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Today's Commentary: 02.07.06
Add "Theory""

Back in October, NASA, the main coordinator of scientific data across a variety of agencies was directed by the White House to add the word theory to every report that presented the words "Big Bang" as a stand alone idea.

This is a direct effort to integrate the administrationšs policies and agendas into the world of science fact. Perhaps we should apply this thinking to a few of the recent state of the union proposals and, of course to the upcoming budget.

The "addicted to oil" theory suggests that Americans have acted alone in our fuel-crazed spiral downward to petroleum junkies. We crave the substance in such huge quantities, the guzzler-in-chief was forced to use the democracy theory to run up an annual $70 billion bill each year for the last three in Iraq just to secure the continued satisfying of our habit. He plans to ask for that much money again in the upcoming weeks.

Once you begin on a topic such as oil, it is hard to avoid the fantastic facts and figures associated with that addiction. Facts such as our consumption rate - 3700 gallons a second ­ sounds alarming. Or consider those two Middle Eastern reservoirs, Iran and Iraq. In terms of total oil nestled beneath their feet ranks them fourth at 132 billion barrels and tenth at 112 billion barrels but because of production issues, these two countries contribute very little to our import totals. Or the fact that our consumption has actually increased steadily while the Canadians rank number one among oil exporters to the US at a rate of 2.3 million barrels a day, with our brothers to the south, Mexico providing us with 1.7 million barrels.

One other note worthy of consideration: the promise to get behind alternative energy as announced during the state of the union speech has already fallen by the wayside. The current budget for 2007 shows an actual cut in support for these programs.

The health plan "theory" suggested during last Tuesdays travels into a world of hypothetical speaking is particularly interesting. While on the surface the plan/theory seems to be taking steps forward, it actually ends up further behind the growing problems in health care and does little to address the bigger problems facing the American people.

Recently, it has been reported that 16% of the folks who have some sort of health coverage use 70% of the services. The theorist-in-chief's answer lies in health savings plans or HSA's. These plans are designed to allow for tax-free savings earmarked for future health care costs.

Unfortunately, the proposal to increase the contribution limit misses the mark. Those who are fortunate enough to fully fund their 401(k) plans and recover from the pressures of pension conversions, freezes, and defaults will be the most likely candidates to use HSA's to cover their medical costs in a tax-free account. So far the program has failed to attract a significant number of participants.

Perhaps the slow acceptance is due to our own knowledge about who we are. Our savings rate is currently a negative number. While this could be the result of many different influences, Americans have come to accept the fact that it is definitely more fun to spend than save. Spending translates into confidence while saving has become the polar opposite.

Until recently, our homes have been sources of enormous and seemingly unending cash. The equity ATM may have reached its lending limit in some of the hotter markets around the country. We still feel confident though that better days are still in front of us.

Or maybe we just feel good about the jobs numbers, the fact that our wages are increasing, and that the unemployment number has fallen to 4.7%. We are told the economy is good. Why should we begin saving in light of all of this positive news?

For openers, the news isnšt all that positive. 193,000 jobs were created in January according to the latest jobs report. Sounds like good news on the surface but the number was well off the consensus number and in spite of the revisions to the previous two months, is still weak.

A mild winter made construction easier with over 46,000 otherwise absent employees able to work. But the unemployment number still reflects the disparaged worker who is now accepting whatever job is available. Once again the service industry added the bulk of new hires - one in seven new jobs for January were filled by the need for wait-staff in restaurants and bars.

Any self-congratulations should be viewed with a suspicious eye. While the job creation number of 4.2 million over the last three years seems like a success, the number of new job seekers entering the marketplace averages 150,000 per month. This is a break-even number that need to be surpassed. In other words, those 4.2 million jobs should actually be 5.4 million ­ just to cover the new workers.

Those wage increases will give the new fed chief enough reason to tighten the screws on the economy a little more. Bernanke has made it clear that increased wages threaten productivity. Trouble is those wage increases among civilian and private industry have remained steady throughout much of the previous year. State and municipal wages increased markedly in the last several months giving the illusion of pay increases in the latest report.

That said, what makes anyone with a wit of intelligence think that by increasing the deductible that can be made to these health savings accounts will benefit the health industry at large?

The healthy (and wealthier) will use the money as an additional 401(k) plan. The poor will be hard pressed to ever create a balance of any kind as they struggle with deductibles. The middle-income folks will curtail their medical spending if it means that their accounts will be negatively impacted. This is widely believed to lead to the distinct possibility that whatever ails middle America will be allowed to fester until it becomes a medical emergency.

These health savings accounts will allow companies to divest themselves of any additional obligation to their employees. It would also force further increases in premiums for those left on traditional plans. Without the actuarial balance of healthy individuals offsetting the sicker members, costs will rise meteorically in the coming years.

In the meantime, the administrationšs assault on entitlements continues, even in a Congressional election year. While there is little disagreement that many programs need revamping, Congress needs to seriously consider the $2.7 trillion budget it received this week.

Tax cut "theory" has not proved to be the revenue producer that it was originally thought. Making past cuts permanent is now being labeled as politically courageous. Somehow, continuing on this deficit-widening path and using its backdoor approach to decreasing the size of government by increasing the size of the debt seems almost cowardly. When you consider that spending by the federal government will increase by 7% in the coming year.

You can expect the spender-in-chief to ask Congress to increase the debt ceiling, a hypothetical limit that has been raised each year since the surplus disappeared. Now at $8.1 trillion, Congress will be asked to round that number up once again to a cool $9 trillion to avoid default.

So the next time you hear what appears to be the facts (or budgets or deficit reduction) coming from the mouths of our elected officials, simply add the word theory.

BlueMoney Report

The Blue Money Report
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