Monday, February 28, 2011

The Definitive Guide To The American Public Debt Crisis

I came across this analysis on the financial condition of the US. government prepared by Mary Meeker of Kleiner Perkins.  Kleiner Perkins is a venture capital firm in Silicon Valley.  Meeker has prepared the most comprehensive and understandable report I have seen on the subject.  She has written it with the perspective of looking at the financial statements as if the federal government was a business.  She refers to it as USA Inc. and looks at it in the same way as a turnaround expert might look at it.  The full analysis is 460 PowerPoint slides.  She leaves no stone unturned.  I have not seen any better summary of all the relevant issues and policy options in one place.

If you think this was prepared by some right-wing Tea Party activist, think again.  Meeker cites Al Gore, Peter Orszag (Obama's former OMB chief) and Laura Tyson (Clinton's former Chair of the Council of Economic Advisors).  If you want to understand the very serious situation we are in this is the source document for you.

If you don't want to wade through 460 slides, you can view this 15 slide summary prepared by Henry Blodget for Business Insider.  Here are a couple of the more important slides from that summary.




The sizes of the circles represent the relative sizes of revenues and expenses.  Note that in 2010 we spent $1.3 trillion in excess of what we took in.  In 2011, this number is projected to be in excess of $1.5 trillion.  You will also see that entitlement spending is approximately $2 trillion of the $3.5 trillion is spending.



How did we get here?  This chart shows it pretty clearly.  Entitlement spending has increased 10.6X in real terms over the past 45 years but real GDP has increased 2.7X.


This is a very telling slide if you are concerned about the costs of the health care reform bill.  In 1965, when Medicare was passed, it was estimated the program would cost $12 billion in 1990.  The actual cost was $110 billion, 10x higher than estimates.  

The policy options that Meeker lays out are sobering.  For example, to bring Medicare into financial sustainability here are two stark choices, 
  • Cut Medicare by 53% to address the shortfall of Medicare funding, or
  • Increase the Medicare tax rate by 3.9% (from 2.9% to 6.8%) on both employees and employers.  That is close to an 8% tax on payroll.  
Take your choice or a combination of the two.  Either way it is not going to be pretty.  The bigger problem is that the longer we wait to deal with the issues, the harder it is going to be and the more people will suffer.  






Sunday, February 27, 2011

Who Is Really Being Attacked in Wisconsin?

It bothers me to see the critics of Governor Scott Walker in Wisconsin and John Kasich in Ohio argue that efforts to rein in the power of the public sector unions is an attack on the middle class or a violation of worker rights.  This line of reasoning does not recognize the fundamental structural differences between public sector and private sector unions.  It also totally ignores the fact that middle class workers and taxpayers in the private sector have really been the ones under attack in recent years.  This is the group that has borne most of the job losses over the last few years and this is the group that is paying the taxes that are funding public sector pay and benefits.   Pay and benefits that actually exceed their own.


David Brooks in the New York Times this week explains the key differences.

In Wisconsin and elsewhere, state-union relations are structurally out of whack.
That’s because public sector unions and private sector unions are very different creatures. Private sector unions push against the interests of shareholders and management; public sector unions push against the interests of taxpayers. Private sector union members know that their employers could go out of business, so they have an incentive to mitigate their demands; public sector union members work for state monopolies and have no such interest.
Private sector unions confront managers who have an incentive to push back against their demands. Public sector unions face managers who have an incentive to give into them for the sake of their own survival. Most important, public sector unions help choose those they negotiate with. Through gigantic campaign contributions and overall clout, they have enormous influence over who gets elected to bargain with them, especially in state and local races.
As a result of these imbalanced incentive structures, states with public sector unions tend to run into fiscal crises. They tend to have workplaces where personnel decisions are made on the basis of seniority, not merit. There is little relationship between excellence and reward, which leads to resentment among taxpayers who don’t have that luxury.

If private sector workers have less job security, lower pay and lower benefits how can it be argued that middle class public sector employees are under attack?

When it comes to workers rights, public employees enjoy much greater rights than private sector employees without even considering collective bargaining rights.  Many government employees enjoy civil service protections and many teachers also enjoy tenure protection.  Contrast this with the private sector in which most are employed under the doctrine of employment-at-will.  This means that any hiring is presumed to be "at will" and the employer is free to discharge individuals for "good cause, or bad cause or no cause at all"  Likewise, the employee is equally free to quit or cease work at any time.  How can this be an attack on public sector employee rights when they enjoy much greater rights and protections than their private sector counterparts?

I thought that this chart that was published last April in The Washington Examiner was also interesting.  It shows that public sector unions and state debt go hand in hand. As Brooks says above,"states with public sector unions tend to run into fiscal crises".  While there are many reasons for states to take on debt, there is definitely a correlation between the states that have the highest percentage of state and local employees in unions and the per capita debt load in the state.  Bear in mind that this chart was published almost a year ago when this issue was not close to being front page news so there was no axe to grind.



All the talk of attacks and rights makes for nice drama.  However, it has no reasonable basis in fact. The public sector union argument is about one thing-political power.   The unions like the required dues and the Democrats like the money that comes from the dues.  Of the top 8 donors to political campaigns in 2010, 4 were connected with public sector unions or teachers.  They spent approximately $25 million on political campaigns.  3 of the 4 (Service Employees International Union, American Federation of Teachers and American Federation of State/County/Municipal Employees) did not give one cent to Republicans. The National Education Association gave 2% of their take to Republicans. 

The workers and teachers are merely supporting actors in this play.  The public sector union bosses and Democrats are the leading actors.  Taxpayers will be nothing but bit players as long as that continues.

Thursday, February 24, 2011

The Land of Pension Debt

All of the noise may be in Wisconsin but its neighbor to the South (the state that is hosting the Democratic legislators from up North) is quietly being sucked into a black hole of massive debt.  The same state that is the home of President Barack Obama...and Abraham Lincoln.  The Land of Lincoln could now be called The Land of Pension Debt.

Yesterday Illinois borrowed $3.7 billion to fund its state pension program.  Almost half of the state's $30 billion in debt outstanding has been borrowed to shore up the state's retirement fund.  However, it still is only 43% funded according to the bond-offering document.

According to a study by Josh Rauh of Northwestern University last year, the Illinois state pension plan is on a path to run out of money completely in 2018-just 7 years from now.  Illinois is currently paying benefits of about $15 billion per year out of its pension fund.  It expects $35 billion in revenues for FY2012 for the entire state budget after raising the state income tax rate late last year by 66% and corporate taxes by 48%.  If the pension assets run out as Professor Rauh projects, an additional $15 billion will be needed each year to cover the pension obligations (which are now covered by assets in the pension fund).  Where is that money going to come from?

Illinois did pass a pension reform bill last year that changes the rules for new hires beginning in 2011.  However, that will do nothing to solve the problem between now and when the money runs out unless the new hires are going to retire by 2018 ( I can only hope the Illinois service years requirements are not that short!).

The situation in my home state of Ohio is even more troubling according to Rauh's calculations.  Ohio will not run dry until 2023 but it is paying out $19 billion per year in pension benefits but it only has annual revenues of about $26 billion in its entire state budget.  Thus, the annual pension payments are almost 75% of what Ohio is bringing in each year. From this perspective, Ohio is in worse shape than Illinois if (when?) the pension assets run out.  This is the worst ratio of benefits to state revenues in the nation.

Illinois and many other states have created a state pension system that is simply unsustainable.  It is a house of cards and it is hard to see how it can be saved.  The only hope that they would seem to have to save these plans is to take immediate and drastic action on several fronts beginning with eliminating all cost of living increases (COLA) for current and future retirees (which is almost unheard of in any private sector plan), freezing all benefits at current levels for all state employees and converting to a defined contribution plan. 

These tough policy choices put you squarely up against the public employee unions.  That is why Governor Scott Walker wants the flexibility to carve benefit issues outside of the collective bargaining sphere in Wisconsin but is willing to bargain over wages.  Wages are certain.  Health care and pension costs are unpredictable.  You know what you have given in a wage increase. You have no idea what you have given in health care and pension benefits.  There are just too many variables and the employer bears all the risks on the downside.  The private sector has understood this for a long time. The public sector has not cared because they just relied on pushing the problem to current or future taxpayers.  It certainly has been a lot easier to push it on to future taxpayers in Illinois.  That is how you get a funded ratio of 43%.  Taxes are a dry hole right now and the can has been kicked as far as it can go.

There is no where to hide.  Certainly not in Illinois.  This is true whether you are a Democratic legislator from Wisconsin or Illinois!

Wednesday, February 23, 2011

Health Care Is Going To The Dogs

I came across this interesting piece of trivia today at DemoMemo.  Don't worry, I am not linking you to a Democratic Party site.   This is a blog that is all about demographic trends and data.

The average household spends more on Veterinary Services than it does on Physician's Services.  Vet services ranks 51st in the average household budget.  Docs rank 54th.


Beyond the fact that households are spending more out of their pockets on their pet's vet services than on their own doctor visits, it is interesting to see the rank in this spending.  53 items are higher on the average household's budget list than physician services.

This clearly shows that President Obama tackled the wrong type of health care reform.  He should have been focused on the dog and cat constituencies.

Are You A Sponge, Slopper or Superslopper?

I had never heard of Andy Kessler until this past week.  I read the introduction to his new book, "Eat People And Other Unapologetic Rules for Game-Changing Entrepreneurs" compliments of John Mauldin's Outside the Box newsletter.  He then turns up on the opinion page of the Wall Street Journal a couple of days later with an op-ed piece, "Is Your Job an Endangered Species?".

I now know Andy Kessler and he is an excellent writer.  Kessler was a Wall Street hedge fund manager for many years who focused on finding his investors "the next big thing".  It often led him to the technology area.

His basic thesis is pretty simple.  Technology eats the jobs of people.  However, the economy is incredibly dynamic.  History shows that labor-saving machines do not decrease overall jobs even when they make some jobs obsolete.  The new economic growth creates new jobs, raises the standard of living for everyone and the lost jobs ultimately are quickly forgotten-if the policy makers let it happen.

I am old enough to remember plenty of jobs that Kessler could be describing.  Long distance operator.  Stenographer.  Gas station attendant.  I'm not quite old enough to remember the whale oil salesman.

How does Kessler define an economy?  From the introduction to his book.
There is only one definition of an economy I’ve ever been comfortable with: a system that increases the standard of living of its participants. Period. Everything else from credit to money supply to quarterly earnings releases to minimum wages is just a tool or else a meaningless characteristic of an economy.
Increasing standards of living doesn’t happen automatically. It’s not a gift from heaven. Someone has to invent the future. 
I call them Free Radicals. We’ve seen them throughout history.
Charles Curtis’s 1903 steam turbine generator electricity to the masses. Using that electricity, in 1907, James Spangler, a janitor with asthma, invented an electric suction-sweeper, today’s vacuum cleaner. William David Coolidge’s thermionic X-ray tube of 1913 changed medicine. That same year, the Walker brothers in Philadelphia invented the first electric dishwasher. In 1916, Clarence Birdseye perfected the flash-freezing process (and Birds Eye potato puffs). In 1928, Thomas Midgley, Albert Henne, and Robert McNary synthesized the first chlorofluorocarbons (trademarked as Freon in 1930), ushering in safe refrigerators and air conditioning (other coolants eventually replaced Freon). Paul M. Zoll created the cardiac pacemaker in 1952. And Percy L. Spencer in 1945 watched a magnetron melt candy, leading to the invention of microwave ovens.
Lots of housecleaners lost their jobs to vacuum cleaners. Lots of servants weren’t hired or husbands yelled at because of electric dishwashers. Freezers and Birds Eye frozen food put a lot of cooks out of work and on and on.
Free Radicals found situations to combust and destroy, but in the end, it was only to make room to build the new—disrupt the status quo, do more with less, advance society, drive progress rather than have progress drive them.
A Free Radical is someone who gets wealthy inventing the future by helping others live longer and better. Rather than be a burden on society or tax society or milk society for all it’s worth, a Free Radical improves society and is paid handsomely for doing so.

Which jobs does he see as endangered in the future?  He covers this in his WSJ article. He says forget white and blue collar.  There are only two type of workers in our economy-creators and servers.  The creators are the ones driving productivity growth.  The servers are the ones serving the creators (and other servers) by building homes, providing food, offering legal and financial advice, working in government jobs and so on.   They are also the ones at most risk.

He further breaks down the servers into further categories-Sloppers, Sponges, Supersloppers, Slimers and Thieves.  I'll let you determine where you fit in.

I probably have been a sponge, superslopper and slimer at various stages of my career.  I can only hope that BeeLine has enabled me to now be considered a creator.  Technology could no better replace me writing this blog than a computer could beat the best on Jeopardy.  Right?

Tuesday, February 22, 2011

Egyptian Irony

Does anyone else see the irony concerning the revolution in Egypt that many claim was brought about by organizers who used Facebook?  Facebook was so instrumental that an Egyptian couple recently named their baby girl "Facebook". Who were the four principal founders of Facebook?

Mark Zuckerberg-  Jewish born and raised although he now describes himself as an atheist.

Eduardo Saverin- Jewish born and raised.

Dustin Moskovitz- Jewish born and raised.

Chris Hughes- Is openly gay and recently announced his engagement to his partner.

Google's marketing manager for the Mideast,Wael Ghonim, was also credited with being an important figure in the revolution.  Who were the two principal founders of Google?

Sergey Brin- Jewish born and raised to Russian parents who emigrated to the U.S. when he was age 6.

Larry Page- Jewish born and raised.

Do you think they will receive a hero's welcome in Cairo?

Monday, February 21, 2011

Polling On Wisconsin Union Dispute

Rasmussen conducted a poll of likely U.S. voters over the weekend.  The results are not good for the unions.

Summary of the key findings via Hot Air:

  • 48% agree with Governor Walker vs. 38% for the unions.
  • 49% do not agree that public employees should be allowed to strike vs. 38%.
  • 68% of Republicans agree with Walker vs. 26% for Democrats.  No surprise here.
  • 56% of independents agree with Walker vs. 31% for unions.  That is a significant difference.
  • The real telling number is this one...
    • 44% of government employees agree with Walker vs. 46% with the unions!
You don't need to know much more than this.  If Unions are down 25 points on this issue among Independents and they are only up 2 points with government employees THEY ARE IN TROUBLE.

Known By Rumsfeld, Unknown by CNN's Crowley

For those who wonder why the media is looked at skeptically so often.  You have to look at this Los Angeles Times commentary by Andrew Malcom on an interview that CNN's Candy Crowley did with former Secretary of Defense Donald Rumsfeld.  Rumsfeld is doing interviews to promote his book, Known and Unknown.

Crowley was determined to make the point that President Obama has elevated America's standing in the world compared to President Bush.  Rumsfeld was having none of it.  Malcom deftly reports on the interview and intersperses images of how fondly some of the people in the rest of the world think of President Obama. If this is love, I would not want to see dislike.

As Mr. Rumsfeld's book title suggests, there are things that are known and things that are unknown.  In this instance, Rumsfeld seems to understand the known.  It appears that there are still things that are unknown to Ms.Crowley. 

Sunday, February 20, 2011

The Punter And The Quarterback

To use a football analogy you've got a punter and a quarterback.  The punter runs on the field, kicks the ball quickly and hopes that his teammates make the tackle on the return so he doesn't have to get his uniform dirty.  The quarterback is determined to take his team to victory.  He is not afraid to put everything on the line to do it.   If he has to scramble, he won't be sliding to avoid getting tackled.  He is all in to win.

The punter-President Barack Obama.  The quarterback-House Budget Chairman Paul Ryan.

Evan Thomas is a columnist for Newsweek who is known to lean pretty far to the left.  He once referred to Barack Obama this way, "I mean in a way Obama's standing above the country, above-above the world, he's sort of God".  I guess that the President has come back to earth to hear Thomas now.
His State of the Union was a profile in cowardice. His budget is a profile in cowardice. I hope there’s a secret plan he has here to come forward to lead us, but he hasn’t shown it yet.
This is what the liberal Washington Post said in an editorial about the President's budget.
THE PRESIDENT PUNTED. Having been given the chance, the cover and the push by the fiscal commission he created to take bold steps to raise revenue and curb entitlement spending, President Obama, in his fiscal 2012 budget proposal, chose instead to duck. 
His own guys are calling him the punter.

Let's look at the quarterback.  The Wall Street Journal's Paul Gigot interviewed Paul Ryan this past weekend in a piece called "Ryan's Charge Up Entitlement Hill".  It is worth reading in full but here are a few of the highlights.
Has the president ever called him to talk? "Never once," he says, notwithstanding Mr. Obama's many public statements that he wants "aggressive" conversations with Republicans, especially Mr. Ryan. "He keeps saying that," says the Wisconsin native, but "they don't talk to us. It just doesn't really happen. I don't know what else to say." 
The President has not spoken with the House Budget Chairman even once despite the fact that we are going to run a $1.65 billion deficit this year, the government runs out of money on March 4 based on the current continuing resolution and the debt ceiling limit will be reached in a month or so after that?

What's the White House political calculation behind its budget? "The fiscal strategy is to hang on to all the government we've grown, and hopefully rhetoric will get us through the moment. It strikes me as a posture or position to keep the gains of the last two years in place—the bump up in discretionary spending, the creation of these new entitlements—to lock in their gains, bank their wins, and then hang on through the rest of this year. And they believe they have the flourishing rhetorical skills to navigate the politics in the meantime," Mr. Ryan says. 
In other words, this is a "rope-a- dope" strategy designed to try to kick the can down the road and hope the Republicans show leadership.  At that time the Democratic attack machine kicks in decrying the evil Republicans who want grandma and grandpa to eat dog food.

Could Republicans be walking into a political trap?  "That's what everybody says, but I don't really spend much time thinking about it because I don't really care. . . . All the political people tell us this. Even the Democrats tell us this. That it's a trap, it's rope-a-dope. . . . It doesn't matter," he says.
"The way I look at things is if you want to be good at this kind of job, you have to be willing to lose it. Number two, the times require this. And number three, if you don't believe in your principles, and applying those principles, then what's the point?" He mentions limited government and economic freedom. "I believe these are the best solutions. I believe they will result in growth and opportunity for the country." 
It is interesting that at this critical juncture about our nation's fiscal future, two Republicans from Wisconsin, Paul Ryan and Governor Scott Walker, are center stage.  Wisconsin has not voted for a Republican in a Presidential election since 1984.   It is also interesting that the Wisconsin state song lyrics are as follows (compliments of Bill Kristol of The Weekly Standard):


On, Wisconsin! On, Wisconsin!
Grand old Badger State!
We, your loyal sons and daughters,
Hail thee, good and great.
On, Wisconsin! On, Wisconsin!
Champion of the right,
"Forward", our motto,
God will give thee might!
How can you top those words?  Champion. Forward. God.  There is no mention of a Hail Mary but the quarterback is trying to pull this one off before we get that desperate. We look pretty good at the quarterback position with Ryan.  I am still not sure about the punter.  He might be better suited to basketball.  However, there are no free throws in this league.






Saturday, February 19, 2011

The United States of Redistribution

I sometimes wonder how our country ever survived its first 150 years or so. You would think it was humanly impossible to survive without a massive federal bureaucracy, public sector unions, transfer payments, government grants and refundable tax credits.  Somehow we became the greatest country in the world over those 150 years without all that stuff.  However, all we hear now are cries that we have no hope as a nation if we make even the most modest reforms in trimming government spending and public sector union power.

A good example is this opinion column in today's Cincinnati Enquirer by John T. McNay who is the President of the University of Cincinnati Chapter of the American Association of University Professors Union (AAUP).  If there was ever an aggrieved, abused group who needed the protection of a union it has to be college professors, right??  McNay is unhappy that Ohio is considering a bill (he calls it radical) that is similar to Wisconsin's effort to limit public sector union benefits and collective bargaining rights.

Mr. McNay writes...
Without the safeguards of contracts, firemen, policemen, nurses and teachers will lose the ability to do their jobs safely and efficiently.
How did any of this noble work get done before?  The University of Cincinnati did not have collective bargaining for its professors until 1975.  I graduated from another state university in Ohio right up the road from UC prior to 1975.  I don't seem to recall that my non-union professors were imperiled or were inefficient.  I dare say that professors in those days taught more hours per week than is done today.  Therefore, they actually were more efficient and productive before collective bargaining.  For example, look at this chart comparing college tuition and fees vs. overall inflation just since 1985.   This is efficient?


McNay goes on with some other interesting statements such as...

The AAUP champions shared governance in which faculty and administrators share in the decision-making process to ensure quality education and good financial stewardship. It is our experience that decisions made solely by business managers or accountants end in failure. (my emphasis)
What is ironic is that Mr. McNay is a Professor of History.  The University of Cincinnati was founded in 1819.   How did it ever grow and prosper before the AAUP arrived on the scene?  How did people like Edison, Carnegie, Ford, Firestone, Hearst, Procter, Walton, Jobs, Dell and Gates ever succeed?

Another example is shown in the chart below which shows the dramatic change in the role of the federal government since World War II.   Up to that point, the federal government's role was principally to defend the nation.  It did not spend a lot of time and resources in picking winners and losers and transferring money around.  For example, in 1945, direct payments to individuals only amounted to 2.4% of total federal spending.  There was very little redistribution of wealth.  Today that number is 66.2%.

Let that sink in for a minute.  2/3 of the total activity of the federal government today is to take money from one person and give it to someone else.  That has become the principal role of the federal government.  This chart is from the White House's 2012 Budget as reported by John Merline at AolNews.com via HotAir's Ed Morrissey.


What are the biggest transfer payments?  Social Security, Medicare and Medicaid.  They are also the fastest growing.  Therefore, the amount of redistribution will grow even more in future years without even considering Obamacare's tax increases or future tax increases on the "rich".

Merline points out that at the same time the transfer payments are growing the federal government has come to rely on fewer and fewer taxpayers to cover its costs.  The top half of all taxpayers pay 97.3% of all income taxes today.  The bottom 50% pay only 2.7%.  In 1980, the bottom 50% paid around 8% of the total.

In fact, according to the IRS, which collects such data, the share of income taxes paid by the richest 1 percent almost equals the share of income taxes paid by the bottom 95 percent. 

How much more redistribution can the system take without imploding?   And I am not just talking about from those that have more to those that have less.  I am also talking about the private sector to the public sector.  The young to the old.  The savers to the debtors.  The irresponsible to the responsible.  These are serious questions and they need serious discussion.   We need our best minds on this.   Perhaps a college professor or two that is more concerned about their country than their union could help?

Thursday, February 17, 2011

Cairo, Wisconsin?

I have written 3 posts on public sector unions. 
 "What Exactly Is The Purpose of Public Sector Unions"
 "The Demise of Democrats...Or Taxpayers?"
 "How Public Unions Took Taxpayers Hostage".


In the first of these posts written on January 3, 2011 I wrote...

My guess is that public sector unions will come under increasing scrutiny over the next decade.  We are in for a tumultuous period as the issues of government spending and our debt loads are so inextricably tied to these public sector unions.  These interests are firmly entrenched and will not go easily into the night.  We are likely to see many of the things occurring in Europe begin to also occur in the U.S as budget pressures intensify.
Whether public unions will survive in the future might very well depend on how responsibly they participate in the needed restructuring of government spending, jobs and pensions over the coming years. 
I must admit that I did not foresee that this issue would move as quickly as it has.  Witness today's demonstrations in Wisconsin in which the Democrat legislators actually fled the state to avoid a vote on a package that would make public sector employees pay half of their pension costs and at least 12.6% of their health care coverage costs and eliminate collective bargaining rights.

To put this in perspective, a generous private sector plan would consist of a 401(k) plan where the employee receives a 50% match on their contributions to their retirement plan.  Thus, $2 saved by the employee gets $1 from the employer.  The private sector employee pays 67% of the total cost.  Similarly, a generous private sector health plan would have the employee paying 2 or 3 times what the state of Wisconsin is asking of its public sector employees.

It also appears that all the calls for civility that we heard last month after the Tucson shootings has been quickly forgotten. Take a look at a few signs that circulated in the protest.  I can only hope these were hired union operatives rather than the people who are educating Wisconsin's children. Some of this looked more like it belonged in Cairo than in Madison.

This is likely to be the first of many big battles we will see involving public sector unions.  The stakes are huge.  Remember that this is more about political power and money than it is about union rights.  The union bosses need the dues.  The Democrats need the union money and organizational support.  This leads to this vicious cycle as I wrote in "The Demise of Democrats...Or Taxpayers?".

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.  
The lines are drawn pretty well in this battle.  Is it the taxpayers or the unions?  Our legislators have to decide which side they are on.  And leaving the state (or the country) is not an option.

Wednesday, February 16, 2011

A Lot of Hope...No Change!

I did not see President Obama's press conference yesterday.  However, the reports of what he said make you wonder if his teleprompter was out for repair or he is living in an alternate universe. My hope had been that the President would use his 2012 budget submission to lay out the facts to the American people that we are on an unsustainable path.  I did not expect him to propose any meaningful cuts but I had hoped that he would have at least talked straight with the American people about the facts.

To say that what came out his mouth was, "bizarre" as PowerLine describes it, is an understatement.  Consider a few of the statements about the budget proposal he submitted.

"Our budget meets that pledge and puts us on a path to pay for what we spend by the middle of the decade."

"On the budget, what my budget does is to put forward some tough choices, some significant spending cuts so that by the middle of this decade our annual spending will match our annual revenues."

"What we say in our budget is let's get control of our discretionary budget to make sure that whatever it is that we're spending on an annual basis, we're also taking in a similar amount."

"We will not be adding more to the national debt."

Shown below is a summary of the budget using the Administration's projections that indicates we will have a $1.1 trillion deficit in 2012 and it will still be $774 billion in 2021.  Over the 10 year period an additional $7.2 trillion in debt will be added. ("We will not be adding more to the national debt"?)


I think most people would think the middle of the decade would be 2015 (let's cut him some slack and give him until 2016).   The President's numbers show deficit in excess of $600 billion in each of these years (..."by the middle of the decade our annual spending will match our annual revenues"?) and total almost $5 trillion from 2015 to 2021 (..."puts us on a path to pay for what we spend by the middle of the decade"?).  It is difficult to find any spending that matches revenues in his budget proposal.

This is beyond troubling.  This is the President of the United States speaking.  He has the platform to educate and inform even if he does not act.  The house is burning down and he is talking about it like he has a nice, cozy fire going in the fireplace.

All I can say is that he still appears to have a lot of hope left him.  What we need from him is the change.








Grateful for Greatness-Dan Gable and John Wooden

I don't know if there are many men that have enjoyed as much succees in their life as Dan Gable has. Or have imparted as much success on other men.

Many of you probably don't even know the name.  I was reminded of this living legend today in a column in USA Today by Mike Lopresti.  For those not familiar with Mr. Gable let me provide a brief summary:
  • His record as a high school and collegiate record as a wrestler was 182-1.  The only match he ever lost was his last as a collegian Iowa State.
  • He was a 3-time high school state champion and 2-time NCAA champion.  He was not permitted to wrestle as a freshman at either level.
  • He won a gold medal at the 1972 Olympics.  He did not lose one point in any match on his way to the gold.
  • He was head wrestling coach at Iowa for 21 years.  He won the Big Ten title 21 times and the National Championship an incredible 15 times in those 21 years.  His record in dual meets as a head coach was 355-21-5.
This was a man who either wrestled in or coached in dual meets and saw victory over 500 times and experienced defeat only 23 times in his career.  There is likely no athlete who has had such success in any sport as both a participant and coach.  The only other man who might be his equal would be John Wooden.  

Most people know Wooden as the coach who led UCLA to 10 NCAA championships in basketball.  This included 10 championships in the 12 years between 1964 and 1975.  However, Wooden was also a 3-time All-American at Purdue which was the national champion in 1932.  He also led his high school team to a state championship and 2 runner-up finishes.

Wooden passed away last year a few months short of his 100th birthday.  Dan Gable is 62 years old.  Let him live as long as Wooden did.   We need men like this around us as long as possible for the lessons they provide about success and excellence.  What better man is there than one that has the gift of greatness but can also share that gift so that others may also drink from the cup of success?  I for one am grateful for the greatness of Dan Gable and John Wooden.

Monday, February 14, 2011

Three Things I Learned Last Week

  • There are 72 million dogs and 82 million cats in the United States.
    • 37% of households have a dog but only 32% have a cat.
  • Only 14% of 23 year old men have a college degree.  23% of women of the same age have their degree.  This might be due to this additional stat...
    • % of college freshmen who played video/computer games during an average week in their senior year in high school
        • Men 82%    Women 37%
  • Germans are the largest ancestry group in the U.S. with 51 million.  Irish are next with 37 million.
    • The population of Ireland is approximately 4.5 million today.  How could the 37 million ever have fit into Ireland?   Germany's population is 82 million. 
All of this data is from a blog, Demo Memo, which is a great source of demographic data that is authored by Cheryl Russell.

In Touch With Reality???

BeeLine has spent a lot of time over the last 6 weeks outlining the fiscal challenges our country is facing.  If you look at this polling data from the Pew Research Center it appears that a lot more people need to be reading BeeLine.

This is a graph showing the percentage that favor decreasing federal government spending by category compared to those who want spending increased or stay the same.  There is not one category that the public supports cutting!  The graphs below are compliments of Hot Air.



What about so-called Tea Party Republicans?  They are more willing to cut than other groups. However, only 29% of this group is in favor of cutting Social Security.  18% actually want to increase spending on this program.  41% of all Americans actually want to increase spending on Social Security despite the fact that we will run a deficit of $1.5 trillion this year.


You might say that a substantial percentage of Americans are not in touch with reality when you look at these poll results.  However, a closer look at the numbers indicates that more are starting to come to grips with the situation. Across the board, those that indicate they are willing to cut spending is up compared to polling by Pew in 2009.  The number who favor increasing spending is also down.  For example, those who want increased spending on health care is down 20 percentage points and unemployment assistance is down 17 points from the 2009 poll.


I am an optimist that people will support doing the right thing when they have the facts and information. Nobody wants to cut someone's Medicare or Social Security or decrease our military preparedness or anti-terrorism defenses.  A natural human reaction to change is denial.  However, we are reaching the point that very tough choices lie ahead or we risk losing much more in the long run if we do not act soon.

Everyone has to do their part.  Do your part by making sure that people have the facts.  If BeeLine can help you do that, pass it along.  After all, it is the shortest route to what you (and everyone else) need to know.

Saturday, February 12, 2011

The Money Illusion

I found the exchange between Federal Reserve Chairman Ben Bernanke and House Budget Chairman Paul Ryan last week to be interesting.  Ryan has been a vocal opponent of the Fed's current policy of trying to stimulate the economy through quantitative easing (QE2).  This policy is pumping $600 billion into the economy through purchases of long term treasuries.  What this really means is that the Fed is printing money out of thin air and financing the federal deficit.

Ryan is concerned that this policy could lead to inflation as this excess cash starts to circulate around the economy.  This could also pose a threat to the value of the dollar if investors lose more confidence in the greenback.

Bernanke seemed to be clear that he would not allow inflation to take hold. He stated that the Fed plans to reverse course before that happens.  This may be his honest intention but there is a lot of room for error.  This will also bring its own form of pain.  It is easy to throw money from helicopters like the Fed is doing today.  It is harder to go out and take that money away when it is in someone's pocket.

The problem I see it is that inflating the debt load away is the easiest policy choice.  It has been my experience that most people (and even more so for politicians and policy makers) will take the easy way out.  This view is shared by Mohamed El-Erian, CEO and Co-Chief Investment Officer of bond giant, PIMCO, as reported in Moneynews.com.
“There are several ways that a country can deal with its debt issues. I suspect the U.S. will end up with a mix of some fiscal adjustment and inflating its way out,” El-Erian said.


That’s because U.S. policymakers have an innate fear of recession thanks to U.S. history, more than of inflation, which is more relevant to the financial history of Europe, El-Erian told Der Spiegel, the German newsweekly.

This country has a huge aversion to recession, huge. And if you ask a policymaker if you're going to make a mistake, which mistake would you rather make, they would say I'd rather make an inflation mistake than make a growth mistake,” he said.
El-Erian describes the QE2 this way.
The U.S. economy cannot productively absorb all this liquidity. So when all the liquidity is injected into the system, it also goes elsewhere,” El-Erian said. “It’s like pouring water on a hard surface, it splashes everywhere. That explains the large skepticism about QE2 outside the U.S.”
I have a more profound concern that is based on behavioral economics.  Many studies have shown that you can use inflation to steal money from people and they don't even recognize the theft.

Consider this study by Daniel Kahneman, Richard Thaler and Jack Knetsch as reported in the book "Priceless" by William Poundstone.  By the way, I highly recommend this book which is essentially a book on the psychology of pricing. Or as he puts it in the subheading of the book, "The Myth of Fair Value (And How to Take Advantage of It).  There are some great lessons in negotiating in the book.

One survey question in the KTK study presented these facts:
A company is making a small profit.  It is located in a community experiencing a recession with substantial unemployment but no inflation.  There are many worker anxious to work for the company.  The company decides to decrease wages and salaries 7% this year.
62% of respondents deemed this unfair.
Another version of the question had the exact facts but inflation was stated to be 12% and the company was going to limit salary increases to 5%.  
78% of respondents thought this was fair even though in each case the workers have lost 7% of their buying power.

Poundstone also references the work of Irving Fisher and his 1928 book, "The Money Illusion" which explores inflation psychology.  Fisher argued that it is far easier to think in terms of the price you are paying for something rather than the purchasing power that the price represents.  Therefore, if you buy a house for $100,000 and inflation increases two-fold over 10 years you are likely to say you doubled your money.  All you have really done is stay even in buying power terms.  However, the math seems to be too hard for most people to easily wrap their mind around it.

The lesson here is to be very careful.  Inflation is the easiest policy option for government to solve its debt problems.  It is also the easiest way to hoodwink the public.  It just does not feel like you are losing.  Receiving a 2% social security increase when prices are rising 10% just doesn't seem to feel as bad as having your social security payment cut by 5% when inflation is 2%.   You are actually better off with the 5% cut from a buying power perspective.  Beware the "Money Illusion" and policy makers who think they are magicians.



Postscript: For more information on the "Money Illusion" from an investment perspective you might want to look at this blog post by Joshua Kenton that I found in research for my post above.

Thursday, February 10, 2011

A Picture Is Worth 3.8 Trillion Words

President Obama has been talking about his budget cuts.  How much are these cuts in the context of the total federal budget.  Or in the context of the household budget of an average American?

The President has proposed budget cuts of $775 million in the $3.8 trillion federal budget.   The deficit is projected at $1.5 trillion for the year.  To put this in practical terms, if this was an average family, they have $60,000 in income and they are spending $100,000.  They are putting $40,000 a year on their credit cards.

To cut what President Obama is proposing is equivalent to cutting about .0002 (that's 2/100 of 1%) of total spending.  Or about $20 on the $100,000 that family is spending.   Now they will only need to borrow $39,980 to maintain their lifestyle.

Doug Ross writes a blog( http://directorblue.blogspot.com/2011/02/obamas-tough-budget-cuts-in-pictures.html) that illustrates the magnitude of the President's budget cuts in more graphic fashion.  After all, a picture is worth a thousand 3.8 trillion words.

The first chart shows the total budget and the amount of deficit spending.  It also shows the size of the proposed cuts in green.  Do you see them?








Ross then blows up the image ten times to allow you to see a little sliver.











 If you still can't see it he blows it up another 10-fold from the previous image.






                                                                                  
Do you see it now?  Do you understand the magnitude of the mess we are in?

This is leadership?
                                                                       

I'll Take Hot Rather Than Cold Any Day

I am not a climatologist or meteorologist. However, I consider myself a practical thinker who makes decision by looking at facts. I have also learned that it is always important to look beyond the "facts".  How are the facts packaged and what is the motivation of the messenger.

Over the years, I have listened to the claims about human created global warming.  Without even spending a lot of time on the science, these claims never seemed to make sense to me.  The planet is known to have warmed and cooled over the years.  Even if the data shows it is warming, how do we know it is caused by man when you look at past history?  We know there was an ice age.  We also know the ice melted.  How did it ice up? How did the ice melt?

I can't help but be a little skeptical when I also see the changing explanations about the climate.  In fact, it does not even seem to be global warming we are worried about any more, it is climate change.  We also heard a few years ago that we would see far less snow because of global warming.  When we got more snow, we were then told this was caused by the warming. It is all very confusing for something that is supposed to be so settled in science.
I also remember in the late 1970's and 1980's all of the talk from scientists was concern that the planet was cooling.  What happened?  That was only a few short years ago- a speck of time in the history of the earth.

When you consider past history you also quickly realize that God dwarfs anything that man can do.  For example, the year 1816 was considered "The Year Without a Summer" after Mount Tambora erupted and the ash seemed to veil the sky across large swaths of earth.  Crops failed around the world and famine followed.  Riots and political unrest were not far behind.  People tend to get really angry when they are hungry.  How much did the average global temperature fall that year? - only about 1 degree!

That story has always made me much more concerned about global cooling than warming.  A rise in temperatures is actually beneficial for food production.  It can extend the growing season further north. Cooler temperatures do the exact opposite.  Given a choice there is little doubt where I come down.

Our friends at Powerline are right on the mark again with "Scientists Set The Alarmists Straight".  If you want to get yourself grounded in the facts on the issue check it out.  Powerline's own view is summed up as follows:

"The global warming hoax survives only because most people do not take the trouble to learn the facts for themselves."
There are several links listed where you can go research the facts and science yourself.  Make up your own mind.  However, this looks more like a political agenda than science to me.  But if climate change is real then give me warming rather than cooling. I do better when I am warm and have food than when I am cold and hungry. How about you?

Full disclosure- I wrote this when it was 7 degrees so that may have affected my objectivity on the subject.

Tuesday, February 8, 2011

Robbing Savers To Pay Goldman, Chase and Citi et al?

Over the last several years I have watched the Federal Reserve attempt to repair and reinvigorate the economy.  However, as in almost all policy decisions, it is a zero sum game in most respects.  You hope that the overall policy benefits the country in the long term.  However, there are winners...and losers in the short term. 

The Fed's efforts to drive down interest rates over the last several years is a case in point.  The policymakers are so driven to prime the pump in an attempt to save Wall Street and the banks who made the bad loans and investments they have purposely forced savers to get almost nothing for their efforts.  Why?  Quite simply they want to make it so unattractive to save that these savers will finally give up and take a flyer on the stock market or buy a new house.  At a minimum, they would like them to go to the bank and pull the money out and spend it on something! 

Of course, the savers they are targeting are your grandparents or your parents or some other responsible soul who played by the rules their whole life.  They saved liked they should to build a nest egg for retirement or their child's college eduation.  Now the Fed policymakers come along and they want to "smoke them out of the foxhole" by fixing it so they get no interest on their savings.  If they can't get them to trade their savings for stocks or some other investment they have a second approach lined up.  INFLATION!  What do people do when they see their money being eaten up by inflation?  They quickly decide they would rather spend it on something today rather than get a lot less than something tomorrow

This chart shows the massive increase in the money supply that has been engineered by the Federal Reserve. The green line is the total supply.  The red line is the annual change.  As you can see, the total money supply has doubled since 2009.



Bill Gross of Pacific Investment Management (PIMCO) is considered by many to be the best fixed income investor (bonds) in the world.  He manages PIMCO's Total Return Fund which has more assets than any other mutual fund.  It is currently approaching almost $250 billion under management.

He has been watching the Fed very closely and he does not like what he sees. In fact, he describes what is occurring as both "devilish" and robbery.  The full commentary is here.
To rebalance debt loads and re-equitize financial institutions that should have known better, central banks and policymakers are taking money from one class of asset holders and giving it to another. A low or negative real interest rate for an “extended period of time” is the most devilish of all policy tools. And the asset class holder that it affects, or better yet, “infects”, is the small saver and institutions such as insurance companies and pension funds that hold long-term fixed income assets. It is anyone who holds bonds with coupons that cannot keep up with inflation or the depositor in a local bank who cumulatively holds trillions of dollars in time deposits that don’t earn a real rate of interest. This is the framework that has been created by modern-day policymakers who have innovated far beyond their biblical counterparts. To put it bluntly, they are robbing savers and taking money surreptitiously from longer-term asset holders who are incorrectly measuring future inflation. [emphasis in original text]
I am not one who has normally been a Fed critic or one who says that it needs to be disbanded as Ron Paul (R-TX) has suggested.  However, I think much more needs to be known about what they have done and what they are doing.   There are just too many unanswered questions and too much money has been "created" and spread around with little transparency.

This is evident when you view this exchange between former Rep. Alan Grayson (D-FL) and the Inspector General of the Federal Reserve.  I was certainly no fan of the ultra-liberal Grayson when he was in Congress but after listening to this exchange you have to wonder what the Inspector General of the Federal Reserve is inspecting?  This was in a Congressional hearing almost 2 years ago.  If there have been answers to these questions, I would like to know.  I still don't think we no much more than we did then.

In the meantime, keep a close eye on your money.  It is hard enough to save it.  It is even harder when you are not sure if you are being swindled while it is sitting in a savings account, money market fund or government bond. 

Monday, February 7, 2011

A Rising Tide Raises All Boats

We often hear complaints about how the economy over the last 30 years has been unfair to many Americans. We hear there has been a declining standard of living.  How does this square with the facts?  Not very well according to a recent article in USA Today.
Personal income per person in the United States is $40,454 today.  In 1980, adjusted for 2010 dollars, it was $24,709.  That is a 64% increase.  Let's look at a few details.
  • Spending on housing was $3,262 in 1980 compared to $6,138 today.
    • However, the average house size has increased from 1,740sf to 2,438sf
  • Spending on health care has increased from $1,796 per person to $5,438.
    • This is where the largest increase in spending has occurred over the last 30 years.  To put this in perspective, India's health care expenditures per person are less than $50 and in China they are around $80 per year.
  • Spending on recreation has increased from $913 to $2,310.
    • Airline miles flown annually, per person, has increased from 962 to 1,898
    • The number of cable tv channels has increased from 28 to 565
  • Spending on vehicles and gasoline has remained fairly constant-$2,105 in 1980 vs, $2,269 today
    • There are 104 vehicles for every 100 driving age people in the U.S.  We have more vehicles than drivers today. In 1980, we had to suffer with 92 for 100.
  • Spending on clothing is almost the same-$1,078 vs. $1,090
    • This has been possible because we import almost all clothing and it is made with very low cost labor.  This has allowed us to be better clothed than ever and move spending dollars to other categories like recreation and housing.
  • Of course, taxes still take the biggest bite out of the average person's income.  $7,320 in 1980 and $10,882 today.
    • Taxes cost the average person more than housing, recreation and transportation-combined!
  • Food has decreased from 13.4% of the average's person's income in 1980 to 9% today according to personal income expenditure data.
    • This is a good example of how increased productivity in the agriculture sector has ended up benefiting everyone.  These gains are spread through the entire economy.
The data shows how our quality of life has also improved.
  • Violent deaths per 1,000 has dropped from 17 per 1,000 in 1980 to 5 per 1,000 today.
  • Life expectancy at age 50 has increased from 78 to 81.
  • 2.5GB of computer power which cost $214,000 and consumed an entire room now fits on a flash drive the size of your pinkie and costs $7.
  • There are 293 million wireless phones in use today.  In 1980, there were none.
What is the lesson here?  Innovation and increased productivity benefits everyone in an economy.  Or as President Kennedy so aptly stated, "A rising tide raises all boats".  It should lead us to stop putting so much attention on how we cut up the pie and focus more on making the pie bigger.  This is the only way that anyone increases their standard of living over the long term.  

Sunday, February 6, 2011

The Disintegration Of The Black Family

Until the 1950's, black children were more likely to live with two parents than were white children.


Right before the passage of the War on Poverty legislation in 1964, 78% of black children lived with both parents.  That number is 38% according to the most recent Census Bureau statistics.


Last year, 72% of all black children in this country were born out of wedlock.  In 1960, only 22% of black children were born out of wedlock.


Why is all of this important? Almost 34% of black children live in poverty.  However, this rate is only 11% for children living with married parents but soars to 49% if they are living with a single mother. 


In 1959, 55% of black families lived in poverty.  Therefore, there has been an 80% reduction in the number of black children living in poverty if they are in a family setting.   However, for the child living with a single mother the reduction has only been about 20% .


Colbert King discusses the demise of the black family and its consequences in "Celebrating black history as the black family disintegrates" in yesterday's Washington Post.

We know that most teenage mothers don't graduate from high school; that many of the youths in the juvenile justice system are born to unmarried teens; and that children of teenagers are twice as likely to be abused or neglected and more likely to wind up in foster care.
We know, too, that children of teenage parents are more likely to become teen parents themselves.
An intergenerational cycle of dysfunction is unfolding before our eyes, even as we spend time rhapsodizing about our past.
No less discouraging is the response that has become ingrained.
Sixteen, unmarried and having a baby? No problem. Here are your food stamps, cash assistance and medical coverage. Can't be bothered with the kid? No sweat, there's foster care.
Make the young father step up to his responsibilities?
Consider this statement I received from a sexual health coordinator and youth programs coordinator in the District concerning a teen mother she is counseling: "She recently had a child by a man who is 24 years old and has 5 other children. He is homeless and does not work, but knows how to work young girls very well. . . .This young man is still trying to have more children."
He's a cause. Our community deals with his consequences.

If we are to make any progress in lowering the poverty rate for children, a key focus has to be on seeing more children living with two parents and fewer in homes with single mothers.  It is clearly more efficient economically when two parents can bring the potential for two incomes and can also share the costs of one household.  This is true even without considering the emotional and psychological benefits for children in two-parent households.


If we want to make real progress on reducing poverty we need to start dealing with the causes rather than just spending money on the consequences.

Saturday, February 5, 2011

Ronald Reagan-A Great American

When I talk to young people they have an appreciation of who Ronald Reagan was.  However, they truly do not understand how much of a transformative figure he was in American history.  There is no one who has influenced the body politic more in my lifetime.  On the 100th anniversary of his birth, let me provide a little perspective to those that did not have the privilege of seeing the greatness of Ronald Reagan first hand.

I saw Reagan host GE Theatre on television and I am sure I saw one or two of his movies growing up.  I recall him being elected Governor of California and I remember the jokes about an actor being in the Statehouse.  I did not really pay a lot of attention to him until he challenged President Gerald Ford for the Republican nomination in 1976.  Few people remember how close he came to taking the nomination from a sitting president.  The final delegate tally was Ford 1187, Reagan 1070.

At that time, the mainstream Republican would be considered pretty much what is considered a RINO (Republican In Name Only) now.  Senators such as Susan Collins (R-ME), Olympia Snowe (R-ME) and Scott Brown (R-MA) today.  In fact, most Democrats in 1976 were similar in ideology to a 2011 RINO.

The loss of Gerald Ford in the general election in 1976 to Jimmy Carter paved the way for Reagan to be the Republican nominee in 1980.  Many look back at the results of the 1980 Presidential election and assume that Reagan waltzed to victory.  The country was in terrible shape.  Low economic growth, high inflation and high interest rates.  Uncertain energy supplies.  The Iran hostage crisis and a declining respect for America all over the world.  The Soviets attempting to spread communism.

Reagan spoke about strengthening America's defense, lowering taxes to spur economic growth and scaling back government rather than expanding it.  It was very strong stuff in that day and age.  Despite the poor shape of the country, Carter led in the polls up to the last debate a week before the election.  In that debate Reagan seemed to close the sale.  However, I still remember turning on the tv to watch the election results on November 4, 1980 with most analysts stating it could go either way. By the end of the night, Reagan had won 489 electoral votes to Carter's 49.  The "Reagan Revolution" had begun.

President Reagan's first act as President was to issue an executive order ending price controls on domestic oil which had caused many of our energy problems.  Oil was $37/barrel ($100 in today's dollars) when Reagan took office.  It was $15 ($27 today) when he left office.  Reagan understood incentives and the free market.  He was able to pass a massive economic recovery bill based on a significant lowering of marginal tax rates.  He did this despite having a Democratic House (244-191) and a bare Republican Senate majority (53-47).   Interestingly, President Obama has almost the same political makeup in the Congress today to fashion legislation.  53 Democrats in the Senate and 242 Republicans in the House.

The defining moment of Reagan's Presidency for me came in August 1981 when the 13,000 professional air traffic controllers walked off the job in a union dispute in violation of federal law.  He gave them an order to return to work in 48 hours or he would fire them.  11,000 did not return to work.  He fired them.  He also banned them from federal service for life. This took enormous courage as it was at the peak of the summer vacation season.  His contingency plan worked and over time the air system got back to normal with the non-striking controllers, supervisors and military controllers carrying the load until new controllers could be hired and trained.  This was a man who said what he meant and meant what he said.  There was little question after this episode that friends and foes alike knew that this was a man to be reckoned with.

During his two terms, Ronald Reagan redefined what America was and reignited the American spirit.  He also redefined the political parties.  A Ronald Reagan Republican became the standard.  He transformed the Democrats as well. They lost their traditional Southern, rural and working class base.  Many became Reagan supporters and a good number became Republicans.  Democrats increasingly had to rely on public sector unions, urban voters and academics for support.  As a result, they veered sharply to the left.

Ronald Reagan took a country that had problems that were every bit as intractable and challenging as we have today.  He did not waver in his beliefs nor did he whine about what he had to bear.  He left the country in a far better place than what he inherited. GDP increased by over 25% in real terms in his two terms.   The prime interest rate was 20% when he took office and 11% when he left. (I know both of these numbers are hard to believe right now when the prime rate is 3.25%!) Inflation was 13.6% in 1980 and was 4.1% in 1988.  Despite the tax cuts, individual income tax revenues actually rose from $244 billion in 1980 to $446 billion in 1989.

President Obama was elected with shouts of "hope and change".  It was a great political slogan.  However, we have not seen much hope and the change he wants is not being embraced by the American people.  On the other hand, Ronald Reagan actually delivered on hope and change.  He restored the hope that had been lost in America. There is no doubt he changed it.  This was a man that was a Great American!