Author: Patrick Hill Page 2 of 18

(Editor Note: This is the second post in a series on renewing the institutions of our federal government and democracy to ensure that it will endure. Looking at trends today with data, analysis of the present situation and recommendations for changes. Todays post focuses voting rights being made universal for all states without state manipulation of the voting process or access for all eligible voters.)

Over the past ten years 23 states have passed laws to restrict voter rights. Some states of have instituted cumbersome identification procedures, cut down pre-election day times to vote, added restrictions on mail in ballots, taken voters off the rolls for political reasons, and made voter registration more difficult.

Source: The Brennan Center for Justice – 3/5/19

Automatic Voter Registration (AVR) is a concept gaining momentum in many states, the Brennan Justice Center for Justice outlines their proposal in this way:

“First, AVR makes voter registration “opt-out” instead of “opt-in”— eligible citizens who interact with government agencies are registered to vote or have their existing registration information updated, unless they affirmatively decline. Again, the voter can opt-out; it is not compulsory registration. Second, those agencies transfer voter registration information electronically to election officials instead of using paper registration forms. These common-sense reforms increase registration rates, clean up the voter rolls, and save states money.”

The plan would automatically use registration information at a state agency for eligible voters to be registered to vote: for example, when 18 year old goes to the DMV for a driver’s license their registration information would electronically be sent to the Secretary of State and their name added onto the voting rolls where they live. Citizen interactions with other state agencies where registration is required would follow a similar procedure.

The House of Representatives has just passed HR 1, a comprehensive voting rights act making voting registration, rights, procedures, identification, pre-election day voting, public funding of candidates, tax returns by candidates for President and Vice – President, election day a federal holiday and other innovations to bring our voting process into the modern age, here is a summary of the bill from the House website:

“This bill addresses voter access, election integrity, election security, political spending, and ethics for the three branches of government.

Specifically, the bill expands voter registration and voting access, makes Election Day a federal holiday, and limits removing voters from voter rolls (and automatic voter registration).

“The bill provides for states to establish independent, nonpartisan redistricting commissions.

The bill also sets forth provisions related to election security, including sharing intelligence information with state election officials, protecting the security of the voter rolls, supporting states in securing their election systems, developing a national strategy to protect the security and integrity of U.S. democratic institutions, establishing in the legislative branch the National Commission to Protect United States Democratic Institutions, and other provisions to improve the cybersecurity of election systems.

This bill addresses campaign spending, including by expanding the ban on foreign nationals contributing to or spending on elections; expanding disclosure rules pertaining to organizations spending money during elections, campaign advertisements, and online platforms; and revising disclaimer requirements for political advertising.

This bill establishes an alternative campaign funding system for certain federal offices. The system involves federal matching of small contributions for qualified candidates.

This bill sets forth provisions related to ethics in all three branches of government. Specifically, the bill requires a code of ethics for federal judges and justices, prohibits Members of the House from serving on the board of a for-profit entity, expands enforcement of regulations governing foreign agents, and establishes additional conflict-of-interest and ethics provisions for federal employees and the White House.

The bill also requires candidates for President and Vice President to submit 10 years of tax returns.”

Senate Majority Leader McConnell, denounced HR1 as a ‘power grab’, which seems dismissive of a way to effectively bring our voting processes into the modern age and make voting more democratic rather than manipulated by a controlling party in the state to enhance the turnout of their voters over others in elections.

It is about time we had universal voting rights, processes and programs across all our states to ensure that voting is accessible by all citizens regardless of ethnicity, race, religion, or wealth.

Our next post: will focus on congressional districting, crucial to fair elections.

(In a series: on key topics for renewal of our democracy; voting rights, corporate power and reform, Electoral College reform, congressional district reform, Congressional reform (not three presidents) (campaign finance reform), using the Internet and high tech (AI is a common good) to strengthen democracy, innovative government program implementation using Silicon Valley model, support of the Press (our Fourth Estate), educational reform, ethical government service, finance and stock market reform, land and home ownership, environmental stewardship, citizenship and service, civil discourse (choose our words), using evidence to pass laws and create policy, and our global leadership role.)

Saving Democracy: Renewing Our Government Infrastructure v2.0P

By Patrick Hill

On March 8, 2019

In Civil Discourse, Climate Change, Common Good, Democracy, Saving Democracy - Intro, Uncategorized

“We can’t have an economy that works for all if we don’t have a democracy that works for all.” TPE, Editor, Patrick Hill

By returning political power to the people then economic opportunities can be once again be made available to all. Why is this reform and rebuilding effort important? Because the people don’t trust their government. If citizens don’t trust their democratic institutions to do the right things for them, they will turn to demagogues who use hate, fear, divisiveness, pride, and power to weld control over the people to gain wealth and power for themselves. Here is a poll from NPR/Marist on the trust people have in various forms of U.S. government:

Congress comes in dead last of all the major institutions, with the Military first and the Supreme Court second (though as the court becomes more politicized this level of trust may change). The Presidency under our present POTUS has not helped in terms of trust, since he was not elected by the majority of people falling almost 3 million votes short and then proceeded with policies that only appeal to his minority base. People inherently believe the majority person or policy should win. In our 2016 presidency election the majority candidate did not win, so the majority opinions are not represented in the Executive branch. The Executive branch starts out with a lack of support, trust or mandate to govern. Our government by the people for the people and of the people can only survive if people have trust in their government. What is even worse is the level of confidence Americans have in their government to handle international or domestic problems has dropped significantly:

One month after the 9/11 tragedy the American public rallied around their government and leaders to provide protection and bring the perpetrators to justice. Since 2001, the confidence the public has in their government to handle problems has declined to a 18 year low.

One reason trust is so low is the government actually does not represent the people when it comes to passing laws in accordance with citizen opinions, needs and condition. Professors Martin Gilens, at Princeton, and Benjamin Page, at Northwestern examined thousands of opinion poll surveys from 1981 to 2002, and grouped them based on the top 10 % in income versus the bottom 90 %. Then, they reviewed 1779 policy proposals versus the opinion surveys and found the elite saw 76 % of their opinions reflected while the general public only 3%. Special interest groups gained 56 % of their positions reflected in policies. It is little wonder that the general public is frustrated with their federal government.

Democrats, Republicans, and Independents need to step back a moment, or a year and think about our democracy first and their policies second. The most salient aspect of politics since the 1980s is the ascendency of corporations, the wealthy and special interest groups gaining and sustaining power in Washington supported by both major parties. At the same time wages for the working class and 80 % in income have basically stagnated on a real wage basis. Our government needs to work for everyone: conservative, liberal, immigrant, native born, poor or wealthy. We need more government processes focused on building consensus rather than the predominant government, Internet and media processes fanning the flames of division. Division is freezing our ability to move ahead and even look ahead 10, 20 or 30 years to solve problems before they become too immense to solve without great loss of life or economic damage. The fact that we cannot seem to make the right legislative, corporate decisions or encourage environmental sound citizen behaviors to save our planet is evidence enough of the breakdown of our democracy to solve real problems. Are these problems solvable? Yes, but only if we work together bringing the genius of our diverse people to focus in effective ways to solve those existential issues we face. There are so many narratives that are disconnected, people talking past each other. We need to connect the narratives and arrive a one narrative that the majority of Americans can support on each major issue.

Our next post: will focus on voting, the heart of our democracy.

Trust in the Federal Government at 20 Year Low

By Patrick Hill

On February 22, 2019

In Civic Virtue, Civil Discourse, Common Good, Heartland Economics

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us. Please right click on images to see them larger in a separate tab. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)

To build the common good, we need to have our citizens feel that their government is functioning well enough to handle domestic and international problems. A trust peak of 83 % was made in 2001 right before the 9/11 event where the public trusted the government a ‘fair amount’ to handle international problems slightly less for domestic. Gallup reports that in January 2019, the figure for trust to handle international problems had sunk to 35 %, with domestic slightly higher at 41 %.

Sources: Gallup, The Wall Street Journal, The Daily Shot – 2/

This is a crisis in public trust for sure. Government took a big hit in trust with the Nixon Watergate scandal, the Bill Clinton impeachment and finally the 9/11 terrorist attack. Do we feel our government can handle a fast moving international world that is increasingly dangerous to U.S. interests and people? Domestically, the civic dialog has sunk to a new low in lack of civility and respect, largely due to the example of our President.

How do we restore the trust so our government can function the way it needs to in protecting our freedoms, ensuring domestic tranquility and equal opportunities? Trust can be strengthened by government becoming more responsive and transparent in its functioning. We need sunshine laws that require Congress disclose all appointments during the day, who they meet with and the interests or corporations they represent. All senators and representatives need to hold regular Town Hall meetings to listen and understand the needs of their constituents while respecting differences. On a national level we need a President who will show through his example how to listen to others, use inclusive processes, research and science in making policies.

For groups feeling left out of the economic mainstream; in our core inner cities, Midwest and rural areas of the South, government needs to be engaged in actively solving their problems. Government falls short by implementing band-aid programs that do not go to the heart of issues: like the opioid epidemic which strikes rural communities twice as hard as coastal areas. We have proposed a Heartland Venture Marshal Plan to invest in a variety of infrastructure needs in the Midwest including: healthcare, upgraded digital Internet access, job training, improved college access, apprenticeships and self-renewing economic systems similar to Silicon Valley’s innovative infrastructure. Internationally, our country needs to rejoin the democracies of the world by supporting the Paris Climate Accord, strengthening NATO, supporting the U.N., treaties with Russia on nuclear missiles and the Iran nuclear agreement. We need to overall treat our allies as partners and our adversaries warily. It is time to make the changes before a major crisis domestically or internationally forces our government processes to change possible in ways that a poorly designed and thought through.

Corporations Need To See Themselves As A Member of the Community

By Patrick Hill

On February 15, 2019

In Common Good, Corporate Power, Corporate Reform

Amazon announced last Wednesday that they were pulling out of the deal to locate a second corporate headquarters in Queens, New York City. The company pledged thousands of jobs, hiring of local contractors and to develop state of the art technology campus to revitalize the neighborhood. To lure the huge firm to New York, Gov. Cuomo and New York Mayor de Blasio offered over $3 billion in tax and other incentives. Local politicians were blindsided by the incentive package triggering grassroots opposition. Amazon only allocated one person to work with local groups, who did not move into the area until the last few weeks. Too little local focus too late.

Let’s look at the real issue, the company coming in from Seattle is an outsider. To become a member of the community it needs to start with local leaders, interest groups and those possibly displaced by the move in. Plus, the company executives had to realize there would be blow back about the incentives in a community that is concerned with affordable housing, healthcare and jobs for all levels of income not just high paid tech workers. The neighborhood leaders are going to be suspicious of an outsider to begin with, then add the huge corporate power of Amazon and the fight was on. Local politicians saw this move in as an example of big corporations taking advantage of local communities to make more profits for itself at the cost of taxpayers. The $3 billion dollars will not be spent on local programs, healthcare, job training, or affordable housing the community needs.

Executives should have realized they are joining a community, and needed to win over local leaders just as a resident might move into a new neighborhood and make friends with the neighbors first before building a monster home (changing the design to be acceptable). Companies are used to being able to get their way, make profits at the cost of local communities and not worry about the politics. Those days are over, the political tide has shifted from worshipping corporations to seeing them as having all the laws, rules of markets and labor go their way for the last 20 years. Including, millions of dollars corporations spend on lobbyists in Washington to ensure they maintain their advantage over citizens in the halls of power.

Companies have to see that they must design their corporate policies, programs, and worker relationships to build the common good. The common good can support companies taking initiative, innovating, and sharing their wealth, while still providing a good return to shareholders. Executives that balance the needs of the community with their requirements to make reasonable profits will be the most successful, others will find arrogance will lead to fights, lawsuits and new laws eventually hitting the bottom line.

The Big Myth: Stock Buybacks Boost the Economy & Create Jobs

By Patrick Hill

On February 12, 2019

In Corporate Debt, Corporate Power, Corporate Reform, Productivity, Stock Buybacks, Uncategorized, Worker Wages

After the recent NY Times op-ed by Senators Bernie Sanders and Chuck Schumer to require corporations share profits with workers before stock repurchases, there has been a lot of confusion about how stock buybacks work and their impact on the economy. Let’s clarify how share buy backs work first.

Corporate stock is bought and sold in open markets between a buyer and seller. On any one day the share price moves up or down depending on the demand for shares between a buyer and seller. Corporate executives can manipulate the price of shares by reducing the pool of shares on any trading day, according to SEC rules up to 25 % of the daily volume and not executing a repurchase within the first 30 minutes of the open or the close. If shares are taken off the market on any one trading day, posted to the books of the company those shares are effectively taken out of the market and if demand stays the same the price goes up. Of course, the share price can go down as well, if demand drops on the repurchase day.

Stock buybacks cause misleading reports on earnings per share. A simple example, if Gigantic HiTech has profits of $1 million for the quarter and 1 million shares are outstanding in the market, then the EPS is $1.00. However, if the firm purchases 100,000 shares during the quarter and takes them off the open market the total number of outstanding shares is reduced to 900,000 artificially boosting EPS to $1.11 or 11 %. The company has not increased profits during the period they have just reduced the number of shares outstanding and report the EPS figure in non GAAP reports. GAAP reporting requires EPS be calculated on the number of outstanding shares before repurchase.

So, the dollars spent on stock share repurchases do not go into ‘jobs, the economy or re-invested’ the money is spent on goosing stock prices. The SEC in 1982 prior to the Safe Harbor policy that allows for stock repurchases called corporate stock repurchasing ‘stock price manipulation’. From 1982 to today the policy allowed corporations to execute market stock purchases and not be held liable in shareholder lawsuits for price manipulation. Plus, companies only had to report open market purchases each quarter voluntarily. Effectively, the SEC gave companies the green light to drive stock prices anyway they wanted. Just because time has gone buy that does not change the manipulative character of the stock repurchase practice.

How big a problem is it? Goldman Sachs estimates that $940 billion stock repurchases were made in 2018, and they continue to forecast a similar figure for 2019. Major players in FAANG stocks repurchase billions of dollars of shares supporting stock prices. Forbes estimates that Apple spent $100 billion in share repurchases in 2018. CNBC calculated a year ago that Apple share prices were inflated by as much as 20 %. Between 2015 through 2017 S & P companies spent 60 % of all profits on stock buybacks, according to Forbes.

So, where else could they be spending the money instead of driving stock prices up and increasing the compensation of executives? On employee wages, but wage increases are not happening, interestingly since 1982 when the SEC Safe Harbor provision went into effect real wages have declined.

Source: Global Technical Analysis – 2/5/19

Real wages after inflation have continued to decline when allocated across all persons employed. Bankrate surveyed 1,000 workers at all income levels last year finding only 27 % received raises. Corporations are not increasing wages even to keep up with inflation.

What about capital expenditures are they up? No. With all the pronouncements of executives that they are investing in their companies to increase innovation and productivity they are in fact not performing, here is the analysis of business investment as percent of GDP since 1998:

Sources: The Wall Street Journal, The Daily Shot – 11/9/18

Note the declining business investment line in the chart from 4.5 % of GDP in 1998 to 2.5 % in 2018, a 44 % reduction.

Maybe corporations are still increasing productivity anyway so they can afford to do stock repurchases? No. Productivity continues to stall. The following chart shows total factor productivity (TFP) since 1948, the long term average is the green line from 1948 to 1971 versus 1972 to today red line today, plus growth in productivity is close to zero:

Sources: San Francisco Federal Reserve, Real Investment Advice – 1/16/19

Executives have made decisions about how to allocate profits that are not increasing productivity, raising wages, hiring workers or reducing prices. Our economy and our workers are the losers while executives and the wealthy elite who own stocks profit from these short term decisions.

Next Steps:

Do executive decisions on profit allocation really affect workers and consumers? Yes.

GM last year announced the closing of their Lordstown plant and the layoff of 15,000 workers due to a shift in consumer buying to trucks and misallocated investments in poor selling product lines. Yet, since 2014 GM spent $13.9 billion in stock repurchases according to the Wolf Report. GM could have spent that money on employee training, shifts in product development, the phased closing of plants and phased in building of new plants and likely would not have had to resort to massive employee layoffs.

Mylan announced 18 months ago a 584 % increase in the price of EpiPen’s used in life – death situations to counter act food allergy shock. At the same time Mylan executives took care of themselves first with over $1 billion in stock repurchases to drive stock prices up. Analysts evaluated the product cost of goods and assembly for EpiPens and estimated it cost Mylan about $2 billion to manufacture, so the $1 billion could have gone toward reducing the cost of the EpiPen by 50 %.

In both examples corporate executives took care of themselves first, and their employees or patients second. This profligate management of profits from customers and patients was not allowed prior to 1982. Corporate executives have a social and ethical responsibility to allocate funds in the balanced interests of the company, employees and the community

Executives are executing stock buybacks at the cost of sound financial management as well. The debt to cash ration of S & P 500 corporations is at 18 %, a lower level than at the 2008 recession. When the economy slows corporations will be squeezed between debt loads, operating costs and low cash reserves.

Sources: Wells Fargo Investment Institute, Factset – 2/14/19

Our economy continues to decline as GDP shrinks year over year, in part by trillions of dollars being wasted on stock repurchases instead of being invested in worker training, wages, capital equipment and research and development. A trillion dollars is 5.26 % of the U.S. economy shifting buy back dollars could have a huge impact. Corporate executives have magnified the problem by borrowing money at low interest rates to keep stock repurchases going even when profits lag. Today, corporate debt is 45 % of GDP at all time high inflating the economic bubble.

Sources: St. Louis Federal Reserve, Real Investment Advice – 2/21/18 (recessions in gray)

A reduction in corporate borrowing to inflate stock prices would go a long way toward putting the economy on a more solid business foundation. A major SEC policy shift ending stock buy backs would need to be phased in as a percentage over several years to allow markets to adjust, yet if we are to build an economy that works for all we need to end this misleading, damaging and costly practice.

Hundreds of Thousands Of Lives Disrupted Needlessly Because of Lack of Evidence Based Government

By Patrick Hill

On January 25, 2019

In Civic Virtue, Climate Change, Common Good, Conflicts of Interest, Democracy, Entrepreneurship, Families, GOP Administration, Immigrant Contributions, Uncategorized

Thirty five days ago the GOP held control of both houses of Congress and the Presidency and yet an ill-advised policy based on ignorance was allowed to hold 800,000 federal works hostage. How did this happen? Majority Leader McConnell, Leader Schumer, Speaker Ryan and Minority Leader Pelosi all agreed just before Christmas to extend a spending bill for a few weeks enabling the federal government to keep running while discussions were pursued on a Border Wall. POTUS went along with this plan and told Majority Leader McConnell he would sign the extension bill. Yet, that evening POTUS started listening to commentators from his far right base – changed his mind and demanded funding of $5.7 billion for a wall or he would as he said a week earlier ‘take pride in shutting down the government’. The Border Wall idea has no solid evidence to support that it would work to stem the tide of drugs of which 90 % come through ports of entry, drug leaders and gangs who fly over the border. PBS sent a reporter to the border near Nogales, Arizona to gather real data on what was actually happening at the border. He found that people on the border did not want a huge wall except for sections of see-through barriers in cities, yet wanted more border police, more access roads and surveillance technology. Speaker Pelosi made an excellent point in her press conference today, after POTUS caved when it was obvious the shutdown was causing real harm to many Americans, plus federal workers and their families. She declared, ‘we support more border security measures, that are evidence based,’

Her focus on evidence based policy was music to our ears. When was the last time during this GOP administration have we heard that policy would be ‘evidence based’ (with real facts not made up ‘alternative facts’)? The EPA has moved quickly to shift policy making processes to not use scientific based reports or data in making policy decisions. Immigration policy is based on scapegoating of Muslims, Mexicans, and Central Americans instead of the facts. The facts are that new businesses are twice as likely to be started by immigrants, that when the Mexican economy thrived cross border immigration fell dramatically and that majority of immigrants fill jobs that most American workers don’t want to do. Canada has looked at their trend of an aging population and declining workforce. To build the size and skills of their labor force for the future they are welcoming immigrants – we should be doing the same thing. Our population is aging quickly, so without an immigrant influx of entrepreneurs and workforce we will be faced with a stagnant economy looking much like Japan’s.

The effectiveness of modern medicine was revolutionized when evidenced based medical practices and research was implemented as a standard clinical practice in the 1960s. Businesses today use Big Data analysis, models, forecasting and innovate new products based on data, research and analysis before making investments. The dramatic increase in our standard of living is based on innovative processes in universities, businesses and financial services all insisting on ‘getting the data’ first before making proposals or investments.

We should accept nothing less than evidence based government. We are behind by 20 years on combating the effects of scientifically proven climate change. Our future will depend on making intelligent decisions based on evidence to implement sound policies and investments to ensure the existence of humanity.

Midwest Hit With Tariffs & Shutdown Adds to Years of Recession – Needs A Heartland Venture Marshall Plan

By Patrick Hill

On January 17, 2019

In Families, Farmers, Heartland Economics, Mobility, Opioid Crisis, Tariffs, Uncategorized

Midwest farmers are declaring bankruptcy at a rate not seen since the Great Recession. As prices for corn, soybeans, milk and corn decline to decade lows, the Minneapolis Federal Reserve reports that Chapter 12 bankruptcy filings in 5 states of the Ninth District.

Sources: United States Courts – Fed Ninth District, Federal Reserve Ninth District, FedGazette – 11/14/18

The Federal Reserve notes that based on the level of bankruptcies and the trajectory of the increase that bankruptcies will only increase. The government shutdown is exacerbating farmland pain. The Trump administration announced last summer $12 billion in farmer subsidies. But, because of the shutdown many farmers applying for subsidies and loans to plan for spring planting are not receiving the money they need. Many farmers and agriculture businesses are affected by the Department of Agriculture shutdown versus coastal states as shown below.

China turned to Russia and Brazil for soybeans in particular in the 4^th Qtr of last year. US sales to China dropped to almost zero. As a negotiating tactic, China last week did pledge to buy more soybeans as traders in Chicago noted last week an increase in sales orders. However, when China switched purchases to major suppliers last year it will be difficult for US farmers to unhook those deals already in place. As one farm owner noted, “ it just seems like it’s one thing after another, over and over.”

Heartland challenges have actually been going on for years even before the Great Recession with the loss of millions of manufacturing jobs since China joined the WTO in 2000. The rural regions of the country have seen their wages grow at half the rate of metro areas. The opioid epidemic has cost thousands of young workers future careers, unemployment is twice what it is in the East and West. The digital internet infrastructure in rural areas is quite often at analog rates 4 times slower than broad band. Companies are at a disadvantage versus their metro competitors with slow bandwidth. Rural region hospitals are closing at an increasing rate leaving many rural people with hundred mile or more drives to the nearest emergency room. Life expectancy in Mississippi is the same as Libya. Heartland America has been left out the metro mainstream economy for the past 20 years. Our post – The Hallowing Out of Heartland America shows how rural regions have fallen behind in many infrastructure areas including: healthcare, Internet bandwidth, jobs, education with limited upward mobility for young people.

Next Steps:

The Heartland Venture Marshall Plan is similar in concept as the Marshall Plan deployed by the U.S. to rebuild the infrastructure of Europe after WWII, but instead of a government bureaucracy the Silicon Valley style innovation venture model is used. Venture development is designed to start small, build on successful prototypes and use multiple sources of funding to gain as much support as fast as possible to make the venture a success. Failure is part of the success fast, try several prototypes, do it, tweak it, try it again until it works or achieves the goals we set for the venture.

Here is a summary of the idea from our post of September 2017:

“We propose building a startup non-government organization. We are recommending a different approach by the Federal government to act as an investor in a non-government organization called a Heartland Development Center. An HDC acts as a central hub of critical services and infrastructure development while providing a continuous innovation system. The Heartland Development Center acts as a catalyst creating an innovation ecosystem to jumpstart local economics and social structures. HDCs would focus on all the key issues that a region needs to address to rebuild their economy and people’s lives: business formation, education and training, digital infrastructure, affordable housing, engaged local innovation media and health care.

The Federal government would seed the financing of these NGOs in key regions with additional funding from local and state governments, and major corporations who would benefit from the newly available job force tuned to their needs. HDCs would be ‘startup’ organizations installed at Land Grant universities bringing in leaders in their respective fields – ie. business formation – Y Incubator, preventive health – Cleveland Clinic, or training – Opportunity@Work as contractors to the HDC. These NGOs would establish continuously renewing innovation processes to stay in touch with their citizen – customers and businesses. Administration services would all be contracted using cloud software services for HR, Payroll, Training, Benefits and other internal systems to keep costs down. The HDC startups would be piloted in 3 non metro areas, where they would tune their business and socio economic models for maximum impact, then use those working models to implement HDCs in 25 or more other key regions for 5 – 10 years.”

Economists see the opportunity to invest in rural regions to jump start a part of the economy in innovative ways. Joseph Stiglitz, nobel prize winning economist for example advocates turning blue collar rural areas into ‘green collar’ hubs focused on developing innovative environmental technologies, systems and services.

Congress sees the need as well, as Congressman Ro Khanna – D-17 California is working on legislation patterned after the land grant college Morrell Act of 1862 to make an investment in technology job development in rural sections of the U.S. Khanna has supported computer programming training in West Virginia and toured the Midwest with Silicon Valley executives and venture capitalists to encourage investments in the Heartland. He points out that there is no need to send jobs to China, Brazil or India when there are people in our Heartland who can do those jobs well and at lower cost than expensive coastal regions.

There is one indicator of the desperation that many rural people feel is the fact that the opioid epidemic has a 50 % greater incidence in the Heartland than in our metro or coastal cities. We need to be building bridges through programs like the Heartland Venture Marshall Plan between our coasts and the inland empire to bring together our people developing consensus and shared experiences. Each HDC would be staffed by a equal mix of apprentice and college graduates from local rural education systems and metro university graduates. They would comprise a ‘Heartland Service Corp’ modeled on the AmeriCorp program with a benefit of complete forgiveness of student debt for two to four years of service depending on the debt balance. We would be building shared experiences of our young people to bridge the gap between inland and coastal cultures. These young people can innovate new opportunities to create an economic future that works for all.

Where Is the Common Good? Our Families is a Good Place to Start

By Patrick Hill

On January 11, 2019

In Civic Virtue, Civil Discourse, Common Good, Corporate Reform, Families, Uncategorized

Everyone has a mother and father (even if they are not living with them now). Many of us have brothers, sisters, aunts, uncles, grandfathers and grandmothers. How about looking at local, state and federal government policies and laws through the eyes of our families. Does this healthcare insurance make sense for families? Does it provide for services, drugs and care from birth to death? How can we build families as a unit of government services?

Families are really the basic unit of our communities. A household is in an apartment, or home with a set of family members – as those members define their household. For many there are multiple generations in a household, aunts, uncles, grandpa and grandma. Can we start with family as an economic unit too. How do we support those who have jobs in the household? Can we support multiple family members having jobs? For example with child care so that Moms can work if they want to. Can we have more women friendly corporate policies such that a women can move from home to the work world and back without losing pay or career opportunities. Why not have paid parental leave like most developed countries of the world?

Children in the household need an education in the household to survive in this world. Why not make pre kinder programs available for all families not just wealthy ones. Why not offer public education that is equal across communities not just rich ones getting the good teachers and supplies? Why not offer a college education or high quality apprenticeship programs to all children regardless of community at no cost to the family or limited cost. When are we going to invest in our children to the level that we did in the 1970s when states spent 3 or 4 times what they spend now secondary and higher education.

When a household job holder is out of work what happens? How can we support that person get another job, offer health insurance when they need it between jobs as no additional cost. When will we make companies that layoff workers do so in an equitable way along with manager and executive layoffs? How do we get equitable pay for employees that is at a livable wage instead of 300 % less than executive pay. In the 1950s executive pay was 50 % higher than the average worker, it worked then why not now. Instead of allowing corporations to take the money they make off the hard work of employees, and funded by customers to throw stock buyback money down the drain – take those funds and fund equal education for all or healthcare for all.

Family time together needs to be supported, in Europe they have the full month of August off to be together with their families or friends. Instead, US workers work the most number of hours in a year of all workers in the world. Germany does fine with an economy that provides a good standard of living for all workers and they have 5 weeks off each year.

Today we have the highest level of wealth concentration since 1929, we know what happened after that year, the stock market crashed, companies went of business, unemployment was over 20 %, many people starved. Unless, we take dramatic steps to share the benefits of our economy for all, it will crash again, causing great pain and suffering to many for 5 to 10 years as the economy rebalances wealth and reverts to the mean of wealth for the past 88 years. Throughout history, societies become prosperous, the rich take control of government and resources and eventually those that are left out revolt or the economic model becomes too top heavy to work and deflation, depression and decline takes place. Then, as wealth rebalances the industrious are rewarded again and the society begins to grow again on a solid foundation. That foundation is the family. There is another benefit to putting families first. We are actually all part of the same family of humanity, maybe when we put the focus on families we will treat each other with respect, understanding and civility.

Corporate Debt Bubble Increases Probability of Recession

By Patrick Hill

On January 9, 2019

In Corporate Debt, Corporate Reform, Debt, Economy, Employees, Stock Buybacks, Uncategorized

S & P 500 corporations have been borrowing money to buyback stock and increase dividends to investors. Increasing their debt bubble could increase the probability of defaults. Research shows that defaults spike when the corporate debt to GDP ratio exceeds 44 %.

Sources: Bloomberg, S & P, The Wall Street Journal, The Daily Shot – 1/9/19

When companies take on so much debt defaults become a real possibility when sales fall, or profits are squeezed as debt payments become due. Apple recently announced that iPhone sales were falling in China and has decided to cut production of all iPhones by 10 %. Apple has plenty of cash, but their suppliers may not. Fedex in December announced plans to offer domestic employees buyouts because ‘global trade has slowed in recent months and the company expects trade to slow further.’ We can expect more reduced earnings and sales guidance beginning next week when 4^th quarter reports begin coming in.

Sources: Gavekal Data/Macrobond, The Wall Street Journal, The Daily Shot – 1/9/19

When corporate debt to GDP ratios close in on 44 % or exceed that level recessions are likely to follow as the chart above shows. There is much discussion in the financial press about whether there will be a recession or not. It seems quite possible that record corporate debt combined with a likely fall off of sales in the 1^st quarter of 2019 due to pull up buying by companies in the 4^th quarter of 2018, will cause an economic slowdown or recession. The slowdown is made much worse by corporations overindulging in debt to finance stock buybacks and dividend distributions. Plus, turning around these companies will be more difficult as defaults spiral downward, more companies are forced to close or layoff workers. As workers are laid off they reduce spending, then reduced spending causes broad sectors of the economy to experience sales and profit declines.

Next Steps:

Where is the oversight of spendthrift management policies? Directors are likely on stock bonus plans too, so they enjoy seeing the stock price goosed by share buybacks. Where is a voice of moderation looking out for the long term viability of the company for customers, employees, shareholders and communities going to come from? We need a national dialog on how to improve corporate governance taking into account the needs of all parties represented to reign in profligate borrowing . Certainly, corporate executives did not start the trade war but they have borrowed way too much placing their firms in peril. It is management’s responsibility to look out for the interests of all effected by company success or failure.

Drug Insurers Reap $9 billion Windfall from Overestimates

By Patrick Hill

On January 7, 2019

In Corporate Reform, Drug Companies, Drug Pricing, Health insurance, Medicare, Uncategorized

Major drug insurers like United Health Group, CVS Health, and Humana make estimate bids to Medicare for reimbursement for the cost of Part D prescription drug benefits. From 2006 until 2015 the Wall Street Journal examined industry records and found that insurers reaped an additional $9 billion from overestimates of drug insurance costs.

Sources: Centers for Medicare and Medicaid Services, The Wall Street Journal – 1/4/19

From 2010 to 2017 overall Part D spending rose faster than all other Medicare components by 49 %. The bids from insurers include their profit margins and administrative costs. Medicare reimburses the firms monthly. When the year ends, Medicare audits the estimate totals versus the actuals and requests the overpayments be returned. However, the way the payment terms are setup the insurers are not required by pay the full amount of the overestimate. In 2015 insurers overestimated their Part D costs by $2.2 billion and were allowed to keep $1.06 billion.

The size and continuous overestimate pattern seems unusual. The overestimates are extraordinary to the tune of a million to one according to Memorial Sloan Kettering analysts who completed record examinations for The Wall Street Journal. Peter Bach, director of Sloan Kettering’s Center for Health Policy and Outcomes, noted, “Insurance companies use heaps of data to predict future spending. If truly unpredictable events were blowing up their statistical models, the proportion of overestimates to underestimates would be closer to 50/50.” Dr. Bach concluded, “If they start missing in one particular direction over and over they are doing it on purpose.”

The chronic overestimates are particularly a problem in the direct subsidy part of the program as the following chart shows versus the reinsurance program where estimates are far more accurate.

Sources: Medicare, The Wall Street Journal – 1/4/19

Congress designed the program in 2003 where the federal government and seniors would pay for drug insurance while the program would be operated by private companies. Legislators were concerned that insurers would not want to participate so they allowed for companies to hold back overestimated reimbursement funds. The private companies bear all the risk in the direct subsidy program, yet in the reinsurance program for high cost drugs Medicare bears the risk on underestimates causing losses.

Insurers can gain major benefits by overestimating on the routine drug costs they cover. Companies can keep any overestimated funds up to 5 % of their guess. In some cases they can keep more than 5 % based on a Medicare formula. Medicare steps in if the insurers experience a greater than 5 % loss in their estimate.

Next Steps:

From 2006 to 2015 Medicare spent $652 billion on the Part D program, with its cost increasing by 49 % over that period. Costs must be controlled by private insurers to keep premiums low for seniors and cost overruns limited for the federal government. There is too much reward built into the present direct subsidy program. Why not do as many corporations do for contracts that estimate costs and then must be reconciled at the end of the year? Return all the funds that are overestimated. Chronic overestimating companies would be hit with a penalty for overestimating reimbursement based on the opportunity cost of funds over reimbursed monthly payments. Medicare should reward the accurate estimating companies with positive ratings on their prices, and make clear who the violators are. Making the programs more competitive would bring down costs and require that companies be more accurate in their drug reimbursement estimates.

We see the pricing of drugs via insurers and pharmacy benefit companies as being too opaque to clearly design a fair pricing system. Congress needs to pass a ‘simple pricing’ sunshine bill to make drug pricing clear and accurate for all consumers and the government. Medicare should be able to use its leverage covering millions of seniors to negotiate a reduction in drug and insurance costs. California announced today a policy just signed by the newly installed governor, Gavin Newson, authorizing the California Medicaid administration to negotiate drug prices for all 13 million patients enrolled as a block and invites private employers to join the block. Drug companies and insurers need to shift their focus to make pricing programs more equitable for patients and payers or the face increased calls for price regulation.

insights and analytics to build an economy that works for all

Author: Patrick Hill Page 2 of 18

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