Tidbits Quotations
To Accompany the July 26, 2012 edition of Tidbits
Bob Jensen at Trinity Universit

"Let's Talk About Outsourcing," by Phyllis Schlafly, Townhall, July 17, 2012 ---

Remembering Paul Harvey --- http://www.youtube.com/embed/H3Az0okaHig?rel=0

"Budget Insanity We're always one massive spending bill away from having a better economy," by John Stossel, Reason Magazine, July 11, 2012 ---

Video:  The Stossel Solution --- http://townhall.com/columnists/calthomas/2012/07/12/the_stossel_solution/page/full/

The most criminal class in America according to Mark Twain

But Zafar will probably counter by saying that only Republican families of lawmakers may trade on inside information. Democrats would never do something that unethical..

"CNN exclusive: Congressional insider trading ban might not apply to families," by Deirdre Walsh and Dana Bash, CNN, July 19, 2012 ---


Rules of the Academy Versus Zafar's Rules

And thus it came to be that Al Gore's company builds luxury electric sports cars in Finland. To date, I don't think the venture has been profitable enough to pay back the $529 million "loan." obtained by Al Gore from President Obama  ---

Vice President Joseph Biden heralded the Energy Department's $529 million loan to the start-up electric car company called Fisker as a bright new path to thousands of American manufacturing jobs. But two years after the loan was announced, the company's manufacturing jobs are still limited to the assembly of the flashy electric Fisker Karma sports car in Finland.

"There was no contract manufacturer in the U.S. that could actually produce our vehicle," the car company's founder and namesake told ABC News. "They don't exist here."

Henrik Fisker said the U.S. money has been spent on engineering and design work that stayed in the U.S., not on the 500 manufacturing jobs that went to a rural Finnish firm, Valmet Automotive.

. . .

An investigation by ABC News and the Center for Public Integrity's iWatch News found that the DOE's bet carries risks for taxpayers, has raised concern among industry observers and government auditors, and adds to questions about the way billions of dollars in loans for smart cars and green energy companies have been awarded. Fisker is more than a year behind rolling out its $97,000 luxury vehicle bankrolled in part with DOE money. While more are promised soon, just 40 of its Karma cars (below) have been manufactured and only two delivered to customers' driveways, including one to movie star Leonardo DiCaprio. Tesla's SEC filings reveal the start-up has lost money every quarter. And while its federal funding is intended to help it mass produce a new $57,400 Model S sedan, the company has no experience in a project so vast.

Continued in article


In our Academy, it is quite common to make propositions and then negate those propositions with counterexamples. In Zafar's world, however, one never acknowledges inconvenient counterexamples.

Thus far, Zafar ignores my counter examples and continues to genuinely believe that conservatives are all bad guys exploiting government for personal gain and that progressives are mostly good guys who do not exploit government for personal gain.

I contend that throughout history interest groups in control of government have exploited their powers for personal gains. The frauds go on right and left no matter which special interest groups control government. Maybe this is better than the present political situation where neither progressives or conservatives are in control of a gridlocked government with trillion dollar annual deficits going nowhere.

For example consider the following proposition of Zafar on July 17, 2012

I hope you are right about no one on AECM believing in either extremes. However, I am not so sure about most conservatives. What most conservatives (and Bob is a good spokesperson) want is not a small government but their government. Their call for small government is actually a red herring. Further, the fundamental difference between conservatives and progressives is concern for their fellow human beings not size of government.


I take this to mean that conservatives (read that Republicans) want to exploit government for their own personal gains and that progressives (read that Democrats) want do not want to exploit government for their own personal gains at the expense of blue collar workers, unions, teachers, African Americans, Hispanics, disabled people, illegal immigrants, and the taxpayers in general.


I will provide yet another a counter example that shows that progressives are probably just as guilty as conservatives about exploiting government for personal gain, and to make matters worse big government is more easy to exploit on a grandiose scale.

Al Gore --- http://en.wikipedia.org/wiki/Al_Gore

President Obama and Al Gore are top leaders of the progressives (Democrats). Al Gore came within a very small number of votes in Florida of winning the 1988 election for President of the United States. In fact, if the recount had be accurate, I think he would've beaten George W. Bush for the presidency.

Now we move to 2009 when President Obama is casting out hundreds of billions of bailout dollars like a man on a park bench casts our popcorn to pigeons. One of the pigeons on his bid ears is Al Gore pleading  for popcorn in the progressive spirit of an energy efficient electric car.

"I want to start up my own company to make very luxurious electric cars that only wealthy people can afford," explains the Al Gore pigeon. "But I don't think unemployed automobile plant workers in Michigan are as good as the great workers in Finland. Therefore I want to set up my factory in Finland."

"That's fine my friend. How much do you need for starters?" asks President Obama on the park bench.

"$529 million," responds Al Gore with a sheepish grin. "I will pay this back if my business venture succeeds."

"Consider it done," responds President Obama. He then stuffs a half billion of popcorn into Al Gore's gaping beak.

Fisker Karma Luxury Electric Sports Car --- http://en.wikipedia.org/wiki/Fisker_Karma
In 2011 prices of models imported into the United States ranged from $102,000 to $116,000
Interestingly, progressives edited out (in Wikipedia) any mention Al Gore's venture ownership interest in the car's production and Gores' hope to make billions from this and his similar "green" ventures that will be similarly built on government grants and loans..

And thus it came to be that Al Gore's company builds luxury electric sports cars in Finland. To date, I don't think the venture has been profitable enough to pay back the "loan." obtained by Al Gore ---


Vice President Joseph Biden heralded the Energy Department's $529 million loan to the start-up electric car company called Fisker as a bright new path to thousands of American manufacturing jobs. But two years after the loan was announced, the company's manufacturing jobs are still limited to the assembly of the flashy electric Fisker Karma sports car in Finland.


"There was no contract manufacturer in the U.S. that could actually produce our vehicle," the car company's founder and namesake told ABC News. "They don't exist here."


Henrik Fisker said the U.S. money has been spent on engineering and design work that stayed in the U.S., not on the 500 manufacturing jobs that went to a rural Finnish firm, Valmet Automotive.

. . .

An investigation by ABC News and the Center for Public Integrity's iWatch News found that the DOE's bet carries risks for taxpayers, has raised concern among industry observers and government auditors, and adds to questions about the way billions of dollars in loans for smart cars and green energy companies have been awarded. Fisker is more than a year behind rolling out its $97,000 luxury vehicle bankrolled in part with DOE money. While more are promised soon, just 40 of its Karma cars (below) have been manufactured and only two delivered to customers' driveways, including one to movie star Leonardo DiCaprio. Tesla's SEC filings reveal the start-up has lost money every quarter. And while its federal funding is intended to help it mass produce a new $57,400 Model S sedan, the company has no experience in a project so vast.

Continued in article


There's a second far bigger counterexample where over a billion dollars of U.S, bailout money is being spent for Mexican workers to build thousands upon thousands of Fiats to be exported to the U.S. market.

Chrysler's still owned by the U.S. Government ---

Fiat Auto plans to sell seven of its vehicles in the U.S. by 2014, while Fiat-controlled Chrysler Group is to supply nine models to sell under Fiat brands in the European market, according to a five-year plan rolled out on April 21, 2010 in Turin, Italy, by Fiat and Chrysler CEO Sergio Marchionne. At least five of the Fiat Auto models are expected to be marketed in the U.S. under its Alfa Romeo brand. Showing the level of integration envisioned, a product introduction timeline shows Chrysler-built compact and full-size SUVs going on sale in 2012 and 2014, respectively, in both European and North American markets

Notice how progressives have edited out the fact that the Fiats destined for the U.S. will be built in Mexico. Also note that Fiat did not put up any money for controlling interest in Chrysler.

Thus far, Zafar ignores my counter example and continues to genuinely believe that conservatives are all bad guys exploiting government for personal gain and that progressives are mostly good guys who do not exploit government for personal gain.

I contend that throughout history interest groups in control of government have exploited their powers for personal gain. The frauds to on right and left no matter which special interest groups control government. Maybe this is better than the present political situation where neither progressives or conservatives are in control of a gridlocked government with trillion dollar annual deficits going nowhere.

And so I say welcome to Robert Mugabe's Zimbabwe Economics and the Weimar Republic ---

Outsourcing Under Obama Policies
John Sununu Schools Andrea Mitchell on Obama Outsourcing  ---

Must we blame Republicans for this?

CBO: The Distribution of Household Income and Federal Taxes, 2008 and 2009
Paul Caron, TaxProf Blog, July 10, 2012 ---


The Congressional Budget Office today released The Distribution of Household Income and Federal Taxes, 2008 and 2009 (July 2012):

For most income groups, the 2009 average federal tax rate was the lowest observed in the 1979–2009 period. ... For the lowest income group, the average rate fell from 7.5% in 1979 to 1.0% in 2009. ... Households in the middle three income quintiles saw their average tax rate fall by 7.1 percentage points over 30 years, from 19.1% in 1979 to 12.0% in 2009. ... The average tax rate for households in the 81st to 99th percentiles of the income distribution also reached a low point in 2009, about 4 percentage points below its 1979 level. ... In contrast, in 2009 the average tax rate for households in the top 1% of the before-tax income distribution was above its low point, reached in the early 1980s. ... The tax rate ... rose somewhat from 2007 to 2009, as sharp declines in capital gains income caused a larger portion of the income of that group to be subject to the ordinary income tax rates. The decline in after-tax income between 2007 and 2009 was much larger at the top of the income distribution than further down the distribution.

How to avoid income taxes:
Case Studies in Gaming the Income Tax Laws ---


July 17, 2012
On the CBS Evening News a very short segment between News Anchor Scott Pelley and Business Correspondent Anthony Mason sums up what is wrong in our current effort to keep the U.S. from going off an economic cliff.  The context of this segment is a featured clip of a July 17 Senate Hearing in which Senior Senator Chuck Schumer (read that Senator Mugabe) asserts that Congress is so gridlocked in preventing the economy from falling off a cliff before 2012 election day that the only thing that can save the U.S. economy is the Federal Reserve. Senator Mugabe then orders Fed Chairman Bernanke to "get to work."

I might point out that before this Senate Hearing, Ben Bernanke went on record as stating that only Congress can keep the economy from going over the cliff. In this Senate Hearing Senator Mugabe told Bernanke that this is just not going to happen in a gridlocked Congress before the 2012 election --- which is too late to prevent going over the cliff.

After airing the clip from Senator Mugabe's Senate Hearing, CBS News Anchor Scott Pelley pointed out that everything the Fed has tried to date just is not working. FDIC banks are just not buying into the Fed's current "no money down, zero interest rate" offers to them from the Fed.

"In this circumstance," asks Scott Pelley, "what can the Fed do to keep the economy from going over a cliff"? (paraphrased)

"All it can do," answered Anthony Mason, "is buy up U.S. Treasury Bonds and mortgage-backed securities like it as done recently (to over $2 trillion dollars).

Jensen Comment
What Pelley and Mason did not explain is what Fed purchasing of trillions of dollars of U.S. Treasury Bonds really means. I estimate that over 99.999999% of the CBS News viewers have no idea what this action by the Fed really means or why it enables the U.S. Government step up public works projects and other cash bailouts.

What CBS News should've explained, if it was responsible to its viewers, is that this last arrow in the Fed's quiver is tantamount to printing trillions of dollars to pay for government spending instead of paying for that spending with tax money or borrowing (selling U.S. Treasury Bonds on the open market instead of to itself). Of course by now all readers on the AECM understand what this Fed action really means. Sadly, 99.999999% of the voters in America do not have a clue.

Senator Mugabe's wishes are consistent with Nobel Laureate Paul Krugman's advice to print whatever is needed to lower the unemployment rate below 6% in a Keynesian solution (although I think Keynes only considered taxing or borrowing to pay for the deficit). I don't think Keynes advised simply printing money to pay for a government boost to the economy. The thing is that Paul Krugman naively assumes that when prosperity returns (if ever) that Congress will at last undertake reducing the annual deficit in tens of trillions of dollars by then. But this might entail firing tens of millions of people on public works projects and goring all the other oxen that have grown dependent upon Keynesian government dole.

 The bottom line is that Congress is most likely to never act to reduce the deficit with taxes and spending cuts. It's so much easier to just pay for the deficit by printing U.S. dollars. And there's not much hope of electing true statesmen (and stateswomen) to Congress given the power of special interest groups to pay whatever it takes to elect their dupes to Congress.

In any case, I don't think CBS News viewers have any idea that the Fed has been and probably will do in a few months at an accelerating rate is to print trillions of dollars to support government public works projects and other spending under explicit orders from Senior Senator Mugabe. Bernanke really does not want to print trillions more of U.S. dollars, which is why he appealed to Congress to take other steps to reduce the deficit.

But Congress is full of cowards who care more about what MSNBC and Fox News will say about them personally than to take unpopular actions to really, really offend their constituencies. There are no statesmen left in Washington DC --- only cowards.

"Bernanke warns US economy could topple into recession if Congress doesn’t end budget impasse," The Washington Post, July 17, 2012 ---

Federal Reserve Chairman Ben Bernanke sketched a bleak picture of the U.S. economy Tuesday — and warned it will darken further if Congress doesn’t reach agreement soon to avert a budget crisis.

Without an agreement, tax increases and deep spending cuts would take effect at year’s end. Bernanke noted what the Congressional Budget Office has warned: A recession would occur, and 1.25 million fewer jobs would be created in 2013.

The Fed is prepared to take further action to try to help the economy if unemployment stays high, he said. Bernanke didn’t signal what steps the Fed might take or whether any action was imminent. And he noted there’s only so much the Fed can do.

But the Fed chairman made clear his most urgent concern is what would happen to the economy if Congress can’t resolve its budget impasse before the year ends.

Cuts in taxes on income, dividends and capital gains would expire. So would this year’s Social Security tax cut and businesses tax reductions. Defense and domestic programs would be slashed. And emergency benefits for the long-term unemployed would run out.

All that “would greatly delay the recovery that we’re hoping to facilitate,” Bernanke said near the end of two hours of testimony to the Senate Banking Committee.

Bernanke was giving his twice-a-year report to Congress on the state of the economy. He will testify Wednesday before the House Financial Services Committee.

The economy is growing modestly but has weakened, Bernanke said. Manufacturing has slowed. Consumers are spending less. And job growth has slumped to an average of 75,000 a month in the April-June quarter from 226,000 a month from January through March. The unemployment rate is stuck at 8.2 percent.

Bernanke noted that the economy, after growing at a 2.5 percent annual rate in the second half of 2011, slowed to roughly 2 percent from January through March. And it likely weakened further in the April-June period.

Congress needs to resolve its impasse well before the year ends, Bernanke said.

“Doing so would help reduce uncertainty and boost household and business confidence,” he said.

The cuts that would kick in next year could cost as many as 2 million jobs, a trade group that represents manufacturers said in a report released Tuesday. The report came from the Aerospace Industries Association.

Continued in article


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

A Pissing Contest Between Bob and Jagdish:  An Illustration of How to Lie With Statistics ---

Hi David,

There may be a reason that President Johnson was the only President since Truman who was not seen with Queen Elizabeth. LBJ was a country-boy Democrat who disliked blue bloods. And he had a penchant for scheduling meetings with people he did not like while he was seated on a commode. I don't think this type of meeting would appeal to the Queen of England.

Barack Obama, on the other hand, handles himself quite well among blue bloods. It's Winston Churchill, not a blue blood, that Obama despises for some reason. When he first moved into the White House Obama returned the bust of Churchill, an extended loan from Tony Blair, to England in what seemed like a put down of Churchill ---

A bust of the former prime minister once voted the greatest Briton in history, which was loaned to George W Bush from the Government's art collection after the September 11 attacks, has now been formally handed back.

The bronze by Sir Jacob Epstein, worth hundreds of thousands of pounds if it were ever sold on the open market, enjoyed pride of place in the Oval Office during President Bush's tenure.

But when British officials offered to let Mr Obama to hang onto the bust for a further four years, the White House said: "Thanks, but no thanks."

Diplomats were at first reluctant to discuss the whereabouts of the Churchill bronze, after its ejection from the seat of American power. But the British Embassy in Washington has now confirmed that it sits in the palatial residence of ambassador Sir Nigel Sheinwald, just down the road from Vice President Joe Biden's official residence. It is not clear whether the ambassador plans to keep it in Washington or send it back to London.


American politicians have made quoting Churchill, whose mother was American, something of an art form, but not Mr Obama, who prefers to cite the words and works of his hero Abraham Lincoln. Indeed a bust of Mr Lincoln now sits in the Oval Office where Epstein's Churchill once ruled the roost.

Churchill has less happy connotations for Mr Obama than those American politicians who celebrate his wartime leadership. It was during Churchill's second premiership that Britain suppressed Kenya's Mau Mau rebellion. Among Kenyans allegedly tortured by the colonial regime included one Hussein Onyango Obama, the President's grandfather.

The rejection of the bust has left some British officials nervously reading the runes to see how much influence the UK can wield with the new regime in Washington.

Now it is likely that Gordon Brown will offer a alternative symbol of Anglo-American fealty when he visits Washington to meet Mr Obama for the first time since he became President. Diplomats are still working to finalise a date for the visit which is expected in the final week of this month or early in March.

One suggestion, given Mr Obama's interest in the Lincoln era, is that Mr Brown should offer an artifact relating to the career of John Bright, the 19th Century MP and political reformer who became the most prominent British supporter of Lincoln's Union forces during the American Civil War.

A British Embassy spokesman said: "The bust of Sir Winston Churchill by Sir Jacob Epstein was uniquely lent to a foreign head of state, President George W Bush, from the Government Art Collection in the wake of 9/11 as a signal of the strong transatlantic relationship.

Continued in article


Perhaps President Obama just did not like some of the quotations of Winston Churchill, especially the quotation"
"There's no such thing as a good tax."

There is no such thing as a good tax.

We make a living by what we get, but we make a life by what we give.

Some see private enterprise as a predatory target to be shot, others as a cow to be milked, but few are those who see it as a sturdy horse pulling the wagon.

The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.

We contend that for a nation to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.

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

The problems of victory are more agreeable than the problems of defeat, but they are no less difficult.

From now on, ending a sentence with a preposition is something up with which I shall not put.

A fanatic is one who can’t change his mind and won’t change the subject.

Bessie Braddock: “Sir, you are drunk.”
Churchill: “Madam, you are ugly. In the morning, I shall be sober.”

Nancy Astor: “Sir, if you were my husband, I would give you poison.”
Churchill: “If I were your husband I would take it.”

A lie gets halfway around the world before the truth has a chance to get its pants on.

Once in a while you will stumble upon the truth but most of us manage to pick ourselves up and hurry along as if nothing had happened.

If you are going to go through hell, keep going.

It is a good thing for an uneducated man to read books of quotations.

You have enemies? Good. That means you’ve stood up for something, sometime in your life.

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

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

History will be kind to me for I intend to write it.

Writing a book is an adventure. To begin with, it is a toy and an amusement; then it becomes a mistress, and then it becomes a master, and then a tyrant. The last phase is that just as you are about to be reconciled to your servitude, you kill the monster, and fling him out to the public.

The farther backward you can look, the farther forward you are likely to see.

A sheep in sheep’s clothing. (On Clement Atlee)

A modest man, who has much to be modest about. (On Clement Atlee)

I am ready to meet my Maker. Whether my Maker is prepared for the ordeal of meeting me is another matter.

The truth is incontrovertible, malice may attack it, ignorance may deride it, but in the end; there it is.

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.

To improve is to change; to be perfect is to change often.

Politics is the ability to foretell what is going to happen tomorrow, next week, next month and next year. And to have the ability afterwards to explain why it didn’t happen.

Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy.

Solitary trees, if they grow at all, grow strong.

Success consists of going from failure to failure without loss of enthusiasm.

The best argument against democracy is a five-minute conversation with the average voter.

It has been said that democracy is the worst form of government except all the others that have been tried.

Everyone has his day and some days last longer than others.

The whole history of the world is summed up in the fact that, when nations are strong, they are not always just, and when they wish to be just, they are no longer strong.


From Stettin in the Baltic to Trieste in the Adriatic, an iron curtain has descended across the Continent.
-“The Sinews of Peace” speech, Westminster College, Fulton, Missouri, March 5, 1945

If Hitler invaded hell I would make at least a favorable reference to the devil in the House of Commons.

Those who can win a war well can rarely make a good peace and those who could make a good peace would never have won the war.

Courage is the first of human qualities because it is the quality that guarantees all the others.

The problems of victory are more agreeable than those of defeat, but they are no less difficult.

If you will not fight for right when you can easily win without blood shed; if you will not fight when your victory is sure and not too costly; you may come to the moment when you will have to fight with all the odds against you and only a precarious chance of survival. There may even be a worse case. You may have to fight when there is no hope of victory, because it is better to perish than to live as slaves.

You ask, What is our policy? I will say; “It is to wage war, by sea, land and air, with all our might and with all the strength that God can give us: to wage war against a monstrous tyranny, never surpassed in the dark lamentable catalogue of human crime. That is our policy.” You ask, What is our aim? I can answer with one word: Victory—victory at all costs, victory in spite of all terror, victory however long and hard the road may be; for without victory there is no survival.

We shall not flag or fail. We shall go on to the end. We shall fight in France, we shall fight on the seas and the oceans, we shall fight with growing confidence and growing strength in the air, we shall defend our island, whatever the cost may be. We shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender.


Hitler knows that he will have to break us in this island or lose the war. If we can stand up to him, all Europe may be free and life of the world may move forward into broad, sunlit uplands. But if we fall, then the whole world, including the United States, including all that we have known and cared for, will sink into the abyss of a new Dark Age made more sinister, and perhaps more protracted, by the lights of perverted science.
Let us therefore brace ourselves to our duties, and so bear ourselves that, if the British Empire and its Commonwealth lasts for a thousand years, men will still say,
This was their finest hour!”

Neither Presidents Johnson nor Obama had particularly cordial relations with our steadfast U.S. ally.  Maybe Obama's relations have improved since our strongest ally in the Iraq war, Tony Blair, was defeated. Obama hated that war even though he has been an intense advocate of the war in Afghanistan where the U.K. has became a less enthusiastic ally.

Bob Jensen

Is there a media coverup conspiracy?
"Finally! Veil lifted on Muslim rape epidemic," by Bob Unrah, WND World, July 21, 2012 ---

For years there have been reports on blogs, personal testimonials and the like, about what looked like a literal epidemic of rape by Muslim men of both women and children, especially in northern European nations where the Muslim immigrant population is high.

But the disturbing reports rarely rose to the level that would make the general population aware of the dangers that were becoming evident. After all, such a report would be blasted for attacking Islam and discriminating against Muslims.

Continued in article

Investigation: Mitt Romney’s Offshore Accounts, Tax Loopholes, and Mysterious I.R.A.
"Where the Money Lives," by Nicholas Shaxson, Vanity Fair, August 2012 ---

"George Shultz: Memo to Romney:  Expand the Pie George Shultz, the former secretary of state and Treasury says America's current problems are large, and its power in the world is diminished. But the policies for revival are obvious with the right leadership, The Wall Street Journal, July 14, 2012 ---

George Shultz has one of the most preposterously impressive résumés in recent American history. World War II Marine (1942-45); distinguished academic economist; business executive; secretary of labor (1969-70); director of the Office of Management and Budget (1970-72); secretary of the Treasury (1972-74); chairman of Ronald Reagan's economic transition team; and the secretary of state (1982-89) who wound down the Cold War.

He's also been an active adviser to GOP leaders including George W. Bush in the years since. And, as I just learned, he's not a bad singer either.

When I called out of the blue on Wednesday morning, the 91-year-old éminence grise was in his office at Stanford University's Hoover Institution and willing to meet for an interview that afternoon.

The executive summary? On the economy: "We have some big problems in this country." He's very concerned about debt, and about monetary, tax and regulatory policy. On foreign policy: "We're weaker, much weaker" abroad than we were two decades ago.

But despite it all, Mr. Shultz is confident that if we get the policies right again, America can regain its footing: "When Ronald Reagan took office, inflation was in the teens, the prime rate was in the 20s, and the economy was going nowhere. We still had the remnants of wage and price controls, particularly in oil and gas. And Jimmy Carter said we were in 'malaise.' It was a bad time. I'm convinced the economy can be turned around because I watched Ronald Reagan do it."

"It took long-term thinking," Mr. Shultz emphasizes. "I'll give you an example. [Reagan] knew and we all advised him you can't have a decent economy with the kind of inflation we've got. . . . The political people would come in and say 'You've got to be careful, Mr. President. There's gonna be a recession [if the Federal Reserve tightens the money supply]. You're gonna lose seats in the midterm election.'

"And he basically said, 'If not us who? If not now when?' And he held a political umbrella over [Fed Chairman] Paul Volcker, and Paul did what needed to be done. And by late '82 early '83, inflation was under control, the tax changes that he made were kicking in, and the economy took off. But it took a politician with an ability to take a short-term hit in order to get the long-run results that we needed."

Is inflation a primary threat today? Not an immediate one, says Mr. Shultz, "but it's a building problem because of all this liquidity that's being stored up. . . . They [the Fed] think their contribution to doing something about [our economic troubles] is very easy money. Well, by this time money is very easy. It doesn't have to get any easier. . . . It takes other things to get the economy going—not more money."

Mr. Shultz dwells at length on the national debt, and on the Fed's role in enabling it: "It's startling that in the last year, three-quarters of the debt that's been issued has been bought by the Fed and the balance has been bought by other countries, so U.S. citizens and institutions are not on net buying U.S. debt. . . . The Fed doesn't have an unlimited capacity because when it buys the debt what it's doing is monetizing the debt. Sooner or later that has got to get out into the economy. Can't be held forever. And when it does in that kind of volume—as Milton Friedman taught us, inflation is a monetary phenomenon—it's gonna be hard to control."

As Mr. Shultz sees it, there is plenty of empirical evidence about which policies promote growth and which don't.

"I think the things that need to be done are sort of in the air, and you almost feel as if everybody knows what they are," he says. "It's quite apparent that we need to have another round of the 1986 tax act. That is, clean out the preferences and lower the rates. . . . It's also not a mystery that our corporate tax rate is way too high and there are preferences there that could be cleaned out."

For Mr. Shultz, the tax issue is not just about rates—though he believes lower rates often produce more revenue than higher ones, and "it's the revenues you're looking for"—but about predictability.

He asks me what sports I like. "Let's talk about football. . . . You want to know the rules and have an impartial referee, but you also want to make sure somebody isn't going to come along and change the rules in the middle of the game. . . . Now it's as though we have all these people who have money on the sidelines and we say 'Come on and play the game,' and they say 'Well what are the rules?' and we say 'We'll tell you later.' And what about the referee? Well, we're still struggling for who that's gonna be. . . . That's not an environment designed to get people to play."

Mr. Shultz cites the handling of the auto bankruptcies as an important deviation from rules-based economic policy. The question was "are we gonna have a political bankruptcy or a rule-of-law bankruptcy? Political bankruptcy was chosen. So the result is that the unions got paid off and the regular creditors didn't."

He also cites Washington's "habit of passing bills that are thousands of pages long and you know most legislators haven't even read what they're voting for."

That would be ObamaCare, of course. "I fear that the approach to controlling costs in the health-care business is moving more and more to a wage-and-price-control approach. And one thing you know from experience is when you control the price of something, you end up getting less of it. So if you control the price of health-care providers, you will have fewer of them and that's gonna wind up as a crisis. The most vivid expression of that . . . was Jimmy Carter's gas lines."

Experience. Examples. Evidence. Shultz themes.

As we turn to foreign policy, the national debt again looms large: "Now remember something. Alexander Hamilton, our first secretary of the Treasury, and a very good one, redeemed all of the Revolutionary War debt at par value, and he said the 'full faith and credit' of the United States must be inviolate, among other reasons because it will be necessary in a crisis to be able to borrow. And we saw ourselves through the Civil War because we were able to borrow. We saw ourselves able to defeat the Nazis and the Japanese because we were able to borrow. We've got ourselves now to the point where if we suddenly had to finance another very big event of some kind, it would be hard to do it. We are exhausting our borrowing capacity."

Mr. Shultz is not an alarmist about the rising power of China. He believes Chinese leaders understand their interest in having good relations with the United States. He is withering in his critique of those who would blame cheap Chinese labor or a cheap Chinese currency for U.S. economic problems:

"We are consuming more than we produce and we've done that a while and we're complaining about the fact that we have an imbalance of trade with China. But if you consume more than you produce, you have to import. It's just arithmetic. And if you spend more than you earn, you have to borrow. It's just arithmetic."

Mr. Shultz is more concerned about the Middle East, an area where he concedes even the Reagan administration struggled, "just like everybody." So what would he do about the threat of an Iranian bomb? Is he concerned we haven't seized the current opportunity to weaken Iran's ally in Damascus?

"[Syrian President Bashar al-Assad] and the Iranians have been a strategic adversary. Gadhafi was sort of a tactical adversary. . . . I think I would have said to the Turks, 'I see you are providing safe havens on your border and probably you could use some help. We're there with you.'"

He also thinks we can have a deterrent effect without major military strikes. He recalls an episode from the 1980s when the U.S. Navy became aware of Iranian efforts to mine the Persian Gulf: "We boarded the ship. Took off some mines for evidence. Took off the sailors, sank the ship. Took the sailors to Dubai, I believe, and said to the Iranians 'Come and get your sailors and cut it out.'"

What about Mitt Romney? Is he running on the right themes? Will he have a mandate if he wins?

"He made one speech that I thought was outstanding, addressing a long-term problem. And that was the speech about K-12 education, and he pointed out the degree to which the United States is falling back. . . . We know that economic growth in the long run is correlated to education achievement."

Could he recommend one book for Mr. Romney to read this summer? "This book that John Taylor"—the Stanford economist and Mr. Shultz's colleague at Hoover—"has just published, 'First Principles: Five Keys to Restoring America's Prosperity.' You don't have to spend weeks reading it."

Mr. Shultz also mentions the memo his economic transition team wrote for President-elect Ronald Reagan in 1980, recently excerpted in The Wall Street Journal ("Advice for a New President," May 26): "If you just took that and put that into effect again, then we'd be in business."

I try hard to pull Mr. Shultz back toward despair. Aren't we an older, more poorly educated society than the one that climbed out of similar debt after World War II?

"Well, we gotta get after these things! Somehow people are locking into the idea of chronological age. There's another way of calculating age. That is what is the probability of your dying within the year. If you use that way of calculating, people who are 75 today on that basis are 65 as of some earlier time. . . . We need to gear our retirement system in such a way that people keep working longer."

Continued in article

"An Economist Finds Herself in the Political Cross Hairs," by Tom Bartlett, Chronicle of Higher Education, June 18, 2012 ---

On Monday, President Obama made fun of Mitt Romney’s jobs plan, citing a commentary by an economist who estimated that his proposal to shift to a so-called territorial corporate-tax systemthat is, to exempt American corporations from taxes on their foreign income—would cause them to move their operations overseas, creating 800,000 jobs in other countries.

The commentary was by Kimberly A. Clausing, a professor of economics at Reed College, and published in Tax Notes. She doesn’t mention Mitt Romney by name, writing that “others” are pushing for such a system, but it’s clear who she’s talking about, and it’s obvious that she thinks it’s a bad idea.

“U.S. tax payments for the income from foreign operations of U.S. multinational corporations would not simply be deferred; they would be completely erased,” she writes. “That would eliminate constraints on shifting income abroad.”

Clausing counters the claim that moving to a territorial system would put the United States on the same footing as many of its trading partners. Their systems, she writes, have built-in safeguards that prevent companies from moving their operations elsewhere to avoid taxes. “[T]he hybrid systems used by our largest trading partners have more in common with the reforms suggested by the Obama administration,” Clausing writes.

Continued in article

Jensen Comment
This is a tough issue that Professor Clausing treats all too superficially.

Firstly, she does not acknowledge that U.S. corporations, large and small, are now paying little or no corporate income taxes because of loopholes already existing in the tax code. The corporate income tax collections as a percentage of GDP have been declining steadily since 1955 and now stand at less than 1% of GDP ---

Secondly, she does not consider the impact of either the Obama or Romney sides of the argument on the  reactive tax codes of other nations. Presently, other nations are enjoying the higher employment revenues, local bank liquidities, and  corporate tax revenues of U.S. corporation profits and property value taxes in their nations. If the U.S. acts in such a way to jeopardize their jobs, savings, and tax revenues these nations may provide even more incentives to operate internationally. This is not entirely a zero-sum game, but there are aspects of a zero-sum game involved in global taxation that Professor Clausing ignores entirely. The worst-case scenario is where the U.S. makes it so unprofitable to be an American Corporation that the corporations become Bermuda Corporations --- which is what many of "our" giant corporations like Accenture have already done ostensibly for tax reasons.

Thirdly, she does not consider the opposite side of the coin that perhaps millions of jobs are being lost because corporations are already keeping and investing their foreign profits in foreign countries. There's no incentive to bring those profits home because the U.S. corporate tax rates are the highest in the world, and the only incentive to bring the cash home is when lawyers and accountants find some loophole that will prevent foreign from being taxed if they are sent back to the U.S.

Fourthly, she does not consider more efficient and effective alternatives to corporate taxation in general. Personally, I favor the VAT tax, although I doubt that this is a tax that Romney would advocate.

The simple answer to the political position Romney is taking is to force him to demonstrate how he plans to make up for the revenue lost if the corporate income tax is dropped entirely.

I think Professor Clausing's essay is weak in terms of academic rigor. But we can certainly rely upon political debate over this issue to be even more superficial. Her essay will, however, be praised ad ad nauseam on MSNBC criticized ad ad nauseam on Fox News.


Her weak essay is at http://www.taxanalysts.com/www/website.nsf/Web/HomePage/$file/clausing.pdf

"The Hillary Myth Can anyone name an achievement to justify the adulation of our secretary of state?" by Bret Stephens, The Wall Street Journal, July 16, 2012 ---

Eric Schmidt of Google calls her "the most significant secretary of state since Dean Acheson." A profile in the New York Times runs under the headline "Hillary Clinton's Last Tour as a Rock-Star Diplomat." Another profile in the current issue of Foreign Policy magazine is titled, wishfully, "Head of State." The two articles are so similar in theme, tone, choice of anecdote and the absence of even token criticism that you're almost tempted to suspect one was cribbed from the other.

The Hillary boomlet isn't a mystery. She never lost her political constituency. In the cabinet she looks good next to Janet Napolitano and bright next to Joe Biden. She looks even better next to her boss. Democrats belong to the party of hope, and Barack Obama is hope's keenest disappointment.

So Mrs. Clinton is back, resisting appeals for her to run in 2016 the way Caesar rejects the thrice-offered crown. No doubt she would have made a better president than Mr. Obama. But is that saying much? No doubt she's been a hard-working and well-briefed secretary. But that isn't saying much, either.

What would make Mrs. Clinton a great secretary of state is if she had engineered a major diplomatic breakthrough, as Henry Kissinger did. But she hasn't. Or if she dominated the administration's foreign policy, the way Jim Baker did. But she doesn't. Or if she had marshaled a great alliance (Acheson), or authored a great doctrine (Adams) or a great plan (Marshall), or paved the way to a great victory (Shultz). But she falls palpably short on all those counts, too.

Maybe it's enough to say Mrs. Clinton is a good secretary of state. But she isn't that, either.

Mrs. Clinton is often praised for her loyalty to her boss, even when she loses the policy argument—as she did over maintaining a troop presence in Iraq.

Loyalty can be a virtue, but it is a secondary virtue when it conflicts with principle, and a vice when it's only a function of ambition. Cyrus Vance resigned as Jimmy Carter's secretary of state when the president, facing a primary challenge from Ted Kennedy, authorized a disastrous rescue operation in Iran. Would that make Vance a lesser public servant than Mrs. Clinton?

Mrs. Clinton is also given high marks for her pragmatism. But pragmatism can only be judged according to the result. Is the reset with Russia improving Moscow's behavior vis-à-vis Syria? Has a "pragmatic" approach to China moderated its behavior in the South China Sea? Is the administration's willingness to intervene on humanitarian grounds in Libya but not Syria a function of pragmatism or election-year opportunism?

What about the rest of the record? It would be nice to give Mrs. Clinton full marks for the Libya intervention, except she was an early skeptic of that intervention. It would be nice to give her marks for championing the Syrian opposition, except she has failed to persuade Russia, China or Mr. Obama to move even an inch against Bashar al-Assad. It would be nice to give her marks for helping midwife a positive transition in Egypt. But having fecklessly described Hosni Mubarak as a "friend of my family" in 2009, it's no wonder Egyptians take a dim view of the Obama administration.

Then there's Iran. In the administration's fairy tale/post-facto rationalization, the U.S. was getting nowhere internationally with Iran under George Bush. Then Mr. Obama cunningly offered to extend his hand to the mullahs, knowing that if they rejected it the U.S. would be in a better position to act internationally.

Nearly everything about that account is false. The Bush administration was able to win three U.N. Security Council votes sanctioning Iran, against only one for this administration. The "crippling" sanctions Mr. Obama now likes to brag about were signed against his wishes under political duress late last year. Since then, the administration has spent most of its time writing waivers for other countries. Even now, negotiations with Tehran continue: They serve the purposes of a president who wants to get past November without a crisis. They also serve the mullahs' purposes to gain time.

Now Iran is that much closer to a bomb and the possibility of a regional war is that much greater. The only real pressure the administration has exerted thus far has been on Israel, whose prime minister is the one foreign leader Mrs. Clinton has bawled out. She should try doing likewise with Vladimir Putin.

Continued in article


All the jobs are not going to Asia, They're going to Hal --- http://en.wikipedia.org/wiki/2001_Space_Oddessey
"When Machines Do Your Job: Researcher Andrew McAfee says advances in computing and artificial intelligence could create a more unequal society," by Antonio Regalado, MIT's Technology Review, July 11, 2012 ---
Thank you Ramest Fernando for the heads up.

Are American workers losing their jobs to machines?

That was the question posed by Race Against the Machine, an influential e-book published last October by MIT business school researchers Erik Brynjolfsson and Andrew McAfee. The pair looked at troubling U.S. employment numbers—which have declined since the recession of 2008-2009 even as economic output has risen—and concluded that computer technology was partly to blame.

Advances in hardware and software mean it's possible to automate more white-collar jobs, and to do so more quickly than in the past. Think of the airline staffers whose job checking in passengers has been taken by self-service kiosks. While more productivity is a positive, wealth is becoming more concentrated, and more middle-class workers are getting left behind.

What does it mean to have "technological unemployment" even amidst apparent digital plenty? Technology Review spoke to McAfee at the Center for Digital Business, part of the MIT Sloan School of Management, where as principal research scientist he studies new employment trends and definitions of the workplace.

TR: What's your definition of automation?

McAfee: The obvious definition is one fewer job than there used to be, with the same amount of output. A tax preparer can get automated away by software like TurboTax, and just not find work anymore. An assembly line worker could be flat-out automated away by a robot on the assembly line. There is a closely related phenomenon, which is the massive increases in productivity brought on by digital technology. An example is the legal discovery process. By one estimate we heard, one lawyer is now as productive as 500 used to be. You might not lay off 500 lawyers, but the next time you might hire a few people and some software to read documents.

Where do you see automation leading to the loss of jobs?

Others have done work showing that if you are a "routine cognitive worker" following instructions or doing a structured mental task, you have been under a lot of downward wage pressure for a while now. I think that is largely a technology story. Payroll clerks, travel agents—we don't have as many of them as we used to. We don't have as many people working in manufacturing, even though manufacturing is a growing industry.

What was the response you received to Race Against the Machine?

People accepted that technology was really accelerating and that there were going to be labor-force consequences. The broader discussion was between optimism and pessimism. Does it feel like we are heading into the kind of economy and society that we want, or the kind of economy and society that we don't? A lot of people who commented said, "Look, if these guys are anywhere near right, we are heading into an economy that is going to be dire for a lot of people."

What does the economy that we don't want look like?

The spread between the haves and the have-nots continues to grow, and more importantly, the absolute standard of living of the people at the middle and the bottom goes down. That is the economy that I don't want to head into.

What is the optimistic view?

Erik Brynjolfsson came up with a great phrase: "digital Athens." The Athenian citizens had lives of leisure; they got to participate in democracy and create art. That was largely because they had slaves to do the work. Okay, I don't want human slaves, but in a very, very automated and digitally productive economy you don't need to work as much, as hard, with as many people, to get the fruits of the economy. So the optimistic version is that we finally have more hours in our week freed up from toil and drudgery.

Do you see evidence for a digital Athens on the street, in the real economy?

No. What we are seeing—and this was pretty much unanticipated—is that the people at the top of the skill, wage, and income distribution are working more hours. We have this preference for doing more work. The people who have a lot of leisure—I think in too many cases it's involuntary. It's unemployment or underemployment. That is not my version of digital Athens.

Which is further advanced, the automation of intellectual work or of physical tasks?

The automation of knowledge work is way, way farther along. It's really hard to get computers to do things that your four-year-old can do, like walk across the room and pick up a pen, and recognize it as a pen. So the physical world presents a lot of challenges to digital technologies.

But it feels to me as if we are starting to turn a corner. The data available to help a robot is big data, and it's exploding. The sensors have been progressing along a Moore's Law trajectory. And the physical pieces of a robot, the actuators and so on, have gotten a lot better too. So it seems the ingredients are all in place for the robots to start getting into the economy.

How should businesses react to the trend toward more automation?

I think the companies that succeed going forward are the ones that figure out what mix of human and digital labor is going to be the right mix. And I think that that proper mix is going to involve more, and more types of, digital labor than we are using right now.

What is your advice to the individual, or to the parent educating a child?

To the parent, make sure your kid's education is geared toward things that machines appear not to be very good at. Computers are still lousy at programming computers. Computers are still bad at figuring out what questions need to be answered. I would encourage every kid these days to buckle down and do a double major, one in the liberal arts and one in the college of sciences.

Continued in article

Jensen Comment
It's interesting to read some of the many comments to this article.

Gross National Product (GNP) is the market value of all products and services produced in one year by labor and property supplied by the residents of a country.

GNP has to do with most everything in the political economy after being adjusted for inflation.

The problem is that protectionism and featherbedding often lead to lower GNP --- http://en.wikipedia.org/wiki/Featherbedding
But the issue is very complex in union negotiations and unemployment costs.
Featherbedding is commonly seen by economists as a solution to "who should bear the burden of technological change.

Economists often argue that featherbedding is the most economically optimal position from both an employer's and employee's perspective. Featherbedding only emerges under certain circumstances. Chief among these is that the employer has an exploitable surplus (e.g., profit) to support the practice. Featherbedding also arises where market forces fail and organizations are permitted to be noncompetitive. Under this analysis, corporations (for example) are already inefficient and featherbedding does not make them more or less so. Featherbedding can, in some circumstances, take excess resources (profits) away from the employer and give them to workers in the form of more income per worker or higher numbers of employees at the same income level. Featherbedding is considered economically efficient because it occurs in the give-and-take of collective bargaining. If employers were relatively strong vis-a-vis unions, unions would be unable to impose featherbedding on them. As the politico-socio-economic strength of each party changes over time, collective bargaining outcomes will as well, enlarging or reducing the number and impact of featherbedding rules on the employer.

More recent political analyses of featherbedding have concluded that featherbedding is not necessarily economically optimal, but is better than other forms of bargaining. Under this analysis, the best form of collective bargaining would be one in which the union and employer bargain not only over wages but the level of employment. Most unions in the United States, for example, bargain solely over wages. Bargaining over work rules (featherbedding) as well as wages achieves outcomes close to those reached by bargaining solely over wages, but is better than bargaining over wages alone

For example, requiring more labor than necessary when robots can do the job more efficiently and effectively is an example of modern-day featherbedding that raises prices and lowers demand. It may lead to dysfunctional protectionism if global competitors are using robotics.

Featherbedding coupled with interstate highways led to the demise of railroads when trucking became more cost competitive in dock-to-dock shipping. Eventually railroads got better deals from labor unions and invented piggyback rail cars for truck trailers. But by then, much of the damage had already been done in the face of the exploding trucking industry.

I wonder how close the textile industry is to making Olympic clothing with robots rather than garment workers? If robots can make the clothing, pressure to "Buy America" may eventually not really relieve garment worker unemployment. But I don't think we are yet at a point were robots entirely displace garment workers. I also suspect that we are not many years away when these robots will be making our sports coats, jeans, and swimming suits.

Bob Jensen's threads on education technology ---

Inequality in America, by Tim Noah ---

Inequality and the Occupy Movement:  The Decline of the Political Left
"Who is ‘the 99%’?" by Matthew Hollow, Institute of Hazard, Risk and Resilience Blog, July 14, 2012 ---

Jensen Comment
The article is focused more on economics. But I think the Anti-War and Anti-Police movements tumbled badly after 9/11 and the subway bombings in the United Kingdom. Fears of terrorism are heightened even more during the 2012 even more when we realize that all the military hardware floating in the Themes River is mostly for show. Sadly the best protection against terrorism at the Olympics resides more in Orwellian surveillance and other invasion of privacy of segments of the population most likely to incite terrorism and harbor terrorists. These same segments are also the most likely to prevent terrorism or catch terrorists after a terror event.

"The Facts About Budget Deficits: How The Presidents Truly Rank, Forbes, " by James K. Glassman, Forbes, July 11, 2012 ---

Please forgive me. Over and over, I hear misinformation about deficits in prior administrations, and I can’t keep quiet any longer. I have to correct the record.

The latest was on “Squawk Box” on Monday morning. Joe Kernan, the host, is interviewing former Vermont Gov. Howard Dean, ex-candidate for president and chairman of the Democratic National Committee. Kernen cites campaign comments about “bad policies” going back “decades” affecting the high rate of unemployment today.

He asks, “What specific policies in the Bush Administration do you think are still being used to explain 8 percent unemployment?”

Dean responds, “The biggest ones are the deficits that were run up…. The deficits were enormous

Let’s shed some factual light on the situation by turning to table B-79 of the current Economic Report of the President. There we find the official statistics on federal spending, receipts, and deficits (or surpluses) as proportions of Gross Domestic Product. These are the figures that economists use in determining the relationship of the deficit to the overall economy, answering the question, “How much more are we spending than taking in?”

We can average the deficit-to-GDP ratio during a presidential term and get a good take on whether “deficits were enormous” in historic terms or not. The only tricky part is whether to give a president credit (or blame) for his incoming and outgoing years. For example, President Reagan took office on Jan. 20, 1980, but fiscal year 1980 started four months earlier. Similarly, he left office Jan. 20, 1989, but fiscal 1989 still had four months to run.

I decided to use three sets of calculations for each president: first, the deficit-to-GDP ratio from the fiscal year he took office to the fiscal year he left minus one (thus, for Reagan: 1981-88); second, from his first fiscal year plus one to the fiscal year he left (thus, 1982-89); and third, an average of the first two

Here are the ratios of deficit to GDP for the past five presidents:

Ronald Reagan
1981-88 4.2 %
1982-89 4.2
Average 4.2

George H. W. Bush
1989-92 4.0
1990-93 4.3
Average 4.2

Bill Clinton
1993-2000 0.8
1994-2001 0.1
Average 0.5

George W. Bush
2001-08 2.0
2002-09 3.4
Average 2.7

Barack Obama
2009-12 9.1
2010-12 8.7
Average 8.9
*fiscal 2012 ends Sept. 30, 2012, so this figure is estimated

Source: Economic Report of the President, February 2012

The results for President Bush are skewed by the 10.1 percent deficit/GDP ratio in fiscal 2009. A large chunk of spending in that year went to the Troubled Asset Relief Program, or TARP. In fiscal 2009, TARP contributed $151 billion to the budget deficit, but in 2010 and 2011, $147 billion of that amount was recouped and thus reduced the size of the deficit during President Obama’s watch. (These calculations are complicated and are laid out by the Office of Management and Budget. See http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/spec.pdf, p. 49.)

As for spending itself, during the George W. Bush years (2001-08), federal outlays averaged 19.6 percent of GDP, a little less than during the Clinton years (1993-2000), at 19.8% and far below Reagan, whose outlays never dropped below 21 percent of GDP in any year and averaged 22.4%. Even factoring in the TARP year (2009), Bush’s average outlays as a proportion of the economy was 20.3 percent – far below Reagan and only a half-point below Clinton. As for Obama, even excluding 2009, his spending has averaged 24.1 percent of GDP – the highest level for any three years since World War II.

Americans can judge for themselves whether deficits are “enormous”– but only if they have the facts. In this case, there is no denying the order in which the last five presidents rank on the basis of deficits: Clinton, Bush 43, Bush 41 and Reagan in a virtual tie, and Obama.


Jensen Comment
In fairness, Bill Clinton inherited lagged prosperity from tax cuts in the Reagan and Bush Sr, years.

Also in fairness, President Obama inherited both an enormous economic recession and spending bailout commenced by spendthrift George W, Bush along with a war in Iraq that President Obama opposed from get go.

He also inherited the enormous unfunded Social Security Prescription Drug Plan for seniors that is now hemorrhaging ---

At the same time he greatly expanded the costly war in Afghanistan and the deceptively costly Affordable Health Care Act which will add greatly to deficits this year and in the future.

What's New from GASB
"Combinations: Coming Soon to a Government Near You?"
2012, No. 2

Governmental:  As public sector consolidations increase, the Governmental Accounting Standards Board recently proposed that state and local governments report the nature - as well as the financial effects - of combinations. Warren Ruppel, a partner in the firm of Marks Paneth & Shron LLP, contrasts GASB's proposal with comparable guidance for commercial M&A and distinguishes the criteria for mergers, acquisitions, and transfers of operations.

Other Governmental Accounting News

"Pension Accounting for Dummies New government reporting rules are no better than the old ones," The Wall Street Journal, July 9, 2012 ---

The Government Accounting Standards Board has issued new rules that aim to crystallize government pension liabilities. It failed on that count, but it did succeed, albeit inadvertently, in making the case for defined-contribution plans.

GASB, as it's known in the trade, sets accounting guidelines for local governments. Since the board is run mainly by former public officials, its standards are often low. The board also usually takes several years to finalize rules, so it's often behind the times. Their new rules concerning how governments discount their pension liabilities are a case in point.

Financial economists have recommended for decades that governments calculate pension liabilities using so-called "risk-free" rates pegged to high-grade municipal bonds or long-term Treasurys. The argument goes that since pensioners are de facto secured creditors—even bankruptcy judges have been reluctant to slash retirement benefits—pensions are riskless and therefore the liabilities should be discounted at risk-free rates.

GASB's private cousin, the Financial Accounting Standards Board (FASB), began requiring corporations to discount their pension liabilities with high-quality fixed income assets in the 1980s. However, GASB let governments stick with their desired, er, expected rate of return, which is typically about 8%. Public pension funds have returned 5.7% on average since 2000. Achieving much higher returns over the long run would require markets to perform as well as they did in the 1980s and '90s. Would that be true.

Governments have resisted climbing down from Fantasyland because using lower discount rates would explode their liabilities. When the Financial Accounting Standards Board introduced its risk-free rate guidelines, many companies shifted workers to 401(k)s because they didn't want to report larger liabilities. Such defined-contribution plans are by definition 100% pre-funded.

Prodded by economists and investors, GASB began considering modifying its discount rate rules a few years ago. Public pension funds, lawmakers and unions, however, pushed back hard against suggestions that governments use risk-free rates, which could more than double their liabilities. No surprise, the government troika won.

GASB's new rules allow governments to continue discounting their liabilities at their anticipated rate of return so long as they project enough future assets to cover their obligations. At the time they forecast they'll run out of assets, they must begin discounting their liabilities with a high-grade municipal bond rate. The idea is that governments would have to issue bonds to pay retirees when their pension funds go broke.

But few pension funds project that they'll run dry since they're hooked up to a taxpayer IV. Those in really bad shape like Chicago's will likely rig their investment and actuarial assumptions to circumvent the new rules. FASB rejected similar guidelines in the 1980s because they were too easy to dodge. The point here is that it's impossible to get governments to come clean about their pension debt, and not just because the union allies controlling pension funds have a vested interest in obfuscating the liabilities.

In reality, nobody knows how much taxpayers will owe because so much depends on inscrutable actuarial and economic factors like interest rates 30 years from now (not even the Federal Reserve purports to be that omniscient). Slight discrepancies in assumptions can yield huge variations in estimated liabilities. One advantage of defined-contribution plans is that they don't require governments to calculate their liabilities. There are none.

Bob Jensen's threads on pension accounting ---

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

When a city owes millions more in pension payments than its entire revenue stream something has to give
“I don’t believe that this is the beginning of a tidal wave of insolvency across the country,” said Richard P. Larkin, director of credit analysis at the underwriting firm H. J. Sims. “I am worried, however, that this phenomenon may grow in California.”

"Bankruptcy in California Isn’t Seen as a Trend (but maybe in California)," by Mary Williams Walsh, The New York Times, July 12, 2012 ---

As San Bernardino, Calif., moved toward bankruptcy this week, municipal bond analysts were questioning how widespread the fiscal distress may prove to be, but were not predicting a wave of defaults.

San Bernardino’s vote to authorize a bankruptcy filing came after filings this summer by the California cities of Stockton and Mammoth Lakes. Those cities were following Vallejo, which emerged from bankruptcy in 2011, after a three-year struggle to reduce its debts to investors, retirees and others.

“I don’t believe that this is the beginning of a tidal wave of insolvency across the country,” said Richard P. Larkin, director of credit analysis at the underwriting firm H. J. Sims. “I am worried, however, that this phenomenon may grow in California.”

Over all, investors in municipal debt showed little sign of concern about the woes of either California or any other states. On Thursday the interest rate on the highest-quality 30-year municipal bonds fell below 3 percent for the first time ever, according to Daniel Berger, a senior market strategist at Municipal Market Data.

The nation’s municipal bond market is “still viewed very much as a safe haven for investors scared about the events unfolding in Europe,” he said.

He said yields on California’s 30-year bonds, now at 4.58 percent, had also fallen this year, although they did not enjoy the highest ratings.

Heavy burdens of bond debt are not always the main cause of municipal bankruptcy — the rising cost of pensions and health care can also be major factors. But whether or not bonds are the trigger, they can be treated very differently under federal bankruptcy law than under the state laws that normally govern their issuance. General obligation bonds, for instance, are normally a city’s best credit, but they can become unsecured credit in municipal bankruptcy.

The question of whether municipal bonds pose hidden risk flared up two years ago, when a noted securities analyst, Meredith Whitney, appeared on the television show “60 Minutes” and predicted hundreds of municipal defaults within the next year. Although her prediction did not come true, it caused a major sell-off of municipal bonds that continued for months. Lately, investors have been returning to the market, and this week traders said they saw only scattered signs that small investors were dumping San Bernardino’s debt after its announcement.

Still, if more municipal bankruptcies are in store, chances are that at least some of them will be in California. Chapter 9 municipal bankruptcies are extremely rare, and large ones are almost nonexistent. Of the 641 cases that have been filed since 1937, most have involved relatively small municipal utilities, special-purpose districts and public hospital systems — not big, complicated cities or counties with lots of people and debts.

Within that rarefied group, most have been cities and counties in California.

“Municipalities operate with a lot of autonomy in home-rule states such as California, and that autonomy leads to the freedom to get into trouble,” analysts for Trident Municipal Research said in a report issued Wednesday.

The firm cited the kind of fiscal mismanagement that brought Stockton and San Bernardino to the brink, among other factors. But California’s biggest risk may be the lasting effect of Proposition 13, the 1978 ballot initiative that drastically lowered property taxes and has made them difficult to increase since then. There is no equivalent check on the cost of operating a municipal government, so many California cities and counties are increasingly caught in a painful squeeze between their limited revenue and their rising fixed costs — especially labor costs.

Many operate pension plans that relied on steady investment gains that have evaporated in recent years and now have no way to replace the lost money.

Trident’s analysts suggested that San Jose might be one of the next California cities to seek refuge in bankruptcy court; its mayor has been outspoken about the need to reduce pension costs.

California lawmakers, sensing trouble ahead, passed a law this year making it harder for cities to declare bankruptcy. In doing so, however, they may have given the most distressed cities a road map to Chapter 9, by requiring cities considering bankruptcy to first go through a 60-day mediation session with their creditors.

San Bernardino was so intent on seeking shelter in bankruptcy that it said it wanted to avoid the mediation requirement. The new law has an exemption for cities that have declared fiscal emergencies, which San Bernardino has done several times.

The state also increased the fiscal pressure on cities earlier this year when it closed some 400 special redevelopment authorities and seized billions of dollars in property tax money that their host cities had previously controlled.

“San Bernardino estimates that this year they expect to lose $6 million” as a result, said Mr. Larkin, of H. J. Sims.

Continued in article

"CALIFORNIA BUDGET WOES AND CHIMERICAL PENSION BELIEFS: GASB COULD HELP IF IT HAD THE WILL," by Anthony H. Catanach Jr. and J. Edward Ketz, Grumpy Old Accountants Blog, July 2, 2012 ---

U.S. National Debt Clock --- http://www.usdebtclock.org/
Also see http://www.brillig.com/debt_clock/

Accounting Hall of Fame Citation for David Walker ---

"Walker Warns of Ballooning Government Debt," by Michael Cohn, Accounting Today, May 16, 2012 ---

Bob Jensen's threads on pension accounting ---

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

"Why is Job Growth Tepid?," by Richard Posner, The Becker-Posner Blog, July 9, 2012 ---

The unemployment rate has been 8.2 percent for three months now, creating concern that we are in a high-unemployment equilibrium. The unemployment rate is not a very good measure of the employment situation, because it excludes discouraged workers—persons who are not looking for a job. The number of discouraged workers actually dropped slightly in June. On the other hand, the number of underemployed workers rose slightly, causing the total of un- and underemployed to rise from 14.8 to 14.9 percent. Yet there has been a net increase, though a small one, in the number of new hires and in average wages. The safest observation is that no significant trend is visible in the data for the past quarter.

In another six weeks it will be four years since the financial crash that set off the steep economic downturn in which the nation and the world still find themselves. The downturn stopped years ago but the economy has stalled. Apart from the high unemployment rate, it is noteworthy that personal consumption expenditures per capita, corrected for inflation, are exactly where they were in 2007, before the crash, even though the savings rate, which soared in the immediate aftermath of the financial collapse, has receded to the low pre-collapse level, in part because of very low interest rates, which make saving money unattractive. It is noteworthy as well that inflation expectations are very low, implying that demand for products and services is not expected to increase significantly; an alternative possibility, however, is that producers have excess capacity because current demand is weak, in which event, given the current unemployment, producers may be able to hire workers to meet a surge in demand without incurring higher unit costs of production and therefore without raising prices.

Consumption drives the U.S. economy. If consumption is stagnant, there is no incentive to expand production. In the wake of the financial collapse of September 2008, companies slashed their work forces—and when personal consumption expenditures returned to their pre-crash level discovered that they could satisfy consumption demand with a smaller workforce, and still can, and if they do not anticipate higher consumption in the near term they have no incentive to expand their workforces. This seems to me the most economical (in the Occam’s Razor sense) explanation for the current high unemployment rate.

One can imagine an increase in consumer demand abroad stimulating export production and therefore employment in export industries, but foreign consumer demand is on the whole stagnant also, and our export producers face fierce competition from countries that are trying to increase their own exports. And U.S. federal and state government spending, while it plays an important role in maintaining private incomes and thus personal consumption expenditures, is not doing much more for the economy; government purchases of goods and services are down, and government at all levels is laying off workers and thus contributing to unemployment.

I am intrigued by the possibility that the economy actually stopped growing in about 2000 as a result of foreign competition, increased automation (which perturbed labor markets), decline in quality of education, economic mismanagement by federal, state, and local government (irresponsible spending and fraudulent accounting seem endemic characteristics of our state and local governments), inattention to serious economic problems such as our very badly designed tax code, and misallocation of resources, with excessive resources going into housing construction. An appearance of growing prosperity was maintained by public and private borrowing at very favorable rates made possible by the mercantilist policies of foreign countries like China, Japan, and Germany. House prices soared because housing is the product preeminently bought with debt, and the savings rate plummeted because home equity value was rising, while consumption soared as people took out second mortgages or home equity loans on their appreciating homes and spent the proceeds on personal consumption.

Still, the economy has righted itself to the extent that it is no smaller than it was before the crash; the contrast in this regard between 1929-1933 and 2008-2012 is reassuring. But how is it then that less labor is being employed? One possibility is that the shock of the crash accelerated a trend toward more efficient use of labor, as a result of greater automation (with low interest rates reducing the relative cost of capital expenditures and thus encouraging the substitution of capital for labor) and improved techniques of selecting and supervising employees. In the long run, more efficient production through more efficient utilization of labor should, by reducing costs and therefore prices, stimulate demand and therefore supply. But three months is not the long run; and thus far a rapid growth in productivity is not visible in the statistics.

Continued in article

"The Worst Recovery Since World War II-Becker," by Gary Becker, The Becker-Posner Blog, July 9, 2012 ---

The latest jobs report on Friday confirmed that this is by far the slowest US recovery from a recession in employment as well as income since the end of World War II. Four years after the start of the recession in 2008, American unemployment is still above 8% compared to lower than 5% in 2007. The severity of the financial crisis implies that this would be a steep recession, but a continuation of the recession for 4 years suggests that other factors have also been in play.

Before addressing these factors, it is important to recognize the seriousness of the unemployment figures, aside from the high rate. The great majority of workers can pretty well handle, both psychologically and financially, short spells of unemployment because they can consume out of past savings, they can borrow on credit cards and from relatives, and they can spend their unemployment compensation. Far more difficult to adjust to is long-term unemployment since financial resources get exhausted, skills depreciate, and there is a heavy psychological burden of not working, and not knowing when, if ever, good jobs will become available. Unfortunately, this American recession has high levels of persistent long-term unemployment: about 29% of all the currently unemployed have been out of work for over a year, and 40% have been without work for 6 months or longer. These depressing figures do not even count the large numbers of unemployed who gave up looking for work and left the labor force, or the many workers who are working part time at jobs with much lower hourly wages than they had before the recession.

The newspaper headlines after the jobs report were that only 80,000 jobs were added in June. That is correct, but this number gives a highly misleading picture of the number of new hires. The Job Openings and Labor Turnover Survey (JOLTS) data give monthly aggregate new hires, job separations, and job openings –the latest data are for April 2012. They show aggregate new hires by the American economy in recent months of not 100,000 or so, but over 4 million workers. These numbers are matched by a similar number of job separations that result when workers are fired, laid off, or quit- surprisingly in this weak economy, more than half the total separations are due to workers quitting their jobs. The net difference between hires and separations during the past few months has been only a little more or a little less than 100,000 workers.

Equally important as the hires and separations are the more than 3 million job openings each month, with most of them remaining unfilled. An important puzzle that I do not believe has been resolved is why so many available jobs have not been filled as this recession continues with its high levels of unemployment.

The JOLTS data bring us back again to the question of why the recovery of the American economy has been so slow, with no signs of gathering strength. Contributing to the slow recovery, aside from the severity of the financial crisis, is the crisis in the euro zone brought on by the weak competitive positions of countries like Greece and Italy, and excessive government borrowings by several countries from banks in other countries. The sizable slowdown in the growth rates of China, India, and Brazil has added to the problems of the world economy because these developing countries helped to sustain the growth in world GDP during the first couple of years of the recession.

I believe two other factors are also important (see my blog post “Why has the Recovery in Employment in the US been so Slow?” 5/6/12). One, stressed by Casey Mulligan, is the growth of many means-tested policies during this recession that encourage some workers to leave the labor force or look for part time work so that they can qualify for mortgage and other government-provided benefits. Of course, the government aid eased the burden of unemployment to the families that qualified for the benefits.

Continued in article

Bob Jensen's threads on the recovery and bailout ---

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

"How Barclays Rigged the Machine," by Rana Foroohar, Time Magazine, July 23, 2012 ---

Ever wonder why surveys about very personal topics (think sex and money) are done anonymously? Of course you don't, because it's obvious that people wouldn't tell the truth if they were identified on the record. That's a key point in understanding the latest scandal to hit the banking industry, which comes, as ever, with much hand-wringing, assorted apologies and a crazy-sounding acronym--this time, LIBOR. That's short for the London interbank offered rate, the interest rate that banks charge one another to borrow money. On June 27, Britain's Barclays bank admitted that it had deliberately understated that rate for years.

LIBOR is a measure of banks' trust in their solvency. And around the time of the financial crisis of 2008, Barclays' rate was rising. If a bank revealed publicly that it could borrow only at elevated rates, it would essentially be admitting that it--and perhaps the financial system as a whole--was vulnerable. So Barclays gamed the system to make the financial picture prettier than it was. The charade was possible because LIBOR is calculated not on the basis of documented lending transactions but on the banks' own estimates, which can be whatever bankers decree. This Kafkaesque system is overseen for bizarre historical reasons by an association of British bankers rather than any government body.

The LIBOR scandal has already claimed Barclays' brash American CEO, Bob Diamond, a man infamous for taking huge bonuses while his company's share price and profit were declining. Diamond resigned, but his head may not be the only one to roll. As many as 20 of the world's largest banks are being sued or investigated for manipulating over the course of many years the interest rate to which $350 trillion worth of derivatives contracts are pegged. Bank of England and former British-government officials accused of colluding with Barclays to stem a financial panic may also be caught up in the mess.

What's surprising is that individual consumers may actually have benefited, at least financially, from the collusion. Not only the central reference point for derivatives markets, LIBOR is also the rate to which all sorts of loans--variable mortgage rates, student loans, even car payments--may be pegged. To the extent that banks kept LIBOR artificially low, all those other loan rates were marked down too. Unlike the JPMorgan trading fiasco of a few weeks ago, which has resulted in a multibillion-dollar loss, the only apparent red ink so far in the LIBOR scandal is the $450 million in fines that Barclays will pay to the U.K. and U.S. governments for rigging rates (though pension funds and insurance companies on the short end of LIBOR-pegged financial transactions may have lost a lot of money).

Either way, the truth is that LIBOR is a much, much bigger deal than what happened at JPMorgan. Rather than one screwed-up trade that was--whether you like it or not (and I don't)--most likely legal, it represents a financial system that is still, four years after the crisis began, opaque, insular and dangerously underregulated. "This is a very, very significant event," says Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission (CFTC), which is one of the regulators investigating the scandal. "LIBOR is the mother of all financial indices, and it's at the heart of the consumer-lending markets. There have been winners and losers on both sides [of the LIBOR deals], but collectively we all lose if the market isn't perceived to be honest."

Continued in article

View from the Left
"Barclays and the Limits of Financial Reform," by Alexander Cockburn, The Nation, July 30, 2012 ---

"Execs to Cash In Despite Market Woes: Even companies whose investors received a negative return this year expect to fund at least 100% of formula-based annual bonus plans," David McCann, CFO.com, December 9, 2011 ---

Are companies in denial when it comes to executives' annual bonuses for 2011? Judge for yourself.

Among 265 companies that participated in a newly released Towers Watson survey, 42% said their shareholders' total returns were lower this year than in 2010. No surprise there, given the stock markets' flat performance in 2011.

Yet among those that reported declining shareholder value, a majority (54%) said they expected their bonus plan to be at least 100% funded, based on the plan's funding formula. That wasn't much behind the 58% of all companies that expected full or greater funding (see chart).

"It boggles the mind. How do you articulate that to your investors?" asks Eric Larre, consulting director and senior executive pay consultant at Towers Watson. Noting that stocks performed excellently in 2010 while corporate earnings stagnated — the opposite of what has happened this year — he adds, "How are you going to say to them, 'We made more money than we did last year, but you didn't'?"

In particular, companies would have to convincingly explain that annual bonus plans are intended to motivate executives to achieve targets for short-term, internal financial metrics such as EBITDA, operating margin, or earnings per share, and that long-term incentive programs — which generally rest on stock-option or restricted-stock awards, giving executives, like investors, an ownership stake in the company — are more germane to investors.

But such arguments may hold little sway with the average investor, who "doesn't bifurcate compensation that discretely," says Larre. Rather, investors simply look at the pay packages as displayed in the proxy statement to see how much top executives were paid overall, and at how the stock performed.

Larre attributes much of the current, seeming generosity to executives to complacence within corporate boards. This year, the first in which public companies were required to give shareholders an advisory ("say on pay") vote on executive-compensation plans, 89% received a thumbs-up. But that came on the heels of 2010, when the S&P 500 gained some 13% and investors were relatively content with their returns. "They may not be as content now," Larre observes. "I think the number of 'no' say-on-pay votes will be larger during the 2012 proxy season."

Continued in article

Compounding the Felony
"Libor problems haven't been fixed, regulators say," by Ben Protess and Mark Scott, The New York Times, July 17, 2012 ---

Federal authorities cast further doubt on Tuesday about the integrity of a key interest rate that is the subject of a growing investigation into wrongdoing at big banks around the globe.

In Congressional testimony, the chairman of the Federal Reserve and the head of the Commodity Futures Trading Commission expressed concern that banks had manipulated interest rates for their own gain. They also indicated that flaws in the system — which were highlighted in a recent enforcement case against Barclays — persist.

“If these key benchmarks are not based on honest submissions, we all lose,” Gary Gensler, head of the trading commission, which led the investigation into Barclays, said in testimony before the Senate Agriculture Committee.

In separate testimony before the Senate Banking Committee, Ben S. Bernanke, the Federal Reserve chairman, said he lacked “full confidence” in the accuracy of the rate-setting process.

The Fed faces questions itself over whether it should have reined in the rate-manipulation scheme, which took place from at least 2005 to 2010.

Documents released last week show that the New York Fed was well aware of potential problems at Barclays in 2008. At a hearing in London on Tuesday, British authorities said the New York Fed never told them Barclays was breaking the law.

Continued in article

Bob Jensen's threads on corporate governance are at

Timeline of Financial Scandals, Auditing Failures, and the Evolution of International Accounting Standards ---- http://www.trinity.edu/rjensen/FraudCongress.htm#DerivativesFrauds 

"Obama's spectacular failure," by Caroline B. Glick," Jewish World Review, July 13, 2012 ---

Rather than contend with the bitter consequences of his policy, Obama and his surrogates have opted to simply deny the dangerous reality he has engendered through his actions. Even worse they have come up with explanations for maintaining this policy despite its flagrant failure

JewishWorldReview.com |
Two weeks ago, in an unofficial inauguration ceremony at Tahrir Square in Cairo, Egypt's new Muslim Brotherhood President Mohammed Morsi took off his mask of moderation. Before a crowd of scores of thousands, Morsi pledge to work for the release from US federal prison of Sheikh Omar al Rahman.

According to the New York Times' account of his speech, Morsi said, "I see signs [being held by members of the crowd] for Omar Abdel Rahman and detainees' pictures. It is my duty and I will make all efforts to have them free, including Omar Abdel Rahman."

Otherwise known as the blind sheikh, Rahman was the mastermind of the jihadist cell in New Jersey that perpetrated the 1993 World Trade Center bombing. His cell also murdered Rabbi Meir Kahane in New York in 1990. They plotted the assassination of then president Hosni Mubarak. They intended to bomb New York landmarks including the Lincoln and Holland tunnels and the UN headquarters.

Rahman was the leader of Gama'at al-Islamia — the Islamic Group, responsible, among other things for the assassination of Anwar Sadat in 1981. A renowned Sunni Muslim religious authority, Rahman wrote the fatwa, or Islamic ruling permitting Sadat's murder in retribution for his signing the peace treaty with Israel. The Islamic Group is listed by the State Department as a specially designated terrorist organization.

After his conviction in connection with the 1993 World Trade Center bombing, Rahman issued another fatwa calling for jihad against the US. After the Sept. 11, 2001 attacks, Osama bin Laden cited Rahman's fatwa as the religious justification for the attacks.

By calling for Rahman's release, Morsi has aligned himself and his government with the US's worst enemies. By calling for Rahman's release during his unofficial inauguration ceremony, Morsi signaled that he cares more about winning the acclaim of the most violent, America-hating jihadists in the world than with cultivating good relations with America.

And in response to Morsi's supreme act of unfriendliness, US President Barack Obama invited Morsi to visit him at the White House. 

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Morsi is not the only Rahman supporter to enjoy the warm hospitality of the White House. His personal terror organization has also been the recipient of administration largesse. Despite the fact that US federal law makes it a felony to assist members of specially designated terrorist organizations, last month the State Department invited group member Hani Nour Eldin, a newly elected member of the Islamist-dominated Egyptian parliament to visit the US and meet with senior US officials at the White House and the State Department, as part of a delegation of Egyptian parliamentarians.

State Department spokeswoman Victoria Nuland refused to provide any explanation for the administration's decision to break federal law in order to host Eldin in Washington. Nuland simply claimed, "We have an interest in engaging a broad cross-section of Egyptians who are seeking to peacefully shape Egypt's future. The goal of this delegation� was to have consultations both with think tanks but also with government folks, with a broad spectrum representing all the colors of Egyptian politics."

Morsi is not the only Arab leader who embraces terrorists only to be embraced by the US government. In a seemingly unrelated matter, this week it was reported that in an attempt to satisfy the Obama administration's urgent desire to renew negotiations between the Palestinians and Israel, and satisfy the Palestinians' insatiable desire to celebrate terrorists, Prime Minister Binyamin Netanyahu offered to release 124 Palestinian terrorist murderers from Israeli prisons in exchange for a meeting with Palestinian Authority Chairman and Fatah chief Mahmoud Abbas.

Alas, Abbas refused. He didn't think Netanyahu's offer was generous enough.

And how did the Obama administration respond to Abbas's demand for the mass release of terrorists and his continued refusal to resume negotiations with Israel?

By attacking Israel.

The proximate cause of the Obama administration's most recent assault on Israel is the publication of the legal opinion of a panel of expert Israeli jurists regarding the legality of Israeli communities beyond the 1949 armistice lines. Netanyahu commissioned the panel, led by retired Supreme Court justice Edmond Levy to investigate the international legal status of these towns and villages and to provide the government with guidance relating to future construction of Israeli communities beyond the armistice lines.

The committee's findings, published this week concluded that under international law, these communities are completely legal.

There is nothing remotely revolutionary about this finding. This has been Israel's position since 1967, and arguably since 1922.

The international legal basis for the establishment of the Jewish state in 1948 was the 1922 League of Nations Mandate for Palestine. That document gave the Jewish people the legal right to sovereignty over Judea, Samaria, Jerusalem, as well as all the land Israel took control over during the 1948-49 War of Independence.

Not only did the Mandate give the Jewish people the legal right to the areas, it enjoined the British Mandatory authorities to "facilitate�close settlement by Jews on the land, including State lands and waste lands not required for public purposes."

So not only was Jewish settlement not prohibited. It was required.

Although this has been Israel's position all along, Netanyahu apparently felt the need to have its legitimacy renewed in light of the all-out assault against Israel's legal rights led by the Palestinians, and joined enthusiastically by the Obama administration.

In a previous attempt to appease Obama's rapacious appetite for Israeli concessions, Netanyahu temporarily abrogated Israel's legal rights by banning Jews from exercising their property rights in Judea and Samaria for ten months in 2010. All the legal opinion published this week does is restate what Israel's position has always been.

Whereas the Obama administration opted to embrace Morsi even as he embraces the Omar Rahman, the Obama administration vociferously condemned Israel for having the nerve to ask a panel of senior jurists to opine about its rights. In a press briefing, State Department spokesman Patrick Ventrell banged the rhetorical hammer.

As he put it, "The US position on settlements is clear. Obviously, we've seen the reports that an Israeli government appointed panel has recommended legalizing dozens of Israeli settlements in the West Bank, but we do not accept the legitimacy of continued Israeli settlement activity, and we oppose any effort to legalize settlement outposts."

In short then, for the Obama administration, it is all well and fine for the newly elected president of what was until two years ago the US's most important Arab ally to embrace a terror mastermind indirectly responsible for the murder of nearly three thousand Americans. It is okay to invite members of jihadist terror groups to come to Washington and meet with senior US officials in a US taxpayer funded trip. It is even okay for the head of a would-be-state that the US is trying to create to embrace every single Palestinian terrorist, including those that have murdered Americans. But for Israel's elected government to ask an expert panel to determine whether Israel is acting in accordance with international law in permitting Jews to live on land the Palestinians insist must be Jew-free is an affront.

The disparity between the administration's treatment of the Morsi government on the one hand and the Netanyahu government on the other places the nature of its Middle East policy in stark relief.

Obama came into office with a theory on which he based his Middle East policy. His theory was that jihadists hate America because the US supports Israel. By placing what Obama referred to as "daylight" between the US and Israel, he believed he would convince the jihadists to put aside their hatred of America.

Obama has implemented this policy for 3 and a half years. And its record of spectacular failure is unbroken.

Obama's failure is exposed in all its dangerous consequence by a simple fact. Since he entered office, the Americans have dispensed with far fewer jihadists than they have empowered.

Since January 2009, the Muslim world has become vastly more radicalized. No Islamist government in power in 2009 has been overthrown. But several key states — first and foremost Egypt — that were led by pro-Western, US-allied governments when Obama entered office are now ruled by Islamists.

It is true that the election results in Egypt, Tunisia, Morocco and elsewhere are not Obama's fault. But they still expose the wrongness of his policy. Obama's policy of putting daylight between the US and Israel, and supporting the Muslim Brotherhood against US allies like Mubarak involves being bad to America's friends and good to America's enemies. This policy cannot help but strengthen your enemies against yourself and your friends.

Rather than contend with the bitter consequences of his policy, Obama and his surrogates have opted to simply deny the dangerous reality he has engendered through his actions. Even worse they have come up with explanations for maintaining this policy despite its flagrant failure.

Nowhere was this effort more obvious than in a made-to-order New York Times analysis this week titled, "As Islamists gain influence, Washington reassesses who its friends are."

The analysis embraces the notion that it is possible and reasonable to appease the likes of Morsi and his America-hating jihadist supporters and coalition partners. It quotes Michele Dunne from the Atlantic Council who claimed that on the one hand, if the Muslim Brotherhood and its radical comrades are allowed to take over Egypt, their entry into mainstream politics should reduce the terrorism threat. On the other hand, she warned, "If Islamist groups like the Brotherhood lose faith in democracy, that's when there could be dire consequences."

In other words, the analysis argues that the US should respond to the ascent of its enemies by pretending its enemies are its friends.

Aside from its jaw-dropping irresponsibility, this bit of intellectual sophistry requires a complete denial of reality. The Taliban were in power in Afghanistan in 2001. Their political power didn't stop them from cooperating with al Qaida. Hamas has been in charge of Gaza since 2007. That hasn't stopped them from carrying out terrorism against Israel. The mullahs have been in charge of Iran from 33 years. That hasn't stopped them from serving as the largest terrorism sponsors in the world. Hezbollah has been involved in mainstream politics in Lebanon since 2000 and it has remained one of the most active terrorist organizations in the world.

Continued in article

"Chávez's War on the Media Venezuela is holding a presidential election, but the president has squelched free speech," The Wall Street Journal, July 15, 2012 ---

Suppose the country you live in is holding a presidential election and the incumbent is running for another term. Suppose further that the economy is in bad shape. The ranks of the unemployed and poor have swelled, the government is spendthrift, and the central bank is no longer independent.

The president takes no responsibility. He blames everything on the rich. He says they are exploiting the working classes and don't pay their fair share in taxes. Fomenting class envy and resentment is his stock in trade. Now suppose there are is no independent media.

Welcome to Venezuela. Think the country can hold a fair presidential election?

South America's oil dictatorship kicked off the campaign season on July 1. Hugo Chávez, who has been the commander in chief of the military government since 1999, hopes to keep his job when Venezuelans go to the polls on Oct. 7. Henrique Capriles Radonski, the former governor of the state of Miranda, is out to unseat him.

Outside observers, including the international media, are treating the race like a real battle of ideas. But how can that be when there is no free speech?

Let's put aside for a moment all the obvious problems. Forget about the lack of an independent electoral body to ensure fairness in voter registration, at polling stations, and when tallying ballots. Forget about how Mr. Chávez makes up rules as he goes along and then gets the judiciary that he controls to bless them. Forget too that the state-owned oil monopoly (known by the Spanish-language initials PdVSA) is his campaign war chest, and the central bank prints money on demand. For now, consider only the military dictatorship's capacity to control the message.

Mr. Chávez and his cronies in the Venezuelan elite know better than anyone that he is running a Ponzi scheme. The key to maintaining some support is keeping his impoverished constituents from seeing the light, and that means controlling the narrative. Or as President Obama might say, the ability to "tell a story."

Venezuelans don't read much but they do watch a lot of television, so independent broadcasting had to go. It wasn't hard to get rid of it. Television stations require government licensing. In the Chávez economy, many television ventures also depend on government advertising to remain viable. So it was made clear to the uncooperative that their permits would not be renewed or that their bread and butter would be cut off.

At one time there were three independent, national broadcast-television stations and many regional broadcasters willing to criticize the government. Today, all largely have been silenced or expelled from the market. Meanwhile, there are now at least four state-owned national broadcasters dedicated to polishing the image of Mr. Chávez and his Bolivarian revolution.

One dissident broadcaster—Globovision—remains. But it reaches only the cities of Valencia and Caracas, and its permit expires in 2015. In 2010, its owner, Guillermo Zuloago (who also owned two car dealerships), had to go into hiding when Mr. Chávez put out an order for his arrest on charges of hoarding Toyotas. (Chávez price and capital controls have produced shortages of many things, so a car dealer holding inventory for delivery to customers can easily be accused of unlawful hoarding.) Mr. Zuloago now resides in the United States.

The government also imprisoned for a time Globovision's second-largest shareholder and later stripped him of his property. Recently the company paid a fine of nine million bolivars ($2 million using the official exchange rate) for broadcasting news of a prison riot.

Scores of independent radio stations also have closed under chavismo. Only a few willing to run some criticism of the president have survived. It matters too that PdVSA is also the largest contractor to the private sector, which means the business community has had to knuckle under to survive.

Continued in article

Jensen Comment
I should not be so down on Hugo. If it wasn't for his gasoline station in Franconia, I would have to drive over 10 miles just for a tank of gas. Hugo stepped in when Exxon Mobile abandoned the Village of Franconia. The only things you can fill up on in Sugar Hill are pancakes (at Polly's) and cheese (at Harmon's General Store)

We don't even have a single school in Sugar Hill where students can ask for a fill up.

"Will Big Companies Drop Health Benefits? Once the dust settles on the forthcoming state insurance exchanges, small companies may not be the only ones seeking to shed employee health plans," by David McCann, CFO.com, July 12, 2012 ---

Large employers plan to continue offering health benefits after the health-insurance exchanges provided for under the Affordable Care Act (ACA) begin operating — whether that’s in 2014, as the law currently requires, or later, as seems more likely.

At least, that’s what those employers are saying now. “My corporate clients, most of which are large, are asking a lot of questions about [the ACA], but none are about the exchanges,” says Priscilla Ryan, a partner at law firm Sidley Austin, which has a large health-care practice. “None of them are considering dropping their health-care coverage.”

Many such companies considered the idea when the law was enacted in 2010, or even earlier, and rejected it, according to Ryan. “They’ve moved on and are well on to new plan designs and expanding coverage as required by the law,” she says.

But companies have no reason to show their hands now. That’s especially so because timetables for the state-run exchanges, as well as federally operated exchanges that are to be created for residents of states that decline to tap federal subsidies and create their own, are so iffy. Thirty-six states have achieved less than 10% of the 109 milestones toward the establishment of an exchange identified by the National Academy for State Health Policy.

That may mean it’s a long shot that a majority of states will meet a November 16 deadline to indicate whether they plan to set up an exchange and, if so, provide a blueprint demonstrating their readiness in 13 areas so that the exchange will be operational by January 1, 2014, as stipulated in the ACA. That will in turn delay the federal government’s work on creating the state exchanges it will run (which could turn out to be as many as half of them, by some estimates), since the health insurers that will participate in the exchanges will vary from state to state.

“Maybe a few states will be ready, but it seems quite unlikely that most of these things will be running by 2014,” says Susan Nash, a partner at McDermott Will & Emery, another law firm with a strong health-care focus.

So companies have plenty of time to make the “pay or play” decision. It’s called that because employers with more than 50 full-time-equivalent workers that decide to forgo offering health insurance will have to pay a tax, in most cases $2,000 per employee per year, minus 30 employees.

Companies that now say they have no intention of abandoning employee health-care benefits — even though it likely would be a financial plus for them, because average per-employee costs are almost always greater than $2,000 per year — might change their mind if a competitor makes the move.

“I think it’s going to be like the lemmings: who’s going to jump off the cliff first?” says Nash. “I haven’t heard any large employers say they’ll do it yet, but it’s highly possible. If Wal-Mart or Costco did it and were successful, it might become an easier and easier decision for other retailers to make and it could become a standard in that sector.”

Indeed, retailers, restaurants, and other companies that employ many low-wage workers are the most likely to bid adieu to employee health benefits at some point. That’s partly because it’s a fiscal strain to provide a large number of employees with benefits whose worth is equal to a relatively high percentage of their wages.

But it’s also partly because of the sliding-scale subsidies the federal government will provide under the ACA to workers who lose their health-care coverage. That’s important for employers who elect to nix their health plans, because it could lessen a potential blow to employee engagement stemming from the move. “The value of the subsidy to employees would dwarf the employer’s tax for not offering coverage,” says benefits consultant Ed Kaplan, senior vice president and national health practice leader at The Segal Co. “But at an engineering firm or an IBM, for example, employees’ incomes are much higher so their subsidies would be much smaller.”

Some companies could opt for what Nash calls a “soft landing”: dropping their health plans but giving employees a certain amount of money with which to buy insurance on their own through an exchange.

It remains to be seen, though, how well the exchanges will work. A key reason they may not be operational until after 2014, and why the federal government is subsidizing their creation, is that they are big undertakings.

Continued in article

Bob Jensen's threads on the Affordable Health Care Act ---

Ireland - They did not show this on our news --- http://www.youtube.com/watch?v=bRqLVjOuSWQ&feature=youtube_gdata_player

A CBO study released in July 2012 asserts that the Affordable Health Care Act will reduce the deficit for all the wrong reasons. The original plan entailed increasing the deficit for all the wrong reasons. Before the Supreme Court decision the plan was for the Federal government to pay, at least temporarily, for states to expand Medicaid coverage. That cost can now be avoided since half or more of the states will refuse that Federal money and not expand Medicaid on the worry that over the long run they will get stuck with paying for the expanded coverage. That seems like a wrong reason for the Affordable Health Care Act to now save money by reducing health coverage to the poor.

But the CBO studies have always been unreliable in terms of investigating the impact of the Affordable Health Care act on the deficit. A problem is that the CBO only considers best case scenarios where the current uninsured will be able to afford the manadated insurance. Dream on!

John Cassidy is one of the more liberal columnists for The New Yorker, Here's why Cassidy never believed the myth started by the CBO that the Affordable Health Care Act would reduce the deficit ---

"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

"Here’s Why Health Care Costs Are Outpacing Health Care Efficacy," by Stephen J. Dubner, Freakonomics.com, April 18, 2011 ---

In a new working paper called “Technology Growth and Expenditure Growth in Health Care” (abstract here, PDF here), Amitabh Chandra and Jonathan S. Skinner offer an explanation:

In the United States, health care technology has contributed to rising survival rates, yet health care spending relative to GDP has also grown more rapidly than in any other country.  We develop a model of patient demand and supplier behavior to explain these parallel trends in technology growth and cost growth.  We show that health care productivity depends on the heterogeneity of treatment effects across patients, the shape of the health production function, and the cost structure of procedures such as MRIs with high fixed costs and low marginal costs.  The model implies a typology of medical technology productivity:  (I) highly cost-effective “home run” innovations with little chance of overuse, such as anti-retroviral therapy for HIV, (II) treatments highly effective for some but not for all (e.g.  stents), and (III) “gray area” treatments with uncertain clinical value such as ICU days among chronically ill patients.  Not surprisingly, countries adopting Category I and effective Category II treatments gain the greatest health improvements, while countries adopting ineffective Category II and Category III treatments experience the most rapid cost growth. Ultimately, economic and political resistance in the U.S. to ever-rising tax rates will likely slow cost growth, with uncertain effects on technology growth.

This paper strikes me as sensible, explanatory, and non-ideological to the max. It would be nifty if the people who work in Washington read it, and thought about it, and maybe even acted on it. (And it would be nifty if the Knicks beat the Celtics too, but I’m not holding my breath for either outcome …)

Here’s a very good paragraph from the paper:

The science section of a U.S. newspaper routinely features articles on new surgical and pharmaceutical treatments for cancer, obesity, aging, and cardiovascular diseases, with rosy predictions of expanded longevity and improved health functioning (Wade, 2009). The business section, on the other hand, features gloomy reports of galloping health insurance premiums (Claxton et al., 2010), declining insurance coverage, and unsustainable Medicare and Medicaid growth leading to higher taxes (Leonhardt, 2009) and downgraded U.S. debt (Stein, 2006). Not surprisingly, there is some ambiguity as to whether these two trends, in outcomes and in expenditures, are a cause for celebration or concern.

And the authors offer good specific examples of what they built their argument on, noting the …

Continued in article

"The Truth About Health Care Reform and the Economy:  Separating economic fact from economic myth," by Veronique de Rugy, Reason Magazine, April 15, 2011 --- http://reason.com/archives/2011/04/15/the-truth-about-health-care-re

Concerning the Affordable Health Care Act
"Biggest Tax Increase in History?" FactCheck, July 10, 21012 ---

Q: Is the new health care law “the biggest tax increase in history”?

A: In raw dollars, perhaps. But several tax increases just since 1968 were larger as percentages of the economy, or in inflation-adjusted dollars.


Will “Obamacare” be the largest tax hike in US history?


Several readers have asked us about this since Rush Limbaugh made a hugely exaggerated claim that the new health care law is “the biggest tax increase in the history of the world.”

We’re not sure Limbaugh meant his statement to be taken seriously; He offered no figures or citations to back up what he said. But other critics of the law have made similar claims.

The increase is certainly large. So let’s take a look at how the taxes and fees that finance “Obamacare” stack up against earlier increases.

Continued in article

John Cassidy is one of the more liberal columists for The New Yorker, Here's why Cassidy never believed the myth started by the CBO that the Affordable Health Care Act would reduce the deficit ---

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

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

Bob Jensen's Tidbits Archives ---

Bob Jensen's Pictures and Stories

Summary of Major Accounting Scandals --- http://en.wikipedia.org/wiki/Accounting_scandals

Bob Jensen's threads on such scandals:

Bob Jensen's threads on audit firm litigation and negligence ---

Current and past editions of my newsletter called Fraud Updates ---

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

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

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

Bob Jensen's fraud conclusions ---

Bob Jensen's threads on auditor professionalism and independence are at

Bob Jensen's threads on corporate governance are at


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

·     With a Rejoinder from the 2010 Senior Editor of The Accounting Review (TAR), Steven J. Kachelmeier

·     With Replies in Appendix 4 to Professor Kachemeier by Professors Jagdish Gangolly and Paul Williams

·     With Added Conjectures in Appendix 1 as to Why the Profession of Accountancy Ignores TAR

·     With Suggestions in Appendix 2 for Incorporating Accounting Research into Undergraduate Accounting Courses

Shielding Against Validity Challenges in Plato's Cave  --- http://www.trinity.edu/rjensen/TheoryTAR.htm
By Bob Jensen

What went wrong in accounting/accountics research?  ---

The Sad State of Accountancy Doctoral Programs That Do Not Appeal to Most Accountants ---


Bob Jensen's threads on accounting theory ---

Tom Lehrer on Mathematical Models and Statistics ---

Systemic problems of accountancy (especially the vegetable nutrition paradox) that probably will never be solved ---

Bob Jensen's economic crisis messaging http://www.trinity.edu/rjensen/2008Bailout.htm

Bob Jensen's threads --- http://www.trinity.edu/rjensen/threads.htm

Bob Jensen's Home Page --- http://www.trinity.edu/rjensen/