Wednesday, August 01, 2007

Income Equality v. Opportunity

In a fascinating piece by Arthur C. Brooks in the Summer 2007 issue of City Journal the issue of income inequality is explored in terms of what people really want and a review of some numbers and polls on the issue. The article is "What Really Buys Happiness? - Not Income Equality but Mobility and Opportunity":

The United States is a rich nation getting richer....

Reason to celebrate? Not according to those who worry about rising income inequality—the fact that the rich are getting richer faster than the poor are getting richer....

Rising inequality makes for good political fodder...liberal politicians, policymakers, and social activists who want to reduce economic inequality through greater taxation and redistribution of wealth. And their plan draws inspiration from a particular academic theory: that inequality is socially destructive because it makes people miserable. As a scholar working in the field of public policy, I have long witnessed hand-wringing about the alleged connection between inequality and unhappiness. What first made me doubt this prevailing view was not some new scholarly study but rather that when I questioned actual human beings about it, few expressed any shock and outrage at the enormous wealth of software moguls and CEOs. On the contrary, they tended to hope that their kids might become the next Bill Gates.

Were these people somehow unrepresentative of America? Or was the academic consensus wrong? I set out to discover which it was. What I found was that economic inequality doesn’t frustrate Americans at all. It is, rather, the perceived lack of economic opportunity that makes us unhappy. To focus our policies on inequality, instead of opportunity, is to make a grave error—one that will worsen the very problem we seek to solve and make us generally unhappier to boot....

...the arguments linking economic inequality to unhappiness are mistaken. If the egalitarians are right, then average happiness levels should be falling. But they aren’t. The GSS shows that in 1972, 30 percent of the population said that they were “very happy” with their lives; in 1982, 31 percent; in 1993, 32 percent; in 2004, 31 percent. In other words, no significant change in reported happiness occurred—even as income inequality increased...

Believing in mobility helps make people happy, then. But does mobility actually exist in the United States? The Left doesn’t think so. Liberals, including rich liberals, are far less likely than conservatives to see a better future for people who work hard. Just 26 percent of liberals with incomes above the national average believe that there’s a lot of upward income mobility in America, versus 48 percent of conservatives with below-average incomes. And 90 percent of the poorer conservatives said that hard work and perseverance could overcome disadvantage, versus 65 percent of the richer liberals. If a liberal and a conservative are exactly identical in income, education, sex, family situation, and race, the liberal will still be 20 percentage points less likely than the conservative to say that hard work leads to success for the disadvantaged.

It is small wonder, then, that conservatives tend to be happier than liberals today. The 2004 GSS showed that 44 percent of people who identified themselves as “conservative” or “extremely conservative” were “very happy” about their lives; only 25 percent of self-identified liberals or extreme liberals gave that response. Conservatives believe that they live in a more promising country than liberals do, and that makes them happier.

And those left behind, it’s important to note, will almost certainly not become happier if we redistribute more income. Indeed, they will probably become less happy. Policies designed to lower economic inequality tend to change the incentives of both the haves and the have-nots in a way that particularly harms the have-nots. Reductions in the incentives to prosper mean fewer jobs created, less economic growth, less in tax revenues, and less charitable giving—all to the detriment of those left behind. And redistribution can, as the American welfare system has shown, turn beneficiaries into demoralized long-term dependents. As Irving Kristol put it three years before the federal welfare reform of 1996, “The problem with our current welfare programs is not that they are costly—which they are—but that they have such perverse consequences for people they are supposed to benefit.”

Further, policies to redress economic inequality hardly affect true inequality at all. Policymakers and economists rarely denounce the scandal of inequality in work effort, creativity, talent, or enthusiasm. We almost never hear about the outrage that is America’s inequality in leisure time, love, faith, or fun—even though these are things that most of us value more than money. To believe that we can redress inequality in our society by moving cash around is to have a materialistic, mechanistic, and totally unrealistic understanding of the resources that we truly care about.

Finally, arguments against inequality legitimize envy. Americans may indeed have strong concerns about their relative incomes and may seek status as reflected in their economic circumstances. But to base our policies on the anxieties of those at the back of the status race is to bow before Invidia. A deadly sin is not, in my view, a smart blueprint for policymaking.

A more accurate vision of America sees a land of both inequality and opportunity, in which hard work and perseverance are the keys to jumping from the ranks of the have-nots to those of the haves. If we can solve problems of absolute deprivation, such as hunger and homelessness, then rewarding hard work will continue to serve as a positive stimulant to achievement.

Redistribution and taxation, beyond what’s necessary to pay for key services, weaken America’s willingness and ability to thrive.

This vision promotes policies focused not on wiping out economic inequality, but rather on enhancing economic mobility. They include improving educational opportunities, aggressively addressing cultural impediments to success, enhancing the fluidity of labor markets, searching for ways to include all citizens in America’s investing revolution, and protecting the climate of American entrepreneurship.

Placidity about income inequality, and opposition to income redistribution, are evidence of a light heart, not a hard one. If happiness is our goal, those who promote opportunity over economic equality have no apologies to make.

The Ethanol Scam

From a post by Larry Kudlow over at The Corner comes this article from Rolling Stone, clearly not one of my regular sources, but a fascinating article that proves what some of us have all been thinking for some time. Some snippets from "Ethanol Scam: Ethanol Hurts the Environment And Is One of America's Biggest Political Boondoggles":

...Ethanol doesn't burn cleaner than gasoline, nor is it cheaper. Our current ethanol production represents only 3.5 percent of our gasoline consumption -- yet it consumes twenty percent of the entire U.S. corn crop, causing the price of corn to double in the last two years and raising the threat of hunger in the Third World. And the increasing acreage devoted to corn for ethanol means less land for other staple crops, giving farmers in South America an incentive to carve fields out of tropical forests that help to cool the planet and stave off global warming.

So why bother? Because the whole point of corn ethanol is not to solve America's energy crisis, but to generate one of the great political boondoggles of our time. Corn is already the most subsidized crop in America, raking in a total of $51 billion in federal handouts between 1995 and 2005 -- twice as much as wheat subsidies and four times as much as soybeans. Ethanol itself is propped up by hefty subsidies, including a fifty-one-cent-per-gallon tax allowance for refiners. And a study by the International Institute for Sustainable Development found that ethanol subsidies amount to as much as $1.38 per gallon -- about half of ethanol's wholesale market price.

Three factors are driving the ethanol hype. The first is panic: Many energy experts believe that the world's oil supplies have already peaked or will peak within the next decade. The second is election-year politics. With the first vote to be held in Iowa, the largest corn-producing state in the nation, former skeptics like Sens. Hillary Clinton and John McCain now pay tribute to the wonders of ethanol. Earlier this year, Sen. Barack Obama pleased his agricultural backers in Illinois by co-authoring legislation to raise production of biofuels to 60 billion gallons by 2030. A few weeks later, rival Democrat John Edwards, who is staking his campaign on a victory in the Iowa caucus, upped the ante to 65 billion gallons by 2025.

The third factor stoking the ethanol frenzy is the war in Iraq, which has made energy independence a universal political slogan. Unlike coal, another heavily subsidized energy source, ethanol has the added political benefit of elevating the American farmer to national hero. As former CIA director James Woolsey, an outspoken ethanol evangelist, puts it, "American farmers, by making the commitment to grow more corn for ethanol, are at the top of the spear on the war against terrorism." If you love America, how can you not love ethanol?

Ethanol is nothing more than 180-proof grain alcohol....

But as a gasoline substitute, ethanol has big problems: Its energy density is one-third less than gasoline, which means you have to burn more of it to get the same amount of power. It also has a nasty tendency to absorb water, so it can't be transported in existing pipelines and must be distributed by truck or rail, which is tremendously inefficient.

Nor is all ethanol created equal. In Brazil, ethanol made from sugar cane has an energy balance of 8-to-1 -- that is, when you add up the fossil fuels used to irrigate, fertilize, grow, transport and refine sugar cane into ethanol, the energy output is eight times higher than the energy inputs. That's a better deal than gasoline, which has an energy balance of 5-to-1. In contrast, the energy balance of corn ethanol is only 1.3-to-1 - making it practically worthless as an energy source. "Corn ethanol is essentially a way of recycling natural gas," says Robert Rapier, an oil-industry engineer who runs the R-Squared Energy Blog.

The ethanol boondoggle is largely a tribute to the political muscle of a single company: agribusiness giant Archer Daniels Midland....

Today, ADM is the leading producer of ethanol, supplying more than 1 billion gallons of the fuel additive last year. Ethanol is propped up by more than 200 tax breaks and subsidies worth at least $5.5 billion a year. And ADM continues to give back: Since 2000, the company has contributed $3.7 million to state and federal politicians.

The Iraq War has also been a boon for ADM and other ethanol producers. The Energy Policy Act of 2005, which was pushed by Corn Belt politicians, mandated the consumption of 7.5 billion gallons of biofuels by 2012. After Democrats took over Congress last year, they too vowed to "do something" about America's addiction to foreign oil. By the time Sen. Jeff Bingaman, chair of the Committee on Energy and Natural Resources, proposed new energy legislation this spring, the only real question was how big the ethanol mandate would be. According to one lobbyist, 36 billion gallons became "the Goldilocks number -- not too big to be impractical, not too small to satisfy corn growers."

Under the Senate bill, only 15 billion gallons of ethanol will come from corn, in part because even corn growers admit that turning more grain into fuel would disrupt global food supplies. The remaining 21 billion gallons will have to come from advanced biofuels, most of which are currently brewed only in small-scale lab experiments. "It's like trying to solve a traffic problem by mandating hovercraft," says Dave Juday, an independent commodities consultant. "Except we don't have hovercraft."

The most seductive myth about ethanol is that it will free us from our dependence on foreign oil. But even if ethanol producers manage to hit the mandate of 36 billion gallons of ethanol by 2022, that will replace a paltry 1.5 million barrels of oil per day -- only seven percent of current oil needs. Even if the entire U.S. corn crop were used to make ethanol, the fuel would replace only twelve percent of current gasoline use.

Another misconception is that ethanol is green. In fact, corn production depends on huge amounts of fossil fuel -- not just the diesel needed to plow fields and transport crops, but also the vast quantities of natural gas used to produce fertilizers. Runoff from industrial-scale cornfields also silts up the Mississippi River and creates a vast dead zone in the Gulf of Mexico every summer. What's more, when corn ethanol is burned in vehicles, it is as dirty as conventional gasoline and does little to solve global warming: E85 reduces carbon dioxide emissions by a modest fifteen percent at best, while fueling the destruction of tropical forests.

But the biggest problem with ethanol is that it steals vast swaths of land that might be better used for growing food. In a recent article in Foreign Affairs titled "How Biofuels Could Starve the Poor," University of Minnesota economists C. Ford Runge and Benjamin Senauer point out that filling the gas tank of an SUV with pure ethanol requires more than 450 pounds of corn -- roughly enough calories to feed one person for a year.

Thanks in large part to the ethanol craze, the price of beef, poultry and pork in the United States rose more than three percent during the first five months of this year. In some parts of the country, hog farmers now find it cheaper to fatten their animals on trail mix, french fries and chocolate bars. And since America provides two-thirds of all global corn exports, the impact is being felt around the world. In Mexico, tortilla prices have jumped sixty percent, leading to food riots. In Europe, butter prices have spiked forty percent, and pork prices in China are up twenty percent. By 2025, according to Runge and Senauer, rising food prices caused by the demand for ethanol and other biofuels could cause as many as 600 million more people to go hungry worldwide.

If you can, the entire thing is worth reading to get the passion the author puts into his opinion. Again, this isn't surprising to me but is good to see my suspicions in print. Corporate subsidies remain a huge problem in this country and so often violate my rules about how free trade is a good thing. And besides "Big Corn" my other favorite egregious example is "Big Sugar" and the subsidies for that industry that have caused many of our candy manufacturers to move offshore, particularly Canada, to escape the ridiculous sugar prices in America due to propping up "Big Sugar" to the detriment of industry and the consumer.

Sunk Costs, Decision Making & Iraq

Walter Williams in a nice article today describes one of the most misunderstood and most important concepts in economics and in decision making in "Economic Thinking":

Historical costs, sometimes called sunk costs, are irrelevant to decision-making because they are costs that have already been incurred. That's something that's not intuitively obvious, even for some trained economists....

Today's debate over the Iraq War is so often discussed in terms of whether it should have been initiated in the first place, our faulty intelligence about Hussein's possession of weapons of mass destruction, and whether the Bush administration lied to the American people. Whether these observations and charges are true or false should in no way be a part of today's decision-making, for history is one of those immutable facts of life. We can change the future, but we cannot change the past, though we can learn from it.

The only costs relevant to decision-making are what economists call marginal or incremental cost; that's the change in costs as a result of doing something. That cost should be compared to the expected benefit. Think about pollution. Getting rid of pollution is a no-brainer. All that the authorities of, say, Los Angeles would have to do is to mandate that all pollution-emitting sources shut down. That would mean no driving, no manufacturing, no airplanes, no power generation and no lawn mowing. Angelenos would have perfectly clean air, but I doubt whether they'd agree that it's worth the costs. That means perfectly clean air is non-optimal, and so is perfectly dirty air. The question is, how much clean air do we want and at what cost? In other words, we should compare the additional benefit of cleaner air to the additional costs of getting it.

The idea of weighing the costs of doing something against its benefits are part and parcel of intelligent decision-making. If we only look to benefits, we'll do darn near anything because everything has some kind of benefit.

NYT: "A War We Just Might Win"

In a surprising Op-Ed printed in the New York Times, of all places given the paper's constant criticism of the war in Iraq and of President Bush, positive news from the battle front is actually printed. This report may indeed be a very significant part of our future debates about the right course of action in Iraq. Two analysts from the liberal Brookings Institution, Michael O'Hannon and Kenneth Pollack, present their findings from a recent visit to Iraq in "A War We Just Might Win":

We are finally getting somewhere in Iraq, at least in military terms. As two analysts who have harshly criticized the Bush administration’s miserable handling of Iraq, we were surprised by the gains we saw and the potential to produce not necessarily “victory” but a sustainable stability that both we and the Iraqis could live with.

After the furnace-like heat, the first thing you notice when you land in Baghdad is the morale of our troops. In previous trips to Iraq we often found American troops angry and frustrated — many sensed they had the wrong strategy, were using the wrong tactics and were risking their lives in pursuit of an approach that could not work.

Today, morale is high. The soldiers and marines told us they feel that they now have a superb commander in Gen. David Petraeus; they are confident in his strategy, they see real results, and they feel now they have the numbers needed to make a real difference.

Everywhere, Army and Marine units were focused on securing the Iraqi population, working with Iraqi security units, creating new political and economic arrangements at the local level and providing basic services — electricity, fuel, clean water and sanitation — to the people. Yet in each place, operations had been appropriately tailored to the specific needs of the community. As a result, civilian fatality rates are down roughly a third since the surge began — though they remain very high, underscoring how much more still needs to be done....

But for now, things look much better than before. American advisers told us that many of the corrupt and sectarian Iraqi commanders who once infested the force have been removed. The American high command assesses that more than three-quarters of the Iraqi Army battalion commanders in Baghdad are now reliable partners (at least for as long as American forces remain in Iraq).

In addition, far more Iraqi units are well integrated in terms of ethnicity and religion. The Iraqi Army’s highly effective Third Infantry Division started out as overwhelmingly Kurdish in 2005. Today, it is 45 percent Shiite, 28 percent Kurdish, and 27 percent Sunni Arab.

In the past, few Iraqi units could do more than provide a few “jundis” (soldiers) to put a thin Iraqi face on largely American operations. Today, in only a few sectors did we find American commanders complaining that their Iraqi formations were useless — something that was the rule, not the exception, on a previous trip to Iraq in late 2005.

The additional American military formations brought in as part of the surge, General Petraeus’s determination to hold areas until they are truly secure before redeploying units, and the increasing competence of the Iraqis has had another critical effect: no more whack-a-mole, with insurgents popping back up after the Americans leave.

In war, sometimes it’s important to pick the right adversary, and in Iraq we seem to have done so. A major factor in the sudden change in American fortunes has been the outpouring of popular animus against Al Qaeda and other Salafist groups, as well as (to a lesser extent) against Moktada al-Sadr’s Mahdi Army.

These groups have tried to impose Shariah law, brutalized average Iraqis to keep them in line, killed important local leaders and seized young women to marry off to their loyalists. The result has been that in the last six months Iraqis have begun to turn on the extremists and turn to the Americans for security and help. The most important and best-known example of this is in Anbar Province, which in less than six months has gone from the worst part of Iraq to the best (outside the Kurdish areas). Today the Sunni sheiks there are close to crippling Al Qaeda and its Salafist allies. Just a few months ago, American marines were fighting for every yard of Ramadi; last week we strolled down its streets without body armor.

Another surprise was how well the coalition’s new Embedded Provincial Reconstruction Teams are working. Wherever we found a fully staffed team, we also found local Iraqi leaders and businessmen cooperating with it to revive the local economy and build new political structures. Although much more needs to be done to create jobs, a new emphasis on microloans and small-scale projects was having some success where the previous aid programs often built white elephants.

In some places where we have failed to provide the civilian manpower to fill out the reconstruction teams, the surge has still allowed the military to fashion its own advisory groups from battalion, brigade and division staffs. We talked to dozens of military officers who before the war had known little about governance or business but were now ably immersing themselves in projects to provide the average Iraqi with a decent life.

Outside Baghdad, one of the biggest factors in the progress so far has been the efforts to decentralize power to the provinces and local governments. But more must be done. For example, the Iraqi National Police, which are controlled by the Interior Ministry, remain mostly a disaster. In response, many towns and neighborhoods are standing up local police forces, which generally prove more effective, less corrupt and less sectarian. The coalition has to force the warlords in Baghdad to allow the creation of neutral security forces beyond their control.

In the end, the situation in Iraq remains grave. In particular, we still face huge hurdles on the political front. Iraqi politicians of all stripes continue to dawdle and maneuver for position against one another when major steps towards reconciliation — or at least accommodation — are needed. This cannot continue indefinitely. Otherwise, once we begin to downsize, important communities may not feel committed to the status quo, and Iraqi security forces may splinter along ethnic and religious lines.

How much longer should American troops keep fighting and dying to build a new Iraq while Iraqi leaders fail to do their part? And how much longer can we wear down our forces in this mission? These haunting questions underscore the reality that the surge cannot go on forever. But there is enough good happening on the battlefields of Iraq today that Congress should plan on sustaining the effort at least into 2008.

[Michael E. O’Hanlon is a senior fellow at the Brookings Institution. Kenneth M. Pollack is the director of research at the Saban Center for Middle East Policy at Brookings.]

Tuesday, July 31, 2007

Lieberman on Terrorism

I find Senator Lieberman's position on Iraq, terrorism, the anti-war influence and his relationship with the Democratic leadership most interesting these days especially given his position as being the Democrats' nominee for Vice President only two presidential elections ago.

Here is a portion of a summary of an interview the Senator did with The Hill, "Lieberman escalates attack on Iraq critics":

Ever since Connecticut Democrats refused to back him for a fourth term in Congress, Joe Lieberman has been burnishing his independent credentials in the narrowly divided Senate while becoming increasingly critical of the Democratic Party on the war in Iraq.

Lieberman, the Democrats’ 2000 vice presidential nominee, insists he is not actively considering joining the Republican Party. But he is keeping that possibility wide open as his disenchantment grows with Democratic leaders. The main sticking points are their attempts to end the war in Iraq and their hesitation to take a harder line against Iran.

“I think either [Democrats] are, in my opinion, respectfully, na├»ve in thinking we can somehow defeat this enemy with talk, or they’re simply hesitant to use American power, including military power,” Lieberman said in a wide-ranging interview with The Hill.

“There is a very strong group within the party that I think doesn’t take the threat of Islamist terrorism seriously enough.”

...As Lieberman sees it, however, the Democratic Party has slipped away from its “most important and successful times” of the middle of last century, where it was tough on Communism and progressive on domestic policy.

...He has no plans to endorse a Democrat for president, including the senior senator from his home state, Christopher Dodd, and is open to backing a Republican candidate for president. Lieberman also startled Democrats when he lent his support to the re-election bid of Republican Sen. Susan Collins of Maine, a top target of the Democratic Senatorial Campaign Committee.

During this month’s Iraq debate, Lieberman was working behind the scenes strategizing with Republicans and was front-and-center in several GOP press conferences denouncing Democratic tactics to push for an end to the war.

Lieberman was the lone non-Republican to vote against Majority Leader Harry Reid’s (D-Nev.) efforts to shut down debate on an amendment to bring troops home by next April. (Reid voted against the cloture motion to file a similar motion at a later time.) Lieberman was also alone when he joined 40 Republicans in voting to kill an amendment by Sen. Jim Webb (D-Va.) to extend the time between troop deployments in Iraq.

“I’m disappointed that I am in so small a minority among Senate Democrats in taking the position that I have,” Lieberman said.

But even as he has played a key role on some of their top domestic initiatives, Democrats have at times kept their distance from Lieberman. Last week, for instance, Reid held a press conference with several Democrats to tout their efforts to pass the 9/11 Commission bill and a homeland-security spending plan. Lieberman, the lead Senate negotiator on the measure and chairman of the Homeland Security and Governmental Affairs Committee, was conspicuously absent.

Reid said it was not intentional to leave Lieberman out of the press conference, but Lieberman said not being invited was “surprising.”

The distance that Democratic leaders appear to be keeping from Lieberman could result from the animosity that the Democrats’ anti-war base has directed toward him. That criticism intensified even more last month, when he suggested military intervention against the Iranian government.

...Lieberman is unfazed and says he has no intention of formally rejoining the Democratic Party.

“For now, I find being an independent more fun,” Lieberman said. “The partisanship in this place is out of control. As an independent I’ve got the opportunity to speak out against that.”

Might Lieberman consider a run for Vice President as an Independent with a Republican nominee?

Big Labor & Presidential Politics

As individuals most union members are great people while unions as organizations, to speak politely, are not great. I say this not lightly and with feeling. From my Labor Economics professor in undergraduate school who was an avowed socialist who never appeared in public without his peace symbol button firmly affixed to his tie, to my first lead role as a management negotiator versus the Teamsters ( the only time I have, coincidentally of course, been shot at - twice), and now seeing how the automotive unions have decimated the American automobile manufacturers, worked to kill Social Security reform, oppose free trade and every other sensible economic reform that is good for this country and the world, to teacher's unions opposing student measurements and school choice, and on and on -- I do not like unions.

So I give you this New York Times 'editorial', "Democrats' Field Creates Pleasant Predicament for Unions":

Union leaders say they are so happy with the Democratic presidential aspirants, though unsure of whom to support, that they are unlikely to endorse any of them before the primaries next year....

“There’s a pretty strong sentiment across the labor movement for Edwards,” Steve Rosenthal, a former political director of the A.F.L.-C.I.O., said. “But I think some unions are a little leery of endorsing him without more evidence that he can win.”

Another reason many unions are hesitating to endorse a candidate is their overall happiness with the eight hopefuls. Several back universal health coverage, a major union goal. All have endorsed labor’s main legislative priority, a bill that would make it easier to unionize workers.

“This is a pro-worker field of dreams,” said Bruce Raynor, president of Unite Here, which represents hotel, restaurant and apparel workers. “The field is much better from a worker’s standpoint than it was four years ago.” [Note: You should recall Mr. Raynor driving the textile industry out of North Carolina and much of the South and the jobs that went with the firms.]

Mrs. Clinton and Mr. Obama are wooing unions partly to prevent Mr. Edwards’s securing the A.F.L.-C.I.O. endorsement and partly to pick up individual union endorsements for themselves. Mr. Obama has repeatedly campaigned on behalf of a unionization drive at Resurrection Health Care’s nine facilities around Chicago.

The A.F.L.-C.I.O. endorsement is prized because it opens the door to major union contributions and to support from the federation’s political program, which contacted 13 million members of unions and union households in the 2006 campaign.

The political director of the federation, Karen Ackerman, said that thanks largely to the A.F.L.-C.I.O. efforts, 74 percent of union members voted for union-backed candidates in the Congressional elections last year.

Mr. Edwards has been by far the most aggressive in wooing labor. He spent a day in April working alongside a nursing home worker at the behest of the Service Employees International Union, and he has marched alongside striking Goodyear workers.

“If our board voted today, it would be leaning toward Edwards,” Leo Gerard, president of the United Steelworkers, said. “He showed up at a Goodyear picket line. He just called and said, ‘I’ll be there.’ That kind of stuff really rings home with our members.”

Mr. Gerard said his union would respect the A.F.L.-C.I.O. policy that its 55 member unions not endorse anyone until the federation decided whether it would make an overall endorsement. The Democratic candidates are scheduled to participate in an A.F.L.-C.I.O.-sponsored debate on Aug. 7 in Chicago. The federation said it was expecting 15,000 union members to attend the debate, at Soldier Field.

The president of the federation, John J. Sweeney, said the earliest it would endorse anyone would be late October. Mr. Sweeney said he doubted that any candidate could muster the requisite two-thirds support.

He cautioned against any rush, saying many unions acted too hastily in endorsing Howard Dean and Richard A. Gephardt in 2004, only to see those candidacies flounder early in the primaries. “There’s merit to delaying, because there are so many good candidates,” Mr. Sweeney said. “We’re seeing a very different attitude this time around. We learned from the last time that we had better be sure that when we endorse we’re supporting the candidate our members want to support. And there’s also an interest in backing a candidate who can win.”

Gerry McEntee, president of the American Federation of State, County and Municipal Employees, acknowledges having learned a lesson in endorsing Mr. Dean.

“We made a big error,” Mr. McEntee said. “The error was that to a large extent it was a leadership decision made without a deep enough effort to see how our members really felt.” Mr. Edwards and the other candidates are also seeking the endorsement of Change to Win, a rival federation made up of the service employees, the Teamsters and five other unions that left the A.F.L.-C.I.O.

The president of Change to Win, Anna Burger, said her group would probably not make a pre-primary endorsement. Ms. Burger also counseled against any rush to endorse a particular candidate, saying it might discourage other candidates from speaking out on workers’ issues. “We should give them space” she said.

Andrew L. Stern, the service employees’ president, also suggested that his group was in no hurry to endorse.

“This time, Edwards has done the most to win our support, but Senators Clinton and Obama, they’re not going to let Edwards sneak by them,” Mr. Stern said. “It’s like Roller Derby. We’re waiting for someone to break from the pack. We’re getting closer, but there’s no particular clarity.”

If neither labor federation endorses, that would open the door to individual unions’ endorsements. Union leaders said that the American Federation of Teachers and the Office and Professional Employees International Union were leaning toward Mrs. Clinton and that Unite Here, the Teamsters and the steelworkers were leaning toward Mr. Edwards. A Unite Here endorsement would be a boon in Nevada, because its Las Vegas local has 40,000 members and could dominate that state’s Democratic caucuses.

Two big unions, the service employees and the state, county and municipal employees, might be too torn to endorse anyone. Their locals in Illinois are enthusiastic about Mr. Obama. Several of their locals in New York favor Mrs. Clinton.

“There’s a certain amount of rooting for the home team,” Ms. Burger said.

Just a couple of footnotes here:
Can you draw any obvious correlation between the fact that education and our government is widely perceived to be dysfunctional despite the amount of money devoted to those undertakings and the fact that those employees are almost completely unionized and have almost zero turnover? Dysfunctional and employed for life does not a good combination for performance make.

And right or wrong, when President Reagan broke the air traffic controller's union did not the Republican Party cement and make unmistakable its honest opinion of unions, not union workers as individuals but union tactics?

And see my post "Labor's Impact on Free Trade: Bad Economics, Bad Foreign Policy, Bad for America" here.

Monday, July 30, 2007

What is Wealth?

I have had the good fortune to hear Alan Weiss speak a few times and have greatly enjoyed some of his books. Dr. Weiss is a successful consultant and is even better at teaching how to be a person that provides true honest value to clients and how to maintain those relationships. In speaking with him in person one also senses that he really really enjoys what he does and even more communicating that skill and joy to others. Dr. Weiss puts out a free monthly newsletter, "Balancing Act: The Newsletter", that is more about life than about consulting and I enjoy reading it each month. Here is a tidbit from this month's newsletter that gave me some thinking moments and perhaps it will you:

Wealth, to me, is the creation of discretionary time. You can always make more money, but it's impossible to create more time. You have 24 hours in the day, and that's it. Money is just means to an end. Riches are not wealth. A bank account is not a lifestyle.

But, the time to do what you choose when you choose constitutes inestimable wealth. Watching your kids play soccer or dance at a recital, going to a spontaneous lunch with your spouse or a special friend, engaging in charity work without feeling it's "robbing you" of time otherwise needed elsewhere, are all displays of great wealth.

If you drive a 10-year old car and haven't purchased new clothes in ages because you have no money to do so, I'm concerned about your wellbeing. If you've denied yourself those items because you're using your money to sit in vaults, then I'm concerned about your wellness. I'm not suggesting we need lavish houses, large yachts, and legendary cars, but I do think that the ability to engage in activities with families, support good causes, and nourish your soul are legitimate investments.

"There is only one class in the community that thinks more about money than the rich," observed Oscar Wilde, "and that is the poor." A poverty mentality is not related to how much money one owns, but rather to one's view of how money should be used.

I continue to be amazed, not only at how stupid I was two weeks ago, but also at how many people I find myself coaching to whom I have to say, "You're approach to money is subconscious and your approach to time is unconscious." No one, not even people truly in poverty, should have a poverty mentality, which is akin to a victim mentality.

As Cher said in "Moonstruck" as she slapped her ardent suitor, "Snap out of it!"

Check the links above to read past newsletters, subscribe to the newsletter which I encourage you to do, or to find his main web site.

The Dark Cloud of Entitlements

The US does not at present have a deficit spending problem contrary to some public pronouncements by pandering politicians and doom-saying, tax-seeking, big government types. As a percentage of GDP our deficit spending is now quite low and continues to decrease given present tax rates, on-going GDP growth rates and the amazing increase in our nation's wealth.

We do, however, have a large dark cloud hanging over us, the amount of entitlement spending we are committed to in the future. Government accounting practice does not require the reporting of future commitments in dollars as does GAAP for corporate and business life.

President Bush touched this third rail of politics when he had the courage to embrace Social Security reform. Bush was hammered by, it seemed, every special interest group from big labour protecting future contributions to union pension funds to AARP protecting, I suppose, their future life and health insurance business. By the way, I recommend to my older friends to renounce, resign from or refuse to join AARP just for the group's massive PR campaign against Social Security reform. Recall also that the proposal was for a voluntary system to opt out of a portion of the required system and contribute some portion to an individually owned account. The opposition feared that so many people would choose to have a real self-owned account the over-all system would be hurt even though guaranteed by the US government. What a denial of the rights of the individual that the opposition to reform endorsed! And my thanks to President Bush for being willing to speak the truth no matter how unpopular and contentious he knew it would be. I hope at least some Republican running for higher office will show this courage on the privatization of Social Security during the campaign.

Robert Samuelson in this week's Newsweek discusses the fear and loathing of current politicians, especially those campaigning for the White House, to broach the issue and presents the scary projections in "When Silence Isn't Golden"; some excerpts:

If you haven't noticed, the major presidential candidates—Republican and Democratic—are dodging one of the thorniest problems they'd face if elected: the huge budget costs of aging baby boomers. In last week's CNN/YouTube debate, New
Mexico Gov. Bill Richardson cleverly deflected the issue. "The best solution," he said, "is a bipartisan effort to fix it." Brilliant. There's already a bipartisan consensus: do nothing....

The aging of America is not just a population change or, as a budget problem, an accounting exercise. It involves a profound transformation of the nature of government: commitments to the older population are slowly overwhelming other
public goals; the national government is becoming mainly an income-transfer mechanism from younger workers to older retirees.

Consider the outlook. From 2005 to 2030, the 65-and-over population will nearly double to 71 million; its share of the population will rise to 20 percent from 12 percent. Social Security, Medicare and Medicaid—programs that serve older people—already exceed 40 percent of the $2.7 trillion federal budget. By 2030, their share could hit 75 percent of the present budget, projects the Congressional Budget Office. The result: a political impasse.

The 2030 projections are daunting. To keep federal spending stable as a share of the economy would mean eliminating all defense spending and most other domestic programs (for research, homeland security, the environment, etc.). To balance the budget with existing programs at their present economic shares would require, depending on assumptions, tax increases of 30 percent to 50 percent—or budget deficits could quadruple. A final possibility: cut retirement benefits by increasing eligibility ages, being less generous to wealthier retirees or trimming all payments.

Little wonder politicians stay silent.

Frankly, Social Security is the easy one to fix by instituting voluntary private accounts for a portion of contributions, gradually raising the retirement age, and probably a slight increase in the tax to cover the unfunded liability and the problem would be solved.

Medicare and Medicaid are tougher due to the terribly fast rising cost of medical care and the demographics of the aging population. The problem is exacerbated by the trend to put more and people under the programs to provide more coverage to the uninsured.

I believe the US is well on its way toward the adoption of universal health coverage as I believe we should be doing. This is evident by both the campaign promises of all Democrat contenders for the White House and most Republicans striving to, at minimum, seek cover on the issue. To me, Obama's plan seems the least worrisome followed by Hillary's plan and worst, as usual, is the Edwards plan. It is also interesting to note that Gingrich is the most articulate on the R side of the aisle in discussing health care and that he and Sen. Clinton have worked jointly together on the health care care issue very recently. Also of note, although unnoticed, was President Bush's proposal to begin to achieve portability of health care by reforming the tax code to essentially move the burden and responsibility from the employer to the employee for the tax benefits and deductions. Also, in the Senate last week, Senators Richard Burr (R-NC) and Bob Corker (R-TN) with four co-sponsors introduced the "Every American Insured Act"; legislation which doesn't exactly do what the name suggests, but does move toward further portability with tax code changes including a refundable and advanceable flat tax credit for health care costs and coverage.

My point is that as we move toward universal coverage, which I support, we should not move toward a one-payer system, that being the US government. It seems to me the only way to retain quality and reduce the rate of cost increases is through competition coupled with some regulation of coverage. Some regulation does mean imposed rationing, unfortunately, but not to the weakness of service, the lack of innovation, and the over-bearing power of stringent rationing and control of a one-payer government controlled system.

As we move to universal coverage, the goal should be to control costs, provide coverage for all, avoid the weaknesses of a one-payer government system, and, if we get lucky, help to manage the all ready looming liabilities of Medicare and Medicaid. Social Security should be reformed to allow options for private accounts and the retirement age should be gradually and carefully raised.

Sunday, July 29, 2007

Schwab on Capital Gains Hikes

Stephen Moore, now of course with the Wall Street Journal, does a "weekend interview" with Charles Schwab in "Talking to Chuck." Here is the fabled investment trendsetter on taxes:

Mr. Schwab describes the Bush administration's capital gains and dividend tax cuts as exactly the right prescription for the ailing stock market after the dot-com crash in 2000-2001. Those tax cuts, of course, are under constant assault by Democratic presidential hopefuls and the Democratic majorities in Congress.

What would be the stock market response to repealing them? "Oh, I think it would probably cost the market 5% to 10%," he predicts. "That may not happen on a single day. But it will certainly suppress prices. And the market is already anticipating these higher tax rates," he assures me, which means stock prices are already being suppressed by tax uncertainty.

"I would say we're probably in the neighborhood of $10 trillion of unrealized capital gains" Mr. Schwab says of the present economic situation. "If you put a 100% tax on it, of course, the government's going to get none of that. If you're at zero, you would get none. With the 15% rate for capital gains, we're probably at the optimum rate."

Then he adds something that House Ways and Means Committee chairman Charlie Rangel should take to heart: "Bear in mind that the higher [capital gains] tax is principally directed toward individual investors. Not foundations or pension funds. It will be the individual who takes the hit."