Saturday, January 29, 2011

Perspectives on Poverty

Following up on yesterday's post on self storage units and the blessings of plenty we have in this country, I recalled an excellent column by Walter Williams that I read last year titled "Poverty in America is Anything But".  Dr. Williams is a Professor of Economics at George Mason University as well as a syndicated columnist.  He is also an African-American who grew up in Philadelphia's housing projects.  This is a man who knows something of living in poverty.

Dr Williams writes:

Imagine you are an unborn spirit whom God has condemned to a life of poverty but has permitted to choose the nation in which to live. I'm betting that most any such condemned unborn spirit would choose the United States. Why? What has historically been defined as poverty, nationally or internationally, no longer exists in the U.S. Let's look at it.
Forty-three percent of all poor households actually own their own homes. The average home owned by persons classified as poor by the Census Bureau is a three-bedroom house with one-and-a-half baths, a garage and a porch or patio.
-- Eighty percent of poor households have air conditioning. By contrast, in 1970, only 36 percent of the entire U.S. population enjoyed air conditioning.
-- Only 6 percent of poor households are overcrowded; two-thirds have more than two rooms per person.
-- The typical poor American has more living space than the average individual living in Paris, London, Vienna, Athens and other cities throughout Europe. (These comparisons are to the average citizens in foreign countries, not to those classified as poor.)
-- Nearly three-quarters of poor households own a car; 31 percent own two or more cars.
-- Ninety-seven percent of poor households have a color television; over half own two or more color televisions.
-- Seventy-eight percent have a VCR or DVD player; 62 percent have cable or satellite TV reception.
-- Eighty-nine percent own microwave ovens, more than half have a stereo, and a more than a third have an automatic dishwasher.

The complete report from 2007 is here which included this chart showing the ownership of property and consumer goods by those below the poverty line in America.

How is this possible?  The definition of "poverty" includes only "pre-tax" cash income.  It ignores food stamps, subsidized housing allowances, Medicaid, the earned income credit and welfare payments.  One study found that the poorest fifth of American households purchased nearly twice as much as their reported incomes.  In effect, government programs have been effective in taking care of many basic needs that allow for the poor in this country to accumulate consumer goods that would be the envy of almost anyone else in the world.

There was no definition of what constituted "poverty" in this country until the mid-1960's.  It was developed shortly before President Johnson declared his "War on Poverty" in 1964.  The poverty rate in 1964 was 19%.  In the 1950's it was in the mid-20's using this formula.  It is in the 14-15% range today.  We clearly have made progress on this issue despite the rhetoric we often hear.

In fact, the progress has actually been much greater than the poverty statistics reveal when it is considered that the poor are receiving a lot of support today (Medicaid, food stamps etc) that did not exist in the early 1960's.  However, the definition of "poverty" that considers only "cash income" has not changed. We are not even comparing apples to apples.

Dr. Williams suggests that the calculation of poverty should change to reflect reality.
Material poverty can be measured relatively or absolutely. An absolute measure would consist of some minimum quantity of goods and services deemed adequate for a baseline level of survival. Achieving that level means that poverty has been eliminated. However, if poverty is defined as, say, the lowest one-fifth of the income distribution, it is impossible to eliminate poverty. Everyone's income could double, triple and quadruple, but there will always be the lowest one-fifth.
That is not likely to happen.  There are a lot of vested political interests that will make sure of that.  However, keep the above perspective in mind when you hear comments about our country's horrible record in helping the poor.  We can always do better but the facts show that we have come a long way.

One Man's Trash Is Another's Treasure

In my recent post on tv ratings it was interesting to see how many cable tv shows are pulling in viewers in the "trash to treasures" genre.  Pawn Stars, American Pickers, Storage Wars, Auction Kings and Pawn Queens are some of the examples.  Of course, the granddaddy of these shows is the Antiques Roadshow which began airing on PBS in 1997. That show was actually patterned after a BBC show in the United Kingdom that has been airing since 1979.

Although I have never seen any of these shows other than Antiques Roadshow, I understand the appeal.  There is nothing better than a "rags to riches" story.  There is also nothing better than thinking you got a great deal, even if it is done vicariously.  This article in USA Today provides a glimpse behind the popularity of these shows with a detailed look at Storage Wars.

The basic premise behind Storage Wars is a husband and wife auction team auctioning the contents of storage units to bidders who may only peek in the door of the storage locker.  The storage units have been put up for auction after a period (generally 2 to 3 months) of non payment.  No touching, no digging.  That is only done by the winner of the bid.  That is also when the treasure hunt begins.  Is it trash or treasure?

Interesting factoids in the article and in a little additional research I dug up on the topic...

  • There are 2.16 billion square feet of storage space in this country.
    • If you do not believe that we are blessed in this country consider that stat again.  That is the equivalent of 3 Manhattan Islands under roof. This is storage for "things" that people can't find room for in their apartment, house, garage or basement.  A lot of people in the world do not live in a shelter as nice as the average storage locker in the United States.
  • There are 46,000 storage space businesses in the United States.
    • Texas has the most-4,500.
    • How many self storage units did you ever see before the 1970's.  The answer is probably zero because the first self storage units were not built until the late 1960's.
  • In 1973 the average house size in the United States was 1,660 sf. Today it is almost 2,500sf.  
    • Therefore, despite the fact that house sizes increased by 50% we also had to build 46,000 storage units around the country to hold all of our stuff over the last 40 years.
  • "Baseball cards and porn, that's what most lockers have" according to one of the regular bidders in these auctions.
    • Is that a surprise?
  • Less than 1% of storage units typically will need to be auctioned for lack of payment.  
    • The people that rent the units have no doubt it is treasure.
  • According to one survey, one in 11 American households rents self-storage space. 
    • The average lease period is 15 months.
Does this motivate anyone to clean out a few things in the closet?

Thursday, January 27, 2011

How Many Men In HazMat Suits Do You Need To Change A Light Bulb?

One of the deadliest substances known to man is mercury.  That's the stuff in the old thermometers that would rise and fall with your temperature.  If you ever broke a thermometer (which I did one time) you felt you needed a hazmat suit after you read how to clean the mess up.

Guess what substance is a key element in the fluorescent lights that Congress mandated that we all use in the future?  You guessed it-mercury.  If you aren't up to speed on this little piece of legislation that was passed in 2007, the Heritage Foundation provides a summary.
In 2007, Congress passed an energy bill that placed stringent efficiency requirements on incandescent bulbs in an attempt to phase them out beginning in 2012 and replace them with more expensive but more energy-efficient bulbs, the most popular being compact fluorescent bulbs (CFLs). Politicians used a distorted view of creative destruction mixed with global warming concerns to sell the regulation. They said it would create jobs, save consumers money, and reduce greenhouse gas emissions. But what’s really happened?

Politicians, as they typically do, fail to see the unintended consequences of their legislative agendas. When it comes to CFLs, for example, the exposure to mercury vapor is dangerous if the bulbs are broken. Hospitals and medical charities warn that CFL bulbs cause migraines and epilepsy attacks. Other critics also point out that CFLs do not work well in colder temperatures and thus will force Americans to use more heat. CFLs do not work well with dimmer switches, and the lifespan of the bulb diminishes when turned off and on frequently.
Have you ever broken a light bulb?  The clean-up is inconvenient but not death defying.  Check out the recommended clean-up procedure for the CFL's in this post in Powerline.
  A short excerpt:
Before Cleanup
* Have people and pets leave the room, and avoid the breakage area on the way out.
* Open a window or door to the outdoors and leave the room for 5‐10 minutes.
* Shut off the central forced‐air heating/air conditioning (H&AC) system, if you have one.
* Collect materials you will need to clean up the broken bulb:
o Stiff paper or cardboard
o Sticky tape (e.g., duct tape)
o Damp paper towels or disposable wet wipes (for hard surfaces)
o Glass jar with a metal lid (such as a canning jar) or a sealable plastic bag(s)
Got that? Now you are ready to start cleaning up the toxic substances you didn't want in your house in the first place.

"This is kind of slippery."
It gets much worse when you get to the actual clean up.  Please have your hazmat suit ready because you will need to throw any clothes you are wearing away unless you also want to contaminate your washer and dryer.
I am in favor of saving energy.  I love the environment.  I love saving money.  However, what is wrong with letting people decide how to meet these goals without bans and mandates?    If CFL or anything else is worth the cost and effort it will win out in the market.  If I want to keep burning an incandescent bulb why should I be banned from doing so?
There is legislation introduced (H.R. 91) to repeal the ban on incandescent light bulbs.  Let's hope common sense can be restored.  Why is it that most everything that we need worked on in Congress right now is a repeal bill? 

Wednesday, January 26, 2011

Last Week's TV Ratings

My tv viewing consists primarily of cable news shows and sports.  I almost never watch entertainment programs any more.  Friday Night Lights being the notable exception. It is scheduled to return sometime this Spring for its final season on NBC.  I used to be a '24' viewer but Jack Bauer is retired and on the run and will not be seen again until they move this franchise to the Big Screen.   The working title for that project must be "124 Minutes".  Everything happens faster these days and Jack will just have to foil the terrorist plot a little quicker the next time we see him.

Despite not watching that many shows I do like to look at the TV ratings from time to time.  It does provide a small glimpse of what Americans are enjoying and what is influencing them.  A couple of  observations from the ratings of last week.
  • The top rated program was the AFC Championship game between the Steelers and Jets with 55 million viewers. That is more than 1 in 6 of ever person in the U.S.  I was one of them.  It also was more than double the viewers of American Idol which was the 3rd ranked show.  The AFC post-game show was the second most watched at 32 million viewers.
  • The top rated Cable TV show was Jersey Shore with 9 million viewers on Thursday night.  The Monday night version was 2nd rated with 7.7 million.  I have never watched the show but I do know who Snooki and The Situation are!  Pawn Stars on the History Channel was #3 and #4.
  • Of the Top 21(there was a tie for 20th place) rated tv shows, 15 were on CBS and 4 were on Fox. NBC and ABC only had one show each.  This is pretty astounding.  I wonder whether any tv network has ever dominated the ratings like this. 
  • American Idol's ratings held up the first week of the new season despite the changes in the judging panel.  They had 26 million viewers for the premiere episode last Wednesday night. That was 5 million more than 5th rated NCIS.  Thursday's American Idol was 4th but drew 4 million fewer viewers than the night before.  Does this indicate that Idol is vulnerable without Simon?  Keep an eye on the ratings for this week.
  • There is not one cable tv news show in the top 25 cable shows.  WWE Raw, The Game, American Pickers and Sponge Bob are other Top 10 shows.  
  • My viewing habits clearly do not match the majority of the population.  If you are watching Jersey Shore do you even care that we have $14 trillion in federal debt?  I predict that they will come to care.  We will come to a situation where it will become clear that the American people have been snookerd by all this deficit spending.  At that point there will be a lot of snookees and a lot of people feeling pain similar to being in the WWE Raw ring.  That will be a real Royal Pain.

See the TV Ratings for last week here

See the Basic Cable TV Ratings here.

Tuesday, January 25, 2011

How Public Unions Took Taxpayers Hostage

Fred Seigel with the Manhattan Institute provides a short history of the public sector union movement in The Wall Street Journal today.  "How Public Unions Took Taxpayers Hostage" provides historical  context as how the current system evolved as a political decision rather than one that involved any aspect of worker rights.  In fact, liberal luminaries such as Franklin Roosevelt and Fiorello LaGuardia were very skeptical of public sector unionism for the simple reason that it threatened the broad needs of the citizenry.
Liberals were once skeptical of public-sector unionism. In the 1930s, New York Mayor Fiorello LaGuardia warned against it as an infringement on democratic freedoms that threatened the ability of government to represent the broad needs of the citizenry. And in a 1937 letter to the head of an organization of federal workers, FDR noted that "a strike of public employees manifests nothing less than an intent on their part to prevent or obstruct the operations of Government until their demands are satisfied. Such action, looking toward the paralysis of Government by those who have sworn to support it, is unthinkable and intolerable."
This thinking ended in the early 1960's as the Democrats decided that the political advantage of having the political and fundraising power of these unions behind them outweighed any concerns about taxpayers and the broader citizenry.

Seigel argues that the immense power that public unions hold will not be easily reversed.  However, it can and must be done if there is to be any hope of restoring fiscal sanity to many city, county and state budgets.
Restraining the immense clout that government-employee unions have accumulated over the past half-century will be difficult, but not impossible. Civil rights for African-Americans and women was a fulfillment of the universalist American promise as expressed in the Declaration of Independence. Collective bargaining by public employees was not rooted in deep-seated American tradition.
Instead, the decision to grant this privilege was a political decision designed to enhance the power of a pressure group whose interests, even many liberals assumed, would be at odds with those of the general public. Political decisions can be reversed.
We can only hope that he is right.

John Mauldin-"The Unsustainable Meets the Irresistible"

I read John Mauldin's "Thoughts from the Frontline" investment and economic newsletter every week.  It is a free newsletter than you can subscribe to here.

You will not find individual investment recommendations from Mauldin.  He will provide you with sound economic insights as to the bigger picture so that you might make sense of where we are headed.

His article this week is entitled "The Unsustainable Meets the Irresistible" in which he covers a lot of the same ground as I have about our country's fiscal challenges in previous posts.   One chart that caught my eye in his newsletter was this one.

This shows pretty clearly that the only thing that got stimulated by all the federal spending over the last 3 years was federal employment.

The table below is also an "eye-opener" as it show the compounding effects that our expanding federal debt will have in combination with a return to any semblance of "normal" interest rates.  As bad as it seems, our situation is actually much worse than it appears due to the low interest rates that we are currently borrowing to finance our debt.  The Lindsey Group, who created the table, says we are in a fiscal trap due to the low rates.  I call it Fantasy Land.

Keep in mind that this table shows additional interest costs that we are not paying today in the range of $563 billion to $800 billion per year.    Where does that money come from?  You can see that even big tax increases and big spending cuts barely put a dent in the numbers.

Mauldin sums it up this way...

The takeaway is that we are on an unsustainable path. Absent something more serious even than what the Lindsey Group has outlined, long before we get to 2019 the bond markets will have taken away our ability to finance our debt at low rates.
Peter Orszag wrote a column in the Financial Times today. (Orszag was the Director of the Office of Management and Budget under President Obama.) His closing paragraph:
“The bottom line is that there may well be U.S. public debt tremors this year, both during federal debate over raising the debt ceiling and with at least a limited number of crises in local and city governments. The bigger problem, though, lies beyond 2011, as the unsustainability of the federal government’s fiscal trajectory becomes increasingly clear. I hope it does not ultimately require a crisis to restore fiscal sustainability at the federal level, but I fear it will.”

Monday, January 24, 2011

A Blueprint To Cut $2.5 Trillion

The Republican Study Committee released a blueprint last week on how the federal government could cut $2.5 trillion of spending from the federal budget over the next 10 years.

The RSC is the Caucus of House Conservatives chaired by Congressman Jim Jordan of Ohio.

Some of items that are suggested for spending cuts...

Eliminate all remaining "stimulus" funding                                                       $45 billion total savings
Eliminate federal control of Fannie Mae and Freddie Mac                             $30 billion total savings
Cut federal travel budget in half (take the train?)                                               $7.5 billion annual savings
Amtrak subsidies                                                                                                             $1.6 billion annual savings
Require collection of unpaid taxes by federal employees                               $1.0 billion total savings
Prohibit taxpayer funded union activities by federal employees                   $1.1 billion annual savings
Corporation for Public Broadcasting subsidy                                                     $445 million in annual savings
National Endowment for Arts and Humanities                                                   $335 million in annual savings

Go to this article in US News to get the full list.  It is eye-opening to see how much money is being spread around.  In researching this topic it is also evident how entrenched all these groups are in keeping the money coming their way.  Many have placed articles saying how horrible it is to even suggest looking at them.  There is a lot of work ahead considering that even if all of these cuts were made it would be only a fraction of what is necessary to close the federal budget deficit.

Sunday, January 23, 2011

Three Things I Learned Last Week

You are never too old to learn something new.  Hopefully, this will become a regular feature on BeeLine.  Three Things I Learned Last Week.
  • The United States is reported to have 261.5 million ounces of gold in its vaults.  The tightest measure of the money supply is currency in circulation (greenback and coins) which totals $909.2 billion.  The broadest measure of the money supply is M2 (which includes all checking account and savings account deposits in addition to currency in circulation) which totals $8.764 billion.  If we went to a gold standard and had full backing of the dollar it would require a gold price of between $3,477 (only currency in circulation) and $33,514 (backing for all currency, demand and time deposits).
    • Source: Early Warning Report, January, 2011 issue
  • There are an estimated 80 million to 130 million Christians in China according to a report by Fox News.  This is a 100-fold increase since China became a Communist country in the late 1940's. 
  • In New York City, bed bugs now are 250 times more resistant to standards pesticides than they are in Florida according to an article in The Wall Street Journal.  Lab tests indicate that the pesky creatures have evolved in such a way that they can survive insecticides up to thousand times greater than a lethal dose a decade ago.

Saturday, January 22, 2011

Ode to Joe

I first witnessed the considerable talents and temperament of Senator Joe Lieberman (D-CT) shortly after he assumed office in January, 1989.  I was attending a hearing on Capitol Hill and was immediately impressed with the thought behind his questions and his understanding of the topic of the hearing.  This is not something you see every day in Washington. Many hearings are nothing but theatrical stage events with our Senators following a predicable script that emphasizes form over substance.  I could immediately see that Joe Lieberman was a man of substance.

I have disagreed with the vast majority of Lieberman's policy views over the years but I never found him disagreeable.  He was a man you had to respect because you knew the positions he took were well considered and reflected both conviction and conscience.  Those traits led to his defeat in the Democratic primary in Connecticut in 2006 even though he was the Vice Presidential nominee of his party in 2000 and voted with Democrats over 90% of the time.  He ran in the General Election as an Independent and was re-elected for his fourth term.  Senator Lieberman announced this week that this will be his final term as he will not be seeking re-election in 2012.

He showed his independent conviction and conscience any number of times. The first prominent Democrat to criticize Bill Clinton for his judgment in his affair with Monica Lewinsky, his support for the Iraq war and a strong U.S-Israel relationship, endorsement of John McCain for President over Barack Obama, his opposition to the public option in the recent health care reform debate and his recent efforts to facilitate prosecution for releases such as the secret cables that WikLeaks put on the internet.

As he stated when he was defeated in the Democratic primary and announced he would run as an Independent,

 "I'm a loyal Democrat, but I have loyalties that are greater than to my party, and that's my loyalty to my state and my country". 

We need more people on both sides of the aisle like that.  Joe Lieberman will be missed.

Friday, January 21, 2011

The Demise Of Democrats...Or Taxpayers?

Democratic pollster Doug Schoen is someone that I respect.  He seems to call them as he sees them.  You don't see him reciting the party line or popular talking points.

He had an op-ed in yesterday's Wall Street Journal entitled "The Union Threat to the Democrats' Future" where he makes the case that unless the Democrats confront its allies in the public-employee unions, it will increasingly lose credibility with voters around the country.

Schoen states the issue pretty clearly and backs up the points I made in my earlier post, What Exactly Is The Purpose of Public Sector Unions.  He argues that the public sector unions essentially own the Democrats. They provide the bulk of their campaign money and organizational support.

By providing Democratic candidates the bulk of their campaign funding, public unions have essentially bought control of the party. This is particularly true when it comes to the politicians who control union contracts and pensions at the state and municipal level.
At the national level, public-employee unions spent more than $200 million to defeat Republican candidates during the 2010 midterm election. The American Federation of State, County and Municipal Employees—the main union of state employees—spent over $90 million during the campaign, and it was the top donor to the Democrats' efforts to win gubernatorial and state-legislative races.
Schoen sees continuing troubles for Democrats unless they confront the public sector unions.

If the Democrats want to be competitive in 2012, they must move decisively back to the center. And unless they're able to break the stranglehold that government-employee unions have on the party on policy, as well as in financial and political support, it will be virtually impossible for Democrats to restore fiscal health to states like New York and California.
Working-class families are fleeing the Democratic Party en masse, a trend that is likely to continue if their own economic situation remains weak in the face of ever-higher taxes, deficits and debt. These working-class voters see that public employees are continuing to receive more generous benefits and enjoy greater job security than they are. Support for the Democratic Party is now well below 40% with working-class voters who are unionized, and as low as 33% with whites who are not college educated.
Consider what this means. American taxpayers pay taxes to pay the wages and benefits of its public sector employees. A portion of these wages goes to pay union dues which are then used to lobby for increased public sector wages and benefits.  This, in turn, requires more taxes on the taxpayers.  Keep repeating this vicious cycle and you can see why we are in the position we are today.   This article from USA Today discusses the increasing disparity of average public vs. private sector pay.  

If the country is going to restore fiscal sanity this huge disparity is going to have to be addressed in a significant way-most particulary the generous benefits packages for public employees.   It will be interesting to see how Democrat governors Brown (CA), Cuomo (NY) and Ryan (IL) deal with this issue.  These are the biggest blue states with serious budgetary problems.

Democrats are actually in a much better position to effect change on this issue than Republicans are.  Much like it was easier for Nixon to open up relations with China, Reagan to begin nuclear disarmament talks with the Russians or Clinton to sign welfare reform legislation.

If the Democrats can't do it, Schoen is signaling that the voters will do it for them by giving Republicans the power to make the necessary changes to restore a proper balance.  This might involve making public sector unions illegal as it was for most of our history as a nation. Another option might be to simply prohibit public sector unions from making any political contributions.   Taxpayers are currently funding their own demise.  This has to stop-one way or the other.

Do As I Say Not As I Do

I enjoyed listening to some of the sound bites in the health care reform bill debate over the last few days.

This main talking point of the Democrats seemed to be...

"The Republicans are wasting our time on this health care repeal when they should be focusing on the economy"

However, what were the Democrats doing for over a year?  They spent their time on the health care agenda and paid very little attention to the economy and jobs.  If the health care reform bill had not been passed on a straight party line vote this debate would not even be occurring now.

I saw the same thing in the debate leading up to the Bush tax cut vote.  In that debate, the Democrats in Congress threw in the towel on the Bush income tax cuts after President Obama reached a deal with the Republicans. However, they decided that the critical issue was the estate tax exemption that was part of the deal.  It was set at $5 million for 2011 and 2012 in the negotiated deal between the President and the Republicans.  Congressional Democrats seemed to favor an exemption amount of $3-$3.5 million.  They got their talking points out and complained about the rich not paying their "fair share".

However, the fact was that in 2010 there was no federal estate tax at all. Zero! It had been eliminated in the original Bush tax deal for 2010 and was scheduled to come back in 2011 with a $1 million exemption.   When it was passed early in the decade no one expected that Congress would let the estate tax expire without a full debate and discussion about the issue.  It was set at a zero rate to force some kind of action.

What seemed to be lost in the media reporting of this was that if the Democrats wanted to do something about the estate tax exemption they had all of 2009 and 2010 to do it.  They had massive majorities in both houses.  They did nothing.  In fact, their actions bordered on complete malfeasance.  In 2010, George Steinbrenner and a number of very wealthy Americans passed away and paid no federal estate tax.  When we have a trillion dollar deficit and your party strongly believes in redistribution of wealth, you think you could at least agree among yourselves on the amount of the estate tax exemption.

I don't want to be too tough on the Democrats because such "double-speak" seems to be common to most  politicians.  We have seen Republicans complain about Democratic earmarks, deficit spending and other issues only to find that what they do is often much different than what they say as well.

The time for talking points is over.  It is time to match actions with words.  How about this for a slogan?
Don't say it. Just do it.  I really like the last 3 words.  I might have a career ahead of me in advertising.

Thursday, January 20, 2011

Consequences of Health Care Reform

Over the years I have found that most liberal ideas are well meaning and well intentioned.  In a theoretical laboratory these ideas make a lot of sense.  I think that is why so many academics are liberal.  The ideas make such great sense in the classroom or a textbook.  Unfortunately, in the real world these ideas must face reality.   A reality where human beings make decisions based on incentives or disincentives relative to their own self-interest.  A reality where unintended consequences often have much greater effects than the intended consequences.

I see no greater potential for seeing these unintended consequences than with health care reform.   We are starting to see it already.  That is why I support the effort to repeal the Health Care Reform Bill that  passed the House of Representatives yesterday.

Let's look at a couple of examples in the Health Care Reform Bill.

Extending Health Care To Children Up To Age 26
Who can argue with this?  Your child graduates from college and moves back with you while they look for a full time job (hopefully with health care).  You already pay for family coverage at work so adding Junior to your plan costs you nothing.  Never mind that it does cost your employer more.

This provision also now requires employers to cover all children of an employee even if they do not provide their financial support.  This opens up employers to a lot of extra costs especially if they offer better coverage than other employers.  An employee  now has a choice of who covers their child that they did not have before.  This is most applicable in divorce situations.

What do I think are the consequences of this provision?  It has the real potential to lead to an erosion of family coverage in employer plans.  We are likely to see coverage costs tied to the number of people in the family.  It will no longer be one flat family rate.  We will also see plans that provide employer subsidized coverage for the employee but no subsidized coverage for other family members (see below).

Public Exchanges
A public exchange is a great idea for someone today that does not have access to coverage.  However, this is less than 4% of the population.  What does it mean to those that already have good coverage?

It could very well lead to employer plans focusing their benefit dollars exclusively on their employees.  There would be no subsidy for family members as there is in most plans today.

Most employer plans today provide spousal and dependent coverage for the simple reason that there is no established individual market.  Employers know that it is part of the deal that they provide subsidized coverage to an employee's dependents.  This actually is a form of discrimination against single employees as health care coverage for a family might cost $10,000 more per year more than for someone who is single. Bob and Betty might be doing the exact same job and getting the same salary, 401(K) benefits, life insurance and other benefits.  However, if Betty is married with a family she might be getting an extra $10,000 in health benefits compared to Bachelor Bob. A good deal for Betty. 

The availability of public exchanges in 2014 will change the landscape.  Is there any reason to pay Betty $10,000 more than Bob?  The company will take care of Betty and Bob as employees but Betty's family may need to go to the exchange to get their health coverage.  The cost of that coverage would potentially have to be paid totally by Betty.  Is that fair to Betty?  Not compared to what she gets today.  But if the company gives her the cash to go to the exchange what do they do for Bob?  That is a new cost that the company did not have before.  To truly be fair, Betty is going to lose her subsidized family coverage.

Limits on Age-Based Premium Differentials
The new law limits age-based premium differentials to no more than a 3:1 ratio in the individual and small-group markets.  The reality is that the real actuarial cost differential between a 22 year old and 62 year old is something like 6:1.  The law does not allow health care insurance pricing to reflect reality.  What will this mean?  Costs should come down for the 62 year old but they will go up for the 22 year old.  For example, if the current monthly cost for a 22 year old is $150 the 62 year old cost should be around $900.  The insurer needs to collect the same $1,050 under the new law but has to do it with a maximum 3:1 ratio.  This means that the 22 year old will now have to pay around $260 and the 62 year old drops to approximately $780 to comply with the law.

This clearly benefits the 62 year old.  However, it dramatically increases the cost of coverage for the 22 year old.

One of the big reasons for health care reform was to cover the uninsured.  However, 30% of the total uninsured are between the ages of 19-29. This is the largest group of uninsured Americans. In fact, 1 in 3 in this age group are uninsured. On the other hand, the age group with the lowest percentage of uninsured Americans is ages 55-64.  Therefore, this provision makes it more expensive for the largest group of uninsureds to get coverage and lowers the cost on the group that has lowest number of uninsureds. This would seem to be moving us in the wrong direction.

What Is Next?
There is nothing more complex than our health care system.  Something that is interwoven into 17% of our country's GDP has the potential for thousands of unintended consequences.  This is just a small sample of what lies within.  A better choice would seem to repeal this 2,000+ page monstrosity and put together a program that is both more practical and less partisan.  Do I have any suggestions?  Of course, but that will have to wait for another BeeLine.  In the meantime, I am dealing with the reality of making the reform bill work for me just like everyone else.   That is where theory goes out the window and the true consequences of health care reform will begin to be felt.

Wednesday, January 19, 2011

Kings Firecrackers!

I have had the pleasure of seeing the Kings Firecrackers jump rope team for many years at Miami University basketball game halftime shows.  It has to have been at least 20 years that they have been performing at Miami games.  New girls always coming and going.  It is a real testament to the organization that they have been able to sustain this level of excellence for so many years.

I saw them again tonight and found this link to a YouTube video that was shot at the US Naval Academy.  It is really great to see the reaction of the Midshipmen to the show.  They are from the Kings school district just north of Cincinnati.

These girls are a great example of the potential God has given us all.  It shows how much we are capable of we when set our minds to something and work hard.    Watch this and see if you do not agree.

Kings Firecrackers Halftime Performance, Navy-Army Basketball Game Halftime

If you are interested in more information on the Firecrackers go to

The Mall, Main Street and Wall Street

Peter Lynch, the former manager of Fidelity's Magellan Fund, used to say that he got his best investing ideas at the shopping mall.  His point was pretty simple. The best stocks were usually the companies with the best products.  This usually translated into higher sales, greater profits and an increased stock price.

Look no further than Apple to see what Lynch was talking about.

in 2001, Apple lost $25 million.  Their sales were down 33% compared to the year before.  They had revenues of about $5 billion.  In 1995, their sales had been $11 billion.  Apple was a niche computer company that had difficulty attracting customers beyond the education and artist markets.  It had a hard time penetrating the home and business markets because of its inability to run Microsoft products. Its market share in the computer market had dropped to below 5% from as high as 20%.

Founder Steve Jobs, who had been forced from the company in a power struggle in 1985, returned to the company in 1997.  One of his first moves was to forge a partnership with Microsoft that would begin the turnaround of Apple.  See history of Apple.

In early 2001, Apple opened the first of its retail stores.

In late 2001, Apple introduced the iPod.

In early 2002, Apple unveiled a redesigned iMac using a G4 processor with a hemispherical base and flat panel display.

The iTunes Music Store was launched in 2003 with 2 million downloads in the first 16 days all of which were purchased on Mac computers.  By the end of 2004, they had sold 200 million songs on iTunes.  By early 2010, total sales were over 10 billion!

The iPhone was introduced in January, 2007.  They sold 7.5 million phones in the first 6 months.  Sales by the end of Apple's 2010 fiscal year were over 73.5 million phones.

The App store was launched in mid-2008.  There over 300,000 apps approved by Apple today.

The iPad was introduced in April, 2010 and sold 3 million units in the first 80 days.

In Apple's first quarter results for fiscal 2011 that were announced yesterday, Apple sold 4.1 million iMacs, 16.2 million iPhones and 7.3 million iPads.  These are sales in just 3 months!  They had $27 billion in revenue and $6 billion in profit in the quarter.  Remember, this is a company that had annual revenues of $ 5 billion for the entire year in 2001.

What has all this meant for the stock price?  On December 31, 2002 Apple was trading at $7.16 per share (adjusted for splits).  On December 31, 2006, it was trading at $84.84 on the strength of the iPod.  On December 31, 2010 (carried even further by the iPhone) the stock was at $322.56.  That is a 45-fold increase in 8 years.  Apple is worth more than Microsoft today.  Apple's market cap is $312 billion  compared to $245 billion for Microsoft.  Apple also has over $50  billion in cash on hand on its balance sheet.

A pretty simple formula for investing.  Look around you.  If you see something you, your friends and neighbors like, do some research on the company that produces it.  It may be an investment opportunity for you.  Walking through the Mall or down Main Street is often a better place to find investment  ideas than Wall Street.

Tuesday, January 18, 2011

Pittsburgh Steelers

I am a Pittsburgh Steelers fan.  It goes without saying that I am already planning for this week's AFC Championship Game vs. the New York Jets. (630pm Sunday on CBS).

My 5 favorite Steelers.

Hines Ward
The most interesting stat about Ward is that in his first 12 seasons he had more catches than Hall of Famers Lynn Swann and Jon Stallworth had in their combined 23 years in the NFL.  He has added another 62 catches this year to the 895 he had heading into this season.  It is hard to see how he will not end up in Canton.  Another Super Bowl win would seem to make him a lock.

Troy Polamalu
In my mind he is the best safety to ever play the game.  The Steelers are not the same without him.  He has produced some of the greatest individual defensive plays I have ever seen. A sure Hall of Famer.

James Harrison
I love the story about Harrison.  Undrafted out of Kent State in the Mid American Conference he was cut 4 times before sticking with the Steelers.  He went on to become the NFL Defensive Player of the Year in 2008 and then had what I think was the greatest defensive play in Super Bowl history in Super Bowl XLIII.

Shaun Suisham
Another great story.  I was really concerned when the Steelers cut Jeff Reed in November.  Suisham, who had been living with his wife's family in Greenville, Ohio, was signed and was spectacular down the stretch. He hit 14 of 15 field goal attempts during the regular season.  Suisham is another MAC product-Bowling Green.

Ben Roethlisberger
Ben would normally be at the top of the list.  I saw almost all of his college games at Miami University (another MAC school) and it couldn't have been better for me that the Steelers drafted him.  Nevertheless, he is lucky to break the top 5.  If there was anyone who got too big for their britches it was Ben. I sincerely hope he has gotten his act together off the field.  He is a winner...on the field.  He has proven that time and again.  That will not help you if you are a loser off of it.

The Steelers have a lot of great players but it is the front office of the team that deserves a ton of credit.  It is not easy to stay on top in the NFL with the draft designed to bring the top teams down and a salary cap that is also a great equalizer. Year in and year out the Steelers get it done.  This is principally due to making very good (and sometimes very tough) personnel decisions.  No team does it better.  They have the best overall winning pct in the NFL since the AFL-NFL merger in 1970.

Monday, January 17, 2011

Debt Ceiling Dilemma

A Reuters poll raises some hope that there is popular political support to start addressing the country's fiscal disaster.  71% of adults indicate that they are opposed to further increases in the statutory borrowing cap. Only 18% support an increase in the debt limit.  The current debt ceiling is projected to be reached sometime this Spring. (See my previous post I Will See Your $14.294 Trillion and Raise You...)

Unfortunately, by almost equal margins in the same poll, the public does not want to cut the entitlements that represent the largest costs in the federal budget-Social Security and Medicare.  A poll by CBS News conducted last week also confirms that 77% of Americans prefer to cut spending and just 9% call for raising taxes.  An additional 9% think we should do both.  Is there any way to get what the public wants?

Let's look at the projected numbers for the current 2011 fiscal year by major categories. Bear in mind, if the debt ceiling is not increased, $1.3 trillion would have to be cut from the budget at some point.  We also would have to continue to pay all interest on the federal debt or be in default on that debt.  For simplicity, I have rounded all numbers to the nearest $1 billion.  Chump change these days!

Total Revenues                                $2.6 Trillion
Total Expenditures                           $3.9 Trillion

Projected Deficit                              $1.3 Trillion

Cannot Be Cut
Interest                                                .3 Trillion

Public Says Don't Cut
Pensions (Fed & SS)                          .8 Trillion   (Only 20% Support SS Cuts in Reuters Poll)
Health (Medicare etc)                         .9 Trillion   (67% Opposed in CBS Poll)
Education                                           .1 Trillion   (67% Opposed in CBS Poll)
Law Enforcement                               .1 Trillion   (Only 21% Support Cuts in Reuters Poll)

Public Open To Some Cuts
Defense                                              .9 Trillion
Welfare                                              .5 Trillion
Transportation                                    .1 Trillion
General Government                           ****         ($29 billion)
All Other                                            .2 Trillion

Therefore, to cut the necessary $1.3 billion to avoid further increases in the debt limit (and to spare entitlements, education and law enforcement) would require that the entire defense department be eliminated as well as 50% of all other federal spending (welfare, unemployment, transportation, farm subsidies, and all other government operations that you can think of-for example, everyone on the federal payroll, national parks etc).

The Treasury Department may be able to play some games for a while if a deal is not made before the debt limit is reached.  However, these numbers show that there is absolutely no way that this country can pay its bills over the foreseeable future without raising the debt limit. A deal will have to be reached.  It is just a question of what is in the deal.

I know some argue that the bargaining chip should be healthcare reform.  That would be a big mistake.  I favor repeal of the health care bill in order to develop a better alternative.  However, that effort needs to stand on its own. Tying repeal of health care to the debt limit will be seen as politics as usual by the public.  It will undermine the public backing that is already present to tackle the debt issue.

The Republicans have the high ground.  The debt ceiling limit increase should be tied to long term budget reforms that set hard future budget targets.  We need a reasonable glide path that brings the spending excess down in steps. Perhaps this is also the opportunity to tie passage of the debt limit with Congressional approval of a Balanced Budget Amendment and/or Federal Spending Limitation to the Constitution.  

How should the budget targets work?  One suggestion might be to make the spending cuts the Republicans talked about in the Fall campaign as the starting point.  Budget targets are then established for the next 5 years to bring the budget into balance by the end of that period.  This provides the opportunity for a recovery in the economy to lessen some of the pain.  However, if cuts are needed, the budget deal I am recommending would require across the board cuts on everything except interest on the debt.  Is this hatchet job the best way to do this? No.  But having this trigger mechansim out there is the only way to get something done.  Congress has proven over and over that they only will act if they have no other choice.  If Congress has a better way to do it when the target date is reached, they can pass alternative legislation that gets the same overall result to avoid the across the board cuts that are scheduled.

What does this mean in real terms?  The projected deficit for this year is about 8% of GDP. That means we would have to reduce the deficit by about 1.5% of GDP each year for 5 years.  The last OMB projection I could find indicates that half the deficit is projected to come down based on their assumptions on economic recovery over this period.  That means we need cuts of about 4% of GDP.  Projected GDP for 2011 is a little over $15 trillion.  Therefore, we would need about $600 billion in cuts in today's dollars under this plan over the next 5 years.

How would you do it? Get out your scalpel!

Sunday, January 16, 2011

Surfing In Alaska

You learn something new every day.

I thought the best surfing was in our 50th state.  It seems it might actually be in our 49th state.  See this story about surfing near the Arctic Circle riding waves for an incredible five miles.

A nice storyline for Sarah Palin's Alaska on TLC if it is renewed for another season.  I have a feeling she has been on a surfboard before. Trivia tidbit of the day...Sarah actually spent her first semester of college in Hawaii at Hawaii Pacific University.

Saturday, January 15, 2011

Informer or Irritator?

I don't get to watch Glenn Beck on TV very often.  His 5:00pm EST Fox News Channel show (2:00pm PST) would normally seem to be a tv ratings graveyard.  It is not a real good time for people who go to work every day, pay their taxes and keep this country going every day to be watching television.

This chart at TV by the Numbers has a comparison of the cable news ratings at 5pm EST for 2008 and 2009.  Beck took over the FNC slot in January, 2009.   His ratings are nothing short of amazing.

All Cable News TV ratings were down in 2010 but Beck was still the #3 ranked cable news program behindFNC's The O'Reilly Factor and just barely behind Hannity who airs at 9:00pm.  His ratings were over 3 times as large as Larry King's on CNN right in the middle of prime time.  

You often hear Beck referred to as an agitator, irritator or divider.   I have never seen him try to stir up anyone with anything other than information.  He does not raise his voice and I have never seen him try to whip up a crowd.  He mixes in his humor with most everything he does. I am still looking for the angry man that is described by the Left. In the times I have seen him I have viewed him principally as an informer.  I don't agree with everything that Beck says.  Nor do I reach all the same conclusions he does.  However, I just don't see where this stuff comes from.

I don't know who does his research or who comes up with what he is going to cover but it is generally well constructed.  I consider myself reasonably well educated and well informed but I have learned things on Beck I have never seen anywhere else.  Beyond the material is the way Beck delivers it.  I know of no one that goes on live tv and delivers a 20 minute monologue (with no commercial interruptions) the way he does.  If I had teachers who could have delivered material like that, high school would have been much more interesting.

It is interesting that Beck seems to cause so much consternation and anger among the liberal left and media elites.  Is it because he has proven so effective in reaching an audience?  Is it because he achieved national recognition in such a short span of time (Beck was a radio talk show host in Philadelphia less than 5 years ago)?  Is it because he did not attend the right schools (Beck did not even attend college other than one course).  It probably is a combination of all three.  Some of the same factors appear to apply to Sarah Palin as well.

I found it interesting to see that Glenn Beck recently was named the 8th Most Admired Man of 2010 in a poll by Gallup and USA Today.   Who is higher on the list?  President Obama, George W. Bush, Bill Clinton, Nelson Mandela, Bill Gates, Pope Benedict and Rev. Billy Graham.  Beck actually tied with Jimmy Carter but was ahead of The Dalai Lama.  If you think this was a fluke, Beck was actually 4th on the list in 2009.  He also ranked 2nd on the list of those who listed themselves as political independents.  Does that sound like someone who is viewed as divisive by the public at large? He ranked a relatively lowly 5th with registered Republicans.  Who was 5th ranked with Democrats?  Tiger Woods in a tie with Michael Jordan.  I kid you not!  That poll was taken several weeks after the infamous Thanksgiving night accident.

Beck clearly is doing something right.  Information is power and and can also be empowering.  Is that what this is all about? Perhaps it is not that Beck is an agitator or irritator but that the Left is agitated and irritated on the information he shares.  They should just be thankful that his show is not on prime time.

BeeLine At 2 Weeks

One of the interesting features of social media is the immediate feedback that is available.  For centuries people wrote and were never quite sure if anyone cared.  That is no longer the case in the world we live in today on the web.

In the case of this blog, the blogger software provides me stats on a number of elements.  The number of reader views, comments, the nation that the reader comes from, the type of operating system and the type of browser.  It is still anonmymous.  I don't know who is lurking out there but I do get this information.

Here are a few stats for the first 2 weeks of BeeLine.

  • 649 views through the first 14 days (average of 46 per day). 
  • There have been readers from Singapore, United Kingdom, Canada, Germany, South Korea, Norway and Russia.  The last four must have gotten here by mistake.  Only 1 view for each country.  However, Singapore, United Kingdom and Canada all have at least 6 views.  These are either repeat BeeLiners or referrals. Either way is good news.
  • 51% are accessing on Windows, 29% on a Mac, 10% on iPads and 3% on iPhones.
  • Firefox is the leading browser at 36%, Explorer at 33% and Safari at 23%.
It has been more work than I originally thought it would take.  The story ideas come fairly easily but to really do justice to the topic takes more background research than I thought.  Providing you the links to follow the story in more depth is also more time consuming than I assumed.

The other good news is that I have already gotten 2 topic suggestions from readers based on BeeLine material that they came across themselves.  That really shows the power of the social network and the potenial for BeeLine long term.  I will try to feed these suggestions into BeeLine at some point.

We will revisit where things stand with BeeLine at the end of the month.  Please feel free to refer and recommend BeeLine to anyone you think might be interested.  Is this going to go viral or be another vapid blog effort that dies on the vine?  I will try to do my part to try to keep it interesting.  The rest is up to you.

Thursday, January 13, 2011

The Real Thing

There is only one path to wealth that is predictable and reliable.  Spend less than you earn.  Save and invest that money.  Let the money compound.  Do what you can to minimize taxes. Try not to do anything stupid with your gains.

This formula works but few follow it.  Based on my experience, most Americans don't get past the first step.  They are spending everything (and more) that they earn.  Those that get past that stage still have a hard time keeping their hands off the income the investment starts to produce.  Compounding only works if you are willing to reinvest and let your gains grow.

I am always interested in stories that demonstrate the immense power of compounding.  I saw one the other day in an investment newsletter, High Yield Investing, that is worth sharing.  These always help me from falling in the trap of putting my grubby hands on any gains I am lucky to obtain.
Coca-Cola went public in 1919 at $40 a share.  Today, each of those single $40 shares is worth $250,000.  But with its growing dividends reinvested it is worth a stunning $8.1 million. (By the way, that original $40 share is now throwing off $226,569 in dividends a year!)
A good lesson that there is nothing better in investing than finding a company that is growing its revenues, its income, its cash and its dividend.  Good dividend paying companies fell out of favor with the emergence of the tech revolution.  The lessons of the last few years seems to have brought dividends back in vogue. 

Over the years, dividends have actually accounted for about 40% of the total return of the S&P 500.  Taking dividends out of the calculation of total stock market returns over time makes a huge difference.  In fact, $1,000 invested in the S&P 500 at the start of 1936 with all dividends invested would be worth almost $1.5 million today.  You would have only $90,745 without the dividends according to High Yield Investing.

My favorite compound interest story still involves what has been characterized as one of the greatest steals of all time when the Dutch reportedly purchased Manhattan Island from the Indians in 1626 for the grand sum of $24 in blankets and beads.

However, if the Indians had taken the $24 and invested that sum at a 7.2% return and let it compound it is the Indians that would have gotten the last laugh.  Why?  $24 compounded at that rate for the last 385 years would now be worth almost $10 trillion.  That is $10,000,000,000,000! 

In the year 2000 I was curious as to what all of the real estate on Manhattan was worth in comparison so I called the New York City Assessor's Office.  At that time all of the real estate (including all of the buildings built on Manhattan Island) was only appraised at $125 billion!  Just think about it.  You take all of the investment in steel, concrete, infrastructure and the blood, sweat and tears of all that labor over all those years and it pales in comparison to the compound return on a mere $24.

Compound returns are the real thing.  That is why you need to make sure you have it working for you if you expect to accumulate wealth.  Knowing the power of these returns is also why I am so concerned about our country's fiscal position.  Time is not on your side when you are the borrower rather than the saver.   The numbers tell the story.

Tuesday, January 11, 2011

A Crowning Achievement

I had the privilege of attending the ribbon cutting ceremony for the Great American Tower at Queen City Square today in Cincinnati, Ohio.  It is now the tallest building in Cincinnati at 665 feet high.

It has 41 stories and is capped with a unique tiara that now dominates the Cincinnati skyline.  This building has truly transformed the look of Cincinnati.

American Financial Group, Inc and its flagship insurance group, Great American Insurance Group, will both have their corporate headquarters in the new building.

This Cincinnati Enquirer article has an article on the Tower and some nice pictures.  Go to the pictures to see

Update: Cincinnati Enquirer article on the ribbon cutting ceremony.

Monday, January 10, 2011

Birth Dearth

A country needs a fertility rate of 2.1 in order to maintain a stable population. In other words, women need to bear 2.1 children, on average, over their lifetimes.  Higher rates will cause the population to increase.  Lower rates will cause it to decrease over time as deaths overtake births.

Listed below are the fertility rates for selected countries for the 2005-2010 period using United Nations data.

South Korea                1.21
China                           1.23
Japan                            1.27
Germany                      1.36
Italy                              1.38
Spain                            1.41
Canada                         1.53
Brazil                            1.90
United States               2.05
Mexico                         2.21
Venezuela                    2.55
World                           2.55
Israel                            2.75
India                            2.81
Egypt                           2.89
Saudi Arabia               3.35
Pakistan                      3.52
Iraq                             4.26
Yemen                        5.50
Afghanistan                7.07

A few observations keeping in mind that 19th century French sociologist August Comte said, "Demographics is Destiny".

The developed countries of the world are almost all experiencing birth dearth.  They are not coming close to the replacement birth rate.

All developed countries will have major budgetary challenges with their aging populations.

Immigration policy will also be major debate in all developed countries. 

Although the overall fertility rate is low in Europe, the Muslim birth rate in Europe is three times higher than the non-Muslim rate.  This will feed additional cultural and political divisions across Europe.

There are nearly 44 million Muslims in Europe today compared to 1.1 million Jews.  In the United States, there are 6.5 million Jews and 5.1 million Muslims.  There are actually more Jews in the United States than in Israel.  In fact, 88% of all Jews in the world live in the United States (46%) or Israel (42%).
This is a major factor in the animus of the United States in the Muslim world and why it is so difficult to engage Europe in an even handed approach in discussions about Israel and the Middle East.

Most of the high fertility rates in the world are in traditional Muslim countries.  This is not an encouraging statistic for the future considering much of the extreme elements of Islam are in the young age groups in these countries.

Although the overall average for the United States is 2.05, the Hispanic rate is 2.70, the Black rate is 1.93 and all others is 1.90.  Based on these birth rates and assuming current immigration trends, the current minority population will clearly overtake the non-Hispanic White alone majority over time.  A recent study projects this will occur within the next 30 to 40 years.  This is not much beyond a generation away since the average age of childbearing today is about 28 years old.