Confucius Analect of the Day, July 29, 2011

“If a man does not give thought to problems which are still distant, he will be worried by them when they come nearer.”  (James R. Ware, Chapter XV, Verse12)

Congress and the White House (except President Clinton) disregarding the consequences of spending, deficits, and debt.

Would China Please Crash Already!

For the past several years, every day brings new warnings of the coming China crash.  The pessimists include business and finance analysts, journalists, expat professors and visiting economic experts, world economic institutions, and Western China specialists.  The pessimists steadily grow in numbers.  Only a handful dare deny the coming crash, exposing themselves to exclusion and ridicule.

The pessimists’ reasons for the coming crash include property bubble, inflation, overvalued currency, dependence on exports, widening rich-poor gap, urban-rural gap, rote learning in schools, counterfeiting, ill-defined rule of law and property rights, faulty social policies, one-party dictatorship, religious repression, and others.

China’s refusal to crash is harming the self-esteem of the China pessimists.  This must stop! 

Thomas Jefferson Opposed Public Debt

Thomas Jefferson, in a letter written to John Taylor in 1798, urged the avoidance of public debt.

"I wish it were possible to obtain a single amendment to our Constitution.  I would be willing to depend on that alone for the reduction of the administration of our government to the general principles of the constitution:  I mean an additional article taking from the Federal Government the power of borrowing."

Confucius Analect of the Week, July 22, 2011

"Great Man is dignified but not proud,  Petty Man is proud but not dignified."  (James R. Ware, Chapter XIII, Verse 26)

Fill in the names of your proud, but not dignified, local, state, and federal politicians.

Lying to Congress is a Crime

Why is lying to Congress a crime when Members of Congress lying to American citizens is just politics? 

Spending Limit–Balanced Budget Amendment

A spending limit-balanced budget amendment is not an impossible pipe dream.

The Basic Law (mini-constitution) of the Hong Kong Special Administrative Region (HKSAR) and that of Macao provides for a spending limit balanced budget.  The text appears in Chapter V, Article 107.

“The Hong Kong Special Administrative Region shall follow the principle of keeping expenditure within the limits of revenues in drawing up its budget, and strive to achieve a fiscal balance, avoid deficits, and keep the budget commensurate with the growth rate of its gross domestic product.”

Article 108 requires that the HKSAR shall enact tax legislation “taking the low tax policy previously pursued in Hong Kong as reference,...” 

The proprietor of Thoughtful Ideas wrote several articles on the Spending Limit–Balanced Budget Amendment three decades ago.  These include:

Chapter 4,”Tax and Spending Limits,” The United States in the 1980s.  1980

In this essay, TI proposed an amendment to balance the federal budget and limit federal spending similar in spirit to the current House Republican "cut, cap, and balance" plan.

“A Compelling Case for a Constitutional Amendment to Balance the Budget and Limit Taxes 1982

Including a flat tax in the amendment would greatly enhance the proposal.  Call it a spending limit-flat tax-balanced budget amendment.

Let’s Raise the Debt Limit...

So we can dig ourselves deeper in debt
So we can continue to fight Hillary’s war in Libya
So we can stay in Iraq and Afghanistan
So we can borrow more money from China (and deter them from selling U.S. debt)

With a higher debt limit we can maintain China’s confidence in U.S. debt while...

We complain about China’s cyberspace attacks on America
We complain about China’s military buildup
We complain about China’s record on human rights
We complain about Chinese counterfeiting of U.S. products
We complain about China’s overvalued currency and other unfair practices
We complain about China having leverage over U.S. policy because it holds so much U.S. debt

Can you understand the logic of this arrangement?

Confucius Analect of the Week, July 15, 2011

“This is certainly the limit!  I have yet to meet a man who, on observing his own faults, blamed himself!”  (James R. Ware, Chapter V, Verse 27)

Do you suppose Confucius foresaw American and European politicians, their economic advisers, and government-appointed regulators trying to escape blame for their roles in the financial crisis of 2007-09, the Great Recession, and risks of sovereign default?

Academic Accreditation is Flawed

Academic accreditation in tertiary education amounts to the industry setting its own standards and then judging producers of higher education against those standards.  Perhaps this is appropriate when universities hire graduates of other universities as new faculty.

This model–the industry judging itself–is a poor way to determine the value of higher education.  Graduates, many saddled with large debts, in the humanities, the soft social sciences (excluding economics), education, and law face increasing difficulty finding good-paying jobs.  The educational standards universities set for themselves, by which they are in turn judged, too often fail to meet the requirements of potential employers.

Why not replace academic accrediting agencies with new accreditation bodies of consumers of higher education, namely, councils of potential employers?  Market-based accreditation would provide students, tuition-paying parents, and taxpayers supporting public institutions with real-cost benefit analysis of the value of degrees awarded by tertiary institutions.

New Young Thinking Ousts Old Old Thinking

On July 9, 2011, The Washington Post published an article by Laura Keeley entitled “Boston venture capitalists don’t want to let another big one get away.”

It’s about Boston VCs having turned down Mark Zuckerberg’s request for funds.  Off he went to Palo Alto, got funding, and built Facebook, estimated to be worth about $80 billion.  Boston VCs accounted for 11% of U.S. venture capital investments in 2010, down from 15% in 2003.  In contrast, Silicon Valley’s share has risen from 34% to 39% over the same period.

Why did they miss Facebook?  It’s about age, a generational issue.  The average angel investor in Boston is about 55 years old.  In California the average is 32.  Said MIT lecturer Howard Anderson, “To understand things like Facebook, you have to be 19 to 24 years old.  If you’re 56, you don’t quite get it.”

This is how traditional print publishing and media missed the digital (and self-publishing) revolution.  It’s why traditional universities will gradually lose out to much, much cheaper digital learning.  It’s how young Obama used the internet to defeat Hillary Clinton’s old-time political strategy.    And on and on and on.

Confucius Analect of the Week, July 9, 2011

The Master wanted Ch’i-tiao K’ai to take office, but he replied, “I do not yet command sufficient confidence for that.”  And the Master was pleased.  (James R. Ware, Chapter V, Verse 6)

Wouldn’t it be nice to see a bit more humility among our political candidates?  Perhaps some experience other than a couple of uneventful years in political office and mouthing political shibboleths?

End or Cap the Mortgage Interest Deduction

Republicans should applaud eliminating or capping the mortgage interest deduction.

Why?

Expensive homes bought by upper-income households, who get the largest benefit of the mortgage interest deduction, are largely in Democrat blue states, such as California, New York, and Connecticut.  Lower- and middle-income households in Republican red states typically take the standard deduction instead of itemizing.

Can Bernanke Learn from Japan and Greenspan?

On May 27, 2000, a Member of the Policy Board, Bank of Japan, Eiko Shinotsuka, spoke on the subject “Japan’s Economy and the Role of the Bank of Japan.”  His main focus was the lost decade of the 1990s.

In his view, two factors were critical: (1) the bursting of the land and stock market bubbles, and (2) a structural problem.

Euphoria and loss of self-control, coupled with the Bank of Japan providing easy money for a long time, resulted in unfounded bullish expectations.  Capital invested in assets at the peak was devalued when the bubble burst (luxury resort hotels on remote islands).  The resulting fall in asset prices impaired the asset quality of both borrowers and lenders.

The structural problem was a decline in the average productivity of capital.  Wage growth exceeded labor productivity growth during the bubble, squeezing profits.  The structural problem exacerbated the impact of the bursting of the bubble.

Going forward, his recommendation was that the Bank of Japan needs to pay attention to rising asset prices, to be prepared to conduct pre-emptive monetary policy to prevent another bubble, and increase its awareness of this risk scenario.  Easy money for too long is playing with fire.

Will Bernanke learn from Japan and Greenspan?

Happy Birthday America

Confucius Analect of the Week, July 1, 2011

“Extravagance leads to disobedience; parsimony leads to miserliness.  Of the two I prefer miserliness.”  (James R. Ware, Chapter VII, Verse 36)

Do you suppose Confucius was trying to warn us about the  European and American debt crises?