View from the Front Lines of Health Care

I occasionally find myself traveling in remote locations, so I recently took an Emergency Medical Technician course at my local community college in order to gain some semblance of a clue as to how to respond to a medical emergency.

The practical portion of the course called for working a number of shifts in both the back of an ambulance and in the emergency room, and the level of costly self-destruction that I saw was appalling.

Contrary to the denizens of the ER on popular TV shows, none of my patients threatened to infect the hospital staff with some nasty new bug previously unknown to science, and very few had sustained any serious trauma, much less something truly interesting (such as the patient who stumbles into the ER with a hatchet embedded in his skull).

Instead, we regularly confronted the inevitable result of years of self-destructive behavior.

Twice I was called to the home of a 300+ pound behemoth who had fallen off the toilet and couldn’t get up (the spouse called 911).  Neither of these patients consented to be taken to the hospital, so our “treatment” consisted of lifting them up, helping them dress and moving them back to their living room recliners – while maintaining what microscopic shred of dignity was possible in such circumstances.

To no one’s surprise, these patients were diabetic, as were the vast majority of other people who found their way into the ambulance or the ER.

Diabetes, however, was rarely the patient’s only problem.  When summoned to a residence, EMS crews always ask what medications the patient is taking, and more often than not, a family member would return with a Walmart bag stuffed with prescription containers.

Try not to think of who is paying for these medications (Hint:  it isn’t the patient).

As others have pointed out, none of this is remotely sustainable.  It is a shame that most of my younger classmates (eager consumers of popular brands of sugar-water) didn’t seem to be paying attention.

The Can Kicks Back (well, maybe not)

This morning, an article in my local newspaper mentioned an organization called The Can Kicks Back, which was portrayed as a group of Millennials who have finally woken up to the fact that the crushing burden of the accumulated US debt will fall squarely upon their own shoulders.

At last, some younger people get it, I thought.  But alas, all is not what it seems.  The lead link on the CKB web site describes how the “fiscal cliff deal fails millennials” in a way that reflects almost complete ignorance of basic economic facts.  According to CKB,

Apart from doing little to reduce our long-term deficit and debt, the “deal” fails to adequately address the biggest problem facing young people today: unemployment stemming from an uncertain economy. Under the proposed plan, businesses will continue being too scared of what the future holds to make new hires.

No, businesses are not “too scared.”  Rather these businesses are confronting the reality that their costs are inexorably going up just as sales are declining – because their customers are too heavily indebted to buy more stuff.

And what is the #1 driver of these cost increases?  Health insurance costs, driven ever higher by the President for whom they voted so enthusiastically - a President who seems convinced him that the best way to encourage companies to hire more employees is to make doing so more expensive and onerous.

The CKB site also links to the National Campus Leadership Council, a group of, supposedly, “100+ student body presidents.”

And what do these students want?  “Bipartisanship and compromise.”

“But to do what?” you ask.

According to the site, they want to avoid drastic spending cuts and tax increases that could “threaten our already fragile economy.”  Oh, by the way, they also want to freeze interest rates and keep Pell grant money flowing.

In other words, these so-called anti-can kickers want:

1.  Someone else (the “rich”) to pay higher taxes; and

2.  No spending cuts that could hit them.

The CKB organizers have identified the problem correctly:

The young people I’ve talked to across the country are afraid about what’s ahead, and I don’t blame them. Until Washington can come up with a real deal to fix the debt, we are left to assume that by the time it’s our turn to be in charge, so much of the money coming in will be going to pay down past spending that we’ll have no way to confront the unknown challenges of the future.

But they fail to grasp that the promises made to every group (including themselves) are false – that none of them will be kept, because the money to pay for them does not exist and cannot be made to exist in any plausible state of the world.

Their demand is for a “real plan to fix the debt” – but one that involves no pain to anyone.  

Young people don’t want to see our parents, grandparents or country hurt, and a real plan to fix the debt should be implemented in a way that will not hurt our fragile recovery or makes cuts that threaten our global competitiveness. But we ask leaders to confront the generational inequity being set up by refusing to deal with the structural drivers of our debt now.

In other words, these students – though they have identified the problem – still believe that it can be solved by Santa Claus riding in on a sleigh towed by unicorns, if only Santa and those bounteous creatures can act in a more “bipartisan” way.

What on Earth Do They Do?

Recently, the mainstream media have caught up to the blogosphere and started to take note of the staggering levels of student debt and the limited value that many students have received in return.

But even those who are so jaded by the raw criminality of our financial elites that they consider themselves incapable of further shock have to greet statistics presented by last week’s Economist as a surprise.

In an article highlighting the “declining value for money” that American universities are giving their students, the author quotes a federal study that found that literacy of college educated citizens declined from 1992 to 2003, and that only a quarter of these graduates were deemed capable of “using printed and written information to function in society.”

In large part, this is due to what stands out from another statistic:  one that anyone who graduated from college more than 10 years ago will find hard to believe:

“almost a third of students these days do not take any courses that require more than 40 pages of reading over an entire term.” 

Since most of us had 40 pages of assigned reading every night, this leads to the obvious question of what on earth do these students do?

Not that this detracts from their GPAs. 

The article goes on to mention that “a remarkable 43% of all grades at four year universities are As,” up from 17% in 1960.

This, like so many things in our society, is essentially accounting fraud, as these “straight-A” students will eventually collide with the brick wall of a real world that actually expects them to know something useful before handing out large paychecks.

And the so-called “salary gap” between high school and college graduates is more of a function of the “plummeting value of a [high school] diploma, rather than soaring [college] graduate salaries.”

It is not only under-educated students who will suffer in the end, though.  As with fraudulent subprime mortgages and other forms of toxic derivative waste, the current state of affairs was made possible only with massive federal subsidies – in this case federal student loan guarantees.

For a preview of what lies ahead, 9.1% of borrowers had defaulted on their federal student loans within two years of graduation, and 200 of our colleges and universities have a three year default rate of 30% or more (out of a total of 4140 public and private schools).

What can’t go on forever won’t.  This will get ugly.

Or maybe not.  After all, we’re all winners!

Tax Rate Nonsense and Congressional Corruption

With all the hyperbolic argument over tax rates, it is surprising that few mainstream commentators have addressed a simple, fundamental fact:  in terms of the overall economy, the top marginal rates are irrelevant.  (Top rates do matter to honest individuals, but not in the big picture). 

As the following chart demonstrates, federal tax receipts have consistently hovered between 16 and 20 percent of US GDP since the Second World War, even though top marginal rates during this period ranged from 28 to 92%.

Analyzed by income strata, effective taxes paid have not varied a great deal since 1980, either, even though top marginal rates that year were 70%.

The reason is straightforward:  except in a few limited cases, taxpayers do not pay high marginal rates, despite whatever the headline number of the day happens to be. 

Instead, taxpayers with income subject to confiscatory taxes are driven to bribe contribute to Congress to enact tax shelters to bring their actual rates down to a manageable level.

Rather than raise additional federal revenues, high tax rates instead foster a culture of corruption and dishonesty, rewarding clever lawyers and accountants, while serving as parasitic drag on the productive economy. 

Moreover, many of the tax shelters of the 1970s drove mal-investment in otherwise economically unjustifiable strip centers and apartment complexes.  In the words of a New York accountant:

Many wealthy Democrats in NYC [in the 1970s] avoided higher tax rates with plenty of tax shelters, mostly in real estate and energy. I worked on a tax return for a family member of one of the biggest family Wall Street brokerage firms. He had close to 100 tax shelters plus very high dividends.

Readers who lived in Dallas or Houston in the late 1980s can surely recall the aftermath of this misguided state of affairs:  apartments that went from yuppie party-villages to Section 8 almost overnight, once the 1986 tax reform stripped away these complexes tax advantages and the oil bust removed even the pretense of actual economic demand for the space.

Unfortunately, the same people who thrived on the corruption and mal-investment of the 1970s are eager to repeat the same error – this time in the guise of “saving housing.”

For instance, the accountant quoted above blames the elimination of passive activity losses for the Savings & Loan debacle and even the 1987 stock market crash.

Yes, the 1986 tax reform may have hastened the demise of the S&Ls, but that is akin to saying that a strong gust of wind blew down a house whose frame had already been almost entirely consumed by termites.

High marginal tax rates punish the honest and productive, and reward a parasitical class of political fixers, but do little to raise federal revenues in any meaningful way. 

How to Repair Institutional Credibility (or Maybe Not)

Over two years ago, we directed readers to polls that demonstrated marked declines in credibility for almost all of our country’s major institutions.  See “Public Perceptions” (August 3, 2010), as well as the following charts.

This decline has not gone un-noticed by others, either.

Consider the following missive inviting alumni of the consulting firm McKinsey to register for a webinar on the subject. 

On December 11, Managing Director Dominic Barton and Richard Edelman, CEO of Edelman Worldwide, will present an exclusive session on the future of capitalism and public trust in institutions. They will review how public trust – in most institutions – has neared all-time lows, and discuss areas leaders should focus on to rebuild trust in their organizations.

Alert readers will undoubtedly connect the dots – the McKinsey offering this webinar is the same firm whose managing director from 1994-2003, Rajat Gupta, was recently convicted of insider trading in the Rajaratnam/Galleon case and sentenced to two years in prison. 

Business Week reports that true to form for this sort of thing,

Gupta has been removed from the prominent corporate and philanthropic boards on which he once served and is shunned by business leaders who were once his friends.

But this is less due to Gupta’s actual conduct than the fact that it exposes the extent of the rot, hypocrisy and self-dealing that permeate our so-called political and financial elites.

Readers with longer memories will recall McKinsey’s prominent role in the Enron affair, led by another McKinsey director, Jeff Skilling, who now also resides in a taxpayer-provided facility (and, whose name, like Gupta’s has been struck from the firm’s alumni directory).

We may, over time, be able to rebuild public trust in our country.  But the first step will be to recognize that the same people and organizations who got us into this mess are not going to be the ones who get us out.

Why the Fiscal Cliff Debate is Irrelevant

As our Congresscritters and the White House continue to squabble over the upcoming “fiscal cliff” (and in the process whipsawing the stock markets with each new pronouncement that a deal is on off back on), investors should be aware of the big picture – that neither scenario (deal or no deal) will address the fundamental issue of unsustainable federal deficits. 

Two charts put this in perspective.  The first, an excerpt of a larger chart in USA Today, shows that even if all of the fiscal cliff’s tax increases and budget cuts go into effect, the deficit will only decline from $1.1 trillion to $641 billion (-42%).

To put this $641 billion figure in perspective, compare it to all federal budget deficits since 1972 (source:  Congressional Budget Office).

Even if we plunge over the cliff’s edge, the federal deficit will still be higher than it has been for any year before 2009.   And this is a baseline.  Any “deal” will result in fewer spending cuts, and thus higher deficits.

If deficits truly don’t matter (as we learned from Dick Cheney), then all is well.   But if not, the outcome of the debate will be simply a choice between “horrid” and “atrocious.”

CEO Psychopaths

Even a cursory reading of the business press reveals a plethora of stories about CEOs or private equity moguls walking away with hundreds of millions while the companies under their charge lay off workers and/or file for bankruptcy.

Just last week, Vikram Pandit was forced out, er, resigned, from his post as CEO of Citigroup.  having been paid over $260 million during his tenure while presiding over a 90% drop in the company’s stock price.

And this morning, Bloomberg reports that the private equity moguls behind the largest LBO in history have paid themselves $528.3 million in fees as the company teeters on the verge of bankruptcy – a bankruptcy that will be the direct result of the enormous debts that KKR and TPG piled onto the company in the first place.

The greed, and in many cases outright fraud, has become so brazen that one has to wonder:  are these people psychopaths?

And the answer, according to Scientific American, is that, in fact, they are. 

In an October 2012 article entitled, “The Wisdom of Psychopaths,” the author finds that psychopathic serial killers and business/political leaders share many of the same traits, namely:

a grandiose sense of self-worth, persuasiveness, superficial charm, ruthlessness, lack of remorse and the manipulation of others … [and that] such a profile allows those who present with these traits to do what they like when they like, completely unfazed by the social, moral or legal consequences of their actions.

In the words of Jon Moulton, one of London’s most successful venture capitalists, determination, curiosity and insensitivity were the three most valuable character traits that vaulted him to the top. 

The first two are taught in business school.  But the third?

As Moulton explains, the great thing about insensitivity is that “it lets you sleep when others can’t.” 

The professionals who used to at least try to put a check on this sort of thing are no longer in positions of influence (see “The Rot Runs Deep:  The Capture of the Professional Class“).

We’re doomed.

They Walk Among Us … and Vote

Separating well-meaning but uninquisitive donors from their money is a scam as old as charity itself. 

Over a century ago, Mark Twain’s Huckleberry Finn scoundrels, the Duke and the Dolphin, bilked gullible church-goers with their tales of Indian Ocean pirates and their intentions to convert these malefactors to the Way of truth and righteousness.

But today, social media has greatly expanded the fraudster’s bag of tricks.  The name of the game is to create “buzz,” so that the charity can become the cool new cause. 

As to what the cause is, or – more importantly – what the charity raising the money will actually do in furtherance of that cause – these are just bothersome details. 

As the latest Bloomberg Business Week explains:

Millennials donate money differently, explains Richard Honack, a nonprofit marketing expert and a professor at Northwestern University’s Kellogg School of Management. “Baby boomers and most Gen Xers give to what they know: their churches, universities, maybe a cancer society. But [for] younger people, a buzz cause will come on, like the Haiti earthquake or Invisible Children, and they’ll donate money without even thinking about where it’s going. They just assume they’re doing something good.”

We already know that hundreds of thousands of young people are taking on enormous, non-dischargeable debts to acquire college degrees that are, for all real-world purposes, useless.  But it still comes as a surprise to learn that so many are failing to learn even the most basic critical thinking skills – namely, to ask at least a few rudimentary questions before handing over your money.

The End of Medicare as We Know It

We’ve already heard superheated rhetoric from political candidates who attempt to frighten certain sectors of the public by implying that the opposing party will “end Medicare as they know it.”

But the basic fact – that Medicare as we know it WILL end – is not the figment of some office-seeker’s overly active imagination.  Rather, it is cold, hard mathematical reality. 

According to a recent Economist, in 2011, the US government spent $549 billion paying Medicare benefits to 49 million beneficiaries.

Per capita annual outflow = $11,204 per beneficiary. 

Now, let’s examine what flows in during a worker’s lifetime. 

Here, we must make some assumptions.  In order to keep this simple, we’ll assume:

1) median household income (2010) of $49,445 (source:  US Census)

2) 40-year working life

3) 2.9% Medicare tax rate

This number will overstate what each beneficiary contributed over a working lifetime, since the income number is current household (rather than individual over time), most careers are less than 40 years, and the tax rate was lower than 2.9% for much of the working life of today’s beneficiaries.

Multiplying this out ($50K x 40 years x 2.9%) = $57,356, or rounded to $58,000.

The key point is that on a median basis, today’s beneficiaries contributed at most $58,000 into Medicare over their working lifetimes, which means that on the most optimistic basis, Medicare beneficiaries will run through what they have put into the system in slightly more than five years. 

$57,356/$11,204 = 5.1 years. 

The only way such a system is sustainable is for many more workers to contribute into the system than take from the system – into perpetuity.

Unless we can stomach the US having the population density of Bangladesh (where the equivalent of half the US is crammed into a space the size of Iowa), and still maintain a functioning economy, this simply won’t happen – regardless of who is President or how they claim the system will always deliver what it promised.

79 Percent Tax Rate on Telecom

With all the rhetoric about the US heading toward European levels of taxation, few in the MSM are taking into account the fact that in many respects, we are already there. 

My current VOIP telephone contract runs out in a few days.  Since I use the line infrequently, I planned to switch to a lower cost plan.

The company offered a plan for $11.99 per month, or $143.88 for the year.   However, this total did not include taxes and fees.  Though I knew these would be significant, I had no idea how much so.  Defining a “tax” as a payment that is not voluntary, the taxes and fees turned as follows:

$23.88 – Regulatory Compliance and Intellectual Property Fee

$23.88 – Emergency 911 and Information Services Fee

$28.76 – Sales Tax

$30.82 – Federal Program Fee

$ 6.24 – County 911 Fee

Total Fees and Taxes:  $113.58

Taking out the “Regulatory Compliance and Intellectual Property Fee” (which really covers operating expenses of the company and is not included in the base rate in order to make the rate appear lower than it really is), the total fees and taxes are still a hefty $89.70.  

Taxes and Fees as a Percentage of Service Cost: $113.58/$143.88 = 78.9%.

Or if we exclude the “Regulatory Compliance Fee” noted above, $89.70/$143.88 = 62.3%.  

While I could stomach $144 for a backup line, tacking between 62 and 79 percent onto that cost tipped the cost/benefit calculation the other direction.

We’re already being taxed like Europeans.   We just nickel and dime customers and hope they don’t pay too much attention (which sadly, they don’t – at least not yet).