Thursday, May 30, 2013

“Elites, Elitism and Equality”

Sydney M. Williams

Thought of the Day
“Elites, Elitism and Equality”
May 30, 2014

When a woman or man achieves a Nobel, it is a win for an elite individual. Obamacare, especially Section 1233, is an example of elitism – government knows best. The presentation of a dozen “participation” certificates to middle school soccer players, in place of an MVP award, represents victory for equality. The word elitist or elitism takes on different connotations, depending on who is speaking. In “The Roads to Modernity: The British, French and American Enlightenments,” Gertrude Himmelfarb critiqued the French model as anti-religious and scornful of the common man – elitist, in short. In contrast, Ms. Himmelfarb found that Adam Smith and Edmund Burke had respect for established institutions. For them, toleration and religious freedom were essential to a free society and that a “natural equality” existed between people. They were non-elitist, at least in behavior. Rousseau, Voltaire, Smith and Burke could all claim to be elites by dint of their abilities, but their treatment of people were different.

Elites are natural and inevitable in all societies. The word ‘elite’ is defined as meaning the best because of an innate talent – intellectually, physically or morally. We have elites in all fields –doctors, engineers, scientists and artists. When schools offer gifted programs they acknowledge elite scholars. Trophies presented to elite athletes represent recognition of the best in their field. Businesses often run contests to get the best out of their sales people. For any society to succeed it must encourage the development and promotion of the best and the brightest. But when schools and colleges eliminate class rankings and grades, they are playing to the forces of equality. Washington’s arrogant powerbrokers and politicians have given the term elitist a bad name. Together, they have created an unprecedented level of cronyism, which serves small groups – wealth to the one, power to the other – elitists all.

It is when the media ascribes to ‘elites’ talents beyond their expertise that we slip into a netherworld. In political and sociological theory, elites can be described as a small group of people who control a disproportionate amount of power and wealth. Meritocracy breeds a natural flow of elites, but privilege, position and connections can create fraudulent versions. Unfortunately that happens too often, especially in the political realm. It was concern of elitism that once led William Buckley – elite by almost any definition – to once state: “I would rather be governed by the first 2000 names in the Boston telephone directory than by the faculty at Harvard.” But, as a Conservative Party candidate for Mayor of New York in 1965, Mr. Buckley acknowledged his limitations. When asked what he would do if he were to win, he responded, “I would demand a recount.” He was elite, but not elitist. Unfortunately, such humor and/or humility are nonexistent among Potomac poltroons.

President Reagan was an elite by perforce of his understanding of the principles of Hayekian economics, but not elitist in attitude. Jeffrey Bell argued in his 1992 book, “Populism and Elitism” that Mr. Reagan was the most populous President since Andrew Jackson. In contrast, President Obama is a self-described egalitarian, yet because of his argument that “Big Brother” government is a force for good, his multiculturalism and his refusal to call an Islamic terrorist an Islamic terrorist he is among the most elitist of all Presidents. Maureen Dowd, in Wednesday’s New York Times, quoted Jonathon Alter author of “The Center Holds,” a generally flattering book about Mr. Obama: “What is it about Obama that he so disdains us?” When leaders “know” what is right for the people they govern, they are elitist. Cult-like followers and demonizing opponents often characterize such people. Consider C.S. Lewis’ description of the master demon Screwtape, in “The Screwtape Letters.” Mr. Lewis’ character describes the tendency of elitists for “belittling anything that concerns the great mass of their fellow men.” Mr. Lewis appears to have anticipated those like Kathleen Sebelius, Nancy Pelosi and Eric Holder.

With global economic weakness persisting for five years, governments around the world – from the U.S. to Japan, and from the U.K. to Europe – have called upon central bankers to do the lifting that free markets could do better. Can four central bankers return normalcy to world economies? It is an elitist attitude suggesting governments know best. Would not the world have recovered more quickly if regulations were eased, taxes simplified and free trade more encouraged? Unfortunately allowing markets to work is unlikely because, as Thomas Sowell recently titled a column, “Public Servants have Become Public Masters.”

Equality is a state of being equal, in value, rank and ability. The foundation of our democratic republic is based on the concept of equality before the law, and that our rights, which are God given, cannot be taken without due process. Further, we believe in the concept that we should all have equal opportunities. But, is that realistic? Consider the different paths followed by Stephen Breyer and Clarence Thomas – one the son of a middle class Jewish family in San Francisco, the other the son of a sharecropper and domestic servant in rural Georgia. Both made it to the Supreme Court, but differences in their early childhood circumstances did not provide equal opportunities. People are born into different circumstances. Does the fifteen-year from Harlem have the same opportunity as a similarly aged teenager from Greenwich? Egalitarianism gets into real trouble when politicians promise equalities in outcome. The gap between rich and poor has elevated debate on the issue. But promises of equal outcomes are canards. Socialism promises such outcomes, yet history has shown that under central planning poverty increases and wealth discrepancies increase. The imperialism of pre-revolutionary China’s emperors were replaced with an equally imperial Communist Party organization. The difference is that the latter group killed more people. It is aspiration, talent, desire and brains that are determining factors. In any political society, no two people are the same. It is our differences that distinguish our outcomes.

By definition, all Presidents are elites. But not all Presidents act in an elitist manner. Equality is the promise of elitists. It provides cover for their grab for more power. Populism is their means; power is their goal. Alvino-Mario Fantini, Secretary General of the Hayek Institute in Vienna and a Dartmouth classmate of my son’s, recently put it this way in an op-ed written for the European version of the Wall Street Journal: “…in the West, public debate has shifted from the problem of poverty to the challenge of inequality.” Mr. Fantini then turned cautionary, noting that “…calls for ‘social justice’ can be a dangerous invitation for political leaders to intervene in an economy.” And then warned: “The last hundred years provided the world’s laboratory that nearly 100 million people died in the 20th Century under various political regimes that sought economic leveling.” The truth is that the elimination of inequality is a worthy goal, but, like Stuart Little’s search for Margalo, it is a quest without end. The question is: are reductions in poverty (and thereby, inequality) more likely to be achieved through statism, or the private sector? History suggests the latter. Government should set the rules and referee the game, but it should not be a player.

Navigating the shoals of elitism and equality is the role of free and democratic societies. The flexibility of free markets to adjust to changing needs is a consequence of millions of decisions made continuously by consumers and businesses, whereas central planning creates rigidity. But no system is a panacea. We must accept that there are no perfect solutions to inequalities. Non-elitists in Washington would have focused on jobs, not gays in the military, guns or climate change. We are five years into an economic recovery and job creation has been abysmal. That should be the focus of the Administration. Competition and free markets have proven to be far more efficient than bureaucrats, be they in Washington, Brussels or Beijing. While the best and the brightest are necessary to the efficient functioning of government, business and the arts, elitism and egalitarianism should play no role – the first because it is symptomatic of an attitude inimical to a free people and the second because its promises are duplicitous.

Tuesday, May 28, 2013

“An Apple a Day…”

Sydney M. Williams

Thought of the Day
“An Apple a Day…”
May 28, 2013

Politicians want all the money they can lay their hands on; but they have a disconsonant dislike for those whose success generates the revenues they live on. Yet they continuously support the wealthiest (individuals and businesses) through a tax code whose complexity can only be understood by whoever can field dozens of tax lawyers and accountants to parse the complex laws that Congress enacted in the first place. Congress loves pontificating in sonorous, moral tones, while assuming any wealthy individual or multinational corporate entity that actually complied and benefitted from the laws they wrote must be rife with criminal behavior. Their actions provide a study of human behavior fit for a Molière comedy or a Shakespearean tragedy.

What is true for politicians is also true for much of mainstream media. Writing in Wednesday’s Financial Times, Richard Waters noted Apple CEO Timothy Cook’s bid for “the moral high ground [proved] surprisingly successful.” Should it be surprising or unusually moral when a corporation plays by the rules? In Thursday’s New York Times, Michael Shear alluded to Mr. Cook as a “tax dodger.” Mr. Cook didn’t dodge taxes. His company paid the U.S. Treasury $6 billion, exactly what they owed. In doing so, they became the nation’s largest corporate tax payer. Later, in the same piece, Mr. Shear contrasted the respectful reception Mr. Cook received to the “angry, prosecutorial inquisition” that confronted I.R.S. testifiers. Naturally, Mr. Shear made no mention that Mr. Cook had complied with all federal tax laws, while Mr. Shulman and Ms. Lerner have admitted to targeting individual groups, a violation of federal laws. They have also, apparently, committed perjury. Why wouldn’t the one be treated with more respect than the other? Likewise, in writing of the incident on Friday, Floyd Norris in the New York Times deployed such intemperate words as “shameful” and “cheat.” However, I do agree with his observation that the Apple story “reveals that the ability of the rich and well-connected to duck taxes can have a corrosive effect on the attitudes of the rest of us.” Mr. Norris does not, however, mention the obvious that it was Congress, not Apple, which wrote the tax code. Lobbyists simply did what they get paid to do. Any blame must lie with lawmakers, like Senators Levin and McCain who seemed incensed that anyone would actually take advantage of the loopholes and exceptions they allowed.

Legal tax avoidance is not cheating. Congress, in their wisdom, writes the laws with which we must comply, including the tax code. (Or rather, one might argue, Congress enacts laws written for them by lobbyists.) The chief executive of any public company has a fiduciary responsibility to the owners of the business – the shareholders – to maximize returns, mindful of employees and the community, while operating rationally and within the letter of the law. It is not the CEO’s responsibility to fund the federal government, other than to pay what the law says is his due. Is the tax code broken? Of course it is, but that is a different issue. Congress has a fiduciary responsibility to the citizens who voted them into office, not to the lobbyists who entertain them. Simplifying the corporate tax code, as Mr. Cook proposed, may cause Apple to pay more in taxes, but would be offset by reductions in legal expenses. Lowering the statutory rate and reducing or eliminating credits and exemptions would make more sense for both corporations and individuals. But saving money and exercising common sense are not endemic to those who work in the nations’ capital. Doing so would limit the ability of lobbyists to line the pockets of favored Congress men and women, an anathema to their membership!

Steven Rattner suggested in Friday’s New York Times, that Apple was “gaming” the system and that this was becoming (or is) a global problem. He suggested the OECD should move toward a system of taxing profits where they occur. Similarly, Alex Barker in the Financial Times noted that the EU was rushing out a law that would compel all companies operating in the EU to reveal corporate profits and taxes on a country by country basis. Politicians everywhere, when they see a problem whose roots are embedded in government policies, look for even more government to find a solution. The costs to a corporation of complying with even more rules and the bureaucracy that government would have to employ to enforce new rules are of little concern to those whose offices are in Washington or Brussels. Bigger is always better to these people.

Mr. Rattner goes one step further, offering what he terms a “provocative” concept. He writes, “Perhaps…we should consider taxing a greater share of the profits made by companies not at the corporate level, where they are subject to oh-so-much gamming, but rather at the shareholder level,” where little gaming goes on unless one is very rich. In a Saul Alinsky, wealth distribution-like comment, Mr. Rattner adds, “It hardly seems unfair to ask those who already benefit from bargain tax rates on capital gains and dividends to share some of those gains with the government.” First, the assumption is that the government needs more revenues, despite tax collections now approaching 18% of GDP, close to its average over the past fifty years. Second, it ignores the more compelling fact that retirees and those nearing retirement have nowhere near the invested assets they need. If we, as a nation, are going to allow people to retire with some degree of financial security and comfort, our country (and presumably those in most other parts of the developed world) has an enormous need for more investment, not less. According to the U.S. Census Department, 13.3% (or about 40 million people) are over the age of 65. And about 3.5 million people turn 65 each year. A million dollars, invested in High Yield corporate bonds, would produce approximately the median income of $50,000. But a million dollars for 40 million people is $40 trillion, two-thirds the entire size of the United States’ capital markets. Municipal, state and federal governments will soon be forced to cease offering defined benefit plans and join businesses in offering defined contribution retirement plans. The current system is bankrupting municipalities and states and, at the federal level, will likely further cheapen the value of the dollar. With a fiat currency that also serves as the world’s reserve currency, the ultimate answer to rising U.S. federal debt levels is surreptitious devaluation. We need federal policies that encourage investments, not penalize them, and we need a currency that answers the threat of debasement.

The past two decades have seen enormous growth in global wealth and the largest decline in poverty the world has ever known. More can be done, but two common characteristics of this era have been: a proliferation of democracies and an increasing emphasis on free trade. Much attention and envy have been lauded on undemocratic, statist nations like China, but poverty remains rampant there. China’s very size has produced a middle class estimated at 300 million, which China boosters point to. But, according to Wikipedia, 948 million Chinese live on less than $5 dollars a day. And the World Bank estimates that 150 million Chinese live on less than $1.50 per day. It may be the world’s second largest economy, but its tide has not lifted all boats. As a mercantilist economy, China has advantages in exporting products like solar panels, but for the U.S to retaliate with increasingly stiff tariffs is a sure means of slowing global growth and harming American consumers. We certainly don’t want to return to an era of protectionism. Free trade works best when it is driven by innovation and competition. That is true at a company level and it is true at national and state level. Why should countries like Ireland, Switzerland or Luxembourg be punished because countries like the United States or France have higher corporate tax rates or more restrictive regulation? Are cleverness and a desire to compete evil? In the United States, why has California lost population and why has Texas gained? Which state is more business friendly, in terms of taxes, regulation and right to work laws?

Apple CEO Tim Cook came before the Senate Permanent Committee on Investigations last Tuesday to testify about what Committee Chairman Senator Carl Levin (D-MI) cited were the company’s “egregious tax practices” achieved through “alchemy” and “gimmickry,” and what Senator John McCain called “violations of the spirit of the law.” No mention was made of the fact that Senators Levin, McCain and others were authors of the high U.S. corporate tax rates and the complex tax code that sent Apple to Ireland more than twenty years ago. As the lead editorial in Investor’s Business Daily put it on Wednesday, “Legal tax avoidance is not only permitted but, for managers entrusted with shareholders’ wealth, it is an obligation.”

Bureaucrats in Brussels and Washington want to crack down on global tax avoidance. Of course they do. It is garnering more income, not reform that lights their fire. They need to feed the monstrous governments they have created. But can a global tax regime be forged without giving up sovereign rights? Like individuals, nations are not equal. Some have more natural resources, lower energy prices, better access to shipping lanes and larger consumer bases. Regulations and taxes are venues that allow other nations to compete. Why should some supranational body take responsibility for their rules and regulations? Why shouldn’t countries be able to offer easier regulation and lower tax rates? Government officials and policy makers love crises, as they magnify problems; thereby giving urgency to solutions they propose. Don’t waste a crisis, as the man once said.

Simplicity, not more complexity, is the answer we need, especially when it comes to tax reform. Apple has been an enormously successful company, employing 75,000 people globally, two thirds of them in the U.S. While corporate taxes only account for 9% of government tax revenues in the U.S., Apple is the largest American corporate taxpayer. Additionally, when one includes the founders and venture capitalists, investors and employees, Apple makes substantial annual contributions to the coffers of the IRS. Congress always has the right and the obligation to ensure that laws are being complied with and to search out and snuff out transgressions, but, in blaming Apple for adhering to rules they had created, Senators McCain and Levin looked ridiculous. Fareed Zakaria, writing in Friday’s Investor’s Business Daily, is correct when he argues for reforming the U.S. tax code, but he is wrong in suggesting that doing so would allow Mr. Obama to put the tax scandal behind him. One has nothing to do with the other. Complexity has led to cronyism. But using the tax code to further a political agenda is criminal. Apple’s accomplishments are a manifestation that competition and free markets are alive and well. Simplifying the tax code and lowering statutory rates, as Mr. Cook prescribed, would be welcome and would help global economic growth. But it is Apple’s success that gives proof of the medicine that the world should take.

Sunday, May 26, 2013

“Memorial Day, 2013”

Sydney M. Williams
Notes from Old Lyme
“Memorial Day, 2013”
May 27, 2013

I thought about a graveyard
At the bottom of the sea
Of unmarked graves in Arlington.
No, freedom is not free.
                                                                          Kelly Strong, 1981
                                                                         (Written when in high school; later attended USCG Academy)

Freedom is not free. Freedom is the goal. War is its means. And war extracts a terrible and treasured price. In his famous address delivered on Memorial Day 1895 at Harvard University, Oliver Wendell Holmes, Jr. spoke ( He spoke of the faith of soldiers – in themselves, their leaders and their country. A year earlier he had talked of how in his youth “our hearts were touched with fire.” In 1895, thirty years after the end of the War, he had no illusions about an eternal peace on earth. With observations that ring with relevance today: “War, when you are at it, is horrible and dull…I hope it may be long before we are called again to sit at that master’s feet. But some teacher of the kind we all need. In this snug, over-safe corner of the world we need it, that we may realize that our comfortable routine is no necessity of things, but merely a little space of calm in the tempestuous streaming of the world…Out of heroism grows faith in heroism.” It is a message that indeed has relevance for today.

After graduation from Harvard, Justice Holmes served in the Massachusetts 20th from 1861 to the War’s end in April 1865. He was wounded three times, at Ball’s Bluff, Antietam, and Chancellorsville, concluding his service with the rank of Captain.

Originally called Decoration Day, for the flowers that were laid on newly dug graves in 1864, the day soon became a national holiday. May 30th was selected, as it was deemed the optimal date for flowers to be in bloom. In 1882 the name was changed to Memorial Day. When I was growing up, in the late 1940s and early 1950s, Memorial Day was a celebration of American exceptionalism whose duty was to uphold freedom throughout the world. Soldiers, who marched then to the accompaniment of a fife and drum corps and high school bands, were young veterans from the Second World War and grizzled veterans of the First. Riding my bicycle, as I accompanied them to the Grove Street Cemetery in Peterborough, a surge of pride brought lumps to my throat. They still do, as much smaller cadres of soldiers march and ride in Old Lyme’s Memorial Day Parade. They were and are reminders of the incalculable debt we owe to those who gave so much that we can live freely and securely.

In 1968 the date was moved to the fourth Monday in May, allowing for a three-day weekend. We do gain something when holidays are thus moved, but we lose the intensity of and some of the reasons for the celebration.
Over the past few years it has become habitual (perhaps becoming traditional) for my oldest son and his family to join Caroline and me in Old Lyme for Memorial Day weekend. Children and grandchildren are reminders of the continuum of life – that while we live in the present, we must be reminded of those that came before and those that will follow. Memorial Day is a fitting holiday for families. Television and the internet have changed the relationships between soldiers and civilians. Vietnam was the first war brought into our living rooms, and the country’s attitude toward war was forever changed. My grandchildren are too young to recognize both the horror and honor that war bestows. But observing them watching real soldiers make their way up Lyme Street to the Duck River Cemetery, I pray that the same chills I felt more than sixty years ago will tingle their spines – that they will recognize that sacrifice is a gift from people just like them.

In his Memorial Day speech at Harvard in 1895, Justice Holmes concluded his remarks with the thought that part of the soldier’s faith is, having known great things, to be content with silence. He then quoted lines sung by a warlike people along the Danube:

“For the spring has come and the earth has smiled,
And the dead must be forgot.
Then the soldier spake from the deep dark grave”
“I am content.”

It is well that soldiers be content with silence, but it is not proper that we, the beneficiaries of their sacrifice, should do so as well. No matter which day we celebrate the gift of freedom they gave us, and no matter what we call it, remembrance of the fallen is something we should all honor.

Thursday, May 23, 2013

“MOOCs – Are They Worth It?”

Sydney M. Williams

Thought of the Day
“MOOCs – Are They Worth It?”
May 23, 2013

A university education is undergoing monumental change. While campuses as we know them will continue, an increasing number of people will get their education on-line. Up to this point, and unlike most businesses, productivity improvements have been virtually non-existent at colleges, despite the fact that much of the technology that has benefitted consumers and businesses were born, nurtured and brought to fruition on their campuses.

There are numerous forces at work. William Bennett’s and David Wilezol’s new book, “Is College Worth It?” was reviewed in Monday’s Wall Street Journal. It expresses some of the concerns so many have about college today. Over the past few decades, the cost of a college education has risen at levels far in excess of inflation. The consequences, certainly unintended, have been several. Student debt has exploded, imperiling the creditworthiness of graduates facing a difficult job market. The numbers of households owning some form of student debt is 20% versus 10% twenty years ago. More startling, those at the bottom of the economic ladder are going to college less than they did forty years ago. Arthur Herman, in his review, noted: “In 1970, 12% of recent college graduates came from the bottom quarter of the income distribution; today it’s 7%. Federal student loans have increased 60% over the past five years, while grants-in-aid, like Pell grants, have tripled over the past ten years. Washington’s willingness to make college affordable helped make unnecessary the institutions implementing cost reduction programs. The more money a university could pick up from the government, the less it would have to rely on its endowment. Administrators and bureaucrats could be hired, without concern about costs. Finally, as more unqualified students matriculated, “gut “courses and “trendy” majors helped produce grade inflation, “allowing students to glide along and earn an easy degree,” but without the skills today’s job markets demand.

A hundred years ago, a college education was generally only available to the privileged few. The G.I. Bill changed that, making college available to tens of thousands of returning servicemen following World War II. By the mid 1950s, meritocracy had replaced birthright as the determining factor for acceptance into America’s most elite universities. A strong economy and rising markets allowed endowments to blossom, permitting a far greater use of scholarships. Ability to pay became secondary to accepting the best and the brightest. The principal purposes of any endowment are to fund needed capital expenditures and to pay the tuitions, in whole or in part, of deserving students whose parents are unable to pay the ever-increasing costs. Nevertheless, during a time of ever-rising tuitions, endowments have grown bigger. For example, Harvard University’s endowment amounts to roughly $1.6 million per student, including undergraduate and graduate. The contrast between ever-richer colleges and more-indebted graduates is striking.

While MOOCs (massive open on-line courses) have many shortcomings, they may have arrived at an opportune time. The game being played has limits. At some point Congress, worried about expenses and debt, may have to reduce funding for loans and grants. Families and students face unacceptable levels of debt, for which there has not been an automatic payoff in terms of a job. Left alone, America’s higher education system risked reverting to what it had been in the pre-War days, a refuge for the privileged few who could afford the ever-rising prices.

MOOCs stepped in. There are three main providers: Coursera, Udacity and EDx. Both Coursera and Udacity have roots in Stanford and Silicon Valley, while EDx was formed and funded by Harvard and M.I.T. The on-line learning platform Coursera, the largest of the three companies, was launched in early 2012 by two entrepreneurs out of Stanford. It was funded by venture capitalists and, according to a recent Wall Street Journal article, now has 3.5 million users for 370 courses. While offering fewer courses, Udacity has the advantage that all of its courses are openly available with no start and finish dates. Participating colleges in MOOCs include most of the elite colleges in America, from Princeton and Yale to the University of Texas and Cal Tech. There have been some exceptions, like Amherst, which is concerned that MOOCs may centralize education to an uncomfortable degree, clashing with their small-class style. A low faculty to student ratio remains a compelling sales tool for admission officers, especially at smaller elite colleges. As Nathan Heller recently noted in a May 20 “New Yorker” article, “…a Harvard lecture hall still holds about the same number of students it held a century ago.”

In the “New Yorker” issue, Mr. Heller’s piece was entitled “Laptop U.” In it, he largely followed the experience of Gregory Nagy, professor of classical Greek literature at Harvard. Given his age (70) and his field, he seemed an odd choice to offer his class, “Concepts of the Hero in Classical Greek Civilization” as an on-line offering; yet 31,000 signed up for this spring’s semester. (Perhaps Earl Shorris, whom I wrote about on April 23rd, was right – there is a demand for the classics.) In his article, Mr. Heller described both positive and negative aspects of MOOCs. They allow leverage to be applied to good professors, and for students anywhere in the world to benefit from the top universities’ best professors. As one of his interviewees put it, “MOOCs look like a victory for open-access scholarship.” By increasing the productivity of the most acclaimed professors, they should also act as a governor on rising college costs. But education is also an interactive experience, and, while technology allows interaction, doing so on-line is not the same as being in an animated classroom. After reading the article, I found myself asking: Will MOOCs make elite schools even more elite? Will MOOCs convert a professor of a lesser-known college into nothing more than a teaching assistant? Will MOOCs standardize learning in such a fashion to be unhealthy for a diversified student body and country? Will smaller, less-well-endowed colleges simply disappear?

The problems education faces are not insurmountable, but they cannot be easily dismissed. Most colleges are in very good financial shape, but their graduates have never been more in debt. High school students are told that 21st Century jobs require a college education, providing demand for those in the business of providing higher education. Helping that demand being fulfilled, government has been providing loans and grants. The consequence has been a situation, according to Diana Furchtgott-Roth writing in “Real Clear Markets, in which 40 million borrowers owe $1 trillion. Government’s response has been as expected. The Obama Administration wants to reduce the re-payment schedule to a small percentage of the borrowers net income, after “living expenses,” and to set a date at which all remaining debt will be forgiven. Such actions, while pleasant for the borrower, breed irresponsibility and dependency.

A sluggish jobs market, especially for the young, has meant that millions of recent graduates are trapped with enormous loans and very few jobs. While overall unemployment has declined over the past year from 8.1% to 7.5%, young adult unemployment (ages 20 to 24) is down less than one tenth of one percent to 13.1% over the same time. Since 2000, labor force participation rates have declined. Again, the steepest decline has been among young adults. The Affordable Care Act will pressure them further. Instead of using standard actuarial tables, insurance companies have to take everyone, and premiums for the elderly can be no more than three times the premiums for younger people, implying younger adults will have to subsidize seniors. As Ms. Furchtgott-Roth wrote, “A society that cannot offer young people work will see the brightest flee to countries that have more opportunities. Others, less entrepreneurial, will stay and collect welfare benefits.”

Public officials are in part responsible for the problems we face, or, a better way of putting it, there have been some unintended consequences. Government made access to money easier for matriculating high school seniors, allowing colleges to continue to raise tuitions. They are the ones who wrote the Affordable Care Act. They are the ones who have imposed increasingly tough and complex regulatory and tax laws. And they are the ones who constantly preach that higher education is the path to success, helping to convert what should be an opportunity into what has become an entitlement. And now officials are providing a path toward debt forgiveness. Higher tuitions have allowed administrators to proliferate, raising costs further. Controlling costs have not been on the front burner for most college trustees and administrators.

A college education is not an entitlement, nor is it a panacea for the ills that plague us. It is an opportunity for the aspirant, and MOOCs represent a door through which they may enter to realize their dreams. Currently, according to most reports, about ten percent of those who start on-line classes complete them. But as courses proliferate and as credits are granted, that could well change. Aspiring students, whether they be from Monowi, Nebraska, Airline Drive in Houston, or the African nation of Togo, will have the opportunity to learn on-line, when courses are offered. The interests of the poor but aspirant will not be in toga parties or football games, but rather in a desire to better themselves and their conditions, to be able to live and compete in a world they know only through images. Richard Vedder, who heads the Center for College Affordability and Productivity, recently wrote an article in US News and World Report, “Why So Much Lying on Campus?” In it, he quoted a recent National Survey of Student Engagement administered to students that “reveals students spend more time partying than on academics…” – a confirmation of a supposition. Poor, but aspirant students who learn on-line will likely prove more serious and productive students. It will be those individuals and millions like them who will be the principal beneficiaries of MOOCs.

MOOCs do have shortcomings. They cannot replace the college experience. They limit the ability to actively interact with professors and other students. But they are vital in providing learning and new skills, and therefore opportunities, to millions who are unable to attend traditional universities. Like community colleges, they serve a need. Change is never easy. Change always involves trial and error, and unfortunately many of those impacted become victims of necessary change. One of the more salient aspects of MOOCs is that they represent free markets’ attempts to fix a problem that college administrators have abetted and that politicians have inflamed. On balance, and all things considered, it appears they represent a critically important change.

Tuesday, May 21, 2013

“Climate Change – Reality or Political Opportunism?”

Sydney M. Williams

Thought of the Day
“Climate Change – Reality or Political Opportunism?”
May 21, 2013

Scandals in Washington have deservedly moved most other news items off the front pages, but an article in the May 13th issue of the New York Times caught my eye. The title was “A Change in Temperature,” by Justin Gillis. The article dealt with the question of what will happen to the earth’s temperature should carbon dioxide continued to be pumped into the atmosphere. Recent studies suggest, according to the article – less than previously thought.

Every living organism has some impact on the environment, for all living things are in some way symbiotic. Plants are able to convert sunlight and water into oxygen and carbohydrates, through a process called photosynthesis. That oxygen is then emitted, allowing animals to breathe and to break carbohydrates into carbon dioxide, which is then exhaled in a process called respiration. The process is circular. We cannot survive without vegetation, just as trees and plants cannot survive without us. Nevertheless, there is no question that man, because of his intelligence and desire to improve his living conditions, has had a significant effect on his environment.

But science advances. Included in improved living conditions are declines in health hazards. We can measure the amount of green gasses emitted, but no one can be sure as to what that impact has been. Anyone who has been to Beijing can not help but notice the heaviness of the atmosphere, just as anyone would have seen it in Pittsburgh fifty years ago. The industrial revolution began almost two hundred years ago, yet environmental concerns are reasonably recent. We cannot forget that they are the manifestations of a wealthy society. When my wife was growing up in New York City, in the 1940s, many, if not most apartments were heated by coal. As I have noted before, the Connecticut River, at whose mouth we live, was far dirtier 150 years ago than it is today. Affluence brings with it an innate desire to live in more pleasant surroundings. That has always been true and always will be.

What no one can tell for certain is whether the effects of man have a decided influence on the natural forces that have changed our planet in dramatic fashion over the millions of years of its existence. Over several billion years, the earth has warmed and cooled multiple times. Theories exist but no one is certain as to the causes. Evidence suggests that the first ice age appeared two billion years ago, two hundred million years before the first dinosaurs appeared. The last ice age – the one that covered New England and formed Long Island Sound – occurred about 22,000 years ago. During the almost two hundred million years that encompassed the Triassic, Jurassic and Cretaceous periods there were no icecaps. The point is that the cooling and warming of the earth will persist regardless of man, as has always been true. At some point those forces will very likely destroy man. We can temporarily save endangered species, but we cannot forever. Man may have aggravated the situation (in fact, I am sure he has), but there is no way that we can achieve a status quo. Much as we may wish otherwise, nothing will stay as it is. In nature, ceteris can never be paribus.

Nevertheless, “climate change” has become a rallying cry for many on the Left. It is not that they don’t have a point. The problem is that they lose their argument in an imperious effluence of exaggeration. Mr. Obama saw his nomination in 2008 as “the moment when the rise in the oceans began to slow and the planet began to heal.” During his second inaugural, he spoke of the urgent threat of climate change – the “devastating impact of raging fires and crippling drought and more powerful storms.” Bjorn Lomborg, the director of the Copenhagen Consensus Center in Washington and the author of “The Skeptical Environmentalist,” responded to Mr. Obama’s speech in the January 23rd issue of the Wall Street Journal. Mr. Lomborg addressed what he called Mr. Obama’s “three horsemen of the climate apocalypse.” He noted that globally wildfires have decreased 15% since 1950; that there has been little change in the number and severity of droughts over the past sixty years, and that hurricane activity is at the lowest level since the 1970s. Mr. Lomborg does not advocate ignoring climate change, but he does feel that hyperbole detracts from the argument.

As Bret Stephens noted in today’s Wall Street Journal, China’s “Green Leap Forward” proved a bust, despite what he calls the “heady optimism” of Chinese leaders and boosts from Leftist Western columnists like Thomas Friedman of the New York Times. Mr. Friedman wrote in January 2010: “The Beijing leadership understands that the E.T. – Energy Technology – revolution is both a necessity and an opportunity, and they do not intend to miss it.” Now, the worst air pollution in Beijing’s history and 80% of the East China Sea lost to fishing are marked reminders that, as Mr. Stephens wrote, “Statism always wrecks the environment.”

Bjorn Lomborg pointed out that the gain from a reduction in carbon dioxides must be offset against the costs of doing so. He wrote, “The cost of climate policies just for the European Union – intended to reduce emissions by 2020 to 20% below 1990 levels – are estimated at $250 billion annually. And the benefits, when using a standard climate model, will reduce temperatures only by an immeasurable one-tenth of a degree Fahrenheit by the end of the century.” That’s a lot of money for a very small gain, something only a very rich society would dare contemplate – not a sensible decision for a near bankrupt Western Europe.

Since a focus on the environment is a luxury permitted wealthier countries, it is difficult to arrive at a global response. Who, for example, wants to deny emerging nations the opportunity for better lives through the use of cheaper fossil fuels? In the United States, with abundant natural gas and coal, combined with new technologies that allow them to be burned far cleaner than in the past, should we cause the poorer among us to pay an ever-increasing percent of their income for energy? Would it not make more sense for government, instead of subsidizing companies like Solyndra and Fisker Automotive to take that money and ramp up research and development in green energies? The former breeds cronyism, which has infested our corporate/government world, while the latter would support innovation, which ultimately would lead to what Joseph Schumpeter called creative destruction – the natural evolution of industrial innovation. Bjorn Lomborg ended his op-ed: “When innovation eventually makes green energy cheaper, everyone will implement it, including the Chinese.”

Martin Wolf is a highly respected and serious writer whose column appears regularly in the Financial Times. A week ago he penned a piece entitled “Why the world faces climate chaos.” His op-ed was prompted by a recent report that the concentration of carbon dioxide in the atmosphere was reported to have passed 400 parts per million for the first time in 4.5 million years. There was, of course, no mention of how the scientists knew that it had been more than 4 million years, or how they were able to determine with precision the level of carbon dioxide in the earth’s atmosphere during that distant past. While no one knows for certain why the earth has warmed and cooled over millions of years (including the last 4.5 million years), Mr. Wolf was pretty adamant that he had discovered the reasons – China’s coal-fired electricity generation; dunderheads (my word, not his) who oppose government intervention into otherwise free markets; cretins who care not about future generations, and those that deny the “relevance of the science.” Mr. Wolf’s arguments are typical of those who seem to believe that it is man alone who is responsible for changing weather patterns – men and women who appear to believe that, properly governed, we can achieve some level of status quo for an earth that will remain tomorrow as it is today. There are deniers on both sides of the climate argument. There are, assuredly, those who deny man has had any effect on his environment, though I have yet to meet such a person. But there are also those who deny that the earth is in constant flux, with or without man. The truth is that it is all of our interests to control our pollutants, while not relegating those in third world countries to a life in poverty. But we must also be prepared for significant changes in temperature that have nothing to do with the over-sized SUV hogging the road in front of me.

This debate over blame for climate change avoids a far more important question: What will happen when factors beyond our control cause temperatures to either rise or fall by significant amounts? The politicization of climate change has given birth to the arrogance that man bears responsibility for the change we are experiencing. Yet, we were not around to cause the ice ages that buried much of the world, or the warming that gave life to dinosaurs.

Climate change is real and it is part of nature. While there is no question man has played a role, fears about it have been heightened by political opportunism. Everyone knows that a cleaner environment is both healthier and more pleasant. It is something toward which societies naturally strive as they become richer. But exaggerating the consequences of what is happening serves nobody, other than those like Al Gore and Michael Moore who have become rich off of inciting fears in gullible people. Such tactics deflect from the far more important question of trying to understand how the world will survive when it inevitably does become much warmer or much colder. One of those spells will likely mark the end of our species; as such trends have spelt the end for other species. Dinosaurs existed for about 180 million years, from the Triassic period, 245 million years ago, through the Cretaceous Period, a time that ended 66 million years ago. Estimates are that man has been around less than a million years, and for only about 100,000 years in any sort of recognizable form. At some point man will disappear, but I doubt that the cause will be the next coal plant in China. 

Monday, May 20, 2013

“A Trifecta of Scandals – What, Me Worry?”

Sydney M. Williams
Thought of the Day
“A Trifecta of Scandals – What, Me Worry?”
May 20, 2013

Last Thursday, standing under an umbrella with Turkish Prime Minister Recep Tayyip Erdogan, President Obama, dripping with condescension, sounded like a combination of Claude Rains playing Captain Louis Renault in “Casablanca” and John Banner as Sergeant Schultz from “Hogan’s Heroes.” He several times reminded the drenched press that he was Commander in Chief, but forsook any responsibility for and disclaimed any knowledge of the IRS, AP or Benghazi scandals. In fact, he was “shocked, shocked” that such happenings could be occurring under his watch and he professed to “know nothing.” How ironic those pleadings sound for a man who on his first day in the White House promised an administration that would become “the most open and transparent in history?” Besides, he is supposed to be the smartest man in the room, not the dumbest.

While mainstream media has shown some concern over the phone tapping of Associated Press reporters, they have essentially given the President a pass on the more serious scandals. On Saturday, the New York Times in an article about acting IRS chief Stephen Miller’s Congressional testimony, which they buried on page A12, clearly stated their prejudices: “Republican charges range from the clearly questionable to the seemingly specious and they grow by the day.” (In a show of incredible hubris, Mr. Miller was recently ousted, but remains with the Agency until June – approximately the time he was scheduled to leave.) The Times editorial board, it was clear from their lead editorial on Sunday, still think of Mr. Obama as the “smartest guy in the room” – this despite the fact that he is essentially inarticulate without his ever-present Teleprompters. Jacob Weisberg chairman of Slate Group and writing an op-ed in the Financial Times, noted in a piece about the possibility that the Obama Administration used the tax system to harm its opponents, asserted: “This surely did not happen.” Sunday’s lead editorial in the FT exonerated Mr. Obama from any blame for any of the scandals, laying all the malfeasances on unsupervised underlings – the implicit suggestion being that government should be bigger with better and more powerful supervisors. The President is the Teflon Don of political scandals.

The disingenuous Mr. Obama is no stranger to the iron fist in the velvet glove. He was reared in the rough and tumble of the Chicago school of politics. He is a gifted speaker and can lift his supporter’s passions. In the Illinois State Legislature, he smoothly argued that there was no need for a second opinion when there is a question as to whether a fetus, delivered in a late term abortion, may be alive at birth. One had to listen carefully to understand what he was truly saying. In Cairo, shortly after taking office, he claimed a new beginning; yet relationships with the Arab world, if anything, have grown worse. As President, Mr. Obama is the principal purveyor of the nation’s culture. He sets the standards. His demonization of the rich and the Tea Party were surely heard by IRS employees. His refusal to call the killings at Fort Hood by Major Malik Nadal Hasan an act of terror has been inexcusable. He permitted Health and Human Services Secretary Kathleen Sebelius to illegally chase campaign dollars from the very companies she is charged with regulating. Fast and Furious was a program that went horribly wrong and resulted in the loss of an American life, yet no senior official has accepted responsibility. Attorney General Eric Holder is another man who plays the role of Sergeant Shultz with amazing accuracy.

There is no way of prioritizing Benghazigate, the IRS shakedowns and the Associated Press phone tapping as to which has been the most onerous. All indicate an Administration whose focus is on winning regardless of the cost, whether it is the loss of life in Libya, the creation of a de facto enemies list for the IRS, or snooping on the Press in such a way so as to discourage “unnamed sources” in the Administration or Congress from e-mailing or phoning contacts in the media. How can one possibly believe that a man who purported to almost single-handedly kill Osama bin Laden have no knowledge as to events in Benghazi eight months ago? This is a man who likes to remind his audience that he is the Commander in Chief, but perhaps that position provides cover when things go wrong. How could he and his Secretary of State have stood with the families of the four dead and blamed their deaths on a video that they knew was not the cause? Common sense tells us that an attack by Islamic Terrorists, including al Qaeda, just did not accord with the story Mr. Obama had been telling – Osama bin Laden is dead, and al Qaeda is in retreat. If he had authorized the use of force to try to save the men on the roof of the annex that would have been tantamount to an admission that terrorists were behind the attacks. Saving them was not part of the story line. The subsequent cover-ups were simply lies.

Using the IRS as a mechanism for eviscerating one’s enemies is despicable. It is what Richard Nixon did when the heat became intense during the Watergate investigations. Mr. Obama’s response was not unlike Mr. Nixon’s when the latter spoke to the nation on August 16, 1973. The essence of his excuse was captured the next day in a Washington Post headline: “Nixon Denies Role in Cover-up, Admits Abuses by Subordinates.” Sound familiar? As I was told years ago, s**t rolls downhill! The Watergate hearings began on May 17, 1973, yet it would be fifteen months before Mr. Nixon resigned. That is unlikely in this case, not because Mr. Obama does not deserve the same fate, but because Democrats are far more entrenched in Washington bureaucracies and in the media than are Republicans. Who wants to dislodge a man who strives to make government ever bigger when one’s future career depends on an ever expanding bureaucracy? And the media long ago gave up their job as an independent fourth estate, in favor of advocacy for an ideology.

It is possible that the AP revelations will get the media’s attention, but I wouldn’t want to bet on it. Whitewash, not illumination, is more in their line.

At Ohio State University in early May, Mr. Obama warned of those who believed government was “nothing more than some separate, sinister entity that is at the root of all our problems…that tyranny always lurks just around the corner.” Yet, two weeks later, and after the lies and overreach by government, he is embroiled in scandals and controversies that threaten his administration. He shows no remorse and expresses no shame. His staff have become masters of evasive tactics. Were the situation less dire, it might even seem humorous. The woman who was in charge of the group in Cincinnati responsible for singling out conservative groups for extra attention has been promoted to be responsible for the IRS’s enforcement of Obamacare. What sort of message does that send to those who are increasingly concerned about the role of government in our lives? Dislike for taxes is not limited to “patriots” and “Tea Party” members.

Mr. Obama is the polar opposite of Ronald Reagan whose famous line about the nine most terrifying words: “I’m from the government and I’m here to help.” Everything Mr. Obama stands for involves a bigger, more intrusive government, something that can only be built on trust. Yet, ironically, he is the author of forces that threaten its dismantling. One can spread blame around like manure, but the President is the one who is responsible for the culture emanating from his White House. Speaking under the umbrella at Thursday’s press conference, he persistently reminded people of who he is – “That’s why I will stay focused as your Commander in Chief,” and “…I don’t think the American people would expect me as Commander in Chief…” Yet he suggested that, despite this awesome power, none of his advisors keep him apprised. He only learned of the IRS scandal when we did –in the newspapers! A man with all that power should have better control over the agencies that report to him. But perhaps he did? Perhaps tyranny is no longer “just around the corner?” Perhaps Mr. Miller, Ms. Lerner and Mr. Shuler were simply carrying out his orders, or those of men and women who were working for his re-election? Like Alfred E. Neuman, he responds, “What, me worry?”

Thursday, May 16, 2013

“European Austerity and the Backlash”

Sydney M. Williams

Thought of the Day
“European Austerity and the Backlash”
May 16, 2013

Obstreperous unions, an imbedded welfare system and incompetent civil servants have been obvious impediments to austerity in Europe, but the real problem with austerity is that it is a dumb idea. Economic growth is necessary to get deficits down and recovery depends on spending; so the real debate should be between those who believe government should engineer the recovery and those who think the private sector should take the lead. Other than in times of war or other national emergencies, history has shown that the private sector is far more efficient than government, but that is alien to a Western Europe grown soft under bigger and more paternalistic governments.

Wikipedia defines austerity, in terms of economics, as “policies used by governments to reduce budget deficits during adverse economic conditions.” The obvious problem with austerity is that, in raising taxes, it prohibits growth from the private sector, and, in reducing government spending, it starves any growth from the public sector. Austerity makes the most sense during economic prosperity; however, during those years no one wants to put aside the fatted calf. Politics, as we all know, is a reactionary, not anticipatory.

The real causes of Europe’s problems lie in a welfare system that consumes an increasingly larger share of government’s budgets. It is unsustainable and, if continued unchecked, ultimately risks bankrupting individual nations. A question with no clear answer is, can Europe’s bloated bureaucracy deflate without causing collateral damage? Crisis is often needed to force change. The euro zone just reported its sixth consecutive quarter of negative GDP growth. Yet, with unemployment now higher in parts of Europe than it was during the Great Depression in the U.S., it does not appear that a crisis point has been reached. If the Mediterranean countries did not share a single currency with the North, it is my uneducated guess that currency devaluations would have improved their respective economies. But at this point, they are stuck with what they have.

While a social welfare system that has grown far more expansive and expensive than anybody imagined, especially in the Mediterranean nations, the single currency also played a role. When it was first issued, European banks, using depositors’ money, bought higher-yielding (and risky) sovereign debt from Greece, Italy, Portugal and Spain to boost returns. Elliott Morss, writing for Deutsche Welle (Germany’s international broadcaster), last week noted that those purchases had the effect of lowering interest rates, thereby giving those countries a green light to continue down their “unsustainable paths” of spending. Consequently, the Mediterranean nations got deeper in debt, while the banks of Northern nations had to write down or extend loans. Writing in Saturday’s New York Times, Steven Rattner noted: “The problems of the euro zone are not some routine cyclical downturn that can be rectified by traditional macroeconomic policy; they are deep structural flaws in both the design of the common currency and the economic policies of many of its members.”

The late British historian and essayist Tony Judt may have been premature (and wrong) when he argued that the European social model bound Europe in a way the American way of life could not. Nevertheless, his sensitivity to and understanding of Europeans was unique. Despite the disarray in Europe today, his history, “Postwar: A History of Europe Since 1945” should be required reading for anyone interested in the area. The study of European history over the past thousand years is the study of war. The last sixty-five years represent, I believe, the longest period of peace in the history of the region .

Europe’s social welfare system can take credit, at least in part, for that peace. The Continent had spent the best part of thirty years, during the first half of the 20th Century, embroiled in two world wars, leaving perhaps 100 million dead and millions more wounded and homeless. After years of turmoil, democratic governmental models that would provide social protection, full employment, social inclusion and democracy were like manna from Heaven. The reconstruction of Europe (with help from the United States by way of the Marshall Plan), an explosion in birthrates, an absence of protectionism and cheap energy, laid the groundwork for several decades of economic growth that allowed for paternalistic governments. But times changed. Beginning in the 1970s birthrates began to decline and populations began to age; the collapse of the Soviet Union brought forth an increase in global competition; Nixon’s decision to sever the connection of the dollar to gold gave reason for OPEC to impose an oil embargo and subsequent price increases. And, not unnaturally, wealth led to a rise in restrictive regulation.

Given a long history of nationalism and conflict in the region, dissolution of the European Union would not bode well for the area. There are those who feel the same way toward the sanctity of the euro. In an article on the future of the European Union in last Thursday’s Financial Times, Tony Barber wrote: “Most mainstream politicians share Ms. Merkel’s view that a break-up of the monetary union would shatter the wider process of European integration that has delivered peace and prosperity for more than half a century.” I disagree. A failure of the euro would certainly be disruptive, but would not have the possibly fatal consequences as would a failure of the EU. The euro has been particularly good for Germany, as it has provided that country a “cheap” currency. In my opinion, the introduction of the Euro in January 1999 was effectively placing the cart before the horse. Political and banking integration should have either preceded the Euro, or should have occurred simultaneously.

Of the 27 countries in the EU, 17 have adopted the Euro. Estonia was the last, in 2010. The prolonged economic downturn has been felt unevenly throughout the euro zone. Interestingly, the European counties most severely impacted by recession are all members of the euro zone. The fact that they have no influence over monetary policy and little influence over economic policy would appear to be two reasons. However, to the extent that conflict over the currency renders the union less palatable would be tragic. Nevertheless, that seems to be happening. A recent Pew Research Center survey noted: “The prolonged economic crisis has created centrifugal forces that are pulling European opinion apart, separating the French from the Germans and the Germans from everyone else.” Centralizing more control in Brussels is appealing to Germans, but with Germany representing a third of Europe’s GDP, would not that be tantamount to giving Germany control over Europe?

Europe’s primary goal should be sustaining unity. It has been the EU more than the common currency that has been responsible for peace over the past sixty-eight years. It is now experiencing fractures. The promise by Britain’s Prime Minister David Cameron to hold an “in or out” referendum on EU membership after the next election “may,” as Bloomberg reported Tuesday, “have put the country on a course that will force it to choose.” According to a Pew poll, if the election were held today, the U.K. would likely leave. Only 26% of Britons think Europe’s economic integration has helped the economy and only 43% have a favorable opinion of the EU. The same Pew poll showed that only 41% of the French had a favorable impression of the European Union, a decline of 19 percentage points from a year earlier. Opinions in Italy, Spain and Greece were even less favorable. Germany, with 60% having a favorable opinion, pretty much stands alone.

Europe’s economy remains sluggish, despite easing by the European Central Bank and futile attempts at austerity. Economic growth depends on confidence and confidence descends from a belief that policies that favor private investment are not temporary in design. Reducing taxes and easing regulation would produce far more growth than giving economic reins to government bureaucrats. As in the United States, European nations must realize that changes in demographics, global competition and free trade have changed the dynamics of their economies. They must acknowledge that monetary policy alone won’t make things better. Fiscal reform must be implemented as well. They must also recognize that promises made to pensioners, left unchanged, can never be realized. There has been a backlash against austerity, deservedly so, in my opinion, and it could lead to a breakup of the euro zone; but Europe must be wary lest those breaks lead to dissolution of the Union and to a concomitant rise in nationalism.

Tuesday, May 14, 2013

“Rising Student Debt – Declining Personal Responsibility”

Sydney M. Williams

Thought of the Day
“Rising Student Debt – Declining Personal Responsibility”
May 14, 2013

According to Ronald Ehrenberg, economist and professor of labor and industrial relations at Cornell, tuition at selective private colleges and universities has grown at two to three percentage points over the rate of inflation for over a century. However, “it wasn’t until the 1980s,” he wrote, “that tuition growth began to regularly outstrip growth in median family income.” In the past two decades, growth in tuition at public universities has exceeded that at private institutions. Writing in the September/October issue of “The Washington Monthly,” Benjamin Ginsberg noted that between 1975 and 2005 total spending by colleges and universities between those years rose by more than three times the rate of inflation.

In last Friday’s Investor’s Business Daily, Michael Barone penned a slightly more optimistic view. He cited a Wall Street Journal report indicating that average tuition discounts offered incoming freshmen have reached an all-time high of 45% and that “sticker price” tuitions have increased at the smallest amount in a dozen years. Given unemployment among the millennial generation, potential students may be deciding that a college diploma is not worth a six-figure loan. For years, Mr. Barone noted, college and university administrators have been immune from the discipline of market forces. Those carefree times may be coming to an end if, as Mr. Barone suggested, “market forces have kicked in.”

Let us hope so, but two pieces of proposed legislation could serve to prolong this nightmare. Last week, the White House issued a proposal that would forgive billions of dollars in student debt over the next decade. Debt repayments would be based on income, with monthly payments equal to 10% of income, after taxes and living expenses. After 20 years of on-time payments – 10 years for those working in public or non-profit jobs – the balance of the loan would be forgiven. Also last week, Massachusetts junior Senator Elizabeth Warren proposed to reduce the rate students pay on federally-subsidized student loans for one year, from 3.4% to 0.75%. (They are scheduled to rise to 6.8% in July.) While it is easy to feel sorry for graduates with enormous debt obligations, they knowingly incurred the debt. Alleviating the debt may be the right decision, but it does undermine the concept of personal responsibility. Keep in mind, taxpayers would have to pick up the losses, both in terms of below market interest rates and debt forgiveness, and those taxpayers include millions of American workers engaged in trades that don’t require a college education.

This is not to suggest that the problem of over-indebted college graduates is not serious. It is. Student loan debt tops $1 trillion. It expanded from $250 billion in 2005 and now exceeds both credit card and auto loan debt. Anne Lowrey in Friday’s New York Times reported of the drag on the economy caused by the “millstone of student loan debt.” She quoted the Pew Research Center, which noted that the debt-to-income levels for households under the age of 35 have risen to 1.5-to-1 in 2010 from 1-to-1 in 2001. The effect has been to constrain young adults and to hold back the recovery. Unemployment among millennials is 50% higher than it is for the nation as a whole. Today’s students are graduating with more debt and the worst job prospects than at any time in recent history.

But it begs the more important question – the third rail of politics – how do we get Washington to stop promising programs we cannot afford? The spread between government expenses and revenues has been narrowing, but is still high and total debt continues to mount. It now exceeds GDP. And those numbers do not include the unfunded liabilities of programs like Medicare, Medicaid and Social Security. And those numbers say nothing about the costs of an inevitable rise in interest rates. Congress is required by law to fund the policies of government, but they have abrogated their role as fiscally responsible stewards.

Additionally, Washington’s proposals will serve to propagate a system of growing dependency. Being personally responsible for one’s actions is integral to a free-functioning democracy. If anything, that need has never been more critical or timely than it is now; yet the opposite is the message from Washington. Government’s tentacles reach ever further into our lives, increasing dependency. The forgiveness of student debt will only aggravate the situation, making another promise with no regard to the costs.

We need to find ways to decrease spending and implement true tax reform. Spending more only enlarges the hole that threatens to entomb us. It is self reliance and individual responsibility that is wanted, not more dependency. For example, retirement is increasingly the responsibility of the individual. Among private companies, 401(k) plans have largely replaced defined benefit plans. Yet very few of those approaching retirement age are adequately prepared. Government should be promoting investment and savings, not penalizing them, as is done today. It is only a matter of time before public employees will face the same reality. Government retirement promises, without realistic actuarial tables, will fail. Politicians love to give things, whether it is forgiveness of student and mortgage debt, or promises of retirement for public employees and of healthcare for all. Politicians shy from addressing the costs, not only in dollars, but in the sense that dependency emasculates self reliance.

To best address this conundrum we face, we must first understand why tuitions have risen to the level they have, and we must determine whether the realization of an education has lived up to its promise.

Responsibility for the outlandish growth in college tuitions has many fathers. There are several explanations. To attract students, colleges have spent millions on plant and equipment – fancy dorms, elaborate student centers and sports facilities with every amenity – in what Professor Ehrenberg calls “an arms race.” Second, a shared system of governance between trustees, administrators and faculty has guaranteed a slow response to higher costs. Third, rising administrative costs have placed an extraordinary burden on college budgets. Forty years ago, Mr. Ginsberg writes, 268,952 administrators supported 446,830 American college professors. In 2005 three times as many administrators were looking after only 50% more professors. In the last eight years, the situation has almost certainly become even more lopsided.

But, like the housing bubble of half a dozen years ago, a good part of the blame lies with government. They have insisted that higher education is a right; they have made available the easy access to loans and government supported grants, all of which have served to allow colleges to keep raising tuitions. In his recent column, Michael Barone wrote that government’s actions produced a growing demand, “higher education administrators saw no need to compete on price. Higher tuitions just gave your school more prestige.” New rules providing below-market interest rates and accelerating the forgiveness of those loans may alleviate the pain of borrowers, but will do little to cure the problem.

As to whether a college education has lived up to its promise, any answer is nuanced. Certainly, studies of the past suggest the cost of college is more than made up for, over a lifetime, in higher wages. But things change fast. Costs are higher than ever and jobs scantier. Any individual taking on loans assumes the responsibility of repaying that debt. Taking on debt with the expectation that taxpayers will bail one out, in terms of a painless repayment schedule and below-market interest charges, and with the knowledge that ten or twenty years down the road whatever debt still exists will be forgiven, provides perverse incentives. Nevertheless, education is important. We live in a connected and increasingly globally competitive world. To do well, our schools must do better at training students for the world that will be, not that is or was. Politically correct faculties and administrations more interested in indoctrinating students, deprive them of the skills necessary to do well in myriad vocations. College students, while professing nonconformity, too often conform in nonconformity. Students need to be taught to think independently. They need the rudiments and skills of a basic education, as well as the rhetorical skills necessary to challenge generally accepted preconceptions.

A big part of learning involves understanding the precepts and importance of individual responsibility. Depriving students of such lessons will have long term, negative ramifications, and risks creating a nation of what H.G. Wells called the Eloi.

Monday, May 13, 2013


Sydney M. Williams

Thought of the Day
May 13, 2013

“Inappropriate” became the word of the day Friday when it was spoken by both White House Press Secretary Jay Carney and Lois Lerner the director of the IRS that oversees tax-exempt groups. In both cases it was used to describe actions by “low-level” employees against conservative groups applying for 501(c) (4) tax exempt status. “Inappropriate” is an inoffensive euphemism for what was obviously a politically motivated, despicable act. Though they have come to naught, predictions of right wing violence have been a stable of the Obama Administration from the get-go. The Department of Homeland Security, early in Mr. Obama’s first term, issued a report predicting an increase in extremism. Timothy McVeigh’s and Bull Conner’s were seen in every brown shirt. As Ross Douthat wrote in Sunday’s New York Times, the “dots-connecting peaked, of course, with the shooting of Gabrielle Giffords, which was instantly deemed a case of right-wing incitement leading to political violence…”

The IRS, via the graces of Ms. Lerner, apologized, but denied any political motivation – “The errors were in no way due to any political or partisan rationale.” It was a difficult statement to swallow, especially in these highly partisan times. “It was the ‘line’ people who did it without talking to managers,” said Ms. Lerner. Absolving one’s self from personal responsibility has become standard procedure for this Administration. (It was fascinating to watch Jay Carney bob and weave at Friday’s press conference regarding Benghazi. The only person he found to blame was Mr. Romney, whom he claimed politicized the attack the day afterwards.) Unfortunately this refusal to accept responsibility has inculcated our culture. It indicates how far we have fallen from those words of Jesus about the adulterous woman: “Let anyone of you who is without sin cast the first stone.” Mr. Carney is an extension of the President; thus his embarrassment is the President’s, or should be.

The power embedded in the IRS is fearsome. The founding fathers, who were naturally concerned about the abuse of power, introduced a series of checks and balances to keep that power under control. In the case of taxes, Congress would levy them, while the Executive branch would enforce and collect. The power to tax may be second only to the power to prosecute in terms of government’s influence over its citizens. Such abuses of power deserve more than an apology by an underling who was quick to place blame on “overzealous audits” by “low-level employees.” In a world in which politicians never cease campaigning, it is hard to believe that those “low-level” workers were not responding to directions from above, especially since their programs were set to search for words like “patriot” and “tea party.” Ms. Lerner’s explanation that those applications, like others that were chosen for review, “received the same even-handed treatment,” should have been sufficient to allow her Pinocchio’s nose to extend another foot. Heavy-handed, not even-handed, would have been the more apt adjective. In any event, the Left should be concerned about this as well, for what has proved sauce for the goose will very likely become sauce for the gander when the White House next changes Parties.

Under current law, the primary focus of 501 (c) (4) organizations must be social welfare, though they may become involved in advocacy and lobbying efforts and even campaigning. Political Action Committees (PACs), like on the left and Crossroads GPS on the right have 501 (c) (4) spin-offs. Personally, I object to having any tax-exempt money spent on political campaigns or lobbying, but the law is the law and fair is fair. What is significant about these complaints of targeted harassment is that they were raised well over a year ago early on in the campaign. Testifying a year ago last March, IRS Commissioner Doulas Shulman (who was appointed by George W. Bush) told Congress: “There’s absolutely no targeting. This is the kind of back and forth that happens to people.” Mr. Shulman is another candidate for a Pinocchio nose. The abuses, according to a report in Saturday’s USA Today, were discovered last year, but were not acknowledged until now, six months after the election. An Inspector General’s report is due out shortly. Ms. Lerner allegedly could not say as to whether officials at the Treasury or White House were aware of the problem; she claimed to have been too busy. As Saturday’s Wall Street Journal editorialized, this sort of “back and forth” is a price one pays for being a conservative: “In May 2011, the IRS was caught sending letters to big donors of conservative 501(c) groups, suggesting their contributions could be retroactively taxed under the gift tax.” They asked for the names of individual donors, another no-no under IRS rules. Again, like Friday’s admission, blame was placed on low-level employees and they did not reflect a coordinated effort by the White House.

The Internal Revenue Service, as we know it today, was a creation of the 16th Amendment that was ratified on February 3, 1913 and which allowed for an income tax. Since that date it has been enlarged, modified and amended countless times. Today, the U.S. federal tax code comprises 55,000 pages and its complexity can be seen in that approximately 1.2 million tax preparers now labor to decipher its meaning. That fact, along with the fact that more than a third of Congress are lawyers, suggests that a simplified, easily understood tax form will likely remain only a pipe dream. Its nooks and crannies provide ample opportunities for lawyers.

The use of the IRS to impose one’s political will is a frightening prospect, infested with unintended consequences. It goes to the heart of what caused our break with England in 1775. Campaign finance reformers have suggested enlisting the agency and broadening its powers to help regulate policies and politics. It is a path down which we dare not tread. As mentioned above, supporting any politician with tax-favored dollars is something I find offensive. While I personally find the amount of money spent on campaigns to be a disgrace and against the best interests of the people, I don’t think we can impose artificial restrictions, but there is no reason that I, through somebody else’s tax deduction, should support policies with which I disagree. The names of all people who give to campaigns either directly or indirectly should be a matter of public record. If you don’t want your name disclosed, don’t give. Additionally, in my opinion, PACs should not be allowed spin-offs that qualify as tax-exempt entities, be they from the left or the right. It is unfair to us taxpayers who feel there is already too much money in politics. Yet, because of the tax code, their deduction becomes our higher rate.

In politics we often have people with strongly held, but differing views. However, respect for one’s opponents is integral to civility in democracy. This incident, along with Benghazi, speaks to character, or rather to the observation that character in politics and politicians has sadly gone missing. Typical of the infecundity of any moral sense in Washington could be seen in the question asked by Secretary of State Hillary Clinton at the Senate hearings earlier this year. In testimony as to the cause, she asked, “What difference – at this point what difference does it make?” Madame Secretary, it makes a difference because the truth matters, at least it does to the families of those who were killed and all those who love the spirit of this nation.

During one’s lifetime, power may be exercised and fortunes may be amassed, but in the end we are left with our reputations, which largely reflect the person we are. Character involves trust and honesty, fair treatment and transparency. Whatever strengths this Administration may have, the events of the past week suggest that character is not among them. “Inappropriate?” Forsooth!

Thursday, May 9, 2013

“Big Farms, Unions and Immigrants”

Sydney M. Williams

Thought of the Day
“Big Farms, Unions and Immigrants”
May 9, 2013

Farming is hard work. However, the fruits of farming provide necessities for life. Besides which everyone likes a good meal at home or a restaurant. It is one of life’s pleasures. Yet very few of us consider the work that goes into the food on the plate before us – the seed that becomes a plant, the nurturing and eventual harvesting, the packaging and transportation. The china, crystal and silver off of which we dine are worlds apart from the laborers – many of whom are immigrants (a lot of them here illegally) and almost all of whom are poor – that made our repast possible.

Even though I grew up on what some would call a farm in New Hampshire, I admit to little familiarity with the arduous work involved in picking strawberries in California’s Central Valley, or Vidalia onions in Georgia. My farm work was limited to chores at home, and summer jobs, haying for neighbors and one summer (better forgotten) picking blueberries for Mr. Glazier.

Farming is a capital intensive business; it requires land, equipment, seed and fertilizer. It is subject to the whims of nature, thus often produces volatile operating margins and not infrequently, losses. The risks and hard work it entails, and a want of willing labor have entangled US growers, the United Farm Workers and immigration reform into a Gordian Knot. This seemingly intractable problem sets cultures and work ethics against one another. Farming involves long and difficult work conditions and possible exploitation. Resolving the issue is important to us all, as we need the continuing flow of fresh fruits and vegetables at reasonable prices to our kitchens and restaurants.

What prompted these musings was a front page article in Tuesday’s New York Times, “Workers Claim Race Bias as Farms Rely on Immigrants.” Ethan Bronner highlights the conflicting forces: farmers that need crops picked in a timely fashion, Mexicans who are skilled and who are willing to work longer for extra pay, African-Americans who claim to want the jobs, but not when they entail the hours that Mexican guest workers are willing to put in, accusations of racism, union leaders who would like to increase their ranks and, thus, their leverage, and lawyers who see opportunity in confusion.

The issue is sensitive and highly charged. Lawyers for the African-American community have leveled accusations of racism against farmers in Georgia who have hired Mexican immigrants instead of native Americans, including African-Americans. It is generally acknowledged that the Mexicans are very hard working. Mr. Bronner writes: “Even many of the Americans who feel mistreated acknowledge that the Mexicans who arrive on buses for a limited period are incredibly efficient, often working into the night seven days a week to increase their pay.” He then quotes an American who was fired, he claims unfairly: “We are not going to run all the time. We are not Mexicans.” His tone is indicative of the sensitivity of the situation.

The farmers claim they are neither racists nor anti-American. They simply have crops to pick and need workers to do so. Mr. Bronner quotes Brian Stanley, owner of Stanley Farms, a farmer who has been sued: “We have tried to fill our labor locally. But we couldn’t get enough workers, and that was hindering our growth. So we turned to the guest worker program.” Mr. Stanley then noted that there is an extra cost to importing guest workers. They require extensive paperwork. They have to be housed. Understandably, all things being equal, importing labor would not be their preference.

About a month ago, Reuters reported that key Senators agreed in principle with U.S. growers and the United Farm Workers on immigration reform for farm laborers. The agreement calls for the creation of a new guest worker program to replace the current H-2A program, a program which will ultimately create legal status for farm workers who entered the United States illegally. There are approximately 1.5 million agricultural workers in the U.S., and estimates suggest that somewhere between 500,000 and 900,000 are undocumented aliens. It has been difficult for farmers to recruit Americans to perform jobs that are deemed too difficult and/or beneath their dignity. The problem is one of economics. Farmers have no biases when it comes to their businesses, other than turning a profit. If a Mexican immigrant is more productive than an American native, the Mexican will get the job. It is as simple as that. Like most non-government unions, membership in the United Farm Workers (UFW) has declined, from an estimated 50,000 field workers in the 1970s to 15,000 today. The legacy of Cesar Chavez can be seen in portraits, buildings and even a Lewis and Clark-class cargo ship, but not in the union he helped create.

Farming means working in extreme heat or in the rain, contorting the body into unnatural positions, as one stretches to pick apples, or bends to pick berries and dig up onions. It is not preferred employment. But it is a job that needs to be done and, like most jobs when done well, can provide the means and opportunity to find better employment in another place at a future time. There are aspirant even among farm laborers. Let us hope that we have not arrived at a place when all Americans feel they are entitled to a good job, a clean home and all the food they can eat. We are entitled to think, pray and speak freely, to assemble unafraid and be secure in our own persons, but we have to work for our material success. Being an American, or just being in America, provides opportunities, but does not guarantee success. It cannot and should not be otherwise. In a piece about words that replace thought, Thomas Sowell of the Hoover Institution at Stanford, talks of the word “fair.” He writes: “Apparently everyone [seemingly] is entitled to a ‘fair share’ of a society’s prosperity, whether they worked 16-hour days to help create that prosperity or did nothing more than live off the taxpayers or depend on begging or crime to bring in a few bucks.” We better hope that is not true, for that is the path to national perdition and enslavement of the mind.

There is a misguided notion among the Left that everyone is entitled to a comfortable life. But the real responsibility of government, besides affording protection and ensuring our God-given and inalienable rights, is to help people become productive contributors to the state, not dependents.

A report issued early this week from the Heritage Foundation is aimed at derailing immigration reform. The foundation claims that by legalizing undocumented workers, it places a $6.3 trillion cost over the lifetime of current illegals. The number is derived by assuming welfare costs $9.4 trillion, minus taxes collected of $3.1 trillion. Since former South Carolina Republican Senator Jim DeMint is now president of the foundation, the findings are not a surprise, as he was and is a foe of reform that provides a path to citizenship for illegals, which would include at least half a million farm workers. Mr. DeMint expresses a legitimate concern. Nevertheless, the report, according to a rebuttal by Diana Furchtgott Roth, assumes all illegals will choose naturalization, will be in low-paying jobs and/or on welfare. That may prove too dire a prediction. We remain an upwardly mobile society. A recent analysis of individuals’ tax returns by Treasury economists Gerald Auten and Geoffrey Gee found that between two ten-year periods, 1987-1996 and 1996-2005, over 50% of taxpayers moved to a different fifth of income distribution, with half those in the lowest fifth moving up. “Immigration reform,” as Senator Marco Rubio said yesterday, “that shifts the mix of legal immigration away from family-based toward highly skilled/merit-based, combined with bringing millions of undocumented out of the underground economy, will improve the labor market, increase entrepreneurship and create jobs…” A problem the United States faces is not one of illegals getting benefits; it is the culture that we have created and are perpetrating that encourages dependency on the part of our own citizens. That is what needs attention. The country can use both skilled and unskilled labor. It needs people who want to work.

Neither leftists nor conservatives want to be deprived of fresh fruits and vegetables and they want them at reasonable prices. Free markets apply to labor as well as to goods and services. No one wants to see individuals or sectors of society excluded from jobs or any other activity for reasons of prejudice and no one wants workers to be taken advantage of by unscrupulous employers. But we also cannot allow politically correct concepts of “fairness” dictate the way markets work. Agricultural work is not easy, as one of the plaintiff’s attorneys attests: “I am not arguing that agricultural work is a good job.” But he then adds perversely, “Just because [some] people are easier to supervise, agricultural employers shouldn’t be able to import them.” Presumably he is referring to Mexicans as being easier to supervise. The implication is that hiring Americans who will work less hard and demand more money and who are more difficult to manage should be hired in their place. If all managements thought that way, the economy would be in worst shape than it is.

Tuesday, May 7, 2013

“Complacency in Bond Land?”

Sydney M. Williams

Thought of the Day
“Complacency in Bond Land?”
May 7, 2013

The problem with generational-long trends is that five years doesn’t make much of a difference to the historian looking back, but those years can seem endless for the one who made a bad bet, an example being those who thought interest rates would move higher. In his recent Grant’s Interest Rate Observer, James Grant traces the rise and fall of interest rates over the past 150 years. The cycles are long. Rates fell for the 35 years following the Civil War, then rose for 20 years. In 1920 they began falling, and did so through the end of World War II, when they began rising again. That trend ended with the Ten-Year Treasury yielding 15.3% in September, 1981.

Percy Bysshe Shelley ends his “Ode to the West Wind” with the well known line that is filled with hope, “O wind, if Winter comes, can Spring be far behind?” As Mr. Grant points out, spring came to the bond market in 1981 and is closing in on its 32nd birthday. Those three decades would suggest that not only did spring arrive, but it suggests we must be in the waning days of summer, awaiting the onslaught of a chilly autumn. Can the rally in bonds extend for another four or five year? Anything is possible. There may be an Indian summer, but we know that this too will end. For the one constant common to all markets is change. But picking the apogee and nadir’s of trends is a job for clairvoyants, not mortals, and certainly not pundits like me who profess to no such expertise.

In November, 2008 the Federal Reserve implemented its first round of quantitative easing. The yield on the Ten-Year had already fallen to 2.96% (from 3.83% at the end of September.) Concern about the possible inflationary consequences of the Fed’s purchases pushed bond prices lower; so that just over a year later, in December of 2009, the yield on the Ten-Year was 3.84%. However, once markets realized that the Fed would keep its foot on the accelerator, bond prices moved up and yields fell. With the economy still sluggish, and despite stocks and bonds having rallied, the Fed, in the summer of 2010 instituted QE 2. Again, the first response was for rates to rise and bond prices to fall. The yield on the same bond was 2.48% that August. By March of 2011, it had risen to 3.45%. And still the economy did not respond as expected; but stocks continued to do well and so did bonds, after initially faltering. Then last October, with unemployment still around 8% and with the Ten-Year now yielding 1.67%, the Fed began QE 3. The initial response has been the same. Treasury rates are nominally higher, and unemployment has dipped, but the numbers of employed workers remains substantially below where they were when the recession began. The bet that most pundits make is that the process will continue as it did before.

While Treasury yields have fallen 40% since QE 1 began, the yield on High Yield bonds have fallen 67%, indicating a willingness to assume more risk in the illusive search for yield.

Low interest rates are double-edged. As Bill Gross of PIMCO writes in his May “Investment Outlook,” “The government’s gain, however, is the saver’s loss.” ‘Government’ is simply a euphemism for taxpayers. Thus what we are seeing is a perverse wealth transfer, from the elderly and retired to Wall Street. For the principal beneficiaries of low interest rates have been the TBTF banks and buyers of commodities, bonds and stocks. In his eponymous news letter, Mr. Grant points out that, contrary to the prognostications of government officials and most market commentators, there has been “rip-roaring inflation in the price of income. The cost of retirement…has gone through the roof.” In 2002, a million dollars invested in Ten-Year Treasuries produced $62,000. Today, to generate the same level of income, the retiree would need about $3.7 million. Low returns in “safe” securities have forced investors into riskier securities. For the individual whose 6% Ten-Year bonds are maturing, and now needs to replace the income, must now buy junk bonds.

As mentioned above, the Federal Reserve is in its third iteration of quantitative easing. They have been purchasing $85 billion in Treasuries and asset backed mortgages each month, roughly the annual cost of sequester. In purchasing these securities, the Fed is injecting money into the economy. “The money,” as Dallas Fed president Richard Fisher recently noted, “should, theoretically, be put to use: by banks lending to consumers and businesses that will expand employment, and by investors who, rediscounting valuations in the fixed income and equity markets, will drive those markets higher, creating a wealth effect.” The latter has worked, as we have seen in stock and bond indices, while the former, other than aiding the housing market, has been less successful. The irony is that the stock market is caught in a pushmi-pullyu enigma. Equity holders hope for economic growth to surge, driving earnings, but at the same time realize that if that happens, interest rates will rise, knocking out a critical support for stocks.

Markets are self-correcting mechanisms. But no one can forecast peaks, valleys or timing. And, perhaps more importantly, no one can control the rise in rates when that happens. Nevertheless, the threat of rising rates hangs over taxpayers and investors alike, as a sword of Damocles. Total federal debt is about $16.8 trillion, of which the public portion is about $11.7 trillion. In the fed budget, no allowance is made for the accumulated interest rate cost on government-owned debt. The average interest rate on the public portion of the debt is just under 2%. In contrast, a dozen years ago the average rate cost was 5.3%. In April 1997, the yield on the Ten-Year was 6.7%; today it is 1.77%. Interest expense on the public portion of the debt approximates $223 billion, or roughly 6% of the expected $3.7 trillion 2013 budget. Should rates revert to the 2001 level, interest costs would consume 16% of the budget. If we went back to the mid 1990s, the cost would be even higher. This is an event that will happen. What we don’t know is when. But it is this indisputable fact that renders so serious the need to reduce debt.

What is going on in the Treasury markets violate basic economic rules of supply and demand. When the market is flooded with any product, the price usually goes lower. Not so in the brave new world of fiat currencies. When currencies were tied to a commodity like gold, they could only be issued in proportion to the amount of gold held by the central bank. Fiat currencies have no such restraint, which one would think might make them less valuable, yet the proliferation of them, over the course of all three quantitative easing programs has only made them dearer. Nevertheless, it should not be surprising, despite the U.S. being seen as the best horse in a field of nags, that the dollar is only one percent higher than it was at the end of December, 2008.

As Warren Buffett wrote in this year’s letter to shareholders, “…every tomorrow has been uncertain. America’s destiny, however, has always been clear: ever-increasing abundance.” That is likely to be true, but timing is something Mr. Buffett worries less about than do most. Complacency does not appear to this observer to be a concern in equity markets, but four years into a bull run and now selling at 11.5X estimates – estimates that have been coming down – it is far from the bargain it once was. But the bond market seems different. Many prominent and highly successful bond managers have expressed reservations, but claim to be still playing the game. The question becomes: will they all be able to get off the speeding train unhurt before it inevitably reaches a point of no return? I don’t pretend to have the answers, but these are questions worth asking; for complacency is always the enemy of investors.