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Monday, January 24, 2011

SOTU 2011: Ask Not

The power of a powerfully crafted message is really quite astounding. Fifty years ago, a man stood in the bright sunshine of a bitterly cold January day after taking the oath of office as President of the United States and spoke about the competing interests of two nuclear powers, pledged continued friendship to our cultural and spiritual allies, pledged assistance to countries making their first movements towards democracy and the unique challenges of a society coming to grips with the role it assumed while preserving freedoms for millions in the world while also correcting deficiencies in those freedoms for millions of its own citizens. In his thoughts on those uniquely American challenges, the new President tossed in a little rhetorical flourish towards the end of the address:

And so, my fellow Americans: ask not what your country can do for you--ask what you can do for your country.

Fast forward fifty years since that address and those few words have easily become among the most recognized words in our entire language, much less the American political dialogue.

Fast forward fifty years since those words were first uttered and they now could form the basis for a State of the Union address.

No Money

If a single word had to be chosen to represent the current economy, fumes might be the best choice. Federal, state and local governments not only have little or no reserve resources for "rainy day" surprises (did you know it SNOWS in New York City in winter?), many now have zero resources for routine minimal operations. If the worst of the financial crisis was behind us, toughing it out for 5-10 years might be painful but do-able. That's not likley the case, however.

The financial picture for the individual states and US Federal Government is a microcosm of the worldwide financial system. Like the US Federal Government acting as implicit backstop to possible state defaults in California, Illinois or New York, Germany is filing a similar role in protecting a precarious balance within the European Union states. Those precarious positions are the financial equivalent of an irresistable force encountering an immovable object -- and just about as predictable. The balance depends upon economies inflating local currencies to sop up OLD bad debt while simultaneously avoiding spooking new lenders from being concerned about the shrinking value of future units of currency used to pay back additional borrowing. The exact number of times this has occured in the past according to plan when trillions were involved isn't known but thought to be very close to zero.

No Willingness To Pay

The fiscal crisis hitting many states raises another fundamental problem facing the country. Based on most press accounts, there seems to be ZERO willingness on the part of any tax payers to pay more for existing services, much less additional taxes for additional services that might be required or advisable (little things like bridge repairs, staffing at financial regulatory institutions to detect future mass frauds, etc.). As an example, the State of Illinois recently raised tax rates SIXTY SIX PERCENT in an attempt to close their budget gap. Sounds draconian -- if not downright fiscally suicidal according to some -- until you realize that sixty six percent added on to a really small number is still a pretty small number. The state income tax rates went from 3% to %5 percent for individuals and from 4.8% to 7% for businesses.

Before jumping on a tax increase as a "job killer", stop and do some math. Assume the average small business pulls in about $1 million in revenue and the owner nets about $250,000. The extra 2% in income tax costs about $5000 which might be enough to hire a fry cook in a fast food joint for four months. Not exactly the kind of hit that's going to make or break a decision to buy a new $50,000 CNC machine or hire a full time worker with benefits.

Of course, the stink over a sixty six percent tax increase begs a more important question. Exactly WHAT was Illinois thinking by only having a 3% tax rate in the first place? Did Illinois find a solution to prevent roads from being destroyed by salt and snow plows? Did Illinois find a solution for primary, secondary and post-secondary education that was twice as cost effective as the rest of the country? Here's a summary of the state income tax rates for Illinois' neighbors (#1):

Iowa -- 6.48%
Missouri -- 6%
Indiana -- 3.4%
Kentucky -- 6%
Wisconsin - 7.75%
Michigan -- 4.35% ***

*** While not technically bordering Illinois, Michigan is another Northern industrial state that has suffered far WORSE economic decline than Illinois yet has a debt/GDP ratio no worse than Illinois and lower debt per capita.

Another interesting way to understand the scope of the debt crisis facing Americans is to reduce the national debt down to taxpayers. America's official 2010 population is 308 million. In that 308 million, there are approximately 114,825,000 households and roughly half of them pay no taxes. The $14 trillion in total debt amounts to $45,454 per American, or $121,924 per household or $243,848 per tax-paying household. Of course, no one's expecting us to pay back $14 trillion in one year. If taxes were restructured to reduce the debt (not just the deficit but the DEBT) to zero over 20 years, the average tax payer would have to eat $12,192 in extra principle payments yearly. If no one's willing to pay those kinds of taxes, where is the willingness to cut spending? Not "fraud and abuse" or "foreign aid" but REAL spending?

Here is one final example of tax hypocrisy for all Americans. For those of you opposed to a "government takeover" of healthcare, consider these questions:

* Did you ask your Congressperson to oppose the expanded Medicare drug program enacted in 2003?
* Are you opposed to Medicaid?
* Have you actually worked with a lawyer to "bankrupt" an elderly parent by transferring their assets in advance to family members so by the time they needed nursing home or hospice care, they were officially indigent and eligible for state aid?

Where's the rugged American sense of individualism and personal responsibility in THAT?

No Brains

There are many examples that could fall under this category but we'll keep it limited to military spending and healthcare, probably the two biggest expense categories jeopardizing the future of the country.

In the military area, perhaps the single statistic that best summarizes the insanity of our strategy or lack thereof is this:

* in 2010, America lost more troops to suicides (468 for active duty and reservists) than to combat (462)

That's the second year in a row this has been the case.

That really means the astronomically expensive wars being fought may not be "hot" in the traditional sense but are certainly "hot" in the psychological stress sense. More importantly, they are doing NOTHING to provide worldwide stability or a material reduction in risk from terrorism. Terrorist attacks have continued unabated worldwide and the thwarting of terrorist plots within the United States have had nothing to do with information gleaned from combat operations in Iraq and Afghanistan. Despite this mismatch between tools and results, we continue to spend $533 billion dollars yearly on "defense" -- twenty three percent of the entire federal budget. And that figure does not include additional billions in "national security" spending not even publicly budgeted. (#2) Despite all that spending on "national security", we continue to see cases where suspicious activity is reported directly to American agencies -- sometimes from family members of the would-be terrorists -- that disappears into the new Department of Homeland Security bureaucracy that is surpassing the dysfunction of the agencies it replaced and consolidated.

In healthcare, special interests continue to thwart any effort to change a status quo which is bankrupting the public and private sector alike through the mis-application of a delivery and payment system that provides inefficient / inappropriate care yet creates zero incentive for any of the participants (patients, doctors, payers) to alter the system.

Atul Gawande published a story in the January 24, 2011 edition of The New Yorker entitled The Hot Spotters addressing flaws in primary care delivery that are producing HUGE costs in emergency care. (#3) The story describes statistical analysis performed by a physician operating in Camden, New Jersey who found that one percent of patients in Camden area medical facilities were associated with THIRTY PERCENT of total costs. These one percent patients were not all afflicted with rare diseases only treatable by astronomically expensive cutting edge prescriptions. Instead, the vast majority had relatively straightforward conditions that remained untreated as patients lacking primary care resorted to emergency care from facilities solely designed for trauma care.

In one case, a woman with MIGRAINE HEADACHES lacking regular healthcare wound up making repeated visits to various ERs and incurring multiple CAT scans and MRIs which -- surprise -- turned up nothing actionable. In essence, the patient got no primary care, escalated to ERs when the pain became unbearable, saw a doctor aimed at ensuring she wouldn't DIE from something like an anyurism or stroke, then after finding no risks of imminent life-threatening issues, released her without ever solving the problem and thus without ensuring she wouldn't come back generating the same cycle of wasted tests. In other cases, patients requiring ongoing prescriptions after major illnesses failed to renew subscriptions or failed to take the medicine -- often because they were old and confused and simply needed someone to follow up with them.

OK America. You're not sold on "government healthcare." You think the current healthcare system is bankrupting American businesses and stifling job growth. What if there was a way to fund the cost of providing primary care physician services and in-home nursing follow-ups that could produce thirty-fold savings? What if -- horrors -- it involved a government program to pay for it? OK, you don't like a "government solution" so what if -- horrors -- it instead involved changing the regulation of insurance companies to lessen the fixation on payment and paperwork and allowed more physicians' time to be devoted to actual delivery of care?

No Choice

At this point in 2011, Kennedy's famous line about "ask not what your country can do for you, ask what you can do for your country" seems quaintly naive. Kennedy spoke at a time when a debate could be framed between a choice of people agreeing to work for improvements in society through the active involvement of goverment ("what your country can do for you") or people finding creative ways to work directly with other people for improvements to the country ("what you can do for your country").

Kennedy couldn't possibly imagine the peculiar form of conservatism that has overtaken the political landscape like crabgrass in August -- a cynical conservatism that assumes NOTHING good or efficient will ever come from ANY group of people acting together through government so any attempt to try is doomed to failure. Strangely, this cynical conservatism has no trouble trusting the fate of the country to individuals acting within a business setting with minimal taxes and even more minimal regulation, even as people crawl out of the wreckage of a financial collapse costing more than a trillion dollars and millions of jobs.

If that's what Americans truly believe, there really are no choices or challenges to pose in the State of the Union address. The entire speech could be boiled down and tweeted to the masses:

Ask not.


#1) http://www.taxfoundation.org/files/state_individualincome_rates-20100327.pdf

#2) http://projects.washingtonpost.com/top-secret-america/articles/a-hidden-world-growing-beyond-control/

#3) http://www.newyorker.com/reporting/2011/01/24/110124fa_fact_gawande