Tidbits Quotations
To Accompany the January 24, 2012 edition of Tidbits
Bob Jensen at Trinity University

Everybody can be great, because everyone can serve.
Martin Luther King Jr.

Some links for Martin Luther King Day 2012 ---
Thank you Jim Mahar for the heads up.

Patience is golden; Duct tape is silver.
As quoted in a recent email from Rick Newmark
Think about this one until you get the point.
Erika instantly thought of me and where I keep huge roles of duct tape in the basement and in the barn.

More people have been put on food stamps under Barack Obama than any other President in history.
Newt Gingrich ---

How to lie with statistics:
"Four Deficit Myths and a Frightening Fact:   We don't have a generalized overspending problem. We have a humongous health-care problem," by Alan S. Binder, The Wall Street Journal, January 19, 2012 ---

Here's the clinker in Binder's liberal economics analysis:

According to the CBO, if nothing is done, the primary deficit will bottom out at 2.6% of GDP in 2018 and then rise to 7.4% of GDP by 2040. Where will the additional 4.8% of GDP come from? Remarkably, every penny will come from health-care spending, which balloons from 6.6% of GDP to 11.4% in the projections, or 4.8% more of GDP. This exact match is just a coincidence, of course. If we use 2050 as the endpoint instead of 2040, the projected primary deficit increases by 6% of GDP, of which health-care spending accounts for 6.6 percentage points. Yes, you read that right: Apart from increased health-care costs, the rest of the primary deficit actually falls relative to GDP.

The CBO projects federal spending on all purposes other than health care and interest to be roughly stable as a share of GDP from 2015 to 2035, and then to drift lower. So no, America, we don't have a generalized overspending problem for the long run. We have a humongous health-care problem.


The clinker is that health care and interest on the National Debt will soon become the overwhelming, really overwhelming, components of federal spending. What will the deficit's share of GDP be after factoring in health care and interest be Professor Binder? Liberal economists like Princeton's Binder and Krugman conveniently factor out the big clinkers in their rosy deficit scenrios.

This is analogous to saying that household pending on all purposes other than food, rent, utilities, and transportation to be roughly stable as a share of GDP from 2015 to 2035, and then to drift lower.

Our Pentagon is now in the process of shifting military from other parts of the world to the vicinity of China.
Did you hear about the scenario that says the only way we can go to war with China is to borrow the money from China?

I think I'm going to be sick!

"Welfare recipients outnumber taxpayers:  That's the situation Maine faces, and perhaps other states as well," Charleston Daily Mail, December 21, 2011 ---

Paul LePage, the Republican governor of Maine, mentioned an uncomfortable truth in a radio address this month: Maine has more welfare recipients than income tax payers.

Democrats challenged the accuracy of this assertion.

The Bangor Daily News fact-checked LePage and discovered that 445,074 Mainers paid state income tax, while 453,194 received some sort of state aid.

In Maine, Medicaid, welfare, food stamps and subsidies for education have a combined enrollment of 660,000.

Adjusting for overlap reduces the number to 453,194 - or 8,120 more people on state assistance than there are state income taxpayers in Maine.

What is situation in West Virginia?

Nationally, only 53 percent of the nation lives in a household that pays federal income tax.

While just about every worker has taxes withheld, many people have the entire amount refunded at tax time. With child tax credits and earned income tax credits, some people get more money from filing a return than they paid in.

But 30 percent of Americans live in households that receive some sort of public assistance that is means tested, meaning a person must have an income low enough to qualify for the aid.

When is the last time you ever heard of taxes being lower in Massachusetts, New York, and California?
Thank you Paul Caron for the heads up.

"NFL Final Four: Boston, New York, and San Francisco Trump Baltimore in Lower Taxes," by Steve H. Hanke and Stephen J.K. Walters, The Wall Street Journal, January 21, 2012 ---

This Sunday's NFL championship games have it all: future Hall-of-Famers in abundance, jet-fueled offenses, bone-crushing defenses, and even a pair of coaches vying to bring a sibling rivalry to Super Bowl Sunday in two weeks.

And if you're a fan of cities more than their sports teams, you know that these games feature genuine superstars: Boston, New York and San Francisco are magnets to residents and employers, engines of prosperity, and league leaders on any quality-of-life measure.

Then there's our hometown. Baltimore is in need of a strategy for urban revival—the type of elixir that turned the other three cities around.

Some historical perspective is in order. Three decades ago, none of these cities worked very well and all were losing residents. Between 1950 and 1980, New York's population declined 10%, San Francisco's 12%, Baltimore's 17% and Boston's an astounding 30%.

These losses were accompanied by steady erosion of each city's job base, rising crime, declining school quality, and a sense that cities themselves might be passé. Many embraced the notion that the post-World War II exodus from core cities was a result of racism (fueling "white flight") or Americans' unfortunate taste for detached homes and expansive lawns.

Then, around 1980, some cities that had been in decline enjoyed dramatic reversals of fortune. Between 1980 and 2010, Boston's population grew 10%, New York's 16%, and San Francisco's 19%. But Baltimore continued its descent, losing another 21% of its residents.

Did those in turnaround cities magically discover the virtues of racial diversity or high-density living? Or did their leaders heed the lessons of previous decades and correct policy errors that had contributed to urban decay?

Neither. There was no sudden change in the cultures of the cities that would become superstars, and no real awareness among their governing elites that they were doing anything wrong. But their most damaging policy reflexes were, in fact, altered—against their will.

All these cities had long pursued progressive political agendas with pride. But the problem with redistributive policies at the local level is that the donor classes might move out as fast as beneficiary classes move in—or, as the population figures cited earlier show, even faster. Robin Hood may seem a heroic figure, but once his rich victims flee Nottingham, even that city's poor might question his effectiveness. Related Video

Steve Hanke on why New York, Boston, and San Francisco are flourishing while Baltimore is languishing.

San Francisco and Boston were rescued from their folly by statewide tax revolts. California's Prop 13, passed in 1978, capped property taxes in that state at 1%—which slashed San Francisco's rate by almost two-thirds. Massachusetts followed suit in 1980 with Prop 2½, which mandated that municipalities could not increase their total property tax receipts by more than 2.5% annually. New York City taxpayers did not revolt, but state legislators rationalized the Big Apple's chaotic property tax system in 1981; it now enjoys property tax rates that average about one-third of those in its surrounding suburbs (though its other taxes are certainly punishing).

While no single factor explains any city's destiny, it is not a mere coincidence that Boston, New York and San Francisco reversed their declines at the exact moment they became favorable environments for private investment in residential and business capital.

Every time a city raises the tax rate on residential and business property, its owners suffer a capital loss (which economists refer to as "tax capitalization"). In effect, tax hikes are incremental expropriations; owners flee not just because of short-term wealth losses but in fear of future damage to their property rights. Tax caps not only improve the immediate cash flow on investments in real property but—perhaps more important—secure it against further expropriations.

Baltimore has blithely ignored basic property-rights theory. When high property taxes chased many residents and business owners to the suburbs, the city raised rates further. When grandiose slum-clearance and transit plans destabilized neighborhoods, Baltimore's one-party establishment arranged eminent-domain seizures and pushed even more "big footprint" renewal projects.

The results leave no doubt about which strategy is more effective. Baltimore's real, median household income has been stagnant for the last three decades. New York's has risen 22% while Boston's and San Francisco's have soared by half. Baltimore's 2009 homicide rate was 4.7 times Boston's and 6.7 times New York's and San Francisco's.

Even Baltimore's sports facilities, which many assume have contributed mightily to our mythical renaissance, carry a lesson. Boston, New York and San Francisco have all declined to build their football teams new, lavish, government-financed stadiums within city limits. They've nevertheless thrived.

Maryland taxpayers, on the other hand, gifted Baltimore wonderful football and baseball stadiums near our Inner Harbor, on the theory that "stimulating" downtown development would be a game-changer that inevitably spread prosperity throughout the city. They're still hoping for that change.

In this, Baltimore is no different from other cities wedded to policies that repel investment. All try to make up for this deficiency via capital allocation by government—and all show disappointing results. As this weekend's championship cities demonstrate, greater respect for private capital and some protections for the property rights of its owners can have miraculous effects. Someday, even Baltimore might call that play.

Jensen Comment
But when you compare states rather than cities, people and businesses are exiting Taxachusetts, New York, and California to states having lower taxes. For example, many very wealthy people (like Mitt Romney) now reside in New Hampshire and commute or telecommute to Boston. Similarly, some wealthy people live in Delaware and commute and telecommute to New York and Baltimore. They have to pay state taxes on earned income within a state, but for very wealthy people earned income is generally less than investment income such as income from tax exempt bonds. The retired Barnie Frank, who is now quite wealthy, admits that a major portion of his investment portfolio is in Mass. municipal bonds that are tax exempt in his federal and state returns.

My good friend Bob Anthony, now deceased, made a lot of money on textbook royalties and investment income. It didn't take much imagination to figure out one of the major reasons he made New Hampshire his home state even when he was on the full-time  faculty of Harvard University for most of his career. I'm not a wealthy man, but with my more modest savings in retirement it also does not take a lot of imagination to figure out why I chose to retire in New Hampshire rather than other states I considered such as the coast of Maine, the lakes of northern Minnesota and Wisconsin, or wonderful retirement places in northern California. The runner up retirement choice for me was the Nevada shores of Lake Tahoe, but real estate prices were too steep for me in that vicinity.

"States Where People Pay the Most (and Least) in Taxes," by Charles B. Stockdale, Michael B. Sauter, Douglas A. McIntyre, Yahoo Finance, July 21, 2011 ---

Bob Jensen's threads on taxation are at

Marginal Tax Rates Around the World --- http://www.econlib.org/library/Enc/MarginalTaxRates.html

"How Much the Rich Pay Mitt Romney, the 1% and taxes," The Wall Street Journal, January 20, 2012 ---

Mitt Romney's disclosure this week that his effective federal tax rate is "probably closer to the 15% rate than anything" has created the predictable political uproar. The White House and its media allies figure they've now got their stereotype of the Monopoly man, albeit without his cane and top hat, who they can crush in their planned class-warfare campaign.

We're not sure if facts will matter in this cacophony, but someone should at least try to introduce a little reality into the debate, especially since Mr. Romney seems so unprepared to make the case.

Start with the fact that, like Warren Buffett, Mr. Romney said he makes most of his money from investments, not wages or salary. Thus his income is really taxed twice: once at the corporate tax rate of 35%, then again at a 15% tax rate when it is passed through to him as dividends or via capital gains from the sale of stock.

All income from businesses is eventually passed through to the owners, so to ignore business taxes creates a statistical illusion that makes it appear that the rich pay less than they really do. By this logic, if the corporate tax rate were raised to, say, 60% from today's 35% and the dividend and capital gains tax were cut to zero, it would appear that business owners were getting away with paying no federal tax at all.

This all-too-conveniently confuses the incidence of a tax with the burden of a tax. The marginal tax rate on every additional dollar of capital gains and dividend income from corporate profits can reach as high as 44.75% at the federal level (assuming a company pays the 35% top corporate rate), not 15%.

The Congressional Budget Office recently examined the distribution of federal taxes on various income groups. The report was ballyhooed by liberals as proof of rising income inequality, but that argument is for another day. What everyone has ignored is what CBO found about the relative taxes paid by different groups. And, lo, the rich pay more, which is probably why the press didn't report it.

The nearby table from the CBO report shows that in 2007 the average income tax rate paid by the 1% was 18.8%, compared to 4.2% for Americans in a broadly defined middle class from the 21st to 80th income percentiles. The poorest 20% on average paid a net negative income-tax rate of 5.6% because of the checks they receive for tax credits that are "refundable." These are essentially transfer payments redistributing income from the rich and middle class to the poor.

As for all federal taxes, CBO found that in 2007 the top 1% paid an average rate of a little under 30%, compared to 15.1% for middle-income earners. In calculating this overall tax burden, CBO takes account of payroll taxes, which moves the rate of the lowest 20% of earners into positive territory at 4.7%. CBO also apportions to individuals who are shareholders the tax that corporations pay on corporate profits.

Continued in article

"Why Americans think the tax rate is high when it is not," The Economic Times ---

When people heard that Mitt Romney's federal income tax rate was about 15 per cent, the immediate reaction of many was to assume that their own tax rate was higher. The top marginal rate is 35 per cent, after all, and the marginal rate on a couple with $70,000 in taxable income is 25 per cent.


But the truth is that most households probably pay a lower rate than Romney. It is impossible to know for sure, given that he has yet to release his tax return. What is clear, though, is that a large majority of US households - about two out of three - pays less than 15 per cent of income to the federal government, through either income taxes or payroll taxes.


This disconnect between what we pay and what we think we pay is nothing less than one of the country's biggest economic problems.


Many Americans see themselves as struggling under the weight of a heavy tax burden (partly for the understandable reason that wage growth has been so weak). Yet taxes in the United States are quite low today, compared with past years or those in other countries. Most important, US taxes are not sufficient to pay for the programs that many people want, like Medicare, Social Security, road construction and education subsidies.


What does this combination create? An enormous long-term budget deficit.


Together, all federal taxes equaled 14.4 per cent of the nation's economic output last year, the lowest level since 1950. Add state and local taxes, and the share nearly doubles, to about 27 per cent, according to the Tax Policy Center in Washington - still lower than at almost any other point in the past 40 years.


As the economy recovers and incomes rise, tax payments will increase somewhat. But they will not keep pace with projected spending, in the form of Medicare, Medicaid and Social Security. And total taxes at current rates would still make up a smaller share of the economy than in virtually any other rich country - not just European nations but also Australia, Canada, Israel and New Zealand.


Obviously, tax increases are not the only way to solve the deficit. Spending cuts can, too. But so far, at least, many voters seem to prefer small, symbolic cuts, like those to foreign aid. Substantial cuts - be they the changes to Medicare that President Barack Obama included in his health care bill or the Medicare overhaul that Republicans prefer - tend to be politically unpopular.


Since the late 1970s, just before the modern tax-cutting push began, total federal tax rates have fallen for every income group. The payroll tax has risen, but declines in the income tax have more than made up for those increases. Nearly half the population now pays no federal income tax.


Most households pay less than 15 per cent of their income to the federal government because of tax breaks, like the exclusion for health insurance, and because marginal rates apply to only a small part of a taxpayer's income. On the first $70,000 of a couple's taxable income, the total federal income tax rate is only 13.8 per cent.


That said, taxes have fallen the most for the very affluent. Romney and his father - George W. Romney, the former automobile executive, Michigan governor and presidential candidate - do a nice job of illustrating the change.

Continued in article

Jensen Comment
Of course rich and poor alike pay other taxes such as taxes at the fuel pump and payroll deduction taxes if those ever come back (which seems increasingly unlikely in our political dogfight). And there are serious ways to be mislead by media-alleged tax rates. For example, do you compute the tax rate that you're paying now on your own tax return on the basis of full gross income versus adjusted gross income after exclusions and deferrals for such thinks as interest on municipal bonds, 401-K deferrals, and other tax breaks in the current tax rules? Chances are if you divide your 2011 what you pay in 2011 federal income taxes by the full "gross" income you will find that you're paying 10% or less.

Rich people take greater advantages of such tax law provisions such as exemption of interest on municipal and school bonds. But in a sense they are paying a virtual tax on those exemptions since municipal and school bonds have lower interest returns and/or more default risk. Hence computing the marginal rate that rich people pay in taxes becomes more complicated than you will ever learn from watching MSNBC or reading the New York Times.

Bob Jensen's helpers for taxpayers are at

There Are 5,000 Janitors in the U.S. with PhDs ---

"The Myth of American Productivity: Politicians say we have the most productive workers in the world. They don't know what they're talking about," by Michael Mandel, The Washington Monthly, January/February 2012 ---

In 1939, when John Steinbeck completed The Grapes of Wrath—a heart-wrenching tale of a family of sharecroppers forced out of their home during the Depression— roughly one-quarter of the U.S. population still lived on farms. Today, family farms are increasingly rare, and less than 2 percent of employed Americans work in agriculture.

But rather than viewing the decline of farming jobs as a tragedy, economists almost invariably count agriculture as a shining American success—the triumph of productivity. And why not? A handful of farmers using GPS-equipped combines and sophisticated moisture sensors can grow far more food than the population of an entire rural county in 1939. Food has become so plentiful and cheap in the United States that it has been blamed for the increase in obesity. And agricultural products have become one of the country’s chief exports, totaling more than $115 billion in 2010.

As the story of the American economy is usually told, the shrinkage of agricultural employment was a tough but essential part of the march toward higher incomes and a better standard of living. What’s more, this example has been cited time and again to explain subsequent upheavals in employment. In 2003, N. Greg Mankiw, a Harvard economist who then headed President George W. Bush’s Council of Economic Advisers (CEA), told a Washington audience that the more recent fall in manufacturing jobs was an “inescapable” consequence of rapid productivity growth: “The long-term trends that we have recently seen in manufacturing mirror what we saw in agriculture a couple of generations ago.”

In a 2006 speech, University of Chicago professor Austan Goolsbee made the same point, explaining why the long-term decline in manufacturing jobs didn’t worry him. “Employment in the [manufacturing] sector and the share of spending in the sector get smaller and smaller almost as proof of how productive it has become,” said Goolsbee, then a top economic advisor to Senator Barack Obama and more recently CEA head under President Obama. “It is exactly the same process that agriculture went through.”

Numerous statistics would appear to confirm Mankiw and Goolsbee’s analogy. Manufacturing employment in the U.S. is on a long downward trend, with no sign of a rebound. Despite the supposed recovery, companies are still announcing factory shutdowns and consolidations. One example: in Fort Smith, Arkansas, a Whirlpool refrigerator plant currently employing about 1,000 workers will close its doors by the middle of 2012.

Nevertheless, these ever-fewer workers seem to be producing ever-larger quantities of manufactured goods, such as electronics, aircraft, medical equipment, and chemicals. According to the Bureau of Economic Analysis, American manufacturing output was 16 percent higher in 2010 than it was a decade earlier, despite the devastating impact of the Great Recession and the virtual disappearance of some manufacturing industries. Combined with the sharp plunge in employment, the BEA statistics imply that manufacturing productivity rose by a stunning 74 percent from 2000 to 2010. Companies that distribute and sell these goods, like Walmart and Best Buy, also seem to be enjoying sizable efficiency gains. According to government data, wholesale and retail trade companies have seen a 20 percent increase in productivity since 2000, as information technology and the Internet enables them to deliver more goods with fewer people.

These statistics undergird one of the chief messages of reassurance that has been repeated throughout the economic crisis: yes, factories may be closing, and whole domestic industries may be withering left and right, but Americans should take heart because we have the “most productive” workers in the world. This refrain has been voiced to the American people by everyone from Barack Obama to Mitt Romney, from Richard Trumka, president of the AFL-CIO, to Tom Donohue, head of the U.S. Chamber of Commerce.

Whenever leaders and economists cite this reported strength in productivity—and the historical precedent of agriculture—they are advancing a certain basic theory of our current situation. The U.S. economy is fundamentally sound, the theory goes, and could create broad prosperity if only Washington made some targeted policy interventions. (The nature of the proposed quick fix—stimulus money or tax cuts—varies according to party affiliation.) After all, if the analogy to agriculture holds true, then rising productivity in the manufacturing and distributive sectors should eventually pay off in higher real wages and higher living standards for Americans. Today’s high poverty and unemployment rates will only be part of a painful but temporary period of disruption, as exports of manufactured goods increase and unemployed workers are gradually absorbed into other sectors of the economy, just as an entire generation of farmworkers moved north and west to work in factories.

There are two big problems with this theory, however. One is that the analogy between agriculture and manufacturing is profoundly misleading. The gains in agricultural productivity that transformed this country in the twentieth century are fundamentally different from the gains in manufacturing and distributive productivity we are seeing today. The other, related problem is that our bullish measures of productivity suffer from an enormous statistical blind spot. Rather than wait for rising productivity to save the day—and relying on economic policies that are essentially complacent—the U.S. needs to adopt drastic measures if it wants to keep living standards from falling.

Consider, for a moment, what a farmer has to do to improve the yield of a corn or wheat field in Kansas or Nebraska. Machinery has to be purchased to plant and harvest the crops. Pesticides and herbicides have to be applied to fight bugs and weeds. Irrigation has to be used appropriately to make sure the crops mature as desired.

In a very real sense, agricultural productivity is intrinsically rooted in American soil. Yes, the tractor might be imported from Japan. But a farmer cannot plant crops in Iowa and then outsource the harvesting to Vietnam. Pesticides have to be sprayed on American bugs, and crops have to be irrigated with American water. Most of the value created by agriculture is made in America.

By contrast, most manufactured goods these days are the product of global supply chains, which may include multiple countries and border crossings. Your smartphone, for example, is assembled from components that were manufactured all over the world. On a less high-tech note, the cedar hangers that organically keep your suits and dresses free of pests may be made of wood grown in the U.S., shipped to China for manufacture, and then shipped back to the U.S. again.

Given the dominance of global supply chains, manufacturers and distributers both have two very different strategies available to them for cutting costs. On the one hand, they can invest in raising productivity in their domestic operations. A midwestern auto factory can rearrange its assembly line to produce more cars with fewer workers; a retailer can shift more sales to its online division; a real estate agency can invest in contact-management software to help fewer brokers manage more potential buyers and sellers.

Continued in a long article

Jensen Comment
In 1939, when John Steinbeck completed The Grapes of Wrath farm workers picked corn by hand with metal hooks strapped to their wrists. One family could live on an 80-acre corn farm. Now in the 21st Century one farm "family" can tend corn fields and pick corn on a 3,000 acre farm. When I travel though my home country in northern Iowa most of the farm homes and barns are long gone outside decaying farm towns that are mostly boarded up awaiting small business miracles that in most instances will never happen --- at least not in those dead towns. I know of an Iowa farm with a solid house and a barn that was purchased in the late 1950s for $25,000. In 2012 the same farm with demolished buildings sold for well over $1,500,000 with much of the increment in value coming in the past five years due in large measure to corn ethanol subsidies and tariffs. We're now burning up much of our corn in gasoline tanks.

Video of corn picking with horses ---

Combining 4,500 bushels of corn per hour (with one operator)  in 2011 ---

Goin' too fast for my own good ---

"Welfare recipients outnumber taxpayers:  That's the situation Maine faces, and perhaps other states as well," Charleston Daily Mail, December 21, 2011 ---


The euro was a noble experiment, but it has failed. Instead of wasting more money on expanding the system's scope and developing ever larger rescue funds, it would be better for the EU and others to think about how best to revert to a system of individual currencies.
Robert Barro, "An Exit Strategy From the Euro The euro can be phased out the same way Europe's individual currencies were. The bonds of troubled member states would benefit as a result," The Wall Street Journal, January 9, 2012 ---

January 10, 2012 reply from Glen Gray

I predicted the demise of the Euro in 1985 which I believe was 14 years before the Euro actually came into existence. I was at a Johnson Wax (which I think is now called Johnson & Son) factory in Amsterdam. They make soaps, shampoos, shaving cream (such as Edge shaving cream), and similar items.

They were trying to improve the productivity of the factory. Productivity was particularly important since it is nearly impossible to lay people off, so they want to keep everybody busy. The big issue was that they had to reconfigure the assembly lines every two weeks and while they were doing this, many employees had nothing to do. One of the reasons why the assembly lines had to be reconfigured was Germans would only buy shampoo in cube shaped bottles that were of a particular capacity and French would only buy shampoo in cylinder-shaped bottles of a different capacity (or I may have that reversed--1985 was a long time ago).

I had a premonition then and there that in the future the E.U. and the euro were doomed. If you can't agree on shampoo bottles, you are doomed.

Silence in the Liberal Media and the United Nations
The stage is set. Christians in Islamic Africa and the Islamic-dominated middle east are on the chopping block and barely a peep is heard from the left-leaning media ---

"Time to junk income taxes?" by David Cay Johnston, Reuters, January 6, 2012 ---
There are a lot of comments following this article.

"The Hidden Dangers of Low Interest Rates," by David Cay Johnston,  Reuters, January 10, 2012 ---:

The Fed’s campaign to hold short-term interest rates near zero is a loser for taxpayers. A rise in rates would also burden taxpayers, but it would come with a benefit for those who save.

Low rates keep alive the banks that the government considers too big to fail and reduce the cost of servicing the burgeoning federal debt. Low rates also come at a cost, cutting income to older Americans and to pension funds. This forces retirees to eat into principal, may put more pressure on welfare programs for the elderly, and will probably require the government to spend money to fulfill pension guarantees.

Raising interest rates shifts the costs and benefits, increasing the risks that mismanaged banks will collapse and diverting more taxpayers’ money to service federal debt. On the other hand, higher interest rates mean that savers, both individual and in pension funds, enjoy the fruits of their prudence.

No matter which way interest rates go, taxpayers face dangers. The question is where we want to take our losses. For my money, saving the mismanaged mega-banks should be the last priority and savers the first. Of course breaking up the big banks or letting them fail also imposes costs and low interest rates benefit many Americans, though mostly those with top credit scores, but policy involves choices and rescuing banks from their own mistakes and subtly siphoning wealth from the prudent is corrosive to the ethical and social fabric.


The federal government paid $454 billion in interest on its debt in 2011. That is the equivalent of all the individual income taxes paid last year through the first three weeks of June

If rates return to, say, 6.64 percent, the level they were in 2000, one year’s interest costs would equal the individual income taxes for all of 2011 plus the first few weeks of 2012.

Last week , rates took a step in that direction. The yield on the 10-year bond, a benchmark for other interest rates, jumped to 3.3 percent, from 2.57 percent in early November, raising the government’s cost of borrowing in that sale by one fourth.

The average maturity of federal bills, notes and bonds is just five years, with just 7 percent of debt financed for more than 10 years, the equivalent of an adjustable rate mortgage with no upside limit.


The low interest rates since the financial crisis already have imposed a cost on the prudent people who saved for the future, both those who saved as individuals and those who put their money in pension funds.

Banks are paying less than one percent interest on savings, which means rates are negative in real terms, forcing retirees to dig into their nest eggs or cut spending.

Across the country, some fundraisers have told me of benefactors who called to say that expected bequests would not be forthcoming because they had been forced to dig into their savings.

Tax returns, too, show a disturbing, if logical, trend toward less saving. The share of income from taxable interest fell from 3 percent in 1999 to 2.2 percent in 2009, the latest year for which tax return data are available.

More troubling is that the number of taxpayers grew by more than 13 million over those years, while those reporting any taxable interest fell from 67.2 million to 57.8 million. The share of taxpayers earning interest plummeted from 52.9 percent to 44.1 percent.


At the same time, low interest rates, on top of weak stock prices, have ravaged pension funds.

Overall, state and local public employee plans lost 22.7 percent of their value in 2009, the Census Bureau reported in October. Their assets fell to $2.5 trillion from more than $3.2 trillion, while annual payments to retirees and survivors rose 6.7 percent to $187 billion.

Continued in article

Greatest Swindle in the History of the World ---


Rearranging the Deck Chairs on the Titanic
"Obama's Push for Smaller Government," by Cynthia Gordy, The Root,  January 13, 2012 ---

On Friday, President Obama asked Congress for greater power to do something.

Before you talk about hell freezing over, consider that his request adheres to Republicans' "smaller government" talking point. Seeking to streamline the government, save money and eliminate duplicative services, the president wants to merge six federal departments and agencies into one. But instead of restructuring items usually on the GOP hit list, like education, Medicare and social safety net programs, he wants to consolidate agencies that handle trade and commerce.

The organizations in question are the Commerce Department, the Small Business Administration, the Office of the U.S. Trade Representative, the Export-Import Bank, the Overseas Private Investment Corporation and the Trade and Development Agency.

Obama's proposal is the first in a series of mergers he wants to enact. "There are five different entities dealing with housing; more than a dozen agencies involved in food safety," he said in remarks from the White House describing bureaucracy across the federal government. "My favorite example, which I mentioned in last year's State of the Union Address, as it turns out, the Interior Department is in charge of salmon in fresh water, but the Commerce Department handles them in saltwater."

Continued in article

Jensen Comment
The problem is that this is a largely repeat of earlier failed attempts by the Executive Branch to eliminate an insignificant number of jobs by attrition ---
It's an important mole hill that should not be played into an election year mountain.

"The Reorganization Man Obama now says he wants to reform government," The Wall Street Journal, January 14, 2012 ---

The Washington rap on President Obama is that he's humorless, but that's unfair. He may not be Jay Leno funny, but his bit Friday on reforming and reducing government was great.

There he was in the East Room, explaining that "the government we have is not the government we need." That's for sure, and Mr. Obama even added the Gingrichian theme that "We live in a 21st-century economy, but we've still got a government organized for the 20th century. Our economy has fundamentally changed—as has the world—but our government, our agencies, has not."

Alas, the President wasn't talking about modernizing Medicare or the entitlement state. He merely wants Congress to give him more power to reorganize the government. He says he wants his team to scrub down the executive branch looking for waste, duplication and bureaucratic complexity, and then to fast-track their proposals to Congress for an up-or-down vote within 90 days.

Mr. Obama's first targets for such "consolidation authority" are the six agencies related to business and the world economy, from the Commerce Department to the Export-Import Bank to the U.S. Trade Representative. Maybe the White House chose to start there because, with an eye on the GOP campaign, Rick Perry wants to eliminate Commerce and a few other cabinet departments he can't remember.

Another way of putting it is that this new emphasis on streamlining the bureaucracy is Mr. Obama's version of the Texas Governor's "Oops." Having presided over the largest expansion of government since LBJ—health care, financial reregulation, spending 24% of GDP, the surge of industrial policy—Mr. Obama's pollsters must be saying that voters have the jimmy-legs about bigger government and that he thus can't run only as a Great Society man.

But let's go to the videotape. One measure of government size is the federal work force, measured by the White House budget office as civilian full-time equivalent employees, excluding the military and Post Office. The executive branch had about 1.875 million workers in 2008 when the financial crisis hit, a number that held relatively constant throughout the post-9/11 Bush Administration. That number climbed to 2.128 million two years later under the 111th Congress—or growth of 13.5%. That's the largest government since 1992, when the Clinton Administration began to slash defense spending.

This jobs boom is projected to decline slightly this year, to 2.116 million public employees, and the Administration says the Commerce unwind will take it down by another 1,000 or so. Yet even that would come through attrition, which usually means the competent people leave when they've had it with the lifers.

Proposals for government reorganization are the elevator music of politics, always present but never leaving much of an impression. Newt Gingrich says he's running in part to apply Lean Six Sigma best practices to the bureaucracy. Al Gore famously drew up a scheme for "reinventing government" in the late 1990s. He abandoned it after the airline unions revolted amid his attempt to reinvent the Federal Aviation Administration.

Joe Rago on President Obama's proposal to merge agencies within the Commerce Department.

Reshuffling agencies rarely works because what's important in government isn't where the bureaucrats sit but their mindset. The incentives are for inertia, turf protection and blame-shifting—unless change is imposed from the top. Mr. Obama has made it clear with his priorities over three years that his preference is for the government status quo, only more of it.

But Mr. Obama is now at least bowing to the principle of smaller government, and our advice to Congress is to weigh his proposals and extract some concessions to see if the President means what he says.

A major concern is the office of the U.S. trade rep, which Mr. Obama wants to subsume within the Commerce monolith. But the trade rep office is one of the best in government precisely because it is small, reports to the White House, and is focused on the single mission of trade expansion. As part of Commerce it may be drowned out by protectionist voices.

Continued in article



"Hatch to push pension legislation this year," by Bernie Becker, The Hill, January 10, 2011 ---

Sen. Orrin Hatch (R-Utah) said Tuesday that he would push legislation this year to revamp pension systems for state and local government workers.

Hatch, ranking member of the Senate Finance Committee, noted in a statement and a newly released report that public pension programs are more than $4 trillion in debt, and said he would work to ensure that the federal government did not have to bail out state or local entities.

And while the Utah Republican did not offer many details on his planned legislation, or when it would be released, Hatch did suggest that state and local governments need to scrap their current use of defined-benefit plans.

Under that sort of plan, retirees are guaranteed a certain monthly payment, which often takes into account the length of their tenures and salaries before retirement.

“The public pension crisis plaguing our nation demands a real solution,” Hatch said in the statement. “Over the coming weeks, I will be putting forward ideas to reform public pension programs in a meaningful way that doesn’t leave taxpayers on the hook.”

The announcement from Hatch comes after groups on the left and right have spent months arguing over benefits for public workers, following pushes by Republican governors in places including Wisconsin to limit collective-bargaining rights.

In the report released Tuesday, Hatch declared that the current issues with public pensions were caused by more than just the 2008 financial crisis, as some analysts have said.

To bolster that claim, the report notes that, even before the 2008 crisis, roughly 40 percent of state and local pension plans could not fund 80 percent of their liabilities, a level experts generally consider healthy.

Hatch also used the example of his own state to underscore his point that governments need to move away from defined-benefit plans, saying that Utah had ably administered its program and still saw debt on its plan balloon to $3.45 billion in 2010.

“When a prudently managed pension plan can create a financial crisis for the taxpayers of a state or municipality, it is time to question whether the risk to taxpayers associated with the defined benefit pension structure is appropriate,” the report stated. “Defined benefit plans pose unacceptable financial and service degradation risks for taxpayers and retirees.”

But Dean Baker, co-director of the left-leaning Center for Economic and Policy Research (CEPR), took issue with both the argument from Hatch that states and localities need to move away from defined-benefit plans, and that blaming the fiscal crisis for the current pension issues understated the problems.

Baker told The Hill that, while states might in some cases be billions in the hole when it comes to pension liabilities, they will also likely be able to make that shortfall up over 20 or 30 years.

“It’s just cheap rhetoric,” Baker said about the Hatch report. “There are state and local governments where, at least on average, they’re not going to face a particularly big burden.”

Baker also noted that defined-benefit plans are less volatile for workers than other retirement plans.

Continued in article



"Government Accountability Auditor says Treasury keeping quiet on TARP money losers," by Bernie Becker, The Hill,January 9, 2012 ---

Greatest Swindle in the History of the World Your Money at Work, Fixing Others’ Mistakes (includes a great NPR public radio audio module) ---

"Amazon, Indiana strike state sales tax deal," Reuters via the Chicago Tribune, January 9, 2012 ---

Jensen Comment
Amazon is beginning to cave in on sales taxes.
Will eBay follow suit? (I doubt it)
Will LL Bean follow suit? (I doubt it)
Ultimately the U.S. Supreme Court will make the final decision
Do I care? (not until New Hampshire adopts a sales tax which will be when ski resorts are opened in Hell)

"Amazon, Indiana strike state sales tax deal," Reuters via the Chicago Tribune, January 9, 2012 ---

Obviously the U.S. Social Security system is not a Ponzi fraud in the strictest sense of the word since the U.S. Treasury Department can print as much money as it likes (actually the money supply is controlled by the Fed, but for all practical purposes it is the same thing as the Treasury Department of the banksters and for the banksters). But the Social Security System has become an unfunded actuarial entitlements outrage. It is not working!

"Social Security isn't a Ponzi scheme. It's not bankrupting us. It's not an outrage. It is Working."
Rachel Maddow in a full-page Newsweek Magazine advertisement, January 9, 2012, Page 7.
Rachel is not an economic scholar of note --- obviously!

Rachel has actually taken a Shikha Dalmia, September 7, 2011, quotation well beyond its limits. Shikah makes an argument that Social Security is not a true Ponzi Scheme, but no argument is extended to such claims as " It's not bankrupting us. It's not an outrage. It is Working.."
In fact the implication is just the opposite of what Rachel claims in the Newsweek advertisement ---

The Simple Math of Obama's Ponzi Scheme ---

Well, 32 months into his presidency, Obama has finally released his jobs and deficit reduction plans.  Surprisingly, he is not attempting to obfuscate his true motivation this time.  As Obama said yesterday, it is “simple math.”

It’s $1.57 trillion in comprehensive tax hikes + $1.08 trillion in non-existent war spending + $430 billion in phantom savings on interest payments + $320 billion in savings from cuts to healthcare providers (the inevitable sequestration will already cut DocFix), throwing granny off the cliff with tighter rules from the death panel, and a magical willingness to cut waste and fraud + $250 billion in other mandatory savings, most of which will never materialize – the $447 billion stimulus 2.0 = $3.2 trillion.

OK, simple enough; however, there is one important detail of the ‘Obamaian formula’ that has not been advertised.  As part of the Stimulus half of the plan, Obama will cut payroll tax revenues by $240 billion, or 36%, of the entire annual revenue (projected at $685 billion) of the so-called Social Security trust fund.   Where is that money going to come from?  How will they fill the SS shortfall, which is already projected to be $50 billion?

You guessed it: general fund revenues.

Tucked inside this 155-page behemoth is a provision to transfer funds from the general Treasury to the Social Security Trust Fund.”  Here is the relevant provision (page 8 ) in section 101(e) and 102(e) of S. 1549:

(e) TRANSFERS OF FUNDS.–(1) Transfers to federal old-age and survivors insurance trust fund.—There are hereby appropriated to the Federal Old-Age and Survivors Trust Fund and the Federal Disability Insurance Trust Fund established under section 201 of the Social Security Act (42 U.S.C. 401) amounts equal to the reduction in revenues to the Treasury by reason of the application of subsections (a) and (b) to employers other than those described in (e)(2). Amounts appropriated by the preceding sentence shall be transferred from the general fund at such times and in such manner as to replicate to the extent possible the transfers which would have occurred to such Trust Fund had such amendments not been enacted. (emphasis added)

So on top of the annual $50 billion transfer to compensate for the inherent shortfall in payroll taxes, we will now be transferring an additional $240 billion in 2012.  Remember that we have already raided the general fund to pay for this year’s payroll tax cut.  According to the Social Security Administration, $105.4 billion from the general fund was transferred to the non-existent SS trust fund.

Consequently, not only are we funding current retirees with current payroll taxes of workers, we are supplementing the shortfall with other taxes and/or more debt.

This might be a good time to review the differences between a Ponzi scheme and what has become of Social Security:

1)      A Ponzi scheme is voluntary; SS is mandatory

2)      Payouts from a Ponzi scheme are funded from the monies of current investors, but lack the ability to raise taxes or service debt.  Government can do all those things to sustain Social Security.

3)      The payouts from Ponzi schemes may be collected by the investor’s heirs.  Social Security, for the most part, is not passed down in inheritance.

4)      The trustees of Ponzi schemes cannot tax the payouts to investors; government can.

5)      When Ponzi schemes fail, the perpetrators go to jail.  Those who destroyed Social Security can force us to contribute more, receive less, and/or receive it later.

6)      Ponzi schemers purposely defraud their investors by promising invisible investments.  Government-run Social Security schemers purposely defraud their victims by promising a non-existent trust fund (as proven by the general fund transfers).

You can call it a super-charged Ponzi scheme or a big-government scheme, but dare not offend anyone by calling it a plain old Ponzi scheme.  Either way, Republicans must not support the Obama scheme to transfer funds from the general fund for the purpose of his reelection bill.





Never spend your money before you have earned it.
Thomas Jefferson

Creditors have better memories than debtors.
Benjamin Franklin

Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.
Charles Dickens

If you want to know what God thinks of money, just look at the people he gave it to.
Dorothy Parker

Lack of money is the root of all evil.
George Bernard Shaw

A nickel ain't worth a dime anymore.
Yogi Berra

An appeaser is one who feeds a crocodile—hoping it will eat him last.
Winston Churchill

If you have ten thousand regulations, you destroy all respect for the law.
Winston Churchill

You can always count on Americans to do the right thing—after they’ve tried everything else.
Winston Churchill


"Investment strategist: 'Big banks make their money from optimism'," by Joris Luyenduc, The Guardian, January 3, 2012 ---

. . .

"If you take an honest look at the financial sector today, you see banks can borrow money almost for free on what is called the short-term market, then lend that money to governments for 2% or 3%. Now why would they lend to small businesses if they can make money so easily? This is what 'zero interest rates' are doing to our economy, as well as taxing savers with inflation at over 5%. You take on new debt to pay off your old debt. It's like drinking your hangover away with ever more drinks. You are destroying your liver. That's what's currently happening."

Continued in article

Greatest Swindle in the History of the World ---


On Regulation and Rules
"The Trojan Horse of cost benefit analysis," by John Kemp, Reuters, January 3, 2012 ---

Tax Analysts society names as its 2011 Person of the Year
Grover Norquist, head of Americans for Tax Reform, and notes the other individuals who were considered for the title

Auntie Bev forwarded this $.02 added to the theory of economics
(original source unknown, but it sounds like Larry Brown to me)

However good or bad a situation is, it will change....but the best is yet to come!

It's a slow day in the small town of Pumphandle and the streets are deserted. Times are tough, everybody is in debt, and everybody is living on credit.

A tourist visiting the area drives through town, stops at the motel, and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs to pick one for the night.

As soon as he walks upstairs, the motel owner grabs the bill and runs next door to pay his debt to the butcher.

(Stay with this..... and pay attention)

The butcher takes the $100 and runs down the street to retire his debt to the pig farmer.

The pig farmer takes the $100 and heads off to pay his bill to his supplier, the Co-op.

The guy at the Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her "services" on credit.

The hooker rushes to the hotel and pays off her room bill with the hotel Owner.

The hotel proprietor then places the $100 back on the counter so the traveler will not suspect anything.

At that moment the traveler comes down the stairs, states that the rooms are not satisfactory, picks up the $100 bill and leaves.

No one produced anything. No one earned anything. However, the whole town now thinks that they are out of debt and there is a false atmosphere of optimism and glee.

And that, my friends, is how a "stimulus package" works!

Auntie Bev

Bob Jensen's threads on stimulus packages ---

In a figurative sense, President Obama just pissed on the boots of John (The Duke) Wayne.
"Obama's Reckless Recess Ploy:  No president has resorted to recess appointments when Congress is in session. Expect serious legal challenges to new financial regulations," by David Rivkin and Lee Casey, The Wall Street Journal, January 6, 2011 ---

President Obama's appointments of Richard Cordray as head of the new Consumer Financial Protection Bureau, and of three new members of the National Labor Relations Board, are all unconstitutional.

Each of these jobs requires Senate confirmation. The president's ability to fill them without that confirmation, using his constitutional power to "fill up vacancies that may happen during the recess of the Senate," depends upon there actually being a recess. Both the House of Representatives and the Senate are open for business. The new appointees can pocket their government paychecks, but all their official acts will be void as a matter of law and will likely be struck down by the courts in legal challenges that are certain to come.

The Constitution's Framers assumed that Congress would convene only part of each year, and that there would be long stretches during which the Senate would be unavailable to play its critical "advice and consent" role in the appointment of federal officials. Their solution was to allow the president to make temporary, "recess" appointments permitting the individuals chosen to serve for up to two years, until the end of Congress's next session. This, it was thought, would give the Senate time to act upon actual nominees for the offices once it reconvened without leaving these—perhaps critical—posts vacant for many months.

Presidents have used this authority with alacrity, especially in recent times, as a means of putting a favored nominee on the job even in the face of significant Senate opposition. Historically, the president's lawyers have advised that this is a constitutionally permissible exercise of his recess-appointment power, so long as the Senate is actually in recess.

The Constitution does not define a "recess," but in view of the original purpose of the recess-appointment power, a senatorial absence of more than a few days has been considered a necessary prerequisite. This is particularly the case because the Constitution also provides (in Article 1, section 5, clause 4) that neither house of Congress can "adjourn for more than three days" without the other's consent—thus ensuring that the flow of legislative work cannot be unilaterally interrupted. The Senate can hardly be in recess in the absence of such an agreement—and there is none now.

In more recent years, and especially during President George W. Bush's administration, the Senate has attempted to limit recess appointments even further by remaining "in session" on a pro forma basis. Whether such sessions are inherently sufficient to defeat a presidential recess appointment is debatable. However, in circumstances where the Senate is not merely in session as a theoretical matter, but is actually conducting business—albeit on the basis of agreements that measures can and will be adopted by "unanimous consent" without an actual vote—there can be no question that it is not in recess.

That is the situation today. The traditional test, as articulated in a 1989 published opinion by the Justice Department's own constitutional experts in the Office of Legal Counsel, is "whether the adjournment of the Senate is of such duration that the Senate could 'not receive communications from the President or participate as a body in making appointments.'" Today's Senate, which is controlled by the president's own party, is fully capable of performing both functions in accordance with its rules. Indeed, the Senate is so much in session that on Dec. 23—three days after beginning its pro forma session—it passed President Obama's current highest legislative priority: a two-month payroll tax holiday, which the president promptly signed.

Mr. Obama is claiming an open-ended authority to determine that the Senate is in recess, despite that body's own judgment and the factual realities. That is an astonishing and, so far as we can tell, unprecedented power grab.

Continued in article

Jensen Comment
It appears that this an election year power play by President Obama to appease his liberal constituency. But for what reason? The liberal left is not going to vote for a GOP candidate under any circumstances. And this is an especially bad time for President Obama to piss off conservatives in Congress. At no time has a President ever needed compromise to pass major legislation such as increasing the debt limit and the Federal budget.

In a figurative sense, President Obama just pissed on the boots of John (The Duke) Wayne.

The "road ahead" for changes in U.S. tax rules is fogged in, especially since President Obama pissed on John Wayne's boots over the holiday break.
Bob Jensen:  "In a figurative sense, President Obama just pissed on the boots of John (The Duke) Wayne."
"Obama's Reckless Recess Ploy:  No president has resorted to recess appointments when Congress is in session. Expect serious legal challenges to new financial regulations," by David Rivkin and Lee Casey, The Wall Street Journal, January 6, 2011 ---

"The Road Ahead for Taxes:  With Washington unlikely to address major tax questions soon, taxpayers are facing a lot of guesswork. Here's what to do now." The Wall Street Journal, January 7, 2012 ---

A slew of major tax cuts is set to expire at year's end—as was the case in 2010. Now, as then, Washington faces the choice of letting income, capital-gains, estate and other tax rates rise as scheduled, or coming up with an alternative.

Last time, lawmakers cobbled together a two-year extension, but it took them until mid-December to agree on the deal.

This year could be even more confusing. In the mix there is a presidential election, talk of major tax overhaul and lingering partisan bitterness over last year's fight to extend the two-percentage-point cut in Social Security taxes. That debate will be revisited when the stopgap extension passed on Dec. 23 expires at the end of February.

The upshot: Anyone trying to do tax planning in the coming months will find it nearly impossible.

"The combination of expiring tax cuts, deficit reduction needs, calls for tax reform and Congress's inability to find common ground on tough issues is producing a nearly intolerable level of uncertainty for taxpayers," says Clint Stretch, a principal with Deloitte Tax in Washington.

While the big questions remain unanswered, a number of smaller but definite tax changes are taking effect this year. There also are new rules to heed for the 2011 tax-filing season, which begins in a few weeks when companies start sending out W-2 tax forms. Here is a guide. New for Tax Year 2012

Several changes for this tax year pose traps for the unwary, notes Melissa Labant, a director at the American Institute of CPAs.

Cost-basis reporting. 2012 is the second year of the phase-in of a law requiring securities brokers to report to the IRS the "cost basis" of investments sold by customers, if the asset is held in a taxable account rather than an individual retirement account or 401(k).

Cost basis is the starting point for measuring taxable gain or loss. If you bought Exxon Mobil at $59 a share in mid-2010 and sold it for $83 in late 2011, the basis would be $59 and the taxable gain $24 a share.

Out of confusion or other motives, taxpayers often report basis incorrectly, so Congress asked firms to track and disclose it to the IRS.

This year, basis reporting kicks in for mutual-fund and dividend-reinvestment-plan holdings acquired in 2012. That could pose big problems for investors who reinvest dividends regularly but want to sell some of a position to harvest tax losses, says Stevie Conlon, a basis expert with WoltersKluwer Financial Services in Chicago.

The risk: triggering "wash-sale" provisions, Ms. Conlon says. Under the wash-sale rules, if an investor buys shares 30 days before or after selling shares in the same investment at a loss, he or she can't deduct the losses in the same year.

No charitable IRA donation. This popular provision expired at the end of 2011, but is likely to be reinstated in the future, experts say. IRA owners 70½ or older were able to donate up to $100,000 of assets per year to a tax-exempt charity.

Under this provision, there's no deduction, but the payout doesn't increase adjusted gross income in a way that could trigger higher taxes on Social Security payments or Medicare premiums. These gifts also may count as part of the owner's required IRA payout, if he or she hasn't taken one.

Would-be IRA donors, beware: A similar lapse in 2010 caused much grief. Congress reinstated the law retroactively in mid-December of that year, but by then many IRA owners had given up and made regular withdrawals. The law didn't allow them to put that money back into the account and then make donations counting toward their minimum payout.

"If you want an IRA donation to be all or part of your required withdrawal, wait for Congress to act," advises Ms. Labant.

No AMT patch. An inflation adjustment for the alternative minimum tax has expired, meaning the tax would apply to about 31 million taxpayers in 2012 instead of 4.3 million last year. Congress fixed a similar lapse in 2010 late in the year.

Lawmakers likely will do so again, but until that happens taxpayers making quarterly estimated payments must choose between paying higher amounts they may never owe and risking underpayment penalties if there isn't a fix.

Continued in article

"Greenspan: ‘True Revolution’ to End Welfare State Impasse," by Forrest Jones, Money News, January 5, 2011 ---
Thank you James Don Edwards for the heads up.

The U.S. welfare state has "run up against a brick wall" of economic reality and fiscal book-keeping and only a "true revolution" involving major entitlement overhaul will improve the economy, says former Fed Chairman Alan Greenspan.

In the United States, the rise of the tea party among Republicans coupled with the shift to the left of many Democrats have made it very difficult for the country's leaders to agree on policy.

Look at last year's debt-ceiling fiasco as an example.

"A political tsunami has emerged out of our past in the form of the Tea Party, with its ethos reminiscent of rugged individualism and self-reliance," Greenspan writes in a Financial Times op-ed piece.

The tea party "has so altered the distribution of votes within Republican Party’s House caucus that the party's center has moved closer to the tea party."

Read more: Greenspan: ‘True Revolution’ to End Welfare State Impasse Important: Can you afford to Retire? Shocking Poll Results

Compromise must ensue eventually, and that will likely include reform to entitlement programs like Medicare and Social Security, programs that have expanded without funding to match.

"The only viable long-term solution appears to be a shift in federal entitlements programs to defined contribution status," Greenspan writes.

That means more and more Americans will have to contribute more to their retirement plans, which Greenspan recognizes will be difficult.

"Cutting back on benefits that are 'entitled' is going to be a far harder political task than curbing federal discretionary spending. We have created a level of entitlements that will require a greater share of real resources to fulfill than the economy seems likely to be able to supply."

One thing is for sure: the sweeping change is coming to the U.S. economy.

"We face a true revolution, not so much in the streets but in the fundamental choices the American people will have to make to secure our fiscal future," Greenspan writes.

"Arithmetic demands it."

A U.S. Treasury report finds that the government's net liabilities swelled by more than $1 trillion for 2011.

The Financial Report of the United States showed the government's liabilities exceeded assets by $14.785 trillion, up considerably from $13.473 trillion a year earlier, according to Reuters.

There was some good news: the government's net operating cost, or deficit, dropped to $1.313 trillion for the year ended Sept. 30 from $2.080 trillion the prior year, largely due to declines in expected future payments under government pension programs.

Tax hikes, it seems, might be unavoidable, the report finds, as a deficit remains a deficit even it narrows somewhat.

Continued in article




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

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/