Austin's Brain

US Federal government revenues, expenditures, debt and the debt limit as a percentage of the size of the US economy (1990q1-2011q1)

2011-07-23T12:22:00.001-05:00

FAQs about the debt limit debate, or "Why you really need to pay attention to this."

2011-07-17T17:55:00.001-05:00

If you haven't heard (or cared), members in Congress and the White House are fighting over the national debt limit.

Not that Congress and the White House fighting should be newsworthy, by itself, but the stakes of the debate are much higher than many realize, including potentially some of the Congressional representatives involved in the debate. I follow these sort of things closely, so I thought I'd share a few thoughts explaining what the issues are and why you should be concerned with what happens. I've structured this in a Question & Answer format for easier reading. Its meant to be read in whole but you can skip to the parts that most interest you. A few questions are out of order (bumped to the top) as I think they highlight why this is an important issue. As much as is possible, this represents a non-partisan but not necessarily unbiased point of view. My bias is that facts and reality should inject themselves into a debate with enough force to set the terms of the conversation, at which point different sides can make value judgments that define a policy.

Q. Why should I pay attention?

A. This is like Congress and the White House arguing over whether or not to defuse a set of nuclear bombs located in every major city around the world, arguing over which pair of scissors should be used to disarm the nuclear bombs, while one group sitting on the side argues over whether or not the explosion would actually hurt if these things went off. If there really were a set of bombs, every American would be transfixed on their TV/blog/newsreader and screaming at their Congressional representatives to fix the problem. But because the problem is somewhat clouded in the language of budgets, bonds, debts, rating agencies and the like, the criticality of what's at stake may be getting lost or misinterpreted.

While the most likely scenario is that the relevant parties cobble together some compromise and avert disaster ("the big snooze" scenario), the particular stakes in this debate are much more serious than most legislation Congress takes up because of the time sensitivity involved - this is a disaster that could be created through inaction and it could take mere hours to days to develop.

If the unlikely scenario occurs, and the relevant parties are unable to come to a workable solution, then a few weeks into August, a global financial meltdown would likely have occurred that would exceed the size and scale of the one in 2008 that triggered the Great Recession and it would potentially trigger a global depression by simultaneously triggering several vulnerabilities that are brewing within the global economy (details later).

Anyone who knows me personally knows that though I veer towards cautious, I don't veer towards the alarmist so the description is not meant for cheap dramatic effect or hyperbole but is really a "best guess" at the consequences of a potentially disruptive event that has no close historical precedent for comparison. For double emphasis, the unlikely scenario is called the "unlikely" scenario precisely because it is unlikely - it is a low probability outcome. But, the particular issue being tossed around right now is of such a serious nature that even though remote, the consequences would be widespread and devastating - the economic equivalent to a nuclear bomb or other weapon of mass destruction. Add to that the simple fact that governments make mistakes and people making decisions as a group can miscalculate, and the cause for prudent watchful concern is clear.

Q. What is the national debt ceiling? Why do we have one?

A. The national debt ceiling is based on a law passed by Congress originally in 1917, that sets a borrowing limit on the US Treasury. Basically it was like an allowance set by Congress to the President (the Treasury department) that said the Treasury could borrow up to a certain amount before having to come back to Congress for approval. This borrowing limit covers all of the normal debts and obligations of the Federal government, such as the issuance of Treasury Bills/Notes/Bonds as well as the internal borrowing of the Federal Government from the Social Security and Medicare Trust Funds. It is (sort of) like a credit limit that you may have with the bank on a credit card or home equity loan.

You can read up on its history here, courtesy of the Congressional Research Service.

Ironically, it was passed to speed things up and improve financial management. Before there was a statutory debt limit, Congress had to approve each and every debt issuance by the US Treasury as they issued bonds for specific purposes, each with explicit authorization. The debt limit enabled Treasury to exercise discretion in balancing the finance structure of the US Government while Congress set the overall policy on total borrowing. Over time, Congress moved towards the modern budgeting process by approving an annual set of expenses, but the legislation for the debt ceiling has stuck around and remains in effect. Some have called it unnecessary or out-of-date while others have found it a means for forcing urgency around financial discussions.

Q. What is the current debt ceiling debate/fuss/noise about?

A. The current debt ceiling/limit is $14.294 trillion (based on a law signed on February 12, 2010). In May, Treasury announced that it had hit that limit and would enact "emergency procedures," basically buying some time as they shuffle funds around, but that on August 2, 2011 (based on their best and most current forecast), this shuffling will come to an end and the US Government will have to abruptly reduce its spending as the cash balance in the bank account will go to essentially zero (there is an actual bank account for the US Government, held at the Federal Reserve). At that point, the Federal Government will live paycheck to paycheck which means in August, if the debt ceiling is not raised, for the month of August:

Cash coming in: $172 billion

Planned cash going out: $307 billion

Actual cash going out: $172 billion

Total decrease in cash payments: $134 billion

(Source: Bipartisan Policy Center)

Historically, the debt ceiling would have been raised and this entire issue would have been a technical anomaly unnoticed by and unimportant to the public at large. However, certain groups within Congress in talks with the White House would like to tie adjustments to the Federal deficit as a condition of raising the debt ceiling. The exact composition of what should or should not be done to adjust the deficit (i.e., raising taxes, adjusting tax breaks, decreasing direct Federal spending, decreasing Federal entitlement spending) is the current subject of heated debate and impasse. An additional (non-exclusive) position is that the debt ceiling/limit should not be tied to a debate on adjusting the Federal budget deficit. The last position in play is that the debt ceiling/limit should not be raised at all, regardless of consequences.

I'll skip the more detailed treatment of the political landscape as this is not a political analysis, but the basic power map involves roughly four major groups/interests: the President (Democrat), Congressional Democrats, major Republican party leadership (Speaker John Boehner and Senator Mitch McConnell), and new Republican "Tea Party" leadership (House Majority Leader John Cantor). Each of the four parties has its own unique set of non-negotiables and agenda interests, and ultimately all four parties have to agree in order for a solution to emerge. That solution could range from a "grand bargain" with sweeping changes to the US Federal Government's planned expenditures (plus a debt ceiling increase) to an "emergency" adjustment to the debt ceiling to buy more time. A final option would be for the debt ceiling to not be increased leading to issues that I'll discuss further.

As of this writing (Sunday, July 17, 2011) the relevant parties have yet to come to an agreement or a solution. Without a signed piece of legislation, the debt limit will throttle government expenditures by August 2nd and problems will potentially ensue.

Q. Does this mean the US could default on its national debt?

A. Not likely - the cash flows coming in are sufficient to cover the interest payments for the month of August 2011 ($29 billion owed versus $172 billion coming in) and for subsequent months on a cash basis, therefore the Federal Government will have the ability to continue making interest payments and avoid triggering a default on its debt. It is theoretically possible that the White House (directing Treasury) could choose to redirect the money it would pay towards interest in order to cover other obligations, but that is highly unlikely and potentially in violation of Section 4 of the 14th Amendment to the Constitution (however this last part has yet to be tested in Court so this is uncharted legal territory).

An actual default would have many of the same catastrophic consequences as I outline in the "What will happen if..." section, but as I illustrate there, a default event isn't absolutely necessary for triggering major repercussions. Merely the abrupt swing in spending could create a negative cascade effect in the economy.

Q. What will happen if the debt ceiling is not raised in time by August 2nd?

A. The failure to raise the debt ceiling will set off several potentially interacting chains of events - separated here just for clarity of illustration. If the impasse is resolved and the debt ceiling is quickly raised before these chains have time to build, then the issue may resolve with little more than a "hiccup." If the impasse is not resolved and the debt ceiling is not addressed quickly, then events may rapidly accelerate and rapidly overtake the ability of the Federal Government to contain the situation again. In short, global recession or even depression could occur as the size and scope of what's at stake is actually larger than what triggered the most recent recession. The several potential chains include:

Steep spending cuts - The $134 billion in decreased cash payments by the Federal Government are the equivalent of a sudden 10% drop in economic activity. Regardless of what your view is on what the Federal Government spends on, or how much it spends (i.e., too much, too little, just right), the sudden shock of losing 10% of spending (which ultimately involves either buying "stuff," such as equipment from contractors like Lockheed Martin and Boeing, or employees' services which are salaries that people use to buy other things) will quickly percolate through what is still an extraordinarily weak economy. Loss of income anywhere in the system will cause step-change drops in spending, which in turn are income to someone else- so on and so forth. For context, the drop in spending that triggered the last recession (that resulted in a decline of 9-10 million jobs) was "only" about a 2-3% drop in spending and that shock was spread out over months. The size of this shock would be three times as large and happen even more suddenly. For the economy as a whole, it really wouldn't matter who got short-changed by the Federal Government (e.g., if Social Security checks don't get paid, seniors will be the first to stop spending, if active military pay is stopped, military families will be the first to stop spending, if unemployment or food stamps are stopped, the unemployed would drop their spending even further if at all) since ultimately everyone is linked and the contraction will spread from whoever is part of that $134 billion decrease to the rest of the economy quite quickly.

Credit ratings - The major ratings agencies (e.g., Standard & Poors, Moody's) have warned that if the US doesn't raise the debt limit and/or come up with a meaningful deficit reduction plan, they will downgrade the US from its current AAA (top tier) rating. The US has had a AAA rating throughout the modern era and the safety of US debt payments is the literal foundation of the entire global financial system - US Treasury debt is the global definition of "risk free." The effects of a downgrade would likely include a jump in US interest rates across the entire spectrum raising the cost of serving the national debt, raising the cost of new mortgages and existing variable rate mortgages, raising the cost of borrowing for credit (credit cards, auto loans, student loans, business loans), and raising the cost of borrowing for state and municipal governments. This has the effect of simultaneously causing a big "jump" in everyone's cost structure, from households to governments to businesses. The exact size of the jump is somewhat unpredictable. If the reaction to a ratings cut is panicked, then it is not unreasonable to expect interest rates to jump by 100-200 basis points (i.e., one to two percentage points) within a few days. Incidentally, this also makes the cost of servicing the national debt even harder with the $29 billion/month owed nearly doubling. Weak state and local governments may be pushed to ultimately default and the ratings agencies have warned that action on the US Sovereign rating would percolate through to those that "depend" on the US Government for backing.

Asset values - Inter-related with the previous two, the stock market would probably take a nose dive or "crash." A decline of roughly 10-20%, right up there with some of the biggest stock crashes, would reset valuations to match a reduced earnings environment plus higher interest rates (both of which are strongly negative for stock prices). The jump in interest rates has the reverse effect on bond prices - they go down, causing capital losses on bond holdings as well. The effect of this loss of wealth on households, including through retirement holdings, only furthers the abrupt contraction in spending. Similarly, housing prices would likely accelerate their declines - higher interest rates combined with a crashing economy and stock prices typically reduce purchasing power so buyers aren't going to be able to offer as much for houses, no matter how much they may want to. While much slower acting, the housing crisis with negative equity home owners would like worsen and even accelerate.

Banking/Financial system - The effect of all of these negative movements inevitably echoes in the financial system. Regardless of one's opinions on "Wall Street" or banks, they are part of the economic infrastructure and therefore failures in the financial system will have consequences for the economy as a whole. Because insurance companies and banks have taken on large amounts of US Treasury debt (seeking safety), they will also be particularly exposed to the ratings downgrades which will reduce the value of their holdings. When this happens, accounting rules require that they take the loss immediately (mark to market rule) and therefore this immediately impacts their capital. If the losses are small, then it creates a minor hiccup to their shareholders (who will already be reeling from the general market declines) but if the losses are larger, then it could cause some banks or insurance companies to become under-capitalized or insolvent at which point the Federal Government is right back to figuring out whether it needs to bail out the bank(s) to prevent the spread of collapse or allowing individual depositors or policyholders to eat the losses. Other unpredictable effects could include additional seize-ups in the commercial paper market, more commonly known to most people through their "money market funds." While these are usually "as safe as" banking deposits, they're not guaranteed per se and during the last financial crisis we did see the potential that this market could completely seize up and result in unforeseen risk. At its worst, a failure in the commercial paper market would cause major industrial companies (think Boeing, General Electric, Disney) to be unable to meet their short-term cash needs for things like payroll.

Prices - So far, most of what we've discussed is downward, but the one piece that could move up is the price of energy. Global energy (i.e., oil) is priced, traded and valued in US dollars partly on the safety and security of US dollar assets (i.e., US Treasuries). An unfolding economic recession and financial panic would likely steer global capital away from the US dollar towards other currencies which will tend to reduce the value of the US dollar (this could be somewhat abrupt). This reduced purchasing power of the US dollar has tended to be associated with rises in the dollar price of oil as the major influencers of the price of oil (OPEC) ultimately want to preserve their real purchasing power. They would correctly deduce that the value of the US dollar is declining in nominal terms and therefore they would need to raise the price of oil in order to ultimately purchase the same amount of "stuff" as they did before. An upward movement in the price of oil by $20-30 per bbl would translate to an increase of $0.50 to $0.75 per gallon in the price at the pump, varying by region.

Unemployment - If the economic turmoil were allowed to spread by an extended impasse, then by the end of August the unemployment rate would likely spike. We have seen in the most recent Recession that firms have learned to quickly shed jobs and capacity in order to save the rest. While utterly impossible to say with precision, the size and scale of the negative shock from this scenario would suggest that an unemployment rate moving past 20% would be a reasonable expectation. In otherwords, an economy that buys/sells 10% less "stuff" needs at least 10% less "capacity," and in a service economy, capacity equals primarily labor (not machines). The 20% figure is actually quite a low-end estimate and mitigated partly by the fact that a large chunk of those losing work will become discouraged and "sit out" the recession. If the Federal debt limit isn't raised at this point, then there would also be no point to filing unemployment benefits since there will likely be limited if any ability for the Federal Government to pay for those- that will drive undercounting the true loss in employment.

Global recession - The speed and size of the US contraction will have inevitable consequences overseas, including through the speedy channels of fear and panic. The ongoing slow-motion Eurozone crisis would likely accelerate into complete panic as the price of every other sovereign debt would be repriced viz. a less-safe US Treasury. A series of defaults and payment crises would likely envelope Europe ultimately replicating much of what's written here about the US with its own European nuances. China would be unlikely to escape unscathed although the exact appearance of crisis in China could look very different than it does in a fully free-market and transparent Western economy. However, bank insolvency, local government insolvency, and rising unemployment in the export and construction sectors (all of which are already unfolding) would all likely be parts of an emerging China crisis that would halve their pace of growth and expose some serious structural flaws in their economic system. With two-thirds of the world embroiled in economic crisis and recession, it would be nearly unnecessary to point out that the entire world would fall into global recession, if not eventually sliding into global depression as resources for fighting contraction were almost fully exhausted in the last recession leaving little rapid-response capacity.

Q. If the debt ceiling is raised in time, will that avert these negative consequences?

A. Probably, but some of the ratings agencies have said that even with an increase in the debt ceiling, they may choose to downgrade the US later if a sizable deficit reduction plan isn't passed - that the long term trajectory of the US' fiscal house is not sustainable. This may create some portion of the effects listed above, although with much less severity and scope.

Q. What will happen to Social Security, Medicare/Medicaid, or unemployment benefits, after August 2nd if the debt limit is not increased?

A. The exact composition of what would or would not get paid out of the available cash flow is unclear. The interest payments on the debt would likely be prioritized to limit financial chaos. Beyond that, unless there is signed legislation to the contrary, the Treasury at the direction of the President would have discretion over how to spread the remaining cash funds. The Bipartisan Policy Center has an excellent analysis looking at the specific budgetary line items and what may or may not get paid. In brief, under one scenario, the Federal Government could pay for interest on debt plus Social Security and Medicare/Medicaid, but that would leave little cash for everything else. Alternate scenarios would involve prioritizing things like military salaries, defense vendor payments, unemployment benefits, etc. There are neither precedents nor rules governing the allocation of funds so it would be impossible to tell at this time. The exact allocations would be important to the prospective recipients (or non-recipients) but from the perspective of the total economy, the exact mix would probably be unimportant.

Q. Doesn't the stock market (or bond market, or newspaper commentator, etc.) think that everything will be okay?

A. Yes, the general consensus "appears to be" that the consequences of not passing an increase to the debt limit are so catastrophic that in the end the parties will be forced to some workable compromise. While this is the conventional wisdom and is the highest likelihood outcome, it is worth pointing out that when people say that the consequences of failure are "so catastrophic," then one should see what that "catastrophic" outcome actually looks like. That is what is outlined in this Q&A.

This has also been compared to the same logic that drove the Cold War's controlling doctrine, "mutually assured destruction," however that's not entirely correct as we'll see in a moment. There is actually a danger of failing to achieve a compromise if both sides believe that the other side believes that compromise is inevitable. Putting this another way - I'll state this from the perspective of President Obama and the House Republicans but you could re-frame this any way. If President Obama believes that the Republicans in the House know that failure would be catastrophic, then Obama also believes that the House Republicans will ultimately agree to anything that averts the catastrophe. Therefore, Obama will not budge on his position until the very last minute at which point the House Republicans will agree to Obama's position since they know the alternative would be catastrophic. At the same time, the House Republicans also believing that Obama knows that failure would equal catastrophe, would also refuse to budge from their position knowing that at the eleventh hour, Obama will cave to their demands since the alternative is so horrible as to be avoided at all costs. Since both sides believe that the other side will cave at the last minute in order to avoid the terrible catastrophe, then both sides will refuse to compromise beliving that in the end the other side will capitulate. In the end, neither side will capitulate and the economic nuclear bomb will blow up in everyone's face. The reality is that the positions aren't nearly so wooden as this and the outcome not nearly as predictable. One hopes that the decison-makers involved will have appreciated the full gravity of what they're dealing with, but there are unfortunately some quotes by representatives that seem to indicate (at least publicly) some noticeable variation in their appreciation of the risks involved.

Q. Why isn't it good that the Federal government be forced to live on what it takes in?

A. The debate on level of Federal spending is distinguishable from the debate on speed of adjustment. Regardless of what one believes about whether the Federal Government should or should not be spending $307 billion/month when it takes in $172 billion/month, the use of the debt ceiling to "force" a spending reduction overnight is the potentially problematic issue. The use of "shock therapy" or "cold turkey" analogies fail to appropriately respect the complexity of an economic system that literally connects billions of people together. Actually to use the analogy more appropriately, the situation is like a heroin patient that cannot be taken down cold turkey or the patient will go into systemic shock and die - the use of the debt ceiling to force a rapid spending reduction will potentially kill the patient by not allowing sufficient time for everyone in the economy to adjust. Arguing over who does or doesn't benefit from the spending (directly) misses the point that every part of the economy is connected and changes cannot be isolated to some narrow portion of the economy.

Q. Doesn't the debt ceiling curb Federal spending?

A. The debt ceiling in its current form has not historically acted to curb Federal spending (this current debate will provide another test to see if that changes). Typically, the debt ceiling has been a formality - everytime the debt approached the limit, Treasury alerted the White House and Congress, and an increase was authorized, often tagged onto existing legislation for convenience. The challenge of using the debt ceiling as a spending constraint is that the actual spending decisions are made when Congress (plus the President) approve budgets and expenditures. The use of the debt ceiling to curb spending is a little bit like eating at a restaurant, ordering expensive things off the menu (whose individual prices you can clearly read), drinking several bottles of pricey wine (whose prices you can also clearly read), and then having a heart attack when the total bill comes and arguing over how much you want to spend in total. That being said, the debt ceiling does have the practical effect of forcing a discussion, as is going on today, about whether we (as a country) like the sum-total of all of our specific spending authorizations or whether we need to make some top-down adjustments in the total spending trajectory.

Q. Aren't these just scare tactics by [fill in the blank] to defend the status quo?

A. No, the "scariness" of the consequences is a result of the complex and interconnected economic system that we (all) have woven together over time. Actions taken in one area (e.g., letting Lehman Brothers fail) can create unpredictable effects in other places (e.g., GM declaring bankruptcy) far from the original action. This interconnectedness varies depending on what you're dealing with. Generally the government is highly interconnected by virtue of its size and scale. The financial system is also highly interconnected because of its concentration of economic influence. On the other hand, retail tends to be highly diffuse with perhaps the exception of Walmart. A Blockbuster or Circuit City can fail without creating massive ripples throughout the economy.

Q. What could/should I do?

A. At the very least, I would suggest closely monitoring the situation. If so inclined, or particularly if you live in the representative district of one of the more influential/involved representatives, registering your opinions or concerns to their office would be a good exercise in public voice. In evaluating your own private portfolio or exposure, this should be considered in the context of the many downside and upside risks that may affect your investments as well as your overall financial situation. On that note, and more generally, it's also not a bad time to prioritize setting aside emergency cash funds in case you lose some or all of your income - a prudent step regardless of the ups or downs of the economy.

I'm particularly alarmed by reports by some Congressional representatives that in polling, large numbers of their constitutents are strongly opposed to any increase in the debt limit. While I am open to the possibility that their constitutents may simply have made a distinctive values tradeoff, I would respectfully suggest that either (a) they have not fully researched the potential consequences of the policy position they supposedly advocate, (b) they are being asked this question in a context where their answer is actually picking up a more general statement of dissatisfaction with Federal spending, as opposed to an explicit policy position on this specific question, or (c) they are fully aware of the consequences and are under the belief that they or their interests will not suffer as much harm as others versus the benefits accrued to themselves. My hypothesis is that a combination of (a) and (b) are at work. However, because Congressional representatives are acting in response to (or under the influence of) their read of their constitutents' views, an incomplete assessment of the debt limit policy by their constituents has the possibility of inflicting significant harm on themselves and the country as a whole. Taking responsibility to be an informed member of the electorate is a tangible positive personal step that contributes to the strength and legacy of the country.

Q. What if I have more questions?

A. Feel free to post questions or comments through Facebook or Posterous. I will respond as time allows.

-Austin.

Changes in the US balance, or answering the questions, are we broke?

2010-10-05T00:37:00.001-05:00

If you've watched the news, read the financial section of a newspaper, or read a blog about the US economy, then you've probably also heard that the US consumer is broke. Unfortunately, "broke" has no universal definition so it can apply to everyone, no one, all the time and some of the time, and still be true. A better word- one that can actually be verified with data, is "insolvent," or its less technical but equally specific synonym, "underwater." In order to be insolvent or underwater, the value of one's liabilities has to exceed the value of one's assets. Another way of looking at it is if you paid off all your debts using all your assets, would there be anything left or would you be short.

Looking at all 120M US households, as a whole, we are far from being insolvent, but have taken a significant financial hit between the peak and trough of just over 25%, translating to $17T (see Figure 1). Of course, its arguable whether that $17T was ever really there, or just a fiction of the now apparent US housing market bubble. About $5T has been regained, primarily due to the recovery of the price of stocks, the substance of which is also arguable. Now just because all 120M US households, as a whole, are solvent, does not necessarily translate to individual households. In fact its actually quite common for households to spend time in an insolvent position, especially younger households who have lower incomes, purchase a house, and/or have children (the investment cost of which is approximately $150,000-250,000 per child until the age of 18, and more depending on college funding). Frequently these three factors will come together during early household formation before adjusting to a more solvent position towards mid-life. An additional wrinkle in the present situation is the geographic disparity of insolvency, as the bubble and burst of the residential housing market has had a differentiated impact by geography.

The simplest cut is to look at the fraction of households who are underwater on their mortgages by state (which excludes the fraction of homeowners who own their homes free and clear, typically older homeowners including retirees). As recently as June 2010, the most recently available public data, just shy of three-quarters of Nevada mortgage holders were underwater. Arizona and Florida were closer to 1 in 2 being underwater, while California and Michigan were a relatively less distressed 1 in 3. Yet overall, out of all homeowners with mortgages, about 1 in 4 had a negative equity position. The data provider also notes that the slightly improvement in the underwater rate was primarily due to default and foreclosure of those profoundedly underwater (which is to say, those owing more than 1.2 times the apparent market value of their house) where such strategic defaults, as they've come to be known, are exceeding 1 in 3.

The distress of the mortgage-holding household has been well-tread territory, but there's also concern that the country as a whole is somehow "bankrupt," or to use our more specific term, "insolvent." Again, this can be clearly contextualized by data that is freely available, albeit somewhat arcane to interpret.

This chart shows components of assets and liabilities across all major sectors which are households, non-financial businesses (excludes banks, which get their own sector), the government, financial sector (banks), and "rest of the world" (where foreign holders are collectively lumped together). This also shows financial assets and liabilities, and tangible assets, all of which total up to a net asset position, or essentially the United States' net position. As you can see from this recent snapshot (end of second quarter, 2010), the US retains a positive net asset position of about $48T, roughly three times the size of our economy. This would be comparable to someone who makes $100K/yr being worth about $300K total.

From this chart, you can see, as discussed earlier, that the US household is not underwater, when taken as a whole. We do indeed owe more money than is owed to us to overseas entities, by about $4T. And not surprisingly, the government is in fact underwater. Of course, government assets and liabilities are in somewhat of a different class so speaking of insolvency at the governmental level is a bit tricky.

But one fact that sticks out is that net assets are worth only slightly more than tangible assets (which includes fixed structures such as houses, the value of the cars we drive, store buildings and offices, etc.), or by about $6T which is a little less than half of our annual GDP. That's not accidental, as at the end of the day, the giant web of financial assets and liabilities (of which equity claims is a subset) basically net each other out, as they're supposed to.

The massive expansion of financial assets and liabilities is part of the enormous accounting overhead needed to track complex interactions across a broad (and now globalized) economy- the system to figure out who gets what. While its incredibly easy to get drawn into the labyrinth of financial minutiae, at the end of the day, the $145T of financial assets are supported by nothing more than the $42T in tangible assets, plus the $14-15T in annual value-creation (i.e., the GDP). The number of times that this "real" economy gets multiplied into the financial economy is partly a function of the sophistication of the economy (simple and unstable economies, often with political instability, rarely expand their financial assets beyond tiny fractions of their real assets) which has created an incredibly stable and predictable foundation on which to create a financial layer. Its also partly an artifact of the trust we have in our economic system, a willigness to look ever further into the future and expect a great foundation of predictability that even this Great Recession has done little to fundamentally affect.

Finally, it is partly a consequence of the need to amplify control over our economic system to ever broader and more distant parties in order to reduce risk. The road connecting the ultimate providers of capital and the ultimate users of capital have been greatly extended, and each provider and user has become a diminishingly small part of each other's life. This is the multi-generational trend of financial innovation that has arguably produced real reduction in certain types of risk, but as one can see in retrospect it has been entirely ineffectual in immunizing against the broad sweeps of the economic tide. Its like having reduced exposure to a single farmer's crop failure, but still suffering famine if a common blight hits all the farmers.

So in summary, no the US is far from being insolvent, but the US is highly leveraged, with a layer cake of financial assets and liabilities that exceed the real economy by several multiples. This layer cake that is the financial economy amplifies the bumps and jostles within the real economy. But in the end, if all the transactions were netted out, little would remain beyond what can already be owned, tasted, touched, or otherwise enjoyed. Perhaps the real tragedy is this, that we become so embroiled in the accounting artifice, so lost in the web of relationships designed to reduce risk, that real people go unemployed, real families become homeless, and real innovations that could change the world go unfunded. To me, that would be definition of being broke.

Distribution of Federal, State and Local US government expenditures, FY2010

2010-09-21T17:29:00.001-05:00

As US election season approaches, I thought I'd refresh myself on the size and distribution of government expenditures. This graphic is a "square pie chart" representing the total $6.5T in US government spending, approximately 44% of total US GDP for context. This spend includes all expenditures at Federal, State and Local levels with classifications as per government accounting guidelines. Where appropriate, I grouped smaller slices together into logically sensible ones, such as Federal Highway spending which gets split into multiple funds and between operations and capital expenditures.

Sources and uses of US health care expenditures in 2008

2010-03-20T20:28:00.001-05:00

This "square pie chart" shows the sources and uses of US health care
expenditures in 2008, as reported by the Department of Health and
Human Services. National health expenditures totaled $2.34T in 2008
(calendar year) or approximately 16% of US annual gross domestic
product (GDP). This represents one of the highest levels of spending
among any developed nation on both an absolute and per capita basis.
While elements of waste, fraud and other malfeasance are embedded in
this cost difference, the largest part of the difference in US health
care spend results from a higher rate of consumption of services,
especially physician and clinical services.

In countries with a single-payor (i.e., fully socialized medicine),
control over the consumption of meidcal services can be achieved by
rationing the aggregate available resources, essentially placing a cap
on the total number of doctor visits per person per year thereby
creating a type of inconvenience tax on the over use of services with
the assumed benefit of making "frivolous" visits inconvenient enough
to forego. This was the basic model utilized by Health Management
Organizations (HMO's) at their outset to successfully control the
growth of health care costs. According to a study by Thorpe, Howard,
Galactionova (2007), US patients are more likely to receive treatment
for a variety of nine prevalent chornic diseases (e.g., heart disease,
arthritis, asthma), once diagnosed, than their European counterparts.

With continued expansion in the availability of new preventitive and
non-essential treatments, including lifestyle management care (e.g.,
diet and exercise counseling for the overweight) and wellness (e.g.,
chiropractic care, acupuncture, alternative therapies) the total
growth in medical consumption is likely to increase, independent of
the concurrent and exacerbating growth in the percentage of elderly
(who naturally tend to require more medical treatment). These medical
treatment and management options may arguably enhance overall health
and wellness with the potential for increasing lifespan and/or total
quality of life, and therefore should be given serious economic
consideration. The significant gap in expenditure to benefit that the
US experiences viz. its other OECD counterparts is largely
attributable to the higher prevalence of chronic diseases, largely a
function of lifestyle. While most health care debates leave this as a
fixed parameter, the value of moving the needle on the prevalence of
obesity would far outstrip the value obtained from any significant
effort towards insurance fraud reduction or the administrative savings
from a more consolidated health care delivery system.

It is essential to realize that medical care is not free of personal
consumption-like characteristics. The per capita consumption of
healthcare typically rises with the overal income of a nation,
indicating that individuals desire to consume increasing levels of
medical care as they become wealthier. This should not be surprising
considering the growth of organic and "natural" food consumption items
that have seen steady growth rates versus their non-organic category
counterparts, and command price premiums of 10% and up. The price
premium paid is essentially an expenditure based on the desire to
purchase better health.

Similarly, consumers are increasing their utilization of medical
services in a desire to purchase better health, except the private
insurance system tends to encourage over-use of medical care. When
this preference-based consumption of health care is combined with a
(albeit arbitrarily defined) basic "need-based" consumption of health
care, it becomes difficult to disaggregate their independent drivers
and even more difficult to accurately price between the two. The
result is a health care system that is being priced from the highest
marginal buyer of health care, which is often at a price too high for
those particularly in lower-income brackets and without the implicit
purchasing power of an employer or government behind them.

There are a couple of suggested policy implications.

FIRST, health care provision and delivery should be managed more like
a consumer good and less like a public utility. Health care has more
in common with TVs and mobile phones than it does with electricity and
gasoline, and the mere fact that Americans are spending a larger
portion of their income on health care, by itself, should not be a
source of concern. Yet, health care is still treated and managed as a
quasi-utility- worse in fact because of the complex third-party payor
system. Consumers need to be encouraged to begin thinking of their
health expenditures as creating tangible benefits and to be trained to
see their degree of control over their health. Combined these would
enable health care to be marketed and priced more like a consumer
good, with the attendant benefits of market pricing and provisioning.
Personal health is a key lever for increasing economic and social
wellness at an individual and national level. A significant
improvement in the management of chronic diseases could be worth $1.1T
by 2023 (Miliken Institute estimate) or $84B per year for the next 13
years.

SECOND, a catastrophic safety-net and a minimum grant of purchasing
power could be created that builds off the concept of the health
savings account, creating universal health coverage at lower cost than
the proposed House/Senate legislation, that would create cumbersome
legislative overhead and expand Medicaid which currently costs between
$6-7K to fund at a compound annual average growth rate of 9-10% for
the last 10 years. In contrast, a combination of minimum grant of
purchasing power and a catastrophic safety net would cost about 1/2 to
2/3 of that cost up-front while providing a greater likelihood for
constraining the cost growth of overal medical costs. This
significant growth in private medical premiums has been significantly
affected by the distortionary effect of the Medicare program, which
accounts for approximately 50% of all US health care spending.
Because price and quantity is not being clearly disaggregated in the
management of Medicare, the program has tended to create a price bow
wave by under-funding reimbursements which get passed along to the
private sector as disproportionately high insurance premium increases.

-Austin

Comments on the US health care problem

2010-02-22T01:57:00.001-06:00

This Thursday, President Obama will meet with members of Congress for a bipartisan health care summit at the Blair House, to be televised live and in its entirety on C-SPAN. Mitch McConnell of Kentucky, Republican leader in the Senate, will be attending with other Republican senators. House Republicans have yet to announce if they will attend as well.

The present situation is surprisingly straightforward:

Democrats believe health care is being stymied by political tactics, while Republicans are betting that the health care proposals on the table are simply the wrong policy- the overarching question being is this a problem of tactics or strategy?

The Democrats believe that President Obama has a "communication" problem - the American people would like the health care reform policy he is proposing if they only understood what it really does. As Donna Brazile argued on This Week (February 21), Obama has lost the spin-war and allowed the proposed policy to be defined and demonized by its opponents.

Republicans believe that Americans are fundamentally satisfied with the blended public-private health care system we have and not interested in the type of structural changes being proposed by Obama and the Democrats. A 2009 ABC News poll found that of the 84% of Americans with health insurance, "...82 percent rate their health coverage positively. Among insured people who've experienced a serious or chronic illness or injury in their family in the last year, an enormous 91 percent are satisfied with their care, and 86 percent are satisfied with their coverage."

In considering this debate, it may be important to consider a few key points:

First, there is a false dichotomy in the public debate over health care as being a choice between public versus private health care. The present US system of health care has an extensive publicly funded component. Based on the most recent Census survey of the insured, 60% of these Americans have health insurance through their employer, and 9% direct-purchase their health insurance. However 31% of the insured are covered through government programs including Medicare, Medicaid, and military-based coverage, which is to say a full third of the insured population is insured through government-mediated programs.

Second, the uninsured is not a monolithic and unchanging group. Half of the uninsured are what may be termed 'transiently' uninsured- uninsured for less than 12 months. Addressing the question of the uninsured should not lump these two dissimilar groups together. One group is structurally uninsured for reasons that may include demographic characteristics such as being younger, Hispanic/immigrant, and/or being at 3x the poverty level or lower. This group's lack of health insurance may need to be considered within the larger context of policy towards the poorest socioeconomic strata in America. The second group is simultaneously more and less problematic. While this group transitions through un-insured status, it claims a much larger portion of the US population than a snapshot would indicate and creates the sort of risk that may resonate with a sizable percentage of the presently insured.

Third, the absolute size and nature of health care spend must be addressed, irrespective of Obama's health care reform bill- it is the unavoidable context for the entire health care debate. This topics warrants a more extended discussion and will tie the other two points in.

The US spends nearly 16% of its total output on health care or twice as much per capita as we spend on food. While we spend more on diabetes, an obesity related disease, our mix of health care spend is actually more favorable than most of our other peer industrialized countries. The rapid growth in the price of private health insurance is partly a consequence of our hybrid system, where the most expensive segments (i.e., seniors 65+) are paid for by the Medicare system with disproportionate bargaining power, while the less expensive segments (i.e., <65 Americans) are paid for primarily by private insurers that are under-leveraged versus the same pool of hospitals and drug companies. Though covering less than 30% of Americans, government-funded health care (i.e., Medicare/Medicaid) accounts for half of health care spending creating an enormous footprint in the private market. As Medicare attempts to slow its cost growth, that residual expense gets transferred to privately insured Americans.

While the US is a wealthy and advanced country and is therefore more likely to choose a higher level of health spending versus developing countries, we spend more on health care than other highly comparably wealthy countries in Europe, Canada, or Japan with negligible real impact on lifespan. Some private estimates put that over-spend at roughly 1/3 of total spend, which is to say we should be spending closer to 10-11% of GDP on health care, not 16%. The largest portion of that "gap"- roughly two-thirds of the gap, is due to higher use of advanced procedures, especially advanced diagnostics (e.g., MRI or CT scans) and outpatient treatments.

Though high use of advanced diagnostics may be a form of quasi-discretionary spending, the nature of the current public-private health care system transfers costs across society in some opaque ways. For example, based on an Urban Institute analysis of Social Security and Medicare payments, a couple retiring 20 years from now can expect to get 2.5 to 4.5 times more in lifetime benefits than they paid over their working years. That is to say, Medicare is being under-priced at a structural level. The inequity for current Medicare beneficiaries is actually worse and is true for all income levels. In short, receiving Medicare is equivalent to getting a $100K-300K bonus from the Federal government.

In simplified form, the root of the problem is fairly straightforward. Medicare is under-priced, but hid that flaw in two ways- it pushed costs to working-age Americans by paying too little to medical providers using its enormous clout, and relied on the retiree-to-worker ratio to fund the cash flow deficit. If you live long enough to get Medicare, the government will give you benefits far in excess of what you paid into the system- an exact analogy to welfare.

Unfortunately, those hidden flaws have appeared as problems in another part of the health care system. As the retiree-to-worker ratio has changed (as the Baby Boomer population bulge slowly approaches the Medicare threshold), these tactics have exerted a more intense pressure on the rest of the system. Ultimately, a majority of the cost excesses of the US health care system have pushed their way into spiraling costs and premiums for the private portion of the health care sector, creating a vicious cycle of premium raises and rising uninsured.

That brings us to the present situation.

I would personally draw several conclusions.

First, the root cause of the US health care "problem" (a combination of significant uninsured and high costs) is closely related to (if not actually due to) the government-run portion of the health care system. Medicare has put so much distance between the costs and the benefits of health care that it has distorted the behaviors of patients, doctors, hospitals and private insurers across the entire US health care system. It is not an insurance system so much as it is a welfare system, but the level of US taxation is too low to support this as a mere transfer payment (i.e., rob Peter to pay Paul). Instead, the US government is (ultimately) borrowing money in order to subsidize Medicare beneficiaries while bumping the poorest working-age families into uninsured status. Absent this government-financed distortion, private insurers, patients, and the rest of the health care delivery system will be able to stabilize the growth of costs at a rate more closely related to the increase in health care benefits.

For an illustrative analogy, suppose the government collected $500 from you every year from the age of 20 till you were 60. For simplicity we'll keep everything in inflation-neutral and interest-free dollars as these are not germane to the illustration. Over your working lifetime you would have contributed $20,000. But when you turn 60, the government buys you a car that is worth $40,000. You have received twice the benefit you paid in. In order to cover the difference, the government does two things. It negotiates with the automaker aggressively (because the government is also buying 5 million other people a car) and only agrees to pay $30,000. The government borrows $10,000 to cover the rest of the difference between the $20,000 you paid in and the $30,000 it spent. Meanwhile, the automaker attempts to recover its necessary total profit (recovering cost of capital and the cost of research, development, marketing, and overhead) by raising the price of the $40,000 car to $50,000.

At the end of the day, you got a great deal, the government got into debt, and the private non-government car buyer now has to pay $10,000 more for the same car. This is the basic dynamic that Medicare has created.

Second, true health care reform will mean "someone" will need to pay higher prices and/or receive less services, and the group that is at the center of this problem is Medicare beneficiaries. This group makes up the legendary "third-rail" of US politics- called third-rail because its like the third-rail on a subway...touch it and die. Whether senior citizens now and in the future should receive a free subsidy by the rest of society or not ultimately needs to be separated from the accounting sleight of hand that is creating this subsidy. If Americans believe that senior citizens deserve an extra $200B-400B a year to spend on medical care, then that should be made a transparent transfer that is clear, up for debate and scrutiny, and made by a willing electorate. Instead, because of the haphazard way this subsidy is being funded, it is wreaking havoc across the entire US health care system and obfuscating the entire health care debate as portions of this subsidy end up being passed on as health care inflation, and other portions showing up in the national debt.

Third, the problem of a significant number of uninsured needs to be split between the transitionally uninsured and the structural uninsured. Transitional uninsured should have the ability to transfer the annuitized value of their lifetime employer or employee paid health insurance premiums into a secondary market for insurance, if they so choose. Making health insurance a portable asset addresses the reality of a more dynamic workforce that changes jobs frequently- doing for health insurance what 401Ks did for retirement assets. The structurally uninsured will need some explicit subsidy if they are to get coverage. This brings up one of the most complex debates in domestic policy- do we put an economic floor on poverty? By separating out these two types of uninsurance, it will be easier to have an honest and clear debate about the economic, ethical, moral and social implications for whether or not to enact a guarantee of health coverage. The answer will likely be yes, but of a very limited form, as this has been the defacto policy of the US for many years, and is the reason why ER's in major urban centers are being used as free clinics by the poor. Creating an explicit form of "minimum" health insurance for the most economically disadvantaged will likely result in greatly improved health and well-being, as well as a net cost reduction for the United States' health care system.

-Austin

Over-communication

2010-02-02T23:17:00.001-06:00

Twenty years ago, Tim Berners-Lee proposed a novel method for navigating written content- hypertext. Around the same time, a company called "The World" became the first commercial dial-up Internet provider. Incidentally, "WWW" didn't event exist- that was invented in 1991. Today rough estimates put the number of Internet users at roughly 1 in 4 humans on the planet. In North America, the rate of Internet use is closer to 3 in 4. US cell phone penetration has hit roughly 80% and already by 2008 cell phone ownership among 12-17 year olds was passing 71%. The average number of texts per American cell phone user is 188 and climbing.

Tools like Facebook, Twitter, blogs, text messaging, cell phones, etc. etc. etc. ad nauseum, have enabled a state of constant conversation transcending time, space and old rules of etiquette. It is not only common but expected to see meeting attendees quietly typing away on their Blackberries in the middle of a presentation, punctuated by the occasional "silent" buzz of phones on vibrate, all the while a presenter leads the meeting and flips through bullet-pointed slides. Laws have recently taken effect making it illegal for train drivers, subway operators, bus drivers and commercial truck drivers to text while driving as fatal accidents have occurred because people were texting when they were supposed to be paying attention to other concerns. A Metrolink commuter train collided with another train in 2008 because the driver was texting with a teenage train-enthusiast he was "mentoring." Twenty five people were killed. Perhaps a technology can be said to have matured when it has hit the point of becoming obnoxious and even fatal.

The speed and breadth of this communication web that has overtaken our lives, especially in the most developed countries of North America, Europe and Asia, should prompt pause to wonder, what are the consequences of an entire population in a state of constant and incessant chatter with itself?

There's an old joke about the government: "What's the definition of a bureaucracy?" (Answer: "An organization that consumes its own output.") Technology enthusiasts will no doubt be horrified by the comparison. "The Internet and applications like Facebook and Twitter have allowed people to stay connected and communicate in new and fascinating ways," one might argue. "People can stay connected like never before," and "seamless collaboration is now possible with these tools." True, but just because there are new avenues of conversation, we may not necessarily assume that the quality of the conversations being floated over these new channels has improved. One might even argue that instead within the seductive folds of this massive communication bed, the actual quality of the conversations may have instead declined.

I'm struck by the number of people chatting away on their cell phones while driving at all hours. The last time I took a taxi, I think the driver spoke five words to me, and spent the rest of the half hour ride talking on his cell phone. If he works an average of 10 hours per day and takes weekends and government holidays off, I'd estimate 150,000 potential minutes of conversation. There are just nearly 775,000 words in the King James translation of the Bible. The average book on tape is targeted to be about 150-160 words per minute for ease of comprehension. That means he could have dictated the entire Old and New Testament almost 30 times in a single year, and still had remaining minutes to make dinner plans. I'm glad the Apostles didn't have Twitter or my reading of the One Year Bible might instead take the better part of a decade.

Its not just that we're using more technological avenues, but that these avenues are leading us to do these activities more. Take for example the proliferation of office emails. Email was supposed to be a great productivity enhancer, yet in many ways rather than facilitating work, email is work. The very costless properties that make email attractive also lead us to do what we do with all other things that have zero marginal cost- over use it. Emails end up with "cc" lines longer than the email itself and then generate the obligatory series of reply-to-all responses. At some point many of us realize the game with email is to reply with just enough information to kick-the-can down the road so we can move on to the next one. Better yet, forwarding the email along for someone else to deal with-- call it the Cisco router model of executive leadership.

In principle, experience and knowledge of individuals has become fungible across a common market that is leading to more rapid dissemination of information and that's probably a really good thing. Outside of work, this type of information may not be earth-shattering- knowing which plumber to call (Angie's List), who not to buy from (eBay seller ratings), where the best date restaurant is in Dallas (Citysearch) or any number of other pieces of mundane but useful information. Yet, ultimately this type of practical information leads to a more efficient and satisfying economy and society. The ability to extract, consolidate and disseminate this type of information can be hugely valuable, but these types of websites occupy tiny fractions of most people's online time. Online time is typically a composition of light browsing, email and social networking sites. Among the under-30 crowd, the proportion skews significantly to "communication" oriented activities. Throw in texting and other cell-phone enabled communication and the average teenager is spending between 4-8 hours "online."

In the end, that really becomes the issue- we can have these conversations constantly and with an ever-increasing circle of people. But is there really that much for us to say, or do we risk becoming a narcissistic society consumed by limitless avenues for self-expression?

Yes the supreme irony of this viewpoint is that I'm typing this on Google docs, posting it through Posterous where it then forwards on to my Facebook and other blog pages. I'll probably get notices of angry responses on my Blackberry where I can then Tweet a response. At least my hypocrisy will be efficient.

Commentary on unemployment policy for the United States, January 2010

2010-01-24T13:47:00.001-06:00

As of December 2009, the US unemployment rate is at 10% representing 7.7M people unemployed. Over the coming months, the rhetoric and legislation from Washington D.C. is likely to be focused on “creating jobs,” a goal that is as assuredly amiable in the abstract as it is likely to stoke a discussion that will be substance-poor in the details.

The topic is politically and technically intricate, but the basic question facing policymakers and the American public is the following: “How should we create American jobs?” Leaving aside most of the political and normative nuances, the discussion that follows focuses on the technical questions surrounding US employment.

The critical backdrop to the discussion is an acknowledgement that this business cycle and recession was substantively different from previous recessions – this is a structural (not cyclical) recession and therefore must be addressed as such. There was an enormous 20-year financial bubble market that led to a mis-allocation of resources- too much in some industries, sectors and geographies, and too little in others.

Because of the time span involved, including a substantial majority of many people’s adult lives, it can be hard to think of the 1990-2010 period as an anomaly, yet the anomaly rested on a few interlocking economic fundamentals. During this period, the dollar remained overvalued by at least 20% due to a variety of geopolitical and structural reasons (hurting US exports and helping imports), interest rates remained too low by an estimated 200-300 basis points (inducing borrowing and disincentivizing savings at all levels of the economy), and asset returns in the housing and equity markets were too high by nearly a factor of 2x (also incentivizing ever decreasing personal savings rates and encouraging consumers to leverage the one asset they could- houses). The net effect was an over-sized consumer-pleasing sector (discretionary consumer goods, housing, and housing-related goods and services) and financial services sector, and an under-sized export sector (high-value added manufacturing and even mid-tier manufacturing, exportable services) and energy sector.

Unemployment in a structural readjustment recession is the consequence of a re-balancing process that will involve permanently shuffling capacity from areas of excess to areas of deficit, and where the excess is laid off faster than the deficit is discovered, we see unemployment. Businesses are adjusting quickly and have slashed capacity or “gone under” in areas of excess at a rate faster than any recession since WWII, but until the displaced workers find their footing in new sectors, the areas of deficit (i.e., new job opportunities) will not become fully apparent. Slowing this process are barriers that are preventing this re-normalization to a “new normal.”

The barriers to equalizing and then reducing overall unemployment can be matched up into two basic categories. Firstly a mismatch between the supply and demand for certain types of work and secondly a mismatch across specific geographies.

Given that, the focus of policies and actions at the public and private sector levels needs to be on reducing the barriers that inhibit movement across industry/sector and across geography. We can begin by examining the US unemployment insurance programs as they exist today.

Unemployment insurance programs were created based on the intent of reducing the pain and consequences of unemployment in an economy of regular booms and busts, not surprising for a set of programs originally conceived in Wisconsin in 1932. A recession or bust would usually result in a series of layoffs as a company slashed costs and capacity during a downturn, but then the next boom would lead to the re-hiring of many of the laid off workers. Unemployment insurance was a way of smoothing out the boom-bust cycle for workers by giving them a stipend to sit tight for 6-12 months until the cycle reset itself.

As concerns about the decline of US manufacturing increased, very specific programs such as the Trade Adjustment Assistance program were created (expanded most recently when combined with the comparable NAFTA provision in 2002). These programs do target dislocations caused by structural readjustments in the economy. Yet this program only applies to those displaced due to the shift of manufacturing outside the US (with certain other restrictions and exceptions). In an economy that is majority service sector oriented and where the structural readjustments are not export related, but rather due to a financial bubble, this program is emblematic of the anachronistic state of labor policy and addresses an inadequate fraction of the current unemployed.

Geography is a more subtle issue often not openly dealt with in public policy, except when localities attempt to attract employers to move jobs or factories to their area. For example, the proposition that Michigan is over-populated relative to its long-run economically sustainable size would be an anathema discussion on the US Senate floor- Sen. Levin would beg to differ. Yet geography is still substantively tied to economic performance, albeit now more due to variations in business and tax climate than in the availability of fast rivers and coal deposits.

There’s a truth in marketing that it takes tremendous effort to switch consumers from one product to another, more commonly known as “brand loyalty.” This brand loyalty effect is even more intense in other aspects of American life including location and profession. For example, in a given year (taking 2007-2008 as a recent data point), only about 1% of the population moved to a different region of the country (or went abroad). Even within a county, the mobility rate is only about 7%. For the unemployed, the rate of relocating from one region to another is only a little over 2%, ranging from 1% for those who originate in the Northeast, to about 3% for those originating in the South or West.

Unfortunately for many people, the inducement to switch industries or geographies doesn’t necessarily come from the joy of an enticing better offer, but from the pain of the deterioration of a current situation. Current unemployment insurance and related policies are designed to preserve a status quo- they are payments to sit tight and hope that a new job will come along and that the economy will improve in time. In this current recession that is a well-meaning but likely disingenuous policy leading people to waste precious time believing that hope is right around the corner. At some point the unemployment benefits will run out and households will have to make even more drastic lifestyle adjustments after morale and employability have eroded away.

Key policy actions.

We put aside the basic normative question of whether or not a government should or should not provide unemployment assistance- that is a moral, ethical and political question. However, presuming a certain level of assistance is going to be provided, the question is how to structure that aid in a way that will be most effective in reducing the level of unemployment.

(1) Create irresistibly attractive subsidies to go back to school, with a level of economic support that is realistic to the needs of working families.

The unemployed should be faced with an offer to re-orient themselves to new jobs that realistically meets their interim financial needs. Because there is already a comprehensive infrastructure in place for assessing financial aid need built into the college FAFSA system, the expansion would be an extension of a known program rather than the de novo installment of a new program (and all the mistakes and perils that entails).

The relatively mild uptake of these programs to date is likely due to an unrealistic assessment of the financial aid required for a working family of 4-5 versus an 18-year old still living with his or her parents. Purely for argument purposes, the $787B stimulus package works out to over $65K per unemployed worker. Assuming a 50% uptake, that package could have been administered as a full-ride scholarship for 2 years including a living expense stipend for roughly 6M unemployed workers. Point being, with the size of dollars that have been talked about in Washington D.C., there is enough money to create an incredibly compelling path forward for the unemployed, one that would have a return on investment to the US economy of at least 3-4X based on relatively conservative estimates.

Finally, on this point, businesses and private institutions know how to measure whether a new product or service hits their customer “sweet spot.” Administering this program through the existing infrastructure would further enhance the likely uptake, and give a more realistic assessment of what it would take to incent workers to re-train for new industries.

(2) Make it irresistible to “try out” new workers.

A substantial portion of the fully-loaded cost of hiring a new worker is the risk that the hiring business will be stuck with them. Businesses are naturally reluctant to hire new workers at the sign of new demand because they are unable to discern the difference between interim fluctuations, and the start of a new growth trend. New hire “probation” policies and other such HR policies are created to enable employers to gently step around the minefield of employment laws that includes wrongful termination lawsuits.

Providing businesses with a new hire exemption for hiring someone who is on the unemployed rolls including immunity from wrongful termination for the first year, along with other special privileges will both enhance the churn rate of the unemployment rolls (important as the backlog becomes ever large), and reduce the cost of “trying out” new workers, which is especially important in the early phases of an economic recovery and during the readjustment phase of a structural recession.

Similarly, creating the opportunity for “internship” or “train-to-work” programs would enable employers to act as an extension of the educational system. A majority of educational dollars in the US are actually spent outside the formal educational system- through company training programs. Tapping into this hidden asset of the private sector would further accelerate the ability for the unemployed to learn new roles in the economy- ultimately giving the employer an irresistible offer.

(3a) Reduce the cost to relocate within the US.

Presenting an unemployed worker with the opportunity to relocate states as a one-time benefit of unemployment would enable different metro areas to normalize their levels of unemployment. Unfortunately, because unemployment insurance is administered at the state level, there is a clear conflict of interest. While some states struggling with unemployment costs and budget deficits may be interested in off-loading their costs on another state, most states would rather bring the money to their people, than see their people move to the money.

Yet the simple fact of the matter is that some states have pushed themselves into untenable economic positions, including the industrial Midwest, parts of New England and the Northeast, California and potentially Florida. Accelerating the relocation of households out of these states towards healthier job markets and state economies will ultimately result in a faster economic rebound of both the job market and the more general economy for all states.

For those who might be concerned about the ideas of using funds to support moving, the simple fact is one can either spend money to keep someone in one spot where they may never be able to find a job, or spend money to help them go to another place where they have a better shot of finding a matching job, and probably a lower cost of living. Given the choice, it seems a bit academic to worry about this particular use of funds when the alternative is spending money to encourage people into a state of inertia.

(3b) Streamline bankruptcy restructuring to enable a one-time purge of the American balance sheet.

One of the key inhibitors to efficient geographic relocation in this particular recession has been the widespread phenomenon of underwater mortgages, particularly in the overheated coastal markets where in some neighborhoods and cities as many as 70-80% of residents are “underwater.” The inability or desire to bring cash to a short sale has left mortgage holders with two unpalatable choices- either continue paying a mortgage on a balance that may be 2-3X the value of the house, or walk away and take the credit hit. Over time, negative equity home owners are moving towards the latter of the two options.

Debt strangulation is a periodic phenomenon that accompanies a credit market cycle. But when it inhibits the readjustment of the real economy, such as the failure to relocate to more economically viable locations, this can create real costs to the overall welfare of the nation that far surpass the academic concerns of “moral hazard” and fears that lenders will now have to raise their risk premiums (side note: they should have had higher risk premiums all along- 5% mortgages are a steal, not a right).

A one-time purge of the American balance sheet is the necessary pair to cleaning the financial system’s balance sheet. Lenders have to come to terms with the fact that metaphorically speaking, Americans dined at their very fine restaurant, ordered the wine and lobster, but then skipped out on the check. The meal has already been eaten so at best you can ask them to wash the dishes.

Personal bankruptcy laws were actually made stricter in 2005, forcing more people into Chapter 13 rather than Chapter 7 (and disincentivizing the use of court-mediated restructuring). In a nutshell, Chapter 7 is a one-time purge of your balance sheet- you get wiped out, but the slate gets cleared. In Chapter 13, a portion of your debts gets converted into a payment plan. Obviously lenders favor getting something rather than nothing. Yet it’s the risk of having your loans wiped out that keeps lenders vigilant, and it is far more chastening to the bottom line than bank taxes or compensation limits in the long run. The logic of easing losses on lenders to expand credit has been somewhat turned on its end.

A one-time express bankruptcy and restructuring should allow the unemployed to completely wipe their balance sheet, including their mortgage. At that point they’re free to take advantage of relocation assistance or schooling. Their credit would be shot, but after all that is the point of a credit record- identifying who has a history of being over optimistic.

Turning to the implications at a personal or individual level, this recession has created anxiety for many, uncertainty for most, and a disproportionately trying circumstance for some. It is part of the implicit tradeoff made for a freer and more dynamic United States. To thrive in this economy require personal responsibility that extends to far more than the use of credit.

Individuals and households must maintain situational awareness of the economic and social environment and remain vigilant and prepared to take action based on facts and independent judgment.

For the employed, it will likely mean constantly searching out for new opportunities within (or outside) their current employer, and cultivating fall back plans that include financial cushions, as well as alternate skills and capabilities. When the US was largely a nation of yeoman farmers, Americans understood the need to remain flexible with changing seasons and markets, and at times, relocate to find new opportunities. Farmers were basically agricultural generalists, hedging the weather and market by changing their mixes of crops, feedstocks, and livestock. As new markets opened, they moved West by the thousands.

In an economy of specialization, the impact of structural shifts becomes even more potentially devastating because that essential character of flexibility and wanderlust has been made dormant. The underlying goal of any employment policy should ultimately be measured by its ability to awaken those elements of American character.

See and download the full gallery on posterous

Motivational posters for gun owners

2010-01-01T22:00:00.001-06:00

men.style.com: Fashion and Lifestyle News from the Online Home of GQ and Details

2009-08-27T20:11:00.001-05:00

Home of: The "Peace Sign on My Mom's 7 Series" Douche
Affectations: A belief that grades, majors, and course requirements are just another form of cultural hegemony; using the word hegemony.
In ten years, will be: Living with your family in an old house that you quit your job to refurbish yourself (by overseeing a contractor) with painstaking historical accuracy in a formerly decaying section of the city that's recently been reclaimed by a small population of white guys in hand-painted T-shirts who are helping you put together a health care fund-raiser for MoveOn.org.
Douchiest course offering: English 200: On Vampires and Violent Vixens: Making the Monster Through Discourses of Gender and Sexuality.
Honorable-mention limousine-liberal institutions: Duke, Reed, Oberlin, Wesleyan, Bard, RISD.

via men.style.com

Awww... my alma mater. So sad and yet I too have used the word 'hegemony' unflichingly in a sentence.

Max, my goofy dog.

2009-07-27T16:58:00.001-05:00

A new "new economy" - exportable services

2009-07-14T00:02:00.001-05:00

Drive around your average American suburb on an afternoon and you'll see people engaged in the daily busyness of life. Approximately 7 out of 10 of them are engaged in providing services, rather than in producing goods. Driving around my town of Keller, Texas, I'll see many examples: the waiters at the Chili's restaurant on Main St., my doctor on Keller Parkway, and the UPS guy who drives around my neighborhood about 4 o'clock. A noticeable exception to the 70% majority of service providers includes construction workers who are technically goods-producers (according to the way economists account for economic activity). The framers building a new house down the street are placed within the goods-producing sector.

What is not as noticeable is the amount of goods/commodities that are being utilized or consumed by the 70% of Americans engaged in providing services. From the Middle Eastern gasoline that's burning in all the cars driving up and down the street, to the Chilean blueberries being stocked on grocery shelves, to the Chinese-manufactured telephones being sold at the local cell-phone outlet. These are goods that are being produced or extracted from other parts of the world and then shipped for local consumption and on the face of it, neither the local waiter at Chili's nor my very competent doctor on Keller Parkway have anything to offer in their services that could be of the slightest benefit to the Middle Eastern oil magnate, the Chilean farmer, or the Chinese worker who have each decided to contribute to the comfortable local lifestyle. In short, they must be expecting to get something from us in return for the goods they produce, but it doesn't appear to be anything that the 70% of service-oriented providers can provide. A practical consequence of a persistent imbalance in the desirability of exports versus imports can be seen in the balance of trade statistics, and the American balance of trade has been negative (i.e., importing more than we're exporting) for a number of years and is indirectly contributory to the present financial distress here in the US and across the globe.

No this is not another blogger/post rant about the decline of American manufacturing or a rejoinder to a national self-sufficiency. (In my opinion, the former is merely descriptive and the latter is at best an arbitrary ideal and likely a mythic destination point of questionable desirability.)

Rather, my point is very simple. The future of our service-sector dominated American economy, the new "new economy," is exportable services.

Exportable services are services which can be delivered remotely for use or consumption. Financial services is among the leading examples of this type of exportable service. A client in London can request the service of a trader in New York City to purchase XYZ stock on the NYSE at the touch of a button and the trader in New York can oblige that London customer while seated (or standing) comfortably in the depths of Lower Manhattan. Similarly a wary record producer in Los Angeles, California can call up his Lloyd's of London agent and syndicate insurance for Celine Dion's vocal cords (non-fictious example) in the London re-insurance market. The service (i.e., insurance) is provisioned from a tawny Lime Street in London, across the world to a palm tree-lined Los Angeles, California boulevard using nothing more sophisticated than perhaps a long distance telephone call.

Ironically, Financial Services is not likely the early-adopted exportable service because of some quality of its inherent necessity, but rather because of the extremely low density of information required to project it over telecommunication lines. FS was projecting over telecommunications lines back when telegraph lines first connected New York City to Philadelphia allowing ticker quotes to be streamed between the exchanges in the respective cities.

Before our current telecommunications infrastructure existed, exporting services was a potentially cumbersome process. The real revolution of technologies such as the Internet lies in its ability to project increasingly complex services from one location to another.

Perhaps an intriguing example involves the transformation of medicine into a potentially exportable service. Already doctors are experimenting with e-mail based and chat based "appointments." Regardless of physical location, one can potentially be examined and diagnosed and receive medical advice and/or a prescription sent to one's nearest pharmacy. While prudence dictates an incremental approach to the virtualization of doctor visits, a more radical step is being taken with remote surgical options. In a not-to-distant future, a "world-renown" surgeon in Houston, Texas could perform life-saving heart bypass operation via a tele-presence operated robotics to a patient in a hospital in Munich, Germany, for example. If that surviving patient happened to be a worker in a certain Bavarian-based automaker's 7-series plant, then it seems not too far-fetched to see how the exported medical service (i.e., surgery) could be easily exchanged for a manufactured good (i.e., fine Germany sedan).

Another category of exported service straddles the boundary of what we think of as products and services- intellectual property. While retaining that intangible substance-less essence that we associate with services, intellectual property has a replicability that emulates a product. Among the common examples today include music recordings and video clips. An MP3 or their subsequent proprietary variations (e.g., AAC's made popular by Apple's iTunes) represent a fixed instance of service by a series of artists and producers (i.e., the performance) that can be projected both over space as well as over time. This sort of IP has been around since the first phonograph tunes were etched on metal rolls in Thomas Edison's Menlo Park, NJ laboratory, but the level of projection of this IP-service has reached a current (and evolving) apex. By allowing a service provider in a Burbank, California recording studio to provide "services" to a listener in Osaka, Japan, the cycle of economic repayment for the Japanese-manufactured microphone used in that recording might perhaps be made to come full circle.

The essential implication for American competitiveness in the 21st century is this- it is vital to invest in the growth and development of the exportable services sector. This effort can be divided into three categories:

One, expand the capacity of existing exportable services. The United States has a global dominance in key exportable service sectors including Financial Services, Media and Marketing, Business Advisory services, and Systems Engineering. An expanded national priority on supporting these industries will further reinforce US leadership in the global marketplace, especially through this present time of economic re-adjustment. Expanded support for Financial Services in our day and age is perhaps necessitated by its equivalent export-significance in our era to the significance of the post-WWII auto industry. Rather than de-crying the diversion of US college students into fields such as finance, marketing, or the creative arts, these should be considered majors of vital importance to expanding US economic sustainability.

Two, convert localized services into exportable services. The potential for a localized service to be exported depends on many characteristics. In some cases, a local service can be projected internationally if the service-provider is willing to travel. This is especially true with business consulting. Management consultants are famous (or infamous) for their globally itinerant ways, but the practical fact of the matter is that bringing high-value advisory services to an overseas location is a practical and effective way to export services. Other localized services will have to be re-thought at their essential levels, like secondary education. In this case, the present model is for foreign consumers to travel to the US to consume world-leading US secondary education - the exact opposite of our management consultant example. Though effective, this model is market-limiting. Wide-band electronic communications may enable a new level of context-rich experience to be projected overseas enabling US colleges to deliver educational services worldwide in a new value-creating way. Another category includes our prior tele-presence surgery example- services which are made exportable by a radical jump in technology. A fourth category may be a type of reverse-offshoring. In essence, utilizing lower value-adding service providers in a local (overseas) market backed up by expertise from a higher-value adding US-based service provider. In the case of computer technical support, much has been made of "calling India." Irrespective of one's view of the quality of this execution, the practical fact is that several major PC manufacturers actually end up retaining high-value add tier-2 or tier-3 support in US-based call centers who may end up supporting not only US-based customers, but overseas customers. Re-thinking how service is exported, even to the degree of partnering with local-based service providers for those pieces of service-delivery that may absolutely require physical presence, will likely lead to continued breakthroughs in the conversion of localized services into exportable services.

Three, create new and valuable exportable services. Though pregnant with possibility, this eludes practical policy implications and is perhaps best left to serendipity. Yet perhaps at least an export-oriented mindset will predispose inventors, entrepreneurs, creators, artists and innovators to explore the opportunities for globally exporting what may be locally developed.

A final and critical element of expanding exportable services is to develop simple and sensible approaches to international payments. In this arena, the United States again finds itself with a home field advantage- the dollar is the most universal currency on the planet. Whether developed in the public sector, private sector, or a public-private partnership, a harmonized system for receiving payment for exported services that is free from convoluted or confusing tax and export restrictions would provide the critical underlying infrastructure for unleashing a significant portion of the 70% of Americans engaged in the provision of services.

The nuance of language possibly captures the indeterminant inclination of Americans to our present economy: "post-industrial." That is to say, we orient ourselves as if the Industrial era were our economy's true north. A new "new economy" needs to be affirmatively positioned by what it is, rather than what it is not, and I would offer that the inhibitor to that place of solicitude is the absence of a conception of how services contribute to the American economic balance-- how an economy that consumes goods can simply live by providing services. A re-visioning of services- exportable services, may contribute to moving the US to that next step.

-Austin Kim

Economics of Ticketmaster

2009-07-13T21:46:00.001-05:00

via garry.posterous.com

So how much does Ticketmaster really make off of you...

Money Magazine's #7 best place to live: Keller TX!

2009-07-13T07:59:00.001-05:00

via finance.yahoo.com

Keller TX - Money magazine's 7th best place to live in America!

Chrysler, GM and the Re-capitalizing of Detroit

2009-05-26T22:09:00.001-05:00

As of this moment, GM has received $19.4B in government loans and will be facing a Monday (June 1) deadline to voluntarily restructure or be forced to file for Chapter 11 bankruptcy protection. Bankrupt Chrysler LLC received another $760M from the US Treasury out of the Congress-approved TARP funds recently, topping off nearly $10.1B in cumulative loans when including Chrysler Financial Services to the total. That's just shy of $30B or roughly $300 per US household.

What's staggering is not the size of the US Federal Government "investment" into two out of the Big Three legacy Detroit automakers, but rather that the investment is hardly noticeable in a US Treasury investment portfolio of over $700B and a Federal budget deficit expected to exceed $1.8T (that "T" is for trillions) or over 10% of the US GDP for fiscal year 2009.

There are so many angles from which to look at the $30B.

One angle is the angle of outrage at a level of unwarranted government intervention. This is still supposed to be America right? Land of free enterprise capitalism? Why put public money at risk to subsidize failed automakers. We have bankruptcy courts and bankruptcy codes, so why not let the judiciary system do what it is supposed to do. Bondholders who thought they held investment grade senior collateralized debt have been abruptly bumped down the debtholder food chain. Costs for financing will be forever higher as future lenders will require premiums to account for this facile appreciation for contract law. Fool me once, shame on you Uncle Sam. Fool me twice...

Another angle is relief at the support- late but here at last. This is still America and we are talking about cars. We already depend on foreign sources for critical resources like petroleum. Do we really want to lose the capability to build our own cars? Millions of jobs and families depend on automakers that have been fighting foreign competitors that are supported by many subtle (or not so subtle) government props. A level playing field is as mythical as fair trade terms. Workers rights have helped create the American middle class and the collapse of Detroit would just further the slide towards an unstable two-tier society- haves and have nots. In the end, $30B will look small compared to the full cost of a liquidating Detroit and the devastation it would wreak across the country in general, and in the upper Midwest in particular.

Thirdly, there might be an angle that see a unique opportunity. With Detroit now under Washington's thumb, and with the theoretically limitless resources of the Federal Government, a new green revolution can be forced through the automakers. Where market forces failed to correctly signal an end to big SUVs and gas guzzlers, public policy can now step in and utilize a unique opportunity to reshape American auto designs for decades to come. A merger of Chrysler with Fiat is already set to bring a host of new fuel efficient European cars to American showrooms. While unfortunately this didn't happen on its own, this may be the best thing that's ever happened to the American auto industry.

These are just three hypothetical and contrasting viewpoints. The facts of the matter at present are too murky to attempt anything resembling an objective forecast for the outcome of this particular intervention. There are likely elements from all three of these (and many other viewpoints) that will be found as true, in part or in whole. Yet, what is curiously discernible now from these (and other) viewpoints is that the perspective you resonate with may be well indicative of your own perceived aspiration in American society- borrower or lender, consumer or producer, manager or worker, policy maker or policy taker, owner or renter, driver or passenger.

The shared narrative of the US consciousness, from its inception, has been one of high aspirations and an optimistic view of one's trajectory in life- no matter the starting point. Perhaps it is this trenchant optimism that has bedeviled socialist and unionist movements at various points in American history- at some deep level, we believe we'll wind up being the payor and not the beneficiary of socialism and so we summarily reject it. And so it may be this individual optimism that lies at the heart of an "American difference" with many of our peer countries around the world, in Europe, Asia and Latin America.

Yet if we see this optimism wane, and recession give way to a depression- not in economic terms but describing a dejected state in the national psyche; if we stop believing we are (or will be one day) the lender, the producer, the manager, the policy maker, the owner, the driver of our own national destiny, then and only then will we see a true revolution in American politics, and perhaps it will be at that time that the recapitalization of Detroit will be written in history books as the end of not one but two eras- the death of the gas guzzling SUV and the demise of an American free market capitalism.

-Austin

http://www.americancivicliteracy.org/resources/quiz.aspx

US Social Studies Quiz

2008-11-22T20:38:00.001-06:00

Are most people, including college graduates,civically illiterate? Do elected officials know even less than most citizens about civic topics such as history, government, and economics?

The answer is yes on both counts according to a new study by the Intercollegiate Studies Institute (ISI).

More than 2,500 randomly selected Americans took ISI's basic 33question test on civic literacy and more than 1,700 people failed, with the average score 49 percent, or an "F." Elected officials scored even lower than the general public with an average score of 44 percent and only 0.8 percent (or 21) of all surveyed earned an "A." Even more startling is the fact that over twice as many people know Paula Abdul was a judge on American Idol than know that the phrase "government of the people, by the people, for the people" comes from Lincoln's Gettysburg Address.

Take the test for yourself.

http://www.thebackofthenapkin.com/

Two cool websites

2008-11-22T20:13:00.001-06:00

Alltop is the "online magazine rack" brought to you by Guy Kawaski, one of those "wisemen" talking heads of Silicon Valley.

"We update the stories every hour. Pick a topic by searching, news category, or name, and we'll deliver it to you 24 x 7. All the topics, all the time. http://ateliertransfert.ca/" target="_top">Atelier Transfert</a>" href="http://alltop.com.s3.amazonaws.com/media/alltopdemo.flv" rel="vidbox 640 380">watch a tutorial video

http://alltop.com/

Back of the Napkin is the website to go with the book by Dan Roam. Here's a short description from Dan of how he came up with the concept:

"Several years ago, I ran a marketing communications company in Russia. The only problem was that I didn't speak Russian. I asked myself, 'How can I run a communications company in a place where I don't understand what anybody is saying?' The answer: I drew pictures."

You can view his key concepts on his website that include short narrated "animations."

http://www.gallup.com/poll/109108/Belief-God-Far-Lower-Western-US.aspx

Gallup survey on religious beliefs

2008-11-22T13:47:00.001-06:00

GALLUP POLL - July 28, 2008

Americans living in the Western US are much less likely to believe in the existence of God or the existence of a higher spiritual power than those living in the South where belief in the existence of God is the highest.

Additional interesting statistics dividing by age, education, political affiliation, and professed religious affiliation.

Americans who live in the Western part of the United States are much less likely to believe in God than are those living elsewhere, particularly in the South, where belief in God is highest.

BlackBerry Storm

2008-11-21T11:31:00.001-06:00

The new BlackBerry Storm was released today (November 21, 2008) and like hundreds of other people, I went straight to the Verizon Wireless store this morning at 8AM. Apparently I wasn't dedicated enough because the 20+ people camped out in front of the Keller TX store at 7AM cleaned the place out before the doors even opened. Nevertheless, I tried the demonstration unit at the store and decided it was good enough to purchase on the spot. It should take less than a week and they'll ship it overnight for free.

If you're even contemplating getting a new smartphone or replacing an older one (e.g., Apple iPhone) keep a few things in mind:

Go to a Verizon Wireless store and actually try the Storm. It definitely feels very different from any regular BlackBerry or from an iPhone.

When you press on a key, the back of the phone gently vibrates and the whole screen gently presses inward giving the feeling like you're actually pressing down on a real key. It takes less than a minute to get used to and gives it a very tactile feel.
However, there's obviously no key-to-key feel so if you're used to texting while driving and not looking, you're more likely to type gibberish.
If you already struggle to accurately hit the buttons on a regular BlackBerry this may not be the right phone for you.

If you do decide to buy one, you can get free overnight shipping and a $50 instant rebate if you buy in-store today because the stores will be out of the phones.

Its really a beautiful little phone- just a bit bigger than the BlackBerry Pearl, but the screen size and ability to flip from SureType to full QWERTY keyboard is, in my opinion, well worth the slightly extra heft. Like the iPhone, you can simply rotate the phone and it will flip the screen from portrait to landscape mode giving you the ability to view website and documents in "full" size. It has a slightly bigger screen than the iPhone, a somewhat less elegant interface, but a removable battery which addresses one of the biggest issues with large touchscreen smart phone devices.

At the end of the day, you'd buy this phone if at least 2 of the following fit you:

You have to have a BlackBerry to work with your corporate server
You want to have QWERTY keyboard sometimes, but not the width and heft of one
You use your smartphone a lot and need to be able to change out the battery to make it through a day
You want to be on Verizon, but still have GSM roaming capability

-Austin