Wednesday, September 28, 2016

You Want to Fix the Economy? Then First Fix Healthcare

We don't just deserve an affordable, sustainable healthcare system--we're doomed to bankruptcy without one.
What is blindingly obvious to employers but apparently invisible to the average zero-business-experience mainstream pundit is this: if you want to fix the economy, you must first fix healthcare. If you want to pinpoint a primary reason why U.S. enterprises shift jobs overseas, you have to start with skyrocketing healthcare costs.
According to a report by the St. Louis Federal Reserve, real (adjusted for official inflation) wages have risen a mere 3% since 1970. (No wonder wage earners don't feel wealthier; if we use a more realistic measure of inflation, we haven't gained 3%--we've lost ground.)
But if we look at total compensation costs paid by the employer (health insurance, workers' compensation, employer's share of Social Security, etc.) we find that these costs have soared 60%. In other words, if these labor overhead costs had remained stable (i.e. gone up only as much as inflation), employers could have distributed raises of 60%.
These labor overhead costs are the reason why wages have been stagnant for 46 years, and the dominant overhead expense is healthcare insurance. Why has healthcare soared from 6% of GDP to 18% in four decades?
One reason is we have the worst of all possible worlds: we have a healthcare (what I call sickcare, because sickness is profitable but health is not) system in which for-profit corporations--cartels with immense political power--set the prices, and the government pays them.
If you set out to design a system that optimizes price-fixing, fraud, over-testing, questionable procedures, pharmaceutical advertising to a credulous public and opaque billing, a system with no real limits on prices, you'd end up with the American sickcare system.
If you think this system is affordable, sustainable, and a wonderful deal for employers, you need your head examined. Better yet, go out and get platinum coverage in ObamaCare and pay the entire monthly insurance cost yourself.
I have written dozens of substantial analyses of sickcare/healthcare over the years. Please start with these four:
Then move on to these:
While you're gasping for breath, check out these charts. Let's start with medical costs, which have outpaced inflation by leaps and bounds.
The costs of the federal healthcare programs, Medicare and Medicaid, are exploding: where are the trillions of dollars to fund these programs going to come from? Please don't say higher taxes (tax levels above 20% of GDP trigger recessions) or borrowing more money (federal debt is already pushing $20 trillion):
After a head-fake down, health insurance costs are soaring again.
Our developed-world competitors manage to pay for their "socialized medicine" at roughly half the cost per capita (per person) as the U.S.
So you want a solution, right? The current system is not a solution, it's a poisoned blade in the heart of the economy. Everybody knows this, just as everybody knows it's unaffordable and unsustainable.
The solution? Let a 100 flowers bloom. Give consumers as wide a choice as possible, including government-run insurance programs. Don't force anyone to join anything. Give employers and employees as broad a range of choices as possible--yes, including a government-run insurance program in which the government owns the entire operation--clinics, hospitals, drug manufacturers, etc., lock, stock and barrel.
The point here is we need real competition, but our current system guarantees there cannot be real competition. The for-profit cartels have captured the federal regulatory and funding agencies, and the last thing the cartels want is transparency and wide-open global competition.
Around 40% of the cost of the current mess is paperwork going back and forth between all the players; a one-stop shop would eliminate about 90% of those needless expenses right from the start.
Look, if the federal government offered a civilian equivalent of the Veterans Administration with its own pharmaceutical manufacturing divisions, do you really think it would cost more and be any more inefficient than the insane mess we have now? 
If it did cost more, then nobody would use it and it would go away.
In a truly competitive healthcare system, cash would be king. Please read this before passing judgment:
We don't just deserve an affordable, sustainable healthcare system--we're doomed to bankruptcy without one.


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Tuesday, September 27, 2016

Are The 'Invisible Americans' the Key Players in This Election?

Memo to the D.C. Beltway/mainstream media apologists and propagandists: the 25 million Invisible Americans are no longer buying your shuck-and-jive con job.
For the bottom 90% of American households, the "prosperity" of the "recovery" since 2009 is a bright shining lie. The phrase is from a history of the Vietnam War, A Bright Shining Lie: John Paul Vann and America in Vietnam.
Just as the Vietnam War was built on lies, propaganda, PR and rigged statistics(the infamous body counts--civilians killed as "collateral damage" counted as "enemy combatants"), so too is the "recovery" nothing but a pathetic tissue of PR, propaganda and lies. I have demolished the bogus 5.3% "increase" in median household income, the equally bogus "official inflation" body counts, oops I mean statistics, and the bogus unemployment rate:
I'm not the only one calling the "recovery" a lie: the chairman of Gallup, Jim Clifton, recently unloaded on the "recovery":
"I've been reading a lot about a "recovering" economy. It was even trumpeted on Page 1 of The New York Times and Financial Times last week. I don't think it's true.
The percentage of Americans who say they are in the middle or upper-middle class has fallen 10 percentage points, from a 61% average between 2000 and 2008 to 51% today."
Now that is a self-reported number. The reality is much worse: only 20% of American households possess the income and assets that characterize the middle class in financial terms. Granted, someone making $28,000 a year can self-identify as middle class, but if we look at basic metrics of financial security, they're not even close.
I have analyzed this in depth for years:
We got your "middle class" right here: see that little green slice of the pie? The upper middle class is the purple slice, and the top 10% is blue (most of this wealth is held by the top 1% and top 5%.)
Jim Clifton calls those who have been pushed out of the middle class Invisible Americans: here is his report:
"Ten percent of 250 million adults in the U.S. is 25 million people whose economic lives have crashed.
What the media is missing is that these 25 million people are invisible in the widely reported 4.9% official U.S. unemployment rate.
Let's say someone has a good middle-class job that pays $65,000 a year. That job goes away in a changing, disrupted world, and his new full-time job pays $14 per hour -- or about $28,000 per year. That devastated American remains counted as "full-time employed" because he still has full-time work -- although with drastically reduced pay and benefits. He has fallen out of the middle class and is invisible in current reporting.
More disastrous is the emotional toll on the person -- the sudden loss of household income can cause a crash of self-esteem and dignity, leading to an environment of desperation that we haven't seen since the Great Depression.
Millions of Americans, even if they themselves are gainfully employed in good jobs, are just one degree away from someone who is experiencing either unemployment, underemployment or falling wages. We know them all."
This is where the bright shining lies come in. The worker now earning $28,000 annually is counted as employed, but there is no official metric for the household's increasing insecurity and loss of opportunity.
Even worse, nobody tracks the erosion of benefits. Not only has nominal pay plummeted from $65,000 to $28,000, the deductions for the employee's share of healthcare insurance have skyrocketed, along with co-pays for meds, visits to a doctor, eyewear, etc.
The lucky employees may still receive the benefit of matching 401K retirement funds from the employer, but the matching sums have declined.
This is death by a thousand cuts. According to a report by the St. Louis Federal Reserve, real (adjusted for official inflation) wages have risen a mere 3% since 1970--46 years ago.
Could the 25 million Invisible Americans be the key swing demographic in the upcoming presidential election? As I noted in What If We're in a Depression But Don't Know It? (September 23, 2016), The top 5% of households that dominate government, Corporate America, finance, the Deep State and the media have been doing extraordinarily well during the past eight years of "recovery," and so they report that the economy is doing splendidly because they've done splendidly.
The gulf between reality and the official happy story of "recovery" spewed by the status quo's well-paid army of apparatchiks, flunkies, flacks, hacks, toadies, lackeys and functionaries gorging at the trough of the status quo is widening to the point of surrealism. Memo to the D.C. Beltway/mainstream media apologists and propagandists: the 25 million Invisible Americans are no longer buying your shuck-and-jive con job.


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Monday, September 26, 2016

Trump, Trade and Taxes

The best way to restart investment (and thus employment opportunities) is to make the U.S. a magnet for productive capital rather than a graveyard of tax-avoidance strategies.
Donald Trump has made trade agreements a central issue in this presidential election, declaring trade treaties such as the North American Free Trade Agreement (NAFTA) as unfair and subject to cancellation or renegotiation.
Setting aside the issue of whether presidents can cancel trade treaties via executive orders, let's look at the underlying issue: the erosion of manufacturing and entry-level job opportunities that lead to middle-class security and pay.
The question then becomes: what are the causes of this erosion of manufacturing and the middle class? Trade is relatively easy to finger because the flood of cheap goods into the U.S. coincided with the wholesale offshoring of manufacturing capacity.
But it isn't quite that simple. "Free" Trade, Jobs and Income Inequality: It's Not As Easy As We Might Think (March 22, 2016)
There are many other issues in play, including:
1. Currency manipulation, i.e. pegging one's currency (such as the Chinese RMB) to the US dollar to maintain a predictable cost advantage.
2. Technology, as automation reduces the inputs of human labor per output even in nations with few trade treaties.
3. Global wage arbitrage, as domestic corporations move production overseas to lower labor costs (exacerbated by insanely high costs of healthcare insurance for employees in the U.S.)
4. High tax rates on domestic corporations (35%) push companies overseas to lower tax nations.
5. Trade is grossly miscalculated by current metrics; if we calculate the value that actually flows to each nation that makes parts and software for the iPhone, we find that "Analysts estimate that as little as $10 of the value of every iPhone or iPad actually ends up in the Chinese economy, in the form of income paid directly to Foxconn or other contractors." Meanwhile, twenty times that sum flows directly to Apple HQ in Cupertino, California for software and profit.
"In a world dominated by mobile capital, mobile capital is the comparative advantage."
6. Triffin's paradox demands that any nation issuing the global reserve currency must run a trade deficit as a means of exporting the reserve currency into the global economy. I know this is counter-intuitive, but I've explained it many times over the years:
The Dollar and the Deep State (February 24, 2014)
In other words, if you want the Exorbitant Privilege of issuing the global reserve currency, you have to run a permanent trade deficit.
Let's look at what any president can influence/control and what is beyond their reach. Presidents can complain about currency manipulation and even threaten reprisals, but currency manipulation is not only a trade issue; it overlaps with diplomatic issues that extend far beyond trade. For example, the U.S. might tolerate some currency pegs to support key allies.
Any president's ability to limit automation, technology and "software eating the world" is essentially zero. Nations that attempt to limit or stifle technological advances end up stifling productivity and innovation, and as a result they are doomed to stagnation.
The same can be said of global wage arbitrage. There is very little any president can do to stop companies from taking advantage of the divergence of wages between states, nations and regions.
As for destroying the reserve currency (the U.S. dollar) in a quixotic quest for trade surpluses: look at Japan, which has consistently run trade surpluses while wallowing in decades of social and economic stagnation.
That said, there is one issue the president can influence: the tax rates on domestic corporations. Many nations use tax credits and the like to encourage manufacturers to maintain domestic production, but America's 35% corporate tax rate is an absolute job killer.
This high tax rate forces corporations to game the global tax system for zero benefit to the U.S. or its work force.
Trump would serve the nation and its work force best by lowering the corporate tax rate to a flat 5% for companies that maintained substantial facilities and work forces in the U.S. I submit that a flat 5% rate would actually collect more tax revenues than the 35% rate that pushes employers and employees overseas.
The corporate tax rate of 35% has perversely incentivized moving production and employees overseas. I have yet to meet anyone defending the sky-high nominal tax rates who actually employs people and pays the 35% corporate rate or operates a global corporation.
As an abstraction, the 35% rate appeals to "progressives" intent on punishing Corporate America for its many sins. But the reality is the "progressives" aiming at "evil corporations" have shot American workers in the chest.
The best way to restart investment (and thus employment opportunities) is to make the U.S. a magnet for productive capital rather than a graveyard of tax-avoidance strategies. The problem isn't trade per se; it's a perverse tax system that drives domestic employers overseas.
Of related interest:
"The truth is more complicated. Although imports have put some people out of work, trade is far from the most important factor behind the loss of manufacturing jobs. The main culprit is technology. Auto­mation and other technologies have enabled vast productivity and efficiency improvements, but they have also made many blue-collar jobs obsolete. One representative study, by the Center for Business and Economic Research at Ball State University, found that pro­ductivity growth accounted for more than 85 percent of the job loss in manufacturing between 2000 and 2010, a period when employment in that sector fell by 5.6 million. Just 13 percent of the overall job loss resulted from trade."


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Sunday, September 25, 2016

Why the Deep State Is Dumping Hillary

The governed are ready for a period of retrenchment, consolidation and diplomatic solutions to unwinnable conflicts, as imperfect as the peace might be to hawks.
Are you open to a somewhat unconventional perspective on this election? If so, read on. If you're absolutely confident you know all there is know about this election (good vs evil, Democrat vs. Republican, etc.), well then let's compare notes in five years and see which context provided more insight into the future.
In the context presented here, the personalities of the two candidates matter less than their perceived role in the changing of the Imperial Order. Let's start with a quick overview of the relationships between each political party and the Deep State--the unelected power centers of the central government that continue on regardless of which person or party is in elected office.
Liberal Democrats have always been uneasy bedfellows with the Deep State.Republican President Eisenhower had the political and military gravitas to put limits on the Military-Industrial wing of the Deep State, so much so that Democratic candidate John F. Kennedy claimed the U.S. had fallen behind the U.S.S.R. militarily in the 1960 presidential election (the infamous "missile gap").
Eisenhower was a cautious Cold War leader, wary of hot wars, wars of conquest, and the inevitable burden of conquest, nation-building. The military was best left sheathed in his view, and careful diplomacy was sufficient to pursue America's interests.
Kennedy entered office as a foreign policy hawk who was going to out-hawk the cautious Republicans. A brush with C.I.A. cowboys (the failed Bay of Pigs invasion of Cuba) and a taste of Imperial meddling in distant, poorly understood lands (Vietnam) increased his interest in peace and reduced his enthusiasm for foreign adventurism.
Lyndon Johnson, perhaps the most activist liberal Democrat of the era, was not about to be out-hawked by the Republicans, and so he followed an expansive Imperial agenda into the 10-year quagmire of Vietnam.
Since the immense global enterprise known as World War II had taken less than four years to win, Americans had little patience for low-intensity wars that dragged on inconclusively for years while combat deaths mounted into the tens of thousands.
Liberal Democrats could find no easy political ground between the pressure to out-hawk the Republicans and the demands of an expansive Cold War Deep State. Both liberal Democratic presidents between 1965 and 1980, Johnson and Jimmy Carter, were one-term presidents, undermined by military/foreign entanglements.
The Republicans were given a freer hand; Nixon unleashed the B-52s on Hanoi in late 1972 until the North Vietnamese ran out of Soviet-supplied SAMs (surface to air missiles). Given a choice between a brokered peace or a flattened capital, they chose peace, and Nixon was free to declare victory and pull the majority of remaining American forces out of Southeast Asia.
The disastrous defeat in Vietnam of expansive Imperial ambitions (nation-building, etc.) led to an era of retrenchment and consolidation. Other than "splendid little wars" in Grenada and Panama and supporting proxies such as the Contras, the 1980s were years not of Imperial expansion but of Cold war diplomacy.
Republican President Reagan was also given a free hand to be a peacemaker, overseeing the fatal erosion of the U.S.S.R. and the end of the long, costly Cold War. President Bush Senior was a cautious Cold War leader, careful not to alienate the post-U.S.S.R. Russians and wary of over-reach and quagmires even in the new Unipolar world of unrivaled U.S. power.
The era's one hot war, Desert Storm, restored the sovereignty of Kuwait but left Saddam Hussein in control of Iraq. Bush and his inner circle (and the Deep State they represented) were mindful of the lessons of Vietnam: Imperial over-reach led to costly, drawn-out failures of nation-building in the name of exporting democracy.
Though it was poorly understood by the public, Desert Storm played to American military strengths: a high-intensity conflict with concentrated forces, maneuver warfare with heavy armor protected by absolute air superiority, aided by proximity to allied bases and aircraft carrier groups. If you designed a war optimized to American military strengths, it would look much like Desert Storm. No wonder it was one of the most lopsided victories in history, with most American casualties resulting from random Scud missile strikes and accidents.
The end of the Cold War and victory in Iraq left the Republicans without their hawkish agenda and political raison d'etre, and Ross Perot's third-party movement in 1992 effectively delivered the presidency to Democrat Bill Clinton.
Clinton was blessed with a booming domestic economy and a peace dividend from the end of the Cold war. Though Clinton reportedly hankered for a great crisis he could exploit to burnish his place in the history books, alas none arose, and the 20th century ended with a decided absence of existential threats to the U.S. or even U.S. interests.
The incredible success of Desert Storm and the temptations of Unipolar Power birthed an expansionist, activist Imperial doctrine (neoconservatism) and a Deep State enthusiasm for flexing America's unrivaled power. What better place to put these doctrines into practice than Iraq, a thorn in the Imperial side since Desert Storm in 1991.
Alas, Bush Junior and his clique of doctrinaire neoconservatives had little grasp of the limits and trade-offs of military tactics and strategies, and they confused the optimization of Desert Storm with universal superiority in any and all conflicts.
But as veterans of Vietnam knew, low-intensity war with diffused, irregular combatants is quite a different situation. Add in the shifting politics of Sunni and Shia, tribal allegiances, failed states and a post-colonial pot of simmering resentments and rivalries, and you get Iraq and Afghanistan, two quagmires that have already exceeded the cost and duration of the Vietnam quagmire.
A decade after the collapse of the U.S.S.R. and 25 years after Vietnam, the Deep State was once again enamored of expansion, hot wars, conquest and nation-building. Fifteen years on, despite endless neocon PR and saber-rattling, the smarter and more adept elements of the Deep State have given up on expansion, hot wars, conquest and nation-building.
Even empires eventually taste the ashes of defeat when expansion and hubris-soaked ambitions lead to over-reach, over-extended military forces, and enemies who are not just undeterred but much stronger than when the over-confident expansion began.
In my view, the current era of U.S. history shares parallels with the Roman era of A.D. 9 and beyond, when a planned expansionist invasion of the Danube region in central Europe led to military defeats and insurgencies that took years of patient warfighting and diplomacy to quell.
Which brings us to Hillary Clinton and Donald Trump. President Obama, nominally a liberal Democrat, has pursued an extension of the neocon Bush expansionism, with the key difference being Obama has relied more on proxies and drone strikes than on "boots on the ground." But the quagmires in Iraq and Afghanistan have not only persisted, they have expanded under Obama's watch into Syria and Libya.
War by drone and proxy is even more tempting than outright invasion, as American casualties are modest and the responsibilities for failure are (it is fervently hoped) easily sidestepped. Alas, fulfilling Imperial ambitions via proxies has its own set of limits and trade-offs; proxy wars only get the desired results in very specific circumstances.
The Democrats have out-hawked the Republicans for eight years, and the Deep State is in disarray. I have been writing about this for several years now:
When we speak of the Deep State, this ruling Elite is generally assumed to be monolithic: of one mind, so to speak, unified in worldview, strategy and goals.
In my view, this is an over-simplification of a constantly shifting battleground of paradigms and political power between a number of factions and alliances within the Deep State. Disagreements are not publicized, of course, but they become apparent years after the conflict was resolved, usually by one faction winning the hearts and minds of decision-makers or consolidating the Deep State's group-think around their worldview and strategy.
Even the Deep State only rules with the consent of the governed. The wiser elements of the Deep State recall how the Vietnam War split the nation in two and exacerbated social upheaval. These elements recognize America is tired of Imperial expansion, quagmires, proxy wars and doomed nation-building.
This exhaustion with over-reach shares many parallels with 1968 America.
In this long view of Imperial expansion, defeat and retrenchment, Hillary is holding down the status quo fort of failed expansionism and proxy wars. Her ability to out-hawk the Republicans is unquestioned, and that is one of her problems:
When the governed get tired of Imperial over-reach and expansion, they are willing to take chances just to get rid of the expansionist status quo. In this point in history, Hillary Clinton embodies the status quo. The differences in policy between her and the Obama administration are paper-thin: she is the status quo.
The governed are ready for a period of retrenchment, consolidation and diplomatic solutions to unwinnable conflicts, as imperfect as the peace might be to hawks.
For these reasons, the more adept elements of the Deep State have no choice but to dump Hillary. Empires fall not just from defeat in war with external enemies, but from the abandonment of expansionist Imperial burdens by the domestic populace.
Put another way: drones and proxies don't pay taxes.
My interview with Rethinking The Dollar:
My new book is #6 on Kindle short reads -> politics and social science: Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle ebook, $8.95 print edition)For more, please visit the book's website.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
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