Thursday, January 31, 2013

“Guns, Banks and Pensions – Overreach”

Sydney M. Williams

Thought of the Day
“Guns, Banks and Pensions – Overreach”
January 31, 2013

Rahm Emanuel will be forever known for his 2009 comment: “Never let a crisis go to waste!” Now, as mayor of Chicago, he has used the tragic killings in Newtown to encourage a pension fund for municipal employees to divest its holdings in three companies that manufacture weapons. Additionally, he has been strong-arming two of the biggest financial institutions in the country, Bank of America and TD Bank, to stop supporting gun manufacturers by providing them lines of credit, urging the banks to agree to “common sense reforms” on firearms. While, Mayor Emanuel has the right to express his opinion, as do we all, in his case, because he is the mayor of the nation’s third largest city, he should exercise restraint, as interference in bank lending practices can be tantamount to blackmail. Chicago is not alone in using pension assets to force social change.

The California State Teacher’s Retirement System decided to sell their investments in companies that manufacture guns and ammunition clips banned in the state. The California Public Employees Retirement System plans to review its holdings in the next few weeks. The Philadelphia City-retirement Pension Fund has adopted a set of “Sandy Hook Principles.” Those rules would apply not only to armaments’ manufacturers, but to retailers like Wal-Mart, unless they back gun control measures and universal background checks. Thomas DiNapoli, New York’s comptroller and sole manager of the New York State Common Retirement Fund, sold their holdings in Smith & Wesson, and is freezing investments in related businesses because the “national movement toward greater regulation of firearms manufacturers will impose significant reputational, regulatory and statutory hurdles that may affect shareholder value.”

The subject causes me to repeat a caveat I have used before. I neither hunt nor shoot. Apart from Army basic training fifty years ago and skeet shooting once even before that, I have never fired a weapon. That doesn’t mean I disapprove of them in the hands of law-abiding citizens and I recognize the value of the Second Amendment. But guns are just not important to my life. I would love a world without guns, criminals, psychotics or war. But that is ideal, certainly not reality.

There are at least two aspects to the impulsive reactions of states and cities to the Newtown massacre, like those mentioned above, that I find troubling. One is that politicians have no right to use assets that belong to current employees and retirees in order to promote social change. It is morally wrong, in that the assets do not belong to the politicians. It is fiduciarily wrong in that investment decisions should be determined solely on providing the owners of the funds the best risk-adjusted return their individual needs demand. To make a portfolio change because it accords to a social position can have unintended consequences. In the mid 1990s, politicians urged their state and municipal pension plans to divest their holdings in tobacco companies, which many did. Ironically but not surprisingly, since the end of 1995, Altria (formerly Philip Morris) has risen 385% while the S&P 500 is up 144%. Quick-fix, do-something/anything actions rarely accomplish what is intended.

The second troubling aspect of the aftermath of Newtown is that the emphasis on controlling which weapons can be purchased has detracted from a more meaningful focus on the criminal and psychotic behavior of the perpetrators. It is akin to blaming the Ax Manufacturers’ Association rather than Lizzie Borden for the 1892 killing of her parents. It is far easier to go after guns and gun owners than to enter the nether regions of psychological behavior. The problem is, naturally, it is only legitimate gun owners who will comply with any new laws. Criminals will find alternatives. Why, for example, does Chicago with some of the toughest gun laws in the country have one of the highest incidences of murders and shootings? Last year 62 school age children were murdered and 446 were shot, yet there was barely a whisper in the national press.

That raises the point that is almost always mass murders or multi-victim accidents that get our attention. Every day in the United States about 90 people are killed in automobile accidents, yet such accidents receive little attention. On the other hand a plane crash that kills 90 would be front page news. Twenty school children killed by a maniac with weapons provided by his mother, whom he also killed, has deservedly been front page news for a month and a half, yet 62 school age children killed in Chicago last year warrants barely a whisper. Why does one event shock us and the others are passed over? Mayor Rahm Emanuel can claim to be proud of Chicago’s gun laws, yet the facts tell another story. Connecticut has had one of the tougher gun laws in the nation; yet a mother in Newtown taught her mentally handicapped son to shoot. Would even tougher gun laws have prevented such a tragedy? I am not sure, but keeping guns out of criminal hands and a better knowledge, awareness and focus on those who have mental and emotional problems may make more sense.

It is, of course, understandable that when bad things happen politicians must be seen to be doing something, no matter what. But it is the consequences of their often ill-considered responses that are troubling and potentially counter-productive. State and municipal pension funds, in general, are woefully underfunded. Pressuring them to make investment decisions based on political motives can turn a bad situation worse. Similarly, decisions to ban certain weapons and cartridges on the premise that doing so will ensure that another Sandy Hook will ever again happen makes good press, but easy answers don’t always resolve complex problems.

Tuesday, January 29, 2013

“Richard Fisher – A Voice of Reason at the Fed”

Sydney M. Williams

Thought of the Day
“Richard Fisher – A Voice of Reason at the Fed”
January 29, 2013

One of the more interesting papers I have read in the past few weeks was the January 16th speech given by Richard Fisher, President of the Dallas Federal Reserve, in Washington. His remarks complemented his usual clear-headed approach toward the financial crisis of 2008 and banking matters in general. He laid out the risks to the financial sector, and he included a commonsensical proposal for addressing the problem of too-big-to-fail banks (TBTF), which have grown even bigger over the past four and a half years.

Not unlike children with lenient parents, the largest banks have an implicit understanding that government will not allow them to fail. For banks, absent the risk of bankruptcy, the consequences can be dangerously reckless behavior. Dodd-Frank has added complexity to the problem, benefitting lawyers and bureaucrats, but doing little for the safety of our and the world’s financial systems. Dodd-Frank, Mr. Fisher notes, runs to 16 titles and 848 pages. More than 8800 pages of regulations have been proposed, and “the process is not yet done.” He quoted Andrew Haldane, a member of the Financial Policy Committee for the Bank of England, who suggested last summer at Jackson Hole that complying with these rules would require 2,260,631 labor hours each year – or a minimum of $2.250 billion.

Mr. Fisher’s definition of banks too big to fail includes those “…firms whose owners, managers and customers believe themselves to be exempt from the process of bankruptcy and creative destruction.” As he notes, there are 5600 U.S. banks. Of those, twelve with assets between $250 billion and $2.3 trillion control 69% of industry assets. More than half the assets at TBTF banks, according to Mr. Fisher, are supported by uninsured/unsecured liabilities. And the borrowing costs to the TBTF banks are less than their smaller competitors, because lenders are willing to accept lower rates because the knowledge of a taxpayer backstop eliminates the risk of failure. It becomes self-perpetuating.

The problem, according to Mr. Fisher, extends beyond the risk of another government bailout; the nature of the large banks’ multiple business lines – securities trading, real estate, insurance, etc. – has limited their commercial lending operations. (A table Mr. Fisher provided indicates, for example, that J.P. Morgan Chase has 5,183 subsidiaries in 72 countries!) While a lack of business confidence and individual de-leveraging have perhaps played the principal roles in our nation’s feeble economic recovery, the failure of the banking industry to provide loans to small businesses cannot be ignored. Writing in the January 20 issue of the New York Times, Gretchen Morgenson commented on the continuing failure of big banks to lend. Community banks – those with less than $10 billion in assets – control just 12% of the industry’s assets, but hold more than half of all small-business loans. Large banks, without market discipline, have tended to seek riskier, and potentially more profitable, assets in which to invest – where profits would accrue to the bank’s employees and shareholders, while losses would be assumed by the American taxpayer.

Mr. Fisher illustrates his point by noting that when Lehman declared bankruptcy – a bankruptcy that is still not completely resolved – its assets were one quarter those of J.P. Morgan Chase today. He rhetorically asks: “If Lehman Brothers was too big for a private-sector solution while still a going concern, what can we infer about the big five [J.P Morgan Chase, Bank of America, Goldman Sachs, Citigroup and Morgan Stanley]?”

Mr. Fisher’s recommendation is that the big banks ultimately be separated into multiple entities along varying business lines – that they get divided into a more sophisticated version of Glass-Steagall. The first step would be to rollback the federal safety net, so that it applies only to basic, traditional commercial banking. It would “never ever” apply to the customers or lenders of any other affiliated subsidiary of the holding company. He added, “The shadow banking activities of financial institutions must not receive taxpayer support.” But, Mr. Fisher acknowledged that undoing customer inertia and management habits may take years. Regardless, in his opinion, by statute (and enforcement) only the commercial banking operations should have access to deposit insurance and the Federal Reserve’s discount window. To reinforce the statute and its credibility, Mr. Fisher proposes that every customer, creditor and counterparty of every shadow banking affiliate and of the senior holding company be required to agree to and sign a new covenant – “a simple disclosure statement that acknowledges their unprotected status.”

Mr. Fisher stated that “…government intervention may be necessary to accelerate the imposition of effective market discipline.” Entrenched forces, inertia on the part of customers and investors, and lobbyists will likely require some government intervention. But, once accomplished, “…market forces should be relied on as much as practicable.” He concluded his remarks by noting that the Administration and Congress had recently agreed on legislation that affected one percent of the population. “Surely,” he added, “it can process a solution that affects 0.2% of the nation’s banks and is less complex and more effective than Dodd-Frank.”

It is encouraging to hear the president of the Dallas Fed make such a recommendation; most problems require simple, understandable solutions. However, I am not particularly optimistic that simplicity will ever replace complexity in Washington. It is worth recalling that Cyril Northcate Parkinson who created the eponymous law – work expands so as to fill the time for its completion – worked in the British Civil Service. Mr. Parkinson had noted that even as Britain’s empire shrunk, the number of people working in the Colonial Office expanded. Bureaucrats and lawyers in Washington who thrive on complexity would starve under simplicity. Keep in mind, last September the Washington Post reported that seven of the nation’s ten wealthiest counties are in the Washington D.C. metropolitan area. It is cronyism, not common sense that determines much of the legislative and executive processes in the nation’s capital. Reform is possible at the local level, where the correlation of taxing and spending are better understood. It is far more difficult at the national level.

Nevertheless, there may be something to the old adage: “when the going gets tough, the tough get going;” so it is possible that if conditions become dire enough common sense will prevail. As Mr. Fisher noted, if we do nothing and when we next face another financial crisis, (which we will) we will be left with two solutions: bailout or end-of-the-world-as-we-know-it. While neither choice is acceptable, the answer would probably be the lesser of the two evils, bailout – an action that would likely send markets plummeting, taxes soaring and the economy cratering. Richard Fisher is indeed a voice of reason in a cacophony of Washington discordance. Let us hope that Congress and the White House are listening.

Monday, January 28, 2013

“Women in Combat”

Sydney M. Williams

Thought of the Day
“Women in Combat”
January 28, 2013

Call me old fashioned; though, truth be told, I am old, but not in the least fashionable. I love the differences between the sexes and I rue that chivalry is out of date. I recall my grandfather, at the age of 89 standing when I introduced him more than fifty years ago to the woman who is now my wife. I was raised in a family with strong female presences. My mother and both grandmothers were mentally tough, intelligent and fiercely independent. Yet their husbands were respectful of them as women, as well as individuals. However, can I picture my grandmothers in the trenches during World War I, or my mother fighting alongside my father against the Germans in Italy’s Apennines? Not really.

Last week, Defence Secretary Leon Panetta, with the backing of the Joint Chiefs of Staff, announced that women would henceforth be allowed to serve in all combat situations. The announcement was couched in the Left’s language of fairness and diversity. An editorial in “National Review Online” raised the point: “… the U.S. military is neither a social-justice project nor a laboratory for feminist innovation. Its job is to secure the national-security interests of the United States.” Personally, I have no objection to women serving in any capacity in the military, as long as standards of strength and psychological temperament are maintained – not lowered to accommodate equality. The question that should always be asked of any recruit: will he (or she) enhance or compromise the unit with which they will serve?

The rationale for the change is the accusation that women have been denied promotion for lack of combat experience. That may be valid, but if that is the case the answer may lie elsewhere. West Point was first integrated in 1976. Since then three women have become First Captains. Currently women account for approximately 17% of the student body. Walter Williams, an economist and conservative political commentator has argued that West Point indulged in “gender specific” physical standards, allowing women to receive passing marks despite underperforming their male counterparts. Perhaps it is for that reason that the Army Physical Fitness Test (APFT) was overhauled last year, the first time since 1980. The old test required completion of three events: two minutes of push-ups, two minutes of sit-ups and a two mile run. The new test has five events: 60-yard shuttle run, 1-minute rower, standing long jump, 1-minute push-up and 1.5 mile run. Is the new test easier for women? I don’t know. What I do know is that we should never lower standards, which might imperil the safety of our troops or our nation, in order to achieve social justice.

The idea of placing women in combat situations is not new, nor unique to the United States. Over the past ten years, about 400 American women have died in the Iraq and Afghanistan wars. Israel has deployed women in combat roles since 1973, Canada since 1989, New Zealand since 2000 and Australia since 2011. History is replete with famous women warriors, beginning with the Amazons of Greek mythology. They include Queen Boudicca of England who helped drive the Romans from Britain; Joan of Arc who fought the British during the 100 Years War; Fallen Leaf, a Crow warrior and later a chief, Calamity Jane (whose real name was Martha Jane Canary) who was a scout and Indian fighter in the second half of the 19th Century, and others too numerous to name.

The lead editorial in Friday’s New York Times lauded the concept of women being able to serve in combat roles, writing that it was “a triumph for equality and common sense.” If by equality they mean that women now have an equal chance of being killed or wounded, that will be true. If they mean that Special Forces teams or forward observers may be equally divided between men and women, I suspect the answer will be no. War should always be a last resort, but once engaged the purpose is to win. Thus what are needed are the strongest and most skilled individuals, be they male or female. But the battlefield should be no place to experiment with women’s rights issues. As to the Times comment that the decision was a “triumph” for “common sense,” I leave the explanation of that observation to those of you far more insightful than I.

One can never avoid sex when discussing the mixing of the species. Sexual attraction is a powerful human emotion. And jealousy is not far behind. Unplanned pregnancies are about 50% higher for women in the military than for the general population, with little difference between those deployed overseas or stateside. Linda Chavez, writing in Saturday’s New York Post, noted that a study of a brigade operating in Iraq in 2007 showed that women sustained more casualties than did their male counterparts, and they experienced three times the evacuation rate. Seventy-four percent of the women evacuated were for pregnancy related issues. These factors raise questions that have little to do with equality and a lot to do with effectiveness.

But I find the whole discussion sad, distasteful and frankly distracting. In the interest of political correctness and feminist equality we risk overlooking the important differences between the sexes that make life so enjoyable. A search for equality detracts from the importance of love and respect. Men and women are not the same, certainly not in a biological or emotional sense. Evolution gave to women the ability to give birth, in part, I suspect, because of their greater ability to endure pain. We are built differently, as nature has created different roles for us. Men generally have greater upper body strength and, in most cases, are less emotional. John Gray’s book, Men Are from Mars, Women Are from Venus, sold more than 50 million copies since being published in 1992. He explains that women typically have excelled at languages and tend to have better manual dexterity, while men usually have better quantitative skills. There are, obviously, numerous exceptions to the general rule.

The French have an expression, “viva la difference,” which is an expression of appreciation for diversity, especially between men and women. My daughter at about the age of two, and with a brother a year and a half older, apparently decided that equality of the sexes extended to one’s physical attributes; so she once relieved herself while standing. The results were not pretty. Today, as a forty-something wife and mother, she relishes her womanhood.

Women should receive equal pay for equal work. They should have all of the natural and legal rights of men. On the scales of justice there should be no difference. No matter their job, whether a stay-at-home mom or Secretary of State, they deserve our respect and admiration. But the questions remain: Are we sending women into combat solely to achieve numerical equality? Will physical and emotional standards be compromised? Should not our priority be mutual respect that acknowledges and celebrates our differences? Would not that make ours a more civilized and enjoyable society?

Friday, January 25, 2013

“A Partisan Inaugural”

Sydney M. Williams

Thought of the Day
“A Partisan Inaugural”
January 25, 2013

Nobody will ever deny that President Obama is a master orator, as long as his speech writers have been busy and his Teleprompters are functioning. He is articulate, with a well modulated voice. In his inaugural, he borrowed phrases from the Constitution, the Declaration of Independence and Lincoln. Of the twenty-seven paragraphs in his second inaugural, four began with the words “We the people…” and one began, “For we the people…”

Such words and phrases may warm the heart of a conservative, but the underlying vision was one of an expanded central government that would push a social agenda of green energy, climate control and gay rights. There was very little in the speech addressing the needs of the economy, jobs, deficit reduction, or the persistence of al Qaeda networks and affiliates. In fact, in regard to the latter, he wants to eviscerate the military while promoting his policy of leading from behind.

Seeking the high ground, the President said we cannot, “…treat name-calling as reasoned debate.” Keep in mind his re-election campaign had alleged that Mitt Romney was a liar and implied he was a killer. Stephanie Cutter called him “a felon who was unconcerned about wives of workers dying of cancer.” David Axelrod called him an “artful dodger” and the President’s staffers referred to Bain Capital as being “like a vampire; it came and sucked the life out of us.” In spite of an adamant refusal to negotiate with House Republicans and an agenda that does not allow for partisanship, Mr. Obama had the chutzpah to proclaim: “We cannot mistake absolutism for principle…” While politicians of all stripes become vituperative during campaigns, an inaugural is typically conciliatory and inclusive. Mr. Obama’s words reflect a “take no prisoners” and “divide and conquer” attitude, sounding more like Saul Alinsky than a founding father.

The speech provided a sense of Mr. Obama’s priorities for his second term. It gave the public an opportunity to better understand the extremism of this President. It avoided any discussion of our unusually poor economic recovery. While GDP growth continues positive, it is doing so at a very modest rate, too slow to absorb population growth. The unemployment rate remains where it was four years ago, but that is because of the millions that have left the labor force. According to the Bureau of Labor Statistics (BLS), non-farm payrolls at 132,461,000 remain just over a million less than four years ago. During the past four years about six million people entered the labor force. The President’s policies of antipathy toward entrepreneurs have failed to solve the riddles of increased competition from overseas, and the replacement of people by technology. He proclaimed that “America’s prosperity must rest upon the broad shoulders of a rising middle class,” yet during his first four years as President poverty has increased and dependency on government has expanded. Over the past four years, there has been a 24% increase of those on disability insurance.

In his speech, Mr. Obama emphasized social issues, like full equality for women, gay rights and the “victims of prejudice.” He spoke of the importance of sustainable energy sources, while ignoring hydraulic fracking and offshore drilling that would lead to energy independence. He spoke of the “threat of climate change,” but incorporated fear mongering and exaggeration, rather than real innovation. These are all important issues, but doo not have immediacy of finding more jobs. He offered “commitments” to Medicare, Medicaid and Social Security, yet offered no explanations as to how to contain their costs. In terms of Social Security, in 1940 there were 42 workers for every retiree. Today the number is just over three. Using myself as an example, it takes the contributions of 5.4 workers to pay for the Social Security benefits received by my wife and myself. Three workers per retiree won’t do it.

Ironically, the President has done little for African-Americans. As a race, they have been victimized by failing inner city schools, as a consequence of placing union interests (a major funding source for the President) above those of the children. At 14.3%, Black unemployment is almost double that of the nation as a whole. Family cohesiveness among African-Americans is low, while drug use is high. While he spoke movingly about “a little girl born into the bleakest poverty,” he has never acknowledged African-Americans like Clarence Thomas or Thomas Sowell who were born into unimaginable poverty, but succeeded as conservatives. In fact, he has trivialized them because of their political beliefs.

In words more common to revolutionaries and tyrants, he persists in dividing the country, isolating one small segment of society (the “wealthy”) for blame as to the woes on the nation – the “shrinking few [who] do very well,” while “a growing many barely make it.” Vilifying any segment is always fraught with risk; though, admittedly, there are times when revolutions are necessary. In colonial America, it was the King and Parliament. In 1789 France, it was the monarch and the aristocracy. In 1917 Czarist Russia, it was the Czar and the aristocracy. In Hitler’s Germany, it was the aristocracy and the Jews. Other than President Nixon (and perhaps Franklin Roosevelt), it is hard to think of an American President that has so denigrated a specific sector of our society. While serving to rally his faithful followers, such words dampen the aspirations of millions of others who still see the country as a land of opportunity.

It is worth repeating that no matter how much we might like things to be otherwise, people are all different. Equality is in the eyes of the law and in the opportunities afforded us as Americans. But we are not equal in intellect, athleticism, looks, aspiration, or effort. In any society, there will always be a few who will do very well and many more who will not. While we are a compassionate people, no political system can change that. And, we should be thankful for the magnanimity of many of the wealthy. Without them where would our hospitals, museums, symphonies, schools and universities be? Functionaries of government? I doubt it.

Presidential inaugurals represent the peaceful transfer of power. They have done so for more than 200 years. It is typically a time of reconciliation – of healing wounds inflicted over four years of partisan politics and years of negative campaigning. But Mr. Obama used this occasion more like a stump speech – an opportunity to lay out a leftist agenda that calls for a stronger central government, increased dependency and more redistribution. All of what he wants costs a lot, yet there was little focus on how to pay for it. Mr. Obama knows how to appeal to the masses – Everybody likes Santa Claus; nobody likes Scrooge.

Tuesday, January 22, 2013

“Manti Te’o – A Morality Tale?”

Sydney M. Williams

Thought of the Day
“Manti Te’o – A Morality Tale?”
January 22, 2013

“Curioser and curioser,” cried Alice in Lewis Carroll’s eponymous story, as she telescoped into a much larger version of herself. And so goes the story of Manti Te’o and his virtual girlfriend, Lennay Kekua. She conveniently “died” on the same day in September as did Mr. Te’o’s real grandmother, providing an extra sentiment to the Michigan game, a game won by the Irish 13-6.

My first reaction, upon hearing of the sorry episode of Manti Te’o, was to think of the young boy who allegedly called out to Joe Jackson, “Say it ain’t so, Joe.” “Shoeless Joe” Jackson of the Chicago White Sox had just left the courthouse in Chicago where he was standing trial in 1921, along with eight others, accused of throwing the 1919 World Series. When, a few weeks ago, I had asked my grandchildren for examples of heroes, one eleven-year old mentioned Manti. Te’o. At any age, learning that one’s heroes are not perfect is a difficult lesson to digest.

At this point, we do not know if Manti Te’o was part of a conspiracy to gin up sympathy and support to help in the voting for the Heisman, or whether he was the victim of a dastardly hoax. I truly hope (and think) it was the latter. But the history of using tragic and early deaths to motivate athletes is a long and storied one. Allegedly, long-time Notre Dame Coach Knute Rockne, when having a rare bad year in 1928, invoked the name of former player George Gipp who was tragically dying. The story is that on his death bed and just prior to the West Point game, Gipp whispered to Rockne, “Win just one for the Gipper.” They did. The 1973 movie “Bang the Drum Slowly” tells the story of two professional baseball players who were best friends, Henry Wiggin and Bruce Pearson. Pearson, a mediocre catcher at best, had just learned he has Hodgkin’s disease. He pledges Wiggin to silence, but because Pearson is such a bad player and Wiggin insists on using him as his catcher, the team begins losing games. Eventually Wiggin blurts out the truth. The team’s fortunes change. They go on to the World Series. Pearson dies. The audience weeps, and box office receipts soar.

Most people my age find it implausible, that anyone could have a virtual relationship. But we live in a different time. Social networking and internet dating have become commonplace. For an individual like Manti Te’o, who was known as being somewhat naive and was obviously time constrained, it is understandable how he might have been sucked into a phony relationship. Mr. Te’o, allegedly, was an individual who believed the best about everyone, but apparently with more than a touch of gullibility. While it may sound supercilious, he was at Notre Dame because of his prowess on the football field, not because of the intellect he brought to the classroom. He majored in graphic design, not nuclear physics.

It is also possible that the entire episode was a concoction of Notre Dame’s public relation’s department, but I find that hard to believe. The University has a world-wide reputation and would not be so short-sighted as to put their University at risk. It seems most likely that this was a hoax perpetrated on a young man by immature miscreants who perhaps never realized the harm they were doing. Once begun, it became hard to stop; thus the death of Lennay became necessary. Timing her death to coincide with that of his grandmother was an act of treachery that possibly will reach deep into the psyche of Manti Te’o, hopefully with no tragic results.

Adding fuel to the story is a media that provides perpetrators celebratory status. Public confessions to Oprah Winfrey or Katie Couric serve both them and their guests: The worse the behavior of the accused, the larger the audience. Liars and cheats like Lance Armstrong can confess before an audience of millions in hopes for redemption, and if not redemption then remuneration. The possibility of personally making millions of dollars helps absolve thwarted careers and assuage what crocodile tears may be shed. In a simpler day such opportunities were unheard of. “Shoeless Joe” Jackson’s last few years were spent in Greenville, SC where he operated a dry cleaner and liquor store. In those days, heroes who strayed paid for their sins. Today, they are more inclined to use their notoriety to add to their wealth.

But to compare the deliberate and heinous lies of Lance Armstrong to the misguided indiscretions of Monti Te’o, assuming he is guilty, is like comparing Bernie Madoff to the guy who robs the local 7-Eleven. Both were wrong, but one did infinitely more damage and did so for a decade. Mr. Armstrong condemned his competitors, while he maintained a veneer of respectability for himself. Even in apology, Mr. Armstrong could not help himself, in that he inferred he was not alone in using drugs; so was not solely responsible – that others were equally guilty. Will the non-existence of Lennay hurt Mr. Te’o’s chances at the NFL draft? No one knows, but one would suspect it shall. The cause, as I wrote earlier, had to stem from one of three possibilities: a deliberate act on the part of Mr. Te’o to generate publicity; a fabrication on the part of the University, with the same goal of eliciting sympathy (the least likely), or (in my opinion, the most likely) a hoax that preyed on the naïveté of a gullible young man.

Nevertheless, and no matter who bears responsibility, the actions of both Mr. Armstrong and Mr. Te’o reflect a decline in civil behavior. The actions of both indicate a failure of our society to teach the difference between right and wrong. The episode speaks volumes about our press, which is more interested in providing entertainment than hard news. Consider, for instance, why did not one reporter seek an obituary for Ms. Kekua in September? As Alice said, the episode becomes “curioser and curioser.”

In every age there have been examples of incivility. Society will never be 100% just, moral or fair. But our current age has seen an unprecedented decline in civil behavior. The “Golden Rule” is passé. Moral certitude has been consigned to the dustbin of history. Relativism rules. Who is responsible? We all have been. In a world in which political correctness and moral relativism trump basic rules of right and wrong, we cannot expect the moral norms of yesteryear to triumph. Is it possible to return to a more civilized society? Perhaps, but change will have to begin with family and be endorsed by our cultural and political leaders. For example, there is little question that children brought up in single-parent households have a more difficult time than those raised in traditional two-parent family structures. If the First Lady were to use her office to focus on the importance of marriage and traditional family values in raising children; people’s concepts toward families might change. Gay rights and obesity are issues deserving support, but pale in importance when compared to the role of the family. Dysfunctional families are a cause of much of society’s troubles, especially in African-American households where 70% of babies are born out of wedlock. If there is a moral to the unfortunate tale of Manti Te’o, it is that when we look for a cause we find it is us, explicitly or implicitly, overtly or covertly.

Friday, January 18, 2013

“Tax Rates – They’re Going Up”

Sydney M. Williams

Thought of the Day
“Tax Rates – They’re Going Up”
January 18, 2013

Not too long ago, I thought common sense would prevail, that a balanced approach toward reduced spending and a more equitable and progressive tax would be found. The Bowles-Simpson gave credence to such thoughts. That no longer seems probable. It may still happen, but certainly not until after the 2016 elections. While defense expenditures will be reduced, there is not much else in the budget that Mr. Obama has any interest in cutting. Even when Washington talks of reducing spending they speak only in terms of reductions in the rate of increase, not in absolute numbers. Entitlements remain a “third rail.” Spending will continue; trillion dollar deficits will remain and our nation’s debt will continue to soar. Taxes will rise for everyone.

In a more rational world, bond vigilantes (creditors) would rein in spending. But the Federal Reserve has removed, at least temporarily, that risk. The two to three trillion dollar increase in their balance sheet represent bonds that neither individuals nor foreigners would have found attractive at current rates. There has been no interest on the part of the Administration in reducing spending, other than to take credit for a natural reduction in military spending associated with winding down the wars in Iraq and Afghanistan.

The only means of reducing deficits will have to be higher taxes, which, perversely, may be a good thing. When everyone’s taxes go up and the economy does not leap forward, attention may be paid to the crux of the problem – we have created a welfare state that is unaffordable. Additionally, artificially low interest rates have masked the true damage done to our economy through mismanagement.

The President is an expert in telling voters what they want to hear – that programs like Social Security, Medicare and Medicaid are sacrosanct, as will be ObamaCare, and that they will be paid for by the “rich.” Well, he has raised taxes on the wealthy and before allowing for behavioral changes, those increases will raise an extra $62 billion a year for ten years, accounting for about 6% of today’s annual deficits. Even should, miraculously, tax receipts return to their pre-crisis level of 18% of GDP that would mean continuing annual deficits of $400 billion. The Congressional Budget Office (CBO) has determined that, under the terms of the fiscal cliff deal, our debt of $16.4 trillion will increase by $4 trillion over the next ten years, and they do not allow for changes in behavior that higher taxes will cause, nor the effect of an increase in money supply on inflation. The only way to pay for the government Mr. Obama wants is to increase taxes on middle income earners. That will happen. Taxes will also rise on investments, which is counter productive when further investment is needed to boost economic growth. And lastly, there will be a VAT. The latter is particularly offensive, in that it is both clandestine and regressive. It is stealth-like, and it hurts the middleclass more than the rich. All of these taxes will principally affect the middleclass and retirees. The Buffett’s of the world, large corporations and green energy concerns will be largely unaffected.

Mathematically, we cannot continue as we have been. Entitlements will not be touched under Mr. Obama. In fact, because of Obamacare, they have increased. It is certainly possible that when middle income earners are faced with higher taxes, as they will be, there could be a revolt. Let us hope so.

Politicians, including the President, realize that the revenues necessary to operate the size government they desire cannot be paid for by the wealthy alone. As the Wall Street Journal noted Tuesday, if the government taxed 100% of those earning more than $500,000, the IRS would take in $1.29 trillion, “a little more than 2012’s deficit.” Despite the President’s promises to the contrary, it is middle income earners who will have to pay for the government he wants.

The real debates, which this President would prefer to avoid, are: what programs do people want, and how much are they willing to pay? The first is discussed ad infinitum; the second, though, not at all. The Sandy bill was a microcosm of what will become future Congressional debates. The government should always be there to pay for natural devastations, such as last fall’s hurricane. But in order to pay for them, shouldn’t spending be cut somewhere else, or should not a surtax be deployed? Unfortunately we have created a culture in which federal funds are considered by government as free money. It is not. Either it must be generated through taxes, or it must be borrowed.

Over the past few decades, federal income tax has averaged about 18% of GDP. In 2011, with $2.3 trillion collected, the average was about 15.4% of $15.1 trillion in GDP that year. The difference between the historical annual average and the current rate amounts to $400 billion. The annual increase of taxes on the wealthy, coupled with increases in taxes on investment income and taxes associated with paying for ObamaCare amount to approximately $60 billion. Obviously the least painful and most productive way of increasing government’s tax receipts would be faster economic growth. Governor Bobby Jindal of Louisiana understands that, while governors like Jerry Brown of California do not. Mr. Jindal has proposed eliminating the state income tax, while Mr. Brown has proposed raising the one in California, which will now become the highest in the nation. The exodus that began a few years ago will persist. Mr. Jindal, in contrast, has taken the more progressive approach, which over time will bear fruit.

Tax reform and simplifying the 4 million words that comprise the tax code make the most sense, but there is too much self-interest and cronyism to expect meaningful reform. Consider the beneficiaries of our tax code – lawyers, accountants, tax preparation firms, farmers, exporters, both old and new energy firms, drug companies, real estate firms, homeowners, Hollywood, eleemosynary institutions and myriad other organizations. There isn’t much of a chance for meaningful change. Since 2001, according to Investor’s Business Daily, there have been 5000 changes, or more than one a day. Complexity will persist.

Unfortunately, as long as Mr. Obama is President, government will consume an ever-increasing share of the nation’s GDP. Consequently, taxes are going to have to go up, and the middleclass will have to bear the brunt of the burden, for that is where the money is. To believe otherwise is to misunderstand the man we have elected President.

Wednesday, January 16, 2013

“Aren’t We One People?”

Sydney M. Williams

Thought of the Day
“Aren’t We One People?”
January 16, 2013

Societies are complex. Nevertheless, they serve to unite people. There is, of course, an inclination among individuals to band those that are like-minded individuals. It manifests itself in groups ranging from street gangs to fraternities and sororities, to union and non-union workers, and to business and social clubs. But the bigger and more natural tendency is to become part of the larger community of citizens, not segregationists. The United States is the world’s best example of an amalgam of people from different nations, races and creeds. People from all over have come to these shores, and in a few generations most have been assimilated into a single unity known as the American people. Issues such as racism and sexism have moderated enormously over the past few decades; though surely have not disappeared. Xenophobia and homophobia still exist, but are not as rampant as they once were.

However, politics, commerce and the internet have countered these trends toward absorption. Technology has allowed marketing to become more specific in terms of reaching targeted audiences for specific products. Internet dating services play the same role our grandparents once provided – ensuring we stick with those of the same race or creed. But it is our politicians who have done the most to divide us.

For reasons that have to do with marketing, politicians compartmentalize us in myriad ways with intended consequences. They find it easier to address issues relevant to a small minority rather than discuss more important questions involving, for example, the real costs of specific entitlement programs; or what it might mean to our nation’s independence to gut our military. It is far easier for them to look upon immigration as an Hispanic issue, racism as an African-American issue, taxes in terms of fairness, and education from the perspective of teacher’s unions.

The victims of Hurricane Sandy become pawns of those in Washington who look upon the catastrophe as a re-election opportunity; so they load up a bill, allegedly designed to send money for a specific purpose, with pork, and then decry those who question its integrity as being unjust and insensitive. Despite soaring debts and deficits, no attempt, in terms of a tax or the cutting of a cost elsewhere, is made to pay for this additional expense. The same lies and deceits are uttered by politicians who have used the mass killings in Newtown to advance an agenda more likely to garner votes than results. Does it not make you squeamish and does it serve any purpose, other than to embellish Mr. Obama’s self image, to have children as props as he announces his proposed gun control solutions today? Would mainstream media have treated President Bush similarly, had he used as props new-born infants when discussing the morality of abortion? Instead of uniting a nation, these events, in the hands of politicians, divide us. The interests of politicians are not in finding solutions, but in advancing careers. The media has too often served as an accomplice, not a watchdog.

A good example of the latter was that of the Journal News, a newspaper serving Westchester and Rockland Counties in New York. What the paper did may have been perfectly legal, but certainly violated a moral sense. The paper was able to combine Google Maps with public information as to registered gun owners. They then published a map showing the names and addresses of those individuals. Their stated purpose implied a public service, but, in fact, served to increase tensions among gun owners and their opponents, and might possibly give rise to further violence. It also helped sell more papers, which was likely their real goal. They certainly did not serve the public interest.

When South Carolina Governor Nikki Haley appointed Representative Tim Scott to fill Jim DeMint’s Senate seat, a seat once occupied by segregationist Strom Thurmond, she and he were criticized – she because she was accused of acting in her self interest, which was probably true, and he by the Congressional Black Caucus because he does not blindly adopt their agenda. The daughter of Indian immigrants appointing an African-American to the U.S. Senate from a state that was the first state to secede from the Union following the election of Abraham Lincoln in 1860 is a remarkable testament to the way in which our nation has become a community of individuals. However, putting the interests of the American people first is not considered a politically correct position when a powerful (and hypocritical) political bloc may be at stake.

Politicians love to speak of America as one country, a place that is tolerant of everyone, with differing ideas, but where opportunities abound for all. Yet they campaign divisively. We are sliced and diced into the tiniest components – so that square pegs can fit into square holes. Caucasians are not just white, but old or young, male or female, high or low income, city, suburban or country. We are Hispanic, African-American or Asian. We are part of the 99% or the 1%. Or, perhaps we are part of the 47%. We are gun owners, or we are opponents. Whatever our differences and inclinations, they are exaggerated by those we have elected to govern us. We are not considered by them to be simply Americans.

We are all different and we have varied abilities, interests and aspirations, which is a good thing that should be celebrated. It is the creation of artificial barriers, mostly by politicians that is a concern. For a few days following 9/11 the country experienced a brief period of unity unlike anything we had experienced since World War II. Nobody wants another tragedy such as we experienced that fateful September morning. But I also don’t believe we need to live lives that have been arbitrarily carved up by politicians whose motivation is power and re-election, not what is right for the people or the Republic. Despite intentions to divide us, we are after all one people…are we not?

Monday, January 14, 2013

"Some Worrisome Concerns"

Sydney M. Williams

Thought of the Day
“Some Worrisome Concerns”
January 14, 2013

Narcissism has become part of the American experience. Extreme adamancy provides a false sense of clarity and comfort to advocates of myriad causes. It infects all our lives, from school children who are protected from what Jim McKay used to call “the agony of defeat,” to politicians’ lies that have become second nature, to a media more interested in advancing an agenda than in providing facts. We see it in the lives of celebrities, glorified by media, despite any semblance to anything representing a universal sense of morality. False pride, however, can never be sustained. A potpourri of recent events illustrates the point.


The New York Times recently trumpeted the fact that 2012 proved to be the warmest year in the contiguous United States, since records began being kept. To them it was proof that Al Gore and Michael Moore are correct in their warnings – that absent a self-indulgent and wasteful American consumer the planet would be in better shape. The Times chose, of course, not to report on the unusually cold winter China has been experiencing thus far this year, or that what is true for the “lower forty-eight” is not true for the planet, or for Alaska or Hawaii. While I suspect that man and his activities do have some influence on climate, I would suggest that it is less than many believe. Carbon Dioxide, which usually gets the blame for global warming, is a trace gas that currently occupies a little less than 4/100ths of one percent of atmospheric volume. A study of the effects of changing weather patterns over the millennia indicate a planet that has undergone changes far more extreme than anything now being discussed. And this happened without the assistance of man. For example, when the ice age was at its peak 10,000 years ago what is now Boston sat beneath a glacier that has been estimated to have been a mile high. In their attempts to assign blame (and to promote industries in which they have a financial interest,) people like Al Gore detract attention from the fact that the planet is always changing. Everything in the universe is in constant motion. Sun spots and very slight shifts of the earth’s rotation can cause severe temperature changes. Tectonic plate shifts cause earthquakes and Tsunami-like waves. The polar caps are always either increasing or receding. The earth’s temperature is always changing. Plant and animal species are born and die out. Nothing remains as it is. To pretend otherwise is to ignore nature.


A recent 378-page study (commissioned by the National Institute of Health, an agency of the federal government) by the Institute of Medicine indicated that the United States came in 17th of 17 industrialized nations, in terms of death rates. This was true for people, from birth until age 75. Elderly Americans actually lived longer than most of their counterparts. The report also states that we spend more money on healthcare on a per capita basis than any other country. Apart from the elderly, that’s a pretty sorry showing. While the survey will lend support to Obama Care, one should be careful with the statistics; though the numbers on infant mortality are sobering.

The problem seems to be as much about our lifestyle, as it is about our health system. According to the New York Times, the report notes that Americans, prior to the age of 50, experience higher incidences of death from car accidents, gun violence and drug overdose than those in other countries. Fewer Americans wear seatbelts or motorcycle helmets than their counterparts. In part, early deaths can be attributed to what is claimed to be a more sedentary lifestyle and, as we all know, obesity is a problem peculiar to Americans. And what about the elderly? Why do Americans, if they can make it to 75, live longer than those in countries with supposedly better healthcare systems? Does that not say something about our healthcare system? After all, 25% of one’s spending on health services occurs in the last year of one’s life.

And what about infant mortality, which is highest in the U.S.? The number of children born out of wedlock in the U.S. has reached epidemic proportions. In part, it is a function of poverty and ignorance, but the example set by celebrities set unfortunate standards. According to Forbes, 41% of all births in the U.S. in 2010 were to unwed mothers. In the U.K., in contrast, the rate is closer to 7%. The poverty rate among unwed mothers exceeds 40% according to the U.S. Census. The annual cost of childcare is about $20,000, not a problem to a Hollywood starlet or a professional athlete, but unaffordable to a single mother earning less than $25,000 a year. This is as much a societal problem, as it is a healthcare one. Michael Goodwin writing in Sunday’s New York Post, noted that Daniel Patrick Moynihan, when discussing “defining deviancy down,” suggested that a “declining society accepts as normal bad things that are not normal.” Hoping not to sound too puritanical, that seems to be us.

There is little question that our healthcare delivery system is expensive, but I would argue that has to do with too much government interference, not too little. Consumers have very little say in pricing. The employer system we use is not individually tailored; it is designed for groups. High deductible policies are essentially non existent and fifty state insurance commissioners and their staffs must be supported, not one. Health insurance companies are not permitted to compete across state lines. And, of course, our tort system keeps doctor’s liability insurance at very high levels – all of which get baked into the charges the insurance companies pay. The fear of being sued means that doctors cover their bases by prescribing more procedures and drugs than may be necessary, thereby increasing costs.

Our system is far from perfect, and there are still too many uninsured. But the private market has a way of addressing unmet needs, witness the recent increase in clinics that alleviate the demand on emergency rooms. Government needs to set standards and make sure both the medical profession and the insurance industry adhere to regulations, but what the system really needs is a bigger dose of the consumer involved in pricing decisions.


Last week James M. Buchanan died. While his was not a household name, he was a Nobelist in economics and the leading proponent of the ‘public choice theory.’ The theory states that politicians and public officials, like everyone else, are motivated by self-interest. He argued that politicians are motivated by power, not the public interest. He was a believer in smaller government, lower deficits and fewer regulations. His was a theory that seems especially relevant today, with sanctimonious politicians, from the President on down, raving self-righteously about “serving the people.” Another concern of Professor Buchanan was what he saw as a common misperception that public debt, when it is held by government agencies, is not harmful to future generations. Even today, many in the media and in government, when referring to federal debt, talk only of that held by the “public.” Wrong, according to Professor Buchanan. All of our debt is an obligation of present and future taxpayers. In our narcissistic world, seduced by cant and charisma, James Buchanan was the antidote our society so badly needs.


The 2013 Index of Economic Freedom was published last week by the Heritage Foundation and the Wall Street Journal. Almost all of the world’s advanced countries lost ground, as “populist” democratic movements used the power of government to implement redistributive policies. In this ranking, the U.S. is now numbers 10, having lost ground for five years in a row. Writing in last Thursday’s Wall Street Journal, Terry Miller, director of the Center for International Trade and Economics at the Heritage Foundation, noted: “Trade flows – the engine of world growth – have declined as the U.S. economy has stagnated. Protectionism threatens consumers with higher costs and restrictions in supply.” Too many regulations generate uncertainty. The quest for “fairness” impedes freer economies and, perversely, harms the ability to achieve intended social goals. It is the rule of law and the protection of minorities’ rights that suffer when government participates in what Alexis de Tocqueville called the “tyranny of the majority.” It is an instance where the narcissism of the ruling class, unfortunately and unfairly, determines the fate of their subjects. All Americans should see this decline in freedom as a warning shot across the bow of our vulnerable ship of state.


And, last but not least, Congress’ favorable approval ratings have shrunk to 9% in a recent poll, which places them below head lice, colonoscopies, Genghis Khan, cockroaches and the French. This was according to the Democratic-leaning firm, Public Policy Polling. While we naturally focus on the humor of such surveys, they mark a real failing of our government. The executive, judicial and legislative branches were established to be co-equal and to balance one another, so that no one branch assumed too much power. The ridiculing of one branch opens the door for the others to take up the slack. Over the past seventy years the executive branch has become increasingly imperial. It is a trend fraught with risk to our democracy. We see it almost daily on the part of the Obama White House as they use executive orders to skirt Congress. It is a concern that we the people, along with our representatives in Washington, must address with the utmost in seriousness.

Friday, January 11, 2013

“Predicting the Unpredictable”

Sydney M. Williams

Thought of the Day
“Predicting the Unpredictable”
January 11, 2013

Wall Street has always been an El Dorado, a place of almost infinite possibilities where allegedly alchemists deftly spin theorems into gold. It has always attracted the best and the brightest, but also the greediest and most nefarious. Its siren call has beckoned the most creative among us, for self, not public, interests. They come to Wall Street because, as Willy Sutton once said about banks, it’s where the money is. In recent years, as the power of computers have become more intrusive, the pull of the Street’s gravity has yanked mathematicians and scientists from the halls of academia to the immense trading floors of Wall Street banks and hedge funds. And, throughout it all, while humility is in short supply, hubris is not.

Into this realm has arrived yet another book designed to prove that it was not the quantitative geniuses that almost did in Wall Street five years ago. According to this author, it was the misuse of algorithmic models by those who didn’t fully understand what they had. The road to salvation, according to The Physics of Wall Street, requires a more comprehensive use of physics than we have witnessed heretofore, not less. The book has been written by James Owen Weatherall, professor of logic and philosophy of science at the University of California, Irvine. The subtitle of his book is “A Brief History of Predicting the Unpredictable.” Professor Weatherall cites as Exhibit A, the phenomenal success of James Simon’s hedge fund, Renaissance Capital and the fact that they do not hire financial experts. A third of their 200 employees have PhDs in math, physics and statistics. Other firms hire quantitative analysts, but their decisions, bemoans Professor Weatherall, are too often over-ridden by their associates whose qualitative skills take precedence over their quantitative ones. Certainly, though, Mr. Simons’ success cannot be denied.

But there are, to this observer whose quantitative skills lag those of his eleven-year old grandson, at least two risks associated with a growing reliance on sophisticated modeling techniques. One is the very unpredictability of human behavior. And the second is that predictability, in any measure, leads to an excess of confidence by the speculator. Audacity can cause the speculator/investor to forego what advantage he or she may have had by applying unreasonable amounts of leverage to what otherwise might have been a sensible trade.

Behavior economics may be a relatively new science, but its genesis is as old as mankind. It captures, as Adam Smith well understood, the essence of why people respond to different stimuli. The Russian physiologist, Ivan Pavlov, was famous for noting how people (and dogs) can be conditioned to respond in predictable ways. Hercule Poirot, Agatha Christy’s famous diminutive Belgium detective with large mustaches, was always talking of the psychology of victims and suspects. Consumer companies have long understood the need to condition their customers, and certainly successful politicians know how to appeal to both the best and the worst instincts of their constituents. But measuring response is as much an art as it is a science, as every action causes a new and different response. Reducing the study of markets and companies to individual algorithmic equations can save time and provide a backdrop against which conclusions may be compared, but subtleties and a sense of value are not so easily quantifiable.

The second problem is perhaps more dangerous. There is little question that supposed knowledge as to how people and markets should respond to predetermined stimuli provides a level of comfort, which translates into greater confidence and that, in turn, leads to a greater use of leverage. If we assume that a U.S. Treasury Note or Bond is the most riskless investment available to a U.S. taxpayer, anything that deviates from that return involves more risk. And the greater the deviation, the greater the risk. Much of quantitative theory deals with controlling risk. Risks may be quantifiable, in that normalized spreads between one asset class and another, or normalized interest rate differentials are theoretically calculable. But risk may be qualitative, in that they deal with unknowns, such as management, forecasting skills, interest rate movements, business and economic cycles, or behavioral changes. The problem develops when an investor is inoculated with more confidence than he should have because of conviction in his models, a confidence that causes him to increase leverage in search of higher returns.

In his review of Professor Weatherall’s book in last Sunday’s New York Times, Floyd Norris writes that the basic problem that caused the near financial meltdown in 2007-2008 was not that models don’t work – engineering models, after all, have been used for generations in bridge construction – but that they became broadly and unquestionably accepted on the part of banks and regulators. It “allowed an entire system to develop out of models that encouraged a lot of borrowing in order to transform tiny profits into big ones. The result was that rather than losing one bridge we came very close to losing them all.”

Wall Street is better defined as Winston Churchill once described the Soviet Union foreign policy – a puzzle inside a riddle, wrapped up in an enigma. No one has fully mastered Wall Street. But a few have done extraordinarily well, giving aspiration to others. It reminds one of the store that sells lottery tickets, and puts up signs advertising a few past winners but, of course, never acknowledging the thousands of losers – the purpose being, of course, to attract more buyers, which it does.

While Professor Weatherall writes well and is entertaining, no one should believe he has unlocked an understanding of Wall Street. He has not. And Wall Street plays too important a role in all of our lives, no matter what we do, to be treated so trivially. Despite its image of greed and cronyism, it incorporates our investments and those of millions of people with their IRAs, 401Ks and pension plans. The fact that it is indecipherable and unpredictable doesn’t mean it cannot be a force for good. It generally has been. Writers like the Professor add to the mystique that is Wall Street, but should not be taken too seriously.

Wednesday, January 9, 2013

“A View from the Tube”

Sydney M. Williams

Thought of the Day
“A View from the Tube”
January 9, 2012

There is nothing like being in a confined space to focus the mind on big, broad issues. Thirty minutes in an MRI machine yesterday (degeneration of a couple of discs in the lower lumbar region of my spine that has caused sciatica, and is now in its fifth week) allowed the opportunity to consider why so many people are in denial as to what is really happening to the finances of our federal government – and, in fact, in most state and local governments as well.

In physics, there is what is known as the omnipotence paradox. It is best explained in an old Chinese proverb that tells of a man who wishes to sell both a shield and a spear. The shield, he alleges, can deflect any spear. The spear, he promises, can penetrate any shield. How can both be true, asks a respective buyer? In Washington, a similar scenario is playing out. Some will argue that the omnipotent paradox is a consequence of recalcitrant Republicans and demagogic Democrats. But the real problem is a refusal to admit the math. We have had economic policies that have caused sluggish economic growth, resulting in shrinking tax revenues, while spending has steadily increased. To offset rising deficits, the President insists on higher taxes, which history has proven result in slowing economic growth slowing even further, putting increased downward pressure on tax revenues. It creates a downward spiral. What is needed is obvious – more rapid economic growth, which will increases jobs and tax revenues.

Politics of “fairness” is difficult to counter. Who in Washington wants to be known as not being fair? When the President tells the people he wants the wealthy to pay their “fair” share, who wants to argue? But, what does he mean about being fair, especially when the “fiscal cliff” deal raised taxes on 77% of all Americans? And the increase in taxes purports to raise $60 billion annually, while deficits continue to accrue at an annual rate of $1 trillion. Another favorite word of Democrats is “balanced,” as in we must have a “balanced” approach toward addressing the deficit. What is meant by “balanced?” Sunday evening I listened to Representative Chris van Hollen (D-MD) use the word repeatedly. He sounded like a parrot, but made less sense than most parrots I know. Of course, when the same two words – fair and balanced – are used by Fox News to describe their approach to news coverage they are seen as cynical usurpers.

But as used by the President, “fair” and “balanced” are considered more critical than policies that embrace economic growth, which may be neither fair nor balanced but which would cause all boats to rise. Washington seems only to understand growth as it applies to the government – expanding existing programs and adding new ones. It should not be a surprise to anyone that seven of the richest counties in the U.S. are in the metropolitan D.C. area. Nevertheless, government’s revenues do not come from the increased sale of products or services, nor do they come from productivity improvements. Government does not add to GDP; they may consume a larger percentage, but they don’t expand the pie. Revenues are derived from taxes on their citizens – expanding and mining the tax base. It is only the private sector that can create real growth. Government can certainly ease the process, through both tax and regulatory processes. But, as we all know, they can also impede growth. It shouldn’t be a battle between the forces of government and those of the private sector. The relationship should be symbiotic.

The Democratic mouthpiece, the New York Times, in a Monday editorial suggested exactly the type of tax policies that would further retard economic growth. They noted that Mr. Obama has pledged to demand even more significant tax increases, an event with which the Times concurs. Among the Times recommendations were a higher tax on investment income, a carbon tax and a value-added tax. Think about the retardant effects of their suggestions. The country needs increased investments; so they want to tax investments more heavily? For the first time in decades, we have the opportunity to become energy independent; so why layer a carbon tax to prevent that possibility? The measurement of a nation’s GDP is in its sale of goods and services; so why add a regressive sales tax?

Unless Washington is willing to cede power to the private sector and until they are willing to encourage private competition, economic growth will continue anemic and such growth will never provide the revenues necessary for a government with an insatiable appetite. To operate the size of government Mr. Obama wants will require higher taxes on everyone, a retardant to economic growth.

The answers are obvious. Incent the private sector to expand – hire people and invest. The problems are the promises made by the public sector that can never be fulfilled. We need a period of detoxification to rid ourselves of this addiction to spending. But no politician wants to play the Grinch. When some brave soul dares broach the subject, he or she is immediately condemned. Like the anti-Communist Richard Nixon going to China in 1972, it will take a Leftist Democrat to buck the spending trend of his Party, and put the country back on the road to salvation. It doesn’t seem likely in a world in which long term is the next election, and in which loyalty to one’s Party supersedes loyalty to one’s nation. But my guess, at some point, it will happen. Common sense will out.

This ostrich-like behavior on the part of Democrats in Washington reminds me of what my brother Frank recently said of our great-grandmother when confronted with what appeared to be insurmountable problems – get back in bed and pull up the covers. As I think of the refusal of supposedly intelligent people to deny the magnitude of our debt and deficit problems, I am tempted to climb back into the claustrophobic MRI machine.

Monday, January 7, 2013

“Gore Sells Out to Al-Jazeera”

Sydney M. Williams

Thought of the Day
“Gore Sells Out to Al-Jazeera”
January 7, 2013

Free market capitalism is something I endorse when practiced openly and honestly and within the confines of our regulatory and legal system. The rule of law prohibits the sale of a business that might violate national security, or inhibit competition. While moral restraints may not be binding, neither should they be ignored.

Nevertheless, the sale of Current TV – the money-losing, left-wing news business begun in 2005 by Al Gore and partners – to Al-Jazeera causes the eyebrow to lift perceptibly. First, the sale elevates Mr. Gore to the rarefied financial heights of Mitt Romney. However, Mr. Gore achieved this status, however, without creating profitable enterprises or without providing long tem employment to others. Second, without political connections both the creation of Current TV and its sale would never have been possible. In this instance, President Obama is correct when he said, “you didn’t build this.” Al Gore did not. It was his political connections that persuaded Direct TV and cable distributors to charge their 50 to 60 million viewers $0.05 to $0.10 a month to include Current TV in their roster of offerings. The fact that only .001% of potential viewers actually tuned in should have provided an indication of its commercial value. A generous estimate of actual viewers is estimated to be 50,000. (The Wall Street Journal reported that Current TV had an average of only 22,000 households between January and November 2012.) At a price of $500 million that suggests Al-Jazeera paid about $10,000 (or, perhaps as much as $20,000, if we use the Journal’s numbers) per actual viewer – not a bad sale for a man who dislikes the carbon industry and vocally supports Mr. Obama’s antagonism toward millionaires and billionaires.

Every man should get his due and so should Mr. Gore, but the hypocrisy is palpable. Since leaving the Vice Presidency, he has converted his political connections into a net worth estimated to be $200 million, including this transaction. What would past Presidents like Harry Truman and Dwight Eisenhower have to say about the materialism of people like Mr. Gore? Can you think of any two men who have used their years in the highest political offices to become as individually rich as Bill Clinton and Al Gore?

In Travels With Charlie, John Steinbeck noted that all societies need someone to hate. It helps create a sense of unity. Many minorities have served as such scapegoats, as have a nation’s enemies. During the Cold War, Communism served in such a capacity. After 9/11, militant Islamic terrorists played the role. With the War on Terror declared over, Mr. Obama has used “millionaires and billionaires” to serve as scapegoats. However, as a practical man, Mr. Obama has created exceptions. Look at the recently enacted tax bill that provided Hollywood, Google, Berkshire Hathaway and others, plus an armful of green energy concerns with exceptional benefits and exemptions. In preaching the dire consequences of man-caused climate change, Mr. Gore has made a fortune and has been a beneficiary of favorable tax rulings. Aways putting self-interest ahead of that of the nation, Mr. Gore tried to sneak under the wire and close his transaction on December 31, but was unsuccessful. Nevertheless, his new-found wealth is testament to the fact that crony capitalism is alive and well.

Politics and business do make odd bedfellows. For example Al-Jazeera is funded by Qatar, an oil-rich Middle East nation. Like environmentalists in the U.S., Qatar is against fracking operations in North America and does not want to see completion of the X-L Pipeline. An energy independent U.S. is their worst nightmare. Despite claims to being a fair and balanced, disinterested global media company, we should not lose sight of the fact that Al-Jazeera was the medium for messages of hate from Osama bin Laden while he was in hiding. In purchasing Current TV from Mr. Gore, Al-Jazeera hopes to gain legitimacy in the U.S. They have been roundly lauded by mainstream media for being early in depicting the Arab “spring,” which now looks to be a winter of discontent. Despite the failure of Current TV to attract broad audiences, Al-Jazeera recognizes that the arm-twisting of Mr. Gore in getting his production company accepted by distributors has been done. (Though, the decision by Time Warner to drop Current TV from its offerings may prove an ill omen.) Nevertheless, Al-Jazeera remains controversial. They support Palestine in their dispute with Israel and have always been anti-Bush, which I am sure appealed to Mr. Gore. Robert Kaplan, writing in a recent issue of The Atlantic, said “…it [Al-Jazeera] sees itself as always in the right, regardless of the complexity of the issues, and therein lies its power of oppression.” As Middle East scholar Barry Rubin noted: “In former times, doing something like this would have finished Gore’s credibility forever.”

It is, of course, Mr. Gore’s right to sell to whom he chooses. But I wonder what the New York Times would have had to say if former Republican Vice President Dick Cheney had sold a business built on the back of the American taxpayer to a media company with a political agenda run by an oil-rich Arab nation? I suspect they would have tut-tutted. When Glenn Beck showed a possible interest in Current TV, he was shown the door, not the books. Mr. Gore wanted a buyer who shared his interests. It is curious, but not really surprising, that Mr. Gore feels greater attachment to a Muslim mouthpiece, funded with oil dollars, than with another American from the opposite side of the U.S. political spectrum than himself.

But, hey, half a billion dollars is a bucket load. And why should a preachy, pecksniffian pharisee worry about any long term consequences to the nation his sale might entail, especially when $100 million drops into his pocket?

Thursday, January 3, 2013

“From Fiscal Cliff to Debt Ceiling”

Sydney M. Williams

Thought of the Day
“From Fiscal Cliff to Debt Ceiling”
January 3, 2013

A crisis seems to be the only thing that gets the attention of those in Washington. And certainly Democrats have proved better than Republicans in passing legislation during such periods of acute pressure. In fact, it would seem that they prefer such periods, as it detracts attention from having to focus on the cause of our problems and longer terms solutions that can involve some short term pain.

A statutory debt ceiling has been in effect since 1917 when Congress passed the Second Liberty Bond Act. It is supposed to act as a governor on both the executive and legislative branches of government. In many respects, the concept of a debt ceiling desired by Congress is ironic. Congress is responsible for spending. The President can use his office to promote favored policies, but the actual purse strings are controlled by Congress. The fact that this statute even exists is an admission that members of Congress are akin to alcoholics faced with an open bar, or a thief with a newly discovered pocket book. There are many who suggest, with a certain level of rationality, that we should do away with the debt ceiling. If our representatives in Washington were reasonable and sober individuals, I would agree. However, doing away with the debt ceiling will certainly not lead to fiscal prudence.

Our federal debt, which is now knocking on the ceiling of its limit ($16.4 trillion), has increased more than six times the growth rate of the economy over the past four years, while federal spending has increased three and a half times GDP growth. Having inherited the Presidency more than a year into recession some of that increase in debt is understandable. The old concept (a quaintly dated one) stated that during periods of surplus deficits would be paid down; so that in times of need the nation would have a surplus to draw upon. But we are almost three and a half years into economic recovery, yet debt has been increasing at about $1 trillion per year. How would we handle another 9/11 or another credit crisis like that of 2007-2008?

The debate over the increase in the debt ceiling, which the White House would naturally prefer to avoid, will be held, and it should be. Fiscally conservative Congressional members from both parties will demand it, or they should. Spending is out of hand. No matter whether you come from the right or the left, common sense says we cannot continue on this path. The understandably emotional response to the “Sandy Aid” Bill is a case in point. New York, New Jersey and Connecticut Congressional delegations from both parties are shocked, shocked that the Bill did not sail through Congress as the final grains of sand were being drained from 2012’s hourglass. Senator Chuck Schumer and Governor Chris Christie could have won Oscars for their performances that included teary-eyed appeals and acerbic blame. Of the $60.5 billion, about $9 billion would be monies spent over the next two years on projects directly related to Sandy. No mention was made of the fact that the $60.4 billion aid package was laden with pork, including $600 million to the EPA for climate control, $300 million for Amtrak, of which $30 million is to repair tracks damaged during the storm and the rest for operating expenses, and $150 million to Alaskan fisheries. My feelings towards Congress remind me of the final exchange between Attorney Joseph Welch and Senator Joseph McCarthy. Mr. Welch finally says, “You have done enough. Have you no decency, sir? At long last, have you left no decency?” What in the world is it in the DNA of a Congressional man or woman to take advantage of the hurt involving so many people devastated by Hurricane Sandy by loading up a relief package with so much pork that it causes such an impasse? What is a fiscally righteous Congressman to do in such a case? Just go along? Moody’s repeated their rating of AA on U.S. debt, with a “negative outlook.” If the government truly wants to increase revenues they must encourage policies that support economic growth, not higher taxes or increased regulation, both of which act as inhibitors to growth.

Watching Congress lurch from crisis to crisis is reminiscent of the 1993 Bill Murray movie, “Ground Hog Day,” or it is like being consigned to Dante’s third circle of Purgatory and having to endure storms for eternity. It is like watching Sisyphus condemned to eternally push a boulder up a hill, only to watch it roll back down. We are, it would seem, doomed to watch hedonistic members of Congress play out their roles, satisfying no one while the country spends its way into oblivion. The man in the White House watches with great amusement as he implements his program of dividing the nation and redistributing wealth, as we advance toward the welfare society of his dreams. By nature I am a positive person, but it is difficult to be so today.

Interesting, but unsurprising in these days when the phrase, “long term” conjures memories of a distant and foreign past, stocks liked the “cliff” deal, rising 2.5% on the first trading day of the year. I don’t understand it, but there it is.

The debt ceiling imbroglio, which will reach the boiling point in two months, is only one more chapter in this sad saga that is our national government.

Wednesday, January 2, 2013

“Republicans Rolled”

Sydney M. Williams

Thought of the Day
“Republicans Rolled”
January 2, 2013

It wasn’t just Republicans that got rolled on New Year’s Eve; it was common sense and fiscal responsibility, all in pursuit of an ideology that specifically avoids a hard look at spending. President Theodore Roosevelt coined the term “power of the pulpit” to describe the unspoken opportunities available to an American President. Charisma and intelligence only enhance those powers, and the President has both.

Mr. Obama is the master of using his office to propagandize his positions. He is a master tactician. Delaying the decision to the last minute – playing brinkmanship with the people’s future – served him well. Holding a White House press conference, as he did on New Year’s Eve while the two sides were negotiating, was a perfect example. It wasn’t just the press conference, which was in questionable taste, it was the fact he had stocked it with middle class earners – much as he would have done during a campaign – to emphasize his point. His gloating over the fact that Republicans were willing to concede on the “no-new-tax” issue, while he had protected entitlements and his outright lying by claiming the result was a “balanced’ approach, was condescending, disingenuous and disharmonious. One dollar in spending cuts for every forty dollars in new taxes is hardly balanced. As David Brooks wrote in Tuesday’s New York Times, “it sentences the country to another few years of fiscal trench warfare.” It did little to help negotiations and did a lot to further divide an already divided electorate.

Our founders were certainly wary of too much power accruing to the executive branch, but they were equally concerned with what James Madison called a tyranny of the majority. Protecting minority rights is an essential aspect to republicanism. A President who won reelection by taking less than 51% of the majority vote does not have a mandate to impose his will. He is the leader of a republic who must help reconcile deeply held differences. That does not appear to be Mr. Obama’s concern.

Mr. Obama understands that we live in a world in which everyone is concerned with their own priorities, as affected by the immediate present. He knows that politicians like to give and do not like to make hard choices. And he is enough of a skilled politician to recognize that the future is only a date on a distant calendar. His purpose is not to right a listing ship; it is to push through an agenda which requires exploiting and demonizing one class of Americans. Closing the deficit gap can only be achieved by raising taxes and reducing spending. Since there were no serious spending cuts, we can easily see that balance is not part of his agenda. The increase in taxes, according to the static accounting means employed by the Office of Management and Budgets (OMB) will raise $600 billion over ten years. Of course that assumes that people’s behavior does not change with higher tax rates – a bet most behavioral economists would not make. In the meantime, the deficit has been rising at a trillion dollars a year, and there was certainly very little in the fiscal cliff negotiations that would add an additional growth spurt to the economy.

History is replete with examples of democratically elected leaders who through the tool of propaganda, the power of speech and the elevation of a sector of their citizenry to positions of hatred caused grave problems for their people and those of the world. Mr. Obama is in a unique spot. He is smart, telegenic and charismatic. Because he is African-American, he is beyond reproach by his own Party. He has taken a small and easily vilified segment of the populace (the “wealthy,” apart from those few he has indoctrinated to his cause) and turned them into a scapegoat to rationalize why things aren’t working well. He has ignored hard decisions, despite projections that by 2025 entitlement spending and interest payments will consume 100% of federal revenues.

Fiscal conservativism got rolled on Monday and, while the President appeared to gloat in victory, it is the vast majority of middle class people who will be the losers. But, truth be told, we have no one to blame but ourselves.