I’ve been watching the Democratic Convention with something approaching disbelief on the one hand, and disgust on the other. Yes, I can understand the need for a slickly-packaged, made-for-TV event to rally the party faithful and usher in the Democratic candidate. But is it really necessary to this extent? Four days of saccharine, feel-good, ultra-politically-correct posing, culminating in fireworks? Has politics in the United States become so devoid of meaning, so ridiculous, that we need to sell it like a rock concert?
Honestly speaking, I can’t reconcile the political tradition that stretches back to James Madison, Thomas Jefferson, or George Washington with this spectacle we’ve been watching the past few days. I certainly can’t reconcile it with the two great Democratic figures Barack Obama invoked in his acceptance speech – Franklin D. Roosevelt and John F. Kennedy. Neither Roosevelt nor Kennedy had to work this hard. Has the country changed, or the quality of the candidate?
The only thing I can reconcile this spectacle with is Caligula and the “bread and circuses” approach of the early Roman empire. The decadence, palpable commercialisation and lack of substance of the entire process is so blatant, that I’m surprised it’s taken seriously by so many. The drive to sell appears to have usurped any kind of self-respect, or respect for the voter’s basic intelligence. Instead, we must apparently advertise everything to everyone, as furiously as we advertise McDonald’s hamburgers or Coca Cola.
I find it entirely demeaning-not just to myself, but to the candidate-that we have to hear not only from Barack Obama, but from his wife and two children, not to mention about his mother and grandmother. None of these people are on the ticket, and from my perspective they have no bearing on my vote or my political priorities. We should respect their privacy and leave them out of it, and Barack Obama should have the strength of character to establish that some things are off limits and do not need to be marketed.
I also read with great interest that, inevitably, someone’s making money off the Convention. As I read in the International Herald Tribune (As conventions rev up, carmaker buffs its image, 28 August 2008), GM has provided 700 vehicles to the convention, some of them running on “waste beer”, or “beer that gets damaged during the production process.” Over 100 corporations, ranging from Qwest to FedEx to Hewlett Packard, “are treating the conventions as a glorified trade show.” The host committees of Minneapolis and Denver have raised over $ 112 million in private money so far.
Now, why would they be going to all that trouble? According to the IHT,
“Donations to the host committees are tax-deductible, and they come with the promise of political access that is increasingly difficult to come by under ethics rules passed by Congress last year. Corporations are barred from making direct political contributions, but they can write six and seven-figure checks and get VIP credentials to the convention floor, invitations to private events with lawmakers and state officials, and the ability to plaster their logo and set up exhibition booths at events.”
What happened to “Change we can believe in?” Has it now been substituted with “Advertising we can believe in?” Or “Fundraising we can believe in?”
Now, in the middle part of my life, I am finally beginning to understand that William Butler Yeats line that was drilled into our heads in high school:
The best lack all conviction, while
the worse are filled with a passionate intensity.
How in the world have things come to this?
Saturday, 30 August 2008
Tuesday, 26 August 2008
US Elections - Will you take the Red or Blue Pill?
So, the Democratic Convention has finally opened. Back in January 21st, I predicted that John McCain would win the Republican nomination, and Hillary Clinton the Democratic one. I also predicted that if Hillary did win the nomination, it McCain would win by a small margin, whereas if Obama won it, it would be too close to call before the election: a 50-50 tie.
A little bit later, I, like many others, decided to switch votes (from Hillary) and back Obama. There were a range of reasons for this, but primarily the fact that I didn’t trust the Clintons to keep the business of the country above their personal business, and I didn’t feel that the incremental changes promised on the Clinton campaign site would lead to anything. To my vast surprise, he won the primaries. He’s run an incredible campaign, and it keeps getting better. By contrast, the McCain campaign gets worse and worse.
And this brings us to the Convention. I’m amazed. I knew we had entered the age of “MTV Politics”, but I didn’t quite realize how prevalent this is. We have the corporate sponsors, opening acts, balloons, everything except the fireworks, and I’m sure those will be coming soon. How fortunate the Convention was scheduled after the Beijing Olympics.
Pundit after pundit gravely inform me that this is all necessary, that elections aren’t about policy platforms, but about personality and running a good campaign? Really? How sad. Here I was complimenting myself on making an informed decision on who to vote for based on their internet platforms, and now I have to change my mind, again?
Quite simply, I believe that Barack Obama is the candidate most suited to lead the US in the 21st Century. This statement comes with a number of caveats: As I’ve already stated, I doubt Barack Obama will be able to pay for many of his promises. Many other promises – such as the pledge to re-negotiate NAFTA or tap the Strategic Petroleum Reserve – are unhelpful or disingenuous. The solutions to other problems, such as tax competitiveness and reform of the financial regulatory system, are barely mentioned. But on the whole, he’s the most suitable candidate. We can re-phrase this as the “least bad choice.”
And given that the other candidate promises to bankrupt the country by continuing business as usual, this is good enough. Despite my respect for his life story, I don’t see how John McCain’s foreign policy experience or “character” are the best options. As Frank Rich wrote on August 23rd: Does a bellicose Vietnam veteran who rushed to hitch his star to the self-immolating overreaches of Ahmad Chalabi, Pervez Musharraf and Mikheil Saakashvili have the judgment to keep America safe? Not to mention the Iraq invasion, and the fact that he apparently doesn’t use email. Hello?
I must also confess that I’ve entered the post-euphoric stage of political engagement in this election. Honestly speaking, “a pox on both your houses.” The entire process is ridiculous. A game show convention. Media stupidity. The war of polls. Negative advertising. Political promises that no one can keep, or are unrelated to the root causes of the problem (and therefore do not present a real solution). Projections that over $ 1.5 billion will be spent on the Presidential election alone this year.
It’s a disgusting, unwholesome mess which serves almost no useful purpose that I can see, except to seduce a number of participants in the belief of their own importance and, perhaps, relevance. Welcome to the “desert of the real.” Do we really have a choice, or is this all a grand illusion?
A little bit later, I, like many others, decided to switch votes (from Hillary) and back Obama. There were a range of reasons for this, but primarily the fact that I didn’t trust the Clintons to keep the business of the country above their personal business, and I didn’t feel that the incremental changes promised on the Clinton campaign site would lead to anything. To my vast surprise, he won the primaries. He’s run an incredible campaign, and it keeps getting better. By contrast, the McCain campaign gets worse and worse.
And this brings us to the Convention. I’m amazed. I knew we had entered the age of “MTV Politics”, but I didn’t quite realize how prevalent this is. We have the corporate sponsors, opening acts, balloons, everything except the fireworks, and I’m sure those will be coming soon. How fortunate the Convention was scheduled after the Beijing Olympics.
Pundit after pundit gravely inform me that this is all necessary, that elections aren’t about policy platforms, but about personality and running a good campaign? Really? How sad. Here I was complimenting myself on making an informed decision on who to vote for based on their internet platforms, and now I have to change my mind, again?
Quite simply, I believe that Barack Obama is the candidate most suited to lead the US in the 21st Century. This statement comes with a number of caveats: As I’ve already stated, I doubt Barack Obama will be able to pay for many of his promises. Many other promises – such as the pledge to re-negotiate NAFTA or tap the Strategic Petroleum Reserve – are unhelpful or disingenuous. The solutions to other problems, such as tax competitiveness and reform of the financial regulatory system, are barely mentioned. But on the whole, he’s the most suitable candidate. We can re-phrase this as the “least bad choice.”
And given that the other candidate promises to bankrupt the country by continuing business as usual, this is good enough. Despite my respect for his life story, I don’t see how John McCain’s foreign policy experience or “character” are the best options. As Frank Rich wrote on August 23rd: Does a bellicose Vietnam veteran who rushed to hitch his star to the self-immolating overreaches of Ahmad Chalabi, Pervez Musharraf and Mikheil Saakashvili have the judgment to keep America safe? Not to mention the Iraq invasion, and the fact that he apparently doesn’t use email. Hello?
I must also confess that I’ve entered the post-euphoric stage of political engagement in this election. Honestly speaking, “a pox on both your houses.” The entire process is ridiculous. A game show convention. Media stupidity. The war of polls. Negative advertising. Political promises that no one can keep, or are unrelated to the root causes of the problem (and therefore do not present a real solution). Projections that over $ 1.5 billion will be spent on the Presidential election alone this year.
It’s a disgusting, unwholesome mess which serves almost no useful purpose that I can see, except to seduce a number of participants in the belief of their own importance and, perhaps, relevance. Welcome to the “desert of the real.” Do we really have a choice, or is this all a grand illusion?
Thursday, 24 July 2008
American Exceptionalism is Alive and Well in the Obama Campaign
I was amazed and thrilled to learn in the Financial Times yesterday that, according to Susan Rice, Senator Barack Obama’s national security advisor that “in return for treating Europe as a ‘full partner,” Mr. Obama would expect European countries to fulfil a bigger share of “joint responsibilities” such as counter-terrorism operations in Afghanistan.”
This is excellent news. After all, imagine the benefits Europe would have if America treated it as a “full partner”:
• Europe could invade some country along with the United States – maybe Iran – on the suspicion of having Weapons of Mass Destruction, in the absence of concrete evidence, abundant warnings of the futility of such action from its closest allies, or a UN resolution;
• Following a nice “shock and awe” campaign packaged for CNN and Fox News, Europe could then botch the occupation and reconstruction of that country, claiming that it isn’t in the nation-building business.
What else could we aspire to?
• Europe could adapt US healthcare policies, which leave at least 40 million people uncovered, and leave millions more dependent on charity;
• Europe could inflate its housing sector and use higher housing prices as an infinite ATM cash machine, until, of course, the bubble bursts;
• Europe could expand its per capita consumption of greenhouse gases following the American model, so that the country with 1/20th of the world’s population can produce 1/4th of greenhouse emissions, but then insist that there is no scientific consensus on the human causes of global warming;
• Europe’s policy-making can be given over wholesale to lobbyists and special interests.
Best of all, all Europe could become the US’s poodle, following the footsteps of a certain former British Prime Minister.
Mr. Obama, your campaign is going to have to do a lot better than that if you think that vague promises are going to restore the trans-Atlantic partnership. As I see things, the problem is not on this side of the ocean at all, but on yours.
Respectfully,
Philip Ammerman
Athens, Greece
This is excellent news. After all, imagine the benefits Europe would have if America treated it as a “full partner”:
• Europe could invade some country along with the United States – maybe Iran – on the suspicion of having Weapons of Mass Destruction, in the absence of concrete evidence, abundant warnings of the futility of such action from its closest allies, or a UN resolution;
• Following a nice “shock and awe” campaign packaged for CNN and Fox News, Europe could then botch the occupation and reconstruction of that country, claiming that it isn’t in the nation-building business.
What else could we aspire to?
• Europe could adapt US healthcare policies, which leave at least 40 million people uncovered, and leave millions more dependent on charity;
• Europe could inflate its housing sector and use higher housing prices as an infinite ATM cash machine, until, of course, the bubble bursts;
• Europe could expand its per capita consumption of greenhouse gases following the American model, so that the country with 1/20th of the world’s population can produce 1/4th of greenhouse emissions, but then insist that there is no scientific consensus on the human causes of global warming;
• Europe’s policy-making can be given over wholesale to lobbyists and special interests.
Best of all, all Europe could become the US’s poodle, following the footsteps of a certain former British Prime Minister.
Mr. Obama, your campaign is going to have to do a lot better than that if you think that vague promises are going to restore the trans-Atlantic partnership. As I see things, the problem is not on this side of the ocean at all, but on yours.
Respectfully,
Philip Ammerman
Athens, Greece
Sunday, 22 June 2008
Funding Greece’s Social Insurance System - Part I
I am constantly amazed when people – usually the elderly and the media – complain about Greek pensions or healthcare. Paradoxically, in cost-benefit terms, Greece has one of the most generous systems in the world. Consider that:
• Most Greek public pension and healthcare schemes are based on a single bi-monthly or monthly contribution that is not linked to wage levels but to years of registration in the fund;
• Under the old scheme, most taxpayers will pay in 25-30 years of contributions, before retiring as early as 50-55, when life expectancy is between 75-80 years;
• Most taxpayers will therefore take out far more than they will pay in in pensions alone, not counting healthcare costs.
Some protected classes, such as farmers and independent employees, chronically under-report their income, so the state is deprived of their financial contributions not only from pensions and healthcare, but also from income taxes, dealing a triple financial blow to the system. Other classes, such as government employees, have far more generous pensions schemes in terms of years of service and final pension payment indexes.
At my company, NAVIGATOR, we have several times attempted to calculate the actuarial costs of our healthcare and pension fund, TEBE (now under OAEE) in an effort to determine our future liabilities and what we need to do to prepare for retirement. Every time we ask TEBE how to calculate future contributions and eventual retirement levels, we receive an answer such as “TEBE doesn’t have that information – everything is changing, so we can’t give projections.”
So, we’ve tried developing our own actuarial model, which I’d like to share with you. Maybe you can spot some errors in our thinking, and help us design a better plan.
We have two partners (owners), Philip and Christine, registered in Greece under TEBE. Christine has been paying in since 1996; Philip since 2003. (Philip’s contributions in other countries are not counted in this model).
In Figure 1, I’ve charted our estimated contributions for both Philip and Christine, under the following assumptions:
a. Each partner pays in for 35 years;
b. The bi-monthly payment rises from the starting payment of EUR 250 and rises by approximately EUR 55 per year (based on contribution estimates from actual TEBE bills dating back to 1996);
c. Retirement occurs at 65 for Philip and 59 for Christine, after 35 years of contributions each.
Figure 1 shows that the cumulative contribution for both partners over 35 years is EUR 473,160, under the assumptions mentioned on annual contributions.
Let’s assume that TEBE achieves a 2% real annual interest rate by investing 100% of these contributions. This is highly unlikely, since the ratio of insured workers to retirees covered by TEBE is falling, and in fact TEBE has to use our contributions to pay for other TEBE retirees as well as hospital patients, pharmaceuticals and medical consultations.
This 2% income also assumes that TEBE has no administrative costs, but can gain maximum benefit from its tax contributions. This is obviously highly unlikely. But let’s give TEBE the benefit of the doubt and assume a 2% increase in real terms.
Figure 2 shows us that at 2% compounded annual interest, TEBE can gain EUR 664,272 by 2036 from the EUR 473,160 deposited by the two NAVIGATOR partners.
Now, let’s try to estimate pension benefits from the system. My accountant has informed me that after 35 years of payments, the two partners should be able to count on a monthly pension of EUR 1,020 in 2006 Euro (we will not adjust for inflation). According to the World Health Organisation (WHO), average life expectancy for women in Greece is 81.1 years, while for men it is 76.32 years. Let’s assume both partners live to the age of 80, and each draw down a starting pension of EUR 1,020 per month, adjusting for inflation at a rate of 3% each year.
Figure 3 shows us that the cumulative pension payments for both partners, in 2006 Euro, will be EUR 428,400, or 90.5% of own contributions, and 64.5% of accumulated capital.
So far, the TEBE pension covers pension costs costs. But what about health insurance and healthcare costs? TEBE offers cradle-to-grave healthcare insurance: nearly 100% of all pharmaceutical, surgery and medical consultation costs are free to the insured, including dependent spouses (if they are not covered by their own social insurance) and infants (up to age 18).
It’s impossible to predict such costs, but I’ve started at EUR 200 per year (total for both partners in 1996), and increased by:
- EUR 100 per year between 1996 and 2006 (2006 annual costs = EUR 1,200)
- EUR 200 per year between 2007 and 2051 (2051 annual costs = EUR 10,200)
Remember, these are for all medical costs (except teeth and eyes), including pharmaceuticals, consultations, hospitals and surgery, including family members. This represents the cost to the government for offering these services. So far, speaking empirically, the model works: between 1996 and 2007 we have spent EUR 10,700 on medical expenses, and this is without any major medical issue, i.e. it comprises only routine medical costs.
Figure 4 shows that cumulative costs to the Greek government will be EUR 268,700 for the two partners, to 2051.
Assuming these forecasts are correct, TEBE will receive a total income (compounded at 2% real interest) of EUR 664,272 from the two NAVIGATOR partners between 1996 and 2036. This assumes that it has no expenses, does not use this income to pay for the pensions and healthcare costs of other retirees or workers, and that the investment performance of 2% per year is stable. Yet between 1996 and 2051, it will pay out EUR 697,100 in benefits to the two partners. This presents an immediate lifetime deficit of EUR 32,828. This is seen in Figure 5, below.
Let’s not forget that these forecasts present an optimal case: that both partners are gainfully employed, that they pay their contributions on time, and that each partner can afford to pay an end-of-term annual TEBE payment of about EUR 12,200 each per year.
This case proves my initial claim: that the Greek social insurance system is remarkably generous, since clearly it will have to pay much more to each insured person that it is taking in. Let’s not forget that many beneficiaries of the system have retired far earlier, while others have not yet worked at all, but are claiming the pension of their deceased spouse.
This is a main reason why the OECD estimated – before the latest round of pension reforms – that Greece’s unfunded pension liabilities may be 200% of GDP, or over EUR 400 billion, in the pessimistic case. Given current demographic trends, with Greece’s population shrinking after 2012 and the ratio of workers to retirees falling below 2.0, conditions are almost certainly going to become worse.
So what to do? On the one hand, it’s clear that the government has to save more to cover future liabilities. On the other hand, it’s also clear that companies and individuals have to prepare for their retirement, using private funds to complement public funds. I’ll get into recommendations in another post. In the meantime, if anyone can spot any calculation errors, please let me know.
• Most Greek public pension and healthcare schemes are based on a single bi-monthly or monthly contribution that is not linked to wage levels but to years of registration in the fund;
• Under the old scheme, most taxpayers will pay in 25-30 years of contributions, before retiring as early as 50-55, when life expectancy is between 75-80 years;
• Most taxpayers will therefore take out far more than they will pay in in pensions alone, not counting healthcare costs.
Some protected classes, such as farmers and independent employees, chronically under-report their income, so the state is deprived of their financial contributions not only from pensions and healthcare, but also from income taxes, dealing a triple financial blow to the system. Other classes, such as government employees, have far more generous pensions schemes in terms of years of service and final pension payment indexes.
At my company, NAVIGATOR, we have several times attempted to calculate the actuarial costs of our healthcare and pension fund, TEBE (now under OAEE) in an effort to determine our future liabilities and what we need to do to prepare for retirement. Every time we ask TEBE how to calculate future contributions and eventual retirement levels, we receive an answer such as “TEBE doesn’t have that information – everything is changing, so we can’t give projections.”
So, we’ve tried developing our own actuarial model, which I’d like to share with you. Maybe you can spot some errors in our thinking, and help us design a better plan.
We have two partners (owners), Philip and Christine, registered in Greece under TEBE. Christine has been paying in since 1996; Philip since 2003. (Philip’s contributions in other countries are not counted in this model).
In Figure 1, I’ve charted our estimated contributions for both Philip and Christine, under the following assumptions:
a. Each partner pays in for 35 years;
b. The bi-monthly payment rises from the starting payment of EUR 250 and rises by approximately EUR 55 per year (based on contribution estimates from actual TEBE bills dating back to 1996);
c. Retirement occurs at 65 for Philip and 59 for Christine, after 35 years of contributions each.
Figure 1 shows that the cumulative contribution for both partners over 35 years is EUR 473,160, under the assumptions mentioned on annual contributions.
Let’s assume that TEBE achieves a 2% real annual interest rate by investing 100% of these contributions. This is highly unlikely, since the ratio of insured workers to retirees covered by TEBE is falling, and in fact TEBE has to use our contributions to pay for other TEBE retirees as well as hospital patients, pharmaceuticals and medical consultations.
This 2% income also assumes that TEBE has no administrative costs, but can gain maximum benefit from its tax contributions. This is obviously highly unlikely. But let’s give TEBE the benefit of the doubt and assume a 2% increase in real terms.
Figure 2 shows us that at 2% compounded annual interest, TEBE can gain EUR 664,272 by 2036 from the EUR 473,160 deposited by the two NAVIGATOR partners.
Now, let’s try to estimate pension benefits from the system. My accountant has informed me that after 35 years of payments, the two partners should be able to count on a monthly pension of EUR 1,020 in 2006 Euro (we will not adjust for inflation). According to the World Health Organisation (WHO), average life expectancy for women in Greece is 81.1 years, while for men it is 76.32 years. Let’s assume both partners live to the age of 80, and each draw down a starting pension of EUR 1,020 per month, adjusting for inflation at a rate of 3% each year.
Figure 3 shows us that the cumulative pension payments for both partners, in 2006 Euro, will be EUR 428,400, or 90.5% of own contributions, and 64.5% of accumulated capital.
So far, the TEBE pension covers pension costs costs. But what about health insurance and healthcare costs? TEBE offers cradle-to-grave healthcare insurance: nearly 100% of all pharmaceutical, surgery and medical consultation costs are free to the insured, including dependent spouses (if they are not covered by their own social insurance) and infants (up to age 18).
It’s impossible to predict such costs, but I’ve started at EUR 200 per year (total for both partners in 1996), and increased by:
- EUR 100 per year between 1996 and 2006 (2006 annual costs = EUR 1,200)
- EUR 200 per year between 2007 and 2051 (2051 annual costs = EUR 10,200)
Remember, these are for all medical costs (except teeth and eyes), including pharmaceuticals, consultations, hospitals and surgery, including family members. This represents the cost to the government for offering these services. So far, speaking empirically, the model works: between 1996 and 2007 we have spent EUR 10,700 on medical expenses, and this is without any major medical issue, i.e. it comprises only routine medical costs.
Figure 4 shows that cumulative costs to the Greek government will be EUR 268,700 for the two partners, to 2051.
Assuming these forecasts are correct, TEBE will receive a total income (compounded at 2% real interest) of EUR 664,272 from the two NAVIGATOR partners between 1996 and 2036. This assumes that it has no expenses, does not use this income to pay for the pensions and healthcare costs of other retirees or workers, and that the investment performance of 2% per year is stable. Yet between 1996 and 2051, it will pay out EUR 697,100 in benefits to the two partners. This presents an immediate lifetime deficit of EUR 32,828. This is seen in Figure 5, below.
Let’s not forget that these forecasts present an optimal case: that both partners are gainfully employed, that they pay their contributions on time, and that each partner can afford to pay an end-of-term annual TEBE payment of about EUR 12,200 each per year.
This case proves my initial claim: that the Greek social insurance system is remarkably generous, since clearly it will have to pay much more to each insured person that it is taking in. Let’s not forget that many beneficiaries of the system have retired far earlier, while others have not yet worked at all, but are claiming the pension of their deceased spouse.
This is a main reason why the OECD estimated – before the latest round of pension reforms – that Greece’s unfunded pension liabilities may be 200% of GDP, or over EUR 400 billion, in the pessimistic case. Given current demographic trends, with Greece’s population shrinking after 2012 and the ratio of workers to retirees falling below 2.0, conditions are almost certainly going to become worse.
So what to do? On the one hand, it’s clear that the government has to save more to cover future liabilities. On the other hand, it’s also clear that companies and individuals have to prepare for their retirement, using private funds to complement public funds. I’ll get into recommendations in another post. In the meantime, if anyone can spot any calculation errors, please let me know.
"Yes we can" or "No, we can't afford it?"
A number of articles has come out in recent weeks challenging the financial plans of the Democratic and Republican candidates for President. I'm glad to see this is finally getting some mainstream attention, because much of their platform appears divorced from the reality of the longer-term, structural problems affecting the economy.
Let's looks at some of these articles:
Paul Krugman's Op-Ed piece in the June 16th New York Times Fiscal Poison Pill looks at the Tax Policy Center's analysis of the two candidate's tax platform, and comes to the conclusion that $ 700 billion in added revenue over the next 10 years won't be enough to introduce universal healthcare.
The Economist ran an article entitled The battle of the pockets is joined in the June 14th edition quoting the same report. It offers a starker conclusion on the proposals: "The figures are debatable, but there is one clear difference. Mr. Obama's plan would redistribute cash to lower- and middle-income Americans, while Mr. McCain's would skew benefits towards the wealthy. That's something voters may find it easy to take a view on."
Lori Montgomery wrote a cogent article in the Washintgon Post entitled Big Promises Bump Into Budget Realities which offered a pointed reminder that even if the projections are correct, the rising deficit and total public debt will make major reforms difficult to implement. As she writes: "Good luck. Because, back in Washington, tax collections are slowing, the budget deficit is rising, and the national debt is approaching $10 trillion. Whoever wins the White House this fall, fiscal experts say, is likely to have a tough time enacting expensive new initiatives, be they tax cuts or health care reform."
All three articles are excellent and deserve attention. Yet I can't help thinking that we continue to look at very short term effects. We know that in the global market, the United States is facing declining manufacturing and service sector competitiveness, at least in relative terms. Why is offshoring taking place? Because it's cheaper and more effective to run insurance processing in Bangalore, India, or manufacture clothes in Zheijiang, China. That's also why the United States has a massive deficit in international trade in merchandise. Although the declining dollar will help manufactured product exports in the short term, this is a cyclical factor which betrays the longer-term decline in the American economy and public finance, and is not a welcome event.
We know that in terms of educational standards and attainment, the situation continues to be challenging, to say the least. The 2006 PISA study on educational performance shows that the United States scores significantly below other OECD countries in science knowledge at the secondary level. In higher education, the continually rising costs of a university degree are a major barrier to educational achievement. The tremendous regional variation in educational achievement and the method of financing public education at the state level (which relies extensively on property taxes in many areas) is a generator of inequality: rich neighbourhoods have rich schools; poor neighbourhoods have poor schools.
We know that the US is a very litigious society. The legal costs of doing business for companies and individual entrepreneurs continues to rise. One contact, a fund manager for a German investment firm, told me that he would not consider any investment in the United States below $ 10 million in value, because the legal compliance and due diligence costs were too high. Legal costs in certain sectors, such as healthcare, are a major driver not only of overall costs, but in corporate policy on providing treatment to certain categories of patients.
And finally, we know that the US may look like a single market, but the patchwork of state taxes, payroll taxes and federal taxes, as well as hundreds if not thousands of tax loopholes and special provisions, complicate the situation still further.
Yet if we look at the policy platforms of both candidates, we see a range of hollow promises which treat the symptoms, not the root causes of these problems:
a. "Tax reform" is usually code for tax breaks to supporters, rather than an objective look at international tax competitiveness and, more relevant, how tax income is used, and whether it is efficient or not. Right now, it is clearly not efficient, judging from the huge industry of accountants and offshore companies that exists to help Americans avoid taxes, sorry, I meant to say "file tax returns."
b. To reform the education system, we need a commitment on an objective measure for school funding (usually per student enrolled) as well as operating costs per location (a school in Manhattan costs more than a school in Duluth), and a system of getting that funding to the school. We need to remove property taxes from the equation, and ensure that in public education, every community receives the funding needed. The only way to do this is in the short term is to expand the role of Federal funding for primary, secondary and tertiary education. At present, the Federal allocation for education is $ 68.6 billion per year, which is only a fraction of state spending. Over the long term, the public funding system will need a paradigm change rather than short-term tinkering. Such a system change is possible over a 4-year administration (which is needed simply to build consensus and credibility), but then will require 10-15 years to implement. This must be a nonpartisan priority, because it is literally the future of the country. The Department of Education has made some good policy choices in this area, but funding for education must be increased, at least for the less well-resourced schools and universities - if results are to be seen.
c. Some type of legal liability cap needs to be introduced, although I am not at all aware of what this should be. Clearly, this conflicts with a range of Constitutional rights. On the other hand, the situation today is a parody of what a legal system should look like. Proposals on legal reform often hinge around (that is, founder) the ability of lawyers to contribute to political candidates, which shows you how broken the system has become.
d. In terms of manufacturing and general economic competitiveness, we have a big problems. America signed on to NAFTA and GATT (the precursor to the WTO) thinking that it's economic advantage would last into the future. Since then, competition has increased to unimaginable levels. South Korea, Japan, China - even Mexico and Canada - are now better manufacturers than the United States in key areas. In the last 10 years, US manufacturing has made quantum shifts in effectiveness: using lean manufacturing, automation and ERP systems, productivity is up and its share of GDP has remained important. However, it is losing competitiveness in two areas:
- Low value merchandise products, particularly those where high labour customisation is needed. The main factors here are vast manufacturing capacities established in China, Taiwan, and other countries.
- Higher-value products, where competitors are mastering the production value chain, and establishing dominance in key areas such as semi-conductors, consumer electronics, appliances and the automotive sector.
The situation is mixed, because part of the US merchandise deficit is attributed to US companies who are manufacturing offshore, and exporting to the United States. On the other hand, if we look at what's going on in China, South Korea, Taiwan and other powerhouses, it's clear that this is turning into a very one-sided race. The trade picture is complicated by the fact that at present, the US is leading in terms of complex, high value products, such as Boeing jets or General Dynamics vehicles. How long can this last?
We urgently need a long-term manufacturing scenario, a strategy/policy and real resources allocated to competitiveness. I don't mean necessarily mean subsidies, which I think in some cases would only worsen the situation. But we need to provide a competitive framework in the United States which makes it more profitable to produce (and employ) at home rather than export jobs, capacity and competencies. This is obviously a very complex area, and I don't have all the solutions ready to pull out of a hat.
Yet neither candidate mentions manufacturing competitiveness. There's a lot on trade competitiveness, but it's all about symptoms, not addressing the causes of the decline.
As I've said before, we should not be surprised if Barack Obama is not able to deliver what he has promised. This doesn't mean we shouldn't vote for him, but we do need to be aware of the painful economic reality that transcends political dogma and will be with us whoever wins the November 4th election.
Let's looks at some of these articles:
Paul Krugman's Op-Ed piece in the June 16th New York Times Fiscal Poison Pill looks at the Tax Policy Center's analysis of the two candidate's tax platform, and comes to the conclusion that $ 700 billion in added revenue over the next 10 years won't be enough to introduce universal healthcare.
The Economist ran an article entitled The battle of the pockets is joined in the June 14th edition quoting the same report. It offers a starker conclusion on the proposals: "The figures are debatable, but there is one clear difference. Mr. Obama's plan would redistribute cash to lower- and middle-income Americans, while Mr. McCain's would skew benefits towards the wealthy. That's something voters may find it easy to take a view on."
Lori Montgomery wrote a cogent article in the Washintgon Post entitled Big Promises Bump Into Budget Realities which offered a pointed reminder that even if the projections are correct, the rising deficit and total public debt will make major reforms difficult to implement. As she writes: "Good luck. Because, back in Washington, tax collections are slowing, the budget deficit is rising, and the national debt is approaching $10 trillion. Whoever wins the White House this fall, fiscal experts say, is likely to have a tough time enacting expensive new initiatives, be they tax cuts or health care reform."
All three articles are excellent and deserve attention. Yet I can't help thinking that we continue to look at very short term effects. We know that in the global market, the United States is facing declining manufacturing and service sector competitiveness, at least in relative terms. Why is offshoring taking place? Because it's cheaper and more effective to run insurance processing in Bangalore, India, or manufacture clothes in Zheijiang, China. That's also why the United States has a massive deficit in international trade in merchandise. Although the declining dollar will help manufactured product exports in the short term, this is a cyclical factor which betrays the longer-term decline in the American economy and public finance, and is not a welcome event.
We know that in terms of educational standards and attainment, the situation continues to be challenging, to say the least. The 2006 PISA study on educational performance shows that the United States scores significantly below other OECD countries in science knowledge at the secondary level. In higher education, the continually rising costs of a university degree are a major barrier to educational achievement. The tremendous regional variation in educational achievement and the method of financing public education at the state level (which relies extensively on property taxes in many areas) is a generator of inequality: rich neighbourhoods have rich schools; poor neighbourhoods have poor schools.
We know that the US is a very litigious society. The legal costs of doing business for companies and individual entrepreneurs continues to rise. One contact, a fund manager for a German investment firm, told me that he would not consider any investment in the United States below $ 10 million in value, because the legal compliance and due diligence costs were too high. Legal costs in certain sectors, such as healthcare, are a major driver not only of overall costs, but in corporate policy on providing treatment to certain categories of patients.
And finally, we know that the US may look like a single market, but the patchwork of state taxes, payroll taxes and federal taxes, as well as hundreds if not thousands of tax loopholes and special provisions, complicate the situation still further.
Yet if we look at the policy platforms of both candidates, we see a range of hollow promises which treat the symptoms, not the root causes of these problems:
a. "Tax reform" is usually code for tax breaks to supporters, rather than an objective look at international tax competitiveness and, more relevant, how tax income is used, and whether it is efficient or not. Right now, it is clearly not efficient, judging from the huge industry of accountants and offshore companies that exists to help Americans avoid taxes, sorry, I meant to say "file tax returns."
b. To reform the education system, we need a commitment on an objective measure for school funding (usually per student enrolled) as well as operating costs per location (a school in Manhattan costs more than a school in Duluth), and a system of getting that funding to the school. We need to remove property taxes from the equation, and ensure that in public education, every community receives the funding needed. The only way to do this is in the short term is to expand the role of Federal funding for primary, secondary and tertiary education. At present, the Federal allocation for education is $ 68.6 billion per year, which is only a fraction of state spending. Over the long term, the public funding system will need a paradigm change rather than short-term tinkering. Such a system change is possible over a 4-year administration (which is needed simply to build consensus and credibility), but then will require 10-15 years to implement. This must be a nonpartisan priority, because it is literally the future of the country. The Department of Education has made some good policy choices in this area, but funding for education must be increased, at least for the less well-resourced schools and universities - if results are to be seen.
c. Some type of legal liability cap needs to be introduced, although I am not at all aware of what this should be. Clearly, this conflicts with a range of Constitutional rights. On the other hand, the situation today is a parody of what a legal system should look like. Proposals on legal reform often hinge around (that is, founder) the ability of lawyers to contribute to political candidates, which shows you how broken the system has become.
d. In terms of manufacturing and general economic competitiveness, we have a big problems. America signed on to NAFTA and GATT (the precursor to the WTO) thinking that it's economic advantage would last into the future. Since then, competition has increased to unimaginable levels. South Korea, Japan, China - even Mexico and Canada - are now better manufacturers than the United States in key areas. In the last 10 years, US manufacturing has made quantum shifts in effectiveness: using lean manufacturing, automation and ERP systems, productivity is up and its share of GDP has remained important. However, it is losing competitiveness in two areas:
- Low value merchandise products, particularly those where high labour customisation is needed. The main factors here are vast manufacturing capacities established in China, Taiwan, and other countries.
- Higher-value products, where competitors are mastering the production value chain, and establishing dominance in key areas such as semi-conductors, consumer electronics, appliances and the automotive sector.
The situation is mixed, because part of the US merchandise deficit is attributed to US companies who are manufacturing offshore, and exporting to the United States. On the other hand, if we look at what's going on in China, South Korea, Taiwan and other powerhouses, it's clear that this is turning into a very one-sided race. The trade picture is complicated by the fact that at present, the US is leading in terms of complex, high value products, such as Boeing jets or General Dynamics vehicles. How long can this last?
We urgently need a long-term manufacturing scenario, a strategy/policy and real resources allocated to competitiveness. I don't mean necessarily mean subsidies, which I think in some cases would only worsen the situation. But we need to provide a competitive framework in the United States which makes it more profitable to produce (and employ) at home rather than export jobs, capacity and competencies. This is obviously a very complex area, and I don't have all the solutions ready to pull out of a hat.
Yet neither candidate mentions manufacturing competitiveness. There's a lot on trade competitiveness, but it's all about symptoms, not addressing the causes of the decline.
As I've said before, we should not be surprised if Barack Obama is not able to deliver what he has promised. This doesn't mean we shouldn't vote for him, but we do need to be aware of the painful economic reality that transcends political dogma and will be with us whoever wins the November 4th election.
Friday, 18 April 2008
Pathetic and Despicable
These are the only words I can find to describe how Hillary Clinton is waging her campaign. If all she can do to dominate the news cycle is to twist Barack Obama’s words entirely out of context, then she is simply not worthy to be President of the United States.
This is the contested paragraph of Barack Obama’s speech at a fundraiser in San Fransisco, which I copy from the original Huffington Post. It’s the entry that touched this all off:
"But the truth is, is that, our challenge is to get people persuaded that we can make progress when there's not evidence of that in their daily lives. You go into some of these small towns in Pennsylvania, and like a lot of small towns in the Midwest, the jobs have been gone now for 25 years and nothing's replaced them. And they fell through the Clinton administration, and the Bush administration, and each successive administration has said that somehow these communities are gonna regenerate and they have not. So it's not surprising then that they get bitter, they cling to guns or religion or antipathy to people who aren't like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations."
I find nothing reprehensible about these remarks. He refers to some small towns in Pennsylvania and the Midwest, presumably affected by industrial restructuring and prevailing socio-economic and demographic trends. To claim that he is referring to all religious people or all gun-owners is absurd–a logical fallacy. Yet that is exactly what Hillary Clinton and John McCain are trumpeting.
If a Democrat-or any other commentator-were to use a similar logical causality to explain the political rise of Ross Perot or Pat Buchanan in the late 1980s, this would be considered sharp insight into American society and economy at the time. Yet when an African-American Presidential candidate who is leading the Democratic primary race embarks on a similar logical construct–and even more mildly–he is suddenly branded elitist, arrogant and out of touch with the American people. Remarkable, given that his background hardly bears resembles that of most elitists I know.
Had I made these comments, I would stand by them. To apologise in this case is to accept someone else’s false interpretation, someone in your own party employing nearly every under-handed, supercilious and hypocritical trick in the book to beat you in a crucial election.
As if more evidence were needed, it shows that Hillary Clinton will stop at nothing to win. Her tactics are despicable; her assurances that this is all about “electability” a hypocritical distortion. Somehow she wants us to believe that by sinking to this level she is qualified to beat John McCain in November.
Since when did we decide to become as shallow and dishonest as our opponents? What’s next, a “Willie Horton” campaign ad? A Barack Obama “love child”?
It shows that Hillary is fighting yesterday’s battles. Deeply scarred by her experience with the failure of her 1993 healthcare task force, her husband’s impeachment and the 2004 election, she feels no compunction about rolling out all the negative tactics she can employ against a member of her own party.
Barack Obama offers a vision for the future. The details are in many cases lacking, and that vision will take years to implement and is dependent on bipartisan good will and a macroeconomic recovery. Hillary Clinton offers an abundance of micro-management and focussed policy details, yet these too are incomplete and do not address many of the underlying problems, only their symptoms.
Yet if I were to make my decision based on “character,” Hillary Clinton has once again shown that she has fails this test. She is doing everything she can to win, even if it means destroying the Democratic Party and the hopes and aspirations of the millions of voters who came out to support Barack Obama.
This is not the way I expect a Democratic candidate to campaign against a member of our own party. Even in this hubristic rush for the Presidency, there are limits to the compromises possible with decency and honour. Hillary Clinton has shown that there are no limits to the compromises she would make. The vote next week in Pennsylvania will show how little this profits her.
This is the contested paragraph of Barack Obama’s speech at a fundraiser in San Fransisco, which I copy from the original Huffington Post. It’s the entry that touched this all off:
"But the truth is, is that, our challenge is to get people persuaded that we can make progress when there's not evidence of that in their daily lives. You go into some of these small towns in Pennsylvania, and like a lot of small towns in the Midwest, the jobs have been gone now for 25 years and nothing's replaced them. And they fell through the Clinton administration, and the Bush administration, and each successive administration has said that somehow these communities are gonna regenerate and they have not. So it's not surprising then that they get bitter, they cling to guns or religion or antipathy to people who aren't like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations."
I find nothing reprehensible about these remarks. He refers to some small towns in Pennsylvania and the Midwest, presumably affected by industrial restructuring and prevailing socio-economic and demographic trends. To claim that he is referring to all religious people or all gun-owners is absurd–a logical fallacy. Yet that is exactly what Hillary Clinton and John McCain are trumpeting.
If a Democrat-or any other commentator-were to use a similar logical causality to explain the political rise of Ross Perot or Pat Buchanan in the late 1980s, this would be considered sharp insight into American society and economy at the time. Yet when an African-American Presidential candidate who is leading the Democratic primary race embarks on a similar logical construct–and even more mildly–he is suddenly branded elitist, arrogant and out of touch with the American people. Remarkable, given that his background hardly bears resembles that of most elitists I know.
Had I made these comments, I would stand by them. To apologise in this case is to accept someone else’s false interpretation, someone in your own party employing nearly every under-handed, supercilious and hypocritical trick in the book to beat you in a crucial election.
As if more evidence were needed, it shows that Hillary Clinton will stop at nothing to win. Her tactics are despicable; her assurances that this is all about “electability” a hypocritical distortion. Somehow she wants us to believe that by sinking to this level she is qualified to beat John McCain in November.
Since when did we decide to become as shallow and dishonest as our opponents? What’s next, a “Willie Horton” campaign ad? A Barack Obama “love child”?
It shows that Hillary is fighting yesterday’s battles. Deeply scarred by her experience with the failure of her 1993 healthcare task force, her husband’s impeachment and the 2004 election, she feels no compunction about rolling out all the negative tactics she can employ against a member of her own party.
Barack Obama offers a vision for the future. The details are in many cases lacking, and that vision will take years to implement and is dependent on bipartisan good will and a macroeconomic recovery. Hillary Clinton offers an abundance of micro-management and focussed policy details, yet these too are incomplete and do not address many of the underlying problems, only their symptoms.
Yet if I were to make my decision based on “character,” Hillary Clinton has once again shown that she has fails this test. She is doing everything she can to win, even if it means destroying the Democratic Party and the hopes and aspirations of the millions of voters who came out to support Barack Obama.
This is not the way I expect a Democratic candidate to campaign against a member of our own party. Even in this hubristic rush for the Presidency, there are limits to the compromises possible with decency and honour. Hillary Clinton has shown that there are no limits to the compromises she would make. The vote next week in Pennsylvania will show how little this profits her.
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