Wednesday, November 04, 2009

What the November 2009 Elections Mean

Had a bunch of elections around the country, and your interpretation of them seems to vary greatly depending on which party you favor. The GOP points to Bob McConnell's overwhelming victory in Virginia as evidence that Virginia is no longer 'purple', and to Chris Christie's upset win over Jon Corzine to take the governorship of New Jersey as a clear shot across the bow of what the Democrats viewed after November 2008 as a permanent change in electoral politics.

Democrats, like Nancy Pelosi and David Axelrod, believe that the more significant race was in the 23rd Congressional District of New York, where Democratic candidate Bill Owens edged out Conservative Party (yes, they have that in New York, which sounds like a reason to invoke the Endangered Species Act) candidate Doug Hoffman. This sort of ignores the fact that there actually was a GOP candidate, Dede Scozzafava, a state assemblyperson who dropped out of the race after being pummelled in the polls, despite RNC backing and who repaid her supporters in the Republican Party (including Newt Gingrich) by endorsing the Democrat rather than Hoffman. There is an meme floating around that the NY-23 seat hadn't been held by a Democrat since before the Civil War, but apparently people who believe that meme have no access to Wikipedia, the last Democrat to hold that seat was elected in 1991, and the seat has changed hands between the parties eight times in the last century.

In terms of the number of voters, overwhelmingly the votes went GOP on the whole, particularly in Virginia where McConnell stomped Creigh Deeds by a 20% vote margin. Considering that McConnell won the State Attorney General race against Deeds by a fraction of a percent in 2008, the players didn't change but the score most certainly did. Chris Christie was outspent 3:1 by Jon Corzine, a former Goldman Sachs partner and very wealthy man who spent heavily in New Jersey media, which means buying lots of air time in NYC and Philadelphia.

The lessons I take away from these results are as follows:

1. It's Still The Economy, Stupid.

Times are tough. When times are tough, voters tend to punish the party in power. The vote totals in favor of the GOP are similar to those in the 1993 by-elections, which implies that 2010 could end up much like the highly-disruptive 1994 election that swept the GOP into power. This is not an endorsement of the GOP, simply an observation that if the DNC believes that running against George W. Bush will work in 2010, I believe they will be rather rudely surprised, assuming the economy does not improve dramatically. Nobody is buying the 3.5% GDP bump. Unemployment and possible future unemployment is what motivated the voters this time around.

Continuing to trumpet a temporary bump in GDP in the face of continued job losses is a net loser for the White House. Compounding this with "jobs created or saved" numbers that not even the network newscasts will report with a straight face is telling the American people that "All is Well" when they clearly know all is NOT well. A scene from Animal House shows how I believe the White House's economic numbers are being received (note: the White House is played by Kevin Bacon):

2. With Enough GOP Help, The Democrats Can Win Seats In Purple Districts.

You would think that this would have been evident from the 2008 election, but it does not hurt to repeat it. John McCain was nominated from a dispirited field of GOP candidates, flirted with selecting a Democrat for a VP and refused to fight his opponent. Bob McConnell and Chris Christie ran disciplined races against Democratic opponents who had numerous campaign visits from the President -- and won.

Dede Scozzafava was the choice of GOP party people in NY-23, not the product of a contested primary. Her policy positions were far to the left of any mainstream Republican to the point where she was endorsed by ACORN, the SEIU and Markos Mouslitas of the Daily Kos. She made Arlen Specter look like Tom DeLay in terms of conservatism.

Even after getting millions of dollars and campaign volunteers from the National Republican Congressional Committee, she turned around and planted the knife squarely in the back of the party by endorsing not Doug Hoffman, who would have caucused with the GOP, but Bill Owens, whose policy positions were only a little to the right of hers. She quit the Saturday before the race because she was destined to finish a distant third no matter what, but given the small margin between Owens and Hoffman it's likely that her Dead Hand endorsement of Owens lost the district for the party she claimed to support. With enough help from incompetent Republicans, Democrats can eke out a victory.

3. Third Parties Feel Good, But Don't Win.

You know that guy, the one who drives a Peugeot just to be different? The person listens to African pop not because he likes it, but because it's different and allows everyone to know they're different when it leaks out their earbuds? Yeah, those people are probably third party voters, and while they're interesting and funky and unique, they're not going to win elections. It's about being pure to themselves and standing out more than getting anything done. Libertarian party, Green party, Peace party -- they're not unAmerican in the sense of treasonous, they are unAmerican in the sense that they're satisfied with being a stumbling block and not actually winning.

Doug Hoffman did not get Republican party support, but he did pick up endorsements from Fred Thompson, Sarah Palin, Tim Pawlenty and Mike Huckabee, as well as Glenn Beck. Doug seemed like a really nice guy in the interviews I saw, but somewhat unpolished and not ready for prime time. He did spectacularly well for a third party candidate, but -- and it's an important but -- he still lost. The way he came to be nominated over Scozzafava is part of the story here, and since Owens stands for re-election in 2010 I would love to see Doug lead a combined GOP-Conservative Party ticket in that election after he beats all comers in a primary.

The take-home lesson here is not that we need a Tea Party of staunch fiscal conservatives to spend themselves on futile, uncoordinated and underfunded attempts to win office. I sympathize with these people, I think their hearts are in the right place, but their small-government Constitution-quoting butts belong in the Republican Party. Those folks were sidelined within the GOP sometime around 2000, which was a cardinal mistake on the part of the GOP. Folks like Senator Tom Coburn need to go to the Tea Party folks, and the Tea Party people need to get into the Big Tent. Scozzafavas we don't need, you have to draw the line somewhere and she's farther outside the GOP perimeter than even Susan Collins and Olympia Snowe tend to wander.

The GOP needs the passion of the Tea Party people, and emphasis on small government and fiscal responsibility is the shortest path to rehabilitating the GOP brand.

4. Democrats In Red States And Districts Should Be Hearing Footsteps.

The Dems in Virginia didn't get beat, they got annihilated. Bill Owens in New York is not the newest progressive in Congress, he's the newest Blue Dog, and considering that he almost got beat by an almost-competent Doug Hoffman, I don't see him attending strategy sessions with the far-left Dems from deep blue districts any time soon. There are 83 representatives and 20 senators from states that went for McCain in 2008, and all of these people have good reason to point to the blood on the walls in the Democratic HQs in Virginia and tell their leadership that they are NOT voting for any tax and spend packages, like healthcare. Nancy Pelosi may have picked up another 'blue' seat in the House, but IMO the election results cost her many times that on specific issues from people in her own party.

The counter to the revolt of the Democrats in the House who are looking at serious reelection challenges is for the Democratic Congressional Campaign Committee to say, "Yes, you're right. It looks like a bad district in which to be a Democrat that you have there. If you vote with us, we might give you enough support for you to win in 2010, but if you don't -- good luck." Any party only needs 218 to hold a majority in the House, and Blue Dogs who stand a good chance of being replaced by Republicans in any event may find their votes and themselves not only not needed, but not wanted. It's a dangerous counter for the DCCC to play, but it's entirely possible they will invoke the 'death penalty' to get their signature legislative packages across. After all, they believe that PelosiCare, Cap & Trade and Card Check are what we need, even if we're not smart enough to see it for ourselves.

5. Barack Obama Looks Good In His New Suits, But They Don't Have Tails.

The spin on The One's involvment in NJ and VA is "He wasn't on the ticket, this has nothing to do with him." One Democratic representative said, "He hasn't even been in Virginia," which would have been true at the time if she had added, "in the last four days." Obama campaigned heavily for Corzine, Corzine completely outspent Christie, and Christie still won. McConnell, well, he demolished Creigh Deeds. He was expected to win by 15, but he won by 20. Ouch.

The 2010 elections will hinge on the President's ability to effectively campaign for Democrats. His appearances, his charisma, his connection to young and minority voters were deciding factors in 2008, and the Democratic majorities in the House and Senate are great examples of what having a powerful draw at the top of the ticket can do for a national party, only -- he's not on the ticket in 2010, either. It's debatable whether two state governor elections have anything to say about national politics, but if they have anything to say it's nothing that the Democrats whose names appear below the President/Vice-President block want to hear. Given that Barack Obama will be the lead singer in the DNC's national efforts in 2010, he needs to be able to do better. Any thought that the DNC had created a new grand coalition was cracked by Virginia going so solidly Republican and shattered by reliably-blue New Jersey repudiating Jon Corzine.

The "sea change" that President Obama was supposed to have led lasted all of a year -- a year in which the deficit tripled, more people lost jobs than in the year before and the Stimulus, well, didn't. The President's job is secure through 2012, but the Congress is definitely in play. The President's best hope is that the economy comes back, Iran signs a deal and China keeps its appetite for our debt for another 12 months, because if things continue as they have the voters will usher the Democrats to the door.

That's what I get out of this. Your thoughts?

Saturday, October 10, 2009

Facebook Nobel Prize/Obama Jokes

In the future, everyone will win the Nobel Peace Prize for 15 minutes.

In other news, the 2012 Olympic Committee announced today that President Barack Obama has been awarded the Gold Medal in the Decathlon, more than two years before the event was scheduled to begin. Commitee members were convinced of his fitness for the award based on shirtless pictures of the President published in People magazine.

President Barack Obama will receive an Emmy for his numerous appearances on television in 2008 and 2009. Particularly cited was his standout performance in the ABC production "Death of a Fly".

The President of the United States has been named as a 2009 Tony Award winner for his stellar attendance at a Broadway show in May 2009.

The producers of the Academy Awards program have announced President Barack Obama as the winner of the Irving G. Thalberg Memorial Award for lifetime achievement. In addition, the award will be renamed the "Barack H. Obama Award" and presented annually to President Barack Obama.

In recognition of the pitch he threw at the 2009 All-Star Game, President Barack Obama has been named today as MVP of the 2009 World Series.

The Heisman Trophy Trust announced today that the iconic bronze statue will be recast, with a shirtless Barack Obama replacing the anachronistic college football figure from the 1930s. In a mild departure from tradition, the President will be portrayed clutching a basketball, though a similar arm-forward pose will be used. Also, the 2009 award and all future Heisman Trophy awards will be presented th Barack Obama

The Association of Community Organizers for Reform Now (ACORN) has named President Barack Obama as their "Customer of the Year" for 2009. The White House had no comment. Senator Al Franken (D-MN) was disappointed in his second-place showing, but congratulated the President in a press release.

The National Organization for Women followed the lead of the Nobel Peace Prize committee and named President Barack Obama as NOW's "Woman of the Year" for 2009. When questioned about the President's lack of female gender, the spokesperson said, "He said he WANTS to be female someday, and we think that's good enough for us."

Seen elsewhere on the Internet: Barack Obama has been named Motor Trend's Car of the Year.

The First Lady announced that for the first time in her adult life she is proud of Norway.

"Hey honey, Barack Obama won the Nobel Peace Prize." "For what?" "Exactly."

Seen elsewhere on the Internet: The voting was close, but it was the Beer Summit that put Obama over the top.

Happiest guy in the world right now? The guy that had Barack Obama on his Fantasy Nobel Prize team.

I wonder if he sued to get all the other candidates off the ballot this time?

In a little-noted announcement, William Ayers received an 'Assist' award in the Nobel Prize for Literature category.

Chuck Norris could win the Nobel Peace Prize by default, simply by killing everyone else on the planet. Lucky for us, Chuck Norris does not want the Nobel Peace Prize.

Friday, September 11, 2009

Eight Years Ago

I remember 9/11/01 very well.

I was underemployed at the time, and actually liking it pretty well. The main hospital our radiology group covered had been bought out by its cross-town rival, and not wishing to be an employee for the other radiology group, another radiologist and I were covering our secondary hospital on a per-diem basis. Tuesday was my day off, so I played some Counter-Strike until the late evening the night before, slipped into bed and slept the sleep of the innocent.

About 8:05 am I woke up with the sounds of early morning domesticity wafting in from the kitchen. I walked over to the computer, fired up Drudge Report and was confronted with the headline 'PLANE HITS WTC'. Just a few months earlier someone had run a Cessna into a building in Florida, and a couple of years earlier John F. Kennedy Junior had crashed into the Atlantic. I figured another light plane had struck the WTC, bad for the pilot, passengers and anyone in the office it hit, but not horrific, right?

I switched on "Fox & Friends" to see both towers ablaze, like Godzilla had come to town. Within a few seconds they replayed the video of the second plane hitting the WTC at high speed. The first might have been a badly off-course jetliner with control problems that happened to hit the tallest thing in Manhattan. The second was clearly no accident, with the high-speed bank into the corner of the building. Seeing something so bizarre, so unexpected, I half-anticipated more plane strikes in Manhattan in short order. Within half an hour, word came that the Pentagon had been hit, and I knew that something big was going on. My first thought was, "Someone has been reading Tom Clancy." The climactic scene in "Debt of Honor" is a JAL 747 slamming into the Capitol Building, and this was pretty much the same thing.

After seeing the towers collapse, one after the other, I was sure that I had just witnessed the most significant event of my generation. I also knew that someone, somewhere in the world was laughing and pleased about this, and that the person who planned this was absolutely messing with the wrong people.

Later I found out that someone I had met had been a passenger on Flight 77, the jet that crashed into the Pentagon. Paul Ambrose had been an officer in the American Medical Student Association, a competitor organization to my own AMA Resident Physician Section. I had a couple of chances to meet him at AMA events, he was really an exceptional guy. He did his residency at Dartmouth, was appointed the resident representative on the ACGME (the most important body for resident and fellowship programs), and went on to get a Master's in Public Health at Harvard. At the time of his death, he was a Senior Clinical Advisor to the Surgeon General. Paul was headed for a bright career in public health, and I'm sure he would have had plenty to say about our current health care debate. The Association for Prevention and Treatment Research has an annual conference and scholarship program named for Paul Ambrose. It says something about someone that, even at the tender age of 32, his life's mission and passion were so evident that he's still remembered and honored today.

The first time I met him, he was introducing a presentation from Doctors Without Borders. In retrospect, it's ironic that participation in an overseas mission with DWB seems dangerous and exciting, while getting on a plane from DC to California seems pedestrian. You worry the most about the confinement in your seat, about comfort, not the clean-shaven men in first class who are going to make a political point with your life and that of everyone in your plane, and anyone they can get on the ground.

People critical of our response after 9/11 often begin their criticism by asserting that "You think American lives are more valuable than the lives of people from other countries", and to be honest I don't. Americans of all walks of life are my countrymen and I feel a closer kinship to them than I do to others, I'll be honest. The big reason that another 9/11 needs to not happen is that Americans demand a response from their government, and the American government has the tools to get a response. Often, the tools are blunt and/or explosive, and come whistling down out of the sky to leave a mess on the ground. Avoiding another 9/11 is important because ultimately, it saves lives all around the world. It's hard to imagine a world without 9/11. We would not have put boots on the ground in Afghanistan on a dare. We might have eventually gotten around to getting rid of Saddam Hussein. The events of 9/11/2001 did change the variables in terms of what was 'acceptable risk', if you believe Ron Susskind's book The One Percent Doctrine, anything with a 1% risk of occurring had to be eliminated as a possibility. When you get down to that level of risk reduction, the US military gets very busy.

I'm thankful that my kids have no direct memory of 9/11. I'm glad I didn't have to try to explain it to them so they could understand. The idea that the world contains people so angry and nihilistic that using passenger jets as cruise missiles seems like a good idea is something I'd rather my kids not dwell on. On 9/11, I remember Paul and other people like Barbara Olson, an author whose books I have read, and Rick Rescorla, a British-born US Army officer and genuine hero of the Vietnam war who died at the World Trade Center. I remember the passengers on Flight 93, who showed what is defined by 'the Militia': not goofballs in camouflage crawling around Michigan, but average Americans who, finding themselves in the most dangerous circumstances imaginable, self-organized and probably saved thousands of lives at the cost of their own. The American response to 9/11 started on Flight 93, within minutes of their notification that the WTC had been hit by hijacked planes (through nominally illegal cell phone calls, I might add). Those people didn't wait for someone to tell them what to do. That's Americans in a crisis -- a brief moment of "Oh $%#*", then back to work on solving the problem.

That's what I want my kids to remember about 9/11.

Wednesday, August 12, 2009

My Position On The Healthcare Debate

A friend asked me what I thought about it. I didn't have a single link to give him, so I typed this up. Lazy slug that I am, I decided to re-use it, because it's blog-length and it covers quite a bit of ground.

My biases:

1. Single-payer is bad. Lived in Canada. Been there, done that. Great place if you aren't sick.
2. The government doesn't run things efficiently, as a rule, though there are a few exceptions.
3. The current system could use a major tune-up.
4. Freedom of choice and markets are better than government mandates.

What is difficult to discuss is the final bill, there are three House bills, and at least two Senate bills at last count. The deciding factor for me is the "public option" for healthcare financing. It is also the point of greatest contention between the Blue Dog caucus and the Progressive caucus in the Democratic party. The Blue Dogs have indicated that they won't vote for a bill with it, the Progressives won't vote for a bill without it, so basically there is a standoff. The fiscal conservatives' goal and the social progressives' goal during the August recess is to show one side or the other that they're wrong, and hopefully get one side or the other to change. The pattern of town hall meeting attendance is heavily on the (D) side, because really, this is an intraparty disagreement on the blue side of the House and Senate.

I've read parts of HB 3200, and the "death panel" stuff just isn't in there. What it sounds like to me is the authors encouraging doctors to get all their patients to discuss end-of-life issues, like, "If your heart stops, we can try to restart it with electrical shocks, drugs, both or neither. Which would you prefer?" Or, "If you have difficulty breathing and your heart stops, do you want to be put on a ventilator?" I think the goal is to get people to think about those kinds of things, in part because some people will say, "Just let me die" and then those folks are allowed to expire without spending six weeks in the ICU, on a vent and on dialysis and with 24/7 nursing care, running up a bill until they finally die -- like they probably would have six weeks earlier, without the cost. It's not unreasonable to point out that this sounds like they're trying to lower costs by letting people die sooner...because that's precisely what they're doing, IN ADDITION to making end-of-life choices easier on families because Grandpa has already decided that if his heart stops he doesn't want CPR or to be intubated or whatever.

The Healthcare Exchange sounds needlessly complex, as does all the bureaucratic apparatus that HB3200 calls for. It recreates on a national level all of the state insurance regulatory apparatus that already exists. Why does an employer HAVE to go through a federally-approved exchange? Why do private companies have to rejigger all their products to get everything on the same forms the government wants? It's just busywork, to do all the same things that people are already doing, and all of this could be done easier and cheaper by simply making a model base-level policy and saying "Everybody has to offer this. You can add more if you want." Then have one website where patients can go and compare prices, etc. If Orbitz can do this for airline flights, then it can be done for health insurance. I bet Google would give the government a server or three for free.

After seeing the careful and prudent management of Fannie Mae and Freddie Mac, I am not enthusiastic as to the likelihood of success of "Fannie Med", or whatever they end up calling the public option. The President has promised "If you have insurance you like, you get to keep it"...though this does not apply if your company figures it's easier to pay the 8% fine and leave you out on your own, or if the public option is cheaper and they decide to go for that. It will be hard to fathom how politically salable a public option will be unless it's priced below private market options, so in fact it seems likely that many people will end up losing the insurance they have and getting new insurance. The argument is that the government is not forcing them to change, but that's kind of specious to me.

The other things that are telling to me are the state-level public options that have been tried in the past:
TennCare (TN)
Keiki Child Care (HI)
Commonwealth Care (MA) and Dirigeo Choice (ME}

ALL of these universal coverage plans ended up costing taxpayers lots of money, even though they weren't supposed to do so. TennCare worked for a while but eventually was a nightmare for TN docs. The Hawaii plan only covered children, but what they found was that even parents with private health insurance were dropping coverage on their kids and taking the 'public option' at reduced cost. Commonwealth Care and Dirigeo are covered in the Union-Leader link. There is another example of people gaming the system in Massachusetts, spelled out in tooth-grinding detail in this article.

One can argue for the necessity or 'right' to health care (and I would dispute that it's a 'right', Constitutionally or otherwise, for me to have prior claim on the services of another and have the power of the state at my disposal to take it from them), but the dollars have to come from somewhere and the math doesn't lie. These types of plans invariably cost more than projected, and deliver fewer services. We're already bumping up against our new national debt ceiling of $12.5 trillion or so. What gets cut to pay for healthcare? How much bigger does the federal government need to be? How many more weeks will you be working to pay for this new program, and all the minions in office buildings in DC to run it?

The reason that the 'public option' will run into fiscal problems is that it's counting on cost savings from treating chronic conditions earlier and keeping down acute care costs over time. The problem is that, according to the CBO (who reviewed the literature), this doesn't work.

Democrats in support of the plan insist it will work, despite real-world evidence that it does not. If wishes were horses, etc. The other problem is that our current health system serves 290 million people. Adding the extra 45 million is increasing the number of patients by 15%, on a system that in some areas and in some places, is already having trouble serving the number of patient-customers it already has. The number of physicians and physician offices doesn't magically increase by 15% just because the bill has passed. Here in Longview, it's a six-month or more wait to get a well-woman visit with an OB/Gyn. You can just go ahead and extend that to six-and-a-half months, proportionately speaking.

If the 'public option' got $4-500 billion in seed money, and was a live-or-die option with no recourse to the federal government when it, like every plan before it, went broke, I would approve of the experiment. Shoot, we've poured almost that much money into AIG, GM and Chrysler with little to nothing to show for it. But the real goal of a public option for many of the advocates is not to go broke, it's to have the private insurers go broke trying to compete with it. For many people, single-payer is their goal. And if the day comes that the single-payer program replaces all other health coverage in the United States, then there will be cost decisions made that will end in something like (but not called) a "death panel". It won't be overt action, they won't administratively sentence your Dad to lethal injection for being too old. But there can be issues like failing to provide enough NICU beds, or not providing enough therapy centers for cancer patients.

These things DO result in deaths, it's one of the reasons the US leads the world in cancer survival rates for both men and women. All single-payer systems will get into cost overrun problems, or at least, every one that has been tried has done so far to this point in the Untied States. When that happens -- not when HB3200 passes, not when single-payer is introduced to "fix" the problems HB3200 created, but when money gets tight -- then the government will make decisions about rationing care. They have to, they're the only game in town under a single-payer system. People will object that healthcare services are currently rationed based on price. This is true, a discussion of this statement is here.

Finally (and if you've read this far, I admire both your patience and your endurance), there really are options to HB3200 and everything being considered now that are cheaper and will actually help the people who need helping. The bizarre thing about US health insurance is that it's tied to employment, an artifact of WW II and wage & price controls of the time. Insurance is tax-deductible for employers, but not employees, to the tune of $264 billion in what would otherwise be income tax collected on the equivalent in wages that is spent on health insurance. The smart thing to do IMO is to make that an individual tax deduction, refundable as a credit to low-income people on a sliding scale. If you want poor people to have insurance, then make sure they get the money the same way they get EITC checks when they file their taxes. For everyone else, your employer can pay you full wages (instead of wage=(full wage minus insurance)), and you can buy your health insurance the same way you buy your life insurance.

Make it so that people can buy insurance through groups if they want to, like association health plans (NRA, Texas Aggie Alumni Association, BBB, NASB, whatever), and buy across state lines to find better deals. If the government is going to do anything, specify a method of comparison of benefits and costs that all insurance plans have to meet, publish it on the Internet and put printed copies in every post office and library for people who don't have internet access.

The 85% of people who have health insurance will still have their health insurance, and you'll get the people in the 15% uninsured who need and want health insurance. The government can use its existing infrastructure (IRS) to get the money to people, at no additional cost other than a modification of the 1040 form. The government doesn't have to collect any more information than it has right now, on anyone. The government doesn't need to create a whole new fiscal risk to the budget, either.

Friday, May 08, 2009

Why Treasury Auctions Should Matter To You

Yesterday, the US Treasury had to offer more interest than they were expecting to sell their 30-year bonds.

Now, I'm not a financial whiz, and I'll be happy to hear from anyone who is in the bond-trading business about the significance of this event. But a similar thing happened to Great Britain earlier this year, for the first time since 2002 they didn't sell the entire stock of government bonds that they intended.

Why this is important is that in the last few months of 2008 and early 2009 the spending that the Obama Administration intended to accomplish seemed reasonable if only for the fact that people around the world seemingly couldn't get enough of the Treasury bill. T-bills are offered at a given interest rate, and then they can be traded afterward. If the price of a $1,000 T-bill offering 10% interest goes up, then the yield (interest relative to the price of the bond) decreases, and vice-versa. If you pay $500 for a $1000 bond that pays 10%, then your effective yield is 20%, because you're getting $100 in interest for a cost of $500. Government bond prices generally don't swing this much, but you can get some corporate bonds (GM for instance) at well less than face value now, with an astronomical yield, in part because the people who bought GM bonds originally don't believe they'll get either their money back or even their interest.

If you paid $1200 for a $1000 bond with a rate of 10%, you're actually seeing negative yield, it costs you more to own the bond than you're receiving in interest. For a while in 2008, the credit and investment markets were in such a tizzy that the T-bill was showing a negative yield -- people didn't mind losing a little money if they knew they would get the bulk of their money back. The private equity market was in disarray, and the government equity market was the place to be.

If you're a statist looking to expand the power of government, this latest credit crisis is a self-licking ice cream cone. Private equity is discredited, so people have a great appetite for government debt they feel they can trust. With people lining up to buy your debt, your government spending can increase because they are giving you cash in return for promises, cash you can turn around and spend on what you see as places for the government to "invest". What's more, people are so frantic for government debt that the bidding process keeps the interest rates low, so the cost of incurring debt isn't nearly as great as if you tried to borrow huge amounts of money under normal circumstances. It's a perfect storm blowing in your favor.

But all parties come to an end, and funny enough for the statists, it's good economic news that is now the problem. The latest jobs report that came out this (Friday) morning showed that only 539,000 people lost their jobs last month, rather than the 600,000+ in the preceeding few months, and there are private-sector folks who track this kind of thing so that the lower first-time unemployment number was known. Now, I don't presume to speak to the minds of Treasury auction participants, but reporters seem to feel that the expectation of slight economic improvement led the bidders for 30-year T-bills to ask for more interest (bid less money) for the T-bills on offer yesterday. This is plausible. When the economy is improving, the T-bill is no longer the only lifeboat, and negative yields may lose less than the market in 2008, but if the market is better in 2009 then money managers will need to get better than negative yields themselves.

Other plausible reasons for the Treasury unexpectedly having to offer higher interest yields include the Chinese not buying as much as they used to, meaning more were available and demand was down. As well, investment banks looking at the huge amount of money that has been promised by the government and lent by the Federal Reserve may be asking themselves when the inflation is going to hit, and wanting a higher yield to compensate for the increased risk of inflation.

In any event, this is a sign that the days of the private market being happy to lend to the Federal Government at record-low rates of return and fund masssive government expenditures may be drawing to a close. The auction didn't fail the way the British auction did, the Treasury was still able to raise the requisite amount of money albeit at a slightly higher cost down the road to the taxpayer. But the increased cost of borrowing and the failure of the British bond sale earlier this year does beg the question, "What happens if the government finds it harder and harder to borrow money?" There is not an infinite appetite domestically and abroad for US public debt, so there is an upper bound to the amount of borrowing that can occur.

Being a sovreign nation with a fiat currency, the United States has as many dollars at is says that it has, and the Federal Reserve System is allowed to expand or contract the monetary supply (the total number of dollars) as financial demands require. If the government cannot sell its debt, it can simply ask the Federal Reserve to "print" more money.

As an aside, I wish the presses were running full-tilt cranking out sheets of $100 bills to fund this government expansion, but I doubt the money could be physically printed fast enough to fullfill the requirements of just the amount of money passed out to banks, car manufacturers and expanded government programs since this past October. A trillion dollars is ten BILLION $100 bills. At a gram per bill, that's ten million kilograms of currency, about 22 million pounds of nothing but $100 bills.

This dump truck, the Caterpillar 797B, can carry 380 tons and is used in mining operations.

It would take just under 29 of them to hold a trillion dollars worth of $100 bills. It would take roughly 100 of these trucks, filled with their maximum load of 380 tons of $100 bills, to haul away the federal budget this year -- but hey, only half of that is debt, right?

That trillion dollars can be created in a computer system by the declaration of the Federal Reserve. It most recently happened on March 18, 2009. The Federal Reserve bought $1 trillion in T-bills and mortgage-backed securities with this money, though no 380-ton dumptrucks were reported in the streets of Washington, DC. The computer at the Fed got another 1 followed by 12 zeroes, and shortly thereafter the accounts listing "T-bills held by Federal Reserve" jumped up, and so did the account balance of the Treasury.

If you're getting a mental image of a snake eating its own tail for the nutrient value, then you're pretty much right on as to what is happening. This is of course legal, I'm not decrying it as something evil or nefarious, but everything has consequences. And it's the consequences that are my chief concern when the Treasury has problems selling their T-bills, because the Federal Reserve can always buy them with currency they create not based on items of intrinsic value, like gold or food, or based even on paper currency, but by the declaration of the Federal Reserve. Thus, there are more dollars in the system, and as the amount of goods and services produced in the United States didn't change, by definition the value of goods and services per dollar will decrease. This is called inflation.

When the US Government can no longer exchange its debt obligations to fund government operations, it must turn to making more currency. It's possible the Federal Reserve will tell President Obama that the till is closed, that the risk of inflation is too high. They will do this in part by making it more expensive for everyone to borrow money, by raising interest rates. This not only affects the federal government, it also affects everyone whose ARM resets and leads to higher mortgage costs. It affects anyone buying a car, which is something the auto industry really doesn't need. It affects anyone trying to borrow money to build or expand a business, increasing the costs of economic growth and employing others.

At this point, we must hope that President Obama and the Congress are "moderates" they tell us they are, and will moderate their spending appetites, which to this point exceed that of any Congress or Presidency in US history. I hope Ben Bernanke has the stones to tell the President that they just can't borrow what they want to borrow from the Fed, and that if more T-bill auctions end up more expensive than originally planned that Tim Geithner will pull the President aside and tell him that there is no more appetite for our debt and some serious priority-shuffling is required.

Maybe this will come in the form of significantly increased taxes, but people resist paying taxes (all people, not just wealthy people) and will move to minimize their tax burden. It's more likely that some of the more ambitious parts of the Obama agenda, like health care reform, will have to be seriously scaled back or abandoned altogether, if this happens before things like health care reform and cap-and-trade energy taxes are locked into place.

But it is also likely that what will be described as "a little" inflation is declared to be worth the goal of a "more equitable society". Of course, the inflation won't be or stay "little", and the equality of outcome will never appear, thus the need for continued government pursuit of the will o' wisp, with the inevitable "little more" inflation every year.

And meanwhile, your savings will be ground away, the cost of everyday goods will continue to increase, and we will learn the joys of inflation that has so bedeviled Zimbabwe and Argentina and other nations whose leadership was wrong-headed and felt their ends justified their citizens' increasingly-humble means.

So keep an eye out for news of more T-bill sales going unexpectedly south. I expected this, just not so soon. This current event is minor, and may not happen again for months, but when a T-bill auction doesn't sell out, that will be time to see how much gold you have on hand, because your next set of groceries may be costing considerably more than the last.

Wednesday, May 06, 2009

How I Spent My First Billion

I was born wealthy. I had nothing to do with this bequest of good fortune, and I'm not feeling guilty about it as some would have me do. Much of the wealth I had I can only appreciate looking back over my life. I can say that it truly is the experiences that stand out more so than the material things, but I had those, too.

I had houses in Michigan, Ohio, North Carolina, Missouri, Arkansas, Pennsylvania, Iowa and several in Texas. I even spent some time living abroad, it's one of the things you can do when you have the means. I (like many wealthy people) had two families, but they get along exceptionally well. Spending liberally on both of them keeps things on an even keel. In my family, my parents know about spending -- they've each spent over TWO billion.

Rather than being idle with my wealth, I spent quite a bit of the first billion on education. Several schools in several places, sampling what I could learn. I even got a doctorate, and a career to keep me busy. Doing nothing with the wealth you've been given is just wrong, isn't it?

And I spent, boy did I spend. Looking back, it's hard to imagine that I spent on average around eighty-six thousand a day. I even spent my wealth when I was sleeping, but the sleep was worth it. It's funny, when I was younger the wealth seemed more valuable somehow, but now having spent so much I have the memories to show for that billion. In the process of burning through my first billion I found a wonderful, thoughtful, capable lady who really wanted to help me spend it well, and we have three really funny, intelligent children, all of whom have their own fortunes to spend or (so we hope).

I made a lot of good, genuine friends. It's hard for some people to know whether it's their wealth that brings friends to them, or they themselves, but either way I met and befriended hundreds of people while I was spending my fortune. I have friends from nearly everywhere I lived, much like families, when you spend on people they tend to remember it, and appreciate it. People say you can't buy friends, but those people just don't spend the right way.

The end of my first billion I didn't even recognize, to be honest. I was working my first real Big Boy job, living in a great little town, father of two and planning to have Lasik in a couple of months. Best I can figure on August 9th, 1999, at about 5:30 in the morning I spent the last of my first billion.

I turned 31.7 years old. And in my sleep, I started spending my second billion.


The billion I had wasn't in dollars. I had spent a billion seconds of my life to achieve all those things. My two families were my brother, sister, mother and father, and then my own family with my wife. I lived in all those places mostly because I was a kid moving around with my parents. I "bought" friends the way we all do -- with our time, our greatest investment in others.

I found out that I had spent a billion seconds already when I recently read Everyday Survival by Laurence Gonzalez, an excellent meditation on life, people and energy disposition. It was about that time that we were talking about these huge budget deficits, when the phrase "billions" was casually discarded in favor of "trillions", and it struck me how little we understand and relate to large numbers like that. A billion seconds is three-quarters of my life to this point, almost. We consider people who've had three billion seconds of life to be quite old. When people start talking about a $787 billion stimulus bill, that's a little over $86,000 a day for roughly 200 lifetimes.

And when they talk about a trillion -- that's a whole order of magnitude (well, three orders of magnitude) more. A trillion seconds ago was 30,000 years ago. These numbers are staggeringly large, and it sort of makes my mouth go dry a bit to consider that those numbers are debt, money that is intended to be repaid. Statistically speaking, I've worked for 15 years, and spent four months per year working just to pay the taxes I've owed. Doing the math, that's:

60 months
240 weeks
1200 workdays
9600 working hours
34,560,000 seconds

In my next billion seconds I'll probably be working the whole time. Assuming no increase in income tax rates, that's going to mean the income taxes I'm paying will consume 6.9% of my life. That doesn't even count the repayment of debt, the debt this year alone is nearly half of the budget, meaning that if we all spent 13.8% of our lives doing nothing but working to pay taxes we'd break even...this year. This assumes no inflation and no increase in interest on existing or future debt, both of which are exceptionally unlikely.

This is why the debt bothers me: because my kids will be spending a little over a tenth of their adult lives working to pay income taxes just to keep pace with the debt, not to even begin eliminating it. Once you add in the anticipated shortfalls from Social Security and Medicare, they're trillons of more dollars in the hole.

They're kids, and I'm not going to explain this to them until they ask me. Right now, they have a wealth of time they need to spend developing themselves, their skills and abilities. Right now, I'm the adult with the wider view of the world and what's going on, and it's my responsibility to change this. It's the responsibility of all of us who have the skills to do basic math to let our representatives know how much we dislike this level of spending.

It's not just your dollars they're taking. It's your real wealth that's being spent.

Wednesday, March 04, 2009

Sippican Cottage: My Father Asks For Nothing

Sippican Cottage: My Father Asks For Nothing

Papa (Marci's grandfather Billy Wise) died in February 2003, I can gauge how long ago by how big my youngest daughter is. She was a tiny spark of happiness toddling around a gloomy living room back then. She didn't get a chance to know him, and it's her loss.

He was a supply Sergeant in the Army Air Force, based in England from 1942 on. His unit got there to set up everything so the B-17s based out of England could start the difficult process of sorting out what worked and what didn't in the aerial bombing of Hitler's Europe. He flew on a few missions, he called them "milk runs" across the channel to France, when they needed anyone who could hold a M2 .50 caliber machinegun in the side gunner position, but he would tell you he wasn't a combat soldier. He was a proud veteran of the Eighth Air Force, though. He had a story or three about going across to Normandy a few days after D-Day to set up Marsten matting to build an improvised airstrip. He wasn't a fan of war.

He came home to a wife who loved him for nearly sixty years (and still does today), a series of sales jobs at which he found middle-class success, and had two children: a daughter and a son, who is the father of my wife and the grandfather of my children.

I knew Papa for what seems like a very short time, it was only 12 years and some change. I intended to take him to an airshow and buy him and I a ride in a B-17, but by the time I had the resources I didn't have the time, and he passed away suddenly. It would have been a great thing, but I dithered, and I missed it. I miss him more.

He died the way he would have wanted to, I think: in the middle of a joke at a doughnut shop where he and his Greatest Generation compatriots met daily to solve the problems of the world. He probably would have wanted to make it to the punchline, but hey, leave your audience wanting more, right? He was a gem of a man.

His burial was at the National Cemetary in Grand Prairie. If you've never been to a military funeral you can't understand the bond that soldiers feel for one another. The attendants at his funeral showed the utmost respect for a fallen soldier, and his survivors. He fought, like so many others who proceeded him into that cemetery, because it was the right thing to do. My wife, my children, maybe even I were witness for him that day, because he made our lives as we know them possible. It was the least we could do.

This is a great piece about a son who got to take his father to see a B-24 like the one that was so formative in his young years. I'm glad for him that he did.

It's also a reminder to me to stop doing the urgent things, and start doing the important things.

Tuesday, March 03, 2009

The Governance Registry

This is an idea I have been kicking around for a while. It would make (at the least) an interesting experiment, and not a particularly expensive one.

The proposed Obama budget for 2010 I find to be an abomination, it's only redeeming value is that it makes the steaming loaf of the $410 billion Omnibus budget bill for spending for the rest of 2009 look responsible by comparison. I fundamentally disagree with spending that much money on things that I do not share the President's concern for, and what's more, I pay a HUGE pile of taxes and stand to pay much more when the tax cuts of the Bush years run out.

I remember the misguided "Nuclear Peace" movement of the 1980s, and the phrase, "Wouldn't it be nice if schools were fully funded and the Air Force had to have a bake sale to buy a bomber?" Undoubtedly this doggerel was born in some left-wing think tank, or maybe air-freighted straight over from the USSR itself, but it got me to thinking: would the school or the Air Force win in a budget contest? And for me, there was no doubt, I'd be buying a share in the bomber.

With wedding and baby showers the US has developed quite an infrastructure dedicated to making lists and letting others fulfill the wishes of the honorees, it seems to be a reasonable step to adopt the same thing for the US Government. My "Government Registry" works like this:

1. The Congress adopts a budget for the year, which is divided as much as possible into the smallest dollar-value increment for each program and then fed into an online database. The Congress has 'registered' for the things it would like in a given year, down to the nuts, bolts, tires and policy costs.

2. Congress can set whatever taxation levels it chooses to, brackets, flat taxes, whatever.

3. Taxpayers get a report from the government when their taxes are filed, listing their payroll taxes, their income taxes paid, and their taxpayer ID.

4. Taxpayers then log into a secure website, enter their taxpayer ID and "go shopping", dedicating their tax dollars to specific programs the Congress has asked for in the next fiscal year.

You have to pay your FICA taxes toward Social Security and Medicare, which are programs that you front-end pay to directly benefit you, so when it comes to "shopping" for the government people who don't pay income taxes don't get to play in terms of determining which national priorities get funded.

For the lazy, there can be choices like "Evenly Distribute" and "All Social Welfare" and "All Defense" to allocate their dollars quickly and by formula. For everyone else, they get to know for sure what their tax dollars paid for in the next fiscal year.

I would buy a JDAM kit, medical insurance for a military family or two, childhood immunizations, practice ammo for the military and maybe buy some number of yards of interstate highway repair, and some hours of Air Traffic Controller hours (might need those guys if I fly). I would know what my money went to, and that makes paying my taxes a little more palatable.

The thing about wedding registries is that you occasionally get more in one category than you wanted, and have to return things. It would be interesting to see HUD trying to hawk 120mm tank rounds to fulfill their Congressional mandate, but probably the easier way to handle it is to make a public "gift" of some portion of overages from different government departments to the ones who missed out. The implications for the importance of the different departments of government in the eyes of taxpayers could not be clearer than the DoD announcing that it was funding 70% of the Department of Agriculture's budget for the year.

The budget would look very, very different, I think, if the people who paid the taxes chose where the money would go.

Wednesday, February 25, 2009

The President and the Fat Tail

Well, I said in my last post that the next bailout would be sadder, and boy was I right.

Since my last missive of 12/19/08, our Congress has passed a "stimulus" bill of $787 billion dollars. The Democratic Congressional leaders have made the prudent observation that during times of fiscal crisis it is important to pay your debts, and so right out of the chute they first debts they paid were political ones -- a Christmas Tree like no other. The reasons and justifications for this manifold and ultimately silly (though frightfully expensive) exercise really don't bear repeating, though the worst argument I heard was to the effect that their party interests had been shafted since Reagan, so they were evening the scales a bit. For anyone who believes this I would challenge you to look up the expenditures by government department in 2000 (Clinton) and in 2008 (Bush). Non-defense spending increased dramatically, Bush's major failing as a President was his inability to stop his GOP Congress from spending money like, well, Democrats.

You'd think $787 Billion (yes, that's a B) would have been enough, but you're wrong. The next appropriation bill coming down the pike is an Omnibus (when you see that word, hold onto your wallet) bill to fund several departments whose appropriations for 2009 (until the end of the federal fiscal year on September 30) could not be agreed upon by Congress and President Bush. There is more pork in this bill than in the entirety of the State of Iowa, and it leverages UP the baselines that will be used by the Obama Administration to set budget levels in their budget proposal for government actions starting in 2010. This bill, already passed by the House, bumps up domestic spending by 6.7%, the Obama budget will only increase it more, despite his recent pledge to halve the deficit to "only" $500 billion -- in four years. Despite Obama brushing off McCain's anti-pork attacks and promising a bottom-up review of government to find waste and inefficiency, this stinker of a bill is apparently not going to be even remotely opposed. The Democratic House Leadership essentially wrote the stimulus bill, apparently getting your shot entitles you to...getting another shot. Hey, we're all entitled now.

We haven't even begun to talk about the goodies that are hidden in these two bills, two bills that nobody will ever read, except the people who wrote them to advance specific purposes. Those purposes will be revealed in time, but not in time for us peons to have any say in changing those purposes. Much of the welfare reform that was the best thing to come out of the Clinton years has allegedly become undone, the Tiahrt Amendment banning states from using gun purchase records for anything other than law enforcement reasons (the other reasons being frivolous lawsuits against gun manufacturers) may not survive reauthorization or may be repealed outright.

We have not been governed recently, we have been dictated to, with the pretense of democracy. I'm really not sure how else you describe people voting on a bill they can't possibly read, making laws out of text that a minority of the majority concocts in camera. Democratic process does not make a democracy, and we barely have the process, or have for the last few weeks. The idea of a star chamber that is somehow legitimized by having people vote to approve their decisions largely sight unseen is laughable, or at least, it should be in America.

The argument that is frequently advanced by the White House or Democratic leadership is that this is a critical period and we must act quickly. I beg to differ. We get fewer points for getting an answer out quickly than we do for getting the right answer, the difference I believe is substantial and we all will pay for the push for speed. The nonpartisan (at least by reputation) Congressional Budget Office had a rather dim view of the stimulus -- in separate statements they predicted that the recession would end by 2010 and that the stimulus as written had more long-term downside than short-term upside. This does not suggest to me that the stimulus is the right answer, and so the "crisis" will continue. I predict that this crisis will not be declared to have come to an end until the political goals of our current overlords are well and truly met. There will always be the spectre of economic backsliding into recession to goad people into supporting the latest attempt to patch our societal and social dikes with money borrowed from the Chinese. I believe I've said it before, that when you hear "government spending" you should interpret that as "borrow from the Chinese".

If you need any more proof that this isn't the same country it was ten or twenty years ago, then I can't help you. In some ways it's good that this isn't the same country as it was in the past. Electing a minority man with a funny name as President is not the first way our country shows it's getting beyond racism, I believe it rather shows that we're well down the path. But part of the problem we're facing today is that our leadership is proving itself wholly unsuited to the tasks before it. This will not be the same country in 2012 that it is now, and will change further by 2016.

Richard Fernandez at Belmont Club (a great blog, you should read it) makes this point, along with Fabius Maximus (another great blog, if a little more depressing). If it seems like the world is changing, they argue, it's because it really is, and more fundamentally than at any point in my 40 living years. Chaos is taking the reins and we are in for some momentous times.

I only wish the crowd in the White House and House & Senate leadership appeared to be ready for the times. In their defense, I don't know that anyone could be, but there is certainly no lack of confidence from those quarters. They have the plan that will make it all better, fix all our woes -- um, pardon the language but the hell you do. The financial turmoil is beyond the ken of Barack Obama and Timothy Geithner. Their performances have demonstrated this convincingly. Quite frankly, decades of economic assumptions are unravelling at breakneck speed, and if the former New York Federal Reserve governor doesn't know the easy answer, then there isn't one, and Mr. Obama needs to quit telling us that he Has A Plan. He has assumptions, and even those are probably wrong.

People want to make this out into a "Bush vs. Obama" question, but that's not the issue. It is a gross simplification to assume that doing the opposite of the Bush Administration policies are automatically the right answer, the world is far more complex than that. The Obama Administration has its own set of answers -- and these will be wrong, too. The reason is that circumstances have exceeded the ability of the government to control, and the solutions that the Obama Administration and Democratic majority in Congress are applying are political solutions to economic problems. It's hard to blame them, they are after all politicians and it's natural for them to field a political solution, it's the only tool in their toolbox.

We have left the realm of realtively stable economic times and moved into the world of the fat tails, a reference to the Bell Curve and a situation where low-likelihood and high-impact events happen more often than they "should", it's exactly this kind of non-linear behavior that triggered the implosion of the financial world. Everything that has been proposed so far is demonstrably linear -- reviving old programs, pouring money in and expecting commensurate results, investing years into the future when we do not really know what the future will bring. I think that the government's actions are rational, but they are being applied to an irrational, chaotic situation where many of our basic assumptions are changing or about to change. How successful is that likely to be? The rate of success lies in the ability to predict the question that you're trying to answer, if the economy is a game show the stimulus package is punching the button on Jeapordy and giving Alex Trebek your first ten answers without hearing the questions. That's not the kind of change I can believe in. The fact that Obama says the word "change" does not mean that he's ready for it on this scale, and the Back-To-The-Future stimulus bill only reinforces to me the folly of old school solutions for new and novel problems.

The conceit of the day is that our government's fiscal and monetary policy will shape our world during this time of change, and it is a only conceit, not a plan. Normally I wouldn't mind watching a liberal and borderline socialist go down in flames, but this particular liberal happens to be the President of my country and the bet he's making is with my (real) tax dollars and those of my kids. The well from which our government can draw resources is much shallower than the Obama Administration seems to believe it is, things will go south quickly when we can no longer sell debt to foreign countries. This is not a time to centralize power, whether economic or political power. It's a time to allow flexibility, to allow individuals to change their circumstances to match the changes that occur.

I'm pretty sure that the tax burdens implied by the huge price tags on the stimulus, the House appropriations bill, the huge 2010 budget to follow, TARP II and the nationalization of healthcare (not to mention the nationalization of banks) are not what is meant by giving the American people "flexibility". It's just the wrong road, and we're already passing through a period with a lot of quakes. I don't know that anyone else could do a better job, but there are plenty of people who could be more humble. People who could admit that fixing our economic problems is beyond the ability of the government, rather than proposing government spending that increases the size of the government.

I'll be honest. I'm reflecting more and more on each day on the things I enjoy about my life, because I'm pretty sure things are going to really, really change. I wonder when my grandparents realized that things were going to get bad and stay bad for a while back in the late 1920s and early 1930s. I see this time as a twilight. I don't know how long it will last, it may me months or even a few years, but the big drop on the rollercoaster feels like it's coming.

And I haven't even read Atlas Shrugged yet.