Nathan Lustig

America Doesn’t Plan for the Future

The other disturbing trend has been building slowly since the 1980s.  It is a “dumb as we wanna be” mood that has overtaken our political elite, a mood that says we can indulge in petty red state-blue state cat fights for as long as we want and can postpone shoring up our health care system and our crumbling infrastructure, postpone addressing immigration reform, postpone fixing Social Security and Medicare, and postpone dealing comprehensively with our energy excesses and insecurity indefenitely.  The prevailing attitude on so many key issues in Washington today is “we’ll get to it when we feel like getting to it and it will never catch up to us, because we’re America.”    

–    Thomas Friedman, Hot, Flat and Crowded

I was rereading the beginning of Hot, Flat and Crowded today when this passage caught my attention.  It summed up my feelings about our government for awhile now, but even more so now since the financial crisis.  Our government is simply not planning for the future and I’m not sure what we can really do about it.

Government has done little, or nothing, to address energy independence, social security, a sprawling, complex tax code, healthcare, infrastructure, over crowded prisons, underachieving school and job creation.  Instead, government has focused on abortion, illegal drugs, same sex marriage, online sports gambling, online poker, steroids in baseball and short term fixes to America’s major problems.

Both parties, and the system as a whole, are to blame.  First, gerrymandering has robbed America of many competitive election fights, leading to more partisan politicians getting into office, at the expense of moderates who would be more willing to compromise.  Second, the political class has to raise money to continue to be elected.  With the rise of lobbyists, our elected officials face an ever increasing temptation to accept contributions in exchange for influence.  The constant election cycle hurts our political process.  Third, it seems fewer smart people are going into politics.  When the founding fathers were writing the constitution, they were some of the smartest people in the world.  The founding fathers would be ashamed to be compared to today’s political class.  Fourth, the constant campaigning and fundraising pushes elected officials to work on “flavor of the month” and divisive projects, rather than working toward large, long term goals.  Lawmakers who work toward big goals may be thrown out of office by their constituents for not being liberal or conservative enough (ie, working across the aisle on a big issue). 

Its gotten so bad that I wouldn’t trust 95% of politicians, Republican or Democrat, to run a gas station for two years, much less our entire government.  The “dumb as we wanna be attitude” is a symptom of the disease I outlined above.  American politicians think in 2-6 year time frames.  The major problems facing America today cannot be dealt with that quickly.  They require multi-decade approaches that combine government, private business and ordinary citizens.

An example of the dumb as we wanna be attitude is the government’s response to the financial crisis.  The financial crisis was caused by excess leverage by banks, homeowners and consumers.  People were living beyond their means.  The government’s response (both Bush and Obama)?  Start the printing presses and borrow more money.  We are simply exchanging one form of leverage for another.  As I wrote a month ago, I am worried about the US dollar and America’s standard of living.  I believe that our short term approach to avoid any further pain will only worsen the pain in the future.  It does not make logical sense for our government to do what it is doing, expect to make sure that it gets elected again.  We are being as dumb as we wanna be.

An item becomes less valuable as it becomes available in greater quantities, no matter what the item is.  This statement holds true for dollars, just as it does for doughnuts.  It is not logical to think that the US can simply print its way out of massive debts, yet that is the path that the US in on.  I believe we are on that path because its the easy road and the politicians want to make sure they continue to be elected. 

Contrast America’s approach over the last two decades to that of China.  The Chinese government, unlike their American counterpart, thinks in terms of decades, not single years.  For example, in the 1990s, Deng Xiopeng set a goal to make China the leading producer of rare earth metals, the valuable metals used in most high tech products including solar panels, microchips, high capacity batteries and many more.  In 2009, China succeeded.  It now controls 95% of the world’s supply of these valuable metals and have imposed strict export quotas so that industry is forced to move to China.  This is not to say that we should follow the Chinese model, as the ends do not always justify the means, but I believe we can learn a lot of China.  They have lived within their means, saved money and invested it wisely.  China is being rewarded for it now, while the US is being punished.

I’m not really sure what we can do to get our politicians to focus on the big, multi-decade projects that are important to our country’s future.  The only thing I can think of is to educate the voters and demand action on big projects, rather than quick fixes.  Reward congressmen for spending 2 years on fixing social security, not sending pork barrel projects home to the districts.  We are America, but the world is catching up.  I fear they will have caught up because we are falling at the same time they are rising, not because they are rising faster than we are.  I wish there was an easy button, but sadly, there isn’t.  What do you think?

Don’t Mess With Lightning

I was scheduled to ref a soccer game last night in Madison and, as always, I checked the weather before the game. It looked like there was going to be some rain in the first half, and then the potential for thunderstorms in the second. Refs are always trained that if they see any lightning, no matter how far away it is, to stop the game immediately. We are supposed to send everyone to their cars and wait for 20 minutes without any more lightning before restarting the game.

I started the game at 530 and heard a few rumbles of thunder in the far distance, but did not see any lightning. We played the entire first half, and I still had not seen any lightning. During halftime, there was a quick burst of heavy rain and the skies got darker. Still no lightning.

Twelve minutes into the second half, out of nowhere, BAM!!! There was a flash of light, with a huge clap of thunder seemingly simultaneously. A parent on the sideline fell to the ground and his umbrella that had been planted into the ground flew away from him. Three players fell to the ground, shocked either by the lightning or just the loud bang. My assistant referee, who was about 10 yards from the guy who was hit, felt the electricity and I felt buzzed for over an hour.

Everyone sprinted to their cars. The players slowly got up and seemed to be ok. The guy who’s umbrella was hit was laying on the ground for a few seconds, and was helped up and seemed ok. We cancelled the game and made sure that everyone was off the field as quickly as possible. We were incredibly lucky and I am happy that nobody was seriously hurt.

I have never been in a situation like that where the first bolt of lightning is right on top of us. Normally there is some warning, but this time there was not. I have stopped many games in my almost 12 years of reffing after seeing lightning in the distance, only to be called a wimp or worse.

As I was leaving the soccer park, I saw another game still being played. I couldn’t believe it. I drove over, laid on the horn and told them that a guy had been hit near us and that “this was stupid and that they needed to get these people out of there.” They stopped and got everyone to their cars.

If you are ever in a situation like this, don’t be afraid to stand up for yourself and get out of the situation. Many people have a macho attitude about lightning and ridicule people who go inside after seeing the first bolt. You can be hit by lightning up to 30 miles away from a storm: If you can see lightning, you can be hit. Its better to be safe than sorry. Get inside and stay safe.

I’ll leave you with a video that should be required viewing for all refs, coaches and parents of youth athletes. It was a professional soccer match in Africa where two players died as a result of a lightning strike. Its in German, but you can see the flash and the aftermath.

What Do You Do After Retiring in Your 30s with Millions?

No, I’m not talking about me (too young and too poor).  I’m talking about professional athletes and what they choose to do after retirement.  The NBA estimates that over 60% of players go bankrupt within 5 years of retirement, but what do the rest do?  Many athletes who made sound money management decisions go on to start businesses or run charities. 

LeRoy Butler is probably most famous for inventing the Lambeau Leap while he was the starting safety on some of the great Green Bay Packers teams in the 90s.  Butler is a great example of an athlete who had a successful career and is now trying to make a difference off  the field.  Butler has sponsored the Go Pink Soccer Series in Wisconsin, a series of 88 high school girls soccer games that has raised over $100,000 for breast cancer charities in the last two years.

Butler doesn’t just lend his name to the cause.  Although he is a resident of Jacksonville, Florida, Butler makes appearances at many of the games in the series, signs autographs and makes an event out of the games.  I was fortunate to referee one of the Go Pink Soccer Series games last night where Butler made an appearance (I’ve reffed soccer since I was 12 as a side job).  He happily posed for pictures, signed autographs and talked with the players, fans and refs and seemed to really enjoy himself.  I asked him if he could do a Lambeau Leap into the high school stadium bleachers but he said “he didn’t want to crush anyone.”  He couldn’t have been a nicer guy.

Its great to see an athlete using his celebrity to help out a great cause and enjoy it.  Butler could have been in sunny Florida last night, but he was in wet, windy Wisconsin on a Tuesday night watching a high school girls soccer game and enjoying every minute of it.  It would be great to see more athletes follow Butler’s example.

http://www.youtube.com/watch?v=zJzZPw0PDNQ

FICA Tax Holiday Will Allow More Businesses To Succeed

Note: This is the second in a series of posts about policy changes that make starting a business easier.  The first post on heath care is here.

According to the US Department of Labor, there are a little over 1 million new businesses created in the US each year.   The popular misconception is that 90% fail within five years.  Although real data only show that at least 25% fail within the first year and at least 44% fail within the first three, that percentage is still very high.  Looking at real numbers, over 250,000 firms go out of business within one year.

Businesses fail for many reasons.  The market may change or a competitor could enter the market.  It could be a bad business idea.  The founder might decide to do something else or not have the time or make the necessary committment.  The business may have poor access to credit or funding.  Margins could be too small or the owner cannot make enough to live comfortably. 

Most startups are taxed by FICA (Social Security and Medicade) at a 15% rate on any net profit they earn.  FICA taxes cost small businesses and startups over 15% of net profits, as business owners have to pay both the employer and employee sides of the contribution.  Unlike the progressive income tax, FICA taxes start at $400 of income and end at a little over $100,000, making FICA a very regressive tax.

The 15% FICA contribution is a huge obstacle for new businesses.  For example, take a person who starts a dry cleaning business that makes $30,000 in net profits in year 1.  The founder has to make enough money to reinvest in the business and pay themselves a salary in order for them to stay in business.   The founder owes around $4,500 in FICA taxes.  Instead of taking home $30,000, less income taxes, the owner takes home $25,500.  For many people, $4,500 can be the difference between keeping the business open for year 2 or closing the business.  The same thing can happen to tech startups, too.  Many small businesses and startups need that little extra push to get them over the hump in the first three years.

I propose a FICA tax holiday for new businesses.  Here’s how it would work:

For the first two years, new businesses do not have to pay FICA taxes.  Instead, their FICA tax liability is “banked” and becomes due in year three, assuming the business is still around.  If the business fails, the founder would not have to pay FICA, but if the business succeeded, the founder would have to pay the FICA taxes from years 1 and 2.  Going forward, the business would pay their taxes normally.  

This plan is very similar to what many professionals like lawyers, accountants and others do with startups that they work with.  For example, its common (at least in Madison) for lawyers to agree to withhold bills for a year or two, or until the company is profitable or raises money.  It allows the startup to worry about business operations and not drown under expenses during the startup period.  If the business becomes profitable, the lawyers get their fees in full, plus more fees in the future.  

FICA taxes would work the same way.  Imagine if instead of 25% of businesses failing in year 1, only 24% failed.  Considering Americans start over 1 million new businesses per year, a 1% drop in the failure rate would lead to 10,000 new businesses making it into year 2.  These businesses would continue to generate profits and create jobs, thereby strengthening the economy.  If more business succeed, the FICA taxes that the government could collect in year three would be greater than the current solution.

I think a plan like this is politically feasible, as it helps both tech startups and small businesses alike, especially with the need to for stimulus during the current recession.  I think it could have broad support from both sides of the aisle nationally, but it may be too big for Congress to act nationally.  It would be interesting if a state would offer a plan like this that offered rebates on FICA taxes for businesses located in the state.  It would be another incentive to get business to stay or move to the state that would not cost much.  I am hopeful that government will think about incentives like this plan to help entrepreneurs of all types succeed.