Friday, April 30, 2010

The 3.2 Percent Recovery

There is no real recovery. Normally at this stage of a recession as the economy begins to chug upward, the rate of growth is between six and eight percent. Not this one. Instead we're looking at 3.2 for the first quarter of 2010.

That is a disaster. You can't make any progress on unemployment with these kind of numbers. What is the Administration's reaction? Start bullying Wall Street!

The stock market can read all of this and, since the announcement of the government's war on Goldman Sach, has been dicey at best and down in direction. The markets will probably, from here, get much worse. The problems in the Eurozone are simply a precursor of problems that will, in time, cross the Atlantic.

There is no Obama Adminstration economic strategy. They've run out of bullets. And they are rapidly running out of scapegoats. Demonizing American business is not a recovery strategy.

Hunker down. Things are not going to get much better unless good things happen in November.

Anyone Interested in Economic Recovery?

The Obama Administration seems not to understand that there is a recession going on.

To repeat the obvious: employers do the hiring in the private sector. If employers aren't enthusiastic about the future, they are not going to be hiring. Does the Obama crowd understand this?

Instead, the "war on business" continues. The media suggests that, in an effort to bail out their woeful November prospects, this Administration has decided to further demonize Wall Street and the business community. Maybe that will get them a few more votes. It might. But, it will continue to have a depressing effect on our economic prospects.

Job number one is jobs. That is where the Administration should have its focus. Unemployment is the single most important problem the country faces.

I guess since the Obama folks have jobs they don't care about the rest of the country. It sure looks that way.

Wednesday, April 28, 2010

"You Shouldn't Be Selling Junk"

Senator Levin's oft-stated remark yesterday that Goldman "shouldn't be selling junk, shouldn't be selling crap" to its customers suggests that when a stock or bond gets downgraded or falls on hard times, that it should cease to trade. There is currently a huge market in "junk" or "crap," as Levin so artfully describes it, sold daily by investment banks, broker dealers and banks. High yield debt is perhaps the most prominent example. Levin, judging from his comments, would eliminate these markets.

This is in keeping with the Democrats plans to deny funding to weaker firms and start-ups. Only well-heeled, successful companies would be eligible to sell securities in the Levin world. If your company has a "BB" rating, then, since it is junk, it should not be able to raise capital at any price.

That logic should be extended to the used car market. Only new cars should be sold by car dealers. There should be a Levin ban on the sale of all "junk" cars and "crap" cars.

Once again, this policy means favoring well heeled companies at the expense of smaller, growing companies. Employment, it is worth noting, grows most rapidly at companies that Levin would describe as "junk" or "crap." By denying these companies access to the capital markets, Levin would deny millions of American workers the opportunity to have jobs. Levin has his job. What does he care if 10 percent of American workers don't have jobs?

Levin is a pretty callous individual, to put it mildly.

Tuesday, April 27, 2010

Goldman in the Dock

Strange...I never thought that I would find myself a defender of Goldman. But, here I am.

The Senate hearings today proved beyond a shadow of doubt that not one single member of the Senate committee has the remotest inkling of how capital markets work. It was an embarrassing spectacle. The only intelligent participants in this debacle were the present and former employees of Goldman Sachs. Our elected representatives revealed themselves as complete idiots -- bi-partisan idiots at that. Perhaps, the worst questioner of all was John McCain. He has no idea what he is talking about. But, in his defense, none of the other Senators had a clue either.

The end of all of this will be the permanent shift of the world's financial capital from New York and London to Hong Kong and Singapore. The Chinese understand how capitalism works; the US Senate does not.

FinReg Is a One More Nail in the Coffin

The Financial Regulation package heading through the Senate will, no doubt, be passed. It is a terrible piece of legislation that virtually guarantees another round of serious financial instability for the United States. In every way, FinReg is misguided. It is punitive in spirit and language, and will have a corrosive effect on the financial standing of Wall Street.

It is interesting that as the Asian economies are headed toward world dominance, the US is busy shooting itself in the foot. This mirrors the pattern that occurred as Western Europe slipped into the mire of war, confusion and fascism that ultimately led to the US assuming world dominance. Asia need only continue doing what they are doing as the US passes law after law that will consign the US economy to the dustbin of history.

Government Policy Matters

Politics matters. What governments do or don't will determine the future course of economic growth.

Expanding government led to the economic stagnation of the 1970s (and, interestingly, the decline of the US as a world power). The rollback of government (and tax rates) ushered in by the Reagan administration in the early 1980s began the greatest peacetime boom in American history (and a return of America's pre-eminence in world affairs ultimately resulting in the collapse of the Soviet Union).

Inevitably, the economy stumbled. Booms always come to an end. That doesn't mean that a bunch of bad guys did it. It just means that long period of prosperity eventually hit speed bumps. The normal and natural reaction is to let those who have overextended themselves pay the price. When that policy is followed, the economy bounces back, usually rather quickly, and within a short time, the recession is over and the economy is humming once again.

The Bush-Obama administrations decided they could control the economy and they proceeded to do that with bailouts, expanded government, and, curiously in the case of Obama, new restrictions on business hiring and consumer lending. (This was a repeat of the mistakes made by FDR that prolonged the economic crisis of the 1930s into a decade of economic misery).

This means that the next generation's economy will be characterized by stagnation (perhaps stagflation, meaning a depressing economy with skyrocketing inflation rates). Folks like Obama think they are creating a "fairer" America. In a certain sense, they are. All Americans will be poorer as a result of their policies. Ultimately, we could force the country into a general destitution like the 1930s, which, I suppose, meets the "fairness" criteria of Barrack Obama. If no one has a job, then, in some sense, we are all being treated fairly, according to the Obama doctrine.

There is no "compromise" or "commission" way to curb the national debt. It can't be done. Sooner or later there will be an "effective" default of the debt and a breaking of the promises of social security, medicare and medicaid. That process began with Obamacare stripping $ 600 billion our of medicare reimbursements, which means old folks, promised care under medicare, will not get it thanks to Obama.

So, governments matter and the current regime will lead the US into stagnation and ultimately decline as a nation and as a national power. Sometimes, not always, one gets the impression from the President that this is an outcome that he prefers.

If there is a sweeping national reaction to the nationalization of much of America's private sector that has taken place under Bush and Obama, then perhaps another Reagan revolution will be possible and the US can, once again, be the "shining city on the hill," to borrow a phrase from Ronald Reagan. But, it will be tougher this time because the footprint of government is much, much bigger than it was when Reagan took office.

Monday, April 26, 2010

Obama Does The Nation a Favor

The President's moving tribute to the miners who lost their lives in the Massey mining disaster was a model of what the President's role should be in a great tragedy. The President avoided placing blame and naming scapegoats. Instead, the President extolled the miners as family members who were attempting to live the American dream and improve the lives of their families. Three cheers for President Obama. This was a warm and welcome message to families who have suffered great losses.

Mr. Buffett; Meet Mr. Obama

Warren Buffett is lobbying fiercely to exempt his own firm, Berkshire Hathaway, from the absurd provisions of the new financial regulatory reform bill, now circulating through the US Senate. What Buffett objects to in the bill is the provision that will make existing derivative contracts provide the ridiculous levels of collateral that will be required under the law. As Buffett notes, "legitimate hedgers" will be penalized.

What Buffett doesn't seem to understand is that no one really knows who the "legitimate hedgers" actually are.

Buffett's firm has $ 60 billion in derivative contracts in place (why is this a surprise...they are an insurance company after all). Buffett, who has been one of the nation's greatest critics of other people's use of derivatives, seems to think what is good for the goose is not good for the gander. Buffett thinks he should play by his own set of rules. Such hubris!.

Lets hope that Buffett loses in his effort to carve out another Nebraska "Cornhusker" provision for himself. Buffett has been a cheerleader for the Obama stranglehold on this country. He should pay the same price as everyone else and play by the same rules as everyone else.

Welcome, Warren, to the new ObamaWorld.

Friday, April 23, 2010

Good Bye Greece....Next?

Is California next? Or will it be New York State? Greece is only the opening bell.

So Much for the Rule of Law

The Financial Regulatory "Reform" bill puts the White House in the unique position of deciding arbitrarily what to do and when with our largest financial institutions. There are no rules. This is the "Putin regime" transplanted to the US. If Obama doesn't like what Citigroup or Bank of America are doing, he can simply order them to do something else (like hire his brother-in-law). This is "reform," according to the White House.

This means that our largest financial institutions will simply become political arms of the White House. That's pretty much the Putin system.

Obamamotors Tells a Whopper

Are you under the impression that GM has paid off its obligation to the US taxpayers and that it has turned around its bankrupt business? Wrong on both counts.

GM took in $ 52 billion from taxpayers under the TARP program thanks to Obama. Using this same TARP money, not earnings, GM recently repaid $ 7 billion to the government. There were no earnings to support this "repayment." The repayment came from the TARP money provided in the $ 52 billion, $ 45 billion of which is still owed to the taxpayer.

GM is a nightmare and has not turned itself around. This is simply one more Obama whopper trying to pretend that something has happened that has not happened. So much for transparency in government.

Thursday, April 22, 2010

The SEC Looks Foolish

More and more evidence is emerging that the SEC case against Goldman is completely full of holes, from start to finish. As much as the Obama Administration wishes to deny the link, it seems apparent that the SEC action is politically motivated. On a split decision, 3-2, with Democrats outvoting the two Republicans, the SEC took the unusual action to: 1) proceed with an action on a split vote; 2) not give the target, Goldman Sachs, the opportunity to respond. This is government by scare tactic, not government by legal principle.

Tuesday, April 20, 2010

Are Paulson's Views in Early 2007 Relevant?

In early 2007, as the subprime lending market was crumbling, Paulson's views, to the extent they were known, were extremely bearish. It is reasonable to assume that IKB, RBS, and ACA were familiar with Paulson's views. If not, how could Paulson's views matter to them?

Whenever you purchase a "synthetic CDO" from a broker dealer, you know that someone, somewhere is the "other side" of the trade. Someone has to be the seller of the insurance contracts (the CDSs) that are contained in the "synthetic CDO." How could it possibly have mattered if IKB and RBS had known that Paulson was much of the other side? They had to know for certain that someone, possibly even Goldman, was taking the other side of their trade.

This brings us to ACA, the so-called independent advisor, who picked the CDSs contained in ABACUS, the CDO purchased by IKB and RBS. ACA, apparently did not know that Paulson intended to short sell the CDOs in the ABACUS package. So what? Would they have weighted Paulson's views more strongly than their own? ACA had a full research team poring over the CDSs to select for ABACUS. Some came from Paulson, many of Paulson's were rejected, and most that were selected were not on Paulson's list.
So, just how did Paulson matter?

More to the point, a broker-dealer is not obligated to inform buyers of a security, the identity of the seller. Such a requirement would destroy much of the current securities market. Imagine if every time Warren Buffett sold a security, the executing broker announced to the market place that the seller was Buffett!

The SEC is way off base in this complaint and, hopefully, Goldman will prevail in the court of law, if not in the court of public opinion.

Monday, April 19, 2010

Does the SEC Understand the ABACUS Transaction

ABACUS is the specific CDO bundle purchased by IKB Germany and Royal Bank of Scotland, which is the focus of the SEC's allegation of fraud against Goldman Sachs.

What is remarkable is that the SEC Complaint talks about mortgages contained in the CDO. There are no mortgages in the CDO known as ABACUS. I wonder if the SEC understands the difference.

If there are no mortgages in ABACUS, what is in ABACUS?

ABACUS is a "synthetic CDO." It consists of Credit Default Swaps (CDS's). CDS's are plain and simple insurance contracts, in this case insuring mortgages. Specifically the CDS's in ABACUS insured sub-prime mortgages. If you insure subprime mortgages and they go belly up, you lose. If you buy a bundles of CDS's that insure subprime mortgages and the suprime market gets worse you lose.

That was a bet that both IKB Germany and RBS were willing to take. Paulson's activity is completely irrelevant. ACA did not listen to most of the advice Paulson gave them and they have no obligation to disclose who they talk to regarding their investment advice. At the time, Paulson was considered a crank who thought the whole housing market was going to go under. IKB Germany and RBS did not share Paulson's view. They thought the worst was over. It wasn't. They lost.

Anyone buying a 'synthetic CDO" knows that it is a bet that the underlying CDS's will not have to pay off. IKB Germany and RBS took that risk with their eyes open and Paulson had nothing whatever to do with that. Had Goldman disclosed Paulson's activity, it would not only violate a customer confidence, the information that Paulson is taking the other side would have been totally irrelevant to IKB and RBS. In any event, there no way it is a legally required disclosure for a transaction that Goldman is merely acting as a placement agent.

If you don't like the laws, change the laws. But, don't invent crimes where there are no laws that make such activity a crime.

Goldman is a convenient whipping boy for the guys that really caused this crisis -- Barney Frank and Chris Dodd and Congress over the years. Bernancke and Geithner played an absurd role in the Fall of 2008 and permanently altered capitalism's historic role of letting losers go bankrupt and letting winners win. Now, everyone is too big to fail, soon to be codified in the Financial Reform Legislation that Obama and Dodd are trying to cram down Congress's throat.

The Obama Administration is nothing but political theater. They sit in their offices deciding who to slap down next and who to provide lavish funding to. Picking winners and losers. Capitalism used to pick winners and losers, now Obama does that job.

Sunday, April 18, 2010

NYS Obamacare at $ 17,876 per Year

Yes, $ 17,876 per year. That is the annual health insurance bill for Ms. April Welles of New York City, according to a front page story in the New York Times this morning. New York requires the pre-existing conditions requirement that is the cornerstone of the Obama plan, recently enacted into law. The predictable result -- skyrocketing health insurance costs, as healthy folks simply checked out of the insurance market, leaving only the unhealthy on the insurance rolls.

This is only the beginning. Insurance rates are headed much, much higher for New York State (and Massachusetts). These two states are in a race for the highest health care costs in the civilized world and the highest insurance rates on the planet. That's because both states enacted Obamacare at the state level. This is our future -- astronomical health care insurance rates and astronomical health care costs. Thank you, Mr. President. That is change!

"At the Height of the Housing Boom?"

The Wall Street Journal commits the same error aa the Justice Department in this morning's story on the Paulson-Goldman Sachs fraud allegation. The Journal article begins with "At the Height of the Housing Boom......."

2007 - The Height of the Housing Boom? Are they nuts? Most subprime lenders went broke in 2006. Housing prices peaked in 2005. By the time of the Paulson-Goldman story, the housing market was coming apart at the seams. How is this the "height of the housing boom?"

That's really the point. At the time of the Paulson-Goldman CDO transaction, the housing market was getting crushed and the subprime lending disaster was front page news. That was the environment that IKB Germany and Royal Bank of Scotland purchased the CDO package from Goldman Sachs. They were betting the worst was over. They weren't making a bet during the boom. They made that bet as the market was falling to pieces. They knew perfectly well that Paulson thought they were stupid. They thought he was stupid. Where's the crime?

The media is making this look as if IKB and RBS were innocent lambs led to the slaughter. That is a complete misreading of this particular transaction. IKB and RBS both knew that the subprime lending market was a disaster and that residential housing, in particular, was getting crushed. They knew before they bought the Goldman CDO package. This was not "the height of the boom."

Why base the allegations against Goldman on a lie?

One of the allegations floating around in this mess is that Goldman mislead IKB and RBS into believing that Paulson was buying the same stuff that they were buying. Come on! Was there anyone on the planet in early 2007 that thought that Paulson would buy a package of CDOs? Paulson was on the financial news network almost daily in early 2007 blasting the CDO market and the residential housing market. Are they alleging that IKB and RBS were completely ignorant of the surrounding financial world? Another absurd allegation by the Justice Department. (This is like suggesting that Obama was backing Sarah Palin in 2008).

Saturday, April 17, 2010

Goldman Sachs and Early 2007

What was going on in early 2007? New Century Financial collapsed in early 2007. Most sub prime lenders had gone belly up in 2006. The entire subprime lending market was going down the tubes. Everyone knew that, except, apparently, the Royal Bank of Scotland and IKB Germany.

If you were alive and breathing in early 2007 and did not know that the subprime market was collapsing, then you must have been an idiot.

In this environment, enter John Paulson and Goldman Sachs. With the disaster of subprime lending making front page headlines daily in early 2007, Goldman and Paulson created a package of subprime CDOs with a Triple B rating and IKB Germany and Royal Bank of Scotland, two very sophisticated investors, bought them.

What was happening? Knowing full well that the subprime lending market had been blown to pieces in 2006 and early 2007, IKB and Royal Bank of Scotland decided to buy the CDO package and bet that the worst was over. They bet wrong. The worst was not over. Paulson bet right. The worst was yet to come.

So, where is the fraud? There was no one in the financial world that did not know that John Paulson thought subprime lending was going to come a cropper. It was the daily stuff of business news. Certainly, the honchos at IKB and Royal Bank of Scotland were fully aware of Paulson's views and that Paulson's views applied specifically to the package of CDOs that they were buying. They thought Paulson was wrong and bet accordingly.

Just exactly what did Goldman fail to disclose -- that Paulson helped select the CDOs in the package that the big bank investors bought? Was that the crime? Besides violating a customer confidence, the information would have been completely irrelevant to IDB and RBS, both of whom were aware of Paulson's views on exactly the kind of CDOs that they were buying. The knew that Paulson thought they were crazy; they thought Paulson was crazy.

Goldman did not "underwrite" the CDO package. They did sell the package, acting as a placement agent. There is no way that they were required, under the law, to disclose the role of John Paulson. (It would not have mattered to IKB or RBS, in any event, since they were well aware, along with anyone else breathing, that subprime CDOs were a huge risk in early 2007).

It is easy to use Goldman as a whipping boy here, but the truth is that the buyers knew what they were buying. They had bought a lot of this stuff both before and after they bought the Goldman package. They just made a wrong bet. Paulson bet right.

There is no crime here. Goldman did nothing wrong.

Wednesday, April 14, 2010

The Old Saw -- Tax The Rich

There continues to be the strange and perplexing discussion about taxing the rich. Are they kidding?

The government can set tax rates but they cannot set tax revenues. To make this point obvious, just imagine that the government decided that tax rates were going to be 100 percent of income. You think revenues would go through the roof?

The potential to increase revenues by raising tax rates is's limited for any income group, but it is especially limited for the rich. The rich don't get w-2s. They get 1099s. Big difference. The rich can control, by adjusting their asset mix, the amount of 1099 income that they take in and the rich can control the form in which it comes. Not true with w-2 income. You have to quit your job to lower w-2 income. So, if you have w-2 income, you're stuck. The middle class has mostly w-2 income.

The middle class is trapped in the Obama tax machine. Taxing the rich is just conversation to fool the gullible. There are no real additional revenues available from taxing the rich.

That's why the Obama folks and the Congressional Democrats are talking about the VAT (the Value Added Tax). That tax is paid by the middle class.

Ultimately, it doesn't much matter what tax is discussed. Entitlement spending will outrun any tax program. In fact, the entitlements will outrun GDP eventually. So, what difference does the tax system make over the long haul. VAT, higher taxes on the rich, whatever. These are just Democratic talking points.

The reality is that nothing can keep pace with the growth in entitlements -- not in the US, not in Greece, not in Germany, not in the UK, not anywhere.

The rich aren't quaking in their boots over higher tax rates, because they know they are not going to pay higher taxes, even if there are higher rates.

The only real impact of higher tax rates on the rich is to convince entrepreneurs and businesses to hire fewer people and be much more cautious in expanding their businesses. This simply means higher unemployment and economic stagnation. That's the Obama way.

Tuesday, April 13, 2010

85 Percent -- Need Not Apply

Obama's soon to be announced executive order will eliminate 85 percent of construction workers from the opportunity to be part of Federal building and construction projects, where the project involves a cost of more than $ 25 million. The wording of the order restricts contracts to those contractors whose workforce is unionized. Since union labor only applies to 15 percent of the construction workforce, this is one more example of Obama policy of "stimulus for the few." Unless you are politically acceptable to this Administration, you are left out. More picking winners and losers by Barrack Obama. This is the Chavez way.

Monday, April 12, 2010

New Book Out

I hate to shamelessly plug my own book, but here goes:

My new book, "The Fall of 2008," is now available on Amazon (and Kindle) and at most bookstores. This book is an attempt, by me, to explain what events led up to the financial crisis of the Fall of 2008.

If you are looking for red meat, it is not in this book. This is not a political book, it is an economics book. It is an effort to explain what happened, not find scapegoats.

It is cheap.

Stay tuned. I have two more books in progress, due out in late summer.

20 Percent in 1939

Seven years of Franklin Roosevelt and what was the unemployment rate -- 20 percent. At the time Roosevelt was sworn in, unemployment was 25 percent -- the worst level in American history. Roosevelt's last year as a peace time president was scarcely much better. Is this our future?

Burt and Anita Folsom tell the Roosevelt story succintly on the editorial pages of the Wall Street Journal this morning. It's worth a read.

The Obama economic program is, in many ways, worse than Roosevelt's. Roosevelt's programs, by and large, commanded popular support. Nothing in Obama's agenda, domestic or foreign, commands popular support. Even now, polls show that 55 percent of the American public are opposed to the recently enacted health care legislation.

What about the economy? If the temporary census workers had not filled the gap last month, the unemployment rate would have risen back above the double digit level. Now, public employees, no longer protected by the so-called "stimulus" package, will be laid off in droves in states that teeter on bankruptcy. California and New York are in the headlines, but the majority of states are in similar straits.

Now what?

Obama has run out of bullets and now we pay the piper. Economic stagnation and a growing federal bureacracy are our future. Hope and Change?

Sunday, April 11, 2010

"Targeting" Solutions

The Obama Administration seems wedded to the notion of "targeting solutions." What this means if that if you are going to give a tax break, give it for a specific activity and confine it to what you call the "middle class." The problem with this is the tax code is beyond complexity. It is a completely hopeless, non-sensical jumble of special gimmicks that were embedded by previous "targeted solutions."

Such "targeted solutions" are great for tax accountants and folks like Turbo Tax, but are a disaster for a citizen attempting to understand his/her obligations under the tax system of the United States. He/she has no idea what she pays or why, but he/she knows that its a lot. It is.

"Targeted solutions" have unintended consequences. The few that understand the "targeted solutions," inevitably "game" them. Much of the stimulus package (tax and spending) simply went to reinforce the income and wealth of folks already on top of the pile -- the poor and the unemployed were, by and large, ignored by the Obama stimulus -- not an unusual result of programs designed to help the unfortunate, they mainly end up helping the fortunate (friends of the Administration).

That's why targeted solution are inappropriate in a free society. In a free society, the tax rules are transparent and broadly applied. You don't single out special groups (or states or localities) to be treated differently than others. The same rules apply to all in a free society. No one is "more equal" than anyone else.

Obama and most (Democratic and Republican) politicians don't get this. A free society presupposes that people understand what their government is doing, including how it is getting its money. In a free society, all citizens are treated equally under the law. "Targeted solutions" are fine for Russia or Venezuela, but not for a free society.

Thursday, April 8, 2010

Why the West Has a Debt Problem

With a few exceptions (Denmark for one), every country in Europe as well as the United States has a debt implosion in progress. Why? Why now?

Part of the answer is that world savings have grown as the world has grown wealthier and the ability to finance a larger amount of debt has increased dramatically over the past four decades. Human nature tells us that when you can borrow more, you borrow more. Countries are even more susceptible to this disease than individuals.

But the real problem is not the availability of credit. That will eventually reach limits. What is unlimited shows up on the expenditure side.

As long as governments merely provide for court systems, police protection, national defense, most countries have no problems funding themselves. What takes things to a different level is the modern (European and American) concept that certain goods and services are "rights" that must be provided to everyone and that no one should be required to pay for them. Retirement and health care now fall into that category for most western nations. In Europe and America, retirement and health care are now "basic human rights." Using that phrase means, if you don't have the money to pay for these things, they will be paid for anyway by the government.

"Rights" become free goods. No one needs to save now in order to provide these goods for themselves. They will be provided free. By whom? The demand for a free good is essentially unlimited. That's why US health care costs have been rising dramatically since medicare was first enacted in 1964. These rising costs have only just begun. Having free retirement rights means no one has to save for their retirement. Why bother? Retirement is free.

As you expand the free services of government, someone has to pay for it. Who pays? First you go after rich people. Then the almost rich. Then you go to the international debt market (you have to go international, because free retirement and health care eliminates the need for saving by your own citizenry). Then you try a sleight of hand -- sales tax, value added tax, whatever. None of this will help. A free good is a free good. Nothing slows its price increase. More revenue simply sends the prices soaring even higher.

We've taxed the rich and the near rich. Further rate increases will yield less revenue, not more, as income is shifted or shielded away from the tax code. We are nearing the limits of our international debt capacity. Greece is simply the opening bell of an international debt conflagration. Now Volcker and Bernanke are calling for value added taxation. Value added taxation is mainly a tax on the middle class, in much the same manner as a sales tax. It won't matter. There is no revenue solution to the entitlement program.

There are no free goods. Either the entitlement program is dishonored and/or dismantled or the western nations and the US will go bankrupt. There are no other outcomes, given the arithmetic.

Sunday, April 4, 2010

Are Teachers Underpaid?

How do you determine if someone is underpaid or overpaid? Is it just who shouts the loudest?

Is there some standard by which we might answer this question? Well, in fact, there is.

If teachers make $ 50,000 per year, for example, some might say that that isn't enough. After all, they are teaching our children. What is enough? Is there ever enough? Especially, since they are "teaching our children," no matter what the salary. This is an argument with no salary limit. But, what is the real answer to this question.

The answer is simple enough. Are there other folks equally qualified to be teachers who are willing to work for $ 50,000 or even less? What is the answer to that?

There is not a single school district in the United States for which there is not a long line of qualified applicants, who would love to teach in that district, but cannot because there are no openings. What does that mean? It means that teachers are much more likely to be overpaid rather than underpaid. Why? Because lots of folks like to teach, especially young college graduates, and are willing to work for less money to pursue a vocation that they enjoy. So, there is no reason to raise teacher salaries and there exist fairly strong empirical grounds for lowering teacher salaries (and benefits) until supply and demand are brought more into balance.

The situation is even worse at the college and university level. Tenure means that faculties age and atrophy while talented younger academics cannot find positions. These younger Ph.d.s are typically better teachers, more engaged in research and willing to work for far fewer dollars than their ossified tenured brethren. But, they cannot get in the door. College and university teachers are overpaid. That's one of the (many) reasons that college costs are out of control.

When you overpay a group of employees systematically, then you end up overcharging the consumer of those services -- our children and the taxpayers. You can't cut a special deal (tenure, whatever) without damaging the interests of those who have to foot the bill. For the sake of taxpayers, for the sake of our children and the families that provide for our children, we need to get realistic about what we pay teachers at all levels.

It is no accident that private school teachers are paid substantially less than public school teachers. Why? Because the private schools pay market rates. Public school teachers are overpaid.

Not Much Recovery; Obama is Fading

Fifteen months into the Obama "regime," there is no sign that Obamanomics has done anything other than damage the prospects for an economic recovery in the US. Unemployment remained stubbornly high at 9.7 percent in the March report released last Friday, while the economy gained a meagre 160,000 jobs. If there was a real recovery in process, job growth would exceed 200,000 per month with a good month exceeding 250,000 jobs. This is not likely to happen until Obama is out of office.

The American economy is in stagnation mode. There will be a mild recovery. Not nearly enough to save the Democrats in November. They will get slaughtered. The interesting question is what is Obama's future, as he continues to tack feverishly to the left of center, while the public mood moves further to the right of center. Polls show that Obama is continuing to lose ground with the public and that the health care legislation is more unpopular than ever. His recent stump speeches seem disconnected and repetitious. The legislative victory of the health care bill has not produced the much expected recovery in Obama's popularity. His situation is deteriorating and he looks it.

The overwhelming issue to Americans is the economy. People want more jobs created in the private sector. This will not happen under Obama. Obama dislikes the private sector and has aggressively sought to nationalize whatever parts of private American that he can. The public now senses that this is the wrong direction for the country and it seems clear they know why. Only Obama is mystified, because his knowledge and understanding of the private sector is limited. He continues to push for mandates, higher taxes, higher restictions on businesses. That means fewer jobs.

Obama is America's version of Hugo Chavez. Whatever he wants, he thinks the people want. It doesn't bother him (nor does it bother Chavez) that polls shows that the public is opposed to their policies. They are so sure that they are right and that the people are wrong, that they are going to use every weapon at their disposal to force the public to do what they want. Chavez has so far survived by such tactics in Venezuela, though his country's economy is collapsing around him. One hopes that Obama can be defeated politically before he takes the country down with him.