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?