Debt is a huge issue for individual Americans and our local, state and federal governments as well. But too often as a nation we behave as if it's not the enormous problem that it is. However, what we don't choose to recognize as our problem today will become one for later taxpayers or end up being paid in full by our kids and grandkids. In any event, in the end We the People will pay.
But now President Obama is proposing to make our education indebtedness issues even worse by ignoring the elephant in the room --- that the costs of attending college are too high and must be reduced dramatically.
Of course, cutting costs at colleges to make our system of education truly affordable isn't on the President's agenda. Nor is offering more value for money spent even part of the college discussion. All that's being talked about is offering forgivable government loans to students, aka government handouts, in an effort to delay presenting to taxpayers the final bill for payment.
Welcome to Ginger and Pickles University summarizes the college student loan situation this way:
"Rising student-loan default rates are back in the news. As President Obama signed a “Student Aid Bill of Rights” initiative Tuesday, he said his administration will study the idea of extending bankruptcy options for all student-loan borrowers.
How did we get here, and what can we expect to come?. . . If you seek a lesson in credit bubbles, you need look no further than “The Tale of Ginger and Pickles,” published in 1909.
Ginger is a tomcat and Pickles is a terrier. Together they run a small village shop, generous enough to operate on a peculiar business model: They are willing to sell things on credit—unlimited credit. . . .
Ginger and Pickles have lots of customers. . . . And so, written down in their account book, Ginger and Pickles have a lot of money owed to them. But no actual money is coming in.
Eventually Ginger and Pickles start getting into trouble, and despite sending out lots of bills, they can’t collect. They go out of business and close the shop.
I first read this story 99 years after it was published, during the housing crisis of 2008.... I found it hard not to see the very same economic forces at work: the inflation and then collapse of a credit bubble.
But there are differences. Ginger and Pickles had no collateral when they sold consumable goods, and so they had no leverage to secure repayment. In the housing crisis, banks that didn’t get repaid could at least take title to a house, and that was worth something. The housing crisis didn’t really see those who had foolishly extended loose credit suffering for their bad choices; the banks, and the politicians who set up perverse incentives, generally all benefited. It was the people who had bought houses they couldn’t afford who suffered the most.
Yet there is another kind of credit bubble, one in which the lender has no collateral and those who are extending the credit are likely to feel a sting. It is the education bubble, in which the government has provided huge sums in taxpayer-guaranteed loans, and it is not clear that those taking the loans will be able to repay them. If those loans aren’t repaid, the taxpayer—that is, the public at large—will suffer. And a college education, like a bottle of milk or bag of peppermint candies, is a good that can’t be returned once it’s been consumed.
So you can see why I have this story in mind as I read recent news reports about education loans. . . . the education bubble involves customers who bought something they can’t or won’t be able to pay for. More students have been defaulting, and this trend is expected to continue for the foreseeable future. Like Ginger and Pickles’s shop, this can last for a while, but it can’t go on forever. At some point, the unsustainable credit has to collapse....
Few people take on education debt expecting to default . . . Under current law, education debt can’t be discharged by bankruptcy. Ginger and Pickles saw a run on the store—but students, and their parents, are increasingly wary of taking on debt and are seeking options other than traditional college education: community college, online courses, even avoiding college for training in trades.
This means that some colleges are likely to close, not because they run out of money, but because they run out of customers. The administration’s suggestion of making education loans dischargeable might make families more willing to buy education on credit—it will keep the students flowing into Ginger and Pickles University. But it won’t deal with the deeper problem, which is that this business model can’t last.
Most colleges have not been running on an empty till, because they aren’t the ones who’ve been extending credit. Their customers have credit with the government, which is backing the loans, and the government has been filling the college till with borrowed dollars.
How long can the government keep doing that, especially if it no longer even intends to collect.... And when a whole nation takes on an unrepayable debt, what happens then?"
Summing Up
Education costs are too high in America from K-12 straight through college.
Health care costs aren't affordable either.
Both are government run and their 'cost plus' models of inefficiency are heavily subsidized by current taxpayers. If this doesn't stop soon, then current students and future taxpayers will get the bill. To repeat, there's no such thing as a free education in the real world.
It's time to stop ignoring the enormously fat debt ridden elephant in our many rooms throughout America's house of indebtedness.
He's hiding in plain sight --- in each and every room. All we have to do is look.
That's my take.
Thanks. Bob.
Thursday, March 12, 2015
Individual Investors Don't Outperform or Match Stock Market Averages Over Time (~10% Nominal Annualized Returns), Even Though It Is Relatively Easy To Do ... Why Do We Make It So Hard?
The vast majority of individual investors don't receive investment returns over time which equal general market returns. Although a diversified basket of stocks, aka the stock market, has earned ~10% annually in nominal terms over a long period of time, and a 7% inflation adjusted real rate of return, most individuals earn less than one half of that.
Buying high and selling low is one reason. Another is investing in assets other than stocks and getting a lesser rate of return on those assets, such as bonds.
But the one not even generally recognized is that one (average annualized market return) minus anything equals less than one. I'm referring to the fees and charges by brokers and investment advisers. If each of us has an expert who is 'average' in capability, and by definition that's what we're likely to have, anything we pay to that manager serves to reduce the average return of stocks to something less than one.
The Simple Math Favoring Index Funds captures the essence of this all-too-true mathematical story:
"At the beginning of every year, active managers, fresh off the wounds of the prior year, declare that this year will be a stock picker’s year. Unlike the prior year, in which settling for the market rate of return produced results better than most active managers, the successful investors this year will be the ones that demonstrate the best stock-picking skill.
In fact, this is true. It’s always true. There is always a dispersion of returns among stocks and the most successful investors will pick the best-performing ones, while avoiding the losers. In 2014 ... there was ample opportunity for astute investors to beat the market, even though a majority underperformed.
But the implication that, in the new year, indexing—or settling for the market rate of return—will have its investors eating active managers’ dust is wrong. In fact, it’s mathematically incorrect. The very simple reason is that for every good stock picker, there has to be a bad one. Who else are the good stock pickers buying from and selling to? If one investor overweights a stock or an industry, then someone else has to under-weight it. For every winner who picks correctly, there must be a loser.
This fact might lead one to conclude that the top half of stock pickers will outperform the market at the expense of the bottom half. Unfortunately, that is not correct. The reason is because of the high costs of active management. The combination of transaction costs and fees is easily 1% for the average mutual fund, which may sound paltry, but it’s 10% of the historical return of the stock market. Even among the best stock pickers, the ones who marginally outperform before costs will underperform after costs. So a majority of active managers are doomed to underperform the market return. . . .
In all markets, it’s a simple fact that outperformance before costs is a zero-sum game and after costs is a negative-sum game. To be certain, this does not mean that active management, when executed well, with low costs, cannot outperform the market. It merely reveals that it’s a very tough game and that only the top echelon will succeed.
Another excellent active management joke is that active managers will be able to anticipate and react to market declines and will be able to shelter an investor’s assets during a bear market. . . . the performance record overwhelmingly shows that market timing does not work . . . .
Most professions are positive sum. . . . On the other hand, money management is zero sum before costs and negative sum after costs. An active manager can only add relative value by taking advantage of another investor—he/she has to buy a cheap stock from someone. While some highly skilled managers will be able to add value at the expense of others, they’d better do it with low costs, and the majority of investors are doomed to fail."
Summing Up
So there you have it. Matching or beating the stock market is hard to do unless we keep it simple and easy.
And that's because simple math reveals that one minus anything will equal less than one. Having an average manager who charges for his 'services' will get the individual investor a sub-market return each and every time.
So find a better than average manager, and one who doesn't charge much for his services, have him invest your money (MOM) in the same stocks where he invests his own money (his MOM), and you'll be among the few who outperform the market over time.
If you can't find that manager, then invest in a low cost S&P 500 index fund. Over time these funds will outperform the vast majority of accounts over time. For that reason, low cost stock index funds probably make the most sense for most individuals.
But don't end up like the average individual investor with a whole lot less than one. That's no fun.
That's my take.
Thanks. Bob.
Buying high and selling low is one reason. Another is investing in assets other than stocks and getting a lesser rate of return on those assets, such as bonds.
But the one not even generally recognized is that one (average annualized market return) minus anything equals less than one. I'm referring to the fees and charges by brokers and investment advisers. If each of us has an expert who is 'average' in capability, and by definition that's what we're likely to have, anything we pay to that manager serves to reduce the average return of stocks to something less than one.
The Simple Math Favoring Index Funds captures the essence of this all-too-true mathematical story:
"At the beginning of every year, active managers, fresh off the wounds of the prior year, declare that this year will be a stock picker’s year. Unlike the prior year, in which settling for the market rate of return produced results better than most active managers, the successful investors this year will be the ones that demonstrate the best stock-picking skill.
In fact, this is true. It’s always true. There is always a dispersion of returns among stocks and the most successful investors will pick the best-performing ones, while avoiding the losers. In 2014 ... there was ample opportunity for astute investors to beat the market, even though a majority underperformed.
But the implication that, in the new year, indexing—or settling for the market rate of return—will have its investors eating active managers’ dust is wrong. In fact, it’s mathematically incorrect. The very simple reason is that for every good stock picker, there has to be a bad one. Who else are the good stock pickers buying from and selling to? If one investor overweights a stock or an industry, then someone else has to under-weight it. For every winner who picks correctly, there must be a loser.
This fact might lead one to conclude that the top half of stock pickers will outperform the market at the expense of the bottom half. Unfortunately, that is not correct. The reason is because of the high costs of active management. The combination of transaction costs and fees is easily 1% for the average mutual fund, which may sound paltry, but it’s 10% of the historical return of the stock market. Even among the best stock pickers, the ones who marginally outperform before costs will underperform after costs. So a majority of active managers are doomed to underperform the market return. . . .
In all markets, it’s a simple fact that outperformance before costs is a zero-sum game and after costs is a negative-sum game. To be certain, this does not mean that active management, when executed well, with low costs, cannot outperform the market. It merely reveals that it’s a very tough game and that only the top echelon will succeed.
Another excellent active management joke is that active managers will be able to anticipate and react to market declines and will be able to shelter an investor’s assets during a bear market. . . . the performance record overwhelmingly shows that market timing does not work . . . .
Most professions are positive sum. . . . On the other hand, money management is zero sum before costs and negative sum after costs. An active manager can only add relative value by taking advantage of another investor—he/she has to buy a cheap stock from someone. While some highly skilled managers will be able to add value at the expense of others, they’d better do it with low costs, and the majority of investors are doomed to fail."
Summing Up
So there you have it. Matching or beating the stock market is hard to do unless we keep it simple and easy.
And that's because simple math reveals that one minus anything will equal less than one. Having an average manager who charges for his 'services' will get the individual investor a sub-market return each and every time.
So find a better than average manager, and one who doesn't charge much for his services, have him invest your money (MOM) in the same stocks where he invests his own money (his MOM), and you'll be among the few who outperform the market over time.
If you can't find that manager, then invest in a low cost S&P 500 index fund. Over time these funds will outperform the vast majority of accounts over time. For that reason, low cost stock index funds probably make the most sense for most individuals.
But don't end up like the average individual investor with a whole lot less than one. That's no fun.
That's my take.
Thanks. Bob.
Wednesday, March 11, 2015
Stocks Got Hammered Yesterday ... "MInsky Moment" or Not? ... What Now? ... Stock Market Crashes Do Happen Occasionally But Stock Prices Increase Over Time
The stock market got hammered yesterday. See U.S. Stocks Tumble; Dow Drops More Than 300 Points.
So who is it that knows what will happen to prices today, next week, next month or even next year? Nobody, that's who.
But stock prices do rise over time, and that's the reason I tend to stay invested throughout the tough times. Today, my admittedly imperfect crystal ball still says higher prices lie straight ahead and that this bull market has a long way to go before it's over. I may be wrong, of course, but that's both my view and my individual investment plan.
A strengthening economy coupled with low inflation, more jobs and higher wages, historically low interest rates and continuing low energy prices, and a strong U.S. dollar are important factors which suggest higher stock prices.
But all that said, my personal crystal ball is definitely not infallible. Nobody knows the future. That's why it's called the future.
Still, over the years, stocks go up and stocks go down, and for the most part they go up at a rate much greater than the rate of inflation. But at some point there will be a crash. Unfortunately, that's the way markets work.
And what is it that causes crashes? Counterintuitively, the thing that generally causes crashes in stock prices is stability --- that's what. Why Bear Markets Are Inevitable offers a straightforward explanation as to why crashes happen --- not when but why -- because nobody knows when:
"It has been more than seven years since the last bear market began.
When will the next rout come? I don’t know. I don’t think anyone does. But make no mistake: A new bear market—that is, a 20% or greater market drop—will occur.
Stock markets always will—indeed, must—crash from time to time. To see why, consider the work of the late economist Hyman Minsky.
In the 1970s, most theories held that modern economies were fundamentally stable. Deep recessions and financial crises were anomalies, caused by outside “shocks” such as bad policy, war or a spike in oil prices.
Mr. Minsky, an economist at Washington University in St. Louis who died in 1996, didn’t buy this.
In his view, crises “were neither accidents nor the results of policy errors” but were “the result of the normal functioning of our particular economy,” he wrote in a 1976 paper titled “A Theory of Systemic Fragility.”
In short, Mr. Minsky believed that a stable economy leads to optimism, optimism leads to excessive risk-taking, and excessive risk-taking leads to instability.
“Success breeds a disregard for the possibility of failure,” he wrote. Booming business and “the absence of serious financial difficulties over a substantial period” leads to a “euphoric economy” where consumers and businesses grow increasingly comfortable taking on debt in pursuit of profit.
The process continues until optimistic bankers lend to dubious borrowers who stand no chance of repaying their debts. That is when the next crisis begins.
The core of Mr. Minsky’s work is that a period without crises plants the seeds of the next crisis. Stability itself can be destabilizing.
His theory also can help explain why stocks boom and bust so frequently. . . .
The real world is plagued by misbehavior, bad luck, emotion, recessions, deception, inaccurate forecasts, chance, turmoil and mistakes.
When these unfortunate events occur, stocks that were erroneously priced for perfection and guaranteed returns—think dot-com stocks in 2000—get a rude awakening and abruptly decline, if not crash.
The paradox of investing is that if markets never crashed—or if investors gained the perception that they would never crash—stock prices would rise so high that a new crash would become nearly certain.
Just as Mr. Minsky described with whole economies, stability in the stock market becomes destabilizing. This is why markets will always crash from time to time.
Rather than wondering if another bear market will occur—it will—here are three things investors should do:
Realize what you are getting into. The reason stocks have historically returned more than cash or bonds is specifically because they are volatile, and crash on occasion. Significant volatility doesn’t indicate the market is broken, or that you have been cheated. It is the price of admission investors must be willing to pay to achieve returns greater than are offered in less-volatile assets.
Assess how much risk you are willing to take. Not everyone can handle the stock market’s inevitable swings, especially if they are in, or nearing, retirement. . . .
Learn from your past behavior.
“Most investors have a lower stomach for volatility than they think,” Mr. Roche says. This is especially true after a long bull market, such as the one we have enjoyed over the past six years.
Rather than trying to estimate how you will react to a big market drop in the future, assess how you reacted in the past. Past behavior can be a good indicator of future behavior.
Did you panic and sell when stocks crashed in 2008 and 2009? Then you probably have a low risk tolerance, regardless of how confident you feel today. Consider cutting your stock exposure to something less than you had before the last market crash and raising your allocation to a diverse portfolio of bonds, or even cash, taking comfort that more of your money is now cushioned against the inevitable shocks of the stock market.
Rest assured, they will come again."
Summing Up
There you have it --- Minsky Moments, aka stock market crashes, happen periodically in market investing, whether those markets are in stocks, housing, oil or something else.
So accept that the inevitable will happen, and resolve to try to remain calm when the next stock market crash occurs, which it definitely will.
And when (not if) that Minsky Moment arrives, just like all the previous ones in our long history, it too shall pass. And when it does, stocks will then resume their upward climb.
As it has always been, my bet is that it shall always be.
So like the once extremely popular Bobby McFerrin 1988 song title says, 'Don't Worry, Be Happy.' (Just click on the link and watch this oldie but goodie.).
Then smile and stay invested. Successful long term stock market investing sometimes requires a strong stomach.
That's my take.
Thanks. Bob.
So who is it that knows what will happen to prices today, next week, next month or even next year? Nobody, that's who.
But stock prices do rise over time, and that's the reason I tend to stay invested throughout the tough times. Today, my admittedly imperfect crystal ball still says higher prices lie straight ahead and that this bull market has a long way to go before it's over. I may be wrong, of course, but that's both my view and my individual investment plan.
A strengthening economy coupled with low inflation, more jobs and higher wages, historically low interest rates and continuing low energy prices, and a strong U.S. dollar are important factors which suggest higher stock prices.
But all that said, my personal crystal ball is definitely not infallible. Nobody knows the future. That's why it's called the future.
Still, over the years, stocks go up and stocks go down, and for the most part they go up at a rate much greater than the rate of inflation. But at some point there will be a crash. Unfortunately, that's the way markets work.
And what is it that causes crashes? Counterintuitively, the thing that generally causes crashes in stock prices is stability --- that's what. Why Bear Markets Are Inevitable offers a straightforward explanation as to why crashes happen --- not when but why -- because nobody knows when:
"It has been more than seven years since the last bear market began.
When will the next rout come? I don’t know. I don’t think anyone does. But make no mistake: A new bear market—that is, a 20% or greater market drop—will occur.
Stock markets always will—indeed, must—crash from time to time. To see why, consider the work of the late economist Hyman Minsky.
In the 1970s, most theories held that modern economies were fundamentally stable. Deep recessions and financial crises were anomalies, caused by outside “shocks” such as bad policy, war or a spike in oil prices.
Mr. Minsky, an economist at Washington University in St. Louis who died in 1996, didn’t buy this.
In his view, crises “were neither accidents nor the results of policy errors” but were “the result of the normal functioning of our particular economy,” he wrote in a 1976 paper titled “A Theory of Systemic Fragility.”
In short, Mr. Minsky believed that a stable economy leads to optimism, optimism leads to excessive risk-taking, and excessive risk-taking leads to instability.
“Success breeds a disregard for the possibility of failure,” he wrote. Booming business and “the absence of serious financial difficulties over a substantial period” leads to a “euphoric economy” where consumers and businesses grow increasingly comfortable taking on debt in pursuit of profit.
The process continues until optimistic bankers lend to dubious borrowers who stand no chance of repaying their debts. That is when the next crisis begins.
The core of Mr. Minsky’s work is that a period without crises plants the seeds of the next crisis. Stability itself can be destabilizing.
His theory also can help explain why stocks boom and bust so frequently. . . .
The real world is plagued by misbehavior, bad luck, emotion, recessions, deception, inaccurate forecasts, chance, turmoil and mistakes.
When these unfortunate events occur, stocks that were erroneously priced for perfection and guaranteed returns—think dot-com stocks in 2000—get a rude awakening and abruptly decline, if not crash.
The paradox of investing is that if markets never crashed—or if investors gained the perception that they would never crash—stock prices would rise so high that a new crash would become nearly certain.
Just as Mr. Minsky described with whole economies, stability in the stock market becomes destabilizing. This is why markets will always crash from time to time.
Rather than wondering if another bear market will occur—it will—here are three things investors should do:
Realize what you are getting into. The reason stocks have historically returned more than cash or bonds is specifically because they are volatile, and crash on occasion. Significant volatility doesn’t indicate the market is broken, or that you have been cheated. It is the price of admission investors must be willing to pay to achieve returns greater than are offered in less-volatile assets.
Assess how much risk you are willing to take. Not everyone can handle the stock market’s inevitable swings, especially if they are in, or nearing, retirement. . . .
Learn from your past behavior.
“Most investors have a lower stomach for volatility than they think,” Mr. Roche says. This is especially true after a long bull market, such as the one we have enjoyed over the past six years.
Rather than trying to estimate how you will react to a big market drop in the future, assess how you reacted in the past. Past behavior can be a good indicator of future behavior.
Did you panic and sell when stocks crashed in 2008 and 2009? Then you probably have a low risk tolerance, regardless of how confident you feel today. Consider cutting your stock exposure to something less than you had before the last market crash and raising your allocation to a diverse portfolio of bonds, or even cash, taking comfort that more of your money is now cushioned against the inevitable shocks of the stock market.
Rest assured, they will come again."
Summing Up
There you have it --- Minsky Moments, aka stock market crashes, happen periodically in market investing, whether those markets are in stocks, housing, oil or something else.
So accept that the inevitable will happen, and resolve to try to remain calm when the next stock market crash occurs, which it definitely will.
And when (not if) that Minsky Moment arrives, just like all the previous ones in our long history, it too shall pass. And when it does, stocks will then resume their upward climb.
As it has always been, my bet is that it shall always be.
So like the once extremely popular Bobby McFerrin 1988 song title says, 'Don't Worry, Be Happy.' (Just click on the link and watch this oldie but goodie.).
Then smile and stay invested. Successful long term stock market investing sometimes requires a strong stomach.
That's my take.
Thanks. Bob.
Monday, March 9, 2015
Stock Picking 'Guru' Jim Cramer Says Actively Managed Mutual Funds Are Too Expensive for Individual Investors ... He's Right About That
The individual investors' self appointed guru, pundit and TV personality Jim Cramer hits the nail on the head when he opines that stock brokers and other sellers of actively managed mutual funds are interested in achieving only two things --- (1) increasing the number of individual investors to whom they can charge fees and (2) charging high fees to those individual investors. That's their 'profit' model.
It's simply the way things work, and it usually doesn't work to the benefit of the individual saver and investor --- not even close. So as individuals we should beware of the motives of the sellers of financial products and think for ourselves when saving and investing --- which we all should do.
Mutual fund investors are hosed: Jim Cramer contains some valuable advice for individual investors:
"Mad Money host Jim Cramer, best known for offering stock tips on cable TV, is quickly becoming famous for taking what would seem for him a contrarian viewpoint — that investors should avoid stock-picking mutual funds like the plague.
Actively-managed funds are in one business and one business only, Cramer argues. They must grow their client base to maximize their own fee income, regardless of performance.
The incentive to pick better investments just isn't there. Cramer thinks mutual fund investors are getting hosed. Managers get paid to bring in new clients — not for paying attention to the companies they buy for those clients.
"The companies that run these funds want your money. And the biggest mistake you can make as an individual investor is to give it to them, with a few significant exceptions," Cramer said.
Instead, he says, use index funds that track the whole market. If you can get exposure to the strength of the market without taking on the cost of actively managed funds, why not? "At the end of the day, I think a cheap S&P 500 index fund is the least bad way to passively manage your money — better than the vast bulk of actively managed funds," he said.
Steady growth
It makes a sick sort of sense. Wall Street rewards uninterrupted growth, yet the stock market is a notoriously unsteady source of growth in the short term. Some years stocks go way, way up. Some years they fall back.
Publicly-traded investment firms can't afford to live by those rules . . . .
How do you guarantee steady, strong growth in a stock market that fails to cooperate every single quarter? You don't worry about the stock market at all. Instead, your profits are tied to increasing the level assets you manage. You need new clients.
Assets under management isn't the worst business model in the world. . . . But you have to ask what you get for your money, and you have to be sure the cost reflects actual value.
Consider this: For a fee of 1% of your assets, an active manager is going to buy some stocks in your name. He or she also is going to buy some mutual funds, basically farming out the stock-picking to others. The mutual funds charge their own fees as well, which you pay. . . . The vast majority of investors miss this in the fine print of the prospectus, but it's true.
Slim chance
You also pay a fee to help mutual funds market themselves, bizarrely enough. You pay for the research they buy, secretarial help, the electricity bill. All in, you're likely paying something well north of 2% of your assets a year, every year, forever.
For what? A slim chance of beating the market...and a nearly sure bet that your investments will radically underperform the market, even before all of their fees are taken out. Do you get actual, personalized financial advice? The occasional email? Do you even remember the name of your financial adviser?
You should pay less and get more. You should know the name of your adviser and be able to call him or her up at any time. You should see your portfolio capture the market while adjusting for your personal level of risk tolerance.
Yes, Cramer wants you to pick stocks. But, he points out, if that's not what you want to do with your time, just buy an index fund. If you need help keeping a portfolio in balance, you can get that, too. There's just no reason to pay crazy high fees to achieve what should be a simple, clear-cut goal — retirement."
Summing Up
Individual investing can be fun and profitable as well.
That said, unless you are willing to (1) take the time and make the effort to take the DIY way or (2) know that the individual acting on your behalf and investing your hard earned money is knowledgeable, charges low fees and is acting in your best interests, you are best advised to invest in a low cost passive stock index fund such as the S&P 500 offered by both Vanguard and Fidelity --- and hopefully by your employer as well.
That's my take. Jim Cramer's too. And Warren Buffett's as well.
Thanks. Bob.
It's simply the way things work, and it usually doesn't work to the benefit of the individual saver and investor --- not even close. So as individuals we should beware of the motives of the sellers of financial products and think for ourselves when saving and investing --- which we all should do.
Mutual fund investors are hosed: Jim Cramer contains some valuable advice for individual investors:
"Mad Money host Jim Cramer, best known for offering stock tips on cable TV, is quickly becoming famous for taking what would seem for him a contrarian viewpoint — that investors should avoid stock-picking mutual funds like the plague.
Actively-managed funds are in one business and one business only, Cramer argues. They must grow their client base to maximize their own fee income, regardless of performance.
The incentive to pick better investments just isn't there. Cramer thinks mutual fund investors are getting hosed. Managers get paid to bring in new clients — not for paying attention to the companies they buy for those clients.
"The companies that run these funds want your money. And the biggest mistake you can make as an individual investor is to give it to them, with a few significant exceptions," Cramer said.
Instead, he says, use index funds that track the whole market. If you can get exposure to the strength of the market without taking on the cost of actively managed funds, why not? "At the end of the day, I think a cheap S&P 500 index fund is the least bad way to passively manage your money — better than the vast bulk of actively managed funds," he said.
Steady growth
It makes a sick sort of sense. Wall Street rewards uninterrupted growth, yet the stock market is a notoriously unsteady source of growth in the short term. Some years stocks go way, way up. Some years they fall back.
Publicly-traded investment firms can't afford to live by those rules . . . .
How do you guarantee steady, strong growth in a stock market that fails to cooperate every single quarter? You don't worry about the stock market at all. Instead, your profits are tied to increasing the level assets you manage. You need new clients.
Assets under management isn't the worst business model in the world. . . . But you have to ask what you get for your money, and you have to be sure the cost reflects actual value.
Consider this: For a fee of 1% of your assets, an active manager is going to buy some stocks in your name. He or she also is going to buy some mutual funds, basically farming out the stock-picking to others. The mutual funds charge their own fees as well, which you pay. . . . The vast majority of investors miss this in the fine print of the prospectus, but it's true.
Slim chance
You also pay a fee to help mutual funds market themselves, bizarrely enough. You pay for the research they buy, secretarial help, the electricity bill. All in, you're likely paying something well north of 2% of your assets a year, every year, forever.
For what? A slim chance of beating the market...and a nearly sure bet that your investments will radically underperform the market, even before all of their fees are taken out. Do you get actual, personalized financial advice? The occasional email? Do you even remember the name of your financial adviser?
You should pay less and get more. You should know the name of your adviser and be able to call him or her up at any time. You should see your portfolio capture the market while adjusting for your personal level of risk tolerance.
Yes, Cramer wants you to pick stocks. But, he points out, if that's not what you want to do with your time, just buy an index fund. If you need help keeping a portfolio in balance, you can get that, too. There's just no reason to pay crazy high fees to achieve what should be a simple, clear-cut goal — retirement."
Summing Up
Individual investing can be fun and profitable as well.
That said, unless you are willing to (1) take the time and make the effort to take the DIY way or (2) know that the individual acting on your behalf and investing your hard earned money is knowledgeable, charges low fees and is acting in your best interests, you are best advised to invest in a low cost passive stock index fund such as the S&P 500 offered by both Vanguard and Fidelity --- and hopefully by your employer as well.
That's my take. Jim Cramer's too. And Warren Buffett's as well.
Thanks. Bob.
Sunday, March 8, 2015
Warren Buffett's Advice for Individual Investors
Warren Buffett is probably the most successful individual investor alive today. He also gratuitously and generously takes time to guide individual amateur investors with respect to how we too can achieve long term investing success. The rules he advocates that we follow are simple, based on common sense and easy to understand and apply.
These simple and useful rules aren't generally applied by most people, including advisers, so it's a good idea to share them when the 'Oracle of Omaha' has something to say. With that in mind, here goes.
5 stock-market rules that Warren Buffett insists you follow says this:
1. A stock is a business, not a piece of paper
First, although it seems banal to say, a stock is an ownership unit of a business. . . .
The lesson for investors is that a stock represents the value of a business’s future earnings. You should own it for that reason, and not because you think you can capitalize on its short-term gyrations, which generally have nothing to do with its business value.
Although they can be crazy in the short term, stock prices are ultimately governed by the profits their underlying businesses generate, and you should treat them that way. . . . Price gyrations provide opportunities to buy at unreasonably low prices and sell at unreasonably high prices.
2. Stocks serve as inflation protection over the long haul
Buffett remarks that from 1964 through 2014, the S&P 500, including dividends, generated a return of more than 11,000%. Over that same period of time, the U.S. dollar lost 87% of its purchasing power, meaning it now costs $1 to buy what in 1965 cost 13¢.
According to Buffett, it has been far more profitable to invest in a collection of American businesses for the past 50 years . . . .
Investors should remember that U.S. stocks didn’t do well in the 1970s, when inflation was rocketing. But Buffett is clearly correct in arguing that stocks certainly improved the purchasing power of their owners over the half-century period from 1964.
Finally, although stocks may not be priced to deliver outstanding returns at any given moment, Buffett adds the phrase “bought over time” when talking about accumulating stocks. Investors should take that to mean regular periodic investments in stocks will likely turn out fine over a multi-decade period.
3. Volatility is not risk
Investors must tolerate far greater volatility in stocks than in securities tied to U.S. currency....
If you need money for a home purchase or to fund tuition payments over the next few years, then short-term bonds and cash are required. Stocks’ volatility makes them inappropriate for short-term goals.
But if you have a long time frame and can make regular investments, then the risk to your financial well-being is in not owning stocks. So if you’re relatively young, and you’re contributing to a 401(k), for example, you’ll do yourself a favor in old age by making contributions to stocks now and periodically through your life.
4. Keep a multi-decade time horizon
Buffett thinks long-term. . . . Being able to have a longer time horizon allows you to tolerate the volatility that stocks necessarily present, and reap the inflation-beating rewards they deliver.
5. Keep an eye on fees, and use index funds
Buffett is particularly ruthless this year in his discussions of investment bankers, asset managers, and advisers. He remarks that although there are some excellent money managers (presumably he’s counting himself), it’s difficult to identify them ahead of time or know whether their results are due to skill or luck.
Advisers’ core competence is in salesmanship, and they’re generally more adept at generating high fees for themselves than returns for their clients."
Summing up
For long term oriented individual savers and investors, the biggest financial risk is in not owning stocks for the long haul.
Perhaps the second biggest risk is for individuals to panic and sell when prices fall from time to time, and sometimes dramatically.
And the third may be the tendency to pay 'professionals' and brokers for services not worth the price charged. MOM (my own money) rules apply.
If we always keep in mind that the only two prices that really matter are the total amount we pay initially and then the net price we sell for eventually, we'll do fine.
And always remembering that price volatility and risk are two entirely different things wil stand us in good stead as well.
In other words, what Buffett has to say about investing makes sense.
That's my take.
Thanks. Bob.
These simple and useful rules aren't generally applied by most people, including advisers, so it's a good idea to share them when the 'Oracle of Omaha' has something to say. With that in mind, here goes.
5 stock-market rules that Warren Buffett insists you follow says this:
1. A stock is a business, not a piece of paper
First, although it seems banal to say, a stock is an ownership unit of a business. . . .
The lesson for investors is that a stock represents the value of a business’s future earnings. You should own it for that reason, and not because you think you can capitalize on its short-term gyrations, which generally have nothing to do with its business value.
Although they can be crazy in the short term, stock prices are ultimately governed by the profits their underlying businesses generate, and you should treat them that way. . . . Price gyrations provide opportunities to buy at unreasonably low prices and sell at unreasonably high prices.
2. Stocks serve as inflation protection over the long haul
Buffett remarks that from 1964 through 2014, the S&P 500, including dividends, generated a return of more than 11,000%. Over that same period of time, the U.S. dollar lost 87% of its purchasing power, meaning it now costs $1 to buy what in 1965 cost 13¢.
According to Buffett, it has been far more profitable to invest in a collection of American businesses for the past 50 years . . . .
Investors should remember that U.S. stocks didn’t do well in the 1970s, when inflation was rocketing. But Buffett is clearly correct in arguing that stocks certainly improved the purchasing power of their owners over the half-century period from 1964.
Finally, although stocks may not be priced to deliver outstanding returns at any given moment, Buffett adds the phrase “bought over time” when talking about accumulating stocks. Investors should take that to mean regular periodic investments in stocks will likely turn out fine over a multi-decade period.
3. Volatility is not risk
Investors must tolerate far greater volatility in stocks than in securities tied to U.S. currency....
If you need money for a home purchase or to fund tuition payments over the next few years, then short-term bonds and cash are required. Stocks’ volatility makes them inappropriate for short-term goals.
But if you have a long time frame and can make regular investments, then the risk to your financial well-being is in not owning stocks. So if you’re relatively young, and you’re contributing to a 401(k), for example, you’ll do yourself a favor in old age by making contributions to stocks now and periodically through your life.
4. Keep a multi-decade time horizon
Buffett thinks long-term. . . . Being able to have a longer time horizon allows you to tolerate the volatility that stocks necessarily present, and reap the inflation-beating rewards they deliver.
5. Keep an eye on fees, and use index funds
Buffett is particularly ruthless this year in his discussions of investment bankers, asset managers, and advisers. He remarks that although there are some excellent money managers (presumably he’s counting himself), it’s difficult to identify them ahead of time or know whether their results are due to skill or luck.
Advisers’ core competence is in salesmanship, and they’re generally more adept at generating high fees for themselves than returns for their clients."
Summing up
For long term oriented individual savers and investors, the biggest financial risk is in not owning stocks for the long haul.
Perhaps the second biggest risk is for individuals to panic and sell when prices fall from time to time, and sometimes dramatically.
And the third may be the tendency to pay 'professionals' and brokers for services not worth the price charged. MOM (my own money) rules apply.
If we always keep in mind that the only two prices that really matter are the total amount we pay initially and then the net price we sell for eventually, we'll do fine.
And always remembering that price volatility and risk are two entirely different things wil stand us in good stead as well.
In other words, what Buffett has to say about investing makes sense.
That's my take.
Thanks. Bob.
The Politically Powerful Powerful Teachers' Unions ... Lessons that Citizens and Taxpayers in Chicago, the State of Illinois, and Everywhere Should Learn About 'Right-to-Work'
Government against government is an apt description of the situation when public sector employees, through their union leaders, bargain collectively with government officials. And these bargaining officials representing the government, aka taxpayers, are frequently ones the unions have heavily supported at the ballot box with political contributions made from membership dues collected from unwilling dues paying public sector employees. These 'unwilling' employees would prefer to keep their hard earned money and decide whether and how to spend it without having to turn it over to the unions instead. But alas, government say's they can't do that. They are not free-to-choose.
In my view, powerful public sector unions, and especially teachers' unions, are a huge factor in explaining our precarious and out-of-control finances in many big cities and states. There's no better example of this than what's going on in Chicago and the state of Illinois.
With the public sector employee unions having their way in large part due to a largely sympathetic, uninvolved and relatively uninformed voting public, the situation may get even worse before getting better.
By way of background, The Right-to-Work Advantage lays out the stubborn facts about union power, right-to-work legislation and the rights and freedoms of individual public sector employees:
"Wisconsin will . . . become the nation’s 25th right-to-work state . . . . No longer will the Badger State’s private-sector employees be compelled to join a labor union and pay dues as a condition of employment. Debates over this contentious public policy are usually cast as fights between pro-and antiunion forces—but the real divide is between those who oppose and those who favor faster economic growth.
Consider the economic benefits that right-to-work states enjoy. By nearly any metric they come out on top of their competitors. The clearest evidence is the disproportionate job growth in right-to-work states. According to data from the Bureau of Labor Statistics, from 2003-13 states with such laws increased their employment rolls by 9.5%—nearly three percentage points more than the national average and more than double the growth in non-right-to-work states.
These weren’t average jobs, either. They were good-paying positions with increasing wages. Personal incomes in those states grew 12% more than in states without right-to-work protections during that same 10-year period, according to a 2014 study by the American Legislative Exchange Council.
Labor unions try to rebut these statistics by pointing to their higher top-line wages and salaries. But these simple analyses fail to mention that those earnings are disproportionately in union strongholds in the Northeast, Chicago and on the West Coast, where the cost of living is more expensive than in the right-to-work South and Midwest. It makes sense that those areas would have higher nominal pay.
Once cost of living is considered, right-to-work states have 4.1% higher per capita personal incomes than non-right-to-work states, according to a 2013 analysis by the Michigan-based Mackinac Center for Public Policy.
These better jobs and growing incomes also lead to stronger economic growth. According to data from the Bureau of Economic Analysis, the economies of right-to-work states grew about 10% more than non-right-to-work states between 2003 and 2013. . . .
Yet even as convincing as these economic benefits are, they still pale in comparison with the individual freedom that right-to-work laws provide. Employees are allowed to earn a living without being forced to pay union dues and fees. The evidence shows that employees appreciate this right.
Consider Michigan, which in 2013 became the 24th right-to-work state. In the law’s first full year, total union membership fell by 48,000—even as total state employment grew.
Wisconsin’s government employees similarly left unions when given the opportunity in 2011. Nearly 70% of the state’s 70,000-member state employees union have since chosen to leave. The powerful American Federation of Teachers and the National Education Association saw their ranks decline by more than 50% and 30%, respectively."
.........................................................
Chicago Mayor Rahm Emanuel is a Democrat. Illinois Governor Bruce Rauner is a Republican. Both are trying to bring order out of financial chaos. So far, so good.
Now the bad stuff. Chicago and Illinois politics have long been ruled by free spending unaccountable politicians bowing to the political pressures of public sector unions and aligned elected officials. These unions vehemently oppose the good government and fiscal responsibility being proposed by Rauner and Emanuel.
And where does President Obama, who just happens to come from Illinois, stand on all this? Well, don't hold your breath waiting for an answer to that question. My guess is he'll be AWOL during the heavy lifting, providing us with one more example of why politics sucks. ..........................................................................................
Let's begin with Governor Rauner in Blue State Turnaround Artist:
"Mr. Rauner feels he has a mandate. He won every area of the state except urban Cook County, and he says even liberals see the need to cut spending and reform the bloated pension system. . . . the budget mess is so acute, Mr. Rauner says, that the legislature simply must act. . . .
That doesn’t mean the governor’s proposals have landed without controversy. One involves changing the future pensions of government employees, who would very much like to keep the generous current terms. Under Mr. Rauner’s plan, benefits for current retirees would be maintained, but today’s workers would be given the option of a buyout—a lump sum that the state would deposit into a new 401(k)-style account. Employees who don’t take the buyout would have future benefits modestly reduced, though the portion of their pensions that has already been earned would be protected. . . .
Equally controversial have been the governor’s plans to reform government-union rules. A full 93% of the state’s government workers are unionized (the highest rate in the country, Mr. Rauner notes), guaranteeing a stream of dues money to Democratic politicians. “Everywhere I look inside state government, the unions have been running the process, dictating the terms, setting the work rules and setting the agenda inside government,” Mr. Rauner says. “The taxpayers, school children, businesses, homeowners, small business owners have been abused and left out of the process.”
One of his first moves was signing an executive order banning public unions from collecting mandatory fees from workers who don’t want to join the union. . . .
Mr. Rauner has also proposed banning campaign contributions from government unions. “It’s already illegal today in Illinois for businesses or individuals who contract with the state to make campaign contributions to state politicians,” he says, but “it’s perfectly legal for government union leaders.
Why?” . . .
His reform proposals have earned Mr. Rauner comparison to Wisconsin Gov. Scott Walker, who in 2011 pushed through limits on public-union collective bargaining. Mr. Rauner hasn’t gone that far for state workers, but he has offered a plan to let local voters determine what the workers they employ can and can’t bargain for. “I want them to decide if they want forced unionization in their government entities and their schools,” he says.
Mr. Rauner also wants to let local governments decide on what would essentially be local right-to-work zones. Illinois is surrounded by right-to-work states . . . .
But the biggest—and first—priority, he insists, must be to change the way Illinois does business. “We’ve got massive debt, massive deficits, high unemployment,” he says. “People think, ‘just raise the income-tax rate.’ Guys, that is not going to fix our problem. We’ve gotta grow.”
...............................................................
And now we'll turn our attention to Chicago politics where Rahm Emanuel and the Trials of Progressive Payback has the story:
"Chicago has a habit of electing its leaders for life, and few expected Mr. Emanuel to be an exception. But having failed to win a majority in the Feb. 22 election, the mayor will now face Jesus “Chuy” Garcia —a county commissioner, former alderman and former state senator—in an April 7 runoff....
The opposition’s choice, Mr. Garcia, is a self-proclaimed progressive . . . backed by powerful teachers unions. . . .
The teachers unions are among the challenger’s main bankrollers, contributing roughly half of the estimated $1.5 million he has raised. Mr. Garcia has also tied his campaign to a plan that would take the power to appoint Chicago’s school board out of the hands of the mayor; those positions would be elected instead. This would allow the union to use its considerable largess to back school-board candidates sympathetic to its aims. The hilarious twist here is that Mr. Emanuel spent a lifetime burnishing liberal credentials, but has now acquired a Scott Walker-esque reputation for union busting.
Part of the mayor’s troubles stem from the dissatisfaction of progressives, who expected a better deal from President Obama’s former chief of staff. Before the first votes were even cast, MoveOn.org had lent Mr. Garcia its Chicago email list. Democracy for America, a group founded by former Democratic presidential candidate Howard Dean, is also sending emails for Mr. Garcia. The Progressive Change Campaign Committee is raising money under the headline “Defeat Corporate Democrat Rahm Emanuel.” It seems as if every teachers union in the country is focusing off-year election efforts on Chicago to teach Mr. Emanuel a lesson.
President Obama might be getting the message. Though the president cut an 11th-hour ad for Mr. Emanuel before the initial election and made appearances across Chicago, the White House has nothing on the schedule for the runoff. . . .
Chicago voters are left to pick between two unappealing candidates who are battling for the measly one-third of the electorate that hasn’t checked out completely. (Voter turnout in the first round was 34%). On one hand, there’s Mr. Emanuel, who admittedly inherited a financial mess created from the second Richard Daley to hold the mayoral title, but who seems as hapless now as the day he took control. On the other hand, there’s Mr. Garcia, a man who has many progressive dreams and no idea how to pay for them, and whose best quality is simply that he isn’t Rahm Emanuel.
Local Republicans—the few of us willing to admit our party affiliation in public—couldn’t script a more depressing outlook if they tried. In a city that is perilously close to bankruptcy, besieged by waves of violence and facing an uncertain future, the two factions fight it out over whether pension contracts should be extraordinarily generous or simply generous.
What will happen in the April runoff is anyone’s guess. The lesson for Chicago residents like me is that maybe it is time to move somewhere else."
.................................................................................................................
And we'll finish with quotes from "The Right-to-Work Advantage" referenced above:
"That so many members dropped their union membership at the first chance demonstrates that they were being forced to give some of their money to organizations they did not support. Before right-to-work laws, their only choice would have been to quit their jobs.
Right-to-work also ensures that individuals are not forced to support political candidates or causes they disagree with. While 38% of union household members voted for a Republican candidate in the U.S. House of Representatives in 2014, an analysis by the Center for Responsive Politics revealed that more than 90% of union political spending backed Democratic candidates. Giving employees the freedom not to contribute financially to unions ensures they won’t be forced to unwittingly support politics and policies they don’t support.
Unions are still free to organize employees in right-to-work states. . . . The only difference is that unions can’t coerce them into joining.
Right-to-work is right for everyone—and not only in Wisconsin."
Summing Up
Fiscal responsibility and powerful public sector unions aren't a good mix for either cities or individual states. And of the public sector unions, teachers' unions are the most expensive and powerful of all.
In the end, paying the bills isn't optional. And the right to receive a quality education at a reasonable cost to taxpayers should exist for everybody.
That's my take.
Thanks. Bob.
In my view, powerful public sector unions, and especially teachers' unions, are a huge factor in explaining our precarious and out-of-control finances in many big cities and states. There's no better example of this than what's going on in Chicago and the state of Illinois.
With the public sector employee unions having their way in large part due to a largely sympathetic, uninvolved and relatively uninformed voting public, the situation may get even worse before getting better.
By way of background, The Right-to-Work Advantage lays out the stubborn facts about union power, right-to-work legislation and the rights and freedoms of individual public sector employees:
"Wisconsin will . . . become the nation’s 25th right-to-work state . . . . No longer will the Badger State’s private-sector employees be compelled to join a labor union and pay dues as a condition of employment. Debates over this contentious public policy are usually cast as fights between pro-and antiunion forces—but the real divide is between those who oppose and those who favor faster economic growth.
Consider the economic benefits that right-to-work states enjoy. By nearly any metric they come out on top of their competitors. The clearest evidence is the disproportionate job growth in right-to-work states. According to data from the Bureau of Labor Statistics, from 2003-13 states with such laws increased their employment rolls by 9.5%—nearly three percentage points more than the national average and more than double the growth in non-right-to-work states.
These weren’t average jobs, either. They were good-paying positions with increasing wages. Personal incomes in those states grew 12% more than in states without right-to-work protections during that same 10-year period, according to a 2014 study by the American Legislative Exchange Council.
Labor unions try to rebut these statistics by pointing to their higher top-line wages and salaries. But these simple analyses fail to mention that those earnings are disproportionately in union strongholds in the Northeast, Chicago and on the West Coast, where the cost of living is more expensive than in the right-to-work South and Midwest. It makes sense that those areas would have higher nominal pay.
Once cost of living is considered, right-to-work states have 4.1% higher per capita personal incomes than non-right-to-work states, according to a 2013 analysis by the Michigan-based Mackinac Center for Public Policy.
These better jobs and growing incomes also lead to stronger economic growth. According to data from the Bureau of Economic Analysis, the economies of right-to-work states grew about 10% more than non-right-to-work states between 2003 and 2013. . . .
Yet even as convincing as these economic benefits are, they still pale in comparison with the individual freedom that right-to-work laws provide. Employees are allowed to earn a living without being forced to pay union dues and fees. The evidence shows that employees appreciate this right.
Consider Michigan, which in 2013 became the 24th right-to-work state. In the law’s first full year, total union membership fell by 48,000—even as total state employment grew.
Wisconsin’s government employees similarly left unions when given the opportunity in 2011. Nearly 70% of the state’s 70,000-member state employees union have since chosen to leave. The powerful American Federation of Teachers and the National Education Association saw their ranks decline by more than 50% and 30%, respectively."
.........................................................
Chicago Mayor Rahm Emanuel is a Democrat. Illinois Governor Bruce Rauner is a Republican. Both are trying to bring order out of financial chaos. So far, so good.
Now the bad stuff. Chicago and Illinois politics have long been ruled by free spending unaccountable politicians bowing to the political pressures of public sector unions and aligned elected officials. These unions vehemently oppose the good government and fiscal responsibility being proposed by Rauner and Emanuel.
And where does President Obama, who just happens to come from Illinois, stand on all this? Well, don't hold your breath waiting for an answer to that question. My guess is he'll be AWOL during the heavy lifting, providing us with one more example of why politics sucks. ..........................................................................................
Let's begin with Governor Rauner in Blue State Turnaround Artist:
"Mr. Rauner feels he has a mandate. He won every area of the state except urban Cook County, and he says even liberals see the need to cut spending and reform the bloated pension system. . . . the budget mess is so acute, Mr. Rauner says, that the legislature simply must act. . . .
That doesn’t mean the governor’s proposals have landed without controversy. One involves changing the future pensions of government employees, who would very much like to keep the generous current terms. Under Mr. Rauner’s plan, benefits for current retirees would be maintained, but today’s workers would be given the option of a buyout—a lump sum that the state would deposit into a new 401(k)-style account. Employees who don’t take the buyout would have future benefits modestly reduced, though the portion of their pensions that has already been earned would be protected. . . .
Equally controversial have been the governor’s plans to reform government-union rules. A full 93% of the state’s government workers are unionized (the highest rate in the country, Mr. Rauner notes), guaranteeing a stream of dues money to Democratic politicians. “Everywhere I look inside state government, the unions have been running the process, dictating the terms, setting the work rules and setting the agenda inside government,” Mr. Rauner says. “The taxpayers, school children, businesses, homeowners, small business owners have been abused and left out of the process.”
One of his first moves was signing an executive order banning public unions from collecting mandatory fees from workers who don’t want to join the union. . . .
Mr. Rauner has also proposed banning campaign contributions from government unions. “It’s already illegal today in Illinois for businesses or individuals who contract with the state to make campaign contributions to state politicians,” he says, but “it’s perfectly legal for government union leaders.
Why?” . . .
His reform proposals have earned Mr. Rauner comparison to Wisconsin Gov. Scott Walker, who in 2011 pushed through limits on public-union collective bargaining. Mr. Rauner hasn’t gone that far for state workers, but he has offered a plan to let local voters determine what the workers they employ can and can’t bargain for. “I want them to decide if they want forced unionization in their government entities and their schools,” he says.
Mr. Rauner also wants to let local governments decide on what would essentially be local right-to-work zones. Illinois is surrounded by right-to-work states . . . .
But the biggest—and first—priority, he insists, must be to change the way Illinois does business. “We’ve got massive debt, massive deficits, high unemployment,” he says. “People think, ‘just raise the income-tax rate.’ Guys, that is not going to fix our problem. We’ve gotta grow.”
...............................................................
And now we'll turn our attention to Chicago politics where Rahm Emanuel and the Trials of Progressive Payback has the story:
"Chicago has a habit of electing its leaders for life, and few expected Mr. Emanuel to be an exception. But having failed to win a majority in the Feb. 22 election, the mayor will now face Jesus “Chuy” Garcia —a county commissioner, former alderman and former state senator—in an April 7 runoff....
The opposition’s choice, Mr. Garcia, is a self-proclaimed progressive . . . backed by powerful teachers unions. . . .
The teachers unions are among the challenger’s main bankrollers, contributing roughly half of the estimated $1.5 million he has raised. Mr. Garcia has also tied his campaign to a plan that would take the power to appoint Chicago’s school board out of the hands of the mayor; those positions would be elected instead. This would allow the union to use its considerable largess to back school-board candidates sympathetic to its aims. The hilarious twist here is that Mr. Emanuel spent a lifetime burnishing liberal credentials, but has now acquired a Scott Walker-esque reputation for union busting.
Part of the mayor’s troubles stem from the dissatisfaction of progressives, who expected a better deal from President Obama’s former chief of staff. Before the first votes were even cast, MoveOn.org had lent Mr. Garcia its Chicago email list. Democracy for America, a group founded by former Democratic presidential candidate Howard Dean, is also sending emails for Mr. Garcia. The Progressive Change Campaign Committee is raising money under the headline “Defeat Corporate Democrat Rahm Emanuel.” It seems as if every teachers union in the country is focusing off-year election efforts on Chicago to teach Mr. Emanuel a lesson.
President Obama might be getting the message. Though the president cut an 11th-hour ad for Mr. Emanuel before the initial election and made appearances across Chicago, the White House has nothing on the schedule for the runoff. . . .
Chicago voters are left to pick between two unappealing candidates who are battling for the measly one-third of the electorate that hasn’t checked out completely. (Voter turnout in the first round was 34%). On one hand, there’s Mr. Emanuel, who admittedly inherited a financial mess created from the second Richard Daley to hold the mayoral title, but who seems as hapless now as the day he took control. On the other hand, there’s Mr. Garcia, a man who has many progressive dreams and no idea how to pay for them, and whose best quality is simply that he isn’t Rahm Emanuel.
Local Republicans—the few of us willing to admit our party affiliation in public—couldn’t script a more depressing outlook if they tried. In a city that is perilously close to bankruptcy, besieged by waves of violence and facing an uncertain future, the two factions fight it out over whether pension contracts should be extraordinarily generous or simply generous.
What will happen in the April runoff is anyone’s guess. The lesson for Chicago residents like me is that maybe it is time to move somewhere else."
.................................................................................................................
And we'll finish with quotes from "The Right-to-Work Advantage" referenced above:
"That so many members dropped their union membership at the first chance demonstrates that they were being forced to give some of their money to organizations they did not support. Before right-to-work laws, their only choice would have been to quit their jobs.
Right-to-work also ensures that individuals are not forced to support political candidates or causes they disagree with. While 38% of union household members voted for a Republican candidate in the U.S. House of Representatives in 2014, an analysis by the Center for Responsive Politics revealed that more than 90% of union political spending backed Democratic candidates. Giving employees the freedom not to contribute financially to unions ensures they won’t be forced to unwittingly support politics and policies they don’t support.
Unions are still free to organize employees in right-to-work states. . . . The only difference is that unions can’t coerce them into joining.
Right-to-work is right for everyone—and not only in Wisconsin."
Summing Up
Fiscal responsibility and powerful public sector unions aren't a good mix for either cities or individual states. And of the public sector unions, teachers' unions are the most expensive and powerful of all.
In the end, paying the bills isn't optional. And the right to receive a quality education at a reasonable cost to taxpayers should exist for everybody.
That's my take.
Thanks. Bob.
Friday, March 6, 2015
The 1965 Voting Rights Act ... 'Bloody Sunday' in Selma as Told by A Minister Who Was There and Witnessed the Murder of His Fellow Minister
In early 2015 we are experiencing a rethink of the current state of American race relations and the police. The current public discussion and national soul searching is occurring 50 years after the 'Bloody Sunday' events in Selma which led to the passage of the Voting Rights Act. Perspective helps.
Those were not easy times in 1965, but they were times of progress. Of course, the same can be said of what's transpired since then and even today. The wheel of progress leading all Americans to equal opportunity turns slowly in America, and often too slowly, but its arc bends continuously in the right direction --- equal opportunity and respect for all ---- regardless of an individual's race, religion, sex, nationality or political persuasion.
While we'll never achieve perfect equality in anything, we can always strive for same in this wonderful land of opportunity. That's the real American way.
'A Call From Selma' provides first hand testimony of what happened in 1965 on that 'Bloody Sunday.' The video begins with how one minister answered the call by fellow minister Reverend Martin Luther King to come to Selma and participate in the march, and then describes the murder of his fellow marching minister.
After the tragic events unfolded that day in Selma,' in a televised appeal to the nation and Congress, President Lyndon Baines President Johnson promised that as a nation "We Shall Overcome." The Congress then promptly passed the Voting Rights Bill of 1965.
During his televised address, LBJ condemned the murder of the white minister but failed to mention the murder of Jimmie Lee Jackson, a black man who had been killed by a state trooper and who was the original inspiration for the march.
The video also notes that following the trial of the white minister's killers, the all-white jury acquitted all three white men accused of the killing.
The video is descriptive, informative and jarring.
Summing Up
The Selma story happened 50 years ago, but We the People still have much work to do with respect to making sure each American has equal opportunities and is accorded equal treatment under the law.
And let's always remember that what we are able and willing to learn about our past is that which we aren't doomed to repeat in the future.
So let's each resolve to continue to make every effort to treat each other with the respect we deserve as equal and fellow human beings.
That's my take.
Thanks. Bob.
Those were not easy times in 1965, but they were times of progress. Of course, the same can be said of what's transpired since then and even today. The wheel of progress leading all Americans to equal opportunity turns slowly in America, and often too slowly, but its arc bends continuously in the right direction --- equal opportunity and respect for all ---- regardless of an individual's race, religion, sex, nationality or political persuasion.
While we'll never achieve perfect equality in anything, we can always strive for same in this wonderful land of opportunity. That's the real American way.
'A Call From Selma' provides first hand testimony of what happened in 1965 on that 'Bloody Sunday.' The video begins with how one minister answered the call by fellow minister Reverend Martin Luther King to come to Selma and participate in the march, and then describes the murder of his fellow marching minister.
After the tragic events unfolded that day in Selma,' in a televised appeal to the nation and Congress, President Lyndon Baines President Johnson promised that as a nation "We Shall Overcome." The Congress then promptly passed the Voting Rights Bill of 1965.
During his televised address, LBJ condemned the murder of the white minister but failed to mention the murder of Jimmie Lee Jackson, a black man who had been killed by a state trooper and who was the original inspiration for the march.
The video also notes that following the trial of the white minister's killers, the all-white jury acquitted all three white men accused of the killing.
The video is descriptive, informative and jarring.
Summing Up
The Selma story happened 50 years ago, but We the People still have much work to do with respect to making sure each American has equal opportunities and is accorded equal treatment under the law.
And let's always remember that what we are able and willing to learn about our past is that which we aren't doomed to repeat in the future.
So let's each resolve to continue to make every effort to treat each other with the respect we deserve as equal and fellow human beings.
That's my take.
Thanks. Bob.
Right-to-Work ... Those Who Oppose It Are Against Individual Free Choice ... Right-to-Work and Free-to-Choose Are the Same Thing
Sometimes words are good proxies for what meaning they are intended to convey and sometimes they aren't.
For example, is the Affordable Care Act, aka ObamaCare, really affordable? Of course not, at least not without costly and open ended taxpayer backstopping.
And is attendance at community colleges ever really going to be free, even if attending students aren't required to pay tuition? Of course not --- it's the taxpayer backstop again.
In that vein, let's examine the meaning of right-to-work legislation. What does it really mean? Well, it means simply that each individual employee has the freedom to choose whether or not to join a union and pay dues to the union.
To repeat, right-to-work simply means that an individual employee retains the right to choose whether to join a union and pay union dues. It's merely supportive of an individual employee's freedom of choice with respect to what organizations to join or not join, as well as what to do with the money he earns while working for his employer. It's not the union who pays the employee or works hard to earn the paycheck. The employer and employee do that.
Of course, unions don't like for employees to have the freedom to choose. That's because employees will likely choose not to be coerced into helping the union leaders collect enough money to pay their employees --- other union officials. And another thing that unions do with the dues they collect coercively is use a healthy portion of that money to help elect staunch political allies of the unions, aka Democrats. And finally, they also take another considerable piece of the monies received to try to organize other employees working at other companies into additional bargaining units so the unions can collect more dues from more employees. It's an 'existential' business thing for them -- the more dues payers, the happier and wealthier the union leaders will be, in other words.
No, the freedom to choose as individuals what to do with the money they earn is not what unions want employees of companies to have. Not at all.
Wisconsin Lawmakers Pass Right-to-Work Bill says this:
"Wisconsin lawmakers voted Friday to make their state the 25th to enact right-to-work legislation ... sending it on to Gov. Scott Walker for his promised signature.
The Republican governor . . . plans to sign it Monday. . . .
The Assembly passed the bill 62-35 after a marathon session that included about 20 hours of debate. It was a straight party-line vote, with no Democrats backing the measure.
“Today is the day we have solidified the regressive era in Wisconsin,” Democratic Rep. Terese Berceau, of Madison, said minutes before the vote. . . .
(Republican Speaker) Mr. Vos accused Democrats of having “Walker derangement syndrome,” and said the bill was about giving workers the freedom to choose whether to pay union dues.
“I’m not going to apologize about using the word freedom,” said Republican Rep. Jeremy Thiesfeldt, of Fond du Lac. “I’m going to use it over and over again because that’s what this is about.”
Rep. LaTonya Johnson, a Democrat from Milwaukee, and a member of AFSCME, said she cares about people more than freedom. “It just angers me to know that we come here and we pass bills that affect people’s everyday lives, and we don’t have a clue as to how those everyday people live or how they survive,” she said.
The proposal would make it a crime punishable by up to nine months in jail to require private-sector workers who aren’t in a union to pay dues. . . .
Twenty-four other states have right-to-work laws. Michigan and Indiana were the two most recent states to enact it, both in 2012."
Summing Up
Allowing individuals to chose what organizations to support with their hard earned money sounds very much like the American way to me.
Thus, count me very strongly in the free-to-choose camp for the rights of individual employees regardless of whether they are part of a 'union shop' or not.
Of course, the Dems and the union advocates like LaTonya Johnson don't like it one little bit. But they really have nothing worthwhile to sell, and so coerce they must --- but under the fiction of fairness and helping the employees, of course.
Coercion and anti-freedom of choice are the anti-right-to-work positions of the Dems and the union leaders.
That's my take.
Thanks. Bob.
For example, is the Affordable Care Act, aka ObamaCare, really affordable? Of course not, at least not without costly and open ended taxpayer backstopping.
And is attendance at community colleges ever really going to be free, even if attending students aren't required to pay tuition? Of course not --- it's the taxpayer backstop again.
In that vein, let's examine the meaning of right-to-work legislation. What does it really mean? Well, it means simply that each individual employee has the freedom to choose whether or not to join a union and pay dues to the union.
To repeat, right-to-work simply means that an individual employee retains the right to choose whether to join a union and pay union dues. It's merely supportive of an individual employee's freedom of choice with respect to what organizations to join or not join, as well as what to do with the money he earns while working for his employer. It's not the union who pays the employee or works hard to earn the paycheck. The employer and employee do that.
Of course, unions don't like for employees to have the freedom to choose. That's because employees will likely choose not to be coerced into helping the union leaders collect enough money to pay their employees --- other union officials. And another thing that unions do with the dues they collect coercively is use a healthy portion of that money to help elect staunch political allies of the unions, aka Democrats. And finally, they also take another considerable piece of the monies received to try to organize other employees working at other companies into additional bargaining units so the unions can collect more dues from more employees. It's an 'existential' business thing for them -- the more dues payers, the happier and wealthier the union leaders will be, in other words.
No, the freedom to choose as individuals what to do with the money they earn is not what unions want employees of companies to have. Not at all.
Wisconsin Lawmakers Pass Right-to-Work Bill says this:
"Wisconsin lawmakers voted Friday to make their state the 25th to enact right-to-work legislation ... sending it on to Gov. Scott Walker for his promised signature.
The Republican governor . . . plans to sign it Monday. . . .
The Assembly passed the bill 62-35 after a marathon session that included about 20 hours of debate. It was a straight party-line vote, with no Democrats backing the measure.
“Today is the day we have solidified the regressive era in Wisconsin,” Democratic Rep. Terese Berceau, of Madison, said minutes before the vote. . . .
(Republican Speaker) Mr. Vos accused Democrats of having “Walker derangement syndrome,” and said the bill was about giving workers the freedom to choose whether to pay union dues.
“I’m not going to apologize about using the word freedom,” said Republican Rep. Jeremy Thiesfeldt, of Fond du Lac. “I’m going to use it over and over again because that’s what this is about.”
Rep. LaTonya Johnson, a Democrat from Milwaukee, and a member of AFSCME, said she cares about people more than freedom. “It just angers me to know that we come here and we pass bills that affect people’s everyday lives, and we don’t have a clue as to how those everyday people live or how they survive,” she said.
The proposal would make it a crime punishable by up to nine months in jail to require private-sector workers who aren’t in a union to pay dues. . . .
Twenty-four other states have right-to-work laws. Michigan and Indiana were the two most recent states to enact it, both in 2012."
Summing Up
Allowing individuals to chose what organizations to support with their hard earned money sounds very much like the American way to me.
Thus, count me very strongly in the free-to-choose camp for the rights of individual employees regardless of whether they are part of a 'union shop' or not.
Of course, the Dems and the union advocates like LaTonya Johnson don't like it one little bit. But they really have nothing worthwhile to sell, and so coerce they must --- but under the fiction of fairness and helping the employees, of course.
Coercion and anti-freedom of choice are the anti-right-to-work positions of the Dems and the union leaders.
That's my take.
Thanks. Bob.
Buying a Car ... New or Used? .... Used Makes More Sense
Sometimes it helps to look at old things in new ways. That's definitely the case when it comes to making personal financial decisions, big or small, but especially big.
So let's look briefly at the pros and cons involved with purchasing a new or used car. If you are like me, you've probably never considered this rather big personal financial choice carefully enough.
Why Buying a New Car Makes No Financial Sense is a head scratcher for those of us who always try to buy what's new, including cars:
"My father loved new cars. He loved the look of them, the feel of them, and even the new-car smell. There is something glamorous and glitzy about parading a new car through your neighborhood to impress your friends. Every three to four years, my mother and father would go out and purchase a brand-new automobile.
But there is nothing sparkling about buying an investment that will surely lose you money–no matter how much you convince yourself that it makes sense.
As a child, you don’t really consider financial matters such as depreciation and how a purchase can be one of the worst things you can do to your family budget. But what if I was to tell you that you should give me $70,000 and within two years it will be worth $45,000? Would you invest your money in that kind of asset class? No matter how much the car may boost up your ego or social status, it simply cannot add to your bottom line.
Watching my parents struggle with their finances taught me an invaluable lesson when it came to my own financial decisions: Only buy cars that are two to three years old, when the massive upfront depreciation has worn off. Take the cars in for their regular service, and you can always buy an extended warranty up to 100,000 miles on most of these used cars to protect you against some of your downside risk. You can drive the used car for another good five to seven years before you may need to buy your next car.
Take this one to the bank and I’ll buy you a spray can of new-car smell if you really want that new-car feeling in the morning."
Summing Up
As I said, sometimes it helps to look at old things in new ways. That simple logic applies to buying cars as well as many other things.
So instead of bothering ourselves with the make, model and extras of a particular automobile, first let's make the much bigger and financially impacting choice --- new or used?
Even for us old dogs, it's never too late to learn new tricks. And with cars, one new trick may be carefully thinking things through before we buy.
That's my take.
Thanks. Bob.
So let's look briefly at the pros and cons involved with purchasing a new or used car. If you are like me, you've probably never considered this rather big personal financial choice carefully enough.
Why Buying a New Car Makes No Financial Sense is a head scratcher for those of us who always try to buy what's new, including cars:
"My father loved new cars. He loved the look of them, the feel of them, and even the new-car smell. There is something glamorous and glitzy about parading a new car through your neighborhood to impress your friends. Every three to four years, my mother and father would go out and purchase a brand-new automobile.
But there is nothing sparkling about buying an investment that will surely lose you money–no matter how much you convince yourself that it makes sense.
As a child, you don’t really consider financial matters such as depreciation and how a purchase can be one of the worst things you can do to your family budget. But what if I was to tell you that you should give me $70,000 and within two years it will be worth $45,000? Would you invest your money in that kind of asset class? No matter how much the car may boost up your ego or social status, it simply cannot add to your bottom line.
Watching my parents struggle with their finances taught me an invaluable lesson when it came to my own financial decisions: Only buy cars that are two to three years old, when the massive upfront depreciation has worn off. Take the cars in for their regular service, and you can always buy an extended warranty up to 100,000 miles on most of these used cars to protect you against some of your downside risk. You can drive the used car for another good five to seven years before you may need to buy your next car.
Take this one to the bank and I’ll buy you a spray can of new-car smell if you really want that new-car feeling in the morning."
Summing Up
As I said, sometimes it helps to look at old things in new ways. That simple logic applies to buying cars as well as many other things.
So instead of bothering ourselves with the make, model and extras of a particular automobile, first let's make the much bigger and financially impacting choice --- new or used?
Even for us old dogs, it's never too late to learn new tricks. And with cars, one new trick may be carefully thinking things through before we buy.
That's my take.
Thanks. Bob.
Thursday, March 5, 2015
Our Right to Free Speech Allows 'Spin,' Puffery and Even Telling Lies ... The Truth about Stagnant Incomes in America ... More on the Myth of Middle Class Economics
Our U.S. Constitution guarantees to all of its citizens the right of free speech. That fundamental guarantee contained in the Bill of Rights to very much applies to what politicians and sales people say as well.
For the most part, of course, free speech is a great thing. But we have to qualify things and say 'for the most part' because the guarantee of free speech doesn't obligate the speaker to even try to tell the truth. In fact, many of our free speakers can and often do 'interpret' things in their own special way to make their arguments sound more convincing. Most politicians do that all the time, as do salesmen and other self interested individuals.
So in America, it's a world of caveat emptor, aka let the buyer beware, for We the People as politicians and sales people work hard to solicit our votes and hard earned money. And while the free speech guarantee doesn't extend to such things as yelling fire in a crowded theater merely to incite panic, we are otherwise pretty much allowed to engage in 'spin, ''puffery' and even outright lying to argue for our preferred outcomes. But occasionally this free speech stuff goes too far -- way too far.
In that regard, The Mumbo-Jumbo of 'Middle-Class Economics' tells one such story about middle class income stagnation in America. Are we to believe that the typical American has experienced no increased income or buying power since 1968? On its face, that's a ridiculous statement. Nevertheless, as further evidence of the truism that while 'figures don't lie, liars often figure,' let's see what our nation's chief class warfare proponents and world class obfuscators have to say about it:
"In the “Economic Report of the President” released on Feb. 19, the White House’s Council of Economic Advisers defines “middle class economics” primarily by the average income of the bottom 90%. “Average income for the bottom 90 percent of households,” according to the ERP, “functions as a decent proxy for the median household’s income growth.”
This is absurd: The average income for the bottom 90% is not a decent proxy for the median nor even a decent measure of household income. . . . But this dodgy number does serve as the basis for CEA Chairman Jason Furman ’s assertion . . . that the U.S. has suffered a “40-year stagnation in incomes for the middle class and those working to get into the middle class.”
The measure has become popular on the left. Sen. Elizabeth Warren (D., Mass.) recently asked an AFL-CIO conference, “Since 1980, guess how much of the growth in income the [bottom] 90% got? Nothing. None. Zero.”. . .
Amazingly, these same statistics also show there has been no increase for the “bottom” 90% since 1968. Measured in 2013 dollars, average income of the bottom 90% was supposedly $32,730 in 1968, $32,887 in 1980, $35,326 in 2007 and $32,341 in 2013.
This is totally inconsistent with the data the Bureau of Economic Analysis uses to calculate GDP. For example, real personal consumption per person has tripled since 1968 and doubled since 1980, according to the BEA. Are all those shopping malls, big box stores, car dealers and restaurants catering to only the top 10%? The question answers itself.
Instead of the White House concoction, consider the Congressional Budget Office estimates of actual median household income. Measured in 2013 dollars, after-tax median income rose briskly from $46,998 in 1983 to $70,393 in 2008 but remained below that 2008 peak in 2011....
Both CBO and Census estimates show only six years of middle-class stagnation, not 40....
People often form strong opinions on the basis of weak statistics, but this “bottom 90%” fable may be the worst example yet. The Economic Report of the President’s description of “middle-class economics” rests on a far-fetched claim that middle incomes have stagnated for four decades rather than from 2008-13—most of these years during the Obama presidency."
Summing Up
Although there are countless distortions in 'arranging' the various numbers used to make the case that the average American's income hasn't grown in the past half century (such as taxes, entitlements, benefits, median vs. average earnings and so forth), the real facts placed in proper context tell a much different story than the one being 'sold.'
In other words, what we see isn't what's being sold. We're being told not to believe our 'lying eyes.'
Income stagnation in America, while very real, is in fact a quite recent phenomenon and not of decades long duration.
To repeat, real personal consumption has tripled since 1968 and doubled since 1980.
But the White House wants us to believe that median, average, or individual purchasing power hasn't increased since 1968. And that's a lie.
The very real problems we have today result from a stagnation of our economy and individual earnings the past several years and not the past several decades. And those problems won't ever be solved by more government control and intervention.
Do you ever wonder why the White House and its allied band of numerically oriented 'progressive' political cherry pickers choose not to see what's easily seeable? Neither do I.
That's my take.
Thanks. Bob.
For the most part, of course, free speech is a great thing. But we have to qualify things and say 'for the most part' because the guarantee of free speech doesn't obligate the speaker to even try to tell the truth. In fact, many of our free speakers can and often do 'interpret' things in their own special way to make their arguments sound more convincing. Most politicians do that all the time, as do salesmen and other self interested individuals.
So in America, it's a world of caveat emptor, aka let the buyer beware, for We the People as politicians and sales people work hard to solicit our votes and hard earned money. And while the free speech guarantee doesn't extend to such things as yelling fire in a crowded theater merely to incite panic, we are otherwise pretty much allowed to engage in 'spin, ''puffery' and even outright lying to argue for our preferred outcomes. But occasionally this free speech stuff goes too far -- way too far.
In that regard, The Mumbo-Jumbo of 'Middle-Class Economics' tells one such story about middle class income stagnation in America. Are we to believe that the typical American has experienced no increased income or buying power since 1968? On its face, that's a ridiculous statement. Nevertheless, as further evidence of the truism that while 'figures don't lie, liars often figure,' let's see what our nation's chief class warfare proponents and world class obfuscators have to say about it:
"In the “Economic Report of the President” released on Feb. 19, the White House’s Council of Economic Advisers defines “middle class economics” primarily by the average income of the bottom 90%. “Average income for the bottom 90 percent of households,” according to the ERP, “functions as a decent proxy for the median household’s income growth.”
This is absurd: The average income for the bottom 90% is not a decent proxy for the median nor even a decent measure of household income. . . . But this dodgy number does serve as the basis for CEA Chairman Jason Furman ’s assertion . . . that the U.S. has suffered a “40-year stagnation in incomes for the middle class and those working to get into the middle class.”
The measure has become popular on the left. Sen. Elizabeth Warren (D., Mass.) recently asked an AFL-CIO conference, “Since 1980, guess how much of the growth in income the [bottom] 90% got? Nothing. None. Zero.”. . .
Amazingly, these same statistics also show there has been no increase for the “bottom” 90% since 1968. Measured in 2013 dollars, average income of the bottom 90% was supposedly $32,730 in 1968, $32,887 in 1980, $35,326 in 2007 and $32,341 in 2013.
This is totally inconsistent with the data the Bureau of Economic Analysis uses to calculate GDP. For example, real personal consumption per person has tripled since 1968 and doubled since 1980, according to the BEA. Are all those shopping malls, big box stores, car dealers and restaurants catering to only the top 10%? The question answers itself.
Instead of the White House concoction, consider the Congressional Budget Office estimates of actual median household income. Measured in 2013 dollars, after-tax median income rose briskly from $46,998 in 1983 to $70,393 in 2008 but remained below that 2008 peak in 2011....
Both CBO and Census estimates show only six years of middle-class stagnation, not 40....
People often form strong opinions on the basis of weak statistics, but this “bottom 90%” fable may be the worst example yet. The Economic Report of the President’s description of “middle-class economics” rests on a far-fetched claim that middle incomes have stagnated for four decades rather than from 2008-13—most of these years during the Obama presidency."
Summing Up
Although there are countless distortions in 'arranging' the various numbers used to make the case that the average American's income hasn't grown in the past half century (such as taxes, entitlements, benefits, median vs. average earnings and so forth), the real facts placed in proper context tell a much different story than the one being 'sold.'
In other words, what we see isn't what's being sold. We're being told not to believe our 'lying eyes.'
Income stagnation in America, while very real, is in fact a quite recent phenomenon and not of decades long duration.
To repeat, real personal consumption has tripled since 1968 and doubled since 1980.
But the White House wants us to believe that median, average, or individual purchasing power hasn't increased since 1968. And that's a lie.
The very real problems we have today result from a stagnation of our economy and individual earnings the past several years and not the past several decades. And those problems won't ever be solved by more government control and intervention.
Do you ever wonder why the White House and its allied band of numerically oriented 'progressive' political cherry pickers choose not to see what's easily seeable? Neither do I.
That's my take.
Thanks. Bob.
Wednesday, March 4, 2015
Lincoln's Assassination ... 150th 'Anniversary' of His Second Inaugural Address Is Today ... Ironically, Today Is Also the Release of the Justice Department's Report on the Alleged Racial Bias of Police in Ferguson, Missouri
Our nation's 16th President, Abraham Lincoln, was assassinated by John Wilkes Booth on Good Friday, April 14, 1865.
Shortly before then and 150 years ago today, at the conclusion of the Civil War, Lincoln gave his Second Inaugural Address. Booth was an invited guest and in attendance. After hearing what Lincoln had to say that day, Booth decided to kill him, and that he did.
In my view, relevant comments in Lincoln's Second Inaugural address are worth reflecting upon on this 150th 'anniversary' of his assassination, particularly as we also consider police actions and race related matters concerning the investigation into the recent Ferguson, Missouri police shooting of Michael Brown (See U.S. Won't Charge Ferguson Police Officer Darren Wilson and Ferguson Police, Courts Accused of Racial Bias by Justice Department Probe):
"From President Lincoln’s second inaugural address, delivered 150 years ago on March 4, 1865:
One-eighth of the whole population were colored slaves, not distributed generally over the Union, but localized in the southern part of it. These slaves constituted a peculiar and powerful interest. All knew that this interest was somehow the cause of the war. To strengthen, perpetuate, and extend this interest was the object for which the insurgents would rend the Union even by war, while the Government claimed no right to do more than to restrict the territorial enlargement of it. Neither party expected for the war the magnitude or the duration which it has already attained. Neither anticipated that the cause of the conflict might cease with or even before the conflict itself should cease. Each looked for an easier triumph, and a result less fundamental and astounding. Both read the same Bible and pray to the same God, and each invokes His aid against the other. It may seem strange that any men should dare to ask a just God’s assistance in wringing their bread from the sweat of other men’s faces, but let us judge not, that we be not judged. The prayers of both could not be answered. That of neither has been answered fully. The Almighty has His own purposes. . . . Fondly do we hope, fervently do we pray, that this mighty scourge of war may speedily pass away. Yet, if God wills that it continue until all the wealth piled by the bondsman’s two hundred and fifty years of unrequited toil shall be sunk, and until every drop of blood drawn with the lash shall be paid by another drawn with the sword, as was said three thousand years ago, so still it must be said “the judgments of the Lord are true and righteous altogether.”
With malice toward none, with charity for all, with firmness in the right as God gives us to see the right, let us strive on to finish the work we are in, to bind up the nation’s wounds, to care for him who shall have borne the battle and for his widow and his orphan, to do all which may achieve and cherish a just and lasting peace among ourselves and with all nations."
Summing Up
Let's all resolve to continue the still unfinished work of healing the nation's wounds.
Let's make equal opportunity, truth telling and fair dealing realities throughout this wonderful nation.
And let's endeavor to do all this "With malice toward none, with charity toward all," accepting the unassailable fact that we're all imperfect human beings with lots of failings.
That's my take.
Thanks. Bob.
Shortly before then and 150 years ago today, at the conclusion of the Civil War, Lincoln gave his Second Inaugural Address. Booth was an invited guest and in attendance. After hearing what Lincoln had to say that day, Booth decided to kill him, and that he did.
In my view, relevant comments in Lincoln's Second Inaugural address are worth reflecting upon on this 150th 'anniversary' of his assassination, particularly as we also consider police actions and race related matters concerning the investigation into the recent Ferguson, Missouri police shooting of Michael Brown (See U.S. Won't Charge Ferguson Police Officer Darren Wilson and Ferguson Police, Courts Accused of Racial Bias by Justice Department Probe):
"From President Lincoln’s second inaugural address, delivered 150 years ago on March 4, 1865:
One-eighth of the whole population were colored slaves, not distributed generally over the Union, but localized in the southern part of it. These slaves constituted a peculiar and powerful interest. All knew that this interest was somehow the cause of the war. To strengthen, perpetuate, and extend this interest was the object for which the insurgents would rend the Union even by war, while the Government claimed no right to do more than to restrict the territorial enlargement of it. Neither party expected for the war the magnitude or the duration which it has already attained. Neither anticipated that the cause of the conflict might cease with or even before the conflict itself should cease. Each looked for an easier triumph, and a result less fundamental and astounding. Both read the same Bible and pray to the same God, and each invokes His aid against the other. It may seem strange that any men should dare to ask a just God’s assistance in wringing their bread from the sweat of other men’s faces, but let us judge not, that we be not judged. The prayers of both could not be answered. That of neither has been answered fully. The Almighty has His own purposes. . . . Fondly do we hope, fervently do we pray, that this mighty scourge of war may speedily pass away. Yet, if God wills that it continue until all the wealth piled by the bondsman’s two hundred and fifty years of unrequited toil shall be sunk, and until every drop of blood drawn with the lash shall be paid by another drawn with the sword, as was said three thousand years ago, so still it must be said “the judgments of the Lord are true and righteous altogether.”
With malice toward none, with charity for all, with firmness in the right as God gives us to see the right, let us strive on to finish the work we are in, to bind up the nation’s wounds, to care for him who shall have borne the battle and for his widow and his orphan, to do all which may achieve and cherish a just and lasting peace among ourselves and with all nations."
Summing Up
Let's all resolve to continue the still unfinished work of healing the nation's wounds.
Let's make equal opportunity, truth telling and fair dealing realities throughout this wonderful nation.
And let's endeavor to do all this "With malice toward none, with charity toward all," accepting the unassailable fact that we're all imperfect human beings with lots of failings.
That's my take.
Thanks. Bob.
Considering Buying A House? ... Don't Do It Because You Believe It Will Be a Good Investment ... It's Not
Affordability should be a big factor when contemplating buying a house --- not whether it's a good 'investment' or not.
Most of us were taught and believed that owning a home is a no lose proposition. It wasn't true then, and it is not true now.
Adding fuel to the fire, government policies over the years have encouraged reckless home buying through such tax favored items as the (1) deductibility of property taxes, (2) interest deductibility on mortgage debt (including deductibility of interest on home equity loans), and (3) the availability of 30 year fixed low interest rate loans.
These home buying inducements are all products of the government's tax rules and lending regulations. They entice us to do things we shouldn't do, but we don't have to take the bait.
It's like student loans, credit cards, lengthy auto loans and other financial gimmicks which result in lower monthly payments but make us weaker financially and unable to invest properly for the future. Simply put, we can't save and invest that money which we have to repay to lenders. We can't spend the same dollar twice, in other words.
Hardest-hit states won't revisit house-price peaks this decade tells the housing story in a straightforward manner:
"The hardest-hit states won’t get back to their housing-boom-era peak prices this decade....
For this analysis, (we) looked at the year-over-year growth rates both nationally and at state levels for the states where prices skidded at least 20% from their peaks.
The news is actually better for Florida and Nevada, the hardest-hit states, than some of the states in the Northeast. Since Connecticut prices were actually lower on the year, by 1.3%, that means that, at the current rate, the Nutmeg State will never get back to its peak in home prices. Similarly, at the current, paltry 1.3% rate of appreciation, it will take 28 years for Rhode Island to recapture the bubble peak.
By contrast, Florida and Nevada may reach their previous peaks in prices in the early part of the 2020s.
Nationally, the picture is better. With home prices down 12.7% from their peak in April 2006, the U.S. as a whole should get back to that prior peak in three years at current sales-growth rates.
A handful of states, including New York and Texas, have already surpassed pre-bubble peaks, and a few others, such as Alaska and Kentucky, are on the verge of doing so.
Prices grew 1.1% nationally in January, taking the year-on-year change to 5.7%. CoreLogic forecasts that prices will rise 5.3% in the next year."
Summing Up
There are lots of good reasons to buy a home that we can afford, just as there are lots of good reasons to get a college degree.
That said, buying a home and believing it will be a good investment is a bad idea, just as is borrowing lots of money to attend college.
In fact, both are terrible ideas.
That's my take.
Thanks. Bob.
Most of us were taught and believed that owning a home is a no lose proposition. It wasn't true then, and it is not true now.
Adding fuel to the fire, government policies over the years have encouraged reckless home buying through such tax favored items as the (1) deductibility of property taxes, (2) interest deductibility on mortgage debt (including deductibility of interest on home equity loans), and (3) the availability of 30 year fixed low interest rate loans.
These home buying inducements are all products of the government's tax rules and lending regulations. They entice us to do things we shouldn't do, but we don't have to take the bait.
It's like student loans, credit cards, lengthy auto loans and other financial gimmicks which result in lower monthly payments but make us weaker financially and unable to invest properly for the future. Simply put, we can't save and invest that money which we have to repay to lenders. We can't spend the same dollar twice, in other words.
Hardest-hit states won't revisit house-price peaks this decade tells the housing story in a straightforward manner:
"The hardest-hit states won’t get back to their housing-boom-era peak prices this decade....
For this analysis, (we) looked at the year-over-year growth rates both nationally and at state levels for the states where prices skidded at least 20% from their peaks.
The news is actually better for Florida and Nevada, the hardest-hit states, than some of the states in the Northeast. Since Connecticut prices were actually lower on the year, by 1.3%, that means that, at the current rate, the Nutmeg State will never get back to its peak in home prices. Similarly, at the current, paltry 1.3% rate of appreciation, it will take 28 years for Rhode Island to recapture the bubble peak.
By contrast, Florida and Nevada may reach their previous peaks in prices in the early part of the 2020s.
| State | Peak to current price | Years to peak at state growth rate | Years to peak at national growth rate |
| Arizona | -28.6% | 10 | 7 |
| Connecticut | -24.8% | Never | 6 |
| Florida | -32.6% | 7 | 8 |
| Illinois | -22.5% | 7 | 5 |
| Nevada | -35.3% | 6 | 8 |
| New Jersey | -22% | 9 | 5 |
| Rhode Island | -29.9% | 28 | 7 |
Nationally, the picture is better. With home prices down 12.7% from their peak in April 2006, the U.S. as a whole should get back to that prior peak in three years at current sales-growth rates.
A handful of states, including New York and Texas, have already surpassed pre-bubble peaks, and a few others, such as Alaska and Kentucky, are on the verge of doing so.
Prices grew 1.1% nationally in January, taking the year-on-year change to 5.7%. CoreLogic forecasts that prices will rise 5.3% in the next year."
Summing Up
There are lots of good reasons to buy a home that we can afford, just as there are lots of good reasons to get a college degree.
That said, buying a home and believing it will be a good investment is a bad idea, just as is borrowing lots of money to attend college.
In fact, both are terrible ideas.
That's my take.
Thanks. Bob.
Tuesday, March 3, 2015
Our Traditional and Very Expensive U.S. Colleges Are on the Endangered Species List
The cost of college has skyrocketed the past few decades. However, the outcomes in the way of better educated graduates haven't kept up with the escalating cost of attendance. The 'value proposition' has weakened dramatically.
Now a leading educator is predicting that traditional colleges belong on the endangered species list and that both the cost and quality of our system of higher education need huge improvements.
Incoming Philly Fed chief says universities may become extinct offers this timely warning:
"In an op-ed written last month for the Philadelphia Inquirer, the head of the University of Delaware (Patrick Harker) says there is a crisis coming in higher education.
“America’s universities are pricing themselves out of the reach of the middle class,” he wrote, ending his column by saying they could become extinct if they don’t change."
See external link to Harker’s op-ed --- excerpts of which follow:
"Those of us who daily enjoy the grand settings of America's established universities may be forgiven for thinking they will last forever. . . .
But there's a crisis coming, and you don't need an advanced business degree to see it. America's universities are pricing themselves out of the reach of the middle class. . . . state funding for higher education continues to erode, and bills keep getting higher. . . . The average cost in the United States is now $27,900 for in-state and $40,000 for out-of-state. Many parents are being forced to choose between their own future and their children's.
Now a leading educator is predicting that traditional colleges belong on the endangered species list and that both the cost and quality of our system of higher education need huge improvements.
Incoming Philly Fed chief says universities may become extinct offers this timely warning:
"In an op-ed written last month for the Philadelphia Inquirer, the head of the University of Delaware (Patrick Harker) says there is a crisis coming in higher education.
“America’s universities are pricing themselves out of the reach of the middle class,” he wrote, ending his column by saying they could become extinct if they don’t change."
See external link to Harker’s op-ed --- excerpts of which follow:
"Those of us who daily enjoy the grand settings of America's established universities may be forgiven for thinking they will last forever. . . .
But there's a crisis coming, and you don't need an advanced business degree to see it. America's universities are pricing themselves out of the reach of the middle class. . . . state funding for higher education continues to erode, and bills keep getting higher. . . . The average cost in the United States is now $27,900 for in-state and $40,000 for out-of-state. Many parents are being forced to choose between their own future and their children's.
Something has to give.
The market has already begun to sort this out. Smart students are going online to find innovative, less expensive degree paths. Take, for example, the start-up Minerva Schools . . . . This program offers an online core curriculum focused on critical-thinking skills in the first year, and it presents its courses in a fast-paced, interactive format that is far more challenging than a traditional classroom. The brains behind Minerva and other such efforts are rethinking what a college education means and seeking to offer a superior education at a radically lower cost. . . .
A select few institutions like Harvard and Yale may have the resources to weather any storm, but the rest of us need to adapt, and quickly. I'm talking about radical change.
How? By rethinking both our mission and our methods.
In business terms, we need to improve our "value proposition," which at the university is our curriculum. We must better define what we offer and then figure out how to offer it more efficiently. At most universities, including UD, curriculum design is left to the faculty. Professors decide what to teach and when, depending on their interests and availability. Students choose from a buffet of courses and schedules designed to suit instructors. The system is teacher-centric.
We need to become learner-centric. What are the things that students need to learn most today? How can we deliver that learning in a way that suits the customer? When we teach workplace skills that are being effortlessly handled by computers, we're wasting time and money. We should be focusing on things that computers can't do well, at least not yet: things like thinking creatively, finding patterns in seemingly unrelated systems, and mastering complex forms of communication....
There are basic courses that all incoming students in the sciences or the humanities need to take. Why not identify them and then, using technological tools and a variety of faculty models - a mix of tenured and nontenured instructors - find ways to offer them efficiently? This would not only achieve economy of scale, but it would also enable us to make better use of our costliest resource, faculty time. A well-designed core would free professors in most departments to do the kind of work they most prefer, teaching advanced seminars and mentoring students one on one.
Technology is not the answer to our problems, but it should be part of it. Innovative educators go a lot further today than posting classroom lectures online; they employ multiple platforms and interactive tools that in some ways engage and challenge students more completely than even the best-run classroom. Because they can be accessed from anywhere, and in some cases at any time, they can accommodate many more students than a standard classroom session, and at lower cost.
We are past the need for incremental change; we need significant leaps.
If we don't change rapidly and dramatically, . . . the university as we know it might well become extinct."
Patrick T. Harker is the president of the University of Delaware.
SUMMING UP
The time for cheap and time wasting talk is over.
The time for real and effective remedial action is now.
We need both a dramatically lower cost and higher quality system of higher education in America.
And we need that better system asap.
What once was the world's best system of higher education is no longer up to the challenge.
That's my take and Patrick Harker's as well.
Thanks. Bob.
We are past the need for incremental change; we need significant leaps.
If we don't change rapidly and dramatically, . . . the university as we know it might well become extinct."
Patrick T. Harker is the president of the University of Delaware.
SUMMING UP
The time for cheap and time wasting talk is over.
The time for real and effective remedial action is now.
We need both a dramatically lower cost and higher quality system of higher education in America.
And we need that better system asap.
What once was the world's best system of higher education is no longer up to the challenge.
That's my take and Patrick Harker's as well.
Thanks. Bob.
The Game of Basketball and Its Evolution From 'Basket Ball' to 'Basket-Ball' and Finally to What We Now Know as Basketball
1892: A Newborn called "Basket Ball" takes us back to the original game we now call basketball:
"March has arrived, with March Madness sure to follow. Fans of the N.C.A.A. tournament know that each team will rack up scores of points, so one of the many fascinating elements to the first mention of basketball in The (New York) Times, on April 26, 1892, was the final point score: 1-0:
"March has arrived, with March Madness sure to follow. Fans of the N.C.A.A. tournament know that each team will rack up scores of points, so one of the many fascinating elements to the first mention of basketball in The (New York) Times, on April 26, 1892, was the final point score: 1-0:
The game had been invented only months earlier, in December 1891, by James Naismith at a Y.M.C.A. training school in Massachusetts; it was viewed as “a substitute for football without its rough features.” The Y.M.C.A. played a central role in dissemination of the game, as The Times article suggests. Back then, each basket was worth only one point, and since the basket actually was a basket, a ladder was needed to retrieve the ball after each score.
By Nov. 12, 1893, the game had spread across the country, to women’s colleges, and as far as Britain, Japan and Australia. And those ungainly baskets and ladders? They had been replaced with something more familiar to modern fans — “strong iron hoops with braided cord netting”
Within a few short years, the name of the sport would evolve in the pages of The Times from basket ball to basket-ball and then basketball."
Summing Up
Enjoy March Madness.
"Basket Ball" has come a long way.
Some of it has been for the good, and some for the bad, but mostly it's been good.
Let's hope your favorite team wins the rest of its games, and at the very least has several more games yet to play.
Thanks. Bob.
If President Obama Wants to Make Community College Free, Here's a Way to Begin to Make It Happen ... Costly College Textbooks Provide a Great, Albeit Unintended, Lesson in Both Needlessly Expensive Education and Government
Now that government backed student loans have made a huge mess of too many young people's financial situations, President Obama wants to address that issue in part by making attendance at community colleges 'free.' Of course, he doesn't really mean 'free.' What he wants is for taxpayers to pay the bill, and that's not free.
So here's another idea. How about cutting the high cost of college instead? Let's enter the digital age on campus, get serious about providing value for money, and stop spending so many dollars in a wasteful manner on excessive on site faculty, administrators and other unnecessary items. In fact, we can begin the path to a low cost high quality education by radically reducing the cost of textbooks.
College is needlessly expensive these days, and the cost of textbooks offers a great cost reduction opportunity. Then we can move on to eliminating the butts in the seats approach and take advantage of the internet and distance learning. But let's start with books.
Putting a Dent in College Costs With Open-Source Textbooks tells the story succinctly:
"The Student Public Interest Research Groups, state-based advocacy groups that promote affordable textbook options, analyzed open-source pilot programs at five colleges and found that the savings for students can be significant. . . .
Now let's listen to what a college economics professor has to say in The $250 Econ 101 Textbook:
"I’ve been teaching economics for 25 years, and yet I’ve routinely missed a perfect opportunity to explain how markets fail to deliver efficient solutions. It isn’t just me. During our first day of class in introductory economics, thousands of economics professors begin with a key lesson: how to make better decisions by carefully weighing benefits and costs. Yet we professors are shockingly blind about what our students pay for the textbooks from which we teach these valuable lessons. Even on Amazon, the average price of a new copy of one of the best-selling economics textbooks, “Principles of Economics” by Greg Mankiw, can be more than $250 (and retail for a hardcover edition is about $360).
Think about it: For a student working at minimum wage, it would take him about 35 hours of work after taxes to afford this book. Not to pick on Mr. Mankiw, since he has written a fine book, but $250 for a new textbook? Really?
In 1982 I took principles of economics for the first time and I believe I paid about $20 for a wonderful textbook by Richard Lipsey and Peter Steiner, “Economics.” Minimum wage was $3.35 then so it took about six hours of work for me to pay for the book, which I did with cash earned over the summer. (The textbooks haven’t changed all that much, by the way.)
So what is going on? Since 1985, prices of all consumer goods have about doubled, but textbook prices have risen sixfold, according to the Bureau of Labor Statistics. The reason is such an interesting one that it’s surprising it doesn’t find its way into the first chapter of every economics textbook. The cardinal lesson is that prices rise unchecked if the people who order the goods aren’t paying the prices.
Publishers routinely hide the suggested retail prices of their textbooks from the book cover and most of us never bother to ask what they cost. After all, we’re not paying for them, right?... Instead of engaging in cost-benefit analysis, we only pay attention to the benefits to us before ordering the outrageously expensive books that we ask our students to pay for.
There’s more to this story. During the past 30 years, there has been an explosion of student-loan debt. Students rarely pay for books out of pocket and instead roll it into their financial-aid package. So a $250 textbook is now being paid back over decades. It’s a bit like the prospective car owner who pays $400 for optional floor mats when it only adds a few dollars to her monthly payment, yet would never pay cash out of pocket for the same mats. The easy access to financial aid has meant there is no natural binding mechanism on price increases, since the pain of rapidly rising prices is scarcely felt by years of student-loan payments.
So here is the $250 economics textbook, a creature of government-subsidized student loans, professors who pay no attention to prices, and students who strive to push the costs down the road. It seems like a natural end of chapter one question, doesn’t it?"
Summing Up
If President Obama is serious about reducing the cost of college (and he isn't), he should start with the absurd cost of books.
And he should also recognize that the current 'invisibility' of the cost of college textbooks is similar to that of our unnecessarily high health care costs.
So here's my plan. Let's make the prices highly visible and then reduce the costs to a level consistent with providing a first class education (and health care), which community college leaders (and the medical system) currently don't do.
Today we lie to ourselves and label something as free which isn't free at all. And when it's government controlled and subsidized, it isn't even well managed. And that's in large part because what we don't see clearly isn't immediately recognized by us for the cost that it truly represents.
Sooner or later the bills inevitably come due, and need to be paid by somebody, but by then it's generally too late to do anything about the costs incurred.
Aren't We the People fortunate to have President Obama's government officials, along with other bureaucrats such as our nation's college and health care officials, taking care of us and seeing that we get good values for the money we spend? Or are they instead hiding the truth from us for their own selfish reasons and to the detriment of We the People?
Here's my take --- I think the words government and obfuscation are redundant.
Thanks. Bob.
So here's another idea. How about cutting the high cost of college instead? Let's enter the digital age on campus, get serious about providing value for money, and stop spending so many dollars in a wasteful manner on excessive on site faculty, administrators and other unnecessary items. In fact, we can begin the path to a low cost high quality education by radically reducing the cost of textbooks.
College is needlessly expensive these days, and the cost of textbooks offers a great cost reduction opportunity. Then we can move on to eliminating the butts in the seats approach and take advantage of the internet and distance learning. But let's start with books.
Putting a Dent in College Costs With Open-Source Textbooks tells the story succinctly:
"The Student Public Interest Research Groups, state-based advocacy groups that promote affordable textbook options, analyzed open-source pilot programs at five colleges and found that the savings for students can be significant. . . .
Textbook costs are particularly burdensome for students at two-year community colleges; the cost, more than $1,300, is about 40 percent of the average cost of tuition, according to the College Board. . . .
Open-source textbooks are created under an open license, so they can be downloaded free or printed at low cost; instructors can even rearrange the sequence of material, to suit their preference. There’s a movement to make faculty-written, peer-reviewed open-source textbooks available to professors and students, to help keep a lid on the cost of textbooks."
Now let's listen to what a college economics professor has to say in The $250 Econ 101 Textbook:
"I’ve been teaching economics for 25 years, and yet I’ve routinely missed a perfect opportunity to explain how markets fail to deliver efficient solutions. It isn’t just me. During our first day of class in introductory economics, thousands of economics professors begin with a key lesson: how to make better decisions by carefully weighing benefits and costs. Yet we professors are shockingly blind about what our students pay for the textbooks from which we teach these valuable lessons. Even on Amazon, the average price of a new copy of one of the best-selling economics textbooks, “Principles of Economics” by Greg Mankiw, can be more than $250 (and retail for a hardcover edition is about $360).
Think about it: For a student working at minimum wage, it would take him about 35 hours of work after taxes to afford this book. Not to pick on Mr. Mankiw, since he has written a fine book, but $250 for a new textbook? Really?
In 1982 I took principles of economics for the first time and I believe I paid about $20 for a wonderful textbook by Richard Lipsey and Peter Steiner, “Economics.” Minimum wage was $3.35 then so it took about six hours of work for me to pay for the book, which I did with cash earned over the summer. (The textbooks haven’t changed all that much, by the way.)
So what is going on? Since 1985, prices of all consumer goods have about doubled, but textbook prices have risen sixfold, according to the Bureau of Labor Statistics. The reason is such an interesting one that it’s surprising it doesn’t find its way into the first chapter of every economics textbook. The cardinal lesson is that prices rise unchecked if the people who order the goods aren’t paying the prices.
Publishers routinely hide the suggested retail prices of their textbooks from the book cover and most of us never bother to ask what they cost. After all, we’re not paying for them, right?... Instead of engaging in cost-benefit analysis, we only pay attention to the benefits to us before ordering the outrageously expensive books that we ask our students to pay for.
There’s more to this story. During the past 30 years, there has been an explosion of student-loan debt. Students rarely pay for books out of pocket and instead roll it into their financial-aid package. So a $250 textbook is now being paid back over decades. It’s a bit like the prospective car owner who pays $400 for optional floor mats when it only adds a few dollars to her monthly payment, yet would never pay cash out of pocket for the same mats. The easy access to financial aid has meant there is no natural binding mechanism on price increases, since the pain of rapidly rising prices is scarcely felt by years of student-loan payments.
So here is the $250 economics textbook, a creature of government-subsidized student loans, professors who pay no attention to prices, and students who strive to push the costs down the road. It seems like a natural end of chapter one question, doesn’t it?"
Summing Up
If President Obama is serious about reducing the cost of college (and he isn't), he should start with the absurd cost of books.
And he should also recognize that the current 'invisibility' of the cost of college textbooks is similar to that of our unnecessarily high health care costs.
So here's my plan. Let's make the prices highly visible and then reduce the costs to a level consistent with providing a first class education (and health care), which community college leaders (and the medical system) currently don't do.
Today we lie to ourselves and label something as free which isn't free at all. And when it's government controlled and subsidized, it isn't even well managed. And that's in large part because what we don't see clearly isn't immediately recognized by us for the cost that it truly represents.
Sooner or later the bills inevitably come due, and need to be paid by somebody, but by then it's generally too late to do anything about the costs incurred.
Aren't We the People fortunate to have President Obama's government officials, along with other bureaucrats such as our nation's college and health care officials, taking care of us and seeing that we get good values for the money we spend? Or are they instead hiding the truth from us for their own selfish reasons and to the detriment of We the People?
Here's my take --- I think the words government and obfuscation are redundant.
Thanks. Bob.
Monday, March 2, 2015
Middle Class Economics Is a Farce ... Politics As Usual Won't Help the Middle Class ... Only Smaller Government and Non-Government Directed Private Sector Investment and Job Creating Initiatives Will Make That Happen
For a very simple reason, everybody in politics claims to want to help the middle class, it seems. That's where the most votes are.
In fact, the 'how' of generating more middle class prosperity and economic security in America is actually very simple --- less debt (individual and government), more economic growth, better educational outcomes and private sector entrepreneurialism combined with less government in the form of lower taxes and fewer regulations, are the simple ingredients required to achieve greater middle class prosperity in America. And that's not what government is bringing to America anytime soon.
How do we best help the middle class? Let's count just a few of the many ways.
(1) We encourage people to work hard to acquire lots of education and little debt. (2) Government officials vote to reduce taxes and adopt a much less expensive and value added form of government, including our public schools, colleges and medical care systems. (3) We also recognize that it's not helpful to continuously implement more government giveaway programs which take more money and opportunity from that very same middle class the government alleges it wants to help. (4) And finally, we means test such things as Social Security and Medicare and have those able to provide for themselves do just that.
In other words, the best way to help the middle class is for government to quit trying to help the middle class. Of course, that won't happen, at least not anytime soon, but until then We the People can at least ponder the virtues of less government intrusion and more individual freedoms.
What Is 'Middle-Class Economics'? tells the story succinctly:
"An awkward truth for politicians looking to help the middle class is that there’s much less the government can do for them than for the poor. . . .
But these proposals are mostly small in scope, with limited near-term effects on middle-class economic fortunes. The White House had a telling spat last month with the Tax Policy Center, a center-left joint venture of the Urban Institute and Brookings Institution that produces estimates of the distributional impacts of tax proposals. Len Burman, the center’s co-director, who was a Treasury official in the Clinton administration, ran the numbers and found the president’s plan produced an average tax cut of just $12 for families in the middle quintile — a surprising result for a plan aimed at the middle class, and one that produced inconvenient headlines.
The last part should be the crucial issue for policy makers. In recent months, the labor market has been tightening. . . . what can the government do to keep the labor market tight, so workers have more power . . . and so good news like this keeps coming? . . .
In fact, the 'how' of generating more middle class prosperity and economic security in America is actually very simple --- less debt (individual and government), more economic growth, better educational outcomes and private sector entrepreneurialism combined with less government in the form of lower taxes and fewer regulations, are the simple ingredients required to achieve greater middle class prosperity in America. And that's not what government is bringing to America anytime soon.
How do we best help the middle class? Let's count just a few of the many ways.
(1) We encourage people to work hard to acquire lots of education and little debt. (2) Government officials vote to reduce taxes and adopt a much less expensive and value added form of government, including our public schools, colleges and medical care systems. (3) We also recognize that it's not helpful to continuously implement more government giveaway programs which take more money and opportunity from that very same middle class the government alleges it wants to help. (4) And finally, we means test such things as Social Security and Medicare and have those able to provide for themselves do just that.
In other words, the best way to help the middle class is for government to quit trying to help the middle class. Of course, that won't happen, at least not anytime soon, but until then We the People can at least ponder the virtues of less government intrusion and more individual freedoms.
What Is 'Middle-Class Economics'? tells the story succinctly:
"An awkward truth for politicians looking to help the middle class is that there’s much less the government can do for them than for the poor. . . .
The last year has been the first really good year for the middle class since the crisis. Job growth has risen to a pace of more than three million jobs a year, and gasoline prices are through the floor.
Consumer confidence is at levels not seen since 2007. Wage growth is still not strong but is better than it has been in years, and moves by a few large employers — including Walmart, which announced a $9 wage floor that would rise to $10 next year — may be signs that broad-based wage increases will come soon.
Consumer confidence is at levels not seen since 2007. Wage growth is still not strong but is better than it has been in years, and moves by a few large employers — including Walmart, which announced a $9 wage floor that would rise to $10 next year — may be signs that broad-based wage increases will come soon.
The big challenge for President Obama — and for Republicans seeking their own agenda to woo the middle class — is that middle-income economic fortunes are driven mostly by private employers. The government can raise the minimum wage, but it can’t make employers raise wages for workers already making well above that. It can give out targeted tax cuts, but these can’t have large effects on the average family’s income without getting really expensive. It can impose labor regulations, but it cannot overcome the fact that employers are powerful when many workers chase a small number of jobs.
This is a real contrast to the economic situation of the poor, which the Obama administration has affected greatly through policy. Between 2007 and 2012, the share of Americans who would have been poor based on their income before taxes and transfers rose by five percentage points. But after adjusting for taxes and transfers, poverty rose by just a point. Programs like Medicaid and unemployment insurance were highly effective in stopping the sharp rise in unemployment from turning into a sharp rise in poverty. Most of that policy effect was automatic, but a considerable portion was due to specific policy initiatives of the president, such as extending unemployment insurance benefits.
Having moved past the acute economic crisis, Mr. Obama has laid out three pillars of a plan to uplift the middle class . . . .
The first consists of tax and regulatory provisions aimed at supporting middle-income workers. He would offer tax credits for child care and college tuition, and a tax credit for the second earner in households where both parents work. He’d also require employers to provide paid sick leave, and he’d raise the minimum wage. The second pillar is policies aimed at making workers more productive, so they can command higher pay. This includes proposals to expand access to community college. The third pillar is policies aimed at increasing overall economic growth, like infrastructure spending and trade deals.
But these proposals are mostly small in scope, with limited near-term effects on middle-class economic fortunes. The White House had a telling spat last month with the Tax Policy Center, a center-left joint venture of the Urban Institute and Brookings Institution that produces estimates of the distributional impacts of tax proposals. Len Burman, the center’s co-director, who was a Treasury official in the Clinton administration, ran the numbers and found the president’s plan produced an average tax cut of just $12 for families in the middle quintile — a surprising result for a plan aimed at the middle class, and one that produced inconvenient headlines.
The Treasury Department says the Tax Policy Center has this wrong: . . . But it doesn’t even matter very much who is right: Treasury’s own numbers show the average middle-income family would get a tax cut of about $150 under the president’s plan. Whether $12 or $150, the average effects are small — much smaller than the several hundred dollars a typical family is saving this year because of falling gas prices, and much smaller than the raises Americans would get from a tight labor market that induces employers to offer higher wages.
The last part should be the crucial issue for policy makers. In recent months, the labor market has been tightening. . . . what can the government do to keep the labor market tight, so workers have more power . . . and so good news like this keeps coming? . . .
Right now, the best middle-class economic agenda might be to do no harm: Let the positive trends on job growth and gas prices continue, watch them flow through to wages, and hope the Federal Reserve doesn’t get in the way and that Congress and the president can keep policy at an approximate status quo without government shutdowns or other manufactured crises. It’s not a very ambitious agenda, but it’s one that could produce materially higher living standards for Americans over the next two years."
Summing Up
The middle class is by definition and numbers too large to bribe politically with meaningful targeted tax cuts, assuming we want to pay for them instead of printing money and leaving even more government debt for the generations that follow.
And passing legislation granting more entitlements to such large numbers of Americans is also cost prohibitive for the same simple reasons.
Greater economic growth driven by the private sector, individual freedoms and less government bureaucracy and spending is the only real and lasting solution to achieving greater middle class prosperity.
That said, today's politicians aren't likely to vote for anything like that.
That's my take.
Thanks. Bob.
The middle class is by definition and numbers too large to bribe politically with meaningful targeted tax cuts, assuming we want to pay for them instead of printing money and leaving even more government debt for the generations that follow.
And passing legislation granting more entitlements to such large numbers of Americans is also cost prohibitive for the same simple reasons.
Greater economic growth driven by the private sector, individual freedoms and less government bureaucracy and spending is the only real and lasting solution to achieving greater middle class prosperity.
That said, today's politicians aren't likely to vote for anything like that.
That's my take.
Thanks. Bob.
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