McCain as seen from Annapolis

My history professor during Plebe (Freshman) Year at the U.S. Naval Academy had been a fighter pilot in the Vietnam War.  He often deviated from the curriculum to tell “war stories.” Pilots who missed their targets were often those afraid to fly within the range of enemy ground-to-air missiles, he told us.  There were a few seconds when you had to fly straight toward the ground with missiles going past you at relative speeds of hundreds of miles per hour.  “They looked like telephone poles flying by,” he told us. 

That was 1967, the year John McCain was shot down over Vietnam.  His story was the stuff of legend during my four years at the Academy; and, I recall, like it was yesterday, being glued to the TV, as McCain was the first to disembark from the plane that carried him home from the Hanoi Hilton.  Although on crutches, he lowered himself to kiss the ground he walked on.  It was March of 1973, a month before my twins were born. 

Twenty-somethings embark on a journey of discovery.  How does the world work?  How can I ensure I will have a roof over my head?  How do I progress in my career?  As a young military officer, these questions were accompanied by discussions of the Cold War, politics and the Vietnam War.  It was only natural to wonder how one might stand up to the kind of treatment that McCain suffered.  I confess I never thought I could.

Of course, McCain was the most famous of the P.O.W.’s because of his father’s rank and position.  His actions served as an example for military officers both in and out of captivity.  One must wonder where he developed such a strong sense of duty and honor.  His record at the Naval Academy was certainly less than stellar.  In its obituary of him, the New York Times asserts that he “resisted discipline, broke rules, piled up demerits though never enough to warrant expulsion.”  They might have been describing me in that sentence, though I would never claim to have his courage.

The market values conformity.  Job performance is measured in part on the basis of our conformance to the rules.  John McCain never did well on that measure.  His departure from norms carried over to his political life. 

A popular video on social media shows him at a campaign event in 2008.  A woman rises to confess her fear of Barack Obama because “he’s an Arab.”  Refusing to take advantage, Senator McCain disagrees and extols Obama’s character to scattered boos.  He could have expressed sympathy for her point of view.  After all, spreading fear is how candidates get elected. That he didn’t was a mark of his character.

Less well remembered, but no less important, was his departure from Republican Party orthodoxy during his failed primary campaign in 2000.  Then he described Jerry Falwell and Pat Robertson as “agents of intolerance.”  It’s an attitude and approach that was also reflected when he surprised his U.S. Senate colleagues by voting against the repeal of the Affordable Care Act.  In his statement following the vote, he exhorted his colleagues to “stop political gamesmanship and put the health care needs of the American people first.”  Perhaps that’s why his 2008 presidential opponent, Barack Obama, said on Sunday “all of us can aspire to the courage to put the greater good above our own. At John’s best, he showed us what that means.”

But the event I remember most was his admission of a mistake in 2000.  He had called a Confederate flag at the state capital in Columbia, SC a “symbol of heritage.”  He later confessed that he feared losing the South Carolina primary “if I had answered honestly.”  Military training, including Plebe Year at the Naval Academy, involves breaking down conditioned responses.  Of the four allowable responses by a Plebe to an upperclassman, the most resonant is “No Excuse, Sir.”  Everyone makes mistakes.  But, failing to admit one – to make excuses – is a mark of poor character.

Over the last 25 years, there has often been a call for our military heroes to run for president -- Schwarzkopf, Powell, Petraeus. What’s their appeal? The sentiment transcends party politics. People don’t care about that. Quite simply, we long for true leadership – a “No Excuse” approach to the job. Isn’t that the mark of a true leader?

McCain was labeled a maverick because he wasn’t afraid to break with his party to do or say what he thought was right.  His history tells us why.  To quote Seth Lynn, the Marine Corps veteran who heads the Veterans Campaign, an organization that prepares veterans for a second career in civic service, “Military members have… seen that the enemy is the guy at the end of the battlefield, not the guy at the other end of the aisle".

WHO WILL LEAD?

Lies, Damn Lies and Pulitzer Prize Winners

David Cay Johnston

A local celebrity among Rochester’s elite is David Cay Johnston.  He won a Pulitzer during his days working for the New York Times and has taught economics at a local university.  People here speak of him in awe.  Many claim to know him, including, I am sure, those who have merely touched his sleeve once. 

Like many economists, Mr. Johnston occasionally shares his thoughts in our Op-Ed pages.  And, just as I wrote in “When Economists Write, It’s Not About Economics,” he shares with his adoring public his political opinions rather than fact-based analysis. 

In his recent rebuttal of a guest essay in Rochester’s Democrat & Chronicle, Mr. Johnston outlines his case for Medicare for All (M4A).  He makes several strong points in its favor, including the reduced bureaucratic burden on small businesses, improved access for all and improved medical outcomes. 

In making his case, Johnston cites a conservative source, the libertarian Mercator Center.  He claims that a recent report by Mercator outlines a savings of $2 Trillion over 10 years as a result of adopting M4A.  Driving his point home, he asserts that such savings would save enough money that families with less than $500,000 in annual income could be relieved of having to pay Federal income taxes.  This last point reflects Mr. Johnston’s challenges with long division.  It would require $2 Trillion savings per year to provide tax relief on that scale – not over 10 years.

Citing a conservative source to make a liberal argument is an effective technique (as would be the opposite).  There’s only one problem:  that’s not what the report says.  It’s available on the Mercatus website and actually says: “M4A would add approximately $32.6 trillion to federal budget commitments during the first 10 years of its implementation...”

 


The report is authored by Charles Blauhaus who served as a public trustee of Social Security and Medicare during the Obama administration and deputy director of the National Economic Council during the Bush administration.  The $2 Trillion savings cited by Johnston would be the result of reducing fees paid to physicians by 40%. 

This is an important discussion and I am not trying to dismiss Mr. Johnston’s argument out of hand. Indeed, my own health insurance is provided via Medicare.  It has provided piece of mind and financial relief from my days as a mid-50’s independent contractor with pre-existing conditions.  I am simply suggesting that we should approach the challenges of our healthcare system with facts not partisan punditry. 

The challenges are not only real but also urgent.  The economists at ITR Economics, who boast a 94.7% accuracy rate in their forecasts, predict another Great Depression around 2030, the result of rising national debt and the depletion of the Medicare and Social Security trust funds unless the systems are reformed.

However we decide to pay for it – whether M4A, the current hodgepodge of bureaucracies or something else – the underlying cost structure must be addressed.  In passing, Mr. Johnston refers to our current system as “sick care” and he is correct.  The “Fee-for-Service” model we’ve employed since mid-twentieth century drives up costs and offers no incentive for better medical outcomes. From an economist’s perspective, if you provide a financial incentive for doctors to perform medical procedures, the will perform more procedures – especially when there is a bottomless pit of government money available to pay for them.  That’s not how to achieve lower costs and better outcomes.

If Mr. Johnston had bothered to poke around the Mercatus website a bit more, he might have found a report titled “Fortress and Frontier in American Healthcare.”  It outlines how entrenched interests have blocked the kind of innovation that has transformed other industries from telecommunications to manufacturing.  Such innovation, if applied to our “sick care” model might yield the lower costs and improved outcomes that we all would like to see.  Let’s address those issues before we decide how to pay for it.

We need reasoned argument based on factual information rather than cherry-picked data on this topic of extreme importance. In our hyperpolarized political environment, Mr. Johnston’s essay rather seeks only to inflame the passions of those who already support M4A.

We deserve better from those who pretend be leaders in our community.

WHO WILL LEAD?

The next bubble to burst will be…

Recessions occur when demand gets ahead of our ability to pay for stuff.  Of late (the last 20 years or so), the triggering event for a recession has been the bursting of an asset bubble.  First, it was the Dot Com bubble (or is it .com?).  Then it was the real estate bubble.  The paper gains of assets like stocks and real estate create in us a “wealth effect.”  We feel wealthier than we are and comfortable taking on debt to pay for all that stuff.  When we wake up (or when the bubble bursts), we stop spending so much and the economy contracts.

Cruising channels the other night, I stopped on Bloomberg long enough to hear a Swedish economist who specializes in Asia report that global debt now totals 320% of global GDP, ¾ of it corporate.  (Ya gotta love it: A Swedish Asia expert on American media!  Ain’t globalization grand?)  In other words, corporations and governments have been taking advantage of low rates and central banks’ Quantitative Easing to expand spending and investment that drives GDP growth.  Of course, sooner or later, someone has to start paying back all that debt. It seems that big corporations and banks can keep kicking the can down the road.  However, there are other concerns.  

Long term, the challenge of living up to the obligations that governments have made to citizens will be untenable.  Absent reform of Medicare and Social Security, we may be unable to pay those benefits without taking on debt too heavy for the US economy to support.  The alternatives are to expand the money supply (which QE did to little effect because there was little M2 acceleration) leading to extraordinary inflation, to raise taxes to a degree that will reverse economic growth, or to fail to live up to our obligations.  This extends to states and municipalities (and, indeed, corporations) that can’t pay pensions to which they have committed.  (It should be noted that the unpaid obligations of public pension funds, Social Security, Medicare et al. are not on the books.  In other words, the sum of those obligations is not included in the $320T of global debt.)

So, what does it look like when the bubble bursts?

Some think that the triggering event will be a collapse in the High-Yield Bond market.  (We used to call them Junk Bonds, a more appropriate title.)

To me, it seems more likely that developing countries may suffer a collapse. When countries without a reserve currency enter into international contracts (or development loans), they are generally required to make repayments in a reserve currency, typically US dollars.  As the US dollar strengthens (due to rising interest rates or international strife), it becomes more expensive and, eventually, impossible for those nations and their corporate citizens to repay their debts.  This process could be accelerated by a new tariff regime.  Such an event in one country could trigger a series leading to massive defaults.  This happened in isolated instances in the 90’s. When the Mexican currency collapsed, for example, President Clinton structured a debt package that enabled them to work their way out of trouble.  

Now, of course, the problem exists on a massive scale.  Governments, including the US, are carrying the weight of debt over 100% of GDP (and adding $1+ Trillion per year to it).  Corporations, globally, are carrying more than twice that burden in percentage terms and we don’t account pensions as liabilities.  They are typically described as “unfunded liabilities.”

For several years, the gurus at ITR Economics have been forecasting another Great Depression beginning around 2030.  (They’ve even gone so far as to outline how Millennialsshould prepare for it.) Its causes will be different than its 20^th Century counterpart.  It will be caused, in ITR’s view, by the failure of the US government to reform its largest entitlement programs – Social Security and Medicare. 

This scenario is becoming more believable as time goes on.  We have recently been treated to the spectacle of a hypocritical Republican Congress -- which quite correctly criticized President Obama’s huge deficits – pass a tax bill and a budget that creates $1 Trillion annual deficits for the foreseeable future. 

Maybe it’s time to start hoarding gold. 

WHO WILL LEAD?