Thursday, February 26, 2009

Creating a Culture of Responsibility

After listening to years of happy talk, it is great to see that Pres. Obama is confronting America's problems in a straightforward way with honest solutions to address them. I especially appreciate his 10 year budget which includes costs for wars, health care and bailout money. He includes the sunset of tax cuts for those families over $250k and additional increases. The Bush administration loved to have it both ways - have a tax cut with all sorts of "unanticipated" expenses like the continual supplementary authorizations for the war in Iraq or spending on hurricane relief while lowering the overall perceived deficit even though they wanted the tax cuts to go on forever. It was a mirage designed to fool Wall Street and Main Street.

At the same time, there is still a ways to go. Social Security tax surpluses are still included in the budget "reducing" the perceived deficit by over $100 billion. This trick was put in during the Johnson administration and needs to be removed. We also need to account for all the risks taken on with things like the Medicare, bank, pension and farm insurance. If we expect companies to account for future liabilities today, we should be honest with ourselves of the cost of them and account for them appropriately. If we plan to put execs in jail for deceptive accounting, our government officials should be accountable as well.

Americans want universal health care, infrastructure spending, and carbon caps to reduce greenhouse gases. We want the best military in the world with presence all over the world to promote our agenda. We want the best educational system as well as investments in cutting edge R&D. We want to get out from foreign oil dependence and we want to build new transmission lines to remotely sourced renewable energy.

At the same time we want to reduce taxes on working Americans while taxing wealthy Americans and corporations. This may make sense as a balancing act, but it still produces massive deficits. We need to bring in a new culture of responsibility. There's no such thing as something for nothing.

If we want to spend on infrastructure while improving efficiency, we need to increase taxes on oil. CAFE limits are interesting but they are really a dodge. Nothing works better than higher gas prices to push people to buy more fuel efficient cars or use mass transit.

If we want renewable energy, we need to tax carbon emissions and push for renewable energy minimums. That will cost more for users of energy now to build solar and wind farms as well as the transmission capacity. However, it will incent us for energy efficiency now, net future reduction in foreign oil imports and slow the impact of climate change.

If you want universal health care and be more competitive as a nation, saddling businesses with the cost of health care only pushes companies to go to lower cost countries. And yes, that includes Canada where businesses do not have to worry about that burden. Americans pay for healthcare one way or another - in the form of lower wages, higher product costs and higher taxes to cover those who use "free" emergency care. The money has to come from somewhere. If we increased our personal taxes and eliminated this cost to companies, more companies would set up operations in the US. They may pay workers more. With health insurance costing $8k per family, if a worker makes $40k per year, that's 20% on top of at least 10% in Social Security, Medicare and other benefits. Simply because it is "hidden" to the worker does not mean it is not there. All businesses factor that into decision-making on personnel compensation cost and in terms of where to locate. We know we need more preventative care to reduce overall costs and the only way to get there is to make it universal. It will cost more now, but will pay off in the future. We just need to make it more transparent because there is no such thing as free care. Not only that, the current system confers advantages to large companies over small ones because their health care cost per worker is lower. It is nothing to do with product or service innovation. If we want to encourage entrepreneurship because it is the greatest source of new jobs, we need to equalize some of the advantages of scale.

If you want free universal preschools, lower class sizes, better teachers, then we all should pay for it. We want college for all those who can afford it. We know that in the long term we all win by having a more educated and innovative workforce, so we should be willing to pay. This would also encourage knowledge intensive companies to locate here because they want to access clusters of well-educated workers. And we should be open to giving visas to immigrants who get higher education degrees here. They help to raise the bar for all of us.

We are spending over $500 billion on base defense costs in 2009. This does not include another $140 billion for the Iraq and Afghanistan wars. We spend far more on defense than the world combined. Our troops and ships are in over 100 countries and in every sea. This an invaluable contribution to world peace and commerce. But isn't it time for other countries to pay their fair share. We should be the best in technology and ability to fight, but do we really need to be buying F22 fighter jets at $350 mil a piece? Especially since they require so much maintenance that they are only available 60% of the time.

Obama has been offering Americans straight talk, but we need to pay for the things we want. A $8 reduction in weekly tax per worker reduced taxes by $250 billion. $8 a week is not a lot of money. Maybe, it buys a couple unhealthy meals at McDonalds. Do we really change our spending behavior based on this? Wouldn't we be better off in increasing our taxes by the $8, so we can pay for all of these initiatives. Aren't these investments going to net us great benefits for the future?

As I travel the world, I see other countries ahead of the US in infrastructure and education. In Europe, mass transit is a dream - it's clean and efficient, no need for a car. In Singapore and Thailand, you should see the roads and buildings in big cities. The airports in China, Japan and Korea are awe-inspiring. In India, there are gleaming corporate centers filled with super smart hard working people willing to work all day and night.

If we want to continue as a prosperous nation, we need to get out of the something for nothing mentality and start realistically investing in our future. Obama has taken an amazing first step. He has the gift of speaking in a way that is realistic while inspiring hope. Now, I hope he will now take us all the way.


Anonymous said...

Bush scared me...Obama scares me just as much. As a middle class american w/3 small kids that works 80+ hours a week to make $75K a year.

Universal Health care = NO
Free Preschools = NO

Shame on you Rajiv... I guess you dont care about the folks in S. Berwick Me. that help make those F22 that are going to be out of work.

Anonymous said...
This comment has been removed by a blog administrator.
Rajiv Parikh said...

I appreciate your comment. With 3 young children, universal health care and public preschools would likely help you. I don't know your particular situation, but maybe there are better jobs if healthcare wasn't the issue. For me, neither would help financially as my kids are out of preschool and our companies pay for healthcare. Indirectly, though society would benefit and though I'd pay higher taxes, it would be worth it in the long run.

I love New England having grown up in NH, but should we make decisions about various defense programs based on particular localities?

Anonymous said...

What can I say frustration has set in....

Im confident I am going to bounce back but Im not too sure about the blue collar workers @ Pratt & Whitney

I have nothing against Obama but I dont care about what kind of dog he is getting & dont care what kind of clothes his daughter wears like the rest of the country.

Thanks to this wonderful democrat congress that has been in control for the last 3 years and the brilliant idea they just passed and signed we are broke. Think about the last political party in the world that had complete control in the parliment and head of state? World war II started. Democracy is of checks and balances and no for father ever thought that this could happen and now 1 policatal party is in ultimite control and unstopable. Democrat vote ALL FOR, Republican EVERY SINGLE ONE AGAINST and could not stop it. Really think about that.

I like your business articles better

Rajiv Parikh said...

Thanks for the comment, especially about my business articles. I appreciate your point of view. I'm with you about caring about Obama's dog. I'm sure he'd be glad if people did not pay attention to his daughters.

As for your point about the last 3 years - actually the Dems have had House and marginal Senate control for the last 2 years. The other 6 had Republican control of both branches and houses. I tend to hold the President in power accountable. Bush and the Republican Congress went against previous notions of fiscal responsibility with tax cuts and massive spending increases. I loved the Clinton era surpluses - imagine the financial flexibility we would have today if it continued? Over $400 billion of our current budget is in interest payments on previous debt - that's 3.5x more than the Dept of Transportation, Education and NASA combined.

You are right that democracy is about checks and balances, however the US is one of the few democracies where the executive can be of a different party than the legislature in a 2 house system. Our government was designed to be inefficient - because our founders wanted slower decision making and to incorporate minority sentiment. Most governments have a single legislature Parliamentary systems where one party has to own both. Then its up to the voters to hold their feet to the fire. There are advantages and disadvantages to both systems.

Re: Pratt workers and blue collar. I remember my time in Connecticut selling computer systems to United Technologies. They had such power then. It's unfortunate that US manufacturing and blue collar workers have suffered. This is not necessarily an outcome of being a developed nation. Look at Germany and Japan - both have strong manufacturing bases with balance of trade surpluses in a relatively high tax economies. It does not have to be this way.

I would still argue that if we want all these programs, we should be willing to pay for them. Many of them are for societal good that flows to all of us. As a developed society, it would make sense to truly walk through the detail first before making a decision.

Anonymous said...


I will keep you in my favorites but you are on probation LOL.


Rajiv Parikh said...

Hey DK, I thought you'd be 100% with me given that you are a Canadian and all.