To Accompany the May 23, 2013 edition of Tidbits
Bob Jensen at Trinity University
My Free Speech Political Quotations and Commentaries Directory and Log
Barack Obama beat Mitt Romney in the 2012 elections 65,909,451 Obama
60,932,176 Romney votes.
Among the 48 million people of food stamps, how many voted for Mitt Romney?
The GOP will never win without gaining half the food stamp votes.
"The Best (Liberal and Politically Correct) Commencement Speeches of 2013 ---
It shouldn't surprise me that parents want to
shelter their kids from all risk. The parents themselves live in a society where
risk is less and less acceptable. We expect regulations to protect us from
accidents. We expect police to protect us from every imaginable criminal threat.
We demand welfare, unemployment insurance and bailouts to protect every level of
society from economic risk. When something goes wrong, we sue. It wasn't always
John Stossel, May 15, 2013
"Hating America," by Walter E. Williams, Townhall, May 15, 2013 --- Click
Brookings Institution --- http://en.wikipedia.org/wiki/Brookings_Institution "
Technically Brookings is bipartisan and has an excellent reputation among liberal and conservative economists, If anything, it probably leans slightly to the left.
Why some senators need some lessons in economics
"Think tank The Brookings Institute laid down each plan one by one. The only one it doesn't take seriously at ALL is Warren's," by Linette Lopez, Business Insider, May 20, 2013 ---
(Senator) Elizabeth Warren made headlines last week for saying that she believed students should pay the same rate for loans as big Wall Street banks, 0.75%.
The Obama administration extended 3.4% interest rate on subsidized federal student loans last year, but that measure is set to expire in July leaving room for reform. The House Republicans, The President's Office, Democratic Senators Jack Reed (D-RI) and Dick Durbin (D-IL), and Senator Elizabeth Warren.
Think tank The Brookings Institute laid down each plan one by one. The only one it doesn't take seriously at ALL is Warren's.
Sen. Warren’s proposal should be quickly dismissed as a cheap political gimmick. It proposes only a one-year change to the rate on one kind of federal student loan, confuses market interest rates on long-term loans (such as the 10-year Treasury rate) with the Federal Reserve’s Discount Window (used to make short-term loans to banks), and does not reflect the administrative costs and default risk that increase the costs of the federal student loan program.
Setting aside this one embarrassingly bad proposal, the remaining proposals raise a set of questions that need to be answered in order to select the ideal policy...
Ultimately, Brookings advocates for (shocking) a compromise. The Obama plan allows the rate to move with market conditions (as do the House Republicans). The two plans differ in that Obama does not want the rate to vary over the life of the loan (House Republicans do).
Durbin and Reed's plan looks a lot like the House Republican plan, but puts a cap on interest rates and uses a different benchmark for the rate — the 91-day Treasury rate plus a percentage determined by the Education Secretary to cover administrative costs rather than 10-year Treasury Bonds.
But again — Warren proposal is nowhere.
This reminds me of the time two first-year and naive Congressional representatives proposed, in an effort to reduce fuel prices, that the U.S. Government buy the oil refineries from the profit-mongering big oil companies like Exxon, Shell, and BP. What they failed to understand is that the oil companies would like nothing better than to unload their refineries on the U.S. government. Profits are made in the production of oil and in the retailing of oil products. Refineries tend to be high risk in the supply chain and are somewhat losing operations when risks are factored into the equation. I forget the details, but when oil companies proposed supporting their proposal they dropped it like a hot potato.
How Baloney/Sausage is Made
"How the Case for Austerity Has Crumbled," by Paul Krugmanm New York Review of Books, June 6 2013 ---
In normal times, an arithmetic mistake in an economics paper would be a complete nonevent as far as the wider world was concerned. But in April 2013, the discovery of such a mistake—actually, a coding error in a spreadsheet, coupled with several other flaws in the analysis—not only became the talk of the economics profession, but made headlines. Looking back, we might even conclude that it changed the course of policy.
Why? Because the paper in question, “Growth in a Time of Debt,” by the Harvard economists Carmen Reinhart and Kenneth Rogoff, had acquired touchstone status in the debate over economic policy. Ever since the paper was first circulated, austerians—advocates of fiscal austerity, of immediate sharp cuts in government spending—had cited its alleged findings to defend their position and attack their critics. Again and again, suggestions that, as John Maynard Keynes once argued, “the boom, not the slump, is the right time for austerity”—that cuts should wait until economies were stronger—were met with declarations that Reinhart and Rogoff had shown that waiting would be disastrous, that economies fall off a cliff once government debt exceeds 90 percent of GDP.
Indeed, Reinhart-Rogoff may have had more immediate influence on public debate than any previous paper in the history of economics. The 90 percent claim was cited as the decisive argument for austerity by figures ranging from Paul Ryan, the former vice-presidential candidate who chairs the House budget committee, to Olli Rehn, the top economic official at the European Commission, to the editorial board of The Washington Post. So the revelation that the supposed 90 percent threshold was an artifact of programming mistakes, data omissions, and peculiar statistical techniques suddenly made a remarkable number of prominent people look foolish.
The real mystery, however, was why Reinhart-Rogoff was ever taken seriously, let alone canonized, in the first place. Right from the beginning, critics raised strong concerns about the paper’s methodology and conclusions, concerns that should have been enough to give everyone pause. Moreover, Reinhart-Rogoff was actually the second example of a paper seized on as decisive evidence in favor of austerity economics, only to fall apart on careful scrutiny. Much the same thing happened, albeit less spectacularly, after austerians became infatuated with a paper by Alberto Alesina and Silvia Ardagna purporting to show that slashing government spending would have little adverse impact on economic growth and might even be expansionary. Surely that experience should have inspired some caution.
So why wasn’t there more caution? The answer, as documented by some of the books reviewed here and unintentionally illustrated by others, lies in both politics and psychology: the case for austerity was and is one that many powerful people want to believe, leading them to seize on anything that looks like a justification. I’ll talk about that will to believe later in this article. First, however, it’s useful to trace the recent history of austerity both as a doctrine and as a policy experiment. 1.
In the beginning was the bubble. There have been many, many books about the excesses of the boom years—in fact, too many books. For as we’ll see, the urge to dwell on the lurid details of the boom, rather than trying to understand the dynamics of the slump, is a recurrent problem for economics and economic policy. For now, suffice it to say that by the beginning of 2008 both America and Europe were poised for a fall. They had become excessively dependent on an overheated housing market, their households were too deep in debt, their financial sectors were undercapitalized and overextended.
All that was needed to collapse these houses of cards was some kind of adverse shock, and in the end the implosion of US subprime-based securities did the deed. By the fall of 2008 the housing bubbles on both sides of the Atlantic had burst, and the whole North Atlantic economy was caught up in “deleveraging,” a process in which many debtors try—or are forced—to pay down their debts at the same time.
Why is this a problem? Because of interdependence: your spending is my income, and my spending is your income. If both of us try to reduce our debt by slashing spending, both of our incomes plunge—and plunging incomes can actually make our indebtedness worse even as they also produce mass unemployment.
Students of economic history watched the process unfolding in 2008 and 2009 with a cold shiver of recognition, because it was very obviously the same kind of process that brought on the Great Depression. Indeed, early in 2009 the economic historians Barry Eichengreen and Kevin O’Rourke produced shocking charts showing that the first year of the 2008–2009 slump in trade and industrial production was fully comparable to the first year of the great global slump from 1929 to 1933.
So was a second Great Depression about to unfold? The good news was that we had, or thought we had, several big advantages over our grandfathers, helping to limit the damage. Some of these advantages were, you might say, structural, built into the way modern economies operate, and requiring no special action on the part of policymakers. Others were intellectual: surely we had learned something since the 1930s, and would not repeat our grandfathers’ policy mistakes.
On the structural side, probably the biggest advantage over the 1930s was the way taxes and social insurance programs—both much bigger than they were in 1929—acted as “automatic stabilizers.” Wages might fall, but overall income didn’t fall in proportion, both because tax collections plunged and because government checks continued to flow for Social Security, Medicare, unemployment benefits, and more. In effect, the existence of the modern welfare state put a floor on total spending, and therefore prevented the economy’s downward spiral from going too far.
On the intellectual side, modern policymakers knew the history of the Great Depression as a cautionary tale; some, including Ben Bernanke, had actually been major Depression scholars in their previous lives. They had learned from Milton Friedman the folly of letting bank runs collapse the financial system and the desirability of flooding the economy with money in times of panic. They had learned from John Maynard Keynes that under depression conditions government spending can be an effective way to create jobs. They had learned from FDR’s disastrous turn toward austerity in 1937 that abandoning monetary and fiscal stimulus too soon can be a very big mistake.
As a result, where the onset of the Great Depression was accompanied by policies that intensified the slump—interest rate hikes in an attempt to hold on to gold reserves, spending cuts in an attempt to balance budgets—2008 and 2009 were characterized by expansionary monetary and fiscal policies, especially in the United States, where the Federal Reserve not only slashed interest rates, but stepped into the markets to buy everything from commercial paper to long-term government debt, while the Obama administration pushed through an $800 billion program of tax cuts and spending increases. European actions were less dramatic—but on the other hand, Europe’s stronger welfare states arguably reduced the need for deliberate stimulus.
Now, some economists (myself included) warned from the beginning that these monetary and fiscal actions, although welcome, were too small given the severity of the economic shock. Indeed, by the end of 2009 it was clear that although the situation had stabilized, the economic crisis was deeper than policymakers had acknowledged, and likely to prove more persistent than they had imagined. So one might have expected a second round of stimulus to deal with the economic shortfall.
What actually happened, however, was a sudden reversal. 2.
Neil Irwin’s The Alchemists gives us a time and a place at which the major advanced countries abruptly pivoted from stimulus to austerity. The time was early February 2010; the place, somewhat bizarrely, was the remote Canadian Arctic settlement of Iqaluit, where the Group of Seven finance ministers held one of their regularly scheduled summits. Sometimes (often) such summits are little more than ceremonial occasions, and there was plenty of ceremony at this one too, including raw seal meat served at the last dinner (the foreign visitors all declined). But this time something substantive happened. “In the isolation of the Canadian wilderness,” Irwin writes, “the leaders of the world economy collectively agreed that their great challenge had shifted. The economy seemed to be healing; it was time for them to turn their attention away from boosting growth. No more stimulus.”
Continued in article
What happens when nations cannot borrow or print money in global capital markets to flip a bird at austerity (e.g., Greece and Spain) or are getting too dependent upon stimulus with quantitative easing (read that printing money without taxing or borrowing) to a point where disaster may strike when the money printing machines are turned off (like will happen in the United states that is increasingly dependent upon simply printing trillions of dollars to pay government bills)?
Thus far the USA government is showing negligible price inflation by redefining price inflation (leaving out such things as food and fuel price increases).
"We Are the Idiots," by
Walter E. Williams, Townhall, May 22, 2013 ---
Dr. Henry Miller, senior fellow at the Hoover Institution, and Gregory Conko, senior fellow at the Competitive Enterprise Institute, in their Forbes article "Rachel Carson's Deadly Fantasies" (9/5/2012), wrote that her 1962 book, Silent Spring, led to a world ban on DDT use. The DDT ban was responsible for the loss of "tens of millions of human lives -- mostly children in poor, tropical countries -- have been traded for the possibility of slightly improved fertility in raptors (birds). This remains one of the monumental human tragedies of the last century." DDT presents no harm to humans and, when used properly, poses no environmental threat. In 1970, a committee of the National Academy of Sciences wrote: "To only a few chemicals does man owe as great a debt as to DDT. ... In a little more than two decades, DDT has prevented 500 million human deaths, due to malaria, that otherwise would have been inevitable." Prior to the DDT ban, malaria was on the verge of extinction in some countries.
The World Health Organization estimates that malaria infects at least 200 million people, of which more than a half-million die, each year. Most malaria victims are African children. People who support the DDT ban are complicit in the deaths of tens of millions of Africans and Southeast Asians. Philanthropist Bill Gates is raising money for millions of mosquito nets, but to keep his environmentalist credentials, the last thing that he'd advocate is DDT use. Remarkably, black congressmen share his vision.
Wackoism didn't end with Carson's death. Dr. Paul Ehrlich, Stanford University biologist, in his 1968 best-selling book, The Population Bomb, predicted major food shortages in the United States and that "in the 1970s ... hundreds of millions of people are going to starve to death." Ehrlich saw England in more desperate straits, saying, "If I were a gambler, I would take even money that England will not exist in the year 2000." On the first Earth Day, in 1970, Ehrlich warned: "In ten years all important animal life in the sea will be extinct. Large areas of coastline will have to be evacuated because of the stench of dead fish." Ehrlich continues to be a media and academic favorite.
Then there are governmental wacko teachings. In 1914, the U.S. Bureau of Mines predicted our oil reserves would last 10 years. In 1939, the U.S. Department of the Interior revised the estimate, saying that American oil would last 13 years. In 1972, the Club of Rome's report "Limits to Growth" said total world oil reserves totaled 550 billion barrels. With that report in hand, then-President Jimmy Carter said, "We could use up all proven reserves of oil in the entire world by the end of the next decade." He added, "The oil and natural gas we rely on for 75 percent of our energy are running out." As for Carter's running-out-of-oil prediction, a recent report by the U.S. Government Accountability Office and private industry experts estimate that if even half of the oil bound up in the Green River formation in Utah, Wyoming and Colorado is recovered, it would be "equal to the entire world's proven oil reserves." That's an estimated 3 trillion barrels, more than what OPEC has in reserve. Fret not. Carter, like Ehrlich, is still brought before the media for his opinion.
Continued in article
"Sublet My People Go," by
John Stossel, Townhall, May 22, 2013 ---
My kids moved out! I have two empty rooms in my apartment. Maybe I can rent them? A tourist visiting New York City could have a different experience, and save hotel money. I'd make money. Wouldn't it be great?
No, says the government of my state.
New York recently passed a law making it very difficult for people to offer short-term rentals via popular websites like Airbnb and Roomorama, which connect room-owners and room-renters. I could be fined $25,000 if I rent to tourists through those services.
New York State Sen. Liz Krueger defended the law.
"Tenants all over the city are begging their legislators for help. They were being harassed by strangers in the middle of night entering their building, moving into the apartments next door ... violating the fire code, the safety code, and harassing people, sometimes very aggressively, out of the buildings"
Please. Of course some renters behave badly. But they can be dealt with by building owners. There's no need for authoritarian governments to ban consenting adults from renting to each other.
Krueger says that despite these services' rapid growth, their customers are unhappy -- and that despite the online customer-satisfaction reviews and ratings that enable everyone to compare thousands of different offerings, and blacklist renters and homeowners who behave badly, customers are being duped.
"They think they're signing up for a hotel room. They pay through a credit card. They walk into a situation that is not safe, not clean."
This is how politicians think.
Jia En Teo, co-founder of Roomorama, has a different explanation for why businesses like hers are attacked by politicians: "Short-term rentals have been growing in popularity ... that has posed competition to hotels."
At age 26, Teo left a job at Bloomberg media to start Roomorama. She understood business -- but didn't have political pull. Big hotel chains and their unions do. They have lobbyists who pressure legislators. The Hotel Association of New York says people who use sites like Roomorama risk their safety.
But despite such fearmongering, Roomorama hasn't been squashed. It now operates in 5,000 cities around the world. Tourists get to use empty apartments and pay less. They get a novel experience. Property owners make money. Win-win!
But Roomorama threatens the status quo. Hotels and hotel unions don't like it. Regulators who issue permits to hotels don't like it. So the established businesses, the insiders, work with friendly politicians to craft rules that crush the newcomers.
Continued in article
From the CFO.com Morning Ledger on May 21, 2013
Apple paid little to no corporate income tax to any national government on tens of billions of dollars in overseas income over the past four years, Senate investigators found. Today’s WSJ reports that the Senate panel has put out a 40-page report and is expected to air its findings at a hearing today.
Tim Cook is expected to testify and propose changes to a tax code that provides American companies strong incentives to keep overseas earnings bottled up at foreign subsidiaries.
The investigation found no evidence that Apple did anything illegal. The panel’s new report focuses on Apple units in Ireland, where Apple has long based its overseas operations. These units are beyond the reach of the IRS. But Irish tax law only considers companies residents of the small European country if they are managed and controlled there, and Apple manages them from the U.S. The result: Apple pays little or no taxes to either country on much of its revenue earned outside the U.S., according to the report.
Although Ireland is often used as a corporate tax haven, ahead of some of the questions it expects on Tuesday, Apple said it has a base of operations there with 4,000 people, reports Emily Chasan in CFOJ. The company said its tax payments account for $1 of every $40 in corporate income tax the U.S. Treasury collects. It also said it doesn’t use “tax gimmicks,” and that its overseas funds are primarily derived from overseas sales.
From the CFO.com Morning Ledger on May 21, 2013
Shareholders can’t shoot down golden parachutes
Shareholders’ opinion on lucrative severance payments to senior executives doesn’t count for much. Unlike say-on-pay votes, which typically happen annually, advisory votes on golden parachutes aren’t required until just before investors vote on approving a takeover, CFOJ’s Vipal Monga reports. That takes pressure off directors to act on the outcome, because they won’t have to face shareholders again if the takeover deal closes. Also, the votes give shareholders little power to change severance packages that already exist. Heinz shareholders voted against multimillion-dollar severance packages last month, but it won’t have any impact when executives leave following the takeover deal with 3G Capital and Berkshire Hathaway, because severance packages were already in place before the deal was in the works.
"New Milestone for CO2
Levels: Mauna Loa Observatory Records 400 PPM: We’ve hit 400 ppm of carbon
dioxide, but we won’t know what that means for decades," by Kevin Bullis,
MIT's Technology Review, May 10, 2013 ---
From the TaxProf Blog on May 14, 2013 ---
For a change, the liberals and conservatives are equally upset over this IRS scandal
The Deepening IRS Scandal
- American Thinker: IRS Scandal Deepens: High Officials Knew of Tea Party Targeting in 2011
- CNN: IRS Abuses Power in Targeting Tea Party
- Fox News: Republicans Slam IRS Targeting of Tea Party as 'Chilling,' a Form of Intimidation
- Legal Insurrection: IRS Reaped Hatred of Tea Party Sown by Democrats and the Media, by William Jacobson (Cornell)
- Legal Insurrection: The Washington Post leads on the #IRScandal ... Who Will Follow?
- Mother Jones: The IRS Shoots Itself in the Foot, Then Reloads
- New York Post: The Nixon Wing at the IRS
- New York Times; IRS Focus on Conservatives Gives G.O.P. an Issue to Seize On
- Politico: 5 Questions on the IRS Debacle
- The Volokh Conspiracy: IRS Scrutinized Teaching the Constitution, by Jonathan Adler (Case Western)
- Wall Street Journal: Wider Problems Found at IRS: Probe Says Tax Agency Used Sweeping Criteria to Scrutinize Conservative Groups
- Washington Examiner: Conservatives Want Congress to Audit IRS for Targeting Tea Party
- Washington Post: IRS Targeted Groups That Criticized the Government, IG Report Says
The IRS has a Q&A page at its own Website ---
It's a sorry Q&A page that ducks the big issues such as when the top brass learned of this illegal IRS behavior (rumor sets it at 2010)
It fails to mention that the FBI is now investigating for felonious behavior and that lawsuits have already been filed.
It fails to reference its illegal political behavior under former presidents, especially Richard Nixon.
I had great respect for the IRS Website until this sorry IRS Q&A was posted.
There will probably be serious future revelations that the IRS intentionally avoided on this Q&A page.
Lies on the The IRS Q&A Page Regarding the TIGTA Report---
13. Is there any evidence of political bias in selecting cases for centralization or in working those cases?
The TIGTA report included no findings of political bias. In addition, the IRS has found no indication of political bias.
This is a lie.
THE TIGTA Report claims "Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review" ---
How long will it take for the IRS to correct its Q&A page?
"Official Reveals That Obama Administration Members Knew About
Conservative IRS Complaints During The Election," by Brett LoGiurato,
Business Insider, May 17, 2013 ---
J. Russell George, the Treasury Department's Inspector General, disclosed during Congressional testimony on Friday that Obama administration officials in the Treasury Department knew about inappropriate targeting of conservative groups during the 2012 election.
Continued in article
The TaxProf Blog Provides the Following Links on Day 6 of the IRS
The liberal media's defense seems to be that the IRS illegally targeted political groups and donors under nearly all recent Presidents (only some of whom instigated this illegal use of the IRS)
This actually makes me feel worse rather than better about the current scandal.
The IRS Scandal, Day 6
- The Atlantic, The IRS' Role in Campaign Finance Is an Awkward, Unhappy Accident
- Bloomberg, Carney Says White House Not Involved in IRS Targeting Groups
- Bloomberg, IRS Focus on Tea Parties Stirs Dissent on Health Care Law
- Bloomberg, IRS Sent Same Letter to Democrats That Fed Tea Party Row
- Breitbart: Progressive Group: IRS Gave Us Conservative Groups' Confidential Docs
- CNN, The Real Risk of the IRS Scandal
- Daily Caller: IRS Official Lerner Speedily Approved Exemption for Obama Brother’s ‘Charity’
- The Guardian, The IRS Should Do More, Not Less, Scrutinizing of Political Groups
- Human Events, More IRS Abuses of Power Against Conservative Groups
- National Law Journal, Scandal Could Leave IRS 'Gun Shy' With Political Groups
- New York Times editorial, The IRS Audits Are Condemned
- New York Times, Uneven IRS Scrutiny Seen in Political Spending by Big Tax-Exempt Groups
- Politico: Franklin Graham: IRS Targeted Us, Too
- Time, New IRS Scandal Echoes a Long History of Political Harassment
- Townhall, Partisan Obama Culture Spawned a More Abusive IRS
- USA Today: IRS Approved Liberal Groups While Tea Party in Limbo
- Wall Street Journal editorial, The IRS Wants You: The Scandal Over Politicized Tax Enforcement Is Growing
- Wall Street Journal, How Obama Learned to Love the IRS
- Wall Street Journal, The IRS's Nonprofit Helper: A Tax-Exempt Charity Disseminated Confidential Tax Information
- Washington Examiner: IRS Scandal Raises Fears About Enforcing Obamacare
- Washington Examiner: Jay Carney Walks Back Denial of White House Involvement in IRS Scandal
- Washington Post: IRS Has Been Too Lax on Tax-Exempt Status
- Weekly Standard: McConnell: 'We’ve Only Started to Scratch the Surface of This Scandal'
"PayPal or Credit Card—Which
is Safer?" by Laura Adams, Money Girl, May 14, 2013 ---
Bob Jensen's helpers for
personal finance ---
"The Obama Administration Is
Ignoring The Massacre Of Thousands Of Hawks, Falcons, And Eagles Every Year,"
by Brett LoGiurato, Business Insider, May 14, 2013 ---
The Obama administration is engaging in a significant double standard on deaths of golden eagles, prosecuting oil and power companies while excusing their deaths on various wind farms.
The Associated Press' Dina Cappiello reports that the Obama administration has not once fined or prosecuted a wind-energy company for these birds' deaths, which occur quite frequently on wind farms. According to estimates from the Wildlife Society Bulletin, wind farms kill 83,000 hunting birds — like hawks, falcons, and eagles — per year.
As part of the fiscal cliff deal in January, Congress passed a one-year extension on $12.1 billion in tax breaks for the wind-energy industry. President Barack Obama has made wind energy a key cog of his administration's green-energy policy.
The Obama administration has not only refused to prosecute wind-energy companies in the deaths of the birds, but it has also gone after oil and power companies. Under both the Bald and Gold Eagle Protection Act and the Migratory Bird Treaty Act, the death of a single bird without a special permit is illegal.
Cappiello details one particularly stark contrast between the approach to oil and wind companies:
The BP oil company was fined $100 million for killing and harming migratory birds during the 2010 Gulf oil spill. And PacifiCorp, which operates coal plants in Wyoming, paid more than $10.5 million in 2009 for electrocuting 232 eagles along power lines and at its substations.
But PacifiCorp also operates wind farms in the state, where at least 20 eagles have been found dead in recent years, according to corporate surveys submitted to the federal government and obtained by The Associated Press. They’ve neither been fined nor prosecuted.
In 2011, the federal government charged seven oil companies under the Migratory Bird Treaty Act after 28 bird deaths in North Dakota's shale oil fields.
"The Economics of a $6.75
Shirt In Bangladesh's factories, a delicate financial balance may be wrecked by
hasty 'solutions' to their troubles," by Rubana Huo, The Wall Street
Journal, May 16, 2013 ---
The recent tragedies at several Bangladeshi garment factories have claimed hundreds of lives—and focused international attention on this important but often overlooked industry. Yet greater scrutiny has not led to greater understanding, raising the prospect that any proposed solutions will have serious unintended consequences for this industry and the four million people it employs.
So far, much of the discussion has focused on Bangladesh's minimum wage law. It's true that at its current level—even after two revisions in recent years—the legal minimum wage still isn't enough to support a life. After working two hours of overtime per day, the average garment worker's gets take-home pay of between $70 and $80 per month.
Assuming the garment worker (80% of whom are women) is married to a rickshaw puller and has a child, the rent on a one-room home is around $40 per month. Basic food (30 kilograms of rice) costs $13 a month per adult. Vegetables and occasional meat and fish costs another $20 per adult. The cost of milk for one child is $5 per month. Those bare necessities have already consumed more than the garment worker's wage.
One problem is that in this household the garment worker is the primary breadwinner. Few other jobs in the country pay as highly relative to the skill level of the worker. Increasing the minimum wage in the garment industry to $64 per month before overtime, or even $90 as some have proposed, would certainly help such a household make ends meet. But that puts the entire burden for increasing Bangladeshis' standard of living on a single industry that can ill afford it and needs the price support of global brands.
Then there's the question of who is paying that minimum wage. While the worker is sewing, on another floor of the same factory building negotiations are under way between the factory owner and a retailer's representative. Let's say they're trying to settle on an order to produce over the next five months.
The factory owner is offering a shirt to the buyer at $6.75 per piece. Of that, the owner will spend $4.75 buying the 1.9 yards of 100% cotton with a fine 50s thread count, and another $1 buying the labels, accessories and other components the retailer specifies. The remaining $1 per shirt gets stretched thin. Part of it funds the "cutting and making," which includes wages for the workers. Part of it funds the next round of letters of credit the manufacturer will use to ensure a steady supply of raw materials over the life of the supply contract. Part of it goes toward capital expenses. And part of that dollar will become the manufacturer's profit.
Imagine an order for 400,000 shirts is spread over a four-line (meaning four rows of sewing machines, each row with 50 workers) factory of 1,600 square meters. Those 400 workers produce 3,077 pieces per day. The wage cost works out to about 38 U.S. cents per shirt. Another 15 cents goes to sending the shirt for a fine washing spin. Rent and utilities for the factory floor works out to about 11 cents per shirt, and head-office and marketing costs for the factory are 11 cents.
As for the remaining 25 cents, that will just about cover repaying a 10-year bank loan at 18% interest, which the factory owner has used for set-up costs along with a home and car. All is at a delicate equilibrium, until the owner feels compelled to give in to a firmly worded request from the retailer for an additional discount, or a demand to air-freight, at the manufacturer's expense, some boxes of shirts that suffered a two-week production delay and now won't be accepted by the retailer if they are any later than they already are.
Given this financial situation, some recent "solutions" to workers' problems would be extremely challenging for the industry. The government has proposed an increase in the minimum wage but would make the increase retroactive to May 1. That will simply be impossible for manufacturers who are already locked into supply contracts for the next few months.
Meanwhile, an agreement announced between European retailers and workers' advocates this week may lead to investment in safety enhancements. But many on-the-ground realities will continue to haunt the industry unless land and transitional funds are readily available to turn out-of-date factories into fully equipped and compliant facilities. Assuming the factories are 2,600 square meters per floor, setting them up properly would cost approximately $128,000 per factory.
Continued in article
Economist Magazine: The price of a Big Mac over Three Decades
"Symptoms Don't Lie," by Peter
Schiff, Townhall Finance, May 12, 2013 ---
. . .
n my latest commentary I discussed how the Big Mac Index (The Economist Magazine's 30 year data set on Big Mac prices) provided strong anecdotal evidence that inflation in the United States is higher than official figures. More information has come in since then that tells me the same thing: that Americans are downsizing their lives as their incomes fail to keep pace with rising prices. These symptoms are at odds with the widespread belief in an accelerating recovery that has resulted in braggadocio in Washington and euphoria on Wall Street.
Earlier this week Tyson Foods, one of the nation's largest providers of packaged meat products, announced that although their top line sales revenue increased by almost 2% (roughly in line with U.S. GDP growth), operating margins collapsed by almost 50%, leading to a 43% decline in profit. Consumer shifts away from relatively higher priced/higher margin beef and pork products to lower cost/lower margin chicken products were to blame. Tyson also noted that cost conscious consumers shifted away from higher margin packaged chicken products to fresh meat cuts, thereby sacrificing convenience for cost.
According to government statisticians, the Tyson announcement would reveal modest growth and low inflation. After all, revenue at the company grew and spending on their products had increased modestly. But rising prices were obscured by consumers purchasing lower quality products. Not only are consumers avoiding the beef and pork that they otherwise may have preferred, but they are opting out of the convenience of prepared foods. This behavior is symptomatic of diminished consumer purchasing power. This is known as getting poorer.
See the graph at http://www.europac.net/commentaries/changing_conversation
Because price changes in food and fuel made the inflation index look bad and resulted in higher inflation adjustments to Social Security recipients, the government took food and fuel prices out of the inflation index. The USA government is very good at lying with statistics.
"Greek Crackdown on Tax Evasion Yields Little Revenue," by Landon
Thomas Jr. and Eleni Varvitsiotsioti, The New York Times, May 12, 2013
If ignominy were tax revenue, Greece might be a big step closer to ending its budget problems.
¶ Politicians, business executives and bankers are being raked through the headlines or incarcerated in a white-collar crackdown as the Greek government goes after people suspected of tax dodging. Those under questioning include the former finance minister George Papaconstantinou, in a highly charged parliamentary investigation into his handling of a list of Greeks with foreign bank accounts.
¶ “Why do you think they are catching all these people?” Mr. Papaconstantinou said in a recent interview, in the suffer-no-fools manner that defined his two years as finance minister until the current government took power last June. “Because we changed the laws to allow the government to do this.”
¶ But those changed laws, and the populist pursuit of supposed deadbeat fat cats, have yielded little in additional tax revenue.
¶ Tax evasion lies at the heart of the Greek financial collapse, which has resulted in international bailout loans exceeding 205 billion euros, or $266 billion, the size of Greece’s depressed economy. In fact, Greece’s international creditors have made revamping its notoriously lax tax system a primary condition for any additional bailout financing.
¶ But even after an overhaul of Greece’s tax collection apparatus — and a politically charged campaign to pursue delinquents — government officials have collected only a tiny fraction of what is owed and potentially collectible.
¶ Rather than capture a lot of extra money, the crusade seems mainly to have captured prominent quarry. The net cast by newly empowered prosecutors has snared the former mayor of Salonika, the leader of the Greek national statistical agency and several former cabinet members.
¶ Lawyers and tax officials estimate that hundreds of people have been locked up in the last year, suspected of tax evasion. Under the new laws, someone who owes the government more than 10,000 euros in taxes can be arrested on the spot and given the choice between paying up or being put behind bars. While held, the suspect can wait as long as 18 months before the prosecutor decides on a formal charge.
¶ Despite those efforts, of the estimated 13 billion euros that government officials say is owed by Greece’s 1,500 biggest tax debtors, only about 19 million euros has been collected in the last two and a half years.
¶ Among the few to benefit from the crackdown have been criminal defense lawyers specializing in tax law. Among them is Michalis A. Dimitrakopoulos, who represents many of the top political and business figures under government investigation or behind bars. His clients include the daughter and the former wife of Akis Tsohatzopoulos, a former defense minister and Pasok party official, all of whom are on trial on charges of money laundering and taking kickbacks.
¶ Mr. Dimitrakopoulos, who proudly shows visitors to his office a wall covered with framed clippings of his courtroom exploits, says business has never been better. But he also says he has clients with many billions of euros overseas who will never bring their money back to Greece as long as — as he contends — killers have better legal rights than tax offenders.
¶ By any measure, that is hyperbole.
¶ Legal specialists note, for example, that Mr. Papaconstantinou, the former finance minister, is awaiting the outcome of the parliamentary inquiry in his case from the comfort of his suburban Athens home. They say it is unlikely he will ever serve time.
¶Mr. Papaconstantinou declined to discuss the allegations against him: that he doctored the so-called Lagarde list, named for Christine Lagarde. Ms. Lagarde, now managing director of the International Monetary Fund, was the French finance minister in 2010 when she gave Mr. Papaconstantinou a computer disk containing the names of Greeks who had Swiss accounts with HSBC Bank. The file had been stolen by a French former employee of the bank and ended up in the hands of France’s government.
Continued in article
The same problem arises from the billions of tax dollars being confiscated in the USA by ID theft. Until the law imposes serious deterrents that are effective in discouraging obtaining of illegal tax refunds the criminals are going to win this game with the hapless IRS.
"It’s Time to Talk about the Burgeoning Robot Middle Class: How will
a mass influx of robots affect human employment?" by Illah Nourbakhsh, MIT's
Technology Review, May 14, 2013 ---
Note that robots can do more than physical things in factories. Robots can become teachers, doctors, surgeons, auditors, accountants, soldiers, sailors, pilots, truck drivers, musicians, etc. If we can figure out how to program them to cheat in terms of billions of dollars they can even be elected to office.
The key to robotics in the service sector is to make them interactive in terms of letting them do what they do best in interaction with humans doing what they do best. Surgery is a good example. Although there is a miniscule margin of error, robotic surgeons can perform delicate surgeries in interaction with human surgeons who might be located thousands of miles away. These robots actually make decisions and are not just hand extensions of the surgeon.
I've always admired drivers of 18-wheel trucks who can back those big rigs into tight alleys. The day is probably already here when a robot can back a big rig into tight places better than our top truck drivers.
For years robots have been landing airplanes, and the day may come when robots are better pilots than our top pilots. The automatic pilots are making decisions and are not just hand extensions of the pilots who are there mostly to override the robot when something malfunctions. Years ago I was on an American Airlines flight years ago when the pilot announced that the touch down had been a bit rough because the automatic pilot landed the aircraft. I'm sure robotic landings have smoothed out since then.
United We Power, Divided We
"Building Solar in Spain Instead of Germany Could Save Billions: Building solar and wind projects in the wrong place is wasting billions of dollars in Europe," by Kevin Bullis, MIT's Technology Review, May 17, 2013 --- Click Here
Meeting the Letter of the Law
But Not the Spirit
From the CFO.com Morning Ledger on May 20, 2013
Employers are increasingly recognizing they can avoid certain penalties under the federal health law by offering very limited plans that can lack key benefits such as hospital coverage. Benefits advisers and insurance brokers are pitching these skinny plans around the country, the WSJ reports.
The plans, some of which aren’t expected to cover surgery, X-rays or prenatal care, would qualify as acceptable coverage under the law and allow most employers to avoid a $2,000-per-worker penalty for firms that offer nothing at all. Some low-benefit plans would cost employers between $40 and $100 monthly per employee, according to benefit firms’ estimates.
Tex-Mex restaurant chain El Fenix said it would offer limited plans to its 1,200 workers, covering doctors visits, preventive care and drugs, but not hospital stays or surgery.
“What our goal was all along was to make [offering coverage] financially palatable for the company as a whole, so we didn’t do damage and have to let people go or slow down our growth,” said Brian Livingston, chief financial officer of Firebird Restaurant Group, which owns El Fenix.
Would these plans relieve hospitals from having to admit charity cases?
It does not seem likely unless Medicaid greatly expands the type of employed workers that it will cover.
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/