economic growth, but also tends to induce inflation which of course can be an economic nightmare.  You may think the Federal Reserve pushing interest rates to virtually zero for three years and counting would trigger inflation...




However, as you can see below, inflation has been quite tame (anything below 0.25% for core CPI is ok):



Further, as many of you probably have experienced, wage inflation is very low, meaning that production costs remain cheap and that transfers to lower prices for goods and services.




Wage inflation is low for a bad reason, unemployment is horribly high, but the flip side is that due to high unemployment we have a long way to improve before we start to feel wage inflation in our products and services.  


Finally, the rest of world is in really bad shape financially, and are reacting by printing money to boost exports and bailout governments.  When they devalue their currency thru money printing our currency's relative value rises, and that stronger dollar translates into cheaper imports which tamps down inflation further.

All of this to say that inflation is low and appears to be capable of staying low for the foreseeable future, and thus borrowing and spending have room to expand.

2) Oil/Gas Production is Booming.  Thanks to shale oil we are hitting oil production levels not seen since the early '90s. 




Further, Natural gas production is up 20% over the last 5 years:

 

Both of these things have the effects of keeping energy costs lower for both homes and businesses, but also have the added benefits of both raising GDP, creating jobs, and even lowering government defecits through high tax revenues.

3) Savings is on the rise.  While the federal government has been burning through dollars at a record pace.  Companies, Families and Local Governments have been cutting the fat and saving money.  Personal savings rates are at mid-90s levels and corporate cash is at all time highs:

Source: nerdwallet.com



Remember savings is just future spending and thus more savings from these entities will allow for more economic activity down the line.  

My point to all of this, low interest rates, increasing oil production, higher savings levels all point to strong support for a good economic growth.  We still have massive headwinds with the looming health care law, the reckless inability of the federal government to shrink long term entitlement spending,  and states and municipalities like California, Illinois, and Detroit all deteriorating under the weight of their spending obligations (there's that negativity).  However, we also have taken tax uncertainty off the table and have begun to ever so slightly cut federal spending with the Sequester.  So possibly some of the the uncertainty created by the federal government will subside and all of this pent up cash and resources will go to work.

While I'm not sure anyone knows exactly when we will see the explosive growth we should expect to see rebounding from a deep recession, clearly conditions are very good to see a push forward and it appears the stock market is perceiving a favorable environment for future growth.  Good thing because the world needs it.

Piece of Cake

How easy would it be to save our future?

I often laugh at the silliness played out in government theater.  I wonder, like everyone else, why elected officials cannot see the obvious issues in front of their face and make good decisions.  So, I often catch myself day dreaming about what would happen if politics were not an obstacle and we could really be honest about fixing the problems plaguing our future.  Or just put me in charge for a day and you would get the following "tweaks":

1) Change to a flat tax and eliminate ALL special deductions.  I did some back of the napkin math that says you could tax every dollar of personal, corporate, and investment income at 25%, give every man, woman, and child a $10,000 deduction and the government will collect 20% of GDP in income.  This would be progressive, fair, and simple.  I could drone on for days about details, but if we want to treat people 'fairly', why not move to a tax code that treats all Americans the same way, and quit trying to force behaviors with tax incentives.

2) Raise the Social Security Age to 70 and change to chained-CPI indexing.  When the program was created people only lived to be 65 and now live to be 78.  Due to our current inflation adjustments, the benefit for each generation gets BIGGER than the previous one.  In other words, new and current retirees get a much bigger benefit than their parents, and their kids and grand kids pay the tab.

3) Raise Medicare age to match Social Security.  Why are these two ages decoupled?  One retirement age should suffice for everyone.  Further, arguments that raising the eligibility age will not help the deficit are silly.  Detractors say it will cost more for Medicare because the healthier "young" retirees will be off the system.  That may be true if we look at costs per person, but we are looking at total costs, and taking away any portion of patients lowers that cost. People of course now may need to work until 70, but alas I am not selling unicorns, nothing comes for free.  However, you can phase in these things to make sure people can plan and save accordingly.  But this phasing window is closing with each passing day.

I would implore you to go to this blog (you, as I am, will be shocked I'm sending you to the NY Times). This blog spells out very clearly what is driving our spending growth and is very clear and easy to follow.

4) Frack.  Allow as much drilling on federal land as possible.  About half of our trade deficit comes from importing oil and the other half comes from importing other goods (mainly from China).  By greatly increasing energy production, we both reduce our oil imports AND lower our domestic manufacturing costs.  This would be a silver bullet in raising GDP by increasing exports and reducing imports.  Higher GDP = More Jobs = More Tax Revenue.  Pretty simple stuff.

Notice I really don't give a damn about short term budget problems.  The real problem in our country is economic growth, which when moving ahead full steam tends to fix everything else.  Flattening the tax code, reducing LONG-TERM projected debt, and lowering energy costs would unleash an economic boom like we saw starting in the early 80s (oddly, look at what Reagan did and I may have stolen from his playbook).

Also, what I suggested above comes at minimal sacrifice as retirees only have to accept the same benefit levels their parents got.  Tax reform and fracking are on the whole very cheap to the American taxpayer, with suspect cost fears generated by environmentalists and special interest groups wanting their tax incentive handouts. 

Sadly, our President has chosen to focus elsewhere.  He hiked take RATES with little long term deficit reduction attached, expanded the entitlement state with the Affordable Care Act, and of course stands in the way of increased oil production and refining (i.e. Keystone).  I would like to believe that the actions of the President are purely about helping Americans and are not about inflating his party's influence, but no matter his motives, he clearly has no issue letting our children pay the price while he expands the power and reach of the federal government.   

All I would need is one day as King...