Monthly Archives: February 2014

INCOME AND WEALTH DISPARITY – PART V – THE EFFECTS AND CONSEQUENCES

The facts are indisputable.  There is a widening gap in the income and wealth of Americans, as well as in the rest of the world.  The effects and/or consequences of the disparity, however, are partially predictable, but largely speculative.

The disparity advocates warn that there are serious consequences to this gap that include an invitation to social unrest, as well as a deepening rut into which the poor will be entrenched.  It will foment resentment, failing morale, disincentive, unrest and maybe revolution.

British researches claim that, as this disparity continues to widen, it will likely cause higher rates of obesity, divorce, mental illness, drug use and declining health, as well as increasing crime.

We have seen some protests against meetings of the World Bank and other international organizations; although the reasons for these protests were never clear.  On our home front, we saw the Occupy Wall Street movement a year-and-a-half ago attempting to call attention to the widening difference in the US between the 1% and the 99%.  Their tactics and actions were so egregious that it obscured the message they were trying to communicate, if, in fact, they had one.

They suffered from a decided lack of a goal or anything to promote a path to resolution.  Their horrendous behavior muddled the problem and offered no agenda or even any idea of what they wanted to happen.  Their primary goal, it appeared, as it is for all the disparity advocates, is to “create awareness.”

In terms of consequences, some of what the British have speculated may be possible; increases in mental health, obesity and divorce.  For some, it could also be a lowering of morale and a disincentive to get out of poverty.  All of which, of course, could be countered and mitigated by the tremendous opportunities which our free market society offers, if our leaders would promote this avenue.

As far as social unrest that we’ve seen in other parts of the world, that seems very unlikely here.  As we outlined in our last blog post objectively, the “poor” in this country, in general, are living pretty well.

To gain a little historical perspective, we have always had recessions, “inequality” and protests.  Here is one of the first that made it into our history and our culture:

In the depression years of 1893-94, the unemployment rate was a staggering 18%.  A colorful Ohio labor leader, Jacob Coxey, gathered about 100 men and set off for Washington, DC, in late March to lobby the government to create jobs building roads and other public works and pay in paper currency.

Various groups joined the march as it grew to over 500 when they reached the U.S. Capitol on April 30th.  Unfortunately, Coxey was arrested the next day for walking on the grass at the Capitol.  The protest and the numbers of the army rapidly dwindled.

At the same time, other militant groups formed their own “armies” all over the country and specifically in the Pacific Northwest.  Many of the protesters were unemployed railroad workers who blamed railroad companies for excessive freight rates and President Cleveland’s monetary policies.  Their plan to join Coxey in D.C. stalled in Montana when they commandeered a Northern Pacific railway train to ease their travel.  Federal troops (a first) came in and ended their escapade and their protest.

In our culture, the expression “enough food to feed Coxey’s army” came out of this episode.  More significantly, the book “The Wonderful Wizard of Oz” (you heard me correctly) was interpreted to characterize all the principal players on the whole Coxey army story.

The end result of these protests produced no real changes.

It’s hard to imagine any kind of real groundswell forming as the disparity advocates postulate anymore productive than Coxey’s army.  If there was, the so-called 99% could easily overwhelm the so-called 1%…but to do what?

Most of the consequences the naysayers speculate do not seem to be a reality.  Can it happen if the disparities get worse?  Maybe, but we appear to be a long way off from that point.  Yes, the disparities are somewhat eye opening but hardly a call to arms.

On the other hand, the consequences of following the lead suggested by the disparity advocates of continually increasing the safety net, more spending by the government of money we have to borrow, expanding unionization and raising the debt ceiling offers no easy or acceptable path that will produce any positive results.

As of December 2013, our liabilities were staggering:

United States Population:                              317,508,063
United States National Debt:                         $17.3 trillion
United States National Debt per Person:    $54,254
Social Security Unfunded Liability:              $15 trillion
Medicare Unfunded Liability:                        $79 trillion
Prescription Drug Unfunded Liability:         $20 trillion
National Healthcare Unfunded Liability:     $9.3 trillion
Total US Unfunded Liabilities per Person:   $388,385

Truth be told, all the spending we’ve done and are asked to keep doing may help the “poor” incrementally but it won’t do anything to narrow the gap in our income and wealth disparity, and we’re not sure anything can or should be done on that score.

There are several things that can be done to elevate “the poor” and we’ll discuss those more fully in our last blog on this subject.

In our next blog, we talk about how America really continues to be the land of opportunity.

Gary and I would entertain your comments on these income and wealth disparity blogs, especially if you disagree.

ArtSchwartzSig

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INCOME & WEALTH DISPARITY – PART IV – THE SHRINKING MIDDLE CLASS – HOW BAD IS IT?

Just as we hear a lot about “income equality,” we are also hearing a lot about the “shrinking middle class.”  We thought it would be worthwhile to take a closer look at who exactly is the middle class and how bad it is for them.

To begin any conversation, we have to define our terms; and here are some easy-to-find definitions of “middle class.”

From Merriam-Webster:  The social group between the upper and working classes, including professional and business workers and their families.

From President Obama in December:  A “basic bargain” that is eroding.  You could have some confidence that if you gave it your all, you’d take enough home to raise your family, send your kids to school,  have your health care covered and put a little away for retirement.”

And my favorite and most acccurate from Wikipedia:  Sociologists such as Dennis Gilbert of Hamilton College commonly divide the middle class into two sub-groups.  Constituting roughly 15% to 20% of households is the upper or professional middle class consisting of highly educated, salaried professionals and managers.  Constituting roughly one-third of households is the lower middle class consisting mostly of semi-professionals, skilled craftsmen and lower-level management.  A middle class person commonly has a comfortable standard of living, significant economic security, considerable work autonomy, and relies on their expertise to sustain themselves.

That’s about 50% of all households in the U.S.

So how bad is it?  Well, from our research, the answer is not too good.  Some examples come from U.S. Census Bureau, which reported median household incomes falling from $55,627 in 2007 to $51,107 in 2011.  That’s an 8.1% drop and doesn’t bode well for the middle class.

Then there’s globalization and outsourcing—the ability of businesses to move jobs virtually anywhere in the world where labor cost savings justify such a move.  This not only affects factory-level, but also professionals working in fields such as accounting, programming and architecture, to name a few   This outsourcing of labor disproportionately affects the middle class.

Technology and automation also play a role in making it more challenging for the middle class. For example, you must have noticed self-checkouts at Home Depot, Lowes, as well as your favorite local supermarket.  This technology allows one employee to support four to eight checkouts, displacing otherwise well-paying, (usually) union jobs.  In addition, technology, like TurboTax, is thinning the ranks of accountants as this program is quite capable of preparing the tax returns of most Americans for as little as $39.

And there’s the loss of middle class wealth from the tumble in real estate values since 2007, increasing costs annually for health care and the challenge of ever-increasing college tuition.

Add to that our weak recovery from the last recession.  A recovery that in every way encouraged businesses to hire fewer workers (as they could get more productivity from existing workers who were just happy to have a job) and because of Obamacare to hire more part-time or temporary workers rather than full-time, permanent.  And one shouldn’t expect much of a raise in these stagnant times.

And finally there’s inflation.  Even though the published government inflation numbers indicate relatively low inflation, around 2006 the method of calculating inflation was changed such that a lower inflation rate is now presented.  One only needs to shop regularly to know that food prices have been going up.  And remember some six short years back when gas prices were between $2.00 and $3.00 a gallon?

According to a recent Pew Research study, 85% of middle class Americans say it is “more difficult to maintain their standard of living now than it was a decade ago.”

Put these facts together and we can  understand why so many in the middle class are suffering and doing all they can do to hold onto their middle class standard of living.

The solutions currently offered by the Obama administration and the disparity advocates won’t solve the problem and do nothing to narrow the gap in income.  Encouraging growth in enrollment in food stamps; increasing the minimum wage to $10.10 per hour; providing health insurance to all through Obamacare; extending unemployment benefits to 99 weeks; and the almost doubling of folks qualifying for disability payments through Social Security Disability insurance since 2007 won’t do it.

What’s needed are more jobs and upward job mobility.  We all know that and we’ve heard talk about it for years, but no serious government policies have been enacted to make it happen.

There are many things our federal government can do to help.  And, yes, Washington has created a lot of well-paying government jobs, but one must remember that all government jobs are created on the backs of working folks.  It’s the private sector—large businesses, small businesses, entrepreneurial start-ups and nonprofits—where we need the growth and a change in direction in national policies can really help.

For example, with the stoke of his pen, President Obama can approve the Keystone Pipeline, which will immediately create thousands of high-paying construction jobs while helping us achieve energy independence.  He could also support tax policy that would repatriate billions of dollars US companies hoard overseas, dollars that could be used to create jobs in America.  We will discuss these and other policies our government can and should enact to ease the financial challenge to our middle class in our last blog on summation and solutions.

The middle class has definitely been shrinking for reasons we’ve described.  Why the disparity advocates keep trying to include this problem as part of their crusade about income disparity we don’t understand.  There does not appear to be any connection.

Our blog next week will start getting to the crux of this whole subject; what are the consequences, real or imagined?

ArtSchwartzSig

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HOW WILL IPAB AFFECT MEDICARE PARTICIPANTS?

In our January 8th blog about the ACA (Obamacare), I suggested that Medicare would not be significantly affected.  There is one contentious provision, however, of the ACA; namely, the Independent Payment Advisory Board (IPAB) which, if it is ever implemented, could have a dramatic affect.

What is IPAB?

Starting in 2014, IPAB—a statutory board of 15 advisors created by the ACA that is tasked with keeping Medicare costs in check—must submit annual cost-cutting  proposals to Congress whenever the five-year growth in Medicare spending per beneficiary is expected to exceed a growth limit.

Those proposals would be automatically implemented unless Congress enacts legislation to block it, a provision of the ACA created to curb political influence over difficult Medicare decisions.  However, at least theoretically, the proposals cannot include efforts to restrict benefits, ration care, raise premiums or cost-sharing requirements, or change eligibility criteria.

Why isn’t IPAB up and running?

The board is stalled, because many challenges block its implementation.

All 15 members named to the panel must be nominated by President Obama and confirmed by the Senate.  Any Obama nomination to the board is unlikely to obtain the necessary 60 votes to overcome a filibuster.

The board may hold little appeal for qualified candidates.  In addition to the intense Senate scrutiny, ACA requires that IPAB members have certain skills and backgrounds, such as actuarial science experts and health professionals, and prohibits members from maintaining any other employment during their six-year board term.

Members of the board will be paid $165M per year, which may not be adequate to attract the expertise needed on the board.

Moreover, the Obama administration need not rush to find and confirm candidates.  Although the board must begin producing reports in 2014, it is unlikely that it will commence its cost-cutting responsibilities in the near future.  The Congressional Budget Office earlier this year said Medicare would remain below the spending threshold until 2022.

What happens if IPAB is not in place when Medicare hits the spending threshold?

If IPAB fails to produce a spending report when Medicare has hit its spending threshold, the ACA gives IPAB’s responsibility to the secretary of HHS.  Policy experts have interpreted that provision to include scenarios where the spending threshold is reached before IPAB has been put in place.

“That certainly does provide a further inducement for Congress to actually approve, or actually to consider, nominees for the board, because that surely is better than having the secretary do it,” says Center on Budget and Policy Priorities Paul Van de Water.

Critics frequently denounce the IPAB as a “death panel” that will ration care through the board’s directives on payment policies.

Proponents, on the other hand, say the board will most likely increase fees to primary care doctors and decrease fees to specialists.  An effective, functioning IPAB could promote evidence-based medicine which could result in lower costs and better medical outcomes.

At this point, there is no definitive conclusion, only the specter of a provision which may or may not even be implemented and which could have a significant or zero affect on Medicare participants.

(Prepared in consult with Dr. Spence Koerner.)

ArtSchwartzSig

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SAN DIEGO TO LOS ANGELES TO SAN FRANCISCO

Cousin Barbara, the queen of the Berkshires, asked me to suggest a few highlights on her proposed trip to California this winter.  So I thought I’d let you all in on it as well.

Remember, this is a highlight tour along the coast.  There are dozens more things to do and see.  California has a wealth of wonderful cities, towns and activities.  Whether you have a week or a month, here we go:

San Diego

Areas to see and/or stay – Mission Bay/La Jolla/Downtown

–        Trollytours.com—good overview of the city

–        Balboa Park—trolly tour and two outstanding museums—Mingei International and San Diego Museum of Art

–        Other areas to see—Point Loma/Del Mar/La Jolla

On the way north about 120 miles to L.A.

–        Flower fields of Carlsbad Ranch—40 acres overlooking the Pacific east of 115 on Palomar Ranch Road—March/April

–        Dana Point—stay at Blue Lantern Inn (B&B), Ritz-Carlton or Montage Hotel

–        Laguna Beach—picturesque beach town—good galleries and the best Chico’s on Forest Avenue

–        Lunch at Hotel Laguna patio

–        Pageant of the Masters (summer)—unique theatrical experience

–        Newport Beach—delightful town of the rich and famous—harbor tour about one hour plus is terrific

–        Brea—the Nixon Library

–        Garden Grove—Crystal Cathedral now a Catholic church—not sure if they have tours yet

–        Santa Ana—Bowers Museum—a hidden gem—great patio lunch

Los Angeles area

–        Getty Museum—beautiful gardens, good cafeteria

–        Getty Villa—Roman mansion overlooking the Pacific

–        Frederick Weisman home—fascinating, eclectic art and furnishings—reservations required 310) 277-5321

–        Venice Beach on the weekend

–        Hollywood Bowl—summer nights

–        Downtown Los Angeles—Music Center, Disney Hall, Catholic Cathedral, Olivera Street

–        Huntington Library, Art and Gardens in San Marino

–        Norton Simon Museum in Pasadena

–        California Science Center in Exposition Park—Endeavour Space Ship

–        Annenberg Space for Photography—Century City

–        Rodeo Drive—you know what’s there

–        Southwest/Gene Autry Museum

Restaurants

–        Beverly Hills—SPECIAL—Xian and Mastro’s Steakhouse

–        Café del Rey and Joe’s in Marina del Rey

–        Cheesecake Factory (lunch) in Marina del Rey

–        Century City Center—Seasons 52, Gulfstream and Toscanova

Stay at

–        Marriott or Ritz-Carlton in Marina del Rey

–        Century Plaza

On to San Francisco—on the coastal route about 382 miles—a great scenic drive along the Pacific Ocean.

The first stop can be Morro Bay, where Morro Rock jumps 570 feet out of the Pacific Ocean.  Great spot for biking or kayaking.

Cambria—33 miles north of San Luis Obispo, a delightful small town to stop at.

Next is Hearst Castle in San Simeon, a Mediterranean-style mansion built by the legendary William Randolph Hearst.  There are three different tours of this unbelievable, palatial European extravaganza.

Big Sur, in the heart of big trees and a dense forest, was the home of the actualization movement.  Nepenthe on the coast is a great lunch spot.

Next and a must see is the Monterey Peninsula.  It includes Carmel, Pebble Beach, the 17-mile drive by car and Monterey itself with the outstanding aquarium and Steinbeck’s Cannery Row (or what’s left of it).

Then it’s on to famed San Francisco, a treat in every direction.

Must see areas:  Fisherman’s Wharf—cable car to Union Square (both nice places to stay), and then there is Lombard Street, de Young Museum in Golden Gate Park and Alcatraz.

Just north of the city you will find Muir Woods and Sausalito.  A little further north the Napa Valley with Oakville and St. Helena, and a host of wineries and outstanding restaurants.

Two very special treats a little further away are Lake Tahoe (188 miles) and Yosemite (197 miles).  If you have the time, both are very much worth seeing and experiencing.

Obviously you can break this up into two or three trips.  Each of the places I’ve mentioned has their own websites for up-to-date info.

If you need more help/info or want to make reservations, call Marlene Leitner at Plaza Travel 800) 347-4447.

ArtSchwartzSig

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