POVERTY IN THE U.S.—PART TWO

 Last week, we discussed how the poverty level in the United States is stubbornly high and the threats that we face going forward with our current fiscal spending.

The spending bill passed by the US House of Representatives and now being amended by the US Senate had elements that appeared to save money by cutting Medicaid (health insurance to financially challenged Americans) massively over the next decade. While some cuts would take effect in 2026, the insurance industry and some political think tanks are projecting that by 2034 some 7.5 million Americans would lose coverage.

If this is even remotely accurate, many cash strapped hospitals, particularly in rural areas, would have to close. This means that overtaxed emergency rooms would face a dire existence, and overall public health would suffer tremendously. 

Why is congress looking at cuts in Medicare/Medicaid? The answer is simple. That, along with Social Security, which we will discuss shortly, is where the big money is in our budget. Most Americans do not get this. Over the years, several well-intentioned people have told me that to balance the budget all we have to do is cut defense spending. How naïve they are! This year, our interest on the national debt is higher than the defense budget and will soar if the current deficit laden proposal goes through.

Other people tell me simply “tax the rich” Make the billionaires pay more, they say. Okay, but there are not enough billionaires to cover the trillion-dollar deficits that the US government runs up most years. To balance the budget would require two unpopular actions:

1) Cut spending

2) Raise taxes on the upper middle class as well as the wealthy.

Neither seems politically viable given the present mindset.

Okay, besides Medicare/Medicaid, a huge crisis is brewing with Social Security. Both the office of Management and Budget and many, many analysts have been warning all of us that Social Security will go into serious deficit by 2034. The most prevalent projection is that, with the current system, benefits would be cut across the board by 24% in nine years. To some of us, the cut would be annoying but not affect what we eat for breakfast.

However, here a few chilling facts from the Social Security Administration itself. 

Among Adults 65+ who are collecting the monthly payments, 39% of men and 44% of women find that social security is 50% or more of their income. Yet, it gets worse. Some 12% of men and 15% of women are in the unfortunate position of Social Security being 90% of their income. A 24% cut would drop many from a lower-income life into dire poverty.

Congress, as the media like to say, simply “kick the can down the road” and the years tick by. The longer they wait, the more draconian the adjustment will have to be to keep the integrity of the present system. Some type of means testing will have to be done where those making several million a year plus, may get the payments, but it will all be taken away when they file their 1040 with the IRS. The upper middle class will also likely need to take some kind of reduction.

While putting these two posts together, sometime sent me a note saying “Jesus said the poor will always be with us. Why are you so worried about these two issues”?

 Why? We are Americans and should do better than this.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

POVERTY IN THE UNITED STATES

 For many of us, life has gotten better, at least economically, in recent decades. A nagging problem remains across the world but even in the wealthy United States—poverty.

Just what is it? The classic definition is a state or condition in which people lack the financial resources and other essentials for MINIMUM standard of living. They cannot meet what most of us would consider basic needs.

Those living in poverty may not have adequate housing, clean water, nutritious food, and proper medical treatment may be out of reach financially or geographically.

How does it happen here in the U.S.? Sociologists say that it is simply not low income. It could be lack of education or educational access, substance abuse, mental problems or discrimination. Governments across the world have put a variety of social welfare programs in place that have, to a certain degree, lifted some families and sometimes communities out of poverty. In the U.S. we tend to have fewer programs than European countries. Many refer to some Western European nations as “provider states” as they offer a level of cradle to grave security to all citizens. 

The World Bank projects that some 40% of the world’s population lives in poverty. The U.S. has reduced the poverty level from 16.5% to about 12% but, sadly, it is the highest among developed nations.

Why do I bring this up? Well, last week, the U.S. House of Representatives passed a tax bill that would lower taxes but also cut some provisions of Medicare and Medicaid. The bill has gone to the U.S. Senate where there will likely be many changes before it is sent back to the House of Representatives for approval.

For years, it did not matter much which major party was in power. Poverty rates declined slowly under ALL administrations. Yet, stat geek that I am, I notice one telling datum. Since the inception of Medicare and Medicaid back in 1965, poverty among senior citizens has declined steadily. 

So what? Well, Medicaid could be cut back for some needy seniors if the current bill is not amended. It, along with Social Security is a lifeline for many of the elderly. Here are some quick stats by state compiled by KFF Healthcare:

% of Citizens on Medicaid—Highest States

New Mexico 34%

Louisiana 32

Kentucky 28

California 27

West Virginia 26

Lowest States

Utah 11%

New Hampshire 13

North Dakota 13

Kansas 14

South Dakota 15

I understand why some members want to “reform” Medicare/Medicaid. The big expenditures in our budget are in these “entitlements” along with Social Security.  With the demographic shift to a grayer America, these entitlements will take a larger portion of the U.S. fiscal budget going forward. All need some type of reform. Yet, lowering income taxes for many of MR readers (including me) and the ultra-rich and then cutting Medicaid to the truly needy strikes me as a bit heartless. 

More to come next week.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Where Are The New Entrepreneurs?

 Over the years, repeated research studies indicate that, at one time or another, some 14% of Americans (approximately one in seven) become an entrepreneur for at least a brief period. This has been considered a very important part of the bustling American economy. New business start-ups that survive (most do not) are vitally important in job creation. They also are bastions of innovation and force larger entrenched companies to adapt and up their game.

Over the last decade, the share of U.S. households including an active entrepreneur has halved down to roughly 4%. 

There are several explanations for this:

1) In recent years, many college graduates with strong skills have discovered that they may earn high incomes with larger companies particularly in tech.

2) Business formation is tough for prospective entrepreneurs who often do not have access to capital. One part of this that I never see discussed is that Venture Capital firms (VC) and the larger Angel Investors (Informal Private Investors) are much more selective and smarter than they were 30 years ago. There was a time when someone could say “internet” and funds would come their way. The big VC firms made a bundle on the giants that still exist today but had many failures. Now, they have very shrewd teams analyzing start-ups and their batting average is much higher than it has been in the past. Angel investors have also improved their game as well. Early-stage financing remains a real problem for young upstarts.

3) Within the tech giants, entire squads are looking at new ideas and do not have to beg for funding. I will never forget the first annual letter from Jeff Bezos way back in 1997. He wrote “Given a 10 percent chance of a hundred times payout, you should take that bet every time.”** Okay, that is great for Amazon. However, can a bootstrap entrepreneur take a shot like that? Not likely. And, risk averse CEO’s and CFO’s in established companies in many cases have one goal—don’t screw up. They rarely bet on longshots.

4) Young people also have other issues that did not exist for previous generations. In recent years, I have spoken with dozens of college students who lamented that they would never own a home due to their huge college loan bills. I always try to be encouraging. The college loan overhang must be discouraging some prospective entrepreneurs from going out on their own. Do you wish to launch your dream knowing the odds are strong that you might fail and, despite bankruptcy you still must feed the meter monthly on your large college or grad school loan tab?

Can the situation be reversed? Critics say that loosening up on licensing requirements would help a great deal. Also, allowing health insurance at reasonable prices would help a start-up with only a few employees. Encouraging early access to accredited investors sounds great but is tough in the real world for many. Some politicians think a silver bullet is allowing newbies to write off R&D expenses immediately. That would help but they have to get the seed money first and launch.

I have long believed America became the economic powerhouse that it is and has been is due to how risk taking was encouraged. Look at the billionaires who have been minted in our country. Rockefeller, Vanderbilt, Carnegie, Ford and today’s tech titans. The uber-wealthy took giant risks and had many bumps in the road on the path to vast riches. When you fail, you keep going. America, a nation of immigrants, has always appealed to the risk takers of the world. Our bankruptcy laws may be the most lenient in the entire world. It you go bankrupt in many European provider states you spend the rest of your days paying off your creditors. Here you can come off the deck and keep fighting. America tolerates the risk takers unlike no other nation in my view. Immigrants with the right spirit can only help us grow.

If we can turn this entrepreneurial dip around, it could mean great things for our nation.

**Amazon.com, Inc. 2016 letter to shareholders

If you would like to contact Don Cole directly you may reach him at doncolemedia@gmail.com or leave a message on the blog.

TARIFFS

 Over the last week, I have received requests from Media Realism (MR) readers in four countries plus a few emails from friends asking me to comment on the proposed Tariffs from the United States on countries throughout the world.

While I have strong opinions on the topic, the request gave me pause. I have tried hard (not always successfully) from making overtly political comments in my posts. So, what follows essentially the reasons why I am personally a free trade advocate.

It all began amazingly back in 1969 when I took my first course in Economics. The professor, who had covered Free Trade in a class and I had dozens of questions after class, told me to go to the campus library and dig up one of the copies of AN INQUIRY INTO THE NATURE AND CAUSES OF THE WEALTH OF NATIONS (almost universally referred to as THE WEALTH OF NATIONS). The book would be a bit much for this 19-year-old, but he suggested that I first restrict my reading to Smith’s sections on Mercantilism and Free Trade. Two years later, during an amazing independent study, we tackled other Smithian issues when I was better prepared for them. 

Okay, prior to Smith’s Wealth of Nations (published in 1776), a few early economists and politicians also recommended free trade among nations. Among the most prominent, known only today to economic geeks, were Henry Martyn, Sir Matthew Decker, and Josiah Tucker. All felt that open trading with other nations was positive for a country and some prices, especially certain foods, would be less expensive for their poorer citizens.

Prior to these three gentlemen and a handful of others, Mercantilism drove the economic bus. The theory was that wealth in a nation consisted in how much gold and silver that you had on hand. So, the goal was to always have a trade surplus with other nations so that your precious metals stash grew each year as that was real wealth. To insure that you had a trade surplus, Tariffs were initiated. A tariff is a tax placed on items brought in from a foreign country.

Adam Smith took on the “mercantile system” as he called it and said that imports can be a good thing. He stated, “never to attempt to make at home what will cost him more to make than to buy.” He went on to say that if it works for a family, it would work for a sovereign nation.

At one point, he cracked me up with the comment that if Scotland decided to make wine, they could perhaps generate some good grapes with hotbeds and hot walls. The cost of this locally produced wine would be approximately 30 times that of what could be imported from Portugal. Somehow, Scottish wine, no matter how carefully crafted, could never compete with a fine Alberino, Bordeaux or Burgundy. 

His theme was do what you do better than others and buy things that are of better quality and less costly from other nations. Real wealth was not your pile of gold and silver—it was what you produced and how your people lived. Tariffs protected local manufacturers who may be inefficient producers or corrupt and are getting favors from politicians. And they caused inflation which hurt the downtrodden the most.

Smith made it clear that trade was not a zero-sum game with one nation a winner and the other the loser. Imports or a trade deficit were not harmful to the ultimate well-being of a nation. He wrote, “in every country it always is and must be in the interest of the great body of the people to buy whatever they want of those who sell it cheaper.” 

If you look at statistics, trade and economic exchange translate to economic growth. Yes, the affluent tend to do well when profits increase but a growing company or nation has an increased demand for labor which helps many more. And, when you trade with poorer countries, many of their citizens will then be able to buy more of your products. 

Some people tell me that I do not understand, and the proposed Tariffs are really a new industrial policy. They may be right but the precedence for this is a closed economic system known as Autarky. Such a country avoids international trade and strives to be almost totally self-sufficient. Japan tried this in the 1600 hundreds and Mussolini leaned that way in the 1920’s and 30’s. Japan finally opened and had strong trading success, and I find it chilling that we would consider using a modified version of Mussolini’s Italy as an economic role model.

President Trump has said several times since the 1980’s that Tariffs is the most beautiful word in the English language. I am so naïve that I always have thought the most beautiful word was love.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

The Upside of 2025

 Many people are on edge these days. World tensions are heightened, leadership is suspect, personal and governmental debt is soaring globally, and we could be experiencing a trade war soon.

So, in this post I would like to bring up some examples of our lives these days which many seem to forget or take for granted.

A key is that entrepreneurship fosters innovation and that drives prices down over time. There is a wonderful book about this issue called SUPERABUNDANCE by Gale Pooley and Marina Tupy.

Here are some wonderful examples expressed in man-hours to make or pay for something. Their thesis is that “we buy things with money but pay for them with time.” Hard to argue with that!

In no special order, we find:

1) Air conditioning—one of the first accounts that I ever worked on was Carrier Air Conditioning. In a review session, I learned that Willis Carrier invented the air conditioner way back in 1902. At first it was used for industrial purposes in factories and upscale homes but then it jumped to hotel and stores. As a kid in a rare impossibly hot summer day in Rhode Island, it was great fun to go to an air-conditioned movie theatre. As a child, it took a Blue-collar worker up to 170 hours to earn enough to buy a room air conditioner. Now, it takes an average worker about six hours. I have often given air conditioning credit for the growth of Atlanta, Dallas, Houston, Phoenix and the entire state of Florida. Many disagree with me because they have always had it.

2) Sometime between 1440 and 1450, Gutenburg invented printing. It took weeks and sometimes months to print a book. Only the super-rich (generally royalty) could afford one. Today, books are modestly priced and thanks to Ben Franklin and Andrew Carnegie libraries make them available for free along with on-line choices.

3) In my adopted hometown of Baltimore, the Black & Decker company was founded pre-World War I. They became known for power drills. In 1946, a Black & Decker drill sold for $16.95 so an average worker had to get nearly 15 hours of compensation to purchase one. Now, an improved drill can be purchased with 45 minutes of work.

4) Bicycles—we are not talking about fancy mountain bikes or multiple gear specimens. A basic bike such as the Schwinn that I had as a kid cost 66 man-hours to buy in 1910. Today, 3-4.

So, as improvements in products and production techniques plus strong competition have made many products available to the masses. 

We have more comforts and gadgets that people 100 years ago could not have imagined. Yet, today, they are all part of a middle-class lifestyle. Think of cell phones, laptops and tablets. We can do amazing things with them and they are within reach of most of us.

When I bounced the idea of this post off a European reader of MR who comments to me frequently, he said, “Cole, so what? You Americans simply have and want a lot of “stuff” at an affordable price. Does it really enhance your life?”

I am not sure if my old contact is being spiritual or envious?

But on cold winter nights, I am very delighted to have central heating, hot showers and electricity all at an affordable price and much more reasonably than my grandparents did.

So, as tense as these times are, step back and smell the coffee from your world class brewing machine.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Troubles of the Bottom 30%

 There is no question that there is turmoil going in geo-political circles as I type, and the financial markets are engaging in a bit of roller coaster activity. So, as the airwaves are full of talking heads saying the weakness in equities is the start of a 40% downward spike OR this is currently a normal and healthy correction, another quieter but insidious force is gathering momentum.

I am referring to the growing struggles among the bottom 20-30% of American households. This past week, the media gave fair coverage to new data that showed that 6.6% of subprime borrowers (credit score under 640) are some 60 days overdue on their car loans. This is the highest number since Firth ratings began tracking this statistic in 1994. 

The Federal Reserve Bank of New York weighed in and reported that through December 2024, some 3% of subprime borrowers were 90 days past due which is the highest level since 2010 when we were beginning to emerge from the Great Recession.

The tariffs on autos and auto-parts that seem likely to kick in soon may really hurt the subprime borrowers as projections are, that if enacted as they currently stand, new car prices will increase by $4-10 thousand dollars depending on make and model. It would appear that used car prices would spike upward under that scenario.

Even prime borrowers with excellent credit are feeling a bit squeezed as .39% are 60 days past due. The average car loan payment is about $755 per month to this group.

What about credit card debt? Mark Zandi of Moody’s Analytics described the bottom third of US households as “tapped out”.

The Federal Reserve of New York concurs stating that those making only minimum payments on their credit cards are at a 12-year high. Big deal, you might say? Well, if you have a credit card balance of $8,000 at 18% and never make another charge on that account and dutifully pay the minimum amount each month it will take many years to pay off that charge. And today, many subprime borrowers are paying 21-22% interest. Also, if you may only pay minimum payments the odds are overwhelming that you will have a cash poor month here and there and add to the balance only extending the payback period. 

This appears to be happening more and more. Also, there has been an uptick in recent months on credit card balances that have been “charged off.” What this means is that the debt has been so seriously delinquent (often about six months) that the lender has given up on collection. Usually, they sell the loan to a debt collection agency for pennies on the dollar.

This is a serious issue. The person owing the money remains legally responsible for the debt. Your credit score automatically drops 100 points. More damning, this “write off” lasts on your credit report for seven years. Try to get a car loan, an apartment lease or new credit card. Difficult. You may get a new card but at a very high rate of interest so the horrible cycle may well begin again.

So, many Americans are struggling. They all cannot be dismissed as deadbeats or lazy. Many are hardworking people who are having a difficult time dealing with the current environment. With credit cards, it seems to occur after four years of running up a balance. People who only pay the minimum payment each month eventually get to a point where, with interest charges compounding, they can no longer pay the minimum.

The media does not discuss this increasingly large group of Americans who cannot manage to live within their means. If we do have a recession this year or next, their numbers will swell especially if one member of the household becomes unemployed. It is a serious issue that gets too little attention.

Despite this downbeat post, I wish all my fellow Irish Americans a Happy St. Patrick’s Day! If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

The 100 Trillion Dollar Wealth Transfer

 An interesting thing happened to me a few weeks ago. A reader of MR just outside of London asked my opinion of book by Ken Costa entitled THE 100 TRILLION DOLLAR WEALTH TRANSFER (2003, Bloomsbury Continuum). By amazing coincidence, a Canadian reader from the Maritimes asked me the same question a few days later. The Brit loved the book and found it profound while the Canadian dismissed it as nonsense.

As you might expect, I came in somewhere between these two extreme positions. Hence this post.

Demographics have been a big part of my beat both personally and professionally for decades. This book, which has not gotten tremendous attention, raises issues that I found to be very interesting.

Ken Costa is a well-known investment banker in the City of London (think British Wall Street). Since his recent retirement, he has focused on intergenerational issues.

The basis thesis of the book is that Baby Boomers (born between 1946-64) will pass on 100 trillion dollars to their heirs. Some 84 trillion will come from the US, 5.5 billion pounds in the UK, and the remainder across the world.

He lumps together Millennials (born 1981-96) and Generation Z (1997-2012) and refers to them as Zennials. Somehow, Generation X (1965-80) gets short shrift.

Costa is quite the optimist, and positive reviews tend to describe the book as “hopeful.” He stresses that capitalism will not disappear but rather that the Zennials will engage in “socially energized” capitalism. There will be greater cooperation and harmony among generations. 

He defines the new capitalism as CO which is “a shift from the radical individualism of post-war generations to a prioritization of collaboration, comparison, community and collective experience.”

There will be more co-working, co-leading, co-owning, co-creating, co-investing, co-funding in this new world.

It all seems a bit too perfect to me. I agree strongly that the Zennials will overwhelmingly want to do something very strong about climate change. To a lesser but meaningful amount, they will also want more action on income and wealth inequality.

Interestingly, I ran Ken Costa’s thesis to a few acquaintances. The first was an erudite woman well into her seventies. Her response was that with the cost of elder care in the US, and people living longer these days, she doubted that many boomers would leave as much as Costa was projecting to their heirs. Candidly, I had not considered that angle.

I was floored a day later when I posed the same issue to a young entrepreneur. The independent thinker told me that some of what he said might work in Europe but, in the US, healthcare and expenses in the last few years of life would probably wipe out much of the expected seven figure inheritances. It might be true in certain provider state countries but not in the U.S.

Also, in the U.S. the first $12 million (as I type) is exempt from federal inheritance tax. And many well to do families have their wealth tied up in trusts that often eliminate that tax. Look up how few American families pay inheritance tax. It will surprise you!

One point that he does not cover is that people, particularly the affluent, are living longer lives. So, many who inherit these trillions will be in their sixties when they get their windfalls. It is hard for me to see people that mature changing their attitudes.

The book is interesting, and I recommend it BUT it strikes me as way too altruistic. As that great American philosopher Groucho Marx famously said, “When you get rich, you get Republican.”

If you would contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.