Friday Five

Here are my Friday Five for February 28, 2014.

In his annual letter to shareholders, billionaire Warren Buffet warned of the coming (and long-term) crisis that exists in the state and local pension systems (see representative reports on Chicago, Pittsburgh and Torrence, CA – one can find many stories like this without much effort in the internet search engines). In his letter, he writes “Local and state financial problems are accelerating, in large part because public entities promised pensions they couldn’t afford. Citizens and public officials typically under-appreciated the gigantic financial tapeworm that was born when promises were made that conflicted with a willingness to fund them.”

While not good news, this isn’t the entire story. Our society is, in my estimation, addicted to debt. Back in 2012, the National Center for Public Policy released its’ report indicating that unfunded promises represent $84 Trillion in additional commitments: “Overall, the fiscal imbalance is equal to 5.7 percent of the present value of all future GDP, which translates into about 31 percent of the long run federal revenue estimate,” the report states. “Thus federal revenues would have to rise immediately and permanently to 24.1 percent of GDP to cover the fiscal imbalance.” A tax rate of 24% of GDP would make it more difficult for the economy to grow, which would mean that under current policy, more government spending through social and unemployment programs would rise, increasing the debt and requiring higher taxes. It’s a fiscal death spiral.

We must stop the bleeding. The longer we go incurring more and more debt, the more likely it is that our entire republic is put at risk. No one in either part is doing anything serious about this frog-in-the-frying-pan problem. The President doesn’t even believe we have a debt problem and the Democrats are openly comfortable with deficit rates in the $600B+ range each year. The Republicans give only lip-service to reforming our tax system, preferring to put off until after the 2014 elections any introduction of legislation that would address these problems. And if they win, they will put it off again out of political fear for losing the 2016 Presidential race – at least that’s my prediction. I have little faith that either party will act in the best interests of the nation and say “No” to their constituents. None of them want to lose elections and lose power. It seems that being in power is more important to both parties than using that power to do good, but very difficult things for the nation.

The only real solution is for us as a nation to look at ourselves in the mirror and realize that we are our own worst enemy: We can’t have it all. We need to say “No” to ourselves and stop relying on the Federal government to provide a public version of most services in our society. There simply isn’t enough money.

On a very different note (no pun intended), I must admit that I like this song by Pharrell Williams. It’s catchy and I get it out of my head. And his web site is something I’ve not seen before. Take some time to click through it and see how the different people dance and have fun with the song. Pretty creative. J

Thirdly, the EPA report on greenhouse gas emissions shows again this year that cows are just farting too much. Apparently, the methane they emit is 23-times more potent than carbon dioxide as a greenhouse gas. So, the answer is obvious – eat more beef!

The Fifth Amendment ensures that the government can’t just jail us for an accused crime without proving that we have committed a crime. Does this apply to terrorists who are US Citizens? The fact that the Obama administration is divided on this issue – and has been since 2009 when he took office – is troubling. But our rights can be undermined by local police department bizarre notions as well. Consider this man who blew a 0.0 and still was arriested and forced to spend a night in jail.

When it comes to unemployment benefits, North Carolina is a state to look at. They ended their unemployment benefits six months before the Federal government would have done so. What happened was somewhat predictable. A number of people just quit looking for jobs and most others took jobs for which they were over-skilled. Hence, the latter group is under-employed. Overall, what it did was revealing – some were getting benefits when they were probably not working that hard to find new work. Others were looking for work and once the benefits ended, they took whatever work they could. I don’t envy anyone who is working in a job they do not want and are clearly over-qualified for. Still, it is better, overall, to be working. Now, I understand that finding a new job is a full-time job. I get that. Hopefully, those who are underemployed will find work commensurate with their skills.

Bill English, CEO