Tidbits Quotations
To Accompany July 30, 2014 edition of Tidbits
Bob Jensen at Trinity University

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

Be brave enough to start a conversation that matters.
Margaret Wheatley,

We must be willing to get rid of the life we've planned, so as to have the life that is waiting for us.
Joseph Campbell

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

A Former US President (Clinton) Had A Special Insight Into The Evil Of Hamas
The Atlantic --- http://www.theatlantic.com/international/archive/2014/07/understanding-what-hamas-wants/374656/#ixzz380f7tjqD

Bill Clinton reportedly has a buxom blond mistress who visits so often when Hillary Clinton isn’t home in Chappaqua that the former president’s Secret Service detail have given her an unofficial code name: Energizer. (Or is that the Energizer Bunny?)
Richard Johnson --- http://pagesix.com/2014/07/21/the-secret-mistress-for-bill-that-agents-have-named-energizer/
Also see

Israel Uses Rockets To Protect People, Hamas Uses People To Protect Their Rockets
Greg Hengler --- http://www.townhallmail.com/zbzjrctbjjwkrbjbkbrptkgllfkllbftddpcqrwdmwsspl_asdmtldhmpt.html

Israel Is Winning Battles But Losing The War.
Jeffrey Goldberg, The Atlantic

Read more: http://www.theatlantic.com/international/archive/2014/07/why-is-israel-losing-a-war-its-winning/375116/#ixzz38m5cOZLk


Veterans Health Administration is "a huge policy success story, which offers important lessons for future health reform" because, among other things, "it's free from the perverse incentives created when doctors and hospitals profit from expensive tests and procedures."
Former Princeton University Economics Professor and Political Activist Paul Krugman

Paul Krugman has butchered numbers when writing about fiscal policy in nations such as France, Estonia, Germany, and the United Kingdom.
Daniel J. Mitchell --- Click Here

Did Federal Climate Scientists Fudge Temperature Data to Make It Warmer? ---

I bet Ed Snowden could find the lost Lerner e-mails! ---

We live in a complex world and at a challenging time,
Barack Obama

Non-Refugee Migrant Kids Will Be Sent Back
Barach Obama

But 99.99% of them will be declared refuges.

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

Ray Stevens at the Border --- https://www.youtube.com/embed/WgOHOHKBEqE?feature=player_detailpage

To help save the economy, the Government will announce next month that the Immigration Department will start deporting seniors (instead of illegals) in order to lower Social Security and Medicare costs. Older people are easier to catch and will not remember how to get back home. I started to cry when I thought of you. Then it dawned on me...oh, shoot...I'll see you on the bus.
Forwarded by Denny Beresford who, I think, is even older than me but not by much.

Can you believe our highest-ranking elected representatives would cheat us?

The House and Sutter are fighting the subpoenas. Their lawyers argued in a July 4 filing that staff members are “absolutely immune” from having to comply with subpoenas from a federal regulator in an insider-trading probe.
"SEC Says House Insider Probe Involves 44 Funds, Entities," by Patricia Hurtado, Bloomberg Businessweek, July 17, 2014 ---

An insider-trading probe involving the U.S. House Ways and Means Committee and a top staff member also includes dozens of hedge funds, investment advisers and other firms, the U.S. Securities and Exchange Commission said in a court filing.

In arguing against the House’s motion to dismiss the case or send it to a court in Washington, the SEC told a Manhattan federal judge that the geographic scope of its investigation is “much wider” than described by lawyers for the House and involves a total of 44 entities.

The probe concerns some of the largest hedge funds and asset-management advisers in the U.S., the SEC said in the July 16 filing. Twenty-five of the 44 are based in New York, it said.

The agency subpoenaed the House committee and the staff member, Brian Sutter, for its inquiry into whether non-public information was illegally passed about a change in health-care policy that resulted in a spike in share prices of insurance companies. The case is testing whether U.S. insider-trading laws allow regulators to investigate the committee or its staff.

According to the regulators, minutes before the government announced the policy change, an analyst at Height Securities LLC sent clients a flash report outlining the proposal. Sutter may have been a source used by a lobbyist at Greenberg Traurig LLP who disclosed the health policy changes to the Height Securities analyst, the SEC said.

Trading Spike

The government announced an increase, rather than decrease, in payments to health insurers, boosting the shares of companies including Humana Inc.

“The Humana investigation is substantially concerned with the investor clients of Height Securities who received the subject Height e-mail, and who the commission believes may have engaged in relevant trading,” the SEC said in a filing to U.S. District Judge Paul Gardephe. It didn’t name the investors.

Sanjay Wadhwa, senior associate director of the SEC’s New York regional office, said in a memo to the court that 25 of the firms the agency is looking at have headquarters in New York, while the rest are based predominantly in Connecticut, Massachusetts, Illinois and California. One is in Washington. The probe is being handled by SEC lawyers in New York, he said.

2012 Law

The SEC cited a law Congress passed in 2012 that requires public officials to keep confidential non-public information about government matters that could move stock prices.

The House and Sutter are fighting the subpoenas. Their lawyers argued in a July 4 filing that staff members are “absolutely immune” from having to comply with subpoenas from a federal regulator in an insider-trading probe.

Kerry W. Kircher, the top lawyer for the House, said the information the SEC is seeking concerns legislative activities protected by the Constitution, which can’t be reviewed by federal judges. If Gardephe won’t dismiss the case, it should be moved to federal court in Washington, Kircher said.

The case is SEC v. The Committee on Ways and Means of The U.S. House of Representatives and Brian Sutter. 14-mc-00193. U.S. District Court, Southern District of New York (Manhattan).

Nancy Pelosi Alleged Insider Trading--- http://en.wikipedia.org/wiki/Nancy_Pelosi#Allegations_of_insider_trading

In November 2011, 60 Minutes alleged that Pelosi and several other member of Congress had used information they gleaned from closed sessions to make money on the stock market. The program cited Pelosi's purchases of Visa stock while a bill that would limit credit card fees was in the House. Pelosi denied the allegations and called the report "a right-wing smear.

Trading on insider information is against U.S. law for every segment of society except for one privileged segment that legally exploits investors for personal gains by trading on insider information. What is that privileged segment of U.S. society legally trades on inside information for personal gains?

Congress is our only native criminal class.
Mark Twain --- http://en.wikipedia.org/wiki/Mark_Twain

We hang the petty thieves and appoint the great ones to public office.
Attributed to Aesop

Answer (Please share this with your students):
Over the years I've been a loyal viewer of the top news show on television --- CBS Sixty Minutes
On November 13, 2011 the show entitled "Insider" is the most depressing segment I've ever watched on television ---
Also see http://financeprofessorblog.blogspot.com/2011/11/congress-trading-stock-on-inside.html

Jensen Comment

"The Cellulosic Ethanol Industry Faces Big Challenges: The advanced-biofuels industry is in danger of withering away," MIT's Technology Review, August 12, 2013 ---

"It's Final -- Corn Ethanol Is Of No Use," by James Conca, Forbes, April 20, 2014 ---

OK, can we please stop pretending biofuel made from corn is helping the planet and the environment? The United Nations Intergovernmental Panel on Climate Change released two of its Working Group reports at the end of last month (WGI and WGIII), and their short discussion of biofuels has ignited a fierce debate as to whether they’re of any environmental benefit at all.

The IPCC was quite diplomatic in its discussion, saying “Biofuels have direct, fuel‐cycle GHG emissions that are typically 30–90% lower than those for gasoline or diesel fuels. However, since for some biofuels indirect emissions—including from land use change—can lead to greater total emissions than when using petroleum products, policy support needs to be considered on a case by case basis” (IPCC 2014 Chapter 8).

Continued in article

"At Long Last, Al Gore Thinks Ethanol Subsidies Are a Bad Idea," by Ronald Bailey|, Reason Magazine, November 22, 2010 Nov. 22, 2010 ---

Jensen Comment
With Iowa playing a pivotal role in both the 2014 and 2016 forthcoming elections don't expect science and engineering to trump ethanol politics and consumer spending waste.

Five Of The World's Lakes About To Dry Up:  Things Don't Look Good for Santa Barbara ---

Why is a "slip of paper" issued by the Department of Homeland Security more valuable on the black market than a passport or drivers license?

It allows people to board commercial air flights without a photo ID. Hence, it's possible to buy this slip of paper and fly from San Antonio to NYC without looking the least bit like the person to whom the "slip of paper" was initially issued. This makes the slip of paper exceedingly valuable to persons, including criminals and potential terrorists, who want to board our commercial airliners anonymously ---

"Walmart Managers Average Salary Higher Than Starbucks," Time Magazine, July 23, 2014 ---
Many of their cashiers, however, make less than the USA national average of $11.22 per hour.

Jensen Comment
Walmart managers and senior executives are almost always promoted from within. Many of the Starbucks stores are not owned by Starbucks, and employees at all levels may be hired from the outside, including the hiring of relatives of the owners of the stores.

Both Walmart and Starbucks subsidize higher education in different ways for virtually all full-time employees. Starbucks will pay Arizona State University distance education tuition for the last two years of a four-year degree for employees of Starbucks-owned stores. In an older program, Walmart will subsidize all four years of distance education in what is almost tantamount to its own for-profit accredited university. Of course Walmart is much larger with over 2.2 million global employees ---

Starbucks has fewer than 200,000 employees with a higher proportion of part-time workers ---
Starbucks pays all workers more than $10 per hour. Walmart may pay less than $10 to new and part-time employees.

Starbucks has seven stores that are unionized which is a miniscule but possibly growing percentage of all stores. Also many Starbucks stores are franchised stores not owned by Starbucks. Walmart owns all of its stores and typically fights off unionization efforts in the USA. Washington DC fought and then caved in to new Walmart stores that are now swamped with job applications. No such luck for the unskilled and unemployed in Boston and Vermont.

Some places like Boston and Vermont will not allow Walmart to build non-unionized stores --- which is partly why so many people from Massachussets and Vermont travel to nearby Walmart stores in New Hampshire to shop. Of course not having a sales tax in New Hampshire is an added attraction.

However, to my knowledge Boston and Vermont will welcome non-unionized Starbucks stores with open arms. Go figure!
My guess is that unions salivate over the number of employees to organize in a single Walmart store whereas there are not enough employees in a Starbucks store to get excited over --- especially since many of the Starbucks stores are franchise mom and pop owned operations that operate more like the many mom and pop non-unionized small retail shops in Boston and Vermont.

"Nearly a Third of Borneo's Rainforest Is Gone," by Zoë Schlanger, Newsweek. July 16, 2014 ---

Rainforest --- http://en.wikipedia.org/wiki/Rain_Forest

. . .

Effect on global climate

A natural rainforest emits and absorbs vast quantities of carbon dioxide. On a global scale, long-term fluxes are approximately in balance, so that an undisturbed rainforest would have a small net impact on atmospheric carbon dioxide levels, though they may have other climatic effects (on cloud formation, for example, by recycling water vapour). No rainforest today can be considered to be undisturbed. Human induced deforestation plays a significant role in causing rainforests to release carbon dioxide, as do other factors, whether human-induced or natural, which result in tree death, such as burning and drought. Some climate models operating with interactive vegetation predict a large loss of Amazonian rainforest around 2050 due to drought, forest dieback and the subsequent release more carbon dioxide Five million years from now, the Amazon rainforest may long since have dried and transformed itself into savannah, killing itself in the progress (changes such as this may happen even if all human deforestation activity ceases overnight).The descendants of our known animals may adapt to the dry savannah of the former Amazonian rainforest and thrive in the new, warmer temperatures

Continued in article

Sadly, more than half of today’s U.S. retirees will rely on Social Security for more than 50% of their total income, leaving them with the painful choice of either a rather severe drop in living standards, or else risking prematurely exhausting savings and being at the mercy of children or relatives.
"Latest DALBAR report underscores poor long-term performance of individual investors," The Mathematical Investor, July 2014 ---

As we emphasized in a December 2013 Mathematical Investor blog, individual investors are not very well equipped, and certainly not very effective, in managing their own investment portfolios.

This is unfortunate, because fewer workers than in the past, particularly in the U.S., are covered by a “defined-benefit” retirement system, namely a pension that guarantees a certain proportion of one’s income at retirement, based on the number of years in service, in perpetuity until one’s death. Instead, the majority of the growing army of American baby boomers (according to the Population Reference Bureau, 76.4 million Americans were born in the period 1946-1966) have to rely on 401K systems or the equivalent, where they must contribute (along with matching contributions, in many cases, by employers) to an investment fund that they have either partial or full discretion to manage. Indeed, more than any generation before, the present generation of workers will be personally responsible for their future financial well-being.

Other nations are facing similar challenges. In Canada, for instance, their version of “social security” provides only about half what it does in the U.S. In Australia, large employers such as universities typically place roughly 17% of a worker’s income into a “superannuation fund”. In New Zealand, this fraction is 7%. In Canada, pension savings are taxed as they are withdrawn, whereas in Australia superannuation funds are not taxed provided they are withdrawn as annuities. In continental Europe, mandatory retirement rules still exist, while in the English-speaking world, such rules, mercifully, are largely a thing of the past.

How well are today’s workers doing in saving for retirement? Sadly, more than half of today’s U.S. retirees will rely on Social Security for more than 50% of their total income, leaving them with the painful choice of either a rather severe drop in living standards, or else risking prematurely exhausting savings and being at the mercy of children or relatives. Many should at least lower their expectations for life after retirement, but there is little evidence that most workers nearing retirement are facing this unpleasant reality.

Of even greater concern is the level of skill with which most individual investors manage their nest eggs. We mentioned in our earlier Mathematical Investor blog a report known as the Quantitative Analysis of Investor Behavior, produced by the DALBAR organization, which attempts to measure short- and long-term success by individual investors. In that blog, we cited results from the 2012 report.

Now the latest (2014) edition of this report is available. So how well are today’s investors doing? The results are even more discouraging than in previous reports. The report notes that:

  1. Over the past 20 years, “equity fund” investors achieved an average 5.02% annualized return, which is 4.2% less than the 9.22% that he/she could have achieved by simply investing funds in an S&P500 index-tracking fund. This gap expanded in 2013, for only the third time in ten years.
  2. Over the bull market of the past three years, “equity fund” investors achieved only an average 10.87% annual return, lagging the average annual S&P500 return (16.18%) by 5.31%.
  3. Investors in “asset allocation funds” did even more poorly. Their 20-year average annual return was only 2.53%, lagging the S&P500 index (9.22% per annum) by 6.69% per annum.
  4. Investors in “fixed income funds” did more poorly still. Their 20-year average annual return was an abysmal 0.71%, fully 8.51% less than the S&P500 index, and 5.03% per annum less than the Barclay’s Aggregate Bond Index (5.74% per annum) over this time.
  5. Not surprisingly, investors show little evidence of skill in “market timing.” The DALBAR report notes that in the six best months of 2013, when the market was up sharply, there was no evidence that individual investors moved more than average amounts into equity funds.

As MarketWatch commentator Paul Merriman observes, the typical investor’s emotion-based trading in and out of securities based on fear and knee-jerk reaction to crises is counter-productive to long-term success:

Every year the conclusion [of the DALBAR report] is the same: On average, investors earn less than mutual fund performance figures imply. Sometimes they earn much less. … One conclusion: No matter whether the market is booming or busting, “Investor results are more dependent on investor behavior than on fund performance.” Investors who buy and hang on are consistently more successful than those who move in and out of the markets.

In our previous Mathematical Investor blog, we emphasized how the typical individual investor is relatively poorly educated and informed about making personal financial decisions. As the U.S. Securities and Exchange Commission noted in a 2012 report, “investors have a weak grasp of elementary financial concepts and lack critical knowledge of ways to avoid investment fraud.”

These experiences are exacerbated by the larger plague of disappointing performance in mathematics and science education. This was underscored today with the release of the latest results for U.S. 12th graders on the National Assessment of Educational Progress (NAEP) test. The overall score of 153 in mathematics is identical to that from 2009, and is only slightly higher than the 150 score in 2005, in spite of years of effort and billions of dollars spent to improve K-12 education.

The DALBAR report concludes

Attempts to correct irrational investor behavior through education have proved to be futile. The belief that investors will make prudent decisions after education and disclosure has been totally discredited. Instead of teaching, financial professionals should look to implement practices that influence the investor’s focus and expectations in ways that lead to more prudent investment decisions.

Similarly, Louis S. Harvey, President of DALBAR, argues that

It is now past the time for the investment community and its regulators to understand that the principle of educating uninterested investors about the complexities of investing is unproductive. … We need a fundamental change that transforms investment thinking into meaningful decisions and choices for retail investors.

[Added 12 May 2014: A column by Chuck Jaffe summarizes a study by Natixis Global Asset Management on why investors often make poor financial decisions.]

Bob Jensen's helpers for personal finance ---

CBO = Bipartisan Congressional Budget Office ---

The increases in revenues won’t keep anywhere near the pace of projected government spending, so CBO still sees debt growing rapidly over the next quarter century.
"CBO: Everyone’s taxes will go up quietly," by Brian Faler, Politico, July 16, 2014 ---

Jensen Comment
To understand these revelations you must read the entire article carefully while keeping in mind that this is the CBO talking --- not some conservative nut case. Many of the tax increases, especially rising taxes on the poor, are automatic if Congress does nothing to stop them. The major culprit is rising household income over time coupled with inevitable inflation There will be huge tax increases over a very long period of time according to the current tax code if nothing is done to change the code and curb government spending. Keynesian economics is not a panacea over the long haul.


However, you must also realize that tax laws are not set in stone. The worst case scenario is that taxes will not increase nearly as fast as ever-increasing government spending. Deficits will grow and grow and grow with the only options being more borrowing, more inflation, and/or the current Fed approach to printing money to reduce the deficit --- something that would become an inflation disaster at some point in time.

Bob Jensen's threads on the entitlements disaster, especially unsustainable Medicare and Medicaid ---

Paul Krugman has butchered numbers when writing about fiscal policy in nations such as France, Estonia, Germany, and the United Kingdom.
Daniel J. Mitchell --- Click Here

"Is Paul Krugman Leaving Princeton In Quiet Disgrace?" by Ralph Benki, Forbes, July 14, 2014 ---

Professor Paul Krugman is leaving PrincetonIs he leaving in disgrace?

Not long, as these things go, before his departure was announced Krugman thoroughly was indicted and publicly eviscerated for intellectual dishonesty by Harvard’s Niall Ferguson in a hard-hitting three-part series in the Huffington Post, beginning here, and with a coda in Project Syndicate, all summarized at Forbes.comFerguson, on Krugman:

Where I come from … we do not fear bullies. We despise them. And we do so because we understand that what motivates their bullying is a deep sense of insecurity. Unfortunately for Krugtron the Invincible, his ultimate nightmare has just become a reality. By applying the methods of the historian – by quoting and contextualizing his own published words – I believe I have now made him what he richly deserves to be: a figure of fun, whose predictions (and proscriptions) no one should ever again take seriously.

Princeton, according to Bloomberg News, acknowledged Krugman’s departure with an extraordinarily tepid comment by a spokesperson. “He’s been a valued member of our faculty and we appreciate his 14 years at Princeton.”

Shortly after Krugman’s departure was announced no less than the revered Paul Volcker, himself a Princeton alum, made a comment — subject unnamed — sounding as if directed at Prof. Krugman.   It sounded like “Don’t let the saloon doors hit you on the way out.  Bub.”

To the Daily Princetonian (later reprised by the Wall Street Journal, Volcker stated with refreshing bluntness:

The responsibility of any central bank is price stability. … They ought to make sure that they are making policies that are convincing to the public and to the markets that they’re not going to tolerate inflation.

This was followed by a show-stopping statement:  “This kind of stuff that you’re being taught at Princeton disturbs me.”

Taught at Princeton by … whom?

Paul Krugman, perhaps?  Krugman, last year, wrote an op-ed for the New York Times entitled  Not Enough Inflation.  It betrayed an extremely louche, at best, attitude toward inflation’s insidious dangers. Smoking gun?

Volcker’s comment, in full context:

The responsibility of the government is to have a stable currency. This kind of stuff that you’re being taught at Princeton disturbs me. Your teachers must be telling you that if you’ve got expected inflation, then everybody adjusts and then it’s OK. Is that what they’re telling you? Where did the question come from?

Is Krugman leaving in disgrace? Krugman really is a disgrace … both to Princeton and to the principle of monetary integrity. Eighteenth century Princeton (then called the College of New Jersey) president John Witherspoon, wrote, in his Essay on Money:

Let us next consider the evil that is done by paper. This is what I would particularly request the reader to pay attention to, as it was what this essay was chiefly intended to show, and what the public seems but little aware of. The evil is this: All paper introduced into circulation, and obtaining credit as gold and silver, adds to the quantity of the medium, and thereby, as has been shown above, increases the price of industry and its fruits.

“Increases the price of industry and its fruits?”  That’s what today is called “inflation.”

Inflation is a bad thing.  Period.  Most of all it cheats working people and those on fixed incomes who Krugman pretends to champion.  Volcker comes down squarely, with Witherspoon, on the side of monetary integrity. Krugman, cloaked in undignified sanctimony, comes down, again and again, on the side of … monetary finagling.

Krugman consistently misrepresents his opponents’ positions, constructs fictive straw men, addresses marginal figures, and ignores inconvenient truths set forward by figures of probity such as the Bank of England and the Bundesbank, thoughtful work such as that by Member of Parliament (with a Cambridge Ph.D. in economic history) Kwasi Kwarteng, and, right here at home, respected thought leaders such as Steve Forbes and Lewis E. Lehrman (with whose Institute this writer has a professional affiliation).

Continued in article

Bob Jensen's threads on professors who plagiarize or otherwise cheat (e.g. create phony data or cherry pick data) ---

Princeton's Nobel Laureate economist and political activist Paul Krugman is sometimes known to cherry pick data or even invent data in order to make a political point ---
Paul Krugman --- http://en.wikipedia.org/wiki/Paul_Krugman
Professor Krugman is now moving to CUNY as an endowed professor of economics.

. . .

Krugman's columns have drawn criticism as well as praise. A 2003 article in The Economist[ questioned Krugman's "growing tendency to attribute all the world's ills to George Bush," citing critics who felt that "his relentless partisanship is getting in the way of his argument" and claiming errors of economic and political reasoning in his columns. Daniel Okrent, a former The New York Times ombudsman, in his farewell column, criticized Krugman for what he said was "the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assault.

"The Missing Data in Krugman’s German Austerity Narrative" Daniel J. Mitchell, Townhall, February 25, 2014 ---

There’s an ongoing debate about Keynesian economics, stimulus spending, and various versions of fiscal austerity, and regular readers know I do everything possible to explain that you can promote added prosperity by reducing the burden of government spending.

. . .

But here’s the problem with his article. We know from the (misleading) examples above (not quoted here)  that he’s complained about supposed austerity in places such as the United Kingdom and France, so one would think that the German government must have been more profligate with the public purse.

After all, Krugman wrote they haven’t “imposed a lot of [austerity] on themselves.”

So I followed the advice in Krugman’s “public service announcement.” I didn’t just repeat what people have said. I dug into the data to see what happened to government spending in various nations.

And I know you’ll be shocked to see that Krugman was wrong. The Germans have been more frugal (at least in the sense of increasing spending at the slowest rate) than nations that supposedly are guilty of “spending cuts.”

"The Latest Public-Sector Pension Scandal:  The state-pension-industrial complex corrupts politics on multiple levels," by Ira Stoll, Reason Magazine, July 14, 2014 ---

"By the end of approximately 2007, Villalobos had made, and I had accepted, bribes totaling approximately $200,000 in cash, all of which was delivered directly to me in the Hyatt Hotel in downtown Sacramento across from the Capitol. Villalobos delivered the first two payments of approximately $50,000 each in a paper bag, while the last installment of approximately $100,000 was delivered in a shoebox."—Plea Agreement, United States of America v. Fred Buenrostro, U.S. District Court, Northern District of California, filed July 11, 2014.

The government official who pleaded guilty here, Fred Buenrostro, wasn’t some city council member or state senator, but rather, from December 2002 to May 2008, the CEO of the California Public Employees Retirement System. Calpers, the largest public pension fund in the country, managed assets of as much as $250 billion during that period.

The bribing of Buenrostro was part of a successful effort by a New York money management firm (which claims it had no knowledge of the bribe and has not been charged with any wrongdoing) to win $3 billion in business managing pension money for California state employees and retirees.

Crooked government officials come along often enough that there’s a tendency to tune them out, but this case is worth pausing to analyze further for a number of reasons.

For one thing, there’s the hypocrisy angle. Calpers has been at the forefront of criticizing company boards for practices that are not shareholder friendly. Sometimes it’s right about that, but even when it is, it manages to come off as holier-than-thou. It doesn’t exactly add to Calpers credibility denouncing board-management coziness at big publicly traded companies when its own CEO is taking paper bags full of cash from a representative of a contractor.

For another thing, Calpers isn’t the only big public pension fund with a recent scandal. The New York State Comptroller, Alan Hevesi, pleaded guilty in 2010 to a felony in connection with corruption in managing the $125 billion fund that covers New York public employees.

What I’ve called the state-pension-industrial complex has deleterious effects on several levels.

The current system takes rich money managers, who ordinarily might be a voice for lower taxes and restrained government spending, and makes them beholden, for business, on public pension boards that sometimes include union officials. Instead of arguing for less generous pensions, or for personal accounts that employees would manage individually, the money managers now have incentives to argue for more generous pensions and to avoid upsetting the system that is enriching them.

And the current system takes public employees, who if they had personal accounts might be able to invest in corporate stocks and root for their success, and instead makes them reliant for their retirement income on the same state government bureaucracy that now employs them.

Naturally, it also breeds corruption. So much money sitting in the hands of government officials is a temptation too strong to resist. It is too strong for the money managers who want to get a piece of it, and it is too strong for the government officials and their friends who want some money or other benefits in exchange for helping the money managers get a piece of it.

Continued in article

Bob Jensen's Fraud Updates ---

Bob Jensen's threads on pension accounting ---

Bob Jensen's threads on the sad state of governmental accounting ---

NYC Mayor Proves Again and Again and Again That He's a Union Puppet

"New York City’s mayor handed teachers a big win:   Struggling students will be the losers," by Joe Klein, Time Magazine, July 21, 2014, Page 16 ---

Back in 2005, when New York City was pre-crash flush, Mayor Michael Bloomberg offered the United Federation of Teachers a raise in return for 150 extra minutes of classroom work per week. The mayor’s idea was to spend that extra time tutoring the kids who needed the most help–the bottom third of each class. UFT president Randi Weingarten agreed that the group sessions would be small, no more than 10 students per class. Schools chancellor Joel Klein wanted three 50-minute periods per week. The union wanted five 30-minute periods. They compromised on four 37½-minute sessions. More California May Vote on ‘Six States’ Plan in 2016North Korea Pushes Farmers For MoreNo End in Sight: First Israeli Killed in Conflict NBC NewsThis Cashier Told Obama A Gay Sex Joke And Got The Best Reaction Huffington Post'Stop Dumping Your Illegals': Arizona Braces for Migrant Busloads NBC News

The program was never given a name, which made it easier for New York’s new “progressive” mayor Bill de Blasio to give it back–to eliminate the required 150 minutes of special instruction–in his negotiations with the UFT this spring. You might well wonder why. I tried to find out but received a heaping ration of gobbledygook from a source close to the mayor. He said that the program had been “inflexible” and “one size fits all.” That it was not “workable to the purpose.” Translation: it didn’t work. But how do we know that? No studies or evaluations were done. At his press conference announcing the new union deal, the mayor and his schools chancellor, Carmen Fariña, gave several foggy reasons for the change: the time would be used for additional parent conferences and for “professional development” so the teachers could learn how to teach the new core curriculum. A lot of unspecific wiggle room was negotiated on both counts–part of the mayor’s drive toward “flexibility.” Popular Among Subscribers Eat Butter Fat Time Magazine Cover Ending the War on Fat Subscribe The End of Iraq How Many People Watched Orange Is the New Black? No One Knows

But flexibility is not a trait often associated with teachers’ unions. The American Federation of Teachers, which Weingarten now heads, calls itself “a union of professionals,” but it negotiates as if it were a union of assembly-line workers. Let’s start with the 37½ minutes, especially that half-minute. What happens if the teacher is in midsentence–or is in the midst of a breakthrough with a student–when the bell rings? A professional finishes the lesson and is paid in personal satisfaction. (I’m sure that the overwhelming majority of teachers do so; these sorts of work rules insult their dedication.) A professional talks to parents whenever and wherever. A professional also doesn’t resist evaluation–but the current New York City union president, Michael Mulgrew, actually bragged that he “gummed up the works” on an evaluation agreement with the far more rigorous Bloomberg administration; de Blasio, of course, hasn’t sought to implement that deal.

The most damning aspect of de Blasio’s giveback is the “didn’t work” argument. We are talking about one of the ground-zero principles of a healthy school system: extra help for those who need it. If the program doesn’t work, you don’t eliminate it. You fix it. The mayor’s spokesman said the extra help would be continued in “flexible” ways. Apparently, “flexibility” is a mayoral euphemism for “I cave.” And given the current atmosphere, if it isn’t specified in the contract, it doesn’t exist. A mayor who actually cared about education would be seeking longer school days, longer school years, more charter schools (which have to be more rigorously monitored) and the elimination of tenure and seniority rules to make sure that the best professionals, not the longest-serving assembly-line workers, are in the classrooms.

Teachers’ unions are suddenly on the defensive across the country. The Supreme Court recently ruled–unfairly, I believe–that some home health care workers did not have to join the union that negotiated their contract. That could have an impact on all public-employee unions. In California, a district court judge recently threw out the state’s tenure rules. In his ruling, he wrote that the widespread protection of incompetent teachers “shocks the conscience.” A group called the Partnership for Educational Justice, which is led by former CNN anchor Campbell Brown, is filing a similar suit in New York and promises to take the movement national. Brown’s group has hired Robert Gibbs, the former Obama press secretary, to run its communications strategy; other Obama stalwarts will soon join the effort as well. Obama’s Secretary of Education Arne Duncan praised the California decision, which caused the National Education Association, the country’s largest teachers’ union, to call for him to be fired.

Continued in article

In the realm electric power, what is a "levelized cost?"

The Economist:  Wind and solar power are even more expensive than is commonly thought ---

. . .

But whereas the cost of a solar panel is easy to calculate, the cost of electricity is harder to assess. It depends not only on the fuel used, but also on the cost of capital (power plants take years to build and last for decades), how much of the time a plant operates, and whether it generates power at times of peak demand. 

To take account of all this, economists use "levelised costs"--the net present value of all costs (capital and operating) of a generating unit over its life cycle, divided by the number of megawatt-hours of electricity it is expected to supply.

The trouble, as Paul Joskow of the Massachusetts Institute of Technology has pointed out, is that levelised costs do not take account of the costs of intermittency. Wind power is not generated on a calm day, nor solar power at night, so conventional power plants must be kept on standby--but are not included in the levelised cost of renewables.

Electricity demand also varies during the day in ways that the supply from wind and solar generation may not match, so even if renewable forms of energy have the same levelised cost as conventional ones, the value of the power they produce may be lower. In short, levelised costs are poor at comparing different forms of power generation.

To get around that problem Charles Frank of the Brookings Institution, a think-tank, uses a cost-benefit analysis to rank various forms of energy. The costs include those of building and running power plants, and those associated with particular technologies, such as balancing the electricity system when wind or solar plants go offline or disposing of spent nuclear-fuel rods.

The benefits of renewable energy include the value of the fuel that would have been used if coal- or gas-fired plants had produced the same amount of electricity and the amount of carbon-dioxide emissions that they avoid. 

Mr Frank took four sorts of zero-carbon energy (solar, wind, hydroelectric and nuclear), plus a low-carbon sort (an especially efficient type of gas-burning plant), and compared them with various sorts of conventional power. Obviously, low- and no-carbon power plants do not avoid emissions when they are not working, though they do incur some costs.

So nuclear-power plants, which run at about 90% of capacity, avoid almost four times as much CO{-2} per unit of capacity as do wind turbines, which run at about 25%; they avoid six times as much as solar arrays do. If you assume a carbon price of $50 a tonne--way over most actual prices--nuclear energy avoids over $400,000-worth of carbon emissions per megawatt (MW) of capacity, compared with only $69,500 for solar and $107,000 for wind.

Nuclear power plants, however, are vastly expensive. A new plant at Hinkley Point, in south-west England, for example, is likely to cost at least $27 billion. They are also uninsurable commercially. Yet the fact that they run around the clock makes them only 75% more expensive to build and run per MW of capacity than a solar-power plant, Mr Frank reckons.

To determine the overall cost or benefit, though, the cost of the fossil-fuel plants that have to be kept hanging around for the times when solar and wind plants stand idle must also be factored in. Mr Frank calls these "avoided capacity costs"--costs that would not have been incurred had the green-energy plants not been built.

Thus a 1MW wind farm running at about 25% of capacity can replace only about 0.23MW of a coal plant running at 90% of capacity. Solar farms run at only about 15% of capacity, so they can replace even less. Seven solar plants or four wind farms would thus be needed to produce the same amount of electricity over time as a similar-sized coal-fired plant. And all that extra solar and wind capacity is expensive.

A levelised playing field

If all the costs and benefits are totted up using Mr Frank's calculation, solar power is by far the most expensive way of reducing carbon emissions. It costs $189,000 to replace 1MW per year of power from coal. Wind is the next most expensive. Hydropower provides a modest net benefit.

But the most cost-effective zero-emission technology is nuclear power. The pattern is similar if 1MW of gas-fired capacity is displaced instead of coal. And all this assumes a carbon price of $50 a tonne. Using actual carbon prices (below $10 in Europe) makes solar and wind look even worse. The carbon price would have to rise to $185 a tonne before solar power shows a net benefit.

There are, of course, all sorts of reasons to choose one form of energy over another, including emissions of pollutants other than CO{-2} and fear of nuclear accidents. Mr Frank does not look at these. Still, his findings have profound policy implications. At the moment, most rich countries and China subsidise solar and wind power to help stem climate change.

Yet this is the most expensive way of reducing greenhouse-gas emissions. Meanwhile Germany and Japan, among others, are mothballing nuclear plants, which (in terms of carbon abatement) are cheaper. The implication of Mr Frank's research is clear: governments should target emissions reductions from any source rather than focus on boosting certain kinds of renewable energy.

Bob Jensen's threads on cost and managerial accounting ---


"Though Scorned by Colleagues, a Climate-Change Skeptic Is Unbowed," by Michael Wine, The New York Times, July 15, 2014 ---
Thank you Dennis Huber for the heads up.

John Christy, a professor of atmospheric science at the University of Alabama in Huntsville, says he remembers the morning he spotted a well-known colleague at a gathering of climate experts.

“I walked over and held out my hand to greet him,” Dr. Christy recalled. “He looked me in the eye, and he said, ‘No.’ I said, ‘Come on, shake hands with me.’ And he said, ‘No.’ ”

Dr. Christy is an outlier on what the vast majority of his colleagues consider to be a matter of consensus: that global warming is both settled science and a dire threat. He regards it as neither. Not that the earth is not heating up. It is, he says, and carbon dioxide spewed from power plants, automobiles and other sources is at least partly responsible.

But in speeches, congressional testimony and peer-reviewed articles in scientific journals, he argues that predictions of future warming have been greatly overstated and that humans have weathered warmer stretches without perishing. Dr. Christy’s willingness to publicize his views, often strongly, has also hurt his standing among scientists who tend to be suspicious of those with high profiles. His frequent appearances on Capitol Hill have almost always been at the request of Republican legislators opposed to addressing climate change.

“I detest words like ‘contrarian’ and ‘denier,’ ” he said. “I’m a data-driven climate scientist. Every time I hear that phrase, ‘The science is settled,’ I say I can easily demonstrate that that is false, because this is the climate — right here. The science is not settled.”

Dr. Christy was pointing to a chart comparing seven computer projections of global atmospheric temperatures based on measurements taken by satellites and weather balloons. The projections traced a sharp upward slope; the actual measurements, however, ticked up only slightly.

Such charts — there are others, sometimes less dramatic but more or less accepted by the large majority of climate scientists — are the essence of the divide between that group on one side and Dr. Christy and a handful of other respected scientists on the other.

“Almost anyone would say the temperature rise seen over the last 35 years is less than the latest round of models suggests should have happened,” said Carl Mears, the senior research scientist at Remote Sensing Systems, a California firm that analyzes satellite climate readings.

“Where the disagreement comes is that Dr. Christy says the climate models are worthless and that there must be something wrong with the basic model, whereas there are actually a lot of other possibilities,” Dr. Mears said. Among them, he said, are natural variations in the climate and rising trade winds that have helped funnel atmospheric heat into the ocean.

Dr. Christy has drawn the scorn of his colleagues partly because they believe that so much is at stake and that he is providing legitimacy to those who refuse to acknowledge that. If the models are imprecise, they argue, the science behind them is compelling, and it is very likely that the world has only a few decades to stave off potentially catastrophic warming. Continue reading the main story

And if he is wrong, there is no redo.

“It’s kind of like telling a little girl who’s trying to run across a busy street to catch a school bus to go for it, knowing there’s a substantial chance that she’ll be killed,” said Kerry Emanuel, a professor of atmospheric science at the Massachusetts Institute of Technology. “She might make it. But it’s a big gamble to take.”

By contrast, Dr. Christy argues that reining in carbon emissions is both futile and unnecessary, and that money is better spent adapting to what he says will be moderately higher temperatures. Among other initiatives, he said, the authorities could limit development in coastal and hurricane-prone areas, expand flood plains, make manufactured housing more resistant to tornadoes and high winds, and make farms in arid regions less dependent on imported water — or move production to rainier places.

Dr. Christy’s scenario is not completely out of the realm of possibility, his critics say, but it is highly unlikely.

In interviews, prominent scientists, while disagreeing with Dr. Christy, took pains to acknowledge his credentials. They are substantial: Dr. Christy, 63, has researched climate issues for 27 years and was a lead author — in essence, an editor — of a section of the 2001 report of the United Nations Intergovernmental Panel on Climate Change, the definitive assessment of the state of global warming. With a colleague at the University of Alabama in Huntsville, Dr. Roy Spencer, he received NASA’s medal for exceptional scientific achievement in 1991 for building a global temperature database.

That model, which concluded that a layer of the atmosphere was unexpectedly cooling, was revised to show slight warming after other scientists documented flaws in its methodology. It has become something of a scientific tit for tat. Dr. Christy and Dr. Spencer’s own recalculations scaled back the amount of warming, leading to further assaults on their methodology.

Dr. Christy’s response sits on his bookshelf: a thick stack of yellowed paper with the daily weather data he began recording in Fresno, Calif., in the 1960s. It was his first data set, he said, the foundation of a conviction that “you have to know what’s happening before you know why it’s happening, and that comes back to data.”

Dr. Christy says he became fascinated with weather as a fifth grader when a snowstorm hit Fresno in 1961. By his high school junior year, he had taught himself Fortran, the first widely used programming language, and had programmed a school computer to make weather predictions. After earning a degree in mathematics at California State University, Fresno, he became an evangelical Christian missionary in Kenya, married and returned as pastor of a mission church in South Dakota.

There, as a part-time college math teacher, he found his true calling. He left the pastoral position, earned a doctorate in atmospheric sciences at the University of Illinois and moved to Alabama.

And while his work has been widely published, he has often been vilified by his peers. Dr. Christy is mentioned, usually critically, in dozens of the so-called Climategate emails that were hacked from the computers of the University of East Anglia’s Climatic Research Center, the British keeper of global temperature records, in 2009. Continue reading the main story Continue reading the main story Continue reading the main story

“John Christy has made a scientific career out of being wrong,” one prominent climate scientist, Benjamin D. Santer of the Lawrence Livermore National Laboratory, wrote in one 2008 email. “He’s not even a third-rate scientist.”

Continued in article

Jensen Comment
Galileo Galilei was also considered third rate among the scientific and religious sheep of his day ---

"5 states, IL, HI, CT, NJ, KY need over 60% of their citizens’ average yearly earnings," State Data Lab, July 11, 2014 ---

. . .

Truth in Accounting (TIA) calculates "Per Taxpayer Burden"  - remaining debt after available assets are tapped, for all 50 states.  Much of this debt is retirement contributions not paid each year, as part of employee compensation. 

So tomorrow’s taxpayers must pay  retirement costs for services they never received.  Select your state on the map at http://www.statedatalab.org/ to see more.  


State Per Taxpayer Burden Average Income Percent of Average Income
Illinois $42,200 $45,832 92%
Hawaii $41,300 $44,767 92%
Connecticut $46,000 $59,687 77%
Kentucky $26,700 $35,643 75%
New Jersey $34,200 $54,987 63%


Some politicians claim state debt can be paid “over time.”  But the debt also grows over time, as more employees retire and collect pensions and retirement health benefits. 

Truth in Accounting recommends legislators tell citizens the truth about state debt during the budget cycle.  Read more about FACT Based Budgeting (Full Accrual and Counting Techniques) here.  



Jensen Comment
Especially note the charts for the Top 25 and the Bottom 25 states at ---

"Miscalculating the Retirement Income You'll Need:  Proposals to raise Social Security benefits use a dubious formula. That could spell big trouble," by Andrew G. Biggs And Sylvester J. Schieber, The Wall Street Journal,  July 14, 2014 ---

It is now conventional wisdom that Americans face a retirement "crisis," in part because Social Security benefits are seen as inadequate. For instance, the Social Security Administration's website explains that "most financial advisers say you'll need about 70% of your pre-retirement earnings to comfortably maintain your pre-retirement standard of living." It then notes that "under current law, if you have average earnings, your Social Security retirement benefits will replace only about 40%."

That line of thinking is misleading, often cited by progressives fighting benefit reforms that would address Social Security's $10 trillion shortfall. Here's why: Financial advisers do not calculate replacement rates the same way the Social Security Administration does. When the calculations are consistent, the replacement rate paid by Social Security comes closer to 60%, which substantially changes the retirement-income picture.

Financial advisers measure replacement rates relative to final earnings, generally meaning they divide the first year of retirement income by a worker's final year of working income, or average pay during the past five working years. The SSA, on the other hand, measures replacement rates relative to the wage-indexed average of lifetime earnings. "Wage indexing" increases past earnings to reflect the growth of average wages. These are very different numbers that produce very different outcomes.

By increasing the denominator, SSA's methods produce far lower replacement rates than the calculations of financial advisers. Our analysis of SSA data shows that the typical long-term employee who works until full retirement age receives a Social Security benefit equal to about 62% of his final earnings, defined here as the average of nonzero earnings in the five years before claiming Social Security benefits. For full-career workers with lower earnings, replacement rates average 70% of final earnings.

When including early retirees who receive reduced benefits, the typical replacement rate drops to 53% of final average earnings. But an individual who seeks to retire early must save a greater portion of his pre-retirement earnings, leaving less for consumption. Thus, an early retiree can match his pre-retirement consumption while receiving a lower replacement rate from Social Security and other sources of retirement income.

These distinctions may seem pedantic, but the underlying concepts are fundamental: Retirement plans are in theory designed to help retirees maintain their standard of living as they move out of the labor force. The SSA's wage indexing overstates an individual's pre-retirement earnings, which raises the bar for what counts as adequate retirement income.

Say you are retiring at age 65 this year and earned $20,000 in 1985. The purchasing power of that 1985 salary in 2014 dollars is $43,640. But in calculating replacement rates, SSA wage indexes that $20,000 for the growth of the economy, and so under that model you earned $53,281. Replacing 70% of $53,281 is a lot more difficult than replacing 70% of $43,640. SSA's wage indexing of past earnings in effect credits retirees with salaries that they never had, then deems retirement income inadequate if it fails to replace that nonexistent past salary.

There's a more consistent way to measure. If we calculate replacement rates relative to the inflation-adjusted average of total lifetime earnings, the typical retiree would receive a Social Security benefit equal to around 55% of his average lifetime income—and a low-income retiree would receive a replacement rate of around 70%.

These faulty replacement-rate calculations lead to profound errors. For example, analysts at the New America Foundation propose increasing Social Security benefits to raise replacement rates for an average worker from a supposedly inadequate 40% to 60%. This implies, however, that a typical worker could retire with a Social Security benefit that amounts to roughly 85% of his final salary, while a low-wage worker could retire at 140% of his final salary. If enacted, these changes would have disastrous effects on labor supply at older ages, not to mention the federal budget.

The issue here is not whether Social Security's benefit formula should be waged-indexed, which is an entirely separate issue that unfortunately uses similar terminology. Wage indexing of the benefit formula ensures that average replacement rates, however measured, remain roughly constant from one generation of retirees to the next.

Analysts are still debating whether to increase Social Security benefits, and figuring out how to return the program to solvency. But grappling with those problems requires fair, meaningful measurements of retirement income.

Mr. Biggs, a former principal deputy commissioner of the Social Security Administration, is a resident scholar at the American Enterprise Institute. Mr. Schieber, a former chairman of the Social Security Advisory Board, is co-author of "Fundamentals of Private Pensions" (9th ed., 2010).

Bob Jensen's personal finance and retirement savings helpers are at

"India Is Home to More Poor People Than Anywhere Else on Earth," by Nilanjana Bhowmick, Time Magazine, July 17, 2014 ---

Jensen Comment
But with a terrific Gini Coefficient almost everybody is equally poor. Why is income equality such a terrific goal in economics?

"Lessons From Brazil’s War on Poverty," by Berk Özler, Nate Silver's 5:38, July 2, 2014 ---

Brazil is a giant when it comes to soccer. In the late 1990s, it was a giant in another area, this one much less desirable: Brazil had one of the highest levels of income inequality in the world, as home to some of the world’s poorest people, while its richest competed with the wealthiest in the United States and elsewhere.1

In 2001, Brazil’s Gini coefficient — the most common (but not necessarily most attractive) measure of inequality2 — hovered around 0.60, a very high figure by any standard. (A Gini coefficient of 0 represents perfect equality where everyone earns the same income, and 1 represents complete inequality where all the country’s income accrues to a single person.) By comparison, the U.S. — not exactly a bastion of equality — had a Gini coefficient of 0.4 in 2000.3

But from 2001 to 2007, income inequality in Brazil started to decline at an unprecedented rate: The Gini coefficient fell from above 0.60 to below 0.55, reaching its lowest level in more than 30 years. The incomes of the poorest tenth of Brazilians grew by 7 percent per year, nearly three times the national average of 2.5 percent. In less than a decade, Brazil had managed to cut the proportion of its population living in extreme poverty in half.4

This sharp decline coincided with the introduction of Brazil’s first cash transfer programs in 2001. Created to reduce poverty in the short-run, these programs also provided incentives to households to invest in their children’s education, health and nutrition. Brazil was following on the success of Mexico, which a couple of years earlier had introduced PROGRESA, perhaps the world’s best-known and most influential conditional cash transfer program.5 Brazil consolidated its programs into one program, called Bolsa Familia, in 2003.

Bolsa Familia targeted households whose per capita monthly income was less than 120 reais (a yearly income of $828). The government paid these households between 20 to 182 reais per month (between $132 to $1,248 a year) if they met certain conditions: Children under the age of 17 had to regularly attend school; pregnant women had to visit clinics for prenatal and antenatal care; and parents needed to make sure their children were fully immunized by age 5 and received growth check-ups until age 6. It also provided a small allocation to extremely poor households with no strings attached. By 2010, Bolsa Familia had grown to one of the world’s largest conditional cash transfer programs, providing 40 billion reais (about $24 billion) to nearly 50 million people, about a quarter of Brazil’s population.

So what role did Bolsa Familia play in the decline of inequality in Brazil since 2000? With such a large transfer of money from taxpayers to Brazil’s poorest, you’d imagine there must have been some impact, but how much of one? Identifying the causal effects of large, nationwide government programs is challenging. Many factors can affect the distribution of income over time. Shifting demographics, the changing nature of work, and women’s participation in the labor force can all affect income inequality. If you wanted to truly isolate Bolsa Familia’s effect, you could theoretically conduct an experiment — not unlike the trials that pharmaceutical companies routinely do to test a drug’s effectiveness — where you’d randomly assign some communities and not others to the cash transfer program, and then compare inequality between them.

However, this type of social experiment is hard, if not impossible, for governments to conduct for a long period of time. For example, Mexico did randomly assign some eligible communities to PROGRESA while withholding the benefits from other (equally eligible) communities at the start, but this pilot phase lasted only 18 months, after which the program was rolled out to all eligible areas. An 18-month period might have been sufficient to evaluate the effects of the program on children’s school attendance and women’s visits to health clinics, but it was too short a period to evaluate the program’s longer-term impacts on poverty and inequality. In any case, researcher Gala Diaz Langou says that leaving some areas out of the program was not politically feasible in Brazil, so there was no such experimentation with Bolsa Familia.6

So if you can’t do a randomized trial, what can you do to assess the program’s effect on Brazil’s drop in income inequality? Economists often try to understand changes in income inequality by quantifying all the elements that affect the distribution of income, such as the proportion of adults who work, the number of hours they work, their hourly wages, whether they have income from other assets, and whether they’re receiving money from the government. Once income is broken down by source at a given point in time, researchers can try to isolate the role of each source in changes in the distribution of income by keeping that factor constant over time and allowing all the remaining factors to vary. While this approach doesn’t identify the causal effect of any one factor on changes in a country’s Gini coefficient, it’s still a useful accounting exercise — helpful in focusing on the main factors associated with the changes in the distribution of incomes.7

Using this approach, two studies — a 2010 paper on Brazil (by Ricardo Barros and co-authors from Brazil’s Institute of Applied Economic Research) and a 2013 paper on a number of countries in Latin America including Brazil (by the World Bank’s Joao Pedro Azevedo and co-authors) — have separately found that government transfers accounted for about 40 percent of the decline in inequality in Brazil, with expansions in pensions and Bolsa Familia (and a related program for people with disabilities) contributing roughly equally to the decline in income inequality. However, of these government transfers, Bolsa Familia was by far the most important component in raising the income levels of Brazil’s poorest households: Between 2001 and 2007, the share of people receiving these conditional cash transfer payments increased by more than 10 percentage points, from 6.5 percent to 16.9 percent. This accounted for the entire increase in the share of households that received non-labor income (i.e. income from sources outside of working a job).

Jensen Comment

Jensen Comment
There is a delicate balance between generous welfare and work incentives. The Governor of Vermont complained that, before the recent rise in the minimum wage level, there was more incentive to stay on Vermont's generous welfare system than go to work.

Although low by USA welfare standards, Brazil poverty was much, much worse and has showed remarkable gains in raising absolute poverty levels. The goal should be one of raising the living standards of the poor rather than reduction of inequality. For example, the USA has a worse, but reasonably close Gini coefficient relative to the Sudan in Africa, suggesting that there is more inequality in the USA than the Sudan., But the USA poor with HDTV, vehicles, food stamps, free education, housing subsidies, Medicaid, etc. would be considered wealthy in the Sudan.

In Cuba where the goal was to eliminate inequality, Fidel Castro found that his ration books, free housing, free public transportation, and minimal wages destroyed incentives to work.

"Report: Castro says Cuban model doesn't work," by Paul Haven. Associated Press, Yahoo News, September 8, 2010 ---

Fidel Castro told a visiting American journalist that Cuba's communist economic model doesn't work, a rare comment on domestic affairs from a man who has conspicuously steered clear of local issues since stepping down four years ago.

The fact that things are not working efficiently on this cash-strapped Caribbean island is hardly news. Fidel's brother Raul, the country's president, has said the same thing repeatedly. But the blunt assessment by the father of Cuba's 1959 revolution is sure to raise eyebrows.

Jeffrey Goldberg, a national correspondent for The Atlantic magazine, asked if Cuba's economic system was still worth exporting to other countries, and Castro replied: "The Cuban model doesn't even work for us anymore" Goldberg wrote Wednesday in a post on his Atlantic blog.

He said Castro made the comment casually over lunch following a long talk about the Middle East, and did not elaborate. The Cuban government had no immediate comment on Goldberg's account.

Since stepping down from power in 2006, the ex-president has focused almost entirely on international affairs and said very little about Cuba and its politics, perhaps to limit the perception he is stepping on his brother's toes.

Goldberg, who traveled to Cuba at Castro's invitation last week to discuss a recent Atlantic article he wrote about Iran's nuclear program, also reported on Tuesday that Castro questioned his own actions during the 1962 Cuban Missile Crisis, including his recommendation to Soviet leaders that they use nuclear weapons against the United States.

Even after the fall of the Soviet Union, Cuba has clung to its communist system.

The state controls well over 90 percent of the economy, paying workers salaries of about $20 a month in return for free health care and education, and nearly free transportation and housing. At least a portion of every citizen's food needs are sold to them through ration books at heavily subsidized prices.

President Raul Castro and others have instituted a series of limited economic reforms, and have warned Cubans that they need to start working harder and expecting less from the government. But the president has also made it clear he has no desire to depart from Cuba's socialist system or embrace capitalism.

Fidel Castro stepped down temporarily in July 2006 due to a serious illness that nearly killed him.

He resigned permanently two years later, but remains head of the Communist Party. After staying almost entirely out of the spotlight for four years, he re-emerged in July and now speaks frequently about international affairs. He has been warning for weeks of the threat of a nuclear war over Iran.

Castro's interview with Goldberg is the only one he has given to an American journalist since he left office.

Charles Bukowski Rails Against 9-to-5 Jobs in a Brutally Honest Letter (1986) ---

Jensen Comment
Those 9-to-5 jobs should be given to people who are grateful for them, and let those who prefer poverty live on food stamps and other handouts.

Karl Marz asserted that everybody should be allowed to work at what they like best. The problem is that demand for goods or services is no longer equated with supply. Cleaning hotel rooms is seldom a job where workers maximize enjoyment of work. Hence, under pure communism it's best not to expect to have clean hotel sheets, toilets, and carpets. In fact nobody probably wants to lay new carpets and fix broken toilets.

Capitalism, on the other hand, exploits unskilled labor in abundant supply such that hotel chambermaids usually live only slightly above the poverty line unless there's a dire shortage of chambermaids --- such as in Manhattan where the pay scales are higher due to shortages of chambermaids and other honest workers having low job skills. This is also a reason why many young people on the streets prefer higher paying crime like drug dealing and prostitution to low paying unskilled jobs.

The underground cash wage economy also contributes an abundant supply of of unskilled labor such as the supply of roofers, ranch hands, yard workers, swimming pool cleaners, and housekeepers in San Antonio where there's an ever-increasing supply of undocumented immigrants ---

"What Millennials Want That Their Boomer Parents Hate," by Taylor Tepper, Time Magazine, July 21, 2014 ---

Jensen Comment
The argument is that millenials want more inflation such that their student loans, mortgages, and other long-term debt that they incurred getting dear dollars (higher purchasing power) can be paid off with cheap dollars (less purchasing power) obtained from inflated wages. Taken to extremes the burden the entitlement burdens of their boomer parents for Social Security and other pensions can be paid back in in cheap dollars.

And their parents do indeed hate inflation, especially since low interest rates are causing them to cut into the capital of their retirement savings rather than allowing them to live on interest income from those savings.

But Taylor Tepper overlooks some real dangers of inflation to millenials. Firstly, for those whom wage increases do not keep up with inflation they will face enormous hardships in for their living expenses, things like food, vehicles, fuel, medical care, costs of having children, costs of raising children, including education costs.

There are big dangers of inflation for things that increase faster than inflation in general such as medical costs for millenials and their parents on Medicare. Unlike Social Security, Medicare is not sustainable with no inflation and even less sustainable with inflation. Also Medicare does not pay for nursing care of their boomer parents whose retirement savings are disappearing fast due to low interest rates. Many of these millennials will have to dig deep to pay for the inflated nursing care of their boomer parents.

I think that an economist that advocates high inflation is not a very scholarly economist. Has there ever been a high inflation nation that is the envy of other nations?

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

Have The New York Times and The Guardian Become Hama Propaganda Newspapers?
"Noah Pollak, All the news Hamas sees fit to print in The New York Times and The Guardian." WeeklyStandard, July 20, 2014
As forwarded by Naomi Ragen

Something important is missing from the New York Times's coverage of the war in Gaza: photographs of terrorist attacks on Israel, and pictures of Hamas fighters, tunnels, weaponry, and use of human shields.

It appears the Times is silently but happily complying with a Hamas demand that the only pictures from Gaza are of civilians and never of fighters. The most influential news organization in the world is thus manufacturing an utterly false portrait of the battle—precisely the portrait that Hamas finds most helpful: embattled, victimized Gaza civilians under attack by a cruel Israeli military.

A review of the Times's photography in Gaza reveals a stark contrast in how the two sides are portrayed. Nearly every picture from Israel depicts tanks, soldiers, or attack helicopters. And every picture of Gaza depicts either bloodied civilians, destroyed buildings, overflowing hospitals, or other images of civilian anguish. It is as one-sided and misleading a depiction of the Gaza battle as one can imagine.

Today's Times photo essay contains seven images: three of Gaza civilians in distress; one of a smoke plume rising over Gaza; and three of the IDF, including tanks and attack helicopters. The message is simple and clear: the IDF is attacking Gaza and harming Palestinian civilians. There are no images of Israelis under rocket attack, no images of grieving Israeli families and damaged Israeli buildings, no images of Hamas fighters or rocket attacks on Israel, no images of the RPG's and machine guns recovered from attempted Hamas tunnel infiltrations into Israel.
Another report yesterday was accompanied by a single image: that of a dead child in a Gaza hospital.

A second report yesterday, ostensibly about Hamas tunnel attacks on Israel, bizarrely contained not a single picture related to those attacks. The three pictures it contained presented the same one-sided narrative of Israelis as attackers, Palestinians as victims. One picture showed an IDF artillery gun firing into Gaza; a second showed Palestinian mourners at a funeral; a third showed Palestinians waiting in line for food rations.
Indeed, a check of the Twitter feed of the Times’s photographer in Gaza shows not a single image that portrays Hamas in a negative light. It's nothing but civilian victims of the IDF.

Likewise, the Twitter feed of Anne Barnard, the Beirut bureau chief for the Times currently "reporting" from Gaza, is almost entirely devoted to one thing: anecdotes, pictures, and stories about civilian casualties. Perusing her feed, one would think there are simply no terrorists in Gaza who started this war, who are perpetuating it, who are intentionally attacking Israel from neighborhoods and apartment buildings and thereby guaranteeing the very civilian casualties Barnard appears so heartbroken over.

Maybe all of this is an illustration of just how biased against Israel the Times has become—so biased that Times photographers and editors are simply blind to any image that doesn’t conform to their view of the war.
Or maybe, in the interest of the safety and access of their journalists, the Times is complying with Hamas instructions. As reported by MEMRI, Hamas published media guidelines instructing Gazans to always refer to the dead as "innocent civilians" and to never post pictures of terrorists on social media. Hamas is currently preventing foreign journalists from leaving the Strip, in effect holding them hostage. These journalists must be terrified—and they also must know that the best way to ensure their safety is to never run afoul of the terrorists in whose hands their fates lie.
It would appear that Hamas’s media instructions have been heard loud and clear at the New York Times, and the response is obedience. But the Times also isn't bothering to inform its readers that the images they’re seeing of Gaza are only the ones Hamas wants them to see. It’s time for the Times to tell its readers exactly why they are being presented with such a distorted picture of this war.


"The Full-Time Scandal of Part-Time America Fewer than half of U.S. adults are working full time. Why? Slow growth and the perverse incentives of ObamaCare," by Mortimer Zuckerman, The Wall Street Journal,  July 13, 2014 ---

There has been a distinctive odor of hype lately about the national jobs report for June. Most people will have the impression that the 288,000 jobs created last month were full-time. Not so.

The Obama administration and much of the media trumpeting the figure overlooked that the government numbers didn't distinguish between new part-time and full-time jobs. Full-time jobs last month plunged by 523,000, according to the Bureau of Labor Statistics. What has increased are part-time jobs. They soared by about 800,000 to more than 28 million. Just think of all those Americans working part time, no doubt glad to have the work but also contending with lower pay, diminished benefits and little job security.

On July 2 President Obama boasted that the jobs report "showed the sixth straight month of job growth" in the private economy. "Make no mistake," he said. "We are headed in the right direction." What he failed to mention is that only 47.7% of adults in the U.S. are working full time. Yes, the percentage of unemployed has fallen, but that's worth barely a Bronx cheer. It reflects the bleak fact that 2.4 million Americans have become discouraged and dropped out of the workforce. You might as well say that the unemployment rate would be zero if everyone quit looking for work.

Last month involuntary part-timers swelled to 7.5 million, compared with 4.4 million in 2007. Way too many adults now depend on the low-wage, part-time jobs that teenagers would normally fill. Federal Reserve Chair Janet Yellen had it right in March when she said: "The existence of such a large pool of partly unemployed workers is a sign that labor conditions are worse than indicated by the unemployment rate."

There are a number of reasons for our predicament, most importantly a historically low growth rate for an economic "recovery." Gross domestic product growth in 2013 was a feeble 1.9%, and it fell at a seasonally adjusted annual rate of 2.9% in the first quarter of 2014.

But there is one clear political contribution to the dismal jobs trend. Many employers cut workers' hours to avoid the Affordable Care Act's mandate to provide health insurance to anyone working 30 hours a week or more. The unintended consequence of President Obama's "signature legislation"? Fewer full-time workers. In many cases two people are working the same number of hours that one had previously worked.

Since mid-2007 the U.S. population has grown by 17.2 million, according to the Census Bureau, but we have 374,000 fewer jobs since a November 2007 peak and are 10 million jobs shy of where we should be. It is particularly upsetting that our current high unemployment is concentrated in the oldest and youngest workers. Older workers have been phased out as new technologies improve productivity, and young adults who lack skills are struggling to find entry-level jobs with advancement opportunities. In the process, they are losing critical time to develop workplace habits, contacts and new skills.

Most Americans wouldn't call this an economic recovery. Yes, we're not technically in a recession as the recovery began in mid-2009, but high-wage industries have lost a million positions since 2007. Low-paying jobs are gaining and now account for 44% of all employment growth since employment hit bottom in February 2010, with by far the most growth—3.8 million jobs—in low-wage industries. The number of long-term unemployed remains at historically high levels, standing at more than three million in June. The proportion of Americans in the labor force is at a 36-year low, 62.8%, down from 66% in 2008.

Part-time jobs are no longer the domain of the young. Many are taken by adults in their prime working years—25 to 54 years of age—and many are single men and women without high-school diplomas. Why is this happening? It can't all be attributed to the unforeseen consequences of the Affordable Care Act. The longer workers have been out of a job, the more likely they are to take a part-time job to make ends meet.

The result: Faith in the American dream is eroding fast. The feeling is that the rules aren't fair and the system has been rigged in favor of business and against the average person. The share of financial compensation and outputs going to labor has dropped to less than 60% today from about 65% before 1980.

Why haven't increases in labor productivity translated into higher household income in private employment? In part because of very low rates of capital spending on new plant and equipment over the past five years. In the 1960s, only one in 20 American men between the ages of 25 and 54 was not working. According to former Treasury Secretary Larry Summers, in 10 years that number will be one in seven.

The lack of breadwinners working full time is a burgeoning disaster. There are 48 million people in the U.S. in low-wage jobs. Those workers won't be able to spend what is necessary in an economy that is mostly based on consumer spending, and this will put further pressure on growth. What we have is a very high unemployment rate, a slow recovery and across-the-board wage stagnation (except for the top few percent). According to the Bureau of Labor Statistics, almost 91 million people over age 16 aren't working, a record high. When Barack Obama became president, that figure was nearly 10 million lower.

The great American job machine is spluttering. We are going through the weakest post-recession recovery the U.S. has ever experienced, with growth half of what it was after four previous recessions. And that's despite the most expansive monetary policy in history and the largest fiscal stimulus since World War II.

Continued in article

Critics of ObamaCare should cease and desist, because the law is "working"
Former Princeton University Economics Professor and Political Activist Paul Krugman
He should have added working "to turn full-time jobs into part-time jobs."

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

"Obamacare by the Numbers A state-by-state analysis of failed health care exchanges," by Peter Suderman, Reason Magazine, August/September 2014 ---

"The ObamaCare-IRS Nexus:  The supposedly independent agency harassed the administration's political opponents and saved its health-care law," by Kimberly Strassel, The Wall Street Journal, July 24, 2014 ---

One of the big questions out of the IRS targeting scandal is this: How can an agency that engaged in such political misconduct be trusted to implement ObamaCare? This week's Halbig v. Burwell ruling reminded us of the answer. It can't.

The D.C. Circuit Court of Appeals ruled in Halbig that the administration had illegally provided ObamaCare subsidies in 36 insurance exchanges run by the federal government. Yet it wasn't the "administration" as a whole that issued the lawless subsidy gift. It was the administration acting through its new, favorite enforcer: the IRS.

And it was entirely political. Democrats needed those subsidies. The party had assumed that dangling subsidies before the states would induce them to set up exchanges. When dozens instead refused, the White House was faced with the prospect that citizens in 36 states—two-thirds of the country—would be exposed to the full cost of ObamaCare's overpriced insurance. The backlash would have been horrific, potentially forcing Democrats to reopen the law, or even costing President Obama re-election.

The White House viewed it as imperative, therefore, that IRS bureaucrats ignore the law's text and come up with a politically helpful rule. The evidence shows that career officials at the IRS did indeed do as Treasury Department and Health and Human Services Department officials told them. This, despite the fact that the IRS is supposed to be insulated from political meddling.

We know this thanks to a largely overlooked joint investigation and February report by the House Oversight and Ways and Means committees into the history of the IRS subsidy rule. We know that in the late summer of 2010, after ObamaCare was signed into law, the IRS assembled a working group—made up of career IRS and Treasury employees—to develop regulations around ObamaCare subsidies. And we know that this working group initially decided to follow the text of the law. An early draft of its rule about subsidies explained that they were for "Exchanges established by the State."

Yet in March 2011, Emily McMahon, the acting assistant secretary for tax policy at the Treasury Department (a political hire), saw a news article that noted a growing legal focus on the meaning of that text. She forwarded it to the working group, which in turn decided to elevate the issue—according to Congress's report—to "senior IRS and Treasury officials." The office of the IRS chief counsel—one of two positions appointed by the president—drafted a memo telling the group that it should read the text to mean that everyone, in every exchange, got subsidies. At some point between March 10 and March 15, 2011, the reference to "Exchanges established by the State" disappeared from the draft rule.

Emails viewed by congressional investigators nonetheless showed that Treasury and the IRS remained worried they were breaking the law. An email exchange between Treasury employees in the spring of 2011 expressed concern that they had no statutory authority to deem a federally run exchange the equivalent of a state-run exchange.

Yet rather than engage in a basic legal analysis—a core duty of an agency charged with tax laws—the IRS instead set about obtaining cover for its predetermined political goal. A March 27, 2011, email has IRS employees asking HHS political hires to cover the tax agency's backside by issuing its own rule deeming HHS-run exchanges to be state-run exchanges. HHS did so in July 2011. One month later the IRS rushed out its own rule—providing subsidies for all.

That proposed rule was criticized by dozens of scholars and congressional members, all telling the IRS it had a big legal problem. Yet again, the IRS did no legal analysis. It instead brought in a former aide to Democratic Rep. Lloyd Doggett, whose job appeared to be to gin up an after-the-fact defense of the IRS's actions. The agency formalized its rule in May 2012.

To summarize: The IRS (famed for nitpicking and prosecuting the tax law), chose to authorize hundreds of billions of illegal subsidies without having performed a smidgen of legal due diligence, and did so at the direction of political taskmasters. The agency's actions provided aid and comfort to elected Democrats, even as it disenfranchised millions of Americans who voted in their states to reject state-run exchanges. And Treasury knows how ugly this looks, which is why it initially stonewalled Congress in its investigation—at first refusing to give documents to investigators, and redacting large portions of the information.

Administration officials will continue to use the IRS to try to improve its political fortunes. The subsidy shenanigans are merely one example. Add Democrats' hijacking of the agency to target and silence political opponents. What you begin to see are the makings of a Washington agency—a body with the power to harass, to collect, to fine, to imprison—working on behalf of one political party. Richard Nixon, eat your heart out.


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

Bob Jensen's Tidbits Archives ---

Bob Jensen's Pictures and Stories

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

Bob Jensen's threads on such scandals:

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

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

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

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

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

Bob Jensen's fraud conclusions ---

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

Bob Jensen's threads on corporate governance are at


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

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

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

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

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

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

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

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


Bob Jensen's threads on accounting theory ---

Tom Lehrer on Mathematical Models and Statistics ---

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

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

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

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