Learning from Italy

The wise avoid problems by learning from the mistakes of others.  I pick Italy as the teaching point, although it could be Greece or any of several other counties.  Italy is on the verge of bankruptcy; their country is going out of business, so to speak.  Our country is facing a similar problem, but we are not as deeply in trouble as some of those in Europe.

When we look at Italy we find from one article that it “has financed years of lavish social benefits by borrowing and borrowing.”  From another we learn “that 93 percent of Italians consider cutting the country's huge public debt a top priority but few are willing to make personal sacrifices to do so.”  (Isn’t it refreshing that magic-money-tree thinking is not confined to the US?)  It may be easy to scoff and say that they dug themselves into this hole and are now unwilling to pitch in to dig themselves out, but I’m sure most of them were unaware of the development of the problem or didn’t see it as serious.  They enjoyed their social benefits, which soon became expectations, and that only now, in hindsight are described by outsiders as lavish.  They felt that they had earned, worked for or fought for those perks.

Later in the second article it states that although “there is some hopefulness about the future of the economy -- 55 percent anticipate a better situation five years from now -- the longer-term picture is gloomier: Only 35 percent of Italians think children born today will be better off 20 years from now, while 43 percent anticipate a harder life for the next generation.”  This should not be surprising.  As disinterested observers we can easily see that the lifestyle they were enjoying was not, after all, worked for or fought for or earned.  It was borrowed, supported by debt that their children must someday repay.

Perspective and Economic Understanding are crucial to our success.  America is not yet in the position of Italy, but every day we are moving closer, borrowing from our children to support our lifestyle that we have become so accustomed to that few would be willing to describe it as lavish.  Nonetheless, if lavish means you couldn’t really afford it in the first place, that’s exactly what it is.  When the time comes for all to sacrifice, I hope we are wise enough to learn from Italy and others, and to understand that the pain will be less if we begin sooner.

Yet Another Chocolate Study

Isn’t it great to find out that something you love is also good for you!  That’s probably why so many scientists study the health effects of chocolate.  It guarantees publicity.  Look at a few of the many studies that made the news.

I found this information on WebMD.  It cites a study from University of Cologne, Germany published in The Journal of the American Medical Association in August 2003.  They found that dark chocolate lowers high blood pressure.

In the same month Italy's National Institute for Food and Nutrition Research in Rome in another study praised dark chocolate as being “a potent antioxidant” with potential benefits against heart disease and other ailments associated with free radicals in the body.  Both recommended eating chocolate only in moderation.

In 2012 the headline on the Women’s Health Magazine website read:  “Chocolate isn't junk food anymore! Here, the health perks of your new favorite superfood.”  They went to describe healthy chocolate, that is dark with 70% cacao, as a “disease-killing bullet...packed with healthy chemicals like flavonoids and theobromine.” 

Here are the benefits they listed and the source:

• Heart healthy – a 9-year Swedish study
• Weight loss – the University of Copenhagen
• Happier Babies (if enjoyed during pregnancy) – a Finnish study
• Diabetes Prevention – University of L'Aquila in Italy
• Reduced Stress – from Swiss scientists
• Sun Protection – from London researchers
• Higher Intelligence – from the University of Nottingham
• Cough Relief – National Heart and Lung Institute
• Diarrhea Relief – the Children's Hospital Oakland Research Institute

A couple of years ago the Washington Post told us “a surprising number of studies have found that dark chocolate can reduce the risk of death from a heart attack, decrease blood pressure and help those with chronic fatigue syndrome.”  Unlike the previous studies, this one found no difference between dark chocolate and milk chocolate and their idea of moderation was more precisely defined.  From 15 to 100 grams were effective with the more the better.  Note that 100 grams is about 500 calories, a significant portion of the recommended total daily calorie consumption.

Then there was the fraudulent study purporting to link eating chocolate to weight loss.  The science journalist confessed later that he purposely offered this study for publications to show how lax some of the standards were and that it got far more attention than he ever expected.  (Oops, that’s the second benefit listed by the Women’s Health Magazine.)

The latest one is from Denmark last month  (Interesting how all these chocolate studies seem to happen in Europe.)  This one found that people who “regularly eat chocolate reduce their risk of heart rhythm disorders.”  Knowing that previous studies showed the benefits of dark chocolate, they followed more than 55,000 people between the ages of 50 and 64 for 13.5 years looking for beneficial effects on atrial fibrillation.

“The researchers cautioned that the results are not definitive. The chocolate eaters in the study were naturally healthier and were highly educated, which are factors associated with good health. The study also failed to take account of other risk factors for atrial fibrillation, like kidney disease or sleep apnea.”  Not much there, but since it had to do with chocolate, it made the news.

I saw the last story on one of those health-news fillers on local TV and was unfamiliar with the website where I found it, so I looked at some of the links to other stories to see how much I should trust it.  That was an eye-opener.  They included:  How to dissolve 50 years of artery plaque; the natural remedy of the century; one trick to burn two pounds as you sleep; and the blood pressure secret revealed in the Bible.  It’s obviously not a place for critical thinkers to hang out.

In summary, the health benefits of chocolate seems to be a good subject for those who are more interested in believing things than in real science.  Personally, I intend to continue to enjoy chocolate – in moderation – and fortunately, I’m a big fan of dark chocolate.  But I’m not doing it for the magical health benefits –  that what the red wine is for!

Thinking about the Fiscal Cliff

The fiscal cliff is a self-imposed deadline set earlier this year by Congress intended to force them to deal with a soaring deficit, which is a serious economic problem with interest on the debt now one of the major categories of government expense.  Let’s look at two particular issues:  the Payroll Tax extension and the discussion about revenue (raising taxes) vs. spending.

Two years ago the government decreased the individual contribution to Social Security from 6.2 percent to 4.2 percent hoping to stimulate the economy by giving people more money in their paychecks.  It was a temporary measure in 2011 but renewed in 2012.  “The argument for extending the tax cut [yet again] is that it helps lower-income workers who live paycheck to paycheck. ‘The difference in the paycheck might be the ability to pay the electric bill for someone or the chance to go to a sit-down restaurant once a month.’”   In other words, for two years citizens haven’t treated this expressly temporary measure as temporary.  Did they see it as a chance to get their financial house in order or as a windfall?  The proponents of an extension seem to believe the latter.  Politicians don’t usually act in a way that encourages critical thinking.  They didn’t emphasize the temporary nature of this change.  Rather, they assume that given a year or two of extra cash, people will just spend it, thereby stimulating the economy, instead of using it as a planning tool to catch up and become less dependent, perhaps even increasing their own savings.  If the politicians are right, it doesn’t speak well for the critical thinking or discipline of Americans.

Concerning the spending vs. taxes debate, I just wanted to share some interesting data for your consideration.  I agree with many economists that a combination of tax increases and spending cuts has become necessary.  How that develops is someone else’s job and my opinion doesn’t matter.  However, I think these graphs, based on data from the St. Louis Federal Reserve, are a good presentation of the situation.

The first shows revenue and spending for the past 65 years.  The early years show little difference due to the size of the scale needed for the more recent years.  

A closer look at 1990 to the present (under two Republican and two Democratic administrations) shows the tax cut in 2001, when taxes were exceeding spending, but at the same time an increase in the rate of spending.  Despite that. taxes nearly closed the gap by 2008, but closing the gap merely eliminates the deficit, without touching the overall debt.

Below is the same close-up graph with trend lines added.  If spending had stayed on the same slope from 1990 to today (dashed red line), the gap would have closed even with tax cuts and the recession.  Instead the entire slope of spending increased dramatically from 2001 and stayed that way (labeled Recent Spending Trend).  Now some politicians resist any reduction to this current rate of spending growth, even though it included spending to support wars and stimulus packages.  They may even describe moving from the current to a lower rate of increase as a cut - critical thinkers know better.  Is that reasonable or responsible behavior by our leaders?  We surely need both additional taxes to catch up combined with some moderation in spending.  How long can this go on before we follow in the footsteps of Greece, Italy, Spain and others with their forced austerity programs and bailouts, and what entity is big enough to bail out the United States?