High Taxes and Inflation reduce Disposable Income and our Music Purchases

Posted by PITHOCRATES - December 14th, 2013

Week in Review

If you’re old you remember going to a record store.  Putting a flat piece of vinyl on a spinning disc.  Lowering a needle on it.  And listening to that song through a pair of headphones.  If the music was awesome you bought that piece of vinyl.  If it wasn’t you listened to other songs until you found the one you wanted to buy.

Then came the audio cassette.  Where people would borrow their friend’s records and record them.  So you could enjoy the ones you paid for.  And the ones your friends paid for.  But the audio cassette did not put the music industry out of business.  For people still bought music.  In fact, some people may have bought even more as they could record the one song or two they liked onto a ‘mix’ tape.  Creating a ‘mix’ for each mood.  Hard rock.  Soft Rock.  And the more records you owned the more mix tapes you could create.

But since those days taxes and inflation have sucked away our disposable income.  And we’re not buying as much music as we once did (see Why It’s Hard to Charge for Music by Matthew Yglesias posted 12/13/2013 on Slate).

The problem here is one of supply and demand. It’s not that people won’t pay for Pandora because they don’t see any value in Pandora’s service. It’s that Pandora’s paid service has to compete with Pandora’s ad-supported service. Pandora could solve that problem by eliminating its ad-supported service, but it’s pretty clear that there’s a robust market for an ad-supported music-streaming service so then Pandora would need to compete with a new player. Personally, I really do enjoy an ad-free music streaming experience so I have a paid Rdio subscription which works on my computer, on my mobile phone, and on my home Sonos setup.

So good for me. But if I was a teenager with no money or ran into financial difficulty as an adult and needed to cut back, this would be an easy call to chop. Not because music isn’t valuable but because the margin of convenience offered by a paid service versus a free one just isn’t that big.

It’s the loss of disposable income that is hurting the music industry.  As well as paid subscription services.  In today’s world it is not uncommon for someone to pay for cable television AND a broadband Internet connection AND satellite radio in your car AND a mobile device contract with a monthly payment as large as a car payment.  People have never spent more money on entertainment.  And paying for live-streaming music on top of all this is just one paid subscription too many.  That’s why people aren’t paying for music if they can get it for free.  They love and value their music.  But they love and value so much other stuff as well that they don’t have any disposable income left to pay for music.  Thanks to higher taxes and inflation shrinking everyone’s take-home pay.

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The Price of Gold falls as Responsible Monetary Policy appears Imminent

Posted by PITHOCRATES - December 14th, 2013

Week in Review

You can print paper dollars.  And create dollars electronically.  Which is why governments love fiat money.  Money that has no intrinsic value.  Just the government saying ‘let it have value’ gives it value.  Which is why they love it.  Because they can print it to spend when they have no further room to raise taxes.

But printing money creates inflation.  And devalues the dollar.  Which is why some like to buy gold.  Because you can’t print gold.  Or create it electronically.  So it holds its value.  Especially when the dollar doesn’t.  And the price of gold has been on the rise all during the Federal Reserve’s quantitative easing (i.e., ‘printing’ money).  The more the Fed ‘prints’ money the more they devalue the dollar.  And inflate the price of gold.  But once it looks like the Fed is going to taper back on their ‘printing of dollars’ gold investors stop buying gold (see Gold suffers biggest one-day loss since October by Myra P. Saefong and Sara Sjolin posted 12/12/2013 on Market Watch).

Gold futures took a hit on Thursday as concerns that the Federal Reserve could scale back its stimulus next week pulled prices down by more than $30 an ounce for their biggest one-day loss since October.

Investors stopped buying gold not because gold has lost value.  But because they think the dollar will stop losing its value.  For if the Fed stops their quantitative easing the devaluation of the dollar will halt.  As will the rise in the price of gold priced in dollars.  So it will no longer take more dollars to buy the same amount of gold that it once bought.  Like it did under the Fed’s quantitative easing.  And those who bet on a further irresponsible monetary policy that devalued the dollar want to unload some of their higher-priced gold before responsible monetary policy takes effect.

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Alberta Health Services privatizes some Pensions to Cut Health Care Costs

Posted by PITHOCRATES - December 14th, 2013

Week in Review

Public sector pensions are pushing cities and states to bankruptcy.  The Detroit bankruptcy was due in large part to the staggering debt the city took on to meet current pension obligations (and health care cost for retirees).  While the pension fund remained woefully underfunded.  The Detroit bankruptcy may set a precedent for other debt-laden cities.  Who are drowning under the costs of their bloated public sectors.  As they’ve run out of room to raise taxes any further.  Which wasn’t a problem during the initial surge of public sector growth.  But now that those retirement rolls have grown so large cities and states have found those generous pensions to be just unsustainable.  Even in Canada (see Alberta Health Services privatizing Edmonton labs posted 12/11/2013 on CBC News).

Alberta Health Services is going ahead with its plan to privatize all of its diagnostic lab services in Edmonton…

The new lab will replace hospital labs operated by AHS and Covenant Health as well as the services provided by DynaLIFE…

No jobs will be lost and all staff positions will be protected by the new employer, AHS says.

The Health Sciences Association of Alberta represents about 75% of the 2,000 workers affected by the changeover.

Even though AHS claims wages won’t change, the union believes pensions will take a hit.

“This is going to a private provider,” said HSAA president Elisabeth Ballermann.

“The private provider by definition cannot participate in the pension plan that our public sector members are currently part of and that’s an enormous loss for those workers.”

A loss perhaps for 2000 workers.  But a win for the health care system in Alberta and the people who use it.  As the cost savings from privatizing these pension obligations will free up money to spend on health care.  Something to think about as Obamacare continues to rollout and destroy the private health insurance industry on its way to establishing national health care.  Nationalizing one-sixth of the U.S. economy.  Creating a windfall of new public sector workers to vote Democrat.  And unsustainable pension costs that will increase the cost of health care.  Which will lead to longer wait times and rationing.  As well as adding to the deficit and debt.  Which will, in time, lead to the same cost-cutting actions like Alberta is taking.  Or something a little more painful like they did in Detroit.

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A 2013 Tesla Model S turns a 9.5 Hour Trip into a 12.5 Hour Trip

Posted by PITHOCRATES - December 14th, 2013

Week in Review

There are times when we like to take to the open road and just drive.  And if we have the time there are few things more enjoyable than taking the road less traveled.  Seeking out and exploring things we’ve never seen before.  But there are also times when the journey is so long that we want to make it in the shortest time possible.  For if we’re traveling to the favorite family fun park we’d much rather arrive by 7 PM in the daylight.  Instead of 10 PM in the dark.  So we can easily find our room.  Freshen up.  Have a nice dinner.  Shower.  And get to bed by 10 PM so we can get a good night’s sleep for a long day of fun in the morrow.  Something that a gasoline-powered car can help us do a lot better than an electric car (see We Took The Tesla Model S On A Road Trip — Here’s How It Did by George Parrott posted 12/12/2013 on Business Insider).

Once Tesla Motors built out its Supercharger network of quick-charging stations along Interstate 5, my wife and I decided to drive from our home in Sacramento to Portland in our new 2013 Tesla Model S…

It was almost 600 miles from our home in West Sacramento to our hotel room in Portland…

Our West Sacramento to Downtown Portland driving time was about 9 hours and 35 minutes of actual driving, with another 2 hours in short Supercharger stops–plus a longer stop for a full recharge (for the car) and for us (breakfast) that took a full hour.

That’s another 3 hours added to the trip.  Three hours is a lot of time.  A 30-minute charge time may seem like a short stop but if you’ve ever gone on a long trip (say, driving in excess of 8 hours) a 30-minute stop is excruciating.  Because the sun doesn’t stop with you.  It’s still racing across the sky.  And there is nothing worse than having a 9 hour trip turn into a 12 hour trip.  Where you find yourself driving dead-tired in the black of night.  Drinking coffee to try and stay awake.  Slapping your face.  Talking to yourself.  Anything to stay awake as you drive on and on into the black of night.  Praying you don’t see any moose in your headlights.  And then when you finally get to your room for the night you can’t sleep because of all that coffee you drank.  Which just ruins the first day of your vacation.

Now imagine all of this and you arrive at a charging station and you have to wait in line as other cars get their 30 minute charge.  Or you arrive at the charging station only to find it out of order.  Leaving you to find a 120V outlet to ‘steal’ electricity for 6 hours or so to give you enough charge to get to the next charging station.  Or that your car runs out of charge in the middle of nowhere in the black of night.  Before you ever made it to the charging station.  What then?  I can’t say for sure but I’ll bet it’ll involve an expletive, a reference to your electric car and a yearning for a gasoline-powered car.  As you could be surrounded by lit up gas stations full of gasoline that just won’t do a thing for you and your electric car.

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Obamacare: Obama lied and People will Die

Posted by PITHOCRATES - December 14th, 2013

Week in Review

There are about 414 million people in the United States.  And Obamacare is supposed to insure them all.  But that’s not all.  The Affordable Care Act was going to make health insurance less costly while covering more people.  As well as providing more extensive coverage.  Obamacare promised more for less.  And if you liked your health insurance, your doctor and your medication you could keep them.  It just sounded too good to be true.  And, as it turned out, it was too good to be true (see Does the pre-existing condition program foretell broader problems for Obamacare? by PHILIP KLEIN posted 12/13/2013 on the Washington Examiner).

The program, known as the Pre-Existing Condition Insurance Plan, or PCIP, was a temporary measure within Obamacare meant to be a bridge to provide coverage to those with pre-existing conditions between the law’s 2010 passage and Jan. 1, 2014, when all plans will be required to offer coverage to those with pre-existing conditions…

What’s interesting about PCIP is that it ended up attracting much fewer Americans than expected while also costing more than expected. The reason was that those who did enroll ended up being those with extremely high medical costs — even by the standards of a program for those with pre-existing conditions.

By March 2013, HHS suspended enrollment in the program because it couldn’t afford to cover any new applicants.

As the New York Times reported in May, “The administration had predicted that up to 400,000 people would enroll in the program, created by the 2010 health care law. In fact, about 135,000 have enrolled, but the cost of their claims has far exceeded White House estimates, exhausting most of the $5 billion provided by Congress.”

The same story explained that HHS announced it “was cutting payments to doctors and hospitals after finding that cost overruns are threatening to use up the money available…”

But given the dismal enrollment numbers to date, it’s worth asking whether the exchanges could end up encountering similar problems to PCIP — only on a much bigger scale.

The plan that had only targeted 400,000 enrollees only got 135,000.  About two-thirds short of their target.  Why?  Insurance that covers preexisting conditions is very expensive.  Because it will pay a lot of claims.  The money people pay in as premiums pays those claims.  But the cost to cover these people is so great it took another $5 billion of taxpayer money.  And even then the program ran out of money with only 135,000 signing up for this insurance.  Showing the futility of buying insurance for a group with preexisting conditions.

Insurance by definition protects the financial assets of a policy holder from a possible loss.  This is the key that makes insurance actually insurance.  Not everyone that pays a premium for this protection will suffer a loss.  So there is a surplus of premiums to pay for the few that do.  The PCIP sells policies to a group of people who will all suffer a loss.  So people aren’t paying a premium to protect themselves from a possible loss.  They’re paying a premium to pay for a known loss.  And everyone in the pool will be paying and submitting claims.  So that the cost of insurance eventually equals the cost of health care per policy holder.  Which makes the insurance redundant.  And unnecessary.  While only serving to increase actual costs by introducing a third party into the process.

This is why the PCIP needed the $5 billion in taxpayer subsidies.  For without it people would not save any money by buying this insurance.  As many haven’t.  Even with the subsidies.  The taxpayers paid about $37,000 per person in addition to the cost of the premium pool.  Based on the number of months since the Affordable Care Act became law that’s about $842 per person per month in subsidies.  Based on the horror stories of what the young and healthy have to pay for their Obamacare health insurance the premiums for the PCIP are probably greater than the subsidies.  And it’s still not enough to cover their costs.  Which is why they’re cutting people off and cutting payments to doctors and hospitals.

Which will happen for the rest of us.  Once the enrollment numbers fall far short of their projections.  As they are.  And claims exceed premiums.  As they will.  Leaving them little choice but to cut costs.  Raise premiums.  Charge more for prescriptions.  Increase wait times.  And ration health care.  Not what President Obama promised.  Then again, he lied.  PolitiFact called it the Lie of the Year.  And because of the president’s lie people will have poorer quality health care.  Who may succumb to their health problems as they wait those longer wait times.  And can no longer afford the prescriptions that kept them healthy.  All because President Obama lied.

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