Wednesday, August 26, 2009

Federal Express, UPS or USPS?

From the Desk of Joe Rollins

You might think that the above title is unusual, but over the last week I have become somewhat introspective about the healthcare reform debate, and it’s made me wonder which of the above companies I would want to manage my healthcare plan. They’re all in the exact same business, right? Would I want the private sector, represented by Federal Express and UPS, to manage my healthcare? Or the bumbling, incompetent and completely bureaucratic disaster that is the United States Postal Service? As I’m sure you’ve guessed, it didn’t take me very long to come to my decision.

I know I’ve said it before, but I want to point out to you just how incompetent our government is at doing virtually everything in comparison to the private sector. I’m going to give you a few thoughts to ponder regarding the public healthcare option that the Obama Administration is trying to force through Congress at the current time.

But before I get into that discussion, I want to reflect on the current U.S. financial markets, which have been nothing short of stunning for the last five months. The S&P 500 Index is now up 15.6% for the year. Remember that we endured a disastrous year during 2008 when the S&P lost 37%, so the gains for 2009 are even more remarkable when you think about where we were a year ago.

Looking back at the last five and a half months, on March 9, 2009, the S&P was at 660. This past Friday, the S&P closed the day at 1,026 for a stunning gain of 55% in the intervening months. Even more impressive is that the NASDAQ Composite closed Friday at 2,021. This represents a stunning increase of 60% over the past five and a half months. Although we hear nothing but gloom and the doom from the financial media, I’m hard-pressed to think of a time when the financial markets have rallied so impressively at such a fast pace.

While it is true that the economy is less than stirring at the current time, the financial markets typically do not reflect the current economic situation. Rather, the financial markets forecast the future, and it is now absolutely clear that the U.S. economy is on the mend. I believe it’s almost a given that the 3rd quarter of 2009 will reflect positive GDP growth, which is months prior to when it is forecasted that the economy will turn.

Many developed countries have now reported positive GDP growth for the 2nd quarter of 2009 even though the U.S. continued to have negative GDP growth. For example, Japan, Germany and France all reported positive GDP growth this past week. Asian countries never reflected a negative GDP growth during this time and countries such as China and India have continued to reflect strong, positive GDP growth.

Even with all the serious unemployment the U.S. is trying to overcome, the economy reflects that it’s on the mend. Again, the financial markets are not reflecting the circumstances of today; rather, they are reflecting the realities of tomorrow. As the economy continues to improve, the financial markets will reflect even higher profits and stock prices.

I am often baffled by investors who refuse to invest because of the economic turmoil they see occurring at the current time. Current economics has nothing to do with stock market investing. If you have waited the last five and a half months to invest due to the influence the financial media has had on your opinion of the U.S. economy, then you have missed a great wealth building opportunity. Regardless, I still don’t think it’s too late for you to invest. As I always say, you shouldn’t invest for today or tomorrow; rather, the point it to invest for 10 plus years from now.

You may rest assured that the financial markets as we know them today will sell at many times the current level 10 years into the future. Why some investors focus on the performance of the day, week or month has always been a mystery to me. Investors who sell out during bad times often never make the decision to reinvest, but as the last sell-off has demonstrated, they still would’ve been better off remaining invested than to have not been invested at all.

Now, on to my current soapbox rant… It’s amazing that certain members of our U.S. Congress are arguing that it’s only possible for the government to bring the economy out of recession. The incompetence of our government is so legendary I can’t even imagine turning over 30% of the U.S. economy for them to manage – this is what the healthcare reform plan would represent.

It has been proven that if you return money to the taxpayers, they will use it to improve the economy. The “Cash for Clunkers” program has been operational for only a few months, but it has already pumped $3 billion dollars back into the economy. Furthermore, it increased production capacity for the automobile manufacturers, creating jobs for Americans. Additionally, it took nearly 700,000 “junk” cars off the road and put Americans in newer, safer and more fuel efficient cars. This is the type of tax incentive that creates commerce and pulls the economy out of recession. It is not government that created these jobs; it is government returning the money back to the taxpayers who paid it to them in the first place.

Even so, this highly successful program has run into some major problems, mostly because of the ineffective way it is being run by the government. Even though the dealers advance the money to car buyers promised by the government for their clunkers, the government has been slow to reimburse the dealers for their advances. This failure on the government’s part has put many dealers in financial strife.

As of today, almost $3 billion has been committed in clunker rebates. However, the government has only reimbursed dealerships $147 million of that $3 billion – roughly 7% of the total extended by dealerships. This is just another example of the gross incompetence the government exercises when it attempts to operate in a free enterprise. Do you really want these people to manage your healthcare program?

Driving to work the other morning, I noticed a great deal of construction on Peachtree Street. There were two crews digging along the side of the road, one of which had a crew member in a hole with a shovel while five other guys stood around and intently watched him work. This certainly doesn’t seem like the most efficient way to dig a hole to me! The second crew was a little more efficient; they only had four guys drinking coffee and blocking traffic on Peachtree Street as commuters tried to make their way into work.

Last year, the City of Atlanta’s budget ran a deficit of $64 million because they did not understand the difference between capital improvements and operating costs. Duh?!? When Shirley Franklin was first elected, she assured us a more efficient Atlanta government. According to the Atlanta Journal-Constitution, the city of Atlanta has 20% more employees now than when Mayor Franklin entered office. This is just another example of how government continues to get bigger and bigger while growing more inefficient than ever. We will never control the size of the government until taxpayers stand up for less government, less taxes, and fewer items sponsored by the government.

Remember my previous comments about the stoplight situation on Peachtree Street? Is it surprising to you that the City of Atlanta does not have a synchronized traffic light system? Nearly every developed city in the world has a synchronized traffic light system, but the City of Atlanta doesn’t, and I can only assume that’s because of its incompetence. It is not a matter of money – they have plenty of money to waste – it is a matter of competence. All City of Atlanta taxpayers need to reflect on what value they are getting for their taxes. While everyone in the world complains about Atlanta traffic, our local government has proven to be completely inept at making any improvements.

I also find it very interesting that the U.S. government is sponsoring a plan to loan up to $10 billion to Brazil to fund deep water drilling for new oil discoveries off the shore of Rio de Janeiro. It is quite likely that China will actually get the opportunity rather than the U.S. because they are offering more money and better terms. Additionally, China is funding deep water drilling off of Cuba in order to guarantee future oil deliveries since they have a shortage in natural resources.

What I find interesting about this development is that the U.S. government will not even fund drilling in the United States, but they are willing to fund drilling in Brazil. What is wrong with this picture? Even though we all agree that the shift to more favorable energy sources is desirable, it is a pipe dream to believe that in 15 or 20 years we will be off fossil fuels entirely. Now that China has essentially locked in supplies from Brazil and Cuba, where will the United States get its oil? It seems that everyone in Washington is focused on fulfilling dreams at the jeopardy of the realities that will ensue over the following decades.

Late in the afternoon this past Friday, the White House announced that the 10-year projected deficit has been increased by $2 trillion. Perhaps they’ve found it helpful to announce such terrible news late on a Friday afternoon in the dog days of summer. Even with all the complaints regarding George W. Bush’s deficits in the last years of his administration, the deficits projected over the next decade make George Bush’s deficits look like rounding errors. Is this really the direction that Americans wants their Federal government to take?

One of the more interesting controversies in the current debate regarding healthcare reform is Congress’ continued assertion that medical insurance companies are not competitive. The reason that medical insurance companies are not competitive is principally because of government itself. Each state sanctions which medical insurance providers can operate in their state while restricting competition. If insurance companies could sell across state lines and if there were some universally accepted standards that medical insurance providers would have to abide by, then competition would be enormous.

There is no shortage of medical insurance providers. But with government intervention, competition is not allowed to flourish. If the government would provide the benchmarks and then allow the insurance companies to compete across state lines, there would be ample competition to bring down the cost of medical insurance premiums. Regrettably, I don’t ever envision a situation where our current Congress would ever want to get their fingers off the control button of healthcare, which is a large portion of the American economy.

I could not help but be amused by Paul Krugman’s opinion piece in Friday’s issue of The New York Times. I often mention Paul Krugman in these posts. He is an economist that supports socialized government. He was also one of the largest supporters of Barack Obama when he was running for president. Unfortunately, he has been wrong very often about many things and now he has lost total credibility in my mind. After all, it was he who said it was necessary for all the banks in America to be nationalized in order to survive. He was so very wrong on that point.

In Friday’s opinion piece, Obama's Trust Problem - The New York Times, Krugman griped that the Obama Administration is not liberal enough. His argument is that only government can properly provide healthcare. However, since the Obama Administration has seemingly abandoned the socialistic goals Krugman advocates and is willing to consider something other than a complete nationalization of the health plan, Krugman has become very critical of Obama. It appears that the Left is turning against the President they so badly wanted in office.

I have gotten in the habit of reading Paul Krugman’s articles faithfully just to see how wrong he can be. In one of his pieces last week, he claimed that the Federal government is what saved us from economic disaster, stating, “What saved us? The answer, basically, is big government. We appear to have averted the worst: catastrophe no longer seems likely and big government, run by people who understand its virtues, is the reason why.” I’d like to ask Paul Krugman a question similar to the one Congressman Barney Frank posed to a nut job at a town hall meeting last week – “What planet are you from??”

CNNMoney recently reported that only $120 billion of the $720 billion of the infamous stimulus funds has actually been spent. The total spending for the stimulus bill to date is less than 1% of the GDP. It doesn’t make sense for Krugman to assert that such a small expenditure by the Federal government could have turned around an economy that lost 6% of GDP in the 4th quarter of 2008 to turn into a positive GDP growth in the 3rd quarter of 2009. The question all taxpayers should really ask is, if the stimulus money spent thus far has only produced a 1% positive GDP growth and the economy turned around without it, why not forego spending the rest of the money that’s been appropriated?

Since we are facing the most staggering deficits ever in the history of the United States, maybe returning the unspent $600 billion left in the stimulus bill could help this matter. If taxpayers do not get involved in cutting the spending of Congress, we will truly face deficits of monumental proportions.

I wish financial commentators would at least check their facts before they make statements that are not supported by reality. Paul Krugman’s assumption is that only countries with big governments can have economies that prosper and have better welfare for their people, and that only the government can control banks and properly provide healthcare to its people. This has been the socialist versus capitalist argument since the beginning of time, where socialists believe that only the government knows what you need and only the government can furnish it. However, capitalism has been incredibly successful in the United States, and in my humble opinion, the government is not the reason for its success.

You may be asking what the facts are for why capitalism works better than socialism. If you look at the countries with the largest government spending, you will see that they have suffered through the worst recession over the last year. For example, Sweden, which spends 52.6% of its GDP on government items, had a negative GDP growth of 6.2% over the last four quarters. Italy spends 48.5% of its GDP on government and has had a negative GDP growth of 6% during the same timeframe. The United Kingdom, which spends 41.8%, has suffered through a negative GDP growth of 5.6% over the last year. The United States spends 36.6% of its GDP on government, and has suffered a negative 3.9% economic decline. From these numbers, it seems to me that big government does not guarantee a good economy.

So, what countries spend the least on government and what is their corresponding GDP growth? China spends only 30% of their GDP growth on government, and they’ve enjoyed a 7.9% GDP growth in the last year. India spends the least on government at 20.4% of GDP and their growth has been 5.8% over the last year. How can Paul Krugman make such an argument when it is clearly not supported by the facts?

I don’t want you to think I feel negatively about our economic and financial futures; Americans seem to be rising up to fight big government, and I am optimistic that taxpayers see what is going on in Washington and will stop it cold in its tracks. Deficits cannot continue to grow exponentially over the next decade and still allow the country to prosper. The only way to avoid economic disaster is to remove our current Congress and elect officials that are responsive to America’s needs, not some fantasies that they’ve created in their own minds that are not supported by economic reality.

As Congress returns in September to debate the healthcare reform matter, just consider some of the items that I’ve mentioned in this posting. Our government is ill-equipped to do anything well except administer our defense program. Every other facet of government should be privatized and returned back to basic capitalism. While everyone wants healthcare reform and it’s obviously something that’s desperately needed by all, the last thing we need is a government-controlled healthcare system. It will surely create a boondoggle of gigantic deficits that we will never be able to overcome along with an inept medical care program. Again, this is the basic argument of capitalism versus socialism. I vote for capitalism.

As always, the foregoing comments are my opinions, thoughts and personal biases. In all cases, I could be wrong.

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