Political Risk


Economist Robert Reich has a way of cutting through the noise.  He points out that the self important noises from the media and Washington DC about the federal budget deficit and so-called “fiscal cliff” actually disguise a fundamental underlying issue: the wealthiest individuals and corporate interests want to benefit from government on everybody else’s tax dollars.

The Grand Diversion

Surely, it couldn’t be that simple, could it? After all, economics is a very complicated subject far beyond the ken of the ordinary citizen?

Well, that’s the lawyer’s gambit – the Grand Diversion – the key to job security for those connected bluebloods who find themselves at the peak of the the legal and political professions. It goes like this:

  1. Complicate a simple matter so much that it takes a lawyer to unpack it.
  2. Report the story in a simplistic, deceptive, divisive way that glosses past the underlying issues and divides the public along ideological lines, and stimulates a false debate.
  3. Initiate an activist judicial/legislative agenda that provides the economic benefits to lawyers, legislators and CEOs.

It may take a tough man to make a tender chicken, but it also takes a clearheaded economist to explain a simple matter in simple terms. Professor Reich puts it this way:

The non-partisan Congressional Budget Office on Thursday warned that the automatic tax increases and spending cuts scheduled to start in January amount to too much deficit reduction, too soon. They’d put the economy back into recession, and push unemployment to about 9 percent. But the CBO also warned of an economic crisis ahead if the United States doesn’t stem the growth of the nation’s exploding deficit.

Get it? Reduce the budget deficit too quickly, and we’re in trouble. But fail to address the deficit, and we’re also in trouble. It’s really a matter of timing. That’s why I think any deal should include a trigger mechanism that begins to cut spending and raise taxes when the economy has two consecutive quarters of 6 percent unemployment or less, and 3 percent annualized growth or more.

In reality, though, the upcoming game of chicken isn’t about any of this. It’s over the clearest issue President Obama and Mitt Romney fought over: whether taxes should be raised on the rich.

The Back Story

Here’s the Republican game:

  • Republicans created an enormous budget deficit through giveaways to the wealthy (the Bush tax cuts), to the defense and energy industries (two unfunded wars), Wall Street (deregulation of derivatives) and by privitizing Medicare (GWB’s unfunded Medicare Advantage initiative.)
  • This led to the Great Recession that required subsequent bailouts, leaving an incoming Democratic president holding the bag.
  • Now the whole mess is thrown back in the face of a Democratic president as a bludgeon to balance the budget by cutting government programs that benefit the 99% who need them, in order to continue to dish it out to the 1% who don’t.

Here’s the Democratic game:

  • Democrats tentatively suggest a balanced approach, one that asks for shared sacrifice, meekly asking the robber barons to pay their fair share of taxes (which they haven’t for years.)
  • They ask for a “Grand Bargain.”
  • A compromise is reached that continues the redistribution of middle income tax dollars and national wealth upward, further hollowing out the middle class, expanding poverty and exacerbating income disparity, albeit at a slightly slowed pace.

Call it a “Grand Bargain” compromise, but the only ones who are really compromised arethe 99% who are not economically privileged by a fortunate birth. And the reason this kind of sacrifice is required is not because it is the only possible solution, but because it is the only solution acceptable to the influential interests.

The citizens are given the message that times are hard, as a result of having been too generous toward them, and that they now need to make sacrifices to protect the “job creators.” The economics and math don’t add up at all, but the Grand Diversion has the weight of authority and ideology, so no one is the wiser.

Eliminating the Deficit Isn’t Really Rocket Science

Professor Reich also demonstrates exactly how easy it really is to eliminate the deficit without disrupting the economy. It’s abundantly simple, and all it takes is basic math skills and common sense – two things we seldom see out of Washington. The equation goes like this: Instead of taking it out of the hides of the wealth creators (the working class) the privileged few who benefit from corporate welfare and tax advantages for the ultra wealthy can now pay their fair share. Reich does the math:

Assuming the goal is $4 trillion of deficit reduction over the next decade (that’s the consensus of the Simpson-Bowles commission, the Congressional Budget Office, and most independent analysts), here’s what the President should propose:

First, raise taxes on the rich — and by more than the highest marginal rate under Bill Clinton or even a 30 percent (so-called Buffett Rule) minimum rate on millionaires. Remember: America’s top earners are now wealthier than they’ve ever been, and they’re taking home a larger share of total income and wealth than top earners have received in over 80 years. Why not go back sixty years when Americans earning over $1 million in today’s dollars paid 55.2 percent of it in income taxes, after taking all deductions and credits? If they were taxed at that rate now, they’d pay at least $80 billion more annually — which would reduce the budget deficit by about $1 trillion over the next decade. That’s a quarter of the $4 trillion in deficit reduction right there.

A 2% surtax on the wealth of the richest one-half of 1 percent would bring in another $750 billion over the decade. A one-half of 1 percent tax on financial transactions would bring in an additional $250 billion. Add this up and we get $2 trillion over ten years — half of the deficit-reduction goal.

Raise the capital gains rate to match the rate on ordinary income and cap the mortgage interest deduction at $12,000 a year, and that’s another $1 trillion over ten years. So now we’re up to $3 trillion in additional revenue.

Eliminate special tax preferences for oil and gas, price supports for big agriculture, tax breaks and research subsidies for Big Pharma, unnecessary weapons systems for military contractors, and indirect subsidies to the biggest banks on Wall Street, and we’re nearly there. End the Bush tax cuts on incomes between $250,000 and $1 million, and — bingo — we made it: $4 trillion over 10 years.

And we haven’t had to raise taxes on America’s beleaguered middle class, cut Social Security or Medicare and Medicaid, reduce spending on education or infrastructure, or cut programs for the poor.

Conclusion

The deficit isn’t really that difficult to fix, is it? It’s just that Americans can’t do math, so we’re none the wiser when politicians fool us about the math and the logic. The “fiscal cliff” is not a cliff at all. It’s a manufactured controversy that aims to raise taxes and cut benefits for the working class to feed the insatiable appetites of the rich and powerful. You probably knew that already. But sometimes it takes a brilliant economist to simplify the matter enough to  penetrate the smokescreen.

A Major Problem For U.S. Consumers

Carl Finamore in Znet writes that despite healthcare reform, getting sick in America is still very risky:
  • Commonwealth Fund estimates 25 million people with insurance still struggled to pay medical bills in 2010.
  • Nearly 66% of all personal bankruptcies are still linked to those debts.
  • 48 million had no health insurance in 2011.
  • At least 29 million people are estimated to remain completely uninsured even after the Affordable Care Act is fully implemented seven years from now, according to The Congressional Budget Office.

A Windfall for the Private Sector

However, health care remains a very good deal for wealthy investors. According to Bain & Company:
  • Private equity global investments in healthcare doubled in one year – from $15 billion in 2010 to $30 billion in 2011.
  • This represents 15% of all private equity deals in the world last year by companies like Bain.
  • This netted a profit of $500 billion. “The Problem Is Profit”

“The Problem Is Profit”

Carl recently attended a national conference of Physicians for a National Health Program (PNHP) in San Francisco and asked Andy Coates, MD, president-elect of PNHP, to identify the top problem with healthcare in the U.S. Dr. Coates replied:

I am very tempted to say ‘profit is the problem,’ end of story. But there’s more. “The American system has an enormous amount of unnecessary bureaucratic waste. A great burden of time-consuming administrative efforts, aimed at extracting profit from caregiving, weighs upon us.  So much of the cost of healthcare has nothing to do with what is happening at the bedside. The quest for corporate profits undermines the effort to provide medical care to human beings.

How Taxpayers Fund The Private Sector

According to Carl Finamore, America’s for-profit healthcare system  is mostly paid for with tax dollars:

  • Our taxes pay around 60% of our current health spending.
  • This includes, among other things:
    • Tax subsidies for private health insurance and public employee health benefits.
    • Direct government Medicare and Medicaid subsidies.

Other Countries Get More For Their Money

Dr. Steffie Woolhandler, professor of public health at City University of New York,  visiting professor of medicine at Harvard Medical School and spokesperson for PNHP compared this to what happens in other developed countries, pointing out that:

  • The majority of healthcare funding in other developed countries is also paid through taxes but in each case the costs are much lower and they get more.
  • U.S. health spending amounts to around $9,000 per capita.
  • Other developed countries spend about half as much.
    • the U.S. spends 16% of gross domestic product (GDP) on health care, compared with 8% to 10% in most major industrialized nations.
  • The private sector squanders around 31% of their budget on non-treatment related administrative costs.
  • Outcomes are not better: for instance, the U.S.  lags in life expectancy behind other developed countries.

Fact: Not-For-Profit Works Better

The difference is that most of them have some form of a not-for-profit national public healthcare system. Examples can be found right here in America. For instance, the government-paid and operated Veterans Health Administration (VA) has better outcomes, including:

  • Superior medical services.
  • Bulk purchases of prescription drugs at substantially reduced costs.
  • Fortune magazine calls the VA “the most wired and cost-effective health system in the land.”

But the trend toward privatizing Medicare and Medicaid to appease pharmaceutical giants creates the opposite effect: the government is prohibited by law from making these same bulk purchases on the open market for Medicare and Medicaid.

The Proof is in The Data

These statistics are clearly documented, and, for all the political rhetoric in Washington about Medicare and Medicaid, the problem is not public management but a for-profit system that increasingly directs Medicare and Medicaid tax funds to private providers and insurers through such costly privatized programs as Medicare Part D and Medicare Advantage programs.

Carl previews research that will shortly be published in the International Journal of Health Services by policy experts including Dr. Woolhandler showing the massive amount of tax dollars Medicare has overpaid private insurance companies under the Medicare Advantage program, and its predecessor programs over the past 27 years:

  • Total excess payments over the past 27 years is amount to $282.6 billion.
  • Most of this has been paid over the past eight years.

Our Money Can Be Better Spent

Imagine if all that waste were spent more wisely? For instance, this wasteful spending could be spent on:

  • Improving patient care.
  • Enhansing Medicare’s trust fund.
  • Reducing the federal deficit

The only way to do so is for government to stand up to the health care providers, but given their economic clout with the media and government, this has proven extremely very elusive.

Washington continues to debate around the edges of the issue, with no real will to take on this powerful sector.  While some threaten to repeal “Obamacare” in favor of a purely market-driven system – which we already know doesn’t work in healthcare, Obamacare is filled with giveaways to the private sector.  Such giveaways are not surprising given the American-style “sausage making” form of politics. The best possible option – single payor system – was taken off the table nearly from the start in order to assuage private suppliers of healthcare, including “insatiable Wall Street investors operating without any of the control or regulation taxpayers should expect.” Carl concludes:

Is there any wonder costs are going up? We as a society will pay the price as millions of uninsured avoid treatment, millions suffer economic hardship because of rising co-pay and deductible costs and millions discover too late their skimpy insurance coverage will not cover their medically recommended recovery plan…Certainly both research and activism are necessary components of the renewed and reinvigorated national healthcare debate that we so desperately need. But, for this debate to be productive, it cannot, unlike the Congressional discussions we’ve seen, tap dance around the greed and inefficiency of the profiteers who are engulfing and undermining our medical system.

As I have often written in this blog, the solution lies in education. And in today’s highly politicized media environment,  the conventional wisdom in Washington is obfuscation.

The ACA Is Just The Beginning

The Affordable Care Act is a good first step in that it does expand access to health care while providing mandated preventative benefits. But it is only a first, fledgling step on a long road of improvement. And one of the better outcomes of the ACA would be if it stimulates more constructive reform building on its foundation.

That some politicians would propose to turn back the clock on even this first step speaks volumes about the clout of this behemoth industry. That people are still so unknowledgeable about the drivers of health care costs that they continue buy into the fiction of the free market in healthcare despite all evidence to the contrary speaks volumes about the industry’s public relations machine – namely, media and politicians.

Health care is the most significant frontier of government reform because, unless these truths are squarely faced and dealt with, the U.S. public will continue to pay an unthinkable price to fund a grossly inefficient system that redistributes taxpayer money to the upstream corporate providers –  the large hospital groups and pharmaceutical companies.

Related Articles:

Health Care Reform:

The odds of Obama’s re-election, according to Intrade, has correlated very highly with the S&P 500 in recent months (Chart via Safehaven.)

Intrade Predicts an Obama Reelection in 2012

As I wrote here, the most historically accurate predictor of the outcome of U.S. presidential elections has been the S&P 500. But here’s another: Intrade predicts  an Obama reelection. And the site has an incredible track record at predicting election winners. Intrade, “the world’s leading prediction market,” is an actual market where visitors can buy or sell “shares” and make or lose real money in a particular event’s outcome, presidential elections included.  James Brumley of InvestorPlace writes:

Looking for a good bet? Bet on Barack Obama to be re-elected as president of the United States. And yes, you can legally make that wager. Just make sure you’re getting 2-to-1 odds on an Obama victory. As of this morning, the users who make up the polling/sampling body of prediction-making website Intrade are saying Barack Obama has a 64% chance of winning 2012’s presidential race. Conversely, Mitt Romney’s odds of being this nation’s 45th president are 36%. And given the site’s past success with picking presidents, I wouldn’t dismiss these numbers lightly.

The Intrade Market Is Open

Here’s how it works: users buy shares at the prevailing market rate ($6.44 for an Obama victory), and get paid if it happens. In an Obama win, Obama shares would be worth $10, and Romney shares $0. But what makes these people so knowledgeable?

There is one distinct difference between the people who handicap the presidential race on Intrade and the talking heads who predict winners on TV — the folks at Intrade are putting something of real value on the line, while the television gurus can hit or miss with little consequence.

And the Intrade crowd is good … really good. For example, the site’s bettors not only correctly predicted George Bush would be re-elected in 2004, the group even properly predicted which candidate would win each state (and subsequently how it would cast its electoral college vote). In 2008, Intrade’s bettors correctly predicted Barack Obama would be victorious; they picked wrong on the voting outcome for two states — Missouri and Indiana, each with 11 electoral votes, were flipped in the run-up to the election — and the final electoral vote count was off by just 1 (due to Nebraska splitting its votes for the first time in history).

If the tide turns for Romney, the site will update the odds and, just like the stock market, Obama or Romney sharescan be bought or sold at any point before November 6th for a loss or a gain as their market values change. Whoever Intrade favors on Monday, Nov. 5 is a virtual shoe-in.

Why The Stock Market Is Rooting For Obama Reelection

Kyle Spencer of Seeking Alpha holds his nose to do something he doesn’t like to do: delve into the realm of the political. He cautiously excuses himself, saying it’s not because he wants to but because it has major market implications.

Regarding monetary policy, Kyle agrees with me that Romney isn’t a deficit cutter. I’ve pointed out before that Romney’s never balanced a public budget before. And Kyle doesn’t see Obama making a big dent in the budget either. He writes:

Romney…will come in and run deficits just like Bush did. He’ll just do it through tax cuts, etc. So I think the big budget cuts from the Romney camp are election talk. Clearly, Obama isn’t in favor of big cuts at this point either so I don’t think we’re looking at big changes there.

It’s the Uncertainty Stupid!

But Orcam Investment Research reveals that one of major current market trends is the uncertainty around the election, and the specific source of uncertainty that Kyle notes is the removal of stimulus by the Federal Reserve:

Romney has been very clear that he doesn’t approve of QE or the Fed’s policies under Bernanke. He’s explicitly stated that Bernanke will not be Fed Chief past 2014. What the market is really rooting for is the continuation of Bernanke’s policies, so the market is indirectly rooting for Obama. The perception under QE is that the Fed will do whatever it takes to keep asset prices elevated. And as long as the Bernanke remains in place the market is reassured believing that downturns simply won’t be sustained. Whether or not Romney could even move the needle on Fed policy is unimportant because the risk will be priced in regardless. The market hates uncertainty and Romney’s victory would put Fed uncertainty front and center for all of 2013.

Don’t Mess With Ben

By picking a fight with the Fed, says Kyle, Romney became the anti-market candidate. And he points to the close correlation between the odds of Obama’s re-election and the S&P 500 in recent months.

What’s The Most Accurate Presidential Election Predictor?

The Daily Beast reports on some of the offbeat U.S. presidential election outcome predictors, including 7-Eleven Coffee
cups, Halloween masks, the Family Circle Recipe Contest, the Washington Redskins Home-Field Record, and others. But Elizabeth Wine writes in September’s On Wall Street about the most historically accurate predictor of the outcome of U.S. presidential elections. The pattern, according to market historians,. is as follows:

  • If the S&P 500 rises in he three months before the election, the President will most likely win a second term, So far this year, it’s up 10.6%.

Sam Stovall, Chief Equity Strategist at S&P Capital IQ, writes in a research note,

Investors will not have suddenly decided to embrace the current administration and their seemingly anti-Wall Street policies, but will have become sufficiently encouraged by the improving economic conditions to stay the course.

The Evidence

The evidence, according to Stovall, is that, in 28 presidential elections since 1900:

  • The incumbent was reelected 80% of the time when the S&P 500 increased the three full months before the election.
  • If the market fell, the incumbent lost 88% of the time.
  • On average, the S&P predictor works 82% of the time.

Stovall insists that, of the many indicators from the Superbowl Effect to the Hemline Theory, the S&P performance has greater accuracy, and is more intuitive:

That’s why investors look to stock price movements; to see whether they point to a strengthening or a weakening in the economic data.

Forget about ideology, including the old saw that Republicans are good for stock portfolios. Jeff Hirsch, editor of the Stock Trader’s Almanac and Chief Market Strategist at Magnet Æ Fund, agrees, asserting:

It troubles me that everyone still believes that just because Republicans are said to be good for the market that they are. It’s not about the party; it’s about the incumbency issue.

Why The President’s Reelection Chances Are Good

Stovall also compared stock prices to the poll numbers. His findings: when the market has gone up, so have President Obama’s poll numbers. When the markets went down, so did Republican challenger Mitt Romney’s poll numbers. Do good poll numbers drive stock rallies, or  do rallies create better feeling toward the president?  He can’t explain causality:

This is a chicken or egg thing. All I know is Obama’s number went up, as did the market’s numbers. I’m not willing to say which drove which, but I am willing to say they move pretty much in lockstep.

Are There Exceptions?

In only four elections since 1900, the incumbent lost despite S&P rallies. Stovall believes that in three of those four times -1912, 1968 and 1980- this happened because a third party candidate siphoned off votes from the incumbent:

  • Theodore Roosevelt in 1912.
  • George Wallace in 1968.
  • John Anderson in 1980.

So, only once, in 1932, when Franklin Delano Roosevelt beat President Herbert Hoover, was the predictor completely wrong.

Relief Always Follows The Election

History also shows that, regardless of the winner, investors have been relieved or optimistic enough to cause the S&P 500 up an average of 0.6% in November, and 1.7% in December. After an August-October gain, the S&P typically rose an average of 1.4% in November and 1.8% in December.

When markets were down ahead of the election, the index rebounded an average of 1.3% in November, and broke even in December.

, Professor of Public Policy, University of California at Berkeley has written an article targeted at people like me (maybe you, too?) – independent thinking, but cynical thinkers tired of political rhetoric from either side.

Before delving into his advice for us, let’s peer into the mind of a cynic, and show what it is that has turned us into what Professor Reich considers cynics.

Advisory: If you’d like to cut to the chase and see the lessons for Marketing, just skip through to the last section!

The Case for Cynicism

There seems to be plenty of cause for cynicism. For one thing, scholars note that the United States is not a pure democracy, but a polyarchy of ruling elites who believe that we, the voters, are largely ignorant of issues and policies, lack the competence to participate in public life, and do not care to participate in the political process.

Elite Control: One of these elites, Walter Lippmann, wrote In Public Opinion (1922), that a “governing class” must rise to face the new challenges in a period in which the stability of the government was threatened by democratization. According to Wiki:

He argued that distorted information was inherent in the human mind. People make up their minds before they define the facts, while the ideal would be to gather and analyze the facts before reaching conclusions…Lippmann called the notion of a public competent to direct public affairs a “false ideal.” He compared the political savvy of an average man to a theater-goer walking into a play in the middle of the third act and leaving before the last curtain.

Early on Lippmann said the herd of citizens must be governed by “a specialized class whose interests reach beyond the locality.” This class is composed of experts, specialists and bureaucrats. The experts, who often are referred to as “elites,” were to be a machinery of knowledge that circumvents the primary defect of democracy, the impossible ideal of the “omnicompetent citizen.”

Meet the 99%: One isolated quack? Hardly.  An integral part of the power structure, Lippmann was an informal adviser to several presidents, and was presented by President Lyndon Johnson with the Presidential Medal of Freedom. The views of Lippmann and Gabriel Almond produced what became known as the Almond-Lippmann consensus, summarized on the basis of 3 principles:

  1. Public opinion is volatile, shifting erratically in response to the most recent developments. 
  2. Public opinion is incoherent, lacking an organized or a consistent structure to such an extent that the views of U.S. citizens could best be descried as “nonattitudes.”
  3. Public opinion is irrelevant to the policy-making process. Political leaders ignore public opinion because most Americans can neither “understand nor influence the very events upon which their lives and happiness are known to depend.”

Cynical enough? Certainly no more so than a political candidate who represents the interests of the economic elites, but attempts to conceal it by changing his positions to suit the audience. It might be said that these entitled opportunists are are the true cynics.

So What Does All This Have to Do With Economics?

Framing Reality: Austin O’Malley wrote, “A hole is nothing at all, but you can break your neck in it.” The same can be said of abstract phrases like “liberty,” “justice,” “freedom,” “democracy” and the “free market.” Abstract as they are, elites in the defense, energy and other industries readily use these notions to lead our youth into harm’s way in foreign interventions, treating the public as pawns in a game of chess.

Economic Stockholm Syndrome: Ironically, if you are fortunate enough to have a job, and even more fortunate to have a career, the impulse is to forget that you are dispensable and internalize the values of the elite class, a variant of Stockholm Syndrome. Both the Republicans who buy the theory of supply side economics, resurrected in its current form as job-creator worship, and the Democrats who believe that their representatives will pass meaningful legislation that the economic elites won’t get around, are being systematically hoodwinked. This is the result of a two-party system and media that answers to a common corporate agenda, but shapes public opinion around distracting ideological issues that divide people into opposing left/right camps through bias confirmation.

The sound bites you hear from either political camp, amplified by the media and peer repetition, are carefully sculpted to manipulate and distract you from the underlying fact that corporate personhood has trampled individual rights. Economically, you are a manufactured product, conditioned to find secondary reinforcement in shopping for things you don’t really need, but are taught to desire. Politically, you are a rubber stamp for corporate agendas.

Is There a Way Out?

Meet Marketing’s Evil Twin: As a Marketer, I continue to focus on honesty, clarity and responsiveness to consumer needs. But, as in any discipline, there is a dark side, and Marketing’s evil twin, psychological coercion is extraordinarily effective. Is there a way out? Wiki notes that John Dewey thought so:

Philosopher John Dewey (1859–1952) agreed with Lippmann’s assertions that the modern world was becoming too complex for every citizen to grasp all its aspects, but Dewey, unlike Lippmann, believed that the public could form a “Great Community” that could become educated about issues, come to judgments and arrive at solutions to societal problems.

So the alternative to cynicism isn’t starry-eyed idealism, but education. This has been a continual focus of this blog. Professor Reich agrees. He writes:

This is for those of you who consider yourself to be progressive but have given up on politics because it seems rotten to the core…Your cynicism is understandable. But cynicism is a self-fulfilling prophesy. If you succumb to it, the regressives who want to take this nation back to the 19th century win it all. The Koch brothers, Karl Rove, the rabid Republican right, CEOs and Wall Street titans who want to entrench their privileges and tax advantages — all of them would like nothing better than for every progressive in America to throw in the towel. Then America is entirely theirs.

Economic Action List

Action as an Alternative to Cynicism: Reich’s alternative to cynicism is to become more involved in politics to create a progressive force that can’t be ignored. Reich suggests a clear set of demands, to include these:

  • Make it our goal to reverse Citizens United, even if it takes a constitutional amendment. And have public financing of elections (including requiring the media to provide free political advertising as part of their commitment to public service).
  • Also break up the biggest banks and resurrect the Glass-Steagall Act.
  • Put a 2 percent surtax on wealth in excess of $3 million. And a one-tenth of 1 percent transaction tax on every financial transaction. And restore top tax rates to what they were before Ronald Reagan became president. Use half this revenue to pay down the national debt and half to make sure every American has a world-class education.
  • Put a tax on carbon, and use the revenues to reduce or replace payroll taxes.
  • Have a single-payer health-care system that delivers care at far less cost than our current balkanized and inefficient one.

Isn’t Politics “the Art of the Possible?

Reich points out that, no matter how rotten the system now is, we’ve done it before:

I remember when progressives joined with African-Americans to get enacted the Civil Rights and Voting Rights Acts. I remember when progressives stopped the Vietnam War. When women finally got freedom of choice over their own bodies. When the Environmental Protection Act became law.

Who would have imagined two decades ago that America would elect an African-American as President of the United States? Who would have supposed gays and lesbians would begin to achieve equal marriage rights? Of course we can take America back. Stop complaining and start organizing.

It Starts With Attentive Research: I suppose I needed that kind of swift kick to awaken me from complacency. What about you? Do you still cling to the artificial and essentially meaningless ideologies used to frame the issues, or do you the research economics outside the box of Fox so-called News and MSNBC to get to the real truths about economics, science and the hidden powers behind the political light show?

The Middle Road Between Idealism and Cynicism Is Attentiveness

Be Attentive: In retrospect, it isn’t me who is the dyed in the wool cynic. The real cynics are the ones who use rhetorical mechanisms of psychological control to promote a concealed agenda. I am just a realist in the face of the ideological canards of supply side economics and libertarianism and the false gods of national defense, finance and energy. I am just barely smart enough to discern that the national budget deficit these interests create is a tactic of control to put forth a false argument for austerity and further the erosion of individual economic initiative.

Engage!: As Robert Reich points out, a vote against a plutocratic candidate isn’t enough;  the corporate corruption is pervasive in both political parties. The necessary second step, according to Reich is engagement:

Step two: Starting Election Day, regardless of who’s elected, commit at least three hours every week to political organizing and mobilizing. Connect with other progressives in your city and state. Help find and recruit new progressive candidates to run against Republicans in swing states, and against conservative Democrats. Support the members of the progressive caucus in Congress. Raise money. Raise a ruckus.

Execute with Rigor: This is where Occupy Wall Street failed. In contrast to the Tea Party, self-interested business leaders coopting an ideologically conditioned, bewildered citizenry, OWS are educated folks who understand economics, yet underestimate what it takes to counter a massive wrecking ball. The lesson in the way that OWS was denied their supposed right to assembly, and that the Tea Party was coopted by corporate sponsors is that these movements have lacked the organization and discipline to engage in sustained roots-based effort.

So, my corollary to Robert Reich’s recommendation is as follows:

Support the next true grass roots democratization movement – one that represents the economic interests of the 99% in the form of coherent economic policies that:

  • Restrain corporate personhood, big energy and defense’s adventurism in the name of national security and a few temporary “jobs,” large agribusiness, big banking, overseas outsourcing, privatization, and other oligarchic power grabs.
  • Empower small enterprise, equal opportunities regardless of class, gender or nation of origin, through federal investment in education, public projects, immigration reform, and meaningful regulation.
  • Insist on transparency – meaning, primarily, an end to the corporate-controlled media agenda, public campaign financing that excludes corporate funding and outlaws distorted campaign rhetoric. Let’s make honesty a requirement for public office, and the cynical political rhetoric of the spin doctors illegal.

In a word, it’s about empowerment.

Applications to Marketing: Empower the Consumer

Thanks for hanging in this long! Yes, this is all leading somewhere.
The mental discipline required to see through the what you already believe, ie. “think outside the box” is what marketers need now more than ever to be better marketers.  It’s easy to get stuck in the Lippmann-eque elitist rut of treating consumers as impressionable masses who need to be conditioned to desire things they don’t really need. But social media has made consumers more empowered today.
The Door to Consumer Democracy Is Now Open: Advertisements and slogans that tell consumers what to think no longer work. They now interact through social media and know how to research products for themselves. The door to consumer democracy has been opened, and there’s no going back.  Today’s marketing needs to respect the integrity of the individual in an age of consumer empowerment. We can no longer frame the issue, and tell them what they want, but have to listen to them carefully and respond honestly and appropriately. They’ve learned to see through spin and rhetoric. Unless we offer them value in the form of information and superior service, they are fully prepared to go to a competitor. The marketer who learns how they think, and what they require will succeed where competitors fail.

ROBERT B. REICH, Chancellor’s Professor of Public Policy at the University of California at Berkeley, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including the best sellers “Aftershock” and “The Work of Nations.” His latest is an e-book, “Beyond Outrage,” now available in paperback. He is also a founding editor of the American Prospect magazine and chairman of Common Cause.

Proposals That Can Have Serious Potential Consequences

Economic Warnings: Nobel Prize-winning economist Paul Krugman on HuffPost Live offered a dim assessment of the potential economic consequences of a Mitt Romney presidency. He finds a strong likelihood of another recession, and one with “almost no bottom. ” Krugman said that over the long term, Romney’s economic policies could lead to a recession as deep as that in Greece today, and even a depression. In Greece today 25%  of workers are unemployed, including 50% of  young workers.

“I think there’s a real chance that he’ll manage to pursue a policy in the first couple of years that simultaneously blows up the deficit and depresses the economy,” . “Tax cuts for the rich, who won’t spend them, and slash spending for the poor and the middle class, who will be forced to cut back. And so we end up managing to have a simultaneous deficit explosion and double-dip recession.”

Candidate Romney’s Economic Fallacies

Two recent studies underscore what numerous economists have already shown: that tax cuts for the wealthy do not promote economic growth, and in fact foster economic decline.

Study 1: A study by the nonpartisan Congressional Research Service found that  cutting taxes for the rich does not increase saving, investment, or productivity growth. The study documents show a clear connection between higher taxes for the rich and less income inequality. Over the past 65 years:

The study also finds that:

  • In 1945, when the richest families with a marginal tax rate of more than 90%, the top 0.1% of U.S. families accumulated 4.2% of all income gains.
  • In 2007, with today’s top marginal tax rate of 35%, the top 0.1% acquired 12.3% of all income gains.

Study 2: Another recent study by Owen Zidar, a PhD student in Economics at the University of California at Berkeley, likewise found:

So much for the “job creators” canard, which is really a repackaging of the now discredited “supply side economics” of past Republican presidents.

What Harm Could Romney Economics Really Do?

What exactly is so potentially devastating about Romney’s supply side economics?

A Business Candidate Who Doesn’t Understand Economics

While Romney accused President Barack Obama of pursuing policies that would lead to a Greek-like debt crisis, the fact is that President Obama has been working to reverse the debt crisis that G.W. Bush created. Not only has President Obama’s spending been less than that of any president since Eisenhower, but the U.S. budget deficit is shrinking.  Another factor: the Federal Reserve can weaken the U.S. dollar when necessary to stimulate the economy, an option Greece does not have with the euro.

In short, candidate Romney doesn’t understand economics. Krugman said on HuffPost Live:

I’m not seeing a lot of evidence that he really does understand it [economics].  People say he’s a smart guy, but it’s not visible in his statements, and it’s not visible in his off-the-cuff reactions either. I don’t have a lot of hope that he actually would know what he’s doing at all or that he would even know how to pick the right people.

Much of the American public seems to buy the canard that a businessman can do a better job of running a national economy, although history shows the opposite has held true, as businessman presidents like George H.W. Bush and G.W. Bush presided over irresponsible deficits that Democratic presidents were then elected to balance. The evidence is that businessmen-turned-politicians tend to work in the interests of the business sectors they represent, rather than the national economy.

Has Romney Ever Really Balanced a Budget?

Mitt Romney himself has never balanced a public budget. And, while he claims to have put the Olympics back in the black, he did so by accepting a government bailout.  According to the Daily Kos:

Mitt Romney did manage to raise money that helped secure Salt Lake as the venue of the 2002 Winter Games.  Some of that came from corporate sponsorships, but most of the money came from the US government.  And most of the money that was needed was already in place before Romney took over, some $1.5 billion in government support.  Both the Utah governor at the time and a US Senator from Utah at the time have confirmed that Presidents George W. Bush and Bill Clinton both cooperated to make sure the Winter Games happened.

A Poor Economic Performance In Massachusetts

The Washington Post’s Fact Checker puts candidate Romney’s record as governor of Massachusetts in perspective, in comparison to President Obama’s record during his presidency. The comparison looks quite unflattering for Romney.

Job Creation: While data from the Bureau of Labor statistics shows that Massachusetts added 50,000 jobs during Romney’s tenure in office, that number represents a meager 1.5% growth, compared to a higher 5% increase for the nation as a whole in taht period,  using seasonally adjusted data.

President Obama’s record is considerably better. Since the U.S. downturn ended in June 2009, the nation added about 2.7 million jobs, an increase of 2%, and while that still isn’t great, most of the job losses occurred while the president was trying to reverse a severe recession that he had inherited.

Unemployment and Underemployment: Under Governor Romney, underemployment and unemployment in Massachusetts decreased from 241,000 to 223,000, a decrease of only 7.5%, compared to a 15% decline for the country as a whole.

In comparison, although the nation’s combined underemployment and unemployment under President Obama rose by 4.7%, it has fallen by 11.6% since the end of the recession.

Unemployment: Massachusetts’ unemployment rates, dropped .9% under Romney, while the United States fell by 1.4 percentage points during the same period. While the U.S. rate rose .5% since President Obama took office, it went down 1.2% since the end of the recession.

Home prices: Experts generally agree that governors have little power to control home prices, so we need not regard this too seriously. The record is as follows: in Massachusetts, price indexes from the Federal Housing Finance Agency show that home values increased during Romney’s tenure by nearly 26% while he was in office. However, this trailed the 33% rise for the United States during that period. And Massachusetts also experienced a 1.5% drop from the start of fiscal year 2006 through the last quarter of Romney’s administration, while the nationwide home-price index continued to grow. Of course, the housing market was overheated during that time, and the bubble eventually burst.

During the Obama presidency, home prices have fallen by 7.9% for the nation, but, of course, the president took office shortly after the housing market collapsed. The FHFA price index shows a slight uptick in home values during the first quarter of 2012, and monthly data from the agency suggests that the second quarter will show improvement as well.

Budget Deficit: The Washington Post points out that any comparison between Romney and Obama on the issue of budget deficits is misleading, because Massachusetts law requires the state to balance its budget every year, and Governor Romney had no choice but to sign a balanced budget every year. But here’s the record:

  • Declining revenues just before Romney took office, forced his administration to implement emergency cuts and work with lawmakers to close a $3 billion gap during his first year.
  • Romney left his successor with a similar problem. In late 2006, Romney warned incoming Gov. Deval Patrick that the state could face a deficit of between $400 million and $1 billion because of lower-than-projected revenues.

For Obama,  according to historical tables from the White House Office of Management and Budget, the gap between spending and revenues has increased from $641 billion during Bush’s last year to $1.3 trillion for the 2011 budget cycle.

However, the the Post points out that, while Massachusetts was obliged to balance the budget, a Republican-controlled U.S. Congress  rejected some of the president’s proposed policies, including tax hikes on upper earners which probably would have lowered the deficit.  Additionally, the Budget Control Act, which resolved last summer’s debt-ceiling standoff, is estimated to reduce the deficit by $2.1 trillion over the next decade.

Another important piece of data to consider is an analysis by the Center on Budget and Policy Priorities (CBPP) which shows that the Bush tax cuts, the wars in Afghanistan and Iraq, and Bush’s Great Recession account for virtually the entire federal budget deficit.

Family Income: Data from the U.S. Census Bureau show that Massachusetts’ median family income rose from $49,855 to $55,330 during Romney’s term. However, the median dropped during Romney’s final year compared to 2005; the median family income in Massachusetts fell by $687 from 2005 to 2006. Using inflation-adjusted numbers, the median income dropped by 1% during his administration compared to a 1% increase for the nation as a whole during the same period.

Of course, there is no doubt here that President Obama’s administration has fared worse than this up to 2010, the last year of data available through the Census Bureau. In 2010 dollars, the U.S. median family income dropped 3% from $62,300 the year before Obama took office to $60,400 during 2010. Like most other economic indicators, it may have risen slightly since then.

The Bottom Line: A Fantasy Budget With Real Consequences

To be fair, economic conditions appear to have deteriorated for Massachusetts during the candidate’s last year in office. However, the president took office in the midst of the most severe recession in modern times, and his numbers are generally positive since the end of the downturn, even if the recovery has been relatively slow, for which Congress bears much of the responsibility.

My point here, as an independent isn’t a political one but an economic one. According to Bloomberg Businessweek:

If elected president, Mitt Romney has promised he will create 12 million jobs, replace Obamacare and the Dodd-Frank financial reforms, slash corporate tax rates, preserve the Bush income tax cuts, and then cut an additional 20 percent to boot. And, oh yes—balance the budget. How does Romney propose to pull off this feat of budgetary magic? He isn’t saying…

Absent details, he’s essentially selling a fantasy that depends on voters’ faith that he’ll be able to keep all these vows once elected…On the other hand, Romney’s painstaking effort to avoid specifying such cuts hasn’t spared him from the implications of his proposals. An August study by the Brookings Institution and the Tax Policy Center found that his assorted promises are impossible to reconcile with his claim that he won’t raise middle-class taxes. Cutting ordinary income rates by 20 percent for the wealthy as Romney has pledged would cost the government $251 billion. Romney says he would recoup that lost revenue by eliminating deductions. But the study’s authors note that wealthy taxpayers account for only $165 billion in deductions. So the $86 billion shortfall would have to be borne by everybody else.

In short, candidate Romney is offering a fantasy that would exasperate the deficit while depressing the economy, most especially for the middle and lower income households.

Health Care Reform is Working

2011 figures from the US Census Bureau (shown above) show that the new health care reform law is accomplishing what it set out to do: the percentage of uninsured Americans is going down, folling very steep jumps in the previous two years:

  • Over 4 million more people had health care coverage in 2011 than in 2010.
  • For the first time in a decade, the rate of private health insurance coverage didn’t go down.
  • Biggest beneficiaries are  people between 19 and 25, whose uninsured rate dropped 2.2%.

These figures should only get better as more provisions of the law is fully implemented.

Facts vs. Rhetoric

In an election year, a great deal of rhetoric is to be expected, but the anti ACA rhetoric has been particularly egregious. For instance, claims by candidate Romney that Obamacare is unaffordable and fuels the deficit makes as little mathematical sense as his “impossible tax plan.”(Factcheck.org)

Since the ACA actually reduces the deficit, the nonpartisan Congressional Budget Office’s estimates  that repealing the law would increase the federal budget deficit by an estimated $109 billion between 2013 and 2022.  According to the CBO and Joint Committee on Taxation:

Specifically, we estimate that H.R. 6079 [the “Repeal of Obamacare Act,” which was passed by the GOP-led House on July 11] would reduce direct spending by $890 billion and reduce revenues by $1 trillion between 2013 and 2022, thus adding $109 billion to federal budget deficits over that period.

And that’s over and above the Romney tax proposals that would balloon the deficit by up to $3.7 billion. According to The Atlantic:

It’s a massive tax cut for the rich, a small tax cut for the middle class, and a tax hike for the poor. That adds up to mega-deficits. How mega? Well, the Tax Policy Center calculates Romney’s $25,000 cap would raise about $1.3 trillion over a decade — against almost $5 trillion in tax cuts over that period. And remember, that’s a $3.7 trillion hole relative to a world with the Bush tax cuts. It’s an almost $8 trillion dollar hole compared to a world with Bill Clinton-level taxes.

Needed More Than Ever

Reducing the cost of U.S. healthcare on a macro level is the next inevitable development regardless of who occupies the White House and Congress. The ACA doesn’t focus on significantly reducing health care costs. Attempts to do so have so far been misrepresented as “death panels.” While the ACA looks for cost savings to the the upstream providers, where the cost increases originate, Republican proposals would pass costs to Medicare recipients and patients. Since spiraling healthcare costs do not respond to market forces, with large hospital groups and pharmaceuticals having been very influential in resisting reform efforts, the best bet is to keep Obamacare in place and build on that foundation, as is now occurring in the state of Massachusetts.

Employers Do Not Plan to Drop Coverage

More evidence that the ACA is working is shown by Bruce Japsen of Forbes, who has highlighted a newly released study from the Midwest Business Group on Health of more than 110 small, medium and large employers based in 16 states with with workers across the country ranging from fewer than 1,000 workers to more than 5,000 employees. Represented are numerous national employers like Boeing, Ford Motor Company and Caterpillar.

The study shows that, despite the political debate over whether the Affordable Care Act will be an burden on business, “there is little indication that employers plan to drop health care coverage.”

Findings: Status Quo

The findings are summarized here. Key findings are that employers will maintain the status quo until the broader coverage and new benefits provided by the Affordable Care Act take full effect in 2014:

  • Most employers, especially those with more than 200 employees, will not drop employee benefit coverage in the foreseeable future.
  • Costs will likely go up on workers as employers continue the current trend of moving to consumer-directed health plans, which tend to have high deductibles.
  • 57% already offer consumer-directed health plans that work with health savings accounts or health reimbursement accounts.
  • That percentage will rise to 62% in 2013 and continue to rise steadily to 71% through 2018.

The Move to Consumer-Directed Plans Continues

This is one of several studies that confirms the increasing use of consumer-directed health plans. A recent study by Aon Hewitt (AON) showed that consumer-directed health plans have overtaken HMOs as an option offered by major employers. Still, Preferred Provider Organizations, or PPOs (which allow enrollees to go outside of the health plan’s network but at a higher cost) remain the most popular health plans offered by employers.

Consumer-directed-health plans allow employees to allocate a percentage of their salaries into an account (often with an employer-provided a match) to use toward their deductibles and co-payments. These plans save money on premiums as subscribers may use health services more judiciously and make better health choices in lieu of potentially unnecessary procedures or costly medicines. The ACA mandates that these plans offer preventative services for health maintenance that should also reduce healthcare costs over time.

Larry Boress, president and chief executive of Midwest Business Group summarizes the study’s findings:

After 2013, the majority of employers responded that they will be adjusting to the ‘new normal,’ making changes to their benefit design strategy in response to the post-ACA environment. The majority plan to continue to offer benefits.

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