I hope that you did not see the title of this post and roll your eye's. I would have if this was on someone else's blog. I am already sick of the primaries, and they have barely begun to gather steam. However, I am a citizen of a Democracy; I am morally obligated to inform myself of the issues and vote with my intellect, heart, and conscience.
You are also morally obligated to do the same, by the way. If you are one of the majority of Americans who votes rarely and ignorantly, then shame on you. Americans who do not make an effort to analyze the issues and candidates, and vote on a regular basis, are more responsible for our society's problems than the corrupt and inept politicians we point our fingers at. Whether you hate G.W. Bush or Hillary and Teddy, you can place the blame of their re-elections solely on the fact that most Americans are not informed and/or do not vote regularly.
Okay, I'll promise to quit preaching if you promise to read and vote prior to the elections this year. Deal? I am off my soapbox.
Why I am already sick of the Presidential Primaries: I am sick of the mudslinging. I am sick of the lack of information and the overabundance of hot air. I am sick of real issues being ignored in favor of safer topics, dumbed-down for public consumption. I am really sick of sound-bites and long for one person to speak clearly, earnestly, and intelligently on a regular basis. I detest anything that appears fake or misleading, and that is the feel I get from every candidate in every election. Of course I am over-cynical; but I blame that on the system.
Even so, I have to pick through the B.S. and make some decisions. "None of the above" is not a ballot option, and would not improve our democracy. So I wince, I pinch my nose, and I make an effort to trudge into the mire of 2008 candidates to find one that can do the least damage at least. I hope I will be pleasantly surprised and find someone who I passionately believe will lead our nation to prosperity, freedom, and peace without compromising our strength, integrity, values, or history.
This morning, I was researching a topic for my MBA class and stumbled on an interesting concept called Baumol's Disease. This is not a medical term but an economic term. Dr. William Baumol (PhD) is an NYU economist who, in 1966, defined Baumol's Disease as the fact that labor-intensive industries do not benefit from technological advances. This is important to point out because we expect that as technology advances, we will become more productive and our costs will go down. We see this in manufacturing the most: robots, engineering, and statistical analysis allows up to build more widgets for less cost.
However, as Dr. Baumol pointed out, some industries and professions cannot benefit from technological advances. No matter what media you use, it will always take the same amount of time to play a piece of music. For my research, the author (Bobby Newbell, M.D.) was pointing out that regardless of technology, it still takes the same amount of time for a Family Physician to examine you. There are computers, tools, books, theories, and various devices to assist a doctor today that did not exist 50 years ago; however, the doctor is still limited by one pair of eyes and one pair of hands. In the same vein, as Dr. Newbell points out, it still takes a nurse the same amount of time to change a dressing as it did 50 years ago. The dressing material and chemicals used may be more advanced, but you still have the same nurse cutting, pealing, wiping, and tying.
Baumol's Disease should be kept in mind when we analyze any issue preceded by a dollar sign. Not all costs can be reduced by technology. Dr. Newbell touched on, and Dr. Baumol wrote at length on, the effects of Baumol's Disease on health care costs. They have to rise because we live in an inflationary economy. Doctors and Nurses require more money every year to treat you in order for them to afford the rising costs around them. Health Care can increase the quality of their care through technology, and may be able to reduce administrative costs by using more databases and less clerks. However, it is not possible to reduce the labor costs of health care professionals with our current technology.
Dr. Baumol's professional opinion based on his research (as I understand it from my limited reading) is that the increase of health care costs is inevitable. As long as we insist on humane and scientific treatment of our health, we will have to expect our health care costs to rise. Of course, how we pay for these rising costs is just as confounding as how we may decrease the costs.
This election cycle has brought up the issue of health care again. If you hear a politician promise to lower health-care costs, you can now automatically assume that they are lying based on your understanding of Baumol's Disease. More often, we are hearing talk from the candidates on how we may health care for those who are not provided insurance through their employer. Too many Americans are forced to suffer with ailments that are easily treated but cost too much to afford without insurance. This is especially true due to the fact that most people without insurance are too poor to afford anything, especially medical treatment and medicine.
Perhaps you are callous enough to write off working-age adults without health insurance, and say that if they want to be treated then they can get off their butt and get a job like everyone else. However, many of those without insurance also have children who are uninsured. Are you callous enough to say that such children should suffer without the same fundamental medical treatment that your own children receive? If you say yes, then be prepared for a future of defective Americans.
Children who did not get their broken arms set properly, their cavities treated, anti-biotic for common infections, and their cavities filled will become adults who are less-than 100%. Be prepared that they will tend to work less and be sick more. They may also be more prone to acts of passive-aggression, blatant aggression, crime, and other anti-social activities. Never mind the potential they may have have held given the chance to grow up healthy and educated.
I was looking deeper into Baumol's disease to ensure I understood it well, and perhaps gain an additional perspective of the issue. In doing so, I stumbled on an old article that introduced another interesting concept and provided a prophetic message to the candidates of 2008. The article was published in the 6/20/94 issue of U.S. News and World Report by Michael Barone, and addressed Bill Clinton's 1994 budget, in light of his budget in 1993.
Barone introduces the concept of Norquist's Law. Norquist's Law was developed by Milwaukee Mayor John Norquist and stipulates that a healthy government budget should hold not increase spending faster than the rate of inflation. In this manner, Norquist demonstrates that the government would reduce the amount of the economy that they take in taxes every year.
What? Less taxes? Less spending? Fiscal responsibility and an ear to the voter's desire? Reducing the burden that we pay to the government for them to waste on pork and ineffective programs? Enabling us to spend more of our own money on our own interests? That's crazy talk!
Seriously, the first politician to mention anything close to Norquist's law has my vote. This is the prophetic message that I mentioned. The political candidates are having difficulty distinguishing themselves or finding a hot-button topic that fires up the grass-roots support. Here it is. A proven method for politicians to follow that will improve our government and our economy simultaneously: reduced government spending will bolster corporate and consumer spending while it forces our politicians to seek more effective programs and less wasteful spending.
The only way this Law could be effective, however, is if we also balance our budget. Norquist's Law would automatically balance the budget in the future theoretically: Assuming that we increase our spending at a lower rate than inflation and that revenues rise at historical rates, those line would have to cross at some point in the future, resulting in revenues exceeding expenditures.
In other words, if both of those assumptions hold firm, we could guarantee a budget surplus in the future, reducing our national debt. Reducing our debt would reduce our national expenses, further increasing our surplus. Long-term, we could pay off our debt and either drop our tax burden to a minuscule level or free up budget money for all the crazy schemes that our current politicians cook up.
I haven't done the math and I am not a trained economist, so I may be off base here. Having said that, I believe that we cannot assume that our revenues will rise or that we can contain our government's costs enough to remain under the rate of inflation if we do not find a way to balance the budget first. If our deficit continues to grow, the cost of maintaining a government will continue to skyrocket. If the institutions and nations that loan us money every lose faith in our ability to repay, they are going to make it very expensive and miserable to be an American. That point was inconceivable twenty years ago, today it is a fact that is not to distant if we do not make changes drastically and soon.
Several years ago, it was speculated that Hillary may run for President and in so doing would amass a powerful force of supporters just based on her gender. Now that she is a candidate, we do find some people who are supporting her based on gender, but not enough to turn the tide.
Obama is the first Black candidate who is not considered an extremist like Alan Keyes, Jesse Jackson, or Al Sharpton (don't those names look out of place in the same sentence?) However, race has not been enough for Obama to separate himself from the pack. In fact, you would have thought that Oprah's support would have drawn enough of Hillary's voters over to make the difference, but such is not the case yet.
Here we are with a war that is not exactly as popular as World War II. We have a president who has alienated many conservatives with his decisions on budgets, staff, and ethics. We have China eating our lunch, Russia is light on debt while heavy on cash and marketable commodities, the Muslim world continues to be a dangerous tinderbox, and atrocities continue daily in places like Burma and Darfur. At home, we could use some good news, economically. How hard can it be to get people fired up in this kind of environment?
I have always voted Republican; I cannot think of a single Democrat on any ballot I have had an opportunity to hold that I supported. That is not to say that there have not been Democrat's in other districts or time periods that I supported, I just couldn't vote for them. I am willing to vote for a Democrat, but it is less likely that I would vote for a Democrat than I would for a third-party candidate.
People who know this about me have asked me who I like for the Republican primary. I honestly do not know. I am a registered Independent (I'll write about that some other time) so perhaps the point is moot. I cannot say that any Republican gets me fired up to open up my checkbook, or to place a yard sign, or to even acknowledge public support. I could live with any of them, I guess. I could live with any of the Democrats, frankly. As long as Theresa Heinz-Kerry is not involved in the decision, I am fine with whatever will be.
If you are a presidential candidate reading this (hey, it could happen), then let me tell you this: if you make your primary promise to me that you will fight to the death for a balanced budget and something like Norquist's Law, you have my vote. I have charitable contribution to make for 2008's tax deductions: you will receive the entire amount. I am looking to start volunteering on some weekends; I will spend as much time as possible at your local campaign headquarters doing whatever it takes to get you elected. I will place a sign in my yard, wear your buttons on my shirt, stick your bumper sticker on my cars, and mention you on a daily basis in my sphere of influence. I will dedicate the rest of the election season on this blog to daily posts about you. I will tattoo your name on my forehead if it would help.
Seriously, we have a lot of problems to face. If you are a liberal, you have one perspective on our nation's problems. If you are conservative, you have another. There are also the perspectives of libertarians and others. The fact of the matter is that regardless of your perspective, you will have to agree with me on one thing if you look at the matter sincerely and do the math: every act of our government is is useless without a sustainable financial policy.
What effect did the word "sustainable" have on you as you read it? That is how I can tell your current political affiliation. If if made you perk up and read a little closer, then you are leaning left and Democratic. If it made you roll your eyes and think of Al Gore in a sickening way, then you are a right-leaning Republican. If you had to look it up in a dictionary, then you are not paying attention.
"Sustainable" is a part of a global discussion taking place, mostly concerning environmentalism or Third World economics. It refers to the ability of a system to continue without outside intervention. Sustainable models can reduce dependence on foreign aid, reduce damaging practices, and and raise the quality of life and standard of living from everyone involved. In addition, sustainability can reduce political instability, terrorism, and crime. Sustainability is, unfortunately, a buzz-word used to drum-up political support, acquire grants, and shout down opposing ideas.
I wish to point out that, like so many other things, sustainability begins at home. To be succinct, it begins with out financial policy. We cannot sustain our current budgetary system indefinitely; eventually this system will implode under the weight of debt. Believe me, I have been there personally. If you have a mortgage, car, student loan, and a high standard of living, you will find it quickly becomes uncomfortable if you lose your source of income, even if temporarily. What is true at the micro-economic level is usually true at the macro-level.
Our nation has a lot of debt and expenses. We also have a trade deficit, a war, and a recession. What would it take to cut-off the flow of money into our country? Now much, apparently. When foreign investors began to perceive that Americans would be less likely to payoff their mortgages, they made less Foreign Direct Investments (FDI) to our mortgage industry. Suddenly, there was less cash to give. Couple that with other economic factors such as stalled-job growth and adjustable-rate mortgages coming due, and you have the making for a "Sub-prime loan fiasco."
That was just a warning shot. China has more cash in the bank than any other nation, and they have more money flowing into their country through exports than any other nation. They control their currency, keeping it artificially weak so that their exports are more affordable while imports to China are cost-prohibitive to the Chinese consumer. America's affluence is due in large part to FDI; foreigners expected that they would get a larger rate of return with less risk and volatility if they invested in various American industries.
Nowadays, that expectation is reduced. Russian commodities are proving highly lucrative and Chinese manufacturing is both stable and rewarding. With less money from outside, we will have to foot the bill for more of our luxuries from internal sources. Alternatively, we may consider doing without luxuries that we take for granted today, like interstates, parks, bridges, jobs, research, arts, and utilities.
What every American, and especially our policy makers, should do more of is to view our nation through the eyes of a Foreign Investor. This is a flat world, and we need to receive as much or more than we give in order to sustain our standard of living. Currently, we spend more on imports than we make off our exports. That means we pay more money to foreign nations than we make. If you added up the money possessed by every American citizen and every American corporation, that sum would be our economy. That sum is a smaller number every year; we send money out more money to buy stuff than we receive by selling our stuff to other nations.
Today, we can sustain this trade deficit. However, we cannot expect to do so indefinetly; eventually, we will not have enough money to spend on stuff because we did not replenish our resources. This is an implosion because we will not be able to afford to maintain the export business at that point, eliminating future revenue. You go from living in the lap of luxury to catastrophic depression almost overnight.
A similar principle applies to our federal net-worth. Currently, we owe over 9 trillion dollars. Trillion, with a "t". Yeah.
But we are fabulously wealthy, right? We can pay for that debt because we innovative, ingenuitive, well-invested, well-connected, and in control of so many resources...right? Sure, we have sustained a sick amount of debt for decades now. If that was our only problem, we would be okay. We can make the payment on $9 trillion.
The thing is, we are spending more money than we take in. Every year, we have to borrow money to remain in business as a nation. Therefore, next year we will owe more, not less. That raises the minimum payment on the national debt. We can afford a $9 trillion dollar debt load, but can we afford $10 trillion? How about $15 trillion?
The fact of the matter is that eventually the final bill arrives. If you, personally, continue to aquire new credit cards to pay for the existing credit cards, at some time your minumum monthly payment will be too large to borrow. At that point, you will find that you cannot even borrow money from the check-cashing place. Vinny the loan-shark would even touch you. Congratulations, you are no longer solvent. You can file for bankruptcy and start all over again.
Nations cannot file bankruptcy. When they scare off investors and lenders, they cause panic. Businesses shutdown, roads crumble, corruption spreads, crime runs rampant, self-abuse and neglect replace health-care. That can't happen to America? Tell that to the Roman Empire. Tell that to the Incan Empire. Tell that to any predator that has eaten its prey faster than it could multiply.
I agree, it seems unlikely that we couldn't prevent total insolvency as a nation. However, it is a possibility. The more likely occurrence is a generation-long recession. Or worse, a financial and cultural recession measured in centuries. Ask the Chinese about that, or just look it up on Wikipedia. Today, the Chinese are a fearsome economic power. In the 1930's, they were dominated by a tiny little island named Japan. You have to go pretty far back to locate the last time that China enjoyed this level of power and prosperity.
I would like to spend my retirement years in comfort and peace. I would like to know that my grandchildren can enjoy the same or greater nation that I have enjoyed. I would like to live longer than my ancestors, and get more out of my final years; by this, I mean that I want to enjoy cutting-edge health-care that keeps me alive and active as long as possible.
The labor costs of health care are only going to go up, according to Baumol's disease. At what point will those costs become prohibitive? Well, that depends on how much money Americans have available to them to spend on health care. Our available money is dependent on the national economy. If our taxes are at 50% in order to afford our national debt, which may be over twenty trillion dollars, and our local businesses are less prosperous, then influenza-exposure at 80 years old may not be a survivable experience.
That is why I am making a pledge of support to any politician who can convince me that they can and will do something about our financial sustainability. I am not looking for sound-bytes among your other "issues"; I am looking for someone who truly realizes that our national policy of financial irresponsiblity is our greatest threat to our future, and will make that their primary focus.
You can argue that Iraq has something to do with our future. Whether you think that we need to finish the fight to get out of Iraq, you would have have to agree that your reasons are moot in the future if we cannot pay our bills. Winning the Global War on Terrorism is meaningless if it contributes to our insolvency; withdrawing from Iraq will not do any good if the returning vets settle into a life that leads to higher taxes, less prosperity, and a national decline.
You can argue about the importance of health care, especially for children near or below the poverty line. I would say that whatever good intentions you have will cause bounced checks an unmet expectations in the near future if we do not fix our financial irresponsibility. In fact, the same can be said of any social program you mention: it all costs money that we did not have yesterday, do not have today, and surely will not be able to borrow in the future.
You can complain about China and India, and scream about tarrifs and the trade deficit all you want. The fact is, even if those jobs were being sent here and we enjoyed a trade surplus, we would still face a catastrophe in the future based on the current irresponsibility of the people who we have entrusted with spending our taxes. If we had more coming in, we would have more going out. In fact, it may be even worse.
Establish financial sustainability as a policy. Balance the budget. Reduce the national debt. Control government spending, and do not increase it faster than the rate of inflation. See what happens.
Spoiler alert! If you follow the simple steps outlined in the paragraph above, or at least operate the federal budget in a manner similiar to financially successful citizens and companies, the other problems will become more manageable. Many problems will take care of themselves.
Economics is all about psychology. Think about it: what makes that green piece of paper valuable to other people? You could write anything you want on that piece of paper in any color you want with watermarks and embedded technologies unheard of, but it will never have value until the other person is convinced of its value. We have all agreed that the dollar can be exchanged for goods; that is what makes the dollar valuable. Cultivating that thought is the fact that we know so many other people find it valuable. We know that we can use our dollar am millions of places all over the world to buiy whatever our heart desires. If we believed otherwise, that same piece of paper would become worthless, without changing form.
We need to cultivate a belief in the value of the dollar. We can do that by making our nation financially sustainable, like China and Russia and so many other nations who we once looked down on as economic-midgets. By righting our ship, we will be forced to pay a fee right now in the form of inconvenience. Believe me when I say this: that fee has to paid sometime, and it compunds over time. If you leave it for your children to pay, you have committed a fomr of child abuse that is beyond evil. It is horrible to abuse your own children, but to abuse all future generations with one policy is beyond evil.
Clinton and Greenspan demonstrated the effects of balanced budgets and solvency on American prosperity. If you look back on the 90's, you can see how balanced budgets and news of surpluses affected the markets. When we bailed out Mexico, it not only prevented a catastrophe and generated a trunaround in their nation, we too saw increases in market activity. When Clinton reduced spending and deficits in his budget, Greenspan at the Fed with statements and moves in the interest rates. Greenspan's actions make the financial markets turn backflips of joy. And when the financial markets are happy, almost everybody is happy. Even the poorest Americans can benefit during a bull market in most cases.
I didn't like Bill Clinton, personally. As a Marine, I was forced to salute him but I disagreed with many policies and philosophies that he held. However, I miss the days where someone challenged congress over their pork-barrell spending. I miss the days when a President earnestly sought for balanced-budgets and reduced debt. I wuoldn't say that Clinton had the right idea about how to trim the budget, but at least he tried. Most of all, though, I liked how cocky and secure our financial markets felt when Clinton and Greenspan were working together to lay the fundamentals for a healthy economy.
Wow, I didn't know I had that much to say on the subject of Baumol's Disease and Norquist's Law (which is what lead me to start this post.)
Every Presidential Candidate right now is spinning their tires. I don't see anyone really striking a chorus. Try this: focus on the root of the problem. Focus on the heart of the matter. Don't pull on my heart-strings, pull on wallet: at the end of the day, that's what will fire me up. Everthing else is just a subcategory; money is what makes the world go 'round.
Here are a few articles you can look up in EbscoHost or Proquest (head to your local library for assistance if you are unfamiliar with these databases--they are a fantastic way to find exactly what you need to know without leaving your desk):
-Baumol WJ. Do health care costs matter? New Republic. Nov. 22, 1993:16-18.
-Bobby J. Newbell, MD, November/December 2007, www.aafp.org/fpm, FAMILY PRACTICE MANAGEMENT, pg. 11.
-Jackson JR. Is technology displacing the art of medicine? Physician Exec. March/April 2004:46-50.
-Government gets a shrink. By: Barone, Michael, U.S. News & World Report, 00415537, 6/20/94, Vol. 116, Issue 24.
