Happy Holidays and so long for now

It has been and interesting and challenging year. After the election I decided to take a break and in that time have not looked at one newscast, have not listened to talk radio and have read only the Wall Street Journal. My academic career officially ended last week with the final paper being accepted for publication by a top 10 journal. What was especially satisfying it was coauthored with my closest friend in academics Bob Schweitzer who lost his battle with bladder cancer. Bob would not have wanted a more fitting tribute to a great career. All in all I have not missed academics and have embraced retirement. At first I was concerned that since I have enjoyed every minute and every aspect of my professional life, I wondered whether it constituted such a vital part of me that I would be somewhat diminished without it. Boy was I wrong. I now had time to devote to all of my other interests and those close to me tell me that I have become somewhat more humanized. Its interesting what a step back from a life full of "let's see how good I am" can be. From the first challenge of having a genius brother (one of the three geniuses I have known) to going to the University of Georgia (where those in the same class at first thought I was only there because the courts had ordered the university to admit blacks the year before) to a phd program where every day was a thrilling excursion and where I no longer felt I was the smartest person in the room to a professional life where I succeeded more than my wildest dreams. All in all I would not trade my life or my vita for anyone else's. As can be discerned from the lack of postings to the blog, I also took a break from blogging. It wasn't that the ideas had stopped it was just that as I decompressed the blog became less and less important to me. So I have decided to officially shut it down as well. I would like to thank all who have honored me by reading it, by making comments and even referring others to it. I cannot thank you enough but it is time to move on to other things. I hope you all have a wonderful holiday season and a happy and prosperous new year.

Neither side serious in fiscal debate

The following appeared on November 4 in the Knoxville News-Sentinel In financial markets the interest rate on Treasurys is considered the "risk free" rate where "risk free" refers to risk of default and not interest rate risk. This means that the debt obligations of the US government can - like any other financial instrument - change in value as market conditions change. If demand and supply conditions cause the interest rates of the securities to move, then their prices will move in the opposite direction. This is interest rate risk. However, the securities issued by the US government are said to be free from default risk because the government can always pay its debts. It can issue more debt and use the proceeds to pay current obligations or create money to pay off those obligations. In the case of issuing more debt, why would a rational person or institution buy the bonds of a bankrupt institution teetering on default? The answer is that most would not, especially if the likelihood exists for repayment in inflated dollars. However, the government could buy the bonds it issues and use the proceeds to pay off current obligations. That is the Treasury could sell its bonds to Social Security (the largest holder) or to Medicare (9th largest holder) or to the Federal Reserve (the second largest holder). Interestingly enough, in the budget debate there has been no consideration of banning Treasury sales to other federal entities. Yet without doing so there is no fiscal discipline - other than the debt ceiling - to inhibit the government from continuing to spend out of control. In a macro sense, given the size of the budget and tax inflows, the government needs to borrow an additional 25 percent to make ends meet and this difference will continue to grow as entitlements grow. If there is a shortfall, the Treasury can decide who to pay and who not to pay. It could pay all the principal and interest owed on the debt, social security, medicare and the military and then decide to default on other obligations. This is highly unlikely given our political climate. Indeed, when both the republicans and the democrats announced that the 800,000 federal workers who had be furloughed in the latest "shutdown" would receive all back pay and benefits - in essence a paid vacation - I knew that neither side was really serious about addressing the problem. That was confirmed when we got a budget deal reinstating government spending without a cap until January 15, 2014 and allowing the debt ceiling to rise until February 7. Thus, the proverbial can was kicked down the road for the umpteenth time. Maybe this will give the congress and the administration time to come up with a viable solution to address the root causes of the problem but don't hold your breath since the majority of our elected officials simply do not have the will or the discipline to just say no.

Just say no: redux

I have written before that the debt ceiling is the only thing that can force fiscal discipline on the federal government. Given that government “revenues” are almost $3 trillion a year, that is more than enough to meet all interest and principal payments on the outstanding federal debt but not enough to cover all government expenditures – hence the continuing and growing deficit. The debt ceiling would force the federal government to prioritize its spending by placing a limit on its ability to continue to borrow. Of course if the debt ceiling is not raised the UA would default but is that necessarily a bad thing. Most people seem to think that a default would mean that the US would default on the interest and principal payments. But that would be a choice made by the Treasury and the president. In reality, there is more than enough to pay on the debt as promised, social security, the military and medicare. What would be missing would be the 25 percent left to pay all government workers and fund all government programs. Thus, the government would default on its obligations to its employees and not to its debt holders. In essence federal workers would be faced with what workers face in the private sector when their employers go out of business. If this is not catastrophic for the private sector then why is this catastrophic for the government? As it now stands, federal workers have been sheltered from facing the consequences stemming from a bloated government making irresponsible decisions. Of course the government will choose to shut down parts of the government that will create the most pain amongst its citizens in order to force the continuation of unlimited largesse. Nonetheless, the day of reckoning is going to come if we continue on the path that we are on. I consider this more irresponsible that the termination of unnecessary spending and growth of the size of the government. I wrote before that the congress should just say "no". I reiterate that plea.

More Ted Cruz and Mike Lee and Less Bob Corker Please

You have probably heard that Ted Cruz and Mike Lee were attacked by some of their republican colleagues in a closed door session over their opposition to Obamacare. The reason you probably heard this is because someone at the meeting leaked the happenings to the press. I give you odds that the leaker was probably Bob Corker. Corker has proven to be no friend of conservatives. He appears to be enamored of his own voice and puts himself before every camera available. I for one am tired of seeing his face in the press and on TV and reading his pious quotes. Since he has been in the senate he has abandoned the principles on which he was elected in favor of “compromise”. He is now the darling of the media and it looks as if he is jockeying to be Obama’s favorite republican senator. Of course there are some here in Tennessee that would argue that Lamar Alexander has that distinction. Once upon a time I wrote that West Virginia had the nation’s worse senators with Jay Rockefeller and KKK Robert Byrd. However, I am beginning to think that Tennessee’s senators are vying for that honor. Kudos to Cruz and Lee for fighting the good fight. By themselves they could not have caused the government “slimdown”. However they are the ones vilified for it. By the way, Have you missed the government? TSA is still at the airports. The off budget agencies are still regulating. The only indicators of the “slimdown” are the shutting down of government websites – how much is the cost of their maintenance – and the silly barricading of government monuments and park closures – obviously intended to just make us mad. So go on with your bad selves Ted Cruz and Mike Lee. I wish you were my senators.

What? No Drunken Red Savages?

The usual suspects among the sports columnists are on the warpath again demanding that the Washington Redskins change their name. No matter that the owner Daniel Synder says that it will never happen as long as he owns the team and that polls taken show that the fans overwhelmingly want the name to stay the same. Finally one ESPN columnist Rick Rielly went against the stream of his fellows and published a column saying did anyone ask the Indians? http://espn.go.com/nfl/story/_/id/9689220/redskins-name-change-not-easy-sounds. Since Synder owns the team there is nothing that the NFL can do to force a change. This is unlike the NCAA which in 2005 issued an edict saying that any school using indian logos or nicknames would be banned from postseason play forcing many schools to change their names. Perhaps the biggest stink was the case of the University of North Dakota Fighting Sioux who were forced into submission because primarily of the prominence of their hockey team - although ironically their logo was designed by a Native American. The North Dakota legislature forbade the adoption of a new mascot or logo until 2015 so as of today they are the University of North Dakota ----------. When the NCAA whose hierarchy is made up of middle aged white men decided that the indian symbols were offensive, several schools notably Florida State (Seminoles) went ballistic. Other schools that had large Native American populations that had indian symbols such as University of North Carolina - Pembroke were granted exemptions. But isn't it ironic (Reilly also points this out) that many schools with Native American students called themselves Redskins, Braves and Savages? The last time I looked, the NCAA must have blinked. Some schools changed prior to the ban (Stanford Indians/Cardinal, Marquette Warriors/Golden Eagles, St John Redmen/Red Storm) while others changed because of it Arkansas State Indians/Red Wolves, Louisiana-Monroe Indians/Warhawks , Newberry Indians/Wolves and Carthage College morphed from the Redmen to the Red Men and their women's teams are the Lady Reds. But Catawba is still the indians, Illinois is still the Fighting Illini, Utah is still the Utes, Central Michigan is still the Chippawas, Alcorn is still the Braves and of course Florida State is still the Seminoles. What is interesting is that all the nicknames connote bravery and stature (Chiefs) rather than scorn and derision. Yes the Atlanta Braves once had a tepee in the outfield and a mascot named Chief Nok-a-homa who did a war dance every time a Brave hit a home run. They also had a laughing indian on their sleeves. But all that is gone leaving only the laughing gap-toothed indian logo of the Cleveland Indians - which even I find offensive. Nevertheless, the baseball team that preceded the Braves were a minor league team called the Atlanta Crackers. So why weren't white folks offended? What is hilarious is that the Negro league team was known as the Black Crackers. Isn't it interesting that the same columnists who have stood up for the indians have been silent on the name Rebels? Of course all the confederate symbols have gone now. When I went to the University of Georgia, the band was the Dixie Redcoat Marching band and played Dixie after the National Anthem and most of the crowd waved confederate flags. All the tailgaters flew rebel flags. But it was worse at Ole Miss. I even turned down an interview for a deanship at Ole Miss because of all the rebel nonsense. However, all that stuff is gone. I went to the Georgia/South Carolina game and saw not one rebel flag. Ole Miss' football and basketball teams are mostly black. My feeling is that if they aren't bothered by being called "Rebels" then why should I be offended for them?

No more Freeway of Love?

The Associated Press recently had a story on how America has appeared to have lost its love affair with the automobile. The article by Joan Lowry entitled "Less driving as car culture wanes" (http://kdhnews.com/business/less-driving-as-car-culture-wanes/article_ae9e58d6-11b5-11e3-bb5e-001a4bcf6878.html?mode=jqm) notes that the collective miles driven by Americans peaked in 2007 and has declined each year since. Also most notably the percent of teens and young adults with drivers licenses has dropped. What are the reasons why? Lowry mentions the obvious ones: the bad economy, terrible commutes from the suburbs and headaches of car ownership in the cities. Lowry also mentions modern reasons such as shopping online and an uptick in walking and biking to work. Now I doubt whether walking and biking to work have made a serious impact on the statistics. However, she does not give the reasons that are obvious to me. Cars have been neutered and are just no fun anymore. I recently drove 4 hours and did not see a single vehicle that I wanted to own. It used to be different with mainstream America and its Mustangs, GTOs, Corvettes, MGBs, TR3s, and other wonderful cars. Now most what you see are minivans (and pickups here in Tennessee). I was also struck by the volume of wimpy cars that looked like cars with the backend chopped off with lawnmower engines. Isn't it apparent that high gas prices, high insurance rates, fleet milage regulations and the emasculation of the American male have all worked to eliminate the fun from driving? As I wrote in this space back in 2009, that the love affair has been lost is evident from the music (http://haroldblack.blogspot.com/2009/06/im-kickin-in-my-red-prius.html) Gone are the songs rhapsodizing the automobile. Who would profess (other than a nerd) love for the vast majority of today's automobile?

Bernanke's Fed Policy Did More Harm than Good

This article appeared in the Knoxville News-Sentinel September 1, 2013 The Kansas City Fed’s annual meeting in Jackson Hole, WY has evolved from inviting me and other pedestrian regulators and economists to being a who’s who concave of Ivy League economists and central bankers. Instead of presenting esoteric academic papers, the conference now features a few papers on a particular theme and then discussions by central bankers on how they are saving the world. This year’s conference was about the legacy of Ben Bernanke although he chose not to attend. As can be imagined that legacy is controversial outside the world of central bankers. It is called unconventional monetary policy. While conventional monetary policy features manipulation of the fed funds rate and monetary aggregates like the money supply and monetary base, unconventional monetary policy revolves around large scale asset purchases. The Bernanke Fed initiated this policy with the establishment of specialized lending facilities early in the recession and lending to nonbanks and foreign banks. Gradually, the Fed wound down the special lending facilities and then concentrated on asset purchases inflating its balance sheet to around $3 trillion by year end 2012. Currently, the Fed is purchasing around $40 billion in mortgage backed securities and $45 billion in Treasurys per month. At Jackson Hole, Christine Lagarde, the managing director of the International Monetary Fund, said that Bernanke and other central bankers had prevented a severe depression through unconventional monetary policy. She said that the policy was a clear success and the world’s central bankers should continue such policy. However Lagarde did not mention that such policy made the recovery from recession the weakest in history. The central bankers also did not dwell on the fact that such a policy has made it difficult to unwind. Indeed, the mere mention of the possibility by Bernanke sent the stock market into a tizzy. However, the fact remains that research indicates that the Fed’s policy has created market distortions, market volatility and asset bubbles that could lead to another serious downturn. In fact a paper at the Federal Reserve Bank of St. Louis concludes that the Fed’s term auction facility which was a program designed to lessen the spread between short term bank borrowing rates and equivalent Treasury rates (risk premium) actually increased the rates because it signaled to the market that the financial crisis was actually worse than the market had thought. At Jackson Hole a paper was presented by Northwestern University’s Arvind Krishnamurthy that the Fed’s purchases of mortgage backed securities had more of an economic impact than did the purchasing of Treasurys. Indeed Krishnamurthy finds that Fed purchases had little economic benefit. Perhaps not ironically, the purchasing of Treasurys did benefit the Administration in that it allowed increased deficit spending as the Fed financed the government’s deficit spending.

Just say no

January 15 is Martin Luther King, Jr.'s birthday (and my son's as well as the anniversary of the first Super Bowl). I have been asked to keynote the celebration at the University of Tennessee as well as UT's observance of 50 years of desegregation. I have also been asked to speak at my alma mater's celebration at the University of Georgia. Speaking at Georgia is appropriate since I am that university's first black male freshman. I came late to appreciating Martin Luther King. Having grown up in that era and participating in its events, I looked upon King as just another civil rights leader. It was only when I read Taylor Branch's Parting the Waters did I began to grasp the singular importance of King. I had always wondered why the civil rights movement did not turn into an armed conflict. In the south, we all had guns so why didn't we use them? It was the power of King's personality and his devotion to Ghandi's nonviolence that resulted in blacks turning the other cheek and letting the spectacle of white violence shift national public opinion. In that spirit, I would like to see the same type of nonviolent protest on government mandated healthcare. To date 35 state legislatures have either passed resolutions or laws banning federal mandated healthcare. Also a judge in Virginia has ruled it unconstitutional. Moreover, AGs from 21 states have filed suit against the federal government over this provision. Polls show that the majority of Americans oppose the mandate. But what if the Supreme Court rules it is constitutional? Then I propose that we Americans just say no. Although we are law biding citizens, it does not necessarily follow that we must obey the law blindly. What if we opted not to buy the insurance and do so on a nationwide basis? Could the federal government dare enforce it? I think not. It would be helpful if the republicans in congress would also encourage massive civil disobedience. If they cannot defund the legislation or repeal it, then they should help lead the public to refuse to follow the mandate. In the absence of national leadership on this issue, what is needed is the rise of another Martin Luther King, Jr. to lead the way in just saying no.

Alas Poor Detroit

Detroit is a mess. After an unsuccessful attempt at filing bankruptcy, the city now has court approval to proceed. Detroit owes about $20 billion to over 100,000 creditors resulting in what could charitably be called a mess. However, besides the city employees and those on pensions one wonders who would be crazy enough to extend credit to the city. The answer is not many. The Wall Street Journal reports that there are only $530 million in general obligation bonds. The vast majority of the unsecured debt being $10 billion owed to retirees. However, why are general obligation bonds unsecured debt? True there is no collateral pledged against the bonds, but GOs are secured by the taxing power of the issuer. Therefore, if GOs are allowed to be classified as unsecured, then there may be higher borrowing costs to other municipalities throughout the country. On a more personal note, what is sad about the slow and steady demise of Detroit is not that its current mayor was one of my favorite basketball players - Dave Bing - but it is home of so many of my relatives from Gray, Ga. We have even had family reunions in Detroit. My mother once remarked that most of her family left Gray to take jobs in the automobile factories. Since relative few blacks were drafted during World War II, incredible opportunities opened up to them as they replaced the white workers who went into the service. One of my favorite books is The Promised Land by Nicholas Lemann which documents the great black migration from the south during those years. Highly recommended. Mother used to say that her father was ridiculed for not selling his land and staying in Gray. Their relatives would come visit every year driving fancy cars, wearing expensive suits and furs. They sent their children to Michigan and Michigan State rather than to Fort Valley State or Savannah State in Georgia and looked down their noses at their country cousins. Mom said that my grandfather finally gave in and moved up to Detroit one spring. He returned in less than a month shaking his head with disbelief after finding that there was no place for him to hunt rabbits. If there were, I would not be here for my mother would likely have not met my Dad. one a more somber note, if I were a city employee of any municipality I would be agitating for privatization of the city pension, retirement and health plans to protect myself against any potential bankruptcy filing. City plans are usually defined benefit plans and almost without exception are seriously underfunded. The promises made by these plans result in shortfalls than can never can be fulfilled leaving the states or the federal government to step in and fill the breach. Although I hope that this does not occur because it would encourage even more profligate spending by the cities, I do have feelings for the pensioners in Detroit who now face a very frightening future.

After Ben

Ben Bernanke’s current term as a governor of the Federal Reserve expires in January 2014. Currently he is in his second term as Chairman, having been appointed by President Bush in 2006 and reappointed by President Obama in 2010. However, his term as governor is for 14 years and does not expire until 2020. Consequently, he could serve out that term even if he did not want another four year term as chairman. However, Bernanke probably thinks that he has given enough service to the government and will return to his teaching position. One salient reason is that as chairman of the Fed he earns only $199,700 while the other governors earn $179,000. At Princeton, Bernanke would probably earn in excess of $450,00. Also he has textbook royalties of around $300,000. Add to that opportunities to join Fortune 500 boards and speaking fees, Bernanke stands to earn several million dollars a year. But what about the Fed after Ben? Rumor has it that Janet Yellen, the vice chair is the most likely candidate to succeed Bernanke. That makes sense since she left her high paying economics position at Berkeley to join the Fed then left to be president of the San Francisco Fed. Then she was appointed to be vice chair of the Fed at half the San Francisco salary. Now why would she rationally do that? –I would much rather be a Fed President than be on the Board of Governors (except for being chairman. The only reason must be that she was promised the next chairmanship. Other names prominently mentioned for the job are Larry Summers and the current chairman of the Council of Economic Advisors, Alan Krueger. What is interesting is that none of the three has an expertise in monetary economics – although Yellen lists it as an area of interest. Yellen and Krueger are primarily labor economists. Yellen does have some co-authored publications in macroeconomics but these do not constitute the bulk of her writings. Larry Summers has some academic pieces in marcroeconomics and monetary economics but mainly he too concentrates in labor markets with some dabbling in financial markets. Thus, what is interesting is that Obama will likely turn the reins of the Fed over to someone who is not a monetary economics expert. All three are likely to eschew Fed independence and like Bernanke and Greenspan before him, be an adjunct of the office of the President continuing the current policy of monetary accommodation.

Tax the Internet?

I buy quite a bit of stuff online. I also bank online. At first I was a bit trepidatious so the card I use for internet purchases is for that purpose only while my bank password is as close to random as possible. Indeed the two times my credit cards have been compromised were with cards I do not use for the internet. Tennessee’s republican governor is actively pushing for taxing the internet and has the backing of the state’s two senators. The house delegation however has not rushed to embrace the initiative. Many are saying that they would like to protect small businesses but don’t advocate an increase in taxes period. This got me thinking. The small businesses that I used to frequent that went out of business said that the big box stores, not the internet, were the culprit. The owner of my local pro archery shop said that Gander Mountain and Bass Pro could sell high-end bows cheaper than what he could buy them for and customers would come shoot his bows and then go buy them at Bass Pro. Of course you have heard the same regarding the impact of Wal-Mart on a community. The choice is cheaper or more expensive. Usually cheaper wins. The same is true with the internet. Itunes and Amazon have put the record stores out of business. Remember Tower Records? Amazon also threatens the book stores (re: Borders) and Barnes and Noble has countered with its own internet service and reader. I download all my music but not my books. I still like the physical entity in my hands. So what else do I buy online? I just bought a new microwave from Amazon. Not only did it list for $30 cheaper than at the big box stores (Sears, Walmart, Best Buy), I also got free shipping and saved $20 in sales tax. Choice? No brainer. Now I don’t think that Tennessee governor Bill Haslam particularly wants to go on record has trying to save the profits of Sears, Walmart and Best Buy so it is more fashionable to advocate raising taxes to save the small appliance dealer, bookseller or small archery pro shop. The question is whether this works as a solution to the problem of diminished sales. The obvious answer is no. I will still buy my music and books online. The microwave will still be at least $30 cheaper and the state’s coffers will swell from the increased “revenue”. Now if the governor were really concerned about small business, he would then advocate that any increase in tax receipts from internet sales would not be held by the state but would be allocated 100 percent to small businesses to compensate for revenue loss. How likely is that?

Despite sequester, federal spending will grow

Knoxville News-Sentinel May 5, 2013 When Congress adopted the president’s idea of sequestration to force a budget compromise, the word from Washington was that its implementation would be a disaster. The cut in discretionary spending amounted to $85 billion dollars. Of course this is a piddling 2.4 percent of the federal budget. Nevertheless, the White House said the cuts would “threaten hundreds of thousands of jobs, and cut vital services for children, seniors, people with mental illness, and our men and women in uniform.” It further stated “these cuts will make it harder to grow our economy and create jobs by affecting our ability to invest in important priorities like education, research and innovation, public safety, and military readiness.” Of course this White House would regard any cut in government spending as having disastrous consequences, and to that end, the sequestration was a touch of genius. Because the government has an incentive to increase spending since that increases its power, there is a total disregard for cutting the federal budget. As a consequence, the sequester was designed to inflict as much pain as possible. Logically if faced with the decision as to where to cut spending, the typical household would select those expenditures that were the least vital. On the other hand, the government’s strategy would be to cut those programs that inflict the most pain to the public. Instead of trimming staff at the White House or Congress staffers or faceless bureaucrats, instead of rigorously attacking waste, the government will make the cuts both visible and painful. Thus, the sequestration mandated across-the-board cuts, leaving the agencies little discretion in which programs to cut. Thus, the agencies cannot be blamed for inflicting pain. The first case in point was the Federal Aviation Administration furloughing its air traffic controllers for two days a month, resulting in long flight delays. Naturally there was a hue and cry from airline passengers, and Congress rushed through a fix to restructure the $600 million cut to the FAA. Note that the fix does not increase the funding to the FAA. Rather, it allows the agency discretion in where it can cut. The House vote was 361 to 41, while the Senate was unanimous in its support. This was an opportunity lost. Instead of changing the sequester law to allow all the agencies discretion in where to cut, it only gave that power to the FAA. What the air traffic controller fix does is to show the public that the sequester is nothing more than a publicity stunt. This is not a serious attempt at budget reduction; rather, Washington is taking us all for fools. As to the budget reduction touted in the press and by our politicians, despite the sequester, federal spending will grow by $15 billion this fiscal year.

Elizabeth Warren: Too loose a cannon to be really dangerous

A couple of years ago I was working as an expert in a fairly high profiled banking case - we won. During that same time Harvard law professor, Elizabeth Warren was making the news pushing for a consumer protection finance agency. She won despite spouting generalities and mistruths. I was predictable critical but the lawyer that I worked with most closely on the case told me that when he was in law school, Warren was his best professor. He called her brilliant - if ignorant with regard to business and economics. Much like it was reputed that Einstein gave up studying economics because it was too hard and studied physics instead, Warren opted for the law. You may also remember that Elizabeth Warren was the source of Obama's ill-fated "You didn't build that" comment. Well the same Elizabeth Warren is now in the senate having defeated Scott Brown in Massachusetts. She recently made headlines advocating a tripling of the minimum wage to $22 an hour, pooh-poohing Obama's proposal to raise it to $10.10. Virtually all economists regardless of stripe recognize such a proposal as foolish and ignorant. However, there are those who support such a move. First, one would think that the few workers who work at the minimum wage would of course realize that such a move would lead to their being unemployed but not to worry, the intellectuals who make much more than the minimum are all for it. Consider the following: "Imagine the shock to the system $22.00 an hour would be to an employee. An immediate effect would be a reduction in two-income, lower income households. A single wage could afford the same lifestyle currently enjoyed by two people working three minimum wage jobs, even accounting for the inflationary reaction. This would relieve unemployment pressure across the board. In addition, it would create an improvement in the government budget, reducing pressure on programs such as Medicaid and Food Stamps, while also bringing in far higher tax revenue. It is a win-win scenario." No I did not make this up. It is from addictinginfo.org. and is too stupid to comment on.

So who is the welfare queen?

Many of the conservatives that I know believe that the welfare state exists to keep the poor beholden to the government. There is the image of the welfare queen, not working, eating bon bons, while pumping out kids. In return, the indigent is looked up as unmotivated – and in many cases lazy – and will vote to keep themselves on the dole. However, that raises several questions. The first is whether the poor vote in such numbers that would keep a party in power. Studying voter turnout it is not surprising that as income rises, so does voter turnout. In the lowest 20th percentile only 36 percent of eligible voters vote while in the next 20th percentile 52 percent vote. Voter turnout is also related to education. Those with no high school vote at 38 percent while college graduates vote at 79 percent. Race is also a factor with 56 percent of whites, 50 percent of blacks and only 27 percent of latinos voting. Age is a factor as is marital status. Therefore, when one looks at the likelihood of being poor – single, minority, uneducated – one is looking at the least likely group to vote. This is ironic since you would think that this would be the most likely group to vote if they are dependent upon the government’s largest. Indeed, since the bottom 50 percent of income earners in this country pay only 2.25 percent of federal income taxes, for the poorest of citizens it is a negative tax – that is they receive more in benefits than they pay in taxes. Again, more the reason to vote to keep the dole coming in. But the facts say that the poor are not so motivated that they go to the polls and vote. Rather voters are the nonpoor, the educated and mostly white (so far). When you look at party affiliation by income in 2012. For low income, 34 percent were democrats, 16 percent republican and 51 percent other. For middle income, democrats were 33 percent, republicans were 28 percent and independents were 40 percent. For high income where the folklore would think the republicans dominate, it was 31 percent republican, 31 percent democrat and 38 percent other. So one would have to conclude that nonpoor, educated whites have their reasons for keeping the welfare state intact. As a matter of fact, more welfare goes to the nonpoor than to the poor. We have education subsidies that have always been a disproportionate income transfer to the nonpoor from the nonpoor. The wealthy receive tax earmarks and deductions favored by both political parties. There are tax writeoffs on second homes, on yachts, business expenses, electric vehicle credits and huge agricultural subsidies for wealthy farmers. There are all sorts of business deductions and subsidies as well. In the bill signed by President Obama to avert the fiscal cliff there were accelerated tax write-offs for owners of NASCAR race tracks and a tax credit for companies operating in American Samoa. Distillers had a rum rebate. There were tax breaks for companies on indian reservations and more aid to the railroads. Certainly, in a capitalist laissez-faire economy none of this would happen because it distorts the market, limits competition and raises prices. In total the government spent $92 billion on corporate subsidies and about $52 billion on traditional social welfare programs. Of course as I have noted, for the social welfare recipients, it is a net gain. But what about for the nonpoor? Although I do not have the precise numbers, I suspect for the middle class who only get the mortgage deduction, there is a net income loss – although they might benefit from corporate welfare going to their employers. For the very wealthy who pay the bulk of the federal taxes, the arithmetic says that it is also a net loss. Regardless, welfare should be thought of in a broader sense than just some indictment of the poor. It is an indictment on us all, raising the cost of government, distorting markets and ultimately and ironically resulting in a net loss to society.

Dangerous consequences of quantitative easing

Knoxville News-Sentinel March 3, 2013 Increased deficits lead to increased debt. If financed by the Federal Reserve, it leads to increased money supply, a fall in bond interest rates, cheaper debt, decreased value of the dollar, currency wars, trade barriers, recession, increased inflationary fears, asset bubbles, recession. Simple isn’t it? The Federal Reserve through its QE1, QE2 and QE Infinity has given the federal government an unlimited budget. The government is politically constrained in its ability to raise taxes to finance its irresponsible deficits and is also limited in its sales of Treasury securities to the public. Sooner or later the public has enough Treasuries in its portfolios. However, the Fed has purchased $3 trillion of government securities, allowing the government to keep spending. Thus, the deficit continues to grow as well as the national debt. Moreover, the increased buying of securities causes their prices to rise and their yields to fall as well as increases the money supply. There are several consequences to this action. The first is truly ironic. With the rates on Treasuries low, the cost of borrowing by the government is low as well. This leads to the absurdity that the president can claim in the State of the Union address that there is $500 billion in interest savings, which leads to deficit reduction! Yes. He is saying that an increase in the deficit leads to a decrease in the deficit. The Fed’s policy of quantitative easing by increasing the supply of dollars results in a fall in its value. As the U.S. debt has grown the value of the dollar has shrunk. This is a key point: As a country’s debt increases, devaluation of its currency becomes more attractive because it makes its debt cheaper to service. Not surprisingly, governments throughout the world were not pleased. The Brazilian finance minister accused the U.S. of engaging in unfair trade practices since Brazilian exports to the U.S. were made more expensive and U.S. imports to Brazil cheaper. Of course he was right. Indeed, some have said that the Fed’s actions deliberately were intended to boost U.S. exports and decrease imports in an effort to lessen the impact of the recession on the U.S. Other governments, in particular Japan, have devalued their currencies also in efforts to try to spur growth. It is no coincidence that Japan’s debt is over 230 percent of its gross domestic product. This has led to a concern of “currency wars” as countries seek to protect themselves from adverse moves in their trading partners’ currencies. One real danger is that currency wars have in the past triggered trade protection measures that have led to global recessions. Another real danger is the creation of asset bubbles. Right now, as investors move away from low yielding financial assets and seek protection from the inflationary pressures of increased money supplies, the prices of real assets begin to rise. Thus, the stage is set for another bursting of asset bubbles leading to yet another severe recession. Although Fed chairman Ben Bernanke’s term as chairman of the Fed ends in a couple of years, there is no solace in knowing that his likely successor is vice chair Janet Yellen, who said in a recent speech that the Fed’s actions are “a policy that is not only good for output and employment and American workers, but also for the federal finances overall.” Heaven help us all. Get Copyright Permissions © 2013, Knoxville News Sentinel Co.

Still at War? Part 2

I had asked were we still at war since the confederacy never officially surrendered. It occurred to me that the answer is "no" simply because the Civil War was technically a police action. The north never recognized the succession by the southern states and the confederacy was not officially recognized as a country by any other country. Thus, there was no need for a formal surrender by the confederacy since technically it did not exist as a country.

Armen Alchian

There are many reasons why one becomes what one becomes. For me, it was honors principles of economics taken my sophomore year at Georgia. It was a small class taught by a legendary tough professor, Prof. William Miller. The regular sections of economics used Paul Samuelson’s now famous text. We, however, used Alchian and Allen’s University Economics. Prof. Miller was a free trade laissez-faire thinker and scoffed at Samuelson’s Keynesian economics. Alchian and Allen was the perfect text for teaching economic principles. Its free market approach applied basic supply and demand concepts to everyday problems, the political theater and international politics. It was humorous yet rigorous. It asked questions such as “what is the impact of minimum wages on poor wage earners?” While the popular knee jerk reaction – which still exists today – is raise them. Employing supply and demand yields the answer that an increase in minimum wages creates unemployment for those who work for the minimum. That example and countless others led us to apply basic economic principles and come up with answers that were definitely out of the mainstream. However, it gave us a logical basis for making decisions based on rational thought rather than raw emotions. Moreover, Dr. Miller added works by Thomas Sowell when I turned up in his class. Basically he was illustrating that free market thinking was not the sole province of whites and that its use would make us all better off. Alchian and Allen spoke to me and I became an economics major. I then when to Ohio State because one of their free market UCLA colleagues Karl Brunner had taken an endowed professorship there. I had decided I wanted to study monetary economics and wanted to write under Brunner, considered by many as the father of modern monetarism. I was fortunate enough to write under Brunner and spent my career teaching and practicing free market economics – yes even as a federal regulator. Fifty years later, I still have my copy of University Economics. It is on my list of favorite books. I owe a deep intellectual debt to Drs. Miller and Brunner but especially to Professor Armen Alchian who died on February 19th.

Still at war?

The Kingsport (TN) Times News runs on occasion a front page article on the civil war by Ned Jilton. In the Jan 29 issue (I tired to find a link but failed but found an earlier piece which is almost identical http://www.timesnews.net/blogger.php?id=10239&postid=7246) is a piece entitled "Gen. George Pickett, the man in charge". It is an excellent article on Pickett from the Mexican-American war to the incident with the pig in Oregon to the end where he was at a fish fry as his men were overrun at Five Forks. I sent him an email congratulating him on an otherwise excellent article. I said that it was mistitled since Pickett was far from "the man in charge". How could he be in charge when he was at the rear? Jilton said that being at the rear was protocol for division commanders but then why were the other commanders, Pettigrew (mortally wounded) and Trimble (wounded and captured) leading their troops? But mainly I was wondering if technically we still may be at war since I don't think the confederacy ever officially surrendered. Yes each confederate army on the field eventually surrendered and Jefferson Davis dissolved the government when he fled to Georgia but I don't think there was ever an official declaration of surrender. Was there?

Did the Germans read my blog?

The Wall Street Journal reported on Thursday January 31 that the German government will propose splitting off bank's risky activities into a separate bank. I have made that proposal often in the past in this space along with imposing 100 percent reserves on the bank that holds deposits (http://haroldblack.blogspot.com/2008/10/100-percent-reverse.html). My notion is that the fiduciary deposit taking side of the bank should not be exposed to risk taking. Moreover, the beauty of 100 percent reserves is that there is no need for the FDIC, the banks could no longer create money and there is no risk to depositors. The deposit taking bank would make money by having the Fed continue to pay interest on reserves. The risk taking bank - it could be a subsidiary in the bank holding company - would not finance its portfolio from deposits. Rather it would borrow the money, much like mutual funds do now. My idea was to have this risk taking bank also make loans as well as investments. The German proposal is an outgrowth of a proposal from Finland's central bank and is being also considered in France. So instead of the mish mash that is Dodd Frank which does precious little to address bank risk taking, such a proposal would allow banks to take risks and be regulated by the market place. It would also shield depositors from such risks since no risk taking can occur since the deposit taking entity would not make loans. Of course, the government and the regulators would oppose such a proposal here since it limits their role and reduces their power. But still, its a thought.

Minor Irritants

Since I have not yet gone back to watching or listening to the news, I look at ESPN during my morning workouts. I have then become very irritated with some commercials and give the mute button a workout too. So here are my minor irritants. 1. Manti Te'O - enough already! 2. Ray Lewis - will someone please muzzle this guy? 3. Flo – or for that matter any Progressive Insurance commercial. 4. Kids in commercials selling products to adults (Ally Bank) 5. Nationwide Insurance – “We put customers first because we don’t have shareholders.” Right. Did you know that studies in Finance show that mutual companies are more wasteful, have higher costs, more perks paid to executives than shareholder companies. In reality, Nationwide is likely really saying that the money that would go to shareholders is being put it in their own pockets. 6. GEICO commercials - Why is it that insurance companies have the dumbest commercials? 7. Weight loss commercials. The one with Terry Bradshaw and Jillian is obviously intended to show women that this particular weight loss program will not reduce their breasts. Then there is the truly bizarre one in which you drink the product and it blows up 50 times in your stomach to prevent you from eating. No I am not kidding. 8. Finally anything dealing with Facebook. I just deleted permanently my Facebook account. I never used it anyway and the only reason I signed up was I kept getting requests from friends to be “friends”. Little did I know that I was going to get notifications of how truly banal most of my friends were. I would also get messages from them and only replied via email since I did not want my responses known to the world. What was troubling was that I started getting friend requests from people I did not know and then emails with friends names on them asking me to open links. However, it was obvious that these emails did not come from anyone I knew since what was written in the subject space was obviously not in character with those people. Yes I know, the blog is also a look into my views but somehow it feels less personal and intrusive.

Obama's executive orders on guns: Not what either side says they are

I consider myself as a rational conservative. This is because so many people that I know on both the right and the left prefer to use emotion rather than logic in analyzing issues. I know those who will oppose anything coming from the lips of Barack Obama regardless of what he says. Likewise, I know others who abhor Clarence Thomas and disregard anything associated with him. Consider for example the recent dust up over Obama's three executive orders related to guns. Now don't get me wrong, I own enough rifles, shotguns and handguns to outfit what is left of Yugoslavia. But that does not color my ability to think rationally. One the one hand, some I know on the left have said "Its about time he took action". On the right, I heard "he's taking away our guns!" more than once. I have heard calls for impeachment since "he is unilaterally voiding the second amendment!" I heard he unilaterally banned assault weapons and large ammunition magazines. My response was that I did not think the president had the power to do any of that and found out that these provisions were in a bill introduced by Diane Finstein and not in the executive orders. Moreover, at least two states reacted adversely to the president's executive orders. There was a bill introduced in the Texas legislature that would block Obama's executive actions. There is a bill introduced in the South Carolina legislature that exempts from federal gun rules the state militia (defined as "all able-bodied people over the age of 17 who are US citizens residing in South Carolina allowed to purchase a firearm"). New York went in the other direction and its senate passed legislation looking like Senator Finstein's bill. Of course the proposed statutes in South Carolina and Texas may run into the Supremacy Clause which bind the states to obeying "properly authorized" executive orders. I also heard that Obama signed 23 executive orders, but in fact there were only three and for the life of me, I cannot find what is so objectionable about the three since they do not break new ground. The White House issue a list of 23 actions that the president might take: 1. Issue a Presidential Memorandum to require federal agencies to make relevant data available to the federal background check system. 2. Address unnecessary legal barriers, particularly relating to the Health Insurance Portability and Accountability Act, that may prevent states from making information available to the background check system. 3. Improve incentives for states to share information with the background check system. 4. Direct the Attorney General to review categories of individuals prohibited from having a gun to make sure dangerous people are not slipping through the cracks. 5. Propose rulemaking to give law enforcement the ability to run a full background check on an individual before returning a seized gun. 6. Publish a letter from ATF to federally licensed gun dealers providing guidance on how to run background checks for private sellers. 7. Launch a national safe and responsible gun ownership campaign. 8. Review safety standards for gun locks and gun safes (Consumer Product Safety Commission). 9. Issue a Presidential Memorandum to require federal law enforcement to trace guns recovered in criminal investigations. 10. Release a DOJ report analyzing information on lost and stolen guns and make it widely available to law enforcement. 11. Nominate an ATF director. 12. Provide law enforcement, first responders, and school officials with proper training for active shooter situations. 13. Maximize enforcement efforts to prevent gun violence and prosecute gun crime. 14. Issue a Presidential Memorandum directing the Centers for Disease Control to research the causes and prevention of gun violence. 15. Direct the Attorney General to issue a report on the availability and most effective use of new gun safety technologies and challenge the private sector to develop innovative technologies 16. Clarify that the Affordable Care Act does not prohibit doctors asking their patients about guns in their homes. 17. Release a letter to health care providers clarifying that no federal law prohibits them from reporting threats of violence to law enforcement authorities. 18. Provide incentives for schools to hire school resource officers. 19. Develop model emergency response plans for schools, houses of worship and institutions of higher education. 20. Release a letter to state health officials clarifying the scope of mental health services that Medicaid plans must cover. 21. Finalize regulations clarifying essential health benefits and parity requirements within ACA exchanges. 22. Commit to finalizing mental health parity regulations. 23. Launch a national dialogue led by Secretaries Sebelius and Duncan on mental health. What were the three executive orders that were signed? One does incorporate several of the above items by having the Justice department coordinate government-wide compliance with the NICS Improvement Amendments Act of 2007 where "Among its requirements, the NIAA mandated that executive departments and agencies (agencies) provide relevant information, including criminal history records, certain adjudications related to the mental health of a person, and other information, to databases accessible by the NICS [National Instant Criminal Background Check System]." The second one instructs federal agencies that "regularly recover firearms" in the course of their investigative activities to ensure that such firearms are "traced through ATF at the earliest time practicable." The third is #14 above and directs the Centers for Disease Control to research the causes and prevention of gun violence. One of the objections I read was saying that this would take valuable research dollars away from research on things like cancer that kill many more people than guns. But let's be honest. In the three items signed, not a single one expands the reach of the federal government. All are remarkable only in their banality and lack of teeth. It is as though Obama felt the need to do something in reaction to Newtown and this was the best he could do given the limits imposed by the constitution. I have no doubt that if he could unilaterally ban all guns and ammunition, he would. But just because we all know that he wants to doesn't mean that we look at these executive orders and attribute to them something that is wholly not true.

Muzzle Bill Ayers?

One of the undying truths is that campus censorship and protests seem limited to the left seeking to stop those from the right from speaking. We all know of the difficulties faced by people such as Clarence Thomas, Ann Coulter and others when they venture onto a campus. Yet, when the most virulent left-winger shows up, there is nary a peep to be heard. I am distressed when anyone is shouted down by protestors regardless of their views. Imagine then how I felt when some on the right thought it was somehow inappropriate for Bill Ayers to be keynoting a teachers' conference in Atlanta next month. Yes the same Bill Ayers who was Obama's friend and mentor (of course denied by the president) and who was on the FBI's 10 most wanted list along with his wife the equally notorious Bernardine Dohn. Needless to say there has been some outrage expressed on the right that such a figure should be speaking to the Association of Teacher Educators annual conference that bills itself as "devoted solely to the improvement of teacher education both for school-based and post-secondary teach educators." Hum. I wonder if they keep pushing the oppressive "whole language" teaching method that has failed miserably to teach our kids and amongst the teaching establishment refusing to change that education paradigm? Ah. But that's another story. Sure I understand the knee jerk reaction to the name "Bill Ayes" but like it or not Bill Ayers is probably one of the most qualified persons to keynote such a conference. He is a retired professor education at the University of Illinois at Chicago and was a senior university scholar. He was active in public school reform in Chicago (an obvious failure) so he has just not an ivory tower academic. Ayers taught courses in interpretive and qualitative research, urban school change, and the modern predicament (whatever that is). Ayers has written extensively about social justice, democracy and education, the cultural contexts of schooling, and teaching as an essentially intellectual, ethical, and political enterprise. He is currently the vice-president of the curriculum studies division of the American Educational Research Association. He has an impressive vita with articles in journals such as the Harvard Educational Review, the Journal of Teacher Education, Teachers College Record, Rethinking Schools, The Nation, Educational Leadership, the New York Times and the Cambridge Journal of Education. He is also the author and editor of over 20 books. Ayers has written " Central to an education for citizenship, participation, engagement, and democracy -- an education toward freedom -- is developing in students and teachers alike the ability to think and speak for themselves. The core curriculum -- explicit and assumed -- of a liberating education is this: we each have a mind of our own; we are all works-in-progress swimming toward an uncertain and indeterminate shore; we can each join with others in order to act on our own judgments and in our own freedom; human progress is always the result of thoughtful action. This means that a central requirement of teaching and curriculum becomes the development of a distinct and singular voice in every student." Who among us would disagree with that?

Manti Te'o and Colin Kaepernick: More sporting news of the weird

This week the news of Manti Te'o's imaginary girlfriend has dominated the sports chatter and Colin Kaepernick too in his own way. In case you have been on Mars, it has come to light that the well known story that Te'o's - Notre Dame's all american, all academic linebacker - girlfriend who famously died on the same day as his grandmother, did not exist. Te'o said that he was the victim of an internet hoax using Facebook and Twitter and he discovered that not only had his girlfriend not died, she did not even exist. I may be naive but how can you have an imaginary girlfriend? Of course, I know about having "friends" on Facebook but I am still one who has fewer friends than I have digits. Sure I have tons of acquaintances but precious few that I call "friend". I guess, Te'o is his generation's Elwood Dowd. If Dowd's best friend is an invisible rabbit (Harvey) then I guess Te'o could have an invisible girlfriend. Nonetheless, it seems to me that this would have been a five minute news blub but instead it has dragged on and on for the entire week. Thank goodness for the mute button. And then there is the story of Colin Kaepernick the San Francisco 49er quarterback. Kaepernick is biracial and was adopted into a white family. There is little doubt from the family interviews that Kaepernick is loved and deeply loves back. But one rather sad sidebar is of his birth mother. Kaepernick's adopted parents kept the birth mother informed about Colin's life up to a point in time. There is no evidence that she responded or even took interest in Colin until recently. When Kaepernick started to become famous, his birth mother resurfaced by posting on Facebook and tweeting him. Rightly so, Kaepernick has ignored her. Isn't it obvious that by using Facebook and by tweeting she wants the world to know that she is Colin's mother? Apparently she sees this as a vehicle for enriching herself. Such public display frankly disgusts me. I am glad that Colin is ignoring her.

Lance Armstrong, the Baseball Hall of Fame: I just don't get it

While I still haven't gone back to looking at the news, I do watch ESPN during my morning hour of exercise. Last week the reporting was dominated by major league baseball's not voting into the hall of fame some of history's greatest players joining Pete Rose as pariahs in the sport. I am a baseball fan. My trips to Cooperstown to the Hall of Fame are among my favorite memories. Sure Rose is a jerk, Barry Bonds is a jerk and Roger Clemens is a psycho jerk but what did that have to do with their accomplishments? The baseball writers will say that Bonds, Clemens and those in the doping era cheated and would not have obtained greatness otherwise. Yet the question is "if it was not illegal to dope and almost everyone was doing it, then why the indictment now"? I remember when a reporter was interviewing Mark McGuire and a bottle of androstenedione (Andro) was openly displayed on the shelf of his locker. When asked, McGuire said that he was not taking it to increase strength but it allowed him to recover more quickly from injury and for the first time in his career was able to play a full season. At the time, Andro was not a banned substance but McGuire is denied admission to the hall of fame because of it. Bonds has been linked to steroid use. Clemens has been indicted and subsequently acquitted. But the question remains: if at the time the use of steroids was not banned, then why deny admittance to the hall? As to Pete Rose, his sin was that he bet on baseball - although he contends that he did not bet on his own games. This does not affect the fact that he is baseball's hits leader. For the hits leader not to be in the hall is ludicrous. The same is true for stripping Lance Armstrong of his Tour de France titles. Cycling is a sport in which virtually everyone doped. In other sports, if the winner is disqualified then second place is given the prize - see Ben Johnson in the Olympics. Yet in cycling no one is declared the winner of Armstrong's Tour de France since they can't find anyone who is clean. So I ask the question again: if everyone is cheating, then is anyone cheating?

Fiscal Follies: We have been conned again

To paraphrase Rudyard Kipling: If you can keep your head when all about you are losing theirs, perhaps you have misjudged the situation. Remember when the Congress kicked the fiscal can down the road by creating a joint committee to resolve the debt ceiling crisis of 2010? The committee was to reduce the federal deficit by $1.2 trillion over a ten year period. Mind you, that is $120 billion a year while the deficit is $1.3 trillion a year. This amounts to only $55 b is annual cuts for both defense and non-defense. So what the Congress was fighting over is a deficit that would still be in excess of $1 trillion after the "reductions". So to quote Stevie Wonder "whats the fuss"? I am reminded of the saying that the fights in academics are so fierce because the stakes are so small. The same is true for politics. The cuts could only occur in "discretionary" spending. But the majority of the budget is "non-discretionary". Of course, non-discretionary can be changed to discretionary if the congress so chooses. For example in FY 2013 $3.8 trillion dollar budget Non-discretionary spending: (65%) $820 billion (22%) Social Security payments $811 billion (21%) Medicare/Medicaid/SCHIP payments $246 billion ( 6%) interest on the National Debt $583 billion (15%) other ‘mandatory’ payments This totals to $2.5 trillion in "non-discretionary" spending. During the fiscal year, receipts are "only" $2.9 billion leaving $400 billion to fund the rest of the government. Look at discretionary spending: Discretionary spending: (35%) $700 billion (18%) national defense ($55b is 7.8%) $565 billion (15%) other ‘discretionary spending’ ($55b is 10.3%) $ 97 billion ( 3%) Overseas Contingency Operations Needless to say the total of $1.36 trillion is a wee bit more than $2.9 billion or for that matter the puny $120 billion that the congress found impossible to cut. In their infinite wisdom, the "fiscal cliff" was averted by increasing taxes while postponing the sequestration of funds until March 2013. The deal passed by the congress only addresses the revenue side and ignores the sequestration of the $120 b postponing it until March. The key elements of the deal are: 1. reinstatement of the payroll tax by two percentage points to 6.2% for income up to $113,700 2. reversal of the Bush tax cuts for individuals making more than $400,000 and couples making over $450,000 (which entails the top rate reverting from 35% to 39.5%). 3. increase in the tax on investment income from 15% to 23.8% for filers in the top income bracket and a 3.8% surtax on investment income for individuals earning more than $200,000 and couples making more than $250,000. 4. Limiting deductions for incomes over $250,000 for individuals and $300,000 for married couples. The legislation would raise roughly $600 billion in new "revenues" over 10 years, according to various estimates. (That is $60 b per year which is also a wee bit less than the $1.36 trillion mentioned above). Federal "revenues" are typically 18 percent of GDP regardless of the tax code. Now its about 16 percent because of the recession. CBO estimated that the new changes would cause "revenues" to increase to 19.8 percent of GDP over the next three years. But those figures assume an increase in economic growth going forward. The deficit con: The Congressional Budget Office estimates that current plan includes $330.3 in new spending during the next ten years, and it will increase the deficit by $3.9 trillion in that time period despite raising taxes on 77.1% of U.S. households. Bloomberg reports, "More than 80 percent of households with incomes between $50,000 and $200,000 would pay higher taxes. Among the households facing higher taxes, the average increase would be $1,635. If the current laws slated for 2013 had become law, the combination of higher taxes and spending cuts would reduce the deficit by an estimated $560 billion - leaving the deficit at around $1 trillion. Essentially what this means is that the deal actually increases the deficit my more than if we went over the so-called fiscal cliff. Of course, we haven't attacked spending yet, but I am taking bets that I know the outcome already. So the last hope lies in saying no to the increase in the debt ceiling coming in March. Last time, the press screamed that not increasing the ceiling would result in the government defaulting. The president said that social security checks might be delayed. Of course both are wrong. There are enough incoming tax receipts to pay the principal and interest payments on the debt, to pay social security, medicare and the military. Sen. Pat Toomey (R-PA) actually introduced legislation in 2010 that would mandate that these be paid and the cuts come elsewhere. The press and the president were simply resorting to scare tactics to force an increase in the ceiling. As it stands, the debt ceiling is the only realistic barrier to increased spending. The government could no longer spend by borrowing more and more. We have seen that the congress does not have the will to decrease spending no matter how small. The spending will only be limited if the republicans in the House heed Nancy Reagan with regard to the debt ceiling and "just say no."

Changing the education paradigm: Part 1

For about the past year I have been working at changing the education paradigm in Knox County. If you go to the education consumers foundation website you can pull up the reading scores for Knox county. The state minimum is 45% while the state average is 60%. In Knoxville, twenty five schools are above the state average while twenty two are below the state average. At the bottom are two mostly black schools with only 12.4% and 14% proficiency. Traditionally, it has been easy to ignore such failure. Indeed, in the strike of teachers in Chicago last year, the head of the teachers' union say that they would continue to oppose subjecting teachers to the achievement levels of the students because "inner city children do not have the capacity to learn." Now understand this is a black woman talking about black children. However, these kids do have a capacity to learn but don't because the delivery system is flawed. I have asked teachers, why is it that their slowest learner could somehow know all the words to the most complicated rap upon a couple of listenings if they lacked the capacity to learn? The answer lies in the delivery method. The traditional method is what I call the boring method and is what is taught in our colleges of education. There is an alternative method called direct instruction that has proven successful in teaching at-risk kids and is being used by Elgin Foundation of Knoxville in systems in Virginia and Kentucky and achieving 90 percent efficiency. These are schools in poor mostly coal mining communities and one county in which 60 percent of the children do no live with their biological parents. Elgin has found that to teach effectively one needs to change the education paradigm. The use a method called Direct Instruction (see http://vimeo.com/5293093). It is interesting that the method of instruction in our schools has basically been unchanged since the invention of the printing press - and probably unchanged from the beginning of time. It is essentially mass produced and mass delivered. We herd all our kids into a building, separate them by age and teach them all the same stuff. What is interesting is that we are doing less and less of this mass production in other industries. Automobiles are essentially custom built with the buyer deciding on what extras and accessories come on the vehicle. You can get a custom made suit or shirt for almost the cost of one off the shelf. We now have just in time production and supply chain management. Yet we have brought few if any of these innovations into our schools. I know that I was taught mainly at home by my parents after I got out of school. I did the same with my children. That is their education was customized to fit them and not for the convenience of some school system that they happened to be attending. We must rescue all our children from the clutches of outdated obsolete school systems. Today the only party in the schools who do not have an advocate are the children themselves. I am working with a group of concerned citizens to advocate for the children. More on that later but for now look at this video on the education paradigm. http://www.youtube..com/watch?v=zDZFcDGpL4U

No lame duck congress

There should be no lame duck congresses. In the election year the term of the congress should end the day of the election rather than at the end of the calendar year. The terms of the congress and the president are defined in the 20th amendment as

Section 1. The terms of the President and Vice President shall end at noon on the 20th day of January, and the terms of Senators and Representatives at noon on the 3d day of January, of the years in which such terms would have ended if this article had not been ratified; and the terms of their successors shall then begin.

Not being a constitutional scholar, I presume that in order to change the terms of the congress, we would need another amendment. Some would be appalled and say, “What would happen between election day of the even numbered years and January 3rd? The answer is “thankfully nothing” since the congress would not be in session. This would force the congress not to have any unfinished business and we would not be treated to the brinkmanship exhibited in the fiscal cliff and budget discussions. We would also remove from the process all the defeated politicians voting on bills for which they would not have to face the voters.

Happy anniversary Emancipation Proclamation

January 1st marked the 150th anniversary of the Emancipation Proclamation. Although universally acknowledged as an important historical document, the reasons for its importance are not at all clear. I remember being taught in high school that Lincoln freed the slaves and immediately getting into an argument (which I lost) with the teacher. I contended that Lincoln could not have freed the slaves since the slaves were freed by the 13th amendment which was ratified after Lincoln’s death. She, of course, was referring to the Emancipation Proclamation as the document which freed the slaves. However, I remember a conversation I had with my great grandmother (Ma Mat) who said she was in December 1864 picking cotton on Bonner’s Hill in Clinton, Ga “when Sherman marched up the hill”. She also said that when she heard of the Emancipation the previous year, the slaves all of a sudden did not starting running around shouting “Lawdy we is free”. Rather it was business – or servitude – as normal. Even after "Sherman" had left Clinton headed to Savannah, the slaves remained in bondage. Although later I learned that it was not Sherman but rather Oliver O. Howard’s (Howard University) wing that marched up Bonner’s Hill, it still did not detract from Ma Mat’s powerful imagery. So armed with that information from my great grandmother I confronted my high school history teacher. Later at home I went to the Encyclopedia Britannica to actually read the Emancipation Proclamation and sure enough it stated that “all persons held as slaves” within the rebellious states “are, and henceforward shall be free.” Since those states had declared their independence, the Proclamation did not have any force of law. Indeed, so as not to offend the neutral states and territories that allowed slavery (Kentucky, Maryland, Missouri and the western counties of Virginia) Lincoln had carefully crafted his words. However, there was one very important provision of the proclamation, that was to have the Federal forces to “recognize and maintain the freedom of such persons, and will do no act or acts to repress such persons, or any of them, in any efforts they may make for their actual freedom.” This was of extreme importance since in earlier years or the war, runaway slaves were often not aided by the federals and were sometimes returned back to the confederate lines. Also after the proclamation, the federals started wholesale enlistments of black troops. Although the vast majority were freemen, many were runaways. In the end, more than 200,000 blacks wore union blue and their most historians find that the superiority of manpower of the federals enhanced by the blacks in blue, hastened the end of the war. Finally, did my history teacher concede? No. She simply stated that Lincoln through the emancipation laid the foundation for freedom and had motivated the 135th amendment which was passed in the Senate before Lincoln’s assassination. Selah.

Congress postpones making real decisions

Knoxville News Sentinel Sunday, January 6, 2013 Happy New Year. While the country was treated to the latest edition of our government in Washington behaving badly, I purposely ignored anything related to the "fiscal cliff" until Jan. 1. It did not take any insight to forecast that Congress would wait until the last second to do something, and what would be done would be to continue to kick the can down the road. Not only was Congress dealing with the fiscal cliff, lawmakers also were dealing with approaching yet another debt ceiling. So, typically, Congress decided to take action on neither. Treasury Secretary Timothy Geithner has stated that he will do some creative accounting (which he is famous for in preparing his own taxes) to push the ceiling date out for two more months, at which time we will be treated to the same absurd theater that we saw in 2010 with the debate on raising the ceiling. In the case of the fiscal cliff, Congress only addressed the tax issue and postponed the spending issue. Was anyone surprised? On the revenue side, there was a suggestion made by Republican presidential candidate Mitt Romney that deserved some serious attention. It was to limit deductions. Some of us are old enough to remember the Tax Reform Act of 1986 signed by Ronald Reagan, which lowered personal tax rates at the top and raised them at the bottom. It also took away personal interest deductions and basically left only the mortgage interest deduction for households. Romney's suggestion to limit deductions would have been a compromise for those who want to increase taxes on the "wealthy" and those who do not want to raise taxes at all. By limiting deductions, the tax rates would stay unchanged, satisfying the no-tax crowd, while revenues would increase temporarily, satisfying the bigger government crowd. The Tax Policy Center estimated that if all deductions were eliminated and all tax rates were cut by 20 percent, plus the Alternative Minimum Tax were eliminated, then $2 trillion in additional revenue would be raised over 10 years. However, such a proposal is too simple to be enacted by our politicians. The Tax Policy Center estimated that if deductions were limited to $17,000, revenue would increase by $1.7 trillion over 10 years. Limiting deductions to $25,000 would raise $1.3 trillion, and limiting deductions to $50,000 would raise $760 billion. In the Senate bill, which passed, 89-8, there is a limit on deductions, but the bill, not surprisingly, was suboptimal, linked to incomes rather than to total deductions. As to sequestration of federal spending? It was delayed for two months. That means we can look forward to the government again acting even worse when it has to deal with both sequestration and the debt ceiling. Scripps Lighthouse By Dr. Harold Black Sunday, January 6, 2013 Happy New Year. While the country was treated to the latest edition of our government in Washington behaving badly, I purposely ignored anything related to the "fiscal cliff" until Jan. 1. It did not take any insight to forecast that Congress would wait until the last second to do something, and what would be done would be to continue to kick the can down the road. Not only was Congress dealing with the fiscal cliff, lawmakers also were dealing with approaching yet another debt ceiling. So, typically, Congress decided to take action on neither. Treasury Secretary Timothy Geithner has stated that he will do some creative accounting (which he is famous for in preparing his own taxes) to push the ceiling date out for two more months, at which time we will be treated to the same absurd theater that we saw in 2010 with the debate on raising the ceiling. In the case of the fiscal cliff, Congress only addressed the tax issue and postponed the spending issue. Was anyone surprised? On the revenue side, there was a suggestion made by Republican presidential candidate Mitt Romney that deserved some serious attention. It was to limit deductions. Some of us are old enough to remember the Tax Reform Act of 1986 signed by Ronald Reagan, which lowered personal tax rates at the top and raised them at the bottom. It also took away personal interest deductions and basically left only the mortgage interest deduction for households. Romney's suggestion to limit deductions would have been a compromise for those who want to increase taxes on the "wealthy" and those who do not want to raise taxes at all. By limiting deductions, the tax rates would stay unchanged, satisfying the no-tax crowd, while revenues would increase temporarily, satisfying the bigger government crowd. The Tax Policy Center estimated that if all deductions were eliminated and all tax rates were cut by 20 percent, plus the Alternative Minimum Tax were eliminated, then $2 trillion in additional revenue would be raised over 10 years. However, such a proposal is too simple to be enacted by our politicians. The Tax Policy Center estimated that if deductions were limited to $17,000, revenue would increase by $1.7 trillion over 10 years. Limiting deductions to $25,000 would raise $1.3 trillion, and limiting deductions to $50,000 would raise $760 billion. In the Senate bill, which passed, 89-8, there is a limit on deductions, but the bill, not surprisingly, was suboptimal, linked to incomes rather than to total deductions. As to sequestration of federal spending? It was delayed for two months. That means we can look forward to the government again acting even worse when it has to deal with both sequestration and the debt ceiling.