Will 2013 Mark the Beginning of American Decline?

Sooner or later, it will be America’s turn to fall out of favor with investors and to see its own interest rates rise

By Simon Johnson 

“A modest man,” Winston Churchill supposedly quipped about Clement Attlee, his successor as prime minister, “but then he has so much to be modest about.” We should say the same about economists, particularly their ability to forecast anything in a useful and timely manner.

Those predicting an imminent American economic decline have usually been no exception. This time, though, they may be on to something.

Prevailing arguments about when the era of U.S. dominance would end, and which country would supplant it, have been wildly and consistently wrong for half a century. In the 1950s, Soviet leader Nikita Khrushchev was taken seriously when he told Western ambassadors “We will bury you.” Today, his country no longer exists. In the 1980s, Japan was supposedly going to be No. 1; now the question is whether the precipitous decline in its working-age population will generate a fiscal crisis.

The Germans -- or Europeans more broadly -- were thought to be on the brink of elbowing aside the U.S. several times, including in the run-up to the global financial crisis in 2008, when the euro seemed to threaten the dollar’s role as the pre- eminent reserve currency. Remember when Brazilian model Gisele Bundchen was quoted as saying she preferred to be paid in euros? Now the euro-area economy looks very sick indeed, and Ms. Bundchen is apparently long American icons (she married football player Tom Brady).

“Trench Warfare” And “Civil War” Over Confiscatory Taxes In France

The Great Escape

By Wolf Richter   

“We’re engaging in trench warfare,” proclaimed Alain Afflelou, head honcho and founder of an eyewear company with 1,200 stores in France and other countries. One of the wealthiest men in France. He was talking about the tax fiasco that split France in two. He was done with his country. He’s moving to London. One of France’s so-called fiscal exiles.

He’d set up his international headquarters in Switzerland, rather than France, 15 years ago to minimize his company’s tax burden, but now he’d personally bail out.

The clamor had started in September when it leaked out that Bernard Arnault, richest man in France and CEO of luxury-goods empires LVMH and Groupe Arnault, was applying for Belgian citizenship. In response, Economy Minister Pierre Moscovici threatened to renegotiate the tax treaties with Belgium, Luxembourg, and Switzerland. A few days ago, reports surfaced in the Belgian media that mailbox companies—a dozen at the Brussels apartment of a Groupe Arnault director alone—have allowed Arnault’s empire to escape several hundred million euros in taxes.

Belgium got cold feet. On Saturday before Christmas when nothing was supposed to happen, Anti-Fraud Secretary of State John Crombez requested that Finance Minister Steven Vanackere transfer Arnault’s tax file to the tax authorities in France, an idea the minister did not immediately reject.

Now Arnault got cold feet. LVMH and Groupe Arnault defended themselves the best they could, claiming that these mailbox companies had “economically perfectly real activities in Belgium where some of them have been implanted for decades.” Indeed, they were “surprised” by the allegations.

But no one stirred up the heat in France like iconic actor Gérard Depardieu who, turns out, set up his domicile in Néchin, a village just across the border in Belgium—as the mayor confirmed, “to escape French taxation.”

Final straw for President Hollande. Now he too threatened to renegotiate the tax treaty “to deal with cases of those who settle in some Belgian village.” He lashed out against the “fiscal dumping” that some countries in the EU were practicing. Prime Minister Jean-Marc Ayrault chimed in; Depardieu’s exile was “pretty pathetic.”

Depardieu was not amused. In an open letter, he renounced his French citizenship, broadsided the Prime Minister and the President, and shocked the nation: all taxes combined ate up 85% of his income.

Not true, explained eyewear mega-retailer Alain Afflelou during the interview. “Those who are in the 75% income-tax bracket may go well beyond 90% taxation.” He listed layers of additional taxes, small percentages here and there that added up. “We therefore have in France a confiscatory taxation that can deprive us of all of our income from work.”

The Sleeper Must Awaken

The awful truth is that WE are responsible

 “Above the comforts of Base Camp, the expedition in fact became an almost Calvinistic undertaking. The ratio of misery to pleasure was greater by an order of magnitude than any mountain I'd been on; I quickly came to understand that climbing Everest was primarily about enduring pain. And in subjecting ourselves to week after week of toil, tedium and suffering, it struck me that most of us were probably seeking above all else, something like a state of grace.”     - Jon Krakhauer, Into Thin Air

By Mark J. Grant
I am not sure the country is seeking a state of grace but we are surely seeking something of a much higher order than we are getting. Congress adjourns, the President spends twenty million dollars of our money flying off to vacation in Hawaii and we peer over the edge of a monetary cliff of our own making because we have elected people that have all of the leadership skills of some Grinch that is stealing our Christmas because we let him. Ultimately it is us you know, “We the People,” and perhaps it is our two party system of government that has failed us because we put people in power who know how to run for election and re-election but who somehow have no idea how to govern the nation. It is pathos, absurdity and frankly a tragedy that we face a financial calamity, and it is just that, and our elected leaders head off on vacation.

"Well, thus we play the fools with the time, and the spirits of the wise sit in the clouds and mock us."

                                                  -William Shakespeare, Henry

It may not be fiddling while Rome is burning but it isn’t that far off that course. In the end, I suspect, we will pass the deadlines and find ourselves in trouble. I say this because to date all we are discussing is who to tax and we have not made one serious effort to confront the social programs that have elected people but which the country cannot afford. It is not that complicated at its core; we cannot afford the entitlements that we have legislated and so the nation must, like any household, man up to what we can and cannot afford and get on with it. No use pretending that we are as rich as we once were and so we must first cut-back and then get down to the serious business of how we can increase our revenues. Households, corporations or governments; the fundamental issues apply and while different themes may apply for the fix; America’s economic condition must be fixed.

"The majority is never right. Never, I tell you! That's one of these lies in society that no free and intelligent man can help rebelling against. Who are the people that make up the biggest proportion of the population -- the intelligent ones or the fools? I think we can agree it's the fools, no matter where you go in this world, it's the fools that form the overwhelming majority."

                                        -Henrik Ibsen, An Enemy of the People

Bill of Rights, R.I.P?

Where are we today, 221 years after the Bill of Rights was made the law of the land ?

by Karen Kwiatkowski

We are standing here not far from the place where the first ten amendments – the Bill of Rights – were made the law of the land. These amendments were a great victory for the Anti-Federalists – that indispensable group of founding fathers that included Thomas Jefferson, and George Mason, Patrick Henry and Samuel Adams, James Monroe and George Clinton, and many more.

It is fitting that we celebrate here today what they accomplished here 221 years ago – especially given that every prediction of the Anti-Federalists seem to have come true, and not in a good way.

But before we speak of that, let’s take a moment to remind ourselves of what happened back then. In 1776, the former colonies had united in a war of independence from England and the British crown. By 1787, these united States had won that war. It was not a quick or easy war, but it was a war that was just and right. We know it was just and right, because as Americans, we are familiar with the reasons for the war, as recorded by Thomas Jefferson in the Declaration of Independence.

Jefferson described the Declaration as, "an expression of the American mind." And what a rebellious and powerful and inspiring expression it was!

The generations that claimed independence from the King of England and his empire did so because they understood that all men are created equal, and that all men – all human beings – have rights that are inalienable and intrinsic and timeless, rights granted by the Creator. Chief among these rights are life, liberty, and the pursuit of happiness.

The Declaration goes on to explain why we have government at all. It’s a simple reason. Governments are instituted among men, by men, and derive power from the consent of the governed for one reason: To secure these God-given natural rights.

Let me repeat – government exists only to secure our rights to life, liberty, and pursuit of happiness.

There is a debate as to what "pursuit of happiness" means.

Bernanke Loosens Up

If money printing can create prosperity then why are all the poor nations still poor?

by Frank Shostak

On Wednesday December 12, 2012 Fed policy makers announced that they will boost their main stimulus tool by adding $45 billion of monthly Treasury purchases to an existing program to buy $40 billion of mortgage debt a month.

This decision is likely to boost the Fed’s balance sheet from the present $2.86 trillion to $4 trillion by the end of next year. Policy makers also announced that an almost zero interest rate policy will stay intact as long as the unemployment rate is above 6.5% and the rate of inflation doesn’t exceed the 2.5% figure.

Most commentators are of the view that Fed Chairman Ben Bernanke and his colleagues are absolutely committed to averting the mistakes of the Japanese in 1990’s and the US central bank during the Great Depression. On this Bernanke said that,

A return to broad based prosperity will require sustained improvement in the job market, which in turn requires stronger economic growth.

Furthermore he added that,

The Fed plans to maintain accommodation as long as needed to promote a stronger economic recovery in the context of price of stability.

But why should another expansion of the Fed’s balance sheet i.e. more money pumping, revive the economy? What is the logic behind this way of thinking?

Bernanke is of the view that monetary pumping, whilst price inflation remains subdued, is going to strengthen purchasing power in the hands of individuals.

Consequently, this will give a boost to consumer spending and via the famous Keynesian multiplier the rest of the economy will follow suit.

Bernanke, however, confuses here the means of exchange i.e. money, with the means of payments which are goods and services.

In a market economy every individual exchanges what he has produced for money (the medium of exchange) and then exchanges money for other goods. This means that he funds the purchase of other goods by means of goods he has produced.

Paraphrasing Jean Baptiste Say Mises argued that,

Commodities, says Say, are ultimately paid for not by money, but by other commodities. Money is merely the commonly used medium of exchange; it plays only an intermediary role. What the seller wants ultimately to receive in exchange for the commodities sold is other commodities. [1]

Printing more money is not going to bring prosperity i.e. more goods and services. Money as such produces nothing,

According to Rothbard,

Money, per se, cannot be consumed and cannot be used directly as a producers' good in the productive process. Money per se is therefore unproductive; it is dead stock and produces nothing.[2].

Contrary to popular thinking there is no need for more money to keep the economy going. On this Mises argued,

The services which money renders can be neither improved nor repaired by changing the supply of money. … The quantity of money available in the whole economy is always sufficient to secure for everybody all that money does and can do.[3]

Santa Keynes and the Hayekian Grinch

Keynesian policies have retarded recovery and extended the downturn, just as they did in the 1930s and the 1970s

by Peter Foster

Keynesianism has extended ­downturn, despite recent praise

We are now approaching the fourth Christmas of the great debate between the benign supporters of Santa Keynes and the walnut-hearted acolytes of the Hayekian Grinch. Or at least that’s how Keynesians seem to see it.

Prominent statist fans of John Maynard Keynes such as Nobel laureates Paul Krugman and George Stiglitz, and Keynes’ biographer Lord Robert Skidelsky, tend to be moralists who castigate their opponents as flinty-eyed masochists rather than level-headed students of immutable laws. Their indignant question is “Would you have us do nothing?” The response from supporters of Friedrich Hayek and his “Austrian” free-market economics is: “Yes, since what you are doing is making things worse. Moreover, it’s your policies that cause crises in the first place.”

Keynesians don’t just fail to grasp Austrian economics — which emphasizes that diverting tax dollars or government borrowing to Santa’s workshop to produce what people don’t want (such as holes in the ground, pyramids or windmills) will have painful long-term consequences — they condemn it on the basis that Austrians rejoice in suffering.

Then again, who doesn’t want to believe in Santa? (Naughty or nice doesn’t come into it. Just get those elves working). And who could support the mean green character who wanted to drain all the fun from Whoville?

The latest champion of Keynes as both economically benign and more “moral” is Peter Berezin, the managing editor of the Bank Credit Analyst. In the December edition, Mr. Berezin produces a long piece, Hayek vs. Keynes: Weighing the Evidence, in which he suggests that Keynes is winning the battle hands down.

The claim is moot, to say the least.

Keynesianism is essentially a refutation of the Invisible Hand-driven natural order identified by Adam Smith. Smith would have spotted Keynes as a “man of system” who mistook the economy for a machine and economic actors for chess pieces. The Austrians are Smith’s politically unpopular heirs.

Regurgitating murky history, Mr. Berezin writes “The apparent success of Roosevelt’s New Deal policies, and the fact that massive government spending on the war effort did end the Depression, seemed to validate the views of Keynes.”

Seemed indeed.

The Case of Barbara Boxer

Scratch a 'Liberal,' Find a Fascist

by William Norman Grigg

Democratic Senator Barbara Boxer of California, a bottomless fountain of foolishness, has proposed a measure that would permit governors to deploy National Guard troops to provide "security" at government-run schools. 

"Is it not part of the national defense to make sure that your children are safe?" Boxer asked during a Capitol Hill press conference in the misguided belief that this content-free trope somehow constituted compelling wisdom. 

She blithely stated that her proposal wouldn’t be a violation of the Posse Comitatus Act (which was supposed to prevent the domestic use of the military for the purpose of law enforcement) because it would allow governors to re-purpose troops who are already being used for drug interdiction operations. That is to say, the militarization of schools wouldn’t constitute a new Posse Comitatus violation, but rather expand on an existing one. 

Boxer’s proposal to militarize the schools could have been taken directly from "The Origins of the American Military Coup of 2012," a terrifyingly prescient essay published twenty years ago in Parameters, the journal of the U.S. Army War College by military historian Charles J. Dunlap. This glimpse of a dystopian future takes the form of a long letter written by an officer awaiting execution as a traitor to the junta that has seized control over the United States in the wake of military disasters abroad and socio-economic turmoil at home.

"It wasn't any single cause that led us to this point," writes the condemned patriot to a friend. "It was instead a combination of several different developments, the beginnings of which were evident in 1992." Rather than de-mobilizing at the end of the Cold War, the ruling establishment expanded the military’s mission overseas and made it an even more pervasive presence at home.

A Hundred Percent of Nothing

Τhe focus on political power doesn't do much for ordinary blacks

by Walter E. Williams

JoAnn Watson, Detroit city council member, said, "Our people in an overwhelming way supported the re-election of this president, and there ought to be a quid pro quo." In other words, President Obama should send the nearly bankrupted city of Detroit millions in taxpayer bailout money. But there's a painful lesson to be learned from decades of political hustling and counsel by intellectuals and urban experts.

In 1960, Detroit's population was 1.6 million. Blacks were 29 percent, and whites were 70 percent. Today, Detroit's population has fallen precipitously to 707,000, of which blacks are 84 percent and whites 8 percent. Much of the city's decline began with the election of Coleman Young, Detroit's first black mayor and mayor for five terms, who engaged in political favoritism to blacks and tax policies against higher income mostly white people. Young's successors, Dennis Archer and Kwame Kilpatrick, followed his Third World tyrant policies, but neither had his verbal vulgarity. Kilpatrick (2002-2008) went to jail and is on trial today on charges of corruption. Mayor David Bing is making an effort to revive Detroit. His problem is that he's not God.

Policies that ran whites and other more affluent people out of Detroit might have been Young's and his successors' strategy. After all, why not get rid of people who aren't going to vote for you anyway? The problem is that getting rid of these people left Detroit with a lower tax base, fewer jobs and fewer consumers. Fewer whites might be good for the careers of black politicians, but it's not in the best interests of ordinary blacks. Blacks have political control of Detroit, but the relevant question is whether some control of something is better than 100 percent control of nothing. By most measures, Detroit is one of the nation's most tragic cities, and it's mostly self-imposed.

Vain search for meaning in massacre

The infanticidal maniac of Sandy Hook was merely conscripting grade-school extras for a hollow, hyper-narcissistic act of public suicide

By Mark Steyn

"Lullay, Thou little tiny Child

By by, lully, lullay..."

The 16th-century Coventry Carol, a mother's lament for her lost son, is the only song of the season about the other children of Christmas – the first-born of Bethlehem, slaughtered on Herod's orders after the Magi brought him the not-so-glad tidings that an infant of that city would grow up to be King of the Jews. As Matthew tells it, even in a story of miraculous birth, in the midst of life is death. The Massacre of the Innocents loomed large over the Christian imagination: in Rubens' two renderings, he fills the canvas with spear-wielding killers, wailing mothers and dead babies, a snapshot, one assumes, of the vaster, bloodier body count beyond the frame. Then a century ago the Catholic Encyclopedia started digging into the numbers. The estimated population of Bethlehem at that time was around a thousand, which would put the toll of first-born sons under the age of 2 murdered by King Herod at approximately 20 – or about the same number of dead children as one school shooting on a December morning in Connecticut. "Every man a king," promised Huey Long. And, if it doesn't quite work out like that, well, every man his own Herod.

Had my child been among the dead of Dec. 14, I don't know that I would ever again trust the contours of the world. The years go by, and you're sitting in a coffee shop with a neighbor, and out of the corner of your eye a guy walks in who looks a little goofy and is maybe muttering to himself: Is he just a harmless oddball – or the prelude to horror? The bedrock of life has been shattered, and ever after you're walking on a wobbling carpet with nothing underneath. For a parent to bury a child offends against the natural order – at least in an age that has conquered childhood mortality. For a parent to bury a child at Christmas taints the day forever, and mocks its meaning.

A Nation of Singles

US Birth Rate Hits New Low 

by Gary D. Halbert

One of the issues I have been focused on for the last several years has been the trend in demographics in the US and in developed countries in general. Our populations are getting older – we all know that. But the reasons why our populations are getting older are not widely understood by many Americans. Those reasons include the falling birth rate, the falling fertility rate, the falling marriage rate and the explosion in singles – people who never marry.

The US birth rate fell to a record low in 2011. The marriage rate is tumbling as well. And the number of single Americans is now at a record high. The implications of these developments are troubling, not only for the economy, but also for the investment markets and the continual expansion of the federal government.  Government debt has spiraled out of control in recent years, and the demographics suggest that this trend will continue as we care for an aging population.

Today, we will look at some new information on demographic trends in the US and in the West in general that should concern you – and all Americans for that matter. This will be a continuing theme in my E-Letters in the months and years ahead. Let’s get started.

US Birth Rate Falls to Record Low in 2011

The US birth rate plunged to a record low in recent years, with the decline being led by immigrant women hit hard by the recession, this according to a study released in late November by the Pew Research Center. A falling birth rate has major implications for the economy and our aging population, as I will discuss today.

The overall US birth rate decreased by 8% between 2007 and 2010, with a much bigger drop of 14% among foreign-born immigrant women. The overall birth rate is now at its lowest level since reliable records have been kept, falling to 63.2 births per 1,000 women who are of childbearing age in 2011. That is down from 122.7 births at the peak in 1957 during the Baby Boom.

The Party's Just Beginning

Karl Marx has left the London library and is now residing in Washington D.C.

 “For thousands more years the mighty ships tore across the empty wastes of space and finally dived screaming on to the first planet they came across--which happened to be the Earth -- where due to a terrible miscalculation of scale the entire battle fleet was accidently swallowed by a small dog.”    - Douglas Adams, The Hitchhiker's Guide to the Galaxy

By Mark Grant

Still here. We are still here. It is true that we have many hours to go before today crosses across all of the time zones and becomes tomorrow and, in any event, the Chateau Petrus will not have been in vain. I am holding classes in deduction now in Nassau on my boat. Other boat owners have dropped by and are all inquiring about the fiscal cliff. “The plunge is at hand,” I tell them as Congress adjourns, the rank and file Republicans turn on the House Speaker and the Lords of Chaos are in charge once again. All of the stuff and nonsense about taxing the wealthy and gibberish about who and when and where to tax is like so much marshmallow spread on a peanut butter sandwich; it just doesn’t matter. The galling omission of not concentrating on what is truly important, the cost of entitlements and social programs and what the nation can and cannot afford shows the true worth of our nation’s leaders which is about equal to a wooden nickel or a three dollar bill. It is the Lost Boys living in Never-Never Land and Wendy nowhere in sight.

“In the first place God made idiots. He did this for practice. Then he made politicians. This was a mistake. Then he tried to correct His mistake by having the people elect the politicians of their own choosing. He then realized that he had made idiots twice and he pondered his miscalculation for seven days. Next he made dogs and finally being satisfied that he had done something correctly he went off on holiday. One day he may come back and finish the exercise.”     -The Wizard

The Auto Bailout Failure Is Now Complete

The Treasury Department has just revised its estimate upward to $25 billion in losses

By David Harsanyi 

You may recall that during the presidential election, the Treasury Department refused requests by General Motors to unload the government's stake in the giant automaker.

Taxpayers had sunk $50 billion into a union bailout in 2009 and were now proud owners of 26.5 percent of the struggling company. Reportedly, GM had growing concerns that the stigma of "Government Motors" was hurting sales in the United States. At the time, any transaction would have come at a steep loss to taxpayers and undermined the president's questionable campaign assertions that the auto union rescue had been a huge success.

Well, now that the election is over and the Treasury Department is freed of political considerations, it plans to sell its 500 million shares of stock over the next 12 to 15 months and ease its way out of the company. GM will buy around 200 million shares at $27.50 per share by the end of the year. GM's buy brings taxpayers back to around $5.5 billion of the $27 billion the company still owes. The special inspector general for TARP estimated in October that the Treasury would need to sell the remaining 500 million shares at $53.98 per share just to break even on its investment.

Spending Other People's Money Part 5

Highest-Paid California Trooper Is Chief Banking $484,000

By Alison Vekshin, Elise Young and Rodney Yap 

California Highway Patrol division chief Jeff Talbott retired last year as the best-paid officer in the 12 most-populous U.S. states, collecting $483,581 in salary, pension and other compensation.

Talbott, 53, received $280,259 for accrued leave and vacation time and took a new job running the public-safety department at a private university in Southern California. He also began collecting an annual pension of $174,888 from the state.

Union-negotiated benefits, coupled with overtime that can exceed regular pay and lax enforcement of limits on accumulating unused vacation, allow some troopers to double their annual earnings and retire as young as age 50. The payments they get are unmatched by those elsewhere, according to data compiled by Bloomberg on 1.4 million employees of the 12 states. Some, like Talbott, go on to second careers.

“I think some of our rules were negligent, and I think people were allowed to build up overtime pay who shouldn’t have been, who accumulated leave time and furlough time,” said Marty Morgenstern, a member of Governor Jerry Brown’s cabinet and secretary of the California Labor & Workforce Development Agency, which oversees labor relations, employment and unemployment.

‘Absolutely Inappropriate’

“Those kind of payments are absolutely inappropriate and we’re doing everything we can to see that does not recur,” Morgenstern said.

Spending Other People's Money Part 4

Texas Pension Manager Paid $1 Million Trails Peers Who Make Less

By Mark Niquette and Martin Z. Braun 

Britt Harris arrived at the Teacher Retirement System of Texas in 2006 from the world’s biggest hedge fund with a mandate to improve the pension’s performance. He also brought a Wall Street attitude about pay.

Harris, the Texas fund’s chief investment officer, made $1 million last year in salary and bonuses, the most of any public pension employee in the 12 most populous U.S. states, according to data compiled by Bloomberg. Four other employees made at least $500,000, and the fund paid $9.7 million in bonuses in 2011, more than any in those states.

Funds where executives made far less posted better investment results than those produced by Harris and his staff over three and five years. They included, respectively, the Ohio Police & Fire Pension Fund, where the top-paid executive last year was William J. Estabrook, at $231,614, and the New Jersey Division of Investment, where director Timothy Walsh made $185,000 plus $7,500 for moving expenses, data show.

“These guys may claim to be worth their weight in gold,” said Edward Siedle, a former U.S. Securities and Exchange Commission attorney and president of Benchmark Financial Services of Ocean Ridge, Florida. “They absolutely can’t justify it.”

Falling Behind

While Harris says public pension compensation must be competitive with the private sector to attract top talent, the Texas fund -- seventh-largest in the U.S. with $112.4 billion in assets -- is falling further behind in long-term obligations to more than 1.3 million education employees and retired teachers, including Harris’s mother. The pay-and-performance disparities at public pension funds are among the findings of a data review in which Bloomberg compiled payroll records for 1.4 million employees of the 12 largest states.

Of the highest-paid pension executives in those states last year, all but two worked at the Texas fund or the State Teachers Retirement System of Ohio, data show. Yet the Texas fund’s 2.12 percent return over five years as of June 30, 2012, net of fees, was less than five other state pensions, including the New Jersey pension plan, which returned 2.46 percent. The Texas fund’s three-year results of 13.17 percent trailed Ohio Police & Fire, which returned 13.25 percent.

Spending Other People's Money Part 3

Gee Takes Jets as $1.9 Million Payday Roils Ohio Students

By Jennifer Oldham and Rodney Yap

The Ohio State University President E. Gordon Gee lives in a 9,630-square-foot Tudor Revival mansion that was renovated for him, featuring a great hall, pool, elevator and tennis court.

Gee made $1.9 million last year as the highest-paid public university president in the U.S. He also logged $1.7 million in expenses in fiscal 2011, including trips in private jets, country club dues and fundraising parties at his residence.

“He’s overpaid,” said CJ Jones, 19, a junior public affairs major at Ohio State, whose tuition has risen 9.7 percent during her 2 1/2 years at the university, based in Columbus, the state capital. “You should want that job for a sense of Buckeye pride. Why do you have to suck so many resources from our budget? I know kids graduating from OSU with $90,000 in debt, and it’s a public university.”

Gee was among 47 administrators, athletic officials and hospital faculty who earned more than $1 million in 2011, according to payroll records compiled by Bloomberg for about 216,000 employees at flagship universities in the 12 most populous states. Much of the compensation came from non-public sources. Gee’s expenses and home renovations weren’t funded with taxpayer dollars, and his performance justifies his compensation, said Gayle Saunders, a university spokeswoman.

Salaries for the highest-paid public university employees from California to Virginia rose as state appropriations per student fell to the lowest in a quarter century, faculty pay stagnated and the default rate on student loans hit a 15-year high. Record expenses for higher education are prompting lawmakers to scrutinize how the institutions spend their money.

Pay ‘Mythology’

“There’s a mythology promulgated by people in administration that you have to pay competitive salaries to attract the best people,” saidBenjamin Ginsberg, political science professor at Baltimore-based Johns Hopkins University and author of a book detailing how universities are adding administrators even as state funding drops. “In point of fact, no one can show there is any relationship between what these people are paid and the quality of the work they do.”

Spending Other People's Money Part 2

California Psychiatrists Paid $400,000 Shows Bidding War

By Freeman Klopott, Rodney Yap and Terrence Dopp

Mohammad Safi, a graduate of a medical school in Afghanistan, began working as a psychiatrist at a California mental hospital in 2006, making $90,682 in his first six months. Last year, he took home $822,302, all of it paid by taxpayers.

Safi benefited from what amounted to a bidding war after a federal court forced the state to improve inmate care. The prisons raised pay to lure psychiatrists, the mental health department followed suit to keep employees, and costs soared. Last year, 16 California psychiatrists, including Safi, made more than $400,000, while only one did in the other 11 most populous states, according to data compiled by Bloomberg.

The jockeying between agencies for the same doctors demonstrates a payroll system run amok and chronic mismanagement, said Jeffrey Sonnenfeld, senior associate dean at the Yale University School of Management and founder of a training institute for chief executive officers.

“Even though this all took place in California, such apparent recklessness is almost too over the top for Hollywood,” Sonnenfeld said. “These irresponsible public officials have artificially constrained the market with an unnaturally limited supply pool, either due to laziness, incompetence, corruption or all of the above.”

17-Hour Days

Safi’s compensation was almost five times as much as Governor Jerry Brown’s last year. The psychiatrist was paid for an average of almost 17 hours each day, including on-call time, Saturdays and Sundays, although he did take time off, said David O’Brien, a spokesman for the Department of State Hospitals, formerly the Department of Mental Health. Safi is under investigation by the department, and he was placed on administrative leave July 12, O’Brien said in an e-mailed statement.

“I made so much because I work a lot,” Safi said in a brief interview at his Newark, California, home.

Spending Other People's Money Part 1

Californian’s $609,000 Check Shows True Retirement Cost

By Michael B. Marois and Rodney Yap 

When psychiatrist Gertrudis Agcaoili retired last year from a state mental hospital in Napa, California, she took with her a $608,821 check for unused leave banked in a career that spanned three decades.

She wasn’t alone. More than 111,000 people who left jobs as employees of the 12 most populous U.S. states collected $711 million last year for unused vacation and other paid time off, according to payroll data on 1.4 million public workers compiled by Bloomberg.

California employees accounted for 39 percent of that total. Since 2005, the state’s workers collected $1.4 billion for accumulated leave, calculated at their last pay rate, regardless of when the time was accrued. New Jersey Governor Chris Christie calls such payments “boat checks” because they can be large enough to buy yachts.

“The people making decisions are clearly letting this happen,” said Steven Frates, research director of Pepperdine University’s Davenport Institute on public policy, based in Malibu, California. “It starts with the governor and the legislature and wanders down the line. These people are playing with the taxpayers’ money.”

The lump-sum retirement payments, seldom granted in private industry, mirror a broader trend in which California’s public employees receive far more than comparable workers elsewhere in almost all job and wage categories, from public safety to health care, base salary to overtime. California, the world’s ninth- biggest economy, has set a pattern for lax management, inefficient operations and out-of-control costs, the Bloomberg data show.

Routine Accumulation

Managers and employees throughout California government routinely ignore a rule limiting accrued time off to 640 hours, or 16 weeks. The accumulation of vacation hours accelerated in California from 2005 through 2010, fueled by a state policy forcing workers to take unpaid time off, or furloughs, before using paid leave.

The Upside of the Fiscal Cliff

Facing reality is positive

By Charles Smith

That's the upside to the fiscal cliff.

There are two definite upsides to the fiscal cliff:

1. We are finally starting a national discussion of spending-taxation trade-offs

2. We are at last starting to (grudgingly) accept there is no free lunch, what I call the Free Lunch Fantasy of limitless borrowing at near-zero interest rates: taxes for upper-income wage-earners will revert to previous levels while those drawing Federal dollars must accept reductions in spending.

The last decade's fantasy that we could borrow our way to prosperity while lowering taxes on upper-income earners (because it's so cheap to borrow trillions at near-zero interest rates) is finally running into reality-based resistance: interest on all that debt is starting to squeeze the spending everyone wants, and long-term rates might rise despite the Federal Reserve's constant intervention.

That would eventually raise interest costs paid by the Federal government.

How can interest rates rise if the Fed is buying much of the Federal Debt?

The first part of the answer is to accept the fiscal consequences of the Baby Boom entering Social Security and Medicare at the rate of 10,000 retirees a day: Federal spending will rise far faster than tax revenues, dwarfing the relatively minor spending cuts being discussed.

Falling Towards Entropy

Stubborn Balkans Myths and Realities

by Nebojsa Malic

“The more things change, the more they stay the same,” wrote a French columnist back in 1849 – but the witticism applies just as well in 2012. Recall, for example, that Barack Obama became Emperor in 2008 by promising Hope and Change, only to embrace continuity instead. His challenger this year campaigned against Obama’s domestic policies, but on matters foreign he was strangely in sync with the incumbent.

Obama’s easy re-election has, predictably, been termed a mandate to continue the present policies – including, no doubt, the “humanitarian” interventions and social engineering (called “nation-building” when done abroad). The trouble with Empire, however, is that it’s not only bleeding the U.S. dry, but that it manifestly doesn’t work.

Consider, as Gordon Bardos did earlier this week, the situation in the Balkans. Twenty-odd years of Imperial meddling later, and the region has come back to where it was in the early 1990s – though some roles may have been reshuffled in the process:

“…some of the most well-funded international efforts in nation- and state-building in history have in many ways gotten us right back to where we started from two decades ago. Perhaps even further back.”

Ramush Returns

Take, for example, the ICTY, an ad hoc “tribunal” allegedly established – under dubious circumstances – to foster reconciliation by prosecuting those responsible for wartime atrocities. It has manifestly done nothing of the sort, instead serving as a tool of the Empire to eliminate inconvenient politicians, bolster favorites, and rewrite the region’s history, both recent and distant.