The Progressive Ensign

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Category: Corporate Reform (Page 1 of 3)

Corporations Need To See Themselves As A Member of the Community

Photo: target.com

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

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.

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

(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.)

Image: takemyhandcoaching.com

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

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Image: knowledge.wharton.upenn.edu

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 4th 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 1st quarter of 2019 due to pull up buying by companies in the 4th 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

Photo: healthinsurance.org

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.

Only 27 % of Workers Received Raises in Past Year

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. 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.)

Photo: fortune.com

Last month, Bankrate.com completed a survey of 1,000 workers from all income levels across the U.S. and found that only 27 % of existing full time and part time workers had received wage increases. For all the recent news about wage inflation, from the worker perspective they just aren’t seeing the wage increases.  The wage inflation reported by government surveys is an average and does not take into account income levels.  The higher paid workers are getting the raises so the average moves up.

Sources: Bankrate.com, Marketwatch – 12/14/18

If a worker changed jobs then the pay raise figure rises by 5 %, though from our perspective that still seems low.  When  workers change jobs shouldn’t they be receiving a raise in this tight labor market?  This trend seems to indicate that wage leverage for workers is still quite low compared to the power businesses have over wage increases.  As we have noted in the past businesses enjoy leverage over workers by automating jobs, Internet access to hundreds of candidates nationwide and outsourcing of non-core functions.  Plus, executive power is increasingly concentrated with mergers and acquisitions cutting down the number of competitors that workers can chose to work.

Pew Research reports most pay raises going to the top 10 %,while non-supervisory and production workers barely received any wage increases.

Sources: U.S. Bureau of Labor Statistics, Pew Research – 8/7/18

Real wages (taking into account inflation) have risen 4.3 % since 2000 for the lower quarter in income. Yet, for the top 10 % wages have increased by 15.7 % or $2,112 per year. Some of the pressure employers feel is from increased health insurance costs and adding non-wage benefits to keep pace with competitors.  The reality is that wages are what workers have to use to make the majority of their payments for housing, food, and necessities.  Plus, wages for the top 10 % keep going up anyway, so why don’t workers get the same rate of wage increases?

Wage stagnation has been happening for years.  Since 1964 an analysis of wages for production and non – supervisory workers by Pew Research shows that today’s wages have just not kept up with inflation.

Source: U.S. Bureau of Labor Statistics, Pew Research – 8/7/18

Next Steps:

For all the discussion in the financial media about a wage inflation spiral the reality is that structurally workers in the lower 80 % income bracket are not getting their fair share of the economic pie. While, there have been federal laws proposed for limiting CEO pay Portland, Oregon has passed a law with a limit for executives at 150 % of worker pay or tax penalties are paid. Regulating pay in this way seems to be micro managing pay scales. However, we have a fundamental issue with pure capitalism of the American economy not delivering wealth to the vast majority of workers. In the 1970s, 1980s workers were receiving wage increases at 6 %, 7 % and sometimes 8 %.  After the Great Recession workers are just averaging 2 % to 2.5 % in wage increases.  Globalization caused outsourcing of manufacturing jobs held by the working class which hallowed out good paying lower education jobs. Millions of manufacturing job have been lost and not replaced.  Our economy is 70 % services based with highly educated knowledge workers receiving most of the benefits. Ending stock buybacks would certainly put more cash into corporate coffers to distribute to workers – but will executives raise wages?  Raising wages is an expense on the corporate ledger, and executives are paid to increase profits not reduce them. Executives are at the pinnacle of their power. Yet, as a society we have to fundamentally rethink how we make the economy work for all not just the few at the top of the corporate pyramid.

GM: Case Study to End Share Buy Backs

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. 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.)

Image: GM Lordstown plant to be closed – gmauthority.com

Yesterday, GM announced a series of plant closings and layoffs of 15,000 workers in North America.  GM attributed the need to shift its focus to electric car development, trucks and SUVs that consumers were buying, as sedan sales are falling.  Actually, auto sales worldwide have been dropping for the past year.

Source: Bloomberg – 11/27/18

Jesse Colombo, analyst at Clarity Financial notes that while GM’s announcement focused on electric car development the plant shutdowns and layoffs really were driven by of slowing auto sales.  The auto market has been shifting rapidly with the development of driverless cars, ride sharing reducing the need to own a car, and urbanization causing policy makers to fund more public transit. The auto maker announced that it will end production of the Chevy Volt electric sedan with sales falling short of targets. GM has targeted gig economy drivers for ride sharing companies like Uber and Lyft by offering an on demand service for the Chevy Volt at $225 per week in Austin.  It is not clear what will happen with this on demand service marketing beta test with Volt production being halted.  GM has partnered with Lyft, and made a $500 million dollar investment in the ride sharing company 2 years ago.  Thus, GM has made some investments in key new markets and technologies, yet is behind in adjusting to sedan sales which fell by 11 % in third quarter.

At the same time the auto market is undergoing rapid change, GM executives have been taking care of themselves as a first priority.  Wolf Richter, editor of the Wolf Report blog reports that GM spent $13.9 billion in stock buy backs since 2014.

Sources: Wolf Richter, Wolfstreet.com, Y- Charts, Marketwatch – 11/27/18

GM stock purchases took shares off the market to reduce supply, while expecting stock demand would move the share price up.  However, as Richter notes GM share price has actually fallen 10 % in that four year period. So, much for boosting the price of shares to pad the executive stock compensation plan.  Instead of investing in new technologies, research, new plants, employee training, increasing wages and other key transition programs GM completely wasted $13.9 billion dollars.  Poor management judgement is now causing 15,000 workers to lose their jobs in the U.S. and Canada.  While we will not know over the last four years if good business investments would have prevented all the layoffs it is certain the economic damage to Midwest and Canadian communities could have been significantly mitigated.

Next Steps:

Goldman Sachs estimates that S & P 500 corporations will complete $1.0 trillion dollars in stock buybacks this year.  One trillion dollars will be wasted by U.S. corporations as productivity investments have lagged over the past 5 years, and average real wages have been stagnant for the 80 % in income since the Great Recession.  As the GM example demonstrates, besides hurting employee wages, making U.S. companies less competitive and inflating stock prices now workers are losing jobs due to executive mismanagement and myopia on stock price.

Prior to 1982, the Securities Act of 1934 held that stock buybacks were a form of ‘stock price manipulation’ and were not allowed by the SEC.  This policy was overturned by an E.F. Hutton executive, John Shad as SEC Chairman appointed by President Reagan.  He created a ‘safe harbor’ policy where corporations could purchase their own stock, only a certain times during the trading day, with disclosure quarterly and blackout periods prior to earnings reports. Corporations have used buy backs since then but stock buy backs took off in 2015 to $695 billion and almost doubled to $1 trillion for 2018.

We recommend an end to the stock buyback safe harbor provisions and a return to the pre-1982 policy, management in many corporations has lost their bearings on why the company exists – first priorities being workers, their families, customer communities, society and the nation not their own compensation plan. Making the corporation profitable and valuable to shareholders is a means to achieving our societal goals of a decent wage, quality housing, and the ability of families to support their children.  In October, we posted an analysis on how major corporations like Boeing, GE and American Airlines underfunded their pension plans while executing  billions of dollars in stock buy backs. Executives need to take responsibility for full funding of all pensions not wasting money on stock buy backs. It  is time with so many middle class and economic investment needs that corporations receive a direct SEC policy shift to end stock buy backs.

Ignorance Over the Common Good? Blind Governance is Dangerous!

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. 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.)

Photo: washingtonpost.com

Something’s not right.  My grandson is not playing soccer and POTUS nominates a coal lobbyist to lead the EPA?

We all feel it.  Right in the pit of our stomach, here in Northern California, while we are being hurt by the effects climate change.  While not completely to blame, the Butte County fire storm was compounded by global greenhouse gas effects and as a possible cause a spark from an electricity wire.

Something is not right.  As we experience in the Bay Area our eighth day of unhealthy air from the Camp Fire in the Sierra foothills. Those with lung diseases are shut away in their homes, people are not going out. Businesses that depend on foot traffic are seeing losses of 10 – 20 %. Football games like the Big Game, between Stanford and California are being rescheduled to December 1st – the first time that game has been rescheduled since the assassination of President Kennedy in 1963. Local universities and colleges are closed for classes: Stanford, University of California, Santa Clara University, De Anza College and many secondary school districts.

Yet, our President nominates a coal lobbyist to head up EPA?  The mission is in the name Environment Protection Agency, Not Environmental Destruction Agency.  Coal is a fossil fuel contributing to massive amounts of gas emissions warming our earth. Heating the planet every day.  Here is the path we are on toward 1.5  degrees C and eventual extinction of the human race:

Sources: The Wall Street Journal, The Daily Shot – 11/15/18

My grandson’s soccer game was cancelled last Saturday and will be cancelled again tomorrow due to unhealthy smoke in the air.  Is this the new normal?  We don’t have to support this heresy destroying our environment, our families and our lives anymore!

Why in the world is a coal lobbyist heading up EPA?  Something is very wrong with this picture. Maybe the House Progressive Caucus has it right to camp out at Nancy Pelosi’s office the other day demanding climate change legislation.

We have accepted the status quo too long on climate change.  Industry priorities must come second to clean air, water and the planet period.

The sheer ignorance, lack of wisdom and understanding of science is killing our people, making life a struggle for thousands, shortening life expectancies and reducing the sales of legitimate businesses – all so coal companies that should be shifting their business from fossil fuels to renewables have not made the transition.  We should not be paying for coal company executive mistakes.

We need to be asking at what cost do we keep coal? It is clear the cost is too great.  We need to quit accepting the platitude  ‘it saves jobs’ and replace it with we want ‘live saving jobs’ for all. We can’t accept this environmental spiral downward for the ourselves and our planet. We must return to the Paris Climate Change agreement, renew investments in renewables, focus on clean jobs training and development.  Get on with it now, future generations and our planet are depending on us to make sound decisions and not accept blind governance one day longer.

Workers Exercise Power Through Pensions on Corporate Policies

Photo: commondreams.org

Toys R Us was saddled with billions of dollars of debt by private buyout firms like Kohlberg Kravis Roberts.  Pension funds provide firms like KKR with funds to invest expecting higher returns than stock market rates. When the workers at Toys R Us petitioned the Minnesota Pension Fund that they had been denied a severance the fund suspended making investments with KKR.  About 35 % of all private equity funding comes from public pension investors.

The New Jersey pension fund has listened to its pensioners on issues like not foreclosing on Puerto Rico residents who are recovering from Hurricane Harvey and an investment in a payday lender.  Adam Liebtag, the acting chairman of the New Jersey State Investment Council, told the New York Times,  “They are paying closer attention. They are following the money.”

Pension funds provide about 35 % of all private equity funding. providing a good channel of leverage for activist groups.  The deals that pensions do with private equity firms continues to rise as well.

Source: Prequin Private Equity Spotlight, Value Walk – 10/2014

Sarah Bloom Raskin, a fellow at Duke University and a deputy Treasury secretary in the Obama administration, observed, “Workers don’t want their pension money invested in ways that hurt other workers”.  Workers are waking up to the fact they have financial power to get private equity firms to listen to their concerns that private equity policies are hurting some workers as in the Toys R Us case, heavily loaded with $5 billion in debt from a private buyout.

Next Steps:

We see the pension leverage option on private equity firms as a model to build on.  Why not require pensions to listen to their investor – workers by having a set of investor – workers on their board, participating in the investment decisions the board makes to begin with.  Workers should be constantly polled for their concerns to ensure adherence to investment policies that are moving the lives of workers better in any company where the pension is invested.  Workers are mainly left out of the financial decisions that manage their lives while working for a company, at least after retiring the money they have saved in a pensions fund should speak for them and their concerns in building a better life for all employees.

U.S. Healthcare Spending 41 % More Than OECD Countries

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. 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.)

Image: consumersunion.org

The United States healthcare system is an expensive healthcare system compared to the OECD countries that spend 41 % less per person as a percent of GDP with a 4 year higher life expectancy rate.

Sources: The Daily Shot, The Wall Street Journal – 10/1/18

As U.S. spending continues to increase life expectancy rates are stagnant, simply not improving.  Note that while OECD spending continues to grow at a much slower pace the life expectancy rate continues to climb. Americans are not getting the health care system performance that our European sister countries are achieving.

Sources: OECD, CMS – US, Moody’s Investors Services, The Daily Shot, The Wall Street Journal – 10/1/18

Even when looking at similar income level countries the cost difference is highly apparent in cost per capita.

What are OECD countries doing that the U.S. is not doing?   For starters they do not have a private health insurance system which adds a profit motive to treatment, triages services to the higher income people and increases drug prices to consumers.   Administrative costs in the U.S. are 8 % of the total healthcare spending versus the OECD countries which range from 1 to 3 %. One reason for the high administrative burden is administrative hiring was 650 % more than hiring of health services workers since 1970. Generalist physician salaries are significantly higher in the U.S. by 50% compared to developed countries. Drugs in America cost twice the average prices in comparable developed countries.  The drug costs are distorted in the U.S. largely due to price controls in European countries so drug manufacturers charge as much as they can to U.S. providers and patients to make up the difference. Finally, another key reason is about 10 % of the U.S. patients are not covered by insurance.  Which means they do not receive care from birth, let medical issues fester and go to emergency rooms for all their care (as U.S. law requires hospitals to serve all who come regardless of insurance). A study of the healthcare delivery system in Philadelphia showed that overall healthcare costs in the city could be reduced by 20 % if patients that needed care had services offered in doctor offices covered by insurance.

Next Steps: 

We have recommended in previous posts that we have one insurance system in the U.S. as other developed countries.  Administered by the Health and Human Services department, a health account would start as soon as a baby was born.  Contributions by individuals, their employer and the government would go into one account.  Private insurance could continue in those years where a worker is on the payroll of a company with benefits.  In the event the worker is between jobs he or she would be covered by the government supported part of the plan.  There would be only one formulary  for drugs, and schedule for treatments and procedures.  The administrative overhead could be cut to the 1 to 3 % range that other countries enjoy.  Staffs in providers offices dealing with insurance idiosyncrasies and byzantine rules could be cut by 75 %.  Drug companies would be prohibited from implementing stock buybacks which would make billions of dollars available to cut prices and innovate new medicines instead of lining the pockets of executives.

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