Fiscal Policy and more

“…keeping the U.S. great”

HEADLINES:

WARNING: Please don’t read if you think non-political experts have no business sharing their opinion about presidential candidates (or you’ll hold it against me for expressing my opinion)

WARNING 2: Not sure I’m adding anything new – my apologies ahead of time

OK, here’s my summary – first, I wish we had a two-party system. In many ways, we have a single party called the Democratic-Republicans (http://en.wikipedia.org/wiki/Democratic-Republican_Party) which has done its fair share of slowly eroding, over the last 20 years, the foundation of our economy and made us less competitive globally. For instance, this current financial crisis started with Bill Clinton’s push to increase homeownership which resulted in blackmailing banks to give bad loans, which they only did when the government mandated that Fannie Mae and Freddie Mac buy these bad loans from the banks. It wasn’t under-regulation that led to this mess, it was the wrong regulation/political pressure along with a congressionally mandated “mark to market” accounting rule that exacerbated the problem. In turn, the Republicans locally and nationally have subsidized large businesses at the expense of growth firms and have contributed, along with the Democrats, to the astronomical increases in education and healthcare costs that are breaking our backs ala Bush’s prescription drug plan. However, we only have two viable candidates to choose from, thanks to rules that exclude the other candidates on the ballot from participating in the presidential debates (a national disgrace), so here it goes:

Obama

The country has always been governed best from the middle – like Clinton and Reagan.

Obama’s policies will further drive up the costs and decrease the quality of education and healthcare (his tax credits and opposition to parental/patient choice); and his policies will further erode the environment that nurtures the growth engines of our economy and make us less competitive globally. As a leader himself, he’s like those 30 minute interviews where the candidate sounds impressive, but if judged by their past list of accomplishments there’s nothing there. There isn’t a single significant piece of legislation he’s ever introduced and/or caused to get passed. And if you prefer to judge someone by their actions (votes) vs. words (and by the people they hang out with) then Obama’s promises to lower taxes for 95% of Americans will be as hollow as his promise to take public campaign financing to avoid special interests. Overall, Obama reminds me of the kind of leader Pat Lencioni (author of Five Dysfunctions of a Team) warns us about who cares more about “getting the position” than “getting results”. He’s been running for President ever since he started working as a community organizer – and those are the worst kinds of leaders, but it often takes years to realize (and many of us have hired execs just like Obama, who interviewed well but broke our backs financially). And last, if I go back to Obama’s voting record, he’s been too extreme given the importance of being a “centrist” as Clinton and Reagan both demonstrated through their votes and actions (vs. mere words). In the end, we’re a country best governed from the middle.

McCain

McCain’s policies at least head us in the right direction.

From a quarter to a third of the time McCain voted against party-lines while Obama has voted almost 100% with party-lines (http://www.factcheck.org/askfactcheck/is_it_true_john_mccain_voted_with.html ) – therefore, who is really willing to cross party-lines and compromise and be a leader for change. McCain is someone that cares more about results than position, as witnessed by his highly unpopular vote for the troop surge (at the risk of his primary candidacy) – and you don’t have to be for or against the surge to respect the decision he made based on his belief of what would get us the best results vs. what was political correct (we’re in the war, good or bad, so we have to make the best decisions moving forward). McCain was highly vocal, early on, about the potential problems with Fannie Mae, when it wasn’t popular, while Obama was silent as a major recipient of campaign contributions from Fannie Mae. McCain has always been a very centrist candidate which is why he’s had as much trouble with the far right as the far left – again, I think actions are more important than words. Most importantly, the next president is going to make two or three of the most important decisions in our immediate country’s future – who will likely sit on the Supreme Court. Obama has stated he’ll nominate people who believe the court should mold social policy which has gotten us into our fiscal mess in the first place. McCain has stated he’ll nominate people that more closely adhere to the intent of the constitution. Since I believe the future of our country rests on the Supreme Court vs. the Legislative or Executive Branches, it’s critical we elect McCain.

Palin/Biden – if Palin made just one of the major gaffes Biden did (his Hezbollah comments during the debate were one of many) or even Obama (“I would invade Pakistan”) the media would be in even more of a frenzy to destroy her than they are – however, the media has always been biased, though it seems more so this time than any past election I can remember. In essence, she’s the only one of the four that has any Executive Branch experience. Rather than “run with the pack” as most legislators do (again, Obama’s almost 100% voting record with the Democrats), an executive has to stick their neck out and lead, which she has in Alaska. BTW, my uncle was Governor of Alaska twice and helped get Palin elected, so I’m a little biased.

So, what’s the rationale/support for my conclusions – and what do I think are the real issues facing our country?

DETAILS:

Having a Strong Economy is the MOST Important Defense of Freedom and First Line of Defense in Providing Safety/Security – it IS all about the economy

The Supreme Court Has Failed our Country – our founding fathers worried that this would be the case and their predictions are coming true -- more on this later.

The Health of an Economy Is Measured by the Number of “Gazelles” – though they typically represent only 3% - 4% of all “small” businesses, they exclusively generate all the net new jobs in an economy and most of the innovation – this last point being key. They have been particularly important to the U.S.’s global success up to this point in history. FYI, the Top 10 fastest growing firms among the DS100 in the OIC (Organization of Islamic Conference) member countries in 2007 were ALL non-energy related! Gazelles matter everywhere.

The U.S., up to now, has been a haven for Growth Firms – but it’s been a “death by a thousand cuts.” Slowly and steadily the environment for gazelles is eroding in the U.S. by both the Democrats and the Republicans – the quality and quantity of our workforce, the costs of healthcare, disincentives for competing globally, and the tax structure in the U.S. being among the top challenges. And because we’re not organized, like the teachers union, or have paid lobbyists like big business, the gazelles continue to carry an unequal burden of society’s costs while our operating costs are driven up and our large or foreign competitors are given subsidies, direct and indirect.

Two-thirds of small business profits are earned in households making more than $250,000 per year – it might sound popular to help the other 95%, but the fact is the bulk of profits, job growth, and innovation (our main competitive weapon), come from about a half million mid-size firms – the exact firms that will be hit most directly by Obama’s tax proposals – but hey, it’s just 500,000 of us and it’s just another 40% increase in our taxes (between Obama’s proposed increases in the top two tax brackets along with his proposed increases in Medicare/Social Security taxes paid by businesses). Do I think it’s going to have dire consequences on our country the next four years, no, but we continue to head in the wrong direction as we continue to make our growth firms less competitive.

When More People are Receiving Hand-outs than Not, We’re in Trouble – again, our founding fathers warned that if the citizens are given a chance to vote themselves a pay raise, they will – and I’m afraid we’ve reached the tipping point where more people are benefiting from government largesse than not – this could be the sole reason why Obama wins.

Why Don’t I See American Business People as I Travel Asia and the Middle East – the U.S. is the ONLY country that taxes our expat’s worldwide income!! If you’re a British expat working in Dubai, you pay no tax on your income outside Great Britain (Britain doesn’t tax you and Dubai has no income tax) – what an incentive to take overseas assignments. And this expat tax puts all US execs at a disadvantage wage wise. Again, our tax policies are discouraging the very things we to do the most -- encourage our entrepreneurs and management talent to get abroad and build relationships and businesses.

Dilendra Wimalasekere, founder of Eureka Technology Partners (www.eurekasl.com), is a case in point. I had dinner with him in Dubai Wednesday night. Here’s a former student of mine who runs a company based in Sri Lanka, who lives in Dubai (no income tax) who chose to incorporate in Hong Kong because like Singapore, they only tax you on the business you do in their country; whose largest customer is a company in the U.S. which he services from Sri Lanka and bills from Hong Kong so the U.S. government doesn’t get a piece – whew! This is what I love about entrepreneurs. As a U.S. citizen, I would have NO WAY of matching his approach since I’m automatically at a disadvantage BECAUSE I’m a U.S. citizen, taxed almost 40% on everything I do no matter where or how I do it. And I asked him if he’s concerned about Hong Kong being owned by China and thus being nationalized someday and he said “hey, you’re nationalizing in the U.S”. – ouch. OK, I can hear my liberal friends complaining, but the reality is, companies don’t pay taxes, only customers do!! My issue – the U.S. should be competitive with Hong Kong and be a preferred place to house growth companies.

Education and Healthcare – these two social costs are breaking our backs and are one of the main reasons we’re losing our competitive edge (and why Dilendra can’t afford to set-up in the U.S. according to him). This is often difficult to explain, but the reason both education and healthcare costs continue to skyrocket, far outstripping inflation while quality is decreasing, is because they are subsidized monopolies! Whatever is universally subsidized (“universally” is the key – I’ll explain in moment) and given monopoly status both drives the price up and dramatically decreases quality and innovation – it’s as predictable as gravity. Case in point, Bushes’ prescription drug plan -- which saw drug prices increase 30% within a year of his plan offering a universal 30% discount!! All this did was cost taxpayers billions of dollars and driving-up the price of medications while lining the pockets of the big pharma firms and furthering their grip on the drug marketplace (you have to make the government’s reimbursement lists!). And since the FDA derives a large percentage of their funding from the drugs they approve (vitamins don’t contribute to their budget), its one happy insular family making boat loads of money off of selling marginally effective drugs that mask vs. cure chronic conditions.

My mother was a victim of this insular system. Her traditional doctor had slowly prescribed one drug after another, for which he receives kickbacks, (it started with a blood pressure med which caused side effects which required another drug which caused side effects, etc) until she ended up in a psychiatric ward. After battling HIPAA, our family literally extracted her from the hospital, brought her off all her meds, and at 74 years old she’s back enjoying life. Believe it or not, a second doctor started her down the same path and we had to intervene again. All along the way, taxpayers were subsidizing all her traditional medical care and meds while the family, in turn, was paying to heal her from the sick care she was receiving.

My mother was the quintessential elderly person the media likes to highlight who was spending a high percentage of her monthly income just on medications. And they would have used her story to justify a further subsidization of meds which just feeds the vicious spiral. Instead, the meds were a big cause of her problems and the alternative methods we used to “cure” her aren’t covered by the government nor researched/supported by the FDA because there are no large profits to be made.

Don’t get me wrong, we have the finest medical system for dealing with acute conditions (burn and accident victims for instance) in the world; but we have the lousiest medical system for dealing with chronic issues (blood pressure, osteoporosis etc). And it’s the chronic conditions that are breaking the bank.

BTW, I was excited to see Bill Gates, this past week, offer to fund “a thousand experiments” in the healthcare field by providing small grants for offbeat medical approaches -- another example that it’s entrepreneurs, not governments, which have solved all of the problems that have faced humankind.

The same with education. All that loan programs, grants and tax credits have done is artificially drive-up the costs of education while driving out innovation. Consider costs -- we went online to a school supply store to purchase a model of a human skull (long story) and found the major supplier of scientific equipment to elementary and secondary schools had one for $59.95 (http://www.carolina.com/product/human+skull%2C+plastic.do?keyword=human+skull&sortby=bestMatches). Upon further investigation we found the exact same one retailing for $20 on Amazon! Why did we take the time to shop – because it was our money to spend. In turn, paying higher costs allows school administrators to request higher budgets which equates to more power and prestige – the system is rigged to support higher costs. The same with textbooks. The famous marketing professor Philip Kotler’s textbook costs almost $140. In turn, his popular version for business people can be purchased for $20. I could get more detailed about how the administrative costs in our school district have outpaced student population growth by more than double and how they’ve ignored parental recommendations (my eldest is in public school) because our Superintendent is only responsive to the five board members that pass his budget (all of whom are teachers, former teachers, or have spouses as teachers) vs. how responsive the owners of the private school is where two of our other children attend because they are receiving payment directly from me. These are just two representative examples of how education costs have artificially exploded and why.

Parental Choice – in turn, McCain is exactly right about vouchers, especially if we want innovation. Sweden, which has had vouchers for over 15 years, is recognized for having the greatest number of innovative schools within the entire EU while having some of the lowest costs. All we have in our school district is a bunch of cookie-cutter schools (and we have one of the wealthiest school districts in the country) – and if your child isn’t a cookie-cutter child then you’ll have to settle for a less than average experience. And The Netherlands, which is almost always ranked in the top five countries for reading and math skills has had vouchers for over 85 years!! In the U.S., even in the most badly structured studies intended to discredit vouchers, at a minimum the students are no worse off on test scores than before while costs have decreased by almost one-third (Milwaukee). Hey, if we’re going to universally provide average schools why not at least save a third of the cost! In reality, we have some of the highest education costs in the world and we’re getting less than average results. It’s why most of those in the top 5% end up paying for everyone else’s education while sending our children to private schools (like Obama and McCain). BTW, vouchers have worked so well in education; Sweden is now experimenting with medical vouchers to see if they can also lower costs and increase innovation and quality. Making the education and healthcare industries responsive to parents and patients is a critical first step to bringing innovation back and driving down costs -- and vouchers make this a reality.

Welfare is for those who need it; not for those who don’t need it – Am I against helping the most needy? Not at all. Besides the income taxes I pay, I donate 10% of my income to charity. I believe, at any one time, 5% - 10% of our population is truly in need of help and that nine of us should help the tenth. It’s when we extend the benefit to everyone that it distorts the economics of the system. Case in point – food stamps. If you ask a roomful of elderly people how many are eligible for Medicare, all their hands raise (even Warren Buffett’s); how many are receiving Social Security, all their hands would raise (even Warren Buffett’s); however, if you asked them how many are on food stamps, I would guess no one would raise their hands (even if one or two were!). Food stamps are for people who need them and NOT for people who don’t need them. As such, just 10% of our population requires food stamps; the program has not exploded into a deficit busting government entitlement; and food stamps have not appreciably driven up food prices i.e. one key measure of the wealth of a country is the proportion of income spent on food –and the U.S. has the lowest ratio in the world. In turn, because we universally subsidize education and healthcare, we have some of the highest costs in the world. The correlation isn’t coincidental.

We need to get back to only providing limited help to those who need it and not to those who don’t – that includes businesses. Across the board tax credits simply feed this spiral of skyrocketing costs. They sound great on paper, but are devastating to the economics, innovation, and quality of the systems they purport to help. And tax credits vs. vouchers reinforce government monopolies. That’s the distinct difference.

Supreme Court – This brings me back to the root cause of our slow decline – the failure of our Supreme Court to uphold its branch of government and thus provide the crucial balancing act our founding fathers envisioned would maintain life, liberty, and the pursuit of happiness (the original version referenced “private property”).

First a little history. Our founding fathers were most concerned that the Legislative Branch would overpower the other two branches of government given their tendency to promise anything (and give away everything) in order to gain political favor – and they saw this eventually ruin Rome (as beggars tents surrounded Rome just before the fall). In order to weaken the Legislative Branch they purposefully divided it into two chambers and structured it so that Senators were chosen by their respective state leaders while the Representatives were elected via popular vote.

We weakened this crucial structure when we ratified the 17^th Amendment in 1913 (see this Wikipedia article for more detailed info http://en.wikipedia.org/wiki/Seventeenth_Amendment_to_the_United_States_Constitution). FYI, I support the repeal of this amendment.

Next, our founding fathers were concerned that the Supreme Court would bend to political and social pressure and not uphold Constitution. The Supreme Court did fairly well until Franklin Roosevelt blackmailed them into supporting his New Deal entitlements since they were obviously unconstitutional. From that day forward, with a strengthened Legislative branch and a weakened Judiciary branch, our country began to lose its way.

This is why we need to re-strengthen the Supreme Court with individuals willing to hold our legislators closer to the intent of the Constitution. For instance, earmarks are breaking our budget backs. Let’s take Obama’s $3 million projector for the Adler Planetarium in Chicago. Though I can see the worthiness of the request, where in our constitution does it say that the American taxpayers should support the purchase of this projector? Isn’t this best left for the citizens of Chicago and the wealthy business leaders in the region to fund? In defense of Obama, because other Senators are allowed to garner similar goodies for their constituents, unless ALL Senators are forbidden to even vote for such earmarks, it will continue to get worse, as it has.

If the Supreme Court did its job and ruled that 90% of the earmarks hidden in various budgets are unconstitutional this practice would end and a new level playing field created for all legislators and their challengers. BTW, our legislators would likely fight this change because earmarks benefit incumbents. It’s why 90% of incumbents continue to get elected.

This is why the most important two or three decisions our next president will make are their likely appointments to the Supreme Court. This is why it’s even more important that a centrist like McCain be in the driver’s seat vs. Obama. The country runs best when led from the middle. And McCain, through his actions and votes has shown balance in his support of various Supreme Court nominees vs. Obama’s one-sided support for only the most liberal justices intent on bending the constitution to further their own social agendas.

Please Vote!