The chained CPI is a statistically flawed and inequitable approach to determination of the cost of living.  It should be opposed as a means of indexing Social Security and other safety-net programs with all of the vigor advocates for the elderly can muster.  Nevertheless, the unfairness of the CPI enterprise in general should not be reduced to a discussion of its impact on the elderly.

One argument against the chained-CPI by my fellow progressives is that the elderly have a different purchasing pattern than the non-elderly.  This is a specious argument.  Goods and services purchased by upper income elderly households will be much different than the goods and services purchased by low income elderly households (say expenditures of the person living on the average monthly Social Security benefit of $1,230 versus a retiree with an income of $5 to $10 K per month).

Well-heeled retirees will devote more of their income to travel, entertainment, and other purchases unaffordable to the poor elderly.  Furthermore, regressive taxes, user fees, and other necessary services will consume a larger proportion of the budget of a poor household than that of an upper income household.  For instance, increases in charges for city services such as water, sewage, and trash pick-up* are amongst the largest increases we’re seeing in the CPI but these necessary services are weighted extremely low for the purposes of calculating the aggregate CPI.

Other current big increases in the CPI include state and local sales taxes, child care, and education.  Furthermore, food and clothing purchases are taxed at approximately 8% in most locales in the United States.  These are regressive taxes, which have increased over the past 30 years while income taxes have decreased.  Due to a shrinking (and already shrunk) tax base, the elderly in low income, distressed, inner-city neighborhoods pay a much higher property tax than their peers in affluent, suburban neighborhoods.

For instance, in Jackson County Missouri – the county in which a government-abandoned-neglected, African-American ghetto is located – the assessed valuation of a home is 19% of market value while it is only 11% in Johnson County Kanas – one of the most affluent suburbs in the United States.  The mill levy is 40 mills in Johnson County, Kansas and 80 mills in Jackson County, Missouri. If this isn’t bad enough, the equity of many home owners in Jackson County has been practically wiped out due to the subprime fiasco, foreclosures, flipping of houses, absentee owners, and neglect by city, state, and county government.

Cost of living is not a matter of old and young.  Rather it is a matter of poor and rich and everything in between.  The poorer you are, the more unfair the current methodology treats you.  Except for the brouhaha over the current chained-CPI gimmick proposed by the President and misguided congresspersons, the CPI is not a subject of much interest to the public.  Given the major impact of official measures of price fluctuations on the masses, this is rather unfortunate.  Goods and services reflecting the largest price increases constitute a major share of budgets for middle and low income households while they hardly impact an upper-income household.

*For example, the aggregated May 2012 – May 2013 CPI-U percent change increase was 1.4%.  The increase in water-sewer-trash collection services was 5.2%; intracity bus transportation was 3.4%; health insurance was 4.3%; tuition, other school fees, and child care was 3.6%.  No major category such as food in the aggregate (1.4%) and energy (2.4%), or shelter (2.3%) was less than the overall aggregated CPI of 1.4%.

We want to thank the New York Times for pointing out in an editorial today (January 13, 2013) that the “chained CPI” is a bad idea.†  As the editorial claimed, this attempt to lower Social Security benefits is based on bad math and bad logic.  Nevertheless, the flawed and unfair notion of suppressing cost of living increases with a “chained CPI,” is not the worst CPI problem facing retirees and workers. The way in which the CPI is calculated now and has been calculated for a considerable time in the past is a much bigger problem.

It is time that we have an honest conversation in this country about the statistically and scientifically flawed – absurdly flawed – methodology for determining the overall increase in the cost of living.  In this discussion, let’s not sugar coat the role of the Bureau of Labor Statistics – the agency responsible for the gargantuan task of measuring changes in prices of literally thousands of goods and services.  Inside the Washington beltway, it is not considered acceptable in polite company and polite conversation to tell the truth about such things as professional wankery on behalf of the rich and powerful.  But we are not in the Washington beltway.

Twelve Month Increase in the Overall Cost of Living: November 2011 to November 2012

The latest BLS report on the change in prices for commodities and services indicates that the overall cost of living between November 2011 and November 2012 rose 1.8%.*  The final report has not been released yet but it will not vary significantly from the most recent release.

If you are a senior on a relatively low, fixed income or a low wage worker, this will come as something of a surprise.  In fact, this news will probably make you angry because you are amongst the folks struggling to pay rapidly increasing inner-city bus fares, rapidly rising costs of child care, health insurance premiums – if you have health insurance at all – rapidly rising water, sewer, and trash pickup services, rapidly rising elementary and secondary tuition and fees, and rapidly rising higher education tuition for training that the power-elite says you need to become competitive in the labor market – to name a few inflationary aspects in the exchange of goods and services in today’s America.

The primary problem is this:  The BLS claims that many items with the largest price increases are not a big part of household budgets – even those household budgets in the lower income strata of society (I doubt if folks in the middle income strata would think the BLS understands their budgets very well either).  Professionals in the agency responsible for a fair measure of price increases can justify this statistically by simply considering overall averages for what surveys indicate is spent by households on a huge variety of goods and services.

Below is percentage price increase of a select set of items and the weight assigned to them by the BLS (the weights are the proportion or percentage of a theoretical household budget – all weights sum to 100):

 Imagine a single mother with one or more children or a senior citizen depending upon Social Security – think of any middle class family.  Does it seem likely that health insurance, school tuition and fees, child care/nursery school, and public utilities such water, sewer and trash collection services comprise only 3.872% of a household budget?  With rent and food, these items made up 49.436% of a household budget, on average, in the year between November 2011 and November 2012 – according to the BLS.

Overall inflation was low for the past year because of such items as energy (.3% increase, 10.184 weight), commodities less food and energy such as new vehicles (1.4% increase, 5.507 weight), household furnishing and supplies (-.1% increase, weight 3.292), food at home (1.8% increase, 14.175 weight) and rent (2.2% increase, weight 31.389).

In the real world, working people struggle with paying rent, accessing health care, paying for child care, school tuition, and food.  If only they would, after meeting all those needs plus others too numerous to mention in this short document, have half of their earning left over for entertainment, vacations, and other pieces of the American pie to which we all aspire.

Things Will be Getting Harder for the Masses

 Most certainly, readers of this bulletin noted the big increases in items related to city services.  As the Federal government cuts taxes and devolves an increasing number of services normally undertaken at the Federal level, local governments will be strapped for funds to provide essential services.  Regressive but increasing state and local user fees and sales taxes will consume ever larger portions of household budgets.

The relatively low increases in energy and food during the past year can be explained by the volatility in these commodities, which fluctuate due to speculation in the commodities markets, weather, and other factors.  It is unlikely that food prices will not spike in the near future.  Drought, an oligopolistic grain commodity industry,  rising demands in developing nations, and other issues will most certainly put upward pressure on food prices in the near future.

Due to a restructured production system in the United States – the shipping of jobs to cheaper labor markets and robotization –  fewer and fewer people have the income to buy new cars, new homes, and other large ticket items. This has created a negative feedback loop – fewer jobs, less income, less demand, and the cycle reiterates.  As worker income drops, government revenue drops, which is also due to the chutzpah of wacky, right wing, libertarian ideologues and their billionaire funders. Increasing costs of state and local government, education, and child care hit the lowest income groups the hardest but it’s not easy on the middle class either.

Artificially Low Inflation Benefits the Power-Elite

 It is not easy to adequately explain the CPI to most people who have little time in their busy lives to read about and think about something as complex as price economics in the largest economic system in the world.  This bulletin certainly doesn’t do justice to the issue.  But we must begin to work at communicating the basics of the BLS system and its unfairness to all but the very affluent.

Much more than suppression of Social Security benefits is at stake.  Measures of such phenomena as poverty and worker income growth are defined and measured in relation to the CPI.  Workers’ wages and salaries are impacted in significant ways by what the BLS publishes as the official CPI.  If the government – at the behest of the power-elite – can create a price change reality to the advantage of the power-elite, employers can much more easily justify stagnant wages/salaries and legislators have an easier time denying increases in the minimum wage.

In this series of posts, more will be written about the cooperation of the BLS with the power-elite in suppressing the CPI.  Evidence abounds that this one agency in charge of fairly and validly calculating prices and their impact on the cost of living is not acting in the peoples’ interest.  Look for several upcoming bulletins in the next few weeks, which will further explain flaws in BLS methodologies and the reason that agency is promoting these flawed practices.

†see: “Misguided Social Security Reform,” New York Times, The Opinion Page, January 13, 2013, page 10

*see report at:  http://www.bls.gov/news.release/pdf/cpi.pdf

My last post – January 9^th – generally explained some of the statistical gimmicks utilized by the Bureau of Labor Statistics to suppress the consumer price index and consequently reduce cost of living increases for a broad array of retirement programs.  Redefining how the CPI is calculated amounts to a cut in benefits for retirees – including veteran retirement, disability, and Social Security.  This is a big deal.  The cuts we are talking about are not small.

According to my fellow activists and good friends Nancy Altman and Eric Kingson of Social Security Works, the decrease resulting from a so-called “chained CPI” will impact Social Security beneficiaries thusly:  the typical beneficiary will lose $500 by age 75, $1,000 by age 85, and $1500 by age 90 (see their Huff Post article at http://www.huffingtonpost.com/eric-kingson/chained-cpi-social-security_b_2376108.html).  Nancy and Eric are both nationally recognized leaders in the field of Social Security.  Nancy has written one of the two leading histories of the Social Security system and is considered one of the three leading contenders for the Social Security Administrator position.  She will be guest on Sharon Lockhart’s KKFI program “Every Woman” at 3:00 PM on Saturday, January 12^th.

This post explains the current methodology for calculating the CPI.  Even without further unfair suppression of cost of living through the chained CPI gimmick, the working classes, poor, and seniors are now losing ground due to unfair and invalid methods for calculating price increases and their impacts on subgroups of the population.

The Current CPI:  Bad Math Foisted on the American Public by Statistical Bullies

I am not approaching the issue of the CPI from the vantage point of a “mainstream economist,” but rather as a statistician. It is obvious to me that the statistical approaches to calculation of the CPI are invalid and seriously disadvantage the elderly, the poor, and to a lesser, but still serious, extent middle income workers. I will explain how certain categories of goods are weighted and how this is one of the major reasons the CPI calculation is unfair to particular groups of Americans.

It seems as though BLS officials and a group of conservative economists have engaged in some “inside the beltway wankery” to snow the public with abstruse “hedonic regression models” and other forms of mathematical dissimulation.  This is in actuality a form of bullying.  Economists and public officials pushing their agenda with patently absurd pseudoscience know that only a very tiny proportion of the population will have the expertise and mathematical wherewithal to counter what seems to them (the public) to be illogical on its face.

People know what they are paying for housing, food, health care, utilities, and a broad array of other goods and services necessary for meeting basic needs.  A large segment of the U.S. population – especially those at the lower income levels – know that their costs of living increased more than the official 1.8% in 2012.

Statistical bullies use abstruse mathematical concepts to foist unfair public policy on the poor and middle income wage/salary classes and seniors.  Manipulating the CPI and keeping it artificially low works to the advantage of the super-rich and mega-corporations, i.e. the power elite. This is a much bigger deal for the economic well-being of the masses than is commonly understood by most people.

This blog post will discuss math that most everyone understands.  What I present below should be devastating to any argument for reducing Social Security benefits through manipulation of the CPI.  This type of material is a real “eye glazer” for most people.  However, as I said, it is a big deal and push back is critical for stopping the economic deterioration of the middle and low income classes and retirees.  Please let me know if you have any questions in the comments sections below.

The Market Basket & the Weight Given to Categories of Goods & Services by the BLS

For the most part, the BLS determines prices of goods and services through a massive data collection process (mainly through a survey of businesses).  Prices are collected on thousands of goods and services, which are grouped into categories such as “food,” “energy,” “apparel,” “shelter,” “medical care services,” “transportation services,” and “education” – to name a few.

Within each of these general categories are more specific goods and services.  For instance, within “transportation service,” one will find public transportation, within which one will find “intercity bus fare.” Each category is assigned a weight.  All weights must sum to 100.  For instance, food is weighted 14.175; energy is weighted 10.184.  The weight for “medical care services” is 5.387.  These weights also provide a clear idea of what the BLS thinks is the proportion of each good or service in a consumer’s budget.

As already mentioned, the BLS calculation of the overall increase in consumer prices between November 2011 and November 2012 was 1.8%.  Also, as already discussed, not all items in the market basket contributed equally to this “overall” increase in the CPI.  Here’s how it works:

“Medical care services” are weighted by the BLS at 5.378, which is .05378 or 5.378% of the total.  Health care services increased 3.7%.  The contribution of this 3.7% increase to the overall increase is (.05378 * 3.7)/1.8 = .12 or 12% of the overall increase.

How were the 5.378 weight and 3.7% increase in medical care services derived?  Within medical care services one will find three major subcategories: “professional services,” “hospital and related services,” and “health insurance,” weighted 2.987, 1.749, and .651 respectively.  These weightings sum to the overall weight for medical care services of 5.378.  The percentage price increases were as follows: professional services = 2.0, hospital and related services = 4.4, and health insurance = 11.2.

The 3.7% increase in medical services is derived as follows:

[(2.987/5.378) * 2.0] + [(1.749/5.378) * 4.2] + [(.651/5.378) * 11.2] = 3.7.

The problem with this methodology is this:  different subsets of a population have very different budgets, which do not reflect the BLS market basket based on an aggregated total.  A senior on Medicare must spend $300 per month on premiums for Part B, Medigap, and Part D or have co-pays and deductibles. The increase in the Part B deductible from Social Security checks has been practically double the rate of inflation for the past 10 years.  Furthermore, as discussed next in this post, some of the commodities and services such as city services, public transportation, child care, tuition, and others that have had the highest percentage increases are weighted low by the BLS but loom large in the budgets of the working classes and seniors.

Why Is the BLS CPI So Low When You Feel So Much Pain From Price Increases?

The low CPI of 1.8% for the past year was low for four reasons:

1. The BLS weights categories based on the ratio of purchases in each category to the quantity of purchases overall.  For instance, energy purchases accounted for 10.184% of all purchases but had a low percentage annual increase of .3 or three tenths of 1%
2. Goods and services with the highest percentage increases had the lowest weightings.  For instance, health insurance increased by 11% – the highest of any category (it is actually a subcategory of “medical care services) – but has been assigned a weight of .651% by the BLS.
3. The weights assigned to each category are based on aggregated data and do not consider subsets of the population.  A poor person’s budget (as well as a senior citizen’s on a fixed income) will reflect far different proportions (weights) for high percentage increase items such as bus fare, tuition, child care, and city services (sewer, water, and trash pickup).
4. In a down economy – which we have had in the past year – sales of apparel items, new vehicles, appliances, and other commodities are slow.  Retail outlets will be more likely to move these commodities through sales and other mechanisms for keeping prices low.Indeed prices for transportation commodities (less motor fuel) increased only .1% or one-tenth of one percent.  These mostly big ticket items are not as likely to be in the market basket of poorer Americans and retirees dependent upon Social Security.  And yet, these commodities comprise approximately 20% of the market basket weights.

Consider the following market basket categories:  “water, sewer, and trash collection,” “intercity bus fare,” “elementary and high school tuition & fees,” and “child care and nursery school,” which had price increases of 6.9%, 4.8%, 3.5%, and 2.6% respectively.  Along with medical care and health insurance mentioned above, these expenditures have a major impact on working family and retiree budgets.  However, they are weighted 1.187% (“water, sewer, and trash collection), .147% (intercity bus fare), .368% (tuition & fees), and .386% (child care).

Summary

The explanation of the CPI in this post focuses on only one facet of mathematical problems with calculation of the overall increase in prices.  However, the weighting of various commodities and services is a much bigger cause of unfairness of the CPI relative to poorer people and retirees on fairly low fixed incomes than the current brouhaha over the chained CPI – although that is a serious problem.

I was inspired to begin a discussion and explanation of the CPI by members of Jobs & Justice – a progressive activist group comprised of economic faculty, labor leaders, business persons, and other activists who have joined together to develop a strategy for economic justice.  At a meeting the other night, members of the group discussed a need for helping the public understand what the BLS methodologies are doing to their economic well-being.

Hopefully, this post will provide some clarity to the issue.  It is not easy to reduce the CPI to a short post.  The Tallgrass Activist will continue to explicate the basics of the CPI and their implications for working families and retirees.

*CPI data referenced in this post can be found at http://www.bls.gov/news.release/pdf/cpi.pdf

Right-wing and anti-Social Security forces in the U.S. have been successful in suppressing retiree benefits, workers’ wages/salaries, and programs indexed to the consumer price index (CPI).  Because of many techniques for suppressing the official measure of the CPI –advanced by conservative economists over the past few decades – middle and low income wage/salary earners and retirees have lost ground to the cost of living.

One of the gimmicks now offered by conservative economists, politicians, bureaucrats, and pundits, is known as the “chained CPI.”  What is the “chained CPI?”  This bulletin will “boil it down” and provide a catalyst for a wider discussion of this misguided notion.  In general, it must be said that in the history of big pseudo-scientific ideas, the chained CPI ranks right up there with the homunculus, Piltdown Man, the free market, the bleeding of patients with leeches, eugenics, and Lysenko genetics.

The chained CPI and its underlying justification by the Bureau of Labor Statistics (BLS) through a subset of assumptions about human behavior are little more than cynical attempts at manipulation of the CPI to the detriment of workers and retirees and to the advantage of corporations and the super-rich.  This bulletin will cover three concepts essential to the chained CPI construct: (1) “substitution bias,” (2) the “hedonic adjustment,” and (3) the geometric mean versus the arithmetic mean.

Any lay person with no more than a basic knowledge of high school math can understand these concepts and no one should be intimidated by them.  Trust me; the chained CPI is the invalid reduction of the inordinately complex dynamics of consumer behavior and price fluctuations in the world’s largest economic system to a few simple mathematical models (the U.S. officially has a GDP of nearly $16 trillion or $16,000 billion).  In the world of science, this fallacy is known as reductionism.  You will see that fallacy clarified as you read on.

Let’s look at the three concepts underlying the chained CPI construct:

Substitution Bias

Substitution bias simply means this:  when prices rise on a staple or service regularly purchased or needed by an individual or group of individuals, the individual or group of individuals will substitute a cheaper product or service for what was regularly purchased or would be purchased; ipso facto, when prices rise, the cost of living actually declines.  For instance, if you are accustomed to buying steak and the price of steak increases, you are compelled to purchase ground round; therefore, your cost of living has actually gone down.

Believe it or not, that is the theory.  That’s pretty much all there is to it.  Even though it doesn’t pass the laugh test, economists have been all too eager to come forward with complex “econometric models” to overlay this nonsense with a patina of science and mathematical validity.  As a statistics professor, I can tell you that these models are of no higher quality, i.e. statistical validity, than the nonsensical assumptions on which they are based.

Hedonic Adjustment

Do you think that higher prices for goods and services imply that you have a much better product than you had at a lower price, and therefore your cost of living actually decreases because of all of the bells and whistles on the ever expanding array of the gewgaws, electrical devices, apparel, etc. that are offered up to consumers these days?  Have you looked at the charges on your phone bill lately?  Were they there in 1950, 1960, 1970, 1980, or even 1990?

It is this notion that has led the BLS to lower the CPI in recent years in spite of so many increases in the prices of necessities without a correlative increase in quality.  What are students and families paying for education these days versus the 1960s or even much later than that?  What does your health insurance cover these days for the price increases you have seen?  OK.  Enough of this – we could go on and on about the absurdity of this notion.

Geometric Mean Versus the Arithmetic Mean

Considering that the CPI involves a survey of thousands of products in a “market basket” of goods and services, calculating averages is a major mathematical technique for arriving at changes in prices.  There is more than one method for calculating an average.  For instance, by middle school, practically all numerically literate people have a good handle on the arithmetic average.  Unfortunately, only mathematicians/statisticians have exposure to the other types of “means.”  For instance, the “geometric mean” – applied now by the BLS in calculation of the CPI – is calculated by taking the product of all values in a dataset rather than summing all of the values.

Here is an example of an arithmetic mean versus a geometric mean:  three people ages 19, 20, and 21 would have an average age of exactly 20, i.e. (19 + 20 + 21)/3 = 20.  A geometric mean would be the cube root of 19 * 20 * 21 = 19.98331943.  The geometric mean in this case is ever so slightly lower than the arithmetic mean.  Three issues are important here: (1) very small reductions in the CPI due to mathematic gimmicks are compounded over time and result in major losses of benefits and wages, (2) as the number of values and variance of the distributions of values entered into the calculation of the geometric mean, divergences of the geometric mean and the arithmetic mean increases, and (3) the CPI has been suppressed by about ½ of 1 percent each year by this technique throughout the past decade (thinks to the Boskin Commission in 1996, which is a subject for a later bulletin).

Summary

No valid, credible, empirical/scientific evidence exists to support substitution bias and quality improvement, which have resulted in the hedonic adjustments, lower CPIs, and, consequently, a call for aneven more conservative CPI known as the chained CPI. Nevertheless, the BLS, an agency responsible for fairness and economic justice involved with the determination of price increases and charged with looking out for the well-being of all U.S. citizens in adjustments in the CPI, has decided to apply a mathematical gimmick in repressing benefits, wages, and salaries.  They are, in fact, making life more difficult for the broad mass of working people and retirees.

No doubt, tracking changes in in prices of goods and services within the U.S. economic system is a massive and complex undertaking.  Nevertheless, we expect more than overly-simple models, the origins of which can be traced to conservative think tanks and the results of which advantage the wealthy and penalize the masses.

It is important that we call out the stewards of our economic well-being and demand that we have an open and honest explication of reasons for suppressed wages and benefits along with discussion of poor and middle class quality of life and how it has changed due to the disappearance of masses of good paying employment and major increases in necessities of life – including education, health care, and housing.

Officially, the CPI has increased at an average of 2.1% from 2000 through 2011.  Even considering the negative -.34 CPI change in 2009, it would seem as though 2.1% is an unbelievably low average increase in the CPI over the first decade of the current millennium.  Enough is enough.  We expect fairness and will demand it.

The Latest Stage in Creeping Corporatism

What do employees think about paying income taxes that can be kept by their employer for 10 years to use, interest free, as management desires?  Do they even know?  Do the citizens who are looking at draconian cuts in government services – including Medicaid for the poor and elderly – know?  Kansas and nineteen other states have just such a program.  In Kansas it is euphemistically called the “Promoting Employment across Kansas,” or “PEAK” program.

PEAK works this way:  move your jobs to Kansas and you can annually keep $4,800,000 of your employees’ state income taxes for up to 10 years and pay no interest.  In other words, taxpayers are providing corporations with an interest free loan up to $48,000,000 over a 10 year period.  One company that qualified for such a deal is AMC Corporation – the second largest owner of movie theatres in the World.

AMC was purchased a few years ago by a consortium of investment firms, including Bain Capital and the Carlyle Group.  Movie theatres are not an investment with a bright future.  Nevertheless, the owners of AMC were able to dump the company on the Chinese owned Wanda Dalian Group. It was Bain, et al. that moved the company across the state line to Kansas with all sorts of sweet deals.

Why Does China Want to Expand Its Role in the Movie Industry?

As David Denby discusses in the latest issue of the New Republic, the movie industry has, for the most part, degenerated into a shallow, boring, digital form of entertainment designed to appeal to a generation raised on video games.  Movies goers with a bent toward artistic depth and averse to having their intelligence insulted are staying away from theatres in increasing numbers and profits in the industry are sagging.

Adding 5000 screens in the United States to their vast entertainment empire, Wada Dalian Group has grabbed a prime opportunity to spread Chinese culture in this country.  Look for them to retain very talented Hollywood professionals in production of highly sophisticated and subtle propaganda.  Given the American public’s apathy, acquiescence, and lack of critical thinking skills, impact of subliminal and even clever overt messages will escape the attention of most movie audiences.

Let’s keep in mind that the rulers of China are autocratic, totalitarian, thugs who will stop at nothing in maintaining and expanding their power.  Furthermore, let’s not underestimate their cleverness.

Why the PEAK program now?                                                                                                      

For decades, corporations have been colluding with state and local governments in foisting give-aways on taxpayers in the form of property tax abatements, factories built by taxpayers at no cost to the companies, and other incentives to move jobs into a particular state or locale.  In Kansas, corporations have, in addition to all of the usual goodies, received practically all lottery money through two programs known as Kansas Industrial Trainingand Kansas Industrial Retraining – otherwise known as “KIT-KIR.”

The sad truth is that all of this does nothing for declining job opportunities on a national basis and very little at the state and local levels.  Nevertheless, taxpayers have rolled over for these rip offs because the jobs dangled in front of them, but not necessarily materializing, fulfill a basic human psychological drive to eliminate worry about jobs.  That’s about as far as the public’s thinking goes when it comes to these anti-democratic, corrupt deals.  Very few Kansans even know their lottery money has been handed over to the likes of Boeing Corporation for decades, which is now pulling up stakes and leaving the state.

For some time now, the public has been tested by corporations with the help of rubes on city commissions and in state legislatures.  With very few exceptions, citizens have acquiesced in this government-corporation merger.  Why not push it to ridiculous limits and see how it works.  Employees can now pay their taxes directly to the corporation, which can keep them for a considerable period of time.  So far, it’s working.

Historically, Corporatism and Fascism Have Developed Simultaneously

A Fascist ruling elite doesn’t concern itself with what citizens think, need, or want.  Democracy withers way, incrementally, and government evolves eventually into a government for servicing corporations – especially in the financial services in this day and age. The wealthy elite also sees to its interest – while at the same time an ideological right wing political party is stoked and appeased.

Bureaucratic operatives dare not defy the wishes or the best interests of the corporate power structure.  I experienced this when I called the Kansas Department of Revenue and inquired about the AMC deal and the PEAK program in general.  The gentleman to whom I was referred refused to tell me anything by claiming the right of welfare laden corporations to “confidentiality.”  Citizens have no right to know the amount of revenue lost through this latest and most outrageous funneling of tax money to corporation.  Check it out for yourself.  I spoke to a Mr. Richard Cram at the Kansas Department of Revenue.

I called the Department of Commerce, the entity responsible for negotiating these deals with corporations, and was referred to a Mr. Wayne Groves.  This gentleman did acknowledge that AMC had received the deal but wouldn’t tell me much else.  For instance, I asked for a list of all corporations receiving the PEAK benefits.  Most certainly, for Cerner to move across the state line, it would need as sweet a deal as AMC. All Mr. Groves would say that the Department of Commerce has a database of companies participating in PEAK and that I had no right to know who they are without a freedom of information request.

This Is Just the Beginning of this Story on This Blog

As the Brownback experiment in Christian Fascism and Corporatism proceeds, we will see elderly suffer from underfunded Medicaid programs – in fact, it will be interesting to find out if the few companies receiving managed care contracts will be in the PEAK program.  Tax money handed over for use of private industry will be unavailable for poor children and adults, many of whom will experience hunger and homelessness as food and housing prices continue to escalate.

This is a serious and alarming story that needs to be told.  It will be told on the Tallgrass Activist.

Another mainstream media assault on people born between 1946 and 1964 appeared today in the form of an Op-ed piece by New York Times columnist Bill Keller (see “The Entitled Generation,” July 30, 2012).  The author was later given a forum by Neal Conan on NPR’s Talk of the Nation program – during which he was not challenged by Conan.

Taking his cues from the Wall Street front group the Third Way* (a supposedly moderate wing of the Democratic Party),  Keller joined an ongoing deficit hawk rant, by which an imaginary “baby boom generation” is blamed for every catastrophe from economic collapse to juvenile diabetes.  The Op-ed piece is nothing less than a smear of tens of millions of Americans – a large proportion of whom are suffering serious economic losses and are looking forward to considerable hardship in their old age.  Indeed, he is supporting a long-running, concerted effort by various wealthy conservatives to reify everyone born between 1946 and 1964 into a “thing” that can be demonized and thereby serve as justification for continuing cuts in Social Security (which have been taking place since 1983).

What did Keller have to say?  He launched his smear by borrowing several quotes from pundits and politicians.  For instance, he uses the following pearl of wisdom from former Clinton staffer Paul Begala’s Esquire article entitled “The Worst Generation:” “The Baby Boomers are the most self-centered, self-seeking, self-interested, self-absorbed, self-indulgent, self-aggrandizing generation in American history.” Knowing what I know about the Clinton “West Wing” crowd, this is most certainly a mere projection of one personality onto an entire mass of people.  At any rate, the quotes presented run in this vein throughout the column.

Keller’s point in all of this is what?  Well, in addition to so many other man-made catastrophes, the “baby boom generation” is, in his mind, the cause of the fine fiscal mess in which we, as a nation, now find ourselves.  It is not, as Nobel Laureate economist Joseph Stieglitz has indicated, multi-trillion dollar wars, a tax code obscenely tilted toward the rich, Wall Street/banking industry corruption, collapse of a housing bubble and so on and so forth.  Oh no folks – it is that demon the “baby boom generation.  Consequently, as Americans not of the uber-rich class retire, they must sacrifice an already tenuous safety net to further slashing – namely in the form of Social Security and Medicare cuts.

Although he claims to be a “fellow boomer,” Keller is actually part of a very privileged journalistic set that has a propensity to talk to the rich and famous while displaying little knowledge of the plight of millions upon millions of Americans who fit his creation known as the “entitled.”  He needs to do a couple of things: (1) leave his lofty intellectual perch in New York and travel across America and get to know his “fellow boomers,” and (2) base his generalizations about such matters as longevity, the deficits, and other important issues pertaining to public policy on adequate research.  He should also include his fellow journalists Thomas Friedman, David Brooks, Jackie Calmes and other New Times writers in these endeavors.

What he and his colleagues will learn is this:

Beginning about 1983, masses of working Americans, many of whom are now entering retirement, were forced to forego defined benefits retirement programs and forced into 401(k)s or defined contributions programs– many were offered nothing.  By 2009, the median 401(k) was worth about $50,000 (Pew Research Center report).  Furthermore, in 1983, Congress implemented the Greenspan Commission recommendations by slashing eligibility by 2 years and by increasing the payroll tax.  Those two years, today, would be worth, on average, approximately $33,600.

In other words, the “entitled” group to which Keller refers began to give back and take cuts a long time ago –  at about the same time that the very wealthy began to receive an increasing amount of government largess in the form of overt tax cuts and opportunities for massive tax avoidance.  Do the NYT journalists understand who economists are speaking and writing about in regard to inequality of wealth and income?  Presumably that middle class which has lost considerable ground in the past few decades through a massive transfer of their wealth to the top 1% is comprised mostly of individuals born between 1946 and 1964.

Furthermore, for Keller to say that tax reform and reform of military spending would not adequately address the budget deficit is not factually incorrect.  For instance, it is estimated that efforts by the super-rich to park their money in overseas accounts alone is costing approximately $150 billion per year.  This is not to mention the volumes of tax code with enough loop holes to qualify them as a shelf full of sieves.  What about asking the affluent and rich to contribute fairly to what is now a regressive Social Security income tax?

With cynical manipulation of the consumer price index by the Bureau of Labor Statistics (through such nonsense as the “hedonic adjustment” and other such fallacious techniques), the current and future retirees depending on Social Security have given and given and given.  Make no mistake about it; these methods for suppressing measures of inflation are fallacious and hurtful – particularly as they pertain to the elderly.  Would Peter G. Peterson and his cronies such as Jonathan Cowan – founder and President of the Third Way – be willing to admit that keeping inflation low is what the “bond market” desires?  Do they really want to get into that discussion?

In his column, Keller relies on a 15 year increase in life expectancy as justification for reducing the quality of life for the elderly, which is ludicrous.  His point is that they can apparently work longer.  He apparently doesn’t understand that most of that increase is due to a reduction in infant mortality.  The senescence of human cells has not changed in the past 50 years.  An old person is still an old person.  And “old” often means vulnerable – particularly in an ageist, youth-worshipping society.

It is dismaying to observe Keller’s adoption of the right wing strategy of smearing advocates currently fighting draconian cuts as proposed by Alan Simpson and Erskine Bowles as some kind of “60s-radical-hangover types.” One tactic used by “the right” to undermine passionate efforts to end the worsening quality of life for the elderly is to make advocates out to be a bunch of wild-eyed, radical, “leftists.”  They create a narrative in which the term is pejorative and sounds somewhat un-American.  Conversely, Keller and his fellow writers at the New York Times never use the term “rightists” when referring to the proponents of the Simpson-Bowles plan.

In summary, it is important for readers of this blog post to realize that creation of mythological things called “generation this, that, and the other thing” is just another form of stereotyping.  There is no such thing as “the greatest generation,” “the worst generation,” “generation X,” or any other imaginary type of grouping of people born between a couple of dates.  If you are a fan of NPR or the New York Times, and you fail to push back on these smears, you do so at your own peril.  At your own peril, that is, unless you are very rich.

*If you have trouble believing that the Third Way is dominated by Wall Street types, check out its board of trustees at http://thirdway.org/trustees.  It is interesting that amongst that business-oriented body of mostly investment bankers is William Daley, who, prior to serving as President Obama’s chief of staff, served as a vice-chairman for J.P. Morgan Chase.  Jonathan Cowan, the President and supposed founder of the Third Way is an old protégé of anti-Social Security billionaire Peter G. Peterson.  In the 1990s, as a co-founder (with Peter G. Peterson’s money) of  an organization known as Lead or Leave, Cowan served as a front man in Peterson’s ongoing attempts to foment inter-generation conflict by blaming people born between 1946 and 1964 for any and all adverse economic condition of people born after 1964.

Where do your health care dollars go? 

The U.S. expenditure on health care is approaching $9,000 per capita .  Indeed, the medical/health industry now accounts for 18% of GDP.  This is far more than the $3 to $4 thousand per capita and less than 10% of GDP spent by most advanced industrial countries.  Have you ever wondered where all of that excess U.S. expenditure goes?

How about this: into the pockets of Wall Street moguls and investors.  Of course! It must! Where else would it be going?  Paul Krugman, in his latest book, End this Depression Now writes about Lawrence Feinberg of Oracle Partners, a hedge fund specializing in the medical-industrial field.  Mr. Feinberg purchased a mansion in Greenwich, Connecticut for $18 million, razed it to the ground, and built a 30,000 square foot palace that has been compared to the Taj Mahal.

And Mr. Feinberg engaged in all of this lavish expenditure on a Gilded Age lifestyle before the Affordable Care Act has actually been implemented.  Imagine how well investors and hedge fund managers will do upon the infusion of literally trillions of dollars of taxpayer money into hospitals, insurance companies, the pharmaceutical industry, and medical device manufacturers – just to name a few.  That is, until the money runs out.  Or until as much can be squeezed out of the masses as is tolerable.  Given a compliant, complacent, and easily manipulated U.S. population that seems to be a fair piece down the road.

In 2009, Barron’s business weekly quoted Mr. Feinberg as saying that healthcare reform would benefit hospital, drug, and biopharmaceutical companies.  It will benefit him immensely also but he didn’t say that – at least he didn’t say it to Barron’s.  Oh yes, and keep in mind that Mr. Feinberg, as a hedge fund manager, pays taxes at a maximum rate of 15% – it’s called “carried interest.”  I doubt if he pays even that much but you can rest assured he won’t be paying any more than that.

As a person with no animus towards capitalism per se and no problems with a “free market,” I think it is OK if investors earn a reasonable return on their investments. I also have no problems  with individuals becoming wealthy.  I do have a problem with rigging markets so that we don’t actually have a free market.  And that is exactly what has happened in health care.  We have a medical industrial complex, the members of which are able to persuade (bribe) congresspersons to rig prices or, at the very least, fail to regulate anti-competitive practices.

The Affordable Care Act will be funneling massive amounts of taxpayer money into these rigged markets.  The excess will be siphoned off and ploughed into lifestyles of the rich and famous.  In the process, taxpayers will not be getting the health care they need and deserve.  Those who can afford something better will be headed for the concierge medicine realm.  Those who can’t will take what they can get.  And, I imagine, it will take some sharp elbows and/or good luck for most people to make it into the system.

Yesterday, the Supreme Court issued its much anticipated ruling on the Affordable Care Act.  It allowed the “mandate” to stand and the law, for the most part, will remain in effect, and will, in some fashion, move forward.  I wish I could say that I feel like celebrating, but I don’t.  This is not the first time and it won’t be the last time that I have been out of sync with the liberal weltanschauung.

So how do I feel do I feel about the U.S. health care system after the decision yesterday?  Just like I did before the decision: disgusted, ashamed, discouraged, and angry are good words.  Why am I not jumping aboard the celebratory band wagon?  Let me count the reasons.  All of the many reasons could be subsumed under the overriding characteristics of the U.S. medical system, or, more aptly, the “medical-industrial complex.”  The characteristics that best describe that system are: immoral, bio-ethically depraved, corrupt, inefficient, and ineffective.  The ACA won’t, unfortunately, fix this state of affairs.  Thanks to all of the corrupt practices put in place by congress and the medical-industrial complex, the U.S. health care system will collapse of its own weight – it is inevitable.

I will explain exactly what I mean by these characterizations but first let me make it clear that I respect President Obama and laud him for taking a run at the problem.  He did the best he could under the circumstances.  He was faced with a juggernaut of wealthy industrialists and their high priced lobbyists, “blue dog Democrats” (along with a panoply of spineless Democrats), an army of misguided fools, funded by billionaires, known as the Tea Party, and an ill-informed media with barrels of ink and gobs of face time.

It should be noted that the Netherlands and Switzerland have implemented  similar “managed competition” models with a mandate for purchase of insurance from an exchange.  It is working rather well in those two countries – especially in the Netherlands.  But no one in the press, congress, or anywhere else has bothered to mention that.  It probably won’t be working here anytime soon because the medical-industrial complex dominates congress.

Let’s compare U.S. costs – our country with 100 million or nearly one-third of our citizens un or under insured – with the Netherlands and Switzerland, both of which have approximately 1.5% of their populations uncovered by insurance.  In 2010 the U.S. spent $8,233 per capita on medical care.  The Swiss spent $5,270 per capita and the Dutch spent $5,056 per capita.  It must, however, be noted that countries such as Japan, Italy, and Germany, with single payer systems and all citizens covered spend less per capita than the Swiss and Dutch: approximately $3,035, $2,964, and $4,338 respectively.  Need we say more?  Isn’t it clear that something is very, very wrong in the U.S. that will not be fixed by President Obama’s laudable efforts?

Where does the difference between $4000 per capita and $8000 per capita in health care expenditure go?  Ah, that is the question.  The answer is simply this:  into the coffers of the insurance industry, medical device manufacturers, the hospital industry, pharmaceutical companies, and, let’s not forget, that portion of the medical profession which places greed over the Hippocratic oath (not all physicians are greedy or bio-ethically challenged but some are and they are certainly represented by a bio-ethically depraved organization known as the AMA).

In the days ahead, this blog will discuss corruption in the medical system and how corrupt congressional-industrial collusion has caused the U.S. health care system to be a disgraceful mess.  I believe that the big problem is, as explained by Nobel Laureate economist Joseph Stieglitz, an anti-competitive practice known as “rent seeking.”  Through lobbying and campaign contributions, various industries and companies are able to keep prices for medical goods and services artificially high.  This has resulted in a massive transfer of wealth from the middle class to the very wealthy segment of the population.

Furthermore, funds are drained off of the U.S. health care system through un-regulated industry practices.  Let me give you but one costly example.  The U.S. is the only advanced industrialized country with no registry or database containing each and every implanted medical device such as a hip, pacemaker, stent, and so forth.  We have no way of knowing defective from well-working devices.  It is only after a long run of tragedies and inordinate costs that we are able to recognize a product that is defective.  Five hundred thousand metal hips were implanted before it became clear that we had tragically implanted a defective device.

When a defibrillator goes bad, it is a very big, costly, and tragic deal – make no mistake about it.  Not only do we not have a database with these products so that we can spot trouble right away, the FDA doesn’t even require clinical trials before they are approved.  And a majority of the Supreme Court has held that medical device manufacturers cannot be sued for product liability if the FDA approved their device.

Look for more on how the U.S. health care system runs in the days ahead – including lies about and scapegoating of the elderly.

In 1994, Charles Murray, with funding from the eugenicist and racialist Pioneer Foundation, co-authored The Bell Curve –  a nasty piece of bigoted pseudoscience in which he and co-author Richard Herrnstein concluded that the plight of African Americans was due to genetic inferiority. Now comes Mr. Murray’s latest pseudoscientific effort to provide cover to corporate/economic elites for failure to meet the needs of working class Americans (black, white, brown or otherwise) while they – the elites – enrich themselves at an unprecedented rate. He has compiled completely biased and unscientific research into his latest tome entitled Coming Apart.  In this book, he blames working class suffering on unwise and immoral behavior on the part of the working class itself.

Ensconced along with other “neo-conservatives” at the ultra-right-wing American Enterprise Institute, Murray’s role is to produce junk science for the purpose of explaining why the poor are poor and the rich are rich. What is really annoying about the appearance of this type of corporate shilling through propaganda and pseudoscience is the reaction of liberal writers such as Nicholas Kristof of the New York Times (see “The Decline of White Workers, NYT Op. Ed., February 9, 2012).

Journalists like Kristof write about anything that comes into their minds, regardless of whether or not they understand the topics in enough depth.  When it comes to Charles Murray’s bigotry, this is nothing new.  Consider, for instance, a favorable 1994 New York Times Book review of three books by known racialist crackpots (including Charles Murray).  The reviews, entitled “What is Intelligence & Who Has It?” were written by former science reporter Malcom Browne.

As a statistics professor with a fair amount of research background in racial issues, I read the Bell Curve and the other works (they are still on my bookshelf) because of the quantitative and testing claims put forth by the authors.  Furthermore, the premises on which Murray and Herrnstein based their “African-American inferiority” theory were supported by IQ testing and the interpretation of results from such testing.  At the time, I was professionally engaged in evaluating mental measurements for an educational consulting organization.

I had discovered that all of the authors had received funding from the white supremacist and eugenecist Pioneer Foundation, which had provided the  racialist philosophical underpinnings for German Nazis’ policies.  I also discerned that all three works were merely a rehash of the racialist IQ theories used to justify extermination of Jews and a variety of other people deemed undesirable by the Hitlerian regime.

I wrote Malcome Browne a letter in which I expressed dismay that he would do a “puff piece” on books extolling the theoretical framework for Nazi extermination.  In a letter dated October 20, 1994 – still in my files – Browne responded to my complaints by saying, amongst other things, the following:  “I have no patience with those who would halt research on grounds that it is tainted by the errors of its practitioners.”  This said to me that he didn’t understand the issues, the history, or the science of IQ theories as they have been applied to ethnic groups.  Furthermore, it is typical of the ill informed journalist – liberal or otherwise – who thinks it is courageous and even a bit cool to jump in on the side of research in which a  modern economic class or ethnic group is stereotyped as inferior or at fault for their own plight.

Nicholas Kristof and Charles Murray are both quite wealthy.  Obviously, neither of them have any sensitivity to the desperation, depression, hopelessness, and despair besetting millions upon millions of  middle and low income Americans.  I do know that Murray is highly paid by his corporate bosses for putting out stuff that covers up the real causes of under and unemployment and all of the human distresses that accompany it.

It is our job as thinking Americans to push back on propaganda designed to justify increasing economic inequality.  It is important to arm ourselves with objective data and research and let journalists like Kristof know what we think of his misguided attempt to be a cool, intellectually independent, tough minded thinker.  It would be OK if he were that if he knew enough about the subject and had an inkling about economic oppression.

Did you hear the one about the robber that stuck a gun in the face of the victim and said, “your money or your life?”  Here’s the punch line:  the victim said, “take my life, I am saving my money for my old age.”  This joke conjures up the behavior of world monied elites and their high paid technocrats.  Let me explain.

The Sick Joke

Saving in a capitalist system is a desirable and economically beneficial behavior.  However, hoarding is not a good behavior.  Bottling up too much money in sovereign wealth funds, college and non-profit foundation endowments, off-shore accounts, etc. reduces tax revenues, investment in plant and equipment, and direct fiscal stimulation of the economy   We have so much “super hoarding” throughout the world that demand for goods and services is weak while the world sits on piles of capital and idle factories – otherwise known as low demand, excess liquidity and excess capacity.  Not a good thing.

The government of China now has a current account surplus of $3 trillion – much of which is invested in low yield U.S. bonds. Yes U.S. treasuries are considered one of the safest places to park oodles and piles of excess dollars today.  What does that say about the validity of the S&P downgrade of U.S. debt?  With the price for a barrel of oil at the $100 mark, the SWFs of the oil exporter nations will keep growing at a phenomenal pace.  The top 40 university endowments are sitting on at least $200 billion.  With thousands of university endowment funds plus huge amounts of super-rich family dollars parked in 501(c)(3) or some other form of tax shelter, trillions of dollars that could be invested in roads, bridges, schools, housing, and other projects – in the people of all the countries of the world – is moved about the financial markets as the super rich attempt to enhance and/or protect their “hoarded wealth.”

The problem is this:  too much capital flowing into countries like Greece, Italy, Ireland, Spain, and Portugal from countries like Germany, from massive hedge funds, or from the petro-dollar recyclers in London and the U.S., fuels crony capitalism, speculative bubbles, politically popular too-low tax rates,  and ill-conceived and wasteful governmental programs (think farm subsidies, war, and other give-aways that do nothing for the betterment of society).  This became a particularly glaring problem when the world-wide economic weltanschauung morphed into the Reagan-Thatcher promoted “dog eat dog,” “winner take all,” deregulated, free market belief system.  In other words, grab all you can get and don’t give a damn about your fellow humans, the planet, and the future of the human species.

The Sick Punch Line

The super-rich and bankers in countries that invested heavily in bonds of countries like Greece fueled out-of-control consumerism – made possible by government fiscal policy.  Ostensibly, this was irresponsible behavior only on the part of the debtor countries.  However, as in the case of Europe, the consumerism of debtor countries fueled the very robust economic growth of  creditor countries.  In other words, the healthier economies of Northern Europe were recycling their export Euros back to the less healthy economies of Southern Europe so they could keep up their consumer madness.  It was a crazy feedback loop.

Eventually, all of this hot capital flow had to end badly.  The Southern European nations can no longer service their massive debt and, with bond yields rising rapidly, this can only get worse.  With U.S. and European banks heavily exposed in the European bond markets, this financial collapse will eventually be devastating.

But wait!  There is a solution.  The European Central Bank could step in and “bail out” the Greeks, Italians, Portugese, and so forth.  They could stop this catstrophe from happening and keep everyone from suffering badly – including the Germans.  If the collapse continues – and it may be too late to stop it – we are looking at a very deep world-wide recession and perhaps a depression.

Here is the sick punch line:  Just as in the United States, the super rich of Europe – particularly the Germans and bankers of Germany – are demanding that economic collapse be solved through austerity.  Lay off teachers, cut pensions, increase unemployment – make the people suffer.  Teach those profligates a lesson.  This will be disastrous for the bankers, super rich, and nations calling for punishment of the debtor nations’ peoples.  As demand continues to dissipate from their economies,  bonds held by the bankers and other investors won’t be worth diddly squat.  But they will ride this thing down before they share some wealth to save the whole system.  Take their lives – they are saving their money for their old ages.

The Solution

Nations must regain control of their economies and their wealth.  The way to do this is to equalize their tax codes, control their own capital markets, invest – through direct fiscal stimulation and creation of meaningful jobs and projects – in their people.  Taxation must be designed to produce adequate government revenue for equitable housing, education, health care, for infrastructure, research and development, and all of the other things that modern, progressive countries should and could do (and all nations should become modern and progressive).

However, if the rich and powerful persist in punishing debtor nations gone bad, and if they persist in hoarding their wealth in endowments, 501(c)3s, in off shore accounts, and through finding various and sundry other forms of legal gimmicks for escaping their tax responsibilities, the current catastrophic failure mode of the world economy will end very badly for them as well as for all of us.