The Common Touch

Back on April 17^th, Cookie Gate was born as described in this Washington Post blog.

It seemed like a good idea at the time. Go to a Pittsburgh suburb. Hang out with a few “regular Americans” and sit and chat about taxes over chips, lemonade and cookies.

And so it was that Mitt Romney, dressed in brown loafers, grey slacks and blue tie with shirt sleeves rolled up, found himself strolling toward a picnic table in Bethel Park on Tax Day for a simple, utterly staged, roundtable with four couples handpicked to have an audience with a man who could be president.

But for Romney, who is not known for his gift of the regular-guy gab, a table, eight regular people, microphones, cameras, cookies, lemonade, reporters, chips, and dead air that needs to be filled with things that people say, can often be a recipe for awkwardness.

“I’m not sure about these cookies,” Romney said, looking at the women and around the table. “They don’t look like you made them. Did you make those cookies? You didn’t, did you? No. No. They came from the local 7-Eleven bakery or wherever.”

Democrats and marketers pounced and “Cookie Gate” was born.

The video of the exchange is in this link.

So what do we make of all of this?  There have been a number of examples where Romney has not exhibited the common touch when speaking to ordinary people.  By the way, the common touch is defined by the free dictionary as the ability of a rich or important person to communicate well with and understand ordinary people.

But the example with the cookies was in a class by itself.  How many of us would ever complain about food we were served by other people (other than in a restaurant)?  What made it more silly is that Romney didn’t even taste the cookies before criticizing them.  Tasting them first, would have avoided the unkind words. And as far as I can determine, Romney never tried any of the cookies so he was unable (or unwilling) to offer an apology to the bakery that made the cookies.

It’s easy to say that some faux pas over some cookies is not going have any effect on the election.  But not so fast!  Politicians on the campaign circuit are regularly expected to interact with the electorate whether it is kissing babies or eating all of the local specialties.  Yes, delivering a speech on foreign policy is OK.  But it’s also about sharing a human side that voters also think is important.  

Will the Supreme Court Kill Obamacare?

This week, the Supreme Court heard 3 days of arguments mostly about whether the Individual Mandate that is part of the Affordable Care Act a.k.a. Obamacare is constitutional.   This challenge was originally started by a group of 26 Republican state attorneys general with the Supreme Court eventually agreeing to hear the arguments this week.

Until the hearings, many believed that the Individual Mandate would be safe because it was protected by the commerce clause of the Constitution.  But with the tone of the questions pursued by the conservative judges, many now believe this is going to be another one of those 5-4 decisions favoring the right.

Here are some of Paul Krugman’s thoughts from his recent op-ed Broccoli and Bad Faith.

Given the stakes, one might have expected all the court’s members to be very careful in speaking about both health care realities and legal precedents. In reality, however, the second day of hearings suggested that the justices most hostile to the law don’t understand, or choose not to understand, how insurance works. And the third day was, in a way, even worse, as antireform justices appeared to embrace any argument, no matter how flimsy, that they could use to kill reform.

Let’s start with the already famous exchange in which Justice Antonin Scalia compared the purchase of health insurance to the purchase of broccoli, with the implication that if the government can compel you to do the former, it can also compel you to do the latter. That comparison horrified health care experts all across America because health insurance is nothing like broccoli.

So how does the individual mandate figure into all of this?  It is part of a 3-legged stool.  Take one of the legs away and the stool collapses.

The first leg:

Insurers cannot deny anybody health insurance based on a pre-existing condition.

Of course this is the point of Obamacare, to provide insurance to those millions of people who have been going without insurance.

The second leg:

All people, including those who are healthy must purchase health insurance.

This is the controversial Individual Mandate.  It is here because if we force insurers to take in all of the sick people, we need to add healthy people to the risk pool or else the premiums will skyrocket.

In addition there is the issue of so-called free riders.  If someone who didn’t sign up for insurance needs hospital treatment because of either illness or an accident, we can’t just deny him treatment so essentially the cost is borne by the other policyholders.

The third leg:

Since we are requiring everybody to buy health insurance, the government will subsidize the cost for those least able to afford the premiums.

So the important question is whether Obamacare would survive if the Individual Mandate is struck down.  And the answer to that is no.  While its opponents may argue about being forced to buy insurance or even broccoli, in reality they have seized upon what they feel is an Achilles’ heel.  And with a very partisan Supreme Court agreeing to hear this case, they may well kill Obamacare when they announce their decision in June.

And if that happens, the question will be what now?  There has been a lot of talk by Republicans about repealing Obamacare but no plans on what they will do to replace it.  Paradoxically, this may indeed mobilize the Democrats this fall! 

Rick Santorum's Other Positions

Now that Rick Santorum has emerged as a serious contender to Mitt Romney for the Republican presidential nomination, a tremendous amount has been written about Santorum’s positions on religion, sex, and contraceptives to the point where his other positions have been largely overlooked.  I would like to explore some of these other positions here.

The best and fairest way to get a candidate’s views is through his website http://www.ricksantorum.com/issues so it is in the candidate’s own words.

I’ll eliminate all regulations promulgated by the Obama Administration which have an economic burden over $100 million dollars, on Day One, including repeal of the EPA rule on CO2 emissions that have already shut down six power plants and furlowed (sic) 500 workers. I will order a review of all regulations, making sure these regulations use sound science and common-sense cost benefit analysis.

It is amusing that Santorum wants to make sure that environmental regulations are based on sound science when he completely rejects current science around climate change in favor of what he sees as biblical evidence.

I will cut spending by $5 trillion over 5 years, repeal ObamaCare and other onerous regulations and cut non-defense spending to 2008 levels..

This is not too much different than the other Republican candidates which amounts to cutting taxes and non-defense spending in exchange for what they call entitlement reform.  It’s easy to say that you are going to cut $5 trillion.  But it takes more guts to say specifically what you’re going to cut.  By process of elimination, the cuts would have to be Social Security and Medicare.  According to a recent AARP Bulletin, Santorum was once in favor of raising the retirement age to 70 but has apparently backed off of that in favor of personal retirement accounts.  And he endorsed the Ryan plan which would turn Medicare into a voucher system.  If the voucher doesn’t cover the cost of the private insurance that seniors would have to purchase on their own, the remainder would come out of pocket.  Some way to save money out of the budget!

Strengthen patient-driven health coverage options such as Health Savings Accounts coupled with high deductible insurance plans (and repeal ObamaCare policies that gut such options)

This too has been proposed by other Republicans.  Health savings accounts allow people to put money away pre-tax so they essentially get a discount on their medical bills equal to the amount of tax they would normally pay on that money.  This is nice for the middle-class and above.  But those in the lower incomes who pay little or no tax get little or no benefit.  And high deductible insurance plans sound nice for those who are not forced to buy them.  But especially for the poor who have such policies, it is tempting to save money by not going to the doctor and getting any needed tests since these visits are usually not covered.  One of the main purposes of insurance is so people will get preventative care before they become seriously ill.  High deductible insurance doesn’t do that.

The federal role in education is very limited.  Education is the responsibility of parents, local schools (public and private), and states in that order.

And during a February 26 appearance on Meet the Press, Santorum had this to add.

I have a plan that says we're going to repeal No Child Left Behind , we're going to get the federal government out of education." I've even said we need to get the state government more out of education, put it back at the local level, have parents and teachers and administrators and the community build a customized program for every single child in America . That's what I believe.

It’s not unusual for a conservative to want the federal government to bail out in favor of a state government.  But Santorum seems to dislike state control, too.  This may create a few problems.  First of all, without any federal and state educational standards, local school districts can teach pretty much anything they want.  What if some rogue school board members want to teach intelligent design?   This would not bother Santorum since while he was a senator, he tried to pass the Santorum Amendment which promotes the teaching of intelligent design while questioning the validity of evolution.

And with state budgets suffering shortfalls, cuts to education have been the result putting more of the financial burden on the school districts.  But if schools have to rely too much on local property taxes, the poorer school districts would be hard pressed to provide a comparable education to the affluent ones.

Rick Santorum is no stranger to the issue of judges.  As a U.S. Senator, he stood against activist judicial nominees time and again.  As a Republican leader in the Senate, he was pivotal in the fight to confirm U.S. Supreme Court Chief Justice Roberts and Justice Alito. 

This is an example of conservative arrogance.  Anything that a liberal judge does is judicial activism while anything a conservative judge does is just interpreting the Constitution.  Chief Justice John Roberts famously said in his confirmation hearing that a judge was just there "to call balls and strikes", apparently meaning that he was not to be a judicial activist.  But many observers feel that the Roberts Court has been the most activist in recent memory, especially considering the Citizens United ruling which is responsible for the existence of the super-PACs that have run amok during this primary season.

But perhaps the best reason to choose one presidential candidate over another is based on which judges they would appoint, especially ones for the Supreme Court.  Now no matter what any candidate says about not having a litmus test, a Democrat is going to appoint liberal judges while a Republican will appoint conservative ones.  Nothing wrong with that.  But the problem with Santorum is his extreme conservatism on social issues, in many cases attacking what are generally agreed to interpretations of the separation of church and state.  For as strongly as he believes in his hard-right social positions, it would be hard to believe he wouldn’t select judges who are just as extreme.

This more than anything else is what scares me about a Rick Santorum presidency!. 

Is Mitt Romney a Vulture Capitalist?

Mitt Romney as a result of yesterday’s convincing defeat of Newt Gingrich has again established himself as the odds-on favorite to win the Republican nomination for president.  But even so, Gingrich has vowed to stay in the race until the convention.

One of the issues raised by Gingrich is about Mitt Romney’s former position at Bain Capital.  Romney has cited his business background as making him uniquely qualified to create jobs.  Gingrich’s response was to ask how Romney can create jobs when at Bain Capital, he made a career out of destroying them.

If you haven’t already, I invite you to check out the 28 minute video When Mitt Romney Came to Town.  It is compelling watching but in fairness, it was produced by Newt Gingrich’s super PAC so it may well be tainted with bias.

But what is the truth behind what Romney’s detractors call Vulture Capitalism?  Because these transactions are so complicated, it’s hard to say for sure.  Romney says that he created 100,000 jobs.  But he hasn’t presented any supporting evidence.

A Wall Street Journal article Romney at Bain: Big Gains Some Busts tries to come up with some answers.

Amid anecdotal evidence on both sides, the full record has largely escaped a close look, because so many transactions are involved. The Wall Street Journal, aiming for a comprehensive assessment, examined 77 businesses Bain invested in while Mr. Romney led the firm from its 1984 start until early 1999, to see how they fared during Bain's involvement and shortly afterward.

Among the findings: 22% either filed for bankruptcy reorganization or closed their doors by the end of the eighth year after Bain first invested, sometimes with substantial job losses. An additional 8% ran into so much trouble that all of the money Bain invested was lost.

Of the 10 businesses on which Bain investors scored their biggest gains, four later landed in bankruptcy court.

What is perhaps the most controversial is Bain’s use of the Leveraged Buyout which is defined and explained in this Investopedia article.

Definition of 'Leveraged Buyout - LBO'  

The acquisition of another company using a significant amount of borrowed money (bonds or loans) to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company. The purpose of leveraged buyouts is to allow companies to make large acquisitions without having to commit a lot of capital.  

Investopedia explains 'Leveraged Buyout - LBO' 

In an LBO, there is usually a ratio of 90% debt to 10% equity. Because of this high debt/equity ratio, the bonds usually are not investment grade and are referred to as junk bonds. Leveraged buyouts have had a notorious history, especially in the 1980s when several prominent buyouts led to the eventual bankruptcy of the acquired companies. This was mainly due to the fact that the leverage ratio was nearly 100% and the interest payments were so large that the company's operating cash flows were unable to meet the obligation.  

One of the largest LBOs on record was the acquisition of HCA Inc. in 2006 by Kohlberg Kravis Roberts & Co. (KKR), Bain & Co., and Merrill Lynch. The three companies paid around $33 billion for the acquisition. 

It can be considered ironic that a company's success (in the form of assets on the balance sheet) can be used against it as collateral by a hostile company that acquires it. For this reason, some regard LBOs as an especially ruthless, predatory tactic.

There seems to be a pattern that the companies that failed did so because of overwhelming debt imposed on them by the acquiring company.  In addition, companies with these large amounts of debt have far more difficulties dealing with down markets.

But what was the idea of Bain taking over these companies?  Unless one is incredibly naïve, it was first and foremost with the idea of making money (preferably big money).  If workers lost their jobs and perhaps their pensions from their companies going bankrupt, that’s just a part of capitalism where according to Romney, there have to be winners and losers.  But all too often Bain made a handsome return from management fees whether the company did well or not.

While there is no accusation of Romney and Bain doing anything illegal, there is a question of conscience and empathy.  If I were to cause the loss of hundreds or even thousands of jobs to make a nice payday, I would feel terrible about it.  But then I’m just a bleeding-heart liberal.  Mitt Romney doesn’t seem to even give it a second thought.

So what this is ultimately about is whether Mitt Romney has compassion for those of us who are not wealthy like him.  Today, he make a curious remark saying that he is not concerned about the poor since they already have a safety net while at the same time supporting the Ryan Budget Plan which would not only make cuts in that same safety net, but also lower taxes on capital gains to zero.  So for those who are outraged at Romney paying only 14% on his submitted income tax return, his taxation rate under the Ryan Plan that he favors would be close to zero on all of the millions that he earns mostly from capital gains.

Assuming he gets the Republican nomination, voters this fall will have to decide if Mitt Romney is looking out for the interests of the 99% or the 1% he is a part of.  I think I know!

Our Concentration of Wealth

The increasing concentration of wealth by the top 1% in the US has been talked about and was the subject of the Occupy demonstrations on Wall Street and elsewhere and summarized nicely in this video presentation.  But does it really make much of a difference to our prosperity as a whole?  I believe it does.

To start with, let’s show an example of the difference of wealth in the hands of ordinary middle class people as opposed to the wealthy.

Say we have 100 families each with a yearly income of $50,000.  This allows each of them to buy or rent somewhere to live, buy at least one car, a TV, a cell phone, food at the supermarket and occasionally a restaurant and perhaps a vacation among other things.  These are purchases that keep the economy going.

Now if we take that same $5 million away from those families, perhaps from outsourcing their jobs and give that money to the CEO who runs the company, what happens?

For one thing, the families now without a steady income will start to severely curtail their spending which puts a strain on the businesses trying to sell to them.  In the meantime, the CEO who gets the $5 million is not likely to spend much of it because he already has everything he wants.  Even if he wanted to spend it, he has no need for 100 houses, cars, TVs, etc. that the 100 families would buy which greatly decreases demand.

And make no mistake about it.  The high unemployment we are going through is mainly about lack of demand for goods and services.  Although corporations are making handsome profits, it is not resulting in the hiring of workers because there is no need for additional capacity due to the lack of demand.  This blows a hole in the label of “job creators” given to the wealthy.

In addition to its contribution to our present unemployment, there are a few other adverse effects that this concentration of wealth has brought us.  One is that the wealthy have far more control over our elections than in past years.  Yes, money has always been part of elections, but with the Supreme Count decision Citizens United, unlimited amounts of money can go into political advertisements and the source of the money doesn’t even have to be revealed.

Another is that it is difficult to run an effective campaign for Congress without already being wealthy which most of our Congressmen are.

It is not difficult to understand why voters feel that members of Congress don't understand or, even worse, don't care about their concerns. How could lawmakers with wealth, based on their own cushy circumstances, have similar feelings to ordinary Americans on jobless benefits, inheritance taxes, bank bailouts and income taxes?

Perhaps worst of all is the class disparity we are now dealing with between the haves and have-nots.   Most Americans have had positive feelings about the wealthy because they envisioned themselves as possibly becoming rich themselves.  After all, this was America, the Land of Opportunity where as former presidential candidate Herman Cain was quoted as saying "If you're not rich, blame yourself."

But an interesting essay in Esquire, We Are Not All Created Equal had these words about what it calls a new reality.

The Great Outcry that has filled the country with inchoate rage is the bloody mess of this fundamental belief in the justice of American outcomes crashing headfirst into the new reality. The majority of new college grads in the United States today are either unemployed or working jobs that don't require a degree. Roughly 85 percent of them moved back home in 2011, where they sit on an average debt of $27,200. The youth unemployment rate in general is 18.1 percent. Are these all bad people? None of us — not Generation Y, not Generation X, and certainly not the Boomers — have ever faced anything like it.

And if it’s that difficult for young people coming out of college, what is it like for older workers who have always had a more difficult time in the workplace dealing with age discrimination?

The fear here is that the huge concentration of wealth by a few is making it more and more difficult for everybody else to enter and stay in the middle class.  What can we do?

There are solutions that we can try but needless to say, those politicians who are supported by the wealthy will be opposed to them.  But here goes anyway.

First, we need to repeal the Bush tax cuts for the wealthiest Americans.  Our treasury needs that revenue.

Secondly, we need to stimulate the economy by spending money on our decaying infrastructure.  This puts people to work and like in the example above with the 50 families, they will spend money that puts others to work.  With interest rates being so low, it will never be cheaper.

And finally, what can we do to bring at least some of our manufacturing back to the US?  Admittedly, it’s difficult to compete with the salaries in China and elsewhere.  But would the cost in labor make such a huge difference in the end cost of the product?  Or put another way, would US consumers pay a little more for something that is labeled as ‘Made in the USA’?  I think the answer is Yes.

Sam Walton proudly displayed ‘Made in the USA’ goods at his Wal-Marts when he was alive.  But since then, it has used its significant buying power to force manufacturers to close plants here and source in other places like China as detailed in this PBS Frontline Documentary  Is Wal-mart Good for America?

While these practices to lower prices made Wal-Mart grow, mass retailers like Wal-Mart and Sears have not been doing so well lately (as opposed to upscale retailers such as Nordstrom).  Perhaps there will be a realization that low prices are only so good until too many of their customers lose their jobs as a result.

But some of the jobs outsourced to China are actually coming back to America.  But it’s a good news, bad news scenario as detailed in the NYT article U.S. Manufacturing Gains Jobs as Wages Retreat

Some manufacturers are hiring again in America, softening a long slide in factory employment. But for a new generation of blue-collar workers, even those protected by unions, the price of employment is likely to be lower wages stretching to retirement.

The wages for the new hires [at General Electric], however, are $10 to $15 an hour less than the pay scale for hourly employees already on staff — with the additional concession that the newcomers will not catch up for the foreseeable future. Such union-endorsed contracts are also showing up in the auto industry, at steel and tire companies, and at manufacturers of farm implements and other heavy equipment…

So much for the belief in greedy unions causing our problems. With the threat of moving production back to China, GE has its workers over a barrel.  They either accept a job whose pay doesn’t allow a middle class lifestyle or go without a job.  Meanwhile, the CEO, the Board and stockholders at fabulously profitable GE enjoy the profits while the workers are squeezed out of every dollar possible.  Another example of wealth going to the top.


What we take from all of this is that we cannot have a strong economy without a strong middle class to provide enough demand for our goods and service.   The wealthy can only spend so much.  After all, how many houses or cars can one person use?  And those at the bottom can only spend at a subsistence level which does not make produce enough demand. 


With many in the middle class struggling, 2012 is an important election year for the wellbeing of our people.  Right now there is a battle going on for control of our government.  On one side are the Republicans who are representing the interests of the wealthiest 1% who already have an inordinate amount of power.  On the other side are the Democrats who (usually) tend to look out for the interests of the other 99% of us.  When President Obama and the other Democrats are running for office this year, all they have to do is ask the voters whether they want someone looking out for the interests of the 99% or those of the top 1%.  That should help a lot of those undecided voters make up their minds! 

Do Businessmen Make Good Presidents?

Vote for me!  Unlike those other guys who are politicians, I’m a businessman.  I’ll run the government just like a business.

George W. Bush used his MBA from Harvard to boast of his business prowess.  And more recently there is Mitt Romney who touts his experience at Bain Capital taking over and liquidating companies and not his time as the governor of Massachusetts to boost his qualifications for the presidency.

And then there is Herman Cain who has no experience in elected office running for president based on his experience as the CEO of Godfather’s Pizza.

Is business experience in itself adequate preparation for running a government?  To begin to answer that question, it has to be pointed out that a business and a government are very different. 

A business takes in money to make as much profit as possible.  A government takes in money in the form of taxes to provide services for its citizens.  Of course, it is beneficial to spend the tax receipts as efficiently as possible.  But while a business can and does cut workers to meet the bottom line, a government shouldn’t indiscriminately cut government workers and recipients who rely on the safety net programs just to try and balance a budget.

And then there is Herman Cain’s abysmal ignorance of foreign affairs as shown in his beki beki stan stan quote along with the embarrassing silence when asked a question about Libya.  I believe much of this is the mentality Cain has as a former business CEO.  As the CEO of Godfather’s Pizza, he likely didn’t have to be familiar with all of the details of how the pizza was made.  Other people who worked for him were in charge of that.

So it’s easy for him to say that if he wins the presidency, he will surround himself with advisors to help him so he doesn’t need to know about foreign policy or much of anything else.  But running a government is different.  Especially for a president, decisions on foreign policy can mean the difference between life and death for people.  More importantly, if a presidential candidate is not curious enough to learn about the issues he may face, how will he know enough to intelligently choose who will be advising him?

After 9/11, George W. Bush relied on Donald Rumsfeld who advised him to invade Iraq based on questionable WMD intelligence – a decision that was a disaster.  As bad as that was, can you imagine Herman Cain dealing with a catastrophe the likes of 9/11?

But when questioned about his lack of foreign policy knowledge, Cain responded that “we need a leader, not a reader”, a line he may have gotten from The Simpsons.

Ignorance is not bliss.  We need candidates who have a working knowledge of the issues of the day.  If that means they are politicians and not businessmen, so be it.

But ignorance is not bliss for voters either.  It’s easy to think like Cain and say that one will rely on the experts to make decisions for us.  But experts disagree, sometimes strongly.  While we cannot all expect to become experts, we can at least become critical thinkers by at least acquiring a basic understanding of the issues and expecting no less of those who want to lead us!

Taking to the Streets

With the Occupy Wall Street demonstrations gathering momentum spreading from city to city, one cannot help but marvel how remarkable these are.  Unlike in other countries like France where mass demonstrations against the government are routine, many Americans normally display indifference toward the political process.  Even in 2008 when the country was excited over the prospect of electing its first black president, the voter turnout was only about 56%. 

And in off-year elections, turnouts are much smaller. Perhaps there is an attitude here in the US that no matter whom we vote for, it really doesn’t make that much of a difference in our daily lives.  And if voting is too much trouble, certainly demonstrating in the streets is more than most people want to do.  But having said that, it’s hard to forget the demonstrations against the unpopular Vietnam War where unlike for our present wars, people were drafted to serve so indifference was not an option.

Our problems with unemployment and uneven distribution of wealth have been going on for some time now.  But most of the distress has been shared by the older people in the workplace.  After a career earning a decent living, many of these people have been discarded as being useless to the job market.  But while these people have found the road to re-employment to be a rocky one, the young college graduates have had far fewer problems – until about the last couple of years.  Now many of our college graduates are finding that they have no professional employment opportunities in their chosen fields after earning their diplomas.  And now they are on the hook for paying off sometimes massive college loans.   While those at the top of the economic food chain are doing quite well, their path to a middle class lifestyle has been shut off.  So once again indifference is not an option.

And while many compare the Occupy Wall Street movement with the Tea Party protests, there are significant differences.  Most notably, the Tea Party protests have been heavily financed by those on the political right, especially the Koch Brothers.  For more on this, please check out a previous posting The Koch Brothers - The Most Powerful People You've Never Heard Of.  With this financial support, the Tea Party has been able to work the political system to their advantage.

By contrast, the Occupy movement has been about calling to our attention that our political system is broken.  The power being wielded by those with the most money to buy control of our government is overshadowing any control that ordinary citizens have by way of the vote.  It has even led to outside observers such as the German magazine, Der Spiegel to ask Has America Become an Oligarchy?

The Occupy Wall Street movement is just one example of the sudden outbreak of tension between America's super-rich and the "other 99 percent." Experts now say the US has entered a second Gilded Age, but one in which hedge fund managers have replaced oil barons -- and are killing the American dream.

At first, the outraged members of the Occupy Wall Street movement in New York were mainly met with ridicule. They didn't seem to stand a chance and were judged incapable of going up against their adversaries, Wall Street's bankers and financial managers, either intellectually or in terms of economic knowledge.

Indeed, they have given shape to a development in the country that has been growing more acute for decades, one that numerous academics and experts have tried to analyze elsewhere in lengthy books and essays. It's a development so profound and revolutionary that it has shaken the world's most powerful nation to its core.

Just for this alone, we owe a debt of gratitude to the courageous people who are participating in these demonstrations and are in some cases enduring police brutality and pepper spray for a cause they believe in – a cause called democracy!