Tidbits Quotations
To Accompany the February 28, 2012 edition of Tidbits
Bob Jensen at Trinity University

It's acceptable to be a New York Times' Racist as Long as You're a Leftist Black
Remember when the New York Times
lectured us on civility and warned of "eliminationist rhetoric" from the right? It was largely bunk. But here we have a Times columnist likening his political critics to vermin. To be sure, he is not actually going to exterminate them, as others who've used such metaphors down through history have been known to do. Blow's comments, that is, are not dangerous. But they are profoundly disturbed and indecent.
James Taranto, 'Right Wing Lice' Bigoted and hateful rhetoric from a New York Times columnist, The Wall Street Journal, February 25, 2012 ---

A prayer for Clint. Save us from Saint Santorum.
Tina Brown, Editor of Newsweek Magazine.
Who will save us from multi- trillion dollar deficit budgets and hopeless entitlements?
Certainly not Barack Obama, Mitt Romney, Newt Gingrich, or Saint Santorum.

And is Walker, who has been floated by New York Times columnist Thomas Friedman as a potential candidate, the right person to jump in the race?
"A third-party deficit hawk for president?," by Charles Riley, CNN Money, February 20, 2012 ---
Thank you Richard Campbell for the heads up.
Bob Jensen's threads on entitlements --- http://www.trinity.edu/rjensen/Entitlements.htm

I am amazed at the extent to which the opinions of serious scholars of international relations swing wildly on the basis of short term events. When Bush launched the war in Iraq, everyone was blathering on about "an American Empire, and we how hadn't seen anything like this since Rome." Now, one expensive intervention and an economic down turn later we are ready to consign American leadership to the dust bin of history? A little perspective please, and from a historian no less. Yes. American power is likely to decline relative to other players, but to think we are going to return to a situation of early 20th century multipolarity any time soon is even more fantastical that the delusions of neo-cons who thought the US could simply act without regard to anyone else. There are points in between people, get a grip.
Comment from tsar140 following a superficial article at
Yeah Right! The world will be better off when America is too bankrupt to help or harm anybody.

Jensen Comment
When I read Andrew J. Bacevich's superficial article I was reminded of those who conclude that just because we are having an exceptionally cold winter in various parts of the world that global warming either did not exist or it has ended.

Apple Corp. earned billions in profits but paid a lower tax rate than Mitt Romney ---

"How CEO Pay Became a Massive Bubble," An interview with Mihir Desai Harvard Business School, Harvard Business Review Blog, February 23, 2012 ---
Click Here

Bob Jensen's threads on outrageous executive compensation and golden parachutes ---


Why is the poverty rate in Chile so low relative to the rest of South America?

See the Chicago Boys at http://en.wikipedia.org/wiki/Chicago_Boys

American Dream --- http://en.wikipedia.org/wiki/American_Dream

On February 22, 2012 message from Paul Williams

Even if it sounds incredible, it is true.  The recent CBO report on income distribution in the U.S. is a place to start.  A useful way to educate oneself about what we know about inequality is Branko Milanovic (lead economist at the World Bank research division) The Haves and the Have Nots.  There seem to be so many factually challenged people that simply want to retain some Pollyanish idea of what America is -- it certainly isn't that anymore.  The number of people in the US living in poverty is close to 25%; based on 2007 data (before the Great Recession) 36 million Americans experienced food deprivation (Peter Corning, The Fair Society).  If you want a source for learning about income and wealth distribution visit:
The CIA tracks this stuff because there is a correlation between a country's Gini coefficient and social unrest.  By 2008 the Gini coefficient for the U.S. was 45, which is now well into the danger zone.  But unlike accounting academics, the CIA must live in a reality based world, not one based on the myths peddled by the economists by which we seem so enthralled. 


On February 22, 2012 I replied as follows to Paul Williams

I truly believe that if we abandoned immigration quotas for all nations, we would have billions rather than millions of people flowing into this country. It's not that the American Dream is as magnificent as we would like to believe. Rather, it's that the world nightmare is worse than we want to even imagine.

Bob Jensen

"The Mobility Myth:  Why everyone overestimates American equality of opportunity," by Timothy Noah, The New Republic, February 8, 2012 ---
Click Here

When Americans express indifference about the problem of unequal incomes, it’s usually because they see the United States as a land of boundless opportunity. Sure, you’ll hear it said, our country has pretty big income disparities compared with Western Europe. And sure, those disparities have been widening in recent decades. But stark economic inequality is the price we pay for living in a dynamic economy with avenues to advancement that the class-bound Old World can only dream about. We may have less equality of economic outcomes, but we have a lot more equality of economic opportunity.

The problem is, this isn’t true. Most of Western Europe today is both more equal in incomes and more economically mobile than the United States. And it isn’t just Western Europe. Countries as varied as Japan, New Zealand, Singapore, and Pakistan all have higher degrees of income mobility than we do. A nation that prides itself on its lack of class rigidity has, in short, become significantly more economically rigid than many other developed countries. How did our perception of ourselves end up so far out of sync with reality?

IN THE 1830s, Alexis de Tocqueville wrote that, in notable contrast to the “aristocratic nations” of Europe, the United States was a place where “new families are constantly springing up, others are constantly falling away, and all that remain change their condition.” Karl Marx sounded a similar note in 1865 when he observed that “the position of wages laborer is for a very large part of the American people but a probational state, which they are sure to leave within a longer or shorter term.” But it was two American writers who probably did the most to shape our country’s self-image as the land of unbounded opportunity. They were Horatio Alger, of whom you’ve probably heard, and James Truslow Adams, of whom you probably haven’t. When Alger and Adams were alive—and also, for that matter, when Tocqueville and Marx contributed their observations—American opportunity was a much closer match to their superlatives than it is now.

Alger wrote Ragged Dick (1868), Luck and Pluck (1869), and other dime novels for boys about getting ahead through virtue and hard work. To call these books popular would be an understatement; fully 5 percent of all the books checked out of the Muncie, Indiana, public library between November 1891 and December 1902 were authored by Alger. Adams was a more cerebral fellow who wrote books of American history. His influence stems from the fact that one of these books—The Epic of America (1931)—introduced the phrase “the American dream” to our national discourse. Writing at the start of the Great Depression, Adams envisioned not “a dream of motor cars and high wages merely,” but rather “a dream of a social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”

Born half a century apart, neither Alger nor Adams could claim to have risen from the bottom. Both came from well-established families whose American roots dated to the early seventeenth century. Alger could trace his lineage to three Pilgrims who in 1621 sailed to Plymouth Plantation on the Fortune, the second English ship to arrive there. Adams—no relation to the presidential Adamses—was descended from a man who arrived in Maryland in 1638 as an indentured servant and, within three years, possessed 185 acres. Alger’s father was a Unitarian minister; Adams’s a stockbroker. Both fathers were men of good breeding and education who struggled to make ends meet but were able—at a time when more than 90 percent of the population didn’t finish high school—to obtain higher education for their sons. Alger went to Harvard; Adams went to Brooklyn Polytechnic and, briefly, Yale. Both sons followed their fathers into the ministry and finance, respectively, before they became full-time writers.

Each author was, in his own way, highly successful, but the upward trajectory of these two literary careers would make poor material for a Horatio Alger tale. The circumstances of Alger’s job change are especially problematic. At 34, he vacated the pulpit abruptly when he was charged with “the abominable and revolting crime of unnatural familiarity with boys.” Alger did not dispute the accusation, which was based on the testimony of two teenage boys in his parish, ages 13 and 15, who said Alger had molested them and on rumors that he’d abused other youths in similar fashion. After confessing his guilt privately to William James, the founding father of American psychology, Alger never spoke of it again. Adams left Wall Street under less lurid circumstances. He simply disliked the work and resolved to stop once he amassed $100,000. Reviewing his accounts on his thirty-fifth birthday, he concluded that he’d achieved his goal—the equivalent of about $2 million in current dollars—and resigned the following day. Adams spent much of his subsequent life abroad and wrote The Epic of America in London.

Alger and Adams celebrated America’s capacity for upward mobility, but neither writer idealized his country to anything like the extent that would later be credited to the name Horatio Alger and the phrase “the American dream.” Alger worked into his later juvenile fiction much moralizing against the robber barons’ self-dealing and cruel treatment of the downtrodden. “He has done more harm than he can ever repair,” a character in Alger’s 1889 novel, Luke Walton, laments about a villain modeled on the Gilded Age stock manipulator Jay Gould. Adams deplored America’s tendency to celebrate “business and money-making and material improvement as good in themselves” and its refusal “to look on the seamy and sordid realities of any situation in which we found ourselves.” He even complained about America’s maldistribution of wealth. Still, neither writer had much taste for radical politics. Alger was essentially a mugwump—a good-government Republican distrustful of machine politics and Free Silver populism. Adams was a Tory-minded political independent who became a severe critic of Franklin Roosevelt’s New Deal, which he deemed financially irresponsible.

Both men bequeathed to the United States an exaggerated notion of itself as a mobile society because they lived during the peak years of American mobility—the latter half of the nineteenth century and the early years of the twentieth, when the American industrial revolution was wreaking maximum creative destruction on what had previously been an agrarian economy. The best way to measure mobility is to calculate the economic position of an individual relative to the rest of society and compare that with the economic position of that person’s child relative to the rest of society once that child has grown to a comparable stage in life. To calculate mobility for society as a whole, you therefore need income data over two generations for a large sample of American families. The government, alas, didn’t collect income data during the late nineteenth and early twentieth centuries, but the Census Bureau did collect data on occupations, which can serve as a rough proxy.

In a 2005 paper, Joseph Ferrie, an economics professor at Northwestern, studied census records about the occupations of fathers and sons between 1850 (the year Alger turned 18) and 1920 (21 years after Alger’s death and the year Adams turned 42). Ferrie then compared these records with father-son data from the Bureau of Labor Statistics during the second half of the twentieth century. He divided everyone into four categories: “unskilled worker,” “farmer,” “skilled or semi-skilled worker,” and “white-collar worker.” To keep both data sets consistent, he limited his inquiry to white, native-born males. Ferrie also made some technical adjustments to allow for the different occupational structures of the two eras. What he found was that the equivalent of 41 percent of farmers’ sons advanced to white-collar jobs between 1880 and 1900, compared with 32 percent between 1950 and 1973. Ferrie’s conclusion held up when he looked at all four job categories and when he compared other stretches of the late nineteenth century with other stretches of the late twentieth. Between the horse-and-buggy days and the interstate-highway era, American society had become significantly less mobile.

These findings are all the more striking because the 1950s and 1960s were a period—the last period in the United States, it turned out—when intergenerational mobility was increasing. The economy was booming, and men born during the Great Depression and World War II were enjoying opportunities that their fathers could scarcely imagine. Even so, mobility in this postwar era was no match for the mobility enjoyed by the generations of workers who lived during Alger’s lifetime and James Adams’s youth and early

Adams wrote in The Epic of America that the dream of living “unhampered by the barriers which had slowly been erected in older civilizations” was “realized more fully in actual life [in the United States] than anywhere else.” Was this a fantasy? Probably not at the time Adams was writing. Ferrie and Jason Long, an associate professor of economics at Colby College, looked at mobility during the late nineteenth century in both the United States and Great Britain. At that time, England was still the richest industrial country in the world. But it offered nothing like the opportunities for economic advancement that were available in its former colony. In Britain, for example, 53 percent of the sons of unskilled laborers moved up to skilled and semi-skilled labor or better. In the United States, fully 81 percent did. This was an era when the loftiest rhetoric about the United States as the land of opportunity rang true.

AS RECENTLY AS 1987, economists could still be heard vouching for American mobility. In a speech that year to the American Economic Association, the University of Chicago economist Gary Becker, a future Nobel laureate, said, “In every country with data that I have seen, ... low earnings as well as high earnings are not strongly transmitted from fathers to sons.” Five years later, Gary Solon, an economist at the University of Michigan, would blow Becker’s assertion to smithereens—at least as it applied to the United States.

To measure economic mobility effectively, you need access to good longitudinal data on families and income. Until fairly recently, the pickings were slim. But, by 1992, the University of Michigan’s Panel Study of Income Dynamics (PSID), a longitudinal study of more than 9,000 families from across the United States, had reached its 24-year mark and ripened into an unmatched source for detailed information on two successive American generations. Now old enough to include data on three or four generations, the PSID is the world’s longest-running “panel survey” of nationally representative households. (A panel survey is a longitudinal study in which respondents are interviewed at regular intervals.) Most contemporary studies of mobility trends in the United States make use of PSID data.

Solon’s groundbreaking 1992 paper, which drew on this newly available data, upended our understanding of something that economists call “intergenerational income elasticity” but that I’ll call “income heritability.” It’s a measure of how determinative one generation’s relative income status—what we used to call “station in life”—will be of the next generation’s relative income status. When Becker stated in 1987 that income status wasn’t especially heritable, he was working off studies that showed income heritability to be less than 20 percent, which didn’t seem too bad. Eighty percent of your economic destiny was in your hands—or at least out of your parents’ hands.

Perhaps you’re familiar with the following lines from William Ernest Henley’s “Invictus,” an oft-quoted inspirational poem from the nineteenth century: “I am the master of my fate: I am the captain of my soul.” In 1987, it was possible for Americans to believe, with respect to income: I am the master of 80 percent of my fate: I am the captain of 80 percent of my soul. But, in 1992, when Solon recalculated income heritability based on the more-reliable PSID data, he found income heritability to be at least 40 percent “and possibly higher.” I am the master of 60 percent of my fate.

Or possibly: I am the master of 40 to 50 percent of my fate. In 2001, Bhashkar Mazumder, an economist with the Federal Reserve Bank of Chicago, recalculated income heritability matching census data to Social Security data, which allowed him to compare parent-child incomes over a greater number of years. He found that income heritability was more like 50 to 60 percent. Mazumder later recalculated Solon’s PSID-based findings applying a more sophisticated statistical model and found that income heritability was about 60 percent. Then, in a 2004 study, Mazumder approached the question from a different angle, examining the correlation in incomes among siblings, using longitudinal survey data collected by the Bureau of Labor Statistics. That put income heritability at about 50 percent. “The sibling correlation in economic outcomes and human capital are larger than the sibling correlation in a variety of other outcomes including some measures of physical attributes,” Mazumder wrote. Most strikingly, he found that income among brothers actually correlated more closely than height and weight. I am less the master of my fate than I am of my body mass index.

It’s important to remember that the mobility trend for Americans as a whole is not necessarily a trend for every U.S. subgroup. For instance, upward mobility for women has accelerated in recent decades. The trend can be hard to track in intergenerational family income data because, while a contemporary woman will likely outearn her mother, who lived at a time when society provided far fewer economic opportunities to women, she won’t likely outearn her father, who faced no gender barriers at all. At the same time, upward mobility for African Americans has lagged behind upward mobility for whites. One especially disturbing 2008 analysis by the Brookings Institution’s Julia Isaacs compared PSID income data from parents in the late ’60s with PSID income data from their children in the late ’90s. Isaacs found that only 31 percent of black children born into the middle fifth of family incomes—dead center of the middle class, where incomes (in 2006 dollars) ranged from about $49,000 to $65,000—ended up with higher incomes than their parents had, corrected for inflation. Fully 45 percent fell all the way to the bottom-income fifth (below about $40,000). By comparison, 68 percent of whites born into the middle-income fifth ended up with incomes higher than their parents had, and only 16 percent tumbled all the way to the bottom-income fifth. Where these white parents mostly saw their children become better off economically than they had been, corresponding black parents mostly saw their children become worse off.

In the United States, economic mobility is lower than it was during the late nineteenth and early twentieth centuries; it is no longer accelerating, as it was during the ’50s and ’60s; and it is either about the same or a little lower than it was in 1970. “Personally,” Brookings economist Isabel Sawhill told me in an interview last year, “I believe that it has slipped.”

MEANWHILE, mobility in the United States has fallen dramatically behind mobility in other comparably developed democracies. A 2007 study by the Organisation for Economic Cooperation and Development (OECD) combined a number of previous estimates and found income heritability to be greater in the United States than in Denmark, Australia, Norway, Finland, Canada, Sweden, Germany, Spain, and France. Italy was a little bit less mobile than the United States. The United Kingdom, which had been far less mobile than the United States during the late nineteenth century, brought up the rear, but this time it was just a bit less mobile than the United States. The OECD’s ranking was based on a somewhat conservative U.S. estimate of 47 percent income heritability; Mazumder of the Chicago Fed puts it at 50 to 60 percent, which would rank the United States either tied with the United Kingdom for last place or dead last after the United Kingdom. Thanks to a 2012 recalculation by Miles Corak, an economist at the University of Ottawa, we can now add Switzerland, Japan, New Zealand, Singapore, and Pakistan to the list of societies that are more mobile than the United States. (Italy and the United Kingdom were once again found to be less mobile than the United States, along with Chile, Brazil, Peru, and China.)

It’s especially striking that Canada should experience more intergenerational economic mobility than the United States. The two countries are, after all, similar in more ways than one can count. The most significant way they differ (at least for the purposes of this discussion) is that the United States is richer, with a per capita gross domestic product that’s 20 percent higher. Most migration between the two is from Canada to the United States, not the other way around. How can Canada be the land of greater opportunity?

The University of Ottawa’s Corak looked at this puzzle in a 2010 paper. Examining several existing mobility studies “using particularly high-quality data,” Corak found that Canada is “up to three times more mobile than the United States.” The difference arises largely from disparities at the top and bottom 10 percent of the income scale. If a father is in the bottom tenth of U.S. incomes, Corak found, his son has a 22 percent likelihood of ending up in the bottom tenth. If a father is in Canada’s bottom tenth, his son’s likelihood of ending up in the bottom tenth is 16 percent. At the other end of the income scale, if a father is in the top tenth of U.S. incomes, his son has a 26 percent chance of ending up in the top tenth. If a father is in Canada’s top-income tenth, his son’s likelihood of ending up in the top tenth is 18 percent.

Continued in article

Jensen Comment
Even if Paul Williams is correct and Timothy Noah is all wrong about the American Dream, many people who want to sneak illegally into North America are doing so for important reasons apart from economic reasons. There's a strong incentive sneak into the U.S. or Canada because it's very unsafe to live in many other nations having corrupt policing, high kidnapping risks, drug wars, horrid murder risks, extortion, staggering rape rates, etc.

"Painting Calcutta Blue: What Could Possibly Go Wrong? A new initiative aims to mask the urban decay by slapping a fresh coat of sky-blue paint on the Indian metropolis," by Andrew Mueller, Business Week, February 21, 2012 ---

Jensen Comment
This reminds me of a time when I was a "resident assistant" at a University of Denver coed dormitory (Johnson-Macfarland Hall) when I was in the MBA program. We had a nice guy, a wrestler from Turkey,  who was so unsanitary that we made him keep his dorm room door closed at all times because of the foul odor emanating from within. His exceptional body odor served one purpose --- he always got a private room because nobody would live in the same room with him.

No coed in the dorm would consider dating him even if we issued her a gas mask at the front desk. Rather than shower before going on a blind date, he would douse himself in a bottle of cologne. Imagine sitting beside him in a movie when the cologne commenced to wear off.

Imagine Calcutta when the paint begins to chip and crack.

Marcel Proust --- http://en.wikipedia.org/wiki/Proust

Valentin Louis Georges Eugène Marcel Proust ; 10 July 1871 – 18 November 1922) was a French novelist, critic, and essayist best known for his monumental À la recherche du temps perdu (In Search of Lost Time; earlier translated as Remembrance of Things Past). It was published in seven parts between 1913 and 1927.

"The Proust index: Advanced economies have gone backwards by a decade as a result of the crisis," The Economist, February 25, 2012 ---

NOW almost five years old, the economic crisis rumbles on. In order to assess how much economic progress it has undone, The Economist has constructed a measure of lost time for hard-hit countries. It shows that Greece’s economic clock has been turned back furthest: it has been rewound by over 12 years. Elsewhere in the euro area, Ireland, Italy, Portugal and Spain have lost seven years or more. Britain, the first country forced to rescue a credit-crunched bank, has lost eight years. America, where the trouble started, has lost ten (see left-hand chart).

Our clock uses seven indicators of economic health, which fall into three broad categories. Household wealth and its main components, financial-asset prices and property prices, are in the first group. Measures of annual output and private consumption are in the second category. Real wages and unemployment make up the third. A simple average of how much time has been lost in each of these categories produces our overall measure.

Stockmarkets give some of the starkest results. American equities lost a quarter of their value in the month after the collapse of Lehman Brothers in September 2008. Shares are an important component of households’ pension-fund wealth, and in that month alone five years of gains were eradicated. The main indices have improved markedly since then: the S&P 500 is back to around 90% of its peak value. But they were at these levels back in the late 1990s, too, so some investors will have made no capital gains in 13 years. Greek stocks were higher in 1992 than today: 20 years have been wiped away.

Continued in article

"Seven Problems a Recovery Won't Fix." by Umair Haque, The Harvard Business Reveiw Blog, June 8, 2011 --- Click Here

Bob Jensen's threads on the economic crisis ---

John Cassidy --- http://en.wikipedia.org/wiki/John_Cassidy_%28journalist%29

Deception Using Statistics Can Become Very Subtle and Complicated
One man's politically biased analysis is another man's scholarly bipartisan analysis --- so much depends upon the biased eyes of the beholder!
Lying with statistics can be as much a fault of the reader as the writer.

Before reading the February 6 article linked below it might be interesting to read one of the comments that follow the article:

This is a much more in-depth examination of the numbers than is available at most any other news outlet. So, thanks for that. Furthermore, you make a good argument with raw numbers to back the argument up. All of that being said, the real point as far as I am concerned is the media's handling of this issue. It's really quite hard to envision the same type of cheerleading and lack of investigation if Mitt Romney were president right now. To the contrary, your piece would probably be one of the more lightweight pieces on the subject as every mainstream news outlet struggled to dig into the numbers to show how the lower rate was either not Romney's fault or was not actually good just because it was lower. Yes, the G.O.P. is making hay out of what they can but it is clear that the media is doing the same in reverse. Again this piece is one of the only in-depth pieces I have read on this matter.
Posted 2/7/2012, 5:53:01am by gudmundsdottir

"The Jobs Report and the 'Missing 1.2 Million'," by John Cassidy, The New Yorker,  February 6, 2012 ---

Jensen Comment
I cannot imagine the liberally-biased New Yorker even publishing such an article if Mitt Romney were president. But I could be mistaken.

Jensen Comment
I cannot imagine the liberally-biased New Yorker even publishing such an article if Mitt Romney were president. But I could be mistaken.

The same liberal author (John Cassidy) in 2010 published an article in The New Yorker that was critical of ObamaCare numbers.

Fuzzy CBO Accounting Tricks
"ObamaCare by the Numbers: Part 2," by John Cassidy, The New Yorker, March 2010 ---

. . .

The C.B.O.’s analysis can’t be dismissed out of hand, but it is surely a best-case scenario. Again, I come back to where I started: the scale of the subsidies on offer for low and moderately priced workers. If economics has anything to say as a subject, it is that you can’t offer people or firms large financial rewards for doing something—in this case, dropping their group coverage—and not expect them to do it in large numbers. On this issue, I find myself in agreement with Tyler Cowen and other conservative economists. Over time, the “firewall” between the existing system of employer-provided group insurance and taxpayer-subsidized individual insurance is likely to break down, with more and more workers being shunted over to the public teat.

At that point, if it comes, politicians of both parties will be back close to where they began: searching for health-care reform that provides adequate coverage for all at a cost the country can afford. What would such a system look like? That is a topic for another post, but I don’t think it would look much like Romney-ObamaCare.  

Read more: http://www.newyorker.com/online/blogs/johncassidy/2010/03/obamacare-by-the-numbers-part-2.html#ixzz0jrFSFK3j

Closing Comment
As an academic, I respect John Cassidy for being a liberal economist and statistician who is honorable enough to present both sides of issues when his analysis does not support his politics. Bravo to John Cassidy! You would never catch Paul Krugman being "in agreement with Tyler Cowen and other conservative economists" except maybe when he was sending his consulting-fee bills to Enron.

Paul Krugman's liberal colleague Alan Blinder at Princeton is worse.

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!

Some Interesting State Comparisons on State& Local Taxation, Business Climate, and Debt Per Capita

The American Dream:  A Free Ride
Nearly Half of All Americans Don’t Pay Income Taxes

Case Studies in Gaming the Income Tax Laws

To help explain what is really going on with mortgage refinancings and foreclosures I wrote a teaching case:
A Teaching Case:  Professor Tall vs. Professor Short vs. Freddie Mac

"Chicago Called Most Corrupt City In Nation," CBS Chicago TV, February 14, 2012 ---

A former Chicago alderman turned political science professor/corruption fighter has found that Chicago is the most corrupt city in the country.

He cites data from the U.S. Department of Justice to prove his case. And, he says, Illinois is third-most corrupt state in the country.

University of Illinois professor Dick Simpson estimates the cost of corruption at $500 million.

It’s essentially a corruption tax on citizens who bear the cost of bad behavior (police brutality, bogus contracts, bribes, theft and ghost pay-rolling to name a few) and the costs needed to prosecute it.

“We first of all, we have a long history,” Simpson said. “The first corruption trial was in 1869 when alderman and county commissioners were convicted of rigging a contract to literally whitewash City Hall.”

Corruption, he said, is intertwined with city politics

“We have had machine politics since the Great Chicago Fire of 1871,” he said. “Machine politics breeds corruption inevitably.”

Simpson says Hong Kong and Sydney were two similarly corrupt cities that managed to change their ways. He says Chicago can too, but it will take decades.

He’ll be presenting his work before the new Chicago Ethics Task Force meeting tomorrow at City Hall.

University of Illinois at Chicago Report on Massive Political Corruption in Chicago
"Chicago Is a 'Dark Pool Of Political Corruption'," Judicial Watch, February 22, 2010 ---

A major U.S. city long known as a hotbed of pay-to-play politics infested with clout and patronage has seen nearly 150 employees, politicians and contractors get convicted of corruption in the last five decades.

Chicago has long been distinguished for its pandemic of public corruption, but actual cumulative figures have never been offered like this. The astounding information is featured in a lengthy report published by one of Illinois’s biggest public universities.

Cook County, the nation’s second largest, has been a “dark pool of political corruption” for more than a century, according to the informative study conducted by the University of Illinois at Chicago, the city’s largest public college. The report offers a detailed history of corruption in the Windy City beginning in 1869 when county commissioners were imprisoned for rigging a contract to paint City Hall.

It’s downhill from there, with a plethora of political scandals that include 31 Chicago alderman convicted of crimes in the last 36 years and more than 140 convicted since 1970. The scams involve bribes, payoffs, padded contracts, ghost employees and whole sale subversion of the judicial system, according to the report. 

Elected officials at the highest levels of city, county and state government—including prominent judges—were the perpetrators and they worked in various government locales, including the assessor’s office, the county sheriff, treasurer and the President’s Office of Employment and Training. The last to fall was renowned political bully Isaac Carothers, who just a few weeks ago pleaded guilty to federal bribery and tax charges.

In the last few years alone several dozen officials have been convicted and more than 30 indicted for taking bribes, shaking down companies for political contributions and rigging hiring. Among the convictions were fraud, violating court orders against using politics as a basis for hiring city workers and the disappearance of 840 truckloads of asphalt earmarked for city jobs. 

A few months ago the city’s largest newspaper revealed that Chicago aldermen keep a secret, taxpayer-funded pot of cash (about $1.3 million) to pay family members, campaign workers and political allies for a variety of questionable jobs. The covert account has been utilized for decades by Chicago lawmakers but has escaped public scrutiny because it’s kept under wraps. 

Judicial Watch has extensively investigated Chicago corruption, most recently the conflicted ties of top White House officials to the city, including Barack and Michelle Obama as well as top administration officials like Chief of Staff Rahm Emanual and Senior Advisor David Axelrod. In November Judicial Watch sued Chicago Mayor Richard Daley's office to obtain records related to the president’s failed bid to bring the Olympics to the city.

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

Bob Jensen's threads on political corruption are at

Bob Jensen's Fraud Updates are at

Teaching Case on Political Insanity:  Charging Up Social Security and Medicare Monthly Entitlements on Our Chinese Credit Card

From The Wall Street Journal Accounting Weekly Review on February 17, 2012

Deal Reached on Payroll Tax
by: Naftali Bendavid and Kristina Peterson
Feb 15, 2012
Click here to view the full article on WSJ.com
Click here to view the video on WSJ.com WSJ Video

TOPICS: Tax Laws, Tax Policy, Taxation

SUMMARY: Congressional lawmakers negotiated across party lines to extend the FICA payroll tax rate cut which was due to expire on February 29. The original provision to enact the rate cut had been set to expire in December 2011 but a two month extension was then agreed upon as described in the related article from that time. The political parties were in an unusual situation in which Republicans were arguing against the extension--without corresponding spending cuts to pay for the cost-and Democrats were arguing for the tax cut. The bill to be submitted also will "...provide that Medicare would continue to pay physicians at current rates, avoiding a 27.4% cut in fees [when caring for patients on this plan] which would have kicked in March 1....[and] an extension of enhanced unemployment benefits...."

CLASSROOM APPLICATION: The article is useful to introduce the political viewpoints on taxes in a tax class or when discussing payroll taxes in a financial accounting class.

1. (Advanced) What are payroll taxes? Describe all payroll taxes paid by a company employer and by an employee.

2. (Introductory) What tax rate reduction was given for U.S. payroll taxes? Who pays the tax that was cut? When was this tax cut first scheduled to expire? Hint: You may refer to the related article to find a description of the original expiration of this payroll tax cut.

3. (Advanced) Arguments discussed in the related video identify that temporary tax cuts don't stimulate the economy. In general, how are taxes related to the economy?

4. (Advanced) Further comments in the video indicate that the agreement reached among lawmakers to extend this tax cut has more to do with politics in this presidential election year than with the impact of the payroll taxes on the economy. What are the political viewpoints of the lawmakers on the two sides of the debate over extending this tax cut?

Reviewed By: Judy Beckman, University of Rhode Island

Lawmakers Deadlock Over Tax Cut
by Janet Hook
Dec 20, 2011
Online Exclusive


"Deal Reached on Payroll Tax," by: Naftali Bendavid and Kristina Peterson, The Wall Street Journal, February 15, 2012 ---

Congressional negotiators reached a tentative a deal Tuesday night on extending the current payroll-tax cut through the end of the year, as well as continuing longer unemployment benefits and avoiding a steep cut in Medicare doctors' fees.

The agreement, culminating a long and angry debate, followed a major concession earlier in the week from House Republicans, who agreed to extend the payroll-tax holiday without offsetting spending cuts. Without an agreement, payroll-tax rates would rise on March 1 for 160 million American workers.

Rep. Steve LaTourette (R., Ohio) said that it's "a done deal subject to the i's being dotted and t's crossed."

Rep. David Camp (R., Mich.), who along with Sen. Max Baucus (D., Mont.) was one of the chief negotiators, added, "We have a structure and a framework."

The deal represents a victory for President Barack Obama and fellow Democrats, who have argued the payroll-tax break is an emergency measure to support the weak recovery and doesn't have to be paid for. The deal also plays into Democrats' attempts to position themselves as champions of the middle class.

Republicans also have reason to welcome the deal, since it gets a politically troubling issue off the table. Republicans had found themselves on the defensive over the payroll-tax cut. Some worried about whether it would be effective or wise, and Democrats had hammered them for opposing a middle-class tax cut.

The agreement showed the reluctance of both sides, but especially Republicans, to re-engage in the sort of brinksmanship that has caused congressional approval to plummet. The payroll-tax cut, unemployment benefits and Medicare payment system would have expired on Feb. 29, and an agreement two weeks ahead of time is a major change from last year's 11th-hour deals.

Leaders of both parties had been waiting to gauge the reaction of House GOP conservatives, who have been an unpredictable faction in the past year. But conservatives emerging from a closed-door meeting of House Republicans Tuesday night suggested the deal was likely to pass.

"I think you'll see a fair number of dissenters on it," said Rep. Dennis Ross (R., Fla.), a freshman, who worried that the tax cut could hurt Social Security, which is funded by the payroll tax. But he added, "I think they'll have the votes to pass it."

The deal, which could be formalized as early as Wednesday, would extend the tax cut for the rest of the year. After months of insisting that the tax break, which will cost the government $93 billion in revenue, must be paid for, GOP leaders dropped that demand on Monday.

The agreement would also provide that Medicare would continue to pay physicians at current rates, avoiding a 27.4% cut in fees that would have kicked in March 1. That fee adjustment, expected to cost about $30 billion, would be funded by cuts in payments to Medicare providers, as well as a cut to the wellness and prevention fund in Mr. Obama's health-care law.

Among the thorniest issues was continuing longer unemployment benefits, which currently provide jobless benefits for up to 99 weeks, depending on a state's jobless rate.

The two sides were making conflicting claims on the duration of benefits under the new deal. Some Democrats said the maximum length would be 75 weeks. Republicans said that for most states, the maximum number of weeks would be capped at 63 weeks. About 1.3 million unemployed people would lose their benefits by the end of March in case of no deal.

This extension would be funded with an array of measures, including a sale of the broadband spectrum and a cut in the government's contribution to employee pensions.

Earlier Tuesday, Senate Majority Leader Harry Reid (D., Nev.) had pushed hard for a deal on jobless benefits, noting that Congress is on recess next week.

"We still have about 40 million people who are unemployed," Sen. Reid said. "We cannot leave here without the conference committee having resolved a way of dealing with unemployment compensation."

Many Republicans worry that the payroll-tax cut will hurt Social Security, and others say it should at least be paid for at a time of soaring federal budget deficits. Democrats say the Social Security funds will be replenished with money from the general treasury.

The payroll-tax issue has flummoxed Republicans since late last year, when Democrats began pushing for a one-year extension of the cut, which initially was set to expire in December.

Some Republicans countered the tax code needed a thorough overhaul rather than temporary tinkering, and that the tax break would do little to create jobs. Republicans also demanded offsetting spending cuts to pay for the tax cut. In response, Democrats proposed an upper-income tax increase to pay for the break, but Republicans opposed that.

Continued in article

Why the Canadians never built an $80 trillion Titanic that lies deep in the ocean.
"Expect higher payroll taxes in 2012, taxpayers group says," by Joanna Smith, The Star, December 28, 2011 --- Click Here

Canadians will see the biggest increase in payroll taxes in a decade next year, according to a Canadian Taxpayers Federation analysis of how many of your dollars will go to federal government coffers.

Employment insurance premiums will increase 5 cents per $100 of insurable earnings as of Jan. 1. That’s half of what the Conservative government originally planned but the analysis shows employees will still see a $53 jump to $840 in EI premiums in 2012

Combine that with the federal pension plan contributions and it means employees will have to give up a total of $3,147 in payroll taxes next year — an increase of about $142 over this year.

Employers will have to shell out about $164 more in payroll taxes next year, for a total of $3,483.

The combined net increase of 4.84 per cent is the highest since 2002.

“Finance Canada tells us that we should be thanking the government because they are not going to be raising payroll taxes as much as they promised,” said Derek Fildebrandt, national research director for the advocacy group.

A spokeswoman for the federal finance department suggested exactly that.

“The Canada Employment Insurance Financing Board is responsible for setting premium rates to ensure that the program just breaks even over time and managing a cash reserve — including adjustments in rates,” Suzanne Prebinski wrote in an email.

“However, to protect the economy and jobs, we cut any potential increases in half for 2012 — keeping EI premiums near their lowest level since 1982. This change is expected to save employers and employees $600 million in 2012.”

Prebinski noted there is no change to the Canada Pension Plan contribution rate, which has been at 9.9 per cent of pensionable earnings since 2003, but there will be an increase in the maximum contribution to account for inflation.

Continued in article

Bob Jensen's threads on entitlements ---

"Debt: The First 5,000 Years," by Paul Kedrosky , Kedrosky.com, September 10, 2011 --- Click Here

Jensen Questions
How did the accounting system account for debt 5,000 years ago?
Does care and nurturing human children create debt to parents?

"When Debt Gets in the Way of Growth," Harvard Business Review Blog, September 13, 2011 --- Click Here

Bob Jensen's threads on accounting history ---


Why are communist nations moving closer and closer to private sector economies?
What's so wrong with public sector ownership?

"Cuba Unleashes the Pent-Up Energy of Real Estate Dreams," by Victoria Burnett, The New York Times, February 15, 2012 ---

As fixer-uppers go, Carmen Martínez’s derelict shotgun house is no cakewalk. The living-room roof collapsed 15 years ago, and the porch soon followed suit, leaving two teetering columns with nothing to hold up. The bathroom is a squalid privy, and the kitchen consists of a sink with no taps and two oil drums full of water.

But roofs — even half-missing ones — are a hot commodity these days in Havana, which has been swept by a bout of real estate fever. So Yoél Bacallao, a 35-year-old entrepreneur, offered to repair Ms. Martínez’s dilapidated house for free on one condition: that she let him build an apartment of his own on top of it.

“It was as if a ray of light had come down from the sky,” said Ms. Martínez, 41, who would hang laundry in the roofless living room and sweep furiously during rainstorms to keep the rest of the house from flooding. “I have been watching this house fall apart around me for years.”

All over the capital and in many provincial towns, Cubans are beginning to inject money into the island’s ragged real estate, spurred by government measures to stimulate construction and a new law that allows them to trade property for the first time in 50 years.

The measures are President Raúl Castro’s biggest maneuver yet as he strives to get capital flowing on the island, encourage private enterprise and take pressure off the economically crippled state.

For decades, the government banned real estate sales and kept a jealous grip on construction. Materials were scarce, red tape endless and inspectors meddlesome. Black marketeers would deliver cinder blocks by cover of darkness, and purchasing a bag of sand was a furtive process akin to buying drugs.

But during the past two months the state has reduced paperwork, stocked construction stores, legalized private contractors and begun offering homeowners subsidies and credits.

On many streets, the chip of hammers and gritty slosh of cement mixing rises above the sparse traffic as Cubans paint facades, build extensions or gut old houses. Still, it is generally small-scale stuff: Mr. Bacallao, who has savings from his business repairing mobile phones, expects to spend about $10,000 on his project.

“Before, you had to sneak a bag of cement here, a bag of cement there,” he said. Mr. Bacallao, who rents a tiny apartment with his girlfriend, built a rooftop house three years ago, but the state confiscated it because he could not explain how he came by the materials. If this house works out, he will move his daughters to Havana from the provinces.

“Now I can explain where I got the materials,” he said. “I can explain where I got the money. No problem.”

Behind scruffy porticos and walls of bougainvillea, the wheels of the property trade are turning. Unofficial brokers — who are still outlawed in Cuba — say they have never been so busy, trawling the streets and the Internet for leads and fielding calls from prospective buyers.

Cubisima, an online classified service, said the number of hits on its real estate page tripled to an average of 900 per day after the new property law took effect on Nov. 10. The law allows Cubans to buy and sell their houses, and even own a second home outside the cities, though it still bars most foreigners from buying.

It is a crude market, where househunters rely on word of mouth and prices are based as much on excitement as on any clear sense of property values, according to interviews with homeowners, brokers and experts. Buyers, who at the top end are mainly Cuban émigrés and Cubans married to foreigners, often declare a fraction of what they pay, and money sometimes changes hands overseas, suggesting that the government’s hope of reaping significant tax revenues may be at least partly thwarted.

Continued in article

Keep in mind that nearly half of all U.S. "taxpayers" pay zero or negative income taxes!

"Working All Day For the I.R.S.," by James B. Steward, The New York Times, February 17, 2012 --- Click Here

Mitt Romney is not alone. I thought Mr. Romney’s 13.9 percent federal tax rate would be hard to beat. But among the 400 Americans with the highest adjusted gross incomes in 2008, 30 of them paid less than 10 percent and another 101 paid less than 15 percent. And these people earned, on average, more than 10 times Mr. Romney’s $21.7 million — an average of $270.5 million each.

¶ After I disclosed a few weeks ago that I pay 37 percent of my adjusted gross income and 74 percent of my taxable income in combined federal, state and local income and payroll taxes, I asked the Internal Revenue Service how that compares with other taxpayers. I never got a simple answer (and an I.R.S. spokesman said the agency could not discuss individual returns).

¶ But this week, the I.R.S. sent me reams of data, including analyses of returns from taxpayers reporting adjusted gross income of more than $200,000 and returns from the top 400 taxpayers. Some data were from 2009, but most went back to 2008. (The agency offered no explanation as to why it takes so many years to compile.) But the data helps explain why many people are so angry about the tax code.

¶ Relatively few taxpayers pay an enormous percentage of the total federal income tax, and most of them are people who work for a living and have adjusted gross incomes of $100,000 to $500,000, which is the sweet spot for tax revenue. They account for 20.2 percent of total returns but pay a whopping 44.9 percent of total tax. The average tax rate for this group ranges from 11.9 percent for those with less than $200,000 in adjusted gross income to 19.6 percent for those with $200,000 to $500,000. Above those income levels, the rate rises to close to 25 percent and then declines to 22.6 percent for taxpayers earning more than $10 million.

¶ The I.R.S. doesn’t break down the data for incomes above $10 million, but the results for the top 400 returns suggest that the rate continues to decline as incomes rise. The top 400 paid an average of $49 million, or 18.1 percent of their adjusted gross income, in federal tax — lower than taxpayers in the $200,000 to $500,000 bracket. They reported an average $14.1 million in state and local taxes, bringing their total income tax level to about 23 percent of adjusted gross income, far below my rate. And not one of them paid more than 35 percent of their adjusted gross income in federal tax.

¶ I spoke this week to the investigative reporters Don Barlett and Jim Steele, who are working on a sequel to their best-selling book “America: What Went Wrong,” first published in 1992. They said that tax inequities had gotten worse since 1994, when they published “America: Who Really Pays the Taxes,” and described the tax system as “out of control.”

¶ Now, “The tax code has been so skewed against most people, with remarkable tax cuts for folks at the top, that the whole concept of fairness has gone out the window,” Mr. Steele said. Mr. Barlett, pointing to disparate rates even among people in the same income brackets, added: “There’s enormous horizontal inequity, enormous.”

¶ The budget that President Obama unveiled this week included some hot-button tax measures aimed at some of these inequities: capping deductions and raising taxes on people earning more than $1 million (the so-called Buffett Rule), scrapping the alternative minimum tax and raising the tax on dividend income and carried interest. The liberal Economic Policy Institute noted, “No budget is perfect,” but applauded the president’s stab at tax reform. “The need for the Buffett Rule,” it said, “is largely driven by the preferential tax treatment of investment income over work income.”

The I.R.S. data makes clear that the differing treatment of earned and unearned income accounts for most of the disparity between tax rates for the ultrawealthy and those who make much less. Salaries and wages accounted for only 8.8 percent of adjusted gross income for the top 400 taxpayers. Interest and dividends made up 16 percent and net capital gains accounted for nearly 57 percent. So on average, 73 percent of their income was unearned and taxed at favorable rates.

For people with incomes of more than $200,000, salaries and wages make up nearly 50 percent of their adjusted gross income. Interest income accounted for 4 percent and dividends were just under 5 percent. Capital gains were 17.3 percent. “The people who pay all the taxes are the same people who are working,” Mr. Barlett said. “If you’re paying a huge amount of tax, then you’re working.”

While proponents of lower rates for capital gains have argued that they stimulate capital investment, thereby generating jobs and economic growth (while others dispute these claims), many people wrote me to complain that by the same logic, higher rates on earned income discourage people from working.

Teresa Allen-Piccolo told me that she and her husband ran a small business in California that manufactured electronic monitoring systems for the environment. “We represent what almost every politician purports to love — self-made, no loans, no government assistance, just hard work,” she wrote. “After decades of hard, virtually unpaid work, in 2009 and 2010 the business finally picked up. Our total taxes went from $17,000 to $106,000 in 2010 — about half of our taxable income! What can one say? Were it not that we are committed to environmental protection and giving employment, we would be much better off shutting down the business and just doing some consulting work on the side.”

Jeff Hoopes noted that as a low-paid Ph.D. candidate in accounting at the University of Michigan, his average tax rate was low, but his marginal rate reached 35 percent because his earned-income credit was reduced when he made extra money from “house-sitting, selling books and tutoring.” He went on: “For providing incentives to work, the marginal rate is what counts. So while my average rate suggests that I am lightly taxed (perhaps unfair to others who pay more), my marginal rate suggests I have lesser incentives to work, as I take home less than 65 percent of what I earn. It is the worst of both worlds.”

Mr. Obama’s proposal to raise taxes on dividends attacks just one aspect of the disparity between the ultrarich and others, but it is significant. The top 400 taxpayers reported average dividend income of $25 million in 2008, which accounted for 4.55 percent of total dividend income.

That such a tiny sliver of the population would account for nearly one-twentieth of total dividend income “drives me crazy,” Mr. Steele said. “Although roughly 50 percent of Americans own stocks or mutual funds, dividends go overwhelmingly to the top 2 percent of the taxpayers. Those are the people who rake in the dividends. Why should that money be taxed at a lower rate?”

Like many defenders of the lower rate, Curtis Dubay, senior policy analyst at the conservative Heritage Foundation, argues that “the dividends tax is a double tax, since the corporate income that dividends come from are already taxed 35 percent at the business level.” The effective rate on dividends, Mr. Dubay maintained, “would stand at more than 63 percent if President Obama’s misguided policy became law. This would significantly curtail investment and slow economic growth.”

Continued in article

Jensen Comment
For taxpayers that owe long-term capital gains taxes, the tax code will never be fair until long-term capital gains are indexed for inflation ---
See the graphs at

One thing President Obama never mentions in his quest to raise the taxation of capital gains is that long-term gains should really be indexed for inflation. The purchasing power of dollars invested in years earlier is being paid back in current dollars that will buy a whole lot less. The injustice is that it's possible to have a purchasing power loss on long term capital gains that nevertheless gets taxed. Special capital gains rates are intended to give some relief from this type of injustice and its disincentives to hold long-term investments.

For example, the purchasing power of a 1913 dollar declined from 24 cents in 1971 to 4.6 cents in 2009. Most if not all the so-called gain of a 1971 long-term investment may well be a purchasing power loss. For example, an Iowa farm purchased in 1950 may sell for over $1 million gain today that might well be a purchasing power loss if the farm was purchased or inherited just after World War 2.

Source:  http://worldoftak.ning.com/forum/topics/the-long-goodbye-the-declining

Another Way to Keep Unemployment Statistics Low
Unemployment benefits have time limits that vary be state. Social Security disability payments continued until the day you die, and in some instances, after you die. Furthermore, being declared disabled by a phony doctor allows Medicare to kick in at any age without having to be 65 years old like other people on Social Security who have not gamed the system.

"Millions of jobless file for disability when unemployment benefits run out," New York Post via Fox News, February 19, 2012 ---

Being unemployed for too long reportedly is driving people mad and costing taxpayers billions of dollars in mental illness and other disability claims. 

The New York Post reported Sunday that as unemployment checks run out, many jobless are trying to gain government benefits by declaring themselves unhealthy. 

More than 10.5 million people -- about 5.3 percent of the population aged 25 and 64 -- received disability checks in January from the federal government, the Post wrote, a 18 percent jump from before the recession.

Among those claiming disability, 43 percent are asking for benefits because of mental illness, the Post wrote. A growing number of those people are older, former white-collar workers. 

Disability claims come from the Social Security Trust Fund, which is set to go broke in 2018. Congress last week agreed to dip into the revenue stream to give a 2-percentage point tax break to working Americans.

The Post noted that the more people file for disability claims, the better for the unemployment picture since those people are removed from the jobless rolls.

"The Public-Union Albatross What it means when 90% of an agency's workers (fraudulently)  retire with disability benefits (before age 65)," by Philip K. Howard, The Wall Street Journal, November 9, 2011 ---

The indictment of seven Long Island Rail Road workers for disability fraud last week cast a spotlight on a troubled government agency. Until recently, over 90% of LIRR workers retired with a disability—even those who worked desk jobs—adding about $36,000 to their annual pensions. The cost to New York taxpayers over the past decade was $300 million.

As one investigator put it, fraud of this kind "became a culture of sorts among the LIRR workers, who took to gathering in doctor's waiting rooms bragging to each [other] about their disabilities while simultaneously talking about their golf game." How could almost every employee think fraud was the right thing to do?

The LIRR disability epidemic is hardly unique—82% of senior California state troopers are "disabled" in their last year before retirement. Pension abuses are so common—for example, "spiking" pensions with excess overtime in the last year of employment—that they're taken for granted.

Governors in Wisconsin and Ohio this year have led well-publicized showdowns with public unions. Union leaders argue they are "decimat[ing] the collective bargaining rights of public employees." What are these so-called "rights"? The dispute has focused on rich benefit packages that are drowning public budgets. Far more important is the lack of productivity.

"I've never seen anyone terminated for incompetence," observed a long-time human relations official in New York City. In Cincinnati, police personnel records must be expunged every few years—making periodic misconduct essentially unaccountable. Over the past decade, Los Angeles succeeded in firing five teachers (out of 33,000), at a cost of $3.5 million.

Collective-bargaining rights have made government virtually unmanageable. Promotions, reassignments and layoffs are dictated by rigid rules, without any opportunity for managerial judgment. In 2010, shortly after receiving an award as best first-year teacher in Wisconsin, Megan Sampson had to be let go under "last in, first out" provisions of the union contract.

Even what task someone should do on a given day is subject to detailed rules. Last year, when a virus disabled two computers in a shared federal office in Washington, D.C., the IT technician fixed one but said he was unable to fix the other because it wasn't listed on his form.

Making things work better is an affront to union prerogatives. The refuse-collection union in Toledo sued when the city proposed consolidating garbage collection with the surrounding county. (Toledo ended up making a cash settlement.) In Wisconsin, when budget cuts eliminated funding to mow the grass along the roads, the union sued to stop the county executive from giving the job to inmates.

No decision is too small for union micromanagement. Under the New York City union contract, when new equipment is installed the city must reopen collective bargaining "for the sole purpose of negotiating with the union on the practical impact, if any, such equipment has on the affected employees." Trying to get ideas from public employees can be illegal. A deputy mayor of New York City was "warned not to talk with employees in order to get suggestions" because it might violate the "direct dealing law."

How inefficient is this system? Ten percent? Thirty percent? Pause on the math here. Over 20 million people work for federal, state and local government, or one in seven workers in America. Their salaries and benefits total roughly $1.5 trillion of taxpayer funds each year (about 10% of GDP). They spend another $2 trillion. If government could be run more efficiently by 30%, that would result in annual savings worth $1 trillion.

What's amazing is that anything gets done in government. This is a tribute to countless public employees who render public service, against all odds, by their personal pride and willpower, despite having to wrestle daily choices through a slimy bureaucracy.

One huge hurdle stands in the way of making government manageable: public unions. The head of the American Federation of State, County and Municipal Employees recently bragged that the union had contributed $90 million in the 2010 off-year election alone. Where did the unions get all that money? The power is imbedded in an artificial legal construct—a "collective-bargaining right" that deducts union dues from all public employees, whether or not they want to belong to the union.

Some states, such as Indiana, have succeeded in eliminating this requirement. I would go further: America should ban political contributions by public unions, by constitutional amendment if necessary. Government is supposed to serve the public, not public employees.

America must bulldoze the current system and start over. Only then can we balance budgets and restore competence, dignity and purpose to public service.

Bob Jensen's Fraud Updates ---

Bob Jensen's threads on the entitlements disaster are at

"Washington's Knack for Picking Losers," by Michael J. Boskin, The Wall Street Journal, February 15, 2012 ---

Like the mythical monster Hydra—who grew two heads every time Hercules cut one off—President Obama, in both his State of the Union address and his new budget, has defiantly doubled down on his brand of industrial policy, the usually ill-advised attempt by governments to promote particular industries, companies and technologies at the expense of broad, evenhanded competition.

Despite his record of picking losers—witness the failed "clean energy" projects Solyndra, Ener1 and Beacon Power—Mr. Obama appears determined to continue pushing his brew of federal spending, regulations, mandates, special waivers, loan guarantees, subsidies and tax breaks for companies he deems worthy.

Favoring key constituencies with taxpayer money appeals to politicians, who can claim to be helping the overall economy, but it usually does far more harm than good. It crowds out valuable competing investment efforts financed by private investors, and it warps decisions by bureaucratic diktats susceptible to political cronyism. Former Obama adviser Larry Summers echoed most economists' view when he warned the administration against federal loan guarantees to Solyndra, writing in a 2009 email that "the government is a crappy venture capitalist."

Markets function well when the returns are received and the risks borne by private owners. There are, of course, exceptions: Governments have a responsibility to fund defense R&D and other forms of pre-competitive, generic R&D—e.g., basic science and technology from nanoscience to batteries—but only when they pass rigorous cost-benefit tests and maintain a level playing field among alternative commercial applications.

For example, the computer-linking technology that created the Internet was funded by the Defense Department for defense purposes. But, like numerous defense technologies, it wound up with commercially valuable civilian applications. Yet it would be foolish for the government to subsidize a particular search engine or social-networking platform.

The previous peak for U.S. industrial policy was in the 1970s and 1980s, when many Democrats wanted to emulate the then-growing Japanese economy by managing trade and directing specific technology and investment outcomes. Japanese subsidies mostly went to old industries like agriculture, mining and heavy manufacturing. We now know that this misallocation of capital was one of the main reasons for Japan's stagnation over the past two decades.

Industrial-policy fever waned after the 1980s but never died. President George W. Bush expanded ethanol mandates and pushed hydrogen cars. Hydrogen's use for transportation must still overcome combustibility concerns, or we'll be driving mini-Hindenburgs. The Bush and Obama administrations bet big on ethanol and other biofuels, providing subsidies that distorted the global market for corn. The federal government was forced to drop its cellulosic ethanol quota by 97% last year because of a lack of viable biorefineries—and the quota still wasn't met.

Even under optimistic projections, heavily subsidized wind and solar would each amount to a tiny fraction of global energy by 2030 and thus cannot be the main answer to energy-security or environmental problems. The short-run focus of most Department of Energy funding misses the main strategic imperative: We need alternatives that can scale to significance long-term without subsidies, and we need a lot more North American oil and gas in the meantime.

Mr. Obama is spending immense sums for subsidies to particular industries and technologies, almost $40 billion for clean-energy programs alone (some, appropriately, for pre-competitive generic technology.) Yet a large number of prominent venture-capital funds are devoted to alternative-energy providers. They should be competing with each other and with the technologies they seek to replace—not for government handouts.

Meanwhile, the administration blocks shovel-ready private investment such as the Keystone XL pipeline from Canada to the Gulf Coast, which would create thousands of American jobs, increase energy security, and even improve the environment. The alternative is shipping the Canadian oil to China; we can refine it more cleanly than the Chinese, and pipelines are safer than shipping.

America certainly has energy-security and possible environmental concerns that merit diversifying energy sources. More domestic oil and natural gas production will clearly play a large role. The shale gas hydraulic fracturing revolution—credit due to Halliburton and Mitchell Energy; the government's role was minor—is rapidly providing a piece of the intermediate-term solution.

The arguments to promote industrial policy—incubating industries, benefits of clustering and learning, more jobs, etc.—don't stand up to scrutiny. Echoing 1980s Japan-fear and envy, some claim we must enact industrial policies because China does. We should remember that Presidents Lyndon Johnson and Richard Nixon wanted the U.S. to build a supersonic transport (SST) plane because the British and French were doing so. The troubled Concorde was famously shut down after a quarter-century of subsidized travel for wealthy tourists and Wall Street types.

Instead of an industrial policy that fails miserably to pick winners, a better response to foreign competition should be:

Remove our own major competitive obstacles. We can do this with more competitive corporate tax rates, more sensible regulation, improved K-12 education, and better job training for skills that the market demands such as the computer literacy necessary even to operate today's machinery. (Mr. Obama's green jobs training program spent hundreds of millions but only 3% of enrollees had the targeted jobs six months later.)

Base trade and industrial policies on sound economics, not 'in-sourcing' protectionism. If another country has a comparative cost advantage, we gain from exchanging such products for those we produce relatively more efficiently. If we tried to produce everything in America, our standard of living would plummet.

Pursue rapid redress for illegal subsidization and protectionism by our competitors. The appropriate venue for trade complaints is the World Trade Organization, not the campaign trail. We need to strengthen the WTO, not threaten its legitimacy with protectionist rhetoric that could spark a trade war.

Continued in article

Bob Jensen's threads on the biggest swindle in the history of the world ---

"President Obama’s 2013 Budget Revealed: A Look at the Tax Details (Also Included: A Comprehensive Comparison of the Obama/Gingrich/Romney Tax Proposals),"  by Withum Smith Brown, CPAs, Double-Taxation, February 12, 2012 ---
Thank you Paul Caron for the heads up.

"The Amazing Obama Budget: He's proposing higher spending and deficits this year," The Wall Street Journal, February 14, 2012 ---

Federal budgets are by definition political documents, but even by that standard yesterday's White House proposal for fiscal year 2013 is a brilliant bit of misdirection. With the abracadabra of a tax increase on the wealthy and defense spending cuts that will never materialize, the White House asserts that in President Obama's second term revenues will soar, outlays will fall, and $1.3 trillion annual deficits will be cut in half like the lady in the box on stage.

All voters need to do is suspend disbelief for another nine months. And ignore the first four years.

Meanwhile, spending will fall by one percentage point of GDP to 23.3%, thanks to the automatic cuts in last year's debt-ceiling bill. But more than half of those are scheduled to come out of defense, which even Mr. Obama's Defense Secretary says are unacceptable. They will be renegotiated next year no matter who wins in November.

The cuts also include an estimated $1 trillion in savings in domestic discretionary programs that also won't happen, especially because Mr. Obama's budget proposes to add $350 billion to these programs. His budget also proposes no meaningful reforms in entitlements, which are the fastest growing part of the budget and will grow even faster once ObamaCare really kicks in.

The only thing that you can be certain will become law in this budget if Mr. Obama is re-elected is the monumental tax increase. His plan would raise tax rates across the board on anyone or any business owners making more than $200,000 for individuals and $250,000 for couples. These are the 3% of taxpayers that Mr. Obama says aren't paying their fair share, though that 3% pays more in income tax than the rest of the other 97%.

A central contradiction of this plan is that the White House predicts accelerating real GDP growth of 3% in 2013 and 4.1% by 2015 even as the economy is whacked by these tax increases. The President's plan would also cancel the investment tax rate reductions that have been in place since 2003, impose a new investment income tax hike of 3.8%, and introduce the new "Buffett rule" on the rich.

Tax rates will rise as follows: capital gains to 30% from 15% today; dividends to 30% from 15%; the estate tax to 45% from 35%, and don't forget the end to the temporary payroll tax cut that Mr. Obama is making such an issue of now. He only wants it to last for another 10 months.

Enlarge Image 1obamabudget 1obamabudget Associated Press

Copies of President Obama's fiscal 2013 federal budget arrive at the House Budget Committee.

And there will be more. Yesterday, Mr. Obama's chief economic adviser, Gene Sperling, reported that the President wants a new "global minimum tax." Mr. Sperling said the new tax is necessary "so that people have the assurance that nobody is escaping doing their fair share as part of a race to the bottom or having our tax code actually subsidize and facilitate people moving their funds to tax havens." He didn't offer specifics but said the White House will be saying more, "perhaps not in gory detail, but in more detail," by the end of the month.

You would think amid all of its other tax increases that the White House wouldn't need another. But its problem is that other countries rudely compete for capital by keeping their tax rates low, so Mr. Obama wants to punish Americans who dare to take that advantage rather than cut the U.S. rate to 25% to make America more competitive.

Despite its tax increases, the White House still predicts that the annual budget deficit will be $901 billion in 2013 and never fall below $575 billion in any of the next 10 years. Democrats denounced George W. Bush for allowing so much red ink, but his deficits averaged only 3.5% of GDP if you don't count 2001 but do include the 10.1% of 2009. Mr. Obama's deficits have averaged 9.1% of GDP if you count 2009, as you should because his $800 billion stimulus passed that February.

Continued in article

Education Hopes to Spend Deeply on the Federal Credit Card
"A Symbolic, But Pleasing, Budget," by Libby A. Nelson, Inside Higher Ed, February 14. 2012 --- 

Higher education advocates found plenty to like in President Obama’s proposed fiscal year 2013 budget, announced Monday: $8 billion for community colleges over three years for job training, expanded student financial aid programs, and more money for some federally funded research. Still, they acknowledge that it is essentially a symbolic political document, unlikely to survive a divided, deficit-conscious Congress.

But the symbolism is still powerful, down to the venue Obama picked to announce his spending plan: Northern Virginia Community College. While last year the focus was on holding the line on the maximum Pell Grant, this year’s proposal called for a host of new and expensive programs, from the community college fund to additional money for the Perkins Loan Program and a $1 billion “Race to the Top” for higher education.

College leaders may not like all of the president’s proposals -- especially the recent, controversial idea of tying campus-based federal financial aid to measurements of “value.” But as Obama again emphasized higher education in his requests to Congress, many acknowledged that he has supported public and nonprofit private colleges to a perhaps unprecedented degree. (For-profit-college leaders -- purposefully barred from eligibility for new job training funds -- aren't likely to share the love.)

“I think it speaks volumes that, as we enter a period of nine years of sequestration and diminishing budgets, the president has found creative ways to keep the focus on higher education and to maintain his commitment to higher education,” said Becky Timmons, assistant vice president for government relations at the American Council on Education, referring to the mandatory spending cuts imposed by the failure to reach a deal on deficit reduction last year. “They deserve credit for walking the walk, not just talking about higher education as a priority.”

. . .

The Obama Budget for Education, Labor and Humanities Programs

  2011 actual
(in thousands)
2012 actual
(in thousands)
2013 proposed
(in thousands)
Financial Aid Programs      
Pell Grants 42,016,000 41,572,200 36,118,000
Maximum Pell Grant $5,550 $5,550 $5,635
Supplemental Educational Opportunity Grants 736,000 734,600 734,600
Federal Work-Study 978,500 976,700 1,126,700
TEACH Grants 21,500 41,100 10,500
Iraq/Afghanistan Service Grants 200 300 300
Presidential Teaching Fellows -- -- 190,000
Institutional Aid      
Strengthening Institutions 83,800 80,600 80,600
Strengthening Tribally Controlled Colleges 
and Universities
26,800 25,700 25,700
Strengthening Alaska Native and Native
Hawaiian-serving Institutions
13,400 12,900 12,900
Strengthening Historically Black Colleges
and Universities
237,000 228,000 228,000
Strengthening Historically Black Graduate
61,300 59,000 59,000
Master’s Degree Programs at HBCUs
and PBIs
11,500 11,500 11,500
Strengthening Predominantly Black
9,600 9,300 9,300
Strengthening Asian American and Native
American Pacific Islander-serving
3,200 3,100 3,100
Strengthening Native American-serving
nontribal institutions
3,200 3,100 3,100
Aid for Hispanic-serving Institutions 225,200 220,900 220,900
Tribally Controlled Voc-Tech Institutions 8,100 8,100 8,100
Gallaudet U. 122,800 125,500 117,500
National Technical Institute for the Deaf 65,500 65,400 65,000
Howard U.  234,500 234,100 234,100
International Education/Foreign Language 75,700 74,000 75,700
Hawkins Centers of Excellence -- -- 30,000
Race to the Top for College Affordability and Completion -- -- 1,000,000
Fund for the Improvement of Postsecondary Education 19,600 3,500 70,000
Vocational and Adult Education      
Career and Technical Education State Grants 1,130,000 1,130,900 1,130,900
Adult Education 607,400 606,300 606,300
Student Assistance      
TRIO Programs 883,500 839,900 839,900
GEAR UP 302,800 302,200 302,200
Special programs for migrant students 36,600 36,500 36,500
Child Care Access programs 16,000 16,000 16,000
Graduate Education      
Graduate Assistance in Areas of National Need 31,000 30,900 30,900

Other Areas
Institute of Education Sciences 659,006 593,700 621,200
Office for Civil Rights 102,800 102,600 105,300
Inspector General 59,900 59,800 62,400
Adult Employment and Training 769,576 770,811 769,465
Dislocated Workers Training 1,285,541 1,232,217 1,230,214

National Endowment for the Arts 154,690 146,021 154,255
Americorps 372,547 399,790 345,000
Institute of Museum and Library Services 237,393 231,954 231,954
National Endowment for the Humanities 154,690 146,021 154,255
State Department exchanges 599,550 538,200

The Obama Budget for Key Science Agencies, 2013

  2011 Actual2012 Estimate2013 Proposed  
Department of Defense Basic Research  $1,947 $2,112 $2,117 0%
National Institutes of Health 30,406 30,702 30,702 0%
NASA Science  4,945 5,073 4,911 -3%
Department of Energy Office of Science 4,868 4,874 4,992 2%
National Science Foundation 6,912 7,033 7,373 5%
Research 5,606 5,689 5,983 5%
Education 861 829 876 5%
Major Equipment 125 197 196 -1%
Nat'l Oceanic and Atmospheric Administration 686 574 552 -4%
Department of Agriculture  2,135 2,331 2,297  

Read more: http://www.insidehighered.com/news/2012/02/14/obama-proposes-increase-education-spending#ixzz1mLsqGsep
Inside Higher Ed

How are Canadian university pension funds like U.S. entitlement programs (ignoring huge differences in scale)?

"Canadian Universities' Growing Pension Deficits," Inside Higher Ed, February 15, 2012 ---

Thirteen Canadian universities have seen their pension deficits grow from $680 million to $3.2 billion in the last three years, Financial Post reported. Some universities have responded to these trends by increasing employee contributions or changing retirement eligibility dates.

Bob Jensen's threads on entitlements ---



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/