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Equal pay for equal work has long been considered an international human right. 2013 marks the 50th anniversary of the US Equal Pay Act which states that “employers may not pay unequal wages to men and women who perform jobs that require substantially equal skill, effort and responsibility, and that are performed under similar working conditions within the same establishment.” Despite this law and others since, women in the American workforce earn only 77% on average of the earnings of men, so that it is rare to discover a situation where women are paid more than men for equal work.

Tennis professional tour events utilize a best of three sets format for both men and women for all tournaments except for the four “Grand Slam” major events (Wimbledon, the Australian, US and French Open championships). In these “majors”, the women play best of 3 sets as they always do, while the men play best of 5 sets. The lengthier format for men was once used for many other tournaments, but as most tournaments changed from grass to hard courts, the shorter format was adopted almost everywhere. Traditionalists managed to keep the format unchanged from amateur days for the majors and for Davis Cup play.

All of the grand slam tournaments have paid the men’s and women’s champions equal prize money since  2007. While few players dare to publicly disparage the equal pay, many believe it is unfair to the men not to be paid more, since they are playing more sets on the court. Furthermore, Wimbledon charges considerably more for tickets to the gentlemen’s final than for the ladies’ final, and it is argued that this reflects their relative appeal and should affect the prize money paid out to each gender.

The primary argument in favor of continuing best of 5 set matches at the majors is that the longer format is a bigger test of mental and physical endurance which more often allows the better players to prevail. Unfortunately the evidence does not support this theory. Best of 3 sets format was instituted for doubles at every tour event for the past several years. It was generally expected that the shorter formats would disadvantage the top teams, but there turned out to be no effect at all. The best players before the format change continued to top the rankings.

Diogenes believes the equal pay argument is a canard. Rather than considering paying women less, the question of pay should be re-framed as to what is best for tennis, and for the fans whose ticket purchases and TV viewership support the game? Clearly, what needs to be done is to amend men’s competitions in all events to best of three sets.

Almost nobody ever plays best of 5 set matches. 70% of all play in the US is on public courts where someone is usually waiting to take over your court after only an hour of play. Each set on the pro tour is far more grueling, and the players wear out with best of 5 sets matches. Almost every player who manages to win a long 5 set match at the majors goes on to lose in the next round to a fresher opponent.

The fan experience would also be enhanced by shortening matches. Except for die-hard fans, who wants to spend four or five hours watching long five set matches? For many viewers, a decisive third set climax two hours in would be just great.

A serendipitous byproduct of shortening the men’s format in the majors would be an increased incentive for the top players to participate in doubles at the slams. At other longer events where players do not have singles matches every day such as at Miami and Indian Wells, the top singles players also play doubles to the delight of the fans. Few do so in the slams because they fear the longer format.

Tennis is one of the only sports followed and played by both men and women, together and separately. The ATP Tour needs to adopt the best of 3 sets format for all events, including the majors. It would be a boon for players and the fans, and it’s the right thing to do to signal the sport’s commitment to support and practice equal pay for equal work.

Like many New Yorkers, Diogenes was surprised by last month’s return to the political arena of Anthony Weiner. A former congressman from Queens, only two years ago Weiner resigned in disgrace after sending lewd photographs of his “little Anthony” to six different women he met on the internet even as his wife was about to bear their child. When reports came out, Weiner then proceeded to lie about it, claiming that his account had been hacked by someone else and he was being framed. When this lie was exposed, Weiner continued to claim that he was fully capable of representing his constituents before being pressed to resign by the House Democratic leadership.

After the scandal broke, Democratic candidates who had received contributions from Weiner donated those funds to charity. Republicans called for Weiner to return unspent funds to donors. But Mr. Weiner simply held on to the money, presumably contemplating a return to politics. He claims that while he was away from the public eye, he did a lot of thinking and learned a few things that have made him more mature.

In jumping into the New York mayoral race, Weiner entered a crowded field of Democratic contenders. Despite his scandal, Weiner has two advantages over his rivals. He has the highest name recognition of all the candidates, and retains about $4.3 million in campaign funds left over from fundraising for an aborted 2009 mayoral run. That money remains eligible for one-time matching funds from the city of about $1.5 million in the upcoming 2013 election. According to Bonny Tsang, press aide at the city’s Campaign Finance Board, if Weiner had decided not to run this year, his 2009 funds would not enter the matching program, which provides six public dollars for every eligible dollar raised. Weiner can hold onto the money indefinitely, as long as he files the proper disclosures according to the deadlines. The money can also be given to charity, contributed to other campaigns or given it back to donors, the Finance Board said.

A Marist College poll conducted late last month found that 53% of voters said Mr. Weiner deserved a second chance, while only 39% said he lacked the character to be mayor. His immediate support of about 19% put him in second place amongst the Democratic primary contenders. Weiner claims that he will outwork all the other candidates, and will win the election. Political insiders and some cynics believe the 2013 campaign is more likely intended to rehabilitate his reputation by inuring the public to his sexting episode so that he can run and win in a future election, or perhaps jump start a lucrative consulting business.

In sports as in life, fundamental and hugely important aspects of our character are only truly revealed when we are put under pressure. Sooner or later a crisis will occur for anyone holding office. When that moment arrives, we want our elected leaders to function well. Anthony Weiner argues that he should be given a second chance to hold our trust. But he has shown that under pressure, he lacks the intestinal fortitude to own up to his mistakes.

Our leaders should be role models for our children to emulate if we are to continue to have a civil society. They should have a history of integrity so that when crises arise, we can trust them to do what is best for all rather than what gains them advantage. Compare Anthony Weiner’s response to being caught in sexual scandal with that of General David Petraeus, who was serving as CIA Director last November when an extramarital affair with his biographer was discovered. The general immediately admitted his involvement and resigned.

The 19th century legal concept of moral turpitude typically was only loosely defined, but has been described as “act of baseness, vileness, or depravity in the private and social duties which a man owes to his fellowmen, or to society in general, contrary to the accepted and customary rule of right and duty between man and man.” Anthony Weiner’s scandalous behavior was tawdry even by today’s lax standards. Even worse were his lies after being found out. He should be allowed to move on with his life, but his actions after being exposed should disqualify him permanently from holding public office as someone who simply cannot be trusted. New Yorkers can easily do better.

When you buy something at a local store, the merchant automatically tacks on state and local sales tax to the item’s purchase price. When items are purchased online taxes are not included in the total purchase price unless the vendor is located in the same state as the customer.  Let’s say you want to save some money and purchase an I-Pad Mini from E-Bay for example, because the listed price is $39 less than the $329 list price from Apple. If the vendor is from Georgia and you are in New York, you would not incur and sales tax. But if the vendor is in NY, you would be charged 8.875% , or $25.74 on this purchase.

Why aren’t internet sales taxed now?

States and localities fund their operations from a variety of other taxes and fees including property taxes, income taxes, gasoline taxes, corporate taxes, usage fees (tolls, parking, water, garbage), and federal grants to administer programs such as Medicare and Medicaid. 45 of America’s 50 states have some sort of retail sales tax. The highest state tax is California’s 7.5%, but local sales taxes can add as much as another 3% in many locales.

The US Congress is currently considering new legislation to tax online retail transactions that have until now been largely free of sales taxes. This is because in 1992 the Supreme Court in  Quill  Corp. Vs. North Dakota ruled that a business must have a physical presence in a state for that state to require it to collect sales taxes, in part because of the complexities of doing so.  It was the late pre internet age and the ruling referred to mail order retailers. The court explicitly stated that Congress can overrule the decision through legislation. Today, if an online retailer does not collect sales tax at the time of purchase, the consumer is supposed to pay the sales or “use” taxes on such purchases directly to the state when filing annual tax returns. This happens so rarely that Congress is now considering legislation to collect these “lost tax receipts”.

How much are we talking about?

Purchasing merchandise across state lines was historically limited to catalog buying and comprised only a small portion of retail sales. However, the growth of E-commerce has increased at more than twice the rate as bricks and mortar retail sales for 10 years, and now accounts for 5.5% of all retail sales. Internet sales are trending at a rate approaching $250 billion/year.

Local retailers and their many organizations have for several years supported efforts to tax online sales. They claim that online retailers have an unfair advantage when they do not charge consumers taxes. The congressional initiative known as the Marketplace Fairness Act (MFA) is the latest effort to tax internet sales. It will require all retailers with sales over $1 million/year to use “simplifying” software from the Streamlined Sales Tax Project (SSTP), which will be instantaneously able to sort through the thousands of taxing entities and calculate taxes for each locale in order to collect, report and remit local sales taxes for each one. If enacted, all internet sales other than from very small vendors will be taxed regardless of the location of the vendor. The MFA is estimated to generate from $11 billion to as much as $24 billion to state and local governments. Shown below is the relative impact upon consumers in the various states.

Why the MFA is not good legislation

Proponents claim that sales taxes are merely one of several methods to fund local and state governments. But sales taxes in most locales are a way that these governments mitigate property taxes. In terms of “fairness”, sales taxes are far more regressive than property taxes, which are disproportionally imposed upon our wealthier citizens.

An internet tax allocates sales from each retailer to each state and local entity. Yet it also creates the framework for a federal sales tax, or VAT. Lawmakers salivate at the prospects for a “new” revenue stream. Those seeking more limited government are strenuously opposed.

More troubling than the prospect of additional taxes is that an internet tax would be an egregious violation of federalism, in that states would be able to enforce their tax laws outside their borders. Online retailers would be remitting taxes to governments where they are unrepresented, and local citizens would be precluded from voting with their wallets by purchasing from vendors who do not charge those taxes.

A privacy concern related to internet taxes is that the SSTP software creates a vast new database which could be used to track any individual’s purchases. At some point, a security breach is a massive risk which could make this information available to unauthorized parties. Potential government usage of the data is more dangerous. Diogenes is entirely uncomfortable with this.

Internet retailers may not have to pay local taxes, but this  advantage is mostly mitigated by two factors. First, shipping charges are often about equal to sales taxes. Secondly, ordering online requires consumers to wait for their merchandise, and many shoppers require the instant gratification that local shops provide.

Diogenes believes that the case for taxing internet sales with the MFA is not at all persuasive. It is contrary to good public policy in that it taxes citizens without representation or benefit. It creates privacy concerns. It creates the framework for a new federal VAT.  Evening the playing field with local retailers is not a valid reason to take billions more in taxes from Americans.

Other solutions

Some believe that internet retailers should pay some sales taxes, albeit at lesser rates because of their better ecological footprint and diminished use of local services. After all, online sales don’t need more cops or streets paved or other costs which support local retail. Internet sales also allow for efficient warehousing and delivery which could reduce America’s carbon footprint.

There is an alternative solution to an internet sales tax than that proposed by the Marketplace Fairness Act. Diogenes believes that internet sales could and should be taxed at the rate in effect at the location of the vendor, in the same way that sales at local retailers are taxed. There would be no reports to file, data to be collected, violation of federalism or infrastructure created for other new taxes. A consequence of this solution would be that many smaller internet vendors might relocate to one of the five states that do not levy sales taxes. This “competition” between the states is a wonderful benefit for all citizens to make use of…or not.

Where We Are

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.

Current US Immigration Policy

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.

Why Most Antipoverty Programs are Not Effective

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?

It is common in tennis, and other sports, for players to think they can approximate their performance against other players based on results against common opponents. Let’s say Adam (A) plays and beats Brad (B) Mathematically, this is can be expressed as A > B. Then Brad plays and beats Charlie (C). Therefore B>C. Adam hears the second match result and is sure that he will beat Charlie when they play. If A>B, and B>C, then A>C.

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.

What does it mean to be poor in America?

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.

What is the Fed?

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.

On this last day of the year, Diogenes was delighted that the ATP World Tour has resumed after its annual six week off-season. Live play began today from the Persian Gulf state of Qatar, a relatively secular Arab state with a striking new skyline of eclectic modern skyscrapers. The incredibly international nature of the tour was reinforced while watching the first televised match on the Tennis Channel between the Italian Simone Bolelli and Spaniard Daniel Gimeno-Traver.

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!