Friday, July 3, 2009
One of the absurdities of having racial quotas, preferences, or the like in school enrollment or job hiring is how does one define any race? Since there is no satisfactory way, attaining minority status is nearly always a matter of self-identification! So if someone is say, one-eighth of some minority race (and, of course, even that may not be easily determined), one may still declare that he or she is of that race and thereby obtain all of the benefits that may accrue to being of that minority. The fact that there is no exacting way of defining one as being a member of a certain race adds to the argument that there should not be any race-based tests for hiring or school enrollment.
Rather than use some form of racial preferences for undergraduate college enrollment, it can be argued that some preferences be given to children of very low-income parents (easily defined) on the grounds that they are usually disadvantaged by growing up in poverty. In addition to finessing the racial definition problem, that would also eliminate the undesirable result of colleges and universities competing for high-achieving minority children of well-off parents. These children do not need financial aid or enrollment preferences and are not disadvantaged in any way.
At the same time we should do our best to upgrade the elementary and secondary school education of communities with generalized low income levels. In better-off school districts, programs should be instituted which would give special assistance to students from poor families. In short we should do all we reasonably can to level the playing field for educational opportunities, but only using parental income history as the measure of being disadvantaged. However, as noted elsewhere in this blog, our national policy of allowing increasing numbers of poor, little educated immigrants to live and work in this country has meant that the effects of any public programs, including those involving education, designed to improve the lot of our disadvantaged citizens are going to be diluted by the addition of the new immigrant poor and their children.
For employment, the messy question of defining race should be avoided by allowing the policy of hiring on merit alone. No public or private employer should have to fear legal consequences as a result of hiring from without or promoting from within whomever they believe is the most qualified candidate for any job in question. Similarly, graduate schools should be permitted to recruit on ability alone.
Employees are protected against employment discrimination by existing laws which permit them to bring suit against employers who overlook solid minority job candidates in favor less qualified non-minority candidates. Many attorneys will take such cases on contingency basis giving the poor even more protection against racial discrimination.
Using the above approaches also avoids the related messy issue of somehow determining which races are “disadvantaged” minority races and the relative disadvantage for each.
Sunday, December 19, 2010
More Bailouts for Bad Decision Makers
Wednesday, December 9, 2009
The following paragraph is a result of a Wall Street Journal article today (12/9/09) highlighting the tax benefits available to tax-paying Madoff fraud victims as a result of new IRS "rules" issued in March 2009 for victims of Ponzi schemes.
How is it that the Geithner (whose personal income tax transgressions should have barred him from being Secretary of the Treasury) as overseer of the IRS can in essence rewrite the tax code without Congressional approval so that Madoff (and other Ponzi) “victims” are able to recover substantially more than they otherwise would have?
The special treatment for tax-paying Madoff investors is part of a general trend where increasingly the federal government more or less bails out large money losers, both individuals and companies, rather than let those who took their chances and lost bear the full economic consequences of their actions. Why should we taxpayers bail out home buyers and investors in their mortgages who made bad decisions? Why should we bail out investment bankers who are gambling with other people's money -- if they win they pay themselves outrageously, if they lose, their shareholders and the federal government will pay. Why should we bail out General Motors and Chrysler just because their employees are union members whose excessive compensation and restrictive work rules contributed to their employers inability to compete with the foreign auto makers who use non-union labor in the southern states to efficiently build autos here? Why should we bail out GMAC which got into trouble with mortgage investments of all things. Why should we bail out the shareholders and debt holders of banks and investment banks whose managements made very bad decisions? Why not use the S&L bailout formula of the 1980's -- shareholders and creditors were wiped out, depositors were protected, and the deposits were sold to solvent institutions or new investment groups.
It could be argued that some banks such as Citi were too big to fail due to the consequences that would result for the financial system. There were a handful of very large banks that might logically meet that measure and require a government rescue. However, it is this blogger's view that the regulators should never allow any bank to get itself into a size or risk profile that would make it possible to be too big to fail. Many of today's financial institution should be broken up and restricted to diversified low risk investments.
AIG's insurance subsidiaries were fire-walled off from the money-losing parent company. And yet we made a huge bailout of AIG and its ill-conceived credit default swaps to the benefit of foreign banks and investment banking firms like Goldman Sachs. Additionally, it is now known that Geithner paid those investment banks and foreign banks on the other side of the swaps at 100% on the dollar rather than negotiating a discounted settlement as he could have, given that their alternative was getting nothing in a bankruptcy.
The Bush administration started these balls rolling and the Obama administration continued these policies with renewed vigor. The huge deficits that are being rolled up as a consequence, and the huge (over $1 trillion) Fed purchases of low rate mortgages (in an effort to prop up the single-family home market) are going to cost all taxpayers for years to come.
All of the low rate mortgage assets now held by the government are going to have to be dumped on the market at huge losses when interest rates rise as they most surely will as a consequence of massive sales of government debt to pay for the ever-rising deficit, or alternatively, these mortgage assets will have to be financed with short-term borrowings of the federal government at increasingly higher rates until the mortages are paid off.
Why should we responsible taxpayers be forced to help our irresponsible brethren? Instead of devoting trillions of taxpayer dollars to fund these "rescues," the same moneys could benefit the economy more through such devices as tax breaks for small businesses and other employers that provide new jobs for the economy. In essence, Bernanke and the Bush and Obama administrations have gone out of their way to minimize negative economic impact now at the cost of negative impact in the future. Bush didn't want his "legacy" to be tinged with unemployement. Obama wants badly to be reelected. Bernanke is of the liberal school that any unemployment over a normal amount has a great cost, so he will do anything to keep down today's unemployment rate include mortgage our future.
The following paragraph is a result of a Wall Street Journal article today (12/9/09) highlighting the tax benefits available to tax-paying Madoff fraud victims as a result of new IRS "rules" issued in March 2009 for victims of Ponzi schemes.
How is it that the Geithner (whose personal income tax transgressions should have barred him from being Secretary of the Treasury) as overseer of the IRS can in essence rewrite the tax code without Congressional approval so that Madoff (and other Ponzi) “victims” are able to recover substantially more than they otherwise would have?
The special treatment for tax-paying Madoff investors is part of a general trend where increasingly the federal government more or less bails out large money losers, both individuals and companies, rather than let those who took their chances and lost bear the full economic consequences of their actions. Why should we taxpayers bail out home buyers and investors in their mortgages who made bad decisions? Why should we bail out investment bankers who are gambling with other people's money -- if they win they pay themselves outrageously, if they lose, their shareholders and the federal government will pay. Why should we bail out General Motors and Chrysler just because their employees are union members whose excessive compensation and restrictive work rules contributed to their employers inability to compete with the foreign auto makers who use non-union labor in the southern states to efficiently build autos here? Why should we bail out GMAC which got into trouble with mortgage investments of all things. Why should we bail out the shareholders and debt holders of banks and investment banks whose managements made very bad decisions? Why not use the S&L bailout formula of the 1980's -- shareholders and creditors were wiped out, depositors were protected, and the deposits were sold to solvent institutions or new investment groups.
It could be argued that some banks such as Citi were too big to fail due to the consequences that would result for the financial system. There were a handful of very large banks that might logically meet that measure and require a government rescue. However, it is this blogger's view that the regulators should never allow any bank to get itself into a size or risk profile that would make it possible to be too big to fail. Many of today's financial institution should be broken up and restricted to diversified low risk investments.
AIG's insurance subsidiaries were fire-walled off from the money-losing parent company. And yet we made a huge bailout of AIG and its ill-conceived credit default swaps to the benefit of foreign banks and investment banking firms like Goldman Sachs. Additionally, it is now known that Geithner paid those investment banks and foreign banks on the other side of the swaps at 100% on the dollar rather than negotiating a discounted settlement as he could have, given that their alternative was getting nothing in a bankruptcy.
The Bush administration started these balls rolling and the Obama administration continued these policies with renewed vigor. The huge deficits that are being rolled up as a consequence, and the huge (over $1 trillion) Fed purchases of low rate mortgages (in an effort to prop up the single-family home market) are going to cost all taxpayers for years to come.
All of the low rate mortgage assets now held by the government are going to have to be dumped on the market at huge losses when interest rates rise as they most surely will as a consequence of massive sales of government debt to pay for the ever-rising deficit, or alternatively, these mortgage assets will have to be financed with short-term borrowings of the federal government at increasingly higher rates until the mortages are paid off.
Why should we responsible taxpayers be forced to help our irresponsible brethren? Instead of devoting trillions of taxpayer dollars to fund these "rescues," the same moneys could benefit the economy more through such devices as tax breaks for small businesses and other employers that provide new jobs for the economy. In essence, Bernanke and the Bush and Obama administrations have gone out of their way to minimize negative economic impact now at the cost of negative impact in the future. Bush didn't want his "legacy" to be tinged with unemployement. Obama wants badly to be reelected. Bernanke is of the liberal school that any unemployment over a normal amount has a great cost, so he will do anything to keep down today's unemployment rate include mortgage our future.
Bernanke, The Wizard of Oz
With recent Obama appointments to the Fed, it is more firmly under monetary dove thought control. [In the Fed policy tradeoff between inflation and unemployment, the monetary doves are more willing to pay the price of higher inflation in order to achieve lower unemployment than are the monetary hawks.] This includes, of course, the dove-in-chief Bernanke who is one of many the bad appointments of the failed W. years. W. first appointed him as a member of the Federal Reserve Board in 2002 and as Chairman in 2006.
He was reappointed as Chairman of the Federal Reserve Board by Obama in 2009 to start his second four year term in 2010. He was confirmed by the Senate in a 70-30 vote, the smallest confirmation margin for any Fed Chairman due to his controversial role in the financial crisis and subsequent bailouts. It is interesting to note that while at the Fed in 2004 Bernanke gave a speech entitled The Great Moderation in which he mentions that he believed that improved monetary policy should contribute to reduced economic volatility in the future.
Bernanke and his dovish allies on the Fed believe that the Fed needs to do whatever it takes to reduce unemployment from its present level, even though most of the economy’s current sluggishness follows from structural and other factors such as deleveraging by individuals and Democratic Party anti-business policies and uncertainties which cannot be offset by easier money in today’s ultra low interest rate environment. (See blog of June 18, 2010 entitled “Some of President Obama’s Ways and Means” and subtitled “Promotion of Drags on the Economy” which contains a partial review of the anti-business strategy of the Obamans.)
Moreover, the doves’ feeling of urgency with regards to monetary policy seems unjustified. Unlike during the Great Depression of the 1930’s, we do not see press coverage of people starving in the streets or otherwise suffering from a deficiency of food or shelter since the pain of unemployment is mitigated by working spouses, our social safety net features, and the assistance of relatives.
If the Fed’s Quantitative Easing Phase II (QE2) happens, and it now seems almost certain to happen, it most likely will have very little positive impact on the economy as interest rates are already so low and bank liquidity so great that further easing of monetary policy can have no further positive effect on business activity. Of the Fed voting members, Kansas City Fed President Hoenig has been the leading champion of the “QE2 won’t work” viewpoint, but he does not have the votes to stop Bernanke’s pursuit of QE2.
Bernanke is a very intelligent person so he must surely know that QE2 is almost certain to have little direct effect on the economy. Yet he is making many statements in the closing weeks of the election cycle that QE2 will work and the Fed will institute it given the current high rates of unemployment and low rates of inflation. It all makes one wonder if there is not some political component in the timing of his “jawboning” on this subject so often and strongly as the election approaches. The fact that the official Fed QE2 decision will not be made until after the election does not depoliticize it since he has telegraphed that it is a near certainty that the Fed will embark on QE2 shortly after the election.
The recent rise in the stock market since the Fed began to trumpet its willingness to undertake QE2 is probably not related to optimism on the economy as much as it is related to the desperation that investors feel seeing close to a zero return from secure savings alternatives and hearing the promise from the Fed of more of the same low rate environment for the foreseeable future. Moreover, the stock market may have gotten a positive boost from the predicted the strong showing of the Republicans in the mid-term elections and the resulting hope that the Republicans can counter the economic negatives of Obama policies after the next presidential election if not sooner. If QE2 is implemented, the outcome will almost surely be that the additional monetary easing will have no further positive effect on the economy. If no positive economic impact can be discerned, then the Democrats may lead a cry for more stimulus money and other props for the economy that will further run up the federal deficit and federal debt burden without removing any of the current obstacles to economic growth….
Additional massive open market purchases of debt securities by the Fed in pursuing QE2 are likely to make things worse for the economy down the road. The dollar will continue to be devalued in foreign exchange markets due to both the extremely low rate of interest that holders of dollars can obtain and the view that the massive Fed run of the printing press is going to lead to an excess supply of dollars on world markets and future U.S. inflation. This inflation will come about in part from the availability of ultra-cheap short-term and long-term credit within the United States and the increase in the cost of imports to the United States due to dollar depreciation. We import much more than we export and the dollar costs of those imports including large amounts of oil will rise, especially if China allows a significant rise in the value of its currency relative to the dollar.
Devaluation of the dollar may have unfortunate repercussions as foreign governments may find themselves under pressure to fight appreciation of their currencies relative to the dollar or otherwise protect their domestic industries. Massive increases in assets on the Fed balance sheet from QE2 on top of those already incurred are also likely to make it impossible for the dovish Fed to unwind its monetary ease as much as necessary when future inflation jumps above Fed target ranges. If inflation takes off, it might well lead Obama to install wage and price controls with all the misallocation of resources and inefficiencies that would follow and we would be pushing further down the road towards a centrally controlled economy, a prospect which would no doubt be pleasing to Obama….
(written on October 15, 2010)
He was reappointed as Chairman of the Federal Reserve Board by Obama in 2009 to start his second four year term in 2010. He was confirmed by the Senate in a 70-30 vote, the smallest confirmation margin for any Fed Chairman due to his controversial role in the financial crisis and subsequent bailouts. It is interesting to note that while at the Fed in 2004 Bernanke gave a speech entitled The Great Moderation in which he mentions that he believed that improved monetary policy should contribute to reduced economic volatility in the future.
Bernanke and his dovish allies on the Fed believe that the Fed needs to do whatever it takes to reduce unemployment from its present level, even though most of the economy’s current sluggishness follows from structural and other factors such as deleveraging by individuals and Democratic Party anti-business policies and uncertainties which cannot be offset by easier money in today’s ultra low interest rate environment. (See blog of June 18, 2010 entitled “Some of President Obama’s Ways and Means” and subtitled “Promotion of Drags on the Economy” which contains a partial review of the anti-business strategy of the Obamans.)
Moreover, the doves’ feeling of urgency with regards to monetary policy seems unjustified. Unlike during the Great Depression of the 1930’s, we do not see press coverage of people starving in the streets or otherwise suffering from a deficiency of food or shelter since the pain of unemployment is mitigated by working spouses, our social safety net features, and the assistance of relatives.
If the Fed’s Quantitative Easing Phase II (QE2) happens, and it now seems almost certain to happen, it most likely will have very little positive impact on the economy as interest rates are already so low and bank liquidity so great that further easing of monetary policy can have no further positive effect on business activity. Of the Fed voting members, Kansas City Fed President Hoenig has been the leading champion of the “QE2 won’t work” viewpoint, but he does not have the votes to stop Bernanke’s pursuit of QE2.
Bernanke is a very intelligent person so he must surely know that QE2 is almost certain to have little direct effect on the economy. Yet he is making many statements in the closing weeks of the election cycle that QE2 will work and the Fed will institute it given the current high rates of unemployment and low rates of inflation. It all makes one wonder if there is not some political component in the timing of his “jawboning” on this subject so often and strongly as the election approaches. The fact that the official Fed QE2 decision will not be made until after the election does not depoliticize it since he has telegraphed that it is a near certainty that the Fed will embark on QE2 shortly after the election.
The recent rise in the stock market since the Fed began to trumpet its willingness to undertake QE2 is probably not related to optimism on the economy as much as it is related to the desperation that investors feel seeing close to a zero return from secure savings alternatives and hearing the promise from the Fed of more of the same low rate environment for the foreseeable future. Moreover, the stock market may have gotten a positive boost from the predicted the strong showing of the Republicans in the mid-term elections and the resulting hope that the Republicans can counter the economic negatives of Obama policies after the next presidential election if not sooner. If QE2 is implemented, the outcome will almost surely be that the additional monetary easing will have no further positive effect on the economy. If no positive economic impact can be discerned, then the Democrats may lead a cry for more stimulus money and other props for the economy that will further run up the federal deficit and federal debt burden without removing any of the current obstacles to economic growth….
Additional massive open market purchases of debt securities by the Fed in pursuing QE2 are likely to make things worse for the economy down the road. The dollar will continue to be devalued in foreign exchange markets due to both the extremely low rate of interest that holders of dollars can obtain and the view that the massive Fed run of the printing press is going to lead to an excess supply of dollars on world markets and future U.S. inflation. This inflation will come about in part from the availability of ultra-cheap short-term and long-term credit within the United States and the increase in the cost of imports to the United States due to dollar depreciation. We import much more than we export and the dollar costs of those imports including large amounts of oil will rise, especially if China allows a significant rise in the value of its currency relative to the dollar.
Devaluation of the dollar may have unfortunate repercussions as foreign governments may find themselves under pressure to fight appreciation of their currencies relative to the dollar or otherwise protect their domestic industries. Massive increases in assets on the Fed balance sheet from QE2 on top of those already incurred are also likely to make it impossible for the dovish Fed to unwind its monetary ease as much as necessary when future inflation jumps above Fed target ranges. If inflation takes off, it might well lead Obama to install wage and price controls with all the misallocation of resources and inefficiencies that would follow and we would be pushing further down the road towards a centrally controlled economy, a prospect which would no doubt be pleasing to Obama….
(written on October 15, 2010)
Thursday, June 18, 2009
Our Immigration Policies Are Hurting Our Poor
Who are the American winners and losers from our immigration policies that are leading to legal and illegal immigration that is predominately low skilled and little educated? The primary winners are middle and upper income citizens who employ immigrants at low wages – company owners and small employers who have a need for low cost labor, and individuals who employ immigrants directly for purposes such as maids, nannies, and gardeners. The primary losers are our own little-educated citizens who must compete with the immigrants for jobs. In this competition it is they who suffer reduced job availability and lower compensation. Moreover, the benefits of our various social safety net and education programs for our own lower-income citizens are diluted by the addition of large numbers of poor immigrants and their children. In sum, we are making great efforts and spending large amounts of money to eliminate poverty in this country and at the same time we are importing much more poverty which makes it more difficult for our existing low income citizens to improve their lot. Our related goal of improving the distribution of income in this country is likewise set back.
Our immigration policies for both legal and illegal immigration discourage the most accomplished and educated who have good alternatives to living in the United States. Currently only about 8 percent of persons granted U.S. permanent residence visas each year receive them on the basis of education or skill level. The prospect of long years on immigration wait lists discourages many potential legal immigrants who are highly educated and skilled and who are generally reluctant to immigrate here illegally and work at the kinds of jobs most available to illegal immigrants.
Federal Government actions – border enforcement and a handful of workplace raids – are having almost no effect on illegal immigration. With no penalty for attempting an unauthorized crossing, prospective immigrants try as many times as necessary, often with the aid of professional smugglers. An estimated 30 to 50 percent of our illegal immigrants do not even illegally cross our border. They enter the United States legally on visas from all over the world for such purposes as tourism or visiting relatives. After arriving in the United States, they overstay the time limits on their visas, find employment, and establish themselves as residents of our country. The advantages of living in the United States, our known lack of enforcement of immigration laws, and the prospects of eventual citizenship plus automatic citizenship for any children born in the United States have resulted in a long-term upward trend in our illegal immigration numbers.
Many of our past illegal immigrants have gained citizenship through a series of amnesties beginning in 1986 and by other means such as marriage to a citizen. After changes in 1965, our legal immigration system has emphasized preferences for close relatives of citizens. Since it is the recently legalized citizens who have by far the largest number of close relatives living outside the United States, the typical characteristics of our legal immigrants are now mirroring that of our illegal immigrants – low skilled and little educated. Moreover, the annual amount of permitted legal immigration, including the admission of refugees and asylum seekers who also tend to be poor and unskilled, has been trending up over time and is now running about twice the level it had been prior to the 1990s.
It is a myth that our new immigrants are only taking jobs that Americans won’t do. Prior to the large scale immigration of recent years, it was American citizens who made hotel beds, cleaned office buildings, washed restaurant dishes, labored at construction sites, and provided maid and yard labor for homeowners. As time has passed many immigrants have learned to speak English enabling them to find new low-wage work opportunities such as serving as retail clerks. Americans with little education and students seeking part-time or summer work are having increasing difficulty competing with immigrants for low level jobs. Our immigrants will work harder under worse working conditions and for lower compensation than Americans because the immigrants find the income to be much better than what they could earn in their home countries if they could find employment there at all. In the absence of low wage immigrants, American employers would be forced to pay more in order to obtain needed employees and our low income citizens would thereby be better off.
It would be good public policy for the Obama administration to do all it can to reduce future legal and illegal immigration by the unskilled and little educated. Such reductions constitute one of the best ways to help our own disadvantaged citizens improve their lives. This is all the more important in times like the present when a serious recession has reduced the availability of all jobs.
Our immigration policies for both legal and illegal immigration discourage the most accomplished and educated who have good alternatives to living in the United States. Currently only about 8 percent of persons granted U.S. permanent residence visas each year receive them on the basis of education or skill level. The prospect of long years on immigration wait lists discourages many potential legal immigrants who are highly educated and skilled and who are generally reluctant to immigrate here illegally and work at the kinds of jobs most available to illegal immigrants.
Federal Government actions – border enforcement and a handful of workplace raids – are having almost no effect on illegal immigration. With no penalty for attempting an unauthorized crossing, prospective immigrants try as many times as necessary, often with the aid of professional smugglers. An estimated 30 to 50 percent of our illegal immigrants do not even illegally cross our border. They enter the United States legally on visas from all over the world for such purposes as tourism or visiting relatives. After arriving in the United States, they overstay the time limits on their visas, find employment, and establish themselves as residents of our country. The advantages of living in the United States, our known lack of enforcement of immigration laws, and the prospects of eventual citizenship plus automatic citizenship for any children born in the United States have resulted in a long-term upward trend in our illegal immigration numbers.
Many of our past illegal immigrants have gained citizenship through a series of amnesties beginning in 1986 and by other means such as marriage to a citizen. After changes in 1965, our legal immigration system has emphasized preferences for close relatives of citizens. Since it is the recently legalized citizens who have by far the largest number of close relatives living outside the United States, the typical characteristics of our legal immigrants are now mirroring that of our illegal immigrants – low skilled and little educated. Moreover, the annual amount of permitted legal immigration, including the admission of refugees and asylum seekers who also tend to be poor and unskilled, has been trending up over time and is now running about twice the level it had been prior to the 1990s.
It is a myth that our new immigrants are only taking jobs that Americans won’t do. Prior to the large scale immigration of recent years, it was American citizens who made hotel beds, cleaned office buildings, washed restaurant dishes, labored at construction sites, and provided maid and yard labor for homeowners. As time has passed many immigrants have learned to speak English enabling them to find new low-wage work opportunities such as serving as retail clerks. Americans with little education and students seeking part-time or summer work are having increasing difficulty competing with immigrants for low level jobs. Our immigrants will work harder under worse working conditions and for lower compensation than Americans because the immigrants find the income to be much better than what they could earn in their home countries if they could find employment there at all. In the absence of low wage immigrants, American employers would be forced to pay more in order to obtain needed employees and our low income citizens would thereby be better off.
It would be good public policy for the Obama administration to do all it can to reduce future legal and illegal immigration by the unskilled and little educated. Such reductions constitute one of the best ways to help our own disadvantaged citizens improve their lives. This is all the more important in times like the present when a serious recession has reduced the availability of all jobs.
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