The Environmental Bubble

Many Americans are wondering if this Country could possibly create another bubble. Well, we are currently in the process, the environmental bubble.

First, let us be painstakingly clear, bubbles are concentrated inflationary pressures on a single good, service, or industry which far exceeds general price appreciation accessible to the population in their aggregate income levels. In other words, prices in such a good, service or industry accelerate beyond what the population can reasonably pay for.

So what causes bubbles? Usually it is artificial causes such as government action, a media consensus that manipulates public opinion, or anti-competitive corporate behavior (such as cartels or monopolistic behavior). Occasionally, but not often, bubbles are caused by more natural market forces such as scarcity, insatiable demand or necessity. Regardless of its inception, once such a bubble exceeds that good, service or industry's marginal utility, people substitute, innovate or walk away. The destruction thereby is caused because the population almost always fails to collectively quit allocating resources to the bubble at the proper price level. We just continue to do business above the long run price equilibrium.

Let' talk about sliced bread, which seems to be by modern nomenclature the "Greatest Thing Ever!" Let's say sliced bread came out at a price of 5 cents a loaf. After a while, the government decided to subsidize it due to the safety and massive decreases in finger wounds encountered by the public. Then, aside from the subsidy, the public went rave for sliced bread because of its convenience. One could hardly find it, and if they did, they would buy as many loaves as possible do to the high resale of it on the black market. The producers of sliced bread decided to raise the price to 10 cents, then 15 cents, then 25 cents. Before long, the price sliced bread manufacturers could charge was over a dollar.

Watching the profits roll in, new competitors decided they could make a huge profit at a dollar a loaf. In fact, producers who didn't even know how to make bread could even do it. The market becomes flooded by products. Even though supply is now excessive, and the price is over $1.25, people are buying it like hot cakes, the previous "classic." The price hits $1.50, and the production is three times the populations demand. Sliced bread is so expensive, it represents over 50% of the buying public's "pre-sliced bread budget" for meals. That said, the business community sees no end in sight. IPOs start popping up for start ups that are going to improve the product even more. There are high end producers with wafer thin slices, and volume producers with thick slices. $1.75 the median price goes.

All of a sudden, bread is so plentiful it starts going bad on the shelves. Next, Croissants become the craze after "Breakfast at Tiffany's" debuts. The crowded producers start price cutting. Late comers and the less efficient producers go out of business as the price falls to $1 a loaf (oh yes it always falls faster). Then, people realize what they used to spend on bread and lower their consumption, more companies go out of business. At 45 cents a loaf, banks are going out of business because of their exposure to retailers and producers of sliced bread who have shuttered their doors. Further, the equipment and fixtures that were security for the loans are worthless since no one wants to get into the "sliced bread biz". Now it becomes impossible for any sliced bread company to obtain credit and the price falls further. Now at 10 cents a loaf, sliced bread is below the median budget for bread prior to the craze. Someday prices will increase and sliced bread will find equilibrium, but for now it is a battered industry with many victims, both direct and collateral to the industry, out of work and devastated.

The business of the "environment" has all the catalysts to bubble and all the inefficiencies to explode. To make matters worse it is a forced market. "Environmentally friendly" is often more expensive to purchase and a less efficient use of capital to utilize (i.e. buying solar panels and saving on electricity or paying your electric bills and using the same money to buy the S&P 500). If we have budgeted x for energy costs, and to be environmentally conscious the price is x+e, or a premium, we have a classic recipe for a bubble. The most dangerous part of the environmental market is that it is an extra cost without an increase in an individual's standard of living. There is no egotistic demand to be environmentally conscious. There is merely a premium to pay. Further, since environmental equipment, suppliers and producers do not generate natural demand or cost savings to consumers, they start under the auspices of not being competitive and superfluous.

Regardless of the economic theory that polluters do not realize their total costs to society and thus should be responsible for down stream costs- those costs are not tangible in the traditional sense and such a theory likely to fall from favor. The best the environmental entrepreneur can hope for is that innovation results in competitive prices in comparison to their less environmentally sound competitors.

The Often Ignored Collectivism of Capitalism

Many have come to appreciate the very simple realities shared by this blog when one abandons ideology, partisanship and prejudice and logically attacks the issues of today. Partisans and one way thinkers are silly. We all appreciate that fact more when we concentrate without influence on a topic with good old fashioned common sense.

Here are a few simple realities many can't argue with nor agree upon:

1. Socialized Medicine. We already have socialized medicine. The insured pay the bills of the uninsured and under insured. Twenty-five dollar aspirin and rising deductibles, premiums and co-pays are the result of free medical procedures performed by hospitals on the indigent, under insured and uninsured. Our disagreement and inability to manage this reality causes tremendous inefficiency.

2. Mark to Market Accounting. There is no such thing as "mark to market." There is mark to transaction price accounting, but transaction prices aren't always correct. In the short run, transaction prices can run higher and lower than what a reasonable person would buy or sell for. The fallacy resides in the fact that it doesn't count those who refuse to come to the market at a said price, the silent majority. When prices are too high many buyers refuse to do business. When prices are too low many sellers avoid coming to the market. Mark to market only measures what those who are willing to do business under very specific conditions, sometimes unwillingly, are transacting at. As price points shift, often there are very different buyers and sellers who come to market. In other words, if one sale is made at x, and no other sales are made, the price would be x, even if ten thousand transactions would have occurred if the price was y. In the long run, values are functions of aggregate incomes and demands of society, not prices.

3. The back story to the stock market. There is no back story or information that is causal to stock prices. In any given day the only invariable truth is that there were more buyers than sellers or more sellers than buyers. The only reason financial news bears any relationship to stock price fluctuations is that the buyers and sellers believe that such stories are related. This results in a massive and naively trusting game of signaling. So long as, the majority of positions all "agree" to weight the news equally, short term fluctuations can be reasonably explained. That said, it's not the news - it's the agreed upon norm of how to act on such news that moves the price. In the end, its the buying and selling that moves price.

4. The market is always right. The market is nearly never right. Over long, LONG, periods of time, the averages of the market tend to support logical results. On any given day, the market is as wrong as any individual. It could be argued the market is further from truth than any free thinking individual in the tendencies of market participants to stampede in and out of positions moving equilibriums past proper price levels at neck breaking speed. If the real value is five and the market spends ten years at 2 and the subsequent 10 years at 8, than on average it was right even if it never maintained that value.

Of course we could go on and on, but it is important to land the plane on the point of this obvious exercise in logic. Regardless of which issue we speak of, the solution to inefficiency, breakdowns, inequity, fallacy, losses and failures is the point of agreement in society. All of our actions impact our fellow countrymen and women. When we agree, momentum is created, whether it be positive or negative. A point of agreement is anything from a sale to an appraisal. The willingness to stay in an upside down mortgage to ensuring all have access to affordable health care. A decision to place a put or call option on natural resources one doesn't require to thinking for oneself. We are our brothers keeper whether we believe that or not. Our failure to properly conduct ourselves in a positive manner shall manifest itself in the our reality.

Energy prices, home values, loan qualifications, joblessness, health care costs, profits and losses are our decisions collectively. They are the fruit of our actions. It is collectivism, or a positive point of agreement, that creates abundance. Our world is a manifestation of our collective perspective. Gold is not edible, usable or valuable in its own right, only by collective recognition and agreement of its value does it become an inflation hedge or an international currency. Whether collection of our individual efforts results in disruption, decay and depression or prosperity, innovation and hope is all decided by the direction of us as a mass. The apex is thus the superseding values of our population to act in self interest without detracting from the progress of society as a whole and influencing our families, neighbors, friends and coworkers to abide as well.

When Did The Tie That Bind Us Break?

Often I wonder if the United States will be able to recover as the super power it once was. I wonder, Could we win World War II again? Could we withstand the odds of the Revolutionary War? Could we handle an oil embargo or an era of expansion like the Manifest Destiny under President Polk?

Such instances require unanimity and collectivism. We would have to rediscover what it meant to sacrifice for one another and to believe in each other as Americans. After 9-11, we underwent terrorism by our own citizens such as anthrax and the sniper killer. After the financial collapse of 2008, we cannot find enough unanimity to stop stealing from one another (ponzi schemes, corporate raiding, rampant voluntary foreclosures, ruthless lending tightening by banks (government bailed out banks mind you) and energy price speculating.) It seems for every challenge Americans scurry and mutilate one another.

Instead of becoming a nation of one, we polarize. Republicans side with Republicans and oppose anything Democrats suggest, and Democrats side with Democrats and oppose anything Republicans suggest. Regions divide and engage much like rival gangs. Age groups and ideologies harden in their positions.

While our Founders envisioned ideological debate, they could never have imagined such devastating polarization where either side would prefer the Country crumble than lose their position. It is a sad time in our history. Partisans justify even the most nonsensical notions to attempt to satisfy their own greed and self interest. I doubt the Americans of today would have starved in the snow at Valley Forge or had the resolve to take Iwo Jima. More likely the Americans of today would have quibbled, robbed the wounded and stolen the identities of the dead corpses.

Balancing the trade deficit, building a vibrant middle class, maintaining an overwhelming strength on the world forum in voice and respect, and fostering a nurturing Nation of peaceful compassion for our citizens are simple unalienable truths. Yet we cannot agree on these issues. Why is that? I'm not talking nuance, I am talking about things that should be so ingrained in the decency and fabric of Americans, that to resist them would be unnatural. The solution to our woes be it deficits, deflation, inflation, negative GDP growth or international threats is in recognizing what it is that ties us as one and working in unison for the betterment of the Country as whole wihtout regard for demographic, party affiliation or self.

Don't Buy the Hype, a Trade War is Exactly What We Need

In the short run, trade wars can cause some pain and some market shortages; but in the long run, one can argue that they strengthen those nations that are capable of self sustenance against those that are not.  While many correctly argue that the protectionism prolonged the Great Depression, protectionism also developed an unprecedented concept, the middle class, which allowed the United States to grow and thrive for over sixty years.  Thus, short term pain led to long term dominance including a dominating presence in the Second World War.

Simple math, GDP= G+C+I+(e-i).  The letters e and i represent imports and exports, and the difference of the two is defined as net exports.  If exports exceed imports an economy gets a boost from international trade, if imports exceed exports the number is negative thus creating a drag on the country's GDP.  Since positive GDP is desirable, one would surmise that countries prefer to have positive net trade.  While sarcasm is not my style, I find it literally implausible that any person who resides in a country with a net import could argue that trade on such terms is a positive for them (if they are capable of self sustenance, i.e. not lacking sufficient resources to maintain life). It's a drag the country's GDP and a threat to its national security.  After all, some of the worst threats to the economy of the United States has been the result of dependence on the import of foreign oil.

Now, I understand that a small number of elite finance, corporate multinationals and ultra wealthy would like to proliferate a belief that the United States should not protect itself in any manner when it comes to international trade. These arguments are based in self interest and selfishness.  They are not healthy arguments, and clearly not sound judgment for a country that aspires to be the world's super power.  That said, these voices are strong because they own the media sources, banks, and a number of our elected officials.  Regardless of their amplification, they are wrong.

Succinctly and logically put, saving per our purchases from cheap foreign labor is not worth having a country where middle class workers have no means to make a life for themselves.  

Now many argue unions are to blame for the lack of competitiveness in the American worker, and while there is much merit to this argument, it is collateral to the point.  I'm talking about keeping American dollars in America.  Currently, Asian and Middle Eastern Countries use our dollars to manipulate the values of their currencies so that they can continue to be net exporters to the United States.  With little to no importance on the global scale as consumers, the citizens of these countries suffer with their undervalued currency while their governments use the captured dollars for investment in stocks, bonds and commodities.  That's right, the countries themselves use our currency to corner markets, drive up commodity prices and control corporations.  

Americans thus suffer a self-inflicted punishment.  We need two incomes to raise a family and we lose the ability for upward mobility as globalization destroys our need for our own human capital.  It starts with manufacturing and soon it is service work, finance and engineering.  

The proper question is why suffer?  The elitist with no regard for our Nation say it "makes us stronger," but that's nonsense.  The reality is that we live in a country loaded with natural resources, the benefits of capital, and the massive infrastructure that reflects our wonderful experiment of capitalism.  We have it all.  

Unlike the Chinese, Japanese, Russians, Germans, Mexicans and Indians we don't need them to purchase our goods to survive.  We are the consumer and they are without recourse should we insist on fair terms of trade.  Any great leader knows that he or she has at their disposal the power and ability to dictate whatever terms they have the power to uphold and impose.  One for one (export for import), as Warren Buffet would declare, is within our reach by a simple declaration by the US that such a standard is the now necessary.  The United States has the strongest military and the power to enforce its will with little or no recourse.  Why allow the weak to become strong by eating our innards?  Why destroy our way of life while those of ambition and tactical advantage attempt to unseat us with our own weapons. 

 We need to wake up, and stop the leak.  We must remember a multinational corporation is not country, the United States is our Nation.  Further we must act now, while we still can enforce our will.  This disturbing trend could unseat our ability to dictate terms.  With every mutter of changing the dollar as the international currency, every balk at trade reform by net exporters, and every month of negative net exports we move closer to becoming irrelevant.

For a more in depth discussion on this topic please see: http://commoncentsdg.blogspot.com/2009/01/national-security-and-balancing-current.html

Not a Flat Tax, a Head Tax

Many agree that we could sufficiently reduce government spending if we could simplify our tax code.  Think of all the waste in having the gray suits at the IRS calculate and audit people's taxes.  In a collateral respect, think of the amount of money spent by individuals to comply with the complications of tax code in hiring professionals to maximize their yearly reporting.  It is literally waste generated by waste.

Many have suggested a flat tax.  A decided percentage, across the board, for every citizen regardless of socioeconomic status.  That said, the nature of the flat tax still discriminates.  That's right, it discriminates between those with income and those without.  If one has no income, they are tax exempt.

Why not then pass a system where all adult citizens are treated exactly the same?  A head tax.  In exchange, for services the citizens shall pay a pro-rata share of the yearly budget each year.  The bill will be shared by all so that we are incentivized to produce.  We are incentivized to produced because not just every incremental dollar, but every actual dollar, earned over and above the taxed amount shall be the citizen's to keep.  The Country would not tax minors since we aspire for a growing population, but all other citizens would share in the burden of government services provided.  The head tax would make our country the first to align the citizens with the dangerous current account and budget deficits by having them realized in the daily lives of its citizens.  

To ensure compliance, failing to meet one's pro-rata portion of the budget would lead to the same severe punishments as currently reserved for failing to pay income tax with one additional caveat, no access to courts, voting, or public welfare until repaid.  While this sounds harsh, one must remember the head tax would be very minimal compared to current tax levels as citizen's would not procure government services they didn't find "worth it."  Charitable minded citizens could choose or collectively raise money for the less privileged to meet their taxes each year so that those unable to pay are allowed continued access to government services.  The important part is that everything remains paid for, wars included.

Like splitting the check at the end of dinner the incentive to waste countless hours and money hiding income would be forgone for more productive uses of brain power.  We would allow employers to pay workers head tax; as well as, friends pay one another's taxes without penalty or additional taxes generated.  The point of a head tax is payment, not punishment.  If we lose jobs due to poor trade policies, natural disaster, poor family values or senseless profiteering abroad the consequences would come to roost in the form of shortfalls when citizens could not meet their obligations.  If we ask for more government services the consequences would quickly become apparent when the "bill" arrived.  A head tax would force the United States to put itself in a harmonious balance of work, capital, income, collectivism and Nationalism.  That'd be alright by me.

The Illusive Panacea of Meritocracy

Ever wonder why certain people hate Socialism? Probably not. Ever wonder why certain people hate capitalism? Probably not. Have you ever heard the complaint that those systems are unfair? Of course. Okay, so none of this is earth shattering, but there is a common thread that creates disdain? It is the idea of "deserving."

Since the time we were five years old our parents, teachers, storybooks, literary pieces, the movies we watched and our interactions with friends in the school yard all centered around "getting what one deserved." Why do we form lines? It's not because it is the best system for each person individually regardless of their place in the line, but it compliments a system of agreed upon fairness. We believe that first come, first served is fair. That those who are first shall be served first because their timeliness shall be rewarded. They deserve it.

We just as easily could have created a system where the tallest person in line shall always go first. The problem is that if someone is really short they could be waiting for a really long time. They could theoretically be helped after people that arrived much later than them but made the line before they were helped. That just wouldn't be fair would it? The tall people didn't do anything to deserve to be helped first. In fact a system like that would become hard to enforce as short people would be likely to opt out of lines all together and base who is served next on other criteria such as violence, intimidation or "cutsies."

In fact, allowing someone to benefit for something they had no control over would be deemed in the same family as dumb luck. That sure isn't a flattering statement. Luck is receiving something by chance, something one doesn't deserve. Undeserved achievement is so unflattering that one of its recipients may say "better lucky than good," or even more austencious "people create their own luck" to deflect the resulting stigma.

So we have been taught esoteric concepts such as karma, what goes around comes around and someday we all get what we deserve. Is it true? In socialism, their is a tremendous tendency for "free riderism," where individuals can get something they do not deserve. This absolutely burns many who feel like they are getting exactly what they deserve and nothing more. How dare someone get something they don't deserve? In fact, many people are so concerned with who deserves what, that they really don't care if they are getting more than they deserve so long as no one else is. That wouldn't be fair.

In capitalism, often times people condition wealth or monetary success with how deserving the person who possess it. Self made millionaires are far higher regarded than those who inherited money. Those with inherited wealth must "do something" to make a name for themselves or else they are seen as a waste. Smart people stay poor and dumb people rich all the time. While this is not a correlation that we see to be common, it is also not an isolated incident. We all sleep better when the good ones, who deserve it, have good things happen to them. Too bad that this system isn't as correlated as we expect?

Many of the wealthy are born wealthy. They are literally starting the game ahead in the score. Some get lucky and some unlucky. At times, good "deserving" people lose wealth, jobs and stature. At times, people of poor quality gain wealth and prosperity. The reason; capitalism doesn't judge, it rewards much like the polls for an election. When a person exchanges dollars for a good, service or opportunity it is given instead of that dollar being given to another for a good, service or opportunity. It's literally voting with money. It's democracy for commerce, the winner attracts the most dollars. As such, popularity, appearance, timing, feasibility, communicability, connections, access to markets, marketing, perception and momentum are usually the factors with the most magnetic effect with dollars.

Sometimes, that recipient is also a deserving person who worked hard, showed brilliance, was ambitious and withstood great obstacles to achieve. We love these stories because like being first in line, this person used what is generally available to all to succeed- they deserved it. Sometimes, the person got very lucky and was in the right place at the right time. Not bad, but we condition their success. Sometimes, the recipient didm't earn the money used, committed none of the brain power, and achieved on the back of others. Just like the tall people and the free riders, these people are scorned. The deserved, the lucky and the undeserving all get the same result in the accumulation of societal claim checks (or currency), but we don't have the same feeling.

That is why the meritocracy looks so great. In a meritocracy everyone gets exactly what one deserves. However, who is to decide what we deserve? How do we create such a system? What criteria would we use? I guess the root of our frustrations are easy to identify, but beyond our ability to rectify. The humerous part is how something so inherent in our nature is so difficult to attain.

The When, Where and Why of Government Involvement in Commerce

When Republicans are in power, the cry of the people is that the government is denying us our freedom and interfering by playing favorites. When the Democrats are in power, the cry of the people is that the government is denying us our freedom and interfering by playing favorites.  While neither party will constructively work  along side the party in power in fear that good government will lead to the reelection of their nemesis,  American citizens drown in rhetoric and double speak from both parties about what good government looks like. Regardless of one's political affiliation, this blog attempts to engage readers with the logical, not partisan, discussion of what is necessary government involvement in commerce.

First, let us start with an irrefutable fact of the order of operations.  Government is the first step in economic activity.  Government is necessary to provide at a bare minimum: property rights, police protection, infrastructure and recognized mediums of exchange, or currency.  Yes, I am aware that many anti-establishment Locke Liberals and libertarians would argue against the last two, but in our current developed state these two are enough established to be considered necessities of commerce (i.e. roads, electricity, water, etc.)  They are essential because without any of them, commerce would subside as a matter of natural progression from its current state. 

What levels of commerce would we have if one could take property from another by force?  If there were no roads?  If the electricity was not delivered? If agreements were not binding or valid? If we had to barter with goods to make a purchase?  Certainly not an economy the size, strength and complexity as ours.  Whether it is good or bad, it's where we are at. 

So, the right question is not where government involvement should or should not be, but rather how far should government go?   In a credit based economy, like ours, the government speaks for and develops the value of the assets in our economy (i.e. the government borrows notes from the Federal Reserve, or dollars, at a rate if interest in exchange for true "dollars" that the Fed holds as collateral along with all assets held within the Country).  Oh by the way, for those of you conspiracy theorists, the same is done by many States with Motor Vehicles ( A state takes a manufacturers' "statement of origin" from the maker of the vehicle and in exchange delivers a "title," or license for use, and the ability of that vehicle to be used within that State through the process of registration.  As a result, that State then issues a Driver's License so that it has jurisdiction over the driving patterns of the user thereby controlling the licensee, or "owner," to use that " registered motor vehicle" on their publicly owned streets and highways.  But I digress.

The simple answer is that the proper role of government in commerce is the amount necessary for commerce to "work."  By work, I mean that citizens can effectively participate in the money multiplier and achieve, or reasonably believe that they can achieve, their personal goals and happiness.  This ability, or  at a minimum the belief in this ability, allows the society to function in a peaceful manner as its citizens have an outlet to achieve there desires, or work.  After all, and I recognize people who quote the Declaration of Independence as an authoritative document are annoying, the point of America is the right to "Life, Liberty and Pursuit of Happiness," right.  The key is for people to have the freedom of the pursuit, that's right THE PURSUIT, of happiness.

In closing, I recognize that the Declaration of Independence is not authoritative in nature.  That said it carries persuasive authority into the intent of our Founders.  Government's role in commerce is the creation and maintenance of channels for commerce so that Citizens can access and thrive in that system.  The government is there to provide and maintain the artery, so that the heart, or private commerce, can pump blood and that blood can freely flow without blockage or interference.  The artery must be maintained though, to maintain its shape so that blood doesn't spurt every where thereby killing the body; as well as, ensuring clear passage.  Further, the artery is to be for the benefit of one's own body.  Should the artery be ruptured, by outside attack or internal disruption, its integrity must be put back in tact to ensure survival of the being.  That said, at no time shall the artery be altered outside its purpose of a conduit and shall never alter the course of which platelets cross its path.  

Now that it is defined in theory, I let you decide the application of this framework in practice.  

It's Over When "They" Say It's Over

The current depression is over as soon as the financial institutions decide it's over.  In a credit based economy where banks decide how many employees a business has, how much our homes are worth, how much inventory a business can stock, whether one can buy a car, attend college, open a business, create IPOs, complete mergers and acquisitions, the current misery is over when those lending institutions say it is.

If a bank owns 8% of the homes on a street, holds the mortgage on another 12% of the mortgages, maintains the deposits of 15% of those homeowners and is one of the few options that an interested purchaser has to buy a home currently for sale on that street, what decision are the citizens really making?  If that bank is willing to loan $300k to the prospective buyer to purchase a home, than the value of their bank owned homes are $300k and the "home-owners" with mortgages with that bank may be offered an equity line on that home if they owe less than $300k.  If one of those "home owners" owed $150k, they could take a loan against their home for $150k and start a business, invest in stocks or purchase goods, services or additional assets.

Until the stumbling incoherence financial institutions consider to be reliable computer based risk models are scrapped for the favor of common sense and rational human judgement, these banks will continue to wound themselves and have the citizens as a whole suffer.  If any intelligent person owned a home and was in the business of loaning money, that person would loan as much as a willing and credit worthy buyer could reasonably afford to pay.  Loan to value would be without regard, as payment to income would be the "trump card."  This would certainly be the case if that same person had more homes for sale and currently had balances owed to them against homes purchased from them as the values of those assets would appreciate.  In essence, a home's value is substantiated by the incomes of the people who wish to purchase them.   

 

Sound simple?  Well it's not for massively inefficient corporations, or as I like to call them governments of shareholders. Common sense and rational judgement are just the types of intangible variables that will get a person fired.  Follow the model is the cry of executives, upper middle management, middle management, branch managers and credit analysts (glorified bank tellers) alike.  After all, the model is quantifiable and predictable.  Follow the model or find new employment.  Never mind that the model rewards loaning as values appreciate creating inflated valuations that will invariably correct in a massive fashion every one to two decades when lending institutions decide that they no longer wish to outrun losses. Never mind that the model shall exacerbate the correction by magnifying price declines as the model reduces loan to value requirements in a race against price declines creating a fury of crashing prices.  Never mind that this article is exactly on point and almost all loan officers and credit analysts could not refute it with candor.  

Follow the model, follow the model- least we be without the ability to make a decision or decide on what criteria to lend.   Thank goodness that when these banking models fail again, and they will, we will have the only organization less efficient than large corporations, the Federal Government, to rebuild them and remind them through massive tax payer waste and societal loss of wealth that they are the sole solution to their self created problem.  

A Waste is a Waste: Straight Talk on Health Care

Arguments about health care are quite contrived as the true victims, the citizens, are but a pawn in this epic power struggle.  Private health care is broken and without salvation.  Big business, drug companies, HMO patient mills, unscrupulous doctors, greedy trial attorneys, weak willed patients, profiteers, government regulation, associations and insurance companies so big only the supernatural could deter them have proven that purely acting in self-interest is not the solution to the health of an entire nation.  Government care is not the answer.  Insurance companies are not the answer.   Best medical practices and forced procedures based on limiting liability make health care a one size fits all solution, that fits few and satisfies even less.  

Our incentive structure awards drug dealing, surgery, and treatment.  Prevention is a profit killer.  The sicker we as a nation get, the better the doctors, drug companies and suppliers get paid.  That said, the insurance business is so cash strapped due to high competition and failure of the healthy,  the tough and those who cannot afford insurance to insure, that denying legitimate claims is a best practice to remain solvent.  

If markets work, why does this one not?  It doesn't work because the interests of the parties are not transparently aligned with respect to one another to create efficient equilibriums.  For instance, auto insurance works because there is no party that "wants" to get into an accident.  In medicine, the patients wants to be healthy, the insurance company wants the patient healthy, the doctor profits more as a patient's health negatively progresses, but the suppliers and drug companies only are rewarded when a patient is sick.  Now, once someone actually becomes sick, the patient benefits from the best care, the doctor profits from the most severe procedure, the insurance company benefits from the least expensive fix possible ( with "no fix" being the most beneficial) and the drug company only benefits with  a drug induced treatment. 

 As a result no solution can be derived in addressing the individual participants.  The solution must result from creating strategies and tactics that result from consistent adherence to a common goal.

Here is the goal of our Nation's health care: a healthy population, who has the opportunity to eat preservative-free and unaltered foods, drink clean water, breathe clean air, who exercises and takes care of themselves and rarely reaches a level of sickness where a doctor is necessary.   

Our goal is broad, sweeping and unapologetically in stone.  All strategies and tactics that serve to fill our goal shall address the smaller issues underneath our goal, but never contradict our goal.  Now that we have a goal we ALL can agree on, let us write our strategies to reach that goal and fill in those strategies with our tactics.  Simple stuff when you remove ideology and special interests, huh?  

Oil above $70? Making sense of the nonsense

High unemployment, excess supply and reduced demand for oil, gas and all the byproducts would lead one to believe oil must be around $35/barrel right?

Actually, oil prices have risen over 70% this year without a gasp or pull-back. Sound strange? Sound manipulated? Who is to blame?

Instead of placing blame or using the proverbial bazooka to kill a fly, a simple rule change could bring a market based solution to the inability of the oil trade to align itself with the "true" market for oil, gas, and all the byproducts. If one doesn't believe me that the current market for oil doesn't reflect true economics simply read the stories perpetuated about why prices have increased. "The economy is showing signs of recovery," "Concerns over policies in the middle east geared to reduce supply," "Dollar weakness," are all nonsensical parodies to deflect a reasonable person from understanding the true nature of these remarks.

Such remarks are signals between the world of speculators, traders and market manipulators to validate why prices change. This is not signaling in the sinister sense of the word, at least I hope not, but rather agreed upon inferences about price increases. Since these stories tend to be correlated to price increases, traders, speculators and market manipulators perpetuate that reality by buying in unison making them de facto causal. The only causal connection between any of these "stories" is that the purchasers of oil futures contracts understand them to mean something. It's literally "Morris Code" for the market.

The stories aren't "causing" anything, the traders, speculators and market manipulators are causing the change. The world has more oil than it can process on ships currently anchored at sea, demand is nearly nonexistent, except it may possibly be shrinking, and the economy has made no significant change. Also, the dollar has little to no impact on the price of oil in a "true" sense as in the last oil crisis of 2008 oil had appreciated against the Euro by 245% that same year. Like the other stories, the dollar rationale exists because the market participants make it exist (either by electronically linking oil and dollars inversely or in some other similar transaction)

The simple fact is: The price of oil increases when more individuals or entities purchase the futures contract for that commodity than individuals and entities that sold it. That's the only, absolute only, 100% factual conclusion one can scientifically deduce from an increase in the price of oil. The stories are fuel to the fire and are collateral to the scientific proof.

MARKET BASED SOLUTION:

If you buy it, you own it.

The oil market is a small market comparatively to the NYSE or NASDAQ in total capitalization. In fact, it is so small that many publicly traded companies have a larger market capitalization than the oil market. As such, it is a breeding ground for speculators, traders, and market manipulators, as well as, investors as they can effectively move the price. Also, the oil market, like all commodity markets, is different from other financial markets because it contains users, or individuals and entities that need it for a business input or consumption. More specifically, because oil is a necessity for sustaining life as we know it, it is quite inelastic in price (at least its most fundamental volumes) and thereby users are further pigeon holed. The combination of these facets creates a dangerous situation where disinterested parties can hold prices hostage because they know the users must purchase and the market is restrictively small.

Users would like to buy oil for as cheaply as possible, and then be able to buy it again and over again as cheaply as possible. Sellers of oil would like to sell it for as much as possible and then be able to sell it again and over again for as much as possible. BUT, speculators, market manipulators and traders want to do both and within the same offering. In other words, nonuser purchasers, or nonusers, will buy or sell oil on credit for a fraction of the closing price to enter and exit their position before the offering for a future contract closes. They are able to enter the market on terms that allow them to bid prices up with no obligation to buy and a very small, five percent (5%) of their total commitment, amount of capital at risk. The issue is that users have to buy a certain quantity regardless and have additional costs to factor, while nonusers act without recourse, restriction or quota.

The fix is to require nonuser purchasers of oil to incur the same costs of transportation, holding, warehousing etc. as users, to create a true market. A bid to purchase oil should include a duty to receive that oil, and hold that barrel of oil for a minimum of 45 days prior to that purchaser being given the lawful right to resell that barrel. Further, as oil is a necessity for the benefit of human kind, stored oil by both users and nonusers shall be callable by a any bona fide end user at the current market rate, but not to exceed the price paid by the holder plus an increase of Libor, in the case of a shortage. This second criteria ensures that users and nonusers alike do not starve the market by hoarding oil.

This concise framework would allow a true market to exist without barring the liquidity that investors offer. Don't buy it, unless you are willing to accept delivery and pay in full. Let users and sellers find an equilibrium based on market facts (consumption, demand, and supply), instead of signaling between non users and supply and demand for contracts. Finally, let prices reflect reality. This policy has a use it or lose it flavor, while encouraging those who have no business buying oil (hedge funds, retirees, college endowments) to put their capital to use in a productive, rather than destructive investment.

Bringing California into Equilibrium

While California's elected officials debate a massive tax increase and spending caps in Sacramento on the Proposition 1a-f measures, neither party is happy with the course of action proposed. This blog was sent to every elected official in the State upon the first round of proposed tax hikes under the headline "Fixing California is easy, Fixing Sacramento is Not," and without fail not a single response. While the legislators are free to ignore reason, the fact that a new budget shortfall exists, even after they increased sales, car and income taxes earlier this year, was predicted in this blog and those emails almost exactly. The legislators of the State of California must learn to embrace the reality that they don't have a tax problem, they have a revenue problem. Now, one may argue, "but doesn't taxes lead to greater revenue?" The answer is yes and no. If nothing else is certain, taxes never earn a dollar for dollar increase in revenue to the State. Behavior is changed, psychological aversion is built, and distrust of government is spawned-none of which is healthy for an economy.

Raising Revenue

Raising revenue is not as simple of a concept as the majority of people think. In fact, many politicians believe that increasing taxes will increase revenue to the State. While this seems intuitive, it is not reality. In fact, such a belief is the equivalent of suggesting a business raise prices to increase its revenue. The reality is that life isn't that simple. According to proven economic principles, raising taxes beyond a certain point, just as a business raising prices beyond a certain level, actually has an inverse effect on revenue as people no longer have the ability or the apatite to pay such taxes or prices. Therefore, there are certain scenarios where actually lowering taxes will lead to greater revenue realized.

This economic certainty, as developed by Arthur Laffer and proved by successful U.S. policy in the 1960s and early 1980s, is unchallenged in theory by any economist despite its critics disputing where the maximum revenue point is in relation to tax rate. In essence, Laffer surmised that the amount of revenue the government collects is a function of the tax rate. In building his model, named the Laffer Curve, Arthur Laffer concluded that a State can raise revenue by raising taxes only to a certain point, at which, any further increase in taxes will actually lead to a fall in total revenue. As a result, there is a point between a tax rate of 0% and 100% where a given tax rate equates to maximum revenue. The debate has always ensued as to where that point actually exists.

While I would argue that the tax rate to generate maximum revenue actually moves depending on the psychology of the market and the position of the economy in the business cycle, few would disagree that temporary identifiable reduction in the price of any good, will cause an increase in sales if the public believes that price reduction is both significant and temporary. If one will indulge that taxes, such as sales tax, are a function of the price paid for goods, then why wouldn't a temporary reduction in sales tax lead to greater sales and more total tax dollars collected?

Especially and more so than before, a reduction in the sales tax would provide the short term boost necessary to carry the 2009 State expenditures until some point in the future when more normalcy exists in the market place. In fact, right now, the legislators want to raise down the road taxes to borrow against today to fund the shortfall that raising taxes didn't cover! With greater sales, the State would receive more total revenue dollars and greater income tax as businesses would encounter more revenue. This doubling of total tax revenue would be substantially greater than an increase in that tax which will discourage spending and dilute the effect of the raised tax. For a perfect example one should research the massive improvement in sales for emergency preparedness in Florida during that State's "sales tax holidays" throughout any given year.

As a result, the first prong to the solution to the budget in the short run is to identify a fixed window, maybe seven months, where purchasers will pay a reduction in sales tax of 1.5%. If this is advertised as significant and is promised as temporary, sales tax total revenue will increase. This principle is tried and true, just ask any retailer about increased revenue during an effective sale. The State also will enjoy the secondary effect of higher employment, and greater income tax revenue during this period.

Spending

While it is true some spending cuts should be made to balance the budget, the State should not cut its nose off despite its face. Spending that is directly converted into income for an individual is the worst place for the State to cut. Why? First, the worker pays taxes on those wages. Second, the worker spends those wages leading to sales tax receipts to the State. Finally, the purchases that those workers make, as a result of the government spending to them in the form of wages, leads to revenues in the general economy that leads to profits, that are taxed, and job creation, that also generate tax. In essence, don't cut spending that leads to revenue.

The State must cut spending that is least effectively turned into personal consumption, at least in the short run. Therefore, immediately the State should forgo any spending that is material intensive. A majority of such spending will be lost in commodity costs rather than spent into the economy with a multiplier. Next, the State in the short run should not expend energy, or spending, on any type of regulation, environmental or otherwise, that inhibits job creation, business creation, and economic growth. The State can always reinstall such efforts when its citizens are in a healthier situation. After all, anyone who states that a two year hiatus from cumbersome State regulation will have a significant effect on the landscape of the State in the long run is simple and short sighted.

Conclusion
There it is, a concise framework for a healthy budget in the short run. This fix will buy legislators time to build a long term sustainable path to prosperity in the State. In the long run, I believe that a strong emphasis should be on revenue creation through economic development and building an attractive landscape of low corporate tax rates and simplified State regulation to attract and maintain employers, manufacturers and business innovation. As the State already has a competitive advantage in living standards, weather and natural beauty, a favorable business environment would create a sustainable and growing tax base.

The funny thing is that the short run fix to the budget imbalance is contrary to the beliefs of both parties, Democrats to increase taxes and Republicans to hatchet spending. I am sure that it is no surprise to the citizens that the political parties have improperly framed the arguments of how to resolve the budget crisis, after all they stopped representing citizens in favor of well funded special interests many years ago. That said if we can accomplish the difficult part, convincing the elected officials to act in compliance with proven and established proofs of economics, a solution is literally before us.

Common Cents: National Security and Balancing the Current Account Deficit

Common Cents: National Security and Balancing the Current Account Deficit

Realizing the Economic Cost of Losing Common Thought

Many can recall a time in the United States when an American could count on his fellow citizen to look out for what was right. Americans left their doors open, shared, belonged to a neighborhood and looked after one another's children. Americans went to Church and bought war bonds. For simplicity sake, Americans took responsibility for themselves, their family and their community. They acted in a manner that was not only beneficial individually, but also for the benefit of the common good of each other and the Nation as a whole. There was a definition of what it meant to be American.

Environmentalists argue that a Nation must force a company that pollutes to pay for its down stream effects, or the costs bore by the population in dealing with such pollution. While I can't say that I agree completely with this theory when we are discussing environmental issues, it is an interesting framework when conceptualizing our short falls as a Nation.

While I believe Americans, whether Democrat, Republican or Independent legitimately would prefer less government, they believe, albeit in different respects, government is necessary to fill the gaps. Government has grown progressively under every party's government over the last thirty years, yet our problems seem to be greater than ever. Why?

I would suggest it is our failure to take responsibility as a whole that has created the shortfall. Our decision to legislate the problems away have created resentment and hostility towards such legislation. As the intervening third party, the government, becomes the arbitrator and enforcer of disputes. It is this third party validation or disapproval that creates entitlement and angst among Americans who feel like "right" is being jammed upon them. That said, the argument for whether government should enforce these social shortfalls is not productive in addressing the true issue, which is of substance over procedure.

When Americans fail to buy American they harm Americans by undermining the working class of America. When Americans cannot sustain meaningful work because they compete with currency manipulated government subsidized slave labor from abroad. Two incomes become necessary to manage an American household. With no parent at home, schools are burdened with the costs of teaching children how to be adults as well as math and science. The cost of education increases because schools are dealing with under prepared children who need to be taught things that are not meant to be taught on the tax payers dime. Taxes get raised to subsidize the lack of parenting, and families get squeezed even further creating resent. That resent is communicated to the children in the form of teaching them to be tough and to look out for themselves least they be left in the situation of their parents. The children serve no master, but themselves, and are without a sense of right and wrong. Church is cast aside, and the race to compete for the now creates an aggressive environment where fellow countrymen are willing to tear each other limb from limb to pacify their desires for earthly pleasures. What can you make of this rant?

Action of pure self interest without consideration for its "down stream effect" shall carry certain unintended consequences over time. While I am not suggesting that Americans legislate the International 4-Point Test of Rotarians; and in fact, I suggest legislation shall not solve a bit of these ills, I will say that failure to change our actions shall invariably lead to greater social costs and greater regulation. Not allowed to censure the profane, no prayer in school, uninterested in a solution for the sick and the meek, not willing to tithe 10% of one's income, disallowing a neighbor to discipline one's children, no greater sense of right and wrong, forging income on a home loan, selling irresponsibly, buying irresponsibly and forgetting that Americans are responsible to maintain the health of our whole economy are just a few of the items on the table in this discussion.

Serving the dollar as thy master without consequence ensures that no individual shall enjoy financial security in the long run. Similar to the old adage, "live by the sword, die by the sword," live selfishly and thy shall receive the same in kind. There is plenty of room for profit, morality, patriotism and an obligation to act in a manner which is best for all involved. The cry that these concepts are mutually exclusive is lazy, and the underlying belief that "right" depends on one's perspective is untrue and sarcastic.

In closing, saving $2 on a tee shirt or $45 on a laptop through the purchasing of imports is not worth creating an economy where no one has enough money to purchase anything from you in return. The downstream effects of acting without consideration is the desecration of a community. Just as one can shear the wool from a sheep for his or her lifetime, he or she can only kill it once. Be good to Americans, so they can be good to you- Lord knows you shouldn't need the government to tell you to provide for one another.

The Conversation We Need to Have

Wage disparity, the slimming of the American middle class, the strengthening of the multinational corporation and the record breaking bonuses of CEOs are all occurring simultaneously in the United States. The threat of wealth redistribution and government intervention are topics that have become common place. Divergence in the media where Americans can choose their slant by switching the channel, but never get a straight answer is all that is available. Finally, a growing majority of America's youth who believe they shall not be able to achieve the socioeconomic status of their parents is significant.

How did this Country who banned together to win: two world wars, a four decade cold war for global supremacy, and the race to the moon become so demoralized? Where did the tough- nosed honest gumption of this population go? It wasn't long ago when an experiment comprised of an enmeshment of immigrants found a common purpose in the burgeoning of an industrial revolution and understood that together they could conquer any challenge. It was against this backdrop Henry Ford declared he "paid his workers well so they could afford to buy one of his cars." Every neighborhood was adorned by a corner market where a family could make a living serving their block as a local grocer. These were the days when doctors would make a house call, and one paid the bill with what he or she had in his or her wallet. Americans left their doors unlocked and finding work was attainable for those who were willing to work.

In these golden days, buying local and buying American was the standard, and foreign labor and outsiders were viewed with skepticism. These Americans believed in honesty, family and Country. This was the era where the boy with a work ethic and a dream could move from the mail room of a company to becoming the CEO. People believed that hard work would lead to upward mobility in society. In these days, bankers let borrowers meet with them face to face, a worker knew the owner, and neighborhoods policed themselves.

America today is in transition. The ghosts of Marx and Schumpeter look over us with parsed lips and a wry smile in a gesture of "told you so." Prices and wages diverged throughout the 2000s culminating in a freezing of the credit markets. In the simplest description, trust between the classes seized in a long coming day of reckoning. If one acknowledges that credit is a bridge extended to someone in need of more money by someone, or some entity, that possesses it, than it becomes obvious why the credit markets seized. Those "without" no longer could afford their current course of consumption. Credit was extended to supplement this shortage, but soon, those "without" could no longer afford to service the necessary debt. Frankly speaking, the wages had fallen far too short of the prices of society. The culmination was $4.50/gallon gasoline and median home prices of $300,000 on an average household income with two working parents of under $45,000/year.

Now it is commonly acknowledged as fact that globalization caused the wage deflation, or at a minimum wage stagnation, in the United States (Thomas Friedman, The World is Flat, Alan Greenspan, The Age of Turbulence, Common Cents, The Current Account Deficit and National Security). American companies became part of the "multinational" corporate model where labor was sought in an environment where a competitive advantage existed regardless of nationality. United States labor laws, environmental regulations, labor unions, and high corporate taxation cemented this outsourcing of labor. In addition, failure to enforce Anti-Trust laws allowed Corporations to reach a size that eliminated competition. An example is Walmart, who breaches contract law with suppliers, drives down wages by forcing competitors to close and subsidizes its low costs by paying wages so low that the workers are encouraged to accept Federal and State welfare for health care instead of the Company's group policy. Most intelligent business people refuse to supply, build or service companies of this size because such Goliaths slow pay and renegotiate contracts as a business practice and ultimately drive their business partners into insolvency.

So after all of the above, what conversation needs to take place? A one on one conversation, nationally televised without commercial, commentary or spin between an American CEO and an American worker. No government, no labor union, no chamber of commerce and no company delegates permitted. Like the doctor on a house call when it was time to settle the bill, business leader and worker need to see one another from a perspective of humanity. Just two brothers of Country, who have avoided one another, speaking only through third parties, for a significant period of time and act with malice despite forgetting how their relationship became so strained. The American worker needs to know what they can do to earn the trust of the American upper class. The American upper class needs to understand that regardless of why they have betrayed the trust of their Country when they chose to export the dignity of work overseas, they will be stronger once such a trend is reversed.

In having this conversation their should be no third party interference, as just in a sibling rivalry, such interference shall cause resentment and defensiveness on the party who feels outnumbered. The wealthy need to soften in resolve with the real needs of the worker and the worker needs to understand and respect the pressure facing the business. Picture it. Two people, who have grown to dislike one another and have refused to directly communicate for decades, locked in a room until they come to a mutually agreeable solution. A solution to bring the United States back into alignment. No longer should the youth be conditioned with a fear of being outsourced by fellow countrymen. No longer should the wealthy feel that those without are spoiled and not willing to work and earn their way to a point of financial security.

My suggestion is metaphorical, symbolic and allegorical; but, drives at the core of our current crisis of credit, unemployment, confidence and patriotism. There has been far too much taking in our culture and entirely too little giving. Giving of employment, giving of opportunity, giving of self and giving of dignity. Government cannot solve our situation without the agreement of those who are able to give these things. The cry of the wealthy that "if the government is to redistribute wealth they shall denounce their Country and take their capital and toys elsewhere" is understandable. Forcing a party to act never ends amicably. The cry of the working class of unfairness is counterproductive, for we need no further sleuthing for problems. We need a solution. A dialogue of how these parties can best participate together.

After all, their existence within the borders of this Country is symbiotic. The worker needs the wealthy for wages, the middle class needs the worker for advancement and the wealthy needs the middle class for sustenance of their situation.

PROBLEM SOLVED!!!!!

Just a quick note.  Have you ever wondered what happened to the old fashioned problem solving nature of the American public?  The attitude that no mountain was too high and no valley to low.  The resolve that made our country eternally optimistic and willing to believe in the motto: "Work hard and you shall be rewarded."

When was the last time the media dared to declare a problem was solved?  What would you do if the evening news began with a story with the headline "PROBLEM SOLVED!"  Is it possible?  Have the passed thirty years, thirty months, thirty days and thirty minutes been without any success?  Have we turned into whining, snivling, problem finders or are we still ingenuitive problem solvers?

I suggest Americans are worthy of more credit than the media would ever be willing to give them.  Moreover, I believe if one is only looking for problems, that's all they shall find.  That said, the mindless twenty-four hour reporting of actual and potential problems seems counter productive.  In fact, this endless search to uncover problems is even less productive than the endless stream of "news analysts" that are paraded in front of the general public to interpret the facts.  This behavior is literally story telling for adults and permission to create facts out of conjecture.  

Funny as this sounds, CNN created a word cloud to illuminate on the President's speech last week.  Love President Obama or hate him, he is direct, clear and unambiguous when he speaks.  There is no need to interpret.  That said, assuming news sources needed to fill empty time by rewording the speech, a contemporary illustration made up of all the words used in the speech with the words used most frequently appearing in the largest font is simply silly.  The analysts dissecting the word cloud to find the greatest sense of meaning was even more outlandish. Is this productive?  Is it genuine? What happened to simply listening to the source to figure out what they meant? 

With the news transitioning from informative to entertaining, it dangerously borders on being purposely misleading.  The largest worry is that many Americans believe news sources are bound by certain protocols to report facts.  The media has wandered astray and with it so has the focus of America.  The news has created fear in every man, woman and child in a torrent of problems.  They have changed the lending practices of banks and the willingness of people to invest by the constant bombarding of negativity and their endless search for troubling data, potential problems, and what ifs.  While the media is free to write and broadcast as they wish, a greater sense of common good and Country demands the reporting of our numerous achievements in at least equal frequency to our shortcomings.  After all, wasn't America a better place when Mickey Mantle was a hero and  American companies were the envy of the world?

The Healthcare Tax

There is so much argument surrounding health care and the future of the health care system in the United States that it is a difficult venture to take a stance.  Those for a capitalistic health care system argue that government involvement would stifle creation of alternative and new medicines as well as limit care among other things.  Those in favor of a government provided basic health care system argue that it is immoral to deny health care to any person and that the corresponding standardization of the industry will lead to better overall care.  One thing both sides can agree on is that the current system is dysfunctional and inefficient.

Assuming, the American is not a teacher, police officer, politician, in the military or a public servant who receives tax payor sponsored health care as a function of employment, the following is a depiction of the current system at work.  

Since the health care system in the United States is neither capitalistic nor universal, both sides are provided the luxury of blaming the other for the atrocious care available at a premium price.  If one is not poor enough to qualify for government health care, he or she is faced with bills for care that are unaffordable.  It is not uncommon for medical billings to include $25/Tylenol charges and $7,000 diagnostic surgeries (such as a biopsy).  Hospitals, Urgent Care Facilities, and private practices claim they are on the brink of insolvency and must charge exorbitant amounts to cover the costs of the uninsured who cannot afford medical attention. 

The current alternative for Americans is to purchase insurance at levels upwards of 15-20% of their take home pay monthly with $2500-$3000 yearly deductibles on co-pays and hospital bills with most preventative care excluded from coverage.  For families, the cost of an average HMO policy is over $500/month with a responsibility to pay up to $5000/year on deductibles before reaching an 80% coverage.  Year after year, the costs to remain insured rise. As those costs rise, the numbers of uninsured rise and system becomes more strained.  In fact, many Americans who are the most sick are denied coverage and deemed uninsurable forcing them to either attempt to deceive the system by lying on applications for coverage or becoming a ward of the health care system flooding the emergency rooms of hospitals.

For the trained economist, the resulting scenario is quite clearly an agency problem.  Much like in the scenario of public broadcasting, many take advantage of benefits for free, or "free-riding," while those who choose to pay cover the total costs.  In other words, an incentive to cheat exists as people recognize that by not insuring themselves they can still receive care.  At a minimum those uninsured settle their medical bills for far less money than what insureds pay, or avoid paying medical bills at all by bankruptcy protection or collection settlements.  As more people cheat, whether by choice or by necessity, the costs  to those who choose to insure grow exponentially as the medical industry charges higher costs to compensate for those whom they treat without compensation.  

Some Americans further believe that illegal immigrants also take a toll on the hospitals as they pay no taxes and carry no insurance.  While an identifiable target, 50% of American citizens pay no taxes and carry no insurance, so such points are taken, but not overwhelming.

The system can be summarized by "the few, or the insured, carrying the many, the 'un' and/or the under insured."  If one thinks about it, doesn't this sound familiar?  Ah yes, it resembles the American tax structure.  In fact, most insureds have health insurance costs taken directly out of their paycheck like taxes and the charges are taken out prior to State and Federal Taxes.  Further, the majority of the premiums and co-pays paid by the insured is not for the sole benefit of the insured, but rather for the benefit of the system as a whole.  Hmmmmmmmm, a payment directly taken out of a citizen's gross pay for the sustenance of  a common good or service. Yep, it's a tax, no doubt about it.

The biggest problem with this tax is that every year more people opt out of paying it, causing the tax to increase on those left who can actually afford it.  Worse yet, this tax has a massive profit margin built in for its "government," the Providers and Groups, who have an incentive to deny or reduce care to those who pay them to increase profits.  The collateral damage is directly focused on the hospitals who suffer to the point of insolvency as the growing class of uninsureds pile into emergency rooms that cannot turn them away.

While I shall not provide my reader with the solution because I believe solving this problem is quite simple and the solutions are plentiful once the issue is properly clarified, I urge the reader to weigh the following facts.  In the United States, many citizens don't see a doctor for preventative or procedural care due to costs.  Most citizens, won't even consider seeing a medical professional when sick.  Only when a health problem reaches a significant level of severity will the average American seek any medical care.  When a medical problem has reached the level of severity deemed appropriate by the average American to seek medical care, the treatment necessary is usually far more costly than it would have been at an earlier stage. 

Over thirty percent of health care costs and efforts are administrative fees associated with collecting and tracking payment from insurers and the government.  The United States is not even in the top ten in health, but it ranks number one in health care costs.  Health care costs are causing businesses to shutter and our competitive advantage in the world  to erode.  Finally medical bills cause more bankruptcies to our battered consumer than any other cause.

In closing, please consider that a dollar spent on health care has a worse multiplier effect than a dollar sent to the public sector in the form of taxes.  If a dollar spent at a local retailer shall lead to 8 dollars spent before that dollar is completely spent, health care, like taxes hovers in the low 3s as a multiplier because of all its sunk costs.  Once we as Americans admit that those paying for health insurance are simply paying a tax and that dollars spent on health care (like taxes) are less beneficial than other types of spending, we have begun down the path to a solution that benefits all.  Whether we eliminate insurance altogether in a purely capitalist structure forcing medical providers to charge fees in line with society's ability to pay, or induce a standardization of costs for the industry (i.e. 5 cents for a Tylenol, 10 cents for a bandage etc.), or create a single pay medical provider to eliminate the billing waste- the solutions are endless.  While some are more meritorious than others, the system chosen at a very minimum should force medical providers to focus on preventing serious illness as a manner to reduce costs and provide better care; as well as, protect the sanctity of life for all as priorities.  

One last thing, the argument that doctors and pharmaceutical innovators will leave the United States should a capitalist, standardized or a universal payor solution lead to lower pay for such persons is without substance. Where are they really going to go to find a higher wage than the United States?  Oh that's right, there is no where.

Public Private Partnerships: The future of the "free" market

Love them, hate them or have no idea what they are, Public Private Partnerships (PPPs) are the future. Born out of the substantial public good derived from thriving private industries in a community, city, state or country, PPPs have become essential to the sustenance of business and a goal for governments of all levels.

A PPP is the co-sponsoring of an asset, industry, building or infrastructure by a government, whether municipal, state or nation, and one or more private partners. Usually funded through a SPV, the public are awarded an equity share or some benefit for their subsidization of business. The end result is private growth and profit at substantially less cost and risk to the private entity and an increase in aggregate benefit, whether through increased tax increment, jobs, social well being or infrastructure to the public.

Municipalities

After encountering the benefit a city enjoys when industry comes to town through increased

tax receipts , greater population growth and a general increase in the standard of living of its resiedents municipalities became aggressive in competing for businesses. To grow their tax base, curbs, gutters, streets and incentives were funded by the cities for businesses. The reduction in sunk, or upfront made taken a chance on less established areas a less risky propositon. When those chances paid off, the result was a business incredibly formidable as it bore no carried costs of establishing itself. The game that ensued was one where businesses literally shopped incentives and costs of each municipaluty against the other to gain a competitive advantage.

In California, the battle became so fierce that the State Legislatues enacted a law prohibiting cities from stealing existing sales tax producing businesses from other municipalities within the State. The penalty was forfeiture of all bounty received from the relocated business back to the orignial city for a period of ten years.

While the new law stopped the spend to get, spend to keep and spend to maintain cities were forced to endure, the drive to incentivize was refocused on new businesses. Thus, the war rages on between revnue starved cities. All municipalities must follow suit if they want to keep their businesses viable. After all, modern business market participants must seize every advantage to merely survive.

While some may find outrage in the public sector becoming involved in the private market place, the reality is that those aggressive municipalities enjoy greater population growth, higher standards of living for residents and enhanced tax receipts. The benefits gained from incentives, makes such municipalities even stronger in the competition to lure businesses as they have more money to flaunt. A secondary public incentive market has thereby been created where the strong municipalities become stronger and the weak become weaker. A state of nature of sorts for the public sector. Those cities unwilling to participate with public money shall be without either public money nor private business (see city of San Bernardino and there decision to allow an auto mall and a shopping mall fail).

STATES

The same principle rings true for states. A perfect example is how the State of Arizona and the State of Michigan have literally removed billions of dollars from the State of California.

The State of Arizona formed an entire economic development campaign centered around picking businesses out of the high tax and highly regulated business environment of California. Arizona accomplished this by placing advertisements and sending recruits into California to make the case that business could be so much better across the border. Further, Arizona puts their money where their mouth is by offering free land, electricity and no taxes for a limited time to come see how good business is across the border. Further, by maintaining less than one third of the environmental prohibitions of California, businesses who move receive yet another subsidy. The net result: Arizona has more money to continue its efforts, California continues its course of self destruction.

Recently, the State of Michigan has found prosperity by competing with the state who refuses to compete. By offering a large tax credit to the movie industry for filming in Michigan and providing studios abandoned manufacturing plants for production facilities at no cost, Michigan has enjoyed significant economic stimulus usually reserved to Tinsel Town. Michigan boasts of over 40 films to be shot within its state in 2009. With dwindling margins from Internet access to movies, and a reduction of box office receipts, the help is welcomed by the studios once limited to the Hollywood Hills. The net result, Michigan is making money and starting to reinvent itself, California is losing ownership of its golden goose.

NATIONS

Every nation on the planet, with the exception of the United States, has been subsidizing its fundamental industries since the beginning of time. China subsidizes oil, gasoline, timber, and its banking system to provide Chinese businesses with a leg up on the global economy. China also violently controls its currency, wage laws and environmental laws to lure business into its borders so it can reap the benefits for the whole of its citizens.

Japan has furthered its imperialistic goals through trade since the dismantling of its imperial army at the end of the second World War. The Japanese literally stock pile dollars to keep the Yen artificially weak. The Japanese also subsidize its manufacturers by funding pensions, manipulating input costs and providing subsidized loans to further lower costs of production and increase those companies profitability.

England has a nationalized banking, health care and unemployment system which takes the burden off of their companies to provide such social services as terms of employment. Germany subsidizes steel, rubber and other components for its automotive companies which were literally capitalized and created by its government in the first place. Finally, Holland controls the number of market participants from clothing to ice cream to balance the benefits of both sustainability and competition.

With the birth of the multi-national company, the global economy has created nation-less bodies without allegiance to any flag or citizenry. They shop country to country for competitive advantages without care for the destruction they leave in their wake. These companies bring prosperity, revenue and increased standard of living when they come to a country and leave gaping holes of unemployment, abandonment and civil unrest when they leave. In every sense the public partner who corrals them enjoys the spoils of their operations. 

With the spending of every public dollar in Washington to bolster U.S. companies, the cry of the "capitalism for capitalism's sake" population cry with outrage. Time has passed them by. No other country on earth willingly sits idle as their businesses crumble. Especially when they compete in a market where public private partnerships have raised the stakes and lowered the costs. The cries of outdated Americans who claim government should "but out" are those who, not by their intentions, offer future American prosperity up for slaughter by foreign PPPs.

There is no other option. The US must stand as one with their business community and compete, least they be the Californias and San Bernardinos of the International scene. While markets do function well without interference, that time has long passed the human race. No foreign superpower is willing to accept the failure of its private sector for the sake of good old sportsmanship. Americans better wake up and start working together because there is no such thing as Santa Clause and there certainly isn't such thing as a private market. Whether we wish this to be different, or not, the stakes of the game are too high and the market too competitive for ingenuity and gumption alone.

Just as the United States won the revolutionary war by not standing in a straight line as proper etiquette of war demanded, other countries shall not allow their businesses to fail for the sake of decorum or idealistic rational. Commerce has changed, and with it Americans must toughen their stride, support their own and compete. Fighting with one hand behind its back, although admirable, is foolish.