Roy Ho’s Blog

Although McCain may not be as much of a moderate as you think he is, McCain is out of line from his Republican party than Obama can be from his Democrat party.  Although McCain’s platform may not be as environmentally friendly as Obama’s platform, McCain is trying harder to sell his environmental policies than Obama, see CNN.  It all means McCain is trying to define the stage the environment better: to choose his battle field to his advantage.  

Environmental crisis is more than oil.  Climate change is also driving the food cost.  The ethanol market is now driving food prices world wide.  It is also driving the agricultural land prices up as well.  Consequently, we are now having a farm bill that is trying to cut down on the farm subsidy.

This is the first time that a Republican President is saying the cut in farm subsidy is not enough.  And this insufficient in farm subsidy cut is the cited reason for veto.  

On the contrary, a Democrat constituency group would want to support a farm bill and may even want to decrease the cuts in order to lower food prices. 

McCain may not have been explicit about his position in farm subsidy.  However, a thorough environmental policy will eventually lead to that point: cut farm subsidy.  

Environmental crisis is eventually down to this point: efficiency on resources, i.e. economics.  Traditional tree huggers, the ones from 60’s, cannot tolerate the word “economics”.  However, this is what it will go down to.  And McCain will feel very comfortable if he will be able to define this issue.  

If McCain is able to define environmental crisis well, McCain will be able not only to fight Obama better than any Republican can, but also expand Republican base to a new territory and grab the traditionally Democrat constituency group over: intellectuals, and some religious left (both Christians and otherwise).  More importantly, McCain can do something other countries have not been successful: take the green voters to the right wing rather than letting left wing to hog them.  Better yet, eliminate the possibility of growth for the Green Party.  

Green parties are getting strong footholds everywhere around the world.  Germany had Green Party to be part of the ruling coalition.  Green parties in Canada are getting 10% of the world both federally and provincially.  The way to starve off your competitor is to offer products the buyers have been looking for.   

1)       the other two parties seldom address;

2)       draws an equal amount of voters from both sides.

Environmental crisis is such an issue.  The biggest loser from McCain’s aggressive environmentalism is to starve off the Greens and continue a 2 party system.  If McCain is successful, then he can make the game even by 2012.

The most difficult asset, in politics, to obtain is not policies or platforms.  In politics, policies and platforms are commodities.  Message is produced.  Brand is a product of time and money.  This difficult-to-obtain asset is the salesmen: politicians.  Obama is a great weapon for Democrats’ long term growth.  Can Obama contribute to this environmental debate? 

Bush announced his goals on climate change.  Sierra Club already says Bush’s plan will require a miracle to save our planet.  Even McCain’s ideas are more agressive than Bush’s.  Very little is said about climate change in yesterday’s Pennsylvania presidential debate between Clinton and Obama.  Why is Bush anouncing something so useless and so late?   Is it part of his last minute legacy plan?  How does it relate to my non-profit organization when it is not an advocate of climate change?

This is his stall tactics. 

Getting a bill passed requires a process in the congress and senate.  It goes through committee, agenda arrangement, scope definition, text proof reading among members and aides, negotiation among members, parties and administration.  By providing something (anything), it takes off some of this momentum to his goals. 

Bush realizes that something will get passed in the next administration.  But providing something so vague, he can drag the bargain wide open for the next round of lobbying and thus provide a possibility of pushing a resolution less aggressive than it otherwise would be. 

In other words, he is not aiming for any kind of success.  He is aiming for a pay back to his constituence.  He is not even aiming for a legacy.

However, one point is worth noting: if Bush recognizes the need to address this issue, it will be difficult for anyone in the future to deny climate change.  The remaining question will be what and how: what should be done and how to get it done.

A lot of attention will be focused on what the emission will be.  However, the how question will affect more people in a wider range than media will be able to focus on.  Advocacy groups/nonprofit organizations representing interests not directly affected by the emission will have to pay attention on the how question.  Unfortunately, since media do not focus on the how part, advocacy groups and nonprofit usually lose their sight of it. Here are two examples to achieve the same goal with different implementations and their corresponding effects outside of pollution.

Example: emission legislation requires enforcement.  This will increase the government budget, i.e taxes.  Who gets the worst of it? Small business since cost of compliance always takes up a higher proportion of cost than a big business.  Emission can also be achieved by placing a higher gas tax and increasing personal income tax exemption at the same time without affecting the federal government’s revenue as well as its budgeting.  And the effect will be significantly different in aspects outside of the pollution. 

The former will increase government participation in the overall economy.  The latter will not.  The latter will at the same time help elevate the tax burden on the lowest income bracket tax payers, same the $10k/year income group.  Now, the poverty group suddenly have an interest in how the goals are achieved. 

When attention is so focused on emission, attention on other pressing issues are forgotten.  That is why climate change can be percevied, as an elitest cause, as a competing interest against other interest groups, say proverty groups.  It needs not be.  In fact, groups of different causes can exploit opportunities of any issue to further its own goal without sacrificing the issue of the moment. 

And exactly because advocacy groups and nonprofit organizations may not be able to follow these legislation details as well as being not able to provide these suggestions to complement the legislation to achieve its goals (piggy bag), politicians now can service the interests of the lobbyists’ paying customers without much scrutiny.   Therefore, if the issue of the moment is to discourage a certain behaviour (pollution), then your organization can always advocate to tax that behaviour and cut taxes (or spend that same tax revenue) for your constituence (seniors, students, low income, domestic abuse victim).

Fiscal policy is boring.  However, that is the most effectively way to modify the aggregate behaviour to achieve a goal.  Aggregately, people adjust their behaviour to the most use of their budget.  Even people who do not subscribe to that specific ideology now gets taxed and contributed to the cause.  An issue completely unrelated to your organization’s goal can help you when the implementation can be compromised to your favour.  In fact, you can suddenly become an ally of any issue of the moment, if you can demonstrate you can mobilize votes to support a legislation.

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.

CNN’s story confirms my previous post regarding Chinese currency appreciation and US inflation:

http://money.cnn.com/2008/03/17/news/economy/dollar_usconsumerspending/index.htm?postversion=2008031713

mine:

http://royho.wordpress.com/2008/02/28/freely-traded-chinese-currency-us-inflation-more-votes-for-obama/

So, if you republicans really want to have a draw in this election, then better calm the foreign policy hawks.

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.