Tidbits Quotations
To Accompany the January 10, 2013 edition of Tidbits
Bob Jensen at Trinity University

My Free Speech Political Quotations and Commentaries Directory and Log ---

It's a future in which older people receive Social Security checks but still go hungry, in which Medicare is a paper entitlement because doctors and hospitals can't be found to provide services for what Medicare is willing to pay. If we weren't still in a New Year's mood, we'd say the latter future is the more likely one.
Holman W. Jenkins Jr., "Robots to the Rescue? The flip side of an entitlements crisis is a labor shortage," The Wall Street Journal, January 8. 2013 ---
http://professional.wsj.com/article/SB10001424127887324391104578228080036152410.html?mod=djemEditorialPage_t&mg=reno64-wsj .

World Giving Index of 2012 --- https://www.cafonline.org/PDF/WorldGivingIndex2012WEB.pdf
The U.S. is at Rank 5
Thank you Paul Caron for the heads up.

The Gift That Keeps on Giving
NY Health Clinic Video Features Santa Passing Out Syringes, Condoms: A health clinic located in the Bronx released this holiday promotional video featuring Santa Claus handing out drug paraphernalia and condoms ---

Read more: http://www.1045wfla.com/cc-common/mainheadlines3.html?feed=425022&article=10651697#ixzz2FhKIGUdk

Best 2012 Performing Currencies Against the U.S. Dollar ---
world's top performing currencies against the dollar
Not a good time for Polish jokes

"The 10 Dumbest Things on Wall Street in 2012," by Greg Greenberg, The Street, December 28, 2012 ---

Worst Congress in History Porks Up Fiscal Cliff Legislation
Bills that had no chance on their own ended up as pork amendments to the fiscal cliff bill
"From NASCAR to rum, the 10 weirdest parts of the ‘fiscal cliff’ bill," by Brad Plumer, Wonk Blog, January 2, 2012 --- Click Here

"Dishonest Educators," by Walter E. Williams, Townhall, January 9, 2013 --- Click Here

Nearly two years ago, U.S. News & World Report came out with a story titled "Educators Implicated in Atlanta Cheating Scandal." It reported that "for 10 years, hundreds of Atlanta public school teachers and principals changed answers on state tests in one of the largest cheating scandals in U.S. history." More than three-quarters of the 56 Atlanta schools investigated had cheated on the National Assessment of Educational Progress test, sometimes called the national report card. Cheating orders came from school administrators and included brazen acts such as teachers reading answers aloud during the test and erasing incorrect answers. One teacher told a colleague, "I had to give your kids, or your students, the answers because they're dumb as hell." Atlanta's not alone. There have been investigations, reports and charges of teacher-assisted cheating in other cities, such as Philadelphia, Houston, New York, Detroit, Baltimore, Los Angeles and Washington.

Recently, The Atlanta Journal-Constitution's blog carried a story titled "A new cheating scandal: Aspiring teachers hiring ringers." According to the story, for at least 15 years, teachers in Arkansas, Mississippi and Tennessee paid Clarence Mumford, who's now under indictment, between $1,500 and $3,000 to send someone else to take their Praxis exam, which is used for K-12 teacher certification in 40 states. Sandra Stotsky, an education professor at the University of Arkansas, said, "(Praxis I) is an easy test for anyone who has completed high school but has nothing to do with college-level ability or scores." She added, "The test is far too undemanding for a prospective teacher. ... The fact that these people hired somebody to take an easy test of their skills suggests that these prospective teachers were probably so academically weak it is questionable whether they would have been suitable teachers."

Here's a practice Praxis I math question: Which of the following is equal to a quarter-million -- 40,000, 250,000, 2,500,000, 1/4,000,000 or 4/1,000,000? The test taker is asked to click on the correct answer. A practice writing skills question is to identify the error in the following sentence: "The club members agreed that each would contribute ten days of voluntary work annually each year at the local hospital." The test taker is supposed to point out that "annually each year" is redundant.

CNN broke this cheating story last July, but the story hasn't gotten much national press since then. In an article for NewsBusters, titled "Months-Old, Three-State Teacher Certification Test Cheating Scandal Gets Major AP Story -- on a Slow News Weekend" (11/25/12), Tom Blumer quotes speculation by the blog "educationrealist": "I will be extremely surprised if it does not turn out that most if not all of the teachers who bought themselves a test grade are black. (I am also betting that the actual testers are white, but am not as certain. It just seems that if black people were taking the test and guaranteeing passage, the fees would be higher.)"

There's some basis in fact for the speculation that it's mostly black teachers buying grades, and that includes former Steelers wide receiver Cedrick Wilson, who's been indicted for fraud. According to a study titled "Differences in Passing Rates on Praxis I Tests by Race/Ethnicity Group" (March 2011), the percentages of blacks who passed the Praxis I reading, writing and mathematics tests on their first try were 41, 44 and 37, respectively. For white test takers, the respective percentages were 82, 80 and 78.

Continued in article

Jensen Commentary
It should be noted that the author of this article is an African American economics professor at George Mason University.. He's also conservative. This makes him an endangered species in academe.

"Why Students Gripe About Grades," by Cathy Davidson, Inside Higher Ed, January 7, 2013 --- 

The biggest scandal in education is nearly universal grade inflation ---

Bob Jensen's Fraud Updates ---

"Why Reported Inflation Seems Different Than Reality," by Tyler Durden, Zero Hedge, December 20, 2012 ---


The subject of inflation has remained an emotionally charged topic of debate over the last several years.  As rising prices for individuals, and businesses, has negatively impacted their prosperity; reported inflation has remained at very low levels.  With the Fed pumping trillions of dollars into financial system the fear of much higher inflation, as the dollar is debased, has caused gold prices to soar in recent years.  As we will discuss momentarily, the issues surrounding government spending, and the massive deficit, has brought the topic of inflation to the forefront of the political debate.

However, a bit of history is needed for context.  The government produces a measure of inflation called the consumer price index (CPI) which is generally broken down into two reports:  Headline and Core.  The only difference between the two measures is that the core reading strips out the volatile food and energy components.  It is this core reading that economists, and the Fed, focus on much to the aggravation of average consumers who quickly point to the fact the food and energy are big part of their daily lives.

The sole purpose in measuring inflation is to help businesses, individuals and government adjust their financial planning for the impact of inflation.  Inflation erodes future purchasing power, and decreases economic prosperity, if not accurately accounted for.  The accuracy of measuring inflation, and accounting for it properly, is essential to long term economic prosperity.   

The original calculation of CPI, which measured the change in the cost of an identical fixed basket of goods priced at prevailing market costs each period, worked reasonably well for the intended purpose into the early-1980’s.  However, as the pressure of increasing deficits weighed on political parties, the need to find solutions to reducing spending, without actually cutting spending, led to several substantial changes in the calculation of inflation. 

Shortly after Clinton entered the White House the Bureau of Labor Statistics (BLS) altered the calculation of inflation by changing the weighting of goods in the CPI fixed basket.  Then, over subsequent years, the method of weighting the underlying components was changed from a straight arithmetic weighting method to geometric.  The primary result of the switch to a geometric weighting was a lower weighting to CPI components that were rising in price, and a higher weighting to those items dropping in price which led to lower reported inflation.  

According to John Williams


“…the net effect was to reduce reported CPI on an annual, or year-over-year basis, by 2.7% from what it would have been based on the traditional weighting methodology. The results have been dramatic. The compounding effect since the early-1990s has reduced annual cost of living adjustments in social security by more than a third.”

But the manipulation of the data did not stop there.  Aside from the weighting changes the BLS instituted a system of “hedonic” adjustments.  Hedonics adjusts the prices of goods for the increased pleasure the consumer derives from them.


“That new washing machine you bought did not cost you 20% more than it would have cost you last year, because you got an offsetting 20% increase in the pleasure you derive from pushing its new electronic control buttons instead of turning that old noisy dial, according to the BLS.


When gasoline rises 10 cents per gallon because of a federally mandated gasoline additive, the increased gasoline cost does not contribute to inflation. Instead, the 10 cents is eliminated from the CPI because of the offsetting hedonic thrills the consumer gets from breathing cleaner air. The same principle applies to federally mandated safety features in automobiles. I have not attempted to quantify the effects of questionable quality adjustments to the CPI, but they are substantial.”

Lastly, there is "intervention analysis" in the seasonal adjustment process.  Intervention analysis is critical to the highly volatile areas of food and energy.  When a commodity, like gasoline, goes through periods of violent price swings the BLS steps in and uses “intervention analysis” to smooth out the volatility.  As a result, sharply rising gasoline prices are never fully reflected in the reported headline inflation number.  However, declining prices, which are never adjusted, do show an impact to reducing inflation.

The obvious problem with these manipulations is it changed the measure of inflation from a cost-of-living adjustment to a reduction-of-living adjustment.  The original CPI calculation allowed individuals to understand the rate of return required on investments and incomes to maintain their current standard of living.  However, by artificially suppressing the rate of inflation, the future standard of living is reduced to lower levels. 

Continued in article

Bob Jensen's threads on how governmental accounting is done with smoke and mirrors ---

"The End of Economists' Imperialism'," by Justin Fox, Harvard Business Review Blog, January 4, 2013 --- Click Here

"By almost any market test, economics is the premier social science," Stanford University economist Edward Lazear wrote just over a decade ago. "The field attracts the most students, enjoys the attention of policy-makers and journalists, and gains notice, both positive and negative, from other scientists."

Lazear went on to describe how economists, with the University of Chicago's Gary Becker leading the way, had been running roughshod over the other social sciences — using economic tools to study crime, the family, accounting, corporate management, and countless other not strictly economic topics. "Economic imperialism" was the name he gave to this phenomenon (and to his article, which was published in the February 2000 issue of the Quarterly Journal of Economics). And in his view it was a benevolent reign. "The power of economics lies in its rigor," he wrote. "Economics is scientific; it follows the scientific method of stating a formal refutable theory, testing theory, and revising the theory based on the evidence. Economics succeeds where other social scientists fail because economists are willing to abstract."

Triumphalism like that calls for a comeuppance, of course. So, as the nation's (and a lot of the world's) economists gather this weekend in San Diego for their annual hoedown, it's worth asking: Are there any signs that the imperialist era of economics might finally be coming to an end?

Lazear acknowledged one such indicator in his article — the invasion of economics by psychological teachings about cognitive bias. Two years later, in 2002, the co-leader of that invasion, Princeton psychology professor Daniel Kahneman, won an economics Nobel (the other co-leader, Amos Tversky, had died in 1996). But while behavioral economics has since solidified its status as an important part of the discipline, it hasn't come close to conquering it. On the really big questions — how to run the economy, for example — the mainstream view described by Lazear has continued to dominate. Economists have also continued their imperialist habit of delving into other fields: 2005's Freakonomics, co-authored by Becker disciple Steven Levitt, was a prime example of this — and sold millions of copies. As for Lazear, he got himself appointed chairman of President George W. Bush's Council of Economic Advisers in 2006.

And then, well, things didn't go so well. The financial crisis and subsequent economic downturn — which Lazear somewhat infamously downplayed while in office — have put a big dent in the credibility of the macro side of the discipline. The issue isn't that economists have nothing interesting to say about the crisis. It's that they have so many different things to say about it. As MIT financial economist Andrew Lo found after reading 11 accounts of the crisis by academic economists (along with nine by journalists, plus former Treasury Secretary Hank Paulson's personal account), there is massive disagreement not just on why the crisis happened but on what actually happened. "Many of us like to think of financial economics as a science," Lo wrote, "but complex events like the financial crisis suggest that this conceit may be more wishful thinking than reality."

Part of the issue is that Lazear's description of the scientific way in which economics supposedly works (state a theory, test it, revise) doesn't really apply in the case of a once-in-a-lifetime financial crisis. I tend to think it doesn't apply for macroeconomics in general. As economist Paul Samuelson is said to have said, "We have but one sample of history." Meaning that you can never get truly scientific answers out of GDP or unemployment numbers.

That's why Lord Robert Skidelsky recommended a couple of years ago that while microeconomists could be allowed to proceed along pretty much the same statistical and mathematical path they'd been following, graduate education in macroeconomics needed to be dramatically revamped and supplemented with instruction in ethics, philosophy, and politics.

I'm not aware of this actually happening in any top economics PhD program (let me know if I'm wrong), despite the efforts of George Soros's Institute for New Economic Thinking and others. What I've noticed instead, though, is an increasing confidence and boldness among those who study economic issues through the lens of other academic disciplines.

A couple of years ago I spent a weekend with a bunch of business historians and came away impressed mainly by how embattled most of them felt. Lately, though, I've found myself talking to and reading a little of the work of sociologists and political scientists, and coming away impressed with how adept they are in quantitative methods, how knowledgeable they are about economics, and how willing they are to challenge economic orthodoxy. The two main writings I'm thinking about were unpublished drafts that will be coming out later in HBR and from the HBR Press, so I don't have links — but I get the sense that there are a lot of good examples out there, and that after years of looking mainly to mainstream economics journals I should be broadening my scope. (Two recommendations I've gotten from Harvard government professor Dan Carpenter: Capitalizing on Crisis: The Political Origins of the Rise of Finance, by Sociologist Greta Krippner, and The New Global Rulers: The Privatization of Regulation in the World Economy, by political scientists Tim Büthe and Walter Mattli.)

Even anthropology, that most downtrodden of the social sciences, has been encroaching on economists' turf. When a top executive at the world's largest asset manager (Peter Fisher of BlackRock) lists Debt: The First 5,000 Years by anthropologist (and Occupy Wall Streeter) David Graeber as one of his top reads of 2012, you know something's going on.

Continued in article

Jensen Comment
Harvard's Justin Fox was an Plenary Speaker at the 2011 American Accounting Association Annual Meetings.
Those readers who have access to the AAA Commons may view his video at

Forwarded by Jim Martin

An interesting controversy in economics sounds familiar.

According to Ronald Coase, it is time to reengage the severely impoverished
field of economics with the economy. He is a 101 year old Nobel Laureate in
economics and professor emeritus at the University of Chicago Law School. He
and Ning Wang of Arizona State University are launching a new journal,
Man and the Economy.

Coase, R. and N. Wang. 2012. Saving economics from the economists.
Business Review (December 2012): 36.

January 6, 2012 reply from Bob Jensen

An economist once said that he hated the physical scientists because they stole all the easy research problems.

In a sense this is so true in one context. The earth does not change its rotation speed and path just because that speed and path are discovered by research. But people and social cohorts often change just because their behaviors are discovered by researcers.

Physical systems like gravity do not change with understanding of their behavior. Social and economic systems change with discovery. For example, economic and computer networking systems that work great in theory and initially become corrupted as smart folks learn how to exploit the systems.

Hence in social science we must not only discover behavior but discover behavior that changes because we discover that behavior and discover behavior that changes because we discover the changes in behavior and so on and so on.

Except for quantum physics it must be nice to be a physical scientist doing research on stationary systems. One reason mathematics of the physical sciences fails us when extended to economics and the social sciences in general is that these sciences entail nonstationary systems. Equilibrium conditions are seldom are reached. This, for example, is why Malthus was correct for an eye blink in astronomical time.

Bob Jensen

"Urging Economists to Step Away From the Blackboard," by Brendan Greeley, Bloomberg Business Week, November 29, 2012 ---

Ronald Coase published his career-making paper, “The Nature of the Firm,” 75 years ago. He won the Nobel prize for economics in 1991. In a lecture in 2002, he argued that physics has moved beyond the assumptions of Isaac Newton, and biology beyond Darwin. (Not that he knew them.) But economics, he said, had failed to advance past the efficient-market assumptions of Adam Smith. This year Coase, a professor emeritus at the University of Chicago Law School, is attempting to start a new academic journal ambitiously titled Man and the Economy. The premise: Economics is broken. Coase’s journal is still just a plan, but his frustration with orthodox economics has energized his followers.

The financial crisis forced economists to confront the limitations of their profession. Former Federal Reserve Chairman Alan Greenspan admitted as much when he told Congress in October 2008 that markets might not regulate themselves after all. Coase says the problem runs deeper: Economists study abstractions and numbers, instead of firms and people. He doesn’t believe this can be fixed by tweaking models. An entire generation of economists must be encouraged to think differently.

The idea for the journal stems from his collaboration with Ning Wang, an assistant professor at the School of Politics and Global Studies at Arizona State University who grew up in a rice- and fish-farming village in the Hubei province of China. Coase, 101, began working with Wang in the 1990s at the University of Chicago. Neither has a degree in economics; the two understood each other. “We’re not constrained by a mainstream, orthodox view,” says Wang. “A lot of people would see this as a weakness.” Coase declined to be interviewed.

When Coase and Wang hosted a conference on China in 2008, they noticed that many Chinese academics had never talked to either policymakers or entrepreneurs from their own country. They had learned only what Coase calls “blackboard economics,” sets of theories and mathematical relationships between bits of data. “I came from China,” says Wang. “We have a lot of nationals come here; they’re taught game theory and econometrics. Then they’re going home … without a basic understanding of how the real world functions.”

In an essay published on Nov. 20 in Harvard Business Review, Coase argues that in the early 20th century, economists began to focus on relationships among statistical measures, rather than problems that firms have with production or people have with decisions. Economists began writing for each other, instead of for other disciplines or for the business community. “It is suicidal for the field to slide into a hard science of choice,” Coase writes in HBR, “ignoring the influences of society, history, culture, and politics on the working of the economy.” (By “choice,” he means ever more complex versions of price and demand curves.) Most economists, he argues, work with measures like gross domestic product and the unemployment rate that are too removed from how businesses actually work.

The solution for Coase and Wang is a journal that presents case studies, historical comparisons, and qualitative data—not just numbers but ideas, too. In top economics journals, says Wang, “people think as long as you have a big data set, that’s enough. You can do all kinds of modeling and regression, and it looks scientific enough.” Julie Nelson, chairwoman of the economics department at the University of Massachusetts Boston says economists want the kind of immutable laws that physicists operate under. But Adam Smith’s 1776 idea that people are driven by self-interest is not the same as the law of gravity. “Ask an economist if they’d like to be thought of as a sociologist,” she says, “and they’ll look at you with terror in their eyes.”

Christopher Sims, a professor at Princeton University who won the Nobel prize last year for his work in macroeconomics, recognizes the problem. “We’re always abstracting and hoping that the resulting abstractions capture enough of the truth so that we know what’s going on,” he says. The kind of work that Coase and Wang are interested in, he says, is “not fashionable now. It’s hard to make it a science.” Where Coase and Wang see too little demand for new ideas, Sims sees too little supply. Both he and Nelson, who studies how economics is taught, describe a process at graduate schools that selects for economists inclined to focus on abstract modeling.

Continued in article

Bob Jensen's threads on accounting theory are at

Forwarded by Jim Martin

An interesting controversy in economics sounds familiar.

According to Ronald Coase, it is time to reengage the severely impoverished
field of economics with the economy. He is a 101 year old Nobel Laureate in
economics and professor emeritus at the University of Chicago Law School. He
and Ning Wang of Arizona State University are launching a new journal,
Man and the Economy.

Coase, R. and N. Wang. 2012. Saving economics from the economists.
Business Review (December 2012): 36.

January 6, 2012 reply from Bob Jensen

An economist once said that he hated the physical scientists because they stole all the easy research problems.

In a sense this is so true in one context. The earth does not change its rotation speed and path just because that speed and path are discovered by research. But people and social cohorts often change just because their behaviors are discovered by researcers.

Physical systems like gravity do not change with understanding of their behavior. Social and economic systems change with discovery. For example, economic and computer networking systems that work great in theory and initially become corrupted as smart folks learn how to exploit the systems.

Hence in social science we must not only discover behavior but discover behavior that changes because we discover that behavior and discover behavior that changes because we discover the changes in behavior and so on and so on.

Except for quantum physics it must be nice to be a physical scientist doing research on stationary systems. One reason mathematics of the physical sciences fails us when extended to economics and the social sciences in general is that these sciences entail nonstationary systems. Equilibrium conditions are seldom are reached. This, for example, is why Malthus was correct for an eye blink in astronomical time.

Bob Jensen

"Urging Economists to Step Away From the Blackboard," by Brendan Greeley, Bloomberg Business Week, November 29, 2012 ---

Ronald Coase published his career-making paper, “The Nature of the Firm,” 75 years ago. He won the Nobel prize for economics in 1991. In a lecture in 2002, he argued that physics has moved beyond the assumptions of Isaac Newton, and biology beyond Darwin. (Not that he knew them.) But economics, he said, had failed to advance past the efficient-market assumptions of Adam Smith. This year Coase, a professor emeritus at the University of Chicago Law School, is attempting to start a new academic journal ambitiously titled Man and the Economy. The premise: Economics is broken. Coase’s journal is still just a plan, but his frustration with orthodox economics has energized his followers.

The financial crisis forced economists to confront the limitations of their profession. Former Federal Reserve Chairman Alan Greenspan admitted as much when he told Congress in October 2008 that markets might not regulate themselves after all. Coase says the problem runs deeper: Economists study abstractions and numbers, instead of firms and people. He doesn’t believe this can be fixed by tweaking models. An entire generation of economists must be encouraged to think differently.

The idea for the journal stems from his collaboration with Ning Wang, an assistant professor at the School of Politics and Global Studies at Arizona State University who grew up in a rice- and fish-farming village in the Hubei province of China. Coase, 101, began working with Wang in the 1990s at the University of Chicago. Neither has a degree in economics; the two understood each other. “We’re not constrained by a mainstream, orthodox view,” says Wang. “A lot of people would see this as a weakness.” Coase declined to be interviewed.

When Coase and Wang hosted a conference on China in 2008, they noticed that many Chinese academics had never talked to either policymakers or entrepreneurs from their own country. They had learned only what Coase calls “blackboard economics,” sets of theories and mathematical relationships between bits of data. “I came from China,” says Wang. “We have a lot of nationals come here; they’re taught game theory and econometrics. Then they’re going home … without a basic understanding of how the real world functions.”

In an essay published on Nov. 20 in Harvard Business Review, Coase argues that in the early 20th century, economists began to focus on relationships among statistical measures, rather than problems that firms have with production or people have with decisions. Economists began writing for each other, instead of for other disciplines or for the business community. “It is suicidal for the field to slide into a hard science of choice,” Coase writes in HBR, “ignoring the influences of society, history, culture, and politics on the working of the economy.” (By “choice,” he means ever more complex versions of price and demand curves.) Most economists, he argues, work with measures like gross domestic product and the unemployment rate that are too removed from how businesses actually work.

The solution for Coase and Wang is a journal that presents case studies, historical comparisons, and qualitative data—not just numbers but ideas, too. In top economics journals, says Wang, “people think as long as you have a big data set, that’s enough. You can do all kinds of modeling and regression, and it looks scientific enough.” Julie Nelson, chairwoman of the economics department at the University of Massachusetts Boston says economists want the kind of immutable laws that physicists operate under. But Adam Smith’s 1776 idea that people are driven by self-interest is not the same as the law of gravity. “Ask an economist if they’d like to be thought of as a sociologist,” she says, “and they’ll look at you with terror in their eyes.”

Christopher Sims, a professor at Princeton University who won the Nobel prize last year for his work in macroeconomics, recognizes the problem. “We’re always abstracting and hoping that the resulting abstractions capture enough of the truth so that we know what’s going on,” he says. The kind of work that Coase and Wang are interested in, he says, is “not fashionable now. It’s hard to make it a science.” Where Coase and Wang see too little demand for new ideas, Sims sees too little supply. Both he and Nelson, who studies how economics is taught, describe a process at graduate schools that selects for economists inclined to focus on abstract modeling.

Continued in article

"Two (KPMG) Auditors Charged Over Bank Failure," by Michael Rapoport, The Wall Street Journal, January 9, 2013 --- Click Here

The Securities and Exchange Commission charged two KPMG LLP employees with failing to uncover problems at a Nebraska bank that later failed, marking the first time the agency has taken action against auditors related to the financial crisis.

The two KPMG auditors, John J. Aesoph and Darren M. Bennett, didn't do enough to scrutinize bad-loan reserves at TierOne Bank of Lincoln, Neb., the SEC said in an administrative proceeding filed Wednesday. The action could result in the two auditors losing their right to audit public companies.

TierOne hid millions of dollars in losses on troubled loans made during the height of the financial crisis before the bank eventually failed in 2010, according to the commission, which filed suit against three TierOne executives last year.

The SEC case against the auditors, more than four years after the crisis, revives lingering questions about whether auditors did enough to prevent questionable practices and whether authorities have done enough to hold them to account.

While auditors weren't involved in financial institutions' bad lending and risk-management decisions that helped prompt the crisis, all of the Big Four accounting firms had major clients which collapsed or required huge government bailouts, without any warning from the auditors.

"I think it is about time [the SEC] took action against the gatekeepers," said John Coffee, a Columbia University securities-law professor. The SEC has been "somewhat egregious and far less than aggressive" in taking action against auditors, attorneys and other outside professionals who may have abetted the conduct that led to the crisis, he said.

"This is an area where there ought to be a lot more cases," added Barbara Roper, director of investor protection for the Consumer Federation of America. "It does suggest a pretty significant problem with the auditors, and with audits of financial institutions a lot bigger and more central to the financial system than this bank in Nebraska."

An SEC spokesman, said "the criticisms are misinformed and belied by our unmatched record of achievement in financial crisis cases." KPMG, which wasn't charged in the TierOne case, said in a statement that its auditors "look forward to presenting the facts in support of the work that was performed under the circumstances at TierOne." Attorneys for Mr. Aesoph and Mr. Bennett couldn't be reached for comment.

Other authorities have filed only a handful of crisis-related cases against auditors. The New York attorney's general office has sued Ernst & Young LLP, alleging the firm turned a blind eye to accounting fraud at its client Lehman Brothers Holdings Inc. before Lehman collapsed. Last fall, the Federal Deposit Insurance Corp. sued PricewaterhouseCoopers LLP and Crowe Horwath LLP, alleging they failed to prevent a fraud scheme that led to the failure of Alabama's Colonial Bank. The accounting firms have denied any wrongdoing in those cases.

In the TierOne case, the SEC alleges that Mr. Aesoph, a KPMG partner, and Mr. Bennett, a senior manager, ignored red flags and relied on outdated appraisals of the collateral backing TierOne's loans when their 2008 audit gave the bank a clean bill of health. In fact, according to the SEC, the bank had expanded into riskier types of lending in Las Vegas, Arizona and Florida, and its top executives misled investors and regulators about the losses TierOne was experiencing.

Continued in article

Bob Jensen's threads on KPMG litigations ---

Bob Jensen's Fraud Updates ---



On December 31, 2012 I received the final print edition of Newsweek Magazine
There are many reasons for the demise of Newsweek in hard copy after nearly 80 years in news stands, dentist offices, and home mail boxes.. The main cause of Newsweek's demise  is probably competition from the electronic news media combined with printing and distribution costs of hard copy. Having Tina Brown as Editor over the past two years contributed to the plummeting subscriptions and news stand sales. Since she will continue as Editor of the Electronic edition, I will probably not seek Newsweek's electronic edition very often. It remains to be seen whether there are enough subscribers for the the pay wall for Tina Brown's highly biased electronic editions to succeed. This pay wall combined with severe cost cuttings are showing some signs of success for the ailing New York Times, but Newsweek Magazine cannot be compared with the value-added to the world by the New York Times.

It's likely that the billionaire and very liberal/progressive owner of Newsweek will continue to carry Tina Brown's electronic issues even if they're money losers for him. An Oral History of Newsweek Magazine ---

The most expensive and profitable electronic news alternatives is The Wall Street Journal.
My now-deceased fraternity brother and long-time Editorial Page Editor Bob Bartley once told me that the WSJ is really two newspapers bundled into one with the WSJ editorials being conservative (although on occasion OpEds are published from very liberal authors) and the WSJ mainline articles being written by some of the most professional reporters in the world.

For example, while my friend Bob Bartley was praising felon Mike Milken to the heavens on the WSJ Editorial Page his reporters were bringing Hell fire down of Mike Milken on the front page of the WSJ ---

Trivia Question
Who was the WSJ reporter that was the first writer to trigger the demise of Enron?

Jeff Skilling hated the WSJ and this muckraking WSJ reporter in particular.

Scroll down to Question 22 in my Enron Quiz at

"Turning a Page: Newsweek Ends Print Run Newsweekly's Move Online Leaves Time Magazine Without Longtime Print Rival," by Robert Daniel and Keach Hagey, The Wall Street Journal, December 28, 2012 ---

Newsweek magazine ended almost 80 years in print with its issue dated Dec. 31 as it transitions to an online-only format, a move that makes it the most widely-read magazine yet to give up on the print media.

On the cover of the magazine, which was released Monday, is a shot of what was its Manhattan office building, with a Twitter hashtag, #lastprintissue, across the front in red.

The magazine had said in October that it would go all digital, and is now part of the news and commentary site The Daily Beast. Tina Brown, who was editor of the magazine, is also the editor of the Daily Beast, which is controlled by IAC/Interactive Corp.

Newsweek's switch is a signpost of how traditional print news outlets are being battered by an exodus of readers and advertisers to the Web.

Since 2005, Newsweek's circulation has dropped by about half to 1.5 million and advertising pages plunged more than 80%, while the magazine's annual losses had lately reached roughly $40 million.

Subscriptions to the new all-digital publication, called Newsweek Global, cost $4.99 for a single copy—the same price as the magazine—or $24.99 for an annual subscription.

Newsweek will have the help of the free Daily Beast as a promotional platform. The Daily Beast's traffic has grown 36% in the past year to five million unique visitors per month, according to comScore, a market-research firm. [image] Newsweek/Zuma Press

Newsweek's first cover displayed photos of Adolf Hitler, Franklin Roosevelt and Joseph Stalin.

Under Ms. Brown, a former editor of the New Yorker and Vanity Fair, Newsweek became known for provocative covers, such as a famous one imagining what Princess Diana would look like at age 50. In an October interview, Ms. Brown insisted that, in the digital form, "the cover will play the same role it has as a wonderful marketplace of ideas."

Founded in 1933 by a former Time foreign editor, Thomas J.C. Martyn, Newsweek was ever-present on the coffee tables of many American homes for decades, keeping people abreast of everything from the Vietnam War to movie reviews.

The first issue of Newsweek was dated Feb. 17, 1933, and cost a dime. A subscription cost $4 a year, according to that cover.

In 1961, Newsweek was bought by Washington Post Co. WPO +0.92% But decades on, the Internet accelerated a downward spiral.

Two years ago Washington Post Co. sold the magazine for $1 to Sidney Harman, an audio-equipment tycoon who later merged the magazine with IAC's Daily Beast.

Mr. Harman died last year. In June Mr. Harman's family pulled its financial support from the venture, leaving IAC to continue funding it as the majority owner.

Newsweek's move online ends a longtime print rivalry with Time Magazine, the leader in the newsweekly space, with a circulation of 3.3 million, according to the Alliance for Audited Media, formerly known as the Audit Bureau of Circulations.

Experience of other online-only publications is mixed. US News & World Report, originally a newsweekly, went online-only in 2008, and is profitable with 180 staff members, according to editor Brian Kelly. Partly thanks to its popular college rankings, its website draws about 5.9 million unique visitors a month, according to comScore.

Online publications requiring a paid subscription have struggled. The Daily, News Corp NWSA +3.66% .'s iPad-only publication, ceased publishing on Dec. 15, ending an unprofitable experiment in digital publishing.

News Corp. also owns Dow Jones, the publisher of The Wall Street Journal.

"The Stealth Tax Hike Why the new $450,000 income threshold is a political fiction," The Wall Street Journal, January 4, 2013 ---

Anyone still need a reason to abandon "grand bargains" and deals negotiated between this President and GOP Congressional leaders? Here it is: The revival of two dormant provisions of the tax code means the much ballyhooed $450,000 income threshold for the highest tax rate is largely fake.

The two provisions are the infamous PEP and Pease, which aficionados of stealth tax increases will recognize immediately as relics of the 1990 tax increase. Those measures, which limit deductions and exemptions for higher-income taxpayers, expired in 2010. The Obama tax bill revived them this week. It isn't going to be pretty.

Under the new law, some of the steepest tax increases may fall on upper-middle class earners with incomes just above $250,000. Here's why:

During the negotiations, the White House won a concession from Republicans to allow phaseouts for personal exemptions and limitations on itemized deductions, starting at an income of $250,000 for individuals and $300,000 for joint filers.

The Senate Finance Committee informs us that in effect the loss of the personal exemptions, currently $3,800 per family member, can mean a 4.4 percentage point rise in the marginal tax rate for a married couple with two kids and incomes above $250,000. A family with four kids in that income range faces about a six percentage point marginal rate hike. The restored limitations on itemized deductions can raise the tax rate by another one percentage point.

High-income Americans with incomes of more than $1 million may lose up to 80% of their itemized deductions for home mortgage payments, health care, state and local taxes—and charities. Cue the local symphony's development office.

Add it together and families in the 33% tax bracket could see their effective marginal rate paid on each additional dollar earned rise to above 38%.

A store manager married to a dentist with a combined income of, say, $350,000 may pay a higher tax rate under the new law than if the tax code had simply reverted back to the Clinton-era rates that Mr. Obama championed. Those earning more than $450,000 would see their de facto tax rate rise to about 41% under the new law, not 39.6%. Add in the new ObamaCare investment taxes and the tax rate on interest income is close to 45%.

How did this happen? Recall that early in the fiscal-cliff negotiations House Speaker John Boehner offered to cap itemized deductions to raise $800 billion, in lieu of raising tax rates, if the President would agree to spending cuts. The White House rejected that.

Mr. Obama then insisted on reviving PEP and Pease, thereby recapturing much of the income he claimed to be "compromising" away by agreeing to a higher income threshold for the top bracket. But instead of using phaseouts to offset higher rates as Mitt Romney proposed, Mr. Obama insisted on raising tax rates too.

Democrats are advertising the higher $400,000-$450,000 threshold as a victory for affluent taxpayers in blue states. But with PEP and Pease these Democrats are hammering their own constituents via the backdoor.

Taxpayers in blue states claim roughly twice as much in itemized deductions as those in red states. Income tax rates are steeper in California and New York than Texas and Utah. Chuck Schumer just put a tax bull's-eye on upper-income Manhattanites, and Barbara Boxer whacked Silicon Valley. Some $150 billion, about one-quarter of all the money raised by this tax bill, will come from this stealth tax hike.

Mr. Obama purports this is merely "a return to the Clinton-era tax rates." But capital-gains rates will be about three to five percentage points higher than in the 1990s, the Medicare tax is higher, and his stealth tax will raise personal rates higher than advertised. Forget the golden Clinton memories. Mr. Obama is pushing the U.S. back to the Carter era.

The city uses bankruptcy to stiff bondholders but preserve pensions.
"Stockton Tries a Chrysler," The Wall Street Journal, December 30, 2012 ---

The municipal bankruptcy unfolding in Stockton, California is giving investors a bad case of deja vu. Just as the Obama Administration bailed out the United Auto Workers in Chrysler's bankruptcy while hanging bondholders out to dry, the city of Stockton is subordinating its bond debt to worker pensions. But what's really scary is that the Stockton case could be replayed in dozens of California cities.

The San Joaquin Valley's second largest city filed for Chapter 9 bankruptcy this summer after a three-month mediation with creditors and unions ended in stalemate. Bond insurers that guarantee about $200 million in debt wouldn't submit to a haircut unless the rich pensions that helped drive the city to bankruptcy were also clipped. Yet unions wouldn't countenance an even modest reduction to their pensions.

Over the last two decades the city sweetened benefits and pay such that the average firefighter's total compensation is more than three times the city's median household income. Public safety officers can retire at age 50 with pensions equal to 90% of their highest salary, and until this year free lifetime health benefits. These benefits weren't sustainable even in good times. In 2007 the city had to borrow $127 million to pay a delinquent pension bill.

The city issued these pension obligation bonds which temporarily juiced city coffers and served as an arbitrage tool for city politicians who wanted to get in on the booming stock market. Stockton officials bet they could save money by borrowing at a rate 200 basis points below the 7.75% yield that the California Public Employees' Retirement System promised and invest the bond proceeds in the pension fund. But Calpers's actual returns have fallen short of the city's borrowing costs, so Stockton's total debt has increased.

Unions claim it's unfair to trim pensions since the city intends to terminate retiree health benefits. But few comparable California cities (and even fewer companies) provide retirees with medical benefits, and most pensioners will be eligible for Medicare or federal subsidies on the new state health exchange. When companies can't pay their bills, they usually freeze or terminate their pension plans and restructure benefits as part of bankruptcy.

Instead Stockton is seeking to use bankruptcy to wipe out $197.5 million in principal and interest on the pension obligation bonds it issued in 2007. But not so fast. Bond insurer Assured Guaranty has challenged the city's attempt to "transfer the cost of lucrative, above-market employee wages and benefits, granted when tax revenues were flush, to capital market creditors by haircutting bond principal." In none of the 43 municipal bankruptcy filings over the last three decades has principal been slashed.

Assured Guaranty fears that other cities will follow Stockton's bad example. The Bay Area suburb of Vallejo set that precedent four years ago when the union-influenced Calpers threatened litigation if the city attempted to modify pensions in bankruptcy. Calpers insisted that pensions were protected by the state constitution's contracts clause, though the very purpose of bankruptcy is to break and rewrite contracts.

Concern that insolvent cities might strategically declare bankruptcy to cancel their bond debts is finally getting noticed by investors, even by the famously late credit-rating agencies. "The recent uptick in bankruptcy filings in California could signify not only a lack of ability, but a lack of willingness to pay debt service at the expense of other financial obligations," Moody's MCO -0.78% prophesied earlier this year. Meanwhile, the Imperial Valley city of San Bernardino, having run out of cash, is going the Chapter 9 route.

Dozens of cities in California including Oakland, Sacramento and Los Angeles are slouching toward insolvency, but only a few such as San Jose and San Diego have taken on the unions and restructured worker retirement benefits. Many are instead borrowing to pay their retirement obligations just as Stockton did, thereby shifting the risk of paying for pensions to the bond markets. Oakland approved $210 million in pension obligation bonds this year, despite coming out $245 million behind after investing $417 million from a pension obligation bond sale in Calpers 15 years ago.

Once upon a time in America, a city that reneged on its bond debt would have taken decades to issue new debt, but Stockton's behavior suggests there is little such fear today. Investors who fail to impose discipline on deadbeats are likely to find the deadbeats playing them for suckers.

Ratings agencies downplay the "systemic risk" that the Stocktons of the United States pose to the $3.7 trillion municipal bond market. But then they also said mortgage-backed securities were Triple-A. While the market may not be in danger of blowing up soon, bondholders face a very real danger of being blown off to preserve worker pensions.

Jensen Comment
California residents suffer from the highest state and local taxes in the USA. Those taxes are going to soar even higher to cover the increased costs of borrowing by California's concessions to public worker labor unions. I wonder how many of those retirees will choose to collect their pensions outside the State of California. Almost certainly few of them will retire in Stockton.

Which countries have the highest and lowest corporate tax rates?
Which countries tax the most?


From the AICPA News Letter on January 3, 2013
A new report from the World Bank and PricewaterhouseCoopers examines corporate tax rates worldwide. The typical company has an average total tax rate of 44.7% and spends 267 hours working to comply with taxes, according to the report. By region, the Middle East has had the lowest total tax rates and Africa has the highest.
The Washington Post/Worldviews Blog

"Advantages of Low Capital Gains Tax Rates," by Chris Edwards, Cato Institute, December 2012 ---

. . .

Eleven OECD countries do not impose taxes on longterm capital gains, nor do some jurisdictions outside of the OECD, such as Hong Kong, Malaysia, and Thailand.4 The nontaxation of long-term gains used to be the norm in many countries. Britain did not tax capital gains until 1965 because policymakers thought “that capital gains were not income … hence were not subject to taxation.”5 Capital gains taxation was also imposed relatively recently in Canada (1972), Ireland (1975), and Australia (1985). And only in the last few years have long-term gains been taxed in Austria, Germany, and Portugal.

. . .

If an individual buys a stock at $10 and sells it years later for $12, much of the $2 in capital gain may represent inflation, not a real return. In an economy with inflation, capital gains taxes can substantially reduce returns, and even turn them negative. And uncertainty about future inflation makes returns from capital gains more risky. Thus, inflation and capital gains taxes together suppress investment, particularly in growth companies. This problem is widely appreciated, and one solution is to index capital gains for inflation. For investments in corporate equities, indexing would be a straightforward process of adjusting a stock’s purchase price by a measure such as the consumer price index, which was the approach used by Australia between 1985 and 1999. However, most countries do not index capital gains, but instead roughly compensate for inflation by reducing the statutory rate on gains or providing an exclusion. In 1999, for example, Australia abandoned inflation indexing in favor of a 50 percent exclusion for gains.

. . .

Table 1. Top
Individual Capital Gains Tax Rates, 2012
Australia                22.5%
Italy                        20.0%
Austria                   25.0%
Japan                      10.0%
Belgium                    0.0%
Luxembourg            0.0%
Britain                     28.0%
Mexico                      0.0%
Canada                    22.5%
Netherlands            0.0%
Chile                        18.5%
New Zealan              0.0%
Czech Rep.               0.0%
Norway                   28.0%
Denmark                 42.0%
Poland                    19.0%
Estonia                   21.0%
Portugal                 25.0%
Finland                   32.0%
Slovakia                  19.0%
France                     32.5%
Slovenia                    0.0%
Germany                  25.0%
South Korea             0.0%
Greece                        0.0%
Spain                        27.0%
Hungary                   16.0%
Sweden                     30.0%
Iceland                      20.0%
Switzerland                 0.0%
Ireland                       30.0%
Turkey                        0.0%
Israel                         25.0%
United States          19.1%
OECD Average      16.4%

. . .

Economists since Irving Fisher have called for ending capital gains taxation. In the 1980s, economist Bruce Bartlett looked at the positive effects of prior capital gains tax cuts and called for abolishing the tax altogether.22 In the 1990s, Federal Reserve chairman Alan Greenspan testified that the tax’s “major impact is to impede entrepreneurial activity and capital formation. While all taxes impede economic growth to one extent or another, the capital gains tax is at the far end of the scale. I argued that the appropriate capital gains tax rate was zero.”23 Unfortunately, policymakers are going in the opposite direction with capital gains tax increases in 2013. Class warfare rhetoric has sadly overwhelmed the lessons learned here and abroad about the benefits of low capital gains taxes. Short-term expediency has replaced an interest in tax policies that promote long-run growth. Hopefully, policymakers will reconsider capital gains tax policy in coming months. They should reverse course and cut the capital gains tax rate again in order to boost innovation, spur entrepreneurship, and help America regain its competitive edge.

Jensen Comment
One of the most puzzling outcomes in Table 1 is how capital gains rates vary within Europe from 0.0% in Belgium and The Netherlands to much higher rates in some other European nations like neighboring France having a  32.0% rate. The welfare states having generous national health and education programs are also somewhat confusing. New Zealand has a 0.0% rate in comparison with Denmark's huge 42.0% rate.

Welfare States Don't Come Cheap

"U.S. Taxes and Government Benefits in an International Context," by Bruce Bartlett, TaxProf Blog, December 26, 2012 ---

Bruce Bartlett reviews new international data on taxes and healthcare spending as a share of GDP in OECD countries and suggests that Americans' antipathy to taxes may be a function of the modest benefits they receive from government in contrast to those in high-tax countries.

Table 1. Total Tax Revenue, 2010

Country Percent of GDP

Denmark 47.6

Sweden 45.5

Belgium 43.5

Italy 42.9

Norway 42.9

France 42.9

Finland 42.5

Austria 42.0

Netherlands 38.7

Hungary 37.9

Slovenia 37.5

Luxembourg 37.1

Germany 36.1

Iceland 35.2

United Kingdom 34.9

Czech Republic 34.2

Estonia 34.2

OECD average 33.8

Israel 32.4

Spain 32.3

Poland 31.7

New Zealand 31.5

Portugal 31.3

Canada 31.0

Greece 30.9

Slovakia 28.3

Switzerland 28.1

Ireland 27.6

Japan 27.6

Turkey 25.7

Australia 25.6

Korea 25.1

United States 24.8

Chile 19.6

Mexico 18.8

Source: OECD.

Jensen Comment
Comparing nations on this index is difficult, particularly due to how health care is provided.

Nations like Denmark that are high in egalitarian living have difficulty motivating workers to work overtime and invest savings in risky ventures. This is partly the reason all the highest ranked nations above reduced top tax rates from what they were in the 1970s ---

"P.J. O'Rourke: Dear Mr. President, Zero-Sum Doesn't Add Up Is life like a pizza, where if some people have too many slices, other people have to eat the pizza box?" by P.J. O'Rourke, The Wall Street Journal, December 21, 2012 ---

Given that hypocrisy is an important part of diplomacy, and diplomacy is necessary to foreign policy, allow me to congratulate you on winning a second term.

I wish I could also congratulate you on your conduct of international affairs. I do thank you for killing Osama bin Laden. It was a creditable action for which you deserve some of the credit you've been given. Of course the intelligence was gathered, and the mission was undertaken, by men and women who, although they answer to your command, answer to duty first. And it is difficult to imagine any president of the United States who, under the circumstances, wouldn't have ordered the strike against bin Laden. Although there is Jimmy Carter. Thank you for not being Jimmy Carter.

But even though it violates the insincere amity that creates a period of calm following national elections, no thank you for the following, and it is only a partial list:

• Telling the Taliban to play by the rules or you'll take your ball and go home;

• Leaving Iraq in a lurch (and in a hurry);

• Watching the EU go down the sink drain and into the Greece trap and wanting to take America along on the trip;

• Miscalculating human rights and strategic engagement in the Chinese arithmetic of your China policy;

• Being the personification of bad weather during the Arab Spring with your chilly response when you encountered its best aspects and your frozen inaction when you encountered its worst;

• Playing with Russian nesting dolls, opening hollow figurine after hollow figurine hoping to find one that doesn't look like Vladimir Putin;

• Sitting and doing nothing like a couch potato watching a made-for-TV movie as the Castro and Chávez zombies continue their rampage;

• Hugging the door on your date with Israel;

• Putting the raw meat of incentives in your pants pocket when you go to scold the pit bulls of Iran and North Korea;

But the worst thing that you've done internationally is what you've done domestically. You sent a message to America in your re-election campaign. Therefore you sent a message to the world. The message is that we live in a zero-sum universe.

There is a fixed amount of good things. Life is a pizza. If some people have too many slices, other people have to eat the pizza box. You had no answer to Mitt Romney's argument for more pizza parlors baking more pizzas. The solution to our problems, you said, is redistribution of the pizzas we've got—with low-cost, government-subsidized pepperoni somehow materializing as the result of higher taxes on pizza-parlor owners.

In this zero-sum universe there is only so much happiness. The idea is that if we wipe the smile off the faces of people with prosperous businesses and successful careers, that will make the rest of us grin.

There is only so much money. The people who have money are hogging it. The way for the rest of us to get money is to turn the hogs into bacon.

Mr. President, your entire campaign platform was redistribution. Take from the rich and give to the . . . Well, actually, you didn't mention the poor. What you talked and talked about was the middle class, something most well-off Americans consider themselves to be members of. So your plan is to take from the more rich and the more or less rich and give to the less rich, more or less. It is as if Robin Hood stole treasure from the Sheriff of Nottingham and bestowed it on the Deputy Sheriff.

But never mind. The evil of zero-sum thinking and redistributive politics has nothing to do with which things are taken or to whom those things are given or what the sum of zero things is supposed to be. The evil lies in denying people the right, the means, and, indeed, the duty to make more things.

Or maybe you just find it easier to pursue a political policy of sneaking in America's back door, swiping a laptop, going around to the front door, ringing the bell, and announcing, "Free computer equipment for all school children!"

However, domestic politics aren't my first concern here. The question is whether you want to convince the international community that zero-sum is the American premise and redistribution is the logical conclusion.

I would argue that the world doesn't need more encouragement to think in zero-sum terms or act in redistributive ways.

Western Europe has done such a good job redistributing its assets that the European Union now has a Spanish economy, a Swedish foreign policy, an Italian army, and Irish gigolos.

Redistributionist political ideologies, in decline since the fall of the Soviet bloc, are on the rise again. Will you help the neo-Marxists of Latin America redistribute stupidity to their continent?

The Janjaweed are trying to redistribute themselves in Darfur. The Serbs would like to do the same in Kosovo. The Chinese have already done it in Tibet. Al Qaeda offshoots are doing their best to redistribute violence to places that didn't have enough.

And Russia and China would like the global balance of power to be redistributed. Since China has plenty of money to lend and Russia has plenty of oil to sell, your debt and energy policies should go a long way toward making the balance of power fairer for the Russians and Chinese.

While redistribution—or "plagiarism," as we writers call it—is a bad idea, zero-sum is even worse. Zero-sum assumptions mean that a country that doesn't pursue a policy of taking things from other countries is letting its citizens down. That's pretty much the story of all recorded history, none of which needs to be repeated. It has taken mankind millennia to learn that trade is more profitable than pillage. And we don't have to carry our plunder home in sacks and saddlebags when we're willing to accept a certified check.

Continued in article

"Could These 6 Pending Regulations Destroy The Internet In 2013?" by Adam Popescu, ReadWriteWeb, December 28,2012 ---

"Knowledge@Wharton Strategic Management Research Article," Knowledge@Wharton,  January 2, 2013 ---

Download the entire report: PDF (1 MB)


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The Entrepreneurship Vacuum in Japan: Why It Matters and How to Address It

Dating in a Digital World: Trends in 21st Century China

'Needs Improvement': Despite Progress, India's Primary Education System Has a Ways to Go

Apple's Foray into China — and the Mind of the New Chinese Consumer


Water Scarcity: A Daunting Challenge with a Hopeful Future

Innovation and Regulation: Friend or Foe to the French Entrepreneur?

Retail Chains' Race for Russia

Is the End of the German Beer Industry Near?

The Future of French Wine: Overcoming Terroirisme and Stagnation


Silicon Wafers and Semiconductors: A New Black Gold for Abu Dhabi?


Private Equity in Brazil: 'The Music Hasn't Stopped'

Entrepreneurship in Colombia: 'Try Fast, Learn Fast, Fail Cheap'

Education in Brazil: Can the Public Sector Keep Up with the Emerging Middle Class?

Tourism in Colombia: Breaking the Spell of Negative Publicity

The Private Equity Landscape in Colombia

Baby's First Birthday: Lessons from a Brazilian E-commerce Start-up

Education in Colombia: Is There a Role for the Private Sector?

Coffee in Colombia: Waking Up to an Opportunity



"In a World Full of Risk, Why Are Investors So Calm?" by Roben Farzad, Bloomberg Business Week, December 19, 2012 ---

Jensen Comment
One reason for the calm is that big institutional investors like TIAA-CREF now have the highest proportion of ownership of debt and equity securities investments. These funds are well aware of their ability to panic the herd.

A second reason is the policy (absurd in my viewpoint) of the Fed for both providing free money to banks and for printing greenbacks to pay government debt in what is termed the Quantitative Easing policy. The result has been that investors have almost no safe alternatives for earning an investment return of more than one percent. Accordingly they are more tolerant of taking on investment risk just to earn more than one percent on their savings.

I have to be somewhat sorry for TIAA-CREF. Back in 2006 this enormous retirement fund for the Academy sold us (my wife and I) a lifetime joint annuity that earns over a six percent fixed rate based upon our life expectancies. Now this fund has to either take on a pay-as-it-goes hit to make our monthly payments or take on greater investment risk to earn over six percent on our account. On two occasions TIAA has offered us a deal to trade in our annuities and buy into a real estate fund. No way Jose! Not at our ages.

"The Elephant in the Courtroom The Big Top beats an abusive lawsuit by the ASPCA," The Wall Street Journal, December 30, 2012 ---

Don't worry, kids. Elephants are staying in the circus. And the animal-rights activists who tried to drive them out are paying a price for their abusive litigation. On Friday Feld Entertainment, producer of the Ringling Brothers and Barnum & Bailey Circus, announced a legal settlement under which the American Society for the Prevention of Cruelty to Animals (ASPCA) has paid $9.3 million to the company.

Yes, you read that correctly. A special-interest group sued a corporation and in the resulting settlement it was not the business but the activist group that had to write a check. The case is an example of how the ASPCA has become increasingly politicized and much different from the nice outfit that looks out for the well-being of homeless and lovable dogs and cats.

Twelve years ago the ASPCA and other activist outfits joined with a former Ringling employee to sue the company under the Endangered Species Act. The claim was that Ringling was abusing Asian elephants. Perhaps the activists figured the circus would fold up its big top and write a check.

Not on Chairman and CEO Kenneth Feld's watch. He's been working in the family business since 1970 and tells us that he's "proud of our animal care and I'll put it up against anyone in the world."

After nine years of litigation, a federal court found that the plaintiffs had no standing to sue under the Endangered Species Act and that the former Ringling employee was "not credible" and "essentially a paid plaintiff and fact witness" whose only source of income during the litigation was the animal-rights groups that were his co-plaintiffs.

Mr. Feld says the $9.3 million payment from the ASPCA represents less than half of what his company has had to spend defending itself against the "manufactured litigation" from the activists. But he seems likely to recover more. His company is continuing its litigation against the Humane Society of the United States, the Fund for Animals, the Animal Welfare Institute, the Animal Protection Institute United with Born Free USA, the former employee and the lawyers who prosecuted the bogus case.

"This goes way beyond economics," says Mr. Feld. He adds that the "level of harassment" that his elephant trainers undergo from activists is almost "unbearable" and that "the activists are trying to bring down an American institution." The longtime Ringling boss argues that he is the trustee of a tradition "older than baseball" that offers a vanishing commodity for American families: affordable G-rated entertainment.

Mr. Feld's legal victories ensure that the Ringling tradition will continue, but the larger winner is the cause of justice.


"Top 10 Myths About Mass Shootings," by James Alan Fox, Chronicle of Higher Education, December 18, 2012 ---

Even before the death toll in last Friday’s school massacre in Newtown, Conn., was determined, politicians, pundits, and professors of varied disciplines were all over the news, pushing their proposals for change. Some talked about the role of guns, others about mental-health services, and still more about the need for better security in schools and other public places. Whatever their agenda and the passion behind it, those advocates made certain explicit or implied assumptions about patterns in mass murder and the profile of the assailants. Unfortunately, those assumptions do not always align with the facts.

Myth: Mass shootings are on the rise.
Reality: Over the past three decades, there has been an average of 20 mass shootings a year in the United States, each with at least four victims killed by gunfire. Occasionally, and mostly by sheer coincidence, several episodes have been clustered closely in time. Over all, however, there has not been an upward trajectory. To the contrary, the real growth has been in the style and pervasiveness of news-media coverage, thanks in large part to technological advances in reporting.

Myth: Mass murderers snap and kill indiscriminately.
Reality: Mass murderers typically plan their assaults for days, weeks, or months. They are deliberate in preparing their missions and determined to follow through, no matter what impediments are placed in their path.

Myth: Enhanced background checks will keep dangerous weapons out of the hands of these madmen.
Reality: Most mass murderers do not have criminal records or a history of psychiatric hospitalization. They would not be disqualified from purchasing their weapons legally. Certainly, people cannot be denied their Second Amendment rights just because they look strange or act in an odd manner. Besides, mass killers could always find an alternative way of securing the needed weaponry, even if they had to steal from family members or friends.

Myth: Restoring the federal ban on assault weapons will prevent these horrible crimes.
Reality: The overwhelming majority of mass murderers use firearms that would not be restricted by an assault-weapons ban. In fact, semiautomatic handguns are far more prevalent in mass shootings. Of course, limiting the size of ammunition clips would at least force a gunman to pause to reload or switch weapons.

Myth: Greater attention and response to the telltale warning signs will allow us to identify would-be mass killers before they act.
Reality: While there are some common features in the profile of a mass murderer (depression, resentment, social isolation, tendency to blame others for their misfortunes, fascination with violence, and interest in weaponry), those characteristics are all fairly prevalent in the general population. Any attempt to predict would produce many false positives. Actually, the telltale warning signs come into clear focus only after the deadly deed.

Myth: Widening the availability of mental-health services and reducing the stigma associated with mental illness will allow unstable individuals to get the treatment they need.
Reality: With their tendency to externalize blame and see themselves as victims of mistreatment, mass murderers perceive the problem to be in others, not themselves. They would generally resist attempts to encourage them to seek help. And, besides, our constant references to mass murderers as “wackos” or “sickos” don’t do much to destigmatize the mentally ill.

Myth: Increasing security in schools and other places will deter mass murder.
Reality: Most security measures will serve only as a minor inconvenience for those who are dead set on mass murder. If anything, excessive security and a fortress-like environment serve as a constant reminder of danger and vulnerability.

Myth: Students need to be prepared for the worst by participating in lockdown drills.
Reality: Lockdown drills can be very traumatizing, especially for young children. Also, it is questionable whether they would recall those lessons amid the hysteria associated with an actual shooting. The faculty and staff need to be adequately trained, and the kids just advised to listen to instructions. Schools should take the same low-key approach to the unlikely event of a shooting as the airlines do to the unlikely event of a crash. Passengers aren’t drilled in evacuation procedures but can assume the crew is sufficiently trained.

Myth: Expanding “right to carry” provisions will deter mass killers or at least stop them in their tracks and reduce the body counts.
Reality: Mass killers are often described by surviving witnesses as being relaxed and calm during their rampages, owing to their level of planning. In contrast, the rest of us are taken by surprise and respond frantically. A sudden and wild shootout involving the assailant and citizens armed with concealed weapons would potentially catch countless innocent victims in the crossfire.

Myth: We just need to enforce existing gun laws as well as increase the threat of the death penalty.
Reality: Mass killers typically expect to die, usually by their own hand or else by first responders. Nothing in the way of prosecution or punishment would divert them from their missions. They are ready to leave their miserable existence, but want some payback first.

Continued in article

Jensen Comment
As I walked my treadmill this morning I watched a friend of the Lanza family surmise that Adam snapped when he learned that his mother was leaning toward having him committed to a psychiatric hospital.

"Mother may have wanted Adam Lanza committed," by Teresa Priolo, myfoxny, December 19, 2012 ---

As the days drag on details are emerging about the life Adam Lanza led prior to his murderous spree at Sandy Hook Elementary School in Newtown, Conn. While some may say "forget Adam, these details can't bring his 27 victims back," but maybe they will help all of us understand how to prevent something this horrific from happening again.

What made Lanza unhinge and mercilessly slaughter 20 innocent children and six adults? The answer may lie in his past, in the relationship he had with his mother.

FoxNews.com reports exclusively that Adam knew that his mother, Nancy Lanza, was planning to have him committed to a psychiatric facility.

Adam, reportedly diagnosed with Asperger's syndrome and suffering from mental health issues, lived with his single mother, who was his primary caregiver.

A neighbor described as a family friend told Fox that Adam knew Nancy was feeling overwhelmed and feared she could no longer care for him so she began the process of petitioning the court for conservatorship. Previous reports have suggested Nancy considered moving with her son to Washington State so that he could attend a special school that could address his issues.

She had the sole right to make these decisions as part of her divorce agreement with Peter Lanza.

They both were only required to consult each other on decisions related to Adam's care, but Nancy had final say.

Divorce paperwork suggests the Lanzas were required to complete a parenting education class, which the decree shows she did.

Continued in article

Jensen Comment
I have a loaded pistol and shotgun in the house that have never been fired. I don't like guns and would vote for banning sales of assault rifles and high capacity shell magazines. I do support the right to carry, because I think this strikes fear in many would-be rapists, muggers, robbers, kidnappers, car jackers, and terrorists. It won't, however, be me doing the carrying.

In the wake of this tragedy, the new ploy by potentially violent young people being medicated and treated as mental health outpatients might be threatening terrorism if care givers don't give them exactly what they want in terms of video games, sex, porn, and spending money. Could we possibly incarcerate them even though only one in a million will actually carry out acts of terrorism on innocent children? What do you do when neither Theory X nor Theory Y is working on a troubled kid?

When it comes to allocating scarce resources, I think priority should be given to very common crimes (e.g., child abuse, spousal abuse, sexual assault) relative to very rare crimes except when those rare crimes might kill thousands in a single incident.

"22 Stats That Prove That There Is Something Seriously Wrong With Young Men In America," by Michael, The Economic Collapse Blog, December 17th, 2012 ---

 . . .

So why is all of this happening?

Well, there are a whole host of reasons. But certainly parents and our education system have to bear much of the blame. In the old days, young men were taught what it means to "be a man", and morality was taught to young men both by their parents and in the schools. But today, most young men have very little understanding of what "manhood" is, and our society has taught them that morality doesn't really matter. Instead, television and movies constantly portray young men as sex-obsessed slackers that just want to party all the time, so that is what many of our young men have become.

How much better off would our society be if we had trained this generation of young men to love, honor, protect and take care of others?

How much better off would our society be if we had nurtured the manhood of our young men instead of teaching them to be ashamed of it?

How much better off would our society be if we had disciplined our young men and taught them morality when they were getting off track instead of just letting them do whatever they wanted?

The following are 22 stats that prove that there is something seriously wrong with young men in America today...

#1 Males account for approximately 70 percent of all Ds and Fs in U.S. public schools.

#2 About two-thirds of all students in "special education programs" are boys.

#3 The average American girl spends 5 hours a week playing video games.  The average American boy spends 13 hours a week playing video games.

#4 The average young American will spend 10,000 hours playing video games before the age of 21.

#5 One study discovered that 88 percent of all Americans between the ages of 8 and 18 play video games, and that video game addiction is approximately four times as common among boys as it is among girls.

#6 At this point, 15-year-olds that attend U.S. public schools do not even rank in the top half of all industrialized nations when it comes to math or science literacy.

#7 In 2011, SAT scores for young men were the worst that they had been in 40 years.

#8 According to a survey conducted by the National Geographic Society, only 37 percent of all Americans between the ages of 18 and 24 can find the nation of Iraq on a map.

#9 According to the New York Times, approximately 57 percent of all young people enrolled at U.S. colleges are women.

#10 It is being projected that women will earn 60 percent of all Bachelor's degrees from U.S. universities by the year 2016.

#11 Even if they do graduate from college, most of our young men still can't find a decent job.  An astounding 53 percent of all Americans with a bachelor's degree under the age of 25 were either unemployed or underemployed during 2011.

#12 Pornography addiction is a major problem among our young men.  An astounding 30 percent of all Internet traffic now goes to pornography websites, and one survey found that 25 percent of all employees that have Internet access in the United States even visit sex websites while they are at work.

#13 In the United States today, 47 percent of all high school students have had sex.

#14 The United States has the highest teen pregnancy rate on the entire planet.  If our young men behaved differently this would not be happening.

#15 In the United States today, one out of every four teen girls has at least one sexually transmitted disease.  If our young men were not sex-obsessed idiots running around constantly looking to "score" these diseases would not be spreading like this.

#16 Right now, approximately 53 percent of all Americans in the 18 to 24 year old age bracket are living at home with their parents.

#17 According to one survey, 29 percent of all Americans in the 25 to 34 year old age bracket are still living with their parents.

#18 Young men are nearly twice as likely to live with their parents as young women the same age are.

#19 Overall, approximately 25 million American adults are living with their parents in the United States right now according to Time Magazine.

#20 Today, an all-time low 44.2% of Americans between the ages of 25 and 34 are married.

#21 Back in 1950, 78 percent of all households in the United States contained a married couple.  Today, that number has declined to 48 percent.

#22 Young men are about four times more likely to commit suicide as young women are.

Jensen Comment
I did not verify these statistics.

One of the things that bothers me is the proportion of D and F grades going to males in public schools since grade inflation is so severe that almost nobody gets a D or F grade in a public school --- those low grades are reserved mostly for students who did not try in the least to pass.

"Dumbest Generation Getting Dumber," by Walter E. Williams, Townhall, June 3, 2009 --- http://townhall.com/columnists/WalterEWilliams/2009/06/03/dumbest_generation_getting_dumber 

The Program for International Student Assessment (PISA) is an international comparison of 15-year-olds conducted by The Organisation for Economic Co-operation and Development (OECD) that measures applied learning and problem-solving ability. In 2006, U.S. students ranked 25th of 30 advanced nations in math and 24th in science. McKinsey & Company, in releasing its report "The Economic Impact of the Achievement Gap in America's Schools" (April 2009) said, "Several other facts paint a worrisome picture.

First, the longer American children are in school, the worse they perform compared to their international peers. In recent cross-country comparisons of fourth grade reading, math, and science, US students scored in the top quarter or top half of advanced nations. By age 15 these rankings drop to the bottom half. In other words, American students are farthest behind just as they are about to enter higher education or the workforce." That's a sobering thought. The longer kids are in school and the more money we spend on them, the further behind they get.

While the academic performance of white students is grossly inferior, that of black and Latino students is a national disgrace. The McKinsey report says, "On average, black and Latino students are roughly two to three years of learning behind white students of the same age. This racial gap exists regardless of how it is measured, including both achievement (e.g., test score) and attainment (e.g., graduation rate) measures. Taking the average National Assessment of Educational Progress (NAEP) scores for math and reading across the fourth and eighth grades, for example, 48 percent of blacks and 43 percent of Latinos are 'below basic,' while only 17 percent of whites are, and this gap exists in every state. A more pronounced racial achievement gap exists in most large urban school districts." Below basic is the category the NAEP uses for students unable to display even partial mastery of knowledge and skills fundamental for proficient work at their grade level.

The teaching establishment and politicians have hoodwinked taxpayers into believing that more money is needed to improve education. The Washington, D.C., school budget is about the nation's costliest, spending about $15,000 per pupil. Its student/teacher ratio, at 15.2 to 1, is lower than the nation's average. Yet student achievement is just about the lowest in the nation. What's so callous about the Washington situation is about 1,700 children in kindergarten through 12th grade receive the $7,500 annual scholarships in order to escape rotten D.C. public schools, and four times as many apply for the scholarships, yet Congress, beholden to the education establishment, will end funding the school voucher program.

Any long-term solution to our education problems requires the decentralization that can come from competition. Centralization has been massive. In 1930, there were 119,000 school districts across the U.S; today, there are less than 15,000. Control has moved from local communities to the school district, to the state, and to the federal government. Public education has become a highly centralized government-backed monopoly and we shouldn't be surprised by the results. It's a no-brainer that the areas of our lives with the greatest innovation, tailoring of services to individual wants and falling prices are the areas where there is ruthless competition such as computers, food, telephone and clothing industries, and delivery companies such as UPS, Federal Express and electronic bill payments that have begun to undermine the postal monopoly in first-class mail.

At a Washington press conference launching the McKinsey report, Al Sharpton called school reform the civil rights challenge of our time. He said that the enemy of opportunity for blacks in the U.S. was once Jim Crow; today, in a slap at the educational establishment, he said it was "Professor James Crow." Sharpton is only partly correct. School reform is not solely a racial issue; it's a vital issue for the entire nation.

What the Looming Port Strike is All About --- Click Here

That some bankers have ended up in prison is not a matter of scandal, but what is outrageous is the fact that all the others are free.
Honoré de Balzac

Bankers bet with their bank's capital, not their own. If the bet goes right, they get a huge bonus; if it misfires, that's the shareholders' problem.
Sebastian Mallaby. Council on Foreign Relations, as quoted by Avital Louria Hahn, "Missing:  How Poor Risk-Management Techniques Contributed to the Subprime Mess," CFO Magazine, March 2008, Page 53 --- http://www.cfo.com/article.cfm/10755469/c_10788146?f=magazine_featured
Now that the Fed is going to bail out these crooks with taxpayer funds makes it all the worse.

"Horribly Rotten, Comically Stupid:  Even as they rigged LIBOR rates, UBS bankers displayed a warped loyalty to their co-manipulators," CFO.com, December 21, 2012 ---

For any who doubted whether there was honour among thieves, or indeed among investment bankers, solace may be found in the details of a settlement between UBS, a Swiss bank, and regulators around the world over a vast and troubling conspiracy by some of its employees to rig LIBOR and EURIBOR, key market interest rates. Regulators in Britain and Switzerland have argued that manipulation of interest rates that took place over a long period of time, involved many employees at UBS and that, according to Britain’s Financial Service Authority, was so “routine and widespread” that “every LIBOR and EURIBOR submission, in currencies and tenors in which UBS traded during the relevant period, was at risk of having been improperly influenced to benefit derivatives trading positions.” In these settlements UBS agreed to pay 1.4 billion Swiss Francs ($1.5 billion) to British, American and Swiss regulators. CFO.com (http://s.tt/1xxaa)

Yet, even in the midst of this wrongdoing there was evidence of a sense of honour, however misplaced. One banker at UBS, in asking a broker to help manipulate submissions, promised ample recompense:

"I will fucking do one humongous deal with you ... Like a 50, 000 buck deal, whatever. I need you to keep it as low as possible ... if you do that ... I’ll pay you, you know, 50,000 dollars, 100,000 dollars ... whatever you want ... I’m a man of my word."

Further hints emerge of the warped morality that was held by some UBS employees and their conspirators at brokers and rival banks. In one telling conversation an unnamed broker asks an employee at another bank to submit a false bid at the request of a UBS trader. Lest the good turn go unnoticed the broker reassures the banker that he will pass on word of the manipulation to UBS.

Broker B: “Yeah, he will know mate. Definitely, definitely, definitely”;

Panel Bank 1 submitter: “You know, scratch my back yeah an all”

Broker B: “Yeah oh definitely, yeah, play the rules.”

The interchanges published by the FSA also reveal a comical stupidity among people who, if judged by their above-average pay, ought to have been expected to display above-average insight and intelligence. Sadly, they showed neither.

In one instance, two UBS employees, a manager and a trader (who also submitted interest rates) discuss an article in the Wall Street Journal raising doubt over the accuracy of bank’s LIBOR submissions. “Great article in the WSJ today about the LIBOR problem” says one. “Just reading it” his colleague replies.

Yet according to the FSA, some two hours later they were happily conspiring to submit manipulated bids:

Trader-Submitter D: “mate any axe in [GBP] libors?”

Manager D: “higher pls”

Trader-Submitter D: “93?”

Manager D: “pls”

Trader-Submitter D: “[o]k”

In another moment of comical stupidity one employee sends out a request on a public chat forum at the bank asking the 58 participants if there are any requests for a manipulated rate. Later, after being admonished to “BE CAREFUL DUDE” in a private note from a manager, he replies “i agree we shouldnt ve been talking about putting fixings for our positions on public chat (sic)”.

Apart from the salacious glimpse that these settlements give into the foul-mouthed and matey culture (as well as atrocious grammar) of investment banking trading desks, they also reveal worrying suggestions that this conspiracy was bigger than previously suspected. Information released by the FSA shows it involved not just banks, as was previously known from a settlement earlier this year by Barclays, but that it also involves the collusion of employees at inter-broker dealers, the firms that stand between banks and help them to trade with one another.

Regulators found that brokers at these firms helped coordinate false submissions between banks, posted false rates and estimates of where rates might go on their own trading screens, and even posted spoof bids to mislead market participants as to the real rate in the market.

The details in these settlements suggest that lawyers representing clients in a clutch of class-action lawsuits in America against banks including UBS will have a field day.

The first reason they are cheering is because UBS didn’t simply submit false estimates of interest rates on its own. According to the settlement documents, UBS tried and apparently succeeded in some cases in getting other firms to collude in manipulating rates. That collusion strengthens the case of civil litigants in America who are arguing in court that banks worked together to fix prices. It also undermines one of the defences filed by banks in American courts that their submissions, although possibly incorrect in some cases, were simply the individual acts of banks that happened by chance to be acting in parallel. The latest settlements may also make it easier for civil litigants to claim damages from UBS since the Swiss regulator found that it had profited from its wrongdoing.

Continued in article


LIBOR --- http://en.wikipedia.org/wiki/Libor

"How Barclays Rigged the Machine," by Rana Foroohar, Time Magazine, July 23, 2012 ---

Ever wonder why surveys about very personal topics (think sex and money) are done anonymously? Of course you don't, because it's obvious that people wouldn't tell the truth if they were identified on the record. That's a key point in understanding the latest scandal to hit the banking industry, which comes, as ever, with much hand-wringing, assorted apologies and a crazy-sounding acronym--this time, LIBOR. That's short for the London interbank offered rate, the interest rate that banks charge one another to borrow money. On June 27, Britain's Barclays bank admitted that it had deliberately understated that rate for years.

LIBOR is a measure of banks' trust in their solvency. And around the time of the financial crisis of 2008, Barclays' rate was rising. If a bank revealed publicly that it could borrow only at elevated rates, it would essentially be admitting that it--and perhaps the financial system as a whole--was vulnerable. So Barclays gamed the system to make the financial picture prettier than it was. The charade was possible because LIBOR is calculated not on the basis of documented lending transactions but on the banks' own estimates, which can be whatever bankers decree. This Kafkaesque system is overseen for bizarre historical reasons by an association of British bankers rather than any government body.

The LIBOR scandal has already claimed Barclays' brash American CEO, Bob Diamond, a man infamous for taking huge bonuses while his company's share price and profit were declining. Diamond resigned, but his head may not be the only one to roll. As many as 20 of the world's largest banks are being sued or investigated for manipulating over the course of many years the interest rate to which $350 trillion worth of derivatives contracts are pegged. Bank of England and former British-government officials accused of colluding with Barclays to stem a financial panic may also be caught up in the mess.

What's surprising is that individual consumers may actually have benefited, at least financially, from the collusion. Not only the central reference point for derivatives markets, LIBOR is also the rate to which all sorts of loans--variable mortgage rates, student loans, even car payments--may be pegged. To the extent that banks kept LIBOR artificially low, all those other loan rates were marked down too. Unlike the JPMorgan trading fiasco of a few weeks ago, which has resulted in a multibillion-dollar loss, the only apparent red ink so far in the LIBOR scandal is the $450 million in fines that Barclays will pay to the U.K. and U.S. governments for rigging rates (though pension funds and insurance companies on the short end of LIBOR-pegged financial transactions may have lost a lot of money).

Either way, the truth is that LIBOR is a much, much bigger deal than what happened at JPMorgan. Rather than one screwed-up trade that was--whether you like it or not (and I don't)--most likely legal, it represents a financial system that is still, four years after the crisis began, opaque, insular and dangerously underregulated. "This is a very, very significant event," says Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission (CFTC), which is one of the regulators investigating the scandal. "LIBOR is the mother of all financial indices, and it's at the heart of the consumer-lending markets. There have been winners and losers on both sides [of the LIBOR deals], but collectively we all lose if the market isn't perceived to be honest."

Continued in article

View from the Left
"Barclays and the Limits of Financial Reform," by Alexander Cockburn, The Nation, July 30, 2012 ---


Bob Jensen's threads on interest rate swaps and LIBOR ---
Search for LIBOR or swap.

Timeline of Financial Scandals, Auditing Failures, and the Evolution of International Accounting Standards ---- http://www.trinity.edu/rjensen/FraudCongress.htm#DerivativesFrauds

Bob Jensen's Rotten to the Core threads ---

"USDA Inflated the Number of Jobs Created by Stimulus, IG Says," by Patrick Burke, CNS News, December 21, 2012 ---

Department of Agriculture improperly inflated the numbers of jobs created or saved by the 2009 economic stimulus, according to the agency’s own Office of Inspector General (OIG).

“[We] identified job numbers that were inflated because award recipients reported cumulative job numbers instead of the number of jobs created or saved during the quarter being reported. In other instances, job numbers were underreported,” according to an OIG audit released Dec. 13.

The report claims that without accurate job figures, it is “difficult” to know whether the 2009 2009 American Recovery and Reinvestment Act was effective in creating or saving jobs.

“Without accurate data about the number of jobs USDA agencies retained or created through the use of Recovery Act Funds, it is difficult to measure how effective the Department was in accomplishing a main Recovery Act objective, which was to create and retain jobs.”

Individual reporting errors were not identified because of the inadequate “analytical tools” that USDA agencies were using to corroborate job numbers, the IG said. In addition to inflating job numbers, there were also instances of underreporting.

Before posting job data on Recovery.gov  -- the government transparency Web site -- award recipients provide information via FederalReporting.gov, where information is verified by government agencies.

As of March 31, 2011, USDA agencies had posted 4,960 awards amounting to $9.29 billion to Recovery.gov.

However, USDA agencies did not properly verify information received by award recipients, who did not always provide accurate job numbers, according to the inspector general.

“OIG determined that inaccurate job numbers were reported to FederalReporting.gov because recipients did not always report correct information and USDA agencies did not adequately analyze the number of jobs that award recipients were reporting,” the report said. “Not all recipients were aware of the OMB-required methodology for calculating jobs; consequently, they made errors when they reported.”

Moreover, USDA agency representatives told the OIG that errors were overlooked and there was inadequate analysis to recognize errors.

The OIG told CNSNews.com that it is “possible” that some job reporting errors occurred in other quarters as well.

“It is possible: some of the recipients explained that the errors were caused due to their misunderstanding the requirements for reporting the number of jobs created,” the OIG said in a statement.

“If recipients incorrectly reported the number of jobs created in the quarter ending March 31, 2011, and they used the same process to compute the number of jobs created in previous quarters, then errors would probably exist in the reporting for previous quarters.”

The report analyzed a sample of 99 stimulus awards for the quarter between Jan.1 , 2011 and March 31, 2011 –which accounted for approximately 375 of the 1,200 jobs that were reportedly saved or created in that same quarter.

From the sample of 99 awards, 33 contained job reporting errors.

During the quarter ended March 31, 2011, USDA reported 10,600 jobs were created or saved due to Stimulus funding.

To properly review data analysis procedures, OIG interviewed USDA agency representatives, reviewed laws and regulations and then conducted a “detailed review” of the 99 awards in the sample.

The report recommends that USDA agencies ensure that job numbers correctly correspond to awards, and award recipients only report job numbers for individual quarters.

“Direct agencies to develop data tests and guidance to improve their reviews of the jobs information reported on FederalReporting.gov,” the report said.

“This includes, but is not limited to, ensuring that the project description fields match the number of jobs reported, recipients with multiple awards are reporting accurately, and recipients are reporting only the jobs created or saved during the quarter being reported.”

Continued in article

Governmental Accounting is Done With Smoke and Mirrors ---

Bob Jensen's fraud updates ---

Boehner's Plan B was killed in the House of Representatives on December 20, 2012
Many portions of this plan (including the million dollar threshold) were originally proposed by House Minority Leader Nancy Pelosi.

From the TaxProf (Paul Caron) Blog on December 21, 2012

The Competing Obama and Boehner Tax Plans

Paul Krugman will despise this article
"The Baby Boom and Financial Doom," by Fareed Zakaria, Time Magazine, December 24, 2012, Page 22 ---

The American left has trained its sights on a new enemy: Pete Peterson. The banker and private-equity billionaire is, at first glance, an obvious target--rich and Republican. He stands accused of being the evil genius behind all the forces urging Washington to do something about the national debt. "The Peter G. Peterson Foundation is deficit-scold central," writes columnist Paul Krugman.

But for a deficit scold, Peterson does not seem very concerned about today's budget. "The current deficit is not the problem," he told me recently. "I wouldn't enact any measures to reduce it until the economy recovers properly." In fact, he is even in favor of additional stimulus spending, "as long as it's well designed and paid for," he notes. "My overriding concern has always been the long-term outlook, the massive structural deficits that we face as the baby boomers start retiring in large numbers. That's the problem we've simply refused to confront."

The facts are hard to dispute. In 1900, 1 in 25 Americans was over the age of 65. In 2030, just 18 years from now, 1 in 5 Americans will be over 65. We will be a nation that looks like Florida. Because we have a large array of programs that provide guaranteed benefits to the elderly, this has huge budgetary implications. In 1960 there were about five working Americans for every retiree. By 2025, there will be just over two workers per retiree. In 1975 Social Security, Medicare and Medicaid made up 25% of federal spending. Today they add up to a whopping 40%. And within a decade, these programs will take up over half of all federal outlays.

Some argue that Peterson has been banging this drum for years--decades --and yet the grim reaper has not arrived. But we have postponed the problem by borrowing heavily for three decades, and there is a limit to how long we can keep increasing debt, which now stands at 100% of GDP. The budgetary strains are already apparent. Federal spending on everything other than entitlements and defense has been steadily shrinking for decades. Cities and states are in a downward spiral. A recent report from the National Governors Association points out that Medicaid is now the single largest item on state budgets and has grown by over 20% each of the past two years. As a result, spending on everything else is being slashed, from police and poverty programs to public education.

This trend will intensify. The Peter G. Peterson Foundation calculates--using Congressional Budget Office numbers--that by 2040 we are likely to spend 10% of GDP on interest payments alone (vs. 1.4% today). That's four times what we spend on education, infrastructure and scientific research. Since entitlements and defense spending have powerful interest-group support, what will wither is everything else. The left must ask itself why it is tethered to a philosophy that insists that government's overwhelming responsibility is for pensions and health care even when, as an inevitable consequence, this starves other vital functions of the state. Is insurance for the elderly the only important function of government? Above education? Above scientific innovation? Above investments in infrastructure and energy? Above poverty alleviation? And yet that is where we are headed.

Peterson is the wrong target for liberals.
Since the 1980s, he has spent most of his political energy attacking his fellow Republicans for their allergy to taxes. He came to prominence as a deficit hawk in 1982, when he wrote a long essay on Social Security for the New York Review of Books; he later wrote a cover story for the Atlantic in 1987. When Ronald Reagan was at the height of his popularity, Peterson ridiculed supply-side economics, knowing full well that this made him--a former Secretary of Commerce--toxic for any higher Republican office.

"I want to strengthen the safety net for the poor. But to do so, we have to reform entitlements, because they are simply not sustainable in their current form," Peterson says. "The elderly population is doubling, and health care costs are rising rapidly." His foundation is making the control of health care costs its No. 1 priority. "But we need to start making changes soon, because the longer we wait, the more painful will be the eventual changes," he says.

Continued in article

Peter G. Peterson Website on Deficit/Debt Solutions ---

Note the Foundation's Videos.

Note the GAO graphs at

Bob Jensen's threads on the pending entitlements disaster ---

"Fathers disappear from households across America Big increase in single mothers," by Luke Rosiak, The Washington Times, December 26, 2012 ---

Nicole Hawkins‘ three daughters have matching glittery boots, but none has the same father. Each has uniquely colored ties in her hair, but none has a dad present in her life.

As another single mother on Sumner Road decked her row-house stoop with Christmas lights and a plastic Santa, Ms. Hawkins recalled that her middle child’s father has never spent a holiday or birthday with her. In her neighborhood in Southeast Washington, 1 in 10 children live with both parents, and 84 percent live with only their mother.

In every state, the portion of families where children have two parents, rather than one, has dropped significantly over the past decade. Even as the country added 160,000 families with children, the number of two-parent households decreased by 1.2 million. Fifteen million U.S. children, or 1 in 3, live without a father, and nearly 5 million live without a mother. In 1960, just 11 percent of American children lived in homes without fathers.

America is awash in poverty, crime, drugs and other problems, but more than perhaps anything else, it all comes down to this, said Vincent DiCaro, vice president of the National Fatherhood Initiative: Deal with absent fathers, and the rest follows.

People “look at a child in need, in poverty or failing in school, and ask, ‘What can we do to help?’ But what we do is ask, ‘Why does that child need help in the first place?’ And the answer is often it’s because [the child lacks] a responsible and involved father,” he said.

The spiral continues each year. Married couples with children have an average income of $80,000, compared with $24,000 for single mothers.

“We have one class that thinks marriage and fatherhood is important, and another which doesn’t, and it’s causing that gap, income inequality, to get wider,” Mr. DiCaro said.

The predilection among men to walk away from their babies is concentrated in the inner cities. In Baltimore, 38 percent of families have two parents, and in St. Louis the portion is 40 percent.

The near-total absence of male role models has ripped a hole the size of half the population in urban areas.

Tiny selfless deeds trickle in to fill that hole as the natural human desire for intimacy is fulfilled: One afternoon last week as a girl hoisted a half-eaten ice cream sandwich high over her pigtailed head, Larry McManus, the father of the girl’s sister, bent down to eat out of her hands as he picked up the girls from school.

“I know dads that say they ain’t their kids. I see dads being disrespectful of the mothers. And I see ones who take other men’s kids to football games because they know their fathers aren’t around,” said Mr. McManus, an ex-felon who said he is “trying to make a lot of changes right now.”

Asked his daughter’s age, he consults with her sister.

“Five. She’s in pre-K,” the girl answered.

“She’s 5,” he echoed. “Mmm, that was good,” he said gently of the ice cream sandwich. “Can I have another bite, please?”

Continued in article

Household income is the primary basis for measuring changes in income and inequality. If two people earning $30,000 each join together in a shared household they  have $60,000 to afford better housing, share automobiles, share computers, buy bigger home entertainment systems, etc. One theory is that as shared households decline due to single-person living, the statistics of poverty and inequality should get worse in terms of "household income."

This is one basis for arguing that increases in inequality measures are artifacts, at least in part, of computing inequality on the basis of household income.

The Growth Trend of Americans Living Alone --- Click Here


Jensen Comment
Be that as it may, households often have multiple people living on only one person's income plus possible supplements such as child welfare payments, food stamps, etc. Under this theory, poverty and inequality may increase as more households have multiple people sharing one income.

About all I can conclude from all these interacting factors is that measures of inequality such as Gini Coefficients may not be all that comparable over time due to changes in "households." It is well known that Gini Coefficients are not comparable between nations having different absolute levels of poverty. In addition, they may not be all that comparable for one nation over time ---

December 27, 2012 message from Glen Gray

Although it’s only tangentially related to this topic, I heard the following yesterday on NPR: France’s president wants to ban homework because it’s unfair to students from poor families because poor students don’t get help with their homework at home, but middle-class students do get help—therefore homework is inherently unfair and, therefore, should be eliminated. While his statement about poor students is may be true, his proposed solution seems to be the worse of many possible solutions.




These kinds of stories remind we of Kurt Vonnegut’s short story, “Harrison Bergeron,” published in 1961—a very chilling story. Here is the start of the summary in Wikipedia:

“It is the year 2081. Because of Amendments to the Constitution, every American is fully equal, meaning that no one is smarter, better-looking, stronger, or faster than anyone else. The Handicapper General and a team of agents ensure that the laws of equality are enforced. The government forces citizens to wear "handicaps" (a mask if they are too handsome or beautiful, earphones with deafening radio signals to make intelligent people unable to concentrate and form thoughts, and heavy weights to slow down those who are too strong or fast).

One April, 14 year old Harrison Bergeron, a highly intelligent, handsome child, is taken away from his parents, George and Hazel, by the government. George and Hazel are not fully aware of the tragedy. Hazel’s lack of awareness is due to "average" intelligence, which in 2081, is the politically correct way of referring to someone of well-below-average intelligence. George does not comprehend the tragedy since the law requires him to wear the radio ear piece for twenty-four hours a day because he is of above-average intelligence. The government broadcasts noise over these radios to interrupt the thoughts of intelligent people like George.”


Glen L. Gray, PhD, CPA
Dept. of Accounting & Information Systems
College of Business & Economics
California State University, Northridge
18111 Nordhoff ST
Northridge, CA 91330-8372


William F. Buckley, Jr. --- http://en.wikipedia.org/wiki/William_F._Buckley,_Jr.

William A. Rusher --- http://en.wikipedia.org/wiki/William_Rusher

Bill Buckley, a great and entertaining debater, for decades was the leading spokesman of contemporary conservatism as founder and editor of The New Republic.
William Rusher was “the other Bill.” But in many ways it’s Rusher, not Buckley, who shaped contemporary conservatism.

"The Syndicate," by Geoffrey Kabaservice, The New Republic, August 27, 2012 ---

If Not Us, Who? William Rusher, National Review, and the Conservative Movement
by David B. Frisk
ISI Books, 517 pp., $34.95

ON APRIL 15, 1974, A DEBATE failed to take place at Yale University, even though the speakers were present and the auditorium was full. William Shockley, the Nobel laureate physicist turned eugenicist crank, faced William A. Rusher, the publisher of the leading conservative magazine, National Review. Shockley came to argue that, since black people were intellectually deficient for genetic reasons, the government should support their sterilization. Rusher did not have a problem with Shockley’s racism: “I have no objection to Shockley’s premise,” he wrote. He intended to criticize Shockley only for his misplaced (“liberal”) faith in government’s ability to cure the problem of racial IQ inferiority.

Predictably, the students in the audience shouted down both speakers. The university was overwhelmed by negative publicity, and criticized for blocking free speech. The media made much of the students’ rudeness toward Rusher—didn’t they realize that he was there to oppose the racist viewpoint? (The media reaction was evidence of the success of Rusher’s effort—and the laziness of the press.) The whole episode, in short, was a work of conservative-movement performance art that bore Rusher’s characteristic hallmarks: it was media-savvy, cynical, manipulative, embarrassing to the establishment, possessed of a nasty racial edge, and too clever by half.

The Shockley brouhaha isn’t mentioned in David B. Frisk’s new biography of Rusher. Like most books about the movement that are blurbed, reviewed, published, and read almost exclusively by conservatives, the biography is generally uncritical of its subject and skirts episodes that might discredit the cause. The book is instead concerned with presenting an engaging portrait of the man who spent most of his life known as “the other Bill,” overshadowed by National Review’s flamboyant editor-in-chief, William F. Buckley, Jr. It also makes the case that Rusher strengthened the conservative movement by providing political intelligence and perspective that Buckley lacked. Yet Frisk’s unwillingness to grapple with the grittier details of Rusher’s career curiously undervalues his subject, for in many ways it was Rusher, not Buckley, who was the founding father of the conservative movement as it currently exists. We have Rusher, not Buckley, to thank for the populist, operationally sophisticated, and occasionally extremist elements that characterize the contemporary movement.

Rusher was born in Chicago in 1923, and although he grew up in the New York City area he remained skeptical of the East Coast and its liberal ways for all of his life. Rusher’s parents argued viciously before they divorced, perhaps ruining him for marriage, while also—according to Frisk—teaching him how to win debates by taking advantage of opponents’ weak spots. Rusher mastered his debating skills as an undergraduate at Princeton in the early 1940s, where he acquired another lifelong trait: his resentment of the establishment. Aristocratic swells at pre-war Princeton deemed him an un-clubbable middle-class striver (“black shoe,” in the terminology of the day), instilling a lifelong hatred of liberal elites.

Rusher’s introduction to practical politics began in the early 1950s, not long after his graduation from Harvard Law School, when his involvement in the national Young Republican (YR) federation connected him with the strategic genius F. Clifton White. Rusher and White went on to create a political machine that held the YRs in thrall for decades to come. The Syndicate, as the White-Rusher nation-wide network of low-level Republican operatives became known, allowed the two men to extend their influence beyond the YRs to the broader Republican Party—imitating the structure of New York governor Thomas Dewey’s tightly run national Republican network, which helped to deliver the 1952 and 1956 presidential elections to Dewey’s favored candidate, Dwight D. Eisenhower.

As Rusher’s anti-Communist feelings intensified and he became increasingly aligned with National Review (which he joined as publisher in 1957), the Syndicate began to siphon off power from the Dewey organization and to turn the party away from Dewey-Eisenhower moderation. White and Rusher masterminded the delegate-hunting operation that led to Barry Goldwater’s seizure of the GOP presidential nomination in 1964, and Syndicate alumni went on to high positions in Republican administrations. Many are still active in party politics today.

Scholars, including Frisk, have yet to analyze the Syndicate adequately, mostly because its activities were necessarily sub rosa and directed against moderates inside the GOP rather than Democrats. (Conservatives, by and large, do not write about the movement as impartial scholars, and the internal developments of the Republican Party were out of academic vogue until quite recently.) But the Syndicate provided much of the conservative movement’s ideological content and personnel, as well as its tactics and tone. Many of those tactics were borrowed directly from the Communist Party: manipulation of elections, the creation of front groups, intimidation, slander, agit-prop techniques, and an ends-justify-the-means approach. Rusher was rather proud of his mastery of what he called “the black art of winning conventions” and other political contests, but the darker side of the Syndicate’s influence is still felt today: it provided a template for a movement that knows very much about how to incite resentments and oppose establishments, but very little about how to govern.

Frisk averts his gaze from the Syndicate’s unsavory activities and focuses on more pleasant and often quite fascinating matters, such as Rusher’s relations with Buckley, his debates with other National Review colleagues, his extensive travels to anti-Communist bastions, and his connoisseurship in food and wine. Frisk describes Rusher’s generous mentorship of generations of right-wing activists and his indefatigable correspondence with movement participants. Though Rusher achieved some public prominence through his nationally syndicated column “The Conservative Advocate” (published from 1973 to 2009), his speeches, and his appearances on the PBS television show The Advocates during the ’70s, Frisk’s account suggests that his more significant role may have been as a movement nexus and motivator, a sort of Allard Lowenstein of the right.

In fact, Rusher was something of a sage, outlining the conservative future in 1963 in his essay “Crossroads for the GOP,” which called for the joining of white Southern populists with traditional-minded economic conservatives—a prophetic glimpse of the Southern Strategy that began under Richard Nixon and has continued to the present day. But he had little confidence in his vision. He was quite skeptical that the Republican Party could ever be converted, and devoted much of his energies to a quixotic quest for a conservative third party. As late as 1979, he called the Republican Party “that putrefying corpse,” and asked a friend, “Do you see the slightest evidence that the GOP is really going anywhere?” Ironically, it is Rusher’s polarizing caricature of an America divided into “producers” and “non-producers” that has lived on in the Tea Partiers today.

But Frisk makes a strong case that Rusher was not a mere populist propagandist. Though he was passionately opposed to abortion, for example, he warned pro-lifers that American democracy “requires constant compromise among people who differ passionately.” Still, Rusher was, as he put it (paraphrasing Napoleon), “not very fond of women or games. ... 100 percent a political animal.” Partisan politics colored his whole life, and he apparently had only a single Democratic friend. And he was, ultimately, a hard-shelled conservative warrior.

Continued in article

Jensen Comment
Sadly conservatism is mostly a topic of history as the Academy surrounds itself with a liberal choir these days. Rusher may be one of the reasons vocal conservatives re despised on campus. Sadly when a scholar wears the Scarlet C around his/her neck that scholar is deemed to accept even the most objectionable extremes of conservatism. Similarly, when a radical liberal wears a Scarlet L around his/her neck that scholar is deemed to accept even the most objectionable extremes of liberalism. Scholars that think for themselves should be afforded more respect.

Sadly on college campuses the liberals built politically correct walls to shut out debate that is not politically correct. The days of civil debate on some topics are over..

96% of the faculty and staff at Ivy League colleges that contributed to the 2012 presidential race donated to President Obama's campaign, reveals a Campus Reform investigation compiled using numbers released by the Federal Election Commission (FEC). From the eight elite schools, $1,211,267 was contributed to the Obama campaign, compared to the $114,166 given to Romney. The highest percentage of Obama donors came from Brown University and Princeton, with 99 percent of donations from faculty and staff going towards his campaign.
Oliver Darcey, November 24, 2012 --- http://www.campusreform.org/blog/?ID=4511

"Moving Further to the Left," by Scott Jaschik, Inside Higher Ed, October 24, 2012 ---

"The Academic Mob Rules Instead of encouraging wide discussion, the Chronicle of Higher Education fires a blogger," by Naomi Schaefer Riley, The Wall Street Journal, May 8, 2012 ---

"A Different Ann Coulter Debate," by Scott Jaschik, Inside Higher Ed, November 12, 2012 ---

The Nobel Prize for Political Literature:  Tolstoy and Twain never won, but many obscure writers have. Criteria other than high art seem to be involved," by Joseph Epstein, The Wall Street Journal, October 14, 2012 ---

"The Liberal Skew in Higher Education," by Richard Posner, The Becker-Posner Blog, December 30, 2007 --- http://www.becker-posner-blog.com/

"The Difference Between Political Journalists and B-School Profs," by Justin Fox, Harvard Business Review Blog, March 9, 2010 ---

"New View of Faculty Liberalism:  Why are professors liberal?" by Scott Jaschik, Inside Higher Ed, January 18, 2010 ---

Bob Jensen's threads about the liberal bias of the media and the Academy are at ---

"Can the Estate Tax Solve the Fiscal Cliff?" by Christopher Matthews, Time Magazine, December 11, 2012 ---

Jensen Comment
I've been a long-time advocated of greatly increased estate taxation. But I also see problems if the threshold is set too high to protect family farms. Family farm estates, along with many other estates like farm estates, have frequent problems with liquidity. Estate taxes will exacerbate that problem to a point where the assets of the estate (e.g., the farm land and equipment) must be auctioned off to pay increased estate taxes. The end result will be ever-increasing loss of family farms to big agribusiness conglomerates. Maybe this is inevitable even without increasing estate taxes, but I would hope that along with increases in estate taxation some innovative solutions are found to allow farms to be passed on to family heirs rather than forcing these farms to be victims of ever-increasing ownership of the land by giant and faceless multinational corporations.


A rare voice for conservatism in our liberal Academy
Luigi Zingales at the University of Chicago --- http://en.wikipedia.org/wiki/Luigi_Zingales

Video on A Captitalism for the People (ISBN-13: 9780465029471 ) for the ," by Luigi Zingales ---

Forwarded by Dr. Wolff

> They're not happy in Gaza.............
> They're not happy in Egypt............
> They're not happy in Libya.............
> They're not happy in Morocco.........
> They're not happy in Iran.............
> They're not happy in Iraq.............
> They're not happy in Yemen...........
> They're not happy in Afghanistan....
> They're not happy in Pakistan.........
> They're not happy in Syria............
> They're not happy in Lebanon.........
> They're happy in Australia.....
> They're happy in Canada........
> They're happy in England.......
> They're happy in France........
> They're happy in Italy..........
> They're happy in Germany......
> They're happy in Sweden.......
> They're happy in the U.S.A....
> They're happy in Norway.......
> They're happy in Holland........
> They're happy in Denmark......
> Basically, they're happy in every country that is
> not Muslim and unhappy in every country that is!

Jensen Comment
The extent they are happy in non-Muslim nations is debatable. In most instances they may appear to be happy because they are not totally free to to express their unhappiness and lack the voting blocs to change things they don't like. Most do not want to be shipped back to their countries of origin, especially the women. What is remarkable is how they live side-by-side with religions that are being quashed in the Muslim nations.

InfoGraphic on How the Tax Burden Has Changed ---

Case Studies in Gaming the Income Tax Laws ---

Ross School (University of Michigan) Nearly Erases MBA Gender Pay Gap -(for graduates) ---

At the University of Texas women MBAs beat out the men ---

Jensen Comment
This does not mean that there were no differences between majors. For example, women finance graduates earned about $6,500 less than men majoring in finance, but they may have been paid more than women in management and marketing. I do not know that this is the case, but as in the case of comparing inequality between nations, it's important to note that the degree of equality is not nearly as important as the level of poverty. For example, the Gini Coefficients of equality are about the same for Canada and North Korea, but the absolute differences in poverty are immense.

Accounting firms probably do not hire many MBA graduates from Michigan since Michigan has a separate Masters of Accounting Program ---
It would surprise me if there were any gender differences in salary offers in this MAC program, although there may be some racial differences where top minority graduates have higher offers than whites.

The one question about all this that I would raise is job location. At Trinity University when I was still teaching we sometimes placed a single graduate from our very small MS in Accounting graduating class at a higher salary in San Francisco or some other city having very high living costs.

The ANOVA statistician in me questions gender comparisons across geographic cells having greatly varying living costs. For example the MBA woman landing a consulting job for $140,000 in San Francisco or Geneva really cannot compare her salary with the woman who gets $140,000 in Detroit. In Detroit some relatively nice houses are being given away free to people who will occupy them full time. The exact same house in San Francisco might sell for $845,000. So much for declaring that both women are being paid the same.

It's also difficult to compare salary offers that are variable. For example, it's common to offer base salary plus commissions for majors in marketing and finance for stock brokers and other sales jobs.

In the 1990s it would've also been difficult to compare some salary offers for graduates in finance and computer science. For example, I know about a Stanford Computer Science graduate who was paid minimum wage plus $1 million in stock options. I think this type of hiring declined when the 1990s technology bubble burst and FAS 126R went into effect. FAS 123R pretty much killed stock option compensation.

Bob Jensen's threads on gender salary differences ---


You can't simply save money chasing wages (overseas) anymore.
Charles Fishman (see article forwarded by Bob Overn)

My reply to my distant cousin Bob Overn is an article by Paul Krugman about robots.

"Rise of the Robots," by Paul Krugman, The New York Times, December 8, 2012 ---

Catherine Rampell and Nick Wingfield write about the growing evidence for “reshoring” of manufacturing to the United States. They cite several reasons: rising wages in Asia; lower energy costs here; higher transportation costs. In a followup piece, however, Rampell cites another factor: robots.

The most valuable part of each computer, a motherboard loaded with microprocessors and memory, is already largely made with robots, according to my colleague Quentin Hardy. People do things like fitting in batteries and snapping on screens.

As more robots are built, largely by other robots, “assembly can be done here as well as anywhere else,” said Rob Enderle, an analyst based in San Jose, Calif., who has been following the computer electronics industry for a quarter-century. “That will replace most of the workers, though you will need a few people to manage the robots.”

Robots mean that labor costs don’t matter much, so you might as well locate in advanced countries with large markets and good infrastructure (which may soon not include us, but that’s another issue). On the other hand, it’s not good news for workers!

This is an old concern in economics; it’s “capital-biased technological change”, which tends to shift the distribution of income away from workers to the owners of capital.

Twenty years ago, when I was writing about globalization and inequality, capital bias didn’t look like a big issue; the major changes in income distribution had been among workers (when you include hedge fund managers and CEOs among the workers), rather than between labor and capital. So the academic literature focused almost exclusively on “skill bias”, supposedly explaining the rising college premium.

But the college premium hasn’t risen for a while. What has happened, on the other hand, is a notable shift in income away from labor:.

Insert Graph

If this is the wave of the future, it makes nonsense of just about all the conventional wisdom on reducing inequality. Better education won’t do much to reduce inequality if the big rewards simply go to those with the most assets. Creating an “opportunity society”, or whatever it is the likes of Paul Ryan etc. are selling this week, won’t do much if the most important asset you can have in life is, well, lots of assets inherited from your parents. And so on.

I think our eyes have been averted from the capital/labor dimension of inequality, for several reasons. It didn’t seem crucial back in the 1990s, and not enough people (me included!) have looked up to notice that things have changed. It has echoes of old-fashioned Marxism — which shouldn’t be a reason to ignore facts, but too often is. And it has really uncomfortable implications.

But I think we’d better start paying attention to those implications.

Also see http://roboticsonline.wordpress.com/2011/07/18/educating-congress-about-robots-in-manufacturing/


---------- Forwarded message ----------
From: overnboblo <overnboblo@comcast.net>
Date: Tue, Dec 11, 2012 at 6:17 PM
Subject: The Insourcing Boom
To: Bob & Ericka Jensen <rjensen@trinity.edu>


"The Insourcing Boom," by Charles Fishman, Atlantic Magazine, December 2012 ---

After years of offshore production, General Electric is moving much of its far-flung appliance-manufacturing operations back home. It is not alone. An exploration of the startling, sustainable, just-getting-started return of industry to the United States.
By Charles Fishman
For much of the past decade, General Electric’s storied Appliance Park, in Louisville, Kentucky, appeared less like a monument to American manufacturing prowess than a memorial to it.

The very scale of the place seemed to underscore its irrelevance. Six factory buildings, each one the size of a large suburban shopping mall, line up neatly in a row. The parking lot in front of them measures a mile long and has its own traffic lights, built to control the chaos that once accompanied shift change. But in 2011, Appliance Park employed not even a tenth of the people it did in its heyday. The vast majority of the lot’s spaces were empty; the traffic lights looked forlorn.


In 1951, when General Electric designed the industrial park, the company’s ambition was as big as the place itself; GE didn’t build an appliance factory so much as an appliance city. Five of the six factory buildings were part of the original plan, and early on Appliance Park had a dedicated power plant, its own fire department, and the first computer ever used in a factory. The facility was so large that it got its own ZIP code (40225). It was the headquarters for GE’s appliance division, as well as the place where just about all of the appliances were made.


By 1955, Appliance Park employed 16,000 workers. By the 1960s, the sixth building had been built, the union workforce was turning out 60,000 appliances a week, and the complex was powering the explosion of the U.S. consumer economy.


The arc that followed is familiar. Employment kept rising through the ’60s, but it peaked at 23,000 in 1973, 20 years after the facility first opened. By 1984, Appliance Park had fewer employees than it did in 1955. In the midst of labor battles in the early ’90s, GE’s iconic CEO, Jack Welch, suggested that it would be shuttered by 2003. GE’s current CEO, Jeffrey Immelt, tried to sell the entire appliance business, including Appliance Park, in 2008, but as the economy nosed over, no one would take it. In 2011, the number of time-card employees—the people who make the appliances—bottomed out at 1,863. By then, Appliance Park had been in decline for twice as long as it had been rising.


Yet this year, something curious and hopeful has begun to happen, something that cannot be explained merely by the ebbing of the Great Recession, and with it the cyclical return of recently laid-off workers. On February 10, Appliance Park opened an all-new assembly line in Building 2—largely dormant for 14 years—to make cutting-edge, low-energy water heaters. It was the first new assembly line at Appliance Park in 55 years—and the water heaters it began making had previously been made for GE in a Chinese contract factory.


On March 20, just 39 days later, Appliance Park opened a second new assembly line, this one in Building 5, to make new high-tech French-door refrigerators. The top-end model can sense the size of the container you place beneath its purified-water spigot, and shuts the spigot off automatically when the container is full. These refrigerators are the latest versions of a style that for years has been made in Mexico.


Another assembly line is under construction in Building 3, to make a new stainless-steel dishwasher starting in early 2013. Building 1 is getting an assembly line to make the trendy front-loading washers and matching dryers Americans are enamored of; GE has never before made those in the United States. And Appliance Park already has new plastics-manufacturing facilities to make parts for these appliances, including simple items like the plastic-coated wire racks that go in the dishwashers.


In the midst of this revival, Immelt made a startling assertion. Writing in Harvard Business Review in March, he declared that outsourcing is “quickly becoming mostly outdated as a business model for GE Appliances.” Just four years after he tried to sell Appliance Park, believing it to be a relic of an era GE had transcended, he’s spending some $800 million to bring the place back to life. “I don’t do that because I run a charity,” he said at a public event in September. “I do that because I think we can do it here and make more money.”


Immelt hasn’t just changed course; he’s pirouetted.


What has happened? Just five years ago, not to mention 10 or 20 years ago, the unchallenged logic of the global economy was that you couldn’t manufacture much besides a fast-food hamburger in the United States. Now the CEO of America’s leading industrial manufacturing company says it’s not Appliance Park that’s obsolete—it’s offshoring that is.


Why does it suddenly make irresistible business sense to build not just dishwashers in Appliance Park, but dishwasher racks as well?
In the 1960s, as the consumer-product world we now live in was booming, the Harvard economist Raymond Vernon laid out his theory of the life cycle of these products, a theory that predicted with remarkable foresight the global production of goods 20 years later. The U.S. would have an advantage making new, high-value products, Vernon wrote, because of its wealth and technological prowess; it made sense, at first, for engineers, assembly workers, and marketers to work in close proximity—to each other and to consumers—the better to get quick feedback, and to tweak product design and manufacture appropriately. As the market grew, and the product became standardized, production would spread to other rich nations, and competitors would arise. And then, eventually, as the product fully matured, its manufacture would shift from rich countries to low-wage countries. Amidst intensifying competition, cost would become the predominant concern, and because the making and marketing of the product were well understood, there would be little reason to produce it in the U.S. anymore.


Vernon’s theory has been borne out again and again over the years. Amana, for instance, introduced the first countertop microwave—the Radarange, made in Amana, Iowa—in 1967, priced at $495. Today you can buy a microwave at Walmart for $49 (the equivalent of a $7 price tag on a 1967 microwave)—and almost all the ones you’ll see there, a variety of brands and models, will have been shipped in from someplace where hourly wages have historically been measured in cents rather than dollars.


Outsourcing, says Jeffrey Immelt, is quickly becoming “outdated as a business model for GE Appliances.”
But beginning in the late 1990s, something happened that seemed to short-circuit that cycle. Low-wage Chinese workers had by then flooded the global marketplace. (Even as recently as 2000, a typical Chinese factory worker made 52 cents an hour. You could hire 20 or 30 workers overseas for what one cost in Appliance Park.) And advances in communications and information technology, along with continuing trade liberalization, convinced many companies that they could skip to the last part of Vernon’s cycle immediately: globalized production, it appeared, had become “seamless.” There was no reason design and marketing could not take place in one country while production, from the start, happened half a world away.
You can see this shift in America’s jobs data. Manufacturing jobs peaked in 1979 at 19.6 million. They drifted down slowly for the next 20 years—over that span, the impact of offshoring and the steady adoption of labor-saving technologies was nearly offset by rising demand and the continual introduction of new goods made in America. But since 2000, these jobs have fallen precipitously. The country lost factory jobs seven times faster between 2000 and 2010 than it did between 1980 and 2000.


Until very recently, this trend looked inexorable—and the significance of the much-vaunted increase in manufacturing jobs since the depths of the recession seemed easy to dismiss. Only 500,000 factory jobs were created between their low, in January 2010, and September 2012—a tiny fraction of the almost 6 million that were lost in the aughts. And much of that increase, at first blush, might appear to be nothing more than the natural (but ultimately limited) return of some of the jobs lost in the recession itself.


Yet what’s happening at GE, and elsewhere in American manufacturing, tells a different and more optimistic story—one that suggests the curvature of Vernon’s product cycle may be changing once again, this time in a way that might benefit U.S. industry, and the U.S. economy, quite substantially in the years to come.


The GeoSpring water heater—the one that just came home to Louisville from China—looks a little like R2‑D2, the Star Wars robot, although taller and slimmer. It has a long gray body, and a short top section—the brains—in gray or bright red, with a touch-pad control panel.


The magic is in that head: GE has put a small heat pump up there, and the GeoSpring pulls ambient heat from the air to help heat water. As a result, the GeoSpring uses some 60 percent less electricity than a typical water heater. (You can also control it using your iPhone.)


The GeoSpring is the kind of product we’ve come to expect will arrive on a boat from China—not much more than a curve of rolled steel, some pipes and heating elements, a circuit board, a coat of paint, and a cardboard box. And for the first two and a half years that GE sold the GeoSpring, that’s exactly where it came from.


At Appliance Park, this model of production—designed at home, produced abroad—had been standard for years. For the GeoSpring, it seemed both a victory and a vulnerability. The GeoSpring is an innovative product in a mature category—and offshore production, from the start, appeared to provide substantial cost savings. But making it in China also meant risking that it might be knocked off. And so in 2009, even as they were rolling it out, the folks at Appliance Park were doing the math on bringing it home.


Even then, changes in the global economy were coming into focus that made this more than just an exercise—changes that have continued to this day.
  • Oil prices are three times what they were in 2000, making cargo-ship fuel much more expensive now than it was then.
  • The natural-gas boom in the U.S. has dramatically lowered the cost for running something as energy-intensive as a factory here at home. (Natural gas now costs four times as much in Asia as it does in the U.S.)
  • In dollars, wages in China are some five times what they were in 2000—and they are expected to keep rising 18 percent a year.
  • American unions are changing their priorities. Appliance Park’s union was so fractious in the ’70s and ’80s that the place was known as “Strike City.” That same union agreed to a two-tier wage scale in 2005—and today, 70 percent of the jobs there are on the lower tier, which starts at just over $13.50 an hour, almost $8 less than what the starting wage used to be.
  • U.S. labor productivity has continued its long march upward, meaning that labor costs have become a smaller and smaller proportion of the total cost of finished goods. You simply can’t save much money chasing wages anymore.
So much has changed that GE executives came to believe the GeoSpring could be made profitably at Appliance Park without increasing the price of the water heater. “First we said, ‘Let’s just bring it back here and build the exact same thing,’ ” says Kevin Nolan, the vice president of technology for GE Appliances.


But a problem soon became apparent. GE hadn’t made a water heater in the United States in decades. In all the recent years the company had been tucking water heaters into American garages and basements, it had lost track of how to actually make them.


The GeoSpring in particular, Nolan says, has “a lot of copper tubing in the top.” Assembly-line workers “have to route the tubes, and they have to braze them—weld them—to seal the joints. How that tubing is designed really affects how hard or easy it is to solder the joints. And how hard or easy it is to do the soldering affects the quality, of course. And the quality of those welds is literally the quality of the hot-water heater.” Although the GeoSpring had been conceived, designed, marketed, and managed from Louisville, it was made in China, and, Nolan says, “We really had zero communications into the assembly line there.”


To get ready to make the GeoSpring at Appliance Park, in January 2010 GE set up a space on the factory floor of Building 2 to design the new assembly line. No products had been manufactured in Building 2 since 1998. An old GE range assembly line still stood there; after a feud with union workers, that line had been shut down so abruptly that the GeoSpring team found finished oven doors still hanging from conveyors 30 feet overhead. The GeoSpring project had a more collegial tone. The “big room” had design engineers assigned to it, but also manufacturing engineers, line workers, staff from marketing and sales—no management-labor friction, just a group of people with different perspectives, tackling a crucial problem.


“We got the water heater into the room, and the first thing [the group] said to us was ‘This is just a mess,’ ” Nolan recalls. Not the product, but the design. “In terms of manufacturability, it was terrible.”
The GeoSpring suffered from an advanced-technology version of “IKEA Syndrome.” It was so hard to assemble that no one in the big room wanted to make it. Instead they redesigned it. The team eliminated 1 out of every 5 parts. It cut the cost of the materials by 25 percent. It eliminated the tangle of tubing that couldn’t be easily welded. By considering the workers who would have to put the water heater together—in fact, by having those workers right at the table, looking at the design as it was drawn—the team cut the work hours necessary to assemble the water heater from 10 hours in China to two hours in Louisville.


In the end, says Nolan, not one part was the same.


So a funny thing happened to the GeoSpring on the way from the cheap Chinese factory to the expensive Kentucky factory: The material cost went down. The labor required to make it went down. The quality went up. Even the energy efficiency went up.


GE wasn’t just able to hold the retail sticker to the “China price.” It beat that price by nearly 20 percent. The China-made GeoSpring retailed for $1,599. The Louisville-made GeoSpring retails for $1,299.


Time-to-market has also improved, greatly. It used to take five weeks to get the GeoSpring water heaters from the factory to U.S. retailers—four weeks on the boat from China and one week dockside to clear customs. Today, the water heaters—and the dishwashers and refrigerators—move straight from the manufacturing buildings to Appliance Park’s warehouse out back, from which they can be delivered to Lowe’s and Home Depot. Total time from factory to warehouse: 30 minutes.


For years, too many American companies have treated the actual manufacturing of their products as incidental—a generic, interchangeable, relatively low-value part of their business. If you spec’d the item closely enough—if you created a good design, and your drawings had precision; if you hired a cheap factory and inspected for quality—who cared what language the factory workers spoke?


This sounded good in theory. In practice, it was like writing a cookbook without ever cooking.
Lou Lenzi now heads design for all GE appliances, with a team of 25. But for years he worked for Thomson Consumer Electronics, which made small appliances—TVs, DVD players, telephones—with the GE logo on them. Thomson was an outsource shop. It designed stuff, then hired factories to make much of that stuff. Price was what mattered.
“What we had wrong was the idea that anybody can screw together a dishwasher,” says Lenzi. “We thought, ‘We’ll do the engineering, we’ll do the marketing, and the manufacturing becomes a black box.’ But there is an inherent understanding that moves out when you move the manufacturing out. And you never get it back.”
It happens slowly. When you first send the toaster or the water heater to an overseas factory, you know how it’s made. You were just making it—yesterday, last month, last quarter. But as products change, as technologies evolve, as years pass, as you change factories to chase lower labor costs, the gap between the people imagining the products and the people making them becomes as wide as the Pacific.


What is only now dawning on the smart American companies, says Lenzi, is that when you outsource the making of the products, “your whole business goes with the outsourcing.” Which raises a troubling but also thrilling prospect: the offshoring rush of the past decade or more—one of the signature economic events of our times—may have been a mistake.


Business practices are prone to fads, and in hindsight, the rush to offshore production 10 or 15 years ago looks a little extreme. The distance across the Pacific Ocean was as wide then as it is now, and the speed of cargo ships was just as slow. A lot of the very good reasons for bringing factories back to the U.S. today were potent arguments against offshoring in the first place.


It was important to innovate, and to protect innovations, 10 or 15 years ago. It was important to have designers, engineers, and assembly-line workers talk to each other then, too. That companies spent the past two decades ignoring those things just shows the power of price, even for people who should be able to take a broader view.


“There was a herd mentality to the offshoring. And there was some bullshit.” Many of the biggest costs were hidden.


Harry Moser, an MIT-trained engineer, spent decades running a business that made machine tools. After retiring, he started an organization called the Reshoring Initiative in 2010, to help companies assess where to make their products. “The way we see it,” says Moser, “about 60 percent of the companies that offshored manufacturing didn’t really do the math. They looked only at the labor rate—they didn’t look at the hidden costs.” Moser believes that about a quarter of what’s made outside the U.S. could be more profitably made at home


“There was a herd mentality to the offshoring,” says John Shook, a manufacturing expert and the CEO of the Lean Enterprise Institute, in Cambridge, Massachusetts. “And there was some bullshit. But it was also the inability to see the total costs—the engineers in the U.S. and factory managers in China who can’t talk to each other; the management hours and money flying to Asia to find out why the quality they wanted wasn’t being delivered. The cost of all that is huge.”


But many of those hidden costs come later. In the first blush of cheap manufacturing, it’s easy to overlook the slow loss of your own skills, the gradual homogenization of your products, the corrosion of quality and decline of innovation. And it’s easy to assume that globally distributed production will hum along more smoothly than it often does in practice: however strong the planning, some of those shipping containers will be opened to reveal damaged or substandard goods, and some of them won’t have the number or variety of goods a company needs at that very moment. “All you need is to have to hire one or two 747s a couple times to get product here in a hurry,” says Shook, “and you lose those savings.”


Thomas Mayor, a senior adviser with Booz & Company who specializes in manufacturing strategy, says that in industry after industry, he is seeing the same kind of reassessment GE has made. When asked about the value of the original rush offshore, Mayor laughs.
“Twelve years ago, I saw a lot of boards of directors and senior executives saying, ‘Three years from now, I’m going to be sourcing $4 billion in product from China. Go figure out how to make it happen.’ ” Part of the rationale, from the start, was merely to gain a foothold in the Chinese market. And for many companies, that made sense, at least to some extent. “But if you press them on their savings by sourcing from China for North America, I get stories like ‘Oh, I asked about that six months ago. I had five finance guys working on it, and they couldn’t come up with any savings.’ At the end of the day, they say, ‘If we were doing this for the U.S. market, we should never have gone to China in the first place.’ ”


GE is not alone in moving the manufacture of many of its products back to the U.S. The transformation under way at Appliance Park is mirrored in dozens of other places, with Whirlpool bringing mixer-making back from China to Ohio, Otis bringing elevator production back from Mexico to South Carolina, even Wham-O bringing Frisbee-molding back from China to California. The Boston Company published a paper in May on ways for investors to capitalize on the U.S. factory revival. ISI Group, an investment-research company, put out a 98‑page report in August, piling up reasons for the return of a strong U.S. industrial sector. Nancy Lazar, who co-authored the ISI Group report, says, “This is the beginning of a manufacturing renaissance. I’ve been saying this since 2009. Even the industrial companies told me I was crazy. Why are they telling me I’m crazy? Because they’ve spent the last 15 or 20 years putting the plants outside the U.S. That’s over.”


The recalibration of costs in recent years is one reason, and the competitive benefit of keeping production stateside is another. But the logic of onshoring today goes even further—and is driven, in part, by the newfound impatience of the product cycle itself.


Just a few years ago, the design of a new range or refrigerator was assumed to last seven years. Now, says Lou Lenzi, GE’s managers figure no model will be good for more than two or three years. This phenomenon is not limited to GE. The feverish cycle of innovation and new products beloved in the electronics world has infected all kinds of consumer categories. Products that once seemed mature—from stoves to greeting cards—are being reinvigorated with cheap computing technology. And the product life cycle is speeding up—many goods get outflanked by “smarter” versions every couple of years, or faster.


Factories take a while to settle into a new product, a new design. They face a learning curve. But models that have a run of only a couple years become outdated just as the assembly line starts to hum. That, too, makes using faraway factories challenging, even if they are cheap.


It is not, in fact, your mother’s refrigerator anymore. The highest-end French-door fridge being made at Appliance Park retails for $3,099. Its auto-fill water spigot is unique, and it is lit inside by 10 recessed LED bulbs that use almost no energy, create almost no heat, and never burn out.
The addition of high-tech components to everyday items makes production more complicated, and that means U.S. production is more attractive, not just because manufacturers now have more proprietary technology to protect, but because American workers are more skilled, on average, than their Chinese counterparts. And the short leap from one product generation to the next makes the alchemy among engineers, marketers, and factory workers all the more important.


One key difference between the U.S. economy today and that of 15 or 20 years ago is the labor environment—not just wages in factories, but the degree of flexibility displayed by unions and workers. Many observers would say these changes reflect a loss of power and leverage by workers, and they would be right. But management, more keenly aware of offshoring’s perils, is also trying to create a different (and better) factory environment. Hourly employees increasingly participate in workplace decision making in ways that are more like what you find in white-collar technology companies.
In late 2008, Dirk Bowman and Rich Calvaruso, both manufacturing managers at Appliance Park, were looking to shake up the place, desperate to keep it relevant. Bowman oversees all manufacturing at Appliance Park. He started there 29 years ago, fresh out of college, as the second-shift foreman on the dishwasher line. Calvaruso has worked for years in manufacturing at GE, and now helps other people at Appliance Park invent and then reinvent their work on the assembly lines.


“The dishwasher line was extremely long,” Bowman says. “It went from the back of the factory to the front, and back again. It was very loud. It was very expensive—each operator was surrounded by parts, a lot of inventory. It was a command-and-control operation.” It was the kind of operation Chinese companies could readily out-compete, and the kind U.S. factory managers were happy to outsource.
Both Bowman and Calvaruso knew something about “lean” manufacturing techniques—the style of factory management invented by Toyota whereby everyone has a say in critiquing and improving the way work gets done, with a focus on eliminating waste. Lean management is not a new concept, but outside of car making, it hasn’t caught on widely in the United States. It requires an open, collegial, and relentlessly self-critical mind-set among workers and bosses alike—a mind-set that is hard to create and sustain.


In the simplest terms, an assembly line is a way of putting parts together to make a product; lean production is a way of putting the assembly line itself together so the work is as easy and efficient as possible.


“We thought, ‘We gotta try something new,’ ” says Bowman. “ ‘We have to be competitive.’ ” Calvaruso put together a group that included hourly employees and told it to completely reimagine dishwasher assembly. The group was given this crucial guarantee: regardless of the efficiencies it created, “no one will lose their job because of lean.”
So the dishwasher team remade its own assembly line. It eliminated 35 percent of the labor.
What happened to the workers who were no longer needed for dishwasher assembly? Bowman and Calvaruso created another team and asked them to pick a dishwasher part they thought Appliance Park should, once again, be making itself. The team picked the top panel of the door—appliance people call it the “dishwasher escutcheon.” It’s the part you grab to open and close the dishwasher, where all the controls and buttons are. If you use a dishwasher, you touch the escutcheon.


“The escutcheon is a high-interface part with the consumer,” says Bowman. “We wanted to control the quality. We can deliver it more easily right here. And we actually thought we could do it cheaper.” And now they do


That’s how the outsourcing cycle starts to turn. Once you begin making the product itself, you get the itch to make the parts, too.


The dishwasher’s initial assembly-line redesign was a primitive version of lean. The full-blown, sophisticated version has spread across Appliance Park, into the work of the engineers, the designers, the salespeople, the bosses. Another team took a design for a new dishwasher into a room and pulled it apart. As originally designed, the door had four visible screws. The marketing people on the team wanted the door to have no visible screws—they wanted it iPhone-sleek. The operators loved that idea—four screws is a lot of assembly-line work. The engineers and designers came up with a design that holds the door together with one hidden screw and a rod.


“It’s easier to assemble,” says Calvaruso. “It’s cheaper. And the fit, feel, and finish are better.”


If the people who design dishwashers sit at their desks in one building, and the people who sell them to retailers and consumers sit at their desks in another building, and the people who make the dishwashers are in a different country and speak a different language—you never realize that the four screws should disappear, let alone come up with a way they can. The story of the four disappearing screws on that dishwasher door is why Jeffrey Immelt has the confidence to spend $800 million to bring Appliance Park back to life.


At the public event in September, Immelt captured the lessons of the new Appliance Park. “I think the era of inexpensive labor is basically over,” he said. “People that are out there just chasing what they view as today’s low-cost labor—that’s yesterday’s playbook.”


GE is rediscovering that how you run the factory is a technology in and of itself. Your factory is really a laboratory—and the R&D that can happen there, if you pay attention, is worth a lot more to the bottom line than the cost savings of cheap labor in someone else’s factory.


Outsourcing and the disappearance of U.S. factory jobs were the result of what often seemed like irresistible market forces—but they were also the result of individual decisions, factory by factory, spreadsheet by spreadsheet, company by company


Appliance Park will end this year with 3,600 hourly employees—1,700 more than last year, an increase of more than 90 percent. The facility hasn’t had this many assembly-line workers in a decade. GE has also hired 500 new designers and engineers since 2009, to support the new manufacturing.
GE’s appliance unit does $5 billion in business—and today, 55 percent of that revenue comes from products made in the United States. By the end of 2014, GE expects 75 percent of the appliance business’s revenue to come from American-made products like dishwashers, water heaters, and refrigerators, and the company expects that its sales numbers will be larger, as the housing market revives.


What’s happening in factories across the U.S. is not simply a reversal of decades of outsourcing. If there was once a rush to push factories of nearly every kind offshore, their return is more careful; many things are never coming back. Levi Strauss used to have more than 60 domestic blue-jeans plants; today it contracts out work to 16 and owns none, and it’s hard to imagine mass-market clothing factories ever coming back in significant numbers—the work is too basic.


Appliance Park once used its thousands of workers to make almost every part of every appliance; today, every component GE decides to make in Louisville returns home only after a careful calculation that balances quality, cost, skills, and speed. Appliance Park wants to make its own dishwasher racks, because it can, and because the rack is an important part of the dishwasher experience for customers. But Appliance Park will likely never again make its own compressors or motors, nor is it going to build a microchip-etching facility.


And of course, manufacturing employment will never again be as central to the U.S. economy as it was in the 1960s and ’70s—improvements in worker productivity alone ensure that. Back in the ’60s, Appliance Park was turning out 250,000 appliances a month. The assembly lines there today are turning out almost as many—with at most one-third of the workers.


All that said, big factories have a way of creating larger economies around them—they have a “multiplier effect,” in economic parlance. Revere Plastics Systems, one of GE’s suppliers, has opened a new factory just 20 minutes north of Appliance Park, across the Ohio River in Indiana, and has 195 people there working in three shifts around the clock. The manufacturing renaissance now under way won’t solve the jobs crisis by itself, but it could broaden the economy, and help reclaim opportunities—and skills—that have been lost across the past decade or more.


It’s possible that five years from now, everything will have unraveled—that the return of factory jobs will have been a temporary blip, that Appliance Park will be closed. (Business practices, after all, are prone to fads.)


But that doesn’t seem likely. Bringing jobs back to Appliance Park solves a problem. It is sparking a wave of fresh innovation in GE’s appliances—every major appliance line has been redesigned or will be in the next two years—and the experience of “big room” redesign, involving a whole team, is itself inspiring further, faster advances.


In fact, insourcing solves a whole bundle of problems—it simplifies transportation; it gives people confidence in the competitive security of their ideas; it lets companies manage costs with real transparency and close to home; it means a company can be as nimble as it wants to be, because the Pacific Ocean isn’t standing in the way of getting the right product to the right customer.


Many offshoring decisions were based on a single preoccupation—cheap labor. The labor was so cheap, in fact, that it covered a multitude of sins in other areas. The approach to bringing jobs back has been much more thoughtful. Jobs are coming back not for a single, simple reason, but for many intertwined reasons—which means they won’t slip away again when one element of the business, or the economy, changes.


"Raytheon's Missiles Are Now Made by Robots," by Ashlee Vance, Bloomberg Business Week, December 11, 2012 ---

Jensen Comment
What proportion of the Mac computers do you think will be built and tested by robots once Apple commences to build them in the U.S.A. instead of China and Ireland? Is this really going to make a dent in the number of unemployed workers?

Hi Zane,

It is interesting to contemplate what careers are the least vulnerable to technology advancements. I suspect barbers are pretty safe for a while.

But it is amazing how technology is changing the workplace.
  1. Surgeons can perform instrument surgery across thousands of miles (with local backups in case of emergencies). The remote surgeon is actually doing the cutting.
  2. I'm a little uncertain whether my primary physician can make a diagnosis without punching keys on a computer.
  3. Bus, truck, and even taxi drivers will one day be superfluous and relegated to emergency backup systems.
  4. Farm jobs like milking cows and combining thousands of acres of grain and feeding hundreds of cows and hogs are almost entirely automated today.
  5. A few years back I was on an American Airlines flight when the pilot announced that the entire landing was going to be turned over to an automatic pilot to test the landing system.
  6. Drones and robots will be conducting future wars.
  7. And the list of possibilities goes on and on, especially in education technology.

In times past it became interesting to find jobs that men could perform but women were unable to perform. For example, in the Air Force it was widely accepted that women could fly big planes but not supersonic fighter jets. I think that has been proved wrong these days.

In the same manner it's becoming interesting to find jobs that robots will be unable to perform in the future. And as organ transplants become more commonplace, there may even be a gray zone between what is human and what is robot. Today we can produce some organs like transplant bladders in a factory.

It's deemed possible today to breed humans without brains (primarily as repositories for human body spare parts).

Think of the possibilities for preserving a human body controlled by a robotic brain.

And think of the possibilities of transplanting a human brain into a robot.

Sorry for getting so carried away this early in the morning.


Teaching Case from The Wall Street Journal Accounting Weekly Review on December 13, 2012

Apple CEO Says Mac Production Coming to U.S.
by: Jessica E. Lessin and James R. Hagerty
Dec 07, 2012
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com WSJ Video

TOPICS: Capital Budgeting

SUMMARY: "Apple Inc. plans to build some Mac computers in the U.S. for the first time in about a decade, investing $100 million next year in an effort that could serve as a high-profile test of American manufacturing competitiveness....A company spokesman declined to comment on which parts would be made on U.S. soil. Piper Jaffray estimates that the sum would amount to 2% of Apple's 2013 capital expenditures."

CLASSROOM APPLICATION: The article may be used when discussing capital budgets. Questions ask the students to consider the political implications, often not quantifiable, of Apple's planned investments in U.S. manufacturing.

1. (Advanced) Define the term capital expenditures.

2. (Introductory) Why is Apple announcing now information about expenditures it expects to make in 2013? Based on the discussion in the article, list all factors you think are influencing the company's decision and timing of its announcement. (Hint: you may also refer to the related video to answer this question. Consider also the budgeting process in making your answer.)

3. (Introductory) Why is it important to consider the labeling requirements for identifying U.S. produced goods? Should these requirements be considered as part of the decisions about capital investment? Explain.

4. (Advanced) Define the term "supply chain." What structure has Apple put in place under its current system?

5. (Introductory) Based on numbers identified in the article, about how many U.S. employees does Apple currently have on staff, other than those in retail locations?

6. (Introductory) What are the challenges facing Apple in establishing this manufacturing in the U.S.?

Reviewed By: Judy Beckman, University of Rhode Island


"Apple CEO Says Mac Production Coming to U.S.," by Jessica E. Lessin and James R. Hagerty, The Wall Street Journal, December 7, 2012 ---

Apple Inc. AAPL -1.76% plans to build some Mac computers in the U.S. for the first time in about a decade, investing $100 million next year in an effort that could serve as a high-profile test of American manufacturing competitiveness.

The world's most valuable company has faced political pressure to bring jobs home and reduce its reliance on foreign subcontractors whose treatment of workers has come under harsh scrutiny.

The investment is a small sum compared with the billions of dollars Apple spends annually on manufacturing world-wide, mostly in Asia, whose factories produce the bulk of its high-tech goods.

Apple isn't providing details about the plans disclosed by Chief Executive Tim Cook on Thursday, beyond stating that it will work with manufacturing partners and do more than assemble parts built elsewhere. It said the investment would go toward production of an existing Mac line.

A company spokesman declined to comment on which parts would be made on U.S. soil.

Investment bank Piper Jaffray estimates that the sum would amount to 2% of Apple's 2013 capital expenditures. The company spent $9.5 billion on product tooling, manufacturing process equipment and other corporate facilities and infrastructure in its last fiscal year.

"It is almost like a trial," says Carolina Milanesi, an analyst at tech research firm Gartner Inc. IT -1.40% "If it works it works, and if it doesn't work they can say they tried it."

Apple's plan runs counter to a decades-old shift of production of computers, smartphones, TVs and other gadgets to Asia, particularly mainland China.

The Cupertino, Calif., company has built up one of the industry's most sprawling and complicated global supply chains, a feat often credited to the efforts of Mr. Cook before he succeeded Steve Jobs as Apple's chief executive last year. Mr. Cook disclosed the new plan in interviews with NBC News and Bloomberg.

Apple has taken heat from human rights groups for safety incidents and high working hours in factories where their products are assembled, prompting Mr. Cook to invest in improvements. He has also publicly lamented the loss of manufacturing skills in the U.S. and played down the odds of bringing the bulk of production back from Asia, where years of investment have created sophisticated networks of parts suppliers and factories with specialized production tools.

But Tom Mayor, a Cleveland-based expert on manufacturing at Booz & Co., a management consulting firm, says Apple's latest move appears to be "more than just political expediency."

He said some technology companies have been rethinking their manufacturing strategies after last year's earthquake in Japan, which disrupted global supply chains.

Some now believe they should reduce reliance on Asia and avoid being caught "with a supply base that sits on the ring of fire."

Labor costs in China, which have been rising in the double digits annually, are also changing the equation on the margin.

Still Matt Sheerin, a senior supply chain analyst for Stifel Nicolaus, says doing PC manufacturing "in a very big way" in the U.S. doesn't make sense.

He says electronics manufactures like Flextronics International Ltd. FLEX -0.49% and Jabil Circuit Inc., JBL -0.64% which both make parts for Apple, have largely exited the PC business. "They would have to get major margin and price concessions or they would take a big hit," he said.

Flextronics and Jabil didn't respond to requests for comment.

Apple faces a series of challenges with the Mac production plan, including likely investments in production tools and training. Apple sold 18.2 million Macs in its last fiscal year.

Another hurdle will be qualifying for a "made in the U.S.A." label.

The Federal Trade Commission, which sets standards for such claims, says that products can carry that label only if "all significant parts and processing that go into the product" are of U.S. origin.

At least some of the parts in any sophisticated electronic device would be likely to come from Asia.

Continued in article

Jensen Comment

Hi David,

What was announced by the Fed is that we will have QE printing of greenbacks until unemployment plunges to 6.5%, That's like a homeless wino's pledge to give up rot gut wine when he wins the lottery and can afford a roof over his head.

We probably will never shrink unemployment down to 6.5% as robots take over more and more of the skilled and unskilled labor jobs. It will be interesting to see where Apple locates its new manufacturing plants in the United States. Some might argue that it's certain to be in a right-to-work state like California.

But I don't think wages and labor laws will be of much concern to Apple since the new Apple plants will be so highly automated.

The impact of the new Apple and other returning (re-shoring) automated manufacturing plants on the unemployment rate will be epsilon.

A huge world war might reduce unemployment below 6.5%, but then we will use emergency war funding needs to carry on with QE printing of money.

Sooner than we expect, the $100 per gallon gas prices and that $25 cup of coffee will be upon us. But never fear. The government took fuel and food prices out of their calculations of inflation rates. Did you ever wonder why?

Bob Jensen

Some on the hard right (including the author from the Hoover Institute) favor eliminating the tax-exempt bonds.
But the argument below fails to mention that this is a diversion tax revenues from local taxpayers to big (Federal) government is tax inefficient.
The argument below fails to mention that local taxes for municipalities and schools are not ipso facto more corrupt than an out-of-control earmarking Congress.
Why give the Federal government money for wasteful pork barrel projects that deprives needed local projects for sewers, roads, and schools?

I would love to debate this supposed "conservatism" nonsense that is not really conservatism at all
"A Trillion Dollar Tax Increase That Republicans And Obama Should Agree To," by By Peter Schweizer, Forbes, December 13, 2012 ---

Liberals Opposed to Cap on Tax Deductions (SALT)
"Tax Plan Is Popular, but Not Quite Fair," by James B. Stewart, The New York Times, December 14, 2012 ---

Mitt Romney may have lost in November, but the ghost of the Republican presidential candidate lives on in the debate over tax reform and the fiscal cliff.

Mr. Romney’s proposal to limit itemized deductions to a fixed dollar amount, which surfaced during the campaign as a way to close loopholes for the wealthy and broaden the tax base, has attracted a surprising amount of bipartisan support, given its origins in conservative Republican circles.

“There’s renewed interest” in the cap on deductions, Senator Kent Conrad, the North Dakota Democrat who heads the Senate Budget Committee, told The Times last month as budget negotiations heated up.

The political appeal of a proposal that limits deductions without actually naming any — inciting the powerful interests and lobbyists that support them — seems obvious. But many tax experts said that a fixed dollar cap is anything but the evenhanded approach to closing loopholes it appears to be.

Moreover, without addressing larger tax preferences, like a lower rate on capital gains, it does almost nothing to cure the so-called Buffett problem, in which Warren Buffett’s secretary pays a higher effective rate than her billionaire boss. It doesn’t even raise much revenue.

Some tax experts have gone so far as to say it’s a conservative Trojan horse, a stealth tactic that protects the very wealthy while targeting Democrats who itemize deductions and live disproportionately in high-tax states like New York and California. It would also affect donors who support elite colleges, universities, museums — even experimental theater — which are perceived as havens for liberals.

And it would hit people like me: taxpayers in higher brackets who rely on earned income as opposed to investment income or an inheritance, who give to charity and live in a high-tax state. Assuming a $35,000 limit on itemized deductions, my federal tax last year would have risen to 27 percent of my adjusted gross income, from 22 percent.

I wouldn’t mind paying more as long as people who make vastly more did, too. But limiting the itemized deductions of the top 400 taxpayers with an average adjusted gross income of $202 million in 2009 (the most recent year available) would have raised their taxable income by an average of $32 million and their average rate to 25 percent from 20 percent, assuming a marginal rate of 35 percent, and even less if they pay a lower marginal rate, as most do.

That’s a lower rate than I paid, because nearly half their income, on average, was from capital gains.

Martin Feldstein, a Harvard economist and the chairman of the Council of Economic Advisers under President Reagan, is widely credited with the idea for an across-the-board cap on itemized deductions as a way to help lower the deficit. His proposal last year called for capping deductions at 2 percent of adjusted gross income.

Mr. Romney embraced the concept, but proposed a fixed dollar cap as low as $17,000 rather than a percentage. Since then, the idea has been embraced by politicians from both parties and the centrist research organization Third Way.

(The proposed cap on deductions shouldn’t be confused with President Obama’s proposed 28 percent cap on the rate at which deductions can be claimed by high-income taxpayer

Continued in article

Some on the hard right (including the author from the Hoover Institute) favor eliminating the tax-exempt bonds.
But the argument below fails to mention that this is a diversion tax revenues from local taxpayers to big (Federal) government is tax inefficient.
The argument below fails to mention that local taxes for municipalities and schools are not ipso facto more corrupt than an out-of-control earmarking Congress.
Why give the Federal government money for wasteful pork barrel projects that deprives needed local projects for sewers, roads, and schools?

I would love to debate this supposed "conservatism" nonsense that is not really conservatism at all
"A Trillion Dollar Tax Increase That Republicans And Obama Should Agree To," by By Peter Schweizer, Forbes, December 13, 2012 ---


"Mortgages in Reverse:  Taxpayers get hit by another federal housing money loser," The Wall Street Journal, December 14, 2012 ---

Spare a thought for Shaun Donovan, who must be tired of crafting nuanced explanations of how his agency costs taxpayers billions of dollars. The latest example came this month when the Housing and Urban Development Secretary told the Senate that the Federal Housing Administration's once-modest reverse-mortgage program is the latest drain on taxpayers thanks to gross mismanagement.

Or as Mr. Donovan delicately put it to Tennessee Senator Bob Corker, the FHA's reverse-mortgage business is an "important" issue that the agency needs "to make changes on." You don't say.

HUD's independent actuary estimated last month that the FHA will lose $2.8 billion this fiscal year on reverse mortgages, and in the worst case $28.3 billion, with the losses stretching through 2019. The feds have no idea how big the pool of red ink might be.

For those who haven't seen former Senator Fred Thompson's TV ads, reverse mortgages are a type of home-equity loan for Americans age 62 and older who have mostly or fully paid off their mortgage. If the borrower can pay real-estate taxes, insurance and other fees, he can borrow against the home and stay in it until death. Then the lender demands repayment with interest.

The problem is that taxpayers, via the FHA, insure lenders against the funds they advance plus accrued interest, and borrowers can also borrow to pay the fees. FHA did fewer than 50,000 reverse-mortgage deals a year until 2006, when the housing mania went galactic. By 2007, the agency was insuring more than 100,000 reverse mortgages, and by 2009 the average FHA-backed reverse mortgage reached $262,763, often paid in a lump sum.

At least FHA guarantees for home purchases foster Congress's professed goal of homeownership—though we've seen in the housing bust how that misallocates capital. But guarantees for reverse mortgages go to people who are already homeowners who want to cash out of a real-estate asset. That's fine if they want to do it at their own risk. FHA's guarantees are essentially a subsidy for older Americans to spend down their savings. FHA crowded out competitors and now accounts for 90% of outstanding reverse mortgages.

The FHA's analysts didn't foresee an extended period of house price declines and didn't price mortality risk properly. Many loans are now worth more than the house itself, and heirs decided to walk away. FHA has to foot the bill for selling the house and make good on the shortfall between the net proceeds and what lenders are owed on the insurance. Taxpayers are ultimately on the hook.

So now comes the usual Beltway talk about reform to try to save a program that shouldn't exist. The National Reverse Mortgage Lenders Association wants to limit the amount that borrowers can draw upfront and have lenders do more stringent underwriting and set aside money to cover taxes and insurance. Mr. Donovan told the Senate he wants to make the program "much more effective and safe."

Continued in article

The sad state of governmental accounting (it's all done with smoke and mirrors) ---

Fortune 500 Corporations Holding $1.6 Trillion in Profits Offshore

"Obama's Electronic Medical Records Scam," by Michelle Malkin, Townhall, December 14, 2012 --- Click Here

. . .

The program was originally sold as a cost-saving measure. In theory, modernizing record-collection is a good idea, and many private health care providers have already made the change. But as with many government "incentive" programs, the EMR bribe is a tax-subsidized, one-size-fits-all mandate. This one pressures health care professionals and hospitals across the country into radically federalizing their patient data and opening up medical information to untold abuse. Penalties kick in for any provider that hasn't switched over by 2014.

So, what's it to you? Well, $4 billion has already gone out to 82,535 professionals and 1,474 hospitals, and a total of $6 billion will be doled out by 2016. But the feds' reckless profligacy, neglect and favoritism have done more harm than good.

Don't take my word for it. A recent report released by the Department of Health and Human Services Inspector General acknowledged that the incentive system is "vulnerable to paying incentives to professionals and hospitals that do not fully meet" the program's quality assurance requirements. The federal health bureaucracy "has not implemented strong prepayment safeguards, and its ability to safeguard incentive payments postpayment is also limited," the IG concluded.

Translation: No one is actually verifying whether the transition from paper to electronic is improving patient outcomes and health services. No one is actually guarding against GIGO (garbage in, garbage out). No one is checking whether recipients of the EMR incentives are receiving money redundantly (e.g., raking in payments when they've already converted to electronic records). No one is actually protecting private data from fraud, abuse or exploitation.

Little is being done to recoup ill-gotten payments. In any case, such "pay and chase" policing after the fact is a crummy way to run government in lean times -- or in fat times, for that matter.


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

"Why Not Drop Health Insurance and Pay the Penalty? It’s because the decision is not just a financial one. Here are the other factors to consider," by Benjamin S. Lupin, CFO.com, January 3, 2013 ---

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

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

Bob Jensen's Tidbits Archives ---

Bob Jensen's Pictures and Stories

Summary of Major Accounting Scandals --- http://en.wikipedia.org/wiki/Accounting_scandals

Bob Jensen's threads on such scandals:

Bob Jensen's threads on audit firm litigation and negligence ---

Current and past editions of my newsletter called Fraud Updates ---

Enron --- http://www.trinity.edu/rjensen/FraudEnron.htm

Rotten to the Core --- http://www.trinity.edu/rjensen/FraudRotten.htm

American History of Fraud --- http://www.trinity.edu/rjensen/FraudAmericanHistory.htm

Bob Jensen's fraud conclusions ---

Bob Jensen's threads on auditor professionalism and independence are at

Bob Jensen's threads on corporate governance are at


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/