The McKinsey Global Institute recently issued an analysis of global flows in this digital age—how trade, finance, people, and data connect the world economy. First, they concisely describe global flows over time.
Global flows have been a common thread extending through the mercantilist and colonial eras, from trade routes of old such as the renowned Silk Road through the industrial revolutions that swept across Europe and North America in the 18th and 19th centuries to the more recent rise of emerging economies. But today the web of cross-border exchanges has exploded in scope and complexity.
The opening up of economies that started in the early 1990s and brought Eastern-bloc countries and Asia fully into the global economy set the stage. However, two major forces are now accelerating the growth and evolution of global flows.
The first is increasing global prosperity. By 2025, 1.8 billion people around the world will enter the consuming class, nearly all from emerging markets, and emerging-market consumers will spend $30 trillion annually, up from $12 trillion today. This will create enormous new hubs for consumer demand and global production.
The second major force is the growing pervasiveness of Internet connectivity and the spread of digital technologies. More than two-thirds of us have mobile phones. In 2012, there were 2.7 billion people connected to the Internet. A torrent of data now travels around the world. Cross-border Internet traffic grew 18-fold between 2005 and 2012.
Here is a summary of their very interesting findings.
Global flows are growing and contribute to GDP growth. Flows of goods, services, and finance in 2012 reached $26 trillion, or 36 percent of global GDP—1.5 times as large relative to GDP as they were in 1990. If the spread of digital technologies and rising prosperity in emerging economies continues, global flows could nearly triple by 2025 and boost economic growth.
Developed economies remain more connected than emerging markets. However, the latter are rising rapidly. Germany tops the overall list, while the U.S. is third. Among emerging markets that are becoming more connected are Brazil, China, India, Morocco, and Saudi Arabia. “Flow intensity”—the value of flows relative to the size of their economy—is significant. Among the world’s large economies, Germany has a flow intensity of 110 percent, China, 62 percent, Mexico, 78 percent, and India, 61 percent.
The knowledge-intensive portion of global flows increasingly dominates. Knowledge-intensive goods flows are growing at 1.3 times the rate of labor-intensive goods flows. Today knowledge-intensive flows account for half of global flows, and they are gaining share. Although developed economies as a group dominate knowledge-intensive flows, China’s knowledge-intensive flows are the world’s second largest.
Digitization is transforming and enriching all flows. Digitization reduces the marginal costs of production and distribution and is transforming flows in three ways: through the creation of purely digital goods and services that are either transformations of physical flows or entirely new products, through “digital wrappers” that enhance the value of physical flows, and through digital platforms that facilitate cross-border production and exchange. Moreover, digitization has begun to change the mix of flows. Some goods flows are becoming services flows, for instance. All this is creating significant new opportunities for innovation and disruption.
Networks of global flows are broadening and deepening as emerging economies join in. Emerging economies are becoming important as both consumers and producers in the global economy, and account for 38 percent of global flows, nearly triple their share in 1990. South-South trade between developing economies has grown from just 6 percent of goods flows in 1990 to 24 percent in 2012. In absolute terms, the increase has been from $198 billion to $4.4 trillion.
Global flows are shaped by—and are influencing—trends in major sectors. As global supply chains become more fragmented and countries specialize in production, flows of intermediate goods (as opposed to final goods) are soaring. Digitization is likely to help to transform global logistics and manufacturing sectors by replacing some physical flows with virtual flows. Digital platforms are enabling new players to participate in sectors ranging from shipping to payments.
Companies, entrepreneurs, and individuals have more opportunities to participate. Governments and multinational companies were once the only actors involved in cross-border exchanges, but today digital technologies enable even the smallest company or individual entrepreneur to be a “micro-multinational” that sells and sources products, services, and ideas across borders. Traditional business models are being challenged by micro-scale activities ranging from micro-work to micropayments and micro-shipments.
The McKinsey report portrays the new era of dramatically broadening and deepening global flows will create many new opportunities for governments and companies to drive growth and innovation and will open the door to greater participation by entrepreneurs and individuals. It also points out the necessity for new investments and focused policies, and challenges in dealing with new types of competitors—both at home and abroad.
Their parting words are food for thought: Finding ways to harness the positive potential of global flows to raise living standards and shared prosperity while mitigating the risks is imperative. The cost of being left behind—for countries, companies, and individuals—is rising.
See the complete April 2014 analysis at:
See the Web of World Trade at:
The latest enrollment data being distributed on Obamacare shows that over 8 million people have signed up under the Affordable Care Act (ACA) through the federal and state exchanges. And an additional 4.5 million have been added to Medicaid roles. Nearly 28 percent of those enrolled are in the 18-34 age group, whose relative good health is vital to counter rapidly increasing premiums in future years of the program.
In North Carolina, nearly 350,000 people signed up under the ACA giving North Carolina the fourth largest enrollment among the 50 states. Significant progress on implementing the ACA has begun.
It is important to know that the primary goal of the ACA is to get as many people as possible signed into the program through their employer or through the exchanges as individuals. That was the number one requirement of insurance companies and hospital associations before they supported the ACA when it was first passed in March of 2010.
Unfortunately, what is hugely lacking in the ACA are cost containment strategies that go beyond simply raising the number of people covered by insurance. Now that the ACA is being implemented and meeting its core ambitions, the next major step is to confront the actual costs of care. We cannot afford to spend nearly 20 percent of GDP on health care expenditures. It is bankrupting our economy as well as our citizens.
Let’s take a look at how those costs have risen over the last 30 years. In 1980, according to the Centers for Medicare and Medicaid, health care expenditures per capita were $1,100 or 9.2 percent of GDP. By 1990, those numbers rose to $2,854 and 12.5 percent of GDP. By 2000, the numbers increased to $4,878 and 13.8 percent of GDP. And in 2010, the numbers became $8,402 and 17.9 percent. With companies and their employees absorbing all those increases, it is no wonder that household income has not advanced similarly over that time period. Money that would have gone for payroll increases has been eaten up by the spiraling costs of health care.
Now, examine the employer and employee increases in contributions to pay for health care premiums for family coverage, and the numbers are even more shocking. In the last decade from 2000 to 2010, the total premium for family coverage rose from $6,438 per year to $15,073 per year. Employer contributions have grown from $4,819 to $10,944 over that same span while employee contributions have climbed from $1,619 to $4,129 on average. Those increases are beyond the pale.
It is also interesting to compare U.S. costs with those in other internationally trading countries. Data from the OECD for 2009 show U.S. per capita expenditures at $7,598, compared to those in Italy at $3,020, France at $3,053, the U.K. at $3,311, Germany at $4,072, the Netherlands at $4,585, and Switzerland at $5,128. It is tough to be competitive with those countries when their health care costs are 40 to 68 percent of U.S. health care costs.
The cumulative change in U.S. health care premiums for single and family coverage from 1996 to 2010 has risen 180 percent for family coverage and 148 percent for single coverage.
The Affordable Care Act, implemented Jan. 1 of this year, has not been the cause of these increasing costs. When people complain about the rising disparity of incomes, they seldom look at health care premiums and expenditures as the biggest contributors to that inequality.
While elements of the ACA will diminish the disparity between incomes and premiums through subsidies for those with incomes below 140 percent of the poverty level as well as the capping of co-pays and deductibles, much more needs to be done.
It will take many years to undo the damage of swollen health care spending. We have only taken the first step to bringing these costs down. We have much work to do and the sooner the better!
There’s no doubt about it. South Carolina wants the Port of Charleston to be the preeminent port on the East Coast and the state is investing some $2 billion to make sure that happens, according to Jack Ellenberg, senior vice president for economic development and projects for the S.C Ports Authority.
In a recent speech to the Charlotte Rotary Club, Ellenberg outlined significant efforts underway in the Palmetto State to distance Charleston from its competition on the eastern seaboard. According to Ellenberg, the ports are the Palmetto state’s most important strategic asset: “It’s all about growth. The key driver for the ports today is the tremendous growth in the size of container vessels and the growth of the ship sharing alliances.”
“Consolidation is driving the urgency for bigger ships that can operate at lower costs. It’s all about economies of scale. There is potential for huge cost savings,” Ellenberg noted.
Current container ships carry 4,800 TEUs (twenty-foot equivalent, meaning about half of a 40-foot trailer). That’s about 2,400 containers at a cost of about $1,250 each. Larger 8,000 TEU ships carry 4,000 containers for 40 percent less, and even larger 14,000 TEU ships now being built that can carry 7,000 containers for 60 percent less.
How big is a 14,000 TEU ship? It’s 1,165 feet long, longer than three football fields. It’s 165 feet wide at the beam. And, according to the folks at Adidas which has its only U.S. distribution center in South Carolina, a vessel that big can hold 70 million pairs of running shoes!
The biggest challenge posed by these behemoths is that they draw 48 feet so harbor channels must be at least 50 feet deep to accommodate them. Charleston has only a few challengers on the east coast with the ability to meet that mark.
The New York/New Jersey port will have a 50-foot channel by 2016 if the construction to raise the Bayonne Bridge stays on schedule. Even then, Ellenberg noted, most of the goods shipped to that port are inbound. Shippers do not like to carry empty containers when they leave. Baltimore also has the requisite channel depth but it’s a long way from the ocean, a real drawback.
Norfolk is a military port, Ellenberg continued, and it will get what it needs from the federal government, but military comes first. Miami and Jacksonville also have the potential to have 50-foot channels but Miami is too far from U.S. and North American markets and Jacksonville’s port is small and downtown.
Charleston, on the other hand, is already a top 10 U.S. container port and among the top 100 globally. It has been the fastest growing port in the country since 2009. Business is up 22 percent from FY2010 to FY2013. In the Southeast which also includes Savannah, Jacksonville and Wilmington, Charleston “earned an amazing 70 percent of the growth that occurred in our port region,” according to Ellenberg.
The Port of Charleston is within 500 miles of 94 million people in the Southeast, the fastest growing region in the country (46 percent between 2000 and 2030). There is strong manufacturing and exporting in the region so ships can unload and load—no empty containers leaving port. And the port, Ellenberg emphasized, is important to North Carolina, noting that 25 percent of Charleston’s usage comes from North Carolina destinations for imports or exports.
South Carolina is making a $2 billion bet on its ports, most especially Charleston, so that by 2018 it will be capable of handling the 14,000 TEUs 24/7 365 days a year. The S.C. Ports Authority owns and operates the ports, but does not receive state funds for operations, so the enterprise needs to be self-sustaining. The state is, however, making investments in infrastructure “to ensure the viability of its biggest economic asset,” he said.
The ports authority is making a $700 million investment in a new container terminal at the old Navy yard. It is also investing $600 million in other infrastructure and IT projects along with a $50 million investment in the state’s inland port in Greer, halfway between Charlotte and Atlanta. The legislature has already put $300 million in the bank to deepen the harbor, even though the federal government is supposed to cover 40 percent of the cost.
“We’re not sure the feds will have the money when we need it,” Ellenberg cautioned. “That’s how serious the state’s bet is. The state will also spend another $225 million on improvements to interstate access roads and $130 million in a new dual access intermodal railhead where containers are off loaded or on loaded to rail cars.”
It would seem that while South Carolina’s goals are ambitious, they are well on their way to being attainable.
As Ellenberg noted, the nation’s success in global trading depends on an ability to move goods rapidly around the world, and South Carolina ports will be a pivotal player for the U.S. moving forward. Similarly, the Port of Charleston will be key for Charlotte’s global competitiveness. These port developments should encourage economic development efforts for the Charlotte region as well.
Many thanks to fellow Rotarian Henry Bostic from Premier, Inc. who authored the summary of Ellenberg’s remarks. I thought it valuable information to share with our readers.
Ever since Pat McCrory assumed his elected position as Governor of North Carolina in early 2013, we have heard about his ambition to turn the economy of North Carolina around. He attends nearly every media conference that celebrates a new business moving to North Carolina or opening a new office or expanding its workforce in our fair state. I don’t blame him. I would be front and center too, if I were in his shoes.
Governor McCrory has appointed several people from the Charlotte area to his leadership team that are quite knowledgeable about economic development including Tony Almeida, his senior advisor for jobs, Sharon Decker, his Secretary of Commerce and John Lassiter, who will chair his new Economic Development Partnership.
While Almeida stepped down in January soon after the new jobs plan was released, Decker and Lassiter are directing a transition from a governmental agency, the Commerce Department, to a public/private partnership called the Economic Development Partnership of North Carolina, Inc.
I have had the privilege of listening to presentations from both Decker and Lassiter. They have done their homework and speak with clarity about their plans and the importance of them. Over the past year, they have reviewed the performance of the Commerce Department and they have many recommendations for its improvement. Their North Carolina Jobs Plan was completed in December 2013 and released in January 2014. It is comprehensive and covers the gamut of economic development initiatives.
The plan is actually quite good. It covers all the valuable ambitions…targeted industry clusters with an N.C. brand to carry them forward, business climate issues including deregulation and lower tax rates, innovation and entrepreneurship to encourage small business and startups; talent and retiree attraction to assemble workers and prepare them to good use; education and workforce development taking full advantage of our community colleges with a greater focus on Science, Technology, Engineering and Math (STEM); and added emphasis on rural and community development as well as delivery of services. This plan works to serve all corners of the state and every community within it.
What I don’t get from this plan is why this needs to be implemented with a move from a state agency to a “public/private” partnership. Will it save money? Will it remain accountable for its use of state funds? How will it prove to be more expeditious in response to corporate inquiries about opportunities within the State of North Carolina?
I have two primary concerns.
First, I am not confident about the need to create a new organization that will serve the public interest any differently from a state agency. Transparency, accountability, expeditious responses and annual plans should be part of any organization whether it is a state agency or a public/private partnership.
The Governor, Decker and Lassiter have already spent the last year reviewing previous economic development strategies over the last 20 years and building their plan of action. They don’t even have implementing legislation prepared for this newly revised agency and it could not be passed into law until, at least, July or August at the earliest. That is nearly two years into a four-year term of office.
Even if Governor McCrory is re-elected for a second term, this team has not even begun to raise any of the “private dollars” that are to be raised along with public dollars for this organization to function. I would much rather that they spend their time promoting the state using existing resources more effectively.
But, what troubles me most is my second concern. I am troubled by the underlying messages in this plan. Concerns about regulations, costly litigation and taxes are always front and center when politicians are trying to gain support from the business community. Both Republicans and Democrats rail against unnecessary and burdensome regulations and onerous business taxes.
After further investigation, however, it is often the case that regulations have been written to protect consumers or public interest after private enterprise has failed to provide protection or has taken advantages to the detriment of the public. North Carolina will be right for some businesses and not right for other businesses. We need to be selective. Not every match is the most appropriate match for this state or region.
What is most important is to build upon the rich investments we have made in education and innovation within North Carolina. In the midst of global competition, we should use our limited resources to serve our statewide interests.
Our state is located at the center of the East Coast and Midwest with abundant land. We have an ample and growing supply of competent, capable and trainable workers. We also have access to major markets with great highways, railroads, airports and ports. We have clean water resources, low cost electricity, low cost natural gas, great universities, outstanding community colleges, quality public and private school systems, and an outstanding quality of life and environment.
We can compete for business anywhere in the world. We need to be careful to protect, preserve and expand on our assets so that we can be competitive for many years to come and for future generations.
We are fortunate to have substantial talent and devoted citizens among us here in Charlotte…our own A-Team as it were. Tony Zeiss, Chase Saunders, and Michael Gallis certainly qualify for that honorary title in this community with their ideas and ambitions for the future of the Charlotte region.
They are providing the leadership—with their research, study and action planning efforts—to stimulate long-term economic growth that repositions Charlotte for the next 30 years. There are many others who have and are contributing to these ideas and objectives. I would be hard-pressed to name them all—but they would include Jerry Orr, Michael Almond, Tony Almeida, Bob Morgan and many more.
New ideas are always questioned, easily brushed aside, and often criticized from the very outset. Especially when so many businesses here in Charlotte have been struggling to maintain revenues and simply survive the recession, it has been difficult to focus on new ideas for the future of this region. But thankfully some time has passed and opportunities seem like a possibility again, and it behooves us to look forward in a swifter smarter fashion if we are to thrive in the increasingly competitive and seemingly ruthless realm of world commerce.
The A-Team vision for the Charlotte region’s future is to become a global hub of commerce, a great “inland port” leveraging its financial, energy, health care, educational, entrepreneurial, manufacturing and logistical resources to world prominence, creating greater regional prosperity with more jobs. They began their efforts nearly two years ago. The springboard for the current effort being put forth are built upon those set forth originally in Advantage Carolinas initiative, put forth by another A-Team of the 1990s.
Charlotte’s very existence is because of its intersection of trading paths; today its prominence as a national and international intersection for the corridors of commerce is no less prominent. Charlotte is located at a pivotal global intersection: equidistant to Canada and Mexico, equidistant to the East and Midwest, and, with the Panama Canal expansion, equidistant as an inland port for distribution of goods from the rest of the world.Here, you can create, import, manufacture, export and deliver just-in-time anything, anywhere. And you can do it more economically and with a better margin of profit than anywhere else. Charlotte offers fertile soil in which businesses can grow and prosper. Charlotte has a great track record in attracting international businesses and talent, and is known as a business-friendly city.
The Charlotte region has rich assets including water, energy, air quality, education, finance, health care, roads, an airport second to none and a skilled labor force.
Our economic pillars today include being the #1 energy hub in the United States, being the #2 financial center in the U.S., and having #3 world-class health care facilities and services, and wonderful higher education resources. As the A-Team works to gain support for a global economic vision for Charlotte, they target new economic foundations including entrepreneurialism, advanced manufacturing, improved infrastructure, transportation and logistics, and improved higher education and workforce development.
To achieve that global vision, the A-team is encouraging regional, private and public leaders to collaborate and create opportunities to broaden our economic base to take Charlotte to the international stage. Their plan includes objectives to:
• Create things” better than our competitors by adopting entrepreneurialism and innovation as prominent and core values of the region and provide support for innovation and new business creators.
• Make things” better than our competitors by growing our advanced manufacturing base and providing these businesses with world-class employees through exemplary education and training success.
• “Move things” better than our competitors through the new intermodal centers at and around the Charlotte-Douglas International Airport. From Charlotte, we can move people and goods faster, cheaper and more efficiently through the consolidation of train, truck, air and ship transportation. In the process, we will become a natural leader in logistics and supply-chain management.
The A-Team is encouraging business leaders to take part in the Global Vision. They recommend that you…
Consider how your organization or industry association can benefit from the global vision outlined in this economic plan or strategy.
• Add a global vision to your organization’s strategic plan.
• Take advantage of the opportunities that will result from the intermodal hub at the Charlotte-Douglas International Airport.
• Get involved with a K-12 or college’s workforce development partnership with industry.
The next big event to learn more and to get involved in this Global Vision initiative is the Global Competitiveness Summit III on March 12th, 2014 to be held at the Harris Conference Center.
As a major promoter for the A-Team, I encourage you to attend and to participate in building the future of the Charlotte region so it will truly become the global hub for international trade that it can be. Let’s all get behind the A-Team and work for a dynamic future.
“I love it when a plan comes together,” as was Hannibal’s catch-phrase.
Let’s Not Take It For Granted!
When you list the assets and strengths of this economic region, you might start with the Charlotte Douglas International Airport and then add the strong business community, the universities, the community colleges, the health care systems, the public and private school systems and certainly the central location along the east coast. However, what is most often overlooked and under-considered is the Catawba River…our single and primary source for drinking water to our community.
The Catawba River begins in the Blue Ridge Mountains, collects the flows of a myriad of brooks and streams within its watershed basin, and follows a 112 mile meandering route through reservoirs to Mecklenburg County at the center of our economic region.
Two water intakes pump raw water from Mountain Island Lake and Lake Norman to three water treatment facilities operated by Charlotte Mecklenburg Utilities (CMU). Those facilities treat 183 million gallons of water each day and provide drinking water to about 70 percent of the county population, which reached approximately 1,000,000 residents in 2013. This system is expandable to about 350 million gallons per day, according to CMU.
Estimates place average daily personal consumption of water at about 150 gallons. Of course, water is also used and distributed through 174,800 service connections and 8,846 fire hydrants for fire protection and commercial usage as well as residential service.
Adequate supplies of water for power generation as well as residential, commercial, industrial and agricultural uses are essential to our continued economic well-being.
While, for the most part, we take our water supply for granted, it would be wise for us to consider the possibilities for contamination of our water supply as well as the increasing threats that come from an expanding population and industrial base.
Fortunately, we have the Catawba Riverkeeper organization on guard to identify threats to our water supply. Federal and state regulations are also in place to protect water supply sources.
Pollution comes from many sources. Two general categories include point source and non-point source pollution. Point source would be discharges from pipes emanating from businesses, farms and developments within the watershed basin. Non-point source pollution comes from runoff including rainfall and snowmelt. We must be extra vigilant about any and all sources including our own yards.
One of the greatest threats to our water supply is its potential exposure to coal ash. Coal ash is waste created by coal-fired energy power plants. The Environmental Protection Agency has issued a proposal to regulate the management and disposal of such waste, but it has not been acted on as yet.
In December 2008, near Kingston, Tennessee, there was a huge spill of coal ash from an impounded area. When the dike failed, 5.4 million cubic yards of coal ash spilled into the Emory and Clinch Rivers and contaminated about 300 acres of land. The spill created a slow moving wave of toxic sludge and polluted water into the rivers. Homes and trees were knocked over. Over $1 billion has been spent on clean up thus far and the project continues into 2015.
Certainly, a spill like that along the Catawba River would dramatically affect the quality of the water as well as the recreational use of the river and its enjoyment. A terrorist attack on our water supply could be similarly disruptive.
These threats and others are not inevitable, but they are sufficient that we should seek to set up a backup water supply for our region. According the Catawba Riverkeeper organization, the avenue for that supply would be from the east through a pipeline from Lake Tillery to the east of Mecklenburg County. Lake Tillery lies about 60 miles due east along the Yadkin River.
With over 1,000,000 people relying on fresh water from the Catawba River, we should be prepared with a backup supply to protect our long-term interests. It only makes sense. The Catawba Riverkeeper advocates building such a pipeline.
Of course, we must be vigilant to keep the Catawba River itself clean, but for the sake of our community, we need to go even further to protect our interests with a backup supply from another source of fresh water. It will be better to act with a goal to be prepared than to act after we are confronted with problems from one direction or another. The old adage of, “It is better to be safe than sorry,” applies directly to this scenario.
What do you think?
Greater Charlotte Biz was delighted to host John Silvia, Wells Fargo Securities chief economist, at our Fall Biz Symposium. We asked John to address a number of possible disruptions to the economy in 2014 and suggest how they might affect businesses during the coming year.
John spoke of the nomination of Janet Yellen as the new Chair of the Federal Reserve in January 2014. He commented that she is likely to keep the same or similar policy path as Chairman Bernanke. While she is viewed as slightly more dovish than Bernanke, she is expected to keep rates short through 2015. She is not expected to disrupt the financial picture dramatically.
The first and primary challenge of the New Year will come early when the House and Senate have established a new deadline for action on the federal budget, deficit reduction and on long-term debt. A joint committee formed with members of both houses has been charged with seeking an accord by December 13 on taxes and spending before another shutdown of the federal government. Unfortunately, everything in the budget is formed by a special interest and reaching a successful compromise will not be easy. The U.S. borrowing authority has been extended to at least February 7, although the actual hard deadline is likely to be closer to March of 2014.
Silvia explained that we have experienced a sustained recovery in 2013, but still below an historical experience with a benchmark of 2.75 percent trend from 1982 to 2012. He commented that long rates had risen to a point where the 10-year yield was at nearly 3 percent, but would return downward to about 2.5 percent. He said that there would likely be no tapering from the Fed until at least March of 2014. He also projected that rising rates are not expected to threaten the housing market recovery and that housing would be a strong point in our economic recovery breaching the 1 million-unit mark in 2014 and 2015.
Uppermost of concern to Silvia are the federal government long-term entitlements including Social Security, Medicare and Medicaid. He projects that mandatory outlays will nearly double in the next 10 years. He commented that the disability program is expected to run a cash shortage in just three years and that health care will seriously burden our budgets very quickly.
In terms of national security, John remarked that concerns in Syria, Iran and North Korea have resulted in a flight to safety for government bonds with yields down to nearly 4 percent.
Silvia does not expect that the brinksmanship of the political parties will change despite mid-term elections, but slight adjustments will be made to the makeup of the House and the Senate. Currently those elections are expected to be a toss-up—meaning the risk of partisanship will continue going forward.
What we can all hope for is a productive government that will foster greater economic growth in the near term. At the same time, confusion over the Affordable Care Act is causing businesses to be overly cautious until they can be more confident about the access and costs of this new system.
One of the biggest worries for the U.S. economy is the declining workforce. Looking at the change in its composition, we see that less and less young people are part of the labor force as older people are having to work later into life. Both male and female youth as well as adult females have been leaving the labor force since the recession and not returning.
What was most encouraging to Silvia was his forecast. He expects that growth will pick up, hitting 2.5 percent in the second half of 2014. Business fixed investment and personal consumption are expected to increase steadily and the housing market will be strong.
In summary, Silvia contends that the recovery continues and even picks up steam unless or until our public policy makers stall and disrupt our economy from its recovery.
And from Greater Charlotte Biz, we wish you the very best of holidays and an incredibly prosperous 2014!
What did we learn from the recent shutdown of the federal government? Or was anything learned from the shutdown? Depending upon your point of view, you will likely have different answers.
According to the Tea Party faction of the Republican Party, the federal government should have no role in our lives except for the bare essentials. The opposing view offers a different direction…that our government should encourage an economy that works for all of us and give kids a fair chance at a good life. From one perspective government is evil and overbearing and from the other government is a force for good.
Somewhere between those two philosophies is the essence of the budget debate that lies beneath the rhetoric and the partisanship that seems to be tearing us apart.
Government is a system of enabling or controlling public policy decisions for the benefit of the country and its citizens. Put more simply, government is a way to decide what we do together as a nation.
And so, what did we learn? We learned that 800,000 workers were laid off for 16 days. We learned that national parks and monuments were closed to the public. We learned that we did not save money…in fact, according the S&P Index, we actually lost $24 billion out of our economy. Cancer patients were not admitted and treated at the National Institutes of Health. And government agencies were unable to perform their regular functions supporting business growth and/or regulation.
The original purpose stated for the shutdown was to de-fund the implementation of the Affordable Care Act, which, in fact, has suffered more from inadequate planning and implementation than from the actual shutdown itself.
When all was said and done, what legislators agreed to do was to once again kick the can down the road. They effectively set up another deadline to resolve the differences over government spending (i.e. government activities) by putting federal workers back to work and setting up a “budget conference committee” made up of 29 Senate and House members to make recommendations December 13th and action by January 15th or the government will be shut down again. They also extended the raising of the debt ceiling to February 7th.
What perplexes most people about the federal budget are the numerous special interests that seem to control certain elements of the federal government that run contrary to one’s own interests. It is hard to comprehend all the special interests so we attack them as lobbyists, unions, corporations, banks, oil companies, environmentalists, non-profits, religious groups, teachers, doctors, lawyers, farmers, poor, rich, military and foreign. Everyone seems to attack other special interests apparently thinking theirs is the common interest.
The other overwhelming problem with public discussion of the federal budget is its enormity. Obviously, with $3.034 trillion in revenue projected and $3.778 trillion in spending for FY 2014, our budget is out of balance as a result of the recession and all the job losses.
But let’s take a closer look.
Nearly 61 percent of the $3.778 trillion in spending is applied to Social Security, Medicare and military retirement benefits. Mandatory spending of $2.308 trillion includes $860 billion for Social Security, $524 billion for Medicare, and $304 billion for Medicaid, and interest on the national debt.
The balance of federal spending is budgeted at $1.242 trillion to fund all the other functions of government. That spending is actually down from the previous year. Nearly half of that amount is directed toward military spending for about $644 billion. So that leaves roughly $598 billion for fixing roadways, schools, agriculture, etc.
Relative to the total spend, the federal government was shut down impacting a mere 16 percent. That’s not the part that’s sinking our boat. That’s not the part that will be twice as large 7 years from now if we can’t agree to do something about it.
So, where should we focus our limited time between now and January 15th to make the greatest impact on reducing our federal debt? With a grand total of about $17 trillion in accumulated debt obligations, primarily from Social Security, Medicare, military pensions and interest, the answer should be clear.
Obligations to the elderly in America will only increase every year. Nearly 10,000 baby-boomers retire every day. Medicare is posted at $524 billion in FY 2014, but that number is projected to rise to almost double that—over $1 trillion—by 2020.
Changes will be relatively miniscule if we make them now; they will be gigantic if we make them later. For example, one recommendation from the Simpson-Bowles Commission would save $585 billion over 10 years by slowly raising the Medicare eligibility age from 65 to 67 by the mid-2030s. It would also change how Medicare beneficiaries pay for Parts A and B (the programs that cover hospital care and doctor visits) and expand means-tested Medicare premiums, so the highest income beneficiaries would pay more for their premiums.
Even though retirees have paid into Social Security and Medicare for their entire working lives, that money has not been put aside and/or invested for future expenditures. It has been borrowed and spent for previous retirees. Add to that, the facts that we have fewer workers contributing to the systems than ever before and that older people are living longer lives and receiving more expensive and complex medical treatments.
With limited time, we must turn the focus and the attention of our elected officials to the long-term fiscal obligations that are more than we can afford. We have limited choices, but we must consider cutting benefits, raising taxes, means testing the benefits, and/or raising the retirement age. Unfortunately, those are the tough choices.
If we are to avoid another shutdown, we must act decisively. We should be discussing and determine what we want our government to do about these obligations. Our decisions will dramatically affect our children and their children over their lifetimes.
Failing to act is the worst choice we can make.