Monday, May 25, 2009

Memorial Day: A Passing in the Family

My father died Saturday morning. He had been ill for many years and very ill for many months, so it was not unexpected; those closest to him are relieved that he has been released from the pain which at the end only morphine could relieve.

Since is not a "this is my life" type blog, I referred to the times I was away from home the past five months as "family matters" or "family business." As a result of the weeks away from my desk, and the other duties being attended to, the blog and email has been a catch-as-catch-can affair. Thank you for your continuing readership despite the haphazard posting and email replies this year.

Since it is Memorial Day, it is fitting to note that my father graduated from Santa Monica High School in June 1944 and immediately joined the Navy with a buddy. He volunteered for PT-boat or submarine service (the pay was slightly better, he explained) but after making through the rigorous testing/training process that eliminated all but a handful of the original class of volunteers, there were no open slots on those services. So my Dad was assigned to electrician school and served in the surface fleet aboard an LST tasked with the invasion of Japan, an undertaking cancelled by the unconditional surrender of Japan.

My father enjoyed the nuts and bolts of unpaid public service, a rare trait. He devoted countless hours to the restoration and maintenance of his church's grounds and buildings, and served on the committees which selected incoming pastors and righted the church's ailing financial situation. He sat through years of citizens oversight committe meetings, insuring the tens of millions of school-bond dollars approved by the voters was being spent wisely and prudently. This required a working knowledge not just of construction but of the physical plant of each school, for there was never enough money for every project desires; trade-offs had to be made, and contracts carefully defined to get the most out of the taxpayer's money.

He also served as president and board member of the local museum/historical society, and various business groups, and enjoyed a long membership in the local Rotary Club and a reading/discussion group. He never watched TV other than a few films a year at home and had no hobbies or amusements as commonly understood. Ironically, perhaps, for someone so engaged in service to institutions he valued, he'd mastered the fine art of procrastination in his personal life, and it took a close brush with death in January to change his mind. After that, he finally took up the tasks he'd talked about but set aside for years: a new garage door, the settling of his will, and the sale of various assets.

He could be quite stubborn--a common enough fault--and there was no forcing him to do anything until he decided to do so. Thus he left my sister, stepmom and I a tangled mess of tax issues which he'd dealt with by filing various unopened letters in a file. He was a packrat with paper (alas, apparently a genetic weakness I inherited) but this was a visible enough fault and one we anticipated dealing with. (Goodbye, 1992 listings of the Standard and Poors 500....)
At the end, he was focused on the tasks yet undone, on relieving his family of the impossible burdens of caring for him at home, and on the Hereafter, a question he faced with curiosity and trepidation, as do all believers, I think, at some level of their being.

Should I be fortunate enough to be conscious when my time comes, I would be quite content to share these same final thoughts.

My brother, sister and I all got to spend a great deal of time with our Dad these past few months, and so we feel there was nothing left unsaid or unasked; my Dad felt blessed to have been given these "bonus months" since January, and we all feel the same. I spent a lot of time listening to my Dad over the past 20 years or so, and though like many of his generation, he was very self-contained, I think I came to know him fairly well. And thus, of course, I came to know something of myself as well, too.

Since it is Memorial Day, I will add this entry from the 8th Air Force log of my father's older brother, who served in the Europen Theatre. he too survived the war, and preceded my father in death after a long and full life. He flew 33 missions over France and Germany in B-24s and B-17s from May 31, 1944 to January 2, 1945. Here are his notes on Mission 4, June 7, 1944, the day after D-Day:

Target: Tours, France Length of mission: 9:45 hours
Bombed and knocked out railroad bridge. Returned at night. German night fighters followed us and shot down four planes when we were over home base. ad to fly away and try to land at English bases. Three English bases turned out lights and fired on us. Finally one English base let us in and before we could land two of our planes crashed on the runway and we had to hunt a fifth field. English were very nice to us at that field.

Those of us reading these terse lines now can only imagine the terror of being hunted by night fighters, of seeing nearby aircraft carrying one's colleagues and friends go down in flames, of trying to find an open air field in the confusion and of the supreme joy of landing in one piece.
Four down, 29 missions to go.

It should noted that the casualty rate for the 8th Air Force over Europe and the Pacific submarine fleet was about 50% for much of the war.

I cannot generalize, but I think my uncle and father served because it was their duty to do so. At the end of their lives, their bodies wizened shadows of the scrawny magnificence they possessed in 1944, they dutifully took all the medications their doctors ordered them to take, and they clung fiercely, even stubbornly, to whatever independence was left to them.

It is also fitting to honor this Memorial Day my wife's uncle Jackson, who volunteered and served in the storied 442nd/100th Combat Regiment, a unit of American-born Japanese-Americans from Hawaii and California which became the most decorated unit in the long history of the U.S. Army as a result of their combat record in Italy and France. Unlike the rest of us bestowed American citizenship by simply being born on American soil, they were forced by circumstance to "earn" the right to their natural-born citizenship with blood.

As our nation's finances implode over the coming decade, we might be inspired by those before us to focus not on self-absorbed, narcissistic demands for the entitlements "we deserve" or "we earned" but on the sacrifices citizenship sometimes requires.

I will be unable to post or respond to emails for the next week or so. Thank you for your kind thoughts and I am sorry I will be unable to reply to emails. There is much to be done, as many of you know from personal experience. Thank you once again for your patience and for your readership.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle


Saturday, May 23, 2009

Whither Goes the American Rebel

This essay is from contributor Subuddh P. and complements his essay of last week; you may contact him via his website

Along with the Pilgrims, the other enduring dominant American story is of the rebel, the one who says to hell with the world I am doing it my way. We love stories of such rebels, those who went their own way and were successful at it. But what is the future of the American Rebel today? What is left to rebel against?

Go West young man, what did that mean? It meant pack up your bags, leave your old job, say "Up Yours"(UY) to the Boss, pack the family into the wagon and head on west. There land was cheap as the Indians were being killed off and you could start fresh. All the pain of the old could be forgotten and a new space could be created. In this new space there was a chance it could be different and there was the lively expectation that things would work better, life would be bountiful and happy.

This is the essence of the American dream that draws people from all over the world. It is not so much the political freedoms or even lack thereof in the old land but the psychic cultural space to create something new, to get away from the routines and cultural expectations of the old. In Mexico you are Mexican, in Germany you are German. In America you don't have to be anything, nobody cares.

Like all things this has benefits and pitfalls. The new cultural space allows for great creativity. But while folklore celebrates the people who upped and 'made it', it does not document the pain of the people who did not, who got lost. For leaving your culture isn't easy. There is no guarantee that when you prospect for gold you will find it. You could just as easily end up all alone in the ghost town wondering where your life went.

If you leave the old you leave its securities and its stability. What will you do with yourself in the new empty space? Before you knew who you were, now you don't.

Historically when people went west they were either the loner prospector kind or they went with their family. In every new place the church and the faith served as the fulcrum of life, and provided some stability, a space where community could be found and a new life could be built.

But the first casualty of the rebel streak was that of grandparents. When the option presented itself, it was the easiest thing to grab it and move away from the nagging parents. So for the first time in human history children grew up without any extended family close by, without any role models outside of their parents.

The next step was to say UY to any shared space altogether. Historically even when nomadic peoples moved, they moved in groups. Today people up and move all by themselves living in one single apartment after another. With widespread acceptance of no fault divorce and single working parents, even the shared space of parenting shrank.

Saying UY especially all by yourself, also created insecurity. So personal hospitality became difficult, even inviting your close friends for a cup of coffee seemed a chore. In the secure cultures of the old world personal hospitality is considered necessary and good. But to be hospitable you need to know who you are; you need to be secure in yourself, you have to see the outsider as a welcome guest, not an invader intruding on your space.

No family, no sense of duty what else is there to do but entertain yourself to death? And this we know how to do very well.

Today we elevate the rebel to Everestian heights and then enjoy hearing stories of their fall down. Our media loves it. So everyone wants to be a Rebel, wants to do it their own way.

It can border the theater of the absurd: go to a job interview and you might hear how your prospective employers are changing the world, when they really are doing nothing of the sort. You will also hear how they are looking for people who are passionate about the job. But as technology replaces jobs that humans had done, outside of the very highly skilled knowledge workers, work gets more and more tedious and routine. The lies required to maintain the fiction of passion get bigger and bigger.

Finally you can't get off on saying UY and still expect the people you have dismissed to care about you. A colleague of mine has enjoyed saying no to everything all her life. This is her badge of honor: she didn't follow conventions, didn't commit to a partner, didn't climb the career ladder and whatever else.

But as she is showing her disdain for society, going her own way, she sneaks a glance over her shoulder. Who is paying attention to her, she wants to know? After all society should care about her grand rebellion, her rejection of others. It must give her a prize and a medal, it must give her a financial reward. Of course, nobody cares, nobody is listening.

As it is then the Anglo-sphere has entered a strange intellectual detachment. The chasm between our ideas of who we are and anything we actually are, between our expectations and what life can give us is as wide as the grand canyon and seems to be only growing.

For the last five hundred years this Anglo-sphere has dominated the cultural trends of the world. My aforementioned colleague holds onto the belief that she is doing something great for humanity - that she is a trend setter and everyone should really want to be like her.

She believes this as she contemplates the second half of her life alone continuing to say UY, holding onto a meager paying job that could be cut anytime, few friends, no family. To all but the most intellectually detached this would seem extremely strange.

So what is the future of the American Rebel? What more can we say UY to? Perhaps some will say UY to saying UY and a great cry of relief will be heard. The politically correct culture is ripe to be rebelled against. Perhaps we might say thanks but no thanks to some of that virulent perfecting energy at least in places where no perfection is possible. But whatever it is, it will be interesting.

copyright 2009 by Subuddh P. 

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle 

Thank you, James W. ($10), for your most generous contribution (from Oz) to this site. I am greatly honored by your support and readership.


Friday, May 22, 2009

American Healthcare: Follow the Money

Readers' experience of the U.S. healthcare system suggests that care follows money, not the other way around. Is anyone looking at the incentives and disincentives in our model of "healthcare"?

Readers wrote in response to Social Welfare, Socialism and Healthcare (May 19, 2009).

Galen W.

Please allow me to relate two medical-related events that took place with family members this year.

In late January, my older brother Robert died of leukemia. He was 53. Rob had been originally diagnosed some ten years earlier and had been in remission and on a maintenance chemotherapy up until the spring of 08, when all of a sudden, his symptoms returned with a vengeance. The lymph nodes in his neck and stomach swelled horribly. Between the spring of 08 to just before his death, he tried four different chemo regimes including a clinical trial. Nothing worked.

Of course during all this, he became weaker and weaker, going from 6'5" tall and 230 lbs (Rob played small college basketball when he was young and continued to play up until the disease returned) to about 170 lbs. He also developed a lung infection and was on oxygen for a while. As a last ditch, my sister and I were tested for bone marrow stem cell transplant and I was found to be compatible.

On the day of the transplant, Rob had to undergo more chemo as well as radiation to destroy his immune system. He returned to his room ashen and barely able to sit up. My stem cells were transplanted through a drip feed to my brother. That night he deteriorated. His breathing became labored and they had to draw fluid out of his lungs. It got worse and he had to be sedated and placed on a ventilator. Rob did not want to be kept alive artificially so his partner and the family decide to take him of the ventilator and he died within minutes. A test of the lung fluid later found more cancer.

The lead oncologist had said Rob had a 50/50 chance to survive the procedure. I think he knew full well it was much, much worse than that. They could have said 'Rob, we are sorry but it's the end of the line' and let him die without putting him (and by extension, his loved ones) through the horror of more chemo, radiation and pain. The outcome was the same but the hospital got paid through my brother's health insurance.

My 82 year old father was diagnosed with a heart valve irregularity. He is otherwise in good health for his age. A scope of his arteries showed no clogs. Last month after consulting with two doctors, he decided to have the heart valve replaced. This is supposed to be a routine surgery. After a few days of recovery, he went home.

After a couple of days at home he said his stomach was not right. On a Sunday evening, he got up to go to the bathroom, became light-headed and fell. He was not injured by the fall but my mom called 911 and he was taken to the emergency room. His blood pressure was dropping and he vomited several pints of blood and was also bleeding from his rectum. They were giving him blood but it was coming out as fast as it was coming in. That evening they scoped him and found two ulcers in his stomach. He was on blood thinners, so he almost bleed to death through these ulcers (he had never had stomach problems before). During the scoping procedure they clamped the ulcers which stopped the bleeding and so far (two weeks later) he has been OK. He comes home - again - tomorrow.

What would have happened if he decided NOT to get the new heart valve? How long would he live? Would he be debilitated? He was fine before he went in for the surgery - able to walk, work out at the gym and work in his garden. How tough is it for an 82 year-old man to recover from open-heart surgery? I guess if Medicare is paying, these questions aren't asked.

I always thought a good idea for government-funded health care would be for the Feds (or the states paid by the Feds) to open up health clinics in cities. Care in these clinics would be totally free to anybody who walked it BUT the patient would have to sign a waiver stating that they could not sue the clinic or the doctors and if there was a medical accident it would be arbitrated for settlement without appeal. The doctors would work for a reasonable wage (not get rich) for a fixed length of time and have their medical education paid by the government in exchange for thier service. Doctors would be allowed to practice medicine without the threat of suit hanging over them. I am sure it would be just as cost-effective as the VA.

Jim S.

Another very interesting post, as usual! This one hits close to home, as my parents, aged 87 and 89, are active consumers of both Medicare and VA services. They've been on the Medicare gravy train for more than 20 years, but only recently did my father discover the "free" services of the VA. As their designated driver for long-distance medical appointments, I've made a few observations that may explain some of the cost differential between the two services.

With regard to Medicare, there is a growing movement among physicians to simply stop accepting Medicare patients. I learned this when trying to find a specialist for my mother. The patient does not have the option to just pay the bill herself. If she has Medicare, it's a violation of federal law for the doctor to accept payment outside of the system. As you might expect, this limits the pool of providers to choose from. On the doctor's side, the problem is the amount the Medicare will pay, which is non-negotiable. After factoring in the paperwork and record-keeping costs, many doctors have decided that it's unprofitable to accept Medicare, period.

Although both of my parents were hard-working, conservative and definitely against a welfare state, they simply do not see that they are now active welfare recipients. The attitude is "We worked hard, we're entitled." I expect they used up the full amount they paid into the system within 3 years of going on Medicare. Now they are willing to schedule doctors appointments for the least little symptom, since Medicare will cover it. Any gap is covered by the insurance provided by their pensions.

The VA is another story. Again because of the "free" nature of it, my father decided to start using it in lieu of a local doctor. There is a clinic about 30 minutes away, staffed by nurse practitioners and one or two doctors. When a routine visit produced a questionable test result, he was scheduled to visit a specialist at the VA hospital in Dallas. You don't call to make an appointment. They tell you when your appointment is, some 4-6 weeks in the future. The hospital is well over an hour's drive from his home, at freeway speeds. It's in the part of Dallas where one is advised to keep the doors locked and the windows up. I spent 30 minutes finding a place to park in the acres of lots surrounding the hospital.

We waited about an hour past the appointed time for a 5 minute visit, after which he was sent home with no further follow-up needed. While waiting I observed a lot of patients coming and going, and it seems apparent that most of them use the VA because they have no other recourse. The process is so burdensome that nobody would put themselves through it if they had an alternative. This may be why the VA has a lower budget. A veteran who also has Medicare would probably choose a local doctor, since his cost is almost the same.

While I'm on a rant, there's another troubling aspect of the coming econopolypse that troubles me. I'm 61. My meager retirement funds have been clobbered, and likely will be sufficient for no more than a few years at best. I expect to continue working as long as I'm able to get out of bed in the morning, and I'm OK with that. In the unlikely event that Social Security is still available when I hit 65, I don't plan to file for it. My children and grandchildren are already facing crushing debt, and adding to it would be unthinkable.

However I've observed a number of fellow "boomers" who are retiring at the earliest possible time in order to maximize their "take" from Social Security. One such guy claimed that he "paid in for 40 years, and now it's my turn!" Of course what he paid in for those 40 years went to his and my parents, and anything he takes out will come from his own kids. Unfortunately this seems to be the mindset of most people now turning 65, and I expect it will hasten the crash of the entire Medicare and Social Security system.

The news this morning brings a proposal for national health care to be funded by taxing health insurance benefits as income. The additional taxes will fund the system, problem solved. But wait - if I can get national health care, why shouldn't I just use that and forget the insurance? After all, it's free!

David C.

On the Medicalization of Our Culture (Harvard Magazine)

This is an interesting article about the legal drug culture in America. Big pharma is promoting a pill for every ill. I get tired when every time I watch TV I am bombarded with drug commercials. I've come to the conclusion that it's abnormal to be healthy in this society, that it's normal to be sick. I was watching a Kevin Trudeau infomercial on his book Natural Cures 'They' Don't Want You to Know About and yes I know he's a convicted felon and a con artist but I think he said at least one thing that was correct when he said the drug companies don't want to cure disease, they want to manage it, because if they cure a disease they stop making money off of it.

I think the drug companies want everybody in America to be either physically or psychologically addicted to drugs for life so they can make money. Witness the heavy advertisement on TV, Magazines, Newspapers, and the internet.

I am not opposed to taking drugs if it's necessary, however adults need to look at the side effects of the drugs to determine if it's worth taking, they need to determine if the advantages of taking the drug outweigh the disadvantages. If I had a serious infection I would take Penicillin despite the side effects because the benefits would outweigh the disadvantages. However, I would rather change my diet, change my physical activity and exercise then take drugs for Obesity, High cholesterol or High blood pressure.

For example the Obesity drug Fen-Phen caused pulmonary hypertension and heart valve problems ( I would think that if you are Obese that the wise choice when looking at the pluses and minuses of taking an anti-obesity drug is not taking it and instead change your diet and exercise.

Unfortunately a lot of people would rather take a drug for the rest of their lives then to change their lifestyle because it's easier. When you are healthy or are trying to get healthy by using a scientific non-drug approach then you don't have to worry about doses, overdosing, side effects, drug interactions and finding a drug store when you are traveling.

I really liked your quote from your "Food For Thought" May 9, 2009 article "either we restrict the foods we eat when we have a choice, or our diet will eventually be restricted by chronic diseases." I think you should consider posting this at the bottom of your web page under Aphorisms.

Thank you, Galen, Jim and David for illuminating the darker corners of U.S. healthcare. Can anyone deny that those with "coverage" from gold-plated health insurance or Medicare will get over-medicated, over-tested and unfortunately over-"cared for" (as in sliced open) because these services are "bill for service" items?

As noted here many times, there are few incentives for prevention and non-drug, non-intervention treatments and lavish incentives to pathologize every aspect of life as way of reaping vast profits off the "management" of the multitude of diseases thus identified.

What few citizens are willing to accept is that the system is careening toward the cliff of insolvency. As the U.S. economy unravels and those paying the bulk of taxes become insolvent or opt out then there simply won't be any money to fund this stupenous pathology-producing, "follow the money" bill-for-service system.

So the sort of non-drug treatments David mentions above will become the only option for most people because Medicare as we now know it will be gone by 2014-2015 and Social Security as we now know it gone by 2021. As we print and borrow our way to "prosperity" our currency and debt payments will move in opposite directions; we as a nation will be insolvent. We will be unable to pay the staggering interest payments or con anyone into believing the dollar has any value worth trading oil or gold for.

Believing we can endlessly print and borrow trillions of dollars every year with zero consequences is to believe in a dangerous, utterly unsustainable illusion.

Of Two Minds is now available via Kindle: Of Two Minds blog-Kindle 

Our previous list of hot reading (check them out at your local library if you don't want to own a copy) can be found at Books and Films

Thank you, Nevin C. ($5), for your much-appreciated generous contribution (from the EU) to this site. I am greatly honored by your support and readership.


Thursday, May 21, 2009

When Belief in the System Fades (California Tax Rebellion)

The profound disincentives in our economy are leading productive middle class entrepreneurs to drop out. The government's response is to raise taxes, speeding up the loss of faith of those still struggling to survive.

The entire Survival+ analysis focuses on the multilayered ways the middle class is being squeezed to exhaustion / insolvency. I began addressing the first step of this process last year-- a process which begins When Belief in the System Fades (March 12, 2008).

I then added further analysis as part of the Survival+ project (eBook to be released for free July 4, 2009): Survival+ 10: When Belief in the System Fades(April 9, 2009)

The fundamental theses:

1. taxes are crushingly high in the U.S. for small business, and the supposed "low tax rates" are propaganda/disinformation

2. systemic disincentives include overregulation, a tort/legal system run amok and insanely overpriced healthcare costs

3. an overlapping series of parasitic fees, levies, licensing, etc. burden the productive class while evading the label of "tax"

4. The Plutocracy and State (two sides of the same coin) have overreached in grabbing ever-larger shares of the national income, and they need the middle class to believe in the system and keep paying the taxes needed to support the State's overreach.

Readers have provided confirmation of this analysis: Reader Comments on When Belief in the System Fades (April 10, 2009)

Reader Mike B. recently sent in a comprehensive, incisive commentary on all the issues I describe with the term "When Belief in the System Fades."

1) I really enjoy your articles. You write with clarity and with a great sense of presence. Your background is responsible for've "been there, done that"...and it shows.

2) I've been in business for myself since 26 years of age...40 years ago. I've always been a small-scale entrepreneur, and been quite successful. I live very economically, laughably low on the scale in terms of consumerism, and have good health and a pleasant life as a result. So we have a good deal in common in that respect.

3) I read with interest all your articles respecting the economy, the current flounderings of big government, big banking, and big business...all obscenely intertwined in this day and age. I agree with practically all your views on these subjects.

4) As a result of the above, the main question in my mind is this. If the bulk of the economy is currently based on small business, how can this economy ever "recover" to even a shell of its former self if there's no longer any real incentive for anyone to go into business?

I talk weekly with other small-businessmen/women, and to a person they adamantly state they'd NEVER start another small business today because of the onerous taxes, regulations, and other outside influences by government which make it nearly impossible for them to do this. They're psychologically completely demoralized, and if they're close to retirement, they plan to "stick with the game" only for the few more months or years needed to "wrap it all up". If not close to retirement, they're "pulling in their horns", learning how to build wealth by keeping a low profile, and when possible, shifting income to cash, barter, worksharing, etc.. Many are those who would sell out...if they only could!

The entrepreneur who's bound and determined to attempt enterprise in the future is left to forage mainly for "underground" activities...presumably legal ones...such as small-scale manufacturing, farming, etc.. Markets for their products will be the Internet, flea-markets, farmers' markets, and the like.

Predictably, because of these limited markets, such entrepreneurs will tend to rely on small, less risky, cash only, capital investments, and thus, small production facilities, small workforces, "under the radar" tax payments, no benefits to part-time employees, and the other techniques needed to maintain their enterprises.

While this may result in a fairly good living for the entrepreneur, and perhaps even for his/her favored employees, it's not the stuff of which enough capital is generally produced to develop community wealth.

Thus, it appears to many reasonable people with whom I discuss the matter, the main obstacle to renewed economic stability is not lack of printed paper money to be loaned out at interest, and which will only add to future financial instability, but rather, the great fear of mindless government confiscation of any small profit the entrepreneur may accidentally acquire in this very risky business climate.

If this is true, it's clear there will be no recovery, at least in rational terms, until thousands of government regulations which destroy personal incentive are removed from the books.

I can't see this happening anytime soon. In fact, each day brings the news more and more governments are INCREASING taxes, enforcement personnel, regulations...all in the name of maintaining "services" such as government payrolls, pension plans, various w elfare systems, but all of which further destroys entrepreneurial incentive. Therefore, I must also conclude there'll be no stability of the economy any time soon either.

From all evidence, we're now seeing the real-life results of yet another experiment in socialism concluding predictably, but on the largest scale in history. We now have a population trained almost to a person to believe in the omnipotence of "big daddy" government. So much so, it's abandoned the principles which formerly gave it great strength...principles of self-sufficiency, moral belief in hard-work and enjoying the rewards of this, principles of thrift, respect for the property of others...on and on.

With a belief in "cradle to the grave" so-called "security" offered by glib politicians who have no idea how to deliver such "benefits", this former noble population has been reduced to a nation of beggars demanding eternal handouts...handouts which are dwindling as fast as the former forests of Easter Island.

Again, as I see it, it's not a problem of printing more paper money. It's a problem of individual thinking in terms of personal morality.

Printing money, especially in the form of computer digits, can be done in an instant. Building character and building a nation of solid financial structure takes generations.

The relative value of both is readily apparent.

Interestingly, readers who are not small business entrepreneurs occasionally write to say that paying taxes is a social obligation, etc. and so why are people complaining? This disconnect between the experience of those who create the jobs and pay the lion's share of the taxes and those who are feeding off the taxes is disturbing.

The citizen who has a few children and a modest income pays no Federal taxes and only 7.65% FICA (Social Security) tax. A citizen with a slightly higher income pays only 15% tax on all income above a rather high threshold, and perhaps some state income tax. Compared to European nations, these modest-income employees do pay very little tax.

Meanwhile, the small business owner in states with income taxes pays an effective rate of 50% or more once all the various costs are included. To hire an employee, the employer must pay not just the employer's half of FICA (also 7.65%) but unemployment insurance, TDI (temporary disability insurance), workers compensation and in some states, at least partial healthcare insurance. Depending on the industry and state, these costs can easily add 50%-100% to the wage/salary costs.

The self-employed pay 15.3% FICA right off the top and then Federal and state taxes plus city and county business license fees and what I term "garbage fees" for various "services" which were once paid for by regular taxes. Add in skyhigh property taxes paid on the property used for business purposes and an effective rate over 50% is "normal."

In my wonderful city, we pay a flat 1.012% of gross revenues "business license fee." The city could care less if your business is losing money; you pay them on your gross revenues, not your net income. This is just one example of many which are unknown to the salaried employee of the city who wonders why tax revenues are falling.

Here in California, voters soundly rejected a series of tax increases which were cloaked in Orwellian-like innocuous terms like "rainy day fund" and "stabilization fund." The politicos who wrote these initiatives didn't have the courage to state the fact that they were tax increases directly, for they feared they wouldn't pass. They hoped they could con voters with misleading language into giving them billions more to squander.

Let me state what no newspaper or media outlet in the state of California has the courage to print: The state of California's budget was less than $100 Billion earlier in this decade. It rose to $130 Billion, and now the governor is bleating about "financial Armageddon" because there's a $21 Billion deficit which might turn into a $30 Billion deficit by next year.

In other words, "Armageddon" is a return to the budget of 2002. The 2002 population was 35,116,033 and the July 2008 total was 36,756,666, an increase of about 4%. So adjusted for population and inflation, the budget should have increased by no more than 10%. The state has zero justification for a $130 billion budget; by all rights the budget should be $110 billion--almost exactly where it would be if we slash the $21 billion deficit to zero via spending cuts.

The City and County of San Francisco has about 800,000 residents and a budget of $6.5 Billion. The enormity of that number doesn't faze the politicos or government employees at all; everything they say tells us they think "that's as it should be." Never mind the budget was only $4 billion not that many years ago--now $6.5 Billion is the new baseline, and anything less than that "will cause dramatic cuts in core programs," blah blah blah.

But a funny thing happened on the way to endless growth of government revenues: the housing/debt bubble popped and belief in the system has faded. I am in total agreement with the business owners Mike described; not only would I never start a business in California, I'd never buy another property here, either, due to the insane property taxes and "revenue enhancements" tacked on to property taxes.

One of my friends bought a fixer-upper at the top of the bubble and he and his wife (and young son) pay almost $20,000 a year in property taxes. Yes, on a single family residence and not in some "millionaire's row" either.

His business fell off and so he's paying no state income tax this year. I would guess he won't be paying any state income tax next year, or for many years after that, either.

So the state's response is to raise taxes on those still standing. Brilliant. If over-regulation, tort insanity, high taxes, garbage fees and a hostile attitude to business aren't enough to convince you to drop out/become a sole proprietor/underground economy denizen, then maybe higher taxes, crumbling roadways and stridently demanding public unions will finally trigger a loss of faith in the system.

Meanwhile, while you're scraping by, trying to make your quarterly tax payments, the banking/Wall Street Plutocracy is still collecting massive bonuses on their "earnings" and State politcos are drawing $150,000-plus salaries to sit on useless boards, etc. Their belief in the system isn't fading because the system "works" for them. But anyone who thinks it works for the average entrepreneur just doesn't have any skin in the game.

If you want to understand why tax revenues will be dropping in California and other clueless "tax the rich" (sic) states, then look no further than "when belief in the system fades." 

Our previous list of hot reading (check them out at your local library if you don't want to own a copy) can be found at Books and Films

Thank you, Barney S. ($10), for your most generous contribution to this site. I am greatly honored by your support and readership.


Wednesday, May 20, 2009

Is Buying a House Catching a Falling Knife or a Practically Foolproof Inflation Hedge?

Astute reader Peter B. poses four scenarios which suggest buying a house now may have limited downside.

Astute reader Peter B. recently offered a "devil's advocate" case for buying a house now at popped-bubble prices. As he put it, Is Buying a House Catching a Falling Knife or a Practically Foolproof Inflation Hedge? It's an important question, for while it is easy to say "just wait for the bottom in 2014" not everyone is willing to wait that long. Children are born and parents want to have their own home even if prices continue down, etc. Here's Peter's commentary:

I agree that we still have a long, and perhaps a very long way to go price wise on housing, but in spite of that, it may be time to buy a house, at least in a sensible area.

Here’s how it might play out.

You put 10% down and take out a 30 year loan at 5%. A $200,000 dollar home would cost you $20,000 down, $1000 a month P&I, $100 a month PMI and say $500 a month in taxes and other costs $1600 a month, about the same as it would cost to rent a similar house.

Now four things can happen in the order of predictability:

1. The world doesn’t come to an end. Housing drifts down for the next down for the next few years then stagnates for ten. You missed the bottom, but have the pleasure of home ownership, don’t lay awake regretting your purchase or agonizing whether to buy or rent.

2. Inflation reaches 100% or more over some period of time. Home prices keep up with inflation as folks seek safe harbor in tangible assets. Your home is still worth $220,000 in 2009 dollars but $440,000 in 2015 dollars, you come out ahead by having an inflation hedge and paying off your loan $.50 on the dollar.

3. Inflation reaches 100% or more over some period of time. Rising interest rates and demographics keeps house prices more or less level, your house is still worth $220,000 in 2015 dollars but only $110,000 in 2009 dollars, you break even by paying that off in 2015 dollars.

4. Throwing the bankers and other assorted capitalists under the bus, the government lets the depression play out. Everything unwinds. Deflation ensues; your house is now worth $110,000 in cold hard cash. You walk away and buying a similar house for cash or obtain a loan under some program where people who were caught in the "housing crisis of 2010" get a pass. Sure you lose your 20 grand, but that’s almost exactly what you’d pay in rent for a year.

Thank you, Peter, for a thought-provoking argument for buying. I especially like the tongue-in-cheek reference to the bailout of those caught by the housing crisis of 2010.... Unfortunately, we can expect just such bailouts of lenders and borrowers until no one is willing to loan the Federal government or its various agencies another few trillion dollars to squander on risky debt.

In the spirit of devil's advocacy, here are my comments on these plausible scenarios.

First, let's grant that ownership does have potentially significant rewards--not necessarily financial. If you own a piece of land, then you can plant what you want on it, and build what you want (unless you live in a subdivision ruled by Covenants and Restrictions, of course). You don't have to worry about getting evicted if a landlord goes broke. If you can afford the home or own it free and clear, it's yours, and there is a unique sense of security in that ownership.

If you have a fixed rate mortgage, then you also know how much your monthly "nut" will be, and you won't get any surprise rent increases.

On the other side of the ledger, if foreclosures keep inventories of "homes for sale" high, then a house can be a capital trap, i.e. an illiquid asset you can't sell to extract your capital. Practically speaking, that means you can't move to another locale for a better job (or job, period) because you can't sell your house. That's a potentially severe limitation in a mobile society.

Financially, the costs of ownership vs. renting are complex and not readily generalized. Whenever I comment on this topic, I receive a blizzard of pursuasive arguments: did I calculate the benefits of the mortgage interest deduction, depreciation, etc.?

If you're blessed with a left-coast sized mortgage with $4,000/month in interest and you have one child, then that $50K/year in deductions certainly impacts your tax bill. But if you have a household of four and mortgage interest of $18,000/year and no other significant deductions, then you're better off taking the standard deductions--so the mortgage interest deduction is essentially worthless.

A lot of folks enamoured of straightline financial calculations often forget that a house is a living, decaying structure which can cost a lot of money to maintain. Such costs are not easily predicted, though they are easily underestimated.

They also tend to forget that condo association fees are often high to start with and only move higher as the usual litany of structural problems and multiple lawsuits (filed just before expiration, natch) jack up association dues.

We can also anticipate that revenue-starved municipalities will start raising property taxes unless Prop-13-type laws are in place to restrict such increases. I would be wary of buying property in any state without strict caps on property tax increases, for the simple reason that the local governments will inevitably turn to the taxpayers who can't leave or close down--property owners--to cover their revenue shortfalls.

There is a tendency when making the "rent vs buy" calculations to form a bias which skews the calculations. Thus if you've already decided to buy, then your estimates for repairs and maintenance might be very light, as a way of justifying the "low cost of ownership."

Other readers have pointed out that the low interest rates now available somewhat offset the probable declines in home values which lie ahead. In other words, if interest rates rise 20% in the near future (as I expect), then buying now at low rates is roughly equivalent to buying the same house few years from now for 20% less than today's price. That is certainly a valid point for anyone planning to carry a 80% LTV (loan to value) mortgage.

But will housing decline "only" 20% in your area? If prices drop 40%, then waiting still makes financial sense. How can anyone tell how much more decline may be in the works? There is no sure way, of course, but we can use "reversion to the mean" as a rough guide. All bubbles tend to revert to their starting point. Thus we can expect housing to fall back to the vicinity of its value (adjusted modestly for the decade's low inflation) in the late 1990s before the bubble mania took hold.

If housing has nearly completed the "round trip" back to pre-bubble valuations, then buying now at low interest rates in anticipation of higher rates makes financial sense. If local housing has only completed half the "round trip" back to pre-bubble prices, then caution may well be warranted. That $600K house looks like a "bargain" at $375K only if you don't anticipate it being $250K next year.

As for inflation: let's consider two charts I made way back in 2007:

Here's the symmetrical decline I anticipated, adjusted for inflation:

I think Peter is absolutely correct to anticipate inflation as one probably scenario; after all, printing and borrowing trillions of dollars and then unleashing that torrent into the U.S. economy (let's throw risk management to the winds once again and hope it turns out wonderfully this time!) has a good chance of sparking inflation.

On the other hand, if the Depression sees the loss of 30 million jobs then the ability of people to buy homes will be severely constrained--and Peter's deflation scenario comes into play.

Bottom line: it's impossible to accurately predict which scenario plays out.We might well get a "hybrid scenario" few expect in which the cost (in dollars) of FEW resources (food, energy, water) rise due to shortages and a severe decline in the dollar while at the same time debt-dependent assets like real estate continue deflating as the cost of borrowing skyrockets along with unemployment.

And while I appreciate the humor in Peter's last paragraph, it makes a very serious point: moral hazard has been impaired by the Fed and Treasury bailouts. No doubt the idea that the government will bail out future risky plays and loans which go bad is rattling around in a lot of feverish brains.

As for the "walk away" scenario: in a Depression, replacing the capital lost by walking away may not be easily replaced. "Walking away" from a 3% down FHA loan is one thing but walking away from 20% down is another.

Bottom line: housing is completely and utterly dependent on two factors: employment and low-cost abundant money. If jobs vanish and money dries up/becomes expensive (for a variety of reasons covered here before) then the value of housing could easily fall well below the prices fetched in the go-go decade of the 1990s.

It's worth recalling that the 25-year rise in housing corresponds with the 1982-2007 Bull market and borrowing frenzy (Federal, commercial and household) and the progression of the massive Baby Boom generation from college kids to home buyers. Now, those 60 million Boomers are proceeding to empty nesters/newly impoverished people facing the future with fewer assets than expected. It doesn't take much to anticipate an imbalance in which there are more sellers than buyers for years to come.

As these generational trends reverse, then to expect housing to act as it did in the previous 25 years is unrealistic. Housing may act as a hedge against inflation as it did in the 1970s; but since there is no giant pool of 60 million young buyers itching to buy, it may not follow the 1970s model.

Furthermore, since housing must be bought with borrowed money, employment and the cost and availability of money are the prime movers of pricing and liquidity. In a era of rising unemployment and rising interest rates, housing may not be the hedge of choice it was in the 1970s. 

Thank you, Charles A. ($50), for your stunningly generous contribution to this site. I am greatly honored by your support and readership.


Tuesday, May 19, 2009

Social Welfare, Socialism and Healthcare

There is considerable confusion over the meaning of the emotion-laden word "socialism." Socialism is government ownership of productive assets; social welfare is the redistribution of incomes to fund entitlements.

Many readers decry what they perceive as the "creeping socialism" of the Obama administration. Some are referring to the quasi-governmental ownership of private enterprises like various banks and General Motors, while others are referring to the "tax the rich" and "unions can do no wrong" ideology which seems to fuel many of the Obama administration's policies.

Before we debate the pluses and minuses of socialism, we need to be clear on exactly what the word means. In the U.S., "socialism" carries a heavily negative connotation of government redistribution of wealth--the European model of a high-tax, generous social welfare economy is seen as "socialist" while the lower-tax (in terms of basic tax rates but not necessarily in reality) U.S. model is seen as "capitalist" (heh).

Here's one way to distinguish between "pure" socialism (ownership of productive assets) and social welfare: The Veterans Administration hospital system is owned lock, stock and barrel by the Federal government. It is thus socialist. The VA may hire private subcontractors and purchase goods and services from private enterprises but all the decisions are made by the government. If the government decides to, it can sell off VA-owned assets such as land or hospitals.

Medicare is a system of care which is funded by the government, but the government does not own the assets of the system. However, the government controls the prices paid vendors and the prices paid by Medicare enrollees--in essence, a closed system in which the costs, whatever they might be, are paid by those outside the system: the taxpayers.

But Medicare providers (clinics, hospitals, etc.) are private and thus they can (and do) close. Thus it is possible that a government-managed and funded program could find no private vendors willing to participate. This is quite different than the VA, which is owned by the government.

In this sense, Medicare is fundamentally a social welfare program. In terms of management, then Medicare is unequivocally government-controlled. It is a situation ripe for confusion, as it is clearly not socialist in ownership but clearly socialist in terms of government control.

Nonetheless, both providers and participants can always choose to opt out of Medicare. A private system of providers exists which accepts cash, private insurance and Medicare payments alike.

Put another way: a social welfare program can exist by taxing free enterprise and distributing the revenues to other private enterprises to provide a service (healthcare) the government deems worthy of such income redistribution. The government owns nothing except the right to collect taxes.

If General Motors emerges from bankruptcy owned 51% or more by the Federal government, then ultimate control rests with the government; it is in essence "socially owned" and minor private ownership does not make it somehow capitalist.

The fundamental problem with government-owned enterprise is that the firm is no longer accountable to the marketplace. Thus the Federal government operates the VA at whatever cost is deemed bearable (and the VA appears to be relatively well-managed and efficient) and if it decided to manufacture autos (via ownership of GM) at a loss, it could do so indefinitely--unless taxpayers rebelled.

The cost of VA and Medicare care is hidden from the participant, but they know one thing for sure: whatever the total tax they have paid to support the government, their VA or Medicare benefits will far exceed the taxes they paid in. Thus the "rational economic decision" is to vote to support Medicare even if the cost of Medicare is driving the government to insolvency.

If everyone acts "rationally," then the costs of the programs, be they government owned or merely government-controlled, will run away because there is no price/cost accountability.

Competition is impossible because the government can operate a system or business at a loss indefinitely; thus any private alternative will be driven out of business, leaving the government in complete control.

So is government ownership better or worse than government control? On the face of it, the VA, totally owned and managed by the government, provides much lower-cost and more effective care to millions of veterans than the social-welfare Medicare does paying private enterprises to provide care.

The argument here is that there is no profit motive within the VA to load patients up with needless tests, meds and procedures. In this sense Medicare is the worst possible of all worlds: a system without market accountability and huge incentives to loot/over-bill/ load the patient up with needless meds, tests and procedures.

The counter-argument is that the government-owned/managed system is not accountable to taxpayers, who as individuals generally benefit greatly by paying thousands in taxes and receiving hundreds of thousands of dollars of care. The bureaucracy is supposedly accountable to "the people" via elected officials, but the chain of accountability is broken in two places: elected officials are bought off by those raking in billions of dollars in revenue form Medicare, and the voting public (note relatively few young citizens vote) has zero interest in controlling Medicare costs since they are either at the trough getting benefits or intending on reaching the trough soon enough.

As long as tax revenues are rising, the lack of accountability has little effect. Thus Medicare can grow by 6% a year for decades even as the economy only grew at 2-3%. But now the economy has entered a Depression in which tax revenues will decline for the first time in decades. At this moment the Federal government is covering the vast gulf between its own spending and tax revenues by borrowing $2 trillion a year. The global bond and foreign exchange markets will eventually constrain that borrowing by either devaluing the dollar or driving interest rates up (or some of both).

When there is no accountability via the market, then the only limit on government spending is its ability to borrow. Right now the American public believes the propaganda that its government can borrow endless trillions with no consequences to little old me and my entitlements. That will be revealed as propaganda next year as the borrowing runs into forces beyond the Federal government's control: the depreciation of the dollar and the cost of borrowing on the global bond market.

Given the choice between government ownership (VA) and a "please loot and overmedicate us" Medicare system, I'd go with the VA model. The bastardized socialism of Medicare (no ownership, no accountability to anyone) is the worst possible system; at least the pure socialism of the VA eliminates the stupendous incentives for looting (bill for services) and the malpractice nightmare in which providers' attempts to ward off lawsuits via endless tests and specialists end up costing more than the lawsuits (go ahead and sue the VA; good luck with that).

Given a choice between government care and a completely free market, I'd choose the free market--as "unfair" as it is. If people had to pay all their medical care in cash, an astonishingly rapid transformation would take place: virtually no provider could collect the bills Medicare routinely pays. The single greatest driver of Federal insolvency (Medicare) would disappear.

In terms of social welfare, the government could then fund modest programs in support of wellness and not getting ill in the first place, instead of funding programs which encourage illness because it's so darned profitable, while keeping people well is insane because there is literally no profit in that at all.

Let's not forget that plain vanilla social welfare programs are modest in cost compared to open-ended entitlements. For instance, the entire food stamp program (SNAP) serves approximately 32 million people at a cost of just over $30 billion—a mere 1% of Federal outlays. Section 8 Housing Vouchers costs about $16 billion—less than one-half percent of Federal outlays. The entire Housing and Urban Development department which also serves the homeless is about 1% of Federal outlays.

The VA's medical-care budget is about 1.5% of Federal outlays--$47 billion: The VA's 2010 budget website.

In contrast, Medicare is over $450 billion and climbing, with no limits in sight. Many look to the Pentagon as the biggest budget expense; Social Security holds that honor with the Pentagon and Medicare currently vying for the second spot (depending on what you include). But Pentagon spending in terms of annual growth is no match for Medicare, and if we combine Medicare and its sibling Medicaid then they already far surpass the Pentagon.

HHS 2009 budget:

In the past 25 years, Medicare spending has grown from $52.6 billion in FY 1983 to an estimated $396.3 billion in FY 2008, a 7.5 fold increase. Currently, Medicare spending consumes 16 cents of every Federal dollar spent, and is third only to Social Security and defense spending. In FY 2009, funding for total Medicare spending, which will help 45.5 million Americans, is expected to be nearly $425.5 billion, an increase of $29.2 billion over the previous year.

Obama 2010 budget highlights by agency:

The 2010 budget for Medicare, the health insurance program for people 65 and older, is proposed at $453 billion. That's a 6.5 percent increase from 2009.

Medicaid, which covers certain poor and disabled people, would be funded at $290 billion in 2010, up 12 percent from 2009.

2010 Defense budget request is $533.7 billion (plus $130 billion for the two wars)

If we consider Medicare and Medicaid two parts of the same entitlement program (healthcare) then that total of $743 billion already dwarfs Pentagon spending by over $200 billion (not including hot war costs) or $80 billion including the two-war costs--roughly the entire budgets for the EPA ($10B), Education ($46B) and Agriculture ($26B) combined.

Note that Medicare costs rose by $57 billion in just the last two years. Chart that rate of increase and in almost no time at all Medicare/Medicaid will suck up the entire (fast-dwindling) tax revenues of the Federal government.

Social welfare per se need not be stupendously costly. Open-ended social-welfare programs which are essentially socialist in terms of government control while maintaining a profit incentive are the worst of all possible worlds. Any program/entity without accountability to the marketplace and/or its "owners" (be they the public or private) is doomed to be looted and doomed to eventual insolvency.

With insolvency of Medicare and thus the entire Federal government only a matter of time (say, 2014-15), we can anticipate the collapse of Medicare and a replacement system modeled on either the VA or food stamps: a social-welfare program of modest size, clear, limited mandate and relatively visible accountability to its "owners," the taxpayers. 

Our previous list of hot reading (check them out at your local library if you don't want to own a copy) can be found at Books and Films

Thank you, Elizabeth W. ($50), for your outrageously generous contribution to this site. I am greatly honored by your support and readership.


Monday, May 18, 2009

The Yellowstone Analogy and The Crisis of Neoliberal Capitalism

Just as forestry management's attempt to suppress forest fires enabled ever larger conflagrations, so governments' attempts to suppress global neoliberal capitalism's crisis will fail.

The first task of those at the levers of neoliberal global capitalism is to deny that global capitalism is in crisis.

"Neoliberal" refers to a model of State-managed capitalism which has been in vogue since the Great Depression and the Keynesian revolution: when capitalism's business cycle veers into discomfort (unemployment, slowing sales and borrowing, etc.) then the State (government) suppresses recession with monetary policy (making money cheap and abundant) and fiscal policy (quantitative easing, injections of liquidity, stimulus programs, etc.)

Sounds good, but the Yellowstone Analogy reveals the flaw in this suppression strategy. "Free market private sector capitalism's" normal business cycle of over-investment and excessive risk-taking is naturally followed by a reduction in debt, the liquidation of bad loans and excess inventory, a trend to reduced risk, etc.--in other words, a fast-burning forest fire which incinerates all the dead wood, clearing space for the next generation of growth.

For decades, the operative theory of forestry management was that limited controlled burns-- mild reductions of dead underbrush and debris--would essentially reduce the possibility of a major fire to near-zero.

But the practice actually allowed a buildup of dead wood which then fueled the devastating forest fire which swept Yellowstone National Park in 1988. Various revisionist views sprouted up later, claiming the fire was not the result of misguided attempts to limit natural forces: Vast Yellowstone Fire Now Seen as Unstoppable Natural Cataclysm (NT Times, 1989)

The forest fires that swept vast areas of Yellowstone National Park in 1988 constituted a largely uncontrollable natural event that occurs once every 200 to 300 years, say two biologists who have spent more than a decade studying the ecology of the park.

They said the fires would have been about as extensive and destructive no matter what fire management policies had been followed.

In the aftermath of the blazes, politicians, foresters and environmentalists argued over the National Park Service's policy of allowing fires started by lightning to burn out within prescribed areas. The Park Service and environmentalists said this was necessary so wild areas could regenerate properly. But critics said the policy was misguided and was responsible for the destruction of about 1 million acres in and around Yellowstone.

Now we're in a financial conflagration which is widely considered the result of failed risk-suppression policies. All the derivatives originated and sold were supposed to, along with "self-regulating markets" (smirk), limit the risks in the financial systems to near-zero.

In other words, even as dead branches piled ever higher, various complex hedges would insure no fire in the FIRE economy would ever spread.

Meanwhile, Mr. Greenspan and other officials made sure the slightest whiff of debt reduction or other signs of recession were instantly snuffed with superlow interest rates and abundant government stimulus.

But this private and public risk suppression not only failed to eradicate risk--it enabled risk to grow to unprecedented levels.

Globally, the State has responded to this failure to suppress risk by creating gigantic new risks and transferring them to taxpayers and buyers of government-issued debt.

The suppression technique being pursued by governments everywhere are simple: borrow and print staggering sums of money to bail out the private-sector banks which sparked the crisis, and then borrow and print even more money and throw it into the economy in an attempt to match the fiscal stimulus of World War Two spending.

Unfortunately, all this stimulus is essentially adding more dead wood to an already vast pile which is already choking what's left of the economy's living forest. Rather than close down failed banks and businesses, various games are being played to negate the fires of creative destruction which real capitalism needs to thrive; without a write-off of bad debts and risky failed gambles and a closure of overcapacity then the new business cycle cannot take root.

Isn't it obvious that by trying to make forest fires a thing of the past then you're actually killing the forest? The same mechanism is at work in the multi-trillion dollar attempts to make financial cycles of over-indebtedness and excessive risk a thing of the past.

The financial firestorm of 2008 burned off some of the dead wood, but it left no clearing. Thus the smouldering embers will light all the new bad debt and deadwood blanketing the floor of our moribund, choked economy and a new round of monetary easing and fiscal stimulus will be attempted.

But policy makers will find the willingness of capital to flow into more low-yield government debt will be near-zero. The zombie banks and businesses--the equivalent of dead but still-standing trees--will finally start toppling over.

You can't make people who are already over-indebted take on more debt, and you can't make people whose collateral is falling creditworthy. To shove more debt into the system is to pile more deadwood onto the already-dense pile of dry debris littering every inch of the economy.

The big conceit here is that borrowing trillions of dollars is risk-free as long as the government is doing the borrowing. That is an illusion--there is always risk when you borrow or print or "backstop"/guarantee trillions of dollars of risky debt; the risk has simply been transferred to taxpayers, who will soon suffer the consequences.

For the crisis in capitalism is not just debt-based--it's also resource and demographic-based. Here in the U.S., the Social Security system will reverse its long trend of generating a surplus in 2016 (or sooner as the Depression cuts tax revenues) and as a result it will start drawing upon the general fund--y'know, the Federal budget that's already running a $2 trillion/year deficit.

Medicare is even more fragile, and thus we can easily foresee a fiscal crisis looming in which the Federal government can no longer borrow enough trillions to fund these entitlements. And despite all the repeated soothing official assurances, the crisis is not in 2035 or even 2025--it will hit in 2015 or perhaps even earlier.

It's the old "extend present trends" fallacy. Back when the Social Security system was designed, it was assumed there would always be 10 workers to "pay as you go" to support 1 retiree. The Baby Boom in the 1950s made that projection reassuringly long-term--or so it seemed.

Now that we're approaching a worker-retiree ratio of 2.5-to-1, the system cannot possibly pay the benefits promised without borrowing trillions of dollars each and every year--and from whom?

Meanwhile, oil has plummeted in a long-anticipated head-fake in which global recession cuts demand, masking the arrival of Peak Oil. Will there be enough oil to fuel 100 million new Tata minicars in India plus run the 600 million existing vehicles currently burning oil? And exactly where will the electricity come from to charge up 100 million plug-in hybrid cars made by China's BYD? (Not to mention the lithium-ion batteries.) As for all the aternative fuels, well, maybe maybe maybe, but right now all alternative energy sources provide only a few percentage points of global energy.

Ramping up alt. energy from 2% to 20% of global energy production will be stupendously costly--and um, aren't governments vacuuming up much of the world's capital to squander it on their financial sectors and local governemnt pork-barrel projects?

Neoliberal capitalism is in crisis for one fundamental reason: the State has played "the fixer" with monetary and fiscal policy in the belief that risk could be suppressed or mitigated or even massaged away by spreading it over the entire taxpaying populace.

But the excesses of credit, risk, bubbles and overcapacity are now gutting the very middle class which the State relies on to pay most of the taxes. And as tax revenues dry up, entitlement spending ramps ever higher and borrowing is no longer cheap or even possible, then the State and the "private sector capitalism" which depended on passing off its risks and gambles-gone-awry to the State will find the firestorm was not suppressed-- it was only delayed--and not for long.

The best explanation of systemic financial risk and why it cannot be "disappeared" is The (Mis)behavior of Markets: A Fractal View of Risk, Ruin, and Reward by Benoit Mandelbrot.

The demographics trends which are about to overwhelm entitlements programs are described in Fewer: How the New Demography of Depopulation Will Shape Our Future 

The Coming Generational Storm: What You Need to Know about America's Economic Future 

Our previous list of hot reading (check them out at your local library if you don't want to own a copy) can be found at Books and Films

Thank you, Rebecca H. ($30), for your astonishingly generous contribution to this site. I am greatly honored by your support and readership.


Saturday, May 16, 2009

Why We Are the Way We Are

May 16, 2009 

This thought-provoking essay is from contributor Subuddh P.; you may contact him via his website

Before we search for a mythology for our time, it's worth taking a closer look at the mythologies that have informed America so far and how they work, how we have come to be what we are. A country as large and complex as America has many different stories, but this is still largely a Christian country. Remember, when Columbus first landed in the West Indies he thought he had found the Garden of Eden, the return to paradise. It is not Columbus but the Pilgrim story that illuminates America. This story runs deep in almost everyone who has been raised here.

The Pilgrims too were looking for the Garden of Eden, but they did not expect to find it in this life. They believed that it was the human task to to build the kingdom of heaven on earth, the city shining on the hill in anticipation of the the return on the messiah and eventually the end of the world. This was the earthly duty of human beings and those who built this kingdom would find a place in heaven, returning to the Garden of Eden to live in an eternal beatific present.

So the pilgrim Christian story is a long march towards perfection of the self and the society as guided by the Bible. When perfection is attained at some point the end of the world arrives. The sense of duty and the knowledge of the return of the saviour gave the pilgrim a psychic space to rest. He or she could take refuge after a long day of hard work knowing that they have done their duty and in the after life there would be a blessed release from all that judgement and striving.

When the outside world was still wild and untamed the perfection energy could be applied towards a mastery of it: towards understanding how things worked, how to conquer the land and make it comfortable, how to make food plentiful and everything else. The material life became synonymous with being a good person.

But as these problems got solved, life became increasingly comfortable, more leisure time was available. This is, in a way, a problem. Think about it, if every thing worked and there was nothing to do and you still had all this driving perfection energy, what would you do with yourself?

Some will claim the fifties were the apogee of this Christian perfection. The perfection energy had to go somewhere and it found new outlets. Some of these no longer work in a viable way, in so much as they do not ensure the survival and continuation of the tribe, and people get more and more far removed from anything they actually are.

It turned from the mastery of the external world to the elimination of risk and perfection of inner feelings. So laws grow and grow to prevent any kind of risk whatsoever. Safety is everything. What is a financial derivative but an attempt to eliminate risk and ensure abundant profit? But the more you eliminate risk the more interdependent you are, the more helpless you are, the more vulnerable you are to a systemic failure.

The subsistence farmer in the Peruvian highlands faces risk of wipeout every season. Yet if he is wiped out it is relatively easy for him to start over, his needs are much less and his survival skills much more. This is the paradox, the more insualted against risk, the more spectacular the failure, the greater the angry response and greater the call for more risk elimination.

It also turned into a idealized emphasis on finding the perfect career. Go back a hundred years ago and nobody expected a "career". Work was just work to be done as a sacred duty. Today there is the popular emphasis on finding and doing what you love. Whether such a thing exists for everyone is an open question and whether it can exist in a way so you can pay the bills is also an open question.

And it turned into a striving for perfection where no perfection is possible, in the world of personal relationships. So the emphasis in popular culture on idealized soul mates and the promise of blissful happiness in this natural life.

Western Christianized fairy tales end with ' they lived happily ever after'. Look closely, what does it mean ever after? A common mistake it to think it means for the rest of our natural lives. Read this as happily *in the* ever after and then it makes more sense. As in, having fulfilled our Christian duty, having married and built a home and family as we are required to, we will find fulfillment in the after life. Psychologists will also suggest that we find deeper fulfillment in meeting the archetype, it is a necessary part of the human experience.

There is no promise of 'happiness' during our natural life, in fact quite the opposite. The natural life has to be lived *as required* in order to secure that position in the after life. In the world of time all things will go in cycles, the summers are to be enjoyed and the winters have to be endured, After all you can know what is happy only when you know what is sad. And on the horizontal line of life you get old and die, glamor and glory fade away.

In one more twist the perfection energy remained while the faith died. There was no longer any sense of duty, no belief in the Bible stories or the end times, yet all that driving energy still persisted. What to do with it, where to rest? You can see it in so much of the left, all their social engineering, the constant need to tinker with things, to move the pieces here and there, to do something.

This gave us a rather potent strain of political correctness, which, as positive proof that the road to hell is paved with good intentions, insisted on regulating the commons in a way that destroyed all its sponteniety. Whereas the commons had always served as a place of refuge where an individual could drop their guard and relax, it was now rendered sterile and functionless, leaving the individual more lost and isolated than ever.

It also gave us the insistence that all women could and should take on the persona of a solitary workaholic alpha male and they would actually be content. So the family was devastated, leaving the individual - men and women -yes, more lost and isolated than ever.

Finally this energy without faith to rest in found its very sad outlet in the disaster of addiction that plagues this country.

The pilgrim mythology worked in so much it gave the pilgrim a relatively stable psychic base for life while ensuring the survival and continuation of the tribe. It also gave its participants a great vitality. Have there been any more creative people in human history than Americans?

But the old stories seem really distant and hard to relate to. Life in the community free, risk free, personality free, cubicle hell suburbs is really boring and the cost of doing things better seems so high compared to the rewards gained. We find ourselves asking, do we really need all this stuff? Is it worth the pain to our community and environment?

The idea of perfection as placing the individual at the center of everything seems hollow and often leaves us empty and alone. But we don't have to accept these definitions for ourselves. As so many entries on oftwominds remind us, perfection is relative and the source of peace and happiness seems to be somewhere else.

copyright 2009 by Subuddh P. 

In Readers Journal: Thought-provoking New essay by Zeus Y. 

Tortured Democracy (Zeus Y.) 

"Good faith" may have limited application in contract law, but it has no place in constitutional law. If you flout the highest law of the land, especially if you are a top-level decision-maker, you should be brought to justice. If you provably condoned, approved, and justified torture against established national and international law, you should be prosecuted.

Our previous list of hot reading (check them out at your local library if you don't want to own a copy) can be found at Books and Films

Thank you, Michael T. ($10), for your much-appreciated generous contribution to this site. I am greatly honored by your support and readership.


Friday, May 15, 2009

Unknown Consequences and Unspoken Consequences

May 15, 2009 

Some consequences are unknown; other are known but unspoken because they raise questions which are politically or financially inconvenient.

The difference between unknown consequences and unspoken consequences is the willful witholding of politically or financially inconvenient causal factors. Examples abound.

For example, the consequences of the Fed blowing $3 trillion "saving" the money-center banks and the Federal government borrowing $3 trillion over the next two years to fund a bound-to-fail stimulus blowout are known: the destruction of the dollar and the bond market as interest rates rise, and the final (well-earned) destruction of public trust/faith in the Fed, the Treasury, Congress and the current administration, all of whom are complicit in witholding the easily predictable consequences of this vast fiscal imprudence.

Please look at the graph Jesse posted recently:

Fiscal Meltdown Will Test the Bond and the Dollar to the Breaking Point.

Another example is the side effects of anti-depressants and anti-anxiety medications which are prescribed by the tens of millions. Reader M. submitted this comment:


I read your last two articles on obesity with interest. I have read EVERYTHING on weight gain/loss in order to try to lose the 30 pounds I gained while taking Zoloft in 1995. The only real success I've had was doing the Body for Life program for 6 months (15 lb weight loss, 4 lbs muscle gain) but I eventually gained back about 5 lbs. Then I had "success" losing weight while going through the misery of divorce, 25lb loss, but of course gained it all back by, guess what?, going on antidepressants again. Since then I've gained 10 more pounds.

Post menopausal women tend to gain weight. It's common all over the world where people have access to good food. But my real concern is our society's widespread use of prescription drugs. Many drugs besides antidepressants cause weight gain. This is clinical knowledge but doctors won't tell the patients about this very negative side effect. I also suspect that the antidepressant I took changed my biochemistry and made it even harder for me to lose weight and keep it off, but I can't prove it. There's no clinical, only anecdotal, evidence available for that supposition.

The right starting point in all such inquiries is: cui bono? To whose benefit?Leaving known consequences unspoken is a favored tactic of those manipulating the news flow for their own benefit: smoking does not cause cancer, the economy is sound, etc. etc.

The vast spectrum of views relating to weight, diet and obesity is reflected in the variety of reader feedback:

J.F. (MD)

This oil is a GM oil and is reverting back to the poisonous rape oil from which it is made...

- I'm sorry, but this person has no idea what they are talking about. One of the great medical advances in my career is the successful lowering of cholesterol - this has been PROVEN beyond a shadow of a doubt to reduce the problems associated with hardening of the arteries - namely heart attack, stroke, and kidney failure.

- Canola oil is NOT a GM product - it IS RAPESEED OIL! - the main grower is Canada. At some time in the recent future, it's age old name rapeseed oil was deemed "politically incorrect", so the name was changed to canola oil, from CANADA. It's the same stuff! AND, canola oil received FDA approval last year as the ONLY cooking oil proven to reduce cholesterol

- the reader did get one thing correct - vegetable oils, specifically trans fats (also contained in animal fats such as lard) are very unhealthy. They cause hardening of the arteries, and worse, inflammation of the lining of the arteries, which causes blood clots. A blood clot forming in an artery to the heart, cutting off blood flow to some of your heart muscle, so that it dies, is essentially what a heart attack it. It appears that most nut and seed oils ( of wich canola oil is) are healthy, as they both lower cholesterol, and reduce blood clotting. These include olive oil, sunflower oil, coconut oil, and others.

- just because the average world cholesterol is 240 means nothing! First, the obesity epidemic is now world-wide, even reaching poor third world countries you wouldn't expect. Second, do we want the average world life expectantcy, which, our health problems and all, is significantly lower than U.S.? How about Russia, where it is 54 for men? Half the kids you grew up with would be dead......

- lastly, fatty fish oil, such as salmon oil, is super-healthy as long as not overconsumed due to unfortunate mercury contamination. The longest living people on earth live somewhere in Japan (I forget), eat mostly seafood, unprocessed rice, and home-grown vegetables, very little red meat, virtualy no trans fats, do hard physical work even when over 100, and have a positive attitude. Until we can modify human longevity genes, that's probably the best recipe for living a long, healthy life.

Mark C.

Tom Delane's comment regarding obesity in North America, which you posted today, is a confusing attack on two unrelated things: transfats and vegetarians. As a vegetarian who avoids transfats, I can tell you that there is no necessary connection between the two. I eat a good amount of natural oils (sauteeing onions is a start to many of my meals), and I only cook with olive, sunflower, and grape-seed oil. As for coconut oil, it is healthy but only if not overly heated, and it in fact has a rather low smoking point compared to, for instance, grape-seed oil. Oils heated past their smoking point are potential carcinogens.

"Like it or not we humans are carnivores! ... A Vegetarian diet is Ma Nature's way of getting rid of idiots (natural selection)".

I almost didn't bother replying to such ridiculous statements, but I couldn't help myself. Both of these statements are patently false. Firstly we are not carnivores; we are omnivores, and omnivores are very flexible in how they obtain their nutrients. Only some predators, such as cats, are essentially carnivores, and their nutritional requirements are quite different from ours, eg their high vitamin-A requirement. Finally if vegetarians were weeded out by "natural selection", then India, home to millions of vegetarians, would be a much less populous country...

Mary B.

I am intrigued by the topic of obesity because the ancient (40,000 year old) sculptures show a much different body shape than our current obsession with thin ness. Perhaps the more rounded profile is the survival shape?

We are breeding small- hipped, flat-chested women who will not be useful for childbearing, witness the increase in Caesarian sections as these women get stuck with small pelvis bones. Obstetrics would have a fit at the size of these women but obviously they bred and produced more of us.

To go further on this idea, when modern hospitals and C-sections are a thing of the past, those small hipped women will not breed and we will go back to normal shapes!

See also the Venus of Willendorf

Gene M.

It's abundantly clear that many people eat too much because they are unhappy with their lives and themselves. One of your quotes pointed to that no brainer.

In contrast to California, the times we've roamed Manhattan in NYC, we saw almost NO fat people. I'm presuming because they do a lot of walking--to the subway, then to work, then back and so on. Interesting, proves nothing perhaps. Most Californians don't walk a whole lot.

Second, I didn't see a discussion of genetic disposition. Reams have been written. I have an anecdote. One of my friends who's about 70 eats 3 helpings of desert often. He's a skinny as a rail. Some people metabolize food rapidly, some not. I think one thing exercise does is increase your metabolic rate. My father in law ate lard all his life. Lived til 90.

The average person who lives in a suburban tract has nothing physical to do when he/she gets home. So an adequate amount of physical labor to keep someone in shape is not available for most. I have both a gym membership and 8.5 acres. I look upon going to the gym as medicine.

Also there is a natural statin for high cholesterol. I think your reader is wrong about high cholesterol (according to my bro, the Doc, and a super one he is) but right about the drug companies. Red rice yeast. I take it and a lot of others do, even though the drug companies pressured the FDA nearly to ban it. Even local doctors recommend it. And it works.

Thank you, readers, for these comments. I will add a reference to epigenetics, a relatively new field of research into the environmental effects on gene expression which can apparently be passed on to future generations.

According the a recent PBS NOVA program, a famine can change gene expression, i.e. what specific areas of the genome get turned on or off. The consequences of these "nurture" or environmental experiences are apparently passed on to future generations, even though the genetic sequence itself is unchanged.

At this point the consequences to future generations of exposure to famine, toxic chemicals, alcohol abuse or other significant stressors are unknown; the clues to date are certainly tantalizing.

Here are a few books and films of interest on the subject of diet and weight:

The End of Overeating: Taking Control of the Insatiable American Appetite.)

The Omnivore's Dilemma: A Natural History of Four Meals

Rats in the Grain: The Dirty Tricks and Trials of Archer Daniels Midland, the Supermarket to the World

The Informant: A True Story

Fast Food Nation (film)

Super Size Me (film)

Eat Fat, Lose Fat: The Healthy Alternative to Trans Fats

Know Your Fats : The Complete Primer for Understanding the Nutrition of Fats, Oils and Cholesterol

Nourishing Traditions - Cookbook That Challenges Politically Correct Nutrition & The Diet Dictocrats (Mary Enig and Sally Fallon)
This book appears to be out of print.

Eat Fat, Lose Fat: Lose Weight and Feel Great with Three Delicious, Science-Based Coconut Diets (Sally fallon)

Dr. McDougall's Digestive Tune-Up

The Mcdougall Quick and Easy Cookbook: Over 300 Delicious Low-Fat Recipes You Can Prepare in Fifteen Minutes or Less

The Mcdougall Program: 12 Days to Dynamic Health

The Mcdougall Program for Maximum Weight Loss

The obesity epidemic can be viewed visually via this slideshow map of the U.S.:

Centers for Disease Control, U.S. Obesity Trends 1985-2007 

In Readers Journal: Thought-provoking New essay by Zeus Y. 

Tortured Democracy (Zeus Y.) 

"Good faith" may have limited application in contract law, but it has no place in constitutional law. If you flout the highest law of the land, especially if you are a top-level decision-maker, you should be brought to justice. If you provably condoned, approved, and justified torture against established national and international law, you should be prosecuted.

Thank you, Alexis W. ($20), for your most generous contribution to this site. I am greatly honored by your support and readership.


Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.

Our Privacy Policy:

Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative). If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.


This section covers disclosures on the General Data Protection Regulation (GDPR) for users residing within EEA only. GDPR replaces the existing Directive 95/46/ec, and aims at harmonizing data protection laws in the EU that are fit for purpose in the digital age. The primary objective of the GDPR is to give citizens back control of their personal data. Please follow the link below to access InvestingChannel’s General Data Protection Notice.

Notice of Compliance with The California Consumer Protection Act
This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising. If you do not want any personal information that may be collected by third-party advertising to be sold, please follow the instructions on this page: Limit the Use of My Sensitive Personal Information.

Regarding Cookies:

This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative) If you have other privacy concerns relating to advertisements, please contact advertisers directly.

Our Commission Policy:

As an Amazon Associate I earn from qualifying purchases. I also earn a commission on purchases of precious metals via BullionVault. I receive no fees or compensation for any other non-advertising links or content posted on my site.

  © Blogger templates Newspaper III by 2008

Back to TOP