Archive for the ‘Economy’ Category


Houston, We’ve Had A Problem Here!

February 17, 2019

While the problem we face today is not as perilous to life and limb as when Jack Swigert immortalized those words in April of 1970, as Apollo 13 had its cascading failures, we still have an issue that has the potential to lead to a cascading failure of our economy.  Perhaps it is better to put it “America, we have a problem here!”

That problem is our national debt.  The current national debt exceeds $22-trillion. It has never been that high before.  To service the debt (pay the interest and principle we owe) requires more and more of the government’s annual income from taxation.  The more we pay to service the debt, the less there is for things like the military and the other departments of the government.

It is easy to get caught up in pointing fingers at this President or that, one Congress vs. another, but that does nothing to address the issue before us.  We must cut costs AND raise income to reduce the huge debt we owe.  If we wish to avoid a financial crisis such as the one faced by Greece recently, we must address the issue now.

Historically, we’ve used our national debt to spur the economy, and it has worked, but what is too much debt?  At what point is the burden of debt more harmful than the upswing in the economy?  One of the common measures of national debt is as a percentage to Gross Domestic Product (GDP).  When looked at like this, we can see some interesting trends since 1950.

The chart shows the GDP for each President’s last year in office.  Two datasets are used, the first being the actual Last Year In Office (LYIO) and the second being the Last Budget Year (Last BY).  They very slightly and illustrate our National Debt does correlate to the influence of the President.

Here are the percentages using data from the US Bureau of Economic Analysis:

*President Trump’s figures are
estimated for end of 2019

What is interesting is what was going on with the US economy when we increased the percentage of debt to GDP.  When the Great Depression hit, and throughout World War II, we increased our national debt to keep our economy growing.  After the war, we were able to reduce the percentage ratio by controlling spending, keeping revenues high (taxes) and growing the economy and our GDP output.  From President Truman through President Carter, the ratio of National Debt to GDP either went down or took a slight bump (i.e. the Nixon/Ford years) upwards.  Then came President Reagan!

President Reagan had two primary priorities as President.  The first, repair the damage to the office of the president caused by the resignation of President Nixon and Watergate.  Second, stop the Soviet Union’s increasing influence in developing nations.  It is the second priority that had such a drastic effect on our National Debt.

Regardless, if you agree or disagree with President Reagan’s approach to the Debt, in the end, forcing the Soviet Union to match our spending and buildup of our military did have the desired result, their economy collapsed, and the Union fell apart.  Of course, there are a million other contributing factors for the collapse, but the spending is one of the primary factors and certainly drove our National Debt up – way up!

While President H.W. Bush was President in 1991 the Soviet Union formally dissolved, it was at the beginning of his term.  We also fought the Gulf War in 1991, but as wars go, it did not have a huge impact on the National Debt.   At that point, we could have started reducing the Debt but there was a push for “no new taxes” and President Bush’s signing of a modest increase into law cost him his reelection bid and Congress had little incentive to work on the issue and the National Debt went up.

Then it was President Clinton’s turn.  Putting his personal failings aside, his term as President showed it is possible to grow the economy, eliminate the budget deficit and reduce the National Debt percentage when compared to GDP.  We could have used the surplus to reduce the National Debt further by buying back a portion of our debt, much like companies are doing right now with stock buy-backs, instead, it was paid out more like a dividend through a reduction in the tax rate after President Clinton left office.

President George W. Bush entered office and a cacophony of events that upset everything followed.  First, President Bush acted on the surplus in the budget by cutting taxes in Jun of 2001.  Then the 9/11 tragedy happened.  Not only did it cost a considerable number of lives, but it also damaged our economy.  Airlines were the hardest hit, but industry, in general, took a punch and the country was in the mood to give business a break.  That break came in the form of another tax cut in 2003.  So, we began the war with Afghanistan, and while still underway, began one with Iraq, cut taxes and to no one’s surprise, our National Debt increased at a fast pace.  At the same time, the budget deficit returned.

Unlike when FDR battled the Great Depression and World War II, both of which drove up the National Debt, we did not raise taxes to offset the increase in spending.  We financed the increase by selling government securities.  Securities have to be paid for at some point, with interest.  

Also, under President GW Bush, deregulation, which was started by President Clinton, picked up and our financial institutions followed the same type of disastrous path they did in the 1920s.  It all came to a head in 2008 with the worst financial crisis since the Great Depression. 

When President Obama took over, the economy was in the toilet, we were at war, and tax revenues were down.  We needed to jump-start things and it was done with a very large economic stimulus package.  Again, by increasing the National Debt. Again, just like FDR’s various programs, the economy recovered.  Once our economy had legs, we began to reduce the deficit.  At its highest in 2009, it was $1.4-trillion.  In 2013 it was down to $753-billion, or about half of its highest.

It should be noted, to decrease the National Debt requires buying back the debt.  To buy back the debt a surplus is required in the budget.  We will only have a surplus by cutting spending or raising taxes or better yet – both! 

Now it is President Trump’s turn.  Rather than continue to reduce the deficit and working towards reducing the National Debt, we have increased our rate of borrowing money (over $2-trillion since President Trump took office) and we cut taxes again increasing the deficit.  Our National Debt is getting to a dangerously elevated level.

By the end of 2019, our National Debt will be around 109% of our GDP.  When Greece had its financial collapse, their National Debt was 143% of its GDP.   While our economy is much more dynamic than Greece’s, we still need to fix this problem now, before we take on more debt than we can repay.

We are beyond the typical liberal/conservative approaches to governance.  We need to work the problem with every tool we have.  Liberals will not like cuts, conservatives will not like corporate taxes, but both are needed to address this.  What we don’t need is companies, like Amazon, earning billions in profits and paying little to nothing in taxes.  Reports show Amazon will earn about $11.2-billion in profit this year and pay zero in taxes.

To be clear, it is not Amazon’s fault.  They are simply using the tax code to their best abilities.  Which is to be expected from every person and company in the United States.  The problem is we have a Congress and Executive Branch that continue to spend money while lowering taxes.  That must change and change now.  Remember the old axiom “When do you fix the roof?  Before it starts to rain.”  My friends, look to the horizon and see the coming storm.  We need to fix our roof, we need to acknowledge we have a problem.


Austerity II

February 13, 2012

It’s been over a year now since I first wrote about austerity measures in Greece (read post here).  Now, to borrow money to avoid default, the Greek Parliament passed further austerity measures required by the EU to obtain the funds.  Again, Greek citizens rioted in the streets[i].

Here, in the United States, we need to take special note of the results of this economic experiment, as calls for the same sort of austerity measures continue to gain traction.  As necessary as frugality in spending is, cutting basic services and postponing infrastructure maintenance and improvements will send us into the same downward spiral Greece is experiencing.

In this politically-charged election year, do not let short-sighted rhetoric undermine the fragile economic recovery underway.  A sound business practice is to look at the Total Cost of Ownership (TCO) and Return on Investment (ROI) before undertaking a project.  Politics rarely explains either when proposing cuts in spending or changes to programs.  Look at it this way, a typical county spends as much as $250 million per year on public schools.  In taking it to the extreme, all that money could be saved by closing the schools and leaving education to individual parents.  What would be the result of such a decision, or what are the TCO and ROI of such a move?

While TCO and ROI are used primarily for physical equipment purchases and systems like transportation, they are useful tools in estimating the true cost of any decision, even decisions of a social nature.  Getting back to the school, what are a few of the positives of eliminating public education?

  1. Lower property taxes.
  2. Smaller government.
  3. Non-tax producing property returned to the tax base.
  4. End of violence in schools.
  5. Reduce children’s exposure to drugs and bad behavior.

Sounds pretty good so far, but what are the negatives?

  1. No standards for primary education.
  2. Most parents lack resources to home school.
  3. Parents bare full cost of private education.
  4. Over time, the workforce education level declines.
  5. Workforce productivity decreases and cost of goods and services increase.

In looking at TCO, it costs more to own and operate a school building than its construction cost alone.  Staff salaries and maintenance add to the mix, as well as its portion of the administration costs distributed out by the school district.  For each year of the schools useful life, these additional costs need to be accounted for as part of the TCO.  Once the TCO is understood, the question of return becomes obvious.  Just what did we get for all this money?  In other words, what is our ROI?

Measuring ROI requires a performance metric.  Simply put, a performance metric is a way to judge a large dataset (in this case – school performance) against a standard index, making things “apples to apples” so to speak.  While many systems exist, looking at graduation rates gives a good bottom-line measurement.  After all, it is the goal of attending high school. Nationally, the United States has an on-time graduation rate around 72%[ii].  In other words, 28% of high school students fail to graduate on-time, if they graduate at all.  With over one quarter of high school students missing the mark, people’s frustration with the education system is very understandable.  Even under the most liberal of goals, a 1 in 4 drop-out rate must be viewed as a failure and a poor return on tax dollar investment.

Regardless, that does not mean we give up on the other 3 to make it 4 out of 4 failure rate.  Schools need improvement.  Improvement takes change and change often requires money.  This is the rub, how to make change that works and not waste the money.   In this sense, austerity measures that cut school budges with have a negative impact on graduation ROI.  Cutting the budget will make matters worse and further degrade our investment.

While it is easy to focus on the positives, it is the negatives that drive the process.  Any tax saving would be spent on home education.  Most likely, much more would be spent for the same lever of education.  The long-term impact on society is where the greatest effect comes in.  This is where we must balance TCO and ROI against the needs for an educated society.  On that score, supporting education by fixing its problems sounds like a much better solution.  It is where the true ROI is found.

While cutting budgets is not the answer, neither is throwing more money at the problem.  This is where austerity has a point, spending must be validated and produce a measurable result.  We are better served when money produces the result it was intended to produce.  Otherwise the TOC continues to rise.  For instance, when Harold McStudent fails to graduate other programs centered on adult education are offered to make up Harold’s deficiency, programs that cost real money.  So now, taxpayers are spending extra money to bring Harold up to a minimum standard increasing the total cost of education and reducing our return on investment.   Having said that, spending more money, to bring Harold up to speed, is better than doing nothing.  The return then is zero.

In the end, by cutting public education rather than fixing it, the effect on society is extremely harmful.  We will debase our workforce and condemn our children to low-wage jobs.  This is exactly the problem with austerity programs.  They save money by gutting the very fabric of society government is there to promote.   We need roads that are drivable, schools that educate, a military that defends, fire and police that protect.  None of that is free.  While there are programs and expenditures that can be cut or put off, the majority of governmental business cannot.

Of course, education is just one example to illustrate the problem with austerity.  The solution comes not in the form of European-style slash and burn austerity, but in frugality.  Each organization, department and government entity must be responsible for ensuring no wasteful spending is allowed.  If people are in place that lack the will to do that, they have to go.  Regardless what a union says, regardless of tenure, regardless of political interest.  It’s too important and our future as a nation depends of getting it right.  Our spending is off the rails and we must return to the tracks.  People who refuse cannot stand in the way of the needs of the nation.

We cannot save our way out of debt; therefore, austerity will not work.  We must encourage growth and grow our economy out of debt.  It is the only way it’s ever worked.  That does not mean government has a blank check, just the opposite.  Every penny must be justified before it’s spent and results must be verified to ensure the spending had the desired effect.  Just because austerity is not the answer, it does not mean the people supporting it do not have valid points that need to be addressed.  It is not in our best interest to have draconian cuts across the board on spending.  No, we must spend wisely but spend nonetheless.  We simply need value for each tax dollar spent.  Perhaps, just perhaps, if we did that, we would not have such animosity towards our government as the country would naturally be in much better fiscal shape.

[i] Maltezou, Renee, and Harry Papachristou. “Violence Offers Glimpse of Greece’s Reform Challenge.” Business & Financial News, Breaking US & International News | Thomson Reuters, 13 Feb. 2012. Web. 13 Feb. 2012. <>.

[ii] “Graduation in the United States.” Education Week American Education News Site of Record. Editorial Projects in Education. Web. 13 Feb. 2012.



Gates, Defense Spending and the GDP

May 26, 2011

With his departure as Secretary of Defense coming soon, it is normal for Robert Gates to express his thoughts on the direction his department should go.  Moreover, given his experience under both Republican and Democratic administrations, he is uniquely qualified to put forward ideas devoid of the typical political rhetoric.  He made some qualified comments in a speech hosted by the American Enterprise Institute for Public Policy[1].

Regardless of anyone’s stance on the United State’s involvement in Iraq and Afghanistan, the fact is we are involved and someone has to run the Department of Defense (DoD) during that involvement.  In that capacity, Gates’ performance is a marked improvement over his predecessor, Donald Rumsfeld.  During his tenure, he changed the philosophy of our strategy to one that works to end a conflict as well as reduced waste in spending within the Defense Department.  In other words, Gates is fighting our wars as cost effectively as possible.

In his speech, Secretary Gates points out the need to address the future needs of the military to meet our political goals.  He quotes Winston Churchill with “the price of greatness is responsibility…  [and] the people of the United States cannot escape world responsibility.[2]”  While the sentiment is true, it is more a question of if the United States can afford the price in the first place.  Mr. Gates frames his argument in terms of Gross Domestic Product (GDP).  While that is useful for generalized thinking, it masks the real-world reality he points to in his speech.

Using his GDP comparison is like an individual using his extended family’s purchasing power compared to one of his particular debts.  The amount of production of the US economy does not directly correlate to our level of debt.  A better index compares DoD spending in a particular year to tax revenue for the same year.  Secretary Gates does point this out in his speech DoD spending is less than 15% of federal spending, but couches in the number in the rosier GDP comparison.  Think about it, 15% of our tax revenue goes to military spending.  Using the $540 billion from his speech, that works out to $1,630.00 per citizen last year.  Taken in a vacuum, it is hard to understand the relevance of such numbers.  For that, we need to look at the United States compared to other countries.

Using information gathered from the search site Wolfram Alpha (, the United States, compared to other nations, spends an inordinate amount on defense.  Consider the following:

  • The United States spends 4.5 times as much on defense as China
  • The United States spends more on defense that the next ten highest spenders combined ($420 billion):
 Defense Spending (in billions) Compared to US
 United States  $ 503.40 N/A
 China  $ 114.70 22.79%
 France  $   55.29 10.98%
 United Kingdom  $   53.43 10.61%
 Germany  $   41.80 8.30%
 Japan  $   35.48 7.05%
 Italy  $   31.72 6.30%
 Saudi Arabia  $   30.98 6.15%
 Russia  $   29.81 5.92%
 Brazil  $   27.76 5.51%
  • The United States spends more per capita ($1,630) than any other country in the top twenty ranked by spending:
 Spending Per Capita
 United States  $1,630.00
 Israel  $1,406.00
 Saudi Arabia  $1,180.00
 Greece  $1,091.00
 Australia  $   869.00
 United Kingdom  $   863.00
 France  $   854.00
 Netherlands  $   604.00
 Italy  $   528.00
 Germany  $   509.00
 South Korea  $   486.00
 Canada  $   367.00
 Spain  $   298.00
 Japan  $   279.00
 Turkey  $   254.00
 Russia  $   212.00
 Brazil  $   142.00
 China  $     84.70
 Indonesia  $     36.30
 India  $     18.60
  • Indonesia (the country with the closest population size to the United States) only spends $36.30 per person.  The US ranks third overall behind Qatar ($2,816) and Kuwait ($1,757).
  • The United States maintains military bases in 28 foreign countries around the world (Afghanistan, Australia, Bahrain, Brazil, British Indian Ocean Territory, Bulgaria, Cuba, Germany, Greece, Greenland, Guam, Iraq, Israel, Italy, Japan, Kosovo, Kuwait, Kyrgyzstan, Netherlands, Philippines, Portugal, Qatar, Saudi Arabia, Singapore, South Korea, Spain, Turkey, and the United Kingdom).

Given this data, isolating spending to the United States alone does not paint a complete picture.  Secretary Gates points to the need of a military capable of fighting two simultaneous regional wars.  Perhaps it’s time to evaluate what other countries, out partners in many cases, are and are not doing.  Simply put, we (the United States) can no longer fund a military that serves as a positive externality for the economies with which we compete.

For example, our military spends billions of dollars in the Asiatic region.  We support goals like freedom of access to shipping lanes, mutual defense agreements, and deterrence of piracy.  While there is no question it is in our interest, it is in the interest of China too.  The question becomes why should we pay for something that benefits the Chinese economy.  Furthermore, given that China holds a substantial amount of our public debt, in the form of US Treasury Bonds, China loans us the money with which we finance our military.  This means we are paying for the privilege of defending China’s national interests in their own backyard.

By no means is the positive externality limited to China.  Every country listed above spends less of defense simply because we spend more.  In this regard, the amount of military spending compared to GDP is meaningless.  What matters is the long-term debt to GDP ratio.  In this regard, China is in a much better position to take on more costs in defense than the United States.  China’s debt is estimated at $483.5 billion with a GDP of $5.308 trillion.  The United Stated debt is estimated at $14.03 trillion with a GDP of $15.03 trillion.  China’s debt represents 9.6% of GDP.  The United States’ debt represents 93.47% of GDP. Again, calculations based on Wolfram Alpha search results.

By allowing China to avoid their rightful costs, we strengthen their economy and weaken ours.  They benefit not only by the sweat and labor of our military but also by loaning us the money to protect the region.  This is the aspect Mr. Gates does not directly address in his speech.  It is also the flaw in Mr. Churchill’s quote.  Our responsibility to our greatness does not extend to allow other’s to abdicate theirs at our expense.  Perhaps before Mr. Gates suggests the political strategy for the next decade, he needs to temper his thoughts with another quote, by Stephen Crane:

“A man said to the universe:
“Sir, I exist!”
“However,” replied the universe,
“The fact has not created in me
“A sense of obligation.”[3]

[1] Gates, Robert M. “American Enterprise Institute (Defense Spending).” America in the World: An Address by Secretary of Defense Robert Gates. Wohlstetter Conference Center, Twelfth Floor, AEI, Washington DC. 24 May 2011. Speech.

[2] Churchill, Winston S. “The Price of Greatness.” Welcome to Web. 26 May 2011. <>.

[3] Crane, Stephen. “War Is Kind.” The Literature Network: Online Classic Literature, Poems, and Quotes. Essays & Summaries. Web. 26 May 2011. <>.


Austerity, The Danger in Following the European Roadmap

November 26, 2010

As countries and international governmental organizations (the G20[1], for example) try to recover from the worldwide economic recession, many are calling for austerity measures as a driving force.  While no one can challenge the need for governmental frugality, reducing spending, as the primary means to pay long-term debt, puts a country on the road to economic disaster as well as civil unrest[2].  The situations over the last year in Greece and Ireland come to mind.

Austerity is a fancy term used by politicians and governmental economists meaning to reduce spending and increase fees to pay long-term debt.  We hear the term in news coverage of Europe, more than in the United States.  Unfortunately, here, the idea is gaining traction.  It is the equivalent of thinking you can pay off your home loan buy reducing your electric bill.  While shrinking spending helps and can prevent increasing debt, it generally does not have the heft to make a dent in overall debt load reduction.

While austerity may not seem a bad idea, at face value, a government implements austerity measures when its debt obligation is unsustainable and it has no viable option to increase direct taxes, in other words, the government is near economic collapse.  This is exactly the position Greece found itself in late last year and where Ireland is today.

One of the primary functions of any government is to provide its citizens with services beyond the reach of the individual, a country’s infrastructure, for instance.  Each road we drive and each bridge we cross are examples of how we use our infrastructure daily.  Of course, governments have other obligations to their citizens too; national defense is an obvious one.  The need to maintain our infrastructure and have a solid national defense is easy to understand.  Other programs are not so straightforward.  The social programs we, here in the United States, have are somewhat murky as politicians routinely use them as a political football and it is these social programs, for the most part, people in America have in mind when they talk about undertaking austerity measures.

It is perfectly understandable why people view social programs with an eye towards cutting; after all, they make up about 36% of our national budget.[3] It is common to hear them referred to as “entitlement programs.”  Social programs include Social Security, Medicare, Medicaid, and unemployment benefits.  Other areas of focus, for the austerity crowd, include the Departments of Education, Health and Human Services, as well as others.  Basically, any department or program that deals with the social welfare of the public.

The problem, as citizens in Europe are finding out, is a cut in government services does not improve the economic outlook; it diminishes it.  While government debt is real and very tangible, a nation’s economy is based on more.  A nation’s economy responds to not-so-tangible things like faith that things will improve, or at least remain positive.  A reduction in social services has a chilling effect on its citizen’s outlook.  In turn, that leads to reluctance, on the part of citizens, to spend what little money they have, ending in less economic activity.  Think of it as a downward spiral, the less the government spends on essential services, the more citizens take up the slack.  The more citizens take up the slack, the less money they spend on discretionary items.  The less spent on discretionary items means a drop in sales overall, further reducing the tax base causing the government to make deeper cuts in services and starting the cycle over.  All the while, the overwhelming debt that started the whole mess remains.

In the end, other steps must take place to return an economy to strength.  Reducing the debt is paramount.  The trick is to reassure citizens, and foreign investors that sound policies are in place to reduce debt over time.  Citizens require special reassurance that money taken from them to provide for something like Social Security is not wasted.  We all know the stories about drug addicts using their money from various social programs to purchase drugs or that the ATMs at gambling casinos were accepting unemployment cards intended to pay for essentials.  These issues must be addressed when they happen, but a particular abuse does not diminish the need for a program overall.

Without question, cuts need to occur in every area where we find waste, but a program of austerity is not the answer, especially an austerity program that focuses solely on social programs.  Moreover, we must reevaluate every program and department and define what level of service we, the citizens, expect for our tax dollar.  In the end, we need a government that not only pays its debts but also meets its obligations to the citizens it serves.

Just as the captain of a super-tanker cannot stop her massive ship on a dime, our massive debt will not reduce overnight.  We need policies for long-term sustainability regardless of the cost to current political objectives.  Only then will we successfully navigate the troubled economic waters we face.  Only then will we avoid the troubles Greek citizens are in, Irish citizens are about to entertain and the rest of Europe seems unwilling to recognize.

[1] “G-20 Major Economies.” Wikipedia, the Free Encyclopedia. Web. 26 Nov. 2010. <>.

[2] Evans-Pritchard, Ambrose. “Europe’s Austerity Anger Grows – Telegraph.” – Telegraph Online, Daily Telegraph and Sunday Telegraph – Telegraph. 29 Sept. 2010. Web. 26 Nov. 2010. <>.

[3] “Budget of the United States Government: Main Page.” GPO Access Home Page. Web. 26 Nov. 2010. <>.


The Danger of Unknowns

August 19, 2010

We live in a time when the best choices a particular politician made in years past are used as a club against him or her today, when times and situations call for different choices.  It really does not matter if a politician is liberal, conservative, Democrat, Republican, or any other flavor of alignment, votes and positions of yesterday haunt them today.

Imagine if such attacks happened around our Founding Fathers.  George Washington would never have been elected as president, he lost more battles than he won and seemed to always be retreating.  John Adams, president # 2, forget it, he represented the British soldiers involved in the Boston Massacre, resulting in the acquittal of most and only two soldiers guilty of manslaughter and not murder.  As for Thomas Jefferson, he was a deist who was critical of organized religion, a death knell for a politician today.

Politics has never been a business for the thin-skinned, but what takes place today goes beyond simply pointing out ideological differences and extends to character assassination.  Every vote or position becomes a vulnerability for any politician with a few years of experience.  Moreover, it encourages the creation of proposed bills and legislation designed to force opponents in voting for or against something solely for use later as ammunition against them.

The ultimate result is electing individuals without a record or history.  While this in itself is not necessarily a bad thing, it does open the door to placing people in positions they are not fully ready to hold.  For example, after the corruption surrounding the Nixon administration, the country turned to a little known governor from Georgia, Jimmy Carter.  The country wanted an honest man, and President Carter is that.  His inexperience in dealing with national politics made his time in office difficult and prevented him from achieving much he tried.  America’s experiment with national political newcomers ended with the election of Ronald Reagan.

Following eight years with President Reagan, again voters elected the better-known candidate in then Vice-President Bush.  During his term, the national economic situation turned and a modest tax increase was deemed necessary for the good of the nation.  The Republican right-wing threw a fit, as Bush campaigned on no new taxes.  Not even the good of the nation is enough to overcome past statements and political parties will throw their own candidate under a bus to make that point.

After that, the nation elected another relatively unknown southern governor, Bill Clinton.  Unlike Carter, President Clinton understood the nature of national politics.  More importantly, he understood the nature of Washington politics.  Through his political savvy, his lapses in judgment regarding his personal affairs did not derail his presidency; in fact, the nation ended up in a stronger position than when he took the helm.  Clinton is an example showing an unknown can get the job done, but leaves the question of should we take the risk.

The conservatives picked up the mantra of electing an unknown in George W. Bush; you know “dub-ya.”  Unlike President Carter, this Bush played to his base.  In fact, in playing to his base, he did little else.  After 9/11, instead of finding the bastard that attacked us, he started two wars he was not willing to finish.  After eight years under his control, he left the United States with a wrecked economy, homeowners loosing homes in record numbers, the military stretched to its breaking point, fewer American’s with the ability to afford healthcare, and our returning veterans left to suffer all sorts of physical and mental problems overwhelming the Veteran’s Administration.

The nation blamed the conservatives.  While President Bush certainly is conservative, that was not the problem, he was simply the wrong man to run the country.  We elected, twice, a guy not fit to run a lemonade stand and left the competent conservative leaders marginalized.  The tide-swell of voter frustration was not to be turned; rather than accepting blame for electing an unknown moron, voters looked to liberals and picked another unknown, President Obama.

While certainly competent and far from being a moron, President Obama’s inexperience in national politics is proving to be an Achilles’ heel.  Much like President Carter, Obama seems incapable of controlling the political party he sits atop.  They are fractured, disorganized, and impotent when it comes to passing meaningful legislation.  Of course, they blame the Republicans but in doing so simply show they’ve been out foxed, or as some might say out “FOXed,” à la Rupert Murdock.

Back in my military days, I went through some very interesting training.  In one course on intelligence matters, the instructor made a statement like “In geopolitical affairs, always side with the despot you know and understand rather than the despot you know nothing about.”  That is good advice for our national politics too.  While we may not like the good-ol’ boys of either political party, we at least have a sense of who they are.  We, voters of both political parties, need to stop electing people we know nothing about.

Does that mean only elect career politicians, no, it means we must elect people with a record of action that points to how they will lead.  For instance, if you never worked in politics and your only experience with financial matters is balancing a checkbook, you might not have the qualifications to lead the nation in a financial crisis.  Warren Buffett, on the other hand, has the same political experience, but carries a financial pedigree that proves his ability.

As the mid-term elections approach, we need to stop firing the despot we know for the one that we know nothing about.  We can really make matters worse.  Politics in the United States has devolved to the point truly smart people avoid it like the plague.  The partisan bickering and backstabbing must end.  We need people who are willing to engage each other to solve problems rather than stand on ideology.  Firing an individual because he or she is not conservative or liberal enough and replacing them with some ideological robot without properly understanding who they are is a dangerous way to run a country.


The Mountain, the Radio Station and the Radio

August 16, 2010

Once upon a time their was a radio station.  It was on one side of a mountain and the small town they wished to reach was on the other.  Try as they might, the interference from the mountain seemed too much for the little station to over come.

One day at a marketing meeting, the sales manager complained, “If only those people had their receivers where we could reach them, our sales would increase.”  What the manager failed to understand it is not the responsibility of the radio to receive the signal of the radio station.  In other words, it is the responsibility of the transmitter to remove the interference between it and the receiver.  The station needed to work around the mountain, not the town.  This is the same problem President Obama and the Democrats are failing to deal with.

Currently, our daily intake of news from blogs, broadcasts and, even newspapers are full of negative reports on everything from the Gulf of Mexico oil disaster to the continued lethargic economic recovery.  If Democrats are responding with positive news, like the radio station, the mountain of interference prevents their message from getting through.

For instance, the bailout of General Motors (GM) and Chrysler.  At over $50 billion, it was easy to stand against it, unless you happen to be in the auto industry of course. For the record, I was against it.  Most of that money went to purchase stock and in GM’s case, about $6 billion was an outright loan.  That loan has been paid back (albeit from other government money) and the company just reported it’s second quarter of profits clearing the way for the public sale of stock after its chapter 11 bankruptcy filing; something they must accomplish to buy back the stock the government purchased.  This is good news for tax payers.  It is the only way we will ever see any of the money come back and there is even the possibility for a modest profit.

Why then are we not hearing this from the administration?  It seems they act much like the sales manager by complaining the public is not doing more to get their message, ignoring that it is their responsibility in the first place.  The administration may feel they are communication but the public does not feel the same and in the end, it is public’s opinion that matters.  The din of negative news make a formidable obstacle to say the least but that makes it more important and urgent to hear the administration, and Democratic leadership on action they undertook that is working.  Otherwise, we are left with just the negative.  Is it any wonder President Obama’s approval ratings are low?

Some complain the Republicans are just highlighting the negative to score political points.  That may be, but should we expect them to do otherwise?  It is the job of Democrats to highlight their accomplishments; this is where they really fail.  Of course, President Obama will know he fought the good fight as he packs up and leaves the Whitehouse wondering why the public did not do more to understand what all he accomplished.


The Good ol’ Days… Really?

July 25, 2010

Often conservative news organizations promote the idea of returning the United States to the values held decades ago.  Liberals are quick to point out the inequity in civil rights of that time but in fairness to conservatives, that is not the aspect they put forward.  No, it is the improving social and economic situation of the middle-class back then conservative talking heads promote.

Let’s take them at their word.  The question is understanding the values of the times.  Unless you lived through the daily turmoil, it is impossible to fully grasp the nuances that motivated the conversation.  We can however, look at stated conservative objectives.  To that end, the Republican Party’s 1956 national platform[i] sheds some light.

It is not fair to paint all conservative with the Republican brush, but the platform does point to the majority conservative view held.  While it has many parts we would recognize today as purely republican, there are many points that show how far right the Republican Party has moved.  The below bullet points are taken from the published platform.


From their declaration of faith:

  • We shall continue vigorously to support the United Nations.
  • We hold that the major world issue today is whether Government shall be the servant or the master of men.  We hold that the Bill of Rights is the sacred foundation of personal liberty.  That men are created equal needs no affirmation, but they must have equality of opportunity and protection of their civil rights under the law.

These two statements do not reflect were the conservative movement is today.  Conservatives tend to loath and fear the United Nations.  While they do stand for individual rights, the current conservative trend is to sacrifice civil rights in the name of national security.

On taxes:

  • Further reductions in taxes with particular consideration for low and middle-income families.
  • Continual study of additional ways to correct inequities in the effect of various taxes.

While conservatives of today still seek lower taxes, the focus on low and middle-income families is lost.  Moreover, anyone addressing “inequities” today receives  bombastic tirades from Rush Limbaugh, Glynn Beck and other commentators that are closer in belief to fascism than a Republican political policy.

On business and economic policy:

  • We have eliminated a host of needless controls.  To meet the immense demands of our expanding economy, we have initiated the largest highway, air and maritime programs in history, each soundly financed.  [emphasis added]
  • Legislation to enable closer Federal scrutiny of mergers which have a significant or potential monopolistic connotations;
  • Procedural changes in the antitrust laws to facilitate their enforcement;

Yes, our big-government, federalized national highway system was dreamed up by Republicans.  Imagine trying to undertake the national highway system in today’s political environment.  These same Republicans sought to limit corporate influence and power.  If only it worked, perhaps today’s government would not be owned by corporate and special interests.

On Labor:

  • Continue and further perfect its programs of assistance to the millions of workers with special employment problems, such as older workers, handicapped workers, members of minority groups, and migratory workers;
  • Protect by law, the assets of employee welfare and benefit plans so that workers who are the beneficiaries can be assured of their rightful benefits;
  • Assure equal pay for equal work regardless of Sex;
  • Extend the protection of the Federal minimum wage laws to as many more workers as is possible and practicable;
  • Continue to fight for the elimination of discrimination in employment because of race, creed, color, national origin, ancestry or sex;
  • Provide assistance to improve the economic conditions of areas faced with persistent and substantial unemployment;
  • Revise and improve the Taft-Hartley Act so as to protect more effectively the rights of labor unions, management, the individual worker, and the public.

Conservatives of today would run a candidate out on a rail if he or she dared promote such socialistic “welfare” programs and pro-union laws.


On Human welfare and advancement:

  • Republican action created the Department of Health, Education, and Welfare as the first new Federal department in 40 years, to raise the continuing consideration of these problems for the first time to the highest council of Government, the President’s Cabinet.
  • Republican leadership has enlarged Federal assistance for construction of hospitals, emphasizing low-cost care of chronic diseases and the special problems of older persons, and increased Federal aid for medical care of the needy.
  • We have asked the largest increase in research funds ever sought in one year to intensify attacks on cancer, mental illness, heart disease, and other dread diseases.
  • We demand once again, despite the reluctance of the Democrat 84th Congress, Federal assistance to help build facilities to train more physicians and scientists.
  • We have encouraged a notable expansion and improvement of voluntary health insurance, and urge that reinsurance and pooling arrangements be authorized to speed this progress.
  • We have strengthened the Food and Drug Administration(FDA), and we have increased the vocational rehabilitation program to enable a larger number of the disabled to return to satisfying activity.
  • We have supported measures that have made more housing available than ever before in history, reduced urban slums in local-federal partnership, stimulated record home ownership, and authorized additional low-rent public housing.
  • We initiated the first flood insurance program in history under Government sponsorship in cooperation with private enterprise.
  • We shall continue to seek extension and perfection of a sound social security system.

Republicans created: the Department of Health, Education, and Welfare (now the Department of Health and Human Services and Department of Education), the program that grew into the National Flood Insurance Program 12-years later, fully funded the FDA, increased funding for medical research and hospital construction, funded low-income housing and sought to extend the social security system.

The platform is full of ideas that today we label as liberal.  With the relevant names removed, the document seems more Democratic than Republican in thought.  Any fair-minded liberal could easily support a candidate promoting such ideals. So there it is, Democrats today are the Republicans of the 1950s.  There is no good definition to describe the metamorphosis the Republican Party has endured.  The creature it has become is beyond words.  The best I can put it, when I hear pundits like Anne Coulter push the Republican message of today, I am reminded of the Sinclair Lewis quote “When fascism comes to America it will be wrapped in the flag and carrying a cross.”

In looking at it, we might be better off if we follow through on the thoughts of our Republican leadership from decades ago.  Of course, to do that, it seems Rush, Glenn, Anne, and the rest of the conservative talking-idiots are suggesting support for the Democratic Party.  As much as they would like to deny it, the ideals Democrats put forward today are the same ideals of Republicans in the “good ol’ days.”

[i] John T. Woolley and Gerhard Peters, The American Presidency Project [online]. Santa Barbara, CA. Available from World Wide Web:


Ever Heard of Externality – Oil Companies Have!

May 22, 2010

Unless you are an economics major, most likely you have never heard the term externality.  Regardless, it affects each of us every day in positive and negative ways.  In days gone by, its affects were serendipitous but today corporations go to great lengths to take advantage of externalities to the detriment of the public at large.

Just what is externality anyway?  Here is a standard definition: “An economic side-effect.  Externalities are costs or benefits arising from an economic activity that affect somebody other than the people engaged in the economic activity and are not reflected fully in prices[i].”  To better understand, here are some examples:

A positive externality:

You buy a home in a rundown neighborhood, fix the house, and clean up the yard.  Your efforts not only benefit you but your neighbors as well.  Your efforts, for them, are a positive externality as they enjoy the improved view and your efforts even increase their property value at no cost to them.

A negative externality:

The house you purchased and fixed up is on a lovely stream full of brook trout.  Two years after you move in, a manufacturer builds a facility 30 miles up-stream.  The solvent they dump into the stream goes unnoticed, unregulated, and pollute it.  All you know is the fish are gone and it smells bad.  You have the water tested and it’s full of sulfur and will cost you and your neighbors $100,000 to clean up.  Unless you can trace the pollution back to the company, you and your neighbors bear the cost of a problem created by another.

In the positive example, the actions of one benefit another; in the negative example, the actions of one harm another.  Individuals, corporations, and governments leverage externality.  In the case of individuals they simply may enjoy a benefit, a business might avoid a cost it should rightly pay, governments may demand social programs be financed by both corporations and individuals that receive no benefit from it.

The real problem with externality comes with not recognizing it for what it is.  This lack of understanding lends itself to abuse and corruption on a massive scale.  We need look no further than the Gulf of Mexico for a real-life example.  Even before stopping the leaking oil in the ongoing disaster, the corporation that owns the sunken Deepwater Horizon oilrig, Transocean Ltd (Transocean traces its roots to the Gulf of Mexico but now is headquartered in Geneva, Switzerland[ii]) filed a motion in Federal Court seeking to limit liability to just under $27 million.  An article posted on Law360’s website[iii] by Melissa Lipman gives the details as well as a link to the actual filing.

Transocean seeks to transfer the cost of the oil spill to British Petroleum (BP) and taxpayers in the United States.  In effect, making any additional costs an externality, an externality we must pay and they avoid.  By the way, the 1851 law Transocean sites limits ship owner’s liability to the value of a ship after its loss.  This makes them liable for the loss of cargo only.  Transocean claims the rig had about $27 million worth of crude oil on it when it sank.  If successful, Transocean will keep most of the $533 million[iv] of insurance money carried on the rig.

All the while, BP is relatively happy knowing federal law limits its liability to $75 million, unless they were negligent in maintaining federal safety standards.  BP still faces lawsuits filed in state courts but in the end, they too will avoid the total cost of the clean up effort by transferring much of it to the government and ultimately the American taxpayer.

Externality is the game corporations play to win.  Back in my engineering days, our motto to reduce repair costs was “make it someone else’s problem.”  It was very effective to say the least.  Corporations take this motto and run with it in every aspect of business.  They seek laws that push costs rightly bore by them to taxpayers.  Furthermore, they seek to have unrelated laws interpreted to reduce liability.  The Transocean filing is a perfect example.  They are attempting to use a law that limits a ship-owner’s liability concerning cargo to limit their liability regarding environmental damage of the product they pump out of the ground.

Corporations use the 14th amendment to the US Constitution to define themselves as a person but that does not give them the good judgment or morality that comes with sentience.  There is evidence to suggest if a real person acts like a corporation, society will deem him or her a psychopath[v] if measured by World Health standards.  While that may not be true for all corporations, it does explain much of the bad behavior the news covers almost daily.  Corporations cannot be trusted with environmental stewardship.  It is contrary to their primary purpose to maximize profits for their owners.  That is why we need sensible regulations that require businesses to correct the bad deeds and unintended consequences (giving them the benefit of the doubt) regardless of cost.

In the end, we need to prevent corporations from using calculated externality to shift costs they rightly should pay.  It is not a question of their particular product costing more because someone else’s will cost more to make up the difference.  Take businesses’ own axiom “there is no such thing as a free lunch.”  In this case, the big oil companies are eating the lunch but taxpayers are going to pick up the tab.

[i] The Economist Newspaper, Limited. “Economics A-Z.” Web. 22 May 2010. <>.

[ii] Transocean, Ltd. “Transocean :: Our History.” Transocean :: Home. Web. 22 May 2010. <>.

[iii] Lipman, Melissa. “Transocean Seeks To Cap Oil Spill Liability At $27M – Law360.” Law360 : The Newswire for Business Lawyers. Web. 22 May 2010. <>.

[iv] Kahn, Chris. “Transocean Cites 1851 Law to Limit Spill Liability – U.S. Business-” Breaking News, Weather, Business, Health, Entertainment, Sports, Politics, Travel, Science, Technology, Local, US & World News- Web. 22 May 2010. <>.

[v] Hulu – The Corporation –  By Joel Bakan. Web. 22 May 2010. <>.


The Lunatics Are Running Our Financial Asylum

May 10, 2010

Imagine you work for a big, a very big, company that makes the latest “what’s-it” everybody wants.  While you did not invent it, you did protect it and promote it and made it the thing everyone has to have.  In fact, the company rewarded you by making you the director of the what’s-it division.  Sales are through the roof and life is good.

Good that is until it is discovered the what’s-its fall apart quickly and have no real value.  Sales drop, the price drops, and investors pull out what little value their investments have by selling stock for a loss.  To make matters worse, it seems you hid critical data from shareholders that would have ended the project before the losses occurred.

What are the chances the company will promote you to senior vice-president in charge of quality control and oversight?  Ice has a better chance in hell.  Still, that is exactly what has happened with our financial system.  The people, the very same people that derailed our economy are now responsible for guiding its recovery.  For example, Treasury Secretary Timothy Geithner worked for former Treasury Secretary Robert Rubin who was the driving force that changed the rules for banking (the Glass-Steagall Act[i]) put in place after the Great Depression.

Recently as Secretary, Geithner complained in testimony to the House Committee on Financial Services the Federal Reserve “does not have any legal authority to set or enforce limits on risk taking by a large global financial firm.[ii]”  Of course, he neglected to point out he was part of Rubin’s team behind removing the Federal Reserve’s authority with the repeal of Glass-Steagall.

As if that was not bad enough, Secretary Geithner’s Chief of Staff is Mark Patterson.  According to his biographical information on the Treasury’s website, “Mr. Patterson was a Vice President at Goldman Sachs from 2004 to 2007, and a Managing Director from 2007 to April 2008[iii].”  Goldman Sachs is one of the companies currently under investigation by the Securities and Exchange Commission (SEC) for fraud[iv] and MR. Patterson was one of the men at its helm.  Will the SEC investigate the Treasury Secretary’s Chief of Staff?  How likely is there even to be a criminal investigation?

Next up is Gary Gensler, the Chairman of the Commodity Futures Trading Commission.  According to his biographical information, he was a partner at Goldman Sachs and worked for the firm for eighteen years[v].  Senior partners at Goldman Sacks must still have his cell phone on speed dial.

Another influential power broker on the administration’s payroll is Larry Summers.  Summers currently serves as Director of the National Economic Council as well as being one of President Obama’s closest advisors.  He served as Treasury Secretary from 1999 until 2001.  A recent article in the Washington Post details over $5 million in payments to Mr. Summers over the last year by a hedge fund and over $2.5 million in speaking fees from Wall Street Firms, Goldman Sacks paid him $135,000 for a single day’s work.[vi] In 2008.  If by chance it was an eight-hour day (not likely) that works out to an hourly wage of $16,875.00.  Maybe Goldman Sacks understood that if either of the Democratic candidates won the election, Mr. Summers was more than likely going to have a role to play. Did that have something to do with them paying him more than the median home price in Atlanta, Georgia[vii] just to make a speech?  Of course not!

It is by no means a one-way street as Goldman Sachs’ hiring of President Obama’s former White House counsel, Gregory Craig illustrates.  While no one can question Mr. Craig’s legal abilities, his knowledge of, and contacts within the administration and Democratic circles cannot be a negative regarding his retention as council.

Washington plays the ultimate game of one-upmanship.  During President Bush’s term in office, it was Vice-president Cheney’s close relationship with Halliburton that, at least, appeared to be a conflict of interest.  Now, in President Obama’s administration we see potential conflicts of interest in many departments and areas dealing with finance and specifically with Goldman Sacks.  Conservatives have every right to point this out as liberals raked them over the coals for the very same thing.  It is hypocritical, to say the least, for President Obama to fill his administration with these dupes and villains of Wall Street and claim they have no bias.

It seems Wall Street agrees with President Obama’s campaign slogan of “Yes We Can,” but adds something to it – “Yes we can!  We can rip-off America and get away with it.”  They obviously have the people in place to do just that.

[i] Banking Act of 1933 (1933).  Print.

[ii] “TG-646: Treasury Secretary Tim Geithner Opening Statement as Prepared for Delivery before the House Committee on Financial Services.” United States – Department of The Treasury – Homepage. Web. 10 May 2010. <;.

[iii] “U.S. Treasury – Mark A. Patterson – Chief of Staff to Secretary of the Treasury.” United States – Department of The Treasury – Homepage.  Web. 10 May 2010. <;.

[iv] “SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages; 2010-59; April 16, 2010.” U.S. Securities and Exchange Commission (Home Page). Web. 10 May 2010. <;.

[v] “Chairman Gary Gensler – CFTC.” U.S. Commodity Futures Trading Commission. Web. 10 May 2010. .

[vi] Rucker, Philip, and Joe Stephens. “White House Economics Aide Summers Discloses Income –” – Nation, World, Technology and Washington Area News and Headlines. Web. 10 May 2010. <;.

[vii] Real Estate Education, Information, Marketing Resources & Much More. Web. 10 May 2010. <;.


Life in a Vacuum – The Problem in NASA Funding

March 26, 2010 is a wonderful website that explores ideas.  In fact, their tagline is “Ideas worth sharing.”  They bring together an eclectic group of people to promote new ideas or simply how to see old ones in new ways.  TED stands for Technology, Entertainment, Design but don’t let then name fool you, at its core TED is about people helping the world improve.  The organization has grown beyond its initial focus on the three groups of its name to include people from all walks of life with ideas they wish to share.  Simply put TED represents the best humanity has to offer.

During its evolution, TED developed something called TEDx events, with the “x’ meaning independently organized events.  For instance a group from the National Aeronautics and Space Administration (NASA) formed TEDxNASA (click here to see the group).  It is great to see world-class scientists bring their particular area of interest into a format mere humans can understand.  In watching the various talks, we learn about current and projected programs underway at NASA.  After a talk, one cannot help but feel it is worthy of our support and funding.  Unfortunately, it is the funding that proves more problematic than support for the idea.

For example, in November of 2009, NASA scientist Joel Levine spoke of the need to return to Mars (Here is the link).  In this project, a group of over one hundred scientists and engineers are working on developing a craft, called ARES, to fly around Mars and collect all sorts of data.  In watching the presentation, as well as visiting the ARES website, amazement is assured and it becomes obvious that NASA still attracts the best and the brightest amongst us.  Even so, it is valid to question just why we want to do this and what is gained.  Rather than give that answer, as their website addresses the gains, the program’s cost becomes the issue.

Funding one program over another is painful.  Just as a mother cannot choose one child above another, NASA holds affection for each program it undertakes.  Still, no two children have exactly the same talents, and no two programs can produce the same results.  Just as one child might have to wait for its needs while another’s needs are tended, so must programs wait for funding.

The debate over NASA funding is especially heated during this time of economic hardship.  Detractors of the space program see it as money to be diverted, while supporters point to long-range returns on investment as proof funding is worthwhile.  In the end, funding is beyond the control of NASA.  It is in their best interest to deal with the reality of funding and set clear priorities.  In other words, they must pick which child (project) to support.  The leadership of NASA needs to give focus to the organization, focus that has lacked since the days of the Apollo program.

During the Apollo era (1963 – 1972), NASA had a lazar-beam like gaze on its goal – exploring the moon.   Even other major programs, Gemini for instance, added to the over all goals of the Apollo program.  That type of focus needs to return.

During the 1960s, NASA’s budget (click here for Historical table) fluxed between 1.2% and 4.3% with an average around 3% of the overall federal budget.  Currently, the NASA budget is approximately 0.6%.  Given the monetary increase of the overall budget, NASA taking a smaller percentage is not that troublesome.

Click Image for Larger View


As the graph illustrates, the money given to NASA has increased exponentially, still there is insight gained from some simple observations.  In the 1960s, NASA used roughly 3% of the federal budget and focused on reaching and exploring the moon.  They achieved that goal.  Now, NASA uses less than 1% of the federal budget and spreads it over more than 85 active programs dealing with many divergent areas, everything from studying polar clouds to deep space exploration and most everything in between.

Looking at any one program in a vacuum supports funding.  Again, they are all worthy, but as wonderful as they may be, the checkbook is not unlimited and NASA does not exist in a vacuum.  Supporters of NASA often point out nearly three times as much is spent in the United States on pets than the space program (the American Pet Products Association (APPA),  estimates $47.7 billion will be spent in the U.S. in 2010 on pets compared to NASA’s just over $17 billion).  The point being that NASA does not receive much support in the larger scope of things.

As true as that point may be, it is irrelevant.  NASA has just over $17 billion to spend. That’s it!  In the current climate they will not receive more.  The fact is they must fight to keep funding at its current level.  Faced with that reality, perhaps returning to goal oriented priorities, like in the Apollo days, is warranted.  If Mars exploration is the priority, focus funding on programs that support that goal.  Others will have to wait or modify their program to support the goal.

In the end, the leadership at NASA must make some hard choices.  Congress is not going to provide money to fund every project regardless of it worth.  By focusing on projects with common goals (i.e. exploring Mars), targeted funding will produce the best results.  Otherwise, all projects receive minimal funding and produce minimal results.

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