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On balancing the federal budget ….

Cutting the budgetAs much as we all may distrust the 536 folks charged with setting policy, there are rational agenda-free offices within the government doing a bang up job and quietly making interesting though potentially controversial suggestions on fixing the very institutions they work for. More on these folks later.

Our sputtering economy is tops on everyone’s minds these days. And I applaud both the Tea Party and the Occupy Wall Street movements for venting their frustrations. This is America; this is a country built upon the premise that everyone has a voice. The problem with both movements is that in their frustration they rail against institutions that grant these rights and freedoms and their stridency while applaudable is not built upon promoting actionable solutions. Instead they are founded on the premise that that which they find objectionable must be torn down or removed. The government just can’t stop spending money tomorrow. Wall Street can’t stop working tomorrow or pull all paychecks. It’s not black and white, it’s 256 shades of gray. And it’s in recognizing and solving for gray that real workable solutions can be achieved.

Let’s face it, whether we like it or not, we’re all (well, maybe almost all) in this together and there are always workable solutions. This is a country that came of age and became a world leader because we were more industrious, more clever. We threw caution to the wind and came up with better more effective solutions. The time is ripe for being clever again. The time is ripe for making tough decisions and leading again by example. There is no better way to lead than by putting your money where your mouth is.Lincoln Memorial under construction

Let’s take the deficit and our debt issue…..

Continue reading On balancing the federal budget ….

Advertising’s Leaps of Faith

Listen carefully to a commercial and you will invariably hear that one sentence in which the starting “fact” has nothing to do with the concluding evidence. It’s advertiser’s “leap of faith”.

But before we jump in, a few basic tenets about advertising that we all need to carefully consider and fully understand:

Continue reading Advertising’s Leaps of Faith

Roots of the financial quagmire

Greed. Avarice. Unproductive money. [Note: still a draft but wanted to get this out there anyway]

It’s really that simple. Oh, there are extenuating circumstances and situations that evolved during the several years leading up to the collapse but to put the blame squarely on Wall Street’s shoulders is a mistake. To blame a handful of CEOs is avoiding the real issue.

In a country of 300mm people something like 50mm of us got greedy and enjoyed the feel of “easy money”. It was a sense of power for a guy making $25k a year to be able to buy a $600k home. He definitely felt he was living the good life and achieving the American Dream, but it was a mirage. Mortgage lenders got greedy; homeowners got greedy; many of them got into the “flip-this-house” mentality in which they could put nothing down and sell up and take money out in the bargain. As long as brokers and lenders could show activity, it worked. As long as lenders could package the loans into bonds and move the liabilities off their books, it made sense.

We got greedy. We believed the infomercials. We were headed for the ‘good life”. But the “good life” was and is a sham. There is no such thing as a free lunch. Somebody has to pay. And now we all are.

One of the more frightening aspects to all this -in my mind- is the enigma of unproductive money. All the money that swirled around in these loans and many of the ensuing related derivatives was unproductive. It didn’t contribute to the welfare of the nation. It didn’t improve schools or the education system, it didn’t get us better roads or more cost effective government or life styles. It evolved into a pyramid game in which those at the top of the pyramid made a lot of money in bonuses and those near the bottom houses they couldn’t afford. Cynically, it kept the luxury yacht business going and pushed up entry prices at country clubs as those at the top spent like sailors.

Here is where Wall Street must take a hit. It was all about creating esoteric instruments that gave nothing back. It allowed Wall Street and some investing institutions to achieve a better return on investments but those investments didn’t benefit the many. Wall Street needs to re-think its purpose. The country’s financial engine is critical in its ability to invest in itself, to better our life style; but it has to rededicate itself to that proposition.

In the distant past, it was the community that oversaw itself. When children went bad, the community stepped in and made the child and its parents know in no uncertain terms that the behavior was unacceptable. When leaders went in directions that were considered unacceptable, the community stepped in and replaced the leader or made it known which direction was preferred.

As we have grown to a society of 300mm people and as we have instituted so many layers between us and the institutions we transact with or purchases we make, we’ve gradually surrendered our ability to oversee these layers and the institutions that reside in and own these layers. We rely too heavily on government and agencies to independently oversee and vet what goes on in these layers. And, regrettably, many of those agencies are financed by those very institutions they oversee. This is a sorry state of affairs.

Ratings agencies get paid by the companies they rate or whose bonds they rate. Corporate taxes and/or transactions fees pay for agencies to oversee those very same transactions and/or corporations. Is it any wonder why we have such intensive lobbying today and why huge money pass hands during and around election years? Companies have their well-being at stake. And you can’t fault them for that, because we’ve allowed it to happen.

We got greedy. 30 years ago a CEO’s salary was only a factor of 10 times greater than that of the lowly mail clerk (apologies to all mail clerks). Today it’s a thousand fold greater. And have we gotten a thousand fold improvement in corporate governance and direction? I think not.

We couldn’t stop being greedy. Everybody’s salary shot up (a few much more than others) and as a result prices have shot up so much so that our buying power has been degraded. You can successfully argue that a family pulling down $50k per year today is worse off than an identical family pulling down $20k 25 years ago. It’s not just inflation and cost of money. It’s also all the built in costs we have buried into the things we buy. We became increasingly litigious in the 80’s (I’m stealing this example from an editorial written in The Economist years ago) so much so that if we fell off a ladder, it immediately became the ladder’s fault, not ours. We stopped taking responsibility for our actions. And what happened was that the nearly a third of the cost of a ladder was to cover product liability lawsuits. Again, unproductive money, our fault, not Wall Street’s.

We have to resolve to put that old-style “community thinking” back in action. It does not good to just say no. It does no good to just scream and shout that your opponent is wrong. We need to achieve consensus. We need to understand the benefits of compromise and consensus as they are not necessarily the same.

Capitalism’s core is greed. There is such a thing as good greed. An educated guess as to what constitutes good greed would run along the lines of greed that promotes progress, not for progress’ sake, but for the betterment or improved enjoyment of humanity. Good greed would involve productive money, that is, money that doesn’t just produce wealth or inhibit wealth, but money that produces either tangible goods or promotes some semblance of cultural progress. Rather unfortunate that this definition is so open. Regrettably, it encompasses such things as fast food and taxes. Why? Taxes, for one, though they remain the bane of my existence because they are so poorly spent, do promote better health, better infrastructure and the like.

[Come up with a close]

So while we may be able to agree that there can be good greed,

We need to stop looking for blame, understand that we all are at fault, and begin again with community-style objectives and goals.

Validated! or I’m smarter than I thought

So, months ago, I said that we need to change our focus from consumerism to becoming a net exporter, that we need to concentrate on bulding better product and focusing on selling that product worldwide rather than expect American consumers to return to the past and spend over and above their means.

And, guess what? Here’s an article from the Economist voicing the same message.

At the risk of repeating myself, the point here is that one measure of country’s economic health is GDP. GDP is measured by the following formula:

GDP = Consumer Spending + Business Spending + Government Spending + (Exports – Imports)

Up until recently Consumer spending has represented as much as two-thirds of GDP. That implies several things:

  1. We are relying too heavily on consumers spending all they have (and more).
  2. Business and Government spending is contributing a lot less than consumers towards GDP. In one sense there’s some good news here. The more Government spends, the more we get taxed. The bad news is that if government isn’t spending -or isn’t spending thoughtfully- infrastructure goes down the tubes. And we see this weekly with bridges and roads and water systems failing.
  3. Business is a strange piece to this puzzle as some economists argue that the costs of goods sold is not factored into the equation. That is, the purchases Kelloggs made towards cardboard and corn to make a box of corn flakes did not make it into the equation. This is partly due to the fact that it would mean some double counting (since it is factored into the purchase you made to buy the box of Corn flakes). The bad news here is that business is spending less towards its own infrastructure in terms of manufacturing plants and shipping that money overseas where it’s cheaper to build products.
  4. The biggest issue we have -I think- is that we are net importers. That is, we buy more goods from other countries than we sell. This has to be reversed. We need to build equipment and products that the rest of the world wants. We can make great headway by being more creative in our thinking about products and technology. We could become a mass exporter of certain sustainable technologies: wind power, water turbines, and the like rather than taking a backseat to other countries. A smaller example of this is Apple and its iPhone and iPad. These are desired the world over.

We can only become leaders again by thinking smarter leading ourselves thoughtfully out of this financial morass.

Someone save us from ourselves …. please?

Here we go again!

Spending Gains Outpace Income – Wall Stree Journal
Spending Gains Outpace Income – OneNewsPage
Ahead of the Bell: Personal Spending and Income – ABC News
Consumer Spending Outpaces Income In March – Manufacturing News

One of the major reasons we got ourselves into our financial quagmire was our capacity for spending to outstrip income. We borrow too much and it has to stop.

Yes, I know we need consumers to spend to help move the economy forward, but not spend blindly and not spend just to spend. We waste too many resources just buying. In an essay I keep trying to write I note that advertising’s main purpose is to get you to buy those things you don’t need. If you needed it, you’re going to buy it anyway, so there’s no need to sell you on the product.

We can’t go back to the old ways of spending more than we have and business has to realize that for sustainable growth they will sell less product but better long-lived product.

Someone save us from ourselves!! Please?  🙂

Solving the healthcare problem

Here we go again …

Here’s how to solve the spiraling costs of healthcare:

1. Take liability out of the equation – Doctors

To start with, we have to put a cap on malpractice suits. When something goes wrong there is not necessarily a lawsuit. Often a lawsuit depends upon the rapport the doctor had with the patient. If they had a great relationship, there’s usually no lawsuit. If they didn’t, there is. It’s surprisingly that uncomplicated.
That doesn’t mean the doctor should go scot-free but there could be extenuating circumstances (high-risk patient, etc.). If it’s a case of extreme doctor or practitioner negligence, then it’s strike one. Three strikes and you lose your license, go find another job, another career. It happens all the time to the rest of us.

2. Take liability out of the equation – Equipment

But liability in this instance encompasses the equipment itself too. Medical equipment is overly expensive due to -in part- product liability. When lawyers get a hold of a good case, manufacturers of medical equipment are called to task too.
If we can begin to limit malpractice and product liability, we can make great inroads into costs.
But we must train doctors in their bedside manners first, get them to build a greater rapport with their patients, and, regrettably, if those doctors can’t make the effort to connect with their patients then they really do need another job.

3. Reduce the over-proscribing of tests

This gets back to points 1 & 2. Doctors and the medical profession are now so ingrained defensively to protect themselves against lawsuits that they are abusing MRIs and CAT scan and the like. You don’t need multiple MRIs over a period of several weeks in order to understand a problem.

4. Universal coverage

No, no, no, I’m not suggesting a government-controlled public option. That would be the worst of all worlds. The last thing we need is government to create more administration. I do think though that one way to lower costs is to ensure that everyone has affordable healthcare. Doctors cannot refuse to see a patient in an emergency room, but emergency rooms are tremendously expensive and should be reserved for emergencies not regular care. When people use emergency rooms in place of a normal visit, they drive up costs.
If we can reduce extraneous procedures and tests and drive down the amount of overhead built now into the system (administration, forms, red tape, etc.) it would reduce costs significantly.

5. Inform the patient of the costs

If patients knew how much things cost, they might actually exhibit the kind of cost controls the system can’t do for itself. If I have a choice between a $300/day prescription and an identical $10/day generic prescription, I’m going for the $10/day. If we already know I have a blown disc and we already know it’s pinging the nerves going down my leg and we are looking at an MRI that’s only a few months old, why do we need to go through another round of $3000 MRIs? Why does an appendectomy cost $33,000 in some parts of the country and $5,000 in others? For the extra $28,000 you could have a very nice vacation in some of the more expensive parts of the country! And that would be more productive spending of money!
See? It’s easy. Done.