Debt Shark Week

Since The Free Agent was wee, one measure of the difference between a pessimist and an optimist was when each thought Social Security would go bankrupt.  (The FA has a contemporary who started working at the Social Security Administration out of college and successfully surfed that wave into pensioned retirement.)  Being an optimist, The FA hoped it would happen soon, so we could rationalize the way we cope with extended lifespans.  Alas, she underestimated the duplicity and irresponsibility of the ruling political class who, even in the current debt crisis, keep kicking that can further down the road.

Mister Obama, who has wisely adopted The Free Agent’s household budget analogy, says that National Dad must pay more in taxes to solve the debt crisis, yet he and Congress attack spending with all their might and come away with cuts the thickness of gold leaf.  These  Cuts Which Must Not Be Named, according to the president, will save a trillion dollars over ten years.  That sounds like a lot, until we put it into fed math.  The current federal budget is $3.7 trillion (84% of which is flat-out transfer of money from You to Not You, by the way).  Expected revenue is $2.6 trillion, so cutting a tenth of a trillion out of the budget reduces the budget deficit from $1.1 trillion to $1 trillion.  The fed is still a Debt Shark that must keep borrowing or die.  The Free Agent sees only one sensible option between those two, but of course, congress and the president saw another.

The US median household income is $50,233.   If National Dad ran his affairs like Washington, he’d be $282000 in debt, spending $71,485 a year, and think that shaving $1,932 off that—37 bucks a week—would somehow get him out of the hole.

In addition to being so bad at math he had to attend law school, Mister Obama seems to forget that National Dad produces all the goods and services in the country.

Let’s say he owns a bakery with ten employees.  National Dad looks “rich”, so Mister Obama would like him to move some retained earnings into tax liability.   When the new taxes are paid, the bakery’s assets decrease by that amount.  This has consequences for the bakery.  Those consequences will not be expansion.  Perhaps the bakery can now only pay for eight employees.  (Who then sue National Dad for infringement on their right to not work so hard.)  The federal government, which used to receive, say 150% of a baker’s income from National Dad’s employees (its largest source of income) will now receive 20% less.  So the money taken from National Dad could easily result not only in no additional income for Debt Shark, but more unemployed to wring its fins over.

Using no more advanced math than National Dad would employ as he hands National Kid his allowance, The Free Agent lists the rails that must be touched if Debt Shark is ever to be electrocuted:

• Medicare/Medicaid—income transfer to subsidize health care for the poor.  And anyone over 65.  ($827 billion)
• Social Security—money you thought was  being saved for you but was actually spent the day it was taken ($717 billion)
• DOD and Wars—national defense and other adventures, such as support for the Roundheads (or is it  Cavaliers?) in Libya ($704 billion)
• “Income Security”—A potpourri of federal welfare programs like social security disability, Earned Income Tax Credit, and child support enforcement (really?) ($419 billion)

Those are the four biggest federal budget items.  The next two are debt service and federal pensions ($215 billion each).  These six categories account for $3.1 trillion  of the $3.7 trillion  federal budget.  Cutting every other cent–$600 billion–would not balance the budget.

The Free Agent and National Dad are still optimistic enough to believe Americans can understand the math—even if politicians prefer to keep stubbing their toes kicking the same cans.

The Free Agent Has an Ear Ache

What’s a Free Agent to do when she needs health care?

Being between engagements and insured only against disaster (she has the kind of insurance everyone used to have—the kind you hope you never have to use—not the kind that feels like a ticket for an all-you-can-eat buffet), The Free Agent has seen a side of American health care not often discussed—the kind you pay cash for.

Despite the impression one might get from the media that without medical insurance, an American’s only resort is infomercial books on home remedies, The Free Agent has paid cash for all manner of health care: doctor’s visits, prescriptions, routine screenings, even surgery.  But to imagine that the prices of these services are subject to market forces as we think of them is fanciful. Governments spend around 50% of every health care dollar in the US, with insurance companies spending a third.  Business and households spend the rest, mostly in the form of premiums and co-pays.  Blessed with the constitution of her peasant forebears, The Free Agent cannot consume enough health care to compete with third party payers.

So when she had an ear ache recently, The FA decided to visit Urgent Care  Manhattan.  (The Free Agent has a personal physician, Dr. Gulag, but seeing him ad hoc usually requires a long unpleasant wait.)  She arrived at 3:45 on a Friday afternoon to find a clean, quiet office where there didn’t happen to be a wait.  The basic fee is $150 ($50 less than Dr. Gulag charges—as another physician acquaintance said, “It used to be insured patients subsidized the uninsured, now it’s the other way around.”) with additional charges if lab work or further procedures are needed.  At 4:15, The Free Agent walked out the door with a prescription and aftercare instructions.

At that point, The Free Agent had the same treatment she would have gotten from Dr. Gulag, just more pleasant and convenient.  But two days after her visit, she got a follow-up call from a nurse at urgent care to check on her progress.  “You know if you don’t feel like you’re really getting better, call us and come in again, no additional charge.”  The Gulag staff, while amply compassionate, is far too enslaved by paperwork to make such calls.

Urgent care has been around a long time, and pay-for-service is making headway in other medical practices.  Direct Primary Care Medical Home (DPCMH) practices like Qliance offer health services at much lower cost, which they say is from saving the 40% a typical practice spends processing insurance claims.  For between $50-90 a month, clients get unlimited primary care and cell phone and email contact with their doctors, pre-existing conditions welcome.  The only thing Qliance will not do is process an insurance claim, but like Urgent Care Manhattan, they will provide information for the patient to submit.  About 50,000 Americans are in the care of DPCMH organizations.

In the final diagnosis, why had this experience been so pleasant?  The Free Agent wasn’t treated like a pilgrim to Lourdes, asking for a miracle.  Nor was she treated like a punctured tire, an annoyance that throws one’s already busy schedule further off.  What was that warm, valued sensation, even a soupçon of courtship, she felt?  The Free Agent had been treated like a customer.

Don’t Cry for Me, Albany

Charismatic, populist leader, pretty blonde first lady, intractable financial crisis masked by a cavalcade of cash, before it happened to Andrew Cuomo and Sandra Lee here in New York, it happened in Argentina.

Following the suicidal Falkland Islands invasion, reform of Argentina’s long cycle of borrowing and hyper-inflation seemed assured by the late 90s.  With the peso convertible to the US dollar, Argentines had the confidence to save and invest, knowing their proceeds couldn’t disappear on the government printing press.  The economy had enjoyed steady growth through most of the 90s, with promise of more.

So why did Argentina need loans from the International Monetary Fund?  When The Free Agent borrows money, it is either for investment, such as her modest cottage, or to solve a short-term liquidity problem, such as she infrequently experiences at her cash-only show-tunes piano bar.  While she questions whether any government expenditure since the Federal Aid Highway Act of 1956 can properly be called investment, the Argentine government had not mended its ways at all.  Like a deadbeat who reforms his credit rating in order to score and default on a new and bigger loan, Argentina’s prosperity was a smokescreen.  Borrowed funds disappeared into familiar sink holes—government salaries and pensions, and subsidies to the provinces.  Debt and currency crises in other emerging markets in the late 90s motivated the IMF to mask Argentina’s looming default by issuing a new loan even when it was clear it could not pay the interest on its existing debt.

As a scorched-earth bonus, because debts had to be repaid in dollars but Argentines were paid in pesos, the previously functional banking system was hollowed out as the government desperately tried to satiate its lenders.  (As a general rule, The Free Agent grabs her wallet when politicians start talking currency restrictions.)

On December 23, 2001, Argentina defaulted on private foreign lenders, and a revolving door was installed on Casa Rosada, the presidential palace.  The convertibility system was ended two weeks later, by June, the peso was trading at 26 cents.  In 1999, 10% of Argentines were indigent, by the end of 2002, 28% were.

Like the rural provinces in Argentina, US local governments have become addicted to handouts from the capitals above them.  When local property tax revenue falls short, when homeowners short sell or abandon properties, for example, they appeal to state coffers.  When states, long on pensions and other entitlements, fall short on sales and income tax (and in 2009, all but 6 did) they look to Washington.  Like Buenos Aires, when Washington can’t make payroll, it has to two options—ask buddy nations like China and Saudi Arabia for a tenner till payday, or fire up the printing press.

Such is the complexity of New York’s finances that a supposed budget hawk like Mister Cuomo can nobly tilt at windmills, “Albany must give up its insistence on pleasing the special interests rather than serving the people.”, while supporting expansion of New York City’s ludicrous rent control laws.  His idea for dousing the explosion in Medicaid spending will sound as familiar as Evita’s great torch song: improve delivery while cutting costs.  (When Wal-Mart does that, New York’s reaction . . .well, that is perhaps for another column.)

In 1990, fifteen years after New York City’s bailout, public debt was $14.4 billion.  In 2000, before debt reform was enacted, it was $37 billion.  A peep inside New York’s public debt can today shows obligations of $60.4 billion.  (Five years ago, it was $48.5 billion, almost exactly the amount of Argentina’s IMF loans when it defaulted.)

Without paging through, to use  an  arcane reference, phone-book-sized state budgets, The Free Agent will posit the single most important similarity between New York (ville et department), Argentina, and Washington.  Unlike The FA, or you, or any private person or corporation, they have the ability to borrow money with no responsibility for paying it back.  Forget about the debt ceiling, The Free Agent proposes a tiny adjustment to the way governments borrow money: that any non-capital borrowing must be repaid within the elected term of the borrower.  Politicians get rewarded by kicking the debt can down the road, pleasing voters today and shifting the burden onto public schoolchildren whose rudimentary math skills they hope prevent them from appreciating the iniquity.  The Free Agent would like taxpayers to lend money less like Fannie Mae and more like the local Italian Brotherhood.

Scarlett Shrugged

A beautiful woman, abandoned by a man she counted on, near the end of her strength, the fires of perdition burning in the background, collapses at a split rail fence.  Before it happened at the end of the new “Atlas Shrugged” movie, it happened to Scarlett O’Hara.

The Free Agent cannot really argue with the critical excoriation of “Atlas” because she cannot view it without her knowledge of the book.  She had trouble finishing even thumbnail reviews citing Tea Parties, Bernie Madoff, etc., or implying Rand’s book portrays the Republican party’s Nirvana.  (Oh, how those Republicans love to keep their distance from big business!)  Roger Ebert, a most intelligent observer, found the movie incomprehensible and un-cinematic, “The dialogue seems to have been ripped throbbing with passion from the pages of Investors’ Business Daily.”  Fair enough.  It takes a bit of effort to acclimate oneself to Ayn Rand’s writing, and lines like, “Why all these stupid altruistic urges, it isn’t charitable or fair.  What is it with people these days?” enter the ear canal with the subtlety of the Taggart Transcontinental.

The FA merely points out that the movie avoids the worst possible crimes—trying to up the characters’ “likeability” for instance—and that for her, watching the movie was analogous to reading the book.

It mystifies The Free Agent that women don’t tend to love Rand or Dagny Taggart, her railroad-running, competitor-smackdowning, lover-taking heroine.  When she tries to emplace the character with others in the history of cinema, The Free Agent finds herself back by that other fence, the one at the turn-off to Tara, the one where Rhett mauled Scarlett (Margaret Mitchell and Rand are sisters under the skin in at least one way), then abandoned her to go fight the last five minutes of the Civil War.  Finding herself unexpectedly responsible for feeding the remnants of the plantation, Scarlett brings in a cotton crop, then expands and runs a saw mill.  Later, Rhett accuses her of putting her love for the lumber business above him and their child.

Other movie heroines have had jobs, of course.  Most were undertaken while waiting for a man or coping with the unexpected loss of one, and the plurality pursued the safely feminine occupations of actress, secretary, and waitress.  Once in a great while an entrepreneur appears, frequently—weirdly—expanding on her knack for baking pies.

What Dagny and Scarlett share that no reviewer of “Atlas” seems to apprehend is the raw love and pride in production.  Stephen Sondheim expressed the creative drive with supreme economy: “ . . . I made a hat/Where there never was a hat.”  Dagny and Hank Reardon get so aroused riding on the John Galt Line they copulate.  Scarlett, who never really has a soul mate, closes her eyes and revels in the smell of her lumber rebuilding Atlanta.

Perhaps the productive drive is too rare to resonate with reviewers.

Because it is joyous building, productivity, the reaffirmation that reality is real, that “Atlas Shrugged” exalts.  The Free Agent assumes the producers, cast, and crew wallowed in it while delivering Part I, against long odds and short money.

She fervently hopes the rest of the trilogy will not suffer stillbirth.

Moore On

“The nation is not broke, my friends.  Wisconsin is not broke.  Saying that the country is broke is repeating a Big Lie.”  While The Free Agent certainly doesn’t count herself among Michael Moore’s friends, she cannot help but be intrigued by the speech he gave in Madison supporting intractable state workers and their enablers in the state assembly, given her recent exposition on the same subject.  Also, The Free Agent herself faces financial embarrassment she would prefer to avoid, hence she reads on, “The country is awash in wealth and cash. It’s just that it’s not in your hands. It has been transferred, in the greatest heist in history, from the workers and consumers to the banks and the portfolios of the uber-rich”

Let us blink our eyes at the implication that before the federal bailout (and oh, how The Free Agent hates to find herself agreeing with Mister Moore!) the nation’s economy was to his liking.  He goes on to claim that the wealthiest 400 individuals in the United States own half its wealth.

The Free Agent has never been able to grok the relevance of this how-many-control-how-much measurement.  (She recently read a book wherein the author bemoaned the destabilizing effect of the widening gap between rich and poor, the timeframe being 1559-1715.)   Mister Moore supposes .0000013% of the population controls approximately $95 trillion (it’s difficult to estimate total wealth; this is a lowball derived from the most recent Federal Reserve Board’s Z1: Flow of Funds report); more planet-earth-oriented sources place the number at 1%, or 3,000,000 people, owning approximately 43%, a figure that has hardly changed since 1981.  Yet whatever the particulars, The Free Agent’s eyebrow remains unarched.  Would Mister Moore prefer a more ‘democratic’ (his ne plus ultra) distribution, such as China’s?  The bottom 90% of the population owns 60% of its wealth.  The FA invites Moore to experience the relative economic justice first-hand.

But Mister Moore’s point was that America/Wisconsin, and by extension, The Free Agent, aren’t broke because wealth still exists somewhere in the country.  Using this logic, The Free Agent owns a Honda CR-V because one sits in her neighbor’s driveway.  All she requires is the, ahem, ‘democratic’ means to acquire a set of keys.

The Free Agent’s economic worldview is founded on only a few principals learned at her accountant-mother’s knee: if you live beyond your means for too long, you will go broke.  If you make financial promises you can’t keep, you will go broke, and possibly to jail.  If you are digging yourself into a hole, you should slow the digging (chuck the Quality Paperback Book Club catalog) and try to fill it up (pick up an extra shift at the mall).  If you’re going to steal, embezzle.  That one is a bit of a surprise if you know The Free Agent’s mater, but she never condoned theft, so that branch of the decision tree will never be climbed.

Mister Moore, unencumbered by similar moral education, sees the situation differently: in order to perpetuate the state government of Wisconsin’s living beyond its means and paying off ludicrous unfunded retiree benefits, it is merely needful to rouse the rabble to vote themselves someone else’s bank account.  In short, Mister Moore, like most politicians, is a graduate of the Willie Sutton school of economics.  Mister Sutton, you’ll recall, when asked why he robbed banks, replied, “Because that’s where the money is.”  This is a gentleman in whose company you should not wear your good watch.

Alas, like so much we have lost under the oligarchy, The Free Agent has just been informed she no longer owns the CR-V.  It’s going to an Affirmative Action Coordinator  in Oshkosh.