Roy Ho’s Blog

Nancy Pelosi (House Majority Leader) says the race should go on because of high turn out rate it is drawing in all the states.  Pressure has been on Clinton to quit as it would be divisive.  Pelosi is the first politician who acknowledges the positive benefit of a long race.  This is consistent with this blog’s philosophy (2008.04.07, 200804.23).  Why is Pelosi saying that? 

She is looking at the seats in the House of Representatives.  She wants to shake more Republican seats.  And she probably sees that the Democrats are now enlarging their base so great that they can eat into Republican base.  

Interestingly, what did Clinton say?  In the same CNN article, Clinton says it is a “civil rights” issue.  Therefore, if FL and MI will not get seated (however they will be seated), DNC, using Clinton’s idea, the civil rights of FL and MI have been violated.  Will Clinton defend their rights?  Does it mean Clinton will sue to get their rights re-installed?

This primary gets more twists and turns than Gore vs. Bush.  Want some more popcorn?

Obama needs approximately 80 super delegates.  How much will these 80 super delegates cost him? 

There are 280 uncommitted super delegates left. 217 pledged delegates are left for contest.  Obama needs 189 to win (Clinton needs 356). 

At this stage, the answer of electability is fairly clear.  Each candidate’s core constituency is known; their turn out rate is know.  Nothing can really get “negotiated” there.  You see what you buy.  Similarly for platform.  Other than a noble cause to vote for the winnable candidate, is there something a candidate can do for a super delegate just to get one additional vote?

It goes down to the question: what will convince a super delegate to vote for a candidate?  Electability?  Policy platform?  Popular vote count? Or something else?

All these above are very legitimate criteria.  However, some super delegates may have something more urgent on their hands: their own incumbency.  If a super delegate is in a tight race, his personal interest may be more at stake.  And Obama is not naïve about this: he has been fundraising for other candidates to gather favours.  The earliest senator endorsements are of this type. 

Other trades are typical political brokering: a promise of a specific legislation or pork barrel project.  What about fundraising support for a super delegate’s 2010 governor race?  Now, we are talking about money, real money for a politician.

Political Action Committees are the only ones that can accept political donations.  And they are owned by politicians.  The owner can forward the money to another PAC.  In fact, the surplus after campaigns belongs to the candidate.  They are structured very much like a personal account.  The point of this status is for the monitoring of Federal Election Committee.  

What did McCain do after he won over Huckabee?  Help pay off Giuliani’s campaign debt.  How?  Forward the money from his PAC!  Now, why did McCain do that?  Once Giuliani is out of the picture and since Giuliani and McCain share similar constituency, McCain wants to use Giuliani to help do fundraising.  And Giuliani was too busy with his own debt.  So, a favour was made, and a favour was returned.  

If the race gets another dramatic turn, the cost of super delegate will definitely rise since the Obama’s need of super delegate will increase.  However, if Obama can win the race all by him (through pledged delegate), then there is no need for Obama to get any more super delegate.  If not, no matter how much old politics he distains, he is still not immune to realities.  

There are reasons for both house and senate not to do anything with Bush in regard to recession (or anything else, like treaty ratification) for their personal and political gains.  However, such a delay may not be a bad thing for the country.  

A new president will be mandated by November, almost down to 6 months now.  A new administration will start operation by next January, 9 months away.  So, the good reason for not doing anything with Bush is: if legislations are passed now, then it will be the new administration that has to execute them, what if these legislations will completely contradict to the new administration’s mandate?  Is this legislative prescribing “solutions” that are going to be doomed? Or even worse sour the relationship with the new president?  

And if these legislations turned out to be successful, guess what, the outgoing president will definitely claim to be his credit years from now in his memoir just as the same time the new president will claim to be his credit.  Will any new president like such a trap?  How can any well intended legislator purposefully set such a political trap up for the new president to step on?  

We know there is no solution that would be “the only” solution.  Creating grand standing solutions right now requires an unquestionable monolithic ideological conviction that says this is the only solution to the problem.  The worse is this conviction can be misinterpreted as: arrogance. 

How can the legislators trust the new administration to execute these solutions faithfully when they just push them down the new administration’s throat?  Therefore, the delay tactic is not only for the gain of the legislature as a whole as well as individuals, but also prudent for the nation.  

Bush is complaining the Congress is delaying his every effort to get us out of recession, CNN reports.

What does he expect?  He is about to go.  Who would want to send him legacy legislations?  

Everyone should be in a transition mode and see what solutions will better fit the direction the next President will want to take.  After all, there is never one solution.  So, any legislator would think “why not wait and see?”

Any real meaningful legislation will require work from both House and Senate.  Every Joe, Dick and Harry will want to add his stamp, his pet project, pet cause, pet donor’s wishes to the legislation.  And it is much better to trade favours with a new president than an out-going president.  

All possible outcomes from this congress are items that are fiscally inexpensive and good for TV items.  This mortgage crisis cheque is a good example.  Everyone gets a few hundred bucks.  It is good for re-election.  And if the problem persists to 2009 January, then there is something the legislators can trade with the new president.  

This is just a blamemanship game. 

The political solutions usually cannot do a dent in a short run.  The effects of government fiscal policies and programs usually do not affect the economy in a matter of months.  These interventions affect the market set up and their effects are measured in years and decades.

Short term interventions require government’s active participation in the market (be it real estate or stock market or whatever else).  This kind of short term interventions are effective only when the action 1) is rare and 2) is taken shiftly.

Interest rate fluctuation is the first type, however the Fed can affect only the interest rate aspect of the economy. And that is not the solution for everything.

Shiftly is a time element.  The reaction has to be quick.  Such a quick action can only be carried out by an undemocratic institution, like the Fed.  And China’s interventions are effective because they are undemocratic.  They can shut down all stock transactions to serve whatever the political purpose is.  But we live in a democracy with freedom, right?

Some environmentalists are embracing the more expensive gas as the way to push for a greener America.  And we are now getting close to USD$120/barrel, after CNN reports a strike in UK’s North Sea. 

We all know that there is very little difference between Obama and Clinton in terms of green policies.  We also know that McCain has risked a lot more of his political capital against his Republican Party than Obama and Clinton have risked against their Democratic Party.  Ever since Bush announced his own plan, the differences among green policies in the country is getting narrower.  However, has anyone actually explained anything other than recycling and driving less?

Climate change is becoming an inevitable issue in the United States as it takes more and more media space as well as more and more votes from opinion polls.  Some government intervention will eventually occur.  How will these actions affect our life styles?  And it is more than gas prices or recycling.  How will it affect our consumption? Land prices? Zoning? And one may ask: “how are they related in the first place?”

Cost of transportation from your house to your job may not be that much.  However, the cost of transportation factors into everything in your household.  All this cost essentially is dependent on the distance between your residence to a national major transportation node.  Now, we are looking at a fraction of all your after tax income as transportation cost.  At the aggregate level, companies move ever closer to national transportation nodes.  This in turn encourages higher density, nationally. 

People are demanding more and more “walkable communities”. People are demanding more green space to produce more oxygen production, more farm land and everything else natural.  Governments and voters will eventually find out that the most effective way to conduct business is to revitalize downtowns everywhere.  That is equivalent to increase density. 

Instead of creating layers and layers of enforcement agency, chaotic laws that benefit no one but compliance lawyers auditing firms, governments may eventually consider turning to some economic or organic ways to increase density in order to minimize the eradication of green space and farm land.  If fiscal policy is to achieve this goal, then it will turn to some modification of property tax. 

Most of the property tax in North America is calculated based on two parts: the value of the property and the value of the land.  Very often, more than 2/3 of your property tax is derived from the value of property rather than the land.  This taxing philosophy prevents the most innovative use of the most expensive resources (land) in a city.  As a result, no land developer sees the value in having more retail space, having more office space, more residential space on the same piece of land. 

Values of properties in downtowns have little to do with the properties themselves but more to do with the land, i.e. location.  A tax philosophy that encourages efficiency of resources would place tax more on the value of land.  In such a scheme, the most profit would be extracted based on the value of the land rather than the property.  This encourages having the best property on a given piece of land rather than having the least cost to have a property on a valuable land.  Two storeys buildings in a downtown of a metropolitan of a 1 million would then become uneconomical.  It would only encourage a speculator or a developer to develop a high rise to make use of this most valuable land. 

Therefore, if your house happens to be in a big metropolitan, green politics will eventually make your wallet to realize the value of your house’s location.  Saving on your property tax bill may encourage you to sell your house.  Comparing house value based versus a land value based property tax scheme, one may argue that suburban residents and country residents have been subsidizing downtown residents through property tax.

How so?

Land prices in country vary not as much as cities.  Lands in cities vary the most in downtown area.  A 100 by 100 feet parcel of land in a downtown can easily fetch the same value of an acre in the country although the properties on top of the land are the same. 

The high expense of gasoline is effective in making people aware of their consumption choices.  However, letting the location of a residence to be swayed by gasoline price is difficult to be justified for a lot of families.  And since downtown land owners will prefer their continual land squatting for the next perfect sale opportunity, such a property tax modification may speed up the progress.

Therefore, having a property tax based on land value actually would serve country voters much more favourably than the suburbs’ and more for the suburbs’ than the urban areas’.  At the end, having such a green fiscal policy actually brings more benefit to the Republican voter base then Democrat voter base.  You would think voters make rational choices.

However, the conventional wisdom

In fact, a property tax scheme that is completely focused on the value of land or just the sale price of the property and land will eventually make land speculation more expensive, land development more expensive, building them require more engineering sophistication. 

Therefore, no one would want to squat on a piece of downtown land for decades without either developing it himself or selling it to a developer since the tax would serve as a good indicator to the owner how much value the land could possibly worth. 

Such a scenario will moderate urban sprawling depending on the proportion of land value in the property tax.  Downtown land owners will be the most immediate beneficiaries.  The land owners in the fringes of the city also see benefit.  The grumpiest of all the land owners will be the ones who have been expecting urban development in the future 10 years on their land but now an unforeseeable eternity. 

Land development is a hair splitting business.  A few basis points in the business loan will make or break the deal.  In this green scenario, since land becomes even more expensive and a higher density is very much needed to become profitable,

Downtowns in the states have been in decades of decline.  This is only partly due to the white flight.  A big portion of incentive has been due to the government unintentionally induced incentives for land squatting.  In other words:  a big portion of disincentive for innovative and cost effective use of land has been unintentionally created by governments all over the country. 

Being green is about having the least “economical footprint”.  In the words of economics, it is about being “cost effective”, “consuming” the least resources.  Currently, not all the costs are being factored into the environmentally wasteful products and therefore we are consuming at a cost that is far below the recovery cost of our consumption causing to the environment.  Fixing the environment requires money, just like anything else. 

Suppose the government finances the fix from levying a tax on gasoline.  Gas consumption goes down while demand for public transportation goes up.  Automobile manufacturers will have to create more energy efficient cars for the market.  But that is not the end of it.  This change of transportation habit is only a facet of the high expense of natural resources. 

There are many social injustices that require rectification.  Climate change is only one of them.  The difference is urgency, or priority.  If there is money to be made, there is a way for many willing change agent who will work on the cause.  For instance, Walmart is taking a serious effort into greening itself. 

If that is not possible, there are charities.  However, no one can fund a non-profitable cause with as much resources as a government can since government takes taxes off everyone to finance the actions. 

The DNC establishment fears (or so we have been reading) an Obama vs Clinton will become a bloodbath, tear the party apart and send the White House to McCain as a complimentary retirement package.  Obama and Clinton are doing exactly what the Democrats have failed to do for 4 decades.  This is a rare opportunity a lot of small charities never managed to have such an impact in a presidential nomination race.

Even if Victor DiMaio will not file another lawsuit against DNC, this nomination race exposed the problem with staging the primaries at different times.  

Nomination and fundraising rules are the two key elements in politics.  Nomination process is a product vetting process, no different from any other decision process in a company board room, charity board room or even high school student government.  This process has to assure all relevant inputs are included into the process, vetted by participants and competitively assessed.  If a process is made to be “not competitively”, it only damages the success of the output in the market place.  In the long run, it will damage the brand.  All products bearing the brand will get discounted, given the time is long enough for the damage to wear into the minds of the consumers.  

Voter turn out increases when there is much at stake.  Read this:

http://www.usatoday.com/news/politics/election2008/2008-04-06-voterregistrations_N.htm

This is not only true in this Democratic primary, but also true across all democracies.  Voters will go watch a game when a game is competitive.  TV stations get a higher viewership for the same reason.  

A prolonged primary will force both candidates to build their political infrastructure in the battling states.  The beneficiary is actually the local party.  The state democrats will have a chance to get a higher voter turn out, a higher voter registration, a higher volunteer participation, a higher donation head count as well as dollar amount, more party membership.  A next generation of staffers actually gets more opportunities for training, be they aspiring city councilors, school board district candidates or even nonprofits/charities which have a strong commitment to a cause.  

Charities and advocacy groups now have a much more publicized opportunity to reach the general audience, recruit volunteers, generate donations, outreach and build a bigger infrastructure.  An election is not only for the candidates, but also for every organized civic cause.

There is more.  These late primary states now have much better political access to the candidates than before.  Their concerns now get a chance to get exemplified to the level they never experienced before.  Even a state legislator can have a chance to talk to the presidential hopefuls via a telephone rather than a staffer (or a receptionist) of the candidate.  Every organization that can mobilize voters for voter registration or voter turn out now has a much better chance to influence a presidential candidate than before.

Whom does a newly elected official owe more favours?  The king makers.  And now these late states get more bragging rights and become a heavier weight in the next presidency.  Everyone is now checking their balance sheets of favours owed and favours made to get the biggest block of super delegates.  Even organizations which maintain their own balance sheet should check too.  And if your organization can manage a small amount of soft money for a House Representative race, you now have a chance to influence this super delegate’s vote in Denver.  The super delegates, in particular the super delegates of these final states, should embrace this rare opportunity.  So do the voters of these super delegates too. 

Is it unfair to a voter among the states of Super Tuesday?  Certainly, undoubtedly so.  This system was born in 1968.  And it took 40 years for Victor DiMaio to file a lawsuit (and got dismissed).  

*A lot of progress has been made in political science regarding improving voting systems.  The current Democrat system can be found by keywords McGovern-Fraser Commission.

CNN has a summary of Social Security proposals among the three candidates here:

http://money.cnn.com/2008/03/25/news/economy/socsec_candidates_trustees/index.htm?postversion=2008032508

The problem with Social Security is similar to any pension plan, GM’s or Chrysler.  The fixes are also similar to those too.  They all revolve the following, like them or not:

1)      Increase the quantity of contributors, i.e. workforce or taxfilers.

2)      Increase the amount of each contributor, i.e. increase taxes or increase income (productivity)

If we only consider domestic options, then the increase in contributor can only be done through 5 things:

1)      Optional retirement instead of mandatory;

2)      Decrease minimum labour age.

3)      Increase the amount of immigrants

4)      Increase the birth rate

5)      Increase the female labour force participation rate

The increase in contribution per contributor can only accomplished through 2 things:

1)      Increase in taxes

2)      Increase the income of the contributors, i.e. productivity

There are only 7 options.  Some of them are not politically viable to any politician, even the Obama type.  Some of them are not really political solutions.

US is not China.  US is not playing a catch-up game.  So, there is no growth of 8% / year to make up the needed funding for Social Security.  So, this one is out.  Increase birth rate takes too long.  Well, it takes at least 16 years for one to join the workforce!  Female labour participation has been around the same for years and probably is difficult to get any more lift.  Decrease minimum labour age?  Out of your mind. 

That is why there are always the same options being talked about:

1)      Optional retirement instead of mandatory;

2)      Increase the amount of immigrants

3)      Increase in taxes

4)      Increase the income of the contributors, i.e. productivity

Increase productivity will have to involve technology improvement.  This kind of things does not come out of a “technology factory”, a gadget / month kind of a deal.  This is either about the mode of production so that each worker can produce more than before, or something others cannot produce.  

We all know how increase in taxes is like politically.  So, do you want immigrants or optional retirement?  

Now look at the voter base. 

Obama will have a huge black voter base.  That may prevent him from enlarging the immigrant pool.  That would leave him with either more taxes and/or optional retirement.  

McCain will have more white voters, and more voters who will get the biggest impact by tax increase.  As long as optional retirement is optional and not affecting their benefits (Go study Canada’s experience since they have a more acute problem), McCain will have to get that option or inaction.  Clinton will have the largest Hispanic voter base of the three, she will be the most likely candidate to enlarge immigration pool.  Then it will be optional retirement for her.

Democrats finally got sued by a Florida resident for not seating the Flroida delegates.  I expect this case to go all the way to supreme court.  And I want to see how the 2 new justices will write their majority opinion.

http://www.ajc.com/news/content/news/stories/2008/03/14/fladelegates_0314.html 

If the Floridian Victor DiMaio wins, then DNC will not be able to control any kind of scheduling in the future.  Similarly, Republicans will be unable to control their schedules.  So, we may even see Republicans to be Friends of Court in this case!     

Even if DiMaio loses, as long as there will be more similar cases coming, then defending these lawsuits maybe so costly that there will be no more centrally controlled schedules.   In fact, by having primaries of different states held at different times, the later states would get very little say into this presidential nomination process.  Therefore, one may argue the rights of citizens’ political participated are compromised.  One remedy would be no centrally controlled schedule.  Another remedy would be all states to have their delegate selection at the same time.  

That will directly result in 2 things: 

1) Only candidates who are well funded right at the beginning will have a real chance.

2) There will be a much higher probability that the nomination gets determined on the convention day, where there will a lot of horse trading exercises among the candidates.

3) The influence of super-delegate will significance in this nomination even if this lawsuit is not brought up.  However, this lawsuit will definitely increase their influence in the future even more so than without this lawsuit. 

4) The lost candidates will also be more important than ever in a run-off process and encourage horse trading on that very convention day.

5) If parties (DNC and RNC) will want to avoid horse trading exercises, then a sequential run-off on the convention day or a preferential ballot will have to be implemented. 

Preferential ballot has the least social costs to the members.  Unfortunately many organizations claim it is too complicated to implement.

This lawsuit will also have election financing implications as well, which I will write.

What arre the implications of this presidential election on health insurance industry and big pharms?

CNN says McCain has the best healthcare plan:

http://money.cnn.com/2008/03/10/news/economy/tully_healthcare.fortune/

CNN here explains why

1)      Wall Street industries watchers are not paying attention to this election;

2)      Big Pharm companies are donating large amounts to both Obama and Clinton.

http://money.cnn.com/2008/03/04/news/companies/pharma_votes/index.htm?postversion=2008030714

Let’s reiterate the point that the 3 proposals (the first link) are actually similar. 

Why are the big pharm donating $$ to the democrats.  It is actually more than their expectation that Democrats are going win (and therefore they want access).  If a Democrat Whitehouse implements the healthcare policy, then drugs will be cheap.  The manufacturer with the lowest cost gets the highest return and a lot less to do with marketing, distribution etc.  This may have impact on the product development side of this business.  Now, what shape will this universal healthcare be like?  If it were very much the Canadian style, then the government (state or federal) could be the decision maker for which drug to be distributed. 

And this is a big reason (or even incentive) for the donation.

What will happen in this scenario?  There will be M&A in this case, and the acquirer will be the one who secures the government contracts.  Shareholders may not get the best deal out of this since the prices are at least quasi regulated by the government (the first CNN link).  The greatest beneficiaries will be the executives of the acquiring Pharms.  And so, some employees of the big Pharms are really into donations to the Democrats.  Product development spending may go down (R&D people need to watch out). 

This could also be the most nightmarish scenario for the health insurance industry.  Their market would be much smaller.  They will not be able to do market segmentation either.  There will be probably no product differentiation. 

Why isn’t Wall Street concerned, as mentioned in the CNN article?  They believe that is too much change to accomplish.  This kind of change, they think, is fundamental to the society and thus requires a huge political will, political capital. 

Health care is different from telephone, electricity or gas in the sense that it does not require hardware infrastructure.  The infrastructure pretty much requires a monopoly.  Healthcare does not. 

Do Americans have the will to have a government beau racy to run healthcare?  If democrats are able to debate more on the merit of their 2 different proposals, then American voters will be educated to make up their mind.  However they continue to focus on perceptions of candidates.  Let’s hope that this will be a hot topic between McCain and the future Democratic candidate.