Tidbits Quotations on October 19, 2010
To Accompany the October 19, 2010 edition of Tidbits
Bob Jensen at Trinity University


Deficit tops $1 trillion second year in a row ($1.29 trillion before November and December) ---

Long-term problem:
There has been a lot of political hysteria expressed over the annual deficits of the past two years.

Fiscal experts note, however, that the abnormally large deficits incurred in the wake of the financial crisis are not the primary source of the country's biggest fiscal problems.

The biggest source of fiscal concern remains the so-called structural deficit, which is made up primarily of spending on the big three entitlement programs. That structural deficit will continue to balloon faster than the economy grows long after the current downturn has ended.

Indeed, the Government Accountability Office projects that by the end of this decade, the vast majority of all federal tax revenue will be swallowed up by just four things: Interest payments on the country's debt, and the payment of Medicare, Medicaid and Social Security benefits.

The president's bipartisan fiscal commission, charged with recommending ways to get U.S. debt under control, will issue a report in December.


This is not a forwarded politically-biased message since David Walker is leading a very bipartisan effort to save the United States from economic disaster. Former Andersen Partner David Walker was appointed U.S. Comptroller General by President Bill Clinton and retained in the same position under President Bush ---

In his government position David Walker became staggered by the pending economic doom of the United States.

At the American Accounting Association 2010 annual meetings in San Francisco in August, David Walker will be the only person inducted this year into the Accounting Hall of Fame. Since leaving government service, David became the CEO of the Peterson Foundation that is trying to aid our government in saving the United States from entitlements bankruptcy. (By the way, as I read it, the Peterson Foundation supported the latest health care legislation that, in theory, will reduce deficit spending, although I personally think it should’ve been a full-fledged national health plan).

President Obama has appointed a joint task force to find ways of preventing total economic disaster of the United States that exists not so much because of current trillion dollar deficits as the threat of unfunded future entitlements obligations, with Medicare being the biggest unfunded entitlement as baby boomers retire.

Before viewing the Town Hall video, you might want to view the following earlier video:

You can watch a 30-minute version at
http://www.pgpf.org/newsroom/press/IOUSA-Solutions-Premiers-on-CNN/   (Scroll Down a bit)
Note that great efforts were made to keep this a bipartisan panel along with the occasional video clips of President Obama discussing the debt crisis. The problem is a build up over spending for most of our nation’s history, It landed at the feet of President Obama, but he’s certainly not the cause nor is his the recent expansion of health care coverage the real cause.

One take home from the CNN show was that over 60% of the booked National Debt increases are funded off shore (largely in Asia and the Middle East).  

 This going to greatly constrain the global influence and economic choices of the United States.

By 2016 the interest payments on the National Debt will be the biggest single item in the Federal Budget, more than national defense or social security. And an enormous portion of this interest cash flow will be flowing to foreign nations that may begin to put all sorts of strings on their decisions  to roll over funding our National Debt.

The unbooked entitlement obligations that are not part of the National Debt are over $60 trillion and exploding exponentially. The Medicare D entitlements to retirees like me added over $8 trillion of entitlements under the Bush Presidency.

Most of the problems are solvable except for the Number 1 entitlements problem --- Medicare.
Drastic measures must be taken to keep Medicare sustainable.



Watch National Town Meetings


Video on IOUSA Bipartisan Solutions to Saving the USA

If you missed Sunday afternoon CNN’s two-hour IOUSA Solutions broadcast, you can watch a 30-minute version at
http://www.pgpf.org/newsroom/press/IOUSA-Solutions-Premiers-on-CNN/   (Scroll Down a bit)
Note that great efforts were made to keep this a bipartisan panel along with the occasional video clips of President Obama discussing the debt crisis. The problem is a build up over spending for most of our nation’s history, It landed at the feet of President Obama, but he’s certainly not the cause nor is his the recent expansion of health care coverage the real cause.

One take home from the CNN show was that over 60% of the booked National Debt increases are funded off shore (largely in Asia and the Middle East).
This going to greatly constrain the global influence and economic choices of the United States.

By 2016 the interest payments on the National Debt will be the biggest single item in the Federal Budget, more than national defense or social security. And an enormous portion of this interest cash flow will be flowing to foreign nations that may begin to put all sorts of strings on their decisions  to roll over funding our National Debt.

The unbooked entitlement obligations that are not part of the National Debt are over $60 trillion and exploding exponentially. The Medicare D entitlements to retirees like me added over $8 trillion of entitlements under the Bush Presidency.

Most of the problems are solvable except for the Number 1 entitlements problem --- Medicare.
Drastic measures must be taken to keep Medicare sustainable.


I thought the show was pretty balanced from a bipartisan standpoint and from the standpoint of possible solutions.

Many of the possible “solutions” are really too small to really make a dent in the problem. For example, medical costs can be reduced by one of my favorite solutions of limiting (like they do in Texas) punitive damage recoveries in malpractice lawsuits. However, the cost savings are a mere drop in the bucket. Another drop in the bucket will be the achievable increased savings from decreasing medical and disability-claim frauds. These are important solutions, but they are not solutions that will save the USA.

The big possible solutions to save the USA are as follows (you and I won’t particularly like these solutions):


 Peter G. Peterson Website on Deficit/Debt Solutions ---

Watch for the other possible solutions in the 30-minute summary video ---
(Scroll Down a bit)


Here is the original (and somewhat dated video that does not delve into solutions very much)
IOUSA (the most frightening movie in American history) ---
(see a 30-minute version of the documentary at www.iousathemovie.com )

If you missed Sunday afternoon CNN’s two-hour IOUSA Solutions broadcast, you can watch a 30-minute version at
http://www.pgpf.org/newsroom/press/IOUSA-Solutions-Premiers-on-CNN/   (Scroll Down a bit)
Note that great efforts were made to keep this a bipartisan panel along with the occasional video clips of President Obama discussing the debt crisis. The problem is a build up over spending for most of our nation’s history, It landed at the feet of President Obama, but he’s certainly not the cause nor is his the recent expansion of health care coverage the real cause.

Watch the World Premiere of I.O.U.S.A.: Solutions on CNN
Saturday, April 10, 1:00-3:00 p.m. EST or Sunday, April 11, 3:00-5:00 p.m. EST

Featured Panelists Include:

  • Peter G. Peterson, Founder and Chairman, Peter G. Peterson Foundation
  • David Walker, President & CEO, Peter G. Peterson Foundation
  • Sen. Bill Bradley
  • Maya MacGuineas, President of the Committee for a Responsible Federal Budget
  • Amy Holmes, political contributor for CNN
  • Joe Johns, CNN Congressional Correspondent
  • Diane Lim Rodgers, Chief Economist, Concord Coalition
  • Jeanne Sahadi, senior writer and columnist for CNNMoney.com

Watch for the other possible solutions in the 30-minute summary video ---
(Scroll Down a bit)


CBS Sixty minutes has a great video on the enormous cost of keeping dying people artificially alive:
High Cost of Dying --- http://www.cbsnews.com/video/watch/?id=5737437n&tag=mncol;lst;3
(wait for the commercials to play out)

U.S. Debt/Deficit Clock --- http://www.usdebtclock.org/

"The Looming Entitlement Fiscal Burden," by Gary Becker, The Becker-Posner Blog, April 11, 2010 ---

"The Entitlement Quandary," by Richard Posner, The Becker-Posner Blog, April 11, 2010 ---

David Walker --- http://en.wikipedia.org/wiki/David_M._Walker_(U.S._Comptroller_General)

Harvard Professor Niall Ferguson --- http://en.wikipedia.org/wiki/Niall_Ferguson

Harvard Profession Video:   Niall Ferguson: Empires on the Edge of Chaos ---

Call it the fatal arithmetic of imperial decline. Without radical fiscal reform, it could apply to America next.
Niall Ferguson, "An Empire at Risk:  How Great Powers Fail," Newsweek Magazine Cover Story, November 26, 2009 --- http://www.newsweek.com/id/224694/page/1
Please note that this is NBC’s liberal Newsweek Magazine and not Fox News or The Wall Street Journal.

. . .

In other words, there is no end in sight to the borrowing binge. Unless entitlements are cut or taxes are raised, there will never be another balanced budget. Let's assume I live another 30 years and follow my grandfathers to the grave at about 75. By 2039, when I shuffle off this mortal coil, the federal debt held by the public will have reached 91 percent of GDP, according to the CBO's extended baseline projections. Nothing to worry about, retort -deficit-loving economists like Paul Krugman.

. . .

Another way of doing this kind of exercise is to calculate the net present value of the unfunded liabilities of the Social Security and Medicare systems. One recent estimate puts them at about $104 trillion, 10 times the stated federal debt.

Continued in article --- http://www.newsweek.com/id/224694/page/1


Niall Ferguson is the Laurence A. Tisch professor of history at Harvard University and the author of The Ascent of Money. In late 2009 he puts forth an unbooked discounted present value liability of $104 trillion for Social Security plus Medicare. In late 2008, the former Chief Accountant of the United States Government, placed this estimate at$43 trillion. We can hardly attribute the $104-$43=$61 trillion difference to President Obama's first year in office. We must accordingly attribute the $61 trillion to margin of error and most economists would probably put a present value of unbooked (off-balance-sheet) present value of Social Security and Medicare debt to be somewhere between $43 trillion and $107 trillion To this we must add other unbooked present value of entitlement debt estimates which range from $13 trillion to $40 trillion. If Obamacare passes it will add untold trillions to trillions more because our legislators are not looking at entitlements beyond 2019.


The Meaning of "Unbooked" versus "Booked" National Debt
By "unbooked" we mean that the debt is not included in the current "booked" National Debt of $12 trillion. The booked debt is debt of the United States for which interest is now being paid daily at slightly under a million dollars a minute. Cash must be raised daily for interest payments. Cash is raised from taxes, borrowing, and/or (shudder) the current Fed approach to simply printing money. Interest is not yet being paid on the unbooked debt for which retirement and medical bills have not yet arrived in Washington DC for payment. The unbooked debt is by far the most frightening because our leaders keep adding to this debt without realizing how it may bring down the entire American Dream to say nothing of reducing the U.S. Military to almost nothing.

Niall Ferguson,
"An Empire at Risk:  How Great Powers Fail," Newsweek Magazine Cover Story, November 26, 2009 --- http://www.newsweek.com/id/224694/page/1

This matters more for a superpower than for a small Atlantic island for one very simple reason. As interest payments eat into the budget, something has to give—and that something is nearly always defense expenditure. According to the CBO, a significant decline in the relative share of national security in the federal budget is already baked into the cake. On the Pentagon's present plan, defense spending is set to fall from above 4 percent now to 3.2 percent of GDP in 2015 and to 2.6 percent of GDP by 2028.

Over the longer run, to my own estimated departure date of 2039, spending on health care rises from 16 percent to 33 percent of GDP (some of the money presumably is going to keep me from expiring even sooner). But spending on everything other than health, Social Security, and interest payments drops from 12 percent to 8.4 percent.

This is how empires decline. It begins with a debt explosion. It ends with an inexorable reduction in the resources available for the Army, Navy, and Air Force. Which is why voters are right to worry about America's debt crisis. According to a recent Rasmussen report, 42 percent of Americans now say that cutting the deficit in half by the end of the president's first term should be the administration's most important task—significantly more than the 24 percent who see health-care reform as the No. 1 priority. But cutting the deficit in half is simply not enough. If the United States doesn't come up soon with a credible plan to restore the federal budget to balance over the next five to 10 years, the danger is very real that a debt crisis could lead to a major weakening of American power.


Blessed are the young, for they shall inherit the national debt.
Herbert Hoover --- http://www.brainyquote.com/quotes/quotes/h/herberthoo110353.html

Hoover Daily Report (Economics, History, Political Science, Social Science) --- http://www.hoover.org/news/daily-report 

October 14, 2010 message from Bob Jensen to the AECM

Hi David,

Of course we don't want 80-year old pilots or brain surgeons, but there was an ABC newscast about two weeks ago that featured a U.S. Navy Admiral who was now a Wal-Mart greeter and not yet double dipping (collecting both military retirement and SS benefits). He was collecting his military retirement benefits since he retired at age 54 (a guess). He will not collect SS benefits until retiring from Wal-Mart. There are lots of ways old folks can continue to lead productive lives even when they outlived their main careers as pilots, bus drivers, military officers, surgeons, etc.

At this point it doesn't do much good to argue that Social Security should be or should not be based upon life expectancy. The fact of the matter is that from the very beginning the historic "premiums" paid by employees and employers were based upon life expectancy whether or not it was a "good/just idea." Also factored into these premiums was the expected "savings" from not having to pay employees retirement benefits if they died before reaching retirement age.

It was is an actuarial mistake not to have allowed for sufficient increases in life expectancy to adjust the employer and employee "premiums." *We've been creating a multi-trillion dollar deficit time bomb as life expectancies increased and "premiums" were not suitably increased*.

To make matters worse, the premiums were not suitably increased for non-retirement beneficiaries that Congress elected to add to Social Security without sufficiently increasing premiums for expected added costs, especially the monthly benefits of disabled people who may start collecting social security at any time, including the time of birth. Various other beneficiaries were added that paid very little into the Fund.

Now future generations must make up the difference caused by huge actuarial flaws in the Social Security Fund (to say nothing of the much more problematic and under-funded Medicare Fund.) We will soon hit the point when us old folks are virtually eating our young.

The government wisely did not make promises about when beneficiaries had the rights to start collecting from the SS Fund. In the past two decades or so, Congress forced the retirement age to creep up slowly --- when I retired my full benefit could not be commenced before 67 years of age even though my father was able to collect full benefits beginning at age 65. For you it's even a higher retirement age before you're entitled to commence full benefits. Actually my father delayed social security until age 70 and proceeded to collect "super benefits" until he died in his sleep at age 89.

What David Walker argues is that even the current "creeping full-benefit starting age" system is not sustainable without even larger increases in retirement age for commencement of full benefits, especially given the dramatic increases in life expectancy since SS was invented under FDR. Medical care alternatives and poor diets led to much lower life expectancies immediately following the Great Depression years.

There are of course other solutions assuming that voters will beat down attempts to raise premiums to balance payouts or dramatically increase retirement age. The most likely solution will be hyperinflation and lowered cost-of-living beneficiary adjustments that do more to punish older beneficiaries than the younger generation bearing the current premiums needed for retirees who just refuse to die before starting to collect benefits (assuming younger-generation wages are adjusted for hyperinflation).

Whether just or unjust, life expectancy underlies the "Social Security Contract" between government and workers and disabled people (legitimate or fraudulent).

Bob Jensen

October 15, 2010 message from Bob Jensen to the AECM

Hi David,

There are many reasons why people cannot or should not stay in the main careers. Professional athletes are generally over the hill before age 40 in terms of beating out their competitors, but they generally find alternative employment. We can't trust many pilots and bus drivers and combat buddies after age 55. But they too can find alternative employment.

Trinity University has a management professor named Don VanEynde who was a Battalion Commander in Vietnam, earned a PhD from Columbia University after military retirement, and has been one of the most popular, if not the most popular, campus-wide professors for 15 years. He's still going strong even though he's older than me.

Professors have many advantages in that many physical ailments like Professor Fordham's arthritis do not detract from outstanding performance as long as wisdom, memory, scholarship, and enthusiasm have not yet waned. .

When tragedy does strike at any age that prevents working in virtually any productive capacity, it's possible to start collecting social security and Medicare before the prescribed ages for retirement. Due to being injured on the job as a surgical nurse, my wife commenced collecting SS disability benefits and Medicare when she 54 years old. After her spinal injury (she was ordered by a surgeon to lift a 300 lb instrument table over a power cord and had to be put immediately on traction for 30 days in the hospital) she worked for 10 more painful years before undergoing the first of her eventual 12 spine surgeries. Each surgery led to worse enduring pain --- http://www.trinity.edu/rjensen/Erika2007.htm She most certainly is not a poster child for million-dollar spine surgeries. Worker compensation paid for the early surgeries until she was declared eligible for social security disability and Medicare.

The problem is that Congress provided disability entitlements without nearly enough funding such that these entitlements now are enormous drivers of present and future multi-trillion deficits being passed on to current and future children in the United States. Extending SS retirement ages will most certainly increase the numbers of disability claims, but the majority of older workers are gratefully not eligible for disability status before retirement at higher ages. Disabled people can start collecting Medicare at any age as soon as they are declared eligible for SS disability benefits.

Disabled people should've been funded outside the SS retirement system, but members of Congress were too chicken to establish a separate Disability and Medical Fund. They sneaked the financial entitlements of the disabled onto the SS retirement and Medicare systems and passed the funding deficits on to our present and future children.

Between 1776 and 1950 the care of the elderly and disabled was the responsibility of their own savings, their parents, their children, and in extreme cases the County Homes. After the disabled became the responsibility of the Federal government, heirs confiscated their parents' savings and children were unburdened of parental care responsibilities. Federal and state governments took on the housing, care, and feeding of every disabled person. In theory, savings of the elderly are to be used for nursing home care, but fraud is rampant in terms of passing these costs on to taxpayers.

We can argue endlessly whether disabled people should be the responsibilities of their families or taxpayers or employers. For example, perhaps I should've been more financially responsible for my wife's disability than the social security and Medicare systems. On this subject I can truly be an academic who can take on any side in a debate. Perhaps worker compensation insurance should've covered my injured wife for a longer period of time, but the worker compensation insurance firm worked tooth and nail to pass her on to SS and Medicare.

The point is that government funding for the disabled should be a pay-as-you-go system taxation rather than a Ponzi scheme of deficit financing. The present entitlement system is not only unfair to future generations, it threatens the very survival of the United States --- http://www.trinity.edu/rjensen/Entitlements.htm

Bob Jensen


I found it interesting how high life expectancy has increased in the U.S. among all ethic groups. When Social Security actuarial tables were established, life expectancies were much lower for all ethnic groups. .

Those that now argue against extending the retirement ages and Medicare eligibility ages to keep these systems more solvent seldom mention how life expectancy increases are killing the systems because of failing to properly build in increases in life expectancies in actuary calculations. David Walker argues that perhaps the best way to reduce the deficit is to base retirement ages on more realistic life expectancy forecasts. Most other suggestions, like taking the cap off of contributions to Social Security, are insignificant in comparison. .

Note that the tidbit below is focused on Hispanics, but this is only incidental. What's more important is adjusting for the increased life expectancies of all ethnic groupings.

Why do Hispanics have higher life expectancies in the U.S.?

"Hispanics Have Highest Life Expectancy in U.S.:  Study Shows Life Expectancy for Hispanics in U.S. is 80.6," Denise Mann, WebMD, October 14, 2010 ---

Hispanics in the U.S. tend to live longer than non-Hispanics, a study shows.

The study shows that life expectancy for Hispanics is 80.6. Life expectancy is 78.1 for Non-Hispanic whites and 72.9 for non-Hispanic blacks. Overall, the life expectancy at birth for all Americans is 77.7.

The study, which appears in the October issue of Vital and Health Statistics, marks the first time that this longevity information has included reliable statistics for Hispanics living in the U.S. Researchers analyzed 2006 data from death certificates in all 50 states, Washington, D.C., and U.S. territories.

Hispanic males' life expectancy at birth is 77.9, but their life expectancy once they reach the age of 65 is 84. Hispanic women's life expectancy at birth is 83.1 years, and this number reaches 86.7 if they live to 65, the study shows.

"The results show that the Hispanic population has higher life expectancy at birth and at almost every subsequent age than non-Hispanic whites and non-Hispanic black populations," conclude the researchers who were led by Elizabeth Arias, PhD, of the National Center for Health Statistics in Hyattsville, Md.

The phenomenon "seems paradoxical because on average the Hispanic population has lower socioeconomic status than the non-Hispanic white population," she says.

Why Hispanics Live Longer
Exactly why Hispanics live longer than other populations is not fully understood, Hal Strelnick, MD, chief of the division of community health and the director of Hispanic Center of Excellence at Montefiore Medical Center, tells WebMD.

"Hispanics have birth outcomes that are better than would be expected, and some of this has to do with the ‘healthy immigrant’ phenomenon, which states that people who immigrate are young and active and tend to be healthier than those who don't," he says. Another possibility is that Hispanic communities are often based around strong social support networks, which can be "very protective."

Smoking and other risky behaviors may also be less common among certain members of the Hispanic community. "We don't have a lot of good studies to be able to say these are the risk factors that are more common or less common in these groups," he says.

The next step is to further classify Hispanics according to country of origin to see if any longevity trends emerge, the researchers say.

Jensen Comment
When setting employee and employer premiums for social security and Medicare, the explosion in life expectancy was greatly underestimated, thereby leaving these entitlement funds greatly short of funding.

"How the Fed Is Holding Back Recovery:  By promising to print more money, it's giving Congress an excuse to avoid critical tax and spending cuts," by David Malpass, The Wall Street Journal, October 19, 2010 ---

Congress will face a runaway train on taxes and spending when it reconvenes after the elections. The solution is to restrain both—especially to stop the $6 trillion tax increase scheduled to take place on Jan. 1—in order to restore business confidence and help job growth.

Instead, Congress is more likely to do nothing and count on the central bank to flood the economy with more money. In his speech at the Boston Federal Reserve Bank on Friday, Fed Chairman Ben Bernanke practically promised to oblige by resuming the large purchases of Treasury notes carried out to help stop the 2008 financial crisis. It's a sweeping manipulation of longer-term government interest rates and the dollar that the Fed should consider only in the direst of national emergencies or with specific congressional authorization.

Mr. Bernanke argued that most of today's high unemployment is cyclical and therefore susceptible to monetary stimulus. "We see little evidence that the reallocation of workers across industries and regions is particularly pronounced relative to other periods of recession," he said, "suggesting that the pace of structural change is not greater than normal." This ignores the tax, regulatory and federal spending crises hammering workers and small businesses.

In reality, workers are being reallocated, and by the millions. Due to the mortgage shambles, they are not moving around as much as in past recessions. But the structural reallocation is clearly pushing older workers into long-term unemployment.

Meanwhile, there's also been a powerful rechanneling of credit away from small businesses. Corporate and government jobs are faring better than small business jobs, another major structural change that Fed purchases will exacerbate by channeling cheap credit to big entities.

Jobs are moving to Asia as Washington's weak-dollar policy causes trillions of dollars to move abroad to protect against the risk of U.S. inflation and dollar debasement. Investors put their money into foreign factories, mines and workers, creating a boom there. They avoid long-term job-creating investments here, instead buying short-term IOUs from our government.

Whether in Republican or Democratic administrations, the Washington policy consensus for a decade has been "print and spend." When that doesn't work, the Washington prescription is to double the dose—more monetary easing and dollar devaluation, and always more government spending. The Fed in particular has become accustomed to subsidizing federal borrowing by holding interest rates too low, which distorts capital flows and fosters asset bubbles.

By claiming that most of our unemployment is cyclical and not structural—and by not once mentioning the crashing dollar or small business profits—Mr. Bernanke has demonstrated that the central bank has blinders on. In his speech Mr. Bernanke cited the decline in the core PCE deflator (which uses the broad-based price index for personal consumption expenditures and excludes the volatile food and energy components) as evidence that inflation trends are subdued. This is the same backward-looking indicator that former Fed Chairman Alan Greenspan used to defend his disastrous low-interest, weak-dollar monetary policy from 2003 through 2006.

The reality is that core PCE inflation is regularly revised upward as the government takes into proper account rising prices for popular new items. Thus inflation gets underestimated and the Fed makes mistakes based on this mismeasure. For example, core PCE inflation was originally reported at 1.5% in most of 2004 with no real uptrend until Katrina hit in the second half of 2005. However, the corrected data now shows that core inflation was rising sharply in 2003 when the Fed hit the gas pedal and weakened the dollar. By April 2004, core inflation was already rising above the Fed's 2% ceiling and constantly exceeded it through 2008.

The Fed's public advocacy of bond purchases has already weakened the dollar. And the nearly $100 billion per year in profit the Fed is earning from its investments are at the expense of savers forced to compete with the Fed for bonds.

President Obama and Mr. Bernanke tried print-and-spend in trillion-dollar increments in 2009 and 2010, with no discernible improvement in unemployment (which is still almost 27 million counting underemployment) or small business investment plans, nearly the weakest on record according to the September survey by the National Federation of Independent Business.

The administration's centralized small business loan plan, enacted in September, was the latest spending flop. As the government controls more industries and allocates more of the nation's capital, small businesses lower their hiring plans, as they did last month, on the expectation that the federal government will tax them more to pay for Washington's largess.

By electing a new Congress in November, voters may be able to slow federal spending growth, but they probably can't stop the Fed's latest expansion plan. The Fed is likely to buy more long-term government-guaranteed bonds, using newly created money to add to the over $2 trillion in bonds it already owns.

The damage is substantial. Near-zero interest rates are hammering savers, while transferring hundreds of billions of dollars annually to bond issuers—mostly governments, banks and bigger corporations. The weaker dollar is pushing risk capital away from this country and toward Asia and emerging markets.

America's structural growth problems are clearly focused in small business and stem from high taxes, regulatory threats and the central control of credit. But the Fed's stimulus policy supports government over the private sector and big business over small—meanwhile, giving Congress an excuse to impose crippling increases in taxes and spending.

Larry Summers and the Subversion of Economics

Aside from political issues of regulation, the article in the Chronicle of Higher Education below deals with conflicts of interest in the academy and among other paid government advisors collecting huge fees on the outside.

Also there’s an issue of professors serving in government having highly paid tenured faculty positions waiting for them on any given day. Most CEOs and generals who resign to serve government in paid advisory/executive positions, such as the President’s Cabinet, must resign and cannot return to their former jobs when stepping down from their paid advisory positions.

Let’s all welcome Larry Summers back to Harvard. Now he can once again work behind the scenes to have that “f**king Professor Harvey Mansfield” fired.

Bob Jensen

From: Robert Bruce Walker
Sent: Monday, October 04, 2010
Subject: regulation


An interesting article in a publication called the Chronicle of Higher Education. It is highly critical of Larry Summers, amongst other economists, for their role in deregulation and the significant conflicts of interest many of them have.

Bridges to Student Parties?
"Are College Students Scamming Michigan Welfare Program?" Inside Higher Ed, October 14, 2010 ---

Michigan's Department of Human Services has heard enough rumors that college students are abusing its equivalent of a food stamp program that it has deemed the idea "Myth No. 5" on its list of welfare program myths. But the Lansing State Journal, in an article published Thursday, quotes numerous store clerks complaining that local college students are using their "Bridge Cards" -- which are supposed to be used only for essentials -- on mixes for liquor and junk food. "They fill their carts with Red Bull, jerky, Doritos," one clerk told the newspaper. "They tell their friends, ‘Throw in whatever you want … the government’s paying for it.' ” While state officials said that as many as 18,000 college and university students were receiving food assistance at any given point in 2009-10, they called the notion of widespread abuse of Bridge Cards by students an urban legend.

"Politicians Exploit Economic Ignorance," by Walter E. Williams, Townhall, October 6, 2010 ---

One of President Obama's campaign promises was not to raise taxes on middle-class Americans. So here's my question: If there's a corporate tax increase either in the form of "cap and trade" or income tax, does it turn out to be a middle-class tax increase? Most people would say no but let's look at it.

There's a whole subject area in economics known as tax incidence -- namely, who bears the burden of a tax? The first thing that should be recognized is that the burden of a tax is not necessarily borne by the party upon whom it is levied. That is, for example, if a sales tax is levied on gasoline retailers, they don't bear the full burden of the tax. Part of it is shifted to customers in the form of higher gasoline prices.

Suppose your local politician tells you, as a homeowner, "I'm not going to raise taxes on you! I'm going to raise taxes on your land." You'd probably tell him that he's an idiot because land does not pay taxes; only people pay taxes. That means a tax on your land is a tax on you. You say, "Williams, that's pretty elementary, isn't it?" Not quite.

What about the politician who tells us that he's not going to raise taxes on the middle class; instead, he's going to raise corporate income taxes as means to get rich corporations to pay their rightful share of government? If a tax is levied on a corporation, and if it is to survive, it will have one of three responses, or some combination thereof. One response is to raise the price of its product, so who bears the burden? Another response is to lower dividends; again, who bears the burden? Yet another response is to lay off workers. In each case, it is people, not some legal fiction called a corporation, who bear the burden of the tax.

Because corporations have these responses to the imposition of a tax, they are merely government tax collectors. They collect money from people and send it to Washington. Therefore, you should tell that politician, who promises to tax corporations instead of you, that he's an idiot because corporations, like land, do not pay taxes. Only people pay taxes.

Here's another tax question, even though it doesn't sound like it. Which workers receive higher pay: those on a road construction project moving dirt with shovels and wheelbarrows or those moving dirt atop a giant earthmover? If you said the worker atop the earthmover, go to the head of the class. But why? It's not because he's unionized or that construction contractors have a fondness for earthmover operators. It's because the worker atop the earthmover is working with more capital, thereby making him more productive. Higher productivity means higher wages.

Continued in article

There are a number of life's lessons here:  It often pains accountants to record the decisions made by eroneous umpires
"Accountability Behind the Plate," by John Rosenthal and Kirk Victor, The New York Times, October 14, 2010 ---

It took six umpires during Game 1 of the American League Division Series to decide whether Yankees right fielder Greg Golson had caught a line drive by the Twins’ Delmon Young — and they still got it wrong. Anyone with access to a television could see that Golson had caught the ball fairly.

But because baseball stubbornly refuses to allow its umpires to consult video on anything but home run calls, the blunder stood. Even though umpires now routinely consult each other in an effort to get calls right, there has been an unusually large number of mistakes on critical plays in this year’s postseason, which resumes with the American League Championship Series Friday night.

Fans deserve better. Baseball should install an additional umpire in the broadcast booth, one with the authority and respect of his colleagues to use instant replay to review (and overturn) calls.

The process would take far less time than an umpire meeting, and it would greatly reduce the number of bad calls. An eye in the sky could, for example, have given Detroit pitcher Armando Gallaraga the perfect game denied him after umpire Jim Joyce mistakenly called a runner safe at first.

Continued in article

Sometimes it takes lemons to get best "lemonade"
"Chile's Spirit Sunlight at the end of the tunnel," The Wall Street Journal, October 14, 2010 ---

It long ago became standard practice across the modern world to treat every disaster or near-disaster as an occasion for examining the lessons learned. The accident in a remote Chilean mine that left 33 men trapped a half-mile underground for 69 days will be no exception. We will learn soon enough about what steps could have been taken to prevent the accident, how the miners survived those precarious early days before they were reached by the world above, and how the relief effort—on the cusp of complete success as we went to press—was organized.

All such lessons have their value. But what the saga of the San Jose Mine is ultimately about is the power of the human spirit. That is most obviously true of the trapped miners, and of the example they set for resilience, cohesion and resourcefulness. But it is no less true of the people above-ground who believed (when the belief seemed improbable) that the miners had survived the accident, that their rescue was a matter of top national priority, and that the ingenuity of the world could be enlisted to make it happen.

And we do mean the world: Jeff Hart, the 40-year-old drill operator who broke through to the miners last weekend, is an American from Denver. NASA provided design requirements for the extraction capsule, while Japan, Germany and other nations provided crucial technology.

Particular credit belongs to Chilean President Sebastián Piñera. It was Mr. Piñera who insisted on an all-out rescue effort, ultimately involving three separate extraction methods, when a more cautious (or fatalistic) politician might have feared raising expectations that could easily have been dashed.

Commentators have described his decision as a calculated political gamble, but to us it seems more like genuine statesmanship. Chile has historically depended on mining for much of its wealth. To keep faith with the men who go deep down into the earth to extract that wealth, as Mr. Piñera has, can no more be subject to a cost-benefit analysis than an army's decision to rescue its wounded or fallen soldiers from the battlefield. Deeper things are at stake.

Coincidentally—or providentially—the rescue at the mine takes place almost exactly on Chile's bicentennial. We try not to abuse metaphors, but it does seem as if it is Chile itself that has risen into sunlight.


Jensen Comment
In the past decade, Chile has been a model of how capitalism (free capital markets and free trade) and democracy can lift a developing nation out of poverty relative to its more socialist and totalitarian nations of the world. There are still poor people in Chile but most of the poor are faring much better than the poor in other South American and Latin American nations.

The capitalism experiment was instigated by some of Milton Friedman's Chilean followers (inspired while at the University of Chicago) who put Friedman's theories to the test after returning home to Chile.

Chile rose to Rank 44 among 182 nations in terms of economic and human equality criteria ---

Chile:  The "Chicago Boys" Experiment in Real Life
It is widely known that the Chicago School (in economics, finance, accounting, and business in general) was profoundly influenced by the free market/low taxation  scholarship of Nobel Laureate Milton Friedman (along with some other offshoots such as the University of Virginia and George Mason University) ---

On December 9, 2009 ABC News did a feature on the amazing successes of Chile vis-à-vis the rest of the Western Hemisphere. Chile became a laboratory study for the Chicago School theory of free markets. Unfortunately in some respects, the experiment was based, for a short but crucial period, on the brutal and vicious dictatorship of Augusto Pinochet

But now Dictator Pinochet is history and the current economic Chilean success in economic growth coupled with reducing unemployment and poverty has made the "Chicago Boys" more credible ---


"Say NO to Government Subsidies For Frivolous Litigation," by Lisa A. Ricard, Townhall, October 6, 2010 ---

Taxes are a major topic of debate in Washington right now. Faced with a massive federal deficit, some politicians have proposed raising taxes on individuals and businesses, despite the obvious negative effects of tax increases on economic growth and job creation. Yet at the same time, some in Washington are actually considering the creation of a new special interest tax break that will hurt economic growth, increase the deficit and fuel increased civil litigation.

The plaintiffs' bar and its allies in Congress and the administration are pushing for the adoption of a nearly $1.6 billion tax deduction for trial lawyers who take contingency fee cases. This proposed deduction would essentially provide a U.S. government subsidy to plaintiffs' lawyers to increase the number of frivolous lawsuits.

For several years, the plaintiffs' bar has been attempting to push this proposed tax break through Congress. With Congress so far unwilling to act, plaintiffs' lawyers have decided on a new approach and are now aggressively lobbying the Treasury Department to bypass Congress and create the deduction through administrative action.

The tax deduction would impose direct costs on the federal government and American taxpayers. According to the Congressional Budget Office, this trial lawyer subsidy would cost nearly $1.6 billion over ten years, all during a time of record federal deficits.

But these direct costs represent just a fraction of the proposal's potential damage. The contingency fee tax break would, in effect, subsidize ever more costly, frivolous litigation against American businesses. By some estimates, the tax deduction could subsidize as much as 40 percent of the initial plaintiffs' expenses for certain cases. With the federal government paying for such a large percentage of the up-front costs of lawsuits, plaintiffs' lawyers will be emboldened to take on the most speculative and frivolous litigation.

And in these troubled economic times, the last thing America needs is more frivolous lawsuits. As a percentage of gross domestic product, the United States spends more than twice as much on litigation as any other industrialized nation, a cost that reached $254.7 billion in 2008 according to a report by Towers Perrin.

Continued in article

"Revolt of the Accountants:  Washington is turning America into Paperwork Nation," by Peggy Noonan, The Wall Street Journal, October 8, 2010 ---

If you write a column, you get a lot of email. Sometimes, especially in a political season, it's possible to discern from it certain emerging themes—the comeback of old convictions, for instance, or the rise of new concerns. Let me tell you something I'm hearing, in different ways and different words. The coming rebellion in the voting booth is not only about the economic impact of spending, debt and deficits on America's future. It's also to some degree about the feared impact of all those things on the character of the American people. There is a real fear that government, with all its layers, its growth, its size, its imperviousness, is changing, or has changed, who we are. And that if we lose who we are, as Americans, we lose everything.

This is part of what's driving the sense of political urgency this year, especially within precincts of the tea party.

The most vivid illustration of the fear comes, actually, from another country, Greece, and is brilliantly limned by Michael Lewis in September's Vanity Fair. In "Beware Greeks Bearing Bonds," he outlines Greece's economic catastrophe. It is a bankrupt nation, its debt, or rather the amount of debt that has so far been unearthed and revealed, coming to "more than a quarter-million dollars for every working Greek." Over decades the Greeks turned their government "into a piñata stuffed with fantastic sums" and gave "as many citizens as possible a whack at it." The average government job pays almost three times as much as the average private-sector job. The retirement age for "arduous" jobs, including hairdressers, radio announcers and musicians, is 55 for men and 50 for women. After that, a generous pension. The tax system has disintegrated. It is a welfare state with a cash economy.

Much of this is well known, though it is beautifully stated. But all of it, Mr. Lewis asserts, has badly damaged the Greek character. "It is simply assumed . . . that anyone who is working for the government is meant to be bribed. . . . Government officials are assumed to steal." Tax fraud is rampant. Everyone cheats. "It's become a cultural trait," a tax collector tells him.

Mr. Lewis: "The Greek state was not just corrupt but also corrupting. Once you saw how it worked you could understand a phenomenon which otherwise made no sense at all: the difficulty Greek people have saying a kind word about one another. . . . Everyone is pretty sure everyone is cheating on his taxes, or bribing politicians, or taking bribes, or lying about the value of his real estate. And this total absence of faith in one another is self-reinforcing. The epidemic of lying and cheating and stealing makes any sort of civic life impossible."

Thus can great nations, great cultures, disintegrate, break into little pieces that no longer cohere into a whole.

And what I get from my mail is a kind of soft echo of this. America is not Greece and knows it's not Greece, but there is a growing sense—I should say fear—that the weighty, mighty, imposing American government itself, whether it meant to or not, has for years been contributing to American behaviors that are neither culturally helpful nor, as we now all say, sustainable: a growing sense of entitlement, of dependency, of resentment and distrust, and an increasing suspicion that everyone else is gaming the system. "I got mine, you get yours."

People, as we know, are imperfect. Governments, composed top to bottom of imperfect people wielding power, are very imperfect. There are of course a million examples, big and small, of how governments can damage the actual nature and character of the citizenry, and only because there was just a commercial on TV telling me to gamble will I mention the famous case of the state lotteries. Give government the right to reap revenues from the public desire to gamble, and you'll soon have government doing something your humble local bookie never had the temerity to try: convince the people that gambling is a moral good. They promote it insistently on local television, undermining any remaining reserve among our citizens not to play the numbers, not to develop what can become an addiction. Our state government daily promotes what for 2,000 years was understood to be a vice. No bookie ever committed a crime that big.

Government not only can change the national character, it can bizarrely channel national energy. And this is another theme in my mailbox, the rebellion against what government increasingly forces us to become: a nation of accountants.

No matter what level of life in which you operate, you are likely overwhelmed by forms, by a blizzard of regulations, rules, new laws. This is not new, it's just always getting worse. Priests are forced to be accountants now, and army officers, and dentists. The single most onerous part of ObamaCare is the tax change whereby spending $600 on goods or services will require a 1099 form. Economists will tell you of the financial cost of this, but I would argue that Paperwork Nation is utterly at odds with the American character.

Because Americans weren't born to be accountants. It's not our DNA! We're supposed to be building the Empire State Building. We were meant, to be romantic about it, and why not, to be a pioneer people, to push on, invent electricity, shoot the bear, bootleg the beer, write the novel, create, reform and modernize great industries. We weren't meant to be neat and tidy record keepers. We weren't meant to wear green eyeshades. We looked better in a coonskin cap!

There is I think a powerful rebellion against all this. It isn't a new rebellion—it was part of Goldwaterism, and Reaganism—but it's rising again.

For those who wonder why so many people have come to hate, or let me change it to profoundly dislike, "the elites," especially the political elite, here is one reason: It is because they have armies of accountants to do this work for them. Those in power institute the regulations and rules and then hire people to protect them from the burdens and demands of their legislation. There is no congressman passing tax law who doesn't have staffers in his office taking care of his own financial life and who will not, when he moves down the street into the lobbying firm, have an army of accountants to protect him there.

Washington is now to some degree the focus of the same sort of profound resentment that Hollywood liberals inspired when they really mattered, or seemed really powerful. For decades they made films that were not helpful to our culture or society, that were full of violence and sick imagery. But they often brought their own children up more or less protected from the effects of the culture they created. Private schools, nannies, therapists, tutors. They bought their way out of the cultural mayhem to which they'd contributed. Their children were fine. Yours were on their own.

This is part of why people dislike "the elites" and why "the elites," especially in Washington, must in turn be responsive, come awake, start to notice. People don't like it when they fear you are subtly, day by day, year by year, changing the personality and character of their nation. They think, "You are ruining our country and insulating yourselves from the ruin. We hate you." And this is understandable, yes?

Continued in article

"Billions and billions" of IRS 1099 Forms must be filed after 2010, possibly more than all the stars in the universe.
Carl Sagan paraphrase

Are tax cuts overrated in terms of stimulating startup businesses?
Will the true accounting cost (such as onerous barriers to startup businesses) to business of complying with regulations exceed the benefits to the government?

And finally, the Incentive Myth: it’s necessary to keep tax rates low, so entrepreneurs can reap huge rewards for their time, sweat, and money. Well, this may be true, but it misses a parallel truth: government disincentives to entrepreneurship. Panner, a registered Democrat, criticizes complex accounting, employment and health-care regulations imposed by federal and state agencies that consume scarce investment funds and time. There’s a bureaucratic bias, unintended perhaps, against startups.
"The Real Jobs Machine Without startups, we’re sunk," by Richard J. Samuelson, Newsweek Magazine, October 11, 2010. Page26 ---

If you’re interested in job creation—and who isn’t these days?—you should talk to someone like Morris Panner. In 1999, Panner and some others started a Boston software company called OpenAir. By 2008 they sold it for $31 million. The firm had then grown to about 50 workers. It turns out that entrepreneurship (essentially, the founding of new companies) is crucial to job creation. But as Panner’s experience suggests, success is often a slog.

What’s frustrating and perplexing about the present job dearth is that the U.S. economy has long been a phenomenal employment machine. Here’s the record: 83 million jobs added from 1960 to 2007, with only six years of declines (1961, 1975, 1982, 1991, 2002, 2003). Conventional analysis blames today’s poor performance (jobs are 7.6 million below their pre-recession peak) on weak demand. Because people aren’t buying, businesses aren’t hiring. Though true, this omits the vital role of entrepreneurship.

In any given year, employment may reflect the ups and downs of the business cycle. But over longer periods, almost all job growth comes from new businesses. The reason: high death rates among existing firms. Even successful firms succumb to threats: new competition or technologies; mature markets; the death of founders; shifting consumer tastes; poor management and unprofitability. A company founded today has an 80 percent chance of disappearing over the next quarter century, reports a study by Dane Stangler and Paul Kedrosky of the Kauffman Foundation.

True, some blue-chip firms—the Exxons and Procter & Gambles—endure. Four fifths of the Fortune 500 were founded before 1970. But they are exceptions, and many blue chips have died: Pan Am (once the premier international airline), Digital Equipment (once the second-largest computer maker), and Circuit City (once a leading consumer-electronics chain).

The debate over whether small or big firms create more jobs is misleading. The real distinction is between new and old. American workers are roughly split between firms with fewer or more than 500 employees. In healthy times, older companies of all sizes do create lots of jobs. But they also lose jobs, as some businesses shrink or vanish. On balance, job creation and destruction cancel. All the net job increases occur among startups, finds a study of the 1992–2005 period by economists John Haltiwanger of the University of Maryland and Ron Jarmin and Javier Miranda of the Census Bureau.

To be sure, entrepreneurship has a downside: booms and busts. Remember the dotcom “bubble.” But more damaging, says Panner, are widespread popular misconceptions about what it is and isn’t.

Start with the Blockbuster Myth: successful entrepreneurship creates huge enterprises à la Google that transform how we live. In reality, “most ventures don’t change the world,” says Panner. They’re unknown companies providing highly specialized goods and services, plus restaurants, auto-repair shops, and many other unromantic businesses. There are more than 500,000 startups annually. The number must be large to make an impact on the 155 million–person labor force.

Second is the Inspiration Myth: most startups spring from some epiphany suggesting a new product or technology. Wrong. Gee-whiz moments are few. Companies constantly change plans. OpenAir ditched its original idea, which didn’t draw customers. “You can’t do anything until you meet someone’s needs,” says Panner. Failure rates are high; half of new firms die within five years.

And finally, the Incentive Myth: it’s necessary to keep tax rates low, so entrepreneurs can reap huge rewards for their time, sweat, and money. Well, this may be true, but it misses a parallel truth: government disincentives to entrepreneurship. Panner, a registered Democrat, criticizes complex accounting, employment and health-care regulations imposed by federal and state agencies that consume scarce investment funds and time. There’s a bureaucratic bias, unintended perhaps, against startups.

It’s all about risk taking. The good news is that the entrepreneurial instinct seems powerful. Americans like to create; they’re ambitious; many want to be their “own bosses”; many crave fame and fortune. (Panner is already involved with a new startup; it has five employees.) The bad news is that venture capital for startups is scarce and that political leaders seem largely oblivious to burdensome government policies. This needs to be addressed. Entrepreneurship won’t instantly cure America’s job deficit, but without it, there will be no strong recovery.

Small businesses, meanwhile, have discovered that their tax preparation costs just went way up. The PPACA will require small business owners and the self-employed to fill out 1099s for every company they do more than $600 worth of business with. That means any freelancer who buys a mid-range laptop from Best Buy will technically be required to fill out a 1099, no matter if the retailer is an indifferent chain giant. As with the drug subsidy modification, the idea is to beef up compliance and raise additional revenue—about $17 billion worth. Yet if it works, it will drive up compliance costs—how many home-based freelancers are likely to generate a docket of 1099s, complete with tax identification numbers, for big corporate suppliers all by themselves? And if, as seems likely, the requirement is widely ignored, it will have the exact opposite of its intended effect, pushing more and more taxable transactions into illegal, unrecorded territory.
"Is the Cure Worse than the Disease? A month after passage, ObamaCare is already failing," by Peter Suderman, Reason Magazine, May 14, 2010 --- http://reason.com/archives/2010/05/14/the-cure-is-worse-than-the-dis

Also see http://townhall.com/columnists/LuritaDoan/2010/10/11/obamas_huge_new_tax


"Four Governors on How to Cut Spending:  Four governors tell us how they are coping and how they plan to save money in the future," The Wall Street Journal, October 13, 2010 ---

Editor's Note: After years of cost increases that exceeded population growth and inflation, the budgets of many American states plunged into crisis during the economic downturn. We asked four governors to tell us how they are coping and how they plan to save money in the future.

• Ed Rendell: Try Smart Shopping

• Arnold Schwarzenegger: Pension Reform Is Key

• Deval Patrick: Invest During Bad Times

• Bob McDonnell: Ever-Higher Budgets Can't Be the Norm

Try Smart Shopping

By Ed Rendell

Pennsylvania now spends $2 billion less to run state government than it did eight years ago. This didn't happen by accident; it's a direct result of the smart management measures we put into place.

Pennsylvania had more than 2,000 contracts for buying office supplies when I took office in January 2003. Some agencies paid full retail price. We immediately began applying good business practices to every aspect of state purchasing. We saved $14 million a year by putting office supplies out to bid and selecting the lowest-priced single supplier. Applying that same model to computer purchases saved taxpayers another $19 million a year. We allow local governments and school districts to piggyback on these contracts. These are just two examples of the procurement redesign that is saving taxpayers nearly $30 million a year.

Today, the skyrocketing cost of providing health care is squeezing taxpayers. Here, we've applied more cutting-edge strategies. To give our state workers greater responsibility for their own care, I imposed the first-ever employee contribution toward premiums. We also require employees to fully engage in a wellness program or face 50% higher monthly premiums.

Our wellness plan specifically focuses on reducing the costs of treating chronic illness, and it actively pushes employees to stay healthy. This approach enables us to keep the state's cost increases to less than 7% a year, well below that of most other states in the recent past. This is a true "win-win" for our employees and our taxpayers.

To save even more money without cutting services to taxpayers, we've asked the state legislature to place all 500 of our school districts into one combined health-insurance plan. Districts would enjoy new leverage in the insurance marketplace, leading to improved benefits and cost reductions of up to 30%.

Each of our cost-saving measures has faced some opposition from legislative leaders of both parties. Fortunately, taxpayers stood with us—they understand that common sense, innovation and political will are what it takes to make government work for them.

Mr. Rendell, a Democrat, is the governor of Pennsylvania.


Pension Reform Is Key

By Arnold Schwarzenegger

For years now, I have been trying to get lawmakers to reform public employee pensions in order to benefit private-sector job growth. The problem is stark: Over the last decade in California, spending on state employees' compensation rose nearly three times faster than state revenues. This has squeezed resources for programs, such as higher education and job training, that benefit private-sector workers.

This year, for the first time ever, our state was forced to spend more on retirement costs ($6.5 billion) than on higher education. This prevented us from, among other things, investing in more transportation and other infrastructure projects that are needed to accommodate the world's fastest-growing and most innovative companies.

Last week we finally got some good news: The state legislature agreed to pass my pension reforms as part of a hard-fought budget deal. These reforms cut spending in significant ways:

• Current employees will now be required to contribute more toward their pensions, saving nearly $800 million this year alone.

• For new employees, we will create a two-tier system that rolls pension levels back to pre-1999 levels. This will reduce pension costs by $100 billion over time.

• We ended the ugly practice of pension "spiking," where employees manipulated their compensation in their final year at work in order to boost their lifetime retirement benefits.

• We brought transparency to the system by exposing the deceptive pension fund accounting practices that were hiding hundreds of billions in pension debt from the taxpayers.

These reforms are creating a pension system that is fair to both state workers and to the private-sector workers who pay their salaries and benefits. It will free up more money for investing in critical programs like higher education and infrastructure, and help reduce tax burdens on the private sector.

It saddens me to see Democrats and some Republicans who seem intent on raising business taxes and reducing infrastructure investment in order to protect spending on public-employee compensation and retirement benefits. We believe that, on the contrary, private-sector job growth will be enhanced if public-sector retirement benefits are brought under control. All it takes is some lawmakers who are willing to stand up to the special interests and do what's right.

Mr. Schwarzenegger, a Republican, is the governor of California.


Invest During Bad Times

By Deval Patrick

Even before we began to feel the effects of the global economic collapse, we chose investments and reforms that we believed would build a stronger, better Commonwealth for a generation. We stuck with that strategy through the recession—and it's working.

Massachusetts increased its investment in education—because education is our calling card around the world—and sustained it because second graders don't get to sit out the second grade until the recession is over. We invested in innovation industries (like biotech, IT, clean and alternative energy, and related manufacturing) because our highly educated work force is uniquely suited to such enterprises. And we invested in health care, because we see health as a public good, and because we believe that people should have health security, especially in tough times.

We paid for these investments with government reforms and deep cuts in other spending. We cut $4.3 billion from a variety of programs and agencies, reduced employee head count by 3,000, negotiated wage and benefit concessions from state employee unions, and increased state employee health-care contributions. We also capped pensions and ended loopholes that some employees used to boost their retirement benefits, such as by claiming an entire year of service for working one day in a calendar year.

At the same time, we consolidated more than 20 transportation, business development and other state agencies. Civilian flaggers instead of police details were assigned to construction projects. We cut the business tax rate to 8.75% from 9.5%. We closed tax loopholes that favored multinationals over small businesses, which make up 85% of the businesses in our state. We increased our sales tax to 6.25% from 5%, but food and most clothing remain untaxed. A large rainy day fund and federal stimulus funds have also helped. Through this blended approach, we delivered four responsible, balanced budgets—on time—leading all the independent rating agencies to reaffirm our strong bond rating.

We're getting results. Massachusetts's rate of job growth is the highest in the nation, having added nearly 65,000 jobs so far since December. The state economy is growing at 6.4%, twice the annual rate. CNBC rates us the fifth best place in the U.S. for business.

Mr. Patrick, a Democrat, is the governor of Massachusetts.


Ever-Higher Budgets Can't Be the Norm

By Bob McDonnell

When I took office in January, we faced two massive budget shortfalls. The first was $1.8 billion in the fiscal year 2010 budget. To get this under control we cut spending and provided a financial reward for state workers to generate savings and not spend their entire agency budgets by the end of the fiscal year. Six months later we announced a $403 million surplus.

The second shortfall was $4.2 billion in the current biennial budget. Again, we cut a wide variety of programs (including in education and health), reducing state spending to 2006 levels. As a result we closed that shortfall without a tax increase—indeed we threatened a veto if the legislature passed the previous governor's proposed $2 billion tax increase. The legislature rejected the tax unanimously.

Virginia's state budget grew by 73.4% from 2000 to 2009, much faster than the rate of growth in population plus inflation. This is unsustainable and unacceptable, and the budget cannot be seriously restrained without addressing its two primary drivers: personnel and programs.

As a result, we supported a significant overhaul of Virginia's pension system. All state employees hired after July 1 of this year will now, for the first time in a generation, contribute to their own pensions. With pension-system reform, we will save an estimated $3 billion over the next 10 years. Actuaries estimate that in the long run, our reforms will reduce the total cost of Virginia's pension system by 10%.

Our second major reform was an immediate, statewide hiring freeze. We obtained enhanced authority from the legislature for the governor to order a freeze that covers all noncritical areas of state government, not just a select few agencies. This strict freeze, together with reductions in full-time positions, will save over $20 million a year.

Looking forward, we've also created a commission on government reform that is evaluating over a thousand ideas to save tax dollars, by doing everything from cutting and consolidating boards and agencies to creating a one-stop shop where businesses can access every license, permit and registration they need to operate. For too long, state governments have operated on the assumption that ever-higher budgets are the norm. We intend to redo the way government operates.

Mr. McDonnell, a Republican, is the governor of Virginia.


"Why Liberals Don't Get the Tea Party Movement:  Our universities haven't taught much political history for decades. No wonder so many progressives have disdain for the principles that animated the Federalist debates," by Peter Berkowitz (Economics Professor at Stanford University), The Wall Street Journal, October 16, 2010 ---

Highly educated people say the darndest things, these days particularly about the tea party movement. Vast numbers of other highly educated people read and hear these dubious pronouncements, smile knowingly, and nod their heads in agreement. University educations and advanced degrees notwithstanding, they lack a basic understanding of the contours of American constitutional government.

New York Times columnist Paul Krugman got the ball rolling in April 2009, just ahead of the first major tea party rallies on April 15, by falsely asserting that "the tea parties don't represent a spontaneous outpouring of public sentiment. They're AstroTurf (fake grass-roots) events."

Having learned next to nothing in the intervening 16 months about one of the most spectacular grass-roots political movements in American history, fellow Times columnist Frank Rich denied in August of this year that the tea party movement is "spontaneous and leaderless," insisting instead that it is the instrument of billionaire brothers David and Charles Koch.

Washington Post columnist E. J. Dionne criticized the tea party as unrepresentative in two ways. It "constitutes a sliver of opinion on the extreme end of politics receiving attention out of all proportion with its numbers," he asserted last month. This was a step back from his rash prediction five months before that since it "represents a relatively small minority of Americans on the right end of politics," the tea party movement "will not determine the outcome of the 2010 elections."

In February, Mr. Dionne argued that the tea party was also unrepresentative because it reflected a political principle that lost out at America's founding and deserves to be permanently retired: "Anti-statism, a profound mistrust of power in Washington goes all the way back to the Anti-Federalists who opposed the Constitution itself because they saw it concentrating too much authority in the central government."

Mr. Dionne follows in the footsteps of progressive historian Richard Hofstadter, whose influential 1964 book "The Paranoid Style in American Politics" argued that Barry Goldwater and his supporters displayed a "style of mind" characterized by "heated exaggeration, suspiciousness, and conspiratorial fantasy." Similarly, the "suspicion of government" that the tea party movement shares with the Anti-Federalists, Mr. Dionne maintained, "is not amenable to 'facts'" because "opposing government is a matter of principle."

To be sure, the tea party sports its share of clowns, kooks and creeps. And some of its favored candidates and loudest voices have made embarrassing statements and embraced reckless policies. This, however, does not distinguish the tea party movement from the competition.

Born in response to President Obama's self-declared desire to fundamentally change America, the tea party movement has made its central goals abundantly clear. Activists and the sizeable swath of voters who sympathize with them want to reduce the massively ballooning national debt, cut runaway federal spending, keep taxes in check, reinvigorate the economy, and block the expansion of the state into citizens' lives.

In other words, the tea party movement is inspired above all by a commitment to limited government. And that does distinguish it from the competition.

But far from reflecting a recurring pathology in our politics or the losing side in the debate over the Constitution, the devotion to limited government lies at the heart of the American experiment in liberal democracy. The Federalists who won ratification of the Constitution—most notably Alexander Hamilton, James Madison and John Jay—shared with their Anti-Federalist opponents the view that centralized power presented a formidable and abiding threat to the individual liberty that it was government's primary task to secure. They differed over how to deal with the threat.

The Anti-Federalists—including Patrick Henry, Samuel Bryan and Robert Yates—adopted the traditional view that liberty depended on state power exercised in close proximity to the people. The Federalists replied in Federalist 9 that the "science of politics," which had "received great improvement," showed that in an extended and properly structured republic liberty could be achieved and with greater security and stability.

This improved science of politics was based not on abstract theory or complex calculations but on what is referred to in Federalist 51 as "inventions of prudence" grounded in the reading of classic and modern authors, broad experience of self-government in the colonies, and acute observations about the imperfections and finer points of human nature. It taught that constitutionally enumerated powers; a separation, balance, and blending of these powers among branches of the federal government; and a distribution of powers between the federal and state governments would operate to leave substantial authority to the states while both preventing abuses by the federal government and providing it with the energy needed to defend liberty.

Whether members have read much or little of The Federalist, the tea party movement's focus on keeping government within bounds and answerable to the people reflects the devotion to limited government embodied in the Constitution. One reason this is poorly understood among our best educated citizens is that American politics is poorly taught at the universities that credentialed them. Indeed, even as the tea party calls for the return to constitutional basics, our universities neglect The Federalist and its classic exposition of constitutional principles.

For the better part of two generations, the best political science departments have concentrated on equipping students with skills for performing empirical research and teaching mathematical models that purport to describe political affairs. Meanwhile, leading history departments have emphasized social history and issues of race, class and gender at the expense of constitutional history, diplomatic history and military history.

Neither professors of political science nor of history have made a priority of instructing students in the founding principles of American constitutional government. Nor have they taught about the contest between the progressive vision and the conservative vision that has characterized American politics since Woodrow Wilson (then a political scientist at Princeton) helped launch the progressive movement in the late 19th century by arguing that the Constitution had become obsolete and hindered democratic reform.

Then there are the proliferating classes in practical ethics and moral reasoning. These expose students to hypothetical conundrums involving individuals in surreal circumstances suddenly facing life and death decisions, or present contentious public policy questions and explore the range of respectable progressive opinions for resolving them. Such exercises may sharpen students' ability to argue. They do little to teach about self-government.

They certainly do not teach about the virtues, or qualities of mind and character, that enable citizens to shoulder their political responsibilities and prosper amidst the opportunities and uncertainties that freedom brings. Nor do they teach the beliefs, practices and associations that foster such virtues and those that endanger them.

Those who doubt that the failings of higher education in America have political consequences need only reflect on the quality of progressive commentary on the tea party movement. Our universities have produced two generations of highly educated people who seem unable to recognize the spirited defense of fundamental American principles, even when it takes place for more than a year and a half right in front of their noses.




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

    Return to the Tidbits Archives ---


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

    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/