To Accompany the April 9, 2013 edition of Tidbits
Bob Jensen at Trinity University
My Free Speech Political Quotations and Commentaries Directory and Log
The U.S. will "do what is necessary" to prevent the
Tehran from acquiring nuclear weapons.
President Barack Obama, March 2013
President Obama is apparently playing world war brinksmanship in the footsteps of President Kennedy. Except for the disastrous Bay of Pigs Invasion, the game of chicken worked well for JFK. I'm not optimistic it will work well with Iran. President Obama may end up with chicken egg on his face. But for the moment talking touch raises leadership approval ratings in the political arena where everything else in Washington DC is going badly.
The Economist: World in 2013 (Annual summary of world economics trends
from The Economist magazine) ---
Wealth and Inequality in America --- https://www.youtube.com/watch?feature=player_embedded&v=QPKKQnijnsM
Academic Versus Political Reporting of Research: Percentage Columns
Versus Per Capita Columns ---
by Bob Jensen, April 3, 2013
Germany has a high employment rate of youth partly because Germany has no minimum wage law
"Youth Unemployment Rates: US, Germany, Italy, Spain, France, Greece;
Where to From Here?" Global Economic Analysis, March 28, 2013 ---
Macroeconomics in a World We've Never Known Before
On March 28, 2013 Barry Ritholz linked to the following excellent slide show on macroeconomics that touches on quantitative easing controversies. I might add that I generally disagree with Barry on quantitative easing and his general fears of austerity. But this link is an excellent summary of the problems in the global economy that have never been encountered in history.
The slides used at the Global Interdependence Center conference in Dubai on March 26, 2013.
A Must Read
"Kotok: Complete Report from Dubai," by David Kotok, March 28, 2013 ---
Last night in a television news show it was claimed that one million government employees are being laid off in Cuba and are being thrust upon a private sector that really is not yet able to provide them with new jobs. The idea is that most of them will form their own small businesses.
Featured in the newscast was a cobbler and his two sons who for more than ten years have hauled a hand-peddled sewing machine and old bicycle tires to a street corner shoe repair "business." Let's call him Jose. Jose is now very fearful that his popular cobbler business will be overrun by new competition from former government workers. At best over the past ten years he was able to marginally feed his family. Of course housing has been free in Cuba. That too may change soon.
"Twitter Feud Between Estonian President And Paul Krugman Is Now A Real
Opera," by Markus Kuokkanen, Business Insider, April 6, 2013 ---
I don't know of a time when Business Insider did not side with Keynesian Paul Krugman on anything. This article is more neutral --- probably because it is simply a forwarded article.
Ben Bernanke is a Krugman disciple which is why the Fed has flooded the U.S. with trillions of printed greenbacks over the past three years. It's beyond me why Congress will debating the long-awaited (years) for our President to propose a Federal budget. Why argue over taxes when it's much more painless to print trillions to pay government invoices?
"The Golf Shot Heard Round the Academic World: The tale of a
teed-off philanthropist and the head of Bowdoin College, where identity politics
runs wild," by David Feith, The Wall Street Journal, April 5, 2013
Search for "The Golf Shot Heard Round the Academic World: The tale of a teed-off philanthropist and the head of Bowdoin College, where identity politics " in "The exact word or phrase:" search box at ---
Look for the wsj.com link in that article listing.
I always get into trouble when I forward links to articles like this. However, no matter where a scholars stand on diversity issues some scholars might be interested in the above article. It may even inspire some student and faculty debates on campus.
As for me, I retired and certainly don't want to take a stand on this article. I don't intend to comment if there are any replies to this message.
Bob Jensen's threads on Higher Education Controversies ---
The Bad News is That You Never Have to Get Off This Lifetime Welfare When
You're No Longer Technically Eligible
And throw in Medicare as a fringe benefit
"Has disability become a 'de facto welfare program'?" By Barbara Raab, Senior Producer, NBC News, NBC News, March 28, 2013 ---
When President Clinton signed "welfare reform" into law in 1996, he promised to end welfare as we know it. Now, some new reporting suggests we've created a new kind of welfare -- only most Americans aren't aware of it.
The number of people who depend on checks from Social Security's disability programs has soared in recent years, according to NPR's series "Unfit for Work: the Startling Rise of Disability in America." The reports, which began over the weekend and continue this week, raise the question: How disabled are the recipients, really? As you might imagine, they have touched a nerve.
A quick primer: the Supplemental Security Income (SSI) program provides monthly cash assistance to people who are poor and disabled, including families with disabled children. The basic monthly SSI cash benefit is a set amount -- currently $710 for an individual and $1,066 for a couple. The Social Security Disability Insurance (SSDI) program also provides monthly cash assistance, to disabled people who have worked in jobs covered by Social Security. People who leave the workforce and go on disability also qualify for Medicare.
After six months of investigation, NPR reporter Chana Joffee-Walt concluded that Social Security's disability programs have become "a de facto welfare program for people without a lot of education or job skills." In the past three decades, she reports, the number of Americans who are on disability has skyrocketed:
Every month, 14 million people now get a disability check from the government.
The federal government spends more money each year on cash payments for disabled former workers than it spends on food stamps and welfare combined. [...]
[And] story of these programs -- who goes on them, and why, and what happens after that -- is, to a large extent, the story of the U.S. economy. It's the story not only of an aging workforce, but also of a hidden, increasingly expensive safety net.
Joffee-Walt's report takes listeners to Hale County, Ala., where one in four working-age adults is on disability, a local doctor is the go-to-guy for people in pain, and on "the day government checks come in every month, banks stay open late, Main Street fills up with cars, and anybody looking to unload an old TV or armchair has a yard sale" because people are relatively flush with cash.
She takes us inside "the disability industrial complex," including one of the private call centers that states pay to scrutinize their welfare rolls, contact as many people as possible who might qualify for federal disability payments, and move them off the state's rolls and into the federal disability system.
The PCG [Public Consulting Group] agents help the potentially disabled fill out the Social Security disability application over the phone. And by help, I mean the agents actually do the filling out. When the potentially disabled don't have the right medical documentation to prove a disability, the agents at PCG help them get it. They call doctors' offices; they get records faxed. If the right medical records do not exist, PCG sets up doctors' appointments and calls applicants the day before to remind them of those appointments.
Joffee-Walt also reports on the 1.3 million kids on SSI, and says that some parents in Hale County told her they want kids who can "pull a check" so the family gets extra income. She suggests that some families who are surviving on that check may be holding their kids back from overcoming disabilities because they don't want to lose the money.
Critics call the report riddled with factual errors, devoid of context and "ill-informed". NPR's This American Life says it stands by its story.
The essence of the backlash is this: While critics admit the NPR report raises worthwhile questions, they say it does so in a sensational manner, traffics in inaccuracies and myths about Social Security's disability programs, and fails to tell the story about the millions of people these disability programs help. Here's how one critical analysis puts it:
The piece ignored that the recent rise in disability benefits is tied to the recession and higher rates of poverty, that qualifying for benefits is difficult, that SSI encourages employment, and that the current program has significantly reduced poverty among children with disabilities.
Listen to the report, read the criticisms, tell us your thoughts and personal experiences with the Social Security disability programs.
Bob Jensen's threads on the rankings of the top states where welfare draws
in more residents that workers are at
"7 Reasons Marriage Is Falling Apart in America," by John Hawkins,
Townhall, April 6, 2013 ---
City Government Fraud and Incompetence: The Rule Rather Than the Exception
"Stockton, CA Filing Bankruptcy," by Ann-Marie Murrell, Townhall,
April 2, 2013 ---
. . .
“In the 1990s,” Miller said, “Stockton granted its employees some of the most generous and unsustainable labor contracts in the State of California... Safety employees could now retire at the age of 50...Many safety retirees today earn 90 to 100 percent of what they made when they were still on the job.”
Miller also talked about the city granting things like “unlimited vacation and sick time” that could be “cashed out when an employee retired” and “Lamborghini” style health plans.
Other outrageous expenditures have been coming out of Stockton for years. From StocktonFireFacts.com, here are the top 10 boondoggles:
1. City Council spent $48 Million to purchase a new City Hall building for itself. That’s just the purchase price and the cost to pay Wall Street to BORROW the money necessary for the new governmental palace. The total cost of the building after all the interest is calculated? We don’t know and the City Council never asked.
City Hall Report & Bond Documents
2. $33 Million settlement with Howard Jarivs Taxpayers Association due to the City illegally using Water Utility fees to fund the construction of the Stockton Events Center.
• City Repayment Schedule?• Stockton Record Article
3. $22 million sunk into money losing Downtown Marina and has racked up $700,000 in annual operating cost losses. During the height of a City budget crisis, the Stockton City Council sunk $22 million into building a new downtown marina and then due to underestimating the costs, needed to add another $2.3 million to the bill. City bureaucrats estimated that the marina would lose $100,000 a year. The actual figure has balloned to $700,000 in losses a year.
Rising tide of red ink | Recordnet.com
Dry Dock Expenditure
4. Paid $1.25 million over the independent appraisal value for a piece of property owned by a former councilmember. The site was supposed to be used for a new fire station, which even the Stockton Fire Department stated it didn’t want. The Stockton Record’s Editorial Board urged the Council to reject the deal, stating, “the city shouldn’t be dopey. It should pay no more than the appraised value.” Unfortunately, Dopey won at that Council meeting. The Council this year scrapped plans for the fire station, meaning that $2.75 million taxpayer funds have been wasted. You can view the property here.
• Stockton ponders $2.75M land deal highlighted?• White editorial?• Council slashes program funding | Recordnet.com
5. $4 million legal settlement because the City failed to maintain our sewer system, causing too many sewage spills and violating the Federal Clean Water Act.
• Cal Tax Article?• Stockton to Pay $4 Million in Sewer Spill Settlement?• California Sportfishing Protection Alliance Settlement
6. $7 million loss at entertainment venues (Stockton Arena, Stockton Ballpark, Bob Hope Theater, etc.) subsidized by the City General Fund—which pays for firefighters and police officers
• Stockton Venue continue a troubling trading for taxpayers | Recordnet.com
7. $25,000 to clean up elephant dung at the Stockton Arena.We’d write more, but why?
• Cal Tax Article
8. $205,000 settlement for City’s failure to meet Americans with Disabilities Act requirements within the city. Note that in addition to the settlement, money needed to be spent to bring facilities into compliance. We do not have that total
• ADA Settlement Agreement
9. $200,000 settlement with the Building Industry Association of the Delta due to City improperly using development fees to pay for General Fund services.
• BIA Settlements?• BIA Settlements article
10. $400,000 settlement with the San Joaquin Hotel & Motel Property Owner’s Association for devaluing property prior to the City attempting to purchase them.
None of this is anything new, and sadly none of it is surprising. For years now, California’s state priorities have been all about satisfying unions and union workers at the expense of students and taxpayers. Of course, anyone who regularly listens to KFI’s Jon and Ken Show in Los Angeles knew this was going to happen, and the only real surprise is that more California cities haven’t already gone belly-up. However, Stockton probably won’t be alone for very long; many are predicting that other cities have been waiting for someone to be the first ‘fall guy’ and more bankruptcy proceedings will almost certainly follow suit.
The thing Stockton (and Bell and others) never seem to figure out is that promising insane, out-of-control “forever pensions” to anyone who works in a public capacity is impossible to maintain. You’d also think that parents of public school students would be a little curious as to why they have had to dip into their own pockets to buy things like books and lab equipment when the average (union) California teacher makes around $83,000 (total compensation, according to Salary.com)
Continued in article
The sad thing is nobody will be held accountable for this fraud. Sadly such frauds became the rule rather than the exception in city governments across the USA where kickbacks are a way of doing business.
The Sad State of Government Accounting and Accountability ---
Bob Jensen's Fraud Updates ---
"The Debt Bomb That Taxpayers Won't See Coming ," by Steven Malanga,
The Wall Street Journal, March 29, 2013 ---
Earlier this month, the Securities and Exchange Commission charged Illinois officials with making misleading statements to bond investors about the state's pension system. The agency detailed a long list of deceptive practices including failure to tell investors that the system was so underfunded that it risked bankruptcy.
Illinois taxpayers, as well as the holders of its debt, will ultimately bear the burden of the officials' misdeeds. But there is nothing unique about the Prairie State. For years, elected officials in states and municipalities across the country have been imprudently piling up obligations that are imposing serious strains on budgets, prompting higher taxes and cutbacks in services.
In January, city officials in Sacramento, California's capital, reported the results of a study they had commissioned on all the debt that the municipality had incurred. At a City Council meeting that the Sacramento Bee reported as "sobering," the city manager explained that Sacramento had racked up some $2 billion in obligations (mostly pensions and retiree health care). All this for a municipality of 477,000 residents with an annual general fund budget of just $366 million.
Sacramento finances are already stretched—the city has cut some 1,200 workers, or 20% of its workforce, in the past several years. Servicing its debt in years to come will only add more woe, especially given the intractability of public unions. The budget report noted that "While reducing staff is clearly not the preferred method for reducing costs, the city has a very limited ability to reduce the cost of labor absent cooperation from the city's employee groups."
According to studies by the Pew Center on the States, states and the biggest cities have made nearly three-quarters of a trillion dollars in promises to pay for retiree health-care insurance. Yet governments have set aside only about 5% of the money they'll need to pay for these promises.
This year a Chicago city commission reported that retiree health-care expenditures would soar from $109 million in this year's budget to $541 million in a decade. After concluding that the expenditures were unaffordable, one member of the commission proposed that retirees be required to sign on to the Illinois Health Insurance Exchange being created under President Obama's Affordable Care Act. Health insurance would be cheaper if it is subsidized by the federal government.
A December report by the States Project, a joint venture of Harvard's Institute of Politics and the University of Pennsylvania's Fels Institute of Government, estimated that state and local governments now owe in sum a staggering $7.3 trillion. Incredibly, the vast majority of this debt has never been approved by taxpayers, who are often unaware of the extent of their obligations.
Most state constitutions and many municipal charters limit borrowing and mandate voter approval. No matter. Politicians evade the limits, issuing billions of dollars in municipal offerings never approved by voters, sometimes with disastrous consequences. Courts have rubber-stamped many of these schemes.
The debt incurred by New Jersey for school projects is a case in point. In 2001, legislators in Trenton hatched a scheme to borrow a shocking $8.6 billion for refurbishing school buildings. The reaction to their plan in the press and among taxpayer groups was so negative that the politicians knew that voters would never approve it. So the legislature created an independent borrowing authority. Since it, and not taxpayers, would take on the debt, politicians claimed that there was no need for voters' consent.
Taxpayer groups challenged the maneuver. The state Supreme Court brushed aside their objections, arguing that there was already precedent for such borrowing.
New Jersey's Schools Construction Corp. quickly squandered half of the money on patronage and inefficient construction practices, so in 2005 the state borrowed another $3.9 billion. All of the debt is being repaid by taxpayers. The authority, which was dissolved several years ago, had no revenues of its own.
Next door, in New York, a scant 5% of the Empire State's $63 billion in outstanding debt has ever been authorized by voters, according to the state comptroller. The rest has been engineered through independent authorities such as the Transitional Finance Authority.
These authorities are designed to circumvent voters. Of the seven bond offerings that have gone before New York voters in the past 25 years, four have been defeated. But thanks to unsanctioned debt, New Yorkers bear the second-highest per capita debt burden in the nation, $3,258, according to a January report by the state comptroller. New Jersey is No. 1, at $3,964.
To prevent the pile-up of hidden debt, taxpayers need to spearhead a revolt that will narrow the ability of officials to mortgage their future. Any such revolt will first of all seek an end to government sponsored defined-benefit pension plans, through which politicians promise benefits years hence to current employees in a manner that potentially leaves taxpayers on the hook for unlimited liabilities. Simpler, defined-contribution plans featuring individual retirement accounts would make government pension systems less expensive and their accounting more transparent.
Continued in article
I was wondering why my tax exempt bond fund keeps paying relatively high interest rates each month. Yipes! Now I know.
"Former comptroller general urges fiscally responsible reforms," by
Ken Tysiac, Journal of Accountancy, October 6, 2012 ---
The sad state of governmental accounting: It's all done with smoke
and mirrors ---
"At the U.N., Iran Is a Powerhouse, Not a Pariah: The world's
leading state sponsor of terrorism heads the General Assembly's second-largest
voting bloc," by Claudia Rosett, The Wall Street Journal, March 31,
President Obama likes to describes Iran as "isolated." But there is nothing lonely about Iran's berth at the United Nations, where in the corridors and on the boards of powerful agencies, the Islamic Republic has been cultivating its own mini-empire.
How can that be? Iran is in mocking violation of four U.N. Security Council sanctions resolutions demanding an end to its illicit nuclear activities. The General Assembly has passed a series of resolutions condemning Iran's atrocious human-rights record (albeit with almost as many abstentions as "yes" votes). The U.N.'s main host country, the United States, lists Iran as the world's leading state sponsor of terrorism.
Yet Iran is no pariah at the U.N., where there are no in-house penalties for being under sanctions or for violating them. Among the 193 member states, terror-sponsoring, uranium-enriching rogue regimes enjoy the same access, privileges and immunities as Canada or Japan—and at far less expense in U.N. dues.
Monstrous human-rights records don't interfere with acquiring plum seats, either. The U.N. has always made room for murderous governments—from the U.N.'s charter seat on the Security Council for Stalin's Soviet Union to Syria's current post on the human-rights committee of the U.N. Educational, Cultural and Scientific Organization.
Few have exploited this setup as adroitly as Iran. While the U.S. pays for roughly one-quarter of the U.N.'s $30 billion-plus systemwide annual budget, Iran chips in about $9 million in core dues. Whatever additional resources Iran's regime might allocate for its U.N.-related labors, they appear to be spent mainly on fielding big missions to U.N. offices in places such as New York and Vienna, horse-trading behind the scenes, and buttering up the U.N. bureaucracy.
Iran currently heads the second-largest voting bloc in the U.N. General Assembly, the 120-member Non-Aligned Movement (which isn't an official U.N. body but a caucus with a rotating secretariat hosted by whichever country holds the three-year chairmanship). The movement's members wield considerable voting power at the U.N., but most are reluctant to pony up the resources to take the lead. After oil-rich Iran snapped up the job, it was rewarded last year with a movement summit in Tehran attended by U.N. Secretary-General Ban Ki-moon. These days, when Iran's diplomats speak at U.N. meetings, they often double as the voice of a nonaligned bloc that includes more than half the U.N.'s member countries.
Since coming under U.N. sanctions in 2006, Iran has also won seats on the governing boards of many major U.N. agencies. Some of these agencies handle billions every year in funds donated chiefly by Western nations, especially the U.S. This year, Iran won a three-year seat on the 36-member executive board of the U.N.'s flagship agency, the U.N. Development Program, which operates billion-dollar budgets across more than 170 countries.
Along with its seat on the U.N. Commission on the Status of Women (naturally), Iran also sits on the 36-member executive board of the U.N.'s children's agency, Unicef—a neat trick for a country that leads the world in executions of juveniles. Iran also sits on the boards of the U.N. Population Fund and the U.N. Office for Project Services (which deals with procurement and U.N. contracts).
Then there is Tehran's presence on the governing councils of the Nairobi-based U.N. Environment Program and UN-Habitat, the Rome-based Food and Agriculture Organization, the Geneva-based U.N. Refugee Agency, the Spain-based U.N. World Tourism Organization, and the Program and Budget Committee of the Vienna-based U.N. Industrial Development Organization. For 2011, Iran was also elected to be one of the 21 vice-presidents of the U.N. General Assembly.
How does Iran do it? The answer isn't related to the annual burlesque of President Mahmoud Ahmadinejad's visits to New York since 2005. Better explanations lie in the U.N. practice of allocating board seats by quota to five geographic groups, which nominate regional candidates for election. Iran falls into the Asia-Pacific group, which these days includes most of its oil customers. In these opaque deals, there is plenty of room to factor in a swap of Iranian oil for support at the U.N.
Iran populates its U.N. missions with smooth diplomats, some educated in the U.S. Its ambassadors tend to stay in their posts longer than do their U.S. counterparts, hosting parties and cultivating connections.
Iran's current envoy to the U.N., Mohammad Khazaee, studied at Virginia's George Mason University, served from 1998-2002 as Iran's representative to the board of the World Bank, and has served as ambassador to the U.N. since 2007. He is fluent in English and versed in finance.
When U.S. federal prosecutors described him in 2009 court documents as having secretly overseen the multimillion-dollar operations of an alleged Iranian government front operation on New York's Fifth Avenue, the Alavi Foundation, Mr. Khazaee—draped in U.N. immunity—ignored the case and carried on accumulating seats for his country on U.N. boards. A year later, when the State Department approved 80 visas for Mr. Ahmadinejad and his entourage to attend a U.N. conference in New York and denied only one, Mr. Khazaee diligently complained to the U.N. about the lone denial.
In Vienna, home to a big U.N. complex that includes the International Atomic Energy Agency, Iranian Ambassador Ali Asghar Soltanieh is an influential presence. Trained as a nuclear physicist and posted previously as Iran's representative to the IAEA in the 1980s, Mr. Soltanieh presides over an Iranian mission that occupies most of a large city block. For 2011, he was elected head of the Vienna chapter of the Group of 77, which now includes 132 members—the largest voting bloc in the U.N. General Assembly. Mr. Soltanieh has a reputation among IAEA staffers for throwing good parties.
Many of Iran's doings at the U.N. are more hidden from view. In 2010, after the passage of the fourth round of sanctions on Iran, U.S. Ambassador Susan Rice made a loaded remark to reporters. She said that the sanctions were a particular blow to Iran given "the effort, the time, the money" that Iran had employed trying to stop them. The next day, I sent a query to the U.S. Mission: "What money, exactly, was she referring to?" The American diplomats said they'd look into the facts behind Ambassador Rice's remarks. There has been no answer.
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"What Happened to the Internet Productivity Miracle?" by
John Cassidy, The New Yorker, April 2, 2013 ---
John Cassady is one of my favorite authors. Even though he writes mostly for a liberal magazine (The New Yorker) he tends to place truth over political bias.
Some of the blatant Congressional Budget Office lies he warned about in 2010 are now being revealed as lies.
This is a long and somewhat involved followup to my previous post on ObamaCare. . For those of you with O.A.D.D. (online attention-deficit disorder), I’ve provided an express and local version.
The official projections for health-care reform, which show it greatly reducing the number of uninsured and also reducing the budget deficit, are simply not credible. There are three basic issues.
The cost and revenue projections rely on unrealistic assumptions and accounting tricks. If you make some adjustments for these, the cost of the plan is much higher.
The so-called “individual mandate” isn’t really a mandate at all. Under the new system, many young and healthy people will still have a strong incentive to go uninsured.
Once the reforms are up and running, some employers will have a big incentive to end their group coverage plans and dump their employees onto the taxpayer-subsidized individual plans, greatly adding to their cost.
For future reference (or possibly to roll up and beat myself over the head with in my dotage) I have filed away a copy the latest analysis (pdf) of health-care reform from the Congressional Budget Office. By 2019, it says, the bills passed by the House and Senate will have cut the number of uninsured Americans by thirty-two million, raised the percentage of people with some form of health-care coverage from eighty-three per cent to ninety-four per cent, and reduced the federal deficit by a cumulative $143 billion. If all of these predictions turn out to be accurate, ObamaCare will go down as one of the most successful and least costly government initiatives in history. At no net cost to the taxpayer, it will have filled a gaping hole in the social safety net and solved a problem that has frustrated policymakers for decades.
Does Santa Claus live after all? According to the C.B.O., between now and 2019 the net cost of insuring new enrollees in Medicaid and private insurance plans will be $788 billion, but other provisions in the legislation will generate revenues and cost savings of $933 billion. Subtract the first figure from the second and—voila!—you get $143 billion in deficit reduction.
The first objection to these figures is that the great bulk of the cost savings—more than $450 billion—comes from cuts in Medicare payments to doctors and other health-care providers. If you are vaguely familiar with Washington politics and the letters A.A.R.P. you might suspect that at least some of these cuts will fail to materialize. Unlike some hardened skeptics, I don’t think none of them will happen. One part of the reform involves reducing excessive payments that the Bush Administration agreed to when it set up the Medicare Advantage program in 2003. If Congress remains under Democratic control—a big if, admittedly—it will probably enact these changes. But that still leaves another $300 billion of Medicare savings to be found.
The second problem is accounting gimmickry. Acting in accordance with standard Washington practices, the C.B.O. counts as revenues more than $50 million in Social Security taxes and $70 billion in payments towards a new home-care program, which will eventually prove very costly, and it doesn’t count some $50 billion in discretionary spending. After excluding these pieces of trickery and the questionable Medicare cuts, Douglas Holtz-Eakin, a former head of the C.B.O., has calculated that the reform will actually raise the deficit by $562 billion in the first ten years. “The budget office is required to take written legislation at face value and not second-guess the plausibility of what it is handed,” he wrote in the Times. “So fantasy in, fantasy out.”
Holtz-Eakin advised John McCain in 2008, and he has a reputation as a straight shooter. I think the problems with the C.B.O.’s projections go even further than he suggests. If Holtz-Eakin’s figures turned out to be spot on, and over the next ten years health-care reform reduced the number of uninsured by thirty million at an annual cost of $56 billion, I would still regard it as a great success. In a $15 trillion economy—and, barring another recession, the U.S. economy should be that large in 2014—fifty or sixty billion dollars is a relatively small sum—about four tenths of one per cent of G.D.P., or about eight per cent of the 2011 Pentagon budget.
My two big worries about the reform are that it won’t capture nearly as many uninsured people as the official projections suggest, and that many businesses, once they realize the size of the handouts being offered for individual coverage, will wind down their group plans, shifting workers (and costs) onto the new government-subsidized plans. The legislation includes features designed to prevent both these things from happening, but I don’t think they will be effective.
Consider the so-called “individual mandate.” As a strict matter of law, all non-elderly Americans who earn more than the poverty line will be obliged to obtain some form of health coverage. If they don’t, in 2016 and beyond, they could face a fine of about $700 or 2.5 per cent of their income—whichever is the most. Two issues immediately arise.
Even if the fines are vigorously enforced, many people may choose to pay them and stay uninsured. Consider a healthy single man of thirty-five who earns $35,000 a year. Under the new system, he would have a choice of enrolling in a subsidized plan at an annual cost of $2,700 or paying a fine of $875. It may well make sense for him to pay the fine, take his chances, and report to the local emergency room if he gets really sick. (E.R.s will still be legally obliged to treat all comers.) If this sort of thing happens often, as well it could, the new insurance exchanges will be deprived of exactly the sort of healthy young people they need in order to bring down prices. (Healthy people improve the risk pool.)
If the rules aren’t properly enforced, the problem will be even worse. And that is precisely what is likely to happen. The I.R.S. will have the administrative responsibility of imposing penalties on people who can’t demonstrate that they have coverage, but it won’t have the legal authority to force people to pay the fines. “What happens if you don’t buy insurance and you don’t pay the penalty?” Ezra Klein, the Washington Post’s industrious and well-informed blogger, asks. “Well, not much. The law specifically says that no criminal action or liens can be imposed on people who don’t pay the fine.”
So, the individual mandate is a bit of a sham. Generous subsidies will be available for sick people and families with children who really need medical care to buy individual coverage, but healthy single people between the ages of twenty-six and forty, say, will still have a financial incentive to remain outside the system until they get ill, at which point they can sign up for coverage. Consequently, the number of uninsured won’t fall as much as expected, and neither will prices. Without a proper individual mandate, the idea of universality goes out the window, and so does much of the economic reasoning behind the bill.
The question of what impact the reforms will have on existing insurance plans has received even less analysis. According to President Obama, if you have coverage you like you can keep it, and that’s that. For the majority of workers, this will undoubtedly be true, at least in the short term, but in some parts of the economy, particularly industries that pay low and moderate wages, the presence of such generous subsidies for individual coverage is bound to affect behavior eventually. To suggest this won’t happen is to say economic incentives don’t matter.
Take a medium-sized firm that employs a hundred people earning $40,000 each—a private security firm based in Atlanta, say—and currently offers them health-care insurance worth $10,000 a year, of which the employees pay $2,500. This employer’s annual health-care costs are $750,000 (a hundred times $7,500). In the reformed system, the firm’s workers, if they didn’t have insurance, would be eligible for generous subsidies to buy private insurance. For example, a married forty-year-old security guard whose wife stayed home to raise two kids could enroll in a non-group plan for less than $1,400 a year, according to the Kaiser Health Reform Subsidy Calculator. (The subsidy from the government would be $8,058.)
In a situation like this, the firm has a strong financial incentive to junk its group coverage and dump its workers onto the taxpayer-subsidized plan. Under the new law, firms with more than fifty workers that don’t offer coverage would have to pay an annual fine of $2,000 for every worker they employ, excepting the first thirty. In this case, the security firm would incur a fine of $140,000 (seventy times two), but it would save $610,000 a year on health-care costs. If you owned this firm, what would you do? Unless you are unusually public spirited, you would take advantage of the free money that the government is giving out. Since your employees would see their own health-care contributions fall by more than $1,100 a year, or almost half, they would be unlikely to complain. And even if they did, you would be saving so much money you afford to buy their agreement with a pay raise of, say, $2,000 a year, and still come out well ahead.
Even if the government tried to impose additional sanctions on such firms, I doubt it would work. The dollar sums involved are so large that firms would try to game the system, by, for example, shutting down, reincorporating under a different name, and hiring back their employees without coverage. They might not even need to go to such lengths. Firms that pay modest wages have high rates of turnover. By simply refusing to offer coverage to new employees, they could pretty quickly convert most of their employees into non-covered workers.
The designers of health-care reform and the C.B.O. are aware of this problem, but, in my view, they have greatly underestimated it. According to the C.B.O., somewhere between eight and nine million workers will lose their group coverage as a result of their employers refusing to offer it. That isn’t a trifling number. But the C.B.O. says it will be largely offset by an opposite effect in which employers that don’t currently provide health insurance begin to offer it in response to higher demand from their workers as a result of the individual mandate. In this way, some six to seven million people will obtain new group coverage, the C.B.O. says, so the overall impact of the changes will be minor.
The C.B.O.’s analysis can’t be dismissed out of hand, but it is surely a best-case scenario. Again, I come back to where I started: the scale of the subsidies on offer for low and moderately priced workers. If economics has anything to say as a subject, it is that you can’t offer people or firms large financial rewards for doing something—in this case, dropping their group coverage—and not expect them to do it in large numbers. On this issue, I find myself in agreement with Tyler Cowen and other conservative economists. Over time, the “firewall” between the existing system of employer-provided group insurance and taxpayer-subsidized individual insurance is likely to break down, with more and more workers being shunted over to the public teat.
At that point, if it comes, politicians of both parties will be back close to where they began: searching for health-care reform that provides adequate coverage for all at a cost the country can afford. What would such a system look like? That is a topic for another post, but I don’t think it would look much like Romney-ObamaCare.
"Chicago Teachers Union President Laughs About Lying to Parents, Turning
Students Into “Hostages,” by Kyle Olson, Townhall, March 28, 2013 ---
Why is our government education system so dysfunctional? Perhaps because parents often don’t get the truth and administrators and teachers are constantly fighting each other.
That much can be discerned from the words of Karen Lewis, president of the radical Chicago Teachers Union.
Lewis appeared before the New York Collective of Radical Educators (an appropriate audience, to be sure) March 16 to give the keynote address at the group’s annual conference.
Lewis reminisced about her teaching days, when she would lie to parents when it came time to discuss their child’s performance. She then said – because of her lies – the student became her “hostage” who would do what she wanted.
SEE THE VIDEO HERE.
Is this what parents want? Teachers lying to them about their children’s performance and behavior in school? Should the leader of one of the nation’s largest teachers unions be advocating such behavior?
Lewis also urged the attendees to make life difficult for their building principals.
“Do you have an insane principal?” she said, to laughs and clapping. “Anybody have an insane principal? Take ‘em out. What that means is remove them, by the way, Fox News … How do you do that? You organize to make their lives so miserable.”
Lewis is suggesting that educators should spend their time making the lives of their bosses miserable, apparently to the point where they choose to resign.
Is this the best use of teachers’ time and energy? Shouldn’t they be focused on helping kids learn and working with their principals to do what’s best for students?
Continued in article
"7 states where residents don't pay income tax," NBC News,
March 31, 2013 ---
New Hampshire is not on the list even though it does not tax wages, salaries, retirement incomes, tips, etc. But it has a somewhat nuisance "Interest and Dividends Tax" beyond an exemption threshold that, if I'm not mistaken, is $5,000. It does not tax such items that are buried in retirement income. I let Turbo Tax compute the amount I owe without paying too much attention to details.
But New Hampshire more significantly has no sales tax such that residents of states like Texas, Florida, Nevada, South Dakota, Washington, and Wyoming with sales taxes may not come out as far ahead as they think relative to New Hampshire.
The above article has some interesting details that are worth noting. For example, tax collections and spending per capita are listed for the seven states featured in the article.
What states have no individual or corporate income taxes?
Hint: Antelope run free even if they own corporations.
"Say It With Me: Correlation ≠ Causation," by Invictus, Ritholtz
Blog, March 31, 2013 ---
In his liberal zeal invictus commits the same misleading cherry picking analysis while pointing a finger at conservatives. For example, when it comes to blaming climate instead of state income taxes for flows of businesses to blue states from red states Barry selectively cherry picks "climate" data in his table. Granted that his "cold" red-state places the average temperatures are really lower in Cleveland, Detroit, Buffalo, Providence, and Rochester.
But why did Invictus selectively leave out average temperatures in most cities in California where some city migrations to blue state cities have been as much or more than from the five red-state cities above? California is complicated, however, because it is one of the more conservative states in terms of worker unemployment compensation taxes and benefits.
Why did he not analyze why Indiana is stealing jobs from Illinois or why high-tax Illinois is heavily subsidizing large employers like Caterpillar and Sears to stay in Illinois?
Obviously correlation is not causation, but don't suggest this too loudly to
referees of The Accounting Review ---
An enormous problem with accountics science, and finance in general, is that these sciences largely confine themselves to databases where it's only possible to establish correlations and not causes, because zero causal information is contained in the big databases they purchase rather than collect themselves ---
A factor to consider is quality of the work force apart from climate and income taxes. For example, Boston is a city that has not suffered nearly as badly as most other red-state cities losing jobs to blue-state cities. One reason is the historic highest quality universities and technical schools in the Boston metropolitan area. High tech firms seek out Boston in great measure because there are skilled workers not available in many of the blue-state cities.
The fact is that business migration is caused by a number of interactive factors including tax incentives and climate but not limited to such factors. High tax states in cold climates offset such barriers with subsidies (tax credits, free land, zero-interest lending, etc.).
Also not mentioned by Invictus is the one-ton gorilla of union activism, especially in red-states. If Wisconsin, Maine, Massachusetts, Michigan, and Illinois dropped state income taxes they still might not steal a whopping number jobs from Texas apart from climate and tax considerations. This purportedly why militant unions are loosing some, certainly not all, their political clout in states like Wisconsin and Michigan.
"Eurozone Unemployed Hits The Highest Level In History," by Joe
Weisenthal, Business Insider, April 2, 2013 ---
Currently running at an average of 12% with a wide variance. The biggest losers are Greece and Spain with well over 26% unemployment. Germany keeps its youth unemployment low by not having a minimum wage. Germans also provide a lot of on-the-job training and advancement in the skilled trades.
If the U.S. is going to further discourage employment by raising the minimum wage, I think we should adopt a new labor classification for skilled-trade training where trainees do not necessarily earn a minimum wage.
"How the Banking System Is Destroying America," by Barry Ritholtz,
The Washington Blog, March 29, 2013 ---
. . .
The long-time Chairman of the House Banking and Currency Committee (Charles McFadden) said on June 10, 1932:
Some people think that the Federal Reserve Banks are United States Government institutions. They are private monopolies ….
And congressman Dennis Kucinich said:
The Federal Reserve is no more federal than Federal Express!
The Fed Is Owned By – And Is Enabling – The Worst Behavior of the Big Banks
Most people now realize that the big banks have become little more than criminal enterprises.
No wonder a stunning list of economists, financial experts and bankers are calling for them to be broken up.
But the Federal Reserve is enabling the banks. Indeed, the giant banks and the Fed are part of a malignant, symbiotic relationship.
The corrupt, giant banks would never have gotten so big and powerful on their own. In a free market, the leaner banks with sounder business models would be growing, while the giants who made reckless speculative gambles would have gone bust. See this, this and this.
It is the Federal Reserve, Treasury and Congress who have repeatedly bailed out the big banks, ensured they make money at taxpayer expense, exempted them from standard accounting practices and the criminal and fraud laws which govern the little guy, encouraged insane amounts of leverage, and enabled the too big to fail banks – through “moral hazard” – to become even more reckless.
Indeed, the government made them big in the first place. As I noted in 2009:
As MIT economics professor and former IMF chief economist Simon Johnson points out today, the official White House position is that:
(1) The government created the mega-giants, and they are not the product of free market competition
(3) Giant banks are good for the economy
The [corrupt, captured government "regulators"] and the giant banks are part of a single malignant, symbiotic relationship.
Indeed, the Fed and their big bank owners form a crony capitalist cartel that is destroying the economy for most Americans. The Fed has been bailing out the giant banks while shafting the little guy.
Fed boss Bernanke falsely stated that the big banks receiving bailout money were healthy, when they were not. They were insolvent. By choosing the big banks over the little guy, the Fed is dooming both.
No wonder many top economists say that we should end – or strip most of the powers from – the Federal Reserve.
Even long-time Fed Chairman Alan Greenspan says that we should end the Fed.
A Better Alternative
Conservative and liberal economists both point out that the big banks are already state-sponsored institutions … so the government should create a little competition through public banking.
State-owned public banks – like North Dakota has – would take the power away from the big banks, and give it back to the people … as the Founding Fathers intended.
Even a 12-year old sees the wisdom of public banking.
I disagree to Barry on the point that a better alternative would be to create state-owned banks like North Dakota State Banks. I agree that we need many more banks to create competition is banking since the big banks since the 1970s bought up the competition when creating their own nationwide networks of branch banks.
State-run businesses do not have a market discipline and are too prone to political cronyism, kickbacks, and other types of fraud. There's just too much moral hazard in state-owned banking.
I would instead prefer to "trust bust" by breaking up the giant banks into smaller banks, possibly by reverting to laws that do not allow interstate banking. Let's go back to the good old days where a local boy, George Bailey, manages each local bank.
Bob Jensen's threads on how the mega banks have become "rotten to the
"Japan's Bank of Bernanke A ceiling on the yen would stop deflation and
limit damage to Asian neighbors," The Wall Street Journal, April 4,
To read the above article enter "Japan's Bank of Bernanke A ceiling on the yen would stop deflation and limit damage to Asian neighbors" in the "this exact word or phrase:" search box at
There was a time following World War II when the Japanese had a "copycat" reputation where Japanese copies were generally inferior. That of course changed when the Japanese discovered quality control to a point where Japanese products, especially in vehicles and electronics, became the standard setters for quality.
In the 21st Century the Japanese will once again be copycats. After Fed Director Ben Bernanke started printing trillions of dollars to pay government invoices without borrowing or taxation, the Japanese at long last decided that it's a good idea to crank up similar printing presses for the yen. For a time this will raise prices of imports to Japan and decrease prices of exports. But don't look for that to last if yen "quantitative easing" floods the currency market.
Quantitative Easing: The Devil is in the Details ---
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
Tidbits Archives ---
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
Bob Jensen's threads on
auditor professionalism and independence are at
Bob Jensen's threads on
corporate governance are at
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
Against Validity Challenges in Plato's Cave ---
By Bob Jensen
wrong in accounting/accountics research? ---
The Sad State of Accountancy Doctoral Programs That Do Not Appeal to Most
AN ANALYSIS OF THE EVOLUTION OF RESEARCH CONTRIBUTIONS BY THE ACCOUNTING REVIEW:
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/