By Cheryl Grey, on November 28th, 2008
There’s been a lot of chatter in the financial news this
past week concerning deflation, with one blogger for the Motley Fool [http://caps.fool.com/blogs/viewpost.aspx?bpid=111216&t=01001019292467236494]
even proclaiming, “Clearly deflation is here.” But is it?
Are we there yet?
Deflation is defined as falling prices over a lengthy and sustained
period of time, often combined with a decrease in the money supply. Therefore,
an unusual one-time tick lower of the monthly Consumer Price Index [http://www.bls.gov/news.release/cpi.nr0.htm]
does not qualify. Granted the core CPI measure also fell slightly, which is
even less common because it doesn’t register the volatile effects of energy and
food prices.
Instead, the October decrease in CPI is the unwinding of the
run-up in prices during the first half of the year, the one that culminated
with gasoline at $4.50 per gallon and crude oil at $147.27 per barrel. Keep in
mind that, although retail prices fell 1.0% in October, they nevertheless
remain 3.7% higher than they were in October 2007, almost double the Federal
Reserve’s unofficial “soft” inflationary target of ~2%.
Analysis of the cycle
The disastrous deflationary spiral known as the Great
Depression actually began in August 1929 when the U.S. slipped into recession,
arguably due to a poorly-timed tightening of interest rates by the Federal
Reserve. Not long after, an asset bubble burst (in this case, the overly
leveraged stock market), leading step by step to loss of wealth, defaults on
loans, undercapitalized banks, and bank failures. As banks deleveraged by
reducing the ratio of credit to deposits, they ceased writing loans, causing a
credit crunch which further damaged businesses and the underlying “real” economy.
At the same time, nervous depositors yanked their money from
banks and dumped it in the Mattress Savings and Loan, withdrawing it from
circulation and slowing the economic recovery further. Meanwhile, fiscal policies
enacted by the Hoover administration were ineffective (and sometimes
ill-judged) and the Federal Reserve’s monetary policy is generally considered
to have been nothing short of disastrous. To be fair, they were hampered by the
rigidity of the gold standard then in effect.
As economic historians (and just about everybody else) like
to point out, that same description holds true for the current U.S. situation.
However, there are a few important deviations. For example, investors are hoarding
money in Treasury securities rather than mattresses, and the Federal Reserve
has aggressively loosened monetary policy since the initiation of the crisis in
the summer of 2007.
One of the most important of these deviations is the abandonment
of the gold standard in 1971. A strict adherence to a gold standard is
inherently deflationary, as there’s only so much gold to spread around while
the population worldwide is increasing. As pointed out by Ben Bernanke, the
head of the Federal Reserve System and an expert on the economics of the Great
Depression, the strictness with which a nation stuck to the gold standard was
directly related to how deeply that nation was affected [http://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.htm].
Real-world defense
In a speech delivered November 21, 2002 [http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm#fn17],
Bernanke stated that the first line of defense against deflation is to prevent
it by maintaining an interest rate above zero, which is why the Federal Reserve
does everything in its power to ensure you spend more for food and clothing
this year than you did last year.
Should the first line of defense fail for whatever reason,
the second is to inject sufficient liquidity (money) into the economy to shock
the system back to health. In his November 21 speech, Bernanke mentions the
famous solution offered by Milton Friedman (the father of monetarism) of
throwing money from helicopters, as good a liquidity injection as any other. The
comment earned Bernanke the nickname of “Helicopter Ben” among journalists for
some time.
As the Great Depression and other recessionary episodes
(such as the Lost Decade in Japan) have shown, slow or inappropriate monetary
policy can exacerbate a downturn into deflation or delay recovery significantly.
Seven decades of economic research and study are now being applied in a
real-world model by a student of the first round. We’ll find out if it works.
By J.D. Seagraves, on November 26th, 2008
In 2007,
Citigroup was the largest bank in the world, worth over $300 billion. This was
the peak of the Federal Reserve’s latest inflationary bubble, and business for
Citigroup—a chief participant in the Fed’s legal counterfeiting—was good.
Fast
forward to November 21, 2008. Citigroup’s stock was more than 94 percent off
its high of less than two years before. Now, just like AIG—once the world’s
largest insurer—Citigroup was in need of a huge dose of corporate welfare in
order to stay afloat. “It’s for the good of the country,” apologists said.
“Citigroup is too big to fail.” Clearly this was untrue: Citigroup was too big not
to fail.
The
Covert Bailout
If you
don’t follow financial markets as part of your job (or a sick and twisted
hobby), then you might have missed the news about Citi—whose bailout was nearly
five times larger than AIG’s. There was no vote taken by Congress, and that’s
because, the last bailout was the bailout to end all bailouts—or at least end all
discussion of bailouts: it gave the Treasury department the authority to bail out
any firm, any time, any place, without congressional
approval. All the Treasury secretary has to do is “notify” Congress. Isn’t that
quaint?
But don’t
worry: the Treasury department is barely on the hook for Citi’s welfare
package. Instead, the Federal Reserve will shoulder most of the burden. The Fed
doesn’t collect taxes, so where will it get the money to bail out Citi? It create
it out of thin air!
Just take a
look at the details: The total bailout package is $306 billion. Citigroup
itself will assume the first $29 billion in losses—wow, how honorable. It will
also assume 10 percent of all losses beyond the first $29 billion. The Treasury
department will take on 90 percent of the next $5 billion, and the FDIC (the
bankrupt Federal Deposit Insurance Corporation) will take on 90 percent of the
next $10 billion. Then the Fed will create new money to cover 90 percent of the
next $262 billion.
The
Fed’s Magic Checkbook
Now the Fed
doesn’t technically “print” money—that’d be too cumbersome. Instead, it writes
fraudulent checks, “monetizing” debt against its promise to pay. How will it
pay later? By writing more checks! This is absolutely no different from you having
a magic checkbook that allowed you to write any check for any amount without
bouncing.
By
“monetizing” this debt, the Fed expands the money supply electronically. If
need be, Fed Chairman Ben Bernanke calls up his partner in crime Henry Paulson
at the Treasury department and asks him to print up some more paper. But more
often than not, the money just exists in cyberspace.
The
Deleterious Effects of Inflation
What are
the effects of all this new money being created? Well for one, expanding the money
supply is by definition inflationary. The Fed and its fellow central banks have
tricked the world into thinking “inflation” refers to rising prices, but
truthfully, rising prices are an effect of inflation. Inflation is the
creation of new money, which tends to cause prices to rise since there are more
dollars (or euros or yen) chasing the same number of goods and services.
Secondly,
there is a redistributionist effect. When the Fed creates billions of new
dollars and gives them to Citigroup, the value of the dollars in your pocket
goes down. The value of each individual dollar in Citigroup’s account goes
down, too, but the increased quantity of dollars in their possession via the
bailout increases the company’s total purchasing power. Thus, it’s not as if
the Fed creates money to give to Citigroup at no one’s expense—it’s at everyone’s
expense except Citigroup’s. Of course, thousands of corporations get billions
of dollars this way all the time, so they’ll never complain. Meanwhile, Joe
Sixpack is wondering why he can only afford a three-pack for the price he paid for
a case last year.
The
People Are Waking Up
Inflation
is theft, and for the first 137 years of our republic, most Americans
understood this. That’s why monetary policy was the driving issue behind three
consecutive presidential elections, 1892 through 1900. Sadly, central banking
has not been an issue on the voters’ minds since the passage of the Federal
Reserve Act in 1913, at least not until recently.
This past
weekend, on November 22, thousands of Americans gathered in cities with Federal
Reserve regional branches in order to protest central banking and fiat money.
November 22, of course, is the anniversary of John F. Kennedy’s assassination.
JFK is rumored to have been a behind-the-scenes opponent of the Fed, and it is
substantiated that he planned to issue U.S. Treasury notes backed by silver.
Conspiracy theorists allege that this is one of the reasons behind his
assassination, and while the evidence supporting this theory is thin, one thing
is for certain: monetary policy is a matter of life and death, and it’s time
that more Americans wake up to this fact.
By Tamera Daun, on November 26th, 2008
Paulson has spoken. Yet again.
The Treasury decided to increase the spending stakes. Paulson sang a familiar tune today, humming $600 billion for mortgage backed securities, and $200 billion meant to thaw credit for consumers. He aims at greater credit availability for student loans, car loans, and healthy new mortgage loans.
For average Jack and Jill citizens like me, the complex jargon of Paulson’s plan may sound good and well. We hear that the availability and affordability of credit will once more flow our way. For those of us that dare to ask the question of ‘why?’ underlying the decision to spend additional borrowed money in this manner, Paulson’s answer is clear. The answer is that financial institutions are still not performing as expected. Trend turned risk-averse, the lending industry is still shaking from their own mistakes, and non-existent viable risk policies. Go figure.
Here’s the deal. The fact that lending institutions are not performing as expected is the argument put forth at the bailout turn around each, and every corner. Paulson was forced to act again as the GDP fell 0,5% in the third quarter. However, the focus of average citizens is once more diverted from their own everyday realities.
Let’s bring the subject home.
Despite Citi’s rescue plan, the public was informed that they still plan to lay off 50,000 employees, and that interest and fee rates will increase. Yes, this includes credit card debt, as if those rates were not already sky-high. Considering the size of this giant conglomeration, the potential number of Americans affected is unsettling.
Furthermore. The plan that Paulson outlined in his press conference today will take a few months to implement, so any potential consumer effects cannot be evaluated until after he has left Treasury. The plan aims to solve the availability problem of new credit eventually applied for. That is, if the plan proves to work. It does nothing with the existing credit troubles of taxpayers, and we have to remember where the first bubble burst.
Although consumers are accountable for living beyond their means, forgotten is the predator lending that has taken place. Meanwhile, foreclosures continue, the unemployment rate of 6.5% is rising, and more jobs will be lost in the meantime. Although a credit thaw may save a few jobs in the future, most taxpayers with maxed-out credit lines and increased fees, may not necessarily increase their spending. They will most likely exist in survival mode, and be less concerned with ’stimulating the general economy’.
They say that certain entities are too large to not be saved. Yet, the ‘meanwhile’ effects are grossly underestimated, and these ripples may prove to be catastrophic. Will Paulson’s plan prove to work in the future? Don’t hold your breath, because the roller coaster ride is far from over.
Tamera Daun, Pentad©.
By Dirk McCoy, on November 25th, 2008
Today, Barrack Obama announced the core of his economic team. Timothy Geithner will lead Treasury, Larry Summers will head the National Economic Council, and Christina Romer will chair the Council of Economic Advisers. In his news conference, President-elect Obama stated that they would “do whatever it takes” to pull the US economy out of its current swoon. He also indicated a desire for transparency and clarity in his economic policy making as well as making sure “Main Street” benefits as well as “Wall Street”- nothing new in these statements.
However, these appointments are a key tell in what should be a key strategy for economic recovery- monetary expansion. While the Federal Reserve has already implemented major rate cuts and recently undertaken quantitative easing, the effects of these policies will not be felt for 6-9 months, as is the general case with monetary stimulus. The greater risk could be that, just as a brief monetary expansion was put on hold in 1932 (not a good decision, it turned out), renewed concerns about inflation could create pressure on the Fed to cut short an effective monetary response. But these appointments indicate that will not be Obama-led pressure.
All three- Geithner, Summers, and Romer- have indicated an understanding of monetary stimulus to provide short term benefits for economic growth. Geithner, for example, was one of the leading proponents of keeping rates lower back in 2006 and has historically been dovish on monetary expansion. Summers, while touting the benefits of fiscal stimulus last year, has also supported monetary expansion. The most interesting pick here could be Mrs. Romer, as she has has expressly written that nearly all the positive economic shifts during the Great Depression were attributable to monetary expansion rather than some Austrian school view of natural economic recovery.
While President Obama has indicated a desire for redistribution of wealth in the US economy, and based on the election results, will oversee it, there are different ways to effect this redistribution. Taxation and welfare is one way, but monetary expansion is another, because it ultimately creates higher levels of inflation. As long as capacity and technology can come to the rescue (and there is plent of both available) so that core inflation can be moderated, this monetary expansion can be expected to continue.
Just as money has time value, it should also have a half life. Without inflation, the wealthy can all too easily hoard their capital. With inflation, they must either spend, or invest- or their wealth is, in fact, redistributed. And redistribution to money earners- those who labor and invest- is not a bad idea for growing an economy. And make no mistake, Mr. Obama and his team are focused on growing this economy.
By R. C. Anderson, on November 24th, 2008
Although doctors have been able to perform surgeries on babies before their birth for the last 20 years, it has only recently become an option that could be practiced more frequently in the near future. Currently, the risky nature of a surgery to a pregnant mother and child has limited the use of this practice to only the direst of cases. When successful, however, surgeries of this type can be used to correct some severe problems such as spina bifida by surgically closing the hole through which the spinal cord mistakenly extends. Since doctors know that a majority of the problems caused by spina bifida occurs before the baby is born, repairing it during this stage can help to reduce side effects, paralysis and unwanted brain fluid1.
The reality of in utero surgeries are so risky, however, that there is some debate regarding which ones should be attempted. The hole resulting from spina bifida can be closed through surgery, as well as the hole caused by congenital diaphragmatic hernia (CDH). With CDH, the hole is in the baby’s diaphragm. This causes a problem since the organs that are supposed to remain in the abdomen can move upwards into the chest. This displaces the lungs and often causes the baby’s death soon after birth since the lungs have little room to develop properly. Unfortunately, when surgeons began trying to correct CDH while the baby was in utero, there were several problems. For example, if the liver had moved upwards into the chest, the blood flow could easily become compromised, killing the baby2. Even worse, fetal surgery of this sort which requires the mother’s abdomen to be opened raised the possibility of a premature delivery. Given these problems, movement towards a safer procedure to accomplish the same goals has become paramount.
It is hoped that with stem cell research and gene therapy, doctors may be able to decrease the risk inherent in fetal operations by combining these new therapies with less traumatic surgeries as well as increase the number of fetal diseases they are able to diagnose in utero and treat. In fact, some believe that surgeries requiring the mother’s abdomen to be opened in order to reach the baby will be completely replaced by stem cell or gene therapy within the next 20 years.
Dr. Dario Fauza, a surgery associate at the Children’s Hospital Boston, has found a way to separate the fetal stem cells from the amniotic fluid. Using these cells, doctors might be able to cause them to grow into tissue that would cover the hole. Although not currently possible, it is suspected to be achievable in the next 10 years. If this worked, it could quell the intense side effects sometimes seen from current fetal surgeries. Stem cell therapy of this kind is seen by many scientists as the future of medicine and very promising. By introducing the cells needed by the baby while in utero, it is thought diseases could be corrected before severe symptoms occurred. Furthermore, since the immune system of the baby would be weak, it would more easily accept such stem cells. Also, since the baby is still a small mass of growing and differentiating cells, introducing new stem cells at this point would allow them to integrate more fully and succeed more definitely.
Gene therapy, a second alternative to the current fetal surgery is interesting in theory however, in practice it has yet to progress as far as stem cell research has. This has been studied in mice, however, not in humans3. This type of therapy manipulates viruses to introduce a gene needed by the patient to their cells. For a developing baby, this may interfere with their development. Also, a foreign gene such as this could initiate an immune response which could be counterproductive. As such, gene therapy will most likely be used only in the most ominous of situations.
Spina bifida affects 1 in every 1,500 babies each year while CDH occurs in 1 of every 2,500. In the U.S., $230 million each year is spent due to CDH4. According to the Centers for Disease Control (CDC), $636,000 is spent for each baby born with spina bifida during their lifetime5. This is only a small fraction of the costs associated with the various diseases children can be born with. If the possibilities for stem and gene therapy come to fruition as many scientists believe they will, these costs can be reduced for both the families affected as well as the government.
1. Nature Medicine 14 (11), 1176-1177 (2008)
2. J. Pediatr. Surg. 32, 1637-1642 (1997)
3. Opin. Mol. Ther. 9, 432-438 (2007)
4. J. Pediatr. Surg. 30 (2), 226-230 (1995)
5. Spina bifida costs and facts
By Stephan Zimmermann, on November 21st, 2008
The financial liquidity crisis is in full swing around the world. It is no wonder that experts and novices alike seek ways and means to prevent a future recurrence. Many different solutions are enacted and proposed. All of them center on wealth and money or votes.
Questions regarding the reemerging push for a return to a gold standard and our discussions of earlier Austrian school of economic theories abound.
Such discussions especially flourish during major financial crises.
Certainly, gold has been viewed by civilizations for some five thousand years as stable and desirable. Why? Simple – man cannot easily destroy it, nor create it. It has been considered both wealth and money.
It certainly meets both ancient and modern economics’ criteria for wealth. To a lesser degree, it meets the definitions for money.
First, it is a medium of exchange. Almost everyone agrees to trade if gold is involved.
It serves as a store of value. In other words, gold cannot only serve as money, but it is actually a tangible representation of wealth.
It is a standard of value. People can agree that one ounce of gold is equal to a fixed amount of some other good or service.
Since it is rare instead of plentiful, that standard remains in tact as long as people agree. Richard Nixon unilaterally arranged for the United States to leave the gold standard in 1971 for political and economic interests. Gold prices “floated” against other currencies, and no country since then has remained on a gold standard.. Nonetheless, gold has been and can remain a basis for contracts, debts and other private or national obligations.
Finally, it is a unit of account. That simply permits us to set prices, costs, or profits. In short, any money, whether gold or silver or fiat (paper) money issued by a government, gold can fulfill that function.
Without too much difficulty, gold can also simply exist to guarantee the use of fiat money. That places a currency on the gold standard, and simply means that a government certifies that it has enough physical gold (as in Fort Knox or the IMF vaults in New York) for every dollar of fiat money it issues.
Your, or a country’s credit, is limited by the amount of gold owned.
Enter the problem.
It may be simplistic, but bears repeating. It is, after all, the reason why economics came into being in the first place. Supply and demand.
The fundamental law of economics assumes that mankind wants an almost limitless amount of goods or services. That includes everything from basic foods to intangible things like religion.
Those “wants” may have both positive and negative effects.
In a world where all physical goods are limited, if supplies are finite while wants are unlimited, we instantly see the basis for having to make choices. The choices can be resolved in civil manner by trade or, in the extreme, by war.
Therein lies the fundamental problem of gold as a backing for fiat money, or as a direct global currency.
There simply is not enough gold on the planet, existing above ground or yet to be mined, to back all the fiat currencies that have been created to accommodate the continually rising population in this world.
Better yet, if we applied simple supply and demand laws, the price of gold would reach enormous proportions compared to the universally accepted world standard of the equivalent US$700 per ounce at today’s values. Careful, please, the price may rapidly move or down from that level!
We know reasonably well how much gold there exists on the planet. We also know approximately who owns how much, both in physical gold and in reserves still to be mined. With the expected gold craze to continue, major exploration and mining companies are hoping to bring those underground reserves to daylight to join in the speculative fever of potentially recovering gold.
For example, Northgate Minerals Corporation (TSX: NGX, AMEX: NXG) announced September 8, 2008 that it found new mineral reserves at its Australian site, including some 140,000 ounces of gold. In their press release, the company stated that the find “will extend the current mine-life by an additional 18 months until the fourth quarter of 2011.” (biz.yahoo.com). (www.northgateminerals.com)
If you do simple math and use today’s value at $700/oz., that results in some $98 million. At a cost of some $20/oz, that results in a nice profit for the company and its shareholders.
However, that amount pales on a macroeconomic level.
It would make little difference on a world-wide basis for the United States, the International Monetary Fund, South Africa, Russia or Canada as countries. Russia, for example, recently announced continued progress in its Kamchatka gold discoveries.
Trans-Siberian Gold’s Asacha mine is estimated to process some 608,000 ounces of gold over the expected six and a half year life. It has not yet commenced drilling. The company is traded on the London stock exchange. (TSG-L)
In short, the supply of gold is reasonably fixed with only relatively small increases foreseen in the near future.
We can also reasonably predict general industrial and commercial uses for gold, such as electronics, medicine and personal jewelry.
With normal supply and demand predictable, the excess demand for speculation drives the price on the international gold market. It is a speculator’s and gambler’s heaven!
There are good and bad aspects to a national or world-wide gold standard.
Making gold convertible into a certain amount of dollars, yen, Euros or whatever would certainly restrict the amount of money each nation could spend. As such, it would artificially impose a certain financial prudence on the part of government issuance of fiat money. It would be likely to sharply curtail spending and investment.
It should certainly cause policymakers to think twice before wasting assets in such futile endeavors as wars not designed merely to defend a nation’s borders against intruders.
However, a return to the gold standard would impose a limit on growth, and thus on employment. History shows that unemployment was far more extensive under the gold standard than without it. Despite the speculation, irresponible credit use and eveb criminal activity, no one can challenge the tremendous growth in entrepreneurship worldwide sice the Reagan and Clinton administrations.
Whether it is the Federal Reserve or another central bank, interest rates would still have to be adjusted – even in a 100% gold-backed currency – to maintain that currency’s value relative to the arbitrary value agreed to and set upon an ounce of gold.
It all ultimately depends whether you want to put your trust in your fellow man (or woman) based on a shiny metal to back your country’s currency or on a piece of paper backed by the “full fait and credit” of the United States or any other country.
If you truly believe more in gold than in the ultimate productivity of the dollar, the yen or the countless others, by all means buy some gold directly through any one of dozens of legitimate gold currency dealers. Not issued by any bank, but backed directly by the gold you purchase, some of that gold is denominated in Dinars or Dirhams or Rials. Islam does not believe in interest or usury, but fixed fees. Remember, though: the value of your gold could rise or fall, depending on what the market dictates.
*
By Cheryl Grey, on November 20th, 2008
The advantages of going virtual for companies are obvious. One
of the greatest of these, yet one that’s often overlooked, is the ability to
select employees without geographical limitations or relocation costs. This
also carries cost-of-living possibilities even within national borders, as, for
example, the price of an editor outside of New York City is rather lower than
the price of one in Manhattan.
However, the most obvious and admittedly greatest saving for
companies is the real estate or total lack thereof. The comparison between a
month’s rent in an office complex to a month’s hosting on a web server is
laughable, and when IBM freed their sales and service personnel from corporate ties,
the savings on office space alone ranged from 40% to 60% per location and
totaled $35 million annually. AT&T gave their sales staff wifi laptops and
turned them loose, also letting go almost ten stories of office space and
cutting costs by 50%.
In addition to reducing direct property costs such as
maintenance and utilities, this also reduces other, less tangible ones as well,
such as liability premiums. After all, how many customers have ever slipped and
broken a leg on a website?
Shifting grounds
For employees, the benefits also seem obvious: save on
transportation, stress, clothing, and dry cleaning, work at home rather than fight
the traffic, live anywhere rather than stick near the office, be home for the
kids, dogs, Maytag repairman. But economically speaking, is it that simple?
In their thought-provoking book Revolutionary Wealth,
Alvin and Heidi Toffler put forward the concept of the “third job.” A person’s
first job, of course, is employment, what we do to earn money; the second,
unpaid job is the tasks that make up the background of life, such as running
the kids to soccer practice or cleaning the kitchen. But the third job, also
unpaid, consists of all the jobs that employees of businesses used to do for us
as part of customer service, but which we are now expected to perform for
ourselves.
The classic example of the third job is banking, and the
very alteration of the word symbolizes the change. The word “bank” used to be a
noun. It was a place people went to deposit or withdraw money, get a copy of a
check, or clear up a discrepancy in one’s statement. Now, however, the word has
become a verb, something that we’re supposed to do for ourselves either online
or at an ATM. The teller behind the counter hasn’t yet become a dinosaur, but
their employment trend is definitely on a downward slope.
This same dynamic is at work in telecommuting. The cost of a
brick-and-mortar establishment doesn’t evaporate; it’s shifted onto the
employee as a percentage of her home is reallocated to serve as her office. To
the mortgage or lease can be added supplementary costs such as electricity,
telecommunications, water and sewage, and even coffee. Additional expenses that
may be incurred include a back-up computer, equipment insurance, and
uninterruptible power supply. While some of these costs would, of course, be
taken as tax deductions or reimbursed by the parent company, or offset by the
savings in other areas, the idea of itemizing one’s beverage of choice is
humorous rather than businesslike. Yet the reality of the cost increase remains.
This third job has been touted as self-service, the ability
to manage our time and tasks for ourselves, and truly there is a gain in
convenience. But that convenience comes at a cost as efficiency is achieved not
through higher productivity per se but through fewer employees.
In addition, rather than merely collecting a paycheck, the
employee is now expected to request reimbursement for those costs considered
reasonable—that third job again, convenient but at a cost of time and effort
nevertheless. It’s also worth noting that the burden of proof has also shifted,
as a business generally pays their own light bill without question but scours employee
reimbursement requests for the same utility for evidence of artificial
inflation.
The concept of an employee-less society seems to be in the
same category as the paperless office we were promised in the 1980s. But the
parameters of employment are changing. As the Tofflers point out in Revolutionary
Wealth, the job as we currently know it is less than 300 years old; before
that time, craftsmen were expected to provide their own tools and workspace.
Perhaps that wheel is completing its circle.
 Join the forum discussion on this post - (1) Posts
By G.L.C., on November 19th, 2008
Inheritance is a civil right and not a natural right. Way back in 1898, the Supreme Court ruled that the right to take property by devise or descent is the creature of the law and not a natural right. The government had the absolute right to decide as to the terms upon which a person should receive a bequest or devise from another. Limitations on inheritance offer equality of opportunity. Taxing inheritance at the source is fairer than taxing income earned as a result of hard work and effort.
Estate tax legislation was first passed in 1916 as a response to the excesses of the Gilded Age. The objective was to shift the tax burden from the Midwestern and Southern states to the rich Northeastern states. The tax burden in those days was mainly in the form of tariff duties and excise taxes. The legislation was recognition that democracy was at risk if too much wealth and power was concentrated in the hands of a few.
One cannot deny the contribution of estate tax to the progressivity of the tax system. The estate tax is the most progressive of any of the federal taxes. The main objective of estate tax is to reduce inequality of wealth and income. It basically applies only to the rich.
Only the super rich stand to benefit from the repealing of estate tax. Without estate tax, billions of dollars in revenue would be lost. The revenue loss over the next decade could be over a trillion dollars. This, at a time of record deficit, could impose an unconscionable burden on future generations. The trade deficit is at a historic high of $61 billion and growing. There are no plans or methods to repay it. This can plunge the U.S. into a drastic economic depression at any time. To make up for this, the government will have to increase taxation or cut Social Security, Medicare, environmental protection and many other government programs which are essential for the overall development of the nation. Any cut or decrease in these programs would be unfair and life-changing to middle class Americans and to the needy, children, elderly, and disabled.
Estate tax also encourages contributions to charity. The present system of estate tax afford the affluent a way of reducing the size of their estates by making contributions to charity. In fact the system operates as an incentive to contribute to charity.
Opponents of the estate tax system harp that it has led to many middle-class Americans losing their estate because of the taxes owed. This has been proved wrong by a study conducted by an organization called United for a Fair Economy. When the exemption increases to $3.5 million in 2009, the share of estates taxed will be about 0.16%. Rest of the estates will pass to the heirs tax free.
Another favorite argument of the critics is that estate tax is a form of double taxation – the estate holder has already paid income taxes and property taxes. Estate tax is not a tax on the estate-holder. It is a tax on the heirs who inherit the estate as an unearned gift.
Repealing of the estate tax will only benefit the rich. Middle class Americans will end up paying more taxes to make up for the revenue deficit.
By R. C. Anderson, on November 18th, 2008
Think back to the last time you went to the doctor. Were any tests run? Did the doctor seem to guess at what was wrong? Were you prescribed medicine that didn’t work or you didn’t need? It seems that any more, when you visit your doctor, you are really being treated by your insurance company. Two weeks ago, my husband and I woke up with sore throats. In the two weeks that followed, my husband began coughing up blood and I developed a persistent cough. After multiple visits to various doctors, the ER and the Urgent Care Center, we are still not sure what is wrong. This entire time almost no tests have been run to ascertain the actual problem and what medication to prescribe for it.
First, we were told we probably had a virus since a strep test came back negative. For this we were each prescribed Tamiflu, an anti-viral, and a special gargling solution. Within two days we were back, my husband’s throat in such pain, he could barely swallow to eat. He was given pain pills (which didn’t work) and steroids to reduce inflammation. He was also prescribed Valtrex, another anti-viral medication.
Within two days, he was in the ER, asking for something to stop the pain. Another strep test was run which, again, came back negative. The nurse and physician’s assistant were rude, barely listened and useless, while the floors and general state of the ER was filthy. We were not the only ones to receive sub-standard care. The patient in the bed next to us was informed that a cab was waiting outside to take her home. “Wait,” she yelped, “what do I have? What do I need to do about it?” The nurse informed her that she had most likely had a panic attack but couldn’t tell her anything about what that meant, how to recognize the attack if it recurred or what to do about it. It was left to the security officer who was keeping the woman company to explain what a panic attack was, what they felt like and why they occur. My husband and I were appalled that this woman would be released from the hospital without anyone bothering to tell her the diagnosis or how to manage it. To add to this disgrace, my husband became infected with pink-eye in both eyes after coming home from this ER visit.
By the weekend my husband was at the Urgent Care Center coughing and sneezing blood. We were told it was most likely a sinus infection and were prescribed an antibiotic. While this has helped, we still have no idea what was actually wrong and have spent approximately $400 on doctors who have rushed through a minimal exam, have run almost no tests and have prescribed whatever medication correlates with their current theory, the majority of which has not helped us at all.
While my husband spent two weeks in pain, I spent that time deteriorating into a persistent, frequent cough that continues to make breathing difficult when a long coughing “fit” occurs. First, I was prescribed viral medication. After a week, the cough was so uncontrollable I went to the Urgent Care Center where I was told I probably had Whooping cough. I was given the test and prescribed antibiotics and cough suppressant syrup and pills. Within three days I was back to the doctor, the cough suppressants having failed. This doctor said I probably had a simple sinus infection and I was prescribed a steroid and a different cough syrup.
These stories do not recount isolated events. A family member also went to the doctor complaining of sinus problems. The doctor refused to run any tests to determine exactly what the problem was. Instead, he wanted to prescribe an antibiotic based on what he thought might be wrong. After the patient persisted, however, he finally ran a test. Of course, the doctor noted in the medical records that the test was run “at the insistence of the patient”. It was lucky that our family member knew which test to ask for since the results caused the doctor to change the antibiotic prescription. The pharmacist noted the original prescription would not have worked for the infection our friend actually had.
All of this leads to the questions: why are doctors so resistant to running tests and why do they prefer to guess at how to treat their patients? The answer seems to lie at the door of the insurance companies. Unfortunately, healthcare is a business. This means the insurance companies are constantly watching their profit margin and trying to pay out as little money as possible. The doctors end up answering to the insurance. Rather than the doctor doing what they believe is medically prudent, they guess at diagnoses in order to keep the insurance companies at bay. This is why the note “test run at insistence of the patient” was added to the files. This system allows those in insurance who have no medical training to direct doctors who are supposed to be in charge of their patient’s well-being, not the insurance company’s bottom line.
Healthcare is a big business. William McGuire, the former CEO of United Health Group, walked away with $124.8 million as compensation in 2005. After a financial scandal he was forced to return $400 million of his stock options which total $1.6 billion. The rest remains frozen. In 2005, McGuire was the third highest paid CEO on Forbes list of 500 highest paid executives. This seems more than unfair; it seems almost criminal that while many patients are driven into debt or bankruptcy, insurance executives have made off with huge paychecks. If health insurance is a business, then business is good.
Pharmaceutical CEOs are reaping profits too. Merck, responsible for Vioxx, recalled the medication when it was found to increase the risk of stroke and heart-attack. While Merck’s stock price dropped, their CEO, Ray Gilman, received a bonus. He made $37.8 million in 2004. In 2007, many top CEOs took a 15% pay cut. This was, however, only after their average pay raise of 38% in 2006. Even after this pay cut, the top 500 executives still had a combined profit of $6.4 billion, or $12.8 million each. As for the new CEO of United Health Group, Stephan Hemsley, he ranked 346 out of the 500 top paid CEOs on Forbes 2008 list. This means in 2007 he was paid $4 million.
In 2007, $2.3 trillion passed from patient’s pockets to the healthcare industry. This was 16% of the gross domestic product and 4.3 times what is spent on national defense. Insurance premiums for plans offered by employers rose 6.1% and for small businesses with 24 employees or less, premiums rose 6.8%. To meet the insurance premiums, employees spent 10% more in 2007 than they did in 2006. Since 2000, premiums have risen 100% while wages have only grown by 21%. In 2005, a Harvard University study found that of those filing for bankruptcy, 50% were doing so due to medical bills.
It is unlikely the government would run the healthcare system any more competently, efficiently or inexpensively (look at social security, welfare and the government set-up Fannie Mae and Freddie Mac). However, it seems something needs to be done. While people should have insurance and should not foist their bills onto other tax payers, they should not be taken advantage of. Nor should their diagnosis be guessed at by doctors more concerned with saving time and money to appease the insurance conglomerates than their patients. There must be a better way other than allowing the insurance business to hold patients hostage within a system that has basically formed a monopoly. Either insurance is obtained through the large insurance companies or your family remains uninsured. There are no other options available.
With the type of Mafioso-style stranglehold insurance companies hold over doctors, one must wonder if insurance-for-all, with insurance in its current form, is the solution that many seem to regard it as. Rather, it must be asked if giving insurance companies more power over decisions that only doctors are qualified to make will truly garner the best outcome for the patient. Perhaps we should consider reforming our insurance system and doctors rather than expanding insurance’s reach to every American.
References:
1. Providence Journal
2. McGuire Appeals Freeze on Stock Options
2. Forbes 500 List 2005
3. Top Paid CEOs 2008
4. Forbes 2008 Top CEO Rankings
5. Poisal, J.A., et al, Health Spending Projections Through 2016: Modest Changes Obscure Part D’s Impact. Health Affairs (21 February 2007): W242-253.
6. California Health Care Foundation. Health Care Costs 101 — 2005. 02 March 2005.
7. The Henry J. Kaiser Family Foundation. Employee Health Benefits: 2007 Annual Survey. 11 September 2006.
8. Himmelstein, D, E. Warren, D. Thorne, and S. Woolhander, “Illness and Injury as Contributors to Bankruptcy”, Health Affairs Web Exclusive W5-63, 02 February , 2005.
By Bhagwad Jal Park, on November 17th, 2008
I arrived in the United States a few months ago with my wife. It was my first time to America, and I was looking forward to experiencing new things and enjoying myself. However, I am becoming aware that far from being everything that America is hyped up to be, the United States is terrible place to live.
In many respects, it seems vastly less developed than my own country – India. In this article, I will focus on just one aspect of it. Namely how consumers are happy to let big corporations walk all over them. I realize that coming from another country gives me a unique perspective on what I see is very wrong with the economic structure here.
Image Credit: MSH*
Let me take the first concrete example of what I mean. In India, a consumer has complete freedom as to which telecom company they want to stay with. Say I have a handset. Based on whose service I like, I can choose to use that handset with any telecom provider I choose. And next month if I want to change over to another one, I can do so immediately. I can just replace the SIM card with that of another company. This is perfectly legal and is very much the norm.
Imagine my surprise when I found out that in America you have to buy a phone attached to a particular firm (Either AT&T or T-Mobile or whatever)! Not only that, you are obligated to pay them every month, or else your credit history is tarnished. It’s amazing. How do customers put up with such shabby treatment? It seems as if the big telecom firms are holding customers to ransom. I say shabby, because compared to India where the consumer dictates terms, in America the big corporations call the shots. You can’t switch schemes without paying a contract breaking fee etc. In other words, the corporations have you locked in.
In addition, people here are forced to pay for incoming calls. Regular Americans seem to be okay with this. In India, if a telecom company started to charge incoming calls they would be laughed out of business. As I said, you can switch over anytime you want. In fact (and this is hilarious), a particular telecom provider (Virgin actually) pays consumers for incoming calls! Yet American consumers are unaware that they’re being fleeced. And in fact, what choice do they have? All telcos are the same. Even if they were willing to switch after paying the “Contract breaking fees”, it would be like jumping from the frying pan into the fire.
Moving on, I will now proceed to demonstrate that Internet companies also take advantage of their consumers and force their whims and fancies down their throats. As of now, what is to prevent say AT&T from imposing a cap of 50 GB download per month on their consumers? In fact, proposals to limit and even monitor traffic are in the pipeline. If Americans are outraged by such activities, who cares right? What choice do they have? Shifting to Comcast is no better! Once more, honest Americans seem unaware of the fact that service providers can do whatever they want by just imposing their policies down people’s throats.
This could never happen in India. And I know why. In India, most of the infrastructure for telephone lines and the Internet (Over 95%) is owned by the government and private companies lease it from the government. The government has it’s own telephone and Internet service (Called BSNL). If at any time the major Indian telcos decide to collaborate and shove a policy down the throats of the consumers (including raising the prices to any level they want), we will just shift en masse to the government service! For the government to change it’s policies is a different issue altogether. If the government suddenly decides to charge incoming calls, they will be voted out of power in a heartbeat. Thus it will never happen.
Before coming to America, I thought that complete privatisation was a good thing. Now after coming here I see that it leads to exploitation of consumers through cartels. Having certain infrastructure in the hands of the government is a saving grace for Indian consumers who love their freedom and hate restrictions. And the first opportunity I get, I am going back. America isn’t the land of the free that I thought it was. Enslavement by corporations, and being held to ransom by having your credit history checked at every point is the norm. And I never want someone to be looking over my shoulder like that.
|
|
Most Popular Posts