America the Merciful or America the Merciless?
byFeb 9th 2013 9:07AM
On this day in economic and financial history ...
Medicare, America's system of federally subsidized medical insurance, was introduced in a form nearly identical to its current one on Feb. 9, 1961, when President John F. Kennedy laid out its particulars during a special message to Congress. The "mammoth new medical care program," in the words of the Chicago Tribune, would raise Social Security taxes on 70 million working Americans to pay for hospital and other medical bills for those over 65 who were already covered by Social Security. Kennedy also asked for federal grants to finance medical and dental scholarships, and to build 20 new schools for each of those disciplines.
As a senator the year before, Kennedy sponsored a similar plan that went down to defeat. This time, he proposed taxes of up to $37 per person -- equal to nearly $300 today -- through raising the payroll tax to 6.5% on the first $5,000 of pay, which would be split evenly (as it is today) between employer and employee. The annual cost of this medical program was estimated at $1.5 billion per year, with at least $1 billion paid out in its first year of operation.
Despite the importance of the program, Kennedy's exceedingly narrow margin of victory in the 1960 election compelled him to wait until 1962. This allowed the public debate to whip itself into a froth, as the American Medical Association and private insurance companies, which strongly opposed the plan, squared off against organized labor, traditional Democratic allies, and strong supporters of Medicare. In 1962, Kennedy's Medicare proposal, with minor amendments, went down to defeat by a narrow two-vote margin. Kennedy restarted Medicare debates after the midterm elections, but his assassination in 1963 had profound effects on the national mood. With public support surging for the slain president's proposals, his successor, President Lyndon Johnson, moved quickly to enact many of Kennedy's top priorities. After his re-election in 1964, Johnson held indomitable majorities in both houses of Congress, and Medicare finally passed into law that summer alongside Medicaid, which was targeted toward the low-income and the disabled.
In the half-century since Kennedy first proposed Medicare, federally subsidized health care has grown from a negligible part of the federal budget to comprise 10% of all expenditures -- the equivalent of 5% of U.S. GDP, or $755 billion.
Drugs are bad, m'kay?
On the other side of the policy coin, Feb. 9, 1909, saw the passage of the first anti-drug law in the United States. The Opium Exclusion Act, which made it a crime to import the poppy-based drug for smoking, was designed primarily as a crusade against Chinese immigrants, as there was no crisis of drug abuse in the country at the time, with only one in a thousand Americans partaking. Still, authorities moved swiftly to enforce the racially motivated new law, beginning what's become over a century of America's drug war.
A century later, more than 1.6 million Americans are arrested each year for drug offenses. A quarter of all prison inmates are jailed for drug violations, and the prison population grows by more than 40,000 people per year. Roughly half of the population has now violated some form of drug law. Since the crackdown intensified in the 1970s, an estimated $1.5 trillion has been spent on the drug war, which includes prison costs and state expenditures as well as the roughly $800 billion spent by the federal government. The cost of so many marginalized individuals to society is likely to be far higher.
The House of Mouse has many channels
Disney got into the small screen in a big way on Feb. 9, 1996, when it completed its acquisition of Capital Cities/ABC. The FCC cleared the $19 billion deal that day, provided some Disney radio stations or newspapers in Detroit and Fort Worth were sold -- but FCC chairman Reed Hundt indicated that rule revisions might allow Disney to keep itself completely intact. Many financial analysts hailed the deal as the optimal move for Disney, which could pair its deep content library with ABC's huge broadcast network.
Capital Cities/ABC had an interesting path to its big deal. Originally founded in 1947 as a single television station in central New York, the broadcaster expanded quickly through numerous acquisitions, which built up a network of television, radio, and print media by the 1980s. In 1985, Capital Cities made the highly unusual move of buying ABC, a media leader four times its size, for $3.5 billion. Berkshire Hathaway CEO Warren Buffett provided financing for the deal and wound up with ownership of a quarter of the combined company as a result. Thanks to Disney's interest, Buffett's stake in the company was to grow about 450% in 11 years. The ABC deal also brought an 80% stake in ESPN to Capital Cities, and eventually to Disney.
From the time of the deal's closing to its 10th anniversary, Disney's annual revenue grew 170%, and its net income increased by 80%, matching the gain in its stock price. ESPN turned out to be the real crown jewel of the ABC acquisition, as a Barron's analysis later estimated that the sports network made up more than 40% of Disney's value based on prevailing cash-flow multiples.
On Feb. 9, 1969, Boeing's 747, the world's most recognizable aircraft, took off on its maiden flight. Conceived in the era of 707s and Douglas DC-8s, the 747 was designed to solve the problem of airport congestion through the creation of a larger craft than had ever been used before. This it solved with sheer size, creating a partly double-decker craft that could fit as many as 550 passengers into its high-capacity configuration, though it was more likely to seat 452 in a standard two-class configuration. It was also designed with cargo transport in mind, and its front end could be converted into a front doorway for cargo loading.
Taking off into aviation history
Boeing gave itself just 28 months from the date of Pan American Airlines' first order to the 747's projected delivery date, a third less time than it took the company to design many of its earlier aircraft. The size of the 747 required new engines with the recently developed high-bypass turbofan technology, which would double the jet's power while reducing fuel consumption. New advancements in wing flaps also enabled the massive jet to make use of existing airport runways. Boeing was forced to build a new manufacturing plant in Everett, Wash., to accommodate the 747's size, and this plant has long since held the record for the largest building by volume anywhere in the world. The scope of the project was so large that Boeing essentially gambled its future on the 747's success.
The first 747 rolled out of this plant in the fall of 1968. Its wingspan was 195 feet wide and it was 231 feet long, larger than a football field in both respects. At takeoff, it could carry more than 365 tons of total weight into the air. The 747 became a huge success for Boeing, which had initially worried that supersonic aircraft would render it obsolete. Initial projections called for about 400 orders, but by the start of 2013, 1,458 had been delivered. According to the company's data, the global 747 fleet has logged more than 42 billion nautical miles while carrying more than 3.5 billion people since beginning its service. The 747 held the title of the world's largest passenger plane for 37 years, until the Airbus A380, with a maximum capacity of 850 passengers, began its commercial service.
Thanks to the 747, Boeing was inducted to the Dow Jones Industrial Average . In 1968, the year before Boeing's first deliveries, net income was only $83 million on $3.3 billion in sales. In the year of its Dow induction, Boeing's annual profit had grown to $480 million on $15.4 billion in sales, representing an annualized growth rate, from its last pre-747 year, of 9.7% and 8.5%, respectively.
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The article America the Merciful or America the Merciless? originally appeared on Fool.com.Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter, @TMFBiggles, for more news and insights. The Motley Fool recommends and owns shares of Berkshire Hathaway and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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