Tidbits Quotations
To Accompany the April 14, 2015 edition of Tidbits
Bob Jensen at Trinity University

Only those who will risk going too far can possibly find out how far one can go.
T.S. Eliot

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

Happiness is like a butterfly: the more you chase it, the more it will elude you, but if you turn your attention to other things, it will come and sit softly on your shoulder.
Henry David Thoreau

I think the death penalty is ultimately what he (Tsarnaev) wants.
A Recovering Boston Terror Bombing  Victim --- http://news.yahoo.com/rebekah-gregory-tsarnaev-verdict-boston-marathon-bombing-trial-145427971.html
The 1995 Oklahoma City bomber not only wanted death he made it possible to speed up his own execution ---

In my opinion the pending USA (and allies) nuclear arms agreement beats the alternatives. It's a start toward a ground swell in Iran to change its underwriting of terrorism and intent to destroy Israel. It's not a great deal, but what's a better alternative? Bombing Iran? That will only make matters worse.
Bob Jensen
See http://news.yahoo.com/iran-world-powers-reach-initial-deal-reining-tehrans-000813104.html
However, two former USA Secretaries of State have some other ideas
See below

More than 25,000 foreign fighters joining Islamists
United Nations --- http://news.yahoo.com/more-25-000-foreign-fighters-joining-islamists-un-192803225.html
Jensen Comment
Food and water may be their biggest problems when joining up in such numbers
Purportedly, half the foreign fighters joining ISIS from Europe are from France

Army Refuses Vet Benefits To Rape Victim ---

The Ted Kennedy Shrine Cost Taxpayers $38 Million ---
Should have been placed at

Politicians should carry themselves more like Kennedy (Teddy, not RFK or JFK!) ---
Barack Obama --- http://www.msn.com/en-us/news/politics/obama-politicians-should-carry-themselves-more-like-kennedy/ar-AAabT4R
I would have preferred that they would save their trapped and drowning passengers rather than swim away from the scene

Welfare recipients (in Kansas) would be barred from spending benefits at liquor stores, pools and cruises ---
Ha! Ha! Try enforcing this one.

California's Governor Jerry Brown made clear his disdain for job growth in 1995 when he remarked, “The conventional viewpoint says we need a jobs program and we need to cut welfare. Just the opposite! We need more welfare and fewer jobs.” He added, “Jobs for every American is doomed to failure because of modern automation and production.”

We'd rather be obese on benefits than thin and working.
Janice and Amber Manzur

Moocher Hall of Fame --- https://danieljmitchell.wordpress.com/the-moocher-hall-of-fame/

Horrific charts show how fast California is losing its water ---

California’s urban areas are responsible for only 10 percent of the state’s water use. Even as the cities have grown, urban per-capita consumption has declined, from 232 gallons per day in 1990 to 178 gallons per day in 2010. As a result, the cities’ total water use has been relatively stable. Instead, the thirstiest sector of the state is the agricultural industry, which makes up 40 percent of water usage. If you set aside the 50 percent of California’s water that’s reserved for environmental use (maintaining wetlands, rivers, and other parts of the state’s ecosystem), agriculture uses 80 percent of the remaining water dedicated directly or indirectly for human uses.
Leah Libresco, California Chases Easiest Water Savings, Not Biggest ---

My Somewhat Personal Story About the Horrible Drought in California

The purpose of this tidbit is to write about one of California's initiatives to conserve water in agriculture.

Our son Mike is a tax accountant about 35 miles north of Sacramento in Yuba City. His beautiful wife Rene is the mother of their four children and part owner of a family farm along with her two sisters, four brothers, their widowed mother. The sons manage this 5,000+ farm/ranch that mainly produces rice. But there are some other crops like juicing tomatoes and safflower.

Nearby orchards include highly productive trees for such things as walnuts, almonds, apricots, oranges, lemons, etc. Not far away are the thirsty vineyards in the Napa Valley wine country. Incidentally, quite a few of the orchard owners are Sikh immigrants from India. Mike does a lot of tax accounting for these Sikhs.

Farms and orchards in this part of California are irrigated by wells and a network of canals that are usually abundantly replenished with snow melt in the Sierra Nevada mountain range ---
This year and in several preceding years this snow melt is down over 75%.

Rene's family farm does not have orchards. Therefore, to conserve water for orchards the State of California is paying the family not to raise any crops this year. This policy does not work well for orchards because trees that take upwards of 30 years to mature will die if they are not irrigated. Hence, orchard owners are allowed to dig deeper and deeper wells until the wells eventually will probably grow dry. If and when this will happen is unknown by experts at this point in time.

To add to the tragedy of not growing crops on Rene's family farm there are serious externalities. Embedded in this huge farm is a small town (Robbins) made up of mostly Hispanic workers who both maintain and operate all of the equipment used on the farm such as Caterpillar tractors, 18-wheel tractor trailers, and over 20 enormous combines for the rice, tomatoes, and safflower. Most of those Hispanic families are now trying to get by on welfare since there is very little work left on the farm.

Our son David also lives near Yuba City with his wife and four children. He's employed by what I think is the largest multi-state Caterpillar dealer in the world. The dealership is hurting badly by the cutbacks in farming in California. There is not much in the way of farm equipment new sales and service revenues from idle farms. What saves David's job thus far are sales to companies that build and maintain roads and bridges. How long can this go on in a state where tax revenues will eventually dry up as well?

You can imagine that with the decline in employment on these farms that other businesses in the region will feel the adverse economic effects of idle farm workers and idle farms. Before she had children, Rene was the manager of an agricultural chemical dealership in Yuba City. This dealership and others like it are hit hard by idle farms.

Most of the rice in California is exported to Asia. Hence, the price of rice in our supermarkets may not be severe since most of our rice is grown elsewhere in the USA. But the cutback in California rice exports will adversely affect the USA balance of trade.

The enormous problem looming is that south of Sacramento over 60% of the USA's perishable fruits and vegetables are grown. In most instances these farmers are still allowed to dig deeper and deeper wells for irrigation water to make up for lost from reservoirs that are drying up. There's an unknown limit to how long deeper wells will survive. Eventually, some produce in our grocery stores may be much more expensive than our porterhouse steaks.

In anticipation of increasing demand for local organic farm produce up here in the New Hampshire mountains, the son, Alex, of one of our best friends up here quit his high tech computer job and is in Hawaii on an organic farm internship. In anticipation of the rising prices of fruits (think apples) and vegetables up here he hopes to start an organic farm in these White Mountains.  Last summer he worked on a rapidly growing organic farm called the Ski Hearth farm about four miles down the road from our cottage ---

It will be sad when Alex fills his first produce order to ship via FedEx to California.

If there is no drought relief soon for California it will be a game changer for the entire USA.

The real villain in the California drought isn't almonds — it's red meat ---

As far as financial reporting goes drought risks for business firms are mostly covered by accounting rules for contingency liabilities and risks. This is one of the most important and most poorly covered parts of accountancy theory and practice. Bob Jensen's threads on contingencies in accountancy are at

"Kissinger and Shultz: What a Final Iran Deal Must Do," by Henry A. Kissinger And George P. Shultz, The Wall Street Journal, December 2, 2013 ---

As former secretaries of state, we have confronted the existential issue of nuclear weapons and negotiated with adversaries in attempts to reduce nuclear perils. We sympathize with the current administration's quest to resolve the Iranian nuclear standoff through diplomacy. We write this article to outline the options as we see them emerging from the interim agreement for a policy based on the principle of "trust and verify."

For two decades, American presidents from both parties have affirmed that the U.S. is unalterably opposed to an Iranian military nuclear capability. They have usually added a warning to the effect that "all options are on the table" in pursuit of this policy. A clear trans-Atlantic consensus, a decade of International Atomic Energy Agency (IAEA) reports and six United Nations Security Council resolutions have buttressed this position.

The interim nuclear deal with Iran has been described as the first step toward the elimination of Iran's ability to build a nuclear weapon. That hope resides, if at all, in the prospects of the next round of negotiations envisaged to produce a final outcome within six months. Standing by itself, the interim agreement leaves Iran, hopefully only temporarily, in the position of a nuclear threshold power—a country that can achieve a military nuclear capability within months of its choosing to do so. A final agreement leaving this threshold capacity unimpaired would institutionalize the Iranian nuclear threat, with profound consequences for global nonproliferation policy and the stability of the Middle East.

For 35 years and continuing today, Iran has been advocating an anti-Western concept of world order, waging proxy wars against America and its allies in Lebanon, Syria, Iraq and beyond, and arming and training sectarian extremists throughout the Muslim world. During that time, Iran has defied unambiguous U.N. and IAEA demands and proceeded with a major nuclear effort, incompatible with any exclusively civilian purpose, and in violation of its obligations under the Non-Proliferation Treaty in effect since 1970. If the ruling group in Iran is genuinely prepared to enter into cooperative relations with the United States and the rest of the world, the U.S. should welcome and encourage that shift. But progress should be judged by a change of program, not of tone.

The heart of the problem is Iran's construction of a massive nuclear infrastructure and stockpile of enriched uranium far out of proportion to any plausible civilian energy-production rationale. Iran amassed the majority of this capacity—including 19,000 centrifuges, more than seven tons of 3.5%- to 5%-enriched uranium, a smaller stock (about 196 kilograms) of 20%-enriched uranium, and a partly built heavy-water reactor that will be capable of producing plutonium—in direct violation of IAEA and Security Council resolutions.

Efforts to resolve this issue through negotiation have a long pedigree. They began in 2003, after the revelation that Iran had been secretly constructing a uranium-enrichment facility at Natanz and a heavy-water reactor at Arak. They have continued on and off in different permutations, with the Geneva negotiations the most recent and fullest expression.

The record of this decade-plus negotiating effort combines steadily advancing Iranian nuclear capabilities with gradually receding international demands. A negotiation begun by the EU-3 (Britain, France and Germany, with the backing of the U.S.) started from the position that, in light of Iran's record of nondisclosure of nuclear matters and its noncompliance with U.N. resolutions, any Iranian uranium enrichment or plutonium-production capability was unacceptable. Following the revelation of the Natanz and Arak facilities, the IAEA board of governors adopted a 2003 resolution expressing "grave concern" and calling on Iran to "suspend all further uranium enrichment-related activities" and "any reprocessing activities." The resolution called it "essential and urgent" for Iran to provide unrestricted access to IAEA inspectors, and requested that Iran "promptly and unconditionally sign, ratify and fully implement" an additional protocol to its Non-Proliferation Treaty safeguards.

Nearly every year since then, the Western powers—first through the EU-3 and then through the P5+1 (the permanent members of the Security Council, including China and Russia, plus Germany)—offered Iran diplomatic and technical inducements to take account of Iran's announced aspiration to become a technologically advanced country. These countries put forward programs of technical assistance and nuclear fuel for a verifiably civilian Iranian nuclear program.

Iran rejected the proposals and accelerated its nuclear efforts. It periodically engaged in talks but never dismantled any aspect of its enrichment infrastructure or growing stockpile of fissile material. Six U.N. Security Council resolutions passed in 2006, 2007, 2008 and 2010 condemned Iran's defiance and imposed sanctions, demanding an unconditional halt to nuclear enrichment.

The interim agreement reached on Nov. 24, though described by all sides as temporary, thus represents a crucial test of whether the seemingly inexorable progress to an Iranian military nuclear capability can be reversed. In exchange for an estimated $8 billion in sanctions relief, Iran will freeze for six months its existing nuclear program and stockpile, but through an unusually circuitous mechanism that reflects its determination to continue to enrich.

Iran has been permitted during the interim agreement to continue to add to its existing stockpile of seven tons of 3.5%- to 5%-enriched uranium with the proviso that this stockpile must be reduced again to its original level by the end of six months. (This means that Iran retains the additional enriched material throughout most of the agreement, adding to its leverage in the follow-up negotiations.) Iran has agreed to "neutralize" its small stockpile of 20%-enriched uranium by converting it to an oxide by the end of the agreement, though Iran retains the technical capability to enrich an equivalent stockpile at a later date. Progress on a heavy-water reactor and plutonium-reprocessing facility at Arak has been paused, though it appears that ancillary work on the site will continue. Daily inspections are stipulated to verify Iran's compliance while the interim deal is in force.

A modest benefit of the Geneva agreement is that it achieves, albeit temporarily, a small lengthening of the "breakout" time Iran would need to construct a nuclear weapon by several weeks, as described by administration spokesmen. American diplomacy in the next phase will need to grapple with the challenge that this gain has come at the price of a subtle but fundamental change in the conceptual basis of the nuclear standoff.

Until now, the U.N. resolutions and IAEA directives have demanded an immediate halt to all activities related to uranium enrichment and plutonium production, and unconditional compliance with an IAEA inspections regime as a matter of right. Under the interim agreement, Iranian conduct that was previously condemned as illegal and illegitimate has effectively been recognized as a baseline, including an acceptance of Iran's continued enrichment of uranium (to 5%) during the agreement period. And that baseline program is of strategic significance. For Iran's stockpile of low-enriched uranium is coupled with an infrastructure sufficient to enrich it within a few months to weapons-grade, as well as a plausible route to producing weapons-grade plutonium in the installation now being built at Arak.

Not surprisingly, the Iranian negotiator, upon his return to Tehran, described the agreement as giving Iran its long-claimed right to enrich and, in effect, eliminating the American threat of using force as a last resort.

In these circumstances, the major American negotiating leverage—the threatened reimposition and strengthening of sanctions—risks losing its edge. For individuals, companies and countries (including some allied countries), the loss of business with Iran has been economically significant. Most will be less vigilant about enforcing or abiding by sanctions that are the subject of negotiations and that seem to be "on the way out." This risk will be enhanced if the impression takes hold that the U.S. has already decided to reorient its Middle East policy toward rapprochement with Iran. The temptation will be to move first, to avoid being the last party to restore or build trade, investment and political ties.

Therefore, too, the proposition that a series of interim agreements balancing nuclear constraints against tranches of sanctions relief is almost certainly impractical. Another tranche would spell the end of the sanctions regime. It will need to be part of a final agreement.

The danger of the present dynamic is that it threatens the outcome of Iran as a threshold nuclear weapons state. If the six-month "freeze" period secured in Geneva is to be something other than a tactical pause on Iran's march toward a military nuclear capability, Iran's technical ability to construct a nuclear weapon must be meaningfully curtailed in the next stipulated negotiation through a strategically significant reduction in the number of centrifuges, restrictions on its installation of advanced centrifuges, and a foreclosure of its route toward a plutonium-production capability. Activity must be limited to a plausible civilian program subject to comprehensive monitoring as required by the Non-Proliferation Treaty.

Any final deal must ensure the world's ability to detect a move toward a nuclear breakout, lengthen the world's time to react, and underscore its determination to do so. The preservation of the global nuclear nonproliferation regime and the avoidance of a Middle East nuclear-arms race hang in the balance.

American diplomacy now has three major tasks: to define a level of Iranian nuclear capacity limited to plausible civilian uses and to achieve safeguards to ensure that this level is not exceeded; to leave open the possibility of a genuinely constructive relationship with Iran; and to design a Middle East policy adjusted to new circumstances.

Some adjustments are inherent in the inevitable process of historic evolution. But we must avoid an outcome in which Iran, freed from an onerous sanctions regime, emerges as a de facto nuclear power leading an Islamist camp, while traditional allies lose confidence in the credibility of American commitments and follow the Iranian model toward a nuclear-weapons capability, if only to balance it.

The next six months of diplomacy will be decisive in determining whether the Geneva agreement opens the door to a potential diplomatic breakthrough or to ratifying a major strategic setback. We should be open to the possibility of pursing an agenda of long-term cooperation. But not without Iran dismantling or mothballing a strategically significant portion of its nuclear infrastructure.

Mr. Kissinger is a former U.S. secretary of state (1973-77); Mr. Shultz is a former U.S. secretary of state (1982-89).


Unraveling the Benghazi Tragedy

With a distinguished military career behind him, retired lieutenant general Dana Chipman, JD '86, formerly the Army's highest-ranking legal officer, has returned to service on a different sort of battleground: trying to unravel the politically fraught Benghazi tragedy. The partisan divides surrounding the issue are deep, but Chipman says his allegiance is to truth.

Stanford University --- https://alumni.stanford.edu/get/page/magazine/article/?article_id=77276


"Elizabeth Warren explains the real way corruption in Washington works," by Matthew Yglesias, Vox, April 10, 2015 ---

Elizabeth Warren appeared last night on The Daily Show and talked with Jon Stewart not about policy specifics but about the general phenomenon of corruption in Washington. In doing so, she got off a good zinger about how the system works "to make sure that the tender fannies of the rich and the powerful are always carefully protected."

But she also laid out a sophisticated understanding of the real way power and money intersect. It's not primarily about quid pro quo cash for favors. It's about whose voices get heard and what issues end up on the agenda. "The wind only blows from one direction," Warren said. "It only blows from the direction of those who have money." Yes, campaign contributions matter. But big interests have "invested in other ways," too. They've invested in paying attention to what happens and to having their agents show up constantly and make noise. Consequently, the concerns of the rich and powerful are present in "every rule that's written, in every conversation, in every discussion."

Warren's perspective on this is supported by my favorite book about influence peddling — Lobbying and Policy Change: Who Wins, Who Loses, and Why.

The authors show two things. One is that it's not true that the richest interest group always wins. Better-financed groups lose to less-financed groups all the time in DC. One big reason for that is that the American system is simply set up to make change very difficult. What normally happens is that the status quo wins, not necessarily the richer side.

But money does matter. Money matters because you have absolutely no chance of winning unless you can get on the agenda, and you can't get on the agenda unless you have money to spend. An ultra-rich interest group can be defeated by a merely rich interest group, but unless you can show up on Capitol Hill with some kind of sack of cash you can't get your voice heard at all.

Continued in article

Jensen Comment

The "powerful" are generally  groups more than rich individuals. And power is often reflected in numbers rather than wealth. Exhibit A is how the teachers' unions own the Department of Education. Unions are powerful more in their numbers than in their bankroll.

Senator Warren is talking more about finance and banking lobbies than she is lobbying of other agencies where political power is based more on numbers than money, e.g., how environmentalists tend to sway the EPA and unions tend to sway the NLRB. And Senator Warren conveniently overlooks the way liberals like her are eroding the profitability of banking. Exhibit A is how GE is shedding its GE Capital finance and banking subsidiary. And how some mortgage lending companies are on the verge of gigantic bankruptcies.

The NRA has enormous power in Congress beyond its wealth as an organization. The reason is in the political power of the numbers of voters that it influences.

There is also a tremendous amount of power still held by the biases of the White House. For example, in its appointments to the head certain governmental agencies the White House tends to bias those agencies such as the way the Department of Justice tends to treat incidents involving African Americans such in not prosecuting the Black Panthers for voter intimidation. It took a lot of media attention for the IRS to finally apologize for illegally intimidating Tea Party political fund raisers.

Being powerful in Washington takes a whole lot more than money, but money certainly does talk.

How to Mislead With Statistics:  The Consumer Price Index

Moral Hazard --- http://en.wikipedia.org/wiki/Moral_hazard

Consumer Price Index --- http://en.wikipedia.org/wiki/Consumer_price_index

. . .


It is apparent that much of the muddle in discussing the merits of the different approaches arises from the promiscuous mixing up of arguments about feasibility, about dislike or approval of the way the index would move under a particular approach and about principles of various, often incompatible, sorts. Feasibility is naturally important. The difficulty of dealing with site values is obvious.

Statisticians in a country lacking a good dwelling price index (which is required for all except the rental equivalent method) will go along with a proposal to use such an index only if they can obtain the necessary additional resources that will enable them to compile one. Even obtaining mortgage interest rate data can be a major task in a country with a multitude of mortgage lenders and many types of mortgage. Dislike of the effect upon the behaviour of the Consumer Price Index arising from the adoption of some methods can be a powerful, if sometimes unprincipled, argument.

Dwelling prices are volatile and so, therefore, would be an index incorporating the current value of a dwelling price sub-index which, in some countries, would have a large weight under the third approach. Furthermore, the weight for owner-occupied dwellings could be altered considerably when reweighting was undertaken. (It could even become negative under the alternative cost approach if weights were estimated for a year during which house prices had been rising steeply).

Then, there is the point that a rise in interest rates designed to halt inflation could paradoxically make inflation appear higher if current interest rates showed up in the index. Economists' principles are not acceptable to all; nor is insistence upon consistency between the treatment of owner-occupied dwellings and other durables.


Much would be gained if two sets of problems were distinguished.*

What is the Consumer Price Index to measure? How can that be achieved?

Another way of putting this is to distinguish:

What is the question that should be answered? This is a matter for policy makers and other users of the Consumer Price Index. How can it best be answered? This is a matter for the statisticians.

The three approaches should not be regarded as rivals, they are different answers to different questions. One, or possibly more, should be chosen. The three questions can be formulated as follows:

Opportunity cost. What is the change through time in what would be the opportunity cost of the reference-period consumption of the services of owner-occupied dwellings? Spending. What is the change through time in the cash outlays that would correspond to the reference-period cash outlays in respect of owner-occupied dwellings? Transactions. What is the change through time in what would be the purchase value of the reference-period net acquisition of owner-occupied dwellings by consumers?

Which question is to be answered is, as just stated, a policy matter, depending upon the purposes the index is to serve. It is not an issue for statisticians to decide. Their job is the technical, professional one of compiling one or more indexes that answer the selected question or questions as well as possible, given the resources at their disposal. In a perfect world this is how the owner-occupied dwellings issue would be resolved. But the world is not perfect

Continued in Article


No one really denies that the CPI, as presently calculated, understates the rate of inflation
Why the Consumer Price Index (CPI) is a Flawed Measure of Cost of Living
It's largely due to moral hazard caused by government's incentives to understate inflation and cash flow increases in things like Social Security

"Deconstructing ShadowStats. Why is it so Loved by its Followers but Scorned by Economists?" by Ed Dolan, Econ Monitor, March 31, 2015 ---

It is hard to think of a website so loved by its followers and so scorned by economists as John Williams’ ShadowStats, a widely cited source of alternative economic data on inflation and other economic indicators. Any econ blogger who has ever written a line about inflation is familiar with ShadowStats. Time and again, readers cite it in comments, not infrequently paranoid in their tone and rude in their language. Brief replies that cast doubt on some of more extreme claims made by ShadowStats fans don’t seem to have much effect. After a recent round of comments, I promised the editor of one website to undertake a thorough deconstruction of ShadownStats. Here is the result.

What ShadowStats Gets Right: The CPI is a Flawed Measure of the Cost of Living

ShadowStats is Williams’ attempt to provide an alternative to the official consumer price index (CPI), which he views as a flawed measure of what members of the general public have in mind when they think of the cost of living. Let me start by saying that although I share the skepticism of many economists about the specific numbers published on ShadowStats, I agree that the official data do not tell the whole story. I support Williams’ attempt to provide an alternative to the official consumer price index that more closely reflects pubic perceptions of inflation.  Here, in his own words, is how Williams explains his undertaing:

In the last 30 years, a growing gap has been obvious between government reporting of inflation, as measured by the consumer price index (CPI), and the perceptions of actual inflation held by the general public.  Anecdotal evidence and occasional surveys have indicated that the general public believes inflation is running well above official reporting . . .

Measurement of consumer inflation traditionally reflected assessing the cost of maintaining a constant standard of living, as measured by a fixed-basket of goods. Maintaining a constant standard of living, however, is a concept not popular in current economic literature, and certainly not within the thinking or the lexicon of the Bureau of Labor Statistics (BLS), the government’s statistical agency that estimates and reports on consumer inflation. . . Individuals look to the government’s CPI as a measure of the cost of maintaining a constant standard of living, as well as measuring that cost of living in terms of out-of-pocket expenses.  Without meeting those parameters, an inflation measure has limited, if any, use for an individual.

Williams is right about the gap between public perceptions of inflation and official indicators. As a recent series of posts on inflation expectations on the Atlanta Fed’s Macroblog noted, “Inflation surveys of households reveal a remarkably wide range of opinion on future inflation compared to those of professional forecasters. Really, really wide.” According to Macroblog, household expectations of inflation for the coming year consistently average two percentage points higher than those of professional forecasters, and some 13 percent of household respondents report inflation expectations of 10 percent or higher even at a time when professional forecasts fall short of 2 percent.

In technical terminology, we refer to a cost of living index based on the changing cost of a fixed-proportion basket of goods that themselves remain unchanged over time as a Laspeyres index without quality adjustment. Williams is again correct when he says that the official CPI, following mainstream academic thinking, has gradually evolved away from the Laspeyres concept toward a measure of the cost of a changing basket of goods that gives equivalent satisfaction as the prices, quantities, and qualities of the goods that consumers buy change over time.

The substitution issue. One of Williams’ key objections to the CPI is that instead of holding the cost-of-living basket unchanged for long periods, the BLS allows for frequent changes in its composition. Some changes in the consumer market basket occur when goods like audio cassette players become technically obsolete and new goods like cell phones appear on the market, but those are not the ones that Williams takes issue with.

What he finds more objectionable are changes in composition of the market basket that stem directly from changes in prices, as, for example, when people eat more chicken because beef becomes unaffordably expensive. To many people, fiddling the market basket to give more weight to the goods whose prices increase least and less to those whose prices increase most sounds like cheating. They see it as if a teacher tried to impress a tenure committee with high test student scores by letting the smart kids take the test several times each while sending their slow-learning classmates home on testing day.

Mainstream economists have a standard response: If we did not account for changed consumption patterns in response to changed prices, they say, we would overstate the cost of maintaining a constant level of satisfaction. Consider an example. Last week you went to the supermarket and bought 5 pounds of chicken at $2 a pound and 5 pounds of steak at $5 a pound, $35 total. This week you go to the supermarket and find that chicken still costs $2 but steak has gone up to $10. There is no question that the new prices leave you worse off than you were the week before, but how do you react?

You would need $60 to buy the same basket of goods that you bought last week for $35. In reality, you might not have that $60 in your wallet or purse, but if I gave you a $60 coupon that you could spend only at the meat counter, you would probably not spend it on the same basket of goods you bought last week. Instead, you might buy, say, 10 pounds of chicken and 4 pounds of steak. However, since $60 would be enough to buy your previous selection if you wanted to, we could conclude that you would change the mix only if the new $60 selection gave you more satisfaction than the original one.

Experience shows that if you put a large number of consumers in this situation and average their behavior, they will shift their consumption toward chicken, even though some individuals might stick with the original mix. Those who did shift would be better off with $60 and the new prices than with $35 and the old prices, and the ones who don’t shift are no worse off. In that sense, $60 overstates the increase in income the average consumer would need to reach the same level of satisfaction as before the price change.

Your cost of living has gone up, and that hurts, but just how much has the increase in the price of steak raised your cost of living? By the ratio of 60/35, a 70 percent increase, or by less than that? It depends on what you mean by the cost of living. If you mean the cost of buying a fixed market basket (the popular conception), then the 70% is correct. If you mean the cost of maintaining a fixed level of satisfaction, then 70% is an overstatement.

The quality issue. In addition to adjusting the relative quantities of goods in the consumer market basket over time, the BLS adjusts the CPI for changes in the quality of goods. The rationale for doing so is that failure to account for quality improvements would cause a further overstatement of the increase in spending that needed to maintain a constant level of consumer satisfaction.

Consider tires for your car. In the old days, you were lucky if a set of bias-ply tires lasted 30,000 miles. Today, a decent set of radial tires will go 60,000 miles or more, and give you a better ride along the way. So, if the price of a set of tires has increased from $100 to $400, what has been the impact on your cost of living? If you calculate the cost per tire, without accounting for quality, tires are four times more expensive than they used to be. If you calculate the cost per mile, they are only twice as expensive.

Williams does not necessarily object to adjusting for quality changes when they are objectively measurable, like package size or the number of miles you get from a set of tires. However, he argues that the BLS exaggerates the importance of quality by making adjustments for changes that consumers don’t really care about. In one post, he uses the example of two computers, purchased ten years apart. Yes, the newer computer has many extra features—more memory, a faster processor, a sharper display, and so on, each of which is quantifiable. However, not all consumers care about the new features. If you just use your computer for e-mail and browsing the web, and not for running big financial spreadsheets or high-powered gaming, who cares about processor speed? The old model does the job just as well.

Other issues. Williams has a number of other criticisms of the CPI beyond the substitution and quality issues. In particular, he takes issue with the way the BLS measures housing prices and medical costs. Without going into detail, in both cases Williams favors an out-of-pocket approach to housing and medical costs as being more in tune with the general public’s concept of the cost of living. I think it is fair to say that mainstream economists agree that these two items, which loom large in household budgets, are particularly difficult to measure, although not everyone agrees with the way Williams would like to see them handled. I hope to deal with these issues in a future post, but this one will focus on the basics.

Where ShadowStats goes wrong: How great is the understatement?

No one really denies that the CPI, as presently calculated, understates the rate of inflation compared to a measure based on a fixed basket of unchanged goods. Rather, what many economists, myself included, find hard to accept is Williams’ estimate of the degree of understatement. The following chart, reproduced by permission and updated monthly on ShadowStats.com, claims that since the early 1980s, the CPI has been understating the true rate of inflation by an ever increasing margin that now amounts to some 7 percentage points.

Continued in article

Jensen Comment
It's amazing that labor unions have not had more power in Washington DC to reduce the understatement of inflation. Understating inflation greatly decreases union negotiating power for raising wages in the public and private sectors.

Note that the moral hazard of understating inflation affected the Obama years in the presidency, but President Obama certainly did not invent the strategy that for many years preceded his term of office.

Bob Jensen's threads on economic statistics ---

Misleading Statistics from the Government

"Obama Administration Exaggerates Enrollment In Critical Student Loan Plan As Borrowers Suffer," by Shahien Nasiripour, Huffington Post, April 7, 2015 ---

Misleading Inequality Index

April 11, 2015 message from Elliot Kamlet

Bob, I see this as one of your lying with statistics articles. It's great to know who is paying the tax. However, without a reference to the wealth of the payers, what do we learn? For example, If the top 20% accumulate 98% of the wealth and only pay 84% of the tax, they're getting a bargain supported by those in the bottom 80%. Elliot Top 20% of Earners Pay 84% of Income Tax

Who pays what in income taxes? With April 15 just around the corner, filers may be curious about where they fit into the system as a whole.

The individual income tax remains the most important levy in the U.S., providing nearly half of federal revenue. This is unusual: On average, developed nations get only one-third of their revenue from income taxes. Typically they also impose national consumption taxes, such as a value-added tax, that raise as much revenue as their income tax.

Continued in the article


April 11, 2015 Reply from Bob Jensen

Hi Elliot,

It's easy to be mislead using statistics. Your  number 84% of the taxes excludes many of the taxes shared more equitably by the poor such as consumption taxes and property taxes (even renters pay property taxes funneled through rental property owners).

If you are going to tell me that 98% of the wealth is owned by 20% of the population then I insist that you define "wealth" in your calculation.

The allegation that "20% accumulate 98% of the wealth" is total gibberish. Firstly, you have to define "wealth" meaningfully. For example, many of the most wealthy people like Bill Gates have tied up enormous amounts of wealth in charitable foundations such that such that each $1 billion in a foundation is very different from $1  billion in yachts and private jets.

How do you factor in "debt" in your measure of wealth. Wealthy and middle class investors own over trillions of dollars  in municipal bonds and US treasury bonds. The assets themselves are owned and controlled by towns, counties, school districts, states, and the federal government. If Bill Gates has $20 billion in school district  bonds what assets does he own? He does not own the school buildings  or the land that school buildings are built upon. Nor will he likely ever own those assets in case of default. When Stockton declared bankruptcy municipal bondholders discovered that their investments in Stockton are now worthless since former employee pensions rank higher on the bankruptcy court reorganization plan. The bondholders get zip are only a miniscule part of what they invested in Stockton.

Bill Gates, Warren Buffett, and many others ranked as the most wealthy have more tied up on charitable foundations than personal accounts that they can freely spend on luxury items --- even though most probably also have luxury items. But many wealthy people shun luxury items even though they have enormous "wealth."

The are all sorts of ways that "wealth" gets double counted. The S&P 500 companies "own" trillions in net assets. People who are supposedly vastly wealthy and others only own S&P index shares that have no ownership in tangible and intangible assets. Suppose that Bill Gates has $12 billion of his unrestricted portfolio in the S&P index funds of several brokerages.

My point is that there values of tangible and intangible assets of both the public and private sectors are mostly double counted in some way or another in terms of bond investments, index fund investments, etc. Even those debt holders who have collateral interests in assets "owned" by others including the middle class and the poor are going to get screwed in personal and business bankruptcy courts such that real wealth of these debt investors is greatly overstated on balance sheets.

Thus if you are going to tell me that 98% of the wealth is owned by 20% of the population then I insist that you define "wealth" in your calculation.

Bob Jensen

Communalism --- http://en.wikipedia.org/wiki/Communalism

"Accommodating (Economic) Diversity: Applying the Income Tax to Utopian Communities," by Samuel D. Brunson, SSRN, January 7, 2015 ---

Communalism has a long history in the United States. Throughout the nineteenth century, the country was seemingly dotted with utopian groups. Most were Christian groups, trying to follow the New Testament model of a body of believers that held all property in common. While these groups generally fell apart quickly, in response to inside or outside pressures, several large groups survived the turn of the century.

In the early twentieth century, though, these religious communal groups had to contend with something new: an income tax. Communalism did not fit into the individualistic economic system envisioned by the drafters of the income tax. So Congress designed a special tax regime, now codified in section 501(d) of the Internal Revenue Code, which exempts religious communal holding companies from tax, while imputing the holding companies’ income to the members of the group. Section 501(d) provides communitarian groups with flexibility to reflect their unusual economics.

There exist, however, a number of problems with the design and implementation of section 501(d). This Article will survey the three principal problems. The first is scope: under current law, only religious communitarian groups can elect to use the section 501(d) regime. Second is uncertainty and vagueness in the statute. Third is I.R.S. overreach in the enforcement, applying doctrines (such as the public policy doctrine) that do not apply to section 501(d). In this Article, I discuss why and how to remedy these problems, while not opening section 501(d) to abusive tax avoidance.

Number of Pages in PDF File: 64

Keywords: religious or apostolic organizations, communitarian, utopia, section 501(d), corporate income tax, partnership tax, pass-through taxation, federal income taxation, Establishment Clause, quasi-pass-through, employment taxes, SECA, dividends, anti-abuse, polygamy

Jensen Comment
The real problem of utopian societies is that they cannot be islands of independence within in their host countries. They benefit from externalities such as cleaner  air and abundant water as well as pay a price for polluted air, contaminated water, and scarce water. A military umbrella of some sort  protects them from outside invasion which is why such, as in World War II, their host countries demanded participation in the military even as conscience objector medics. They seldom can be totally isolated from outside crime and disease. They seldom have sufficient resources for advanced medications and medical treatments. Their markets for goods and services typically are not feasible or practical on a small scale.

To avoid inbreeding they must interact with host societies socially and physically and face the reality of attrition of people born to the community. An open immigration policy into their communities is subject to enormous risks of abuse. This is exacerbated when they sit on valuable resources such a oil, timber, rich minerals, mountain passes, rivers, water supplies, etc.

They cannot be totally isolated from host country laws, especially to a point that they become homes to people seeking exemption from the law --- such as homes to criminal gangs. pedophiles, slavers, and seditions.

They are typically highly vulnerable to the politics and economics of the host nation. Their existence may depend upon how the host country defines a "religion."

Grand experiments in utopian societies have generally failed in spite of tempting theory and literature --- http://en.wikipedia.org/wiki/Utopia


Some Secrets You Will Never Find in USA History or Economics Textbooks in the USA:
Where each generation pays its own way

"Singapore Has Found A Workable Alternative to the Welfare State," by John Goodman, Townhall, April 4, 2015 --- Click Here

Lee Kuan Yew, the first prime minister of Singapore, died last week at age 91. Almost every obituary has remarked on the radical transition his leadership heralded. As John Fund wrote at National Review:

“By embracing free trade, capital formation, vigorous meritocratic education, low taxes, and a reliable judicial system, Lee raised the per capita income of his country from $500 a year to some $52,000 a year today. That’s 50 percent higher than that of Britain, the colonial power that ruled Singapore for 150 years. Its average annual growth rate has averaged 7 percent since the 1970s.”

Part of the reason for Singapore’s remarkable climb up the international income ladder is bread and butter capitalism. The Frasier institute’s Freedom of the World report lists Singapore as the second freest economy in the world -- right behind Hong Kong. As Frasier scholars have demonstrated year after year, economic growth and free markets go hand and hand.

But Singapore has done something even more remarkable than its economic accomplishments. It has built an alternative to the European style welfare state. Think of all the reasons why people turn to government in other developed countries: retirement income, housing, education, medical care etc. In Singapore people are required to save to take care of these needs themselves.

At times the forced saving rate has been as high as 50 percent of income. Today, employees under 50 years of age must set aside 20 percent of their wages and employers must contribute another 16 percent. These funds go into accounts where they grow through time until specific needs arise. For example, one of the uses for these savings is housing. About 90 percent of Singapore households are home owners the highest rate of home ownership in the world.

In health care, Singapore started an extensive system of “Medisave Accounts” in 1984 – the very year that Richard Rahn and I proposed “Medical IRAs” for America in the Wall Street Journal. Today, 7 percentage points of Singapore’s 36 percent required savings rate is for health care and is deposited in a separate Medisave account for each employee. Individuals are also automatically enrolled in catastrophic health insurance, although they can opt out. When a Medisave account balance reaches about $34,100 (an amount equal to a little less than half of the median family income) any excess funds are rolled over into another account and may be used for non-health care purposes.

For many years, the only two scholars in the Western world who paid much attention to Singapore were Washington University economist Michael Sherraden and me. Michael approached the Singapore experience from a left-of-center perspective and I came from the opposite direction. We both ended in the same place: this is an alternative to the welfare state that works.

Lately, quite a number of other scholars have discovered Singapore, especially its health care system – again, with both right and left finding a lot to admire. It’s taken almost three decades, but Singapore is now the subject of a book by Brookings Institution, a whole slew of posts by Austin Frakt and Aaron Carroll, and a good overview by Tyler Cowen, with links to other studies and comments.

Sherraden recently summarized some of Singapore’s major social policy innovations as follows:

“Step by step, the Singapore state created a new social policy system that had asset building as its central structure…. In the world of social policy, it would be hard to overstate the exceptionality and the extent of this innovation…. During the past 25 years, Singapore policy has taken important steps toward lifelong asset building, beginning very early in life. These innovations include EduSave, the Baby Bonus, Child Development Accounts, and related asset-building incentives.”

For John Fund, Singapore’s most significant accomplishment is the avoidance of the mistakes of other countries:

“I believe that the least appreciated part of Lee Kwan Yew’s legacy is his method of ensuring that one generation won’t bankrupt future generations by selfishly living beyond its means. It’s a welfare state that works, and one he always said was available to any political leader with the courage to tell his people the truth about the limits of government’s power to pass out goodies.”

For my part, I would summarize the philosophy of Singapore as follows:

If the United States had adopted a similar approach to public policy, there would be no deficit problem in this country.

Bob Jensen's threads on the entitlements disaster where future generations pay our way ---


"The Republican Budget Is a Deficit Bust," by Mike Mulvaney, The Wall Street Journal, March 29, 2015 ---

Last week Republicans in the House and Senate passed budgets that took the Budget Control Act of 2011 and threw it out the window. Many defense hawks think this was a win. The truth is that the GOP lost.

As recently as the summer of 2011, debt and deficits were all the rage. Even the most strident Republican defense hawks were reeling from dire warnings from the Pentagon that, as then-Joint Chiefs of Staff Chairman Mike Mullen put it, the “most significant threat to our national security is our debt.”

So in August of that year, my fellow Republicans and I declared to the American people that we would raise the debt ceiling only as part of a larger agreement to reduce future growth in spending. “We will spend the money now,” we declared, “but we promise to save it later.” That commitment was embodied in the Budget Control Act, which set spending caps on defense and nondefense spending. It became the law of the land. It still is.

Four years on, debt and deficits are passé, and the deficit is only a third of what it was just five years ago. Never mind that this year’s deficit will be the sixth-largest in history—exceeded only by the previous five—or that the national debt has ballooned by $3 trillion in that time. Today beheadings and racial tension grab the headlines.

With fiscal concerns no longer in vogue, House Republicans broke the statutory caps of the Budget Control Act and did so in a way that wasn’t honest. Instead of making the arguments for changing the law, the House budget used an off-budget fund, the Overseas Contingency Operations (OCO) budget, to increase military spending.

The OCO should trouble Republicans. The so-called war budget, set up when the U.S. invaded Afghanistan in 2001, has been decried for years as a slush fund, and rightly so. No less a defense hawk than Sen. John McCain has called it a gimmick. The OCO is perhaps the worst way to fund the military. It lacks oversight and accountability within a Pentagon already famous for its inability to know where the money is going.

By far the largest objection is that this additional military spending isn’t “paid for.” That was no accident. Defense hawks lobbied against any budget that would offset additional military spending with cuts elsewhere. That willful decision to avoid making hard fiscal decisions forced many deficit hawks to abandon the budget. Many of us supported an alternative that provided almost the same military funding but paid for the extra spending with reductions elsewhere. That alternative got 109 votes in the House, fewer than half of Republicans.

There is no honest way to justify not paying for spending, no matter how often my fellow Republicans try. The same defense hawks who voted for the spending caps originally now say “the world is a different place.”

No it isn’t. Today we have Islamic State militants controlling parts of Syria and Iraq, Russia threatening Ukraine, and Iran pursuing nuclear weapons. Is that really so different than 2011, when the Arab Spring was destabilizing the Arab world, Bashar Assad was gassing his own people in a torrid Syrian civil war, and Iran was pursuing nuclear weapons?

The world will always be a dangerous place. Which is why we need a strong military. All Republicans agree on that. Period. The story behind the GOP budget has little to do with defending the nation. It has everything to do with the deficit. Put another way: All Republicans want a strong military; not all of us want to pay for it.

“Freedom isn’t free,” Sen. McCain tweeted at fiscal conservatives before the Senate passed a budget using the same gimmick as did the House. Our response: We agree with you, senator. It’s not free. So let’s pay for it. What House and Senate budgets tell people is this: “Defense is important, but let’s borrow the money and let our children pay for it.” That isn’t courage, but the opposite.

Until this budget, Republicans were beginning to convince people that they were serious about reducing spending. GOP budgets in recent years have made hard decisions on everything from defense to Medicare to food stamps. Republicans had begun making the argument that all spending is subject to scrutiny. Now there is a new message: Republicans will cut things they don’t like, but they lack that same conviction on things they like.

Because of the hard decisions that defense hawks and deficit hawks had made together, Republicans were gaining the moral high ground on spending. Last week we lost it, and it will be harder to regain the next time.

Then again, who knows? This fall the debt ceiling will need to be raised again.

Mr. Mulvaney is a Republican congressman from South Carolina.


Cato Policy Report --- http://www.cato.org/policy-report

"The End of History, Part II:  The new Advanced Placement U.S. history exam focuses on oppression, group identity and Reagan the warmonger," by Lynn V. Cheney, The Wall Street Journal,  April 1, 2015 ---

If you seek peace, if you seek prosperity for the Soviet Union and Eastern Europe, if you seek liberalization: Come here to this gate! Mr. Gorbachev, open this gate! Mr. Gorbachev, tear down this wall!
—President Ronald Reagan, speech at the Brandenburg Gate, Berlin, 1987

President Reagan’s challenge to Soviet Premier Mikhail Gorbachev remains one of the most dramatic calls for freedom in our time. Thus I was heartened to find a passage from Reagan’s speech on the sample of the new Advanced Placement U.S. history exam that students will take for the first time in May. It seemed for a moment that students would be encouraged to learn about positive aspects of our past rather than be directed to focus on the negative, as happens all too often.

But when I looked closer to see the purpose for which the quotation was used, I found that it is held up as an example of “increased assertiveness and bellicosity” on the part of the U.S. in the 1980s. That’s the answer to a multiple-choice question about what Reagan’s speech reflects.

No notice is taken of the connection the president made between freedom and human flourishing, no attention to the fact that within 2½ years of the speech, people were chipping off pieces of the Berlin Wall as souvenirs. Instead of acknowledging important ideas and historical context, test makers have reduced President Reagan’s most eloquent moment to warmongering.

The AP U.S. history exam matters. Half a million of the nation’s best and brightest high-school students will take it this year, hoping to use it to earn college credit and to polish their applications to competitive colleges. To score well on the exam, students have to learn what the College Board, a private organization that creates the exam, wants them to know.

No one worried much about the College Board having this de facto power over curriculum until that organization released a detailed framework—for courses beginning last year—on which the Advanced Placement tests on U.S. history will be based from 2015 onward. When educators, academics and other concerned citizens realized how many notable figures were missing and how negative was the view of American history presented, they spoke out forcefully. The response of the College Board was to release the sample exam that features Ronald Reagan as a warmonger.

It doesn’t stop there. On the multiple-choice part of the sample exam, there are 18 sections, and eight of them take up the oppression of women, blacks and immigrants. Knowing about the experiences of these groups is important—but truth requires that accomplishment be recognized as well as oppression, and the exam doesn’t have questions on subjects such as the transforming leadership of Martin Luther King Jr.

The framework requires that all questions take up sweeping issues, such as “group identity,” which leaves little place for transcendent individuals. Men and women who were once studied as inspirational figures have become examples of trends, and usually not uplifting ones. The immigrant story that the exam tells is of oppressed people escaping to America only to find more oppression. That many came seeking the Promised Land—and found it here—is no longer part of the narrative.

Critics have noted that Benjamin Franklin is absent from the new AP U.S. history framework, and perhaps in response, the College Board put a quotation from Franklin atop the sample exam. Yet not one of the questions that were asked about the quotation has to do with Franklin. They are about George Whitefield, an evangelist whom Franklin described in the quote. This odd deflection makes sense in the new test, considering that Franklin was a self-made man, whose rise from rags to riches would have been possible only in America—an example of the exceptionalism that doesn’t fit the worldview that pervades the AP framework and sample exam.

Evangelist Whitefield, an Irishman who preached in the colonies, was a key figure in the Great Awakening, an evangelical revival that began in the 1730s. Here, however, he is held up as an example of “trans-Atlantic exchanges,” which seems completely out of left field until one realizes that the underlying notion is that we need to stop thinking nationally and think globally. Our history is simply part of a larger story.

Aside from a section about mobilizing women to serve in the workforce, the sample exam has nothing to say about World War II, the conflict in which the U.S. liberated millions of people and ended one of the most evil regimes in the history of the world. The heroic acts of the men who landed on Omaha Beach and lifted the flag on Iwo Jima are ignored. The wartime experiences that the new framework prefers are those raising “questions about American values,” such as “the internment of Japanese Americans, challenges to civil liberties, debates over race and segregation, and the decision to drop the atomic bomb.”

Why would the College Board respond to criticism by putting out a sample exam that proves the critics’ point? Perhaps it is a case of those on the left being so confirmed in their biases that they no longer notice them. Or maybe the College Board doesn’t care what others think.

Some states are trying to get its attention. The Texas State Board of Education, noting that the AP U.S. history framework is incompatible with that state’s standards, has formally requested that the College Board do a rewrite. The Georgia Senate has passed a resolution to encourage competition for the College Board’s AP program. If anything brings a change, it is likely to be such pressure from the states, which provide the College Board with substantial revenue.

Some 20 years ago, as chairman of the National Endowment for the Humanities, I made a grant to a group to create voluntary standards for U.S. history. When the project was finished, I had standards on my hands that were overwhelmingly negative about the American story, so biased that I felt obliged to condemn them in an op-ed for The Wall Street Journal called “The End of History.”

I learned an important lesson, one worth repeating today. The curriculum shouldn’t be farmed out, not to the federal government and not to private groups. It should stay in the hands of the people who are constitutionally responsible for it: the citizens of each state.

Mrs. Cheney, a senior fellow at the American Enterprise Institute, writes about history. Her most recent book is “James Madison: A Life Reconsidered” (Viking, 2014).

Jensen Comment
I recall when I was living in Texas that the history textbook required in all public schools in Texas claimed the USA dropped an atomic bomb on North Koreans during the Korean War. So much for truth in academe. Even North Korea does not make this absurd claim.

Liberal Bias in the Media and Academe ---

"Cheating in Atlanta: A Teachable Moment When unions attack testing and ensure that bad teachers stay hired, it’s no wonder some of them broke the rules," by Jason L. Riley,  The Wall Street Journal, April 8, 2015 ---

. . .

The state decided to investigate cheating in the public schools after an analysis of test results by the Atlanta Journal-Constitution found suspiciously high gains in math and reading proficiency. “A miracle occurred at Atherton Elementary this summer, if its standardized math test scores are to be believed,” the paper reported in 2008. “Half of the DeKalb County school’s fifth-graders failed a yearly state test in the spring. When the 32 students took retests, not only did every one of them pass—26 scored at the highest level.”

The suspicion was warranted. A subsequent 400-page report issued by the state in 2011 found that 44 of 56 investigated schools had falsified results on state exams. The cheating was “widespread and organized” and conducted “with the tacit knowledge and even approval of high-level administrators.” According to investigators, Atlanta Public Schools Superintendent Beverly Hall and her aides allowed “cheating—at all levels—to go unchecked for years.” Teachers would gather at so-called “erasure” parties to correct answers on exams and inflate scores. Some 178 public-school employees, including 34 principals, were implicated. Thirty-five of them were eventually indicted by a grand jury, and 21 reached plea agreements. Hall maintained her innocence but died before she could stand trial.

The reaction to these shenanigans from defenders of the public-education status quo has been sad but not at all surprising. Yes, the teachers were wrong to falsify scores and set up students to fail by promoting them to the next grade unprepared. But if you are Randi Weingarten, who heads the powerful American Federation of Teachers (AFT), the real victims are your union members. For Ms. Weingarten, a strong opponent of the testing requirements included in the No Child Left Behind education law signed by President Bush, the Atlanta scandal “crystallizes the unintended consequences of our test-crazed policies.”

Lily Eskelsen García, who is president of the AFT’s sister union, the National Education Association (NEA), wrote in a Journal-Constitution op-ed at the start of the trial that “too often, and in too many places, we have turned the time-tested practice of teach, learn and test into a system of test, blame and punish.” She added: “We are using these tests to punish schools, teachers, students and school districts. This simply isn’t right. It is toxic.”

. . .

In 2011 an investigation by a local television station in Atlanta, WSB-TV, revealed that more than 700 teachers in Georgia had repeatedly failed at least one portion of a test they must pass before receiving a teaching certificate. Nearly 60 teachers failed the test at least 10 times, and “there were 297 teachers on the payrolls of metro Atlanta school systems in the past three years after having failed the state certification test five times or more.”

Would you want your child taught by someone who flunked the certification test five times, let alone 10? And would that instructor be more or less likely to resort to changing student test scores to hide his own incompetence?

The eagerness to blame No Child Left Behind’s accountability provisions for these cheating scandals is off-base. The law has its flaws, including an overly stringent method of judging a school’s performance, but those flaws aren’t fatal. The much bigger problem is the one exposed by WSB-TV. Long before Mr. Bush signed NCLB, public-school teaching was attracting the least-qualified students from universities. For decades, the test scores of people who enter teaching have trailed those of people entering other professions, and research by Stanford economist Eric Hanushek and others shows that the trend has worsened in recent years.

Moreover, brighter college students who do want to teach for a few years after graduation, via highly selective programs such as Teach for America, are scorned by the education establishment as insufficiently committed to the profession. Among other things, Atlanta’s cheating scandal is a byproduct of who goes into teaching.

"Schoolteacher Cheating," Walter E. Williams, Townhall, February 5, 2014 ---

Philadelphia's public school system has joined several other big-city school systems, such as those in Atlanta, Detroit and Washington, D.C., in widespread teacher-led cheating on standardized academic achievement tests. So far, the city has fired three school principals, and The Wall Street Journal reports, "Nearly 140 teachers and administrators in Philadelphia public schools have been implicated in one of the nation's largest cheating scandals." (1/23/14) (http://tinyurl.com/q5makm3). Investigators found that teachers got together after tests to erase the students' incorrect answers and replace them with correct answers. In some cases, they went as far as to give or show students answers during the test.

Jerry Jordan, president of the Philadelphia Federation of Teachers, identifies the problem as district officials focusing too heavily on test scores to judge teacher performance, and they've converted low-performing schools to charters run by independent groups that typically hire nonunion teachers. But William Hite, superintendent of the School District of Philadelphia, said cheating by adults harms students because schools use test scores to determine which students need remedial help, saying, "There is no circumstance, no matter how pressured the cooker, that adults should be cheating students."

While there's widespread teacher test cheating to conceal education failure, most notably among black children, it's just the tip of the iceberg. The National Assessment of Educational Progress, published by the U.S. Department of Education's National Center for Education Statistics and sometimes referred to as the Nation's Report Card, measures student performance in the fourth and eighth grades. In 2013, 46 percent of Philadelphia eighth-graders scored below basic, and 35 percent scored basic. Below basic is a score meaning that a student is unable to demonstrate even partial mastery of knowledge and skills fundamental for proficient work at his grade level. Basic indicates only partial mastery. It's a similar story in reading, with 42 percent below basic and 41 percent basic. With this kind of performance, no one should be surprised that of the state of Pennsylvania's 27 most poorly performing schools on the SAT, 25 are in Philadelphia.

Continued in article

Jensen Commentary
It should be noted that the author (Walter Williams) of this article is an African American economics professor at George Mason University..He's also conservative, which is rare for an African American who grew up in an urban ghetto. This makes him an endangered species in academe.

The cheating Atlanta Superintendent leader died two months ago from breast cancer.
The cheating hurt thousands of students by denying them access to remedial education while the cheating teachers and administrators got bigger bonuses.
Hundreds of other cheating teachers blamed administrators and plea bargained to stay out of jail and keep their jobs

Universities Vary on Punishments for Faculty Cheating:  It's Hard to Get Fired for Plagiarism at Arizona State University

Judge orders California to pay for inmate's sex change ---

Jensen Comment
Left unmentioned is the possibility that half the prisoners, especially those with no possibility of parole, in the vicious San Quentin prison will opt for the same surgery to get into less dangerous and less stressful women's prisons. This court order could become extremely expensive for California taxpayers.

The unanswered question is how much more dangerous women's prisons will become when they absorb some of the worst of the worst in San Quentin.

If the courts require evidence of transgender tendencies before going to prison there may be huge increase in bank robberies and murders by men in tutus ---

Jensen Comment
One of my close friends, certainly not a dangerous man or convict, up here had this surgery. I have a tidbit about this one instance. Randy Mitton and his former wife Wendy continue to live as best friends in the house that they built as a married couple. Arwen and Wendy are still devout members of our small Sugar Hill Community Church ---
Arwen completed her college degree as an honors student. She experienced years of difficulty finding employment in this mountain region with few employment opportunities for anybody. She's now happily employed as a technology consultant in a public library and teaches such things as searching for literature on the Internet.

"One Less Fraud in Washington:  Better accounting for federal loan defaults, but Chuck Schumer objects," The Wall Street Journal, March 29, 2015 ---

Kudos to Rep. Tom Price (R., Ga.) and Sen. Mike Enzi (R., Wyo.) for moving Washington toward more honest accounting. Recently we urged the chairmen of Congress’s budget committees to end one of Washington’s most expensive scams. The good news for taxpayers is that the two lawmakers are teaming up to require more accurate reporting on federal loan programs.

The problem, frequently noted by Democrat Douglas Elmendorf when he was running the Congressional Budget Office, is that federal law requires the government to underestimate the costs of defaults in various credit programs. In an only-in-Washington farce, Mr. Elmendorf would issue official CBO scores showing huge taxpayer profits generated by, for example, student loans—and then he would explain in a separate note why the official numbers were bogus.

Messrs. Price and Enzi can’t change the law until there’s a U.S. President who cares about the taxpayer cost of federal lending. But the two lawmakers can use the congressional budget resolution to change how Congress analyzes credit programs. The two Republicans aim to require CBO to report loan costs using more accurate fair-value accounting that is used in the private economy. In this way voters can get a true sense of their impending burden before Congress holds its next vote to create or expand federal credit programs.

Transparency in government finance is obviously not high on the agenda of Sen. Chuck Schumer (D., N.Y.), whose Democratic Policy and Communications Center sent out a release last week saying that this GOP rule change “rigs the rules against students” and other borrowers.

The truth is that this game has been rigged against taxpayers for far too long. Rep. Price and Sen. Enzi are leading the way on an important reform to make the next Beltway fraud harder to perpetrate.

Jensen Comment
This is stinking bull poop. Sure stimulating the economy is more important than having retirees and future retirees earn safe interest returns on their savings, but Bernankie should not lie outright to seniors. He did indeed throw them under the bus in favor of economic stimulus and Quantitative Easing ---

Ben Bernankie should not lie to us when we're looking up at the bottom of the bus while the capital saved for retirement in confiscated just trying to stay alive before our ticket is punched. I was lucky! In 2006 near my retirement date I negotiated a relatively high lifetime fixed interest rate on my TIAA lifetime annuities.

University employees today are screwed when trying to negotiate safe fixed-rate lifetime annuities under the Bernanke bus with no relief in sight for earning decent retirement returns on their savings balances. The only alternative from under the Bernanke bus is for retirees to take on variable returns based upon fluctuating stock market or real estate values with much higher financial risk and variability than a lifetime of guaranteed monthly lifetime returns.

Bernankie says seniors should just lie there and enjoy QE's miserable low-risk returns on their savings.

Bull Poop
"BERNANKE: We didn't throw seniors under the bus," by Ben Bernanke, The Wall Street Journal, March 30, 2015 ---

Bob Jensen's personal finance helpers ---

"Why Can't We Call the UVA Case a Hoax? Evidence of how extreme and irrational "rape culture" dogma has become," by Cathy Young, Reason Magazine, April 1. 2015 ---

. . .

It is, of course, nearly impossible to prove a negative. Short of a surveillance tape documenting Jackie's every movement, one cannot know for certain that she was never sexually assaulted at UVA. But the evidence against her is damning. It's not simply that there was no party at Phi Kappa Psi, the fraternity named by Jackie, anywhere near the time when she said she was attacked. It's not simply that her account changed from forced oral sex to vaginal rape and from five assailants to seven, or that her friends saw no sign of her injuries after the alleged assault. What clinches the case is the overwhelming proof that "Drew," Jackie's date who supposedly orchestrated her rape, was Jackie's own invention.

Back in the fall of 2012, Jackie's friends knew "Drew" as "Haven Monahan," an upperclassman who supposedly wanted to date her and with whom she encouraged them to exchange emails and text messages. However, an investigation by The Washington Post and other media last December found that "Haven's" messages were fake; the phone numbers he used were registered to online services that allow texting via the Internet and redirecting calls, while his photo matches a former high school classmate of Jackie's who lives in a different state. No "Haven Monahan" exists on the UVA campus or, apparently, anywhere in the United States (at least outside romance novels). The catfishing scheme seems to have been a ploy to get the attention of a male friend on whom Jackie had a crush—the same friend she called for help after the alleged assault.

Is it possible that someone sexually assaulted Jackie on the night when she claimed to be going out with her fictional suitor? Theoretically, yes. But it's also clear that her credibility is as non-existent as "Haven Monahan."

Moreover, the police investigation has debunked another one of Jackie's claims: that in spring 2014, when she was already an anti-rape activist, some men harassed her in the street off-campus and threw a bottle that hit her face and (improbably) broke. Jackie said that her roommate picked glass out of a cut on her face; but the roommate disputes this and describes the injury as a scrape, likely from a fall. Jackie also said she called her mother immediately after that attack, but phone records show no such call.

Despite all this, Chief Longo wouldn't call Jackie's story a false allegation and even referred to her as "this survivor" (though amending it to the more neutral "or this complaining party").

Meanwhile, in the CNN report on the March 23 press conference, anchor Brooke Baldwin, correspondent Sara Ganim and legal analyst Sunny Hostin were tripping over each other to assert that "we have to be very careful" not to brand Jackie a liar and that "she could have been sexually assaulted." Hostin argued that the idea that Jackie made it all up "flies in the face of statistics," because "only about 2 percent of rapes that are reported are false."

This is a bogus statistic, which Hostin misattributed to the FBI. (According to FBI data, 8 to 9 percent of police reports of sexual assault are dismissed as "unfounded"; the reality of false rape reports is far more complicated, and it's almost impossible to get a reliable estimate.) Even if it were true, it would say nothing about Jackie's specific case. What's more, statistics on false allegations generally refer to police reports or at least formal administrative complaints at a college—neither of which Jackie was willing to file.

CNN never mentioned the evidence that Jackie fabricated "Haven Monahan." Neither did the New York Times, which said only that "the police were unable to track Mr. Monahan down."

Jackie's defenders argue that rape victims often change their stories because their recall is affected by trauma. It is true that memory, not just of traumatic events, can be unreliable; a victim may at various points give somewhat different descriptions of the offender or the attack. It is also true that, as writer Jessica Valenti argues, someone who tells the truth about being raped may lie to cover up embarrassing details (such as going to the rapist's apartment to buy drugs).

None of that, however, requires us to suspend rational judgment and pretend that Jackie's story is anything other than a fabrication. While Jackie is probably more troubled than malevolent, she is not the victim here. If there's a victim, it's Phi Kappa Psi, the fraternity branded a nest of rapists, suspended and targeted for vandalism—as well as UVA Dean Nicole Eramo, whom the Rolling Stone story painted as a callous bureaucrat indifferent to Jackie's plight.

In this case, at least, there were no specific accused men. But the extreme reluctance to close a rape investigation and call a lie a lie bodes ill for wrongly accused individuals, who may find themselves under a cloud of suspicion even after all the facts exonerate them.

Evading the facts does a disservice to Jackie, too. In a sane environment, she would face disciplinary charges and perhaps mandatory counseling. In a climate where saying that a woman is lying about rape is tantamount to "victim-blaming" and "rape culture"—and where some of Jackie's fellow students say that even if her story "wasn't completely true," it helped bring attention to important issues—she is likely to remain mired in self-destructive false victimhood.

For the rest of us, this episode shows how extreme and irrational "rape culture" dogma has become, and how urgent it is to break its hold on public discourse. The current moral panic may be an overreaction to real problems of failure to support victims of sexual violence. But when truth becomes heresy, the pendulum has swung too far, with disastrous consequences for civil rights and basic justice.

Jensen Comment
Rolling Stones Magazine promises to respond to a scathing investigation by the Columbia University School of Journalism that purportedly claims the Rolling Stone Magazine violated nearly all ethics and standards of professional journalism.


Journalism Ethics and Standards --- http://en.wikipedia.org/wiki/Journalism_ethics_and_standards

The upcoming Columbia UniversityJournalism School review "offered a blunt indictment of Rolling Stone's reporting (UVA Phony Rape Scandal) and its violation of journalism ethics," according to Byers. He reports that Rolling Stone will publish a significant portion of the external review next month.

Remarkable Commencement Addresses by Nora Ephron, David Foster Wallace, Ira Glass, and More ---

We live in an era where religion is, thank "god," increasingly being displaced by culture and secular thought. And yet, secular education and the arts have a great deal to learn from religion as a mode of seeding values of good-personhood.

Continued in article

The IRS Scandal, Day 695 --- http://taxprof.typepad.com/taxprof_blog/2015/04/the-.html

By Paul Caron


Tea Party Groups Win Round 1 in Court as Federal Judge Demands IRS's List of All 298 Conservative Nonprofits It Targeted:

Continued in article

"Shortcomings and Failings of Chuck Schumer The Democrats should look elsewhere for a new Senate leader," by Ira Stoll, Reason Magazine, March 30, 2015 ---

The news that Senator Reid’s retirement announcement sets up Charles Schumer to be the Democratic leader in the Senate set off a twinge of Brooklyn pride. I knew Schumer back when he was just an ambitious member of the House of Representatives.

But whatever “hometown boy makes good” affectionate feelings I have about Schumer—with whom I share the Jewish faith, a Harvard degree, and years of residence in Brooklyn—are followed quickly, and almost entirely swamped, by my knowledge of the senator’s limits. If the Democratic Party is looking for real leadership, as opposed to mere fundraising prowess, it will have to look elsewhere.

What passes for an idea in Schumer-land is what he signaled in a statement after Reid’s announcement. He said he looked forward to “continuing to fight for the middle class.”

It’s a threadbare slogan—which should be a warning to Republicans such as Jeb Bush who are trying to mimic it on the advice of “reform” conservatives. What’s it supposed to signal? Callous disregard for the plight of the poor? Fierce enmity toward the wealthy? Whatever happened to politicians representing all Americans, rather than dividing us up into classes and favoring those in the middle?

In Schumer’s case, the self-styled fighter for the middle class and critic of the “wealthy” happens to have a family income of more than $400,000 a year and a $2 million apartment. Perhaps that will qualify him as a worthy successor to Senator Reid, who lives in a luxury condominium at the Ritz-Carlton in Washington.


"An anonymous administration official just gave an incoherent defense of Obama's Middle East policy," by Armin Rosen, Business Insider, March 27, 2015 ---

The Middle East is teetering on the edge of full-blown intra-Arab war, ISIS still controls a Belgium-sized slice of the region's heart, chlorine barrel bombs are still falling over Syria, and the US is threatening to "evaluate" one of its firmest and oldest Middle Eastern alliances.

It's a flummoxing state of play for any US administration to face, especially one that's invested so much effort in reorienting US policy in the region.

And no amount of brilliant policymaking can stave off disaster: the US is a superpower, but it isn't all-powerful, and no modern president has managed to get the region completely right.

But a quote from an Obama administration official in a March 27 New York Times article about the region's turmoil seems to sum up the US's frustration in the region — as well as demonstrate how the Middle East seems to be drifting beyond any meaningful US influence.

“We’re trying to beat ISIL — and there are complications,” the official told the Times. “We have a partner who is collapsing in Yemen and we’re trying to support that. And we’re trying to get a nuclear deal with Iran. Is this all part of some grand strategy? Unfortunately, the world gets a vote.”

This quote may warrant some unpacking: just what are these "complications" the official refers to? And who is this partner that's "collapsing" in Yemen? After all, the state is essentially defunct, and the country's recognized president just fled the country by boat. Is this a part of a grand strategy, and what is the "this" the official refers to? Both questions are pointedly left unanswered.

The official is right about one thing: the rest of the world does "get a vote." That's true at all times, and the challenge for the US relates to what it can and should do in light of its lack of total control regarding areas that impact vital security and economic interests.

Based on this quote, that's a question the Obama administration is still struggling to answer.

Although a different anonymous official who spoke with Politico had one possible route to US strategic clarity: a nuclear deal with Iran.

“The truth is, you can dwell on Yemen, or you can recognize that we’re one agreement away from a game-changing, legacy-setting nuclear accord on Iran that tackles what every one agrees is the biggest threat to the region," an unnamed official told Politco on March 26.

Read more: http://www.businessinsider.com/an-anonymous-administration-official-gave-an-incoherent-defense-of-obamas-middle-east-policy-2015-3#ixzz3VgCJJTs3

"Crony Clintonism," The Wall Street Journal, March 27, 2015 ---

Say this for a Hillary Clinton run for the Presidency. The prospect is already yielding an almost-weekly civics lesson in the crony government that feeds the Clinton machine: mining connections to public office for private profit.

The latest exhibit is a scathing report by the inspector general for the Department of Homeland Security into abuses of the EB-5 investor visa program. Under this program, a foreigner who invests at least $500,000 to create jobs for American citizens can be granted permanent residency along with his family.

The IG was investigating complaints by career government employees that the number two man in Homeland Security, Alejandro Mayorkas, had used his earlier position as director of U.S. Citizenship and Immigration Services to favor top Democrats seeking visas for foreign investors. In each of the three instances the IG investigated, the report says that “but for Mr. Mayorkas’ intervention, the matter would have been decided differently.”

One of those Mr. Mayorkas helped was Senate Democratic leader Harry Reid, who sought EB-5 approval for a Las Vegas hotel and casino. Another was former Pennsylvania Governor Ed Rendell, who wanted approval for a Los Angeles film center.

But wherever money and politics intersect in a big way, you’re sure to find a Clinton connection. In this case, the IG found two.

The first is Terry McAuliffe, co-chair of Bill Clinton’s 1996 election campaign and the friend who put up $1.35 million of his own cash so the Clintons could buy the house they wanted in Chappaqua, N.Y., when they left the White House. Mr. McAuliffe was seeking help for GreenTech Automotive, an electric car company he’d help found. The issue came up during his 2013 race for Virginia Governor but didn’t stop him from winning.

The other is Tony Rodham, who was CEO of Gold Coast Funds Management, the company financing Mr. McAuliffe’s car venture. His sister was Secretary of State at the time.

The problem Messrs. McAuliffe and Rodham had was that the immigration professionals handling the application had strong doubts about the car project—and initially turned it down. When they appealed, Mr. Mayorkas intervened on their behalf, an intervention the report calls “unprecedented.”

Even more illuminating is the context. The IG says it was unusual to have so many career employees from so many different positions come forward to complain.

“It is also quite unusual,” the IG writes, “that a significant percentage of the witnesses we interviewed would talk to us only after being assured that their identities would remain confidential.” It all sounds more like an episode of “The Sopranos” than a look into an obscure government visa program.

Against the IG’s sharp language, we have the hilarious official denials. Mr. Mayorkas says he was merely trying to make a government program run better. His boss, Homeland Security Secretary Jeh Johnson, says there are “lessons” to be learned but attributed any problems to Mr. Mayorkas’s “hands-on” approach to solving problems and his impatience “with our sluggish government bureaucracy.” Too bad average Americans can’t call Mr. Mayorkas, or anybody at DHS, and get the same expedited treatment.

For those who have followed the Clintons, this is the latest chapter in an old story. Only weeks ago we learned how foreign governments made donations to the family foundation while Mrs. Clinton was Secretary of State. Even her son-in-law is taking to the family way of doing business, with his hedge fund now benefitting from big investments by the Wall Street friends of Bill and Hillary.

Then again, is anyone really surprised? This is the same woman who as first lady of Arkansas managed to turn a $1,000 investment in cattle futures into $100,000 over 10 months with an assist from some friends.

Liberals like Mrs. Clinton typically berate tea partiers and conservatives for denigrating government. But if American trust in government is at historic lows, this may have something to do with the sight of a Beltway where people become fabulously wealthy not by bringing some superior product or service to market but by cashing in on their political connections.

The Clintons didn’t invent crony capitalism. But when it comes to exploiting government for private gain, nobody does it better.

"How Chicago has used Financial Engineering to Paper over its Massive Budget Gap," by Kristi Culpepper, Medium, March 26, 2015 ---

Chicago made headlines at the end of February after Moody’s downgraded the city’s general obligation bond rating to Baa2. Moody’s has cut Chicago’s rating five notches in less than two years. This downgrade, however, placed the city’s credit below the termination triggers on some of its outstanding interest rate swaps. The city has been working to renegotiate the terms of those contracts with its counterparties.

If Chicago’s general obligation rating falls below investment grade, the city’s credit deterioration will become a self-fulfilling prophesy. The city risks nearly $400 million of swap termination payments and the acceleration of its $294 million of outstanding short-term debt.

Unsurprisingly, some of Chicago’s bonds are already trading at junk levels. Chicago CUSIPs are listed here.

That said, the rating agencies and most other market participants still appear to be light years away from understanding the true scope of Chicago’s financial problems. The city has a very — well, let’s just call it unconventional — approach to borrowing money and probably should not be considered investment grade.

Some budget history

In order for you to follow my discussion of Chicago’s borrowing shenanigans, it is necessary to understand the fiscal machinery behind its bond issues. Please be patient with me here. This story will blow your mind shortly.

Chicago’s budget is divided into seven different fund classifications, but only three funds are relevant to our narrative: the Corporate Fund, Property Tax Fund, and Reserve Funds.

The Corporate Fund is Chicago’s general operating fund. This fund is used to pay for essential government services and activities (e.g. public safety and trash collection). Corporate Fund revenues are derived from a wide variety of sources, including: (1) local tax revenue from utility, transaction, transportation, recreation, and business taxes; (2) intergovernmental tax revenue, which represents the city’s share of the state’s sales and use taxes, income tax, and personal property replacement tax; and (3) non-tax revenue from fees, fines, asset sales, and leases.

Chicago’s property tax revenues do not go into its general operating fund. These revenues go into a Property Tax Fund, which is used to make debt service payments on the city’s general obligation bonds; make required employee pension contributions; and (to a minor extent) fund the library system. The fund also includes tax increment financing revenues that flow to projects in designated TIF districts.

The city used some of the proceeds from long-term leases of city assets to establish Reserve Funds. The Chicago Skyway reserve funds were established in 2005 in the amount of $975 million. The Metered Parking System reserve funds were established in 2009 in the amount of $1.15 billion. Of these funds, $475 million of the Skyway reserves were designated for budgetary uses. What remained was $500 million for the Skyway; $400 million for the Metered Parking System; and $326 million for a budget stabilization fund.

There has been a structural gap in Chicago’s Corporate Fund budget since at least 2003. Although most governments are required to balance their budgets on a cash flow basis each fiscal year, a structural budget gap can arise when recurring expenditures are greater than recurring revenues. Some of the city’s offering documents suggest that this gap is a legacy of the last economic downturn, but in reality the gap pre-dates the economic downturn by several years. The impact of economic downturns on tax collections tends to have a considerable lag anyway.

So, Chicago’s structural budget gap is a political, not economic, creature. Rather than cut expenditures to a level that could be supported by recurring revenues, the city mostly used non-recurring resources to fill the gap from one fiscal year to the next. This is not surprising. Most of Chicago’s Corporate Fund budget goes to salaries and benefits for its employees, and 90% of the city’s employees belong to around 40 different unions. Attempts to adjust expenditures tend to have well organized opposition.

Between fund transfers and drawing down its reserves, the city blew through its financial cushioning quickly. The $326 million budget stabilization fund was exhausted by 2010. From 2009 to 2011, the city used $320 million from the Metered Parking Reserves. The city’s budget gap was at its widest in the wake of the last economic downturn, at over $600 million.

Chicago’s dysfunctional debt program

Now things start to get interesting. Transfers from reserves and other funds have not been the only means Chicago officials (across administrations) have devised to subsidize the city’s Corporate Fund. The city has effectively been using its general obligation bond offerings and interest rate derivatives to accomplish the same thing.

State and local governments typically use the proceeds from their bond offerings to construct or renovate public buildings and infrastructure. These are projects that have long useful lives and will benefit residents for generations.

Dating back to at least 2003, however, Chicago has been issuing long-term tax-exempt and taxable bonds to:

(1) Roll over short-term debt used as working capital;

(2) Pay for maintenance activities that would otherwise be paid from the Corporate Fund;

(3) Pay for judgments and settlements that would otherwise be paid from the Corporate Fund, including wage increases and retroactive pension contributions for its employees; and

(4) Provide discretionary funds to each of the city’s 50 aldermen to pay for activities in their own districts.

The magnitude of tax-exempt bond proceeds used for judgments and settlements over this period is staggering. The Chicago Tribune estimated it at approximately $400 million:

In 2002, for example, the city used tax-exempt bonds to pay an arbitration award involving the Fraternal Order of Police. Rank-and-file officers rejected a city contract offer in 2001, but an arbitrator ruled in favor of the city’s wage proposal a year later.
The deal included raises of 2 to 4 percent a year, to be applied retroactively. In bond documents, city officials deemed the back pay the city owed an extraordinary expense and paid $164 million of it with tax-exempt bonds.
The city ultimately will need to pay bondholders $280 million to cover the loan …
Bonds also ended up covering the $28 million a jury awarded to Joseph Regaldo in 1999. The jury found that, years earlier, a Chicago police officer had beaten him in the back of the head and neck with a blunt object, which ripped apart an artery and cut off the blood supply to his brain. The injuries left Regaldo unable to walk, talk or care for himself.
The judgment won’t be paid off until 2019 at the earliest; by then, the total cost will have grown to $53 million.
City officials eventually switched to paying judgments with taxable bonds, which are even more costly in the long run.

That is, until 2012:

About $54 million from a tax-exempt bond helped cover a legal judgment awarded to African-Americans who were denied a chance to become firefighters by a 1990s entrance exam that favored white applicants. An additional $8 million in tax-exempt bond money went to pay legal fees related to the case, records show.
By using bond money, the city created an irony for many of those awarded damages, as their future property taxes will help pay interest on the debt. In 2033, when the city starts paying down the $54 million, interest will have more than doubled the total cost.

Stop and let that sink in for a moment. That police brutality case? Wage increases negotiated with labor unions? Not just financed, but financed with long-term debt.

So why haven’t the city’s 50 aldermen protested the use of bond proceeds for these purposes? It probably has something to do with the “Aldermen’s Menu,” which allows the aldermen to use a portion of the proceeds from the city’s general obligation bond issues to pay for whatever they want for their district.

Continued in article

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

"Victims of Financial Wrongdoing Need a More Muscular S.E.C.," The New York Times, April 4, 2015 ---

Given the many billions of dollars financial companies have paid in regulatory and legal settlements related to the mortgage crisis, how much money has actually found its way into the pockets of investors harmed by their actions?

Less than you may think. To start with, little of the cash generated in most of the Justice Department settlements went to investors. Much of this money went into Treasury coffers or to various states while troubled borrowers were promised loan modifications and other relief as part of the deals.

Wronged investors are entitled to receive money, however, from lawsuits filed by the Securities and Exchange Commission. While the S.E.C. cannot, by law, seek compensatory damages for losses incurred by investors, the agency does collect penalties and disgorgement of ill-gotten gains from both institutions and individuals.

Sometimes the S.E.C. puts the dollars it collects into a fund to be distributed to a class of victims the agency has identified; other times it forces defendants to repay those investors directly.

The S.E.C. says it tries, whenever possible, to extract money from wrongdoers on behalf of investors. And an analysis of financial crisis lawsuits cited most recently on the S.E.C.’s website shows that 23 of them generated nearly $2.6 billion for investors.

Among the larger S.E.C. recoveries was $285 million from a 2011 case against Citigroup over a $1 billion collateralized debt obligation and $250 million returned to investors after Goldman Sachs’s settlement of the Abacus C.D.O. case in 2010. Investors also received $275 million from a mortgage securities deal struck last year with Morgan Stanley.

Returning almost $2.6 billion to investors is not nothing. But the S.E.C.’s recoveries pale in comparison to the amounts generated by law firms that brought class actions on behalf of stockholders and debtholders.

In the 17 largest securities law class actions arising out of the financial crisis, investors have recovered almost $8.3 billion, net of legal fees and expenses, court records show. These recoveries included $1.1 billion in two class actions against Citigroup, $850 million received from the American International Group and $523 million from Lehman Brothers.

Among the 17 private lawsuits and the 23 S.E.C. cases, six overlap — meaning the same financial institutions were sued on the same facts by both the agency and private plaintiffs. On a direct comparison, the recoveries generated by class-action lawsuits far exceeded those collected by the S.E.C.

In those six cases, the S.E.C. recovered $400 million for investors while the private plaintiffs received almost $3.8 billion, net of legal fees and expenses.

Consider, for example, the lawsuits against Bank of America. Both the S.E.C. and investors claimed that Merrill Lynch executives had not disclosed losses and bonus payments at the firm before it was purchased by the bank. Private plaintiffs received almost $2.3 billion in their case; from the S.E.C.’s suit, investors received $150 million.Then there is the case against Angelo R. Mozilo and other top executives of Countrywide Financial. The private lawsuit generated $516.4 million for investors; the S.E.C.’s recovery for investors was just over $48 million.

Finally, private litigation against New Century Financial, a defunct mortgage lender, recovered $107.6 million, while the S.E.C.’s lawsuit recovered $1.5 million for investors.

“Private litigation prosecuted by sophisticated plaintiffs and their counsel — who are not restrained by the limited resources and bureaucracy of government agencies — has delivered far larger recoveries for victims than companion government actions,” said Gerald H. Silk, a partner at Bernstein Litowitz Berger & Grossmann, a securities class-action law firm.

To some degree, of course, this is because the S.E.C. cannot recover losses for investors. By law, the agency cannot seek a penalty that exceeds the financial gain a wrongdoer made, even if losses incurred by investors as a result of the improprieties are far greater. For instance, if investors lost $100 million in a Ponzi scheme in which the overseer pocketed $10 million, the S.E.C. can seek to recover only the $10 million in ill-gotten gains and another $10 million in penalties. And the S.E.C. has secured significant sums for investors in some matters where there was no class action. For example, in three big C.D.O. cases, the agency returned a combined $661 million to investors from Citigroup, Goldman Sachs and JPMorgan Chase.

When asked about the size of the recoveries the S.E.C. has generated for investors, Andrew J. Ceresney, the agency’s director of enforcement, said: “We have been vigorous in our efforts to hold individuals and companies accountable for abuses related to the financial crisis. One of our highest priorities in these cases is to return money to harmed investors, in addition to punishing and deterring misconduct.”

The S.E.C. can pursue powerful remedies that private plaintiffs cannot. For instance, the S.E.C. can bar people from serving as directors or officers of companies and suspend lawyers and accountants from practicing before the agency. In the financial crisis cases identified by the S.E.C., the agency said it had barred or suspended 40 people.

The agency can also force the people it sues to pay penalties out of their own pockets; this is much harder for private plaintiffs to do.

Still, the disparity in recoveries is telling. It shows, among other things, how crucial it is for investors to be able to bring private actions under the securities laws.

“The S.E.C. can’t do everything,” said Norman Poser, a professor emeritus at Brooklyn Law School and a former S.E.C. official. “The Supreme Court has said there is an implied private right of action under the securities laws for exactly that reason.”

While both plaintiffs and the agency have different roles to play, Congress should still consider expanding how much the S.E.C. can extract in penalties, perhaps making them commensurate with the losses investors incurred.

The S.E.C. has asked Congress for this authority, Mr. Ceresney said. But it has not been granted. “Allowing us to recover penalties equal to investor losses would assist us in fulfilling our investor protection mission,” he said.

Continued in article

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

The milk turns sour in the land of milk and honey and vodka
"Finland's got a lot of problems," by Edward Hugh, Business Insider, April 6, 2015 ---
Also at https://www.creditwritedowns.com/2015/04/is-finlands-economy-suffering-from-secular-stagnation.html#ixzz3Wco0JfML


"ObamaCare Pushes Colleges to Dump Student Health Plans," by John Merline, Investor's Business Daily, March 30, 2015 ---

College professors and students keep suffering unexpected costly ObamaCare side effects. First, colleges started rolling back faculty hours to avoid the employer mandate, a development the American Association of Association of University Professors called "reprehensible."

Then Harvard professors complained when the college hiked their insurance costs because of "health care reform."

Now colleges are starting to dump their student insurance plans because of ObamaCare.

An AP story notes that four of New Jersey's 11 state public colleges have done so, as have three of Washington state's six, and that many more are likely to follow.

These colleges figure that, since students can get coverage elsewhere, they can just wash their hands of the problem. Those students who had been relying on their college insurance plans now must go to an ObamaCare exchange or onto Medicaid to get coverage.

The problem, as University of Wisconsin, Madison, student health insurance manager Richard Simpson notes, is that college plans are usually a good deal for students, with lower deductibles and more flexibility than cheap ObamaCare plans provide.

"Student plans provide gold or platinum level coverage at a bronze price," Simpson told AP.

So students forced into an exchange are likely to be worse off financially.

True, many of these students will qualify for Medicaid because they earn little or no money. But while getting more Americans dependent on government earlier in life might make the left happy, cramming people who previously had good coverage onto the failing Medicaid system is hardly a sign of progress.

Of course, the other option is for students to join the ranks of the uninsured, which no doubt many will choose.

Jensen College
Even though Obamacare may take away one of the alternatives college students have for healthcare (as described in the above article) for most of those students their college's health insurance plan was probably a bad deal in the first place. For those students who have little or no income to report to the IRS because they are full-time students, the ACA exchange studies provide them with virtually free health insurance which is obviously cheaper than what most of them paid for medical insurance under a college student plan.

The taxpayers are getting hit for those subsidies, but the students themselves have a sweeter deal unless they have enough taxable income to make the ACA subsidies irrelevant.

Elder Care Costs Keep Climbing --- http://www.keloland.com/newsdetail.cfm/elder-care-costs-keep-climbing-nursing-home-bill-now-91k/?id=178450
Nursing Home Bill Now $91,000 on average in New York

The cost of caring for the elderly continues to climb. An industry survey says the median bill for a private room in a nursing home is now $91,000 a year. The report says the cost has increased four percent every year over the last five years. The annual "Cost of Care" report comes from the insurance company Gemworth Financial, which sells policies to cover long-term care. It's a growing financial burden for families, governments and insurers. The head of long-term services at the National Council on Aging, Joe Caldwell, says, "Most people don't realize how expensive...

Jensen Comment
It used to be that the most important concern for workers was saving for retirement while living a decent life while working and educating children. Now perhaps moving to the top of the list is the cost of nursing home care.

Are some CPA firms still providing elder care services. CPA firms never cared for patients, but in their expanded effort to provide a scope of assurance services some firms did provide assurance services for families concerned about quality of care of nursing homes for their relatives. This was especially a needed service such as when parents were in Florida nursing homes while their children lived and worked in other states.

The nursing home industry has a notorious reputation for fraud and abuse.

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/