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The Language of Finance

I read this article in The New Yorker about how important it is for everybody to learn and understand “the language of finance” so we can have informed discussion about the direction of our economy and decisions our elected leaders make. Got me thinking that I should make more of an effort to update this here blog. I will do my best.


Finally ready to negotiate

As I have already expressed, I find this whole government shutdown and threat to default to be quite surreal and frankly stupid. The Republicans, I think, are realizing that their position is untenable and are now scrambling to figure a way out so they can save face. I reached this conclusion because we now hear them “demanding” negotiations (for example here) having essentially dropped the idea of making any reforms to Obama Care. It’s as if simply having a conversation in the Roosevelt Room will vindicate their idiotic behavior.

But what is really crazy to me is that they are only start asking for a negotiation a week after the shutdown began. Don’t you think they could have proceeded with negotiations two months ago? It’s not as if this sprang out of nowhere.

I think the Administration and Democrats are right to refuse to negotiate under these circumstances. People have been talking about the debt limit and our budget shortfalls for many, many months. You could argue it was a centerpiece of the previous presidential election. It is not appropriate to demand a “negotiation” when the deadline has already passed.

If the Democrats do sit down for a negotiation they need to bring their own list of demands beyond “fund the government” and “pay our debts.” I’m thinking higher taxes on unearned income, creation of new 45% tax bracket on income over $1m, reduction in unnecessary oil and farm subsidies, etc. The Republicans want a negotiation, they better be prepared to give up something too. Saving the world economy from ruin because of stupid political grandstanding is not enough of a concession in my opinion.

GOP continues to baffle

The Republican approach to the fiscal situation of this country continues to baffle me. It is so short sighted and illogical. I am frustrated and annoyed with them.

From a Bloomberg article, “If we’re going to raise the amount of money we can borrow, we ought to do something about our spending problem and the lack of economic growth in our country,” Boehner said.

The way to do something about the “spending problem” (I vehemently disagree with this assertion, but for the sake of this post lets assume it’s true) is to STOP PASSING LAWS ORDERING THE SPENDING IN THE FIRST PLACE. This is not the appropriate time to be making these arguments. The money has already been spent and we need to pay our bills. Attempting to extract concessions regarding arguments already lost is childish. Closing the government and threatening the debt limit, essentially holding the entire country hostage, is only going to harm our economy and our people more. Republicans have no interest in governing, no sense of statesmanship and no grasp on how they are perceived by the majority of people in this country. They are undermining our standing in the world. They are hastening the end to our golden years. Thanks for nothing.

As a friend of mine recently said, “Republicans: We are ready to wreck the economy in order to prove we care about the economy.”

UPS Drops Employee Spouses From Health Plans

In an announcement earlier this week UPS, the largest global delivery service, announced their employees will no longer be able to insure spouses who can obtain health coverage through another company. Ultimately 15,000 people will be purged from their coverage universe beginning Jan 1, 2014. The decision is seen as a move to restrain ever increasing health care costs. UPS justified their decision in part by relying on the Affordable Care Act (“Obamacare”) saying, “Since the Affordable Care Act requires employers to provide affordable coverage, we believe your spouse should be covered by their own employer — just as UPS has a responsibility to offer coverage to you, our employee.” There is concern that UPS is the first of a wave of companies to reach this conclusion. 

I see the above as a perfect example why we should switch to a single-payer insurance program and forget this belief that getting insurance through your employer is somehow more efficient and preferable. While I do not doubt the sincerity of UPS’s position, I can’t see how this decision is going to result in better health care. A plan that is available to UPS employees may not be available to the spouses of their employees. Does it make sense for a mother to be insured by Aetna and the father to be insured by BlueCross? What is stopping UPS from saying the child of any employee who could be insured by their spouse’s employer is no longer eligible for coverage? Companies should not be directly responsible for paying for the health care of their employees. I have many thoughts:

First of all many, if not most, companies are not as large as UPS and therefore it is more difficult to purchase health coverage that is cost effective. Because of the size of UPS they are in a stronger bargaining position to demand cheaper rates and access to better hospitals. (One should note that by kicking 15,000 people off their rolls UPS is in effect weakening their purchasing power.) Relieving all companies from insuring their employees and instead dumping everybody into a single pool will maximize the power of the consumer to choose doctors or hospitals. Nearly every hospital accepts Medicare patients and therefore it is difficult to argue choice is somehow limited.

Second, in my opinion companies are not able to accurately value the benefit of providing good healthcare to their employees. By nature corporations are profit driven creatures. The focus is always going to be on increasing profits. One key way of doing that: cutting costs. This was one of the key motivating factors for UPS. They saw that they could save money by insuring less people. In the short run that will undoubtedly increase profits. But in the long run isn’t UPS concerned about alienating their employees? As suggested above, won’t forcing families to be on split plans potentially result in a less healthy, and presumably less productive, work force? Under a single-payer program UPS would not be constrained by needing to provide any coverage. They would be relieved of all insurance responsibilities. UPS would be free to focus exclusively on improving their package delivery services. 

Third somewhat related to #2, why should UPS be concerned about providing the best health care for their employees and their families? Sure there are some plausible reasons out there, but ultimately the company will always be able to replace a sick or dying (or dead) person with somebody new, somebody cheaper. A single-payer provider is not going to be constrained by that thinking. Instead the single-payer will be focused solely on providing the best care for everybody.

Fourth, one of the goals of Obamacare is to increase consumer choice and power. Yet we now have a company citing Obamacare as the reason they are going to limit their employees from being able to insure their families. Just seems perverse to me.

At the end of the day I don’t know how this decision by UPS will play out across the country and whether many, many other companies will follow suit. Maybe it will not be a transformative moment at all. All I do know is I read that article and thought this is a good example of why I don’t trust companies to be the gatekeepers responsible for providing access to health care. Do you feel the same way?

Book review: White House Burning

For anybody who wants to enhance their comprehension of the American deficit/debt crisis I highly recommend White House Burning by Simon Johnson and James Kwak. The authors go into great detail explaining how our government has managed to amass so much debt. I enjoyed reading it for several reasons.

First, it provides much needed context on the history of American indebtedness. The authors explain how prior to WWII and Bretton Woods Congress insisted on balancing the budget within a reasonable period of time. This is not to suggest the nation never ran deficits, but rather the government put balanced budgets near the top of their priority list. Leaving the gold standard coupled with the Dollar achieving reserve currency status changed the calculus, and priorities, for Congress. Money became cheap and the politics around money made it difficult for any elected official to credibly insist on balancing the budget.

Second, White House Burning makes a compelling case for government. The authors spend many pages giving examples of all of the great things the government does. From providing for the national defense to unemployment insurance to funding scientific research to guaranteeing loans for business and residences to providing access to health care the list is truly staggering. Reading through and truly processing all that the government does, one begins to appreciate the value it adds to our lives every single day.

Third, this book helped me conceptualize what the driving costs of our deficit really are. Namely demographic trends. The social programs our government have provided are quite successful. People are living longer. That is great. It also means that more social security checks need to be sent every month and more doctor visits are made over a lifetime. These things cost money. The cost of providing those benefits and programs rises with the frequency and volume of consumption.

Fourth, one point the authors stressed which I found very insightful/troubling/eye opening: the government could announce tomorrow that they were going to cap medicare expenditures for everybody in a way that would solve the fiscal crisis completely. But that would just shift the burden from the government onto each individual to provide for themselves. Instead of Uncle Sam going broke, each citizen would go broke or be without medical care. In other words, solving the government debt crisis does not solve the problem of obscene health care costs. Seniors are particularly unable to provide for their own healthcare at reasonable costs. No insurance company is going to take on an individual in their 90s.  Similarly, cutting social security would just shift the burden of retirement to citizens from the government. That is not to say that people should not take responsibility for funding their own retirements. It is just pointing out that eliminating social security payments and taxes may help the government’s fiscal precariousness, but it does not mean people will be more successful at saving for retirement. I found this point sobering.

Fifth, Simon Johnson and James Kwak then provide a detailed list of suggestions to tackle the deficit problem. They state from the beginning that their goal is not to produce a budget that runs a surplus and pays off debt. Rather, they hope to end up with a budget that is sustainable over time. They note that over time the economy will continue to grow and appetite for US Treasuries (the primary funding source for the debt) should remain high. By taking steps to stabilize today and slow down the growth of the debt, they argue the “fiscal crisis” will pass.

In Conclusion: White House Burning is a fascinating book. It provides intelligent discussion about the history of government debt and articulates the main drivers of debt today. The book is laden with graphs and charts and references to reports and news articles. It does not stop at describing the situation but takes the brave step of recommending changes to solve the problems. For anybody looking for a comprehensive discussion regarding the U.S. Deficit and Debt I highly recommend White House Burning.

Drawing Congressional Districts Matters

Everybody knows that Barack Obama and the Democrats retained the presidency and a majority in the Senate by winning just about every single battle ground state. Everybody also knows that Republicans maintained their majority of the seats in the House of Representatives. I was trying to process this fact when I saw this tweet by @sethdmichaels which really got me thinking. In Michigan, Ohio, Pennsylvania, and Virginia the President won a clear majority of the vote. Further, ALL four Democrat senate candidates in those states won majorities of the vote. Yet the GOP won 42 of the 59 House races in play. Pretty amazing when you think about it. The GOP could not win the majority of votes in 8 separate state wide elections, but won over 70% of the House districts!

On Saturday November 10 I saw this post by Weigel and decided I needed to find concrete figures. I started collecting results from the Politico “Elections Results” page and compiling it into a spreadsheet. Could it be that Democrat candidates received more votes than GOP candidates? Is the effect of gerrymandering so great that it enabled the Republicans to win enough seats to retain the House?

I tabulated results from the following states: Michigan, Ohio, Pennsylvania, Virginia, Wisconsin and North Carolina.* In four of the states (Michigan, Pennsylvania, Wisconsin and North Carolina) there were more ballots cast for Democrat House candidates than Republican House candidates. Yet Republicans won 9 of 14 MI house races, 13 of 18 PA races, 5 of 8 WI races and 9 of 13^ NC races. In Ohio and Virginia the total House vote by party was fairly even (less than a 5 point spread in both) yet the GOP won 12 of 16 OH races and 8 of 11 VA races. In other words, of the 80 House races in these six states Republicans won 56 (70%) and Democrats won 23 (28.75%) with one race undecided.

Republicans control the state legislatures as well as most of the governorships in these states which means the GOP drew the new Congressional districts as a result of the 2010 census. This enabled the GOP to gerrymander the maps to give them the best chances to win. As the table shows, the Republicans did not let that power go to waste.

My comment: I point out these figures not because I think Republicans cheated or acted inappropriately. I am not crying that the system is rigged. I am sure Democrats did the same thing in the states they controlled (Maryland, New York, Illinios, and California immediately jump to mind) to exaggerate their numbers. I write this because I believe the system is flawed. The Democratic party won the Presidential popular vote, they won almost every major Senate toss up and they won more House ballots. To argue that House Republicans have “a mandate” that is on par with the President is sheer madness. The GOP disproportionately benefited from re-districting.

I am not trying to argue that the only reason the Republicans retained the House is due to redistricting. There are plenty of reasons which might explain the results. I am simply suggesting that by counting all House ballots together, as we do in the Presidential popular vote, we would see that the House would be much tighter.

If there is anything to take away from the data above, it is the importance of winning control of the district drawing process. The constitution mandates the government to conduct a census every 10 years and subsequently reapportion House districts to reflect the updated numbers. Strategists, pundits and voters alike should be sure to consider this power when the 2020 election rolls around.

* As I made this table less than one week after the election there are still votes to be counted. Totals are definitely going to change. That being said, the vast majority of votes have been counted and I find it unlikely that the results will change dramatically in any direction.

^ At the time of writing North Carolina’s Seventh district was too close to call. The Democrat candidate was listed as having a 533 vote lead. It is likely this race will go to a re-count.

Been busy – sort of

Friends and followers of tacwos you are probably asking yourself, “Why did that lazy bum stop writing already?” I’m here to tell you I have a good excuse! Recently I became a contributor to the website Emerging Money. I file a column there five days a week. You can find everything I have posted by following this link. It is a great site covering emerging markets with plenty of original, thoughtful content.

I do have a couple posts for this site that I started but never got around to finishing. I am hopeful to get them up soon. Thanks for your patience and keep sending me ideas of things you would like to see covered.