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

Poverty Levels and Health care reform

By divorced one like Bush

It seems to go without saying, that if there is reform, there will be some type of assistance for those who need it. Some numbers are bandied about as to the cutoff points. The Mass Connector has it’s formula up that you can play with by punching in your own numbers and picking a Mass zip code.

However, I have noted in my very early posts here at AB, that we seem to have slowly understated over time the amount of money actually required to be middle class in the US. I looked at this further here. It’s not just the amount of money, it is the standard of living that has been down graded as we argue over implementing social policy. The clearest standard is that it takes two earners to accomplish what one earner use to. Now, with 47 million and rising, bankruptcy due to medical bills hitting 73% of all filings, having health care seems to no longer be a marker of having achieved middle class and thus the American Dream.

Such thinking could be a problem if we truly want to solve our issue of access to health care services. Mass knew that those at 350% to 450% of poverty would have difficulty buying insurance in their system. They may not view it as such, but this is an admission that our numbers regarding what income level is middle class (other than simple mean and median) are bogus. We are lying to ourselves and when we lie to ourselves, we prevent ourselves from actually resolving the issue in question. We’re faking ourselves out! In doing so, we are further moving away from what was the accepted standard of living as representative of the American Dream. In fact, it has occurred to me that the political approach of redefining what will be considered a successful campaign and thus problem solved regarding any social oriented piece of legislation by reducing the expectations or size of the problem to be resolved has only lead our standard of living and thus the American Dream being defined down. It’s one step removed from just plain ignoring the problem as if it does not exist. Though ignoring a problem is at least not patronizing to those with the problem as is defining it down and declaring it solved.

This brings me to the defined poverty level. A couple weeks ago I received an email as part of an ongoing health care debate that claimed to prove via a referenced article that there are not 47 million uninsured because 48% of those are earning 250% of poverty which is about $65K and thus choose not to purchase health insurance. I suspected there was something wrong and thus went looking.

Well, it turns out that 250% of poverty at $65K per year is for a family of 5! A gross income of $65K for a family of 5 leaves nothing for purchasing health insurance. It is also an income level that in Mass would have subsidies to help pay for health insurance.

I then thought: I wonder what the poverty level was in the old days. You can find the data I used here.
You can find the converting here. Then click on “Relative Values – US” in the left hand column.

The following chart looks at 5 decades (though I could not find exactly 1960 and 1970) and then compare them using CPI, Unskilled Labor, GDP per Capita and Share of GDP.
Certainly based on the CPI conversion, the numbers coming forward to today seem to be as they should. But then, poverty levels are based on CPI. However, looking at Unskilled labor, that family of 5 is getting under paid compared to the old days of 1962. The family has been on a over all downward trend. In the 70’s it was a real roller coaster being down by ’73, up by ’75, heading down by ’76, bottoming in 1978. Even their poverty level based on GDP/cap and share of GDP bottomed. Funky times indeed. From the 1978 bottom this family had a steady gain but, it peaked in 1996. This is the same year the income share to the 99% fell below personal consumption.

What I find most interesting is just how dramatic the change at 250% of poverty level for a family of 5 is based on the GDP share and per capita. My interpretation is that a person at this level of income has continually become poorer even though the income that is considered 250% of poverty level has remained constant comparatively over the decades based on CPI. I guess this bodes well for those who have finagled the CPI? Most interesting, is 2007. It is the only year where this family’s income was valued more than the share of GDP and GDP per capita values. Frankly, I don’t know what to say about it. It is no wonder people don’t know if they are coming or going regarding their financial condition. Though a tendency toward the “going” feeling certainly can be understood. Even the anger expressed at the town halls can be more readily appreciated in that the mind can only handle so many cycles of ups and downs before it finally starts to crack.

It is this clash between the CPI and the GDP converters that is the fake out. If we continue to have such a dichotomy, then our efforts to assure “affordable health care” will be never ending because we are simply not being honest about how much it costs to be middle class and have the American Dream. Nor should we expect the apparent lunacy to subside as longs one’s mind has to deal with the clash between what it is living verse what it is being told it is are living.

TARP, Neil Barofsky, Rep. Alan Grayson and Transparency

by divorced one like Bush

Via Glenn Greenwald and his article The war being waged on the TARP watchdog’s independence comes an interview with Neil Barofsky the man charged with over seeing TARP. It appears the White House is not keeping true to the President’s campaign of a more transparent government.

…the Obama administration is now attempting to induce the Justice Department to issue a ruling that Barofsky’s office is not independent at all — but rather, is subject to, and under the supervision of, the authority of Treasury Secretary Tim Geithner.

Seems Mr. Barofsky’s latest report states that the grand total of all money currently paid out and pledged totals $23.7 trillion.

This is the original article to go along with the interview.
Click here to download and listen.

Via Naked Capitalism comes Rep. Alan Grayson asking Ben Bernanke who got the 1/2 trillion in US dollars as part of a swap. He notes $24 billion in 2007 is now $553 billion yr end 2008. Who got the money? “I don’t know…the loans go to the centeral banks and they then put them out…We are lending to all US financial institutions in exactly the same way.” That is, the fed is making no distinction between our nation and the rest of the world. Bernanke notes the law gives them the right to do this. (Sec 14 of the Federal Reseve Act.) Rep. Grayson issue is; at what point is using this “power” to move 1/2 a trillion dollars is infringing on Congresses control of the Treasury.

(Rep. Grayson has further comment at the link regarding this video.)

Transparency. The Federal Reserve and the Treasury say this money can’t be traced after it passes to the first receiver. Mr. Barofsky has shown that it can be by simple sending out a questionnaire. Bernanke is treating the lending, regardless of recipient as all the same and thus none of it can be traced and that they have a right and authority to use the Peoples Money as they see fit. Rep. Grayson thinks they are overstepping Congress.

Who was it here that noted we had not bailed out the banks, but instead the banks just bought the Treasury?

There is a difference between then and now?

By divorced one like Bush

The following from Robert’s post got me thinking about railroads.

“There have been three big banking booms in modern U.S. history. The first began in the late nineteenth century, during the Second Industrial Revolution, when bankers like J. P. Morgan funded the creation of industrial giants like U.S. Steel and International Harvester. The second wave came in the twenties, as electrification transformed manufacturing, and the modern consumer economy took hold. The third wave accompanied the information-technology revolution.”

I talked about what was the same in the “second” wave then as today in my Taxation Rhetoric posting. As far as I’m concerned it had little to do with financing great industrialization and more with our first big flirt with financialization which is why we got the financial regulation in the 30’s.

As for the third wave, I believe there was the reporting of stupid money chasing anything with a dot com skirt on. Before that, in the 80’s we had “greenmail”, a smaller housing bubble and Milken et al. This got me thinking about the railroads and stories about how people would start building parallel lines just to get the big boys to buy them out. Early versions of greenmail? Stupid money chasing anything with a train. This was the biggy of the “first” wave.

So I went looking in order to write up something real to respond to Robert’s post and found that today is just like yesterday except that yesterday we actually got something when the people’s money was being used to line a private pocket.

Historical Handbook Number Forty

This publication is one of a series of handbooks describing the historical and archeological areas in the National Park System administered by the National Park Service, U.S. Department of the Interior. It is printed by the Government Printing Office and may be purchased from the Superintendent of Documents, Washington, D.C., 20402, Price 60 cents

Both companies therefore resorted to a favorite device of 19th-century railroad builders—a construction company with interlocking directorate free of Government regulation…

The 1864 Act made the United States “virtually an endorser of the company’s bonds for the full amount of its own subsidy,” and now both the U.P. and the C.P. could draw on double the amount of subsidy granted for each mile of completed road.

The Union Pacific’s construction company was the Crédit Mobilier of America. In 1864 Durant bought the Pennsylvania Fiscal Agency, a corporation loosely chartered by the Pennsylvania Legislature to engage in practically any kind of business, and renamed it the Crédit Mobilier. The directors and principal stockholders of this company were virtually the same as those of the Union Pacific. Greatly simplified, the process worked like this: The Union Pacific awarded construction contracts to dummy individuals, who in turn assigned them to the Crédit Mobilier. The Union Pacific paid the Crédit Mobilier by check (i.e., cash, for the benefit of Congress), with which the Crédit Mobilier purchased from the Union Pacific, at par, U.P. stocks and bonds, which it then sold on the open market for what they would bring. The construction contracts were written to cover the Crédit Mobilier’s loss on the securities and to return generous profits. In this manner the directors and principal stockholders of the Union Pacific, in their opposite role as directors and stockholders of the Crédit Mobilier, reaped large profits as the rails advanced.

The Big Four used an almost identical device to build the Central Pacific. Although in practice continuing to share in the management of the Central Pacific, Crocker resigned from the directorate and formed the construction firm of Charles Crocker and Company, in which Stanford, Hopkins, and Huntington were the only stockholders. The connection between the two companies was too obvious, and in 1867 the Big Four organized the Contract and Finance Company, with Crocker as president. Acting for the Central Pacific, they awarded to this company the contract for building the road from the California line to the junction with the Union Pacific, as well as for supplying all materials, equipment, rolling stock, and buildings. The chief advantage of the Contract and Finance Company over the Crédit Mobilier, as railroad historian Robert E. Riegel pointed out, “was that it was able to get its accounts into such shape that no one has ever been quite able to disentangle them.”

It all sounds so deja vu. But, unlike our $1 trillion and climbing paranoia driven military program we invested in today, these guys got us a real asset that paid dividends and they did it in 4 years instead of the 10 years planned for while lining their pockets.

Such techniques not only pushed the railroad to completion in record time, but also made its financiers extremely wealthy men. The Union Pacific cost about $63.5 million to build, of which about half represented the Government s loan. The best estimate of profits gained is about $16.5 million, although the enormity of this figure emerges only when it is understood that at no one time did invested capital exceed $10 million. Profits thus amounted, not to 27-1/2 percent, but to more than 200 percent. The Central Pacific’s figures are more difficult to arrive at, mainly because many of its books were “accidentally” destroyed by fire during the Congressional investigation of the Crédit Mobilier, The best authority, however, places the cost of construction at $36 million. The company received land grants and Government bonds valued at $38.5 million, while Stanford admitted that $54 million in Central Pacific stock transferred to the Contract and Finance Company in payment of construction contracts represented virtually net profit.

Alas, there was a price to pay, a lesson that should have been learned. It took 1929 to actually learn it.

There was an inevitable reckoning. Both railroads were burdened with inflated capitalization that meant decades of high rates and operating losses. The Crédit Mobilier investigation in 1872, moreover, brought the railroads bad publicity that strained relations with the public and the Government for many years and produced hostile legislation. Nevertheless, almost all railroad historians, while deploring the financial buccaneering of the Pacific Railroad builders, agree that only through such methods could the railroad have been built without far more liberal Government aid.

Did you catch that? We either put up the money or we let the private sector do it at a higher cost? Another lesson we seem to not want to learn (health care anyone?).
And, how did our governmental department view all this creative financing in 1969?

Their methods were those of the 1860’s, employed by most of their contemporaries in business—practices condemned as thoroughly unethical by today’s standards. Thus the truly great achievement of hese men has been tarnished by the judgment of a later generation. They were, in fact, the first victims of the revulsion against such methods that swept the country during the early 1870’s.

It’s just heart breaking that they only got 200% on their money.

See, it’s always there. ALWAYS, THERE. And, just like 1969, we hear cries that the perpetrators are victims. Just simple mistakes made. Of course, that would imply some lessons were learned. That we are repeating again today, yesterday, puts the lie to the entire argument of victum and mistake. Yet, as I said, we got something for all this personal self interest with the peoples money in the past, unlike today’s privatization of the: military, health care, schools, roads, utilities, environment. All failing, all in need of major capital investment. All representing investment made, value lost.
Munsey’s Magazine 1903 reprint:

The money invested in the railways that we had in operation in 1880 was comparatively a few millions. Today the railway systems of the United States represent an investment of three billions and a yearly earning capacity of hundreds of millions.

In today’s money, that 1903 railroad investment has a value of:

$757,220,398,593.20 using the Consumer Price Index
$604,412,640,969.90 using the GDP deflator using value of consumer bundle
$3,333,116,883,116.90 using the unskilled wage
$4,369,728,261,008.50 using the nominal GDP per capita
$16,503,666,443,504.30 using the relative share of GDP

What a shame we let ourselves be talked into the “creative destruction” of the rail system, an asset that represents $3.3 trillion dollars in unskilled wages. That’s a lot of labor just gone. It represents a relative share of GDP bigger than our actual current GDP! It makes you think about who has managed their wealth better; the US? or Europe who did not creatively destroy their original investment, but built upon it and thus saved themselves from having to generate as much income as we have had to in order to have our now killing us (war for oil?, pollution, resource waste, etc), personal transportation system. I guess that is why we don’t get to have 6 weeks vacation for all, we have to work to rebuild what we had. Can you say Rat Race?

Can we broaden the discussion now?

Real world business for the economic buffs

by divorced one like Bush

I thought for something a little different during the holiday respite and assuming there will be no major economic calamities, maybe some readers would like a real world small business experience. This post deals with the world of flower wire services and just what it costs you and what you are getting. It is also a lesson in buying local, especially now that the web allows one to do long distance local buying. It is a lesson reflecting the issue of the middle man economy that we created over the last 3 decades and earning money from brand control, market access control. It is a lesson in a lost bit of wisdom regarding labor. It is a lesson in what is happening with pricing regarding value and purchasing power. I leave it all up to you to see these lessons and maybe others. Mostly, I thought it would be fun to see what the thoughts would be if this was your business situation regarding the world of money.

A local flower shop is considered a retail business. This is true but, it is also a manufacturing business. The shop actually takes raw materials and combines them with some finished materiels using skilled labor (as in educated) and then gets it out the door. We have a sales department (the same one doing the manufacturing), shipping and receiving, maintenance, accounting…

Frankly, without the individually owned shops where all the labor is performed to produce the product, Teleflora and FTD could not exist…just like any other business that doesn’t actually take raw material and input value by inputting labor. I can exist without them, but they can not exist without me. Kind of like the banking/finance issue I raise a short time ago. I can live without a bank (as the prior owners proved), but they can not live without me. This is not a healthly economic model.

I have crunched my numbers regarding Teleflora and FTD. The following is a comparison of 2007 with 2008, January through November. I specifically separate out my wire service money as if it is it’s own business. Most shops do not account for the wire services in this manor. In fact, they are told to account for the wire service business in a way that blends all the costs and profits such that it is very difficult to break it out.

I like to check to see just what I have to work with per order received after all expenses related to processing costs and advertising. I include for processing membership dues, fees related to use of the network, quality fees, senders cut, etc. I do not include any advertising or purchase of supplies (containers, mailers).
On the income side I included the total incoming dollars plus my commission on outgoing plus rebates.

Interestingly enough, both FTD and Teleflora after cost for processing and advertising gave very similar working dollar amounts for 2008, with a 5% benefit in 2007 for Teleflora.

FTD: $32.19/order (08) 484 orders in, $33.34/order (07) 527 orders in
Tele: $32.48/order (08) 335 orders in, $35.03/order (07) 399 orders in

These are the dollar amounts retail I had on average to work with. These amounts would be equivalent to a person walking in and purchasing an item for $32 to $35 dollars.

The cost of being with FTD and Teleflora as a percent of the gross income their brands generate is:
FTD 38% (08), 34% (07)
Tele 38% (08), 31% (07)

This is the percentage of every dollar coming my way (excluding the 80% for orders sent) that has to be expensed for every order I receive and for every commission I earn.

The increase of percentage for FTD is via processing cost increases of 3.8% and advertising of 13%.
The increase of percentage for Teleflora is via processing cost increase of 23.9% and a decrease of advertising by 3.3%. I do know that we did not participate in the Thanksgiving program for Teleflora.

The gross dollar amount averages as follows:
FTD $51.92/order (08), $50.52 (07)
Tele $52.39 (08), $50.77 (07)
Thus, the customer is paying more but the middle man wire service is leaving the one who will actually produce the item less money. This model of business is the predominate model of our economy. It is about gaining revenue by controlling access to the market in both directions, not about actually increasing productivity or that fantasy model of building a better mouse trap.

The dollar amount per order to me without advertising cost is:
FTD $37.79/order (08), $37.88/order (07)
Tele $42.18/order (08), $43.44/order (07)

Thus Teleflora spent on advertising 23%/order this year and 19.4% last year. I guess they are trying to promote their brand, but it has left me with 7.3% less per order with 16% fewer orders.

FTD spent 14.8%/order this year and 12%/order last year. FTD is not promoting as much as Teleflora, but I have 3.4% less per order with 8.2% fewer orders. My costs were controlled better by FTD, but then they were already high last year.

So, first off, it is very expensive to be with these two services. I can run my shop on a factor of 0.4. This is the number used to calculate the minimum retail price such that I have all my expenses covered and a 10% profit. Interestingly enough, this is only 2 points more than it costs to be in FTD or Teleflora as of this year. Or you could say it is only 2 points more than it cost FTD and Teleflora to run their operations and all they are is the middle man.

Now, here is where it gets bad. For me to cover my expenses of just having the shop in place and functioning so that FTD and Teleflora can use me, I have the following wholesale values on average to work with:
FTD $12.88/order (08), $13.34/order (07)
Tele $12.99/order (08), $14.01/order (07)

In my shop, had the orders come directly to us, my working wholesale values would be:
FTD $20.77 (08), $20.21 (07)
Tele $20.96 (08), $20.31 (07)
In both cases, the customer having spent more this year would have actually gotten more, not less.

Some would say that running both is losing me money. Not necessarily, especially now that both are running equal as to the cost of doing business with them. Infact, for the 10 yrs I have had the shop, they have been very similar in costs. Not including sales made of their product could be considered a fault in the numbers in that there is the good will benefit of customers coming to my shop do to the brands and being that I’m accounting these as a separate business, that money should be counted. However, if neither existed, I would still be selling something to the customer and probably at a lower wholesale cost to me as to the containers. At the same time, for all their orders received for their specials, I’m still paying the cost of doing business with them. Thus, it would make the numbers larger, but the ratios would not change much because it is still my costs to make their product and get it out the door for them on top of paying their brand costs; currently 38%.
So, what are you thinking?