NAFTA = U.S. NATIONAL SECURITY

In the event of a global war, Mexico and Canada will be our most dependable allies.

Every dollar of production that can be shifted from Asia or Europe to North America is a dollar that is being put to work to support the U.S. economy.

The U.S. cannot ever hope to supply everything to everyone at the highest quality and lowest price -- we need trading partners to be successful. And, trading partners who are also our geographic neigbors are the best option.

In the event of a war in the Pacific or Atlantic the sea lanes will be restricted or cut off entirely, but we will be able to keep our northern and southern borders humming.

Additionally, buying finished goods or raw materials from our geographic neighbors increases the likelihood that we will supply the plant and equipment that they need to operate.

I can tell you from first-hand experience most of the heavy equipment used to clear land and construct manufacturing facilities in Mexico comes from the U.S., as does the vast majority of the trucks large and small. Add to that countless other items what we supply, up to an including electricity, and the symbiosis of maintaining free trade in our hemisphere can be clearly seen. Plus, Mexico and Canada are the best markets for our passenger car brands outside of the U.S. itself.

As a manufacturer of equipment that supports production, I count as my customers manufacturers like Stelco (formerly U.S. Steel Canada) and Rassini Suspensiones (leaf and coil springs for the automotive industry) in Mexico. These manufacturers are supplying the U.S. and buying from U.S. companies.

Therefore, I am glad that the White House is planning on raising tariffs on Asia and Europe and exempting Mexico and Canada.

Keeping Our Critical Industries Alive

Some industries are hard to replace when lost.

Behind the proposed tariffs on steel and aluminum is the realization that it is a matter of national security that we retain a vigorous metals production capability to shield against the possible loss of overseas sources of supply.

One of the roles of government is to insure the long-term stability and security of the nation, which must include considerations such as what industries do we need to maintain and at what levels.

What happens, though, when a critical industry faces foreign competition that threatens to put it out of business?

The federal government faces several options in this case:

• Let the industry collapse and hope that it can be ramped back up in time in the event of supply interruptions.
• Subsidize the industry with a combination of tax breaks, direct payments, or other incentives.
• Impose protective tariffs on foreign imports.
• Nationalize the industry and have the government operate it.

Of these options, I consider the second the best option.

Why are subsidies preferible to tariffs?

• Tariffs increase the costs to all industries for the product subject to the tariffs, which acts like a tax on consumers.
• Tariffs are usually met tit-for-tat with other nation's tariffs on our products which hurts our exports.
• The domestic cost of protective tariffs are hard to anticipate or ultimately calculate, but most studies have generally shown that their cost to be quite high, much higher than we would have intended for the number of jobs that are saved.

Therefore, if we are thinking about putting a protective tariff in place, we should first think about helping the industry in question operate profitably under all market conditions, which could include having the U.S. taxpayer taking an equity stake in a struggling business or even partial or full nationalization, much like we did when Detroit was faced with fiscal collapse after the 2008 recession.

It is worth noting that direct support to critical industries is the preferred method that the Chinese have used to grow their own critical businesses, and are one of the reasons why these companies can export their goods at such low prices.

Russian Threats to American Democracy

Can our democracy really be toppled by social media?

Thomas Friedman recently posted what he referred to as a "code red" regarding the threat that Donald Trump poses to U.S. Democracy, in which he argues that the Russians have Trump in such a compromising position that he will do or say whatever they want him to.

If that is true, and I tend to suspect that it is, it is certainly grounds for impeachment, but how is it a threat to our democracy?

I can see how having Putin control both the Russian Republic and the White House would be a threat to our national security and to the role of the U.S. globally, but how it is a threat to our democracy, per se, is less clear.

The key allegation in the Friedman piece is that "Putin used cyberwarfare to poison American politics, to spread fake news, to help elect a chaos candidate, all in order to weaken our democracy." But, what cyber warfare is he referring to? Is he referring to the hack of John Podesta's Gmail account, which I wrote about previously?

Is he talking about the thousands of dollars the Russians spent on Facebook ads? Facebook ads? Really? Is that how we make decisions about who to vote for in this day and age?

Or maybe, he is referring to the spoof Twitter accounts that caused certain hashtags to trend, drawing attention to them, apparently funded by the Russians.

What is next, Photoshopped pictures uploaded to fake Instagram accounts, that are somehow going to influence our politics?

If Friedman is right that the Russians (and by extension, Trump) are an existential threat to our democracy, then the problem is the moral, intellectual and political weakness of the electorate, not suggestive Russian ploys.

I don't care how many Facebook ads get purchased (I don't use Facebook anyway) or what hashtags are trending on Twitter (which I barely pay any attention to in any event). I care about a candidate's background, education, experience, achievements, and plans for the future.

If Facebook is altering the outcome of the elections as so many think it is, then it is because the U.S. electorate is apathetic, lazy, morally vague and doesn't want to put the work in to find out who is the best candidate. And, an apathetic and lazy electorate is definitely a threat to ANY democracy, one with or without foreign enemies.

Don't Pour Gas on a Bonfire

https://www.youtube.com/watch?v=kDz_9kfrcFk

Like a bunch of Yahoos with a pile of wood and a 5 gallon jug of gasoline, Trump and the Republican Congress are ignoring the deficit and pushing for more economic growth when it is obvious that we are already close to full employment.

The important fact that they are ignoring is that we already have over $20 trillion in debt that needs to be periodically refinanced.

Currently, the interest rate on the 10 year bond is below 3% (but climbing quickly), which means that we *only* have to divert about $580 billion a year to service this debt.

But, what if interest rates on the 10 year bond rise to 9%, as they did in the wake of Ronald Reagan's tax cuts in the 1980's? That $580 billion becomes $1.8 trillion in interest payments alone.

The 2015 federal budget was $3.8 trillion, so interest payments of $1.8 trillion would be over half of the federal budget.

Of course, that is not something that the economy can bear, so the Federal Reserve will have to issue additional debt instruments to bridge the gap, which will force them to offer ever higher interest rates, creating a death spiral that will destroy the dollar and the U.S. economy.

What our democratically elected leaders fail to understand is that a nation must take on debt in times of crisis and war, and repay that debt in times of growth.

The Republican bet in this case is that we can grow out of our deficits, but with an additional $1 trillion in deficits already forecast for 2019 (and each subsequent year), the economy would have to grow by $11 trillion (based on a current GDP of about $20 trillion) to bring in the additional revenue to make up the shortfall and balance the budget.

Do we really think we can more than double U.S. economic output over the next four years? That implies an annual growth rate of over 20%.

Here is the historical GDP growth data in the post-WWII period:

https://tradingeconomics.com/united-states/gdp-growth

We've never done it before, but who knows....

In any event, when hyper-inflation hits it will make repayment of the debt MUCH, MUCH EASIER, as inflation will reduce it down to almost nothing.

Make Cash King in the Healthcare Reform

Cash payers should get the best available rate for health care services.

It is becoming more and more apparent that Republican reforms of the ACA will drive people out of the health insurance market by the millions.

How to lessen the sting to these unfortunate health care consumers? Mandate that cash-paying patients get a rate not to exceed the rate that Medicare pays for the same service.

By capping fees to the corresponding DRG (diagnostic related group) prices, patients without insurance will avoid being victimized by unscrupulous medical providers who have separate price lists for uninsured patients, lists where the prices are often more than double what they accept from insurers.

And, why not? When a provider sends a claim in to the insurance company they have to wait weeks or months to be paid, risk getting certain charges denied, or risk not getting paid at all if the patient has not yet met their deductible and is unable or unwilling to pay.

Cash at time of service solves all these problems: it lowers costs to doctors and service providers, and lowers the out-of-pocket costs to the patient.

Hopefully, the Republicans can include this sort of common-sense consumer protection that also benefits the service provider into their reform of Obamacare.

What Happened to the AFFORDABLE Care Act?

The red line is the per member cost of health insurance in the individual market, which is exploding.

The Republicans in Congress are absolutely correct to assert that Obamacare is broken. The Affordable Care Act (ACA), as Obamacare is officially known, was designed to offer access to health insurance for millions who were locked out because of preexisting conditions while simultaneously decreasing costs for everyone by mandating that young, healthy people join the marketplace (or pay a fine).

Unfortunately, as an S&P Global Institute report has found, the system has proven to be fatally flawed and the individual marketplace is collapsing under its own weight, crushing family budgets and the dream of health care for all in the process.

The fundamental problem is that the ACA shifted risk that private insurers were never comfortable accepting to the private market without government-run alternative plans as a back-stop to exhorbitant premium increases. This resulted in many companies coming to the conclusion that the ACA marketplace is fundamentally unworkable and leaving it altogether. With fewer providers in each marketplace, and therefore less competition, premiums have risen dramatically.

In a nutshell, Obama never should have ordered private companies, whose obligation is to maintain profitability (or, at least positive cash flow, in the case of non-profit providers) to provide health insurance to the very sick. As I mentioned in a previous post, so-called health care "super-consumers", who only amount to 5% of the total population, demand 50% of all health care dollars. Prior to the ACA, many of these individuals were getting their health care through emergency rooms, with the bills going to a federal fund set up to help emergency rooms provide these services, but not through the individual health insurance marketplace.

Now, these individuals are able to join the individual marketplace and their bills are being paid by the insurance companies, causing the premiums for the other 95% of those in the individual marketplace to spiral out of control. That this was going to happen should have been patently obvious from the outset.

So, how to sort out this mess? I have a list of proposals:

• Allow private insurance companies to subject new applicants to medical underwriting.
• Keep the mandate that everyone carry health insurance or pay a fine.
• Provide government-run insurance policies for all those who cannot get private insurance.
• Provide goverment assistance to cap out-of-pocket individual insurance premium costs to 6.5% of adjusted gross income (the current tax credit model is fine).
• Empower the FDA to set list prices for patent and off-patent drugs, with annual review and adjustment.

This is very similar to the German model, which I have referred to as a good alternative to the mess we call health care adminstration in the United States.

By any measure, the U.S. health care model is broken. In the chart below, the yellow line that is deviating from the group are U.S. healthcare expenditures as a percentage of GDP:

In 2015 the U.S. was spending nearly 17% of GDP on health care, compared to less than 11% in Germany. To put this in perspective, the U.S. spent almost $60,000 per person in 2015 on health care expenses, compared to about $42,000 per person in Germany.

What I believe is occurring in the U.S. is that the outsized growth of health care as a portion of GDP since the 1980s has effective resulted in a massive concentration of wealth in the sector, and it is this high concentration of wealth which is fueling the opposition to any real cost-cutting or efficiency reforms.

For example, the compromise that Obama was forced to accept when he lobbied for passage of ACA was that there would be no governement alternative to the private and non-profit insurance companies, which effectively guaranteed that participation rates AND premiums would rise, against a backdrop of health care costs that continued their incessant march to higher and higher levels. Government-sponsored plans would have been a bulwark against these premium and cost increases, since the federal government already has demonstrated the ability to negotiate lower rates from hospitals than the largest insurance companies are able.

I really believe that we have to stop the silly, amateurish game of trying to design a better health care system, when the Germans have already achieved this goal. Their social model started as early as 1883 and has had over a century to evolve and reform. At the heart of their model is the premise that access to the health care system is the right of all Germans. From there it uses a blend of over 1,000 different plans, both public and private, combined with a creative mix of taxes and subsidies, to achieve its overarching mission. And, by almost any measure, it excels in providing health care to it citizens, something that the United States has never been able to claim.

Fasten Your Seatbelts

Meet Radical Islam's New #1 Recruiter

Not only has the Trump Administration violated the basic ethos at the heart of the American experiment, he has instantly made us much less safe in the process.

Because the Adminstration's broad-brush application of immigration policy is widely perceived to be anti-Islam, moderating Muslim voices will have a hard time getting heard, inevitably leading to a further rise in extremist thought and action, both here and abroad. Some will argue that this is "their" problem, not ours, but the fight for the hearts and minds of moderate Muslims has always been central to U.S. diplomacy.

Judges can reverse his executive order, but the damage has been done. Those who are now less safe than before are:

#1) U.S. and allied troops serving in the Middle East.
#2) Muslim leaders who are allied to the U.S.
#3) Americans living and working in predominantly Muslim countries.
#4) Americans at home.

Once again, I struggle to see the logic in this new administration's thought process. There are other, more diplomatic, ways to achieve their basic goals if they want to limit or even shut off the flow of refugees without issuing radical and polarizing executive orders; a quiet internal memo, or maybe even a few well-placed phone calls, might have sufficed.

So, it seems as if the Trump Administration is hell-bent on sowing chaos in order to shift to a new paradigm. Another word for that? Anarchy.