Thursday, January 31, 2013

California, Illinois and the Cubs

My Dad used to joke that his favorite baseball team, the Chicago Cubs, was the strongest team in the league.

He concluded that this must be so, because always being at the bottom of the National League standings meant they had to hold all the other teams up. And then he'd laugh.

According to that reasoning, Illinois is currently the strongest state in the nation. And now even California is distancing itself from them.

Here's the breaking news in California Basks in S&P Rating Upgrade:

"Standard & Poor’s hadn’t even sent out word yet that it had upgraded California’s credit rating (to A from A-) before California State Treasurer Bill Lockyer released a statement Thursday praising the rating action. Quoth Lockyer:
It’s been a tough climb out of the hole. But the Governor and Legislature have provided strong leadership…. And the people, in approving the majority-vote budget and temporary tax increases, have shown wisdom and sacrificed. With this united effort, California has emerged with sounder financial management and structurally sturdier budgets and placed itself on a more sustainable fiscal path. S&P’s action recognizes this progress.
For its part, here’s part of what S&P had to say:
The upgrades reflect our view of California’s improved fiscal condition and cash position, and the state’s projections of a structurally balanced budget through at least the next several years. As part of Governor Jerry Brown’s recent budget proposal and multiple-year plan, the state would also largely retire its backlog of payment deferrals and internal loans. We view the alignment between revenues and expenditures as much improved and largely a result of policymakers’ heightened emphasis on fixing the state’s fiscal structure in the past two budgets. This has primarily consisted of programmatic reductions and reforms designed to generate budget savings because, until recently, strongly rebounding tax collections have not accompanied the economic recovery. Now the economic expansion is gaining positive momentum, however. In addition, the voters’ approval in November of temporarily higher statewide sales and personal income tax (PIT) rates positions the state to capitalize on burgeoning economic activity and income gains. We believe these factors have worked in concert to help the state reverse fiscal course.
California appears to be moving in the opposite direction of Illinois, its longstanding rival for the worst-rated state in the U.S. Illinois just yesterday took the rare step of postponing a planned $500 million general obligation bond sale, citing market conditions after a pair of recent negative rating actions."

Summing Up

It looks Illinois won't have California to kick around any more.

Maybe being the "strongest" team in the league isn't such a good idea after all.

The clock is ticking in the Land of Linclon and the Democratic majority will have an interesting time dealing with the state's financial problems in the face of strong opposition from its previously staunch political allies, the leadership of the state's public sector unions.

Let the fireworks begin.

Thanks. Bob.

Tyranny of the Majority ... Taxes and Paying Our Fair Share ... The Phil Mickelson Example

Individual freedoms are the inviolable rights of minorities in a democracy, assuming the majority of its citizens allow them to remain so. In other words, the tyranny of the majority occurs and wreaks havoc in a self governing society when the rights of its minorities are trampled in the name of majority rule.

Protecting individual rights from government is one big reason why our U.S. Constitution embodies the first ten amendments known as the Bill of Rights.

Democracy and individual freedoms are not equivalents. For example, at this time in history a democratic Egypt, Iraq or other middle east countries dominated by radical Islamists most likely won't be good for those individual Egyptians or Iraqis thinking and acting outside the views followed by radical Islamists.

The tyranny of the majority is a clear and present danger to the safety and security of its citizens who aren't part of that majority. That's why protecting the rights of minorities is so important.

But let's move on to the problems with majority rule and progressive taxation in our own society. Hopefully, you'll bear with me and thoroughly think this through as I believe it's an important element potentialy weakening our self governing society of equals. So at the risk of being called a greedy fat cat sympathizer, here goes.

Tyranny of the majority is one of the risks when a progressive versus proportional tax system, such as ours, is adopted by a country's citizens. If the majority decides through its elected representatives to tax fat cats at a higher tax rate than it imposes on itself, that's harmful to society as a whole. It makes that society weaker and it tends to encourage growth in wasteful government spending. Even more harmful, its "middle class" citizens inevitably will become more dependent on government programs in the future. At least that's my view.

In the interest of truth telling, at least as I see that truth, let's continue. The idea of defending the few fat cats from the majority will likely offend most of those in the Obama defined "middle class," representing about 98% of the U.S. population. So be it.

So let's talk about taxing the rich more than the middle class is willing to tax itself. Does it make sense to protect the rights of the high earning minority from the overwhelmingly majority of "middle class" voters (98% as defined by President Obama)? That's the topic du jour.

Golfer Phil Mickelson pays lots of federal income taxes. Of course, he makes lots of money, too.

And because he lives in California, he pays lots of state income taxes as well. But let's stay with the feds herein.

How much higher, if any, should his tax rate be than what "middle class" taxpayers pay as a percentage of their income? How much is enough? Is a progressive tax system a "fair" tax system?

I say the progressive tax system is a crock. And I also say that a democracy which has the majority of its citizens voting to raise taxes on a minority of its citizens to a much higher rate than the average member of the majority pays is a crock as well.

So why doesn't Phil Mickelson CONTINUE to just say so? Mickelson and the Sports Star Tax Migration puts it this way:

"America's top-grossing golfer Phil Mickelson drove himself into a bunker on Jan. 20 when he said that federal and California state tax hikes had made him contemplate making "drastic changes" in his life—including, it was widely assumed, moving to a no-income-tax state such as Texas or Florida. But he was only stating publicly what many professional athletes are mulling privately.
No doubt they'll keep their thoughts private, too, given the uproar that ensued. The golfer known as Lefty outraged lefties by noting that a tax burden of more than 60% seemed excessive. Didn't he know that athletes—unlike Hollywood celebrities—are supposed to keep their politics to themselves?

Mr. Mickelson quickly apologized for teeing off his critics. "Finances and taxes are a personal matter," he said. In any event, Mr. Mickelson certainly wouldn't be the first athlete to consider relocating for tax purposes.

Last week, Lefty's rival, Tiger Woods, acknowledged that he left California for Florida in 1996 when he turned pro because of the difference in state tax. . . .

In November, voters in California approved a ballot measure raising the top rate on income over $1 million to 13.3% (the increase applies retroactively to last year). . . .

"The day California passed the tax increase, I received three calls from concerned athletes," accountant Steve Piascik, president of Piascik & Associates, told me. His firm is one of the largest representatives of professional athletes in the country. . . .

For instance, Serena and Venus Williams grew up in Compton, Calif., but moved with their father to Florida in the early 1990s. Many of the top teaching pros in tennis set up shop in Florida. Note also that parents can afford to pay more for their children's training in states without income tax, since the parents keep more of their earnings.

The Williams sisters currently reside in Palm Beach Gardens, Fla., not far from 23-year-old pro golfer Michelle Wie. Upon graduating from Stanford University last year, Ms. Wie moved with her parents from Palo Alto, Calif., to Jupiter, Fla. . . .

Federal tax rates on income above $400,000 jumped this year to 39.6% from 35%. Meanwhile, ObamaCare levies a new 3.8% surtax on investment income and raises the Medicare tax by 0.9% on wages over $200,000. Limits on itemized deductions for high earners have also been reinstated, which will raise many athletes' marginal rates by one to two percentage points.

Mr. Mickelson was merely reading the wind when he floated the idea of making "drastic changes." PGA Tour Commissioner Tim Finchem, a former adviser to President Jimmy Carter, noted during the Mickelson brouhaha that "there are businesses relocating out of California because they can operate better in states that have lower tax rates." He also noted: "Generally, people making decisions based on the tax rates in California, on top of the federal tax rates, is not a unique thing."

No kidding. About 3.5 million Californians have migrated to other states over the past two decades. Almost anywhere they chose to go would allow them to enjoy greater returns on their labor. Is it really surprising that athletes like Mr. Mickelson might be keeping an eye on the leaderboard?"

Summing Up

A proportional tax system is the only appropriate way to avoid what amounts to redistribution from the highest earners to middle income earners otherwise willing to tax the highest earners more than they are willing to tax themselves.

The tyranny of the majority is alive and well when it comes to our tax system. Anytime a majority of the population decides to tax a minority at a higher rate than the majority is willing to pay itself, genuine unfairness is the result and our individual freedoms and our entire society both suffer.

And when the politicians do this in the name of fairness, what they are doing is soliciting votes for the next election from the majority of voters. It's politics at its worst, but it works.

And it's one big reason why we're becoming more and more dependent on government. The 'middle class' the politicians is trying so hard to save is granted special tax treatment by the government it elects. And that growing government dependency makes that middle class weaker and not safer.

And that goes for our nation as a whole as well. Weaker and not safer.

And now fat cats like golfer Phil Mickelson are becoming afraid to say anything about it, for fear of being called out by the politicians and even the middle class majority as ungrateful greedy fat cats who are unwilling to play "fair."

What a crock.

Thanks. Bob.

Wednesday, January 30, 2013

Don't Worry; Be Happy ... When Investing, Optimism and Courage Are a Winning Combination

I came across a short commentary about investing for retirement that captures my own investment philosophy and outlook and wanted to share it with you.

Retirement investing requires optimism has this solid advice for individual investors:

"Many times during her formative years I told my daughter, "Life's not fair. Get used to it." Along these lines, each year fewer employers offer defined benefit pension plans.

Not because they hate their employees but because they are no longer willing to assume the investment risk of guaranteeing a defined retirement benefit. Consequently, the investment risk in retirement planning has shifted to employees. Accumulating sufficient assets to fund your golden years is a difficult task — one that is beyond the skill of most people.

Consequently, you must either acquire or hire the knowledge necessary to manage your retirement plan. Life's not fair. Get used to it. . . .

Be an optimist

This is square one, the first rung on the ladder, the initial step of a long journey. Investing for retirement involves placing your financial assets at risk in an environment of uncertainty. If the future frightens you, your emotions will betray you and reduce your chances of success. Without the firm foundation that optimism provides, you will react to the mood swings of other investors and the latest headlines.

The flight of money from stocks to bonds since the recent financial crisis has been well chronicled in the financial media. Fear and pessimism have caused many investors to remain on the sidelines and miss the 100% rebound in domestic stocks since March of 2009. Missing a doubling of stocks will put a big hurt on anyone's retirement planning. . . .

Historically, "safe" options such as money-market funds, government bonds and certificates of deposit have yielded after tax returns barely above inflation. Almost everyone needs stock market returns to build a nest egg that will last through retirement. You need courage to put your assets at risk and optimism that your risk-taking will be rewarded.

The media's 24/7 barrage of bad tidings and other distractions . . . serve to frighten rather than educate. The best way I have found to develop optimism is to study history. It will help you put today's headlines and countdown clocks into historical perspective.

The last century has contained most of the history altering events that we are likely to experience in the future — war and peace, a growing economy, a declining economy, bull and bear markets, inflation and deflation, high and low interest rates and countless other frightening events that now reside on the timeline of things long forgotten. By reading today's headlines instead of history, you're left with the impression that we live in unusual times but each decade is unusual in its own unique way.

Despite the dramatic events that have occurred, the U.S. stock market, as measured by the Standard & Poor’s 500 Index, has yielded a 9.8% annualized rate of return since 1926. Too bad it didn't return 9.8% each year. But there is no easy path to riches on Wall Street. You must be prepared to experience significant and prolonged falls and rises in the value of your stock investments. No one can predict what the market will do next, making protection the only intelligent choice. Diversify, use dollar cost averaging, never stop learning, don't give up and when in doubt always choose return of principal over return on principal. . . .

Hot and cold wars, depressions, inflation, government and corporate corruption have come and gone and we're all still here. The pessimists have always been wrong. Someday they may be right but I'm not holding my breath. If you think America is doomed, good for you. Buy gold and bury it in your backyard. But don't bother telling me about it, I'm too busy helping people create their ideal retirement.

So, hold tight to your optimism. We are well educated free people with access to almost unlimited low cost capital. We will continue to discover, invent, start new businesses, cure diseases and eventually solve today's difficult problems.

The choice is yours — optimism and courage or pessimism and fear. I've made my choice."

Summing Up

I've made my choice too. Long ago, in fact.

So don't worry; be happy.

And if I can help any aspiring DIY investors along the way, I'll be happy to do so.

And with a spirit of long term optimism guided by history and personal experience.

Will there be bumps in the road ahead? Of course, there will be.

But overcoming the stress of the investment ups and downs and other obstacles to a happy and financially secure retirement will prove to have been well worth the effort in the end.

Thanks. Bob.

Cutting Government Spending ... A Sensible Approach That Won't Be Adopted

When government spends money, it first gets that money either from taxpayers or lenders. In either case, private sector growth is hurt.

And we very much need more private sector led economic growth to get our unemployment down and our nation's finances under control. Thus, it would seem that eliminating unnecessary government spending, and especially wasteful and unproductive spending, would be job #1 in government these days.

Of course, it's not only not job #1 --- it isn't even on the serious work-to-do list of our duly elected "public servants."

Politicians talk openly about the problems surrounding our nation's financial debts and annual deficits. But that's about all they do -- talk about it.

They also talk about addressing wasteful and unnecessary government spending. But again, that's about all they do -- talk about it.

If our government knows best gang really became serious about restricting its spending to expected receipts, there's a really simple and quite effective way to accomplish just that. They could simply agree at the outset of the budgeting process that total spending will be not more than $X, with $X representing the anticipated receipts, and then discuss and fight among themselves how that total $X will be spent among the various programs and alternatives, including the specific constituencies.

I know what you're thinking. Dream on.

Of course, even I understand that our politicians don't want to be limited to keeping spending within the amount government collects from its citizen taxpayers. They all want to get as much money as possible and spend it on their constituents so they can remain in elected office. Bringing home the bacon is one tried and tested way of staying in office, so everybody in government rubs everybody else's back, and the deficits and debts pile up. Meanwhile, the politicians get re-elected, and most of the taxpayers get screwed.

Still, let's consider a common sense way to reduce our deficits which is described in The Case for Across-the-Board Spending Cuts:

"You know the cliché: America's fiscal condition might be grim, but lawmakers should avoid the "meat ax" of across-the-board spending cuts and instead use the "scalpel" of targeted reductions. The problem with this argument is that, given today's politics, it is nonsensical.

Targeted reductions would be welcome, but the current federal budget didn't drop from the sky. Every program in the budget—from defense to food stamps, agriculture, Medicare and beyond—is in place for a reason: It has advocates in Congress and a constituency in the country. These advocates won't sit idly by while their programs are targeted, whether by a scalpel or any other instrument. That is why targeted spending cuts have historically been both rare and small. And in a government as closely divided as today's, there is virtually no prospect for meaningful targeted spending cuts.

The most likely way to achieve significant reductions in spending is by across-the-board cuts. Each reduction of 1% in the $3.6 trillion federal budget would yield roughly $36 billion the first year and would reduce the budget baseline in future years. Even with modest reductions, this is real money.

Some would inevitably argue that these cuts are unfair. Is the current budget fair? Everyone knows that a $3.6 trillion budget isn't the happy result of Congress providing exactly what is "fair" to every program. The federal budget is the result of temporary and arbitrary political compromises, with each program funded as much as its advocates can get it and as little as its detractors can support.
There is no transcendent wisdom here, nor any argument that a federal budget that preserves the current allocation of spending, but at a slightly lower level, is somehow less fair.

So let's give up the politically pointless effort to pick and choose among programs, accept the political reality of current allocations, and reduce everything proportionately. No one program would be very much disadvantaged. In many cases, a 1% or 3% reduction would scarcely be noticed. Are we really to believe that a government that spent $2.7 trillion five years ago couldn't survive a 3% cut that would bring spending to "only" $3.5 trillion today? Every household, company and nonprofit organization across America can do this, as can state and local governments. So could Washington.

Across-the-board federal cuts would have to include all programs—no last-minute reprieves for alternative-energy programs, filmmakers or any other cause. All parties would know that they are being treated equally. Defense programs, food-stamp recipients, retired federal employees, the judiciary, Social-Security recipients, veterans and members of Congress—each would join to make a minor sacrifice. It would be a narrative of civic virtue.

Applying across-the-board cuts to both discretionary and nondiscretionary programs would present some technical legislative difficulties, and some members of Congress will certainly try to argue that, while they support spending reduction, they just couldn't abide a certain cut or two. Yet this very argument would illustrate that opposition comes not because cuts are unfair, but because they are equally leveled.

Talk of axes versus scalpels is designed to deflect reform. Whatever carefully targeted budget cuts might animate our dreams, the actual world of divided government suggests only one realistic way to achieve real spending reductions. It is not a meat ax. A scalpel that shaves a bit off all programs equally would work just fine."

Summing Up

There are too simply many self interested "public servants" trying to satisfy their own self interested voter constituencies to expect any objective decisions to take the appropriate and necessary action on behalf of We the People as a whole.

The bottoms-up way it's done now, the sum of the specific spending parts will always exceed the whole of government receipts. There will never be enough money if Congress keeps playing the game the way it's been played for far too long --- congressional district by congressional district, special interest group by special interest group, politician by politician and campaign funding lobbyist by campaign funding lobbyist.

That's our form of representative democracy at work when there's an unrestrained budgeting process for total government spending. Unless the spending of the whole is constrained at the outset, overspending will always be, as it is now, the inevitable result and our nation's debts will grow and its annual trillion dollar deficits will recur. That will the inevitable and unfortunate result of not choosing to do what's necessary to live within our means as a society.

To repeat the blindingly obvious, Congress has at least one strong defender for every otherwise defenseless wasteful government spending program that exists. These programs didn't become law all by themselves. Somebody voted for them, and that's who will try to defend and keep them in effect.

But if we give the bureaucrats cover to do the right thing by cutting spending across the board (unless the government officials somehow agree which specific programs will be cut in order to save other programs from being cut at all), that across-the-board spending reduction approach would work.

Everybody would be forced to give up a little and nobody would be required to give up a lot. The pain wouldn't be severe and what pain there would be would be shared equally. And the politiicans could look forward to re-election, too. In the end, everybody would win.

Accordingly, the solution to our nation's spending problems is really a simple one.

That said, simple isn't to be confused with easy.

Thus, the solution isn't likely to be implemented anytime soon. We may need a real crisis first.

That's my take.

Thanks. Bob.

Tuesday, January 29, 2013

Private Sector MAKERS and Public Sector TAKERS ... Barnes & Noble vs. the Post Office

Private sector players are the makers. The government knows best gang are the takers.

That's my simple minded view of the matter. The government takes from the makers purportedly acting on behalf of We the People, but I wonder how much We the People think about why the government is taking what the they're taking, even if what it takes doesn't always come directly from those in the "middle class." In other words, shouldn't we focus on whether it's fair to take it in the first place, regardless of which maker it's to be taken from? I think so.

{NOTE: The story of how much is taken from the minority of high earners by the majority of "middle class" members through their elected government officals is a story for another day. It is the story of the dangerous power of the majority in a democracy versus the rights of the individual in that society. Repeatedly during our nation's history, commentators such as Tocqueville have warned us to beware of the tyranny of the majority. And since the majority of We the People elect those in government who then decide what, how much and from which makers to take the money that they spend and redistribute in the name of fairness and the people, that "middle class" constitutes the majority and in effect decides how much to take from the makers. Sometime soon we'll discuss why progressive tax systems and majority rule are a dangerous mix in a self governing society emphasizing individual rights. That is, we'll discuss fariness in a democracy where the individual in the minority is denied the same rights as the majority in the name of fairness. But not now.}

The government aristocrats try to obscure the simple fact that they are the takers, but the truth is the truth. The government takes from the makers and then spends, 'invests,' or otherwise redistributes what it takes from the makers. But only after first subtracting the government's management, handling fee, or commission for doing so. Aren't we lucky to have to such an efficient and effective  government that doesn't waste our money?

But now let's look at two examples of making and taking at work and how the two different participants play their respective roles of acting responsibly with MOM in mind or as OPMers, as the case may be. The story of Barnes & Noble in contrast to the post office is instructive. Can you guess which is the MOM example and which is the OPMer? I thought so.

We'll start with the makers, because if nothing's made, there's nothing for the takers to take.


Barnes & Noble has been negatively impacted by the growth of digitization and especially the sale and delivery of e-books. That's hardly surprising.The company is responding by pinpointing its problem stores and making serious plans to improve productivity and reduce its cost structure during the next several years. Barnes & Noble remains profitable and plans to stay that way. For them, the future is now.

B&N Aims To Whittle Its Stores For Years tells the story:

"Barnes & Noble expects to close as many as a third of its retail stores over the next decade, the bookseller's top store executive said, offering the most detailed picture yet of the company's plans for the outlets.

"In 10 years we'll have 450 to 500 stores," said Mitchell Klipper, chief executive of Barnes & Noble's retail group, in an interview last week. The company operated 689 retail stores as of Jan. 23, along with a separate chain of 674 college stores.

Mr. Klipper said his forecast assumes that the company will close about 20 stores a year over the period.

The chain shut an average of about 15 stores a year in the past decade, but until 2009 it also was opening 30 or more a year. Its store openings have largely dried up as consumers' shift toward digital books has upended the market and developers have stopped opening new malls; this fiscal year it has opened only two stores.

The company's consumer bookstores peaked at 726 in 2008, excluding the B. Dalton chain, which is now defunct.


Even with 450 to 500 stores, "it's a good business model," says Mr. Klipper. "You have to adjust your overhead, and get smart with smart systems. Is it what it used to be when you were opening 80 stores a year and dropping stores everywhere? Probably not. It's different. But every business evolves."

Mr. Klipper's comments come amid growing questions about Barnes & Noble's future. This month the company reported an unexpectedly weak holiday selling season, with store revenue declining nearly 11% from a year earlier. Book sales at stores open at least a year, a key barometer in the industry, fell 3.1%.

After years of losing market share for print books to discounting by, Barnes & Noble is grappling with the print market's shrinkage, thanks to the growing popularity of cheap e-books, also championed by Amazon. Unit sales of print books dropped 9% in the U.S. last year, according to market researcher Nielsen BookScan, and they are off 22% from 2007, when digital books started gaining traction. . . .

To be sure, the stores remain comfortably profitable, generating $317 million in earnings before interest taxes depreciation and amortization in fiscal 2012. That's more than enough to offset continuing losses at the Nook unit. . . .

The next two years will go a long way in defining the bookseller's future, by clarifying how fast the print market is shrinking. Bertelsmann SE & Co.'s Random House, the world's largest publisher of consumer books, says e-books now make up about 22% of its global sales, up from almost nothing five years ago. The head of a major publishing rival says he expects e-books will be as much as 50% of his total book sales in the U.S. by the end of 2014. . . .

Declines in print sales could affect the pace of store closures. Barnes & Noble has 442 leases up for renewal by April 30, 2016, representing substantially more than half of its stores. Mr. Klipper said he expects many will be renewed: "Why close them if they are making money?""



On the other hand, there's the perennial loser of billions of dollars in taxpayer money annually, the U.S. postal service. Its monopolistic customer unfriendly response to losing all that money is to raise prices. It in effect has decided that the law of supply and demand doesn't apply to taxpayer funded government agencies. But by so doing, it's extremely likely to lose even more money for its taxpayer sponsors.

That in turn will require the makers in the private sector to provide more money to the government takers so they can continue their wasteful union friendly and taxpayer unfriendly ways.

And the makers will pay even more to support the loss producing takers. All in the name of good government and fairness, of course. When will the costly silliness stop? That's a good question that We the People will have to answer someday soon. Either that or raise taxes even more on the takers.

First-Class Postage Rate Marches Higher tells the story of the taxpayer supported post office:

"Another rise in stamp prices comes as first-class mail volume is plummeting, underscoring the dilemma the near-bankrupt U.S. Postal Service faces.

The price of sending a first-class letter in the U.S. rose a penny Sunday to 46 cents as the Postal Service continues to struggle with eroding mail volume due to expanding reliance on email and the Internet to communicate and pay bills.

The increase comes just a year after the cash-strapped Postal Service pushed the stamp price to 45 cents, and follows the November announcement that the agency reported a record $15.9 billion annual loss for the fiscal year that ended Sept. 30. At that time, the Postal Service said it would run out of cash by October 2013 without congressional intervention.

There are several proposals before Congress to help keep the Postal Service financially viable, but no action has yet been taken. . . .

Prices will increase by an average of 2.57% across each class of mail, according to the Postal Service. For a first-class postcard mailed in the U.S., the price is rising a penny to 33 cents. Fees on other services, such as post-office box rentals, also went up.

In the past decade, the volume of first-class mail has plummeted to about 73.5 billion pieces of mail in 2011 from some 102 billion in 2002. The drop-off in the volume of first-class stamped mail has been even sharper, to about 25.8 billion pieces in 2011 from roughly 51.9 billion in 2002. . . .

The Postal Service has defaulted twice on retiree-health benefit obligations and notched multi-billion-dollar losses in five consecutive years. Options that Congress is considering to find a path to financial stability for the Postal Service include allowing it to sell ads, ship beer and wine and, possibly, end Saturday mail delivery."

Summing Up

So there we have it. Then makers in the private sector stay viable or cease to exist. If they stay viable, they pay taxes and keep the government entities operating.

Meanwhile the post office raises postage fees and drives even more customers away. Apparently the postal authorities have found a way to repeal the law of supply and demand, because an inrease in prices in the face of lower customer demand doesn't make sense. Unless you're a taxpayer supported government monopoly that can lose billions of dollars each year and stay in business by driving away even more customers, that is.Then the makers will just have to suck it up in the name of fairness and pay more so the aristocrats in government can vote to keep you afloat.

Lots of the taxes we makers pay are used by the takers in government for purposes of redistributing the money taken as they see fit. And if we happen to be among the makers who earn the most, we also get the privilege of being called greedy and not paying our fair share by the government takers. Then they raise our taxes further.

And golfer Phil Mickelson thinks he shouldn't be speaking up about the increased taxes he's being forced to pay?

I guess the rest of us will have to speak up on his behalf. And on behalf of all of We the People as well.

Thanks. Bob.

Monday, January 28, 2013

San Bernadino is Bankrupt ... The Fight Is On Between The State's Public Employees Pension Fund and Lenders ... Who Gets Paid First and Fully Is The Case Before the Bankruptcy Court

The city of San Bernadino, California in effect is bankrupt.

The city can't pay all of its bills, and two very important creditors are fighting it out asking a bankruptcy court to determine which has the higher claim on what money is available to pay the bills owed in the future -- (A) the bondholders who loaned the city money and are contractually entitled to repayment or (B) the California public employees' teachers fund, the pension fund that collects and invests city contributions in order to later pay retirement benefits promised to California's retired teachers. It's a big deal and may help provide answers with respect to where this whole unfunded public sector pension funding issue is going to end.

So let's take a look at what happens when $2 are owed by a city and there's only $1 to pay off the obligation. Which of the two creditors gets the $1, do they split it, or what? What will the court decide?

The city has too much debt, too many pension obligations, too few knowledgeable personnel, an unfriendly state of California state pension plan, upset creditors and a highly confusing bankruptcy situation, to say the least.

Budget Officials Flee San Bernadino Amid Bankruptcy Chaos contains the troubling details:

"Top budget officials in crisis-hit San Bernardino, California, are quitting the city at a crucial juncture in its quest to seek bankruptcy protection.

A rush to the doors in San Bernardino city hall threatens the city's ability to qualify for Chapter 9 bankruptcy protection by robbing it of the people with the experience to answer questions from the court and creditors. If those questions are not answered, the judge could deny bankruptcy protection, experts say.
San Bernardino's interim city manager . . . has quit and will start a new job on February 19. The city's finance chief . . . is also expected to leave soon, a source inside the city said. The city's head of human resources has also quit, as has its head of code enforcement. . . .  
There are few other, if any, officials with a deep understanding of the city's finances. Their loss calls into question whether San Bernardino has the ability to present a viable plan to satisfy creditors, and a bankruptcy court, that it should qualify for bankruptcy protection. All parties meet in court on February 12 to argue that issue.
The . . . officials have been the central figures in overseeing the city's finances since it filed for bankruptcy protection in August, citing a $46 million deficit for this fiscal year and little leeway to make day-to-day wage payments.
The next major decision for the federal judge overseeing the case is whether the city should be granted bankruptcy protection. Such protection safeguards the city from creditor lawsuits until its finances are restructured under the auspices of the court.
The city's biggest creditor, California's public employee's pension fund, has opposed San Bernardino's quest to seek bankruptcy protection. Without it, the struggling city will likely face multiple lawsuits in state court for unpaid bills, at a time when its officials say it can barely make payroll. . . . 
San Bernardino, a city of 210,000 about 60 miles east of Los Angeles, avoided any discussions with creditors by declaring a fiscal emergency in July.
Losing its top two budget officials at such an important stage will only add to San Bernardino's difficulties to achieve bankruptcy protection, said Karol Denniston, a municipal bankruptcy expert with Schiff Hardin in San Francisco.
"This is a situation with all the makings of a legal disaster, because the expectations are that a judicial process can sort out the unsortable," Denniston said.
"The court cannot determine (bankruptcy) eligibility if creditors have not been given sufficient information. Now we have a lack of staff. There is insufficient money," Denniston said, adding that the city has so far failed to come up with a convincing bankruptcy plan.
Michael Sweet, an attorney with Fox Rothschild, said if there are not the people on the ground to provide information about the city's finances, then outside experts will have to be hired to tell the court exactly what the city's assets and liabilities are.
The case is emerging as a landmark legal battle because the city has taken the unprecedented step of halting payments to Calpers, America's biggest public pension fund.
Because of that move, San Bernardino is potentially testing whether the pensions of government workers take precedence over other payments in a municipal bankruptcy, which could have ramifications for other creditors, including Wall Street bondholders, as more cities and towns have trouble meeting their obligations.
The city has not made its $1.2 million twice monthly payments to Calpers since it filed for bankruptcy last August. It now owes at least $10 million to the pension system in addition to a long-term debt that the city pegs at $143 million."
Summing Up 
San Bernadino's bankruptcy filing may provide the answer to at least one very big question: Among a bankrupt city's equally placed general creditors, which creditors are in fact going to be treated as more equal than others, if any? Pension funds and pensioners, for instance.
In other words, who has the priority and will be paid when funds are limited --- will payments and available funds be used to pay pensioners or will the city's other general creditors and bondholders be prioritized over those pensioners?
Because if the pensions take priority, then cities in the future will be hard pressed to get anybody to loan them money at anything approaching reasonable interest rates.
If there's a risk of not being paid, future would-be creditors will simply decide not to take that risk.
So either way the case is resolved the good people of San Bernadino will lose. It's just a matter of which good people of the city will lose the most. That's what is yet to be determined.
The bankruptcy court will make that simple judgment call, and then all hell will break lose --- at least somewhere and perhaps in lots of places.
Stay tuned.
Thanks. Bob.

Sunday, January 27, 2013

Stock Prices ... Up or down From Here? ... Long Term Up ... Short Term ????

There are two pretty much sure things about investing in stocks. In the long term, they'll do much better than other investments and manage to beat inflation handily. In the short term, they'll fluctuate, sometimes increasing and sometimes decreasing. As a rule, however, the long term trend is always up.

So why the yellow flag today? Well, if you're a long term investor, you can ignore it and stay the course. But if you're a short term player, it's perhaps time to turn a little cautious if for no other reason than things don't always move in a straight line, even if the general direction is favorable. Which for stocks it is -- favorable, that is.

In fact, stocks have done incredibly well the first few weeks of 2013. They did well in 2012 also and have more than doubled since their recent lows in 2009.

So what? Well, the reality is this: lots of individual investors sold near the lows in 2009, kept buying bonds from then until the end of 2012 and now are thinking about buying stocks again. That, my friends, is a loser's game. Don't play it.

Individuals are well known by market professionals as contrary indicators to the market's short term direction. Market pros reason that doing the opposite of what individuals generally do is usually a good idea. That because individuals tend to buy high and sell low. They get scared and sell when the market falls apart and then become greedy and buy when the market has rallied to new highs. Thus, often the best advice is to do what others aren't doing.

Even better advice is not to play the market timing game. By that I mean get invested early in your career, establish a habit of investing continuously, let the rule of 72 work for you and then be ready for a comfortable retirement at the end of the work road.

One sage puts it in chart terms. The market over time moves from the lower left to the upper right of the chart, with the horizontal axis representing time and the vertical axis representing return on investment over that time. Lower left to upper right is real. And here's the evidence.

"Stocks For The Long Run" by Jeremy Siegel has a chart on page 6 which shows the nominal returns of various investments from 1802 through 2006. Here's what the chart says about $1 invested in 1802 would be worth by 2006: stocks - $12,700,000; bonds $18,235; treasury bills - $5,061; gold - $32.84; and the inflation index - $16.84.

When I was much younger, someone much older and wiser told me this about the short term direction of stocks -- "Nobody knows. All we really know is that stock prices, like interest rates, will fluctuate. But over the long run, they will do very well for patient individual investors." That was some of the best advice I've ever received, and happily I took it for what it was worth -- a lot.

So whether we believe stocks will go up or down in the short run, we can be confident that they will tend to go from the "lower left of the chart to the upper right" over the long run.

That said, jumping in and out is about the worst thing individuals can do, so don't play if you can't trust yourself to follow the simple rules of winning in the market. Ok?

As Worries Ebb, Small Investors Propel Markets says this about the strong start to 2013 and the return of the small investor:

"Americans seem to be falling in love with stocks again.

 Millions of people all but abandoned the market after the 2008 financial crisis, but now individual investors are pouring more money than they have in years into stock mutual funds.
The flood, prompted by fading economic threats and better news on housing and jobs, has helped propel the broad market to within striking distance of its highest nominal level ever.
“You’ve got a real sea change in investor outlook,” said Andrew Wilkinson, the chief economic strategist at Miller Tabak Associates.
While the rising market may lift the nation’s collective spirits, it will not necessarily restore everyone’s portfolios. In good times and bad, many individual investors tend to buy and sell at precisely the wrong moments. They dump stocks after the market falls and buy stocks after the market rises, the opposite of what investors aim to do.
Some market experts worry that might be happening this time, too. People who got out as stocks plummeted in 2008 and early 2009 have already missed a remarkable rally. The Standard & Poor’s 500-stock index has soared 120 percent since March 2009, passing the 1,500 milestone. This year alone, the main indexes are up 5 percent. Now, the investing public seems more afraid of missing out than of misreading Wall Street again.
Americans’ latest stock-market romance is young, and it could easily fade before it becomes something more serious. Some market watchers warn that given the big run-up in prices, the market is already ripe for at least a brief correction. . . . 
There is no surefire data to use to gauge the behavior of retail investors. . . . But analysts agree that most indicators point to rising confidence in the market.
The level of bullishness among small investors has nearly doubled just since mid-November, according to a weekly survey conducted by the American Association of Individual Investors.

In the last three weeks, the market data company Lipper reported that $14.9 billion had gone into all stock-focused mutual funds, the most in any three-week period since 2001. Mutual funds focused specifically on American stocks have collected $6.8 billion since the new year, the most in all but one comparable period since the financial crisis.
This comes after investors had removed $416 billion from stock-focused mutual funds since the start of the financial crisis, according to Lipper. Those outflows continued even as the market climbed over the last few years.

 Many retail investors leaving stocks have put their money into bonds, which have historically been less risky. There is now concern that those people could face losses if professional investors sell their bonds and buy stocks, which would push up interest rates and make current bond holdings less valuable. . . .
The S.& P. 500 is close to its nominal high of 1,565 but remains below its record high — reached in 2000 — after adjusting for inflation and taking dividends into account.
Even many optimistic strategists say that a short-term break from the market rally is likely until there are more indications that the economy is growing. And given that January is historically a strong month for stocks, more bearish analysts have said the recent rally is likely to fade. One drag on growth could come from the recent increase in payroll taxes.
There is also a sizable contingent of investors who think that the European debt crisis and United States fiscal position still represent significant threats.
But Russ Koesterich, the chief investment strategist at BlackRock, said that the current threats were “mundane” in comparison to what investors faced the last few years. “We’re not talking about big crises anymore,” he said."
Summing Up  
For long term investors, the market is not overvalued. It's a good time to be invested and it's a good time to resolve to stay invested, even after the fit hits the shan, which it inevitably will from time to time.
And for those who are invested but don't have the temperament to stay the course when stocks get hit, now's probably as good a time as any to sell. That way, when the inevitable correction in stock prices occurs, you won't be agonizing over what to do, and then sell anyway.
As for me, I'm in for the long run and ready for more good days than bad days in the future years.
The odds are always in favor of a move from the lower left to the upper right of the chart, and that's good enough for me.

That said, we'll try to be astute enough to recognize when the market becomes overvalued down the road in a few more years, then perhaps take some money off the table, and wait for the next long term buying opportunity to present itself. It always does.

For now, the plan is to stay the course and enjoy the ride, despite the inevitable volatility in stock prices that is sure to come.
At least that's my plan.
Thanks. Bob.

Saturday, January 26, 2013

Stop the Craziness ... Public Pension Fund Officials Continue To Do The Wrong Thing ... It's Insane

The definition of insanity is doing the same thing over and over again and expecting a different result. Public sector fund retirement officials and union leaders are insane. Let's see why.

Public sector pension funds are seriously underfunded. That's for sure.

In fact, the credit of Illinois is now ranked as the worst of 50 states primarily due to its underfunded public sector pension fund liabilities. Lots of other states are in similar situations. But it doesn't have to be that way.

There's a relatively simple common sense solution at hand, and it's likely to be a painless one as well.

The funds should sell the bonds they own and stop buying new bonds. They should also stop paying professional managers 1% to 2% of assets for the "privilege" of having their funds managed. Then they should invest 100% of their funds, other than short term cash requirements, in a passively 'managed' S&P 500 Equity Index fund or its equivalent.

If this were done, my opinion is that long term investment returns would improve to at least 8% and perhaps 10% annually, and that overall fund performance would improve by 3% to 5% annually. Contributions would be roughly 50% over time of what they'd otherwise have to be (the twice as expensive status quo 'safe route' assumes the plan's retirement benefits remain unchanged and further assumes that bonds and active investment managers continue to be a part of the investment portfolio).

And by the way, the exact same logic applies to individuals as well. Whatever the actual result, it will be better by a great deal just by taking this "amateurish" self help approach to managing retirement liabilities.

Now let's examine the current funding fiasco and set forth our plan as to how to solve the seemingly insoluble.

If funds keep on following the same investment "playbook they've used unsuccessfully for the past several decades, one of several things has to happen: (1) taxpayers and employees have to increase contributions dramatically, (2) retiree benefits have to be cut dramatically, or (3) annual investment returns have to increase somewhat.

Did you notice the different use of the words "dramatically" and "somewhat" in the preceding sentence?

If so, does that cause you to wonder why the pension officials aren't making the obvious choice to invest differently in order to increase investment returns somewhat over time? As a taxpayer and perhaps even as a public employee, you should be asking that question.

Let's begin with a simple example using the rule of 72. If I want to end up with $4 in 36 years, I can either invest $1 now at a 4% annual rate of return or invest $2 now at a 2% rate of return. Both paths will get me to my chosen destination.

In other words, a 2% different annual rate of return on invested funds over 36 years amounts to a final result of either half as much or twice as much, assuming the same amount is invested at the outset. In other words, if I choose the "safer investment" route and invest in the lower rate of return vehicle, I'll need to increase my contributions by twice as much, or 100%, to arrive at the same result in 36 years.

The math is blindingly obvious, so why is it constantly being ignored by our public officials, pension fund managers and public sector union leaders? Rate of return over time is the biggest elephant in the room, and pretending that it isn't there won't make it disappear.

The elephant to which I'm referring is the habit of pension funds investing in bonds for a considerable portion of their assets instead of putting that same money in stocks, and the machinations the officials then go through to try to make up the shortfall with "alternative investments."

Pensions Bet Big With Private Equity discusses and describes the investment approach being taken by the Teacher Retirement System (TRS) in Texas:

Retired teachers Nancy Byler and Vella Pallette, shown at the school in May, Texas, await cost-of-living raises.

"AUSTIN, Texas—On the 13th floor of a sleek downtown office building here, the trading desks are manned overnight. The chief investment officer favors cowboy boots made of elephant skin. And when a bet pays off, even the secretaries can be entitled to bonuses.

The office's occupant isn't a highflying hedge fund but the Teacher Retirement System of Texas, a public pension fund with 1.3 million members including schoolteachers, bus drivers and cafeteria workers across the state.

It is a sign of the times. Numerous pension funds are still struggling to make up investment losses from the financial crisis. Rather than reduce risks in the wake of those declines, many are getting aggressive. They are loading up on private equity and other nontraditional investments that promise high, steady returns in the face of low interest rates and a volatile stock market.

The $114 billion Texas fund has hit the trend particularly hard. It now boasts some of the splashiest bets in the industry, having committed about $30 billion to private equity, real estate and other so-called alternatives since early 2008. That makes it the biggest such investor among the 10 largest U.S. public pensions, according to data provider Preqin Ltd. Those funds have an average alternatives allocation of 21%.

Not all pension managers are in on the action. Some funds are wary of the high management fees often charged by private-equity and hedge-fund firms. . . .

Even in Texas, there isn't exactly consensus. Critics worry that the teachers' benefits are leaning too heavily on the esoteric investments, which can be less liquid and less transparent than stocks and bonds. Another sticking point is the fund's generous bonus culture—a contrast against the pensioners, who haven't seen a cost-of-living raise in more than a decade. . . .

And yet the strategy has helped to turbocharge the Texas pension, with returns from private equity averaging 4.8% and 15.6% over the past five-year and three-year periods respectively.

Including all assets, the pension's annual return from Dec. 31, 2007, to Dec. 31, 2012, was 3.1%—better than the median preliminary return of 2.46% among large public funds, according to Wilshire Trust Universe Comparison Service.

Texas pension officials say private equity helped offset declines in its other investments. Britt Harris, the pension's chief investment officer, says he aims to "smash" the stereotype that government pension funds are on the losing end of most investments. . . .

For the fiscal year ended Aug. 31, the Texas teachers fund had a 7.6% return, and pension officials say they expect their bet on alternatives can help the fund hit its 8% annual target return over the long term. Over a ten-year period ending Aug. 31, 2012, the fund has had an annual fiscal year return of 7.4%.


Other large pension funds aren't so optimistic. Sticking to a return of 8% or more is "taking a big risk with one's ability to pay for benefits,'' says Richard Ravitch, co-chair of the State Budget Crisis Task Force, a nonpartisan research group. Since 2009, one-third of state pension plans have scaled back their return goals, according to the National Association of State Retirement Administrators.

The reason: In some states, like California, failure to hit the target return puts taxpayers on the line to make up the difference.

California's giant public employee pension fund, Calpers, had made an aggressive push into alternative investments such as real estate, representing about one-tenth of its assets. But many of those real-estate holdings, particularly in housing, suffered big losses during the financial crisis.

If Texas misses its mark, state officials could seek to cut benefits or switch newly hired teachers from traditional pensions to less generous 401(k)-type plans. Similar proposals in other states have met with stiff resistance from labor unions.

Retired education workers in Texas, on average, receive an annual pension of $21,730. Most former educators don't receive Social Security, making their total retirement benefits among the lowest of the big public pension systems.

"If new teachers are forced to switch to 401(k)s," says Tim Lee, head of the retired teachers association, "they will end up in poverty.". . .

Unlike many state pensions, the Texas teachers fund is in relatively solid shape. It is 82% funded, meaning there are 82 cents of assets covering $1 of liabilities, up from a low of 68% in February 2009, during the depths of the financial crisis. The average funding level among large public pension systems nationally is about 76%. Contributions from teachers and the state are identical, at 6.4% of employee salaries. The balance comes from investment earnings.

Still, the pension had a $26 billion shortfall, as measured at the end of August, caused in large part by big stock market losses during the financial crisis and increases to benefits for future retirees.

Mr. Harris, the pension's CIO since late 2006, says over the long term the fund can keep hitting its target, but "getting to [the 8% target level] over the next five to 10 years is going to be tough," he acknowledges. . . .

Despite that particular coup, doubters wonder if the strategy is sustainable. "They may think they are the smartest and best investors, but this system cannot work in the long term," says former Rep. Warren Chisum, who in the last legislative session proposed switching new teachers to 401(k) plans.

Pensions officials, such as Mr. Harris, say the risks of the alternatives are manageable because the pension fund has ample liquidity to keep paying benefits in the event of big losses.

Texas educators have little choice but to support the pension fund's aggressive investment strategy and Wall Street-style bonuses. But retiree raises can't materialize until the system's funding level improves—to an estimated 90% from its current 82%. One solution, not popular with educators, is to increase the retirement age for teachers to help make up the fund's shortfall.

In the meantime, educators like Vella Pallette, a retired elementary-schoolteacher from the tiny Central Texas town of May, are in limbo. The 78-year-old's $2,000 monthly pension check is her sole source of income. "A little more money," she says, "sure would help."

Summing Up

The solution to all this unnecessary handwringing and needless name calling is actually quite simple.

Keep the rate of return assumption at 8% annually, extend the normal retirement age to the equivalent age as that in private industry (about 65), convert to a 401(k) plan for new employees, invest in blue chip stocks for the long haul, and perhaps even use a simple passive S&P 500 Equity index fund instead of paying a "professional manager" commissions to manage the funds.

Then allow existing employees to convert their future contributions to a 401(k) plan instead of the existing pension benefit plan if that's their choice. If employees are properly informed, they will come to know that the upside attached to the 401(k) plan benefits will work to their advantage rather than seeing them "end up in poverty," as the IGNORANT head of the retired teachers association in Texas says would be the case.

There is a whole lot of "expert" misinformation floating around about this entire public sector pension issue. And investments generally.

The common sense solution is that pension officials can choose to invest wholly in stocks over the long haul and take what the market gives them, which wil be sufficient to satisfy their liabilities.

Otherwise they can choose to increase contributions dramatically or cut benefits dramatically, and each side can continue to call the other side names and keep kicking the proverbial pension plan can down the road to nowhere.

And name calling won't put the necessary money in the public sector's retirement pot.

KISS works for me. How about you?

Thanks. Bob.

Friday, January 25, 2013

President Obama's Recess Appointments Run Afoul of Constitution

President Obama once taught constitutional law at the University of Chicago prior to entering politics. Perhaps his former students should ask for their money to be refunded.

In that regard, consider the following as ample evidence to support such a claim of overreach and hubris by the Obama administration in Court rejects Obama recess appointments, ruling them unconstitutional:

"The Obama administration may have to rethink how it goes about trying to bypass the traditional Senate approval process for filling slots at top government agencies.

That’s because a three-judge panel in a federal appeals court on Friday unanimously ruled that the White House violated the constitution and did not have the power to make recess appointments and fill vacancies in 2012 to the National Labor Relations Board, the U.S. agency responsible for safeguarding workers’ rights.

Because the NLRB nominees could not receive the filibuster-proof 60 votes needed to be approved by the Senate, Obama last year employed a rarely used presidential maneuver to appoint his candidates. Obama argued that the White House acted appropriately because the appointments were made during a recess while the Senate was away for the holidays for 20-days.

However, seeking to block the appointments Republicans set up so-called pro forma legislative sessions of Congress — sessions that are sometimes only seconds long and in which no business is conducted. The three-judge panel ruled that the Senate technically stayed in session during the pro forma sessions and was not in recess.

The Obama administration reportedly is expected to appeal the decision, which is viewed as a major setback for Obama, in part, because it also throws into question the appointment last year of Richard Cordray to head a recently formed consumer mortgage and credit product watchdog agency set up after the financial crisis. Cordray was also nominated during one of these pro-forma sessions.

Donald Lamson, partner at Shearman & Sterling in Washington, said the decision will clearly impact the Cordray appointment last year because the consumer bureau chief was also appointed during a pro forma session. However, Lamson added that it could also have a broader impact on recess appointments in general.

“If you allow recess appointments when there isn’t really a recess, then the Congress wouldn’t have an opportunity to exercise its advise and consent authority,” Lamson said. “There has to be a point where a recess appointment is not available. The question is where is that point and here the court said the recess the White House chose is not valid.”. . .

The decision could also have an impact on rules made by the labor relations board. A National Association of Manufacturers vice president, Joe Trauger, said in a statement that the organization will be ” reviewing the opinion thoroughly to determine what impact this significant development will have on any and all decisions made by the [labor relations] board over the past year.” Any rejection of Cordray’s appointment could have a similar impact on the consumer bureau’s rules.

The appeals court, the U.S. Court of Appeals for the D.C. Circuit, has already been a thorn in the side of the Obama administration in the past."

Summing Up

And that's what the separation of powers among the three branches of our government is all about.

And that's also why we can still say, at least for now, that we're a nation of laws and not of men.

Score one for We the People and constitutional law.

And score one against hubris and an omnipotent executive branch.

In the end, it's frequently the little things that add up to a lot.

Thanks. Bob.

Thursday, January 24, 2013

Despite Tough Times, College Degrees Are Very Much Worth The Effort

Times are tough and student loans are at all time highs. In addition, jobs are hard to come by as well, and pay is pretty much stagnant for those who do have jobs.

And when it comes to self deception, which is aided and abetted greatly by officials in high schools and colleges, as well as by families and friends, many if not most of those persons entering college are world class "self deceivers" about their prospects for graduating, either "on time" or even at all.

Consider the following --- 80% of those entering college believe they will graduate in 4 years. In fact, only one half of those 80% or 40% of those students will graduate in 4 years. And only 50% of those entering will manage to graduate in 6 years.

Thus, getting into college isn't the trick. It is graduating that's the main idea. Perhaps we need an office of "completion" in addition to the typical office of admissions that now exists. See To Raise Graduation Rate, Colleges Are Urged to Help a Changing Student Body.

But that doesn't mean college isn't worth the effort. It just means that the effort must be pursued seriously from the first day the entering student steps on campus.

So what's a student to do? Get as much education as possible and as inexpensively as possible, too. At least that's what the objective evidence reveals once again, as it always has.

Benefits of College Degree in Recession Are Outlined makes the point well:

Young adults have long faced a rough job market, but in the last recession and its aftermath, college graduates did not lose nearly as much ground as their less-educated peers, according to a new study.


The study . . . shows that among Americans age 21 to 24, the drop in employment and income was much steeper among people who lacked a college degree.

The findings come as many published articles and books have told the stories of young college graduates unable to find work, and questioned the conventional wisdom that a college education is a worthwhile investment and the key to opportunity and social mobility. The study did not take into account the cost of going to college.
“This shows that any amount of post-secondary education does improve the labor market outcomes for those recent graduates,” said Diana Elliott, the research manager for Pew’s Economic Mobility Project. . . .    
Among those whose highest degree was a high school diploma, only 55 percent had jobs even before the downturn, and that fell to 47 percent after it. For young people with an associate’s degree, the employment rate fell from 64 percent to 57 percent.
But those with a bachelor’s degree started off in the strongest position and weathered the downturn best, with employment slipping from 69 percent to 65 percent. . . .
Similarly, in all three groups of young adults, wages fell for those who had work, but the decline was spread unevenly.
People with four-year college degrees saw a 5 percent drop in wages, compared with a 12 percent decrease for their peers with associate’s degrees, and a 10 percent decline for high school graduates.
One surprise in the data, Ms. Elliott said, had to do with “the prevailing speculation that people who couldn’t find work were returning to school, enhancing their training.” In fact, college enrollment over all rose sharply for several years, driven primarily by older students, before leveling off in 2011.
But Pew’s study found that among people age 21 to 24, the rate of college enrollment actually declined slightly, during and after the recession.

Summing Up
For those willing to do the work needed to get good grades and borrow as little money as possible while doing so, pursuing a college degree remains a great investment.
While a degree in and of itself guarantees nothing, having one definitely increases the odds for individual financial success and job stability in adulthood.
But for those not serious about doing the work to get the best outcome possible in a few years -- a relatively short amount of our lifetime -- attending college is a waste of time -- and money.
Especially if the end result is dropping out of college before completing one's degree and after racking up a large amount of student debt.
That's my take anyway.
Thanks. Bob.      

Union Membership Continues Its Decline ... That's a Good Trend for American Employees and Employers Alike

Perhaps it can be argued that unions once were a force which helped the cause of America's workers. But that was long ago when global competition wasn't an existential threat to U.S. companies and good U.S. jobs.

Unions in fact are government legislated and sponsored coercive socialistic organizations which offer less freedom to employees and refuse employers the freedom to choose not to deal with unions. They are in fact anithetical to a free market system based on individual choice and opportunity.

I realize many disagree with my view, but facts are facts. Think about it.

In 1948, legendary University of Chicago economist Henry C. Simons had this to say about the negative impact of monopolistic private sector labor unions in "Economic Policy for a Free Society:"

"Government, long hostile to other monopolies, suddenly sponsored and promoted widespread labor monopolies, which democracy cannot endure, cannot control without destroying, and perhaps cannot destroy without destroying itself."

Pretty strong stuff, to be sure, but it happens to be stuff which I believe foretold the future effects of both private and public sector unions in America.

My point is that unions serve no good purpose for U.S. workers today, and are counterproductive to an efficient work force. They're still stuck in their old monopolistic anti-competitive ways.

And will unions help with job security, high wages and getting or maintaining generous benefits for private and public sector workers? Again, I say no.

To the extent that these things exist in the future, and they will, it won't be due to the efforts of union leaders. It will be because companies and their employees are world class competitors.

But since they have no real competition as a monopoly, will the future be bright for public sector unions? Absolutely not.

And all that's due to one simple fact. Regardless of which way the political winds are blowing, the politicians are rapidly running out of OPM to spend freely.

The taxpayers are going to put government spenders on a fiscal diet. And since any money the government spends first has to taken from taxpayers, when We the People decide we've run out of money to hand over to the government knows best guys, the OPM game will have ended.

In other words, the money used to feed the government beast has become scarce and is in the process of becoming even more scarce in the years to come. And if you doubt the truth of what I'm saying, just ask a "sponsoring" taxpayer -- yourself.

The public sector will shrink, and the private sector will be strengthened as a result of additional investment and increased American competiveness due to that private sector investment. And that will be a very good thing.

But are unions really a thing of the past? Well, yes, at least that way we've known them. And nobody can stop the inevitable from occurring. At least that's the future I foresee for a resurgent American economy and stronger private sector coupled with a smaller public sector.

And that's a good thing for all American workers and their employers, too.

Is union membership a bad deal for workers? is subtitled 'Obama, unions and the anti-business agenda:'

"President Obama is a favorite among organized labor. So it’s surprising that . . . during Obama’s first term, the U.S. unionization rate for American workers declined faster than during two terms of President George W. Bush.

Who would have guessed?

President Obama’s first term has been a disaster for jobs. There are only 460,000 more nonfarm payroll jobs today than when he took office.

As the economy grew over the past year, the total unionization rate declined from 11.8% of wage and salary workers in 2011 to 11.2% in 2012. The private sector unionization rate fell from 6.9% to 6.6%, and the government unionization rate dropped from 37% to 35.9%.

The latest data continue a trend of steadily declining union membership over the past 30 years....

No matter how pro-union a president, an anti-business agenda results in lost jobs for non-union workers and union members alike. While Obama has championed union causes, his tax and regulatory policies have systematically discouraged business investment and job creation in America. . . . Consumer confidence has been low, resulting in lower consumption, which also affects employment.

President Obama seemed to do everything he could in his first term to help unions. Much of the $831 billion stimulus package was directed at unionized workers, either in the public sector, such as teachers, police officers, and firefighters, or private sector construction workers who got stimulus funds for “shovel ready jobs” that, as it turned out, weren’t so shovel ready. Obama’s Executive Order 13502, on project labor agreements, required construction projects over $25 million receiving federal funds to hire unionized workers. . . . 

Obama’s efforts to help unions by giving them more power have not succeeded in increasing union membership. Rather, union membership has declined even faster.

Growing sectors of the economy now are those that are non-unionized. It’s the unionized auto companies in Michigan, General Motors and Chrysler, that needed bailouts, not the non-unionized foreign auto companies in the South, such as Honda, Nissan, BMW, and Mercedes.

Right-to-work states, where workers do not have to pay dues to a union as a condition of working, have created more jobs than forced unionization states. Over the past 25 years, the 22 right-to-work states (i.e. not including the newly right-to-work states Indiana and Michigan) created 1.5 times as many jobs as the forced unionization states."

Summing Up

Unions did well in the "good old days" when a rising tide lifted all boats and the only issues were how big the piece of a rapidly growing economic pie unions would be able to negotiate for their members.

Globalization has brought competition, and union represented work forces are clinging to their ways of antagonism toward employers and the resulting anti-competitive and counterproductive work rules and practices. Meanwhile, the much more productive and focused non-union workforces for competitive firms have been kicking the butts of the union organized companies.

As examples, compare the union Michigan based auto companies of the north (GM, Ford, Chrysler) to the non-union transplant auto companies located in the southern United States (VW, Toyota, BMW). There are countless other similar situations in the steel and other manufacturing industries as well.

In any event, the fact that in percentage terms the competitive private sector in the U.S. now has only 1/6 as many employees represented by unions as the monopolistic government managed public sector has is noteworthy.

More importantly, it suggests that big changes lie ahead for public sector productivity, work rules, pay, benefits and union representation. The governments' big spending ways are about to end, as is runaway government spending, if only because they've run out of OPM to spend.

And when more of our dollars are kept in the private sector instead of being transferred to the public sector, America will once again be home to the world's most competitive companies and the most productive work force in the world.

As for both private and public sector U.S. unions, they will either change their antagonistic, non-productive and anti-competitive ways and work hard to help America better compete globally or they will simply disappear.

Either way works for me.

Thanks. Bob.

Wednesday, January 23, 2013

Freedom In The Welfare State ... More Government = Fewer Individual Freedoms

Should a free people be able to do what they are permitted to do by their government, or should they be able to do that which they aren't prohibited from doing by that same government?

That is the threshhold question for any nation of equals (equal in opportunities and not equal in results, since equal opportunities inevitably produce greatly different results), and the answer is simple. We can do everything that we're not prevented from doing. The presence or absence of government coercion is the key.

Which raises the follow-up question of how much should we be prevented from doing by our government? The answer can be found in the simple concept of how great the COERCIVE powers of government will be. Those must be severely restricted to only what's absolutely essential to maintaining a free and stable society and doing for individuals within that society only what can best be done in a collective or shared manner.

Let's start simple. Some limited government is necessary for a free people, and too much government interferes with the freedom of those same people. So how much is enough, and how much is too much seems like an appropriate question to ask.

My take is that clearly the area of national defense is the most necessary and appropriate arena for the collective action of government. When our citizens' safety and security is at stake, we all have a common interest in securing that safety and defending our individual freedoms and way of life. It's an existential matter.

Other things that come to mind as appropriate for government are roads, bridges, airports, clean air and water, and many other things that aren't susceptible to the workings of a free market based individual and entrepreneurial ownership society.

But when it comes to coercive entitlement programs like Social Security, Medicare and ObamaCare, why do people have to contribute to these programs? Why aren't people allowed to opt out of the government programs for themselves and choose the path of self reliance instead? The element of coercion is inconsistent with individual freedom.

And with respect to post office services and public education, including K-12 and college, if government wants to compete, why shouldn't private sector organizations be given an equal opportunity to compete with that government on a level playing ground? In other words, let people decide how they want to spend their money by givng them vouchers in education and subsidizing their postal purchases to the same extent that the government monoply is now granted? Then let the market and MOM, albeit subsidized MOM, decide.

And for those we're trying to "save" with government action, why not try to differentiate between what's necessary and what's nice to have? Let's help people who need our help through "collective" action, but let's limit that collective action to the needy and to those others who are willing to pay government to provide the benefits.

To the extent that government control or coercion grows, individual freedom shrinks. In other words, as we are required to submit to government rules, regulations and taxes, our freedom to do as we please becomes less. So let's limit it to where it's truly needed and where individuals truly choose to utilize its programs and services. Otherwise let freedom and the market take charge.

So how much and what kind of government we need is like the porridge in the Goldilocks story. Just as we need the porridge to to be not too hot and not too cold --- our government needs to be not too much and not too little --- just enough. But if we have to error, let's always choose to have a little too little. OK? It will help to keep our government's 'weight' down to a healthy and manageable level.

So now let's hear from Alexis de Toqueville on government and freedom in a welfare society.

The quoted excerpt is taken from Democracy in America, Volume II, published in 1840:

"Above this race of men stands an immense and tutelary power, which takes upon itself alone to secure their gratifications and to watch over their fate. That power is absolute, minute, regular, provident and mild. It would seem like the authority of a  parent if, like that authority, its object was to prepare men for manhood; but it seeks, on the contrary, to keep them in perpetual childhood: it is well content that the people should rejoice, provided they think of nothing but rejoicing. For their happiness such a government willingly labors, but it chooses to be the sole agent and the only arbiter of that happiness; it provides for their security, foresees and supplies their necessities, facilitates their pleasures, manages their principal concerns, directs their industry, regulates the descent of property, and subdivides their inheritances; what remains, but to spare them all care of thinking and all the trouble of living?"

Summing Up

Sign me up for accepting as my individual obligation and individual freedom the assumption of my responsibility and opportunity to live in the United States as a self reliant human being blessed with "all care of thinking and all the trouble of living." What else does a free society and nation of equals have to offer, if not that?

Sign me up as well for individual freedoms, including freedom of choice, and all the ills associated with those freedoms. Such as the freedom to fail but also the freedom to succeed. And the freedom to do bad things but also the freedom to do good things. And also throw in the freedom to learn but also the freedom to remain ignorant. And the freedom to work but also the freedom not to work. And all the other good and bad stuff that comes along with a life of liberty.

And sign me up as opposed to wanting to be saved by the government knows best gang. And opposed to the economic security provided by that same government. And opposed to not being allowed to fail, to make mistakes, to learn from those mistakes and even to profit therefrom. Finally, count me against the coercive powers of government and for the free market system of opportunity and self reliance.

That said, count me in the camp of wanting to do what I can to help those who need help. But to the extent possible, as a free individual helping out a fellow free individual.

The economic safety and security offered by the government aristocracy is illusory.

The reality is that what is presented as safety and security is in reality nothing more than an invitation to a life of dependency on others and a forfeiture of individual freedoms.

To me that's just too costly.

Thanks. Bob.