Printing Money

On my first trip to Washington, DC over fifty years ago I visited many sites during a week-long trip ---the White House, the Capitol, the Lincoln Memorial, the Jefferson Memorial, the Smithsonian, Mount Vernon, Arlington Cemetery, Ford's Theatre.  However, my favorite tourist stop was the U.S. Bureau of Engraving and Printing.  The place where they print all that green stuff.

Credit:Zimbio.com

It was dazzling for a 12-year old to see those big sheets of dollars go through the printing press and then see those sheets stacked high on palettes.  You could literally smell the money.

Credit: Marvin Joseph, Washington Post

I subsequently took my own children to see the money printing presses running and stopped by on my own a few years back when I had several free hours to kill while I was in D.C.  It still is an amazing place to visit.

You might ask why am I reminiscing about the Bureau of Engraving and Printing and my childhood travels when there is so much I could write about on this fine day?

It was this chart that I saw today while reading Grant Williams' newsletter, "Things That Make You Go Hmmm..."  which shows exactly how much currency printing the Bureau of Engraving and Printing has been doing lately. I thought all the "money printing" that we hear about was just limited to some computer entries at the Federal Reserve?  How do you reverse this?

As of 2012 there were approximately $300 billion in one hundred dollar bills in circulation.  That is a five-fold increase in 10 years.  It is also about ten times the total value of $20 bills in circulation.  If you do the math that also means that there are about twice as many $100's in circulation as there are $20's. 

In fact, it is estimated that over 75% of total U.S. currency in circulation today is denominated in those Ben Franklin's.

And to think that I rarely carry anything larger than a $20 bill on me because I think someone may not want to break it.  Where are all those hundred-dollar bills if you never see them?  It turns out that a significant number of them are residing overseas. Matt Phillips at the Quartz.com explains why the $100 greenback is so popular in foreign lands.

The cognoscenti look at the share of $100 bills as something of a proxy for foreign demand for US currency. An overwhelming majority of the $100 bills come from the Federal Reserve Cash Office in New York City, which handles the bulk of foreign shipments of US currency. A typical shipment is a pallet containing 640,000 such bills, or $64 million, according to a recent Fed paper.

And while there are plenty of reasons folks outside the US might want to hold dollars, the thinking is that most people are not using these $100 bills to buy milk and bananas. No, most economists seem to believe $100 bills are most often used as stores of value—almost something like mini-Treasury bills that don’t pay any interest. This is especially so in developing countries, where problems with unstable currencies and inflation often mean the purchasing power of local currency gradually—or not so gradually—erodes over time.

Of course, hundred dollar bills are also nice to have around if you might be dealing in illegal activities such as drugs, prostitution and the like. Those smaller bills can take up a lot of space and weigh you down if you need to start running.  Who wants some wise guy handing over a wad of singles?

To give you some context on just how fast the Bureau of Engraving and Printing has been turning out hundred dollar bills consider the following chart.  More hundred dollar bills were printed between 2010 and 2012 (the most recent data available) than were one dollar bills.  I am speaking of the actual notes, not the currency value.  That means that the currency in circulation over those three years denominated in $100 bills was up over 100 times compared to the $1 bills.

If you have not been overseas recently, done a drug deal, won big at a casino or work at the Bureau of Engraving and Printing, you might not have seen the new, redesigned $100 bill that debuted last Fall.  I have not seen it which tells you something about the life that I live.  However, I found this infographic on Google Images that shows the new look. If you come across one, send it my way.  BeeLine always needs (and accepts) cash.

Memorial Day 2014

I have featured Angela Pan's photography in BeeLine previously. Angela is based in Washington, D.C. and some of her best work features the the monuments and memorials in our capital city. Featuring her photographs has become a BeeLine tradition on Memorial Day.

These images truly honor the men and women who have given the ultimate sacrifice to preserve our freedom through the years.  May they never be forgotten.

Arlington National Cemetery
Angela Pan

World War II Memorial
Angela Pan 

Korean War Memorial
Angela Pan

Vietnam War Memorial
Angela Pan

Air Force Memorial
Angela Pan

Memorial Day began as a day of remembrance for those who perished in the Civil War.  Originally it was called "Decoration Day", a term I still remember my grandparents using to refer to this day of honor.  It originally was celebrated on May 30 of each year which I also remember. The holiday was established as the last Monday in May by an Act of Congress in 1971.

Lest we ever think about forgetting those who gave the ultimate sacrifice, these are the numbers of Americans who have laid their lives down for us per Wikipedia.

Civil War
625,000
WWII
405,399
WWI
116,516
Vietnam War
58,209
Korean War
36,516
Revolutionary War
25,000
War of 1812
20,000
Mexican-American War
13,283
War on Terror
  6,717
Phillipine-American War
  4,196

The flag this morning at my house.  The American flag should be flown at half staff until noon on Memorial Day per the United States Flag Code.  Full staff for the remainder of the day.

A Loss of Appetite

For whatever reason I have been writing about food recently.  First, food stamps and then how the increased access to fast food has caused us to get both taller and wider as the years pass.

Today I came across another food story via the Viable Opposition blog that seems to tie my other two posts together pretty well.

It seems that back in 1980 the U.S. Department of Agriculture (USDA) put together a series of dietary recommendations for Americans age 2 and over in order to assist in maintaining a healthy weight as well as preventing the development of chronic diseases caused by poor diet.

Last year the federal government followed up to see how the American people were actually following the recommendations. I doubt you are going to be shocked at the result of those studies.

This is how Viable Opposition reported the story.

Economic Research Service (ERS) researchers, the body that provides research and economic information from the United States Department of Agriculture, undertook two studies that looked at how much consumers were spending on healthy choices and unhealthy choices as outlined above over the years from 1998 to 2006. Households recorded their food and beverage purchases of over 60,000 different products into the 23 USDA food plan categories with the beverage group consisting of all soft drinks and fruit drinks, the processed products which include dairy products, soups, frozen or refrigerated dinners and refined and whole grains and fresh or minimally processed products like frozen beans and canned tomatoes.

Now for the graphic showing the results of average at-home household spending on each of the 23 food categories (in blue) compared to the USDA recommended level of spending (in yellow).

In looking at the results we can see that U.S. households are doing the exact opposite of what the USDA recommended in almost every instance.

For example, the USDA recommends that about 40% of household food plan spending should go for vegetables, legumes and whole fruits.  Actual spending on these items is less than 10%.

The USDA recommends spending about 3% of the monthly budget on beverages, frozen entrees, sugar, candies and soup.  Actual spending on these items is over 1/3 of the typical household food budget.

You can see the effects of the increased accessibility and availability of food by the tremendous increase in the amount of calories consumed through fast food. In the late 1970's fast food only accounted for 3% of the calories of the American diet.  That number has increased over 4-fold since that time.

You might look at this and think that money has something to do with these choices.  After all, fresh fruits and vegetables are more expensive than a lot of the junk food.  However, the studies found no real differences in the mix of household food spending across income levels.

What remains difficult to understand is on the one hand you have the federal government providing recommendations for what people should have in their diets to maintain a healthy weight and avoid long-term chronic diseases.  However, on the other hand, they are handing out taxpayer money to almost 50 million people on food stamps to purchase whatever they want with almost no restrictions.

Both sides of this are being managed and administered by the U.S. Department of Agriculture which tells us that trying to limit food stamp purchases to select categories of food would be complex to be workable.

However, if it was not workable how was the USDA able to figure out how to change the rules for what can be purchased by schools for the school lunch program as a result of "The Healthy Hunger-Free Kids Act" that was signed into law in 2010?

Consider this report from The Washington Times on the new school lunch rules.

The new standards are exhaustive, including calorie ranges for each age group, sodium limits, zero tolerance for trans fats, and specific ounce amounts for meats and grains. White bread will be mostly phased out beginning in 2014 because only “whole grain rich” items will be allowed.

The school lunch rules have also meant that many school districts have had to buy new silverware and cookware to meet the USDA requirements.

Lunchroom costs are also going up due to the need for “new spoons and ladles to match the new portion size requirements.” Thirty-one percent of SFAs nationwide said they needed additional kitchen equipment to comply with the new lunch requirements last school year.

What also made little sense was that the rules mandated that school lunch prices had to be increased with the result that kids who pay full price for school meals actually declined by 10% due to additional federal subsidies that were given.  Only 30% of students today pay the full price for their school lunches. Over 60% are receiving free lunches and the remainder get partial subsidies.

That sounds a lot like Obamacare.  First raise the cost on everyone but then provide a subsidy so that there are that many more people who are dependent on the government's taxpayer's largesse.  Yet another example of the Redistribution of America right out of the Obama liberal playbook.

In Detroit, 78% of school children qualify for free lunches. Three years ago I wrote about the USDA pilot program there that allowed all of the students in the Detroit Public School System to receive free meals irrespective of income. That is a total of 66,000 students. What was the logic behind that?  The USDA says that it is giving rich kids free food so that the poor kids don't feel bad in getting the free food!

“We’ve worked very hard to reduce the stigma,” Aaron Lavallee, a U.S. Department of Agriculture spokesman, told the Detroit News. “We’re seeing a lot of working-class families who’ve had to turn to free school meals to feed their children.”

“Now all students will walk through a lunch line and not have to pay,” says Mark Schrupp, Detroit Public Schools COO. “Low-income students will not be easily identifiable and will be less likely to skip meals.”

It seems to me that the only people with hurt feelings would have been the 1 in 5 parents who were paying for school lunches for their kids before they ended up with the free lunch.

I guess this also goes to show you that, despite what you have heard, there really is a free lunch!

I don't know about you but all of this is enough to make me lose my appetite.

Four Inches Taller and Wider

I was in an historic building recently and couldn't help but notice how small the elevator was. The design of elevators in the 1920's were clearly meant for humans that were much smaller than we are today.  From both horizontal and vertical perspectives.

We all know that we are getting heavier.  The average weight for males between the ages of 20-74 has increased from 166 lbs. to 191 lbs since 1960. The average weight gain for females has increased ffrom 140 lbs. to 164 lbs over the same period. The weights of children have also increased as detailed in this report from the Center for Disease Control. This data is over a decade old so these numbers might actually be "light" today. (Update: these are light. 2012 CDC data reports that average male weight is 196 lbs with women at 166 lbs. Men have average waist size of 39.7 inches and women 37.5 inches.)

Look at these group photos from the 30's, 40's and 50's. How many overweight people do you see? Compare those images to what you see on the street today and you can understand why those old elevators are a little crowded these days.

1930's

1940's

1950's

The CDC report also notes an increase in height of about an inch for both men and women since 1960. This is consistent with another study from the U.K. that found that average heights of males had increased by four inches in the last hundred years. In research using British military records, it was found that the average 20-year recruit had increased in height from 5'6" in World War I to 5'10" today. Similar increases in heights have been noted in other Western countries.

Tim Hatton of the University of Sussex poses the question in a Live Science op-ed, "Why Did Humans Grow Four Inches In 100 Years? It Wasn't Just Diet".

Hatton points out that this gain in height is unprecedented in recorded history where there are reliable records of average heights going back to the middle ages.

The most obvious answer for the increase in heights is better nutrition. However, this does not appear to be the sole answer.

The 20th century saw dramatic improvements in diet. The quantity of food intake increased and its quality improved, as incomes rose faster than ever before. But in some countries economic historians have found that during the early stages of industrialisation average heights fell at the same time as incomeper capita increased. The most debated case is the US in the three decades before the civil war – this has become known as the “antebellum puzzle”. So income and height don’t always move in lockstep. But, as in earlier times, the correlation between trends in height and income is far from perfect.

The reduction in infections is cited by Hatton as another likely reason.

Something else is at work: exposure to infection. Repeated infection during infancy and childhood slows growth as nutrition intake declines or is used by the body to fight disease. Predominant among these illnesses are respiratory infections, notably pneumonia and bronchitis, and gastro-intestinal infections, especially diarrhoea and dysentery.

The key factor here is the urban environment. Sanitary reforms improved the quality of water supply and the disposal and treatment of sewage. In urban districts horses disappeared from the streets and pigs from backyards. Equally important was the reduction in overcrowding and improvement in the quality of housing, as the slums were gradually cleared.

There is another factor that may be at play here that Hatton does not mention. I am not so sure that hard, physical labor by children on the farm is particularly helpful when children are in their growth years.  It may have some effect on their growth plates. And there were a lot of children doing a lot of work on farms 100, 75 and 50 years ago.

Family income and number of siblings also seem to be factors.  Children born to higher income families and those with fewer siblings are taller.  In other words, nurture may be a significant factor beyond just nature (DNA makeup) in height.

By tracing their families in the 1901 census we can also see the household circumstances of the servicemen when they were growing up. This reveals that those from middle class families were taller and those with more siblings were shorter. The latter reflects a trade-off between the quantity of children and their average quality in terms of health. This too was a source of height gain, as average family size fell from five in Victorian times to just two by the 1930s.

What about the weight gain? That is much easier. There is clearly much more food available. However, most importantly in my mind, it is much more accessible.  Fast food was not available on every corner nor were there many pre-packaged ready to eat meals when I was growing up fifty years ago.  I did not step foot into anything like a McDonalds until I was well into my teens. Eating simply used to take a lot more work in the past to plan it, prepare it and consume it.

However, our weight gain issues are not solely related to availability and accessibility but may also be a result of a calorie distribution problem within our bodies.  David Ludwig and Mark Friedman posit in the New York Times that it is not overeating and too many calories that is the problem but our calories are going to the wrong place in our bodies.

More of us than ever are obese, despite an incessant focus on calorie balance by the government, nutrition organizations and the food industry.

But what if we’ve confused cause and effect? What if it’s not overeating that causes us to get fat, but the process of getting fatter that causes us to overeat?

The more calories we lock away in fat tissue, the fewer there are circulating in the bloodstream to satisfy the body’s requirements. If we look at it this way, it’s a distribution problem: We have an abundance of calories, but they’re in the wrong place. As a result, the body needs to increase its intake. We get hungrier because we’re getting fatter.

Ludwig and Friedman's thesis is that highly refined and rapidly digestible amounts levels of carbohydrates enter the body and are converted to insulin which attaches to fat cells rather than entering the bloodstream to be used as energy. These calories are not burned to fuel the body but are locked in storage in the fat cells.  That means that there are not enough calories in the bloodstream to fuel the body and you remain hungry and eat even more.

They back this up with a recent research study in which young adults on various low fat and low carb diets consumed the same number of calories but different distributions of carbs, fats and protein. However, subjects burned about 325 more calories per day on the low carbohydrate than on the low fat diet — amounting to the energy expended in an hour of moderately intense physical activity.

This tracks my own experience. When I have cut back on soft drinks, candy, refined sugars, potatoes, pasta and breads I have noticed consistent weight loss.  I have also found that I am generally am not as hungry when I am limiting carbohydrates.  This is despite the fact that carbs have about half the calories per gram as fat does. Therefore, weight control and the fight against obesity may turn more on diet quality and distribution than caloric intake.

This is how Ludwig and Friedman sum it up.

People in the modern food environment seem to have greater control over what they eat than how much. With reduced consumption of refined grains, concentrated sugar and potato products and a few other sensible lifestyle choices, our internal body weight control system should be able to do the rest. Eventually, we could bring the body weight set point back to pre-epidemic levels. Addressing the underlying biological drive to overeat may make for a far more practical and effective solution to obesity than counting calories.

I don't know about you but I am happy to have the extra four inches.  After all, that alone allows me to eat more than my ancestors. You would think that it would be easy to maintain a respectable Body Mass Index (BMI) with those extra four inches of height to spread the weight around.  However, as we all know, it is not easy. 

Think about diet quality and distribution and don't just diet by tracking calories.  I believe Ludwig and Friedman and others who have looked at the effect of carbohydrates in your diet are on to something. It will interesting to see where further research leads us.

Is Hillary Too Old To Win?

The comments that Karl Rove made last week about Hillary Clinton's health also brought to my mind the question of her age.

Hillary will be 69 years old if she is elected President of the United States in 2016.  Only Ronald Reagan was older when he took the oath of office as President.

Credit: National Journal

The average age of individuals who have taken the oath of office of President over the last 100 years has been 55.5 years.  Therefore, Hillary would be almost a decade and a half older than the average age if she were to win The White House.

More interesting, Democrat Presidents have historically tended to be younger than Republican Presidents over the last century.

The average age of Democrats is 51.8.  Republican Presidents have an average age over the last century of 59.  If Truman and Lyndon Johnson are excluded (both first became President after the death of their predecessor) the average age for Democrats first elected President drops to 49.3--almost a decade a younger than Republicans.

Consider the nominees for each party for President since 1972.

Year                    Democrat                                       Republican

1972                    McGovern (50)                                Nixon (56)

1976                    Carter  (52)                                       Ford (63)

1980                    Carter (56)                                        Reagan (69)

1984                    Mondale (56)                                    Reagan (73)

1988                    Dukakis  (55)                                    George H.W. Bush (64)

1992                    Clinton  (47)                                      George H.W. Bush (68)

1996                    Clinton  (51)                                       Dole (73)

2000                    Gore  (52)                                         George W. Bush (54)

2004                    Kerry (61)                                          George W. Bush (58)

2008                    Obama (47)                                        McCain (72)

2012                    Obama  (51)                                        Romney (65)


In all but one election since 1972 the Democrat candidate for President has been younger than the Republican nominee. The only exception was Kerry in 2004.  Kerry is also the only Democrat candidate who has been over the age of 60 in the last 40 years.

On the other hand, George W. Bush and Richard Nixon are the only Republican candidates who have been under the age of 60!

Why does there appear to be a bias for younger candidates with Democrat nominees for President while Republicans seem to prefer older candidates?

I believe it has to do with the fact that each party's supporters fundamentally view the world in two different ways.  Democrats see the world in much more theoretical and idealistic terms.  Republicans tend to be more practical and pragmatic in their outlook.

Democrats tend to favor the most idealistic of the candidates. They seem to be more easily smitten with the new and fresh face. Who is the knight in shining armor that is going to make everything right?

Republicans have a tendency to nominate the most practical choice.  Or the steadiest hand with the lowest downside.  Being the fresh face in a field of Republican hopefuls has historically been a risky proposition.   Republicans have not been prone to roll the dice with their candidates.  Democrats are more like riverboat gamblers when making their choice. Style seems to be more important than substance and ideology trumps experience.

These perspectives also seem to have an affect on the age of the candidate. Since Democrats in the primary process tend to favor new, fresh faces, younger candidates apparently have an edge. Republicans, on the other hand, are looking for the proven, practical choice.  That is usually someone with some gray hairs on their head.

Look at the record.  The Democrats nominated the young JFK over Hubert Humphrey and Lyndon Johnson in 1960.  LBJ was not seriously challenged in 1964 but Eugene McCarthy and Bobby Kennedy caused him to withdraw from the race in 1968. Humphrey got the nomination that year but he did it by relying on the party bosses.  He did not run in one primary.

The Democrats came back in 1972 with liberal, anti-war South Dakota Senator George McGovern. They then turned to a relatively unknown Georgia governor in 1976.  Carter survived a challenge by Teddy Kennedy in 1980 who arguably had the more established political resume.

The Democrats went against type in 1984 with former VP Mondale but not without becoming enamored with super-cool,young Senator Gary Hart. They came back with a big bet with long-shot Massachusetts Governor Michael Dukakis in 1988.

Bill Clinton, another young first time Presidential candidate from a small state, prevailed in 1992.  They went against type with Al Gore in 2000 but he was only opposed by one candidate that year, Bill Bradley.  They then started a love affair with Howard Dean before he imploded early in 2004 and John Kerry was able to fill the vacuum.  Of course, untested Barack Obama then upset Hillary Clinton in 2008.

The Republicans, on the other hand, always seem to be looking for the most practical candidate they can find.  Nixon in 1960. Barry Goldwater won the nomination over Nelson Rockefeller and Bill Scranton in 1964 that was against type.  However, that was a watershed year that marked the end of the influence of the East Coast moderates in the GOP.

Nixon was the nominee again in 1968 and 1972.  Ford held off the emerging conservative movement with Reagan in 1976.  However, it opened the door for Reagan to be the practical choice for the nomination in 1980.

Bush, another VP, gained the nomination in 1988 and held off challenger Pat Buchanan in 1992. Steady Bob Dole was the guy in 1996.  George W. Bush was a newcomer in 2000 but he had the advantage of his father's name and an organization that positioned him as the establishment favorite from the start. Of course, John McCain prevailed in 2008 against newcomers Romney and Huckabee. That then set the stage for Mitt Romney to become the practical choice in 2012.

I am not saying that Hillary Clinton will not win the Democrat nomination in 2016.  She has enormous political advantages from both organizational and fund raising perspectives.  Her name identification is through the roof and the fact that she could become the first female President provides her with tremendous political appeal for the Democrat faithful. However, she did get beat by a younger, cooler, African-American male in 2008 in the Democratic primaries when she was eight years younger.  Who says it can't happen again with the right person?

More interesting is whether Hillary can win the general election at age 69 if she garners the Democratic nomination.  Especially if she is running against a Republican who is not in their 60's and has some charisma and some cool.

If Hillary is able to gain the nomination and be elected President of the United States as a Democrat as a woman at age 69 it will truly be historic on several levels.

One Place The Food Police Are Needed

Michelle Obama took on school lunches and Michael Bloomberg worked to outlaw large soft drinks in New York City.  A couple of prime examples of the food police.

However, the number of people on food stamps has skyrocketed over the past five years and there seems to be no interest in policing that food.

An average of 47.6 million people received food stamps each month during 2013.  That compares to 26 million when President Obama took office just over five years ago.

What is amazing is that there are now more people on food stamps than the number of women working full-time, year-round jobs.

Credit: ItMakesSenseBlog.com

To put that 47.6 million in further context, consider the fact that Barack Obama only had 62.6 million votes cast for him in the 2012 election.  Therefore, if every food stamp recipient voted for Obama that alone would be 76% of his total vote tally by itself.

The food stamp program was originally designed to help those who were dealing with economic hardship to have the opportunity to purchase a "low-cost, nutritionally adequate diet".

Note the key words there. "Low cost and nutritionally adequate".

With that background I read with some distress the following report on the food stamp program (officially known as the Supplemental Nutrition Assistance Program "SNAP") by the Malbeck Data Institute that found that 89% of food stamp purchases were for "unhealthy, overpriced convenience store junk food". Only 11% of welfare recipients were using their food stamps for basic ingredients for healthy meals.

I could not find any evidence of the Malbeck Data Institute in a Google search or the actual study. Therefore, I would question the source and the validity of the data.  However, even if the report is nothing but an urban myth there is little question that the food stamp program is in need of fundamental reform.

In the name of a low-cost, nutritionally adequate diet how come the taxpayers end up paying for Twinkies, Twizzlers, Cheetos and Mountain Dew?

We are not talking about an insignificant sum of money.  The food stamp program is now costing in excess of $80 billion per year.  That ought to feed a lot of hungry people. For context, that is more money than is collected in income tax on all 43 million tax returns with adjusted gross incomes of less than $50,000.

Decades ago, William F. Buckley wrote a piece in which he suggested that we could make sure no one in this country went hungry by providing four basic food items for free to anyone who wanted them. Skimmed milk, bulgur wheat, beans and lard would be stocked in bulk in every grocery store in America under his plan. He saw no sense in policing it once it was stocked figuring if someone took these items they really were hungry. No frills to be sure but it would get the job done with a fraction of the cost and bureaucracy of the food stamp program.

I am not suggesting anything so draconian but it seems that something is amiss. When someone can go into a grocery store and purchase caviar, crab legs and cashews with taxpayer money, and most of the taxpayers footing the bill would never think of buying these with their own money, we should be rethinking our approach. I have seen or been told stories of each of these purchases over the years as most of us have.

Any yet, nothing ever changes. More people get the stamps (replaced now with an EBT card) every year and the costs go up every year.

 

The U.S. Department of Agriculture, which administers SNAP, is adamantly opposed to placing any restrictions or limits on the current rules for food stamps.

For example, self-appointed soft drink policeman Mayor Michael Bloomberg asked the USDA three years ago to authorize a pilot program in New York City to exclude soft drinks from food stamp eligibility. At least, he was consistent in his food police activities. However, the USDA stated that the experiment would be "too large and complex" to implement and evaluate.

Bakery cakes, cookies and candy are all eligible purchases for food stamp recipients. In fact, most everything that is edible in a grocery store is eligible under the food stamp program except for hot, prepared meal items. Cigarettes and alcohol are excluded but someone can buy the caviar and crab legs and sell them for .50 on the dollar to someone else, take the cash and do anything they want with it (like buy their tobacco and beer). 

In Appalachia, selling black market pop purchased with EBT funds is a fundamental driver of the local economy according to this report by Kevin Williamson in National Review Online.

It works like this: Once a month, the debit-card accounts of those receiving what we still call food stamps are credited with a few hundred dollars — about $500 for a family of four, on average — which are immediately converted into a unit of exchange, in this case cases of soda. On the day when accounts are credited, local establishments accepting EBT cards — and all across the Big White Ghetto, “We Accept Food Stamps” is the new E pluribus unum – are swamped with locals using their public benefits to buy cases and cases — reports put the number at 30 to 40 cases for some buyers — of soda. Those cases of soda then either go on to another retailer, who buys them at 50 cents on the dollar, in effect laundering those $500 in monthly benefits into $250 in cash — a considerably worse rate than your typical organized-crime money launderer offers — or else they go into the local black-market economy, where they can be used as currency in such ventures as the dealing of unauthorized prescription painkillers — by “pillbillies,” as they are known at the sympathetic establishments in Florida that do so much business with Kentucky and West Virginia that the relevant interstate bus service is nicknamed the “OxyContin Express.” A woman who is intimately familiar with the local drug economy suggests that the exchange rate between sexual favors and cases of pop — some dealers will accept either — is about 1:1, meaning that the value of a woman in the local prescription-drug economy is about $12.99 at Walmart prices.

The USDA says that it is too complicated to try to segregate food items but the federal government requires that chain drug stores and pharmacies code what is eligible for FSA and HSA accounts in their inventory systems. 

Why can't we limit food stamps to low-cost, nutritionally adequate food items? Especially when the taxpayers are paying the bill? 

Obamacare-The 2014 Economic Recovery Act?

Two headlines caught my eye recently but it was not until today that I understood how they were interconnected.

The first headline.


U.S Economy Stalls in 1st Quarter-Up A Meager .1%

This is how the The Washington Post reported the economic news.

The nation's gross domestic product expanded at a meager 0.1 percent annual rate in the first quarter -- well below the forecasts for 1.2 percent growth. The slowdown reflected weaker exports, a decline in business investment and cuts in state and local government spending, among other things. The recovery was propped up by strong consumer spending, driven in part by health-care spending after the implementation of the Affordable Care Act.

.1% economic growth? That is just a hair's breadth away from Recession territory!



The second headline.


As 2014 begins, health spending sees biggest jump since 1980

USA Today reported it this way.

Health care expenditures climbed at a 9.9% annual rate last quarter, mostly because of increased spending at hospitals, the Bureau of Economic Analysis said last week. That's the biggest jump since 1980's third quarter, and it followed a 5.6% increase in the fourth quarter.

This chart from advisory.com puts both numbers in context and it is not pretty on either the GDP score or what has happened to health care costs. This chart covers quarterly changes in GDP and health care spending over the last 10 years.

This chart from Business Insider shows the annualized quarterly change in health care spending going back to 1980.

However, what I really found interesting were these observations about the interplay of the GDP and health spending numbers in the Business Insider article by Ian Shepherdson, chief economist for Pantheon Macroeconomics.

"Personal consumption grew by 3%, about half of which was due to the growth in healthcare spending."

That is pretty sobering.  Half of the growth in personal consumption in the first quarter was just for health care spending?  But the real kicker for me was this additional quote from Shepherdson.

"If health-care spending had been unchanged, the headline GDP growth number would have been -1.0%."

That is nothing short of mind boggling.

A recession is generally defined as occurring when there are two consecutive quarters of negative GDP growth.  This data suggests that the only reason that we did not have falling GDP growth in the first quarter is because of the effects of Obamacare on health care spending.

What have we become if health care spending is the main driver of the American economy?  That is where we were in the first quarter.

Will we soon see the Affordable Care Act with yet another name since the Democrats no longer like to call it Obamacare?

The way the Obama machine spins the news I would not be surprised if we soon start hearing about the "The 2014 Economic Recovery Act".

Don't laugh. If they could blame Benghazi on a video while keeping a straight face, claiming that Obamacare is the engine behind our economy ought to be no problem at all.

Gray Skies On The Horizon

I came across some interesting data over the past week that underscores that there are gray skies on the horizon. Specifically, the gray wave of baby boomers and the impacts and implications this group will have on our economy and public policy over the next decade.

The latest labor force participation rate data shows that we are at a 38-year low in the percentage of those 16 years and older working.  Just 62.8% are in the labor force.

The percentage of those working in every age group has been consistently dropping over the last few years except for those 55 years of age and older.  This trend is expected to continue for the next decade.

Only 29% of those age 55 and over were working in 1993.  Today it is 40.3%.

Those working have increased in every age group over age 55.  For example, over 30% of those aged 65 to 69 are working today. 30 years ago only 18% were working. 20% of those 70-74 are working compared to half that number 20 years ago.

This is good news on a number of fronts. Better health and a greater percentage of workers in white collar jobs has enabled more people to continue working.

However, a number of these workers have no choice but continue to work due to scant retirement savings and concerns about the economy, inflation, health care coverage and the future direction of the country.

The reality is that at some point these people will no longer be able to continue to work.  This will put additional pressures on Social Security and Medicare especially given the meager returns that can be expected from fixed income investments considering current interest rates and bond prices.

This points to further gray skies ahead.

At the same time, Social Security and Medicare are facing critical challenges just as millions more will become more reliant on the two programs.

Look at the projected cash flow deficits in the Social Security program over the next 10 years as detailed in the most recent Social Security Trustees Report.

In 10 years Social Security will be running close to a $250 billion cash flow deficit per year.  Where is that money going to come from?  Increased payroll contributions?  Reduced benefits?  More borrowing?

As you can see from the chart we have about five years until the cash flow situation becomes precipitously problematic.

The same is true with the Medicare's Hospital Trust Fund (Part A) which is also funded by FICA payroll taxes which will be running annual $100 billion cash flow shortfalls within a decade.

A far bigger problem for Medicare are the demands on funding of the Supplement Medical Insurance program (SMI) which is more popularly known as Medicare Part B.  This program is funded by premiums on Medicare beneficiaries who pay approximately 25% of the total projected program cost with the General Fund of the Treasury (general tax revenues on you and me) paying the additional 75% of program costs.

Part A covers hospital costs.  Part B covers physician services and most everything else (except drugs which are covered in Part D).

I find that very few people understand the distinction between Medicare Part A (paid by payroll taxes during your working years) and Medicare Part B which is primarily being paid out of general funds.  When someone argues that they paid for their Medicare with their payroll taxes over their working  years they are only right if it involves a hospital bill.  For anything else, they are getting a large portion of the tab paid by their fellow citizens through current income taxation.

You get a better idea of how big this amount is by looking at this chart in the Social Security Trustees Report for 2013 that shows projected SMI (Medicare Part A), HI (Medicare Part B), and OASDI (Social Security) tax shortfalls between now and 2014 expressed as a percentage of GDP.

Source: A Summary Of The 2013 Annual Reports
Social Security and Medicare Board of Trustees

To put this all in context, you can see from the chart above that these programs currently require general funding (outside of the trust funds) of 2% of the country's $17 trillion of GDP.  That is $340 billion.

In 10 years we will needs another 1% of GDP to fund the shortfall in these programs ($170 billion in today's dollars).  In 20 years we will need an additional 2.5% of GDP to fund the shortfall.  That is $425 billion in today's dollars.

Let's put that in context.

$425 billion is about one-third of the current combined expenditures for Social Security (OASI) and Medicare.  To cover this shortfall without raising taxes would mean reducing all of these benefits to 2/3 of what they are today.

If the entire shortfall is covered by income taxes, it would require individual income taxes to be increased by one-third across the board.  Individual income tax receipts currently produce $1.3 trillion per year.

No one wants their benefits reduced and no one wants their taxes increased.  However, something has got to give.

There are gray skies on the horizon and somebody is going to get drenched...perhaps all of us.  The labor force participation rate of those 55 and older indicate that many in this age group understand the risks on the horizon.

I don't think the Millennials see it yet.  Their votes for Obama were directly contrary to their long-term economic self interest.  When the history of the Obama era is written, I think one of the ironies that historians will focus on will be the level of support that younger voters provided for Obama that will clearly be seen as having been against their self-interest when viewed in the fullness of time.

They thought that were voting for the rainbow that surrounded Barack Obama after the bleak days of George W. Bush.  They did not realize that the Obama rainbow only appears every four years during the election cycle.

They may never realize how dark the sky has gotten until they see their tax returns and paychecks when the full force of the storm is upon us.  Time is running short.  Barack Obama is not serving their interests.  They need to find someone who will.  Every day this problem is not addressed it will cost them more.

Credit: Wikipedia Commons

Midway To The Midterms

The midterm elections are six months away.  It will be interesting to see how things play out.  The Republicans look like they have a lot going for them right now.  Midterm elections are often looked at as referendums on the current President. That does not bode well for Democrats where we sit today. President Obama's poll numbers have been suffering. A Washington Post-ABC poll released a few days ago had Obama's approval rating at a record low of 41%. 52% disapproved of the President's performance. Even worse, there was an 11-point Democratic advantage in the poll sample. 

There also seems to be a natural tendency of the electorate to try to shift the balance of power away from the President in midterm elections.  Over the past 21 midterm elections the President's party has lost an average of 30 seats in the House and 4 in the Senate.

There are also 36 Senate seats up for election in 2914. The Republicans also have the advantage of only having to defend seats to 21 for the Democrats.  Seven of the states that Senate Democrats are defending went for Romney in 2012 but only two of the Republicans states went for Obama.

Republicans would seem to be in a great position for these midterms but when you are the minority party in Washington and you are not communicating with a single, unified voice, potential trouble looms with the electorate.

That certainly is the case right now.  Consider the fact that the Republican leader in both the House (Speaker John Boehner) and the Senate (Minority Leader Mitch McConnell) are each being challenged in primary elections.  This is almost unprecedented and shows that Republicans have a lot of work to do in getting the votes necessary to gain control of the Congress this year.

I have explained my view on elective politics before. Most elections are won with a combination of personality and simplicity, especially at the national level.  Voters inevitably simplify elections into "yes" or "no" or "for" or "against" and it often involves one big issue that they feel strongly about.  Voting, like most other human decisions, is based more on emotion than analysis.

The biggest midterm election margins have been in years in which one overriding issue was in front of the electorate.

In 1974 it was Watergate and President Ford's pardon of Nixon.  The Republicans lost 48 seats in the House and 4 in the Senate.

In 1994 it was push back to the Clinton agenda (including Hillarycare) and Newt Gingrich's smart and countermove with the "Contract with America" which simplified the election for the voters.  The result-Democrats lost 54 seats in the House (including Speaker Tom Foley) and 8 seats in the Senate.

In 2010 Obamacare was the rallying point.  63 Democrat seats were lost as were 6 Senate seats.

As we look at the midterm election six months away it again looks like Obamacare is the major issue that can motivate voters to go to the polls.  And motivation to get to the polls is key because turnout is the key factor in midterm elections.

As I pointed out shortly after the 2012 election, Obama won in 2008 and 2012 because his people showed up.  Democrats lost in 2010 because the same voters did not show up.

A big part of this was the youth vote.  They showed up to vote for Obama in 2008 and 2012.  They did not defend the Democrats in 2010.

Look at this comparison of voter demographics by age in the 2008, 2010 and 2012 elections.

Consider the age breakdown of the electorate. Voters age 45 and over made up 53% of the total in 2008 and 54% in 2012. However, in 2010, motivated by the Obamacare issue, they made up 67% of all voters!

It is even more interesting looking at the total number of young voters (ages 18-29) compared to older voters (age 60+) for the last three elections. 30 million older voters showed up consistently at the polls in each of 2008, 2010 and 2012. However, 24 million young voters came out in 2008 to help elect Obama, only 10 million showed up in 2010, and 23 million reappeared in 2012 to save Obama.

There are some in the Republicans ranks who are arguing that it is time to accept Obamacare is the law of the land and it makes no sense to keep beating a dead horse.

There may be truth to that from a policy perspective but that is totally wrong from a political perspective.  The polls indicate that it still is a very powerful emotional issue with voters (especially those who are opposed) and it remains the one issue that will get people to turn out to vote. 

And although it might make sense for Republicans to be looking for ways to "fix" or "amend" Obamacare from a policy perspective, that position has no legs politically.  People vote "yes" or "no", they don't vote to fix something when they are not sure what the fix is. 

There is only one position for Republicans to run on with regard to Obamacare and that has to be repeal.  It may not be realistic but that is the reality of electoral politics.  After all, there is no chance for Republicans to even get a chance to fix it unless they control both houses of Congress.  The Democrats are hunkered down are not going to give any fix a chance no matter what the form with Harry Reid controlling the Senate.

My advice to Republicans is simple. Obamacare is a gift horse, not a dead horse.  Don't spend time talking about fixing it, keep talking about getting rid of it.

The other issue that could undermine Republican chances in November involves immigration.

I have written before that I support immigration reform in what I refer to as a "red card" program.  However, there is absolutely no reason on earth that the Republicans should be supporting any immigration reform proposal at the current time.

First, there is no way that Obama and the Democrats could be trusted to enforce the necessary border security and enforcement provisions that would be necessary to insure that any legislation that passed would improve the current immigration situation.  Second, it would be a political disaster of epic proportions for the Republicans leading up to the 2014 midterm elections to do anything with immigration. 

The Democrats would get all the political benefits from the legislation as well as energizing their dispirited base.  At the same time, hard core Republicans would turn away in droves from the party and their support of Republicans at the polls this year.  Anger with Obamacare would be a distant memory if the Republican leadership in the House were stupid enough to put an immigration reform bill up for a vote this year.

If the Republicans are looking to gain some advantage with the changing demographic forces that are making the Hispanic vote stronger by the year, it only makes sense to craft and pass an immigration reform measure when Republicans are in control of both Houses.  To do anything else is the equivalent of committing political suicide, especially when Obamacare remains the political gift it is.  

My advice to Republicans on immigration reform is also simple.  Wait until next year.  There is absolutely nothing to gain by doing it this year and much, much to lose.