July 21, 2009

Give me a week of quiet to think and my brain overflows. Getting all this down on paper seems therapeutic.

Health care reform is again in jeopardy. The economy is in a very fragile early stage recovery. Anything that impacts income negatively could derail the recovery. Increases in taxes by local, state or federal governments are a real show stopper.

Foreign demand for US Bonds, a principle source of funding for spending not covered by taxes, is in a decided decline. Foreigners are afraid of an inflationary devaluation of the US Dollar. Do they have good reason to suspect that it will become our only option if we continue to spend on new programs?

Perhaps health care reform, real and meaningful reform, which I personally favor, may have to wait until we get the economy back on track. The glory days of the 1950’s and 1960’s were a function of pent up demand from the great depression and WWI & WWII. Europe and Japan were largely destroyed so global competition wasn’t a real factor. In the 1950’s “made in Japan” meant use it once and throw it away. Here at home we were implementing technologies that were developed in war time and productivity growth was enormous.

Today is a very different story. Japan, China and Europe are rebuilt providing modern production options with quality and reliability equal to or better than our own. Today there is no pent up demand around the world anxious to replace things destroyed by war or made unavailable by the war effort. Remember, no cars were produced in the United States in 1942 – 1945. All the factories were producing tanks and military vehicles. There were no imports available at that time either.

We have used strings, mirrors and smoke to stretch our seeming prosperity since the 1970’s. Tricky Dicky Nixon was in charge when we went off the gold standard (one troy ounce of gold = $37USD). Today gold is trading at $952 per ounce. That is some serious inflation in just 30 years. What the future will bring is anyone’s guess. Those people who sell Gold based investments keep saying things like $2000 or $2500 per ounce. They have a self interest motivation for such speculative statements. Still, I wonder. The growth in gold since we dropped the gold standard has been about 12% per year compounded (not in a straight line, of course). But what if that continues into the future? Where will gold be in 2039 (thirty years from now)?

Taxing the rich is an interesting and time honored tradition. What is interesting is that, since women joined the work force in large numbers, the gap between rich and poor has widened. The expression “birds of a feather” comes into play here. Women with education tend to marry men with education. Education has a high correlation with income. Therefore it can be stated that women with high earning potential marry men with high earning potential and conversely women with low earning potential tend to marry men of similar potential. (I believe the gay community mirrors the straight community in this regard). Thus the gap in income is magnified. Large gaps tend to create a "them and us" society which can be a volatile problem. Remember the race riots of the 1960’s?

The moral and political question is how to shrink the gap. Do you tax the wealthy and give to the poor "the Robin Hood syndrome", or do you tax the wealthy and spend more on education programs and incentives to reduce the income gap forever? One is a more politically expedient method and the other longer term but more lasting and sustainable. To date we have been working, it seems, with a foot in each camp. Low income earners pay no taxes and get money (EIC credit etc) from the government (which it collected from the richer of our citizenry). School spending per student is amongst the highest in the world yet the results are abysmal. Perhaps it is not how much we spend but how we spend it. Again, politically charged decision making. Which programs are working and which are not. No child left behind was a well intentioned program. Are its results supportive of continuing or should we admit error and move on to a new idea? Should charter schools be continued and even helped to grow? Are they more effective at educating people? What percentage of our resources should be spent helping children with learning disabilities and what percentage should be spent on the brightest, most gifted children? Should schools be allowed to discriminate based on ability? How can we judge in a fair and unbiased way?

I don’t have answers, just questions. Questions I hope you have and are concerned about too. I want to hear the answers proposed by our elected officials in clear and unambiguous terms so that we can judge their motives...and their results in the voting booth.