Targeted Government Program Funding

I recently had to give kudos to a few Connecticut legislators who suggested partitioning transportation funds from the state’s general fund.

The notion of a general fund should be done away with to prevent our spendthrift legislators from diverting resources to projects intended to boost reelection chances or fill campaign coffers. The same should go for local governments and the federal government.

In this post, I'll propose funding alternatives to the general fund scheme that directly link funding to the specific roles of government.

Using the federal government model I have espoused in prior posts, I suggest that these are the government entities we ought to be funding:

• Justice
• State/Intelligence
• Defense
• Treasury
• Transportation
• Education

Not all entities need exist at all three levels of federal, state and local government. The following sections are organized in order from top to bottom of the government hierarchy.

Justice
The Justice department budget is about $28 billion which can be funded with a flat tax of 0.1% of national GDP.

At the state level this would encompass the Attorney General, the state courts and the sheriffs. These functions cost $85 million which can be funded with a flat tax of 0.03% of state GDP.

No local equivalent.

State/Intelligence Funding
Diplomacy and intelligence go hand in hand; trust but verify. The State Department has a budget of about $55 billion and the intelligence agencies have a budget of about $75 billion. This can be funded by a flat tax on national GDP of 0.82%. I think it should be half of that by getting rid of the Department of Homeland Security: the intent of DHS was to get the agencies to share information and that should not cost $43 billion/year.

At the state level, this is essentially the cost of the state congressional delegation. The costs aren't tallied anywhere I could find but we can assume that for 5 congressmen and two senators, there are probably 700 paid staff for a total of about $43 million or, about 0.02% of state GDP.

No local equivalent.

Defense Funding
At the federal level, I have proposed a return to the levels before 2001, about $400 billion/year. Get out of Japan, Korea and Germany. Gear more toward counter-insurgency and less toward large ground or sea wars. This could be funded by a flat tax of about 2.53% of GDP.

At the state level, we have the National Guard at $53 million which could be funded with a flat tax on state GDP of 0.02%.

At the city/town levels we have police, firefighters and emergency medical personnel. Using Shelton as a cost model since it's notably well run, we could fund this with a flat tax of 0.63% of city GDP. The GDP of Shelton is about $1.2 billion.

Treasury
The federal treasury budget is about $17 billion which can be funded with a flat tax of 0.11% of national GDP. That said, it should probably be self-financed for years when it unloads the securities it's been buying at a rate of $85 billion/month through the Federal Reserve.

At the state level, this cost is almost negligible as a portion of state GDP. The entire category of 'General Government' in the state budget is $770 million or 0.31% of state GDP.

At the local level, this is essentially city/town government. For my city of 35,000, the town government costs about $38 million, not including education or 'defense'. We have a GDP of about $1.2 billion so a flat tax of 3.2% of city GDP would be required. Get rid of property taxes and sales tax since these are unstable and largely regressive.

Transportation Funding

Transportation is important since it is the primary vehicle of commerce.

We have roads, rails, airports and seaports that must all be maintained.

Roads and Highways
Let’s fund our highways with taxes on miles instead of taxes on fuel; get the mileage as a part of the registration process. States can also raise highway revenue with concessions at rest areas by collecting a 10% surcharge on everything in-perpetuity. This in addition to registration and licensing fees.

To compensate states for the wear and tear of interstate trucking, the federal government can separately collect taxes on trucking and bus companies and distribute these funds to the states based on the number of Interstate highway miles each state has, this is infinitely preferable to tolls.

The federal funding that comes from fuel taxes should convert to ton-mileage taxes: why should I pay for highways when I run my lawnmower? Federal transportation funding currently comes from a gasoline tax of 18.4 cents per gallon on 134 billion gallons/year (in 2011). This amounts to $24.6 billion/year. Given the 650 billion ton-miles driven every year, a tax of a 5 cents per ton-mile would produce $32.5 billion/year. Of the 47,908 interstate miles, Connecticut has only 346 so we'd get $235 million/year from the federal levy. No cabinet department needed, just a ton-mile tax on the interstate operators: by the way, diesel is taxed higher than gasoline and the tax on that should also go away.

States must finance what federal funding doesn't cover but on interstates and state roads only; cities and towns should pay for their own roads’ maintenance.  Oh, and stop building new roads without long-term plans to maintain them.

Connecticut has about 21,000 miles of paved roads out of which the state maintains 3,733 miles and the state transportation budget is currently $610 million. However, it is not clear in the state budget how much is spent on road and bridge maintenance. My city maintains 210 miles of road for $2.9 million/year or about $14,000/mile so the state might be spending $52.25 million based on the mile ratio.  According to the City of New Haven, the average cost to mill and pave a road is $15 per square yard or $176,000/mile for a roadbed 20 feet wide. This means that we pay enough to repave every road every 12.5 years.

To maintain our bridges, nationally we need about $70.9 billion to fix them all. Connecticut has 383 structurally deficient bridges out of 68,842 so we need about $394 million to fix ours. We should be able to fix them all in 12.5 years for a state cost of $31.5 million/year.

Given the more than 3 million vehicles in Connecticut and the nominal 12,000 miles driven by the average car per year, this would produce 36 billion vehicle miles per year. Given that Connecticut has 1.25% of the nation's population and the national average is 3 trillion vehicle miles, this sounds right.

Given that the state needs $83.75 million/year to maintain the highways and bridges frome the foregoing analysis, a vehicle-mile tax of 0.25 cents per mile should cover it nicely. For me, $27.91/year versus 43.4 cents/gallon on 800 gallons is a savings of about $319.

Railroads

The US railroad system, excepting Amtrak, is privately owned; the tracks, the signals, the switches and the stations. We shouldn't pay a penny of taxpayer money for it. No subsidies, no maintenance fees, nothing.

Amtrak (passenger rail) is losing money. A ticket from Stratford, CT to Grand Central Terminal costs $18.25 and covers 60.7 miles in 72 minutes. The IRS allows 56.5 cents per mile for business travel by car but trains are charging only 30 cents and taking a $1.4 billion federal subsidy on top of $2.02 billion in revenue. I say jack up ticket prices by 69%, remove the subsidy and call it a day.

Seaports
The seaports are both publicly and privately owned. They are apparently a cash cow. They throw off more than $31 billion in tax revenue. Given that the entire budget for the Army Corps of Engineers is $4.6 billion, I think this is well taken care of. I'm not sure who's grabbing the other $26 billion in tax revenue but it seems the taxes could be reduced by about 80% with no harm done.

Airports
For aircraft, let’s fund it with airport tolls at security gates (in both directions) and a portion of the federal transit funding based strictly on ridership. Airports will lose big time with far fewer plane rides compared to train and bus rides.

Connecticut has about 2.7 million airline passengers each year.

Connecticut's many airports are partially subsidized by the federal government; about $3.4 billion in 2011.Connecticut should be paying 1.25% based on population.

The national air traffic control (ATC) budget is about $13 billion of which Connecticut's flyers should be paying about 1.25% based on population but more like 0.4% based on actual enplanements of 726 million. That said, I suspect many in the state use the New York airports so 1.25% seems more fair.

Doing the arithmetic, 1.25% of $16.8 billion is $210 million. Dividing this by the (expected 1.25% of) ridership gives $194 per rider. Splitting this fee between rider and airline means nothing since the airline will just raise ticket prices to compensate.

Air cargo must also pay for airport and ATC services. Between 2008 and 2012, the US shipped nearly 51,000 megaton-km of cargo by air, 12.7 gigaton-km/year. Comparing this to passenger ton-km, we find that with an average passenger weight of, say, 200 lbs (with baggage) a total of 133 gigaton-km. This means cargo shippers should pay 12.7/133 or 9.5%; call it 10% to make the arithmetic easy.

Passengers should pay $174.60 each and cargo shippers should pay $19.40/ton-km. The rest of us should pay nothing unless we fly.

Buses

For public bus-based mass-transit, let’s fund it by getting rid of school buses and letting kids ride mass-transit and pay fares like I did when I was a kid. Also use funds from advertising and general bus-ridership ticket sales.

Connecticut delivers about 38 million bus rides per year and operates with a deficit of about $130 million or about $3.40 per ride. Given that they sell monthly tickets for $47, this is obscene. Given a round-trip to work for 22 days as a minimum, this is about $1.07/ride. This means that the subsidy is about 75%.

Education Funding
Given my model of $5,000/student-year, with the enrollment at about 560,000 this amounts to a flat tax of about 1.2% of state GDP. No federal funds required.

Summary
The basic idea is that users should pay for government-provided services and users of one service should not pay for the others unless they use those too. If the user fees are insufficient to pay for services, services should be curtailed. Plain and simple.

In addition, governments must not co-mingle funds; using money raised for one purpose for other unapproved purposes. This would prevent things like congress' misappropriation of $2.7 trillion from the Social Security Trust Fund. It would also prevent government from borrowing money (except short term) to fund day-to-day business.

The Peter Principle

The Peter Principle holds that in a hierarchy, members are promoted so long as they work competently. Eventually they are promoted to a position at which they are no longer competent (their "level of incompetence"), and there they remain, being unable to earn further promotions.

Peter's Corollary states that "in time, every post tends to be occupied by an employee who is incompetent to carry out its duties" and adds that "work is accomplished by those employees who have not yet reached their level of incompetence."

"Managing upward" is the concept of a subordinate finding ways to subtly manipulate his or her superiors in order to prevent them from interfering with the subordinate's productive activity or to generally limit the damage done by the superiors' incompetence.

Having just reviewed the budget proposals from the (republican) house and (democrat) senate, it occurred to me that this must be the principle at work in our nation's capital. Only an incompetent group could look at what's happening here and around the world and produce a pair of budget documents so blind to reality.

We all know that the federal government is spending well beyond it's means.

We all know that if we were allowed to save the money now confiscated by government, we'd get a much better return on it for our retirements.

We all know, especially with the recent publication of Bitter Pill in Time Magazine, that we are getting ripped off by the healthcare industry (I also showed that in my post).

We all know that politicians do what they do to get elected, not to improve our lives.

We all know that government spends 39% of every dollar.

We all know that wealth enables us to have government and that government creates no wealth. The path we're on leads to a huge government and no wealth creation; it must end in failure.

We all know all of these things and yet we stand idly by watching these buffoons waste the fruit of our labor year after year. I think it's time to start managing upward.

The senate budget looks just like the White House budget from last year: it proposes an increase of the national debt by $7 trillion over the next 10 years while increasing revenue (taxes) by 89%. All this with an economy limping along at a 2% growth rate. This is Exhibit A in my case for incompetence. 

The scary yet hilarious part is that they use the word invest 304 times. This is scary because the senate considers pissing our money away to be an investment and also because the word invest never makes an appearance in the Constitution. It's hilarious because we all know that invest is a none-too-secret democrat code word for spend.

At least some people got a return from investing with Bernie Madoff, none of us will.

The house budget looks just like last year's house budget. No surprise since it was written by the same guy. It proposes an increase of the national debt by $4 trillion over the next 10 years while increasing revenue (taxes) by 88%. All this with the same 2% economy. This is Exhibit B in my case for incompetence.

In the press, it is widely reported that this budget balances after 10 years. I'm seeing a deficit in every single year including the tenth one. I also see an upward trajectory at the end. I don't know what arithmetic led to the reports of balance but, then again, it's the media and we know they're just mouthpieces these days. I just can't figure out why a balanced budget would seem fearful outside of DC.

I'm also not clear about why the 2013 revenue points in the two budgets differ by $26 billion. We're in 2013 now so shouldn't there at least be agreement there? Granted that the discrepancy is only 1% but how can they blast JP Morgan for $6 billion when they can't add any better? This is Exhibit C in my case for incompetence.

The President's budget looks similar to the senate budget; $7 trillion more added to the debt, revenue increased by 93% (higher than house or senate at 88%) on the same 2% economy and the shocker: Medicare outlays projected to grow by 87% despite the supposed cost-savings of Obamacare (I don't use this term as a pejorative; the President said he liked it during the debates, remember?). There's a vote of confidence! There is also an unhealthy abuse of the word 'invest' here.

Combining this plan with the President's recent call to make mortgages more available to those with bad or weak credit suggests that the next four years will look as bad or worse than the last four years. Swell, although I've always wanted to visit Greece and now I get to forego airfare!

Neither proposal shows what happens when (Israel and) we bomb Iran back to the stone ages, get into a ground war in Syria and have 10 more hurricane Sandy-like events in the next 4 years. These are political documents aimed at a disenfranchised electorate through the eyepiece of a biased media that profits from the idiocy of it all.

Government needs to get out of the safety net business.

• They promise retirement cash and we stop saving.
• They promise subsidized healthcare and costs skyrocket in unfathomable ways.
• They promise subsidized college education and tuition goes up.
• They promise minimum wages and prices go up.
• They promise subsidized housing and the housing market craters.
• They promise regulation and the frequency of financial meltdowns increases.
• They promise free food and the number of recipients increases.
• They promise union support and now unions dominate the government workforce.
• They promise more investment in K-12 and we fall further behind in world standings.

I could go on but I expect that the pattern is quite visible; most government-designed solutions cause more problems than they solve. In addition, the failures occur most often when the government strays from the Constitution (every case listed strays from it).

In my previous post I showed a way to keep government spending flat while paying our way out from under the promises made by the previous groups of incompetents in Washington. The plan I proposed ends with a flat federal tax of 3.75% of GDP and a national debt of zero or better.

Both of the plans proposed by Congress will increase both taxes and the national debt. Neither plan attempts to reduce the scope of government; no surprise since the authors have a vested interest in maintaining the status quo.

Dear reader, I implore you to contact your government representatives (1 congressman and two senators) and manage them upward. By this, I don't mean to imply that they are your superiors, only that they think they are.

Tell them that their (stated) intentions are laudable but that they are on the wrong path. Tell them that 39% is too much overall and that even 20% for the purposes of the Constitution is way too much. Tell them that you can do better without their investments. Tell them that a good plan allows for contingencies and that their proposals don't. Tell them that it is impossible to increase revenue by 88% in a 2% economy without raising taxes on you. Tell them that capriciousness with entitlements is unacceptable and that they should pay up and get out.

I sent  the following letter to our congressional delegation, to the president and also to the house budget committee:


Senator Blumenthal,
Senator Murphy,
Congressman Himes,

We are on the wrong path. We should take advantage of the dip in birthrates following the baby boom to end entitlements.

Cut government back to the original four: Justice, State, Defense and Treasury. Cut Defense back to pre-2001 levels.

This national government will cost about $600 billion/year (20% of current revenue). Use 50% of current $3 trillion revenue to fulfill entitlements for those above 45 years old except that those below 45 will no longer pay FICA: let them save for themselves. Use 30% of revenue to pay off debt.

Debt gone in 20 years. Entitlements gone in about 40 years. $5 trillion surplus for a 'rainy day'.

Taxes then drop to below 5% of GDP. No loopholes, no deductions, no tax credits and no entitlements. A flat tax and everyone pays, no exceptions. Government back in the hands of the people, not special interests.

Doing the same thing at the state and local levels will drop government spending from 40% to 10% of GDP. This will also increase the wealth of all Americans by putting 30% of their income back in their own pockets.

Surely you know that when government says it will pay for a thing, the hands come out and the market cannot correct it.

Promise retirement cash and we stop saving.
Promise subsidized healthcare and costs skyrocket in unfathomable ways.
Promise subsidized college education and tuition goes up.
Promise minimum wages and prices go up.
Promise subsidized housing and the housing market craters.
Promise regulation and the frequency of financial meltdowns increases.
Promise free food and the number of recipients increases.
Promise union support and unions dominate the government workforce.
Promise more investment in K-12 and we fall further behind in world standings and now I pay nearly $20k/kid in Shelton when teacher retirement and ECS are added to local education spending.

Please, fix this. I can supply details upon request.

Martin N. Hoffmann
Shelton, CT

Comments and a New Paradigm

I was fortunate to have a visit from my old friend and classmate, Leo B. The circumstances were less than ideal: Leo was primarily out east to visit his Dad who is ill. That said, I'm always happy to see him.

After catching up with family news, we got around to talking about some of the subjects addressed in this blog. Leo told me that he had wanted to add a few comments but that the comment feature didn't seem to work.

This did not surprise me but I tested it myself and it did indeed fail on the first try. I finally got it to work for me but, as a member of Google+ (this site is operated by Google), I'm not sure I didn't get preferential treatment. Hopefully, my friends in the software business will test it more.

Here's what I had to do to get it to work:

1. Select a specific post on which to comment. These are all listed by month at the top right.
2. Type in the comment at the bottom in the area provided.
3. Select Comment as: as Name/URL from the drop-down menu.
4. Type in your name or alias in the space provided (I used my initials).
5. Leave the URL space empty.
6. Click Continue.
7. Click Publish.

That worked for me three times in a row on 3 different posts. Please try it.

So, having presumably worked that out, I asked Leo what the gist of his comments might be.

Leo, raised in the blue state of New York and having raised his kids in the blue state of Minnesota somehow retained his status as a serious free-market capitalist. Leo reminded me that I was once one of those too and he told me that my thoughts on health insurance and healthcare delivery were tantamount to nationalizing them and that this was the slippery slope to socialism. Socialism is a well known failure of social policy.

I tried to argue that healthcare was something needed by all and that the general welfare clause of the constitution put me on firm ground. I said it was unconscionable to profit from the misery of others. Leo replied that the referenced clause was about promoting the general welfare, not providing it. He argued that it was unconscionable to confiscate one person's earnings because other people felt they could rely on a government-provided safety net instead of earning for themselves. Romney reminded us all that those folks vote and they will always vote to take more of others' money for themselves.

http://en.wikipedia.org/wiki/General_Welfare_clause

On regulating utilities' profits, I made pretty much the same argument but got shot down because this would be government nationalization too. On solar power, shot down because this would be government competing with commerce. Yikes! He's correct.

So, I've been sitting here thinking how I strayed so far from where I was when I was a young man. I was a  Reagan Republican: small government, low taxes, equality of opportunity, personal responsibility and social-financial standing based on merit and value (skills). I've since switched to Independent but I generally side with Republicans on fiscal matters.

This became clearer in our discussion about the minimum wage.

I was on the fence since the current minimum wage pays an unskilled worker half of what a liberal arts college grad with ungodly debt from school loans would be paid. I might argue that the BA could have made a better choice of study but that's not the point. I must say the BA committed to getting the degree, invested to improve his/her value to society, is obviously able to learn and should be worth a great deal more than twice as much as the unskilled worker. Why should society devalue the college graduate in favor of the unskilled laborer? This is bass-ackwards.

Leo believes that there should be no minimum wage since it negates the ability of capital to contract on its own behalf in accordance with the law of supply and demand. It also deprives the employer of the right to his/her own private property (by forcing contract terms against the employer) and also deprives society of its private property by artificially driving up prices. It also inflates the self-worth of the minimum wage employee when what we really want is for these folks to gain useful skills. With FICA the safety net tax, add another 7.65% to what employers must pay (and the employees too!).

I found it tough to argue with that and thankful that the comment software didn't work as well as it should have. I'm guessing there might have been lots of criticism and rightfully so.

As I've aged, I've gotten soft(er) and my left-leaning colleague Larry will attest to this. I like the idea of helping people who need it, I'm just realizing that there's a better way.

I'm retired and my retirement plans rely on Social Security and Medicare to help my wife and me to maintain the lifestyle we've earned. However, if we had been able to keep what we paid in, we'd be far better off.

I stupidly ignored the fact that the profits from the industries I sought to regulate were fueling the other, larger part of my retirement plan which is long-term savings and investment.

I lost sight of the fact that while our plan was to save and invest toward retirement, others choose to direct their incomes to other pursuits like wine, women and song. I'll grant the short term appeal of this fiscal philosophy but it implies that the adherent is willing to either starve to death later on or rely on the public trough. We chose to cut expenses in tough times while others chose to borrow and continue spending. Free will has consequences and, with the current system, responsible folks lose.

While it's true that not everyone chooses their paths in life (some are simply physically or mentally unable to provide for themselves), it's equally true that not everyone else has the same altruistic desire to help both them and those who do choose poorly. It is not the role of government to foist the morals of the majority on any minority. This is one of many good reasons for the separation of church and state. The US Constitution is a good thing.

I can't call myself a fiscal conservative while espousing socialistic ideas.

So I recant the views I've expressed regarding healthcare, energy generation and utility costs. I no longer feel that entitlements should be untouchable either for as Cicero said in 55 BC:

"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed, lest Rome become bankrupt. People must again learn to work instead of living on public assistance."

I have also retooled my plan to pay off the national debt.

I still maintain that the healthcare, electric, telephone, internet and television companies are ripping us off but I acknowledge that these are a mere nuisance compared to taxes for the middle class. I also maintain that harvesting free energy from the sun makes more sense than burning stuff.

For the average middle class earner ($62,000/year), taxes this year will be:

Federal Income Tax       $11,530
FICA                               $4,743
Property Tax                    $2,097 (median home value of $155,000, median rate of 1.38%)
State Income Tax             $3,720 (assumes 6%)
Sales Tax                         $1,995 (assumes savings of 10% of net income)

Total                               $24,085        38.8%

Of course, there are some states without some of these taxes but I'm looking for the average. This is not far from the overall rate of 43% so the middle class is really getting hammered and the wealthy are clearly subsidizing the "poor". If we included the $10,000/year in health insurance benefits many in the middle class currently get tax-free through employers, the situation is much worse. When Obamacare plays out, this will change since it will be cheaper for employers to pay a fine than pay a premium.

This makes Leo's private property argument fairly compelling.

Leo also points out that LBJ's Great Society programs are a failure: poverty is not decreasing. Part of this is the way poverty is measured since by some measures, lack of internet access constitutes poverty. But it is also widely reported that nearly half of our population pays no federal income tax and to do that, the incomes  must be fairly small. To these folks, FICA is the big hit at a flat 7.65%.

Pension programs are anachronistic: we should all be saving and investing for our own retirements. In addition, businesses will soon stop providing health insurance so we'd better get used to buying our own. We all fret about the impact of the baby boomers but population growth is now at nearly the same post-war level of the 1950's.

US Birth Rate

This does not bode well for the future.

We have to take advantage of the lull that arrives in 20 years to fix this thing. I propose that we increase revenues and cut spending to the bone (as outlined in my post on deficit reduction) to finance entitlements for the next 20 years then cut the safety net and drop revenues to the $600 billion/year needed for a minimalist government.


So, for the federal government, I'm back to just the original four: Justice, State, Defense and Treasury. I still like EPA and the national parks but these and transportation can be handled at the state level. Veteran's Affairs can be handled by Justice and things like drilling rights and grazing can be handled by Treasury. Foreign aid will stop. Defense will be pared back to the levels before 9/11 but they will and should pick up air traffic control.

This gives us a federal budget of just $600 billion/year. This is an amount that could be funded by a flat tax of 3.75% of GDP in today's dollars. Now we're talking about something fair and manageable.

This makes balancing the budget a simple matter: drop Social Security, Medicare, Medicaid, food stamps and welfare after 40 years and, voila: the currently-retired are covered, the debt is paid off, a surplus is saved for rainy days and fair warning is given to everyone else. Pare away the other government agencies described in my post on deficit reduction and we're back to an efficiently sized government.

Yes, the economy will take a hit for laying off 3 million or so government employees but we're down 12 million or more already. Another 2% won't kill us especially since spending must stay effectively the same even without them. The big difference is that we won't borrow to pay the bills any more.

This should probably fix "poverty" too since ending the government safety net will strongly incentivize people go back to earning a living. Think about it: a safety net encourages risky behavior.

Use the same formula with state governments. It will not fix irresponsible behavior but it should reduce it a great deal.

But there's a price to be paid to free us from the current level of taxation. In order to fulfill the promises made, federal revenues must increase long enough to keep entitlements going for those who are too old to take up the slack.

To get there based on 2012 federal tax revenue of $2.5 trillion won't be possible. We need to increase revenue by about $600 billion/year for 20 years.

Use 20% of the $3.1 trillion total to pay for the much smaller government, use 30% to pay off the debt and use 50% to pay out Social Security and Medicare for the baby boomers who are too old to take the hit. Then, as the smaller group following the boomers retires, start dropping taxes and loopholes and deductions with the reduced demand on the treasury. When another 20 years has passed and tax revenue and spending has dropped to $600 billion in today's dollars then convert to a flat tax of 4% and be done with it.

Most of the $600 billion/year in extra revenue can be had simply by following my plan for public school reform. The rest (about $200 billion/year) would come from rolling back the rest of the Bush tax cuts until we can get past this mess.


Meanwhile, eliminate employee-paid FICA for the 45-and-under group to enable them to save for their own retirement; the government will still get the employer-paid half. The graph below shows the effect for the average $62,000/year household that also saves 10% of their income in a 3%-yield investment. This yields about $1,250/month over 30 years; about the same as Social Security. A 3% investment in bonds will do it. With a 5% investment return, the total increases to $390,000; enough to fund private insurance as well. Interest rates are already starting to rise again.

20-Year Retirement Savings for 45-and-Up

Also note-worthy is the fact that Social Security, while collecting revenue from all worker, will only pay out to one member of a married couple. With self-savings, married folks can collect both halves.

For those still earning minimum wage at 45, the graph looks like the one above with an end result of about $75,000 or $95,000. Over 30 years, this will pay about $312/month and may also pay for minimalist private insurance; health insurance is so heavily subsidized right now that it is impossible to predict where premiums for low-budget health insurance will stabilize. For as little as $50/month, it is possible to get a 'mini medical plan' that will cover a predetermined number of doctor visits, many prescription medications, daily hospital benefits and limited accident coverage. Medicare costs $100/month today.

http://www.medhealthinsurance.com/low-income-insurance.htm

After 20 years, the last of the baby boomers has retired and the drain on the treasury will drop by 20% over a few years and taxes can drop right along with the drain. Taxes can continue to drop over the next 20 years as the boomers and over-45 set die off. The national debt goes to zero (effectively a $5 trillion surplus since that's how much congress has pilfered from the trust funds over the years), the budget balances at $600 billion/year and entitlements are no more. See graph.

Federal Taxes and Spending to 2052

All government pension money ($3 trillion from all 50 states; the federal government has none) gets swept into the treasury immediately and all retired government employees (except military pensioners and those who were routinely in harm's way) are moved to Social Security and Medicare. Those government employees under 45 get the same FICA treatment as 'normal' people.

The $3 trillion in real state deposits combined with the net $5 trillion surplus from paying off the national debt can be used to smooth any bumps in the transition.

We must not allow means-testing on benefits since this scheme punishes good behavior and rewards bad behavior: those who save for retirement would lose benefits they earned while those who spend every penny are rewarded with extra benefits. Romney got this wrong.

State- and local-level finances are tougher to figure out but the spending percentages would be roughly the same and for the same purposes: smaller government, helping to pay healthcare and pensions for those 45 and up and debt service. The smaller governments manage education, transportation, parks, education and so-called protection (police, firefighters, national guard, etc.).

I suggest a move away from fuel taxes to mileage taxes to fund transportation. My views on education cost control are in another post. Pension issues are gone and politicians who campaign to bring them back should be shot. Health benefits issues are also gone.

In my state, if we pulled out the giveaways, state & local government spending drops from $41 billion/year to $10 billion/year (assuming we follow my plan to reform education spending by focusing on the classroom). I cut everything but transportation, education and protection (assuming this means local cops, state cops, fire departments and national guard). This could be covered by a flat tax of 4% of state GDP.

http://www.usgovernmentspending.com/

The net result is that total government spending drops from 43% of national GDP to 7.75% of national GDP. I'm sure that this would be much more in line with the vision of the founders who went to war over a tax rate of about 11%. I'm not suggesting a shooting war, just a checkbook war.

This rate would reduce the tax burden of the average earner by $19,096/year. For those who spend every cent they earn and save nothing, they'll reap what they sow. The rest of us must prevent them from starting the exercise in socialism back up again. I suggest two constitutional amendments: balanced budget and no pyramid schemes.

All so-called entitlements gone. All deductions gone. All tax loopholes gone. All government subsidies gone.

Taxes reduced to just 7.75% and everyone must pay, no exceptions: individuals, households, businesses and corporations all pay. Whether the production, income or consumption method is used is irrelevant to me. Tax everything and tax it just once.

http://en.wikipedia.org/wiki/Gross_domestic_product

Property taxes disappear as do the deductions for them.

I think this is a worthy goal and it won't take much more pain to attain it.

The result is far more appealing than the one I proposed in my previous post on the national debt: that plan ended with the continuation of entitlements and a middle-class tax rate of over 40% (Clinton-era tax brackets) although that plan also paid off the debt. That plan also jacked up taxes on top earners to 50% for 20 years.

This plan zeroes the debt so our children can have a turn at ruining the country just like us. It cuts overall government spending from 43% to 7.75% of GDP. It also gives us a shot at being the second greatest generation.

Government Regulation of Business

The government has long tried to regulate business activity, ostensibly to protect Americans from the unchecked greed of businessmen; the Robber Barons. The government (federal, state and local) might be praised for this activity except that it always seems to come after some calamity.

Wouldn't it be nice to learn from past mistakes and get proactive about regulation using common sense?

The Great Depression was caused by the conjunction of unbridled trading in securities, unregulated banking practices and a severe drought that brought us the Dustbowl that had been the breadbasket of the planet.

All three of these things should have been foreseen but none were. I suspect that they went unforeseen because, hey, times were good! It's was the Roaring 20's, what could possibly go wrong?

The S & L crisis of the 80's was caused when the federal reserve bank (a regulator) steeply raised interest rates in 1979 to control inflation. The savings & loan institutes who were loaning money at long term rates lower than the new rates started cooking their books in a feeble attempt to make themselves look more profitable to draw more investment since they were actually losing money. The resulting Ponzi schemes backfired and the whole thing came tumbling down.

This was obviously foreseeable but the environment of deregulation that followed during the Reagan administration made it hard to track.

This is also what happened at the end of the last century. The last provisions of the big financial regulations (Glass-Steagall) put in place during the Great Depression were struck down by the Reagan and Clinton administrations. This, in conjunction with the boom in broadband communications (aka the Internet), the demise of the Bell Telephone monopoly and the dot-com and Wall Street shenanigans (insider trading, for example) that followed led to a bursting bubble. This was amplified by the attack on the World Trade Center. Hey, times were good again!

These things were also foreseen but all of the supposed protections had already been stripped away and the securities ratings agencies were in cahoots with Wall Street. Buy, buy, buy was all they could say and more unsophisticated Americans (including us) were in the market and many were harmed (most definitely including us).

This is also what happened in 2008. The banks which were allowed to grow into mega-banks (again, no more Glass-Steagall) started trading in European sovereign debt and bundled securities comprised largely of government-mandated, overvalued sub-prime mortgages (in existence due to the single largest regulatory failure in history, sparked by the altruistic goal of increasing home ownership). Times weren't that good for most of us but financial markets will always misbehave, especially when nobody is watching too closely.

Everyone, it seems, saw the mortgage trouble brewing but government regulators.

Now we have Dodd-Frank, another law passed as a work-in-progress like the Affordable Care Act (aka Obamacare). I don't hold much hope for Dodd-Frank since Dodd was in bed with the banks for far too long to escape uncontaminated and since the mega-banks are still with us. Besides, any law passed with a "this is better than nothing" attitude is probably worse than nothing.

http://www.usnews.com/opinion/blogs/economic-intelligence/2013/01/07/10-ways-dodd-frank-will-hurt-the-economy-in-2013

Now for concrete examples of regulation at the consumer level that have gone astray.

Electric Power
Back in 2000, Connecticut (at least the democrat-controlled government thereof) decided to deregulate the electric power industry. Since we've been living in the same house for 14 years, it's easy to see the impact of this since then. Sadly, I only started using accounting software in April, 2000.

The good news is that the electric bill (average shown by the blue line in graph below) hasn't changed much in 12 years. The swings of +/-20% are harder to explain.

Yearly Electric Bills

While writing my last post on Energy Infrastructure, I used our electric bill to show how it has more charges for non-power items than for power. This and the wild swings in the price of coal, oil and gas (burned to make electricity) are the likely explanation for the wild swings: not so much the fuel prices since energy itself is a small portion of the overall costs in our bills.

There was an article in the NY Times recently that showed historic wholesale electricity prices for New England, where I live. You can see from the graph (from ISO New England) that from 2009 through 2012, wholesale electricity averaged about $50/megawatt-hour or 5 cents per kilowatt hour. You can also see that the peaks and valleys of wholesale costs do not correlate well with those on our bill. 

My bill from mid-December to mid-January looked like this.

We used:

Usage           Charged (cents/kWh)      Cost (Wholesale cents/kWh)
1128 kWh                  8.1                                             6 
976 kWh                    8.7                                             4
811 kWh                    8.7                                             4
652 kWh                    8.7                                             4

...and so on for the whole year. That's because we're on a one-rate regulatory scheme with our deregulated utility. No breaks for nighttime usage, just a flat rate all year. The most recent bill has two rates, reflecting the price change on January 1st (our billing period starts mid-month).

Now the bad news: for most of the year, the utility regulators allowed the utility to charge us more than twice what they paid for electricity. Our regulator is called PURA (Public Utility Regulatory Authority). I don't know what these folks are thinking but they certainly aren't protecting us. I'm also not clear how PURA exists in an unregulated market; only in America.

It doesn't stop there either.

Getting back to our bill, we can also see that the charge for power transmission is 1.7 cents per kWh. This doesn't sound like much until you realize that this should essentially be the cost to insure and maintain the transmission grid. As I noted in my previous post on Energy Infrastructure, the US spends about $10 billion per year to maintain the grid for total transmission of about 4,000 tWh: this works out to a quarter of a cent per kWh. How this 600% overcharge is allowed in the interests of the consumer is unfathomable.

http://www.tulsaworld.com/business/article.aspx?subjectid=49&articleid=20120513_49_E1_CUTLIN461596

It doesn't stop there either.

The charge for power distribution is 6.3 cents per kWh. Distribution is like transmission except it covers the local wires and poles instead of the regional ones and the US spends about $3 billion per year to maintain it (see previous URL). It also covers billing, meter-reading, payroll and other charges. Specifically, my bill averages nearly $200 per month, much like the sample bill above (FYI, we heat with oil). This means the utility is spending about $80 per month on us?

I don't think so. Reading the meter takes about 5 minutes. Billing is (or should be) automated. We've lived here for 14 years and we had a tree-cutting crew here in our neighborhood once. Anything more than a penny per kWh would be criminal yet, again, a 500% overcharge is permitted. I'm starting to see how those executives can receive (receive, not earn) such fabulous pay packages!

http://www.ctpost.com/local/article/Loophole-keeps-utility-executives-pay-secret-2198492.php


Recently, our utility petitioned PURA for a 36% distribution rate hike because of the recent hurricane and also to upgrade their distribution system. They claim to want to make nearly $1 billion in improvements to their distribution equipment over 5 years when the entire country spends only $3 billion per year. Connecticut is only 1% of the country by population and our utility services less than 20% of the state. What's that smell?

Since they charge me more than 500% more than they pay for distribution, I'd say this is ridiculous.

I can only hope that the petition is quashed but these folks clearly have no shame.


It doesn't stop there either.

They also charge us for having deregulated back in 2000 by charging us for selling off obsolete generating plants (CTA) as stranded costs. They charge us for living in a place where the electric load sometimes exceeds the supply (FMCC) and finally, they charge us for combined public benefits. These three charges tally up to about 3.3 cents per kWh. I view these charges as a tax of roughly 66% on electricity that costs 5 cents per kWh.

In the end, we pay 19.4 cents for something that costs about 5.34 cents. Clearly unregulated and clearly not beneficial to us.

That covers the effects of regulation, or lack thereof, on electric power if we exclude the fact that we could have electric power virtually free from the sun after an initial investment equal to last years' federal spending deficit.

WaterOur water bill is similar except that only one third of the bill is not for water (as opposed to nearly three quarters for electricity). Water is free but we were still charged $550 for it last year. This works out to about 5.1 cents per gallon given our usage of about 2.5 gallons per day for two people: I'm honestly shocked by how little we use. We are also charged and additional 1.8 cents per gallon for service and other charges. We used to buy insurance on the main water valve under the front lawn for $68/year too.

This is the only bill that seems remotely reasonable to me except that I'm not sure how they came up with the per-gallon cost: it's free, right?

The disturbing thing is that a desalination plant in Carlsbad, CA is selling potable water for 0.6 cents/gallon. How can manufactured water cost less than the stuff that falls from the sky?

Health Insurance I've written in another post about health insurance and healthcare in general. The insurance companies are allowed to profit by about 30% on what they sell. Hospitals take profits of about 40% on what's left. This amounts to a 54% profit right off the top.

Are we feeling the benefits of regulation (Obamacare) yet? Wait until next year. I expect to see shifts in the way companies provide health benefits for employees: many, if not all, will stop providing health insurance and pay the fines instead. My last employer shelled out $16,000/year for a high-deductible health plan with a Health Savings Account for my wife and me: the deductible was $5,000. Compare this to the $2,000 fine they'll pay and I'm pretty sure they'll drop us all. Don't expect salaries to rise commensurately either.

The possible good news: maybe this will force us to a single-payer, non-profit system that costs half of what we have now.

This is all about politics and campaign contributions and profits, not about us. We need to put a stop to profiteering on health care. Period.

This is a simple regulation: thou shalt not profit. It would save the federal government $500 billion/year.

Telephone & Internet How about communications? We pay about $330/month for satellite TV, internet service, two land lines and two cell phones.

I remember bitching about paying $12/month for a land line.

Cell phones are cheaper (and lower quality) than land lines. I get my internet service over one of my land lines with ADSL, a 15-year old technology. Accounting for inflation, these services should cost about $50/month so how does regulation make it cost $198?

When I think about it (I was a communications systems architect before retiring), telephone and internet service is really no different from basic electric service if wireless is excluded. Indeed, wireless should be even less since there's less wiring to maintain: Duh!

Internet content is different; agreed, but we pay separately for Netflix. I would argue that the costs to insure and maintain the telephone distribution grid are no different than the costs to maintain the electric distribution grid. This is about 0.09 cents per hour.

Since there are no kilowatts being delivered, a regulator should just measure hours of availability and charge, say, two cents per hour per end user for a land line ($175.20/year) and one cent per hour for cell service: in our case, we have 5 end-users (4 phones and an ADSL modem for Internet) so our bill should be $526/year for the land lines and $175/year for cell ($701/year total) instead of the $2323.97 we paid last year.

This rate would still be about 11 times greater than the maintenance cost of $0.0009/hour. What good is the FCC doing us here?

TelevisionBroadcast TV was never very good in southwestern Connecticut. We've lived here for most of our lives so when we became homeowners we wanted something better. We had CATV for years but when we moved here we found that CATV in this city is awful and we switched to DirecTV, mostly for the NFL Sunday Ticket (which we dropped two years ago over excessive pricing).

As for satellite TV, it's all about content and we pay for no premium channels. We do have HDTV but we also have about a hundred channels that we don't watch. Basic service is only $25/month so how do they manage charging us $140?

Back in the day, broadcast TV was free except for the TV itself (and maybe a roof antenna) and broadcasters made their money with advertising. Well, there's no shortage of advertising on non-premium channels so why do we have to pay so dearly for satellite TV?

It must be driven by the cost of satellite broadcasting since most of the content used to be free broadcast TV and the other content should live or die on its own advertising revenue. So, how much does it cost them? 

Satellite transmission costs are based on bandwidth. To find how much satellite bandwidth is needed, I'll use our Internet connection as a model.


By the way, Netflix costs just over $100/year and is commercial-free. The downside is no news, sports or mindless network shows.


We can watch two simultaneous HDTV movies from Netflix over our ADSL link. I have measured the download speed of our ADSL link at just over 5 megabits/second so an HDTV signal uses less than 2.5 megabits per second. Using many-years-old 16QAM modulation (4 bits per Hz) with moderate 3/4 forward error correction (3 bits of TV for every one bit of error correction), a single movie would consume roughly 1.2 MHz of satellite transponder bandwidth.

The 150 or so DirecTV channels would therefore require about 225 MHz of satellite transponder bandwidth. Transponder bandwidth goes for about $1.4 million/year/36MHz so DirecTV needs about 7 transponders costing about $9.8 million/year per market. For the New England spot beam metro market (see spot beam map below), there are millions of customers. Even if there are only 1 million customers in this market, the yearly cost should be about $9.80 each.

http://www.euroconsult-ec.com/news/euroconsult-in-the-news-34-3/232.html

Even if they were allowed the ridiculous 2 cents per hour I suggest for telephone and internet service, this would make the yearly bill $175.20 instead of the $1682.80 we paid last year.

They'll argue that they have to pay for the shows they broadcast. I'm not sure why they should have to pay since the satellite operators should be selling their audiences to content providers. DirecTV has an audience of 30 million customers after all. But that's a different question.

Assuming the current business model, take the recent rate dispute with Viacom. Viacom jacked up its prices for its 27 channels to $600 million/year. Scaling this up to 150 channels, the probably pay $3 billion/year for content for all markets. Dividing by 30 million customers, this is just $100/year/customer. Added to the $9.80 transmissions cost, the proposed $175.20 gives them a tidy profit.

Now, I'll admit that they should have charged a lot more than I suggest when they started and had few customers but that was a long time ago. Prices should come down with volume. FCC are you listening?

Satellite Spot Beam Markets

Summary of Consumer Level Regulatory Savings
The foregoing discussions relate largely to ways that regulations could benefit ordinary folks by reducing the monthly expenses. To summarize the results:

Expense                 Current             Should Be

Electric Power           $200                    $54

Healthcare                 $1,750                 $875

Telephone/Internet     $198                    $58
Satellite/CATV          $140                    $15

Total                          $2,288                $1,002

Savings                       $1,286/mo         $15,432/yr

Since this savings is dominated by healthcare, most people would benefit by about $12,000/year. Given the current workforce of about 135 million, the overall economy would benefit by over $1 trillion/year while reducing the unjustifiable and enormous profits of a few businesses. That's what regulations should do.

Financial Markets
Now I'll address regulatory functions at the national level. At this level, if one player sneezes, we all catch a cold. At this level regulations can be very expensive in many ways so we have to apply some common sense; something clearly lacking in our nations' capital these days.

The financial markets are like the wild west these days.

• Global finance driven by news cycles instead of reason
• Increasing frequency of crisis situations
• Multi-hundred point swings on the Dow
• $85 billion/month expenditures by the Federal Reserve to buy toxic securities
• Colossal bank failures
• National debt that is more than 7 times federal government annual revenues 
• Washington now speaks of deficit reduction, not debt reduction
• Trade deficits exceeding $40 billion/month
• Unchecked insider trading
• Rigged inter-bank lending rates
• Pyramid schemes and fraud running amok
• Government-mandated predatory lending

The regulators have clearly been doing a crappy job.

To think about how to get a handle on this mess, I have to categorize the players.

Megabanks

As I noted previously, these things have to be broken up so that when (not if) they do something stupid, the impact is confined to shareholders. Break them into smaller pieces that do the jobs of the entities described below and make sure none of them are larger (in assets) than the economy of the smallest state economy (Vermont has a GDP of $26 billion, big but not dangerously so). This will probably have the side-effect of businesses rushing to Vermont; this should be a good thing since, with global warming, the ski resorts will soon be out of business.

Look at the growth in the big banks since Glass-Steagall was repealed. Three of them have assets greater than the GDP of California but, unlike California, are single-minded in their pursuits. This is not good.

Market Shares of 10 Largest Banks

Commercial Banks

Commercial banks hold depositors' money and make loans for things like homes, cars, education and small businesses. These banks must be forced to service their own loans and not be allowed to sell them to government-backed clearing houses like FNMA. This will stop predatory lending and give incentive to study loans before making them.

If they borrow money from the Federal Reserve (the Fed) to make loans and the Fed rate subsequently drops, make them pass the drop to the borrower: this will end the refinancing treadmill. Conversely, if the Fed rate goes up, the borrowers rate stays the same; this will be incentive for the Fed to go easy on rate changes and avoid things like the S&L crisis since the Fed is ultimately responsible for bank failures. Ban adjustable-rate loans and cap the banks' vig to the Fed rate plus, say, 3%. Also make the banks pay half of the vig to the depositors.

We maintain a healthy balance in our checking account and we get jack shit for it. This is nonsense.

Federal Reserve Bank

The Fed was required to pay commercial banks interest on their reserves as a part of the 2008 Emergency Economic Stabilization Act. This needs to stop now.

What is the incentive to make loans at 3% when the Fed pays 6% to do nothing? What bonehead came up with that idea? It had to be the banking lobby.

More importantly, why are the politicians and media so surprised that the banks are reluctant to make loans?

Banks need to keep sufficient reserves to cover their losses and taxpayers should not have to pay them to do it. If they fail, tough luck for the bank's shareholders; the depositors are backed by FDIC. The Fed has to pay attention, not interest.

As noted above, the Fed needs to moderate the rate at which interest rates climb to avoid what happened in the 80's S & L crisis.

The Fed also has to pay dividends to member banks. This is an anachronism left over from the formation of the Federal Reserve Bank as an enticement for banks to become members.

Although these dividends are capped by law at 6%, this practice also has to stop: the Fed is owned by us and is a non-profit: if anyone gets a profit, it's us, not the member banks. They make their money on their vig or they die. Plain and simple.

Investment Banks

The biggest investment banks currently range in size from $1.5 - $5.5 trillion.

The top 10 have assets nearly equal to US GDP!

Breaking them up to smaller entities no larger than Vermont ($26 billion) would substantially limit the damage they can do. The 2008 crash was almost directly attributable to them and led to $700 billion in bailouts and more than $13 trillion in taxpayer assistance overall. It also cost normal homeowners 10 years' growth in their primary asset. Since we won't jail the leaders, we have to reduce their arsenals.

These banks should not be allowed to trade on their own behalf, thus reducing the threat of insider trading.

http://en.wikipedia.org/wiki/Investment_banking

Stock Brokerages

These things are more or less of an anachronism too, if you ask me. With internet-based trading, people should be allowed to buy and sell securities on their own without paying commissions and fees. Trading in securities is really no different from gambling in a casino (or online in New Jersey).

These folks are only interested in making trades, they get paid whether the trades are wise or not. The government should operate the exchanges as an impartial third party and be done with it. As with investment banks, brokerages should also not be allowed to trade on their own behalf.

High-frequency trading should be banned on US securities.

Can people get themselves in trouble trading securities? Sure, but they do it every day at casinos and convenience stores with lottery tickets too. No nanny state needed. You can't regulate stupidity.

Use a certified financial planner. They're not perfect either but they know more than the average Joe.

Corporations

Corporate debt (bonds) and corporate stock are risky things. Sadly, there is no shortage of people who make a living in the confidence game. Outright fraud and pyramid (Ponzi) schemes are uncovered every day. I don't see a way to stop it since, face it, people are greedy and stupid when it comes to money. Government regulators haven't shown themselves to be any better.

Make the penalties much, much stiffer and call it a day.

By having the government (the SEC, for example) step in as the referee on all securities, investors could get an impartial opinion on the security of interest: any investment not rated by the SEC should raise a warning flag to even the dumbest investor. Of course, this does not necessarily prevent corruption but it does leave legal recourse to those that get cheated: it's hard to sue a fly-by-night. It's also hard to sue the government but that can be fixed and government it a lot easier to find.

Corporations should also not be allowed to trade on their own stock since this will severely limit their ability for market manipulation.

Corporations should also have size limits just like banks. The Bell Telephone company was broken up because of monopoly. Other large companies should be broken up to prevent economic catastrophes. There are a lot of companies bigger than Vermont. There are 220 that are bigger than $2 billion and more than 50 bigger than $100 billion.

 http://www.forbes.com/sites/andreamurphy/2012/11/28/americas-largest-private-companies-2012/

The added benefit that this brings is the reduction of lobbying power that any single institution can bring to bear on our legislators.

Congress

As the maker of laws, congress has to make the laws that put these controls in place.

Congress (and the executive and judicial branch) has to be forbidden from having any interest in private industry: all members and their staffs. Discovery of a breach is grounds for immediate ejection, imprisonment and forfeiture of all emoluments (I've wanted to use that word ever since I read the Federalist). 

Congress also has to end all subsidies to all private industry. Last year, government gave away subsidies totaling $80 billion. This is sequester going the wrong way.

http://www.nytimes.com/interactive/2012/12/01/us/government-incentives.html

The job of government is to provide security for its citizens to engage in commerce. Our national compassion wants us to protect the weak; I'm OK with that but not when it get in the way of economic equilibrium.

Just ending these subsidies has the net effect of the sequestration with the net benefit of culling the herd of the weak performers.

Congress has to stop making government bigger!

In a time of crushing debt, we don't need new agencies like the consumer protection thing currently in the works or the Homeland Security whatever: make the existing government do its job. The consumer protection agency is part of the FTC and we already have FBI, CIA and DoD to make us secure.

I believe this should be the job of the Supreme Court: congress makes laws, the executive branch carries them out and the court should either ensure that the executive does what the law requires or either strike down the law or jail those who fail to enforce it. Balance.  

Congress also has to get its own fiscal act together. I suggest balancing the budget and paying off the national debt within 20 years as a reasonable goal. This debt ceiling crap is like advertising that we're all a bunch of idiots: it may be true but that doesn't mean we should brag about it.

State & Local Governments

I hate to lump these together since each one spends about 10% of national GDP.

Financially though, they have to wean themselves from the national teat. The reason is simple: what congress giveth, congress can (and will) take away. In other words, a budget built on the largess of Washington is a house of cards.

Take what the federal government gives us and put it away for a rainy day because the rainstorms are getting closer and closer in time.

1929, 1973, 1987, 1989, 2001, 2008...this is not a good progression!

Non-federal governments also have to get out of the business of subsidizing private industry. If you want business to come, fix the business climate, don't offer bribes. Here's the list of usual things to attract business.

• Low taxes for all, not just newcomers
• Educated workforce
• Reasonable regulations
• Quality of life
• Transportation
• Cooperative government

Schools are a big part of the financial picture too. Here in Connecticut, the state budget is $20 billion/year and public schools cost $8 billion. The schools need major restructuring. Please see my post on Public Education where I show how to cut that cost in half.

Summary

If regulation worked as it should, working people would save $12,000 or more every year in after-tax dollars. This would tend to cut into the enormous and unjustifiable profits of a few businesses but that is the intended function of regulation, right?

Additionally, government has a duty to provide common sense, proactive regulation of businesses, the financial institutions and itself. Thoughtful regulation will dial down the rapidly rising frequency of national economic upheaval and will also reduce the influence of mega-banks and mega-corporations on the lawmakers so that that can get back to working for all Americans.