Author: mike

Jerry Brown, the former California Governor and current California Governor hopeful, was on site at Google yesterday.  I attended the 1 hour talk where Eric Schmidt played a soft Charlie Rose.

At the end, I asked a softball question myself.  And I got a politician’s answer.

I asked, “California taxes – are they too high, too low, or about right?”  Brown initially pointed out that during his administration as Governor of California, there were no new taxes (1975-1982).  Then he went on to talk for quite a while, and basically said he didn’t think we should raise taxes, but he didn’t think that state financed programs should pay the price of the $11T of wealth lost due to the Wall Street debacle.  (He implied that the state’s budget problems are related to that, which is at least partially true)

Sadly, Gov Brown wasn’t completely truthful with me.  A quick search through Google reveals an article dated Sept 18, 1981 which proves that Brown did at least increase one tax.  I don’t really mind so much that he had a tax increase in 1981.  But he was quite emphatic in his reply to my question that he had never raised taxes as Governor.  Ok – he embellished.

So, to summarize his politician’s answer:   he doesn’t want to raise taxes, and he doesn’t want to cut programs.  He didn’t actually answer my question, and in his reply he didn’t stick to just the truth.  It wasn’t a horrible lie, and could even be chalked up to a minor mistake.  But isn’t this what we expect from politicians these days?  Nobody really expects him to just be straightforward anymore.

As for me, I liked Brown’s overall talk.  I won’t vote for him, though.  We need serious change in California, and the existing bureaucrats have proven they can’t do it.  I don’t know if CEOs and business people can do it (obviously actors can’t do it), but Brown loses the vote because he’s been a career politician too long.  Is that age discrimination on my part?  Ha!  Call the EEOC!

Obama likes to say that new spending should be “deficit neutral”.  That sounds like a great idea!  After all, nobody wants to be financially irresponsible, right? The idea that we account for new spending is a good one, and it is better than not accounting for new spending.  But, it’s yet another politician’s con job.

Let’s use a simpler example.  Let’s say you have a monthly income of $1,000.  And let’s say you’re carrying a debt of $100,000 for your mortgage, for which you pay $537 per month.  You also tend to spend about $500 on your other living expenses, so all in all you’re losing money each month.  Since a tax-hike is like a giving the government a raise, let’s say that one day, you get a raise of $200 per month.  You could decide to save that money.  Or, you could decide to go buy a car (healthcare) for $20,000 and a $200 per month payment.  All-in-all, you convince yourself, you are “deficit neutral”.

Here is how it looks:

As you can see, although we decided buy a car, we are still “deficit neutral”.   Our income has gone up, but our incremental losses each month have not.

But what happens 5 years down the line?

After time passes, we now see that “deficit neutral” does not mean we didn’t create a more dire financial picture.  Sure, we are now the proud owners of a 5 year old car.  But to do so, we’ve amassed 17% more debt, and have nothing in the bank.  Ironically, of the 3 financial outcomes, you can easily argue that we would be better off to never even get the raise than to buy the car.  Can you imagine saying to your boss, “Please don’t give me a raise – it will send me into more debt!”?

Finally, how often do you get a large raise?  Can the government give itself a raise any time it wants to?  The answer is – not very often.  Sure, the government can give itself a raise by way of more taxes, each time we do so, we decrease economic growth.  As such, the government needs to choose very wisely when it does tax and for what purpose.  By having increased our taxes to pay for healthcare, Obama will need to raise even more taxes to pay off our debt.

So now the question is – what is Obama’s plan to get to financial responsibility?  He seems to think “deficit neutral” is responsible.  But, as you can see, that’s not the whole picture.   I know this is obvious to most readers of this blog – sorry for being pedantic.

** The numbers above are all based on values I picked for interest, periods, etc.  I chose reasonable numbers – 5% interest, a little more for the car, only 10% for credit card debt, etc.  This was just the first set of numbers I used.  Regardless of the numbers you use, realistic-ish scenarios yield similar results.

Pretty much everyone wants a better healthcare system.  The desire for change stems from two basic concerns:

1. We want every American to be have insurance (e.g. you shouldn’t have to pay for your own healthcare if you can’t afford it)
2. We think the cost of healthcare is too high

The major proponents of change would also have you believe that America has a horrible healthcare system because we have higher incidence of newborn fatalities and a lower life expectancy than other nations.  They say these are signals of a failed healthcare system.

But are they?  I’ve argued before, and I’ll argue again, that the cause of poor health in America has nothing to do with our healthcare system.  When you need critical care, there is no place better than America to get it.  America also is the runaway leader in healthcare research and generates more Nobel prize winners in Medicine than any other country.

So why do we die early?  Jamie Oliver, winner of this year’s TED Prize tells you why.  And the cost of the fix is cheap, and has nothing to do with our healthcare system.  The problem is us.  Changing insurance won’t make us live longer.  He’s a great speaker, I hope you’ll watch.

Since the Supreme Court Ruling on corporate limits last month, a lot of people have been discussing the role of lobbyists, special interests, and those that try to buy undue influence.  I’m ecstatic that this is gaining attention, because it doesn’t matter if you are liberal or conservative, I have yet to meet anyone that isn’t against this growing source of corruption in America.

Obama seems to think the ruling was wrong, and attacked the Supreme Court in his State of the Union address.  Lawrence Lessig wrote a nice article about our general lack of trust in congress, spurred by lobbyists and corruption.  He recommends the Fair Elections Now Act, which is good, but won’t prevent the corruption we have today.

Lessig follows the obvious answer – which is more spending caps and more legislation.  And while these are good ideas, they won’t work, because they don’t address real problem:

The government distributes too much money.

Why has the amount of money spent on lobbyists more than doubled in the last 10 years?  Because our government is expanding.  When we give money to the Federal Government to spend, special interests line up to assist with the distribution of those dollars.  If we just don’t let the Feds get the money in the first place, the lobbyists will disappear.   But as long as the money is there, the lobbyists will remain.

On the surface, it seems like contribution caps should be enough.  But the reality is that there are just too many loopholes.  Although the limits are allegedly $5,000 per candidate per year, it doesn’t take much browsing through OpenSecrets.org to discover that individuals, PACs and corporations are all able to openly donate much more (example1, example2, example3).  Unfortunately, legislation to close these doors is difficult at best, and impossible due to freedom of speech at worst.  There are so many back-door mechanisms to donate money (e.g. “hey, I’ll buy you a ticket to come talk here in San Francisco”, or “I can run a TV show about you”, or “I can write an article for you in my paper about how bad your opponent is”), that it just isn’t realistic to expect we can possibly close them all.

Special interest groups have figured this out.  They’re not just buying a few candidates, they’re now buying all of them.  Consider AT&T, for example, who donated $4.5M to candidates last year.  If you believed that the $5,000 per candidate contribution limit applied, that would mean they would donate to ~900 candidates.  In actuality, they donated to ~430.  And since there are only ~500 Congressmen,  that means they donated to most of them!  And AT&T is not alone.  The National Association of Realtors, and practically every union are doing exactly the same thing:  buying “access” to more than half of Congress.

Once we realize that centralizing our spending through the Federal Government is the problem, two simple solutions emerge:

1. We need to give the government less money to spend.
2. When we do give money to the government, we should federate it through states and local agencies as much as possible.  Don’t leave decision making power in Washington, where a small number of politicians can be influenced.

This realization also highlights why Obama’s entire strategy leads to more corruption, not less. Obama spent over $700B last year in “stimulus”.  Did he really believe that he could distribute such a massive amount of spending without calling out the lobbyists in droves?  Does it really surprise him that when he announced that he wanted a federal takeover of federal student loans that Sallie Mae would kick up it’s lobbying to the tune of $8M?

The unfairness and corruption is caused by the lobbyists and campaign contributions, that is true.  But they are not the root cause, and they are impossible to stop without violating our own liberties (hence the Supreme Court ruling).  When all money flows through a small funnel in Washington, corruption increases.  Take the money back, federate our spending across the states and local governments, reduce spending and reduce taxation, and the corruption will decrease.

I am so sick of hearing claims like, “this bill will save $200B by 2020”.

What does that mean?  It usually means that in order to trump up the savings benefit, the politician multiplied the annual savings by 10.  Or they did inflation adjustment, or added debt interest, or other complex additives to make the savings look bigger than it is.  At the end of the day, it is a bogus number.

I just received a letter From Senator Diane Feinstein claiming a bill will save “$176 billion from 2014 to 2023”.  What that really means is an annual savings of roughly ~$17.6B.  That’s nice, but when put in perspective to the $3.6T spending package being proposed for 2011, it’s a mere half of one percent of spending.  And she calls this reform.

It’s not just the democrats doing this – all of them seem to use this kind of lying mathematics in order to fool their constituents.  It’s dishonest at worst and deceptive at best.