Kenichi Ohmae is a management consultant who has written more than 100 books and I just finished reading his latest: “The Next Global Stage: Challenges and Opportunities in our Borderless World.” The book is a good primer on the global economy. Ohmae makes a convincing case that communities defined by capital flows are more meaningful than communities formed by political interests. If nothing else, he demonstrates that the two are on a collision course.
Just as sure as water will always move toward the lowest ground, capital will always gravitate toward the places where it produces the greatest return. This has always been true but until the advent of the internet and other technology, physical and political barriers distorted the flow of capital, the same way a dam can prevent water from flowing down a hill. The technology which converts currency to electronic impulses, however, is enabling the natural migration of money. The result is investors are moving money to the most profitable places with greater ease than ever before.
Ohmae notes that money is flowing completely independently of political boundaries. Decades ago, when it was cumbersome to invest internationally, capital often stayed home, even if the homeland offered poor investment options. Now that money is flowing across political borders and oceans into places that offer attractive investments. Politicians who embrace a role in the global economy will see their countries prosper, while those that resist by passing protectionist laws, will put their countries on the sidelines. The way Ohmae describes it, capitalists really control things in the macro sense, not the politicians; the influence of elected officials is really limited to local, short-term situations.
For example, politicians may pass laws preventing outsourcing of jobs, but in the long run, foreign investors won’t look to those countries to set up new companies if they know they are handcuffed on their employment practices. Even home-grown companies are likely to look to foreign countries for starting new ventures if the local hiring laws are more favorable than the domestic ones. Over time, countries permitting the greatest flexibility for the investment of capital will attract much more of it than countries that hold investors to numerous restrictions. Countries that attract capital, inevitably position themselves to offer their citizens a higher standard of living than countries which have trouble attracting capital.
The incongruity of populist political agendas with the natural global flows of capital sets up a battle. Watch Fed Chairman Ben Bernanke and members of congress over the next several years to see how they accommodate these often competing sets of interests.
As a book, “The Next Global Stage” has some drawbacks, such as periodic awkwardness in its use of language, and repetition. Ohmae also makes an unconvincing argument that a high-interest rate economy is better than a low-interest rate economy. These deficiencies aside, “The Next Global Stage” offers some useful insight into the battle for our future.
Thursday, April 13, 2006
Friday, March 31, 2006
D’Souza offers insight into Iraq, American appeal
Dinesh D’Souza, an India-born Hoover Institution Fellow, addressed a business group in Milwaukee recently on a wide range of foreign affairs. Before his think tank gig, D'Souza was a policy analyst at the Reagan White House. He is author of several books, including "What's So Great About America."
D’Souza is a sharp guy and a very good speaker. Telling our group that radical Islamism has replaced Soviet communism as the great threat facing America, D’Souza give us his insight into America involvement in the Middle East.
The reasonable question is what is America doing in Iraq today and what is the prospect for success? Iran is the closest thing to a democracy in the Middle East. The kind of country we like -- like America -- does not exist in the Middle East. There are no countries there with an independent judiciary, free elections, separation of powers, checks and balances, minority rights, free enterprise. And no such country has ever existed. America is taking the grand and risky experiment to see if the alien seed of democracy can take root in the Arab world. And if democratic winds begin to blow to Lebanon, Syria and Iraq, Egypt, you could see the beginnings of a historic transformation that would be more incredible than the old Soviet Union.
Fifty years ago, democracy was a Western idea. But now you see a rash outbreak of democracy in Asia and Latin America. But in the Middle East, it has been nil, and that is what Bush is trying to change, it seems to me.
Many say we can’t win in Iraq and we have to get out but common sense revolts against that. You have a country of Iraq with 25 million people. The Shia are 60 percent, the Kurds are 20 percent, and the Sunni are 20 percent. You will never find a more pro-America population than the Kurds. The Shia are on the American side because they have come to the conclusion that if you have the mathematical advantage, democracy is a good thing. The insurgency is drawing from the Sunnis. But even then, they are drawing from only a fraction of that 20 percent. So you have a fraction of 20 percent against 80 percent and the wealth and power and technological sophistication of the United States. Who’s going to win that war? There is no way the U.S. can lose that war.
There is only one way we can loose. That is to lose the war in the American mind. The war is being fought on the battlefield of the American mind. Walt Whitman said force in a war is a product of your weapons, you skills and you wealth, times your will.
Muslims will argue that American society is based on freedom, but Islamic society is based on virtue. So they think they have a higher calling. They don’t dislike what we have, but they don’t like what we’ve done with what we have. They say freedom can be used well or bad, and America has used it bad. They say, in America you have freedom, you see material prosperity but cultural decadence. You see technological expertise but moral decay. In the Islamic world, we might be poor but we are trying to fulfill the will of God. We might be failing, but at least we are trying. And that makes us a hundred times better than you because virtue is a higher calling than freedom.
The problem with that thinking is there is no real virtue without freedom. Virtue is not virtue if you are forced to act that way. It is not virtuous to wear a burka if you are forced to do so.
D’Souza said people the world over still want to come to the United States.
There is an expectation of opportunity here. More than any other society, America is distinguished by the fact that even more than the countries of Europe, it gives a pretty good chance of success to the ordinary guy. In Europe, you have greater security, protection from cradle to grave, but there is less opportunity and less mobility. If you meet someone rich in France or Germany, the chances are pretty good they come from an affluent family. If you find someone who became rich, that story is striking because it is not normal. In America they are commonplace. In other countries, the rich have an aristocracy, something you cannot buy in the United States. It seems to me a country is judged by the opportunity it gives to the common man. As an immigrant, I am startled to see that the common man has it pretty well in America – a place where the poor people are fat.
In America, a person is the architect of his own destiny. In America, your life is more like a blank sheet of paper and you are the artist. (In India, he said, his future would have been pretty much laid out before him. He would have had choices, but within relatively limited parameters.) In America, your destiny isn’t given to you, it is constructed by you.
The core idea of America is the self-directed life. This is a clue about what is so appealing about America, especially among young people.
D’Souza is a sharp guy and a very good speaker. Telling our group that radical Islamism has replaced Soviet communism as the great threat facing America, D’Souza give us his insight into America involvement in the Middle East.
The reasonable question is what is America doing in Iraq today and what is the prospect for success? Iran is the closest thing to a democracy in the Middle East. The kind of country we like -- like America -- does not exist in the Middle East. There are no countries there with an independent judiciary, free elections, separation of powers, checks and balances, minority rights, free enterprise. And no such country has ever existed. America is taking the grand and risky experiment to see if the alien seed of democracy can take root in the Arab world. And if democratic winds begin to blow to Lebanon, Syria and Iraq, Egypt, you could see the beginnings of a historic transformation that would be more incredible than the old Soviet Union.
Fifty years ago, democracy was a Western idea. But now you see a rash outbreak of democracy in Asia and Latin America. But in the Middle East, it has been nil, and that is what Bush is trying to change, it seems to me.
Many say we can’t win in Iraq and we have to get out but common sense revolts against that. You have a country of Iraq with 25 million people. The Shia are 60 percent, the Kurds are 20 percent, and the Sunni are 20 percent. You will never find a more pro-America population than the Kurds. The Shia are on the American side because they have come to the conclusion that if you have the mathematical advantage, democracy is a good thing. The insurgency is drawing from the Sunnis. But even then, they are drawing from only a fraction of that 20 percent. So you have a fraction of 20 percent against 80 percent and the wealth and power and technological sophistication of the United States. Who’s going to win that war? There is no way the U.S. can lose that war.
There is only one way we can loose. That is to lose the war in the American mind. The war is being fought on the battlefield of the American mind. Walt Whitman said force in a war is a product of your weapons, you skills and you wealth, times your will.
Muslims will argue that American society is based on freedom, but Islamic society is based on virtue. So they think they have a higher calling. They don’t dislike what we have, but they don’t like what we’ve done with what we have. They say freedom can be used well or bad, and America has used it bad. They say, in America you have freedom, you see material prosperity but cultural decadence. You see technological expertise but moral decay. In the Islamic world, we might be poor but we are trying to fulfill the will of God. We might be failing, but at least we are trying. And that makes us a hundred times better than you because virtue is a higher calling than freedom.
The problem with that thinking is there is no real virtue without freedom. Virtue is not virtue if you are forced to act that way. It is not virtuous to wear a burka if you are forced to do so.
D’Souza said people the world over still want to come to the United States.
There is an expectation of opportunity here. More than any other society, America is distinguished by the fact that even more than the countries of Europe, it gives a pretty good chance of success to the ordinary guy. In Europe, you have greater security, protection from cradle to grave, but there is less opportunity and less mobility. If you meet someone rich in France or Germany, the chances are pretty good they come from an affluent family. If you find someone who became rich, that story is striking because it is not normal. In America they are commonplace. In other countries, the rich have an aristocracy, something you cannot buy in the United States. It seems to me a country is judged by the opportunity it gives to the common man. As an immigrant, I am startled to see that the common man has it pretty well in America – a place where the poor people are fat.
In America, a person is the architect of his own destiny. In America, your life is more like a blank sheet of paper and you are the artist. (In India, he said, his future would have been pretty much laid out before him. He would have had choices, but within relatively limited parameters.) In America, your destiny isn’t given to you, it is constructed by you.
The core idea of America is the self-directed life. This is a clue about what is so appealing about America, especially among young people.
Saturday, March 18, 2006
What will be the impact of all the talk about Polygamy?
Have you noticed all the editorial commentary on polygamy lately? It seems like I couldn’t pick up a newspaper last week without finding an essay about polygamy. There was John Tierney’s column in the New York Times on March 11; Katherine Kersten’s column in the March 15 Minneapolis Star Tribune and Charles Krauthammer’s March 17 column in the Washington Post.
HBO got the discussion going because of the new television show it debuted on March 12 called “Big Love,” about a man in Utah married simultaneously to three women. I haven’t seen the show, but from what I read, the show is unique because it portrays polygamy as normal. The main character goes through the same trials as most other middle-age men in America, the only difference is he moves between three wives and three sets of kids. The HBO web site notes there are 20,000 to 40,000 people practicing polygamy in the country, although it is, of course, illegal.
In Minnesota, I have to wonder what all this attention on polygamy will mean for the prospects of gay rights advocates. Minnesota has a law defining marriage as an institution that can only happen between one man and one woman, but many people (including me) would like to see that definition written in the state’s constitution. The legislature is in session now and many people are hoping lawmakers put the question of a constitutional amendment on the definition of marriage to voters in the form of a referendum this fall. There will be a rally at the Capitol on Tuesday organized by supporters of the amendment.
The vast majority of Minnesotans want marriage limited to one man/one woman, and the state House of Representatives would gladly put the question on the ballot. Senate majority leader Dean Johnson, however, opposes an amendment, although he says he opposes gay marriage. His thinking is that the law is sufficient and that the matter is not serious enough to warrant a constitutional amendment. Laws, however, can be struck down by judges, as happened on the national level with abortion. Those of us who believe traditional marriage is the foundation of our culture would like to see the institution of marriage protected by the constitution.
I am struck by all the talk on polygamy lately because I have long thought that the arguments in favor of gay marriage are the exact same as arguments for polygamy. Gay rights advocates generally talk about marriage in terms of commitment, natural yearnings, and rights to self-determination, which is exactly the same way polygamists talk about marriage. If you talk about broadening the definition of marriage beyond one man/one woman, it seems to me the leap to one man/two women is much smaller than the leap to one man/one man. At least polygamists retain the function of procreation within marriage.
Gay rights activists say the current definition of marriage discriminates, and they are right. If you change the meaning of marriage to include gays, it will still discriminate –- against polygamists, against people who want to marry their siblings, against people who want to marry minors, against people who want to marry animals. When ever you “define” anything, you discriminate against the things not included in the definition. The question is not “are you going to discriminate?” but “where are you going to draw the line?”
Minnesota and the United States are not theocracies, but they are absolutely Judeo-Christian cultures. And law follows culture. The definition of marriage in our law should reflect the meaning of marriage given to us by our Judeo-Christian heritage. It will be interesting to observe what impact, if any, the focus on polygamy brings to the debate over a constitutional amendment on the definition of marriage.
HBO got the discussion going because of the new television show it debuted on March 12 called “Big Love,” about a man in Utah married simultaneously to three women. I haven’t seen the show, but from what I read, the show is unique because it portrays polygamy as normal. The main character goes through the same trials as most other middle-age men in America, the only difference is he moves between three wives and three sets of kids. The HBO web site notes there are 20,000 to 40,000 people practicing polygamy in the country, although it is, of course, illegal.
In Minnesota, I have to wonder what all this attention on polygamy will mean for the prospects of gay rights advocates. Minnesota has a law defining marriage as an institution that can only happen between one man and one woman, but many people (including me) would like to see that definition written in the state’s constitution. The legislature is in session now and many people are hoping lawmakers put the question of a constitutional amendment on the definition of marriage to voters in the form of a referendum this fall. There will be a rally at the Capitol on Tuesday organized by supporters of the amendment.
The vast majority of Minnesotans want marriage limited to one man/one woman, and the state House of Representatives would gladly put the question on the ballot. Senate majority leader Dean Johnson, however, opposes an amendment, although he says he opposes gay marriage. His thinking is that the law is sufficient and that the matter is not serious enough to warrant a constitutional amendment. Laws, however, can be struck down by judges, as happened on the national level with abortion. Those of us who believe traditional marriage is the foundation of our culture would like to see the institution of marriage protected by the constitution.
I am struck by all the talk on polygamy lately because I have long thought that the arguments in favor of gay marriage are the exact same as arguments for polygamy. Gay rights advocates generally talk about marriage in terms of commitment, natural yearnings, and rights to self-determination, which is exactly the same way polygamists talk about marriage. If you talk about broadening the definition of marriage beyond one man/one woman, it seems to me the leap to one man/two women is much smaller than the leap to one man/one man. At least polygamists retain the function of procreation within marriage.
Gay rights activists say the current definition of marriage discriminates, and they are right. If you change the meaning of marriage to include gays, it will still discriminate –- against polygamists, against people who want to marry their siblings, against people who want to marry minors, against people who want to marry animals. When ever you “define” anything, you discriminate against the things not included in the definition. The question is not “are you going to discriminate?” but “where are you going to draw the line?”
Minnesota and the United States are not theocracies, but they are absolutely Judeo-Christian cultures. And law follows culture. The definition of marriage in our law should reflect the meaning of marriage given to us by our Judeo-Christian heritage. It will be interesting to observe what impact, if any, the focus on polygamy brings to the debate over a constitutional amendment on the definition of marriage.
Thursday, March 02, 2006
States should prohibit zoning restrictions which discriminate against small business owners
It is very important in business to have the right office space. This can be a particularly vexing challenge for the owners of very small businesses, but it doesn’t have to be. A simple change in state law would give many business owners a new option for resolving their facilities needs.
Consider the service business with two to five employees. It is too big to be considered a home-based business. Such companies could lease office space but they won’t get the best deal because most owners of office buildings want to deal with 10,000-square-foot tenants, not a business that only needs 1,000 square feet.
Many small business owners really want to buy their office, but commercial space is generally too expensive and too big for small businesses. Unless that business owner is ready to go into the rental business, buying commercial isn’t an option. There are, however, many residential properties that would make magnificent offices for small companies. Unfortunately, out-dated zoning laws in many communities prohibit business owners from using residential property to house their business. This is where I think a change in state law in most states is needed.
I would encourage every state to pass a law that prohibits municipalities from discriminating against people who want to use residential property to house low-impact micro-businesses. One line of language added to the eminent domain legislation that so many legislatures are considering would be sufficient to give small businesses a real boost. The Minnesota legislature, which opened yesterday, will be considering eminent domain legislation and I hope that it will consider this small but important provision.
Businesses that mainly operate over the internet or phone and have no walk-in customers have less of an impact on a home and neighborhood than a typical family of four. Yet many municipalities will write zoning code that prohibits property owners from operating a business in a residence. Code that restricts frequency of deliveries, noise, the exchange of money, parking and signage seem to me to be worthwhile, but a blanket restriction against the “operation of a business” is simply too vague and discriminatory.
In Minnesota, there are 133,000 people who work in firms with one to four employees, and another 120,000 people who work in home offices. I believe many of these people would consider the purchase of a home to use as an office, if local zoning allowed it.
One of the real benefits of owning property, of course, is the opportunity to build equity. For small business owners, who have limited retirement savings options, this could be a significant benefit. A state law that would eliminate discriminatory municipal zoning code would do a lot for small business, the engine that is driving most of the new job growth in this economy.
Consider the service business with two to five employees. It is too big to be considered a home-based business. Such companies could lease office space but they won’t get the best deal because most owners of office buildings want to deal with 10,000-square-foot tenants, not a business that only needs 1,000 square feet.
Many small business owners really want to buy their office, but commercial space is generally too expensive and too big for small businesses. Unless that business owner is ready to go into the rental business, buying commercial isn’t an option. There are, however, many residential properties that would make magnificent offices for small companies. Unfortunately, out-dated zoning laws in many communities prohibit business owners from using residential property to house their business. This is where I think a change in state law in most states is needed.
I would encourage every state to pass a law that prohibits municipalities from discriminating against people who want to use residential property to house low-impact micro-businesses. One line of language added to the eminent domain legislation that so many legislatures are considering would be sufficient to give small businesses a real boost. The Minnesota legislature, which opened yesterday, will be considering eminent domain legislation and I hope that it will consider this small but important provision.
Businesses that mainly operate over the internet or phone and have no walk-in customers have less of an impact on a home and neighborhood than a typical family of four. Yet many municipalities will write zoning code that prohibits property owners from operating a business in a residence. Code that restricts frequency of deliveries, noise, the exchange of money, parking and signage seem to me to be worthwhile, but a blanket restriction against the “operation of a business” is simply too vague and discriminatory.
In Minnesota, there are 133,000 people who work in firms with one to four employees, and another 120,000 people who work in home offices. I believe many of these people would consider the purchase of a home to use as an office, if local zoning allowed it.
One of the real benefits of owning property, of course, is the opportunity to build equity. For small business owners, who have limited retirement savings options, this could be a significant benefit. A state law that would eliminate discriminatory municipal zoning code would do a lot for small business, the engine that is driving most of the new job growth in this economy.
Monday, February 20, 2006
No more Superstar
Alan Greenspan closed his 18-year tenure as Federal Reserve Board chairman on January 31. Word is he already is working on a memoir and he is giving speeches at $150,000 a crack. Well, good for him.
During a period of unprecedented change, Greenspan navigated well, establishing credibility instantly with his deft handling of the Oct. ’87 stock market crash. Since that time, interest rates have come down, as have unemployment rates, while productivity has gone up. Should Greenspan be credited with these developments? Much of the financial press seems to be willing to give him the credit.
One thing I know for sure: We will never see another Fed chairman quite like the Maestro. The world has changed so much in the last 18 years that I doubt future Fed chairmen will be able to achieve the “superstar” status that some seem willing to give Greenspan. For the sake of his legacy, Greenspan may be getting out of the game at just the right time.
Consider first how much faster information flows today compared to the late 1980s. Remember the time before the Internet? Faster flows of information should lead to more accurate economic analysis, but it also requires greater transparency. It is much harder today for the Fed to operate in secrecy than it was in the 1980s. Today, the Fed is operating in a much more open fashion, telegraphing most of its interest rates moves, making the significance of individual FOMC meetings much less dramatic.
Second, think of how easy credit has disrupted classic economic patterns. For example, it used to be that people spent more money when they earned more money. Now they just spend more money, regardless of their incomes. The ease with which we can tap into our home equity, not to mention the atrocious spending example set by the federal government, has really skewed normal income and spending relationships. How do you control an economy when the normal rules don’t apply?
And third, the economy is a worldwide enterprise today, where international boundaries don’t mean much. As foreigners finance more of our debt, I believe we grow more vulnerable to foreign influences in our economy. We certainly see that with the long bond rate, which seems almost entirely immune to movements in the Fed Funds rate.
Ben Bernanke, who was sworn in as Fed chairman on February 6, has talked about inflation targeting. Many other countries already use a system where an acceptable level of inflation is articulated and the central bank works to keep interest rates at that level. It is an approach that gives more power to lawmakers and reduces the role of the Fed. I don’t know whether this will help or hurt our country in the long run, but I do suspect that it means we’ll never have another superstar Fed chairman.
During a period of unprecedented change, Greenspan navigated well, establishing credibility instantly with his deft handling of the Oct. ’87 stock market crash. Since that time, interest rates have come down, as have unemployment rates, while productivity has gone up. Should Greenspan be credited with these developments? Much of the financial press seems to be willing to give him the credit.
One thing I know for sure: We will never see another Fed chairman quite like the Maestro. The world has changed so much in the last 18 years that I doubt future Fed chairmen will be able to achieve the “superstar” status that some seem willing to give Greenspan. For the sake of his legacy, Greenspan may be getting out of the game at just the right time.
Consider first how much faster information flows today compared to the late 1980s. Remember the time before the Internet? Faster flows of information should lead to more accurate economic analysis, but it also requires greater transparency. It is much harder today for the Fed to operate in secrecy than it was in the 1980s. Today, the Fed is operating in a much more open fashion, telegraphing most of its interest rates moves, making the significance of individual FOMC meetings much less dramatic.
Second, think of how easy credit has disrupted classic economic patterns. For example, it used to be that people spent more money when they earned more money. Now they just spend more money, regardless of their incomes. The ease with which we can tap into our home equity, not to mention the atrocious spending example set by the federal government, has really skewed normal income and spending relationships. How do you control an economy when the normal rules don’t apply?
And third, the economy is a worldwide enterprise today, where international boundaries don’t mean much. As foreigners finance more of our debt, I believe we grow more vulnerable to foreign influences in our economy. We certainly see that with the long bond rate, which seems almost entirely immune to movements in the Fed Funds rate.
Ben Bernanke, who was sworn in as Fed chairman on February 6, has talked about inflation targeting. Many other countries already use a system where an acceptable level of inflation is articulated and the central bank works to keep interest rates at that level. It is an approach that gives more power to lawmakers and reduces the role of the Fed. I don’t know whether this will help or hurt our country in the long run, but I do suspect that it means we’ll never have another superstar Fed chairman.
Saturday, February 18, 2006
Health Savings Accounts are a promising approach for managing health insurance
President Bush promoted health savings accounts during his State of the Union address last month and while I am not an expert on the economics of the nation’s health care system, I believe strongly that HSAs are making it possible for many companies to offer health insurance to their employees.
My company, NFR Communications, is small but has offered health insurance to its full-time employees for years. Currently that is only two people, but our staffing fluctuates and at one time, we had five full-time employees. Typically, the company paid 85 percent of the premium on a comprehensive health insurance plan that had small co-pays and very low deductibles. It was a Cadillac plan. Annually for the last several years, my insurance representative would show up at our office and inform me that the premium was “only” going up this year by 14 percent or some such figure. I know this has been happening at companies all over America. Nobody with health insurance can claim that their wages have been frozen for the last several years because the increase in health insurance premiums represents a substantial increase in wages to anyone who is getting that benefit.
The price increases were causing a real issue for NFR Communications, so about a year ago we took a good hard look at HSAs. I wasn’t real optimistic, having previously considered medical savings accounts only to discover that they wouldn’t work very well for us. Here’s what I discovered. My insurance company offered a high-deductible health insurance plan with a premium that was substantially lower than what we were paying for that Cadillac plan. The company could pay 100 percent of the premium and still save money. The employees no longer had to pay their 15 percent portion of the cost and they could choose to deposit some or all of that money in their own individual health savings accounts. This would give them the opportunity to use this money -– pre-tax -– to pay those additional deductibles. Any money in those accounts they don't use remains their money. Once they reach retirement, they can use that money for anything they want. And they will never have to pay taxes on that money -– neither as income nor on the interest that the principle accrues. For employees who don’t have a lot of medical expenses, the company health insurance plan becomes partly a retirement plan.
So in 2005, we went to HSAs. The company benefits because we are now spending less on health insurance; the employee benefits because he or she gets a lot more choices about their health care and they have the potential to add to their retirement savings.
HSAs do put more responsibility on employees. There are going to be situations where they will have to make a decision about whether to go ahead with a particular medical procedure. In the past, when everything was covered by insurance, employees were incented to accept every medical procedure offered. But now, since the first dollars come out of the HSA -– money that the employee could keep if he or she doesn’t use it –- the employee really has to think whether the medical procedure is necessary. The employee might actually ask the doctor or the clinic about the cost of the procedure. This makes the medical personnel think a little bit too. The insurance approach that automatically covers everything requires no accountability on the part of the medical world nor the patient. Some obligation on the part of the patient engages everyone in the process more, and that is a good thing.
So I am very high on HSAs. I know after the State of the Union address I heard a lot of media commentary about the shortcomings of HSAs. Some people view them as an insult to people who now get comprehensive health insurance plans from their employers. Of course, if you give someone an option of being given everything they want, or of being given only some of what they want and then the means to decide whether you really need any more, they are going to choose the former. It is so much easier. There is so much less thinking. But it is impractical. And it is unsustainable. It certainly was at NFR Communications, and our company is no different than any other company.
Ultimately, health insurance has to go back to being insurance; that is, it should be there to cover unexpected disasters. Over the years, health insurance has evolved from a true insurance system to a comprehensive pre-pay system. It is not really insurance when you use a system to pay for doctor visits you know you are going to need or that may be optional. It’s kind of like using home-owners insurance to pay for routine maintenance like painting and re-roofing instead of only for rebuilding in the event of a fire or other unanticipated disaster.
Insurance that requires nothing of patients is not good for the nation’s health care system either. Doctors and medical personnel at clinics end up spending a lot of time on marginally necessary, if not entirely unnecessary, medical procedures and exams. It’s good if the patient has some financial stake in the services being offered if those services aren’t absolutely necessary.
Right now, some of the big companies offer HSAs as one of many health insurance options for employees. But my guess is in a few years, it will be the only option offered employees. There will be a lot of whining and complaining about it in some circles as some people make comparisons and conclude they are getting a less attractive deal. But those will be entirely self-centered analyses. If you look at your own individual situation and factor in the impact of HSAs on the viability of the company providing your employment and the strength of the nation’s health insurance system, HSAs emerge as the obvious way to go.
My company, NFR Communications, is small but has offered health insurance to its full-time employees for years. Currently that is only two people, but our staffing fluctuates and at one time, we had five full-time employees. Typically, the company paid 85 percent of the premium on a comprehensive health insurance plan that had small co-pays and very low deductibles. It was a Cadillac plan. Annually for the last several years, my insurance representative would show up at our office and inform me that the premium was “only” going up this year by 14 percent or some such figure. I know this has been happening at companies all over America. Nobody with health insurance can claim that their wages have been frozen for the last several years because the increase in health insurance premiums represents a substantial increase in wages to anyone who is getting that benefit.
The price increases were causing a real issue for NFR Communications, so about a year ago we took a good hard look at HSAs. I wasn’t real optimistic, having previously considered medical savings accounts only to discover that they wouldn’t work very well for us. Here’s what I discovered. My insurance company offered a high-deductible health insurance plan with a premium that was substantially lower than what we were paying for that Cadillac plan. The company could pay 100 percent of the premium and still save money. The employees no longer had to pay their 15 percent portion of the cost and they could choose to deposit some or all of that money in their own individual health savings accounts. This would give them the opportunity to use this money -– pre-tax -– to pay those additional deductibles. Any money in those accounts they don't use remains their money. Once they reach retirement, they can use that money for anything they want. And they will never have to pay taxes on that money -– neither as income nor on the interest that the principle accrues. For employees who don’t have a lot of medical expenses, the company health insurance plan becomes partly a retirement plan.
So in 2005, we went to HSAs. The company benefits because we are now spending less on health insurance; the employee benefits because he or she gets a lot more choices about their health care and they have the potential to add to their retirement savings.
HSAs do put more responsibility on employees. There are going to be situations where they will have to make a decision about whether to go ahead with a particular medical procedure. In the past, when everything was covered by insurance, employees were incented to accept every medical procedure offered. But now, since the first dollars come out of the HSA -– money that the employee could keep if he or she doesn’t use it –- the employee really has to think whether the medical procedure is necessary. The employee might actually ask the doctor or the clinic about the cost of the procedure. This makes the medical personnel think a little bit too. The insurance approach that automatically covers everything requires no accountability on the part of the medical world nor the patient. Some obligation on the part of the patient engages everyone in the process more, and that is a good thing.
So I am very high on HSAs. I know after the State of the Union address I heard a lot of media commentary about the shortcomings of HSAs. Some people view them as an insult to people who now get comprehensive health insurance plans from their employers. Of course, if you give someone an option of being given everything they want, or of being given only some of what they want and then the means to decide whether you really need any more, they are going to choose the former. It is so much easier. There is so much less thinking. But it is impractical. And it is unsustainable. It certainly was at NFR Communications, and our company is no different than any other company.
Ultimately, health insurance has to go back to being insurance; that is, it should be there to cover unexpected disasters. Over the years, health insurance has evolved from a true insurance system to a comprehensive pre-pay system. It is not really insurance when you use a system to pay for doctor visits you know you are going to need or that may be optional. It’s kind of like using home-owners insurance to pay for routine maintenance like painting and re-roofing instead of only for rebuilding in the event of a fire or other unanticipated disaster.
Insurance that requires nothing of patients is not good for the nation’s health care system either. Doctors and medical personnel at clinics end up spending a lot of time on marginally necessary, if not entirely unnecessary, medical procedures and exams. It’s good if the patient has some financial stake in the services being offered if those services aren’t absolutely necessary.
Right now, some of the big companies offer HSAs as one of many health insurance options for employees. But my guess is in a few years, it will be the only option offered employees. There will be a lot of whining and complaining about it in some circles as some people make comparisons and conclude they are getting a less attractive deal. But those will be entirely self-centered analyses. If you look at your own individual situation and factor in the impact of HSAs on the viability of the company providing your employment and the strength of the nation’s health insurance system, HSAs emerge as the obvious way to go.
Tuesday, February 14, 2006
Inflation? It depends on who you talk to
Are we in an inflationary economy? The answer depends on whom you talk to. I recently talked to two economists who have completely different views on that question. Stephen Happel, an economics professor at Arizona State University, told me last week that the economy is booming and the Federal Reserve Board needs to raise rates to hold the line on inflation. Alan Polsky, an economist with the Minneapolis investment firm of Dougherty & Company, told me last Saturday there is no inflation in the economy and that he doesn’t expect any inflation in the coming year.
Happel said the consensus among Blue Chip economists is that 2006 will see GDP growth of 3.4 percent. A drop in capital expenditures and government spending contributed to a GDP figure of 1.1 percent for the fourth quarter; Happel said he expects a bounce in the first quarter of this year that could put the rate at 5 percent.
“Things are growing, growing, growing,” Happel said. “The biggest problem facing the country now is inflation.”
Happel predicted the Federal Funds rate will go to 4.75 percent or 5 percent. (It is 4.5 percent now.) New Federal Reserve Board Chairman Ben “Bernanke is an inflation fighter,” Happel said. “He will fight inflation. He is not going to let the legacy of Greenspan and Volcker go down the tubes.”
Polsky’s outlook was more sedate. “We really don’t have inflation now and I don’t think we are going to see of lot of inflation in the economy over the next year or so,” Polsky said. Rising prices in some areas are not having the inflationary affect one might expect, he said.
While energy prices are high, he said airlines and landlords are in competitive situations that prevent them from passing those rising costs onto consumers, thereby deadening their inflationary affect.
Polsky said he also expect the Fed Funds rate to go to 4.75. “If they push to 5 percent, that could be too aggressive,” he said.
Polsky commented that the yield curve is “too flat,” and said it indicates that the Fed Funds rate is too high.
Happel noted general migration trends across the country where recent college graduates and retired people are moving from the Northeast and Midwest to the West Coast and Southwest. These population cohorts are the largest in the country, and they are made up of people who typically spend more than anyone else. Happel said he is seeing the consumer confidence and accompanying spending first hand. He said this helps explain why Western economists tend to see inflation and a booming economy while Wall Street economists tend to see less compelling economic activity.
“I am anticipating this to be a boom year,” Happel said. “I see big spending, very strong consumer spending and the creation of two million jobs. This will lead to a rise in income.” Happel said he expects to see GDP growth around 4 percent this year. While he said he “hopes the Fed continues to raise rates to wring out inflation,” Happel said he expects the yield curve to remain flat.
Happel said the consensus among Blue Chip economists is that 2006 will see GDP growth of 3.4 percent. A drop in capital expenditures and government spending contributed to a GDP figure of 1.1 percent for the fourth quarter; Happel said he expects a bounce in the first quarter of this year that could put the rate at 5 percent.
“Things are growing, growing, growing,” Happel said. “The biggest problem facing the country now is inflation.”
Happel predicted the Federal Funds rate will go to 4.75 percent or 5 percent. (It is 4.5 percent now.) New Federal Reserve Board Chairman Ben “Bernanke is an inflation fighter,” Happel said. “He will fight inflation. He is not going to let the legacy of Greenspan and Volcker go down the tubes.”
Polsky’s outlook was more sedate. “We really don’t have inflation now and I don’t think we are going to see of lot of inflation in the economy over the next year or so,” Polsky said. Rising prices in some areas are not having the inflationary affect one might expect, he said.
While energy prices are high, he said airlines and landlords are in competitive situations that prevent them from passing those rising costs onto consumers, thereby deadening their inflationary affect.
Polsky said he also expect the Fed Funds rate to go to 4.75. “If they push to 5 percent, that could be too aggressive,” he said.
Polsky commented that the yield curve is “too flat,” and said it indicates that the Fed Funds rate is too high.
Happel noted general migration trends across the country where recent college graduates and retired people are moving from the Northeast and Midwest to the West Coast and Southwest. These population cohorts are the largest in the country, and they are made up of people who typically spend more than anyone else. Happel said he is seeing the consumer confidence and accompanying spending first hand. He said this helps explain why Western economists tend to see inflation and a booming economy while Wall Street economists tend to see less compelling economic activity.
“I am anticipating this to be a boom year,” Happel said. “I see big spending, very strong consumer spending and the creation of two million jobs. This will lead to a rise in income.” Happel said he expects to see GDP growth around 4 percent this year. While he said he “hopes the Fed continues to raise rates to wring out inflation,” Happel said he expects the yield curve to remain flat.
Friday, January 20, 2006
Profession as vocation
Sometimes I go to meetings for writers and what I often find is that many people like the idea of having written but only a few like the idea of writing. Everybody wants to be published, but few people want to write. It’s like a trade association executive I know who used to say “this would be a great job if it wasn’t for the members.” Or I think of all the people I know at big companies who hate their jobs but stick with it because of the great retirement benefits.
I thought about all these things recently when I was driving back to Minneapolis from Waverly, Iowa where I had just spent three hours with Jeff Plagge, NorthWestern Financial Review’s Banker of the Year for 2006. NorthWestern Financial Review is the name of the banking trade journal I publish and every year since 1989 we have named a “Banker of the Year.” This is a person who runs a solid community bank, but also makes substantial contributions to their community and industry.
Plagge is running a complicated financial organization in addition to serving his industry and community with heart-felt volunteerism. Plagge noted that he doesn’t have many personal hobbies; the time that a lot of people devote to golf or fishing, he devotes to community banking. He’s like the writer who actually likes to write, or the career professional who actually likes his job. How refreshing to talk to someone like that.
Like so many Banker of the Year selections over the past 17 years, Plagge is helping me to see the difference between a career and a vocation. You can put food on the table with a career, but I’m inclined to think it takes a vocation to improve the world. Professional competence comes from the head, but drive and passion come from the heart and to make the world a better place, I think your head and heart need to be in synch. Our Banker of the Year articles always have featured people who pour all their energy into their endeavors which start at the bank but inevitably spill over to the community and industry. It is difficult to contain fervent vocational activism.
Plagge would tell you that the recognition is nice, but that’s not why he’s doing all that he does. The good life isn’t about sitting back and reminiscing about what you’ve done, it’s about actually doing, in the here and now. I’ve written most of the Banker of the Year stories we have run over the years and I think all of our selections have felt that way.
I thought about all these things recently when I was driving back to Minneapolis from Waverly, Iowa where I had just spent three hours with Jeff Plagge, NorthWestern Financial Review’s Banker of the Year for 2006. NorthWestern Financial Review is the name of the banking trade journal I publish and every year since 1989 we have named a “Banker of the Year.” This is a person who runs a solid community bank, but also makes substantial contributions to their community and industry.
Plagge is running a complicated financial organization in addition to serving his industry and community with heart-felt volunteerism. Plagge noted that he doesn’t have many personal hobbies; the time that a lot of people devote to golf or fishing, he devotes to community banking. He’s like the writer who actually likes to write, or the career professional who actually likes his job. How refreshing to talk to someone like that.
Like so many Banker of the Year selections over the past 17 years, Plagge is helping me to see the difference between a career and a vocation. You can put food on the table with a career, but I’m inclined to think it takes a vocation to improve the world. Professional competence comes from the head, but drive and passion come from the heart and to make the world a better place, I think your head and heart need to be in synch. Our Banker of the Year articles always have featured people who pour all their energy into their endeavors which start at the bank but inevitably spill over to the community and industry. It is difficult to contain fervent vocational activism.
Plagge would tell you that the recognition is nice, but that’s not why he’s doing all that he does. The good life isn’t about sitting back and reminiscing about what you’ve done, it’s about actually doing, in the here and now. I’ve written most of the Banker of the Year stories we have run over the years and I think all of our selections have felt that way.
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