The NFL: Not-for-Profit, Not for Loss Either

NfLI use this blog to write about things I read about, hear about or think about.  Some of these things uplift and inspire me, some simply amaze me or cause me dismay, some concern me.  In an interview with NPR’s Robert Siegel aired on September 24, Gregg Easterbrook, author of THE KING OF SPORTS: FOOTBALLS IMPACT ON AMERICA, pointed out the following about the National Football League:

It’s a scandal that I can’t understand why people aren’t marching in the streets over, I suppose. The headquarters of the National Football League is chartered as a nonprofit — and treated by the IRS as a nonprofit — due to a few key words that were slipped into a piece of legislation 50 years ago. The individual teams probably pay corporate income taxes, but we don’t know since most of them don’t disclose any figures. Most of them receive public subsidies but don’t disclose anything. The top of the NFL — Roger Goodell, the commissioner — his $30-million-a-year paycheck comes from what looks on paper to be a tax-exempt philanthropy.

… Judith Grant Long, a researcher at Harvard, calculates that 70 percent of the cost of NFL stadia has been paid for by taxpayers. In general, the public subsidizes pro football to the tune of around $1 billion a year, is what I calculated in my book. And yet it’s phenomenally profitable — subsidized up one side, down the other, and yet a very profitable business.

The NFL is a not-for-profit organization?   Even with its trademark sales which earn billions of dollars? It creates millionaires, and yet was chartered as a non-profit organization.  Some of its franchises’ stadiums are apparently bankrolled to the tune of $1 billion per year by taxpayers.  It is a sport which seems to roll in dough, and yet its franchises rely on the taxpayer’s dole?   Cities are willing to use lots of tax payer’s dollars to build the stadiums which are used for maybe 10 games per year.    Where are the watchdogs of the public’s tax dollars while all this is going on?  Probably watching the NFL in the deluxe stadium boxes.

A somewhat deflated Cleveland Browns football celebrating their return to the NFL
A somewhat deflated Cleveland Browns football celebrating their return to the NFL

King of SportsGregg Easterbrook’s comment that Roger Goodell, the commissioner of the NFL gets “a  $30-million-a-year paycheck from what looks on paper to be a tax-exempt philanthropy”, takes the cake for me.   Maybe if the Tea Party organizations had used the name of the Boston Patriots they would have had less problems from the IRS.

According to TIME magazine:  “Under Internal Revenue Service rules, nonprofits are not prohibited from taking in more money than they spend. They just
can’t distribute the overage to shareholders — because they don’t have any shareholders.”

I saw that the calculated average cost to take a family of 4 to an NFL game was $444 in 2012.  But one can assuage one’s guilt for that extravagant expense by amusing oneself with the thought that you are making a donation to a non-profit organization.

FORBES reports that on the average each of the NFL teams generated $286,000,000/team   in revenue for the NFL  in 2012.   FORBES also reports that the Detroit Lions were the only team in 2012 to report an operating loss, so maybe they qualify as a not-for-profit since that was the 4th year in a row that they operated at a loss. The Cleveland Browns, the team I grew up rooting for, are pathetic enough that they might be considered a charity case.   Of course the media seems to see the value in the not-for-profit NFL:  THE WALL STREET JOURNAL reported in 2011 that the NFL owners had approved $27,900,000,000 in TV deals.  THE NFL’s revenues continue to grow yearly and THE WALL STREET JOURNAL claims the NFL really runs American television.

The good fortunes of the NFL reminded me of the story in TIME  reporting on not-for-profit hospitals, which because of their status pay no taxes to the IRS.  Studies however show that the 2900 not-for-profit hospitals in the US average an operating profit margin of 11.7%.  This figure includes all those hospitals which operate with an actual loss.  In some communities these hospitals are among the largest employers  in town with some of the highest salaried employees for the region in which they operate.

The problem of course is not that some businesses are successful and very profitable, but rather the title they can hold, “not for profit”, and the tax benefits it bestows on them that enables them to become even more profitable.   Most cities welcome these kind of non-profit organizations for they are good for business.

When the Good News Isn’t

I have used this blog to share things that I am reading, have read or am thinking about.   Occasionally I read something that just strikes me as pretty funny.

The magazine, Pacific Standard  September/October 2013, had such an article in its recent issue.   There is an article entitled, “The Case of the (Still) Missing Jobs,” written by Timothy Noar.   The article deals with the ongoing recovery from the great recession the U.S. and much of the world suffered through for the past several years.

The humor was in what I think British journalism calls the standfirst – a line designed to intrigue you enough to entice you to read the article.   The standfirst of this article says:

“The good news: Economists are starting to come up with some decent theories as to why this recovery is so bad at generating employment. Now here’s the bad news.”

Bas-relief Commerce and Transportation

I think the line is cleverly funny.   

The only good news about the recovery is that economists are starting to come up with theories about why the recovery is not generating jobs.

Of course whether they have theories or not changes nothing about the economy (except perhaps that coming up with such theories is job security for economists!).

So, the good news about the recovery is pretty underwhelming.  Economist theorize in good times and bad, during recessions and recovery.  The actual economy seems to have little effect on the numbers of theories they generate.   And the relationship between their theories and the improvement of the economy seems equally equivocal.

Anyway, I was amused for Labor Day and hope you all had a safe one.  At least in the U.S.A. this tends to mark the end of summer.  Long ago it was the beginning of the school year, but nowadays most students around here have been in school for a 1-2 weeks already.

The Great Depression and the Great Recession (2)

This blog is the conclusion of The Great Depression and the Great Recession (1) in which we consider two articles which compare and contrast the 20th Century’s  Great Depression with the 21st Century’s Great Recession.  In this blog we are looking at “The Debt Bomb” by Louis Hyman from the Winter 2012 edition of the WILSON QUARTERLY.   Hyman sets the scenario:

“In the last hundred years, economic inequality in America has peaked twice: in 1928 and in 2007. It is no coincidence that our periods of greatest inequality have coincided with excessive lending. An industrial economy based on mass production requires mass consumption. Either credit or wages must be provided to keep the wheels of industry turning. When wages stagnate and inequality widens, debt gains nearly unstoppable momentum.”

The Great Depression came to an end during WWII after which there was a great economic boom in America and other parts of the world.

“Living in mortgaged homes, driving in financed cars, postwar Americans relaxed at new shopping centers. They borrowed more but also earned more, which meant that while the habit of borrowing grew, debt as a share of income remained relatively stable. Consumer credit kept factories humming, and those well-paid industrial jobs kept the debt burden contained. Banks and finance companies rather than capital markets funded the borrowing, which kept a leash on the credit available. The lender always had skin in the game.

The origins of the shift from a relatively egalitarian manufacturing economy to an unequal financial economy can be seen in the midst of this prosperity.”

The boom, as history has shown in capitalist countries is only part of a cycle which also has a down side.  The prosperity following WWII  changed as “…consumers also began to rely more on borrowing to make ends meet. The careful balance between rising debt and rising income was coming undone.”

The modern American economy began to shift away from manufacturing and more toward profit making through financing – investing and lending which tempted people with potential huge profits over short periods of time.

“As profits in other parts of the economy receded, the profits of this kind of lending exploded. And as consumer debt began to crowd out business debt, less money was available to invest in productive businesses and create the kinds of good jobs that had made America’s postwar formula work.”

“When Jack Welch took the helm at General Electric in 1981, largely on the strength of his success in managing the company’s consumer finance division, his vision was clear, he would later write: ‘Finance is not an institution—it has to be . . . the driving force behind making General Electric ‘the most competitive enterprise on earth.”’  Some older divisions, such as the lighting operations, would be continued, but the profits would be reinvested in financial products.”

“While GE’s profits grew, its manufacturing businesses shrank. In 1980, the year before Welch took control, the company had employed 285,000 people in the United States. By 1998, the U.S. payroll was down to 165,000. For Welch, and for successful American corporations generally, profits mattered more than all those well-paid factory jobs. The incentive was plain. CEOs had a responsibility to the shareholders to produce more profit. A dollar invested in debt made more money than a dollar invested in a factory. For the country as a whole, however, the rising profitability of finance came at a devastating cost.

As finance gained in strength and in its importance to the American economy, bankers increasingly complained that their creativity was being hampered by those pesky regulations that had safeguarded the economy since the 1930s.”

To me what Hyman is portraying is that manufacturing creates jobs that pay well and thus prosperity is spread to a great number of people (the workforce).  On the other hand, the movement in an economy to becoming increasingly based in financial products reduces the workforce thus causing  a loss in good paying jobs and concentrating wealth in the few.   The effects on the nation’s economic well being is negative – as was seen in the 1928 and 2007, both years in which the American capitalistic economy collapsed.

“Contrary to what many politicians and pundits have claimed, the upsurge of securitization was not simply a product of ‘deregulation.’ Regulations may have changed to promote a certain kind of financial system, but at no point did the state abandon the market to itself. It was the interplay of public and private purposes and mechanisms—Freddie Mac, S&Ls, mortgage-backed securities—that made these new sources of capital possible.”

Hyman offers a warning that there are lessons to be learned, or history will simply repeat itself.

“That structural connection between economic inequality and the nation’s financial crisis is still largely ignored. The dangerous investment choices that precipitated the crisis are but a symptom of this underlying cause. Income stagnation continues, pushing Americans toward greater borrowing and less saving. Unemployment remains extraordinarily high. And those who do find work often have to accept lower wages.

Meanwhile, as those at the bottom hang on, profits continue to concentrate at the top. Without a good alternative, capital continues to be invested in consumer debt rather than in the businesses—big and small—that provide jobs. Bankers are once again skittish about lending. If we are to find solutions to the crisis, it is more important to ask why so much money flowed into mortgage-backed securities and so little into productive businesses than to search for villains to blame for what went wrong.

During the Great Depression, New Deal policymakers figured out ways to harness the resale of debt, but they recognized that increasing the supply of credit without also increasing wages would only lead to another crash. But in the last 40 years, debt levels have climbed while wages have remained stagnant because securitization made it much easier to lend to consumers than to businesses. That continuing imbalance is a threat to the long-run stability of the American economy.”

The Great Depression and the Great Recession (1)

Blogging for me is a way to express some thoughts and reactions to things I read or learn about.  As I’ve note before one doesn’t have to know something to blog, one only has to have an opinion which one is willing to express.  So I’m going to venture off onto economic issues because I recently read about them, first in  the WILSON QUARTERLY 2012 article “Revisiting the Great Depression” by Robert J. Samuelson.   I found interesting his thesis that

The role of the welfare state in today’s economic crisis recalls the part played by the gold standard in the calamitous 1930s.”

“Just as the gold standard amplified and transmitted the effects of the Depression, so the modern welfare state is magnifying the effects of the recession.”

I’ve read different comparisons between the 20th Century’s Great Depression and the recent Great Recession of the 21st Century, but Samuelson is the first I’ve seen indicate that the current “welfare state” may have the same drag on the economy that the gold standard had in the 1930’s.   The gold standard is thought by some to have hamstrung the economy in the 1920’s and 30’s limiting growth by limiting the amount of capital available to be invested in the economy.    Samuelson defends comparing the effects of the gold standard on the economy of the 1920’s with the effects of the modern welfare state on the modern economy:

 “Casting the welfare state in this role will strike many as outrageous. After all, the welfare state—what Americans blandly call ‘social spending’—didn’t cause the 2007–09 financial crisis. This dubious distinction belongs to the huge credit bubble that formed in the United States and elsewhere, symbolized by inflated real estate prices and large losses on mortgage-related securities. But neither did the gold standard directly cause the 1929 stock market crash. Wall Street’s collapse stemmed, most simply, from speculative excesses. Stock prices were too high for an economy that was already (we now know) entering recession. But once the slump started, the gold standard spread and perpetuated it. Today, the weakened welfare state is perpetuating and spreading the slump.

What has brought the welfare state to grief is not an excess of compassion, but an excess of debt.”

Samuelson goes on to describe how the US pulled out of the depression because of certain demographic truths.  But he also notes what factors today are not exactly the same as in the time after the Great Depression.  Our climb out of the Great Depression had some factors in its favor which are not true today.

“But this system required favorable economics and demographics—and both have moved adversely. A younger population was needed to lighten the burden of supporting the old, the largest claimants of benefits. Rapid economic growth was needed to generate the tax revenues to pay for benefits. Indeed, the great expansion of benefits started in the 1950s and ’60s, when annual economic growth in Europe and the United States averaged about four percent or more, and the expectation was that this would continue indefinitely. Long-term economic growth is now reckoned closer to two percent a year…”

But the unfavorable demographics in Europe and the US during the current economic crisis are not those of the post-Great Depression times.  So modern governments have tried a different set of solutions to the economic crisis:

“The means of escape from these unhappy trends was to borrow. Some countries with extensive welfare systems that didn’t borrow heavily (examples: Sweden and Finland) have fared well. But most governments became dependent on bond markets.”

The results of government efforts have to date not been totally successful, though some would argue a point harder to prove: what was done prevented an even worse economic disaster.    Samuelson offers a moral to the story:

“The mistake, popularized largely by economists, was to believe that regulation of the economy could be derived from theory and converted into practical precepts for policy. The reality is that economic life is not solely described or dictated by rhythms suggested by economic models. It moves in response to institutions, technologies, beliefs, and cultures that follow their own logic, sometimes with completely unexpected, mystifying, and terrifying consequences.”

The world’s economy has proven to be more difficult to push into recovery than many had hoped.  President Hoover in the 20th Century was criticized for not doing enough to stimulate the economy because of his conservatism; President Obama has been criticized for doing too much because of his being liberal.  But the two crises represent different times with efforts made having results that cannot exactly be compared to each other.   As in chaos theory, there are so many factors, and so many unpredictable factors that shape the world’s economy that trying to predict the exact effects of certain “stimulus” efforts  may not be possible.

In the next blog I will look at another WILSON QUARTERLY article, “The Debt Bomb”,  which analyzes the causes of the ongoing Great Recession.

Next:  The Great Depression and the Great Recession (2)

Ethics and Economics

I’ve been slowly reading through John Medaille’s TOWARD A TRULY FREE MARKET: A DISTRIBUTIST PERSPECTIVE ON THE ROLE OF GOVERNMENT, TAXES, HEALTH CARE, DEFICITS, AND MORE.    As I’ve acknowledged in previous blogs I have no formal education in economics, so it often is incomprehensible to me, and I will not here defend or critique the book.

Medaille offers a rather somber evaluation of modern economics and thinks the ongoing economic crisis worldwide is not an aberration but really the end result of modern economic, capitalistic policies.  One thesis of the book is that in an effort to make economics a hard science (rather than a mere social science) economists jettisoned ideas of morality.  Economics void of morality becomes a strange animal indeed creating many of the problems we see all around the world.  Some people defend as the greatest good whatever is “good for the economy.”   But of course exactly what constitutes the economy is not completely accounted for (is it people or businesses?  citizens or corporations?), nor is “good” defined especially in a system of thinking which wants to avoid moral judgments.  Medaille for example points out that while current economic thinking assumes the existence of labor, it cannot account for the existence of labor because it totally ignores the existence of families.

Modern economics does not account at all for what it costs to produce a labor force, thus families are left to scramble on their own to earn enough to survive meanwhile “the economy”  (economic leaders and forces) feel no responsibility for the survival let alone thriving of families.  So economic policies often ignore what is good for the family.    Additionally the labor force is also the consumer force – the rich get richer off the labor and consumption of these people.   But those leaders of economic ideas see no connection between the cost of producing a labor force and their own profitability.    Medaille offers many ideas about how to correct some of the problems that beset the world economy today, ideas based in distributist economics.  Some of his ideas would resonate with conservatives (especially he advocates a significantly smaller federal government) but his arguments on the moral issues of economics might not make conservatives feel so comfortable.  The keystone to his ideas is the notion of the just wage (you can read more on distributist ideas at http://distributistreview.com/mag/)

I suppose because I’ve been thinking about Medaille’s ideas connecting ethics to economics, I paid attention to a 20 December 2011 NY Times Op-Ed piece by Charles Blow, Deep Pockets, Deeply Political.   Blow is sounding a recently familiar alarm:

 A tiny number of wealthy Americans are playing an ever-increasing role in financing our politics. This is not a good thing for a democracy.

Last week, the Sunlight Foundation, a non-profit, nonpartisan organization dedicated to making government “transparent and accountable,” issued a report, which said:

In the 2010 election cycle, 26,783 individuals (or slightly less than one in ten thousand Americans) each contributed more than $10,000 to federal political campaigns. Combined, these donors spent $774 million. That’s 24.3% of the total from individuals to politicians, parties, PACs, and independent expenditure groups. …

The report also pointed out that “overwhelmingly, they are corporate executives, investors, lobbyists and lawyers” and that “a good number appear to be highly ideological.” In the 2010 election cycle, the report revealed, “the average one percent of one percenter spent $28,913, more than the median invdividual income of $26,364.”

But perhaps even more disturbing was this:

The community of donors giving more than $10,000 (in 2010 dollars) has more than quadrupled, from 6,456 in 1990 to 26,783 in 2010. In 1990, they accounted for 28.1% of all itemized (over $200) donations. By 2010, that number had risen to 44.1%. These donors are also accounting for an increasing number of all donations. And they’re giving more, too. In 1990, the average donation was $13,443. By 2010, it was more than double: $28,913.

James Madison

That the top  1% of  the well-to-do are financially more influential in politics than the rest of the country is not new.  Certainly Jefferson’s call that “all men are created equal” was not really a declaration of the equality of every human being but rather a demand that the limited number of landed gentry should be considered equals with the king.  The founding fathers envisioned some sense of the upper class ruling the country (as I recall James Madison even made mention at one point that the wealthy actually constitute a minority in the country and they had to be protected under minority rights against majority rule!).   There seems to have been in fact some notion among America’s creators that the well-to-do get to retire from work early and then can nobly serve the country in political office (This was an idea entertained by Ben Franklin).   So the wealthy being more influential in government than the majority of people is part of our democracy by and for the people from the beginnings of these United States!

I find myself connecting the statistics which Blow mentions to the ideas of morality in economics raised by Medaille.  People who are willing to drop nearly $30,000 down to influence politics are the ones who are fighting against paying taxes.  They would rather give $30,000 to political parties to promote their own interests (though this political donation is a form of a tax – the price to prosper in America) than to give that same amount of money to the government for the common good.  And they will give that same amount of money year after to year to political causes to avoid paying even less than that amount in taxes.

In the ancient Roman republic the imperial family and their slaves staffed the government at no public expense.  Senators and the equestrian class did the same out of a sense of duty – it was they who paid out of their own wealth for public buildings and services.  The landed elites of the provincial cities in turn paid for public services out of a sense of their own responsibility for the public good.

Is this civic sense, the sense of the common good,  what is so lacking in the current process of the wealthy paying for the politics of America?  Now, sadly people are willing to pay only for their own self interest – which often means exactly avoiding contributing to the common good.  A civic pride seems to be lacking.  The Romans thought patriotism meant working for the common good of all citizens which entailed spending their own money to build up (=edify) society.   Belonging to the wealthy class and owning property was considered a privilege which carried great responsibility for the common good of every citizen.  They believed all citizens should benefit from prosperity of the empire and of the wealthy.

Americans love to criticize entitlements – generally of any subgroup of Americans to which they don’t belong.  But entitlement thinking exists in the upper echelons of wealth too – it is entitlement which says the wealth is mine alone and no part of it is to be used for the common good.   It is entitlement thinking which fails to see the land on which we stand as a natural resource which is a shared good which profits all Americans.

George Washington

The common good does not mean socialism.  Medaille certainly opposes socialism which he actually thinks is really a necessary offshoot of capitalism because  current capitalism fails to consider that all economic issues are ethical issues as well.  Patriotism as valuing all citizens and working for the common good is in short supply in America these days.   Patriotism which values civic duty  is not a nationalistic exclusivism or exceptionalism.  It is a virtue which the founding fathers did embrace as they imagined citizen statesmen and citizen soldiers.   These same founding fathers thought the wealthiest Americans would come forward and support the common good for all citizens – such were their ethical beliefs.

None of this means we cannot question the size of the federal government, or work to reduce its size.  Certainly the size of the government is a question worth debating – and for Medaille this is part of the ethical discussion which needs to take place.  The issue I raise is whether our extreme individualism doesn’t in the end hurt the very basis of civil society as we cease to have any sense of responsibility for others.

ECOnomics

Whenever I blog on economics or statistics, I know I make some folk uneasy with my comments.  But the joy of blogging is commenting on things I read or think about for which I don’t have to be right.  That appears to be the job of the rest of the world, who lets me know where my economic thinking goes astray.

Super Committee inaction

First a comment on the failure of the “Super Committee” to come up with a budget reduction plan which supposedly now will trigger mandatory cuts in government spending, including mandatory cuts for the military (this last phrase,  I think, is always thrown in to make conservatives nervous).

In our pluralistic society, the “consent of the governed” is going to mean that those who govern have to come up with compromises so that they can form majority coalitions to approve of legislation.  But in America this also has come under criticism as “business as usual” and Americans politically are perpetually in favor of change.    So the legislators can’t compromise and they can’t get anything done (which means they can’t govern reasonably either).  So  mandatory cuts in government spending are the only kind of cuts that are going to be agreed upon.  Americans are fed up with this political gridlock as well, at least based upon polls rating Congress (I heard one commentator note that communism gets a higher approval rating in America than Congress – 11% to 9%).

Cutting both the annual deficit and the national debt seem like proper goals to me.  The deficit can be cut/eliminated by cuts in spending, but to reduce the national debt, I believe, is going to require some tax increases (even if temporary).   Since I favor a balanced budget for the government and a reduction in the national debt, I believe we have to talk both spending cuts and tax increases.     I think that means talking about how to make Medicare and Social Security solvent as well.  Apparently none of these ideas is very popular with our national legislators and so they cannot come up with a reasoned planned and only seem to be able to acquiesce to a mandated reduction in spending (and even at that some are not comfortable with the mandatory reductions and seem to want to avoid them as well).    It seems obvious enough that continuing on the current path is not going to reduce the national debt, so the legislators decided to take those decisions out of their own hands and allow mandatory cuts to do their work for them.  But it is also true if we send our elected congressional leaders to Washington and tell them not to compromise to resolve the deficit and debt we are going to get what we got: an inability to govern reasonably.   In a democracy, compromise is not always a bad word as it means bi-partisan.   We might remember that ‘partisans’ from one point of view are ‘terrorists’ from another point of view.  Governments are said not to negotiate with terrorists.

What isn’t needed is more blame, but there always seems plenty of that around; a super  abundance of blame will not reduce the national debt or deficit one penny.  We waste our money when we send to congress people who have nothing to offer but blame.

My intent in this blog is not to belabor our government (“we the people”) and our inability to reasonably solve problems because of our ideological rigidities.

Instead, I want to comment on was a graph I saw in the 14 November issue of TIME with an article by Stephen Gandel titled “The Deregulation Myth.”   The gist of the graph is that despite a popular notion in the US that government regulations are hurting economic growth, worldwide the statistics show a different picture.  For the five years ending in 2010, the US is ranked 4th out of 183 countries as being the most business friendly (Singapore is 1st, Hong Kong 2nd, New Zealand 3rd).   In that time period the US had an increase in GDP of 15%.   But in that same time period China had a GDP increase of 160%, Russia of 94%, Brazil  135%, and Indonesia 147%.   These are countries in which businesses  are more regulated than US businesses.   Being more business friendly and government deregulation of business do not automatically create jobs or economic growth.  Capitalism moves money to where capitalism believes there is money to be made.   It is an oversimplification for politicians to promise Americans significant economic growth by further reducing government regulations.  America is already one of the most business friendly nations on earth.

The reality is America cannot control all of the economic factors in the world.   Politicians have limited powers as to what they are able to do to improve the economy.

If America cannot control world economics, what is our best strategy for living with, in and as part of the family of nations (which maybe we can influence even when we can’t control them)?   If politicians really have limited power to change the American economy, what are our best domestic strategies for creating sustainable economic growth?

Things to ponder.

For me there are also ethical questions regarding the relationship between profit and greed and the balance between sustainable economic growth and environmental stewardship.  We are after all not merely consumers on earth, but stewards of the earth.   God so loved the world, we believe, and we too are to love His creation, not just greedily use it for profit but for the benefit of all.   We Americans certainly believe that no tyrant anywhere on earth should control its resources.  So too, we have to abide on earth in peace with the rest of the world sharing the earth’s resources following that same principle as well.

See also my blog America and Capitalism: Dr. Frankenstein’s Demonic Lesson

The Cost of Living

The 10 October 2011 issue of TIME had a few statistical graphs giving a financial picture of our lives today.   The statistical graphs I found most interesting were the ones dealing with how we Americans allocated our personal budgets through the last 60 years.  The statistics were measuring the “Percentage of Total Personal Consumption Spending.”

In 1950 Americans spent :

22% of Personal Consumption Spending on Food,

13% on housing,

10% on clothing,

3% on health care,

3% on financial services and insurance.

By 1970 we were spending

17% on housing,

16% on food,

7% on clothing,

7% on health care,

5% on financial services and insurance.

In 1990 our personal consumption spending looked like this:

18% on housing,

13% on health care,

10% on food,

7% on financial services and insurance,

5% on clothing.

Finally by 2010 our spending looked like this:

18% on housing,

16% on health care,

8% on financial services and insurance,

7% on food,

3% on clothing.

Of course the stats don’t give us a clear picture as to why these changes.  Obviously the percent of our personal consumption spending on food and clothes has declined significantly.  The stats don’t say whether that is because the actual price of these goods has fallen, or if we choose to spend less on these items, or if we simply have more disposable income and so we can devote a smaller portion of our budget to food and clothes.

What stands out in my mind is the soaring cost of health care.  As a percentage of total personal consumption spending, health care spending jumped from 3% in 1950, to 7% in 1970, to 13% in 1990, to 16% in 2010.  So while I hear some Americans claim the American health care industry is the best in the world, it appears we will have to add the caveat “for those who can afford it.”    In difficult financial times how many Americans cannot afford to give 16% of their spending to health care.  Health care is rapidly approaching taking up as much of our spending as housing.   Maybe we value our health that much, or maybe we will all have to start choosing between having a home or being able to participate in the American health care system.

Our diseases will be treated but we will have to cope with the “dis-ease” that we can not afford both health care and having a home.

Related to the above numbers, 27% of Americans have gone without health insurance which might indicate that they cannot afford to spend such a high percentage of their personal consumption on health.  But interestingly, having adequate health insurance is less a concern today – only 47%  mention worrying about having adequate health care while 77% are worried about outsourcing jobs to other countries.  Again no explanation is offered as to why people are less concerned about having adequate health insurance – it could be that they feel they can do nothing about it anyway or that health care is so expensive that they know they can’t afford to worry about as it is beyond their reach.

While I know many Americans hate government involvement in things like health care, I wonder has the insurance industry or the health care industry put forth any viable plans which do not involve government and which lower the costs of health care to make them more affordable to and more accessible to more/all Americans?  If health care is driven by wall street, the only concern is going to be profit.  Can the industry create a system whose real concerns are the American people themselves?   Are people more than simply consumers of health care?  How can we create within capitalism a system in which the benefit of the people is the concern and in which this doesn’t end up having to be what government advocates for?   The people often feel when compared to the big money of the health care industry their only hope for an advocate is big government.  What do the health care and insurance industries have to change/do to make the health of the American people the obvious focus of their concern – the real bottom line?

America & Capitalism: Dr. Frankenstein’s Demonic Lesson

I tend to see the economy as something I’m on the outside of looking in.  I know that is not the reality, like everyone I’m part of the economy, but it is governed by factors, forces and a logic that are beyond my understanding.  I feel the same way about the universe in general which leads me to believe there is a God – there is some kind of logic at work, I just can’t explain, describe or control it.  With the economy however I tend to lower my view of what governs it – it is far more humanly determined than divinely ordained.

Right now the world’s economy (or economies) seems to be under the sway of the gods of capitalism.  My rather limited understanding of capitalism is that its goal and purpose is to increase capital (money, wealth).   Capitalism is not naturally egalitarian – the distribution of this capital is not its main concern, and so it can happen that a few can gain disproportionate control of the vast majority of the capital  (the wealthiest 1% of Americans owns 38.3% of the stock market, the wealthiest 10% owns 81.2% of the stock market according to the Motley Fool.).

The U.S. in general has supported capitalism, and American leaders of all kinds (business, political, economic) believe that America controls capitalism or at least that America can harness capitalism for the good of America or that capitalism and America have the same goals, vision and purpose.  Recently, some very conservative political people have commented on how capitalism actually works for and serves its own purposes: it is most influenced and controlled by international bankers, financiers, and investors, not by American political (or perhaps even economic) interests.  The captains of capitalism may have at times an interest in America, but ultimately their real interest is in increasing capital:  if that parallels American interests OK, but if not they will pursue their goal anyway.  This is the effect of globalization on capitalism; investors, wherever they come from and whatever their interests, now push the worldwide capitalism.

Globalization has challenged the notion that capitalism and America are coterminous with each other.  Though many outside of America refer to globalization as “Americanization”, globalization is showing that it has a life and mind of its own.  Capitalism continues to pursue increasing capital and is quite willing to focus its attention on any part of the world where that can happen best or fastest.  Thus the rise of China, India or Brazil in world economics.

Rana Foroohar in the 20 June 2011 issue of TIME, What U.S. Economic Recovery?  Five Destructive Myths, wrote some ideas that caught my attention.

There is a fundamental disconnect between the fortunes of American companies, which are doing quite well, and American workers, most of whom are earning a lower hourly wage now than they did during the recession. The thing is, companies make plenty of money; they just don’t spend it on workers here.

Half of Americans say they couldn’t come up with $2,000 in 30 days without selling some of their possessions. Meanwhile, companies are flush: American firms generated $1.68 trillion in profit in the last quarter of 2010 alone. But many firms would think twice before putting their next factory or R&D center in the U.S. when they could put it in Brazil, China or India. These emerging-market nations are churning out 70 million new middle-class workers and consumers every year. That’s one reason unemployment is high and wages are constrained here at home. This was true well before the recession and even before Obama arrived in office. From 2000 to 2007, the U.S. saw its weakest period of job creation since the Great Depression.

Nobel laureate Michael Spence, author of The Next Convergence, has looked at which American companies created jobs at home from 1990 to 2008, a period of extreme globalization. The results are startling. The companies that did business in global markets, including manufacturers, banks, exporters, energy firms and financial services, contributed almost nothing to overall American job growth. The firms that did contribute were those operating mostly in the U.S. market, immune to global competition — health care companies, government agencies, retailers and hotels. Sadly, jobs in these sectors are lower paid and lower skilled than those that were outsourced.

In some ways what may be happening in world economics is that America has viewed Capitalism as its adoring child, but as Dr. Frankenstein discovered, his “demon” (a term he uses for his “invention”) had a mind of its own.  Dr. Frankenstein’s invention goes off into the world with the poor doctor pursuing his invention rather than controlling it.  It may be that the US is actually in pursuit of capitalism rather than controlling it.  Capitalism is turning its attention to emerging markets where there is more capital to be grown rather than focusing on America, where growth may be possible, but it will be limited growth as compared to these emerging markets.

This of course means that politicians who think they can revive the US economy to the growth levels of the late 20th Century by tax cuts which will lure capitalist interests back to the US may far underestimate what the real situation of the world economy is.  It is possible that America is just not able to produce the kind of capital growth which emerging markets can.  Capitalism’s interest is in growing capital: where its treasure is, so its heart will follow.  That is going to happen no matter how pro-business American politics become.   Investors want ever greater returns, and those are apparently found in emerging markets/economies.   It is not a matter that America’s tax structure are anti-business, the real issue is capitalism will go where it can increase capital the most quickly.

For those who feel that “big government” is the real problem for the American economy, distributist economist John Medaille (TOWARD A TRULY FREE MARKET) points out that between 1853 and 1940, the pre-Big Government era, the US economy was in recession or depression 40% of the time.  Since the age of big government, the US economy has been in recession 15% of the time.  He says for those who fantasize that there was some golden age before big government where the economy just hummed along without impediment, they had better study history and live in reality rather than in some fictional legend.

I have no solutions for the American economy, as I said at the beginning this is not my area of expertise, and so I’m much more the spectator.  I am also naturally skeptical, and am not at all convinced that politicians of any stripe have the fix for what ails our economy (though I did think The National Commission of Fiscal Responsibility and Reform took the problem seriously and recommends some of the hard decisions which most politicians want to avoid) .  I think some politicians simply underestimate the role globalization has had on capitalist interests, and some overestimate how much their policies can determine capitalism’s interest in the US.  Or maybe politicians just don’t like to acknowledge that there are forces in the world over which they have no control.  More hard realities voters don’t want to face.

Tax Cuts: a Painful Way to Keep Bleeding

The Co-Chairmen of the bipartisan commission to reduce the deficit released a proposal for the commission members and general public to consider as to what is needed to reduce the national debt.  In their comments they bluntly make it clear the reduction can only come with pain to the American people; there is no other way.  Of course Americans have never taken kindly to pain when it comes to economics and thus politicians who vote on policies which affect the nation’s economy tend also not to make the hard decisions in fear of being voted out of office. 

The U.S. Congress is going to take up the issue of making permanent the Bush era tax cuts.  This is being done while simultaneously there are calls to shrink the national debt.  These are the tax cuts that Mike Kimel and Michael Kanell in PRESIMETRICS characterize in this way:

Consider, for instance, that less than two months after taking office GW laid out a plan to aggressively pay down the debt while simultaneously cutting taxes and boosting military spending.  The plan was titled, ‘A Blueprint for New Beginnings: A Responsible Budget for America’s Priorities.’  One can only wonder what an irresponsible budget might have looked like to GW’s advisors. 

According to what I’ve read, making the Bush-era tax cuts permanent will add $4 Trillion (that’s $4,000,000,000,000.00) to the national debt.  One wonders whether any Americans are really fiscally responsible or conservative who can advocate this right now.

Christmas is a time when kids tell Santa what they want and adults pay for it.  Deficits are when adults tell government what they want and their kids pay for it. (Richard Lamm)

The push for the tax cuts at this point seem to be the usual American nearsightedness when it comes to fiscal issues: we want immediate gratification and don’t want to be troubled by the fact that what we do today will have  future repercussions.  

“… a president who cuts taxes while at the same time driving up the debt is not really ‘cutting taxes.’  He is merely transferring taxes from now until some later date.”  (Mike Kimel & Michael Kanell, PRESIMETRICS)

A president who cuts the national debt, on the other hand, saves you from having to make interest and principal payments on that debt in the future, and therefore reduces you tax bill later. Unfortunately, most people don’t seem to make the connection between fiscal irresponsibility today and increased taxes later on.  (Mike Kimel & Michael Kanell, PRESIMETRICS)

We would do well to remember how we got into the national fiscal mess we are in and not perpetuate those same mistakes and then magically hope for a different result.  We might consider the words of U.S. founding father James Madison

“… war should not only be declared by the authority of the people, whose toils and treasures are to support its burdens, instead of the government which is to reap its fruits: but that each generation should be made to bear the burden of its own wars, instead of carrying them on, at the expense of other generations.”

It is we the people, or at least we through our elected political leaders, who got US into the current financial mess.  It is the current and past president and the current and past congresses which have made the decisions to  bury us in debt.

Somehow, some keep singing the song to reduce taxes, as if that is the panacea for all that ails the American economy.  Yet the national debt also ails the economy and we are not going to reduce the national debt by reducing taxes,  anymore than someone can reduce their credit card debt by reducing their income.  If we are serious about reducing the national debt, we are going to need a different remedy than reducing taxes to pay down the current debt.

I do not know where the idea that reducing taxes is the best way to grow the economy comes from – but if PRESIMETRICS  measures the data right, then reducing taxes isn’t the panacea needed.  Consider the following based on Kimel and Kanell’s analysis of the data available from 1952-2008 (Presidents Eisenhower to GWBush):

“in recent decades, higher tax burdens have been associated with faster, not slower, economic growth.” (p 120)

“there doesn’t seem to be any evidence here for the proposition that lower taxes result in higher incomes  … lower taxes- at least by themselves- are not the way to increase economic growth.”   (pp 124-125)

“The numbers are pretty compelling.  Lower average tax burdens do not produce faster economic growth, or more jobs, or bring in more tax revenues.  Similarly, tax cuts also do not produce faster economic growth, faster income growth, or more jobs, or bring in more tax revenues.  … Unexamined faith in a principle that is demonstrably false is no way to run a country.”  (pp 129-130)

So, is the idea that tax cuts are beneficial to the economy based upon intuitive assumptions rather than on any statistical analysis?    It seems like it should be true that lowering taxes would benefit tax payers in every way, but the data which PRESIMETRICS studies doesn’t uphold what is a cornerstone of political beliefs for many.

This may be a case where we need to stop believing what we think, and actually examine the data to see what in fact will bring down the national debt and help the economy.  Maybe we actually are going to have to do some of the painful things the bipartisan commission is considering, including both raising taxes and cutting spending.  Ouch!

Or maybe we will continue to pretend there is some magical and painless way to reduce the budget deficit and keep doing all the things we currently are doing. 

Any magic left in these contenders?

In the Harry Potter books and movies, ultimately it is not magic that saves the day and defeats evil, but rather the courage and persistence of its “all too human” heroes to do the right thing despite their weaknesses, even when it is very painful.

Our politicians need to learn a bit of that magic called courage.

PRESIMETRICS: Those Stubborn Facts

Though the autumn is one of my favorite seasons of the year weather-wise, I’ve come to despise the election campaigns of fall and the political advertising that poisonously pollute the airwaves.  It is a good time of year for Americans to practice turning off their radios and televisions: go outdoors and become attuned to nature, give more time to friends and interesting conversation, or volunteer for worthwhile charity and civic projects.  Though many people I know can’t imagine life without the “entertainment industry”, my assessment for all thinking Americans is they would be far happier without it.  Everyone should ban commercial driven media and talk shows for the 30 days leading up to the election.   That’s my prescription for an American pursuit of happiness.

 

Protect your ears & hearts from political noise pollution

 

Money talks they say, and in America money buys a lot of talk as well.  Negative advertizing against candidates destroys the morale of our nation.  It encourages cynicism, drowns out reasonable discourse, and causes the polarization in politics that paralyzes our democracy.

Far better for me was our diocesan election of a bishop – not once did any of the candidates warn about what would happen if one of their “rivals” was elected.  Each simply spoke about their own experience in the church and how they might respond to issues should they become bishop.   It is hard to imagine a calmer experience than the day of the bishop’s election.

I read with interest Mike Kimel and Michael Kanell’s PRESIMETRICS:WHAT THE FACT TELL US ABOUT HOW THE PRESIDENTS MEASURE UP ON THE ISSUES WE CARE ABOUT. I’m not so driven by statistics that I checked all their facts, but they offered an interesting view of what the Presidents from Eisenhower to GW Bush did while in office.  I don’t know the authors’ political preferences, but liked the implication of some of their comments:

“A president who year after year produces surpluses, avoiding the temptation to spend unnecessarily, is making the country better off.”

“… a president who cuts taxes while at the same time driving up the debt is not really ‘cutting taxes.’”

I’m not going to make many more comments, but want to quote from the book – you can get a copy and read it for yourself.  But there were real surprises in what the statistics show.  (Abortion rates dropped sharpest under Clinton!)   Certainly what the political parties claim to be their agendas and priorities aren’t always upheld by what presidents from those parties did while in office.

“…the notion that growth is hindered by taxes doesn’t seem to be borne out by the data we’ve been using.  In our sample of eight administrations, the three administrations that raised tax revenues, and the one that reduced them by the least, happened to be the four fastest-growing administrations in our sample.  The four biggest tax-cutting administrations also produced the slowest growth by far.”

“… the four administrations that produced the biggest annualized increases in social spending as a percentage of the budget were also the four administrations that produced the slowest economic growth.”

Nevertheless, we have seen no evidence that cutting the tax burden increases growth rates, at least for the levels of taxation that we observed in the United States from 1953 to 2008.  Quite the opposite, in fact.”

“Under Democratic administrations overall, debt as a percentage of GDP shrank, while on the average under Republican administrations it rose.”

“Democratic administrations have presided over faster economic growth on average and done so without adding as much to the national debt as Republican administrations. …. And the policies Democrats have pursued have increased income and wealth more quickly than the policies Republicans have pursued…. That is, a trickle-up economy seems to beat a trickle-down economy.  So sayeth the data.”

“Of the eleven American presidents who served from the end of World War II to 2008, Reagan was the only one who increased both the size of the national debt as a percentage of Gross Domestic Product (GDP) and the percentage of Americans employed by the federal government.”

“Among all the administrations in our sample, the Clinton administration was the only one to actually reduce real spending per capita…  By far the biggest annual drop in spending as a share of GDP came under Clinton.”

“…Ike and Clinton… both of them decreased current federal spending as a percentage of GDP, and yet both of them managed to increase the share of that reduced federal spending going to the state and local governments.  And since of these two only Ike also cut taxes as well, perhaps Ike is the true conservative in a crowd of pretenders.”

“Republicans had a tendency to increase the percentage of total spending that went toward welfare almost four times more quickly than Democrats.  We’re willing to bet that not what you expected to read when you started this chapter.”

“The only administration to move the country in the direction of energy independence was Jimmy Carter.”  Voters didn’t like what that meant for their lifestyles which is no doubt why politicians so rarely advocate for the needed but unpopular decisions.

The authors looked at readily available economic information to plot their graphs and come to their conclusions.  Some may not like their observations, but in as much as they fairly presented the data, it is not worth shooting the messengers.

What I certainly came away from in reading the book is that simply lowering taxes is not an answer in itself for helping the economy.  There needs to be a corresponding reduction in government as a portion of the GDP to create a healthier future for the country.  The national debt matters long term, but politicians ever mindful of voter approval focus on making popular short term decisions.  That is why, according to the book, cutting taxes now always sounds right, but when no corresponding decrease in spending occurs, the taxes are simply pushed into the future as eventually the debt has to be paid.