Tidbits Quotations
To Accompany May 15, 2014 edition of Tidbits
Bob Jensen at Trinity University

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

Remember, "accounting" and "accountability" have nothing in common
Caption of a New Yorker cartoon

If everyone is thinking alike, then somebody isn't thinking.
George S. Patton

It's better to walk alone than in a crowd going in the wrong direction.
Diane Grant

By 2005, (Monica) Lewinsky found that she could not escape the spotlight in the U.S., which made both her professional and personal life difficult. She stopped selling her handbag line and moved to London to study social psychology at the London School of Economics. In December 2006, Lewinsky graduated with a Master of Science degree. Her thesis was titled "In Search of the Impartial Juror: An Exploration of the Third-Person Effect and Pre-Trial Publicity." Since then she has tried to avoid publicity.
She purportedly has a tell all manuscript that will probably be purchased and suppressed before it is published.

When you get old you feel you can't be bothered because most things don't matter that much. Or not as much as they used to. Or not as much as they ever should have done. I just wish I had known that then when I was younger.
Stan Hayward --- http://www.quora.com/Aging/What-does-it-feel-like-to-be-old#ixzz30ew9EMO5

Eat, drink, and make merry --- tomorrow we die!
Neil deGrasse Tyson: Don't Worry, Earth Will Survive Climate Change — We Won't
Carl Sagan recognized Professor deGrasse's talent when deGrasse was still in high school.

Is that all there is? ---

Democracy is Wrong for the World and Belgium is a Test Case ---

Is it impossible to audit, as the GAO used to insist, the fraud-infested finances of the Pentagon?

"Pentagon Backtracks on Goals for First Audit, GAO Says,"  by Tony Capaccio, Bloomberg, May 13, 2014 ---

The Pentagon has backtracked from a pledge to have all budgetary accounts ready by Sept. 30 for the initial step toward its first-ever full financial audit.

Then-Defense Secretary Leon Panetta pledged an “all-hands effort” in 2011 to prepare for evaluation a “Statement of Budgetary Resources” -- covering funds received, unspent, obligated or put under contract over several years -- by the end of this fiscal year so that an audit could begin in 2015.

Instead the Defense Department has decided to “narrow the scope” of the initial budgetary data to a one-year snapshot of spending and accounts covering about 77 percent of those funds, according to a report by the U.S. Government Accountability Office scheduled for release today.

The delay may further undercut public confidence in the department’s ability to manage billions of dollars effectively even as the military seeks permanent relief from the automatic budget cuts known as sequestration. The current efforts are focused on having the initial set of budget books ready to start an audit in fiscal 2015 and the rest by 2017.

“The Pentagon’s accounting system is a broken mess,” a new advocacy group, Audit The Pentagon, said in a posting on Facebook. “The Defense Department is the only major federal agency that cannot pass an audit -- and DoD has no serious target date to do so.”

The GAO, the watchdog agency for Congress, has criticized the department for its inability to properly account for an inventory that makes up 33 percent of the federal government and includes $1.3 trillion in property, plants and equipment. The Pentagon’s budget accounts for almost half of the discretionary spending that Congress approves annually. Hagel’s Pledge

The new GAO report praised the Pentagon for committing “significant resources to improving funds controls for achieving sound financial management operations and audit readiness” and increasing the training of its workforce. Defense Secretary Chuck Hagel said on assuming office in 2013 that he was committed to Panetta’s initiative.

The narrowed scope of the initial data excludes all unspent funds previously appropriated by Congress “as well as information on the status and use of such funding in subsequent years,” the GAO said in its report for Senator Tom Carper, a Delaware Democrat who’s chairman of the Senate Homeland Security and Governmental Affairs committee. Carper’s Criticism

“Federal agencies have been required to produce auditable financial statements since the mid-1990s,” Carper said in an opening statement prepared for a committee hearing today. “Unfortunately, nearly two decades later, the Department of Defense -- which spends more than $2 billion every day -- has yet to meet this obligation. In fact, its books are so bad that auditors cannot even attempt to perform a complete audit.”

Navy Commander William Urban, a spokesman for the Defense Department comptroller, said in an e-mail that the Pentagon “is not backing off the goal for a full audit of the Statement of Budgetary Resources.”

“About a year ago, we did modify our audit plan in order to pursue a cost-effective strategy as required by law,” Urban said. “Congress was informed of the change shortly after it was put in place.”

Jensen Comment
The GAO also claimed that it would be impossible to audit the IRS. I don't think there's anybody to date that argues that it's possible to audit the IRS.

"The Closing of the Collegiate Mind:  Opponents of free speech have chalked up many campus victories lately as ideological conformity marches on," by Ruth R. Wisse (Professor of Yiddish and comparative literature at Harvard University), The Wall Street Journal, May 11, 2014 ---

There was a time when people looking for intellectual debate turned away from politics to the university. Political backrooms bred slogans and bagmen; universities fostered educated discussion. But when students in the 1960s began occupying university property like the thugs of regimes America was fighting abroad, the venues gradually reversed. Open debate is now protected only in the polity: In universities, muggers prevail.

Assaults on intellectual and political freedom have been making headlines. Pressure from faculty egged on by Muslim groups induced Brandeis University last month not to grant Ayaan Hirsi Ali, the proponent of women's rights under Islam, an intended honorary degree at its convocation. This was a replay of 1994, when Brandeis faculty demanded that trustees rescind their decision to award an honorary degree to Jeane Kirkpatrick, former U.S. ambassador to the United Nations. In each case, a faculty cabal joined by (let us charitably say) ignorant students promoted the value of repression over the values of America's liberal democracy.

Opponents of free speech have lately chalked up many such victories: New York City Police Commissioner Raymond Kelly prevented from speaking at Brown University in November; a lecture by Charles Murray canceled by Azusa Pacific University in April; Condoleezza Rice, former secretary of state and national-security adviser under the George W. Bush administration, harassed earlier this month into declining the invitation by Rutgers University to address this year's convocation.

Most painful to me was the Harvard scene several years ago when the Committee on Degrees in Social Studies, celebrating its 50th anniversary, accepted a donation in honor of its former head tutor Martin Peretz, whose contributions to the university include the chair in Yiddish I have been privileged to hold. His enemies on campus generated a "party against Marty" that forced him to walk a gauntlet of jeering students for having allegedly offended Islam, while putting others on notice that they had best not be perceived guilty of association with him.

Universities have not only failed to stand up to those who limit debate, they have played a part in encouraging them. The modish commitment to so-called diversity replaces the ideal of guaranteed equal treatment of individuals with guaranteed group preferences in hiring and curricular offerings.

Females and members of visible minorities are given handicaps (as in golf). Courses are devised to inculcate in students the core lesson that (in the words of one recent graduate, writing online at the Huffington Post) "harmful structural inequalities persist on the basis of class, race, sex, sexual orientation, and gender identity in the U.S." On too many campuses, as in a funhouse mirror, ideological commitment to diversity has brought about its opposite: ideological hegemony, which is much more harmful to the life of the mind than the alleged structural inequalities that social engineering set out to correct.

In 1995 I participated in a campus debate on affirmative action that drew so much student interest it had to be rerouted to Harvard's largest auditorium. This year I was asked by a student group to participate in a debate on modern feminism. Though I am not hotly engaged in the subject, I agreed and waited for confirmation, thinking it might be fun to consider a women's movement that has never graduated from sisterhood to motherhood. There followed several emails apologizing for the delay and finally a message acknowledging that no one could be found to take the pro-feminist side. Evidently, one of those asked had responded: "What is there to debate?" No wonder those who admit no legitimate opposition to their ideas feel duty-bound to shut down unwelcome speakers.

Because conservative students do not take over buildings or drown others out with their shouting, instructors feel free to mock conservatives in the classroom, and administrators pay scant attention when their posters are torn down or their sensibilities offended. As a tenured professor who does not decline the label "conservative," I benefit from this imbalance by getting to know some of the feistiest students on campus.

But these students need and deserve every encouragement from outside their closed and claustrophobic environs. As one of them put it to me, "There's more faculty interest in climate control than in the Western canon." Multiculturalism guarantees that courses on Islam highlight all the good that can be said of Muhammad and the Quran, but there is no comparable academic commitment to reinvigorating the foundational teachings of American liberal democracy or to strengthening the legacy bequeathed to us by "dead white males."

So far the university culture has not been able to destroy the two-party system, but its influence on the current administration in Washington gives some sense of what may lie ahead unless small "d" democrats—which these days means mostly conservatives—begin to take back the campus. Through patient but persistent means, they ought to help students introduce speakers, debates, demands for courses and all the intellectual firepower they can muster in favor of American exceptionalism, the moral advantages of a free economy and the need to protect democracy from enemies we are not afraid to name.

In short, let the university become as contentious as Congress. In Nigeria, Islamists think nothing of seizing hundreds of schoolgirls for the crime of aspiring to an education. Here in the United States, the educated class thinks nothing of denying an honorary degree to a fearless Muslim woman who at peril of her life, and in the name of liberal democracy, has insisted on exposing such outrages to the light. The struggle for freedom is universal; would that our universities were on its side.

Ms. Wisse, a professor of Yiddish and comparative literature at Harvard University, is the author of "Jews and Power" (Schocken, 2007) and "No Joke: Making Jewish Humor" (Princeton, 2013).


Condoleezza Rice Pulls Out Of Rutgers Commencement Ceremony After (faculty and student) Protests ---
You have to squelch such things in the bud before she becomes a black female candidate for the Presidency of the USA

"Commencement Speaker Withdraws at Haverford," Inside Higher Ed, May 14, 2014 ---

Haverford College announced Tuesday that Robert Birgeneau, the former chancellor of the University of California at Berkeley, had decided not to deliver the commencement address there. Some students had objected because of the way Berkeley campus police responded to some protests while Birgeneau was chancellor. Critics said that nonviolent protesters were treated much more roughly than was appropriate. In a letter to Haverford students and faculty members, President Daniel Weiss noted that Birgeneau took many significant actions at Berkeley, including an effort to help undocumented students that he planned to discuss at Haverford. "It is nonetheless deeply regrettable that we have lost an opportunity to recognize and hear from one of the most consequential leaders in American higher education," Weiss wrote. "Though we may not always agree with those in positions of leadership, I believe that it is essential for us as members of an academic community to reaffirm our shared commitment to the respectful and mindful process by which we seek to learn through inquiry and intellectual engagement."

"IMF Chief Withdraws From Smith College’s Graduation After (faculty and student) Protests," by Nick DeSantis, Chronicle of Higher Education, May 12, 2014 ---

The managing director of the International Monetary Fund has withdrawn as Smith College’s commencement speaker after some students and faculty members protested her appearance, reported The Republican, a newspaper in Springfield, Mass.

Smith’s president, Kathleen McCartney, wrote in a letter to the campus that the IMF official, Christine Lagarde, had informed her that she did not want her presence to detract from the occasion.

“In the last few days,” Ms. Lagarde wrote, “it has become evident that a number of students and faculty members would not welcome me as a commencement speaker. I respect their views, and I understand the vital importance of academic freedom. However, to preserve the celebratory spirit of commencement day, I believe it is best to withdraw my participation.”

Continued in article

May 5, 2014 Reply from Linda Kidwell

As a Smith alumna, I am rather distressed by this development, as are many of my classmates. We are set to have our 30th reunion this weekend and had hoped to hear from this accomplished and influential woman. The college president and board of trustees have made the usual remarks that they didn't rescind the invitation, that they regretted her withdrawal, etc. However, I can't hold them blameless for fostering an environment of hostility toward her. I can't remember the last time a Smithie in business or a business-related domain was featured in the stories in our Alumnae Quarterly magazine. While I have tremendous admiration for those who have succeeded in charitable work, law, politics, the arts, and social activism, I know there are many more who have succeeded in engineering, business, agriculture, medicine, and entrepreneurship and business. I'm sad that the students there now have so little exposure to them or the ideas they might espouse. I am a third-generation Smithie, and I'm sorry the chain will be broken by my daughters, who have no interest in going there. Sad, sad, sad.

If everyone is thinking alike, then somebody isn't thinking.
George S. Patton

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

Academics, on average, lean to the left. A survey being released today suggests that they are moving even more in that direction.

Among full-time faculty members at four-year colleges and universities, the percentage identifying as "far left" or liberal has increased notably in the last three years, while the percentage identifying in three other political categories has declined. The data come from the University of California at Los Angeles Higher Education Research Institute, which surveys faculty members nationwide every three years on a range of attitudes.


Here are the data for the new survey and the prior survey:

  2010-11 2007-8
Far left 12.4% 8.8%
Liberal 50.3% 47.0%
Middle of the road 25.4% 28.4%
Conservative 11.5% 15.2%
Far right 0.4% 0.7%


Gauging how gradual or abrupt this shift is complicated because of changes in the UCLA survey's methodology; before 2007-8, the survey included community college faculty members, who have been excluded since. But for those years, examining only four-year college and university faculty members, the numbers are similar to those of 2007-8. Going back further, one can see an evolution away from the center.


In the 1998-9 survey, more than 35 percent of faculty members identified themselves as middle of the road, and less than half (47.5 percent) identified as liberal or far left. In the new data, 62.7 percent identify as liberal or far left. (Most surveys that have included community college faculty members have found them to inhabit political space to the right of faculty members at four-year institutions.)


The new data differ from some recent studies by groups other than the UCLA center that have found that professors (while more likely to lean left than right) in fact were doing so from more of a centrist position. A major study in 2007, for example, found that professors were more likely to be centrist than liberal, and that many on the left identified themselves as "slightly liberal." (That study and the new one use different scales, making exact comparisons impossible.)


In looking at the new data, there is notable variation by sector. Private research universities are the most left-leaning, with 16.2 percent of faculty members identifying as far left, and 0.1 percent as far right. (If one combines far left and liberal, however, private, four-year, non-religious colleges top private universities, 58.6 percent to 57.7 percent.) The largest conservative contingent can be found at religious, non-Roman Catholic four-year colleges, where 23.0 percent identify as conservative and another 0.6 percent say that they are far right.


Professors' Political Identification, 2010-11, by Sector

  Far left Liberal Middle of the Road Conservative Far right
Public universities 13.3% 52.4% 24.7% 9.2% 0.3%
Private universities 16.2% 51.5% 22.3% 9.8% 0.1%
Public, 4-year colleges 8.8% 47.1% 28.7% 14.7% 0.7%
Private, 4-year, nonsectarian 14.0% 54.6% 22.6% 8.6% 0.3%
Private, 4-year, Catholic 7.8% 48.0% 30.7% 13.3% 0.3%
Private, 4-year, other religious 7.4% 40.0% 29.1% 23.0% 0.6%


The study found some differences by gender, with women further to the left than men. Among women, 12.6 percent identified as far left and 54.9 percent as liberal. Among men, the figures were 12.2 percent and 47.2 percent, respectively.


When it comes to the three tenure-track ranks, assistant professors were the most likely to be far left, but full professors were more likely than others to be liberal.


Professors' Political Identification, 2010-11, by Tenure Rank

  Far left Liberal Middle of the Road Conservative Far right
Full professors 11.8% 54.9% 23.4% 9.7% 0.2%
Associate professors 13.8% 50.4% 24.0% 11.5% 0.4%
Assistant professors 13.9% 48.7% 25.9% 11.2% 0.4%


So what do these data mean?


Sylvia Hurtado, professor of education at UCLA and director of the Higher Education Research Institute, said that she didn't know what to make of the surge to the left by faculty members. She said that she suspects age may be a factor, as the full-time professoriate is aging, but said that this is just a theory. Hurtado said that these figures always attract a lot of attention, but she thinks that the emphasis may be misplaced because of a series of studies showing no evidence that left-leaning faculty members are somehow shifting the views of their students or enforcing any kind of political requirement.

Continued in article

"Noam Chomsky Spells Out the Purpose of Education," by Josh Jones, Open Culture, November 2012 ---

Commencement speakers must be politically correct in our biased institutions of higher education ---



One Chart Shows How Climate Change Will Destroy Each Region Of The Country ---


Eat, drink, and make merry --- tomorrow we die!
Neil deGrasse Tyson: Don't Worry, Earth Will Survive Climate Change — We Won't
Carl Sagan recognized Professor deGrasse's talent when deGrasse was still in high school.

Is that all there is? ---

"A Second Rice Revolution Could Save Millions Of Lives," The Economist, May 9, 2014 ---

Jensen Comment
The "Second Rice Revolution" may save millions of fewer lives where (as in California) rice farms are turning into parched dust farms ---

First Stage of Our Unconditional Surrender in Afghanistan
"The Last Marines Leave Sangin Valley," by Bret Stephens, The Wall Street Journal, May 5, 2014 ---

How the US Created the Afghan War—and Then Lost It  ---

NPR:  Afghanistan is not only the leading producer of drugs it is also a leading nation of drug addicts ---


Constitutional Crisis of Separation of Powers
Standing to Sue Obama Congress should challenge his refusal to enforce the law. The Wall Street Journal, May 4, 2014 ---

The legal left and media are always last to know, but there are the makings of a correction in how the courts police conflicts between the political branches. President Obama's serial executive power abuses—on health care, immigration, marijuana and much else—may be inspiring a heathy rejoinder.

Under the Constitution, Congress is supposed to create and amend laws and the President to faithfully execute them, but Mr. Obama has grabbed inherent Article I powers by suspending or rewriting statutes he opposes. The President has usurped Congress with impunity because he assumes no one has the legal standing to challenge him.

Most of the time people who are exempted from laws do not suffer the concrete injuries that the judiciary can redress, while the courts maintain a presumption that Members of Congress also lack such standing. In 1997's Raines v. Byrd, the Supreme Court rejected a lawsuit against the line-item veto brought by six Congressmen because the loss of legislative power they challenged was a "wholly abstract and widely dispersed" injury.

But that doesn't mean that conduct that marginalizes the legislative branch is absolved of judicial review. In one notable case, Wisconsin Senator Ron Johnson is suing the White House over the ObamaCare regulatory carve-out that conjured up special subsidies for Members and staffers who were supposed to give up federal employee health benefits to join the insurance exchanges.

Mr. Johnson argues that because Members must designate which staffers do and don't participate, the rule imposes a nontrivial administrative burden—i.e., he has standing to sue because the rule harms his office, not because he is a U.S. Senator. More to the point, Mr. Johnson claims that the rule forces him to become personally complicit in law breaking and thus damages his political reputation. Several appeals court precedents hold that elected officials who must maintain the public trust suffer injuries when their credibility is undermined, including a 1993 D.C. Circuit ruling by now-Justice Ruth Bader Ginsburg.

The White House claims Mr. Johnson lacks standing, but that's because the lawyers don't want to get near the merits. The real import of his lawsuit is that it invites the courts to restore the proper separation of powers amid executive encroachment.

The Washington lawyer David Rivkin and Florida International University law professor Elizabeth Foley suggest a broader approach that doesn't require legislators to act as individuals. They're trying to persuade House leaders to mount an institutional challenge to the White House rewrite of ObamaCare's employer mandate. Here the President is defying the plain language of laws and undermining legislative power. The courts ought to extend standing to the House as an institution to vindicate this injury. Short of impeachment, there is no other way for Congress to defend its constitutional prerogatives and the rule of law.

Earlier this year the Tenth Circuit used this theory to grant legislative standing to a group of liberal Colorado representatives to challenge that state's taxpayer bill of rights. Last year the Supreme Court also granted standing to Congress's Bipartisan Legal Advisory Group to defend the Defense of Marriage Act.

The White House had refused to advocate for DOMA based on a constitutional theory that then had no established judicial precedent. The Court ruled in Windsor that deliberately making the Defense of Marriage Act a legal orphan "poses grave challenges to the separation of powers for the Executive at a particular moment to be able to nullify Congress's enactment solely on its own initiative and without any determination from the Court."

All this recalls the revival of federalism under the William Rehnquist Supreme Court. From the New Deal to the late 20th century there were few tangible protections of the powers the Constitution reserves to the states or the people, and any doctrine that limited federal incursion was assumed a dead letter.

But beginning with the 1992 landmark New York v. United States, the Court began to rediscover the government of enumerated powers that the framers envisioned. A 6-3 majority overturned a 1985 federal law that ordered states to dispose of radioactive waste within their own borders because "the accountability of both state and federal officials is diminished."

Continued in article

Gary Becker --- http://en.wikipedia.org/wiki/Gary_Becker

"RIP:  Gary S. Becker He was a pioneer in applying economics to human behavior." Wall Street Journal, May 4, 2014 ---

Modern economics too often seems to devolve into statistics and mathematical formulas, which is only one of the reasons the world will miss Gary Becker, who died on Saturday at age 83. The Nobel laureate always put the study of humanity first and foremost, applying the principles of his discipline to human capital and how it can best be utilized for the common good.

Like so many other great free-market economists, Becker flourished in the second half of the 20th century at the University of Chicago, which rose as an alternative to the reigning orthodoxy of faith in government economic management. Milton Friedman was a teacher and colleague.

Gary Becker made his reputation in particular by applying economics to human behavior and problems not typically thought to be subject to economic analysis. His study of racial discrimination, for example, upended the view that bias benefits those who discriminate. He showed that an employer loses if he refuses to hire a productive worker for reasons of bias, and he demonstrated that discrimination is less likely in the most competitive industries that need to hire the best workers.

Becker also did ground-breaking work on the economics of crime and punishment, the family, and investments in human capital. He studied the allocation of time in the family unit, showing that rising wages increase the value of time and thus the cost of such work in the home as child-rearing. This combined with the need to provide more costly education for children tends to reduce fertility rates.

Americans now know this application of economics to human behavior as "Freakonomics," but Becker was a pioneer. He believed governments should invest in human capital through education in particular, but he also believed that humans flourish most when markets rather than governments allocate resources. His work graced these pages many times over the years, and we offer a sample nearby. Above all he believed in the ability of human beings to improve themselves if given the opportunity to exploit their talents.

Jensen Comment
I frequently quoted from the Becker-Posner Blog at
His final blog posting was entitled "The Embargo of Cuba: Time to Go" ---
Richard Posner's reply is at

When President Obama holds back approval of the Keystone pipeline, for the umpteenth time, it's bad enough that he's politically pandering to Tom Steyer, the hedge-fund billionaire and manic radical opponent of fossil fuels. If he gives in to Steyer by blocking the pipeline, Steyer gives $100 million to Democratic candidates this fall.
Larry Kudlow

Toyota Motor Corp. announced that they will be moving their campus in Torrance, California to a suburb outside of Dallas, Texas.
Low taxation states keep luring companies from high taxation states. A ton of taxpayer cash also helps.

From the CPA Newsletter on May 5, 2014

Fed measures still show dire labor situation
Despite the optimistic headline figures on U.S. unemployment, key indicators monitored by the Federal Reserve all continue to suggest a struggling labor market. Workforce participation now matches the lowest point since 1978, and part-time work is on the rise while growth in hourly pay is falling. On the whole, the labor picture "does not in any way force the Fed's hand from its accommodative stance," said Lindsey Piegza, Chicago-based chief economist for Sterne, Agee & Leach. Bloomberg (5/2)

"Jobless Benefits Are Disappearing Much Faster Than Jobs Are Appearing," by Ben Casselman, Nate Silver's 5:38, May 1, 2014 ---

Jensen Comment
And many of those new jobs have not employer medical coverage and are less than full time (partly to avoid ACA penalties for not providing medical benefits). One problem with those unemployment statistics that we keep seeing in the media is that one new part-time newly without benefits is considered equivalent to a full-time job with benefits. Thus we are reporting oranges and lemons as being the same "fruit."

Hedging Fair Value versus Hedging Cash Flows at Starbucks

This is a possible illustration for showing students how it's impossible to hedge fair value of inventory and future cash flow of inventory purchases simultaneously. If Starbucks buys puts 40% of its coffee in physical inventory it has fair value risk but no cash flow risk. If it hedges the fair value of this inventory it takes on cash flow risk while at the same time eliminating fair value risk to the extent that the hedging is effective.

If it locks hedges with futures price or a strike price fore forecasted purchase transactions it also has no cash flow risk but it has fair value risk.  If it subsequently hedges that future fair value it must take on cash flow risk.

FAS 133 accounting rules are different between fair value hedges versus cash flow hedges ---
Other tutorials on accounting for derivative financial instruments and hedging activities

Superimposed on all of this is the possible accounting for hedging of foreign currency transactions.

FAS 133 does not have a lot to say about hedging profits because business firms seldom if ever hedge the aggregated bottom line. Companies hedge the components of the net profit but this entails hedging different types of risks.

It's important for students to learn why firms seldom hedge the bottom line of their income statements.

"Why Rising Coffee Prices Are Great For Starbucks," by Celan Bryant, Business Insider, May 5, 2014 ---
Also see http://www.fool.com/investing/general/2014/05/05/why-does-starbucks-like-rising-coffee-prices.aspx#ixzz30qeHAEeQ

2013 was a rough year for Dunkin' Brands (NASDAQ: DNKN ) . Same-store sales growth stalled in every segment. On the first-quarter earnings call, CEO Nigel Travis reported another poor quarter but reminded investors about the volatile weather that had a strong effect on peak morning business.

When our guests' normal morning routine gets disrupted by store closings as a result of snow and bad storms, we lose their visit on that particular day. That visit, in most cases, is not recoverable.

Then on April 24 Starbucks (NASDAQ: SBUX ) made Travis look stupid by reporting record financial results for the quarter ended March 30. Global same-store sales were up 6%, net sales increased 9%, and operating income rose 18%. By all accounts the trend was positive, despite Starbucks having to deal with the same headwinds as Dunkin'. If you believe most headlines, however, that trend is about to change due to the rising price of coffee. Don't be fooled. Historically, an increase in the price of coffee has benefited same-store sales growth for Starbucks, just like it did last quarter. Historical coffee prices

At year-end 2010 coffee futures were at the same level they are at today; the trend is up due to Brazil's drought. Volcafe cut its forecast for coffee supply by 11% due to the drought, but the full impact won't be known until the end of May.

As you can see from the chart below, a similar increase in coffee prices began in mid-2010 and ended in mid-2011. The question for major sellers of coffee products is whether or not they're prepared to weather the upcoming price storm if the drought continues.

According to The Wall Street Journal, Craig Russell, Starbucks' head of coffee, has already purchased 40% of next year's supply needs. Dunkin' has prices locked in through the end of this fiscal year but may decide to make purchases in the fourth quarter. "Eventually, you have to buy coffee," said Russell. It is this eventuality that is Starbucks' secret weapon, and opportunity, against competitors. High coffee prices present an opportunity for Starbucks

As Russell said, at some point coffeehouses will have to buy more coffee.

These may be smaller stores or independent coffee shops that don't sell enough coffee to make forward purchases of the commodity at locked-in prices like Starbucks and Dunkin'.

As a result, these smaller coffeehouses are forced to either eat the costs or pass them on to customers. By around the third price increase, even the most loyal customers begin migrating to Starbucks; it feels more like an independent coffeehouse than Dunkin Donuts does, but the prices are affordable. It's a survival-of-the-fittest customer-acquisition strategy that fuels growth for Starbucks in times of rising coffee prices. Indeed, Starbucks' same-store sales peaked in 2011, and earnings per share grew more than 100% from 2009 to 2011. Takeaway

People go to Starbucks for more than the insanely addictive commodity it sells -- there's something about the place that makes you feel like you're "cool." Maybe it's the music or the heavy conservationism theme that permeates the stores; perhaps it's the hip, multicultural baristas who write your name on every cup. It has all the feel and charm of a cozy coffee shop; and when one independent coffeehouse is closed, there's usually a Starbucks around the corner.

In all appearances, there's no difference between Starbucks and the independent coffeehouse, but Starbucks is really a large, multinational conglomerate with a slick business model that thrives when coffee prices rise. Look for increases, not decreases, in same-store sales growth over the next year, as increases in coffee prices tend to add value to this company.

Read more:

Bob Jensen's tutorials on accounting for derivative transactions and hedging activities ---

Jensen Comment
Starbucks also actively lobbies for an increase in the minimum wage. Even if this is more costly for Starbucks in some instances, especially for some part-time workers, raising the minimum wage for Starbucks is a huge profit booster. The reason is that many of the mom and pop coffee shop and restaurant competitors operating on the edge will be pushed off the cliff by increases in the minimum wage.

The Countries Where It's Easiest To Become A Self-Made Billionaire ---

. . .

Hong Kong and Israel have more self-made billionaires than any other place, when considered as a percentage of total population. The United States, Switzerland and Singapore rounded out the top five.

Low taxes and low regulation are correlated with higher percentages of SuperEntrepreneurs, according to the report. Government programs to support entrepreneurship did not correlate with the percentage of SuperEntrepreneurs, the report found.

The results indicate the American Dream — the notion that it is possible for individuals to rise to the top through effort, luck and genius — is not yet dead. Self-made billionaire entrepreneurs have created millions of jobs, billions of dollars in private wealth and probably trillions of dollars of value for society,” the report says. “Moreover, the American Dream is increasingly the Global Dream.”

Read more: http://www.entrepreneur.com/article/233466##ixzz30ql2nAah

Jensen Comment
There is also risk of becoming a billionaire under a dictator. In Russia Putin throws some billionaires in prison at will while allowing others to roam free around the world. He himself is a multi-billionaire. His house on the Black Sea, for example, cost over a billion dollars. Inflation may also put wealthy people at great risk as in Argentina and Venezuela and Zimbabwe.

The China Dream:  Rise of the Billionaire Tiger Women from Poverty
"Tigress Tycoons," by Amy Chua, Newsweek Magazine Cover Story, March 12, 2012, pp. 30-39 ---

Like a relentless overachiever, China is eagerly collecting superlatives. It’s the world’s fastest-growing major economy. It boasts the world’s biggest hydropower plant, shopping mall, and crocodile farm (home to 100,000 snapping beasts). It’s building the world’s largest airport (the size of Bermuda). And it now has more self-made female billionaires than any other country in the world.

This is not only because China has more females than any other nation. Many of these extraordinary women rose from nothing, despite living in a traditionally patriarchal society. They are a beguiling advertisement for the New China—bold, entrepreneurial, and tradition-breaking.

Four standouts among China’s intriguing new superwomen are Zhang Xin, the factory worker turned glamorous real-estate billionaire, with 3 million followers on Weibo (China’s Twitter); talk-show mogul Yang Lan, a blend of Audrey Hepburn and Oprah Winfrey; restaurant tycoon Zhang Lan, who as a girl slept between a pigsty and a chicken coop; and Peggy Yu Yu, cofounder and CEO of one of China’s biggest online retailers. None of these women inherited her money, and unlike many of the richest Chinese who are reluctant to draw public scrutiny to their path to wealth, they are proud to tell their stories.

How did these women make it to the top in the wild, wild East? Did they pay a price, either in their family or their professional lives? What was it that distinguished them from their famously hardworking compatriots? As I set out to explore these questions, my interest was partly personal. All four of my subjects lived for extended periods in the West. As a Chinese-American, and now the infamous Tiger Mom, I was curious: how “Chinese” were these new Chinese tigresses?

It turns out that each of these women, in her own way, is a dynamic combination of East and West. Perhaps this is one secret to their breathtaking success.

Zhang Xin is a rags-to-riches tale right out of Dickens. She was born in Beijing in 1965. The next year Mao launched the Cultural Revolution, and millions, including intellectuals and party dissidents, were purged or forcibly relocated to primitive rural areas. Children were encouraged to turn in their parents and teachers as counterrevolutionaries. Returning to Beijing in 1972, Zhang remembers sleeping on office desks, using books for pillows. At 14 she left for Hong Kong with her mother, and for five years she worked in a factory by day, attending school at night.

“I was a miserable kid,” she told me. With her chic cropped leather jacket and infectious laughter, the cofounder of the $4.6 billion Soho China real-estate empire is today an odd combination of measured calculation and warm spontaneity. “My mother drove me in school so hard. That generation didn’t know how to express love.

“But it wasn’t just me. It was all of China. I don’t think anybody was happy. If you look at photos from those days, no one is smiling.” She mentioned the contemporary artist Zhang Xiaogang, who paints “cold, emotionless” faces. “That’s exactly how we all grew up.”

. . .

But the four women I interviewed are a new breed. Progressive, worldly, and open to the media, they are in many ways not representative of China, past or present. Perhaps they are merely the lucky winners of the 1990s free-for-all in China, a window that may already be closing. Or perhaps they are the forerunners of a China still to come, in which paths to success are far more open. Each has found a way to dynamically fuse East and West, to staggering commercial success. It may still be a long way off, but if China can achieve a similar alchemy—melding its tremendous economic potential and traditional values with Western innovation, the rule of law, and individual liberties—it would be a land of opportunity tough to beat.

The American Dream ---

"Two Carbon-Trapping Plants Offer Hope of Cleaner Coal: Coal power plants in Saskatchewan and Mississippi will produce fewer emissions, but rely on special circumstances," by Peter Fairley, MIT's Technology Review, May 5, 2014 ---

Two of the world’s first coal-fired power plants with integrated carbon capture are nearing completion in Saskatchewan and Mississippi, providing a rare lift for a technology that has languished in recent years.

Carbon capture and sequestration (CCS) remains expensive, but the cost of stabilizing the climate could be much higher without it, according to the Intergovernmental Panel on Climate Change (see The Cost of Limiting Climate Change Could Double without Carbon Capture Technology”). In a report last month, the IPCC noted that CCS is the only way to cut the carbon emissions of existing power plants, and that CCS-equipped power plants burning biomass could help remove carbon dioxide from the atmosphere. The IPCC says both strategies may be essential to limit global warming.

A 110-megawatt plant in Saskatchewan, a refurbished coal-fired generator, is set to restart in a matter of weeks with carbon capture added, according to Robert Watson, CEO for provincial power utility SaskPower.

Under Canadian regulations, the Boundary Dam power station can release no more than 420 tons of carbon dioxide per megawatt-hour of power generation—the same as a state-of-the-art plant fired with natural gas. This is a tall order since the power station will burn lignite—the dirtiest form of coal. Yet SaskPower expects to release just 150 tons of carbon dioxide per day thanks to its new carbon dioxide scrubber, which will absorb and capture 90 percent of the carbon in the plant’s exhaust.

SaskPower could afford to build the $1.2 billion plant partly because lignite is so cheap, but also because Boundary Dam is adjacent to a lignite strip mine. Extra revenue will come from piping most of the 3,000 tons of carbon dioxide that the plant captures per day to Cenovus, a Calgary-based oil and gas firm. Leftover carbon dioxide will be stored in an aquifer 3.5 kilometers below the plant.

“If they couldn’t sell the CO2 for enhanced oil recovery, the project wouldn’t have been economic,” says Howard Herzog, an expert on carbon sequestration, and a senior research engineer with the MIT Energy Initiative.

SaskPower CEO Watson says that the cost of the power from Boundary Dam will be “comparable” to natural gas-fired generation providing the recent price increase in natural gas holds. He expects that natural gas prices will tend to rise over the next 30 years-plus that the Boundary Dam plant will operate.

The other coal plant with carbon capture, in Kemper, Mississippi, should start up later this year. Its owner, Mississippi Power, is counting on similar strategies to minimize operating costs. The plant is also adjacent to a lignite strip mine, and will boost revenues by selling its carbon dioxide to oilfield operators. The project also received $270 million from the U.S. Department of Energy.

However, at 565 megawatts, the Mississippi plant is five times bigger than the Saskatchewan plant, and it uses less conventional technology. It has also been far more controversial than the Boundary Dam project because it gasifies its coal, and because its price tag is now expected to be more than double Mississippi Power’s original projection of $2.4 billion.

The Mississippi plant uses a proprietary gasifier designed by Southern Company and Houston-based engineering firm KBR to turn lignite into a mix of carbon dioxide and hydrogen. The firms have also licensed the design for use in China (see Cleaning Up on Dirty Coal”). Another novel component is the plant’s carbon dioxide capture system, which will remove 65 percent of the carbon dioxide from its gas mix prior to firing the turbines. The carbon dioxide will be captured at the same time that the plant captures its sulfur dioxide, using the same solvent scrubber that conventional coal plants use to remove sulfur dioxide.

Despite the controversy, experts are not greatly concerned by the cost overruns. “The costs of a first-of-a-kind plant are always going to be higher than the cost of your nth plant,” says Sarah Forbes, a senior associate at the World Resources Institute in Washington, D.C.

Herzog agrees: “Kemper was a real first of a kind. You’ve got a lot of first-mover costs in there, and people tend to underestimate first mover costs drastically. By the time you do it half a dozen times, you’re knocking out a lot of cost.”

Continued in article


Gallup:  People In Texas Really Don't Want To Leave, While People In Illinois, Connecticut, and Maryland Want To Flee ---

Jensen Comment
I have difficulty with the survey question:
"Regardless of whether you will move, if you had the opportunity, would you like to move to another state, or would you rather remain in your current state?"

There's an impossible ceteris paribus issue interacting with the definition of "opportunity." Over 90% would probably leave their happy homes and move to Illinois if the opportunities were turned up so high that it's harder and harder to say no. People move or stay for reasons other than their after-tax incomes and the weather. A leading factor is location of family and long-time friends combined with fear of change.

We lived in Texas and retired elsewhere for reasons that had little to do with Texas in general --- although I think we were seeking more marked seasonal changes in climate somewhat away from oppressive heat and humidity (yes much of Texas is very humid). The desire to move had more to do with wanting to get out of a city having stifling traffic congestion and increasing crime.

My point is that we wanted out a city more than we wanted out of a state. But once you've decided to leave the home and the locale where you've lived for 24 years it opens up consideration of new locales both within and outside a state. Our five children are spread from Maine to Wisconsin to California. Aside from not wanting to be a long distance from all of our children where we ended up in retirement in the White Mountains of New Hampshire was as much happenstance as it was any other one thing. We could have been as happy or even more happy in other locales if we had worked harder at finding other locales. Happiness is more what you make of where you live and work and retire.

Happiness is mostly making the most of what you've got to work with. As you grow older and smarter you should know full well that the grass is always greener elsewhere but that green grass is only is only one criterion of happiness in life. Happiness is making the most of what you got in terms of lots of other criteria!

Happiness is also relative to what you can do with what you've got. We like living in the boondocks that requires, among other things, driving to buy fresh meat, milk, and a haircut. When they don't renew our driving licenses we will probably wish we were in the retirement towers near Fort Sam Houston in San Antonio, Texas.

There's a joke passing around the Internet that asks an old mountain man over 90 what he likes about his new and younger wife who is ugly, can't cook, won't clean house, won't do laundry, refuses to have sex, and is no fun in any way imaginable. His answer as to why he married her --- she has a driving license.

Question:  What do Vermont schools and Chicago schools at K-12 levels have in common?

Vermont, with about 600,000 people spread across state in small towns and farms, has very little in common with Chicago having nearly 3 million people bordered by suburbs having millions of more people. But these two regions have one thing in common --- some of the schools now have almost no students.

Both regions face the economic and political realities of having to combine schools, school districts, and school boards. In Vermont it is almost humorous.

Issues raised by school district consolidation vary greatly. In Chicago the biggest problem is merging waring gangs into a consolidated school. In Vermont the problem is winter weather. Village A having 30 children in school may need to merge its school with Village B having 25 children in school. The villages may only be 28 miles apart, but there's a mountain separating Village A from Village B with only a small and winding road through a treacherous "notch" in the wintertime. The fact that Vermont passed a law against using salt on icy roads compounds the safety problem during snow and ice storms.

Vermont is the most liberal state in the USA and has the highest taxes along with NY, NJ, and California --- this makes its politics more fascinating to follow in the rural state of Vermont. One of its two senators (Bernie Sanders) openly brags about being a socialist. The other one just doesn't admit it in public. The state is phasing out its nuclear power plant without a plan to replace the lost electric power. Liberals for and against wind power are at war with one another.

Vermont is passing unique food labeling laws regarding genetic modification. But the state population is so small some distributors of popular brands will simply cut out the state rather than incur the cost of labeling just for Vermont. Half of Vermont already drives into neighboring New Hampshire to avoid sales taxes. Wal-Mart builds megastores just on the the NH side of the border. Now to find some genetically modified foods enjoyed in NH the shoppers in Vermont will have an added reason to shop in NH. Also I don't think the Vermont bans online shopping for those foods such that all the law is really going to accomplish is further hammering of the profits of Vermont's food stores.

Vermont is the only state to my knowledge that is legislating a single-payer health insurance provider where corporate health insurance companies will be  banned from doing business in the state. The mountain faced on that one is the need to raise a billion dollars to start a state-owned insurance provider in a state having only 600,000 people, many of whom are covered by Medicare as the USA population in general is aging. Eventually Vermont may have to listen to the actuaries on this one.

Another real and more current problem is that physicians are fleeing the high taxes in Vermont. Three of the doctors that my wife and I currently use recently moved to NH from Vermont. Many of the patients using the huge Dartmouth-Hitchcock Medical Center drive in from Vermont.

But I applaud the way Vermont is still trying to go it alone amidst the competition. Watching the Politics in Vermont on PBS Vermont is more interesting on Friday nights than anything served up by the major ABC, CBS, and NBC networks.

Set 01 of Bob Jensen's Vermont Photographs ---

WSJ Video: Mayor DeBlasio Concedes Defeat in NYC’s Charter War ---

Jensen Comment
The Mayor also lost in his refusal to plow or wait until summer to plow snow from public streets in rich neighborhoods.

Will Dunbar High School Rise Again ---

Jensen Comment
We have some elitist colleges that are state-supported. What's so wrong with elitist K-12 public schools for the gifted?

"Top (President) Clinton Aides Blew a Chance to Avert the Financial Crisis," by Peter Coy and Silla Brush, Bloomberg Businessweek, May 1, 2014 ---

The U.S. economy and the stock market were booming on April 21, 1998, when the heaviest hitters of the Clinton administration met to discuss a controversial topic: whether the government should regulate a profitable but risky corner of the financial markets. Treasury Secretary Robert Rubin, the former Goldman Sachs (GS) co-chairman, attended. So did his deputy, Larry Summers, and Alan Greenspan, chairman of the Federal Reserve. The meeting’s odd woman out was Brooksley Born, the little-known chairwoman of a little-known agency, the Commodity Futures Trading Commission (CFTC), who exhorted her colleagues to consider regulating privately traded derivatives such as swaps contracts.

It’s no secret she lost. Her defeat that day left regulators not only powerless but clueless about the explosive growth in credit default swaps during the decade that followed, which allowed speculators to bet on an ever-rising housing market. The subsequent bust in 2008 caused the most devastating economic downturn since the Depression.

Now nine pages of handwritten notes from that pivotal meeting have emerged, documenting for the first time what happened behind closed doors. Written by an unidentified person in small, neat script, they were released by the Clinton Library on April 18, along with thousands of other pages of documents, but were largely overlooked in the media’s scramble for tidbits about President Clinton, Vice President Al Gore, and Hillary Clinton.

The notes are the raw material of a tragedy and show how an opportunity to head off distant calamity slipped away because of turf wars and a failure to communicate. Born saw herself as forward-thinking. Her opponents saw her as a loose cannon. Regardless of who was right, the result of their infighting was to arouse the Republican-controlled House and Senate, which ultimately passed a law that banned regulation of swap contracts.

Tensions among senior Clinton officials over regulating derivatives were already out in the open when the President’s Working Group on Financial Markets gathered at the White House for the April 21 meeting. Federal law required that futures contracts—promises to deliver something for a set price at a set time in the future—be traded on regulated exchanges. The law was less clear about other kinds of derivatives, such as swaps. In an interest rate swap, for instance, a party that wants to lock in a fixed rate agrees to exchange payments with another party that wants to pay a floating rate. These customized contracts were being traded privately between banks and were largely free of regulation. Born wanted to clarify whether and how the government would monitor and control transactions such as these to keep them from destabilizing markets. Others preferred to move more slowly.

In the notes, Born opens the topic by discussing what she called a “concept release”—a document that would ask a series of questions about possible regulations. “CFTC feels that they must go forward given how marketplace has evolved,” the note taker writes.

Rubin warns that the financial community is “petrified” that Born’s concept release implies swaps are futures. Because futures are required to be traded on exchanges, the implication would be that swaps not traded on exchanges are illegal and unenforceable. He says Born’s plan “raises uncertainty over trillions of dollars of transactions,” according to the note taker’s paraphrasing.

Continued in article

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

A Plenary Session Speech at a Chartered Financial Analysts Conference
Video: James Montier’s 2012 Chicago CFA Speech The Flaws of Finance ---
Note that it takes over 15 minutes before James Montier begins

Major Themes

  1. The difference between physics versus finance models is that physicists know the limitations of their models.
  2. Another difference is that components (e.g., atoms) of a physics model are not trying to game the system.
  3. The more complicated the model in finance the more the analyst is trying to substitute theory for experience.
  4. There's a lot wrong with Value at Risk (VaR) models that regulators ignored.
  5. The assumption of market efficiency among regulators (such as Alan Greenspan) was a huge mistake that led to excessively low interest rates and bad behavior by banks and credit rating agencies.
  6. Auditors succumbed to self-serving biases of favoring their clients over public investors.
  7. Banks were making huge gambles on other peoples' money.
  8. Investors themselves ignored risk such as poisoned CDO risks when they should've known better. I love his analogy of black swans on a turkey farm.
  9. Why don't we see surprises coming (five excellent reasons given here)?
  10. The only group of people who view the world realistically are the clinically depressed.
  11. Model builders should stop substituting elegance for reality.
  12. All financial theorists should be forced to interact with practitioners.
  13. Practitioners need to abandon the myth of optimality before the fact.
    Jensen Note
    This also applies to abandoning the myth that we can set optimal accounting standards.
  14. In the long term fundamentals matter.
  15. Don't get too bogged down in details at the expense of the big picture.
  16. Max Plank said science advances one funeral at a time.
  17. The speaker then entertains questions from the audience (some are very good).


James Montier is a very good speaker from England!

Mr. Montier is a member of GMO’s asset allocation team. Prior to joining GMO in 2009, he was co-head of Global Strategy at Société Générale. Mr. Montier is the author of several books including Behavioural Investing: A Practitioner’s Guide to Applying Behavioural Finance; Value Investing: Tools and Techniques for Intelligent Investment; and The Little Book of Behavioural Investing. Mr. Montier is a visiting fellow at the University of Durham and a fellow of the Royal Society of Arts. He holds a B.A. in Economics from Portsmouth University and an M.Sc. in Economics from Warwick University


Jensen Comment
For years former Fed Chairman Alan Greenspan belatedly owned up to making huge mistakes in not setting tighter controls on the big and small banks. The biggest mistake, however, was when Congress allowed Main Street bankers to sell local mortgages upstream with zero retention risk when mortgages defaulted. This encouraged fraud in lending to owners with no hope of meeting mortgage payments and fraud in overvaluing the properties to a point that the amounts loaned exceeded the property values even before the real estate market imploded.

In other words the real problem was that Marvine living on welfare could borrow over $100,000 on a shack worth less than $10,000 ---
Scroll down to the picture of Marvine and her shack.

The real villain was a Congress that, in addition, demanded that Fannie and Freddie buy Main Street mortgages issued to people who could not even afford a down payment let alone meet the future payments.

It might be an interesting case study for managerial accountants to debate the pros and cons of the GE purchase of Alstom of France for $13.5 billion.

It might also be an interesting case in the setting of teaching about the Sustainability Accounting Standards Board and speculating how the SASB might set disclosure rules for the global Alstrom.

"GE Crushes Obama's War on Coal," by Charles Payne, Townhall, May 3, 2014 ---

"Probably for the next decade, the most dominate technology around the world will be coal..."
-Jeff Immelt

The fastest growing source of energy in the world last year was coal, and it is going to stay that way for a very long time. With that in mind, one has to wonder why President Obama has insisted on the gut-wrenching destruction of the coal industry that has costs thousands of jobs, and has sent electricity costs to all-time highs. This, combined with last month's report from the International Energy Agency, state that reaching the goal of carbon emission reduction would cost $45 trillion; which means that any notion of a global deal to stop using coal would be folly.

The fact of the matter is that President Obama's Jobs Czar just crushed his domestic opposition to fossil fuels in general, but coal in particular.

General Electric (GE) is purchasing Alstom of France for $13.5 billion, so that they can be more competitive in the rapid growth of coal-fired power plants around the world.

. . .

It's no mystery that China and India will not sign deals to reduce their use of coal, and make no mistake, outside of the most jaded and aging developed nations the rest of the world is lining up to power with coal, and to take their shot at the good life.

While Alstom has struggled for more than a decade, it does have serious product offerings, including mills capable of crushing anywhere from 15 to 200 tons of coal per hour: that generates serious heat to steam turbines. The company has 20% of the world's installed base, and this has been a great year in the coal power plant business, outside of America:

Moreover, it has been a very good year; coal is making money all over the world and GE wants in on the action. Alstom has 65,000 employees, but only 14% are in France, as 80% of its business is outside that nation, and 85% of its business is outside the United States.

Continued in article

Jensen Comment
It might be an interesting case study for managerial accountants to debate the pros and cons of the GE purchase of Alstom of France for $13.5 billion.

Personally I think we should not give up on coal, but I think we should give up as soon as possible the cutting off of mountain tops in West Virginia to avoid traditional and more costly mining for coal. Two things really depress me. One is the deforestation of rain forests uselessly since these forests have terrible soil for farming. The other is the cutting off of mountain tops that can never grow tall again. There are many other things that I favor in environmental protection.

Thomas Piketty’s 696-page book Capital in the Twenty-First Century is No. 1 on the Amazon bestseller list. It’s a serious economics book that takes a long, hard look at the dynamics affecting the distribution of capital, the concentration of wealth, and the long-term ---

Thomas Piketty has even been invited to the White House as a symbolic gesture that the Obama Administration wants to redistribute wealth.

But "redistribute wealth" is a relative term. Of all the reviews of Piketty’s book to date, I like the review of Paul Krugman the best ---  http://www.nybooks.com/articles/archives/2014/may/08/thomas-piketty-new-gilded-age/
Especially note Krugman's point about how technology changed the structure of wealth in America to a point where Piketty's European world is not quite the same as the U.S. world of the wealthy in 2012. Piketty does not entirely overlook that in his book.

I've been a long time advocate of confiscation of the estates of the super wealthy through estate taxation. I've been a long time advocate of doing away with outrageous executive compensation schemes that are really frauds where the executives appoint the compensation boards that grant them these outrageous salaries.

But what Piketty does not do is show how taking huge amounts from the 1% and redistributing it to the lowest 30% really does not make much of a dent in poverty, because the there just is not enough wealth to make much impact. The worry is that liberal politicians will cut deeper to a point where the American Dream is destroyed in an effort to really make a what is a dysfunctional dent on poverty.

The nations that at one time voted in enormous high marginal tax rates (in Sweden it once rose to over 90%) found that doing so actually hurt the poor more than it helped. Virtually all nations came to their senses and reduced the marginal tax rates on the highest earners ---

"A Problem With Thomas Piketty's Wealth Tax Solution To R > G," by Tim Worstall, Forbes, April 24, 2014 ---

Thomas Piketty’s new book, Capital In The 21st Century is rather taking the economics world by storm. Admittedly, those who love the idea that we should be levying a serious wealth tax do seem to be those who would like to tax the rich more anyway. You know, those who would, one gets the impression, use the argument that kittens are cute as an excuse to raise tax rates on the rich. However, the more that people look at the details of his arguments there more holes there seem to be in them. And there’s one that I’ve not seen mentioned elsewhere as yet (but of course I haven’t possibly been able to keep up with all reactions to the book either) which concerns his idea of a wealth tax as a solution to r > g. It seems, on closer examination, to be an entirely counter-productive idea.

The basic analysis that Piketty wants us to understand is that in a world where the return to extant capital (“r”) is greater than the general rate of growth (“g” ) then the society will be doomed to an ever greater concentration of wealth and inequality. For that old, already extant, capital could be growing at, say, 5%, while growth being lower at 2% (again, imagine) means that those who work for a living will have incomes rising more slowly than those going to the inheritors of capital. And thus the gap between the lucky sperm club and those chasing them will grow ever wider and we are doomed, doomed, to ever greater wealth inequality.

One possible response to this is, well, what’s wrong with wealth inequality? Which isn’t what certain people want to hear these days so Piketty’s solution is that we should have a decent tax on wealth, thus reducing that wealth inequality. However, this runs into a problem which is the deadweight costs of the different forms of taxation.

Any tax levied, on whatever at all rates, means that there’s some economic activity that doesn’t happen just because we’ve levied the tax. That’s what deadweight means in this instance. From the work of Sir James Mirrlees we’ve also got a good idea of which taxes have higher deadweight costs than others. Repeated property taxes have the lowest such costs and that’s why land value taxation is such a good idea. Then comes consumption taxes (sales taxes and VAT), then income taxes and then, at the highest cost in lost economic activity for the revenue raised comes capital taxation. Wealth taxation is of course an extreme form of capital taxation (the less extreme version would be the taxation of returns to capital rather than the capital itself).

Given that we know all this, and Sir James does have a Nobel awarded for his study of optimal taxation systems and thus his views do carry some weight, there’s a problem with Piketty’s plan. Which is that deadweight costs are exactly the same thing as a reduction in g in his equation. So now think through what he’s proposing. Our problem is that r > g. Therefore we must do something. But what we’re going to do is the one thing which we know is most destructive of growth in g.

*Scratches head*.

That really doesn’t sound like the most sensible thing ever, does it? Even if we were insisting that we’ve got to do something about r we’d rather like to do it while having the least possible effect on g. Which brings us to a point that Matt Yglesias made, which is that we can achieve very much the same effect, the one Piketty desires, by instituting a proper land value tax. And that, by the same argument, produces the least reduction in g and would thus aid in solving Piketty’s identified problem much more neatly.

Another way of putting this is that even if we accept the Piketty diagnosis the standard economics of taxation tell us that a wealth tax isn’t the solution while a land value tax might well be. And there’s one further consideration. Piketty’s wealth tax would require global cooperation to be instituted: a land value tax can of course be imposed within the borders of any one nation no matter what the neighbours say and it’ll have exactly the same beneficial effect.

Debate club: for and against Piketty’s ‘Capital’

Diana Furchtgott-Roth and Rex Nutting spar over ‘Capital in the 21st Century’ ---

Jensen Comment
Because of the rise in technology, robotics, and artificial intelligence the line between labor and capital is racing toward capital at the expense of labor in any economy.

Reviews of this Piketty book ---

. . .

he bottom line: You can appreciate his economic history without buying into his forecast.  And even if you are convinced by his forecast, you don't have to buy into his normative conclusions.


"A modern Marx:  Thomas Piketty’s blockbuster book is a great piece of scholarship, but a poor guide to policy," The Economist, May 3, 2014 ---

WHEN the first volume of Karl Marx’s “Das Kapital” was published in 1867, it took five years to sell 1,000 copies in its original German. It was not translated into English for two decades, and this newspaper did not see fit to mention it until 1907. By comparison, Thomas Piketty’s “Capital in the Twenty-First Century” is an overnight sensation. Originally published in French (when we first reviewed it), Mr Piketty’s vast tome on income-and-wealth distribution has become a bestseller since the English translation appeared in March. In America it is the top-selling book on Amazon, fiction included.

The book’s success has a lot to do with being about the right subject at the right time. Inequality has suddenly become a fevered topic, especially in America. Having for years dismissed the gaps between the haves and have-nots as a European obsession, Americans, stung by the excesses of Wall Street, are suddenly talking about the rich and redistribution. Hence the attraction of a book which argues that growing wealth concentration is inherent to capitalism and recommends a global tax on wealth as the progressive solution. In this section

What would America fight for? China’s Carnegie Cheap is cheerful A modern Marx Time to ditch Mandela’s party

Reprints Related topics

United States Thomas Piketty

“Capital” has duly enraptured the left, infuriated the right and spiced up the dismal science in the popular mind (see article). But if Mr Piketty does set the tone of debate on inequality, the world will be the poorer for it. For like its 19th-century namesake, “Capital” contains some marvellous scholarship, but as a guide to action, is deeply flawed.

“Capital” makes three big contributions in its 577 pages. First, Mr Piketty, a pioneer in using tax statistics to measure inequality, painstakingly documents the evolution of income and wealth over the past 300 years, particularly in Europe and America. In doing so, he shows that the period from about 1914 to the 1970s was an historical outlier in which both income inequality and the stock of wealth (relative to annual national income) fell dramatically. Since the 1970s both wealth and income gaps have been rising back towards their pre-20th-century norms. There are surely a few snafus in these statistics, but this work has transformed understanding of the history of wealth, with eye-popping results. Who knew, for instance, that the annual value of inheritances in France has tripled from less than 5% of GDP in the 1950s to about 15%, not all that far from the 19th-century peak of 25%? As a piece of empirical sleuthing, the book is indisputably brilliant.

Mr Piketty’s second contribution is to come up with a theory of capitalism that explains these facts and offers a prediction of where wealth distribution is heading. His central claim is that the free-market system has a natural tendency towards increasing the concentration of wealth, because the rate of return on property and investments has consistently been higher than the rate of economic growth. Two world wars, the Depression and high taxes pushed down the return on wealth in the 20th century, while rapid productivity and population rises pushed up growth. But without such countervailing factors, Mr Piketty argues, higher returns on capital will concentrate wealth—especially when, as now, an ageing population means that growth should slow.

Mr Piketty’s expectation of rising wealth concentration is not outlandish. However, it is a prediction based on extrapolating from the past, not an inherent model of capitalism. He assumes that the returns to capital will not fall substantially even as the stock of wealth rises. That may prove to be true, but the Piketty prediction is a hypothesis, not an iron law.


That is where the problems start, because Mr Piketty’s third contribution is to offer policy proposals that assume this growing concentration of wealth is not only inevitable, but the thing that matters most. He prescribes a progressive global tax on capital (an annual levy that could start at 0.1% and hits a maximum of perhaps 10% on the greatest fortunes). He also suggests a punitive 80% tax rate on incomes above $500,000 or so.

Here “Capital” drifts to the left and loses credibility. Mr Piketty asserts rather than explains why tempering wealth concentration should be the priority (as opposed to, say, boosting growth). He barely acknowledges any trade-offs or costs to his redistributionist agenda. Most economists, common sense and a lot of French businesspeople would argue that higher taxes on income and wealth put off entrepreneurs and risk taking; he blithely dismisses that. And his to-do list is oddly blinkered in its focus on taxing the rich. He ignores ways to broaden the ownership of capital, from “baby bonds” to government top-ups of private saving accounts. Some capital taxes could sit nicely in a sensible 21st-century policy toolkit (inheritance taxes, in particular), but they are not the only, or even the main, way to ensure broad-based prosperity.

Mr Piketty’s focus on soaking the rich smacks of socialist ideology, not scholarship. That may explain why “Capital” is a bestseller. But it is a poor blueprint for action.


"Thomas Piketty: Marx 2.0," by Rana Foroohar, Time Magazine, May 19, 2014, pp. 46-49 ---

How one French economist’s unlikely blockbuster set the world’s leaders spinning.

It’s not often that a 685-page economics tome almost overnight captivates Main Street, Wall Street and the cream of Washington’s trend-minded policymakers and think tankers. But that is what’s happened with Capital in the Twenty-First Century and its 43-year-old author, Thomas Piketty. Just a few days after its February release, the massive study of global inequality hit No. 1 on Amazon’s best-seller list. With more than 200,000 copies sold–the most ever during a book’s first year in the history of Harvard University Press–hardbacks are hard to come by. It’s safe to say the French academic is now the most talked-about economist on the planet.

The sudden acclaim only partly describes the impact Piketty’s book–the title is a nod to Marx’s Das Kapital–is having. On a recent trip to the U.S., Piketty met with Nobel laureates, billionaire financiers and such top policymakers as Treasury Secretary Jack Lew and Council of Economic Advisers head Jason Furman. Liberal economist Paul Krugman has already hailed the book as the economic work of the decade, and many influential economists agree with him.

Of all those who have railed against widening economic inequality in recent years–Occupy Wall Street, Barack Obama, the Pope–how is it that a wonky math whiz toiling away in Paris found a way to get global elites to pay attention to, and even worry about, the divide between rich and poor? Perhaps it’s because Capital is rooted not in theoretical abstractions so much as archaeology. The book analyzes hundreds of years of tax records from France, the U.K., the U.S., Germany and Japan to prove a simple idea: The rich really are getting richer. And their wealth doesn’t trickle down. It trickles up.

It turns out that making a data-rich case for the conventional wisdom has profound implications. “The 1% in America right now is still a bit lower than the 1% in prerevolutionary France but is getting closer,” says Piketty. The idea that the U.S. today could be on the same economic trajectory as late 18th century France, a society in which many of the 1% eventually had their heads lopped off, may seem, as Piketty writes in his book, “terrifying.” Yet the stark historical consequences of unchecked inequality are at the heart of Capital.

Data Deluge

Piketty was born outside Paris in 1971. He was put on a high-end academic track studying math and economics at some of France’s top schools. He earned his Ph.D. at 22. Early in his career, Piketty also taught at MIT. That was in the 1990s, when American economics had come to be dominated by theoretical mathematics. At the time, economists had physics envy: academics won prizes for building multidimensional models of currency movements or complex securities transactions. They were useful as far as they went, but they tended to ignore the role of bad actors and resulted in disasters like the Long-Term Capital Management hedge-fund meltdown and the 2008 subprime meltdown.

Math was king. And Piketty was good at it, but he was also interested in history and literature. “I think if I had stayed at MIT, I would have been encouraged to do theoretical papers, not historical research,” says Piketty, who is a devotee of Honoré de Balzac and Jane Austen.

Instead he went back to France and married. His wife Julia Cagé is an economist who studies media. And they had three children. By the late 1990s, he had begun the decidedly unsexy work of poring through hundreds of years of French tax records, which were surprisingly detailed, since the bureaucracy became determined to document exactly who was wealthy and how much they had in the years following the French Revolution. With the help of others, like Berkeley scholar Emmanuel Saez, Piketty eventually took his study global, spending 15 years analyzing data across 30 countries.

The book is something of a rebuttal of U.S. tax policy over the past 100 years. When Congress put a graduated income tax in place in 1913, lawmakers hoped, in part, to level the economic playing field, taxing richer Americans at a higher rate while permitting those with smaller incomes to keep a relatively bigger portion of their paychecks. Since then, U.S. politics has survived many cycles in which either raising or cutting taxes was in vogue. But the overall impact of the century clearly favored the few over the many. Piketty is particularly hard on the past 30 years of U.S. economic policy, when tax cutting has been the rage at both the federal and state levels. His findings show that the wealthy, from billionaires to those merely holding healthy stock portfolios, have gotten much richer while people who make most of their money from plain old income have gotten relatively poorer.

According to Piketty, that’s the natural order of things. “It’s quite possible that inequality will keep getting worse for many more years,” he says. His book shows that historically, the only time inequality actually decreases is during a war–when the rich tend to lose a bundle–or when government jump-starts growth through direct intervention, as Washington did both with the New Deal in the 1930s and with the Marshall Plan in the late 1940s.

The American middle class enjoyed a period of disproportionate prosperity in the 30 or so years that followed, Piketty argues. By the ’80s, though, in the absence of redistributive world events and with deep tax cuts for the rich, things began to change. Since the rate of return on capital is, according to Piketty, naturally greater than the rate of growth in the economy as a whole, people who get most of their wealth from investments inevitably grow richer and richer compared with those who get their money from salaries or wages.

In other words, the golden age of the average American may have been a brief historical anomaly rather than a permanent phenomenon. That notion will certainly strike a chord with anyone who’s watched the stock market reach record highs over the past few years even as real wages have stagnated. “Nothing becomes resonant unless it relates to our experience,” says Robert Johnson, president of the Institute for New Economic Thinking, a George Soros–backed nonprofit that funded some of Piketty’s research. “This book definitely relates to the experience of most Americans over the last few decades.”

Policy Positions

Piketty’s work is not without critics. Serious thinkers on both the left and the right claim that his arguments are too simplistic, that tax records aren’t the best way to study wealth. They argue that there are reasons to believe the rate of return on capital won’t continue to outpace growth–that wealth inequality will decrease, particularly as technology creates new jobs we can’t yet imagine. Some have argued that the main thing Piketty has done is provide a new trove of data supporting the ancient notion that the rich really do get richer while the poor get poorer. Interesting, yes, but not really new. Parsing the book is likely to take critics years.

More immediately, Piketty’s work may give the long-simmering debate over inequality a short-term stimulus. President Obama has already placed the issue at the center of his final two years in office, though few expect him to effect much change as a result. (A once-hoped-for reform of the U.S. tax code has been shelved as impossible by both parties; Obama’s minimum-wage campaign is given no chance of success on the federal level.) But the issue simmers locally: New York City Mayor Bill de Blasio was elected on it. Boomtowns like San Francisco are undergoing complicated rent squeezes as high-income tech whizzes push low-income workers out of developing neighborhoods. And inequality is certain to be a theme sounded by both parties as the 2016 campaign approaches.

Piketty refuses to discuss his political leanings. His parents were leftists who took part in the May 1968 protests in Paris. But he says, “I have people who lean left and those who lean right in my family, and I love them both.” Piketty says he was interested in researching inequality to better understand world events–like the fall of the Berlin Wall, globalization and sectarian violence in the Middle East–rather than to justify his personal philosophy. “I didn’t start from a political position but from the goal of understanding what the facts would tell us about inequality,” he says. “I wrote this book not for policymakers but for people who read books. In the end, they are the people who’ll decide what politicians do, and it’s more important to convince them.”

Piketty argues that any real reform of the U.S. tax code–should it ever come–must do more than tinker with mere income tax rates. It must consider Americans’ wealth as a whole and measure not only salaries but also other holdings, including real property and intangible assets. “The relative importance of wealth to income is rising, and yet,” he points out, “the main form of wealth tax is … not adapted to the 21st century structure of wealth.”

Indeed, it is not. Consider the salaries of the modern economy’s “supermanagers”–the CEOs, bankers, accountants, agents, consultants and lawyers Occupy Wall Street railed against–who increasingly receive up to a third of their incomes not in salary but in stock options and stock equity. This change in paycheck makeup has the booster-rocket effect of lowering their taxes while increasing inequality in the economy as a whole. (That cycle spins faster and faster as executives paid in stock make short-term business decisions that might undermine growth in their companies even as they raise the value of their own options.) As research by economists James Galbraith and Travis Hale has shown, during the late-1990s tech boom, changing income inequality tracked the go-go Nasdaq to a remarkable degree.

The solution? According to Piketty, it’s a global wealth tax. Like postrevolutionary French citizens, people all over the world would be required to declare their overall net worth. They could then be taxed on a percentage determined by local governments. That would eliminate the chance of Warren Buffett’s secretary ever paying a higher tax rate than he might, as well as capture more of the capital wealth that, says Piketty, will keep rising inexorably.

Some kind of all-surveying, universal wealth duty was an idea that preoccupied both Adam Smith and Thomas Jefferson, and Piketty admits that it remains “utopian.” The closest the U.S. has come to levying the fee came at death in the form of the estate tax. (Political interests from both parties joined forces to water it down over the past 25 years. Even so, the remnants of what has been derided as the “death tax” keep accountants very busy throughout the year.)

Other measures to combat inequality at the national level might include boosting access to education, increasing capital gains taxes and closing corporate tax loopholes that are partly the result of the money politics funded by powerful interests. None is likely to be enacted soon, which is probably why Piketty suggests patience. “I’m not expecting change in the next few years,” he says. “I just wanted to induce a rethinking of wealth and of our tax system. It took decades of debate to create the income tax. People said it would never happen. But it did happen.”

Continued in article

Ten ways to fight inequality without Piketty's Wealth Tax --- http://qz.com/201695/ten-ways-to-fight-inequality-without-pikettys-wealth-tax/

But just as there is more than one way to skin a cat, there’s more than one way for society to push back against growing inequality. Commentators reacting to Piketty’s thesis have offered up a bevy of policy options they see as more feasible or with fewer unintended consequences.

1) Open the borders.
African migrants sit on top of a border fence covered in razor wire between Morocco and Spain's north African enclave of Melilla during their latest attempt to cross into Spanish territory, April 3, 2014. Spain has more than doubled the strength of security forces at Melilla, after about 500 people stormed its fences in the biggest border rush for years earlier this month. Immigrants from all over Africa regularly dare the razor-wire fences of Spanish enclaves Ceuta and Melilla, which are surrounded by Moroccan territory and sea. African migrants try to get into Spain. Reuters/Jesus Blasco de Avellaneda

By intent and necessity, Piketty’s book is focused on wealthy countries, but we know well that emerging markets are only becoming more important to the global economy. Economist Suresh Naidu notes that “if we’re aiming for politically hopeless ideas, open migration is as least as good as the global wealth tax in the short run, and perhaps complementary.” More migration would redress global inequality by giving more earning power to migrants from poor countries, while lowering capital’s share of income in wealthy countries. 1

2) Get rid of some intellectual property protections.
A police officer displays seized Parvon Spas capsules, a type of analgesic and anti-spasmodic, in Jammu July 28, 2009. Police said on Tuesday their men recovered 20,000 capsules from three drug peddlers during a routine search at a police check post on the outskirts of Jammu. “Contraband” drugs in India.REUTERS/Mukesh Gupta

One of the scary ideas in Piketty’s vision is the rise of a new class of rentiers who earn their money not by working but simply from the capital returns on their assets. One solution is to get rid of a major source of modern rents—patents on software and pharmaceuticals. The case against software patents has been made, even by software companies, as a way to stop wasteful patent trolling and unleash innovation. For medicines, that an Indian factory can make the same drugs far more cheaply than an American factory, with the only difference being patent protection, means there is already pressure on the current system. While drug companies say the research that leads to new cures wouldn’t be possible without restrictive patents, economists wonder if pure competition wouldn’t do the same job. 1

3) Cut taxes.
The mosaic on the the patio of the South Beach mansion formerly owned by fashion designer Gianni Versace in Miami Beach, Florida July 23, 2013. Versace spent $33 million renovating the house, which features a 54-foot mosaic pool lined with 24-karat gold, according to Fisher Auction Company. The mansion will be offered for sale at an auction on September 17, 2013. The wealth Americans are already taxing.Reuters/Gaston De Cardenas

This one is actually stolen from Piketty himself, who responds to skeptics of his wealth-tax idea by saying that the US already has a wealth tax. It varies from locality to locality, but the average American real-estate owner pays an average property tax of 1.38% of a home’s value. Piketty thinks that merely turning this into a tax on “net” and not nominal capital would help reduce inequality: +

[The United States] has a property tax which is a pretty big wealth tax. I would prefer it to be a progressive tax that was proportional and I would prefer it to be on net wealth rather than the gross value of real estate—if you take someone whose house is $500,000 and they have a mortgage liability of $490,000, his net wealth is $10,000, I would propose he would pay no property tax, no wealth tax. Right now he is paying as much property tax as someone with no mortgage who inherited his apartment 20 years ago. My premise is not to tax to destroy the wealth of the wealthy, it’s to increase the wealth of the bottom and the middle class. +

Of course, the missing tax revenue would have to be made up for somehow—higher taxes, less public spending, more public borrowing—elsewhere. 

4) Crack down on offshore tax havens.
The island of Grand Cayman, a British dependency that covers 76 square miles (197 square kilometers) in the northwest Caribbean Sea, is visible in this near-vertical photograph. Geologically similar to The Bahamas, Grand Cayman is a low-lying, limestone island located on top of a submarine ridge. The city of George Town, the capital and chief port of the Cayman Islands, can be seen at the southwest end of the island. Grand Cayman’s 7-mile beach can be seen on the western side of the island. All 76 square miles of Grand Cayman, one of the largest sources of foreign investment in the US.NASA

Many objections to Piketty’s wealth tax include a reference to how hard it would be to tax wealth, because wealth is so very good at hiding in shell companies and secretive offshore trusts. But that’s a problem already: Perhaps $34 to $109 billion in US-owned financial assets are hidden from the tax man in Caribbean tax havens, just to avoid income on capital gains, a recent study found. The good news from that same study is that a push for tax information exchanges is cutting down on assets hidden overseas. But there’s lots more to be done on that front, whether it’s demanding public registration of the true owners of shell companies, or getting more countries to sign tax information exchange agreements. +

5) Open up the city.
Oracle Team USA sails near the city skyline against Emirates Team New Zealand during Race 14 of the 34th America's Cup yacht sailing race in San Francisco, California September 22, 2013. Nothing says inequality like a rich man’s yacht in front of a city where no one can afford to live.Reuters/Robert Galbraith

One wealthy countries manifest inequality is the high cost of living in large cities. This cost is partly a result of high demand to live there, but is also the more artificial product of zoning decisions, building codes and nostalgia that prevent the optimal utilization of space. Changing building codes to allow more development of affordable housing, taller buildings and fewer subsidies for cars would help alleviate inequality.

6) Wait for China’s labor costs to catch up.
An employee yawns as he works at a garment factory in Humen township, Guangdong province November 24, 2013. Activity in China's vast factory sector grew at a milder pace in November as new export orders shrank, a preliminary survey showed on Thursday, bolstering expectations the economy could lose some of its vigour in the fourth quarter as Beijing shifts its focus to structural reform. Picture taken November 24, 2013. Workers of the world, unite.Reuters/Stringer

One big reason wages have stagnated in the American middle class—thus widening the gap between them and the rich—is competition with cheaper labor in China and other countries. It has pushed many manufacturing jobs offshore, or forced US factories to automate faster than they might have otherwise. But wages won’t be low in China forever: Labor costs are already rising there, as low-wage jobs move to other places. It’s not inevitable, but some economists think that the trend could continue, as so-called “catch-up” growth spreads across the world—Africa, perhaps, is next. This growth lifts living standards and makes workers demand raises. On a globe without an obvious source of cheap labor, wages have to rise. Smarter trade rules might help accelerate this process.

7) Unleash antitrust.
Carlos Brito, Chief Executive of Anheuser-Busch InBev, poses during a news conference on the company's 2012 results in Leuven February 27, 2013. Anheuser-Busch InBev, the world's biggest beer maker, forecast a weak start to the year in the United States and Brazil after slightly lower earnings than expected in the final months of 2012. Carlos Brito’s InBev empire—which controls 25% of the world’s beer production—is often dinged for monopolistic practices.Reuters/Francois Lenoir

Fewer monopolies, lower prices, less inequality—it’s all so simple, right? Economist Dean Baker specifically cites the telecom industry and its push toward consolidation, but there are good arguments that sectors from beer to tech to agriculture have consolidated in ways, sometimes subtle, that hamper economic growth and competition. Anti-trust rules, aggressively enforced, could improve life for customers, and by forcing companies to compete rather than just sit on their monopolistic laurels, would also lower profit margins for shareholders—tough luck, but good for equality. +

8) Punish the financial sector.
JPMorgan Chase Chairman and CEO Jamie Dimon speaks during a discussion on "Closing the Workforce Skills Gap", at the Aspen Institute in Washington December 12, 2013. Don’t even try it.Reuters/Mike Theiler

A favorite among populists of all stripes. Pruning the banks isn’t easy, as the mixed experience of reformers after the worst financial crisis in most of our lifetimes showed. But the financial sector’s growing share of income in wealthy economies still has people on the left and right supporting policy ideas—from financial transaction taxes, to higher capital requirements, to limits on bank sizes—that would make the sector less profitable. That means less money going to annual trading bonuses, and presumably more money invested in the real economy.

9) Create more sovereign-wealth funds.
Oil rig pumpjacks, also known as thirsty birds, extract crude from the Wilmington Field oil deposits area where Tidelands Oil Production Company, which is owned by Occidental Petroleum Corporation (Oxy), operates near Long Beach, California July 30, 2013. Occidental Petroleum posted a smaller-than-expected quarterly profit on Tuesday, hurt by lower oil prices in the Middle East and North Africa, where the fourth-largest U.S. oil company is considering an exit. Out of the ground and into the national investment account.Reuters/David McNew

The key reason inequality tends to increase, Piketty says, is that investment returns (which go to the rich) will always exceed economic growth. But what if we give the public a share of those investment returns? One proposal from economist Tyler Cowen is the creation of government-run investment funds. These are already a common tool in countries with massive natural-resource wealth; they serve to diversify the national income stream and make it more sustainable. The US—which is no slouch on the natural resources front itself—could conceivably create a sovereign-wealth fund and share the dividends.

10) Massive social upheaval and bloody conflict.
In this April 20, 1936 file photo, armed troops march past German Chancellor Adolf Hitler during a parade in Berlin to celebrate his birthday. As the Nazis increasingly targeted Jews and others they considered enemies, they moved in 1938 to loosen gun statutes for the loyal majority, said Bernard Harcourt, a University of Chicago professor of law and political science who has studied gun regulations under Hitler. The 1938 law is best known for barring Jews from owning weapons, after which the Nazis confiscated guns from Jewish homes. But Harcourt points out that Hitler's gun law otherwise completely deregulated acquisition of rifles, long guns and ammunition. It exempted many groups from requiring permits. The law lowered the age for legal gun ownership from 20 to 18. And it extended the validity of gun permits from one year to three years. Bad news.AP Photo

Not exactly ideal, but one of the most convincing empirical findings from Piketty’s research is that World War I, the Russian revolution and World War II were the great levelers of the 20th century, wiping out more than a century of capital accumulation and creating the conditions for more equitable growth in their wake. Continent-wide warfare may not be a pleasant prospect, but it’s probably a good deal easier to bring about than most of the solutions listed above. Why, there’s a handy little annexation going on in central Europe right about now.

Jensen Comment
Not mentioned is seriously curtailing the underground economy that wealthy employers as well as struggling employers use to reduce wages and encourage tax avoidance of workers. USA Today estimated this to be a $2 trillion underground economy in the USA.

"Spain’s underground economy employs a million people and is worth 20% of its GDP," by Roberto A. Ferdman, Quartz, July 16, 2013 ---

Spain’s illicit economy—all that is unaccounted for because it’s illegal or unreported—is worth an unseemly 20% of the country’s GDP, according to a new report by Spain’s Foundation for Financial Studies (FEF). That’s higher than every other country in the European Union except Italy, with 21%.

Illicit activity, while technically illegal, doesn’t necessarily mean drug-related or violent. Much of Spain’s unreported business is due to labor law and tax circumvention, which varies widely from industry to industry. Some sectors are relatively clean, like Spain’s financial industry, where the rate of illegal activity is believed to hover below 10%; others are ridden with messy, unreported business, like the country’s construction industry—Spain’s most flagrant offender—whose rate clocks in at 35%.

The effects of such a massive, underground economy are substantial—for example, more than a million Spaniards are believed to be employed by the country’s unreported economy, and thus, unemployed by the country’s official economy. Spain’s unemployment has ballooned since the onset of the euro zone crisis, but many of those reportedly unemployed may simply be earning their money informally. As much as $26 billion dollars in taxes are also being withheld from tax authorities—money that the government especially needs now amidst an acute financial squeeze. But what’s perhaps most detrimental about the country’s enormous illicit economy is its ability to skew Spain’s economic data, president of FEF Juan Carlos Ureta explained.

Spain’s unemployment rate, which hovers just below 30%, is an eyesore, no doubt. And the country’s inability to forecast and control its deficits has forced it to create an independent fiscal authority to monitor the government’s finances. But the upside is the country can improve its economic outlook by merely coercing some of its illicit economy back into the public sphere.

Among the report’s many suggestions for chipping away at the country’s informal economy is lowering Spain’s high personal and company tax rates, which discourage official activity. It also advocates the creation of “mini-jobs,” which employ workers for up to 40 hours a week for up to $520 a month and are meant to incentivize those working in Spain’s underground economy to gradually shift into its official one.

While neither of the measures will fix Spain’s wounded economy entirely, one thing is certain: an illicit economy worth 20% of the country’s GDP isn’t just unhealthy—it’s unsustainable.

Bob Jensen's threads on the underground economy in the USA ---

"White-Collar World:  What the office has done to American life," by Nikil Saval, Chronicle of Higher Education's Chronicle Review, April 14, 2014 ---

The 10 Most Polluted Cities in America (most are in what used to be sunny California) ---

Sadly most are also becoming the most drought-ridden cities in America. Pray for rain.

"Gene Robinson, first openly gay Episcopal bishop, announces his divorce," by Sarah Pulliam Bailey, Religion News, May 3, 2014 ---

What European nations have the highest death (estate) taxes?
Are they higher or lower than death taxes in the USA?

Hint:  This is a trick question

From the AccoungWeb newsletter on April 30, 2014

Complaining that the estate tax is destroying wealth is not just a U.S. tradition. In fact, UHY Hacker Young, a firm of U.K.-based chartered accountants, released a study in March saying it's even worse over there.

The U.S. rate may be high, but with a threshold of $5,340,000, relatively few get hit. The study says the United Kingdom rates are also high, but that threshold is a paltry £325,000 (about $588,000), which is less than the cost of an average house in London. (U.S. readers: The last season of Downton Abbey is now making a lot more sense, isn't it?)

But outside of Europe and the United States, some countries have decided estate and inheritance taxes do more harm than good. The study noted that Israel, Australia and New Zealand have abolished them. Other countries that don't tax estates include China, India and Russia

The UK and Ireland have the highest death duties among all major economies ---

Jensen Comment
Darn --- just as I was preparing to sell out and move to Ireland to save on taxes. Are Ireland's tax savings merely gimmicks to get your savings when you die? Please no jokes about the Irish signs in pubs reading:  "Buy two and get the second one free."

Ireland has long been tax free for immigrants who are qualified as being artists and authors. I'm not sure what it takes to be qualified. And I'm not sure whether tax collectors are simply crouching behind Shamrocks waiting to spring when artists and authors die.

From the CPA Newsletter on April 30, 2014

How does the net investment income tax affect Americans overseas?
The new 3.8% net investment income tax raises a host of questions for Americans living overseas for which there are currently no official answers. Kevyn Nightingale, CPA, explores whom the tax applies to and whether it might be affected by existing totalization agreements, income tax treaties and the foreign tax credit. The Tax Adviser (4/2014)

Net Investment Income Tax ---









"ACA more despised than ever, while Nevada faces 90,000 cancellations and price hikes," by Robert Laurie, Canada Free Press, May 6, 2014 ---

Democrats have long been promising that, once people get signed up, they’re going to love ObamaCare. Candidates are going to run on its merits, and the law is going to be a big positive for Dems during the 2014 midterms. Those who were still against it were a small, dwindling minority. As soon as the signup date passed, and the target numbers were (allegedly) reached, negative perception was supposed to fade away.


According to a new Washington Post piece entitledObamaCare hits new low,” that’s simply not happening.  In fact, a new Pew poll shows the law is more despised than ever.

A new poll shows the public’s opposition to ObamaCare has never been higher.

  The Pew Research Center poll shows disapproval of the law hitting a new high of 55 percent. It comes on the heels of several polls last week that showed the law had very little—if any—bump after sign-ups on the health-care exchanges exceeded goals.

Continued in articl


How to Mislead With Statistics
Many of Obamacare's 'Eight Million Enrollments' are Duplicates ---

"The ObamaCare 8% The WSJ/NBC poll asks Americans if they think the health law is working," by James Freeman, The Wall Street Journal, April 29, 2014 ---

A new survey from the Journal and NBC News shows that the President's signature health care law remains deeply unpopular.

Yesterday we noted the ABC/Washington Post poll showing Mr. Obama with the lowest marks of his presidency, just two weeks after he claimed success in rolling out insurance policies under the Affordable Care Act. "This thing is working," President Obama said of the law on April 17.

Now the latest edition of the WSJ/NBC poll suggests just how few Americans agree with that statement. A mere 8% of respondents in the new survey say that the Affordable Care Act "is working well the way it is."

There are differences of opinion on how to respond to the mess Washington has created, but few Americans think it's time to shut down the debate over the health law. A full 49% say that the law should either be scrapped entirely or given "a major overhaul," while 40% say the law needs "minor modifications to improve it."

Perhaps the White House can take comfort in the fact that the Journal/NBC survey shows modest improvements in support for the President and his signature health law, compared to recent editions of this poll. But both remain underwater. Mr. Obama's 44% approval rating lags his 50% disapproval rating. And while 36% of respondents say the health law is a good idea, 46% say it's a bad idea. Congressional Democrats up for re-election this fall may be especially troubled by these results given that 43% of survey respondents voted for Barack Obama in 2012, versus 34% who voted for Mitt Romney. In the actual 2012 race, Mr. Obama bested Mr. Romney by four percentage points.

In the survey, 54% of respondents disapprove of Mr. Obama's handling of the economy, compared to just 42% who approve. And by more than two to one, Americans say the country is headed on the "wrong track" versus the "right direction."

A little more than six months before Americans go to the polls, Mr. Obama and his signature health law remain liabilities for his party.

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

What the administration does not reveal is what proportion of those younger enrollees are being subsidized and, therefore, are not keepign costs down

"Obama Administration Says 28% of Health-Law Enrollees Are 18 to 34 Years Old Supporters Say Large Numbers of Young People Needed to Keep Costs Down," by Louise Radnofsky And Anna Wilde Mathew, The Wall Street Journal, May 1, 2014 ---

 WASHINGTON—Just more than a quarter of the eight million people who signed up for health plans under the Affordable Care Act are in the prized demographic of 18 to 34 years old, falling short of the figure considered ideal to keep down policy prices.

The data, released Thursday by the Obama administration, painted a more complete picture of enrollment in the plans. They show that about 28% of people picking plans on the state and federal insurance exchanges by April 19—after most states' enrollment deadlines passed—were 18 to 34 years old, a generally healthy group. The proportion is higher than previous counts. But it is significantly below the 40% level that some analysts consider important for holding down rates by balancing the greater medical spending generated by older enrollees.

Insurers right now are setting rates for 2015, and the age data will be a key factor in their decisions. Some insurers say that despite seeing a late surge in younger enrollees, their sign-ups still skewed older overall than they had expected.

One big insurer, Florida Blue, had projected an average age for enrollees in the late 30s, but instead is seeing a figure in the low 40s. The difference is "significant," said Senior Vice President Jon Urbanek. It would "tend to drive a higher rate increase" for next year, he said. But the impact is likely to be blunted by provisions in the law designed to compensate insurers that end up with higher-than-anticipated medical claims.

Federal officials said Thursday they were comfortable with the balance of risk in the new insurance markets in their first year of operation.

"We believe, based on the data that we've seen and the independent data that is out there, that premiums will be stable and that the risk pool is sufficiently large and varied to support that kind of pricing," said Michael Hash, a top official overseeing the health law's implementation at the Department of Health and Human Services. He added that he believed that to be the case "in every state."

The 28% proportion falls short of the 40% share that young adults represented in the potential target population for the exchange plans, according to an analysis by the Kaiser Family Foundation. But for the insurance industry, the key is how the demographics of the sign-ups stack up against assumptions they made when they set their rates.

The health law bars insurers from charging riskier consumers more, and as a result, the health plans have said they need a large number of younger people and men to sign up to balance out the likely higher medical claims incurred by older people and women. Insurers view women as costlier to cover because of pregnancy and other female health needs.

The administration said previously that through Feb. 28, 25% of enrollees had been 18 to 34 years old.

The federally run exchanges serving 36 states had allowed most people until April 15 to sign up for coverage for the year. Some of the 14 state-run exchanges set deadlines for a few days later, and in a small number of those states, people were able to sign up through April 30 or after.

Continued in article

Jensen Comment
A table in this article reveals a high variance among states in terms of younger enrollees. In states that allow large numbers of new signups there are many who are signing up for free Medicaid rather than the ACA exchanges. It's a better deal to be on Medicaid than to be on the plans of parents or on ACA exchange plans.

Many doctors and hospitals that refuse ACA exchange plans will accept Medicaid patients.

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

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

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

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

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

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

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