Wednesday, August 27, 2008

it's time to save money

after watching this tiresome self-laudatory democratic convention, I started wondering what specific things should be done. it's easy to be cynical about our parties. they speak of things like $1000 tax credits for this, or vague references to universal healthcare -- without any mention of what form it will take. are we really to believe that the HMOs and drug companies, with their money and lobbying, will face any real challenges from this democratic party?

what bothers me is that they don't talk specifically about real problems.

broken education -- for years, americans have complained about public schools, but been able to take solace in their universities. problems looming in the student loan business, which recklessly lent billions to unsuspecting minors, threaten to strike at its soft financial underbelly.

education was its own bubble -- financed by a wave of cheap and easy money.

bubbles end badly. education won't be any better and we're only now starting to see the start of this process. it won't improve quickly.

broken production: for various reasons, economic production has been leaving the USA over the last 40 years. everything prompting this decline -- taxes, environmental and labor laws, plus the myriad issues I don't even know -- remains in place. I don't see a reason to expect a change soon. factories won't just magically spring up in this economy.

companies have been taking capital back out of the economy (more than $1.9 trillion of net stock buybacks since the start of 2005, according to the Flow of Funds report.)

executives don't see investment in the U.S. as very worthwhile. that's why capital expenditures by non-financial companies rose 40% between 2002 and 2007 (according to table f.102). but net stock buybacks rose 1277%.



broken consumption: over the last 10 years, it has relied on debt, not real income growth. that's why household debt outstanding it up 81% since the start of 2002, while the overall economy is only 36% bigger, according to tables L.1 and F.6. now that the big spenders, aka babyboomers, need to think about their retirements. the days of blowing hundreds on impulsive purchases of new sheets at the linens n things is over. people need to tighten belts now.

broken healthcare: need I say more?

broken institutions: whether's its OFHEO, the FAA or the FDA, they're messed up.
this really should be no surprise when you look at the entity carrying it out: the federal government... the federal govt has been a disaster on domestic issues since it was created in the 1790s. it was charged with taking care of indians and permitted their rapid genocide. its next big job was to protect freedman after the civil war; jim crow followed. then we asked it to prevent large monopolies in 1890s, and the greatest wave of corporate consolidation followed under JP Morgan.
still, the federal bureaucracy grew... especially in the 1930s and 1960s. but it's a terribly ineffective organization that has messed up healthcare and education.
(this is a basic structural problem that worries me about washington. too many people make money from the corruption and special interests. they will fight to hang on.
when you look at federal power closely, you realize much of it comes from an expansive reading of the interstate commerce clause: everything from workplace civil rights to environmental laws to labor standards is based on this reading.
this was never the intent of the founding fathers. if they had wanted the federal government to rule in these areas, they would have given it more oversight and more definition. they were masters of government. in the places they did structure government, they created things like the overlocking system of checks and balances we still revere today -- they wrote the book on seperation of power and written constitutional law.
aside from a handful of specific powers, such as issuing money, defining bankruptcy norms and running a post office, the federal government was given almost no authority under the constitution. the supreme court even ruled in 1875 that Washington has no direct power over cititzens. this ruling was upheld in 2000. (link)
quite simply, the federal government was never meant to do 80% of what it does on the domestic front. because things like medicare and medicaid were never designed by the genius of our founders, but by lobbyists, they can never work. )

so, what should be done? what sort of solutions, however implemented, would help?

it needs to begin with real costs affecting real people...

most importantly to me:
the government needs to seek ways to cut costs.

my idea is simple: the federal government already provides hundreds of billions for various healthcare programs. I propose that washington instead pays individual states to cut their health-care costs. the lower the healthcare part of their CPI report, the more money they get.
this would shift responsibility to the states, the same way progressivism worked in the 1890s. few people think about all the positive things STATE governments did long before FDR, etc.

at the same time, rotating councils of randomly chosen citizens selected by age, would monitor the situation in each state. no politically tainted public appointments.
the nice thing about our economy now is there are so many kinds of waste that can be taken out of the system. people can do more than just drive smaller cars. the internet will open up entirely new options in things like carpooling and remote office work.
houses that now bake under the sunbelt's glowering blaze can be covered with dirt, significantly reducing the their need for air conditioning. roads can be adapted to suit more scooters and smaller vehicles. the average person just doesn't need to carry around so many tons of steel.

I also have proposed a new financial paradigm to channel capital effectively into alternate investments: letting companies like Exxon Mobil set up green companies as subsidiaries that could be spun off as separate companies at advantageous terms. this would slow some of the disinvestment currently occuring via stock buybacks. (I believe Exxon is #1 on the list of stock buybacks... why not use that money to create jobs, promote alternate energy AND enrich shareholders all at the same time?)


(also, when I considered the education bubble before, I realized that a bubble is actually just localized inflation. it happens when the money supply matching an asset grows easy, especially when the money is provided by a profit-seeking lender ... such as housing. there are also the non-debt funded kinds of inflation, such as the stock market bubble in the 1990s or cases of real demand growth. but it's interesting to conceptualize it as localized inflation.)

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