Congress' attack on the federal workforce

What is the recipe for low morale in the workforce?  While all agencies have experienced similar problems with employee morale, being the largest and most visible of the federal workforce, take the Department of Defense civilian workforce as an example.  Start by not having effective incentives for high performance.  Make the main metric for performance how quickly you spend your budget, including punishment for not spending all of it; to the point where cost savings are definitely not rewarded.  So what is left when it comes to raises and bonuses?  Rather than a merit based system, we are left with a time based system; everyone with the same time gets the same benefits almost regardless of performance.  In fact, what do you get for doing a good job; more work.  

That is a bit cynical given the pride that comes from doing a good job; providing the Warfighter with the best equipment possible, helping them be the best in the world, and helping to save lives.  Unfortunately, that focus on the outcome can be overshadowed.  To that end, direct leadership spent years trying to change this culture, while refocusing on the outcome, only to be undercut by outside forces.

Add on a severely high operational tempo, for 12 years, where failure directly affects those Warfighters. Imagine constant pressure from inner desire to support those Warfighters, direct leadership and customers for more than a decade. And after successfully meeting those challenges, and while attacking the next challenge, indirect leadership and public sentiment spends their time telling the workforce they are overpaid.

The irony, of course, being relative to their peers they are in fact underpaid.  Some of those indirect leaders use statistics to prove the workforce is overpaid, but fail to mention the data set includes many job categories which do not match the knowledge, skills and ability of this workforce.  After establishing this misinformation as fact, freeze their pay for a few straight years.  Then, cut their pay because of leadership’s inability to develop an effective budget.  Not once, but potentially twice.

Ultimately, after over a decade of strenuous hard work, by degrading and withholding pay from the federal work force, Congress has created an environment where the only thing keeping the best and brightest in their current position is loyalty; loyalty to their command and mission.  Even loyalty has its limits.  Should this continue, the workforce responsible for spending trillions of dollars, due to lack of knowledge, skills and ability, will be unable to effectively perform the tasks necessary to meet such an awesome responsibility.  In the end, Congress could be much, much worse than any outside enemy.

Where is the fiscal policy?

Governments can affect the economy in two main ways: fiscal policy or monetary policy.  The most successful economies stem from governance where these two are in sync, or at least not counterproductive.  An example of monetary policy is the Federal Reserve Board’s Quantitative Easing, or QE.  Examples of fiscal policy are austerity programs implemented in the European Union.  Faced with a global economic downturn, contrary to other major economic powers the US Government chose to flood the market with capital rather than pursue austerity.  As a result, the US Economy has fared better than our European brethren; so much so that the United Kingdom has begun QE as well.  Now, though, the effectiveness of QE has begun to wane, and many are wondering why.

Why haven’t there been larger reductions in unemployment? Why are corporations holding onto excessive amounts of capital rather than investing? Why has consumer confidence only seen modest gains? Why has housing begun to level off after some modest gains? The only truly bright spot has been the growth in the stock market, which has as much to do with profitability as QE, and falters the minute the Fed begins to indicate an easing of QE.

The short answer to all of these questions, the absence of fiscal policy has been counterproductive to the point where the monetary policy may begin to harm the economy.  The ineptitude in Congress creates uncertainty for producers, consumers, investors, lenders and borrowers.  Come 01 October 2013, Congress will not have passed a budget for the fourth year in a row.  This is their main job!  Some in Congress are threatening a Government shutdown.  Even if there is a Continuing Resolution, the Government will only be funded two and a half months instead of the full year.  Some in Congress are threatening the full faith and credit of the US Government by not raising the debt ceiling. While Government spending is related to the debt ceiling, the debt ceiling is for money that has already been spent.

Consumer spending and business investment drive the US Economy.  Businesses are not investing because demand has not returned.  Consumers are not spending to protect themselves from the uncertainty coming out of Washington, and mortgage rates which have increased in no small part due to the potential of a US Government default.  Investors are shying away from the bond market for fear their investments will be undercut by a Government default.  All of this slows the velocity of money, and with it the economy as a whole.  Without decisive action from Washington, the US Economy is stuck in the chicken vs. egg paradox.

Not only has the lack of fiscal policy caused its own harm to the US Economy, but now it is causing harm to monetary policy and the credibility of the Fed itself.  After signaling an impending taper to QE, the Fed decided to keep the program in place.  In large part, the reason for this change is an attempt to push past the chicken vs. egg paradox. 

Unfortunately, monetary policy cannot do this on its own.  And what is worse, as the Dallas Federal Reserve Bank President Richard Fisher correctly points out, this turnabout degrades the credibility of communications coming from the Fed. To compound matters, Mr. Bernanke’s impending retirement creates uncertainty for monetary policy.  No disrespect to the candidates vying to succeed him, but markets dislike change.

Without decisive fiscal policy, monetary policy will become less and less effective at stimulating the economy.

It's all about the batteries

The electric car has been around for some time now, going back to GM’s EV1 in the mid-90’s.  All the major auto manufacturers have a version of an electric car or hybrid.  Why then are GM and Tesla Motors beginning to wage a battle over electric cars?  It’s the batteries. 

I had the opportunity to see an EV1 up close and personnel.  Other than the lack of noise, the thing that struck me most was the size of the batteries.  Even then, I could see this car was not going to be embraced by the commercial market due to these batteries and the economic principle of a substitute good.

Let us start by going back to the late 19^th and early 20^th century where the saying was, “Coal is King.”  Looking back 100 years, this seems like an odd saying; but at the time coal powered industry, homes and shipping.  Then some changes started to take place.  The automobile was invented.  For decades this was not much of a problem for coal, until Henry Ford brought cars to the masses and demand for gasoline increased.  In the early days, individuals would get their gasoline from the hardware store.  A fragmented, inefficient industry, John D. Rockefeller saw an opportunity.  He was a driving force in developing the infrastructure to decrease the costs of oil extraction and gasoline refinement, and then distribute gasoline to all of Mr. Ford’s customers.  With demand going up, and production costs coming down, oil ascends and coal is no longer king.  After the completion of the interstate highway system (more infrastructure) oil’s dominance is complete.

This is the resource electric cars are trying to displace.  Two events must occur for this to happen, and are the reason electric cars have not been embraced by the commercial market even with close to two decades of expending Government and industry resources. 

First, costs must go down.  Key here for batteries is the ability to efficiently store energy.  Electricity does not have much of a shelf life.  As a correlation, power plants spend a significant amount of time and money to match demand; too little demand, and electricity is wasted.  The current batteries for electric cars are both inefficient and costly.  An intrinsic cost is the investment in time by the consumer.  Not only did the batteries for the EV1 fill the entire trunk and under the back seats, they took an excessive amount of time to charge.   Simply put, electric cars will not take over their gasoline driven brethren until batteries are more efficient and less costly.

Second, there must be an infrastructure.  Cars existed for decades without much traction in the commercial market.  Mr. Ford’s production line and Mr. Rockefeller’s efforts to develop a distribution system led to increased car sales, which then led to increased gasoline sales; until the point where we have gas stations on each corner in some cities.  For electric cars to be embraced by the commercial market, there has to be an infrastructure.  This too must overcome a major concern for safety: What if the battery dies and I am too far from home or anywhere else to charge my car?  I can bring gas to the car, but how do I bring electricity?  With that, the infrastructure must account for the time to charge the batteries.  Mr. Musk of Tesla Motors intends to offer long and short charging (with the short coming at a modest fee).

Without serious improvements to batteries and the infrastructure to charge them, proponents of electric cars are just spinning their wheels.

Gun control does not have to infringe on the 2nd Amendment.

Due to recent shootings in Chicago and at the Navy yard, the topic of gun control again crashes to the headlines.  Gun control advocates, led by President Obama, have already come back out; soon to follow will be the gun owner advocates trying to refute them.  Let us start by looking at the first gun law which reads, “A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.”  Assuming the individual right theory, it seems pretty plain the people of these United States shall not have their right to bear arms infringed.

Many laws have been floated attempting to restrict “assault weapons”, “automatic weapons” or magazine size.  Some have argued, an individual does not need a “military style rifle” to go hunting or that a shotgun is sufficient for home security.  To these, I point back to the Second Amendment; which makes no reference to recreational use or sufficient to protect yourself.  Regardless of your opinion of gun ownership, a Constitutional Amendment is required to enact laws such as these.  The Constitution was written to be amended, and it has happened 27 times.

Second Amendment advocates also extend this idea to complete background checks and registration.  With the exception of private to private transactions, how is a background check a bad thing?  To the gun sellers that bemoan the additional costs, then don’t sell guns.  Beyond that, it is a bit scary the local, state and federal repositories for criminal information are so incomplete and disjointed.  Regardless of gun laws, updating these systems has to happen.  As an analogy, when my son entered Kindergarten I had to agree to a background check to be allowed to be a chaperone.  And you know what, I did not have a problem with protecting my son and his classmates by having a review of all those that have access to them. How is this any different?  Extending even further, using this same idea and combining with some conspiracy theory, gun control opponents claim the Government would use the registration to confiscate all weapons. As a society, we register cars, homes and even our children; none of which have been confiscated by the Government.  With that, legally made weapons are already registered with the ATF; is it such a stretch to confirm to whom the weapon belongs?

As usual, the simple truth lies somewhere in between.  Without a Constitutional Amendment, laws limiting the type and power of a weapon will not, and should not, stand.  If two-thirds of Congress and three-fourths of the states agree these types of controls are necessary for the safety of US citizens, then get it done.  Short of that, proper background checks and registration are reasonable, common sense controls that do not infringe on a citizen’s right to possess a firearm.

Tough medicine needed for Social Security

The nonpartisan Congressional Budget Office announced Federal debt could match GDP in 25 years. In large part, this is due to the continuation of large increases in costs for “entitlement” programs.  Without cuts to those programs or increases to revenues (i.e. taxes), the fiscal stability of the US economy is in jeopardy. It is time to take some bad medicine.  It is time for Congress and the White House to issue an apology to everyone under the age of 40 (which includes this writer).

Social Security is not an entitlement.  It is a Depression Era promise the US Government made to its citizens; we will not allow Americans fall to the wayside.  It was written in a time with unemployment rates never seen before, or since; rampant poverty; and where each successive generation was not only larger, but also outlived the previous. But, look at the title Social SECURITY; not Social PENSION, Social RETIREMENT PLAN or Social THE GOVERNMENT WILL TAKE CARE OF YOU UNTIL YOU DIE. The intent was never as the plan has largely been implemented.

Today’s demographics cannot support a top heavy system with a larger population receiving outlays than the ones making contributions; especially when the population receiving outlays has life expectancies far greater than when the law was written. An annuity basic: the longer the annuity has to pay the larger the principal OR installment payments (i.e. taxes).  Because of this, when I was a financial planner, contrary to my training which taught building a retirement plan depended on employer plans (pension or 401k), personal investment and Social Security, I advised clients to depend only on employer plans and personal investment.

I, with many of my Generation X, Y and Millennial brethren, have no expectation we can rely on Social Security in our golden years.  It is time to make the necessary changes, write the apology and tell these generations not to plan on having it.  The key word is plan. This is not a call to repeal Social Security.  The program itself needs to exist for SECURITY.  However, lines need to be drawn, and adhered to, on total wealth.  It is absurd to think Warren Buffett receives a Social Security check.  More absurd is to continue to allow $1.3 Billion in mis-payments.  Increased funding for technology and personnel to verify enrollment, claims and payments will save tenfold the cost.  These are simple, common sense changes that can save the Social Security system as a whole, and will directly contribute to stabilizing the US economy.

For those in these generations that contend it is not fair to continuing paying into a system they are not guaranteed to receive a benefit from, the payment will come either way.  Rather to plan my own retirement and pay into Social Security at a decreasing amount over the next 20 years, then continual increases to the general tax rate which in the end would strip away a much greater amount from my weekly check.  The total cost in increased tax revenue and extra costs associated with economic instability will be far, far greater.

*Matthew R. Jewell: Currently a Contracts Manager for a large organization; former financial planner and holder of Series 6 & 63 Securities, Life and Health Insurance Licenses; Bachelor's Degrees in Mathematics and Economics from the University of Detroit Mercy and Master's of Business Administration from Wayne State University 

A Government shutdown is not leverage

Is the United States the greatest country with the best medical care in the world? An affirmative answer to this question is incongruent with allowing a large population of US citizens to subsist on little to no health care.  Albeit a clumsy effort, the Affordable Care Act attempts to address this incongruence. Either we act like the greatest country in the world, or continue on a hypocritical path. 

A primary argument of detractors to the Affordable Care Act focuses on the increased costs and expense borne by taxpayers. Based on this reasoning, the Act has foisted billions onto the national debt that will subsequently be saved with its repeal. This is a fallacy in that these costs already existed, paid by consumers, state and federal governments.  Prior to passage of the Affordable Care Act, a similar amount of costs were passed onto consumers as a hidden tax through: laws preventing hospitals from turning away people in distress; 4000% variances for the same joint replacement surgery; excessive and sometimes unnecessary prescription costs covered by the faceless healthcare insurer, unseen or unconcerned by the consumer; and lack of preventative care leading to increased Medicaid, Medicare and Social Security Disability claims. Unable to avoid or unwilling to limit these costs, hospitals and insurers pass these costs onto those that do have the ability to pay. 

No doubt, the final form of the Affordable Care Act and its implementation have serious faults.  The Federal Government provides affordable healthcare to hundreds of thousands of individuals which looks nothing like the Affordable Care Act. Historically, government engineered markets have not proven successful. With that, while the Affordable Care Act recognizes the variance of markets between regions and states, providing States funding if only they follow rigid rules (and some yet completed rules) fails the test of ask me to do it or do it yourself, but don’t ask me to do it and then tell me how. Finally, the bungling attempt to solve the problem of ensuring everyone truly participates and has sufficient healthcare coverage, resulting in a Supreme Court ruling. All of these are serious faults with the Affordable Care Act in its current form.

Even so, attempting to defund the Affordable Care Act in order to starve it is near sighted and misguided.  The Affordable Care Act is a law.  Laws can be changed.  Opponents to the Affordable Care Act have been unwilling or unable to come up with reasonable changes or a reasonable replacement. The current leadership in the White House and Senate will not allow repeal, but may agree to changes. Instead, opponents threaten to shut down the entire Government like a petulant child threatening to take their ball and go home. Ignoring the fact Congress has not passed a budget in 4 years, one of its main purposes, the current Continuing Resolution is not directly related to the Affordable Care Act.  Further, neither is the upcoming battle over the debt ceiling.  Though not as easily measured as within appropriations in the federal budget, complete repeal of the Affordable Care Act would return society to imbalance and insidious hidden taxes tantamount to the cost of the Act itself.

*Matthew R. Jewell -  Currently a Contracts Manager for a large organization; former financial planner and holder of Series 6 & 63 Securities, Life and Health Insurance Licenses; Bachelor's Degrees in Mathematics and Economics from the University of Detroit Mercy and Master's of Business Administration from Wayne State University