Thursday, January 31, 2008
Tuesday, January 29, 2008
As California goes, so will go the nation. Gov. Arnold Schwarzenegger's plan to arrange medical insurance for nearly all Californians went down in flames yesterday by a 10-1 vote of the state Senate Health Committee. The proposal would have required people to hold private insurance and would have subsidized the premiums for those who could not afford them. Of the 50 million Americans lacking health insurance, 10% live in California.
The plan was simply too expensive. With the state already facing a $14.5 billion shortfall, senators were reluctant to take on a new financial commitment with incalculable risk. The Governor's proposal was patterned after legislation passed 22 months ago in Massachusetts, the first state to mandate universal coverage. That program is now staggering under $400 million in cost overruns and will likely require a new infusion of taxpayer money, as more employers shed coverage benefits and premium costs continue to outpace inflation.
The defeat bodes ill for national efforts to overhaul the country's healthcare system. The three remaining Democratic presidential candidates--Hillary Clinton, Barack Obama, and John Edwards--all have proposed similar programs aimed at expanding private insurance. Obama's, it must be noted, omits the dreaded individual mandate, which in California would have forced people to buy policies with deductibles as high as $2,500, leaving them exposed to potentially ruinous out-of-pocket costs.
Let's face it. With our sedentary lifestyles, widespread drug dependencies, and toxic diets, we Americans are too demanding of health care, the cost of which runs to one-sixth of national GDP every year. Many of the uninsured choose to be that way because they are healthy and tired of paying for the rest of us. Making them pay is an option that California has rejected.
Sunday, January 27, 2008
Yeah, it's only one state, but.... One has to wonder whether Barack Obama's landslide victory in South Carolina yesterday will light a fuse. Despite trying to downplay expectations, Team Clinton poured a lot of sweat equity into the Palmetto State this past week--and still got blown out of the water. Two-to-one in an early primary? Unheard of.
What should get your attention is the ramped-up voter participation. The turnout from Democrats yesterday was nearly double what it had been in 2004 and follows heavy turnouts in Iowa and New Hampshire. As stock traders will tell you, when price moves are accompanied by heavy volume, a big-time trend is emerging. Obama's stock is trading higher this morning.
Cynics might dismiss South Carolina as mostly poor and mostly black, but in fact an in-migration of snowbirds from the Northeast and Rust Belt over the past several years (count my mother among them!) has broadened the voter mix there. It would not surprise me to see yesterday's result confirmed across the nation on Super Tuesday. Obama has the look of Patriots' running back Laurence Maroney breaking into the secondary: Houston, we've just gone vertical.
Listen for yourself.
Thursday, January 24, 2008
You can lead a consumer to credit, but you can't make him borrow. What now threatens our financial system is a collective loss of confidence. Consumers will spend if they can count on future income to refill their wallets. Businesses will borrow to expand if they can count on future cash flow to service their debt. Investors will lend if they can count on eventual repayment of principal with a reasonable rate of return. They all need to share the faith that what goes around will come around--the velocity of money.
Because of massive borrowing and risk tolerance in recent years, the interdependency among all these parties is heightened, leaving them positioned like dominoes. If one falls, they all fall. Subprime mortgages were the first domino, and Congress, the Fed, and government regulators are scrambling like mad to stop the cascade before it really gets rolling. For starters, the new stimulus plan will lift the limit on Federal Housing Administration loans to $725,000. The previous limit had been $362,000 for Fannie Mae and $417,000 and for Freddie Mac.
This should relieve the pressure on banks and holders of mortgage-backed securities. Meanwhile, businesses need to be encouraged to create new jobs and keep those paychecks coming. The plan announced late yesterday would accomplish this by allowing corporations and small businesses to write down 50% of the purchase of capital equipment now, rather than wait for it to depreciate more slowly over time. Congress could also consider doubling the annual limit on Section 179 expensing from the current $125,000. This would make sense particularly in the technology sector, where product cycles turn over so quickly.
Make no mistake: the plan under discussion, if enacted, will blow a big hole in the federal budget. We are looking at a potential FY 2008 deficit of half a trillion dollars. All yours, kids!
The first of two shoes will drop before kickoff. By then Congress will have passed a measure to mail out rebate checks to free-spending Americans. Those who plan to save the money or to pay down personal debt need not apply...no, just kidding. The only person standing in the way of this $100-million giveaway is our lame-duck president, who is of the opinion that citizens who most need the help (the ones who earn too little to pay income taxes) are least deserving. Economists, however, will try to convince him that those are precisely the folks who will actually spend the dough, which is what we want, remember? It's all about the velocity of money.
One good thing about the current financial crisis: a seldom-seen spirit of bipartisanship on Capitol Hill. "For the first time Democrats, Republicans and the White House are working together toward a common goal," says Maine Senator Susan Collins. "I'm really pleased with this new and much needed refreshing spirit. I hope it lasts." Ditto that.
We shall discuss the second shoe tomorrow, remembering in the meantime that both are necessary, that the first without the second is worse than nothing at all.
Wednesday, January 23, 2008
Fire and brimstone four years later. In May 2004 Dennis Kucinich came to Portland to deliver the keynote address to the Maine Democratic Convention. His remarks then about the Iraq War, sadly, are not out of date in 2008. Only the statistics need to be changed: 800 U.S. soldiers dead then, 4,000 now; $225 billion in war costs then, $1.5 trillion now. How will things be different four years into the future?
The video is nearly 20 minutes long, the oratory intense. Have your game face on.
Tuesday, January 22, 2008
Let's overhaul the Electoral College. In 48 of the 50 states, choosing a president conforms to the winner-take-all rule: no matter how close the popular vote is, all the electoral votes for each state are assigned to a single candidate. It is possible for a candidate with 39% of the vote in a three-way race to get 100% of the electoral votes. Try explaining that to the Iraqis, now that we are in the business of exporting democracy.
Maine is one of the two states which attempt to align electoral votes more closely to the popular vote, but even here the system is not perfect. Of Maine's four electoral votes (matching the total number of Maine's Senators and Representatives in the U.S. Congress), two are automatically assigned to the statewide winner. The other two go to the winners in the respective Congressional Districts. Theoretically, a 39% vote-getter can be guaranteed 75% of the electoral votes, still a mismatch.
Common Cause is pushing a plan, called the National Popular Vote Compact, to ensure that the Presidency goes to the top vote-getter nationwide. The plan, described in an op-ed piece in this morning's Boston Globe, would not require a constitutional amendment. Citizens deserve to have their votes counted accurately and weighted fairly, and perhaps electoral reform would help to reduce voter apathy.
Sunday, January 20, 2008
Saturday, January 19, 2008
Giving babies a chance to live. Malnutrition and dehydration account for more than one-third of child deaths and 11 percent of the total disease burden worldwide. In March, missionaries from Buckfield hope to make a small dent in this problem by traveling to Fatehpur, India, to advance a program educating young mothers on how best to care for themselves and their newborns. The goal: an instructional video to be shown to these mostly illiterate mothers.
Local entertainer Mike Miclon has joined the cause in a big way. Not only will he be part of the production crew on location, but this past Thursday night he opened up the Oddfellow Theater in Buckfield for a special edition of The Early Evening Show to help raise money for the trip. Please click on the link top left for information on how to contribute to the project, and be sure to view the QuickTime movie. It will grab you.
Thursday, January 17, 2008
$22 billion goes to money heaven. Merrill Lynch (remember them? the ones who snookered Maine taxpayers for $20 million last year in the infamous MainSail II collapse) came out with 2007 Q4 earnings late yesterday, and the picture was not pretty. The New York securities firm lost a cool $10 billion following a write-down of over $14 billion in bad debt and derivatives. This followed on the heels of an $8 billion write-down in Q3. As Senator Everett M. Dirkson once said, "A billion here, a billion there, pretty soon it adds up to real money."
Apropos of yesterday's post about increasing risk aversion in the U.S., I am highlighting remarks made by Merrill's CEO, John Thain, during the conference call: "While the firm's earnings performance for the year is clearly unacceptable, over the last few weeks we have substantially strengthened the firm's liquidity and balance sheet." Thain also said that while Merrill "is still in the risk-taking business," the firm will take steps to tighten up its risk management, including creating a new executive position reporting directly to him. "We're actively looking to reduce our balance sheet [emphasis mine]," he said, adding that he is committed to "flattening out."
If U.S. consumers are similarly resolved to flatten out, then rebate checks from Capitol Hill will do nothing to spur the economy. Meanwhile Merrill, Citigroup, and other Wall Street biggies are recapitalizing by issuing preferred stock to sovereign funds in the Middle East and Asia. Who is in control here?
Wednesday, January 16, 2008
Following its merger with Stora Enso North America last fall, the company had promised savings of a quarter of a billion dollars as it sought to optimize its coated-paper production. At the time, officials at the Rumford mill sidestepped questions from its Community Advisory Panel as to whether layoffs might be in store.
Earlier this week local mill management postponed a meeting of the CAP originally scheduled for this afternoon. The meeting will take place instead on Wednesday, January 23. An e-mail to CAP members has explained that an early retirement package will be offered to approximately 70 hourly employees in the hope that the number of outright layoffs can be minimized. As well, "five to seven salaried employees will likely be displaced."
The bidding has begun! Presidential candidates are tripping over each other with government-spending plans to forestall recession and, incidentally, to win your vote in November. Senators Obama and Clinton have raised the ante to the $70-100 billion range, and who knows if it will stop there? The idea is to put cash in your pocket with the expectation that you will go spend it. Republicans tempted to scoff should be reminded that President Bush resorted to similar tax rebates during his first recession in 2001.
Such fiscal stimulus is most likely to work if (1) it is administered quickly and (2) it follows a budget surplus. Alas, deficit-spending over the past seven years has severely compromised the ability of the feds to stimulate. We are in a debt-induced crisis, and we are going to solve it with...more debt? Hillary's chief economic adviser, Gene Sperling, calls it "new money." I call it imaginary money, a short-term fix that would not treat the addiction and would be billed to our children and grandchildren.
There is disagreement among economists as to whether rebates would even work this time as intended. Cautious consumers might actually use the rebates to pay down debt, thereby confounding the pump-primers. Banks are already doing that very thing, using the liquidity created recently by the Federal Reserve to repair their balance sheets rather than to extend new loans. We may have entered a new era of risk aversion, where the same old tricks no longer apply.
What is needed instead is tax reform that removes impediments to entrepreneurial investment. We will have to work, not borrow, our way out of the looming downturn; jobs will have to be created. At the federal level, companies should be allowed to expense rather than depreciate business equipment. At the state and local levels, the personal-property tax should be repealed. Maine already has a program in place to reimburse companies for local taxes levied on new business equipment. The time has come to abolish the tax outright and to adjust revenue-sharing accordingly to neutralize the effect on municipalities.
Sunday, January 13, 2008
Maine native Andrew Olmsted, a U.S. Army major killed in Iraq ten days ago, made sure to record some final thoughts prior to the event.
To those I will add one attributed to Bertrand Russell: War does not determine who is right--only who is left.
Saturday, January 12, 2008
"Ever since the 2000 election--and even before--the American people have been losing faith in the belief that their votes were actually counted." Kucinich has a point. George W. Bush was not the top vote-getter in 2000, yet he was still installed as President through a byzantine process that few Americans can explain and that foreign observers cannot begin to understand. Until we can certify one-man/one-vote, we are just another banana republic.
Friday, January 11, 2008
...it actually does repeat itself. David Halberstam's The Best and the Brightest sat unread on my bookshelf for 35 years. It took the author's death in 2007 to elevate the title to the top of my to-do list--how bad is that? Describing how the Kennedy and Johnson Administrations of the 1960s got trapped in a hopeless war in Vietnam, the book is so well written that you feel as though you are in the room watching and listening as supposedly smart men (and yes, Hillary, they were all men) promulgate a huge foreign-policy blunder.
The difference between a mistake and a lesson depends on one's willingness to learn. Halberstam was hoping to impart a lesson, but a generation later we now know that Vietnam was a mistake to be repeated. As Charles Ferguson's acclaimed 2007 documentary No End In Sight reveals, the Iraq War has been deja vu all over again. Elected officeholders and their appointed acolytes have (again) ignored and suppressed the wisdom of bureaucratic experts and have based their decisions (again) on filtered intelligence. Raw technological superiority was supposed to overrun ideological zealotry--in months, not years. Traumatized vets were discharged, civilian casualties disregarded. And so on.
Netflix has No End In Sight in its Instant Viewing library. Subscribers can see it online tonight at no added cost.
Thursday, January 10, 2008
Baldacci backs budget cuts, is silent on tax reform. So reads the lead-in to the Press Herald's coverage of last night's State of the State address in Augusta. Governor John Baldacci made no mention in his 39-minute speech of the tax-reform efforts that stalled in the Legislature in 2007. He was later criticized for the omission by Senate Minority Leader Carol Weston, R-Montville. On the other side of the aisle, House Speaker Glenn Cummings, D-Portland, cautiously suggested that the Legislature may tackle tax reform with or without the Governor's prodding. "If that has to begin in the Legislature, it will begin in the Legislature," Cummings is quoted as saying.
But will it begin in 2008? Ballot initiatives over the past several years indicate that Mainers are ready for change. Economic malaise should not be used as an excuse to delay tax relief and reform. Indeed, the best way to combat recession and unemployment is to take the shackles off small businesses. 2008 will be the year that sees either meaningful tax reform or the election of new faces in the Legislature that will make such reform a top priority in 2009.