The Leveling Playing Field: China’s Middle Class Rises as US Declines

I picked up an issue of the Gulf News while in Dubai in January, and I found an article that was of interest related to China’s economy and the trade position of that country. It was in the January 25, 2011 issue, and was entitled “Higher Costs in China Filtering into the Global Economy,” and was authored by Alan Wheatley.

Among the most salient points were:

1. China’s minimum wage continues to escalate at a rapid pace. “Guangdong, the biggest exporting province, said last week that it would increase minimum wages by around 19 per cent in March. In late December Beijing ordered a 20 per cent rise in the capital, just six months after a similar increase.”
2. China’s non-labor costs are also on the rise. “The cost of energy, buying land and complying with environmental legislation is also steadily rising as China strives to increase the puny share of national income that goes to labour and to reduce pollution. ”
3. The price of China-sourced products is expected to rise roughly 10%, in fact, during the first half of this year according to experts cited.
4. While a surface look at this series of events might lead one to expect that US sourced goods would experience the beginnings of a resurgence in this environment, having a net positive impact on employment levels and income for the American worker, the article warns instead that we may all suffer even more, saying: “China is starting to pass on the rising cost of labour and other manufacturing inputs as it restructures its economy, creating a potential new inflation headache for Western countries already grappling with surging commodity prices.”
5. The author amplifies by saying that: “Excess capacity and high unemployment in the United States and Europe mean that most companies will be unable to pass on higher costs from China and will have to accept lower profit margins instead.”
6. His overall point? “after a two-year pause, China is on track to become an inflationary force for the global economy again.”

So here is a conundrum: As we observe the standard of living in China continuing to rise, we can almost simultaneously see the opposite effect here in the United States. (See my blog entitled: “Are Your Children Being Impacted by the Economic Downturn?”) Asserting that the US always comes out ahead in international buying and selling just doesn’t pass the sniff test.

As the standard of living – especially as it relates to manufacturing and other traditionally middle class jobs – in China continues to improve, prices rise for Chinese goods – causing inflation for the Americans who are buying those goods. At the same time, Americans who lost their jobs as manufacturing work moved from the US to China are clearly taking a substantial hit in their income levels. So the US worker is taking it on the chin twice, squeezed between escalating prices for the products they buy, and lower income levels resulting form job loss and subsequent income depletion. Got it? Prices are going up, and wages are going down in the US at the same time. Now, on the other side of things, I think it’s only fair to point out that the last time I was in China (a few years ago), the hourly wage for skilled factory workers with the rough equivalent of a bachelor’s degree was running about $2.50 US, and a Ph.D. level employee commanded about $5.00 US. So we are still seeing a pretty significant disparity between average US wage and Chinese wage levels.

With all these things in mind, what steps do you think the US should take? One option would, of course, be to do nothing and allow the economic course to continue unabated. Another would be for the US to require American work content in all products sold within the United States’ borders. (Other countries do this all the time, and US companies comply – which, of course, is one of the reasons that US manufacturing jobs move offshore – so that they are allowed to sell their products in that national market.)

Does it seem farfetched to you that the US would impose such a measure? Actually there was an interesting article in Bloomberg Businessweek’s January 3-9 issue pertaining to this very matter.

It turns out that in some cases, Chinese companies are investing in the US to circumvent trade barriers and take advantage of other new US legislation such as clean energy requirements. The article was entitled: “Chinese Plants Grow Up on US Turf”. As the article points out, “Buy American” requirements that are part of some US Government contracts are a compelling reason for companies from other countries, in some cases to stand up operations on US soil. Among the companies described are China’s Suntech Power Holdings, (who manufactures solar power cells in Goodyear, Arizona), Wanxiang America (an auto parts company in Elgin, Illinois), and others such as Tianjin Pipe, Pacific Century Motors, and Nexteer Automotive.

Here is an excerpt from the article that I was especially intrigued by: “Suntech is using more advanced manufacturing equipment in its Goodyear plant than in Wuxi [China}, allowing 30 Arizonans to produce the same number of solar modules as 100 Chinese (US production costs are still about 10 percent higher.) “If it works very well, we can integrate the same manufacturing technology in China”, Guo says. “This would help Suntech China make a manpower reduction.” Jobs for Americans and pink slips for the Chinese just one more turnabout in the US – China relationship.” Fascinating, right? Several things about this intrigue me. First of all, the Chinese are now beginning to make small US manufacturing investments. Secondly, China’s investments are resulting in advanced manufacturing technologies continued migration to China, making Chinese producers still more efficient, and thirdly these efficiencies are now projected to impact the labor requirements in China. Still, these investments – in the scheme of overall US business, and more importantly in the scheme of overall Chinese business – are very small, and will take in indeterminate number of years to substantively impact our national economy.

How should the US address the growing pressure on middle class Americans resulting from all these factors, or should we just allow nature to take its course, and bow to an inevitable decline in the standard of living of Americans as it levels out to match the middle class standards of living in other countries?

What do you think?

Europe’s Reaction to the North African Refugee Tsunami: “We are slowly dying here”

“We are slowly dying here.” The message, which was part of a Facebook exchange with my friend Riccardo in Italy, gave me cause for real concern. Riccardo is normally a very upbeat guy – ebullient, in fact. A resident of Turin, he lives in one of the most beautiful places in the world and as a young, intelligent, enthusiastic guy, he has a world of opportunity before him. But the recent influx of refugees from Tunisia and the aftermath of refugee camps and embittered politicians have him profoundly worried.

Thousands of people, displaced as a result of the demonstrations and rioting in places like Tunisia, are flooding Europe. More than 5,000 refugees landed on the small Italian island of Lampedusa, which only has a population of 6,500. The Italians have been moving the new arrivals to refugee centers, but are finding they have far more refugees than space – several times more, in fact. Most of them appear to be gaining temporary visas as refugees, and then – because of the treaty among several European countries called the Schengen Agreement – utilizing those visas to travel into other treaty-bound countries including France and Germany. “Why would people leave Tunisia after a democracy-oriented revolution has occurred?” one might ask. In an interview with one of the young men involved, EU Observer was told: “I didn’t think Europe would be so unwelcoming. I will not stay in Italy, once on the mainland, I will leave in 24 hours.” This young Tunisian endured a 16-hour trip on a boat filled with 125 other people. He paid €1,000 for the trip and left because “there is no liberty, no democracy – it’s still Ben Ali’s old guard ruling the country.”

Refugees are coming not only from Tunisia, of course, but also Libya. According to some reports, more than 400,000 such refugees have passed through Libyan borders into Niger, Chad, Sudan, Algeria, and Egypt. With Egypt also on a very shaky footing following the recent ouster of Hosni Mubarak, it’s difficult to imagine a lasting sanctuary there.

The flight of displaced refugees through Italy into other European nations has caused a growing rift between the leaders of those countries. On April 17 2011, ten trains carrying Tunisian refugees were stopped at the border by French officials, citing reasons of “public order”, fearing demonstrations inside their country. An April 17 Yahoo news article said: “Italy has been giving temporary residence permits to many of the roughly 26,000 Tunisians who have gone to Italy to escape unrest in northern Africa in recent weeks.” “France says it will honor the permits only if the migrants prove they can financially support themselves and it has instituted patrols on the Italian border – unprecedented since the introduction of the Schengen travel-free zone – bringing in about 80 riot police last week. Germany has said it would do the same.” (http://ca.news.yahoo.com/france-blocks-train-italy-activists-illegal-tunisian-migrants-20110417-052355-689.html) In addition, it is now being reported that France and Italy have agreed to joint sea-and-air patrols to block any new North African migrants from sailing to Italy, including the Italian island of Lampedusa. In light of the state of Europe’s economy, the ebb and flow of tens of thousands of people between these countries places acute and unexpected pressure on an already strained political and economic infrastructure. Thus far, according to the EU Observer: “the EU and the Member States have mobilized around € 71 million and more aid is being considered.”

Bribery hasn’t worked, either. According to the EU Observer: “European Commission chief José Manuel Barroso on 13 April promised Tunisia €140 million of extra EU aid if the new government takes “strong and clear action” to prevent its citizens from leaving for Europe and take back the thousands that have already made it to Italy – which Tunisia has so far already made it to Italy – which Tunisia has so far refused.” (http://centurean2.wordpress.com/2011/04/13/after-arab-“revolutions”-ii-immigration-explosion-eu-members-protesting-wasted-tax-money-eu-war-threats-to-“closed-societies”/)

An “us” (Europeans) vs. “them” (Muslims) situation is developing. It was foreseen as early as last summer. Andrew Brons, MEP from the British National Party, addressing the European Union Parliament on June 20, 2010 said: “The problem is that the EU hasn’t faced up to globalization; it’s embraced it,” he said. “It’s allowed a flood of imports from developing economies with wage rates a fraction of those in Europe. The only way in which we could possibly regain competitiveness would be to drive wage rates down to their levels.” “However, my message is also for Europhiles: Europe, either as a whole, or separately, will fail to protect its manufacturing and it agriculture from Third World competition at its peril. Globalization must be resisted individually or collectively or it will destroy us all,” Mr. Brons said. “Replacing Europeans with people from the Third World will mean that Europe will be replaced by the Third World. Europe is slowly but steadily being ethnically cleansed of Europeans.” (http://centurean2.wordpress.com/2010/06/21/europe-is-being-ethnically-cleansed-of-europeans-andrew-brons-mep-warns/)

I sympathized with my friend Riccardo, mentioning the challenges we have been faced with in the United States with a seemingly unfettered flow of undocumented immigration across our southern border. He was quick to point out, though, that Mexicans illegally crossing into the United States are predominantly Roman Catholic. “They don’t blow themselves and others up with suicide vests,” he pointed out. “If Europe will not change, 40 years from now we will be the next battle field against terrorism. We are slowly dying.”

As the demonstrations across North Africa turn into riots and government overthrows, things continue to devolve in the adjacent countries, and the repercussions are increasingly sweeping across Europe. Like American politicians who refuse to deal aggressively with the illegal immigration problem along our southern border, Riccardo says, European politicians are reluctant to take action to protect their own sovereignty. “Politicians are the same everywhere”, he says, “they don’t want to take responsibility. They plan and plan and never make a decision. It is the same all over the world except in China. When they decide to do something they do it quickly.”

I think there’s a lot of truth in what Riccardo is saying here.

What do you think?

A Contrarian View of the Arizona Shootings – January 2011

Everyone knows that objects look bigger when you are standing right next to them. The same is true of events. Usually the events of day-to-day life, when examined after some time has passed, turn out to be somewhat less meaningful or at least less dramatic. The recent shootings in Arizona that severely injured a legislator, and killed other innocent civilians were tragic; no question about it. I don’t know a single person who doesn’t wish they could have intervened somehow to prevent the tragic loss of life. While all of the deaths and injuries are abhorrent, I think most of us are especially impacted by the death of an innocent 9 year old girl whose only offense was standing close to the congresswoman targeted by the deranged assailant. Nothing will ever diminish the terrible impact of that event, and grieving for the losses of the families involved was not only appropriate, it was a natural and required part of the healing process.

So in light of the terrible tragedy that is the Arizona shootings, here is another avenue of thought related to the context of this event: How many Americans have been lost to murderous insurgents in Iraq since the beginning of the conflict there? Without googling it, can you estimate that number within – say – 1,000? Any idea how many civilians have been killed? Again, you don’t have to be exact here; can you estimate within 1,000 people? According to a front-page story in USA Today January 12, 2011, “Insurgents in Iraq killed more than 21,000 civilians and wounded another 68,000 people with homemade bombs over the past five years, according to newly released data from the Pentagon. The highest number of casualties came in 2007, coinciding with the worst sectarian violence and the surge in U.S. Military forces to quell it. In that year, 7,295 people died – nearly 20 a day – from improvised explosive devices, says the Pentagon. Another 21,970 Iraqis were wounded.” Later in the article, a U.S. Official is quoted when he said: “The enemy put civilians purposely at great risk by its tactics and actions.”

I can vouch for that. I flew into Iraq for the first time in December of 2006, and stayed through most of 2007. The violence was everywhere, and it was indiscriminate. It seemed to me that I could at least hear a car bomb going off about every 45 minutes, and many shook the ground. Small arms fire was everywhere, and in the early days of 2007, it was almost continuous. No amount of time passing me by will ever blunt the stark terror of those rides in Hummers through Baghdad, waiting for an IED to blow my legs off – or worse. And at 2AM, when rockets and mortars came in and literally sprayed my little office with dirt and shrapnel, it became extremely clear to me that being the only structure around with lights still showing through the windows just wasn’t worth getting a little more work done that night.

It was interesting for me to follow the flowing river of written and verbal rhetoric running through the internet, the airwaves following the tragedy. The debate around gun ownership split open again, and it took only a few hours for opportunists on the liberal side of the aisle to launch attacks on conservative figureheads like Sarah Palin and Rush Limbaugh for “contributing to the environment” that spawned this horrific attack. The President personally led moments of silence, traveled to Arizona to deliver speeches, and paid his respects to the grief-stricken families in several public venues. One article by Richard Wolf in the January 12 Wall Street Journal that was especially interesting to me entitled: “Amid Troubles, Presidents Inspire and Heal” laid out the words and actions of FDR following Pearl Harbor, LBJ following the Kennedy assassination, Ronald Reagan following the Challenger explosion, Bill Clinton following the Oklahoma City bombing, and George W. Bush following the 9/11 terrorist attacks.

As I mentioned in the opening paragraph, any loss of innocent human life is totally unacceptable, and we need to do everything we can to prevent it and appropriately respond to it when it occurs. But looking at this event – terrible tragedy though it is – in the cold, gray light of dawn, it is interesting to try to achieve some perspective. Pearl Harbor was a sneak attack that killed hundreds – primarily military, but some civilians as well. The 9/11 terrorist attack was an attack on civilians and cost the lives of about 3,000 Americans. Adolph Hitler’s inconceivable reign of terror killed 6 million Jews. The vast majority were innocent men, women, and children. The world has seen unbelievable atrocity and murder on genocidal scales. Even now, in the course of a single month at just one U.S. Marine installation in Afghanistan, we have “Ramp Ceremonies” (also called “Dignified Transfers”) for more true American heroes than we lost in the Arizona shooting spree.

So as we experience the real and undeniable grief and heartache of the friends and families of these eight victims in the Arizona tragedy, I am hoping that observers will remember that for years now, every single week families and friends receive the shattering news that they will never see their son, daughter, father, mother, or close friend alive again on this earth.

Because we don’t know them, and we don’t have their faces and their personal stories broadcast into our homes all day and all night for days afterward, and because they are usually not respected court judges, congressional representatives, or beautiful little girls, somehow we don’t feel those losses so deeply. We aren’t moved by them to set our flags at half mast or hold an official moment of silence at the White House, or even mention many of their names on a national news broadcast. And while the men and women whose lives are sacrificed in the line of duty – whether that duty is on the battlefield in Afghanistan or on a police patrol in some major U.S. city – are people you don’t know through a media blitz, they are every bit as important. Every bit as deserving of our pity, our grief, and our prayers.

The same is true of the murder victims in Detroit and East St. Louis and Watts. The victims of traffic accidents, airplane crashes, and natural disasters like Katrina. There is no outpouring of national grief and mourning when the victim is a homeless man, or that most helpless and innocent of victims, an unborn child. Scores of murders and tragic accidents occur around us every day. The scope and grandeur of the public outcry around this one terrible event does cause me to wonder how much of what I am saw was theatrics, how much was opportunistic politics, and how much was genuine sorrow – especially on the part of our political leaders and our mainstream media.

What do you think?

Repeal Obamacare? Yes – One Way or Another

I am in my mid-fifties. My first memories of politics are black-and-white images of Richard Nixon and John F. Kennedy debating on national television. I am not a politician of any stripe, and like most Americans, my enthusiasm for politics and for political issues waxes and wanes – typically around national election cycles. But nationalizing health care holds a somewhat higher level of interest for me than most national policy debates in recent memory.

For more than three decades, I have been involved in American business. I started out working in retail stores like Sears and K-Mart when I was in high school, poured molten grey iron in a foundry in college, worked in a factory making paint, worked for a couple of years as a psychiatric aid in a hospital that handled kids with special needs, and from there went into management positions at companies like John Deere, McDonnell Douglas, Boeing, and Computer Sciences Corporation. So I have seen and experienced a fairly broad spectrum of business issues and the plight of American business and American employees.

The broad national health care issue first really came into focus for me while I was Director of Materials Management at McDonnell Douglas back in the early 1990s. My boss, the Vice President of Production Operations, visited my staff meeting and addressed me and my staff jointly about McDonnell Douglas’ decision to discontinue providing life-long health insurance coverage for the company’s retirees. He said that this was the right time to implement such a change, because: “Hillary is going to implement nationalized health care anyway, so McDonnell Douglas can save a ton of money here without impacting our retirees.” I immediately asked: “So if Hillary is not successful, and we don’t get nationalized health care, then the Company will reinstate their plan for retirees?” My boss just looked at me and said: “Riiiiiiiiight.” We all knew what that meant, and the rest, as they say, is history. The cost of health insurance over 60 years of age is not insignificant, and it shifted from a company burden to a burden shouldered by retirees.

As a business leader, I have worked with profit & loss for a long time. I understand how difficult it is to wring additional profit out of the revenue from products and services just to survive in an extremely competitive business environment. I have seen how ruthless executives often become in pursuit of corporate profits, not only for survival, but also simply out of greed. Perhaps it is because I spent some years at the bottom end of the ladder in big manufacturing companies doing things like pouring iron, but whatever the reason, I detest shifting additional burden to the employees who earn the least and – from a physical perspective, at least – work the hardest. I feel as though it violates the partnership between the employer and the employee in many cases. I know that it damages morale, and often hurts the quality of the company’s goods and services. So as I have watched the cost of health care benefits rise over the last 35 years, I have had to work through how those costs were addressed and mitigated (to some extent) through the introduction of Health Maintenance Organizations, Health Savings Plans, and a broad array of other similar initiatives.

Now, as the baby boomers move like the proverbial pig through a snake, the costs of programs such as health care and social security have become critical for retirees. We are into a more-people-taking-out-than-people-paying-in situation. In addition, the off-shoring and outsourcing of much of the middle class work in the US has diminished the power of labor unions to negotiate substantive health care benefits for their membership among current work force. So not only retirees are at risk here; so are our current and future work forces. One solution that continues to come forward is – broadly stated – nationalized health care.

I have a little experience with nationalized health care. I actually lived and worked in Canada for a few years, and was part of the Canadian health care system. (I genuinely enjoyed my time up north; I found Canadians to be friendly, intelligent, and industrious. I made some life-long friends in Canada.) One day while working up there, I noticed that one of my colleagues was limping in a more and more pronounced way. I didn’t say anything at first, but weeks and months went by and he only seemed to get worse. When I finally asked him about it, he said, “I have to have my knee replaced.” I asked him when that was scheduled, and he told me it wasn’t scheduled yet. He was on a waiting list. At the time I asked him, he had been on that waiting list for 18 months. This guy was in pain, and it made me wince just seeing him walking around like that. Whenever I think of nationalized health care, I think of my former colleague.

And then there are the statistics. Unfortunately, over the course of the debate, some conservatives – especially the right wing of the right wing – have made claims about Canadian and UK health care differences that are untrue. I am very impressed with an analytical piece published in the UK recently that debunks some of these claims, entitled “Is public healthcare in the UK as sick as rightwing America claims?” authored by Denis Campbell and Girish Gupta.

However, even in this very even-handed article, the authors have to admit things like: “Breast cancer does claim more lives, proportionally, here [in the UK] than in the US. According to the 2002 Globocan database run by the World Health Organisation’s cancer advisers, 19.2 of every 100,000 Americans die of the disease, but 24.3 per 100,000 here die. On prostate cancer, a Lancet Oncology global study last year found that 91.9% of Americans with the disease were still alive after five years compared to just 51.1% in the UK. With heart attacks, 40% of Britons who suffer one die from it compared to 38% in the States”, and “Breakthrough Breast Cancer cite two recent studies from Lancet Oncology. One says that 83.9% of women in the US diagnosed with breast cancer between 1990-94 lived for at least five years compared to 69.7% in the UK – a 14.2% difference. The second showed that, among women diagnosed with the disease in 2000-02, 90.1% in the States survived for at least five years whereas in England it was 77.8% – a 12.3% gap.” The performance of nationalized health care systems is simply not as good as private systems like the US system – and that difference translates into higher mortality rates.

America does spend a great deal on health care, which intuitively explains why the health care available in the United States is world class. Looking at expenditures for health care per capita, the NHS posted the following numbers on annual per capita Health Care spending:

• United States – $6719
• Canada – $3673
• UK – $2815
• Italy – $2631
• Japan – $2581
• Russia – $698
• Cuba – $674
• China – $216

And in the spirit of objectivity, it’s useful to note that this world-class health care has not necessarily resulted in longer average life spans in the US. Due to our rich diets, poor exercise, and general propensity for obesity, we actually lag many other countries by 2 to 5 years. However, Obamacare is very likely to make it much worse.

Nationalized health care in its current manifestation, known among the citizenry as “Obamacare”, has traveled a byzantine route to gain passage. It almost certainly would not have made it through a full vote of citizens as a referendum. I have never seen anything quite like it. Former Speaker Nancy Pelosi actually said, “We have to pass it so that we can see what’s in it.” No kidding, I actually SAW her saying those words on national television! What always fascinates me is how these people keep getting re-elected; but I digress. After watching the debate, the Corn Husker Kickback, the Louisiana Purchase, and the other brass knuckles shenanigans surrounding the passage of this bill, it seems to me that anyone who did not foresee an effort to repeal it at the first opportunity must be blind.

So what’s actually in the new 1,000+ page Obama Health Care bill? Among the specific items that many of us are concerned about:

• Page 16: If you have insurance at the time of the bill becoming law and change, you will be required to take a similar plan. If that is not available, you will be required to take the government option.
• Page 22: Mandates audits of all employers that self-insure!
• Page 29: Admission: your health care will be rationed!
• Page 30: A government committee will decide what treatments and benefits you get (and, unlike an insurer, there will be no appeals process)
• Page 42: The “Health Choices Commissioner” will decide health benefits for you. You will have no choice. None.
• Page 50: All non-US citizens, illegal or not, will be provided with free healthcare services.
• Page 58: Every person will be issued a National ID Health card.
• Page 59: The federal government will have direct, real-time access to all individual bank accounts for electronic funds transfer.
• Page 65: Taxpayers will subsidize all union retiree and community organizer health plans (example: SEIU, UAW and ACORN)
• Page 72: All private healthcare plans must conform to government rules to participate in a Healthcare Exchange.
• Page 84: All private healthcare plans must participate in the Healthcare Exchange (i.e., total government control of private plans)
• Page 91: Government mandates linguistic infrastructure for services; translation: illegal aliens
• Page 95: The Government will pay ACORN and Americorps to sign up individuals for Government-run Health Care plan.
• Page 102: Those eligible for Medicaid will be automatically enrolled: you have no choice in the matter.
• Page 124: No company can sue the government for price-fixing. No “judicial review” is permitted against the government monopoly. Put simply, private insurers will be crushed.
• Page 127: The AMA sold doctors out: the government will set wages.
• Page 145: An employer MUST auto-enroll employees into the government-run public plan. No alternatives.

At this point, of course, Congress has passed it (along party lines of course, with Democrats pushing it across the top) and the new Republican-led Congress has voted to repeal it. But there are not enough votes to over-ride the presidential veto, so there will be an enormous amount of time, energy, and taxpayer money spent to modify, de-fund, or otherwise mitigate the damage done by this legislation.

The bottom line then, from my perspective is this: Should Obamacare be repealed? Yes. It should never have been passed in the first place. The fact that this legislation got passed with all the back room deals fully exposed in the press says a lot about the rotting, putrid condition of our current legislative process, and the moronic condition of the citizens who re-elect these criminals to represent them in Congress. Will it be repealed? No. I don’t think the Republicans will garner the Democrat’s support in this issue any time sooner than the next Republican presidency. In the mean time, as I said earlier, there will be an enormous amount of time, energy, and taxpayer money spent to modify, de-fund, or otherwise mitigate the damage done by this legislation. Your tax dollars at work – wasted once again.

What do you think?

Dating and Desirability Part Two: A More Exhaustive Study

In a Recent blog on Dating and Desirability, I noted a number of patterns that had been observed in one brief study that related to the impact of income and physical attractivemness on dating and mate selection. Some respondents noted – and I noted as well – that the population in that study was potentially skewed by virtue of the fact that the entire study population was comprised of students at Columbia University. I recently came across another study, the results of which were published in the American Economic Review in 2010, which is much more thorough, much more academically rigorous, and is based on a much larger sample. It appears to have yielded very similar results. (See American Economic Review 2010, 100:1, pages 130–163 http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.1.130 )

Here, paraphrased slightly, are the essential elements of their findings:

1. Subjects prefer a partner whose age is similar to their own.
2. Women who are single try to avoid divorced men, while divorced women have a preference for a partner who is also divorced.
3. Single men avoid divorced women, and divorced men have no particular preference to date a divorced woman.
4. Both men and women who have children prefer a partner who also has children. Potential partners with children, however, are much less desirable to both men and women who themselves do not have children.
5. Women seeking a long-term relationship prefer a partner who indicates that he is also seeking a long-term relationship, but no such preference is apparent for men.
6. Looks and physique are important determinants of preferences for both men and women. The difference is only slight between men and women.
7. Men typically avoid tall women, while women have a preference for tall men.
8. Men have a strong distaste for women with a large Body Mass Index, (heavier women) while women tend to prefer heavier men.
9. Women place about twice as much weight on income as men do.
10. Both men and women want to meet a partner with a similar education level. Women have an overall strong preference for an educated partner, but also have a relatively small tendency to avoid men who are more educated than themselves.
11. Men generally shy away from educated women.
12. Both men and women have a preference for a partner of their own ethnicity.
13. Both men and women have a preference for a partner of the same religion.

As I mentioned earlier, this study is pretty thorough, and it appears to me to be completely sound from an academic perspective; I invite the reader to click the hyperlink and take a look. I think most of these findings are pretty intuitive, and the rest made pretty good sense to me when I reflected on them. Do you find any of them surprising?

What do you think?

Where are the New Ideas?

Several years ago, while I was in management consulting, I remember pointing out to the CEO of a St. Louis-based chemical manufacturing company that he was losing many millions of dollars each year simply because his company, while growing through acquiring other smaller companies, had failed to integrate the various businesses. I showed him one example in detail, where the company was literally allowing their most expensive product component to expire on storage shelves in some locations, while continuing the purchase more in other locations, and at increasingly high prices. This occurred simply because the various company locations did not use the same part number, description, or other identification schemas for the same chemical from site to site. So no one at any site was aware of available inventories at their sister sites. The CEO waved his hand dismissively and said, essentially, that several millions of dollars a year wasn’t worth worrying about. As it turns out, the board of directors fired that particular CEO within just a few months following the meeting. But the aspect of the discussion that struck home with me is that it is far easier to be critical of the work and the ideas of others than it is to produce alternative work and alternative ideas.

With each new election season, the party seeking to oust their opponents to gain control in the White House, Congress, or the United States Senate goes through a very similar process. They focus largely on criticizing the failures and policies of the existing administration, and rarely offer better proposals. And in those rare cases where ideas are brought forward, they rarely survive the election cycle and come into practice.

Recently, in a column called “Why Not a Negative Income Tax” authored by Guy Sorman, the following statement is made: “ Republicans have been winning races again, but with a few important exceptions—Wisconsin congressman Paul Ryan comes to mind—they have done so mostly by running against proposals by liberals in power, rather than by suggesting a coherent alternative agenda. This essentially critical approach contrasts markedly with the 1980s, when the Reagan Revolution worked to implement a rich body of policy ideas developed in advance by many thinkers, including, prominently, the free-market economist Milton Friedman.”

Personally, I am not a big fan of Friedman’s negative income tax” idea. But the point he makes about being critical without being helpful or outlining specifics about how things should be changed has the ring of truth. We need some good ideas, and ideas that survive the election cycle and actually make it into implementation. Simply saying “Those guys don’t know how to govern, so elect me instead” shouldn’t be enough. Yet elections are often determined – not by how much the electorate likes the challenger, but rather by how much they dislike the incumbent. That said, I will fall into that same category to the extent that I feel compelled to point out these examples among the existing proposals made by the Obama Administration for US Federal budget changes:

• Eliminate US Oil and Gas Company Preferences (including the levying of excise taxes on Gulf of Mexico oil and gas) – thereby further disincentivizing that industry and contributing to the rise in oil prices.
• Increase tax rates on the most productive members of the US economy. (Reinstate higher tax rates for individuals earning over $200,000 and families earning over $250,000. Phase out personal exemptions for those same categories if US citizens. Impose a 20 percent rate on capital gains and dividends for those same categories of US citizens.) – thereby penalizing individuals and families for working hard and earning more.

In aggregate, according to the Summary tables provided with the Obama Administration’s budget proposal, the overall US budget deficit – which stood at $459 billion in 2009, would rise to $712 billion by 2019, with debt held by the public increasing from the already dangerous level of 41% of our national Gross Domestic Product (GDP) in 2009 to more than 67% of GDP by 2019. This path is not just dangerous, it is reckless, and exposes a wanton disregard for the future of our nation. So what are some of the “New Ideas” that might be proposed? Here are some – some old “new” ideas, and some new “new “ ideas that we might consider:

• Education: Confer retroactive tuition reimbursement to all bachelor-level college graduates who complete degrees in Science & Engineering fields at accredited state universities. Provide similar funding for non-Science & Engineering curriculum graduates, but at a 50% level. For any student who prefers to select a trade school, confer retroactive tuition reimbursement for the attainment of accredited degrees and certificates to up-to-three-year programs. Eliminate all other US Department of Education programs.
• Education: Initiate a “Pay-for-Performance” system. Teachers whose students score above 90% on average on nationally accredited and standardized tests (ACT or SAT) receive 50% annual bonuses on their base salary. Teachers whose students score over 80% on average receive a 25% bonus. (Since most high schools divide the student work load into subject matter areas, high schools may elect to aggregate student scores, or assign each of their teachers (at the beginning of the school year) to one of the test subject matter areas and awards would be assigned at year end on that basis.) No weighting based on geography or socioeconomic factors.
• Education: Initiate school breakfast and lunch programs from K through 8^th grade. Nothing fancy – cold cereal and milk and fruit for breakfast, and standard school cafeteria fare for lunch are fine. The fact is that students’ mental processes operate far better when they are nutritionally sound, and many of our kids just aren’t getting the required nutrients at home.
• Education: Eliminate the Office of Vocational and Adult Education, the Office of Postsecondary Education, the Federal Student Aid division, the White House Initiative on Black Colleges and Universities Staff, the White House Initiative on Tribal Colleges and Universities Staff, The White House Initiative on Asian Americans and Pacific Islanders, the Office of Legislation & Congressional Affairs, the Institute of Education Sciences, the Office of Communications Outreach, the White House Initiative on Educational Excellence for Hispanic Americans, the Office of Innovation & Improvement, the International Affairs Office, and the Center for Faith-Based Community Initiatives.
• Education: Consolidate the Office of the Chief Information Officer and the Office of Educational Technology. Review the combined office in order to streamline or eliminate it.
• Education: Eliminate the Office of the Deputy Secretary, the Office of the Inspector General, and the Office of Management.
• Commerce: Institute an agency that draws on information from the various branches of the Commerce Department, and conducts studies of existing trends in business and trade. Based on this research, the Department will develop projections of future skills and capabilities requirements. Those projections will then be used as the basis for developing curricula for trade schools, colleges, and universities to prepare our graduates entering the workforce to make American businesses more effective competitors in the world market. Thee curricula will be provided at no cost to state colleges, universities, and relevant accredited trade schools.
• Commerce: Consolidate the Bureau of Economic Analysis (BEA), Bureau of Industry and Security, The Economic Development Administration, the National Telecommunications and Information Administration, the Economics and Statistics Administration. Reduce the combined management staff by about 75%.
• Commerce: Consolidate the National Institute of Standards and Technology, the National Technical Information Service, and the US Patent and Trademark Office. Reduce the combined management staff by about 75%.
• Agriculture: Dissolve Foreign Ag Service and create Foreign Agriculture Research and Extension Assistance Program under the new National Institute for Food and Agriculture. Would not involve increasing personnel, just reassigning and incorporating Land Grant staff. Huge personnel budget savings. FAS work is already being done privately.
• Agriculture: Eliminate the Office of the Chief Economist. Totally symbolic…the Economic Research Service component is more than adequate.
• Agriculture: Move the nutrition program to Health and Human Services to be administered in block grants to the states. Indiana actually privatized the Food Stamp program and graduated the highest percentage of people off the dole and administered the program at less than half the cost the feds operate. USDA took the program back from Indiana because it was “restrictive”. This would save tens of billions of dollars. Also, the personnel savings in DC and nationwide would be 30% of the USDA administrative budget.
• Agriculture: Discontinue the Conservation Reserve Program. This is the only program left that takes land out of production and pays an annual lease. About a $5 billion annual savings.
• Agriculture: Maintain Farm Service Agency, Natural Resources Conservation Service, National Agricultural Statistics Service, Animal, Plant, Health, Inspection Service, and Economic Research Service. Shift Food Safety Inspection Service to FDA.
• Agriculture: Reduce Under Secretaries and Assistant Secretaries (and corresponding staffs) in accordance with the Agriculture-related recommendations listed above.
• Health & Human Services: Eliminate the Assistant Secretary for Administration, the Assistant Secretary for Legislation, the Assistant Secretary for Public Affairs, the Assistant Secretary for Planning and Evaluation, the Center for Faith-Based and Neighborhood Partnerships, the Departmental Appeals Board, the Intergovernmental Affairs and Regional Representatives, the Office of Global Health Affairs, the Office of the Inspector General, and the National Coordinator for Health Information Technology.
• Health & Human Services: Institute separate departments devoted to each of the top three diseases killing Americans today: Heart Diseases, Cancers, and Cerebrovascular diseases. When any one of these diseases is cured or falls in incidence levels from the “Top 3”, (such as the discovery of an effective polio vaccine), that department is dissolved within one calendar year and is replaced with a department devoted to whatever the next highest incidence of fatal disease is at that point. The mission of these departments is to orchestrate an all-out war on the specific disease set that they are targeting. This includes selective research funding, and coordination /dissemination of information regarding the most promising treatments.
• Homeland Security: Stage 1a – Consolidate the Office of Counterterrorism, the Office of Preparedness / Response / Recovery, and the Office of Cybersecurity. Make management staff reductions as appropriate (target 50%).
• Homeland Security: Stage 1b -Consolidate the offices of Border Security and Immigration. Increase the staffing of the combined agency as required in order to effectively seal all US borders. Limit total incoming immigration to a maximum of 250,000 individuals per year.
• Homeland Security: Stage 2 – Fold Homeland Security in under the Department of Defense. Fold the Office of Cybersecurity in under the Defense Intelligence Agency.
• Defense: Consolidate the US Navy With the US Marine Corps and US Coast Guard, calling the resulting consolidated entity the US Amphibious Corp. Eliminate redundant management levels. Consolidate the US Army with the US Border Patrol and the US National Guard. Eliminate redundant staffing levels. Consolidate the National Aeronautics & Space Administration with the United States Air Force.
• Housing & Urban Development: Eliminate the Center for Faith-based and Neighborhoods Partnership General Counsel, The Chief Capital Officer, the Chief Information Officer, the Chief Procurement Officer, Community Planning & Development, Congressional / Intergovernmental Relations, Departmental Enforcement Center, Policy Development & Research, Public Affairs, Public & Indian Housing, Small / Disadvantaged Business Utilization, Healthy Homes & Lead Hazard Control, Office of Hearings & Appeals, Office of the Inspector General, Office of Sustainable Housing & Communities, and Field Policy / Management.
• Housing & Urban Development: Require all newly constructed homes in the United States to provide at least 50% of their rated power requirement through some combination of solar, wind, and/or geothermal sources.
• Interior: Eliminate the Bureau of Indian Affairs, the Bureau of Land Management, the Bureau of Reclamation, the Bureau of Land Management, the National Park Service. Turn all National Parks and other public lands over to the States in which they reside for management.
• Justice: Consolidate the Anti-Trust Division, the Bureau of Alchohol, Tobacco and Firearms, The Civil Rights Division, The Civil Division, the Criminal Division, the Drug Enforcement Administration, the National Drug Intelligence Center, the Office of Juvenile Justice, the Office of Sex offender Sentencing, the Office of Tribal Justice, the Executive Office for Organized Crime Drug Enforcement Task Forces, the Tax Division, and the US Marshal’s Office under the Federal Bureau of Investigation. Eliminate about 75% of the combined management staff and all other redundancies identified within the newly combined organization.
• Justice: Eliminate the Asset Forfeiture Program, the Bureau of Justice Assistance, the Bureau of Justice Statistics, the Community Capacity Development Office, Community Oriented Policing Services office, the Community Relations Service, the Diversion Control Program, the Environment & Natural Resources Division, the Executive Office for Immigration Review, the National Criminal Justice Reference Service, the Office of Tribal Justice, the Office of Victims of Crime, the Bureau of Justice Assistance, the Office of Violence Against Women, the Professional Responsibility Advisory Office, the US Trustee Program, the Office of Privacy & Civil Liberties, the Office of Legal Policy, the Office of Information Policy, the National Institute of Justice, the Office of Intergovernmental and Public Liaison, the Office of Dispute Resolution, and the National Security Division. Any critical tasks remaining from these agencies, bureaus, and offices will be redistributed to other remaining organizations.
• Justice: Consolidate the National Institute of Corrections, the US Parole Commission, and the Office of the Pardon Attorney under the Federal Bureau of Prisons.
• Justice: Increase funding to the US Bureau of Prisons by 300% in order to retain prison populations for the duration of sentences passed down from the judicial system and reduce the number of repeat offenders owing to early release of convicts back into the mainstream population.
• Labor: Eliminate the Administrative Review Board, the Benefits Review Board, the Bureau of International Labor Affairs, the Center for Faith-Based & Neighborhood Partnerships, Employee benefits Security Administration, Employees’ Compensation Appeals Board, Employment & Training Administration, Office of Administrative Law Judges, the Office of Congressional & Intergovernmental Affairs, the Office of the Assistant for Administration & Management, the Office of the Assistant Secretary for Policy, the Office of the Chief Information Officer, the Office of Disability Employment Policy, the Office of Federal Compliance Programs, the Office of Labor-Management Standards, the Office of Public Engagement, Office of the Solicitor, the Ombudsman for Energy Employee Occupational Illness, and the Women’s Bureau. Any critical tasks remaining from these agencies, bureaus, and offices will be redistributed to other remaining organizations.
• Labor: Replace the features of the existing Unemployment Insurance system with the following features:
  • Upon involuntary termination, full time employees who earned in excess of $35,000 per year will receive 75% of the average weekly wages earned during the previous year and a prescribed level of health insurance benefits will be provided for up to three years. During that period, the beneficiary must enroll in and graduate from an accredited technical school of their choice. Tuition for this education will be funded as a benefit of the unemployment insurance program. Graduates will receive a retroactive payment for the remaining 25% of their prior wages for the previous job. No further benefits will be available from unemployment insurance for 5 years thereafter.
  • Upon involuntary termination, full time employees who earned less than $35,000 per year will receive 100% of the average weekly wages earned during the previous year and a prescribed level of health insurance benefits will be provided for up to three years. During that period, the beneficiary must enroll in and graduate from an accredited technical school of their choice. Tuition for this education will be funded as a benefit of the unemployment insurance program. No further benefits will be available from unemployment insurance for 5 years thereafter.
  • All beneficiaries may obtain employment and opt out of the unemployment insurance benefits program at any time, but will forfeit unemployment insurance eligibility for 2 years following that action.
• State: Eliminate the Office of Management policy, Office of the Science & Technology Advisor, Office of the Legal Advisor, Bureau of Resource Management, Office of Allowances, Office of Small Disadvantaged Business Utilization, Office of Directives Management, Office of Multi-Media Services, Office of Management Policy, Rightsizing, and Innovation, Office of Commissary and Recreation Affairs (Consolidate under Bureau of Overseas Building Operations), Director of Diplomatic Reception Rooms (Consolidate under Bureau of Overseas Building Operations), Office of Children’s Issues, Office of Medical Services, Office of the Global Aids Coordinator, Bureau of Population, Refugees, & Migration, Bureau of Information Resource Management, Bureau for International Narcotics and Law Enforcement, Bureau of Educational and Cultural Affairs, Bureau of Public Affairs, Bureau of Democracy, Human Rights, & Labor, Bureau of Oceans and international Environmental & Scientific Affairs, Bureau of Verification, Compliance, & Implementation, and the Counselor (Ranking with the Under Secretaries, the “Counselor” is the Secretary’s and the Deputy Secretary’s “special advisor” and consultant on major problems of foreign policy). Any critical tasks remaining from these agencies, bureaus, and offices will be redistributed to other remaining organizations.
• Transportation: Virtually eliminate the Federal Highway Administration, relegating it to a standards organization for the establishment of civil engineering attributes of roadways, bridges, and other transportation elements.
• Transportation: Consolidate the federal Motor Carrier Safety Administration, the Federal Railroad Administration, the National Highway Safety Administration, and the Surface Transportation Board under the Federal Transit Administration, and eliminate about 75% of the combined management positions.
• Transportation: Consolidate the Saint Lawrence Seaway Development Corporation under the Maritime Administration and eliminate 40% of the combined management positions.
• Transportation: combine the Office of the Inspector General and the Office of the Secretary of Transportation and eliminate 25% of the combined management positions of the new organization.
• Transportation: Increase funding for the (newly combined) Federal Transit Administration as required to complete high speed rail systems connecting all cities in the continental United States with populations exceeding 500,000 with capability of connecting all designated cities with no more than two intervening stops and a Boston-to-San Diego commute time of not greater than 16 hours.

The consolidations and eliminations listed previously would generate something in the neighborhood of $500 billion in annual savings (see spreadsheet listed below.) The cost of the department funding increases and other investments listed above would be much less than $500 billion. In fact, in the Obama Administration’s 2010 budget proposal, the section describing Department of Transportation requirements says: “To provide Americans a 21st Century transportation system, the Administration proposes a five-year $5 billion high-speed rail State grant program. Building on the $8 billion down payment in the American recovery and reinvestment Act of 2009, the President’s proposal marks a new Federal commitment to give the traveling public a practical and environmentally sustainable alternative to flying or driving. Directed by the States, this investment will lead to the creation of several high-speed rail corridors across the country linking regional population centers.” Even if the savings generated from implementing some subset of these recommendations generated half the projected savings, the mere $250 billion should still do the job.

What do you think?

William Duncan’s Budget Proposal

Dating and Desirability

A study on dating preferences and desirability was recently conducted over a period of 2 years, and included observations of more than 400 daters among Columbia University’s various graduate and professional schools. The study involved “speed dating”, with each couple rating their “date” at the end of each 4 minute encounter. The results were interesting in many respects.

Among the findings citied by Ray Fisman (http://www.slate.com/id/2177637/nav/tap3/) were:

1. Men put significantly more weight on their assessment of a partner’s beauty, when choosing, than women did.
2. Women got more dates when they won high marks for looks from research assistants, who were hired for the much sought-after position of hanging out in a bar to rate the dater’s level of attractiveness on a scale of one to ten.
3. Intelligence ratings were more than twice as important in predicting women’s choices as men’s. Men preferred women whom they rated as smarter—but only up to a point. In a survey performed before the speed dating began, participants rated their own intelligence levels, and results showed that men avoided women whom they perceived to be smarter than themselves.
4. Similarly, when observing preferences related to career ambition, a woman could be ambitious, just not more ambitious than the man considering her for a date.
5. Women of all the races studied revealed a strong preference for men of their own race: White women were more likely to choose white men; black women preferred black men; East Asian women preferred East Asian men; Hispanic women preferred Hispanic men.
6. Men in this study did not exhibit discrimination based on race with regard to dating. A woman’s race had no effect on the men’s choices.

A number of elements about this study and its findings are of interest to me:

First of all, the population studied here is “daters among Columbia University’s various graduate and professional schools.” I think it’s likely that this skews the findings, particularly in the areas related to racial preference, for two reasons: 1) I believe that Columbia students are a more generally liberal group than a random sample of the population of the United States. I have no evidence of this, but I have a pretty high level of confidence that it’s true. 2) This segment of the population is generally younger than the rest of the adult US population which, again, I believe would skew the results because younger people tend to be more liberal and more color-blind (in a racial sense) that the general population of older generations (which reflects social progress, in my view.)

Secondly, I think we need to be careful about making generalizations from these findings. For example, in a very thorough study by anthropologist Helen Fisher, published a few years back in book form and entitled “Why We Love”, it was demonstrated that women as well as men are attracted to specific physical body characteristics. It’s impossible to prove that that the specific characteristics represent “beauty”, simply because beauty is, indeed, in the eye of the beholder. However, there are certain physical characteristics that are more appealing to the general population than others, speaking in terms of physical characteristics. If my memory serves me correctly, Fisher’s work demonstrated that clear physiological changes occur in the chemistry of the brain of the observer when presented with those characteristics. Long legs were, as I recall, one of those characteristics. Therefore, I am not at all surprised that “Women got more dates when they won high marks for looks from research assistants.” Certainly, widely publicized beauty pageants have focused on these types of physical characteristics consistently for many decades. So while I understand that men are probably more inclined to rely principally on physical beauty, that is certainly not an exclusively male practice.

Thirdly, I find it interesting that men appear to be too intimidated by superior intelligence, ambition, and earning power to pursue women that possess those characteristics – when they possess them in greater quantities than the men themselves. I have long held that most men end up marrying women who are smarter than they are. But of course, there are many dimensions of intelligence, and many ways to measure it. My admittedly cynical view is that whichever spouse convinces the other spouse to be the primary breadwinner is probably the smarter of the two.

What do you think?

What do we REALLY Need from Washington?

According to a recent Washington Post article entitled: “Beyond the tea party; What Americans really think of government,” authors John Cohen and Dan Balz point out that: “Nearly six in 10 say they want their congressional representatives to fight for additional government spending in their districts to spur job creation; fewer (39 percent) want their member of Congress to cut spending, even if that means not as many local jobs. This is a turnabout from September 1994, when 53 percent said they wanted their representative to battle against spending and 42 percent were on the other side. Despite evident public dissatisfaction with the growth of the federal deficit, 50 percent of those polled say they would prefer more government spending to try to boost the economy. Forty-six percent say avoiding an increase in the deficit should take precedence.”

When it comes to specifics about what to cut if cuts are made, the differences between Republicans and Democrats remain stark, but frankly so do the differences of perspective even within the two parties. Generally, the greatest consensus seems to be around spending more on veterans’ benefits, combating crime, defending against terrorism, and public schools. The only reasonably broad consensus today on an area to cut spending seems to be aid to the world’s needy.

The American people have always wanted it both ways. As my grandmother would often say, we “want to have our cake, and eat it too.” We want more services and benefits for our local communities, and ourselves but think that the ”other guy” should cut back on his spending. In that sense, we’re all liberals, I guess; Take from the rich and give to the poor – we just substitute the word “me” for the words “the poor”. But can we have it both ways? Can we have better and more government services and benefits, and reduce Federal spending at the same time? On this nice clear pie chart reflecting 2011 US Government spending, you will see that the macro level distribution of spending breaks down as follows:

• Defense – 24%
• Pensions – 21%
• Health – 22%
• Welfare – 15%
• All Other – 18%

In the “All Other” category, the single largest expenditure – by quite a stretch – is interest. At $250 billion a year, the US Government is spending about 6.5% of our annual spend on Interest. That’s almost twice as much as we spend on Education, and well over twice as much as we spend on Transportation.

In 1970, at the height of the Viet Nam War, the breakdown looked like this:

• Defense – 48%
• Pensions – 15%
• Interest – 7%
• All Other – 30%

Welfare represents 16% of the “All Other” category, and only 4.6% of the total annual spend.

So looking at the change between the Viet Nam War era and today, when we have a war in Afghanistan going forward after many years, we see that Defense Spending as a percent of our total spend has been reduced by half, and our spending on Welfare has dropped by almost two thirds. Interest payments on Federal debt have actually diminished slightly. However, Pensions have grown from 15% of total spend to 21%. And that infamous “All Other” Category, which includes things like “General Government Spend” and “Protection” has decreased markedly (from 30% of annual spend to 20%), even though selected items such as “Protection” have nearly tripled (from ½ % to 1½% in that interval.) As spenders, the United States has shifted its spending pattern far more toward domestic programs (Welfare and Retirement) and far less toward military spending even in this era of Afghanistan and Iraq military engagement.

But let’s assume the position of the “I want more” side for a moment. Let’s say that we want to double the amount of Welfare benefits made available; $557.3 billion in this case. (By the way, Welfare in this context breaks down as follows for 2010: Family & Children Services – 18%, Unemployment Benefits – 35%, Housing Programs – 14%, and Social Exclusion (Foster Care, etc. including Earned Income Tax Credits, which represents $49 billion) – 33%. So we want the US Government to do more for us – provide additional benefits and service at a level of 24% of our spend rather than 12%. Where would that come from? The favorite target of the liberal side of the aisle in Congress is, of course, Defense spending – until it becomes clear that programs like BRAC which consolidates and closes military bases reduces employment and commerce in the districts of the Congressional representatives involved. Well, what about those big weapons programs then – you know, the fighter jets and tanks and missiles; can’t we just cut back on those? I remember a discussion I had with a Liberal friend on Facebook not long ago about this. His position was that we already have enough airplanes, and don’t need any more. As a former A&D guy myself, I pointed out that it’s not enough to say you have “enough airplanes”. They aren’t interchangeable for the most part. Long range interdiction fighters like the F-15 perform a different mission than slow-moving ground support aircraft like the A-10, and they both perform different missions than the refueling aircraft, and still different is the mission of the carrier-based F/A-18. They have different weapons systems, armament, avionics, and payloads to accomplish those different missions, and you can’t just send a refueling tanker in to take the place of a fighter jet for air born “dog fights” in hostile territory over the middle of the ocean. The GAO, DCMA, and other government agencies have worked together to cancel a number of poorly performing programs over many years (ATF and FCS are two examples that come to mind), and so there is scrutiny of the efficiency and effectiveness of these programs. So while there undoubtedly more efficiencies to be wrung out, my perspective is that there isn’t a $557.3 billion opportunity here; that would represent over 60% of total Defense spending. So we see that – as a percentage of total spend, US Defense spending is already down to half of what it was during the Viet Nam era, it seems unlikely that we can get to less than half of half, and remain even marginally safe in a world of terrorist threats.

What about the other obvious area, then? Let’s consider Pensions; after all, this spending category represents 15% (or $774.3 billion) of total annual Federal spending. Hmm. If we took $557.3 billion out of the $774.3 billion Pension spend, Pension funding would be reduced by 72%. $721.5 billion of that $774.3 billion is Social Security. How likely do you think it is that we will simply eliminate all Social Security benefits as we move into the peak of the baby boom retirement years? Not very likely.

So what do we do? We don’t seem to be able to pare enough money out of existing spending to fund a substantial increase in social programs, so the only recourse is, of course, to…. RAISE TAXES. Ah yes. If you can’t afford your spending habit at home, that’s what you always do, right? You go and get a second job. Right. Let’s take it from the rich, and give to the poor! Hmm, this sounds vaguely familiar. Doesn’t it?

In 1970, there were 203.3 million people in the United States, and the US Income Tax brought in revenues of $123.2 billion. That’s $606 per person (remember this includes all household members, including children), or 1.8% of their household income per person. Today, with 308.7 million people generating $1,092.5 billion in Federal income taxes, that’s an average of $3,539 per person in income taxes, or an average of 8.2% per person. That means average Federal income taxes per person in the United States have risen 8 fold (800%+) since 1970, when expressed as the percent of household income paid in taxes. (One other important note here is that in 1970, only about 17% of all families were dual-income earning families. Today that number is about 42%. So we now have a much higher percent of the population with twice as many people working to earn a not-much-greater standard of living.)

But what about those rich people? Can’t the very wealthy pay more so that the rest of us can get more services and benefits from the government? According to recent tax distribution records, the top 1% of income earners (those with annual incomes over $380,000) in the United States paid 38% of all Federal income taxes in 2008. The top 10% of income earners (those with incomes over $113,000) paid 45.7% of all Federal income taxes. The top 25% (those with annual incomes over $67,000) paid 86.3% of all Federal income taxes paid. So how much more would we take from the wealthy, when “wealthy” is defined in these terms? Is $67,000 a year in household income to be considered “wealthy”? People with $67,000 per year in income already bear more than 86% of the tax burden. How much of the other 14% that is spread across the rest of the tax paying population should they be responsible to bear?

No. The answer is not additional taxes – not even on the wealthy. So if the answer is not dramatically reduced spending in some categories to fund others at a dramatically higher level, and the answer is not additional tax burdens for those of us who have already seen incredible tax increases over the last few decades, and the answer is not to add income earners within each household (which would basically put the kids to work) then what is to be done?

Are you ready? Here is the answer – or at least one answer, so brace yourself.

1. Increase employment (or conversely decrease unemployment) by 50%. There will always be unemployment, but if we can bring it down from its current (and long-standing) levels of 9% to 10% to levels of 4% to 5%, consider what would happen. First of all, current unemployment benefits paid by the Federal Government amount to $195 billion. We would see an annual savings of half, so that’s $more than $97 billion per year. Secondly, assuming that the people employed earn an average annual income of $50,000, they would pay in another $15.2 billion in Federal income taxes (at an average tax rate of 15.7%). Combining the $97 billion saved with the $15 billion earned, the impact on the Federal Government, in the form of additional services and benefits it can provide, is $112 billion per year. Easy to say, but hard to do, right? Bear with me – I will describe the device for increasing employment near the end of this article.
2. Kill selected Federal programs. Over my last 35 years in business, I have discovered that trying to simply reduce spending across multiple programs and agencies is like to cut off a dog’s tail one inch at a time. You may eventually reach your goal, but in all probability either you or dog will not survive. We have to identify entire agencies and programs that – while they may be well intentioned, and even providing services of value, can be eliminated without adverse impact to the primary missions of government. Here are some that I would look hard at killing: Earned Income Tax Credit ($49 billion), Child Credit Exceeding Tax Liability ($23.4 billion), Federal Aid to Highways ($40 billion), Farm Income Stabilization ($21 billion), Housing Development ($55.7 billion), and Community Development ($28.5 billion). Total reduction in expenditures: $217.6 billion. Now there are complexities here; Without Federal funding, there will be a temporary hit to the highway construction industry if highway development isn’t picked up by states and local communities (which is where it really belongs). And yes, many of those jobs will still need to be done. So, in these cases, the improvement in the overall tax burden will only partially improve because some of that tax burden will shift to states and municipalities. The sad fact is that many of our states such as California and Illinois also do a horrendous job of balancing their budgets, and so a similar exercise needs to be done at the state level. So even though areas like Highways provides immediate Federal level spending reduction, only a percentage of that reduction will actually flow through to tax payers when states and municipalities pick up the still-necessary part of this work, and pass that cost along through state and municipal taxes – or reduce their costs in other areas to compensate. So let’s say for purposes of our back-of-the-envelope calculation here that we will only net real savings to the taxpayer of $150 billion.
3. Move to a flat income tax for both individuals and corporations, with no exemptions. A great article validating this approach appeared in The Economist back in April of 2005. Then eliminate the bulk of the IRS (reducing its budget by 75%, or $7 billion), and make income tax evasion primarily the responsibility of the FBI. By setting individual flat tax rates at 17% with no exemptions, Tax revenues would actually increase by $145 billion or 8.7%. (We would also never have to file individual tax returns, since our employers would simply deduct the taxes from our checks.) The net impact of all of these changes on the Federal budget would be $152 billion. But well beyond the simple math involved here, According to Harvard economist Dale Jorgenson, tax reform would increase national wealth by nearly $5 trillion. It would do this in part because all income-producing assets would rise in value since the flat tax would increase the after-tax stream of income that they generate. (Note that I am not including the $5 trillion positive benefit projected by Jorgenson in my calculations here.) Here’s an excellent article describing one approach to adopting a flat tax model in the United States. However, personally I prefer an approach where no W2 is involved at all for traditional employees – the employer simply deducts taxes from the wages of all employees – and no exemptions based on family size or anything else. In this scenario, only businesses and the self-employed would be required to complete a W2, and the W2s for self-employed people should be about as simple as the “post card” type of W2 shown in this article.

These three changes would amount to a combined positive impact to the Federal budget of $414 billion. It would enable us to get 80% of the way toward our stated goal of doubling the services and benefits provided by the Federal government. We spent $557.3 billion annually on Welfare of various kinds, and here is an added $414 billion to distribute. Not bad, right? So there you are – for all you “This is just too hard, too complicated, too big a problem” types. It is hard, because it’s radical change and that involves making people angry and frightened – change always does. But it doesn’t have to be nearly as complicated as politicians often portray it to be.

However, this is where my personal philosophy enters in. What if the answer really isn’t a bigger Federal government? What if the better answer is really a diffusion of wealth and power to states – or better still, to local communities? What if we took the $414 billion and distributed it to states on the basis of their population, or better still to cities based on their population, allowing them to decide what to do with it? $414 billion divided by the population of the United States (308,700,000 people) equals $1,341.11 per person. Now just as an example, let’s take the city of Moline, Illinois. Population: 43,000. Let’s say the city council in Moline, Illinois just received their first annual dispensation of $1,341 per resident, or $57,667,730. And they know it’s going to keep coming in every year. Their normal annual operating income of $115.6 million, so this would amount to a roughly 50% increase. I would expect some civic improvements from an infusion like this, wouldn’t you? (Perhaps the city would repave it’s roads, which have been in horrendous shape for years! Sorry – pet peeve.) Or build a new hospital or work out a deal with Bettendorf, Iowa to replace the I-74 bridge over the Mississippi River. Whatever the city fathers did, they would probably create jobs – a lot of jobs – and restart the engines of commerce in Moline. Now imagine all the “Moline”s all over the United States, suddenly starting to invest again – in their infrastructures their medical facilities, their institutions of higher learning, their neighborhood renovations, and so on. Imagine the surge in employment, the improvements in local (not Federal, but local) services and benefits. Imagine what could be done by using that money at home where local leaders actually know what’s needed in their communities, rather than by Washington bureaucrats.

So there you have it. We cannot raise taxes or cut spending in “wasteful programs” enough to get us out of this situation, and we will not (and of course should not) put kids to work to improve average household income. But of we take the three steps listed above, we will reduce the size of the federal government, increase the funds available, shift the responsibility for disbursing funds to the lowest possible levels of government, and put control back in the hands of the people closest to community needs. Isn’t it about time we started looking at the world this way?

What do you think?

How the US Government Can Fix Its Financial Problems

In March 2011, the US General Accounting Office (GAO) released a report to Congress entitled: “Opportunities to Reduce Potential Duplication in Government Programs, Save Tax Dollars, and Enhance Revenue”. (www.gao.gov/new.items/d11474r.pdf) This report outlines many of the biggest opportunities that the GAO identified for eliminating redundancies and duplications of effort among agencies, departments, and programs of the United States Government. Many billions of dollars in annual expenditures in waste are identified – some more specifically than others. Some examples from the report include:

• Food Safety – 15 Agencies
• Warfighter Support – 31 Entities within the US Department of Defense (DOD)
• DOD Information System Installation / Upgrade Programs – 2,300 Programs
• Economic Development – 80 Programs
• Surface Transportation – 5 Agencies, Over 100 Programs
• Federal Emergency Management Agency Oversight of Grants – 17 Programs
• Domestic Food Assistance – 4 Agencies, Over 20 Programs
• Assistance for “Transportation-Disadvantaged” People – 8 Departments, 80 Programs
• Employment & Training – 3 Departments, 44 Programs
• Teacher Quality – 10 Agencies, 82 Programs
• Financial Literacy – 20 Agencies, 56 Programs

While the report is unable to provide a meaningful estimate of the combined savings achievable here, it does point out that the savings from individual recommendations can range from millions to billions of dollars. Without doubt, the savings achievable would amount – in total – to hundreds of billions of dollars. It would move the United States solidly back toward a position of financial solvency and strength, and by doing so, stabilize world markets to a large degree. And yet it is not done. Election cycles come and go, and no meaningful reform occurs despite the promises of individual Presidential and Congressional candidates. Once in office, they are never held to account for their earlier campaign promises. How do they get away with that? For the most part, they simply blame the lack of action on their opposition – Democrats blame Republicans, Republicans blame Democrats, and they individually prosper while I aggregate our nation’s economy continues to swirl deeper and deeper into a proverbial toilet bowl of deficit spending and debt.

The recommendations of this latest GAO report will not be followed either, for three broad reasons:

1. The first reason is that the United States Government, especially the United States Congress, is so politically divided and self-interested that they are fundamentally dysfunctional. They are unable to move in unity toward a common goal without the galvanizing effects of a tragedy such as 9/11, which pushes back the otherwise unassailable sea of discord that envelops Congress. Certainly, we see that in the regular budget battles that threaten to shut down US Government operations with such troubling regularity.
2. The second reason is that the US Government is not organized in a manner that enables it to reorganize itself and streamline itself the way a corporation can. In truth, based on well over 30 years of personal involvement in such activities, I can state with authority that the larger an organization is, the more challenging a streamlining process becomes. This action requires a degree of centralized authority that simply does not exist, even within a single branch of the United States Government. As a really obvious (if somewhat simplistic) example, why doesn’t the United States consolidate the branches of the US Armed Forces? Does the Army really require its own Air Wing? Does the US Navy really require it’s own Air Wing? And yet the various branches of the US Armed Forces are duplicated at every level of management all the way up through the Joint Chiefs of Staff. The levels of redundancy and duplication are incredible and incredibly obvious. Yet who has the authority to alter this situation and consolidate them? The answer is – from a practical standpoint – no one does.
3. The third reason that recommendations such as those made in the GAO Report will not be implemented is that they approach this problem in the wrong way. To leave these various superstructures in place and attempt to reduce the level of duplication and redundancy among them is patently impossible. No more than a small fraction of the recommendations will ever be attempted, and a smaller fraction of those that are attempted will ever be successful. To reduce expenditures in this manner is like trying to cut off the tail of a dog one inch at a time. After the first inch, either the dog or the veterinarian is unlikely to survive the procedure. Entire departments and agencies must be completely eliminated in order to achieve real consolidation. This is the only approach that can possibly achieve the levels of reduction in Government waste required to achieve any level of real efficiency.

In a future Blog entitled: “Where are All the New Ideas?” I will outline a superior approach that really does have an opportunity to be successful if it is implemented – much less “inch-at-a-time”, and much more “eliminate the entire department”. However, before undertaking the steps outlined in that missive, the first two problems must be resolved.

I believe the first two problems cannot be resolved; they must be circumvented. Based on decades of observation, I do not believe that the self-interest and general myopia of US congressional leaders can be overcome in a way that brings about the sweeping consolidation and efficiency required by the United States Government. If Thomas Jefferson were alive today, he would likely recommend another American Revolution, overthrowing the current system and replacing it with a more responsible one. Personally, I don’t know whether the United States could survive such a cataclysm but I am reasonably certain that the chaos that would ensue around the world as a result would be devastating on a global scale, at least among 1^st World economies and countries. And so setting that alternative aside, how could the United States centralize enough power to make these types of sweeping changes irrespective of individual or party-based agendas?

The way in which these two problems may be circumvented is the establishment of a temporary committee (Notice that I said a TEMPORARY committee) for that purpose. The staff members of the committee would be drawn principally from the GAO, but committee leadership would be comprised of 3 members, with all decisions made by simple majority. The committee would exist for 18 months, and aside from administrative support, would be comprised of no more than 30 members. It would present its final report directly to the President of the United States, and act with complete independence and impunity. During the first 6 months, instructions for consolidation (and resulting elimination of duplication) of Government agencies would be developed and documented by the committee. The final template for change is to be voted on by the 3 members of the leadership committee. I would expect that the steps outlined in the template would be similar to those outlined in my forthcoming bolg entitled: “Where are All the New Ideas?” The committee would use the remaining 12 months of its life to implement the changes as outlined in the previous six months. Because these consolidations will be sweeping in nature, the committee will be granted authority to revise or set aside whatever legislation exists that is contradictory, except of course, the US Constitution and its amendments. (I perceive that there will be a challenge or two there, since the Constitution provides the authority for the establishment of entities such as a Navy and a militia, so consolidation among the US Armed Forces will be tricky from a legislative perspective.) So, for example, if the committee decides that as a part of their consolidation they will dissolve the US Department of Transportation, the legislation that authorized the establishment of that organization back in the 1960s would become null and void.

With these first two problems (Congressional myopia / self-interest and lack of centralized authority) circumvented, and an independent and honest effort made at US Government consolidation, the hundreds of billions of dollars in annual savings realized through the implementation of these changes would reset the course of the American economy. It would, of course, have a near-term displacement affect on thousands of US Government employees, but considering the current US unemployment rate, it would be a drop in the proverbial bucket. The benefits would last for at least a decade or two – perhaps as many as five, until government bureaucracy once again exhibited a level of gluttony and self-absorption as to require another push on the “reset” button.

What do you think?

Libya: Next Steps for the United States

Next Steps for the US in Libya

In a previous blog, I laid out the case for avoiding the potential “sticky wicket” of US involvement in internal Libyan strife. But recent actions by the United States have deployed cruise missiles and CIA “boots on the ground” there. So now that the US is involved, what are our options? The truth is, it depends almost entirely on Muammar Gadhafi. If Gadhafi steps down, and agrees to go into exile, much of the immediate problem goes away. Not necessarily (or even probably) the mid-to-long range challenges, but the short-term potential for significant loss of life, and spillover of conflicts outside of Libya’s borders.

Risk Analysis

At this point, broadly speaking, three things can happen:

1. Gadhafi resigns and goes into exile: The best possible scenario at this point for the United States, this course would incur the least loss of life in Libya, the least expenditure of US dollars, and offer the greatest hope of stability in a subsequent Libyan government. It would also be likely to result in a US ally in that region, and reduce the likelihood that terrorists would be trained and/or supported there. In addition, it would have the least damaging effects on our European, Asian, and African allies. Finally, this eventuality makes the strongest case for the viability of a less-than-boots-on-the-ground approach in Egypt, Syria, Bahrain, and other countries in similar straights right now.
2. Gadhafi remains in power: The worst possible scenario at this point for the United States, this eventuality would almost certainly result in the greatest loss of life in Libya. It would likely incur a higher level of expenditure of US dollars, as the expenditure of funds for humanitarian efforts and insurgency support continued. While the resulting government would likely to be classified as more stable (since it would merely represent the continuance of an existing structure), this course of events would result in greater enmity between the resulting government of Libya and the US, and likely encourage Libya to remain a training ground for anti-western terrorists. It would certainly have similar negative impacts on our allies all over the world, especially in Europe. Finally, the message to other hot spots such as Syria would be that no one involved in internal abuse of their citizenry need fear the United States; if Gadhafi can resist the military intervention of the US and her allies, other more capable countries should be able to do the same.
3. Gadhafi fights on, but is ultimately defeated: This scenario is not as good for the US as an outright and near term resignation / exile by Gadhafi, but beats the scenario where he remains in power indefinitely. Loss of civilian life in Libya would be higher than if Gadhafi merely resigned, but not as high as if he stayed in place for another decade. The spend of US dollars would likely be very high, as the US continued to support both humanitarian efforts and regime change there. Beyond the defeat of Gadhafi, of course, the government should stabilize behind another leader – hopefully one who is friendlier not only to the interests of the United States, but to his own citizenry as well. At that point, the US would likely (though not necessarily) have another regional ally, and would benefit from a reduced likelihood of terrorist training camps or financial support for anti-American terrorism from that country.

Strategic Planning

In the event that Gadhafi resigns, the US will likely take the following actions: Arrange for a host for Gadhafi and his family in exile, secure amnesty for him from world courts (as a deal sweetener to get his voluntary resignation), terminate our participation in the “No Fly Zone” and other military engagement, enlist other benefactors from the same hemisphere (Asia and Africa) to perform any military mop-up work and staff civilian aid projects.

If Gadhafi “wins”, and remains in power in Libya, the US needs to find a way to back out of our leadership – and to the extent possible, even our participation – in the “No Fly Zone” and any other existing or future military operations in Libya, until such time as Libya becomes a threat to the United States or it’s interests. All further actions in these areas need to be picked up by European and/or Asian countries with an interest in doing so. The US may, of course, continue to back insurgency and/or civilian aid for humanitarian purposes through the use of 3^rd party providers.

In the event that Gadhafi decides to continue to resist the US, NATO and the rebels within his own country and fights on, the United States should still terminate our financial and military support of the “No Fly Zone” and all other military involvement, and allow that activity to fall on the shoulders of countries like France who appear to have the deepest interest in the country (and who failed to support the US in our War on Terror following 9-11.) This course of events becomes more costly and less likely to be successful as time drags on, since funding insurgencies and/or humanitarian relief over long periods of time is a substantial economic burden when many countries (including the United States) are already saddled with massive and growing levels of debt.

Potential Next Actions Are Listed Above

Potential Outcomes

There are three broad sets of potential outcomes from the current situation. They are:

1. Gadhafi Resigns, and one of two things happens: a) The subsequent government is friendly to the United States and benevolent to its citizenry, or b) The subsequent government is Unfriendly to the United States, and despotic to its own people. Either outcome is possible, and history has repeatedly shown.
2. Gadhafi Remains in Power Indefinitely, and one of two things happens: a) A militarily and economically weakened Gadhafi softens his hard-line positions, treats his people better, and becomes more pliant to outside parties, or b) An emboldened Gadhafi becomes even more aggressive toward his own citizens, and more assertive with other countries due to his perception that he has defeated even the United States as they supported rebel factions within Libya.
3. Gadhafi Fights On, But is Eventually Defeated. Whether this occurs within a year or over a longer period of time makes a substantial difference in the impacts of the situation. If the matter is resolved relatively quickly through the use of overt or cover force, the message clearly sent to other countries experiencing similar turmoil will be that utter chaos and despotism will not be tolerated – it basically puts the rulers of those countries “on notice.” However, if the conflict wears on for well over a year it will inflict serious financial damage to the US and our allies there. In addition, the lesson that will be exhibited to other countries in similar positions is that we can be resisted successfully for a protracted period of time, and they will likely presume that if they are larger or more clever they can resist for even longer – perhaps even outlast us.

First Set of Possible Outcomes is Listed Above

Second Set of Potential Outcomes is Listed Above

Third Set (3a and 3b) of Potential Outcomes is Listed Above

I have a friend who frequently tells me that the best course of action for the United States in these situations is simply to assassinate the leader of the foreign country involved, citing the savings in lives and treasure to the United States and the civilian population of both warring countries. I did not analyze that option here because the United States does not engage in it; I’m not saying it’s necessarily the wrong answer, I’m just saying that as far as I can tell it’s never an option that’s ever officially on the table.

Based on the way this looks to me then (and I am no foreign policy expert), the only attractive course of action is to take whatever steps are required to secure Gadhafi’s agreement to step down and retire somewhere.

What do you think?