Tidbits Quotations on December 18, 2010
To Accompany the December 18, 2010 edition of Tidbits
Bob Jensen at Trinity University

Archive of Tidbits Quotations --- http://www.trinity.edu/rjensen/TidbitsDirectory.htm

Julian Assange and other true believers in transparency argue that they have discovered the very crowbar to pry open the U.S. government. Unfortunately for them, WikiLeaks will be more like a boomerang—and the next generation of scholars are the ones who will be hit on the head.
Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University. His next book, Theories of International Politics and Zombies, will be published by Princeton University Press in February.

Wouldn't it be a "last laugh" if the second round of WikiLeaks was really a clever idea conceived in Tel Aviv executed by the CIA?

Are WikiLeaks a U.S./Israel Conspiracy?
Consider this scenario. Suppose the the Pentagon's WiikLeaks were really unauthorized leaks even if we have to stretch a bit to believe that an Army private had access to all the leaked correspondence. Then suppose some smart people in the CIA and State Department decide to dupe WikiLeaks in another round to take advantage of the State Department's leaks for a net gain. There had to be some heavy losses to make WikiLeaks genuinely believe they were not being duped. But the net gains have been considerable in dividing the Islamic world, revelations of China's cooperation with North Korea's spreading of WMDs, exoneration of President Bush's contention that Saddam really was buying yellow cake for development of WMDs, etc. It appears in the WikiLeaks that some Arab nations are more afraid of Iran than Israel.

Quite a few people were shot down for claiming a conspiracy theory that that President Bush and the CIA plotted the 9/11 attacks. I never bought into this nonsense. However, some aspects of the WikiLeaks scandal lead me to suspect a a conspiracy at some level in the CIA and State Department. The reason is that there have been huge diplomatic benefits as well as costs to the U.S. One benefit is that the leaks divided the Islamic world by showing that Arab countries are probably more afraid of a nuclear Iran than their fear of nuclear Israel. Another benefit is that the leaks provide clues that China is supporting North Korea's spread of weapons of mass destructions. My point is that the WikiLeaks are probably having much greater impact in favor of U.S. initiatives than more traditional press releases that would never be believed in the leftist world if they did not come out of an "attack" on the United States.

One clue that the second round of leaks really duped WikiLeaks will be if the U.S. never identifies the person(s) in the State Department that leaked all this diplomatic correspondence to WikiLeaks. Perhaps their dancing in the halls deep inside the CIA bunker at the stupidity of WikiLeaks officials and the Media that bought into this "disaster" hook, line, and sinker. If Hillary Clinton knew about this in advance I might even consider voting for her in 2016.

Who knows in the case of something this vast and this complex?
One thing that's certain is that the U.S. is a soft target compared to daring to leak military and diplomatic secrets of Russia, China, Iran, Israel, and Pakistan. WikiLeaks wouldn't have the guts to leak secrets of these militant nations. If the goals are really world peace, let's have transparency on all sides rather than just one side --- the side that has done more to fight tyranny than any other nation in the history of the world.

"Hillary's Unexpected Good Fortune," by Suzanne Fields, Townhall, December 11, 2010 ---

There are villains aplenty in the WikiLeaks scandal, but nobody looks better for it than Hillary Clinton. The purloined State Department cables show the secretary of state to be eager and willing to man up to both the nation's enemies and its faithless "allies" in the Middle East.

She emerges in the confidential cable traffic as tough as any man, eager to deal with the Saudis as the unreliable ally they pretend not to be. In one signed memorandum, she calls Saudi Arabia the largest source of money for Islamist terror gangs.

"More needs to be done since Saudi Arabia remains a critical financial support base for al-Qaida, the Taliban ... and other terrorist groups," she says. She tells her diplomats to get to work to stop the flow of money from the Persian Gulf to terrorists in Pakistan and Afghanistan, to get crucial cell phone and credit card numbers. "Donors in Saudi Arabia constitute the most significant source of funding to Sunni terrorist groups worldwide." She identifies Qatar, Kuwait and the United Arab Emirates as other sources of terror financing, and cites Qatar as the worst offender.

This is the kind of tough talk that diplomats never use in public -- many of them don't know how to talk this tough even in private -- and the secretary of state was as abashed as anyone in official Washington with the WikiLeaks disclosures. Diplomats must be able to speak freely to each other and to the home office without eavesdroppers. Nevertheless, embarrassing or not, the cable traffic reveals Hillary as one of the toughest dudes in an administration of softies. But she clearly doesn't want to go back to the future.

The secretary of state, who had repeatedly discouraged talk that she might run for president again, maybe even reprise her run against Barack Obama, last week came close to taking "a Sherman" -- named for the Civil War general who famously scotched presidential speculation with his vow that "if nominated I will not run, if elected I will not serve."

That's been the gold standard of presidential brush-offs since, and Hillary came close to using it, telling a town hall in Bahrain, of all places, that her current job is "my last public position." When she leaves her present job, she wants to "go back to advocacy work." That's exactly the line of work that was Barack Obama's chief qualification for president, but if she intended irony she didn't show it.

Hillary sounds and looks weary of the strains of the job, the constant travel across endless time zones, the lack of sleep and the reality of playing the political game when someone else writes and enforces the rules. She took a lot of flak as first lady, much of it deserved, when she seemed to forget that no one had elected her to anything.

She ran for the Senate as a taker -- she didn't live in New York and she didn't care that she didn't deserve that, either. When she got to the Senate, she could at last do as she wanted, at home with unapologetic liberals and noisy feminists. But as secretary of state, she's carrying water for someone else not nearly as smart as she is (so she thinks).

Continued in article

WikiLeaks Evidence: Russia Sponsoring Islamic Terror ---

Notes on Iran's Undeclared Cold War --- http://netwmd.com/blog/2010/12/12/6505

"WikiLeaks exposé: Saudis told U.S. 'Cut off the head of the snake' on Iran," by Reuters, Haaretz ---

King Abdullah of Saudi Arabia repeatedly exhorted the United States to "cut off the head of the snake" by launching military strikes to destroy Iran's nuclear program, according to leaked U.S. diplomatic cables.

A copy of the cable dated April 20, 2008, was published in the New York Times website on Sunday after being released by the whistleblowing website WikiLeaks. The classified communication between the U.S. Embassy in Riyadh and Washington showed the Saudis feared Shi'ite Iran's rising influence in the region, particularly in neighboring Iraq.

The United States has repeatedly said that the military option is on the table, but at the same time U.S. military chiefs have made clear they view it as a last resort, fearing it could ignite wider conflict in the Middle East.

The April 2008 cable detailed a meeting between General David Petraeus, the top U.S. military commander in the Middle East, and then U.S. ambassador to Iraq, Ryan Crocker, and King Abdullah and other Saudi princes.

At the meeting, the Saudi ambassador to the United States, Adel al-Jubeir "recalled the King's frequent exhortations to the U.S. to attack Iran and so put an end to its nuclear weapons program," the cable said.

"He told you to cut off the head of the snake," Jubeir was reported to have said.

The Saudi foreign minister, Prince Saud al-Faisal, however, pushed for tougher sanctions instead, including a travel ban and further restrictions on bank lending, although he did not rule out the need for military action.

The WikiLeaks documents also show U.S. Defense Secretary Robert Gates believes any military strike on Iran would only delay its pursuit of a nuclear weapon by one to three years, the Times reported.

'Iran nuclear program must be stopped'

Saudi Arabia, one of the world's top oil producers, is concerned about Iran's growing military strength. The United States announced last month that it plans to sell the kingdom $60 billion worth of military aircraft to help it bolster its defenses.

Britain's Guardian newspaper, one of a number of publications to have had access to the leaked diplomatic cables, said the communications also showed that other Arab allies have secretly agitated for action against Tehran over its disputed nuclear program.

The Guardian quotes documents that show officials in Jordan and Bahrain “openly calling for Iran's nuclear program to be stopped by any means, including military.” The British daily also says leaders in Saudi Arabia, the UAE and Egypt called Iran "evil," and an "existential threat" which "is going to take us to war."

Another cable, sent from the U.S. Embassy in Manama, Bahrain, on Nov. 4, 2009, detailed a meeting between Petraeus and King Hamad bin Isa al-Khalifa, whose kingdom is the headquarters of the U.S. Navy's Fifth fleet. Like Saudi Arabia it is a Sunni Muslim-ruled kingdom.

King Hamad argued "forcefully for taking action to terminate (Iran's) nuclear program, by whatever means necessary," the cable said.

"That program must be stopped," he was quoted as saying. "The danger of letting it go on is greater than the danger of stopping it."

Iran denies its nuclear program is a cover to build a nuclear bomb and says it is purely for peaceful purposes.

A UN Security Council resolution passed in June, imposing a fourth round of sanctions, renewed a call on Iran to suspend uranium enrichment, something Tehran has explicitly refused to do, saying such activity is its right under international law.

The top U.S. military officer, Chairman of the Joint Chiefs of Staff Admiral Mike Mullen, said in comments released on Friday that the U.S. military has been thinking about military options on Iran "for a significant period of time", but he stressed that diplomacy remained the focus of U.S. efforts.

Continued in article

"Iran, Israel and the Arab Contradiction:  The WikiLeaks cables reveal that Egypt and Saudi Arabia can't decide if they fear a Shiite bomb more than they hate the Jewish state," by Ronen Bergman, The Wall Street Journal, December 11, 2010 ---

"Pyongyang's Accomplice: The WikiLeaks cables reveal a China that abets North Korea's WMD proliferation," The Wall Street Journal, December 7, 2010 --- http://online.wsj.com/article/SB10001424052748704594804575648473842565004.html

'Barbarous" is a fair word to describe North Korea's hour-long bombardment last month of a South Korean island. So what word best fits the North's principal apologist, protector and enabler—the People's Republic of China?

The question arises after China's refusal to condemn Pyongyang's attack, which was of a piece with its earlier noncommittal view of the North's murder of 46 sailors on a South Korean gunboat. But it also follows last week's leak of confidential State Department cables. Those cables reveal a yawning gap between what Chinese diplomats tell their American counterparts and how China behaves.

*** According to the cables, Chinese officials say that North Korea's nuclear activities present "a threat to the whole world's security." They say its missile and nuclear tests are the acts of "a spoiled child." They pledge good faith in preventing the proliferation of nuclear weapons and materiel, especially to Iran. They complain that a Chinese company has been sanctioned by the U.S. without "solid evidence." They profess sincerity about the six party talks aimed at getting the North to dismantle its nuclear arsenal.

It's easy to see why Beijing has been keen to humor the U.S. It was thanks to a November 2000 Clinton Administration waiver of missile-proliferation sanctions—granted in exchange for a Chinese nonproliferation pledge—that U.S. companies were allowed to export satellites to China. That waiver proved premature at best, as the Bush Administration later sanctioned 30 different Chinese "entities" for proliferation. Among them were the industrial giant Norinco and the metals and metallurgy company LIMMT, which former Manhattan D.A. Robert Morgenthau last year described as "perhaps the largest supplier of weapons of mass destruction to Iran."

In 2002, CIA Director George Tenet said the proliferation activities of Chinese firms were at times "condoned by the [Chinese] government." And as recently as this year, Secretary of State Hillary Clinton asked Beijing to prevent the sale by Chinese companies of ballistic-missile components and chemical-weapons' precursors.

China has also played a key role in abetting the North's proliferation schemes. A November 2007 memo signed by then Secretary of State Condoleezza Rice complains that shipments of North Korean ballistic missile jet vanes "frequently transit Beijing on regularly scheduled flights" but that the Chinese had failed to act on specific information provided by the U.S. and despite a direct appeal by President Bush to Chinese paramount leader Hu Jintao.

That pattern of behavior remains unchanged. An October report by the Congressional Research Service notes that the "seaborne cargo of North Korean arms seized in Dubai in July 2009 had visited several Chinese ports and was transported from Dalian, China, to Shanghai aboard a Chinese ship, again without a Chinese effort to conduct a search. Overland routes for procurement of WMD-related goods are reportedly also common, due to the participation of Chinese entities."

The CRS report is also interesting for the light it sheds on how the Chinese prop up North Korea's Kim dynasty. Resolution 1874, adopted by the U.N. Security Council last year after the North conducted its second nuclear test, forbids the sale of luxury goods to North Korea—goods Kim Jong Il uses to buy off his elites. Yet China exported $136.1 million worth of such goods to North Korea in 2009, including "160 luxury cars (made in China) to directors of provincial committees of the Korean Workers Party and to municipal committee secretaries."

Why the warm embrace? In one of the most interesting of the leaked cables—a report of a conversation last year between Lee Kuan Yew and U.S. Deputy Secretary of State James Steinberg—Singapore's Minister Mentor suggests an answer. "The Chinese," he said, "do not want North Korea, which China sees as a buffer state, to collapse. [South Korea] would take over in the North and China would face a U.S. presence at its border."

Mr. Lee is right that Beijing must make hard-headed calculations regarding the North: China cannot escape its shared border, and the effects of the North's collapse would be immediately felt on its side of the Yalu.

But the interests of "stability" cannot account for China's role in facilitating the North's proliferation of dangerous material to the rest of the world. Nor can China's refusal to restrain the North from fomenting serial crises on the Korean peninsula be explained as the deeds of a power interested in maintaining a peaceful status quo. The Kim regime's militarism is destabilizing in Northeast Asia and its proliferation is a source of global mayhem.

China's support for such a regime for so many years suggests that Beijing may see strategic benefit in the North's behavior. It may want a proxy that discomfits its neighbors and makes South Korea and Japan wonder if they can trust the U.S. defense umbrella. Perhaps some in the politburo or People's Liberation Army think this is a way that China can assert its regional authority and drive the U.S. out of the Northeast Pacific. If so, they are mistaken.

*** From what we can glean from the cables, it's encouraging to see that the Obama Administration seems to have few illusions about North Korea and the abetting role played by China. Compared to Mr. Bush in his second term, this Administration has been relatively tough and realistic. But if China really is the key to better North Korean behavior, then Washington will have to confront Beijing more bluntly than it has dared so far.

Mr. Obama is due to treat Mr. Hu to a state visit in Washington early next year. We suggest the President cancel the invitation until Beijing ceases to be Pyongyang's accomplice.


"The WikiLeaks Vindication of George W. Bush," by Larry Elder, Townhall, December 9, 2010 ---

The WikiLeaks de facto declassification of privileged material makes it case closed: Saddam Hussein possessed weapons of mass destruction -- and intended to restart his program once the heat was off.

President George W. Bush, in the 2003 State of the Union address, uttered the infamous "16 words": "The British government has learned that Saddam Hussein recently sought significant quantities of uranium from Africa."

Former Ambassador Joe Wilson sprang into action and, in an op-ed piece, in effect wrote, "No, the Cheney administration sent me to investigate the allegation -- and I found it without merit."

Put aside that Wilson's CIA-employed wife, not the evil Vice President Dick Cheney -- as Wilson implied -- sent him on the African errand. Put aside that the British still stand by the intelligence on which Bush made the claim. And put aside that the anti-Bush Washington Post, in an editorial, concluded that Wilson had lied about not finding evidence to support the Iraq-in-Africa-for-uranium claim, since he told the CIA the opposite when he reported back from Africa.

Bush claimed that Iraq sought uranium, specifically "yellowcake." What is yellowcake, and why would its presence or attempted acquisition corroborate the nearly unanimous assumption that Saddam possessed WMD?

The Associated Press called yellowcake "the seed material for higher-grade nuclear enrichment" and said that it "also can be enriched for use in reactors and, at higher levels, nuclear weapons using sophisticated equipment."

"Bush and Iraq: Follow the Yellow Cake Road" headlined a euphoric Time magazine July 2003 piece -- written when the Bush administration began backtracking from the Iraq-sought-uranium-from-Africa claim. Time said no yellowcake equals no WMD equals bogus basis for war.

The article led with this ripper: "Is a fib really a fib if the teller is unaware that he is uttering an untruth? That question appears to be the basis of the White House defense, having now admitted a falsehood in President Bush's claim, in his State of the Union address, that Iraq had tried to buy uranium in Africa."

Time hoisted (the now discredited) Joe Wilson on its shoulders as The Man Who Told the Truth to Power: "Just last weekend, the man sent by the CIA to check out the Niger story broke cover and revealed that he had thoroughly debunked the allegation many months before President Bush repeated it." Never mind that the bipartisan Senate Intelligence Committee concluded that Wilson's report "lent more credibility to the original Central Intelligence Agency (CIA) reports on the uranium deal" sought by Iraq in Niger.

Let's recap.

Continued in article

Also see "

Condoleezza Rice Schools Katie Couric on Why U.S. Invaded Iraq --- 
Also at http://www.breitbart.tv/condoleezza-rice-smacks-down-katie-courics-insulting-ignorant-depiction-of-iraq-war/

Jensen Comment
Of course most State Department press releases claim that the cost of the WikiLeaks far exceed the benefits ---

Also see http://blogs.hbr.org/haque/2010/12/why_wikileaks_matters_more_and.html?referral=00563&cm_mmc=email-_-newsletter-_-daily_alert-_-alert_date&utm_source=newsletter_daily_alert&utm_medium=email&utm_campaign=alert_date

Video-Reason.tv: Is Wikileaks a Force For Good? Four Experts on Our Wiki-Future ---

Who knows in the case of something this vast and this complex?
One thing that's certain is that the U.S. is a soft target compared to daring to leak military and diplomatic secrets of Russia, China, Iran, Israel, and Pakistan. WikiLeaks wouldn't have the guts to leak secrets of these militant nations. If the goals are really world peace, let's have transparency on all sides rather than just one side --- the side that has done more to fight tyranny than any other nation in the history of the world.

Wouldn't this be clever if the second round of WikiLeaks was really an idea conceived in Tel Aviv and executed by the U.S. CIA?


I haven't left my house in days. I watch the news channels incessantly. All the news stories are about the election; all the commercials are for Viagra and Cialis. Election, erection, election, erection -- either way we're getting screwed!
Bette Midler

Blessed are the young, for they shall inherit the national debt.
Herbert Hoover --- http://www.brainyquote.com/quotes/quotes/h/herberthoo110353.html

Fathom the odd hypocrisy that the administration wants every citizen to prove they are insured, but people don't have to prove they are citizens.
Ben Stein

I think political correctness can lead to some kind of paralysis where you don't address reality.
Juan William before he was fired after a distinguished career on NPR.

Whether or not you love or hate the scholarship and media presentations of the University of Chicago's Milton Friedman, I think you have to appreciate his articulate response on this historic Phil Donohue Show episode. Many of the current dire warnings about entitlements were predicted by him as one of the cornerstones in his 1970's PBS Series on "Free to Choose." We just didn't listen as we poured on unbooked national debt ($60 trillion and not counting) for future generations to deal with rather than pay as we went so to speak! . And yes Paul and Zafer, I know there may be better alternatives than capitalism as a basis for optimization of economies in theory. But all economic systems must deal with inherent greed in practice.
The Grand Old Scholar/Researcher on the subject of greed in economics
Video:  Milton Friedman answers Phil Donohue's questions about capitalism.--- http://www.cs.trinity.edu/~rjensen/temp/MiltonFriedmanGreed.wmv

Landesman wasn't being asked specifically about negative feelings over the Loveland Museum Gallery in Loveland, Colo., a taxpayer-funded art space that recently featured a controversial painting with Jesus Christ receiving oral sex from a man. He's certainly not used to critical questions about just how this blasphemy-by-numbers seems like a tiresome rerun -- Jesus in urine, Jesus in chocolate, Jesus in (homo)sexual ecstasy.
Brent Boswell, Shock and Awful Art, Townhall, October 22, 2010 ---
Rocco Landesman is the chairman of the National Endowment for the Arts
Landesman does not have the guts to display a similar offensive picture of Allah

Watch the CNN Video
"Make certain when you sign those papers that you didn't rely on accountants."
Rep. Charlie Rangel, Recently censured member the U.S. House of Representatives

Watch the Video
"Make certain that you rely on Turbo Tax, because then you have something non-human to blame for underpayment of your taxes."

Timothy Geithner, Secretary of the U.S. Treasury

The unemployed, unlike the rich whom this president has just bowed to, are, in fact, the job creators.
Keith Olbermann on MSNBC
Jensen Question
Does this mean that we can create 100 million new jobs by laying off 10 million people? Say what Keith?

Keith Olbermann warned in his Special Comment last night that Obama won’t survive a primary challenge if he persists, because Democrats and progressives are wedded to principles, not personalities.
Hot Air, December 8, 2010 --- http://hotair.com/archives/2010/12/08/olby-obama-wont-get-renominated-if-tax-deal-goes-through/

Preliminary draft of President Obama's long-awaited bipartisan National Commission on Fiscal Responsibility and Reform report

Jensen Comment
A very preliminary draft of President Obama's long-awaited bipartisan National Commission on Fiscal Responsibility and Reform report was released as a Co-Chairs' Proposal on November 10, 2010
Very Brief Summary --- http://pnhp.org/blog/2010/11/10/deficit-commission-co-chairs-proposal/
Huffington Post Slide Show --- http://big.assets.huffingtonpost.com/CoChairDraft.pdf
Full Report --- http://www.fiscalcommission.gov/news/cochairs-proposal

It's probably a time when accounting professors and students should have more scholarly debates on comprehensive tax reform alternatives. Such debates should be civil and as well-informed as possible. Tax reforms could possibly have an enormous impact on the accounting profession in terms of tax services, course content, employment alternatives for graduates, software development, AIS content, and scholarly research reported in accounting and tax journals.


Initial Reactions on the Left ---
"Deficit panel leaders propose curbs on Social Security, major cuts in spending, tax breaks," The Washington Post, November 11, 2010 ---
Initial Reactions on the Right ---
"A Deficit of Nerve," The Wall Street Journal, November 11, 2010 ---

Jensen Opinion
The conservative right always has knee jerking opposition to increased taxes and new taxes of any kind. The liberal media objects to increasing burdens on the middle income class and labor. Nancy Pelosi has already commenced all out war against the deficit commission's preliminary recommendations. Democrats, Republicans, and everybody else agree that the incomprehensible tax system of the United States needs to be drastically reformed but Congress probably will never agree to drastic reforms. Trying for comprehensive tax reforms will be an absolute political dogfight.

Personally, I lean toward eliminating the corporate income tax entirely and replacing the personal income tax code with a flat tax. But in order to keep the flat tax rate relatively low, I support introducing a Value Added Tax (VAT) sales tax that is now common in other parts of the world, especially in Europe. Businesses in the U.S. will fight a VAT tax tooth and nail, and the VAT tax will seriously increase prices of consumer and industrial goods. But serious deficit reductions cannot be financed without pain and sacrifice in all economic sectors These are my personal thoughts and are not all included in the Co-Chair's Report..

More importantly, the VAT tax should be the primary tax that is used to gradually put Social Security, Medicare, Medicaid, and the new "Affordable" Health Care law on a pay-as-you-go basis that no longer will keep piling on to deficits and unfunded entitlements. These are my personal thoughts and are not all included in the Co-Chair's Report..

But the most important thing to do immediately is to extend the retirement age to current average life expectancy averaged across race and gender categories. Persons that elect early retirement should take a heavy hit in benefits and not be eligible for Medicare before reaching the established retirement age.

Of course any increases in taxes will probably slow economic growth. But the insanity of simply printing money (read that buying back Treasury notes by the Fed) and borrowing that increases deficit by well over a trillion each year will eventually destroy the the economy and standard of living of the entire United States ---

From the Left
"Deficit panel leaders propose curbs on Social Security, major cuts in spending, tax breaks," The Washington Post, November 11, 2010 ---

The chairmen of President Obama's bipartisan deficit commission on Wednesday offered an aggressive plan to rebalance the federal budget by curbing increases in Social Security benefits, slashing spending at the Pentagon and other agencies, and wiping out more than $100 billion a year in popular tax breaks for individuals and businesses.

The blueprint drafted by former Clinton White House chief of staff Erskine Bowles and former senator Alan K. Simpson (R-Wyo.) would slice more than $3.8 trillion from deficits over the next decade, reversing a rapid run-up in the national debt that many fear has the country headed for crisis.

To meet that goal, Bowles and Simpson are proposing to slay a herd of sacred cows, including the tax deduction for mortgage interest claimed by many homeowners, the tax-free treatment of employer-provided health insurance and the practice of letting retirees claim Social Security benefits starting at age 62. The blueprint would raise the early retirement age to 64 and the standard retirement age to 69 for today's toddlers.

During a briefing for reporters, Bowles and Simpson stressed that the plan is theirs alone and acknowledged that it is unlikely to win support from a majority of the commission's 18 members, many of whom seemed startled Wednesday by its breadth and scope. Bowles called it "a starting point" as the panel attempts to forge an agreement by Dec. 1.

Obama, speaking Thursday at a news conference in Seoul where he is attending the G-20 conference, cautioned that "before anybody starts shooting down proposals, I think we need to listen, we need to gather up all the facts."

"If people are, in fact, concerned about spending, debt, deficits and the future of our country, then they're going to need to be armed with the information about the kinds of choices that are going to be involved, and we can't just engage in political rhetoric," the president said.

"I set up this commission precisely because I'm prepared to make some tough decisions," Obama said, adding that "I'm going to need Congress to work with me."

Balanced-budget advocates praised the seriousness of the effort, saying it has the potential to reframe the debate over taxes and spending that dominated this month's congressional elections, regardless of how many commission members ultimately support it.

"A White House commission has put out a credible plan to eliminate the deficit and debt. This has changed the rules of the game and, for the first time, things are serious," said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, who hailed the blueprint as "a breakthrough."

"After this," she said, "the debate simply cannot go back to silly games where people pretend that eliminating earmarks will solve the problem."

Still, the reaction was harsh in some quarters, particularly among liberals who have vowed to protect retirees from any reduction in benefits. House Speaker Nancy Pelosi (D-Calif.) called the plan "simply unacceptable."

Speaker-in-waiting John A. Boehner (R-Ohio) declined to comment, saying he would discuss the plan with his three representatives on the panel. But Republican anti-tax activist Grover Norquist was not happy and warned that Republicans who support the proposal would be breaking their pledge not to raise taxes.

Continued in article

Jensen Comment
Many far more hostile reactions are pouring forth to support Pelosi's resistance plan. It's unlikely that a sharply divided House versus Senate over the next two years will accomplish a single recommendation in the deficit commission's preliminary report.  Much depends on reducing the Congressional divide in the 2012 election, and at this point we don't know whether the 2013 Congress will be sipping on tea or vodka.

From the Right
"A Deficit of Nerve," The Wall Street Journal, November 11, 2010 ---

We've been expecting to dislike the report of President Obama's deficit commission, so count us as pleasantly surprised by the draft outline released on Wednesday by its two chairmen. There's plenty to oppose but also something for the next Congress to build on, not least the plea for a more efficient, competitive tax code.

Neither Democrat Erskine Bowles nor Republican Alan Simpson are trusted by their respective parties these days, so the duo seem to have decided to roil everybody. Fair enough. Even if their proposals fail to gain the 14 commission votes out of 18 needed for a consensus judgment by December 1, they've at least shown that restraining the federal Leviathan is possible.

Before we pound the details, it's important to understand why we have had deficits of 10% and 8.9% of GDP for the past two years, with another 10% or so anticipated in fiscal 2011. The most important reason is the burst of spending from the 111th Congress that has taken federal outlays as a share of GDP to 25% in 2009, 23.8% in 2010 and back to an estimated 25% in 2011. This is unheard of in the modern era, when the average has been under 21%.

The second reason is a revenue shortfall due to the recession and feeble economic recovery. Revenues have averaged about 18.5% of GDP in recent decades, but in 2009 and 2010 they were only 14.9% with little improvement expected this fiscal year. The single least painful way to reduce the deficit is to get the economy growing at a healthy pace again, which would cut the deficit by 3.5% of GDP a year without a dime of spending cuts.

This is where the chairmen's draft is both wrong and useful. Its mistake is proposing new taxes—notably on Social Security payroll taxes—that it claims would raise revenues as a share of GDP to no more than 21%. But this is an accountant's-eye view of taxation. The conceit is that Washington can raise taxes and, voila, revenue will follow on demand. But revenue will only follow if the economy grows, and higher taxes will restrain growth to some extent, depending on the timing and incidence of the tax increases.

The chairmen are on better ground arguing for fundamental tax reform that would swap lower rates for fewer loopholes and "tax expenditures." On the latter, the draft is right to put the mortgage interest deduction on the table, as taboo as that is in Washington. If we've learned anything from the last decade, it ought to be that our many housing subsidies have led to a misallocation of capital with few benefits. Canada has no such deduction but a higher rate of home ownership.

Ditto for the employer deduction for health insurance, which costs some $200 billion a year and has also distorted incentives by creating a system of third-party payments. Individuals who bear little responsibility for their health-care expenses have little incentive to reduce costs, much less lead a healthier life-style that would save money over time. Refocusing this tax benefit on the needy while encouraging wealthier consumers to economize would help health markets and the federal budget.

The chairmen also take aim at the corporate tax rate, proposing in one option a reduction to 26%. Everyone to the right of MoveOn.org knows that the 35% corporate tax rate is a disincentive to invest in America and has sent businesses pleading to Congress for this or that loophole. This is the second Obama-appointed outfit to recommend a cut in the corporate tax rate, following Paul Volcker's economic advisory group this year, and it ought to be one basis for bipartisan agreement.

The draft also proposes spending cuts, albeit far too timidly. Its discretionary spending proposals would take outlays down only to 2010 levels, though Republicans have already promised to take them back to 2008. We wonder if this is a bow to Democrats who think that spending at 25% of GDP should be the new normal.

More egregiously, the chairmen tiptoe around ObamaCare, which has led some on the right and left to claim that the commission is essentially endorsing the largest new entitlement in 40 years. We're told the chairmen mostly dodged the subject because Democrats on the commission made that a nonnegotiable demand. A truly bold report would consider Congressman Paul Ryan's model to make Medicare a defined contribution program. Instead, the chairmen settle for the familiar likes of "payment reforms," which never work because of Medicare's flawed political price-control model.

Medicaid also gets a near total pass, probably because ObamaCare is expanding that program more than at any time since its inception in 1965. Worse, the federal Medicaid formula rewards states for spending more. If the commission's goal is to spur debate, it ought to propose making Medicaid an annual block grant that would force state politicians to better manage what is often the biggest expense line in their budgets. The status quo will lead to huge state tax increases over the next two decades.

The chairmen are braver on Social Security, though again not brave enough. They propose to raise the retirement age for receiving full benefits to 68 from 67 by—brace yourself—2050, and 69 by 2075. For context, consider that the average American woman born today will live to be 80.

The draft also suggests a payroll tax increase, in particular on upper-middle-class earners, even as it proposes to cut their benefits to a greater extent than lower earners. Republicans should rule out a tax increase, while accepting that some benefit cuts on the basis of need will be required.

Mr. Obama conceived the deficit commission as a form of political cover for his spending blowout—and to coax Republicans into a tax increase. So it's notable that Democrats and liberals have been more critical of the chairmen's draft than have Republicans. Having put the U.S. in a fiscal hole, Nancy Pelosi's minority wants to oppose all spending cuts or entitlement reform to climb out.

House Republicans should react accordingly, which means taking what they like from the commission report and making it part of their own budget proposals. If Senate Democrats and Mr. Obama want to regain any fiscal credibility, they'll be willing to listen and talk. If not, the voters will certainly have a choice in 2012.

Jensen Comment
Meanwhile the United States will continue to both print more money supported by neither taxes nor borrowing plus continued to borrow over a trillion dollars each year to finance the cash flow deficit differences between what the government takes in in revenue and what the government pays out. At this point voters are simply numb to the difference between a billion dollars and a trillion dollars, but in terms of economic survival the difference is crucial.

"The Sluggish US Employment Picture," by Nobel Laureate Gary Becker, Becker-Posner Blog, December 6, 2010 ---

I have been arguing on this blog and elsewhere that the best approach now is for Congress and the president to concentrate on increasing long-term economic growth (see my post on 11/07 for an agenda for growth). This would require low taxes on investments, encouragement to basic R&D, and sharp reductions in expected government spending, especially on social security retirement income and Medicare and Medicaid. Tax revenue would also have to increase, and this could be accomplished through widening the tax base, such as by eliminating the tax exemption on mortgages, by flattening out income tax rates, and perhaps also by adding a value added tax.

Many in China and elsewhere believe the US economy is too sick to be cured. I do not agree, but recovery would require some unpalatable medicine with regard to spending and taxes, somewhat along the suggested by the recent majority-backed Report of the National Commission on Fiscal Responsibility and Reform. Unless the US takes serious actions to promote its long-term growth, the next decade may be a very difficult one.

Continued in article

December 11 message from Bob Jensen

Hi Zafar,

In all my years in the academy I've never seen a direct Ronald Reagan quote blaming poverty on laziness, although virtually all economists including Karl Marx, admit that many of the unemployed are incapable for one reason or another of holding down jobs. The problem has become more acute with the spread of drug addiction that harms the productivity of many workers. If Reagan really said this it would be a stupid remark since some of our poorest people like hotel chambermaids and taxi drivers are examples on non-laziness.

You fail to look into more credible theories of why we have unemployment and will continue to have unemployment in virtually all the nations of the global economy. One of the best places to begin, in my opinion, is in the writings of Arthur Lewis ---
Even Karl Marx attributed much of the cause of unemployment to overpopulation. Arthur Lewis provides a rather clear theory that the wage rates in industrialized nations will always remain low because of the "unlimited supply" of global subsistence-level labor. Laziness has little to to with the major problem of unemployment. It has more to do with the oversupply of labor coupled in modern times with vastly improved communication and transportation systems. Now when I have a problem with my new computer a Dell technician in India is on the other end of the phone helping me.

World Population Growth
      1  200 million
1000  275 million
1500  450 million
1650  500 million
1750  700 million
1804      1 billion
1850   1.2 billion
1900    1.6 billion
1927       2 billion
1950  2.55 billion
1955    2.8 billion
1960       3 billion
1965     3.3 billion
1970     3.7 billion
1975        4 billion
1980     4.5 billion
1985   4.85 billion
1990      5.3 billion
1995      5.7 billion
1999         6 billion
2006      6.5 billion
2009      6.8 billion
2011         7 billion
2025         8 billion
2050      9.4 billion

In 1954, when Lewis wrote his most famous theory, there were 2.8 billion people back in the wonderful 1950s (when I was literally enjoying every moment of high school). Now we're living in a world of 7 billion where jobs are easily transported to India, Indonesia, Africa, Mexico and all other points south of the Rio Grande.

We will soon have technology capable of assembling automobiles with one worker who turns the factory switch on or off. It's analogous to the evolution of replacing 5,000 1940 telephone switchboard operators in Cleveland with automated switchboards. All this is taking place while the world population more than doubled between 1950 and 1990. There's one highly automated factory in China that now produces over a third of the foot socks sold in the world.

When I was a kid, a farm family in Iowa could make a good living on 80 acres of land. That same family probably cannot make good living on less than 240 acres of land in Iowa and even 240 acres is too small for the farming capacities of modern farming machinery designed to work 2,000 or more acres of land with one or two farmers.

Now we're witnessing the decline of the newspaper and magazine industry due to an explosion of faster and more innovative ways of communicating local and global news.

The problem becomes ever more acute as we keep producing more people faster than jobs for those people. There are a few positive signs such as the fact that the rate of growth in population is slowing even if the growth itself is still upward.

I don't think Reagan ever blamed the bulk of poverty on laziness. If anything poverty is caused by teens and adults who are too ambitious in producing children relative to the finite resources of this planet. Of course there are many ways we can support population growth by better utilizing and preserving the most crucial resources like fish in the sea.

I think Arthur Lewis was correct about the true causes of unemployment and poverty --- the problem is too many of us creating an unlimited supply of labor.

Bob Jensen

Hans Rosling's Video on Population Growth --- http://www.youtube.com/watch?v=fTznEIZRkLg

"Not ready for that 'adult conversation' on debt? Only a few days ago, debt reduction seemed to dominate political debate," by Tom Curry, MSNBC, December5 9, 2010 --- http://www.msnbc.msn.com/id/40573747/ns/politics/

“We have started an adult conversation that will dominate the debate until the elected leadership here in Washington does something real.”

So claimed Erskine Bowles, co-chairman (along with former Sen. Alan Simpson) of President Barack Obama’s commission on federal deficits and debt, last week.

The feeling that Americans and their representatives in Congress were ready for serious “adult” work on reducing deficits and debt lasted about three days, from last Friday’s final fiscal commission meeting to Monday’s announcement by Obama of a $900 billion accord with congressional Republicans to extend tax cuts and embark on a round of new spending.

"I'm deeply disappointed that we have this short-term deal and it's not linked to long-term fiscal restraint," Bowles said Wednesday.

On Thursday morning after he and Simpson met at the White House with Budget Director Jack Lew and Treasury Secretary Tim Geithner, they issued a statement calling on Obama to launch negotiations with congressional leaders from both parties "on the critical next step of establishing a serious fiscal responsibility plan" and to unveil his own deficit cutting proposals in his State of the Union address, building on the ones in last week's Bowles-Simpson report.

Long-term debt problem
The long-term budget prospects remain as stark as they were before Obama announced his deal with the GOP leaders.

According to the Congressional Budget Office, the ten-year budget forecast is for continued budget shortfalls, extraordinarily high national debt (compared to previous decades), and higher interest payments to service that debt — to the point that CBO predicts that by 2016 interest payments will be larger than military spending.

When debt service exceeds military spending, says Harvard historian Niall Ferguson, it has historically been the tipping point where a great empire or nation ceases being great.

Why did the feeling that America was ready for serious debt reduction evaporate so quickly?

One reason may be that members of Congress don’t believe that the United States could suffer a sovereign debt crisis as Greece and Ireland are undergoing.

“I think it’s true that a number of people just don’t buy it, because we still are different than Greece and Ireland,” said Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget.

“They can’t believe that the debt problems could actually come here," she said. "I think a number of other people think, ‘maybe I do buy it but it isn’t worth the sacrifice of actually changing things.’ But I think most people don’t quite buy it — and the worrying thing is that people who buy it the most are the financial people, the people who are managing money.”

Stopping momentum for debt reduction MacGuineas said the tax and spending deal that Obama announced Monday night did seem “surreal” coming as it did on the heels of the Bowles-Simpson plan. “It stops the momentum that we should have started last week with the Bowles-Simpson.

Continued in article

Bob Jensen's threads on entitlements are at

"Yes, ObamaCare Still Worse Than You Thought." by Bruce Bialosky, Townhall, December 13, 2010 ---

If you believe that this is going to happen, then you also believe Nancy Pelosi is the tooth fairy. Medicare reimbursements paid to doctors are scheduled to drop 30% over the next three years. Doctors already complain about low Medicare fees – and how it is just a cost shift to private insurance carriers – but it gets worse. By 2019, Medicare fees are scheduled to drop below Medicaid reimbursements, and by 2050 Medicare payments will fall to 50% of the private sector. At these rates, most doctors will undoubtedly opt out of the system, further limiting the access and quality of medical care for senior citizens. Of course, this is all predicated on the revised reimbursement rates actually getting through Congress – which hasn’t happened in any of the last ten years.

One of the reasons the U.S. Chamber of Commerce opposes repeal is that the bill requires almost all employers to provide health insurance to even out the playing field. That is a mirage. There are penalties for not providing insurance, but they are estimated to be one-sixth of the cost of insurance. Thus, instead of more people having employer-provided insurance, there will certainly be less. The number of employees who will lose their coverage ranges from the Congressional Budget Office (CBO) calculation of 9 million to the estimate of a former CBO Director of 35 million – over 11% of the entire population! More people will be on the government rolls – which is exactly what the Democrats want to happen - as they force-feed us to a single-payer health care system.

Here is one of the truly spiritual revelations of this plan. Subsidies will be provided to uninsured employees by the government (or their employer) based on the employee’s income. But that would be the employee’s “family income,” not his/her wages. This means that the government will require every employee receiving subsidies to provide a copy of their tax return to their employer or insurance exchange to prove the “family income.” Yes, you read it right – this act not only allows the Department of Health and Human Services to look at your tax return, but it requires insurance exchanges and employers as well.

You will now have to attach to your tax return proof that you carry health insurance, or suffer penalties if you don’t. Your return will also indicate the amount of your subsidy, and, if God forbid you have previously been paid too much, the Feds will either seize your refund or send you a bill for the difference. It’s easy to foresee lots of money being lost in that shuffle, and lots of people receiving threatening letters from their favorite government agency – the IRS.

As for the sanctity of marriage, there is none. Because there is already a marriage penalty built into the tax code, you would think that the people who wrote this bill would make sure to avoid the same problem. But no – this plan awards higher subsidies for two single people than one married couple. Yet again the government discourages marriage. Does anyone wonder why 40% of Americans don’t believe in marriage when Washington penalizes it in your taxes and health care?

The treasure trove of insanity that’s contained in this legislation will ultimately appall and disgust the overwhelming majority of Americans. We clearly remember that this bill was only passed with Congressional shenanigans, bribes to wavering Senators, and the pathetic sellout of the Stupak Democrats, all of whom (except one) are now out of office. We all must work to make sure that those 159 (or 183) agencies don’t ever see a single dollar of funding, don’t ever start hiring a staff, and above all, don’t ever get the opportunity to destroy whatever sense of individuality we have left in this country.

Note: 222 companies and unions have opted out of ObamaCare, wouldn’t you like to also?

Continued in article

Bob Jensen's health care messaging updates --- http://www.trinity.edu/rjensen/Health.htm

"The Hawkeye Handouts:  The tax bill is becoming a favor festival, starting with ethanol," The Wall Street Journal, December 13, 2010 ---

The public choice school of economics describes how the government and special interests collude against the public good, and it's hard to think of a better model than the ethanol industry. Despite opposition from an emerging left-right anti-boondoggle coalition, the Senate version of the White House-GOP tax deal preserves the corn fuel's multiple subsidies.

One measure of ethanol's political clout is that reformers merely hoped to cut the tax credit for blending ethanol into gasoline to 36 cents per gallon from the current 45 cents that was due to expire at the end of the year. Instead, the deal keeps the full subsidy in place for another year, at a cost to taxpayers of $4.9 billion, and it retains the 54-cent per gallon tariff on ethanol imports that was also expiring.

Direct subsidies and trade protectionism, plus mandates that force consumers to buy ethanol: This is the trifecta of government support, and all for an industry that is 30 years old and that even Al Gore now admits serves none of its advertised environmental purposes.

The ethanol extension is the bipartisan handiwork of Iowa Senators Chuck Grassley and Tom Harkin, who both regularly abandon their professed principles (fiscal conservatism for the Republican and equity for the Democrat) in the service of agribusiness.

Discredit also goes to the environmental lobby and its running game of bait and switch. The greens have turned on ethanol because of its carbon emissions, but their tax bill support has also been purchased with extensions of such energy subsidies as a Treasury grant program for wind and other renewable projects that were part of the stimulus.

The greater political risk here is for Republicans, who should worry that the tax bill is turning into a special interest spectacle. The bill revives a $1 a gallon biodiesel tax credit at a cost of nearly $2 billion, and there's $202 million for "incentives for alternative fuel," $331 million for a 50% tax credit for maintaining railroad tracks, and so on. These credits are a form of special interest spending via the tax code, which is precisely the business as usual behavior that Republicans told tea party voters they wouldn't engage in.

These business subsidies are grease for Senate votes in favor of the deal, so the only chance to remove them would be the kind of public outcry that attacked the Cornhusker Kickback and other ObamaCare fiascoes. Call these ethanol favors the Hawkeye Handouts.


"Far-Right Republicans Don't Hold the Line on Earmarks Ban," by Jillian Bandes, Townhall, December 11, 2010 ---

Amazing Monetary Policy 1969-1974:  The Secret Diary of Arthur Burns
"Inside the Nixon Administration: The Secret Diary of Arthur Burns," covers five of the most astounding years in monetary history," by Seth Lipsky, The Wall Street Journal, November 30, 2010 ---

In the midst of the current crisis—with the dollar having collapsed to barely more than a 1,400th of the value of an ounce of gold, the United Nations calling for a new world currency and Ben Bernanke becoming a political punching bag for the "quantitative easing" that critics fear will ignite inflation—we now have a book containing the secret diaries of the chairman of the Federal Reserve Board during Richard Nixon's presidency, a time of turmoil in currencies and markets and of policies that haunt our economy to this day.

Arthur Burns, the pipe-puffing ex-Columbia professor who served as Fed chairman under Presidents Nixon, Ford and Carter, turns out to have kept a diary between 1969, shortly before he became the 10th chairman of the Fed, and 1974, when President Nixon resigned. The diary was given by Burns's widow, Helen, to the Gerald Ford Presidential Library and released for publication in 2008. The scoop— "Inside the Nixon Administration: The Secret Diary of Arthur Burns"—is edited by Robert H. Ferrell, a scholar of American history.

The diary covers five of the most astounding years in monetary history. They encompass the collapse of the Bretton Woods system, under which foreign governments could redeem their dollars with our government for gold; the closing of the gold window, ending such convertibility; the imposition of wage-and-price controls, supposedly to stanch inflation; and an import surcharge. They saw the failure of the Smithsonian Agreement, an attempt to stabilize things by devaluing the dollar, and then the beginning of the great inflation, during which the dollar lost much of its value, falling, by early 1980, to less than an 800th of an ounce of gold from the 35th of an ounce it had been set at under Bretton Woods.

Burns's "secret diary" isn't likely to make big headlines in this era of WikiLeaks. Nor is it intended to offer a complete or coherent narrative of these events. But for those with an eye on today's monetary debate, it is a little gem of a volume, offering brief, occasionally trenchant, sometimes galling insights, with lots of waspish comments about various figures within and around the White House. These start with the president himself, who, in the early entries, is treated in warm and respectful terms.

When he is still serving as a presidential counselor, just ahead of his Fed appointment, Burns writes of Nixon: "He clearly likes his job. He wants to be a good president, really a president of all the people. I can hardly recall a single partisan utterance." But by the middle of the book he is writing: "The President's preoccupation with the election frightens me. Is there anything he would not do to further his reelection? I am losing faith in him, and my heart is sick and sad."

On members of the administration Burns can be caustic. Henry Kissinger is "admittedly ignorant of economics." John Connally, who for part of the period is Treasury secretary, is "a thoroughly confused politician." George Shultz, who would follow Connally at Treasury, is described as "a no less confused amateur economist," though he rises in Burns's estimation as the years go on.

Not that Burns comes out much better, even in his own view. At one point he writes, in the diary's clipped prose, that he is "the only one there with any knowledge of the subject, but even I not a real expert on some aspects of the intricate international problem!" So it turned out. He seems throughout his own diary to grasp that inflation is not the way out of America's underperforming economy but to be unable—even as chairman of the Fed—to put his foot down.

At the time there were observers outside the White House—not least Henry Hazlitt, a New York Times editorial writer in the 1940s—who had warned from the beginning that Bretton Woods as a system was inherently inflationary and, not to put too fine a point on it, doomed. "Inside the Nixon Administration" gives the impression that, when it came to monetary policy, Nixon, Shultz, Connally and Burns himself were but corks on the water, carried along by economic forces larger than themselves.

If Burns's diary is a guide, none of these figures thought about money in terms of the Constitution. There is no reference here to the fact that the Founders thought of the dollar as a fixed amount of silver or its free-market equivalent in gold. Nixon and Burns let go of the American currency in a series of small decisions. At one point the chairman of the Federal Reserve writes that he would be for a price freeze—"but only for 30 days."

Burns comes off as relatively conservative figure, but also weak. "My efforts to prevent the closing of the gold window—working with Connally, [Paul] Volcker, and Shultz—do not seem to have succeeded," he writes on Aug. 12, 1971, three days before the event. "The gold window may have to be closed tomorrow because we now have a government that seems incapable, not only of constructive leadership, but of any action at all. What a tragedy for mankind!"

So here were are now in a new crisis, with a different chairman at the Fed, preparing to pump hundreds of billions of dollars into the economy as part of a desperate effort to boost demand and keep the economy from going back into recession. One wonders whether Ben Bernanke is keeping his own "secret diary." Burns's was kept in two spiral notebooks, one of which, this volume tells us, cost 49 cents. Today similar notebooks are listed at Staples.com at $5.49. They are similar, at the moment, to the Federal Reserve's one-dollar bills—worth but slightly more than the paper they're printed on.

I apologize that the tidbit below appears to be political. I do so however, in the spirit of what I consider to be the Number 1 Rule of Our Academy --- Owning Up to Mistakes. It provides an illustration that we might pass along to our students.

It takes a big person to admit advocating something in total error
I had almost zero respect for Nobel Prize winner Al Gore's persistent advocacy of corn ethanol that takes more energy to produce than is gained.
Ethanol purportedly generates twice as much ozone as gasoline in traditional combustion engines and is very expensive to transport.

Members of the Academy all do not admit mistakes, but my respect for teachers/researchers increases when they publically admit to their own errors
Al Gore is not a card carrying member of the Academy, but he just did a very academic thing.
I'm still not in Al Gore's for a number of reasons, but I do like to give credit where credit is due.

"Al Gore's Ethanol Epiphany:  He concedes the industry he promoted serves no useful purpose"  The Wall Street Journal, November 22, 2010 ---

Anyone who opposes ethanol subsidies, as these columns have for decades, comes to appreciate the wisdom of St. Jude. But now that a modern-day patron saint—St. Al of Green—has come out against the fuel made from corn and your tax dollars, maybe this isn't such a lost cause.

Welcome to the college of converts, Mr. Vice President. "It is not a good policy to have these massive subsidies for first-generation ethanol," Al Gore told a gathering of clean energy financiers in Greece this week. The benefits of ethanol are "trivial," he added, but "It's hard once such a program is put in place to deal with the lobbies that keep it going."

No kidding, and Mr. Gore said he knows from experience: "One of the reasons I made that mistake is that I paid particular attention to the farmers in my home state of Tennessee, and I had a certain fondness for the farmers in the state of Iowa because I was about to run for President."

Mr. Gore's mea culpa underscores the degree to which ethanol has become a purely political machine: It serves no purpose other than re-electing incumbents and transferring wealth to farm states and ethanol producers. Nothing proves this better than the coincident trajectories of ethanol and Mr. Gore's career.

Continued in article

Farm lobbies in the United States have succeeded in putting  barriers up to importation of sugar cane ethanol from places like Brazil to protect the interest of corn growing agribusiness.


Jensen Comment
This does not necessarily mean that all ethanol in general is a totally bad idea. Producing sugar cane ethanol seems to have more benefits than cost in Brazil relative to corn ethanol which experts tell us has more cost than benefit. Apparently sugar cane is a better source of ethanol and Brazil has vast amounts of sugar cane and very little oil in production.

Sugar cane not only has a greater concentration of sucrose than corn (by about 30%), but is also much easier to extract. The bagasse generated by the process is not wasted, but is used in power plants as a surprisingly efficient fuel to produce electricity

. . .

One problem with ethanol is that because it is easily miscible with water, it cannot be efficiently shipped through modern pipelines, like liquid hydrocarbons,

Research should proceed full bore ahead to make cheaper and/or better fuels of all types. But even Al Gore admits that the sign our our pumps that reads "10% Ethanol" is all politics and not science.

Why the Middle East Conflict is one of the easiest to describe and the hardest to solve ---

The word "easing" below refers to the easing of credit to banks, in part, by simply printing $600 billion without taxing or borrowing --- what is otherwise known as the Zimbabwe Monetary Policy

"What's Really Behind Bernanke's Easing? My guess is that the Fed chairman knows that we still have too many banks overstuffed with toxic real estate loans and derivatives." by Andy Kessler, The Wall Street Journal, November 19, 2010 ---

Federal Reserve Chairman Ben Bernanke's $600 billion quantitative easing program has been roundly criticized in this country and around the world. So why is he doing it? Does he know something the rest of us don't?

Mr. Bernanke claimed earlier this month in a Washington Post op-ed that "higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending." But, as Mr. Bernanke must know, the Japanese have been trying to influence their stock market for 20 years, with little effect on their economy. It is also unlikely, as some claim, that the Fed chairman is whipping up a stealth stimulus or orchestrating a currency devaluation. He knows these have been tried and are more likely to destroy jobs than create them.

I have a different explanation for the Fed's latest easing program: Without another $600 billion floating through the economy, Mr. Bernanke must believe that real estate (residential and commercial) would quickly drop, endangering banks.

The 2009 quantitative easing lowered mortgage rates and helped home prices rise for a while. But last month housing starts plunged almost 12%. And in September, according to Core-Logic, home prices dropped 2.8% from 2009. Commercial real estate values are driven by job-creation and vacancy rates, both of which are heading the wrong way.

Because of unexpectedly bad construction loans, the staid Wilmington Trust was sold to M&T Bank earlier this month in a rare "takeunder"—what Wall Street calls a deal done below a company's stock value, in this case by 40%.

In other words, real estate is at risk again. But Mr. Bernanke would create a panic if he stated publicly that, if not for his magic dollar dust, real estate would fall off a cliff.

In a normal economic recovery, the stock market rises in anticipation of higher corporate profits. Companies then use their higher stock prices to raise capital and hire workers, who buy homes and remodel kitchens.

Before growth can occur, however, we have to fix what caused a recession in the first place. Often that means drawing down inventory that built up in the last boom, or tightening credit to whip inflation, as then-Fed Chairman Paul Volcker did in 1981. In late 2010, though, we still have banks overstuffed with toxic real estate loans and derivatives. But what about the trillion in bank reserves sitting at the Fed and earning 0.25% interest? Why isn't it being lent out? Perhaps because it's needed to offset unrealized losses on these fouled loans.

Like it or not, banks are still weak, and another panic may be on its way. Bank of America is the best example. As of Sept. 30, its balance sheet claimed a book value (assets minus liabilities) of $230 billion. But the stock market values the company at just $118 billion. Who's right? Usually the stock market is ahead of bad news and write-offs. Citibank is selling at 20% below its book value. The market wasn't gloomy enough on Wilmington Trust—hence the takeunder.

Mr. Bernanke is clearly buying time with our dollars. If real estate drops, we're back to September 2008 in a hurry. On Wednesday, the Fed announced that all 19 banks that underwent stress tests in 2009 need to pass another one. This suggests central bankers are nervous about real-estate loans and derivatives on bank balance sheets. In 2009, even with TARP money injected directly into their balance sheets, banks faced a $75 billion capital shortfall. Mr. Bernanke orchestrated a stock market rally so they could sell equity for much needed capital.

My sense is the stock market is less likely to cooperate this time. Since the QE2 announcement, the Dow is down 254 points and bond yields have backed up, exactly the opposite of what Mr. Bernanke was trying to achieve. If the latest boost doesn't work, we may see real estate seek its true lower value, causing a sell-off of bank stock that requires them to begin paying more for short-term debt.

The Fed may have to act quickly. It can't reprise the 2009 bailouts, which failed when banks wouldn't sell their distressed mortgage-backed securities because they didn't have enough capital to stay solvent. No politician would agree to bailouts anyway. This time, the Fed should do what it didn't do in 2008-09: detoxify and recapitalize the big banks. The Dodd-Frank banking reform provides the authority for the Fed and the Federal Deposit Insurance Corp. (FDIC) to do this.

Think of it as what the FDIC does on Fridays (taking over failed banks), but on a huge scale. First, guarantee deposits so lines don't form at branches, and provide short-term loan guarantees as a backstop to short-term lenders. Then move the toxic debt onto the balance sheets of the FDIC and the Fed, and refloat the banks with fresh capital to open on Monday morning. Also, fire management. And get the banks public again so that the market can properly value them and provide an early warning of bad loan portfolios.

All that's missing is a mechanism to make sure foreclosures continue in a fair and measured way so real estate prices stay accurate. But the freshly capitalized banks, free of nonperforming loans, will help fund an economic recovery. The stock market will fly based on prospects for future corporate profits, rather than on unsustainable Fed goosing.

As commercials for Fram oil filters used to say, "You can pay me now or pay me later." In our case today, "pay me later" is a perpetuation of weak banks, substandard growth, persistent unemployment and stymied productivity. Better to do takeunders of banks now than to hire an undertaker for the whole U.S. economy later.

Mr. Kessler, a former hedge-fund manager, is the author of "Eat People—And Other Unapologetic Rules for Game-Changing Entrepreneurs," due out from Portfolio next February.

Continued in article

"The Farm Belt Boom Land prices are soaring: . Is this another Fed asset bubble?" The Wall Street Journal, December 9, 2010 ---

In the near term, this commodity boom is wonderful news for the rural Midwest. Rising grain and land prices flow through the larger agricultural economy, with farm equipment manufacturers, seed and fertilizer companies and rural financial services all along for the ride. Everyone feels great, no one wants it to end, and analysts offer explanations for why, this time, the price increases are permanent. Chinese demand!

The problem comes if the boom is an artificial, money-fed bubble. The mid-2000s witnessed a similar euphoria over U.S. housing, with the Fed also declaiming that the boom was rooted in a natural growth in demand from immigration and younger families. We know how that turned out.

The Farm Belt has seen its share of booms and busts over the decades, many rooted in the vagaries of monetary policy, as land prices crashed and bankruptcy waves rolled over the land. John Cougar Mellencamp sponsors a "Farm Aid" concert, and taxpayers are hit up for a bailout.

As damaging, overeasy monetary policy and government subsidies (ethanol) distort investment flows and lead to a misallocation of capital. When a money boom chasing this or that asset bubble is followed by bust, hundreds of billions of dollars are lost that could have been invested in more productive purposes—say, biotechnology, telecom or new roads. As we're learning after the housing bust, it can take years to work through the economic wreckage.

We hope Fed Chairman Ben Bernanke is right when he says asset bubbles and price spikes in commodities are nothing to worry about. Of course, he said the same thing about housing and oil in the last decade. We're not predicting an imminent bust, but we do hope someone at the Fed is watching prices grow in farm country.

Continued in article

Social Security Trust Fund --- http://en.wikipedia.org/wiki/Social_Security_Trust_Fund 

Oops! Those so-called "assets" should've been placed on the right hand side of the balance sheet.
Don't put your "trust" in the U.S. Congress
It's a little like taking money from your safety deposit box and writing your self IOUs to someday put your money back in the box
In the case of Social Security trust funds the government owes itself $2.5 trillion
It's time for the Fed to turn the crank on bigger bills in the printing presses --- 600 $1billion dollar bills just won't cut it Ben

"Are The Social Security Trust Funds A Mirage?" by Alex Blumberg and Chana Joffe-Walt, NPR Audio, November 19, 2010 ---

Proposals to fix the deficit are coming fast and furious in Washington these days. One major target: Social Security.

Whether you favor cutting Social Security may depend on how you view the Social Security trust funds, which currently contain $2.5 trillion for retirement benefits. That's $2.5 trillion that, according to some people, don't actually exist.

Here's the back story.

If you look at your paycheck, in the spot where it lists deductions, there's a line that says "FICA." That's the money that gets taken out of your check to pay for Social Security.

For the past 25 years or so, the amount of money the government has raised through those taxes has been greater than what it's been spending to fund Social Security.

The surplus came largely from the baby boomers — and we're going to need that extra money when they retire and start collecting Social Security.

This is where the $2.5 trillion trust funds come in.

The government has invested all that money in Treasury bonds, which are traditionally considered among the safest investments in the world.

But a Treasury bond, remember, is the way the government borrows money. So the government is lending the Social Security surplus to itself. And the obligation to repay those loans is the trust funds.

"They are nothing like any trust fund that any one of us would think of," says Maya MacGuineas of the New America Foundation. "It conjures up an image of really holding savings, and it doesn't do that at all."

But there's another way to think about what the government is doing here.

The federal government owes $2.5 trillion to the Social Security trust funds. And if the government doesn't pay that money, it will default on its debt — something the U.S. has never done in its history.

By the middle of the next decade, the Social Security surplus will turn into yearly deficits as more Baby Boomers retire. And the government will have to come up with hundreds of billions of dollars a year to cover its obligations to the trust fund.

At that point, the debate over whether or not the trust funds exist becomes a moot.

"The policy choices that we have to make good on Social Security obligations are exactly the same with the trust fund or if we'd never had the trust fund," MacGuineas says. "Raise taxes, cut Social Security benefits, cut other government spending, or borrow the money. That's the only way to repay the money."

Smoke and Mirrors
The Sad State of Government Accounting and Accountability

"True To His Word:  Note to critics: Read (or reread) his books. Obama is doing just what he said he would do," by James T. Kloppenberg, Newsweek Magazine, November 17, 2010 ---

Every old-fashioned American amusement park had a fun house with mirrors that exaggerated your features. One mirror lengthened your legs, another widened your middle, a third made your face a wavy mask. If you stood in the right place, you vanished into endless distorting reflections. Nowadays, the political stage has become America’s communal fun house, and nobody looks stranger than Barack Obama.

The president’s critics on the right deride him as a radical socialist seething with anti-American rage. To them, he’s a frightening success who has transformed the federal government, ruined the economy, and undermined national security. To the left, Obama is a tragic failure who squandered his chance for dramatic change: no single-payer health-care plan, no heated battle against Wall Street, and endless war in Afghanistan. If the president is struggling these days, the critics say, it’s perhaps because he’s out of touch with Americans, and even at odds with his own principles.

Yet Obama is doing exactly what he said he would do. Perhaps the critics should read—or reread—the president’s own books. Dreams From My Father (1995) and The Audacity of Hope (2006) are the most substantial works written by anyone elected president since Woodrow Wilson (who wrote several books before he won election in 1912). In laying out his philosophy, Obama contrasts the GOP’s excessive individualism with the ideal of “ordered liberty” and the rich traditions of civic engagement typical of America in the 18th and 19th centuries. He also criticizes orthodox Democrats for too quickly dismissing market solutions and too often defending failed government programs. Above all, he criticizes the hyperpartisan atmosphere of contemporary public life.

Almost everything you need to know about Obama is there on the printed page. In contrast to the charges coming now from right and left, Obama is neither a rigid ideologue nor a spineless wimp. The Obama who wrote Dreams and Audacity stands in a long tradition of American reform, wary of absolutes and universals, and committed to a Christian tradition that prizes humility and social service over dogmatic statements of unbending principle. A child of the philosophical pragmatists William James and John Dewey, Obama distrusts pat formulas and prefers experimentation.

Throughout his career, Obama has refused to demonize his opponents. Instead, he has sought them out and listened to them. He has tried to understand how they think and why they see the world as they do. His mother encouraged this sense of empathy, and it’s a lesson Obama learned well. Since January 2009, Obama has watched his efforts at reconciliation, experimentation, and -consensus--building bounce off the hard surfaces of political self-interest and entrenched partisanship, but there is no reason to think he will abandon that strategy now. He knows that disagreement is a vital part of the American fabric, and that our differences are neither shallow nor trivial.

Although Obama’s reform agenda echoes aspects of those advanced by many Democrats over the last century, he has admitted—and this is the decisive point in understanding his outlook—that his opponents hold principles rooted as deeply in American history as his own. “I am obligated to try to see the world through George Bush’s eyes, no matter how much I may disagree with him,” he wrote in Audacity. “That’s what empathy does—it calls us all to task, the conservative and the liberal … We are all shaken out of our complacency.” Obama rejects dogma, embraces uncertainty, and dismisses the fables that often pass for history among partisans on both sides who need heroes and villains, and who resist more-nuanced understandings of the past and the present.

The shrill tone of Obama’s critics makes reading his books especially illuminating today. In Audacity, Obama explained why, because of our national traditions, the United States would never have a single-payer health-care system and would have to find a distinctively American hybrid relying on existing insurance plans. That’s what we have now. He explained why, although he favors regulation to protect against abuses, he rules out socialism and remains firmly committed to a market economy. His financial reforms follow that pattern. Finally, he explained why, although he opposed the war in Iraq, he supported war in Afghanistan for -different—and legitimate—reasons. Now that he must bring that war to a conclusion, he has made clear that the decision will be based on evidence, not blind adherence to a predetermined course of action.

After almost two years as president, Obama has failed to satisfy the left for the same reason that he has antagonized the right. He does not share their self-righteous certainty. Neither his personal restraint nor the achievements of his administration should surprise anyone who has read his books. In the domains of health care and economic regulation, and in his approach to Afghanistan, Obama has followed his script: substantial but incremental reforms growing organically from American experience rather than hewing to party orthodoxy. In November 2010, President Obama remains the man who wrote Dreams and Audacity, a resolute champion of moderation, experimentation, and deliberative, nondogmatic democracy. It’s just that the distorting mirrors of political commentary in America’s fun house can make it hard to recognize him.

Kloppenberg is the Charles Warren Professor of American history at Harvard University and author of Reading Obama: Dreams, Hope, and the American Political Tradition.

"End the Ethanol Subsidies ," by Paul Driessen, Townhall, November 18, 2010 ---

What am I missing? There must be some aspect of our insane energy policies that I fail to appreciate.

“We the People” just booted a boatload of spendthrifts out of Congress, after they helped engineer a $1.3 trillion deficit on America’s FY-2010 budget and balloon our cumulative national debt to $13.7 trillion.

The “bipartisan White House deficit reduction panel” chimed in with a 50-page draft proposal, offering suggestions for $3.8 trillion in future budgetary savings. The proposal targets $100 billion in Defense Department weapons programs, healthcare benefits and overseas bases. It also proposes a $13-billion cutback in the federal workforce and lining out $400 million in unnecessary printing costs. And yet, amazingly, not even this independent commission was willing to eliminate the $6-billion sacred cow of annual ethanol subsidies. The current 45-cents-per-gallon tax credit for blending ethanol into gasoline automatically expires December 31, as does the 54-cents-a-gallon tariff on imported ethanol. So all senators and congressmen need to do is nothing, and beleaguered taxpayers will save six billion bucks.

We can only hope. Unfortunately, renewable fuel lobbyists will try to use the lame duck session to perpetuate the special treatment. The National Corn Growers Association, Renewable Fuels Association, Growth Energy, ADM and POET ethanol count as friends incoming House Speaker John Boehner, incoming House Ways and Means Committee Chairman Dave Camp, Senate Majority Leader Mitch McConnell, Senate Finance Committee Ranking Member Chuck Grassley, other influential Republicans and scores of prominent Democrats.

Perhaps if DePuy or Sofamor Danek donates some spinal implants, enough wavering legislators will find the backbone to challenge the subsidizers and ensure a little adult supervision over the budget process. If this election was about anything, it was about ending business as usual, ensuring energy and economic common sense, and not bankrupting the United States. Ethanol and earmarks represent a key litmus test for Republicans and fiscal conservatives. Failure to hold the line will create a rocky road for credibility and progress next year. It should be an easy decision. It’s time for action – or more accurately, inaction.

Federal laws already require that gasoline be 10% ethanol, and EPA has announced that it will now allow up to 15% ethanol blends for cars and trucks built since 2007. These mandates already require that ethanol use increase from 13 billion gallons today to 36 billion by 2022, ensuring profitable markets for corn growers and ethanol producers, without subsidies. Even large corn ethanol producers like Green Plains Energy now say the subsidies are no longer needed.

The subsidies and tariffs only fatten profit margins, reduce competition, increase consumer prices, cause frayed relations with Brazil over barriers to its sugar-cane ethanol entering US markets, and stifle technological innovation that could improve production efficiencies and lessen environmental impacts. As Examiner columnist Timothy Carney observes, “the tax credit won't boost ethanol consumption at all in the future, because the mandate will set demand. So the tax credit will simply subsidize the ethanol that blenders – ie, oil companies – would have bought anyway.”

The corn/ethanol lobby says ending the subsidies would cost up to 160,000 jobs. However, a recent study by leading agricultural economists at Iowa State University concludes that only 300 jobs would be lost. If so, preserving the subsidies works out to $20 million for each job saved. Meanwhile, says Louisiana State University professor Joseph Mason, the Interior Department’s heavy-handed offshore drilling moratorium could cost up to 155,000 Gulf Coast jobs. That’s on top of countless billions of lease bonus, rent, royalty and tax dollars the US Treasury will never see, because Interior, EPA, Congress and the White House have made billions of barrels of offshore, Alaskan and Lower 48 oil and gas off limits.

America could produce 670 billion gallons of oil (including 480 billion gallons of gasoline and diesel) from a splinter of ANWR equal to 1/20 of Washington, DC. Doing so would generate enormous revenues, instead of requiring perpetual subsidies. By contrast, reaching the 36-billion-gallon biofuel mandate would require 15 billion gallons of corn-based ethanol from cropland and wildlife habitat the size of Georgia, and 21 billion gallons of advanced biofuel from switchgrass grown on additional acreage the size of South Carolina.

Opposition to extending the tax credit and tariffs also comes from a growing coalition of meat and food producers, environmental groups and consumer organizations. They emphasize that corn ethanol production increases corn prices, reduces farmland available for other crops, and drives up the price of beef, pork, poultry, eggs, corn syrup and all groceries made with those products. It means fewer malnourished people can be fed under current USAID and World Food Organization budgets. The coalition also points out that growing and processing corn into ethanol requires enormous amounts of water for every gallon of alcohol fuel produced. (Cornell University agriculture professor David Pimental estimates the inputs at 8,000 gallons of water per gallon of corn-based ethanol.) Much of the water comes from already stressed aquifers – and growing the crops results in significant pesticide, herbicide and fertilizer runoff into our rivers, lakes, bays and oceans.

Producing ethanol from sugar cane carries much lower water demands and environmental impacts. Pro-subsidy factions say $6 billion is pocket change in a $3.6-trillion federal budget. It may indeed be a small step. But all the caterwauling suggests it is a giant step for Congress – and a hugely symbolic one that can no longer be avoided. Moreover, if reductions like this are to be rejected as too trivial to trifle with, how do Nanny State legislators justify their intrusive rules on toilets, washing machines, plastic bags and light bulbs? How do they suppose cash-strapped families balance their budgets? The ethanol mandates are enough interference in what should be a highly competitive marketplace of ideas and technologies for America’s energy future. Congress should not muddy the waters even further, by extending the subsidies and protective tariffs.

(While they’re at it, the lawmakers should also pull the plug on chicken-fat-to-biofuel subsidies. This tax credit is just another unaffordable, feel-good “green energy” boondoggle – that turns waste fat into wasted tax dollars. Reducing effluent streams, garnering positive PR, and selling their “alternative fuel” to oil companies and the Air Force, under utopian biofuel mandates, ought to be adequate incentive.) It should be an easy decision. It merely takes commitment to principles – something our legislators better start discovering, if they want to be around after the next election cycle.

"The 'Build America' Debt Bomb The state and city fiscal mess is getting worse, yet the Obama administration wants Congress to make new taxpayer-subsidized bonds permanent," by Steven Malanga, The Wall Street Journal, November 22, 2010 ---

In a Rasmussen poll taken before the midterm election, half of the respondents said that members of Congress who supported the 2009 federal stimulus didn't deserve to be re-elected. Many weren't. Yet the lame-duck Congress might extend one of the key elements of that stimulus: "Build America Bonds" (BABs). States and municipalities have used these bonds to rack up some $160 billion in new debt over the last 19 months.

Build America Bonds were created to re-energize the municipal bond market, which contracted sharply in late 2008. Investors had become wary that the credit crunch would spread to municipals, as insurers who back state and local bonds got hurt in other markets and stopped insuring public debt. Facing declining tax revenue and growing deficits, some local governments suddenly couldn't borrow.

The Obama administration responded with a new kind of taxable bond that offered a 35% federal subsidy on the interest rate. Washington designed the subsidy to appeal to investors such as pension funds and overseas buyers who don't buy traditional municipal bonds because they can't take advantage of their tax-free status. The federal subsidy allowed states and cities to offer these investors an attractive return. The catch: Congress authorized the program only through 2010, to allay concerns that BABs would become a permanent bailout.

States and cities jumped deeply into this new market. California alone has issued some $21 billion in BABs, mostly as a substitute for its general obligation debt to support everything from school construction to sewer projects. New Jersey has used up to $500 million to recapitalize its depleted transportation trust fund. Columbus, Ohio, issued $131 million in BABs to start construction of a downtown convention hotel. And in Dallas, Texas, when no private operator would finance a new convention hotel, the city went ahead with a government-subsidized hotel, courtesy of $388 million in BABs.

Now dozens of governments and other municipal issuers (like New York's Metropolitan Transportation Authority and the University of California) have hired lobbyists to push Congress to extend BABs beyond this year. And in its 2011 budget, the Obama administration proposed making Build America Bonds permanent, with an interest-rate subsidy of 28%.

But the BAB program hasn't been the unqualified success its advocates claim. While the original municipal bond crisis in late 2008 was attributed to the meltdown of other credit markets, it has since become clear that investors retreated from municipal debt as much because of the poor fiscal practices of many local governments. BABs have only contributed to the problem, increasing state and local debt even when the market has signaled that it considered some municipal borrowers overextended.

One sure signal has been the sharp rise in the cost for investors to insure against default. In June, the price of a contract protecting an investor from a default by Illinois on its bonds rose to a record high of $309,100 on $10 million of debt over five years, according to CMA Datavision. The national average for states is $190,000 per $10 million in debt. At that point, Illinois surpassed California as the worst credit risk among U.S. states.

A more telling signal was that, based on the cost of insurance contracts, CMA Datavision listed both states in June among the 10 biggest government default risks in the world. Illinois was at greater risk of default than Iraq. Yet thanks to the BAB subsidy, Illinois was still able to borrow some $300 million in bonds by offering a 7.1% interest rate.

Meanwhile, investors are realizing that states and localities face long-term costs in addition to their muni debt, especially retirement obligations. Joshua Rauh of Northwestern University and Robert Novy-Marx of the University of Rochester assess the 50 states' unfunded pension bill at $3 trillion, and they say that the municipal tab for pensions could reach $500 billion. That is on top of some $2.8 trillion in outstanding state and local borrowing, according to the Federal Reserve.

The Securities and Exchange Commission drew an explicit link between pension liabilities and municipal debt in August, when it charged New Jersey with fraud in its municipal bond offerings. The SEC cited the state for not revealing the true extent of its pension woes in its bond offerings—a clear indication the agency thinks growing pension debt may impede the ability of some states to meet other obligations.

The governments that have made the most use of BABs have been those with the greatest fiscal problems. The biggest issuer of BABs, California, has relied on an unprecedented number of gimmicks to balance its books in the last two years—such as temporarily increasing tax withholding rates and issuing IOUs to vendors.

New Jersey used a big chunk of its BAB funding to relieve the burden from past budget tricks. Over the years its legislature has diverted gas-tax money from its transportation trust fund, which is supposedly dedicated to public works, to paper over previous general account budget deficits. Now the state is borrowing with BABs to restock the trust fund, though servicing the interest on those bonds will haunt future budgets.

The Obama administration believes the BABs' direct federal subsidy is a more efficient way to raise money than traditional tax-free municipals. But when money that would otherwise go to private business flows into subsidized government activities, resources are misallocated.

This is no idle speculation: The financial press is full of stories of investment managers recommending BABs over corporate bonds with similar ratings, thanks to the advantage of federal subsidy. There is also a future bailout risk, given that the federal government might not allow a state or local government to default on a Build America Bond. None of this is what voters signed up for on Nov. 2.

Mr. Malanga is a senior fellow at the Manhattan Institute and the author of the recently published "Shakedown: The Continuing Conspiracy Against the American Taxpayer" (Ivan R. Dee).

Nancy Pelosi --- http://en.wikipedia.org/wiki/Nancy_Pelosi

"Truth in Advertising The case for Nancy Pelosi," The Wall Street Journal, November 23, 2010 ---

Meet the new boss, same as the old boss. While we were on vacation, as Politico reported, the House Democrats chose their new leaders. In the 112th Congress, Speaker Nancy Pelosi will become minority leader, Majority Leader Steny Hoyer will become minority whip, and Majority Whip James Clyburn will become assistant minority leader, a newly created position that keeps him at No. 3 in the Democratic hierarchy. In an effort to appeal to the youth vote, Rep. John Larson will stay on as Democratic Caucus chairman, the No. 4 position.

Other than the Washington Post's E.J. Dionne and the Service Employees International Union, hardly anyone is happy with Pelosi's decision to stay on. As TalkingPointsMemo.com reports, 43 Democrats voted for Rep. Heath Shuler of North Carolina, her only challenger for the spot.

The New York Times editorial board is displeased: "If Ms. Pelosi had been a more persuasive communicator, she could have batted away the ludicrous caricature of her painted by Republicans across the country as some kind of fur-hatted commissar jamming her diktats down the public's throat." So is the Times's Nate Silver, who notes understatedly that "Ms. Pelosi is not very popular with the American public."

Fox News reported before the vote that some House Democrats were circulating an anti-Pelosi letter:

In the draft of the letter, the members say that they were "victimized by a national wave of resentment toward Democrats, a wave that ensnared you along with us."

The letter goes on to say "Madam Speaker, fairly or unfairly, Republicans made you the face of the resentment and disagreement in our races. While we commend your years of service to our party and your leadership through many tough times, we respectfully ask that you step aside as the top Democrat in the House."

Rep. Eric Cantor--now the minority whip, next year the majority leader--agreed. The Hill quoted him as saying before the leadership votes: "This is the woman who really, I think, puts ideology first, and there have been no results for the American people. And that seems the direction they want to take again. It just doesn't make sense."

Actually, it makes perfect sense. Who better to lead the Democratic minority than the woman who created it?

Or, to put it as a non-rhetorical question, who would be the alternative? Shuler who challenged Pelosi, did so with "no plans to win," according to The Wall Street Journal:

He told a gaggle of reporters and television cameras outside the Democrats' contentious caucus meeting Tuesday that he's not really working for votes. Asked if he has a shot to oust Ms. Pelosi, the always-blunt North Carolina Democrat said, "No."

But he's running to make a point--specifically, that House Democrats need a new face for their caucus. "It's not really about winning," he said earlier this week. "It's about standing up for what you believe in."

"Standing up for what you believe in" pretty much rules out Steny Hoyer, the No. 2 Democrat, who presumably would have been next in line if Pelosi had followed the example of her predecessor, Dennis Hastert, and bowed out of the leadership. Hoyer is known primarily for a scurrilous August 2009 USA Today op-ed that demonized ObamaCare opponents as "un-American." His co-author: Nancy Pelosi.

Months later, Hoyer apologized, which is undoubtedly to his credit. Pelosi has yet to apologize. One assumes she, not he, was the instigator of this McCarthyite smear. But his having gone along with it hardly marks him as any kind of leader.

Pelosi might have led the Democrats off a cliff, but at least she led them. And actually, it would have been illogical for the Democratic minority in the 112th Congress to pick a "centrist" leader, for the party's caucus will be far less centrist than in the 111th Congress.

Look at the membership list of the Blue Dog Coalition, the moderate group for which Shuler serves as whip. Of the 54 members of the coalition, only 25 or 26 won re-election (one race is still undecided, with the Democrat leading). Twenty-two lost, and another six retired, all replaced by Republicans. The Blue Dog Coalition, that is, shrank by more than half.

By contrast, of the 78 House members of the Congressional Progressive Caucus, only three--Alan Grayson of Florida, John Hall of New York and Phil Hare of Illinois--lost their bids for re-election this month. (One, Carolyn Kirkpatrick of Michigan, was defeated in a primary.)

The reason is simple: Most far-left Democrats, including Pelosi, come from heavily Democratic districts. When competitive districts elect Democrats, by contrast, they tend to choose more-moderate ones. In this year's election, the Democrats held their liberal base but lost the center and the right, leaving their caucus considerably smaller and much more left-wing.

In 2006, Rahm Emanuel, as chairman of the Democratic Congressional Campaign Committee, recruited lots of those moderates, who helped the party take the majority for the first time in a dozen years. The result of electing Democratic moderates, however, was to give Speaker Pelosi the votes she needed to jam her diktats, most notably ObamaCare, down the public's throat, in the New York Times's memorable phrase.

As speaker, Nancy Pelosi was a menace to society. As minority leader in the majoritarian House, she has little power--and she serves as a reminder to centrist voters of the dangers of electing moderate Democrats. She's not an attractive face for her party, but one would be hard-pressed to think of a more honest one.

May she serve as minority leader for many years to come.

Heckuva Job, Holder
We're guessing Khalid Sheikh Mohammad won't be coming to Manhattan anytime soon. "Failure is not an option," Attorney General Eric Holder once blustered about his plan to treat terrorists as civilian criminals, but last week's verdict in the Ahmed Ghailani trial--the defendant, a former Guantanamo detainee, was acquitted on 284 of 285 counts in the 1998 embassy bombings--proves that failure is a possibility.

ABC News's Jake Tapper quotes an unidentified "senior administration official"--Holder himself, perhaps?--who notes that the single conviction carries a sentence of at least 20 years and observes with Holderian insouciance: "Would it have been better optically if he had been convicted of more counts? Sure. Would it have made any practical difference? No."

This would be more persuasive if Tapper's source did not feel the necessity to hide behind anonymity. And of course the outcome does make a practical difference. Everyone noticed that Ghailani was one count away from total acquittal, which would have left the Obama administration having to either hold an acquitted man as an enemy combatant--which is perfectly legitimate but would not have been so good "optically"--or turning a terrorist loose.

Obama administration critics have taken the Ghailani verdict as vindication of the Bush administration's system of military commission trials. But a pair of op-eds, one by John Yoo and one by Benjamin Wittes and Jack Goldsmith, reflect what may be an emerging consensus that, as Yoo puts it: "The Obama administration should drop the idea of trials altogether and simply continue to detain al Qaeda members until the war is over":

The customary laws of war have long recognized the right to hold enemy combatants until the end of hostilities. As Justice Sandra Day O'Connor wrote for the Supreme Court in the 2004 Hamdi case: "The purpose of detention is to prevent captured individuals from returning to the field of battle and taking up arms once again." Punishment is not the goal of military detention. So the U.S. should keep Guantanamo Bay open and postpone any trials until it has won the war.

The Wittes-Goldsmith piece makes substantially the same argument. Yoo and Goldsmith both served in the Justice Department's Office of Legal Counsel during the Bush administration. But whereas Yoo is a demon figure of the anti-antiterror left, Goldsmith emerged as a critic of that administration's terrorism policies, albeit a careful and thoughtful one. Wittes is affiliated with the liberal Brookings Institution, so the agreement of these three men reflects a broad consensus among responsible legal experts on terror policy.

Continued in article

"There's No Escaping Hauser's Law Tax revenues as a share of GDP have averaged just under 19%, whether tax rates are cut or raised. Better to cut rates and get 19% of a larger pie," by Kurt Hauser, The Wall Street Journal, November 26, 2010 ---

Even amoebas learn by trial and error, but some economists and politicians do not. The Obama administration's budget projections claim that raising taxes on the top 2% of taxpayers, those individuals earning more than $200,000 and couples earning $250,000 or more, will increase revenues to the U.S. Treasury. The empirical evidence suggests otherwise. None of the personal income tax or capital gains tax increases enacted in the post-World War II period has raised the projected tax revenues.

Over the past six decades, tax revenues as a percentage of GDP have averaged just under 19% regardless of the top marginal personal income tax rate. The top marginal rate has been as high as 92% (1952-53) and as low as 28% (1988-90). This observation was first reported in an op-ed I wrote for this newspaper in March 1993. A wit later dubbed this "Hauser's Law."

Over this period there have been more than 30 major changes in the tax code including personal income tax rates, corporate tax rates, capital gains taxes, dividend taxes, investment tax credits, depreciation schedules, Social Security taxes, and the number of tax brackets among others. Yet during this period, federal government tax collections as a share of GDP have moved within a narrow band of just under 19% of GDP.

Why? Higher taxes discourage the "animal spirits" of entrepreneurship. When tax rates are raised, taxpayers are encouraged to shift, hide and underreport income. Taxpayers divert their effort from pro-growth productive investments to seeking tax shelters, tax havens and tax exempt investments. This behavior tends to dampen economic growth and job creation. Lower taxes increase the incentives to work, produce, save and invest, thereby encouraging capital formation and jobs. Taxpayers have less incentive to shelter and shift income.

On average, GDP has grown at a faster pace in the several quarters after taxes are lowered than the several quarters before the tax reductions. In the six quarters prior to the May 2003 Bush tax cuts, GDP grew at an average annual quarterly rate of 1.8%. In the six quarters following the tax cuts, GDP grew at an average annual quarterly rate of 3.8%. Yet taxes as a share of GDP have remained within a relatively narrow range as a percent of GDP in the entire post-World War II period.

This is explained once the relationship between taxes and GDP growth is understood. Under a tax increase, the denominator, GDP, will rise less than forecast, while the numerator, tax revenues, will advance less than anticipated. Therefore the quotient, the percentage of GDP collected in taxes, will remain the same. Nineteen percent of a larger GDP is preferable to 19% of a smaller GDP.

The target of the Obama tax hike is the top 2% of taxpayers, but the burden of the tax is likely to fall on the remaining 98%. The top 2% of income earners do not live in a vacuum. Our economy and society are interwoven. Employees and employers, providers and users, consumers and savers and investors are all interdependent. The wealthy have the highest propensity to save and invest. The wealthy also run the lion's share of small businesses. Most small business owners pay taxes at the personal income tax rate. Small businesses have created two-thirds of all new jobs during the past four decades and virtually all of the net new jobs from the early 1980s through the end of 2007, the beginning of the past recession.

In other words, the Obama tax increases are targeted at those who are largely responsible for capital formation. Capital formation is the life blood for job creation. As jobs are created, more people pay income, Social Security and Medicare taxes. As the economy grows, corporate income tax receipts grow. Rising corporate profits provide an underpinning to the stock market, so capital gain and dividend tax collections increase. A pro-growth, low marginal personal tax rate stimulates capital formation and GDP, which triggers a higher level of tax receipts for the other sources of government revenue.

It is generally accepted that if one taxes something, one gets less of it and if something is subsidized one gets more of it. The Obama administration is also proposing an increase in taxes on capital itself in the form of higher capital gains and dividend taxes.

The historical record is clear on this as well. In 1987 the capital gains tax rate was raised to 28% from 20%. Capital gains realizations as a percent of GDP fell to 3% in 1987 from about 8% of GDP in 1986 and continued to fall to below 2% over the next several years. Conversely, the capital gains tax rate was cut in 1997, to 20% from 28% and, at the time, the forecasts were for lower revenues over the ensuing two years.

In fact, tax revenues were about $84 billion above forecast and above the level collected at the higher and earlier rate. Similarly, the capital gains tax rate was cut in 2003 to 15% from 20%. The lower rate produced a higher level of revenue than in 2002 and twice the forecasted revenue in 2005.

The Obama administration and members of Congress should study the record on how the economy reacts to changes in the tax code. The president's economic team has launched a three-pronged attack on capital: They are attacking the income group that is the most responsible for capital formation and jobs in the private sector, and then attacking the investment returns on capital formation in the form of dividends and capital gains. The out-year projections on revenues from these tax increases will prove to be phantom.

Mr. Hauser is chairman emeritus of the Hoover Institution at Stanford University and chairman of Wentworth, Hauser & Violich, a San Francisco investment management firm. He is the author of "Taxation and Economic Performance" (Hoover Press, 1996).


Watch the Video of President Obama
"President Obama and Republicans Reach Deal on Tax Cuts," by Paul Caron, Tax Prof Blog, December 7, 2010 ---

Whew! My unemployed son (with four kids) in California will now be able to continue his unemployment benefits. My unemployed son-in-law in Wisconsin will be able to continue his unemployment benefits.

And I personally will benefit from the income tax cuts. And Erika is scheduled for another spine surgery in Boston in February. Her previous six (6/12) surgeries and months of therapies did not cost us a penny thanks to Medicare and its Supplements. I'm married to a Million Dollar Medicare Woman ---

All we have to do is pass the payment obligations along to our unborn great grandchildren.
What I deal we're getting now. Of course there's nothing new in this way of paying with deficit spending.

The compromise discussed by Paul Caron is not quite a done deal in Congress.

Bob Jensen's threads on entitlements ---

"The 25 Best Quotes About Liberals," by John Hawkins, Townhall, November 23, 2010 ---




Bob Jensen's universal health care messaging --- http://www.trinity.edu/rjensen/Health.htm

Return to the Tidbits Archives ---


Shielding Against Validity Challenges in Plato's Cave ---

·     With a Rejoinder from the 2010 Senior Editor of The Accounting Review (TAR), Steven J. Kachelmeier

·     With Replies in Appendix 4 to Professor Kachemeier by Professors Jagdish Gangolly and Paul Williams

·     With Added Conjectures in Appendix 1 as to Why the Profession of Accountancy Ignores TAR

·     With Suggestions in Appendix 2 for Incorporating Accounting Research into Undergraduate Accounting Courses

Shielding Against Validity Challenges in Plato's Cave  --- http://www.trinity.edu/rjensen/TheoryTAR.htm
By Bob Jensen

What went wrong in accounting/accountics research?  ---

The Sad State of Accountancy Doctoral Programs That Do Not Appeal to Most Accountants ---


Bob Jensen's threads on accounting theory ---

Tom Lehrer on Mathematical Models and Statistics ---

Systemic problems of accountancy (especially the vegetable nutrition paradox) that probably will never be solved ---

Bob Jensen's economic crisis messaging http://www.trinity.edu/rjensen/2008Bailout.htm

Bob Jensen's threads --- http://www.trinity.edu/rjensen/threads.htm

Bob Jensen's Home Page --- http://www.trinity.edu/rjensen/