As I’ve written in prior posts, I travel a lot on business. Over the course of a year, I average about two airline flights per week. That’s about 100 times per annum I have to take off my shoes, put them in a little bin, pull my laptop out of my bag, take everything out of my pockets and endure a full body scan with a government agent giggling at my private parts behind a screen somewhere. To say it’s a pain in the arse is an understatement.

So, I was excited when TSA selected me for their Preferred Traveler Program. To enroll in this program you undergo a one-time, deep-dive background check, but then you get streamlined through security at the airport. To my amazement, I passed the background check (many thanks to all my high school friends who lied for me). Now, when I depart from an airport that has implemented the PTP, it should be much easier (let me count how many have been able to get up and running in the year since I enrolled – let’s see, OK, carry the one, and the total is…..one). The good news for me is the one airport is Miami International. Since my primary office is in Miami and I live in Maryland, I fly there a lot. Being in the PTP means you go through a separate screening line, your shoes stay on, your laptop stays in your bag, your belt stays on, junk stays in your pockets, liquids stay in your bag, your coat stays on, etc. You just put your bag through the X-Ray and walk through the metal detector. Total elapsed time from when your boarding pass and ID are checked to completion of security screening: approximately 30 seconds. Nice!

Sounds great, right? Probably even a shining example of how our government has become smarter and more efficient. Perhaps even vindication for Obama and all the liberals who want to turn over the entire economy to the government to run.

Time out – there’s more to the story. First of all, in order to get my boarding pass and ID checked, I have to stand in the same line as everyone else. As a percent of total waiting time at any airport, the time from back of line to ID check is about 70-80% and actually going through X-Ray is about 20-30%, at most. So, right off the bat, this potentially time-saving program is mostly a waste. Every time I leave MIA, I stand in line for 15 minutes waiting to have my ID checked while 6 TSA agents stand idle in the PTP screening line. When I finally get there, they always joke about how lonely they are. Your tax dollars hard at work.

TSA Hard at Work

But, wait, it got even more absurd today. After the 15 minute wait to get my ID checked, the TSA agent who checked my ID and scanned my boarding pass pointed to the longer regular line, not the PTP line that had been 100% empty since I arrived. I said, “Hang on, I’m in the Preferred Traveler Program. I get to go over there.” He said, “No you don’t. When the computer scans your boarding pass, it decides when you get to go to that line. Today it didn’t send you there. It’s about 80% of the time.”

Oooookay. That makes sense. Create a program to enhance efficiency, but then decide that 20% of the time you’ll be inefficient, just for the hell of it. I groused a bit, but since I wanted to get home, I stopped just short of telling him how idiotic that is.

What’s the moral of this story? Moral? Moral? Crap – is there a moral? Oh, yeah, there is. And it’s not that I have a tough life and have to wait in regular lines with the huddled masses, though I welcome your pity for that injustice if you’re inclined to give it. No, the moral is that our Federal Gummint is still incapable of doing anything efficiently. I understand that I probably won’t get your pity for having to wait a little longer in line. But, let’s rewind the clock and think about my tale of woe in a different context.

Suppose instead of TSA, I substitute OHS (Obama Health System). Suppose instead of a special line to get me through security faster, this is an OHS program for diabetics to get their insulin more efficiently because tight glycemic control is the number one predictor of downstream co-morbidities (cardiovascular disease, blindness, amputation, etc.) in diabetics. Further suppose that under the OHS Preferred Diabetics Program (PDP), diabetics get their insulin more quickly and efficiently. Except 20% of the time they show up at the pharmacy and present their PDP card, the pharmacist says, “Oh, sorry, this program only allows you to get your insulin 80% of the time. Today it says you can’t get it.” Seriously, how is that any more far-fetched than my experience at MIA today?

You could come up with countless similar examples and none of them make a smile creep across your face, as I know it did when you read that Robertson had to wait in a longer line. The point is – large organizations don’t run things very efficiently. Our Federal Government is the largest organization in the land. They’ve never run anything efficiently or, as my experience at the airport today illustrates, even sensibly. When government inefficiency and stupidity means me having to wait in a longer line at the airport, it’s kinda funny (for you, not me). When it’s your or your loved one’s healthcare, it’s not. I’ve written in the past about how Obamacare will hurt the little guy a lot more than the wealthy. But, let’s be clear – it will hurt us all.

Let me begin by saying that I fundamentally believe nearly all politicians are delusional, liars or both. I don’t think either political party in the United States has cornered the market on delusional thinking. That said, sometimes I read a quote from a politician about a topic that I really know a lot about and I get a renewed sense of how just how out of touch (or dishonest) these people  really are.

Today’s DOD (Delusion of the Day) Award goes to Henry Waxman, the nebishy little congressman from California. Why anyone would trust a man that looks like this is beyond me, but California liberals are a strange sort, to say the least.

Seriously, would you trust this guy?

Waxman recently weighed in on the question of whether the US regulatory framework was causing medical device companies to move their efforts to other countries. He said arguments that FDA’s regulatory standards are chasing devices and device makers away from the U.S. are not well founded. “There’s no evidence to back those claims,” he said, other than “anecdotal evidence.”

Wow! And this from a guy who represents California, far and away the #1 state in the country for medical device innovation. OK, Hank, let me turn your anecdotal evidence into fact. I’m a venture capitalist and I invest in medical devices. I’m not so arrogant as to say I have seen every medical device company raising money in the last 5 years, but I am confident I’ve seen 75-80% of them and I’ve invested in a few on whose board of directors I now sit.

Let me be crystal clear. In 100% (not 95%, not 99%, not 99.9%, but 100%) of the entrepreneurial medical device companies that require FDA pre-market approval, the companies are getting approved and launching in Europe first and often exclusively. If I had a dime for every time an entrepreneur has said to me in due diligence something like, “we’re focused completely on Europe and not even worrying about the US market,” I could keep myself in Obama’s 1% forever.

The reason for this is simple – getting a novel medical device approved and on the market in Europe (note – these are countries not known for passive government) can be accomplished in a couple of years for $10-20 million vs. 7 to 10 years and $100 million in the US.

And, this has HUGE implications for the competitiveness of the US medical device industry and, more important, for patients. These life-saving devices will not be available for patients in the United States for years after they are available to European patients and, in some cases, they will never be available here. Wealthy patients will travel to Europe to get treated by these novel devices. Middle class and poor patients in the US will suffer or die. Yes, that’s right, in some cases they will die. So much for liberals being the party of the little guy.

So, while all politicians are delusional liars, not all of them kill sick patients with their delusional lies. Mr. Waxman does.

I have recently had some fun tearing apart the numbers liberals (and other republicans) are trying to use to tear apart the republican field. A few days ago I posted a blog showing how misleading the liberals are in portraying Obama’s massive expansion of federal debt. Using numbers is a dangerous thing because, unlike other forms of rhetoric, numbers actually give us something to dig into. Thus it is with the BBL (Big Buffett Lie) that his secretary pays more in taxes than he does and the attack on Mitt Romney’s 15% average tax rate as being lower than that of middle class Americans. All of this blather falls under the liberal rubric of “unfairness.” I decided to play around with these numbers a bit and see just how unfair they really are and to whom they are unfair.

Part of the unfairness doctrine is that wealthy people like Mitt Romney pay “lower taxes” than less wealthy folks. There are so many misleading details buried in this statement it’s hard to know where to start, but let’s go for it. 

On an absolute basis, of course, Mitt Romney pays far more in taxes than the average middle class Joe – about 450 times more, in fact. For example, a married person earning $50,000 per year will pay $6,654 in federal income taxes in 2011. Mitt paid $3,000,000 (in 2010). Divide 3,000,000 by 6,654 and you get 450. Mitt paid 450 times more in taxes than the middle class Joe! 450 times!! Fair? Unfair? You decide. But, wait, there’s more. A lot more. 

While it is accurate to say that average Joe married person earning $50,000 is “in the 25% tax bracket,” it is not accurate to say such a person “is paying 25% in taxes” or even that such person is paying a higher tax rate than Mitt Romney. These are marginal tax brackets and only the last $34,500-$50,000 of income would be taxed at the 25% rate while the actual taxes paid by a married person earning $50,000 would be $6,654 or 13.3% of income (6,654/50,000). So, in fact, the average Joe is paying a LOWER overall rate than Mitt Romney’s 15%. This is Buffett’s Big Lie. I don’t know what he pays his secretary, but I’ve hired many over the years and very few of them make more than $50,000 (and if he’s paying his $1,000,000 a year she would be expected to pay higher taxes; maybe that’s part of his big lie – I don’t know). So, assuming he’s paying her about $50,000, it is inconceivable that she’s paying more absolute taxes (see above) and quite likely she’s paying a lower overall rate than the Big Liar (whose rate, like Mitt’s, is probably about 15%). It probably is true that her top marginal rate on ordinary income is higher than the Big Liar’s, but, as we saw above, that is as relevant as the fact that the Redskins won 3 Super Bowls in the late 80s and early 90s (sorry – I was struggling for a good “as relevant as….” analogy and I just felt like reminding my readers that the Skins were really good a really long time ago). 

Now, let’s look more carefully at the 15% that Mitt actually paid. The 15% is almost completely on capital gains, the source of most of his income. But, the effective total federal tax on those dollars is more like 45% because the profits of the corporation were taxed at the corporate rate of 35% (one of the highest corporate tax rates of any country in the world; even President Obama has agreed it is anti-competitive), then again at the 15% capital gains rate when Mitt filed his return. Since Mitt and other shareholders ARE the owners of the company, the profits of the company inure to their benefit only and, thus, they are the ones who are effectively paying the 35% corporate tax on profits. So, indeed, Mitt’s effective tax rate is probably about 45% (15% on top of 35% – do the math) on most of the dollars earned, much higher than the rate (even the marginal rate) paid by the average Joe or the Big Liar’s secretary. Fair or unfair? 

Now, as we start to dig deeper into the question of fairness, let’s look at who actually pays how much in taxes in the US? The top 1% pay 37% of all federal taxes (2009 numbers). Yeah, those evil one-percenters, who have been the proximate cause of demonstrations around the nation, are carrying nearly 40% of the load for the entire country. You’d actually think the Occupiers might say “thank you” instead of building squalid little villages in public parks. The top 5% pay 59%. The top 10% pay 70% of all taxes. The bottom 50% pay 2.25% of all taxes. So, in considering “fairness,” it’s probably relevant to consider the fact that while Mitt (and other wealthy folks) may pay a net tax RATE that is lower than the top marginal rate paid on ordinary income by someone in the bottom 50% of earners/taxpayers, the top 1% are paying way more than their “fair share” of taxes under any mathematical construct. And, if you include the top 20% in the analysis, they are, mathematically speaking, paying basically ALL of the taxes in the United States. The bottom half are paying essentially nothing. I find it puzzling to contemplate how that could be “unfair” to the folks paying close to nothing and overly generous to the folks paying basically everything. Seriously, I’m an open-minded guy (stop laughing) – can someone explain to me how that’s “unfair” to the folks paying basically nothing? Should they pay less than nothing? There’s a comment section below. Have at it. 

Here’s a more controversial line of thought. Mitt paid $3,000,000 in taxes in 2010. We pay taxes to run the government so that the government can provide services to us – pave our roads, protect us with a military and police force, make sure we don’t get life saving drugs because the FDA is dysfunctional (I digress). Universally, at all levels of income, Americans do not believe the tax code should be used to redistribute income. Thus, it is interesting to consider whether Mitt used more government services than the average Joe making $50,000 who paid $6,654 in federal income taxes. I’m guessing probably not. Maybe Mitt even used fewer services (for example, if he sent kids to private vs. public schools). If two people are using the exact same level of government services, is it “fair” to ask one of them to pay 450 times more for those services than someone else using exactly the same level of services? Personally, I’m OK with a progressive tax code as I actually do believe that the more fortunate folks should pay more, but I do find it odd and offensive that a guy who pays 450x more for the exact same services is vilified and accused of paying unfairly LOW taxes. That’s mondo bizarro, folks. 

Finally, suppose we were to concede that it is somehow objectively “unfair” that Mitt is paying 15% (which, in actual fact, may or may not be a lower rate than someone making less money, per the data above on Buffett’s Big Lie), then one has to  propose a solution to rectify the alleged unfairness. How would you make it more fair? Well, there are only two possibilities: (1) Raise the tax rate on capital gains so that Mitt pays a higher percent or (2) Lower the tax rate on ordinary income. Let’s take #2 first because it is easy. If President Obama wants to lower marginal tax rates anywhere in the economic spectrum, he has my support. As the numbers above on who pays what show, it will only have an impact on economic growth if he does it for all taxpayers, but any tax cut on marginal rates is a good tax cut. #1 is way more complex. 

In 2008, Charlie Gibson interviewed President Obama and asked him why he would support raising capital gains tax rates even though “revenues from the tax increased” when the rate fell. Obama replied, “I would look at raising the capital gains tax for purposes of fairness.” So, even Obama acknowledged that raising this tax would have a net negative impact on the economy and tax revenue, but he’d do it anyway for “fairness” even if that meant slower growth, higher unemployment, etc.  This notion of symbolism over substance dramatically alters the landscape in the debate over fairness and feels antithetical to the founding principles of America. It seems to me that doing something in the name of fairness that would inherently make economic life worse for the middle class is, by definition, unfair to those middle class folks. Q.E.D.

A friend of mine posted the following graphic to her FB page along with the comment, “Know the facts. The data  is [sic] from Treasury. Thanks for the wars, GOP….not.”

As my loyal readers know, I am a total numbers geek. When I looked at the numbers above, they looked inherently misleading to me so I went to the data source to see if I could figure out the real story. I posted a few comments to her FB page and then thought to myself, “Hey, self, there’s a blog entry in them thar hills.” So, let’s have some fun with numbers.

My friend makes the point that facts are important.  Indeed they are - so let’s look at some relevant ones. The amount of federal debt is important as is the growth of federal debt, but only in the context of the size of the US economy. Think about this in terms of individuals. For example, it’s probably OK for Mitt Romney to have $10,000 in credit card debt, but probably not OK for a family of 4 living on $50K per year, right? So it is with the US economy. Thus, what matters most is not the absolute level of debt, but debt as a percent of gross domestic product (GDP). More on this in a moment, but also important to acknowledge that percentage growth rates are much higher when the base is lower (simple math) so a smaller increase in actual debt will appear as a larger percent increase when the base is lower (as it was in the 1980s vs. today).

So, let’s look at debt to GDP ratios. When Reagan left office, having laid the ground work to win the Cold War (I mused as to whether my friend would have preferred we still be in that war),  Debt/GDP was 52.6%. When Clinton left office it was 57.7%. When Georege W. Bush left office it was 74.1%, which is why you’ll never hear me defend his domestic policies. He spent like a democrat - a drunken democrat. That said, he may have also laid the groundwork for a new order in the Middle East. The jury is out on that and a topic for another blog. But, wait, hold onto your hat. In 3 short years, Obama has taken debt/GDP to 100%. That’s right, for the first time since 1947, when we were engaged in WW II, the United States federal debt is equal to the size of the entire US economy and a much bigger economy it is now than it was in 1947.

Is there more? As Al Pacino said in Scent of a Woman, “I’m just gettin’ warmed up.” The amount of debt a president accumulates is, of course, also related to how long he’s in office. It took GWB 8 years to increase the debt by 115%. Obama’s 41% increase (I have no idea where the author of the chart above got 16%; the data source shows 41%) has happened in just 3 years. GWB’s average annual increase was 11.1%, Obama’s is 13.8%. Put more mathematically, the compound annual growth rate (CAGR) in debt under Bush was 8.3% and has been 12.2% under Obama. Let’s hope these numbers convince voters that it would be scary indeed to give Obama a 2nd term, but if he does win in 2012 and if he just keeps up his current pace of debt growth (12.2% p.a.), he will have increased the debt by 151% in 8 years, compared to just 115% for GWB. Suddenly the chart above starts to look very different. It looks like this.

Looks very different, huh?

While this would put Obama at the same order of magnitude in terms total debt growth as Reagan, Obama’s continued anemic GDP growth would put him a (very ugly) league of his own on debt/GDP growth. One of my friend’s FB friends responded (as so many liberals have in the last few years) with something to the effect of, “But, wait, Obama inherited a disastrous economy.” Yes, and I agree that every president is dealt a hand not of their own choosing. Reagan’s awful hand was dealt by Carter and his performance and numbers above are, at least in part, a reflection of that hand. Obama was also undoubtedly dealt a tough hand. That’s where the similarities end. Obama fashioned an approach to growing the economy based on huge government spending and stimulus. If it had worked, I probably wouldn’t be writing this blog and we wouldn’t even be having a discussion about the 2012 election.  If it had worked, strong GDP growth would have kept Obama’s debt/GDP ratio down. But, it didn’t work. It was a catastrophe and growth has been at a tectonic pace, unlike the very strong growth by Reagan’s third year in office.

Again, let’s look at the numbers.  GDP grew a pathetic 5% total (not per annum) in Obama’s first 3 years in office. GDP grew 23% in Reagan’s first three years in office. If you apply Reagan’s years 1-3 growth rate to the GDP Obama inherited (in other words, suppose Obama’s GDP growth had mirrored Reagan’s at this point in his first term), Obama’s Debt/GDP would be 85% today instead of 100%. Still higher than any president since WW II, but moving in the right direction. But, Obama increased the numerator in debt/GDP while doing very little to help the denominator. Reagan increased the numerator in his successful effort to win the Cold War, but also instituted policies that led to meteoric growth in the denominator.

The 2012 election should be a referendum on these differences.

In mathematics and engineering, it is often helpful in understanding a complex problem to understand a more simple, but analogous problem first, then translate to the more complex problem. I had an “aha” moment this morning with respect to a conversation/argument I have had one time too many with my liberal friends and family members. And, I came up with a very simple analogy that helped me understand the conundrum.

I have had hundreds, if not thousands, of debates with liberals over the years about a variety of complex topics. If we’re all honest at the end of these discussions, we would have to concede that we really don’t know the “true” answer to many of these questions. For example, the preponderance of data suggest that raising marginal income tax rates is a drag on macroeconomic growth and lowering them spurs growth. But, do we know for sure? No, there’s no way to be sure. But, there is one argument I’ve had over and over with liberals where the answer is just crystal clear. There simply is no debate. It is the question of whether the mainstream media (MSM) have a liberal bias. Of course they do. It’s not even close, but liberals have trouble seeing it.

One common retort from the lefties is that Fox News is completely biased to the right (duh) with a concession that perhaps MSNBC has a slight bias to the left, but all the others (CNN, CBS, ABC, NBC, New York Times, Washington Post, etc.) are just smack dab in the middle reporting the facts. As preposterous as that sounds, I’ve had many liberals try to make the argument. The question is why can’t they see this? Are they delusional? Are they lying? I don’t think either of those is the case. I finally came up with an analogy that helps me understand their blindness.

Suppose that sometime in your mid-teens (or whenever political views start to form) you had a purple contact lens surgically implanted in each eye. For the first few days after the surgery, the whole world would look purple to you. You would walk around telling your friends, “Hey, the world looks really purple to me.” But, over time, the world would cease to look purple. It would just look the way it looks. Your dad’s new white Chevy Impala would appear purple to you, but not in a way you would be aware of. After 20 years of looking at the world with your purple lens, you could no more articulate what “purple” looks like to you than a color blind person could tell you why red and green don’t look any different to them. They just look the way they’ve always looked. Furthermore, if someone handed you a pair of purple tinted glasses, the world would look exactly as you expected it to look.

But, suppose that at the age of 45, you go back for a follow up surgery and your purple lens is removed and replaced with a green lens. The minute you opened your eyes in the recovery room, things would look noticeably different. You’d say, “Wow, the whole world looks green.”

What’s my point? I don’t know. I’m watching playoff football and just felt like typing on my keyboard. No, I’m kidding. I really do have a point. The purple lens was your liberal lens. Since you’ve had it your whole life, you’re used to it. When you read the New York Times, it doesn’t come across liberal to you because it’s just another purple lens. It just comes across normal. When someone handed you the purple tinted glasses, they were handing you the New York Times or turning on CNN. Since you’ve always seen purple, everything looks exactly as you’d expect. But, then something happened. Fox News was born on October 7, 1996. It’s your green lens. As you look through it, suddenly things look very different and you can easily identify them as green. You can identify things as being green in a way you had lost the ability to do with things that are purple.

So, when the New York Times runs a story with the title “Romney Riches Are Being Seen as New Hurdle,” you think to yourself, “Well, that’s just important news. It’s true, right? He is wealthy and it is an issue for him?” You don’t even question the fact that perhaps it’s an issue in his presidential bid because the liberal media has made it one by writing about it non-stop. It doesn’t occur to you that a Nexis search would reveal no fewer than 150 stories so far in the NYT about Romney’s wealth, yet when John Edwards ran with John Kerry (another very rich presidential candidate whom the NYT seldom took to task for his wealth), there were a mere 8 stories during the entire campaign about his considerable wealth or his involvement with Fortress Capital, another private equity firm. No, all that is purple so you don’t see it. But, when Fox News does a story on the Solyndra scandal or Obama’s job killing veto of the Keystone XL pipeline, it looks very green to you and you notice it.

Of course, the reverse of this is not true. Conservatives, though we may look at the world through a green lens (I swear, I didn’t mean to match the conservative lens to the color of money), we have been exposed to nothing but purple news sources for most of our lives. So, we see them as such. I find that most conservatives also concede the green bias of Fox News, though not all.

So, to my liberal friends and family (and I have many and I love you all), take off the purple lens every now and then and you’ll realize that the news sources you love and want to believe are unbiased are every bit as biased to the left as Fox News is to the right. Every one of them. Don’t kid yourself into believing CNN or the NBC Nightly News is just reporting the facts. Don’t delude yourself into thinking the NYT is any less biased than Rush Limbaugh. They are reporting the facts – the purple facts. But, you’ll never see it with your purple lens.

OK, this has been a really odd week in the Republican primary. I’ve always thought Newt Gingrich was a bit of a slimeball, but I’ve also had tremendous respect for his intellect and command of conservative, free market economic principals. I would argue that no single politician since Ronald Reagan roamed the halls of the White House has done as much for the U.S. economy as the Newtster did in the mid-90s with his Contract with America. He pulled us back from the brink the last time we had an 0ff-the-rails liberal president and, in fact, forced that president back onto a centrist course that served Mr. Lewinsky well and helped re-elect him. By they way, Newt is also a brilliant writer of historical fiction. His fictional historical account of Washington’s crossing the Delaware, To Try Men’s Souls, remains one of my favorite books of all time.

But, he has totally lost me with his moronic attacks on the private equity industry. In full disclosure, I work in the private equity industry so it would be a fair to say that I am biased and maybe just a little hurt. But, I’m also informed. Newt should just know better. The private equity industry has fulfilled a hugely important role in American capitalism. I expect the idiot currently occupying the White House to attack Mitt Romney’s profession in the general election, most likely because, unlike Obama, Mr. Romney has, uh, had a profession prior to running for office. It’s also because liberals in this country have launched a major attack on democracy and capitalism in an attempt to take us to a form of European Socialism (note the debt downgrades in Europe today). Some of us think that’s a bad idea. Newt says he does. So, very odd that he would attack one of the bastions of capitalism. Shame on you, Newt. Shame.

I hope the folks over at the WSJ don’t mind, but I am going to reprint a great piece that Jonathan Macey wrote explaining the important role private equity places in a capitalist system. If you aren’t familiar with it, you should read it. Note that Mr. Macey is a professor at a very liberal institution – Yale University.

How Private Equity Works

I have heard from many of my readers (both of you, in fact) that it is excruciatingly painful for you when I go a few weeks without posting one of my bitingly insightful pieces, laced with sarcasm, witticisms, and the occasional rant. For this, you have my humble apologies. But, I have this little problem that I have not figured out how to (in venture capital speak) monetize my blog writing. In fact, to date, my total earnings from the blog are, let’s see, hold on, carry the one – OK, zero. So, sadly, I have to devote most of my time to the stuff that pays the bills. And driving kids to basketball practice.

The good news is I may have a compromise for you. Starting in 2012, I’m going to Tweet. For those of you over the age of 18 (which is pretty much all of you other than my daughter), that means I have an account on Twitter and will be sending out pithy little messages in 140 character bite sizes. Given my tendency to verbosity, this character limit seems daunting to say the least, but we’ll see what happens. Let’s consider it an experiment.

So, here’s what you have to do if you can’t make it through the day without hearing from me. If you don’t already have a Twitter account, go to the Twitter website and set one up. Then, search for me – my Twitter handle (oh, that was so 70’s CB radio) is bcrobertson4 – and sign up to “follow” me. Once you’ve opted to follow me, you can even opt to have my Tweets sent directly to your mobile phone by text message. That way, you won’t even have to wait until you’re back to your computer to see what’s on my mind.

Let me know what you think. Better yet, don’t.