Thursday, September 30, 2010

'Waiting for Superman'

‘Waiting for Superman’ is a new documentary about public education in America that is already stimulating a lot of discussion about how to ‘fix’ the ailing education system.

There’s no need to ‘wait’. It is being fixed in hundreds, if not thousands of schools around the nation such as the Durham Nativity School in Durham, North Carolina.

For the past 40 years, Americans increasingly have taken the task of educating their children into their own hands and not ‘waited for Superman’ or the federal, state or local governments to provide better education for their offspring. Private schools have always been around for parents who could afford it and Catholic parochial schools used to be the main alternative for parents to consider enrolling their children when they started to do poorly in the public system.

The ‘home-school movement’ started to take root in the 1970’s and early 1980’s in a big way and Protestant churches started Christian schools by the boatload about the same time when parents grew ever more fearful that little Johnny and Joanie were not going to learn as much as they wanted them to learn in the public education system in their local towns.

We love public education and went to public schools and our sons all went to public schools.  There are tons of great things going on at many public high schools in this nation, many of which go unreported because it is not 'sensational' enough in a negative way to warrant a news story. Thomas Jefferson believed great public schools are critical to our democratic republic based on the free enterprise engine and who are we to argue with Mr. Jefferson?

However, it is becoming increasingly very hard to see how each and every child can blossom and perform at their highest level possible in a manufactured box of a high school with 3000+ students when most experts assert that the optimum size for a high school is around 1200; for middle schools,around 800 and for elementary schools, around 600.  Kids just get ‘lost’ in such large populations and fall by the wayside due to lack of connection or contact with their teachers. Or they just become ‘invisible’ and start to believe no one really cares about whether they learn anything or not. The dropout rate is 50% for African-American males in American today meaning only 1 out of every 2 African-American males who start the 9th grade finish the 12th so something 'not great' is going on here.

When a 4000-student high school puts only 12 players on the basketball court for the male or female varsity teams, that means at least 72-80 other students don’t get a chance to learn the basic lessons of hard work, sacrifice and teamwork that comes with being on a varsity basketball team at a school with only 1000 students which serves them well for the rest of their lives, in most cases.

So here’s what is going on at Durham Nativity School:

This is their 9th anniversary year. 97% of all their students from 6th-8th grade are African-American or Hispanic, 80%+ of whom qualify for the school lunch program. More than a few of them come from downtown areas of Durham where drug trafficking and gunshot wounds are just a fact of life, not some story in the local newspaper or on the evening news.

This past spring, the entire graduating 8th grade class was accepted to prestigious private schools in North Carolina such as Durham Academy, Cary Academy or the Asheville School. One was accepted to Woodberry Forest School in Orange, Virginia where many of the business, finance, legal and government leaders in North Carolina and around the Southeast have gone to prep school over the ages.

The first graduating middle school class from DNS in 2004 is now in the second year of college at places such as NC State, Elon, North Carolina A&T and Belmont Abbey.

One student who was Vice-President of his senior class at Durham Academy last year was accepted and is now enrolled at High Point University.

Who needs 'Superman' when these sorts of things are already happening at Durham Nativity School?

There are hundreds, if not thousands of private and charter public schools where such results are now considered ‘routine’, not exceptional. The KIPP School (Knowledge is Power Program) in northeast Charlotte, North Carolina is another prime example of what happens when you let a group of motivated headmasters and teachers focus their attention on teaching students of any color, background or socio-economic circumstance and challenging them to learn more than they ever thought they could learn. And not bog them down with multiple duties of being a policeman/social worker/child psychologist while simultaneously expecting them to also be a ‘miracle worker’ like Helen Keller’s teacher, Annie Sullivan.

Teachers, public and private, are not supposed to cure all the ills that face us as a nation. We just want them to teach students how to read and write, add and subtract at the very minimum.  Don’t you think some first grade teacher should have taught the President and all currently-sitting Members of Congress and the U.S. Senate how to count and add and subtract so they could balance budgets nowadays?

Here’s a telling statistic that is almost too hard to believe: close to 2.3 million Americans now reside in ‘public housing’ called the US federal/state penitentiary system. A disproportionate share of them are African-American males.

We spend, collectively, close to $70 Billion-with-a-Capital-B per year just to house these prisoners, or about $35,000 per capita. On death row, these inmates cost over $100,000 per year to house, feed and make sure they don’t escape for the rest of their lives. That could be 60 years for some men. $6 million in lifetime expenses paid for by the taxpayer for a life gone bad. Do you think there is any chance even just 1 bad outcome could have been averted had a Durham Nativity School or KIPP program been nearby that he could have enrolled in at age 12 in the 6th grade?

Think about that for a minute and let that one budget number sink into your cerebral cortex as deeply as it can set.

And then go on-line and look at the websites for the Durham Nativity School or the Charlotte KIPP School or any school like that near you in your city or community. And then go over there to see what is going on first. You will then be drawn in to volunteer to help as a mentor or make the most basic of investments by contributing financially to their efforts since so much of their funding comes from private sources.

We don’t need to ‘wait for Superman’ anymore. He is already here and he is going to these schools like Kevin Graham pictured above dressed up in a blue and gold-striped necktie and khaki pants. Go see them and shake their hands...and help them out.

Sunday, September 19, 2010

The Bush Tax Cut Expirations: ‘It's Just A Flesh Wound!’

It increasingly appears as if the Democrats in Congress and in the White House are going to cave, once again, to the siren call of lower taxes and are going to extend the Bush Tax Cuts for at least a year…and perhaps longer.

Democrats, for the time being, control both elective branches of our government in Washington. This new trumpet blast of ‘tax freedom!’ is coming from the very same party, the Democrats, who lambasted and excoriated the Bush Administration and the GOP Congress for passing the ‘terrible’ W tax cuts in the first place!

What in the name of King Arthur is going on here?

It is getting to the point where a voter can't even count on President Obama, Nancy Pelosi and Harry Reid killing the 'awful' Bush tax cuts that the Republicans themselves decided to let expire at the end of this year when they passed them in the first place!

The hypocrisy and the demagoguery are astoundingly mind-numbing.

We are very much on record as being for a much smaller government with far lower levels of spending. We will stand toe-to-toe and arm-in-arm with anyone who advocates such a ‘limited government’ role, although so far, we could not play Red Rover/Red Rover with enough Members in Congress who actually would vote the same way.

We don’t like paying higher taxes any more than you do.

But we fear that the drive for lower taxes is ALWAYS presented as an incomplete thought by politicians nowadays. You never hear someone say, on either side or in the Tea Party: ‘Let’s extend the Bush Tax Cuts….AND pay for it by doing something dramatic, like, let’s say, increase the retirement age for SS and Medicare to 70 tomorrow morning!’

The Bush Tax Cuts being extended for a decade are estimated to ‘cost’, in CBO budget-scoring terms, about $3.5-$4 trillion dollars. Raising the retirement age to 70 for both of the two Atlases of federal entitlement spending would save approximately $5.4 trillion over the same time period.

It would essentially be a ‘wash’ in terms of deficit-spending. It would also mean that the national debt would NOT swell by another $5 trillion or so without either the Bush tax cuts expiring or the retirement ages being raised immediately.

And if we do both, we would avoid incurring about $10 trillion more in new debt. $10 Trillion with a 'T'.

Wouldn’t your kids be thankful for that!

One of our favorite movies of all time is Monty Python’s ‘Search for the Holy Grail’. The best scene is where the Black Knight stubbornly fights King Arthur as he is being dismembered limb by limb. After one such amputation, King Arthur tells him he has lost a another arm and should surrender in battle. To which the Black Knight looks at his now-armless shoulders and says: 'It's just a flesh wound!’

A wizened friend of ours looks at the Bush Tax Cuts expiration this way:

‘The expiration of the Bush tax cuts at the end of this year would wind up being a ‘flesh wound’ to the people who pay them. They can always be reduced or repealed. On the other hand, our chronic inability to close these yawning deficits and accumulate a $24 trillion national debt as projected without the expiration of the Bush tax cuts and/or spending reductions of a similar amount will cause a cardiac infarction of irreparable damage proportions'

Imagine the Black Knight falling over dead due to a heart attack in the middle of his battle with King Arthur. That is what happens to republics, democracies, empires and kingdoms over the ages where their leaders, elected or appointed by Divine Right, do stupid things like continue to spend as if there is no tomorrow and never pay off their debts. Remember the good ole Qing Dynasty, the Habsburgs or even the U.S.S.R? All done in by empty coffers in the treasury to pay the bills. see Barron’s ‘The Road to Fiscal Ruin’)

Well, all is not too dismal on the fiscal front, is it? It looks like there is a Tea Party Express barreling over the national landscape and with those new leaders coupled with the old-guard Republicans, we are surely going to find some fiscal discipline, won’t we?

Not unless you start hearing some of these new leaders say the following:

‘I support the Bush Tax Cuts being made permanent in the US tax code. That will give individuals and business some certainty to plan for the future and make productive investments and plans.

However, I also want to pay for them in terms of deficit-reduction by [raising the retirement age for Medicare and Social Security to 70 overnight…choose your own spending cut equivalent of $3.5-$4 trillion]. That way, we won’t load up any more debt on our children and loved ones behind us and follow the Qing Dynasty into the trash heap of history.’

Let us know when you find a new leader who is saying such things because then you will truly know that a ‘new day of common sense and rational thought-processes’ has returned to America The Beautiful.

Or else we'll find ourselves all chopped up like the Black Knight one day.

Saturday, September 11, 2010

'Supply-Side Keynesianism'

There is really not much difference between Republicans and Democrats when it comes to economic policies, is there?

They both focus almost solely on how to pass their upfront policies 'get this economy moving again!' so we can 'create more jobs, jobs, jobs!'

And truth be told, both parties love to cut taxes and increase spending, but just by different degrees and amounts.  They want to get re-elected...what did you think they would do?

We think that a new economic phrase needs to be coined to lump them all in together so remember you heard it here first:

'Supply-Side Keynesianism'

Think of it as sort of a bad Japanese B-grade sci-fi movie like 'Godzilla Vs. Mothra':

‘Art Laffer Meets Jack Keynes!’

Here's the definition of the phrase from a historian in 4010 AD:  'a myopic tunnel vision focused solely on making the citizenry of the United States happy, circa 1980-2010, by giving them all the tax cuts and spending programs they wanted without any regard for the massive overspending and buildup of debt and concomitant interest payments that eventually suffocated their economy'

In short, 'Supply-Side Keynesianism' prevented elected leaders from seeing the forest burn down around them as they tried to water their favorite special-interest saplings'

Honestly, all we have done for the most part since 1980 with the GOP tax cuts and things like the Obama Depression-era ‘jobs stimulus infrastructure not-so-shovel-ready programs’ has been to focus on the ‘supply’ (production) side of things.

Mainly because those are the two ‘easiest’ things an elected official can ever do: 1) Cut Taxes! and 2) Jack Up Spending!.

Almost everything we have done as a nation lately has been to focus on the ‘production side’ of things and how to stimulate the creation of more jobs and more wealth, which, in and of itself in isolation, is a great thing.

When you really think about it, what we have managed to do as a nation over the past 30 years now has been to double the fuel for economic expansion from 1980-2007.

Tax cuts PLUS bounteous more federal spending to the tune of an average increase of 8% per year since 1980? It is almost amazing to believe that we had ANY economic downturns in 1987, 1990 or 2002 ever with that sort of fiscal stimulus being pumped into the arteries of America's economy.

And then it popped, just like a helium balloon right before our very own eyes in 2008, didn’t it?

We think the problem has to do with the distortions that have been inadvertently (is there such a word as ‘advertent’ anyway?) placed into our federal tax code over the years. We have offered so many inducements, tax and subsidies, to encourage home and commercial property ownership that it is no wonder we had a glut of McMansions and office space from 2000-2007.

We have loaded up businesses with regulations and taxes upon regulations and more taxes that it is hardly any wonder many American businesses have fled the country to set up operations (and take with them ‘jobs’) overseas in China and South America.

My wife started a cotton bowtie business recently and had to pay 10 different fees and taxes before she sold 1 bow tie just to get started!  Is that the way to foster free enterprise in America, home of the free and the brave, in the 21st century?

And the major over-riding problem is that while we have attacked the problems of the ‘supply-side’ or ‘production’ side of US economy with repeated injections of adrenaline and at times, crack cocaine, we have never systematically dismantled the monolith called the ‘US Federal Government’ by even 2 teensy, tiny bricks.

As far as we can tell, going back to the halcyon days of President Ronald Reagan, we have successfully removed precisely ONE federal program…the Federal Helium Reserve Program which was passed into law in 1916(!) to service surveillance dirigibles for WWI era warfare.

Federal programs are so addictive they remind us of the ending lyrics to the great Eagles song, ‘Hotel California’…. ‘You can checkout any time you like. But you can never leave!’

Once a federal program is passed into law, it just never ends, does it? (It doesn't)

So we can fight all we want about whether to cut taxes or increase spending to get out of this hellish recession…that is an important debate to have.

But the one critical issue we have to all come together on and agree to is how to curtail the overall growth of federal spending to less than the expected rates of inflation going forward for the next decade or two or three or four.  This will allow tax revenues to grow with the expected rate of growth in the economy to cross the spending lines and then be used to pay down this enormous debt.

‘Supply-Side Keynesianism’ just won’t work unless the same people who support those economic growth policies also grow some courage and stop spending more money on every single bright idea they have under the sun. We will never have economic growth that will generate enough tax revenues to out-run our current commitments under Social Security and is just not in the cards despite what politicians try to tell you.

We are crushing ourselves under interest debt service payments we do not need to incur and national debt amounts we can not afford to have any longer.

Let’s go for a couple of decades of good old ‘Demand-Side Spending Restraint’ first and foremost.

Doncha think?

Thursday, September 9, 2010

Was John Maynard Keynes a ‘Keynesian’?

‘Would John Maynard Keynes himself even agree with all this perpetual deficit-spending that has been going on for the past 40 years in America?’

After all, it was his revolutionary economic ideas that America turned to in the 1930’s to try to get out of the Great Depression.  Since his signature masterpiece, ‘The General Theory of Employment, Interest and Money’ was published in 1936, six years into the Depression, he must have been using the transatlantic phone lines a lot to convince the incoming FDR Administration in 1933 to put his ideas into action.

And FDR certainly took Mr. Keynes at his word.

It is our opinion that if his theories had worked as planned, the US would have emerged from the Great Depression perhaps in a few years, 3 or 4 at most? Anytime it takes 10 years of massive government spending to ‘get out’ of a recession, we believe that perhaps something else probably could have done it better and quicker.

Do you want to duplicate our parents and grandparents’ decade-long experience of their Depression-era struggles as we try to emerge out of this nasty ‘recent unpleasantness’ we are still working through?

However, based on some recent reading and re-reading of Sir Keynes writings, we have come to the conclusion that Mr. Keynes might be getting a bad rap nowadays.  It seems as if even he would have to be 'uncomfortable' at the very least with being tagged as the ‘main reason’ why we have run annual deficits for 47 of the past 50 years due to our addiction to federal spending.

For one thing, he was an amazingly astute and wealthy investor who famously was able to ‘anticipate what other investors would be anticipating’ and made a personal fortune.  He also worked with renowned ‘value investor’ Benjamin Graham during the latter part of his life. He did not want to obliterate the private sector with heavy-handed government control as some in Washington seem to believe nowadays. He didn't mind 'intervening' in times of crises or 'steering' the economy when possible even though we think is very difficult to do in a monstrous $14 trillion economy like we have today in America.

But here is the real shocker.  John Maynard Keynes advocated that during boom times, taxes should be raised and/or government spending should be reduced primarily to avoid inflation explosions like the one America had in the late 1970’s under Jimmy Carter (want another one of those nasty episodes as well?).  Such inflation-prevention actions by the government would also have the salutary effect of reducing excessive debt on the national books going forward.

In other words, John Maynard Keynes supported policies that would aim governments towards 'balanced budgets’ after a period of deficit-spending and pump-priming the economy.

Hard to believe.  But those 'old-school' guys apparently just presumed that any respectable nation and their duly-elected leaders would not take complete leave of their senses and just overspend until they couldn't borrow and over-spend any more.

Guess what?  They were wrong.  Sir Keynes, wherever you are, take a close look at Greece, Portugal, Italy, Ireland, Spain and right up there with them, the good old U.S. of A, circa 2000-2010.

Apparently, modern-day proponents of ‘Keynesianism’ have neglected to read this part of his writings. As we have pointed out numerous times, it is far more fun for proponents of big government to ‘spend more money!’ and never seriously address the more complicated and testy issues of burgeoning national debt and massive annual budget deficits.

Can you possibly imagine anyone in the Obama Administration or the current leadership of our US Congress standing up one day and saying the following:

‘We know this stimulus spending sounds like a lot of money.  It is. But we promise to raise taxes on everyone and cut spending enough when the economy recovers to balance the budget before we leave office’.

We can’t even picture this in our wildest imagination. It would take too much courage and leadership.

John Maynard Keynes is one of the better and more engaging writers of the economics profession. He possessed a droll wit and was a keen wordcrafter who came up with this great line about long-term economic projections: ‘In the long-run, we are all dead!’

In his scalding criticism of President Woodrow Wilson’s insouciance during the Treaty of Paris negotiations that sent post-WWI Germany into the abyss only to find Hitler waiting down there in Hades to ‘lead the Motherland’ back to power in the 1930’s, Keynes writes:

‘The President was like a Noncomformist minister, perhaps a Presbyterian.  His thought and his temperament wore essentially theological not intellectual, with all the strength and weakness of that manner of thought, feeling and expression.’ –(The Economic Consequences of the Peace, 1919)

Mr. Keynes is worthy of another read if you ignored him in college.  So are the other economists such as Milton Friedman or Friedrich von Hayek.

We only ask that if you do read any of their books, or any other economist or historian or philosopher, please read it all and not just the parts that you agree with.

Look at where that has gotten us over the years….

Friday, September 3, 2010

'Happy Entrepreneurs Day!' (Too) On This Labor Day Weekend

Is there really anything a President or Congress or any state and local government official can do that will help create new jobs in America today?

‘Go on a 4-year recess!’ many people are saying right about now.

At least that would be a 4-year period that business people could make plans and know for sure that nothing would change so could make money doing whatever they do best.

The honest-to-goodness answer is that there is darned little any elected representative can do to ‘create jobs’ themselves as they always promise, year-in and year out.  The only jobs elected officials can technically 'create' in the public sector....are all totally dependent upon the taxes paid by the economic engine called the 'private sector'.

Politicians can help set the legal and regulatory parameters of our nation to the right temperature that will allow the economy to grow like yeast and provide millions of new jobs as one of the most favored outcomes.

But if there is any heavy-handedness from Washington and the state capitals in the form of excessive taxation and regulation,  the 'animal spirits' of human economic behavior that John Maynard Keynes wrote about and the 'invisible hand' mentioned by Adam Smith get squelched and so does the creation of millions of new jobs.

We are seeing that right now, as a matter of fact.  The sheer fact that higher taxes loom on the horizon in the form of the Bush tax cut expiration; Obamacare’s front-end loaded tax hikes and increased mandatory costs in the form of the new health care bill are all conspiring to make business people ‘go on strike’ and wait for the economic and political environment to clear up before investing again.

You'd think that with real interest rates being near zero or even negative that that would be an economic stimulus of biblical proportions but it is not.  There is a severe lack of lending by the nation's crippled financial industry due to massive new restrictions set forth by Washington but wouldn't you think enterprising and perhaps even 'greedy' business people would take advantage of these absurdly low interest rates and input prices if they were more confident about their near-future prospects?

Just to point out the absurdity of any politician 'promising' to create more permanent private sector jobs for you, when was the last time you saw a President of any party come up with a new medical device and market it and make millions?

When was the last time you saw a Speaker of the House like Nancy Pelosi or Newt Gingrich invest in a manufacturing company and operate as chief executive officer to make decisions to manufacture semiconductors or sell a service such as home health care?

Politicians of either stripe can not 'create' jobs for you (unless he is Congressman Darrell Issa who started a very successful security firm before going to Congress).

You know what creates new jobs in America? It has been the template and recipe for economic growth and progress since the dawn of recorded history when human life forms started walking upright on two legs and talking to each other:

‘Enlightened self-interest’ by risk-takers, business owners and decision-makers.

As in: “I wonder if I can invent something today like a wheel or fire or a club and trade/‘sell’ it to someone else for more than it costs me to make it?”

If the cost of making something is less than the benefit (return of your money plus some profit) of what you sell, then you (typically) do it.

That is, if you have a gutsy, courageous streak in you that can put up with all the obstacles and hurdles that you have to overcome if you are ever going to succeed as a businessperson in any day or age. Starting and running a business is hard work. If you have never done so, ask someone who has and see what they have to say about their experiences.

In fact, on this Labor Day weekend, we think it is time to start thinking seriously about changing the name of one of the other federal holidays, (how about Columbus Day?) so we can say this next October:

'Happy Entrepreneurs and Executive Business Decision-Makers Day!'

After all, there would be no labor jobs to be had by anyone if there were no investors, entrepreneurs and executives to start the companies in the first place.

We think business people deserve some sort of commendation or medal from Congress each time they borrow money against their house; max out their credit cards, worry about making payroll and paying taxes, taxes and more taxes to start a new business at any time.  Business executives, both large and small, take all the risks at the beginning...and hope it works out in the end.

And when 4 out of 5 new small businesses fail in the first 3 years of operations, nobody ever reaches out and comforts the people who lost money in the investment. 'That's just the American Way!'.

Businesses do not exist for the sole, or even primary, purpose of providing jobs for people. Or to provide benefits to workers such as health care, pensions or 401k plans.

Jobs are a positive by-product of one simple driving force in nature: ‘Making a Profit by Making and Selling Something That Other People Will Buy.’

We honor all the workers of America out there on this Labor Day.

But we also offer a salute to all the brave entrepreneurs who have a bright idea and then fight through thick and thin to create a company that rewards its shareholders and provides jobs and incomes to all of their employees.

You can’t have one without the other.

lyrics to 'Get a Job' by the Silhouettes:

Sha na na na, sha na na na na,
Sha na na na, sha na na na na,
Sha na na na, sha na na na na,
Sha na na na, sha na na na na,
Yip yip yip yip yip yip yip yip 
Mum mum mum mum mum mum 
Get a job Sha na na na, sha na na na na
Every morning about this time
she get me out of my bed
a-crying get a job.
After breakfast, everyday, 
she throws the want ads right my way
And never fails to say,
Get a job Sha na na na, sha na na na na
Sha na na na, sha na na na na,
Sha na na na, sha na na na na,
Sha na na na, sha na na na na,
Yip yip yip yip yip yip yip yip 
Mum mum mum mum mum mum 
Get a job Sha na na na, sha na na na na
And when I get the paper
I read it through and through
And my girl never fails to say
If there is any work for me,
And when I go back to the house
I hear the woman's mouth
Preaching and a crying,
Tell me that I'm lying 'bout a job
That I never could find.
Sha na na na, sha na na na na,
Sha na na na, sha na na na na,
Sha na na na, sha na na na na,
Sha na na na, sha na na na na,
Yip yip yip yip yip yip yip yip 
Mum mum mum mum mum mum 
Get a job Sha na na na, sha na na na na