Job Security

No. 04‐6 Working Paper Federal Reserve Bank of Boston
Effective Labor Regulation and Microeconomic Flexibility
Ricardo Caballero, Kevin N. Cowan, Eduardo M.R.A. Engel, and
Alejandro Micco

This is no Paper for the Weak of Heart, and the Author is known to be mathematically challenged among other things. He thought he had detected the use of a Loop approximation for a Sliding-Scale Constant variable(that means the value of the variable could be two numeral Constants). He cannot be sure, though, because he isn't very good at this stuff.

Now for an evaluation of the Paper:

Econometrics always attempts to dismiss the variable number of average Hours worked, as does this Paper, because it throws estimates all across the board. The variance of Hours worked, nevertheless, operate as Firm response to Job Security regulation; negating the impact of the regulations. The reduction of Hours reflect the Cycle of Firm disintergration, with Creative destruction occurring at the same relevant speed and point of Firm failure. The loss of Microeconomic flexibility actually aids, rather than hinders, sound economic growth; Job security regulations forcing prior creation of Operating revenues sufficient to maintain Job creation. Low or no Job security regulation supplies unsound Firm creation, leading to wastage of Capital resources and thereby, loss of long-term sustainable economic growth.

Lack of Job security also has other negative effects upon economic growth. Higher Job turnover increase total Training Costs incurred within the Economy. Periods of Unemployment retard Household Consumption and Saving. Some unpublished Studies have established a correlation between Product Quality and Job Security. Productivity has also been shown to degrade with lack of Job specialization.

Economists often cannot differentiate between value to Business Firms, and value to economic growth. Business Firms depend on immediate Profits, and long-term gain is sacrificed for those Profits. Economic growth, on the other hand, stands upon repetitive Production levels. lgl

Minimum Wage

http://www.coyoteblog.com/coyote_blog/2005/03/case_studies_on.html
Case Studies on the Minimum Wage

An important Read for Any interested in the Minimum Wage issue. The Author disagrees with the article, though, for the following reasons; this is a Case where it remains a evaluative Issue. Minimum Wage finds validation, not for some equalization of Power between Employer and Employee, but to forestall the Substitute Good of Social welfare. Insufficient Wages means higher Housing subsidies, Food Stamp Costs, higher Utilities assistance, and increased Medicaid Costs. The Article used Business experience dealing only with Workers who had Secondary sources of Income. The Economic model matrix for Minimum Wage effect upon Secondary Income Labor differs markedly from Primary Income Labor. The trouble arises in the fact that Minimum Wage legislation affects both Classes of Labor equally, though with vastly separated effects.

Secondary Income Employment suffers sharply in Job losses from rise in the Minimum Wage, while actual Primary Income Employment increase with higher than Minimum Wage income due to their greater Productivity. Primary Income Employment rarely endures Job losses from Minimum Wage increases, at the level of Minimum Wage recipients, due to their necessary occupational effort; None can be hired for less than Minimum Wage, and the Labor still must be performed. The Net sum should actually be an increase in Primary Income Employment, with Secondary Income Employment still thriving in Occupational areas where Primary Income Employment remain unviable.
=========================

March 2005 GAO-05-253
FRESHWATER PROGRAMS
Federal Agencies’ Funding in the
United States and Abroad


The United Nations estimates that, worldwide, more than 1 billion people live without access to clean drinking water and over 2.4 billion people lack the basic sanitation needed for human health. Freshwater supply shortages—already evident in the drought-ridden western United States—pose serious challenges and can have economic, social, and environmental consequences.

Fresh Water will become a Vital issue with Population increase. The United States Government is estimated to have spent $52 billion on Fresh Water between 200-2004. The United States will not remain immune from the Fresh Water needs of the Future; a Need which will rival the quest for Oil within a decade. Fresh Water Supply and Development had better become a Priority in the minds of Readers and Economists, before Outcomes start inflicting losses to human life and economic productivity. lgl

Bush Passing the Buck

Mandate Monitor
Vol. 2, Issue 1: March 8, 2005
Revised March 10, 20051
An Information Service of the NCSL Budgets and Revenue Committee

States overstate their Case that the President and Congress keep increasing unfunded liabilities for States, and that the Unfunded Mandates Reform Act of 1995 (UMRA) does not reflect their real Costs. This does not alter the fact that Bush's Tax Cuts coupled with Budget-cutting is both inane and Pie-in-the-Sky. It stands as inane because complete elimination of discretionary Spending would not balance the Budget, if Entitlements and Military/Security expenditures are left untouched under the current Bush Tax Code. It consists of Pie-in-the-Sky fantasy due to the fact Congress is elected on the promise of discretionary Spending for their districts, and doesn't hold a Prayer of even being marginally reduced.

Review of the Mandate Monitor establishes clearly Bush Budgets based upon his Tax Cuts rely on forcing States to raise their Tax rates to generate more Tax revenue. Bush gets the accolades for Tax Cuts, while the States receive the acrimony for increasing Taxes. This coincident with Bush Budgets actually always generating increasing Deficits, as he claims Congress will not pass his Initiatives to cut the Deficit.

The CBO states Iraq invasion and occupation has already cost $272 billion, when the Bush administration fired one of their own team for suggesting it might cost $100 billion; this at a time when responsible Economists and Military Affairs Specialists were predicting the Cost would be around $100 billion per Year of incursion.

Wild-eyed Visionaries at Defense have already spent something over $70 billion on the Future Combat Force Concept, and want to spend $1.4 trillion over the next Ten years. Almost all responsible Military Affairs analysts believe the Future Combat Force will never become reality within anything less than three times the Time frame, and with only a probable One-Third of the weaponry envisioned, for twice the Pricetag stated. The Bush refusal to discuss Military expenditures means the unwise Appropriations are destined to continue.

No one in the Administration talks about the vaunted Proscription Drug law now, as the time of implementation approaches. This lack comes from Projections that Costs entailed will grow more rapidly than Bush Deficits in real percentage terms. Bush and Congress plan to push another $70 billion of unfunded entitlements off on the States, after having already passed almost $30 billion off on the States. Bush wants Social Security Private Accounts, which will cost a bare bones minimum of $1 trillion by 2015--though good Economists have suggested the Cost might equal $7 trillion by 2020.

The Author will not call the President an Idiot and opprotunist demagogue, as that would be a criminal act under the Patriot Law; he will simply state that George W. Bush could not balance his own Checkbook, based upon the Accounting expertise exhibited in Budget proposals. lgl

Bankruptcy

http://www.becker-posner-blog.com/archives/2005/03/the_bankruptcy.html

The Bankruptcy Reform Act--Posner

An excellent Read as always, coming as it does from the Becker-Posner blog. Judge Posner lauds the new Act, saying it will lower Credit extension Interest rates, and Means-Tests those requesting 'Discharge' of their debts. The Author finds the former reason somewhat doubtful, thinking Credit Card companies hold the philososphy of Loan Sharks; they desirous of economic Profits, not normal Profits. The later rationale only transfers applicants from Chapter 7 to Chapter 13, meaning the Debtor must make Periodic payments of the Debt for the subsequent Five years; this only if the Applicants possess higher than the median Family Income for their respective State of filing.

The Author sees much potential Abuse within the new projected Bankruptcy law. This does not mean he sympathizes with the Debtors. He personally thinks a new Bankruptcy law should favor neither Debtor or Creditor. He would like the new Law to state:

1) Debtors will not be discharged of their liability, but Relief will be offered.
2) Debtors will not have to pay the Principal, but must continue to pay some Interest on it.
3) Said Interest will be the average national Interest rate on a 10-Year Certificate of Deposit.
4) Said Interest will be paid until an amount 110% of the original Principal has been paid.
5) The Debtor cannot apply for further Debt discharge before all previous Discharge payments have been made.

Such a Bankruptcy law would assure return of all Funds extended to Creditors. It also signifies the law will not support usurious Interest rates; potentially curtailing Credit Card companies enticements of unsound debt Acquisition by Consumers. It will send a clear warning to all Debtors that the Courts demand they pay their full debts. It finally provides a social insurance relief sufficient to give Debtors the time to pay their Debts. lgl

Information Technology

The NYTimes today had an article discussing the graying of Silicon Valley, suggesting Some think it will resemble Detroit. The answer states they are right. A complex Economic model would highlight that 90% of Productive change has already been realized by Information technology; luckily, though, the Author does not engage in such dramatics(he being somewhat mathematically challenged). Reality simply states another Microsoft will not develop in the Information Technology world, though We might see a new Norton or Adobe. The reason remains simple: the great Theory has been accomplished, leaving no real expansion except to Numbers-crunching development of Software.

The Author still awaits some Company developing a robotic arm from Plastic strands. Robotics will never develop with metal parts; they lack the flexibility necessary for specialized homogeneous effort. Study of the human arm provides the best blueprint structure, with bundled plastic strands providing both flexibility plus strength. The flexibility comes from the proper strand-pulling, allowing the capability existent in the human hand and arm. The strength comes from plastic strand composition, potential equivalent to five times the power of the human arm; all to be controlled by computer program, initiated by hand controls, buttons, of Sensors to imitate human arm movements of the Controller.

The Author's skeletal design awaits Engineering effort. The Reader might ask for what purpose, if human labor is still entailed for Control. It removes the human body from the Production floor; or otherwise put, allows absolutely Safe effort under hazardous conditions. It remains much safer for a plastic machine to carry shingles up a ladder and shingle a roof, than it is for a human body; the same for plumbing, mining, working with hazardous materials, and fighting in a War. It would be much safer to clear military mines with a Plastic man.

The Expense from such Technological development would be much cheaper than current metal Robotics. The Cost of duplicating human body parts with bundled plastic strands could be reduced to less than $100 apiece, under available Production technology; said Parts being as fully flexible and controllable as their human body counterparts. Optics have been developed to the degree that the Controller can possess better sight than available with the naked Eye. CAD, or Computer-Assisted Design, could easily design the structure and outline the Production process. This Development, alongside sophisticated metallurgical processes to provide new materials, will be the new cutting-edge technology. lgl

The Negative Equity Premium

Asset Returns and Economic
Growth
Dean Baker
Center for Economic and Policy Research
J. Bradford DeLong
University of California at Berkeley and NBER
Paul Krugman
Princeton University and NBER
Draft 3.0
March 24, 20051

They effectively prove that equity returns will be lower with reduced economic growth. Their modeling is sound, and consistent with current economic procedure. The risk factor of basing social insurance upon equity returns finds outline within the Paper. They also portray the difficulty of maintaining equity returns based upon foreign investments. Their shortcoming comes in their initial assumptions, the greatest error being expectation that economic growth and productivity growth will be maintained by Migration through the next Century.

Migration to the United States can be expected to reduce within the next decade. Other Countries work to develop equal Capital infrastructure comparable to the United States. Such Infrastructure will generate equal opportunities to the U.S. economy at a lower Cost of Living, without need to alter Speech patterns, Food consumption, or Cultural Mores. American reduction of the Cost of Living would reduce rates of equity returns, utilizing the same Analysis as the Authors used in the Paper.

What is the effect of lower Immigration on Economic and Productivity Growth?

Economic growth will decline, or even become negative, unless Senior labor is recruited. Any Senior recruitment will be dependent upon greater Wage premiums, enticing older Workers to remain in the Workforce. The reduced physical energy of older Workers will retard Productivity growth, and there will be greater Training Costs; the later generated by the fact higher Wages will lead experienced Labor to exit the Labor force, and less capable and older Workers must be trained at higher cost. Productivity growth will turn into negative fields, while the slower Workpace plus higher Wage premiums will reduce equity returns. lgl

Tariffs

The Nation
comment Posted March 24, 2005
Elite Protectionists
by William Greider

There seems to be an effort by 5 Senators along with longtime Free Traders to use the threat of a Tariff against China. The Bill's stated rate would be 27.5% on Chinese imports. The rationale for the Tariff being to save the fiscal stability of the United States. The Bill outlines a 6-month negotiation period before imposition of the Tariff, to impel the Chinese to appreciate the Yuan.

Comment
The fiscal stability of the United States is totally dependent upon raising Taxes on Americans, and curtailing Federal Government expenditures, to eliminate the Federal Deficit; the sole cause of the fiscal instability. Chinese leadership will not be frightened of an American tariff on Chinese products, having developed alternate markets as well as knowing such an extreme tariff rate could not last. The Yuan may not appreciate that much if allowed to float freely, as almost One-Third of Chinese Labor is either underemployed, or employed in Subsistence industries.
=======================

What Are We to Make of the Trade Deficit?
by Stefan M.I. Karlsson
http://www.mises.org/story/1762
[posted March 21, 2005]

Karlsson states that the Trade Deficit and Current Accounts Deficit hold no great cause for alarm, though the Current Accounts deficit reached 6.3% of GDP. He says it is quite acceptable as Foreign Investment is willing to absorb both Deficits. He uses the 'crowding out' principle to state farming out of the Debt Overseas does not restrict Private investment in the U.S. Karlsson provides an Article typical of the Ludwig Von Mises Institute, except for one quote which the Author choses to utilize:

As excessive consumption and/or malinvestments is usually a result of a loose fiscal and/or monetary policy, the only way that trade deficits should be fought is by eliminating taxation on savings and by restoring balanced budgets and sound money

Comment
The present Current Accounts deficit remains the direct result of loose Monetary policy, coupled by spendthrift Government spending. Either and both could have been endured with an effective Tax policy, absorbing excess Private funds and paying for Government spending. The worst element of the Tax Code was allowance of investment tax credits, even when such Investment was conducted Offshore. This directly led to American Job loss and ballooning Trade Deficit.
=====================
Author's Proposal:

A singular tariff against one nation will not curtail American appetite for foreign Imports, even against China. A Tariff of rate 10% should be imposed on all Foreign Products. It's form should be as a National Sales tax of Imports, collected by State Taxing Authorities who would receive 40% of the Tariff revenue to adjust Medicaid payments, with the rest accruing to the U.S. Treasury. The Tariff will curb American consumption of Imports, raise Tax revenues, and provide domestic industry incentive to recapitalize. lgl

Labor Violations

JUSTICE FOR ALL
The Struggle
for Worker Rights
IN CHINA
Copyright © 2004 by the American Center for International Labor Solidarity
ISBN 0-9761551-0-9

Obvious bias in favor of Unionization of Workers, but carefully researched; it should be required reading of All who desire to import from China.

Capitalism is flourishing
under a political dictatorship that
competes by offering investors disciplined
and exploited labor

Since 1990, China’s manufacturing
production has increased by
more than 400 percent. In 2003
alone, China’s total exports rose by 35
percent.

What is the cost of this march to Capitalism?


In 2002, workplace accidents
reportedly caused 140,000 deaths in
China, 250,000 workers lost body
parts and suffered other injuries, and
nearly 400,000 workers died from
the cumulative effects of workplace
illness. In Shenzhen alone, official
statistics indicate that an average of
31 workers per day were disabled
last year and that a worker died at
work every 4.5 days. Between
January and September 2004, official
statistics cite 609,429 workrelated
accidents with a death toll of
98,809 workers.14


Amnesty International notes
that the RTL system remains in place
and continues to be imposed in contravention
of international human
rights standards:9
"People receiving terms of RTL
have no right of access to a lawyer
and there is no hearing for them
to defend themselves. ‘Sentencing’
or assignment to a term of RTL
is usually decided by the police
alone, without judicial supervision
or review.

The Author could cite the use of Forced Labor or listed Conditions in the Workplace, but does not like to partake of Graphics which sicken the heart. It stands as sufficient to state a probable 60% of all Chinese Imports into the United States were produced under conditions in violation to WTO standards--not just ILO standards. Chinese agencies also charge huge sums to Workers to migrate--a good share of this Migration being illegal in the destination Countries. One final quote could be helpful:

China—the global giant whose nearly 800 million
workers represent one-fourth of the world’s labor force.

The NYTimes carried an article Today examining the collapse of the Central American textile industry, because of the removal of the Multi-Fiber quotas at the start of the Year. They are being undersold by Chinese slave labor. The book makes a truly valid case that Chinese labor, if remaining enslaved, will bring down the living standards of Workers throughout the World. lgl

China and Brazil--Major Bad Boys!

New York Times
CHINA'S REACH: THE TROUBLE DOWNSTREAM
In Life on the Mekong, China's Dams Dominate
By JANE PERLEZPublished: March 19, 2005

Legal issues spook China investors
By Jonathan Kent BBC correspondent in Kuala Lumpur

http://www.techcentralstation.com/032305I.html
Brazil: A Tough Nut to Crack
By Desmond Lachman 03/23/2005
=================================

Both China and Brazil turn a blind Eye to intellectual property piracy. Desmound states:

Intellectual property piracy has become a major problem for U.S. corporations and jobs. The U.S. Customs Service estimates counterfeiting costs the U.S. more than $200 billion every year and has cost 750,000 U.S. jobs.

Brazil happens to be among the biggest offenders of intellectual property rights. Piracy is particularly rampant there in records and music, business software, motion pictures and the pharmaceutical industry. Brazil recently justified ignoring western companies' AIDS drug patents, claiming they are too expensive, despite the fact that it spends a paltry 2 percent of its massive gross domestic product on health and is the world's 11th-largest economy

Jonathon Kent cites a Shanghai lawyer who is licensed to practice in mainland China:

"No one knows how many laws there are in China," he says, observing that central and regional governments often pass bills that completely contradict one another

A mainland businessman may treat the terms of a contract, already signed, as advisory, not absolute

Jane Perlez criticizes Chinese development destroying downstream economic and environmental system. She cites:

China's ravenous appetite for hydroelectric power at home and its thrust southward into Southeast Asia in search of trade is changing the very character of the Mekong. This is true not only in China itself, but also for the five nations and 60 million rural people downstream for whom the great river serves as their life's blood.

China has completed two dams. It is pushing ahead with three more and has three others on the drawing board. Just about 70 miles away from here, China has blasted reefs and rocks at the border of Laos and Myanmar to clear the way for its trading vessels to reach new markets deep into Laos.

Water levels and temperatures have fluctuated widely, threatening the river environment and disrupting the livelihoods of the fishermen and others who depend on the $2 billion annual catch of migratory fish.

"China seems to be doing this with impunity," said Aviva Imhof, director of Southeast Asia programs at International Rivers Network, a nongovernmental group in Berkeley, Calif. "The Mekong is slowly being strangled to death. Why aren't the downstream governments challenging China's activities?"

The fish catch dropped by almost 50 percent last year, according to the Mekong River Commission. . .The water from the dams is also much colder than the water downstream, affecting the fish, which are extremely sensitive to changes in temperature, Mr. Osborne wrote last year in a paper titled "River at Risk" for the Lowy Institute, a public policy group in Sydney.
=============================
China and Brazil equally defy Environmental. Legal, and Business Practice standards common to the rest of the World, quite often in direct violation of Treaties and Organizational Standards which they agreed to abide by. The rest of the World refuses to insist on conformance, due to fear of loss of Trade advantage. Intellectual Property violations cost Money and Jobs, but Environmental recklessness on their part leads to lasting damage. Their refusal to fulfill Contractual agreements allows them a power to Impound what they desire, overtly or covertly.

Both Nations could match International Standards without much duress, and Environmental hazards could be curtailed without loss of usage. It is time for their International Trading partners to get tough, whether it costs a few Dollars or not. lgl

Producer Price Index 03/21/05

Producer Price Indexes - February 2005
from Bureau of Labor Statistics

From February 2004 to February 2005, prices for finished goods rose 4.7 percent. Over the same period, the index for finished energy goods increased 11.8 percent, prices for finished goods other than foods and energy moved up 2.8 percent, and the finished consumer foods index climbed 4.9 percent. For the 12 months ended February 2005, prices for intermediate goods increased 8.4 percent, and the crude goods index rose 8.1 percent.

Bad news as Finished Goods must realign with intermediate and crude goods eventually; Producer margins cannot continue to shrink. The increase in New Home sales reported elsewhere of 9.4% in Febuary also contains dire news, as such Buying pressure will accelerate median New Home Sale pricing. The drop in Durable Goods, also reported elsewhere, was not a major element in the economy; but it indicates Business inventories may be deemed sufficient by Business leadership.

Excluding food and energy prices, the index for intermediate goods went up 0.5 percent, following a 0.8-percent gain in January

This means Inflation in intermediate goods is still far from spent, and could be over 10% year over year by June--bad number.

The Producer Price Index for Crude Materials for Further Processing declined 1.6 percent in February, following a 2.0-percent fall in January

Prices for basic industrial materials dropped 3.0 percent in February, after falling 2.5 percent in January. The copper ore index decreased 9.9 percent in February, following a 0.6-percent decrease in the prior month. The indexes for iron ore; softwood logs, bolts, and timber; and raw cotton declined, after registering gains in January

There was a extreme amount of Speculative buying in Crude Materials within the last two Quarters, and the 3.6% loss for Crude Materials may simply mean Speculative losses. It could also mean reduction in overall Production Worldwide. The later Event could curtail American Exports. It could mean foreign Producers perceive overstocked Inventories, inhibiting Import Price increases reflecting new Energy costs; this would worsen an already bad Trade balance.

Conclusion:
Inflation seems destined to rise at least 4% this Year, unless the Fed increases gradual Overnight rate increases over the next three Fed meetings. This estimate is not based on the volatility of Energy and Food, but on Business expansion of margins. The effect on the Recovery may be beneficial, if American Consumers cut down their purchases of Imports and Fuel. Inflation, nevertheless, is not fun. lgl

Entitlements

Trustees Release Report on Entitlement Programs
By THE ASSOCIATED PRESS Published: March 23, 2005

For Medicare, the threshold when benefits exceed program income occurred last year. For Social Security, that threshold will be crossed in 2017, one year earlier than the 2018 date projected in last year's report
The trustees said that Social Security's unfunded obligations total $4 trillion over the next 75 years, an increase from last year's projection of $3.7 trillion in unfunded liabilities

The report said in 2017, the new date for Social Security's insolvency, payroll taxes will be generating enough income to cover 74 percent of benefit payments. That represented an increase from last year's projection that only 73 percent of benefits would be covered in the year that the trust fund went broke.

For Medicare, the trustees estimated that taxes will be sufficient to cover 79 percent of the program's cost in 2020, when the Medicare trust fund is exhausted. Last year, when the insolvency date was projected to be 2019, tax income was estimated to be sufficient to pay 81 percent of the program's costs.
=======================
Someone was foolish enough to ask the Author to review his plan to handle the full Entitlements Issue. Shoot him at Dawn!

1) The primary element in bringing the Entitlements problem under control remains unification of Benefit awards. A One-Rate Benefit would cost more in the Short-run, but curtail Long-run Costs to the Social Security program by 17%(Author's estimate) over the 75 years. The institution of Medicare, especially after the Proscription Drug law, makes variations in initial contributions immaterial; All will get equitable Return on their investment, though lesser Contributers will benefit from Welfare transfer.

2) The rationale for the One-Rate Benefit is also grounds to Means-Test Recipients. There is massive resistence to Means-testing Social Security benefits, but there are alternative forms of Means-testing: the Author favors the Delay Rule devised by himself. The Delay Rule simply states that Social Security Tax Contributors who fully subscribed to the $90,000 limit up to their retirement(last 20 Quarters), could not draw monthly Benefits for the first 5 years of their Retirement.

3) Medicare needs overhauling far more than Social Security. The Author first states the quickest fix is to tie the Medicare premium paid from Social Security Benefits to the Inflation rate. This will not do the overall Job in the slightest, though, with Health Care Costs increasing much more rapidly; it will reduce immediate major funding by the federal General Revenue budget. Other major Initiatives are needed.

4) A limit on yearly Medicare and Medicaid payments need be made. The Author favors a $30,000 per year limit, but with the ability to access unused Benefit amounts of the two previous years. The yearly Limit will not apply to Pain Relief procedures, Corrective surgeries to correct Accident injuries, and Hospice care. The Limit will apply to all other Clinic visits, Hospitalizations, and Proscriptions.

5) The Above Medicare Plan can be sold to the Public by elimination of all Co-Payment costs except for a $10 payment to the Provider for each Clinic visit, and each Proscription fill. Hospital Co-Payment will be $10 per Day paid to the Provider. The Author estimates the Above plan for Medicare will save over 28% of the total Cost of the Medicare program. The Limit on yearly Benefits will propel purchase of Supplemental insurance by Those who can afford; it made more affordable by being immune from the first $30,000 of insuring cost. The Poor who cannot afford Supplemental insurance will have to rely on a special Medicare and Medicaid Emergency Funds, distributed on the basis of optimal chance of successful treatment. The Poor will also have access to State and County funds, if available, and Charity.

The Plan is not perfect, but what do you expect from a broke Blogger. lgl

Social Security Readings

http://www.caseyresearch.com/displayArchiveArticleWwnk.php?id=141
Week of 3/7/05
The Great Social Security Debate, Part I

http://www.caseyresearch.com/wwnk.php

THE GREAT SOCIAL SECURITY DEBATE, PART II

Necessary Reading for Anyone interested in the Social Security debate. It not only criticizes the Bush Plan for partial privatization, but provides access to Table information proving the Bush Plan gives the least benefit to Workers in comparision with leaving Social Security alone, or in comparison to the most popular Benefits-Cutting Plan. It also points out the Bush Scare tactics used to gain support for his Plan.

Why is Bush using Scare tactics in a quest to change Social Security, when he knows the said proposed change would actually harm Worker interests?

Some claim Bush wants to destroy the Social Security system, as an ideological tenant of basic NeoConservatism. There may indeed be some element of such theology in the Bush Plan, but closer practical concerns lay at the heart of his desire. Bush never expects to need Social Security protection for himself or his family and Associates. He additionally does not expect to still be alive, when the horror of his desired machinations bloom. Loss of social protection will never mean anything to him or his Class. The Author resorts to what Some would claim to be 'Class warfare' to simply highlight the Wealthy, Corporate Leadership, and Business interests want to make Money from Social Security alteration; they couldn't care less about saving the system.

What and How could manipulation of the Social Security system benefit current leadership?

1) Privatization dictated by the Administration would insist at least half of said privatized funds be invested in Bonds. Read this to mean U.S. Treasuries. Foreign central banks are tiring of purchasing American Debt paper, and Bush has literally no intention of Tax Reform extracting greater Tax revenues from the Income level to which he and his supporters belong. His Privatization plan is simply a hidden Tax extraction to force Labor to fund the Federal debt created by the Bush Tax Cuts.

2) American Corporations have already taken all possible measures to cut Production Costs, mostly by dismantlement of Employee protections and benefits through Downsizing, Outsourcing, and Offshoring. They are still being pushed by higher Production Costs alongside shrinking Profit margins. The new economic environment barely pays for their soaring Pay packages for Corporate Executives, after those stockholding Pests insist on their Dividends.

3) Corporate Executive personnel really need to make more of those Dollars, especially as they do not have to pay Taxes much now. An excellent method is to use Stock Options and Stock Grants; the Later finding greater favor today, because Stock prices are not rising much in the absence of Profits. They are even showing a horrid pattern of dropping Stock pricing, in the absence of Dividend payments.

4) They have a brilliant plan, though, called Bush-inspired Private Accounts for Social Security. It guarantees a continual flow of funds into the Stock market. Stocks will rise in Price because of increased Demand for Stock, without real need to generate either Corporate Profits or Dividends. They can keep issuing those Stock Grants (Stock Options doubtful) with a Demand-driven Stock market, and keep increasing Pay packages for Executives based on Product pricing increases--All to ignore lack of Profits and Dividends.

What will happen to actual equity?
Sorry, the Author's Momma warned him against talking dirty. lgl

Health Cost

http://www.techcentralstation.com/032105B.html
The Myth of Massive Health Care Waste
By Arnold Kling
Published
03/21/2005

Arnold again produces an excellent exposition. It does not matter that the Author disagrees with his basic premise:

only 1/3 of U.S. health care spending is for people 65 and older. Thus, as a percentage of overall U.S. health care spending, spending on the last year of life amounts to about 7 percent

even if we emptied the nursing homes and spent nothing on patients in the last year of life, this would still reduce our health care spending as a proportion of GDP by only 1 percentage point, which would keep it several percentage points above the level in other countries. Contrary to myth, the magnitude of what the United States spends on patients in the last year of life is not a factor in our excessive spending relative to other developed countries

total profits of pharmaceutical companies are about one-half of one percent of GDP. In the short run, stringent price regulation could reduce health care spending by perhaps one or two tenths of one percent of GDP. The long run effects of reducing the incentive to develop pharmaceuticals could be adverse, because pharmaceuticals often substitute for more expensive therapies

Physicians are paid more than twice as much in the United States as in other developed countries. Because physician services are about one fourth of all health care spending, we could eliminate one eighth of our health care spending by reducing doctor salaries to the levels of other countries.

The essay is well work the effort to read, and presents links to materials well worth reviewing. It can hold another interpretation though. The Author will now present a Counterpoint(by the way, the Author considers Arnold Kling as a good friend, and he is one of the best Bloggers on the Net):
=====================
One-third of American health care is spent on Seniors over 65 years. It remains true that the numbers of Seniors have increased, due to the fact more of them reach Age 65. Arnold's contention states they reach this Age in greater numbers because of the more-extensive health care provided. The Author can contend that Seniors reaching Age 65 are only about 55% as healthy as before introduction of Medicare and Medicaid, when ratio comparisons are made to the health dollars spent to get them to this Age.

Is there overuse of diagnostic procedures? One evaluation of diagnostic use comes in percentage find of adverse health discoveries. American diagnostic procedures find less than 20% frequency of adverse health discoveries by this Author's own estimate, and he could guess a frequency rate less than 5%, but really possesses no sound statistical data. He needs an effective Study provided by some medical economist. Such a low percentage of frequency discoveries, though, would clearly outline use of diagnostic procedures without definable symtoms suggesting their usage.

Pharmaceutical companies(prefer Drug companies, the Author always has to check Spelling) Profits are only a slight percentage of GDP, it is true, but Wages, Salaries, Bonuses, and Benefits remain much higher within Drug companies compared to corresponding personnel in industries outside the Health Care Sector. Most medical economic estimates of Drug Patents suggest Cosmetic Patents, which do not really provide greater health benefits, are extremely high in percentage number with much higher Pricing structure, though Production Cost structure has not changed substantially.

Are Physicians paid too much? Life-Threatening events make up only a small fraction of their treatment schedules--probably less than 20%. Corrective surgeries and procedures probably make up about another 20%. Their remaining treatment schedules are consumed with Diagnosis and Treatment of illnesses. One methodology of evaluation is comparison of Workdays lost to illness against other Countries, or against previous medical practice(common use pre-1965). Another measure is Follow-Up Patient Visits in comparison with past performance or other Countries. American Physicians today tend to show up badly in these comparisons.

Waste in Health Care is a extreme Expense, and could significantly reduce Medical Costs if eliminated by strict Control procedures; this would mean true supervision of medical practice by Others, not Doctors. Sorry Arnold, but the Author disagrees. lgl

The Case for Higher Taxes

WEALTH OF NATIONS http://nationaljournal.com/crook.htm
America's Economy: More Fragile Than It Looks
By Clive Crook, National Journal© National Journal Group Inc.Friday, March 18, 2005


America's budget deficit is probably the single greatest destabilizer in the world economy at present. Reducing that deficit is America's responsibility -- and America would be the principal beneficiary of doing so.

A very good article which All interested in the Government Deficit woes should read. George W. Bush is not going to halve the Deficit by 2009, unless he cuts the current Y2005 Budget by Four percent. Year on Year growth equivalent to the Budget he sent to Congress will worsen the Deficit by more than 5%, if Congress refuses to alter Social Security. Financing Private Accounts for Social Security will worsen the Debt posture by at least 30%.

Someone Bush does read should tell him that foreign central Banks already shake as they contemplate their Dollar Reserves. Bush plans an 8% increase in Government spending, while Congress has already assured another 0.5% loss in Tax revenues, and plans more. It must be stated Government Spending must be cut, tax rate increases also stand as impractical. What can be done?

Proposed Agenda:

1) Social Security Issues should be tabled.
2) The Future Combat System should be canceled
3) American Strategic Policy should be altered to 'Equality with Foreign Military Complements', bringing the purported Arms Race to an end as China alone has the assets to continue it. This ability will evaporate within Two years, as China's social-economic problems dominate.
4) All Weapons development should be brought to an end, unless it immediately assists Troops in the field, or is within Two years of online Production.
5) Tax Reform should be the Priority of Congress--this effort to flatten Tax rates in combination with elimination of Tax loopholes. lgl

Value of Trade

http://www.nationalreview.com/buckley/wfb200503021122.asp
http://www.nationalreview.com/nrof_bartlett/bartlett091703.asp
http://www.epinet.org/content.cfm/webfeatures_snapshots_12162004

The first site extols Trade, the second extols the benefit of Trade, and the third expresses the concern with the Current Accounts deficit. None actually treat with the real effects of Trade, though all three Positions hold wide support, inside Economics and among the Public.

The Author first must state that Trade, like any economic factor, can be beneficial or Hazardeous to one or both parties; the first argument bases itself on an absolutism which does not exist. Tariffs, by like measure, may also be harmful or corrective; so the automatic comparative advantage of the second argument fails of impact. The third argument simply provides worry about the Current Accounts deficit, and does not directly discuss Trade; though it implies Asian central banks are subsidizing Asian Exports to this Country by purchase of U.S. Treasuries and Private American debt. None are essentially convincing, though All present effective data to the argument on Trade.

Major Elements of Trade Value:

1) Parity
2) Trade Volume
3) Transportation and Distribution Costs
4) Consumption and Production Pattern of Trade
5) Financing of Trade.

Parity asks the basic question: Does Trade actually provide benefit to both Parties, or to only one party, or to neither Party? The Author is currently contemplating a Economic model of evaluation of Trade Parity(which means he has not a clue as yet of all the necessary components of consideration--He's working, He's working). It will be the work of another Post--if ever!

Trade Volume remains unconsidered in most Economic analysis of Trade, but it is an overwhelming component of Trade. Trade benefit will magnify under conditions of higher volume than lower volume. Likewise will be the effect of Trade disadvantage of volume levels. These volumes must be considered as percentages of the several GDPs, not just of the Trading partners, but also of Suppliers of Substitute Goods.

Transportation and Distribution Costs eat up the real Profits of Trade, and include the Infrastructure Costs of such Trade. The major factors here as Energy Cost, and whether Depreciation Cost of Transport infrastructure exceed real factor Profits of Trade.

Consumption and Production patterns outlines Who exactly benefits, and Who suffers, from the existence of the Trade. Major components here is Who gains employment, Who loses Employment, Where does Consumption take place, Where does Production take place, and Where does the standard of living rise or decline from the existence of Trade.

Explanation of the financing of Trade requires the skill equal to the task of tracking Drug money. It demands another Post, as does each element of Trade. lgl

The Future Combat System

GAO-05-442T March 16, 2005
DEFENSE ACQUISITIONS
Future Combat Systems
Challenges and Prospects
for Success
Statement of Paul L. Francis, Director,
Acquisition and Sourcing Management


The Future Force is to be offensively
oriented and will employ revolutionary operational concepts, enabled by
new technology. This force is to fight very differently than the Army has in
the past, using easily transportable lightweight vehicles, rather than
traditional heavily armored vehicles. The Army envisions a new way of
fighting that depends on networking the force, which involves linking
people, platforms, weapons, and sensors seamlessly together.

FCS is a family of 18 manned and unmanned ground vehicles, air vehicles,
sensors, and munitions that will be linked by an information network.
These include, among other things, eight new ground vehicles to replace
current vehicles such as tanks, infantry carriers and self-propelled
howitzers, four different unmanned aerial vehicles, several unmanned
ground vehicles, and attack missiles that can be positioned in a box-like
structure.

The Author has serious reservations about the FCS. He first doubts the FCS will come online within the Timeline stipulated, the scheduled Phase-Out of the M1 tank and Bradley Fighting Vehicle seems more likely. The delay will not cost $3.5b per year as the Report estimates, but far more likely $12b per year. The Time Delay, and there will be one, will be Lead-Time for competing Powers to develop Counteractive measures to the Weapons systems. It can be simply put with the statement: All potential Contending Powers will have Tech-level Forces equivalent to current Army complement by 2015, and such a Force development will be capable of sustained injury to the proposed 15 Future Force brigades proposed under FCS.

Future Contending Powers will have current Tech-Force capability developed in depth in the Future. China can be estimated to possess 20 Divisions, but at least 20 other Nations will have at least 3 Divisions. The slight construction of the proposed Vehicles and Weapons systems will place American forces at a disadvantage, both in Numbers and concentration of Firepower. There will be attrition of American forces, with insufficiency of Vehicle replacement; We need Vehicles much cheaper in Cost, less costly to train operating personnel, and replaceable with faster Production methods.

Current mobility doctrines in vogue among the Army leadership propels them to discount the need for the proper installation of lines of communication. They suggest Future Force brigades could be deployed independently for 3-7 Days. It sounds good, and stands consistent with mobility doctrine, but confrontation with opposing military units--rather than running through the Enemy hinterland--can burn a Full Combat Load within twelve hours. Previous Combat experience against effective Opposing Force has shown Air Supply of isolated Forces will not be sufficient longer than a two-week period.

The Army has to learn We lucked out facing technologically inferior forces in the recent Past, but it is an element of superiority which will be soon gone. China is yearly bringing into Main Force Weapons systems capability to deal equally with current Army forces, and which will allow a 30% Attrition rate upon proposed FCS forces in fullscale engagement. Army leadership had better review the principles of concentration of mass, effective lines of communication, and Reserve complements under the operating conditions of long Engagements.

Congress need know the FCS will cost an eventual one-half trillion Dollars, be insufficient for either extended deployment or long engagement against competitive force, and does not have Production Time efficacy for resupply of Attrition. lgl

The RVs will not roll

The Author makes another of his off-the-Wall predictions: The Recreational Vehicles will not be seen on the Road this Year, after the Winter Seniors reach Home. What could be the significance of this? The Price of Gas has risen too high for Recreational Use. We are looking at a lousy Vacation season this Year.

Land Travel vacations can be estimated to drop by over 30% year on year. The RV campers will probably only make one-third of the rallies which have become traditional. State and Federal Park revenues will likely drop by over 25%. Hotel vacancies will be up an expected 12-15%, with Motel vacancies up by almost 25%. Tourist Feature and Amusement Park attendance could be cut in half. The Author may have missed some hidden resilience in the American Tourist, but he does not believe this true.

He also believes We have witnessed the end of the Import Saga, with declining Trade imbalances from this point onward. The rationale: Credit Cards balances keep rising, the SUVs keep gulping the Gas (at $2/gallon), and no one is getting great Pay Raises. The percentage decline in physical Imports will exceed the percentage increase in Import pricing. Mortgage rates and the mortgage credit are still great, but the Furnishing Costs are becoming excessive.

The Above will be a boost in the arm for the American economy. Domestic Substitute Products will replace all the glorious Imports within the Production schedule, as Import pricing rises. Americans will go back to work, as America and EU recovers much of the lost Trade advantage from China, who faces rising Transportation and Production Costs, Transportation bottlenecks, higher Oil prices, and a rebounding Japan, Korea, and Taiwan. We may finally be in the Recovery phase. lgl

Tax Reform and Economics

Tax Reform Agenda
For The 109th Congress
http://riponsoc.org/TaxReformPaper.pdf
Ripon Report
(Courtesy of the WSJ debate)

This Author has real difficulty with this Report, though it expresses Conventional Economics as it exists today. Economists treat Tax adversity as an external cost--or impediment to economic performance. The Author sees it as an internal resource, driving Production efficiency and Productivity growth. Current Tax rates and Tax credits have assuredly produced a Financial Paper balloon, is believed by the Author to have actually retarded the Economy through shift of economic assets to Tax exemption, and channeled economic growth into quick Turnover Profit Investments. The Author cannot appropriate Studies applicable, but suspicions that actual Production, in terms of on-the-ground physical Product, always declines in the face of Tax breaks of any type.

The Report extols the VAT tax as the perfect method of taxation, throwing the entire burden of Tax upon the Consumer. The fact remains the States fully optimize use of a Consumption tax through State and Local Sales taxation. Actual switch from State Sales taxation to a VAT could possess real gain for both States and Economy, but injury if Federal taxation was added. Economists wonder why Consumption is down in the EU, but it is also down in almost all Countries which use the VAT; the rationale being Consumers are gun-shy of the VAT taxation. They overpay for Goods and Services of insufficient value, while Savings stands oversubsidized.

Younger Readers may not understand: for example, European Consumers know the best Trade-in value for an automobile is Four years; they also know, because of the VAT, that if they wait for Eight years they will accumulate sufficient assets to buy three automobiles. They can pay for the last Purchase, pay for the current Purchase of an automobile, and have enough left to buy the next automobile with the additional accrued Interest. This might be conducive to Individual Savings, but is absolutely disastrous in maintaining a full employment economy. The economic fact becomes loss of total National Savings because of loss of economic performance.

All Proponents of current types of Taxation with some unitary tax must understand the implications. The wide variety of taxation distributes Tax Burden across the entire spectrum of the Economy. Business taxation stands as the method to spread the Profits of economic growth to the Labor which produced such growth through lower Tax burden on Wages and Consumption. This likewise applies to Capital Gains taxation. Effective Estate Tax rates devolve concentration of Economic assets in the hands of Those not as economically efficient as their Forebears, while not restricting Investment in the slightest, due to the existence of the modern Banking system and sophisticated Financial Paper.

Tax Reform

Flattening of Tax rates provides real economic incentives as listed in the Above report, and must be an element of any reform. Elimination of Loopholes remains another effective avenue for immense economic gain. The Author stands as quite radical on this Issue. He would call for total elimination of all forms of Tax Preference, including Personal Exemptions, Deductions, Tax Credits, and even payment of previous taxation. He would annul the special privilege of Capital Gains, decreeing it to be simple Income, taxable exactly as other forms of Income--Wages, Rents, and Royalties. He would give a single $1000 Rebate for every Dependent, and alter all Retirment Account formulas (401(k)s, Koughs, IRAs, etc.) to half-taxation now, the other half-taxation to be paid upon Withdrawal at any Age. He would do this to establish a Two-rate Income Tax: 15% below $100,000, 25% over $100,000. Corporate Income Tax would be set at 25%, unless Profits were less than $100,000 where it would be exempt; Partnerships and Sole Proprietorships taxed in same manner. All other forms of Federal taxation will be eliminated, specifically the Sin taxes, but not Pollution emissions standards taxation. lgl

Government Contracts

GAO-05-229 February 2005
CONTRACT
MANAGEMENT
Opportunities to
Improve Pricing of
GSA Multiple Award
Schedules Contracts

A good, non-technical Read for Those interested in how the Government spends Your money:


Federal agencies can directly
purchase more than 8 million
commercial products and services
through the General Services
Administration’s (GSA) multiple
award schedules (MAS) contracts.
Over the past 10 years, MAS
contract sales have increased
dramatically—with sales jumping
from $4 billion to $32 billion.


While GSA has taken
steps to establish a program to assess the quality of its MAS contract
negotiations, all acquisition centers are not fully participating, and the
scope of the program is limited. Moreover, the program has not yet
determined why deficiencies it has identified thus far are occurring. Until
GSA takes steps to ensure the appropriate use of available pricing and
negotiation tools, it will continue to miss opportunities to save the
government hundreds of millions of dollars in the procurement of goods
and services

The Reader can review the GAO's recommendations to correct the situation if desired, but the Author would like to offer his own recommendations:

1) Congress must set the Contract award levels for use of Prenegotiation Panels, Pre-award audits, and post-award audits: Panels and Pre-award audits--$3m, Post-award audits--$1m.
2) Congress should authorize standing Prenegotiation Panels, who must maintain review procedures for 12 Contracts continually.
3) Prenegotiation panels should be extended to military Contract awards.
4) Congress should establish a Post-award Commission with funding budget, which will supply qualified Auditors to all forms of Government Contract awards above $1m.

The GAO study does not provide percentage Savings per Contract review by Panel, Pre-award, and Post-award audits. Rigorous use of these instruments, though, could save the Government some 2.3% of all Contract awards yearly, in the Author's own estimate. lgl

Maintenance of the Military

ATTRITION: Why The Reserve Officer Shortage
http://www.strategypage.com//fyeo/howtomakewar/default.asp?target=HTATRIT.HTM

March 9, 2005: For the first time in five years, the U.S. Army failed to meet its recruiting goals, falling 27 percent short in February, 2005. That means there were 2,000 fewer recruits than were needed. The army reserves failed to meet their recruiting goals for the second month in a row, coming up 330 recruits short. The current size of the active army is 512,000.

Although blacks of military age comprise 14 percent of the population, 22.7 percent of army recruits were black in 2001. This went down to 19.9 percent in 2002, 16.4 percent in 2003 and has recently been 13.9 percent

The U.S. Army spends $250 million, and uses 7,000 recruiters, to find 80,000 new recruits each year. . .The army reserves (including the National Guard), which have 550,000 troops, compared to 500,000 active duty, have to recruit about 90,000 new people a year. Currently, the reserves are about 10,000 people short per year

Military resources are strained under a scenario where the Draft is ruled out. Adjustments can be made, but the basic shortage will remain. The Military should use Service retirees as Recruiters, rather than Active serving personnel. Educational standards have been lowered to increase the acceptance rate of Applicants; the Reciprocal should also be granted: A contractual guarantee that all active Military can apply for and achieve a Civilian-employable Training and apprentice MOS in the last year of Service. A reverse draft need be formalized, but one which starts at the Top; needed Troop complements can have their Terms of Service time doubled, but starting with Officers. Troop[ acceptance of the later provision will be dependent upon the serving Personnel being able to unionize and negotiate Payscales. This Program will work for active and Reserves elements.

http://www.marginalrevolution.com/marginalrevolution/2005/03/what_are_the_ma.html

What are the macroeconomics of depopulation?
Posted by Tyler Cowen on March 15, 2005

It stands as the best argument for reintroduction of the military Draft, though Tyler would be the last to accept that statement. lgl

The Beige Book 03/09/05

The Fed seems sanguine about current conditions, but there appears some room for worry. Most Districts cite Steel and Fuel costs push Production Costs. Vehicle Sales are already in Discount phase, with high Inventories and weak Sales; a serious threat exists for the SUV market, if Fuel costs remain high. Labor shortages in skilled labor is being reported in exactly those areas where adverse bottlenecks can be created. Consumer Credit remains steady when We need a Credit Payoff period to firm up Household financing, and to reduce Imports. Housing Construction should be slowing after prolonged steady growth, indicative of over-construction; suggesting a need for higher mortgage rates--prior to a Sunset for the mortgage credit. Many Districts report greater ease of passing on Input costs for Businesses, a sure sign there is Consumer expectation of Inflation; a Indicator which only this Author responds, though Consumers may be the best Weathervane of Any.
====================
Center on Budget and Policy Priorities

http://www.cbpp.org/3-10-05tax.pdf

March 10, 2005
DIVIDEND AND CAPITAL GAINS TAX CUTS
UNLIKELY TO YIELD TOUTED ECONOMIC GAINS
Benefits of These Tax Cuts Flow Disproportionately To The Well-Off
By Joel Friedman


The Administration’s budget calls for making permanent most of the tax cuts enacted during
its first term that are slated to expire by the end of 2010, including the capital gains and dividend tax cuts that expire at the end of 2008. The budget resolutions currently being considered in the House and Senate also assume that these expiring tax cuts are extended. The House budget assumes tax cuts totaling $106 billion between 2006 and 2010, while the Senate resolution would reduce revenues by $70 billion over this five-year period.

Households with incomes over $200,000 will receive three-quarters of the
dividend and capital gains tax-cut benefits; those with incomes above $100,000
will receive 88 percent of the benefits. Only 12 percent of the benefits of the
dividend and capital gains tax cuts will flow to the 87 percent of households with
income under $100,000 in 2005

The appropriate fairness issue, therefore, is whether the tax cut for dividend and capital gains income shifts the burden of raising revenue on to wages and away from income generated by stocks and whether it weakens the progressivity of the tax code by giving a substantial tax break to those high-income households that own the lion’s share of equities

The study by NBER and Federal Reserve economists shows that firms that increased or
initiated dividends did not increase their total payout about half the time.23 The effect was
particularly strong for companies that were paying dividends for the first time. The authors
estimate that the observed reduction in repurchases offset nearly three-quarters of the newly paid dividends, significantly lowering the increase in total payout
=======================
Lay Readers may not understand the last Quote, but there is the implication that Corporate Management are using the Tax Cuts to overstate their assets, feed their own Pay and Bonuses schedules, and discount Losses through artificially inflating Stock price. The Author uses a lame National Savings argument, but it is sound research and good Read. lgl

Propaganda

The second lead on the NYTimes today is a long story about the Government packaging News, and distributing it through News networks without reporting they are the Source, or allowing local Stations to claim it for their own. The Times reports the Federal Government spent $254 million on Video News segments under the Bush administration. It is reported to be double that spent by the Clinton administration--no mention whether 1st Term, 2nd Term, or both. One could ask what and why is the Federal Government spending money producing News segments? Does the American Taxpayer want the Federal Government to spend slightly less than a Dollar per person to feed Garbage to the American people?

The humorous element enters with the immediately preceding story in the NYTimes. It discusses how there was systematic looting of military production centers in Iraq, quoting some unseen bureaucrat in the U.N. and a unknown bureaucrat in the new Iraqi Defense industry. The implication of the report is there was actually WMD producing capacity, but it was taken away before American Investigators could find it. Who paid for this report?

The famous Computer jargon cliche is appropriate at this time: Garbage in, Garbage out! One of the inherent Achilles' heels of totalitarian regimes comes in the form that they begin to believe their own propaganda. Democracies can be as susceptible to the same effect. The first Report proved small Stations are extremely corruptible with easy, paid supply of canned News.

Solution:
Congress should fund an independent Government News agency with the next $254 million, to investigate inner-workings of the Executive branch of the Federal Government; they to specifically cite their sources, and state the manner of their own employment. lgl

Greenspan Again?

Greenspan has been shifting from a technocrat Regulator to a Politician for some years now, but he must be hunting for some Appointee job from the Bush administration. This time he comments that Hedge funds and mutual funds do not need regulation, as the market does a good job of regulation through dispersal of monies. He must think Fund marketing and advertisement has no effect, malfeasant of Accounting can never hide Profit losses or theft, and Fund Managers need not outline Wage schedules or Personnel bonuses.

His comments on the Bank Pact remain subject to interpretation, but in the Party-Speak of Bankers, it sounds like the new Fed regulations will be so ambiguous as to allow individual bank evasion of World standards. The Author evaluates it simply: Dick Cheney accounting procedures have traveled from private Corporate practice, to a public niche in Federal Budget financing, and has set it's Sights on the American Banking structure.

The Author would like to see an honest Bush Tax Policy. He can provide a list of Tax provisions totally consistent with the Bush agenda:

1) Republicans get a 20% Tax credit
2) Democrats and Independents get a 20% Tax increase
3) Neocons, if Republicans, get an additional 10% Tax credit
4) People making less than $50k per year, get an additional 10% Tax hike
5) People making over $100k per year, get an additional 10% Tax credit.
6) Corporate Executive get an additional 20% Tax credit
7) Millionaires get an additional 25% Tax Credit
8) Third-Generation Millionaires get an additional 10% Tax credit
9) Voters who accept a filled-out Ballot from the Republican Party will get a 20% Tax credit.
10) All Tax Credits will be accumulative.

The Author has tried to capture the spirit of the Bush faith-based Tax reform effort. lgl

The Last Recession and Value of the Tax Cuts.

Historical Effective Federal Tax Rates:
1979 to 2002
March 2005 http://www.cbo.gov/showdoc.cfm?index=6133&sequence=0&from=7.

How effective were the Bush Tax Cuts in providing Tax reductions comparable to the loss of Income between 2001 and 2002? (Thanks to John Irons for the pointer). The Author comes up with Readings:

Lowest Quintile--4
Second Quintile--3.67
Third Quintile--2.4
Fourth Quintile--1.5
Highest Quintile--2.64

The effectiveness of the Tax reduction therefore is:

Lowest Quintile-- 1/4 or 0.25
Second Quintile--1/3.67 or 0.27248
Third Quintile--1/2.4 or 0.4167
Fourth Quintile--1/1.5 or 0.6667
Fifth Quintile--1/2.64 or 0.3788

It stands as obvious the Fourth Quintile was served best by the Bush Tax Cuts. The two bottom Quintiles reclaimed little of the purchasing power lost from reduced Income through reduction of taxation(Remember this is the purchasing power lost by taxation under 2001 Tax rates). The actual gain in purchasing power per Class was:

Lowest Quintile--200/13,800 or 1.45%
Second Quintile--300/29900 or 1.00%
Third Quintile-- 500/43700 or 1.14%
Fourth Quintile-- 600/61700 or 0.97%
Highest Quintile--3600/130000 or 2.77%

Now We find the real Winners are the two Outside Quintiles, though the Lowest Quintile probably did not recognize the difference. The middle Quintiles made actual little gain, but were deceived by the nominal remission. The Highest Quintile made a real and nominal gain, but at what cost? The Clinton Tax rates could put Us in a Government Surplus, instead of a Government Deficit, by 2009 as claimed by Some--the Author believes more like 2011. lgl

Summary March 2005

The Author introduces a periodic Summary of the state of the Country and World, basically due to the repetitiousness of Today's new items. Author and Reader should get some feel for Our state of health and being by listing potential and real hazards.

The violence in Iraq continues to expand. The Author has in previous published Work stated American military incursions should not last longer than 60 days, lest Worldwide anti-American forces concentrate to attack. He regrets being proven right. The Iraqis were not ready for Civil War when Saddam was deposed and later captured, but they are prepped now; We should leave them to it, as Our presence simply lengthens the Inevitable.

The President's Budget gives truth to the expression stating Science Fiction is alive and well, the House Response Budget doing no better. Basic ideological differences divide Democrats and Republicans in Congress, and any Budget has little chance of passage. This may be for the Best, as all Proposals call for either increased Spending, or reduced Tax revenues. Bush Budgets threaten to send the Dollar to join the Titanic, as the Federal Government drowns in red ink.

Chinese textiles flood American and World markets, as limitations on Imports were removed last December 31th. This can only worsen the American Trade Balance, something unneeded with the current Trade Deficit level the second highest on Record. There seems to be only two potential restrictions on American Import growth: the clogging of American and Chinese Port facilities, soon reaching an absolute limit on Goods transfer; or the sheer lack of cargo-carrying bottoms to transport such volume of Trade. Which will stop Import growth, or will infrastructure construction leave enough capacity for American purchase of everything except domestic Jobs? lgl

Pollution

Ludwig von Mises Institute Wednesday, March 09, 2005
http://www.mises.org/fullstory.aspx?control=1760

An Austrian Theory of Environmental Economics
by Roy Cordato
The Austrians make for a hard Read, as they tend to speak a language of their own(i.e., their and Our words are spelled the same, but have different nuances). Roy Cordato, though, provides sometimes excellent Theory, as well as excellent observation of other Schools of Economics. It remains true that outside observers can often provide clarity of sight, for Those willing to read their evaluation.

For both Coasean property rights analysts and more traditional Pigouvians, the goal is different. It is to achieve some form of "optimal" distribution of resources. Coase, in his analysis, seeks to maximize the total value of output, and alternative property rights arrangements are seen in this light. As he notes in his classic 1960 article, "one arrangement of rights may bring about a greater value of production than any other" (Coase 1960, p. 16). For Pigouvians the goal is to achieve a Pareto optimal distribution of resources by seeing to it that the generator of negative externalities considers all social costs in making production or consumption decisions. In both cases attention is diverted from those who are party to the conflict and toward finding a "value" maximizing allocation or resources

In environmental policy the polluter pays principle is an outgrowth of Pigouvian welfare economics. The optimal price-output combination will arise in a market when external pollution costs are reflected in the marginal cost of production, i.e., are internalized by the polluter. In other words, if the polluter is made to "pay" a dollar amount that is equivalent to the marginal social costs associated with the pollution that he is generating, "efficiency" will prevail. Generally speaking there are two approaches to applying the polluter pays principle. The most traditional and straightforward is the Pigouvian excise tax. In this case the polluter is forced to "pay" either through a tax that is equivalent to the "pollution costs" per unit of output or per unit of effluence. The second is through tradable emissions permits. In this case an "efficient" level of pollution is determined and permits to pollute which total to this efficient level are bought and sold in the marketplace. The polluter is forced to pay either explicitly by having to purchase permits in the market or implicitly by having to forgo selling the permits that he holds

a central authority must know in advance what the efficient outcome is. In the case of the tax, a central authority must know in advance the exact amount of the externality costs being imposed by the polluter, and the correct price and output, not only for the good in question but, since efficiency only makes sense in a general equilibrium context, for all other affected goods and services. In the case of tradable permits, the knowledge requirements are essentially the same. This is because the central authority must first determine the "efficient" level of emissions for the particular pollutant, which also must be determined within the context of a general equilibrium solution.
===========================
The Austrian use of Property rights definition stands as unenforceable as central authority setting an efficient outcome in advance. Internalized Cost to Polluter by excise tax or Tradable Emission permits do express the failings which Cordato outlines. The only Solution the Author believes viable comes in the form of Government establishing a Market in Pollutants.

Employed Scientists would determine the environmental hazard of any Pollutant, along with the estimated Cleanup cost of each said Pollutant in some measurable unit. The environmental hazard ratings would be scaled 1-10. Polluters would have to pay the Cleanup cost, if the environmental hazard was 1, 120% of Cleanup cost if the hazard reading was 2, 170% of the Cleanup cost if the hazard rating was 7, etc. Pollutant Victims would have to prove measurable units of Pollution upon their property and Person, potentially aided by Scientists employed by the Government. Some Pollutant Costs could also be scaled by deadly duration effect of said units of Pollution, so Polluters would be forced to pay up to 4000% of the Cleanup cost.

====================
Totally off the Wall
====================
The Author likes the Assault Rifle XM-8, and believes it should be an ancillary weapon to a Squad formation, but not the primary weapon of the Infantry. The 5.56mm ammunition is too light to be effective past 30 meters, especially with the advent of Body armor, and ineffective over 75 meters even as Suppressive fire. lgl

Real Sc-Fi

SPACE OPERATIONS: Really Tiny Military Satellites
http://www.strategypage.com//fyeo/howtomakewar/default.asp?target=HTSPACE.HTM

This stuff seems far out, but People are designing and building these things; Most at Cost levels not equal to their military value. The Nanosatellites, though, have intense promise simply because of their 15-lb weight. Nanotechnology gives the Product both Energy-Source and ability to conduct high-degree surveillance. The hoped-for end will be a functional Solid-State satellite easily sent into Space.

The Author sees a real availability to such nanosatellites. Why? Cruise missiles fired from high-altitude Bombers could reach orbit, and scatter-fire nanosatellites into proper position over battlefields. A Cruise missile fired at 60,000 feet could deliver about fifteen nanosatellites in dispersed order in a designated AO, and would be easily replaceable if destroyed, though of undoubted major expense. This is an extremely attractive option when combined with a new series of unbreakable Machine codes. lgl

The Error of the Laffer Curve

The perfect semi-circle of the Laffer Curve(Googgle Laffer Curve, you will get a wealth of information) has always offended the Author, who realized innately the Economy could not operate along such a Curve. He just finished reading an article by a famous author who epitomed the Laffer Curve, and knew he had to respond; no mention of the article to avoid conflict, and because this theory must be analyzed mathematically which will make the Author a laughingstock.

The Laffer Curve could not possibly be a perfect semi-circle, but must resemble a plateau with width of 7-8% real tax rate across the Top; so the infamous T* cannot exist. The plateau along the Top must resemble a sine wave, of magnitude of Labor Supply increase minus the incremental real tax rate (LSi-TRi), with TRi being the maximum depth of the wave below centerline, and LSi being the maximum height above centerline. A decreasing Labor Supply would provide a depth below centerline of LSd+TRi. The width of the plateau would be equal to the percentage increase in the Labor Supply plus the percentage cost of Government debt(LSi+GDi).

Now where do We place the optimal Tax rate, the famous T*. The answer states it must be somewhere along the sine wave plateau. The minimum real Tax rate of said plateau must be Government expenditures as percentage of the Economy paid by Tax revenues plus interest rate on added Government debt incurred but total Government expenditures (GEt+GDi). The interesting element here is that Interest rate paid on Government Debt(GDi) must equal the percentage difference between GE-GEt. This would signify as Tax revenues (TR) fall below Government expenditures (GE-TR)-LSi=GDi in percentage terms of the Economy.

Conclusion:
We find the Laffer Curve must be a plateau of estimable width, with T* within the sine wave which makes up the plateau. Further study would suggest T* is actually along the centerline of the sine wave, and may be indicated by a break in the sine wave along the centerline. Note must also be made to make proper transfer of data from percentages to real Revenues magnitudes in precise locations, which the Author may not have highlighted. lgl

Military procurement

MISSING IN ACTION: THE SUPPLY GAP IN IRAQ
Many Missteps Tied to Delay in Armor for Troops in Iraq
By MICHAEL MOSS Published: March 7, 2005
http://www.nytimes.com/2005/03/07/international/middleeast/07armor.html?hp&ex=1110258000&en=4c8f9c351e1cfaa3&ei=5094&partner=homepage

A Must-Read for Those worried about provision of American troops in the field. Defense Dept. officials claim shortages of armor--Body and Vehicle--were finally made up in January, but shortages remain and will worsen as field operations wear equipment. The Problem can definitely be identified as Defense Dept. Procurement procedures, and these have not been addressed properly. Letting of Contracts operate on a Start and Stop basis because Operation budgets are not created to fund Contracts, so the Head of Procurement cannot simply re-order as needed. Preference to personal associates and Bush Supporters still influence Contract awards, even when Suppliers show incompetence in Contract fulfillment. DoD Military procurement still overfavors complex high-Pricetag innovations, instead of proven Safety products. American troops still endure Wounds and Death.


British Military Contractor to Buy American Supplier
By ANDREW ROSS SORKIN and TIM WEINER Published: March 7, 2005
http://www.nytimes.com/2005/03/07/business/07defense.html


BAE Buys Bradley Vehicle Maker for $4 Bln
By REUTERS Published: March 7, 2005
Filed at 9:57 a.m. ET LONDON (Reuters)
http://www.nytimes.com/reuters/business/business-arms-udi-bae.html


BAE to Buy Rival United Defense for $4B
By THE ASSOCIATED PRESS Published: March 7, 2005Filed at 12:24 p.m. ET
http://www.nytimes.com/aponline/business/AP-Britain-BAE-United-Defense.html

The Author wishes for Yesteryear Presidents who were not Corporate Executive Republicans, where the Federal Government would forestall Sales of American military supply components. BAE will attain a Windfall maintaining Bradley Fighting Vehicles in the field, with Bradleys scheduled to be in American military complement until 2030; don't ask the individual Cost of a Bradley Fighting Vehicle, or the average vehicle maintenance bill over a normal 9-year operational life. The Author couldn't tell, but can assert it is over 60% of the original Cost of the Vehicle; repair and maintenance costs are traditionally over 50% Profit. Then there is the little item consisting of the Author's knowledge that BAE favors Weapons sales to China. It is a minute step from Weapons sales to technological transfer, and only a slightly larger step to provide technological knowledge of the weaknesses of currently-used Weapons systems. It does not make the Author smile in being aware that United Defense(the bought American entity) also makes missiles and Smart shells for the American military. lgl

Structural Change and Employment

Current Issues
I N E C O N O M I C S A N D F I N A N C E
Volume 9, Number 8 August 2003
FEDERAL RESERVE BANK OF NEW YORK
Has Structural Change Contributed to a Jobless Recovery?
Erica L. Groshen and Simon Potter

Groshen and Potter provide compelling evidence that Job Recovery after the last Recession, as in the 1991-2 Recession, was because of Structural Job elimination rather than Temporary Layoffs--normal trends of previous Recession. Their hypothesis states the later Recessions removed Jobs, and followup re-employment required new Job creation--always a much slower process as Business operations must be reformulated, Capitalized, and Labor trained in the new Production profile. They do not directly postulate Corporate search for lower Production Costs through Offshoring was responsible for the Job destruction, though it is seemingly obvious.

Their work holds certitude with the statistical evidence and Graphs provided. This Author needs some good Numbers-crunching Economists to examine what impact Job destruction has upon National Savings, due to the erosion of individual Savings potential of Labor elements. This would include not only loss of paid Worktime by unemployment, but also retraining costs endured by Labor elements in acclimation to new Work procedures. lgl

Antidumping Law

Countries continuously attempt to protect their domestic industries, and a coalition of foreign Exporters and domestic Free Traders have always worked to stop restrictions against Trade. This said, Protectionists are not all bad, with Free Traders all good. This Fact instigated original Antidumping laws, and maintains them to this Day. The Author has just finished reading parts of two Works from the Cato Institute:


Free Trade Bulletin No. 11 April 27, 2004:
Antidumping’s Flawed Methodology under Fire
by Dan Ikenson, policy analyst,
Center for Trade Policy Studies, Cato Institute

and


Trade Policy Analysis No. 21 December 11, 2002
Reforming the Antidumping Agreement:A Road Map for WTO Negotiations
by Brink Lindsey and Dan Ikenson

This Author did not read all of the later, simply because he became bored with the constant harping against established Rules, and American reliance on them. He is not a Free Trader, and has never accepted the acclaimed merits of Trade whole-Hog. Trade does not adequately account Transportation Costs, Communication Costs, and Distribution Costs; simply adjusting final end-Cost Sale purchases, without examination of Cost-inflation in Production practice. The two Above Works, though Free Trade, make exactly the same argument against Antidumping law. There is sharp criticism of the practice of 'Zeroing' of negative statistical evidence of Dumping, and assertion that Production Profits(constructed value) should be eliminated from consideration in the Dumping equation.

Their proposal of adding statistical negatives to the Dumping evaluation would allow Dumpers to average their Exports--allowing them to maintain below-Average production by mixing it in with normal profit Production. Domestic industry would suffer discrimination, as they are expected to maintain foreign inferior Production through reduced Sales and Production of their own. The elimination of normal Profits from the evaluation directly discriminates against domestic industry, who are expected to maintain normal Profits in Operations, without extraordinary balancing act. The listed Papers both actually advocate discrimination against domestic industry, and exhibit inferiority to normal Cato Institute product. lgl

Employment

Angry Bear
Friday, March 04, 2005 February Jobs Report
http://angrybear.blogspot.com/2005/03/february-jobs-report.html

Has an excellent Post and Graph on the Employment picture. The American economy still lacks a real element of Job growth. No Economist states the real rationale for this lack, which remains the American economy fails to produce effectively for itself. American labor can be competitive with foreign labor, and the Issue is not truly Wages, Pensions, or Health Care provision. The Issue is the excessively high Profit/Sale ratio on which American Corporate enterprise insists.

A large share of this excessive demand is the spread of Financial Paper (Stocks) due to the modern use of Stock Options and Stock Grants. Stocks must retain a high Profit and Dividend ratio to maintain Stock pricing. Why do Corporations maintain the practice of Stock Options and Grants? Corporate Executives and Employees make a fortune on sale of Stock, and they determine the amounts of such Stock issuances given. Government Tax policy cuts in at this point with provision of Tax credits and Tax deferments like 401(k)s, IRAs, and Koughs, which provide the market for these Stock issuances. The trouble resides in the fact greater and greater Profitability must be attained, because of Dividend spread across increasing numbers of Corporate Stock. American labor is not fighting foreign labor productivity or cheaper Wages; American labor must fight Corporate greed.

An EPI Snapshot:

The last minimum wage increase, from $4.25 to $5.15 in 1996-97, improved the earnings of 9.9 million workers, or 8.9% of the workforce. Because it did so without negative economic consequences, it provided a useful benchmark for crafting a successful minimum wage package. A proposal in the same vein by several senators earlier this year would raise the federal minimum wage from $5.15 to $7.25 in three steps over two years. This proposal would directly raise the wages of 7.3 million workers (5.8% of the workforce), and would therefore be likely to have an even smaller effect on the economy than the last federal increase while still having significant benefits for working families.

Last week, Senator Rick Santorum (R.-Pa.) announced an alternative plan—raising the federal minimum wage to $6.25 over the next two years. While an improvement over the current level, $6.25 would still be an inadequate federal wage floor. It would directly affect fewer than one-fourth the number of workers than an increase to $7.25, benefiting only 1.4% of the workforce. It would also fail to restore the purchasing power of the minimum wage to its 1997 level.

Corporate contributions control Congress, which will not provide fairness to even the Poorest. Previous Studies the Author has read indicate Wage Differentials do not impact as significantly when overall Wage levels increase (larger numbers reflect less need for status). Downsizing and Outsourcing eliminates even more demand for Wage differentials. A rise in Minimum Wage to $7.25/hour over Two years would have only 23% of the impact of the 1996-97 increase.

Hypothesis:
An Minimum Wage increase to $7.25/hour over Two years would actually employ more Labor than currently employed by close to Three million Jobs in this Wage range. American Business needs the low-Cost labor, with Retail and Manufacturing both suffering from lack of access to such labor. The increase in Minimum Wage would finance low-Cost Labor's ability to shift from Subsistence welfare programs sustainably. If only Congress and Neocons utilized more foresight. lgl

The Bubble

Sweet Crude Oil appears to be settling in at $53/barrel--Why? Greenspan calls for a switch to a combination Income and Consumption Tax--Why? George W. Bush wants Private Accounts for Social Security--Why? Everyone talks about Tax Reform to encourage investment--Why?

It stands as obvious that the price of Oil is being driven by heavy institutional Fund money to generate artificial Profit-taking. No need to mention Fund Managers already have too much money to throw around, and it remains money which is not theirs in ownership. Actual ownership of the monies resides within Those who must pay the arrtificially high prices for Fuel. A pitiful mention states Fund profits will be down this year.

Federal Tax law has been on the side of the Investor since the mid-1970s. We have 401(k)s, IRAs, Koughs, and various Business tax credits for investment. We have a mortgage credit for Home Buyers. We have a Corporate Income Tax law which allows basic Accounting Fraud achieving an effective Income spread over 24 years, takes a Recapitalization Expense allowance for Equipment purchased in the same Year in which a Capital investment credit was exercised--this while the Equipment had not even been delivered as yet within the Tax year, and says that Stock Options granted do not even have to be accounted. No one need pay Taxes until they realize the Income (spend it), as they can roll it over as Investments.

The foregoing does not apply to Labor, though, unless they receive Pay sufficient to devote an extremely large percentage of their Income to One of the defrayed Tax instruments. The Bush Private Accounts for Social Security find design in attempts to nullify Benefits earned by Labor, and paid for by taxation of Labor. The humor comes from the fact Labor is expected to lose these Benefits through paying further taxation to a 'Private Account' controlled by the Government, and used by the Government by complex schedule to minimize the Benefits currently guaranteed. All funds to be utilized by Fund Managers to incite artificially high prices for basic Necessities, which Alan Greenspan wants to specifically tax because of Labor's consumption.

Any Consumption tax which displaced the Income tax would increase Labor and the Poor's real tax base by over 50%, while cutting the upper Tenth percentile of Income's taxation by at least two-thirds. Elimination of the Capital Gains Tax will have actually cut their taxable Income in half, if the Bush initiative is enacted. Any mixture of Consumption Tax and Income Tax will increase the Poor's and Labor's taxable Income by at least 20%, while cutting the Wealthy's taxable Income by at least 30%.

American Labor should be worried; the combination of a Bush administration and a Republican Congress intends to rewrite the Status Quo. They intend to eliminate the Welfare practices introduced since FDR, leaving American Labor as bereft of safety as they were at the end of the First World War. The American Worker will have to pay for his own Social Security out of his own Pay, never sharing in the Profitability of the Enterprises for which he works. He must pay now for half of his Pension, and the Republican Congress works hard to see he will have to pay all from his own Wages--such marginalized by artificial suppression. Medicare and Medicaid will die, because Business and Wealth will define them as too costly. The only Welfare allowed will be for Business, and the Rich and Privileged. lgl

Health Care Spending

POSSIBLE ALTERNATIVES TO THE MEDICARE TRUSTEES’ LONG-TERM
PROJECTIONS OF HEALTH SPENDING
Jason D. Brown
Ralph M. Monaco
U.S. Department of the Treasury, Office of Economic Policy
Technical Working Paper1

It is basically critical of the Trustees' use of the GDP+1 formula(projected health care spending growth will exceed GDP growth by One percent ad infinitum).

Because the assumed rate of health spending growth is higher than GDP growth, the Technical Panel projected that National Health Expenditures (NHE) would grow to consume 38 percent of GDP by 2075. According to our calculations here, at a growth rate of GDP+1 (i.e., 2.6 percent), NHE would consume 48 percent of GDP by 2078, more than 80 percent by 2130, and more than 100 percent of the economy’s resources by 2154. 2 While in reality NHE will never plausibly exceed GDP, the Technical Panel emphasized that these projections are not predictions; rather, the purpose of Trustees’ Report projections is to illustrate the magnitude of the Medicare financing problem in the absence of any reforms

projections should take account of the substantial pressures that increased health
spending would put on the private sector to invoke private sector policies to reduce its
health care expenditures. Specifically, if the baseline historical growth rate of both
public and private health care expenditure were to extend into the future, then the growth
of private health spending would crowd out an increasing share of private nonhealth
spending. The threat of this crowd-out would cause individuals and private institutions
acting on their behalf to adopt measures curtailing the growth of private health spending.
It is likely that such measures would also crimp federal health care spending, as the rate
of public health spending growth, absent policy changes, tends to move with the rate of
private health spending growth through an equilibrium of the standard of care. It is
important to note that the goal of incorporating some notion of a private sector response
to rising health spending is to improve the projections of the magnitude of the Medicare
financing problem, not to predict how the problem will be solved.

Because private health expenditures are assumed to grow faster than nominal GDP under all the scenarios, growth in private nonhealth spending is increasingly slowed by growth in health spending. Again, once real per capita nonhealth spending slows to a certain small but positive rate (0.75 percent, 1.00 percent, 1.25 percent, 1.50 percent), private nonhealth spending growth is fixed at that rate. Both public and private health spending growth, which have historically tracked each other, are assumed to slow to maintain the constant nonhealth spending rate. Once the threshold is reached, health spending growth slows to accommodate that level of nonhealth spending growth. Obviously, assuming a higher growth rate of health spending accelerates the point at which the threshold is hit.

This Author basically agrees with the Paper, though he has a serious contention: the Paper assumes the effect of medical insurance on health spending growth will stop in the long-run, as most health care is covered currently by insurance. They do not perceive the Countercyclical effect of medical insurance, being the preliminary means through which nonhealth spending growth will limit health spending growth. It is already being seen with high Deductibles and large CoPayments to restrict Access.

The Technical Report 2000, the Trustees' Report 2004, and the authors of this Paper all assume constant, uninterrupted growth in health spending. They all refuse to identify the shrinking population who can afford private health care expenditures, as All whose Income cannot match the growth of health care costs. The high Deductibles and CoPayments dictate the later Group cannot even afford effective private health insurance. They also refuse to acknowledge rising health care spending is dependent upon an aging Population--a dropping Mean age will reverse health care spending. Health Care spending is also losing 'Bang for the Buck', where incremental additions bring increasing less value. This will in the long-run reduce health care spending, as private and Public Insurers restrict incremental advances, leading to reductions in Care Population numbers.

Medicare and Medicaid remain insolvent, though less insolvent than imagined because of demographic and the aforementioned nonhealth spending critical. Health Care spending growth should be less than GDP growth before 2020. This in no way diminishes the damage of a projected $8 trillion shortfall in Medicare and Medicaid funding. lgl