This week we want to provide a 1st Quarter 2019 update on five issues we previously studied. Periodically reviewing these business and monetary lessons in the context of new events helps us re-instill the proper fundamentals and understanding.
As a follow up to our post proposing "Corporate Universities," three economists - from Northeastern University, Harvard, and the Federal Reserve Bank of Boston - released their study of 36 million online job postings between 2007 & 2012. When the economy was much stronger in 2007, only 13% of postings required a bachelors degree, and when the economy was slower and unemployment higher in 2012, over 22% of postings required bachelor degrees. Companies can be much more selective when we all need a job. But economic growth flips the tables in favor of us job seekers, and as a perfect example, Taco Bell, yes Taco Bell, recently expanded its benefits package to cover $5,000 a year in college tuition. Now, thanks to growth, Tommy can demand that Taco Bell pay for his college while he serves those double-stuffed Gorditas through the drive-thru window.
Also following our theme, Oren Cass has released "The Once and Future Worker," and Isabel Sawhill authored "The Forgotten Americans," both arguing that we waste too much taxpayer money on ineffective education. The federal government spends $160 billion of your money each year for college expense, but only 36% of Americans now graduate from a 4-year program. The Feds only spend $20 billion of your money on career and technical education and job training. Cass and Sawhill assert that we should re-purpose college funds, along with means-tested programs such as food stamps and the Earned Income Tax Credit, into these technical programs and job training. They must both be JAM Views readers!
Speaking of growth, our mantra, even the European Union is starting to convert. Economists from the EU and the IF Institute, a German think tank, released the first dynamic-scoring tax model for the EU. As opposed to the previous static models which never accounted for the tremendous increase in tax revenue from higher GDP growth, which our Posts have proven repeatedly, the EU is finally starting to incorporate dynamic models which predict revenue boosts by stimulating job creation. Starting with this experiment in Brussels, we can only hope they expand growth ideology and fiscal changes to stimulate the economies throughout Europe. One more time: Tax cuts and less-oppressive regulations significantly increase government tax receipts. Period.
You recall that we stated that "banks only loan money to people who don't need the money." Again back in 2007, banks held approximately 14 cents of reserves for every dollar you actually deposited with them, which reflects a normal reserve in what they term a "fractional-reserve banking ratio." (Yes, the bank only keeps 14 cents of your money in the vault and leverages the rest on loans and investments, so if everyone stops by to pick up their money at the same time, your taxpayer dollars will have to bail them all out again. I don't make this up. You try to run your business books that way, and see how long it takes for the SEC and the IRS to knock on your front door. You're not in the club.).
I digress. Yet, according to a study released by retired Senator Phil Gramm and Thomas Saving, the banks are now holding $1.31 of reserves for every dollar they owe you. The reason is that the Federal Reserve is paying them an above-market interest rate on these reserves, so they won't loosen the purse strings and loan you money for your new business. Banks are holding onto almost 10-times the required reserves. The Fed should lower the rate they pay banks, so the banks are incentivized to make loans to you, in-turn not stalling our strong economy until true signs of inflation emerge.
Earlier we were pretty rough on U.S. Attorneys and members of the Bar as we explained the illegal shutdown of David Ganek's $4 billion hedge fund, Level Global, and the class-action attorneys' attempts to blackmail Apple, Google, and Microsoft app platforms. But, let's continue because no group deserves it more. Michael Ledeen of the Foundation for the Defense of Democracy released an explanation of the recent, bizarre sentencing hearing for General Flynn. While the media reported a narrative that the judge rebuked the General and his patriotism, Mr. Ledeen, who was actually in the courtroom, tells a different story. He believes the judge's aggressiveness sprung from his frustration at "his failure to persuade Mr. Flynn to reconsider his plea (of guilt): If Mr. Flynn won't fight, Judge Sullivan won't do it for him." Mr. Ledeen summarized his view as "I do not believe Mr. Flynn lied to the FBI. I think he lied when he made his deal with Mr. Mueller, and his confession was a false one." Recall your JAM Views lessons: The great majority of what we hold as true, likely is not.
Also, certain attorneys are finally fighting back against state laws mandating membership in the Bar, just as other union members have gained more rights to make their own decisions not to join after the Supreme Court decision in Janus v. Afscme. Against the 32 states in which membership is mandatory, Messrs. Huebert and Sandefur of the Goldwater Institute now claim this requirement is unconstitutional in violation of attorneys' freedom of speech. They claim the "bar associations wield massive political influence on everything from tort reform to judicial appointments, (and) it distorts American democracy, too." Maybe we'll let these gentleman be JAM Views guest bloggers!
Finally, as a follow up to our "Capitalism + Philanthropy = The Answer," Bill Easterly came out against Bill Gates in an effort to teach us that "countries respond to incentives to grow, and organizations like the World Bank and IMF don't design aid programs around incentives." In other words, giving money to others doesn't work; it actually imprisons them. Easterly argues that only market-oriented development works, not state-driven approaches. "When you allow it to happen it does generate miracles and revolutions - but usually not the way the experts intended or planned. The author of "The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done so Much Ill and So Little Good" concludes with, "Core Econ 101 principles have stood the test of time, and let's just try to stick to those."
Again, it looks like our capitalistic members are making progress spreading the good words of self-interest and common sense. We are making headway, even with the French. Who would have thunk it? Keep up the good work, and have a safe and prosperous week.
"People are finding a way to solve their own problems, despite the arrogance and the incompetence of the experts." - Bill Easterly
* Thank you to the WSJ, Forbes, and Fortune for many statistics and quotations.
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