A Simple Explanation of the Difference Between Employment and Outcomes in the Risk Taking Creative Destruction Oriented Private Sector Vs. Entitlements Based Public Sector "Competition"

The difference between private sector competition and public sector government entities is easily seen in The RadioShack Lesson:

"Former Florida Governor Jeb Bush made a useful point in his speech to the Detroit Economic Club last week: Of the companies on the first Fortune 500 list in 1955, 88% “don’t even exist today or have fallen away.” That reality of American capitalism was clear from the news that RadioShack has filed for bankruptcy.

RadioShack began in Boston 94 years ago as a seller of radio gear, growing into a chain that once had 7,000 stores and was a favorite of techheads and average consumers who wanted to buy a personal computer. As recently as 1999, its share price was more than $76 as it rode the early days of the mobile phone boom. Now its shares are worth pennies.

The company made mistakes, most recently making itself hostage to unconventional financing. But its biggest challenge was coping with the rapidly changing digital world, the rise of the Web in electronics sales, and the consumer shift to mobile products from the likes of Apple that didn’t need RadioShack stores. An image that was once cool became déclassé.

RadioShack joins the list of other famous American companies capsized by waves of creative destruction. The lesson is that in a capitalist economy no business triumph lasts forever, and the most dangerous moment can be when you are at the height of success. Andrew Grove, the former Intel CEO, summed it up when he wrote “Only the Paranoid Survive.”

The same cannot be said for government, where failure is typically rewarded with more money. Despite its bankruptcy, RadioShack nonetheless made life better for millions of Americans while it prospered."

Summing Up

Creative destruction is alive and well in the private sector where competition is a way of life.

We the People could use a little of it -- even a lot of it -- in the public sector as well.

Prosperity and progress depend on risk taking entrepreneurs in a competitive marketplace where consumers rule.

We the People are better served, despite the inevitable and numerous bumps along the way, by a freedom based private sector oriented economy rather than a bureaucratic government dominated society.

That's my take.

Thanks. Bob. 

Income Inequality, Excessive Personal Credit/Debt Levels, Inadequate Education and Political Games ... Not a Pretty Picture

Our economy is recovering, albeit slowly. That's nice to see, but it's not good news for many, if not most, Americans. Nor will it be any time soon. That's unfortunate but it's true. It's the debt, stupid!

Our nation, many of our states, and too many of We the People are deeply in debt. Individual debt burdens often are overwhelming. And to top it all off, our educational system is in general doing a poor job preparing our young people to conduct their personal financial lives properly as adults and be able to compete globally. It's definitely not a pretty picture.

Let Them Eat Credit is definitely a thought provoker. Written in 2010, it still rings true today:

"By most counts, the U.S. economy started growing in the middle of last year. For many Americans, though, it does not feel as if the Great Recession has ended—unemployment and underemployment are still alarmingly high, and job growth is weak. Many causes have been suggested for both the economic collapse and mediocre recovery, but one that is hardly ever mentioned is income inequality. This is a mistake. Growing income inequality in the United States and the policy responses it has spawned have done tremendous damage to our economy. And because we continue to ignore this underlying problem, the risks of our policies leading to another calamity will not go away . . . .

Since 1968, income inequality has been steadily increasing in the United States. I am not referring to the Croesus-like income of a John Paulsen, the hedge fund manager who in 2008 netted over $3 billion, about 75,000 times the average household income. I refer to a more worrying everyday phenomenon that confronts most Americans, the disparity in income growth rates between a manager at the local supermarket and the typical factory worker or office assistant. Since the 1970s, the wages of the former, typically workers at the 90th percentile of the wage distribution in the United States, have grown much faster than the wages of the latter, the typical median worker. . . .

Economists argue over the reasons for the growing inequality—changes in taxation, increasing trade, weaker unions, stagnant minimum wages, and growing immigration have all been flagged. Perhaps the most important . . . is that although technological progress requires the labor force to have ever greater skills, our educational system has not kept pace by providing the labor force with greater education and skills. While a high school diploma may have been sufficient for our parents, an office worker in many knowledge-based industries today can’t get hired without an undergraduate degree. Yet, according to Golden and Katz, rates of graduation from high school in the United States have barely budged since the 1970s, and neither have male graduation rates from college. For the middle class, that has meant a stagnant paycheck and growing job insecurity, as the old well-paying, low-skilled jobs with good benefits disappear.

Politicians feel their constituents’ pain and anxiety. And they recognize that to stay in office, they have to respond in some way. But it is very hard to get at the real source of middle-class discontent by improving the quality of education. The causes of lackluster education are complex and difficult to remedy . . . and schools are especially difficult to reform because of the many vested interests that favor the status quo. Moreover, any change will require years to take effect and therefore will not alleviate the current anxiety of the electorate. What results, then, is a series of short-term policy fixes that may do more damage than good—in fact, some of these fixes helped to create the Great Recession.

Politicians are resourceful people. Their political skill lies partly in proposing solutions that keep their constituents happy without venturing into the rocky terrain of real reform. In the case of inequality, politicians know intuitively that households ultimately care most about their consumption over time; incomes are only a means to obtaining that consumption stream. A smart politician can see that if somehow the consumption of middle-class householders keeps rising, if they can afford a new car every few years and the occasional exotic holiday, and best of all, a new house, they might pay less attention to their stagnant monthly paychecks. And one way to expand consumption, even while incomes stagnate, is to enhance access to credit.

As a result, the government’s response to rising inequality—whether carefully planned or the path of least resistance—has been to encourage lending to households, especially but not exclusively low-income ones (the government push for housing credit was just the most egregious example). The benefit—higher consumption—is immediate, and paying the inevitable bill can be postponed into the future. Cynical as it may seem, recent administrations have used easy credit as a palliative to address the deeper anxieties of the middle class directly. As I argue in my recent book Fault Lines, “let them eat credit” could well summarize the mantra of the political establishment in the go-go years before the crisis.

The Federal Reserve has aided and abetted this explosion of credit (as the ) Fed cut short-term interest rates to the bone. . . . And an important benefit of an expansion in housing construction (and related services like real estate brokerage and mortgage lending) was that it created construction jobs, especially suitable for the unskilled. Unfortunately, the Fed-supported housing boom proved unsustainable, and many of the unskilled have lost their jobs, and are in deeper trouble than before, having also borrowed to buy houses that they could not really afford.

Depressingly, the policy response to the recent recession has been more of the same—tremendous government support to housing and housing loans, as well as ultra-low interest rates. . . .

Similarly, the Federal Reserve’s ultra-low interest rate policy is having little useful impact on unemployment because the interest-rate sensitive sectors of the economy such as housing and automobiles have been over-extended by the last bout of monetary stimulus. It is unlikely the Fed will kick off a fresh housing or commercial real estate boom. Moreover, overleveraged households are trying to rebuild savings, and low interest rates are unlikely to tempt them to splurge once again on new cars or kitchens, and even if they were, these kinds of folks might have trouble getting a loan from local banks that have become far more circumspect on retail lending.

What is the alternative to creating new mountains of consumer debt? Instead of looking for ways to resuscitate spending by those who can ill afford it, and creating unsustainable bubbles in the process, we need to think creatively about how Americans can acquire the skills they need to enhance their incomes. The central problem is that too much of the U.S. workforce is unqualified for the good knowledge-related jobs that are being, and will be, created by its economy. Even though the unemployment rate is high across the workforce, it is much higher among those without college degrees.

Upgrading skills and education, however, is not easy. Retraining programs have a checkered history. And not all degrees are equally useful. . . .

If the United States does little to address inequality, and instead repeatedly tries to stimulate its way out of trouble, government and household finances will get even more fragile. Inequality, as studies suggest, will likely also cause U.S. politics to become even more fractured and polarized than it already is, making it harder for our politicians to make the right kinds of legislative decisions. And a slow-growing, politically-fractured United States that agrees only on penalizing the foreigner, could turn its back on openness and trade, attempting to protect domestic jobs even while hurting growth domestically, and elsewhere. Not just the United States but the entire world would be worse off.

Here’s what I’d like to see instead: the United States improving the capabilities of all of its working-age population and then providing exactly the creative and knowledge-based services that growing emerging markets need. As the demand in these markets expands, the dynamic U.S. economy will grow alongside, banishing current fears about unsustainable debt and unfunded entitlements. But to reach this future, America needs to accept it has more than a cyclical problem. It has to give more Americans the ability to compete in the global marketplace. This is much harder than doling out credit or keeping interest rates really low, but it will pay off in the long-run."

Summing Up

More and easier credit isn't the answer to our economic problems.

In fact, it has become a very big part of the problem as both our nation's and too many of our citizens' current levels of indebtedness clearly demonstrate.

Solving our slow growth woes will require lots of private sector investment, a serious rethink of our educational system, and lots of time. Our politics of today is ill suited to real and lasting fixes for tomorrow.

Thus, getting out of this mess will neither be easy nor quick, but it can and will be done. But first we need to get started.

And that means telling each other the plain and unvarnished truth about things, including the roles of excessive personal credit, an inadequate educational system and the real motivations of far too many of our vote seeking government officials.

That's my take.

Thanks. Bob.

Housing Debt for Oldsters at Record High Levels ... Homes Aren't Retirement Funds

Upon reaching old age, far too many people arrive accompanied by an unwelcome and burdensome abundance of debt --- especially housing related debt.


This is definitely not a good thing, of course, but it is something that the youngsters can learn from our unfortunate experience and example. In other words, they should be urged not do what too many of the current older generation have done. In fact, they should be encouraged to learn 'vicariously' from the prior generation's experience and not follow what has turned out to be a bad example.


In simple words, what most of us were were told was so when we were young really isn't so --- you can go wrong buying and thereafter refinancing a house with a home equity loan. It's an easy trap to fall into, but it's an extremely difficult one from which to escape unharmed financially.


High Debt Levels Imperil Retirees' Finances is a cautionary tale for the young among us:


"A new study finds that, by many measures, debt levels among Americans age 55 and older continue to climb, putting millions of families—and their homes—at risk.


The report, “Debt of the Elderly and Near Elderly, 1992-2013,” (says that) . . . more older Americans find themselves in debt. The percentage of American households where the head of household was age 55 or older that had financial liabilities increased to 65.4% in 2013 from 63.4% in 2010. In 1992, the level was 53.8%.


What’s more, the percentage of these families with debt payments greater than 40% of income—a traditional signal of excessive liability—increased to 9.2% in 2013 from 8.5% in 2010.


The upshot: The “percentages of families whose debt payments are excessive relative to their incomes are at or near their highest levels since 1992,” the report states. “Consequently, even more near-elderly and elderly families are likely to find themselves at risk for severe changes in lifestyle after retirement than past generations.”


The biggest factor in pushing debt levels higher is housing obligations—that is, mortgages or home-equity debt, as opposed to credit-card debt. In 2013, almost four in 10 families (39%) where the head of the household was age 55 or older had housing debt—up from 24% in 1992.


Most worrisome, fully 42% of households age 65 to 74 had housing debt in 2013, compared with just 18% in 1992. Among households age 75 and older, 20% had housing debt in 2013, up from 10% in 1992.


For many families, those numbers could translate into “either a forced sale [of a primary residence] or limited ability to use any housing equity for funding retirement,” the study states. . . .


Looking ahead, the financial challenges for large numbers of households age 55 and older remain considerable, the report concludes. “This level of debt, along with asset values still recovering from the 2008 recession, will add to the difficulty for many people of this age to save for a retirement that will not run short of money.”"


Summing Up


I hope the young folks are paying attention and don't do what too many old folks have done. 


Learning from our own experience isn't necessarily the best teacher, especially when we can learn from the example of those who, albeit unfortunately, can teach us the painful lessons from their experience. And housing is a great example of vicarious learning being better than learning by doing.


There are no free lunches and no sure things in life, and planning to use home equity due to future home price appreciation to fund our retirement years isn't good planning.


Ask the oldsters out there who still have mortgages to pay. They'll tell you.


That's my take.


Thanks. Bob.

Top Financial Fear for Americans Is Not Saving Enough for Retirement

Social Security doesn't provide enough money for a financially healthy retirement. And most people no longer can rely upon their employer to make up that shortfall. This is especially true in the private sector as the 401(k) plan has essentially replaced the previously guaranteed pension plan benefit. This trend toward personal responsibility for achieving a satisfactory retirement income is on its way to public sector employees as well.

{NOTE: But providing a satisfactory nest egg for retirement doesn't have to be that hard. For an illustration of how to become a millionaire just by exercising some common sense along the road to oldster status, How to save $1 million in your 401(k) is worth considering.}

Now let's review the ugly and scary reality facing too many Americans today.

3 biggest challenges facing retirement savings tells the sad story:

"When considering the biggest regrets of 2014, . . . Americans' top fear is going broke in retirement. Put simply, Americans are seriously afraid of running out of money in their golden years, and they feel guilty about how they're handling it.

Due to the changing retirement landscape and longer life expectancy, we're seeing more Americans take an introspective look at investing for retirement, benchmarking their progress and acknowledging their successes as well their shortfalls. Nearly 6 in 10 are setting a goal to save more for retirement this year, overshadowing losing weight, paying down debt and taking more trips. And while I'm thrilled to see this long-term focus and goal setting for 2015, our research tells us that many of us are facing some challenges.

So while investors seem to have good intentions, what is really prohibiting them from investing more year after year? In today's economy, here are three of the biggest challenges Americans are up against while attempting to build their retirement nest egg.

Student debt. Debt remains a prominent prohibitor to investing for retirement, particularly among those saddled with student loans. Student loans are now the second largest debt class, at $1.2 trillion, behind only mortgages ....

Aging parents. As life expectancy grows and health-care costs rise, more middle-aged adults are playing an active role in their elderly parents' care. With many also financially supporting dependents of their own and nearing retirement age, this so-called sandwich generation is feeling significant financial pressures. Defined as people who are simultaneously caring for a minor or grown child, in addition to a parent age 65 or older, this generation fits the profile of approximately more than 4 in 10 Gen Xers and one-third of baby boomers, according to Pew Research.
 

Everyday trade-offs and competing priorities. We continue to witness a trend of lifestyle preferences derailing financial goals . . . . Most Americans are not convinced their short-term decisions really affect their finances in the long run, particularly what they spend on entertainment and eating out. Furthermore, future finances are clearly not top of mind. More than half respondents in our survey don't think about their long-term finances when making daily purchases.

These three challenges are extremely prevalent in today's world and are most likely some of the largest contributing factors to why more than half of respondents in our latest Merrill Edge Report did not save for retirement at all last year. . . .

Investing for retirement is a marathon, not a sprint. Small, steady strides are the key. So if you are facing one or all of these challenges, it's important to recognize the need to prioritize retirement and take actionable steps, investing as much as possible as early as possible."

Summing Up

Saving and investing should be an important part of everyone's planning and attention during the working years.

To do otherwise is to jeopardize having sufficient income later when we will need it and are unable to earn it --- in our oldster years.

Living in the present while preparing properly and adequately for the future, albeit perhaps not easy, requires our ongoing attention. It's simply something that we must do.

So let's do it. That's my take.

Thanks. Bob.

Declining Unemployment and Slow Economic Growth Explained ... The Combination of Productivity Gains Plus Population Growth Will Inevitably Determine Potential Real Economic Growth

Why is our economy growing so slowly? Well, existing and future debt levels are one huge reason. And that's due to the fact that we have already borrowed to spend on lots of things. These burdensome debt obligations will need to be repaid down the road.

And as those debt servicing payments (interest plus principal) accumulate, future economic growth will be restrained as future earnings are used in large part to pay the interest on and retire existing debt. That's just simple math.

But there's another and generally misunderstood huge issue which will limit future economic growth as well. Lagging productivity gains coupled with a slow growing population will cause slow economic growth well into the future, absent an unexpected upswing in private sector investment.

And as the government takes more money from its citizens in the form of taxes, the private part of the economy will necessarily be less of a contributor to future growth than historically has been the case.

U.S. growth may sputter with productivity and population growth so low has the sad story:

        

 

"The latest report from the Labor Department showed that productivity fell 1.8% in the fourth quarter. For the year, productivity grew just 0.8%.

That’s not a new trend. Since the recession’s end, productivity hasn’t surpassed a meager 1% in any year. There are different theories around to explain this phenomenon, including the lack of investment. Also see: The third industrial revolution is basically dead

A quick estimate of the growth potential of the U.S. economy is just the sum of productivity growth plus the growth in working-age population.

As the chart shows, it’s not much.

Even more sobering is the fact that the working-age population growth is set to decline — from roughly 0.5% right now, to just 0.2% in 10 years’ time.

In 2000 — the last year, incidentally, that there was growth of over 4% for the U.S. economy — the working age population grew 2.1%."

Summing Up

Because of both low productivity and a slow growing population, we are experiencing concurrently both a declining unemployment rate and historically slow economic growth.

It's not a pretty picture, but it seems to be an accurate one.

We need to stop looking to government  programs as the solution to our economic woes, including employment increases as well as wage gains, and start looking to the private sector as the engine of future economic growth. Because it is.

That's my take.

Thanks. Bob.

Interest Expense Will Soon Be a Bigger Expense for Government than Discretionary Defense and Nondefense Spending ... Social Security and Medicare, Along with Interest, Leave No Room for Discretionary Spending ... No Doubt About It

All Americans know that our government spends too much money in relation to its income. As a result, government debt grows continuously. President Obama says the deficits are declining. He's right about that.

What he doesn't say, however, is that the debt keeps climbing. Or that interest expenses are low because current rates are at historic lows. Or that as our national debt gets bigger each year and interest rates eventually increase, the burden of servicing government debt obligations on future taxpayers will become unmanageable, assuming there is no political will to change the currently unaffordable mandatory spending programs such as Social Security, Medicare and Medicaid, which there isn't. A Budget Hemmed In by Reality says this in relevant part:

"Under Mr. Obama’s budget, total federal spending will rise slowly over the next decade by 1.3% of GDP while the deficit stabilizes at 2.5% of GDP. By itself, the increase in mandatory spending will more than absorb the total increase. On top of that, interest on the debt will more than double as a share of GDP. So discretionary spending must be squeezed steadily—a trend that the president’s proposed 2016 increase of 0.2% of GDP for defense and an equal amount for domestic programs does little to alter."

So there you have it. Mandatory spending (primarily Social Security, Medicare and Medicaid) and interest expense on the national debt will make it virtually impossible to spend appropriately on our national defense and other discretionary programs in a few short years. Of course, by then somebody else will be in office, and President Obama's watch will be over. Unfortunately, the rest of us will pay for all this debt. Especially future taxpaying Americans.

The Legacy of Debt: Interest Costs Poised to Surpass Defense and Nondefense Discretionary Spending tells the exact same story in another way, including charts:

"The U.S. has come a long way since the days of trillion-dollar deficits, just a few years ago. The White House projects 2016 will have the smallest budget deficit in eight years. Yet the budgetary impact of the debt that’s been accumulated–$18 trillion in total, $13 trillion of that owed to the public–will reassert itself.

Currently, the government’s interest costs are around $200 billion a year, a sum that’s low due to the era of low interest rates. Forecasters at the White House and Congressional Budget Office believe interest rates will gradually rise, and when that happens, the interest costs of the U.S. government are set to soar, from just over $200 billion to nearly $800 billion a year by decade’s end.

By 2021, the government will be spending more on interest than on all national defense. according to White House forecasts. And one year later, interest costs will exceed nondefense discretionary spending–essentially every other domestic and international government program funded annually through congressional appropriations. (The largest part of the budget is, and will remain, the mandatory spending programs of Social Security, Medicare and Medicaid. Mandatory spending is over $2 trillion and is set to double to $4 trillion by 2025.)

 

The total dollars spent on defense and nondefense discretionary spending will continue to rise, albeit slowly, in the coming decade. But as a share of the economy, both categories of spending are poised to shrink for the next decade, squeezed down as interest rates rise. Mandatory spending will rise from 12.4% of GDP to about 14.5% of GDP over this period.

By 2025, the White House projects interest costs will be 2.8% of GDP. The CBO is somewhat less optimistic and expects it will be 3%. Most economists and budget experts would agree that interest payments at 3% of GDP are manageable for an economy. The true cost may be the squeeze to other places the government could be spending a decade from now."

Summing Up

When we want to get out of a hole, the first order of business is to stop digging. And that's especially the case going forward with the so-called mandatory spending on entitlements (mainly Social Security, Medicare and Medicaid) and debt obligations as well as interest expense on that debt.

When we borrow, we are charged interest expense which becomes an added element of the debt obligation.

In addition to paying interest expense for the duration of the loan, we are also obligated to repay the principal amount of the loan.

When interest rates rise on that debt, the cost of servicing both our existing and new debt increases, often greatly.

As is the case with individual debt, the exact same logic applies to government debt obligations as well.

The plain fact is that when we talk about lower deficits, we are simply finding another way of saying that we have added more debt.

Someday down the road, like it or not, we may be called upon to pay the piper. More likely, however, our can kicking actions today will require our kids and grandkids to pay that piper because we didn't when we had our chance.

Doesn't seem fair, does it?

That's my take.

Thanks. Bob.

401(k) and IRA Performances Are Needlessly Poor for Most Participants ... Why Do We Make It So Hard?

The following article reveals that most 401(k) plan participants seriously underachieve with respect to matching the returns of market averages over a lengthy period of time. In my opinion, such underperformance is unnecessary and easily corrected.

The average annual rates of return of stocks have been substantially greater than that of all other asset classes over the long term. And going forward that will be even more true as interest rates remain relatively low due to a lack of inflation combined with slower than historical economic growth throughout the world.

Investing in a handful of blue chip diversified stocks that pay solid and growing cash dividends will more than compensate for the low interest rates and subpar economic performance that lie ahead.

And what if I'm wrong about the low interest rates and subpar economic growth that I foresee? In that case, stocks will outperform other asset classes by even more. In other words, blue chip stocks offer a heads I win, tails I win scenario for patient long term oriented individual investors.

Now let's see what the referenced article has to say about all this, and then we'll recap in the "Summing Up" section. I disagree with much of what the writer recommends, as you will discover.

Why your 401(k) is lagging the market's gains tells the story:

"A stampeding bull market helped push 401(k) balances higher in 2014, but retirement savers missed most of the fun at this rodeo.

While it’s true that the average 401(k) balance hit a record high of $91,300 in 2014, that figure is just 2% higher than the average balance in 2013, a paltry return compared with the S&P 500’s relatively lofty 13% gain in 2014. . . .

Shaky markets: Get used to it

 

When trying to assess why retirement savers aren’t matching the market, there are a number of factors to consider. For one, retirement investors generally don’t — and generally shouldn’t be — investing their entire 401(k) account in an S&P 500 index fund.

“You can’t benchmark your 401(k) against the stock market,” said Gary Schatsky, a fee-only financial adviser and president of ObjectiveAdvice.com, based in New York. “Most people won’t have all of their money in the stock market, nor should most people have all of their money in the stock market.”

Even the rare investor who has 100% of his money invested in equities is unlikely to match the performance of the S&P 500 because, while domestic stocks rose, other sectors, including international, energy and precious metals, “have been crushed,” Schatsky said. . . .

Market timing, fees cost 401(k) savers

Another reason 401(k) investors don’t beat the market? Fees. Defined-contribution plans such as 401(k)s “tend to carry higher fees than the best investment choices that are available to individual investors,” Schatsky said.

That’s not always the case. Workers who have access to a large-company retirement plan may enjoy low costs, but employees of smaller companies often aren’t as lucky.

“The reason the fees tend to be somewhat higher is that the owners of the company frequently structure the offering in such a way to minimize the cost to them and to pass on the cost to the employee,” Schatsky said. “That would make even an index fund within a 401(k) underperform most good index funds outside of the 401(k).”

Still, while 401(k) fees, and the media’s penchant for focusing on a particular benchmark, can help paint a dismal picture of investor returns, it’s also true that investors make mistakes that cost them.

One big mistake is trying to time the market. “The average investor underperforms the market because they hold their investments an average of 3.1 years,” Kahler said. That amounts to market timing, he added.

“Research by Dalbar Inc. shows investors who hold investments for over five years tend to receive market return,” he said. “Bottom line, most individual investors make too many decisions about when to go in and when to get out of markets, which negatively impact their returns.”. . .

What now?

The bullish stock market has been running for more than five years. Now’s a good to consider locking in some of your gains.

“After a market has run up significantly over quite a number of years, one would hope you would say, ‘Wow, let’s take some of the money off the table or make it a little bit more conservative,’” Schatsky said.

Your portfolio adjustments “could be driven by concern for the market specifically or driven by a realization that your equity exposure is dramatically higher than you normally would be comfortable with,” he said. . . .

If you haven’t checked lately, there’s a good chance your money is divvied up in a way that contradicts your risk tolerance. “If you’re comfortable with an overall asset allocation of 60% equities [and] you started with that three years ago, you don’t have 60% anymore,” Schatsky said.

For some investors, now might be the time to reduce their exposure to equities and shift their long-term bond portfolio into shorter-term bonds, with an eye on the likelihood of higher interest rates ahead.

But a long-term investor with an appetite for risk might make different decisions. The crux of the matter is to make sure your investments are diversified and match your risk tolerance. Your precise asset allocation will depend on your penchant for risk and other factors.

Some investors, Kahler said, might “look at a 60/40 or 70/30 portfolio consisting of many asset classes including global bonds, high-yield bonds, TIPS, global stocks, commodities, and REITs.”"

Summing Up

My personal 401(k) has been invested DIY style ~100% in American dividend growing blue chip companies for the past several years.

Prior to that, ~100% was invested in the low cost S&P 500 index fund offered by my employer.

I have the time to do my own stock picking and investing now, so that's why I invest in individual stocks. When I didn't have the time to invest in individual stocks, it was the low cost S&P 500 index fund all the way.

I did and still do things this way for several simple reasons: (1) stocks over the long haul outperform all other invest classes; (2) money not paid in fees to financial managers is money that works for me; (3) nobody is a successful market timer; (4) bonds will be lousy investments in a period of rising interest rates, which we will likely have over the next decade or longer; and (5) it helps immensely to understand and internalize the long term wonderful  effects of compound interest and the rule of 72, which recommends that individual investors should start early and stay late.

That's my take, and that's why I do what I do.

Thanks. Bob.

"Old School" and "Just in Time" Mehods Combine to Teach the Benefits of Financial Responsibility

President Obama is putting forth a budget proposal today. For details please see Obama to Detail Nearly $4 Trillion Budget for Fiscal 2016.

Like all budgets proposed by him the past several years, this one will be DOA. The sad fact is that neither political party is interested in achieving fiscal responsibility by agreeing to live within our means as a society. Thus, the game of name calling will continue unabated and our fiscal insanity (doing the same thing over and over and expecting a different result) will as well. If you're into political theatrics, this may be fun to watch. For me, however, I'll do my best to avoid watching the display of raw politics and 'amateur hour' acting.

So how hard would it be to get us on the right path if some serious minded people were in charge instead of the current crop of sound bite driven politicians we sent to Washington (and states and cities and school districts and so on) to do the "people's work?' And how would we as serious minded adults best go about teaching our kids the proper and highly valuable lessons of personal finance?

An ongoing and "Just-in Time" approach is advocated in The Smart Way to Teach Children About Money. It recommends an ongoing "Just in Time" process whereby the costs and benefits of such things as (1) buying on credit (and then later paying back the principal amount borrowed with lots of interest), (2) borrowing for college, (3) buying a car with a lengthy loan duration, and topped off by (4) a high priced unaffordable house are communicated immediately prior to each large 'purchase' decision. "Just in Time" makes sense to me. In any event, the article is absolutely worth taking the time to read, both for adults and youngsters.

For those 'old school' types, however, there's a simple way to go about teaching finance to youngsters. Four Key Money Lessons I Learned as a Child should be required reading for all Americans, including the political class:

"There is a lot written about how to teach children about money. A Google search on “money lessons children kids” returned 144 million hits! I would like to tell you some of the lessons I was taught as a child that I am passing down to my own children.

The importance of hard work: As a typical teenager, I wanted to be independent and have my own money to go out with friends (this was in the pre-Internet days; Pacman had just come out). I was expected to work in the family business with no pay. I still remember, when I complained about this cruelty at the dinner table, how my father used to point at my plate and tell me, “This is your paycheck.” One day he encouraged me to find a job to see how money gets earned, so I did, at a Del Monte factory assembly line working eight hours straight. I was so tired and sore after work I could barely move. And then I had to do it again the next morning. My father smiled when I dozed off at the dinner table before I headed to bed. But I understood then that he was right: I had to do great in school so I could avoid doing this type of work the rest of my life. It worked. Looking back, I believe that was one of the most formative experiences of my childhood. I made my 16-year old son go flip burgers and he had the same epiphany. I am sure my father was smiling from up above at us.

The importance of saving: At every opportunity as a child, I was drilled with the mantras, “You have to save because you just don’t know what the future holds and you need to be ready,” and “You make the bank pay you interest; you never pay the bank interest,” and “Debt is evil.” These beliefs have been ingrained in me and I find myself repeating them to my own children. I took them by the hand and opened accounts at a local credit union where they deposit a chunk of the money they receive from grandparents, and for birthday and Christmas presents. I show them the interest they earn (not very much these days) from the bank because they saved!

The importance of budgeting: While I was growing up, my parents paid for everything in cash. They always made sure to tell me how much something cost and related that to how long they had to work to pay for it. I have repeated the process with my own children numerous times so they can grasp that nothing is free and if they want to get something they better have the money to pay for it. As I am a big fan of using travel rewards credit cards (never ever carry a credit-card balance!), I always made sure to tell my children when I pulled out the credit card that I would still be paying for it when I received the monthly credit-card bill. When my teenage son requests something, I tell him it will cost him X hours flipping burgers and then ask, “Is it worth it?”

The importance of compounding; I keep reinforcing how important it is to start investing early. I love the saying, “The more you invest, the earlier, the better.” My teenage son will open a Roth IRA in a few weeks with the maximum allowed for the 2014 tax year. There will be a time when you can no longer work or be able to earn money so how are you going to live when that happens? This is why it is so important to save a portion of everything you earn. Make it a habit and you will be fine later in life and have more choices than people who live paycheck to paycheck.

I guess there may be some advantages of children having a financial planner for a father and establishing good money habits early. I can’t wait to tell them, after they are independent, that their parents plan to spend or donate every dollar and they should expect nothing from us! By then, they will already have learned that they better not goof around too much and instead should work hard, save, and invest early and often."

Summing Up

Learning and practicing personal financial responsibility can be simple -- not easy but simple.

And the lessons for youngsters can and should come from concerned adults teaching by both example and word.

Old school is the best school. Hard work has no substitute. Living within our means makes us feel good and gives us a sense of accomplishment. Then we can pass these lessons on to the next generation.

President Obama and most of the rest of the political class apparently don't understand these simple rules of thumb. Perhaps they were never taught them. But that's no reason for the rest of us to make the same mistakes.

That's my take.

Thanks. Bob.

Properly Defining Government and the Many "Impossible-to-Solve" Problems Associated with Attempts to Govern Seriously ... Illinois as a Case Study

Our nation spends too much relative to its income. So do other nations.

Most individuals do as well, but we seem to acknowledge and see that trait and shortcoming in government much easier and with more clarity than we are able to recognize our individual failings.

The best definition of government I've ever seen comes from Frederic Bastiat in his 1848 essay on government. Unfortunately, it still holds true today, both in the U.S. and throughout the world.

"GOVERNMENT IS THE GREAT FICTION THROUGH WHICH  EVERYBODY ENDEAVORS TO LIVE AT THE EXPENSE OF EVERYBODY ELSE."

I was recently reminded of this when reading about the issues newly elected Illinois Governor will be facing. The editorial is Bruce Rauner Almighty:

"Republican Gov. Bruce Rauner won election in November with a mandate to reinvent Illinois, and this week he teed up some of his plans.

Mr. Rauner took a warm-up swing at the unions . . . . For starters, he wants to do away with project labor agreements (PLAs) “that are basically what the unions have worked out with the politicians” who “they influence with campaign cash and then impose those contracts on the businesses that contract with the state.” Mr. Rauner complained that PLAs, which usually require contractors to pay union wages and benefits on public construction projects, increase costs by about 18%.

Also on his agenda are “right to work zones” that allow local voters and governments to decide whether workers should be required to join a union and pay membership dues as a condition of employment. While the Republican doesn’t intend to make Illinois a right-to-work state—he wouldn’t have the votes in the heavily Democratic legislature—he fundamentally supports “employee empowerment,” which is his preferred term for right-to-work. . . .

His other ideas to make Illinois more business friendly include cutting workers’ compensation and unemployment insurance costs. He also wants to curb “lawsuit abuse,” which he says is “pushing doctors and health care providers out of the state.”. . .

Mr. Rauner’s more urgent, and less glamorous, job will be closing a $5 billion deficit over the next two years without raising taxes. The personal income and corporate tax increases that Democrats passed in 2011 partially sunset this year, and the governor has suggested extending the sales tax to some services to fully phase out the income-tax hike and close the budget gap. That will be a heavy lift in the legislature....

The governor next month will flesh out his agenda in his budget, which judging by his sneak preview may rank among the boldest in the country. If Mr. Rauner’s goal is fixing the most ill-governed state in the union, nothing less will do."

Summing Up

Some things never change. Human nature is one of them.

And our tendency to seek more from governments than we contribute is part of the human condition. We enjoy free lunches. We even believe we deserve them.

Too many public officials are afflicted with the desire to have both fame and job security. We the People pay a heavy price for that.

Governor Rauner is in the early stages of learning about governing in a free society. It ain't gonna be easy. Not at all. But let's not feel sorry for him. He asked for the job, and now he's got it.

We'll stay tuned to what's happening in Illinois, other states, school districts, Social Security, Medicare, ObamaCare, free college, Greece, Russia, ISIS, our nation as a whole and other governing bodies throughout the world.

We the People really are an interesting bunch. And in the end, whenever that comes, we will get the governments we deserve.

That's my take.

Thanks. Bob.

More Proof That Politics Sucks .... President Obama's Version of 'Middle-Class Economics' Is a Farce

In recent days we've written that President Obama's vote getting attempt to introduce legislation purportedly helpful to the middle class was in reality a politically driven farce.  Now the president's liberal allies come forward and put forth numbers that confirm his proposal to help the middle class is nothing more than a phony cheap political stunt.

In fact, much of what Obama says these days is 'unserious' stuff and in reality is sad to witness. Really sad.

'Middle-Class Economics' is worth quoting at length:

"President Obama is disguising his latest tax increase as “middle-class economics,” no doubt because it sounds better than calling it income redistribution. So it’s instructive that this false political front has already been exposed by no less than the President’s political allies at the Tax Policy Center.

This week the liberal think tank analyzed the tax proposals in Mr. Obama’s State of the Union with one of those familiar distributional tables that attempts to estimate the after-tax results across the U.S. income scale. Surprise, surprise, the middle 20% of earners—people making between $49,000 and $84,000—would see their taxes rise by $7 on average in 2016.

In selling his proposals in Kansas the other day, Mr. Obama said that middle-class economics is about “lowering the taxes for working families by thousands of dollars, putting money back into their pockets so that they can have a little bit of cushion in their lives.” Paying $7 more isn’t much of a cushion.

The same goes for the second and fourth income quintiles. According to the think tank, the taxes of those groups would rise by 0.1% on average. The tax changes of note would come at the bottom and top of the income scale, with a 0.7% average rise in tax liability for the top 20% of earners, and a 1.2% boost in after-tax benefits (largely from tax credits) for the bottom 20%. Mr. Obama’s middle-class economics, in short, applies to everyone but the middle class. . . .

The main point of cutting taxes is to help the economy, and to let all taxpayers keep more of their hard-earned money. It is not to redistribute income. . . .

No modern Presidency has been worse for average American incomes than Mr. Obama’s, and his new tax proposals are more of the same."

Summing Up

There's nothing more to say about President Obama's version of 'middle-class economics.'

The President's supporters at the Tax Policy Center have already said quite enough about it.

You can't make this stuff up. And here's what is so sad about it. He's serious.

At least that's my take.

Thanks. Bob.

President Obama's "Freebies" Grounded Middle Class Fairness Proposals are Fairy Tale Grounded Peter Pan Economics

President Obama wants everybody in America to get a fair chance and have a fair shot, whatever that means. My guess is it means more government control and lots of populist vote getting pandering efforts designed to make the Democrats look good. It's another example of why 'superficial' politics sucks and individual freedoms suffer when government takes over, in other words.

Obama's Peter Pan Economics is subtitled 'Other than the president, perfect fairness is an obsession mainly among children.' It's another sample of the childishness in American politics today as President Obama works hard to replicate the failed policies and programs of government knows best programs in Europe, China and elsewhere:

"Barack Obama is touring the country . . . talking about something he calls “middle-class economics.”. . .

(Here's the President offering his description of middle class economics.) “That’s what middle-class economics is—the idea that this country does best when everyone gets their fair shot, everyone does their fair share, and everyone plays by the same set of rules.”

Let’s try to unbundle this sentence.

It sounds familiar, until one notices that Mr. Obama has added something—the word “fair.”

In the traditional version, everyone at least gets a shot and does their share. But what, exactly, does the President of the United States mean by a “fair” shot and “fair” share?

Other than the president, the one other slice of the American population that obsesses over fairness everywhere is children. Every parent knows that about the age of four, kids in groups start saying, “That’s not fair.”

If you have a birthday party and cut pieces of the cake for all, one of them will say, “Her piece is bigger than mine. Why is she getting a bigger piece? That’s not fair.”

And parents, ever since Adam and Eve left the Garden of Eden, have felt obliged to instruct their children on the reality. Life isn’t going to be “fair.” And the path into the future requires more than envy, tantrums and grabbing what belongs to others.

Cradle-to-grave fairness may be infantile, but the idea lives on, especially in politics and most of all in Mr. Obama’s mind.

He says middle-class economics means “two years of free community college, so we can keep earning higher wages down the road.”

How can community college be “free” for everyone? This isn’t middle-class economics. It’s Peter Pan economics. . . .

In Mr. O’s world, . . . Middle-class economics “means making it easier to afford childcare, college, paid leave, health care, a home, and retirement.”

Unraveling the Obama belief system is a challenge, so let’s take the lower, simpler road and agree with conventional wisdom that “middle-class economics” is mostly about where the votes are. . . .

The first indication that politicizing the American middle class carries peril for pols who claim to be its champion came this week when the White House deserted its plan to tax 529 college-savings accounts.

Across millions of kitchen tables since the plan to tax “upper-income” savers was announced, 30- and 40-something spouses said: “He wants to do what?” Even Nancy Pelosi , grandmother of six, went rogue and reportedly asked the White House to drop the idea.

The one datum driving the middle class into the spotlight of presidential politics is that median, inflation-adjusted household income has fallen, from about $54,000 in 2008 to below $52,000....

U.S. elections are run on the conceit that America’s problems, including stagnant incomes, are unique to us. But we should look beyond the U.S. to see where we don’t want our politics to go.

China? The Wall Street Journal reported that two-thirds of middle-class college grads there want to work for a state-owned company or the government. Why? They say senior bureaucrats make all the important decisions. We’ve had that model in the U.S. recently, and economic growth collapsed.

What of Europe and its social-market economies so admired by Democratic progressives in the U.S.? Much of Europe’s educated, middle-class youth are permanently unemployed because subsidies that absorb half the continent’s GDP prop up and pay for the lifestyles of their parents. Call it jobless fairness....

Forget fair. Start with work. The rest will come."

Summing Up

We don't want America to be like the entitlements based societies of Europe or the government dominated Chinese. 

So let's commit to working hard at getting our fellow Americans to understand that 'the harder we work, the luckier we'll become.' And that self help is the best help of all.

And while we're at it, let's agree that the more government promises to do to 'help' the middle class, the worse off the middle class and America will become. 

We each need to work hard and row our own boats, but all the while knowing that to the extent we need help with the rowing, we can rely on getting that help from our fellow Americans.

E pluribus unum (out of many, one) isn't just an empty platitude. It's what America represents.

Freedom and equal opportunities aren't empty platitudes. They accurately describe what we get just for being Americans.

And my take is that that's more than fair.

Thanks. Bob.

Obama's Robin Hood Approach is in Reality a Take It from the Middle Class Willie Sutton Strategy ... Where the Money Is ... Middle Class Economics, Income Inequality and Broad Based Prosperity ... Opportunities vs. Outcomes

President Obama likes to play Robin Hood. He believes that's the politically astute way to win elections. He's been right about that, having won two presidential elections, and our U.S. economy and We the People have suffered and continue to suffer as a result.

The plain fact is that equal opportunities never lead to equal outcomes. It just doesn't work that way in a freedom based individualistic meritocracy, which is what America has long been and the vast majority of Americans still want it to be.

President Obama also claims to be an advocate and supporter of the middle class. In fact, he has invented the term 'middle class economics' as evidence of his concern. But the simple truth is otherwise. He's really following a Willie Sutton bank robber approach of 'going where the money is' --- the middle class. Evidence of this can be seen by his offering up and then abruptly surrendering the recently floated plan to hike taxes on that same middle class he says he's trying to help.

Obama's 529 Surrender is subtitled 'But the middle-class should realize they're where the money is:'

"Well, that must have polled badly. The White House on Tuesday dropped its proposal to tax 529 education savings accounts, a week after President Obama floated the idea in the State of Union. . . .

Mr. Obama wanted to tax 529 plans to finance a more targeted college subsidy program that politicians could better control. The 529 plans put the power in the hands of parents. The political problem is that 529s have become popular with, well, the middle class; there were some 11.8 million accounts and the average balance was $20,671 as of last June.

House Speaker John Boehner had called on Mr. Obama to withdraw the proposal, and the Ways and Means Committee was already rolling out legislation to force Democrats to go on record for the 529 tax increase. “Given it has become such a distraction, we’re not going to ask Congress to pass the 529 provision,” a White House official (said) in a a classic of political rationalization.

It’s a shame there won’t be a vote, because the 529 tax increase is a rare example of the President’s policy sincerity. Liberals sooner or later must raise taxes on the middle class because taxing the rich alone can’t possibly finance all of the Democratic Party’s entitlement schemes. The middle class is where the real money is. So while taxing 529s may die for now, it’s only a matter of time before liberals are back with a carbon tax or value-added tax or something. That’s the real meaning of “middle-class economics.”

Obama's Robin Hood economics won't help the middle class tells the opportunity vs. outcome story in common sense fashion:

"If the president really wants to help the middle class, he will stop trying to mandate equal results and concentrate instead on legislating equal opportunity.

Once again it comes down to a case of the have-nots versus the haves. The president is upset that some people make more than others. In this year’s State of the Union address, he asked lawmakers whether they will “accept an economy where only a few of us do spectacularly well, or will we commit ourselves to an economy that generates incomes and chances for everyone who makes the effort?”

He must fancy himself as today’s Robin Hood, since he wants to take from the rich and give to the poor. How else can you explain what the president calls “middle-class economics”? He wants Congress to adopt a series of measures that would redistribute income which he thinks will help what he calls “America’s struggling middle class.”

The president forgets one thing: Unequal distribution of income and wealth is an inevitable result of the workings of our capitalist system. Interfering with it by raising taxes on the rich to give to others is like throwing a monkey wrench into the gears that turn our economic engine.

Besides the Democrats, the president’s views are beginning to resonate with a number of Republicans as well. If this persists, it would be bad news for our economy, since it suggests that this could become part of the government’s philosophy no matter how the 2016 elections turn out.

Actually, one of the quickest ways in which the president can help make incomes more equal is to encourage the production of oil and gas.

Approving the Keystone pipeline and encouraging fracking are two ways to get quick results. They will add middle-class jobs while also lowering gas prices. In turn, this will help consumers, especially those in the middle to lower class. People in this bracket spend a greater share of their incomes on gas and oil than those who earn more.

Getting back to income inequality, I would remind you that this is nothing to be ashamed about. After all, capitalism is all about taking chances and working hard with the expectation of a reward if the right choices are made. And many wealthy people do share the rewards of their wealth by being charitable.

That said, I would like to raise the question of what exactly constitutes income inequality? In other words, how equal must wealth and income be to avoid being called unequal? I am not sure, but one thing I do know is that we can never have shares of wealth and income divided equally across the population. No economy can produce this result — not even the most socialist. . . .

Wealth and incomes are also affected by the ownership of stocks, bonds and homes. Would those who worry about equality of wealth have the government regulate the ability to buy and sell these items?

What about schools? . . . Should the government require schools and colleges to admit students who are not qualified?

Simply put, the best way to boost middle class incomes is to employ the right policies that would boost overall economic growth that help everyone. As another Democrat once said years ago: “A rising tide lifts all boats.”"

Summing Up

Yes, a rising tide indeed lifts all boats.

Obama's redistributionist Robin Hood programs are actually targeted toward growing the government at the expense of the private sector. If the government is growing, the private sector is shrinking. It's that simple.

To the extent Mr. Obama and his gang of 'government do-gooders' (an oxymoron, of course) are successful, the middle class will be harmed due to a stagnating economy and lower overall economic growth. In other words, we need economic growth for one and all, and more government programs aren't the answer.

While sound bites may work to win elections, populist rhetoric won't ever create broad based middle class prosperity.

Sherwood Forest this ain't, and Obama's 'middle class economics' is a farce. So be on the lookout for Willie Sutton. He's coming after your money.

That's my take.

Thanks. Bob.

Americans Generally Agree on What's Important

Americans aren't happy with the way things are going today, and rightfully so.

On the other hand, we're pretty much agreed on the important priorities that need our focus and attention, as well as the focus and attention of our political class.

But while we agree on the WHAT, it's the HOW that will prove problematic. In other words, how the various problems need to be addressed is a completely different matter than what are the problems for us to solve.

In any event, agreeing on the definition of a problem is the first critically necessary step to finding a solution.

Democrats and Republicans Agree on More Than You Think & Why That Matters for 2016 has the story:

"By now, everyone knows that our political parties are deeply polarized—and the American people only somewhat less so. Does that mean that we can’t even agree on the problems we need to address?

To some extent, according to a recent Pew Research Center study, the answer is yes. There are issues that Democrats care deeply about—global warming and the needs of the poor, for example—that are far down the list of Republican priorities. Similarly, Republicans care about strengthening the military and dealing with moral breakdown a lot more than Democrats do.

But a closer analysis of the Pew data reveals that in addition to these partisan agendas, there is an American Agenda of “top priorities” supported by majorities of Republicans, Democrats, and Independents and by a super-majority (60% or more) of all Americans. Ranked in order of overall support, they are:

To agree on the problems is not necessarily to agree on solutions, of course. But the fact that despite their differences, the American people can endorse a shared agenda of top priorities should help focus the forthcoming presidential campaign. . . .

After decades of school reform, Americans are still worried about the condition of our educational system. . . .

The sooner elected officials begin addressing the problems that concern all Americans, the faster we will begin to reweave the tattered fabric of our politics. Trust in government would begin to rise from its historic lows."

Summing Up

Terrorism, the economy, jobs, education, Social Security, fiscal discipline and health care costs are the agreed upon priorities of We the People.

Hope springs eternal that our feckless politicians will sooner rather than later get that message.

And if and when they do, perhaps those same politicians will be deserving of our trust and confidence.

It's doubtful, of course, but why not dream big dreams?

That's my take.

Thanks. Bob.

IBM Denies 100,000 Job Cuts but Doesn't Deny Cuts are Coming

Let's update the morning's earlier post on IBM and its pending, albeit unannounced, job cuts.

IBM Dismisses Report of Massive Layoffs has this correction to the rumors making the rounds today:

"International Business Machines Corp. dismissed a report stating that massive new layoffs were coming this week for the computing giant.

A report in Forbes on Thursday said the company was preparing to cut its workforce by 26%, which would amount to the largest workforce reductions in IBM’s history and affect more than 100,000 employees.

In an emailed statement, an IBM spokesman reiterated management’s comments following its fourth-quarter financial results that a much smaller number of IBM employees are leaving the company as part of “rebalancing” actions, which are designed to create job openings to be able to hire people with new skills.

“IBM does not comment on rumors, even ridiculous or baseless ones,” the spokesman said. “If anyone had checked information readily available from our public earnings statements, or had simply asked us, they would know that IBM has already announced the company has just taken a $600 million charge for workforce rebalancing. This equates to several thousand people, a small fraction of what’s been reported.”

The spokesman added that the company currently has job openings as part of the rebalancing process."

Summing Up

The cuts are coming.

Thousands of them.

Just not 100,000 of them.

Stay tuned.

Thanks. Bob.

 

Free Market Competition, Creative Destruction and Populist Grounded Unionized Government

Free markets are sometimes harsh. Winners become losers, and new competitors unseat the former leaders. IBM, Sears, A&P, Montgomery Wards and American Motors come to mind, as do Apple, Google, Wal-Mart, Amazon and Ford.

But that's just the 'creative destruction' of the marketplace at work bringing better things to a growing and prosperous middle class grounded society.

Alas, such is not the case with government. Populist measures and socialism stand in the place of freedom and taxpayers substitute for the demands of customers and shareholders. The public sector's employees are 'protected' from the rigors of the marketplace and its 'creative destruction' as long as taxpayers are willing to foot the bills.

Rumors abound this morning about the biggest layoffs in history coming from former stalwart and industrial kingpin IBM. They cause me to wonder what would happen if city, state or national government took the same approach. Of course, no government will do so, and it's just a mental exercise of mine.

IBM's stock gains amid reports that a massive layoff is coming has the story:

"Shares of IBM are rising 1.2% in premarket trade Monday, on the heels of reports that the technology giant is prepping for a reorganization that will lead to the largest corporate layoff in history.

Reports from multiple sources suggest Big Blue will slash its global workforce by 26%, which would represent about 112,000 of the approximately 431,000 people IBM employs globally.

IBM's stock, a component of the Dow Jones Industrial Average, has slipped 0.7% since it reported last week earnings that beat expectations but revenue that missed. IBM has missed revenue expectations in 12 of the past 14 quarters. The stock has lost 3.8% over the past three months and 13% over the past year, while the Dow has gained 5.2% and 11%, respectively."

Summing Up

Capitalism is harsh. It also creates prosperity for a nation's citizens.

I wonder what the Greeks think about all this.

I wonder too about what Senator Elizabeth Warren thinks.

And I wonder what President Obama thinks about saving the middle class through government action.

But mostly I wonder about what my fellow Americans think --- and will do.

Will we prefer socialism, public sector dominance, more government control, educational shortfalls and a stagnant to declining standard of living for the middle class?

Or will we embrace prosperity, individual freedoms, income inequalities and the harsh and uneven results that will inevitably occur?

The choice is ours.

That's my take.

Thanks. Bob.

Unionized Government ... Who Works for Whom? ... The Correct Answer is Harmful to Our Nation's Health

Here's the question du jour: Does unionized government work for We the People, or do We the People work to pay for unionized government?

Public sector workers, including teachers and others, often are eligible to retire in their early 50's with substantial guaranteed pension and health care income benefits for the rest of their lives. And the number of remaining years for the rest of their lives may well last as long or longer than the number of years they worked. Nice deal if you can get it --- especially if the taxpayers will pay for it.

The problem is that these benefits at the local and state levels are underfunded by approximately $4 trillion currently, and probably much more than that. Future taxpayers beware.

Labor union membership falls in U.S. in 2014 tells the tale of two American work forces:

"The rate of U.S. union membership fell slightly in 2014, continuing a trend that suggests the labor movement will have to step up efforts to rebound from its decades-long slide.

See: Public-sector workers are nearly six times as likely to be union members.

Figures released Friday by the Bureau of Labor Statistics said the combined rate of private- and public-sector union membership was 11.1% last year, down from 11.3% the prior year. Membership in the private sector fell to a rate of 6.6% in 2014, from 6.7%, while public-sector representation rose slightly to 35.7%, from 35.3%.

Unions managed to collectively add about 41,000 members in the private sector, led by industries such as construction and leisure and hospitality, but it wasn’t enough to keep pace with total private-sector employment, said John Schmitt, a senior economist at the left-leaning Center for Economic and Policy Research."

Summing Up

Companies in the private sector compete with each other to get and keep customers. They must do so productively and profitably, or they cease to remain in business. Customers rule.

In the public sector, however, customers aren't in charge. Government officials negotiate with themselves when public sector union officials sit down at the bargaining table with their bureaucratic no-skin-in-the-game taxpayer paid public counterparts. The result over the years has been generous non-market based salary increases which contribute to later higher pension benefits as well as a non-productive, non-customer oriented workforce.

Then when the inevitable financial shortfall occurs down the road, taxpayers are asked, if not forced, to pay some more for this unionized government.

Unlike companies operating in the competitive private sector, school districts and similar government entities, cities and states don't cease to exist. That's why taxpayers will pay. This will all end someday, and it won't be a pretty picture.

Public employee unions are funded by taxpayers, and their members receive substantial pay packages which, taken as a whole and including retirement packages, are greatly underfunded.

The real 'bargain' is simple -- the public employees pay dues to the union which will be used in substantial part to elect public officials who will negotiate with these union officials to enrich public employees with pay and benefits unattainable in the private sector.

The effects of globalization are real in the private economy. We the People have worked hard to pay for unionized government, but sadly 'we ain't seen nothin' yet.'

The economy will underperform as long as the public sector is favored over the private sector.

That's my take.

Thanks. Bob.

Food for Thought ... Lessons We and the Young Should Learn from McDonald's, Government, Employment, and Minimum Wage Legislation

McDonald's is struggling to simplify its menu and get customers to return. {See McDonald's Extends Slump.}

Government laments the lack of good paying jobs and wants to raise the minimum wage while implementing ObamaCare universally.

The solution is simple for McDonald's: simplify the menu, implement productivity enhancing measures and reduce its number of employees.

Will this help the young get jobs and learn about showing up and taking care of customers, aka those with the money? Of course not. Europe here we come.

'Secular Stagnation' and the Cheap Burger has the story:

"Europe, Japan and the U.S. have been desperate to stir private-sector growth and yet refuse to consider how they treat their private sectors. Europe gave itself austerity in which the private sector shrank and the government didn’t. . . .

Nobody asks: How can we make our societies ones in which people find opportunity? They worry about the distribution of income but not the absence of income-creating opportunities for individuals.

The lesson of Sheldon Silver is that this phenomenon has mostly to do with a self-interested machine protecting its own privileges.

Mr. Silver . . . is the long-serving speaker of the New York state assembly, a man the New York Times calls the state’s “most powerful Democrat” and the capital’s “most powerful figure.” He was arrested Thursday for millions of dollars in graft. Two decades of his “service” is why upstate New York is America’s microcosm of France, a place of permanent stagnation. . . .

McDonald’s has had two bad years, and sales are down sharply in the U.S. . . . its real future may lie more in cost control than in imitating the boutique burger chains like Shake Shack and Five Guys.

McDonald’s has decades of experience in Europe and Japan, and can see where things are going. Our youth unemployment may be half of France’s, but it’s twice the rate that prevailed at a similar point in the 1990s recovery. Our new business formations are the lowest in 35 years, more like Europe than the U.S. According to Gallup, companies are dying faster than new ones are being born.

The administration’s Affordable Care Act raises costs for businesses like McDonald’s that hire thousands of full-time workers at a low wage. Its labor enforcers are overturning settled law to make McDonald’s liable for alleged violations of its independent franchises.

A writer for the New Yorker applauds academic studies showing that hikes in the minimum wage have only a small impact on overall employment, “usually confined to teenagers and unskilled workers”—i.e., McDonald’s workers.

President Obama himself, when he keeps intoning that every job should pay enough to support a family of four, is essentially saying McDonald’s jobs shouldn’t exist.

Though McDonald’s would never put it this way, the company has already started adapting. McDonald’s once filled its U.S. menu with salads, wraps and fruit options that few customers buy. The idea was to appease its foodie critics. Now the company is “simplifying” its menu and giving franchisees freedom to drop non-sellers—and the disproportionate staff needed to support them.

McDonald’s customers were never keen on customizaton, preferring speed and a cheap price. But now the company is introducing customization-friendly automated and smartphone ordering—because it allows franchisees to cut counter staff.

The essence of Europe’s malaise has long been a politics tilted heavily toward protecting those who have jobs from those who want them, where the biggest losers are the young and unskilled, and where stagnation is the general fate.

Even with the bad news of recent years, McDonald’s U.S. stores still generate twice the sales of its competitors, even Burger King. But they also employ twice as many workers, upward of 50 per store.

Look for that to shrink as McDonald’s adapts to an America becoming more like Europe, with an economy unwelcoming to the unskilled and unprivileged trying to find an entry into the world of work."

Summing Up

More 'help' from the government doesn't help our young people in need of help. They need opportunities.

More private sector innovation and the 'creative destruction' of the marketplace do help grow the economy. They also create both more entry level as well as high paying jobs.

Education and effort are the keys to individual and societal progress and not government programs.

We became the nation with the highest standard of living the world has ever known by following the basic principles of freedom, education, hard work and innovation. Not by government dictates.

Will McDonald's succeed in reinventing itself through innovation and productivity enhancing programs designed to better serve its customers? Probably but that's not the important point of the story.

How about our young people starting out? Will they succeed? Not if they depend on government to make it happen. What they need to learn about climbing the ladder of success are the keys --- showing up' and then 'working hard' to improve their position on the ladder. But first they have to be able to get on that ladder.

It's all about learning the most important personal habit of all --- the habit of improvement. The result is self reliance.

That's my take.

Thanks. Bob.

Globalization ... Let's Put First Things First in Improving America's Educational Outcomes ... 'Free' College Isn't the Right Priority ... K-12 Outcomes Need Our Focus

Regarding our system of education, President Obama is trying to answer the wrong question. Instead of debating the pros and cons of taxpayers providing a free community college tuition program, he should be focusing on K-12 global competitiveness.

Accordingly, along with President Obama, here's the question We the People need to ask ourselves with respect to education: How do we get better, faster? So while President Obama wants to discuss making community college attendance tuition free, I have a better idea. Let's choose our priorities wisely.

In other words, why not first exert every effort to make our K-12 system of education globally competitive before making community college free? Let's clean up our act and do first things first.

Cradle to Ivory Tower reveals the comparative large shortfall of the educational attainment of our nation's high school graduates compared to the rest of the world. And here's the real shocker --- the global competitiveness problem is most severe with the very people Obama wants to help --- America's "middle class" students:

"{There's} one big problem with the proposal for free community college that President Obama recently outlined and described anew in his State of the Union address on Tuesday night.

 

It’s awfully late in the game.

 

I don’t mean that he should have moved on it earlier in his presidency. I mean that our focus on getting kids to and through higher education cannot be separated from, or supplant, our focus on making sure that they’re prepared for it. And we have a painfully long way to go in that regard.

 

College is somehow tidier to talk about . . . . It’s an attractive subject for several reasons. . . .

And it comes with handy metrics: specifically, data showing that the acquisition of a college degree translates into various benefits over the course of a lifetime, including higher earnings. So we look to, and lean on, college as a way to increase social mobility and push back against middle-class wage stagnation. That’s important context for not only Obama’s frequent invocations of college but also for a new report, “Expectations and Reality,” by America Achieves . . . .

Using a survey of hundreds of parents and looking at college graduation rates, the report concludes that middle-class parents who expect their kids to finish four-year college degrees are wrong more than half the time.

 

The same survey . . . revealed some cold-eyed realism amid that unwarranted optimism. More than 70 percent of parents expressed the worry that their children’s chances of achieving a middle-class lifestyle would be diminished if their pre-college education didn’t become more challenging.

They’re right. We need to raise standards. . . .

 

The goal is to lift children from all income groups up — and to maximize their chances of success with higher education. . . . there’s a significant difference in graduation rates between students who need remediation after they’ve enrolled and those who don’t. The failures of elementary, middle and secondary schools shadow them.

Those failures persist, and they’re demonstrated every three years when PISA tests — which compare 15-year-olds in countries around the world — are done. American kids tend to perform in the middle of the heap. . . . While American kids from middle-class families haven’t markedly improved their international standing in math and science over recent years, kids from poorer families have done precisely that. . . .

The moral is this: Education is a continuous concern and must be a continuous investment, cradle to Ivory Tower. If we don’t recognize and act on that, our reality will never meet our expectations."

 

Summing Up

{NOTE: The report "Expectations and Reality" by 'America Achieves' referenced and linked above is worth taking some serious time to review. And after reading the report, if you don't come away believing that the right 'educational' question to be asking is centered around K-12 learning and "How do we get better, faster? --- well, I'll be very surprised. You'll probably also wonder why your local school district isn't a member of the Global Learning Network. The report is definitely a thought provoking and myth destroying eye opener.}

In sports it's harder to have a good game without having a good first half.

And it's harder to have a good first half without being ready to play when the game begins.

Similarly, it's harder to do well in college without being adequately prepared upon entering.

And racking up debt and then dropping out of college will make it even harder to do well financially in adulthood.

So let's get on with the serious work of properly preparing our kids for college success before worrying about how we're going to pay for that 'higher' education.

What I'm proposing may not sound as good and may not be as much of a 'vote getter' as President Obama's offer of 'free' college, but it will be a much better approach for helping both America's 'middle class' and Americans as a whole, including our kids, our economy, our global competitiveness, and our current and future taxpayers.

That's my take.

Thanks. Bob.