Tuesday, October 2, 2012

It's the Entitlements Stupid

We have heard that the culprit in our rising debt and deficit crisis is the cost of recent wars.  Yet the numbers simply don't support that notion.  It is a popular, but uninformed, myth.  

This week's Barron's features an analysis completed by Martin Murenbeeld, chief economist of Dundee Wealth.  His research is based on numbers reported by the U.S. Bureau of Economic Analysis (BEA).  Since 1970 entitlement spending has grown from approximately 40% of federal spending to over 60%;  defense spending, on the other hand, has shrunk from just under 40% of spending to under 20% of current spending.  Defense isn't the culprit, entitlements are.

The smokescreen argument launched when anyone brings up the notion of cutting entitlements is that we have a moral obligation to help the poor.  Obviously.  It is our responsibility as fellow citizens.  The question in my  mind is not if but who should do it:  the public or the private sector.  My vote is for private sector charities all day long.

Allow me:  the government takes money from Citizen A to fund entitlement programs confiscating money that Citizen A would otherwise use to buy shoes for his kids, a new car maybe, an energy efficient washer or a weekend at Disneyland.  That spending increases sales and potentially creates jobs at the car company or Disneyland whose employees will in turn consume and create growth in other industries.

Poof!  Suddenly the money has been sucked out of the private sector into the vast bureaucratic wasteland.  And it must be factored into our equation that it costs the government money to collect those funds.  According to Jim Payne in his 1991 The Culture of Spending "for each dollar the federal government recycles through the taxation-subsidy system it wastes more than one additional dollar" (51).  He cites detailed government studies that estimate it costs the government 65 cents to collect a dollar and another 50 cents to spend that same dollar.  Dubbed the "bureaucratic rule of two" the conclusion is that "governmental production of the typical good or service costs twice as much as the same thing produced privately"(208).

Now, some twenty plus years later,  the average government worker earns more than the average private sector worker--a dramatic shift since 1991--so it is not difficult to conclude that the governmental cost of collecting $1.00 no longer creates a mere deficit of 15 cents per dollar but some number greater than that.  For sake of argument though we will leave the number where it was in 1991.

If it costs the government $1.15 to collect $1.00 you tell me how long that business model will survive.  Overhead of 115% is not just unsustainable it demonstrates a willful lack of compassion toward those who depend on the aid.

Most of the charities I have worked with and support operate with overhead well under 10%, a far cry from 115%.

It's a simple as that.

Wednesday, September 19, 2012

In the Words of The Associated Press--September 19, 2012

Tax penalty to hit nearly 6M uninsured people
WASHINGTON (AP) — Nearly 6 million Americans — significantly more than first estimated— will face a tax penalty under President Barack Obama's health overhaul for not getting insurance, congressional analysts said Wednesday. Most would be in the middle class.
The new estimate amounts to an inconvenient fact for the administration, a reminder of what critics see as broken promises.
The numbers from the nonpartisan Congressional Budget Office are 50 percent higher than a previous projection by the same office in 2010, shortly after the law passed. The earlier estimate found 4 million people would be affected in 2016, when the penalty is fully in effect.
That's still only a sliver of the population, given that more than 150 million people currently are covered by employer plans. Nonetheless, in his first campaign for the White House, Obama pledged not to raise taxes on individuals making less than $200,000 a year and couples making less than $250,000.
And the budget office analysis found that nearly 80 percent of those who'll face the penalty would be making up to or less than five times the federal poverty level. Currently that would work out to $55,850 or less for an individual and $115,250 or less for a family of four.
Average penalty: about $1,200 in 2016.

Sunday, September 2, 2012

Beware Unintended Consequences

My old friend, Art Laffer (of Laffer Curve fame) often says if you want less of something--tax it.   Economics, the ancient art of encouraging certain behaviors with incentives and discouraging others with penalties is akin to parenting.  We reward good behaviors in our children and--if we are doing our job--we penalize others.   The end result is, we hope, harmony and productivity.  The body politic functions the same way.

If we follow President Obama's plan we will continue to place an extraordinary penalty on those who produce the most and, by the way, already pay an inordinate percentage of income taxes.  According to the independent National Taxpayer's Union, the top 1% of earners in the U.S. pay 36.73% of the tax bill.  The top 5% pay 58.66%.  President Obama wants them to pay more.  Laffer's view is supported by history--if you want less of something, tax it.  The rich have and always will be able to find ways to minimize income.  Eduardo Saverin, one of Facebook's founders renounced his U.S. citizenship right before the big payday.  Tax it?  You get less of it.

We see how tax policy affects behavior if we examine state population growth relative to state tax policy.  As a native Californian--a native San Franciscan to be precise--I know that it takes a great deal to nudge someone out of that glorious state, yet since 1990 the net migration in California has been a negative 3.6 million people (American Council of Engineering Companies among other studies).  Californians pay the second highest state income tax in the nation second only to Hawaii.

So here we sit, in an election year, hearing that the rich simply aren't paying enough.  That we can engage in profligate and unaccountable spending on the one hand (has anyone figured out where the $870B stimulus went and what exactly we received for it?) and demand that the most productive among us work harder and pay more.

For crying out loud, even the Russians have figured out that a flat tax--a uniform rate of tax on the income of individual--makes sense.  And while our citizens pay income taxes of as much as 50% to federal and state governments, the Russian citizen pays a mere 13%.

Finally, Barron's reported today that tax avoiders owe the IRS an estimated $385 billion.  That is more than one-third of the U.S. budget deficit.  I would support any president who solves that problem before demanding more of the property of hard-working and law-abiding Americans.  

Saturday, August 18, 2012

All We Need to Know in Pictures

Our Founders were cognizant of the potential danger that lurked in democracies. History taught them the peril of majority rule particularly when "enlightened statesmen will not always be at the helm" (Federalist 10). That is why they formed a Republic.  And why they did not provide for a direct tax (income tax) in the Constitution.  They spent significant rhetorical capital to warn against the risk of tyranny that could result from the majority having power--and in particular, taxing power--over the minority.  In Federalist 10 James Madison writes:  The apportionment of taxes on the various descriptions of property is an act which seems to require the most exact impartiality; yet there is, perhaps, no legislative act in which greater opportunity and temptation are given to a predominant party to trample on the rules of justice.  Every shilling with which they overburden the inferior numbers, is a shilling saved to their own pockets."  

Today nearly half of Americans do not pay any income tax at all.  Our Founders would consider that a recipe for disaster. They understood one thing.  Over the course of history human nature does not change.  That is why Madison wrote:  But the most common and durable source of factions has been the various and unequal distribution of property.  

Class warfare rhetoric is not how this country became great.  It is how unenlightened leaders hang onto power.

Chart 1

Wednesday, August 15, 2012

The Debilitating Cost of Government Regulation

Too infrequently when the  political rhetoric flies do we step back and consider the issue dispassionately.  Too often we succumb to emotional appeals without analyzing the matter in a logical, fact-based fashion. 

The August 13th edition of BARRON'S cites an upcoming report by the Competitive Enterprise Institute called Tip of the Costberg.  The study measures the cost to the economy of businesses complying with federal regulations.  During the first half of this year the cost was $1.806 TRILLION.  To put that number into perspective, the federal budget for 2012 is $3.6 trillion which means the cost of regulatory compliance for business is equivalent to 50% of the national budget.  

Imagine how many jobs would be created if that money were invested in the private sector economy instead of fattening the same bureaucracies that snoozed while Bernie Madoff skimmed billions from his clients.  

Sunday, July 15, 2012

Crony Capitalism

The following is a direct quote from BARRON'S magazine, July 9, 2012:

Crony Capitalism
Countrywide Financial, now owned by Bank of America, gave discount loans to members of the U.S. Congress and Fannie Mae Executives while it lobbied to combat legislation that would have restricted its sales of subprime mortgages, according to a House committee report based on a three-year inquiry. 

Do we need to know more than that?  Our elected officials accepted preferred terms from an organization that was simultaneously lobbying them to vote against a law that would inhibit their ability to sell subprime mortgages.  The very segment of the market that was at the center of the financial meltdown in 2008.

Private sector employees go to jail for that kind of thing.  Where is the outrage?  Where is the remedy?

Tuesday, July 10, 2012


After the British won the French and Indian War in 1763 they had a debt problem that needed a solution.  In Washington, a Life, Ron Chernow writes, "The national debt of Great Britain, inflated by military spending, had swollen to a stupendous 130 million pounds, with annual interest payments of 4.5 million pounds engrossing more than half the national budget."(136)

Sound familiar?

The British solution was to institute the highly unpopular Stamp Act which shifted the tax burden of the war to the colonists.  Without their agreement.

Sound familiar?

The only difference is that our deficit does not come entirely from defense spending.  Rather, entitlements are overwhelming federal spending.  Heritage reports--contrary to what the average media report suggests:  "Defense spending has declined significantly over time, even when the wars in Iraq and Afghanistan are included, as spending on the three major entitlements—Social SecurityMedicare, and Medicaid—has more than tripled."  

Entitlements are snuffing the life out of our future. 

Saturday, July 7, 2012

Debt, According to George Washington

Ron Chernow's Washington, A Life is a rich history of the life and character of George Washington.  Dense but delightful, we see Washington in a light not explored in grade school history books.  That is too bad because Washington was a complex man whose character was a deliberate evolution of his desire to, above all, do the right thing. In every area of his life.

Consider Washington's advice to his nephew on the subject of debt:  "there is no practice more dangerous than that of borrowing money...for when money can be had in this way, repayment is seldom thought of in time...Exertions to raise it by dint of industry ceases. It comes easy and is spent freely and many things indulged in would never be thought of, if to be purchased by the sweat of the brow (emphasis mine).  In the mean time, the debt is accumulating like a snowball in rolling" (108). 

Those representing us in Washington should consider Washington's words.  As should each of us.

Sunday, July 1, 2012

A Multitude of Incompatible Desires

In 2010 Dr. Benjamin Wiker wrote a book entitle 10 Books Every Conservative Must Read.  The first book discussed is Aritstotle's The Politics, then G.K. Chersterton's Orthodoxy and eventually Wiker comes to C.S. Lewis' The Abolition of Man.  

Abolition is a compact erudite analysis of the Innovator and his impact on society through his devotion to Instinct.  When it suits.  In his introduction to Lewis, Wiker writes:  That is why the inherent drive of liberalism to remove all limits to the human will inevitably bring it to transform, stage by stage, a good form of government into its evil opposite, a republic into a mild democracy, a mild democracy into extreme democracy, and extreme democracy into tyranny. (emphasis mine) 

While it might, in the abstract, sound delightfully libertarian to allow everyone to "live as he wants to whatever end he happens to crave," the reality is that it leads not to a society of sturdy, self-reliant citizens (Aristotle would have been all in favor of that), but to a selfish, pleasure addicted populace pulling government in manifold and contradictory directions to satisfy a multitude of incompatible desires.

Wiker explains that the politicians make promises to fulfill the "multitude of incompatible desires."  To meet these promises, they print reams of money and borrow in epic proportions.  As the system becomes unstable and begins to collapse, the people call for a leader to "bring them out of the crisis."  The result is concentrating ever more power in government, which is how extreme democracy leads to tyranny. 

Healthcare for all.  Free Contraception. Abortion on Demand.  Taxpayer funded cell phones for the poor.  Government advertisements recruiting  Food Stamp recipients to refer their friends.  Porous borders to beef up liberal voting rolls.  Less military.  More entitlement.  Less salt and sugar. More pot.  A multitude of incompatible desires courtesy of an extraordinary liberal government.

Right out of the Progressive textbook.    

Saturday, June 30, 2012

Twenty-one New Obamataxes--Count em

We have already considered the 0.9% payroll tax that will be implemented to fund Obamacare.  And the additional 3.8% tax on dividends, capital gains and investment income for those Americans earning over $200,000 (single)/250,000 (married)--the selfish rich as the president and Nancy Pelosi refer to them.  We also reviewed the cadillac tax on high cost health care plans.  The cadillac tax that the unions have been exempted from but the average American will pay to obtain good health care.  It apparently pays to cozy up to bureaucrats in this Administration.  

These taxes are just the tip of Obamatax iceberg.  The excise tax on medical  device manufacturers means that anyone needing a medical device of any sort (and the definition is sweepingly broad as only the government can sweep)  will pay an additional 2.3%--at the very least--to obtain the device.  Projected to raise $20B in 2010, the current estimate from the House Ways and Means Committee is $34.2B.  If there is one thing we know about government estimates, they are usually low and routinely revised upward.  Look no further than the weekly jobs/unemployment report which is revised upward week after week.    

In addition to the annual tax on health insurance providers (this is in addition to the cadillac tax)--estimated at over $100B--which will undoubtedly raise the premiums dramatically for all those who remain in private plans, the most ridiculous Obamatax is the 10 percent tax on tanning services.  True to Washington form: find the group with the weakest lobbyist presence and tax it.

 The House currently estimates that gross tax increase from Obamacare will exceed $800 billion over the next decade. My humble assumption is that the total will be revised dramatically upward just as the cost for Obamacare has been revised up from the original estimate of $900B to close to $3 trillion by the CBO.  

You can check out the numbers yourself by copying the link below.  The Ways and Means Committee has produced a handy table of the 21 Obamataxes.


Friday, June 29, 2012

The Taxorama is Just Getting Started

Undoubtedly you will recall when former Speaker, Nancy Pelosi (who was second in the presidential line of succession) so famously and embarrassingly said: We have to pass the (health-care) bill so we can find out what's in it.  Incomprehensible from the get-go, Ms. Pelosi was merely telegraphing to the entire country that we were not alone.  She, the chief lawmaker in the House,  had no idea what was in it either.   In fact, Justice Scalia quipped during oral arguments that reading the entire 2,700 page law was akin to "cruel and unusual punishment."

Clever line.  But I, for one, am not laughing.

One thing is clear: taxes will skyrocket and service will decline. We have no further to look than Canada or the UK to understand the way the Act will eventually play out.  But,  let's take a look at a few of the TWENTY-ONE NEW TAXES that are associated with the "Affordable Care Act".

From today's The Washington Times we learn that the so-called "Cadillac tax" on high-end health-care plans was originally estimated to raise $32 billion when the bill was first being marketed to the American people in 2010.  The June 2012 estimate from the House Ways and Means Committee is now $111 billion.  This tax is designed to penalize fortunate American's whose employer or union (although many of the unions have been exempted from the tax) provides a robust health care package by assessing a hefty tax on the benefit.

Or take the new payroll tax of 0.9% on wages and the new 3.8% tax on dividends, capital gains and other investment income for taxpayers making over $200,000 (individuals) and $250,000 (married).  The original estimate is that the two taxes would raise $210.2 billion, yet, the current estimate is now $317.7 billion.  In other words, in addition to the Bush tax cuts that will sunset on December 31st of 2012, the "Affordable Care Act" will add another nearly 5% in taxes on wages and investments.

And we're just getting started.  Perhaps, Justice Scalia would have been more accurate had he suggested that American's living under the 2700 page "Affordable Care Act" will be subjected to  "cruel and unusual punishment."  

Tuesday, June 5, 2012

At Least We Know He Cares...

Mr. Bloomberg is a man of many talents.  He's a billionaire after all. And although we aren't supposed to like rich people anymore we can certainly infer from his wealth that he is smart, right?  Plus, he was clever enough to secure a third term as mayor in a city with a two term limit.  Wow.

So when he added Gothem's top nanny to his notable achievements I took notice.  His most recent ban on sixteen ounce sugary soft drinks and coffee was declared, Mr. Bloomberg assures us, because he is very concerned about obesity and its growing affects on New Yorkers.  (That the ban was announced the day before the mayor celebrated National Donut Day was a rich irony not lost on those of us who reside outside the Big Apple.)  This on the heels of Mr. Bloomberg's salt and trans fat bans which led to a ban on food donations to homeless shelters because the salt and trans fat levels of donated food couldn't be measured.  Talk about unintended consequences.

Now the good Nanny has endorsed a proposal to decriminalize the open possession of marijuana.  In small amounts, of course.  This presumably will free up law enforcement to monitor those New Yorkers who try to skirt the sugary drink ban by buying two eight ounce cups.  And it will silence the critics who declare the marijuana arrests made by New York's finest are racially biased because "most of those stopped are black or Hispanic"  (New York Times).

I like this upside down world.  It's like a daily romp with Alice and the Mad Hatter.  I never know quite where I am but I'm always happy to discover that I'm not there.  And that's something isn't it?  

Tuesday, May 22, 2012

Flying by the Seat of Our Pants

Most of us attribute our values to others whether we realize it or not.  By that I mean that we believe those we come in contact with share similar values and morals.

If, for example, you are the kind of person who believes in personal liberty you might find yourself saying something like: "Well I don't believe smoking is good for you but it's a free country and it's your life."  If, on the other hand, you believe that the collective mind (the government) is wiser than the individual then you most likely support the passage of strict no-smoking laws, aggressive anti-smoking ad campaigns, punitive cigarette taxes and a culture which ostracizes smokers-- all in an effort to assert your belief that smoking is bad and should be stopped.  No matter what the individual thinks.

Don't get me wrong.  I grew up with parents who smoked and remember vividly the suffocating cloud filling the car and the dirty job of having to clean the ashtray.  As an adult I remember the stench permeating my clothes after a cross country flight just one row away from the smoking section.  I am not a fan.  But my view of the world celebrates personal choice.  If you want to smoke, by all means,  go ahead.

So when those on the left equate border security with racism many who support secure borders stop to examine their own motives.  No American wants to be accused of racism after all.  It is a tried and true weapon the left employs.  Accuse.  Change the subject.  Take a herculean leap of logic:   If you don't support gay marriage you hate all gays.  If you don't think the government should pay for abortions you hate women.  If you want a secure border you are the denying rights of illegal aliens and are committing an act of racism.  If you don't agree with President Obama...well you get the idea.

The problem with the name-calling is that it diverts us from an important public debate on national security.  Countries have borders for a reason.  To protect their citizens.  And for me the border issue is a matter of national security.  Last year alone, Border Patrol arrested 800 Middle Easterners illegally crossing the Arizona border.  According to the Department of Homeland Security's own statistics the arrest of 800 illegal Middle Easterner immigrants means that 2400 successfully crossed the border into the United States.  Free to take pilot's lessons if they want, without scrutiny, under the radar so to speak.

Now that is the debate we should be having.  

Wednesday, April 4, 2012

FDR, Obama and the Supreme Court

Amity Shlaes should be awarded the Nobel Prize for literature for her epic history of the Great Depression: The Forgotten Man. But, she won't. She won't because she portrays an historical and economically sound assessment of the facts of the Great Depression rather than the whitewashed history taught in our schools.

Much like the Obama Administration's profligate spending and castigation of the court, FDR greatly expanded government spending during his first term and used the Commerce Clause to attempt to regulate private businesses.

The Schechter brothers were butchers, the middle-men between the farmer who raised chickens and the retail stores who sold them. FDR's Justice Department sued the brothers for violating the National Recovery Administration's code of " fair practices." The NRA was an agency with dubious and unprecedented authority over private business which was later unanimously ruled un-constitutional by the Supreme Court. In the meantime, however, the small-business Schechter brothers were sued by Justice for violating an NRA code.

The case centered around a section of code which prohibited the selling of unfit produce. "Straight killing" a practice employed by the kosher Schechter brothers according to the Kasruth allowed clients to select their chicken (to ensure the good health of the bird) and the brothers would then slaughter it. The NRA did not approve of this kosher practice and that is how the Schechter's ended up in court. The case ultimately went all the way to the Supreme Court and was argued under the Commerce Clause. The court unanimously ruled in favor of the Schechter's against the government. The ruling argued--among other things--that "Extraordinary conditions do not create or enlarge constitutional power." The Justices argued that the NRA had "abused the Schecters...through unconstituional "coercive exercise of the law-making power."" (242)

Shlaes records a comment made by Justice Brandeis after the ruling to one of FDR's New Deal advisers: "This is the end of this business of centralization, and I want you to back and tell the president that we're not going to let this government centralize everything. It's come to an end." (243)

After this loss (and others) at the hand of the Supreme Court Justices, FDR acted. In an amazing act of hubris he determined he would "skip state ratification and simply send over to Congress legislation that would increase the number of justices from nine to a figure that could range as far as fifteen. For each justice who stayed past the age of seventy, a new one could be added." (302) FDR's stunning court-packing proposal to amend the Constitution without state ratification and to alter the Supreme Court's make-up was a step over the line that even the Democratic Congress could not stomach. But it was the public outrage that surprised many in Washington.

President Obama has employed many strategies out of FDR's playbook--most notably his attacks against the wealthy. But his recent politicalization and castigation of the Supreme Court is one move that, perhaps, should have been more carefully considered. His recent comments were a thinly veiled threat. An empty one, it would seem, given the Court's robust history of considering the Constitution first and foremost.

And given the American citizen's affinity for separation of powers to protect individual liberty.

Monday, April 2, 2012

Student Loan Default--A Question of Character

A few weeks ago I clipped a small article from Barron's which revealed some statistics on outstanding student loans. The numbers shake out like this: During the third quarter of 2011, a startling $85 billion of student debt was delinquent. There are 37 million borrowers with loan balances.

Last week I attended a presentation by Hillsdale College. They cited the student loan default rate at 28%. The percentage of Hillsdale students who defaulted? Less than .5%. And, sadly, both of those students died.

If you haven't acquainted yourself with Hillsdale. You should.

Tuesday, February 14, 2012

Federal Budget Explosion--Part 2

The New York Times reports on President Obama's proposed $3.7 trillion budget for 2013 with a viewer-friendly series of interactive graphics.

The president's budget projects a $901 billion deficit in 2013. The deficit represents spending in excess of revenues during the year. The deficit does not represent the national debt which, according to the U.S. National Debt Clock in real time, is $15,391,190,000 give or take. Call it $15.4 TRILLION dollars or $49,041 per citizen, $135,797 per taxpayer. Add in this year's deficit and the proposed deficit for 2013 plus interest and it is not a stretch to conjure up the kind of third world disaster currently stewing in Greece. All of this spending is before we begin gearing up for ObamaCare's $1 trillion spend-a-thon.

Especially noteworthy, Obama's budget calls for $2.5 trillion in "Mandatory Spending." This represents 70% of overall spending and includes "entitlements like Medicare, Medicaid and Social Security" and interest on the "public debt." The remaining $1.1 Trillion includes "Discretionary Spending." This is where defense spending is accounted for among other governmental agencies.

The big loser in the president's budget? Defense. The big winner? Entitlements which now dwarf all other spending in the federal budget.

The other big loser? The American taxpayer who is now on the hook for $135,797.00 of the national debt. And based on the president's proposed budget it looks the governmental spending machine is just getting warmed up.


Monday, February 13, 2012

Federal Budget Explosion--Part I

When politicians talk about the budget most of us listen with the best intentions until the caveats and accounting tricks conflate into a convoluted and polluted stream of rhetoric. For example, we learn that when politicians talk about a 5% cut in spending what that really mean is NOT that they are reducing spending by 5%, as those of us operating with a finite budget would assume, rather, they mean they are slowing the rise in spending by 5%. In fact, under a Congressional or Presidential 5% cut, spending could actually be rising by 5% or 10%. A cut is not a cut is often an increase. Huh?

Thankfully, the good folks at The Heritage Foundation have set out to explain the budget in pictures. Making the numbers accessible to us regular folks. We begin with the rate of growth of government spending versus the rate of growth of the median income of the Americans. It doesn't take a mathematician to deduce that the rate of growth of government is unsustainable. Since government is funded primarily by taxes paid by its citizens we can surmise that a growth rate in the income of those citizens of 27% over the last 39 years when compared to federal government spending growth of 299% is an equation for disaster.

And these levels of spending do not include the upcoming trillion dollar cost of Obamacare.

If is time to stop politicizing America's future and get serious about spending. The president submits his budget today. He has the opportunity to lead. Let's hope he does.

Monday, February 6, 2012

A Diversion?

In the last segment of The Lord of the Rings trilogy, during the final battle scene, Legolas, Elf of few words astutely assesses the opponent's strategy by declaring: "It's a diversion."

Frankly, the jobs numbers that fueled Friday's stock market euphoric surge feels a bit like a diversion to me.

First, when wrestling with the is the employment picture improving question it is imperative to consider that the numbers are seasonally adjusted. January is a notoriously awful month for jobs. According to Gene Epstein, in a recent Barron's article: "Over the past 20 years, January has never witnessed a decline of less than two million payroll jobs even in boom times...the unemployment rate always rises in January..." a fact for the last 64 years data has been available.

This January the loss of jobs actually came in at 2.7 million which is an improvement over recent years' losses. This difference--a decline in the number of jobs lost--resulted in the recorded improvement of "a rise in jobs by 243,000." To put it in the language of the real world: The jobs numbers reflect a slowing of jobs lost by 243,000 jobs over previous January periods rather than a growth in new jobs. For those of us who live in the reality an increase in jobs means there are more jobs not--as the calculation provides--a decrease in the loss of jobs.

Many of us play this game when we make a purchase we shouldn't have. "I saved $100!" we triumphantly declare. The remaining part of the transaction goes unmentioned. To save the $100 we had to spend $1,000. The savings is a phantom savings much as the rise in jobs reported Friday are phantom jobs.

That said, a slowing in decline is good news provided it holds up beyond seasonally adjusted January. But it is important to understand--as most media commentators don't--what the numbers actually mean before we begin the euphoric celebration.

Finally, the reporting of the jobs number which reflects the reality of the lives of tens of millions of Americans has risen to a distasteful level of political rhetoric. These are real people out of work. People who want to work and provide for their own families. The message should be clear. People are still hurting and a decline in the loss of jobs does nothing to help those who are without one. As mentioned in earlier blogs, the work force has declined from 66.1% at the end of 2007 to 63.9% at the end of 2011. When those people drop out of the work force, they cease being counted, understating real unemployment. That is why it is important to consider U-6, the employment number which counts those working part-time who are seeking full-time work and those who have simply stopped trying. That number weighs in at 15.6%.

Hardly a cause for celebration.

Monday, January 23, 2012

Wednesday, January 18, 2012

On the Question of Whether Iran Should Obtain a Nuclear Weapon

An excerpt from today's The Wall Street Journal; all you need to know about Iranian leadership.

"Accommodationists argue that a rational Iran can be contained. Not the Iran with a revered tradition of deception; that during its war with Iraq pushed 100,000 young children to their deaths clearing minefields; that counts 15% of its population as "Volunteer Martyrs"; that chants "Death to America" at each session of parliament; and whose president states that no art "is more beautiful . . . than the art of the martyr's death." Not the Iran in thrall to medieval norms and suffering continual tension and crises."

Monday, January 9, 2012

Will the Real Unemployment Rate Please Stand Up?

Despite the breathless claims that the economy is getting better as witnessed by the supposed improving jobs numbers, it is important to note the relevant numbers.

If jobless claims are declining because the number of people seeking jobs is declining then the reduction is not a measure of economic improvement rather, the statistic reflects job seekers giving up and dropping out of the work force.

Art Laffer wrote in his January 5th report, Housing, GDP and the 2012 Election that today's unemployment rate stands at 8.6%. (U-6 which is the measure of those who have accepted a part-time job but are seeking full time work--the underemployed--is now at 15.6%). But, the most important measure is the labor force participation (those still looking for work) which has dropped from 66.1% in late 2007 to 63.9% (Laffer Associates). This decline is confirmed by the duration of unemployment which currently hovers at 41.1 weeks against a sixty year average of 14.4 weeks (Housing). In other words, since January, 1948 the average number of weeks an individual was unemployed is 14.4. Until now the previous peak was approximately 22 weeks during the early 80's recession. We currently sit at 41.1 weeks.

This is unsustainably bad news and should be reported as such by the media rather than lauded with selective statistics that do not reflect the reality of the lives of millions of Americans who simply want to get back to work.