Are We In A Recession?

August 25, 2011

Are we in a double dip recession?

Economists hedge their bets using percentage. Most suggest a 30 percent chance we’ll go back into a recession though some go out on a limb and peg the odds at up to 50 percent.
The better question is whether we are out of the one we entered three years ago. Unemployment rose from 5 percent to 9 percent and has not come down since.
I’m not an economist, so what do I know? But the answer is Yes. 100 percent. We are in a recession. My money says the Labor Department will confirm this after it accumulates and analyzes the data in 45 days.

A recession occurs when a country produces less than it did for two prior quarters. Production declines when people stop buying, and the U.S. economy relies upon the consumers buying 70 percent of production. Another 30 percent comes from federal, state and local governments.
Congress is locked in a death spiral to cut federal spending. Federal discretionary spending – dollars not on auto-pilot – will be the lower as a percentage of the economy in over 50 years.
Entitlement spending – those dollars on auto-pilot like Social Security and health care – is rising. Most of entitlement spending is merely a transfer of money from one taxpayer to another. For example, social security takes money from current workers and transfers it to retirees. That’s government spending, but not production.

Increased Medicare, Medicaid, and military health costs are rising because of we are getting older, poorer, and wars have hidden costs.

The federal government’s stimulus two years ago – a continuing source of political warfare – was very small and mostly offset by spending cuts by state and local governments. Teachers, policemen, firemen, and government employees were fired. School budgets and local governments have reduced services. Highways and bridges and other infrastructure needs are not being built or fixed. In the end, the net additional government spending was close to zero.

A fired teacher who starts a new lawn care or babysitting business earns less and buys less.
Consumers buy less for many reasons. Wages haven’t grown in 30 years. Increased gas prices and food costs mean more money goes to the same quantity of goods, so fewer dollars are available to buy other consumer goods needed to pump up the economy.

Home values have declined 30 percent and demand has declined even more. Sellers are receiving less for their property and have less to spend after they sell. New construction is almost non-existent, so construction workers have had not work for years.

Foreclosures are four times higher than just a few years. Banks are nervous that flooding the market with almost 2 million foreclosed houses will push values down further. If that happens, more banks risk becoming insolvent and being taken over by the government.
History teaches that recovering from a recession doesn’t happen when real estate values decline. Jobs cannot grow without a stable real estate market which pulls construction, manufacturing, banking, furniture, materials like steel and concrete and aluminum, and so many other industries with it. These industries that feed construction are suffering. The real estate industry is in tatters – probably the equivalent of a depression.

Banks are nervous about lending because they are afraid they won’t get paid back. Even with historically low interest rates, lending standards make it more difficult for borrowers to qualify for loans to buy a house or start a business. Consumers are buying fewer new cars.
Fewer consumers are using their credit cards that allow them to buy-now, pay-later. For years, economists have scolded consumers for using their credit cards and told them to save more. Nervous consumers are paying down their credit cards and using them less. Fearful about an uncertain future, consumers are saving more.

Stock markets have lost 15 percent of their value – trillions of dollars – in a few weeks. Retirement accounts are lower. Consumers are scared. The U.S. public and world markets have lost confidence in the U.S.’s ability to govern itself. Other countries worldwide have their own economic problems, so they are buying less.

If we’re not in a recession, that is merely a technicality. We went into a recession when unemployment rose from 5 percent to 9.8 percent. Because 90.2 percent of the workforce doesn’t produce and buy what 95 percent of the workforce would, the new goal line for determining growth became the 90.2 percent. So if unemployment drops to 9 percent and the economy rises to 92 percent of full production, that’s about 1 percent growth, though lower than the 95 percent production before the recession began. Only an economist could call that growth.

Are we in a recession? Absolutely. Have we come out of the past recession? No. We all know this. Only the economists don’t.

Will Tax Cuts For Top Tier Create Jobs?

July 26, 2011

My company is a small business. I think. We have approximately 25 employees. Even in our hometown Salisbury, North Carolina most people have never heard of us.

I’m not sure what the word “small” means, but compared to most companies in the US, we may be considered big. The IRS reports that approximately 6 million corporations, 3 million partnerships, and over 20 million proprietorships file tax returns. Corporations make the most money, have the best stats, and hire the most people.

Of the 6 million corporations, only 160,000, or 7%, have more assets than we have, and only 35,000, or 1.5%, have more sales than we do. Are we a small business? I certainly think so. Our employees think so. I wake up every day wondering if CVS or Walgreens or Walmart or all those other huge pharmacies are going to squash us.

So, I feel pretty much in the middle of this tax debate that is using small businesses as the bait for two hot tax issues. First, should taxes go up by 3% for people making over $250,000? Second, should employers have a payroll tax holiday if they hire new employees? Clearly, those tax breaks would increase my profits a little, but would they encourage me to invest and hire more employees? Absolutely not. Will it affect the 2012 election? Probably.

“Small businesses are the engine of job growth,” we’re told. Talking heads say that there are 700,000 small businesses earning over $250,000. On average, every county in the country has 200 small businesses earning that amount. In Virginia, Maryland, and DC, that’s reasonable, but drive 75 miles in any direction to an “average” county. Butch Cassidy was equally perplexed: “Who are those guys?” Most of those 700,000 small businesses earning over $250,000 are doctors and lawyers. Are they the engines for job growth?

Perhaps a brief tax history might help. In the early 1970s, Congress passed a 10% income tax surcharge to pay for the Vietnam War. Back then, both political parties were fiscally responsible, cooperative, and voted for that tax. It was pretty simple: compute your tax and add 10%. (Did you know that North Carolina has an add-on tax now?) If your tax bill was $1,000 and you had paid in $1,300, you would have gotten a $300 refund. But with 10% added to your tax bill, making it $1,100, your refund was only $200.

Over the next 20 years, taxes were cut on the idea that deficits would go down because economic growth would more than offset the revenue loss. Indeed, there was economic growth but deficits went up. President Reagan criticized President Carter’s $50 billion deficits, but his budgets (the President, not Congress, makes out the budget) were above $300 billion.

In 1988, the first President Bush, said, “Read my lips. No new taxes,” but knowing he had to be fiscally responsible, he raised taxes. In 1993, President Clinton raised tax rates at the top of the income scale about 3%. Over the next eight years, the economy grew like never before, tax receipts increased, and deficits disappeared. Microsoft, Apple, Coke, and many new and old companies grew like weeds despite higher taxes. The stock market tripled.

In 2001, the second President Bush passed a 10 year tax cut that is scheduled to expire at the end of this month. Today, compared to 10 years ago, the stock market is the same and unemployment is double.

Consequently, the United States now faces a huge and growing deficit problem. We spend $3 for every $2 we collect in taxes. There is waste, for sure, but not that much. Those dreaded “earmarks” are less than 1/10 of 1% of the entire budget. Contrary to popular belief, Congress cannot eliminate earmarks to balance the budget. In fact, just walking out of our wars and then eliminating the entire defense department completely wouldn’t balance the budget. Nor would eliminating Social Security completely. This is a really big problem.

Like students waiting until the last moment to prepare for exams, Congress has waited until the last moment to deal with the expiring tax cuts. (Frankly, this tax debate should be part of a larger debate about the entire budget.) President Obama is arguing that the Bush tax cuts should be kept for those making under $250,000. That will increase borrowing and the deficit by $2.7 trillion. The Republicans and some Democrats want to extend the tax cuts permanently which will increase borrowing and the deficit $3.7 trillion. So, this argument is about whether to borrow another $2.7 trillion or $3.7 trillion. Eliminating those pesky earmarks saves about $30 billion, or .001% of those amounts.

Why borrow these extra trillions? To help small businesses — like ours — hire people and grow. If my company earns an extra $10,000, these tax cuts save us $300. If Congress also passes a payroll tax holiday and we hire another employee for, say, $25,000, it will save us another $1,200. I’m not fond of taxes, but if the government cuts my company’s taxes $1,500, is that why my company is going to hire another employee? Not at all. We hire new employees when she or he is going to help our business, not to save $1,500 in tax.

Growing a business is about growing a business, not taxes. (Of course, we could move to the Bahamas or Ireland and reduce our taxes, but small businesses can’t do that.) No business decides to grow or not grow because of taxes. No business decides to hire a new employee or not because of taxes. Why doesn’t Congress understand that?

US Senator Everett Dirksen once said, “A billion here, a billion there, pretty soon it adds up to real money.” No more. Now, we talk trillions.

This debate is silly. Ignore the rhetoric. It’s about how much more are we going to borrow and increase the deficit. It is not about reducing the deficit by a dime.

David Post is the owner of a small business that was founded in Washington, DC and is on Inc. Magazines list of the fastest growing companies in the US. He was a professor at American University and Georgetown for 10 years. Contact him at: editorial@Georgetowner.com

Casablanca means White House


“I’m shocked, shocked to find that gambling is going on in here!” Captain Renault said as he was pocketing a bribe in Rick’s casino in the movie Casablanca.

Last week, the Wall Street Journal and this week, Congress have both reacted to recent budget news the same way: “We’re shocked, shocked that the federal budget deficit projections for 2012 have been revised upward from $1.1 trillion to $1.6 trillion.”

Well…what did Congress think that a $500 billion tax cut was going to do? Have no impact on the deficit? Collect less, but expect the bank account to not go down? Wait. That was two months ago—a lifetime in politics. More than enough time to be erased from the public and government memory.

Here’s the big picture: In the 2012 federal budget, taxes will bring in $2.1 trillion and spending will be $3.7 trillion, leaving a $1.6 trillion deficit. Compare that to 2000 when tax receipts were $2.1 trillion – unadjusted for inflation – and spending was $1.8 trillion.

The budget debate drove the election and promises were made to cut $100 billion, or about 6 percent of the amount needed to balance the budget. When it became too difficult to find that much to cut, the hurdle was reduced to $35 billion, but the Tea Party got mad that it wasn’t enough. Now the promise is to find $60 billion in thus far unspecified cuts.

But let’s give Congress credit anyway for finding that $60 billion. That’s about 4 percent of the annual deficit, leaving another 96 percent to cut to balance the budget.

Let’s look under the hood and find some ideas. Defense, Social Security, Medicare and Medicaid are sacred. Few Senators and Representatives can vote to cut those items and be re-elected, so even now, as we debate this, that can is being kicked down the road again until next year. Just like the past 30, 50, 80 years.

Let’s dig in and see what we can do. The Department of Education seems to be an easy target, always at the top of the list of federal departments to eliminate. Wipe it out. The states can do a better job taking care of education anyway. Students can get their loans from banks. If banks won’t make loans and young people can’t afford to go to college, they can get jobs, save, and then go to college later. That saves $70 billion. Good start.

Everyone knows that HUD is a snake pit of problems. If we’ve learned anything in the past decade, we know that Wall Street has all kinds of secret ways to make the housing market function. That’s another $40 billion. Now we’re getting somewhere. We’ve cut that first $100 billion. Only $1.5 trillion to go.

Maybe this piecemeal approach is too slow and painful. Like pulling off a Band-Aid slowly rather than jerking it off. Here’s a thought: With all this talk about smaller government, how about no government? Eliminate it all.

No one likes the IRS and the Treasury Department. Or the EPA. Those environmentalists are so pesky. Transportation could be turned over to the private sector like parking lots. Just make all the highways toll roads. Pay for it when you use it. Send Congress and the President home. Shut the Courts. Turn out the lights. The states can figure it out because they are required to have balanced budgets.

Drastic times require drastic action. So, if we eliminate the entire federal government as we know it, would that balance the budget? Not really. In fact, not even close. All federal government operations cost $400 billion, about 25% of the total deficit. That leaves another $1.2 trillion to cut.

Hmmm. This is going to be really tough. Especially since we’re scared to touch defense, Social Security, Medicare, and Medicaid.

And heaven help us if we raise taxes. President Reagan taught us an important lesson: Cut taxes and the budget will balance itself. Except that he raised taxes in seven of the eight years he was President and the annual budget deficits doubled on his watch. President George H.W. Bush taught us that a vote to raise taxes is a vote for your opponent in the next election.

Casablanca is the answer: We’re shocked, shocked! Maybe these problems don’t amount to a hill of beans in this crazy world. If we don’t figure this out, we’ll regret it. Maybe not today. Maybe not tomorrow, but soon and for the rest of our lives.

Good lines, huh? Even 70 years ago.

Remember how Casablanca ended? Renault threatened to have Rick arrested. Rick threatened to shoot Renault. They decided that was MAD, or Mutually Assured Destruction. So they promptly changed their minds, and as they walked away together, Rick said, “I think this is the beginning of a beautiful friendship.”

Congress and President Obama need a date night at Washington’s Casablanca, White House. They could watch that movie together.

Wall Street Can Save Us


Wall Street can do it. Wall Street owes us. After all, we’re in a national financial mess because of Wall Street. As SNL’s Oscar Rogers says, it’s time for Wall Street to “fix it!!”
How can Wall Street “fix it?” Merge the US and China.

If Wall Street can take a batch of loans from nannies and strawberry pickers who buy $700,000 houses on $14,000 annual incomes with no down payment and convince the world that the batch is no more risky than US Treasury securities, it can do anything.

A merger would solve our budget problems. Let’s examine the synergies – a fancy word for win-win.
The US needs China to make stuff for it. China needs US consumers to buy the stuff it makes. The US buys a lot of stuff from China. Then China sends the money right back, admittedly as a loan, but it does send it back.
The US hates taxes. China’s national tax burden is lower than the US, finally proving that President Reagan was right – lower taxes are the best way to grow an economy.

US manufacturers like low cost land, lower regulatory restrictions, and cheap labor. China has all that.
China’s economic growth rate is 9%. The United States growth rate has been anemic. Average the two, and we’re probably close to the Fed’s target of 3%.

The Chinese control exchange rates and interest rates. The Fed tries to control those in the US, but the average is probably healthy for both.

Chinese students love science and technology and American students love Chinese food and art. Chinese students make good grades, so US schools would report vast improvements. Chinese students love US universities and US universities give boatloads of PhDs to Chinese students.

US kids like to have sleepovers and Chinese parents don’t let their kids sleepover, but since we’re 9,000 miles apart, that shouldn’t be a problem.

As an accounting professor, I know most people hate accounting. Though the percentage of students majoring in accounting has dropped by more than half in the past 20 years, a large percentage of US accounting students and most new accounting professors are Chinese. Even so, most people think accountants can always make the numbers come out right. Consolidation accounting is very difficult to understand, but the basic idea is that when the same company buys and sells to itself, the amount owed and the amount due cancel each other out.

So, merge the US and China. The US deficit goes POOF! Completely offset by China’s surplus. Hooray for accounting! Maybe we can even shed that image of being boring. TV glamorizes doctors and lawyers, and even bachelors and letter-pickers. Imagine a TV show about accountants. Never mind. But, our time has arrived on the biggest stage of all.

Wall Street is always looking for the next big deal and this would be the mother of big deals.
This is a win-win-win. Everyone gets what they want. Wall Street fees and bonuses will make $100 million bonuses look like chump change. The US budget gets balanced. And China doesn’t have to worry about getting repaid.

Government Math


A one-mile high stack of dollar bills is about $1.4 million. A billion dollars would be about 70 miles high.

The first thing Congress did after the election was cut taxes by almost $900 billion. That stack of dollar bills would be 60,000 miles high – enough to go around the earth twice, and then go from Washington, DC to Moscow. And back.

That was my best Christmas present: lower taxes for two years. PLUS a cut in social security taxes, which will make my paycheck go up about $150 per month this year. (Of course, if I don’t get a raise at the end of this year, my paycheck will go down next January.)

Voters like tax cuts. And Congress loves to please the voters.

Voters are also screaming for budget cuts. Congress knows how to talk the talk. But it hates the walk because taking money away pleases very few voters.

Government math is hard to understand. Maybe big numbers are just hard to understand.

The new Congress is now wrestling with budget cuts. The Republicans’ “Pledge to America” promised $100 billion in spending cuts. But after a week of facing the realities of the budget, they have reduced their target to $50 billion with some whispers that even $35 billion is going to be hard to reach.

How much is $100 billion? A stack of dollar bills about 700 miles long – about the distance from Washington, DC to Chicago.

The federal government spends about $275 billion per month and brings in about $175 billion per month, leaving a monthly deficit of $100 billion per month. So $100 billion in spending cuts would be the equivalent of the federal deficit for one month.

These are huge numbers and the math is very difficult. It reminds me of a situation I was in about thirty years ago when a client of mine refinanced a $2 million loan. I took the $2 million check from the new lender to the bank and asked that it be deposited immediately so that we could write a check for $2 million to repay the old loan. The teller told me that we would have to wait three days.

I asked for an exception. The teller talked to a vice president and we were able to repay the old loan immediately. The teller apologized and said, “I don’t handle $2 billion deposits that often.”

“That’s $2 Million,” I said, “Not $2 Billion.”

The next thing I heard was the budget lesson of a lifetime: “Million, billion? What’s the difference?”

Maybe that teller was right. Is there a difference? Can we understand what this is all about? Maybe this is the new math.

Last month, Congress reduced revenues by almost $900 billion and this month, promised to cut spending by $100 billion, and now hopes to squeeze at least $35 billion out of budget expenses.

Think about it this way: The next time your income goes down $9, tell your family that that you are going to reduce the family expenses by $1. Then actually cut expenses by 35 cents. That’s the new congress. Declare the family victorious for being fiscally responsible. That’s the new math. That’s the new Congress.

David Post is the owner of a small business that was founded in Washington, DC and is on Inc. Magazines list of the fastest growing companies in the US. He was a professor at American University and Georgetown for 10 years. Contact him at: editorial@Georgetowner.com

Today, the Debt Ceiling debate is MAD

July 13, 2011

Fifty years ago, it was called MAD: Mutually Assured Destruction.

By the 1980s, the U.S. and the Soviet Union together had amassed 25,000 nuclear warheads aimed at each other. Carl Sagan, the people’s scientist, compared it to two people standing in a room the size of a football field filled up to their chins with gasoline, each holding 10,000 matches and each threatening to light one.
Today, the Debt Ceiling debate is MAD.

First, what is the Debt Ceiling? Until 1939, Congress approved the issuance of a Treasury bond every time the U.S. needed to borrow money to pay its bills. In 1939, Congress authorized the Treasury Department to borrow the money needed to fund the government, but set a limit on how much it could borrow. That limit is the Debt Ceiling. For the past several decades, the Treasury has been borrowing money four out of every five business days and the Debt Ceiling is approaching $14 trillion. Our lenders, in approximately equal amounts, are the Federal Reserve, U.S. investors and foreign investors (mostly the central banks of China, Japan and the United Kingdom).

Over the years, Congress has raised the Debt Ceiling with no fanfare. For example, the Debt Ceiling was raised during each year of George W. Bush’s Presidency, doubling from $5 to $10 trillion. Every time the Debt Ceiling was changed, a handful of Senators and Congressmen gave speeches on controlling the budget. Some voted against it, but they knew that others would vote to raise it.

This time, Congress is playing poker with the world economy as its chips. If the Debt Ceiling is not raised within a few weeks, the U.S. will not have enough money in the bank to pay its bills. That’s never happened, but we know it won’t be good and will probably have unforeseen consequences.

Greece defaulted, has riots in the streets, and is at the mercy of other countries. Lehman Brothers defaulted in 2008 when the government refused a bailout, and over the following months unemployment doubled and the stock market lost almost half its value. Lehman Brothers was a New York investment bank. Large, but not the largest. And nothing compared to the U.S. government.

For 2011, U.S. revenues are $2.2 trillion and expenses are $3.8 trillion. We borrow 40 percent of what we spend. How would Congress reduce spending by 40 percent next month? To listen to the talking heads, it sounds easy.

Some, including Presidential candidates, U.S. Senators and Congressmen, are saying that default would be avoided if we pay the interest and “prioritize” other spending with available funds, or cutting all other government spending by half.

Some suggest across the board spending cuts. If serious, beginning next month, Social Security benefits would drop 40 percent along with reimbursements to health care providers, all government salaries, including our military, and interest payments to our lenders. That’s drastic, but social security, health care, defense, and interest on the debt account for more than 80 percent of the budget.
Others say “Just go back to 2003 spending levels” when spending was $2.2 trillion. That may sound logical, but that’s the same 40 percent cut.

Imagine an angry and crazy couple. One picks up their child and holds it over a bridge railing and says, “If you don’t do what I demand, I’m going to drop the baby and it’s your fault.” The other says, “No, it’s your fault.”

No crazy couple should negotiate that way. And neither should the Congress.

If Congress wants to cut spending, it holds the purse strings. The President can’t spend a dime unless Congress both authorizes and appropriates the money. If it were serious, Congress could pass legislation reducing spending by 40 percent and only give the President that much to spend with specific instructions. Parents do that all the time to their kids.

Economists and corporate CEOs are begging Congress to not play this game. Rating agencies are saying that the U.S. credit rating would drop below junk bond status. It would be unmitigated disaster.

But this isn’t real poker. It’s pretend. Everyone knows that the United States is not going to default. Congress operates like kids doing their homework on a school bus a few minutes before an exam.
This debate is about demagogy. It is about political posturing, blaming the other party, and gaining political advantage up until the last minute. It is not about what is best for the United States or the world economy.
At least with nuclear warheads, everyone agreed it was MAD.

Up is steeper than down

June 29, 2011

Why is the slope up a hill steeper than the slope down a hill? Seems like it should be the same, but it never is.
Everyone knows that it’s easier to ride a bicycle downhill than to ride it uphill, or to fall into a hole than to climb out.

The economy works the same way. If a $1,000 investment drops to $800, that’s a 20% decline. But for it to go back up to $1,000, that’s a 25% increase. You see, the climb back up is steeper than the drop down.

Remember the good old days when things seemed to be going great and the Fed would increase interest rates to slow the economy down? Or a big increase in jobs would send the stock market down because it was worried that too many buyers would cause inflation.

The economy seems to be counter-intuitive. Good is bad, and bad is good.
For example, the decline in housing prices has virtually crippled the economy, but it’s a good time to buy.

Banks are in trouble. With zillions of dollars of bad loans on their books and with housing values – their primary collateral – continuing to fall, banks are scared to make loans. Murphy’s Law says, “If anything can go wrong, it will.” Murphy’s Law of Banking stings even more: “If you qualify for a loan, you don’t need it.”

For years, economists complained that Americans “didn’t save enough.” We spent all of our money. That was a bad, but it made the economy grow, so it was a good. Credit card debt soared which was bad, but the stuff we bought made the economy grow, so that was good.

Today, we’re nervous about what tomorrow’s economy is going to do or look like, so we are changing our behavior. Now, Americans are saving more which is good, but by spending less the economy won’t grow, so that’s bad. We are paying down that mountain of credit card debt, which is good, but that money isn’t being used to buy the stuff that new jobs would make, so it’s bad.

The Japanese are very frugal people and famous for saving. That’s good, we were told. We should be more like them. But the Japanese economy has been in a funk for more than 25 years. Its stock market average was 10,000 in 1984 and after a blip, is still 10,000 while the US stock market is ten times higher than in was 25 years ago.

Do we really want to be like the Japanese?
The 2012 presidential campaign has begun, and until the election, the political rhetoric is going to be all about jobs. The political parties will blame each other, but more importantly, both will make promises they can’t keep.

During each decade from 1950 until 2000, the US created on average approximately 150,000 new jobs per month. From 2000 until 2007, US job growth was about half that, or 80,000 new jobs per month (despite huge tax cuts, but we won’t go there). Then, during the Great Recession of 2008 and 2009, the country lost 8.5 million jobs.

Do the math If we can start growing jobs at the rate we did from 1950 until 2000, that’s a 5 year climb to get back to 2007 employment levels. And that’s before a single new job is created. But what if the job growth rate from 2000 through 2007 is the new normal? In that case, climbing out of this ditch and getting back to even ground will take almost 9 years.

What about all this whining about the loss of manufacturing jobs? The US is already the most productive country on the earth. Most countries aren’t even close to American productivity. Each US worker produces 7 times more a Chinese worker and 13 times more than workers in India. As US workers become more productive every year, fewer people produce more. Increased productivity is good, right? But it means fewer jobs, so that’s bad.

It’s deeper than that. We don’t make shoes and shirts anymore. That stuff was easy. Today, we make satellites and electronic components, the hard stuff which requires more educated workers than it did to make shirts.
The presidential campaign will be fought with quick and easy sound bites. The problem is that these issues have no quick or easy answers. What politicians do know is that tearing things down is easier than building them back up.

Up is steeper than down. Go figure. How does anyone make an A in economics when the right answer might be wrong and the wrong answer might be right?

Is Health Care a Moral Issue?

May 5, 2011

“We have a moral obligation to the country to do this.”

So said Rep. Paul Ryan (R-WI), chairman of the House of Representatives Budget Committee, as he proposed enormous cuts in federal spending by radically overhauling the health care system. His plan, delivered last week, projects saving the federal government $4 trillion by reshaping and reducing health care benefits for the elderly, poor, and disabled.

What exactly is the moral obligation? Reducing the debt or providing health care? This may be the most pressing moral issue “we the people” face over the next forty years. Do we have a moral obligation to cut spending or raise taxes (or not raise taxes)? Or, do we have a moral obligation to provide health care to our elderly, the poor, and the disabled?

Clearly health care is a moral issue. As a nation, we have enormous moral disagreements on critical health care issues from conception to life-sustaining stem cell research to death.

For the past sixty years, we have debated whether health care is a moral issue, that is, whether we as a nation have a moral obligation to provide health care to everyone or whether each individual is responsible for his or her own health care. Except for the United States, every democracy on earth believes it has a moral obligation to provide health care to its entire citizenry.

As health care costs rise unabated, the line between cost and care is becoming blurred. Medical expenses are the cause of 50% of all personal bankruptcies in recent years. (Ironically, bankruptcy was a “moral” issue a generation ago. Today, bankruptcy is an economic option with virtually no moral implications.) As a nation, we are beginning to approach a similar precipice.

Mr. Ryan deserves enormous credit for making a bold proposal. As promised, his proposal reduces federal expenditures. On the other hand, it doesn’t save any money. It merely shifts $4 trillion of costs over the next ten years from the federal government to state governments and to the elderly, poor, and disabled.
By replacing Medicare with a stipend and instructions to “buy your own insurance,” most of the elderly will have less health care. The theory is that tens of millions of retirees will rise up together and negotiate better rates with the insurance companies. Somehow IBM, GE, Microsoft, AT&T, state and city governments, sprawling university systems and non-profits, and other huge organizations negotiating on behalf of tens of thousands of employees can’t do that, but the elderly can and will.

Even though the average annual cost of Medicare per person is approximately $11,000, the proposed stipend is about $8,000. Can private for-profit insurance companies which have administrative costs of 20% or more learn to be more efficient that the non-profit Medicare system with its 3% administrative cost burden? (On a personal note, I’m 61, healthy, eat right, and am active. However, because of hip replacement surgery five years ago, I’m not insurable. A state-sponsored “high risk pool” will cover me for approximately $17,000 per year with annual increases in the years ahead.)

If you were born before 1958, you’ll still get Medicare. If born after 1957, you get a stipend that covers about 75% of your projected health insurance cost. Although the Ryan proposal provides that the stipend increase with inflation, health care costs are rising at triple the inflation rate. Under the Ryan plan, the average retiree would have to spend almost half of his or her retirement income on health care. Retirees better become great negotiators.

Mr. Ryan proposes block grants to the states to cover the federal government’s share of Medicaid costs. Over ten years, he proposes decreasing federal Medicaid spending by $1.7 trillion (that’s a “t” for trillion, not a “b” for billion), or 39%. State governments are struggling to meet their share of Medicaid today. How are they going to absorb more, especially $1.7 trillion more? Clearly, they can’t. The message to the poor and disabled is: fend for yourselves!

Real death panels will emerge. Not the fiction used to scare people into opposing the recently passed health reform law. Instead, if families can’t afford health care, they will choose between death and . . . well, whatever other choices may exist.

The Ryan plan pits old against young, rich against poor, those who vote against those who don’t, and those who make political contributions against those who don’t. This isn’t a fair fight. Apparently, the “We” in “We the people” does not mean all of us.

Save Our Health Care System

March 9, 2011

Don’t mess with my health care!! Throw out Obamacare!!!

A majority of the House of Representatives voted to do just that, carrying out, as they said, the people’s wishes.

Polls indicate that half the country wants Congress to repeal Obama’s health care law.

Remember when Butch Cassidy and the Sundance Kid were being chased by the guy in the white hat and weren’t sure who it was? One of them said, “Who are those guys?”

Well, who are the people who want Obamacare repealed?

Is it the 45 percent covered by employer health plans (down from 60 percent five years ago)? Is everyone covered by an employer-sponsored plan satisfied? Or are they nervous about losing what they have? Do the 30 percent covered by government health care oppose Obamacare? Or the 10 percent who have individual policies? Or the 15 percent who have no health insurance coverage? Do the 9 percent unemployed want Obamacare repealed? (The numbers don’t add to 100 percent because of overlap.)

The Department of Labor recently reported that the number of self-employed grew from 9 to 14 million last year because many of the unemployed are trying to start their own businesses. That’s almost 10 percent of the workforce. Most are single-person businesses with no health care, no unemployment insurance and no workers compensation coverage. Do they want Obamacare repealed?

The U.S. spends twice as much per person on health care than does any other nation in the world. Yet U.S. life expectancy – the ultimate measure of health care – ranks 37th in the world, right behind Cuba. Those poor people waiting in line for medical care in Canada, ranked 11th, outlive us by an average by 2.4 years.

Government policies encourage the development of small businesses because they are the job generators, but government policies exempt small businesses providing employee health care. Am I missing something or is that schizophrenic?

My company has approximately 25 employees, but we’re conveniently reminded that we are exempt because we have less than 50 employees. How does that help our employees or our company? We want them to have health insurance. It’s good for them and good for us.

Several years ago, we got a quote for a group insurance plan. It was approximately $10,000 per year per employee, more than our profit, and about 33 percent of our entire payroll.

Our agent suggested individual policies for each employee since that reduced the cost. We offered to cover 70 percent of everyone’s cost, but most couldn’t afford that and few bought it. We ultimately set up a plan where we set aside each employee’s benefit each month. When they need money to pay health care, we give it to them out of their fund.

That worked until last week.

Sadly, we have an employee facing a cancer scare. Medicaid will cover her after she’s incurred (and paid) $15,000 out of pocket. She’s having trouble getting an appointment with an oncologist because they want proof of a source of payment before they will see her.
My son just turned 24. He is a self-employed artist and also works for a small, privately owned company in Washington, DC that cannot afford health care for its staff. He is now headed for grad school, which requires proof of health insurance upon admission. He was on his mother’s policy until last year when he was kicked off. Obamacare would let him stay on his mother’s policy until he’s 26—next July 1. It didn’t apply last July 1. So, we bought him an individual policy.

My hips were replaced five years ago at a clinic that also operates a research facility with the FDA. In fact, my left hip is part of an FDA study. I was a “star” patient. Literally. I did everything required and more, and had such a good recovery that the clinic did a movie about me to show what a good outcome looks like.

Even so, no insurance company will touch me. They are worried that I might be in a car wreck that will really mess up my hips and result in very high medical bills. (If I’m in a car wreck, my concern is more about other parts of my body, like my head and lungs and bleeding.)

The North Carolina high risk pool will cover me after I pay $15,000 per year in premiums and deductibles. I can afford that, but most people can’t.

Obamacare proposed an 8 percent payroll fee on employers who didn’t cover employees to help provide those workers with health coverage. We’d love that. It’s a lot better than the 33 percent cost of insurance.

The irony of Obamacare is that it is essentially the Republican alternative proposed during the Clinton health care debate almost 20 years ago. It was fashioned after the Massachusetts law championed by Mitt Romney, a Republican governor and leading Presidential contender.

Politics is funny. The minority’s idea is a good one until the other side adopts it as its own.

Sometime next year, right before the 2012 election, Anthony Kennedy is likely to decide whether Obamacare should be kept or thrown out. He is the tie-breaker on the Supreme Court. He has the best health care government can buy, guaranteed for his entire life. He will decide whether my employee might have to battle cancer (and fear) without insurance, whether my son must buy his own insurance, and whether I’m insurable.

We are truly a modern medical family.

This is the system half of us want to preserve, right?