ROI, RETURN ON INVESTMENT Part 2
by Greg Forest
excerpted from August 2011, Hill Country Happenings.
July 24, 2011
Our walk down Return On Investment (ROI) Lane has shown a great many investments in our citizen taxpayer portfolio that have had little, none or even negative returns. The military doesn’t keep us safer by trying to kick the world’s butt with $300 toilet seats. The bankers cannot be trusted to regulate themselves or even act ethically. The War On Drugs has seen the enemy’s front line advancing since it’s inception. Negative ROIs all.
On the other hand, are there any investments that we have made as citizens and a nation that have shown positive results? Have we made no beneficial investments in our nation and future? Quite the contrary. Lets’ go figure a bit more.
Social Security
While in the throes of the Great Depression, the poverty rate among U.S. seniors exceeded 50%. Workers who had spent their lives toiling found themselves cast aside when they became no longer able to work. From it’s inception, Social Security has been controversial. When originally brought forward, opponents claimed that Social Security (originally called Old-Age, Survivors, and Disability Insurance ) would bring about a rise in unemployment. As it worked out, more job opportunities came into being for the younger workforce (our grandparents) as older workers now had the opportunity to retire. The original social net had some very large holes in it and almost half the U.S. population was excluded, including minorities and about half the female work force as the garment and agribusiness were exempted until later. Over the years, the program has grown into one of the most revered of public programs and millions of American seniors benefit from the program. The U.S. poverty rate of seniors today is just over 10%, which can be only regarded as a success when bench marked against the poverty rate when Social Security came into being.
Social Security is funded by payroll deductions from employees wages, matched by their employer. The program is self-funded and, is not and never has been, an anchor dragging down the yearly government budget – in fact, the original trust fund set up by Social Security was to be inviolate and totally disconnected from the annual budget debates. Throughout the 50s and 60s the fund had annual short-term surpluses and over time the amount of benefits were increased to those covered.
This sacred economic ground has been violated over the last few decades when legislators looked at the trust fund and noticed there was a lot of money in it. The fund has been raided many times in recent decades to cover other government budget deficits. The only way that Social Security is tied to our current budget crisis is in where the program parks its money – special U.S. Treasury bonds. Thought until recently to be a “no risk” low return environment, the future is shaky, not because the program is insolvent, but because our legislators have had their hand in our cookie jar. Appallingly, the government is considering defaulting on these bonds.
When calls are made to privatize the program, a few facts slip between the cracks in the debate. The current popular alternative, voucher programs, has some glaring problems including the far smaller price of the administration of benefits by the government than by their private sector counterparts. The basic premise that is ignored is that Social Security is not profit but service based. In the private insurance model, the profits are the desired goal – not delivery of services. In the private model, profits are only possible by reallocating the money that would normally be paid to beneficiaries to the stock holders of the insurance company. In 1935 there were 50,000 beneficiaries receiving $1.2 million dollars. In 2008 there were over 50 million beneficiaries receiving over $650 billion dollars in benefits, not one dollar of which came from sources other than the payroll deduction. The old adage, “don’t fix what ain’t broke,” has been transformed into “what ain’t broke fix until it is.” Social Security is a program that doesn’t need any fixin’. It needs to be left alone. The return on our investment in Social Security may not make our golden years resplendent, but at least the money is returned, almost in it’s entirety, to those who earned it – not an insurance company.
Education
In 1870 only 20% of the U.S. population was literate and that percentage had been falling since the Pilgrims arrived.. The U.S. was becoming less literate over time. Today the figure is at 99% and dropping slightly due to reductions in education allocations. In today’s tough economic and highly competitive global markets, quality education is more important than ever and our competitors are not defunding public education but doubling down on it. Each year more science and engineering degrees are coming out of China than the U.S. This cannot bode well for us in the future. In global terms, although we have a high literacy rate, we are currently ranked 45th in literacy behind such giants as Latvia, Cuba, Estonia, Armenia and Kazakhstan. This is one area of international competition that would behoove us to be leading, not retreating from our preeminence.
Most criticism to public education in recent years have come from two dissimilar sources. Many Americans decry the fact that public education has become more of a dumbing down of students than a vehicle for academic and personal excellence. Focus has been on test-based rote memorization of information rather than teaching core concepts of the items being memorized. A student today may be able to tell you the date of the signing of the Magna Carta but may also be sorely pressed to tell you what the underlying concepts of the signing mean and how it is relevant to today’s world. Critical thinking is discouraged in today’s classrooms and will be reflected in public and economic arenas for decades to come. We can’t think outside of a box the walls of which we are only building stronger. Go figure.
The other and louder critics of public education are those with a social or religious agenda. Religious groups are up in arms that science doesn’t agree with theological dogma. Religion has always been the enemy of knowledge, education and science for an obvious reason – it dilutes the authority of the church. If science doesn’t agree with the Bible or Koran, it must be wrong or a tool of Satan. Most folks don’t recall the last time the Western World was ruled by theocratic forces. It was called the Dark Ages and justly so. Science was heresy in the day when it was illegal for anyone but the clergy to own or read a Bible. The clergy were the only ones literate and it seems there are those today that would like a return to these days of yore.
In a more innocent time education was about the “Three R’s” of Reading, (w)Riting and (a)Rithmetic (spelling, with no “r”s in it, was not a big deal I guess). Now there seems to be greater focus, at least in public and media perception, for such educational non-starters as, “teaching the controversy” and “Bobby has two mommas.” Political, social and theocratic correctness and agendas are hobbling our educational systems. Students graduating today need to be able to balance their checkbooks (can you hear me Congress?), calculate interest (can you hear me Goldman Sachs?) and have an ability to express themselves verbally and in writing with some degree of competency if not eloquence.
We stand at the beginning of the Information Age and education will be key to any kind of long-term economic recovery or future prosperity. The future will not be pleasant for the untrained and uneducated. Robotics will soon take all the no/low brainer repetitive jobs where critical thinking is not necessary. Robots don’t want wages, benefits and will work 24/7/365 if you just keep them plugged in. If literacy is important, I would say a change from 20% to 99% over the last century could be regarded as a great success. Our nation, even in these dire times, should be spending more on education, not less. It is one of the ways we dig our way out of this mess. America’s economic heydays all seem to revolve around what we used to call, “American Ingenuity.” Let’s bring it back.
Medicare/Medicaid
If we look at literacy as a bench mark of education, we can also look at some basic metrics to use as a starting place when looking into Medicare/Medicaid. Life expectancy in the U.S., since Medicare’s inception, has increased from just under 70 years to today’s 78 years and it is still climbing. Take a long deep 5-second breath. Compared to the 1960s, you can do that 231,000,000 times more in your lifetime today than you could then. Don’t forget to exhale.
A counter argument might be that we have made enormous leaps in medical technology (see Education above) and this is what is driving longer life expectancies. Good point, but where would all these medical breakthroughs be if nobody had access to them? Access to medical technology is driving this boon to U.S. citizens, not the technology itself. If there was no vehicle for access to the technology, it is of little worth. Research and development of new drugs and technologies are driven by this access to medical markets by the largest and most profitable portion of the health care public, Medicare recipients.
Many people are coming to the realization that monetizing and for-profit models may not be the best or most efficient method of raising the health care standards of the general public. Most of the rest of the industrialized Western World discovered this decades ago and the result of these, “socialist” programs are glaringly apparent when weighed against what we have come to expect in the U.S. The United States, when measuring health care metrics such as, life expectancy, infant mortality rates and the percentage of GNP that the health care industry commands, is currently in 39th place globally. Almost all the nations scoring higher in health care have a single payer system. So, if facts mean anything, the corporate model is the least efficient and most costly vehicle to deliver heath services. Our citizen ROI is absurdly low in this arena.
It is not hard to believe as the for-profit model is just that – for profit. The way to attain profits is to lower your costs and increase your revenues. Duh. Capitalism 101 revisited. When looking at the corporate model, corporate officers are doing their duty, if, and only if, they reduce services and increase prices, revenues and profits. That is what corporations do. So the U.S. model is based on a race to the bottom in terms of delivery of health care and a race to the top in it’s accompanying costs. That is our present model. The math doesn’t lie, nor do the quarterly reports of the largest insurers, health care providers and the pharmaceutical industry. They are deep into our pockets and strive daily to get even more for less.
Infrastructure
The U.S. interstate highway system is an integral part of the American economy. The ability to move huge volumes of goods from one end of the country to the other is an underlying cornerstone of our economy. There would be no NAFTA (a wonderful thought) if there weren’t interstate highways. There would have been far fewer auto and truck sales to individuals if there were no highways. Some of our infrastructure projects such as the Hoover Dam, the interstate system, the network of bridges and many others too numerous to mention, are, in fact engineering Wonders of the World.
Some of us are old enough to remember when Interstate 10 didn’t pass through the Hill Country. It is easy to test what kind of return on investment we get on infrastructure. On your next trip to Houston, stay on U.S. Hwy 90, the old route, instead of Interstate 10.
The infrastructure of the U.S. is another part of the economic backbone and, like many other things American, is falling apart. In our race to budget solvency, we are killing the golden goose to pay the dancing fiddler of budget cuts, reducing the value of our investment. It is like building a nice house and then letting it go to seed.
A Strong Military
Although I touched upon military investment returns earlier, in fairness, I must also bring to light the fact that all the infrastructure in the world, the healthiest and most literate population in the world doesn’t really add up to a hill of beans if it is all bombed out of existence by our enemies. A military strong enough to defend not just our borders, but our internal infrastructure is a must have item in our investment strategy to keep the wheels turning. Until that investment becomes the anchor around the neck of our investment portfolio dragging the values of the rest of our portfolio down.
The defense industry and military will receive $1.4 trillion of our citizen investment dollars this year when factoring the normal budget, special war allocations and debt service on past military expoits. The military eats up 55% of discretionary spending. Foreign aid, not on the radar of Congressional appropriations for the military budget, works like this. Israel gets $4 billion in foreign aid. A stipulation of receiving the aid is that the “aid” has to be spent buying U.S. manufactured weaponry. This is a indirect taxpayer subsidy of the already obscenely rich and greedy defense industry. And, of course, just like a hedge fund, we also make foreign aid investments to Israel’s enemies using the same formula. So when you hear the words, “foreign aid,” please don’t be thinking of starving children covered with flies and bloated bellies, but rather envision, CEOs of what President Eisenhower called “the military industrial complex” laughing all the way to the bank carrying huge sacks full of your money.
Here’s the stinger. WE are the investment class. WE have more money than George Soros or the Koch brothers put together. WE control more assets than the energy and defense industries. WE have the most vested interest in the return on our investment of money and blood in our nation’s future, not some offshore corporation that hides behind jingoistic faux patriotism. International corporations have no patriotism, only bottom lines. We should answer fire with fire. Capitalism, real capitalism, can defeat these wealthy welfare oligarchies. We just have to remember that we are their daddy and not the other way around. Its time for a tough love spanking.
Having reviewed the ROI on many of the investments in our public portfolio, it is glaringly apparent that we have been drinking the Koolaid of some very bad investment advice. The programs now being targeted for massive cutbacks are among the most successful and the portions of our government that have given us small or non-existent returns are off limits or gaining ground. It is time for the American public to take a good long look at our investment strategy of the last few decades and do the math. Come on. Go figure.