JustinIdea

Minorities Holding-Back Minorities

The fact that an African-American firefighter would punch a Latino firefighter, because the Latino firefighter stood up for equality under the law, is ridiculous.  It's sad that some minorities want their employers to promote them based-on the color of their skin instead of the content of their character, and these are the ones who have been holding back minorities for the last 45 years.  Did they not listen to Martin Luther King, Jr - a man that is held up as a martyr among men and in the same esteem as George Washington and Abraham Lincoln?

"I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character."

The content of one's character is judged based-on merit and how they deal with others.  Holding minorities to a lesser standard than whites is reverse discrimination and does not hold true to the words that King spoke on August 28th, 1963.  If minorities aren't up to par competing based-on merit, they need to shape-up and start working harder and smarter, instead of complaining about discrimination.  Focusing on championing educational achievement in minority communities by the minorities themselves, like Booker T. Washington had done, would be a great start.

But too many minorities feel entitled today because of injustices that occurred in the past.  But do you know what?  This is America.  We aren't limited by a caste society where you must stay in the same social bracket that your parents were born in and perform the same job as them.  We have the freedom to be our own people.  If your workplace is discriminating against you, then quit and start your own company whose policies of non-discrimination will make you out-compete the competition and put them out-of-business.  

Yes, there is still racism in America, but it isn't nearly as bad as it was 50 or 150 years ago.  Today's racism is peanuts compared to then.  So stop complaining and start working, doing otherwise is a disservice to those that were enslaved and faced heavy discrimination in the past.  And if American-born minorities don't start working, then the immigrating minorities will leave them in the dust (and hopefully change the culture of laziness among some of the American-born ones at the same time).  Just look at President Obama.  He's the son of a Kenyan immigrant (no American slave roots).  It's the work ethic that counts.  

p.s. Apparently Supreme Court nominee Sonia Sotomayor doesn't agree that merit should be held above color.

Translating the 10 Principles of Economics for Non-Economists

In case you were wondering what is guiding all of those economists out their making decisions right now that will decide the future state of our economy (or if we'll have one), Yoram Bauman does a brilliant job of translating the 10 principles, so that non-economists can understand what is going on in the minds of economists.

From his blog: Random Observations for Students of Economics

Controlling Rising Health Care Costs - Give the Power to the People

Right now, Democrats and Republicans in Washington, D.C. are fighting over what type of system the United States should use to control skyrocketing health care costs.  I thought I would do some digging to see which plan will actually reduce costs.

The Plans:
    Democrats - Government-insured (especially a push for single-payer) health care
    Republicans - Private insurance and government out of the picture

I went digging and using data from the Center for Medicare and Medicaid Services, I found that the plans put forward by both the Democrats and Republicans will fail at controlling costs.  Costs have been rising even though Medicare, Medicaid, and private health insurance have been insuring a larger proportion of American's medical care since 1960, when the Great Society programs and employer- based health insurance really started to take-off.  If the given plans would save money, then the domination by government and private insurance should have already started yielding cost savings.  Instead, costs have been skyrocketing.
 
So I kept digging to see if there was any granule of data that would show me anything about why health care costs have been rising.  The devil was in the details. 

What are both plans missing?  The power of the consumer.  Insurance, whether government or privately-run, fails to contain costs.  Food is more important than health care, yet we don't need to buy food insurance to ensure every American is fed.  Since World War II, Americans have been relying more heavily on insurance than ever before to pay for health care.  

Digging through the data, I found that as Out-of-Pocket payments for health care have decreased as people shifted to insurance (both private and public), while health care costs soared and the types of health care paid for have stayed relatively stable.
  
The system that we have that is based-on insurance is the problem.  In order to lower health care costs, we need to get insurance (except for catastrophic) out of the picture and have consumers pay for their own health care.  Then everyone will be able to afford their own health care, on their own.

In order to create the system, the Federal Government will need to:

1. Tax employer-sponsored health insurance (to stop distorting the market)
2. limit federally-financed health care to Medicare for the elderly (they deserve to be paid-back for the money they put-in).
3. give Medicare beneficiaries accounts with pre-determined amounts of money to spend on health care that they can then use to shop around for non-catastrophic health care use (and this is what they're limited to).  Then give them catastrohpic coverage to cover the balance.
4. Make sure direct primary care providers are not defined as insurance companies for Medicare patients
5. Make illegal the practice of insurance companies limiting their payments to doctors within their "network", which is anti-competitive and hurts consumers.

State Governments that are serious about controlling health care costs will also make sure direct primary care providers, such as Qliance, are not defined as insurance companies.

Instituting these programs will take the incentive away for people to get insurance and will give the power of their health care decisions back to the American people.

For more info, check out:
"How to Cure Health Care" by Milton Friedman

Related Articles:
If Food Doesn't Require Insurance, Health Care Doesn't Require Insurance

The Best Sub-Prime Fixing Stimulus Idea I've Seen

From the NYTimes by Thomas Friedman - "The Open-Door Bailout"

“All you need to do is grant visas to two million Indians, Chinese and Koreans,” said Shekhar Gupta, editor of The Indian Express newspaper. “We will buy up all the subprime homes. We will work 18 hours a day to pay for them. We will immediately improve your savings rate — no Indian bank today has more than 2 percent nonperforming loans because not paying your mortgage is considered shameful here. And we will start new companies to create our own jobs and jobs for more Americans.”

Cost to the United States - Maybe $1-3 billion to go through all the paperwork, which sure beats wasting $800 billion on a stimulus package and $2.5 trillion to shore-up our financial system.  

Friedman continues by elaborating on how we became the wealthiest country in the world, which I think many Americans sometimes forget:

“Dear America, please remember how you got to be the wealthiest country in history. It wasn’t through protectionism, or state-owned banks or fearing free trade. No, the formula was very simple: build this really flexible, really open economy, tolerate creative destruction so dead capital is quickly redeployed to better ideas and companies, pour into it the most diverse, smart and energetic immigrants from every corner of the world and then stir and repeat, stir and repeat, stir and repeat, stir and repeat.”

The Next Four Years

It's great to see a barrier fall in America by Barack Obama being elected the first black President in our nation's history.  Although, many people have what will turn-out to be unrealistically high expectations of what will happen over the next four years, no matter how good their reasons are - the Law of Unintended Consequences still lives.  While Obama is great in some areas he falters in others, and just because an issue wasn't across every news screen during the election season doesn't mean that it isn't important.  I wish him the best as President of the United States and making the best decisions possible considering the circumstances our country is in.  The issues:

Very Excited About

• Obama's energy policy.  I'm hoping he picks Al Gore as Energy Secretary and has T. Boone Pickens head a panel of industry advisors.  Energy determines our foreign policy, so making a smart pick here will be his most important decision.
• A cap-and-trade carbon market where all carbon credits must be bought by private industry.  Allocating them among participants for free would create loads of corruption.  Also, if Democrats want to make sure our company's aren't at a competitive disadvantage to those in nation's with more lax environmental standards, they can make any company that produces or sells products in the United States buy carbon credits.
• The closing of Guantanamo Bay prison and hopefully all the other secret prisons the U.S. has.  We should not deny any person on earth their right against cruel and unusual punishment and to a fair and speedy trial by jury of the peers, not to mention access to a lawyer.
• The ending of the war in Iraq.  We shouldn't have been there in the first place.
• Hopefully the end of most rhetoric from the White House being about terrorism.
• America's world image being repaired as we stop Bush's use of "Cowboy Diplomacy"
• Stem Cell research using federal funds being legalized.  It's about time we started taking the lead further in this very important field of research.
• Federal investment in basic research increasing, so that the pace of innovation in our country picks up again.
• Intelligent Design not being given the same standing as Evolution in schools, because it is not a sound scientific theory.

Excited About

• The ability for Obama to make the R&D tax credit permanent.
• Greater potential investment in education.

Lukewarm About

• Obama's ability to hold government programs accountable.  With rock-solid majorities in the House and Senate, he won't be under as much pressure to find what should be given more money and what should be cut.  This was the one good thing Bush started, while he was in office: The President's Management Agenda.
• Ability of the Supreme Court to contain the Democrats with their majorities to overextending the government's role in the economy as long as Obama doesn't turn into a tyrant like FDR, when he tried to pack the Supreme Court.  Currently the Supreme Court is leaning slightly conservative with a 4-1-4 break-down, so any attempt at overstepping their bounds should hopefully be struck down.
• The Democrats being able to re-privatize the banking system in short order.  The government has no place running the banking system and further destroying the balance between risk-and-reward in the financial marketplace.

Concerned About

• Corporate taxes.  If Obama closes the tax loop holes and does not lower the corporate income tax rate, businesses will be forced to lay-off workers or raise prices in order to stay profitable, especially given the current circumstances.
• Health care.  Moving towards a single payer system will not make our health care better.  If you think government-run health care will work well, how well does government-run infrastructure work?  Oh yeah, that's why our government has underfunded our infrastructure by $2 trillion, which is why our infrastructure is degrading to the point of being a developing nation.  The only way to cut costs dramatically is to cut access.  If you want to check out the future of health care, check out Qliance 
• Personal income taxes.  Raising taxes never helps the country as government is less-efficient than the private sector at using the money it has, which is also why government workers are paid less.  Not only that, but Obama wants to raise taxes on those citizens that make more than $250,000.  At a time when the United States desperately needs investment in the country in order to create jobs and get out of the financial crisis, Obama wants to tax the group of people that invest most of their money back into the economy.  If you want to pay more taxes, you should voluntarily mail the extra amount of tax burden you would like to take to the Department of Treasury as a gift.  Here's the mailing address, so it is easier for you to increase your own tax burden. 

  Gifts to the United States

  U.S. Department of the Treasury  

  Credit Accounting Branch

  3700 East-West Highway, Room 622D

  Hyattsville, MD 20782

• Fannie Mae and Freddie Mac.  The Democrats will want to keep these institutions alive, but no company in America should be given an unfair, government-endowed advantage in the marketplace.  They helped to create the problem we're in today by creating excess liquidity in the financial markets due to their implicit government-guarantee, and now we're paying for it.
• Excessive Regulation.  Regulation in its current form is unnecessary.  We have already bestowed police powers on the Federal government, so it can prosecute companies and their officers for fraud and other crimes.  The Democrats will be tempted to over- regulate the markets, especially the financial ones, but hopefully they can't add too much regulation, or innovation will slow.
• The Government bailing out the auto industry.  The Democrats will be tempted to help the voters in Detroit that helped put them in power, but government intervention in industry only delays the inevitable.  If the companies are not able to quickly adapt to the market, they should be allowed to die, so that they stop draining resources from the economy.  If they want to invest in job re-training for these voters, then they should invest in job re-training instead of bailouts.

Very Concerned About

• America's future trade policy.  It doesn't matter if the economists voted Democrat or Republic, 95% support free trade.  Why?  Because, free trade brings prosperity to all parties involved and has created more jobs than it has destroyed.  Yes, we should hold other countries to our environmental standards, but the best way to bring about this would be to make companies that produce or sell products in the United States to join our future cap-and-trade system and by permits.
• The deficit.  Government spending needs to be kept in check, and it should stop mortgaging the future for the present.  No amount of stimulus will help revive the economy, because consumers and the federal government are over-leveraged and need to cut back on spending.  Democrats being able to control spending?  I don't think this has ever happened, and the Republicans haven't done much better.  They need to get Keynes's influence out of there.
• Monetary policy.  The government has put $5 trillion into the monetary system in the last two months, which is completely unsustainable and will most likely over time as it has time to sit create massive amounts of inflation.  Again, they need to get Keynes's influence out of there.
• Entitlement Programs.  The Democrats will want to raise taxes to cover these, but no matter what they try, they are sitting on a demographic time-bomb.  Entitlements will eat-up our economy if the system isn't reformed.

The Real United States Federal Deficit

During the Bush administration's reign, we've constantly heard the drumbeat about the ballooning federal budget deficit.  While deficits of $400+ billion dollars may sound like a lot, do they tell the entire story?  They don't.  The Federal Government has been manipulating the deficit numbers for the past 40 years in order to make itself appear healthier than it really is.  Is a Federal default likely?  It's a strong possibility with the impending retirement of the baby boomers.  While I hate to be pessimistic, realism is necessary and the stars are not aligned well for the Federal Government, and governments are not immune to default - remember Russia in 1998?

The Federal Government's deficit calculations are based-on the cash method of accounting, in conjunction with the unified method.  In the cash method, revenue is only recognized when cash is received and expenses recognized when cash is paid.  While it is very important to understand the cash flow of any entity, the cash method represents a dramatically distorted picture when it comes to the Federal Government's finances.

In 1968, Democratic President Lyndon B. Johnson had the Federal Government adopt a method of accounting known as "unified" budget accounting in order to allow his administration to use the Social Security surplus revenues to go against the then ballooning budget deficit caused by the Vietnam War.  Would a for-profit company be able to use surplus gains from its pension system and other obligations in order to show excess profits but not take a hit when those liabilities ballooned?  No, they wouldn't be able to.  These gimmicks would bring about an accounting scandal reminiscent of what happened with accounting manipulation at Enron and Worldcom.  So why does the government get to get away with it?  Good question.  Are the politicians in DC afraid the truth would be too great for the public to bear?

So what do the numbers really look like?  If you think a $400 billion deficit is big, you'll pass out from these.  

Note - 2004's huge increase is mostly due to the creation of the Medicare part D (Prescription Drug Benefit) plan

As you can see the Federal Government has been running an actual budget deficit of approximately $3 trillion a year for the last 10 years, with only one year of an actual surplus, which is about 20-30% of US GDP.  Sustainable? No, it's not.  Runaway spending has completely destroyed the Federal Government's financial position.  Currently the Federal Government is carrying $51 trillion in debt - $41 trillion from entitlements and $10 trillion in other liabilities.  If the Federal Government were a public corporation it would have a negative net worth and would be deemed insolvent.

So how can we make the Federal Government more accountable with this knowledge?

1. Replace use of the Unified Method with GAAP-based accrual accounting for Federal Government reporting (including taking into account the entitlement programs).
2. Modify the annual financial statements to show a Consolidated Income Statement, Balance Sheet, and Statement of Cash Flows, and put them at the beginning of the report to make them easily accessible.
3. Distribute financial statements to all registered voters in the country.  If shareholders of corporations are required to be sent this information, then the voters should receive it every year in the mail as well.
4. Require a balanced budget using GAAP-based accrual accounting. 
5. Reform the Entitlement System. 

Other Resources:

Defined Benefits, Loose Accounting - From CFO.com

What's the real federal deficit? - From USAToday.com

Financial Reports of the U.S. Government - From GAO.gov

Accounting Insolvency - From Bloomberg

Fudging the Budget - From the NY Times

Federal Deficit Reality - From Shadow Stats