Thursday, July 30, 2015

Will 'Opportunity Scholarships' Be To Public Education What Uber Is To Taxis?

'What would you choose: Uber or a traditional taxi?'
The North Carolina Supreme Court caused quite a stir last week when they ruled 4-3 in favor of 'Opportunity Scholarships' which will provide $4200 for qualified students to attend a private school of their choice.

The intense opposition from supporters of the status quo in public education made you wonder:

"Are 'Opportunity Scholarships' the 'Uber' of our education system?"

Think about it. Public education has long been a monopoly protected by government fiat much like the practically-antiquated 'medallion' system for our nation's taxicab services. Mayor de Blasio of New York tried to ban Uber from New York until public pressure forced him to step aside in the pursuit of progress.

Uber, on the other hand, is a free-market solution that uses the latest in wireless technology to 'order' a car to come pick you up when you want to be picked up and take you to your destination. Uber is totally disrupting the old taxicab market from New York City to Los Angeles, California mainly because it offers 'choice' in transportation about town and to and from the airport.

Recently, we pointed out how even the very liberal-to-socialist governments of Vermont and Paris, France for decades have allowed government money to follow students through school choice options to attend private, and even religious Catholic schools in Paris, to help them get the best possible education they can regardless of any background, socio-economic situation, race, creed or color.

Such options place the critical decision of 'choice' in the hands of the student and his/her family. Just like Uber is now putting the choice decision in the hands of the consumer and not in the hands of the government-protected medallion taxicab companies.

Neither the public education system in Vermont or Paris have collapsed as far as we can tell. The concurrent expenditure of public money on private or religious schools has not 'killed public education' as proponents in both areas might have argued over the years.

Without understanding how North Carolina, and most states, fund public education, it is very hard to understand how the apparent depletion of 'public funds' for public education to support such private scholarships will not 'destroy' public education.

For one, the bulk of the funds for public education come from the North Carolina General Assembly in Raleigh funded by state taxes you pay every pay period. Contrary to common belief, North Carolina actually ranks in the top 10 of states which have a higher percentage of their state teacher salaries paid for by the state.

The rest of it comes from local county government, wherein lies the program for North Carolina. North Carolina is still a rural state in many ways. In counties that have been decimated by the export of textile jobs overseas; the demise of the furniture industry and the decline of tobacco in some areas, their property tax base is so low they can not fund great amounts for teacher's salaries and other expenses for their public school system.

Mecklenburg County, for example, contributes $4000 or so per student each year in county funds. Tyrrell County, on the other hand, contributes $200 or so per student each year in county funds. You do the math.

There are 600 public school students in Tyrrell County. Total.

There are over 135,000 students enrolled in Mecklenburg County Schools in Charlotte. Close to 30,000 other students are enrolled in private, religious or home schools in the CMS catchment area.

Big difference. There are high school grade classes in single 4-AA high schools in Charlotte that number more than the entire student population of Tyrrell County.

Enter into this debate the issue of Opportunity Scholarships.

As noted before, each qualified and accepted student gets $4200 in state funds to go to any private school nearby if: A) the student has been enrolled in public education and B) it can be shown that the student has received a less-then-stellar education to that point and is eager and able to do more challenging course work at another school.

Where does that Opportunity Scholarship money come from and where does the rest of it go?

North Carolina's overall budget is divided up into two pots of money. One is the public education budget and the other is the general fund part of the budget that is up for discussion each legislative session.

The $4200 Opportunity Scholarship money comes from the 'general fund' of the NC state budget every year. Not the public education fund.

On average, it costs about $9000 per student to educate them in the North Carolina public education system today. Taking the $4200 Opportunity Scholarship out of that average (again, recognizing the vast differences between counties such as Tyrrell and Mecklenburg) leaves close to $5000 in the existing public education system.

Since the inherent cost of teaching that student who receives the Opportunity Scholarship has been removed from the public school to which he/she formerly attended, that public school system has one less child to teach. It continues to receive the $5000 formerly associated with that student who has left the public system at least for the duration of the biennial budget cycle in most cases.*

$5000 per student that has left the system that the public education system in that county can do with whatever they please.

They can pay teachers more. They can hire more administrative assistants. They can buy more trombones for the band and athletic equipment for their teams.

We only bring this up to point out that critics who are saying that Opportunity Scholarships 'are an affront to the North Carolina Constitution!' or 'the stupidest thing the Republicans have come up with yet' may not thought this through completely.

Less attendance in public schools means less stress on the communities to build new schools to meet growing demand, for example. Charter and private schools make do with renovated old schools, for example thereby reducing the need for expensive bond referendums to pay for shiny new schools with all-weather turf athletic fields.

We know of a great private school, Durham Nativity School, that has met for 13 years in a church during the weekdays when no one else is occupying the otherwise very fine Grace Baptist Church building. They have sent dozens of African-American and Hispanic youth to fine prep schools including Durham Academy, Woodberry Forest and the Christ School in Asheville most of whom go on to complete college and earn a degree.

The chances of many of these same students accomplishing the same thing in their previous public schools were slim to none.

Aren't the kids at Durham Nativity getting the same chance at 'freedom' and 'choice' and improving their lives just as Uber users are getting when they decide if they want to order a Uber ride or wait on the corner in the cold rain for 30 minutes watching dozens of Yellow Taxis go by before 1 finally picks you up?

It might be helpful to sit back first and think about the advantages this ruling is going to give students and parents of these motivated students to pursue a quality better education that fits their needs, just as Uber allows adults the chance to get a cab ride based on their needs.

Isn't that the end goal anyway? Better education for our children? Any way we can find it?

Such scholarships are never going to 100% replace or supplant public education in North Carolina or any other state in the Union. Not when there are over 1.5 million students now in 2613 public schools and 141 charter public schools in North Carolina versus just over 97,000 in 574 private schools and 110,000 home-schooled students across the state.

A form of school choice has been going on in Florida for years now and the public education system is still going strong. After all that time, less than 5% of all students in Florida are now participating in the school choice plan in the state. That is hardly 'killing' public education in Florida at least.

However, school choice options are an important first step at evolving and changing our big-box public education system back to where the education of the student is paramount to anything else in public schools.

If they don't work, and students such as those at Durham Nativity School don't go on to great things later in life, then let's try something else down the road.

Maybe we should start looking at 'educating the public' in a way that Thomas Jefferson may have had in mind when he wrote the following to William C. Jarvis in 1820:
"I know no safe depositary of the ultimate powers of the society but the people themselves; and if we think them not enlightened enough to exercise their control with a wholesome discretion, the remedy is not to take it from them, but to inform their discretion by education.  This is the true corrective of abuses of constitutional power." 
We do know for sure Mr. Jefferson would not approve of any restriction to the opportunities for anyone to pursue their education. Do you?

*Caveats: Every other year, the NC General Assembly allocates appropriations for public education based on 'ADM' or average daily membership of each public school in the state. If a public school system is in a declining area today with little to no growth, they will experience a flat or even a reduction in funding as it is today. 

Many of the Opportunity Scholarships being offered at this time are in counties that are experiencing significant rates of growth in which case the students who leave the system are being replaced and then some by estimates of new enrollees at the beginning of each school year.

Sadly, rates of school dropouts are still too high in North Carolina which means that during the school year, on average 2.45% of all North Carolina high school students drop out of school, some forever, some for the year. That means by the end of any school year in NC, 37,500 fewer students are in classrooms than at the beginning of the school year. Funding for the schools do not drop even though the number of students they are teaching may have dropped during the school year.

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Thursday, July 23, 2015

Freedom of Choice In Public Education and Housing Values

'Why is my house appreciating in value now that
new charter/private school is right next door?
We recently saw an academic research paper that was published by 2 NC State Ph.Ds and a Texas Tech researcher that caught our eye.

Simply titled School Choice: The Impacts on Housing Values* this paper examines various places where school choice has been implemented and comes to the conclusion that school choice leads to an equalization of housing values between poor and rich neighborhoods, mostly by lifting the property values of the poorer neighborhoods since they are no longer locked into low-performing assigned public schools.

The research paper is written as a research paper after all but it is worth reading and noting some important things about how school choice affects local housing values as well as noting some of the differences between public education in many states versus others where school choice is more widely spread than say in North Carolina.

Know how Vermont is always cited as one of the top, if not the top, public school education systems in the nation?

Well, for one thing, Vermont is a very tiny state with not a whole lot of diversity and the challenges larger populations present. If the entire state of Vermont was a congressional district, it would be about the size of the 9th Congressional District in North Carolina around Charlotte. Without the challenges that Charlotte faces today with their growth and wide economic disparities along economic and racial lines.

Did you know that Vermont was one of the first states to adopt school choice and vouchers, mostly as a way to get students from very rural remote areas to a school of any kind so they could get educated? 1869 to be exact. 146 years ago today. That is when Vermont started their school choice options and apparently, have never looked back.
'Vermont operates one of the longest running tuition voucher programs in the United States. Dating back to 1869, the state legislators passed a bill granting residents living in an area without a public school system a way to provide their children with an education. Using tuition vouchers, parents can send their children to any public school at no cost, or to non-religious private schools for a significant discount, with the subsidy coming from the sending town. In the case of an independent (private) school, the amount of the tuition voucher equals the average tuition for the (public) primary (grades: K-6) or secondary schools (grades: 7-12) within Vermont. Unlike many other state tuition voucher programs, Vermont’s system was not established to address a failing inner-city school system.

Instead, it was developed to ensure that the residents had access to an education. 
The tuition voucher program has several unique characteristics. First, the opportunity set of schools is not constrained to the state. Parents can choose a state school, an out-of-state school, and even a school outside the country (notably in Canada!). However, this school choice option only applies to areas (including cities, towns, unincorporated areas and gores) that do not operate traditional public schools. Each district can have either the tuition voucher system or locally operated public schools, but not both. For this reason, the vast majority of towns participating in the voucher system are in rural areas, and subsequently titled “tuition towns.” Lastly, the tuition voucher program does not restrict enrollment based on the resident’s income. The only requirement is that the family lives in a district without an assigned public school.'
Talk about 'freedom of choice' when it comes to public education! A Vermont schoolkid can go to a school in Canada and get public assistance for it. We have trouble in America talking about a schoolkid getting public assistance to go to a private school across the street from where they live!

Any state that can elect a self-avowed socialist as their Senator, and now Democratic Presidential Candidate Bernie Sanders, and allow a robust voucher and school choice plan in their state as Vermont has done, certainly paves the way for the rest of the United States to adopt school choice and voucher programs in their state.

The authors go on to cite places such as Paris, France which we visited last year and came to find out that we were staying right next to one of the most elite 'magnet' or preparatory schools in the Paris public education system where virtually all of their elected and business leaders were trained and educated from the 8th grade on through high school. Paris has a large public education system to be sure, BUT they also provide a strong element of choice and selective placement throughout their system of public and private, mostly religious Catholic, schools.
'The French education system is predominantly administered through public schools, with some private schools. This system is based on a 12-year curriculum where children attend primary school from ages six to ten, middle school from eleven to fourteen, and high school from fifteen to seventeen.
At the primary (secondary) level, public schools educate 86% (79%) of the populace, whereas private schools educate 14% (21%) of the students. For public schools, France utilizes school catchment areas, based on the student’s home address, to allocate both students and resources efficiently.
Municipalities establish the school district boundaries for the primary schools, and the Local Education Authorities (LEAs) determine the boundaries for the secondary schools. For many years, each municipality or LEA would publish a booklet describing the school catchment areas. Beginning in 2000, the information became publicly available online.
While public schools adhere to strict zoning restrictions, private schools follow a geographically open enrollment system. The private schools in France exhibit several interesting characteristics that are not common in the United States. First, the vast majority of the private schools are religious (predominantly Catholic). While religious in nature, admission to the private schools does not necessarily depend on the pupil’s faith or that of the attended primary school. Next, private schools can either be state-supervised or independent. State-supervised private schools deliver the same curriculum as the public schools, whereas the independent schools are permitted to develop their own program of study. Similar to the public schools, the state supervised private schools are publicly funded by the central government, ...The state also regulates the private school market by limiting the number of new teacher positions offered each year, and by restricting the number of new private schools that open each year.
Last, and most important of all, the admission guidelines for public middle schools and private middle schools are significantly different. Middle school may be one of the important periods in a student’s educational development, especially, in France. At the end of the third year of middle school, students that underperform are directed toward vocational studies, while the remaining pupils continue on the path toward graduation. 
More importantly, in Paris, France the admission to a specific high school can depend on the specific middle school the student attended, as well as their academic performance. Paris has slightly different admission rules for entering high school. While middle schools have strict catchment areas, parents have more options when it comes to sending their children to high school. The LEA allows parents to submit applications to a broad set of high schools within a much wider catchment area. Ultimately the admittance into a “good” high school depends on the pupil’s academic performance, as well as the quality of the middle school. Thus, the choice of a middle school is extremely important because the quality of middle school may improve the chances of admission into a “good” high school.
Parents have two outlets for getting around the strict middle school zoning restrictions. First, they can ask the LEA for an exemption to attend a school located outside the current zone. This workaround has a high rejection rate, and only about 8% of the requests are granted each year. A more viable alternative would be to exercise the option to send the pupil to a subsidized private middle school. In France, the subsidies work very similarly to U.S. tuition vouchers. The vast majority of the expenses are paid by the government, and parents will only incur negligible costs. Because private schools are not constrained geographically, the option to send the child to an outside private school offers parents a relatively cheaper alternative compared to having to relocate to a better school district. Not surprisingly, the number of students attending private middle schools is higher than the number of students attending private primary schools and private high schools.
The core of this research paper is focused on identifying the connection between having school choice and rising property values in poor neighborhoods. Here's what they found: 
'...(W)hat is striking is the comparison between the “no vouchers” case and the “full vouchers” case within districts. When vouchers are introduced, on average home values appreciate in the bad district (from 0.5859 to 0.7595), but depreciate in both other districts.
Consistent with the decline in home values in the two higher-priced districts, Exhibit 2 shows that once universal vouchers are introduced, the average income in poor district increases. Incomes are shown in tens of thousands of 1990’s dollars, and they rise from $32,973 to $47,000 in the poor area. 
However, income levels in the other two districts decline. Taken together, the evidence suggests that as private schools begin to open in low-income districts, average income increases in the district due to the migration of middle- and high-income families, who move to the district to take advantage of the relatively cheap housing prices (due to the poor quality of their public school system). As a result, home prices in poor districts are bid up. These migrating families move from the better school districts where house values capitalize the public school quality to the poorer school district to makeuse of the voucher system
Did you notice that? Not only did they find that housing values AND average income increases in the district around the new private or choice school, but housing values AND average income decreases in the more affluent neighborhoods.

Bet that is something you have never heard on the evening news.

That doesn't mean that every poor family all of a sudden experiences a financial windfall in their annual income simply because someone of more means moves in right next to them. But it does mean that their home, if they own it, does increase in value thereby increasing overall family wealth which provides them a means of support to finance further education for themselves or their children or whatever they want to do with their new-found wealth.

Why are so many affluent people so eager to expand school choice and voucher options if it means that their home values will diminish vis-a-vis these other less affluent neighborhoods? Aren't they the ones who should be most offended by such an outcome, as tangential as it might be to the whole serious and emotional issue of public education?

It might have something to do with this core basic American value: We all want everyone to be able to get as great of an education as possible, wherever it may come from and however it may be delivered.

If we were convinced by the data and factual empirical evidence that making kids stand on their heads for 15 minutes every day while reciting the periodic tables and the Gettysburg Address would increase their reading comprehension and math and science retention by 5%, we would be all for it. Whatever it takes to help our next generations get better educated, we should all support.

The fact that housing values and relative incomes tend to equalize out over time in areas with school choice and vouchers is incidental to the critical issue of helping the student receive a better educational experience along their life journey.

But it is one more favorable argument in favor of school choice and voucher reforms that you may not have heard before, yes?

* full text here if you have trouble downloading from the SSRN website for some reason.
**Nechyba study for more in-depth academic research information about the relationship between vouchers, public choice and housing values

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Thursday, July 16, 2015

Obama's Folly?

The Cosmic Gamble of the Iran Nuclear Deal
When you think about it, throughout history the United States has struck some pretty good deals with foreign adversaries.

In fact, some great ones.

Seward's Folly

On March 30, 1867, "U.S. Secretary of State William H. Seward sign(ed) a treaty with Russia for the purchase of Alaska for $7 million. Despite the bargain price of roughly two cents an acre, the Alaskan purchase was ridiculed in Congress and in the press as 'Seward’s folly,' 'Seward’s icebox,' and President Andrew Johnson’s 'polar bear garden."'

Fortunately for Seward, and everyone in the United States, gold was found in Alaska in 1898 and the massive Prudhoe Bay oil reserves were found in 1968. The original investment of 2.5 cents per acre for an area twice the size of Texas now looks like a 'great deal' in retrospect.

Louisiana Purchase

In 1803, President Thomas Jefferson purchased the Louisiana Territory from France for about 3 cents per acre or $15 million thereby doubling the size of the young republic immediately. That has turned out to be a pretty good purchase, yes?

Note that both the Alaska purchase and the Louisiana Purchase came when both the Russian Czar and France under the leadership of Napoleon Bonaparte were suffering cash shortages from other war efforts and government expenditures that extended both treasuries. Countries under financial stress usually make decisions more beneficial to their adversaries than when they are cash-rich and solvent.

Both were also subject to approval by the US Senate under the Constitutional rules of treaty-making: Presidential negotiations subject to Senate 'advice and consent' and subsequent approval by 2/3rds present.*

Purchase of Manhattan Island by the Dutch

In what has to be the most advantageous deal in American history, "(I)n 1626, the settlement’s governor general, Peter Minuit, purchased the much larger Manhattan Island from the natives for 60 guilders in trade goods such as tools, farming equipment, cloth and wampum (shell beads)"

That translated to about $24 at the time. Advantage to America as it formed later, right?

Which begs the question:

'Just what does the United States of America gain by the negotiation of this Iran Nuclear Deal by President Barack Obama?'

President Obama somewhat sanctimoniously stated that '99% of the world agrees with me' that this deal with the militant leaders of Iran was a good one. He must know something we don't know then about how to poll and then discern the attitudes of 7.3 billion people around the globe overnight.

But what exactly did he gain for the United States in this treaty (Iran Deal text here) other than what he has said was the 'avoidance of war' with Iran, which many experts have some serious doubts about in the first place?

We didn't double our land territory as Jefferson did with the Louisiana Purchase in 1803. We didn't add land twice the size of Texas as Secretary of Seward Seward did in 1867. We didn't force the Soviet Union to its knees through the 'peace through strength' posture used so effectively by President Reagan at Reykjavik in staring down Soviet Premier Mikhail Gorbachev.

When 'Nixon went to China', he was the only American statesman who could have been trusted or believed to negotiate a treaty with the Communist Chinese government and that has led to an enduring economic relationship with China far beyond what anyone could have imagined in 1972. Do you honestly believe Iran will abide by the terms of the agreement President Obama and Secretary Kerry negotiated with them and wind up as compliant with the USA in 40 years as even China has done?

We didn't even secure the return of 4 American journalists now held hostage in Iran even though Obama and Kerry agreed to put many of the violent Iran Revolutionary Guard Corps military leaders on the sanctions relief list somewhere along the way.

Here's what we can glean from the various reports about what IRAN would gain from this negotiated treaty:

  1. Iran will get a lifting of economic sanctions, sanctions that by 2013 had driven internal inflation rates to 35% in Iran and dwindled their dollar reserves to $20 billion (according to Wall Street Journal 'Obama's False Iran Choice').
    -It is estimated that the lifting of economic sanctions will allow $150 billion in frozen Iranian assets to be immediately available to Iran plus untold hundreds of billions of dollars in revenues when trade resumes on the world scale.
    -Remember the example of Czarist Russia and France under Napoleon both of which agreed to negotiated deals with the United States under economic duress that were far more favorable to the US than to them in the short- and long-run.
  2. Iran now has the ability to pursue their 'proliferation' of nuclear power and weapons capability whereas US policy before Obama has always been to keep Iran off the nuclear stage in world affairs. Given that Iran has a stated purpose of sponsoring state-supported terrorism plus the fact that there is not one single treaty or international agreement anyone can point to that Iran has fully complied with 100%, US Presidents have always deferred to see positive actions on the part of Iran first as a precondition to any further discussion or negotiations.
  3. For some unknown reason, at the very end, President Obama and Secretary of State John Kerry decided to give Iran, without any renouncement of their state-sponsored terrorism around the globe but especially aimed at American citizens and the elimination and eradication of Israel, the ability to buy and build conventional weapons and intercontinental ballistic missiles which can one day be used to launch the nuclear weapons Iran wants to deploy. **
(For further information, see below from Nightwatch, a daily summary of news)

As far as we can tell, the hope and prayer that President Obama and Secretary of State John Kerry have after negotiating this deal is that the militant mullahs and ayatollahs of Iran will somehow become friends of The Great Satan, as they call America and we will live in peace and harmony and sing kumbaya forever after.

If that happens, we will sing Obama's praises and recommend he receive a Second Nobel Peace Prize, this time deservedly so. We hope this deal threads the needle for the next decade so that the threat of an aggressive militant Iran is diminished to zero.

However, we think David Ignatius has condensed this entire deal into the best line yet when he called it a 'cosmic gamble'. Somehow, someway, President Obama and Secretary Kerry seem to believe this agreement will turn the the militant leaders of Iran into business and political partners of the US, where peace prevails through increased economic ties and cultural exchanges, supposedly along the lines taken by the Soviet Union and now Russia post-Reagan and China post-Nixon.

Given the history of Iran, not only in modern times, but throughout the extent of their history all the way back to ancient Persia, we think the chances of Iran fully complying with this deal makes it one of the most dramatic and dangerous gambits yet taken by any American president without a whole lot of tangible benefits to the US to see.

There is an alternative to this deal and it would be for the US Congress to vote their disapproval of this agreement and then  to override the expected Presidential veto of that disapproval. That would be a far better option than giving Iran the green light under their current militant leadership to become a nuclear power in our lifetime and 'hope' they become a responsible member of the community of nations.

At least President Jefferson and Andrew Johnson (in whose administration Seward served) didn't fully arm France and Russia with the world's most dangerous ultimate weapons, respectively, in return for purchasing Louisiana and Alaska. They would have recognized that as simply a cosmic gamble to do.

* ([The President] shall have Power, by and with the Advice and Consent of the Senate, to make Treaties, provided two thirds of the Senators present concur, Article II, Section 2, Clause 2)

** See Elliott Abrams 'Iran Got A Far Better Deal Than It Had The Right To Expect'

from Nightwatch:
Iran-US:  Special comment: The Joint Comprehensive Plan of Action (JCPOA).  A number of Readers sent special requests for NightWatch comments on the JCPOA, the title of the nuclear agreement between Iran and six powers. NightWatch is a commentary on foreign threats to the US and its interests. That focus normally excludes most developments involving US negotiators, but not always.

As for the JCPOA, a few obvious points have been missed in most news coverage of this plan of action. The comments that follow are judgments based on the language of the public text, in context.  They are not value judgments.

First, the agreement is not a non-proliferation agreement. It is an agreement that approves limited proliferation of nuclear technology.  This characterization means that the US and others states surrendered or abandoned their longstanding position of banning any Iranian nuclear program, peaceful or not.

It also is not a nuclear containment agreement. At most, it postpones some aspects of Iranian nuclear infrastructure development. In other areas, Iran can continue to develop and modernize to keep up with technology.  At the end of 15 years at most, Iran has no more restrictions on its nuclear program, with the approval of the UN and the other powers, by implication.

This compromise of the longstanding programmatic ban for Iran is curious because that remains the US objective for North Korea. The US insists that North Korea, which already has nuclear weapons, must dismantle its nuclear program, not just its weapons program. That is the premise of the Six Party Talks.

The difference in the negotiating positions is even stranger because the Iranian and North Korean weapons programs appear to be essentially variants of the same program. The North Korean variant is more advanced. Nevertheless, North Korea has assisted Iran’s ballistic missile programs since the Iraq-Iran War.  Iranians have been reported as observers at North Korean missile and nuclear tests. The cooperation continues as does the North Korean program.

The second point is that it is a very one-sided deal. It lacks mutuality. By an overwhelming margin the burden of performance is on the UN, the European Union and the US.  Its economic implications far exceed its nuclear restrictions. From the Iranian viewpoint, the JCPOA is primarily an economic agreement.

In return for some reduction in the Iranian nuclear programs, the UN and the US will remove the entire architecture of sanctions imposed by any party on any Iranian party. In addition, they will allow Iran to buy and sell conventional weapons and they will help Iran get access to trade, technology, finance and energy. According to the text, this is one paragraph in which Iran “agreed” to the actions by the UN and the US.

One of the implications of this is that Iran stands to emerge quickly as a regional economic power. Using Germany as a model, that condition is far more enduring and consequential than a delayed nuclear program. 

Once Iran’s economy starts to rebound, it will be free from the threat of sanctions to ensure compliance.  There is no credible enforcement mechanism.
A third point is that the text is a plan of action, as it is entitled. Significant by their absence in the text are the words “promise” and “agree” which are the cornerstones of enforceable agreements.  

The text uses the formulation that the parties “will” do things. Those could all be done independently or not. There is no bargain evident.

An enforceable agreement is an exchange of promises of performance.  A plan of action implements those promises. The performance of one party is conditioned on the performance by the other party, by the language of the agreement. The terms of the JCPOA are independent.

This plan of action implements no agreement because no such document exists.  An agreement can be implied from the language of the plan, but the language must establish a “meeting of the minds.” 

Fourth, a strong argument can be made that there is “no meeting of the minds,” a classic term of contract law that is the basis for every agreement.  The awkwardness of the structure makes clear that the intentions of the parties are not congruent and the goals are even farther apart.

Fifth, the JCPOA text contains no definition of terms, such as explanations for the various time terms. A plan of action requires some agreed definitions of terms. One plausible theory for a ten year time period, for example, is that Iranian strategists might have concluded that Iran faces no existential threat for at least a decade, as long as Iran did not provoke a regional nuclear arms race.

They also might have judged that after ten years Iran must be prepared for an even more uncertain strategic environment than the present. If this theory is accurate, Iran gave up little in return for a chance to be the regional economic hegemon. The emergence of an economically powerful Iran would alter strategic power relationships.

Finally, the six powers did not include a term requiring Iran to affirm or promise that it possesses or has access to no nuclear weapons now, in Iran or elsewhere. That seems to be a significant omission in crafting. If Iran already has nuclear weapons, the JCPOA would be a strategic victory for Iran.  

Assuming Iran abides by the JCPOA to the letter, the JCPOA will empower Iran economically and that will shift the balance of power in the region, regardless of the nuclear program. The Iranians do well to celebrate.

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Friday, July 10, 2015

How Is Greece Like A NASCAR Driver?

'And the Greek car goes into the stands again....'
'They keep turning left and smashing into walls'.

So goes an old joke about liberals from conservatives.

However, let's face the truth of the matter:

'If the country of Greece was a NASCAR entry, it would have already been smashed to smithereens in the past 10 races and disqualified from ever running again under current management.'

Greece points out the problems of socialism that former Prime Minister Margaret Thatcher of England once opined:

'The problem with socialism is that you eventually run out of other people's money!'

We don't have a problem with people being liberal and wanting to help other people live better lives. We think one of the great strengths of America is the amazing generosity you see every day where people of their own volition put their money and their time into helping those who are less fortunate than many of the rest of us.

Even with that amazing amount of private generosity, however, we recognize that that just isn't enough to take care of the millions of Americans who live below the poverty level or are sick or infirm in any way. That is where the 'social safety net' of America comes in, one that conservatives view as more of a 'trampoline' on which to bounce to get back on your feet so you can provide for yourself and your family, not one that becomes a self-trapping 'safety net' in which many poor people find themselves mired after generations of government dependency.

One of the oddest things to have happened to American politics over the past 2 decades is the extinction of the fiscal conservative/socially conscious 'majority middle' that used to constitute over 30% of Congress. Southern Democrat and so-called 'moderate Republicans' used to be the centrist fulcrum in Congress by which programs were passed to help people BUT were also held to a very simple standard: 'Will it break the budget or can it be done without adding on more federal national debt?'

Nowadays, just like in Greece, liberal Democrats pass bills without any regard to whether they will break the bank or balance the budget (see 'ACA' aka 'Obamacare'). And, just like in Greece where tax avoidance is considered the national pastime, liberal Democrats talk about 'raising taxes on the rich!' as if that will ever bring in enough money to balance the budget (it won't) without understanding the rich are the only ones with the resources necessary to find ways to avoid paying those higher taxes.

For those reasons, we think it would be helpful to the American people, especially the young people now entering the workforce to see what would happen if a country, namely Greece, was allowed to finish their own self-destruction through overspending.

It would be very painful for the Greeks, there is no doubt. But they have had numerous chances to straighten up and fly right and elect mature adults who could lead them to the real solutions that would have avoided this disaster for the past 30 years...and they didn't.

No human society has yet figured out how to repeal the laws of economics and fiscal gravity, as in what happens when a nation can't pay its bills, service its debt or conduct themselves in responsible ways. Greece and the EU might try to delay the ultimate outcome for awhile but they can't fool Mother Nature who also controls the immutable real-world of economics and finance.

Sooner or later, She will get you.

First, some facts that might surprise you:
  1. The GDP of Greece is about 1/2 that of North Carolina: $250 billion to NC's $500 billion.
  2. The GDP of Greece is about the same size as that of Connecticut.
  3. The debt-to-GDP ratio of Greece is close to 175%.
  4. The debt-to-GDP ratio of the United States is 73%.
One big difference between Greece and the US right now: The US dollar is the world's reserve currency where a lot of international finance is denominated, most notably in oil. The main reason why the Fed can make up currency out of thin air as they did during our financial crisis is because the rest of the world believes the US is still the largest and most dependable economy in the world and will be that for a long time to come.

But guess what? At one time in history, the ancient Greek drachma was the 'world's reserve currency' as were the Roman coins with Caesar's face on them as was the British pound sterling. The US dollar will not be the world's reserve currency forever, you know.

Unless steps are taken to support it which means getting our fiscal house in order in Congress and the White House, some other currency could become the world's reserve currency and then we would lose all sorts of flexibility such as the ability to expand the Federal Reserve's balance sheet in times of distress without any tie whatsoever to gold or silver underlying the intrinsic value of the dollar.

This debate is not even about the size of government. It is about the size of indebtedness caused by spending more money than a country takes in each year from tax revenues.

Calvin Coolidge presided over a booming American economy in the 20's when federal spending amounted to about 3% of GDP all the while cutting spending and taxes in each of his 6 years in office and reducing debt by close to 75%.

Bill Clinton presided over a booming American economy in the 1990's where federal spending amounted to about 20% of GDP. The last 4 years of his term in office saw the last balanced budgets we may ever see in our lifetimes.

It is not the 'size' of the government that is so dangerous. It is the 'size' of the indebtedness a country piles up in excess of what they can pay for on an annual budgetary basis that really matters most.

What would be the exact process of the Greek economy melting down if they don't get any more aid from the EU?

It varies from country to country and time in history but generally, once a country has effectively become bankrupt and unable to pay its foreign debt, here's what happens:
  • Their bonds become worthless. Who would buy them if they can't be paid interest or repayment of principle?
  • Credit becomes scarce internally in the country at hand.
  • Commerce becomes next to impossible to transact on a daily basis.
  • Inflation erupts. Competition for scarce goods bids up the price of everything.
  • Interest rates internally sky-rocket.
  • Unemployment explodes. People who can't conduct business can't buy food or pay the rent.
  • The rest of the world views your country as a basket-case.
The truth of the matter is that the rest of the world should be saying to Greece: 'There but for the grace of God go us'

Because it can happen anywhere at any time. And has about 250 times around the globe over the past 200 years or about 1 time per year (see Sovereign Debt and Default)

The young people of this country don't remember the 12% unemployment, the 13.5% annual rates of inflation and the 21% interest rates that beset this country during the Jimmy Carter years. Those are 3 main reasons why the only time most Americans ever hear about former President Carter is when he does something good with his work for Habitat or Humanity or something really off-kilter when he opines on Iran, Israel or Iraq or any other foreign policy matter since he really wasn't very good on foreign policy as President either.

Those years were 1978-1981. That is not ancient history. That was not in Greece. That was in the good old US of A.

The way the US got out of that mess was when Ronald Reagan became President in 1981 with Paul Volcker as Fed Chairman and basically electro-shocked the heart of the economy to start beating again. The 1982 recession was the nastiest one since the Great Depression at the time but it was a 1-year painful fix that ushered in a economic recovery and revival of 4-5% per year which is way above the anemic 2% annual growth we have had in the Obama years by comparison.

Which is why we think it is so important for the Greek Tragedy we are now witnessing to play out on the world stage. It may be painful for the Greek people and economy in the short-term, yes. However, for the long-term, declaring national bankruptcy and going through that painful process might lead to a re-adoption of the drachma outside of the EU, a diminished economic value to its currency and a much higher demand for Greek products in world markets which would bring about economic growth and prosperity to the small businesses that make up 2/3rds of the Greek economy.

Seeing the painful process from afar might awaken younger Americans to more responsible political action. Namely to 'vote for some people who will help fix this fiscal time bomb in America before something crazy to us!'

Maybe Greek NASCAR drivers should start a new sport where they race clockwise around a race track and turn right all the time. Maybe some of it will rub off on their elected leaders and people in the first place so they avoid getting into this dire situation again and again and again.

* for more insight into how the Greek situation is different from the US, here's a good piece from the fine budget group, The Committee for a Responsible Budget that you should bookmark as being a good resource for solid information: 'Greece is Rather Unique'

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Saturday, July 4, 2015

The Fireworks of the Fourth of July Jobs Report

The Best Fireworks Display You Really
Owe It To Yourself and Family To See
The Bureau of Labor Statistics came out this week with their latest jobs report.

President Obama hailed the drop in the official unemployment rate and wants to celebrate it with fireworks.

Conservatives looked at the same data and concluded it was a massive dud or worse, the entire fireworks assembly to be fired on the Washington Mall tonight exploded before being fired.

How can that be? How can the jobs report be so confusing that it can produce such very different conclusions?

First of all, a little history lesson about the Fourth of July in case you may have missed it before.

John Adams, our first Vice-President under George Washington and our 2nd President, wrote a letter to his wife Abigail after the conclusion of the writing of the Declaration of Independence. He dated his letter to her on July 3 and said the following about July 2, the day the delegates to Philadelphia approved the Declaration: 'The Second Day of July 1776, will be the most memorable Epocha, in the History of America'.

He went on to say to Abigail:
I am apt to believe that it will be celebrated, by succeeding Generations, as the great anniversary Festival. It ought to be commemorated, as the Day of Deliverance by solemn Acts of Devotion to God Almighty. It ought to be solemnized with Pomp and Parade, with Shews, Games, Sports, Guns, Bells, Bonfires and Illuminations from one End of this Continent to the other from this Time forward forever more.
Because there was no internet in the day, or CNN or FOX or MSNBC, it took awhile for his letter to get to her. Plus, the Declaration was transposed into its final form and 'July 2' was scribbled out and 'July 4' was printed as the official date it was approved.

Anyway, fireworks have been a part of the American experience since Day 1. They are not expressly talked about in the US Constitution, although there are plenty of 'fireworks' in that document as well as evidenced by some of the Roberts Court decisions in recent times, yes?

Here is the latest jobs report from BLS. Read it for yourself and decide if you think it is a beautiful display of job growth creation success or a dud that blew up on the launching pad. Or neither.

The Obama Administration touts the fall in the official unemployment rate to 5.3%, down from the high of 10% in October of his first year in the White House in 2009. They also hailed the drop in the number of officially 'unemployed' workers by 375,000 to 8.3 million total, down from 11.6 million in January, 2009. Which looks good on the face of it, doesn't it?

His opponents point out that while President Obama was hailing the fact that 223,000 people found jobs in June, 'the civilian labor force declined by 432,000 in June, following an increase of similar magnitude in May. The labor force participation rate declined by 0.3 percentage point to 62.6 percent in June' (from BLS June jobs report)

How can that be a good thing? The labor force declines when people retire or stop looking for work altogether. You can't be counted as 'unemployed' if you are no longer looking for work.

The labor participation rates across the board almost are now at their lowest rates since 1978. Before millions of women started to enter the workforce en masse and create the truly great acronym for the IRS to use to describe those couples who worked, DINK (Double Income, No Kids).

It is so hard to get your mind around these dull data points. So we are borrowing some important and telling charts from Stephen Moore from an article he published in Forbes Magazine in 2014.

Here's the most troubling aspect of this so-called 'recovery' since 2009: There just don't seem to be a lot of great jobs being created out there, does it?

As a result, the first chart tells us that millions of younger Americans are not just not finding a job, they are dropping out of the workforce altogether. Those 16-19 have dropped out the most, right when they really need to find a job, ANY job, to learn the skills and discipline needed to get a better job as they grow up and get more training and education.

Let's face it: in an ever-increasing technological America competing with countries across the globe for business, a young person with no education, training or job experience is going to have a hard time making it on his or her own.

Perhaps the most troubling chart is the second one that either Mr. Moore or some plucky assistant gleaned from the dull BLS reports because government doesn't usually offer their data in such clear and graphic and colorful detail that is pleasing to the eye to see.

The number of new jobs touted by the Obama Administration as having been created under his watch, as of September 2014, was about 6 million new jobs. Not bad on the face of it.

However, the number of people leaving or not entering the workforce, as in the case of the younger folks noted above, has been about 7 million people since September 2014.

That can't be good under any circumstance, can it? People leaving the workforce means less demand for goods and services and the ability to pay for them, right?

Many of these people are aging Boomers. We get that. We are right there in it with them.

But many are not. Many are aging Boomers who want to keep working, or as evidenced by the fact that Boomers are the only age cohort that has seen an increase in the labor participation rate since 2009.

They tell us:

  • 'I can't afford to retire'
  • 'We got wiped out financially in the Great Recession of 2008-2011'
  • 'Social Security is not enough to retire on'
So expect to see Aging Boomers hang onto their jobs as long as they can. Which also frustrates younger workers who would like to see them retire so they can take over their jobs.

So which is it in your eye? Is the latest jobs report a fireworks display of amazing color and celebration of the American spirit....or has it shown that our policies of the past 6 years have exploded on the ground in their cases?

Happy Fourth of July regardless. We still think John Adams go it right.

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