Friday, April 25, 2014

Tornado Tale Times Two

Tornado season is upon us.  Despite the fact that 2014 (thru 4/17) marks the slowest start to a U.S. tornado season on record, we are sure to see tumult and tears in the wake of twisters sometime this year.

Since I have many new readers of BeeLine, I thought I would republish the "Tornado Tale" that I first blogged about three years ago on the 50th anniversary of my own brush with a twist of a fate with a twister.

This post is still the second most read blog post in the 3+years I have been writing BeeLine.

Keep your eyes on the sky and seek shelter immediately if one of these terrible tornados is heading your way.

Tornado Tale (first published 4/25/11)

50 years ago today I came close to death.  I was in a house that took a direct hit from an EF4 Tornado in Eaton, Ohio.  It was shortly before 400pm on a late April afternoon and I was in my bedroom organizing baseball cards with my best friend.  My mother was visiting a neighbor with my younger brother.  I looked out the back window and looming straight ahead about a half mile away was the tornado dancing back and forth right in front of my eyes.  It appeared to be on a direct path to our home.

I remember seeing details that you normally don't pick up in photographs.  I clearly could see lumber, shingles and other debris swirling around near the top of the twister.  We made a quick call to my friend's home to warn them of the approaching tornado and headed for the basement.  We bounded down the stairs.  We heard the sound of a car's horn racing down the main road that was parallel to the tornado's path.  We later learned it was the family who operated the farm behind us who had decided to run for it rather than go to their basement.

A few seconds later the tornado hit.  It was a deafening roar.  It was as if you were standing right by the railroad tracks and a train was going by at enormous speed.  I remember covering my ears with my hands because of the roar.  I remember my friend and I shouting at each other at the top of our lungs but you could not hear over the sound.  Suddenly it got even louder and it sounded as if the entire house was caving in.  I remember looking up at the floor and joists above me and thinking that this was it.  I fully expected to be buried alive in the next few seconds.  Time did slow down.  I remember thinking I had just turned eleven years old and this was the end of the road.  It then became deathly quiet.  The floor had held and my friend and I checked each other to be sure we were all right.

We cautiously started up the basement stairs.  The door would not open but we both put our shoulder to it and pushed. We got it about half way open and slithered out.  Staring at us through the adjoining door to the garage was a steel beam that had been thrown around like a tooth pick. It had penetrated almost a foot through the door into the house.  The windows on the back side of the house that faced the tornado were all broken.  The draperies hung in tatters and were now blowing in the wind.  The windows on the front of the house were intact but were caked with dirt and grass that looked like it had been sprayed on.  The dirt was so thick you could not see through the windows at all.  All through the house lay debris.  Drywall from the ceiling was laying all over. You could look up and see the sky.

I tried to make my way back to my bedroom but I couldn't navigate the debris that littered the hallway.  My friend and I went out the front door and we could see the tornado continuing on its way to more destruction down the road.  It looked much better from the backside.

I did not have shoes on but I began running toward the house where my mother was.  It had been spared but for some minor damage.  It was a debris field of 2x4's, downed electric wires and protruding nails to get to her. I saw some hay straw blown straight in to some siding as if it was a nail. I reached my mother and looked back at our house for the first time.  I almost could not believe the sight.  It looked as if our house had been bombed.  I had a hard time choking back tears as I saw our house.  I kept saying to my mother, "Look at our house".  She just kept repeating, "It is ok.  You are alive".  Even after 50 years, you do not forget a day like that.

Photographs and other background on the tornado of April 25, 1961

Photo taken of the tornado by a local photographer at close to the time it destroyed our house.

Photo of what was left of the Turner farmhouse that was directly behind our house.  Witnesses said that when the tornado hit the 2-story frame house it lifted it straight up and the house exploded and deposited almost all of the debris in the basement.  Fortunately, the Turner family did not go to the basement for shelter.  Mr. and Mrs. Turner started for the basement but their 20-year son did not feel the house could withstand the tornado.  They jumped in their car and made a run for it.  That decision undoubtedly saved  their lives. It was their car horn I heard in the basement right before the tornado struck.

Our house was totally constructed out of stone.  I was in the basement on the left side of the house as you look at this picture.  The people are on top of debris that used to be the garage and a back porch that were on a slab.  It was the sound of the collapse of this part of the house that had me thinking the entire house was coming down on me.

The house as it looked shortly after construction in 1957 (4 years before the tornado).

The house from the right front showing the collapsed garage.  I was in the basement near this corner of the house.

Through April 24, according to the National Weather Service, there have been 438 confirmed tornadoes in the United States. Only one has been an EF4 similar to the Eaton tornado of 1961.  We have already seen 306 tornadoes in April, 2011. This is the highest April total ever.  The previous record was 267 in 1974.  The average number of April tornadoes is 163.  Keep your eyes on the sky and take shelter immediately if one of these terrible twisters heads your way.

Monday, April 21, 2014

Stay-at-Home Moms

Do you think children are better off when a parent stays home to focus on them and the family rather than working outside of the home?

60% of Americans in a recent Pew Research Center survey agreed that children are better off when a parent can stay home with children.

What I found somewhat surprising in the data is that more mothers with children younger than age 18 are not working outside of the home. compared to past years.

29% are now stay-at-home mothers compared to just 23% in 1999.  In 2008, 26% of mothers were stay-at-home.

By comparison, 49% were stay-at-home mothers in 1967.

Why the change over the last decade?

The number one reason appears to be the economy.  6% of stay-at-home mothers say that they are home because they cannot find a job.  That number was a mere 1% in 2000.

A related reason appears to be that the costs for day and child care have increased dramatically over the last two decades. Pew cites a 2010 census report that child care expenses for families with working mothers rose more than 70 per cent in inflation-adjusted dollars between 1985 and 2011.  Therefore, for many women, especially in lower paid occupations, the economics simply do not add up the way it used to.

Another chart in the Pew Survey that I was interested in was the comparison of how stay-at-home mothers spends their time compared to working mothers.

Last year I read Jonathan Last's book "What To Expect When No One's Expecting" which looks at the challenging consequences to society of declining birth rates.  In that book I uncovered this interesting factual comparison which I cited in my blog post, "Mothers, Young Muslims and Old Movies".

  • In 1965, when the average woman had three children and was a stay-at-home mother, she spent 10.6 hours per week on the kids. The average mother worked 6 hours per week. The average married father dedicated 2.6 hours per week to the brood. 

  • Today, even with 60% of mothers working outside the home (an overall average of 23.6 hours per week), they are putting in an average of 12.6 hours per week with the kids and fathers have cranked it up to 6.5 hours per week.  No wonder parents are so stressed and frazzled today.  There are still only 24 hours in a day!

Here is the Pew chart on how stay-at-home and working moms spend their time.

The Pew survey shows working mothers spend 11 hours on child care compared to the 12.6 hours cited in the Last book.  However, it still represents more time than the average of 10.6 hours the stay-at home mom was spending with the kids in 1965.  The Pew survey shows that stay-at-home mother today spending an average of 18 hours of week with child care.  That's almost 70% more time than in the mid-1960's.

Where do today's working mothers find the time to work an average of 30 hours per week (considering both full time and part time work).  After all, no one has more than 168 hours in a week.

Housework   9 hours
Child care     7 hours
Leisure          9 hours
Sleep             5 hours

None of that is surprising.  Something has to give.  Sacrifices and trade-offs have to be made.

What's the surprise for me in that Pew chart?

Even working mothers are getting an average of more than 8 hours of sleep?  That's hard to believe.

In fact, that's the most astounding stat I have seen this year.

Tuesday, April 15, 2014

Blocking and Taxing

Another tax season has concluded and we can all breathe a sigh of relief until next year.

H&R Block has spent a lot of money this year on an advertising campaign with the tagline "Get Your Billion Back America" that is based on their argument that this is how much money people are leaving on the table by doing their own taxes.

Let's look at that argument a little deeper with some context and perspective--things we enjoy doing at BeeLine.

Federal individual income tax collections for this year are estimated to be $1.4 trillion. Therefore, if $1 billion is being left on the table by taxpayers that did not use H&R Block that represents just .0007 of total tax collections. That seems to be a pretty small error rate.  $1 billion sounds like a lot of money until you put it into context.  $1 billion is chump change for our government.

As it is, well over 50% of tax returns are already prepared by paid preparers at considerable expense. H&R Block already prepares 1 out of every 6 tax returns in the United States with annual revenues of $2.9 billion for doing it. That is about 25 million tax returns.

In total, the tax return preparation industry is estimated to generate $10 billion in annual revenues according to IbisWorld. As far as I can tell this number does not include tax preparation fees paid to CPA's and other higher end tax preparation professionals. It only takes account of firms like H&R Block, Jackson Hewitt and Intuit's Turbo Tax software.

A 2011 study by the Laffer Center put the total estimated cost of direct outlays for tax preparation at $31.5 billion. It also cited research that put the total time spent with complying with the individual tax law annually at over 3 billion hours. Weighting that time by each income group was calculated to cost the U.S. economy an estimated $216 billion. That might be stretching the argument a bit. However, even if you value the time at the minimum wage the Democrats are lobbying for--$10 per hour---you have more than $30 billion in lost productivity in the economy in tax compliance costs by individuals.

Of course, there is also the question of whether a paid tax preparer is going to do the return correctly anyway. USA Today had a recent story citing a GAO undercover study that found many errors in returns done by paid preparers. In fact, the GAO actually found that tax returns prepared by preparers had a higher percentage of errors--60%--than self-prepared returns--50%.

The point here is not to beat up on H&R Block or other paid tax preparers. After all, I was a CPA and put a roof over my head preparing tax returns at one point in my life. It is really to ask if all of the cost, confusion and consternation to comply with the Internal Revenue Code is really necessary?
I might not be the most objective person in the country today having suffered the ravages of the alternative minimum tax and the new Obamacare Medicare tax among other indignities on my tax return this year.

It just seems that our tax system should not be so complex that taxpayers need to pay someone else to properly file their tax returns. It also should not have to be necessary for most everyone else to need a computer program to file their taxes to have any chance of filing it correctly.

All of this complexity is not needed to raise revenue. It is only necessary for government to have the power to legislate, regulate and stipulate what its citizens should and should not do. Picking winners and losers. Redistributing income. Promoting and protecting special interests rather than promoting the public interest. You don't need a massive and complex tax system to protect, defend and serve the general welfare. You do need one to manage, control and serve special interests.

Therefore, if we are to turn America around then the critical first turn of the wheel must come in reforming the tax system.

A good starting point in discussing tax reform would be to start with the underlying principle that our tax system should be used to raise revenue. It should not be a tool for supporting and promoting Big Government policies and philosophies and picking winners (and losers).

Big government derives its power by being able to pick the winners and losers. If government can't pick and choose among special interests it loses immense power.  A flat tax favors the people over the politicians. Therefore, a flat tax should be the centerpiece of any Republican platform in 2016. Making taxes simpler has enormous political appeal and that should be the primary mantra of Republicans on this issue. Herman Cain almost single-handedly propelled his campaign forward on one simple easy to understand issue-his 9-9-9 tax platform--in 2012.  

As I wrote recently, 62% in a recent poll favor changing the tax system to a flat tax where everyone pays the same percentage of his or her income compared to only 33% opposed. Interestingly, a flat tax is favored by every income group by at least 10 points.  I think that shows how the power of the concept with voters.

Source: Reason-Rupe Public Opinion Survey, March 2014

I believe we are entering an era in which simple trumps complex, broad public interest defeats narrow special interests, and united beats divided. Now is the time to go broad, flat and simple in our tax policy as it is on the right side of the three major popular political trends I see in our future.

Sunday, April 13, 2014

Three Interesting Charts From Last Week

From time to time I write about interesting data I come across.  Here are three charts that I saw last week that I thought were worth commenting on.

The first chart is a comparison of U.S. per capita gasoline sales versus price per gallon prepared by Doug Short.  It shows a continuing decline in gasoline sales that began in earnest at the beginning of the Great Recession and shows no sign of reversing.


Here are Short's comments on the data in the chart from an article in Business Insider.

What does this analysis suggest about the state of the economy? From an official standpoint, the Great Recession ended 54 months before the most recent gasoline sales monthly data point. But if we want a simple confirmation that the economy is in recovery, gasoline sales continues to be the wrong place to look.
In addition to improvements in fuel efficiency, the decline in gasoline consumption is attributable in large part to some powerful secular changes in US demographics and cultural in general:
  1. We have an aging population leaving the workforce, which we clearly see in the sustained contraction in the employment-population ratio.
  2. There is growing trend toward a portable workplace and the ability to work from home (I'm a typical example).
  3. Social media have provided powerful alternatives to face-to-face interaction requiring transportation (Internet apps, games, the ubiquitous cell phone for talk and texting).
  4. There has been a general trend in young adults to drive less (related to points two and three above). See this PDF report for details.
  5. The US is experiencing accelerating urban population growth, which reduces the per-capita dependence on gasoline.

The second chart is Gary Shilling's INSIGHT newsletter (via John Mauldin's "Outside The Box" and shows comparative stock and bond performances since the great rally in bonds began in 1981.

An investor in the S&P 500 would have seen $100 invested in that stock index grow to $3,897 and undoubtedly feel very good about the 12.3% annual return since that time.

However, an investor in a 25-year zero coupon bond would have seen their $100 grow to $20,975---an 18.0% annual return! That is incredible.

It also tells me that the next couple decades we are likely to find it very difficult to make a decent return with long-term treasuries.

The third chart is from Robert Folsom of Elliott Wave International that shows that for the first time in over one hundred years the top 10% of U.S. households have more than a 50% share of total income in the country.

As Folsom points out in his article, "income inequality" is very much a hot topic in the news. 

President Obama and the Democrats can be expected to play up this issue a lot this year to make it a political point and to argue the economic system is stacked against the other 90%. They will undoubtedly argue that taxes should be raised to make the system "fairer".

Folsom thinks that it is an indicator that the stock market is ripe for a devastating decline. Large stock market declines all occurred soon after this level of income concentration was reached in 1928, 2000 and 2007.

However, in viewing the chart, I found it interesting that the income levels are not driven just by the stock market and capital gains. It is a function of income excluding capital gains as well.

It is also interesting in looking at the chart that the Great Depression did very little in reducing income inequality despite the large stock market crash. Income inequality only was reduced when World War II started. And income equality then stayed pretty constant for 40 years-from 1942 to 1982.

What does that tell me?

Greater income equality did not result by pulling the rich down. It came about by everybody else being pulled up during the industrialization that occurred in World War II which then continued over the next 40 years as the United States was the manufacturing leader of the world and significant productivity increases were obtained that were then enjoyed across the U.S. economy and its workers.

The middle class started to be squeezed and the Top 10% started to take a large share of income when the manufacturing sector in the country started to come under competitive international pressures in the early 1980's and, at the same time, the technology industry started to take off.

Manufacturing spreads income in a much broader swath in an economy. You need to pay a lot of workers to build an automobile. You only need a couple of computer programmers to develop a video game that might sell millions. For example, Instagram only had 13 employees when it was sold to Facebook for $1 billion.

The information economy has meant there is increased demand for highly skilled and educated workers which has resulted in increased incomes for those in the top 10%. Those with fewer skills and less education find themselves competing in a world economy with workers from China, India and elsewhere. In effect, the supply of labor has increased with this group while many of the jobs have also gone offshore. The chart above tells the tale.

I don't know what this means for the future. However, I do know that you don't build up the poor by pulling down the strong.  

This problem can only be solved with growth---both in the economy as well as in fostering personal growth.  I wrote about how that can be accomplished in my post, "It's All About Growth.".

Wednesday, April 9, 2014

Polling Perspectives

I received a call about ten days ago to participate in a public opinion poll. They asked a few qualifying questions including whether I worked for a political party or was in the media.  They then asked a question that I had never been asked before from a polling outfit, "Do you write a blog that has any political commentary?"

Being a man of integrity I answered "Yes".  At that point, they were no longer interested in my opinions.

Several days later the Reason-Rupe Public Opinion Survey was released.  I don't know that it was the telephone survey that I was called about but I think there is a good chance it was.

I enjoy taking part in polls if I am called.  I enjoy looking at poll results even more, especially digging deep in the data to look at the cross-tabs to get a better sense of the mood of the public on certain issues.

There is usually a wealth of great insights in the data.  However, at times you just want to wonder what is going through people's minds to reach the opinions they do.  What I have concluded over the years is that human beings are complex characters.  They have many different opinions on varying topics. It is not easy to put any one person in a box. Elections are different. When voting, it is an either/or proposition. Are you for or against? Do you like that person or that person?

You may be a fiscal conservative but you also support gay marriage. You may be in a government workers union but you also strongly believe in the 2nd Amendment.  How do you vote when you are unlikely to find a candidate who is totally in sync with you?

I have learned not to question or argue with poll results.  It may may not make sense to me or be logical.  However, in politics, perception is reality.  And that reality is all that matters.

To change that reality you must change perceptions and that is not often very easy.

Let's look at a few interesting things that I came across in the Reason-Rupe telephone poll of March, 2014 of 1,003 adults.

The first question was whether the country is headed in the right direction or in the wrong direction.  In total, 60% stated that they the country is generally heading in the wrong direction compared to 30% who say we are heading in the right direction.  The remaining 10% are not sure which.

However, in looking at the cross-tab data you see very stark differences in opinions.

For example, 74% of white women think the country is heading in the wrong direction compared to only 19% who think it is heading in the right direction.  However, by 47% to 42%, nonwhite women think we are heading in the right direction and nonwhite men think we are heading the right way by 54% to 35%.  Only 22% of white men think we are heading in the right direction versus 68% who think we are heading the wrong way.

Reason-Rupe Public Opinion Survey, March, 2014

Let's put this in perspective.  The unemployment rate for Blacks is currently 12.4% (more than 2x the rate for Whites). 35% of Blacks are in poverty. 72% of African-American babies are born out of wedlock.  We are heading in the right direction?  You see what I mean?

51% of the overall respondents in the poll disapprove of the way Barack Obama is handling his job as president compared to 42% who approve.  The numbers are essentially the same for those who are employed full-time.  However, the unemployed approve of Obama 68%-27% and students 60%-33%. On the other hand, those who are retired disapprove of Obama's job performance 58%-37% and small business owners 68%-31%.

By 67% to 32% people support raising the minimum wage from $7.25 to $10.00 per hour.  However, when asked whether that will reduce the number of jobs, more than twice as many agree that it will decrease the number of jobs rather than increase jobs.  70% also think that companies that raise the minimum wage would primarily pay for it by charging higher prices or laying off workers compared to only 6% that think that companies would take it out of profits.  Why are they for this when they fully seem to understand the adverse effects?

62% of people favor changing the tax system to a flat tax where everyone pays the same percentage of his or her income compared to 33% opposed.  Interestingly, a flat tax is favored by every income group by at least 10 points.

Reason-Rupe Public Opinion Survey, March, 2014

I think this demonstrates the desire people have for more simplicity in their life. The Republicans would be wise to push this issue further.  Herman Cain proved this in the last Presidential cycle with his 9/9/9 tax proposal that almost singe-handedly put him in the front-runner spot until he imploded due to other issues.

When asked whether the amount of money they personally paid in income taxes in 2013 improved society more, less, or about the same compared to if they had instead invested that money in private business, 17% in total said more, 33% said less and 40% responded it was about the same.  Again, every income group believed the money was better spent with a private business as did every ethnic and race group.

In total, 31% identified themselves as Democrats and 23% as Republicans with 40% claiming to be Independents.  However, by contrast, 29% stated they were Conservatives compared to only 15% who claimed they were Liberal.  26% identified themselves as Moderates.  What was interesting in the cross-tabs was that more African-Americans called themselves Conservatives (20%) than Liberals (19%)!  However, 93% of Blacks voted for Barack Obama in the last election.

As regards Obamacare, 53% view it unfavorably compared to 36% who have a favorable view.  All age groups have an unfavorable view of the law.  Even more interesting, the unemployed view it almost as unfavorably as those that are employed full time.  Students are the only "employment" group who view it favorably.  Why not?  They can stay on their parents plan and have them pay until they are age 25!

In looking at the data I continue to see the theme I wrote about shortly after the 2012 Presidential election.  Obama and the Democrats' support comes primarily from younger voters, minorities and single women.  Their support is weakest among white men, voters 55+ and married women.

Obama won in 2008 and 2012 because his people turned out at the polls.  Obama and the Democrats lost big in the 2010 mid-terms because many of these same people did not vote.

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

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

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

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

The same turnout dynamics can be seen in looking at a comparison of the demographics of the voters in 2008, 2010 and 2012 by race.

Minority voters as a percent of the electorate declined from 26% when Obama was on the ticket to 22% when Obamacare was not on the ticket in 2010 and then increased to 28% when Obama was on the ticket again. This shows a lot of enthusiasm for Obama the symbol. Not so much for the substance behind Obama.

These percentage changes amount to millions of voters. Overall, minority voters increased by 82% between 2010 and 2012. However, these numbers were essentially unchanged from 2008 to 2012. On the other hand, white voters only increased by 27% from 2010 to 2012. There were also 9% fewer white voters in overall numbers in 2012 compared to 2008.

What happens in the 2014 mid-term elections will largely be determined by who shows up at the polls.

The Democrats need to get the young adults, minorities and single women (the Democrats like to call this group the "Rising American Electorate") energized and motivated to vote or they will have problems similar to 2010.

A recent Democratic poll shows the "enthusiasm gap" between the "Rising American Electorate" (young adults, minorities and single women) and others and its spells trouble for the Democrats as things now stand.

Less than 2/3 of RAE voters are "almost certain" they will vote in 2014. However, almost 80% of everyone else say they will be going to the polls. Those are the people that are fed up with Obama, Obamacare and countless other issues from the last five years.

You can expect to see a lot of activity by President Obama and the Democrats to try to get these groups worked up over the next few months. We will definitely hear about the minimum wage, women's rights and countless stories of how the Republicans want to cut your federal benefits, ban you from taking your birth control pills and countless other heartless, horrible results if they control Congress.

The Democrats are in trouble right now but it is a long time to November. Voters vote on emotion more than on an issue by issue analysis when they are in the voting booth. What buttons they push in November will depend on how their buttons are pushed over the next six months or how they get strung along with the same, old political rhetoric.

Credit: Roz Chast

Monday, April 7, 2014

If It Doesn't End, Is It The End Of US?

April 15 is just about upon us. It's tax time once again. As you prepare and file your tax return consider these facts.

I recently read that in the first five months of the 2014 fiscal year (October 1-February 28) the federal government brought in a record $1,104,947,000,000 in tax revenues.

What is even more interesting is that this is a record even in inflation-adjusted (real) dollars.

Check out the chart below to see federal revenues over the last 30 years in constant dollar terms for the first five months of each fiscal year.


This should come as a surprise to liberal Democrats who seem to think that all of our problems stem from the fact that we are not taxing people enough (especially those evil rich people).

The fact is that tax revenues today are almost double what they were in 1985 in constant dollar terms!

Despite all of this tax revenue, the federal government still ran a deficit of $378 billion for the first five months of the 2014 fiscal year. That means that we are borrowing (printing) about one out of every four dollars that we are spending at the federal level.

What I found even more interesting is if you also adjusted spending for inflation, the amount of federal receipts projected for the full year in 2014 would have generated a federal government surplus in every year of the republic before fiscal year 2006!

Here is a chart I prepared using historical full year numbers ( 2014 projected) for outlays from historical data of the Office of Management and Budget of The White House back to 1940 using 2014 constant dollars that shows this in graphic form.

Source: Office of Management and Budget

You get a real appreciation for how much federal government spending has increased in real terms when you realize that in today's dollars we were only spending about $1 trillion per year during the height of World War II.  Compare that to the $3.6 trillion we are spending today.

To put this in better perspective, in "real" terms we are spending 5 times what we spent when Kennedy took office, 2.3 times more than when Reagan took office and 1.5 times what we spent when Clinton was President just 15 years ago.

What is incredible is that if spending since 1989 had merely increased at the level of inflation we would now be running a federal surplus of almost $1 trillion at current levels of federal receipts.

Why do I bring up 1989?

When President George H.W. Bush took office in early 1989 he pushed hard to implement what he called a "flexible freeze".  This was Bush's response to those who decried his famous (and later infamous) line in his acceptance speech at the 1988 Republican Convention in which he exclaimed, "Read my lips, NO NEW TAXES".

This is how economist Martin Feldstein described the mechanics and rationale for a flexible freeze back in the Fall of 1988 in the Los Angeles Times.

George Bush describes his plan for shrinking the federal deficit as a flexible freeze. What exactly does that phrase mean? And does it represent a plan that can really work?
The flexible freeze is a specific plan for limiting the growth of government spending. The basic concept is that total federal spending should not grow faster than inflation until government spending and revenue are brought back into balance. Tax revenues increase in a growing economy even when there are no increases in tax rates and no new taxes. So as long as the economy continues to grow, a freeze on the inflation-adjusted level of spending would eventually eliminate the deficit.
The difficulty of using a freeze plan to deal with the deficit is political rather than economic. The Bush plan recognizes that an across-the-board freeze on all spending programs would be politically impossible. That's why the plan includes flexibility, or the option for some programs to grow more rapidly than others as long as total spending just keeps pace with inflation. The flexible freeze, then, balances faster growth of spending in some areas with slower growth in others.

Of course, Bush broke his pledge in a deal he cut with the Democrats in an attempt to get a bipartisan budget reduction package to prevent a feared government shutdown that he thought he would be blamed for. Nothing much has changed on that front, has it?

A little over a week ago I also saw this news item that I thought was also interesting.

The John F. Kennedy Presidential Library and Museum today named Former President George H. W. Bush this year’s recipient of the John F. Kennedy Profile in Courage Award "in recognition of the political courage he demonstrated as President when he agreed to a 1990 budget compromise which reversed his 1988 campaign pledge not to raise taxes and put his re-election prospects at risk."

I greatly respect President Bush but there is no way he should get a Profile in Courage Award for reneging on a campaign promise and raising taxes.  He deserves it for his determination to free Kuwait from Saddam Hussein but not for taking the easy road out on trying to balance the budget.

Let's save the Profile in Courage Award to the first person in Washington who will actually implement a flexible freeze and stick to it. It is the only realistic way to get to a balanced budget. George Bush had the formula but lacked the faith and fortitude to follow through.

The numbers above tell the story. It is not magic.  It is math.  Spending has to be constrained to increases below the level of revenue growth in order for the budget to eventually be balanced.

Over time, there has always been plenty of money coming in. Innovation, ingenuity and productivity advances in the private sector has provided that. At the same time, Government has always had a problem of living within its our means no matter the amount of money flowing in.

Look again at the chart above that shows the steady, inexorable growth in federal outlays in constant dollars.  Where does it end?  If it doesn't, is it the end of US?

Tuesday, April 1, 2014

Slivers of Sustenance

Writing this blog is hard work and it has seemed to get harder lately.

There is too much depressing news about our debt, our decline as a world power, deaths of great men (Jeremiah Denton to name one recently), the depreciation of our currency, demographic challenges and the Democrat we have in The White House.

It has been increasingly difficult to face these facts and write compelling copy that is worth your time to read what I have to say.

It also difficult when I see how few do read what I am writing.

Since I started writing BeeLine 3 years and month ago I have published 463 blog posts.  To date, BeeLine has about 45,000 views meaning that the average post is lucky to get read by fewer than 100 people.  That is still pretty amazing considering that there is no marketing done for the site.  All of those reader views have come about from word-of-mouth endorsements from you who have passed a post or a link on to someone.  My sincere thanks for all that you have done to support BeeLine.

However, when I visit other popular blog sites and I see an average of 100 comments on a post it is easy to question my sanity in writing at all.  On the other hand, when I consider that there are an estimated 152 million total blogs on the internet, my readership is probably better than most.

The bottom line is that a lot of the reward for writing this blog has to come from within.  It has to come from the self-satisfaction that I get from realizing that I was ahead of the curve on something, or put something in a perspective or context that was unique, or took a piece of data and told a bigger story about what it really means.  It may just come from connecting some dots that others may have missed.

I came across a couple items in the news today that gave me that small sense of satisfaction.  Mere slivers of sustenance for my self-esteem.


The first came in a story about Obamacare and a recent survey by that found that 41 percent of those did not have health insurance said they planned to stay uninsured because they think that health insurance is too costly.

This is what I wrote about Obamacare's fundamental flaw on getting the uninsured to buy health care insurance last year.

It is incredibly difficult to get people to pay the full cost of healthcare coverage.  In fact, study after study shows that most people will only pay up to 20% of the real cost of the coverage.  That is the price at which people believe it is a "fair value". That is why many employer plans charge employees around 20% of the full cost and employer pays the rest.  That is why Medicare Part B premium costs are set at 20% of the full cost and the taxpayers pay the rest.
Why is this?
The reality is that most people will have very little in healthcare costs in a given year. A handful of people will have enormous costs. A few will have very large costs. The majority will have almost no costs.
The bottom half of the entire population only consumed 2.9% of all personal health care spending in 2009. The top half consumed the other 97.1%.
Out of almost $1.3 trillion in personal health care spending, only $36 billion was spent on those below the 50th percentile. The rest was spent on those above the 50th percentile.
The top 1% of healthcare spenders accounted for over 20% of all spending.
The top 5% accounted for almost half of all spending.
That is why most people will gamble on healthcare insurance if left to their own devices. Especially if they have lower incomes or have very little in assets. Most people do not have much in health care costs (particularly the young) and they know it. They will simply not part with their money today for the chance that they might get sick tomorrow. That is basic human nature. Live for today and think about that other stuff tomorrow.  Especially if you know that if you walk into an emergency room it is the law of the land that you must be treated without regard to your ability to pay.
Sure, there are subsidies in Obamacare to buy coverage but for most people they are not anywhere close to paying 80% of the cost.

The Obamacare model is further flawed by setting the individual mandate penalty  tax at such a miniscule amount (the higher of 1% of pay or $95) to be laughable.  Even worse, that tax is not even collected (except for those who pay estimated taxes) until next year.

If they were really serious about incentivizing people to sign up for Obamacare, the tax should be collected in full on April 15, 2014!  The March 31 deadline would have meant something then.  We can already see it means nothing.  And I believe it is unlikely that many who did not enroll for health insurance coverage will ever pay a tax or penalty for failing to do so.

I don't like anything about the way Obamacare was developed or passed into law.  However, if you are going to pass a law, you should at least establish a framework that insures that it will work.

The second sliver of sustenance came in the story I read today about Kwasi Enin, a high school student on Long Island, who applied to and was accepted at all eight Ivy League schools for admission this Fall.

Kwasi is obviously a smart and talented young man to be accepted at all eight schools. Considering the vagaries of the admission process at these competitive schools that is akin to winning Warren Buffett's NCAA Basketball Bracket Challenge.

Wait, did I say talented?

What did I say was the surer path to success in my first post of this year? Possessing great talent or having a great work ethic?

Remember the story about Laszlo Polgar and his three daughters, Susan, Sofia and Judit?  Each became Chess Grandmasters because Polgar set them on the path and they got there through persistence, practice and hard work.

What most people call talent is really just hard work.  It is about toiling and training for long hours. Practice, practice, practice. Nothing more.
Extensive studies have shown that the difference between an expert and you is nothing more than a life-long persistence of deliberate effort and purposeful practice to improve performance.  
What caught my eye in the story about Kwasi was the fact that his father, a nurse, said that he had raised Kwasi (and his sister) to strive for excellence.

"We are very proud of him," he said. "He's an amazing kid. He's very humble. He's been trained to be a high achiever right from when he was a kid. We have been encouraging him to be an all-around student. So far, he has proved himself." (my emphasis)
I think he has.  He has also has further proved Laszlo Polgar's theory that children have extraordinary potential if we take the trouble to encourage them, set high expectations and support them in their efforts.

He has also motivated me to write a post that allows me to end on a high note for once.  Thank you, Kwasi!