Well it's official - the state of Pennsylvania LOVES to tax its residents. One type of resident, however, seems to pay more than others. That resident is one who participates in 'sins,' like drinking (Allegheny County has a special drink tax to fund public transportation) smoking (currently about $2.45 per pack in PA) and gambling. MAdditional legislation is being proposed in Pittsburgh to tax gambling profits more so that the city can balance the books.
One sin flies under the radar, however, and it's actually worth examining - pornography.
It certainly makes one stop and ask why, doesn't it? After all, we're more than happy to tax smokers until they are literally blue in the face, and taxing adult beverages hasn't hurt profits or the number of drinks ordered. Doesn't it stand to reason that our society's appetite for pornography would remain consistent even with additional taxes?
Come to think of it, doesn't it make sense that the adult entertainers might actually be required to pay a portion of their hourly rate and claim 'tip' income, similar to my favorite waitress at Susie Q's?
While I'm no proponent of paying taxes, this industry has gotten a free pass too long and instead of burdening industries that are already paying more than their fair share, like bars and restaurants, shouldn't another industry shoulder some responsibility? Particularly when that industry likely serves alcohol and allows smoking?
So why don't our legislators touch this proposal with a ten foot pole (pun intended?) Only Senator Jane Orie, a Republican from McCandless, has attempted to tackle the debate so far, and she is getting no traction whatsoever.
As a free market thinker, it seems to me that our legislators are sending a clear signal that rather than stimulate the economy with tax paying businesses like restaurants, casinos, service companies, etc., they are suggesting it makes better business sense to get into the pornography industry. After all, it's basically a tax free business that has proven to be recession-proof. What kind of message is this? The industry is likely responsible for as many marital conflicts as drinking problems, gambling problems, etc., so if that's the hurdle to be classified a 'sin,' pornography definitely fits the bill.
It's got to be more than that. Perhaps our legislators have friends that run in these circles and contribute to not only their personal campaigns, but their personal entertainment as well. Who knows.
In any case, this is actually one tax I'd support completely, as it would actually legitimize the business, its participants and those who enter the darkened-doors.
Showing posts with label politics. Show all posts
Showing posts with label politics. Show all posts
Tuesday, November 3, 2009
Saturday, September 26, 2009
Answer truthfully.
Who can you name first, the Federal Reserve Chairman or Brad Pitt's wife?
That's what I thought. And while you're at it, why don't you take some time to explain to me the inner-working of the Federal Reserve system, like the number of branches it has, who the board of governors are and the primary role of the Federal Reserve. Psst. By the way, it is NOT the job of the Federal Reserve to insure your money at the bank. That's the FDIC, who we will mention later.
Not many Americans get beyond answering Angelina Jolie, by the way. Which is deliberate in design in my opinion.
After all, if you ran an organization that was created by Congress but wasn't responsible for opening its' books for audit, would you be in a hurry to make the organization well-known? That's exactly what are friends at the Federal Reserve are suggesting, by the way, when they appeared earlier this week in front of the House Financial Services Committee. The committee is suggesting the Federal Reserve open the books for an audit conducted by the GAO (General Accounting Office.) After all, it is our money and we would like to see exactly how it's being spent from time to time. And yes, I agree with Barney Frank on this one. Representative Frank is proposing this legislation.
The prevailing mentality seems to question what the Fed is hiding and why they don't want to open the books up for review by the very body that created their existence. Our friends at the Fed maintain the position that theirs "is a politically neutral position" and any dabbling in the books would have an adverse impact on the economy.
Psst. Excuse me, Mr. Bernake? Take a look around. The economy already is in shambles and by the way, I pay your salary and am your boss. Remember that Obama guy who re-appointed you? Yeah, well Joe Taxpayer voted him in and it's his job to make sure you're doing things right.
My thoughts? It's deeper than that. And at the risk of getting too technical, I'm going to tie-in previously mentioned FDIC (Federal Deposit Insurance Corporation) and our friend Shiela Bair. You're going to be hearing a lot from Sheila in the coming months, so I'd get used to hearing her name. She runs the FDIC, which is an insurance company in place that allows us to feel safe and secure knowing our money will be paid back to us if our bank should fail. The banks fund the insurance policy through their membership, and the organization was created in response to the great depression rush on the banks. Naturally the thought process was to avoid another run on banks when depositors felt unsure about their bank's stability.
Guess what, folks? They are running out of money at the FDIC. Sheila and her group had a balance of just over $45 billion in June of 2008 according to Fortune Magazine. As of close of business June of this year, the balance clung to about $10 billion. Gulp.
And with more banks set to fail (to date the FDIC has allowed 94 banks to fail this year and 25 last year) the FDIC is getting precariously close to the edge of needing it's own bailout. By the way, the FDIC has a list of over 400 troubled banks that could go under at any minute.
Shazam! Flash back to our friend Ben and his merry men at the Federal Reserve Board. The Fed has extended an open line of credit for up to $100 billion to the FDIC in case of emergency (think of it like a Visa card for you and a credit line of $1 million.) Additionally, new legislation passed this year allows the FDIC to hit that line for up to $500 billion in an extreme emergency. This is the same Fed that gave bailout funds, er, I mean TARP funds to banks like PNC so that they could buyout ailing banks at a 5% rate. Banks like National City, who otherwise would have already imploded and further hit the FDIC wallet, further reducing that $10 billion balance. Odds are good there's another bank of significance on the brink (Cough Cough... Citi....)
So back to our beginning question and resulting debate: Why is the Federal Reserve really afraid of opening up its' books and allowing the General Accounting Office to take a peek under the hood? Could it really be to avoid political bias, or could it be more a reason of fear. Fear that there is no oil in the engine, the battery is dead, the brake lines have been cut, the transmission is leaking and oh yeah, by the way, it's out of windshield wiper fluid too. I propose the latter.
One final note to ponder, and then I'll let you go this fine morning. The Federal Reserve raises funds through auctions of Treasury Bills and notes, also known as DEBT. You issue debt when you don't have enough money to meet short-term expenses. Joe Taxpayer is footing the bill for this.
Let the banks implode. Get rid of the Federal Reserve and let the FDIC figure it's own way out of this one. Enough of the fiscal parenting for lousy monetary policies. Let's get back to basics and provide budgets that are real and attainable and a government that is there to merely implement the will of the people.
I can't believe I actually agree with Barney Frank!
Who can you name first, the Federal Reserve Chairman or Brad Pitt's wife?
That's what I thought. And while you're at it, why don't you take some time to explain to me the inner-working of the Federal Reserve system, like the number of branches it has, who the board of governors are and the primary role of the Federal Reserve. Psst. By the way, it is NOT the job of the Federal Reserve to insure your money at the bank. That's the FDIC, who we will mention later.
Not many Americans get beyond answering Angelina Jolie, by the way. Which is deliberate in design in my opinion.
After all, if you ran an organization that was created by Congress but wasn't responsible for opening its' books for audit, would you be in a hurry to make the organization well-known? That's exactly what are friends at the Federal Reserve are suggesting, by the way, when they appeared earlier this week in front of the House Financial Services Committee. The committee is suggesting the Federal Reserve open the books for an audit conducted by the GAO (General Accounting Office.) After all, it is our money and we would like to see exactly how it's being spent from time to time. And yes, I agree with Barney Frank on this one. Representative Frank is proposing this legislation.
The prevailing mentality seems to question what the Fed is hiding and why they don't want to open the books up for review by the very body that created their existence. Our friends at the Fed maintain the position that theirs "is a politically neutral position" and any dabbling in the books would have an adverse impact on the economy.
Psst. Excuse me, Mr. Bernake? Take a look around. The economy already is in shambles and by the way, I pay your salary and am your boss. Remember that Obama guy who re-appointed you? Yeah, well Joe Taxpayer voted him in and it's his job to make sure you're doing things right.
My thoughts? It's deeper than that. And at the risk of getting too technical, I'm going to tie-in previously mentioned FDIC (Federal Deposit Insurance Corporation) and our friend Shiela Bair. You're going to be hearing a lot from Sheila in the coming months, so I'd get used to hearing her name. She runs the FDIC, which is an insurance company in place that allows us to feel safe and secure knowing our money will be paid back to us if our bank should fail. The banks fund the insurance policy through their membership, and the organization was created in response to the great depression rush on the banks. Naturally the thought process was to avoid another run on banks when depositors felt unsure about their bank's stability.
Guess what, folks? They are running out of money at the FDIC. Sheila and her group had a balance of just over $45 billion in June of 2008 according to Fortune Magazine. As of close of business June of this year, the balance clung to about $10 billion. Gulp.
And with more banks set to fail (to date the FDIC has allowed 94 banks to fail this year and 25 last year) the FDIC is getting precariously close to the edge of needing it's own bailout. By the way, the FDIC has a list of over 400 troubled banks that could go under at any minute.
Shazam! Flash back to our friend Ben and his merry men at the Federal Reserve Board. The Fed has extended an open line of credit for up to $100 billion to the FDIC in case of emergency (think of it like a Visa card for you and a credit line of $1 million.) Additionally, new legislation passed this year allows the FDIC to hit that line for up to $500 billion in an extreme emergency. This is the same Fed that gave bailout funds, er, I mean TARP funds to banks like PNC so that they could buyout ailing banks at a 5% rate. Banks like National City, who otherwise would have already imploded and further hit the FDIC wallet, further reducing that $10 billion balance. Odds are good there's another bank of significance on the brink (Cough Cough... Citi....)
So back to our beginning question and resulting debate: Why is the Federal Reserve really afraid of opening up its' books and allowing the General Accounting Office to take a peek under the hood? Could it really be to avoid political bias, or could it be more a reason of fear. Fear that there is no oil in the engine, the battery is dead, the brake lines have been cut, the transmission is leaking and oh yeah, by the way, it's out of windshield wiper fluid too. I propose the latter.
One final note to ponder, and then I'll let you go this fine morning. The Federal Reserve raises funds through auctions of Treasury Bills and notes, also known as DEBT. You issue debt when you don't have enough money to meet short-term expenses. Joe Taxpayer is footing the bill for this.
Let the banks implode. Get rid of the Federal Reserve and let the FDIC figure it's own way out of this one. Enough of the fiscal parenting for lousy monetary policies. Let's get back to basics and provide budgets that are real and attainable and a government that is there to merely implement the will of the people.
I can't believe I actually agree with Barney Frank!
Saturday, September 19, 2009
Banking on our uncertainty
In an story that caught about a ten second blurb this week on Friday morning, the Federal Reserve is working on a plan to not only monitor pay compensation but also one that will allow the Fed to adjust or change the pay practices at Wall Street financial firms. Not just firms that accepted bailout funds, but any financial firm that the Fed deems necessary based upon the firm's excessive risk-taking practices. Also note that the language does not simply limit the pay for executives at the firm. It has the right to limit the pay to anyone that works at the firm according to a Wall Street Journal report.
Excuse me, comrade?
Where does one begin in an attempt to shoot holes in this idea?
Perhaps the easiest target is the Federal Reserve itself. You know the group, right? The same group that sets interest rates in order to manipulate the economy, avoiding recessions, inflation, speculative practices, steering the U.S. to continued economic prosperity and ensure that banks continue to lend to businesses and indivuals that deserve a loan. How's that working so far, Mr. Bernake?
Maybe it's better to look at the Fed based upon the past. The same history that gave former Treasury Secretary Hank Paulson a blank check to bailout Wall Street firms (of which I was critical, I might add.) The same history that kept interest rates artificially low for too long in order to allow the gluttonous behavior to continue. The same history that took budget surpluses at the end of the 1990's to a whopping $11 trillion debt. Again I ask, how's that working?
Consider the impact of keeping overnight rates at 0% (not a typo) since December of last year and no sign that they are going up anytime soon, and then asking a banker to not take some risk with 'free' money. Oh yeah, while you're at, throw in the fact that the Fed is asking banks to make loans to get the economy rolling.
Oh, maybe I'm being too harsh.
Surely there's some good, right?
Ah yes, the same Federal Reserve that has partnered with ACORN since 1977 to enforce bank compliance with the Community Reinvestment Act. In mortgage land, CRA loans (as they are called) are also known as 'subprime' mortgage loans to folks that generally would not qualify for a home based upon credit or ability to repay. How's that working?
To be fair, I hate the banks. Ask any of my students, and they will tell you the adjectives I use to describe most bankers are "lazy, fat and boring. And lazy. Did I mention lazy?"
But to be true to my roots, I also believe in capitalism, entrepreneurial spirit and the corporate structure. If a publicly traded bank like, oh I dunno, Bank of America, wants to make loans it thinks will perform and reward shareholders, shouldn't they be allowed to do that? After all, it's their job to maximize shareholder wealth - not anyone else's wealth. SHAREHOLDER wealth. If the shareholders think the CEO and board are doing a lousy job by taking too much risk with too little potential return, they can (and often will) fire the CEO and replace the board.
Similarly, if the U.S. government wants to get into the banking business, they have two ready-made platforms to execute that plan while remaining outside the circle of overseeing pay for private firms. Maybe the names Fannie Mae and Freddie Mac ring a bell in your head. If the Fed wants to be in banking, turn Fannie and her brother Freddie into large national banks that are required to adhere to strict compensation, risk and corporate management guidelines. Make them play by the same liquidity rules as the other banks and let all of the banks duke it out. Guess who will win, comrades? Yep. You, me and cousin Vinny due to increased competition and a level playing field.
What's next? Will the Fed determine it's their job to monitor and adjust the pay for professional athletes? Does Big Ben really deserve $110 million to throw a football? After all, he's taking a LOT of risk going out there against 330 pound men eager to rip him to shreds. Maybe they will think that doctors should only earn "X" per year regardless of their specialty, or that accountants cannot earn more than "Y." The system is already in place around the country in the form of government pay scales and in many instances labor-contracts, which primarily exist between governments and their employees, the exceptions being large unions like the auto-workers, mine workers, steel workers, etc.
Farfetched? We already have a minimum wage. Doesn't it stand to reason there could be a maximum wage? And while we are accustom to having a minimum wage to assist those with few valuable skills and protect workers from abuse, how does it feel knowing the shoe could be on the other foot, limiting your skills and placing a maximum value on what you have to offer? It's not as crazy as it sounds, folks. And it's happening and a rapid pace.
I'm not in the predicting business, but here's one for ya.
There are going to be three very large national banks in the next three to five years that are entirely government run. Their names are Bank of American, Chase and Citigroup. They will be merged and monitored by Fannie Mae and Freddie Mac, who will report directly to the Federal Reserve Board. The Federal Reserve Board is going to become a fourth branch of government.
Hold onto your wallet and get out your voter card to make sure it's still either Republican, Democrat, Independent and not Socialist or Communist.
Excuse me, comrade?
Where does one begin in an attempt to shoot holes in this idea?
Perhaps the easiest target is the Federal Reserve itself. You know the group, right? The same group that sets interest rates in order to manipulate the economy, avoiding recessions, inflation, speculative practices, steering the U.S. to continued economic prosperity and ensure that banks continue to lend to businesses and indivuals that deserve a loan. How's that working so far, Mr. Bernake?
Maybe it's better to look at the Fed based upon the past. The same history that gave former Treasury Secretary Hank Paulson a blank check to bailout Wall Street firms (of which I was critical, I might add.) The same history that kept interest rates artificially low for too long in order to allow the gluttonous behavior to continue. The same history that took budget surpluses at the end of the 1990's to a whopping $11 trillion debt. Again I ask, how's that working?
Consider the impact of keeping overnight rates at 0% (not a typo) since December of last year and no sign that they are going up anytime soon, and then asking a banker to not take some risk with 'free' money. Oh yeah, while you're at, throw in the fact that the Fed is asking banks to make loans to get the economy rolling.
Oh, maybe I'm being too harsh.
Surely there's some good, right?
Ah yes, the same Federal Reserve that has partnered with ACORN since 1977 to enforce bank compliance with the Community Reinvestment Act. In mortgage land, CRA loans (as they are called) are also known as 'subprime' mortgage loans to folks that generally would not qualify for a home based upon credit or ability to repay. How's that working?
To be fair, I hate the banks. Ask any of my students, and they will tell you the adjectives I use to describe most bankers are "lazy, fat and boring. And lazy. Did I mention lazy?"
But to be true to my roots, I also believe in capitalism, entrepreneurial spirit and the corporate structure. If a publicly traded bank like, oh I dunno, Bank of America, wants to make loans it thinks will perform and reward shareholders, shouldn't they be allowed to do that? After all, it's their job to maximize shareholder wealth - not anyone else's wealth. SHAREHOLDER wealth. If the shareholders think the CEO and board are doing a lousy job by taking too much risk with too little potential return, they can (and often will) fire the CEO and replace the board.
Similarly, if the U.S. government wants to get into the banking business, they have two ready-made platforms to execute that plan while remaining outside the circle of overseeing pay for private firms. Maybe the names Fannie Mae and Freddie Mac ring a bell in your head. If the Fed wants to be in banking, turn Fannie and her brother Freddie into large national banks that are required to adhere to strict compensation, risk and corporate management guidelines. Make them play by the same liquidity rules as the other banks and let all of the banks duke it out. Guess who will win, comrades? Yep. You, me and cousin Vinny due to increased competition and a level playing field.
What's next? Will the Fed determine it's their job to monitor and adjust the pay for professional athletes? Does Big Ben really deserve $110 million to throw a football? After all, he's taking a LOT of risk going out there against 330 pound men eager to rip him to shreds. Maybe they will think that doctors should only earn "X" per year regardless of their specialty, or that accountants cannot earn more than "Y." The system is already in place around the country in the form of government pay scales and in many instances labor-contracts, which primarily exist between governments and their employees, the exceptions being large unions like the auto-workers, mine workers, steel workers, etc.
Farfetched? We already have a minimum wage. Doesn't it stand to reason there could be a maximum wage? And while we are accustom to having a minimum wage to assist those with few valuable skills and protect workers from abuse, how does it feel knowing the shoe could be on the other foot, limiting your skills and placing a maximum value on what you have to offer? It's not as crazy as it sounds, folks. And it's happening and a rapid pace.
I'm not in the predicting business, but here's one for ya.
There are going to be three very large national banks in the next three to five years that are entirely government run. Their names are Bank of American, Chase and Citigroup. They will be merged and monitored by Fannie Mae and Freddie Mac, who will report directly to the Federal Reserve Board. The Federal Reserve Board is going to become a fourth branch of government.
Hold onto your wallet and get out your voter card to make sure it's still either Republican, Democrat, Independent and not Socialist or Communist.
Monday, September 7, 2009
Labor of love
Happy Labor Day folks. The deliberate writing and delivery of this blog indicates that while I appreciate the day off, I probably don't need it right now. After all, the kids have been in school exactly one week, I've been working exactly three weeks and football season hasn't even started so there's no reason to need a Monday off right now. But I digress.
At the risk of becoming one of those nasty, right-winged, hatred filled, venomous fear-mongers, however, I think a few minutes should be spent on just how much it costs to run a business before we simply kick back enjoy a cold beer and some potato chips this afternoon sticking it to 'the man.'
First and foremost, please remember that 'the man' is risking everything so that others can have a job; one that supports a family, pays a mortgage, puts new wheels on the minivan, braces on little Suzie and maybe even creates memories from Disney World or the beach each summer. According the the Small Business Administration, 80% of the businesses in the U.S. are classified as small businesses as well, so we're not talking Enron, MCI, AIG (fill in the blank of your favorite dirtball CEO here.) We're talking middle class America - machine shops, pizza shops, lawn care, funeral homes and small industrial companies.
Now on to the financial facts.
In the U.S. we have a progressive tax, which is accountant-speak for "the more you make the more you pay." We also have something called a marginal tax rate, which is any amount above a certain limit but not as high as the next bracket. For corporations this total tax rate can be as low as 15% on the first $50,000 of taxable income to as high as 39% on income of $100,000. This is tax corporations pay at the federal level.
Naturally states want their take, too. The national average state income tax is about 6.5%, but we don't like to be average here in Pennsylvania. As a result, corporations in the Keystone State pay 9.9% corporate income tax. To be fair, a portion of the federal income tax can be eliminated when a company pays the state taxes, but according to the Tax Foundation, in 2008 Pennsylvania corporations paid a combined effective tax rate of nearly 42%, second only to Iowa. This is 3.5% more than a company in Japan, by the way, and a full 4% less than a company located in Germany and 6% more than a company in Canada (aren't they supposed to be taxed higher than us?)
Okay. So you're not good with percentages. I am, though. These figures show that if you have a company in Pennsylvania that has $100,000 in taxable income the CEO takes home (drumroll please).... a whopping $58,000!
The really great thing is that the corporate owners, also known as shareholders, get to pay taxes on their dividends too! This is called double-taxation if you're keeping score at home.
So let's go back to 'the man' and see how he's feeling right now. By the way, he (or she, to be fair) is probably only taking part of the day off since there is work to be done, payroll to process, paperwork to file or orders to be filled. Is it worth the risk to own a business, putting your personal livelihood, your kids future, your spouse's trust, on the line so that others can argue over personal days, vacation time, call in when it snows, etc.? I don't know.
According to CNN employers lost about $900 million in lost revenue during March Madness as a result of employees trolling the Internet to catch up on scores, fill in brackets, etc. Lost revenue is even higher for fantasy football.
It's enough to make me tired and need a day off. Hey, wait. That's what Labor Day is for!
At the risk of becoming one of those nasty, right-winged, hatred filled, venomous fear-mongers, however, I think a few minutes should be spent on just how much it costs to run a business before we simply kick back enjoy a cold beer and some potato chips this afternoon sticking it to 'the man.'
First and foremost, please remember that 'the man' is risking everything so that others can have a job; one that supports a family, pays a mortgage, puts new wheels on the minivan, braces on little Suzie and maybe even creates memories from Disney World or the beach each summer. According the the Small Business Administration, 80% of the businesses in the U.S. are classified as small businesses as well, so we're not talking Enron, MCI, AIG (fill in the blank of your favorite dirtball CEO here.) We're talking middle class America - machine shops, pizza shops, lawn care, funeral homes and small industrial companies.
Now on to the financial facts.
In the U.S. we have a progressive tax, which is accountant-speak for "the more you make the more you pay." We also have something called a marginal tax rate, which is any amount above a certain limit but not as high as the next bracket. For corporations this total tax rate can be as low as 15% on the first $50,000 of taxable income to as high as 39% on income of $100,000. This is tax corporations pay at the federal level.
Naturally states want their take, too. The national average state income tax is about 6.5%, but we don't like to be average here in Pennsylvania. As a result, corporations in the Keystone State pay 9.9% corporate income tax. To be fair, a portion of the federal income tax can be eliminated when a company pays the state taxes, but according to the Tax Foundation, in 2008 Pennsylvania corporations paid a combined effective tax rate of nearly 42%, second only to Iowa. This is 3.5% more than a company in Japan, by the way, and a full 4% less than a company located in Germany and 6% more than a company in Canada (aren't they supposed to be taxed higher than us?)
Okay. So you're not good with percentages. I am, though. These figures show that if you have a company in Pennsylvania that has $100,000 in taxable income the CEO takes home (drumroll please).... a whopping $58,000!
The really great thing is that the corporate owners, also known as shareholders, get to pay taxes on their dividends too! This is called double-taxation if you're keeping score at home.
So let's go back to 'the man' and see how he's feeling right now. By the way, he (or she, to be fair) is probably only taking part of the day off since there is work to be done, payroll to process, paperwork to file or orders to be filled. Is it worth the risk to own a business, putting your personal livelihood, your kids future, your spouse's trust, on the line so that others can argue over personal days, vacation time, call in when it snows, etc.? I don't know.
According to CNN employers lost about $900 million in lost revenue during March Madness as a result of employees trolling the Internet to catch up on scores, fill in brackets, etc. Lost revenue is even higher for fantasy football.
It's enough to make me tired and need a day off. Hey, wait. That's what Labor Day is for!
Tuesday, September 1, 2009
Lions, Tigers and Bears...and Black Swans?
I recently finished reading a book titled "Fooled by Randomness" by Professor Nassim Taleb. Taleb teaches Risk Engineering at NYU and is a former trader. He's a smart guy by any measure.
Taleb has spent most of his adult-life analyzing risk, learning to avoid risk and learning to profit from extraordinary circumstances. In finance they call these events "Black Swans;" the rare combination of a set of extraordinary events unfolding in the perfect order to create massive destruction to financial markets, models and financial plans, even by the most astute investor. For my friends in Western Pennsylvania, think of "Albino deer" or "Pittsburgh Pirates winning a pennant" and you'll understand how rare these occurences happen.
In short, Taleb also has been able to provide some evidence that we humans do a lousy job learning from the past, although we're more than capable of looking backwards after an event and criticizing the participants. If you have any doubt, simply listen to any call in sports show that takes calls from Monday morning quarterbacks analyzing what went wrong. They seldom offer a "how to make it better" solution, though.
Looking around and reading a recent letter addressed to President Obama from Taleb, I think it's time to recognize the Black Swan that might be in the room, cleverly disguised as indebtedness. In his letter, Taleb correctly points out that debt leaves little, if any, room for mistakes even in the best circumstances. Quoting the Roman proverb, "happy is he who owes nothing," I believe that the recent actions taken by all of our legislators have done nothing to stop the Black Swan from having offspring.
When you consider the fact that so much of our world is interdependent upon a million other fragments of society, the ability to identify potential hazards and trickle effects becomes nearly impossible to measure. (Measuring is what I like to do, by the way.) But how can one measure the impact of adding $9 trillion to the ever-expanding debt, which will exceed $20 trillion in ten years or less. How can adding debt to an already precarious position benefit anyone in the long run?
Taleb also correctly points out that many of the 'experts' are the same folks that created models that got us into the current (and most of the past) messes we are in today. Relying upon them to help solve the problem is merely a result of their own arrogance. Guess what arrogance leads to - more black swan events. Arrogance blinds us to our own predisposed prejudices, biases and flaws. Arrogance leads to group-think and herd mentality. Arrogance will lead us off of a cliff.
Cash for clunkers rewarded folks who bought vehicles that got lousy gas mileage. The bank bailouts rewarded Wall Street greed. Mortgage bailouts rewarded folks that bought too much house and speculated that prices would always go up. Auto bailouts rewarded lousy business models. Imagine rewarding your kids with a new car after they crashed the old one because they were drunk driving, or continuing to give your kids an allowance after they spent their savings on pot. You would never do that, would you? So why are we rewarding arrogant, risky behavior now? Because the 'experts' told us too, that's why.
In essence, we are rewarding poor judgement time and again and funding it from the tax payers who continue to play by the rules. Rewarding poor behavior is never a good option, but financing it with long term debt is an even worse solution.
FYI, following simply supply and demand mentality, please recognize that the cash for clunkers is going to hurt the poor. It always hurts the poor, despite our elected officials best intent. If we remove clunkers from the car lots, the supply of used cars will go down. The only folks that cashed in on the program were folks who could afford to buy a new vehicle, right? Of course. The clunkers have to be scrapped, but the number of people demanding them (college students, workers making minimum wage, single parents, etc.) hasn't gone down. Voila! More demand than supplies equals higher prices. Nice.
Urge your congress person to STOP funding risky behavior with your money. Oh, and leave a comment or two if you don't mind. Writing this stuff keeps me up at night.
Taleb has spent most of his adult-life analyzing risk, learning to avoid risk and learning to profit from extraordinary circumstances. In finance they call these events "Black Swans;" the rare combination of a set of extraordinary events unfolding in the perfect order to create massive destruction to financial markets, models and financial plans, even by the most astute investor. For my friends in Western Pennsylvania, think of "Albino deer" or "Pittsburgh Pirates winning a pennant" and you'll understand how rare these occurences happen.
In short, Taleb also has been able to provide some evidence that we humans do a lousy job learning from the past, although we're more than capable of looking backwards after an event and criticizing the participants. If you have any doubt, simply listen to any call in sports show that takes calls from Monday morning quarterbacks analyzing what went wrong. They seldom offer a "how to make it better" solution, though.
Looking around and reading a recent letter addressed to President Obama from Taleb, I think it's time to recognize the Black Swan that might be in the room, cleverly disguised as indebtedness. In his letter, Taleb correctly points out that debt leaves little, if any, room for mistakes even in the best circumstances. Quoting the Roman proverb, "happy is he who owes nothing," I believe that the recent actions taken by all of our legislators have done nothing to stop the Black Swan from having offspring.
When you consider the fact that so much of our world is interdependent upon a million other fragments of society, the ability to identify potential hazards and trickle effects becomes nearly impossible to measure. (Measuring is what I like to do, by the way.) But how can one measure the impact of adding $9 trillion to the ever-expanding debt, which will exceed $20 trillion in ten years or less. How can adding debt to an already precarious position benefit anyone in the long run?
Taleb also correctly points out that many of the 'experts' are the same folks that created models that got us into the current (and most of the past) messes we are in today. Relying upon them to help solve the problem is merely a result of their own arrogance. Guess what arrogance leads to - more black swan events. Arrogance blinds us to our own predisposed prejudices, biases and flaws. Arrogance leads to group-think and herd mentality. Arrogance will lead us off of a cliff.
Cash for clunkers rewarded folks who bought vehicles that got lousy gas mileage. The bank bailouts rewarded Wall Street greed. Mortgage bailouts rewarded folks that bought too much house and speculated that prices would always go up. Auto bailouts rewarded lousy business models. Imagine rewarding your kids with a new car after they crashed the old one because they were drunk driving, or continuing to give your kids an allowance after they spent their savings on pot. You would never do that, would you? So why are we rewarding arrogant, risky behavior now? Because the 'experts' told us too, that's why.
In essence, we are rewarding poor judgement time and again and funding it from the tax payers who continue to play by the rules. Rewarding poor behavior is never a good option, but financing it with long term debt is an even worse solution.
FYI, following simply supply and demand mentality, please recognize that the cash for clunkers is going to hurt the poor. It always hurts the poor, despite our elected officials best intent. If we remove clunkers from the car lots, the supply of used cars will go down. The only folks that cashed in on the program were folks who could afford to buy a new vehicle, right? Of course. The clunkers have to be scrapped, but the number of people demanding them (college students, workers making minimum wage, single parents, etc.) hasn't gone down. Voila! More demand than supplies equals higher prices. Nice.
Urge your congress person to STOP funding risky behavior with your money. Oh, and leave a comment or two if you don't mind. Writing this stuff keeps me up at night.
Saturday, August 22, 2009
For the health of it
Ah it's that time of year again. Get the kids on the yellow bus, sit in traffic and think about stuff that bugs you.
Right now, one thing is bugging me (at least more than anything else) - healthcare reform.
Yes, it's controversial and yes, it's annoying but the reality is something is going to happen this year regarding healthcare and insurance whether you like it or not. Apparently to have an opinion differing from those in elected positions makes one 'Un-American' or an extremist.
However, I am going to propose something different with this blog today. I am going to suggest that people can actually have a civil conversation and debate about creative ways to help solve this problem. Here are the rules:
1. No berating an opposing view.
2. Your argument must be supported by facts
3. Please refrain from salty language (that's only allowed by me, the host. It's the only priviledge I get to enjoy.)
4. Have fun and no solution is off limits. (That's called brain storming - something politicians in DC are incapable of doing because it involves having a brain to storm with.)
So here's my idea (yes, my bullet-proof vest is zipped up and I have my big boy pants on.)
Require surgeons to post their performance, or track record, showing how many operations they've performed, the number of medical related issues that resulted from these operations and the years of experience their staff has. Basically a surgeon would be required to give a three year history on patients after the surgery. (Think of it like the label on the back of a breakfast cereal, only something that's easily written on an 8.5 x 11 piece of paper.)
Next, after reading the 'prospectus,' allow the patient the chance to either pay A) a price that includes the ability to sue the the doctor for malpractice or B) a price that does not allow the patient to sue for pain and suffering, but only lost wages.
In the auto industry they call this 'tort' or 'no tort.'
Now before you go berzerk on me, consider the following:
According to statistics from Stanford University, in 2005 about 20 million people underwent surgery with anesthesia. 12,000 of those patients died from a surgery that was unnecessary (i.e - plastic surgery, elective surgery, etc.) 106,000 died from medication errors associated with the surgery, 20,000 from hospital errors and 80,000 from infections resulting from the surgery (National Ledger, 8/21/2009.)
Let me do the math for you. That means that .1% of all surgeries resulted in death due to hospital errors during surgery. Other patients that died were a result of surgery that was not elective and required immediacy, such as heart attacks, cancer treatment, horrific accidents, etc. Let's call these things 'unpreventable' and outside of a hospitals ability to 'fix.'
Consider some of these facts, also from the National Ledger and confirmed from other sources such as National Institute on Health.
A study conducted by the AMA revealed that despite spending $3000 more per person on healthcare here in the US compared to Great Britain, twice as many American have diabetes and we also have a higher rate of heart attacks, strokes, lung disease and cancer than our friends across the pond.
What gives?
We're overmedicated folks. A forty-year study conducted by Dartmouth confirmed that as certain areas of the country spent more on healthcare, those folks died a faster pace than areas that spent less on health care. Is less really more?
The World Health Organization in 2008 found that the US has the worst track record compared to other industrialized nations when it came to preventable deaths due to treatable conditions such as bacterial infections and and complications from surgeries (both of which occur in hospitals, I might add.)
Next, cap the number/type of prescriptions one doctor can write. Do we really need auto-refills from an answering machine at the local pharmacy? Shouldn't SOMEONE monitor how the prescriptions are working PRIOR to reordering?
From personal experience, I literally stopped taking medication because I felt better and have eliminated my acid reflux problem. I still have 97 pills left from a 100 pill order, but the auto dialer at the pharmacy called to remind me that my prescription can be refilled and to place my order soon.
I am not an automobile needing an oil change.
Instead, through preventive maintenance NOT induced by drugs (you know, running, eating better and going to bed at a reasonable time) I helped my body heal. Old fashioned approach, but something that works quite well; not just for me but for all of us. We're not unique, folks, despite what people tell us.
So there it is.
We spend twice as much as Britain for care that is worse, so the solution before you and the rest of America is to do what? Spend more money?
Money is not the answer. In fact, money is what got us into this mess. Money for the drug companies, money for the lawyers, money for victims.
No. Remove the monetary element and begin letting people choose.
I anticipate many comments, discussions and ideas. That's what this is all about.
Right now, one thing is bugging me (at least more than anything else) - healthcare reform.
Yes, it's controversial and yes, it's annoying but the reality is something is going to happen this year regarding healthcare and insurance whether you like it or not. Apparently to have an opinion differing from those in elected positions makes one 'Un-American' or an extremist.
However, I am going to propose something different with this blog today. I am going to suggest that people can actually have a civil conversation and debate about creative ways to help solve this problem. Here are the rules:
1. No berating an opposing view.
2. Your argument must be supported by facts
3. Please refrain from salty language (that's only allowed by me, the host. It's the only priviledge I get to enjoy.)
4. Have fun and no solution is off limits. (That's called brain storming - something politicians in DC are incapable of doing because it involves having a brain to storm with.)
So here's my idea (yes, my bullet-proof vest is zipped up and I have my big boy pants on.)
Require surgeons to post their performance, or track record, showing how many operations they've performed, the number of medical related issues that resulted from these operations and the years of experience their staff has. Basically a surgeon would be required to give a three year history on patients after the surgery. (Think of it like the label on the back of a breakfast cereal, only something that's easily written on an 8.5 x 11 piece of paper.)
Next, after reading the 'prospectus,' allow the patient the chance to either pay A) a price that includes the ability to sue the the doctor for malpractice or B) a price that does not allow the patient to sue for pain and suffering, but only lost wages.
In the auto industry they call this 'tort' or 'no tort.'
Now before you go berzerk on me, consider the following:
According to statistics from Stanford University, in 2005 about 20 million people underwent surgery with anesthesia. 12,000 of those patients died from a surgery that was unnecessary (i.e - plastic surgery, elective surgery, etc.) 106,000 died from medication errors associated with the surgery, 20,000 from hospital errors and 80,000 from infections resulting from the surgery (National Ledger, 8/21/2009.)
Let me do the math for you. That means that .1% of all surgeries resulted in death due to hospital errors during surgery. Other patients that died were a result of surgery that was not elective and required immediacy, such as heart attacks, cancer treatment, horrific accidents, etc. Let's call these things 'unpreventable' and outside of a hospitals ability to 'fix.'
Consider some of these facts, also from the National Ledger and confirmed from other sources such as National Institute on Health.
A study conducted by the AMA revealed that despite spending $3000 more per person on healthcare here in the US compared to Great Britain, twice as many American have diabetes and we also have a higher rate of heart attacks, strokes, lung disease and cancer than our friends across the pond.
What gives?
We're overmedicated folks. A forty-year study conducted by Dartmouth confirmed that as certain areas of the country spent more on healthcare, those folks died a faster pace than areas that spent less on health care. Is less really more?
The World Health Organization in 2008 found that the US has the worst track record compared to other industrialized nations when it came to preventable deaths due to treatable conditions such as bacterial infections and and complications from surgeries (both of which occur in hospitals, I might add.)
Next, cap the number/type of prescriptions one doctor can write. Do we really need auto-refills from an answering machine at the local pharmacy? Shouldn't SOMEONE monitor how the prescriptions are working PRIOR to reordering?
From personal experience, I literally stopped taking medication because I felt better and have eliminated my acid reflux problem. I still have 97 pills left from a 100 pill order, but the auto dialer at the pharmacy called to remind me that my prescription can be refilled and to place my order soon.
I am not an automobile needing an oil change.
Instead, through preventive maintenance NOT induced by drugs (you know, running, eating better and going to bed at a reasonable time) I helped my body heal. Old fashioned approach, but something that works quite well; not just for me but for all of us. We're not unique, folks, despite what people tell us.
So there it is.
We spend twice as much as Britain for care that is worse, so the solution before you and the rest of America is to do what? Spend more money?
Money is not the answer. In fact, money is what got us into this mess. Money for the drug companies, money for the lawyers, money for victims.
No. Remove the monetary element and begin letting people choose.
I anticipate many comments, discussions and ideas. That's what this is all about.
Monday, August 3, 2009
Improving Education
If you don't mind I'm going to pull away from healthcare reform and the stock market this week and discuss something that is near and dear to my heart - education. As a proud member of the Mars Area School Board I am a huge proponent of educating our young adults; not just so that they can get a better job and create a higher standard of living, but also so they can appreciate the gifts our world and our neighbors have to offer. Call it "education for the sake of education," I guess.
With that said, much has been said about finding ways to improve our educational system. One such proposal involves merit pay for teachers. On the surface this appears to be a great idea, and I'd challenge anyone to oppose methods for improving student performance.
However, when you look behind the numbers, it's very important to discover what the carrot tied to the stick is before implementing policies that reward teachers for improvements by their students. Additionally, it's important to evaluate administrators and their effectiveness.
Current proposals for merit pay seem to focus on improving test scores, which seems like a very real indicator of whether teaching methods are working and students are improving. After all, improved exit exams are clearly a sign that teachers are doing a better job teaching the things we deem to be important, right?
Not so fast.
Many economists have begun to analyze merit pay based upon improved scores and are discovering that teaching effectiveness actually decreases when financial incentive is tied to standardized tests such as the ones being proposed by congress. In fact, while scores certainly improve, student performance in areas goes down.
How can this be?
In order to analyze this, one needs to look behind the numbers and look at motivators. What motivates someone to teach?
First and foremost, it's pretty safe to assume that one enters the teaching profession to impact others first and make money second. In fact, the same holds true for police officers, social workers, nurses and healthcare workers and other community related type of professions. Motivators for this group would be things that impact the world socially first. Economists call these "social motivators (we're not much for creativity when it comes to naming things. Sorry.)
As a result, improving big societal topics like reducing childhood obesity, reducing violent crimes, reducing illiteracy, etc. are things that these groups would find quite endearing and they'd be happy to be a part of the solution. The evaluation process is cumbersome, time-consuming and difficult to measure; particularly over a short period.
However, when the "carrot" becomes something easily measurable, such as improved test scores, increased attendance or reduced drop out rates, the workers can and do modify their behavior so that they achieve the desired results.
Think about it for a minute. If you were given the opportunity to earn a 10% bonus based upon your product (children) improving their test scores, would you modify your teaching plans to include everything on the test? Absolutely. However, you might be overlooking true learning that occurs day to day; what everyone, including our President, is calling 'teachable moments.' Should we sacrifice teachable moments for the sake of a 1%, 2% or 5% improvement in test scores?
Study after study is beginning to reveal that merit pay for teachers might not be a fundamentally sound idea for this very reason. Imagine a police officer that worked on commission, earning $10 for every speeding ticket he or she generated. How about a firefighter that earned a commission on every fire they put out? (Would this lead to an increase in fires as well?) Maybe a doctor should earn commission on the number of surgeries he or she performs (aren't we going down this road already? How's that working out?)
Additionally, studies are showing that the amount of money spent per pupil does not actually equate to improved student scores. This flies in the face of everything we're being told by legislators, yet we continue to believe that spending more money per pupil is the only solution. After all, money fixes everything here in the US. In fact, we spend more per pupil in the US than any other country in the Western Hemisphere. The return our investment is less than stellar if measured in economic terms.
Perhaps an overhaul of our education system is needed. Let's start with reptition. How can we expect students to learn and retain anything when they only need to go 1/2 of a year?
No. There needs to be merit based performance incentives, but the carrot needs to be something other than test scores. It needs to directly tied to things that the instructor can control, such as his or her daily attendance, improving communications with parents or guardians (both positive and negative communications) and representing the employer (in this case the school district) in a favorable light through community involvement, fundraisers, etc. - things that occur outside of normal school hours so that they can continue to do what they do best, which is teach.
Perhaps congress and the current administration could dangle a carrot tied to going year-round or districts that offer longer school days. Imagine how much your personal performance at work would improve if you were required to work 45 hours per week. Currently students in Pennsylvania high schools have to have 5.5 hours per day, five days per week, of instruction time. That's 27.5 hours per week, 180 days per year. If you want to stretch this over the entire year, it would be the equivalent of working a part-time job 13 hours per week, or a day and a half per week, all year. You can't learn anything of substance in this timeframe.
And we want to tie teachers down with more standardized tests? It's counter-intuitive, but it tugs at our emotional reasoning.
This is called Behavioral Economics, by the way.
I know that my ideas are not popular right now, and most likely, society is going to put merit pay in place based upon test scores. Additionally, I don't see any politician suggesting full-time, 8 hours per day for students aged 12 and older. Don't look for it anytime soon, either.
Let me be one of many others to verbally come out and say this is a bad idea and will ultimately lead us to a decrease in efficiency as a society. If you have any doubts, look at the runway of failed education reforms like No Child Left Behind, Standardized Exit exams, etc.
We're not solving the bigger problems which is teaching students to embrace learning for learning's sake. That's too hard.
With that said, much has been said about finding ways to improve our educational system. One such proposal involves merit pay for teachers. On the surface this appears to be a great idea, and I'd challenge anyone to oppose methods for improving student performance.
However, when you look behind the numbers, it's very important to discover what the carrot tied to the stick is before implementing policies that reward teachers for improvements by their students. Additionally, it's important to evaluate administrators and their effectiveness.
Current proposals for merit pay seem to focus on improving test scores, which seems like a very real indicator of whether teaching methods are working and students are improving. After all, improved exit exams are clearly a sign that teachers are doing a better job teaching the things we deem to be important, right?
Not so fast.
Many economists have begun to analyze merit pay based upon improved scores and are discovering that teaching effectiveness actually decreases when financial incentive is tied to standardized tests such as the ones being proposed by congress. In fact, while scores certainly improve, student performance in areas goes down.
How can this be?
In order to analyze this, one needs to look behind the numbers and look at motivators. What motivates someone to teach?
First and foremost, it's pretty safe to assume that one enters the teaching profession to impact others first and make money second. In fact, the same holds true for police officers, social workers, nurses and healthcare workers and other community related type of professions. Motivators for this group would be things that impact the world socially first. Economists call these "social motivators (we're not much for creativity when it comes to naming things. Sorry.)
As a result, improving big societal topics like reducing childhood obesity, reducing violent crimes, reducing illiteracy, etc. are things that these groups would find quite endearing and they'd be happy to be a part of the solution. The evaluation process is cumbersome, time-consuming and difficult to measure; particularly over a short period.
However, when the "carrot" becomes something easily measurable, such as improved test scores, increased attendance or reduced drop out rates, the workers can and do modify their behavior so that they achieve the desired results.
Think about it for a minute. If you were given the opportunity to earn a 10% bonus based upon your product (children) improving their test scores, would you modify your teaching plans to include everything on the test? Absolutely. However, you might be overlooking true learning that occurs day to day; what everyone, including our President, is calling 'teachable moments.' Should we sacrifice teachable moments for the sake of a 1%, 2% or 5% improvement in test scores?
Study after study is beginning to reveal that merit pay for teachers might not be a fundamentally sound idea for this very reason. Imagine a police officer that worked on commission, earning $10 for every speeding ticket he or she generated. How about a firefighter that earned a commission on every fire they put out? (Would this lead to an increase in fires as well?) Maybe a doctor should earn commission on the number of surgeries he or she performs (aren't we going down this road already? How's that working out?)
Additionally, studies are showing that the amount of money spent per pupil does not actually equate to improved student scores. This flies in the face of everything we're being told by legislators, yet we continue to believe that spending more money per pupil is the only solution. After all, money fixes everything here in the US. In fact, we spend more per pupil in the US than any other country in the Western Hemisphere. The return our investment is less than stellar if measured in economic terms.
Perhaps an overhaul of our education system is needed. Let's start with reptition. How can we expect students to learn and retain anything when they only need to go 1/2 of a year?
No. There needs to be merit based performance incentives, but the carrot needs to be something other than test scores. It needs to directly tied to things that the instructor can control, such as his or her daily attendance, improving communications with parents or guardians (both positive and negative communications) and representing the employer (in this case the school district) in a favorable light through community involvement, fundraisers, etc. - things that occur outside of normal school hours so that they can continue to do what they do best, which is teach.
Perhaps congress and the current administration could dangle a carrot tied to going year-round or districts that offer longer school days. Imagine how much your personal performance at work would improve if you were required to work 45 hours per week. Currently students in Pennsylvania high schools have to have 5.5 hours per day, five days per week, of instruction time. That's 27.5 hours per week, 180 days per year. If you want to stretch this over the entire year, it would be the equivalent of working a part-time job 13 hours per week, or a day and a half per week, all year. You can't learn anything of substance in this timeframe.
And we want to tie teachers down with more standardized tests? It's counter-intuitive, but it tugs at our emotional reasoning.
This is called Behavioral Economics, by the way.
I know that my ideas are not popular right now, and most likely, society is going to put merit pay in place based upon test scores. Additionally, I don't see any politician suggesting full-time, 8 hours per day for students aged 12 and older. Don't look for it anytime soon, either.
Let me be one of many others to verbally come out and say this is a bad idea and will ultimately lead us to a decrease in efficiency as a society. If you have any doubts, look at the runway of failed education reforms like No Child Left Behind, Standardized Exit exams, etc.
We're not solving the bigger problems which is teaching students to embrace learning for learning's sake. That's too hard.
Friday, July 10, 2009
Let's try this again
There ain't no cure for the summertime blues - that much is sure.
And the worldwide economy seems to support this theory, plodding along painfully slow like a Pittsburgh Pirate's baseball season.
The question I get most from students and friends is "when will it end?" Sadly, I don't know and I'm not sure anyone knows. Experts are currently feuding over another stimulus package, and I promised my wife and kids that I wouldn't get angry this summer so I won't touch that hot potato. Instead, I want to focus on the good things I see happening, despite unemployment at 9.5% (closer to 13% when you put part-time employment into the mix and assume they'd prefer to be full-time) and a California government writing I.O.U's while a Pennsylvania government can't do the one job they are elected to do - pass a budget.
I want to count the good things today, and there are many.
First and foremost is that there is finally productive conversations taking place at very high levels, unlike the previous six months of political maneuvering. I think that some (not all) of the politicians recognize that times are tough.
Gas prices are about $1.40 less this year than last year and we have already passed the traditional 'high mark' of July 4th. This bodes well to improve consumer sentiment in the coming months.
The stock market is flat, which beats the heck out of investments falling faster than a kid doing a cannonball at the local pool. Folks have finally seen the bleeding on their 401k's, IRA's and college savings accounts stop. In fact, they most likely saw the balances improve last quarter and they should be up about 10% year to date.
The herd is finally getting thinner as companies have begun to realize the impact of their cost cutting measures and the consumer is benefiting from the slimmer margins. I'm not suggesting we're spending more, but I am suggesting that we're at least spending the same and the feeling of doom and gloom is gone. There's light at the end of the tunnel.
Housing is near the bottom in most major markets, but not all. Here in Western PA, while the market is anything but robust, it is steady and homes are selling.
I am not about to call a bottom on a market, or a top for that matter. But I can observe, and right now, it seems to me that the worst is well behind us. And while we might not enjoy 6-8% growth for many years to come, I am going to suggest that a moderate 2-4% growth rate is not always a bad thing and beats the alternative of negative growth.
We're living within our means and that's a good thing. Banks are making loans to people who deserve them and those who pay their bills on time. How can that be bad?
Oh, and the best thing about July is that I go on vacation at the end of the month. I'm refreshed and ready to write, so please look for weekly updates. I also joined the Examiner.com staff as a freelance writer and will be tackling local business issues on a fairly regular basis. Add this site to your favorites please and leave some comments!
And the worldwide economy seems to support this theory, plodding along painfully slow like a Pittsburgh Pirate's baseball season.
The question I get most from students and friends is "when will it end?" Sadly, I don't know and I'm not sure anyone knows. Experts are currently feuding over another stimulus package, and I promised my wife and kids that I wouldn't get angry this summer so I won't touch that hot potato. Instead, I want to focus on the good things I see happening, despite unemployment at 9.5% (closer to 13% when you put part-time employment into the mix and assume they'd prefer to be full-time) and a California government writing I.O.U's while a Pennsylvania government can't do the one job they are elected to do - pass a budget.
I want to count the good things today, and there are many.
First and foremost is that there is finally productive conversations taking place at very high levels, unlike the previous six months of political maneuvering. I think that some (not all) of the politicians recognize that times are tough.
Gas prices are about $1.40 less this year than last year and we have already passed the traditional 'high mark' of July 4th. This bodes well to improve consumer sentiment in the coming months.
The stock market is flat, which beats the heck out of investments falling faster than a kid doing a cannonball at the local pool. Folks have finally seen the bleeding on their 401k's, IRA's and college savings accounts stop. In fact, they most likely saw the balances improve last quarter and they should be up about 10% year to date.
The herd is finally getting thinner as companies have begun to realize the impact of their cost cutting measures and the consumer is benefiting from the slimmer margins. I'm not suggesting we're spending more, but I am suggesting that we're at least spending the same and the feeling of doom and gloom is gone. There's light at the end of the tunnel.
Housing is near the bottom in most major markets, but not all. Here in Western PA, while the market is anything but robust, it is steady and homes are selling.
I am not about to call a bottom on a market, or a top for that matter. But I can observe, and right now, it seems to me that the worst is well behind us. And while we might not enjoy 6-8% growth for many years to come, I am going to suggest that a moderate 2-4% growth rate is not always a bad thing and beats the alternative of negative growth.
We're living within our means and that's a good thing. Banks are making loans to people who deserve them and those who pay their bills on time. How can that be bad?
Oh, and the best thing about July is that I go on vacation at the end of the month. I'm refreshed and ready to write, so please look for weekly updates. I also joined the Examiner.com staff as a freelance writer and will be tackling local business issues on a fairly regular basis. Add this site to your favorites please and leave some comments!
Friday, January 30, 2009
Stimulate this
So Congress is set to throw another $900 billion into the crapper on a stimulus package.
I'd like to spend the next few paragraphs explaining how this stimulus, designed to help Americans, is actually going to have a negative impact.
The stimulus, while containing some details, has one really significant piece of data that shows up - any company taking funds from the stimulus and/or tarp will be required to utilize products and services from American companies. This is being done as a way to create jobs.
Here's where I'm going to get in trouble, especially living in the rust belt.
It's going to KILL the economy rather than stimulate the economy. Here's why.
If a company, let's say Caterpillar, decides to take stimulus funds they are now immediately handcuffed to American suppliers, regardless of price. As a result, and through a really miserable few quarters, the American suppliers will not be required to go through competitive bidding to ensure they are a low-cost provider and high quality provider. This will result in higher priced materials going to Caterpillar.
Now Caterpillar, while certainly concerned about consumers, has also suffered in the past few quarters. Do you think that they will actually swallow the added costs associated with dealing with only a few suppliers? Yeah right. That cost will be passed on to the consumer through higher prices. (this is what we economists and finance folks call "Inflation.")
Given our current unemployment levels of about 7.5%, most real folks would have a hard time swallowing higher prices; especially since they, or someone they know, are probably unemployed.
Now, let's bring in the REALLY big issue with this stimulus. How would you feel if America did this and you were, oh, I don't know, China? Remember that little country that is home to nearly a third of the world's population? Oh yeah. By the way. The own a lot of our debt.
The Chinese Government probably wouldn't take too kindly to not being able to bid on American projects. And while I'm sure they'd like to play nicely together, maybe they'd decide that they would stop accepting bids from American companies. This is not a good scenario, but it is highly likely.
Also likely is the fact that they could literally deflate our currency by 25-40% overnight by simply selling the debt we owe them back into the market. This would create "hyper inflation," which is as scary as it sounds. Think "inflation on steroids" and you'll see my point.
Imagine walking into your grocery store today and paying $1 for a loaf of bread. Three days from now that same bread might cost $1.35. Next week it could be $1.60.
Finally, a good rule of thumb with regard to printing money and giving it away (that's what we're doing) is this: $1 trillion of new debt equals about $3000 per person additionally owed to pay back the national debt. We're currently paying over $1 billion per day in interest on this debt. Guess who gets to pay that? My kids. The cost to a family of four is about $126,000
Leave them alone. They are currently on the hook for about $33,000 (each) toward the debt.
Can't we show SOME responsibility and begin taking control of our financial lives? You CANNOT create consumer demand and solve financial issues by creating additional debt. For crying out loud, that's what got us into this mess in the first place!!!
If this makes you as angry as it makes me, check out the Adam Smith Institute blogsite to learn more about taking control of government finances.
And call your congressional representatives. Don't write them. Call them and wait to talk to a live voice. Tell them enough is enough and to stop spending your kids money.
I'd like to spend the next few paragraphs explaining how this stimulus, designed to help Americans, is actually going to have a negative impact.
The stimulus, while containing some details, has one really significant piece of data that shows up - any company taking funds from the stimulus and/or tarp will be required to utilize products and services from American companies. This is being done as a way to create jobs.
Here's where I'm going to get in trouble, especially living in the rust belt.
It's going to KILL the economy rather than stimulate the economy. Here's why.
If a company, let's say Caterpillar, decides to take stimulus funds they are now immediately handcuffed to American suppliers, regardless of price. As a result, and through a really miserable few quarters, the American suppliers will not be required to go through competitive bidding to ensure they are a low-cost provider and high quality provider. This will result in higher priced materials going to Caterpillar.
Now Caterpillar, while certainly concerned about consumers, has also suffered in the past few quarters. Do you think that they will actually swallow the added costs associated with dealing with only a few suppliers? Yeah right. That cost will be passed on to the consumer through higher prices. (this is what we economists and finance folks call "Inflation.")
Given our current unemployment levels of about 7.5%, most real folks would have a hard time swallowing higher prices; especially since they, or someone they know, are probably unemployed.
Now, let's bring in the REALLY big issue with this stimulus. How would you feel if America did this and you were, oh, I don't know, China? Remember that little country that is home to nearly a third of the world's population? Oh yeah. By the way. The own a lot of our debt.
The Chinese Government probably wouldn't take too kindly to not being able to bid on American projects. And while I'm sure they'd like to play nicely together, maybe they'd decide that they would stop accepting bids from American companies. This is not a good scenario, but it is highly likely.
Also likely is the fact that they could literally deflate our currency by 25-40% overnight by simply selling the debt we owe them back into the market. This would create "hyper inflation," which is as scary as it sounds. Think "inflation on steroids" and you'll see my point.
Imagine walking into your grocery store today and paying $1 for a loaf of bread. Three days from now that same bread might cost $1.35. Next week it could be $1.60.
Finally, a good rule of thumb with regard to printing money and giving it away (that's what we're doing) is this: $1 trillion of new debt equals about $3000 per person additionally owed to pay back the national debt. We're currently paying over $1 billion per day in interest on this debt. Guess who gets to pay that? My kids. The cost to a family of four is about $126,000
Leave them alone. They are currently on the hook for about $33,000 (each) toward the debt.
Can't we show SOME responsibility and begin taking control of our financial lives? You CANNOT create consumer demand and solve financial issues by creating additional debt. For crying out loud, that's what got us into this mess in the first place!!!
If this makes you as angry as it makes me, check out the Adam Smith Institute blogsite to learn more about taking control of government finances.
And call your congressional representatives. Don't write them. Call them and wait to talk to a live voice. Tell them enough is enough and to stop spending your kids money.
Sunday, November 2, 2008
Election election
What to do on Tuesday... that seems to be a perplexing thought for many of us. And while the obvious thing for me to do is blog about what seems to be a never-ending campaign of change, mavericks and mudslinging (I live in THE swing state, PA) I think that I'd rather try to uncover nuggets of truths that can help you improve your business.
In order to do this, however, we need to take the opposite approach of each candidate - who seem to be promising immediate change on everything without really planning for long-term issues.
As business people, we need to step away from our personal feelings for a few minutes in order to plan. Set our emotions aside, our personal ideologies aside and really plan for "what if" scenarios. What if Senator Obama is elected? What happens if McCain is elected? What if... you get my point.
With that said, the best advice I can give you is to begin proper planning NOW based upon either scenario. In fact, this should have been done as soon as it became evident who each party's nominee would be. It's not too late, though.
Set up a network consisting of a financial planner, accountant, attorney, local politician, marketing guru, real estate expert, college administrator, teacher, advertising person and restauranteer. Add more if you would like, but this is my mix and it seems to give me ten different angles on any certain issue.
Then ask your experts to give you "what if" scenarios based upon both candidates. You will now have 20 different insights to the same problem.
NOW you can begin to plan accordingly for the next four years based upon something other than our your own personal subjectivity. In fact, you may gain insight into multiple political views, economic arguments, educational debates and taxing issues as they relate to YOUR business.
Does it sound like you have just improved your bottom line? You betcha.
Ask each of your sources to do a SWOT analysis on your business based upon their what-if scenarios. A SWOT analysis, in case you don't know, stands for Strengths, Weaknesses, Opportunities, Threats as they relate to any item; most notably your business. Again, with ten or more experts at your disposal, you will get many answers to your questions and their personal analysis of your business. That's powerful stuff.
The other indirect benefit of doing this is that you've just included yourself in a very exclusive club compromised of various professionals in multiple industries rather than surround yourself with folks just like you. And while it might be uncomfortable for a short-time, the long-term benefits of obtaining differing views will yield results you cannot even imagine. In fact, these views will likely lead you to new markets, products and business ventures you might not have ever imagined.
Get out and vote with your conscience, but use your brain when it comes to business planning.
Drop me a comment below and let me know what you think.
In order to do this, however, we need to take the opposite approach of each candidate - who seem to be promising immediate change on everything without really planning for long-term issues.
As business people, we need to step away from our personal feelings for a few minutes in order to plan. Set our emotions aside, our personal ideologies aside and really plan for "what if" scenarios. What if Senator Obama is elected? What happens if McCain is elected? What if... you get my point.
With that said, the best advice I can give you is to begin proper planning NOW based upon either scenario. In fact, this should have been done as soon as it became evident who each party's nominee would be. It's not too late, though.
Set up a network consisting of a financial planner, accountant, attorney, local politician, marketing guru, real estate expert, college administrator, teacher, advertising person and restauranteer. Add more if you would like, but this is my mix and it seems to give me ten different angles on any certain issue.
Then ask your experts to give you "what if" scenarios based upon both candidates. You will now have 20 different insights to the same problem.
NOW you can begin to plan accordingly for the next four years based upon something other than our your own personal subjectivity. In fact, you may gain insight into multiple political views, economic arguments, educational debates and taxing issues as they relate to YOUR business.
Does it sound like you have just improved your bottom line? You betcha.
Ask each of your sources to do a SWOT analysis on your business based upon their what-if scenarios. A SWOT analysis, in case you don't know, stands for Strengths, Weaknesses, Opportunities, Threats as they relate to any item; most notably your business. Again, with ten or more experts at your disposal, you will get many answers to your questions and their personal analysis of your business. That's powerful stuff.
The other indirect benefit of doing this is that you've just included yourself in a very exclusive club compromised of various professionals in multiple industries rather than surround yourself with folks just like you. And while it might be uncomfortable for a short-time, the long-term benefits of obtaining differing views will yield results you cannot even imagine. In fact, these views will likely lead you to new markets, products and business ventures you might not have ever imagined.
Get out and vote with your conscience, but use your brain when it comes to business planning.
Drop me a comment below and let me know what you think.
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