Friday, March 14, 2014

Affordable Care Act, Social Security and Medicare: Shifting Income from Young to Old

More than 25 percent of the U.S. population (including President Obama) was born between 1946 and 1964. U.S. society has made, and continues to make, economic promises to these baby boomers that must be ultimately shouldered by the nation's youth. Not only are the 25 percenters leaving the workforce at very high rates (consuming instead of producing), they are draining the U.S. Treasury via higher Social Security (SS) benefits and greater Medicare spending.

Over the past decade, SS outlays soared by 70 percent and Medicare expenditures rocketed by 135 percent, enlarging the nation's debt to $16.5 trillion. This debt, which is the largest in the galaxy and more than 100 percent of GDP, will ultimately be paid by the 60 percenters (those born after 1964) via higher taxes.

Furthermore, the Affordable Care Act (ACA) is charging higher insurance rates for the young and healthy to subsidize the insurance coverage for citizens born before 1965 who tend to be less healthy. For example, Forbes estimates a 27-year-old male will sustain an insurance premium increase of 30 percent more than that faced by individuals over 64.

The U.S. should take steps to reduce this mammoth wealth transfer from young to old by:
Raising the SS retirement age 2 months per year until reaching 70 years of age;

1. Increasing the Medicare eligibility age from 65 to 67;
2. Cutting the yearly SS inflation adjustment; and
3. Adjusting ACA premiums for age, or likely health care costs.

By slowing the growth in SS and Medicare spending and by reducing ACA subsidies for older Americans, the U.S. would avoid the stagnation and looming tax burdens for the nation's youth.

In 2012, 40 percent of U.S. males ages 18 to 31 lived with their parents. Federal spending policy should help junior exit the basement, not exile even more of our youth to the cellar.

Ernie Goss

Wednesday, February 19, 2014

Can the Poor Afford Solar Energy? Low Income Consumers Baked by High Priced Alternative

Between 2008 and 2012, according to the Bureau of Labor Statistics, Americans making less than $20,000 increased the share of their paycheck going to cover utility and fuel bills from 25% to 29%. During this same period of time, Americans earning more than $70,000 decreased the proportion of their income spent on utilities and fuel from 5.4% to 5.0%.

That is, the percent of income devoted to utilities and fuel is significantly higher and rising for low income consumers, but substantially lower and falling for higher income consumers. At the same time, electricity generation by solar/wind grew by 73% but by fossil fuels declined by 4%. This occurred despite the fact that according to the U.S. Department of Energy, the costs of solar electricity generation is approximately double that of conventional coal and almost triple that of natural gas.

In addition to higher direct costs, all taxpayers are picking up the tab for the failure of solar energy companies. Federal tax supported Solyndra, Evergreen Aolar, and SpectraWatt filed for bankruptcy in August 2011 alone. In fact according to GTM Research, one-fifth of tax subsidized U.S. solar panel manufacturing folded as of August 2011.

Germany has demonstrated the folly of current U.S. solar policy. Despite 2013 renewable subsidies in Germany of 16 billion Euros ($21 billion), electricity prices have soared by 17% over the past 4 years. No wonder just last month, German Chancellor Angela Merkel backed a plan to cut German’s green energy subsidies while the U.S. moves steadfastly into the costly solar abyss.

Unfortunately, the U.S. taxpayer and consumer, especially those of low income, are getting scorched by the expansion of solar electricity generation with no end in sight.
Ernie Goss.

Friday, January 17, 2014

Reducing Income Inequality: Growth Should Be The Goal

President Obama has made reducing income inequality a major policy goal for the remainder of his administration. While it is correct that U.S. income inequality, as measured by Gini Coefficients, has expanded each year of the Obama Administration reaching its highest level in 50 years at 47.7 in 2011, evidence from the 50 states and DC indicates President Obama is focusing on the wrong goal.

A Gini Coefficient is a number based on household income that ranges between 0 and 1, with 0 representing perfect income equality, and 1 representing perfect income inequality. The five states with the lowest 2011 Gini coefficients (i.e. least income inequality) -- Wyoming, Alaska, Utah, Hawaii, Vermont and Idaho -- experienced median GDP growth of 70.1 percent and job growth of 13.1 percent between 2000 and 2010.

The five states with the greatest income inequality -- New York, Connecticut, Louisiana, New Mexico and California -- suffered the lowest median GDP growth at 6.1 percent and job growth at 11.5 percent for the same time period.

In fact, correlation coefficients for the 50 states and DC show a negative relationship between Gini Coefficients and the two measures of growth from 2000 and 2010.

But does higher growth reduce income inequality, or does lower income inequality produce higher growth? It is found that 1999 Gini Coefficients had no statistical relationship or association with 2000 to 2010 growth. However 2000 to 2010 growth was negatively related to 2011 Gini coefficients, indicating less income inequality.

Thus, recent data indicate President Obama should focus on growing the economy, which will then produce less income inequality.

Friday, December 20, 2013

Rural Mainstreet Economy Healthy for December: Farmland Price Index Lowest in 4 Years

December Survey Results at a Glance:
• Rural Mainstreet Index indicates rural economy expands at a healthy pace.
• Farmland price index sinks to lowest level in four years.
• Bank CEOs see rising regulatory costs as biggest threat to community banks for 2014.
• Agriculture equipment sales decline for sixth straight month.
• Bankers say low agriculture commodity prices are the biggest risk for the 2014 rural economy.

Growth for the Rural Mainstreet economy climbed, according to the December survey of bank CEOs in a 10-state area. Overall: The Rural Mainstreet Index (RMI), which ranges between 0 and 100, with 50.0 representing growth neutral, rose to 56.1 from November’s moderate 54.3.

“The overall index for the Rural Mainstreet Economy continues to indicate that the areas of the nation highly dependent on agriculture and energy continue to expand at a healthy pace. This month we asked bankers to name the biggest threat to the rural economy for 2014. Approximately 80.6 percent named lower agriculture prices to be the greatest economic threat in the next year while 10.6 percent said the Affordable Care Act was the biggest economic challenge for 2014,” said Ernie Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton University.

Farming: The farmland-price index plunged to 47.0, its lowest level since December 2009, and was down from November’s 54.3. “This is the first time in four years that the farmland-price index has moved below growth neutral. As agriculture commodity prices have moved lower, so have farmland prices,” said Goss.

According to David Callies, CEO of Miner County Bank in Howard, S.D., “Continued increases in ag real estate prices and cash rents, along with lower crop prices, are a major concern for community banks.

Farm equipment sales remained below growth neutral for the sixth straight month. The December index sank to a weak 44.3, the lowest reading since August 2012 and down from 47.3 in November. “Over the past year, grain prices have declined by roughly 35 percent. This has significantly reduced farmers’ willingness to purchase agriculture equipment,” said Goss.

Bankers expect 2014 cash rents for non-irrigated crop land to average approximately $252 per acre. “However, 3.2 percent of bankers forecast 2014 cash rents above $500 per acre. Additional declines in agriculture commodity prices will present a real challenge for a significant share of farmers that are cash renting,” said Goss.

Jeff Bonnett, president of Havana National Bank in Havana, Ill., reported, “2014 will be interesting, as input costs have not come down in relation to commodity prices. Fasten your chin straps firmly and hold on, it may be an interesting ride.”

Banking: The loan-volume index climbed to 66.7 from 56.9 in November. The checking-deposit index fell to 66.0 from 72.0 in November, while the index for certificates of deposit and other savings instruments slumped to 37.2 from November’s frail 44.8.

This month bankers were also asked to name the biggest threat facing community banks in 2014. More than half, or 55.9 percent, expect soaring regulatory costs to be the greatest threat to the community banking industry. Another 23.5 percent indicated that low loan demand was the chief challenge to community banks for 2014 while 14.7 percent reported that rising competition from Farm Credit represented the prime threat to community banks. No other issue rose above 10 percent.

Jim Ashworth president of Carlinville National Bank in Carlinville, Ill., said, “Continued low interest rates in a stagnant economy drive competitive pressures among community banks, with net margins continuing to shrink.”

Hiring: December’s hiring index expanded to 56.9 from 54.4 in November. “Rural companies are adding jobs but at a pace below that of their metropolitan counterparts,” said Goss.

Confidence: The confidence index, which reflects expectations for the economy six months out, slipped to 47.0 from November’s weak 48.3. “Despite the recent federal budget agreement, the lack of a farm bill and lower agriculture commodity prices pushed economic confidence even lower,” said Goss

Dale Bradley, chairman of the Citizens State Bank in Miltonvale, Kan., reported, “Much will depend on the new (federal) budget and deficits for 2014. Hopefully we will get a good farm bill.”

Home and retail sales: The December home-sales index declined to 53.1 from November’s stronger 56.2. The December retail-sales index improved to 54.7 from 47.4 in November. “Higher mortgage rates cooled the growth for the Rural Mainstreet housing market for December,” said Goss.

According to Michael Flahaven, president of Wenona State Bank in Wenona, “Community banks are being forced out of residential real estate loans. As this happens I expect small banks and their communities to suffer.”

Each month, community bank presidents and CEOs in nonurban, agriculturally and energy-dependent portions of a 10-state area are surveyed regarding current economic conditions in their communities and their projected economic outlooks six months down the road. Bankers from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included. The survey is supported by a grant from Security State Bank in Ansley, Neb.

This survey represents an early snapshot of the economy of rural, agriculturally and energy-dependent portions of the nation. The Rural Mainstreet Index (RMI) is a unique index covering 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300. It gives the most current real-time analysis of the rural economy. Goss and Bill McQuillan, president of CNB Community Bank of Greeley, Neb., created the monthly economic survey in 2005.

Colorado: For the 15th straight month, Colorado’s Rural Mainstreet Index (RMI) remained above 50.0. though it slipped to a still solid 55.6 from November’s 58.8. The farmland and ranchland price index expanded to 69.4 from November’s 68.0. Colorado’s hiring index for December fell to a still healthy 58.7 from November’s 63.5.

Illinois: The RMI for Illinois slipped to 54.1 from November’s 54.5. The RMI has remained at or above growth neutral for 15 straight months. The state’s farmland price index rose to a weak 47.3 from 46.0 in November. The state’s new-hiring index expanded to a frail 48.9 from 48.8 in November.

Iowa: The December RMI for Iowa advanced to 55.3 from November’s 53.9. The farmland-price index for December sank to 52.3 from November’s 53.5. Iowa’s new-hiring index for December was unchanged from November’s 53.9.

Kansas: The Kansas RMI for December dipped to 53.6 from November’s 53.8. The farmland-price index for December declined to 48.2 from November’s 48.6. The state’s new-hiring index slipped to 50.2 from 50.6 in November. Dale Bradley, chairman of the Citizens State Bank in Miltonvale, reported, “Good Fall crops in our area and Kansas overall.”

Minnesota: The December RMI for Minnesota fell to 53.6 from 53.9 in November. Minnesota’s farmland-price index for December plunged to 40.9 from November’s 48.3. The new-hiring index sank to 44.7 from November’s 44.7.

Missouri: The December RMI for Missouri climbed to a healthy 59.0 from 58.5 in November. The farmland-price index for December declined to a strong 75.4 from November’s 81.3. Missouri’s new-hiring index advanced to 78.2, up from 72.4 in November.

Nebraska: After moving below growth neutral for January, Nebraska’s Rural Mainstreet Index has been above growth neutral for 11 straight months. The December RMI slipped to 54.4 from 54.8 in November. The farmland-price index for December dipped to 48.0 from November’s 48.3. Nebraska’s new-hiring index stood at 50.1, which was down from November’s 50.4.

North Dakota: The North Dakota RMI for December declined to 56.3, down from November’s 57.7. The farmland-price index declined to 66.3 from 70.2 in November. North Dakota’s new-hiring index fell to 61.0 from November’s 65.1.

South Dakota: The December RMI for South Dakota increased to 55.8 from 55.6 in November. The farmland-price index for December sank to 51.6 from 52.6 in November. South Dakota's new-hiring index for December declined to 53.3 from 55.7 in November.

Wyoming: The December RMI for Wyoming sank to 54.5 from November’s 55.1. The December farmland and ranchland price index was unchanged from November’s 46.4. Wyoming’s new-hiring index moved lower to 49.0 from November’s 49.2.

Tuesday, December 17, 2013

Taxing the Rich More Heavily Is Not Fair to the Poor

It is argued by the Obama Administration that higher income individuals are not paying their fair share of in-come taxes. They contend that raising tax rates for higher income individuals will not only produce a fairer taxing system, it will move the U.S. to a more equitable income distribution.

In 1996, taxpayers earning more than $200,000 paid an average tax rate that was three times that of workers making less than $50,000, and two times that of taxpayers earning between $50,000 and $200,000. By 2011, those making more than $200,000 paid almost seven times the average tax rate of taxpayers earning less than $50,000, and 2.5 times that of workers earning be-tween $50,000 and $200,000.

As a result of this boost in relative rates for the “rich,” the Congressional Budget Office (http://tinyurl.com/pxzutsz ) concluded that the “top 40 percent of income earning households actually paid 106.2 percent of the nation’s net income taxes in 2010,” by supplying $18,950 in what the CBO called “government transfers” or negative income taxes for households in the bottom 40 percent of earners.

But how did taxing the rich more heavily affect income inequality? Since 1996, the U.S. Gini coefficient, which measures income inequality, has climbed each year indicating that income inequality in the U.S. has risen. Furthermore in 2010 as measured by Gini coefficients, the ten states with the lowest income tax rates (Alaska, Wyoming, New Hampshire, Wisconsin, Washington, South Dakota, Nevada, Tennessee, Texas and Florida) had the greatest income equality, and the ten states with the highest income tax rates (Minnesota, Maine, New York, Vermont, DC, new Jersey, Iowa, Oregon, Hawaii and California) had the greatest income inequality.

Thus, the policy of “taxing the rich” did not contribute to income equality, and there is at least evidence supportive of the hypothesis that taxing the rich more heavily contributed to greater income inequality. In conclusion, raising income taxes on the rich is neither fair, nor helpful to the non-rich. Ernie Goss

Friday, November 15, 2013

Luddites Against GMOs and Fracking: GMOs & Fracking Are Good for Environment and Pocketbook

Luddites, or anti-technology progressives, are placing ballot initiatives before voters to require labeling of genetically modified (GM) products and to limit natural gas fracking.

Just last week, Washington state citizens rejected Initiative 522, which would have required labeling of all GM foods on supermarket shelves by 2015, while in Colorado, three of four communities voted to proceed with restrictions on natural gas fracking.

It has been estimated that both GM farm products and fracking have reduced food and energy costs significantly. It has been estimated that GM products have resulted in a 15%-20% reduction in food costs (http://tinyurl.com/lp9nvsr) and fracking has cut yearly energy costs by $2,000 per household (http://tinyurl.com/nypjkdv).

Furthermore, replacing GM food with traditional farm products damages the environment since non-GM food production requires more pesticides and other chemicals that result in negative impacts on the environment. And, unlike fracking, electricity generation from conventional coal/oil introduces more pollutants into the air than does natural gas electricity production.

Additionally, no studies to-date have demonstrated fracking has negatively affected the environment or ground water. However, data do show the lowest quintile of U.S. earners spend 36% of their income on food and 23% on utilities, while the highest one-fifth of U.S. earners spend only 7% of their income on food and 3% on utilities.

Thus, increases in food or utility costs coming from limiting or stopping GM farming or natural gas fracking will differentially and negatively affect low income families in the U.S. Anti-technology, anti-science Luddites are attempting to push farmers and energy providers back to the techniques and technologies of the last millennium with resultant higher costs to the U.S. consumer and negative environmental impacts. Ernie Goss

Saturday, October 19, 2013

Too Much Politics at the Federal Reserve: Fed Supports Politicians’ Overspending

Prior to the September meeting of the Federal Reserve’s (Fed) Federal Open Market Committee (FOMC), Fed bank presidents, who are chosen by bankers and business leaders from across each of the 12 Fed regions, indicated in speeches that their stimulus program would likely be reduced beginning at the September FOMC meeting. During this same period of time, presidential appointed Fed governors, who are also members of the FOMC fell mute.

Surprisingly, instead of reducing the $85 billion monthly bond buying program, entitled QE3, the FOMC decided to maintain intact this unprecedented economic stimulus program. This program, at its current pace, will purchase three-fourths of new federal government borrowing.

Thus the Fed, by buying and holding $3-4 trillion of federal debt, is bailing out Washington’s overspending by providing a ready buyer for bonds and by holding interest rates at near record low levels. And last month, Congressional Democrats torpedoed President Obama’s pick for the next Fed Chair, Larry Summers, in favor of a more compliant Janet Yellen who will likely be on the side of keeping QE3 in place, and potentially even expanding the program, when she assumes the chair position in January 2014.

QE3, in this economist’s judgment, introduces political uncertainty, punishes savers with low interest rates, produces asset price bubbles, and discourages consumer borrowing. The probability of higher future interest rates would encourage home buyers to buy and borrow today. The Fed should begin tapering QE3 ignoring meddling from politicians.

Ernie Goss.