"The most significant threat to our national security is our debt," Admiral Michael Mullen, Chairman, Joint Chiefs of Staff, August 27, 2010

Tuesday, September 29, 2009

By the Numbers - Lawyers, Income, Prices and Births

Some facts.  Parenthetical and trailing comments provided by TheFundamentals.

Attorneys per capita (higher is better):

US of A               265
Brazil                  326
New Zealand        391
Spain                  395
Italy                    488
United Kingdom   401
Germany             593
France             1,403

Who says we can’t learn from the Frenchies?

Source: wiki.answers.com

2008 US of A Household Income (by gov’t category):

Asians        $65,637
Whites         55,530
Blacks          34,218

Why don’t we elect more Americans of Asian background to political leadership positions? Why doesn’t the public policy of the US of A adopt certain cultural standards, values and fundamentals of Asian Americans? Americans are big on results, right? Why not emulate the top group?

Source: http://www.census.gov/prod/2009pubs/p60-236.pdf

Consumer Price Index (lower is better unless you're a politician):

1947      $ 37.50
1977       100.00
2008       316.20

Ask yourself why politicians don’t speak to the above numbers. If you paid $37.50 for it in 1947, you paid $316.20 for it last year. Deficits = Debt = Destruction. Borrowing/printing money costs Americans a lot. Price stability matters. Rising income numbers mean nothing when prices rise at these rates.

Source: http://www.census.gov/prod/2009pubs/p60-236.pdf

2006 Birth Rates to Unmarried Women (you figure out which is better; note the Asians)

Whites        33.3%
Blacks         70.2
Asians         16.5
Hispanics     49.9

Source: Health, United States, 2008 – National Center for Health Statistics

Friday, September 25, 2009

Health Care Cost Analysis

The previous posting displayed the cost per capita of health care spending in major developed countries and the life expectancy in these countries. Most countries fell into a tight range of spending and there was a pattern of relationship between spending levels and life expectancy.  There was one very significant exception – the US of A. US expenditures were much higher per capita and life expectancy was lower. Why is that?

We don't know.  There is really only one way to answer that question and that is to do a cost analysis of the expenditure components and compare them with other countries. Costs can be analyzed in several ways. Two of the most common ways are to define them by their function or by their category. So, in dealing with health care expenditures, functional costs would include the costs associated with doctors, hospitals, pharmaceuticals, insurance companies, legal components, tests, treatment programs and other forms of therapies. Categories of costs would look at the actual forms of expenditure such as wages, benefits and other personnel costs, equipment costs, buildings and facilities, lawyers and insurance and overhead expenditures for all forms of support activities. In a good analysis, the functional costs would also be broken down according to the cost categories and this analysis could be compared to other countries where the costs are lower, sometimes much lower. In this manner it is possible to determine areas of either functional expenditures or categories of expenditures that are much higher in the US than other countries. This analysis would move the debate along with actual facts. Facts are important in determining the proper corrective action.

What would this analysis show? We don’t know. We do know that health care is a personnel intense business. Lots of people are engaged at all levels in the health care business. So, we can safely assume that the analysis will show some areas in the US where personnel costs are considerably higher than elsewhere. It could be a staffing issue (more staff to do the same activity in the US than elsewhere) or it could be a cost issue (more wages/benefits and other personnel costs to do the same activity in the US than elsewhere) or it could be a combination of both. It could be that drug costs are much higher in the US than elsewhere. Maybe we have many more doctors per capita than elsewhere or maybe we pay the doctors much more. We know that the US has many more lawyers per capita than any other country. Could this be part of the huge cost discrepancy? Could we have many more people in the insurance business than elsewhere? Insurance profits?  Perhaps we do more tests than other countries? But why would that be the case if the life expectancy is lower in the US than elsewhere? There would be no payoff for the tests; would there? Without the analysis and a thorough, transparent understanding of the reasons for the much higher cost of health care in the US, how can we even begin to address the real problems? We don’t know what the real problems are? Without a good cost analysis this health care problem will not be corrected. It will go on and will continue to burden the US economy and business competitiveness.

This approach of acting without information and analysis may make political sense to someone but it sure doesn’t make common sense to anyone.  Why does it cost so much more to provide health care in the US?

Thursday, September 24, 2009

Health Care Costs in the US and Other Countries

Please examine the above chart carefully.  It displays the per capita spending on health care in all the major developed countries and also shows (the blue vertical bars) the life expectancy in those countries.  Anything jump out at you?

TheFundamentals found this chart at the website:  http://www.wolafen.wordpress.com/

We were shocked at the obvious discrepancy.  The cost per citizen in the US is double most other countries and, in a few cases, even greater.   Yet, the US ranks fairly low in results which are defined as life expectancy.  What gives?  Are the numbers behind the chart just wrong?  Well, we were able to find another chart at http://www.infoplease.com/ipa/A0934556.html that confirms the overall relationship of American health care spending per capita to other developed countries.  In other words, there are at least two sources that compile the same overall total costs producing the staggering diffential in expenditures and results in the US versus other developed countries.  The US is paying much more for less.  What could possibly explain; what factors could be behind this large discrepancy? 

We are being told by the health care reform promoters that it is a combination of factors - waste, fraud, insurance profits and other components.  We are not being given an accurate, detailed and reliable analysis to support those claims.  Why not?  Should we enter into "reform" without a credible and detailed analysis of the problem?  TheFundamentals says "no."  To do otherwise is to implement a change that may not be responsive to the real problem(s).  Tomorrow we will address the particulars of a credible and detailed cost analysis.

Tuesday, September 22, 2009

Mr. Borat Obama

A few years ago a wannabe comedian (Borat) made a movie about visiting the United States under the guise of being a newsperson/visitor from a third world country. In this role Borat interviewed US citizens and celebrities and politicians and, using this phony shtick, tries to either embarrass or catch the interview subjects in foolish statements and acts. Of course, much of his behavior was sophomoric and relied upon both sexual or scatological themes and acts. This was supposed to be funny because of the dumb questions and dumb answers and just general dumb behavior. The movie probably was a financial success.

Mr. Obama did a bunch of interviews this past weekend. Doing his best Borat imitation, he turned the tables on the interviewers. The interviewers, so pleased to be invited into the game, did not get it. They were played for fools just as Borat played his American subjects for fools. Anyone watching the actions of Mr. Obama, jumping around from topic to topic, not being challenged on any of these topics, had to wonder what has become of our values, our fundamentals and the press that was so critical of Obama’s predecessor. These interviewers are not capable of asking serious questions, much less probing and following up and creating an uncomfortable scene. Mr. Borat Obama played the media as the visitor from middle Asia played the silly politicians and others. Mr. Borat Obama has quite the shtick going. How long it will play Americans for fools is difficult to say. How much and how deep the damage will be is difficult to predict. Any additional damage after GWBush is quite the serious matter.  Particularly in the area of financial promiscuity and military adventures.  Mr. Obama has made health care America's number one problem.  It simply is not.  And no one is getting it.

Abraham Lincoln said, “You can fool some of the people all the time and all of the people some of the time but you can not fool all of the people all of the time.” We’ll see.

Thursday, September 17, 2009

American Military Adventures

TheFundamentals is disappointed that there is limited discussion about the overseas deployment of US military personnel. We publish the following information about deployment which is sourced from Wikipedia and is dated as of March 31, 2008. We intend to update this information as soon as we are able to identify a reliable source with more current data:

Iraq                    142,000

Europe                 84,500

East Asia/Pacific  70,700

300,000+ US Military personnel are located in 39 separate countries around the globe.

How many China military personnel are stationed in foreign countries? India? Europe? These are the three most populous countries/regions in the world. The US is fourth followed by Indonesia, Brazil, Pakistan, Bangladesh, Nigeria, Russia, Japan and Mexico. The US has more troops (double) stationed overseas than all the other nations combined. Why? Does this make sense? Where do Indians and Chinese send their troops? Russia and Japan? How about Mexico? Does Nigeria send its military personnel to other countries?

American is a democracy. The people rule through their elected representatives and senators. Do the representatives and senators reflect the electorate in no debating/questioning/discussing this use of these resources? Are we just willing to let bureaucracies do what they tell us needs to be done? Why don’t we constantly question their activities? Does it make sense to have 300,000+ Marines, Army, Navy and Air Force personnel in 39 countries? Why do we do this? Why is this cost/deployment/tactical use of American taxpayer resources not debated constantly? What are we doing? We have no money. Every time we do something we borrow or print money to do it? Are we just the world’s most paranoid people? Do we talk superpower but not really believe it? Are we terrified of the NKoreans and the Iranians and anyone else the bureaucrats spook us about? What are we doing?

In 2009 the US spent almost $1 trillion on military/defense activities. We borrowed every cent of it!

Tuesday, September 15, 2009

Solvency - a primer

What is solvency? Answer: Ability to meet your obligations. Assets equal to or greater than liabilities. Positive cash flow – more coming in than going out.

What is insolvency? Answer: Opposite of above.

What happens with insolvency? Answer: Some form of collapse and/or restructuring. Could be receivership, one of the forms of bankruptcy, and, if there is a going forward plan, a restructuring.

Why did so many entities such as FNMA, FHLMC, AIG, Bear Stearns, GM, Chrysler, Lehmann, Citibank and others fail? Answer: One of more of the above forms of insolvency.

What saved the situation? Well, let’s assume the situation was saved because there is absolutely no proof or evidence that the situation has been saved. Answer: What saved the situation was the entry of the US government with its checkbook. Think of it as the cavalry arriving as in a western movie. Only no armed militia on horses; just bureaucrats armed with the government checkbook and, as a consequence, avoidance of collapse and/or restructuring.

Is this a good thing? Answer: Usually not. The bankruptcy/restructuring process permits a resolution and moving forward process to occur which includes losses to the involved parties. With the cavalry/government involvement, the bad assets and money losing entities are being propped up with government funding. If the asset values increase and cash flows improve, some of these companies may survive. The problem is that the financial assets were grossly overvalued. Further, the car companies have been losing business to the competition for years, including years of high sales volume.

What could happen? Answer: There could be a substantial decline in the value of the US dollar. The US government has no money. It can only borrow from others and, when that is no longer available, print money. It is doing both now. These acts could lead to a substantial decline in the value of the US currency. US leverage has now been substituted for private leverage. Leverage is just a fancy term for rising borrowing and debt when asset values and cash flow (tax revenues to government entities) are declining. The only remaining source of funding, if it is even available, is to sell assets. That would mean the US would need to sell its assets such as government buildings, land, parks and equipment.

Well, at least we could fall back on asset sales if necessary, huh? Answer: Some states and cities are already doing exactly that. It is, at best, a very short term gap filling answer because virtually all government entities in this country have large future, growing obligations and limited assets to meet those obligations and declining revenues. Government entities in the US are massively leveraged. The combination of large and growing obligations (pensions, entitlement payments, huge payrolls and other commitments), limited and declining asset values and declining revenues means we have not attained solvency. Solvency will prevail. Either we attain it through frugality and sacrifice or external forces will impose it.

Monday, September 14, 2009

"You prevaricate"

Words. Words have meaning.

Two examples came to visit us over the last several days. Last night one of the news shows aired an interview with Mr. Obama. It was, unfortunately, another in a series of scripted interviews designed to capture an audience and deliver the scripter’s message. One part of the message was very revealing. The obeisance interviewer asked Mr. Obama about socialism and the government takeover of car companies and banks. Mr. Obama interrupted to say (TheFundamentals is paraphrasing here) wait a minute, these actions were underway when we got here, started by the previous administration; don’t lay that on me. The obedient newsman said nothing; no follow-up; no simple question like, “Well you signed the legislation; do you stand behind it; was there a better alternative that you should have taken?” Or, the newsman could have broadened the issue and asked, “When do you become responsible for events, actions and legislation that occur during your term?” So the message stands; not my fault. That is prevarication and Obama should have been called out on it immediately.

A few days earlier a man from South Carolina, who knows a prevaricator when he sees/hears one, made a small mistake. No, the mistake was not the audacity of speaking his mind in a simple declarative statement of two words in the people’s chamber. Nor was it the timing of the utterance of the simple two word statement. For these reasons the man from South Carolina should be praised. He should be an example of representing the best of America – the single individual who, upon seeing and hearing prevarication, speaks out; stands alone; willing to subject himself to the disdain of the crowd. No, his mistake was the second word he used. He should have said “prevaricate.”

Mr. Obama is a prevaricator of the first degree. Trained, practiced, slick. And one man, one person out of more than 500 had the audacity to call him out on it. Only he chose an easier word, one more clearly designed to effect his communication. He said “You lie.” The technical and accurate word is/was and will, unfortunately for all of us, be “prevaricate.” He should have said, “You prevaricate.” Before political correctness, when the American male species had higher standards, the term most frequently used in lieu of “prevaricate” was, and for men who still set their own standards is, “bulls**t.” A prevaricator is a “bulls**ter.” And that is different than a liar. Real men do not prevaricate!

It’s a guy thing.

Thursday, September 10, 2009

Tort Reform - Loser Pays

TheFundamentals supports reasonable tort reform. In past postings we have supported the “loser pays” rule and caps on noneconomic damages. Today, we will discuss the reform known as “loser pays.”

“Loser pays” places the economic test of risk/reward on litigants entering into a lawsuit. Under “loser pays” the party losing the case will bear the burden of paying not only their legal fees and costs but will also pay the winning parties legal fees and costs, including witness fees. At present, in the US, the winning party must still pay for their legal fees and costs. This is not the case in most every other advanced country. Court jurisdictions in advanced free societies expect the losing party to pay for all legal fees and costs. Included in “loser pays” are most, if not all, European countries, Canada, England and Japan. They seem to do just fine with the concept. They also find the reduction in frivolous, emotional and petty litigation much to their liking. Their lawyers and litigants are disciplined.

The most compelling argument to support loser pays is that most lawsuits settle out of court. So, most lawsuits never reach the point at which a judge or jury determine who won and who lost and many decided cases are never entirely determined to one party over the other. Instead the parties calculate the cost of proceeding and the likelihood of the outcome and then settle in a range that provides a cost/benefit/risk analysis based on those factors. This is the very logic that needs to be applied a bit earlier in the process. With a “loser pays” rule the parties will enter into a cost/benefit/risk analysis before filing and fighting claims. This discipline exists in virtually all economic decisions except litigation. Without a “loser pays” rule a party can roll the dice that they will get a favorable judge/jury decision and also rely upon the emotional aspects of certain litigants over certain other litigants. And, even if they read the case as too weak to proceed further, they can expect the other side to settle for some amount because the winning party still ends up incurring significant costs in proceeding and will settle to mitigate those costs.

The “loser pays” concept is simple and is the practice in most democracies. It works well. It adds a level of discipline to potential litigants and their attorneys that produce a careful evaluation of the merits of each claim prior to it becoming a lawsuit. The courts will have time freed up so that the costs to the public can be reduced which is vital in this time of deficits and debt. Lawyers will find their reputations and regard skyrocketing in the public view. Well, maybe not skyrocketing but, at least, a significant cause of disdain and derision will be removed. Some lawyers can be retrained and become productive society participants. The public will notice lowered insurance rates. It is a big win – win.

Loser Pays. It’s time for it to be an American fundamental.

Wednesday, September 9, 2009

Teachable Moment - Accountability

TheFundamentals remembers when the SEC was respected and feared. Not that long ago. Its budget then was a lot less than the current $900 Million. It has failed spectacularly. This government agency has routinely missed investment and accounting frauds and, to this day, fails to warn investors about obvious risks in the financial markets. It cannot find fraud when others point it out to them; it cannot simply identify risk for the citizens as is its stated purpose and it cannot discipline its own staff. It topped itself this past weekend. The SEC has an inspector general and that person/office issued a report (see it at: http://www.sec.gov/news/studies/2009/oig-509.pdf ) on the failings over many years of the SEC in the matter of Ponzi schemer Bernard Madoff. The SEC issued the report last week.

Here are words from the report, “The OIG investigation did find, however, that the SEC received more than ample information in the form of detailed and substantive complaints over the years to warrant a thorough and comprehensive examination and/or investigation of Bernard Madoff and BMIS for operating a Ponzi scheme, and that despite three examinations and two investigations being conducted, a thorough and competent investigation or examination was never performed. The OIG found that between June 1992 and December 2008 when Madoff confessed, the SEC received six! substantive complaints that raised significant red flags concerning Madoffs hedge fund operations and should have led to questions about whether Madoff was actually engaged in trading. Finally, the SEC was also aware of two articles regarding Madoffs investment operations that appeared in reputable publications in 2001 and questioned Madoffs unusually consistent returns.”

Here are the words of the new SEC chairman, Mary Schapiro, that preceded distribution of the full report by several days (i.e. the report was available for issuance at least two days earlier in the week which would have permitted better review prior to the three day weekend.)

“We have streamlined our enforcement procedures and are putting more experienced staff on the frontlines. We also have bolstered our inspection program, started to revamp the way we handle hundreds of thousands of tips received annually, begun to hire new skill sets, increased internal training, and sought more resources to keep pace with financial fraudsters.”

“Since becoming Chairman, I have been impressed by the expertise and dedication of the men and women at the SEC and their willingness to embrace the changes that we have undertaken to better protect investors. I am confident that together we will succeed in our efforts to revitalize the agency and help bolster investor confidence.”

The failings are legion: The fraud occurred over 16+ years during which 3 examinations, two investigations and six substantive complaints occurred and the SEC found NOTHING. And the new head says not a word about terminations of those responsible for the failings; not a word about anyone taking any responsibility. Instead we hear vague blather about streamlining, new skill set, training, more resources (read: Give us more money), dedication of the workers and more pure, simple crap.

The inexperienced man from Chicago could use this as a teachable moment. He could terminate all the senior staff of the SEC and accomplish many good things in one quick action. He would show backbone, accountability and responsibility in one move. This method would follow the treatment extended to a Chicago based auditing firm – Arthur Andersen, when its reputation was tarnished. It went out of business. And, the SEC thought that was just fine. How about applying the same standards of trust and reputation to the SEC? He would send a message to bureaucrats around the US that terminations are not off the table. And then, maybe the voters would see that change is a possibility and that he can be trusted with tackling even bigger jobs such as health care and the epidemic corruption between politicians and special interest groups.

Accountability is a fundamental; not just a campaign slogan.

Monday, September 7, 2009

Creating Jobs

What better day to discuss jobs than Labor Day?

Creating jobs is easy. It is as natural as breathing and walking.

There is really only one way to create jobs but we will discuss the political way in order to illustrate that you can create jobs the easy way or you can talk about it. Only the easy way works.

In order to create jobs one must understand the creation of wealth. Wealth is the conversion of something from the ground into something that has perceived value. Wealth is growing or extracting something from the ground and/or the making of something from that which is grown or taken from the ground. Labor (jobs) is required in order to grow/extract/make something. If you want jobs then you want wealth creation. Wealth creation to most humans is as fundamental as breathing and walking. There are some secondary forms of wealth creation. For example, transportation is a form of wealth creation. People like to get either themselves or their goods from one place to another.

If you like jobs, then you will love wealth creation. They go hand in hand.

Can you create jobs another way? No, you cannot. Can Mr. Obama create or save 3.5 million jobs? No, he cannot. Can the government create 3.5 million jobs? No, it cannot.

Well, why do they say they can?  :)

What promotes or encourages job creation? Anything that promotes or encourages wealth creation.

What discourages job creation? Unions, rules and regulations, unnecessary costs, government, taxes and payments to people for not working.

What can I do to promote job creation?   Move to a place that reads, understands and lives by TheFundamentals.  :)

Happy Labor Day.

Friday, September 4, 2009

Let's Get Moving

In July the nationwide unemployment rate reported by the Bureau of Labor Statistics www.bls.gov was 9.4%. In the old days, if you didn’t have a job you picked up and moved to a place that had jobs. We, at TheFundamentals, are here to help. We have made a list of those states with unemployment rates two full percentage points above the nationwide average, or 11.4%, and a list of those states with unemployment rates two full percentage points below the nationwide average or, 7.4% (many are below 7.0%.) If you live in one of the high rate states, move to a state with a low rate. People have been doing it for centuries. Here are the states:

High Rate States -- 11.4 % plus                                              Low Rate States -- 7.4 % or less

Michigan 15.0 %                                                                        North Dakota 4.2 %
Rhode Island 12.7                                                                      South Dakota 4.9
Nevada 12.5                                                                              Nebraska 4.9
California 11.9                                                                          Utah 6.0
Oregon 11.9                                                                              Wyoming 6.5
South Carolina 11.8                                                                   Oklahoma 6.5
                                                                                                Iowa 6.5
                                                                                                Montana 6.7
                                                                                                Vermont 6.8
                                                                                                New Hampshire 6.8
                                                                                                Virginia 6.9
                                                                                                Hawaii 7.0
                                                                                                New Mexico 7.0
                                                                                                Maryland 7.3
                                                                                                Arkansas 7.4
                                                                                                Kansas 7.4
                                                                                                Louisiana 7.4

There are 6 states over the average, dominated by California and Michigan. 17 states under the average! That’s a lot of choice – southern states, northeast, east, central, west, and even Hawaii. Here is the 800# for U-Haul (1-800-468-4285.) C’mon America. Let’s get moving! It’s an American fundamental.

Wednesday, September 2, 2009

Late Summer Reading

Please read yesterdays posting on Safe Districts, Seniority and Term Limits if you have not done so.  It is rather imformative reading.  We also suggest the following with particular emphasis on the Call to Action report about athletics and our colleges.  Your comments are most welcome.

George Will on the military’s Afghanistan adventure:

Christopher Hitchens on Edward M. Kennedy:

Detroit’s Mayor Bing on how to save his city:

LATimes on teachers unions:

Grey Swan on public sector unions:

Compliance Services Office website – The University of Michigan:

A Call to Action – Reconnecting College Sports and Higher Education (2001):

Government monitoring resale sites:

Tuesday, September 1, 2009

Safe Districts, Seniority and Term Limits

The older gentlemen known as the founding fathers got most everything right. Most everything. As TheFundamentals has noted, these fellows had jobs, professions, callings, farms, plantations and other forms of revenue producing activities that we now call “careers.” They did not view their banding together to kick out the slimy Red Coats as a career. They did not view their debating and embryonic political braying as a career. They did not view their drafting of documents (note to the current 536 – the founders wrote, read and understood the documents they considered) as hourly work. They did the founding work pro bono. No pay, no overseas trips, no staffs of interns, no private coaches, no fancy meals paid for “by the people.” So how did we ever mutate into the group of fools who “serve the people” in the House of Representatives and the senate today?

Mostly safe districts and seniority. The founders did not see these distortions coming. Let’s look at safe districts and seniority. There are five dominant members (below) of the house in leadership positions and several more in key positions. The following data show the name, district, date first elected and the Obama/McCain vote split in the district. The nationwide popular vote for O v. M was 53 to 46%.

Representative - District - Elected - O v. M % - RLE

Nancy Pelosi - CA 8th - 06/02/1987 - 85 v. 12 - 5 Years
Barney Frank - MA 4th - 01/05/1981 - 64 v. 35 - 5 Years
Steny Hoyer - MD 5th - 05/19/1981 - 65 v. 33 - 5 Years
Henry Waxman - CA 30th - 01/14/1975 - 70 v. 28 - 5 Years
Charles Rangel (a) - NY 15th - 01/03/1971 - 93 v. 6 - 5 Years

There are several facts that jump out from this analysis. One, these five leaders of the party in power have been in their congressional office at least 22 years and as many as 38 years. They have virtually no real life (RLE) experience (see TheFundamentals July 29, 2009) working a job or profession where they are subject to market and competitive forces and the possibility of job termination with or without cause. And, very importantly, the popular presidential vote margin in their districts was at least 11 percentage points higher than the nation and as many as 40 percentage points higher. Simply stated, their districts DO NOT reflect national preferences.

The seniority system in congress is dominating but not absolute. There are a few examples of high seniority representatives not holding committee chairmanships or party leadership positions. Darn few. When either party gain a majority it gets to advance its senior members who, as displayed above, come from districts where there is little or no opposition party strength (the other side of issues can be discarded) and they end up writing legislation and dominating the debate. Bad situation for the country. Not noted by the founders. (By the way, it is a very bad situation for the organizer but we will address that issue later.) Requires two changes: one, term limit amendment to the USConstitution and substantial legislation enforcing the limit of jurisdiction of the national government to the eighteen designated powers enumerated in Article 1, Section 8 (see TheFundamentals June 8, 2009.) Reminder: The USConstitution limits the national government powers! Do you need to be a constitution lawyer or expert or professor to understand that simple fundamental?

(a) This gasbag runs the most powerful committee in the people’s house – Ways and Means. His district voted 93 – 6 for Obama. Google this guy and check out his taxpaying and rules following peccadilloes. He makes Geithner look like a choirboy.