Monday, November 22, 2010

Fair taxes - how do you determine what is fair?


What are fair taxes? No politician seems willing to actually try to define a standard to determine what is fair, so years ago I decided to figure out what seems fair to me. Now all the political pundits are jawing about the Bush tax cuts, fairness, class warfare etc. To me it's just a rehash of a battle of glittering generalities that I've been hearing for decades. I think it is way past time we came up with a standard for what constitutes a fair tax.

When I figured out what seems to me to be fair and applied that standard I concluded that wealthy people are not pulling their weight - or, to put it in a different way there are a lot of things taxpayers like me are paying for that rich folks get a lot more benefit from than we do.

Class warfare? No. All that class warfare hooey is a smokescreen to protect their ability to keep picking our pockets. Here is how I got there - my challenge to the reader who thinks I am on a rant here is to tell me where I am wrong.

First step - define a standard for "fair" taxes.

In day to day life what is fair is determined by matching payments to benefits. You pay according to the benefit you receive. Suppose your next door neigbhor comes to you and says he thinks we should go together and hire 4 security guards. 1 to guard each of our houses and the neighborhood, and the other 2 to guard your neighbors fast food franchises in various locations out of the neighborhood. "We should split the costs 50/50," he says, "thats fair". We would both be paying the same amount, but he would be getting 3 guards out of 4 to his benefit. Clearly not fair. But if he pays 3/4 and I pay 1/4, its fair.

I see no reason the same basic reasoning shouldn't apply to government, so I conclude that to the extent possible the people who benefit from a program should pay for the program in proportion to their benefit.

Obviously you can't do that for some things such as welfare, or school lunch programs for poor kids, but for the vast bulk of the Federal budget it seems to me that should be the applicable standard.

So how do Federal taxes stack up on this fairness standard?

Some taxes stack up pretty well.

Payroll taxes that are paid by employees and employers to fund unemployment insurance, social security taxes and Medicare all benefit the people that pay the taxes - particularly with Social Security what you get out is pretty directly related to what you put in. Gasoline taxes, when used to build and maintain highways, are an excellent match.

Income taxes don't stack up so well. Roughly 1/2 of the income tax payments we send to the IRS go to defense spending. Do we all benefit equally from defense spending? I decided to investigate that question and here is what I found.

I looked at Germany as country similar in development and per capita income and wealth. I also looked at China and Russia, our perceived principal competitors in the world at the moment.

Geography -

Germany, Russia and China all live in historically dangerous neighborhoods. Germany is bordered on three sides with countries it has gone to war with periodically for centuries. China is also surrounded on the north, east and south by countries from which invasions have been launched for a millenia. Russia is surrounded on the west, south and east by countries from which invasions have been launched for millenia. The US? We have oceans - effectively moats -on 2/3 of our borders. The notion of Canada invading the US borders isn't even on the table and the idea of Mexico invading doesn't bump my probability meter off the no chance peg very far.

Yet despite the fact Germany, Russia and China all live in more dangerous neighborhoods, in total Military spending:

Germany spends about 8% of what the the US spends
China spends about 16% of what the US spends -
Russia spends about 10% of what the US spends -

If we combine the budgets of our perceived potential enemies, Russia, China, and then include Iran and North Korea, what they are spending amounts to less than 33% of what the US spends. When US expenditures are combined with spending by a couple of our closest allies it amounts to nearly 50% of the total defense spending in the world.

Then I wondered how to convert total spending to something measurable on the fairness meter?

I decided to compare per capita income to per capita defense spending.

Looking specifically at Germany income per capita is about $41,000 per person and for the US about $46,000 per person. Income is reasonably similar. But in defense spending the difference is staggering. Per capita spending on defense in Germany is about $425 per person. Per capita spending on defense in the US is about $1900 per person.

Don't think I picked out Germany to bolster my case. All the data is available online - its like this for almost every country in the world (other than Israel) and for most countries the difference is even more glaring.

Why is defense so expensive for us? Why is the average German citizen spending $425 a year for defense and we average Americans spend $1900?

The answer seems to be because we as a country want to project our power around the world to protect our economic interests. We have engaged in 3 wars in the oil rich middle east in the last couple decades even while scores of small wars were taking place in Africa or Southeast Asia that we ignored. We have military bases all over the world. Our military expenditures are so large because we want to protect our commercial interests overseas such as our financial and oil industries.

We as a nation have chosen to maintain this enormous military establishment. I'm a good citizen, I am willing to pay my part, I think it does benefit us all to some extent (although it clearly makes us a target for terrorists). But seems to me that something close to the per capita figure for Germany is what I ought to be paying. The benefit to me from our ability to influence oil markets in the middle east is modest, the benefit to wealthy people who control the oil industry and the financial firms is enormous. I therefor concluded I should be paying around $425 a year and the other 3/4 of our current defense expenditures should be covered by taxes on either multinational corporations or the very wealthy people who control multi-national corporations.

How does the reality stack up?

For simplicity I just looked at defense spending and assumed for the initial calculation that for the other 1/2 of the federal budget the current tax law is fair (the IRS web site provides lots of data about who pays how much - details on my calculations follow this rant).

After juggling numbers for awhile I computed that 37.5% of the budget should be paid for by normal taxpayers like me (50% of non military items and 25% of the defense budget).

62.5% of the Federal budget should be paid for by the wealthiest persons and corporations that benefit from our military and political involvement around the globe (50% of the nonmilitary budget and 75% of the defense budget).

By my computations Corporations and the richest 1% of Americans contribute 50.4% of the total federal discretionary budget (things other than what is funded by payroll taxes).

50.4% is way short of the 62.5% they should be paying if the cost of the military is borne according to benefit.

So even before we start looking at other budget items we regular tax payers are subsidizing the wealthiest to the tune of 12% of the Federal income tax budget.

What about the 700 Billion bailout? The Cash for clunkers plan?  Or all the other plans to rescue corporate America from collapse.  I accept it was all necessary to avoid a complete economic meltdown - but Wall Street is now rolling in money, while Main Street is struggling. Coupled with the fact Wall Street caused the mess it seems to me those richest 1% should be paying a lot more than 38% of the cost of the bailout. They clearly benefited most from the bailout, on this part of the Federal budget I would feel it was quite fair to make them pony up about 80% of the bailout costs.

What about Federal Courts? Back when I was still a practicing lawyer I realized that maybe 98% of Federal court time is spent refereeing fights over money between really rich corporations or individuals. You can't go to Federal court to get an adoption, or to change your name, or get a divorce, or to force your neighbor to stop building his fence on your property. All those things normal people end up in court about are outside the jurisdiction of Federal Court. Rich folks should be paying most of the cost of the Federal Court system.

What about when when some polluter trying to maximize his bottom line fills the air full of toxic chemicals, or covers the water in an oil slick. I'm just a bystander, I shouldn't have to pay to clean up the mess - let the guy making money off the activity pay for it.

When you get right down to I am hard pressed to think of anything regular taxpayers get from the income tax that they doesn't involve subsidizing rich folks in the process.

And who pays for Congress...don't even want to go there. I certainly don't feel like they've done much for me lately.


Here is the raw data and calculations I used - as noted all the data came from online sources provided by the IRS, the UN or other similar organizations:

The United States spends 663 billion dollars currently on defense, 4.3% of GDP
Germany spends less than 1/12 of what the the US spends - 48 billion, 1.3% of GDP
China spends less than 1/6 of what the US spends - 99 billlion, 2.0% of GDP
Russia spends about 1/10 of what the US spends - about 66 billion , 3.5% of GDP
The combined budgets of our perceived potential enemies, Russia, China, Iran and North Korea amounts to less than 1/3 of what the US spends. When US expenditures are combined with our closest allies it amounts to nearly 50% of the total defense spending in the world.

By my calculations from figures at various Federal Government web sites, 73% of the federal descretionary non payroll budget is funded by individual income taxes, about 20% by Corporate taxes and the remaining 7% by other miscelleneous taxes.

According to the National Tax Payers Union the top 1% of Taxpayers, those making over $380,000 a year, pay 38% of Federal Personal Income taxes. So assuming these richest folks contribute 38% of the remaining 80% (giving them the benefit of the assumption they pay all of the 7% miscellaeneous taxes) (the other 20% comes from Corporations - I am also giving the Corporations the benefit of assumption all that they pay goes to defense) which works out to 30.4% of the Federal budget covered by taxes payed by the richest.

Sunday, November 7, 2010

The Capital Gains tax red herring

Republicans are constantly arguing the way out of our economic mess is to reduce or abolish the Capital Gains tax so investors will take their money and spend it on building jobs.

A country like India, a poor country with an extraordinary opportunity for development to bring its population up to rich world standards of living has relatively little capital. It has to rely on foreign capital. It makes a great deal of sense for India to have no capital gains tax as their need for capital formation outweighs the risk of instability.

The United States is awash in Capital. Trillions of dollars in assets are locked up in pension funds, mutual funds, private equity, all looking for better returns than everyone else. We cut the Capital Gains tax in 1996 to current levels. Since then we have seen bubbles that rose and burst in equities, commodities, real estate, and almost any other asset someone thought they could make money on, culminating in the economic morass we now find ourselves in. Our problems are many but lack of capital is not a problem, it is a red herring that diverts us from more productive problem solving.

Wednesday, October 13, 2010

Meg v. Jerry

Jerry Brown left the Governor's office the last time in 1982. In my recollection California schools were ranked pretty high, and spending per student was also pretty high. We were in a recession at that time so we were running a deficit of 6 billion or so, and unemployment was pretty high, but a lot of other states had it worse than us at that time.

In the intervening 28 years, by my count Republicans have been governor for 25 years, Democrats (Gray Davis) for about 3 years. Every one of those Republican Governors (George Deukmajian, Pete Wilson and Arnie) ran on the same platform Meg Whitman is running on. Cutting taxes for rich folks and cutting regulation on business.

Yet somehow we have the biggest deficit problem of any state in the Union, and higher unemployment than most other states outside the rust belt. We rank near dead last in school funding and not much better in achievement.

I am reminded of the almost universal belief by Doctors back in the 1800's that the way to cure sick people was to cut them and bleed some blood out of them (or apply leeches). Now we find this belief laughable, but the brightest medical minds in the world at that time believed bleeding was the cure for many ills. I think Republicans have the same problem. The have a belief (that just happens to be very favorable to them making lots of money) and they have no interest in adjusting their believe to fit reality.


Monday, September 20, 2010

Why Government is disfunctional

Prop 22 on the upcoming California ballot is a scrap between local governments and the state over limited funds. Prop 22 is sponsored by Cities who argue about protecting local services I was listening to arguments pro and con on NPR and kept coming back to the fact I have been seeing a lot of data recently documenting the fact public employees make a lot more in salary and benefits than the average private sector employees. Why should we in the private sector care about helping protect money for local services when it seems like with "public servants" protecting their relatively cushy jobs is more important than providing services? In the private sector when funds are not available people make less money. In the public sector when funds are scarce salaries are protected at the expense of the services that are the function of the organization.

It seems to me the fiscal train wreck that is government in California stems in large part from that simple issue. People in the private sector see a lack of accountability in the pubic sector. "Public Service" is a dead concept, public sector jobs are usually pretty cushy compared to their private sector counterparts. Its easy to lose any enthusiasm for supporting government when you are scrambling to pay taxes to support people who are living off your labors quite comfortably.

Monday, September 13, 2010

Marketers run the US

Politics, business, even universities are run by the marketers. They are utterly amoral.

Big business is the worst of course. They will do everything in their power to pry money out of your pocket. If you try to call their customer service and talk to them they say "yes, I understand" while they ignore what you called them for to give their various sales pitches. They will use all the powers of psychology and persuasion to sell things people don't need to people who can't afford it.

But politicians are not to far behind. Not the politicians personally, but the consultants they hire and slavishly follow. Emotion is the enemy of good problem solving, but political consultants realize stirring up emotions can lead to votes, so they stir away shamelessly. Every little issue becomes an apocalyptic threat to our nations survival. Issues that have no impact on most people are milked to stir up outrage.

And finally there are the Universities who have become all about marketing and image and bend the whole nature of education to accommodate the marketers. Required textbooks cost more than rent on a students apartment because they make professors lots of money and provide grist for the marketing mill. Tuition consistently rises far faster than the cost of virtually everything else in our world as marketing education takes a bigger and bigger chunk of the education budget.

Unfortunately the marketers are dominant because the are good at what they do. They know how to push our buttons, how to manipulate us, how to fool us.

If anyone ever developed an inoculation that protects against the wiles of marketers they would be doing everyone a big favor.

Friday, September 10, 2010

Our limping economy

President Obama is proposing various tax proposals to try to pull the economy out of its funk.

Democrats in Congress are trying to shape any changes to protect their primary contributing constituency, unions and public employees. Republicans are trying to shape any changes to protect their primary contributing constituency, wealthy folks and big business.

None of the ideas anyone is floating seem to me to make much sense. The Republican notions that we should be cutting government spending is ludicrous - the modern day version of the old medical practice of draining blood from sick people. The democrats ideas seem misdirected - because they can't seem to find good ideas they are capable of defending in the chaos of modern political media.

It all seems pretty simple to me. The people that have money, wealthy individuals and businesses, are sitting on it because they don't want to risk losing it. The ordinary folks aren't spending because there houses are not worth as much as they thought, or they are in debt or they are worried about their jobs.

The logical response it would seem would be to lighten the burden on ordinary folks, and make it more costly for the wealthy folks to sit on their money. A significant temporary increase on taxes on corporate retained earnings and corporate dividends would make it more sensible for corporations to invest in creating jobs than sitting on their money. A tax cut for working consumers would help them feel better about their economic situation and be more willing to spend money.

I suspect what we will actually get will be the normal mish-mash of misdirected policies to hand some benefit to the politically connected. It is not ultimately Washington's fault. As voters, we get the government we deserve. If as voters we are lazy thinkers, going with what sounds good emotionally instead of taking the time to learn facts and evaluate the policy.....

Tuesday, August 17, 2010

Why are Corporate profits at record levels?

The housing market is a disaster, unemployment is stuck in double digits, the economy is weaker than we thought it was. How is it that Corporate profits are at record levels?

Perhaps because big corporations are no longer linked to the economy in the US. Globalization means they can send work to where labor is cheapest and sell wherever in the world there is a buyer. Much of the world is now working hard to drag themselves up to the standard of living we enjoy in the west, so global corporations have replaced the market share they lost due to the weak US economy with market share in other parts of the world. They are the winners from the globalization movement of the last 20 years.

The people in the US that are not management in a big corporation appear to the the losers. Maybe someday globalization will bring benefits to us all beyond cheap stuff at Wal Mart, but in the shorter term small business and government will limp along while we pay for the debt fueled excesses of the last decade. Unemployment will probably be stubbornly high, the housing market will limp along. We can expect angry voters and some political instability and people fighting over who is going to pay for big deficits and the loss of services people rely on for years to come.

Sure big corporations will pay some taxes, but only on what they sell in this country. They are bigger than this country these days, and the Supreme Court has given them the right to use their size to insure their responsibilities to the US are as limited as possible.

We made some bad mistakes in the last two decades and now we will be paying for them.

Is our Medical Care System discouraging entrepreneurs?

I have had a number of recent contacts with young highly educated professionals who have expressed resignation that, as much as they would like to start their own business, they remain tethered to their jobs with big government or big corporations because of the medical plans. Despite all the complex efforts to make Insurance portable it isn't really because of the expense, particularly for younger folks with families.

Makes you wonder if the folks that killed a government sponsored health insurance system this last year gave any thought to its impact on entrepreneurial spirit?

Also makes you wonder if that is why, despite our efforts to get small businesses to hire people to start bringing down unemployment, it just isn't happening. Maybe there aren't enough new small businesses being formed because people see the expense or possible loss of Health Insurance as a bigger risk than they want to take on?

Are we undermining our future to protect our Edsel health insurance system? (Don't know what an Edsel is? Goggle it)

Saturday, July 24, 2010

Government Benefits

One unfortunate characteristic of government benefits such as unemployment or various types of social welfare payments is that people who work the system may stretch the truth and receive the benefits while similarly situated people who are more honest don't qualify for the benefits.

It is difficult and expensive to discover fraud, so to the extent possible benefits should be designed to limit misuse. For example, benefits could be structured so everyone is entitled to a certain amount of benefits over their lifetime, with an absolute ceiling regardless of circumstances, and a cash payment for unused benefits upon retirement. That way those who behave honestly aren't subsidizing the dishonest.

Government Salaries

July 2010. Voters often have little knowledge or control over Government salaries.According to the U.S. Bureau of Labor Statistics, the average weekly salary of the American Worker as of January 2010 is $629.04, or $32,708.10 per year.

News reports have revealed the City Manager of the City of Bell, California, makes nearly $800,000 a year. Bell is a relatively small city in greater Los Angeles. The city population is 36,000 people. Other city employees have salaries of hundreds of thousands of dollars a year, and many have six figure pensions when they chose to retire.

Famously the City of Vallejo, California, with a population of about 124,000, went into bankruptcy a couple years ago and it was revealed somewhere around 150 city employees received over $100,000 a year in salaries, plus very generous pensions and benefits, with a number of city employees, and some nurses and public safety personnel making over $200,000 a year not counting pensions and benefits.

The controls over public sector salaries often don't work. The employees who want to make more money have knowledge, access and influence over the local legislative bodies. The local legislators want to get reelected so they work to please the most vocal and aware voters. It is almost impossible for voters to control public sector salaries as they have little time, little or no information, and it is inherently difficult to measure productivity in many government jobs since there is no bottom line to measure against.

Government is important, but the private sector is what creates wealth.

Government should function as a service where the employees are motivated primarily by the desire to help people, not by the desire to make money. But the notion of "public service" has become an argument for higher salaries, rather than a measure of something forgone to serve the public. Government jobs already tend to provide more stability than private sector jobs because of the ongoing nature of government responsibilities. People who are motivated primarily by making a lot of money should not be working for the government.

The lack of working controls over Government salaries has resulted in many people who are primarily motivated by making money moving into, or staying in public employment. Even people who started out in Government motivated by a desire to do "public service" may stay in Government later in life after their focus becomes more on making money. They use their knowledge of government to find a way to squeeze more money out of government. The system should be set up so people who are primarily motivated by money move into the private sector.

Conclusion? Perhaps Government salaries and benefits should be limited by law to schedules measured by the average private sector salary/benefits in that region. The schedules should be set so Government workers who reach a point in their life where they want to make more money will move into the private sector. No government employee should make more that 3 or 4 times the average private sector salary.




Saturday, July 10, 2010

Corporate Spin

Was listening to NPR yesterday. A commentator was earnestly saying that the reason corporations are sitting on big piles of money instead of investing and hiring is because of their perception Obama is being mean to them.

Big chunks of the american public are underwater on their mortgage, or in foreclosure, credit has become difficult to come by, unemployment is up around 10%, polls show that consumers are tightening their belts more each month. I may have low regard for corporate spin doctors veracity, but Corporations become successful by knowing when to hold them and when to fold them. They are sitting on piles of money (which they piled up in large part by firing lots of employees) because it is not a good time to invest.

We are in the mess we are in now because beginning in the 1980's government bought more and more into corporate spin and let the corporations run the show for their benefit. Remember George Bush's immortal words after 9/11 that the best thing people could do was "go shopping"?In the US and Europe consumers are suffering from the long term hangover that 20 years of debt fueled spending entails. Recovery from this debt hangover is going to take years of consumers rebuilding their finances.

The Corporate spin doctors complaints that Obama is being anti-business is just one more episode in their eternal efforts to have complete control over how they run their business regardless of the consequences on the economy, workers and the rest of us. Enron, Lehman Brothers, AIG, BP. The biggest and most successful businesses have run themselves and the economy off a cliff when left to their own clever schemes and obsessive focus on the immediate bottom line.

Wednesday, June 30, 2010

FIFA and Technology

As I watched the President of FIFA reacting to the uproar about bad decisions by referee's I was struck by how typical the response was for a bigwig in a position of control in any big organization - from Government Agencies, to Oil Companies, to Banks to Sports organizations.

FIFA has jumped on every new technology when it comes to promoting the World Cup and making more money. The constant barrage of advertising from FIFA licensed companies pushing apps for your phone, websites or other new technology businesses is inescapable. So evidently new technology is great when it comes to making money, it just more trouble than it is worth when the only benefit is the integrity of the game.

FIFA, AIG, Lehman Brothers, BP. They are all the same. Don't bother me with details, I'm to busy making money.

Logically you don't have to think about it much to see FIFA's position is a wrong decision on so many levels. Far from taking the game out of the hands of referee's, it would be giving them a tool to protect them (and their families) from harassment from irate fans. Using technology can further protect the game from the possibility of gamblers influencing the outcome. And most importantly for fans and players, the outcome of the game wouldn't hang so regularly on a referee's bad decision.

Why have there have been so many really bad game changing decisions? These are supposed to be the best of the best referee's but it seems like really bad goal mouth decisions occur more frequently than in any league I have ever followed. These aren't judgment call decisions, these are basic factual decisions. Players obviously offside or obviously not offside. Did the ball cross the goal line. Why aren't the referee's (assuming they truly care about making the right decisions) lobbying for technology to help them with their job. Could it be we have the Peter Principal at work - the most important criteria for being a top referee isn't competence - it's ambition and willingness to toe the FIFA line and tolerate abuse?

I note that when a referee makes a bad decision that brings a lot of bad publicity FIFA typically defends the decision then quietly sends the Referee home. They punish the ref, but deny the underlying problem. It's not working FIFA, get your eyes up off the bottom line and fix the game.

Tuesday, June 1, 2010

Problems with democracy - Corporations are not people

The Supreme Court's recent decision holding that corporations have the same free speech rights as persons under the Constitution is the latest in a long line of nonsensical decisions that go back to the 1890's.

Corporations exist because the law gives them the right to exist. Years ago to encourage people to invest in new economic ventures governments created laws allowing people to band together, throw their money in a pot, and be protected from liability for anything stupid they did in that enterprise. Their liability was limited to the amount of money they threw in the pot. Originally there were often requirements on how Corporations conducted their business, in particular requirements that the have a limited and specific corporate purpose.

Corporations have turned out to be wonderful vehicles for generating wealth, and protecting wealth, so wealthy and powerful people have over the years managed to remove most of the restrictions on Corporations by using the economic benefits they confer by their presence as a bargaining chip to reward whatever State or Country gives them the best deal.

As a result Corporations have become a dominant force in politics, able to use their financial muscle and marketing expertise to shape public policy to their will. Wall Street undermines regulation by Government, then gets bailed out when their bad decisions blow up in their face. Corporations suck up billions of dollars in Government subsidies each year, even in the face of evidence the subsidy is counterproductive.

Corporations are not people, they are fictitious entities created for convenience by Government - Congress could abolish them tomorrow. It is nonsense for the Supreme Court to say that even though Congress could abolish them, Congress can't regulate them.


Problems with democracy - 2/3 vote requirements

One of the abuses of the democratic process that has become increasingly popular here in California is imposing 2/3 vote requirements to protect some vested interest. The abusive part of 2/3 vote requirements stems from the fact that typically a bare majority are imposing at 2/3 vote requirement on future voters. So if you have a particular viewpoint and can convince 51 voters out of a 100 current voters to vote your way in the future votes for your point of view equal 2 of the other sides votes. So if tomorrow 65 out of 100 want to vote the other way, they lose.

Now big business has recognized the extraordinary power of imposing 2/3 vote requirements. Proposition 16 on the June 2010 California ballot was an attempt by a private for profit energy company to protect their monopolies by imposing a 2/3 vote requirement on any public entity that wants to try to provide cheaper or greener energy to their citizen/voters. It was barely defeated.

Every government entity should have a rule that no law can impose a higher vote requirement on future voters than is achieved in enacting the law. So if 51% of the voters approve a particular law today, the law cannot impose any requirement higher than 51% approval on future voters.

Update:  Prop 26 on the November 2010 Ballot sought to impose a 2/3 vote requirement to make it harder to impose state or local fees and taxes.  It was approved by 52.5% v. 47.5%.   That was 52.5% of the 43.7% of the eligible voters who actually voted.

California Constitution Article II Section 2.5 provides that a voter who casts a vote...shall have that vote counted.  Doesn't that imply one group of voters cannot devalue the vote of other voters?

Monday, May 24, 2010

Putting 2 and 2 together

Observation #1 - I fill up my trash can in a few days with all the junk mail I get every week. Much of it is catalogs directed to people that haven't lived here for years, even though I have done everything I can to let the senders know their mail is being wasted. It seems clear that it costs more money for a business to update their mailing list than it does to just keep mailing - for year after year.

Observation #2 - it now costs me somewhere over $.40 to send a couple of sheets of paper by mail. From what I could determine at the post office web site it costs as little as $.11 for a business using bulk mail.

Observation #3 - The post office is in financial crises.

Fervent hope #1 - The post office will price bulk mail more realistically so that businesses won't be filling up my mailbox with forests full of paper I don't want.

Reality check #1 - Won't happen. After all, business runs the country.

Wednesday, May 12, 2010

Private enterprise isn't always the best solution

Ever since the the Berlin Wall came down in 1989 the political discourse in the United States has been skewed by a presumption private enterprise does everything better than government. History says otherwise of course, but history has been ignored in favor of ideology that people thought would help them become rich and powerful.

The lessons of history have had some revenge over the intervening 20 years. Think Enron, AIG or Bernie Madoff. On a lesser scale think of dealing with your cable or phone company, getting bumped off your flight, or having it cancelled, or paying for taking luggage on a trip with you - all the joys of deregulation.

Now the ability of the ideologues to convince people over the last 20 years that private business is always better than government has reached its logical conclusion. Business is trying to prevent Government from doing something even in the face of irrefutable evidence Government is clearly doing a better job at than business.

In California Proposition 16 is sponsored by private energy companies to protect the monopoly position they have enjoyed in many areas California for decades. Most areas of California get their gas and electricity from one of three big energy Corporations. Pacific Gas and Electric (PG&E) in Northern and Central California, Southern California Edison (SCE) in the Los Angeles area and San Diego Gas and Electric (SDG&E) in San Diego. But some local governments have formed their own entities for providing electricity and power through local public agencies. The Los Angeles Water and Power Agency has been in existence over 100 years. The Sacramento Municipal Utility District (SMUD) was formed in 1923.

When it comes to cost and reliability the public entities kick the private businesses collective butts. As of March 1, 2010 a comparison of three publc power companies, SMUD, Roseville Electric and LA Department of Water and Power found the average per month residential rate was about $94 per customer ($88 for SMUD, $95.58 for Roseville, $96.18 for LA). The private for profit corporations, PG&E, SDG&E and SCE average monthly residential rate was about $125 per customer (PG&E $119.97, SDG&E $128.43 and SCE $128.85).

Other local governments are noting the difference, particularly in Northern California. PG&E has been losing battles to stop local governments from forming power agencies to better serve their local populations, so they are now seeking to use the California's (infamous) initiative process to insert a provision in the California Constitution that would require a 2/3 vote for a local government to join or form a public power company. They evidently believe they can use ideology and misleading advertising to get enough votes from voters who are not paying attention to their own energy bills to pass the proposition.

You question that they are relying on misleading advertising? One of the primary sponsors of Prop 16 is the "Common Sense Coalition" which is simply a lobbying effort funded entirely by PG&E. The title of Prop 16 is "The Taxpayers Right to Vote Act" - this for a proposition whose goal is to limit the ability of local voters to create local power companies.

You would think that the voters in California would be smart enough to not strengthen the monopoly of the people who they buy power from. But the battle plan is diabolically clever. PG&E only serves northern and central California. 2/3 of the voters in the State live in Southern California, which is served by San Diego Gas and Electric (SDG&E) and Southern California Edison (SCE). SDG&E and SCE will also be in a stronger monopolistic position from this proposition, but they are keeping a low profile. PG&E may lose in Northern California where people know them. But by being the front man while SDG&E and SCE keep a low profile PG&E can use their misleading feel good ads to garner votes from voters in Southern California (where more voters live) who are not paying attention because PG&E means nothing to them.

Prop 16 could easily pass.

In 2006 Yolo County, a small county just west of Sacramento County, put a measure on the ballot to try to become part of SMUD. Voters of Sacramento also had to approve the merger. PG&E spent $12,600,000 on misleading ads and convinced the voters of Sacramento County adding Yolo County to their system would raise their rates, thereby scuttling the merger. The combined population of Sacramento and Yolo County is about 1,500,000, so assuming about 1/4 of those are voters PG&E spent about $30 per voter to win that battle.

PG&E has reportedly budgeted about $35,000,000 to promote Proposition 16. They are going to be relying on subtle references to the notion that Government is inherently corrupt and incompetent and business is inherently honest and competent. They are going to be throwing around lots of allegations and inuendo's about incompetent bureaucrats and terrible budget consequences. This from a company that was in bankruptcy in 2002 because of bad decisions in the energy market. PG&E was a big supporter of the 1997 derugulation of utilities in California - you could almost see the dollar signs blinding their vision. In the resulting chaos in the deregulated market PG&E got hammered and ended up getting bailed out by to the tune of an $8 billion dollar surcharge on the rates we Northern Californians pay for power.

Oh, and by the way, that $35,000,000 they are willing to spend to try to solidify their local monopolies is just a few million more than what the CEO of PG&E has taken home over the last 5 years or so. That might explain part of the reason why the public agencies have lower rates. Do you think?

Sunday, May 2, 2010

Conservatives are not Conservative

To me calling someone a conservative person suggests a person who is cautious and careful. They avoid unnecessary risks, choosing the safe, low risk path over the the path of higher gain but more risk of loss.

The oil spill in the gulf is a reminder of how in politics, where money is involved, the term conservative consistently gets stood on it's head. More off shore oil drilling has been a big "Conservative" goal for years. Now the nation faces billions of dollars in economic losses, and huge impacts on the natural environment because we downplay the risks of drilling for short term energy gains.

Nuclear power is regaining steam as a "Conservative" issue now that memories of three mile island and Chernoble are dimming.

Deregulating business is a always a big "Conservative" political goal, despite a long history of market folly leading to economic collapse.

Global warning doesn't exist say many "Conservatives". So lets keep on doing what we are doing and ignore the hints of possible future disaster in the science.

People with the instincts of riverboat gamblers have managed to co-opt the label "Conservative".

Thursday, April 1, 2010

The perils of certainty

A basic rule all trial lawyers learn early is that you need to coach your witnesses to say things like they are absolutely certain they are right. People are more likely to believe statements that sound like the person is sure of themselves. A person who is dead wrong, but states things with certainty will be believed over a person who is absolutely right but is by nature inclined to qualify everything they say.
In life probably the opposite is true. People who are always dead certain they are right are often wrong because they don't critically examine their thoughts before expressing them. And people who qualify their statements are more often right because they do critically exam their thoughts before expressing them.
Like the courtroom, politics rewards certainty despite its probable inverse relationship to being right. The politician who speaks their thoughts with certainty is perceived by people with similar thoughts as "genuine" - not to mention right, even in the face of objective evidence they are wrong.
Our government will be better if more voters learn what trial lawyers already know. Being certain isn't the same as being correct.

Thursday, March 25, 2010

Republicans, Democrats and Sailboats

Contemplate the sailboat. It's a very ungainly looking apparatus out of the water. Big sail sticking up in the air, big keel makes it hard to put down on land.
Contemplate designing sailboats. You have a trade off between the keel that sticks down in the water to stabalize the boat, and the sail which sticks up to catch the wind and drive the boat forward. If the keel is to big it slows the boat down. If the sail is to big you will probably capsize and end up dead in the water.
Economies seem very similar to sailboats. Government is the keel - it provides stability. The private sector is the sail. It provides the driving force to move the economy forward.
Democrats always tend to want to put a bigger keel on the ship of state. So when Democrats are in charge we end up with a big keel that the sail has a hard time pushing it through the water.
Republicans always want to put bigger sail on the ship of state and reduce the size of the keel. So when Republicans are in charge we go like hell for awhile then capsize and end up dead in the water.
The conservative approach would tend to err on the side of too much keel rather than too much sail.

Government Subsidies

Congress loves subsidies because they buy lots of votes. We pour enormous amounts of taxpayer money into agriculture, we bail out banks when they get in trouble, we dump big chunks of money into energy schemes. The federal budget is riddled with subsidies, big and small. Deserved and undeserved.

How can we as taxpayers protect ourselves from excessive subsidies? How do we subsidize industries that will help our economy while preventing abuse? Here are some ideas:

Basic rule - no one should be gettting rich off of government subsidies.

We cannot rely on Congress to wean industries of unwarranted subsidies. We should use the power of the IRS to control subsidies.

We shouldn't give subsidies to any business entity. It is too easy to build a link of related entities to abuse the subsidy process. The individuals who ultimately benefit from the subsidies hide behind walls of legal entities while they get wealthy at taxpayer expense.

If we deem an industry or business needs government subsidies, the subsidies should be given to individuals who then invest in the business enttities.

The individuals will be required to maintain subsidy accounts for tax purposes. To the extent they recieve any moneys back in from the subsidy money that return on investment should be taxed as any other income would be taxed each year up to the point the income received in that year exceeds by a factor of 2 the average per capita income of the average full time worker. Any income above the cut off point would be taxed at steeply graduated rates that reach near 100% as the total income exceeds by a factor of 4 the average full time workers income.

This format will allow the use of subsidies to establish businesses, or tide them over through rough patchs, but will motivate the principals in the business (who want to get rich) to wean themselves of subsidies (by repaying the subsidy) as the business becomes more profitable.

Thursday, March 18, 2010

A hidden cost of our Health Care system

I attended a continuing education event today presented by a couple of attorneys who have bankruptcy practices. As an aside late in the presentation one of the attorneys stated that 25% of the bankruptcy cases they filed were a direct result of people trying to get out from under debts from unreimbursed health care expenses. The other attorney agreed his experience was similar.

Makes me wonder if this fact was included in the calculation by the World Health Organization that we in the US spend twice as much money per person on health care than people spend in any other country in the world. I doubt it. It seems more likely we spend twice as much without even factoring in the losses to everyone that are incurred in bankruptcy proceedings.

Wednesday, March 10, 2010

Emotion in Politics - why its often a bad idea

Emotion can be a wonderful thing or a terrible thing.

When it expresses as love it can link us wonderfully to other people, bringing harmony and happiness to our lives.

When it expresses itself as certainty that some idea is right or wrong, it can bring disaster.

WW II was brought about by an emotional certainty in Germany that Aryans were a superior race, coupled with the equally delusional belief in Japan that the Japanese were a superior race.
The people of Germany and Japan in WW II were operating with the same brains and emotions we have today. How could they be so misguided? Were they just bad people? Or were they just indulging bad thinking habits?

The stockmarket crashes in 1929 and 2001 were brought on by a delusion based in the emotional belief the stock market could only go up and everyone was going to be rich. Were people in the 1920's and the 1990's stupider than in other years? Or were they indulging bad thinking habits?

Virtually every war, economic collapse or act of slavery or genocide in history can be traced back to people using their logic to justify an emotional belief.

Good decision making uses logic based in facts to test emotional belief. Bad decision making uses logic to support an emotional belief, and selectively gathers facts to support the logic.

Most politicians seek our votes by trying to find sound bites and facts that allow us to justify our emotional beliefs, rather than truly examine whether our emotional beliefs make sense.

Politicians that try to get us to examine our emotional beliefs usually don't get elected.

If we want better government we as voters need to become better thinkers and respect candidates that are willing to make us challenge our beliefs.

Emotion in Politics - the biology

This discussion distills a lot of very complex data and theory's into a simple overview. If you disagree with any of the assertions in this discussion I invite your challenge to the ideas or data.

We are born with basic inclinations - avoid pain, seek pleasure. As we learn how to do things as children we develop automatic responses that are tied to feeling good emotionally. After that we just go with the automatic responses. This system works great for deciding whats for dinner, what color shirt to buy - because it really doesn't matter most of the time what we chose.

As adults we end up with two distinct ways to make decisions. The first works best for for fast decision making. We turn to automatic responses we develop as children. Specific input triggers an automatic preprogrammed response. This decision making mode allows us to react quickly. It works well where reacting quickly is more important than taking the time to analyze data and react appropriately.

When a predetor came out of the bush after our ancestors it was more important that they do something - either fight or run, than that they take the time to figure out the perfect response. If they took the time to think they would be lunch.

The brain systems we use for this fast decision making are deep in our brain and linked directly to our emotions and are hard wired in the same way in humans, cats, rats - basically all animals. The canned responses are triggered by our emotions - perceptions create fear, or anger, and we can react instantly and decisively. For this discussion we will call this part of our brain the animal brain.

The second system for making decisions is collecting facts, analyzing the facts and figuring out the best thing to do. This is a slow process, sometimes we can take years to collect the facts and analyze them to reach a new conclusion. This capabiity is physically located in our cortex. The cortex is what we see when we look at the brain. It is the wrinkled walnut looking body that comes out of the top of our old animal brain and spills over and hides the animal brain. This part of our brain is largely what seperates us from animals. For this discussion we will call this system the deliberative brain.

When we are young the animal brain response will ordinarily trump the deliberative brain. It is efficient and fast and as long as its decisions don't cause a major problem the animal brain will make decisions largely ignoring the deliberative brain.

Generally the only way "thoughtful deliberation" gets kicked into gear is if one of our automatic responses produces a really unpleasant result. If a mate dumps us our emotional devastation may trigger thoughtful deliberation. If we get hit by a truck because we were to absorbed in our ipod thoughtful deliberation will kick in. So we get wiser as we proceed through life. Any moment where a automatic response has resulted in a really emotionally unpleasant experience is a moment where the opportunity to begin developing wisdom occurs.

But in many areas of life we never have that moment where the door is opened to rethink our automatic responses. And politics is one of those areas. Someone we respect tells us Republicans are good and Democrats are bad (or vice versa) when we are 13 and that becomes our default response. We adopt our chosen idelogy and it becomes part of our default responses. We don't get the kind of feedback that would cause us to rethink our default response. If our candidate doesn't win an election it is not a personal failing on our part, its because other voters are misguided. When something like the credit freeze in 2008 happens, it may hit us hard, but it will often not be immediatly clear whose fault it was so we may have no emotional sense that the way we were voting was part of the problem.

Compounding the difficulty politicians are masters at stirring up our emotions. If they can keep us emotionally in an uproar, blaming the other side and picking fights over policies, they keep the voters deliberative brain stifled under emotional responses and thereby protect their power and influence.

If we want better government we as voters need to be aware of the way our brains work. We need to learn to recognize our default responses and conciously gather facts and deliberate about whether our political beliefs actually result in effective polices. We also need to learn to reject politicians who attempt to manipulate our emotions to build their power and influence.

Thursday, February 25, 2010

Government Health Care

Food for thought. Of the people ranting about not wanting to let Government get involved in their health care, how many have any experience with Government Health Care? I don't know, but as I started thinking about how many different programs there are,I suspect many Americans have experienced "socialized" medicine without really thinking about it. Here are the major health care systems I can think of that are Government run.

1. The Veterans administration. According to a 2007 ABC news report the VA health care system, which serves some 5 million veterans and their families, has become one of the best health care systems in America at providing economical quality health care. Being a veteran myself I must admit to having a pretty negative image of the VA, but as I reflect on recent personal experience taking my Dad to VA appointments, the quality of care did seem pretty good, despite the Wal-Mart'ish ambiance.

2. The Military. It has been many decades since my stint in the Army. My recollections of my experiences with Army doctors and hospitals were they lacked in frills and you didn't get much TLC, but you got what you needed, and I am pretty sure the Army was doing it pretty cheaply.

3. Medi-care. A huge system, from what I understand virtually every person over age 65 is required to subscribe by private health insurers. So effectively, at that point in life where almost everyone starts needing lots of health care, private insurers start passing the cost of health care on to Government.

So, I guess the way our system works is the Government does all the dirty work, takes care of Veterans, Military folks and old folks, while private insurers cherry pick the people that need the least health care. Sound about right?

Motivation in Health Care

How can the US be such an economic dynamo, but be so bad at providing effective and economical health care. Perhaps the US problem lies in the motivation of the people that run health care in the US.

We all know that people are different. We all like money, but for some people it is a lot more important than others. Some people find happiness in money - or the power and security money provides. As the go through life at each decision point they chose the path that leads toward personal power and security - building businesses and accumulating wealth.

Some people find happiness in helping people. When they reach decision points in life where a money motivated person would perhaps chose business school, they chose to be a teacher. Instead of law school perhaps they become a nurse.

In the US Corporations pay for health insurance for their workers. Corporations own hospitals and other health care facilities. Corporations own Insurance companies that provide the Health insurance. All Corporations are run by people motivated by money. They have devoted their lives to climbing the corporate ladder. They know money and how to wield power, but they don't necessarily know how to take care of people.

Perhaps the US needs to find some way to put more people motivated primarily by quality health care in charge.

Tuesday, February 23, 2010

Economics 101 and Health Care

In the US we long ago adopted free markets as the basis of our health care system. Today we spend twice as much per person on health care as any other country in the world, but our lifespans are shorter than many other countries, and we are generally considered by the World Health Organization to have a pretty mediocre health care system.

Are we just inherently unhealthy people? Or is there some basic flaw in the way we do Health Care.

Perhaps we should go back to Economics 101 - Consider what it takes for a free market to work effectively -

1. Low barriers of entry - when demand exceeds supply it must be easy for other people to move into the business.

In the US you cannot be a doctor with going to a school approved by the Doctor's Union (the AMA) and then passing tests, and then working incredibly long hours for peanuts for years to get experience. The AMA has, effectively, a supply monopoly. We clearly fail the low barriers to entry test.

2. Buyers and sellers not acting under compulsion

If you go in to buy a car, and all the cars seem overpriced, you go to another dealer, buy a used car, or just don't buy anything and make due with your old car. So free markets work wonderfully for cars. Or toasters, or ...

On the other hand, if you have a heart attack, you are in no condition to shop around for a doctor, bicker about the price or just walk away if the price is to high. If your child breaks a leg falling off a bike, you aren't going to spend your time shopping around for the best deal, or just walk away for awhile if everything is to expensive. Health care fails the no compulsion test as to buyers.

To some extent our system substitutes insurance companies for us - we buy Insurance and it is up to the company to do the shopping around and negotiating. Two problems with this approach.

First, Insurance Companies are driven by the need to make profits, so they are constantly pulled toward the cheapest path. It may be cheaper to find ways to limit coverage than to negotiate. They aren't feeling the patients pain, they are feeling the stress of their balance sheet.

Second, there is still a limited supply of doctors. As long as the Doctors jointly hold out for certain levels of payment, the Insurance companies have less room to negotiate. Insurance companies are contractually obligated to provide coverage, they can't just walk away if Doctors are unreasonable (and we wouldn't like it if we had to routinely go to a Doctor or Hospital 150 miles away because it is more cost effective).

Comparing Health Care Systems

How does the US health care system stack up against other countries health care systems? According to World Health Organization studies:


In absolute terms - measured per person - the US spends twice as any other country, and far more than twice as much as most countries. As a percentage of Gross Domestic Product we rank number 2 - only the Marshall Islands spends a bigger percentage of their GDP on health care. Marshall Islands? Who are these upstarts who denied us number 1 ranking in blowing money on Health Care? According to wikipedia the Marshall Islands are tiny islands in the Pacific Ocean granted independance by the US in 1986 . The US used to use the Marshall Islands as a Nuclear Testing ground - they have wonderful pictures of mushroom clouds over the Marshal Islands. Gee, wonder why these little Islands in the tropical Pacific have to spend so much on Health Care?


In the effectiveness of the health care system the US ranks 37th out of 190 countries. The 36 countries that provide better overall health care all spend far less, both per capita and as a percentage of GDP. The 36 better countries include Islamist countries like Morocco, the United Arab Emerites and Saudi Arabia as well as Canada, England and Sweden, the western single payor systems often derided as "socialized medicine". Wretchedly governed Cuba is right behind us at 39th.


In life expectancy we rank 24th. Italians may still have an active communist party but they live quite a bit longer than us. Canada, England and Sweden, with government run single payer systems, all live longer than us. In Isreal, despite suicide bombers and the occasional missle, folks live longer than us.


In a study of selected countries looking at the performance of the health care system in preventing preventable deaths, of the 14 countries studied, the US was dead last. Two of the countries in the study were single payor "socialist" systems, England and Sweden.


But, take heart, although spending lots of money doesn't seem to keep us from being lousy at health care, as this is being written we kicking butt when it comes to the Olympic gold medal count.

Friday, February 19, 2010

Message to Independent voters

Don't be. It's like wearing designer jeans to a construction site. It may make you feel special, but you become irrelevant for actually getting things done. Political decisions are made by the major parties. When you step out of the major parties to be independent you turn over the primaries to folks with brains incapable of seeing two sides of any question. No big surprise that when it comes time to vote your choices aren't very appealing.
Rule number 110 about politics. Primary votes have become more important than general election votes, because the primaries are where the candidates who actually think about problem solving get bumped out by the folks who give the hardcore idealogues whatever they want to hear.
Even if it goes against your sense of self, register with a party and then hold your nose and vote for the candidate who seems to comprehend that there are actually two sides to almost every issue.

Sarah Palin

Two points:

1. Rule number 1 about politics - you can be a good person and be a lousy lawmaker. Or you can be a bad person and be a good lawmaker. It is not a good idea to mix up these concepts and think good person equals good lawmaker.

2. Sarah Palin needs to talk to Donald Rumsfeld. It seems like not only does she not know what she doesn't know. She doesn't know that she doesn't know what she doesn't know.

Thursday, February 18, 2010

More on Republicans, Democrats and Banks

After posting the previous post about the results of the two periods that Republicans controlled Government, I got to thinking about the fact that Bank failures were key to the great depression and the great recession (or whatever we end up calling it) that we are experiencing right now. I am old enough to remember the Savings and Loan Crisis of the 1980's that ended up costing taxpayers some 700 billion dollars or so to bail out bad financial decisions. I remember vaguely there was some legislation in the early years of President Reagan's presidency, that loosened up the restrictions on Savings and Loans that had been imposed after the disaster of the Great Depression. I don't recall the specific legislation, I do recall 5 Senator's later faced ethics charges for their activities relating to loosening up the regulation of Savings and Loans. Anyone out there remember the specific legislation? I will work up a little history of it if someone can identify the public law number.

But I went back to see who was controlling the levers of Government at that time. Ronald Reagan had been elected in a landslide in 1980 (and I voted for him). Republicans took control of the Senate, although Democrats continued to hold a substantial majority in the House. That situation continued - Republicans controlling the Senate and the Presidency, Democrats controlling the House, from 1980 through 1987. So it appears the Democrats get to share at least some of the responsibility for the legislation that set up the $700 billion dollar bill to the taxpayers for bailing out Savings and Loans. Once I identify the specific legislation I will do a blog on who was actively pushing it and what the justifications were.

Lower taxes & less regulation - not always the answer

Here is a little historical evidence regarding the wisdom of lowering taxes and reducing regulation as the solution to all government problems.

During the the last 100 years Republicans have controlled both houses of Congress and the Presidency for 6 to 8 years twice. During both periods their primary economic policy goal was lowering taxes and reducing government regulation. The first time was 1919 through 1932. The second time was from 2000 to 2006.

The first time after 10 years of Republican tax cuts and cutting regulation the 1929 stockmarket crash sent us into the great depression. Republicans tried to fix the great depression using "market" mechanisms between the 1929 crash and their loss of power in 1933. By that point we were mired in the worst depression of modern times, with unemployment reaching 25%.

The second time Republicans controlled both houses of Congress from 1995 through 2006, and the Presidency from 2000 to 2008. In the first 5 years the dot com bubble expanded until it burst. Over the next 5 years bubbles in commodities and housing expanded and burst as we rolled into 2007.

The two worst economic downtowns in the last 100 years happened at the end of lengthy periods of almost unfettered Republican control of public policy. Hmmmmm.