Tidbits Quotations
To Accompany August 27, 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

Christians Are Dumber Than Atheists
Ohio State University’s Psychology 1100 course answer to an online homework set ---

California’s Exceptional Drought Just Keeps Getting Worse
Tom Randall , Bloomberg News, July 31, 2014

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

Jimmy Carter: The Only Way to Fix Gaza is by Giving Hamas Everything It Wants.
But he won't say where to export the 8+ million Jews living in Israel.
Maybe the deportations should evolve in stages. First send all Jewish children (unaccompanied) across the Rio Grande. When they are given refugee status they can then be joined by their parents.

We're old enough to remember when advocates for the Affordable Care Act promised that it would "bend the cost curve" and reduce expensive hospital visits, particularly at emergency rooms. So far, the opposite is occurring.
James Freeman, "There Goes Another ObamaCare Argument," WSJ, August 6, 2014 ---

Non-Refugee Migrant Kids Will Be Sent Back
Barach Obama

But 99.99% of them will be declared refuges.

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

"When Did the U.S. Forfeit its Moral Leadership in the World?" by Steven Mintz, Ethics Sage, August 6, 2014 --- Click Here

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



"US Colonel Explains Why ISIS Is More Dangerous Than Al-Qaeda," by Colonel S. Clinton Hinote, Cicero Magazine via Business Insider, August 15, 2015 ---

Jensen Comment
Purportedly ISIS just captured a WMD, but there are other reasons why ISIS is more dangerous than its Al-Qaeda predecessor. But ISIS also has more enemies, particularly in the United Nations where superpowers sometimes clashed in the war on terrorists before ISIS. ISIS seems to not have many friends outside the Sunnis, and even the Sunnis tribes are not wholly supportive of its genocide philosophy and penchant for beheading almost everybody in the world --- except maybe North Korea where almost any horrible weapon is for sale.

Usually when an army expands its battle lines the major method of attack, that was lamented by Napoleon and Hitler, is to cut off the logistics of food, water, ammunition and other weaponry and reinforcements. Thus far ISIS is logistically supported by the friendly Sunni communities it captures. It will, in my opinion, become much more logistically vulnerable when it ventures into non-Sunni territories like southern Iraq and many parts of Syria. By then, however, its tactics may well change to become more like the terrorist tactics of Al-Qaeda in Yemen, Afghanistan, Pakistan, and parts of Africa.

Terrorists have a problem in that if and when they surface or come out in front of their hostages they're dead.

A looming problem for Afghanistan is that when the U.S. pulls out the Taliban may become more like ISIS. I think that is a sure bet even though the Taliban to date has received weapons like IED explosive mine materials from Iran. Iran despises ISIS such that a merger between the Taliban and ISIS may not take place for many years to come. Sadly they both might independently export terror on innocents and will both collect a lot of heads until the superpowers unite against terrorism is a more serious manner that brings greater risks to hostages.

Of course the entire world is at increased risk from WMDs in the hands of terrorists. Is the world going insane?

Also see http://www.businessinsider.com/hagel-isis-threat-terrorism-us-airstrikes-2014-8

"The French Government Has Collapsed, And It's Partly Paul Krugman's Fault," by Rob Wile, Business Insider, August 25, 2014 ---

On Monday morning, the French government collapsed. All the ministers have resigned, and President Francois Hollande will have to appoint new ones.

Paul Krugman deserves some of the blame.

The incident that immediately precipitated the resignation of French Prime Minister Manuel Valls' cabinet was an interview given by Arnaud Montebourg, France's economics minister to LeMonde, in which he protested his government's ongoing austerity policies.

As evidence of that policy's failure, Montebourg cited the former Princeton professor and New York Times columnist.

Here's the exchange:

LeMonde: Has Europe, and France too in the past two years, focused too much on budget contraction?

Arnaud Montebourg: That's not my observation, that's the diagnosis of financial institutions across the world, starting with the IMF which, whose director, Christine Lagarde, warned European leaders about an excess of budget consolidation. Paul Krugman, a Nobel laureate, also wrote on Aug. 13, "The nightmare scenario in Europe is not a hypothetical. The news that industrial production has ground to a halt raises the prospect of a new recession in Europe — its primary cause, austerity." These warnings have also been sounded by other leaders of world powers including Barack Obama.

Montebourg's comments were supported by Hollande's education minister, as well as his culture minister. Faced with de facto insubordination Hollande laid off his whole government.

However Despite the noise France's cabinet reshuffle was making Monday morning, it may not amount to much. As Krugman also pointed out, European governments can now do only so much to address severely weak underlying economic fundamentals. Europe's fate mostly now lies in the hands of ECB Chief Mario Draghi, who seems to fully understand the stakes but also faces vocal monetary hawks out of eurozone member countries.

That may include France itself. By accepting his own cabinet's resignation, Hollande is signaling that he will remain committed to his announced budget cuts and corporate tax reductions. Meanwhile multiple reports indicate Montebourg and education minister Benoit Hamon, who also lashed out at Hollande, won't survive into the new coalition. 

Thus, any satisfaction Montebourg ultimately receives may come at the grim price of further economic malaise. 

Read more: http://www.businessinsider.com/paul-krugman-cited-french-economic-minister-in-case-against-austerity-2014-8#ixzz3BayClOMM

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

"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.”

Corporate Tax Inversions:  The Beautiful and the Ugly

From the CFO Journal's Morning Ledger on August 27, 2015

More corporate finance divisions are looking into the details of what an inversion would actually do for their tax bill, even if their companies ultimately aren’t willing to take the plunge and decamp for a foreign country, CFOJ’s Emily Chasan reports. A foreign domicile often will mean a lower overall tax rate, but a thorough analysis must also factor the cost of moving some management overseas, reorganizing the company, the sustainability of a move and its political consequences.

And the political consequences, though at this point mostly limited to accusations of unpatriotic behavior, could become more serious if legislators make good on their threats. The Treasury Department is currently reviewing its options for limiting the tax benefits of an inversion. And since Burger King Worldwide Inc. announced its intention to relocate to Canada through a merger with Tim Hortons Inc., the iconic burger chain has come under direct criticism from lawmakers. Sen. Dick Durbin (D., Ill.) said, “I’m disappointed in Burger King’s decision to renounce their American citizenship” and added that “with every new corporate inversion, the tax burden increases on the rest of us to pay what these corporations won’t.” The companies say the deal is not about taxes, but about growth (more on that below).

But the Burger King deal highlights what chief financial officers are learning in their investigations of inversion deals: that the tax benefits are not so straightforward, and often lurk in the details. Writing for Heard on the Street, John Carney notes that Canada offers a generous tax break for profits from countries with which it has a tax treaty. These get counted as “exempt surplus,” which isn’t taxed at all by Canada. And in some of Burger King’s fastest-growing markets, a Canadian domicile would also give it the benefit of “tax sparing”—a system that credits companies even for taxes that aren’t actually paid as part of a complex incentive to invest in developing countries.


"Microsoft Has Nearly $93 Billion In Overseas Cash, And It's Reduced Its Tax Bill By Almost $30 Billion," by Julie Bort, Business Insider, August 23, 2014 ---

Whopper Deal --- Burger King Headquarters May Move to Canada:  There are tax savings in addition to a purchase of Canada's Tim Horton's Inc.
From the CFO Journal's Morning Ledger on August 25, 2015

The inversion wave that overtook the pharmaceutical and drug retail industries continues to spread, and now one of America’s most storied hamburger chains is looking to decamp for a lower-tax domicile to the north.

Burger King Worldwide Inc. is in talks to buy Canadian coffee-and-doughnut chain Tim Hortons Inc. in a tax inversion that would shift the hamburger seller’s base to Canada. Canada’s federal corporate tax rate was lowered to 15% in 2012.

And despite the saber-rattling from American lawmakers who fear that such moves will drain U.S. tax coffers, Burger King is planning to make the move without the protection of a provision that would let it walk away from the deal even if the tax benefits are taken away through new legislation. That may suggest that American big business perceives the U.S. government as unwilling, or incapable, of making any serious moves to restrain inversions.

"One Way to Fix the Corporate Tax: Repeal It," by by N. Gregory Mankiw (Harvard), The New York Times, August 23, 2014 ---

“Some people are calling these companies ‘corporate deserters.’ ”

That is what President Obama said last month about the recent wave of tax inversions sweeping across corporate America, and he did not disagree with the description. But are our nation’s business leaders really so unpatriotic?

A tax inversion occurs when an American company merges with a foreign one and, in the process, reincorporates abroad. Such mergers have many motives, but often one of them is to take advantage of the more favorable tax treatment offered by some other nations.

Such tax inversions mean less money for the United States Treasury. As a result, the rest of us end up either paying higher taxes to support the government or enjoying fewer government services. So the president has good reason to be concerned. Continue reading the main story Related Coverage

Walgreen on Wednesday said it would take over the British pharmacy retailer Alliance Boots but would not, after all, move its headquarters overseas to save on taxes. Tax Reform: Inverting the Debate Over Corporate InversionsAUG. 6, 2014

Yet demonizing the companies and their executives is the wrong response. A corporate chief who arranges a merger that increases the company’s after-tax profit is doing his or her job. To forgo that opportunity would be failing to act as a responsible fiduciary for shareholders.

Of course, we all have a responsibility to pay what we owe in taxes. But no one has a responsibility to pay more.

The great 20th-century jurist Learned Hand — who, by the way, has one of the best names in legal history — expressed the principle this way: “Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes.”

If tax inversions are a problem, as arguably they are, the blame lies not with business leaders who are doing their best to do their jobs, but rather with the lawmakers who have failed to do the same. The writers of the tax code have given us a system that is deeply flawed in many ways, especially as it applies to businesses.

The most obvious problem is that the corporate tax rate in the United States is about twice the average rate in Europe. National tax systems differ along many dimensions, making international comparisons difficult and controversial. Yet simply cutting the rate to be more in line with norms abroad would do a lot to stop inversions.

A more subtle problem is that the United States has a form of corporate tax that differs from that of most nations and doesn’t make much sense in the modern global economy.

A main feature of the modern multinational corporation is that it is, truly, multinational. It has employees, customers and shareholders around the world. Its place of legal domicile is almost irrelevant. A good tax system would focus more on the economic fundamentals and less on the legal determination of a company’s headquarters.

Most nations recognize this principle by adopting a territorial corporate tax. They tax economic activity that occurs within their borders and exclude from taxation income earned abroad. (That foreign-source income, however, is usually taxed by the nation where it is earned.) Six of the Group of 7 nations have territorial tax systems.

Continued in article

"When Did the U.S. Forfeit its Moral Leadership in the World?" by Steven Mintz, Ethics Sage, August 6, 2014 --- Click Here

Elitism Without Conservatism
"What Ails Elite Education? Debating Deresiewicz’s ‘Excellent Sheep’," Chronicle of Higher Education's Chronicle Review, August 19, 2014 ---

Even before it was published this week, William Deresiewicz’s Excellent Sheep: The Miseducation of the American Elite and the Way to a Meaningful Life (Free Press) was stirring controversy. (It helped that an excerpt appeared on the cover of The New Republic under the headline "Don’t Send Your Kid to the Ivy League.") Deresiewicz, a former English professor at Yale University, is not optimistic about elite colleges—or the students they educate.

The Chronicle Review asked Harry R. Lewis, a professor of computer science at Harvard University, former dean of Harvard College, and the author of Excellence Without a Soul (PublicAffairs, 2007), and Deresiewicz to discuss Excellent Sheep.

Bill (if I may),

On pretty much every page of Excellent Sheep, I found something you got right—and also something you got wrong. I think you are too hard on students, for example, and not hard enough on faculty. (Full disclosure is in order: I have been on Harvard’s Admission Committee for years, and my wife works in that office. Of course I am speaking only for myself here.) You say professors could do wonderful things for students but don’t, because they have the wrong incentives—to do research instead of to teach and mentor. True, but what kind of excuse is that for tenured faculty, if they are at the root of such a scourge on American society?

Continued in article

Jensen Comment
The "elite" colleges and universities may be contributing to elitism, but they most certainly are not contributing to conservatism.

Less than 10% of the private university faculty label themselves as conservative whereas 67% label themselves as "far left" or "liberal" ---
"Moving Further to the Left," by Scott Jaschik, Inside Higher Ed, October 24, 2012 ---
It's even more biased toward the left in public universities and the elite media like the The New York Times and The New Yorker.

Over 90% of Harvard's faculty contributed to the Democratic party in the last Presidential election. Almost none contributed to the Republican Party.
"College Employees Give Millions to Federal Campaigns, Especially to Democrats," by Kevin Kiley, Chronicle of Higher Education, September 22, 2010 --- http://chronicle.com/article/College-Employees-Give/124572/

Bob Jensen's threads on bias in higher education and the media ---

Shareholder Value --- http://en.wikipedia.org/wiki/Shareholder_value

From the CFO Journal's Morning Ledger on August 8, 2014

Boston Globe: Is Shareholder Value Bad For Business?
The decision this week by drugstore chain Walgreens to go against the will of shareholders and remain domiciled in the U.S. following its merger with a European outfit, is just one of many acts in the ongoing morality tale about what it means to run a corporation in latter-day America. Does one do ‘the right thing’ by opting for what’s best for ‘shareholder value’ or for wider ‘society’? That question is threatening to rip apart Massachusetts-based, family-owned grocery store chain Market Basket, whose unfolding story is being told in the
Boston Globe.  Operating across three New England states, Market Basket board members dismissed the popular company CEO Arthur T. Demoulas and two executives on June 23. Loyal staff and sympathetic customers didn’t like that: so now the staff are on strike and customers have boycotted the stores, threatening the business’ very existence. “This controversy is the tip of an iceberg,” said James Post, coauthor of the 2002 book “Redefining the Corporation” and a professor emeritus at Boston University School of Management. “And what’s below the iceberg is a much larger debate about the relationship between shareholders and all of the other parties that help account for the success of a company.”


"Is ‘shareholder value’ bad for business?" by Leon Neyfaldi, Boston Globe, August 3, 2014 ---

It sounds like great management philosophy—but critics say we need to get back to a broader vision of the purpose of corporations

The uprising against the owners of Market Basket that’s been unfolding over the past several weeks looks at first like a classic showdown between the powers that be and the little guys who would. In one corner stands a coalition of board members and major shareholders who think it should be returning higher profits; in the other, a crowd of employees fiercely devoted to the recently fired CEO, who won their loyalty by paying high wages, providing generous benefits, and handing out regular bonuses. Amazingly, even customers have joined the revolt, turning Market Basket stores into ghost towns and costing the company millions of dollars in losses.

There’s something heartwarming about workers risking their necks in the name of a beloved former boss. But to observers who know how modern corporations work, the protests can seem a little naive: After all, everybody knows that a corporation is an entity whose first job is to maximize profits and deliver the highest return possible to its owners. As some commentators have noted, Market Basket is a business, and demanding that its investors forgo profits in service of some greater good goes against everything we know about the natural laws of capitalism.

Unless, of course, it doesn’t. Related

Timeline of Market Basket events

Experts on the history of business say the Market Basket saga is a window onto something deeper than a power struggle among the Demoulas clan that owns it. They see it as emblematic of a war over the future of the American corporation—what its purpose is, how it should be run, and whom it should be engineered to benefit. They argue that maximizing profit and shareholder value—an approach to running companies that drives investment on Wall Street and serves as the closest thing to modern management gospel—is only one way of defining corporate success, and a fairly new one at that.

“This controversy is the tip of an iceberg,” said James Post, coauthor of the 2002 book “Redefining the Corporation” and a professor emeritus at Boston University School of Management. “And what’s below the iceberg is a much larger debate about the relationship between shareholders and all of the other parties that help account for the success of a company.”

A company like IBM or General Motors could be the heart of an entire ecosystem of suppliers, investors, and even civic institutions.

Quote Icon

Post and others argue that a well-run company can—and should—be managed in a way that benefits not just the investors who own its stock, but a wide range of constituents. As opposed to “shareholders,” they call these people “stakeholders”: a group that includes employees, customers, suppliers, and creditors, as well as the broader community in which the company operates, and even the country that it calls home. According to that view, Market Basket’s employees and customers are essential to the firm’s success and, thus, rightful beneficiaries of its prosperity.

Importantly, it’s not just antimarket leftists who are making this point: It’s pro-business thinkers who want to see a more competitive future for American corporations. Critics like Post argue that the singleminded emphasis on profits and shareholder value—which took hold in the corporate world during the 1980s—has actually hurt corporations in a number of ways, giving their leaders the wrong kinds of incentives, gutting their future in pursuit of short-term profits, and often draining them of their real value and putting them at odds with their communities.

To take seriously the idea of a “stakeholder”-oriented corporation is to realize that firms like Market Basket, which we rely on in our daily lives and which rely on us in return, don’t have a fixed role in a capitalist society, but rather exist as tools that can serve a variety of functions. While “shareholder value” is attractive in its simplicity, a look at its track record suggests it might be an idea that has reached its sell-by date.


Today, it’s widely taken for granted that the American corporation functions as a standalone, self-interested entity responsible exclusively to its investors. But it wasn’t always this way. “The early corporations were chartered by the state to meet a social purpose,” Post said. “Sometimes it was to build highways, sometimes it was to run banks, but there was always public purpose that went with the grant of a charter.” The message was straightforward: People who owned incorporated companies ran them at the pleasure of the state, and, in exchange for various legal protections, had a responsibility to do more than enrich themselves.

Though such demanding legislative charters had long fallen out of use by the mid-20th century, when American corporations entered what is widely considered their golden age, historians say that many executives nevertheless held onto the notion that they were overseeing entities with a role in society, and were responsible for creating more than the value that existed on paper. “They viewed their job as a sort of stewardship of an economic and social institution,” said Lynn Stout, a professor at Cornell University Law School and the author of “The Myth of Shareholder Value.”

During this era of so-called managerial capitalism, which began roughly in the 1920s, corporations were seen by both their managers and much of the American public as institutions that mattered in themselves: They produced useful products, gave workers and their families a stable and often long-term source of income, and played a role in the cities and towns where they did business. A company like IBM or General Motors could be the heart of an entire ecosystem of suppliers, investors, and even civic institutions.

But a change was coming to American capitalism. Facing unprecedented competition from Europe and Asia, these long-stable firms began to look like sleepy behemoths. And economists had begun to worry that top executives had become so powerful they were running companies with their own personal interests at heart, lining their pockets at the expense of the stockholders who, in theory, should have been benefiting in proportion to the company’s success.

The solution to all these problems, famously articulated by the University of Chicago free market economist Milton Friedman in a 1970 New York Times article, was an elegant one: By framing the corporation purely in terms of its monetary value to shareholders, and setting aside the notion that it might be a valuable entity in and of itself by virtue of what it did, corporate America suddenly had an easy way to measure performance. The scheme had a kind of moral clarity: The risk of operating a company is borne by stockholders, so they’re the ones who deserve to reap the rewards.

A well-managed company, then, would have a high stock price that reflected the best possible use of its assets. A poorly managed one was a target for a new class of investor—the corporate raider—who saw big companies as collections of assets that could be bought, broken up, and sold at a profit.

CEOs got the message: The point of running a company was to keep the share price high. And to keep their eyes on the target, boards started tying executive pay to the share price, by paying CEOs with stock options that were much more valuable than their paper salary. In the wake of the “shareholder value” revolution, everything except the value of a company’s stock—including its impact on the lives of its employees, its contracts with suppliers and retailers, whether it was liked or hated by its customers—came to be seen as almost irrelevant. Everything you needed to know about how a company was doing was believed to be reflected in its share price.

By the 1990s, the notion that a CEO had an obligation to maximize shareholder value had become an unquestioned mantra taught in business schools; ordinary people assumed it was simply the way of the world. “People think it was brought down from Mount Sinai by Moses, as the 11th Commandment,” said Richard Sylla, a professor who specializes in the history of financial institutions at NYU Stern School of Business, and the coauthor of a recent article in the journal Daedalus critiquing the notion of shareholder supremacy. “If you’re younger than 50 or 60, you’ve lived in a world where everyone taught you that this is what a corporation is supposed to do—maximize profit and shareholder value. But the world used to be different.”

The philosophy of shareholder supremacy, initially a reform to curb irresponsibility in managers, has ended up causing significant problems of its own, say Sylla and other critics. CEOs became obsessed with stock price at the expense of all other considerations. Some, like the executives at Enron, went so far as to defraud their own stockholders by engineering bogus profits. Countless others made short-sighted decisions intended to goose earnings, keep investors happy, and enrich themselves—all without regard for the long-term health of their companies.

The broader social effects of the shift toward shareholder value are clear, critics say, with wages stagnating and unemployment remaining stubbornly high even as the stock market has rebounded after the recession. Meanwhile, if the point was to benefit shareholders, it’s not clear that worked either. Roger Martin, the former dean of the Rotman School of Management at the University of Toronto, points out in his 2011 book, “Fixing the Game,” that from 1933 to 1976, returns on investment in the S&P 500—the decades immediately before the “shareholder value” took hold—were actually higher than they have been since. And Stout notes that in the 20 years after 1993, when a change to the tax code encouraged corporations to tie executive compensation to share price, investors in the S&P 500 saw returns that were slightly worse than what they were getting during the 40 years prior. The life expectancy of S&P 500 companies, meanwhile, has been cut dramatically—from around 70 years in the 1920s to 15 years today.

“We have been dosing our public corporations with the medicine of shareholder value thinking for at least two decades now,” Stout has written. “The patient seems, if anything, to be getting worse.”

As the effects of shareholder supremacy have begun to make themselves evident—Stout points to Sears and Motorola as examples of companies that have been hollowed out in the name of stoking share prices—an alternative approach to running a corporation, known as the stakeholder model, began gaining purchase among academics and business leaders. This model, as described by its proponents, recommends taking a less simplistic and short-term view of what makes a company successful, and calls for measuring its value not just in terms of profits and stock price, but the total impact it has on the lives of people who come into contact with it. There are clear reasons this might be better for employees, customers, and their communities. In the long run, say thinkers like Stout and Post, it is going to be better for the competitiveness of the American company. Pointing to firms like Market Basket, they argue that stakeholder-focused companies are ultimately more stable and financially healthy—a win, ultimately, for the very shareholders being forced to make room at the trough for other interested parties.


Though lots of prominent companies now take pains to cultivate reputations as conscientious corporate citizens, would-be reformers want something more. “All that stuff is just window dressing,” said Stout, referring to philanthropic programs financed by big corporations in the name of good PR. “Corporate social responsibility means running a business that contributes to public welfare—that’s the moral defense of capitalism. Business should be a force for good, not for the enrichment of a few small individuals.”

Continued in article


Jensen Comment
It would seem that anything that is bad for business adversely affects shareholder value. However, is the opposite the case. Is everything good for increasing shareholder value good for business. Most of the debate hinges on long-term versus short-term values.

Miltoton Friedman argued that the only responsibility of business should be making profits while abiding by all laws ---
This is of course difficult when laws are conflicting or unclear --- as is often the case. One example is affirmative action where the laws are sometimes vague or conflicting. Adverse publicity can sometimes cut on both sides of the sword.

A classic problem is when tax laws and regulations allow companies to avoid taxes in a way that hurts them with adverse publicity such as when Walgreens contemplated moving its headquarters across the Atlantic Ocean --- a decision that the company has since rescinded due to both bad publicity and governmental pressures. The company would have benefitted in the short run by this inversion, but it's not at all clear that the long-term benefits would have been positive.

It's clear that the private sector differs greatly from the public sector in terms of social responsibilities. For example, the government is ideally subjected to the democratic voting process with respect to controversial decisions such as banning genetic modification certain food products. A company deciding to modify or not modify its products via genetic modification is not directly subjected to the will of the people except via government intervention.

Highly controversial decisions that are on surface socially responsible have many possible favorable and adverse externalities. For example, if an enormous electric power company elects to substitute coal and nuclear power generation with solar, wind, and hydo power (as is the case with the power generating companies in Vermont) there are many possible externalities for which government would be accountable but not the power companies themselves. For example, enormous increases in the cost of power may cause a spike in unemployment and huge losses of tax revenues from businesses depending on cheap power. In fact power-intensive companies may move to another state where power is cheaper.

At the moment, there's huge political fight in New Hampshire over what is termed the northern pass ---
 Power companies want to destroy a significant portion of our forests for enormous (80-foot) transmission towers to bring in hydro power from Quebec. What is profitable for the power companies has adverse externalities on life in the forests as well as life in Quebec if more and more land is flooded for newer and larger hydro dams. But those are Canadians who are hurt. Why should our USA companies care about Canadians if the Northern Pass transmission lines add shareholder value to USA power companies.?

How to Mislead With Governmental Accounting
"How Much Do We Really Owe?," by John Goodman, Forbes, August 7, 2014 ---

First the good news: the official federal deficit is only 3% of GDP – way below the 10% figure it reached only a few years ago. Now the bad news: The real deficit is more than ten times that amount.

The U.S. government’s deficit is expected to be $514 billion this year, according to the Congressional Budget Office (CBO). That’s the number you get when you look at cash flow. It means the government will spend $514 billion more than it takes in during the 2014 fiscal year.

But this kind of accounting ignores federal government liabilities that will become due in future years. For example, over the course of a year millions of people earn Social Security and Medicare benefits as well as other government entitlement benefits that will have to be paid in future years. When you total all that up (and subtract expected future revenues to pay those benefits), we added $5 trillion in debt last year according to Boston University economist Larry Kotlikoff.

Another way to look at the problem is to consider not just one year’s deficit, but the total amount of debt that government has accumulated. US debt held by the public is currently $12.6 trillion, or about 75% of the size of our economy the way the CBO measures things. But in arriving at that number, the CBO doesn’t recognize promises to pay Social Security checks and medical bills as real obligations.

Take a senior citizen who is expecting an interest payment on a government bond next month and who is also expecting a Social Security check. The way the CBO looks at the world, the interest payment on the bond is a real obligation of the government. But the Social Security check isn’t.

That’s a strange way of accounting and Kotlikoff and his colleagues reject it. Instead they project the value of all the promises we have made under Social Security and other entitlement programs – benefits that ordinary citizens believe they have earned – and subtract expected future revenues, given the current tax law. The difference is an unfunded liability that is every bit as real as promises to make future interest payments on bonds and Treasury bills.

Calculating obligations in this way, Kotlikoff estimates that the total unfunded liability of the federal government is $210 trillion, or about 12 times the size of our economy. Writing in The New York Times, Kotlikoff says:

“The fiscal gap — the difference between our government’s projected financial obligations and the present value of all projected future tax and other receipts — is, effectively, our nation’s credit card bill. Eliminating it, would require an immediate, permanent 59 percent increase in federal tax revenue. An immediate, permanent 38 percent cut in federal spending would also suffice. The longer we wait, the worse the pain. If, for example, we do nothing for 20 years, the requisite federal tax increase would be 70 percent, or the requisite spending cut, 43 percent.”

And the tax increase, by the way, doesn’t work unless the money is sequestered and invested. It can’t just be deposited in the Treasury’s bank account and spent on other things.

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

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

Piketty is Not Sufficiently Marxist

"Piketty Envy:  What the left gets wrong about the French economist," by Michael W. Clune, Chronicle of Higher Education's Chronicle Review, August 18, 2014 ---

One expects the resistance of many on the right to Thomas Piketty’s conversation-setting book about economic inequality, Capital in the Twenty-First Century (Harvard University Press, 2014). But Piketty’s spectacular success has also been an unwelcome surprise for some of his fellow leftists.

Piketty purports to show that capitalism produces inexorably widening inequality. This, complains the well-known Marxist geographer David Harvey, "is, for many of us, hardly news." Indeed, Harvey writes, Piketty’s book reproduces "exactly Marx’s theoretical conclusion in Volume 1 of his version of Capital." For Benjamin Kunkel, writing in the London Review of Books, Piketty’s success presents a puzzle. Only the pathological timidity of professional economists and journalists "can explain why Piketty’s discussion of inequality, a preoccupation on the left for decades, has struck them as such a singular revelation." Piketty has discovered that capitalism generates increasing inequality? We Marxists have been telling you this for over a century!

This response reminds me of a scene in the film The Last King of Scotland. Idi Amin has just made a political blunder. His Scottish doctor helpfully reminds him that he told him not to pursue the course of action that led to disaster. Forest Whitaker’s Amin stares at the doctor accusingly. "You told me," he says. "But you did not convince me!"

An older generation of leftists, including Harvey, the philosopher Slavoj Žižek, and the literary critic Fredric Jameson, have indeed been telling us for many years that capitalism is on the road to ruin, but the public hasn’t taken much note. The success of Piketty’s book, on the other hand, suggests that many people have found his conclusions convincing. Capital in the Twenty-First Century convinces because Piketty supports his arguments about inequality with two innovative forms of evidence largely neglected by his predecessors on both the left and the right. The first is an unprecedented trove of historical economic data, which Piketty uses to demonstrate increasing inequality due to the long-term tendency of returns on capital to outpace economic growth. The second is a series of literary works, which Piketty uses to reveal the social and psychological consequences of this inequality in its erosion of human dignity.

The depth and range of evidence Piketty marshals allows him to deliver a devastating blow to the confidence of many economists that capitalism is a tide that gradually lifts all boats. In the process, he mounts an effective critique of the tendency of economic writers on both left and right to rely on theories and formal systems. Many who were content to ignore the warnings of Harvey and company that our economic system will produce unsustainable levels of inequity find that they cannot ignore Piketty’s.

Intellectuals of all political stripes are using the Piketty phenomenon to project and define their own economic positions. In this context, the tragedy of the Marxists’ Piketty envy is the loss of a golden opportunity to mark the crucial difference between Marxist radicalism and the reformist liberalism of Piketty or Paul Krugman (though Krugman emphasizes the gap in wages over that in family capital holdings).

Writers like Harvey and Kunkel defend against Piketty the wrong part of their radical heritage. After the complaint that Piketty simply repeats Marx, the most common objection by radicals is that Piketty describes inequality without explaining it. This charge is so common that Zachary B. Levenson, a doctoral candidate in sociology at the University of California at Berkeley, has satirized it in a brief Jacobin article, "How to Write a Marxist Critique of Thomas Piketty Without Actually Reading the Book." Point 5 states: "OK, inequality. But then point out that he doesn’t explain it!" Clearly Harvey and Kunkel have read Capital in the 21st Century. But their critique hinges on its supposed explanation deficit. Piketty expresses the mechanism of inexorably increasing inequality with the formula R > G: The rate of return to capital exceeds income growth. Harvey writes: "But a statistical regularity of this sort hardly constitutes an adequate explanation, let alone a law. So what forces produce and sustain such a contradiction? Piketty does not say."

Marx, Kunkel points out, does explain capitalism’s contradiction. In search of profits, owners squeeze increasing productivity out of labor, which enables them to make do with fewer workers. But since profit depends on "the gap between what labor contributes to production and what it receives as income," this process leads to a falling rate of profit. The result is an immiserated mass of workers, stockpiles of unsold goods, and economic and social catastrophe. As Kunkel writes: "In formal terms, Marx’s theory is clearly superior. It proposes a genuine contradiction—capital accumulation undermines itself—and entails a mechanism specific to capitalism: the drive for profits through the exploitation of wage labor."

All things being equal, we prefer a theory that explains more of the world to one that explains less. But all things are not equal. We also want a theory that is robustly supported by evidence. In terms of how much of the world it explains, creationism is clearly superior to evolution. Puzzles and problems that confront evolutionists simply don’t exist for the creationist. We prefer evolution, not because it explains more, but because it is better supported by the available evidence. Piketty’s reluctance to advance explanations that go beyond what his data will support is not a flaw, but a feature.

Continued in article

Although the current drought in California is really bad, it is not the worst in history for California
 "California hasn't had a drought this bad since at least 1895," by Brand Plummer, Vox, August 15, 2014 ---

"Unemployed by ObamaCare:  Three new Fed surveys highlight damage to the labor market," The Wall Street Journal, August 21, 2014 ---

"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

Jensen Comment
What stands in the way of cutting health care cost in the USA relative to other nations. My answer to this is:

  • Lawyers who have found a gold mine in malpractice insurance (often fraudulent) lawsuits. Physicians and hospitals pay ten or more times as much in the USA for malpractice insurance than health providers in other nations. In part this is why the USA has 80?% more lawyers than other nations.
  • Relatives of terminally ill patients who refuse to sign off on dying patients as long as third-party providers (e.g., Medicare and Medicaid) pay all the enormous expenses of keeping dying people alive in hospitals.|
    The Cost of Dying," CBS Sixty Minutes Video, November 22, 2009 ---
    All other nations are more sensible about costs and benefits of temporarily extending life at massive costs.
  • Medical care providers who fear making mistakes (for whatever reason) and over prescribe diagnostic and treatment tests and medications. The USA also spends much more than other nations on keeping premature babies alive.

The article below focuses on the medical care providers.

"What Really Stands in the Way of Cutting Health Care Costs?" Knowledge@Wharton, July 31, 2014 ---

"A Medicare scam that just kept rolling: The government has paid billions to buy power wheelchairs. It has no idea how many of the claims are bogus," The Washington Post, August 16, 2014 ---

LOS ANGELES — In the little office where they ran the scam, a cellphone would ring on Sonia Bonilla’s desk. That was the sound of good news: Somebody had found them a patient.

When Bonilla answered the phone, one of the scam’s professional “patient recruiters” would read off the personal data of a senior citizen. Name. DOB. Medicare ID number. Bonilla would hang up and call Medicare, the enormous federal health-insurance program for those over 65.



Fourth in a series examining the failures at the heart of troubled federal systems.

She asked a single question: Had the government ever bought this patient a power wheelchair?

No? Then the scam was off and running.

“If they did not have one, they would be taken to the doctor, so the doctor could prescribe a chair for them,” Bonilla recalled. On a log sheet, Bonilla would make a note that the recruiter was owed an $800 finder’s fee. “They were paid for each chair.”

This summer, in a Los Angeles courtroom, Bonilla described the workings of a peculiar fraud scheme that — starting in the mid-1990s — became one of the great success stories in American crime.

The sucker in this scheme was the U.S. government. That wasn’t the peculiar part.

The tool of the crime was the motorized wheelchair.

The wheelchair scam was designed to exploit blind spots in Medicare, which often pays insurance claims without checking them first. Criminals disguised themselves as medical-supply companies. They ginned up bogus bills, saying they’d provided expensive wheelchairs to Medicare patients — who, in reality, didn’t need wheelchairs at all. Then the scammers asked Medicare to pay them back, so they could pocket the huge markup that the government paid on each chair.

A lot of the time, Medicare was fooled. The government paid.

Since 1999, Medicare has spent $8.2 billion to procure power wheelchairs and “scooters” for 2.7 million people. Today, the government cannot even guess at how much of that money was paid out to scammers.

Now, the golden age of the wheelchair scam is probably over.

But, while it lasted, the scam illuminated a critical failure point in the federal bureaucracy: Medicare’s weak defenses against fraud. The government knew how the wheelchair scheme worked in 1998. But it wasn’t until 15 years later that officials finally did enough to significantly curb the practice.

“If you play it right, you can make a lot of money quickly, stealing from Medicare,” said James Quiggle, of the nonprofit Coalition Against Insurance Fraud, recounting the lesson of the past decade and a half. “You can walk into the United States, with limited English skills, no knowledge of medicine, and — if you hook up with the right people, that know how to play the system like a Stradivarius — you can become an overnight millionaire.” Video: How to scam Medicare in 4 easy steps

‘I said I didn’t need it’

In the courtroom in Los Angeles, 42-year-old Olufunke Fadojutimi was on trial. Prosecutors alleged she’d run a wheelchair-scam operation out of an office-park suite in suburban Carson, Calif.

As these scams go, this one was medium-sized. It billed Medicare for about 1,000 power wheelchairs.

“I said I didn’t need it,” witness Heriberto Cortez, 73, testified on the stand. Cortez was recalling the day when a stranger — allegedly one of Fadojutimi’s patient recruiters — came to his house and offered him a wheelchair. He said no. She didn’t listen.

“She insisted,” Cortez said. “She said that they were giving the chairs away.”

Later in the trial, 71-year-old Rodolfo Fernandez testified that a woman showed up at his house in Los Angeles. The woman asked if he was on Medicare. He was.

The next day, she came back with a van. Other seniors were already inside.

“They took us to a clinic. They did an exam on us,” Fernandez recalled, translated speaking through a Spanish interpreter.

Authorities said the doctor at this clinic was in on the scam, too. He was paid to find the same problems, every time. The patient was too weak to use a cane. Or a walker. Or even a non-motorized wheelchair. Only a motorized wheelchair would do. Instead of making lame men walk, the doctor’s job was to make walking men lame — at least on paper. A surge in power wheelchairs and scooters paid for by Medicare

Since 1999, Medicare has spent $8.2 billion to procure power wheelchairs and scooters for 2.7 million people. Today, the federal government does not know how much of that money was actually paid to scammers.

Source: U.S. Centers for Medicare and Medicaid Services

In his testimony, Fernandez noted that the clinic was in a second-floor walk-up.

“I had to climb the stairs,” Fernandez said, in order for the doctor to proclaim him unfit to climb stairs.

After seeing the doctor, prosecutors said, both Cortez and Fernandez got power wheelchairs from Fadojutimi’s company. The company then sent Medicare the bills. Medicare paid.

Today, Cortez’s wheelchair sits in his garage, still wrapped in plastic from the factory. Fernandez’s wheelchair is occupied by an enormous stuffed animal wearing a Los Angeles Lakers hat.

“I put my little teddy bear on top of it,” Fernandez said, as jurors smiled at a photo of the bear in the chair. An overwhelmed system

Fraud in Medicare has been a top concern in Washington for decades, in part because the program’s mistakes are so expensive. In fiscal 2013, for instance, Medicare paid out almost $50 billion in “improper payments.” These were bills that, upon further reflection, contained mistakes and should not have been paid.

No one knows how much of that money was actually lost to fraud, and how much of it was caused by innocent errors.

The power-wheelchair scam provided a painful and expensive example of why Medicare fraud works so often. The fault lay partly with Congress, which designed this system to be fast and generous. And it lay partly with Medicare bureaucrats — who were slow to recognize the threat and use the powers they had to stop it. As a result, scammers took advantage of a system that was overwhelmed by its own claims and lacked the manpower and money to check most of those claims before it paid.

The scheme first appeared in the mid-1990s in Miami — a city whose mix of elderly people and professional scammers has always made it the DARPA of Medicare fraud, where bad ideas begin.

“The patients would be walking,” said one former Justice Department official, recalling investigations from that time. “And they’d have the wheelchair, a $2,500 wheelchair, sitting in the corner with stacks of [stuff] on it. And [investigators] would say, ‘Why do you have this?’ And they would say, ‘They told me I could have this, so I took it.’ ”

Fraudsters, they were learning, had invented a new twist on an old trick: the Medicare equipment scam.

The original equipment scam had sprung up in the 1970s, at a time when Medicare was young and criminals were still learning how to steal its money. Doctors, for example, could bill Medicare for exams they didn’t do. Hospitals could bill for tests that patients didn’t need.

The equipment scam was the poor man’s way in, an entry-level fraud that didn’t require a medical degree or a hospital.

Instead, the crooks only had to set up a “medical equipment” company and get access to the Medicare system. Then, they needed to learn a simple scheme, in which the fraudster would run the normal order of medical decision-making in reverse.

A legitimate medical-supply company, of course, must wait for a patient to see a doctor, then come looking for somebody to fill a prescription. But a fraudster starts with a prescription he wants to fill.

Then he goes looking for a patient and a doctor to foist it on.

By the 1990s, fraudsters had already perfected parts of this equipment scam. To find the patients, for instance, they had learned to use professional recruiters, called “marketers” or “cappers.”

These recruiters induced seniors to hand over their Medicare ID numbers. Sometimes, they just paid the patients a bribe. Other times, they talked them into giving the number up free. The government is offering free wheelchairs, but only for a limited time. If you don’t act now . . .

Most fraudsters had also learned to buy off a doctor or two, paying a set price for each bogus prescription. But some had also perfected a cheaper method.

They corrupted dead doctors instead.

“The Russian mob up in Brooklyn has been doing this for years. . . . They scour the obits. They find out when Doctor Morris has died. They immediately write to Medicare and they say, ‘Hi, I’m Doctor Morris, and I’m changing my address,' ” said Lewis Morris, a former top official at the Department of Health and Human Services’ office of the inspector general.

If it works, the dead doctor’s mail is delivered to the live crook. Including paperwork with the doctor’s Medicare ID number. “So the new Doctor Morris, Sammy Scumbag, starts writing scrip in the name of Doctor Morris,” Morris said. Recent reforms have lessened this problem.

The payoff of this whole scheme came when a scammer sent Medicare a bill. The bill would say that the bought-off doctor had prescribed some piece of equipment to the bought-off (or hoodwinked) patient.

The fraudster would say that he had supplied that thing. Now, he wanted Medicare to pay its share — usually, 80 percent of the price tag.

But what was the best kind of equipment to use?

Continued in article

Bob Jensen's Fraud Updates --- http://www.trinity.edu/rjensen/FraudUpdates.htm

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

We're old enough to remember when advocates for the Affordable Care Act promised that it would "bend the cost curve" and reduce expensive hospital visits, particularly at emergency rooms. So far, the opposite is occurring.
James Freeman, "There Goes Another ObamaCare Argument," WSJ, August 6, 2014 ---

"A Simple Theory for Why School and Health Costs Are So Much Higher in the U.S.," by Andrew O’Connell, Harvard Business Review Blog, April 7, 2014 ---

Jensen Comment
One reason higher education costs more in the USA is that more attempts are made to bring college education to everybody with nearby physical campuses such as community colleges and online degree programs from major universities. In Europe and most other parts of the world higher education is available only to a much smaller portion of the population. In Germany, for example, less than 25% of young graduates are admitted to college and opportunities for adult college education are much more limited than in the USA. Those other nations, however, often offer greater opportunities for learning a trade that does not require a college education.

There are many reasons health care costs more in the USA. One reason is that the USA is the world leader in medical and medication research. Another reason is that the USA imposes a costly private sector insurance intermediary where other nations offer insurance from a more efficient public sector.

Still another reason is that malpractice lawsuits are a legal punitive damages lottery in most parts of the USA such that hospitals and physicians must pay ten or more times as much for malpractice insurance relative to nations like Canada that restrict malpractice to actual damages only, leaving out the lottery for lawyers.

Still another reason is that the USA keeps extremely premature babies alive that other nations throw away. Even more expense if what Medicare spends on keeping people hopelessly and artificially alive, dying people that other nations let slip away without all the very costly artificial life extensions.

On November 22, 2009 CBS Sixty Minutes aired a video featuring experts (including physicians) explaining how the single largest drain on the Medicare insurance fund is keeping dying people hopelessly alive who could otherwise be allowed to die quicker and painlessly without artificially prolonging life on ICU machines.
"The Cost of Dying," CBS Sixty Minutes Video, November 22, 2009 ---

National Bureau of Economic Research: Bulletin on Aging and Health --- http://www.nber.org/aginghealth/

Leading ACA Act Blogs ---



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



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/