Archive for category Government

Is Government Investment Good?

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Are Electric Cars Really Green?

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Separation of Powers

 

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Look in the Mirror

Pork

This column will be published on the eve of the annual Update Banquet, a weekend of education and camaraderie.  A chance to reconnect with old and new friends and to discuss the issues that are near and dear to our hearts.  Once again family obligations keep me from coming to my second favorite city to join in the festivities.  But that doesn’t mean I can’t join in the conversation.

As many of you gather to discuss the big issues there is an ongoing debate within the Republican Party as to whether it is the party of business or the party of free enterprise.  To a Democrat they are the same thing.  To those who think at all about the issues they are very different. 

The debate today centers around the reauthorization of the Export Import Bank.  It has become a litmus test of whether you are for or against crony capitalism and now many members of congress (even some Democrats) are wrapping themselves in that vote to show how pure they are.  How they are for the little guy.  Well unless you work for Boeing it’s not that difficult to be against the Ex Im Bank.

But after taking that easy position the hard questions start.  It’s important to look in the mirror and ask if we really are the party of free enterprise or the party of big business.  It’s easy to be against the things that don’t effect you, but where do you stand when you or someone close to you gets a direct or indirect benefit from a government program.  And let’s be honest, with a government that spends and regulates as much as ours does we are all touched by it one way or another.  So are you willing to gore your own ox?  This is a list that I crafted in a few short minutes but with a little effort I could go much broader and deeper.  I will only comment on a few of the items.  We each need to be asking ourselves, what are we willing to give up?

Direct Spending

Education Funding – 12 % of all direct education spending is funneled through the Department of Education.  They don’t create the wealth, they just take if from us, take a cut and send it back and yet we feel good about this.

Farm Bill – The farm bill is $956 Billion over 10 years.   $756 Billion goes to food stamps, $90 Billion to Crop Insurance, $56 Billion to Conservation, $44 Billion to Commodity Programs (price supports) and $8 Billion to everything else.

College Aid and Loans

Green Energy Investments

Transportation Bill – It’s not that I am opposed to roads but does the money need to flow through Washington and back to the states.  Should someone in Arizona really have helped pay for the “Big Dig” here in Boston?

BRAND USA – $100 mm annual direct spending to support tourism in the United States.

Tax Deductions

Home Mortgage Interest – One of the most controversial items on this list.  We have all been brought up that owning a house is important to society and that home interest should be deductible.  How much of the real estate crash was because of this mindset.  Canada has an equal percentage of home ownership without the subsidy.

Charitable Contributions

Tax Free Muni Bonds

Special treatment of Carried Interest – When an investment firm (PE or Hedge typically) receives a payment of carried interest it is taxed at the lower capital gains rate.  This isn’t typical capital gains because there is no money at risk.  It is more of a bonus payment based on performance.

Special Treatment of Oil and Gas Depletion Allowance – Oil and Gas companies get to take a depletion allowance (think depreciation) based on how much oil or gas they initially believe is in the well.   Then can then continue to take this allowance well past 100% as more oil or gas is discovered in the well.

Regulations or Administrative Actions

Anti Online Casinos Legislation – Shelly Adelson, a big donor to Republican candidates and causes is also the biggest proponent of keeping online gambling illegal.  Not because he is against gambling but he doesn’t want competition for all of his casinos.

Ethanol Blending requirements

Zero Interest Rates from the Fed – The fed allowing banks and other financial services firms to borrow at close to zero interest rates is essentially providing a subsidy to them while discouraging saving in society.

Insurance Mandates – Insurance mandates provide demand for things like contraception, chiropractic and other services because someone else is paying for them.  If you lobby enough you can get on the list.

ObamaCare

Licensing Requirements – Licensing for hair stylists and taxi cabs and nail salons only limits competition and benefits the owners of the businesses.

USDA and FDA Regulations –

So have I pissed everyone at the banquet off a little or am I being burned in effigy?  If so, I have done my job. 

Many of these we could all agree on, but can we all agree that a simpler tax and regulatory environment is better for the country even if it means that our personal ox is gored?  What are you willing to give up?

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Farm Bill

http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/28/the-950-billion-farm-bill-in-one-chart/

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Crisis in Education…?

Education

Many have said that there is a crisis in higher education.  In fact, if you Google that phrase you get over 65,000,000 results.  I tend to agree, but what is the crisis and how should we as a nation respond to it?

The tuition cost (adjusted for inflation) for a 4 year private college has gone up from $15,306 in 1982 to $33,716 in 2012.  For a public college the percentage increase is even worse from $6,942 to $16,789.  Remember this is adjusted for inflation.

What is going on here?  Has the education gotten that much better?  I tend to doubt it.  College is a very labor intensive endeavor with the biggest cost being professors salaries.  During this time the average student to faculty ratio (often a proxy for quality of education) has stayed steady at about 15 students per faculty member.  While the number of faculty didn’t increase, the cost of instruction (faculty salaries) went up by 22%.  This is in spite of the rise of lower cost alternatives to tenure tract professors like adjuncts and teachers assistants.  Additionally the administrative costs at colleges and universities went up by 36%.

Does tuition go up because costs are rising or do colleges spend more because they have more revenue?  I don’t know which causes the other but according to everyone it has led to a crisis.

7 out of 10 students graduate with an average of $29,400 in debt, with the total amount of outstanding student loans being $1.2 trillion.  To put the $29,400 into perspective, someone repaying that amount over a 10 year period would have a monthly payment of about $345.  Thinking about my daughter who graduated last month, I am thankful that she doesn’t have any loans because I don’t know where that payment would fit into her budget.

So, there is a crisis in Higher Education.  But what is the response?  Are fewer people going because it’s too expensive?  Applications and enrollments are at or near historical highs.  So the crisis has not affected demand.   And if there is a crisis, what should we do about it?  Whose responsibility is it?  The student?  The parents?  The college?  The government?

As expected, there has been a response from our leaders.

Many on the left have said that the crisis is not in the cost of college but in how we pay for it.  And naturally that requires the federal government to play a bigger role.

Elizabeth Warren, the Senior Senator from the Commonwealth of Massachusetts (I am so sorry about that) has called for the refinancing of all student loan holders.   Basically a give away to twenty somethings.   They have already selected their major, consumed their education, and are now trying to pay it back without the ability to get a well paying job.  Frankly, they made bad choices and are unhappy with the outcome.  They should be saying “Why didn’t someone tell us!” and they should be warning today’s high school graduate.  But instead, we can’t influence their choices in the past, so we just throw money at them to get them to shut up.

On the other hand, even though college is so expensive, Obama thinks that more people should go to 4 year residential colleges and be able to study whatever they want.  It doesn’t matter that they can’t get a job.  They have the right to smoke a little weed and skip classes just like he did.  So he is out across the country promoting the traditional 4 year education.

And to make matters worse he is also trying to tear down those institutions that are trying to find new and better ways to deliver an education… the for profit institutions.  For him it seems like a knee jerk reaction.  He hears “For Profit” and knows in his heart that it has to be bad.

So what should our leaders do.

As an Adjunct Professor of Entrepreneurship at Bentley University and a member of Union College’s President’s Council, I have a vested interest in the state of higher education.  I have studied it and I have participated in it for many years.

The best thing that our leaders could do is to unleash the free enterprise system.  Support and encourage those with ideas about how to deliver a valuable education.  Let them test their ideas in the marketplace and see which work.

If President Obama spoke at Grand Canyon University or if Secretary Duncan showed up at the University of Phoenix’s graduation it would send a powerful message.

They also need to change their messaging to the students.  College is not appropriate for everyone (and it is not racist to say that).  It also isn’t always appropriate for an 18 year old.  And a full time residential experience is not always the answer.    There are many paths to getting the education a person needs.

Additionally, you can’t just study whatever you want without consequences.  Studying 18th Century Asian Art might be interesting to you, and it might be following your passion but spending $120,000 on it is probably not the best investment.  And if you are doing it via loans you might think about doing something else.  Responsible adults, from the President to Parents to college administrators should be delivering that message.

The other part of that message is that education should be a lifelong pursuit.  In fact you can follow your passion for 18th Century Asian Art online through Massive Open Online Courses (MOOCs) all for free.  And you should do that if that is your passion.  Education is fundamentally not just about the diploma it’s about the journey and increasing your understanding and gaining new insights.

Additionally, the free market should be injected back into the marketplace.   Only in the college loan market can you borrow money without a plan on how you are going to use it or how you are going to pay it back.  A disciplined underwriter would gladly loan money to an engineering student at MIT while leaving the Philosophy Major at Florida State scrambling to pay tuition.  That actually is a good thing.  It will force us to make “Education Investments” in the right places.  And force high school graduates to take a more realistic approach to planning their future.

The last thing for the government to do is to encourage things like what Starbucks just announced.  They are going to provide tuition reimbursement for online courses at Arizona State University.  Online education is not appropriate for every student and every class but as someone who has both taken and taught online courses, it is a great solution for many situations.

Yes there may be a crisis in Higher Education just like the crisis in Health Care.  But the answer isn’t more government action it is less.  The answer is more personal responsibility and freedom.  Personal responsibility to allow individuals to decide what education investments are right for them to build their lives and the personal freedom to make those decisions.

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AIRSCOP – Feb 28, 2014

That the tax code is used to try and redistribute wealth is unquestionable.  The varying levels of effectiveness is something that is very rarely studied and could be debated long and hard.

One item is the “Work Opportunity Tax Credit”.  This gives 40% of the first $6,000 of earnings as a tax credit to the employer.  The Employee must meet a number of criteria.  They must work at least 400 hours and must be deemed eligible based on being a “qualified” member of a family receiving Temporary Assistance for Needy Families, food stamp recipients, veterans, ex-felons, residents of empowerment zones or enterprise communities, vocational rehabilitation referrals and summer youth employees.

How the employer determines if someone is eligible and the paperwork to document their eligibility must be a nightmare and for what?  The Inspector General of the Labor Department concluded that the program simply provided federal funds to employers who would have hired the employees anyway.  So why does it still exist?

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Fit to Lead?

On September 9, 2013, 2 out of 3 lanes that allowed Fort Lee, NJ residents access to the George Washington Bridge (GWB) were blocked.  Initially, it was stated that this was part of a traffic study and the lanes were reopened up after 4 days.  Then on January 8, 2014 emails were released which implicated one of NJ Governor Chris Christie’s top aides and a close confidante and political appointee.

Unless you have been living under a rock for the last week you undoubtedly have heard of this story as it has had wall to wall coverage on every major media outlet for the last week and was the most prominent story on the Sunday talk shows.

It is very tempting to compare this scandal and the reaction to either Benghazi, the IRS scandal or any of the Obama scandals of the week.   That is not what I want to do here.

As a small government conservative/libertarian I am vehemently against any abuse of power whether it’s from the left, the right or the middle.  In fact I view Crony Capitalism (a subject for another day) as a subset of Abuse of Power.

In my mind, Abuse of Power has three distinct flavors.  Each is bad but some are worse than others.

3 Levels of  Abuse of Power

            1. Punish Enemies

            2. Self Enrichment

            3. Impact of innocent citizens

To punish you enemies is almost expected.  It is not something that I condone, but it seem that it’s a cost of doing business in the world of politics.  As the old saying goes “politics ain’t bean bag.”  As the media has gone over everything that Christie has done for the last 20 years, stories have come out that show that his office has not responded to folks that didn’t support him in the same way or with the same speed that he has for people that did support him.  Well Duh!  It shouldn’t be that way, he should be governor for all the residents of NJ, but that’s the way that it has been since the founding of the republic.  Political supporters get better access.

Self Enrichment is the most insidious form of abuse of power.  Every year or so there is a story about a big time politician who either takes bags of cash or gets something for free.  It happens on both sides of the aisle.   From Connecticut Governor Rowland getting free contracting services at his home to Congressman Charlie Rangel and his rent controlled apartments and his other ills.  It is the basis for movie’s like “American Hustle” and TV shows like “Scandal”.  But just because it is so prevalent doesn’t mean we should accept it.  It is actually the biggest argument for reducing the size of government and putting more power in the hands of the states.   Almost anyone can turn down a $20 bribe, but it takes tremendous willpower to turn down $1,000,000 bribe.  Go ahead, tempt me!  But you wouldn’t because I have nothing to give you.  Smaller government reduces the stakes for everything.

The thing about Self Enrichment is that it typically doesn’t impact the citizens directly.  The government might end up paying more for a contract but the impact on any individual taxpayer might only be pennies.  It doesn’t make it right but that’s why some people shrug and say “Oh well, that’s just how the game is played.”  And yet, these Citizens are who every official is sworn to serve.  Often they are put on pedestals as “public servants”.  The argument is that they have sacrificed their entire lives to serve the public.  Think of the Kennedys, the Cuomos or yes even the Bushes.  How often do we hear about their public service.  

To me the worst form of Abuse of Power is when it impacts innocent citizens.  Those people that officials have sworn to serve.  And someone does it just because they can.  I don’t care if you are the cop on the corner harassing some teenagers or the Governor of NJ whose staff actions caused havoc in the lives of thousands of citizens.  We can not abide these abuses.

In a Thursday Jan 9 press conference that lasted nearly 2 hours, Governor Christie said,

“I am embarrassed and humiliated by the conduct of some of the people on my team.  Ultimately, I am responsible for what happens under my watch,”

Well he should be.  These were the actions of petty people.  And I can’t help wonder where senior staff members who have been around the Governor for decades would get the idea that this was acceptable behavior.  When I say “Seniors” we are not talking about High School or College Seniors, I know what they are like because I have one of each and I question decisions that they make on a weekly basis.  I am talking about Senior Staff members of the Governor of NJ.  They have decades of experience and because of their experience, wisdom and judgment they make over $200,000 a year.  Where in this “culture of service” do they get the idea that this is OK to abuse citizens in this way.   Or is it a culture of power that says “Whatever I do is OK”?  As Loretta Weinberg, the NJ State Senate majority leader who happens to represent Fort Lee said, “There’s a difference between a Jersey attitude of being blunt and direct and telling it like it is, and a Nixonesque act of retaliation that punishes innocent people.”

So as we think past the midterm elections and consider who we want as a standard bearer in 2016, I ask one question… Shouldn’t we expect better?

PS.  Even though I live in Massachusetts, I am proud to say that I come from Jersey!

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