Why America’s Healthcare Policy is Failing

“Leadership is about solving problems. The day soldiers stop bringing you their problems is the day you have stopped leading them. They have either lost confidence that you can help or concluded you do not care. Either case is a failure of leadership.” General Colin Powell

Here is our problem. Healthcare in America is broken and ObamaCare is, indeed, having material problems. Depending upon which Party you favor, you may have varying views regarding either of these statements but I do believe they are fairly stated.

Personally, however, I’ve lost confidence that those in Washington can help and as I’ve stated before, I’m quite confident they don’t care about you or I as individuals.

The Democrats, for all of their complaining, do not have a solution to healthcare. While Bernie Sanders would argue that a single payer plan is the solution and California is moving in that direction as well the cost is going to be enormous. That’s because the healthcare system is a for profit model and there are insufficient checks and balances to control cost increases.

Robert Frank, a Columbia University economist argues that I’m wrong and that Bernie and company are right. He writes that, “in many other countries … the total cost of providing health coverage under the single payer approach is actually substantially lower than under the current system in the United States.” He cites several reasons; first that Administrative costs are far lower at 2% rather than the 20% that our insurance companies charge. That point is absolutely accurate as proven out by Medicare Administrative costs which are also roughly 2%.

But then his case fails because as he notes, “the most important source of cost savings under single payer is that large government entities are able to negotiate much more favorable terms….” A coronary bypass averages $73,000 here and only $23,000 in France. But, the French and the rest of Europe have far more socialism baked into their econometric and political models than anywhere in America perhaps other than California. Capitalism is simply more expensive than socialism in this context and free market forces will always seek to maximize profits. That’s why you own stock in your retirement accounts.

So to be honest and clear, the Democrats do not seek to lessen health care costs. Rather, they seek to allow the health care industry to profit endlessly and either raise taxes materially or increase our national debt in order to insure everyone.

But, make no mistake, the Republicans don’t have a solution either. The Republican House and the Senate bills want to provide less benefits to seniors and the poor while returning those tax dollars to those who are higher wage earning citizens. At a time when the wealth gap is widening they want to continue to increase that gap. As we’ve already seen their plan uninsures more than 20 million Americans!

Moreover, and frankly I’m tired of hearing it, they want to allow the free market to have more control under the unfathomable lie that this will be a more efficient and less costly system. Honestly, I can’t even find the words to describe how much of a lie that is but the following chart does a much nicer job than any words I might have:

Screen Shot 2017-07-09 at 11.03.05 AM


We’ve had more than fifty years of free market medicine and while the insurance companies, drug companies and medical equipment companies are minting money and hospitals are famous for overbilling nothing has become more efficient with one exception which I will come to later. The fact is that Republicans want to allow their corporate donors even more profit opportunity at the expense of the poor, the unemployed and our seniors. In short, they are not looking to benefit the American voter, this is about making more money pure and simple.

If you want one simple example of that they want to reinstitute caps on insurance policies i.e. the maximum amount the policy insures as if somehow the person who is deathly ill is at fault and does not deserve medical care at some point.

That is not leadership. It is a bald faced effort to insure that health care corporations are able to maximize their profits to the best of their ability. It is about power and greed on the part of corporate industry, their lobbyists and the willingness of both Parties to line their pockets just as deeply as possible.

And let’s not pretend that health care corporations are hurting. The fact is they are raking in record profits! IF we are going to have a government of the people, by the people and for the people that government must first do no harm to its citizens.

When a Nation’s leadership cares more about itself and its donor base than its citizenry the very fabric of that society will eventually get torn apart. When leadership is so devoid of answers that it’s citizens suffer as a result of decisions made the end state is more likely than not to be chaos.

If you don’t believe that, I share with you one small story to make that point. In the last fiscal crisis there came a point in time where the largest corporations in America were concerned they could not make payroll. Congress’s first step, as told to me by a U.S. Congressman at the time, was to insure that the 82nd Airborne could protect the Capital.

You get to those points when you are in denial. We are at that point now. We are pretending that healthcare corporations are good and its really our citizens who are the problem with healthcare expenses. Thus, rather than solve the problem of 14% average annual increases in existing drugs or what hospitals pay for medical equipment and what they charge for procedures we are going to gloss over all of that and pretend that by insuring less people or charging others more we are ‘fixing’ the problem. BULLFEATHERS!

Anyone can cut expenses by hurting people. That ain’t leadership! Cutting expenses without hurting people is where true fiscal leadership begins. It requires seeing reality as it really is and dealing with it. It is hard detail oriented work made harder when you seek to do no harm to others.

I know of what I speak because that is how my team led Penfed. Granted, we were a tiny microcosm of America but I believe the concept still applies.

We cut expenses as a percent of assets under management in half. We did that, without taking benefits away from the existing staff. There are very few companies in America that operate that way and it made us different.

Sure, there were politics and disagreements and it wasn’t perfect but we all worked together to get the job done.

What got me thinking about this was a CNBC interview where one speaker was opposed to the Senate healthcare plan and one was in favor. It was actually the fellow in favor who got me thinking. They were talking about raising the multiple for what seniors would have to pay from three to five times what a young person would pay for coverage. He made the point that if you solely look at today’s seniors, yes, they were going to be hurt by these cost increases but that young people would pay less for a long time and when their costs finally rose they would still likely be even at the end of the day.

He didn’t have any math to support that but it made sense to me and got me thinking. We made numerous changes that affected future employees but we protected everyone that was currently on board. In short, we left no person behind.

If our elected officials were real leaders they would do what President Trump said when he was candidate Trump and insure that no one is worse off than they are today in terms of coverage or cost.

I don’t honestly know if we can pull that off in its entirety but that is a leadership goal that Americans as a whole can get behind. To accomplish that our politicians would have to own up to the fact that it is the underlying costs of healthcare in America that are out of control and that is what is driving the problem. We need to see reality as it really is.

Here also courtesy of the CBO is another chart showing the NET profit margins for 2015 for most of the players in the healthcare industry:

Screen Shot 2017-07-09 at 11.10.52 AM

What is glaring is that drug manufacturers who have the least pricing pressure make the most while physicians whose pricing is tightly controlled by Medicare rules which are quickly adopted by private insurance companies actually make the least. That is, where America has come closest to what Professor Franks noted above regarding other countries we have seen the most cost control here in America.

The fact is that once you fully embrace a capitalistic medical system without sufficient checks and balances on costs pricing simply runs amuck. So, you can draw a line on the chart above wherever you wish but above some point the market based capitalism that drives these sub segments of the healthcare industry is literally killing us financially.

To be clear, it is killing us as citizens. It is not killing those firms. They are making a fortune, record profits in many instances across the system. And what about those insurance companies that are withdrawing from ObamaCare because they are getting killed financially. It is a crock of lies.

Aetna has announced that they are withdrawing from ObamaCare completely in 2018. Yet, according to their own press release for, “Full-years 2016 and 2015 net income(1) for Health Care were each approximately $2.4 billion.” They did lose $350 million in their individual health care segment but the fact is they made one hell of a lot of money even taking that into consideration.

Their CEO, Mark Bertolini, was the highest paid healthcare insurer CEO as well earning $17.3 million in 2015 and $18.7 million in 2016 before additional stock awards in excess of $6 million for each year.

I would also point out that Aetna’s failed merger attempt with Humana cost the company $1 billion in break up fees in 2016, three times what they lost on the individual health care segment! Do you see them announcing that they will no longer attempt mergers? You do not.

Nor are they the only ones. United Healthcare, also exiting ObamaCare, saw record profits for both 2015 and 2016 as well. These insurers are not leaving ObamaCare because they are in fiscal trouble. They are playing politics to insure that they get what they want in whatever legislation comes forward which is to maximize profits for the corporation and its leadership  all the while averaging 20% administrative costs versus Medicare’s 2%.

Look, I believe in capitalism as a general proposition. Our Nation has demonstrated over a long period of time that this economic model works. But, let’s also recognize that it isn’t a perfect system and left to their own devices Corporations and their leaders will do everything in their power to make more money. Those that are public companies are charged by law to do that.

That’s OK when they are manufacturing and selling a car or a home. But, when we apply capitalism with virtually no controls to healthcare eventually we get to a system where an Epipen that costs $10 is priced at $300. We have systemic problems with hospital overbilling and innumberable medical tests that may or may not be necessary to pay for equipment firms chose to purchase.

The insurers, drug companies, medical equipment manufacturers. their CEOs and their lobbyists get rich while we are left holding the bag. And when it all gets too much for people our ‘leaders’ perpetrate a grand lie that the problem is not them but our seniors and the poor!

We saw this movie here in America a long time ago when Teddy Roosevelt went after the railroad robber barons who were doing the same thing in their day. It is time to do the same in healthcare.

Because, when getting rich becomes the sole motivation and making money is more important than taking care of our citizens then capitalism itself becomes devoid of any moral compass. That, in my view, is where we are at presently and that is a risk to President Trump’s plan of making America great again.

I don’t say that politically. I happen to believe that is a terrific goal. But to do it requires a commitment to protecting all Americans, not just those who make money.

Absent that, we are going to continue to destroy the underlying glue that has bound our Nation together for a great many years.




I usually start my articles with some sort of historical context. In this instance it won’t be about such ancient history.

Several years ago my wife fractured her back. She was taken to one of the largest hospitals in the area where one would expect the care to be top notch. While in the emergency room, among a host of others, she was seen for about ten minutes by two trauma care doctors who asked a few questions, and then left, never to be seen again.

When the bill came we were asked to pay $6500 for trauma care in the ER. That was in addition to everything else and all the other doctors who actually did something. The $6500 was the bill for ten minutes and two specialty physicians asking a few questions.

I’m reasonably certain that more than 99.99% of all patients would have paid that bill. We, however, were lucky. I’d read about this specific practice of billing for services not provided in the Wall Street Journal and for whatever reason it stuck with me.

Dr. Eric David who also happens to be a lawyer as well, wrote, “I’ve served on trauma teams in two of the busiest hospitals in New York City, and I know what a trauma-team activation looks like: doctors, nurses and residents running and yelling, IV lines, monitors. You know one when you see one. Nothing like that happened around my son.”

Nothing like that happened with my wife either. It took us ninety days and a lot of anger, angst and obsessive follow up but in the end that article paid off and the bill was removed. It paid for my Wall Street Journal subscription for the rest of my life!

The Republicans gave a mighty effort to end Obama Care and at the end of the day they failed. President Trump has indicated that he wants to move on with the rest of his agenda. I can certainly understand that although they were counting on the savings from revamping the health care program to aid in the President’s plan for tax reductions.

However, we, the people of the United States, are left with a medical system that is broken. Simply allowing it to break further is not acceptable. Nor is the partisan politics that have gotten us here. Charles Krauthammer, a conservative columnist notes, “a broad national consensus is developing that health care is indeed a right.” He doesn’t agree that should be the case, but he does understand that we are the only major developed nation left that does not provide medical care to all of its citizens regardless of their ability to pay.

In my view, allowing Obama Care to fail will only serve to harm more Americans as well as our reputation with the rest of the world. Before President Trump emerged in his present guise he wrote in his 2000 book ‘The America We Deserve’, “I’m a conservative on most issues but a liberal on this one. We should not hear so many stories of families ruined by healthcare expenses … We must have universal healthcare.”

Interesting stuff and obviously I believe that as well. But, even if you are a free market believer, the facts are that our present healthcare model is both overpriced and underperforming.

That’s material because everyone one of us will face a severe illness in our lifetime. Some folks get lucky and it isn’t until very late in life. Others are not so lucky. But everyone will face some conglomeration of heart disease, stroke, cancer, mental illness, diabetes, HIV or any number of other severe illnesses that are obscenely expensive to pay for. I can’t tell you which card you will draw but as one friend of mine recently said, “Life becomes very hard.”

That’s before even thinking about how to pay for all of the medical services you might need. Cancer alone can cost hundreds of thousands of dollars.

Thus, I believe it is unconscionable to allow our elected officials to place healthcare to the side. I’m not going to pretend that I have all the answers, but what I do know is that any plan that cannot gain a majority of both parties is a plan that will not serve all Americans. No Republican voted for Obama Care and no Democrat voted for the Republican plan. That, in my view, is a demonstration of Congress’s complete abrogation of their responsibility to we the people of the United States as well as a clear demonstration of their subservience to the special interest groups that pay for their election campaigns.

I want to begin by demonstrating that what we have isn’t working. The chart below shows clearly that, as David Ignatius writes in the Washington Post, “Americans don’t realize how bad our system is. Health care costs are far higher in the United States than in other developed countries but our health is worse.”

Screen Shot 2017-03-29 at 1.02.59 PM

Since 1980 we went on a medical spending spree that has not, for the most part, delivered corresponding results. We spend roughly a third more than the nearest nation to us, Switzerland, and their citizens, on average, live about four years longer than we do. Australia and Japan get about the same lifespan as Switzerland and their costs are roughly half of ours.

Hence, as a former business executive, what I would like to see President Trump set as his first objective is a reduction in medical costs of 30% over the next five years. That would still leave us spending more than every other developed nation, other than Switzerland, but it would bring our costs down materially benefiting both our citizens and our national debt. It is also the only way we can afford to insure everyone!

That is a tall order and I know some of you would note that many of the countries shown above have socialized medicine, which is true. Thus, as another friend of mine commented you have to consider the tax rates in those countries because they are likely paying much more in taxes than we are and thus it may not be an apple to apple comparison. Finally, it is well known that in a number of those countries you must wait forever for anything but an emergency. These are just a few of the arguments we use to explain away our poor performance.

To be sure, not everything we are doing is wrong. CNBC noted that the, “mortality rate for cancer is among the lowest out of the 13 countries (they looked at) and cancer rates fell faster (in America) between 1995 and 2007 than in other countries.” That’s very good and it speaks well of our research, technology and medical communities. But, as noted by the Commonwealth Fund International Health Policy Survey of 2015, America’s infant mortality rate is the highest among those same 13 countries! We also have the highest percentage of those over 65 with two or more chronic conditions and we are the most obese nation


Screen Shot 2017-03-31 at 4.34.37 PM

Therefore, at least in my view, it is very hard to make the case that America is getting this right. According to the Journal of the American Medical Association, “life expectancy is declining in the United States for the first time in nearly twenty years…and the gap in life expectancy between the richest and poorest Americans is fifteen years for men and ten years for women.” As Mr. Ignatius notes, “That’s an appalling trend.”

I’m not here to say that Obama Care is the answer. In fact, insurers represent only one part of the healthcare system problems. Nevertheless, I do believe it was a start and I do believe the Republican plan that failed was a step in the wrong direction. More importantly, it did nothing to correct any of the other issues we have with regard to cost in the rest of our healthcare system. But, those are my politics and beliefs. My real point in this commentary is that we can and must do better. We should be holding both parties of Congress accountable for accomplishing that in a non-partisan manner. Healthcare should not be a partisan political issue.

Thus follows my second prescription for President Trump. He should take a page from the military and establish a non-partisan commission comprised of both political parties, private industry,physicians and citizen groups and give them the power to make changes. We have done a similar thing with regard to base realignments in the military, which was highly politicized, and it is working. The same principle can be used here.

Third, we need to do what any well-run business with a problem does. We need to benchmark our performance against those of others and learn from those who are doing better than us.

In 1995 Taiwan, which is a free market Nation, had 41% of its people lacking health insurance. Writing about this Fareed Zakaria says, “The government decided to canvas the world for the best ideas before instituting a new framework.” Today they have universal coverage and are spending only 7% of GDP on healthcare versus America’s 17 or 18%.

As a case study I want to focus on just one Nation, Switzerland and describe a system that Forbes Magazine, a strong supporter of free markets and capitalism, believes has the best healthcare program of any of the developed Nations. They write, “The performance of Switzerland is even more impressive when you consider how fiscally stable it is. The Swiss system, called Santésuisse, is striking in its differences to ours.”

Keep in mind that the commission I propose would look at many countries and their practices but space here precludes me from doing that. If we actually reduced our expenses by 30% we would reach Switzerland’s level of spending and thus I felt they would serve as a good example for such an approach. I’m not trying to be all encompassing in this review. Rather, I’m just trying to suggest a way forward.

“Despite this apparent stinginess,” Forbes goes on to write, “the Swiss have achieved universal coverage for all its citizens. The Swiss have access to the latest technology, just as Americans do, and with comparably low wait times for appointments and procedures.” Impressively, 99.5% of their citizens have health insurance! Some of you may be thinking that it’s a government run system the leans to the socialist side of things. But I would describe their model as a hybrid system that has the government and private industry working in concert to achieve their Nation’s healthcare goals.

Forbes continues on, “Swiss citizens buy insurance for themselves; there are no employer-sponsored or government-run insurance programs. Hence, insurance prices are transparent to the beneficiary. The government defines the minimum benefit package that qualifies for the mandate. Critically, all packages require beneficiaries to pick up a portion of the costs of their care (deductibles and coinsurance) in order to incentivize their frugality.

The government subsidizes health care for the poor on a graduated basis, with the goal of preventing individuals from spending more than 10 percent of their income on insurance. But, because people are still on the hook for a significant component of the costs, they often opt for cheaper packages; in 2003, 42% of Swiss citizens chose high-deductible plans (i.e., plans with significant cost-sharing features). Those who wish to acquire supplemental coverage are free to do so on their own.

Because they can choose between plans from nearly 100 different private insurance companies, insurers must compete on price and service, helping to curb health care inflation. Most beneficiaries have complete freedom to choose their doctor, and appointment waiting times are almost as low as those in the U.S., the world leader.”

Recent data from Commonwealth supports that. With 17% of the Swiss population over 65, where the highest percentage of medical costs occur, versus the U.S. with 14% they still outperform us on cost. Those waiting to see a specialist more than two months in the U.S. total 6% versus 3% in Switzerland. They have more hospital beds than we do and more doctors. Fifty four percent of their citizens believe their health care system works well versus only 25% in the U.S. and only 7% of the Swiss believe that their system must be rebuilt from the ground up versus 27% in the U.S.

To be sure, their system isn’t perfect. Their doctors make less than physicians do in the United States. General practitioners earn about a third less and specialists about half as much. But the most expensive of their medical schools charge $8000 US dollars a year for tuition, room and board. My daughter’s in state medical degree at UVA will cost her parents about eight times more than that. She is a lucky one because ninety percent of medical students in the U.S. finance ninety percent of the cost of their education.

Faced with that kind of debt load you can bet they are going to want to maximize their income. You would too! They are not alone either. For profit hospitals, medical equipment firms, insurance companies and the pharmaceutical industry all want to maximize their profits. But all of that profit and spending isn’t working. Here’s another snapshot of our performance against an array of developed nations. We rank dead last.

Screen Shot 2017-03-30 at 3.38.25 PM

But, the chart also shows that the Swiss are not the model for everything. In fact, no one is. There are no perfect models. In Britain, which is a socialist model, the quality of care is the best in the world but their physicians working conditions are not. The point of looking at multiple Nations is to take a little from each of those who outperform us in a given area and meld it into our system. That’s how well run companies go about improving.

If we are going to have, what I refer to as a real right to life, which means more than simply being born, then we must move to my fourth prescription which is that it is well past time to recognize that we must have universal healthcare coverage for all of our citizens and the only way we can do that is to bend the cost line down.

Screen Shot 2017-03-30 at 3.46.52 PM

We have simply lost touch with the rest of the world. Using the Swiss model as a point of comparison the average cost for bypass surgery is less than half ($75,000 compared to $ 36,000) of that in the United States. An MRI in America is nearly ten times the cost of one in Switzerland and a CT scan is double. This is 2013 data as reported by the International Federation of Health Plans. Healthcare in the aggregate represents 17 to 18% of GDP in America and only 11% of GDP in Switzerland.

What has happened, in my opinion, is that we have become caught up in focusing, for the most part on the insurance system i.e. Obama Care but that is a mistake. Certainly we need to fix our insurance issues because they are not operating efficiently. Free market insurance companies average 17% overhead expense versus Medicare’s government run program which operates at 2%. There’s plenty of room there for improvement. Interestingly for me as a former credit union guy, the Swiss require their health insurance carriers to be not for profit. Frankly, I think that is brilliant because credit union’s by and large provide a better deal to consumers than for profit banks and my guess is the same holds true in this vain as well.

But, we do have to think about this carefully. The National Center for Policy Analysis in the U.S. notes, “Despite competition, choice, private ownership and portability, the Swiss system is still very bureaucratic, perhaps as much or more so than our own. It has mandated benefits, price controls on providers and other regulations that make it hard for entrepreneurs.”

They also point out that, “Although long term insurance relationships are the norm, the Swiss have been moving in the direction of managed competition which encourages people to switch health plans….Under managed competition, everyone’s incentives are perverse.”

Of course I don’t think you can get much more perverse than charging $600 for two Epipens that cost less than $20. One would think that health care would be more efficient as a free market enterprise. After all, that’s true in most instances. But as far back as 1963, “economist Kenneth Arrow, who later won a Nobel Prize, offered an explanation as to why,” this does not work well in healthcare. “He argued that there was a huge mismatch of power and information between the buyer and seller.” You can choose not to buy a car easily enough but, “if a doctor insists that you need a medication or a procedure, you are far less likely to reject the advice.”

That is how for profit hospitals, doctors, medical device firms, pharmacuticals and insurers have gamed the system and I choose those words deliberately. We have made health care a for profit capitalist enterprise. That’s fine if you have money. You can afford to insure yourself well enough to cover the cost of having cancer. But, for most Americans those costs are becoming prohibitive.

I’m not going to tell you the following chart will make you happy but in Ohio hospitals are required to be transparent in their pricing. So, the Cleveland Clinic, whose CEO is noted as a visionary, clearly lists the pricing for their services (I’m only showing one area but they do list everything you could imagine):

Screen Shot 2017-03-31 at 3.01.01 PM

I can assure you that the major hospital my wife went to does no such thing. Indeed, when I called to complain the customer service representative said, “well, that’s the code the doctors put down so that’s what we bill you.” A recent study by the U.S. Academy of Medicine, “estimates that 30% of (the $3.4 trillion spent for U.S. healthcare) is wasted on unnecessary services, high prices, inefficient delivery, excess administration and fraud.”

Which brings me to my last piece of prescriptive advice for the President. Don’t just focus on insurance. Use this commission to begin revamping every sector of the healthcare delivery system. Require a plan that is clear in its goals and objectives with defined deliverables and expected completion dates. Demonstrate to all Americans that you care and that you mean business.

Doctor Eric David, who doesn’t agree with my views, nevertheless, wrote my closing when he said in the Wall Street Journal on September 2, 2014, “I believe in free-market solutions almost as strongly as I believe in abiding scientific principles such as relativity. I think the quality of care in the U.S., if you have the right insurance, is the finest in the world. As a biotech executive, I think the U.S. is responsible for driving more global medical innovation than any other nation.

But our actual delivery system is just a mess. The new Affordable Care Act is just “a complex and somewhat ugly patch on a complex and somewhat ugly system,” as Princeton economist Uwe Reinhardt put it. Nothing will change until we shift incentives away from overuse and upcoding, but both Democrats and Republicans have spent more of their time attempting to scare their constituencies than they have deeply examining incentives and proposing any solutions—free market or otherwise.”

Health care should not be a political football, Mr. President, and we the people of the United States of America should not have to be embarrassed by our system’s performance. You ran a very large company. You know how to do this! As former President George Bush once said, “Let’s roll!”






The Infrastructure of the Wall

Screen Shot 2017-02-09 at 7.23.46 AM

Walls have been around since the earliest days of organized governments. We all know about the Great Wall of China built to keep invaders out. Despite its length it did not do the job. Above is Hadrian’s wall built in 120 AD to keep out non existent invaders, so I guess it worked. Others, like the Berlin wall worked for a while, but became an enduring symbol of freedom that eventually led to its downfall.

Nevertheless, we continue to build walls to protect us from what we perceive to be material threats from others. Below is a modern wall built between a Palestine refugee camp and Jerusalem.

Screen Shot 2017-02-09 at 7.32.15 AM

And, we actually do have existing sections of a wall with Mexico already as seen below.

Screen Shot 2017-02-09 at 7.34.36 AM

IF, all we had to do with our money was build a complete wall from Texas to California we would certainly have both the resources and the ability to accomplish such a task.

But, the question I am asking is whether, at a time of limited financial resources and maximum infrastructure demand, is this truly how we ought to be spending our money. In other words, the wall, as I see it, is an infrastructure item designed to lessen a perceived threat from illegal immigration. In that context, it should compete with the rest of our infrastructure needs.

I recognize that it is one of the President’s centerpiece programs and as such he intends to move forward with it. But, as a Fortune Magazine headline notes, “President Trump Wants to Revitalize Infrastructure. But His Budget Could Make It Worse.” That’s because among his proposed cuts are, “The DOT’s Transportation Investment Generating Economic Recovery (TIGER) grant, one of the most popular federal transit programs that provides funds for capital projects in both urban and rural areas, will lose nearly a half-billion in funding under the 2018 budget blueprint. Since 2009, the TIGER grant has provided more than $5 billion for over 400 projects including interstate highway construction across all 50 states.”

To more fully understand the infrastructure issue and to be able to make informed decisions regarding how we might spend our available funds it is important to understand the deficit we are at relative to modernizing our existing infrastructure network.

The American Society of Civil Engineers issues a report on our Nation’s infrastructure every four years. Below is a snapshot of the 2013 report.

Screen Shot 2017-02-09 at 7.43.10 AM

At that time it was estimated that the cost to repair our infrastructure by 2020 would be $3.6 trillion. Obviously, we didn’t spend anywhere near that amount. As a result when the ASCE issued their 2017 last week they now estimate the needed funds at $4.6 trillion over the next ten years. They estimate that $2.5 trillion are already funded leaving a gap of roughly $2.1 trillion. Those numbers do not take into account the President’s recently reduced budget that will only serve to increase the gap between what is funded and what is needed.

Screen Shot 2017-03-19 at 8.37.13 AM

As with any plan limited resources requires prioritizing needs. My perspective is that the wall should be subject to the same kind of review process as the rest of our infrastructure needs. Generally speaking that is a risk reward type of exercise. With that in mind I want to highlight some of the more critical National issues that, in my opinion, must come first before we even begin to think about building a wall that we must pay for, because it is clear that the Mexicans are not going to do so.

We’ll start with drinking and waste water controls because without those we cannot survive. Hence, I would argue that this is the single most important issue of all of our infrastructure needs. Flint, Michigan serves as a simple reminder of what happens when things go wrong. The 2017 report notes that, “Drinking water is delivered via one million miles of pipes across the country. Many of those pipes were laid in the early to mid-20th century with a lifespan of 75 to 100 years. While water consumption is down, there are still an estimated 240,000 water main breaks per year in the United States, wasting over two trillion gallons of treated drinking water. According to the American Water Works Association, an estimated $1 trillion is necessary to maintain and expand service to meet demands over the next 25 years.”

Fortunately, we don’t have to spend that full amount over the next ten years. The estimated funding shortfall for the decade ahead (the difference between what has been allocated and what is needed) is $105 billion. That, I would argue, is where the first ten percent of the President’s $1 trillion infrastructure plan must go.

Next, I want to focus on our Nation’s bridges. While bad roads won’t kill us, failing bridges will. According to the report, “The U.S. has 614,387 bridges, almost four in 10 of which are 50 years or older. 56,007 or 9.1% of the nation’s bridges were structurally deficient in 2016, and on average there were 188 million trips across a structurally deficient bridge each day. While the number of bridges that are … structurally deficient is decreasing, the average age of America’s bridges keeps going up and many of the nation’s bridges are approaching the end of their design life. The most recent estimate puts the nation’s backlog of bridge rehabilitation needs at $123 billion.”

It is important to note that while we have spent more on bridges and in particular troubled bridges in recent years, the continued aging of other bridges leaves us with an enormous deficit to bring our bridge system up to par. It serves to highlight what has brought us to this point in most of the infrastructure areas. We built a lot of our infrastructure a long time ago and we have failed to provide for proper maintenance and replacement costs. While a bumpy road is one thing a bridge failure is simply beyond the pale. Hence, at least in my view, this is mandatory spending and takes us to roughly 20% of the President’s planned spending.

Third, I want to focus on dams and levees where the potential loss of life and homes is even greater than from a failed bridge. “The average age of the 90,580 dams in the country is 56 years. … Due to the lack of investment, the number of deficient high-hazard potential dams has also climbed to an estimated 2,170 or more. It is estimated that it will require an investment of nearly $45 billion to repair aging, yet critical, high-hazard potential dams.” Unfortunately, only $5 billion of that is funded over the next ten years and the situation is the same for levees.

“As development continues to encroach in floodplains along rivers and coastal areas, an estimated $80 billion is needed in the next 10 years to maintain and improve the nation’s system of levees. You might consider what happened in New Orleans as the litmus test for what happens when things go wrong. In 2014 Congress passed the Water Resources Reform and Development Act, which expanded the levee safety program nationwide, but the program has not yet received any funding.” Thus, there is only $10 billion of the needed $80 billion available over the next decade.

All in we are now at about $338 billion or roughly one third of the planned spend.

Next on my list of mandatory expenditures is the upgrading of our utility grid. “Much of the U.S. energy system predates the turn of the 20th century. Most electric transmission and distribution lines were constructed in the 1950s and 1960s with a 50-year life expectancy, and the more than 640,000 miles of high-voltage transmission lines in the lower 48 states’ power grids are at full capacity. Without greater attention to aging equipment, capacity bottlenecks, and increased demand, as well as increasing storm and climate impacts, Americans will likely experience longer and more frequent power interruptions.”

While we might not lose any lives if we fail to modernize our electric grid America’s economy will be subject to material harm. More importantly, a weakened electric grid also has implications for security and the continued development of the digitized world.

Fortunately, in this instance we have been willing to make large investments to upgrade the grid, but even with those expenditures, it is estimated that we are $177 billion short of the necessary funds to modernize over the next decade. That takes us to roughly half of the President’s trillion dollar plan. Some of you may deem illegal immigration to be more important than the items above but, personally, I think that is a hard case to make.

At this point, however, we are, at least looking at infrastructure items that have less societal risk. Thus, the money for building the wall may compete more effectively for funding. These items include our Nation’s roadways, rail and mass transit where the estimated shortfall is roughly another $1 trillion over the next ten years before the President’s budget reductions. With them, that number rises close to $1.5 trillion.

Modernization of our airports, schools, waterways and ports, parks and recreation also carry a shortfall of about $500 billion over the next ten years.

It is in this context that I wish to place the proposed spending of $10 to $20 billion for a wall with Mexico. If the President were more straightforward on the issue and simply said we really need $2 to $2.5 billion we could find the money for the wall. The fact is that unlike most of the other infrastructure items parks and recreation are nice to have rather than a necessity. The wall would easily come well before those expenditures.

But, the President’s budget further obfuscates the infrastructure issue by making the situation worse rather than better. It is in that context that I ask the question, is it worth it? When we don’t have nearly enough money for our existing needs do we really need to build the wall?

I do not believe that we do and I while I know some of you will part ways with me at this point I’d like to make my case.

The fact is that the President has fallaciously tied the building of a wall first, to the Mexicans paying for it and then to a material reduction in illegal immigration resulting in less crime and less availability of illegal drugs.

Let’s get past the first and last points. Mexico is not going to pay for the wall. That is simply a crock. Moreover, the cartels are going to continue bringing drugs into the country regardless of whether there is a wall or not. They have the money, the manpower and the brains and importantly the demand is there.

So, let’s focus on the issue of keeping people out. The facts are that while walls may work in the short run, history suggests that they do not work over the long term. Certainly, in modern times, the Berlin Wall worked for fifty years before it fell. Equally certain is the fact that while the Israeli’s wall works physically they are losing badly in the court of public opinion vis a vis Palestinian land. In the end, just like with Berlin societal norms will bring that wall down as well.

So, we can spend the $10 to $20 billion or more that it will take to build a wall and for some period of time it will reduce illegal immigration in all likelihood. But, my guess, based upon history is that whether it is a change in administration down the road or a change in societal norms for an already changing American demographic, the wall will not last. If that proves to be the case we spent the money for nothing.

And, I do believe there is a better way. I have chosen to use a conservative source as the basis for my position. According to Breitbart, “A 2017 report by the Texas Department of Public Safety reveals that over the period from June 1, 2011 to February 28, 2017, the 215,000 criminal aliens who were booked into Texas jails were collectively charged with 566,000 offenses, including 1,167 homicides and 6,098 sexual assaults, with a total of 257,000 convictions.”

That report notes that two thirds of the individuals were here illegally. Clearly, that is why some folks are concerned about illegal immigration. Whether you agree with that or not it seems to me to be a rational concern.

Breitbart goes on to write, “It’s no secret that progressive politicians in hundreds of cities and counties are opposing the Trump administration initiatives to end so-called “sanctuary” policies. What those politicians never talk about is the fact that those policies continue to allow tens of thousands of criminal aliens to go free instead of facing deportation proceedings as prescribed by federal law.”

This, in my opinion, is where a meaningful discussion can be had at far less cost than building a wall. I do believe that Breitbart is correct, that we can have much more effective and efficient deportation of those illegal immigrants who commit a crime. I’m not talking about running a red light. I am talking about crimes to other people’s physical well being and /or property.

Given the numbers in the Texas example a no tolerance policy for any kind of physical or property crime would reduce overall crime by roughly fifty percent because those individuals tend to commit more than one crime given the numbers above. That’s a conversation worth having and one where we should be able to reach a conclusion we can all support.

I know for the President and many of his supporters that would not be enough. They are concerned that the ‘face’ of America is changing. As noted in the Washington Post, Representative Steve King of Iowa is quoted as saying, “America can’t restore “our civilization with somebody else’s babies” and warning of a liberal effort to destroy Western civilization through immigration.”

If that is why you want the wall built I say to you as Congressman Paul Ryan said in response to Congressman King’s comments, ““We’re a melting pot. My family’s here because the potatoes stopped growing in Ireland,” he said. “The American idea is this beautiful idea which is there for everyone, which is that the condition of your birth doesn’t determine your outcome in life.”

Keeping others out of our National neighborhood because we don’t like the color of their skin or their social makeup is nothing short of racial discrimination. As a Nation we must not support that. It lacks both the ethical and moral high ground and it is just plain wrong!

America is made better by those immigrants who are law abiding and do jobs such as picking crops or janitorial work that the vast majority of Americans don’t want to do. They do that in many instances because they want their children to have a better future. America has a very long traditional of accepting immigrants to our shores.

In most instances they do begin at the bottom of the labor market and have to work their way up over a number of generations. For me, that is the essence of the American dream and we should not be forsaking that for any reason.

The fact is we are at least $2 trillion short of improving our infrastructure and every dollar counts!

We don’t need to waste $10 to $20 billion on a wall that will not stand the test of time.

Playing Guts Ball: Be careful what you wish for

As we have watched President Trump operate in the first few weeks of his Administration I am struck by several things, first, as Dan Bale points out in the Washington Post, “he might be rare among politicians, one who is prepared to keep his promises and who knows that an immediate and all-out assault on the status quo might be needed to get things moving.”

Second, as he has declared war with the press and they with him we must discount many of the most dire media headlines because, in truth, we’ve heard it all before and a lot of it is just hype to sell papers or air time.

Let me share with you some quotes. “…Executive aggrandizement is not safe for democracy.” (Des Moines Register) “…The President’s scheme would end the American state as it has existed throughout the long years of its life.” (New York Herald Tribune) “A former president of the American Bar Association labeled the …plan a shortcut to dictatorship.” Finally, in an open letter to Congress a former member of the opposing party writes, “The duty of Congress now … is to keep the President from destroying democracy and setting up personal government in its place.”


You’ve seen or heard commentary very much like this regarding President Trump already. Except that my quotes are from 1937 and they were written with regard to Franklin D. Roosevelt. My point being that our analysis of events, actions and risks needs to come from the center, not the left or right because those views tend to have a bias that hasn’t changed in 100 years or more.


So, make no mistake as a staff writer at Vox notes, “Trump’s departure from the decades-long bipartisan consensus was politically brilliant. His promise to put America first resonated with tens of millions of Americans who know that agreements like NAFTA have caused job losses in the US.”

So, today as we talk about trade and taxes and their potential impact on future elections let’s recognize that the President and his team are smart. They would not have gotten to where they are if they were not. But, trade and taxes will require every bit of the team’s intellect to get it right because depending upon how all of that plays out two more states in addition to the ones we noted in the last issue will be in play over these issues.

Those states are Florida and Minnesota. President Trump won Florida by 113,000 votes a margin of 1.2%. He won Minnesota by 45,000 votes or 1.6%.

It would not take much to swing the election in either state. Indeed, as reported on Minnesota Public Radio, “Minnesota farmers … count on billions of dollars in exports to overseas markets — especially to China (where) exports have exploded the last 10 or 15 years. If Trump really goes after China, the likely retaliation could hurt U.S. farmers. Now, they’re waiting to see what the Trump administration actually does.”

Minnesota is the 4th largest food and agricultural exporter in the United States and that industry is the largest single industry in Minnesota with 75,000 farms and more than enough votes to sway the 2020 election in that state.

During the campaign President Trump said, “I’m going to tell our NAFTA partners that I intend to immediately renegotiate the terms of that agreement to get a better deal for our workers. If they do not agree to a renegotiation, then I will submit notice … that America intends to withdraw from the deal.”

We have already seen the earliest skirmishing in what will likely be a long and drawn out affair. The President’s intent to build the wall with Mexico and who will pay for it caused the Mexican President to cancel his proposed early trip to visit with President Trump. I predict that there will be much more of this to come. President Trump does have a caustic side to his personality and that will get in the way of international negotiations.

Mexico is the third largest trading partner of the United States and the second largest for the state of Minnesota. While the President wants to bring jobs back to America, that’s unlikely to happen in Minnesota. The current unemployment rate is 3.7%; essentially full employment.

More to the point however, is that while certain portions of, “… American manufacturing was significantly hurt by NAFTA, Minnesota … is less reliant on those kinds of jobs than other states, and is a national leader in manufacturing of goods like medical technology and electrical equipment — products that require highly skilled workers ….” (Minneapolis Post)

The problem for the President is that while the America First theme worked on the campaign trail, trade is a very complex issue with a lot of moving parts. Paul Vaaler, an associate professor for both the University of Minnesota’s law and business schools, believes, “Trump’s plan to redraw NAFTA carries a potentially negative impact for Minnesota businesses, in particular.” If that were to happen, both sides would suffer.”

That view is echoed by Cosette Creamer, a political science professor at the University of Minnesota, “In terms of Minnesota alone, we’re the 16th largest exporter in the U.S. That’s a large number of jobs that are supported through exports of goods and services abroad, and it would potentially be the industry hit the hardest.”

So, there is real risk to the electoral map if NAFTA is renegotiated. While the U.S. may get ‘a better deal’ it is highly likely that the Mexicans will exact some price for that which would affect U.S. exports and in that event Minnesota stands to be hurt.

But, the President likes to play ‘guts ball’ if you will and he also said on the campaign trail, “I am going to instruct the U.S. Trade Representative to bring trade cases against China, both in this country and at the WTO. If China does not stop its illegal activities, including its theft of American trade secrets, I will use every lawful presidential power to remedy trade disputes, including the application of tariffs….” (Real Clear Politics, June 28, 2016) He went on to also say, “I am going to instruct my Treasury Secretary to label China a currency manipulator.”

Given that the President is moving on many of his other campaign promises we must assume that he will move in some way against the Chinese as well. When he does he will be, in effect, opening a two front trade war with both the Mexicans and the Chinese. Winter Nie writing in Fortune Magazine with regard to the China trade said that, “If Trump were to impose the 35% to 45% tariffs that he talked about in his campaign, the situation could evolve quickly into a total rupture. What is certain is that a complete rupture would hurt American companies and China as well, though America will likely be the bigger loser.”

“The danger is in thinking that talking tough to China will produce positive results. It won’t. From Beijing’s perspective, international trade takes a second seat to internal politics. Chinese President Xi Jinping’s top priority is to maintain political stability. He cannot lose face … and hope to retain power at home. He especially cannot deal with an American president who the Chinese feel fails to show proper respect for China itself. And … he really doesn’t have to … mainly because the U.S. needs China more than vice versa. Twenty years ago, the situation might have been different.. China has most of what it needs now, and what it doesn’t have it can easily obtain from vendors outside the U.S. Although a good deal of American high tech equipment is manufactured in China, the lion’s share of the profits go to the American companies that designed the equipment. If that were to stop, American companies would be hurt more than Chinese manufacturers.”

So, the President is walking a very fine line with his efforts on trade. Importantly, even if the President is successful in his trade negotiations and brings jobs home to the U.S. prices for all of us are going to go up because wages in the U.S. are materially higher than in Mexico or China, which is why they got the factories in the first place.

Hence, we should be careful what we wish for. But, the problem for the President is that there is not a clean winning hand. He can change the NAFTA agreement and still lose Minnesota. He can be aggressive with the Chinese but it may result in materially higher prices for goods here at home.

The President is also intent on playing guts ball with regard to the issue of taxes. Everyone, of course, favors lower taxes but on CNBC a Goldman Sachs official, “pointed out that potential GOP tax cuts would produce an even larger budget deficit, even if increased investment modestly offsets the impact on tax revenues….as a result, eventually other taxes would have to be raised or government expenditures cut.”

Thus, we turn to Florida where the National election results have been incredibly close for the past number of elections. It might seem odd to you to make Florida the epicenter of the tax battle but I believe it is for reasons that beyond the fact that it is a swing state.

The bet the President is making is two fold. First, that the economy will grow fast enough to produce additional revenues that will offset the reduction in the tax rate. Second, that companies will use the reduction in taxes to grow their businesses. But, many economists and many in Congress have not bought into that. The Washington Post noted that, “The alarm and anxiety within the Republican Party’s congressional wing toward its own president are remarkable…among Mr. Trump’s most outspoken intraparty critics, the warnings of resistance are unambiguous.”

In truth Florida represents the highest stakes of all for the Republican Party because of the large number of electoral college votes it has. The Post suggests that, “Mr. Trump’s vision will inevitably collide with establishment Republican leaders in Congress and the outcome could determine not just the success of his presidency but also the identity of the party.” That’s one of those over the top newspaper lines to sell papers.

But, On Fox news David Stockman, a Reagan era veteran, “warned that a Trump fiscal bloodbath is fast approaching, not a fiscal stimulus.”

Which brings us dead center to taxes, Medicare and Florida. If Republicans are intent on managing the Nation’s long-term debt levels and lowering taxes at the same time, they cannot do that without reigning in the costs of Medicare. Both Paul Ryan and Congressman Tom Price want to do that. They, according to the Detroit Free Press, “are among Republican leaders in the U.S. House who support legislation to privatize Medicare by converting it to a ‘premium support’ (tax vouchers) system.”

But when the Congressional Budget Office looked at this proposal in 2011 it said, “that turning Medicare over to private insurance plans would result in a skyrocketing cost to seniors and higher administrative costs.”

The CBO has gone on to say, “Just because the Republican Party has majorities in the House and Senate and a Republican President, it is not a mandate to destroy Medicare with a “voucher” plan to pay outright subsidies to insurance companies who make big contributions to many members of Congress.”

The fact is the Republicans are going to get their tax cuts. They have the votes. The question for the party is whether they are going to hold true to their belief that the budget should be balanced and that we have to do something about our long-term debt.

If they do, then Medicare is in play and if that comes to pass then Florida where fully twenty percent of the population is on Medicare also comes into play. In fact, I will go so far as to say, that if they privatize Medicare for current or near term Medicare recipients and rates go up or coverage goes down, Florida will go Democratic in the next election.

Courtesy of an unintended guest at the Republican planning meeting we already know that Congress is concerned with how the ACA will play out. Those concerns will seem like nothing if Medicare changes for the worse. Remember that candidate Trump promised not to touch Medicare or Social Security.

Remember too that our elected officials first do what’s best for them and then their donors. We, the voters, come last. Insurance companies are for profit and privatizing Medicare will not lower costs or improve coverage.

But, as I said at the outset the Trump team is smart as are the leadership of the Republican party. They will do nothing that puts Florida at risk. Thus, whatever changes occur to Medicare that are material in nature will either be obfuscated to such a degree that recipients don’t feel it immediately and/or they will impose those changes on individuals 55 years of age or younger or something along those lines. In short, just as I wrote regarding the ACA repeal, Republicans will spend what they need to in order to insure that both the 2018 and 2020 elections go in their favor.

With regard to Mexico I believe that we will enter into negotiations with both Mexico and Canada and those negotiations will neither be fast nor certain. In the end I believe the one thing we can be certain of is that consumer goods prices are going to go up as a result of whatever comes out of the NAFTA changes.

The real wild card, however, will be China. President Trump can use his bully pulpit with domestic business leaders and that will work to some extent. He can certainly get a ‘win’ out of Mexico although we, as consumers, will be paying for it. But, the Chinese are a very different story. Despite the President’s bluster, the Chinese are every bit as strong a negotiator as we are and as noted above they have less to lose.

So far, the President has not acted with regard to China. If and when he does I believe the odds are overwhelming that, ‘one should be careful what they wish for.’ That outcome is far from certain and presents real risk to America’s interests overseas as well as inflation here in the United States. Given that the President, “might be rare among politicians, one who is prepared to keep his promises,” you should expect a very messy outcome.




Power, legitimacy and the nature of political capital


Pitti Palace, Florence Italy, Home to the Medici Family

“At the end of the Middle Ages Italy was an area of enormous geographical, cultural and above all political fragmentation.” Two hundred years later, “the political geography of Renaissance Italy was above all one of powers that did not trust each other … and this created a climate of mutual suspicion.” In other words, not much had changed, according to historian Marco Follin.

Indeed, the leadership of every city-state within Italy to include the Pope had two things in common; an ongoing quest for legitimacy and power. Politics has not changed even as we approach the modern era. All of us are too young to remember Franklin Roosevelt’s first election that was as hard fought and ill tempered as the Clinton Trump election. H.W. Brands, a noted historian writes that the Republican leadership, “hated Roosevelt during the campaign and … even more after the election … refusing to believe that the landslide for Roosevelt (He won by 7 million votes) conferred legitimacy on Roosevelt’s approach to governance; it simply demonstrated that the American people could be deluded by false promises of an easy return to prosperity.”

But Mr. Trump did not win by 7 million votes. Indeed he lost by several million and while his victory in the Electoral College is a fact, he won Michigan by only 10,700 votes, Wisconsin by 22,200 and Pennsylvania by 72,000. Those three states carried the election for the incoming President by the narrowest of margins. Indeed, Karl Rove, writing in the Wall Street Journal, notes that, “Mr. Trump will enter the Oval Office with less political capital than any recent President.”

America remains both culturally and politically divided. The Republican leadership and the President – elect know that. Thus, they recognize the need to act decisively in the early days of the administration in order to create a sense of momentum that can define both their legitimacy and their power, for in politics the next election is always just around the corner.

Success and in particular long term success comes only to those who have a clear cut strategy, remain focused on that strategy and execute plans that only result in accomplishing their strategy. It isn’t that mistakes don’t happen; they do, but leaders must learn from for those mistakes. Those that repeat them are doomed to failure.

In politics it means using political capital carefully and conserving as much of it as possible as often as possible. Easy wins use little capital, difficult issues use a lot and mistakes require even more to fix them.

Thus, we must take the Republican House member’s initial effort out of the box in 2017 to abolish and weaken the ethics oversight of them as a mistake. In this instance it was one that was against the wishes of their leadership, which is a good thing, but it was a mistake nevertheless and a demonstration of what mattered most to these elected officials … greed! If you believe they are there for your benefit, I believe you must think again. They will only benefit you when it benefits them. That is the nature of political capital and greed. That, by the way, is the truth regardless of the party in power.


In  Florence you hid your power, legitimacy and capital INSIDE, away from the public

We must keep that in mind as we discuss how the critical issues of the new Administration are likely to be framed. Despite President-elect Trump’s desire to drain the swamp, nothing has changed in Washington politics nor is it likely to.

It is in that context that I turn to the panoply of issues to be tackled by the new Administration; Obama Care, trade and taxes, the wall with Mexico, infrastructure spending and the Supreme Court.

I want to set the Supreme Court Justice decision aside. A conservative will be nominated, they will be qualified and they will take their place on the Court. There will certainly be a great deal of ‘news’ and debate associated with the nomination but at the end of the day no political capital will be spent by either side. In other words Michigan, Wisconsin and Pennsylvania won’t be in play over this issue.

That is absolutely not the case with the first of our issues, Obama Care. In Michigan 313,000 people use Obama Care; 174,000 in Wisconsin and 412,000 in Pennsylvania. Lose 6% of those votes because individuals lose their coverage or cannot afford it under a new plan and the future election results in Michigan and Wisconsin would be different making the election of 2020 a crapshoot for both parties. That’s how close the election really was.

Those three States and how their citizens react to President Trump’s legislation will frame what defines legitimacy and power in perhaps as little as two years time but certainly at the four-year mark.

I believe there is certainty that the Republicans are going to repeal Obama Care. They have the power to do so without a single Democratic vote. They will act as quickly as possible to do so. In fact, they have already started.

According to the Washington Post, “President-elect Donald Trump said in a weekend interview that he is nearing completion of a plan to replace President Obama’s signature health-care law with the goal of “insurance for everybody,” while also vowing to force drug companies to negotiate directly with the government on prices in Medicare and Medicaid.”

Regardless of what plan the Republicans adopt it will be a free market plan. There will be no penalties for going uninsured. But the cost of those plans is far from certain and health care companies, providers and insurers will have far more room to adjust pricing.

The Fiscal Times notes, “The problem lies in the basic economics of the health insurance market. Without a mandate to purchase insurance, the people who see the least value in it — younger, healthier consumers — are likely to decline to buy it.” Should that occur the price to those who remain in the insurance programs will rise and perhaps substantially so.

Even if young people choose to accept insurance they are going to take the cheapest plans with the least coverage. It is almost a certainty, as a result, that costs for older Americans will rise under such a scheme.

According to CNN, “Trump could put Republican leaders in a bind, as they have already been fielding widespread concerns from rank-and-file members about moving too fast to dismantle Obama Care when there is little consensus on an alternative.” Mr. Trump has said he is just waiting for Representative Price to be confirmed as Secretary of HHS.

Representative Price, it was noted in the Wall Street Journal, traded more than $300,000 in shares of health-related companies over the past four years while sponsoring and advocating legislation that potentially could affect those companies’ stocks. In at least one of those trades, he obtained private placement pricing, which is below what the general public can receive. It’s legal but it is also a demonstration of how our elected officials behave. What benefits them is what they do first. Then they take care of their donors. We are last. We must keep that in mind as we think about how those in power will create any of the new legislation to come.

According to NPR, “Price’s plan offers fixed tax credits so people can buy their own insurance on the private market. The credit starts at $1,200 a year and rises with age (up to $3,000), but isn’t adjusted for income. States would get federal money to create so-called high-risk pools under Price’s plan. These are government-run health plans for people with existing medical conditions who can’t get affordable health insurance on the private market. Critics say high-risk pools have been tried in as many as 34 states and largely failed because they were routinely underfunded.”

But, according to The Fiscal Times, “Price appears to be seriously low-balling the scope of the problem by proposing to invest a mere $3 billion into state risk pools over a three-year period. Ryan’s “Better Way” plan, for instance, would provide $25 billion over the coming decade, and even that might prove to be woefully inadequate.”

Politico notes that, “In theory, that logic works just fine,” said Sam Glick, a partner at Oliver Wyman, a consulting firm. The problem is funding the high-risk pool. “The temptation over time, when budgets get tough, is to provide less and less coverage for people,” Glick said. “You see higher deductibles, lifetime maximums, narrowing of networks.”

But, that’s an issue for down the road because my guess is that for the first four years the Republicans will fund what it takes to make ‘their’ plan work. They can’t do otherwise and still hope to hold those three critical power States. But you can begin to feel how the winds of political capital, legitimacy and power flow.

It’s unlikely that the Democrats will lift a finger to help the opposition. It isn’t in their best interest. The free market Republican plans are the complete opposite of the Democratic Obama Care program.

In my view, it is difficult to believe that costs will actually be less under such a plan. That requires a belief that the health care and insurance industries will not act to maximize profits. As for profit firms, many of which are on the stock exchange, their legal requirement to their stockholders is to maximize earnings not minimize them. In the Pharmaceutical industry we have already seen the effects of free market pricing. The Democrats know that and they believe that time is on their side.

While the House can pass new legislation with any Democrats, the Senate cannot. There, as New York Magazine notes, “a majority can pass a bill that only changes taxes and spending. Any bill that does anything beyond change taxes and spending is subject to a filibuster. The Republicans could eliminate the subsidies that make Obama Care’s coverage affordable without any Democratic votes, but writing a replacement plan would mean changing regulations on insurance, which means they need enough votes to break a Democratic filibuster.”

If the Democrats do filibuster, President Trump will argue that that his Administration has put up a replacement plan and it is the Democrats who are standing in the way. The Republicans will put great pressure on those Democrats up for reelection in 2018. Without question, if individuals lose their insurance or the existing marketplace runs amuck, there will be an immense amount of finger pointing on both sides.

And, there’s plenty of ammunition on both sides. The Democrats will argue, “that the Republican plan … involves imposing large doses of pain on millions of Americans,” the ones who are most at risk. They will argue with some degree of accuracy that the new plan, “would load a lot more cost on people with expensive medical needs … or (depending upon what is proposed) even eliminate, the list of essential treatments that insurance must cover.” (New York Magazine)

On this latter point the Congressional Budget Office, a non partisan group, has already weighed in saying that, “If there were no clear definition of what type of insurance product people could use their tax credit to purchase, everyone who received the tax credit would have access to some limited set of health care services, at a minimum, but not everyone would have insurance coverage that offered financial protection against a high-cost or catastrophic medical event; CBO and JCT (Joint Committee on taxation, also non partisan) would not count those people with limited health benefits as having coverage.”

David Harsanyi, senior editor at The Federalist.com, however, writes cogently that, “In the end … Republicans will have to sell the American people on market-based solutions. They will have to contrast that vision with the top-down economics adopted by the Left. They will likely adopt some of the more popular aspects of Obama care (ones they’ve consistently supported) like coverage for preexisting conditions. I’m not sure how they plan to pay for it without a mandate.”

The political capital at risk over this issue is huge. Thus the rhetoric, horse – trading and back room deals will be intense.


Where the ‘deals were done in Medici Florence

Therefore it is back to our basic rule of elected officials that I turn. They will look out for themselves first and foremost. Then, they will favor what their major contributors, both corporate and individual want. The health care and insurance industries will certainly spend whatever they need to in order to obtain a favorable outcome for them. We will bear the brunt of those negotiations.

We may see lower drug prices because the pharmaceutical companies have been allowed to operate freely for too long and that has now become a bipartisan issue. However, we will not see overall lower health care costs. The poor will be taken care of for at least four years. The Republicans must do that to hold those three critical States. But for the rest of us, the vast middle of America, quality insurance coverage and quality medical care is only going to get more expensive as the free market transfers more of the costs directly to the individual.

In my old days as a CEO I used to place a $1 bet on the table when I believed strongly that something would occur and others did not. In my view, a free market based health care system guarantees higher prices with the sole exception of the youngest and healthiest. Thus, I believe that your health care costs in both 2018 and 2020 will be higher than they are today. My dollar is on the table for any of you that wish to bet on that outcome.

If I am right this singular issue will put both Michigan and Wisconsin back into play. Both Speaker Ryan and Mr. Price also want to address Medicare costs and raise prices for that program as well. We have already tackled that issue some time back. It can be done without raising costs but that is not the approach these two leaders have signaled. I believe that debate and the attendant political capital would be far greater than what is in play with Obama Care. But we’ll have to wait and see on that one.

So, if you are in for a dollar let me know and we’ll mark the bet! In our next issue we will tackle the political winds of trade and taxes. Following that we’ll talk about the wall and infrastructure spending.


The Rape of the Sabine Women


I usually begin my blogs out with quotes from various sources. Today, however, I am quoting a famous mythological event painted by Nicolas Poussin in 1634. The story is that shortly after the founding of Rome a competing tribe, the Sabines, prevented their women, by regulation, from marrying Roman men. This angered Romulus, one of the mythological founders of Rome and his men. As a result they said the heck with Sabine regulations, we’ll just take them. Being of stronger force the Romans then set about attacking the Sabines and taking their women.

The Trump administration is intent on reducing government regulation and without question that has the potential to benefit many parts of the American economy IF it is exercised with care. One of our readers shared a piece written by Ray Dalio, a very successful and smart hedge fund manager. He writes, “The question is whether this administration will be a) aggressive and thoughtful or b) aggressive and reckless. The interactions between Trump, his heavy-weight advisors, and them with each other will likely determine the answer to this question.”

Last week the Wall Street Journal wrote an editorial entitled, “Government Payday Choke Hold.” In it they say, “that the Obama Administration has spent years targeting entire industries merely because the left dislikes them. Case in point is the onslaught against payday lenders….” After years of fighting the payday lenders on a variety of fronts in 2013 the Administration sought to pressure banks from doing business with payday lenders through a program entitled Operation Choke Point. The Journal notes that, “Payday lenders provide credit to people who have few options beyond loans sharks,” which is pretty accurate. They go on to say that, “state governments have gone a long way to police bad actors. The Trump Administration should end Choke Point, another example of regulatory abuse that has defined the Obama era.”

To which I say baloney! The Wall Street Journal editorial board has fabricated their facts out of thin air! Thirty-two states continue to permit payday lenders to charge anywhere between 154 and 652% (annual percentage rate (APR)) depending upon the state. That is simply unconscionable! Especially when you consider that these are Americans who are already in financial trouble. Further the payday lender’s net profit, that is, their return on assets is in excess of 100% according to an FDIC study done in 2005. That figure is not a typo. Payday lenders net earnings are fifty to one hundred times that of high performing banks. While dated, the situation remains the same in most of those 32 states despite what the Journal has written.

Payday lending is not a small business. Pew Research reports that this past year saw 12 million Americans borrow from payday lenders and they paid $9 billion in loan fees in 2016 alone. Courtesy of the Center for Responsible Lending the following chart shows the maximum interest rates (APR) allowed by State as of May 2016.


Clearly the Journal did little, if any, homework before writing their editorial. One suspects that the Payday lending lobbyists did an outstanding job of getting the editorial staff to do their bidding.

The truth is, other than not breaking someone’s bones, what is the difference between a loan shark and a legalized business that charges 400 or 500 or even 600% interest rates? Not very much.

In yellow above you will find states with no interest rate shown. They are the States that have controlled payday lending. Georgia has outlawed payday lending completely under its racketeering laws! Six other states also prohibit payday lending. Eleven states have capped the interest rate at 36% or less which has resulted in payday lenders leaving those States in large numbers.

Unfortunately for the Journal’s editorial reputation, however, many, if not all, of the 32 remaining states have APR caps that are, to be polite, usurious. Thus, to make the statement that, “state governments have gone a long way to police bad actors,” is pure fiction. The fact is that the majority of states have not done so. But, as egregious as that is I present this story to serve a larger point.

As the new Administration comes to power seeking to deregulate a number of areas we, as Mr. Dalio points out so effectively, need to focus on whether those reductions in oversight are done intelligently or recklessly. One serves to benefit the majority of Americans, the other does not.

Mr. Dalio writes regarding the President elect and his cabinet choices that, “…the people he chose are bold and hell-bent on playing hardball to make big changes happen in economics and in foreign policy (as well as other areas such as education, environmental policies, etc.)…. This new administration hates weak, unproductive, socialist people and policies, and it admires strong, can-do, profit makers. It wants to, and probably will, shift the environment from one that makes profit makers villains with limited power to one that makes them heroes with significant power.”

Certainly the vast majority of profit makers are not evil nor however are they heroes. They are simply business leaders who made a lot of money. That isn’t heroism. Nor does it, as the Obama Administration sought to do, make them the enemy of the State either.

The use of artificial synonymic descriptors is not relevant to whether or not more or less regulation is properly administered. While it is great press to write, “that the Obama Administration has spent years targeting entire industries merely because the left dislikes them,” that it is simply political rhetoric. But, to make policy or regulation requires evidentiary material and decision-making that is disciplined if we are to come to the best conclusions. That is true whether we are creating new regulations or deregulating old ones.

Over regulation is ridiculously expensive both for American business as well as the consumer. The Consumer Financial Protection Bureau, in its quest to demonize banks for their part in the 2008 financial meltdown, spent millions of dollars rewriting the mortgage lending rules. If I had to guess, the implementation of those rules likely runs into the billions of dollars for the financial institutions and the consumers who must live with those rules.

Did we need new regulation after the 2008 crash? Yes. Unbridled capitalism doesn’t work any better than unbridled socialism or communism.

But in reality, we could have revised the lending rules and regulations quite literally on one piece of paper! We needed to set maximum levels of indebtedness i.e. debt ratios that also take into consideration whether a loan rate is fixed or variable and we needed to mandate proper income verification. That’s it! Every other piece of regulatory language and control was unnecessary.

How do we know that? Because, for decades when there were sound underwriting criteria the system worked extraordinarily well. It only broke when those principles of sound lending were violated. This is not rocket science. Nor did it require reams of regulation to fix the problem. It was bureaucracy at its worst.

Thus, I believe that Mr. Dalio is right when he suggests that we must wait and see whether the new administration will be thoughtful or reckless. Leaders, almost by definition, tend to be aggressive. What defines their success is how well or poorly they control their aggression as they go to execute their strategies.

It’s not about heroism. It is about disciplined focus that takes into consideration both risk and reward and does so after a thorough vetting of the strategic issues at hand.

Shortly after the election a statement was posted on the official transition website that said the Administration financial services team, “…will be working to dismantle the Dodd-Frank Act and replace it with new policies ….” That is all well and good as far as the statement goes. It’s even better that Mr. Icahn, President elect Trump’s special advisor on regulatory reform was recently quoted on CNBC as saying, “he is not against regulation as he would not want to repeal Dodd-Frank.” Good decision- making requires multiple points of view. Thus, when Mr. Mnuchin, the presumptive Treasury Secretary, says, “…we want to strip back parts of Dodd-Frank and that will be the number one priority on the regulatory side,” we can be hopeful that the Administration is looking at all sides of the coin and being thoughtful.

Dodd-Frank is complicated as will be virtually every issue the President will have to consider. If President Trump is to be successful he is going to have to be consistently thoughtful as his Administration works through deregulating banks, energy and any other area they may deem appropriate. Absent that, we cannot have any certainty that, in the long term, Americans will be better off.

Regulation, be it more or less, requires a balanced assessment of the societal costs and benefits for most Americans, not just the rich or the poor. They are the outliers. What matters is how regulation impacts the majority of Americans.

I chose the payday lending issue specifically for that reason. The Journal’s fake facts starkly demonstrate how regulatory changes should not be made. The owners of payday lending firms are not heroes for having financially raped Americans in need. Nor are they heroes for the size of their profits.

At the same time, during the mortgage fiasco of 2008 borrowers who used no document loans and lied about their income to obtain homes they couldn’t afford were not blameless either.

Regulations shouldn’t be written to benefit the extremes. Rather, they need to maximize the benefit for most Americans while impeding our economic progress as little as possible while insuring that we are safe and sound at all times. That definition applies to any form of regulation be it financial or otherwise. Leaning too far one way or the other places the majority of Americans at risk solely to benefit one extreme or the other. In the long run that creates societal damage for everyone.

The Journal’s position regarding the Choke Hold program is reckless. It would only benefit the executives and stock holders of payday loan companies. Had they taken the time to truly understand the issue they would likely have seen a better way.

In 2007 Congress and the President (Bush) passed and signed into law the Military Lending Act. It limited the APR for all lenders, to include payday lenders, to 36% for active duty military personnel.

They did so because the Department of Defense reported to Congress that payday lending was predatory and “…undermines military readiness, harms the morale of troops and their families and adds to the cost of fielding an all volunteer force.”

This was ground breaking legislation. “For the first time in modern history,” according to the Consumer Federation of America, “Congress set a national usury cap for credit and banned risky features of credit products….” There was significant bi partisan support in Congress. This was not an act of the left simply disliking the payday lending industry.

Applying the lending act to all Americans, not simply active duty military personnel, would enable us to aggressively and thoughtfully change regulation for the better for the vast majority of Americans. At the same time it would render the need for the Choke Hold program mute. That would be an act of both positive new regulation as well as one of deregulation.

We must all hope that the new Administration will be thoughtful rather than reckless for as the military often says, “Prior planning prevents piss poor performance!”

Vladimir Putin; Friend or Foe

The news right now is filled with commentary about how far the Russians may have interfered in the U.S. election process. Some have gone so far as to suggest that it calls the election into question. But, personally, I’m much closer to Paul Ryan’s point of view as noted in the Huffington Post, “As I’ve said before, any foreign intervention in our elections is entirely unacceptable, and any intervention by Russia is especially problematic because, under President Putin, Russia has been an aggressor that consistently undermines American interests. At the same time, exploiting the work of our intelligence community for partisan purposes does a grave disservice to those professionals and potentially jeopardizes our national security. As we work to protect our democracy from foreign influence, we should not cast doubt on the clear and decisive outcome of this election.”

While I do believe the Russians favored Trump, I don’t believe they changed the election results. Mrs. Clinton lost this election for any number of reasons most of her own making. What I do believe to be of material importance is President elect Trump’s apparent desire to have closer relations with the Russians. More importantly, I do not believe there would be a material benefit to the United States to do so. To use the President elect’s jargon, what’s the better deal for America?

As a businessman I never did business with people or firms I didn’t trust. As Congressman Ryan points out Mr. Putin does not have America’s best interests at heart.

The Russian leader has a long and sordid history of ill deeds. Bret Stephens of the Wall Street Journal commenting on this wrote, “In September 1999 a series of apartment bombings in three Russian cities killed 300 people. The Kremlin blamed the Chechen rebels. Later … agents of Russia’s security service … placed explosives in … an apartment building in Ryazan…. The bombings were instrumental in bringing Mr. Putin to power.”

After a supposedly independent parliamentary inquiry was held to determine the extent of Russian involvement in those bombings, the findings were placed under a 75 year seal.

Several of the members of that board of inquiry were considered liberals at the time. One was assassinated in 2003, another fell violently ill, lost all his hair and suffered massive organ failure, dying in 16 days. Yet a third survived albeit permanently disfigured the result of dioxin poisoning. Then there was the case of Alexander Litvinenko who died in Britain following a fatal dose of polonium.

Mr. Trump sees little problem with any of this. In December 2015 appearing on MSNBC’s Morning Joe he was questioned about Putin’s suspected killing of journalists hostile to his regime. Mr. Trump said, “Our country does plenty of killing also.” Perhaps, but I don’t think we are out there killing opposition party members.

Russia’s invasion of the Ukraine, in the name of protecting Russian citizens who lived there, continued Mr. Putin’s reign of terror. According to Carnegie Mellon’s Moscow Center with this act, “Russia broke out of the post–Cold War system and openly challenged U.S. dominance. This move effectively ended a quarter century of cooperative relations among great powers and ushered in an era of intense competition between them. Two years on, Moscow continues to be in defiance. The conflict with the West has deepened, and confrontation with the United States and estrangement from EU countries are now the salient features of Russia’s international environment.”

Importantly, they also note that, “virtually simultaneously, Russia has entered a severe economic crisis, brought about by the demise of its oil-dependent economic model, which was exacerbated by Western sanctions…. Its outcome will largely determine the future of Russia.” Regardless of the outcome, however, Mr. Putin has demonstratively shown that Russia, with its takeover of the Crimea, has no regard for the sovereignty of other Nations.

Finally, Mr. Putin has made ample use of criminal elements within Russia, According to Newsweek, “Russia’s gangsters and spooks are often closely connected. Criminals are suspected in assassinations of Chechen rebels in Turkey; Russian cybercriminals have been used to fight the Kremlin’s virtual wars in Georgia and Ukraine and to crack into German and Polish government systems; and cigarette smugglers in the Baltics appear to have been used to raise funds for Russian political influence operations.”

Going on Newsweek notes that, “in some areas it has clearly been used to the advantage of Russian elites. A classic example is the harnessing of Russian hackers, who are granted a degree of impunity in return for their willingness from time to time to target the Kremlin’s foes.”

So, all in all, we have a nation with a horrendous track record of violence, dishonesty and a lack of integrity. Despite that, both Presidents Bush and Obama sought to improve relations with the Soviets, unsurprisingly, to no avail. While Mr. Trump may not be much of a reader, history does matter and particularly so in the foreign policy arena. It is rare that Nations or their leaders change their stripes to the degree that would be necessary for us to trust Mr. Putin and therefore change our policy position with regard to Russia.

Perhaps the President-elect believes that this time will be different. A close friend of mine believes that all of Mr. Trump’s comments to date with regard to Russia are simply posturing and that he will act with a full understanding of their past and their intent.

Maybe, but it certainly does not appear that way. It is quite clear that Russia would like to see the Western economic sanctions ended along with an end to Russia’s political isolation. But, Mr. Putin, according to the Carnegie Mellon report, “… has no intention of stepping back and reconciling … with the West through concessions and promises of improved behavior. Moscow’s strategy is to create facts on the ground to coerce its former partners turned rivals, above all the United States, to acknowledge Russia’s security interests—as defined by the Kremlin, not Washington—and accept Russia’s importance as a great power to be reckoned with globally.”

In other words, while Mr. Putin wants to bring back the power and prestige of the Soviet Union he is highly unlikely to desire to meet Mr. Trump’s terms of only doing deals that are great for America.

So, one must ask why President-elect Trump might believe that this time would be different? Why, indeed, would he think that the Russians are trustworthy partners?

In part, I believe, it is because he has done a lot of business with Russian oligarchs close to Mr. Putin. “The Trump-Russia links beneath the surface are … extensive,” Max Boot wrote in the Los Angeles Times. “Trump has sought and received funding from Russian investors for his business ventures, especially after most American banks stopped lending to him following his multiple bankruptcies.” Mr. Boot is a former editor of the Op Ed page of the Wall Street Journal and now a senior fellow at the Council on Foreign Relations.

Time magazine wrote of Mr. Trump’s close association with a business group, Bayrock, which financed multiple Trump projects around the world. Bayrock’s founder is a Soviet era commerce official. “In a deposition, Mr. Trump said that the two had discussed ‘numerous deals all over the world’ and that Mr. Arif had brought potential Russian investors to Mr. Trump’s office to meet him.”

Time went on to write, “for all of his denials of Russian ties lately, Trump has boasted in the past of his many meetings with Russian oligarchs. During one trip to Moscow, Trump bragged that they all showed up to meet him to discuss projects around the globe. ‘Almost all of the oligarchs were in the room’ just to meet with him, Trump said at the time.”

In that context it makes more sense as to why President elect Trump believes that he can accomplish what two previous Presidents were unable to. But, there is a world of difference between financing hotels and dealing with an international pariah on geopolitical terms. They are not at all one and the same.

A number of Republican Senators and Congressmen have already expressed concern over President elect Trump’s desire to have closer ties with the Russians. Senator McCain urged, “the new Trump administration to stand on the side of those fighting tyranny and not with a former KGB agent who has plunged his country into tyranny.”

The President-elect should be listening to his intelligence community and he should understand that they have a much different perspective on this matter. While Mr. Putin does have very strong popular support at home there are real issues within Russia.

Carnegie Mellon notes, “The sharp drop in the oil price has markedly devalued Russia’s geopolitical importance vis-à-vis its principal customers in Europe and Asia. Russia finds itself again at a crossroads with a three-way choice: reform the economy and dismantle the existing politico-economic setup; go for a wholesale economic mobilization dominated by the state; or keep the system intact and face the prospect of continued decline and possibly an upheaval in the end. In the next five years, some sort of a choice between these three options will have to be made.”


Ending the sanctions and getting back into the G8 community solves many of Mr. Putin’s immediate problems but doing so is not to our Nation’s best interests. Remember what Paul Ryan said at the outset, “under President Putin, Russia has been an aggressor that consistently undermines American interests.”

That is simply not a Nation you want to partner with. Indeed, given their internal econometric issues, it behooves America to leave the Russians hanging in the wind allowing those forces to play out because they will not likely favor Mr. Putin.

Perhaps my friend is right and as President Mr. Trump will show a stronger resolve with respect to Russia. I certainly hope so because if not, we are striking a deal with someone who most certainly will not have our back.