April 8,2009

Tax or Cut?

The Hawaii state legislature is considering taxing internet commerce. This is just another example of state politicians addressing the wrong end of the problem. In the private sector, management and labor would have to consider a combination of factors to deal with hard times. They might consider layoffs, reduction in hours, pay cuts, termination of matching 401K contributions, termination of defined benefit pension plans and reduction or elimination of health care benefits.

Your government looks at things a bit differently. They look at the other side of the equation and desperately search for ways to raise revenue through taxes and fees. Virtually every economist says raising taxes in an economic downturn is exactly what not to do. So, why is your legislature so intent on putting more of a burden on the residents of Hawaii?
To answer that question we must look at labor organizations and the conditions under which their power is gained or lost. A union’s power is directly related to the competitive environment of the employer. A monopoly or oligopoly conveys much more power to the unions than they would enjoy in a highly competitive market. The airline industry is a good example. Prior to 1978, when airlines were regulated, the unions were powerful. After deregulation, under the unrestricted entry of new carriers and unbridled competition, unions were forced into a concessionary mode that continues today.

Your government is a monopoly. Therefore, the public employee unions have enormous power. In Hawaii that power is further amplified. This expanded power comes from four factors:

First, According to FactCheck.org, Hawaii is tied with West Virginia as having the lowest voter turnout in the nation. Only half of our eligible voters take to the polls.

Second: Government workers in Hawaii constitute a significant percentage of the total work force. Hawaii ranks near the top in percentage of workers who work for the government.

Third: A higher percentage of those workers actually vote when compared to the general population.

Fourth: These workers tend to vote in a block due to union influence.
The result is that the public employees essentially put the government officials in office. Thus, the politicians are loath to adopt any cost saving measures that they would have to defend in the next election.

State and local government employee numbers nationwide have grown 40% faster than the general population. This would indicate that the power of public employee unions will only increase.

Unionized worker’s pay and benefits come from negotiated contracts. Private sector labor contracts are negotiated in an adversarial environment. Private sector union contracts are negotiated with the financial health and competitive position of the employers as factors. Public worker unions negotiate in an atmosphere in which the parties understand that the union may chose to fire the employers (through the election process). These are really not negotiations at all. They are more like the mating dance of the cranes: lots of squawking and posturing, but the outcome has already been determined. Pay raises, working conditions improvement and increased benefits for all. Since the government (a monopoly) can simply raise its prices (taxes and fees) to cover the cost of the contract, it is less of a consideration during negotiations.

The Bureau of Labor Statistics data support the disparity between public and private sector workers. Nationwide, state and local employees receive 32% higher wages, 60% higher benefits and more job security than private sector workers. In Hawaii the disparity is probably much greater due to its high percentage of visitor industry employment. State & local government employees have superior medical, prescription and dental insurance benefits, at lower premium costs to themselves, than nearly all persons in the private sector. Retirement plans for public workers are far superior to those in the private sector. And the gap is rapidly growing as companies dump their defined benefit plans in favor of 401k and similar equity plans.
For example, medical care benefits were available to 71 percent of private industry workers, compared with 87 percent among government workers. About half of private industry workers participated in a plan as compared to three-quarters of government workers. In Hawaii the number is closer to 100%.

Sixty-one percent of private industry employees had access to paid retirement benefits, compared with 89 percent of State and local government employees. Eighty-six percent of government employees participated in a retirement plan, significantly greater than the approximately half of private industry workers. In Hawaii the number is closer to 100%.

Paid holidays, personal leave, and vacation are all much more generous for state and county employees than their public public sector counterparts. Since 1995 property taxes nationwide have jumped 48%, that’s 30% higher than inflation.

When union officials take a non-concessionary stand they are just doing their jobs. When a politicians caves in to public union pressure, he or she is not doing their job and they are not representing the citizens of Hawaii.
Should private sector workers who are currently suffering the effects of the economic downturn in the form of pay cuts, layoffs, loss of pensions and health care, pay more taxes and fees to support higher wages, benefits and job security for public employees? For the most part, your politicians say yes.

As a former elected union official, I appreciate the role unions have played in improving the lot of the American worker.

Unions have been good for America. They saved the worker from exploitation in the early days of the industrial revolution. They expanded the middle class after World war II.

However, unions also have been involved in featherbedding; requiring firemen on diesel locomotives and three pilots in an airplane that was designed an certified to be flown by two. Unrealistic and restrictive work rules have raised the costs of producing goods and services in some businesses.

There are huge differences between public and private sector unions. One operates in the real world, the other does not. There was a time when a worker could make a decision to go into the private sector and have less job security but a higher salary, or he/she could opt for a government job with security and probably a lower wage. Now the government worker gets higher pay, generous vacation and slick leave, with health care and pensions rarely seen in the private sector.

Private sector unions are directly connected to the success of the employer. If the employer loses revenue due to market conditions or changes in its competitive position the union may be involved in concessionary negotiations. These negotiations may involve reductions in pay, reductions in vacation time and sick leave, changes in health care and contributions to pension programs. Employees may have nothing to do with the employer’s plight but they end up paying the price anyway.

The public sector doesn’t work that way. Historically, the unions get their demands met and the employer (governments) simply raise taxes and fees to pay for the largess. This has resulted in contracts that are excessive when compared with those in the private sector.

This is primarily due to their enormous political power. They can determine the outcome of elections. Thus, they are in a position of negotiating across the table with those they have put in office. Meaningful negotiation cannot take place in this artificial environment. Inefficiencies and high costs are the result.

Union power comes from the competitive environment of the employer. Monopolies, like the government and some utility and transportation companies, provide the most union power. As competition increases, union clout decreases. The airline industry is a good example.

Historically, there has been a strong argument that unions do not belong in the public sector. That debate is currently playing out.

Check this link: http://thurly.net/0x3l

The health care business in the U.S represents 16% of total GDP
The highest health care costs in the world, the lowest life expectancy and the highest infant mortality among developed countries. Health care is big business and those that are reaping the benefits of the system are not going to support any change that would impact their bottom line. Let’s look at some of the real reasons behind these appalling statistics.

Overuse of prescription drugs
Ninety percent of all television advertising during prime time news is for prescription drugs. Note that these products are targeted toward people who cannot just go out and purchase them. Obviously, the pharmaceutical companies want the viewer to ask their physician to prescribe them. The physicians are more than willing to do so as their revenue stream depends on it. As a result, Americans are over-drugged. Some seniors take ten or fifteen different types of medication, some of which cross react so as to cause harm to the patient.

The answer:
1. Ban all advertising of prescription drugs.
2. Ban payment of commissions or fees from drug companies to physicians based on prescriptions.

Unnecessary and often harmful testing.
MRIs, CAT scans and other tests are expensive, often unnecessary and sometimes harmful. Cost of testing provide a large percentage of the industry’s revenue stream. It is in the best financial interest of the medical provider to order as many tests as possible.

The answer
Establish accountability for testing. Track the cost/benefit

Fraud or billing errors
Personal example. I had a minor horse accident in which I received a bump on the head. At the urging of friends I went to the emergency room at the local hospital. The physician administered several standard tests for pupil dilation, cognition and balance and said I appeared to be OK. This took no more than five minutes. He recommended a CAT scan “just to be sure”. I declined the scan and was asked to complete a form stating that the doctor’s recommended a scan and I elected not to have it. I signed the form and left. Some weeks later I received a statement indicating that Medicare had been charged $1500 for the visit. Obviously the can had been billed. I wrote a letter to the hospital advising them of the error but did not receive a reply. How often does this occur across the entire country?

The Answer
A percentage of billings to Medicare and the insurance companies must be audited and penalties imposed for improprieties.

Bad protocols
Cancer is a good example. Physicians have a “cookbook” that they reference to treat cancer patients. Quite simple really: surgery and chemotherapy. The problem is that the success rate for these treatments is dismal. Chemo treatments are ordered without regard for their efficacy for the specific cancer. As a result, some patients are suffering the debilitating side effects of a costly treatment which has a nearly zero chance of improving their condition.

The answer
Promote integrated protocols which are based on departures from the “cookbook” and are tailored to the individual condition.

No pay for alternative therapies
The pharmaceutical companies and the medical establishment make sure that alternative treatments are not paid for by insurance companies. Patients are denied protocols that are more efficient and less debilitating because of the financial impact it would have on the pharmaceutical companies, medical device makers and physicians.

The answer
Encourage insurance companies to recognize legitimate alternatives to conventional treatment including herbalists, acupuncturists and other health care practitioners.

“Chevy Volt to pull 230 mpg in city WARREN, Mich.–The gas-electric Chevy Volt will get triple-digit mileage, including an estimated 230 mpg for city driving, General Motors said Tuesday.

The 230 mpg–teased in a stealth advertising campaign on billboards and during baseball games–is based on a draft methodology for electric vehicles developed by the Environmental Protection Agency, GM CEO Fritz Henderson said here.”

Baloney! Any high school physics student can see the underlying problem with this number and, for that matter, all similar claims. They assume that the electricity came out of thin air. It takes X gallons of fossil fuel to create Y kilowatts of electricity. After the power is generated at the plant it suffers line loss as it travels over the grid to the home of the vehicle.

This must be factored into the equation to give any validity to the mileage claims.

The report, scheduled to be released Tuesday by the Government Accountability Office (GAO) at a House oversight hearing, also says many states aren’t meeting some goals and requirements of the economic recovery program. Some states, for example, are not sending transportation funding to the most economically distressed areas, and they are using education funds to prevent layoffs rather than fund innovative new programs, the report says.”

The power of the public employee unions is pervasive. While private sector workers continue to lose jobs, health care and pensions, the public workers can rely on state governments to raise taxes and fees and to misuse stimulus funds.

AP – Al Franken became a senator on Tuesday, completing the transformation from comedian to politician.

For the first time the sometimes laughable actions of the U.S. Congress can be attributed to professional input.

via Yahoo! News: U.S. National

However, there is one safety area that can be rather easily addressed. The weather conditions on the Big Isle produce frequent periods of fog and moderate to heavy rain. During such weather I have observed that nearly half of the traffic on the road does not have headlights on. This includes professional drivers like truckers who should know better. A turn out of a side road under thick fog or heavy rain onto a major highway becomes a crap shoot. Oncoming traffic without headlights on simply will not be seen.

A solution might be to post signs in areas prone to fog and rain that read: HEADLIGHTS ON IN RAIN OR FOG. A good use for some stimulus money perhaps.

For instance, your congress is now considering legislation to address the safety anomalies associated with  the regional airline industry: low pay for pilots, pilot fatigue, minimum training standards and aircraft inspections.  Do you know how long these issues have been around? A long, long time. Pilot groups and unions have been vocal concerning the standards of these carriers. They have written, faxed and emailed their legislators with no result.

Then, there’s a tragic crash in Buffalo, N.Y. with relentless and ongoing media attention. The “M” (as in media) has obtained a response from the previously unresponsive. Once again,  the M&M theory is validated.

One must remember the time when service to those smaller markets was provided by the major airlines. With the advent of deregulation, airports that had been served with 727′s DC-9s and 737s sometimes found themselves with no service at all as the big airlines abandoned them. The larger, short haul jets no longer served those communities and passengers found themselves flying in a small twin engine propeller airplane instead of jets. In time small “regional” jet airplanes were developed and they began to be flown by small operators under their own names.

Then someone got the idea to brand those flights as United, Continental, American, etc. Thus, the big carriers were able to regain a presence in the markets they had pulled out of at much lower cost. They were able to avoid the cost of a unionized, senior workforce and the capital costs of larger airplanes. There were no legacy costs because there was no legacy.

The branding was (and is) a facade. Although some regionals have made a concerted effort to mimic the operational sophistication of larger airlines with some having success, many do not have the resources, support or the will to do so.

The public needs to know which airline they are actually flying on so that they ay be able to make an informed choice.

In eight of the nine accidents during that time, which killed 137 people, pilots had a history of failing two or more “check rides,” tests by federal or airline inspectors of pilots’ ability to fly and respond to emergencies. In the lone case in which pilots didn’t have multiple failures since becoming licensed, the co-pilot was fired after the non-fatal crash for falsifying his job application..”

The experience level of airline pilots continues to drop due to retirements, layoffs and  pilots who are leaving the profession due to the deterioration of  the quality of the career. It should be a time for increased hiring and training standards but this is not the case. Over the past two decades the emphasis has been on cost reduction.  Classroom time has been cut. Flight simulator time in many cases been cut. Training in the actual airplane is almost non-existent.  Manuals provided to the pilots have been trimmed down to eliminate sections that someone sitting in an office has determined as unnecessary.

Automation has reduced the basic skill set requirements for pilots. In the pst it was almost unheard of to have an airliner in operational use enter into a stall. Today, lack of airspeed monitoring  comes up in accident investigations.

The airline customer has shown that the cheap fare is the driving market force. The traveller assumes that all airlines are equal when it some to safety because the FAA is overseeing them.  In fact, safety standards are all over the map. The standard starts in the carrier’s flight operations department and trickles down to the line pilots. The mindset of those in charge and the commitment to establish a high quality standard for crews is key. Those in charge must have the fortitude to wage a battle with the airline’s corporate executives to spend money for an unseen benefit.

Continuing to sign off a marginal pilot is cheaper than letting him or her go and hiring a replacement.