Thursday, October 27, 2011

Occupy Your Mind... With Facts

A lot has been made recently about the alleged uneven distribution of income in the United States.  The Occupy Wall Street crowd ("Flea Party" as Ann Coulter calls them) is attacking the so-called top 1%.  USA Today had an article yesterday on the front page on "The Fading Middle Class" and referenced the statistic that the top 20% of households collected 50% of all U.S. income.  Granted, this is clearly not consistent with the ideals of communism or socialism but is it much different than in other countries in the world?

You never see these statistics in the media as they relate to other countries.  I was curious how the U.S. compared to other nations on this metric.  After all, in any society ever known to mankind there have been rich and poor people.  It was true in Babylon, Athens and Rome as well as in Moscow and Havana.  A quick trip to Google provided some information.  I could not find any information on the top 1% but I did find the numbers for how much of each country's household income was earned by the top 10% in each nation.

The United States is actually way down the list when it comes to the concentration of income in the top 10%.  We rank 77th out of 139 nations in the data compiled by using CIA World Factbook sources.  30% of national household income is held by the top 10% of households in the U.S.  The average worldwide is 31.5% meaning that income is less concentrated in the U.S. among wealthy households than it is in the world at-large.

Here are some of the countries that have more income concentrated with the wealthy than we have in the United States.  Canada (46%), Columbia (45%-the drug lords do pretty well down there and don't seem to be sharing it very well), Brazil (43%), Chile (42%), Taiwan (40%), Kenya (38%-perhaps President Obama should be focusing more on class warfare in his father's country?), Mexico (36%-no wonder we get so many illegal immigrants coming across the border), Turkey (33%), Venezuela (33%-Sean Penn wants us to be more like this socialist country?),  Argentina (33%), India (31%), Russia (30.4%-that's right, the former Communist country).

The United States has essentially the same concentration of income as Communist Vietnam and the Totalitarain regime in Iran.  They are #78 and #79 on the list.  There was no information at all for communist Cuba and North Korea.  They don't have much income to spread around anyway and what they do have undoubtedly ends up in the pockets of the party elite.  China is listed as being toward the bottom of the list but this seems very suspect.  This article states that the top 10% earns 65 times the amount of the poorest 10% in China (and this is a Communist country?)  I doubt that the Communist Chinese want to publicize their actual numbers too openly or broadly.  It does not seem to fit the party platform they are selling to the people.

The European Union average concentration in the top 10% is 25.4%.  Of course, their economic model is not working out too well for them right now.   Greece, Italy and Spain (the debt-laden countries of the EuroZone) all have about 26% concentration in the top 10%.  However, the lack of future growth is the biggest problem these countries face in servicing their debt.  Could it be that the incentive to get rich and get to the top 10% helps everyone?  While they are banging their drums at Occupy Wall Street they might want to occupy their minds with that thought...and the facts above.

Wednesday, October 26, 2011

Do Illegal Immigrants Deserve This Much Credit?

I am really getting to like the work of the Treasury Inspector General for Tax Administration (TIGTA).  Last week I wrote about their report that showed how millions are claiming tax credits for higher education that they are not entitled to.  This week I came across a July, 2011 report that shows how illegal immigrants are actually collecting far more in dollars from the IRS than they are paying in federal income taxes.

How is this possible?  REFUNDABLE TAX CREDITS!

The TIGTA Report dated July 7, 2011 is entitled "Individuals Who Are Not Authorized to Work in the United States Were Paid $4.2 Billion in Refundable Credits".   The $4.2 billion was entirely the result of refundable tax credits for the Additional Child Tax Credit (ACTC) for the 2010 tax year.

Peter Schulkin with the Center for Immigration Studies explains what this means in a memorandum he wrote on the subject last month.

The ACTC is a bit of a misnomer since it does not have to do with multiple children but rather represents the refundable portion of the Child Tax Credit (CTC) when the CTC (worth up to $1,000 per qualifying child) results in a negative total tax due. In short, filers for the ACTC have no federal income tax liability and the ACTC amount represents Treasury money that is distributed to them.
An illegal immigrant cannot qualify for a legitimate Social Security number to use to file income tax returns or for any other purpose. However, the IRS allows illegal immigrants to apply for a nine-digit Individual Taxpayer Identification Number (ITIN) to be used to file federal income tax returns, and all but a small minority of returns filed with ITINs are filed by illegal immigrants.
The Table below from Schulkin's memorandum shows the numbers.

Using Table 1, it can be seen that for the 2010 processing year more than three million returns were filed with ITINs. Of these, 2.3 million paid no federal income taxes and collected an aggregate of $4 billion from the Treasury in refundable tax credit money from the ACTC. Of those who did not file for the ACTC, most used the CTC to reduce or eliminate their tax liability and thereby recover all or part of any federal income tax money withheld by employers. Of all of the 2010 ITIN filers, fewer than one-quarter paid any federal income taxes, which amounted to about $0.87 billion in total. Thus, on a net basis, ITIN filers gained $3.13 billion ($4.0 billion minus $0.87 billion) from the IRS in the 2010 processing year. The sum of row 6 in Table 1 equals $7.37 billion, which represents an approximation of the total net outflow of IRS funds to ITIN filers for the 2005-2010 processing years.
What are some conclusions that can be drawn from this data?

  • Supporters of illegal immigration argue that illegal workers are paying large sums of taxes in this country and deserve government benefits.  In fact, of those actually filing tax returns, less than 1 in 4 owed any tax according to this data..
  • Due to the refundable nature of the child credit we are providing money to illegal immigrants and the more children they have the more we pay.  This is yet another incentive for illegal aliens to enter, reside and work in the United States without authorization.
  • When you consider that each of the 3+ million tax returns (and 2.2 million tax returns that claim the refundable tax credit) that are filed with ITIN's are almost assuredly illegal immigrants why is it so hard to enforce the immigration laws?  The IRS has an address on the tax return of the filer and they most likely also have the name of the employer as well.  I don't think you can have a clearer case that the federal government has no interest in enforcing the immigration laws.
We have an unemployment rate of over 9%, we borrow over 40 cents of every dollar we are spending in the federal budget and we have total federal debt of over $14 trillion and we allow this to occur?  It is beyond belief.

Tuesday, October 25, 2011

Europe's Problems In A Few Words

Europe continues to grapple with its serious debt and banking crisis.  "Europe: Grimmer by the Minute" is the headline CNN/Money is using today. leads with "Unknown Territory for Europe if Summit Fails:France".

Why is it so hard for the Europeans to come to grips with reality?  First, consider that they are dealing with 27 different European Union members.  Second, the Europeans are not known to look for simple solutions.  They believe that more government, more regulation and more bureaucracy is better. Consider the following and ask why we would ever want to follow them down any path relating how to govern ourselves or run our economy?

Pythagorean Theory...................................................  24 words
Lord's Prayer..............................................................66 words
Archimedes' Principle................................................ 67 words
Ten Commandmants.................................................179 words
Gettysburg Address..................................................286 words
U.S. Declaration of Independence.........................1,300 words
U.S. Constitution with all 27 amendments............7,818 words
EU regulations on the sale of cabbage................26,911 words

This is compliments of Grant Williams from his newsletter, "Things That Make You Go Hmmm..."

A couple other factoids on the Europeans fascination with regulating their economy from Williams.

Millions of Euros spent on days of ‘talks’ to come up with solutions that fail to address any REAL problems.
Don’t believe me?
Article 47 of the Common Fisheries Policy will ensure that every fish caught by an angler is notified to Brussels so that it can be counted against that countries quota. If you go out for a days fishing and catch a couple of cod or mackerel you will now be required to notify the authorities or face a heavy fine.
There are EU regulations on the greenness of the person on the pedestrian crossing lights.
There are 3 separate EU directives on the loudness of lawnmowers.
Regulation (EC) 2257/94 - a great read, by the way - stated that bananas must be ‘free from malformation or abnormal curvature of the fingers’. It also contained stipulations about ‘the grade, i.e. the measurement, in millimetres, of the thickness of a transverse section of the fruit between the lateral faces and the middle, perpendicularly to the longitudinal axis’ ...
And then there are cucumbers:
Under regulation (EEC) No 1677/88 cucumbers are only allowed a bend of 10mm for every 10cm of length.
Do you think any of those were drawn up in 10 minutes on a single piece of paper?
How does Williams see the European debt crisis playing out?

Europe is broken and the people charged with trying to fix it are clearly not up to the job. There are way too many vested interests, too many national peccadillos and way too many good, old-fashioned egos in play for it to come down to anything but a last-ditch solution when they are forced into it - and that solution WILL be the printing of money in some shape or form which will help to magically inflate the debt away. The other alternatives are either just too painful (default/ forgiveness) or plain unworkable (growth).

Monday, October 24, 2011

Energy Makes Us Go, For Obama It Is A No-Go

President Obama could not get his Jobs Bill through the Democrat-controlled Senate.  He is now attempting to break it into parts and pass individual pieces.  He is faring no better with this strategy so far.

In the meantime, he ignores the most basic and logical answers for economic growth and job creation.  For example, what is he doing about energy?   Quite simply, energy makes our economy go.  We need it for anything we want to do.  It needs to be available and it needs to be affordable.  President Obama has chosen to throw billions of dollars at so-called "green" energy projects like Solyndra while totally ignoring traditional energy resources that are proven and plentiful.  The Congressional Research Service recently issued a report that America's combined energy resources are the largest on earth.

In fact, they eclipse Saudi Arabia (3rd), China (4th) and Canada (6th) combined.

Peter Glover in his article, "U.S Has Earth Largest Energy Resources" sums it up well.

If the White House is in any way serious about impacting the economic Black Hole that is the burgeoning national debt, reinvigorating business big-time, creating real jobs and restoring ebbing national wealth, the best shot by a distance if you’re American ... well, you’re standing on it, or rather above it. 
While love, spiritually speaking and in fiction, may make the world go around, it is energy – and mostly hydrocarbon energy – that actually drives it. As blockbuster thrillers sometimes put it, “Who will tell the President?”
What is more perplexing is the fact that high energy costs most directly impact those on the bottom of the income scale-those that President Obama purports to want to help the most with his redistribution schemes.

Consider the impact of high gasoline prices.  A recent report, "The Energy Trap" by the New America Foundation that details the impacts of high gas prices on American households provides some perspective.
By the end of 2011, Americans will have spent more than $490 billion on gasoline--more than we spent any other year, even though we've reduced the amount of fuel we use since 2008. This is a terrific outlay of money--almost equivalent to the trade deficit--but it impacts the US economy at an intimate household level. But where you lived determined how much you paid. New Yorkers' monthly bills rose an extra $64 to $252 while Texans needed an extra $90 to make their monthly total of $451. All of these increments add up: By the end of 2011, we will have spent an extra $100 billion more on gas than we did in 2010. Our gas tanks basically wiped out the entire middle class tax break that was supposed to stimulate the economy and create jobs (emphasis added).
In fact, the Department of Commerce now estimates that an average household making $50,800 spends more on their car and fuel ($7,900) than they do on taxes ($6,000) or health care ($3,800).

Of course, spending on energy and gasoline is highly regressive.  These costs disproportionately  impact those at the bottom of the income scale.  Those with incomes below $25,000 pay about 9.2% of their income on gasoline.  Those making between $75,000-$85,000 only spend 3.6% on their gas.

If President Obama is serious about creating jobs and helping those at the bottom of the income scale the easiest thing he could do would be to take advantage of our vast fossil fuel resources.  The fact that he does nothing while millions are out of work and millions more are seeing their household budgets squeezed should tell you all you need to know about this President.  It is time get serious and all we get are further Stimulus II sideshows in the Senate.

President Obama seems to spend all his time campaigning these days rather than working on solving our problems.  If only the election were this November!  Energy makes our economy go.  However, it has become clear that for Obama it is a no-go.

Saturday, October 22, 2011

Errors-Yes; Omissions-No; Fraud-Without a Doubt

This headline in The Washington Post caught my eye this week...

Report: Millions mistakenly claim education tax credit

This is a quote from the story.
As many as 2.1 million taxpayers may have erroneously claimed a total of $3.2 billion by taking advantage of the American Opportunity Tax Credit, which provides up to $2,500 in relief for a college student paying tuition and related expenses. The tax credit, once known as the Hope Scholarship Credit, was expanded as part of the 2009 economic stimulus program.
If this is indeed a mistake or an error it is yet another indictment of our tax system. We have a tax code that is so confusing that our own Treasury Secretary cannot file a correct return.  This is yet another argument for why we should be getting the federal government out of picking winners and losers through our tax system and adopting some type of broad-based tax framework that gets rid of the credits, deductions, exemptions and exclusions in return for lower marginal tax rates.

However, when you look at the actual report that was done by the Treasury Inspector General for Tax Administration ("TIGTA") you have to question whether many of the credits claimed on individual returns were "mistakes" or "errors".  There has to be a good deal of outright fraud involved as well.

Here is a breakdown of some the "mistakes" the TIGTA found.

  • 1.7 million taxpayers received $2.6 billion in education credits for students for whom there was no supporting documentation in IRS files that they attended an educational institution.
  • 370,294 individuals claimed as students were not eligible because they did not attend the required amount of time and/or were postgraduate students, resulting in an estimated $550 million in erroneous education credits.
  • 68,713 taxpayers erroneously received $88.4 million in education credits for students claimed as a dependent or spouse on another taxpayers's tax return.
  • 250 prisoners erroneously ( TIGTA's word) fraudulently (my word) received $255,879 in education credits.
The Washington Times reports in audits conducted so far by the Internal Revenue Service for tax returns of individuals claiming students for whom the IRS has no supporting documentation, 72% of the claims are erroneous.
Whether all of this this relates to "mistakes", "errors" or "fraud" it should be clear we need to tear out the current Internal Revenue Code by the roots.  Whether it is Herman Cain's 9-9-9 Plan, Rick Perry's Flat Tax or the Simpson-Bowles Tax Reform Blueprint, we need to drastically cut these tax preferences and level the playing field.  Let's let the federal government raise the revenues they need through the tax system and get them out of social engineering and the Redistribution of America. 

A major problem with the American Opportunity Tax Credit compared to its predecessor is that it is a refundable tax credit up to a total of $1,000.  This means that even if someone does not pay any income taxes they still can get a payment from the federal government.  In effect, it is a direct use of the tax system to pay a federal subsidy to an individual.  Refundable tax credits have been increasingly utilized in recent years because almost half of taxpayers do not owe any federal income taxes.  If you don't owe any income tax, a tax credit does you no good.  Making the tax credit refundable solves that problem.  You get the money even if you don't pay any taxes.  It is also a magnet for fraud.  Would 250 prisoners being filing for a higher education credit if it only could offset regular income taxes and not produce cold cash for them?

The American Opportunity Tax Credit is another great liberal idea (yes, it was part of the Obama stimulus program expanding the previous Hope Scholarship Credit enacted under President Clinton) that is well-intentioned.  However, as the report indicates, too much of the money gets into the wrong hands.  We just cannot afford these ill-designed programs.

Wednesday, October 19, 2011

Teleprompter Trouble

Did you see the story about the theft of President Obama's teleprompter and related equipment to support his bus tour through Virginia and Carolina this week?

Conan O'Brien had a little fun with the story on his show last night.

When you are the President and you start to become the butt of jokes on late night television it is an indicator of political trouble.  Do you remember President Ford and his supposed clumsiness?  How about Dan Quayle on his spelling prowess or President Bush on his "strategery"?

The only difference is that this is the guy that they have been in love with from the beginning. You could not say that about the other guys mentioned above.  Teleprompter trouble is an indicator of potential political problems.

Check it out for a great laugh

Some other great quips about this potential national disaster compliled at The Week.

The nation mourns you, TOTUS"Early word out of MSNBC suggests all boom mics will remain at half-staff as our nation attempts to deal with this tragic development," says Dan Riehl at Riehl World View.

Hitting the mute buttonSurely Obama is devastated by the loss, says Dennis DiClaudio at Comedy Central. But he "has yet to comment on this. For obvious reasons."

Dead giveaway"At this time, nothing about the teleprompter thief or thieves is known," says Doug Powers at Michelle Malkin's blog. But word is "that police are on the lookout for anybody who can't stop saying, 'Pass this jobs bill.'"

Backup plan
"The commander-in-chief should start preparing notecards, just in case," says Aaron Morrissey at DCist. "Or, if none are available, just use a giant hand."

Hard times"Let us all together contemplate the sheer horror of a president who for a small window of time was under threat of having to read off some paper," says Kirsten Boyd Johnson at Wonkette. Or, you know, "rent another Teleprompter possibly not as nice as the official one. Pretty ugly stuff."

Sunday, October 9, 2011

Learn To Love Gridlock For Your Freedom

"Why do you think America is such a free country?" " What is it in our Constitution that makes us what we are?"

These are questions that Supreme Court Antonin Scalia often asks audiences.  He almost never gets the right answer.  Most think that it is the individual freedoms in our Bill of Rights that sets us apart.  Nothing could be further from the truth.  Scalia recently testified before the Senate Judiciary Committee on the "Role of Judges Under The Constitution of the United States" that was reported by Hot Air

“If you think a bill of rights is what sets us apart, you’re crazy.” Every banana republic in the world has a bill of rights. Every president for life has a bill of rights. The bill of rights of the former evil empire, the Union of Soviet Socialist Republics, was much better than ours. I mean it. Literally, it was much better. We guarantee freedom of speech and of the press. Big deal. They guaranteed freedom of speech, of the press, of street demonstrations and protests, and anyone who is caught trying to suppress criticism of the government will be called to account. Whoa, that is wonderful stuff! 
Of course, it’s just words on paper, what our Framers would have called a “parchment guarantee.” And the reason is that the real constitution of the Soviet Union — you think of the word “constitution” — it doesn’t mean “bill” it means “structure”: [when] you say a person has a good constitution you mean a sound structure. The real constitution of the Soviet Union *** that constitution did not prevent the centralization of power in one person or in one party. And when that happens, the game is over, the Bill of Rights is just what our Framers would call a “parchment guarantee.”
Scalia sees our uniqueness as centered on the system of government that our Founding Fathers established rather than in the individual rights we have.   As I wrote in my blog post, "It Was Ugly. It Was Supposed To Be Ugly." , the Founders had a deep distrust of centralized power, especially if it was used to take advantage of minorities.  They believed in gradual change and consensus rather than radical changes.  Everything was set up to make sure we avoided the excesses of government oppression.
The real key to the distinctiveness of America is the structure of our govenment. One part of it, of course, is the independence of the judiciary, but there’s a lot more. There are very few countries in the world, for example, that have a bicameral legislature. England has a House of Lords, for the time being, but the House of Lords has no substantial power; they can just make the [House of] Commons pass a bill a second time. France has a senate; it’s honorific. Italy has a senate; it’s honorific. Very few countries have two separate bodies in the legislature equally powerful. That’s a lot of trouble, as you gentlemen doubtless know, to get the same language through two different bodies elected in a different fashion.
The bottom line from Scalia-"Learn to love the gridlock" for it tells us the system is working exactly as it should.  If we get to the point where we don't have gridlock we should be at a point where there is a real national consensus.  We clearly are not there yet when you see Occupiers on Wall Street one day and Tea Party rallies the next.
Unless Americans can appreciate that and learn to love the separation of powers, which means learning to love the gridlock which the Framers believed would be the main protector of minorities, [we lose] the main protection. If a bill is about to pass that really comes down hard on some minority [and] they think it’s terribly unfair, it doesn’t take much to throw a monkey wrench into this complex system. Americans should appreciate that; they should learn to love the gridlock. It’s there so the legislation that does get out is good legislation.
 Of course, as Hot Air points out, the complaints about our current system almost always come from the progressives and liberals.   They often argue we need a parliamentarian system like Europe or, in the case of Governor Beverly Perdue (D-NC), we should just suspend elections altogether.
When they don’t get their way (usually some version of Euro-socialism), their solution is to radically alter our system of government, rather than to make better arguments or listen to their fellow citizens. Even Alexander Hamilton would shudder.

Thursday, October 6, 2011

We Need More Jobs

Henry Ford.  Thomas Edison.  Alexander Graham Bell.  Steve Jobs.

I have no doubt that the name of Steve Jobs will be remembered with these other great American entrepreneurs and innovators.  He created so much.  Inventions.  Innovations.  Shareholder Wealth.  And Jobs.  Many Jobs.  He will be missed.

If you would like a little more insight about Steve Jobs I recommend his Commencement Address at Stanford University on June 12, 2005.  There are valuable life lessons for anyone in his words.

Jobs was adopted.  The original adoptive parents backed out of their offer to adopt him because they decided they wanted a girl.  Another couple stepped up but neither were college graduates.  In fact, his adopted father had not even graduated from college.

He went to Reed College but dropped out after six months because he thought he was wasting the lifetime savings of his working class parents.   After he dropped out he just showed up at classes where his interest and curiosity took him.  Here is how he described how that experience helped him connect the dots later in his career.

Reed College at that time offered perhaps the best calligraphy instruction in the country. Throughout the campus every poster, every label on every drawer, was beautifully hand calligraphed. Because I had dropped out and didn't have to take the normal classes, I decided to take a calligraphy class to learn how to do this. I learned about serif and san serif typefaces, about varying the amount of space between different letter combinations, about what makes great typography great. It was beautiful, historical, artistically subtle in a way that science can't capture, and I found it fascinating.

None of this had even a hope of any practical application in my life. But ten years later, when we were designing the first Macintosh computer, it all came back to me. And we designed it all into the Mac. It was the first computer with beautiful typography. If I had never dropped in on that single course in college, the Mac would have never had multiple typefaces or proportionally spaced fonts. And since Windows just copied the Mac, it's likely that no personal computer would have them. If I had never dropped out, I would have never dropped in on this calligraphy class, and personal computers might not have the wonderful typography that they do. Of course it was impossible to connect the dots looking forward when I was in college. But it was very, very clear looking backwards ten years later.

He started Apple in his parents garage when he was 20 and had created a $2 billion company by the age of 30.  Of course, ended up gettinww fired from the company he created.  He started two other companies, NeXT and Pixar Studios, and ultimately ended back at Apple when it purchased NeXT.  Of course, Pixar revolutionized the animated feature film industry.  He also met his wife during this period.

I'm pretty sure none of this would have happened if I hadn't been fired from Apple. It was awful tasting medicine, but I guess the patient needed it. Sometimes life hits you in the head with a brick. Don't lose faith. I'm convinced that the only thing that kept me going was that I loved what I did. You've got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven't found it yet, keep looking. Don't settle. As with all matters of the heart, you'll know when you find it. And, like any great relationship, it just gets better and better as the years roll on. So keep looking until you find it. Don't settle.

He talked about his illness and possible death.

When I was 17, I read a quote that went something like: "If you live each day as if it was your last, someday you'll most certainly be right." It made an impression on me, and since then, for the past 33 years, I have looked in the mirror every morning and asked myself: "If today were the last day of my life, would I want to do what I am about to do today?" And whenever the answer has been "No" for too many days in a row, I know I need to change something.

No one wants to die. Even people who want to go to heaven don't want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because Death is very likely the single best invention of Life. It is Life's change agent. It clears out the old to make way for the new. Right now the new is you, but someday not too long from now, you will gradually become the old and be cleared away. Sorry to be so dramatic, but it is quite true.
Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma — which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.

Steve Jobs, thank you for having a strong inner voice and the courage to follow your heart and intuition.  You will be missed.  We need more Jobs.

To understand what Steve Jobs did after returning to Apple in 1997 see my blog post, "The Mall, Main Street and Wall Street."

Wednesday, October 5, 2011

Because We Can Becomes Because We Can't

Why are health care costs so high? Why are so many poor people obese?  Why do pre-schoolers have iPads?   Because we can.

We have created the greatest model for the creation of economic wealth the world has ever known.  It has allowed many people to be very rich.  It has also allowed many, many more people to have a standard of living that is the envy of the world.  Most people in the United States would be considered to be in the top 2% of income earners in the world.  In fact, if you were born into poverty, is there any other country besides the United States that you would choose if you could?  I wrote about this in "Perspectives on Poverty" earlier this year and cited an article by Walter Williams.  Dr. Williams makes the case rather well.

Imagine you are an unborn spirit whom God has condemned to a life of poverty but has permitted to choose the nation in which to live. I'm betting that most any such condemned unborn spirit would choose the United States. Why? What has historically been defined as poverty, nationally or internationally, no longer exists in the U.S. Let's look at it.
Forty-three percent of all poor households actually own their own homes. The average home owned by persons classified as poor by the Census Bureau is a three-bedroom house with one-and-a-half baths, a garage and a porch or patio.
-- Eighty percent of poor households have air conditioning. By contrast, in 1970, only 36 percent of the entire U.S. population enjoyed air conditioning.
-- Only 6 percent of poor households are overcrowded; two-thirds have more than two rooms per person.
-- The typical poor American has more living space than the average individual living in Paris, London, Vienna, Athens and other cities throughout Europe. (These comparisons are to the average citizens in foreign countries, not to those classified as poor.)
-- Nearly three-quarters of poor households own a car; 31 percent own two or more cars.
-- Ninety-seven percent of poor households have a color television; over half own two or more color televisions.
-- Seventy-eight percent have a VCR or DVD player; 62 percent have cable or satellite TV reception.
-- Eighty-nine percent own microwave ovens, more than half have a stereo, and a more than a third have an automatic dishwasher.
The bottom line is that there is no other country in the world that more people have the ability to become rich than in the United States.  However, even if someone does not become rich directly, the entire population is lifted up by the economic growth and wealth that we have created.  As President John F. Kennedy once famously stated, "A rising tide raises all boats".

However, despite all that we have been blessed with, it is not enough.  It never is enough.  That also explains where we are as a country today.  We are used to having it all.  We still want it even when we can't afford it so we borrow to get it.  We don't stop to worry about paying because that is tomorrow.  We all just want to live for today.  We all just live for for ourselves.   It is all about ME, ME, ME. It is also the subject of an excellent article by one of my favorite writers, Michael Lewis (Moneyball, The Blind Side, The Big Short), in Vanity Fair magazine entitled "California and Bust".  Lewis explores the weakest link in our societal fabric-the budgets of our local governments and focuses on the the weakest of the weak-California cities.

Lewis weaves the story from Meredith Whitney (who has predicted a wave of municipal bankruptcies over the next few years) to Arnold Schwarzenegger to the Mayor of San Jose, California to the City Manager of Vallejo, California which declared bankruptcy in 2008.  Vallejo shows just how bad it can get.  When it declared bankruptcy it owed 1,013 claimants over $500 million and had just $6 million to dole out to them.  The lion's share of the amounts were owed to current and former city employees.  They will get about 25 cents on the dollar based on the approved bankruptcy plan.  The value of Vallejo real estate dropped by 66% between 2006 and 2010.  The entire social fabric literally was ripped apart by the pay and benefits for the public sector workers in the city.

San Jose, California is the 19th largest city in the United States. Mayor Chuck Reed, a Democrat, took office in 2006 after serving on City Council beginning in 2002.  Lewis recounts his conversation with Mayor Reed.

He hands me a chart. It shows that the city’s pension costs when he first became interested in the subject were projected to run $73 million a year. This year they would be $245 million: pension and health-care costs of retired workers now are more than half the budget. In three years’ time pension costs alone would come to $400 million, though “if you were to adjust for real life expectancy it is more like $650 million.” Legally obliged to meet these costs, the city can respond only by cutting elsewhere. As a result, San Jose, once run by 7,450 city workers, was now being run by 5,400 city workers. The city was back to staffing levels of 1988, when it had a quarter of a million fewer residents. The remaining workers had taken a 10 percent pay cut; yet even that was not enough to offset the increase in the city’s pension liability. The city had closed its libraries three days a week. It had cut back servicing its parks. It had refrained from opening a brand-new community center, built before the housing bust, because it couldn’t pay to staff the place. For the first time in history it had laid off police officers and firefighters.
By 2014, Reed had calculated, a city of a million people, the 10th-largest city in the United States, would be serviced by 1,600 public workers. “There is no way to run a city with that level of staffing,” he said. “You start to ask: What is a city? Why do we bother to live together? But that’s just the start.” The problem was going to grow worse until, as he put it, “you get to one.” A single employee to service the entire city, presumably with a focus on paying pensions. “I don’t know how far out you have to go until you get to one,” said Reed, “but it isn’t all that far.” At that point, if not before, the city would be nothing more than a vehicle to pay the retirement costs of its former workers. The only clear solution was if former city workers up and died, soon. But former city workers were, blessedly, living longer than ever.
The numbers are not much better at the state level in California.  There is no better example of how distorted our priorities are than the comparison of what is being paid in pay and benefits to the state's prison-system employees compared to what California is investing in higher education.
In 2010, for instance, the state spent $6 billion on fewer than 30,000 guards and other prison-system employees. A prison guard who started his career at the age of 45 could retire after five years with a pension that very nearly equaled his former salary. The head parole psychiatrist for the California prison system was the state’s highest-paid public employee; in 2010 he’d made $838,706. The same fiscal year that the state spent $6 billion on prisons, it had invested just $4.7 billion in its higher education—that is, 33 campuses with 670,000 students. Over the past 30 years the state’s share of the budget for the University of California has fallen from 30 percent to 11 percent, and it is about to fall a lot more. In 1980 a Cal student paid $776 a year in tuition; in 2011 he pays $13,218. Everywhere you turn, the long-term future of the state is being sacrificed.
Lewis seeks the answer of why we have driven ourselves over the cliff and comes face to face with the answer in one of my favorite areas of academic interest-nueroeconomics.
Dr. Peter Whybrow a neuroscientist at UCLA explains that human beings are neurologically ill-designed to be modern Americans. The human brain evolved over hundreds of thousands of years in an environment defined by scarcity. It was not designed, at least originally, for an environment of extreme abundance. “Human beings are wandering around with brains that are fabulously limited,”  
“We’ve got the core of the average lizard.” Wrapped around this reptilian core, he explains, is a mammalian layer (associated with maternal concern and social interaction), and around that is wrapped a third layer, which enables feats of memory and the capacity for abstract thought. “The only problem,” he says, “is our passions are still driven by the lizard core. We are set up to acquire as much as we can of things we perceive as scarce, particularly sex, safety, and food.” 
 “What we’re doing is minimizing the use of the part of the brain that lizards don’t have,” says Whybrow. “We’ve created physiological dysfunction. We have lost the ability to self-regulate, at all levels of the society.  
We have provided more and more of everything because we can. We are embarking on an era where tough decisions will have to be made. No longer will we be able to say "because we can". We will have to get used to the answer being "because we can't." The time has come to self-regulate.  It has to start with the size of government and the immense payments we are making to individuals in public sector pay, benefits and individual entitlements. 

Read the entire article.  Lewis is particularly entertaining in writing about his meetings with Schwarzenegger.  However, it almost seemed that Lewis was either too tired or too depressed to properly frame the conclusion.  The result- I thought the end of the article was a little bit like driving over a cliff.  It was on you before you even knew it.  Perhaps that is the real point after all.

Monday, October 3, 2011

Bakken, Birds and Boundaries

Three interesting articles I came across last week...

How "North Dakota Became Saudi Arabia" by Stephen Moore in the WSJ tells the story of Harold Hamm, the discoverer of the Bakken fields of the northern Great Plains, and how we have the potential to be "completely energy independent by the end of the decade".

The biggest obstacle to getting us to achieving that goal?  President Obama and the current Washington maze of bureaucracy, regulations and misplaced faith in green and alternative energy.

A perfect example of the utter nonsense that the oil and gas industry in this country has to put up was highlighted in this article by Ann Althouse.

It seems the U.S Attorney has hauled seven oil and natural gas companies into federal court for allegedly killing 28 migratory birds that were found dead near oil waste lagoons.  However, wind farms kill an estimated 440,000 birds each year.  How many wind companies have been prosecuted?  ZERO!

I have said it before and I will say it again.  The federal government is not supposed to be in the business of picking winners and losers.  It is supposed to protect the citizenry and make sure that we have a level playing field.  Another example that shows how far we are from the government that was envisioned by our Founding Fathers.

Finally, an opinion piece in the Wall Street Journal by Clark Neily entitled, "The Myth of Judicial Activism".  Mr. Neily cites some interesting stats.

If lawmaking were a sport, how often would we expect politicians to put the ball in the constitutional basket versus putting up constitutional bricks? In principle, the Supreme Court's strike-down rate should equal the rate that the other branches of government exceed their constitutional authority. Given how often it is accused of activism, one might think the Supreme Court's strike-down rate must be off the charts. In fact, the opposite is true.
Over the 50-year period from 1954 to 2003, Congress enacted 16,015 laws, of which the Supreme Court struck down 104—just two-thirds of 1%. The court struck down an even smaller proportion of federal administrative regulations—about 0.5%—and a still smaller proportion of state laws: 455 out of one million laws passed, or less than one-twentieth of 1%.
In fact, on an annual basis, the Supreme Court struck down only three out of every 5,000 state and federal laws passed. Compared with the explosive growth of government, the Supreme Court's efforts to impose constitutional limits on the legislative and executive branches are barely blips on the radar screen.
The problem is that the Courts in this country have spent too much time "writing" laws and have not spent the necessary time enforcing limits on government power.  How many dictates, mandates and edicts have come from the courts over the last 50 years?  They need to forget that type of judicial activism and get active in what the Constitution established as their principal role- policing constitutional boundaries.