Tidbits Quotations
To Accompany the July 18, 2012 edition of Tidbits
Bob Jensen at Trinity Universit

Video on How to Cut the Deficit --- http://www.youtube.com/embed/KV-RqPtT2PU

Ray Stevens Asks President Obama Some Questions ---

If more people remembered this, there would not be as debacles based on models that failed.
Jim Mahar --- https://www.facebook.com/FinanceProfessorBlog/posts/330370297050076

The greatest enemy of knowledge is not ignorance.
It's the illusion of knowledge

Stephen Hawking

Challenge.gov --- http://challenge.gov/

Harvard Kennedy School: New study by Harvard Kennedy School researcher forecasts sharp increase in world oil production capacity, and risk of price collapse
Harvard Kennedy School, June 29, 2012

Tax Free Savings Accounts in Canada ---

The Tax-Free Savings Account (TFSA) is an account that provides tax benefits for saving in Canada. Contributions to a TFSA are not deductible for income tax purposes. Investment income, including capital gains and dividends, earned in a TFSA is not taxed, even when withdrawn.

Lifetime Social Security and Medicare Disability Benefits (at any age) --- http://en.wikipedia.org/wiki/Social_Security_Disability_Insurance

"85,000 Americans went on disability benefit in June (while only 80,000 jobs were added same period)," by Snejana Farberov, Daily Mail, July 7, 2012 ---

Disability Fraud --- http://en.wikipedia.org/wiki/Disability_fraud

"Nearly A Third Of Private Sector Jobs Added Were Temporary," by Brett LoGiurato, Business Insider, July 6, 2012 ---

"What's Wrong With the Federal Reserve? Business investment is held back by uncertainty about taxes and regulation. Printing dollars won't help," by Alan Meltzer (Carnegie-Mellon University), The Wall Street Journal, July 9, 2012 ---

By allowing its monetary policy to be influenced by elected politicians and market speculators, the Federal Reserve is putting its independence at risk. It is also neglecting basic economics, which was a great strength of its current chairman, Ben Bernanke.

Consider the response to last week's employment report for June—a meager 80,000 net new jobs created, and an unemployment rate stuck at 8.2%. Day traders and speculators immediately clamored for additional monetary easing. Even the president of the Federal Reserve Bank of Chicago joined in.

To his credit, Mr. Bernanke did not immediately agree. But he failed utterly to state the obvious: The country's sluggish growth and stubbornly high unemployment rate was not caused by, nor could it be cured by, monetary policy. Market interest rates on all maturities of government bonds are the lowest since the founding of the republic. Banks have $1.5 trillion in cash on their balance sheet in excess of their legally required reserves—far more than enough to meet any unsatisfied demand for loans that bankers regard as prudent.

Consider also how, in the summer of 2010, the Fed allowed itself to be spooked by cries about a double-dip recession and deflation. It added $600 billion to banks' reserves by buying up federal Treasurys and mortgage-backed securities. Today, $500 billion of those reserves remain on bank balance sheets, and most of the rest of the dollars are held by foreign central banks. Not much help to the U.S. economy. By early autumn 2010, it had become clear that fears of a double-dip recession and deflation were just short-term hysteria.

One of the Fed's big mistakes is excessive attention to the short term, over which it has little influence. As I researched the central bank for my "History of the Federal Reserve," I was dismayed to find hardly any discussions in the minutes of its policy arm, the Federal Open Market Committee, about what members expect to happen a year from now as a result of whatever actions it is taking today.

True, the staff provides forecasts about the future, but these are made before policy action is decided. Former Fed Chairmen Paul Volcker and Alan Greenspan told the staff several times that its inflation forecasts based on the Phillips Curve—which theorizes a trade-off between inflation and employment levels—were not useful. But the Phillips Curve is still central to the inflation forecasts that Messrs. Volcker and Greenspan found useless.

The problem with the short term is that data reported today are subject to revision, or reflect only transitory changes. The better economic data last winter are one of many examples. Would the reported improvement in the economy persist? We didn't learn the answer until weaker data reported this spring. Is the slowdown persistent or temporary? We can only guess.

Executing monetary-policy changes in response to transitory data is a mistake. The late Nobel laureate economist Milton Friedman taught that monetary policy operates with long lags. Actions today have their main effects much later. By then the data often support a very different story.

The other big problem at the Fed is staying mum about the real cause of the high current unemployment rate—fiscal policy.

Today's economic problems are serious, but the Fed can't do much about them if these problems are not monetary. Very expansive monetary policies did help during the crisis of 2008-09, but they're not what is needed now. To get out of our bad economic situation, we need coherent long-term fiscal policy, especially entitlement reform.

With mortgage rates lower than ever and housing showing very sluggish recovery, what can be gained by dropping the mortgage rate another small fraction? Business investment is held back by uncertainty. No one can reliably calculate tax rates, health-care costs, and the regulatory burden until after the election, if then. How can corporate officers calculate expected return when they cannot know these future costs? How is more monetary stimulus today supposed to help?

From about 1985 to 2003, the Fed achieved relatively stable growth, short, mild recessions, and low inflation by more or less following the Taylor Rule, which specifies (to simplify) what interest rate the Fed should establish in response to the expected inflation rate and the unemployment rate. Rule-based monetary policy brought us a far better economic outcome than discretionary ups and downs. The Fed should commit to that rule and follow it.

The policies that are really needed are on the fiscal side. Instead of more short-term stimulus, we need a government that puts us on a path toward a balanced budget over time, mainly by reducing spending. Instead of denigrating and then ignoring House Budget Chairman Paul Ryan's courageous effort at entitlement reform, the administration should put a program on the table to control our deficits.

Evidence is growing that many think higher inflation is in our future. One sign is the premium that investors pay to hold index-linked Treasury bonds that protect against inflation. Another is the shift by asset owners from holding money to holding equities and real assets, or claims to real assets. What many call "bubbles" cannot occur without this shift occurring.

Continued in article

Mr. Meltzer, a professor of political economy at Carnegie Mellon University's Tepper School, is a visiting fellow at the Hoover Institution. He is author of "A History of the Federal Reserve" (University of Chicago Press, 2003 and 2009) and "Why Capitalism?" (Oxford University Press, 2012).


Bob Jensen's threads on the bailout ---

"The California Dream is fizzling out," By John D. Sutter, CNN, June 27, 2011 ---

PBS News Hour
California Community Colleges Face Dilemmas Amid Tighter Budgets ---


Tax and Spend May 15, 2012 - 3:00am Kevin Kiley and Paul Fain, Inside Higher Ed, May 15, 2012 ---

"Further trigger cuts in January could be the breaking point financially for some colleges," said Jack Scott, the system's chancellor, in a written statement,"

I'm Feeling Even Better About Retirement in New Hampshire

Erika and I do a lot more shopping online since we moved to the bookdocks. It's nice to know that bad folks will be ice fishing in Hell before New Hampshire as a sales tax.

If NH had 100 state legislators we probably would've had an income tax and a sales tax years ago. Tax relief comes in having nearly everybody serving on in the legislature. Actually the Lower House only has 400 members, but that's a lot in a sparsely populated state. In comparison, the California Lower House has only 80 members for a population with over 30 times as many people.

"States, Congress rallying for an e -sales tax," Washington Post, July 8, 2012 ---

After Amazon started collecting sales tax in Texas, it would seem that Amazon will soon cave in on all the states. As Amazon goes, so goes the nation unless LL Bean wins yet again in the U.S. Supreme Court, but with the liberal majority on the Court it appears that LL Bean cannot win yet again.

In general there are many bills passed by state and federal legislatures that would fail miserably if put to a vote of the all the voters. One of the main reasons is lobbies slinging out cash to our hard working and entirely honest representatives do not have enough money to line the pockets of every voter.


"What Robert Dittmar Knows: Questions on Finance, Economics, and Taxing the Rich," by John Warner, Inside Higher Ed, July 2, 2012 ---

Robert Dittmar is a friend of mine from college who also happens to be an Associate Professor in the Finance Area at the Stephen M. Ross School of Business at the University of Michigan. I wanted to talk to him because he knows all kinds of things about finance and economics, an area where I think we’re often victims of simplistic thinking. I wanted to know why we shouldn’t just go ahead and tax the rich. Bob had some interesting answers.


. . .

JW: Sounds to me like maybe we should just go ahead and tax the rich.

RD:  I don’t think that is really a solution. Or, perhaps, if it is a solution, the solution needs to be more nuanced. I make absolutely no claim to be an expert on tax policy.  I think that the evidence suggests that merely increasing taxes on the very wealthy would do little to close structural gaps in our government’s fiscal condition. But I am also unsure that current tax policy is optimally suited to promote incentives and growth.

Mitt Romney’s disclosure of his tax returns provides an interesting case in point.  Most of his income derives from dividends and capital gains rather than wage income, and his marginal tax rate is approximately that of the lowest tier of earners in the U.S.  The argument in favor of his low tax rate is that lower capital gains and dividend taxes provide incentive to investment, which in turn spurs job creation and economic growth.  To some extent I think this is true, but in his specific case, and in a broader context, I don’t buy the argument.  I’ll try to explain why.

Suppose that I’ve got $10,000,000 that I want to invest in some startup technology.  There is a huge probability (maybe 90-95%) that my business will fail.  So I am taking on a huge risk.  If I succeed, I will create jobs and shock the economy in a way that results in improved economic growth.  I’ve taken a huge risk in the name of economic growth, and perhaps I deserve to be rewarded.  If my company IPO’s at $500,000,000, I will earn capital gains if I sell out of $490,000,000.  If I were taxed on that at the top marginal tax rate, my tax bill would be $171,500,000.  However, because this is a long term capital gain, I am only taxed $98,000,000.  One might argue that this is reasonable because I have created more than the difference of $73,500,000 in value to the overall economy.  So the lower tax rate spurs innovation and economic growth.

Now suppose that it is June, 2003. I invest my $10,000,000 in Apple stock. At the end of May, 2012, I would have approximately $542,250,000. If I sell out, I have long term capital gains of $532,000,000, which are taxed at 20%, or approximately $106,450,000.  If my marginal tax rate were 35%, I would have been taxed $186,270,000. The question is, have I added nearly $80,000,000 in value to the economy? You would have to believe that, had I not bought already outstanding Apple stock, Apple would not be able to innovate in the way that it has to benefit the economy.  I guess I think that is a bit of a stretch.

In Mr. Romney’s case, it is even more complicated. He was involved in a business that sought to improve efficiency through cutting costs and is realizing the capital gains from those efficiency improvements.  If this is really efficiency-improving, it is beneficial to the economy; it is allocating resources to the correct place.  My concern is that it is not.  Labor productivity has increased in the United States dramatically, and as I mentioned, wage and salary income has stagnated.  This implies an inefficient resource allocation to me; workers are not being paid what they are worth.  If true, that means that the capital gains are in part a transfer of what workers should be earning due to increased productivity to people like Mr. Romney.

I don’t know how much tax reforms would affect economic welfare. I bring up these examples just to emphasize that it is difficult to tease out the potential costs, benefits, and effects.  So a simple answer like “tax the rich” won’t solve the problem.

Betting Against the U.S. Dollar
"Where the (Mitt Romney's) Money Lives,"  by Nicholas Shaxson, Vanity Fair, August 2012 ---

How can a capital gains tax lower than ordinary income tax rates be justified?

Jensen Comment
It appears that after factoring out nonsense about stimulating investments there is only one weak and one strong justification. The weak one is the argument of double taxation. The strong one is that when investments held for years over long-term periods of inflation, taxing capital gains is totally unfair unless the investments made in dear dollars having higher purchasing power are price-level adjusted to sales amounts in cheap dollars having lower purchasing power.

Often those debating capital gains taxation ignore the fair solution of having no special capital gains tax rates while adjusting the gains for fictitious gains due to inflation:




Feeding the PIGS: Finland Would Rather Exit Euro Than Pay for Others

Eurozone --- http://en.wikipedia.org/wiki/Euro_zone
Notably absent are the U.K., Sweden, Norway,

PIGS in the Eurozone --- http://en.wikipedia.org/wiki/PIGS_%28economics%29

Greece Wants to Say, Finland Wants to Leave (maybe)
"Finland Would Rather Exit Euro Than Pay for Others," The Wall Street Journal, July 6, 2012 ---

Finland would rather leave the euro zone than pay down the debt of other countries in the currency bloc, Finnish Finance Minister Jutta Urpilainen said in a newspaper interview Friday.

"Finland is committed to being a member of the euro zone, and we think that the euro is useful for Finland," Urpilainen told financial daily Kauppalehti, adding though that "Finland will not hang itself to the euro at any cost and we are prepared for all scenarios."

"Collective responsibility for other countries' debt, economics and risks; this is not what we should be prepared for," she added.

Urpilainen's spokesman Matti Hirvola stressed to AFP that the minister's comments did not mean Finland was planning to exit the euro zone.

"All claims that Finland would leave the euro are simply false," he said.

In her interview with Kauppalehti, the finance minister meanwhile insisted that Finland, one of only a few EU countries to still enjoy a triple-A credit rating, would not agree to an integration model in which countries are collectively responsible for member states' debts and risks.

She also insisted that a proposed banking union would not work if it was based on joint liability.

Urpilainen also acknowledged in an interview with the Helsingin Sanomat daily Thursday that Finland "represents a tough line" when it comes to the euro-zone bailouts.

"We are constructive and want to solve the crisis, but not on any terms," she said.

As part of its tough stance, Finland has said it will begin negotiations with Spain next week in order to obtain collateral in exchange for taking part in a bailout for ailing Spanish banks.

And last year, Finland created a significant stumbling block for the euro zone's second rescue package for Greece, only agreeing to take part after striking a collateral deal with Athens in October 2011.

Jensen Question
What can the desperate PIGS put up as collateral? (I haven't a clue)
Will PIGS really work for food? (Probably)
More importantly will the PIGS enforce tax laws (I doubt it)


LIBOR --- http://en.wikipedia.org/wiki/Libor

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

Why are US. towns & states, labor unions, and other investors suing U.K.'s Barclays and other U.K. banks for LIBOR manipulation?
Why do PwC auditors need more caffeine?

Many of their returns on investments in things like pension funds were diminished by U.K. bank conspiracies to manipulate LIBOR. And millions of interest rate swaps based upon LIBOR underlyings (notionals in the trillions) did not have fair and just settlements. What a huge mess going on while PwC and other Big Four auditing firms slept!!!

"Barclays Manipulates LIBOR While Auditor PwC Snoozes," by Francine McKenna, Forbes, July 2, 2012 ---

Bob Jensen's threads on banks and traders that are rotten to the core ---

Bob Jensen's threads on the woes of PwC are at


The Bright Side (it has a chance of working) and Dark Side (fiscal disaster) of the Affordable Care Act
Interestingly, among the quotes below a University of Chicago law professor sides with liberals and a U.C. Berkeley law professor sides with conservatives
That is academia at it's best.

I might note that Michael Moore, in his famed documentary Sicko, was snookered by Cuban leaders into thinking that all Cubans got the premium health care reserved for only to elites in Cuba ---


Video:  'No Going Back': Michael Moore on the Last Word With Lawrence O'Donnell, 6/28/12  ---

The Supreme Court has upheld the Affordable Care Act, President Obama’s signature bill, clearing the way for the largest revamp of America’s healthcare system since the 1960s. We get reaction from acclaimed filmmaker Michael Moore, whose 2007 documentary, "Sicko," tackled many failures of the U.S. healthcare system. "This really is a huge victory for our side, in spite of all of my concerns with this law," Moore says. "We have to work toward Medicare for all, so that everyone’s covered ... We can’t allow private insurance — people making a profit off of people getting sick." [includes rush transcript]

The Supreme Court’s decision in National Federation of Independent Business v. Sebelius—the healthcare cases—was a tremendous political victory for the Obama administration and, more importantly, the tens of thousands of Americans who will be saved from illness and death by the law. But make no mistake: the decision could also be a significant legal victory for the political forces committed to limiting the state’s ability to care for the weak and fragile among us.
Ariz Huq (University of Chicago Law School) , "In the Healthcare Decision, a Hidden Threat?" The Nation, June 29, 2012 ---

"Health Care Reform and the Supreme Court (Affordable Care Act), The New York Times, June 29, 2012 ---

Recent Developments

The Supreme Court largely upheld President Obama’s health care law, the Affordable Care Act, in a mixed decision. The conservative chief justice, John G. Roberts, joined the majority in affirming the central legislative accomplishment of Mr. Obama’s term.

Chief Justice Roberts ruled that the key provision in question, the so-called individual mandate requiring all Americans to buy insurance or pay a fine, failed to pass constitutional muster under the Commerce Clause, which was the heart of the administration’s arguments in favor of it. But the chief justice declared that the fine amounted to a tax that the government had the power to impose, and that the mandate could survive on that basis.

The decision did significantly restrict one major portion of the law: the expansion of Medicaid, the government health-insurance program for low-income and sick people. The ruling gives states some flexibility not to expand their Medicaid programs, without paying the same financial penalties that the law called for.

The debate over health care remains far from over, with Republicans vowing to carry on their fight against the law, which they see as an unaffordable infringement on the rights of individuals. The presumptive Republican presidential nominee, Mitt Romney, has promised to undo it if elected.

The full decision can be found here.


In March 2010, Congress passed a sweeping health care bill pushed by President Obama. The law put in motion the creation of a nationwide insurance system that would sharply reduce the number of Americans without coverage, a goal that Democratic presidents had unsuccessfully pursued for 75 years. In 2012, the law survived a second test, when the Supreme Court largely upheld it after considering a series of challenges to several of the law’s key provisions.

The health care law seeks to extend insurance to more than 30 million people, primarily by expanding Medicaid and providing federal subsidies to help lower- and middle-income Americans buy private coverage. It will create insurance exchanges for those buying individual policies and prohibit insurers from denying coverage on the basis of pre-existing conditions. To reduce the soaring cost of Medicare, it creates a panel of experts to limit government reimbursement to only those treatments shown to be effective, and creates incentives for providers to “bundle’' services rather than charge by individual procedure.

The law will cost the government about $938 billion over 10 years, according to the nonpartisan Congressional Budget Office, which has also estimated that it will reduce the federal deficit by $138 billion over a decade.

For more background on the law, the battle over its passage and provisions rolled out so far, click here.

The court’s ruling, seen as one of the most significant in decades, is a crucial milestone for the law, allowing almost all of its far-reaching changes to roll forward. Several of its notable provisions have already been put in place in the past two years, and more are imminent. Ultimately, it is intended to end the United States’ status as the only rich country with large numbers of uninsured people, by expanding both the private market and Medicaid.

Although many conservatives were stung that the law will stand, the court’s ruling did have the potential to restrain Congress in the longer term. The restriction of the Medicaid expansion could limit the federal government’s ability to alter other federally financed state programs.

The commerce clause ruling revised the constitutional structure, handing a victory to conservative legal scholars who say Congress’s power to regulate interstate commerce must have defined limits. New challenges to federal laws on commerce clause grounds are likely to follow.

In the opinion, Chief Justice Roberts wrote that the decision offers no endorsement of the law’s wisdom, and that letting it survive reflects “a general reticence to invalidate the acts of the nation’s elected leaders.”

“It is not our job to protect the people from the consequences of their political choices,” he wrote.

Continued in article

"The Affordable Care Act: A Doctor's View," by Thomas H. Lee (Harvard Medical School), Harvard Business Review Blog, June 29, 2012 --- Click Here

Just a few minutes after the Supreme Court announced its decision on the Affordable Care Act, I saw a longtime patient of mine, a 71 year-old retired businessman with hypertension. His numbers were not good, but he had an unusual explanation.

"I think my blood pressure is up because I have been so worried about what the Court was going to do," he said. "It would have been terrible if they had rolled the law back." He was serious. He also needed an increase in his medications, but I was delighted to see so many people around me during my primary care session this morning who understood the importance of the day. The nurse's aide who works with me looked over my shoulder as I read the news on my computer while that patient changed into his examination gown. She was overjoyed. "We have to take care of these people," she said, meaning the millions of uninsured. "How could we do that without this law?" I can't tell you off the top of my head what kind of insurance my 71 year-old with high blood pressure has. I just know he has insurance, as do all the patients in my practice. We don't turn anyone away at my hospital, but, since health care reform passed in Massachusetts in 2006, the number of uninsured patients has dwindled.

That's the good news. The tougher news is that it takes hard work to make coverage for everyone viable. And now that the ACA has survived, that hard work can get underway. A taste of what is coming can be gleaned from my experiences as I took care of patients today. I received emails about three patients who have been identified as "high risk" because of multiple medical conditions. My organization wanted me to verify that they are my patients, and that they are at sufficiently high risk that they should also be followed by a nurse case manager. Working with those case managers is going to mean more emails and more phone calls, and there will be moments when those interactions seem like a burden. I also received a computer reminder that a test I wanted to order on one of my patients might be a duplicate of one performed two months ago. Yes, it was the same test, but I needed to run it again. The reminder slowed me down but it could have prevented a mistake. These interruptions complicate my work — but they also improve the quality of care.

Why is my organization doing all these things that make my already difficult day harder? The reason is that, ahead of the Affordable Care Act, we had changed our main model from fee-for-service to population-based contracts, where we have an incentive to manage overall costs and outcomes of groups of people, rather than getting paid procedure by procedure, patient by patient. That is the logical consequence from the imperative to take care of everyone with limited resources — and we can expect similar consequences to flow throughout the country from the Court's decision.

The Affordable Care Act will add complexity to some aspects of health care as organizations re-tool, and it may increase some costs in the short term. But ultimately it will improve the quality of patient care and reduce costs as providers and their organizations focus as much on keeping people healthy as they do on healing them when they're sick. That's something patients, providers, and employers who subsidize care — and want healthy employees — should be happy about.

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


Jensen Comment
If over half the nation's graduates (higher percentage for Literature, Music, and Philosophy PhDs) and unemployed teachers are not finding jobs or can only get part-time McJobs it's never been clear what we will do with them if they really cannot afford the mandated health insurance coverage mandated for them. Do they go to jail or will Uncle Sam simply pick up their insurance premiums? And do emergency rooms refuse services to the uninsured. Yeah Right!

The Affordable Health Care Act is a sorry excuse for what should have been the More Like Canada Health Care Act

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

The Journal of Accountancy discusses tax implications of the Affordable Health Care Act ---
"Supreme Court upholds health care law," by Sally P. Schreiber and Alistair M. Nevius, Journal of Accountancy, June 28, 2012

"Chief Justice Roberts and His Apologists:  Some conservatives see a silver lining in the ObamaCare ruling. But it's exactly the big-government disaster it appears to be," by John Yoo (U.C. Berkeley Law School Professor) , The Wall Street Journal, June 29, 2012 ---

White House judge-pickers sometimes ask prospective nominees about their favorite Supreme Court justice. The answers can reveal a potential judge's ideological leanings without resorting to litmus tests. Republican presidential candidates similarly promise to appoint more judges like so-and-so to reassure the conservative base.

Since his appointment to the high court in 2005, the most popular answer was Chief Justice John Roberts. But that won't remain true after his ruling on Thursday in NFIB v. Sebelius, which upheld President Barack Obama's signature health-care law.

Justice Roberts served in the Reagan Justice Department and as a White House lawyer before his appointment to the D.C. Circuit Court of Appeals and then to the Supreme Court by President George W. Bush. Yet he joined with the court's liberal wing to bless the greatest expansion of federal power in decades.

Conservatives are scrambling to salvage something from the decision of their once-great judicial hero. Some hope Sebelius covertly represents a "substantial victory," in the words of conservative columnist George Will.

After all, the reasoning goes, Justice Roberts's opinion declared that the Constitution's Commerce Clause does not authorize Congress to regulate inactivity, which would have given the federal government a blank check to regulate any and all private conduct. The court also decided that Congress unconstitutionally coerced the states by threatening to cut off all Medicaid funds if they did not expand this program as far as President Obama wants.

All this is a hollow hope. The outer limit on the Commerce Clause in Sebelius does not put any other federal law in jeopardy and is undermined by its ruling on the tax power (discussed below). The limits on congressional coercion in the case of Medicaid may apply only because the amount of federal funds at risk in that program's expansion—more than 20% of most state budgets—was so great. If Congress threatens to cut off 5%-10% to force states to obey future federal mandates, will the court strike that down too? Doubtful.

Worse still, Justice Roberts's opinion provides a constitutional road map for architects of the next great expansion of the welfare state. Congress may not be able to directly force us to buy electric cars, eat organic kale, or replace oil heaters with solar panels. But if it enforces the mandates with a financial penalty then suddenly, thanks to Justice Roberts's tortured reasoning in Sebelius, the mandate is transformed into a constitutional exercise of Congress's power to tax.

Some conservatives hope that Justice Roberts is pursuing a deeper political game. Charles Krauthammer, for one, calls his opinion "one of the great constitutional finesses of all time" by upholding the law on the narrowest grounds possible—thus doing the least damage to the Constitution—while turning aside the Democratic Party's partisan attacks on the court.

The comparison here is to Marbury v. Madison (1803), where Chief Justice John Marshall deflected President Thomas Jefferson's similar assault on judicial independence. Of the Federalist Party, which he had defeated in 1800, Jefferson declared: "They have retired into the judiciary as a stronghold. There the remains of federalism are to be preserved and fed from the treasury, and from that battery all the works of republicanism are to be beaten down and erased." Jeffersonians in Congress responded by eliminating federal judgeships, and also by impeaching a lower court judge and a Supreme Court judge.

In Marbury, Justice Marshall struck down section 13 of the Judiciary Act of 1789, thus depriving his own court of the power to hear a case against Secretary of State James Madison. Marbury effectively declared that the court would not stand in the way of the new president or his congressional majorities. So Jefferson won a short-term political battle—but Justice Marshall won the war by securing for the Supreme Court the power to declare federal laws unconstitutional.

While some conservatives may think Justice Roberts was following in Justice Marshall's giant footsteps, the more apt comparison is to the Republican Chief Justice Charles Evans Hughes. Hughes's court struck down the centerpieces of President Franklin Roosevelt's early New Deal because they extended the Commerce Clause power beyond interstate trade to intrastate manufacturing and production. Other decisions blocked Congress's attempt to delegate its legislative powers to federal agencies.

FDR reacted furiously. He publicly declared: "We have been relegated to a horse-and-buggy definition of interstate commerce." After winning a resounding landslide in the 1936 elections, he responded in February 1937 with the greatest attack on the courts in American history. His notorious court-packing plan proposed to add six new justices to the Supreme Court's nine members, with the obvious aim of overturning the court's opposition to the New Deal.

After the president's plan was announced, Hughes and Justice Owen J. Roberts began to switch their positions. They would vote to uphold the National Labor Relations Act, minimum-wage and maximum-hour laws, and the rest of the New Deal.

But Hughes sacrificed fidelity to the Constitution's original meaning in order to repel an attack on the court. Like Justice Roberts, Hughes blessed the modern welfare state's expansive powers and unaccountable bureaucracies—the very foundations for ObamaCare.

Hughes's great constitutional mistake was made for nothing. While many historians and constitutional scholars have referred to his abrupt and unprincipled about-face as "the switch in time that saved nine," the court-packing plan was wildly unpopular right from the start. It went nowhere in the heavily Democratic Congress. Moreover, further New Deal initiatives stalled in Congress after the congressional elections in 1938.

Justice Roberts too may have sacrificed the Constitution's last remaining limits on federal power for very little—a little peace and quiet from attacks during a presidential election year.

Given the advancing age of several of the justices, an Obama second term may see the appointment of up to three new Supreme Court members. A new, solidified liberal majority will easily discard Sebelius's limits on the Commerce Clause and expand the taxing power even further. After the Hughes court switch, FDR replaced retiring Justices with a pro-New Deal majority, and the court upheld any and all expansions of federal power over the economy and society. The court did not overturn a piece of legislation under the Commerce Clause for 60 years.

If a Republican is elected president, he will have to be more careful than the last. When he asks nominees the usual question about justices they agree with, the better answer should once again be Scalia or Thomas or Alito, not Roberts.

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

"ObamaCare—Upheld and Doomed Regardless of the Supreme Court, fiscal reality will prevail," by Holman W. Jenkins Jr., The Wall Street Journal, June 29, 2012 ---

Worse, in doing so, he may have read any constitutional limit on Congress out of the Constitution while pretending to do the opposite. Congress cannot compel you to do anything Congress wishes, but it can impose taxes on you until you finally have no rational alternative but to do whatever Congress wishes.

History will judge whether Mr. Roberts saved the reputation of the court or lost his nerve. Many conservatives obviously suspect the latter. Resolved: The government cannot make you eat broccoli, though it may levy a non-broccoli-eating tax on any who refuse.

Yet he may also think—and would not be wrong to think—that ObamaCare is doomed in any case. His opinion makes clearer than ever that ObamaCare is a tax program—throwing more tax dollars at an unreformed health-care system. ObamaCare is a huge new entitlement in a nation laboring under commitments it already can't afford. Those who gripe that he just authorized a vast expansion of the welfare state haven't reckoned with this fiscal reality principle.

What's more—and save us your constitutional brickbats—the mandate's survival could actually be a convenience to those who remain seriously interested in fixing health care.

GOPers, including Mitt Romney, immediately adopted "repeal" as their mantra. But repealing ObamaCare would just leave us with the health-care system we have, which is already ObamaCare in many respects—an unsustainable set of subsidies bankrupting the nation.

The solution is a tweak. Republicans already are lip-committed to a national health-insurance charter that allows insurers to design their own policies and market them across state lines. Republicans are also lip-committed to a tax reform to equalize the tax treatment of health care whether purchased by individuals or by employers on behalf of individuals.

Now just modify the Affordable Care Act so buying any health policy authorized by the new charter, no matter how minimalist, satisfies the employer and individual mandate.

What would follow is a boom in low-cost, high-deductible plans that leave individuals in charge of managing most their ordinary health-care costs out of pocket. Because it would be cheap, millions who would opt not to buy coverage will buy coverage. Because it will be cheap, companies will direct their low-wage and entry-level employees to this coverage.

Now these workers will be covered for serious illness or injury, getting the rest of us off the hook. As they grow older, wealthier and start families, they will choose more extensive but still rationally limited coverage. Meanwhile, the giant subsidies ObamaCare would dish out to help the middle class afford ObamaCare's gold-plated mandatory coverage would be unneeded.

With consumers shouldering a bigger share of health expenses directly, hospital and doctors would discover the advantages of competing on price and quality. This way lies salvation. In the long run, whatever share of GDP society decides to allocate to health care, it will get its money's worth—the fundamental problem today.

Perhaps a not-discreditable sense of the political moment lies behind the chief justice's opinion after all. The court's job, he wrote, is not to "protect the people from the consequences of their political choices."

He may have meant: The chief justice's job is to get the court out of the way while the body politic still remains suspended between recognizing the unsustainabilty of the current welfare model and deciding what to do about it.

This was always the fatal problem of ObamaCare. Reality could not have instructed President Obama more plainly: The last thing we needed, in a country staggering under deficits and debt, a sluggish economy and an unaffordable entitlement structure, was a new Rube Goldberg entitlement. The last thing we needed was ObamaCare. The nation and the times were asking Mr. Obama to reform health care, not to double-down on everything wrong with the current system.

Even with this week's Court success, he failed—and it's not as if there wasn't a deep well of policy understanding in Washington that he could have drawn on to take the country in a better direction. Regardless of any Supreme Court ruling, reality will pass its own judgment on the Affordable Care Act and it won't be favorable.

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

"Study: Obama's Health Care Law Would Raise Deficit," SmartPros, April 10, 2012 ---

Reigniting a debate about the bottom line for President Barack Obama's health care law, a leading conservative economist estimates in a study to be released Tuesday that the overhaul will add at least $340 billion to the deficit, not reduce it.

Charles Blahous, who serves as public trustee overseeing Medicare and Social Security finances, also suggested that federal accounting practices have obscured the true fiscal impact of the legislation, the fate of which is now in the hands of the Supreme Court.

Officially, the health care law is still projected to help reduce government red ink. The Congressional Budget Office, the government's nonpartisan fiscal umpire, said in an estimate last year that repealing the law actually would increase deficits by $210 billion from 2012 to 2021.

The CBO, however, has not updated that projection. If $210 billion sounds like a big cushion, it's not. The government has recently been running annual deficits in the $1 trillion range.

The White house dismissed the study in a statement late Monday. Presidential assistant Jeanne Lambrew called the study "new math (that) fits the old pattern of mischaracterizations" about the health care law.

Blahous, in his 52-page analysis released by George Mason University's Mercatus Center, said, "Taken as a whole, the enactment of the (health care law) has substantially worsened a dire federal fiscal outlook.

"The (law) both increases a federal commitment to health care spending that was already unsustainable under prior law and would exacerbate projected federal deficits relative to prior law," Blahous said.

The law expands health insurance coverage to more than 30 million people now uninsured, paying for it with a mix of Medicare cuts and new taxes and fees.

Blahous cited a number of factors for his conclusion:

- The health care's law deficit cushion has been reduced by more than $80 billion because of the administration's decision not to move forward with a new long-term care insurance program that was part of the legislation. The Community Living Assistance Services and Supports program raised money in the short term, but would have turned into a fiscal drain over the years.

- The cost of health insurance subsidies for millions of low-income and middle-class uninsured people could turn out to be higher than forecast, particularly if employers scale back their own coverage.

- Various cost-control measures, including a tax on high-end insurance plans that doesn't kick in until 2018, could deliver less than expected.

The decision to use Medicare cuts to finance the expansion of coverage for the uninsured will only make matters worse, Blahous said. The money from the Medicare savings will have been spent, and lawmakers will have to find additional cuts or revenues to forestall that program's insolvency.

Under federal accounting rules, the Medicare cuts are also credited as savings to that program's trust fund. But the CBO and Medicare's own economic estimators already said the government can't spend the same money twice.

Continued in article

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


"The Netherlands to Abandon Multiculturalism," by Soeren Kern, Gatestone Institute, June 23, 2012 ---

The Dutch government says it will abandon the long-standing model of multiculturalism that has encouraged Muslim immigrants to create a parallel society within the Netherlands.

A new integration bill (covering letter and 15-page action plan), which Dutch Interior Minister Piet Hein Donner presented to parliament on June 16, reads: "The government shares the social dissatisfaction over the multicultural society model and plans to shift priority to the values of the Dutch people. In the new integration system, the values of the Dutch society play a central role. With this change, the government steps away from the model of a multicultural society."

The letter continues: "A more obligatory integration is justified because the government also demands that from its own citizens. It is necessary because otherwise the society gradually grows apart and eventually no one feels at home anymore in the Netherlands. The integration will not be tailored to different groups."

Continued in article

Jensen Comment
This kind of multiculturalism is doomed to failure in the long run as cultures merge over the long-run. Of course, there's probably bound to be a struggle (not necessarily military) regarding which culture wins out the most. For example, would it be possible in The Netherlands for a subset of women to be denied equal opportunity and protection? On the other hand would it be possible for prostitution to remain legal and a choice alternative for some women?




"Why don’t people like markets?" by Pascal Boyer, Cognition and Culture, June 18, 2012 ---

People do not love markets – there is a lot of evidence for that. Is it relevant that, well, to put it bluntly, people do not seem to understand much about market economics?

That is a common enough message from professional economists. It is put into sharper focus by Bryan Caplan in his book The myth of the rational voter. Caplan (among other important and interesting things) reports on systematic studies of voters’ knowledge of policies and their effects on economic processes. The take-home message is that people just don’t get it, and that their voting preferences are largely irrational.

Now, voter ignorance or irrationality would not be very bad, if it was completely random. If most voters chose policies randomly, the net result would be no strong aggregate preference for any policy. But Caplan shows that people’s irrationality about economic issues is not random at all. There is method in their madness. It consists in a series of “biases”, like the anti-foreign and anti-trade bias (i.e., “when foreign countries prosper we suffer”). If this is true, many “rational voter” models in political science are in serious trouble.

As usual when people describe folk-understandings as “irrational” or “biased”, we cognition and culture and evolution folks get a trifle impatient.

Too often, such descriptions boil down to the observation that human minds do not follow some arbitrarily chosen normative model (see Tversky and Kahneman passim and Gerd Gigerenzer on the alternative perspective). Surely we should not stop at saying that people “don’t attend to base rates” or “have a bias against foreign trade”. The real questions is, why? What psychological processes lead to such biases?

The truth is, no-one knows because no-one bothered to study that. I am surprized, nay flabbergasted that there is no study of folk-economics in the social science literature. No-one (except Caplan and a few others) seems to study what makes people’s economic modules tick. In psychology we have had decades of study of folk-physics, folk-biology, intuitive psychology and the like. Intuitive economics anyone?

Robert Nozick observed that intellectuals dislike markets, probably because intellectuals are used to and thrive in knowledge-rewarding meritocracies, while markets do not really care for your effort, intelligence or just desert, as long as you provide what others want. This may be true. But it is not sufficient, for most people, not just intellectuals, are leery of markets.

Market process are unloved for many reasons.

One of them, obviously, is that market processes are not visible. Going through our everyday tasks, we fail to notice how millions of voluntary transactions resulted in precisely these goods and services being available to us when and where we want them at a price that makes them affordable. That is of course a point that Adam Smith and others made long ago, but could be made more forcefully if we understood the limits and susceptibilities of human imagination. In a powerful essay, 19th century free-trader Frédéric Bastiat noted that the economic process comprises ‘what is seen’ and ‘what is unseen’. For instance, when a government taxes its citizens and offers a subsidy to some producers, what is seen is the money taken and the money received. What is unseen is the amount of production that would occur in the absence of such transfers

Another plausible factor is that markets are intrinsically probabilistic and therefore marked with uncertainty. Even though it is likely that whoever makes something that others want will earn income, it is not clear who these others will be, how much they will need what you make or when you will run into them. Like other living organisms, we are loss-averse and try to minimise uncertainty. (Note, however, that market uncertainty creates a niche for market-uncertainty insurance, which itself is all the more efficient as it is driven by demand).

Continued in article

Why do they hate us (professors)? --- http://www.trinity.edu/rjensen/HigherEdControversies.htm#Hate

Jensen Comment
Professors (and other intellectuals) hate markets, and non-intellectuals hate professors. So we must learn to live with hate. We don't live very well without some things we hate. Students cannot imagine learning without the help of professors, both research professors who discover new knowledge and teachers who provide materials and other aids for learning existing knowledge.

Nationwide experiments with resource allocation based up government planning boards are now mostly rotting hulls on the shores of failed experimental utopias. Where governments stepped in to distribute goods and services with coupon books or highly controlled prices, black markets moved in to make up for the failures of those controlled economies. The biggest failures came with mismatches of supply and demand creating surpluses of things consumers did not much want in great quantities and shortages of things that they desperately wanted. Countries that brutally control the black markets often end up with mass starvation like what has happened in North Korea for decades.

This of course does not mean that government should not regulate prices and resource allocations where there are resources that are externalities incapable of being effectively and efficiently priced on the market such as clean air, pure water, national security, public safety, universal education. I think universal health care (at least at basic levels) should also be considered externalities needing government regulation.

One major problem is where subsets, often very small subsets, of people desperately need some essentials that cannot be produced at prices they can afford to pay. For example, we're currently having this problem with certain life-saving cancer drugs that are enormously expensive to produce in the often small quantities desperately needed by the few patients who will die without them. On occasion very tough choices must be made regarding subsidized pricing. Should we raise taxes by a billion dollars per year to provide 25,000 children with a life saving drug? Should we raise taxes by a billion dollars per year to provide 10 children with a life saving drug? There are obviously tough decisions to be made for some externalities.

The American Dream ---

June 26, 2012 reply from Richard Sansing

Folk Economics ---


No increase in taxes for the middle class! Yeah Right!
For example, greatly reducing exemptions for school, town, county, and state bond interest could massively increase property taxes for the middle class.
Reducing tax breaks for health insurance and care will massively impact the poor and the middle class.
It's a good thing President Obama that most voters won't understand his budget before the 2012 election and that the liberal media will try to keep this a secret

"The President’s 2013 Budget: More Troubling Tax Increases in the Fine Print," by Curtis Dubay, The Heritage Foundation, June 25, 2012 ---

Abstract: Buried in the fine print of President Obama’s FY 2013 budget proposal is an expansion of his cap on itemized tax deductions—to now include exemptions and exclusions. Applying the cap to exemptions and exclusions is yet another way the President has devised to increase the already sizeable tax burden shouldered by families and small businesses who earn $200,000 or more a year. This policy change so badly violates the basic tenets of sound taxation that it is little more than a move to further punish the most successful Americans with yet another confiscatory tax increase. Congress should reject the President’s cap, like it has in the past, and focus on revenue-neutral fundamental tax reform that would lower tax rates and improve neutrality to encourage economic growth.

It is generally known that President Barack Obama’s fiscal year (FY) 2013 budget calls for a massive $2 trillion tax increase. This amount is not explicitly in the budget because it hides several tax increases in the fine print. Also buried deep in the fine print is the President’s expansion of his cap on itemized deductions, which, unlike in previous years, now applies to tax exemptions and exclusions.

The devil really is in the details in this case. Applying the cap to exemptions and exclusions is yet another way the President has devised to increase the already sizeable tax burden shouldered by individuals and small businesses earning $200,000 a year or more ($250,000 for married couples). This makes it yet another growth-slowing tax increase in the long list of tax increases already proposed by the President.

President Obama’s cap would slow growth even further because it would also move taxes further from neutrality. A proper tax code does not influence economic decisions of families, businesses, investors, and entrepreneurs. Neutrality is the standard against which tax policies are compared in order to determine if they influence decisions. A neutral policy is one that does not influence, neither in a positive nor negative way, economic choices. Policies that move in the opposite direction of neutrality, like President Obama’s application of his cap to exemptions and exclusions, slow growth.

Congress has rightly rejected the President’s cap in previous years. The inclusion of exemptions and exclusions should give it even more reason to do so again.

Capping Exemptions and Exclusions

In each of his three previous budgets, President Obama proposed a cap on the itemized tax deductions of individuals and businesses earning $200,000 or more a year. The cap served different purposes in previous budgets. In 2009, it was a way to raise revenue for the impending health care bill. In 2010, it was a way to raise more revenue for general spending. In 2011, the President wanted a cap as a misguided way to “pay for” patching the alternative minimum tax (AMT) for middle-income taxpayers. This year, the cap is back as an intended revenue raiser.

In its first three iterations, the cap restricted taxpayers’ itemized deductions to the amount that those deductions would have reduced their tax bill had they paid the 28 percent marginal rate instead of the higher marginal rate they actually paid. This year, the cap still limits deductions to their value at the 28 percent marginal tax rate, but now also applies to tax exemptions and exclusions as well.

President Obama provided no details in his budget about how the expansion of the cap would work, but the Treasury Department reports that, at a minimum, President Obama’s cap would include the following exemptions or exclusions:

Job-Destroying Revenue Grab

Expanding the cap to exemptions and exclusions greatly expands the policy’s tax-hiking capacity. In President Obama’s FY 2012 budget, when the cap only applied to itemized deductions, the Treasury Department estimated that it would raise $321 billion over 10 years.[4] Now that the cap includes exemptions and exclusions, the Treasury Department estimates that it would raise $584 billion over 10 years.[5] That is an increase of more than 80 percent.

The extension of the cap to exemptions and exclusions is another way to raise the taxes of job creators, such as businesses that pay their taxes through the individual income tax, as well as investors and entrepreneurs. The President already wanted to raise their marginal tax rates, their tax rates on capital gains and dividends rates, and revive old provisions that phased out their personal exemptions and deductions (PEP and Pease).

By taking even more of these job creators’ earnings, President Obama would further erode their already diminished ability to make the investments that are necessary to create the jobs the economy so desperately needs.

Step in Wrong Direction. Expanding the cap to exemptions and exclusions would slow economic growth not merely by taking resources from job creators, but also by moving taxes further from neutrality. It would also make repairing the broken health insurance market more difficult. The new cap would do these things by levying tax on the following exemptions or exclusions:

Continued in article

Jensen Comment
What most voters least understand is that governments at all levels, especially school districts, towns, counties, and states, will increase the Federal tax revenues that result in less revenue for them in President Obama's proposed budget. And the poor pay rent such they there will be rent increases to cover the increases in property taxes to say nothing about the added sales taxes and fees.

If you like watching the drama of gridlock in Washington DC, you're going to love watching the forthcoming budget legislation wars in Congress. And in the meantime you can watch the trillion-dollar deficits grow into ten-of-trillions of dollars in deficits.

A billion here, a billion there, pretty soon it adds up to real money.
Senator Everett Dirksen --- http://en.wikipedia.org/wiki/Everett_Dirksen

"Labor Dept. Estimates $7.1 Billion in Overpayments to Unemployed," by Alice Gomstyn, ABC News, July 9, 2012 ---

While many Americans are feeling the pain of expired unemployment benefits, some have gotten a good chunk more than they were legally eligible for.

Preliminary estimates released by the U.S. Department of Labor find that, in 2009, states made more than $7.1 billion in overpayments in unemployment insurance, up from $4.2 billion the year before. The total amount of unemployment benefits paid in 2009 was $76.8 billion, compared to $41.6 billion in 2008.

Fraud accounted for $1.55 billion in estimated overpayments last year, while errors by state agencies were blamed for $2.27 billion, according to the Labor Department. The department's final report will be released next month.

Some of the overpayments likely can be traced back to the overwhelming workloads facing state employment agencies during the recession, said George Wentworth, a policy analyst for the National Employment Law Project.

"You've got a system that's been under siege like the unemployment insurance system has been for the last two years," Wentworth said. "You've got a lot of new staff coming into the system, there's been a lot of federal extensions [to unemployment insurance benefits] that have had to be programmed in and so on. There's just been a lot of change that states have had to handle. ... I just think the volume and the new staff have made the systems more susceptible to error."

Continued in article

Bob Jensen's Fraud Updates ---

"Has Higher Education Become an Engine of Inequality?" Chronicle of Higher Education's Chronicle Review, July 2, 2012 ---

Jensen Comment
When I grew up in Iowa farm country there was no inequality in K-12 education between the poorest kids and the richest kids in the small towns and farms. I cannot recall a single family that sent their children to expensive "prep schools," although such a practice was common in some other parts of the nation. There was somewhat a difference between the Roman Catholic K-12 schools and the public schools, but the difference was not great in Iowa in those days. The parochial schools lacked resources for some college prep courses. In my home town students in the Catholic schools sometimes took selective courses in our public high school. Iowa and South Dakota were both noted states back then for having highest quality K-12 schools. But I think more credit should go to their mostly hard working and loving parents. Some Catholic kids chose to go to public schools primarily because they wanted to compete in varsity athletics. But they still worked their butts off for grades in most cases.

Parental support was generally strong, although there were a very few alcoholic parents that could be somewhat problematic. I don't recall anybody ever mentioning narcotics, not even pot. And I honestly only recall one divorced couple who still got along when it came to raising their daughter. I never had a drink of alcohol until college days, and even in Iowa State University fraternities and sororities in those days drinking was much less problematic than in more recent years.

There was no distance education via computer networks in those days, and I can't recall a single student who took college courses from correspondence colleges even though there were come correspondence credit alternatives back in those days. Most of the high school graduates either went to work full time, became stay-at-home mothers, or went on to universities and colleges in Iowa, especially to the three major state universities. There were, however, quite a few private colleges, mostly not well known nationally except for Grinnell, where some student opted for in higher education (I think that in many, many cases it was because those private schools were less competitive for top grades). There weren't any state supported community colleges in the rural Iowa towns in those days --- at least I cannot recall such community colleges.

As for stay-at-home mothers there was a huge difference between a stay-at-home mother in town versus on a farm. This farm mothers worked harder than the menfolk on those farms --- at least in those days when farm mothers bundled up their babies and waded snow in the dark to milk cows by hand (no milking machines), return to the house to cook a full breakfast for the family, and wring the heads off of chickens and clean the pin feathers in scalding water before commencing the noon meal, washing and ironing --- and so on throughout the day until it was time to milk those same cows in the late afternoon and then start supper after dark.

My bottom line conclusion is that K-12 schools and our area colleges did not contribute greatly to inequality in those days. Instead they contributed to opportunity. The poorest of the poor had a chance. I recall going to Iowa State University with Dale K. who came from arguably the poorest family. kids in our high school. He had 14 brothers and sisters in various grades in our public schools. Dale worked summers and part-time to put himself through Iowa State University and graduated with an aeronautical engineering diploma. Some of his brothers and sisters did the did the same to put themselves through Iowa State Teachers College. I played football with Frank K., Dale's brother, who still pumps gas part-time for a minimum wage in my home town and gets about on a beat-up bicycle. Frank never earned more than a minimum wage in his whole life.

I recall that in grade school Frank always won our spelling contests. Sometimes there's just no accounting for income inequality later in life. Frank is in superb health and also still runs 5-10 miles a day for exercise. He has a wife who also contributed minimum wages to help raise their two kids.

At least one of Dale's brothers went into the Army and then returned to Iowa to attend college on the G.I. bill. Of course some of Dale's sisters got married young and commenced raising their children full time. This was back when it was much more common for young couples to get married before they commenced living together. I can't recall any of my classmates who commenced living together before they got married.

Now that I'm retired, I'm once again living in a rural region in the White Mountains. Some of my closest friends are K-12 teachers who contend there really is no significant inequality in K-12 education between the poorest kids and the richest kids in these mountains. Of course the home environments are often not ideal. We have divorced parents, alcoholics, and drug addicts. But these are less problematic than in the big cities.

Our White Mountain K-12 schools are relatively safe, and we sometimes get terrific teachers who will work for much less than they could make in Boston's schools, but our teachers generally prefer rural living, lower priced housing, no traffic, cleaner air, and having students in smaller classes eager to learn rather than classes where truancy and drug addiction is an enormous problem.

But when I look at nation as a whole, I think I have to say yes to the following question
"Has Higher Education Become an Engine of Inequality?" Chronicle of Higher Education's Chronicle Review, July 2, 2012 ---


But the true engine of inequality commences before our 21st Century students either graduate or drop out of the K-12 school system.

LIBOR --- http://en.wikipedia.org/wiki/LIBOR
Note that LIBOR is a global index used in hundreds of millions of contracts around the world as an underlying for interest rate movements. Nobody ever argued that LIBOR was as risk free as the U.S. Treasury Rate, but globally the U.S. Treasury rate paled relative to LIBOR as a market index for interest rates, especially hundreds of trillions of dollars in interest rate swaps.

Hence when LIBOR becomes manipulated by traders it affects worldwide settlements. This is why pension funds of small U.S. towns, labor unions, and banks of all sizes are now suing Barclays and the other U.K banks that allegedly manipulated the LIBOR market rates for their own personal agenda.

"Lies, Damn Lies and Libor:  Call it one more improvisation in 'too big to fail' crisis management," by Holman W. Jenkins Jr., The Wall Street Journal, July 6, 2012 ---

Ignore the man behind the curtain, said the Wizard of Oz. That advice doesn't pay in the latest scandal of the century, over manipulation of Libor, or the London Interbank Offered Rate. The mess is one more proof of the failing wizardry of the First World's monetary-cum-banking arrangements.

Libor is a reference point for interest rates on everything from auto loans and mortgages to commercial credit and complex derivatives. Major world banks are accused of artificially suppressing their claimed Libor rates during the 2007-08 financial crisis to hide an erosion of trust in each other.

Did the Bank of England or other regulators encourage and abet this manipulation of a global financial indicator?

We are talking about TBTF banks—too big to fail banks. Banks that, by definition, become suspect only when creditors begin to wonder if regulators might seize them and impose losses selectively on creditors. Their overseers could not have failed to notice that interbank liquidity was drying up and the banks nevertheless were reporting Libor rates that suggested all was well. The now-famous nudging phone call from the Bank of England's Paul Tucker to Barclays's Bob Diamond came many months after Libor manipulation had already been aired in the press and in meetings on both sides of the Atlantic. That call was meant to convey the British establishment's concern about Barclays's too-high Libor submissions.

Let's not kid ourselves about something else: Central banks everywhere at the time were fighting collapsing confidence by cutting rates to stimulate retail lending. Their efforts would have been thwarted if Libor flew up on panic about the solvency of the major banks.

Of all the questionably legal improvisations regulators resorted to during the crisis, then, the Libor fudge appears to be just one more. Regulators everywhere gamed their own capital standards to keep banks afloat. The Fed's bailout of AIG, an insurance company, hardly bears close examination. And who can forget J.P. Morgan's last-minute decision to pay Bear Stearns shareholders $10 a share, rather than the $2 mandated by Treasury Secretary Hank Paulson, to avoid a legal test of the Fed-orchestrated takeover? Even today, the European Central Bank continues to extend its mandate in dubious ways to fight the euro crisis.

There has been little legal blowback from any of this, but apparently there will be a great deal of blowback from the Libor fudge. Barclays has paid $453 million in fines. Half its top management has resigned. A dozen banks—including Credit Suisse, Deutsche Bank, Citigroup and J.P. Morgan Chase—remain under investigation. Private litigants are lining up even as officialdom seemingly intends to wash its hands of its own role.

Yet the larger lesson isn't that bankers are moral scum, badder than the rest of us. The Libor scandal is another testimony (as if more were needed) of just how lacking in rational design most human institutions inevitably are.

Libor was flawed by the assumption that the banks setting it would always be seen as top-drawer credit risks. The Basel capital-adequacy rules were flawed because they incentivized banks to overproduce "safe" assets, like Greek bonds and U.S. mortgages. The ratings process was flawed eight ways from Sunday, including the fact that many fiduciaries, under law, were required to invest in securities blessed by the rating agencies.

Some Barclays emails imply that traders, even before the crisis, sought to influence the bank's Libor submissions for profit-seeking reasons. This is puzzling and may amount to empty chest thumping. Barclays's "submitters" wouldn't seem in a position to move Libor in ways of great use to traders. Sixteen banks are polled to set Libor and any outlying results are thrown out. Plus each bank's name and submission are published daily. But let's ask: Instead of trying to manipulate Libor in a crisis, what would have been a more straightforward way of dealing with its exposed flaws, considering the many trillions in outstanding credit tied to Libor?

Continued in article

Bob Jensen's threads on interest rate swaps and LIBOR ---
Search for LIBOR or swap.



Unemployed of the World Unite
"Why Marxism is on the rise again," by Stuart Jeffries, The Guardian, July 4, 2012 ---

Down With the Wages Based on Supply and Demand
Labor Theory of Value --- http://en.wikipedia.org/wiki/Labor_theory_of_value#Marx.27s_contribution 

. . .

Marx's contribution

Contrary to popular belief, Marx does not base his LTV on what he dismisses as "ascribing a supernatural creative power to labor", arguing in the Critique of the Gotha Program that:

Labor is not the source of all wealth. Nature is just as much a source of use values (and it is surely of such that material wealth consists!) as labor which is itself only the manifestation of a force of nature, human labor power.[30]

Here Marx is drawing a distinction between exchange value (which is the subject of the LTV) and use value.

Marx uses the concept of "socially necessary abstract labor-time" to introduce a social perspective distinct from his predecessors and neoclassical economics. Whereas most economists start with the individual's perspective, Marx starts with the perspective of society as a whole. "Social production" involves a complicated and interconnected division of labor of a wide variety of people who depend on each other for their survival and prosperity.

"Abstract" labor refers to a characteristic of commodity-producing labor that is shared by all different kinds of heterogeneous (concrete) types of labor. That is, the concept abstracts from the particular characteristics of all of the labor and is akin to average labor.

"Socially necessary" labor refers to the quantity required to produce a commodity "in a given state of society, under certain social average conditions or production, with a given social average intensity, and average skill of the labour employed."[31] That is, the value of a product is determined more by societal standards than by individual conditions. This explains why technological breakthroughs lower the price of commodities and put less advanced producers out of business. Finally, it is not labor per se, which creates value, but labor power sold by free wage workers to capitalists. Another distinction to be made is that between productive and unproductive labor. Only wage workers of productive sectors of the economy produce value.[32]


"The worker becomes all the poorer the more wealth he produces, the more his production increases in power and range. The worker becomes an ever cheaper commodity the more commodities he creates. With the increasing value of the world of things proceeds in direct proportion to the devaluation of the world of men. Labor produces not only commodities; it produces itself and the worker as a commodity -- and does so in the proportion in which it produces commodities generally."
Karl Marx, Economic and Philosophic Manuscripts, 1844 [33]

Marx uses his LTV to derive his theory of exploitation under capitalism.

Unlike Ricardo or the Ricardian socialists, Marx distinguishes between labor power and labor. "Labor-power" is the potential or ability of workers to work, given their muscles, brains, skills, and capacities. It is the promise of creating value possessed by human labor that has not yet been expended. "Labor" is the actual activity of producing value. The profit or surplus-value arises when workers do more labor than is necessary to pay the cost of hiring their labor-power.

To explain the normality of exploitation, Marx describes capitalism as having an institutional framework in which a small minority (the capitalists) oligopolize the means of production. The workers cannot survive except by working for capitalists, and the state preserves this inequality of power. In normal role of force is structural, part of the usual workings of the system. The reserve army of unemployed workers continually threatens employed workers, pushing them to work hard to produce for the capitalists.


Many liberal economists believe that the Marxist labor theory of value has been "discredited".[34] The labor theory of value predicts that profits will be higher in labor-intensive industries than in capital-intensive industries, and empirical data contradicts this. This is sometimes referred to as the "Great Contradiction." Marx responds to this in his third volume of Capital with his competition of capitals theory, a mathematical transformation that has been fiercely debated. Most economists today also contest that the value of capital is limited to the "congealed labor" that it took to build the capital when that capital can increase the productive capability of labor much more than that[35].

Nonetheless, certain elements of the theory are still believed to be valid, or the theory is presented in a non-Marxist tradition.

Jensen Comment
Marx did not envision the future world of robotics and artificial intelligence where machines are efficiently and effectively replacing more and more unskilled as well as skilled labor. Factory workers, teachers, and even music composers are threatened. Increasingly a machine will be able to take blood and tissue samples for diagnostics superior to the general practitioner without computer skills. These days a laptop computer seems to be as much a part of the body of my physician as her eyes and ears. I ask her a challenging medical question and she finds me an answer in minutes --- not directly from her brain's stored knowledge but from and electronic knowledge base. Of course she has interpretive skills of medical jargon that are Greek to me. I still need her after all.

But there are anecdotal exceptions. After one of her heavy spine surgeries my wife had a physical therapist named Machie who came to our cottage twice each week. Machie and his wife immigrated from Poland. Machie's wife at one time was having terrible excruciating pains whenever she stood up, sat up, or even raised her head. Her physicians, including neurologists from the Dartmouth's Hitchcock Medical Center, were mystified. So Machie went on an in-depth Internet search. He found some clues that his wife's troubles may be caused by rare and life-threatening leakage of spinal cord fluid. He contacted her physicians and they ordered some very non-standard tests. Sure enough that was her problem, and the problem gratefully could be corrected. She's in very good health today and carries on with her career as a mother and a massage therapist.





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Enron --- http://www.trinity.edu/rjensen/FraudEnron.htm

Rotten to the Core --- http://www.trinity.edu/rjensen/FraudRotten.htm

American History of Fraud --- http://www.trinity.edu/rjensen/FraudAmericanHistory.htm

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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 ---

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