The Astounding Power of “Economic Elites”

flag USMy Comments: I confess to having been naive when it comes to some people having a greater influence on political outcomes than others. But now I’ve read about this report, and what it claims, and my naivete is now boundless.

Some friends and family stopped voting long ago. They have accepted that their votes are essentially meaningless. I don’t agree, especially at the local level where I think we can collectively make a difference. At the national level, maybe not. But it does give me the right to bitch and moan when things take a turn I don’t like.

But I’m far from giving up. If nothing else, the internet and this blog forum allows me to vent. With any luck, some of you reading this will add your voices to the collective scream, and perhaps, just perhaps, my grandson, and your grandchildren, will someday benefit. However, we might have to have an “Arab Spring” here in the good ol’ US of A.

By Rick Newman | April 18, 2014 | The Exchange

“America’s claims to being a democratic society are seriously threatened.”

That’s the startling claim in a provocative new study by Martin Gilens of Princeton University and Benjamin I. Page of Northwestern University.

Many of us like to believe that popular opinion influences policymakers, at least indirectly. But that doesn’t seem to be the case. “The general public has little or no independent influence” on policymaking, the two political scientists found.

Instead, Gilens and Page found that “economic elites” have a “quite substantial, highly significant, independent impact on policy.” Groups representing business interests are the next most powerful influence on policymakers. Sometimes, those two groups are aligned on an issue—they both tend to prefer low taxes, for instance–which generates the highest likelihood of government action.

The complex study examined 1,779 public policy issues between 1981 and 2002, including the policy preferences of middle-income people, the wealthy, and interest groups such as lobbying organizations, unions, and membership associations like AARP. The researchers then isolated instances when a policy change actually took place, to figure out who, essentially, got their way.

Though the study period ended 12 years ago, similar dynamics seem to be in effect today.

Consumer advocates such as Sen. Elizabeth Warren (D-MA) argue that the financial industry and its billionaire barons, for instance, still flex intimidating muscle on Capitol Hill, even after Wall Street nearly wrecked the whole economy. Billionaires such as Sheldon Adelson, Charles and David Koch and George Soros now donate vast sums to political causes through political action committees and third-party groups, and will now be able to give even more to individual politicians thanks to a recent Supreme Court decision.

Many of us like to believe that popular opinion influences policymakers, at least indirectly. So ordinary voters may be dismayed to hear that “the preferences of the average American appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy.” On the other hand, that’s probably not surprising, given that crony capitalism has become the new sport of kings, the gap between rich and poor is widening and trust in government and other big institutions is crumbling.

This sounds pretty bleak, but it’s worth keeping in mind that well-connected elites have always been influential, and they may have had even more sway over policymakers during go-go eras such as the robber-baron heyday of the 1890s or the look-the-other-way government of the 1920s. The Gilens-Page study doesn’t get into historical comparisons.

Another mitigating factor: Sometimes ordinary people and the wealthy have shared interests, which means that if the rich get their way, the little guy does too. Most working people favor low taxes, for instance, whether you’re a billionaire or a thousandaire. Pro-business policies can be good for workers too, as long as they help create jobs and boost the economy. And while policies that help inflate the stock market (this means you, Federal Reserve) may enrich people who don’t really need it, they also help the 401(k) plans of middle-class savers.

Recent political history may also offer a bit of a counterpoint to the Gilens-Page study. One consistent preference of 1 percenters is smaller government and less regulation. Yet President Obama, who clearly favors something other than limited government, is now in his second term. And government regulation is swelling, not receding. The Affordable Care Act, which passed in 2010 and just went into effect last year, hardly serves the interests of the affluent. The 1 percent may have succeeded in preventing a full government-run healthcare system from forming, but the subsidized care available under the ACA to people living near the poverty line seems like it’s here to stay.

Still, there is no denying that moneyed interests strongly influence (and sometimes even write) laws and regulations, while thwarting a lot of government action that might harm their cause. The standoff between the rich and the rest might even intensify as fresh tradeoffs need to be made involving taxes, government spending and other increasingly urgent priorities. The outlook for democracy has certainly been brighter.

Ruling Near on Fiduciary Duty for Brokers

investment adviceMy Comments: I’m proud of the fact that I’m held to a fiduciary standard. It’s in my best interest as a professional to be held to the same standards as attorneys, CPAs, physicians, and the like. My focus has to be on what is best for my clients, and that’s a good thing.

Readers of this blog have read my thoughts on this before. I’ve argued time and again that ANYONE holding themselves out as a “financial advisor” must conform to a fiduciary standard. At its most basic, this simply means acting in the best interest of the client. Period.

Now that it looks like this is likely to be resolved by the SEC in the near future, big financial companies across the spectrum are once again trying to keep themselves and their salesmen from being held to this standard. Their argument now is that it will hurt middle income investors.

My reaction is that middle income investors are already hurt by the often misleading, and deceptive practices of said same financial companies. These companies don’t want to be held accountable if one of their people makes a “mistake” and you, Mr. and Mrs. Middle Income Investor, gets hurt in the process.

By Daisy Maxey | Updated April 13, 2014

The debate over a new level of protection for investors in their dealings with brokers may finally be nearing a resolution. And some investor advocates worry about the direction it seems to be taking.

The debate centers on whether brokers should be required to act in the best interest of their clients when giving personalized investment advice, including recommendations about securities, to retail investors.

The “best interest” standard is known as a fiduciary duty. Financial advisers registered with the Securities and Exchange Commission already are held to this standard. But brokers for the most part are held to a different standard, of “suitability,” which requires them to reasonably believe that any investment recommendation they give is suitable for an investor’s objectives, means and age.

The Dodd-Frank Act, signed into law in 2010, directed the SEC to study the matter, and permits the regulator to establish a fiduciary standard for brokers. In late February, SEC Chairman Mary Jo White said the commission would make a decision by year-end.

Meanwhile, the Labor Department is working on a separate proposal that could establish a fiduciary standard for brokers who give advice on retirement investing. It hopes to offer a proposal by August.
Continue Reading HERE...

10 Numbers Everyone Should Know About Social Security

SSA-image-2My Comments: Understanding the Social Security system and helping clients make the best choices has become a passion for me.

Before a few months ago, I never realized there were a total of 97 months to choose from when signing up for benefits. I never knew the difference between the best month and the worst month could mean a couple of hundred thousand dollars to me and my family.

I never knew that if my spouse and I were more than a few years apart in age, there were options that might allow us to realize even greater benefits. I didn’t know I could apply for benefits and then suspend them to gain an advantage.

If you are going to reach age 62 in the next few years, or have reached it and have not yet applied for benefits, you need to get in touch with me to get a free report on how to maximize your benefits. Go to the Contact Info tab above and reach out to me.

By Emily Brandon April 10, 2014

If you want to maximize your Social Security payments, you need to familiarize yourself with the rules. The taxes you pay and the age you sign up for benefits play a big role in how much you will receive in retirement. Pay attention to these important components of Social Security.

6.2 percent
Workers pay 6.2 percent of their earnings into the Social Security system, and employers pay a matching 6.2 percent. Self-employed workers contribute 12.4 percent of their pay to the Social Security Trust Fund.

This is the income cap for Social Security taxes in 2014. Workers do not pay Social Security taxes on earnings that exceed $117,000 and will notice a bump in their paycheck once they earn above this amount in a single year.


Retired workers receive an average Social Security payment of $1,294 in 2014. Retired couples receive an average of $2,111.

If you sign up for Social Security benefits before age 66 and continue to work, you can earn $15,480 in 2014 before $1 in benefits will be temporarily withheld for every $2 you earn above the limit. The year you turn 66, the earnings limit increases to $41,400 and the amount withheld drops to $1 for every $3 earned above the limit. After you turn 66, there is no penalty for working and collecting benefits at the same time.

This is the earliest age workers can sign up for Social Security payments. However, monthly payments are significantly reduced if you sign up at this age. And if you work and collect benefits at the same time, your Social Security payments could be temporarily withheld if you earn too much.

Age 66 is when baby boomers born between 1943 and 1954 are first eligible to collect unreduced Social Security benefits. The Social Security full retirement age is 66 and two months for people born in 1955, and it increases in two-month increments to 66 and 10 months for people born in 1959. The earnings limit for working and collecting benefits at the same time also disappears once you reach your full retirement age.

The full retirement age is 67 for everyone born in 1960 or later. Most members of generation X and millennials will not be able to claim unreduced Social Security benefits until a year later than the baby boomers and two years after their grandparents, whose full retirement age was 65.

Social Security payouts further increase for each year you delay starting your payments up until age 70. After age 70, there is no additional benefit for waiting to sign up for Social Security.

If the sum of your adjusted gross income, nontaxable interest and half of your Social Security benefits totals more than $34,000 ($44,000 for couples), you will have to pay income tax on up to 85 percent of your Social Security payments. If these income sources are between $25,000 and $34,000 ($32,000 and $44,000 for couples), income tax will be due on up to half of your Social Security benefit.

This is the maximum possible Social Security benefit for a worker who signs up at full retirement age in 2014. However, to get this amount, you would need to earn the maximum taxable amount, which is $117,000 in 2014, in each of the 35 years factored into your Social Security payments.

The Real Health Care Spending Problem

healthcare reformMy Comments: When do you think Congress will adopt any intelligent process to fix ObamaCare so we can all get on with our lives? Anytime soon? Doubtful.

As someone who has sold health insurance policies of one kind or another since 1976, I think of myself as fairly knowledgeable about the issue. In those many years, as a private citizen, I’ve paid for a lot of insurance and had my share of health issues that required medical care. I’ve taken my share of drugs too.

All this led to an awareness of how premiums increased over the years, and to understand the trend was totally unsustainable (6 – 9% per year). Premiums increasing annually much faster than the size of our economy. Hospital costs and pharmaceuticals also leading the way. Then realize that folks in other parts of the world had generally better medical outcomes than we do.

Whenever I spoke about this, the typical response was that I should move to France, where they said I’d wait in line for months, and have to put up with a socialist government. Never mind that the French pay less per capita and have as good or better health care outcomes than we do. Having lived in, and visited France, it’s not a bad place to be. If I’m age 75, a citizen of France, and have a heart attack, my odds of living to age 85 are better than if the same thing happened to me here in the USA. So, tell me once again, what’s so wrong with their health care system.

And now we have ObamaCare. And it’s far from perfect, but no one has come up with anything better. Do you really think you’d be better off if we let the drug companies and the insurance industry write the rules for the rest of us? As it was, none of the several major stakeholders in this issue had the leverage to make it sustainable. The only way was to introduce a force from above, ie the US Government, change the rules, so that in time it will benefit all of us. At least, that’s the plan if we don’t let the drug and insurance companies screw it up.

By Kathryn Mayer | April 17, 2014

Stop me if you’ve heard this one: For better health care we need to get out of the country.

And when I say better health care, I mean cheaper health care. Or really, I mean both those things since we Americans often pay more than everyone else for the same thing.

Some disturbing information is highlighted in an annual report, out today, from the International Federation of Health Plans. It looks at health care price variations across the globe, while offering insight into one of the greatest, age-old debates. Why do we spend so much on health care? Here’s their answer. Ready? Our prices are too high. (Prices! who would have thought of that one?)

Some examples:
An average one-day hospital stay in the United States cost a whopping $4,293 last year, six times more than it did in Argentina and nearly 10 times the cost in Spain.

An MRI? That’s (on average) $1,145 in the United States. In Switzerland, it’s $138.
Delivering a baby? $6,623 in Australia; $10,002 in the States.

An abdominal CT scan is nearly $900 here. Want it for $800 less? Go to Canada.

Here’s where you might counter with, “Who cares? You want cheaper prices? Go to Canada, then!” Health care in the United States — and everything else — is far superior (the prevailing wisdom suggests), and they’ll pay more here rather than suffer through medical procedures in Europe.

But can we talk about prescriptions — from specialty drugs to those treating common ailments? Cause it’s a lot more expensive here, too. And you can’t argue that’s different from country to country.

A Nexium prescription, for example, one of the most popular prescriptions out there that treats acid reflux disease, is $215. In England, Nexium costs $42; in the Netherlands, $23.

Just a reminder: Nexium in the United States is the same as Nexium in the Netherlands. So why do we have to pay 10 times more for a small, purple pill just cause we’re American?

Well, for one, we’re not negotiators. While other countries negotiate with hospitals and drug manufacturers, we just take it. Though carriers, of course, do some of it, we’re not getting the kind of discount other countries do. And from the looks of the information in the report, we’re getting ripped off. It’s no wonder medical expenses are the No. 1 reason for bankruptcies in this country.

Don’t tell me it’s not in our nature: I’ve witnessed people haggle over a quarter at a garage sale, for God’s sake.

Overall, says Tom Sackville, chief executive of the International Federation of Health Plans, the “price variations bear no relation to health outcomes. They merely demonstrate the relative ability of providers to profiteer at the expense of patients, and in some cases reflect a damaging degree of market failure.”

The research also dismisses the popular notion that Americans spend more because we use more. In reality, the report finds that we go to the doctor less and have fewer hospitals per capita than most European countries.

Really, it’s a wonder we don’t have to go to the hospital or doctor more often. Cause having to overpay for things — and I mean really overpay — can really make a person sick.


10 Things You Should Know About Social Security

My Comments: It’s no secret that Social Security is a major issue these days. So many people are arriving at the magic number when you can apply. For financial advisors like myself, knowing most of the variables and being able to help clients and others make the best decision for themselves is important. When you start digging, the number of variables is mind boggling and making the wrong choices can be costly.

As before, Kiplinger has put together an interesting slide show for you to follow. The image just below is a screen shot of their page. I’ve set it up so that if you click on the image, you reach the slide show and navigate to all the pages with the blue arrow. All 12 pages. Have fun!
10 things about SSA

Forecasts of US Fiscal Armageddon Are Wrong

080519_USEconomy1My Comments: Over the years I’ve had people wonder why I’m an optimist. They’ve decided I’m simply blinded by whatever it is that causes me to lean to the left instead of the right. To their mind, the world, and in particular America, is going to hell in a handbasket.

I believe that for centuries, every generation, as they age, thinks the landscape of society is doomed, and that the younger generation is hopeless. But over my 70 plus years, I’ve enjoyed a very satisfying life. Yes, there  was WW2, the Vietnam War, rock and roll, every crisis de jour you can imagine. There have been bad days, but they’re far outnumbered by the good days. If I have a regret, it’s that I’ll not live to see the next 70 years.

I’m baffled by the attitude of the blathering pundits on TV, especially those on the right, who do everything possible to turn back the clock. They sound like 4th graders. And many of those who get to Congrass act like 4th graders. But nothing I say will change that since it’s been this way ever since.

I was and am hoping Jeb Bush decides to run for President in 2016. Not because I agree with what his party says, but because he is about the only leader on the right who has graduated from the 4th grade. And now has an advanced degree in life.

As an immigrant to this country, I believe one of America’s great strengths is the capacity to allow a spirited dialog that effectively moves all of us toward the future as it evolves. But I’ve yet to encounter a 4th grader with the ability to articulate what is best FOR ALL OF US.

This article suggests there is a strong positive in our future.

By Robert Barbera / April 7, 2014 / The Financial Times

Conventional wisdom has it that the American national debt is out of control, and that cutting the federal deficit is an urgent task if the US is to avoid a budgetary crisis. The logic is beguiling. But it is wrong – and the influence it exerts on policy makers may put a brake on future economic recovery.

Anxiety about US budget deficits has been a reality in the US for most of the postwar period. But today’s Cassandras argue that the aftermath of the financial crisis, superimposed on to the reality of an ageing America, has made the problem sharply worse. Eighteen months of recession, followed by decades of tentative recovery, mean that the burden of financing retiring baby boomers is set to overwhelm US finances in the years ahead.

The Congressional Budget Office believes that within 25 years the government’s accumulated debt will equal an entire year’s worth of economic output. Some analysts fret that interest payments will then be so onerous that cripplingly high taxes will be the only alternative to a ballooning debt and eventual default.

Such forecasts of a federal debt disaster depend on an assumption that is rarely mentioned: that interest rates will normalise even though economic growth will not. Combine decades of tepid expansion with traditional real interest rates, and an unsustainable debt burden quickly comes into view. But that combination would represent a dramatic break with history. It goes against everything we know about the mechanisms that determine real interest rates. It is, therefore, a slim reed on which to base a radical departure for economic policy.

In its February report the CBO serves up the consensus view in elaborate detail. Deficits swell over the decades ahead and the debt climbs to 100 per cent of gross domestic product. The subsequent discussion centres on how best to rein in these fiscal excesses.

This is strange. The fact is that federal deficits have fallen precipitously over the past few years. In 2011 the watchdog projected that government spending (excluding interest payments) would exceed receipts by 7 per cent of GDP in 2038. It now states that this “primary deficit” will instead be 1.6 per cent of GDP, hardly cause for panic.

Yet despite this relatively sanguine view of the deficit, the CBO continued to sound the alarm about an incipient US debt crisis. Why? Because it believes that rising interest rates will amplify the debt burden at the same time as a weak economy saps the country of the strength needed to service the growing debt.

According to the CBO, the American economy will on average create a meagre 164,000 jobs a month during 2014, slowing to monthly gains of only 66,000 four years later. Nonetheless, the CBO projects that by 2018 the US Federal Reserve will have tightened monetary policy, raising the funds rate to nearly 4 per cent from close to zero today. It thinks the government will be paying an interest rate of 5 per cent on 10-year borrowings.

It is easy to imagine a scenario in which interest rates rise – the CBO projections envisage real or inflation-adjusted interest rates not far from the average seen over the period from 1955 to 2005. But real growth during that period averaged 3.5 per cent; far higher than the feeble expansion the CBO expects in the coming years. Yet if the US is doomed to endure a period of tepid growth then interest rates, too, will surely be lower.

It is not only the base rate that can be expected to fall in the weak economy envisioned by the CBO. The “term premium” – that is, the extra reward that investors demand for holding long-term debt – will also decline as fears of future inflation subside. In the 1980s and 1990s, when investors worried about the possibility of sustained increases in the price level, long-term bonds were perceived as risky assets. No longer. Now, financial instability and recession are the risks that keep investors awake at night. Long-term bonds are a good hedge against these risks. In such a world the term premium should be lower. Of course, this could change: a more traditional pace for economic growth could return, together with more worries about inflation. In that case, however, tax receipts would be substantially higher and the deficit and debt outlook much improved.

What happens if we combine tepid growth with tame interest rate increases? The “crisis” all but disappears. If the government pays a real interest rate of 1.5 per cent, instead of 2.7 per cent as the CBO expects, then government debt in 2038 will amount to 78 per cent of GDP, a far cry from the CBO’s forecast of fiscal Armageddon.

Is this rosy scenario an unhistorical fantasy? Far from it. From 1955 to 2005 the government’s real borrowing cost was about 1 per cent below the economy’s real growth rate. It is the CBO forecast, with the US compelled to borrow at real rates dramatically higher than its growth rate, that breaks with US history.

The writer is director of the Johns Hopkins Center for Financial Economics

Top 10 Benefits and Risks of Forming a Captive

retirement_roadMy Comments: I recently published an eBook with the title CAPTIVE WEALTH!

It explains how to use an 831(b) Captive Insurance Company to create, to grow, and to preserve wealth.

While not a simple idea, it does have the blessing of the IRS if you do it the right way, under the right circumstances. That alone makes it valuable and something to know about.

From the perspective of a successful small business owner, it allows him or her to turn a current expense item into an asset at a later date. Think about it; money spent now comes back later as an asset, which can be used many different ways. This article outlines some of the caveats you should be aware of.

By Donald Riggin, from Guide to Captives and Alternative Risk Financing | November 11, 2013