TIME TO FOCUS

If you are anything like me, you spend part of every day in a rage.  Almost every news cycle brings word of some policy blunder, agency failure or political misbehavior worthy of outrage.  Unhappily, our despair about all the small failings of the system lessens our focus on the two big things that simply must be done!!   

     

We must put our people back to work and we must come up with a plan to stop increasing our outstanding debts. Formulating and adopting credible plans to do both will put our economy back on track and restore our faith in the future.  

   

We are in the grip of the worst crisis the western world has seen since World War II – and still our national leaders prevaricate, waffle, and sometimes tell outright lies. The performance of the political class is a terrible commentary on our own inattention to the quality of those we elect to lead our government.  

Neither party has a monopoly on poor leadership - both seem populated largely by people either unwilling to tell the truth or too stupid to recognize it.  Since some of them are demonstrably intelligent, I’ll go with the probability that most are driven primarily by ambition rather than stupidity.  They just want to get elected – and the hell with the welfare of the country. 

As we begin the run up to the November election, the president is touring the country pitching the idea that anyone earning more than a million dollars a year should pay at least 30% of his or her income to the federal government. 

I’m not opposed to that idea – in fact, I think 30% is too low -- but the amount that millionaires pay is not the issue. Anyone who understands the numbers – including the president – know that if everyone who makes more than a million dollars a year pays at least 30% to the federal government we won’t make any recognizable progress towards  balancing the budget and eliminating our huge annual deficits.  For a simple, graphic and powerful explanation of just how big the problem is, watch

http://www.youtube.com/watch?v=ew5idwltaac&feature=youtu.be

 

The last year in which total US debt declined was 1957, when Dwight D. Eisenhower was President.  Bill Clinton almost balanced the budget in 2000, but fell about $18 Billion short. In every other year, government spending has substantially exceeded government revenues, and the debt has increased.

We ignore efficiency and refuse to impose accountability. We spend too much on things we do not need and tax ourselves too lightly to pay for the things we do need. We keep our national books wrong – even kids know that investing and spending are not the same – and none of us pay enough attention to how government manages our money. 

I don’t believe that anyone who has spent any time in or involved with Washington is likely to argue that government is efficient, a view underscored by our unwillingness to do such simple things as holding government contractors to the terms of their contracts, ending  Medicare fraud and collecting all the taxes that are due. These are simple things which competent people should be able to do without difficulty.  Unhappily, we seem unwilling to learn enough about what goes on in Washington to hold administrators and lawmakers to normal standards of performance. 

Since our political leaders seem to have little interest in anything beyond proving their opponents more guilty of “waste and inefficiency” than themselves, and since the two parties have completely different views about what we “need” from government, our political life seems to consist entirely of shouting matches about venality and error rather than discussions about solutions.

We need to focus on finding short term ways to stimulate demand – and jobs – and crafting a long term plan to match revenues and spending. 

    

Fixing our broken income tax system, which simply does not work, will be essential to meeting either of those goals.  Our current tax regulations encompass 44,000 pages, 5.5 million words and over 750 forms. The code is full of loopholes and gimmicks, cannot be understood by people without special knowledge and training, generates too little revenue to pay the federal government’s bills and imposes huge compliance costs on everyone.   And Congress keeps cutting the IRS budget, so we don’t collect about 15% of what is owed – which amounts to a shortfall of about $385 billion per year.   

To raise the money we need, everyone is going to have to pay more. We need to eliminate the ability of individuals to deduct mortgage interest on huge homes and vacation properties. We need to stop letting companies pay health care premiums while allowing the employees who benefit to exclude those payments from their reported income. We need to insist that everyone who employs household workers make the required contributions for Social Security and Medicare.  We need to acknowledge that it makes no sense to allow hedge fund managers to report their compensation as capital gains.

People who want to solve the problem need to acknowledge that we don’t pay as much in taxes as most other countries.  Last year, Americans paid about $2.62 trillion in federal taxes and $1.42 trillion in state and local taxes.  Our collective income came in at about $14 trillion, which means an average tax rate of a bit more than 29%.   A 2008 survey put the composite tax rate at 27.3%, much lower than the average of 36.2% paid by all OECD countries.   Most Western European countries run in the low to mid 40% range.  Among OECD countries, only Turkey, Chile and Mexico have lower overall rates than the US. 

Those on the right seek to mislead by claiming our 39% corporate tax rate is too high, despite knowing full well that actual corporate taxes in the US average roughly 12%.  Many companies pay even less.  On April 29^th, the NY Times published a study revealing that Apple paid a rate of only 9.8% on the almost $35 billion it earned in 2011.  That is clearly not Apple’s fair share!

Critics like to point out that some other countries have lower statutory rates, and they are correct.  But in other countries, actual tax rates and statutory tax rates are closer to the same than in the US, which makes lots more sense to me.

The bottom line is that we need to raise taxes, and sooner or later, we will do so. I think everyone is Washington knows that and although a few will acknowledge it, most will deny it.  Everyone needs to step up and get the job done, since waiting just makes the problem worse and the solution more painful. 

Everyone in government – on the left and on the right -also needs to acknowledge that there must be big spending cuts.  Some will result from greater efficiency – doing more with fewer resources – and some will come from giving up some of the programs we think we “need”. A big piece will have to come from Defense, since we spend far more than any other country in total and per capita. Another big piece will have to come from modifying Social Security and Medicare, which can be means tested and age adjusted without imposing too much pain on anyone.   Neither Democrats nor Republicans will be happy – but both have an obligation to set aside their ideology and get the job done.  

Happily, there is a plan available.   Not long after he was elected, the president appointed the Simpson – Bowles Commission, which came up with a solid plan to substantially reduce our deficits by cutting costs and raising taxes.   Unhappily, because it included lots of unpopular things, both the President and the Congress ignored its recommendations.   It’s time for everyone to set ideology aside, endorse the Simpson-Bowles recommendations and thus lay down a marker that America is serious about fixing its problems. 

While adopting a plan that will curb deficits in the long term, we need to make sure we invest enough in the short term to stimulate the economy and put people back to work. We can do so by providing funding to make good on the $2 billion infrastructure maintenance deficit we’ve accumulated.  Building and repairing roads, fixing our dams and bridges,  creating a 21^st century energy distribution network, bringing water and sewer systems up to date,  and making needed repairs to our schools  is different from spending on current consumption.  These investments, which will generate lots of decent jobs, will also lay the foundation needed to keep the US competitive and growing in the years ahead. Balancing the budget in the short term is less important than revitalizing our economy; balancing the budget in the long term is essential to restoring confidence in the future and assuring continuing prosperity.  

  

Doing all this would make lots of people mad, and will doubtless mean that some politicians will lose their next election. However,  I suspect that those politicians courageous and smart enough to offer credible plans will win more often than they lose.  

The public isn’t as stupid as the politicians seem to believe.   The public knows that the government can be run more efficiently but also knows that even an efficiently run government needs sufficient  resources to defend the country,  safeguard our food supply, regulate our financial institutions, defend our environment, sustain and improve the country’s infrastructure, provide a first rate education for every child  and sustain the social safety net. The public knows that we cannot balance the budget by spending cuts alone. I think most people also know that allowing the planned year end spending sequester to occur, refusing to stimulate employment by investing   in refurbishing the infrastructure and having another pointless debate about raising the debt ceiling will weaken our already fragile confidence and will   likely to drive the country into recession.

Most politicians know all this as well, but seem so obsessed with ambition that they continue to prevaricate, waffle and lie. The President, Governor Romney and our congressional leaders steadfastly avoid fulfilling the responsibilities of the leadership roles they all seek so avidly. 

Meanwhile, on July 3^rd, only a day before our national holiday, the Director of the International Monetary Fund warned of the need for a fiscal course correction in the United States. What a disgrace!! 

It’s clearly time to focus – and since the politicians won’t do it without encouragement, it’s up to us to push them along.  

To get it done, we all need to pay more attention, study more carefully, participate more fully and complain more loudly.  If we don’t, our kids and grandkids will pay the price. 

WILL SOMEONE PLEASE EXPLAIN?

Last summer, I built a new home in Gloucester, Ma.  Since I did not want to use fuel oil, and since many of my neighbors have natural gas in their homes, I asked National Grid, the local natural gas provider, to run a line to my new house.   No way, said National Grid.  It’s a long way – about a quarter mile – and it’s very expensive and we won’t do it.  So, as an alternative, I installed a geothermal system.  It cost a lot, but I got a tax break, and I don’t have to burn fuel oil.  Unfortunately, most people can’t afford such systems and end up burning oil, much of which we refine from petroleum we buy on world markets from countries that seem to dislike us intensely.   

It was a very irritating experience, and since we do not have natural gas available at my home in Florida either, it got me thinking about why natural gas is so hard to get. After all that cogitating, I concluded that like many who will read this, I just don’t understand.  It could be, of course, that the experts are right, and the great issues of the day really are too complicated for me to understand. Then again, it may be that we’re stuck with a political system that simply refuses to take on the tough problems we need to solve.   

Take the price of gasoline, for example.  The press – newspapers, talking heads, political “experts” – are full of conversation about how the President’s electoral chances are being adversely affected  by the price of gasoline.  Of course, no one bothers to explain just what it is the President can do about gasoline prices, and no one seems to care.  Like all things, anything bad must be someone else’s fault – in this case, the President’s fault. 

And there is, of course, no conversation at all about the things we could actually do to reduce automobile fuel costs  – and  other national problems like unemployment and energy independence.  It seems that the folks we send to Washington are great at raising money and spouting slogans and lousy at coming up with solutions.   

So maybe someone can explain why we don’t take advantage of our huge deposits of natural gas to solve several problems more or less simultaneously.  First, let’s pass legislation requiring every company that provides natural gas to homes and businesses to connect any home or business that wants gas.  We already require telephone companies to provide universal service, and we all pay for uneconomic telephones with those pesky surcharges on our phone bills.  Is there some reason we cannot require universal natural gas service, and recapture the costs associated with installing the lines via service charges on all users?

Installing all those gas lines – and additional pipelines to move gas around the country – would generate lots of jobs, which we certainly need.  Given the economics of oil vs. natural gas, making natural gas service universally available will cause a lot more people to heat their homes with gas, which is currently selling at record low prices and for far less than its price in other countries. When we’ve done those things, we will have put a lot of people back to work, generated lots of jobs, saved consumers lots of money and taken a big step towards energy independence.   

While we’re at it, it would be sensible to pass legislation requiring every filling station to have at least one natural gas fueling point and additional legislation requiring that all cars manufactured in the United States after 2015 be equipped to run on either natural gas or petroleum derivative gasoline.  The result?  Still more jobs, a much higher level of energy independence, and much lower fuel prices for drivers.

I’m sure there are people who would oppose these steps.  The automobile manufacturers would tell us that making cars dual fuel capable would be very expensive, while the oil companies would no doubt proclaim that mandating natural gas for cars is state socialism.  And the natural gas providers would no doubt claim that they cannot possibly live with the adverse cash flows associated with fronting the cost of installing gas lines to all those houses.   In my view, none of those objections hold much water, since the public benefits of these changes would be huge. 

What do you think?  Are such solutions really beyond us?   

LEARN A LITTLE - PAY A LOT. WE CAN DO BETTER

    

 I’d guess that many of you, like me, have been awestruck by what it costs to send a kid to college these days.  A year at a top school costs more than I made until I was more than 15 years out of graduate school. 

Even worse, many of the kids aren’t learning much.  In January of 2011, Richard Arum of New York University and Josipa Roksa of the University of Virginia published a study entitled “Academically Adrift”. The study revealed that 45% of four year college students from the class of 2009 “did not demonstrate any significant improvement in learning” during the first two years of college and that 36% had the same outcome after completing their entire college career!!

That’s not surprising given the very modest academic requirements college administrators impose on their students.  In recent studies, the American Council of Trustees and Alumni has found that 95% of schools do not require students to take a basic course in Economics, despite the fact that without a basic grasp of the subject, it’s impossible for citizens to understand the world they live in. 85% of schools do not require an intermediate-level grasp of a foreign language, 80% do not require a basic course in American history, 62% do not require a course in either world or western literature, and 34% do not require a college level mathematics course.  And 16% of our colleges do not even require a basic course in English composition – which explains why so many college graduates cannot write coherently.

As an alternative to the core requirements most of us remember from our college days, schools now offer hundreds of alternatives that students can use to satisfy what most schools characterize as distribution requirements.  Unfortunately, this proliferation of courses is a major factor in driving costs ever higher, since employing professors who choose to teach highly specialized courses drives up total academic salaries and decreases academic productivity.

In addition to driving up costs, the proliferation of courses calls into question whether students who do not participate in a common core of academic preparation  can achieve  the presumed objectives of education – acquiring a broad knowledge of subjects relevant to being a citizen, a voter and a participant in an economic life which is more changeable than static. 

 

At the University of Wisconsin, for example,  the “Humanities, Literature and the Arts” requirement can be satisfied with courses on “Costume Design II”, “Introduction to Television” and “Critical Internet Studies”. At San Francisco State, students who do not want to take “Introduction to World Literature” to satisfy the “Humanities and Creative Arts” requirement can substitute “Arts and Crafts for Leisure” or “Contemporary Design in Housing and Interiors”.  The list of absurd choices is endless.

Meanwhile, colleges continue to build new facilities, despite their underutilization of existing facilities.  To do so, colleges typically incur debt, which must be covered with higher tuition charges. At universities across the country, buildings sit empty on many days. The Saturday and Monday classes we all dreaded during our college years have disappeared, as instructors and students express their preference for light workloads and short weeks by jamming classes into the preferred Tuesday to Thursday window.   

In January of 2012, reacting to a report that highlighted the proliferation of academic programs and the University of Maine’s seemingly insatiable appetite for new construction, the board of trustees  froze tuition for in- state residents. For the first time in 25 years, Maine residents will not see a tuition hike at their state university.       

   

As we all know, one of our society’s problems is the number of people graduating from college – or attending but not graduating – who are burdened with enormous debts. Many factors contribute to this problem.  One is the inadequacy of career counseling and the unavailability of good apprenticeship programs to direct those without academic inclinations to schools where they can acquire the skills needed for high technology manufacturing and the many skilled trades.   Another is the inclination of parents to push students who are not college- ready to enroll in programs they cannot complete. Still another is the willingness of colleges and universities to encourage students to use readily available taxpayer- funded loan programs to fill out their enrollment requirements.  

Many students incur debt and never graduate, thus handicapping themselves both academically and financially for the years ahead.  Among those who graduate, the scarcity of good jobs and the burden of their debts drive many home to their parents.  Even for those able to live independently, however, substantial debt breeds insecurity and risk aversion among the young people we hope will start businesses and explore new technologies, thus reducing the dynamism of our society and the presumed value of higher education.

There is another problem as well.  As costs have soared and the number of  indebted graduates has risen, many able students have chosen not to take on the financial burden required to finance  the education they need to achieve their full potential.  Our country’s future depends on an educated and capable work force; we cannot afford to bypass the capabilities of the many young people now opting out of higher education.    

Is there a solution?  Sure, but like most problems, this one requires that more of us get involved.  Everyone with a stake in higher education – citizens, taxpayers, prospective students, students, parents and grandparents – needs to insist on a much higher level of accountability from the administrators and trustees of our colleges and universities.   

When considering attending or contributing to a school, we need to ask harder and more insightful questions.  Is there a rigorous core curriculum?  Does it include all the essential academic components? How many hours does the typical professor teach per week and how is academic productivity measured?  How many new programs have been opened during the last 10 years and how many have been discontinued?  What are the occupancy levels of academic buildings by day of the week?  What percentage of revenues flows to administrative costs, what percentage is devoted to instruction and how have those percentages changed during the last 5 years?

You can find out more about the problem – and solutions – by visiting the web site of ACTA, the American Council Trustees and Alumni, where you can find copies of “What will they Learn”, from which I’ve gleaned  many of the facts in this note.  www.goacta.org/   Among other things, a quick pass through the web site will give you a much clearer understanding about what you are buying when you write your next check and a better idea of how you can provide guidance for the students and prospective students in your family.    

What will it take?

These days, there is little good news and lots of bad.  Almost every day brings reports of dishonesty, inhumanity, incompetence, or indifference so inconsistent with our image of ourselves and our country that it makes the blood boil. There is so much bad news that the rage it generates is dissipated by its pervasiveness. It’s hard to choose which of the many  horrible conditions and events we hear about is worst and equally difficult to decide which of many possible causative events is the most likely underlying cause of our many problems.  We know things have gone seriously wrong, but we’re just not sure what we should or can do about it. So most of us, uncertain about the facts and unsure of how to proceed, wait and hope for clarity. 

It makes one wonder what it will take to move us to action.  

Every now and then, someone breaks through with a summary which makes clear just how bad things are.  Last weekend, Charles Blow reported on a recent study by the Bertelsmann Stiftung Foundation in Germany. The Foundation has done a comparison of social conditions in the 34 countries that belong to the OECD – The Organization for Economic Co-operation and Development.  20 years ago, I would have expected the United States to be the leader in most categories.  Since we have clearly abandoned policies that will produce leadership in a host of areas – education, health care, economic equality, and our physical infrastructure among others – I no longer cling to the illusion that we are leaders --- but I was not prepared for a scorecard as bad as what turned up. 

The study ranks the 34 OECD member countries in nine areas: Social Justice, Poverty Prevention, Overall Poverty Rate, Child Poverty Rate, Senior Citizen Poverty Rate, Income Inequality, Pre-Primary Education and Health.  In five of the nine areas, the United States ranks among the bottom five countries – which means there are at least 29 that do better! In two areas – Senior Citizen Poverty and Pre-Primary Education – we rank in the bottom 10, which means there are at least 24 that do better.  And in Health, we rank in the bottom 15, which means there at least 19 – and probably more, since we don’t know our exact rank – that do better.

It’s a very troubling scorecard, which unhappily corroborates  similar results produced by other studies. We’ve heard before that despite spending far more per citizen than other countries, our health care results are worse than those of countries that spend lots less.  We also know that our educational system is failing our kids, and that our academic results are falling further and further behind those of countries with more rigorous, if less expensive, educational systems. And the National Academy of Science has told us very clearly that our infrastructure is no longer competitive and that we are more than $2 trillion in arrears on maintenance spending alone – much less what we should have been spending on new facilities. 

Things have reached the point where about the only area in which we lead is defense spending, which is not buying the assets needed to produce the kinds of society we want to leave our kids and grandkids.  Excessive defense spending also begs the question of whether the values we are supposedly protecting from others are being eroded away by our political system here at home. 

It is increasingly difficult to find any course of action on which a majority of Americans agree.  We do seem to agree that our political system has failed – barely 10% think well of Congress and less than a majority think the President is doing a good job. The” all for one and one for all” spirit of years past has vanished and we seem moribund, unable to agree on either what the problem is or how to fix it.

Whatever else we do, we must find a way to come together again.  We need a political structure that will produce a government we can trust and a plan to restore America that we can agree on.  That’s a tall order and one that seem increasingly out of reach of our bickering politicians. 

But as a wise man once said, the longest journey begins with a single step.  In my view, a big part of our problem can be attributed to the fact that we have less common interests than we had in times past, that too many of us see the other guy as too different from ourselves to be reasoned with, and likely part of a social strata that is either beneath us or one to which we can no longer aspire.  A big part of the America I grew up in was the almost universal belief that anyone could do anything if they really wanted to – and since many of us badly wanted to improve ourselves, the system produced lots of social and geographic mobility. 

One of the things that has cost us our common interest is the steadily increasing inequality of wealth and income in America. In today’s America, the top 1% takes 17% of all income, while the bottom half of the population gets only 13% -- the worst disparity since 1929.  Unless things change soon, the country will suffer from even worse inequality 10 years hence.  Increasing inequality has serious social and economic implications to which our increasingly ideological mind sets have paid far too little attention. If you are interested knowing more about those consequences, and how they are contributing to our many difficulties, you might want to spend 15 minutes listening to Richard Wilkinson go through some very impressive data laying out how income inequality has impacted societies around the world. You can find his talk at http://www.ted.com/talks/richard_wilkinson.html 

My own view is that in one way or another – there are various alternatives available – we must reduce both income and wealth inequality, and re-ignite the spirit of the common good.  Doing so will not be easy. 

We are in the midst of a political campaign – they seem  to have become perpetual – during which we should be having substantive discussions of why things are as they are. Unhappily, our prospective leaders assiduously avoid all serious subjects and seem focused on nothing beyond attacking one another about various and sundry trivia.  Even more troubling is the emergence of political action groups of every stripe, handsomely funded by special interests whose financial contributions are no longer limited by law. Unless I miss my guess, this year’s campaign will be the most expensive ever, and it will be even more difficult than it has been in the past for citizens to gather substantive information or for candidates to speak truth. 

This problem isn’t going to be fixed unless we – the citizens of the great United States of America – fix it.  Each of us needs to set aside our ideological pre-convictions, gather information from many sources (including those ideologically inconsistent with our own views),  think carefully, discuss and debate more openly than we have in the past, formulate possible solutions – and insist that those who seek to lead deal with the substance of the country’s problems.  There is no other way back to greatness.