Many people are ignoring huge costs (to the economy) and benefits (to those financial companies that ruined so many people’s lives and severely damaged the economy. Paying back money the government paid you is not that same as being innocent. While several of the too big to fail banks have paid back the direct cash they were given that is not an indication they are now off the hook for their disastrous behavior.
First we know that much of the money “sent to AIG” just went directly to Goldman Sachs and others. Those big banks had taken risks and the only way those risks paid off was with billions from taxpayers. Without that they would have been bankrupt. And then when they paid the money they received directly they still haven’t paid back the billions they got from taxpayers (via AIG). And this money was paid back at 100 cents on the dollar though those instruments were trading for much less in the market (the government certainly would have found a less costly solution but for ignorance or a desire to reward their former company and friends at Goldman Sachs.
Second, rates have been kept artificially low, to among other things, allow the big banks to make tens of billions (and costing savers tens of billions). Those savers have not been reimbursed for the losses caused by the big banks.
And third if I gamble with money from my company and win my bet on the Super Bowl and then put the money back, I am still not innocent. Just because many of the big banks have paid back the money they were given directly by taxpayers does not mean they didn’t get huge benefits from the government. Pretending they are not bad guys because after ruining the economy, costing millions of people their jobs and savings, getting many benefits from the government, they then pay back the direct cash payments is not accurate.
Response to: The New Bank Tax
Related: Elizabeth Warren Webcast On Failure to Fix the System – The Best Way to Rob a Bank is as An Executive at One – Failure to Regulate Financial Markets Leads to Predictable Consequences – Jim Rogers on the Financial Market Mess – Congress Eases Bank Laws (1999)
Nominal health spending in the United States grew 4.4% in 2008, to $2.3 trillion or $7,681 per person. This was the slowest rate of growth since the Centers for Medicare & Medicaid Services started officially tracking expenditures in 1960, yet once again outpaced nominal GDP growth (2.6% in 2008). This brings health care spending to 16.2% of GDP. In 2003 the total health care spending was 15.3% of GDP.
The huge amount being spent continues to grow to an even larger percentage of GDP every year. The damage to the economy of the dysfunctional health care system in the USA is huge. For comparison the total GDP per person in China is $5,970 (the closest total country per capita GDP, to the health care spending per capita in the USA, is Thailand at $7,703 – World Bank data). The average spending by OECD countries (Europe/USA/Japan…) was $2,966 per person in 2007 (the USA was at $7,290). In 2007 Canada spent $3,895; France $3,601; UK $2,992; Japan $2,581.
- Hospital spending in 2008 grew 4.5% to $718 billion, compared to 5.9% in 2007, the slowest rate of increase since 1998.
- Physician and clinical services’ spending increased 5.0% in 2008 to $496 billion, a deceleration from 5.8% in 2007.
- Retail prescription drug spending growth also decelerated to 3.2% in 2008 as per capita use of prescription medications declined slightly, mainly due to impacts of the recession, a low number of new product introductions, and safety and efficacy concerns. Drug prices increased 2.5% in 2008.
- Spending growth for both nursing home and home health services decelerated in 2008. For nursing homes, spending grew 4.6% in 2008 compared to 5.8% in 2007.
- Total health care spending by public programs, such as Medicare and Medicaid, grew 6.5% in 2008, the same rate as in 2007.
- Health care spending by private sources of funds grew only 2.6% in 2008 compared to 5.6 percent in 2007.
- Private health insurance premiums grew 3.1% in 2008, a deceleration from 4.4% in 2007. Remember many people lost their jobs and did without insurance. Doing so results in reduced spending on health insurance but is far from a good sign.
- Home health care spending growth decelerated from 11.8% in 2007 to 9.0% in 2008. Expenditures reached $64.7 billion in 2008. You can understand why investors (and companies) are looking to invest in home health care.
At the aggregate level, the shares of financing for health services and supplies by businesses (23%), households (31%), other private sponsors (3%), and governments (42%) have remained relatively steady over time. Between 2007 and 2008; however, the federal government share increased significantly (from 23 to 25%), while the state and local government share declined (from 18 to 17%).
Decades ago Dr. Deming included excessive health care costs as one of the seven deadly diseases of western management. We have only seen the problem get worse. Finally it seems that a significant number of people are in agreement that the system is broken.
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As I have said previously, capitalists support the estate and inheritance taxes. Not those that see themselves as nobility, and call wish to be called capitalists, that want to reward the children of the wealthy (because we all know they need more advantages than they already get). While the Democrats voted in favor of capitalism (letting those who earn wealth prosper) instead of supporting nobility, as has been the recent trend, they did so only for the richest few. So they decided Kings and Queens should not pass all their wealth to the kids (still they can pass more than 50% of it – oh don’t you feel sorry for those poor kids you might have to get just $3.85 million instead of the $7 million they “need”). So the Democrats decided all the children of Lords, Dukes, Earls… should not have to have their trust funds impinged in any way.
“We make the estate tax go away for 99.75 percent of the people in the country,” said North Dakota Democrat Earl Pomeroy, the main sponsor. Republicans who voted against the measure said they favored repealing the levy.
Congress in 2001 decided to drop the estate tax in 2010 before reinstating it in 2011 at the previous higher top rate of 55 percent for estates valued at more than $1 million.
Isn’t it amazing how little the children of wealthy are asked to share in the huge inheritances they get. But until the economic literacy of the country improves they are able to pretend noble blood lines passing down huge fortunes are not just those with the gold making the rules.
You might notice the government is in pretty desperate need of money. But some still think asking the kids of the super rich to part with some of their inheritance is too much to ask. I wish they would learn about economics. It is not capitalist to reward being born in the right house with more cash than than many will every earn working 40 plus years (a 50% inheritance tax on the super rich is less than it should be – and it shouldn’t be just the super rich that pay inheritance tax). Maybe exempt $1-2 million and index that. The next million at 50%. Then increase the rate 5% every million. I don’t really see any need to give some kid $100 million because they happen to have been born to a rich parent. Capitalism is about rewarding economic productivity not the birth lottery.
Related: Rich Americans Sue to Keep Evidence of Their Tax Evasion From the Justice Department – Killing Capitalism in Favor of Special Interests – Ignorance of Capitalism – Charge It to My Kids – Buffett on Taxes
N.Y. Raises Pension Requirements to Save $48 Billion
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For new workers, the bill raises the age for retirement without penalty to 62 from 55, imposes a 38 percent penalty on non-uniformed workers who retire before 62 and increases the minimum years of service to draw a pension to 10 from 5, according to Paterson’s office.
Overtime payments included in calculating pension benefits will be capped at $15,000 a year for civilian workers, and 15 percent of wages for police and firefighters.
Raising the retirement age from 55 to 62 (for new workers) is something that should have been done decades ago. 62 is too young for a full retirement age. If a country has the life expectancies we do they either need to have huge retirement savings (which for NY State would mean huge taxes to support that level of retirement savings) or live off the wealth saved in previous generations (or count on taxes of future generations).
Unfortunately for too long all of the USA we have chosen not to save for retirement when we work and then retire when we still have decades to live (on average). That is not sustainable. You can only add so much to the credit card (buy now let someone pay later strategy). Increasing from 55 to 62 is a good move. But it is too little and too late. More should be done.
Saving for retirement is not complicated. It is just that many people would rather speed money now and now save it. That is easy to understand but it is not helped if we make it sound like saving for retirement is hard. It takes some discipline. But certainly adults should be able to show some discipline. We have to stop acting like not saving for retirement is somehow acceptable. It is no more acceptable than those that had to store food for the winter a few hundred years ago deciding they would rather go swimming all summer and worry about the winter later.
And state governments should not provide out-sized retirement benefits which must be paid for by the taxpayers. 80 years ago maybe setting the retirement age at 55 made sense. It certainly did not for new workers in 1980 (or 1990 or 2000 at least now in 2009 they are making a move in the right direction).
Related: Working Longer and Delaying Retirement – Many Retirees Face Prospect of Outliving Savings – Pushing your financial problems into the future – Gen X Retirement
With the dollar declining sharply, many are focused on the issue now. And the most common culprit for blame seems to be the federal debt. While I agree the dollar is likely to fall, the deficit doesn’t seem like the main reason, to me. The federal debt is large and growing quickly, which is a problem. But still the USA federal debt to GDP is lower than the OECD average. Even with a few more years of crazy federal debt growth the USA will still be below that average.
Japan has by far the highest level of government debt in the OECD. The Yen is not collapsing. The debt is a factor but the lack of saving (USA consuming more than it produces) seems the biggest problem to me. China not only does not have large government debt it has large amounts of personal savings. People have been living far within their means in Japan and China (only by government intervention, due to desires to not have the currency appreciate has that appreciation been slowed).
Thankfully we have been increasing savings a bit recently but it is a drop in the bucket so far (Consumer Debt Down Over $100 Billion So Far in 2009). It will have to increase in size and continue for years to begin to address the problems in a significant way.
Related: The USA Economy Needs to Reduce Personal and Government Debt (March 2009) – The Truth Behind China’s Currency Peg – Who Will Buy All the USA’s Debt?
What is the aim of prison? To keep criminals locked up so they can’t commit crimes in society is another. Punishment, in order to deter people from committing crime is one reason they exist. And you would hope to mold prisoners so they do not commit crimes when they are freed. But the payment for services does not factor in the results of releasing productive members of society. It seems like doing so could result in improvements.
Better Jails by Andrew Leigh, economics professor, Australian National University
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To encourage innovation, we should start publicly reporting the outcomes that matter most. Rather than merely telling the public how many people are held in each jail, governments should publish prison-level data on recidivism rates and employment rates.
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As well as focusing on the important outcomes, Australian states should rethink the contracts they write with private providers. At present, about 16% of inmates are held in a private jail. Unfortunately, the contracts for private jails bear a remarkable similarity to sheep agistment contracts.
Providers are penalised if inmates harm themselves or others, and rewarded if they do the paperwork correctly. Yet the contracts say nothing about life after release. A private prison operator receives the same remuneration regardless of whether released inmates lead healthy and productive lives, or become serial killers.
A smarter way to run private jails would be to contract for the outcomes that matter most. For example, why not pay bonus payments for every prisoner who holds down a job after release, and does not reoffend? Given the right incentives, private prisons might be able to actually teach the public sector a few lessons on how to run a great rehabilitation program.
The idea of paying for outcomes is great. It makes sense for some pay to be based on keeping prisoners housed during their terms. But providing incentives for achievement in returning productive people back to free society is something we should try.
Related: Lean Management in Policing – Urban Planning – Rich Americans Sue to Keep Evidence of Their Tax Evasion From the Justice Department – Randomization in Sports – LA Jail Saves Time Processing Crime – Measuring and Managing Performance in Organizations
Quality Improvement and Government: Ten Hard Lessons From the Madison Experience by David C. Couper, Chief of Police, City of Madison, Wisconsin
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Over the last few years Elizabeth Warren has become one of my favorite leaders. She is a leader in economic thought, ethical society and the law (she is a law professor at Harvard Law School). Far too many on Wall Street, Washington and in C-suites are leading us down a very bad path. She is a voice we need to heed.
If you can’t explain it, you can’t sell it
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The 1966 high school debate champion of Oklahoma may get what she wants. The House of Representatives will vote in December on her idea. She suggested a Financial Product Safety Commission in a 2007 article in the magazine Democracy [Unsafe at Any Rate]. President Barack Obama proposed it to Congress in June as the Consumer Financial Protection Agency.
Warren won’t discuss whether she may be a candidate to lead the authority, which would have the power to regulate $13.7 trillion of debt products. A Warren nomination would tell banks that Obama is determined to force reduced checking-account fees and limit lender claims in mortgage advertising, among other measures the industry opposes, said Thomas Cooley, dean of New York University’s Stern School of Business.
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In her role overseeing the TARP, Warren has been critical of the administration, accusing the Treasury Department of undervaluing the stock warrants that were supposed to compensate taxpayers when banks repay their bailouts. A lack of transparency about how TARP functions “erodes the very confidence” it was to restore, her committee said in a report.
I hope she can take her attempts to reduce political favors being granted huge financial institutions and those institution be forced to follow sensible rules to protect individuals and our economy. With a few more people like there we will have a much better chance of a positive economic future.
Related: Bogle on the Retirement Crisis – Bankruptcies Among Seniors Soaring – Don’t Let the Credit Card Companies Play You for a Fool – http://investing.curiouscatblog.net/2009/04/08/the-best-way-to-rob-a-bank-is-as-an-executive-at-one/
The Worst is yet to Come: Unemployed Americans Should Hunker Down for More Job Losses by Nouriel Roubini
While losing 200,000 jobs per month is better than the 700,000 jobs lost in January, current job losses still average more than the per month rate of 150,000 during the last recession.
Also, remember: The last recession ended in November 2001, but job losses continued for more than a year and half until June of 2003; ditto for the 1990-91 recession.
So we can expect that job losses will continue until the end of 2010 at the earliest.
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There’s really just one hope for our leaders to turn things around: a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers.
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Based on my best judgment, it is most likely that the unemployment rate will peak close to 11% and will remain at a very high level for two years or more.
Roubini has predicted negative economic results and been right for the last few years. I am uncertain about with the short term economic outlook. I can certainly imagine the slow job recovery he predicts will happen. I am hopeful we will see jobs increasing before that but the news in the last few months has not made that prospect seem more likely. And the long term outlook is getting worse with the huge government debt being added as a burden for the future economy.
Related: Nouriel Roubini Believes Stock Market has Risen too Far, too Fast – Unemployment Rate Reached 10.2% – Why the Dollar is Falling
Is it cynical to think that politicians want to provide payments from the treasury to those that paid the politicians? More cynical to think the politicians that created huge Wall Street Welfare payments won’t actually do anything except talk about how they think it is bad that those they paid billions to are buying new mansions and yachts? More cynical to think they will continue to provide huge amounts of nearly free cash for those that paid them to speculate with? More cynical to think if any of those speculators lose money they will give them more welfare? More cynical to think those bought and paid for politicians won’t actually take any steps to tax or curtail speculation? I think maybe I am cynical about Washington doing anything other than talk about how they don’t want to provide huge amounts of cash to Wall Street all the while giving their Wall Street friends huge amounts of cash that will be paid back by our grandchildren.
Wouldn’t it be nice if the politicians actually took actions to fund a partial payback of the hundreds of billions (or maybe trillions) of bailout dollars by taxing financial speculation? I doubt it will happen. But maybe I am too cynical. Maybe politicians will not just do what they have been paid to do. But it seems the best predictor of what congress will do is based on what they are paid to do, based on their past and current behavior. Now what congress will say is very different. those paying Congressmen might not love it if the congressmen call them names but through a few billion more and they are happy to be called names while given the cash to buy new jets and sports teams and parties for their daughters.
Making Wall Street pay by Dean Baker
The logic of a financial transactions tax is simple. It would impose a modest fee on trades of stocks, futures, credit default swaps and other financial instruments. For example, the UK puts a 0.25% tax on the sale or purchase of shares of stock. This has very little impact on people who buy stock with the intent of holding it for a long period of time.
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We can raise more than $140bn a year taxing financial transactions, an amount equal to 1% of GDP.
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Since the financial sector is the source of the country’s current economic and budget problems it also makes sense to have this sector bear the brunt of any new taxes that may be needed. The economic collapse caused by Wall Street’s irrational exuberance has led to a huge increase in the country debt burden. It seems only fair that Wall Street bear the brunt of the clean-up costs. A financial transactions tax is the way to make sure that this happens.
There are several factors that need to be addressed relating to the broken health care system in the USA.
1) It is bankrupting the government
2) It is severely handicapping business that must pay for the expensive and poorly performing system
3) It is bankrupting individuals (Employees Face Soaring Health Insurance Costs)
4) It is hampering economic freedom due to the model that ties health care to employment. If I want to go start my own small business, I not only have to worry about all the risks of running a business I have to risk my heath coverage (coverage is expensive and if you get sick you can be dropped, or rates increased so dramatically that they are not affordable – hardly insurance when you are dropped when you need it).
5) social inequity – no other rich country denies basic health care to everyone
6) the results are poor to mediocre (at by far the highest cost of any country)
The idea that a system that is far more expensive than any in the world and performs, at best, in the middle of the pack of rich countries while creating huge economic and human hardships should not be reformed is crazy. Unless you believe the USA is just incapable of performing even at a mediocre level in health care, for some reason, you have to believe they current performance needs to be dramatically improved.
Now there may well be disagreement about which failures are most important. Some may not care about the huge competitive disadvantage companies are put in by the current broken system. Others may not care that millions don’t have basic coverage. Others may not care that sick people go bankrupt. Others may not care that the heath results are mediocre at best – that tens of millions have much less healthy lives than they would. Others may like that they make a great deal of money from the current system. Others may like that they personally get good health care. So in what ways the broken system in place now needs to be fixed is open for debate.
The long term result is very simple to see. The current system is very broken and will not work. Different people suffer differently depending on what solution is adopted. My desire would be to reduce spending on hugely expensive miracle cures (especially for terminal ill patients) and increase spending dramatically on preventative and healthy living (versus spending on managing sickness) but I can see that such a solution is not at all popular. So we are not going to adopt that part of what I would like to see.
But I have no doubt the system will be dramatically reformed. Because if not the economic costs will destroy the economic future of the country. I don’t believe tens of millions without health care will drive action – we have seen that we are perfectly willing to allow that to continue. If the economic costs (say reducing the economic benefit to every person in the USA by $5,000 a year) just stayed at that level, it seems those that are benefiting from the current system are able to hold off improvement. But that figure is increasing each and every year. Eventually the costs grow too large and too many people will demand the broken system be improved.