11.09.09
Imperfect Information Undermines “Free-market” Economies
It’s no secret that a variety of interested parties exert influence over both economic policies and the general understanding (and reporting) of the effects of changes, just as they do in energy, health care, education, the financial sector, and/or anything else that the Congress or various federal agencies have a role in shaping. Misinformation can lead a seemingly honest, open debate far afield from reality, inhibiting the efficiency of the process while at the same time warping the outcome.
If you don’t understand fiduciary relationships, and you still think most corporate actions reflect the same sort of priorities that pertain when a truly small business is owned by a single person, or a couple, you’re missing a key factor. Shareholders, for instance, seldom have any significant influence on the pay (or bonuses) of officers engaged in potentially risky decisions at major corporations – auto manufacturers, for instance, or the financial institutions that crumbled on Wall Street as the financial crisis became obvious to virtually everybody at home and abroad near the end of the Bush administration, when we ended up dumping billions of dollars into banks without any obvious benefit (it certainly didn’t stimulate consumer lending, as both Bush and early Obama administration initiatives were intended to do.)
In fact, if you look closely, the problem of banks that are “too big to fail” is getting worse, not better, due to consolidation. But that’s not what they tell Congress or the media; the bankers speak instead of “economies of scale” to justify even further growth. Banks are tied to the model that’s ruled economic policy for decades: debt-fueled consumer spending.
Those who talk about concerns over finite resources, such as clean water, are scoffed at, and the countering rhetoric lumps them in with “climate alarmists” and “tree huggers” in such a way that genuine free market forces are not even close to determining the value of any natural resource that cannot be mined – with the curious exception that there are some cities who have privatized their formerly municipally controlled water systems, which does begin to result in a certain market value being placed on that particular resource. Of course, once a profit motive starts driving the price up, citizens in the U.S. and abroad often agitate to re-socialize their water supplies, in an era when “socializing” is used by some to imply everything that went wrong with every non-U.S. form of government.
Similarly there’s an obvious bias in the talk about income tax cuts – it generally originates from those who are well to do, and stirs the emotions of those who have much less, but more importantly if one looks closely at the data, there’s been a strong correlation in the past between those with wealth and those whose tax rates truly go down under most of the recent approaches. Would tax cuts stimulate the economy? Assuredly so – but in what way? 
A tax cut on income doesn’t have the same effect as, say, a tax cut (or tax credit/investment credit) for spending consistent with our national priorities, such as alternative energy sources, or research and education, etc. Such selective, targeted changes spur spending in specific areas — a very straightforward function of supply and demand, and the result is tangible — money flows to those areas, stimulating job growth and additional investment without any necessary growth of the government (growth which makes most of us justifiably cautious in the wake of the Bush administration’s under-reported increases.)
The reason that governments trying socialism, such as the USSR, to manage resources and markets for the good of the people have consistently floundered and failed is that they don’t — and can’t — have good enough centralized information to succeed making the rapid decisions necessary to control what is arguably the most intricate challenge of any “man-made” system, the decentralized activity of a vibrant, balanced economy. Markets are efficient at managing that information; but we’ve seen a dramatic example of why they cannot be expected to function for the good of the consumers when government fails to regulate those with the profit motives.
Consumers, too, need access to better information than they typically get under the current system, no matter if you’re considering tax-cuts, politics, the price of peanut butter, new home-buyer credits, or anything else. When misinformation is tolerated (or encouraged) it undermines the effectiveness of capitalism. Free markets rely on timely, accurate information – we need to consider new incentives for the reporting of “news” and information systems we base our choices on, or capitalism is absolutely doomed to implode.
10.29.09
CNN & Money.com aren’t qualified to assess “Cash for Clunkers”
You’d expect an author at this CNNMoney.com to understand the role of money in business. You’d expect an editor to send this back to re-write. Here was the basis of Peter Valdes-Dapena’s misguided assessment:
“…majority of sales would have taken place anyway at some time in the last half of 2009, according to Edmunds.com”
So? This isn’t news, and it misses the point of the Cash for Clunkers initiative.
Valdes-Dapena and/or his editor may think selling cars sooner rather than later is a valid reason to criticize the program, but as any businessman can tell you: success in business is about cash flow. Any retail operation needs to keep their stock turning over. At a time when the inventory was sitting idle on the lots this program provided a much needed infusion, enabling dealers to pay staff, utilities, creditors, and suppliers.
Did the Cash for Clunkers program solve the economic crisis? Of course not. The goal was to turn over inventory in one segment of the industry – to keep dealerships from failing in huge numbers just before the manufacturers started to recover, thereby saving some jobs and hopefully averting a situation that would spread and further exacerbate the economic downturn.
The article may fool a person with no entrepreneurial experience, but it reflects either a shallow grasp of money and business or a thinly-veiled attack on the government’s attempt to avert a breakdown in the delivery mechanism of an industry it was actively seeking to save – without proposing any alternative that might have been even marginally effective.
The public may think “Cash for Clunkers” was as simple as just selling cars, the author evidently wants to; the reality is much subtler. Edmunds didn’t surprise anybody (except maybe CNNMoney.com staff) with the news that one of the primary effects was to accelerate the decisions and purchases – that was the point.
10.27.09
Recent tax cuts increased the 2009 deficit
Bruce Bartlett was a domestic policy adviser to President Ronald Reagan, and conservative supply sider. He did a little simple math and uncovered that the cause of the deficit increase is revenue-related.
The increase cannot be blamed on spending – the Obama administration’s spending has been more conservative than was forecast – $28 billion less than was predicted. This math strongly suggests that more tax cuts, as some in the GOP are advocating, would actually further increase the deficit; tax cuts were unambiguously a major factor in the problematic revenue decline that underlies the deficit growth.
Mr. Bartlett, in a column dated October 24th, was responding to the theory that tax cuts were the best way to solve the deficit, as was advanced by Mort Zuckerman recently in a New York Daily News opinion piece.
Here’s an excerpt:
According to the Congressional Budget Office’s January 2009 estimate for fiscal year 2009, outlays were projected to be $3,543 billion and revenues were projected to be $2,357 billion, leaving a deficit of $1,186 billion. Keep in mind that these estimates were made before Obama took office, based on existing law and policy, and did not take into account any actions that Obama might implement.
Therefore, unless one thinks that McCain would have somehow or other raised taxes and cut spending (with a Democratic Congress), rather than enacting a stimulus of his own, then a deficit of $1.2 trillion was baked in the cake the day Obama took office. Any suggestion that McCain would have brought in a lower deficit is simply fanciful.
Now let’s fast forward to the end of fiscal year 2009, which ended on September 30. According to CBO, it ended with spending at $3,515 billion and revenues of $2,106 billion for a deficit of $1,409 billion.
To recap, the deficit came in $223 billion higher than projected, but spending was $28 billion [less] and revenues were $251 billion less than expected. Thus we can conclude that more than 100 percent of the increase in the deficit since January is accounted for by lower revenues. Not one penny is due to higher spending.
It turns out you have to go back to 1950 to find a year when federal revenues were lower as a share of GDP. So Bartlett, who is happy to say there is some basis for criticism of the Obama administration’s anti-recession tactics, points out that excessive spending isn’t the problem.
In fact, with much of the revenue that was not collected due to the tax cuts sitting more-or-less idle in savings accounts, and certainly not trickling down to stimulate job growth, or bank lending, etc., Bruce Bartlett concludes that:
The idea that Reagan-style tax cuts would have done anything is just nuts.
Bartlett’s article is a must-read for anybody involved in the U.S. economy – which should include every voter and pundit, not just those elected to Congress.
10.22.09
Income Redistribution and the IRS
The non-partisan Center on Budget and Priority Policy, a research group forcused on federal and state fiscal policies, looked at IRS data and stated in September that:
“Two-thirds of the nation’s total income gains from 2002 to 2007 flowed to the top 1 percent of U.S. households, and that top 1 percent held a larger share of income in 2007 than at any time since 1928, according to an analysis of newly released IRS data by economists Thomas Piketty and Emmanuel Saez.”
In fact, with the exception of a slight reversal that correlates with the Bill Clinton presidency, the chart of this IRS data, reproduced below, reveals an obvious trend in favor of the wealthy.
Class Warfare?
In point of fact, Piketty and Saez relied on several different income concepts and each naturally results in slightly different estimates of the share of income going to each group, so the Center on Budget and Priority Policy conclusion that the share of the nation’s income flowing to the top earning households increased from 16.9% in 2002 to 23.5% in 2007 could have “quibble room.” Yet the fact remains that change represents a larger share than at any point since 1928.
I strongly urge you to read the entire article, and abandon any sense that the wealthy in America are either paying a disproportionate share of their income(s) or losing some mythical class warfare when people talk about income redistribution or raising taxes.
Taxation without representation
It’s lately become fashionable in certain circles to cite the American Revolution as an anti-tax movement. Nothing could be more misleading, and I suspect many of those who rely on the tea bag as a new rallying symbol neither drink tea nor are conversant with either the series of
tax changes, such as the molasses tax (6p/gallon,) which contributed to the uprising against taxation without representation or with the impact of the choice to drink tea over coffee.
Surely many of those who opine that they, “don’t want our government to do anything at all,” and argue in favor of states’ rights, etc., do, in fact, prefer having national immigration laws (and agents to enforce them,) a standing army to provide for the common defense, and even publicly built and maintained highways over the free-market alternative as practiced in present-day Somalia. Yet there’s more to their position than simply a media-distorted, sound-bite-fed outcry being exploited for ratings and ad revenues.
The collective American psyche places great stock in the notion of fair play. Some take it so far that they want the U.S. to be the world arbiter of justice, and accordingly encourage the notion that it’s somehow an American responsibility to prevent piracy on the high seas (the ultimate free-market exercise) or to remove regimes from power in other countries if they don’t believe that leader assumed power fairly.
State budgets are under assault
The American Dream is under assault. There is no free lunch. Taxation to accomplish the legitimate goals of federal and state government initiatives must be fairly distributed. Defining the necessary changes to tax codes is a daunting prospect even if it’s separated pragmatically from debating the role of government to expedite resolving budget crises. But considering higher taxes on the wealthy hardly constitutes class warfare, let alone an unfair burden.
10.02.09
Can the market create prosperity?
Some of our elected representatives in Washington say our big government can’t do anything well. Ironically, while it’s true the federal government obviously did a slip-shod job of regulating the mortgage and banking industry, those elected officials are in charge of everything from what the government spends to how it runs, and many of them have been there for well over a decade, doing whatever it is they do to make it “better.”
We’ve tried less regulation; we’ve tried lowering taxes; we’ve outsourced to save money including using private contractors instead of the military to fight a war that obviously hasn’t stimulated the economy; we’ve tried everything the politicians could think of except privatizing our social security accounts – and most of us are glad that didn’t fly.
Where have they led us?
The economy will need years to recover from the steep plunge in 2008, unemployment is still rising, mortgage foreclosure rates are problematic while home prices tumble, banks are being closed at a record pace, and institutions “too big to fail” are on the verge of filing bankruptcy despite the former administrations attempts to rescue them by propping up their finances with billions of tax dollars.
On the other hand, gas is back down under $3 a gallon – who would have imagined that was a good price 5 years ago? Still, that’s what the middle class is cheering about today (it sure isn’t the price of education or health insurance.)
When was the last time you say “Made in America” on the label of something you bought? Plants sit idle while manufacturing jobs continue to dwindle. Where have we been investing? In derivatives – financial products so complex that the people who buy and sell them can’t really tell you how they work. Once upon a time we heard about the huge growth of jobs in the service sector, but if you call for service you’re as likely to get a machine answering the call as a person, and when it’s a person they’re often overseas – who knew we could outsource service sector jobs?
The President’s got a real rat’s nest on his hands with the economy. Depending who you listen to he’s either put the foxes in charge of the chicken coop or hired the people who made the mess in the financial markets to clean it up. The former would be a disaster, obviously, but even the latter is rather daunting (and yes, I know, banks hire former bank robbers, computer security firms hire former hackers, but that doesn’t make me comfortable.) Granted, Obama’s shown a desire to invest in America, to get people back to work, but he’s still a relative newcomer and the entrenched powers that be in both major parties were there – in charge – as all these problems brewed up this ugly mess in the first place. There’s enough blame to go ’round on Capitol Hill when it comes to the economy. One man by himself cannot create – or recapture – our American Dream.
It’s not enough to “stimulate” the private sector and create green jobs; our leaders have to insure that the sorts of abuses which led to this crisis won’t recur. The abuses of the public trust are not confined to Wall Street, they’re also there on K Street, First Street, and South Capitol Street… and consumers are justified in being dubious that the people who left this series of overlapping errors unattended are the proper ones to lead us out of the resulting crisis. The denizens of the Capitol have shown a propensity for bickering and posturing, but little in the way of solutions has emerged – to the point that the executive branch is now authoring legislative proposals since the two parties can’t agree on how to move forward together.
It’s time to invest in us and our future – in infrastructure and education, and in making sure that anybody who works for a living can afford to stay healthy and enjoy the retirement they’ve earned. I’m not advocating isolationism, mind you, but multi-national corporations aren’t helping anybody but themselves. Small businesses that put local people to work and keep the profits within our communities are the engine that can power economic recovery. Tax breaks for mega-corporations end up being bonuses for already-rich CEOs – what trickles down is being funneled through lobbyists right back to Congress, apparently.
We pay our taxes so the government can do what is necessary for the common good. Seems to me all the government’s done for most of the past 10 or more years is grow larger. What have our Senators and Representatives done but watch as the entire system melted down? OK, granted, they did just boost their own budget, and sure, CEOs and lobbyists are still pulling down a good paycheck, with full benefits – but what about the rest of us?
09.29.09
How the U.S. government spends your money
Billions of tax dollars are going for a US-Mexico border fence, but is it doing any good? Well, if you read the Christian Science Monitor article by Daniel Wood you’ll have more questions than answers.
In 2006 DHS awarded a “virtual fence” contract to Boeing for a stretch of the border in Arizona as part of President Bush’s “Secure Border Initiative.” The budget grew to nearly $1 billion just two years later. So far, no virtual fence; just a very real budget. DHS recently decided to extend its contract with Boeing for another year.
Several sites now report that the Government Accountability Office (GAO) recently predicted that $6.5 billion will be needed to maintain the rest of the actual, though still incomplete, multi-billion dollar non-virtual fence over the next 20 years, addding:
“So far, it has been breached 3,363 times, requiring $1,300 for the average repair.”
Just so you don’t have to reach for your calculator, the math works out like this:
3,363 breaches x $1300 = $ 4,371,9000
But the kicker is there’s no way to prove if it’s actually making any real difference – well, beyond fattening the wallets of the folks awarded the contracts and costing tax-payers money, of course. So, we’ve spent about $2.5 billion so far on construction, we’re seeing several new breaches each day (on average), and CSM interviewed one woman, Dawn Garner, who says that 40 illegal immigrants a day cross her small ranch.
Sound bad? Don’t answer yet.
Ronald Reagan famously urged Gorbachev to tear down the Berlin Wall. There was a lesson there we’ve somehow forgotten about what the effects and effectiveness of walls really are.
Yasha Levine, writing at The Exiled, reports he’s interviewed a Border Patrol agent who asserts that it’s not just breaches – in some cases ramps are deployed on both sides and smuggler’s caravans drive right over! Levine has more bad news:
There is one thing we can be sure of:
the massive steel pylons have been a boon for Mexican scrap metal entrepreneurs, who are able to supplement their incomes by dragging off whole sections of the fence right under the nose of our beefed up Border Patrol.
And those we capture trying to make the crossing? We spend a bit of money to detain them, a bit to process them, a bit to send them back home again, and – you guessed it – start the cycle over. Because if there’s one other thing we can be sure of:
No matter which country they’re a citizen of, the folks who prefer the USA to Mexico aren’t likely to change their minds.
But DHS, born under former GOP President George Bush, sees no reason to change course, or deny money to Boeing or the other contractors. They’ve got a mandate for, “more effective use of personnel and technology” and “physical infrastructure enhancements to 
prevent unlawful border entry,” and so spend they will. But are we stopping the drugs and other smuggling? Honestly, nobody knows.
It’s past time to think about our priorities, particularly our spending/funding priorities and the role of the federal government. It grew larger than ever over the early part of the 21st Century, but failed to address the needs of our nation.
Instead politicians awarded lucrative contracts as political favors. It’s no wonder the trust for Congress has plummeted – the scrutiny has them scurrying for cover, and some of them are talking out of both sides of their mouths.
09.23.09
Sep 2009 ERRI reflects late summer softness on Wall Street
Despite significant improvement in the number of job losers 
in August, traditional end of summer sell-offs on Wall Street sent the Economic Recovery Reality Index (ERRI) itself 1.62 points lower, giving back some of the August gain to a modest 3.13 points over July 2009, to 14.41 for September, 2009. In August, the number of unemployed persons increased by 466,000 to 14.9 million, bumping the unemployment rate by three tenths of a percent – essentially unchanged among the major demographic divisions examined by the U.S. Bureau of Labor Statistics, and few experts doubt an overall rate increase to 10% as hiring necessarily lags other economic indicators; both construction and manufacturing employment continue downward trends, though overall manufacturers are so light-staffed that any order can stimulate hiring decisions.
Despite the slight correction as summer wound down, investors seem optimistic and stock markets continue to reflect increasing willingness to move capital back into equities over the past quarter. The ERRI is based in part on a weighted, hypothetical mid-cap oriented index fund (see below) which lost nearly 5% of its August value with uneven movement across the sectors and industries being tracked, weighing the ERRI down. Solar technology and consumer goods reflected weak sentiment, with renewed confidence in finance and non-solar energy.
Average weekly earnings continued modest improvement after a dip in the early part of the summer. The increase in the number of “discouraged” workers is still slowing, while the number of “involuntary part-time” workers crept up slightly. (Discouraged workers are those not currently looking for work because they doubt jobs are available for them.) The bright spot in the figures may be Health Care, where employment continued to make gains – up another 28,000 jobs (roughly the same number of jobs shed in the financial sector) after an increase of 20,000 in July.
U.S. government unemployment figures are estimates based on a monthly survey of households. All persons who are without jobs and are actively seeking and available to work are counted among the unemployed, including those on temporary layoff are included (even if they do not actively seek alternative work.)
Note: The particular selections comprising the security/equity component of the ERRI (data below) were selected to track various sectors, not out-perform the broader U.S. equity markets. These are not investment recommendations, and should not be construed as such. The ERRI fund is an entirely hypothetical construct, and while the author and/or persons connected to the research and/or this website may at times hold positions in these securities, particularly via any one of a number of mutual funds, no representation is made as to the suitability of any given equity, sector, on investment strategy for the reader.
Further, while the hypothetical index fund component shows apparent growth of 17% when calculated simply against an initial cost-basis of $10,000 (the September valuation was $11,697.72) it should be noted that the weighting of various sectors and components means the effective impact is approximately tantamount to only a 7.5% increase. The ERRI fund calculation represents only investor sentiment to the extent stock market behaviors reflect this mostly professional group; domestic (and global) economic recovery depend heavily on wages and employment, as well as difficult-to-quantify public sentiment.
Data on the equities is presented “as though” an investment had been made in an “index fund” for the ease of comparison and understanding, but no such fund exists nor did any investment take place. Equity investments are volatile, particularly when not carefully diversified and monitored. The third column in the table below represents the percentage change in the individual equity prices as of the close of the NYSE on 4 September 2009 versus the previous month.
| symbol | 4 Sep 09 close |
% +/- |
index value |
Sector | Industry |
| EMN | $ 50.26 |
-4.68 |
1,357.02 |
Basic Materials | Chem. (Plastic & Rubber) |
| HON | $ 37.15 |
+2.12 | 594.40 | Capital Goods | Aerospace & Defense |
| CAT | $ 46.11 |
-3.50 | 691.65 | Capital Goods | Constr. & Agric Machinery |
| FDML | $ 11.46 |
-23.50 | 1,180.38 | Consumer Cyclical | Auto & Truck Parts |
| HQS | $ 8.40 |
-7.59 | 999.60 | NonCyclic Consumer | Fish / Livestock |
| BBEP | $ 9.94 | +13.86 | 675.92 | Energy | Oil & Gas (Integrated) |
| PZE | $ 6.74 |
-3.99 | 559.42 | Energy | Oil & Gas (Integrated) |
| AIB | $ 6.91 | +17.52 | 497.52 | Financial | Money Center Banking |
| CMA | $ 25.42 | -7.93 | 381.30 | Financial | Regional Bank |
| FITB | $ 10.52 | +8.34 | 494.44 | Financial | Regional Bank |
| CCI | $ 27.83 | -1.00 | 556.60 | Services | Communications Srvcs |
| JWN | $ 29.23 | -3.53 | 701.52 | Services | Retail (Apparel) |
| FSLR | $121.47 | -17.07 | 850.29 | Solar Technology | Semiconductors |
| RIMM | $ 77.50 | +0.53 | 542.50 | Technology | Comm. Equipment |
| PLXS | $ 25.25 | -5.00 | 580.75 | Technology | Electronic Instr & Controls |
| POM | $ 14.17 | +1.87 | 1,034.41 | Utilities | Electric |
Disclaimer: Readers are advised that the ideas, materials, and opinions contained herein should be used solely for informational purposes. The author does not purport to tell or suggest investment securities that should be bought or sold. Investors should always conduct their own research and due diligence and obtain professional advice before making any investment decision. Neither the author nor realitytax shall be liable for any loss or damage caused by a reader’s reliance on information obtained in any posts, newsletters, special reports, email correspondence, or comments on the web site. The author is not a registered investment advisor or broker/dealer. The information contained herein does not constitute a representation by the publisher or a solicitation for the purchase (or sale) of securities. Opinions and analyses are based on sources believed to be reliable and are written in good faith, but no representation or warranty is made as to their accuracy or completeness, and we are not liable for errors or omissions. All such information should be independently verified with the companies mentioned. The author(s) receives no compensation of any kind from any companies that may be mentioned on this web site. Any opinions expressed are subject to change without notice. Owners, employees and writers may hold positions in the securities that are discussed; the intent is neither to suggest investment choices/strategies nor to influence market conditions, but rather to divulge methodology for inclusion of equities and sectors in the Economic Recovery Reality Index [ERRI]
Digg the ERRI report.
09.15.09
Misinformation 101: Spin Influences Debates
Polling can reliably reveal whatever the person who constructs/conducts the poll was investigating – if we’re given the raw data and a good description of the sampling procedure. But in practice, the data is usually glossed over in favor of a sound-bite summary tending to support the interests of the person and/or network doing the reporting on it, and the description of the sample is only included by the most rigorous of editors.
Without knowing how the sample of people was selected (and randomized) you simply can’t know anything more than what’s reported about a poll.
You can’t know, for instance, if its findings are useful in any logical sense, because you don’t know who the sample represents.
It’s all in the design
I can ask 13, 17, or 21 people a question, and come back with convincing-looking numbers that don’t look “too round.” But if I select who most of those people are it will darn sure tell you what I want you to think I learned.
An example of shaping a poll
Imagine I go to a GOP Town Hall meeting, and survey 15 people wearing shirts or carrying signs that say either “Nobama,” or, “Joe Wilson was right!” I’ll ask them one simple question:
Are you a) “for” Obama’s government takeover of our health care system that he’s pushing through the congress under the name of “reform” or b) “against reform” that will make changes that undermine the free market system that has given us the best health care in the world and cost the tax payers even more money?
OK, I’ve plausibly got 15 “b) against reform” responses now in my hypothetical example. I’ll ask 6 additional people, more or less randomly selected, that same question. Let’s say for the sake of argument that most of them magically favor reform (not a given the way the question’s phrased, is it?) But for the example say I got 4 out of 6 favorable replies.
Now I’ll summarize the poll for you based on that (fake) survey:
“In a [hypothetical] survey conducted Wednesday, only 19% of those responding favor the proposed reforms to health care, while nearly 81% said they were ‘against change.’ That’s more than 4 out of 5 in our survey who are hoping their representatives in Congress will stop the President’s take-over of business.”
If you believe what anybody in the media tells you without understanding both the sample and the data, all you know is what the reporter’s boss wants you to believe. If you choose to believe on that basis – which you just might if it agrees with your political leanings – rather than examining the poll itself, then you’re gullible indeed. The good news is: the politicians on your side and the ratings-hungry networks (who are on the side of earning a living from ad revenues) both love you. They’ll go out of their way to validate your “wisdom and insight” into the issue.
If the poll isn’t conducted on a random sample, but merely open to those who respond…? Well, my friends, that will tell you a bit about the people who responded, of course, but one must be wary of extrapolating to draw any useful conclusions about a larger population. We call it spin. But knowing that they’re gaming us doesn’t stop the echoes.
Media complicity
In fact, it won’t surprise me to find this utterly fake survey example quoted elsewhere within days, if not hours. Can’t you see it, at DIGG maybe, or on another blog, or even on Fox? Something like:
A post on Wednesday at a liberal-leaning blog about politics and economics described a survey which concluded that, quote, “only 19% of those responding favor the proposed reforms to health care, while nearly 81% said they were ‘against change.’” In other words, that’s more than 4 out of 5 who want their representatives in Congress to stop the President’s assault on insurance providers and let capitalism work.
There you go: lifted out of context, but the quote is nearly character-for-character what I reported in the fake “summary” above. Now we’re set up for the media echoes to persist even though the numbers are clearly unreal. Now they’re not reporting on the survey, they’re reporting on the reporting, which is just an irresponsible excuse to keep repeating the misleading numbers. Next thing you know, nobody knows how many people were at that rally on the mall in DC, but everybody believes the numbers support their hopes.
Misinformation distorts any debate. I could easily have made the example go the opposite way, of course, but I don’t want somebody to echo a story that falsely represents support for reform. In fact, some well-constructed surveys do reveal that over 90% favor “at least some reform.” But then, who wouldn’t favor “at least some” unless they were making money from the insurance industry? It’s like asking who wants lower taxes without considering how you’d pay for those government services you realize you benefit from.
Are you leading an “unexamined” life?
You know that commercial media outlets rely on advertising revenues. So, do you follow the money? Better still, my favorite (somewhat cynical) question: Why do you trust who you always have to report on things you care about? And yet, those are the sources most people trust to describe the town hall “meetings” as well as the “expert” arguments for and against reforming the health care insurance system.
08.28.09
Rep. Michelle Bachmann (MN CD6) missed the chance to lead
Minnesota’s 6th district congressional Representative, Michelle Bachmann, missed a golden opportunity this afternoon to step back from the partisan talking points and rumor-mongering before an overflow crowd at her town hall meeting in a Junior High School auditorium in Lake Elmo. Fresh from criticism that she had been much too quick to depart an event earlier in the week in St. Cloud, Bachmann responded to virtually every question or comment from the crowd with long-winded recitations of her already familiar litany: that the U.S. has the best health care system in the world despite outcomes surpassed by many other nations, and that the government would be interfering in and controlling medical decisions in some vast bureaucracy that was somehow worse than the actuarial and profit-driven bureaucrats at insurance companies who already countermand medical orders.
The tone was set early on, when despite the moderators admonitions that the only topic open to discussion was health care, Ms. Bachmann launched into such a long-winded, wandering opening statement that the crowd grew restless. The session was obviously scripted to limit both the questions/comments and her need to respond, complete with a Texas congressman who also responded to virtually every question, yet evidently hadn’t gotten the “death panels” talking points from Bachmann’s staff. If the Congresswoman was really interested in hearing from her constituents she might have talked less, but alas like so many D.C.-based politicians she relied on posturing at length and repeatedly for the media and her base after paying lip-service to listening as the lines of questioners grew restless.
Ms. Bachmann had the chance to reach out to those looking for real information, she even repeated her recent notion that there would have to be a “safety net” for those without insurance (divining how this differs from a public option is left as an exercise for the voter, evidently,) after assuring the crowd that everybody wants the system reformed. Then, however, she resorted to amateurish theatrics (at least we didn’t see the Grassley dragon) and cheer-leading for unsupported assertions while cherry-picking points to assure her already-confirmed supporters that she wouldn’t let taxes on their children reach 80-90% to pay for reform (which she is in favor of, make no mistake about it) without addressing what she would do, or even suggest, to improve matters. All in all, while her base was delighted with the Obama-bashing, for the vast majority of those in attendance, including the dozens who couldn’t ask their questions, or thought they might hear ideas about how to address the skyrocketing costs of health care insurance, it was a waste of time.
The one accomplishment was the ratcheting up of polarization, in utter contrast to the Representative’s stated goal of attaining a bi-partisan solution. She lacks the rhetorical polish, and the quick familiarity with the facts, that her wingman (Congressman Burgess, R-TX, a self-described “McCain surrogate”) displayed, which made her look under-prepared, if not outright insecure. From the outset it was clear that the crowd was split, and while the majority were Bachmann loyalists that didn’t mute the opposition, which roared their own approval as one questioner started out by declaring she’d turned him from a Reagan voter into a Democratic (DFL) activist.
One has to marvel at the staunch GOP line regarding government ineptitude coming from those who have controlled the White House for such a large fraction of the last quarter century, at times complete with majorities in the Congress. Still, it’s clear that Ms. Bachmann has spent little time examining her positions logically; perhaps it’s all that special interest money she gets that keeps her aiming partisan criticism at the very institution that writes her paycheck, provides for a very generous retirement, and – ironically enough – provides and pays for her health care insurance plan.
08.10.09
Aug 2009 Economic Recovery Reality Index up slightly to 16.03
Bolstered by a very slight improvement in the unemployment rate and average weekly earnings, since non-farm payrolls declined slightly, despite robust activity on Wall Street the Economic Recovery Reality Index (ERRI) crept up a modest 4.76 points over July 2009 to 16.03 as of August 7, 2009. Unemployment rates remained essentially unchanged among the major demographic divisions examined by the U.S. Bureau of Labor Statistics, and many experts still expect the overall rate to increase to 10%, in part because hiring necessarily lags other economic indicators.
Nonetheless, investors seem optimistic, some of the uncertainty surrounding the big 3 U.S. automakers has subsided, and stock markets reflect an increasing willingness to move funds back into equities over the past month. The ERRI is based in part on a weighted, hypothetical mid-cap oriented index fund (see below) which showed upward, yet uneven movement across the 10 sectors/industries being tracked. Solar technology and utilities lagged other sectors, which were led by investment in retail and cyclical consumer goods, with solid performance in basic materials and capital goods equities (construction, aerospace, etc.) Energy showed some investor confidence, while both financial and service sectors reflected substantive improvement in sentiment.
Average weekly earnings, which had fallen in June reflecting that wage earners continued to be under siege, showed a modest recovery during July by returning to the levels they had been at in May of this year. The increase in the number of “discouraged” workers is slowing – it has risen roughly 335,000 people over the past 12 months, but only 3000 were added to that number in the latest monthly figures, while the number of “involuntary part-time” workers declined slightly. (Discouraged workers are those not currently looking for work because they doubt jobs are available for them.) The bright spot in the figures may be Health Care, where employment continued to make gains – up about 20,000 jobs in July.
U.S. government unemployment figures are estimates based on a monthly survey of households. All persons who are without jobs and are actively seeking and available to work are counted among the unemployed, including those on temporary layoff are included (even if they do not actively seek alternative work.)
Note: The particular selections comprising the security/equity component of the ERRI (data below) were selected to track various sectors, not out-perform the broader U.S. equity markets. These are not investment recommendations, and should not be construed as such. The ERRI fund is an entirely hypothetical construct, and while the author and/or persons connected to the research and/or this website may at times hold positions in these securities, particularly via any one of a number of mutual funds, no representation is made as to the suitability of any given equity, sector, on investment strategy for the reader.
Further, while the hypothetical index fund component shows apparent growth of 23% when calculated simply against an initial cost-basis of $10,000 and an August 7 valuation of $12,298.41 it should be noted that the weighting of various sectors means the effective impact is approximately tantamount to only a 17.6% change, which is not evident in the raw data below. The ERRI fund calculation represents only investor sentiment to the extent stock market behaviors reflect this mostly professional group; domestic (and global) economic recovery depend heavily on wages and employment, as well as difficult-to-quantify public sentiment.
Data on the equities is presented “as though” an investment had been made in an “index fund” for the ease of comparison and understanding, but no such fund exists nor did any investment take place. Equity investments are volatile, particularly when not carefully diversified and monitored; the ERRI would have shown even less improvement had closing prices from even a day sooner been utilized in the calculations (since that would have reduced the “ERRI fund” improvement.) The third column in the table below represents the percentage change in the individual equity prices as of the close of the NYSE on 7 August 2009.
| symbol | 7 Aug 09 close |
% +/- |
index value |
Sector | Industry |
| EMN | $ 52.73 |
+43.09 |
1,423.71 |
Basic Materials | Chem. (Plastic & Rubber) |
| HON | $ 36.38 |
+16.68 | 582.08 | Capital Goods | Aerospace & Defense |
| CAT | $ 47.78 |
+49.64 | 716.70 | Capital Goods | Constr. & Agric Machinery |
| FDML | $ 14.98 |
+54.91 | 1,542.94 | Consumer Cyclical | Auto & Truck Parts |
| HQS | $ 9.09 |
+8.60 | 1,081.71 | NonCyclic Consumer | Fish / Livestock |
| BBEP | $ 8.73 | +19.26 | 593.64 | Energy | Oil & Gas (Integrated) |
| PZE | $ 7.02 |
+17.39 | 582.66 | Energy | Oil & Gas (Integrated) |
| AIB | $ 5.88 | +28.38 | 423.36 | Financial | Money Center Banking |
| CMA | $ 27.61 | +26.42 | 414.15 | Financial | Regional Bank |
| FITB | $ 9.71 | +37.54 | 456.37 | Financial | Regional Bank |
| CCI | $ 28.11 | +15.87 | 562.20 | Services | Communications Srvcs |
| JWN | $ 30.30 | +50.67 | 727.20 | Services | Retail (Apparel) |
| FSLR | $146.47 | +3.48 | 1,025.29 | Solar Technology | Semiconductors |
| RIMM | $ 77.09 | +16.49 | 539.63 | Technology | Comm. Equipment |
| PLXS | $ 26.58 | +23.11 | 611.34 | Technology | Electronic Instr & Controls |
| POM | $ 13.91 | +2.73 | 1,015.43 | Utilities | Electric |
Disclaimer: Readers are advised that the ideas, materials, and opinions contained herein should be used solely for informational purposes. The author does not purport to tell or suggest investment securities that should be bought or sold. Investors should always conduct their own research and due diligence and obtain professional advice before making any investment decision. Neither the author nor realitytax shall be be liable for any loss or damage caused by a reader’s reliance on information obtained in any posts, newsletters, special reports, email correspondence, or comments on the web site. The author is not a registered investment advisor or broker/dealer. The information contained herein does not constitute a representation by the publisher or a solicitation for the purchase (or sale) of securities. Opinions and analyses are based on sources believed to be reliable and are written in good faith, but no representation or warranty is made as to their accuracy or completeness, and we are not liable for errors or omissions. All such information should be independently verified with the companies mentioned. The author(s) receives no compensation of any kind from any companies that may be mentioned on this web site. Any opinions expressed are subject to change without notice. Owners, employees and writers may hold positions in the securities that are discussed; the intent is neither to suggest investment choices/strategies nor to influence market conditions, but rather to divulge methodology for inclusion of equities and sectors in the Economic Recovery Reality Index [ERRI]
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