One of the amazing aspects of the American experience has been the ability to reconstruct our society over multiple generations by incorporating immigrants who do not share the religious, cultural or ethnic makeup of those already here. This great “melting pot” has turned settlers from all over the world into citizens even as they have changed what it means to be an American. The majority of children in our public schools are already racial minorities, and over the next couple of generations, as the chart below shows, our entire population will be majority minority.

In the not so distant past, overt racial, gender and religious discrimination were the norm in America. Comprehensive reforms in the 1960s such as the Civil Rights Act , the Voting Rights Act, the Equal Employment Opportunity Commission, and Affirmative Action Programs were enacted to reduce racial discrimination and increase diversity in our society. Fifty years later the fact of a black President and black Attorney General presents strong support for the assertion that we have come a long way towards reducing discrimination against racial minorities in housing, education, the workplace and politics. The progress was painful, hard earned and took too long. But today virtually every organization in America, be it private, public or non-profit, has minorities at virtually all levels, even if they may be underrepresented in the C-Suites. Although far from eradicated, discrimination now is mostly covert. Perhaps this is because interracial social interaction was rare 50 years ago and is peaceful, easy and routine today. Based on demographics alone, our collective progress is likely to continue for years to come, obviating the need for aggressive new policies to increase diversity.

Disparate Impact

The Senate is considering President Obama’s nominee for Secretary of Labor, Thomas Perez. He faced tough questioning by Republican senators, but will likely be confirmed. Mr. Perez is currently serving as Assistant Attorney General for the Civil Rights Division of the United States Department of Justice. He has been actively involved in promoting the continued use of Disparate Impact (DI) to determine if discrimination has occurred. DI states that the government and private litigants can rely on statistics and other measures to show that policies have a disparate impact on minorities, even if they lack proof of intentional discrimination.

Mr. Perez has attracted Congressional scrutiny for his involvement in an ethically questionable quid pro quo with the city of St. Paul in which he agreed to have the Justice Department drop a False Claims Act suit potentially worth $200 million to taxpayers in exchange for having St. Paul withdraw a case challenging DI before the Supreme Court. Mr. Perez may be a sincere crusader for the oppressed, but his sharp elbows in sustaining DI bespeak a desire to achieve a result by any means necessary. Although DI has been primarily applied to housing by HUD,  applying this theory in other realms would result in unintended and bizarre consequences.

“If a business, agency or school has standards for hiring, promoting, admissions or offering a mortgage that aren’t being met by individuals in some racial and ethnic groups, there are three things that can be done. First, the standards can be relaxed for those groups. That is what racial preferences do. Second, the government can attack the standards themselves. That is what the disparate-impact approach to enforcement does. Third, one can examine why a disproportionate number of individuals in some groups aren’t meeting the standards—such as failing public schools or being born out of wedlock—and do something about it. …Disparate impact makes illegal what any rational person would not define as discrimination. And by forcing a change in neutral standards for hiring, renting and the like in order to count outcomes by race, it actually causes discrimination.” Roger Clegg, WSJ 2/25/13

In 2003, the Supreme Court (Grutter v. Bollinger) permitted educational institutions to consider race as a factor when admitting students, but ruled that quotas are unconstitutional. Since then some states (California, Washington & Michigan) have banned affirmative action policies outright. So relaxing standards as a means to continue racial preferences is unlikely in the future. The third option mentioned above to increase racial diversity would require real progress in our schools and other social programs…which brings us back to Disparate Impact.

Fatal flaws in the DI theory can be seen in two policy outcomes that follow from its use. In our national prison population blacks are about three times as likely to be incarcerated as whites as compared to their numbers in America’s total population. Hispanics are about 50% more likely to be in jail than whites. Informed citizens realize that crime occurs by and between racial minorities in disproportionate rates because of a host of constantly shifting social and economic factors, not because blacks and Hispanics are more prone to criminal behavior. If we applied DI without making other structural changes to our society and forced our prison population to reflect the  greater citizenry, would our streets be nearly as safe?

Using DI in education can also lead to dubious outcomes. Blacks are under represented in the NY gifted and talented program outcomes even as Asian minorities are wildly over represented. Since the testing and standards for the test were developed by many people of many races, how could this be? Many cultural factors influence academic and economic success by various ethnicity. The beauty of our system is that the numbers will continue to change over time. Mandating racially representative results would make a mockery of gifted and talented programs which are by definition based on merit.

Why It Matters

Diogenes believes disparate impact is contrary to standards of fairness and equality upon which our society is based. The wonder of America is that our government truly seeks to create equal opportunity for every citizen. Virtually all of us support some concept of a safety net, but our government has never before advocated equal outcomes. Disparate Impact entirely reverses the proposition that we all need to struggle to achieve our places within society. The idea that all organizations should have quotas based on statistical ethnic representation within the greater population enshrines racism rather than merit. That’s just not the American way.

There is huge demand in the world to emigrate to another country. A 2012 Gallup Poll found that 640 million people, about 13% of the world’s adults, would like to leave their country of birth permanently. About 150 million of them list the US as their top choice destination.

The United States has the most welcoming immigration policy in the world in terms of numbers, with about a million people coming here legally every year. About two thirds of these immigrants are being reunited with family members who are already legally here. The balance of those million legal immigrants are split between slightly more of those who were granted legal status for humanitarian reasons (political or religious persecution abroad) and somewhat less of those granted visas on the basis of their employment skills. Most other developed nations have greater percentages of skilled worker immigrants than does the US, because it is almost a canon amongst policymakers worldwide that highly skilled workers will create jobs for others.

US Work Visa Programs

There are several non-immigrant work visas issued to foreigners.  The best known of these are H-1B visas which are strictly limited to employment by the sponsoring employer.  Theoretically, this program provides a safety valve for employers to hire workers with specialized knowledge from around the globe whenever permanent residents or citizens are not available to do such work.

Congressional policy is to award 65,000 H-1B visas to employers each year. If there is heavy demand, an additional 20,000 H-1B visas for those having masters or higher degrees from US academic institutions are made available. This limit on H-1B visas has been in place for more than two decades now. If the US Customs and Immigration Service  (USCIS) receives more visa petitions than it can accept, a lottery system is used to randomly select the number required to reach the limit. This year’s lottery is the second since 2008. In recent years the cap has been reached between 73 and 300 days.

Although the H-1B visa is a non-immigrant visa, it is one of the few visa categories recognized as dual intent, meaning an H-1B holder can have legal immigration intent (apply for and obtain the green card) while still a holder of the visa. In the past, the employment-based green card process took only a few years, less than the duration of the H-1B visa itself. Recently the legal employment-based immigration process has backlogged and retrogressed to the extent that it now takes many years for skilled professional applicants to obtain green cards. Because the duration of the H-1B visa hasn’t changed, this has meant that many more H-1B visa holders must renew their visas in one or three-year increments for continued legal status while their green card application is in process.

Problems With the Program

Even detractors of the H-1B visa program concede that it can fill important roles, including encouraging talented foreigners to permanently relocate to the United States. Critics want to require employers to prove that they’ve tried to recruit Americans before applying for foreign workers, and make sure that H-1B workers get paid as much as Americans do for comparable jobs.

The policy reason we have the H-1B program is that brilliant foreigners increase American competitiveness worldwide. However, most of today’s H-1B workers don’t remain in the US. In February, ComputerWorld reported that the top 10 users of H-1B visas last year were all offshore outsourcing firms such as Tata and Infosys. Together these firms hired nearly half of all H-1B workers, and less than 3 percent of them applied to become permanent residents. “The H-1B worker learns the job and then rotates back to the home country and takes the work with him,” explains Ron Hira, an immigration expert who teaches at the Rochester Institute of Technology. India’s former commerce secretary once dubbed the H-1B the “outsourcing visa.”

Reform Ideas

There is currently much discussion in Congress about immigration reform, mostly to address what to do about the 11 million+ illegal residents already here and to deal with temporary “guest workers”.  Congress should, but probably won’t, use this as an opportunity to deal with the problem of trained and talented people around the world who want to emigrate to the US, but are restricted from doing so by the byzantine rules of our immigration policy. Because they are unable to initially qualify for green card resident visas, many use work visas to get themselves into the country first and only later attempt to qualify for resident status. Hence the unexpected focus on the H-1B visa program.

In January, a bipartisan group of 10 senators introduced the Immigration Innovation Act (aka I-Squared Act) to raise the H-1B visa numbers to 115,000 next year and to 300,000 in later years. It is a great idea to increase the number of talented immigrant visas.  Current law limits the granting of these visas to no more than 7% of the skilled immigrant total from any one country, thereby increasing the wait times by years for those from high population countries such as India and China. But if the current program has been hijacked by outsourcing firms to train replacement workers, why would we possibly want expand the numbers of a flawed current program which would increase the harm to America?

Some from both sides of the aisle have long called on USCIS to “staple a green card to the diploma of every STEM graduate”. This isn’t a bad idea, but there are already 1.8 million American engineering graduates that are either unemployed or not working in engineering, so it’s not as if there are any shortages of BS degree holders. And around 2/3 of foreign PhD STEM graduates remain here five years after school, so it would appear that opportunities to stay already exist for them.

Diogenes believes that the best and most easily implemented reform would be to change the H-1B program to award visas to individuals around the world (via a lottery of all qualified applicants) rather than to companies. Lottery winners could have six months to get here, and would have to obtain employment within six months of their arrival. Job changes should be readily permitted to keep companies from paying legal foreign workers less than Americans. Awarding H-1B visas to individuals instead of employers would also disincentivize offshore sourcing firms from taking advantage of our immigration policies as they harm our economy, because those workers would no longer be so easily coerced to return to their home countries if they could easily change employers and remain here. Those who applied for these visas would have self selected to be aggressive, trained and talented additions to the American workforce.

In Part 1 Diogenes discussed in economic terms what it means to be poor in America and reviewed federal programs for those in need. After 50 years of effort and spending at a rate of about $600 billion/year, more Americans are poor than when the programs began. An old adage states that “insanity is repeating the same mistakes and expecting different results.” Here we will look at a policy alternative to current approaches.

The primary reason for the failure of governmental poverty programs is an “agency problem.” The antipoverty bureaucracy has itself often become an impediment to those who would try to climb out of poverty because of disincentives for working. We have agencies that try to insure that those receiving aid it use it for “correct” purposes (milk, not beer).  Such attempts always fail because nobody spends somebody else’s money as carefully as their own. And then there is the cost of the agency. For example, the food stamps program (SNAP) has program costs of about 12%.

Add in waste and poor management, and today America cumulatively spends more on poverty programs than it would cost to raise the income of every American above the poverty level. Even assuming NO income for the 46.2 million Americans in poverty, and multiplying by the $11,170 per capita that is the level below which per capita poverty is defined, would cost about $514 billion. The costs would be considerably less if we gave this aid on a household income basis.

The only enduring cure for poverty is increasing production of goods and services which result in greater demand for labor, because ultimately jobs are needed to pull people out of poverty no matter how good government antipoverty programs are. In other words, free markets are the ultimate antipoverty programs.

What We Should Do

Diogenes believes that America should implement a Guaranteed Minimum Income (GMI). Also known as a Negative Income Tax (NIT), a GMI would provide baseline support to which all would be entitled. Diogenes would define this as the federally defined household income poverty level of $23,050 for a family of four, plus $1. Adjustments up or down would be made for additional children and for each state’s cost of living.  The GMI would be implemented through the tax code utilizing IRS infrastructure.

The GMI is not a new idea. Milton Friedman advocated for a NIT in the early 1960s. Legislation was first proposed during the Nixon administration, and had support from both liberals and conservatives along with a long list of recipients of Nobel Prizes in Economics and other economists, but ultimately did not pass Congress.

Almost all other antipoverty programs should be phased out in order to pay for the GMI. The GMI would be far more efficient than welfare, food stamps, subsidized housing, unemployment benefits, and the 47 different federal job training programs. The GMI should be progressively phased out at a rate of 50% reduction of benefits per dollar of income, so as to incentivize Americans to find any sort of work at any wage.

The GMI would also necessitate a repeal of minimum wage laws, as all workers would already be guaranteed a base income just above the poverty level. Any work income would incrementally reduce government assistance even as the workers’ household income rose to median levels. Reducing the costs of unskilled labor would encourage business to hire more workers, providing crucial entry level jobs that are priced away with existing minimum wage laws.

At first blush, the move to a GMI might appear to be a radical shift away from the status quo. However, the GMI would be a dramatic expansion of perhaps the single most efficacious federal antipoverty program, the Earned Income Tax Credit (EITC). Congress first implemented the EITC in 1975 to offset the burden of social security taxes for the working poor, in order to provide greater incentive to work. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. According to the IRS, the total cost of the EITC was $61 billion in 2011, and program costs were less than 1%. It helped move 6.6 million Americans, half of them children, out of poverty. In 2013, the maximum credit to a married couple filing jointly with three children is $6,044. The credit phases out as income increases to about the national median income level.

Why This Hasn’t Been Done Before

Diogenes proposes to dramatically expand the single best program we have and replace lots of programs that do not work. The incremental cost would be nothing because the change would redirect current antipoverty funding. And if the program succeeds, it’s cost would decline. So who would disagree? For starters, the entire federal antipoverty bureaucracy who would lose their jobs. Unlike the private sector, government is rarely reorganized when the results yield fewer jobs.

Historically, government antipoverty programs have seemed reluctant to give cash aid to the poor. For example, food stamps have value restricted to consumable products excluding alcohol, as if aid recipients didn’t know how to spend what funds they have. The moral legitimization of the welfare system requires that recipients use aid to support lifestyles that comport in some rough sense with the idea of a good life held by taxpayers who provide the funds. In the minds of many, it’s one thing to provide a safety net, and another to support those who just don’t want to work. The counter argument is that by keeping a GMI at a less than “comfortable” level for able bodied Americans, incentives to work would dramatically increase.

Others might argue that there are other problems with a GMI:

• The incentive to work is reduced, however marginally, by providing any level of guaranteed income.
• If government lowers the minimum guaranteed level below an absolute safety net, we don’t fulfill our societal imperative to provide for all who are unable, for whatever reason, to provide for themselves.
• By having only a gradual phaseout of support as income grows, we invariably will pay (some) benefits to those above the poverty level.
• Whatever the initial level of a GMI, politicians will continue to raise the amount until it eventually bankrupts us. Just look at Social Security, welfare and the Income Tax for examples.

The rebuttal to these arguments is that living at the no work GMI base level is pretty tough in America. No one would want that kind of life if they could reasonably easily augment it. Raising lower than median incomes to the median level (about $51,000 for a family of four), would be an excellent use of American resources. Because of income inequality, this measure is far below the mean income, and we are already spending at the cost of a GMI with far less effective programs. A limit to future spending largesse could be enshrined in the legislation by defining the base income to $1 over the poverty level and by pegging the phaseout of the GMI to an upper limit just below the median income.

A GMI would not be a perfect program, but the perfect is not to be found. It would be a significant improvement over current antipoverty programs and would not cost taxpayers a dime. Isn’t that something virtually everyone wants?

Tennis is a sport where the better player usually, though not always wins. One would think that Adam would beat Charlie when they play. But it is not uncommon for Charlie to beat Adam. Because tennis, like most of life, is not transitive.

What can explain such results? Well, each player is a mix of strengths and weaknesses. One might have a terrific serve, along with poor volley skills. Another has a great forehand which he uses to hide a weak backhand. Winning matches requires a player to determine where he has an advantage over his opponent and exploit those match-ups repeatedly until the other player responds by changing his patterns of play and/or exploits a counter weakness. If the other player won’t or can’t do so, he loses.

It’s like the children’s game of rock, paper, scissors, also known internationally as roshambo. Used instead of a coin toss or drawing straws, players “throw” gestures with their hands to determine the winner: rock breaks scissors; scissors cut paper; paper covers rock. Pure match-ups. Sometimes you win and sometimes you lose. No strategy always wins.

All players have performance ranges, and some days are better than others. On any given day, a player could  feel that he played much better than average (for himself), and on other days he might feel that he performed poorly relative to his own standards. Part of being able to perform well is understanding the patterns of play you are initiating as well as those of your opponent. A player “plays well” when he is dictating, and “plays poorly” when the opponent forces him to hit his least favorite shots. So, within a range of abilities, a player does not beat the same player every time. He might beat the opponent when they are both playing well, or both playing poorly, but not win when the opponent plays well and he does not.

Diogenes is delighted that tennis is not transitive. How glorious to be forced to figure things out! The thrill of matching wits with someone else of relatively equal ability is the essence of competition and part of the enduring appeal of sports.

There are many ways of defining poverty. For most of recorded history, man’s basic needs were food, clothing and shelter. In recent generations, we have included access to clean water, sanitation, health care and education. Poverty can also mean a relative lack of material goods or money, so that in every “free society” (where inequality in income to some extent reflects inequality in ability and effort)  some portion of the population will be considered poor.

We can also define poverty in overtly economic terms. The federal poverty threshold is $11,722 in annual income for an individual, and $23,497 for a family of four, which is about 44% of mean income for an individual and 30% of the mean for a family of four. The economic definition of poverty has changed over time, but real wage growth in the 1960s caused the poverty rate to fall from about 20% in the 1950s to around 15% of our citizens today.

A hundred years ago, having enough food to eat meant that you weren’t poor in most places. In most wealthy countries, death by starvation is already very rare. Poor Americans today are not likely to be starving, though malnutrition remains a scourge. Many live in households that have a refrigerator, a washing machine, a high definition TV with cable , an XBox and a cellular phone. In fact, the electronic gadgets used by our poor are not substantially different than those employed by the wealthiest Americans. Overall, the quantities and qualities of what ordinary Americans consume are closer to that of rich Americans than they were in decades past despite growing income disparities between the wealthy and the poor.

The inflation-adjusted hourly wage hasn’t changed much in 50 years. Still, it is unlikely that an average American, even one living in poverty, would trade his wages and benefits in 2013—along with access to the most affordable food, appliances, clothing and cars in history, plus today’s cornucopia of modern electronic goods—for the same real wages but with much lower benefits in the 1950s or 1970s, along with those era’s higher prices, more limited selection, and inferior products.

Is it better to be poor here than elsewhere?

Poverty tends to be defined in the relative sense. The poorest 5-10% of a population would probably be considered poor in any society, but to the extent that “fairness” in a society is defined as less disparity between rich and poor, a higher percent of US citizens would be considered poor than in most other developed countries. The OECD, a rich-country club, provides comparative figures for a poverty line of 40% of median household income after tax and transfer. On that basis America’s rate is 11%, well above the OECD average of 6%.

Another way to define poverty is in an absolute sense rather than a relative one. The World Bank estimates that “extreme absolute poverty” is living on somewhere between $1-2/day/person depending on where one lives. Few Americans are this unfortunate, but something like 20% of the world’s population are subject to these conditions, so most poor Americans could be considered “not poor” in most of the world.

Are federal anti-poverty programs working?

Federal programs to reduce poverty in America trace their origins to FDR and the New Deal in the 1930s, though what most Americans would identify as specific anti-poverty programs were begun in 1964 with LBJ’s Economic Opportunity Act which came to be known as the “war on poverty”. Today, there are more than 120 different federal anti-poverty programs. The major ones are Medicaid, unemployment insurance, food stamps and welfare, ans our government spends about as much on these programs as it does on defense. And yet, almost 50 years later, and despite about $13 trillion dollars spent, the rate of poverty and the total number of Americans living in poverty has not been significantly reduced.

“…the federal government spent more than $591 billion in 2009 on means-tested or anti-poverty programs, and will undoubtedly spend even more this year. That amounts to $14,849 for every poor man, woman and child in America. Given that the poverty line is just $10,830 (in 2009), we could have mailed every poor person in America a check big enough to lift them out of poverty – and still saved money.”  M.D.Tanner, NY Times, 9/16/2010

In general, the liberal left’s approach to social policy is to shield people from the American economy, while conservatives’ approach must be to enable them to enjoy its benefits—to enable people to move up rather than to make them more secure in poverty. Some call for a wholesale rethinking of antipoverty programs.

“The bottom 20% in America are not stuck because their welfare support is insufficient. It is because these cultural institutions are not helping them lead the lives they deserve. Volumes of research have shown that Great Society welfare policies—such as public housing and aid to families with dependent children—fueled family dissolution, community fragmentation, generational joblessness and government dependency. Many … welfare and redistribution policies are encouraging a return to these conditions.” Arthur Brooks, WSJ, 10/8/12

Some might argue that one of the causes of persistently large numbers of Americans living in poverty is that economic mobility constantly moves some of our citizens out of poverty even as others descend into poverty from the middle class. This notion of being able to move from rags to riches in a generation is a fundamental plank of the American Dream. Unfortunately, Americans’ perceptions about their likelihood of changing position in the income distribution may be exaggerated. Those within the three middle quintiles (the middle class) will, statistically, experience some economic mobility. But according to a study by the Pew Economic Mobility Project, 43 percent of children whose parents were born in the bottom quintile remained at the bottom when they became adults. In contrast, 40 percent of children born to parents at the top quintile were also at the top as adults. The study compared inter-generational mobility rates between 1984 to 1994 and 1994 to 2004. In addition, contrary to public perceptions, social mobility in the US is less than in Europe.

What to do?

As a nation, it is dangerous to our social fabric to have created a semi-permanent underclass living in poverty. Spending more on poverty programs does not appear realistic now, especially in fiscally austere times. We need to make sure the programs we do have create incentives to replace handouts with wages, even as we strive to close the opportunity gap through better education for all. The best solutions are complex and to be found through a mix of policies including education reforms and revamping the tax code.

Most Americans, regardless of their political leanings, desire a strong safety net for all citizens. Americans living in poverty do not have comfortable or easy lives, and taking advantage of available programs is incredibly time consuming, even as it is dispiriting. Permanent solutions are to be found not in more funding or more programs, but from economic growth that fuels demand for more employees at higher real wages.

The Federal Reserve Bank System is a unique hybrid public-private bank network whose 12 district members are owned by local banks and regulated by a 7-person Board of Governors, each of whom are appointed for one 14-year term by the White House. It was created in 1913 and amended in 1935 primarily to use monetary policy to deal with cyclical bank panics. Congress established three key objectives for monetary policy in the Federal Reserve Act:

• maximum employment

• price stability

• moderate long-term interest rates

The private banks give input to the government officials about their economic situation and these government officials use this input in Federal Reserve Board policy decisions.

How does the Fed employ monetary policy?

Monetary policy should ideally be used in conjunction with fiscal policy as a means to achieve desired national economic objectives. In America monetary and fiscal policies mostly are independent of each other. Congress and our President have led America to the brink of a “fiscal cliff”, and no comprehensive fiscal policy reform seems likely in the near term. This state of affairs has thrust the Federal Reserve Board, and its Chairman Ben Bernanke, to the forefront as the savior/enabler of today’s American macro economic policy.

The primary tools of the Federal Reserve Board are:

• to set bank reserve requirements

• to set the discount rate for interest paid by the Fed on bank reserves

• to conduct Open Market Operations that seek to influence the Fed Funds rate (that is paid by banks to each other for short term borrowings) via open purchases and sales of US Treasury and federal agency securities

Minutes of the regular meetings of the Fed’s Open Market Committee (FOMC) are widely published by the media in order to inform business and banking leaders about probable Fed actions. The Fed has said it doesn’t expect to touch short-term rates until it sees the unemployment rate fall to 6.5% or lower, as long as inflation forecasts remain near its 2% target. That would mean, according to the Fed’s economic projections, that it would keep short-term rates near zero into 2015.

” In case there was any doubt about its resolve, the Fed statement also issued a new implicit annual inflation target: 2.5%. The official target is still 2%. But the Open Market Committee stated that it will keep interest rates near zero, and by implication keep buying bonds, as long as the jobless rate stays above 6.5% and inflation stays no more than a half-percentage point above the Committee’s 2-percent longer-run goal…That is a 2.5% inflation target by any other name, and it’s striking to see a central bank in the post-Paul Volcker era say overtly that it wants more inflation.”  WSJ, 12/12/12 “The Fed’s Contradiction”

Many economists think we have to inflate our way out of the debt crisis. Inflation remains quiescent, but central banks that ask for more inflation likely get it. The Fed is now buying about 70% of new long-term Treasury debt, and when you add “QE3” debt purchases, it appears to be well on its way to monetizing not only the deficit, but also a large chunk of the accumulated federal debt.

Why do the Fed’s policies matter?

Fed policy continues to punish thrift and reward irresponsible debtors. A 2.5% inflation rate and interest rates on deposits near zero compounded diminishes the real value of saving by 1/2 over only 28 years even absent any income or taxes. This is a tax on our middle class. Benefits for those receiving government benefits will be indexed to a CPI. The rich can make investments in hedge funds, private equity and other vehicles that can earn better than inflation adjusted returns after taxes. It is those who have long worked and saved who will pay these penalties.

By keeping interest rates ultra low, central banks including the Federal Reserve may have likely created a ticking time-bomb for investors in the bond market. The risk is that the many retail (middle class) investors who sought safety in bonds don’t fully understand the losses they will face if there is a sustained economic recovery and yields start to rise.

The Fed’s near-zero interest rate policy will continue to disguise the real cost of government borrowing. One reason the Obama Administration can keep running trillion-dollar deficits is because it can borrow the money at bargain rates courtesy of the Fed. Each 1% increase in rates on a $16 trillion federal debt is $160 billion per year, and those increases must begin sooner or later.

For the past four years the Fed has maintained expansionary and unconventional policies and we are told there is still no end in sight. Mr. Bernanke famously failed to predict the 2008 monetary crisis, and then was slow to react (although he did so effectively). Now we are supposed to believe he will know when to pull the ripcord on growing his balance sheet. The Fed and Mr. Bernanke may well be geniuses and get it all just right this time, but Diogenes is not optimistic that this will happen.

A new rule was put into effect for this season that ought to improve the viewing experience for the fans. The server has 25 seconds from the end of the last point to put the ball in play. Players today are mostly the products of academies that teach students to employ serving rituals to focus their attention as they step up to serve. Until this year, tour players regularly took three or four balls from ball kids to choose which two to use, even though six balls are used in tour matches and changed every 9 games, so there is not a lot or difference between them. In addition, many players toweled off between almost every point whether or not they were profusely perspiring. These routines sometimes elongated time between play to 45 seconds. (Imagine club play with opponents taking these kinds of delays, especially in New York, where we pay for court time by the hour and someone is always waiting to take your court when your time is up. In the absence of umpires, many would be tempted to club their opponents!)

Until now, umpires would issue a warning to players for time code violations. Additional time delays were supposed to be progressive in that they would result in the loss of the point. As a result, it was very rare for umpires to call second time violations. The new rule calls for umpires to start a clock which only they can see at the end of a point, and call a time violation at 25 seconds if the ball is not in play. The penalty is loss of the first serve. Subsequent violations are not progressive and results in loss of the next serve whether it is a first or second.

Tennis is one of few sports where there is no time limit to finish. Players must win 2 of 3 sets in regular tournaments, and 3 of 5 sets in Grans Slam events. This can sometimes result in very long matches. At the 2012 Australian Open final in January, Novak Djokovic defeated Rafa Nadal (two notoriously slow players) in the longest slam match in history, needing 5 hours and 53 minutes to prevail. In addition to scheduled 90 second breaks every two games, each player routinely took 30 or 40 seconds to serve, so the actual time the ball was in play was likely less than an hour. Such matches are almost as difficult for the spectators as for the players. Shortening them with faster play improves the game for everyone.

In the Bolelli v. Gimeno-Traver match today, time violations were called several times, particularly at crucial break point junctures. This was terrific to see. Diogenes expects that basketball-like countdown shot clocks will be put at court side by next season to further engage spectators and allow the players to time their actions to avoid the penalties. At the end of the day, it’s not just sport. It’s entertainment!

The Right To Bear Arms

The 2nd Amendment to the US Constitution, as ratified by the states in 1791 states

“A well regulated militia being necessary to the security of a free State, the right of the People to keep and bear arms shall not be infringed.”

Why was this right considered so important that it was enshrined in the Bill of Rights? Here is a partial list of the key reasons:

• The United States had only recently won its independence after a revolutionary war that had lasted eight years. There was an uneasy peace with England that would again devolve into war in the next 20 years.
• There was no standing national army, and most (white) male American adults were members of armed militias that could be called out in the event of war.
• Many of the states had western borders which had Indians (potentially) threatening American settlers on the frontier.
• Hunting was a significant means of putting food on the table in all of the states.

Guns in the US Compared to the Rest of the World 

Gun regulations in America are lax compared to the rest of the world. Nearly half of all households (47%) have a gun, although many homes contain multiple guns. About 1/3 of Americans own guns, although the percentage of the population owning guns has been declining in the last 50 years. About 2/3 of gun owners state that they own firearms for personal protection, 2/3 for hunting and over 1/3 for target practice. The reasons overlap quite a bit and so add to more than 100%. According to the Washington Post, guns per capita are sharply higher in America than anywhere else in the world, and as the chart below shows, about double that of the rest of the developed world.

Data source: Small Arms Survey (Max Fisher/Washington Post 2012)

The National Rifle Association (NRA) will tell you that “Guns don’t kill people. People kill people. Guns are only tools.” This may all be true, but gun violence in the US is higher than anywhere else in the western world, perhaps because we have more tools readily available?  A bit more than 100,000 Americans will likely be killed or injured in gun violence next year. To be “fair”, about 20,000 of them will be suicides, but guns are involved in about 2/3 of violent crimes in America, almost all of these are handguns. Hunting rifles are rarely used in violent crimes.

Current Gun Regulation and Proposed Changes

Policies at all levels of government have attempted to address gun violence through a variety of methods, including restricting firearms purchasing by youths and other “at-risk” populations, setting waiting periods for firearm purchases, establishing gun “buy-back” programs, targeted law enforcement and policing strategies, stiff sentencing of gun law violators, education programs for parents and children, and community-outreach programs. Sen. Dianne Feinstein, D-Calif., said she will introduce legislation next year to ban new assault weapons, as well as big clips, drums and strips of more than 10 bullets.

Perhaps of even greater significance is the call for more scrutiny of the ways government can keep guns out of the hands of the mentally ill. Methods for doing so will require much discussion.

Guns & Self Defense

The 2nd amendment’s protection canards are at best disingenuous, as technology is wildly different today than in 1791. Guns then were almost all single shot muskets with limited effective range. No one had the capability to kill 10 or 50 people.

Today’s total of 290 million guns in almost 50% of households is ridiculous. The shooter in Connecticut took his mother’s guns to kill her and 26 others. Purchasing verification would not have stopped him.

Self defense, the stated primary reason for owning a handgun, is a non sequitor. A study from the University of Philadelphia suggests that victims in possession of firearms are 4.5 times more likely to be shot and 4.2 times more likely to be killed than those unarmed.

“gun possession by urban adults was associated with a significantly increased risk of being shot in an assault. On average, guns did not seem to protect those who possessed them from being shot in an assault. Although successful defensive gun uses can and do occur…such successes are (not) likely…

A gun may falsely empower its possessor to overreact, instigating and losing otherwise tractable conflicts with similarly armed persons. …individuals who are in possession of a gun may increase their risk of gun assault by entering dangerous environments that they would have normally avoided. Alternatively, an individual may bring a gun to an otherwise gun-free conflict only to have that gun wrested away and turned on them…

when victims had little to no chance to resist, they were almost always confronted with events that happened very suddenly, involved substantial distances, had no face-to-face contact, and had physical barriers between them and the shooter (e.g., bystander or drive-by shootings). These victims likely had no meaningful opportunity to use a gun even if they had one in their possession.”

“Investigating the Link Between Gun Possession and Gun Assault”, Branas, et al, American Journal of Public Health, November. 2009

What More Needs To Be Done?

Diogenes believes that current proposals do not go nearly far enough to safeguard the public from gun violence. The following steps should be taken to stop the continuing massacre of innocents.

• Sale and possession of handguns should be severely restricted to law enforcement and those few occupations where armed force might be necessary, such as jewelers and armored truck drivers and guards.
• Biometric “trigger locks” should be mandatory to prevent illicit sales and use of stolen firearms.
• Possession and display of unlicensed firearms should be grounds for mandatory prison terms.
• Federal funding should be made available for the buy back of semi-automatic weapons and handguns from the public using a carrot and stick approach. Time limits should be imposed for the purchase and surrender of such weapons, after which private ownership should simply be made illegal.
• For those citizens who insist on personal protection, non lethal means of defense at close range should be used. Pepper spray and personal stun weapons such as Tasers are the solution. (The Taser fires two small dart-like electrodes, which stay connected to the main unit by conductive wire as they are propelled by small compressed nitrogen charges. The air cartridge contains a pair of electrodes and propellant is replaced after each use. There are a number of cartridges designated by range, with the maximum at 35 feet for law enforcement and 15 feet for consumer use. Tasers primarily function by creating neuromuscular incapacitation; the devices interrupt the ability of the brain to control the muscles in the body. This creates an immediate and unavoidable incapacitation that is not based on pain and cannot be overcome. Once the electricity stops flowing the subject immediately regains control of his or her body.) Taser devices are not considered firearms by the United States government. They can be legally carried (concealed or open) without a permit in 43 states. Tasers typically fire one cartridge, although a new model has three shots in case of a miss.

Armed criminals will always be a challenge  as long as handguns are made anywhere in the world. Nevertheless, these proposals would allow for legitimate hunting and sporting uses by citizens while adding protections for the general public. Knives and other deadly weapons will still be available, but mass killings would be made far more unlikely. It is time to break the “cowboy culture” of violence in America.

Initially, Diogenes was outraged at this small infringement of his right to sweat profusely. Of course, the reality is that anything that governs any action is a limit on liberty, which is why the Founding Fathers held the idea of limited government as a basic tenet of the foundation of our republic. “Civil society” regulates our activities in countless ways, so why was Diogenes annoyed? It was because he had seen this problem coming and tried to head it off. As an original member of the committee that planned the construction of the gym, he had long ago specified the equipment to be replaced. Diogenes wrote letters to the current committee asking for slight changes to accommodate personal media. In a West Side building this input would have likely been debated intensely, but in this East Side coop, Diogenes was ignored, probably due to a lack of technical knowledge.

The simple answer to the equipment change in the gym would be to purchase new media from iTunes for every use of the facility. But Diogenes is rarely simple. This would constitute a new tax when he already paid for cable and NetFlix. Accepting the self imposed challenge to find a solution to the new equipment required Diogenes to exercise his brain, a far more daunting task than beating up his body. It had been years since Diogenes had considered the topic of video capture, and most of what he knew involved recording in old, “standard” definition of 480 lines of resolution. His first attempt involved the purchase of a TV tuner for a laptop. It would not record through the cable box, and so would only record unencrypted basic 2-13 channels. Not good enough.

The wonder of the internet is the ability to teach yourself almost anything without leaving your desk. Eventually, Diogenes purchased a high definition video capture device intended for gamers. It allowed the recording of signals through the cable box to a laptop. Unfortunately, the recorded media was not in a format to be transferred into an I-Pad. Further research yielded a separate media conversion software program that did the trick.

Diogenes wound up spending as much for hardware and software to record and view media as he would have to simply buy it for a year or so. But as noted physicist and polymath Richard Feynman wrote in 1981, sometimes “the pleasure of finding things out” is its own reward. Every time Diogenes forces himself to overcome his inertia to use the gym, he chuckles to himself as he watches…whatever he wants. He thanks the committee for prodding him to expand his knowledge, and upgrade his viewing experience.

The liquidation was triggered by a nationwide strike by the 5,600 employees who were members of the Bakery, Confectionery, Tobacco Workers and Grain Millers Union (BCTWG). 92% of that union’s employees rejected a new collective-bargaining proposal in September. The company’s offer included an 8% wage cut in the first year, a 17% increase in employee health-care costs and changes to workers’ pension plans that could have reduced payouts. Hostess long had said it couldn’t survive without cutting labor costs, even as it enraged workers by increasing top executives’ pay by 60% earlier this year. In a move reminiscent of Russian Roulette, the bakers union workers essentially pulled the trigger for all of the company’s workers…and lost.

Teamsters, which with 6800 employee members was the company’s largest union, narrowly voted to accept the company’s proposed deal. Teamster President Jimmy Hoffa said his team “switched gears” from trying to preserve all 18,000 Hostess jobs, a prospect he viewed as “off the table,” and instead was trying to drum up buyers for “bits and pieces” of the business.  Average pay for union workers was $16 an hour for the bakers and $20 an hour for the Teamsters. Frank Hurt, President of the BCTWG, called the company’s proposed 8% wage cuts “draconian” even as his members received 100% wage cuts from loss of their jobs. For this inspired leadership, he is paid about $250,000/year.

Hostess Chief Executive Gregory Rayburn had a different vision of how the bankruptcy auction process would play out. “Nobody wants to have anything to do with these old plants or these unions or these contracts,” Mr. Rayburn said. The company had hunted for buyers for the last several years as it tried to avoid a second trip into bankruptcy, but no buyer came forward. Potential buyers have made clear that their interest partly is because a liquidated Hostess would be free of its collective-bargaining agreements. A buyer might yet pick up a few of Hostess’s plants. Alternatively, the union(s) can now buy the assets in bankruptcy and reconstitute the company as a workers paradise without management sucking out all the benefits.