Thursday, October 25, 2012

Top down economics = FAIL

Top down economics does not work.  If we give more money to the wealthy, or big business, they are not going to immediately turn around and hire more people, nor will they immediately spend it.  They may spend some of it, but they will choose to save or invest a significant portion of it.  Why is this?  Because the wealthy have most everything they could want or need.  Money that is being ‘saved’ does not grow the economy.  Companies do not hire people simply because they can afford to; companies will hire people when they feel they can no longer meet their customer demand with their existing workforce, and therefore decide hiring more people would increase their income.  Companies like making money.  They will not hire more employees for no reason.  It’s all about maximizing efficiency.

On the other hand, if we have a tax system that gives more money to the lower and middle class, they will most assuredly spend the vast majority of it.  If I give more money to a family making $40,000 per year, they might use that money to buy a new car or appliance.  They might also get a gym membership, or subscribe to cable TV or another service that they couldn’t previously afford.  When they purchase these goods or services, the companies providing them will see growing demand.  Eventually, the growing demand will put them in a situation where their existing workforce cannot meet the demand.  When that happens, the companies will hire more people so that they can continue to grow.  This is how we grow the economy.  It doesn’t happen overnight, and we have begun to see progress of this in the past few years.  Making changes to our tax code that favor the wealthy at the expense of the lower/middle class will move us back in the wrong direction.

Think of it this way.  Imagine that you are a single person with $5,000 per month in after-tax income, and you’re looking for a place to live.  You have nobody living with you, no pets, and are uncertain what your income is going to be in 5 years.  You find two places.  One is a 5 bedroom, 4 bathroom home for $3,000 per month.  The other is a 2 bedroom, 2 bathroom home for $1,000 per month.  Based on your income, you can afford the $3,000 home.  But chances are you will choose the smaller home.  You don’t see the reason to spend an extra $2,000 per month, for 4 bedrooms and 3 bathrooms that you will never use.  You are thinking about the future, and so you decide to take the smaller home so that you have an extra $2,000 per month to play with.  You put $1,000 in savings each month, and use the other $1,000 to buy some toys for yourself.  Companies think the same way.  If they need 20 employees to complete the work required, they are not going to hire employee number 21 simply because they can.  Just like you won’t upgrade to the 5 bedroom home until you have enough family members to fill more rooms, the company won’t hire more employees until there’s work for them to do.

Now let’s look at two people.  One makes $1,000,000 per year, and one makes $30,000 per year.  If I increase the income of the wealthy person to $1,001,000, it is not likely that they will run out and spend the extra $1,000 each year.  $1,000,000 is plenty to meet his/her needs.  If I give an extra $1,000 to the person making $30,000, however, it is almost guaranteed that it will get spent.  When someone is living paycheck to paycheck, he/she has chosen to forgo certain products or services.  That extra $1,000 will enable that person to purchase something that he/she has been holding off on.  That extra spending grows our economy.  A wealthy person sitting on another $1,000 does nothing.

On the other hand, making a tax change that hurts the lower/middle class has the opposite effect.  If we decrease the take home pay of someone making $31,000 per year by $1,000, that's $1,000 immediately removed from our economy.  If we give that $1,000 to a millionaire, there's a good possibility that $1,000 will sit in savings, further shrinking our economy.

Raise the taxes on the wealthy to benefit the less fortunate.  In doing so, we will take money that is sitting idle and give it to people who will spend it.  The spending of this money will grow the economy, and thereby promote job growth.  When people, or businesses, have more money than anyone could possibly ever need, and choose not to spend it, this cripples our economy.  Give the money to those who will use it.  Let’s get our economy growing again.

Thursday, June 28, 2012

Why the Supreme Court got it right on Obamacare

There are very few guarantees in life.  One of the only sureties is that at some point in our lives, we are going to become sick, and at some point in our life we are going to die.  Medical costs are extraordinarily high.  There are many reasons for high cost of medicine; some that could be addressed, and some that could not.  The reality, though, is that someone needing emergency heart surgery could easily need $100,000 or more to cover it.  Most Americans do not have or have the means to quickly obtain $100,000 for an emergency operation.

Most Americans, as people, believe in helping others at least to a small degree.  Our laws dictate that we do not withhold life-saving medical treatment, regardless of a patient’s ability to pay.  That means every day people without insurance or adequate savings enter emergency departments around the country, receiving hundreds of thousands of dollars of treatment that they will never be able to pay for.  This raises the cost of medical treatment for all of the patients who do have insurance, or other means to pay.

Most states require anyone who wants to drive a car, to obtain liability insurance to legally do so.  This is because we need assurances that if someone injures another person or damages property while driving, they will have the means to pay for the damages.  Obviously, someone can avoid paying for auto insurance by choosing not to drive a car.

People cannot choose whether or not to participate in health care.  At some point in life, everyone will need it.  Requiring every American to carry medical insurance is the only way to ensure that every American has the means to pay for at least the majority of the medical care they receive.  Without this requirement, those of us who have insurance, continually subsidize the emergency medical care of those who do not have insurance or other means to pay.

Insurance, of any type, is all about risk sharing.  Because we can’t possibly know who will need what type of care or when they will need it, it only makes sense for everyone to chip in to the “risk sharing pool”.  This is the only way to ensure that everyone has access to life saving care, and the ability to pay for it so that others don’t have to pick up the tab.

In time, many benefits will be seen.  For one, the overall cost of medical care should decrease as all patients are paying their bills as opposed to just the ones who have insurance.  Additionally, with the requirement that all plans include preventative care, expensive health problems will be caught earlier.  This will decrease the need for expensive procedures necessitated by late diagnosis.  Lastly, government subsidies and state-sponsored health care exchanges will make insurance affordable for millions who previously wanted to have it but simply couldn’t make room in the budget.

If someone still has a fundamental problem with health insurance, they can choose not to purchase it.  The penalty is that they will have to pay a fine.  This is fair and just, as individuals who forego insurance are taking the risk of future medical bills that they will not have the ability to pay.  In exchange for the possibility that the government (read: us) will later end up with the bill for their emergency health care, it is only appropriate that they pay us for assuming that risk.

Nobody likes being told what to do, especially by the government.  In this case, however, the government got it right.

Thursday, December 15, 2011

Why is the US Postal Service in trouble?

The mainstream news can't seem to report enough about how the US Postal Service is falling apart.  The service is losing money each year, and can't seem to cut back fast enough.  Here's my thoughts on why.

The obvious:
Most individuals don't use the post office nearly as much they used to.  Instead of mailing letters, emails and text messages are much more practical.  Instead of sending money through the mail, online transfers and bill pay have become much more convenient.  Even direct mail and catalogs have largely moved to electronic delivery.  With much less letter volume going through the postal service, the cost of delivery per piece has increased exponentially.

The part that seems left out:
While the volume of letters being mailed has decreased significantly, more packages than ever are being delivered.  Online shopping has continued to grow steadily each year, resulting in a lot more package deliveries.  Unfortunately for the US Postal Service, most companies don't use them for package delivery, opting for competitors such as UPS and FedEx.

Which brings us to the real problem-  The USPS is delivering letters at a significant loss, while businesses are opting to use competitors for delivery of higher priced packages.

So instead of focusing on cutbacks, and decreasing the quality of service, why doesn't the USPS do what any other business would do, and try to determine why companies are opting to use services other than theirs?

Here's some thoughts: 
1. With all of the modern technology available, the USPS can't seem to figure out reliable package tracking, aside from its ridiculously expensive Express Mail service.  Delivery Confirmation does nothing to determine estimated delivery dates, or why a package has been delayed.  I've even had packages which were delivered, but not scanned by the postal agent, and therefore delivery was never confirmed.  Reliable package tracking is a must for businesses delivering to customers.
2. Again, aside from Express Mail, delivery times are not guaranteed.  I recently had a "Priority Mail 2-3 Day" delivery, sent just a few states away, take 5 business days to be delivered.  Again, because package tracking is not available, I had to sit back and simply hope the item would reach its destination eventually.  In the business world, this is unacceptable.
3. Let's not even get started with talk about the lines at the post office....

If the US Postal Service is to save itself, it needs to make some drastic changes.  And these changes shouldn't involve making the service slower or worse.

First, the cost of a first class letter needs to go up.  A lot.  Let's start the conversation at $1 for a 1st Class stamp.  With the move to electronic delivery, I send about 2 letters a month.  The increase of $1 a month to $2 a month isn't going to end me.  It will, however, provide a lot more cash to continue extremely convenient daily letter delivery.

Second, the quality of service of package delivery needs to improve.  A lot.  A reliable tracking mechanism for Priority Mail service needs to be implemented, and delivery times need to be consistently met.  If the USPS wants to compete with UPS and FedEx, the quality of service needs to improve greatly.

Right now, I ship packages about 50/50 between the USPS and its competitors.  Closing post offices and increasing delivery times will likely move my business 100% to UPS/FedEx.  The current proposals won't serve to save the post office, they will hasten its destruction.  It's time to get real about solutions, if our mail system is to survive.

Post your thoughts in the comments.