U.S. Post Office $174 Billion Lost Since 1800

The United States Post Office (USPS) is one my favorite agencies to talk about. In an analysis I did I examined how much the USPS actually lost since 1800. I was able to get a hold of this USPS data which shows the annual expenses and revenues since 1800. When you add up the losses (not adjusted for inflation) they amount to $33 billion. I used the WestEgg inflation calculator and figured out a factor to use for every year to figure out what the yearly loss or gain would be in 2012 dollars. When you inflation adjust the cumulative amount since 1800 it comes out to be $174 billion. This figure is really understated because the U.S. Post Office doesn’t pay taxes if it buys trucks, tires, or other equipment.

In my analysis it was interesting to find that the number of post offices actually peaked in 1901 at (76,945). These days (2012) there are around 26,755 post offices. The peak year for the pieces of mail was greatest in 2006 with 213 billion pieces. What is interesting is that throughout the 1990’s the amount of mail increased even as the internet was coming around. However it wasn’t until 2002 until the number of mail pieces actually decreased. The pieces of mail will only continue to decline in the future as more people use e-mail, texting, and cell phones which are all forms of communications that are in competition with snail mail. 

If any rational person heard a government organization had lost $174 billion since being created what would they do? Most rational people would say can we improve it an economist or business person would say can we eliminate it. Meanwhile in the private sector FedEx in the past 3 years has earned over $4.6 billion in profits. UPS in this same time period has made over $9 billion.  Most rational people would ask if we really need the service. In the case of the post office it is a no brainer given we have companies like UPS, FedEx, DHL, and many more logistics companies. What is even more bizarre is that if mail was privatized it would actually increase government revenue since the added profits private companies would be making would be taxed. Also the 546,000 employees that currently work at the U.S. Post Office could apply for jobs in these private logistic companies. Private companies would hold these employees to a higher standard. For instance back in 2011 we all remember the U.S. post office employee who was caught defecating in a yard who then was placed on administrative leave (this employee would be fired immediately in the private sector).

Why not let the private sector take over an area the government can't seem to handle?

Decline of America Through Debt: $109 Trillion Unfunded Liabilities and Debt (Medicare, Social Security, Medicaid, Etc)

In thinking about the economic condition of the United States I sometimes worry that maybe our best days are behind us as a nation. History has shown that empires can last hundreds of years before they collapse. When examining the data of the unfunded liabilities of the United States it is hard to see how the United States will continue to have a high standard of living.

In August 5^th, 2011 the United States lost its AAA credit rating. A credit rating measures how likely a country or company is able to pay back their debts. Although, the current credit rating is AA+ it is clear unless the government gets it act together we will be heading down the wrong path.

Currently the national debt for the United States is over $16 trillion dollars. This doesn't include the annual deficits we have been having which in 2012 was $1.1 trillion (I like how people are excited if the deficit is less than predicted even though it is a trillion dollars). The deficit was $1.3 trillion in 2011. The United States also currently has a very low interest rate on the debt at around 3%. However if interest rates increase to a more normal rate of 6%-7% than the interest payments required would increase from about $432 billion to $864 billion. However, our GDP (or how much we produce) is only $15 trillion. One might look at this and say “Gee we could pay back the debt in one year if we really wanted to”. However there are some problems with this. According to the 2012 U.S. federal budget the United States spent $3 trillion in just one year. What isn’t included in this estimation are unfunded liabilities for government programs.

The 2013 Social Security Trustees report shows that by 2033 Social Security won’t be able to pay out full benefits and will only be able to pay out 77% of benefits. Social Security has an unfunded liability of about $9.6 trillion. Medicare has an unfunded liability of about $39 trillion. Medicaid has an unfunded liability of $20 trillion.  Let’s not forget the newly created Obamacare which will is estimated to create a $17 trillion unfunded liability.

This is all at the federal level we haven’t even gotten down to the state level, city, or county level. Joshua Rauh in this EconTalk podcast estimates the unfunded liability from state pensions is $4 trillion. Actually believe it or not New York city has the highest unfunded liability with $122 billion. Then you have cities like Chicago have an unfunded liability of $42 billion. 

So let's add it all up: 

Current U.S. debt: $16 trillion

States unfunded liability $4 trillion

Medicare unfunded liabilities: $39 trillion

Medicaid unfunded liabilities: $20 trillion

Obamacare unfunded liabilities: $17 trillion

Social Security unfunded liabilities: $9.6 trillion

Student loan debt: $1.1 trillion

Increase in interest rates: $864 billion

2013 projected deficit: $642 billion (will see if this comes true)

$109 trillion (or roughly 7 times our current GDP)

As Dr. Walter E. Williams points out the government spends $3.7 trillion per year. Now if you wanted to "soak the rich" and make them pay for the spending you could tax everyone making over $250,000 at a 100% tax rate and you could only run the government for 190 days. Taking the profits of all the Fortune 500 companies would run the government another 40 days and confiscating the wealth of the billionaires in the United States will allow the government run into the fall season. Clearly, we have a spending problem and not a revenue problem.  

The Case For A Simpler Tax Code

After studying the personal income tax code for a couple of years now I believe that the U.S. tax code is insanely inefficient, gives benefits to people that don’t need it, and ends costing taxpayers not only money but countless hours.

If you look at the tax code and just look at the deductions it is pretty easy to tell what things are deductions. Nearly everything that is a deduction is only a deduction because the government has made it expensive. Take for instance education costs and medical expenses (which are deductible). You never see deductions for things like cell phones, computers, or areas where the free market is involved. People can deduct interest on their home (which leads to bigger houses than we would otherwise have without the deduction).  The charitable deduction leads to people to give to charity, however as Dan Mitchell points out here that history shows that the deduction itself does not lead people to give more to charity since giving has historically been the same (even before the deduction was put into place). The charitable deduction generally benefits people with high income as they can deduct up to 50% of their (Adjusted Gross income). Also if property is donated to a charity over a certain amount it has to be appraised which requires more forms and paperwork.

What is really sad is that Social Security benefits are taxable. So essentially people are paying taxes Social Security taxes when they work and when they collect their benefits (double taxation).

Currently the tax code is 3.8 million words long (2010). Since 2001 there have been 4,428 changes to the tax law in addition to filling out 893 forms to fill out. The complexity of the tax code can be found in this Forbes article. According to this Laffer Center report the cost of tax compliance is $431.1 billion. I would think both parties would agree this is a waste of both time and money. The biggest problem I see is that the tax code makes it hard for even honest and decent people to figure how to file out their taxes. Many of the tax laws exist to benefit certain people while disadvantaging others. Did you know for instance if you rental out a home less than 14 days per year you don’t have to report it as income. This actually came about because during the Masters Golf tournament and Atlanta summer Olympics politicians and others would rent their homes out to people and didn’t want to have to pay tax on it so they created a tax law saying you didn’t have to. 

What is strange is that let's say you invest in a stock and when you sell the stock it is worth less than you paid for it. This loss can be used to reduce your taxes. It seems troubling/odd that the government is giving investors a benefit for investing unwisely. However, the maximum amount is only $3,000 per year.

 The IRS seems to be proud of answering 68% of calls in 2012 (average wait time was 17 minutes). If a private business took 17 minutes to answer phone calls they would be out of business. Part of the reason why so many people call the IRS is because the tax code is pretty darn complicated.

Many people have an interest in the tax code being complicated. Upon a little research I discovered that there are around 1.2 million accountants (this includes auditors as well). 68,000 professional financial planners, tax accountants, and other professionals that have a direct interest in the complexity of the tax law. Also there are other indirect professions that are related to the tax code such as home relators (mortgage interest deduction), insurance industry, and others.

The opportunity costs is not only 6.1 billion hours for the people that do taxes but the amount of useless knowledge accountants, financial planners, and tax attorneys are required to know adds little value. If we had a flat tax they wouldn't be required to remember so much nonsense and could be free to add value in other ways. 

The 47% Getting Government Benefits

This chart shows how the percentage of households in the United States has been increasing since the 1980's. What is interesting is that the percentage dropped in the late 1990's only to then increase. The problem with this statistic is that benefits like Social Security are included which people can't opt out of (I wish they could). When people get something from the government why wouldn't they vote for a party that promises to give them even more of those same benefits?

The Case Against The National Weather Service

With Hurricane Isaac about to hit the Gulf of Mexico I was doing some research and realized like with many government bureaucracies how inefficient the government run weather service is. When I was younger I use to be into meteorology because he dealt with a lot of math and science (which I was pretty good at). Back in the 1990’s I use to have a hurricane tracker in my room where you could track a hurricane using magnetic dots which seemed pretty cool at the time. These days everything can be easily seen on the computer and in real time.

What opened my eyes about the National Weather Service was this article. The article makes pretty good arguments for why we shouldn’t have the National Weather Service. The service relied on bad information which led to the death of 22 people in Nashville because of major flooding. Even when Hurricane Katrina hit the National Weather Service was half a day behind the for profit service (AccuWeather). What is interesting is that the National Weather Service provides updates a few times a day while AccuWeather has hour by hour updates.  Not only is the National Weather Service behind they also have an error rate that is 20% greater than the greedy for-profit companies. The National Weather Service also did the worst when compared to other sources of weather information.

According to this report from the NOAA the National Weather Service is asking for $5.1 billion for 2013 which is a $154 million increase from 2012. Good grief with $5.1 billion you would think that the National Weather Service was somehow improving the weather. If I were in Congress I would propose a budget amendment. The budget amendment would read that for every year that the National Weather Service did worse than for-profit weather service companies the National Weather Service budget would be cut 20%.

What is really interesting is why we need more money for the National Weather Service when we live in a generation where Twitter, Facebook, and cell phones are probably the most effective and quickest forms of communication for severe weather.  George Mason University economics professor Dr. Don Boudreaux as usually writes elegantly in the WSJ last year that weather related fatalities have drastically decreased over the past 70 years.  Dr. Boudreaux even gets serious by betting anyone $10,000 that the average number of Americans killed by tornadoes, floods, and hurricanes will continue to fall over the next 20 years.  I have always said that betting limits ignorance.

The National Weather Service is not needed when we have so many private companies that already do the exact same thing with not only better information but don’t use taxpayer money. The technology will continue to improve and the warning systems will also continue to improve which will save lives. Free markets can not only make products at higher quality with lower prices but in the case of the weather service actually save lives, provide better information, while not using taxpayer money. Too bad the forecast for the National Weather Service looks sunny with high government funding and a low of taxpayer satisfaction. 

Nursing Home Cartel: Price Increases, While Quality Decreases

Recently, I was wondering why nursing homes are so expensive. The cost of nursing homes according to this article have increased 7.5% per year (much greater than inflation yet I really don’t believe the quality of nursing homes has improved). Today, many nursing home or assisted living facilities can run over $80,000 per year. People can purchase what is known as long-term care insurance to cover the cost however some insurance companies have got out of the business of writing policies.  I thought about the Peter Law which states that: over time if prices rise and quality suffers look to government intervention as the culprit.

Assisted living facilities and nursing homes cost so much money because of the burdensome regulations that they face. The regulations increase prices because the nursing homes have to comply with them and have less money on other resources. Also have you noticed how so few nursing homes there are given the large aging population? What does not really make any sense is that United States has fewer nursing homes in 2010 (15,622) then in 1995 (16,700) even though the elderly population has greatly increased. What is even more interesting is that from 1985-1995 the number of nursing homes decreased 13%. Part of the reason why there are fewer nursing homes then there otherwise would be is why would anyone want to start a nursing home business when they have to comply with the burdensome regulations? 

A skilled nursing facility has to be certified in order to collect money from either Medicare while a nursing facility is a nursing home that will be reimbursed by Medicaid. In order to get reimbursed the nursing facilities have to jump through numerous hoops in order to get certified and meet certain requirements like having a licensed nurse practical nurse on duty 24 hours per day. A registered nurse is also need for a certain amount of time per week.. For instance Texas has their own book for the regulations regarding nursing homes here. Some examples of this are requirements for residents to have phones, for administering drugs an unlicensed person can administer drugs but a unlicensed person is limited to only a few type of people. Some of the regulations get really bizarre like 

"Deviations from normal food and fluid must be recorded in the clinical records". Snacks must also be documented using the "point percentage, or other system consistently facility-wide". I am not quite sure what this even means. There must also be "no more than 14 hours between a substantial evening meal and breakfast the following day". Why all these regulations when nursing homes are perfectly capable of writing their own rules to ensure patients are comfortable and safe to get the best possible care is beyond me. Nearly every state goes beyond federal regulations as seen here. Other states have their own quirks like Rhode Island which requires that a nursing home facility have a person around the clock who is certified in Basic Life Support. Kansas requires that staff wear ID badges that are labeled with a name and position. In New Mexico personnel must be briefed on what type of condition and care is needed for each resident. In many states there are rules not allowing nurses to do any type of laundry or housecleaning which essentially sounds like a union. 

All of these regulations are greatly increasing the cost of nursing homes which by definition decreases the number of elderly people that can use them. People should want nursing homes popping up on every corner like Wal-Mart, McDonalds, or Starbucks. Without these regulations nursing homes would have to compete on quality, price, and services. Creating more barriers to entry in an industry reduces who can enter which increases the price and reduces quality especially if you have to comply with state and national regulations. Politicians claim they are about the elderly.If a politician gave a speech and claimed they "cared" about the elderly I would walk up to them after their speech and ask if they cared so much about the elderly what is my grandmother's name?

Post Office Default, Do We Really Need USPS?

In what seems to be great news the Post Office announced that it will default on its $5.5 billion payment for future retiree health benefits. The United States Post Office (USPS) will also owe $1.5 billion in workers compensation and millions in interest payments. As I have pointed out here, here, and here despite the USPS best efforts of cutting jobs, talking about cutting back services, and closing down certain facilities USPS will lose $14 billion this year. What is even worse is that since the inception of the United States Post Office has lost $33 billion and counting since the founding in 1789. This figure actually understates the true amount spent since USPS is exempt from paying taxes on things like vehicles, tires, and other goods they purchase.

Technology like e-mail, online payments, and even cheap cell phones made sending things snail mail obsolete. If grandparents want a picture of their grand children parents no longer have to go to Eckerd’s (now CVS) or Walgreens to develop pictures and then send them in a package to their loved ones. Today in a few seconds people can snap a picture and e-mail it without any postage. Banks and payment transfer companies are also to blame since they developed ways for people to transfer money electronically. The Federal Government is going to stop mailing paper checks next year for people who receive Social Security and instead pay direct deposit or by debit cards.

Why USPS is still operating is beyond me. People worry if USPS was no longer in business who would deliver the mail. My answer would be FedEx, UPS, DHL along with other logistics providers. Cities or neighborhoods could decide who they wanted as their provider.  Have you ever heard about how great of an experience someone had with USPS? Profit seeking companies like FedEx and UPS have to make sure they not only deliver in an efficient manner but also create shareholder value which makes employees accountable. USPS employees are not held accountable and not until 2008 was an employee actually laid off.  USPS has 546,000 employees in 2012 which is a large decrease from the 752,949 employees it had in 2002. If USPS were to disband other companies like FedEx, UPS, and DHL could absorb these employees and would need more since they would have more things being delivered. Profit seeking companies would also want to make sure people in rural areas got their mail or else they couldn’t make profit. Given how inefficient USPS is not only would profit seeking companies need more help they would be hiring workers who would be paying more in taxes, and the companies themselves would have more profit which means they would pay more in taxes.

Do people really even need mail besides for sentimental things considering people e-mail, scan, fax, or call us if they really need something important? Not having to get all those advertisements in the mail would be a positive thing but of course we just trade off those for spam.  I really can’t understand why anyone with a pulse would want USPS to still exist given the billions that is wasted, the inferior service, and the lack of accountability.

Apple Sidestepping Taxes and Pursuing Excellence in Tax Avoidance

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 In this story from the New York Times it is reported (or really whined about) how little Apple pays in taxes. The story starts off by talking about how Apple put an office in Reno to side step paying higher California taxes. Technology companies in general can move their headquarters to different states or around the world more easily than manufacturing companies due to the fact that making software, applications, or intellectual property doesn't require billions of dollars of capital investment in property, plant, and equipment.

Apple paid $3.3 billion and had a profit of a little more than $34 billion which makes their effective tax rate less than 10%. One technique that Apple uses to reduce their taxes is what is known as the double Irish arrangement. This is part of a tax avoidance by placing intellectual property outside the United States and without paying U.S. taxes. The money from the intellectual property is licensed from an outside company from Apple that is located in Ireland, and licenses the rights to a second company also owned by Apple that is also located in Ireland. The second company gets income and taxed at a low rate and avoids being taxed at high U.S. rates. It important to know that tax avoidance is perfectly legal and different from tax evasion which is where someone purposely goes out of their way not to report income, defraud the IRS, or essentially never intending to pay their taxes. Apple should be commended on such accounting excellence. Also Apple is not the only company that takes advantage of this. Eli Lilly, Google, Microsoft, and even Pfizer use the same strategy to lower their taxes. I would also point out that hiring the people to find these strategies is not cheap. Tax ninjas are not only expensive, but are not easy to come by. The true cost is adding in what it cost in time and money for the services of the tax ninjas.

I love how the New York Times tries to vilify Apple for not only pay their taxes but to suggest that companies like Apple are the reason why states of California are now facing a financial crisis. California is in crisis because of generous benefits to state employees, overspending, and high tax rates which lead not only companies but people out of the state. If California simply lived within their means and lowered state rates you would see people starting to move back.

The tax system is not only complicated at the personal level but also at the corporate level. GE filed a 57,000 page tax return. This seems ridiculous. How many hours and money was spent simply on the return? The tax code needs to be revamped at both the personal and corporate level. My suggestion would be to have a progressive tax rate at the personal level without any deductions. At the corporate level I would propose a flat 15% level. You might say “This will deprive the government of revenue!” The problem is government spends whatever it can get its hands on. I would argue that lower corporate rates would bring business back into the United States which would increase revenue which actually would be a problem since Congress would spend it. At the same time I would propose a balanced budget act. My balance budget act would be a little different. If Congress was not able to balance the budget everyone in Congress would be fired. This would make for interesting politics and ensure some accountability.  Until any of this happens companies will use all possible deductions, credits, schemes, and sandwiches to keep more of their money. 

FDA: Stifling New Cures

In this report by Avik Roy of the Manhattan Institute finds that the cost of Phase II trials is increasing the costs of drugs. Roy finds that 90% costs related to the development of a drug occur in Phase III. Roy response is to allow drugs that have passed Phase I and Phase II trials to be marketed to patients. This is something similar to what I have purposed, however I would be okay with letting drugs on the market once they have been approved from a safety standpoint. Since everyone has different body chemistry, cells, and since no two people are alike it is unwise for the FDA to make a blanket statement when they disallow certain drugs that could clearly benefit certain individuals.

The costs of drugs according to the Tufts Center for the Study of Drug Development have increased from $100 million in 1975 to $1.3 billion (in 2000 dollars). The cost even after adjusting for inflation has dramatically increased. One reason the costs have increased is because the trials have required more patients, more resources, longer trial periods, and more medical tests to be performed. In 1999 the average length of a clinical trial was 460 days. By 2005, the average increased to 780 days (or just over 2 years).

The author’s suggestion of allowing limited marketing before Phase III is a step in the right direction. I would also want to not require prescriptions for drugs. What is really interesting is why people need to waste their time to make an appointment just so a doctor could renew a prescription (think of how wasteful it is for someone to make an appointment with a dermatologist just to get face wash). If a prescription weren’t required people would still go to the doctor for medical advice. Also moving drugs from behind the counter to over the counter would dramatically drop prices since places like CVS, Walgreen's, and Wal-Mart would all have to compete with each other. The most important point however is that people along with their doctors could experiment with different drugs to see if they helped. This would allow for more information to be spread to the masses which in the long run would benefit everyone. Some people might get hurt in the short term but in this world we do face tradeoffs.

It seems puzzling that year after year the FDA increases regulation when we have more data about who we are and how we operate. Medical data has exploded in the past few decades leading doctors and patients to know more about certain conditions. In some cases now patients know more than some doctors especially if they have a certain illness. Doctors sometimes will look up symptoms during a patient’s visit to pinpoint exactly what they might have. Also with genome sequencing doctor's can look at a patient’s DNA and have a better understanding of what illnesses or diseases they may get face in the future. With all this information you would think the FDA would be regulating less. Knowledge is power and there is no question the FDA is doing more harm than good. 

Estate and Gift Tax 1917-2009 (Percent of Total Revenue)

50% of Americans No Federal Income Tax Liability

From the Heritage Foundation this graph shows the number of people who have no federal income tax liability. The number has only increased since the 1960's and I am afraid this percentage will keep increasing. Politicians talk about how the 1% don't pay their fair share, however how is it fair that 50% pay nothing. If anything we need more taxpayers. Also doesn't Congress already do more than their fair share of spending?

1980-2010 Government Spending Receipts and Outlays

Spending data from 1981 to 2010 is now in. The data shows that the U.S. is now spending $3.45 trillion per year. To put this in perspective the United States government spends over $100,000 per second. The next logical question should be what is this money spent on? First spending is separated into mandatory and discretionary spending. This is language is mysterious since you could argue all spending is discretionary. The largest expense for 2010 was Social Security which cost $695 billion. The next largest expense was the Department of Defense which spent around $664 billion. Next on the list is unemployment/welfare/other spending coming in at $571 billion. Clearly, running a government isn’t cheap the question should be are we getting our what we pay for?

Despite what people say the government doesn’t have a revenue problem it has a spending problem. Looking at the data from 1981-2010 it is crystal clear that the annual increase in revenue was 4.52%, however the annual increase in spending was 5.89%. Spending has on an annual basis been 30% higher than revenue. People and politicians talk about taxing people their fair share, but isn’t the government already spending more than its fair share? There is absolutely no amount of money politicians cannot outspend. The annual deficit seems to have exploded in the past few years. In 2008 the annual deficit was only $454 billion. By 2010 it increased to $1.25 trillion.

One solution people have is to tax the rich. Let’s put this into perspective. Essentially what these people are saying is we should tax the most productive people because certain elected people spent too much money. This to me does not make any sense. Why should the rich be punished because politicians spent more than they had? We could tax everyone who made over $250,000 (the new millionaires and billionaires according to President Obama) at a 100% tax rate and this would only raise $1.97 trillion. This number is unrealistic because if the government taxed anyone 100% there would be no incentive to work. If the government wanted even more money they could take all the profit from Fortune 500 companies which would amount to $400 billion. Of course if Congress ever announced this you would see 500 companies and millions of people flee to other countries.

The solution is to just spend what we have. Individuals and families create budgets that they have to follow. If Congress were able to freeze spending for a few years (without any gimmick legislation to remove the freeze or else they would have to resign) we would slowly start to see surpluses. In addition to this, if we lowered the corporate tax rate, eliminate taxes on dividends and interest, got rid of many burdensome regulations we would start seeing money from all over the world flow into the United States. In addition to all this the government has 650 million acres (around 30% of all the land in the United States) Clearly, some of these assets along with other assets like buildings could be sold to raise money. Not only would selling land to the public raise money it would also increase revenue since people do have to pay property taxes every year. If someone tells you we don’t have enough revenue you should ask them well how much is enough?

Charles Koch Responds to Warren Buffett

Direct from Charles Koch...

“Much of what the government spends money on does more harm than good; this is particularly true over the past several years with the massive uncontrolled increase in government spending. I believe my business and non-profit investments are much more beneficial to societal well-being than sending more money to Washington". -Charles G. Koch, Chairman and CEO, Koch Industries, Inc.

I really wish Charles Koch would do more interviews to push back the frontiers of ignorance.

Postal Layoffs and Time to Privatize?

The U.S. Postal Service (USPS) announced plans to lay off 120,000 people. Even though USPS has been around since 1775 it only started to lay off people beginning in 2008. The Post Office is constantly burning through money and at this point they are trying to minimize loses. Next month the Post Office will become insolvent. This is actually positive if we are closer to privatizing the mail system. The number of mail items second through the post office has dropped over the years. The main reason for this is the internet which allows people to send electronic mail for a minimal price.

USPS is now trying to figure out how to remain solvent. Cancelling Saturday mail has already been discussed although I don’t that will do much to solve the major problems of: pensions, compensation, or accountability. In terms of pensions USPS in June of this year had to suspend employee contributions to try to save $800 million. USPS claims that they have been overcharged for pension obligations and are due $75 billion from the government. In 2009, an average postal worker made $79,000 in total compensation (wages + benefits). Economist James Sherk found that postal workers earn an extra 15%-20% per hour than workers in the private sector.

The Post Office employs around 560,000. This means the Post Office spends $28 billion a year on salaries. The total cost is more if you include providing benefits for workers. The Post Office until three years ago had never laid anyone off in their almost 240 year history. The Post Office has little to no accountability for its workers. Take the example in May of a mail carrier in Portland, Oregon who defecated in a yard while on his mail delivery route. The worker was put on unpaid leave but was transferred to a different route. If this happened at UPS or FedEx the worker would have been fired the day it happened.

Hopefully, more people and politicians will realize USPS can’t continue. In 2010, the Post Office had a loss of $8.5 billion. If we had FedEx and UPS delivering mail not only would we get rid of the deficit of the USPS, but more revenue would come into the government since FedEx and UPS would have to hire more workers who have to pay taxes. The idea is to create more productive use of assets and more tax payers.

S&P Downgrade: Who Is to Blame?

With Standard and Poor’s (S&P) downgrading the United States debt there has been a lot of blame as to who is at fault. The S&P 500 reacted to the news by dropping 6.66% on Monday. Today the market was up almost 5%. David Axelrod senior advisor to President Barack Obama said that the downgrade was the credit downgrade was a “tea party downgrade”. Michael Moore wanted to arrest S&P officials (which is what Italy tried to do when S&P downgraded them only Italy wanted documents as well). Rick Santelli the man I would credit most with creating the tea party said that if it weren’t for the tea party the U.S. would be BBB.

Let’s sort out some facts first. Standard and Poor’s is in the business of reporting the credit rating of companies and sovereign nations. Moody’s and Fitch which are two other credit rating agencies kept their AAA credit rating for the United States. Standard and Poor’s did not err in their decision. In 2010, the United States took in $2.38 trillion. The very same year the United States spent $3.55 trillion. So in essence we are spending $1.17 trillion more than we take in yet we have the highest possible credit rating. If individuals overspent this much they wouldn’t even be credit worthy. Not only are we spending more than we are taking in but we have more than $14 trillion in debt. With all these facts the United States should have perhaps even a lower credit rating then S&P gave us.

Another interesting idea is why people are blaming credit rating agencies for the downgrade when it is really the fault of the people for electing people that take money from one person and promise it to someone else. The United States got the downgrade because of political instability and unclear and murky recommendations from the recent legislation. It would be as if a person called someone overweight (when they are) and the overweight person said, “I am not overweight you just don’t know what overweight is”. The parallel is yesterday when the President claimed at a press conference the other day that we truly are AAA even though we are told that is not true. People seem to blame the credit rating agencies for the downgrade and the 2008 financial crisis. In the 2008, financial crisis people were claiming S&P was too loose with its credit rating agencies. Now they claim people that S&P is being too harsh. I think the credit rating agencies realized after 2008 they had to make their criteria more stringent, but even with that said the United States should have been downgraded.

Standard & Poor's Downgrade, Economy, and Solutions

Early this evening Standard and Poor’s (S&P) downgraded the United States credit rating from AAA (highest) to AA+. S&P cited political instability, a high debt/GDP ratio, and growth of government spending. S&P got this call right. The 2011 budget for the United States predicts a $1.65 trillion deficit. Note this is just an estimate and can be even more than predicted. What I find interesting is that we are predicted to bring in $2.17 trillion in revenue. The budget is divided into mandatory spending and non-discretionary spending. In 2010, over $2 trillion was spent on “mandatory” things like Social Security, Medicare, and Medicaid. Discretionary spending was a little over $1 trillion. My point would be that all spending is discretionary. No doubt the downgrade will have implications for the economy. The most noticeable difference will be a rise in interest rates charged to consumers. When Spain and Portugal faced similar downgrades the interest rates rose between .2-.4 percentage points. This seems small but when you look at how many homes, cars, and other expensive items are financed with interest rates it would have a large impact on the economy as a whole. The entity that will pay the most will be the United States government which will see higher interest payments on the debt.

This week the debt ceiling was raised yet I have a feeling pretty soon the Treasury will find itself in a bind and try to figure out how to pay their bills. The debt ceiling claimed there would be cuts; however I would question what base lines were used to determine if any true cuts were made. It would be like going into a store and learning they are having a sale on everything for 30% yet raised the prices 50% before they lowered them.

The jobs report today showed that 117,000 jobs were added making the unemployment rate 9.1%. However, if you look at the percentage of people in the labor force it was fallen to 58% which is the worst it has been in more than a decade. This I believe is a better measure of unemployment since the way unemployment is calculated is somewhat of an art. People who have stopped looking for the past month for a job are not counted as being unemployed.

The only real way for our country to avoid going down the tubes is to initiate some free market reforms. The government should first go through all regulations and figure out which ones have the highest cost and provide the least amount of benefit. Also taking money from hard working people and transferring it to others is not only wrong it’s immoral. If 47% of people don’t pay any federal income taxes why should they care if income taxes are raised? People claim that other countries in Europe are better because they provide free health care, free education, and other free social benefits that are “more fair”, help them live longer, and make them happier. I would argue our standard of living and purchasing power is much higher in the United States than in nearly any other country. The reason why people in our country don’t live as long is not because of health care, but what we choose to do with our bodies. Everyone could in America could have the best healthcare and best insurance, however if we eat too much, drink too much, or smoke too much statistically we will live lower lives. Also the United States has higher murder and suicide rates than other countries which would decrease our life expectancies.

We are at a turning point for our nation. I hope politicians embrace not only free markets but choice and liberty. If not we will be left with no choice but to succeed.

Post Office Cutting Service = Time to Privatized

The U.S. Post Office is now considering closing 3,700 post offices. The post office last week said they soon they will cut Saturday mail service and could go to mail service three days a week by 2025. In 2011, the Post Office is expected to lose $8.3 billion. The U.S. Post Office employs over 583,000 people. What is really bizarre is why so few people are talking about getting rid of it or drastically scaling it back. The Post Office has been in business since 1789. If you added took the income-expenses since 1789 the total $13 trillion. Yes $13 trillion or a little less than the total U.S. GDP for one year has been spent on mail. So the United States would have been better off never have creating the Post Office and using a private organization.

A no brainer is to let the government to privatize the mail and let FedEx and UPS to work their magic. FedEx moves 3.4 million packages a day. UPS delivers 15.6 million packages and documents a day. I am here to inform you that these companies also make a profit. UPS made a profit in 2010 of $3.49 billion. FedEx made a net profit of $1.18 billion.

People might say something like “I don’t want a business seeking profit delivering my mail”. However, we meet people every day in profit seeking businesses that deliver high quality with low prices. If anyone has been to the post office they know of the long lines, employees who seem too busy to help you, and inferior service. I never notice long lines at a FedEx or UPS store. As a general rule I don’t notice any long lines at profit seeking entities. An employee that has worked for the Post Office has never been laid off. What incentives do Post Office workers have if they can never be fired?

On the books is a law that makes it a felony to allow anyone to deliver first class mail except for the U.S. Postal Service. It is somewhat strange that this is still in effect today. FedEx and UPS handle millions of pieces of mail. I see no reason why UPS or FedEx wouldn’t be able to handle the job of the U.S. Postal Service since they already handle millions of pieces of mail every day. Communities could work deals with any mail carrier they wanted for their mail like they do with trash and recycling. More than half a million people would be out of work if the U.S. Post Office was shut down. However, some of these people could work for a for-profit company and be required to create value. Some of these people would have not had jobs for long if they spent one day in the private sector.

Very few people I think realize how much money the U.S. Post Office is losing every year. If the American people realized how much U.S. taxpayers are subsidizing the mail I believe they would be more in favor with getting rid of it and privatizing it. The Post Office could have never in a million years dreamed of FedEx or UPS.

Downsize Government & Raise Revenue: Sell Government Owned Assets

One way government could easily raise revenue is to sell government owned assets. Strange that I don't here either party talking about this. Here is a quote from CATO's Downsizing Government website.

"At the end of fiscal year 2007, the federal government held $1.2 trillion in buildings and equipment, $277 billion in inventory, $919 billion in land, and $392 billion in mineral rights. The federal government owns about one-fourth of the land in the United States."

At the same time we could also privatize roads, air traffic control, airports, and anything else that doesn't impose negative externalities.

Debt Ceiling Nonsense and What the Government Should Be Doing

With the debt ceiling approaching soon it seems as if seems as if politicians will have to figure out what to do regarding the financial state of America. The Democratic Party wants to cut spending on programs that don’t spend that much money while raising taxes on the most successful people in society. Republicans on the other hand want to cut more spending while not increasing taxes.

I would argue that not raising the debt ceiling would be a step in the right direction. If nothing gets done spending will have to be cut. The only thing that would have to be paid is the interest on the debt. The 14th Amendment required that the United States pay interest on the debt before anything else. According to the Treasury the interest on U.S. debt for 2011 will be over $385 billion. Also remember that the United States currently has an AAA (highest) credit rating. Standard & Poor’s and Moody’s who rate the credit of sovereign countries have threatened to downgrade the United States if they don’t pass the debt ceiling. People have been saying if we don’t pass the debt ceiling we will default on our debt. I am not sure how they can claim this when the interest on the debt is $385 billion and the Treasury last year took in $2.3 trillion (while giving $467 billion in refunds). However in 2010, the government spent $3.46 trillion. It doesn’t take a financial wizard to figure out that in 2010 we had a deficit of over $1 trillion. So the interest on the debt is around 16% of all of the income the government takes in. The largest item for the national budget is Social Security. In 2010, $695 billion was spent on Social Security benefits. The second largest item was the defense budget which was $664 billion. Unemployment and welfare benefits were $571 billion for 2010. What I never understood is why the government separates spending into mandatory and discretionary. As households know all spending is discretionary. I am really boggled when the media says we have to raise the debt ceiling. If people simply called their credit card and raised their credit limit every year the credit card company would soon cut off their credit.

The United States government is bringing in plenty of revenue however Congress decides to spend more than they take in. One no brainer would be to let people opt out of Social Security. This would decrease the future obligations to future retirees which will slow down spending. The same thing should be done for Medicare and Medicaid. Some other no brainers would be to abolish the Department of Health and Human Services, Department for Education, Department of Energy, Department of Agriculture, and Department of Labor. Getting the government out of many aspects of our lives will not only save money but increase productivity since these displaced workers will have to find jobs in the private sector. Eliminating these departments would save close to $200 billion. The United States in 1948 spent under $800 per person and by 2004 this number reached $4,300 (both adjusted for inflation).

Military spending could also be reduced. We have close to 78,000 troops in Europe and over 47,000 in East Asia. I am all for the country defending ourselves but do we really need all these troops in places that are relatively free and safe. I don’t see China or Japan mobilizing thousands of troops in countries all over the world.

On the revenue side it would make sense to go to a flat tax and get rid of all loopholes and deductions to make the tax system much simpler. Americans spend 6.1 billion hours each year just complying with the tax code. Not only do Americans spent time on the tax code, but also complying with more regulations every year. In 2009 alone 60,000 new pages of regulations were added. The cost for these regulations was $1.75 trillion. Moving to a flat tax will make the tax system easier and simpler however I have a feeling: tax attorneys, CPAs, and real estate agents would lobby against a flat tax. The current tax system creates so many inefficiencies and waste. I am all in favor of a tax return that can fit in on a postcard with easy to read print. Also lowering the tax rate of dividends and capital gains to 5-10% percent would allow more Americans to keep money in their pocket and attract investment from overseas. Since 54% of people are invested in the market in some way (either through 401k plans, mutual funds, or IRAs) a vast majority of people would see an increase in their dividends. Dividends are a double tax since corporations already pay taxes on their income and then shareholders have to pay taxes on the dividends when they receive them.

Many empires have collapsed over time. It is possible for America to collapse if we don’t start taking serious steps to get our fiscal house in order. Politicians are only doing what the people elected them to do. If we don’t make changes soon our country will no doubt start to collapse like a house of cards.