Pages

Saturday, June 29, 2013

Social Security Truisms ... A Bad Deal for Today's Workers is Going to be a Worse Deal for Tomorrow's Workers

Want some facts on Social Security and how today's workers are paying more and will be receiving less than current retirees? Until recently, recipients put less in than they later received, representing what amounted to a  great deal for those early beneficiaries of the program. Now with more people receiving benefits and fewer making contributions, the great deal is less than a good deal for future retirees. In the future it's going to be a very bad deal.

That's just the math. It's not exactly a Ponzi scheme or a chain letter situation, but it certainly rhymes. The first beneficiaries get the great deal, and the later ones hold the empty bucket.

But that's not America. That's not the way we pass on our wonderful heritage to future generations. At least that's not the idea. But it is definitely the way the current sick political system of short termism is taking us, even though it's going to result in economic disaster down the road if we don't change course.

Want some specifics on how it's only going to get worse for future workers compared to today's workers?

And want to reflect also on how government entitlement programs are weakening America and harming the future prospects for the young and unborn?

It's a tragedy in the making, and it needs to be addressed. But first, we have to know the facts.

10 things Social Security won't tell you has the facts in #3 of the ten part story:

3. “This used to be a much better deal.”

Today’s workers—boomers, Gens X, and Gen Y—frequently carp about Social Security, but it isn’t all sour grapes or skepticism about paying into a system with an uncertain future. Employees today pay more in Social Security taxes than previous generations did. They’re also likely to get smaller benefits relative to the taxes they paid in when it is their turn to retire.

Over the years, as the Social Security Administration has come to grips with the cost of its benefit program and the ranks of eligible beneficiaries has swollen, taxes to fund the program have gone up and up, a trend that experts say is likely to continue over the coming years.

Workers now pay 6.2% in payroll taxes (temporarily reduced to 4.2% in 2011 and 2012)—nearly double the 3.6% tax rate workers paid in 1965. Over the same time period, the maximum earnings eligible for taxation have also increased from $4,800 (equivalent to about $35,400 in 2013 dollars) to $113,700 in 2013. {NOTE: The 6.2% employee contributions are matched dollar for dollar by employers.}

For example, a single man who retired in 1980 at age 65 after earning an average wage of $44,600 (in 2012 dollars) would have paid about $98,000 in Social Security taxes, and probably received $207,000 in lifetime benefits, according to a study by the Urban Institute, a nonpartisan policy think tank in Washington, D.C.

By contrast, a single man making the same average wage today and retiring in 2030 will likely pay $404,000 in lifetime taxes but receive just $339,000 in lifetime benefits—about 16% less than he paid in. “People who were first in the system got a great rate of return,” says Alan Gustman, an economics professor at Dartmouth College. “It’s the younger generation that is going to be in the most difficult position.”

The Social Security Administration said in a statement that Social Security taxes have increased because the number of people collecting benefits is growing at a faster pace than the number of people working and paying taxes. The imbalance is also partly due to the fact that the earliest beneficiaries only paid taxes in the later stages of their careers."
 
Summing Up

Facts are stubborn things.
 
For Social Security and other entitlements programs, it's only going to get worse.

Becoming even more of a welfare society will not result in improving the general welfare of our citizens. It's especially unfair to the poor and young.

We the People have to have to summon up the guts to change course and get government elitists and bureaucrats on the sidelines as spectators instead of playing the role of head coach or quarterback.

Otherwise our generation will assure that team U.S.A. will become a loser for future generations, and nobody wants that to happen. Not even our global competitors.

American Exceptionalism must not become a thing of the past.

That's my take.

Thanks. Bob.

Weekend Musings/Ramblings ... "Taxflation" vs. "Austerity" ... Government Payrolls and Productivity ... Here's What I say ... Let's Start Asking the Right Question

Sadly, the America which used to be the "individual land of opportunity" has become the land of "government redistribution." We take from one and give to another, and we do it through the government. As a result, we need mountains government workers to redistribute mountains of money that is either (1) taken away from some, (2) borrowed or (3) printed and then redistributed to others.

That's quite a combination resulting in growing levels of government spending, high deficits and an increasing debt burden. Let's call that the genesis of "taxflation."

As a result, we have also become by necessity the land of "taxflation." Government spending means more immediate taxes, and/or more borrowings which will lead to higher taxes and/or a weaker currency, which are legacies we don't want to leave to our kids, grandkids and as yet unborn Americans.

Thus, whether it's more taxes and slower economic growth, more borrowings and slower economic growth or a weaker currency and slower economic growth, "taxflation" resulting from government redistribution programs leads to the same sorry destination. It's a road we don't want to travel, but it's the one we're on.

Our government debts and unfunded entitlement obligations have reached the point where we really are a welfare state with a dysfunctional government and mountains of debt with no political will to solve the problems. It's up to We the People, and it's going to be a tough slog indeed. Taking away "free" money from, or raising taxes on, "middle class" Americans, aka ourselves, (recipients of government pay, Social Security, Medicare, Medicaid, ObamaCare, K-12 subsidies, college student loans, government home mortgage guarantees and so forth) won't be easy. We may have to go bust first. Let's hope not.

Government bleeding heart do-good progressives say we need more government spending to stimulate the economy. What they fail to mention are the taxflation effects of such a wrongheaded approach.

We are in debt up to our eyeballs, and the situation isn't getting any better. Our political system is bankrupt. Our "social contract" between the generations is in a shambles. It's time for straight talk.

If some Remocrat or Depublican U.S. politician would propose cutting government spending, in a serious way, aka reducing redistribution payments, he would run into the well organized opposition of one or both of two groups: (1) recipients of public sector pay and (2) recipients of government benefits. And that's a whole lot of people, including the entire public sector workforce and the aforementioned "middle class" beneficiaries.

...............................................................

But since I'm not running for elected office, let's discuss how much government we want, need and are willing to pay for as a nation.

The bloated size of government payrolls has been getting a great deal of attention lately, both at the federal and state levels. And much of the attention has centered on how many of the government workers are paid in excess of $100,000 annually or some similar number.

Thus, how much the high paid government employee receives compared to a similarly skilled private sector employee, what the comparative benefits are for public vs. private workers, whether there's a 401(k) or pension plan in effect for public and private sector employees, how much of a retirement underfunding issue exists and so forth, are all "hot topics" these days. But we're not discussing the biggest issue of all.

(1) Does the government work being done need doing and if so, (2) is there a better and more productive, aka less costly, way of doing that work? Unless the answer to the first part of the question is yes, we need not concern ourselves with part two. But if the answer is yes to part one, then the correct answer to part two is always yes. Despite this simple truth, these two parts of the relevant question aren't even being addressed.

So even though all of the questions being asked about payroll and so forth are legitimate taxpayer and employee concerns, of course, they cause us to miss the essential point. And that essential point is contained in parts one and two of the foregoing essential question about the need for the work being done by government and, if so, improving in a continuous and rapid manner the way in which that necessary work is done. That's the missing factor ---- the overall and ongoing productivity factor of the necessary government work.

So the essential point is simply this: How many government employees are necessary to do what We the People want done by government? In other words, how productive are they at doing what we want them to be doing? And for that we need to pay government workers fairly. Period.

Here's the deal: government monopoly = no market pricing = no required productivity improvements = no focus on improved customer service = higher and uncontrollable costs over time.

Of course, the essential question is almost never asked and here's why. It's the public sector unions and the politicians acting in concert and taking advantage of We the People being asleep at the switch.

The simple truth is that the more public employees there are on the government payrolls and the higher those employees are paid, the higher the public sector union dues that go to the union leadership. And the more highly paid and underworked public employees that are on the payroll paying union dues, the more likely those 'grateful' employees will be to support the 'allied' politicians currently in office.

The biggest problem, other than unaffordability, with all this excessive government payroll is the "taxflation" effect. The more we pay to the government, the less that is left for us to save and invest in the private sector.

And the more the government spends, the more taxes that are required from We the People to offset that spending. Thus, raise the taxes, and especially on the "rich," becomes the cry from the politicians. And when that's done, government grows and the economy slows.

But just try to cut the overall payrolls of the public sector or try to make them justify their existence in relation to the costs taxpayers are incurring (think post office and school administrators and congressional staffs) and see what happens. Nothing.

The unions protect the status quo, the politicians protect the unions, the government payroll grows relentlessly, the taxpayer takes it on the chin and the economy slows. Things get worse. It's the system, Stupid!

And as a result, the young and the poor among us poor suffer most.

But are we likely to address this essential two part question anytime soon? Of course not.

That's not the way government works. Not yet anyway.

Thanks. Bob.

Friday, June 28, 2013

Inequality and Equal Opportunity

We hear a lot about inequality these days. But inequality of outcome is a natural outcome of equal opportunity. As an example, LeBron James I'm not.

So which will we choose --- equal opportunities or equal results --- freedom or socialism?

With that firmly in mind, let's consider what Notable & Quotable has to say:

"Reducing global inequality as a principle of state action, however suggestive of an impeccable moral conscience, may well require curtailing fundamental rights underpinning free societies; free societies generally being one and the same with rich ones. Justice in a free society means treating individuals according to identical rules of conduct.

If we are to supplement or replace the classical principle of justice, which applies to individual conduct, with one of global "social justice"—or more precisely, "distributive justice"—wherein no one shall acquire more benefits than a designated authority deems justified by the prevailing distribution of global wealth, the authority will of necessity need to treat individuals according to vastly different rules of conduct."

Summing Up

How much government intervention and redistribution do we want?

How much individual freedom do we choose to retain?

The choice is ours.

Thanks. Bob.

Student Loans and Government Subsidies ... Government "Help" HURTS ... Another Example of the Law of Unintended Consequences

How much interest will be charged on outstanding student loans is getting lots of attention in Washington these days?

Why don't they talk about the principal instead? That's the real problem. That and government indirectly subsidizing the high cost of college through one billion dollars of outstanding student loans. The plain fact is that many of these loans won't be repaid because the 'student' won't be getting a good job and perhaps won't even complete the necessary academic work to earn a degree.

But even for the student who does graduate with a non-basket weaving degree which can help him get a good job, why does that degree cost the student so much? And the taxpayer, too.

Well, in large part it's because of the government "help" that in fact hurts the unsuspecting student.

And it's the same government gang that's going to keep interest rates on student loans low (after a politically charged hiatus for a week or so until declaring victory in mid-July). Meanwhile, the principal amount of those loans will continue to increase so colleges can charge more for tuition, grant more student loans and use the money to pay its administrators and teachers more.

The conspiracy of government "assistance" and our institutions of higher learning is real. What a travesty!

What's Really 'Immoral' About Student Loans is subtitled 'It's not so much the interest rates charged. It is, rather, the principal of the thing.':

"Unless Congress acts, interest rates for government subsidized student loans will double to 6.8% from 3.4% on July 1. In May, House Republicans passed a bill that would index rates on new loans to the rate on 10-year Treasurys (currently about 2.6%), plus 2.5 percentage points, with an 8.5% cap.

But with little Democratic support in the Senate, that bill is dead in the water.

Most Democrats want to lock the current 3.4% rate in place for two more years while Congress debates a "fairer" solution. Massachusetts Sen. Elizabeth Warren has even proposed letting students borrow directly from the government at the same ultra-low rate that banks currently get on short-term loans from the Federal Reserve—0.75%. She calls the Republican proposal "immoral."

In the student-loan world, there's immorality to spare—not in the still historically low interest rates, but in the principal of the thing. Student debt, which recently surpassed the trillion-dollar level in the U.S., is now a major burden on graduates, a burden that is often not offset by increased earnings from a college degree in say, race and gender issues, rather than engineering.
image
According to an extensive 2012 analysis by the Associated Press of college graduates 25 and younger, 50% are either unemployed or in jobs that don't require a college degree. Then there are the large numbers who don't graduate at all. According to the National Student Clearinghouse Research Center, more than 40% of full-time students at four-year institutions fail to graduate within six years. The National Center for Education Statistics reports that almost 75% of community-college students fail to graduate within three years. Those students don't have degrees, but they often still have debt.

Why do students have so much debt? According to a recent study by Mark Perry, a professor of economics and finance at the University of Michigan at Flint, between 1978 and 2011 college tuition in the U.S. increased at an annual rate of 7.45%, vastly exceeding the rate of inflation and the almost-stagnant rate of growth in family incomes.

The difference has been made up by more and more debt. . . . A study released last month by Fidelity Investments found that 70% of the class of 2013 is graduating with college-related debt—averaging $35,200. . . .

Now here's where the real immorality kicks in. The skyrocketing cost of a college education is a classic unintended consequence of government intervention. Colleges have responded to the availability of easy federal money by doing what subsidized industries generally do: Raising prices to capture the subsidy. Sold as a tool to help students cope with rising college costs, student loans have instead been a major contributor to the problem.

In truth, America's student loan problem won't be solved by low interest rates—for many students, the debt would be crippling even if the interest rate were zero.

If we want to solve the very real problem of excessive student-loan debt, college costs need to be brought under control. A 2010 study . . . found that many American universities now have more salaried administrators than teaching faculty.

Another way to approach costs is to remove the incentives for universities to accept government-subsidized student-loan money regardless of a student's prospects of graduation or gainful employment. Under the current setup, incentives run the other way: Schools get their money up front via student loans; if students are unable to pay the loans back, the burden falls on taxpayers (if the loan was "guaranteed" by the federal government), and the students themselves, while the schools get off scot-free.

A serious student-loan fix would change this incentive. First, federal aid could be capped, perhaps at a national average, or simply indexed to the consumer-price index, making it harder for schools to raise tuition willy-nilly. Second, schools that receive subsidized loan money could be left on the hook for a percentage of the loan balance if students default. . . .

You can bet that under this kind of a rule, universities would be much more careful about encouraging students to take on significant debt unless they are fully committed first to graduating, and second to a realistic career path that would enable them to service that debt over time. At the very least, schools would be more likely to warn students of the risks.

Even thinking about the impact of such a "skin in the game" rule for colleges helps to illustrate the irresponsible—even, in Elizabeth Warren's words, "immoral"—way that colleges up to now have dealt with costs and with debt. If lawmakers were serious about helping students pay for college, Congress would be considering more than simply continuing low interest rates on ever-higher student-loan balances."

Summing Up

Government screws up again, and We the People suffer. But most of all, our young people suffer and America's economic strength deteriorates. Our system of education is broken, and future Americans will pay the price for all this "government help." 

The student loan fiasco is another great example of "we're from the government and we're here to help" welfare mentality that pervades America today.

But those we're trying to help aren't the students. Those we're helping are the college administrators and teachers. And their political allies in Washington, of course.

Meanwhile, the students, the taxpayers and the economy suffer.

That's my take.

Thanks. Bob.

Individual Investors and the Pogo Effect ... We Are Our Own Worst Enemies ... So Let's Start Acting Smart and Quit Doing Dumb Things

Over long periods of time, the stock market dependably generates returns of 8% to 10% annually, depending on inflation.

In inflation adjusted terms, the returns have been ~7%.

Yet individual investors don't earn anywhere close to those returns. We do dumb things, and we tend to do them at the absolute worst times.

Individuals trade too often, pay too much in fees and own too many assets other than stocks. Thus, most individuals are lucky to earn 25% of what a diversified portfolio of stocks, such as a low cost passively managed S&P 500 index fund, would deliver to us if we'd just stop trying to outsmart Mr. Market.

The plain mathematical fact is that 50% of people actively trying to outperform the market will be able to do so (expenses, trading costs and investment fees excluded), while the other 50% will necessarily underperform the market. If one active investor outperforms by engaging in active trading, the other person by definition must underperform. That's the math.

Pogo said, "We have met the enemy and he is us." He very well have been talking about individual investors and their tendency to earn below market returns on their long term investments.

7 reasons why retirement savers fail tells the tale of self-inflicted woe for the average individual investor:

"I find it hard to believe how poorly we investors do . . . .

Sometimes it seems impossible to protect people from themselves. Consider these seven key findings:

One: In the 20 years ending Dec. 31, 2012, the Standard & Poor’s 500 Index compounded at 8.2% while the average investor in U.S. equity funds made only 4.3%. In other words, nearly half the return of the market was lost. . . .

For example, imagine a mutual fund with a portfolio that returns 10% in a calendar year. A shareholder in that fund will get that return only if he has money invested on Jan. 1 and leaves it there through Dec. 31.

Any investor who adds money at other times or takes it out at other times will have a different return.

Two: How did investors lose half the return of the market? Where did it go? Three powerful forces took it away. First, investor behavior, mostly emotion-based buying and selling based on emotions, costs two percentage points. That brings the return down to 6.2%.

Second, there's the cost of running funds that are trying to beat the market. The average annual cost of operating a fund, 1.3%, reduces the return further, to 4.9%. Third, portfolio turnover is almost always higher in actively managed mutual funds — sometimes much higher. This can take away another 0.6 percentage points, bringing the return down to the 4.3% ....

Three: Those numbers refer to equity funds. The results were much worse with bond funds. In that same 10 years, the Barclays Aggregate Bond Index returned 6.3% a year; but average investors in bond funds made only 1%.

{NOTE: In a period of rising interest rates, such as we're now entering, bonds are likely to be a terrible investment. In fact, most individual bond investors will probably lose money the next several years. We've previously commented on this bonds-as-a-bad investment issue many times, so we'll not dwell on it herein.}

It's bad enough that equity investors received only 52% of the return of the market. Bond investors, however, got only about 15% of what they could have gotten with a bond index.

Four: There's not much mystery about the source of the problem with investing in bonds. For many years the bond market has been overshadowed with the threat of higher interest rates, a threat that has received plenty of attention in the media....

Five: There is a kernel of encouraging news . . . . Investors in balanced funds tended to hang onto them longer (four years on average) than investors in all-equity funds (three years). But this didn't help a whole lot.

Investors in balanced funds made only 2.3% a year, because of the timing of their purchases and sales, compared with 6.3% for the bond index and 8.2% for the S&P 500.

Six: The shocker in this report, at least to me, is the short holding periods for mutual fund investors. The average investor held equity funds for just 3.3 years. The holding period for bond funds was an even shorter 3.1 years; in balanced funds it was about 4.5 years.

This suggests to me that many investors have unreasonable expectations and are indecisive, impatient and susceptible to Wall Street's constant prodding to do something different.

Investors supposedly embark on long-term strategies in the hope of achieving long-term results. But how can you get the long-term results if you stick around for only a few years?

As a society we don't seem to place a high value on the virtue of patience. We want to lose 20 pounds in 30 days. We want our investments to give us long-term results in a year or less. And if they don't, we are quick to take Wall Street's bait, the hope that surely some expert knows a better way.

Seven: . . . Investment results are more dependent on investor behavior than on fund performance. Mutual fund investors who hold on to their investments are more successful than those who time the market."

The answer, it seems obvious, is for investors to stay in the game. They will do that only if they have confidence in the choices they have made.

I think the most dependable way to achieve the full returns of the market is to invest in a diversified mix of index funds with low expenses. If you couple this with patience and with enough bond funds to keep you within your comfort level, then I think you are likely to be more successful than 99% of all other investors."

Summing Up

To be a successful individual investor, we don't have to be all that smart about finance or the market's inner workings.

We just have to be smart enough not to repeatedly do dumb things.

And that means buying a diversified basket of blue chip stocks and then having the confidence, patience and good sense to stay the course over a long period of time.

Let's prove Pogo wrong.

That's my take.

Thanks. Bob.

Thursday, June 27, 2013

One More ObamaCare vs. the Best Interests of Young Folks Story

The developing story of ObamaCare vs. America's young folks is yet another instructive tale about the problems with the relationship of big government's powers and our individual freedoms.

Sadly, the real meaning of "we're from the government and we're here to help" is a lesson learned and internalized by too few of us these days, so when we get a chance to tell the story by using a real life example, it's worth telling.

Free markets allow people to choose what and what not to do with their own money, aka MOM.

Government control substitutes the judgment and power of government bureaucrats and elitists for the judgment and control of individuals with respect to how their money is spent, aka OPM.

In the case of the "false choice" involving ObamaCare and the young, the young have been put by their government "servants" squarely between a rock and a hard place.

Their health care costs are going up as a result of ObamaCare, and it's just a matter of how high. And for that extra cost they will receive nothing except the knowledge that their money will be used by government to subsidize others. That is, their "extra contributions" will allow payments to be lower for the old and will also make coverage more broadly available to those with pre-existing health conditions who otherwise couldn't afford the premiums to cover the cost of insuring themselves.

And on top of all that, there's one more complicating factor. The ObamaCare boosters don't want the young to know the real deal, lest they opt not to enroll in the new health care plan. And if the young don't enroll in sufficient numbers, the "Affordable Care Act" won't be affordable to the nation as a whole. Surprise!

Hence, it's definitely going to be government's version of hard sell for ObamaCare coming to the TV sports viewing "OK corral" this fall.

ObamaCare Hail Mary has the latest on the developing saga:

"President Obama, a father of two girls, has said that if he had a son he'd "have to think long and hard" before letting him play football. But that's not stopping the president's Department of Health and Human Services from reaching out to the NFL to help sell ObamaCare to young people.

According to HHS Secretary Kathleen Sebelius, the NFL is "very actively and enthusiastically engaged" in discussions about partnering with the government to encourage young people to sign up for ObamaCare. The publicity campaign would be part of a larger effort to enroll 7 million people in state health-care exchanges by March 2014. Other major sports organizations, such as the NBA, may also get involved.

image
New York Giants quarterback Eli Manning

But the NFL says no formal agreement has been reached. "No commitments have been made and there is nothing more to report at this time," Greg Aiello, a spokesman for the NFL, told the Journal in an email.

The administration's strategy is not unprecedented. Back in 2007, the Boston Red Sox partnered with the Massachusetts statehouse to promote the Bay State's health-care program. In an effort to get the word out about the state's insurance plans, Red Sox players were featured in ads; an information kiosk was set up at home games; and a "Cover Your Bases—Connect to Health" night was held at Fenway Park. . . .

Whether or not a partnership is created, the outreach effort is indicative of the challenge faced by ObamaCare proponents, who must convince healthy young people to pay insurance companies huge subsidies for medical care that will go to someone else. We're not sure even Eli Manning could pull that off."

Summing Up

And you thought politics was about serving the people.

Well, it is, but you have to be among the 'chosen' people, aka the portion of the people the government officials choose to serve.

And in this case, that's not the young. They're already always in the camp of the Dems, or at least they have been until now.

Politics sucks.

Personal choice is the real American way.

Thanks. Bob.

ObamaCare and the 20-Somethings Among Us ... To Enroll or Not to Enroll, That Is the Question

My fundamental belief is that government run anything is bad compared to letting individuals choose what to do on their own. So other than national security, whether it's the postal service, K-12 schools, colleges, retirement income or health care, individual choice and personal freedom work best. For me it's MOM over OPM, in other words. Freedom over socialism.

This individualist, antistatist and limited government point of view is the basic idea underpinning our unique and wonderful American Exceptionalism, and now it's under attack, as it has been since the Great Depression of the 1930s. It's time to change course.

Let's see why with a summary review -- again -- of ObamaCare and its effect on personal freedom and individual choice as it pertains to the younger Americans. It's a bad deal for all Americans, but especially for the younger among us.

ObamaCare is complex, to say the least. It's also cloaked in secrecy, unintentional or not. And apparently it isn't close to being ready to implement or even understand at any level of detail. But for the young, it's even worse than all that. They're about to be sold an "ocean front home in Arizona."

So to help the young figure all this out before leaping without looking, let's see what we can discern from what we do know about ObamaCare at this point in time, at least with respect to its inevitable impact on the younger Americans among us.

In other words, if you are interested in reviewing and sharing with our younger friends an overview of just how the Affordable Care Act, aka ObamaCare, hopes to convince the young, gullible and naive 20-somethings among us to UNKNOWINGLY subsidize the oldsters as well as those with pre-existing medical conditions, all in an effort to make the new "Affordable Care Act" plan's math work, then please read on.

{NOTE: This will further supplement our post of last Sunday about "ObamaCare Asks the Question: How Dumb are the Young? ...."}

Young Americans may dodge health law is subtitled 'For 20-somethings, penalty may be preferable to buying insurance:'

"Young Americans may have been among the biggest supporters of Obamacare, but they may also be the least likely to comply with the law.

The architects of health reform say the law will make insurance more affordable and widely available. But in 2014, benefits experts say, the cheapest option for 20-somethings will be to pay the penalty for not buying health insurance, rather than paying for any health insurance at all—that is, provided they don’t get sick.

And as more young people do the math, more seem to be deciding the Affordable Care Act isn’t such a good deal for them: Support for a national health-care plan dropped nearly 11% among American college freshmen between 2008 to 2012, with under 63% in favor of it today, down from 70%, according to UCLA’s annual student survey.

Next year, uninsured Americans must pay a penalty of $95, or 1% of their annual salary if they make more than $9,500 for the year. A person earning $50,000, for example, would pay a $500 penalty if he chose not to enroll in a health insurance plan.

But for a healthy 20-something who rarely goes to the doctor and doesn’t take prescription medications, that penalty might be far less expensive than buying a health plan through the state health exchanges, the new insurance marketplaces opening Oct. 1. Those exchanges, which will offer health coverage to people who can’t get it through their employer or by staying on their parents’ insurance, are just beginning to announce how much their plans will cost. But based on the rates released so far, the price of health insurance for a 20-something will start at about $72 a month in Washington, D.C., and $117 a month in California, for minimal coverage known as a “catastrophic plan,” available to people under 30.

That means that for someone making less than $86,400 in Washington, D.C., or less than $140,400 in California, even the cheapest health insurance would still cost more than the penalty (a 1% penalty on an $80,000 salary, for instance, would be $800, while the lowest-price insurance in Washington would cost $864 a year and in California, $1,404).

And the bare-bones plans also have high deductibles, so 20-somethings in the least expensive Washington plan would still have to pay $6,350 in medical bills before the insurance company would start to pick up the tab—a calculation that could lead more young people to see the penalty as a comparative bargain ....

The equation, of course, falls apart if a young person develops a disease or gets injured in an accident and requires intensive medical care. “Ultimately, having health insurance is about having the peace of mind that comes from knowing a broken bone or an unexpected illness won’t mean financial ruin,” says Anne Filipic, president of Enroll America, an organization that has partnered with health-care companies to persuade uninsured Americans to buy health coverage.

But young adults today are also increasingly going to retail health clinics that sell services a la carte at low out-of-pocket prices, so an uninsured person could pay just $59 to get treated for a sore throat, according to research by Rand Corp. With such cheap alternatives to expensive emergency-room visits, 20-somethings who worry they’ll get the flu, strep throat and a sinus infection all in the same year might think it is still a better deal to go without insurance.

Indeed, even young people who can get insurance through their job, at cheaper rates than the plans on the exchanges, often choose not to, benefits experts say.

Generation Y is already the least likely age group to be insured: More than 11 million 20-somethings don’t have health insurance, and the age group’s uninsured rate is about twice that of the overall under-65 population, according to an analysis by consulting firm Oliver Wyman.

Getting those young people into the system, so they pay for insurance that, chances are, they don’t need, is essential to making health care affordable for everyone, insurance experts say: “Their participation in 2014 will be the key to the success of this law in order to balance out costs for older, less healthy consumers,” says Carrie McClean, director of customer care for eHealthInsurance, an online insurance broker. . . .

The law does away with the traditional model of health insurance that in some ways has actually worked in 20-somethings’ favor. In the old system, young and healthy people could enjoy more access to individual insurance plans and lower premiums than older or sicker individuals, who might have been denied or charged extra for having a pre-existing condition or a greater likelihood of going to the hospital. But because the Affordable Care Act extends insurance to everyone no matter their age or health status, and evens out premiums across the board, healthy young people will have to pay more than they do now—in effect subsidizing the extra costs of insuring people who need more medical services: While those ages 50 to 64 will pay up to 8% less in premiums for an individual health plan, 20-somethings will pay 29% more, according to America’s Health Insurance Plans.

“When faced with higher health-care costs, many younger, healthier people may choose to forgo purchasing coverage until they need it, especially when the penalty for not having insurance is as low as $95,” says Clare Krusing, a spokeswoman for AHIP.

To be sure, more than a third of low-income 18- to 34-year-olds will be eligible for discounted premiums through new federal subsidies, according to Families USA, a group that promotes consumer health. But in California, people making at least $32,000 won't be eligible for those subsidies, and many young people will have to pay more than what they’d pay now for similar coverage, according to eHealthInsurance.

Still, some experts believe that even if young people opt out of health insurance next year, many more will likely buy it in 2016 when the penalty for being uninsured will go up to $695, or 2.5% of salary for anyone making at least $27,800 a year. “Over time, young people will increasingly sign up, but it will be a two-to three-year process,” says Christopher Ryan, vice president at ADP."

Summing Up

The more we know, the better decisions we make.

And the less we know, the more likely it is that ObamaCare won't be a financial bust from the outset.

When the financial success of ObamaCare depends in large measure on how dumb, na├»ve or gullible enough young Americans will be when deciding whether or not to buy something that's contrary to their best interests, there is definitely something very wrong with what our government is trying to sell them.

That's my take.

Thanks. Bob.

Wednesday, June 26, 2013

UPDATE ... Wal-Mart Fires Paula Deen

Wal-Mart Ends Relationship With Paula Deen has the breaking news story:

"Wal-Mart Stores Inc. is announcing that it has ended its relationship with Paula Deen a week after the Southern celebrity chef admitted using racial slurs in the past.
 
The world's largest retailer said it will not place "any new orders beyond what's already committed."
 
The discounter says it will work with suppliers on existing inventories.
 
The Bentonville, Ark., company started carrying Paula Deen-branded products at all of its U.S. namesake stores since 2011.
 
The latest development follows the announcement on Friday from Food Network that it was dropping her food shows. Smithfield Foods announced on Monday it was dropping her as a spokeswoman as well."
 
Summing Up 
 
That's more than enough news about Paula Deen for my lifetime.
 
Business is business.
 
Thanks. Bob.

Paula Deen ... The "Rest of the Story"

For those of us old enough to remember, now deceased radio broadcaster commentator Paul Harvey used to always end his show by telling his listeners about "the rest of the story."

So let's try that approach with what Paula Deen did and didn't do, and the biggest reason why her TV show on the Food Network will be seen no more. The show's sponsors have had enough.

In sum, the decision is just about business and not her racist or non-racist views, as the case may be. And that explanation is good enough for me, even though it makes the story unexciting.

Paula Deen's Other Problem: Stale Ratings has the "rest of the story" for us:

[image] 
Paula Deen's show ran 11 years.

"Paula Deen's future with the Food Network was in doubt even before a controversy over her use of racial slurs erupted, say people familiar with the situation, a reflection of changing tastes in food television.

For several weeks before the controversy blew up last week, Ms. Deen's agent had been negotiating with the Food Network to extend her contract, which ends June 30, the people said. One issue complicating the negotiations: her ratings had slid substantially over the past season.
"Things were not going as planned," said one person familiar with the negotiations, noting that an unresolved contract extension so late in the game was unusual.

Ms. Deen's 11-year run with the Food Network came to a very public end on Friday, just two days after reports widely circulated that she admitted to using the "n-word" in the past and overseeing a workplace where racial jokes were told.

She made the admission in a deposition for a racial- and sexual-harassment suit filed by a former employee at the restaurant she owned with her brother. Ms. Deen posted a videotaped apology on YouTube on Friday.

The Food Network . . . didn't cite a reason for its decision to drop her. But people close to the show and the food-television industry say the decision comes as the kind of "dump and stir" instructional food shows in which Ms. Deen and others, like Martha Stewart, specialized have fallen out of fashion. . . .

Ratings for Ms. Deen's show "Paula's Best Dishes" were down 15% in total viewers—and 22% in the 18-49 demographic that advertisers care most about—for the 2012-13 season, compared with last season, according to Nielsen ratings provided by Horizon Media.
"Her numbers are down," said Brad Adgate, research director at Horizon Media. "She represented in many ways a bygone era.". . .

The channel's top-rated shows for the 2012-13 season included "Food Network Star," "Chopped," "Next Iron Chef," "Worst Cooks," and "Great Food Truck Race," "Rachael Vs. Guy" and "Restaurant Impossible"—every one of which had some kind of competitive or reality-show angle. At its "upfront" advertiser presentations this spring, it presented 16 new shows, from "Food Court Wars" to "Extreme Tupperware Ladies," none of which simply aimed to teach viewers how to cook.
That is a departure from the Food Network's early days, when chefs like Emeril Lagasse, Rachael Ray and Ms. Deen combined big personalities with the kind of how-to format that fans of Julia Child might still recognize.

Beyond the changing programming style, analysts said Ms. Deen's ratings were hurt by revelations last year that she had been diagnosed with Type 2 diabetes shortly before she emerged as a paid spokeswoman for Novo Nordisk, a Danish firm that makes diabetes drugs. The revelation prompted a public outcry claiming that Ms. Deen had been profiting from recipes for the kinds of high-calorie foods known to contribute to the disease while withholding disclosure of her diagnosis, and then sought to profit from diabetes medication. . . .

"She lost favorability around the whole diabetes thing," said Billie Gold, vice president of research and programming at media buyer Carat. "She lost audience around then as well."

After peaking in 2011, ratings for "Paula's Best Dishes" began to slide in 2012 ....

As ratings declined, the cost of Ms. Deen's show became too high for the network to support, according to people familiar with the matter, particularly as the network itself faced prime-time ratings declines of 17% in the target demographic and 15% in households for the 2012-13 season . . . .
Forbes magazine listed Ms. Deen as the fourth-highest-earning celebrity chef last year, with estimated earnings of $17 million. People familiar with Ms. Deen's business, which includes cookbooks, a magazine, restaurants and licensing deals, say the Food Network contributed only a fraction of her income.

So far, most of Ms. Deen's business relationships seem to be holding, though pork producer Smithfield Foods Inc. dropped her as a spokeswoman on Monday. Sears Holdings Corp., which sells Paula Deen-branded cookware, said on Monday it was "currently exploring next steps as it pertains to Ms. Deen's products.""

Summing Up
I confess. I didn't know who Paula Deen was until the flap developed and became big news this week.
Thus, I never watched her show.
But the creative destruction of free market competition appears to be the real reason behind her downfall. If that's the case, look for more sponsorship fallout in the days and weeks to come.
In simple terms, it appears that fewer people were watching her cooking show lately, and the sponsors therefore decided to take their money and go elsewhere.
That's the way the free market works. Customers choose and sellers and sponsors respond appropriately.
In business matters, customers matter most. That's my take.
It's not at all like the way our monopolistic and elitist government knows best gang operates.
As Paul Harvey would say at the end of his show, "Good Day!"
Thanks. Bob.

Keystone Pipeline Approval? ... How Hard Is It to Say Yes or No, Mr. President?

President Obama has a knack for saying nothing. He did it again yesterday during his climate change speech attacking coal.

He even mentioned approving the Keystone XL Pipeline project, but what did he say? That's the question, and that's another clear indication of why politics sucks.

Getting to a clear yes or no decision from the President about Keystone isn't even about doing what's right for America. It's pure politics.

Obama's Pipeline Comments Send Mixed Messages has the 'maybe yes' and 'maybe no' story relating to Keystone's approval, America's efforts at energy independence and the tens of thousands of needed high paying jobs hanging in the balance. It's all about politics in Washington, as usual:
 
U.S. President Barack Obama speaks as he unveils his plan on climate change June 25, 2013 at Georgetown University in Washington.

"President Barack Obama’s unexpected mention of the Keystone XL pipeline in his climate-change speech Tuesday gave the appearance of pledging a tough line on the project’s environmental impact. But his comments were embraced by Keystone supporters, who said the pipeline has already met the president’s standards.

Standing outside Georgetown University in a blanket of heat that left him wiping sweat off his forehead, Mr. Obama said Keystone will be approved “only if this project does not significantly exacerbate the problem of carbon pollution.”

Both supporters and opponents of Keystone were quick to claim victory and said Mr. Obama signaled a decision in their favor. But Keystone’s climate impact, while still debated, has been largely determined already by the U.S. State Department. . . .

The department’s analysis went something like this: The process of producing Canada’s oil sands, which is what Keystone would be carrying, emits more greenhouse gas emissions than conventional types of crude oil. But if Keystone is denied, energy companies will simply find alternative ways of getting the oil sands to market. So the pipeline itself has a limited impact on emissions.

Based on that review, “the standard the president set today should lead to speedy approval of the Keystone pipeline,” said Brendan Buck, a spokesman for House Speaker John Boehner (R., Ohio).

“We welcome the fact that President Obama seems to be finally acknowledging the value of the Keystone XL pipeline,” said Charles Drevna, president of the American Fuel and Petrochemical Manufacturers. “We hope his statement means the State Department will immediately approve the pipeline.”

Environmental groups walked away with an entirely different impression, however, demonstrating how eager both sides are to win a battle that has raged for years. “As it is clear that the pipeline will increase net carbon emissions, we look forward to the president rejecting the permit,’ said Damon Moglen, a director at the environmental group Friends of the Earth.

The White House declined to elaborate on Mr. Obama’s comments. . . .

If approved, the Keystone pipeline would provide a key conduit for Canada’s oil sands to reach refineries in the Gulf Coast, becoming the last link in a network of pipelines stretching from Canada to Texas. A final decision on the project could come before the end of the year."

Summing Up

How hard is it to say yes or no?

In Presidential politics, it's obviously very hard, especially when union allies want the jobs that would be created, as do almost all Americans, but the allied greenies want the world's cleanest air, even though what we do here will have absolutely no effect on what happens elsewhere.

It's all about politics and not at all about doing what's right for America.

So the President "fiddles" away while time flies, our economy suffers, energy independence remains elusive, deficits grow and unemployment stays high.

Politics sucks.

That's my take.

Thanks. Bob.

Government LIES and Untruths... Medicare's $100 Trillion in Unfunded Liabilities ... Future American Taxpayers Are Being Cheated

We have lots of government debt. In fact, our nation's debt obligations are dramatically higher than currently acknowledged by our elected "public servants." It's time to put the issue squarely on the table.

While the President talks about climate change, gun control, immigration reform and other non-financial issues, the economy suffers, private sector investment lags, unemployment remains high and our nation's financial condition deteriorates.

Let's focus on Medicare to make the point that we're not even talking about solving our financial problems, let alone doing anything constructive about them.

Medicare has been in effect since the 1960s. Now ObamaCare is entering the picture. The financial condition of our nation's health care is already deplorable and about to get worse. So let's look at what almost 50 years of government run Medicare have brought to the obligations of America's future taxpayers.

Setting aside ObamaCare and Medicaid for now, and taking only Medicare costs as an example, whether the "real number" pertaining to our unfunded future health care liabilities is being understated by $34 trillion, $43 trillion, $100 trillion or even more, it's a staggering total and growing each day. If we don't start telling the truth about health care costs sometime soon, our country's financial future is indeed bleak.

Medical costs represent by far the biggest piece of the nation's unaffordable financial mess, and our out-of-control health care costs are easily seen by looking HONESTLY at the Medicare finances. 50 years of government control have resulted in a huge mess, and it's only going to get worse as ObamaCare is implemented.

Compounding the problem is the fact that the biggest and most politically powerful labor union on the face of the earth is the very exclusive union, the American Medical Association. Thus, don't look for U.S. health care costs to get under control anytime soon.

It's going to be a long term uphill struggle for We the People, but it's a fight worth having. We can't continue to wish our health care financial problems away. The tooth fairy won't come to our rescue. Neither will today's crop of politicians. We'll have to do it all by ourselves.

The best place to begin to deal with any complex problem is by facing squarely the simple reality of the situation. In other words, let's begin to get real by asking the simple question: Just how bad is it really?

Medicare by the Scary Numbers is subtitled 'White House spin pretends otherwise, but the unfunded liabilities may exceed $100 trillion:'

"Even before the latest Medicare trustees report came out at the end of May, the White House spin masters had already crafted a story to go with it. Medicare's finances have improved, we're being told. The trust fund will last longer. The unfunded liability is lower. . . .

Here's the real story:

In their report, the trustees acknowledge that current law envisages dramatic reductions in future Medicare outlays which may be "difficult to sustain." The president's new budget also paints a rosy picture of Medicare's present and future finances.

Yet even with these unrealistic assumptions about Medicare costs, the future looks bleak. The unfunded liability in Medicare, the trustees tell us, is $34 trillion over the next 75 years.

Looking indefinitely into the future, the unfunded liability is $43 trillion—almost three times the size of today's economy. Based on more plausible assumptions, such as those reflected in the "alternative" scenario for Medicare produced by the Congressional Budget Office in June 2012, the long-term shortfall is more than $100 trillion.

Take one source of optimism that the trustees are compelled to transmit in their latest report. Its predicted expenditures are based on the assumption built into the law that next Jan. 1 there will be a 25% decrease in the fees that Medicare pays doctors. That means that every doctor in America who participates in Medicare will take a 25% pay cut. The reason has nothing to do with ObamaCare. In the Balanced Budget Act of 1997, Congress declared that Medicare physician fees could grow no faster than the economy as a whole. Since then, though, Congress has postponed the cuts on 14 occasions, not allowing them to take place. Why assume things will be different now?

A second problem does stem from ObamaCare. In order to pay for the expansion of health insurance for the young, the new health law calls for steep cuts in the growth of health-care spending on the elderly. Whereas Medicare spending per person in real terms has been increasing at about the rate of growth of real GDP per person plus two percentage points, the ObamaCare law calls for a spending growth rate of GDP plus 0.04%. Assuming this slower growth rate will materialize, over the next decade it produces about $716 billion in savings.

But the savings don't stop there. The health-reform law mandates slower growth in health-care costs forever.

How is this supposed to happen? There have been a number of demonstration projects that were supposed to find more efficient ways of delivering care. But three separate CBO reports have found that these programs—such as the use of electronic medical records and "coordinated care"—don't work to cut costs.

As a result, Medicare will have to resort to a fallback mechanism: more cuts in provider fees. Were these cuts to be implemented, and if Medicare spending grew no faster than the economy as a whole, the problem of Medicare would be solved.

Yet studies by the Medicare actuaries in 2012 show that for this formula to work, the suppression of provider fees would have to be draconian. Medicare fees would fall below the reimbursement rates for Medicaid next year and fall further and further as the years go by. By 2030, for instance, doctors treating Medicare patients would be paid 40% of private health-insurance fees. The Medicare reimbursement to hospitals for inpatient treatment would fall to 60% of the private-insurance level.

From a financial point of view, senior patients will become less desirable than welfare recipients. Medicare's Office of the Actuary is predicting that one in seven hospitals will completely leave the Medicare system by 2020 because of these pay cuts.

This is not a new problem. When the Affordable Care Act was passed in 2010, Medicare's chief actuary, Rick Foster, said the cuts envisioned would damage access to care. Harvard health economist Joe Newhouse predicted that seniors may have to seek health care at the same places frequented by Medicaid patients today—at community health centers and the emergency rooms of safety-net hospitals.

So not much is looking up after all. If Congress caves to political pressure and continues to restore cuts in provider fees, as it has done since 1997, the unfunded liability in Medicare will be far greater than what the trustees are now showing.

Meanwhile, the fiscal gap separating the present value of all future projected federal expenditures—Social Security, Medicare, Medicaid, ObamaCare, defense, gassing up Air Force One, servicing existing debt, you name it—and all future federal taxes and other receipts is, based on the CBO's projections, a staggering $222 trillion.

Anyone in Washington who thinks we can keep pretending that there is no long-term fiscal tsunami heading our way should look at that number—and examine his conscience."

Summing Up

America's unfunded health care problem is more like $100 trillion or higher and not the acknowledged $34 trillion. And yet we're supposed to believe that things are about to get better when ObamaCare is implemented. Lies, more lies and more lies aren't going to get anything done. They're just going to make the unfunded entitlement mountain that much higher to climb for America's future taxpayers.

Yet the pols say that all we need to do is trust them and all will be well. Yes, of course, Santa will bring us all the presents we want. Everything's free.

Well, maybe the pols should start trusting us by admitting the unvarnished truth about the financial mess we're in and what choices need to be made about stopping the hole digging into the future.

Then we can get on with solving this mess. But not before truth telling becomes fashionable in politics, and that could be a very long time in coming.

That's my take.

Thanks. Bob.

Tuesday, June 25, 2013

The Stars Come Out and the Selling of ObamaCare Begins This Fall

It's about time to get the Obama all-star supporting cast out for the selling of ObamaCare, which will be happening this fall.

Since facts alone aren't going to make it a good deal, let the hard sell begin.

And since the young will be getting the worst deal, my guess is that they will be the ones most heavily targeted by the PR blitz. So beware of those bearing false gifts, my young friends.

(See last Sunday's post titled "ObamaCare Asks the Question: How Dumb Are the Young Adults?")

The Democratically aligned stars from the NFL, NBA, Hollywood and on and on will be part of the effort to convince us that the new "Affordable Care Act," aka ObamaCare, really is going to be good for all Americans.

To which I say, good luck with selling that deal, Mr. President.

ObamaCare rollout effort may get aid from football, Hollywood stars has the story:

"The White House is gearing up for an Obamacare promotional blitz, and is recruiting from pro football and Hollywood to help with the effort.
 
On Tuesday, The Hill reported that the White House also would seek out the help of Hollywood stars in its effort. It quotes Trevor Neilson, a Clinton White House official who now runs the Global Philanthropy Group. He represents such stars as Eva Longoria and John Legend, and says he’s in talks with the Obama administration on the issue. But it’s unclear whether the two stars — both Obama supporters — will be asked to join the effort.

“I think the White House is very wise to identify partners to help market the Affordable Care Act,” Neilson was quoted as saying. “Just like any good product, when people are aware of the many benefits it provides, there will be increased demand.”

That came on the heels of another report effort on Monday, when Health and Human Services Secretary Kathleen Sebelius said during a media briefing that she is in talks with the National Football League to get it to help promote health insurance exchanges expected to launch Oct. 1 as part of President Obama’s health-care overhaul.

The exchanges are designed to sign up roughly 7 million uninsured before the main components of the overhaul, commonly known as Obamacare, take effect Jan. 1. Kaiser Health News reported that Sebelius also is talking with other sports leagues on getting help with encouraging the uninsured to get coverage."

Summing Up

Enjoy watching the games and going to the movies this autumn --- if you can.

And that's all I have to say about that.

Thanks. Bob.

Straight Talk for Both Young and Old

It's not often that truth telling is relevant, put forth in simple words, straight forward and directed at both the young and old among us.

So when I came across such a story, I deemed it worth sharing with you.

Straight talk for graduates and parents presents some basic, time tested and well grounded advice for both the young and old. So if the shoe fits, ....................:

"If there's a graduate in your life — a child, grandchild, niece or nephew — please pass the message along.
Graduates, go to your personal trophy case and throw out all the awards you got for "participation." Participating in life does not pay well, not nearly well enough to pay off your student loans. Second, forget your personal grade point average. If you have not noticed, it does not appear on your diploma.

For those who are members of the "just enough to get by" club, I did not just suggest a free pass; quite the contrary. The lessons you should be learning are how to do your best and thrive in a competitive environment. . . .

Once you have thrown away all your participation medals, what is left? Hopefully you have several that say "first place," "second place," or "third place." It makes no difference if those awards were for athletics, band competition, or the debate team. Those are the important ones.

Life is a competition, and if you want to be successful, you have to achieve, not merely participate. Unlearn all the "fairness" garbage educators tried to force into your brain. . . .

Supply and demand

If you are a recent graduate and are un(der)employed, here is your challenge. The job market is based on the law of supply and demand. If there were a great demand for jobs in your educational field, you would already have one. There is an oversupply of candidates, and demand is low. Waiting for things to "open up" is dangerously shortsighted. You may be well into your 30s before demand in your field opens up again.

Get a job . . . .

Talkin' 'bout my generation

Now that I've said my piece, I'll briefly turn my attention back to you, my peers. Our sons, daughters, and grandchildren face a tough reality in the modern workforce. An entire generation seems to believe that if you just check off all the right boxes, careers, promotions, and money will magically appear. We know that's simply not true. Success is hard earned.

A similar myth has pervaded our own generation; the idea that if you put in your dues, the government will uphold its end of the bargain, providing a decent base for retirement through Social Security and Medicare. Well, that's simply not true either.
Our retirement health is in our hands, and most of the basic assumptions about investing have been upended. Just as it's time for the youth of America to buckle down, learn a business and build a career, we need to ask ourselves whether we've really given retirement planning the careful attention it deserves.""

Summing Up

What he says rings true to me.

How about you?

If so, pass it on.

Thanks. Bob.

The "Moral Hazard" of Social Security ... An Example of "Do-Good" Government and Its Often Unintended and Negative Results

{NOTE: Many of you may not want to hear about the moral hazard effects of government programs, and especially those that help the "middle class," and you may disagree with what I have to say, but I'm going to say it anyway. So here goes.}

"Do-good" or "progressive" government safety nets all too often result in unintended harmful consequences for their intended beneficiaries.

By trying to keep us safe and secure, these government actions only serve to make us more dependent on government and less likely to become or remain a nation of self-reliant individuals.

From Social Security to Medicare to ObamaCare to student loans to unemployment benefits and countless other well intentioned safety nets for the vulnerable among We the People, more and more of us become vulnerable and dependent on government programs. It's called "moral hazard" and it's very real and very harmful to We the People as a whole. It's most harmful to the vulnerable among us.

Simply put, moral hazard describes the risk that one party (herein the individual citizen) to a 'contract' will change his behavior and adversely affect his future well being due to the nature of the contract with the other party (herein the government). The classic example of moral hazard at work takes place in the insurance industry, where coverage against a loss might increase the risk taking behavior of the insured.

Which brings me back to the moral hazard of Social Security dependency and other forms of government "help" intended to act as a safety net for We the People.

We all know that most people rely too much on Social Security for their old age income and that too many of us failed to save and invest enough during our working years to generate anything close to a non-government dependent income for the rest of our lives.

But how many of us have asked ourselves why? And what the answer to that question has to teach us about other forms of government assistance, which, albeit perhaps well intentioned, result in much different actions from the desired behavior.

When some people retire early because their benefits are substantial (think teachers and other public employees) but didn't save and invest sufficiently during their working years, and still others refuse to take jobs for which they are qualified but would pay them not much more than not working and taking government benefits (and having leisure time available while doing so), and young people enroll in college just to get the "free" Pell Grant money, and other so-called students take out expensive loans that they may not be able to repay, especially if they don't graduate, they're in all probability still acting somewhat logically, at least at that particular point in time. But over the longer term, due to this government "assistance," they're often doing themselves great harm.

So with "moral hazard" clearly in mind, please consider Will Social Security be your only hope? and what it really means to We the People down the road. To me it's indicative of the big box we're in as a result of all this government "help" over the past several decades:

"It is working Americans' greatest fear: Being dependent on meager Social Security benefits in old age. A surprisingly large number of people will be in that position — a median dependence of 39% in the year 2022 and slightly higher (41%) in 2062, according to a government study.

What "dependence" means for the typical household is that 39 cents of each dollar of income they get will come from the government-run retirement plan.

As with all statistics, averages obscure important information. Among the lowest earners, dependence on government income is much higher (52%). Still, even the top fifth of Americans will find that 25% of their income — on average for their group — comes from Social Security.

The government does these studies not to alarm people (goodness knows they're dry reading) but to try to figure out how much economic pain would be inflicted by changes in how Social Security is funded. In short, if a future Congress cuts benefits, who suffers?. . .

The government figures the median retiree 62 or older will have an 86% replacement rate in 2022 under current law. Put another way: A retiree on average will see a 14% decline in total income compared to his or her working years. All the more reason to be debt- and mortgage-free by retirement.

The SSA projects a replacement rate of 84% by 2062 but points out that current tax rates only support a payout of 72%. As you likely already know, we aren't taking in enough money to meet the obligations promised.

So, if you're average, early in your earning years and tax law stays the same, get ready for a pretty hefty lifestyle change at 62. You're likely to lose 28% of your current income, all told.... the very next thought to enter your mind is probably "What can I do about it?" Here are your marching orders for the next few years:

1. Ramp up your savings rate

Do you take advantage of the government's catch-up allowance for those 50 and older? Do you put away the maximum in your IRAs and 401(k) accounts? . . .

2. Pay down debts for good

This is huge. During the boom times, people traded up houses like they were changing clothes out of season and leased brand-new cars every 18 months. Credit card spending was seen as a tool of the privileged and smart. Nothing could be further from the truth. Borrowing is the mirror-image reverse of smart investing: Rather than making money on your money, you become the milk cow for the big banks and other lenders. It's time to change those habits.

3. Invest for the long term

How long will you live? Will you need money all of those years? Nobody knows the answer to that first question, but the second is a no-brainer. Your income needs will never disappear and might even increase in old age. It's critical to assume that your investing time-frame at retirement is decades long — because it might be — and that low cost and efficiency in your investment approach is paramount. Your worst-case scenario should be deciding which charity deserves your estate or how best to benefit your heirs, not how to pay the power bill in your 90s."

Summing Up

The old joke about "We're from the government and we're here to help" doesn't seem funny to me. In fact, it's actually pretty sad, moral hazards included.

Do you feel that way, too?

If so, let's each resolve to do what we can to take care of ourselves, and let's especially encourage the younger ones among us to do the same, starting early in life.

In other words, to do as we now "wisely" say, not as perhaps we once "unwisely" did.

Thanks. Bob.

Monday, June 24, 2013

More on "Good" Government and Why We Should Always Trust The Government Knows Best Gang with More of Our Money

Government OPM is real. And it's wasteful. And it's never going to change, as long as the elitists are running the show instead of We the People.

Because as long as we're willing to give them more money to spend on our behalf, they'll spend it and then demand more so they can spend even more. The more we give them, the more they spend, then the more they need and on and on it goes. Until we're broke.

What once was MOM becomes something for the government elitists to spend as they please. They're simply unaccountable. It's just human nature at work, since they have no skin in the game and merely use our skin to play the wasteful and often corrupt games that they play.

Social Security Kept Paying Benefits to 1,546 Deceased has the breaking news on how our money is being spent in Washington:

"The Social Security Administration’s inspector general on Monday said the agency improperly paid $31 million in benefits to 1,546 Americans believed to be deceased.

And potentially making matters worse for the agency, the inspector general said the Social Security Administration had death certificate information on each person filed in the government database, suggesting it should have known the Americans had died and halted payments.

Of the 1,546 deceased beneficiaries, the government made payments as if each person was alive for an average of 20 extra months. One beneficiary died in April 2000, the IG said. In February 2001, the Social Security Administration recorded information from the death certificate but kept making a total of $158,000 in payments through May 2012. . . .

The Social Security Administration appears to be making some progress in this area. In 2009, the inspector general said the agency was paying benefits to 6,733 people even though death certificate records were on file. However, the IG said Monday that 91 of the Americans identified as deceased in its 2009 audit were still being paid benefits in May 2012.
The IG report didn’t say who collected the money once the beneficiary passed away or if the government will seek to recoup the funds."

Summing Up

By all means, let's raise taxes and hire more government workers.

That will help balance the budget , "stimulate" the economy and "save the middle class".

And if you believe that, I have a bridge to sell you.

Thanks. Bob.


Pell Grants, Student Loans and Government "Help"

Everybody agrees that education is a good thing.

Every American deserves the opportunity (there's that word again) to secure a quality education at an affordable cost.

But vouchers are not something on which we all agree. Teachers unions and the status quo politicians argue against them. We can't trust the people, I guess.

But we sure can trust the government knows best gang to collect, distribute and spend our money well. Or can we?

Student-Aid Scams Targeted by Schools, Government supports the reasoning gave by bank robber Willie Sutton as to why he robbed banks --- because that's where the money was:

"Federal officials are cracking down on fraud in student-aid programs, responding to evidence that a growing number of recipients—acting alone or as part of organized crime rings—are pocketing federal loans and grants without any intent of going to school.

The Education Department in January began using a database to flag applicants for federal Pell grants who have an "unusual enrollment history"—having received aid for three or more schools within a year, primarily. The department sends the names to colleges and universities, which then ask applicants to provide prior transcripts and other documents. A school can deny a grant or loan if it deems the applicant's responses to be unsatisfactory. . . .
Roughly $829 million in Pell grants in the fiscal year that ended last September were "improper payments," which includes fraud and disbursements due to clerical errors, the Education Department reported last year. That was down from the previous two years, but up 86% from 2007. Improper payments through the federal student-loan program more than doubled last year from the year before to $614 million.

More than 34,000 participants in crime rings improperly received federal student aid last year, up 82% from 2009, the department's inspector general estimated this month.
[image]
Justin Draeger, president of the National Association of Student Financial Aid Administrators, said while schools are trying to curb fraud, they strive to get aid to deserving students. "Schools are constantly trying to find the right balance here."...

Joan Zanders, director of financial aid at Northern Virginia, said most aid recipients use the funds properly. But she has seen an increase in suspicious aid applications in recent years.

"We started seeing student borrowing that was just over the top with no explanation for why," Ms. Zanders said. "We have individuals that have told me, 'I spent all this money on graduate school. I can't get a job. I'm living in somebody's basement. I can't afford to live, I need the money.' It's not so much about the education, it's the money."

Federal Pell grants don't have to be repaid and are designed to go to the neediest students. The maximum annual award is $5,550. The government's most popular borrowing program, Stafford loans, allow undergraduates to borrow up to $57,500 over their lifetime and graduate students up to $138,500.

Most federal student aid requires no credit check and comes with few restrictions on how the money is spent. Schools get the first cut of the grants and loans to cover tuition, then make checks to students for the remaining amount to pay for books, transportation expenses, rent and other living expenses for the semester.

Community colleges are a chief target for fraud because they often have open enrollment, meaning anyone can attend regardless of their academic background, and low tuition. The lower the tuition, the more money is left over from a grant or loan to cover living expenses.

At Henry Ford Community College, in Dearborn, Mich., for example, a full-time, independent student can receive up to roughly $11,000 in aid to cover living expenses over two semesters, said Stephanie Latzke, the school's assistant director of financial aid. . . .

At community colleges and online schools, borrowers can often obtain tens of thousands of dollars in aid by applying via the Web, without ever stepping foot on campus or talking to a school official."

Summing Up

Fear not, my fellow American taxpayers.

Both our trustworthy and fiscally responsible government knows best gang and college administrators are on the job.  And if you believe that, .................!

The only problem --- it's not their money.

In fact, in the case of the colleges, the more student loans, the more money for the teachers and administrators.

Only the taxpayers get screwed --- but there's nothing new about that.

Thanks. Bob.

Pensions and 401(k)s ... Illusory Government Security vs. Private Sector Opportunity ... Pogo Had It Right


Security or opportunity. Which will it be?

And what if the security we prefer is illusory and not permanent or real?

Because when I was young, GM was the essence of security. And IBM and Sears were close behind as places with secure jobs.

As I grew older, things changed. Teaching and government work became the secure places to work. Or so we thought.

Alas, there is only uncertainty and opportunity in a free self governing society. The taxpayers, customers and citizens rule. Not our elected representatives.

That's because it's our money they're spending, and it's our opportunity they're squandering by "protecting" us from the big bad world of opportunity. We've taken the idea of a safety net to an extreme illusion. The more we demand from government, the less able that government is to meet our demands. As Pogo says, "We have met the enemy and he is us."

The security government provides, other than militarily, is a false security. And in fact, even the security provided by the military is provided by that portion of We the People who serve the rest of us in our military.

So what's the point as the stock market crumbles this month, even though it's still up double digits in percentage terms for the year? Just how secure are we? Only as secure as the opportunities we choose to seize, I would submit.

In a free self governing society, we make our own security by availing ourselves of the countless opportunities we have. That means plenty of uncertainty surrounds us, of course, but that's life. And who would choose to have it any other way?

...............................................................................

Now let's look briefly at the changing nature of retirement plans in the auto and government sectors.

The private sector is converting to 401(k) plans.

Meanwhile, both private sector unions and public sector unions are clinging to pension plans.

It's just the difference between market competition requiring lower costs, higher productivity and good customer service  and government monopoly allowing high costs, low productivity and poor customer service.

In the market place the customers rule, and in the government sector the politicians and the public sector unions rule.

In the market based competition, taxpayers win and in the government monopolistic situation, taxpayers lose.

Chrysler to Freeze Pension Plan has the private sector story:

"Chrysler Group LLC will freeze its U.S. pension plan for about 8,000 salaried workers, transferring those employees to a defined contribution plan starting in 2014 . . . .
image
Chrysler Group will freeze its U.S. pension plan for about 8,000 salaried workers.

The move affects only current salaried workers, not those who have already retired or who are hourly employees. Chrysler hasn't offered pensions to new white-collar hires for about a decade. These 8,000 workers will be able to keep pension benefits earned up until the end of the year, the company said.

The company also lowered the age in which retirement-eligible workers can start collecting pension benefits to 58 years from 62, as long as they retire on or after Jan. 1, 2014.

Chrysler, which is majority-owned by Italy's Fiat said the pension freeze will have minimal impact on finances, and the company is making the change to better comply with Internal Revenue Service regulations.

"We recognize the importance employees place on retirement benefits," said Nancy Rae, Chrysler's senior vice president for Human Resources. "As we move forward, Chrysler Group will provide comprehensive tools and resources to help employees make decisions about their retirement readiness.". . .

At GM, 26,000 salaried workers were moved last year to a 401(k)-type plan where contributions would be based on salary and bonuses. Defined contribution plans, such as 401(k)s have become more prevalent in recent years as companies seek to limit exposure to the hefty costs associated with having a large retired workforce. . . .

Ford closed its pension plans to new salaried workers in 2004, but hasn't frozen plans for those hired before that date."

...........................................................

While all this is happening, both the city of Detroit and state of Illinois public sector unions and their political allies are fighting any legitimate solution to their retirement funding woes, including a switch to 401(k) plans. They want to stick the city's and state's bondholders and taxpayers with the bill.

In Illinois, the Dems and the unions claim that it would be unconstitutional for taxpayers not to pay the promised benefits in full. What they fail to acknowledge is that taxpayers can vote to change the constitution through a referendum or amendment procedure. Hence, since the politicians are weenies, why not put it to a vote of We the People?

The question is a simple one with profound consequences. Would taxpayers prefer to double or triple taxes paid so public employees can retire at age 50 or so with full benefits, or would they prefer to change the rules of the game by, if necessary, amending the state's constitution?

Maybe that's the way to get vouchers, school choice and some semblance of overall fiscal responsibility on the agenda in Illinois as well.

And while we're at it, let's do something similar in Detroit, too. Let We the People decide instead of the government knows best elitist politicians and the public sector union leadership.

Then if We the People elect to go broke in the process of supporting government workers with benefits that We the People don't have, so be it. But if not, let's get on with fixing what's wrong in government and the public sector. Too much spending, too little accountability and inferior quality public services, all at the same time.

Productivity and opportunity go together, as do low costs and high quality. Uncertainty and opportunity, too.

The false security of the blank check government safety net is merely an illusion.
.............................................................

Summing Up

Companies, both new and old, that can effectively compete will and do survive and thrive.

Cities and states that don't get their financial house in order will lose their taxpayer base over time. We the People will vote with our feet and move on down the road.

Quickly or slowly, the result will be the same.

If something is unaffordable, unfair, irrelevant and inflexible, it has no permanency. It's just that simple.

And this basic rule of existence applies to governments as well as to all other organizations.

Thanks. Bob.