Relevant and even prescient commentary on news, politics and the economy.

FYI on National Health Insurance

Science Friday aired a show on 12/14/07 discussing national health insurance.

Guests were:
Uwe Reinhardt James Madison Professor of Political Economy,
Princeton, New JerseyJ.
Fred Ralston, Jr Chair, Health and Public Policy
Committee American College of Physicians, Fayetteville, Tennessee
Donald Berwick President and Chief Executive OfficerInstitue for Healthcare Improvement, Cambridge, Massachusetts
Here is a real example (as of 12/17/07) of just how convoluted the payment system has become:

Just got an EOB back from Humana. I am out of network with Humana but in-network with Multiplan (b/c they bought PHCS). Humana discounted my services stating that “I am not in-network with Humana but I have accepted a discount because of another contract”. Then after this discount they applied the out of network deductible and out of network co-insurance (60%). Had front desk call Humana to find out what contract they were discounting from. Humana told us Multiplan. Called Multiplan, they said that Humana is using Multiplans fee edits but they shouldn’t be applied to this patient b/c it is not a Multiplan member. Confused? Me too. Last I heard from my Front desk was that “they” will correct it if we send: new HCFA, invoices, insurance card, and EOBs

EOB = explanation of benefits

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In the Beginning there was Income

As noted in my last post, I have been playing with income data. I believe that for us to be able to properly understand just where we have been and where we are going, we need to look further back than say the 50’s through Reagan’s time. That is, if the data is around. I view the Great Depression as a defining point in this countries economy, kind of like BC vs AD. I’m not convinced that the 90’s were all that good as far as policy for the masses. Sure we had a boom, GDP went up and the budget was looking better, but the Clinton’s come from the “conservative” or for the rest of the world “neo-liberal” side of economic policy. As much as his time period produced faster growth than the 2 prior presidents and the current one, it was not what we had seen in the past.

At the same time, income inequality rose by more points than through the Reagan/Bush terms. Specifically 4 points in 12 years verses 6 points in Clinton’s 8 years. It is to say, the Clinton’s come from a side of management that is closer to Reagan/Bush than Roosevelt/Kennedy. (This link gives an alternative review of Clinton’s policies.) Thus, to see what true progressive policy results look like we need to go back to a time before Roosevelt and then follow the results going forward to see the changes.

This post is to present the basic info. I will break it out in later posts. I used BEA table 2.1. They were kind enough to include a conversion of disposable income to 2000 dollars. This is why it’s in 2000 dollars. I have found a site that will convert any year to any year and may play there too. I used the ratio for each year to the 4th decimal place to convert the other numbers. This is the chart of the chaining variable as a percentage of the 2000 dollars. (nominal/chained)

I used data from Professor Saez for the share of income. It’s a big file.
This table is of the share of income to the top 1%.

This brings us to the results. First is the nominal.

This is the chained picture.

I’m not going to say anything now. But I do give you these two charts because, well…we’re talking income here. Specifically two groups; the top 1% and everyone else.

Adendum: I apologize for the dates on the charts. They did not transfer well. But, you are seeing each year of each decade starting with 1929. As to the last two charts you are seeing the nominal against the chained in 2000 dollars in each chart. One being the top 1% group and the other being the bottom 99%. They’re in billion’s of dollars.

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It’s the big one honey, I know it…

I’ve been doing some numbers concerning personal income. Breaking out share of income, savings, GDP, etc based on BEA data and Saez’s data. I’m playing with it, have converted it to year 2000 dollars and will be looking at per capita relations too. Even thinking of converting it all to 1929 dollars. I plan a few posts on it all.

But, considering the post today concerning the dollar, I thought these two charts would be of interest. These two charts are in 2000 dollars. There is an interesting hump around WW 2, I’ll get to that in a later post. But for now, look at the 3 lines and pay attention to what crosses what.

Income vs Consumption 1929 to 1962

Now, look at this chart.

Income vs Consumption 1963 to 2005
See anything of interest? Something around 1996? Now, Sherman, set the WABAC machine to 1929 and look forward.

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More Stupid Tax Code messing around

A few commenters of my last post suggested that picking at the tax code can create big problems if you don’t know what you’re talking about. I agree. Why mess with what is working as evident in the data continuously collected and reported concerning the economy. But, in 1981 they did mess with it and in a very big way and it hasn’t stopped. As the saying goes “everything changed”. Even under Clinton the share of income to the top 1% rose 6 points.
To recall, my point is that it’s not just the rates that are the problem, it’s the code.
One comment got me looking further.

Save the Rust Belt
“In general, the attempts by Congress in various bills to limit the deductibility of executive compensation caused the flood of executive stock options, and created a much bigger mess “
From a review by Peat, Marwick, Mitchell & Co.

The Economic Recovery Tax Act of 1981 is the most comprehensive tax reform
since 1954.
It affects virtually every financial planning decision. The Act creates a “new” type of stock option known as an “Incentive Stock Option” under which favorable tax treatment will be afforded to the option holder if certain conditions are met. Under current law, employer stock options are not entitled to preferential treatment.
Observations
The incentive stock option will have a significant effect on compensation planning
for all companies, and these rules may be applicable to options already exercised in 1981. Incentive stock option plans will probably become the cornerstone of executive compensation plans involving capital accumulation.

(Within this report are the changes related to the savings and loan mess. Considering today’s subprime problems, it is rather instructive as it relates to learning from history. Start on page 39 of the document.)

Thus, it was not the messing around that created stock options as a preferential means of payment. In the 1986 messing around they: eased the rules for exercise of Incentive Stock Option (ISO).

But, how was this 1981 act being portrayed by the CBO? Baseline Budget Projections for Fiscal Years 1983 – 1987 Report February 1982

The CBO baseline economic forecast shows an early end to the current recession and an acceleration of economic growth following the July tax cut.
Baseline revenue projections assume no change in current tax laws,… Under the CBO baseline economic assumptions, revenues are projected to rise from an estimated $631 billion in fiscal year 1982 to $882 billion in 1987. This represents an average growth of 6.9 percent a year, compared with an assumed average growth in nominal GNP of about 10 percent a year for the projection period. As a consequence, revenues as a proportion of GNP are projected to decline from 20.6 percent in 1982 to 17.7 percent in 1987—the smallest ratio since 1965.

Under current tax laws, the greatest growth in revenues will occur in social insurance taxes and contributions… The share of total revenues raised from this source will increase from 33 percent in 1982 to 38 percent by 1987… The share of total revenues raised from individual income taxes would decline from 47.5 percent to 45percent. Corporate income taxes under current laws and CBO’s baseline economic assumptions are projected, to increase by 46 percent, … and to maintain its 8 percent relative share of total revenues. Revenues raised from excise taxes and other sources are projected to remain at about the same level during the projection period. As a result, their relative share of total revenues would fall from 11 percent in 1982 to 8 percent in 1987.

How did this all work out? THE CHANGING DISTRIBUTION OF FEDERAL TAXES: A CLOSER LOOK AT 1980 Staff Working Paper July 1988

As reported in the earlier CBO study, total effective tax rates (the ratio of taxes from all four sources to family income) rose between 1977 and 1984 for the 10 percent of families at the lowest end of the distribution and fell for the 10 percent of families at the highest. Overall, the distribution of total federal taxes became less progressive.
Between 1977 and 1980, the total effective tax rate for all four taxes combined declined for the 20 percent of families in the bottom of the income distribution and generally rose for the 50 percent of families in the upper end, except for the 10 percent of families with the highest incomes. Total effective tax rates for other family income classes changed little between 1977 and 1980.

Between 1980 and 1984, the total effective tax rate for all families taken together dropped noticeably, from 23.3 percent in 1980 to 21.7 percent in 1984. The decline was not uniform across all income classes, however. Effective tax rates rose for the 30 percent of families at the lowest end of the income distribution and fell for the 70 percent of families in the upper end, with the size of the reduction increasing with family income. The 10 percent of families at the highest end of the distribution had both the largest percentage and the largest absolute decrease in effective tax rates.

The changes in effective rates under the individual income tax resulted largely from the Economic Recovery Tax Act of 1981 (ERTA). ERTA substantially cut statutory tax rates and increased allowable deductions, but it failed to offset the effect on low-income families of an inflation-induced decline in the real value of personal exemptions, zero bracket amounts (standard deductions), and the earned income credit.

By 1988, the distribution of combined federal taxes is projected to become more progressive than in 1984, but to remain less progressive than in either 1977 or in 1980. Although the combined effective tax rate for all families taken together is expected to drop slightly from 1980 to 1988, total effective federal tax rates are projected to be higher for families in the bottom half of the income distribution and lower for families in the top half. The largest reductions between 1980 and 1988 will be for the 1 percent of families with the highest incomes.

The question I guess is: did they know what they were doing? I suppose it depends on whether you think this results we have been living with since 1981 was intentional or not.

Just to cover the talking points:

The share of taxes paid by the 10 percent of families with the highest incomes rose by between 1.0 and 1.5 percentage points between 1980 and 1988. The increase in the share of taxes paid by this group resulted from a growth of nearly 3 percentage points in their share of pre-tax income between 1980 and 1988, more than offsetting the decline in their effective tax rate.

We changed everything.

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It’s the tax code stupid!

One of my issues with our economy and the shift in share of income has been the tax code. I have consistently stated that something other than the tax rate changed in the code back in 1981 or so when the first change took place. Labor went from being an asset to a liability and thus the rush to reduce all cost related to employees. Messing with the rates won’t do it. In fact, during Clinton’s term the share of income to the top 1% rose 6 points. It only rose 4 points with Reagan/Bush.

Well I was right…sort of. Bill # H.R.3876:

To amend the Internal Revenue Code of 1986 to limit the deductibility of excessive rates of executive compensation.

10/17/2007–Introduced.

Income Equity Act of 2007 – Amends the Internal Revenue Code to: (1) deny employers a tax deduction for payments of excessive compensation to any employee (i.e., more than 25 times the lowest compensation paid any other employee); and (2) require such employers to file a report on compensation paid to their employees with the Secretary of the Treasury.

This will be put in under

:(a) In General- Section 162 of the Internal Revenue Code of 1986 (relating to deduction for trade or business expenses) is amended by inserting after subsection (h) the following new subsection:

So, back in 1986 when they raised the rates they also allowed the top to shift the income they were paid so that it would be taxed less. Yup that was real “fair” sharing of the Reagan debt.

It’s not just about rates and it never has been. It is about definitions, and this makes me wonder what else is not in that tax code that use to be. All this bickering about entitlements, and the transfer of income, and welfare etc, etc, etc is just smoke and mirrors. The truth is we can solve our problems as soon as we go back to (return to the pre 1981 code) making it more profitable for the company to pay the help as oppose to keeping it for them self. And when I say for them self, listen to the big CEO’s refer to the company as their company! It also means that any arguments suggesting there is a free market idealism practiced in the labor market are wrong. What is part of determining what a fair wage should be comes from the sections of the tax code that control the definitions of taxable income to whom.

I still believe there were things done in the first change. You can read the reps statement here.

Update: To be clear, the bill linked to here will undo the tax break of 1986 that promoted paying excessive income to the upper company employees. It is a start toward removing the economic royalty of our nation.

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Discretionary Income? Maybe, but it ain’t being spent (or maybe it already is?)

I am member of AAII (American Association of Individual Investors). They send out their Investor survey results every week. This weeks:
Bullish 25.58% Long term avg. 39.3%
Neutral 21.71% Long term avg. 31.9%
Bearish 52.71% Long term avg. 28.8%

We have all read exuberant stories about how wonderful Black Friday was. The WSJ is doing it’s part to promote sales prior to the event:

For those seeking a second opinion on the gloomy holiday spending outlook, here it is:A survey of 2,570 Americans with household incomes of more than $35,000 suggests that the expectations of weak holiday sales are overblown.
“The doom and gloom is overstated. Unemployment is low. Real incomes are healthy,” said Michael J. Silverstein, a BCG senior partner. “Consumers overall predict that this holiday season will be just as good, if not better, than last.”

Unfortunately this is all based on a month old survey. A time when the $3.199 I just paid today to fill the oil tank did not exist. The schizophrenic side of WSJ had this to say the next day, 11/16/07:

Fred Crawford, managing director at Alix Partners, a turnaround consultant, says: “The reason so many retailers are coming out aggressively is that they’re expecting a bad season.”

There is a nice little chart of the expectations of the big retailers with this article. They’re not to excited.

I asked at a forum only for florist and related business: How’s it going now that Thanksgiving is past?
Some responses:

“We hear a lot about how bad the US economy is doing but things are’nt great in Europe either. Retail suffered a lot in 2007 and Ireland was no different .Some times during the year I felt like tearing my hair out . It was really quiet during the summer but picked up from Sept and Nov was brilliant for me.”

“Actually, it has been the slowest Sept. and Nov. that we’ve ever had. As I said in a previous post, maybe our moving has confused customers or it’s the economy. It is really scary to have just made a hefty investment in a new building along with moving and renovation costs.”

In our area, we can tell that gas prices are affecting sales – both holiday & everyday.We filled up 2 vans yesterday at @ 3.15/gallon (OUCH!!). My local tracking trends tell me that when customers have less money to spend, they are looking for more ‘longer lasting”, “higher perceived value” items. Generally for us, that means that or fruit baskets business greatly increases, and often our plant/poinsettia business increases. We will be cautious in our fresh flower buying….staying ahead of the game, but not in too deep!

Sales in Sept. were in the expected range but October was down significantly. November is not too bad but not great. Sure hope December brings better things or I will have to lay someone off.

Our November so far, compared to the last year’s:
Local sales: up 17%, Wire-in: down 25%, Wire-out: same. Actually, it was disappointing. We usually do 20-30% better than last year’s numbers; this year is our 3rd year beginning July. The problem was the average sales price. Compared to the last year, this year’s average sales price in November is 10% down. It’s so clear. Our customers are cutting back the expense. We will use this info to adjust our price point for Christmas, which is more important than November sales.

There is an even sadder story by a shop owner of 26 yrs in Kansas who bought houses, put kids through college etc, etc and is now thinking of closing because they can’t make it.

We used to have a full business district, 3 clothing, 1 shoe, 3 hardware, 8 restaurants, 2 convenience stores, 2 pharmacies, 2 flowershops, 2 gift, 1 childrens store, 2 grocery, Dollar General, Duckwalls, and 1 lumberyard. We are down to me, 1 gift, 1 pharmacy, lumberyard, 1 grocery, Dollar General, 1 convenience, 4 restaurants. I have heard that Duckwalls and the gift store are going out of business by Jan 1. We are down to one mortuary, used to have 3. MY TOWN IS DYING! Small town america is dying.

I worked in high school for a small family retail business, and the owner noted that such businesses were always ahead (by 6 months) of the national rhetoric as to the state of the economy. My shop peaked in the summer of 2006. This year even credit card sales are down where as last year only cash was off but credit card sale were up. We were off 3.4% for the year until August hit. We are now 7.8% off. People are not even trying to spend “discretionary income”.

Here is one article quoting the National Retailers Federation concerning Maryland:

‘‘Our annual survey showed our members to be very pessimistic this season,” said Thomas Saquella, president of the 600-member state retailers group. One-third of business executives who responded to the Maryland survey predicted sales decreases during the holiday season, compared with only 7 percent in 2006. Only one-third believed that third-quarter sales provided some positive momentum for the holiday season, compared with two-thirds last year.

Referring to the accuracy of prior surveys:

If the projections are that accurate this year, this holiday season would see the smallest gain since 2002. Sales that year increased nationally by only 1.3 percent, according to the retail federation.

Bloomberg had this to say yesterday:

U.S. consumers spent an average of 3.5 percent less during the post-Thanksgiving Day holiday weekend than a year earlier as retailers slashed prices to lure customers grappling with higher food and energy costs.

And, last but not least I dropped of the shop van at my friends repair shop this morning making an appointment for the personal van. He had today and ½ of tomorrow scheduled. The rest of the weekly chart was empty. He started building a new house this past March. Now he’s feeling the pinch cause he can’t sell his current house. The new house would have been paid in full if he could have sold the current house. Best laid plans….

My sweet keep complaining about being poor (I told her she had to choose between Celine Dion and 1 of her weeks at the beach). I keep telling her we’re not poor, we’re broke. She responds with: “And why did we buy this flower shop?”

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What the Oil money is doing

This is an article by the Washington Post: Oil Price Rise causes Global Shift in Wealth.

It looks at how different countries are responding based on whether the oil money is flowing in or out. Some countries are spending, but not necessarily to diversify their economies. Some are flexing their muscles now that their financial’s are healthy. Some are adapting, some are having problems adapting.

“With crude oil prices nearing $100 a barrel, there is no end in sight to the redistribution of more than 1 percent of the world’s gross domestic product.”
“The benefits, to the tune of $700 billion a year, are flowing to the world’s oil-exporting countries.”

Some particulars that caught my eye that is looking through the lens of global competition:
Referencing Russia who is using their new wealth to flex there mucsles:

less than two years after the collapse of the ruble and Russia’s default on its international debt, the country’s policymakers worried that 2003 could bring another financial crisis. The country’s foreign-debt repayments were scheduled to peak at $17 billion that year… Russia’s gold and foreign-currency reserves have risen by more than that amount just since July. The soaring price of oil has helped Russia increase the federal budget tenfold since 1999 while paying off its foreign debt and building the third-largest gold and hard-currency reserves in the world, about $425 billion.

In China, the citizens are hurting and starting to get distrustful as the government raises the price.

Rumors circulated that gas stations or the government was hoarding fuel in anticipation of further price increases, prompting the official New China News Agency to warn that anyone caught spreading rumors about fuel-price increases will be “severely punished.”
Yet it still subsidizes fuel. As a result, consumption this decade has skyrocketed at an 8.7 percent annual rate despite soaring prices and concerns about the environmental impact of profligate fuel use.

Japan

Yet Japan has been weaning itself off oil for years. It now imports 16 percent less oil than it did in 1973, although the economy has more than doubled. Billions of dollars were invested to convert oil-reliant electricity-generation systems into ones powered by natural gas, coal, nuclear energy or alternative fuels. Japan accounts for 48 percent of the globe’s solar-power generation — compared with 15 percent in the United States. The adoption rate for fluorescent light bulbs is 80 percent, compared with 6 percent in the United States.

President Carter had us on a program to be 20% solar by 2000. Then Reagean got in and removed the solar panals from the White House. And we all have heard about Brazil.

Britain:

Britian national average gasoline price topped 1 pound per liter, or about $8 a gallon, for the first time this week because of record oil prices.
“It’s different from the United States. Here, everyone has just accepted that it is
expensive.”
While British drivers are feeling the pinch, the government is gaining revenue, Skrebowski said, because about 80 percent of the cost of gas is tax. Because Britain produces almost all the oil it consumes, its economy has been cushioned against increasing oil prices, Skrebowski said.

Their production is going down so they are going to have to change. As I have read they are changing in that they have two wave generator plants running and not as models.

I think we need a different energy policy.

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Why Stop at 1990 for E/P Ratio?

We have a long history. Why not see what this nation was truly use to before we decide whether the opportunity (chance?) to be employed is good, bad or indifferent? I went to the department of labor site and used their graphing for the following charts.
First 1948 to 2007 E/P Ratio.

What we see is 3 distinct groupings. 1948 to 1960 vacillation within a range of 1 point (55 to 56). Then the nation got use to an ever increasing E/P ratio from around 1960 to 2000. But, if we start with 1990, then yes, we are seeing a new level of vacillation. Thus, we have 30 years of ever greater (opportunity for) employment for our citizens changing to approaching 20 years of hit or miss. So, using the last 17 years, Brad and PGL are on safe ground. Using the full series, citizens are not seeing it so good as to their future. Have we not moved down the rankings of upward mobility?

Lets break it out male vs female, 20 years and older.

This is the Male labor force, 20 yrs old and up.

This is the Female labor force, 20 yrs old and up.

Very similar curves other than the female starting at a lower number.

But, here are their E/P ratios.

This is the Male EP ratio.

This is the Female EP ratio

The men go from a high of 86.6 to a low of 70.6 in 1983 and hovers 1 point +/- at 73 although the over all trend since 1990 has been down.
The women go from a low of 30.1 in 1948 to a high of 58.6 2000 and 2001 and did not go below 57.1 after. But even for women, since 1990 the climb has been shallower with a flattening since 1996.

Wonder where the disconnect has been? I think we’re seeing it. As a family, 2 people working were climbing from the 60’s to 1990. Since then, and especially after 1996 with the female curve flattening, it just seems that the American citizen is not interested in working? Or maybe they realize that working more is not getting them any more. Maybe they have decided not to participate in the race to the top. Or maybe this reflexs the lack of jobs making working worth the effort. What ever it is, we’re flat and not growing.

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Some Election Economics

I check out Robert Reich’s blog on occasion being that he is a person who was involved in the past. Yesterdays:

Over a decade ago when, as Secretary of Labor, I hollered about the scandal of widening inequality in America, I’d get phone calls from Democratic officials who politely asked me to shut up. After all, I was part of the administration, and my complaints made it seem as if the administration wasn’t doing nearly enough. It wasn’t. We hadn’t delivered on Bill Clinton’s 1992 election promises. An expanded Earned Income Tax Credit helped the poorest but the old working class was going nowhere.

Well, what’d yah know? Clinton’s progressive first run rhetoric was fluff.

He says there are 2 thoughts in this country; trickle down and bottom up.

In a global economy, investments don’t trickle down; they trickles out to wherever on the planet the rich can get the highest return. If trickle down worked as advertised inequality wouldn’t be widening so fast.

Bottom up means giving all Americans what they need to be productive – universal and affordable health coverage, good schools, a chance to attend college, job retraining, affordable child care, and good public transportation to and from the job, for starters. But as we learned a decade ago, this requires money – even more, now. So the question is how the nation can afford it…

Solution:

The only way is to stop obsessing about balancing the budget and start pushing for a serious tax hike on the rich. Yet all Democratic presidential candidates are styling themselves “fiscal conservatives” and none has suggested raising the marginal tax rate on the richest beyond the 38 percent rate it was under Bill Clinton. They may talk bottom-up economics but they’re still wedded to trickle down.

I think someone is feeling betrayed. So, what are the candidates talking?
I give you an interview by Charlie Rose of 3 economic advisors to 3 democratic candidates.
And, just for good measure here is an interview with Leo Hindrey, Mr. Edwards econ adviser.

A teaser from the interview:

In 1981 the Business Roundtable noted that CEOs have multiple constituencies, but in 2004 – after Enron, WorldCom, Adelphia, the NYSE, etc. – that very same Business Roundtable narrowed CEO responsibility back to “shareholders only”. How wrong they are! Unless and until CEOs acknowledge obligations as well to employees, customers, communities and the nation, misbehaviours will continue – and, by the way, management is not a constituency unto itself.

My favorite line from the interview (cause I’ve noted here, and implied here the same question although Walmart is just his example):

The question Wal-Mart simply needs to ask itself is “when is enough, enough?”

What was that Mr Bogle was saying about enough?

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Some visual aids to answer how much is it?

This is just a little visual fun. Think about that saying “a billion here, a billion there, soon you’re talking about real money”.

Personally, I think visuals like this need to be circulated more frequently so that people have a better understanding when the government or business speaks dollar amounts. It might help them pause about whether they think something such as a war is really getting them a better life. Or just how much of a relative tax break they are getting.

But for the war, we’re talking trillions so:
Here is some perspective on TRILLION:
Trillion = 1,000,000,000,000.The country has not existed for a trillion seconds.Western civilization has not been around a trillion seconds.One trillion seconds ago – 31,688 years – Neanderthals stalked the plains of Europe.

Here is another one I like: The L Curve

Last but not least is this one that is actually a presentation being made to our legislators concerning our military budget.
The Oreo Cookie

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