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We can’t afford sacred cows

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We cant afforded afford sacred cows

In my last piece I pointed out how the Republican tax plan simply nibbles around the edges. It doesn’t provide any real tax relief, and it certainly doesn’t reform the corrupt system. More importantly, the GOP is clearly no longer interested in cutting spending now that Barack Obama is no longer President, and Democrats are suddenly concerned about the deficit.

Spare me.

The fact is we need MASSIVE spending cuts and nothing can be off the table. I mentioned the other day that one of the problems with cutting spending is that everyone is in favor of it, as long as you don’t touch “my” stuff. Everyone has their sacred cows in the federal budget, and we can’t afford them anymore.

The biggest one for the GOP has long been defense spending. Democrats point to “unnecessary wars” as the biggest reason for our national debt. Well, it’s not the biggest reason, and even if it was that’s a crap complaint. National defense is a power specified in the Constitution for which the federal government can raise and spend money. Social programs are not. However, the Democrats are not entirely wrong that defense spending is out of control.

I’ve been both a military officer fighting a war and I’ve been a working civilian trying to make ends meet. Here’s what I know for certain from both of those perspectives:

  1. As taxpayers we owe it to our military men and women to make sure they have the best training, facilities, equipment, and weapons in the world. We have been succeeding at this for decades.
  2. Military Officers and the civilians that work for the military have a fiduciary duty to the taxpayers to make certain that their money is being spent efficiently. Right now, they are failing at this and in the most egregious ways possible.

Now, before you get your knickers in a twist, this isn’t a hit piece on the military. I was in the military for 10 years and nothing I ever do, except being a father, will be as meaningful. Yet if we’re going to talk about cutting spending we have to look at our sacred cows, and that’s means facing some hard truths. I have solutions, not just rhetoric, and I have personal experiences to back up my thinking on this, so bear with me.

Solution 1) Change the military spending culture

When I was a young Captain, I sat in a staff meeting at Ft. Sam Houston, San Antonio, Texas. I was the operations officer and we were going over budget requests. After going over the requests, many of which were superfluous at best, the colonel looked at everyone and asked if there were any others. He said, “I know higher told us to do better on spending money but I want to spend all our money and all theirs too.”

My eyes went as wide as saucers as I looked at the man I worked with, a civilian contractor who was a retired lieutenant colonel. He knew what I was thinking and we discussed it later back at our office. We couldn’t very well complain about potential cuts to defense spending when this was the attitude about how to spend money. He even agreed with me, but he advised me there was little a captain could say to a colonel about it.

At is point it was 2011. The Global War on Terrorism (GWOT) had been going on for 10 years with no end in sight. Money was nearly limitless for those operations and any operation even vaguely connected to them, which is to say, the entire US military. That kind of spending is addictive and many officers, especially those of my generation, had no concept of a military on a strict budget. However, having grown up in the military, raised by an officer who did, I understood these principles.

Solution 2) Change the way the military issues contracts

For decades the US military has issued contracts to the lowest bidder, and almost invariably has them run into cost overruns before the project is complete. It’s just the way it’s done. When my father was put in charge of renovating a dental clinic at Ft. Meade, MD, the contractors came to him expecting more money, as was routine. Not to be, as COL Wilhelm reworked the contract to make it fit within budget.

This should be the way all military officer conduct business with contractors. If contractors can’t do the project that they are bidding on for the amount that they bid, then they shouldn’t bid on the contract for that amount in the first place. Contractors have to be broken from the idea that there will always be more money, so they don’t have to worry about cost overruns. Some contractors blame the military for changing the orders, and I have no doubt this is sometimes the case, which leads me right to….

Solution 3) Change the way the military plans for the future

John Kerry isn’t exactly one of the great minds of the last 50 years, but during his campaign against George W. Bush in 2004 he did have (to me) one memorable line. When speaking about cell phones he said “I really think they should finish inventing these things before they sell them.” I chuckled at that one. It was funny because it was true.

In the same way, the Pentagon has a tendency to put the cart before the horse. They ordered the USS Gerald R. Ford, the first of the Ford-Class aircraft carriers, even though several key components of the new ships hadn’t even been designed yet. Though the Ford has been delivered, it was far over budget and won’t be ready for deployment for several years. Its arresting gear, which allows aircraft to land on the short airfield that is its deck, doesn’t currently work, and needs major changes to be made to work.

The Navy wants a next generation aircraft carrier to handle 5th generation aircraft? Makes sense. It doesn’t make sense if the technology hasn’t been invented yet. It also doesn’t make sense if the 5th generation aircraft in question have themselves become a costly boondoggle that never should have been in the first place. The Joint Strike Fighter project, which has now become the Lockheed F-35A/B/C Lightning II, has been a nightmare of cost overruns and failing systems.

The F-35 was supposed to eventually replace several different aircraft across the DOD. The traditional “A” model would have theoretically replaced 4th generation fighters for the Air Force like the F-16. The “B” variant would have replaced the iconic Harrier jump jet for the Marines, as it is supposed to have the same short take off and vertical landing capabilities as the Harrier. The “C” variant was supposed to be designed for the rigors of landing on an aircraft carrier like the USS Ford, the under constructions USS John F. Kennedy, or the 3rd Ford-class carrier, the USS Enterprise.

I have a family member who is a former aerospace engineer for Boeing and worked on the competitor for the F-35. Even from my meager military flight training, it seemed to me that trying to make three very different aircraft from one airframe was a fundamentally flawed idea from the state. I posed this supposition to my family member. He agreed wholeheartedly. This was never a good idea to begin with and never should have been adopted.

Solution 4) Time to start leaving some behind

In the military we live by the creed “leave no one behind.” Well, this became a bit of a joke at the Army Medical Department at Fort Sam Houston. We called it “No Sergeant Major Left Behind” or “No Colonel Left Behind.”

Why? Because these sergeants major and colonels would create high-paying civilian jobs, doing exactly what they were doing in the military and then retiring and sliding right into those jobs, thereby double dipping, their retirement PLUS a well-paying government civilian job. Did the jobs need to be done? Mostly. But they largely could have been done by someone making less money or in the military. Instead, you have military officers using the system to enrich themselves by staying on the government gravy train. This is a systemic problem that must be addressed.

The Takeaway

I could write a book about how expensive things are in the military, and how much casual waste there is. I could spend two chapters just on how sick it made me seeing how little the big-wigs in the Pentagon care about such things. Maybe I will someday. But for the purposes of this article, let me just point out that there are a LOT of ways that spending can be cut even in the DOD. It’s a lot easier to talk about cutting unnecessary spending in social programs when we’ve made the military more efficient, and believe me, the Pentagon could use a good house cleaning.

I wasn’t thrilled with the idea of James Mattis as the Secretary of Defense. There was no doubt in my mind he could do the job. He certainly had the military credentials. But in my mind the most important issue of the last decade is a massive government out of control and runaway spending. General Mattis wasn’t going to fix this, and it doesn’t appear that he has. It CAN and SHOULD be done though.

We can and should provide our service members with the best of everything, but that doesn’t mean we just throw money at every problem. We need that money to be used efficiently, and that is a concept of which the current crop of officers and civilians at the Pentagon doesn’t have the slightest understanding. You would hope that a well-known and successful businessman as commander-in-chief would put the DOD on the right path. However, based on the latest Trump Hotel closing, anyone paying attention knows that the persona of “great businessman” is more of a myth than anything when it comes to Trump. It would be nice if he took a look and realized we need to cut spending everywhere, but it seems unlikely the self-proclaimed “king of debt” will make strong moves toward that anytime soon. Otherwise, he’d be rejecting this horrible tax plan the GOP congress has put forward and come up with one of his own.

Benjamin Wilhelm served as a commissioned officer in the United States military for 10 years, serving one combat tour in Afghanistan. He is a recipient of the Bronze Star and Combat Action Badge among other military awards. Ben has worked in a variety of private sector businesses both large and small. He is a former military and civilian firearms instructor and an advocate for veterans issues. Ben is a strict Constitutionalist who sees the Federal government as an out of control leviathan, and the federal debt as a burden that will break the country. Ben is a divorced father of two boys.

Democrats

Elizabeth Warren introduces dangerous anti-capitalist bill

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Elizabeth Warren introduces dangerous anti-capitalist bill

Elizabeth Warren made a big announcement this week in introducing her new bill called the “Accountable Capitalism Act.” Her bill aims to “eliminate skewed market objectives” and return America to an era in which “American corporations and American workers did well together.” It’s unclear when the utopia like conditions were according to Warren; however her website lists the 1980’s as the time period in which corporations shifted focus to maximizing shareholder returns. In any business college, it is taught that the job of a CEO is to maximize shareholder wealth. Senator Warren wants to shift this mentality with her new bill. In the statement on her website, she asserts that the “shift” has led to booming profits and less reinvestment into the companies themselves. She claims that wages have not increased despite booming corporate profits. Elizabeth Warren then moves to make the argument that the top 10% owns 84% of American stock and only 50% of households own stock. Thus, she claims, that this reinforces a cycle of the rich getting richer. This is a growing socialist sentiment that poor people, and even middle class, are incapable of affording stock. The main bullet points are outlined below. Read the text of the bill here.

Office of United State Corporations (more government!)

The bill creates a new administration within the Department of Commerce. Corporations earning more than $1 billion in revenue are required to obtain a charter from the federal government, per this new created office. The charter obligates these large corporations to consider the interests of all stakeholders. Failure to obtain this permit to exist results in loss of corporation, which in business terms mean, it would no longer be treated as a separate entity. Therefore there would be no liability protection. The Director of this office would be a Presidential appointee and requires Senate confirmation. The term last four years. Warren seeks to create a new and powerful tentacle of the Federal government.

Employee Chosen Board of Director

Employees, not shareholders, will have the ability to choose no less than 40% of a company’s board of director. This bullet point is perhaps the most ridiculous and anti-capitalist. Company boards serve to set goals for the company. The board is usually chosen by investors. In the world of private investment, the board of directors is a bargaining chip for control of the company, as opposed to just percentage of stock. Warren’s bill doesn’t outright say it, but she wants unions to control company boards. Meaning instead of the company’s interest, the board will be powerful weapon of the union. Boards start out as founding members, investors and their appointees, and neutral parties because entrepreneurs and investors craft such interesting deals. Insisting that 40% must be elected by employees renders a board relatively useless for small investment worthy companies or inflates company boards well beyond what they should be for their size (ie small company with GM size board.) This will possibly lead to more empowered officers and weakened boards so that CEOs can perform their fiduciary responsibilities without a labor union threatening their disposal. This could also make companies more risk adverse because undoing mistakes, laying off workers, and other rainy day measures are now more difficult to undo. Ultimately this would empower worse CEOs, ones who aren’t as interested in shareholder wealth. The Securities and Exchange Commission along with the National Labor Relations Board are responsible for enforcing this part of the act, as further indication that this applies to all corporations. Stiff daily fines are to be imposed for failing to comply.

Government control of stock options

Elizabeth Warren claims top executives are compensated mostly with stock options. Her bill restricts these executives ability to sell their shares for five years so that they can focus on long term company success. Basically these executive will be given stock, but will have no real ownership of that stock. This would be the government restricting private property. These types of issues are best left to corporations and shareholders who already impose vesting periods to ensure the same exact goal.

Supermajority for political expenditures (not for unions)

This is a jab at Citizens United because Elizabeth Warren and others are butthurt about the outcome of a critical first amendment case Supreme Court case. It forces company shareholders to vote in order for a corporation to make any political expenditures. It imposes a 75% supermajority threshold. Conspicuously absent from this requirement are labor unions.

Revoking of charter

The corporate charter resembles a “rule of club” for large companies. If they don’t meet the requirements of their charter or have a history of illegal activity, they will have their corporation status removed in time. The question is how political will the enforcement of these charters be? Will there be a separate set of rules for democrats and republicans? If the rest of government is any indication, the answer is clearly foreshadowed.

Closing Thoughts

The socialist movement wants to fundamentally change the purpose of starting a business and running a company. This would most certainly lead to lower caliber CEOs. The bill makes no mention of labor unions yet it’s intentions are clearly to empower them in companies that still allow them and to create politics in organizations that do not. This ideas pressed fourth in this bill are sure to gain traction, just as “Medicare For All” became a socialist rallying point. It brings about questions of how business literate politicians like Senator Warren are? Do they fundamentally misunderstand what a corporation is, or do they not care? The bill aims to reduce a shareholder’s power and return on investment which will only hurt our economic growth. While Elizabeth Warren’s bill isn’t socialist, it is heavily anti-capitalist.

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Economy

Trump expects Harley to lose money on his behalf one way or the other

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Trump expects Harley to lose money on his behalf one way or the other

American motorcycle motorcycle manufacturer Harley Davidson is in a tough spot. Tariffs imposed from Europe against imported motorcycles in response to President Trump’s tariffs on steel and aluminum have forced Harley to consider moving some production to Europe to avoid the tariffs. It’s a fair response, but the President is having none of it.

He has ratcheted up calls to boycott Harley over the potential move.

It’s imperative for President Trump’s reelection that these tariffs work. If they have the expected effect of bringing some jobs back while pushing others away, then they will be painted by the media as a failure. He knows this and therefore must do everything he can to keep jobs in America even if it means painting one of the most beloved American companies as the bad guys.

Trump backs boycott of Harley Davidson in steel tariff dispute

https://www.reuters.com/article/us-harley-davidson-tariffs-trump/trump-backs-boycott-of-harley-davidson-in-steel-tariff-dispute-idUSKBN1KX0J9The Wisconsin-based motorcycle manufacturer announced a plan earlier this year to move production of motorcycles for the European Union from the United States to its overseas facilities to avoid the tariffs imposed by the trading bloc in retaliation for Trump’s duties on steel and aluminum imports.

In response, Trump has criticized Harley Davidson, calling for higher, targeted taxes and threatening to lure foreign producers to the United States to increase competition.

My Take

What does he expect them to do? They will lose tens of millions of dollars if they continue to try to export motorcycles to Europe. They will lose even more if they stop selling motorcycles in Europe. If they try to mitigate the damage by moving some operations to Europe, the President wants them to lose money as a result. This, too, will likely result in cuts to the workforce.

In other words, President Trump will make certain Harley Davidson, an iconic American company, loses money and cuts American jobs no matter which direction they go. If he has an alternative for them that does not hurt Americans, I’m sure they’re all ears.

Most tariffs are bad in the 21st century. It’s impractical to believe we can maintain our supremacy as the world’s consumer if we continue to slap tariffs on some of our best trading partners. He either lacks the understanding of how this all works or has chosen to ignore the facts for the sake of spinning it for votes when his term concludes.

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Economy

Tariffs on Turkey: Bad for the economy but damaging to a dangerous dictator

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Tariffs on Turkey Bad for the economy but damaging to a dangerous dictator

Say what you will about President Trump’s foreign and economic policies. Whether you support them or not, it’s hard to deny that they’ve made things much more interesting.

The latest move by the President to impose stiff tariffs on Turkish steel and aluminum may seem in line with how he’s been treating the national and world economies recently, but more is at stake with this move than previous ones.

There are two factors at play that make this move different from previous tariffs. First, it is not purely economic but is a response to Turkey continuing to hold pastor Andrew Brunson for allegedly supporting the coup attempt of 2016. Second, the tariffs come at a time when Turkey’s currency, the lira, is in free fall.

It was already starting to show signs of failure when leaders from both countries pushed it even further down. Turkish President Recep Tayyip Erdogan added more challenges for the lira when he asked his people to convert their foreign currency and gold, a sign of trouble that will likely have the opposite effect.

Erdogan calls on Turks to convert hard currency, gold into lira

https://www.reuters.com/article/turkey-economy-currency-erdogan/erdogan-calls-on-turks-to-convert-hard-currency-gold-into-lira-idUSA4N1TM024Turkish President Tayyip Erdogan on Friday called on citizens to convert their hard currency and gold into lira, after the local currency tumbled to a record low this week, reflecting investor concern about a widening diplomatic rift with the United States.

Erdogan, in a speech in Ankara, also said Turkey was diverting to the Chinese market to overcome what he said were “subjective evaluations” from ratings agencies. Erdogan has repeatedly railed against credit raters, saying their downgrades of Turkey’s sovereign debt to “junk” status were politically motivated.

Seizing on the free fall, President Trump made matters worse for for the lira with the sanctions:

Trump authorizes doubling of metals tariffs on Turkey

https://www.cnbc.com/2018/08/10/trump.html“I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!” Trump wrote.

Losses in the the Turkish lira deepened on Trump’s tweet, falling as much as 20 percent vs. the U.S. dollar in Friday trading.

Erdogan is now calling this an economic war with the United States and claims he will not back down. Meanwhile, the Euro and other currencies are also feeling the heat:

Euro tumbles as investors fear bank exposures to Turkey

https://www.reuters.com/article/uk-global-forex/euro-whacked-on-turkey-turmoil-as-investors-scramble-for-safety-idUSKBN1KV07M“You’ve had a fairly sharp move lower in the euro and it’s broken through key technical levels as well,” said Richard Franulovich, head of FX strategy at Westpac Banking Corp in New York.

The euro dropped below technical support at $1.15 to $1.1421, down 0.91 percent on the day and the lowest since July 2017. Against the yen, the euro slid 1 percent to 126.79 yen, a two-month low.

Now, the criticism and praise of President Trump’s moves will be debated for days, maybe weeks.

My Take

As I’ve stated on many occasions, I’m not a fan of tariffs. They are misunderstood by most, particularly the President, and no longer yield the results they did in previous centuries. From an economic perspective, I oppose this move.

The bigger picture is how this is being used as a pressure tactic against Turkey. Currently, I like it a lot. That opinion could change based on how things go, but moves like these that apply pressure against a dangerous dictator of the false ally that Turkey has become are welcome. It isn’t just about securing Brunson’s release, though that’s extremely important. Turkey is a rising power on every spectrum that is increasingly turning to Russia and China for help instead of their “friends” in NATO.

The strategic importance of Turkey as a hub that connects Europe, west Asia, and the Middle East cannot be understated. In an ideal situation, Turkey would still be a good ally as they once were. Erdogan has taken advantage of two past U.S. Presidents and seemed poised last year to start taking advantage of President Trump. That doesn’t seem to be happening anymore.

Is this the right way to handle Erdogan? Probably not. Whether it is or not will be revealed in coming weeks. One thing is certain: we’re seeing things being done from the White House that we’ve never seen before and may never see again. It’s troubling, but at least it’s entertaining.

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