Incentives Count

"Why are profit-seeking corporations so much more efficient and innovative that bureaucracies? A significant part of the answer to that question lies in the fact that bureaucracies are often hamstrung by legislation, and amending legislation is always a cumbersome and politics-ridden process. But another significant part of the answer lies in the phrase 'profit-seeking.' ... For the employees who come up with the really bright ideas prosper even more than their fellow workers, being rewarded with raises, bonuses and promotions. ... In fact, they are highly disincentivized to increase efficiency and to innovate. In business a penny saved is a penny earned, the savings flowing to the all-important bottom line. But in a bureaucracy, a penny saved is a penny likely to be cut from next year's budget. And prestige in a bureaucracy comes not from profit but from the size of one's budget. So even accidental savings are likely to suppressed with make-work. ... Had the personnel of the [SEC] been as richly and personally incentivized to uncover securities fraud as the sailors of the Royal Navy were to capture enemy ships, Bernard Madoff would have been in jail years ago", John Gordon at the WSJ, 14 May 2010, link: http://online.wsj.com/article/SB10001424052748703915204575104113794207730.html.

I have commented on the role of incentives many times. Gordon, welcome aboard.

Obama in Wonderland

"When I was a little girl, at the height of the Cold War, I used to wish, deeply, and fervently, that nuclear weapons had never been invented. An accompanying fantasy placed me at the center of world events. Just as the two superpowers were preparing to launch a devastating exchange of nuclear weapons, I would step between the two. Seeing an innocent child, the hard-boiled men of the world would soften and reconsider their terrible course. In other words, at the age of seven or eight, I was a liberal. As I grew, I came to understand a) that it was not possible to put the nuclear genie back in the bottle, and b) that the way to safety lay not in arms control but in strength prudently pursued. Liberal approaches to foreign policy continue to rely more on wishful thinking than on realism or maturity. But even in the context of liberalism, President Obama's recent policy declarations on the matter of nuclear weapons are juvenile and disturbing. ... Here's a thought experiment: Imagine that all of the existing nuclear powers agreed that their weapons were more of a threat to 'peace and security' than they were worth, and voluntarily destroyed them all. Would the world immediately become a safer place? No. It would become far more dangerous. ... So, one outcome might be that North Korea would instantly become a superpower. ... We have to insist, 'Yes, we can.' That's security policy by bumper sticker. ... So as Iran closes in on a nuclear weapon--a result the adminstration has repeqatedly declared to be 'unacceptable'--the administration is getting really serious by ... setting a good example. ... Underlying all of these naive gestures is the belief that it is the weapons that threaten the peace, not their owners. ... This is a fatuous distraction from the main issue--Iran. It is also a transparent attempt to gang up on Israel. ... But above all, it ignores the glaring fact that the treaty has been a total failure", Mona Charen (MC) at National Review, 11 May 2010, link:

http://article.nationalreview.com/433868/a-world-without-nuclear-weapons/mona-charen.

"Now boys and girls, remember, in case of nuclear attack do not face the windows. You don't want to have your faces hit with flying glass. Duck and cover!". I remember. I never shared MC's fantasy. Arms control? Anyone remember 1922's Washington naval conference? Boy, I must have been a skeptical kid. I made MC's "thought experiment" in 1958! Really!!!!! Concluding the experiment would fail. Now Obama aren't "arms for hugging"?

Spengler Exposes Petraeus

"Memo to heads of state: beware the clever general who turns up at a tough moment, and says 'Leave it to me. I can fix it for you.' ... General David Petraeus, who heads America's Central Command (CENTCOM), taught the land to live off him. Petraeus' putative success in the Iraq 'surge' of 2007-2008 is one of the wierdest cases of Karl Marx's quip of history repeating itself first as tragedy second as farce. The consequences will be similar, that is, hideous. ... And now America is engaged in a grand strategic withdrawal from responsibility in the region, leaving behind men with weapons and excellent reasons to use them. ... With American money, weapons and training, the remnants of Saddam Hussein's regime have turned into a fighting force far more effective than the defunct dictator's state police. ... America is pouring money--which is to say weapons--into disputed areas of Afghanistan, and building the core of a Palestinian army. The latter's mission is to impose a pro-Western Palestinian government on a population of whom two-thirds oppose the two-state solution. It more likely will end up fighting Israel. ... Iran is patient, playing for time, possibly to acquire nuclear weapons--which Washington has all but conceded--and until the Americans withdraw, which they must sooner or later. ... Having armed all sides of the conflict and kept them apart by the threat of arms, the [US] now expects to depart leaving in place governments of national reconciliation that will pursuade well-armed and well-organized militias to play by the rules. ... At some point the whole sorry structure will collapse, and no-one knows it better than Petraeus. ... Petraeus made his reputation on the surge, and needs someone to blame for its prospective failure. His choice is Israel. ... 'The upshot of this could not be clearer: Petraeus is echoing the narrative peddled incessantly by leftists in the government he serves and by Islamists in the countries where he works.' ... Because Petraeus sold the 'surge' to former president George W, Bush, allowing the Republicans to claim a certain degree of success for the largely unpopular Iraq War, his influence vastly exceeds that of a career officer. ... The Republicans are like investors involved in a Ponzi scheme; if any of them disavows it, everyone will, and the scheme will collapse. In order to justify their past support of nation-building in Iraq, they have difficulty disowning Petraeus--even when Petaeus puts the onus for the failure of American policy on Israel. ... Petraeus' formulation lends respectability to the fanciful idea that Iran would listen to reason if only Israel would stop building apartments in East Jerusalem. ... There is not a government in world that believes that 'effective sanctions against Iran' are anything more than a euphemism for catastrophic failure of American policy. ... If the [US] merely is going through the motions, why should the Russians or Chinese prejudice their commercial interests in order to assist the face-saving inanities of American diplomacy?", Spengler at Asia Times, 3 May 2010, link:

http://www.atimes.com/atimes/Middle_East/LE04Ak01.html.

I agree with Spengler. As usual.

California Today, Texas Tomorrow?

"If you want to see how profoundly the state's population is changing, look at the faces of the children in Texas public school classrooms. In all but rural areas, Hispanic enrollment is rapidly surpassing that of whites. Hispanic schoolchildren make up nearly 49 percent of Texas' 4.8 million pre-K through 12th-grade students, according to the Texas Education Agency. ... Now, they must confront the realization that the state is not adequately funding education of a growing population that is generally poorer and less proficient in English. ... The shift appears to be driven by birth rates and immigration, not simply 'white flight' to private schools. The gap grows every year and is wider in the early elemanetary school grades, where Hispanic children now make up a majority. ... But the combination of high numbers of limited english-proficient students, even higher numbers of children from low-income families and persistently high dropout rates worry some educators and demogaphers. During the past decade, enrollment from low-income families has grown to 2.8 million, or nearly 59 percent of all students. The number of English-language learners has increased to nearly 816,000. ... Manuel Rodriguez Jr, president of the Texas Mexican American School Board Association and a member of the Houston ISD board [said], 'millions and millions have been spent on dropout prevention measures, and it hasn't changed the numbers.' ... Steve Murdock, now on the faculty of Rice University [said], 'The demographics are very overpowering, and we clearly show signs of falling farther behind. It is, as we have noted, the major challenge to Texas' future'," my emphasis, Gary Scharrer at the Houston Chronicle, 16 May 2010, link: http://www.chron.com/disp/story.mpl/metropolitan/7007046.html.

"If the American Dream is upward economic mobility and arrival in the middle class, the grim statistics show only a small percentage of Texas' Hispanics are on the road to success. As the state's Latino population continues to expand over the next two decades, if current treands stay the same, Texas is in danger of developing what one academic describes as a 'permanent underclass.' Widespread poverty could pull down the standard of living for all Texans. ... Hispanic girls accounted to 62 percent of all births to teen mothers in 2006, the most recent year reported by the National Center for Health Statistics. ... St. Mary's University political scientist Henry Flores said ... 'Texas has been the cradle of the Hispanic middle class, what there is of it nationally. ... But if you look at the overall percentages of Hispanics of higher degrees and professional occupations, it's very, very small.' ... 'If things don't change, you're going to see a continuing Hispanic underclass'," RG Ratcliffe at the Houston Chronicle, 17 May 2010: http://www.chron.com/disp/story.mpl/headline/metro/7008236.html.

Quoted without comment.

Isn't creating an underclass what our "open borders" advocates want? "Feature, not bug", as Yves Smith says. If we didn't have enough poor people, what would our poverty warriors fight? What's Flores' problem? Absent an underclass, what would he have to study? See my 4 April 2008 post:

http://skepticaltexascpa.blogspot.com/2008/04/no-mexican-child-left-behind.html. As Texas demographics approach Mexico's, Texans average living standard will approach that of Mexicans. It's that simple.

Oswald Spengler Confronts America

"A couple of months ago, I by accident came across a book called In God's Image: The Natural History of Intelligence and Ethics. One of the blurbs on the back was written by Richard Lynn, so I thought it might be worth a look. ... Why can't we get people to wake up to the demographic crisis America is facing? Mostly because prehistoric man gained little from thinking about the distant future. ... Also, before private property, there wasn't much you could do for those more than one generation removed from you anyway. So evolution selected those who looked after themselves and their own children, and against idealists who dreamed of changing the world. ... Death rather than advancement is the fate of most species. ... The white population of South Africa stayed constant over the twentieth century while the number of blacks doubled every few decades. The whites are now being driven out of the country that they built. ... [Gerhard] Meisenberg believes that he's come up with a theory about the workings of history. Think Oswald Spengler meets biohistory. ... At the most primitive level of development, people have only magical explanations for the workings of the universe. Manliness and patriarchy are in style. Intelligence is selected for, as the very weakest die out. ... Finally decadence sets in. Hedonism, feminsim and materialism are the preferred values. Faith declines, and scientific (or at least scientistic) arguments replace religious and magical ones. The population drops as people smart enough to plan ahead limit their fertiity in order to have more money for self-fulfillment. ... But the stupid and irresponsible continue to breed away, as compassion and medical advancement make sure that almost anyone who is born lives to pass on his genes. Instead of the eugenic Flynn effect, we see dysgenics. Civilization collapses and people go back to their original primitive state. ... So, Like Richard Lynn (and myself), Meisenberg sees the future of the West in the long run as a tug-of-war between technology used for eugenic purposes pulling us one way, and dysgenic differential fertility and immigration pulling another", my emphasis, Richard Hoste at Vdare, 20 February 2010, link:

http://www.vdare.com/hoste/100210_spengler.htm.

As it is written, "If anyone does not provide for his relatives and especially for immediate familiy, he has denied the faith and is worse than an unbeliever", 1 Timothy 5:8 (NIV). Those who bear children they cannot support would appear to lack biblical sanction. In 1938 Cyril Burt wrote of "differential fertility" and the danger if had for England. We are becoming the dystopia of "Idiocracy".

Mayor Reconquista's Tactical Retreat

"To get from downtown to the residence of the man who, in 2005, became the first Hispanic elected mayor since 1870, you drive through a sliver of Korea. With 125,000 people packed into 2.7 of the city's 469 square miles, Koreatown is typical of this polyglot city where more than 100 languages are spoken and nothing is typical except recentness: 46 percent of the residents are foreign-born. So when His Honor Antonio Villaraigosa [AV] was invited to appear at a recent rally protesting Arizona's law concerning illegal immigrants, he went. But he stipulated: 'I want American flags.' ... They say [AV] should 'face the fact' that 'between now and 2014 the city will likely declare bankruptcy.' [AV] says this will not happen. But look at what has happened. ... So [AV] must like with the arithmetic of interest-group liberalism. The federal government, he says, can run deficits and print money; the state government (supposedly) must balance the budget but can push burdens down onto cities. There, he says, 'you have 10 cookies in the cookie jar and every interest wants all 10.' The nightmare numbers include the state's unemployment rate (12.6 percent)--it is higher than the nation's (9.9)--and the city's rate (13.5), which is higher than the state's. The city's long-term success depends on its schools, in which many of the children come from homes without fathers", George Will at Newsweek, 17 May 2010, link: http://www.newsweek.com/id/237640.

If LA's future depends on 73%-Hispanic LAUSD, it is bleak. Think about this: AV told his handlers which flags not to bring. Would AV want American flags at a similar rally in say 2020? Remember, AV is a former La Raza member. Hahahahaha. Do you still want to own California muni bonds?

Greece Today, America Tomorrow

"Are Europe and America headed to where Athens is today? ... Protected by the [US] through a half-century of Cold War, Europe cut back on defense and ratcheted up spending for La Dolce Vita. ... As the cradle-to-grave welfare states rose, an ever-increasing share of the labor force left the private sector for the security of the public sector. ... The fertility rate of Greece and every European nation fell below 2.1 births per woman needed to replace an existing population. Greece's birth rate has been below zero population growth for three decades. ... Were Greece a company, the solution would be bankruptcy. ... Because, should Greece decide not to take a chainsaw to her welfare state, but walk away from her debts and default, she would blow a hole in the balance sheets of the biggest banks in Europe. ... Rather than savage their welfare-state programs, and risk riots in the streets and a massacre at the polls, Madrid and Lisbon, too, might look ageeably at default. ... For how much longer will Greeks work longer, retire later and live on smaller pensions, so holders of Greek bonds can get their interest payments right on time? ... But the crisis will return. For the nations of Europe have made commitments beyond their capacity to keep, given their growing debts and aging population. ... And the unfunded liabilities of Social Security, Medicare and federal pensions rival those of Western Europe. States like California and New York, larger than Greece, look a lot like Greece. ... While the temptation is great for Washington to bail them out again, the [US] government itself has now begun to attract the concerned notice of holders of US debt", my emphasis, Pat Buchanan at World Net Daily, 6 May 2010, link:

http://www.worldnetdaily.com/index.php?pageId=150649.

"Crisis--from the Greek word 'Krisis'--is one of the many English words we owe to the ancient Athenians. Now their modern descendants and reminding us what it really means. ... So serious was the situation that it took a European version of the 2008 TARP bailout of US banks to save the euro. ... If fully implemented, it will be the mother of all bailouts--and one of the biggest admissions of error in modern financial history. The design of the European currency has been fatally flawed from the outset. It just took the Greek crisis to expose it. .... It would end forever the exchange-rate volatility that has bedeviled the continent since the breakdown of the Bretton Woods system of fixed exchange rates in the 1970s. ... A single European currency also seemed to offer a sweet deal. Countries with excessive public debt would get German-style low inflation and interest rates. And the Germans could quietly hope that the euro would be a little weaker than their own super-strong Deutsche mark. ... But the worst defect in the design of the Economic and Monetary Union (EMY), we argued, was that it united Europe's currecies but left its fiscal policies completely uncoordinated. ... The design of the EMU illustrates a profoundly important truth about human institutions. Just because you don't create a formal procedure for something you would rather not happen, that doesn't mean it won't happen. ... Problem solved? Unfortunately not. ... For one thing, it's simply not credible that the Greek government will be able to deliver the fiscal tightening it has promised at a time of deep recession. ... It will surely be at least a year before investors wake up to the fact that the fiscal predicament of the [US] is actually worse than that of the euro zone", Niall Ferguson at Newsweek, 24 May 2010, link:

http://www.newsweek.com/id/237645.

In about 1985 I remember reading a Fortune interview of Barton Biggs (BB). The substance of what BB said was, "The notion of 250 million South Americans slaving away in the hot sun to repay some New York banks does not comport with my notion of political reality". Well said BB Mine neither. Between now and 2017 I expect the "Venezuelanization" of most of Europe and the US. Got bonds? Sell while there's still time.

I disagree with NF. The Greek bailout did not save the euro. It saved banks holding Greek paper. It will kill the euro. There is nothing any European country could have done with respect to taxing and spending before the coming of the euro it couldn't do after. The euro was and is a "whole lotta nuttin". The euro was sold as a piece of financial engineering!

Collegescam

"In a town dominated by the University of Missouri's flagship campus and two smaller colleges, higher education is practially a birthright for high school seniors like Kate Hodges. ... But in June, Hodges is headed to the Tulsa Welding School in Oklahoma, where she hopes to earn an associate's degree in welding technology in seven months. ... The notion that a four-year degree is essential for real success is being challenged by a growing number of economists, policy analysts and academics. ... They pose a fundamental question: Do too many students go to college? ... President Barack Obama wants to restore the country's status as the world leader in the proposrtion of citizens with college degrees. The US now ranks 10th among industrial nations, behind Canada, Japan, Korea and several European countries. ... And while the unemployment rate for college graduates still trails the rate for high school graduates (4.9 percent versus 10.8 percent), the figure has more than doubled in less than two years. ... At Rock Bridge High School, one of Columbia's two high schools, 72 percent of the class of 2008 moved on to four-year colleges, with another 10 percent attending community college. That college attendance rate is consistent with national statistics. ... Ohio University economics professor Richard Vedder blames the cultural notion of 'credential inflation' for the stream of unqualified students into four-year colleges. His research has found that the number of new jobs requring college degrees is less than the number of college graduates. Vedder's work also yielded something surprising: The more money states spend on higher education, the less the economy grows--the reverse of long-held assumptions", my emphasis, Alan Zagier at Yahoo, 15 May 2010, link:

http://news.yahoo.com/s/ap/20100513/ap_on_bi_ge/us_too_much_college.

I keep saying compare the US to our new peer group members: Mexico, Argentina, Colombia, etc. What's the problem? What did Vance Packard tell us in 1959, see my 23 August 2008 post: http://skepticaltexascpa.blogspot.com/2008/08/college-investment.html. I am not surprised with Vedder's result. I've believed college is largely a waste of money for about 40 years. Consider: college attendance is subsidized. Should that tell you something?

Left and Right vs. The Center

"Sen. Bernie Sanders can seem like a character from another era with his rumpled suits and oratory about economic justice. But his anger at bankers and Wall Street runs high, Congress's only self-declared socialist is moving to center stage. ... Mr. Sander's amendment, which is likely to be voted on within days, is worrying White House officials, who say it would violate the central bank's independence and cripple its ability to protect the economy. ... The amendment has drawn an unusally broad alliance of backers. Mr. Sanders's 19 co-sponsors include such liberals as Sen. Patrick Leahy (D., Vt.) and conservatives like Sen. Jim DeMint (R., SC). The measure is supported with equal fervor by the AFL-CIO labor union and the conservative lobby group Americans for Tax Reform. ... 'Nobody in America, or very few people, think that makes any sense at all,' he said. 'Putting trillions of dollars at risk, and you don't know who got it, who made the decisions, the possible conflicts of interests, what they did with it?' ... Critics say the auditors would be able to interview Fed policy makers and staffers and monetary-policy decisions, a scenario they say would weaken investors' confidence that decisions are free from politicial influence. ... 'One of the great strengths of our financial structure is that we keep monetary policy separate from the political winds of the day,' Sen. Judd Gregg (R., NH) said in an interview. 'That was the whole idea in setting up the Fed'," my emphasis, Naftali Bendavid at the WSJ, 5 May 2010, link: http://online.wsj.com/article/SB10001424052748704866204575224591171078912.html.

Amazing. I agree with Sanders. Kill this monster. Is Gregg crazy? I now have 2012's winning ticket: Putin-Sanders!

That Four-Letter Word Again

"Washington's elites are quietly preparing a post-election fiscal compromise that will fund much of President Barack Obama's domestic spending agenda with huge tax increases. ... But there is an alternative. The US could return to a gold standard, a system that would not only prevent the government from running chronic budget deficits but would also curb attempts to manipulate the value of the dollar for political reasons. ... The value of a gold standard was proven in the 19th century. ... Countries that adopted to international gold standard prospered. This remarkably successful monetary system only blew apart with the outbreak of World War I in 1914. The reason it came apart then--and not at other times when countries abandoned the gold standard to finance wars with deficit spending--was that World War I was the first conflict to affect every major economically advanced country in the world. ... This might not have mattered, and the major economic powers might have re-established a monetary system similar to what existed before the war if not for the central reason why political elites dislike the gold standard: It leaves them little room to run the economy and claim credit for its successes. ... But their deeper reason is that they prefer to retain power over the economy that they would not have under a gold standard. ... But foreign central banks don't stack their greenbacks in vaults. They maintain monetary reserves mainly as interest-bearing US government-backed debt securities--in effect, as unsolicited loans to the US government. ... That increase in borrowing capacity creates liquidity that is unrelated to any need of Americans involved in economic transactions. ... The government of Charles DeGaulle, president of France from 1958 to 1969 and a supporter of returning to the gold standard, once assailed this American liquidity advantage as as 'exorbitant privilege.' ... Now Ben Bernanke's Fed is repeating recent patterns of keeping interest rates too low for too long, creating new bubbles and risking a whack-a-mole encore: 1970s-style stagflation. ... The first step in cutting off the addictive flow of foreign central-bank capital to Washington is an American commitment to a dollar convertible to gold on a date certain. The second step is allowing the market, in the run-up to that date, to find and fix a dollar price of gold that would encourage other nations to replace their dollar reserves with gold holdings as their new monetary base, whether or not they choose initially to join the new international gold standard. ... Legislation restoring dollar-gold convertibility should be accompanied by passage of a constitutional amendment guaranteeing the American people a right to conduct their economic affairs in gold, regardless of the future status of gold as the official money of the [US]", my emphasis, Sean Fieler and Jeffrey Bell (F&B) at the WSJ, 7 May 2010, link:

http://online.wsj.com/article/SB10001424052702303695604575181693906532202.html.

Absent repealing the Federal Reserve Act any US gold remonitization will be another scam to be reversed at Uncle Sam's whim. F&B work at the American Principles Project. See my 8 January 2009 post:

http://skepticaltexascpa.blogspot.com/2009/01/galbraiths-dialectic.html.