Saturday, October 31, 2009

vox populi in Pakistan

Secretary of State Hillary Clinton has had several meetings with Pakistani civilians; they have asked her two pointed questions which she was either unwilling or unable to answer:

1. These terrorists that have been killed by U.S. drone planes, were they ever tried and convicted?

2. How do you distinguish between killing 20 innocent bystanders and perhaps one terrorist [see question 1] from a "pure terrorist" attack?

Until Ms. Clinton and the country she represents can give direct and convincing answers to these two related questions, our moral authority in Afghanistan -- and the world in general -- will be rightfully suspect.

[I have been mulling over the issue of proportional response and its central importance in both the U.S. and Israeli approach to terrorism. I would certainly like to hear from readers on this issue which I hope to write about in the near future.]

Summary of criticism of the Frank Bank bill

In yesterday's blog I mentioned that the bill that came out of Rep. Barney Frank's Financial Services ommittee was facing strong criticism. Since I was concentrating on proposals to bring back the Glass-Steagall legislation that was repealed in 1999, I didn't go into specifics of Frank's bill, but here is the NY Times editorial critique from today's paper:

Friday, October 30, 2009


The House Financial Services Committee, headed by my congressman Barney Frank, recently reported out a bill that would place some regulations on the banking industry. These include restrictions on secondary mortgages and mortgage-based securities (requiring more cash backup), and provisions dealing with banks that are "too big to fail." (You can read the details elsewhere.) Aside from the predictable opposition from banks, there was also opposition from people who didn't think the legislation went far enough to protect us from a repeat of the 2008-2009 banking crisis. One of the rallying cries of this segment of the opposition is "Bring Back Glass-Steagall!"

Well, I'm not an economist, but I did a bit of reading about the Glass-Steagall Act(s) -- there were actually two of them. The first one, in 1932, enabled the Federal Reserve to help refinance the banks during the Great Depression. This had to do with "rediscounting" loans or "notes," and also related to the switch away from gold-backed currency. This first act is not the one of most concern these days.

The second Glass-Steagall Act (1933) did two important things. First of all, it set up the Federal Deposit Insurance Corporation (FDIC) which insures bank deposits. This was crucial in restoring faith in the banks after their failures during the Depression. The second thing it did was to separate banks into two types: commercial and investment, and to forbid one type from offering the services provided by the other. A commercial bank is what I suppose most of us think of as a bank: it makes loans and gives mortgages, accepts deposits and pays interest, and offers services like checking accounts, CDs etc. An investment bank, on the other hand, deals with corporations. It underwrites (finances) stock offerings, speculates in stocks, and creates all sorts of financial "instruments" such securitized mortgages (mortgages bundled into stock offerings), credit-default swaps ("insurance" on possibly bad loans) and other "derivatives." To get an idea of how this plays out, check out a book such as Liar's Poker by Michael Lewis.

Before Glass-Steagall, any bank could act as a commercial bank or investment bank or both. A bank could use deposits to finance securities speculation, for example. If the risks didn't pan out, the depositors could be left holding the bag. As the story goes, banks that were exclusively commercial were afraid and envious of the money-making potential of investment banks; correspondingly, investment banks were greedy for the large funds that depositors could provide. Banks that combined both functions seemed to have a tremendous advantage if sheer money-making potential was the object. Furthermore, regulators were anxious to insulate depositers from speculation with their savings; creating the FDIC could not be possible in this atmosphere. Thus, the main provision of Glass-Steagall II was to require that banks be either commercial or investment banks, but not both.

This is not to say that commercial banks couldn't buy and sell stocks and bonds under Glass-Steagall: they could, but only of certain types and quality, which were regulated. Similarly, investment banks were allowed to make certain types of commercial loans. But, the general thrust of the law was to separate the two functions of banks.

Whatever the theory, the fact of the matter was that Glass-Steagall worked well. Before it, bank crises fueled by speculation were common; for the 35 years it was in effect, there were no such crises; however, less than 10 years after it was repealed in 1999 the 2008-2009 debacle unfolded, returning banks to the disaster level of the Great Depression.

I have spent the past week or so reading articles, blogs and commentary on the "bring back Glass-Steagall" proposition. Of course, it is anathema to so-called conservatives and other deregulators, who seem to cling to an odd academic faith in their own studies about how the act stifled competition and the free market, and if anything made the economic climate more risky. Some even praised Citibank, at least up to the moment its precarious condition became clear. On the other hand, some commentators don't think that the continuation of Glass-Steagall could have prevented the recent crash.

In any case, the Act was repealed in 1999 under the instigation of Senator Phil Gramm of Texas, a reactionary on every possible front, and advocate of the corporate position on banking, energy, taxes etc. (Don't get me started on Phil Gramm.) The vote to repeal in the Senate was largely along party lines, with the Republican majority winning the battle. It passed the House more handily, and President Bill Clinton signed it.

I'm inclined to say: just look at the empirical evidence. Before and after Glass-Steagall there were major failures of banks due to speculation, while during it (1935 - 1999) there were none. In general, de-regulation of industry has been a failure, dispite its proponents' theories. Economics and politics are inexact fields, so their theories don't "prove" anything (Gramm has a Ph.D. in, you guessed it, economics). Ultimately, one tries to learn by what actually happens.
I think that we must once again regulate banks very closely -- something that it is clear they can't and won't do for themselves. Something along the lines of Glass-Steagall is a partial step -- but improvements must be made in the light of what we have learned from the recent meltdown. In addition to the Frank bill, we should have a marketplace for "derivatives" that is scrupulous and transparent: they need their own special rules.

One way to avoid the "too big to fail" problem is to split off the commercial from the speculative very strongly, as in Glass-Steagall. If a commercial bank is in trouble, the depositors are protected by FDIC. If we must protect a bank, let it be a commercial one that serves a useful social function in a capitalist society: lending to businesses so that they can conduct business. If an investment bank is in trouble, let it fail and let its speculators lose what they must. One of the arguments for profit in a capitalist society is risk: no risk no justification for profit. But risk is risk and heat is the nature of the kitchen.

Wednesday, October 28, 2009

Traitor Joe

It's hard to say whether Democrats should have stripped Joe Lieberman of all his committee chairmanships after he effectively left the Democratic Party last election. That he retained his seat running as an independent against Ned Lamont, who won the Democratic primary, was a disaster which the Dems just might have prevented if they had seriously campaigned against him. They could easily have made it known then that returning Lieberman to office would have cost Connecticut much of its (non-Dodd) clout in the Senate. But no -- wimps are wimps.

Of course, once he was re-elected -- as an "independent" -- there was no point in stripping him of the committee chairmanship he most wanted: Homeland Security. That is, no point if the Dems intended to hold this chairmanship as a threat against him should he stab them in the back and desert them on healthcare. (Were they capable of thinking that far ahead?) From what I understand, Obama put pressure on the Dems to take Joe back.

Okay, now is the time to make it clear to Lieberman that he will pay very dearly if he continues his Republican ways. In a previous blog I wondered whether Ted Kennedy had left his spine to the Democrats: this will be a test. If they can't put the screws on Traitor Joe they will have let all of us down. Can't they ever learn about party discipline?

Tuesday, October 27, 2009

Credit card usury

Our reps in Congress arent't exactly protecting us from predatory banks. The new law preventing outrageous credit card practices (see description here ) does not go into effect until June of 2010. So, of course, the credit card companies are trying to squeeze in as much customer abuse as they can before then.

You may have heard from your friendy credit card issuers recently that they have changed the terms of your contract, or that they have increased your rates. We recently got such a note telling us that our annual percentage rate (APR) had increased to 25.99% (and the rate for a cash advance to 29.95%). This was from CitiBank -- one of the worst-performing banks around. They were obviously hoping to pick up a few shekels from their credit card customers to make up for their other major inadequacies.

How are banks allowed to charge these rates? Here in Massachusetts, the usury rate is set at 20% APR: charging more is illegal. Unfortunately, there is a Supreme Court decision from 1978 that says a bank only has to obey the laws of the state in which it is chartered. That's all credit cards come from South Dakota, Virginia, etc -- a handful of states that have mostly no usury limits -- see this map,

Apparently there used to be national usury law, but our protectors in Washington repealed it after the Great Depression. The banking, healthcare and pharmaceutical industries are the largest contributers to Congress: surprise surprise! Collecting money from them is a bipartisan national pasttime.

One thing to do is to write to your senators and representative and demand protection (my rep is, fortunately Barney Frank). Ask them to pass a law making the Credit Cardholders Bill of Rights of 2009 effective retroactively to the date it was passed. Ask them to support a national usury law limiting APRs to a few points (max of 10) above prime.

Another thing to do is to cancel extra credit cards like ones from department stores, then let the store know why you cancelled it. These merchants send you the cards in order to attract you to their stores. If the cards get cancelled and they receive irate letters, they may put some pressure on the banks.

It's worth a try anyway.

Friday, October 23, 2009

The ongoing saga of corporate logic

As you've no doubt heard, the Obama administration is taking steps to cut the pay of top executives at some of the biggest firms that needed, and got, government bailout money. Rachel Beck of the AP reports:

"Those facing pay restrictions outside the executive suite hold leadership positions in areas like finance and investment banking at the banks, and in manufacturing, brand management, and design at the auto companies. They come with years of experience, whether it’s making deals or overseeing car design. For example, Ford Motor Co. which is in far better shape than its two Detroit rivals, could lure auto executives who would be difficult for Chrysler and GM to replace.
"There will be a fallout,"said Janice Reals Ellig, co-CEO of the executive search firm Chadick-Ellig. 'Talent that is short-term-focused because they have big mortgages, college education payments, and other things will feel more pressure to leave."

I see. Firms which have been virtually destroyed by the bad leadership of top executives are worried that salary cuts may force these very same executives to leave for positions at companies that were fortunate enough not to have such leaders. And why would any relatively successful company -- Ford, e.g. -- want to pick up the salaries of these losers?

If I were a stockholder of AIG or GMAC or CitiCorp, I'd love to save salary money by foisting off these losers on my competitors. How can Ms. Beck report this with a straight face? (OK, I don't in fact know how straight a face she had when reporting this nonsense.) I mean, it would be hard to make this stuff up.

(In a similar vein, see the October 11 blog: Musical chairs for incompetents.)

I also love the part about the big mortgages and college education payments that these poor execs have. If you're making a million or more a year, and get a bonus even larger, you are not seriously worried about college tuition. If these jokers can't deal with their household finances, they shouldn't be running Big Biz.

Thursday, October 22, 2009

Bonuses and human services

According today's Boston Globe, the Governor is thinking of cutting about $50 million from the Commonwealth's 1.2 bllion dollar human services budget -- mostly in aid to the disabled.

Suppose that each state faced equal cuts. That's $2.5 billion in cuts -- assuming many low-population states balance out states like California and NY.

Compare that to the estimated $140 billion in compensation due to be handed out to traders and execs of just the top two dozen financial institutions. You could almost certainly pay the entire human services budget of all states with just this money, and probably have enough left over to buy new Beamers for all those bankers as well.

Wouldn't it be nice if they themselves made some gesture to donate a good chunk of this money to help their fellows, after all we've done for them? But no: dream on. That's why we despise them so.

Wednesday, October 21, 2009

Why Republicans are contemptible: a factual case

Thanks to Mike who forwarded the following video from the best news show on TV:

Apparently the Republicans have no principles except spite ... well, and maybe loving the rich excessively.

A "short" form

The Wall Street Journal mentioned last week that the top 23 banks and investment firms were going to give about $ 140 billion in bonuses this year: a record amount.

The Pres and his minions played the usual jaw music that it was "offensive" etc. etc. I can't say I "knew FDR" but I know FDR wouldn't have just talked about this.

I have a modest proposal for doing something about these unneeded and unreasonable incomes: a simple adjustment of the tax code. Here's a mild version. You can use the usual 1040 and its associated schedules for determining your tax liability on your first $5 million of income. Write a check for this amount. Next, for all income exceeding $5 million, there will be an additional special short form: Take your gross income above $5 million (i.e. subtract $5 million from the total of your earnings, including bonuses, stocks, dividends etc). Enter it on the short form, multiply by 80%, deduct state and local taxes, enter that number, and write another check to the IRS for that amount. Enclose forms and both checks in an envelope and mail it all in.

So, if you make say $ 7 million, you pay the usual taxes on the first $5 million, then simply write an additional check for $ 1,600,000 (minus state and local taxes) to the IRS.

Oh, and by the way, Social Security and Medicare taxes will apply to all earned income, with no cutoff.

Tuesday, October 20, 2009

Healthcare in Maine

I just spent 5 days in central Maine. It was cold, cold, cold, so in between preparing the veggie garden for winter, and household chores, we mostly huddled around the woodstove and read: books, magazines and the Maine newspapers.

Maine, like most states, has some pretty severe economic problems. Besides losing a lot of its manufacturing and agricultural industry over the years, it has recent budget shortfalls due to the bad economy. Our friends and neighbors in the central part of the state are hard-working and generally pretty tough yankee types; however, they get the rhetoric while Wall Street is getting the bucks: in bailouts and now, new profits from speculation (check out Goldman-Sachs, e.g.). The same speculation that doesn't create anything except wealth for investment bankers. Well, "as Maine goes, so goes the nation" (as they used to say pre-Roosevelt).

Maine is also one of the three states -- the others are Vermont and Massachusetts -- which have tried some version of healthcare reform. Unfortunately, Maine's has been largely a failure, though probably better than nothing since it has increased the number of families covered somewhat. But, it never had an "individual mandate" -- i.e. an enforced requirement that everyone have healthcare -- and it never could take strong enough action to rein in costs. One of the reasons for the latter is that there is very little competition among providers. More than 3/4 of Mainers with health plans get them through Anthem Blue Cross Blue Shield (ABCBS); another 10% are signed up with Aetna. There is no effective public option. Now ABCBS is not a terrible provider as for-profit providers go. It, along with 7 other "Blue Cross Blue Shield" providers, is a subsidiary of a giant corporation called WellPoint, which issues stock (selling in the mid $40s). ABCBS itself doesn't issue stock, but invests its profits to increase its revenue. However, in the past half-dozen years both its premiums and profits have soared, while its customer base has remained roughly constant. Partially, the increase in medical costs have contributed to the increase in premiums, but the increase in profits were a result of greed. Both WellPoint and ABCBS pay the usual overly-generous corporate compensation to their executives, and the parent company also supports a host of bribers ... I mean lobbyists, in Washington.

Maine's healthcare reform does allow a commission to review provider premium rates. This year the state, to its credit, decided not to allow an ABCBS requested rate increase of 18.5%. The company claimed it needed this to insure (!) profits of at least 3% -- at a time when Maine families were being kicked in the face by the dismal economy. Don't you love that? Mainers facing unemployment, increases in heating costs, and draconian state budget cuts, are being asked to guarantee profits. Anyway, ABCBS's big daddy WellPoint is suing Maine to preserve its proposed premium increase.

Senator Olympia Snowe is, of course, well aware of what's going on, which is why she is so involved with national healthcare reform. She is a decent person, but is bearing the terrible burden of being a member of one of the world's most reactionary political parties. I'm not sure why she remains a Republican. However, she has displayed more guts on this issue than either the President or most members of what passes for a Democratic "party." I believe that in her heart she favors "the public option" -- as does a solid majority of people throughout the U.S. I wonder when the Democrats will get the message.

Wednesday, October 14, 2009

Away for a while

Taking a break for a few days to see the N.E. leaf show etc. in Olympia Snowe's state.

Enjoying for the moment the Finance Committee vote on a very imperfect healthcare bill.

Thanks, Olympia; why are you a Republican?

Tuesday, October 13, 2009

Healthcare penalties

Without knowing the exact details of the healthcare reform bill now before the Senate Finance Committee, it is difficult to evaluate the eleventh-hour case being made by the insurance industry. While the requirement that everyone have healthcare insurance stands to benefit the insurers, creating millions of new customers, it's the "adjustment" period that the industry claims is the problem.

Apparently there is a lag between the time the reform bill is implemented, requiring that everyone have a policy, and the time that penalties are assessed for not having one. During that time someone can refuse to enlist in the program, not pay any penalty, and then join only if and when medical expenses are incurred. Since they cannot be denied for a "pre-existing condition," this defeats the whole purpose of insurance and is of course highly anti-social behavior. Still, anti-social behavior is characteristic of a lot of our business activity (think bank "red-lining" and subprime mortgages, defense contractor fraud, toxic waste dumping etc.). The insurance companies themselves have been acting in this manner for decades: denying coverage in the most outrageous ways and cherry-picking healthy individuals, leaving less fortunate people to emergency rooms and state welfare.

Medicare -- most notably part D (the drug plan) -- has penalties for signing up late, and this is as it should be. It was mainly the constant obstructionism and scare-tactics of the anti-reform people -- and you know who they are -- that led the Democrats to cave on sharing the risks and eliminating strict penalties for those not signing up. They were afraid to assess fines either directly (like traffic tickets) or through the tax system, so they cobbled together some sort of delayed system whose details are seem fuzzy. I think something along the lines of the Medicare penalties could have been worked out, so that it would be clear from the beginning exactly what non-compliance would cost. Instead, the Democrats put a lot of their financial eggs in the basket of high taxes on "gold plated" expensive plans, believing that vague resentment of these plans by the masses would make taxing the plans OK. They decided that any plan costing upwards of $21,ooo/year is luxurious and would be taxed -- presumably on the amount exceeding this figure. They assumed that $21,000 was universally seen as some sky-high amount that no one but a plutocrat would ever spend. Unfortunately that figure is not so high in certain areas of the country, and they neglected, as usual, to tie this limit to inflation -- which for healthcare expenses is well into the double digits. Also, some workers forego higher salaries in order to buy very good health plans; one person's "Cadillac" plan is another's prudent investment in family health.

I don't shed any tears for the health insurance industry -- it has been feasting for a long time on most of us, even during times of economic distress. Nevertheless I think the Democrats should use both remedies: (a) have an inflation-adjusted tax on highly expensive plans and (b) make it expensive for people who try to game the system by refusing to buy a fair policy at a fair price. The fairness of the policy seems to already taken care of by the various protections built into the bills already written; the fairness of the price requires, in addition, strict government price controls or the public option. I hope this will be added during the "tweaking" period where the Senate and House bills are reconciled (if we get that far).

Monday, October 12, 2009

Insurance Co.s make case for the public option

So the insurance industry is saying that the Senate healthcare plan would increase premiums. If the industry as a whole is so certain that it's going to raise rates, doesn't this make a pretty good case for an entity outside these companies that will compete with them? That's exactly why we need the public option.

Perhaps it's time to hear Obama and more Democrats saying this.

BTW, the insurance industry bases it's claim that it will need to raise rates on a study it commissioned from the accounting firm of Price-Waterhouse. Rolling Stone reports that P-W made a similar study for the tobacco industry about 15 years ago claiming that high taxes on cigarettes would kill the economy (see So, unless you believe that bank misadventures, credit-default swaps and the collapse of the real estate market are attributable to tobacco taxes, P-W plausibility doesn't have a lot going for it.

Pressing Obama

The labor movement is getting restive because President Obama hasn't acted on some of their principal causes, the main one being the passage of the "card check" law, which enables a union to be established by simple submission of cards rather than and elaborate secret ballot. Union leadership has also been unhappy with the attempt to pay for healthcare reform by taxing expensive "gold-plated" insurance plans. (Note that the epithet "gold-plated" has been applied principally by proponents of taxing them.)

At the same time, the gay rights movement is equally impatient with the persistence of the "Don't Ask Don't Tell" (DADT) law in the military.

At the same time, the anti-war movement is impatient with the persistence of American troops in Iraq and Afghanistan.

To be fair, Obama has had to deal with a few items that he didn't forsee when he was campaigning -- I think we know what these are. Obama has also made a few appointments of folks who are very sympathetic to labor, the best example being that of Hilda Solis, his secretary of labor. If anything, she is more sympathetic to the union movement than Robert Reich, Clinton's Secretary. Republican presidents have been uniformly anti-union -- even overtly anti-labor. Also, healthcare reform is far more important to working families than nearly anything else, and has occupied not just the President but all of Congress as well. The big push will be over shortly (next few months), with votes of the Finance Committee and then the Senate.

(Of course, when McCain supposedly suspended his campaign -- he didn't really -- to "concentrate" on the financial crisis, Obama and the Democrats chided him for an inability to "multi-task".)

On the other hand, President Bush, with his tax cuts, arguably did far more for millionaire households, which comprise less than 1/2% of the population, than either Clinton or Obama has so far done for unionized workers, who tally about 7%.

But, the night (I was tempted to write knight) is young. Obama has, perhaps, finally learned that the Republicans are committed only to destroying his presidency. (He has finally given up on Fox news, it seems.) I am hopeful that this will lead to a greater partisanship and resolve to isolate the G.O.P. If the Democrats can win on healthcare -- i.e. pass any kind of reasonable (and improvable) bill -- then they can pass the "card check" law and other measures desired by labor. The labor movement really has nowhere else to go.

The situation is similar for the gay community, although the polarization between the parties is not quite so dramatic (yes, Virginia, there are gay Republicans -- even in Virginia). DADT will soon die since even the military brass doesn't want it any more. I am confident that Obama's heart is in exactly the right place on this issue, but he needs to continue to be prodded.

We will mostly pull out of Iraq: that's also for certain. Afghanistan is another story, but an amazing thing is happening: the mass of citizens is getting tired of sending troops! Support for the Afghanistan action is down to around 40%. You simply can't get knee-jerk hawk responses from the public the way you used to. (Was support for the Vietnam war ever this low while it was going?)

Obama is a smart but very cautious man. He understands the issues and he is beginning, I think, to understand the nature of his political opponents; he just needs to have his feet held to the fire a while more.

Sunday, October 11, 2009

Musical chairs for incompetents

Today's a busy day for me, but I did catch a good column by Frank Rich: .

Why do so many Americans continue to listen to leaders and pundits who are almost invariably proved wrong?

They're like baseball managers: a handful of men who manage teams until they have a bunch of losing seasons; they are then fired, only to take up the same jobs on different teams. It's sort of musical chairs where the losers somehow keep circulating until they get too old and feeble to make the circuits any more. Of course, for the U.S., military adventures are not a game: they kill lots of people and always cost at least 10 times what they are promised to cost.

Imagine if Medicare actually had an overrun anything like, say, the cost of the Iraq war. The latter was supposed to cost about $50 billion, largely repaid with Iraqi oil funds. Instead, it cost at least a trillion dollars. You really don't need a calculator to find ($1 trillion)/($50 billion) = 20. That's a 2000% misestimate. Why do we trust anyone having anything to do with this kind of error ever again?

(Was there ever any reason to think that John McCain, who was shot down while bombing invisible civilians from the air, had any particular understanding of anything, much less military matters?)

We should have started by kicking every hawk, from Viet Nam through Granada to Iraq, out of every decision-making post in our government. But no -- these losers continue to play their musical chairs game over and over.

Saturday, October 10, 2009

Arafat won a Nobel also

Yasser Arafat also won a Nobel Peace Prize, in 1994, which he shared with Israelis Yitzhak Rabin and Shimon Peres. It is interesting to argue whether this was as much a mockery of the prize as the awarding of it to Henry Kissinger. Both men were given the award for stopping their murderous activities, but certainly Kissinger's hands are bloodied with the deaths of many many more people than were Arafat's. Arguably -- and in my personal opinion -- Kissinger, like Robert McNamara, was a major war criminal, who actively waged an illegal and immoral war involving huge civilian casualties, deaths which they tried to keep hidden. Kissinger's Nobel came when he made a peace that was forced on him by the U.S.'s lack of success in the war and the disillusionment of the American people with its prosecution.

If Obama won the Peace prize because he wasn't George Bush, Kissinger won it because he wasn't Adolf Hitler.

Arafat, probably largely because of the small forces at his command, was a minor agent of death in comparison with Kissinger and company. While he, his organization the P.L.O., and its military arm Fatah, claimed to be fighting a battle for the Palestinian people and against official Israeli oppression, their collective tools were as much terrorist as military. "Soft" targets such as schools, buses, and other civilian concentrations were often primary targets. Whatever the considerable justice of the Palestinian cause, these tactics -- probably strategy as well -- were hardly those that are consistent with a Peace prize, even when renounced.

The idea that one should win an award for stopping one's own immoral behavior seems crazy to me.

Friday, October 9, 2009

The Nobel

Lots of people seem to have lots to say about the Nobel Peace Prize for President Obama. A lot of it makes sense, on both sides; you can read it yourself.

However, maybe we're taking these prizes too seriously. What about Greg Mortenson (building schools in Pakistan and Afghanistan), or Pete Seeger (Peace), or Rosalind Franklin (co-discoverer of double-helix with Watson and Crick)? What about John Updike or Robert Frost or Vladimir Nabokov (Literature/Poetry) etc?

In fact, all I can say is Henry Kissinger ("Peace", 1973).

Get my drift?

Thursday, October 8, 2009

Ram it, tweak it, YouTube it

After the recent Congressional Budget Office backing of the Senate Healthcare Bill's finances, the Republicans have lost, at least temporarily, a bit of ooomph. Since they themselves often quote CBO's findings, they can't just dismiss them now. Also, recent polls show some recovery in Obama's popularity. Now is the time to make the big push. I understand that the Finance Committee has already scheduled a vote. I suspect that wavering "blue dog" Dems will find it hard to oppose it now, and I think Olympia Snowe, who is to the left of some of them, will also vote for it.

The appropriate Democratic strategy is to do what the Republicans are already accusing them of doing: ramming the bill through, then tweaking it, behind the scenes, to make it even better through reconciliation with the somewhat better House Bill. ("Public option" anyone?)

The spiteful nonsense that the Republicans will spout should be captured on video and sent to YouTube. In fact, that should be the ultimate threat against any fillibuster in the 21st century. The days of holding up much-needed beneficial legislation by blathering or reading from the telephone directory should be long over, since we can all see it, hear it, and recognize it for what it is within seconds.

Wednesday, October 7, 2009

Trucks and the Fourth Power Rule

There are many hidden subsidies for select American industries. One of the most blatant is the gasoline tax and registration fees for motor vehicles. Both of these are supposed to pay for the expenses of maintaining rights-of-way (roads, tunnels, bridges) and they are supposed to be fair in the usual "Republican" sense: everyone pays his way. I'm sure you've seen the messages on trucks reading something like: "This vehicle pays over $[so many thousands] of dollars in taxes each year." It all seems so impressive and expensive, since we car drivers know that this is far more than we pay. Poor truckers trying to make ends meet!

Well, it turns out that large vehicles are not really paying their fair share. The heavier they are, the worse the discrepancy. The reason is an empirical fact widely known among civil engineers called the "Fourth Power Rule," which I'll simply call FPR.

Take the state and federal gas taxes for example, which are a certain number of pennies per gallon. First of all, these are not automatically adjusted for inflation, so as gas (and other expenses) increase, they are a smaller and smaller percentage of the fuel actually used. But it gets worse. You figure: Wow, a big truck uses lots of gas, so it must really pay a lot in taxes. If we assume the gas used by a vehicle is in rough proportion to its weight (which it is, roughly), then a truck weighing 10 times my car uses 10 times as much fuel, so pays ten times the taxes. OK, still roughly true. The same for registration fees, which are mostly proportional to the weight of the vehicle. (Here in Massachusetts they go up $20 for each thousand pounds). However, the main reason for the gas tax and registration fees is to maintain roads, and here is the catch. If you think that a truck weighing 10 times my car would wear out the roads only 10 times as fast, you'd be very wrong, very wrong. That's what the FPR is all about.

FPR says that, roughly speaking, the rate at which a vehicle destroys a road is proportional not to its weight but to the FOURTH POWER of its weight. This law has to be applied carefully, though. The more the weight is distributed evenly, the less wear. It is customary to divide the weight by the number of axles to normalize this rule. Thus, if my car weighs T tons and has 2 axles, its adjusted weight it T/2. The truck then weighs 10T and has, say, 5 axles. The adjusted ratio is then (10T/5) divided by (T/2), or 4. Since rate of road wear is proportional to the fourth power of this adjusted ratio, the damage due to the truck is roughly 4 to the 4th power or 256 times the damage due to my car. If the trucks owners were truly paying their share, they would have to pay 256 dollars for every dollar I pay. This is not even close to being true in any state I checked.

Why does the FPR hold? The answer is that roads wear out not so much by tires rubbing against them (though this is a factor) but by flexing under load. The more flexing, the greater the wear. But flexing is not a simple function of weight, nor is damage a simple function of flexing. A very rigid road will hardly flex at all under a small weight: it takes a lot of tons to produce any flex in a well-constructed highway. But, once flexing occurs, the results are disastrous. It's a little like a paper clip: you can basically put a few sheets in and out for years without any noticable effect, since the flex is negligible. But even a few dozen real sharp bends and its metal will fatigue, crack and break. In the case of roads, heavy trucks flex them until they start to develop cracks. These cracks increase the flexing even more. The elements, in the form of rain but especially snow and ice, exacerbate these cracks until they widen and cause failure, like an overstressed paper clip. If only passenger cars drove on interstate roads, they would probably last for a century. It's the trucks that kill them.

(In rural Central Maine where I often drive and bike, the state has little money to prepare rigid roads. Their basic roadbeds are not excavated and filled deeply enough, and they are pretty much thin layers of asphalt-like covering over gravel. Several years after repaving, the flexing of logging and other heavy commercial traffic has combined with the Maine winters to make them laced with cracks and often premature pot-holes. In half a dozen years they are at death's door.)

As I said, the FPR is universally accepted among civil and highway engineers, but is ignored by politicians, many of whom listen only to the big truck and gas lobbies. You can read about the FPR in many places (mostly technical); here's one: Fourth Powers and pavement

Next time you read a sign on a truck saying how much tax revenue it generates, remember that, effectively, it is getting a free ride.

Tuesday, October 6, 2009

R.I.P. Simmons mattress company

One theme of this blog is that what they taught us in school about how capitalism works is simply not true. You know the lesson -- how an entrepreneur with a great idea builds up a company and sells stock to investors who believe the company will thrive. The company indeed grows and the stock values increase; investors and management and employees all profit from the free marketplace, creativity and the risk-taking of the investors.

I read yesterday that the Simmons Mattress Company had just filed for bankruptcy. It is true that tough times have hurt many businesses that sell consumer goods. Yet, Simmons was able to weather economic storms for 133 years. What it couldn't weather was rapacious corporate raiding in the form of Thomas H. Lee Partners of Boston -- THL. (Hey, local boys make good!)

THL bought Simmons in 2003. As owners, THL paid itself hundreds of millions of dollars in special dividends, as Julie Creswell reports here:

THL also charged its fees for buying and running Simmons to Simmons and its assets. In all, THL, using borrowed money, pocketed around $100,000,000 at almost no risk to itself, but at the expense of Simmons' assets, its bondholders and, now, its employees.

So we are not talking about company building, we're talking about company looting. And, with bankruptcy, company destruction. THL, of course, blames it on the economy. However, it should be remarked that THL in no way ever contributed to the development of Simmons; in fact, it is unlikely that THL has ever contributed in any positive way to the development of any company, any idea, or any product. Corporate raiders don't work that way.

No, Dorothy, we're not in high-school economics 1 anymore: we're in Wall Street sucks the life out of all of us 999.

(The N.Y. Times, where Ms. Creswell's report originated, has a video on "Private Equity" firms such as THL. You may want to watch it at
It is important to be very critical, since establishment business reporters tend to whitewash the behavior and ethics of their subjects, as they largely do in this video.)

CMC membership scam

One of the largest pro-advantage plan advocacy groups is the "Coalition for Medicare Choices." This industry created "citizens' group" claims hundreds of thousands of members. I recently got a letter from a blog reader who writes:

Not long after I turned 65, I started receiving repeated robo-calls from CMC. Although the law requires that robo-callers provide a mechanism for opting out of future calls ("press 1 to speak to a representative; press 2 to have your number removed from our list"), CMC gave only a single option. One day, instead of simply hanging up, I pressed 1, thinking I would get a person who could have my number removed. No such luck. I got a different recording, thanking me for having joined CMC. I tried their web page, which, predictably, told me how I could join, but not how I could unjoin.

CMC now sends me regular mailings telling me to contact my congressional representatives to "protect MA plans." They're especially interested in my representative, Charlie Rangel, to whom I've written twice explaining my scammed membership in CMC and my absolute opposition to MA plans. He's never responded, perhaps because he's too busy filing corrected tax returns, correcting congressional disclosure forms and moving campaign offices out of rent-controlled apartments.

I wonder how many members CMC has, who like me, only wanted to have one fewer dinner interruption each week.

Of course CMC's membership scam is illegal, but it is one more illustration of the seemingly unlimited time, energy and money the medical insurance industry is willing and able to spend to defeat any kind of reasonable and equitable healthcare reform.

Thursday, October 1, 2009

Presidential leadership and courage

Obama is showing more leadership and courage in flying to Copenhagen to boost Chicago's Olympics bid than he is showing in the health care fight. As Gail Collins said in today's NY Times
(, he feels he can fly off to lobby for the Windy City because the fearless Democrats in Congress are "pummeling [the healthcare bill] into exactly the shape desired by lawmakers who represent large and representative states like North Dakota and Montana and Maine."