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ObamaCare Kickoff! By How Much Will My Insurance Rates Drop?

In Uncategorized on September 30, 2013 at 11:48 pm

It’s a cool evening in Illinois.  I’m sitting here on the cold, metal stadium seating, typing by backlight of a laptop.  ObamaCare kicks off in less than an hour!  And perhaps the Federal Government partly shuts down.  Assuming he’s still on the team payroll at midnight, when the President steps forward, will he sky the pigskin to the seats?  Or will it be a squib kick, bouncing a few times before dying? 

Back in 2010, Obama promised I’d be able to keep my plan if I like it, keep my doctor, and my premiums would drop.  I’m so excited!  In just a few minutes, assuming the Illinois ObamaCare website actually works, I’ll see how much I will save!  Yes, there are many ‘glitches’ with the roll-out.  If I, say, wanted Spanish language enrollment in Nevada, mala suerte… hasta Thanksgiving.  Small business plans?  Oops, check back some other time.  But, here in this ‘blue’ wonderland we call Illinois, government healthcare looks as unstoppable as a three hundred pound lineman.

Check back for the latest in health care savings… brought to you by ObamaCare!

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Minimum Wage Much Higher, Adjusted For Inflation, Than In 1938

In Uncategorized on July 28, 2013 at 2:28 pm

Joe Biden and others on the Left speak with reverence of 1968.  Is it the Summer of Love and urban riots they speak of?  No, the minimum wage, which adjusted for inflation, was higher than today.  “Just pay me what you paid folks in 1968”, Joe recently said. [1]

Biden is cherry-picking the year, though.  The minimum wage peaked in 1968, and today’s minimum wage is higher than it was in 2007, 1938, 1947, 1953, 1988 and plenty of other years.  And excellent graph that shows how today’s minimum wage is not particularly low by historic standards, and certainly much higher than was intended when introduced in the 1930s, can be found at CNN Money: http://economy.money.cnn.com/2013/02/14/minimum-wage-history/. [2]

A minimum wage increases unemployment, for teenagers and others with low skills and a lack of experience; workers whose productivity is worth less than $7.25 are priced out of a job.   The 2007-2009 minimum wage increases were, for example, a time of increasing unemployment.  The impact of the minimum wage, of course, is greater the higher it is.  A 25 cent increase will have a sight effect on employment; whereas a large increase, to say, the $22 per hour Senator Elizabeth “Big Chief” Warren (D-MA) demands, would impact a large number of workers and greatly disrupt the labor market.

Sadly, though, minimum wage tends to be an emotional issue, rather than one which is debated logically.  Joe Biden, Barrack Obama and others who want a higher minimum wage tend to use deceptive evidence when they claim today’s minimum wage is supposedly so low by historic standards.  It’s not.  And they use the absolute high point, 1968, as their reference.  This is no surprise, since they conveniently ignore that minimum wage earners are, disproportionately, teenagers, college students, and others looking for part-time work.  Few are raising families, whereas Biden, Obama and their ideological soul mates falsely imply everyone on minimum wage is a sole-breadwinner of a big family.  In the real world, too, even mediocre employees receive pay raises.

[1] http://blogs.wsj.com/capitaljournal/2009/03/17/a-history-lesson-for-vice-president-biden/

[2] http://economy.money.cnn.com/2013/02/14/minimum-wage-history/

ObamaCare Buyer’s Remorse

In Uncategorized on April 20, 2013 at 12:36 am

The Administration’s implemenation of “ObamaCare” is proving problematic.  Some unions are not turning against the very law they once supported.  See this link for a detailed story: http://finance.yahoo.com/news/unions-grow-wary-health-law-034700539.html

The International Union of Operating Engineers Local 150 of Countryside, Ill., which represents construction workers and insures about 65,000 people, is also examining whether some lower-earning workers would eventually be better off leaving the union-sponsored plan and instead getting federally subsidized insurance.

 

“I’ve told my members, as this evolves, your health care will not look like it does today,” said James Sweeney, president and business manager of the local. “I have to cut it back.”

One of the laws’ architects, Sen. Max Baucus (D-MT), told HHS head Sebelius he sees “a huge train wreck coming down” because of Administration implementation failures.  (see  http://www.politico.com/story/2013/04/max-baucus-stirring-controversy-on-all-sides-90295.html#ixzz2QycKQV7Z)

Nobel Prize Winner Gary Becker Argues For Drug Decriminalization

In Uncategorized on January 6, 2013 at 9:18 pm

Nobel Prize winning economist Gary Becker and his University of Chicago colleague, the esteemed Kevin M. Murphy, discuss the failure of the American War on Drugs in the linked article (free, no pay wall): http://online.wsj.com/article/SB10001424127887324374004578217682305605070.html  Murphy was the 1997 winner of the John Clark Bates Medal, granted every other year to the top American economist under age 40.

The economists point out:

The paradox of the war on drugs is that the harder governments push the fight, the higher drug prices become to compensate for the greater risks. That leads to larger profits for traffickers who avoid being punished. This is why larger drug gangs often benefit from a tougher war on drugs, especially if the war mainly targets small-fry dealers and not the major drug gangs. Moreover, to the extent that a more aggressive war on drugs leads dealers to respond with higher levels of violence and corruption, an increase in enforcement can exacerbate the costs imposed on society.

The large profits for drug dealers who avoid being caught and punished encourage them to try to bribe and intimidate police, politicians, the military and anyone else involved in the war against drugs. If police and officials resist bribes and try to enforce antidrug laws, they are threatened with violence and often begin to fear for their lives and those of their families.

Mexico offers a well-documented example of some of the costs involved in drug wars. Probably more than 50,000 people have died since Mexico’s antidrug campaign started in 2006.   For perspective, about 150,000 deaths would result if the same fraction of Americans were killed. This number of deaths is many magnitudes greater than American losses in the Iraq and Afghanistan wars combined, and is about three times the number of American deaths in the Vietnam War. Many of those killed were innocent civilians and the army personnel, police officers and local government officials involved in the antidrug effort.

They address some of the perceived benefits of the admittedly costly War on Drugs:

It is generally harder to break an addiction to illegal goods, like drugs. Drug addicts may be leery of going to clinics or to nonprofit “drugs anonymous” groups for help. They fear they will be reported for consuming illegal substances. Since the consumption of illegal drugs must be hidden to avoid arrest and conviction, many drug consumers must alter their lives in order to avoid detection.

Usually overlooked in discussions of the effects of the war on drugs is that the illegality of drugs stunts the development of ways to help drug addicts, such as the drug equivalent of nicotine patches. Thus, though the war on drugs may well have induced lower drug use through higher prices, it has likely also increased the rate of addiction. The illegality of drugs makes it harder for addicts to get help in breaking their addictions. It leads them to associate more with other addicts and less with people who might help them quit.

….

Just as gangsters were largely driven out of the alcohol market after the end of prohibition, violent drug gangs would be driven out of a decriminalized drug market. Since the major costs of the drug war are the costs of the crime associated with drug trafficking, the costs to society would be greatly reduced even if overall drug consumption increased somewhat.

Pictures from Wikipedia Commons.

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Top Democrat Donor Shut Down Hostess Twinkies

In Obama Administration, Political Rhetoric, Uncategorized on November 22, 2012 at 12:53 am

Box of Twinkies

Richard Trumka of the AFL-CIO had it all wrong in his bizarre attack on the private equity firm that backed Hostess Foods, maker of Twinkies and Ding-Dongs.  He said, “What’s happening with Hostess Brands is a microcosm of what’s wrong with America, as Bain-style Wall Street vultures make themselves rich by making America poor.” [1]

Not only does Bain Capital have nothing to do with Hostess, union overindulgence hurt the competitiveness of the maker of Wonder Bread, which was already strained by market changes.  Even more rich than white Twinkie filling is the fact the actual private equity owner is Ripplewood Holdings.  According to tracker OpenSecrets.org, Ripplewood gave $141,000 to the Democratic National Committee in the 2010 cycle, making it the 10th biggest DNC donor and the largest amongst private equity firms. [2]  Ripplewood was founded by Timothy C. Collins, a major donor to Democrats. [1]

Collins’ family gave a half million dollars to the Obama Super PAC Priorities USA. [3]  That means he personally is responsible for almost all the anti-Bain ads of the 2012 election, because they were almost all run by Priorities USA.  [6] This includes ads rated as wholly false by the Washington Post Factchecker such as the one that claimed a death was caused by Bain. [7] 

Collins gave another “$90,800 to Democratic campaigns and committees during the 2012 election cycle.” [3]  Collins also is on the board of the Hamilton Project, a liberal interest group, where he sat with big Obama Administration names like Timothy Geithner, Peter Orszag, Jason Furman, and Democratic power Robert Rubin. [3]  He leveraged former Democratic House leader Richard Gephardt to aquire Hostess. [1]  Collins met personally with President Obama six times at the White House and another four with Obama advisor Valerie Jarrett. [3]  A search of the Huffington Post’s political donation database shows 85 instances of Collins making donations and they were almost exclusively to Democrats. [4]

Hostess logo with heart.jpg

Did Ripplewood cause the demise of Hostess?  As discussed in many business periodicals, Hostess struggled with evolving American tastes, high costs and antiquated union work rules.  As written by Holman Jenkins in today’s Wall Street Journal

Union-imposed work rules stopped drivers from helping to load their trucks. A separate worker, arriving at the store in a separate vehicle, had to be employed to shift goods from a storage area to a retailer’s shelf. Wonder Bread and Twinkies couldn’t ride on the same truck. [5]

Hostess spent eight of the past 11 years in bankruptcy.  Trunka’s quote is nearly Marxist in its off-base attack on a private equity firm that tried, but failed, to save Hostess.  Ripplewood isn’t “making itself rich.”  Despite taking some amounts out, Ripplewood will lose almost its entire $140 million investment in Hostess.  What put the Hostess workers into the unemployment lines?  Look in the mirror, Mr. Trumka.

Collins and his Ripplewood firm have every right to donate to the same Democratic Party that spent the past year demonizing what they do for a living.   We see they are quite capable of ding-dong decisions.  The First Amendment lets Trumka spout nonsense.  But, he is wrong to attack the Bain firm which was less involved in Hostess than good nutrition was.  Blaming Hostess on Bain while absolving the unions is a case as flimsy as a tower of Ding-Dongs piled as high as a stack of the 140 million dollars Ripplewood lost on its investment.  And to Mr. Collins, now that you are getting blowback from your anti-capitalist “friends” like Richard Trumka, just remember one of Hostess’s own products: when you deal with Devil Dogs…

[1] http://dealbook.nytimes.com/2012/11/19/private-equity-and-hostess-stumbling-together/

[2] http://www.opensecrets.org/parties/contrib.php?cmte=DNC&cycle=2010

[3] http://freebeacon.com/all-in-the-family/

[4] http://fundrace.huffingtonpost.com/neighbors.php?type=name&lname=Collins&fname=Timothy

[5] http://online.wsj.com/article/SB10001424127887324352004578130912150512612.html

[6] http://abcnews.go.com/blogs/politics/2012/07/friends-with-benefits-pro-obama-superpac-running-almost-100-of-all-anti-bain-ads/

[7] http://www.politifact.com/truth-o-meter/statements/2012/aug/09/priorities-usa-action/pro-obama-group-blames-romney-womans-death/

Pictures from Wikipedia Commons.

Ethanol Uses 40% of US Corn; Can We Afford It in a Drought?

In Obama Administration, Uncategorized on August 12, 2012 at 1:42 pm

Image

The Wall Street Journal points out, with corn prices projected to hit record levels as US supply is projected by the USDA to drop 13% to 10.8 billion bushels, [1] a rather surprising 40% of US corn production is consumed neither by humans nor animals but by ethanol. [1]

The piece doesn’t make the following point, but it is implicit: if 40% of corn production produces about 13.2 billion gallons of ethanol (because almost all ethanol comes from corn), how do we achieve 36 billion gallons of ethanol in 2022?  The US Renewable Fuels Standard requires that much ethanol by 2022, of which 15 billion is to be corn-based and 21 billion gallons from other ethanol forms (e.g. sugar), [2] but the question is how can that even be achieved?  That implies a larger proportion of the US corn crop and then an incredible amount from currently non-economically feasible, essentially non-existent sources.

International aid agencies have asked the US EPA to temporarily suspect the ethanol mandate (the US accounts for a full 60% of global corn exports) but it is unlikely to happen in an election year when President Obama trumpeted support of ethanol in battleground Iowa.  I see another failure of US government energy policy.

[1] http://online.wsj.com/article/SB10000872396390443404004577581140907497810.html

[2] http://en.wikipedia.org/wiki/Energy_Independence_and_Security_Act_of_2007, retrieved on 8/12/12.

Picture from Wikipedia Commons.

Washington Picks Losers & Subsidizes Chinese Solar Panel Makers With Your Money

In American Recovery & Reinvestment Act (Stimulus), Government Spending, Obama Administration, Uncategorized on August 2, 2012 at 8:29 pm

The Solyndra scandal is back in the news after today’s Washington Post article,

As the Obama administration moved last year to bail out Solyndra, the embattled flagship of the president’s initiative to promote alternative energy, a White House budget analyst calculated that millions of taxpayer dollars might be saved by cutting the government’s losses, shuttering the company immediately and selling its assets, according to a congressional investigation.

Even so, senior officials in the White House’s Office of Management and Budget did not discourage the Energy Department from proceeding with its plan to restructure a federal loan to Solyndra— a move that put private investors ahead of taxpayers for repayment if the company closed, [1] 

It is not just Solyndra.  Several articles help us take the big view about what a disaster government energy “investments” are:

Like the mythical monster Hydra—who grew two heads every time Hercules cut one off—President Obama, in both his State of the Union address and his new budget, has defiantly doubled down on his brand of industrial policy, the usually ill-advised attempt by governments to promote particular industries, companies and technologies at the expense of broad, evenhanded competition.

Despite his record of picking losers—witness the failed “clean energy” projects Solyndra, Ener1 and Beacon Power—Mr. Obama appears determined to continue pushing his brew of federal spending, regulations, mandates, special waivers, loan guarantees, subsidies and tax breaks for companies he deems worthy.

Favoring key constituencies with taxpayer money appeals to politicians, who can claim to be helping the overall economy, but it usually does far more harm than good. It crowds out valuable competing investment efforts financed by private investors, and it warps decisions by bureaucratic diktats susceptible to political cronyism. Former Obama adviser Larry Summers echoed most economists’ view when he warned the administration against federal loan guarantees to Solyndra, writing in a 2009 email that “the government is a crappy venture capitalist.”

Even under optimistic projections, heavily subsidized wind and solar would each amount to a tiny fraction of global energy by 2030 and thus cannot be the main answer to energy-security or environmental problems… Mr. Obama is spending immense sums for subsidies to particular industries and technologies, almost $40 billion for clean-energy programs alone (some, appropriately, for pre-competitive generic technology). [2]

As T.J. Rodgers, CEO of Cypress Semiconductor, writes, industrial policy can have unintended effects. 

Consider the current 30% federal solar energy subsidy. A home solar system with 60 solar panels produces about 15,000 watts of power, enough to completely offset the $6,000 annual electricity bill of a typical upscale California home. The system costs about $90,000 prior to the 30% federal income-tax credit, which reduces its cost to $63,000. After a simple payback period of about 10 years, the homeowner literally enjoys free electricity for the remainder of the guaranteed 20-year system life, a very profitable 10 years.

But what if that $27,000 tax credit, the accelerated-depreciation tax savings, and most of the hefty post-payback profits went to Wall Street firms with a “tax appetite,” not the homeowner? That’s just what happens with the majority of new home solar-system installations today.

Today, most new home solar systems are purchased by special Limited Liability Corporations (LLCs) that are specifically created by Wall Street firms to purchase home solar systems and to sell power to the homeowner on a cell-phone-like contract. The homeowner does not mind giving up the tax benefits as long as the “free” system reduces utility bills.

However, when the system is paid off and the monthly LLC profit jumps to 100% of the electricity bill, the LLC solar electricity price to the homeowner is maintained just below market—and the profit really begins to roll into the LLC. Since the risks to the LLC grow as the solar systems age, many banks offload their risk by selling the LLCs before their 20-year lifetime is up, locking in much of the long-term profit. There is now a growing market for what might be called “solar-backed securities.” Wall Street understands the time-value of money; the federal government and consumers do not.

One of the largest solar-system installers in the U.S., SolarCity Corp., uses the LLC strategy and currently buys a majority of its solar panels from the low-cost Chinese supplier, Yingli. Thus when President Obama said that we must subsidize our solar industry to remain competitive with the Chinese, it would have been more accurate to say that we subsidize Wall Street to create employee-less corporations that buy and install Chinese solar panels in the U.S. Wall Street and consumers understand that free markets are borderless; Washington does not.

Just last week, the U.S. International Trade Commission found the Chinese solar industry guilty of “dumping” solar panels in the U.S. Tariffs are likely to be levied against Yingli and others. Here then, is a practical guide to the Obama administration’s nonsensical solar policy: Washington gives tax breaks to Wall Street to fund LLCs that buy solar panels from the Chinese to “help” the American solar industry, while the ITC threatens to levy a tariff on those solar panels, which would raise the price of solar energy to U.S. homeowners. In short, Wall Street pockets the money and consumers get higher solar-energy prices. [3]

[1] http://www.washingtonpost.com/national/white-house-budget-analysts-thought-saving-solyndra-could-be-expensive-move/2012/08/01/gJQAf2QGQX_story.html

[2] http://online.wsj.com/article/SB10001424052970204883304577221630318169656.html

[3] http://online.wsj.com/article/SB10001424052970204903804577082631863392956.html

Picture from Wikipedia Commons.

Tax Code and ObamaCare Credits So Complex, Many Firms Won’t Use Them

In Uncategorized on August 2, 2012 at 7:47 pm

Image

ObamaCare includes various tax increases and some tax credits.  Part of the expressed aim of the bill in to induce some mid-size employers to offer health insurance through tax credits, funded by tax increases on others.

One obvious flaw with the thinking is the tax code is already mind-numbingly complex.  The linked Wall Street Journal article is about many companies not even taking advantage of existing tax laws.  The rules are complex, taking a credit may invite an IRS audit and many tax breaks require copious time and paperwork.  I predict many employers will do the same with the ObamaCare bill’s credits, as they look at costs and benefits and then factor in the complexity of the credits and related IRS audit flags and hassle.

In the Washington, DC vacuum that allows a President to think “the private sector is doing fine” or entrepreneurs “didn’t build” their businesses, no one presumably thinks about the actual businesspeople who have to live with these laws.  If pols did, they’d think twice about yet more tax rules.

“One example of the tough-to-take breaks is the federal Work Opportunity credit. It was designed to reward companies for hiring workers from several disadvantaged groups, including welfare and food stamp recipients, youths seeking summer jobs and ex-felons. The break typically lowers a company’s taxes by up to $2,400 per employee. For businesses hiring unemployed veterans, it can be worth as much as $9,600 per worker.

 

The credit frequently goes unclaimed, largely because it is such a hassle. It requires extensive paperwork for each worker for whom it is claimed and the paperwork can often take a year or more to process. Sarah Hamersma, a University of Florida professor, estimates that companies claim the credit for just 20% to 35% of all eligible workers.

 

J.J. Pledger, chief financial officer for the Twisted Root gourmet burger chain in the Dallas-Fort Worth area, said he spent the better part of a day last year trying to figure out how his company could obtain the credit. Mr. Pledger, a CPA, knew the credit likely would be available for a number of his company’s 200 or so annual hires. But the more he read, “it seemed like the documentation of the tax credit could be really hard to administer,” he recalled. One concern was all the personal information needed from job applicants. “So I put it on the back burner…. It seemed too daunting.” [1]

[1] article is free, no paywall.  http://online.wsj.com/article/SB10000872396390444025204577543060812237798.html

Firing Workers Can Be A Good Thing

In Uncategorized on May 23, 2012 at 5:13 pm

Yes, firing people is a good thing.  A very good thing sometimes.  Just ask President Obama when he touts the GM downsizing.

A troubled company in a declining or increasingly competitive industry may need to cut a bloated workforce to keep itself in business, saving the remaining workers.

Take GM. GM’s worldwide workforce declined by about 36,000 workers between December 31, 2008 and December 31, 2011. [1] [2]  The GM workforce declined by about 14,000 US workers during that time frame. [3]

 

[1] page 15 of http://www.sec.gov/Archives/edgar/data/1467858/000146785812000014/gm201110k.htm

[2] page 19 of http://www.sec.gov/Archives/edgar/data/40730/000119312509045144/d10k.htm

[3] The 2011 annual report states there were 77,000 US employees is 62% of the total [2].  The 2008 annual report states 62,000 employees were 68% of the total.  Dividing the 62,000 by 68% yields about 91,000.  91K minus 77K equal 14K.

In Uncategorized on January 25, 2012 at 11:53 pm

This is six months old but very much back in the news after the Obama State of the Union

econscius

Legendary investor Warren Buffett penned a New York Times opinion piece about tax rates.   Surprisingly, he presents some very misleading information.  Fortunately, anyone can easily obtain actual average tax data from the helpful IRS website.  Yes, I said “helpful IRS”. 

Mr. Buffett says he calculated his personal average tax rate, including Social Security and Medicare payroll taxes, and came up with 17.7%.  Other people in his office paid more, anywhere “from 33 percent to 41 percent and averaged 36 percent”. [1]    I assume his co-workers’ calculations are accurate.  But Buffett is an aberration among the rich and his staff is not middle class, as we know from comparing them to the IRS’s own tax tables.

The chart below shows the actual average federal income tax paid by 2008 income cohort.  The top 1% paid an average 21.0% of income, the top 50 percent paid an average 13.2% and the bottom 50% paid a mere 2.6%.

FIG.1 [2]…

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