Category Archives: economy

Sermon on the Mount: The New Currency

Posted on June 24, 2012 by | Leave a comment

By Daniel Downs

In the last post on Jesus’ Sermon given from Mount Gerezim, the discussion about its relevance for today was continued. The topic was spiritual food. For those on the journey to the heavenly city, spiritual food is more important than the natural kind. You know the saying: you are what you eat! Those on the journey know they will not get there without still being alive unto God.

For the spiritually poor, consuming and living God’s word is a matter of utter survival. More crucial than society’s socialist welfare program is God’s welfare plan for our lives. It too is a cradle to beyond the grave plan encompassing our material and spiritual needs and rights. The really good part is that God promises to coach us through the challenges and celebrate our successes. Because God is a good provider, the poor do not remain needy.

Maybe that is why Jesus directed his sermon to those who would be blessed of God. (See the links below to the previous four posts.)

In his next sermon point, Jesus’ focus on the divine economy turns to currency. Currency is something of specified value used in the trade of goods and services. In a barter economy, people trade their stuff for other people’s stuff. As in our modern economy, the ancients used money for buying and selling desired goods and services. As you can see, giving and receiving is part of the divine design for humans in this world. What we often overlook is the other type of currency we are expected to use in God’s economy, which is summarized in the following verse:

“Blessed are the merciful, for they shall receive mercy.”(Matthew 5:7)

All previous parts of Jesus’ sermon focused on a state of being as it relates to God and to a lesser degree to others. Here the emphasis is on a dynamic of giving and receiving.

In the previous four posts, Jesus taught that acknowledging one’s spiritual poverty leads to acquiring personal property in God’s kingdom. This was followed with the assurance that when in the state of mourning for one’s failures God would be there to comfort and to restore. The benefit of sorrow and repentance is the development of a right attitude about oneself. The name for the realization of one’s log-size flaws is called humility. Gentleness towards others is the desired outcome. It is realizing that others deserve as much understanding and compassion as oneself. The practice of this divine virtue is equivalent to a mortgage for earthly property, which property God promises to give. Of course, sowing righteousness or justice produces a harvest of satisfaction. The motivation to do so comes in the state of being hungry for it. This kind of hunger is a combined result of the poverty and guilt, a poverty of right relationships because of sin, pride, arrogance, self-righteousness, and the like.

What is amazing about knowing God is the fact that it is a relationship based on God’s demonstrated mercy, compassion, and loving-kindness. The evidence of our experienced relationship with God is a character formed in the His likeness, that is God being merciful, compassionate, and kind. This also we find in Luke’s version of Jesus sermon:

“Be merciful, just as your Father is merciful.” (Luke 6:36)

Here the adjective “merciful” describes more than a “state of being” it is a way of acting towards others. To be merciful is to show mercy as God has demonstrated it to oneself.

According to the perspective of Matthew’s gospel, the degree to which our lives exemplify God’s mercy is the degree to which we are perfect as our heavenly Father is perfect (Matthew 5:48).

The Bible is full of examples of mercy. The model of God’s mercy is the Exodus, which was the eventful emancipation of the Jews from poverty and misery of slavery in Pharaoh’s Egypt, and its capstone is the redemption of the Gentiles from bondage to the evils of sin. The dessert of divine justice for human crime (sin) against the law of God was completely satisfied by the sacrificed life of Jesus. This is the supreme example of God’s mercy mediated through one sinless man, Jesus.

Yet, Jesus demonstrated the kind of mercy God expects the blessed citizens of His kingdom to give. The gospels show Jesus healing the sick, comforting the bereaved, and even feeding the hungry. He was kind towards lepers, prostitutes, and IRS agents of his day. He sought to bring them into the righteousness of God’s kingdom through compassion rather than condemnation. Like the good Samaritan (Luke 10:25-36), Jesus went out of his way to bind up the wounded and to facilitate their restoration to physical and spiritual health. The Spirit by which he accomplished it then is the same God who is accomplishing it today.

When Jesus was instructing his audience about the currency of mercy, he may have had in mind more than the biblical canon. He may have had in view some popular extra-canonical texts as well. Consider the following teaching in the Testament of Zebulun:

“And now, my children, I bid you to keep the commands of the Lord, and to show mercy to your neighbors, and to have compassion towards all, not towards men only, but also towards beasts. For all this thing’s sake the Lord blessed me, and when all my brethren were sick, I escaped without sickness, for the Lord knows the purposes of each. Have, therefore, compassion in your hearts, my children, because even as a man doeth to his neighbor, even so also will the Lord do to him. For the sons of my brethren were sickening and were dying on account of Joseph, because they showed no mercy in their hearts; but my sons were preserved without sickness, as ye know. And when I was in the land of Canaan, by the sea-coast, I made a catch of fish for Jacob my father. (5:1-5).

“I was the first to make a boat to sail upon the sea, for the Lord gave me understanding and wisdom therein. And I let down a rudder behind it, and I stretched a sail upon another upright piece of wood in the midst. And I sailed therein along the shores, catching fish for the house of my father until we came to Egypt. And through compassion I shared my catch with every stranger. And if a man were a stranger, or sick, or aged, I boiled the fish, and dressed them well, and offered them to all men, as every man had need, grieving with and having compassion upon them. Wherefore also the Lord satisfied me with abundance of fish when catching fish; for he that shares with his neighbor receives manifold more from the Lord. For five years I caught fish and gave thereof to every man whom I saw, and sufficed for all the house of my father. And in the summer I caught fish, and in the winter I kept sheep with my brethren. (6:1-8)

“I saw a man in distress through nakedness in winter-time, and had compassion upon him, and stole away a garment secretly from my father’s house, and gave it to him who was in distress. Do [the same], my children; from that which God bestows upon you, show compassion and mercy without hesitation to all men, and give to every man with a good heart. And if ye have not the wherewithal to give to him that needs, have compassion for him in bowels of mercy…. Because also in the last days God will send His compassion on the earth, and wherever He finds bowels of mercy He dwells in him. For in the degree in which a man hath compassion upon his neighbors, in the same degree hath the Lord also upon him.” (7:1-4; 8:13).

Another interesting statement is found in an ancient Hebrew work by the title Sirach. There are some significant variations in a number of translations, but the following is one version of the statement:

“He that practices kindness offers fine flour, and he that doeth mercy sacrifices a thank-offering.” (35:2)

This statement seems reminiscent of biblical texts like “I desired mercy and not sacrifice; and the knowledge of God more than burnt offerings” (Hosea 6:6) or possibly “To do righteousness and justice is desired by the LORD more than sacrifice.” (Proverbs 21:3)

What is certain is that any one person in Jesus’ audience would have recalled one of those statements when Jesus later utters the following quote, “Go learn what this means: ‘I desire compassion and not sacrifice’.” (Matthew. 9:13 & 12:7)

The second part of Jesus’ sermon point under consideration may be put this way: Blessed are those who gain in what they trade. Because they give mercy they also receive mercy. They also receive many other benefits. According to Zebulun, God threw in a health plan and a food distributorship.

More important, God regards giving mercy as an act of spiritual sacrifice, a sacrifice of loyalty and thanksgiving.

It is God himself first gives humanity the currency of mercy, compassion, and loving-kindness. God invests mercy in us so that we can trade it with others. Being a good Father and capitalist, He expects a return on His investment. He also expects us to go and do likewise (Luke 10:37).

Previous Sermon on the Mount posts:

Sermon on the Mount: Any Relevance Today,
From Weeping to Laughing,
Property Rights.
Sermon on the Mount: Spiritual Food

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Demystifying “Transaction Costs” When Reforming Public Pensions

Posted on June 22, 2012 by | Leave a comment

By Greg Lawson

Meaningful public pension reform requires a transition from existing defined-­?benefit (DB) pension systems to defined-­?contribution (DC) or hybrid (a combina-­?mandated accounting changes resulting from closing a DB plan that then end up as frontloaded costs have often been used as an argument against reform. But Ohio lawmakers should not view transition costs as an insurmountable impediment to comprehensive pension reform. As has been seen in other states, transition costs can be mitigated through smart reforms that correctly interpret several standards set by the Government Accounting Standards Board (GASB). The dominant belief until now has been that GASB accounting standards dictate that essentially, this would mean that more taxpayer money is needed upfront in order to the practice used by open DB plans which amortize liabilities more gradually over time. Frontloaded costs due to level dollar amortization can total billions of dollars above baseline spending in the short run; thus, reform can appear costly at a time of already strained state finances.

Chart 1 : Level Dollar vs. Level Percentage Accounting

Source: Laura and John Arnold Foundation

Chart 1 is an illustration of the difference between level dollar (closed DB plan) and level percentage accounting (open DB plan). While both practices amortize identical amounts of liabilities, level dollar practices frontload these payments, creating transitioncosts.

But as new research from the Laura and John Arnold Foundation shows, the supposedly mandated switch from level percentage to level dollar amortization is incorrect. While pension system actuaries claim that closing out a DB plan mandates accelerated costs, GASB Statements 25 and 27 do not mandate a change in funding policy, only a change in financial reporting. A number of reform minded states have made this distinction and have found success in aggressively reforming their pension plans without encountering the burden of high transition costs.

Rhode Island and Utah

In November 2011, Rhode Island converted its DB retirement systems into a DB/DC hybrid. Despite the reduction of the DB plan, GASB accounting standards did not trigger level dollar amortization. Basically, transition costs do not apply. Unfunded liabilities continue to be amortized on a gradual, level percentage basis.

This holds promise for states looking to accomplish similar reforms. Even though a DB plan may be dramatically reduced, keeping a remnant of the plan open allows for a continued usage of level percentage accounting practices.

To close the remaining unfunded liability of the existing DB system, amortization payments are calculated
according to total employee payroll (all members in both the existing DB plan and the newly created hybrid), not just the remaining employees in the DB plan. Utah implemented this strategy in its hybrid reform
package of 2010 and has experienced no accelerated amortization payments.

Full Defined Contribution Plans

While Rhode Island and Utah have shown that transition costs can be avoided through hybrid plans, it is still possible to alleviate transition costs in full DC systems.

This again is made possible by applying amortization payments to all employees participating in the existing DB plan and the new DC plan.

Just as is the case with hybrid systems, GASB provisions do not dictate state funding policy, only financial
disclosure requirements. In the case of DC plans, liability amortization of a closed defined benefit pension
plan must be reported on a level dollar scale to follow GASB reporting requirements, but liabilities can be
funded independently of GASB recommendations. The less frontloaded level percentage amortization schedule can still be utilized as long as all employees are included in calculating the amortization cost.

The entire question of defined benefit pension amortization should be resolved shortly as GASB is scheduled to eliminate provisions of Statements 25 and 27. GASB never was intended to dictate state funding policy and it is now preparing to remove itself from that arena.

Pension reform is a separate issue from liability amortization. Therefore, changes in one do not necessitate variances in the other. The falsely assumed barrier of level dollar accounting practices for closed DB plans has spawned the myth of transition costs and has only served as an impediment for true pension reform for over a decade. When reform is structured correctly with amortization based on total payroll, states can pay down their remaining liabilities at a fiscally sustainable rate and still address their long-­?term fiscal
challenges with defined-­?contribution solutions.

Greg R. Lawson is the Statehouse Liaison and Policy Analyst with the Buckeye Institute where his policy brief was first published.

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Big Lies, Big Economic Problems and Polticians

Posted on June 19, 2012 by | Leave a comment

The big title reflects a recent artcile by one of America’s the big economists, Thomas Sowell. In his commentary, Sowell delinates the problems engendered by the continual lies offered by officials seeking election to those who want to believe them. According to Sowell, “[w]hen the people want the impossible, only liars can satisfy them, and only in the short run.”

Sowells offers a number of examples to prove his point. They include the problems of social security, medicare, printing money, and taxing the rich, which he claims has never worked. It never works because the rich invest their money in ways the Obamite-type politicians cannot touch.

Is my opinion that Sowell’s best argument is about welfare.

“Among the biggest lies of the welfare states on both sides of the Atlantic is the notion that the government can supply the people with things they want but cannot afford. Since the government gets its resources from the people, if the people as a whole cannot afford something, neither can the government.”

To me, this sums up all the other examples presented by Sowell. But, don’t take my word on it, read Sowell’s article yourself. You may find it was worth reading.

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What Do the Wisconsin Governor Recall Results Mean for Ohio?

Posted on June 11, 2012 by | Leave a comment

By Kevin Holtsberry

This is a question a lot of people are asking themselves in light of Wisconsin Governor Scott Walker’s strong victory in the recall election Tuesday night. I offered some thoughts and reactions for ABC 6/Fox 28 here in Columbus yesterday (you can watch the video here).

I think one easy takeaway is that the basics still matter. Fundraising, voter turnout systems, a highly motivated base and a favorable calendar all still matter. Governor Walker raised a lot of money, motivated his supporters and ran a disciplined and effective campaign that won the turnout battle. He also had the added benefit of running on his record a year after the legislation passed and against a specific opponent.

But I also think the recall sends the message that public sector unions are not invincible. No matter how you slice it a loss, is a loss, is a loss. When Governor Walker embarked on the fundamental reforms needed to get control of Wisconsin’s budget and plan for a sustainable future he ran smack into the implacable opposition of public sector unions and their allies. They immediately set about to overturn this necessary reform by removing Walker from office. Many assumed they would be successful.

But what Tuesday’s results showed is that this opposition can be weathered and ultimately defeated. Walker stood his ground, built a large coalition and network of support, and used that foundation to run a focused and strategic campaign that communicated what was at stake to persuadable citizens.

This is a lesson worth remembering. Nothing is inevitable.

Which is good news because, despite the lingering effects of Issue 2, Ohio’s structural problems are not going to go away. An outdated, industrial, big government economic model has led to stagnation and growth deficits.

  • A lack of worker freedom is still a drag on Ohio’s economy and has been sending jobs and citizens to the South and West for decades, in fact we lost 614,000 private sector jobs from 2000-2010, more than any other state in the country except Michigan;
  • A public sector compensation system based on tenure and political power rather than talent and success still drives an unsustainable budget process, and poor service delivery, from the local level up to the Statehouse;
  • Gold plated pension benefits, and a system where all the risk is on the taxpayer, have created $70 billion and counting in unfunded liabilities.

    • Ohio must begin to address these issues if it is to be competitive and avoid the crippling crisis griping governments from Illinois to California to Greece and Spain.

    The answer lies in a sustained education, communication and engagement process that helps Ohioans understand why reform is in their best interest and will lead to better lives for their families and businesses; it will mean more jobs, better services and stronger communities. And this effort will require building a broad based coalition from across the state to counter the still-powerful groups that insist on the status quo.

    We at the Buckeye Institute are committed to researching and communicating solutions to these fundamental problems. We are committed to working as part of a larger coalition to build support for reform and to counter the misrepresentation and fear mongering that so often is involved in these types of debates.

    We come to work everyday seeking ways to engage Ohio citizens and policy makers and to communicate the urgent need for reform. The events in Wisconsin prove that success is possible, that bold reform can succeed.

    Nothing is inevitable. We can win. We can increase freedom and opportunity in Ohio.

    It won’t be easy, change never is, but it is what we must do to put Ohio back on the path to growth and prosperity – to build a future for our children and grandchildren.

    —————

    Kevin Holtsberry is President of the Buckeye Institute for Public Policy Solutions

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    Posted in economy, Ohio, politics

    Europe, the Global Economic Outlook and the U.S.

    Posted on June 7, 2012 by | Leave a comment

    By Raymond J. Keating

    In its latest economic outlook published on May 25, the OECD is projecting further economic under-performance in the U.S. and among other developing nations in general.

    The OECD says that the global economy is “gaining momentum,” but that “the recovery is fragile, extremely uneven across different regions.”

    It’s forecasted that the Euro area will barely grow at 0.1% in 2012 and 0.9% in 2013. As for Japan, real GDP is expected to grow by 2% in 2012 and 1.5% in 2013.

    Meanwhile, in the U.S., the OECD forecasts that real GDP will grow at 2.4% in 2012 and 2.6% in 2013.

    It is crucial to remind ourselves that real GDP growth during economic recoveries in U.S. should be growing at better than 4%, and that even counting periods of recession, real annual GDP growth has averaged 3.3 percent post-World War II. So, if the OECD is right, this under-performing recovery is expected to labor on for the foreseeable future.

    Where is the uncertainty in the OECD outlook? It is stated in the report, “Risks around the projection are extensive and predominantly on the downside…”

    And what is the key downside risk? According to OECD Chief Economist Pier Carlo Padoan, “The crisis in the euro zone remains the single biggest downside risk facing the global outlook.”

    In the report’s accompanying statement, it was explained: “In Europe, business and household confidence is weak, financial markets are tight and the adverse impacts of fiscal consolidation on near-term growth may be significant, particularly in countries hardest hit by the euro crisis… Recovery in the healthier economies, while welcome, is not strong enough to offset flat or negative growth elsewhere in Europe… The OECD warns that failure to act today could lead to a worsening of the European crisis and spillovers beyond the euro area, with serious consequences for the global economy.”

    There is no doubt that Europe is a mess; is having negative effects on other economies; and threatens to do further damage to global growth.

    But it’s also critical to acknowledge that European leaders don’t seem all that interested in dealing with the key issue restraining growth and generating debt woes, i.e., the size of government. Among the 27 EU nations, government spending sucked up 49.1 percent of GDP in 2011. That’s a growth strangling level of government. Until the size of government is reined in, Europe will remain, at best, a slow growth economy.

    As for the U.S., the same basic issue is restraining growth. Total (federal, state and local) government spending as a share of GDP hit 36.5 percent in 2009 and 35 percent in 2010. Such levels were never reached in the post-World War II era. And compare those levels to the 28.8 percent level in 2000, and 30.9 percent as recently as 2007.

    Throw into the U.S. mix, increased taxes, more regulation, a lack of leadership on trade and misguided monetary policy, and a deep recession and grossly under-performing recovery are not surprising.

    No reason exists why the U.S. should not be leading the global economy, and taking others along with us to higher levels of growth, that is, other than the fact that all the wrong policy moves have been made for the past four-and-a-half years.

    Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is “Chuck” vs. the Business World: Business Tips on TV.

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    U.S. Economy Undermined by Uncertainty

    Posted on June 4, 2012 by | Leave a comment

    By Gary Palmer

    Kevin Hassett, a senior fellow at the American Enterprise Institute, predicts that uncertainty about taxes and fiscal policy is likely to skyrocket by the end of this year. Hassett says the expiration of several tax cuts will result in significant pessimism about the American economy in the second half of 2012. This includes the tax cuts enacted during the Bush Administration, which are scheduled to expire December 31st.

    From an individual/household perspective, allowing the cuts to expire will result in a tax increase of $494 billion in 2013, an unprecedented increase for one year. The average household tax bill will go up by $3,800 and will impact all income groups with middle- and low-income families hit the hardest. According to Curtis Dubay, a senior policy analyst with The Heritage Foundation, 70 percent of the increase will fall on middle- and low-income families. Dubay said, “That’s because 60 percent of the Bush tax cuts were for middle- and low-income taxpayers.”

    The Washington Post called the looming tax increase “Taxmageddon,” and Federal Reserve Chairman Ben Bernanke described it as a “massive fiscal cliff.” Jim Capretta, a former official with the White House Office of Management and Budget, predicts that the tax increase will result in an economy that is “… about one to two percentage points smaller than it otherwise would have been, and unemployment that’s a full percentage point higher than it otherwise would have been.”

    While there still is time for Congress to take action to prevent this massive tax increase, it is looking increasingly unlikely that it will. With the uncertainty almost $500 billion in new taxes, individuals and businesses are reluctant to make major purchases or investments. Thus, the fear of “Taxmageddon” is already having a negative impact on our economy as families and businesses wait to see what Congress is going to do.

    Members of Congress surely know that uncertainty has a negative effect on the economy. If businesses can’t predict next year’s tax rate, they are unlikely to invest in new equipment or expansion or to hire more workers. Individuals and families are less likely to spend as much for the same reasons.

    Adding to the uncertainty is the explosion of new federal regulations on American businesses. Since January 2009, federal agencies have issued 106 major regulations that cost $46 billion per year. In 2009 and 2010 alone, federal agencies issued 7,076 rules. The Small Business Administration estimates that the regulatory burden on the U.S. economy is now at $1.75 trillion, more than twice the amount of individual income taxes paid by American households.

    Three economists, Scott R. Baker and Nicholas Bloom of Stanford University and Steve Davis of the University of Chicago, produced an index of policy-related economic uncertainty and estimated its relationship to economic activity including investment and employment. This uncertainty index surges around major federal elections; events such as 9/11, the war on terror, the Lehman bankruptcy, and the TARP bailout; and the debt ceiling dispute that foreshadowed declines in private investment, industrial production, and employment. Interestingly, the index also spiked during the debate over the stimulus package.

    Since 2000, policy uncertainty has been higher, on average, than in the previous 15 years. The spikes caused last summer by the contentious battle over raising the debt ceiling and Standard & Poor’s downgrade of the U.S. bond rating created uncertainty that the creators of the index believe helps explain the slower growth of the U.S. economy.

    With the $494 billion tax increase on the horizon, economy-draining new federal regulations forthcoming, another debt limit vote set for the end of this year, and the most consequential election in decades, the uncertainty index will spike again. When the index spikes, the economy will suffer and for good reason … people and businesses don’t risk their money when the government works against their interests.

    Gary Palmer is president of the Alabama Policy Institute, a non-partisan, non-profit research and education organization dedicated to the preservation of free markets, limited government and strong families, which are indispensable to a prosperous society.

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    Posted in economy, politics, taxes

    What Made Leaders of the Past Successful?

    Posted on May 25, 2012 by | Leave a comment

    By Peter Crawford

    The United States is in great need of great leadership. Many former American presidents and leaders implemented active industrial policy geared toward manufacturing at home, and these policies tended to work. There are inspiring examples of U.S. directorship on both sides of the aisle, and they go all the way back to the birth of our country. Since then, the most successful American leaders have made a point to protect American businesses first and foremost.

    During colonial times, British law was to arrest and jail anyone with manufacturing talent who relocated from Great Britain to the colonies. In response to this and several trade practices that impeded our ability to manufacture our own resources, economist and founding father Alexander Hamilton drew up steps to build up our own manufacturing – and begin our own country.

    Decades later, Abraham Lincoln decided against importing steel from England to build a transcontinental railroad. Instead, he decided to encourage development of our own steel plants. He put import restrictions on British steel thereby giving birth to one of the key industrial engines of growth in this country.

    In the darkest days of the Great Depression, Franklin Roosevelt developed a system of import quotas and subsidies for American agriculture. This system remains to this day and that same group of farmers now receives over $180 billion annually worth of subsidies.

    Dwight Eisenhower, in the mid-1950s, applied oil import quotas. John F. Kennedy produced the seven-point Kennedy textile program of restrictions on textile imports in 1961. Ronald Reagan put import quotas on steel, machine tools, semiconductors, and a 50-percent import tariff on motorcycles.

    We have seen plenty of successful leaders devise strategies that protected and strengthened the U.S. economy. They recognized that manufacturing at home empowers a nation and its companies. It is high time another one of these leaders appeared, as our current choices champion free trade agreements and the outsourcing of production and jobs. They are either uninterested or incapable of making such a change, and this is crippling the American people.

    This article was orginally published in Dublin, Ohio web publication Economy in Crisis on May 24, 2012.

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    Government-Supervised Financial Sector May Lose Value

    Posted on May 22, 2012 by | Leave a comment

    By Cameron Smith

    JPMorgan Chase recently disclosed a $2 billion trading loss associated with its principal risk management unit. For a bank with a capital base of almost $200 billion, a loss of $2 billion is more of a grand annoyance than a “systemic risk,” but the political rhetoric has been explosive. Despite the reality that taxpayer-backed deposits were not actually at risk, droves of politicians from the left are clamoring that JPMorgan’s loss is ample evidence that more government regulation is necessary while the political right is wavering on its commitment to repeal Dodd-Frank.

    But, is federal control truly a better alternative? Greed, incompetence, and all sorts of other negative monikers could be applied to the American financial services industry at times. The same President, politicians, and bureaucrats who have shepherded almost $16 trillion in federal debt are gearing up the immense regulatory authority under Dodd-Frank to put the screws to banks concerning fiscally responsible behavior.

    Dodd-Frank’s crown jewel is the Financial Stability Oversight Council. The council has ten voting members, nine of whom are federal government employees. Dodd-Frank tasks the council with “identifying risks to the financial stability of the United States”, promoting “market discipline, by eliminating expectations on the part of shareholders, creditors, and counterparties of such companies that the Government will shield them from losses in the event of failure,” and “responding to emerging threats to the stability of the United States financial system.”

    With such lofty goals of fiscal soundness, some might wonder if the council might do well to supervise the financial activities of the federal government. The ugly truth is that the council’s members already do! The council’s members include the Secretary of the Treasury, the Chairman of the Federal Reserve, and the Director of the Federal Housing Finance Agency. Considering the federal government’s economic performance record, do Americans really want to give it radical control over the nation’s financial system?

    Evaluating the financial performance of the U.S. government provides a startling comparison to JPMorgan’s recent activities. JPMorgan’s one-time loss accounted for about one percent of its capital base. Unlike those “sloppy” investment decisions, virtually every irresponsible financial decision made by the federal government is borne by U.S. taxpayers.

    Since President Obama took office, the federal government has averaged annual deficits of $1.3 trillion. During this period, the “losses” for which the American taxpayers are responsible come in the form of generational indebtedness. This annual borrowing to fund reckless spending accounts for over sixty percent of average annual federal revenues.

    Basically, the U.S. government would have been shuttered several times over if not for the capacity to borrow without meaningful limitation and millions of “depositors” who are compelled to contribute through taxes.

    Financial regulation that informs the marketplace, improves consumer knowledge of investment risk, and streamlines the dissolution of failed entities may be prudent, but the controlling powers afforded under Dodd-Frank could quite literally result in the government control and supervision of America’s largest financial institutions.

    Americans currently have numerous choices where they invest their hard-earned dollars. When one Wall Street bank proves irresponsible, several more are willing to take their business. But giving systemic control of all these options to those running the biggest “too-big-to-fail” entity in the world does not bode well for America’s financial future.

    Cameron Smith is General Counsel and Policy Director for the Alabama Policy Institute, a non-partisan, non-profit research and education organization dedicated to the preservation of free markets, limited government and strong families, which are indispensable to a prosperous society.

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    The Crony System That Makes Israelis Poorer

    Posted on May 8, 2012 by | Leave a comment

    By Daniel Doron

    Last summer’s peaceful mass demonstrations in Israel protested economic hardships resulting from excessive government interference in the economy.

    The protests were ignited by Izhak Elrov, a young religious father who started a Facebook page calling for the boycott of one consumer item, cottage cheese, which was selling in Israel for double what it cost abroad. Mr. Elrov protested that price-gouging by Israeli monopolies had inflated the price of most consumer goods and services by 100% to 300% over average European and American prices. One hundred thousand Israelis “liked” his page. Hundreds picketed supermarkets.

    Mr. Elrov’s one-issue boycott eventually was taken over by populist groups demanding cheap housing and free preschool education, then it was seized upon by well-funded leftist political groups pushing an “Occupy Wall Street” anticapitalist agenda and trying to unseat Benjamin Netanyahu’s pro-market government. By summer’s end, the protests had fizzled, with many Israelis disenchanted by these hidden agendas.

    But the core truth of Mr. Elrov’s lament remained. Even before the cottage-cheese boycott, the prime minister had appointed a commission to deal with Israel’s extraordinary concentration of political and economic power. The latter had become the center of public furor after an April 2010 Bank of Israel report affirmed that “some 20 family business groups, structured as pyramids, control some 25% of firms listed for trading, about half of the market share.” The report also noted that a mere handful of business groups received over 60% of Israel’s available credit, which they invested in highly leveraged and speculative real-estate ventures.

    Clearly, such concentration creates great risk for Israeli financial markets. It also denies small and medium-size businesses access to credit, blocking Israel’s engines of growth. Two major regions, the southern Negev and the northern Galilee, with mostly small businesses, have suffered a permanent credit crunch. Living on average monthly salaries of $2,400, according to official figures, and having to pay for most consumer goods and services at prices similar to those in New York City, most Israeli families have difficulty making ends meet.

    Unfortunately, political necessity dictated that the commission Mr. Netanyahu charged to investigate these problems was composed partly of regulators who had failed in the past to tackle excessive concentration. One result is that its final recommendations, released last month, did not call for banning all pyramid-structured holding companies. The commission called for a separation of ownership between financial and nonfinancial firms. But it fixed too high a threshold—an annual turnover of $1.6 billion dollars—for the separation. Still, even these limited recommendations could improve Israeli credit allocation and competitiveness.

    Following last summer’s protests, Mr. Netanyahu appointed another commission, this one to deal with issues of preschool education, cheaper housing and lower consumer prices. As a result, “free” elementary school education was extended to children ages 3 to 6.

    Mr. Netanyahu’s government recently appointed a legal group to draft legislation based on the recommendations of “the anti-concentration” commission. But that group is composed mostly of the same regulators who are halfhearted about reform. And if the recommendations get to legislators, they will face a tough battle in the parliament, where the tycoons and their powerful lobbyists will fight them.

    Strong vested interests blocking progress are not unique to Israel. Everywhere, powerful elites manage to erect entry barriers that cut competition, reduce efficiency and lower productivity. Generally impoverished Islamic countries are extreme examples of the ravages caused by such entrenched elites.

    Mr. Netanyahu, Israel’s first prime minister to understand economics, realized that economic viability is essential to Israel’s survival and initiated bold reforms. He faces resistance from his bureaucracy and some coalition partners serving the tycoons and their lobbyists. Despite this and great challenges such as Iran and the prospect of new elections, Mr. Netanyahu could still convene a special session of parliament before the fall elections and pass the reforms he deems essential.

    Mr. Doron is founder-director of The Israel Center for Social & Economic Progress (ICSEP), a public policy think tank, and a fellow of the Middle East Forum. His article was originally published in the Wall Street Journal on May 3, 2012.

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    Back Door Approach To Bail Out Funding

    Posted on May 8, 2012 by | Leave a comment

    By Daniel Downs

    Not long ago, the big news was Obama’s bailout of General Motors. In 2011, US Treasury reported that GM had paid back most of the large loan. However, the Treasury also notified the public that the federal government had become a permanent shareholder. The percent stock holdings amounted to something like 30 percent. Obviously, Uncle Obama and company wanted taxpayer-funded bailout to accumulate a long-term return on the investment.

    It appears Obama is getting his way with the wealth. We could call it the back door method of taxing corporate profits.

    Another interesting development recently reported by General Motors was the substantial increase of GM autos being sold to China markets. GM reported an 11.7% increase in sales in April and 9.4% for the first quarter in 2012. Total first quarter unit sales was 972,369. That’s nearly one million news vehicles cruising down Chinese pavement. If the trend continues, the federal government should see an increase of about 10-15% in revenues from GM net profits.

    That is how our new schools should have always been funded. It would be a win-win for local taxpayers. Funding empire through back door taxation of corporate profits may only benefit the select few, most of whom are like Obama have a million plus portfolio of wealth.

    Nevertheless, Chinese consumption is still underwriting a significant portion our government’s imperial spending spree.

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