Saturday, December 31, 2011

Achieving a College Education and Home Ownership

College educations and home ownership are often thought of as keys to enjoying the benefits of middle class life in America. We've dumbed down much of that through government intervention and "support."

Notable & Quotable in thought provoking fashion describes the differences between form and substance, and reality and make believe, in this straightforward way:

"The reason why a bachelor's degree on its own no longer conveys intelligence and capability is that the government decided that as many people as possible should have bachelor's degrees.

There's something of a pattern here. The government decides to try to increase the middle class by subsidizing things that middle class people have: If middle class people go to college and own homes, then surely if more people go to college and own homes, we'll have more middle class people.

But home ownership and college aren't causes of middle-class status, they're markers for possessing the kinds of traits—self-discipline, the ability to defer gratification, etc.— that let you enter, and stay in, the middle class.

Subsidizing the markers doesn't produce the traits; if anything, it undermines them. One might as well try to promote basketball skills by distributing expensive sneakers."

Subsidies can never substitute for hard work and persistent effort. Government "assistance" often has very negative and unintended consequences.

As always, we should be careful what we wish for.

Thanks. Bob.

Friday, December 30, 2011

Short Term Outlook for the Economy Not So Good ... But the Future Looks Bright

David Brooks of the New York Times has written a solid editorial titled Midlife Crisis Economics. Since it's not lengthy, we'll quote it in its entirety:

"The members of the Obama administration have many fine talents, but making adept historical analogies may not be among them.

When the administration came to office in the depths of the financial crisis, many of its leading figures concluded that the moment was analogous to the Great Depression. They read books about the New Deal and sought to learn from F.D.R.

But, in the 1930s, people genuinely looked to government to ease their fears and restore their confidence. Today, Americans are more likely to fear government than be reassured by it.

According to a Gallup survey, 64 percent of Americans polled said they believed that big government is the biggest threat to the country. Only 26 percent believed that big business is the biggest threat. As a result, the public has reacted to Obama’s activism with fear and anxiety. The Democrats lost 63 House seats in the 2010 elections.

Members of the administration have now dropped the New Deal parallels. But they have started making analogies between this era and the progressive era around the turn of the 20th century.

Again, there are superficial similarities. Then, as now, we are seeing great concentrations of wealth, especially at the top. Then, as now, the professional class of lawyers, teachers and journalists seems to feel as if it has the upper hand in its status war against the business class of executives and financiers.

But these superficial similarities are outweighed by vast differences.

First, the underlying economic situations are very different. A century ago, the American economy was a vibrant jobs machine. Industrialization was volatile and cruel, but it produced millions of new jobs, sucking labor in from the countryside and from overseas.

Today’s economy is not a jobs machine and lacks that bursting vibrancy. The rate of new business start-ups was declining even before the 2008 financial crisis. Companies are finding that they can get by with fewer workers. As President Obama has observed, factories that used to employ 1,000 workers can now be even more productive with less than 100.

Moreover, the information economy widens inequality for deep and varied reasons that were unknown a century ago. Inequality is growing in nearly every developed country. According to a report from the Organization for Economic Cooperation and Development, over the past 30 years, inequality in Sweden, Germany, Israel, Finland and New Zealand has grown as fast or faster than inequality in the United States, even though these countries have very different welfare systems.

In the progressive era, the economy was in its adolescence and the task was to control it. Today the economy is middle-aged; the task is to rejuvenate it.

Second, the governmental challenge is very different today than it was in the progressive era. Back then, government was small and there were few worker safety regulations. The problem was a lack of institutions. Today, government is large, and there is a thicket of regulations, torts and legal encumbrances. The problem is not a lack of institutions; it’s a lack of institutional effectiveness.

The United States spends far more on education than any other nation, with paltry results. It spends far more on health care, again, with paltry results. It spends so much on poverty programs that if we just took that money and handed poor people checks, we would virtually eliminate poverty overnight. In the progressive era, the task was to build programs; today the task is to reform existing ones.

Third, the moral culture of the nation is very different. The progressive era still had a Victorian culture, with its rectitude and restrictions. Back then, there was a moral horror at the thought of debt. No matter how bad the economic problems became, progressive-era politicians did not impose huge debt burdens on their children. That ethos is clearly gone.

In the progressive era, there was an understanding that men who impregnated women should marry them. It didn’t always work in practice, but that was the strong social norm. Today, that norm has dissolved. Forty percent of American children are born out of wedlock. This sentences the U.S. to another generation of widening inequality and slower human capital development.

One hundred years ago, we had libertarian economics but conservative values. Today we have oligarchic economics and libertarian moral values — a bad combination.

In sum, in the progressive era, the country was young and vibrant. The job was to impose economic order. Today, the country is middle-aged but self-indulgent. Bad habits have accumulated. Interest groups have emerged to protect the status quo. The job is to restore old disciplines, strip away decaying structures and reform the welfare state. The country needs a productive midlife crisis.

The progressive era is not a model; it is a foil. It provides a contrast and shows us what we really need to do."

Here's my take. First, Brooks gets it right and provides reasonable grounds for optimism about our American future.

(1) The really good news is that 64% of Americans now believe, as did President Reagan, that "Government isn't the solution; it's the problem." Since most of us now see big government as our country's biggest threat, we can conclude that Americans don't believe the words that "we're from the government and we're here to help."

(2) Here's another important thing that we now get. The U.S. employment problem won't be solved by more wasteful government spending. To reduce unemployment meaningfully, we need to experience sustainable economic growth, and that kind of growth can only be fueled by the private sector. Additional government "stimulus" spending and more government jobs aren't the answer. We've already tried that wrongheaded approach.

(3) There seems to be developing a widespread understanding that the century long progressive era needs to end. Along with Europe, we are witnessing the debilitating effects of big government. It's negatively impacting both jobs and economic prosperity. The current worrisome European situation is an illustrative example of why a social-democratic welfare society won't work in America. It doesn't work in Europe either, but that's another matter.

(4) Even though many things have changed in the U.S. over the years, some things haven't and never will. To wit, debt isn't a free lunch. It has to be repaid. While free spending governments can create a "sugar high" in the short term, if it becomes habitual it leads to an unsustainable level of debt. The short term feel good gain is never worth the inevitable long term pain

(5) Similar to habitual profligate government spending, free spending individual consumers and households can create an equally difficult dilemma for themselves.

(6) Finally, collateral (such as a home which is mortgaged) isn't unchanging in value. The collateral's value can decrease. If we borrow $X to support a purchase of Y (which is used as collateral for the loan) and Y's value later declines to 1/2 Y, we still owe a full $X. Thus, the lesson is that we need to beware of asset inflation bubbles financed by cheap and easy credit terms. The debt will come due regardless of how much the asset is worth at the time of sale.

(7) Our accumulated American bad habits of recent decades, of which we admittedly have many, are absolutely within our power to address and solve. All we have to exhibit is the will to straighten things out.

To recap, here's the best news of all. We the American people understand the problem. That means the incumbent politicians won't be far behind in "leading the way" to dealing with it. And if the incumbents don't deal with it, we'll elect a new batch of politicians who will.

In a competitive, open and free market based society where representative government is genuine but limited, and where we the people are free, informed and therefore resolved to live within our means, we will do just that, because it's in our own best interests to do so. both individually and as a nation. The rest of the world, too, for that matter.

That's where the U.S. is headed--again. But it's going to take a few years to get us there. We've a lot a of house cleaning to do along the way.

Meanwhile, let's not lose hope or faith in our fellow Americans. After all, it took us approximately an entire century to get to our current sorry state of affairs.

Thanks. Bob.

Thursday, December 29, 2011

Currency and Productivity ... A Look at Europe's Problems and Solutions

Recently the economic news has been pretty much all Europe all the time. And it's been mostly bad news at that.

As a huge part of the global economy, the U.S. will be impacted by what happens in the Euro zone, good or bad. The only question is by how much and for how long.

Let's look briefly at the available lessons for us to learn. The Euro Zone's German Crisis is an editorial by Alan Blinder, former vice chairman of the Federal Reseve. In the article he discusses the Euro currency's problems:

"All financial eyes are fixed on the euro. Europe's common currency actually has two gigantic problems. The debt and banking crisis hogs all the attention because of its immediacy, plus the high drama of all those summit meetings. But the other, slower-acting problem—lopsided competitiveness within the euro zone—is far more intractable.

First, the immediate problem. The euro was an audacious venture that put the cart before many horses. The fundamental problem is that the euro zone is not a country. Initially 11, and now 17, sovereign nations signed up for a currency union without first homogenizing their budget policies, their tax systems, their bank regulations or much else. And they did so without creating a central government strong enough to, for example, impose cross-border discipline or finance large cross-country transfers. To use an American analogy recently promoted by Nobel laureate and New York University economist Thomas Sargent, the 17 have been trying to fix their debt and banking problems under the equivalent of the Articles of Confederation, not the Constitution."

Notably, the Euro currency and the individual European countries have different governing bodies. Unlike the jointly managed Euro currency, when it comes to fiscal policy each sovereign country is on its own.

If the U.S. had that approach, each separate state would go its own fiscal way as well. Its spending, debt and competitiveness issues would be its very own.

Accordingly, entitlement programs such as social security, medicare, medicaid and even public school funding would all be left to the discretion, funding and management of each individual state or sovereign. Texas would handle Texas, Illinois would look out solely for Illinois, California for California and so on. There would be no IRS either.

But let's move back to the problems of Europe. To wit, why is the commonly shared Euro currency such an enormous and seemingly insoluble problem for Greece? Well, here's Blinder's explanation:

"Normally, a weak economy has three ways to fight back. It can loosen monetary policy, it can loosen fiscal policy, or it can let its currency depreciate. (If the currency is floating, the market will do this automatically.) But membership in the euro zone forecloses two of these escape hatches, leaving only fiscal policy. And once a member country stretches its borrowing capacity to the limit—as Greece did—that route is closed, too. Then what happens?

One answer is playing out now as a Greek tragedy: You have a depression. And if neither monetary stimulus, fiscal stimulus, nor currency depreciation is possible, when does this depression end? It may take quite a while. Real GDP in Greece is already down about 12% and still falling—which is why you've heard so much talk about Greece leaving the euro. Of course, what happened in Greece didn't stay in Greece. Markets started turning on the other wounded antelopes in the European herd: Portugal, Ireland, Spain, Italy and so on."

The lesson for the U.S. is straightforward. Heavily indebted, uncompetitive and financially weak countries invariably end up with one or more, perhaps even all, of the following dilemmas to solve; depression, deflation, stagflation or inflation, any and/or all of which lead to even weaker economies.

And it doesn't help an individual sovereign much, if at all, to be a member of a common monetary union or perhaps even a fiscal union if the country can't compete globally.

In other words, a country which attempts to address its problems by printing more money brings on inflation. Debasing or weakening its currency creates inflation as well. That leaves fiscal policy, and spending money that a country doesn't have by borrowing from other countries causes inflation, too. At least until the lenders refuse to loan the big spending and borrowing country any more money.

At that point it's game over. That's essentially where Greece finds itself today.

So today Greece is where Greece is because of its lack of global competitiveness and because lenders aren't willing to throw more good money after bad. At least not based on Greece's individual credit standing. Since the Germans aren't inclined to throw more good money after bad to rescue Greece, the good citizens of Greece now find themselves between the proverbial rock and a hard place.

In addition to Greece, here's what the article says about the problem of many other European nations' lack of competitiveness:

"The euro-zone's other, barely mentioned but huge problem is competitiveness. It's far more basic and looks less solvable than the sovereign debt problem.

To see why, remember the two fundamental determinants of exchange rates: (1) productivity in different countries—so, other things equal, faster productivity growth should lead to a rising exchange rate; and (2) prices and wages in different countries—so lower inflation should lead to a rising exchange rate. Thus, for a currency union to succeed, its member nations need to register approximately equal productivity growth and approximately equal wage and price inflation.

How has the euro zone fared on this score? In principle, the ECB's common monetary policy should (approximately) equalize inflation rates across all the member countries. In practice, it hasn't. You won't be surprised to learn that, since the start of the euro, Germany has had the lowest rate of inflation among the major countries, followed closely by France. The highest inflation rates have been in Greece and Spain. While these inflation differentials are not gigantic, they are large enough to strain a system of fixed exchange rates.

The other part of the equation is worse. When it comes to productivity, Germany has simply pulled away from the pack. Partly because of thorough-going labor-market reforms in the last decade, and partly because it's, well, Germany, Europe's powerhouse economy has achieved vastly higher productivity growth than its euro partners. Since 2000, German unit labor costs have risen about 20%-30% less than unit labor costs in the other euro countries. That gap has left Germany with a large intra-Europe trade surplus while most other countries run deficits.

If we were talking about China, at this point we would accuse the Chinese of manipulating their currency to gain an "unfair" trade advantage. But, of course, Germany has not manipulated anything. It has acquired a seriously undervalued currency by locking into fixed exchange rates with Greece, Spain, Italy and the others."

Summing up, a country's productivity over time determines its global competitiveness. In turn, that competitiveness determines its citizens' prosperity and standard of living.

As a consequence, lenders and equity investors will choose to invest in those companies and countries that have productive and competitive work forces.

Currency unions among countries are well and good, all other things being equal. But, of course, all other things never are equal.

If countries aren't competitive with other countries, currency adjustments must take place. That serves to restore the balance of trade between countries and also acts to direct investment funds into those competitive countries and companies.

It's really that simple.

Martin Feldstein, former Chairman of President Reagan's Council of Economic Advisors, says this about Europe's optimal solution to its countries' debt crises in The Euro Zone's Double Failure:

"The Merkel-Sarkozy team should recognize that they have been on the wrong track. Europe needs country-by-country fiscal reforms and not a renewed push for a fiscal union and political integration."

He further argues convincingly that Italy and even Spain are not facing similar fiscal or competitiveness problems compared to Greece:

"It's wrong to speak about Greece and Italy in the same breath, as the euro-zone politicians did when they insisted that Greece had to be rescued to prevent a default in Italy. That undermines confidence in Italy. Greece has a budget deficit of 9% of GDP, a current account deficit of 8%, and a GDP that is collapsing at an annual rate of more than 5%. Greece cannot hope to get its deficit under control fast enough to stabilize its debt and attract private lenders. Instead of remaining a permanent ward of Germany and the IMF, Greece should default on its debt, leave the euro zone, and return to a more competitive drachma.

Mario Draghi, the new head of the European Central Bank, has clearly and correctly rejected the French suggestion that the ECB should announce that it will buy whatever quantities of Italian and Spanish bonds would be required to keep their interest rates at low levels. Doing so would violate the ECB rules established in the Maastricht Treaty that prohibit ECB bailouts of insolvent member governments. It would also destroy the incentive for politicians in Italy and Spain to make the politically difficult changes that will lead to lower future deficits. And it would weaken international confidence in the ECB and therefore in the euro."

My take is that Germany and the ECB are properly practicing a painful form of financial 'tough love' with respect to dealing with the various European countries' financial and competitiveness issues.

It's a shame we don't have the same approach for states like California, Illinois, New York, Michigan and other big spending states in our own country. Oh well, maybe someday we will when the ability to borrow as much as want at the federal level runs out.

Thanks. Bob.

Wednesday, December 28, 2011

Scarcity and Choice ... Taxpayers, Governments, Public Employees, Consumers and Companies in a No-Growth Economy

A basic principle of free market economics is the relationship of scarcity to choice.

In simple terms, we can't have everything we want whenever we want it. Based on our limited resources, we are required to choose between available alternatives, including what may be postponed until later, that which we can't afford and that which we really don't want or need.

In other words, because our resources are scarce, individuals have to make choices about what to buy or not buy, as well as in which order we intend to buy. Scarcity dictates that we choose and also prioritize our expenditures.

But it's not just that way for individuals.

The same scarcity and choice issue is true for companies, societies, states and cities as well. Choices involving scarce resource allocation, along with short and long term priorities, have to be in constant focus.

For example, choices must be made with respect to how much government is desirable, how many resources will go to aid the elderly versus to educate the young, how much will go for current consumption compared to how much we'll save for a rainy day, and so forth.

Now let's look briefly at what's happening today concerning these issues of scarcity and choice in several of our nation's cities, counties and states.

Looking Up, Detroit Faces a New Crisis details the many issues confronting Detroit and its citizens. The city's financial picture is bleak, and difficult choices must be made:

"For a city that some have declared dead again and again, the talk of late here was of renaissance — of auto industry jobs growing, new companies moving into empty buildings downtown, urban gardens blooming in vacant lots.

Then came the revelation that Detroit is poised to run out of money by April and fall deep into debt by June. Now a place that had seemed to be finding its balance is reeling once more.

A formal state review of Detroit’s books — a step that could lead to the appointment of an outside emergency manager to take over the city’s finances — was announced this week. City leaders are conducting urgent meetings with labor union leaders and financial consultants in a race to cut costs and head off further intervention.

The possibility that an outside manager could come in — one who would have broader than ever powers under a rewritten state law — has stirred new concerns among financial ratings agencies and business leaders who have fresh investments in the city. City government, meanwhile, is finding itself forced to re-examine services it provides — including buses, health care and street lighting — and shed what it can no longer afford."

Here's what Mayor Dave Bing has to say about Detroit's condition:

"Mr. Bing said he believed a solution was within reach. Significant concessions by the city’s labor unions, whose contracts do not expire until June, would have to be a part of that, city officials say, though no agreements have been announced. Mr. Bing has called for 1,000 layoffs, a 10 percent pay cut for employees and privatization of some services, though City Council members have said cuts will have to go far deeper.

The one thing that is certain is change is coming.

“Privatization, outsourcing has always been a dirty word,” Mr. Bing said. “But we’re talking about survival. And we can’t allow our 11,000 employees that we have to dictate the future of over 700,000 people here in this city.”

On the streets here, Detroiters sound frustrated — at the mayor, at the state, and at the possibility that more cuts might mean a further diminishment of their shrinking city."

Now let's move on to Jefferson County, Alabama. In Bankruptcy Filing Raises Doubts About a Bond Repayment Pledge, the extent of a government's obligation to pay its debts is reviewed.

For example, what does the term 'full faith and credit' mean when county government is the debtor and doesn't possess taxing power? Since the bonds are obligations of government, most people believe that municipal bonds will always be safe investments, but that's not necessarily the case.

Let's see what the Alabama county's bankruptcy attorney says:

"Mr. Klee, the county’s bankruptcy lawyer, said about 40 percent of America’s counties appear to be in the same boat, issuing full faith and credit debt even though they have no legal authority to raise taxes, as the term implies.

In Jefferson County, Alabama’s most populous, which includes Birmingham, officials say they had to stop paying even their general obligations because they were draining the cash they needed for essential services.

“Jefferson County made a very different decision than Rhode Island did,” Mr. Klee said. “Rhode Island put bondholders ahead of its citizens, and Jefferson County is not going to do that.”

He called the notion that a full faith and credit pledge was inviolate, and that a debtor must honor it even in bankruptcy, “a myth and a scare tactic.'"

As mentioned above, Rhode Island recently enacted legislation which placed bondholders ahead of a city's retired firefighters and police officers.

Pensions Chopped but Investors Paid tells the story about the city of Central Falls, its retirees and petitioning the state of Rhode Island for rescue funds:

"Retired firefighters and police officers in Central Falls, R.I., agreed to cut their pensions and support a plan that would likely give bondholders everything they are owed by the struggling city.

The unusual arrangement is being watched closely by municipal-bond investors and government officials across the U.S. because it could be cloned in an effort to keep borrowing costs from spiraling higher in municipalities near financially shaky cities and counties.

The deal also could spare Central Falls from a costly legal battle with retirees, while giving bond investors more clarity about the security of their investments.

Central Falls, with a population of 19,300 and a severely underfunded pension plan, filed for bankruptcy protection in August. The city has about $20.5 million in bond debt and $47 million in pension liabilities, according to state officials.

As of Monday, 82 of about 130 Central Falls workers had agreed to support the pension cuts, which will total 25% over the next five years for many recipients, said Matthew McGowan, a lawyer for about 100 police and fire retirees. A minimum of 75 retirees had to support the proposed agreement.

The state-appointed receiver overseeing Central Falls is expected in the next few days to ask a bankruptcy judge to approve the agreement with retirees, said Theodore Orson, a lawyer for the state.

Before the city's financial collapse, Rhode Island lawmakers passed a law that puts bondholders first in line among all creditors of municipalities in the state. The retirees vowed not to challenge the state law as part of the agreement.

Mr. McGowan said retirees backed the deal partly because the state director of revenue will ask lawmakers to appropriate about $2.6 million to help them cope with smaller pensions. Without the state aid, the cuts would be 55% for some. "We have many strong legal arguments," Mr. McGowan said. "But in a practical sense, they don't get you very far if the city has no money.'"

The discussion topic today isn't bankruptcy priority claims but rather the ever present fundamentals of scarcity and choice. When there is a scarcity of funds--more money owed than money available to pay the amount owed--something has to give--choices and priorities have to be made.

Will the limited funds be used to pay creditors or employees? Retained by taxpayers or paid to creditors? For the use of taxpayers or employees? Public services or retiree payments? Assistance for one city or county to the exclusion of other cities and counties? And so on.

All Americans have a difficult time ahead of us, probably a time unlike any other time in our lives.

As an economy, we're in a slow to no growth mode. We also have a great deal of existing debt to service. Regarding the tax burden, there will be lots of government spending, including transfer payments for entitlement expenditures, which will require growing tax payments.

As these burdensome debts and taxes are paid in a slow to no growth economy, consumer spending and employment will suffer. There's no escaping that troublesome reality.

It's the same worrisome story throughout the slow to no growth general economy. Yesterday retailer Sears announced serious financial problems, including ~120 planned store closings (Sears to shut up to 120 stores as sales slump). Gap and other retailers will probably follow with similar store closing announcements as well.

And let's not leave out the "zombie restaurants." See Slicing Costs, and Still Serving for a story concerning the many problems being experienced by that industry.

There's simply too much retail capacity for the amount of sustainable purchasing power today. That means fierce competition will determine the winners and losers. Retailers such as Sears and the Gap appear to be two of the losers. Losers will close stores, lay off employees and perhaps not even survive, at least in their present form.

On the other hand, Amazon and other internet sellers are winners. Probably Wal-Mart, Family Dollar and other discounters as well. But Best Buy looks like a possible loser.

Who decides the winners and losers? We do. The individual customers and taxpayers. When economic conditions are soft for an extended period of time, extreme competition prevails for the scarce funds available. That's the way markets work.

So what do markets and competition have to do with cities, counties, states and municipal bonds?

Well, it takes money to buy new things as well as to satisfy previous obligations. People are the source of all funds--not the government.

In a difficult economic environment, there's more scarcity than usual. Accordingly, we customers and taxpayers have to decide where and how to spend what limited funds we have.

So when the money runs short, someone won't get paid. That may be a worker, a bondholder, a retailer, a restaurant, a car dealer or any other party who doesn't make the "competitive scarcity-choice cut."

Regarding the citizens and taxpayers of Jefferson County, Alabama and its bondholders, here's what the county attorney says about scarcity, choice and the future:

“It’s a very reasonable step on the part of the county commissioners to conserve the money to deal with the crisis within the county,” he said, adding that he hoped that in the end the general-obligation debtholders would be paid in full, but he did not know if there was enough money. Finding out could take years."

And so it could. And most probably will.

Things really are tough today, and for the foreseeable future as well, in this slow to no growth worldwide economy.

Being alert to the effects of scarcity and the resulting real choices that must be made by all of us, including governments, is very much the new normal.

Thanks. Bob.

Tuesday, December 27, 2011

America the Generous ... Better to Give Aid Directly or Through the Politicians? ... MOM or OPM?

The generosity of individual Americans acting as private citizens still leads the world. By a long shot.

We really are different. Exceptional, in fact.

For giving, the Europeans primarily look to the state. We look to individuals in the private sector.

That's an essential difference between the European typical social-democratic model and our U.S. democracy.

E pluribus unum, Latin for "Out of many, one," was adopted in 1782 as the nation's de facto motto and appears on the Seal of the United States. The Latin phrase speaks directly to the ongoing tension which accompanies the American goals of balancing (1) the individual citizen's liberties with (2) the overall general welfare of our society.

Since the mainstream media doesn't spend much time these days extolling or proclaiming our unique American brand of generosity, this philanthropy will serve as our truth telling story for today.

America the Generous summarizes a recent global survey revealing once again that U.S. citizens are by far the most generous people on planet Earth. Here's a sample from the article:

"After the Britain-based Charities Aid Foundation released a survey this week that ranked the U.S. first in giving, I contacted Adam Meyerson of the Philanthropy Roundtable for a reaction. Given the economic hardships of so many Americans in recent years, was he surprised by the results?

"Not at all," said Mr. Meyerson. "This study is consistent with many other studies showing that America is by far the most charitable country on Earth. We give about 2% of our national income to charity; most other countries give 1% or much less."

The report is based on more than 150,000 interviews conducted in 153 countries. People were asked about their behavior in the previous month, including whether they had donated money to charity, volunteered time to an organization or helped a stranger. Sixty-five percent of respondents in the U.S. said that they had given money; 43% had volunteered; and 75% had helped someone they didn't know. The top-ranked U.S. was followed by Ireland, Australia, New Zealand and Britain.

Mr. Meyerson said that American largess stems in part from the can-do spirit that free societies nurture. "As Tocqueville observed back in the 1830s, unlike in Europe, in America people don't wait for the government or local noblemen to solve problems. We step up and solve them ourselves," he said. Also, "philanthropy and charity have always been part of American business culture—from Ben Franklin, who started the first volunteer fire department, to Andrew Carnegie, who brought public libraries to communities all across the country, to Bill Gates, who's trying to eliminate malaria."

Mr. Meyerson added that charitable giving also helps the U.S. maintain a thriving civil society. It's the "life-blood" of our public discourse, he said. "Name a great issue that we're wrestling with today—the role of government in our health care, pensions, retirement security, same-sex unions, school choice, all these issues. It's charitable giving that has made possible a vigorous debate on both sides."

Now let's turn to the media. America the Generous? Not According to the Media blasts what it calls the American liberal media's bias:

"But American generosity is rarely acknowledged by the media. Instead, America is usually attacked by the media as not being generous enough, and American donations of time, money, and effort to countries are ignored or even scorned by liberal journalists.

On May 22, 2011, former New York Times economic reporter Eduardo Porter complained in a New York Times editorial that America was the "least generous" of industrial nations - by which he meant Americans were not being taxed enough to fund extensive government social programs. The networks refused to cover the extensive contributions of private faith-based charities when a tsunami devastated Japan in March 2011, and similarly ignored coverage of corporate donations when a destructive earthquake struck Haiti in Jan 2010.

This is because for the mainstream media, government social programs, fueled by taxation, are the only form of effective charity. At times, the media has even attacked private charity, because money given to private charity is not given to government programs. (This attack on private charity might be rooted in the fact that conservatives tend to be far more generous with their time and money than liberals.)

The New York Times' Stephanie Strom bizarrely blasted private charity in 2007 because it took money away from the government, declaring that "The rich are giving more to charity than ever, but people like Mr. Broad are not the only ones footing the bill for such generosity. For every three dollars they give away, the federal government typically gives up a dollar or more in tax revenue, because of the charitable tax deduction and by not collecting estate taxes."

In Nov. 2010, the Washington Post's Ezra Klein advocated giving to politically active think tanks as more effective than traditional gifts to charity.

Apparently, the "forced charity" of government social programs, fueled by higher taxes, is the only worthwhile form of charity, according to liberals. This is one explanation for the consistent media gripe that Americans are not generous, despite the mountain of evidence that suggests otherwise.""

So there we have two opposing views of American generosity.

To some generosity means the voluntary private actions of individuals while to others it means the collective actions of government programs.

In much of the rest of the world, generosity is deemed to be within the purview of government officials and bureaucrats. In America, we still rely on private giving to a large extent.

For those who believe that government giving is preferable to direct voluntary individual donations by individuals, they arrive at a very wrong conclusion. That wrong conclusion is that if government takes from some individuals in order to redistribute to others that which it took, it will result in a more compassionate society. That's simply untrue.

In other words, either one or both of two wrongheaded beliefs is held by those believing in having the government serve in the role of chief giver: (1) as individuals we can't be trusted to give directly and voluntarily to those in need, and/or (2) the government will know better how to spend our money than we will. That's the mistaken OPM prescription for bureaucratic "generous giving."

Americans are much more generous and compassionate than are citizens of other countries. And the above referenced survey confirms that very fact.

The bigger the government's role is, the smaller the role will be for individuals to play. And purposely providing a smaller role for individuals with respect to philanthropic giving will serve to the detriment of the larger society.

So let's acknowledge that MOM giving and caring is the proven and clear winner over government every time.

And while we're on this subject, let's begin to emphasize a MOM based retirement and medicare funding/"giving" mindset as well. Approaches encouraging MOM based spending for nursing home care and MOM paying for education would be helpful as well.

Finally, we should encourage MOM based investing during our working years, so we can make a serious effort to be able to take care of our own financial needs during retirement.

Then after a good faith effort at self reliance, if that amount of self provided funding when combined with voluntarily donated money isn't enough to help all those who still need help when they enter old age, we can tax ourselves in order to to make up the remaining shortfall, if any.

We'd feel better, but that's not all.

Then there would also be widespread clarity and understanding concerning the proper role of government as well as the real source of funds. It's the people.

It's helpful to be reminded from time to time that government can only spend on some people that which it first takes from other people. That's how redistributionism works.

Government has only OPM to spend.

Accordingly, the only question is whether help or generosity will come directly and voluntarily from individuals or indirectly through redistributionist "public servants."

I know which path I prefer. The direct, straight and honest one.

Thanks. Bob.

Monday, December 26, 2011

The Obama Administration Needs to Face Facts about Public Education and Public Safety

Vice President Biden made headlines a few weeks ago when he accused Republicans of making our streets less safe. He also suggested that our children would be more likely to receive an inferior education unless President Obama's proposed American Jobs Act was enacted into legislation.

Supporting Biden's comments, President Obama said that unsupportive Republicans should have to explain to voters why more local teachers wouldn't be hired if Republicans refused to enact the president's proposed legislation.

Although most voters undoubtedly recognized Biden's and Obama's crass political populist posturing for what it was, it's time to review a few salient facts.

In other words, just what has our taxpayer money been buying in terms of educational results over the past several decades? It's not a pretty picture.

If we don't face facts, these fear mongering and irresponsible politicians will continue to assume that the American people are ignorant. In turn the pols will say what they please and believe that gullible and uninformed American voters will continue to vote for them.

Put another way, the pols of both parties often take the American voting public for granted. As a result, they tend to treat us like little children who have no clue about what's what.

So let's now consider some pertinent facts in lieu of sound bites and platitudes.

Joe Biden and the Myth of Local Government Layoffs corrects the Obama administration's attempt to bamboozle the people once again.

To put things in better perspective, consider a few relevant facts about per student public education spending, academic results and local staff productivity over the past several decades:

"Take local education workers. Hiring has far outpaced the growth in student enrollment, driving down the number of students per teacher in American public schools to 15.6 in 2010 from 26.9 in 1955, according to the National Center for Education Statistics. Robust hiring has continued even during periods of enrollment declines, including from 1971 through 1984, when the number of public-school students fell virtually every year, declining in total by 15%, while the ranks of teachers grew by 7%. . . .

Local districts have also bulked up on other workers—from instructional aides to administrative personnel to social workers and counselors. In 1955, teachers constituted about 65% of local education workers; today, despite years of rapid gains in teacher ranks, they amount to only about 40% of the eight million local education workers.

Per-pupil spending in public schools has grown to $10,500 today from $2,831 (in 2010 dollars) in 1961, according to the National Center for Education Statistics. Has the spending paid off? Mean scores on the SAT's reading test are down 7% since 1966, while reading scores for 17-year-olds on the National Assessment of Educational Progress test, administered since 1971, are flat over that time."

Based on the foregoing facts, some troubling conclusions about today's public education are the following: while students per teacher have been reduced by almost 50% since 1955 and student enrollment continues to decline, teacher staffing has grown and non-teaching staff has increased dramatically. Much more spending for much worse results, in other words.

Summing up the past half century, spending per pupil has more than tripled in real dollars while student achievement has not improved. We continue to spend lots and lots of money and things continue to get worse and worse.

So the Obama's proposed solution is to spend even more? I don't think that's the answer. Not at all.

On the other hand, public safety spending is a better story than is spending on public education. A much better story, in fact.

In reality, spending for public safety has brought big improvements over the years. In brief here's that happy story:

"America has also made a big investment in public safety, and there the facts suggest the spending has paid off. They also suggest we need hardly fear unprecedented spikes in crime of the sort the vice president warned about.

Starting in the early 1990s, when America's crime rate peaked at 758 violent crimes per 100,000 people, police departments started hiring rapidly. From 1992 through 2008, according to the Department of Justice's Census of State and Local Law Enforcement Agencies, the ranks of state and local cops and other law-enforcement personnel soared by one-third, to more than 1.1 million. That growth far outpaced the country's population increase in the period, driving up the percentage of law-enforcement personnel relative to the general population by 12%.

Results? Violent crime is down by 47% since 1992. The property-crime rate has fallen by 75%. To be sure, other factors were at work besides body count, including better policing strategies and the waning of the 1980s crack epidemic."

The comparison between public education and public safety spending is indeed stark and telling.

Spending on public safety has been a great investment. It has been money well spent. Worker productivity has increased substantially, and taxpayers have received considerable value for money spent in the area of public safety.

But that's not even close to what happened with the tons of money spent on public education. As we've spent more and more money, we've not received the benefits. Neither the students nor the taxpayers.

So President Obama and Vice President Biden are speaking with false tongues about the need for more taxpayer funding to improve public education and keep streets safe. Chalk it up to American politics. Isn't that sick?

Now we'll summarize.

We're doing well in the area of public safety. The money invested has brought about strong results.

We're failing big time when spending recklessly on public education. In fact, we probably would be much better off if we spent much less. To paraphrase President Clinton's famous electoral admonition about the economy in 1992, it very much looks to me like "It's the public education system, Stupid." And not that there aren't enough teachers and administrators in the system.

So until we gather the courage to change the public education system, let's stop spending all that ill spent money to achieve nothing other than more government deficits and greater debt levels.

At the very least, let's have an adult conversation about what's needed. An educated citizenry isn't a consistent output of our public schools today. That doesn't augur well for a self governing society.

Thanks. Bob.

Saturday, December 24, 2011

From The Payroll Tax Cut to the Pipeline Project ... Political "Sincerity" Abounds

An old joke says that the key to success is sincerity. And that if you can fake that, you can fake anything.

Now that the "sincere" payroll tax cut "fight for the middle class" is over for at least another few weeks, let's review the likelihood of approval of the job creating and energy providing Keystone XL pipeline project in 2012.

A Payroll Tax Deal puts the entire saga together in this manner:

"The latest exercise in Washington burlesque ended yesterday, when House Republicans agreed to pass the Senate's two-month payroll tax holiday extension and the Democrats who run the Senate agreed to appoint negotiators to work out a year-long extension. The best you can say about this political melodrama is that it's over.

President Obama will take a victory lap, and he played his hand well if cynically. The two-percentage-point payroll tax holiday has done nothing to lift the economy this year, and it won't matter in 2012. As Milton Friedman taught us, temporary tax changes don't lead to permanent changes in consumer, taxpayer or business behavior.

The only potential job creator in the Senate bill is the plank requiring Mr. Obama to make a decision in 60 days on the Keystone XL pipeline. And he might ruin that by killing the pipeline to please his rich green supporters who think you can power a modern economy with windmills, solar cells and switchgrass. But at least now he'll have to decide before the election, and if Mr. Obama kills the pipeline he might doom a Democratic Senator or two.

The only purpose of this tax holiday was political, and the House Republican mistake was falling into the President's trap. They let him pose as a tax-cutter while they put on their pointy accountant hats and talked about "the Social Security trust fund," as if such a thing contains real money. The better strategy was to extend the payroll holiday, get something in return, and then talk about how Mr. Obama wants to push the economy off his multiple tax-increase cliff in 2013.

Republicans do need to fight for their priorities, but it helps to pick the right fights. They should return in 2012 ready to make their differences clear on taxes, health care, regulation, and how to grow an economy."

What's ahead in 2012? Well, let's first discuss the Keystone XL pipeline project and what I believe may be President Obama's most "sincere" move in 2012, assuming he wants to win re-election, which he does.

My intuition suggests that he'll somehow find a way to approve the Keystone XL project before the 2012 presidential election, thereby lending credence to the developing democratic narrative that job creation and energy independence will serve as cornerstones of the second Obama administration's ongoing fight for the American middle class.

In other words, by supporting the pipeline project, President Obama will become a "sincere" bipartisan tax cutter, job grower and energy provider working tirelessly on behalf of America's middle class.

If that's the way it goes, can't you just hear the Republicans screaming or crying for the next several years? They will have once again snatched defeat from the jaws of victory.

Not let's look briefly at some inconvenient facts--aka the reality of all this political "sincerity."

Beginning in January, 60 million Social Security recipients will start receiving a 3.6% increase in benefit payments. At the same time, those 160 million workers who pay the non-borrowed part of those benefits will be paying reduced payroll taxes for the second consecutive year. To make up the shorttfall, we'll need to borrow more money as a nation. Some of that increased national debt will come from China.

And how will that additional borrowed money be spent? Well, we'll spend part of it on Chinese imports. To the extent we do that, we will have exchanged the money borrowed from the Chinese for consumer products made in China.

Of course, that will help increase Chinese based middle class employment. Meanwhile, we'll still owe the full amount of the money borrowed and used to make all those incremental U.S. middle class purchases.

That means that our ever expanding American middle class welfare society will continue on its merry way to greater dependence on debt owed to China and other countries.

To put all this in straightforward Bastiat terms, the unseen part of the U.S. political story is that the funds for all the aforementioned middle class help will be coming from China. We simply don't have our own money to spend.

However, don't expect our political leadership to even mention those unseen and uncomfortable facts. That wouldn't please the middle class-er-voting public nor would it help the politicians' election prospects.

But we can at least count on one sure thing: throughout 2012 all of our "sincere" American politicians will be busily fighting for the votes of both the middle class and older social security recipient voters.

As for those down-the-road-in-the-future middle class American taxpayers twenty, thirty or even forty years from now, my sincere view is that they may have really big problems paying for all this "unseen" 2012 middle class welfare based "sincerity."

Thanks. Bob.

Mr. Geller's Life Lessons

Merry Christmas, Everybody.

You've probably not heard of Mr.Geller, a high school math teacher for 43 years.

His address to the 2011 high school graduating class contains lessons for all of us.

Thanks. Bob.

Richard Geller, b. 1946

When Richard Geller died, students put his catch phrase, “Math is #1,” all over Stuyvesant High School, in New York City, where he had taught. It was taped onto lockers. It was drawn on a couple of desks. It was handwritten on a T-shirt. In the classroom, Geller was passionate and intense and demanding. One student remembered her math grade was the lowest one on her report card, “but it was a Geller grade, and it was the one I was most proud of.” Geller could have retired a decade before he died, but he didn’t want to. He was a math teacher through and through.

This is an edited and condensed version of a speech Geller delivered at Stuyvesant’s graduation in June 2011. He died four months later.

I would like to thank the graduating class for having chosen me as your faculty speaker.

I wondered: Why me? I have been teaching math at Stuyvesant for 29 years and was never chosen before. By the way, 29 is a prime number. There are exactly two factors for 29: 1 and 29.

Maybe I was chosen for the approximately 5 basketballs that I confiscated from students during your four years at Stuyvesant. Or the 17 Frisbees I took away. Or the 113 decks of playing cards. Or the 257 cellphones I took away and brought to Miss Damesek’s office. In case you haven’t figured it out, all those numbers are prime numbers.

No, I don’t think so. I think that you heard three months ago that I have metastasized melanoma cancer in my lungs and that you wanted to honor me for my passion for teaching math. Thank you for honoring me.

Photograph courtesy of Stuyvesant High School

Even through all my problems, the best part of my day is teaching math. I have been teaching math for 43 years — another prime number — and still love it. I got lucky. I found a career that I really love.

I have been to many junior-high-school and high-school graduations as a teacher. However, the most important graduations for me were my children’s graduations. Yes, I am a parent of a son and a daughter. Teachers do it, too, you know.

Only when I attended my own children’s graduations did I realize how special parents find graduation. So give your parents a break today. Thank them for everything they have done for you. Let them take lots of pictures. Spend time with them. Let them enjoy it. In fact, please stand up, turn around, face your parents.

I have some homework for you. Assignment No. 1: Volunteer. Tutor for free. Volunteer to help a political candidate. Help your parents. Make dinner, baby-sit, say thank you. Give up your subway seat to someone who is elderly or disabled. Think of others.

Assignment No. 2: Find a career that you enjoy as much as I enjoy teaching math. You will be much happier with your life if you enjoy your job. And if your parents don’t like what you choose, that is their problem, not yours. When they see you happy in your life and career, they will be happy for you, too.

Assignment No. 3: Is 2011 a prime number?

I have loved being part of your four years of Stuyvesant. I have enjoyed watching you grow — physically, mentally and mathematically. I leave you with the following words:

Math is #1."

Friday, December 23, 2011

Merry Christmas

The following editorial has been published each year at Christmas time since 1949 in the Wall Street Journal. I hope you will enjoy reading it as much as I do each year.

In Hoc Anno Domini

"When Saul of Tarsus set out on his journey to Damascus the whole of the known world lay in bondage. There was one state, and it was Rome. There was one master for it all, and he was Tiberius Caesar.

Everywhere there was civil order, for the arm of the Roman law was long. Everywhere there was stability, in government and in society, for the centurions saw that it was so.

But everywhere there was something else, too. There was oppression—for those who were not the friends of Tiberius Caesar. There was the tax gatherer to take the grain from the fields and the flax from the spindle to feed the legions or to fill the hungry treasury from which divine Caesar gave largess to the people. There was the impressor to find recruits for the circuses. There were executioners to quiet those whom the Emperor proscribed. What was a man for but to serve Caesar?

There was the persecution of men who dared think differently, who heard strange voices or read strange manuscripts. There was enslavement of men whose tribes came not from Rome, disdain for those who did not have the familiar visage. And most of all, there was everywhere a contempt for human life. What, to the strong, was one man more or less in a crowded world?

Then, of a sudden, there was a light in the world, and a man from Galilee saying, Render unto Caesar the things which are Caesar's and unto God the things that are God's.

And the voice from Galilee, which would defy Caesar, offered a new Kingdom in which each man could walk upright and bow to none but his God. Inasmuch as ye have done it unto one of the least of these my brethren, ye have done it unto me. And he sent this gospel of the Kingdom of Man into the uttermost ends of the earth.

So the light came into the world and the men who lived in darkness were afraid, and they tried to lower a curtain so that man would still believe salvation lay with the leaders.

But it came to pass for a while in divers places that the truth did set man free, although the men of darkness were offended and they tried to put out the light. The voice said, Haste ye. Walk while you have the light, lest darkness come upon you, for he that walketh in darkness knoweth not whither he goeth.

Along the road to Damascus the light shone brightly. But afterward Paul of Tarsus, too, was sore afraid. He feared that other Caesars, other prophets, might one day persuade men that man was nothing save a servant unto them, that men might yield up their birthright from God for pottage and walk no more in freedom.

Then might it come to pass that darkness would settle again over the lands and there would be a burning of books and men would think only of what they should eat and what they should wear, and would give heed only to new Caesars and to false prophets. Then might it come to pass that men would not look upward to see even a winter's star in the East, and once more, there would be no light at all in the darkness.

And so Paul, the apostle of the Son of Man, spoke to his brethren, the Galatians, the words he would have us remember afterward in each of the years of his Lord:

Stand fast therefore in the liberty wherewith Christ has made us free and be not entangled again with the yoke of bondage.

This editorial was written in 1949 by the late Vermont Royster and has been published annually since."

Merry Christmas. Bob.

Middle Class Values, Rich and Poor ... Fairness and Inequality

President Obama says he is fighting on behalf of the middle class.

To help him win that fight, I have a suggestion. First, he should take the time to try and better understand the American middle class which he purports to be representing, including its value system.

Obama's Strategy -- And How to Fight It was written by Karl Rove. He says this about how the President is planning to position himself while campaigning for his re-election in 2012:

"This month, during a speech in Osawatomie, Kan., and in an interview on "60 Minutes," President Barack Obama laid out the broad contours of his re-election strategy. Republicans would be wise to examine his words and prepare accordingly.

Mr. Obama will frame this election as a fight for the middle class. He told his Kansas audience that America was once a place where "hard work paid off, and responsibility was rewarded, and anyone could make it if they tried." Now, as he informed "60 Minutes" correspondent Steve Kroft, "the rules are rigged" against "middle-class families." . . . .

Mr. Obama will make "fairness" a major theme. He declared in Kansas that his goal was to "restore balance, restore fairness," and he then told Mr. Kroft that a "balanced approach" to the nation's deficit crisis required "everybody to do their fair share."

But resentment is not an effective political appeal. Americans tolerate unequal outcomes if they believe people have equal opportunity. Crude class warfare like Mr. Obama's has never been successful in presidential campaigns (consider candidates Mondale, Dukakis, Gore and Kerry)."

That last part about unequal outcomes and equal opportunity is confirmed in Americans Not As Worried About the Rich-Poor Gap:

"We hear it every day: “Inequality is at an all-time high.” America has woken up to the real crime — the gap between the rich and the poor. The President says it. Pundits say it. The Occupiers are living, breathing proof.

There’s just one flaw: Americans as a whole aren’t more concerned about inequality.

According to a recent Gallup poll, 52% of Americans say the rich-poor gap is “an acceptable part of our economic system.” A slightly lower 45% said the gap “needs to be fixed.”

Those are high numbers, no doubt. But Gallup says Americans are less concerned about inequality now than they were in 1998. In 1998, 52% of Americans wanted to “fix” inequality.

The survey found that Americans prefer growth over a reduction in inequality. Some 82% said growth was either “extremely” or “very” important; only 46% said “reducing the income and wealth gap between rich and poor” was “extremely” or “very” important.

“In short, the public wants fairness but retains a healthy skepticism about the federal government’s ability to achieve it,” as Charles Lane writes in the Washington Post.

Inequality crusaders will say Americans just don’t understand the problem. If they knew the real numbers, that 45% who said the gap “needs to be fixed” would be much higher. Others say Americans have simply become numb to the problem.

But there is another possible explanation for why Americans care less about inequality today than they did in 1998. Inequality itself is lower than it was in 1998."

Here's what I believe. Since by definition more than half of Americans belong to the middle class, it follows that a large majority of Americans would possess middle class values. Count me in.

But what are those values? Do they represent what the President believes they do?

I think not, assuming he means what he says. Thus, I conclude that our President simply doesn't understand what matters most to the middle class.

And what speifically are those middle class values and ideals that President Obama apparently doesn't understand?

Well, to begin with, people want to be treated equally with respect to opportunities--not results. We readily accept that those who work harder and smarter, or maybe are just plain luckier, will achieve or receive more than the rest of us.

Not everybody will earn an 'A' grade. We get that, but we want the chance to compete for one in a fairly officiated game.

And for the most part, our American free market system works exactly that way. Some of us start low, work through the middle and end high, and some start high, fall through the middle and end low.

Some of us who try out will make the team, some will get cut, some will start, some will get benched, some will star and some will fail. Some of those who fail will later succeed and vice versa. That's what competition and freedom are all about.

The President says that the game is rigged against the middle class. He wants to restore fairness and require everybody to do his fair share. What game? What unfairness?

He should get specific about what he means when he says the game is rigged against the middle class. Who rigged it? The government? Aren't they the ones who set the rules of the game?

And let's also ask him to explain what we means about the middle class being treated unfairly. Who in the middle class hasn't been given an opportunity to succeed in America? If the game was rigged against them, how did they become a member of the middle class? Who's not doing his fair share with regard to treatment of the middle class?

President Obama won't ever get specific on any of this because he has no legitimate story to tell. He just wants to be re-elected. That's what politicians do. Run for office and do what they believe will get them enough votes to win.

Let's get specific about middle class values and treatment in a self governing free market society.

We'll use a simple example of the free market at work. In a free market system, each of us "works hard" and produces something of value to ourselves and others as well. We'll use corn as the example of what our hard work has produced.

There are four things that can happen to the corn we raise.

(1) Some of what we produce we will eat or consume. (2) Some will be set aside for our future consumption. We'll call that portion of the crop investment or deferred consumption. (3) Some will be traded with other producers of different products. We will exchange some of our corn for what they produced. (4) That leaves the part we transfer to the government. Some will be rightly used to pay for our country's common defense, system of justice and other things like roads and such that are used by the general public. And lest we forget, some will be used to pay for all those entitlement and transfer programs, too

Let's look closer at the entitlement and transfer portion of the government redistribution program attributable to #4. The more of what we produce that is taken by government, the less we will retain and have available to do with as we please for our own use, as itemized in #1, #2 and #3 above.

So what's fair really gets down to how big #4 should be. At least that's the way I see it.

First, let's make one thing perfectly clear. I wholeheartedly embrace American middle class values.

Here's what that means to me. If we work hard and play by the rules, we should be allowed to keep the vast majority of what we make for (1) current consumption, (2) investment leading to future consumption, or (3) to exchange our production with others for what they have produced. That's how a free market system works to our individual and collective advantage and prosperity, respectively.

Now that brings us to #4 and its size. As #4 expands, the total of #1, #2 and #3 must contract. It's a zero sum game pitting #4 against the total of #1, #2 and #3.

Stated differently, how much of what we produce should be taken by the governing elite for whatever purposes they deem fit, including redistribution and government operations and payroll? How much of our money should be spent on other people's social security benefits, medical care, nursing homes, public schools, student loans, government operating costs and such?

And if for whatever reason, as a middle class member I don't pay enough for what I receive from government, who should pay for the shortfall? My view is that I should pay for it, assuming I'm able. Either that or I should agree to take less in the future. To me those are middle class values.

In other words, to me middle class values mean that we very much want to row our own boat. We don't want government to take other people's money and redistribute it to us to support our own spending habits. We want to pay our own way.

That said, middle class values also mean that we'll be eager to assist the truly needy if they can't take adequate care of themselves. We'll also want to pay for the care of the old and young who aren't able to care of themselves. And the poor as well.

Middle class values mean we pay our own way and help others who can't.

So if those of us with middle class values are taking more from the entitlements trough than we're contributing, due to government's actions, we'll either choose to put more in or reduce that which we're taking. We won't expect the younger generations or even the well off to pay for us that which we can pay for ourselves.

All that said, those with middle class values will be anxious to help those in need of help. By so doing, more people will have an opportunity to enter into the boat rowing and owning middle class themselves.

Now what's so complicated about that, Mr. President?

And if that's a fair representation of basic middle class values, which I believe it to be, then how is the game now rigged against the middle class? And if so rigged, how were the 'riggers' able to do so it without government participation and complicity?

And for those of us who have fallen on hard times, why are the more successful and even the luckier ones to blame? Why are they responsible to equalize the outcomes? That's not what middle class values represent. Not even close.

Mr. President, you can't fight successfully on behalf of the middle class if you don't understand its foundation and the values it shares.

One thing is absolutely clear about the difference between President Obama and me. One of us has no clue about generally accepted American middle class values and beliefs.

Thanks. Bob.

Thursday, December 22, 2011

Republicans to Re-Elect Obama in 2012?

Politics sucks.

Let's deal with the probable unintended consequences related to the latest maneuver by Speaker Boehner and the House Republicans. It appears that their efforts will help to re-elect President Obama in 2012.

In another example of history rhyming, if not repeating itself, this latest self inflicted Republican wound reminds me of the post 1994 election government shutdown and how Newt Gingrich was then outmaneuvered by Bill Clinton.

It seems that Newt learned a painful lesson from that long ago experience. See Gingrich to House GOP: Give In on Payroll Tax.

In any event, the aftermath of Newt's winning off-year election revolution in 1994 helped to re-elect President Clinton in 1996. Could the aftermath of the Tea Party's triumph in 2010 lead to a similar but unintended Obama victory in 2012? Stay tuned.

To me, it looks like the House Republicans are very much up to their old tricks. If so, Barack Obama and the Democrats are likely to be the unintended beneficiaries in 2012.

Let's look closely at the latest Republican shoot-yourself-in-the-foot example.

The politicians are ending 2011 by fighting over how long, not whether, to extend the "targeted and temporary" social security related payroll tax break which was enacted for 2011. The current fiasco appears to be about whether to extend the "tax holiday" for another year or only two months. In fact, most of the Republicans want a year's extension, and so do the Democrats, but other issues are causing the political circus to continue into year end and maybe beyond.

My take is simple; let's make the extension permanent for the 160 million workers.

Anytime we can send less hard earned money to the government for redistribution, we should do so. Thus, why the Republicans haven't already agreed to the full year extension is beyond my comprehension. In fact, I'd have expected them to make the case for a permanent reduction in payroll taxes.

Besides that, no employer will hire any more people for a one year tax break. To have any effect at all, the tax reduction would have to be permanent.

Now let's look at a related matter. Another 60 million Social Security recipients will see their benefits increased by 3.6% in January, 2012.

That's right; taxes decrease while benefits increase. Only in America!

So the tax for paying social security benefits was decreased on ~160,000,000 voters--er--workers in 2011. And benefits will increase for 60 million voting retirees in 2012. We'll get to the unemployed voters shortly.

First, let's look briefly at the politics. 160 million workers pay less in taxes and all the old folks receive more in benefits. And the unemployed won't be left out either. Free lunches abound.

What to do about 2012 and beyond? My vote is just keep paying fewer taxes and if funds later run out to pay benefits, we can just stop paying them as well. Either that or deal with the long term social security issue as a whole. Now or sometime before the funds run out, probably in approximately 20 years or so. A lot can and will happen in the next twenty years.

And permanent tax reduction appears to be something neither party wants to do. They're just jockeying for position in the 2012 elections. The Democratic jockeys are looking good right now, thanks to the Republicans.

Next we have the "targeted and temporary" 99 week unemployment benefits payments which were legislated to help us through this period of economic stress. Like the payroll tax breaks, the extended unemployment benefits were enacted to help bridge the effects of a weak economy. Of course, the stress of a weak economy will remain throughout 2012, so guess what will happen next year.

Next there's the annual "targeted and temporary" Medicare "Doc fix" payments. This simply means that year end legislation is required if we intend to pay doctors for medicare treatments in 2012 that which they are being paid today. If legislation doesn't occur, their pay will decrease by 27%. That won't happen either.

So why not just make the Doc fix permanent? Well, then our games playing politicians would have to acknowledge that Medicare is even more financially unstable than it appears to be currently.

Finally, we have the U.S. jobs providing and North American energy providing pipeline project which the greens don't want, but the union workers do want. That poses a problem for the Dems. Democrats want to win in 2012, so they want to do nothing until after the election. They don't want to upset their base. Meanwhile, Republicans are allowing this issue to get lost in the year end payroll tax extension debate.

Let's summarize. Republicans are afraid to oppose the payroll tax extension in total, and they are also afraid to recommend a comprehensive permanent social security fix. So they punt.

Democrats want votes in 2012 so they want "middle tax" tax cuts before the election. On the pipeline, they punt, too. They also punt about even considering a permanent social security payroll tax reduction at this time. That appears to suit the Republicans just fine.

And what about paying for a continuing annual ~$100 billion payroll tax reduction? Well, here's the math.

We owe about 100 trillion dollars for debt repayments and unfunded entitlement promises that will have to be paid in the future. According to my general math, a permanent annual payroll tax reduction of ~ one hundred billion dollars is about one one thousandth of one hundred trillion dollars (.001). When considered in that context, it's not even worth considering.

Yet this not-worth-considering amount is currently the subject of the big year end political battle which the apparently self destructing Republicans are unintentionally insisting that the Democrats win. If that happens, it may very well help determine the outcome of the 2012 election results.

Four more years indeed! We can't stand that from either party acting the way they do now.

To repeat, we the people should work hard to keep government from extending its financial reach every opportunity we get. Thus, the politicians of both parties should be encouraged to vote for a permanent payroll tax cut and not a two month extension, or even a one year extension. That's really dumb.

And what will be the likely political effects of this latest Republican maneuver? The GOP's Payroll Tax Fiasco says this:

"GOP Senate leader Mitch McConnell famously said a year ago that his main task in the 112th Congress was to make sure that President Obama would not be re-elected. Given how he and House Speaker John Boehner have handled the payroll tax debate, we wonder if they might end up re-electing the President before the 2012 campaign even begins in earnest.

The GOP leaders have somehow managed the remarkable feat of being blamed for opposing a one-year extension of a tax holiday that they are surely going to pass. This is no easy double play.

Republicans have also achieved the small miracle of letting Mr. Obama position himself as an election-year tax cutter, although he's spent most of his Presidency promoting tax increases and he would hit the economy with one of the largest tax increases ever in 2013. This should be impossible.

House Republicans yesterday voted down the Senate's two-month extension of the two-percentage-point payroll tax holiday to 4.2% from 6.2%. They say the short extension makes no economic sense, but then neither does a one-year extension. No employer is going to hire a worker based on such a small and temporary decrease in employment costs, as this year's tax holiday has demonstrated. The entire exercise is political, but Republicans have thoroughly botched the politics."

And setting aside the political consequences, what will be the impact on the real economy if the payroll tax breaks are extended only through part or all of 2012? Stanford economics professor John Taylor says this about that in Want Growth? Try Stable Tax Policy:

"The two-month payroll tax cut being debated in Washington reduces to the absurd the recent revival of short-term Keynesian stimulus programs. That such a temporary cut would stimulate the recovery and get employment growing defies common sense.

There is no hard evidence that the temporary payroll tax cut of this year stimulated the economy, and another one for the first two months of next year will obviously do even less. In fact, economic growth declined after this year's temporary tax cut was implemented, so proponents need to appeal to dubious "things-would-have-been-worse" arguments.

Like the one-time rebate of 2001, the temporary tax cut of 2008, the cash-for-clunkers and stimulus payments of 2009, or similar policies tried back in the 1970s, these temporary policies consistently fail to stimulate sustainable recoveries. And as this history shows, extending the temporary reduction from two months to six months or even to 12 months would be at best a marginal improvement.

Even economists who claim that these policies stimulate—such as those at forecasting firm Macroeconomic Advisers—admit that they cost jobs as they are turned off, leaving the recovery no better off. Republican presidential candidates Michele Bachmann and Mitt Romney are right to call the payroll tax scheme, respectively, a "temporary gimmick" and "just a Band-Aid."

But the policies are worse than doing nothing at all. Rather than stimulate the economy, they hold the economy back by creating policy unpredictability and by distracting Washington from crucial long-term reforms that are key to restoring economic growth and creating jobs."

And the non-truth telling impact of all this political nonsense? That's where we the people come in.

Are we as indifferent, naive and self centered as the politicians believe? No, we're not.

Are they really as awful as they appear to be? Apparently so.

We're in charge. Let's act that way.

Thanks. Bob.

Wednesday, December 21, 2011

Truth Telling, Freedom, Indifference, Public Service, Self Interest and Pundits

Truth telling is important. Too little truth telling is evident in politics today. And in the media as well.

Why is that? And how much does it matter?

First, some background.

Presidents Obama, Clinton, both George Bushes, as well as Newt Gingrich, Chris Matthews, Rush Limbaugh, Glenn Beck and many other politicians and pundits have no doubt become very wealthy individuals by "serving" the public.

By so doing, have they engaged in public service or self service? And if self service, so what? Isn't that just the way the system works?

Stated a little differently, do our political leaders generally engage in 'disinterested public service' on behalf of the general public? Of course, the correct answer is no. In my view, it's the same no answer for highly paid talk show hosts and others similarly situated.

We the people of the U.S. need the answers to the above questions to be yes. And we the people have the power to make it happen. It's up to us.

These politicians and pundits often serve themselves quite well by purporting to be serving and protecting the public interest. In essence, we've become in large measure an adversarial and sound bite society which is led by self serving public officials and media pundits.

More often than not these political and media elitists don't even make a feeble attempt to tell the people the truth, the whole truth and nothing but the truth. They stick to their parochial scripts and strenuously advocate the positions they're selling on behalf of their 'team.'

That's harsh perhaps, but true, at least as I see things. And I do try continuously to get an ever better reality by attempting to see things as they really are. My conclusions may be wrong but my truth seeking and telling motives are sincere.

So what about the importance of each of us seeking that ever better reality by continuously trying to live and tell the truth? Does it even matter if our public officials and pundits frequently act in a self interested as opposed to disinterested manner? What's the big deal?

For that answer, let's look at a current example of two just deceased public leaders to discover the difference that self as opposed to public service leadership can mean to a country's citizens.

We'll look at Czechoslovakia and North Korea for a lesson about what all this seek, live and tell the truth stuff can mean to U.S. citizens.

Tyranny and Indifference is subtitled "What it means to heed Vaclav Havel's prescription to 'live in truth.'"

It compares the selfless and courageous actions of Vaclav Havel's freedom loving leadership in defeating communism in Czechoslovakia to the inhumane dictatorship of North Korea's Kim Jong Il.

We'll begin by looking at Havel's beliefs about the effects of indifference on human freedoms:

"If Havel's now-celebrated career means anything, however, it is to beware that facile conclusion (that what happens to others is not our concern). In his great 1978 essay, "The Power of the Powerless," written just as his career as a dissident had begun in earnest with his signing of the Charter 77 manifesto, he warned against "the attractions of mass indifference" and the "general unwillingness of consumption-oriented people to sacrifice some material certainties for the sake of their own spiritual and moral integrity." Havel feared that one's indifference to the question of the freedom of others would ultimately result in a well-fed indifference to the question of one's own freedom.

"A big danger of our world today is obsession," he told the conference the day of our interview. "An even bigger danger is indifference."

All this was Havel's way of saying that political extremism—whether of the Leonid Brezhnev, Kim Jong Il, Saddam Hussein or Osama bin Laden variety—would flourish if free people did not actively resist the temptation to acquiesce to it in the name of "peace," or some other go-along-to-get-along slogan.

A proper attitude may not have required physical belligerency, he believed, and it could easily incorporate diplomacy. But it did require a constant posture of spiritual belligerency—a refusal to accept that a regime like Saddam's or Kim's was just a normal fact of life, beyond the reach of moral examination. In the context of Cold War Czechoslovakia, Havel called it a matter of "living in truth." In the context of countries like North Korea, Russia or Iran, Havel told me it was also a matter of truth-telling. "We can talk to every ruler," he said, "but first of all it is necessary to tell the truth."

What does it take to "tell the truth," as Havel saw it? In his case, a great deal of courage, including a willingness to spend years of his life in prison or working the menial jobs to which the regime sentenced him. The real mystery is why, in free societies where few journalists and politicians are ever at serious risk of reprisal, truth-telling seems to be in relatively short supply."

The lesson for us is straightforward. What Havel referred to as spiritual belligerency is a fundamental underpinning of a free society.

Unless and until we are willing to accept no less than we are entitled to expect from our elected representatives, we're likely to get as little as we'll accept and nothing more than that. However, if we're spiritually belligerent and tell the truth, others will do the same. Even the pols and the pundits.

The bottom line? If we're practicing learned helplessness and are willingly indifferent to the truth, tyranny will have a chance to blossom. As free citizens, we'll then have only ourselves to blame.

That's because as Americans we've long been empowered to insist that truth seeking and telling be the only acceptable behavior of our pols, pundits and fellow citizens. Spiritual belligerency, anyone? Everyone?

So why is truth telling among politicians and journalists in such short supply? For the simple reason that it's not required, and in many cases not even desired, as a condition of their continued employment or personal success.

Whether that's due to our public's general indifference or widespread ignorance, the outcome is exactly the same. If we act as if the truth doesn't matter, the politicians and journalists will sell us only that which will not make us upset, even if it's not always true.

All elected politicians have a base of support. As a member of the House of Representatives, for example, it's a local legislative district. The locally focused people will want their congressman to bring home the goodies to their local district. In a sense, we all want to enrich ourselves at the expense of everybody else. So that's what the politicians try to give us. How long has this been going on?

In "The State," published in 1848, Frederic Bastiat stated the case this way, "The State is the great fiction through which everybody endeavors to live at the expense of everybody else."

Thus, the actions of our self interested and not distinterested politicians today largely reflect that simple "truth." But in the longer term that "truth" is simply untrue and based on ignorance. In fact, try as we may, everybody can't live at the expense of everybody else.

All money coming from government originates someplace else. To wit, all that government redistribution money has to be taken from some people in order to be transferred, at least in part, to other people. Then it passes through the hands of largely self interested politicians. They in turn take their cut, in the form of government operating expenses, thus subtracting from the original amount. Hence, we begin with 100% but end up redistributing something considerably less than that.

But that's only the direct cost of government. To use Bastiat's language, it's what is seen.

The indirect cost, or unseen portion, is in fact much greater than the direct or seen cost.

That's because the politicians are spending OPM. And the people who had their MOM turned into OPM are then less incentivized to work harder in the future, because much of what they have produced will be confiscated by government and used to grant favors to others, including self interested politicians.

The politicians who grant the OPM favors then often proceed to write books and make speeches. Later they lobby, and many become very wealthy as a result of their "public service." They in reality are the people who live at the expense of everybody else.

As for the general public, huge deficits and debt have now accumulated to the point where our indifference must end. So it will.

So are things about to change for the better? Yes, they are. If only because indifference and ignorance are not the rough equivalents of self dealing, tyranny and stupidity.

Our combined spiritual belligerency and informed reality will lead us all to a better place. A much better place, in fact.

Our elected officials aren't tyrants, and our fellow citizens aren't stupid. When, and not if, we the people decide to become informed and insist on truth telling and proper representation by our elected officials, things will change for the better.

Either those currently holding elected office or those newly elected representatives who take their place will follow the lead of the people.

That's the benefit of a free, open and informed society. Information is the key, and people who seek the truth shall find it in our free and open information rich society.

As we take time to relearn the unchanging lessons of human nature, self interested politicians and journalists will alter their behaviors. Stated another way, as we stop buying what they are selling, they'll start selling what we're buying. That's the way free markets work.

And as I see it, that's the simple truth about the power of freedom, self interest and information in an open and self governing society.

Thanks. Bob.

Tuesday, December 20, 2011

Our Republic's Potential ... From the Time of Ben Franklin in 1787 to Jeb Bush in 2011... Some Things Never Change

Upon leaving the constitutional convention on September 17, 1787, a woman he passed on the street asked Benjamin Franklin what kind of government the convention delegates had given the people.

Franklin reportedly replied: "A republic, madam--if you can keep it."

In Capitalism and the Right to Rise, former Florida governor Jeb Bush updates Franklin's advice:

"Congressman Paul Ryan recently coined a smart phrase to describe the core concept of economic freedom: "The right to rise."

Think about it. We talk about the right to free speech, the right to bear arms, the right to assembly. The right to rise doesn't seem like something we should have to protect.

But we do. We have to make it easier for people to do the things that allow them to rise. We have to let them compete. We need to let people fight for business. We need to let people take risks. We need to let people fail. We need to let people suffer the consequences of bad decisions. And we need to let people enjoy the fruits of good decisions, even good luck.

That is what economic freedom looks like. Freedom to succeed as well as to fail, freedom to do something or nothing. People understand this. Freedom of speech, for example, means that we put up with a lot of verbal and visual garbage in order to make sure that individuals have the right to say what needs to be said, even when it is inconvenient or unpopular. We forgive the sacrifices of free speech because we value its blessings.

But when it comes to economic freedom, we are less forgiving of the cycles of growth and loss, of trial and error, and of failure and success that are part of the realities of the marketplace and life itself.

Increasingly, we have let our elected officials abridge our own economic freedoms through the annual passage of thousands of laws and their associated regulations. We see human tragedy and we demand a regulation to prevent it. We see a criminal fraud and we demand more laws. We see an industry dying and we demand it be saved. Each time, we demand "Do something . . . anything."

As Florida's governor for eight years, I was asked to "do something" almost every day. Many times I resisted through vetoes but many times I succumbed. And I wasn't alone. Mayors, county chairs, governors and presidents never think their laws will harm the free market. But cumulatively, they do, and we have now imperiled the right to rise.

Woe to the elected leader who fails to deliver a multipoint plan for economic success, driven by specific government action. "Trust in the dynamism of the market" is not a phrase in today's political lexicon.

Have we lost faith in the free-market system of entrepreneurial capitalism? Are we no longer willing to place our trust in the creative chaos unleashed by millions of people pursuing their own best economic interests?"

Later Bush warns that, as always in a self governing society, the choice of the future American path is for American citizens to make, as it has been for the last two plus centuries:

"We either can go down the road we are on, a road where the individual is allowed to succeed only so much before being punished with ruinous taxation, where commerce ignores government action at its own peril, and where the state decides how a massive share of the economy's resources should be spent.

Or we can return to the road we once knew and which has served us well: a road where individuals acting freely and with little restraint are able to pursue fortune and prosperity as they see fit, a road where the government's role is not to shape the marketplace but to help prepare its citizens to prosper from it.

In short, we must choose between the straight line promised by the statists and the jagged line of economic freedom. The straight line of gradual and controlled growth is what the statists promise but can never deliver. The jagged line offers no guarantees but has a powerful record of delivering the most prosperity and the most opportunity to the most people. We cannot possibly know in advance what freedom promises for 312 million individuals. But unless we are willing to explore the jagged line of freedom, we will be stuck with the straight line. And the straight line, it turns out, is a flat line."

How are things in the world today? To begin our limited survey, we can conclude that Europe's experiment with socialism is proving to be an abject failure.

And now the North Korean dictator is dead, and his youngest son apparently is replacing him. The future freedom of North Korean citizens is unknown but it certainly does not look good. See Pyongyang's Uncertainty Hangs Over Region.

Meanwhile, the Russian people are openly protesting Vladimir Putin's authoritarian regime and his certain return to power as the Russian President in 2012. See As the Ice Cracks Under Putin, What Will He Do?

For a lesson on overcoming communism, the Czechs are now mourning Vaclav Havel, their very own courageous champion of freedom who died on Sunday. See Vaclav Havel.

Of course, the world has also just experienced the Arab spring of 2011 and many other examples where people have acted bravely and courageously. In so doing, they risked and often lost their lives while advocating freedom for themselves and their fellow countrymen.

To be clear, stability is something the world doesn't enjoy today. Lots of turmoil, in fact.

But here's a question definitely worth pondering for free Americans. Despite our current travails, why are we in the U.S. so lucky to have been born free with so many opportunities for the taking?

Well, it's actually a pretty simple story. For that we can give thanks to the Founding Fathers and the many others who preceded them, along with later generations of Americans who came before us. We're born free and stay that way throughout our lives. Why's that?

In the 1600s, English philosopher John Locke declared that all people are born free. To protect those individual freedoms, he argued that humans often join together in civil societies for their mutual benefit and protection.

Locke's views on freedom and civil society largely formed the ideological underpinnings of our uniquely American system of constitutional government which Benjamin Franklin and the rest of the Founding Fathers adopted in 1787.

In other words, American Exceptionalism is among our very real American birthrights. But along with those rights, we have inherited and are called upon to exercise clear responsibilities as well.

That's what Mr. Franklin meant when he warned the woman about the necessity to do those things in the future which will always be necessary to sustain a republican form of government for free people.

In the end, I'm not totally sure which is harder--to gain or maintain individual freedoms. But that said, my strong guess is that we Americans today have the much easier task compared to both prior generations of Americans and those citizens of other countries today who are seeking individual freedoms for themselves.

All we Americans have to do is work diligently and continuously to defend and protect our system of self government and economic freedoms. That's our duty as 21st century U.S. citizens.

Accordingly, my take on the meaning of the past 224 years is quite simple: how lucky I am to have been born a free citizen belonging to a self governing republican form of government.

As we discharge our responsibilities to protect our American heritage, that republican experiment of which Franklin spoke so long ago will long endure--perhaps forever.

Led by our example, the rest of the world's people will join us in due course. Of that I'm also sure.

They were each and all born with natural rights, too.

In the meantime, long live American Exceptionalism and our self governing individual freedom based society.

Thanks. Bob.