Those Annoying Prescription Drug Ads

Is it just Prescription Drugsme, or is anyone else getting sick of being bombarded with prescription drug ads on TV?  It has been reported that prescription drug companies spent $4.5 on TV ads in 2014, with that figure expected to top $5 Billion in 2015.  From toenail fungus to erectile dysfunction, it just never ends. And then there are those obligatory recitals of side effects in fine print or rapid fire speech intended to take advertisers off the hook from any legal challenges to the safety or actual efficacy of these drugs.

The tactics of targeting the general population with these ads implies that consumers are capable of making their own decisions about prescription drug choices. Oh but then, they say “talk to your doctor about….”  Has anyone tried to get an actual doctor on the phone lately to have a discussion about prescription drugs? With any luck, you may reach an assistant, and with a little more luck, you may get a return call in a day or two asking you to make an appointment, which will probably be a month from now.

And then there are those annoying E.D. (Erectile Dysfunction) ads. Two out of the top four advertisers on television are Eli Lilly and Pfizer hawking their Cialis and Viagra products during the timeout commercials of major sporting events. The spending of just these two companies on these products alone accounts for over ten percent of all prescription drug ads on TV.  Has anyone else had to field a question from their 8 year old grandson about why you should ask your doctor if “Viagra is right for you?”

Without a doubt, prescription drugs have improved the quality of life for many people, present company included.  But they are powerful tools that are often abused.  Targeting drug ads to general audiences promotes the possibility of over medicating or improperly medicating a variety of health issues. Advertising prescription drugs should be targeted only to physicians and health care providers who are much more qualified to assess the medical needs of individuals and prescribe the appropriate medical treatment.  That treatment, more often than not, may be a generic equivalent drug at a fraction of the price of the brand name versions.

So, the next time you see one of those pervasive ads with the tanned and toned middle-aged couple happily bouncing out of their golf cart or lounging in separate bathtubs on the beach as a backdrop to the latest and greatest drug claim, think about what is really going on here.  It is a money battle being waged by the drug companies to coerce you, me and the health insurers to accept the confiscatory pricing of brand name drugs in this country.

Whatspeedyalka-344 ever happened to “Plop Plop Fizz Fizz, Oh What a Relief it is?”  I apologize to all of the Millennials that have no idea what that means.  Alka Seltzer 60’s Commercial


A Tale of Two Josephs and What’s Up with Aunt Matilda

family-tree-vector-25541964Like a lot of us entering our twilight years with a little extra time on our hands, we begin to develop an interest, or in my case, an obsession with our family history.  Now that we have the likes of Google and the online genealogy websites, the task of researching our family trees becomes mere child play.  Or is it?

Let me start by saying that I grew up in the 50’s and 60’s believing that I was one-quarter Native American – Blackfoot to be specific. My sisters and I were quite proud of this fact as it gave us certain bragging rights not accorded to our friends and classmates. After all, we were the true Americans and everyone else was just an immigrant. Besides that, it was really cool to be able to check off that box on all those applications stating that we were of Native-American ancestry. Surely that fact would give us an edge over the competition from those immigrants.

Our other claim to fame that we enjoyed was that our great great uncle was none other than that famous cowboy movieJack_Hoxie star from the silent-screen era, named Jack Hoxie. Surely you have heard of him. After all he paved the way for the likes of Hoot Gibson, Lash LaRoo, and Hopalong Cassidy. Still stumped? Well, if you’re stumped but interested, here is a link to his life history.

So, as I navigated through the branches of my family tree, I ran into a contradiction that is still unresolved despite logging countless hours of research to reconcile my predicament – a predicament which, as you will see, forms the basis for the title of this narrative.

It seems that there were two Joseph Hoxies that can each lay some historical claim to being the father of John Hartford “Jack” Hoxie and, incidentally, his older brother William Manon Hoxie, my great grandfather. The one fact that seems to be consistent and resolved is the identity of their mother. Her name was Matilda Emeline Quick, a half Nez Perce Indian, and my great great great aunt. That throws out the Blackfoot theory.

There is very little ancestral documentation on the first Joseph Hoxie. According to various online historical sites his name was Joseph H. “Bart” aka “Doc” Hoxie.  He was a veterinarian born in 1824 and died in 1885 due to a horse accident just weeks before the birth of his son Jack. The only official corroborating evidence that I was able to uncover to verify the existence of “Doc” Hoxie is the 1880 US Census. That census listed a Joseph Hoxie as the married head of the house, age 56. His wife Matilda Quick Hoxie, age 18 was listed along with “Willie”, age 2, and Crawford, age 6 mos. It looks like Doc and Matilda got hitched when he was 53 and she was only 15. If this account was accurate, “Willie” would have been William Manon, my great grandfather. Aunt Matilda would go on to marry twice more, first to Calvin Scott Stone, and later to Oscar Jenkins. Before her passing in 1942, she had 5 more children, presumably with Calvin Stone.

Now it gets interesting. The second Joseph Hoxie was Dr. Joseph M. Hoxie, MD. All records indicate that he was born in 1839 and died in 1909. Most every family tree found in lists Joseph M as having been married three times. The first marriage was to Maria Cecila Rust around 1859. They had 5 children.

Joseph M’s second wife is listed as (guess who?), Matilda Emeline Quick around 1877. They are shown as parents of the same three little Hoxies as those that Doc and Matilda claimed to have parented, with one more for good measure, which was George Edward.

Around 1886 Dr. Joe met and married his third wife – Henrietta Marie Graham. Together they had 5 children, the last one being Marvel R. Hoxie in 1900. Dr. Joe died in 1909 so he would have been 61 years of age at the birth of his last child. So if we are to believe that Dr. Joseph M. Hoxie was married to all three women as described above and sired all of the children listed in the various family trees, his total offspring count would have been 14.  He was a busy guy.

There are a number of different scenarios that one could speculate on to reconcile this confusion. One semi-plausible one is that Dr. Joseph M did not marry Aunt Matilda at all and he just had the two wives, Maria Rust and Henrietta Graham. That would have meant that he only had 10 children between them, none of which would be related to me or my siblings. But if that is the case, how does one explain the childless gap between 1873 and 1887 for Dr. Joseph M?

The other scenario is that Joseph H. “Bart” aka “Doc” Hoxie did not exist at all. But it is that 1880 census data that keeps me believing that there is more than a shred of truth in the legend and existence of Bart “Doc” Hoxie, despite any record of his previous ancestors.

Then there is another scenario. Could Joseph H. and Joseph M. be the same guy? Did Bart “Doc” Hoxie really die in that horse accident in 1885?  Could he have faked his death and go on to marry Henrietta Graham a year later in 1886? Did he alter his birth date from 1824 to 1839 when he met Henrietta?  If so, he would have actually been 85 at his death in 1909 instead of 70 as previously supposed. Then there is that childless gap between Maria and Henrietta that somewhat supports the Matilda era.

So there you have it. The mystery remains unsolved.  Unfortunately, those that may add some clarity to the two Josephs and Aunt Matilda story have all passed on. However, my dogged intellectual curiosity will not allow me to just let go and accept. But at least it’s nice to know that there is some smidgen of Native American blood in me, even though it has been reduced to 1/32 from ¼. And as my sister recently pointed out, the Nez Perce tribe was among the most peaceful Indians well known for the timely refuge they provided to the Lewis and Clark expedition in 1806.  Thank you Aunt Matilda, wherever you are.

Gimme Some Slack

I don’t know about you, but I’m getting a little tired of being overcharged and victimized by the “Slack Pack” phenomenon currently the rage in consumer packaged goods.  Slack packing is the practice of bloating the size of the packaging to masqueradSlackPacke the fact that the amount of product inside is actually shrinking.

Recently, Proctor and Gamble was cited and ordered to pay $850,000 in civil penalties as a result of their packaging a 1.7 ounce jar of the company’s Olay high-end face cream in a box twice the size of lower-end face cream that contained a 2 ounce jar. Another recent example is McCormick, the nation’s  largest spice company, deceiving consumers by stealthily slashing the amount of black pepper in its tins, without shrinking the container or lowering the price.  Examples of this practice go on and on.

But here is another dirty little secret that the slack packers don’t tell you. By reducing the amount of actual product in a multi-use package like potato chips, pepper, or ice cream, the fact is that you, the consumer, will now consume the contents quicker because there is less of it, thereby boosting the need to purchase more frequently.

Moreover, the raw ingredients in a package usually represent just a fraction of the retail price you pay. For example, the cereal folks (you know who you are) start out with 12 cents worth of corn, and after processing, end up with a box of crunchy corn flakes at a cost of around $1.25 per unit.  Then by the time you add $.25 for packaging, $1.00 for distribution and marketing, and $.40 for profit you’re now looking at a total of $2.90 delivered to your friendly neighborhood supermarket. The grocer then adds $1.00 for his profit and another $.10 in state and local taxes and alas I give you a $4.00 box of corn flakes. The cost of product in that box, at most, only accounts for 31% of the total retail price.

So by keeping the package size constant (even with less product), unit profit margins remain virtually the same throughout entire the production and distribution channels, and… (drum roll please) …they end up selling more units!

Aint capitalism grand?

Fair Tax Reform

Featured imageWell, it’s about time! Rand Paul, a Republican from Kentucky and a candidate for the Presidential nomination has introduced a fresh and sensible alternative to our convoluted tax code. By adopting a broad based 14.5% flat tax and abolishing the payroll tax, the 70,000 pages in the current IRS tax code could and should go the way of the recycler.

No doubt, given the practicality of this plan is and its appeal to the average citizen, you can bet that the special-interest groups are already lining up to protect their sacred cows. I like about 90 percent of Mr. Paul’s plan, but there are some shortcomings that need to be addressed. Further his plan amounts to a $2 Trillion tax cut that bets on increased economic activity to make up the revenue difference. I’m not so sure that will happen.

Let’s face it.  The payroll tax has no chance of sustainably funding social security in its entirety.  It should be abolished in favor of a graduated flat tax with the recognition that social security must be paid from the general fund. Its time to get serious about throwing out loopholes and special interest deductions as well.  The only deductions that should be allowed without an income qualifier are charitable contributions, and state and local taxes.  All other deductions or exclusions from income, including mortgage interest, should be subject to an income qualification. So here is my plan.

I would propose a modified two tier flat tax plan.  Income would have two classes. Class 1 income would include traditional middle class items such as wages, salaries, dividends and interest, retirement income, social security benefits, etc.  Class 2 income would be business related, eg. Capital gains, rental income, etc.

As to deductions, with the exception of qualified charitable contributions and state and local taxes, all would be subject to an income exclusion of 5%.  For example, for someone earning $100,000 with $8,000 in mortgage interest, the allowable deduction would be limited to $3,000.

Next, there would be a $20,000 earned income credit for all income groups. For someone earning less than $20,000, their taxable income would be zero, and they would pay no tax.  For the taxpayer with $250,000 income, the taxable income would be $230,000.

Finally, there would be a two-tier tax rate.  Tier one would apply to the first $50,000 of taxable income and would be taxed at 15%. The second tier is that income over $50,000 which, after qualified deductions, would be taxed at 20%.  A detailed example of an actual filled-in tax form at various income levels can be viewed at

Can you imagine how much simpler all of our lives would be with this kind of system? Think of all the time, money, and resources that are spent on ways to circumvent taxes. Like it or not, taxes are necessary and we all need to pay our fair share. Fair – that’s the operative word here!

An Open Letter to My Great Granddaughter

Featured imageI haven’t met you because you have not been born yet. But while I still have clarity of mind and the blessings of good health, I wanted to take this opportunity to reach out and apologize for the mess that my generation has left you with. I am writing this letter to you in the year of 2014, but I suspect it will be somewhere around 2030 before you are old enough to read and understand what I have to say here.

Your Great Grandfather, that’s me, was born in 1946. That was the first official birth year of the generation known as the Baby Boomers. The Baby Boomer generation followed the Greatest Generation. The Greatest Generation was made up of those brave and hardy Americans that struggled through the great depression of the 1930’s.  It was also the generation whose soldiers stormed the beaches of Normandy in 1944 at great human sacrifice, in what turned out to be the pivotal battle leading to the defeat and destruction of Hitler and the Nazi party in World War II. The French people hailed the American soldiers as heroes as they liberated them from the oppressive Nazi tyranny.  Today, they don’t like us much. Go figure.

The Baby Boomer years lasted until 1964, which incidentally was the year that I graduated from high school.  The two most influential events of the early sixties were the Cuban missile crisis and the assassination of President Kennedy, both occurring in 1963. While we didn’t know it at the time, these events set the stage for what would be a massive political and cultural divide among the citizens of our country.

There was a war going on during the middle 60’s in Southeast Asia in a place called Vietnam. It was a very unpopular war. Unlike the soldiers of the Greatest Generation, those of us that were deployed to serve in this conflict were not looked upon as heroes and patriots. In fact, we were despised in many circles, including our own citizens.  But, we were just doing our job and answering the call of duty, just like our fathers did in WWII and their fathers before them in WWI.  After my discharge from the army in 1969, which included three consecutive years in Southeast Asia, I returned home to a country and society that I barely recognized.

Those born after 1964 were referred to as “generation x”.  This was the generation of your grandparents.  After the “x’ers” came the “y” generation and so on. I’m not sure what label they will assign to your generation, but I hope it is one that will be remembered in history for the courageous and dedicated efforts to fix the awful mistakes of your ancestors and a commitment to avoid repeating them in the future.

As I write this letter at the age of 67, I am two years into retirement. I retired at age 65, which is the age that most of my generation began receiving social security payments and government paid health care benefits under a program we called Medicare. I doubt that these programs will be available to you to the extent that they were for us, but I hope so. You see, the United States is currently $17 Trillion in debt and counting, and no one has a clear plan on how to fix this. Our treasury keeps issuing more debt because we simply don’t have enough money to pay for our expenditures. It is projected that by the year 2025, the interest on our debt plus the cost of Social Security and Medicare will exceed all revenue collected by the federal government. Meanwhile, our politicians are intent on keeping interest rates low, so our federal reserve is actually buying a large portion of that debt on a regular basis. You’re probably asking yourself, where did they get the money to do that? They printed it. Really! Have you ever heard the expression, “robbing Peter to pay Paul”?  I think this practice is dangerous and could ultimately destroy the purchasing power of our dollar, and it is clearly unsustainable. Regarding sustainability, we actually have a host of other problems of global proportions which, by the time you read this, should be of no surprise to you.

The dinosaurs roamed the earth for 160 million years, and along with decaying vegetation, were largely believed to be the source of fossil fuels, i.e., oil, coal and natural gas. The first commercial oil well was drilled in Pennsylvania in 1859. But it was the discovery of vast oil reserves in Texas at the turn of the 20th century that started the oil boom.

Until recently, it was believed that peak oil production occurred in the United States during the early 1970’s, which implies that most of our country’s oil reserves were used up in less than 100 years. That is a pretty scary thought especially when viewed against the backdrop of 20,000+ years of known human history on the planet. Since then, we have feverishly pursued additional fossil fuel supplies around the globe, by whatever means possible, in order to feed our addiction and sustain our lifestyle.

As oil prices climbed over $100 per barrel a few years ago, the technology of hydraulic fracturing began to take hold which suddenly made it economically feasible to tap shallow shale oil reserves in our country. This is going on now, and I guess it’s a good thing because it reduces our dependence on foreign oil from countries, many of which are considered hostile to ours. As I write this, the United States makes up less than 5% of the world’s population, but we are consuming 25% of the world’s oil production. I hope this newfound supply of oil doesn’t lull us to sleep to the point that we fail to acknowledge and address the greater systemic issues, the most important of which, should be to focus on reducing our consumption of fossil fuels.

Climate change is a topic of great debate today.  One’s opinion of the cause of these phenomena largely depends upon which side of the political spectrum you fall. The Left attributes the drastic weather patterns to global warming caused by humans.  Those on the Right that accept the notion that our climate is changing, say it is just due to natural weather cycles.  Nonetheless, the problem is real and clearly getting worse. Among my chief concerns, besides the prospects of more devastating floods, tornadoes, and earthquakes, is the future of farming and our ability to produce an adequate food supply that is both safe and sustainable to feed an ever growing population.

In my lifetime, the world’s population has tripled from just over 2 Billion to the current level of 7 Billion. That is a staggering 250 percent increase in just 67 years. Clearly this growth is not sustainable and no one expects it to continue at anywhere near that pace. There has been meaningful progress to bring that rate down during the last few decades. In fact, by the time you read this in the year 2030, it’s my guess that the world population will be in the neighborhood of 8.5 Million, given the current rate of growth. Nonetheless, an increasing world population and the ensuing competition for scarce and declining resources will most surely pose serious challenges to future standards of living, while further straining the planet’s overtaxed and fragile ecosystem.

Continuing along the theme of natural resources and climate change, I should note that we are currently experiencing a very severe drought here in California.  Water is a resource that seems to be taken for granted – that is until it is scarce. Although the heavens supply our world’s population with four times the water that is needed in the form of rain and snow, it doesn’t all fall when and where it is needed. Water is a finite resource and nonrenewable. New water is not created. All the water that exists in the world is either in the oceans, lakes and rivers, aquifers, or the atmosphere.

Sea levels are rising.  Although I am not a scientist, I believe that this is probably due to of higher water temperatures, violent storms at sea, and glacier meltdown associated with climate change. I suppose that when the cost of water gets high enough, we will then get serious about desalination of sea water as the preferred method of supplementing existing freshwater supplies where they are needed.

So, other than apologizing for my generation’s misdeeds without offering specific blueprint of solutions, why am I writing this letter to you? Well, it is my hope that others that are either now, or will be, in a position of power or influence will read this and gather some inspiration from it. And in doing so, will accept the challenges and vow to make a difference before it is too late. Meanwhile, I promise to do what I can to make things a little better for you, your children, and your grandchildren.

Subterfuge in the Supermarket

When we go to the supermarket and shop the produce department, we, as consumers, have certain expectations. At the top of the list is that we expect fresh fruits and vegetables in the department to be just that – Fresh!

On April 6th of this year an article appeared in The Packer, which is the leading trade publication for the produce industry.  The headline of the article read as follows:

DelMonteFruitNaturalsDel Monte vs. Del Monte: What makes fruit fresh?

Before delving into the issue, it should be noted that there are two Del Montes. Prior to 1989 there was only one Del Monte and it was a subsidiary of RJR Nabisco Inc.  As a result of a leveraged buyout by the legendary KKR, the company was split into two.  Ownership of the brand remained with Del Monte Foods along with exclusive rights to produce and sell processed food products with the exception of “fresh fruits and vegetables”.

The other company created in this breakup was Del Monte Fresh Produce.  Del Monte Fresh received a royalty free perpetual license for exclusive use of the Del Monte brand on fresh produce. At the time of the breakup, the bulk of Del Monte Fresh’s business was bananas and fresh pineapple.  They were a distant number 3 in the banana business behind Chiquita and Dole, and second in the fresh pineapple business behind Dole, then called Castle & Cooke Foods.

After several iterations of shaky ownership that included the infamous Carlos Cabal (that story here) and his gang of thieves in Mexico that nearly broke the company, Del Monte Fresh survived and was rescued by a relatively small and unknown fruit exporter called United Trading Company, headquartered in Chile. Ultimately, UTC management launched a successful IPO in 1997 and became Fresh Del Monte, Inc. trading on the New York stock exchange under the symbol FDP.

So much for the background and now to the story.  In the mid 90’s, Del Monte Foods began packaging their processed fruit products in colorful high graphics mason jars, and pushed for placement in the produce department. Initially the products were marketed under the Orchard Select brand but eventually added the heritage-rich Del Monte brand.  Around the same time, Fresh Del Monte began development of their fresh-cut fruit line from “pineapple only” to include a variety of fresh fruit blends with limited shelf life requiring disciplined refrigeration.

As Fresh Del Monte began to ramp up their fresh-cut fruit business, Del Monte Foods viewed this as a threat to their “fresh cut canned fruit” business [sic]. A lawsuit ensued, and in 1999 a judge ruled in favor of Fresh Del Monte granting the company exclusive rights to sell fresh-cut fruit under the Del Monte brand. There was nothing in the ruling limiting or restricting Del Monte Foods from continuing their existing practices of using the Del Monte brand for processed fruit.

Beginning in the year 2000, both companies headed down their separate paths to build their respective cut fruit businesses.  Del Monte Foods began producing their processed fruit products in single serving deli style cups and achieved a high level of success getting placement in the refrigerated section of retail produce departments.  Even though the products were shelf stable and virtually identical to those  merchandised in the unrefrigerated dry foods section, they added the phrase “must be refrigerated” to their packaging.  An obvious contradiction to the “need to  refrigerate” was indicated by shelf lives exceeding one year, as evidence by the “best if used by” dates printed on the packaging.

Common sense, then,  would seem to conclude that fruit products with shelf lives exceeding one year are not truly fresh.  Further review of the fine print labeling on the packaging revealed the use of preservatives which included potassium sorbate and sodium benzoate on many of the products. The items without preservatives were those packaged in a heat treating pasteurization process in various offshore locations.

Meanwhile, Fresh Del Monte, through a series of acquisitions of regional fresh-cut processors and startups began building a national network of fresh-cut fruit processing operations.  The operative word here is “fresh”, as their products contained absolutely no preservatives. The typical shelf life for fresh-cut fruits was a reasonable 5 to 7 days. Compare that with the one-year plus lives indicated on  the Del Monte Foods’ products and draw your own conclusions as to what is truly fresh.

Now, this is not intended to be an indictment of Del Monte Foods, in fact, quite the contrary. They have not violated any labeling laws and  have done a great job in product development. From a marketing perspective, I think their strategy was brilliant. After all, when Mrs. Consumer is shopping the produce department looking for good tasting healthy alternatives to processed foods and spots Del Monte branded fruit in the produce department, the reaction is quite predictable. With its colorful packaging allowing full view of the product inside along with the statement to “keep it refrigerated”, what else is she supposed to think other than this is truly a fresh fruit product. If she chooses to read the label in detail, she would learn otherwise.  But then again, would she even care?

No, it’s not Del Monte Foods, but rather the multitudes of mainstream retailers, knowing full well the nature of the Del Monte Foods products. But, they choose to stock it anyway in the refrigerated fresh-cut fruit section of the produce department, which in my opinion, makes them guilty of  subterfuge. By the way, Webster’s dictionary defines subterfuge as “deception in order to conceal, escape, or evade.”  While there is nothing illegal about this practice on the part of supermarkets or Del Monte Foods, their actions are clearly an act to conceal, escape, and evade by promoting a product purported to be fresh when it isn’t.

And that is what the jurors in a federal district court concluded in their recent ruling that “Del Monte Foods’ fresh fruit claims are fraudulent.”

The Holiday Speech

The speechJust last week, I attended the annual Holiday Party of the company from which I  recently retired.  You know, those events that we used to call Christmas parties.  Well, it wasn’t technically a holiday party and it was renamed, simply, a Celebration of 2012.  Oh well, get over it, right?

Anyway, I was asked to be the featured speaker and come up with some interesting commentary about the key issues of the day and how they may relate to our daily lives and deliver it in such a way that would pique the interests of the over 300 attendees that consisted of the entire spectrum of of ethnic and socioeconomic backgrounds, ranging from business owners to tractor drivers.  I guess because I’m a blogger now, some people think I should be smart enough to pull this off.

Well I was all ready to give it a try on that Friday evening, December 14th.  However, a crisis of biblical proportions occurred in a small town in Connecticut earlier that day with the horrific massacre of 20 innocent children and six other adults. Somehow, I felt that anything that I had to say would be rather hollow and insignificant, given the circumstances of the day.  So instead, I decided to switch gears and said a few words centered around the importance of family.  I guess it went off OK, considering I was uncharacteristically unprepared. I managed to get an internet connection on my phone and read from one of my earlier blog posts of nearly two years ago which was entitled, “An Open Letter to my Great Grandchildren”.  A link to that post is HERE. I think that resonated pretty well.

So, for anyone that may be interested in the original speech that went unsaid that fateful night, I have decided to reproduce the text in the paragraphs that follow.

The Speech

Let’s start with the headlines regarding the “fiscal cliff.”  Without a resolution before the end of the year, drastic automatic changes will be take effect that will increase revenue and decrease spending. Another dimension to the cliff issue is the debt ceiling which will cap out in early 2013.  Without an increase, the ability of the government to finance any further deficit spending would be sharply curtailed. Incidentally, our national debt is currently around $16.4 Trillion, but more on that later.

So, in a nutshell, here is what happens January 1 without a resolution:

  • The Bush Tax Cuts will expire on December 31, 2012, the effect of which, will raise income tax rates for everyone.  The Top tier will fo from 35 to 39.6 percent.  Capital gains rates and dividend rates will go up as well.
  • The Social Security payroll tax holiday will expire on December 31, raising the rate from 4.2 percent to 6.2 percent.
  • To fund “The Affordable Care Act” under Obama-Care, tax rates will increase on high-income earners and there will be an additional tax of 3.8 percent imposed on investment income, ie., dividends, interest income, and capital gains.
  • Half of the scheduled spending cuts will come directly from the national defense budget.
  • The eligibility to begin receiving federal unemployment benefits, last extended in February will expire at years end.
  • Referred to as the “Medicare Doc Fix”, the rates at which Medicare pays physicians will decrease nearly 30 percent on December 31st.

The most likely outcome of this current fiscal dilemma will be one of a series of short term fixes that, as they say in Washington, “kicks the can down the road.”  However, as I see it, the real fiscal cliff is the continued deficit spending and the mushrooming national debt.

As I noted earlier, the current national debt is over $16 trillion. This is just the funded portion — the unfunded liabilities of the Treasury, such as Social Security, Medicare and student loans, make it much larger. The recent era of fiscal irresponsibility has thrown an additional $1 trillion or more on the pile every year.  That is what we call the deficit. To fund the deficit, the Treasury sells notes and bonds.  The biggest buyer of these debt instruments is not China or Japan.  It is actually the Federal Reserve.  The Federal Reserve has bought more than 70% of new Treasury debt issued this year.  How do they do that?  In simple terms, they do the equivalent of actually printing new money.  Under normal circumstances that practice would spark rampant inflation.  The fact that it hasn’t  suggests that maybe our dollar is actually undervalued, at least in relation to other world currencies.

The only reason that this staggering debt load hasn’t crushed us is that the Treasury has been able to service it through historically low interest rates (well below 2 percent). These easy terms keep debt-service payments under $300 billion per year, or around 9% of total revenues.

At the current trajectory, the national debt likely will hit $20 trillion in a few years. If, by that time, interest rates return to 5 percent (a low rate by postwar standards) interest payments on the debt could run around $1 trillion per year. This sum would represent almost 40 percent of total current federal revenues and likely would constitute the single largest line item in the federal budget – more than current defense spending, and more than the current combined outlays for social security and medicare.

While all of this may sound like a doomsday scenario, it really doesn’t have to be.  For over 200 years the American economy has demonstrated remarkable resilience in its ability to bounce back from seemingly insurmountable problems.  There have even been some creative suggestions on reducing the debt.  In particular, I like the one from Ron Paul where he suggests that the Federal Reserve just destroy the notes and bonds on its balance sheet. If done today, that would eliminate $4 Trillion of the $16 Trillion debt. The money that was created to purchase the debt is already in circulation so it shouldn’t be inflationary. Interesting proposal!

So, if you think this recent economic downturn is the worst since World War II, chances are you weren’t born or working during the downturns of the 1970’s and early 80’s.

I started my career in the produce business  in 1973 at an annual salary of $9000 and all the bananas I could eat.  While the 9 year war in Vietnam finally wound down that year, Syria and Egypt attacked Israel and there was talk of Armageddon. We had the Arab oil embargo and gas lines. We invented a new term for our financial misery and it was called stagflation, which was short for a stagnant economy coupled with high inflation.  This was also the decade of the “rope-a-dope” economy, a phrase made popular by Mohammed Ali’s defeat of George Foreman in the 1974 title bout called “the rumble in the jungle.” Unemployment peaked at 8.5% and inflation ran as high as 14%. By the end of the 70’s decade, the rate on a 30-year fixed mortgage was 18%.  And to top it all off, we were all running around wearing Leisure Suits and Bell Bottoms.  Of course that was also the era of the hot pants and that wasn’t too bad.

We finally came to our senses in the early 80’s and things gradually improved. We threw out the rope-a-dope strategy, and came out swinging.  Conditions improved for many segments of the economy in late 1983 and by early 1984, the economy rebounded and the United States entered one of the longest periods of sustained economic growth since World War II. Consumer spending increased in response to the federal tax cut. The stock market climbed as it reflected the optimistic buying spree. Over a five-year period following the start of the recovery, GNP grew at an annual rate of 4.2 percent. The annual inflation rate remained between 2 and 5 percent from 1983 to 1987 — the lowest level in decades.

Looking ahead, of the major catalysts that I see contributing to economic growth in the decade ahead, none is more exciting or holds more potential than our domestic energy boom.  All indications point to the United States becoming a net energy exporter by 2025 thanks to a surge in oil and gas production and dramatic improvements in energy efficiency.  The process known as hydraulic fracturing and horizontal drilling are unlocking massive deposits of oil and gas trapped in shale formations throughout the country. The International Energy Agency recently forecasted that the United States will become the world’s largest oil producer by around 2020, surpassing Saudi Arabia.

A by-product of increased oil production is natural gas. Natural gas is the cleanest burning fuel available today, and the U.S. is swimming in it. We have enough to last 92 years with current known reserves. Pipelines and storage facilities are being built at a frantic pace to handle this production. Worldwide demand for cleaner energy will lead to an increasing trade in liquefied natural gas which is achieved by cooling it to -165 degrees centigrade. Liquefied natural gas is much denser thus occupying less space making it cost efficient for export by trucks or ships.  Currently, many western European countries are effectively being held hostage by Russia for over 80% of their Nat Gas needs which is delivered to them via pipelines.

Also, contributing to our recovery will be the resurgence of American manufacturing.  Just recently, Apple Computer announced that they will produce Mac computers in the U.S. next year and are spending $100 Million to shift production of the line from China. Speaking of Apple Computer…

In the past 12 months, the 20,000 or so middle market manufacturing firms in the United States grew sales by more than six percent — in total that’s around $48 billion of new revenues — and added around a quarter of a million jobs. The manufacturing middle grew more than three times as fast as the broader U.S. economy over the same period, and grew faster even than the developing economies like Brazil, India and Russia that we hear so much about.

Expanding exports and bringing manufacturing home will be essential to rebuilding our economy.  However, the overhang of our expanding debt won’t just disappear on its own.  Most surely, as this debt is monetized, that is, money will either be printed or borrowed to pay the interest, the value of the dollar will weaken resulting higher inflation down the road, particularly for imported goods.  That is all the more reason for bringing more manufacturing home. The traditional hedges for inflation, namely, commodities, gold, and real estate, look like good bets for the next few years.

Our tax system is the most convoluted in the world.  There is something wrong when companies like Microsoft, Cisco Systems, and Oracle hold a combined sum of $115 Billion overseas compared to just $19 Billion at home.  The 35% corporate tax rate is too high and just serves as a disincentive to putting it back to work at home.  We need to declare a one-time tax holiday and repatriate this cash and make it available for investment in our domestic economy.

As for the personal income tax code, things are even more screwed up. Nearly half of households pay no income taxes at all.  There are valid arguments to replace our current income system with a modified flat tax.  We also need to take a fresh look at limiting deductions and the income limits need to be raised on payroll taxes if we are serious about saving the social security fund.

Out of the $2.6 Trillion collected from all federal taxes in 2011, $1.1 Trillion was from individual income taxes and $900 Million came from Social Security and Payroll taxes.  My suggestion is a modified flat tax of 15/22, where everyone pays 15% on the first $50,000 of income with no deductions, and 22% on all amounts over $50,000, with itemized deductions on that portion capped out at 5% of income. This system would raise over $2 Trillion in revenue and we could eliminate the payroll tax altogether. Believe it or not, I actually worked through these numbers in great detail and sent over an unsolicited detailed proposal to one of the Republican candidates early this year.  Unfortunately, my candidate didn’t make the cut and I seriously doubt that my proposal made it to his desk.