American Philanthropy: Utah and the Giving Pledge

It’s tax time, and there are usually few things to be happy about.  One of the small things is the tax-deduction from charitable gifts.  For many of us, we get to enjoy the donations twice – once when we make the gift, and another time when we deduct it from our taxes. A bit selfish to say, but true.

So how generous are Americans overall?  For all of America’s great wealth disparity, and often times shocking poverty, America is also home to generous people.   According to the Chronicle of Philanthropy, Americans gave an estimated $200+ billion annually.

Who states gave the most?  One study looked at the IRS tax returns by zip code and analyzed which states gave the most $ to charity.  When you look at the average charitable  donation (as a % of house income) the state rankings look like this.

Charity as a Percentage of Total

Utah is the winner.  When you take a look at the same data by city, you see that 5 of the top 10 most generous cities (median $ contribution by household) were in Utah.

A cynic might say that monetary donations are not everything, but the states with the highest $ contributions tended to have the most people who contribute time as well.

How generous is your neighborhood?  Use this tool to dig down into the data and see how your state / city / country / town / zip compares.  You can sort the median contributions by income levels $50K-$99K, $100K-$199K, $200K+ if you want to.

How America Gives

The Giving Pledge.  Yes, the rich can be generous.  In 2010, Warren Buffett, and the Gates’ invited America’s wealthiest to give 50%+ of their wealth to charity before or at the time of their death.  Amazingly, 93 billionaires have signed the pledge so far.

The website states that the pledge is a “moral commitment to give, not a legal contract.”   They don’t track how much has been given, but they do ask all future-donors to write a letter explaining why they are taking the pledge.  A few inspiring excerpts:

BuffettWarren Buffett: More than 99% of my wealth will go to philanthropy during my lifetime or at death.  Measured by dollars, this commitment is large. In a comparative sense, though, many individuals give more to others every day.Millions of people who regularly contribute to churches, schools, and other organizations thereby relinquish the use of funds that would otherwise benefit their own families.  The dollars these people drop into a collection plate or give to United Way mean forgone movies, dinners out, or other personal pleasures.  In contrast, my family and I will give up nothing we need or want by fulfilling this 99% pledge.

Bloomberg

Michael Bloomberg: One of the senior managers at my company, Bloomberg LP, recently told me that part of his new hires recruiting pitch is to ask, “What other company can you work for where the owner gives nearly all the profits to charity?”  Nothing has ever made me prouder of my company than that one story.

Peter Petersen

Peter G. Petersen:  My parents were Greek immigrants who came to America at age 17, with 3rd grade educations, not a word of English and hardly a penny in their pockets.   Their dream was the American dream, not just for themselves but for their children as well.   My father took a job no one else would take – - washing dishes in a steamy caboose on the Union Pacific railroad.   He ate and slept there and saved virtually every penny he made.  He took those savings and started the inevitable Greek restaurant, open 24 hours a day for 365 days a year for 25 years.

Throughout this period, he always sent money to his desperately poor family in Greece and fed countless numbers of hungry poor who came knocking on the back door of his restaurant.   Above all else, he wanted to save so as to invest in his children’s education.  When I enjoyed a most surprising billion dollar plus windfall from the public offering of The Blackstone Group, a firm co-founded, I pondered, what should I do with all of this money?

Bill and Joyce Cummings

Bill and Joyce Cummins: After about 15 successful years in commercial real estate, we came to recognize and believe that no one can truly “own” anything.  Particularly, as regards real estate, how can we possibly think of ourselves as actually owning land?  How can we ever be more than caretakers of the land, which lies beneath whatever we might develop on a property?  With that in mind, it was easy to start giving things away.KaiserGeorge Kaiser: I suppose I arrived at my charitable commitment largely through guilt.  I recognized early on, that my good fortune was not due to superior personal character or initiative so much as it was to dumb luck.  I was blessed to be born in an advanced society with caring parents.  So, I had the advantage of both genetics (winning the “ovarian lottery”) and upbringing.   As I looked around at those who did not have these advantages, it became clear to me that I had a moral obligation to direct my resources to help right that balance.

How Americans spend time, when there is no Superbowl

Superbowl Sunday.  For many in the US, there are only 2 parts of the day.  Getting ready for the Superbowl, then watching it.  Interestingly, most people don’t care who wins, and a large number of people are just watching for the ads.  (66% female and 47% males say they will tune in for the commercials as much as for the game itself).

If you want to see all the Superbowl ads, click here.

So how do Americans spend their time?  The Bureau of Labor Statistics conducts a time-use survey every year.  It is pretty dry reading.  Thankfully, the Economist put together this summary graph that shows how the average American spends their day.

How Americans Spend TimeA few takeaways:

People work at home: “21% of employed persons did some or all of their work at home”

Men still don’t do housework: “On an average day, 19% of men did housework–such as cleaning or doing laundry–compared with 48% of women.”

Men cook: “40% of men did food preparation or cleanup, compared with 66% of women.”

Lots of eldercare:  “Eldercare providers are those who provided unpaid care to someone over the age of 65 who needed help because of a condition related to aging”

  • 39.8 million eldercare providers in the civilian non-institutional population
  • 42% of eldercare providers cared for a parent.
  • 23% of eldercare providers were parents of 1 or more children under age 18
  • On days they provided eldercare, persons spent an average of 3.1 hours

US gun violence: not a simple solution

Death by FirearmsUS gun violence is a problem.   Approximately 12,000 Americans are murdered each year with a firearm. This per capita homicide rate is 4x that of England and 6x that of Germany.

In the 14 days after the sad day in Newton, CT, there have been 242 reported fire arm homicides in the US.

All Americans can probably agree that too many people are dying.

It’s a complex problem.   Gun violence in the US has many root causes.  We Americans get a bit excited when we talk about guns, gun control, and violence.  Unfortunately, the discussion is often scattered. Too-quick to place blame, and too-quick to offer solutions.  Often times, the conversation looks something like this word soup.

Gun Violence Word CloudUnstructured conversation is just brain storming.  When the conversation is this unstructured, it is difficult to make heads or tails.  Some ideas seem good, but upon reflection you aren’t sure.  The same type of confusion happens in companies all the time.  Lots of good ideas are circulated, but they are often unstructured, and inadequately thought through.  As a result, a lot of good ideas are actually ignored.

Break the problem down.  Consultants like to “bucket” problems into root causes or at least categories.  While there are probably dozens of institutional factors, at a high-level it looks like there are 3 major ones that deserve consideration:

  • People: How responsible are the people who buy or obtain guns?
  • Weapon: How dangerous are the weapons available to the public?
  • Use: What is legal use, and how to prevent people from using them illegally?

Gun Violence - People Weapon UsePeople: Every responsible person should have the privilege of owning a rifle to hunt / skeet, or a handgun to protect themselves.

Challenge #1:  Not everyone is as responsible, trained, mature, or thoughtful as you.  As George Carlin not-so-delicately put it, “Just think of how stupid the average person is, and then realize half of them are even stupider!”

Weapon: There is a lot of talk about the type of guns, bullets, and magazines that are available to the public. In my mind, it comes down to what is civilian-use and military-use.  The public has to decide that.

UseThe public needs to decide what is legal and what is not.

Challenge #2:  There is a law that says people should have a background check prior to buying a gun.  That makes common sense, but about 40% of guns are not purchased through licensed gun dealers.  Apparently, there is a gun show loop-hole that allows for sale of guns between private parties without a background check in most states.

Challenge #3: The US approach to gun control affects other countries.  In a recent study, approximately a large number of the guns confiscated by the Mexican authorities that are used for criminal activity can be traced by the United States.

Excellent note from commenter:  1) the 87% number was for weapons submitted by the Mexican government that can be traced 2) a large number of guns were legally sold to the Mexican military, that then fell into the arsenal of criminals.

With approximately 60,000 deaths due to the drug war Mexico over the last 6 years, it is a sad moment for all Americans and Mexicans.

America is different.  We are not the UK.  The British decided to essentially ban private ownership of handguns in 1997.  That will not happen in the US.  There are 300 million fire arms currently in the United States and the demand for guns continues to grow.

Similar situation in China.  None dead.  To me, the biggest reality check was that a similar attack of school children happened in China on the exact same day - December 14.  A mentally ill man stormed into a school and attacked children.  He did not have a gun.  He had a knife.   Many children were hurt, some critically, but none died.

There are studies that show a correlation between the number of guns and murders. It is correlation, not causality – but intuitively it makes some sense because we are all human.  Emotions get the better of us.  Words turn into punches.  Punches turn into knives and guns. As George Carlin aptly described us 20 years ago, we can all be a little bit stupid.

800 US Mayors.  There is a coalition of US mayors that are asking for the US President and Congress to come up with a plan.  One of the most vocal proponents is Michael Bloomberg – who always struck me as a no-nonsense leader of NYC.  Lots of Hollywood stars lend their voice to this promotional video.  If you want to see how divided the country is on this topic, take a look at the number of up / down votes the video has.

Gun Violence - Demand a Plan

Post-script: Harvard Business Review article on creating a $100 billion gun safety industry

What is the fiscal cliff? Painful, but a much-needed financial diet

Fiscal Cliff - Wile E CoyoteWhat is the fiscal cliff?  This term has become a popular way to describe the abrupt changes expected in the beginning of 2013 due to the expiration of Bush-era tax cuts, and the mandatory cut of several areas of government spending.  The NY Times does a great job explaining it here.

The US has been a deficit spender for the last 200 years.  Lots of drama right now about the fiscal cliff, but oddly, debt is not a new story for the US.  The graph below from the US GAO shows that the federal debt spiked during WWII, and has been in a range between 30-60% of GDP for the last fifty years.  Sad, but true.Fiscal Cliff - US Federal Debt Trend - Graph

Leverage can be good . . . As you learn in finance, debt can be a good  (and often cheap) way to fund growth.  It is all about what the money is used for.  If you are getting a good return on investment – productivity or growth – good for you.

. . . or it can be very bad.  Debt becomes a monster when you start getting a lower (or even negative) return on your money. That is what happened to the global economy over the last few years as growth slowed and everyone just kept borrowing.

The fiscal cliff is a symptom, not the root cause. David Wessel, Wall Street Journal economics editor, explains the main factors of the US budget in this short video.  He makes this consultant proud by boiling it down to 5 main points:

  1. Fiscal Cliff - 63% of spending on autopilotMost spending (63%) is on auto-pilot.  The majority of the spending is for promises that were already made in the past (Social Security, Medicare, Medicaid, Subsidies, Interest on the debt).  Congress debates the remaining 37%
  2. 1 out of every 4 dollars goes to healthcare spending.  Costs continue to rise
  3. The US government employs 4 million people, but wages only make up $435 billion, even if you fired everyone, it would only reduce the deficit by 1/3
  4. 1 out of every 4 dollars goes to defense ($700 billion in 2011).  This is more than the defense budgets of the next 17 countries together
  5. The US borrows 36cents for every dollar we spend, much of it from overseas

Fiscal Cliff - Defense 700 billion

Debt reduction is good.  Actually, I am a huge fan of the US government becoming more solvent, improving its credit rating, and generally spending less than it makes.  If you and I can be frugal, then so can our government. The only concern is that it is too much belt-tightening during a fragile part of the recovery.  It’s as if we know we need to go on a financial diet, we just don’t want to start now.

US debt clock.  If you really want to scare yourself, look at this real-time clock here that counts different types of federal and state debt.  It makes the fiscal cliff look small.

US Debt Clock - Fiscal Cliff

Source: Wile-E-Coyote cartoon, AJC blog

Post-script: Aptly titled HBR blog The Fiscal Cliff is Just a Long-Overdue Hangover

How big is US foreign aid?

US government foreign aid was one of the topics of the recent US Presidential debate.  Through all the politics and chatter, it always helps to go back to the facts.

The US government publishes something called the Greenbook (245 page pdf) which shows where all the US foreign aid goes, but you can get the same information on the website in a more useful and friendly way.

1. The US government gave out $38B in economic aid in 2010.  This represents about 1% of the US national budget.  There was $15B in military assistance, but will ignore that for now.

2. US foreign aid has been going up for the last 10 years.  Shown in the graph, aid was relatively flat at $15-20B (based on inflation adjusted 2010 dollars) between 1965-2000.  The current level of $38B is where it was in 1953 time frame.  For a good discussion on the trends of US foreign aid, look here.

US Foreign Aid Trends 1946-2010 - Graph3. Foreign aid goes to approximately 180 countries.  Looking at this infographic created by the State Department and USAID, it is clear that US foreign aid gets scatter to almost every country in Africa, Eastern Europe, Latin America and Asia.  If you want to drill-down and see what the money is used for, you can download the data here.

Foreign Assistance by Country - Map4. On the surface, it looks like the aid is somewhat evenly distributed.  Without doing a “foreign aid per capita calculation”, Africa and Asia appear to get about 1/4 of the total spend.  Latin American and Eastern Europe share less than 20% of the aid.   The Middle East trails with 9% of spend.  The non-region specific aid probably includes some SG&A overhead costs and generic assistance.

2010 US Aid by Region - Graph5, The Middle East number (9%) is understated since Afghanistan (#1 recipient) and Pakistan (#2 recipient) are counted in Asia.  Also, Egypt (#5 recipient) is counted in Africa.  Israel receives no economic aid, but instead receives $2.8B in military assistance.

Top 10 recipients of US aid - Graph

6. US foreign aid comes in many different forms.  We build schools, provide drug therapies, dig wells, and even ensure fair elections.   In the table below, you can see that US aid comes in 8 high-level buckets, with peace / security and health being the top two.

US Aid by Category - Table7. Each category can then be broken down into finer parts.  For example, the US spent $9B globally on health-related aid.  The majority of this is spent on HIV/AIDS, compared to Malaria which only gets 1/10th of the funding.

Health Related Foreign Aid - Table

8. Poverty is everywhere  In this chart below, you can see that in rural India or Pakistan, more than 70% of the people live on less than 2 dollars per day. The Economist points out here that 1 bad harvest can completely wipe these people out.

Poverty Graph

9. The US is generous in its aid, but inconsistent.  One of the key elements of building trust is consistency.  So, when I downloaded the foreign aid data on a few of our key frenemies (friend + enemy), I can see why they are a bit confused on whether the US is a friend or a foe. Download the entire data set (all countries, all economic aid, 1946-2010).

10. The US gave $4.6B in economic aid to Afghanistan in 2010.  This is more than we gave the country for 56 years from 1946-2002.  Understandably, a lot of this has history mixed up with the cold war, but it is not surprising that they might feel America is trying to force a “all-of-a-sudden” type relationship.

Foreign Aid to Afghanistan - Graph11. The US gave $1.9B in economic aid to Pakistan in 2010.  As you can see in the graph below, it looks like a yo-yo.  It went from a high in the early 1960s, then dropped 90% to almost nothing in the early 1990s.  Looks like a U shape and a U-turn in policy.

Foreign Aid to Pakistan Graph12. The US gave $1B in economic aid to Iraq in 2010.  This is a lot of money – more than most countries receive from the US in aid – but it is only 1/8 of what Iraq received 2005.  Digging deeper, it looks lie 2/3 of the “economic aid” was actually the Department of Defense helping out with “security assistance”.  Does not sound very economic to me.

Foreign Aid to Iraq Graph13. Mexico received about $622M in aid in 2010.  We all too often forget our neighbor.  US aid increased dramatically to Mexico, but in the form of more funding for narcotics control.  If you read the news, the drug / gang violence in Mexico is at an all-time high.

Foreign Aid to Mexico Graph

14. US governmental aid is just a part of the equation.  A reader wisely pointed out that the US government makes up just a small portion of the larger US overseas philanthropy. Completely agree.  Don’t have to look any further than the Bill & Melinda Gates Foundation, Kiva.org, or a local church to see that Americans are eager to assist and invest in the developing world.  Thanks for pointing that out.

15. US private capital flows were $161B in 2010.  That is more than 4x more than what the US government sends overseas for development assistance.  Look at this report from the Hudson Institute that shows how the contributors to overseas philanthropy are changing.

Remittances - Foreign Aid

Obesity: A consultant wonders. . . Why Is America So Fat?

Americans are fat . . .  Currently 2/3 of the US population is overweight or obese.  We generally eat too much, eat the wrong things, and don’t exercise.  You know things are bad when the US Coast guard reduced the number of passengers allowed on boats because the “Average American” is 9% heavier than the last time they measured.

I don’t feel fat and yet I was surprised to find that my body mass index (BMI) puts me in the borderline overweight category.  My BMI was 24 (24-30 is overweight, and <30 is obese).   It can be a dose of reality, so check your BMI on the Mayo Clinic calculator.

. .  .and getting fatter.  Currently, Colorado (COL is in the middle of the country) is the only state where the number of obese people is under 20%.  Sad.  But in 1995, that percentage would have made Colorado the worst in the nation.  Basically, our slimmest state (COL) would have been the fattest in 1995.  Read more here.

Obesity by State

The states with the largest % of obese citizens are Louisiana (LA), Mississippi (MISS) and the surrounding states.  Perhaps it is the prevalence of fried foods and the love of butter.  Yes, fried chicken is delicious, but more than likely the root cause is poverty.

Sad to say, but poor people eat poorly.  When you are wealthy, you have more leisure time to exercise, more discretionary money (some joke that “Whole Foods”  should be called “Whole Paycheck”), and access to good groceries.  It is an odd problem.  In so many places, it is easier to buy french fries than fruit or vegetables.

The USDA defines places where it is difficult to reach a supermarket or large grocery store (1 mile in the city, 10 miles in rural areas) as Nutrition Deserts.   On the map below, the areas shown in pink are places where people have a tough time finding decent food.  Instead, they are more likely to eat fast food, canned food, and things filled with stupid calories and fillers – sugar, corn syrup, nitrates and other non-nutritional oddities.

Obesity Food Deserts

Obesity kills.  Obesity creates all sorts of health problems such as diabetes, high blood pressure, high cholesterol, liver disease, sleep apnea, and joint pain.  Apparently, the number of Americans diagnosed with diabetes tripled to 21M over the last 25 years. (Weight of the Nation documentary on HBO).  Perhaps it is best summed up in this animated 3 minute video by Alex Bogusky (advertising super-star) and Jason Mraz musician about the dangers of drinking too many sugary soda drinks.

Obesity - Anti Soda

Obesity is expensive.  According to a CDC report, “In 2008, the annual medical costs associated with obesity were estimated at $147 billion.”  Even that seems like a low estimate because a separate report from the Institute of Medicine puts the obesity-related healthcare costs at $550 billion a year by 2030.

In addition to that, the obese workforce costs American businesses an estimated $73B per year.  So, it is no wonder that companies have wellness programs that try to encourage employees to lose weight, stop smoking etc.  In this story, one IBM employee lost 16 pounds and was given $1,800 in return.

So what should we do to solve the obesity problem?  As a consultant, I often think through problems tops-down and try to group the root causes (and the potential solutions) into a few buckets.  After a bit reading on the topic of obesity, it looked like this:

  1. We consume too many calories and often the wrong type of calories (e.g., sugar, processed foods with little nutritional value)
  2. We don’t exercise enough.  No argument there either.

Root Cause of ObesityGRAY BOXES: The real surprising takeaway was that A LOT of the problem has to do with a lack of education and the will power to fix it.  As a society, we need to get smart on the topic, and encourage each other and our kids to live healthier lives.

YELLOW BOXES: There are certainly things that governments, schools, civic organizations can help solve.  They can provide better alternatives (healthier foods in schools, fewer nutritional deserts) and better access (exercise in public schools, bike and walking paths).  That said, the majority of the “fix” is in the gray boxes.

Kids don’t know food. Chef Jamie Oliver has a condemning TED talk about how kids are learning the wrong things about food in schools.  The food at public schools (31M meals served daily) are full of processed, canned and frozen foods.  That is what they see in schools and at home.  They aren’t learning life skills.  Sadly, they don’t even know what common vegetables look like.  In the picture below, the boy thinks this is a potato.

Obesity - Lack of Food Education

The Biggest Loser – a competitive dieting show – has been hugely popular over the last 10 years.  It gives an honest look at how hard it is to lose weight and keep it off. It is a physical and mental battle.  Now, they have teenage contestants.

We don’t walk enough.  We drive everywhere. Unless you live in a very walkable city like New York, you probably drive 1-2 hours per day.  There are so many structural reasons for this – urban planning,  public transportation, tax policies, gasoline prices – but the net result is a lot of driving, and not a lot of healthy walking.  You can see how your city scores on its “walkability” on www.walkscore.com.   My city scored a miserable 31 out of 100 points.

We live sedentary lives.  Lots of TV, video games, computer time.  Too much blogging? Perhaps we just need to play more outside. The Let’s Move campaign thinks so.

We need to trick ourselves to eat less.  Cornell University has a famous Food and Brand Lab where they study eating habits.  They are the guys who came up with the 100 calorie snack packs etc.  They discuss Delboeuf’s Illusion where the same amount of food looks like more food when the plate is smaller.   Looking at the picture below, the black circles are the same size, but the one on the left probably looks smaller.

Delboeuf's IllusionThe smart researchers in Ithaca have also discovered that strong contrasts in color makes food look bigger.  So, white pasta on a red plate looks like a lot of food.  Conversely, white pasta on a white plate looks small.

Obesity - Super Size MeWe are slowly realizing the epidemic.  The US surgeon general called obesity an epidemic.  Pretty serious talk.  For me, the general consciousness around bad eating habits started about 10 years ago with the publishing of the Fast Food Nation, and the movie Super Size Me about a guy who only eats McDonalds for 30 days.  It is free to watch on Hulu and worth your time.  It is both funny and shocking.  It’s no surprise that he gained 24 pounds during the experiment and got pretty sick.

Since then McDonalds has taken a lot of positive steps – they sell water, salad, chicken wraps, publicly post calorie counts.  They even cut the sodium in all their menu ideas by 11%.  One newspaper article coined it as stealth health.

Is obesity something the government should do something about?  Libertarians will argue that people should be able to choose for themselves.  If they want to eat bad food, not take care of their bodies, and get obese, that is their business.  Others would argue that people are not always so rationale, and that there are structural traps – poverty, nutrition deserts, sugar industry subsidies etc – that make it too easy to become obese in the US.   If you want to hear some experts argue this topic out, listen to this debate on the topic: Is Obesity the government’s business? here.

Obesity - Cartoon

Post script: Special report from the Economist on Obesity here.   As usual, great work.

Where America leads: #1 in military spending and #1 in arms exports

America has been the predominant military power for the last fifty years.  With the break up of the USSR in the late1980s, the US stands alone in its military spending.  Americans of my Gen-X generation, are now asking the question, “Should America Serve as the World’s Policeman?” and more cynically, “Can We Afford It?”

Clearly, the world is still a violent and messy place.  It is still a realpolitik world where geopolitical power is sadly demonstrated (as Mao so in-eloquently stated ) “from the barrel of a gun”.  There are too many failed economies, unconscionable despots, and tribal conflicts to leave people to their devices.  Unfortunately, we are a far cry from the world envisioned by Woodrow Wilson.  In many ways, the UN plays only a supporting role.

The United States has the highest military expenditures.  The US spends ~ 4.8% of GDP or $700 billion on the military annually.  To put that in perspective:

  • Since there are about 315 million Americans currently, this equates to each of us paying about $2,300 annually in military spending
  • Since there are about 7 billion people in the world, this means Americans pay about $100 annually in military expenditure for each global citizen
  • In the graph from the Economist, you can see that the US military spend is the same as the next 17 countries combined

Military Spenders GraphUnsurprisingly, China has the most soldiers. China has almost 2.3 million soldiers, which is 10x more than the Japanese.  In terms of Naval power (shown in the dark blue bars), the US, China and Russia are the only real contenders.  China recently acquired and retrofitted an aircraft carrier, but the NY Times notes here that it is only for training purposes and actually has no planes that can land on the vessel.  North Korea is also an outlier (as it often is) because it has 49 military personnel for every 1,000 people.  So sad.

Military by Country  Graph

Military Industrial Complex.  President Eisenhower saw it coming 50 years ago.  He warned that a Military Industrial Complex would create an environment where the government, armed forces, and private companies share a mutual interest in maintaining a permanent military infrastructure.  Eisenhower said in his 1961 farewell address:

“We must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex.  The potential for the disastrous rise of misplaced power exists, and will persist.   We must never let the weight of this combination endanger our liberties or democratic processes.  We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals so that security and liberty may prosper together.”

Global arms trade is big business.  According to the Stockholm International Peace Research Institute (SIPRI), arms exports have been approximately $20-30 billion annually for the last twenty years, as shown in the graph below.   It hit a low in the 2002-2003 time frame, and now it is at a high.  SIPRI has a lot of country-level data here for download.

Arms Exports Graph

The US and Russia (ex Cold War players) are exporting the most.   Seems like the military industrial complex in both countries still have a lot of arms to sell to the rest of the world.  The US sells a lot to South Korea and Australia, while Russia sells a lot to India and China.  Interestingly, the Greeks buy a lot of arms from the Germans and the French.

Arms Exporters GraphSo, what should role of America’s military be?   In a fascinating debate on the topic of “America Should be the World’s Policeman”, six experts discussed the pros / cons of an activist US foreign policy here.  Some might consider this a politically-charged topic, and it is.  It deserves discussion.  The safety of 1.5+ million American military personnel and $700 billion in annual US military spending hinge on the outcome of the national debate.

PS: Economist article on when China may outspend the US in military spending here.

Consultant’s View on Romney’s Comment: 47% of Americans Don’t Pay Income Tax

Taxes are a universal complaint regardless of where you live.  It is the stuff of bar conversations, news reports and Presidential debates.  It is mentioned in the bible and let’s not forget that one of the twelve disciples was a tax collector (Matthew).

Is it true 47% of Americans don’t pay income taxes?  After Mitt Romney’s comment that almost half of Americans do not pay income tax, the Economist published this helpful table to give some context.  Of the 47% of Americans who do not pay income tax. . .

  • 28% of them do pay payroll taxes (even if they don’t pay income taxes)
  • 10% are elderly
  • 7% have income of less than $20K
  • The % of Americans not paying income taxes has increased from 15% in 1985 to almost 50% currently during by Democratic and Republic administrations

47% Not Paying Income Tax

Are US taxes high compared to other countries?  As an American who recently filed his taxes (yes, I got the extension to August), I don’t like paying taxes; Don’t feel like I am getting my money’s worth – but that is a different discussion.

Looking at this Economist comparison of the effective tax rates paid by people earning the equivalent of $100K annually in different countries, the US has one of the lowest rates. . .

  • Belgium, Greece, Germany, and France have the highest effective tax rates
  • India and Brazil (both developing countries) also have high rates
  • Of the 16 countries shown, only Russia and the UAE had lower rates

Global Tax Rates

Are the wealthy in the US paying their fair share?  In his Wall Street Journal article, David Wessels provided a lot of the data for readers to make up their own mind.  In an interview, he noted that “fair share” is a completely subjective assessment.  After looking at these four charts, what do you think? .

  • #1: The top 5% have increased their share of wealth, but also increased the amount of taxes they pay.  They earn 25% of the wealth, and pay 40% of the federal taxes
  • #2: The bottom 40% earn a smaller portion of the pie, but also pay dramatically less (%) in federal taxes.  Almost nothing
  • #3: Most Americans pay less in fed taxes than they did in the early 80s (Regan era)
  • #4: Inequality (rich getting richer, poor getting poorer) is rising, but government benefits and taxes are dampening those effects.  Somewhat progressive.

Who Pays TaxesDoes everyone hate the rich? As a bit of a libertarian at heart, I believe that those who add value in the market place deserve their success and wealth.  All Americans deserve equality in opportunity (education, legal protection, access to capital), but what you do with those blessings is completely up to you.  People should be given the same inputs, not guaranteed the same outputs.

  • From this survey, the Australians, Canadians, US and the Chinese seem to agree with me.  The rich deserve their wealth
  • Greeks, Russians, and Turks are most skeptical of the rich

Public opinion on the rich

With so many governments in debt and the increase in the numbers of pensioners, the notion of raising taxes is just as unpopular in the the UK, France, Greece or Germany. More than half of the readers of this blog are not from the US.  Please leave your comments.  Do these opinion poll results about the “rich” match your feelings?

Problem with US elections: winner-takes-all electoral system

In the US, it is a Presidential election year.  Which means we will see lots of TV ads and general non-sense in the news until November.  In the graph , you can see that political TV spend is about $2 billion a year (even during the 2010 mid-term Congressional elections).

TV Political Ad Spending 2008Don’t get me wrong.  The US is a robust democracy with a craftily designed system of government checks and balances.  The 4,600 word US Constitution has worked well over the last 200 years, but let’s also admit there are structural problems with US politics too.

Big problem #1:  The “winner-takes-all” electoral system: As background for the non-Americans, the US has an indirect Presidential election system where each state has a number of electoral votes.  As you can see in the map below, Texas has 38 votes and Florida has 29. The less populated states (e.g., DE or WY) have 3 electoral votes because the framers of the Constitution wanted even small states to have more political sway.  Another good explanation with an Economist video here.

Electoral Votes by State mapWhat I am not okay with is the silly winner-takes-all system that most states use. (Maine & Nebraska are exceptions).  Basically, whichever candidate wins the majority of the popular vote, gets all the electoral college votes.  It is like binary outcome: 1 or 0.  So, there is a huge payday if you win 51%+ of the vote, and no benefit if you don’t.

Sadly, for half of Americans, your vote is a waste of time: The winner-takes-all system skews the results and also makes the voting minority of each state under-represented.  Look at a sample of the electoral votes in 2008 by states.  All or nothing.

Electoral Votes 2008If you are Democrat in Alabama (a largely Republican state) you are out of luck.  Same goes for the other side – if you a Republican in California (a largely Democratic state) you lose.  Essentially your vote is a waste of time because the minority vote is wiped out.

As you can see in this table, McCain received all 9 electoral votes from Alabama in 2008.  As you might imagine, that is not because he got 100% of the vote.  No, he only got 61%. 813K people voted for Obama.

Only the swing states get attention: As a result, candidates don’t pay attention to states where they expect to either win or lose by a large margin.  Without some reform, Presidential candidates will only care about swing state voters and their interests. Also, third-party candidates have zero chance of winning a Presidential election.  See an informative, but seriously swing state-focused analysis of the election here.

It has turned into an electoral vote counting game: Candidates win campaigns by tweaking their message to pander to specific groups in the swing states instead of taking leadership positions that appeal to the large body of Americans who are really centrist.  Unfortunately, it has become a game of fine-tuning cynical political ads and messaging to independent voters.  There are even electoral college models here for scenario analysis.

President McCain, President Kerry and President Gore?  In this fascinating website, Mike Sheppard shows how a small number of votes (about 1%) could have changed the Presidential outcomes in previous elections:

What if Scenario of Elections

Probably time for a change: It is no surprise that there than been ~ 700 proposals to Congress to reform or abolish the electoral college. The American Bar Association calls the electoral college system “archaic” and “ambiguous”. In a Gallup poll in 2011, 62% of Americans said they would favor a Constitutional amendment to move to a popular vote system.

Interestingly, college students have a choice: College students are allowed to vote in their home states (where their parents live), or in the state of their university.  So students should register and vote in the state where they get more voting “bang for the buck”.  The www.countmore.org website makes that easy to decide.

Count More Where to Vote?

Source: Creative commons links

Olympic Medals Measured by Population, By Productivity, By GDP

As a consultant, it always seemed odd that news reporters routinely compare the medal count between the USA and China – after all, the USA has 530 athletes compared to China’s 380.  Seems like the total number of medals is only one of many potential metrics.  For example, productivity (i.e., # of athletes needed to win a medal) would be a metric that levels the playing field among countries of different sizes.  Thinking along those lines, I smashed together data of the last 40 years and came up with this:

If you’re from Iceland, there is a good chance you are an Olympic Athlete. . .

Most selective Olympic team

In 2010, there were 319K people in Iceland and yet they sent 27 people to London for the Olympics.  Simple math tells us that they sent 1 athlete for every 11K people.  In fact, it is really easy to be an Icelandic Olympic athlete compared to the Bangladeshi.

I took the country’s 2010 population here and divided it by the number of athletes that each country sent to the London Olympics.   You can see that China sent 1 athlete to the Olympics for every 3.5M citizens.  The US sends 1 athlete for every 580K citizens.  It is easier to go to the Olympics as an American than a Chinese – less selective.

Olympics by Population 1972-2008If you are from Bangladesh, your chances of going to the Olympics as an athlete are slim.  Only 1 in 30 million Bangladeshi go to compete in the Olympics.  As a thought-experiment, if all the teams sent 1 athlete for every 30M people . . .

  • The US Olympic team would only send 10 people (not 580)
  • The total Olympics would only be 233 Athletes (not the 10,700+ it currently is)
  • Only 40 countries (over 30M population) would be competing

The most productive Olympic athletes are from . . . . Panama

Athlete productivity

Why does data surprise us?  Looking at all the medals won in 2008, and then dividing it by the number of athletes sent to Beijing by country, Panama wins the prize for the most productive athletes.   Panama will win 1 medal (over average) for every 3 athletes they send to the Olympics.  It is correlation, not causality – but it is still impressive.

Olympics Medals

  • South Africa won 1 medal in 2008 with 136 athletes
  • Burkina Faso also won 1 medal in 2008, with only 6 athletes

Of all the medals that China wins, more than 50% are gold

Gold as a percentage of medals

In a previous post, I discovered that only 32% of medals are gold (more than 36% are bronze).  When analyzing the medals over the last 40 years, the Chinese have stood out as a strong bunch.  51% of their medals are gold vs. 32% of US medals being gold.

Olympic Gold %

In terms of the GDP per athlete, the Indonesia was the highest

GDP per Athlete flag

Looking at the country-based GDP numbers here, Indonesia has $32B in GDP (2010) for every athlete sent to London 2012.  By comparison, every Tuvalu athlete symbolizes only $10M in GDP output.  Likewise, the US Olympic athlete symbolizes $27B in output compared to $4B represented by the British athlete.

GDP per Athlete

China keeps winning. . .

Looking at the current medal leaders in London, you can see that the United States (in white) has been consistently winning ~ 100 medals every summer Olympics except in the 1980 Olympics where there was a boycott.   The British  (in blue) have done well since 2000, but the Chinese are the stand outs.  They had no Olympic team in 1980, yet they had 100 medals in 2008.

Summer Olympic Medals US China UK

I am a patriotic American.  Huge believer in US constitution, freedom of speech, Chik-Fil-A sandwiches, our top-shelf graduate education system, Pixar movies, micro-brews, Teddy Roosevelt, National parks and NPR.  (Yes, I do wish the Economist was a US paper).  Love watching the women’s soccer (not football) team beat the Japanese, and the women’s volleyball finals US vs. US.  Michael Phelps is impressive too.

That said, we also need to give credit where credit is due.  The Chinese have been rocking the Olympics.  A balanced scored card of the Olympics might look like this.

Scorecard US China UK

China won 100 medals in 2008 summer Olympics which was a 59% increase over 2004.  Each Chinese athlete has a 1 in 3.5 million chance of making the team, but when they get to the Olympics ~ it takes 6.4 athletes to win a medal, and 51% of the time it is gold.

The Olympics are awesome to watch and one of the most democratic sporting events, if you are willing to measure medal counts a little bit differently.  Enjoy the games.  Go USA.

Note: The Huffington Post has also done an excellent job with this line of thinking – alternate ways to count medals.  Look here.