Hello All: Happy New Year! I know that I have been absent from my blog for quite some time. There are reasons however they are personal however I am back in the swing of things and look forward to posting on a more frequent basis. Recently, I was blessed to be awarded a Fulbright Scholarship to Vietnam. I will be teaching and researching at Vietnam National University-The University of Economics and Business during the spring 2015 semester.

Hello All: Happy New Year! I know that I have been absent from my blog for quite some time. There are reasons however they are personal however I am back in the swing of things and look forward to posting on a more frequent basis. Recently, I was blessed to be awarded a Fulbright Scholarship to Vietnam. I will be teaching and researching at Vietnam National University-The University of Economics and Business during the spring 2015 semester.

I will endeavor to use this forum to update my readers on my Fulbright experiences while in Vietnam and to periodically post about events transpiring in South East Asia.

All the best


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Congressional Reform Act of 2012

Much of what is below comes my way from a former student. Apparently, this information is floating out there on the electronic by-ways; however thought it important enough to place on my blog.  My former student understands the sentiments expressed below resonate with me and hopefully with the American people. I’ve made some slight changes to reflect my own areas of concern; especially the minimum wage and health care.

Warren Buffett, in a recent interview with CNBC, offers one of the best quotes about the debt ceiling. “I could end the deficit in 5 minutes,” he told CNBC. “You just pass a law that says that any time there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election. “The twenty-sixth amendment (granting the right to vote for 18 year-olds) took only three months and eight days to be ratified! Why? Simple! The people demanded it. That was in 1971 — before computers, email, cell phones, etc. Of the twenty-seven amendments to the Constitution, seven took one year or less to become the law of the land — all because of public pressure.

Next turn your attention to a proposal for a new piece of legislation called the Congressional Reform Act of 2012: The major canons would be as follows:

  • No Tenure/No Pension: A Congressman/woman collects a salary while in office and receives no pay when they’re out of office.
  • Congress (past, present & future) participates in Social Security: All funds in the Congressional retirement fund move to the Social Security system immediately. All future funds flow into the Social Security system, and Congress participates with the American people. It may not be used for any other purpose.
  • Congress can purchase their own retirement plan, just as all Americans do.
  • Congress will no longer vote themselves a pay raise: Congressional pay will rise by the same increase as the minimum wage.
  • Congress loses their current health care system and participates in the same health care system as the American people. No need for 2000 + pages of new legislation; simply give the American people what members of Congress have!
  • Congress must equally abide by all laws they impose on the American people. All contracts with past and present Congressmen/women are void effective 12/31/12: The American people did not make the above contracts with Congressmen/women; Congress made all these contracts for themselves.
  • Serving in Congress is an honor, not a career. The founding fathers envisioned citizen legislators, so ours should serve their term(s), then go home and back to work.


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Quantitative Easing: Forever

Well here we go again….the Fed in its infinite wisdom has once again debased the saver in favor of the borrower. Moreover, the continued expansion of the Fed’s balance sheet for the benefit of the too big to fail financial institutions deserves scrutiny and transparency. Doubt the citizenry will ever get transparency about this super secret organization let alone a fair accounting of its actions.

However, once again, we are told that unless the Fed continues to lend to the too big to fail institutions that got us in the economic malaise that the world as we know it will end. To prevent the world from ending we must give the financial institutions free money so they can purchase long dated treasury bonds thereby generating a risk free return with virtually no cost. The net impact of QE3 for them is immediate and wonderful however for the average consumer not so much. Commodity prices are once again rising which has the effect of tamping down consumer spending.  Simply look at food and energy prices to see the average family cannot spend $65.00 to fill the family SUV and have significant discretionary disposable income available to maintain non food and energy consumption. The theoretical wealth effect engendered by QE3 may in fact be offset by the continually rising commodity prices the average citizen is exposed to.

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Retirement Benefits for Members of Congress

As the election season gets into full swing after the summer it would appear to be in order to once again illustrate for our readers that irrespective of which party occupies 1600 Pennsylvania Ave. the average working Joe is not going to get a fair shake.

Both political parties along with their “czars” would have the average citizen delay their retirement until possibly 67-70 years of age in order that we might protect social security. The only things we need to protect social security from are the clowns in Washington who espouse a philosophy of “don’t do what I do…do what I say.”

Some who read this blog probably were unaware that prior to 1984 neither federal civil service workers nor our esteemed Members of Congress paid taxes to social security. Subsequently, under a somewhat convoluted conversion plan (gee, do you think the plan was convoluted by accident) Members of Congress are covered by one of four different retirement plans:

  • Full coverage under both Civil Service Retirement System and Social Security;
  • The “CSRS Offset” plan, which includes both CSRS and Social Security, but with CSRS contributions and benefits reduced by Social Security contributions and benefits;
  • Federal Employees’ Retirement System (FERS) plus Social Security; or
  • Social Security alone.

Under both CSRS and FERS, Members of Congress are eligible for a pension at age 62 if they have completed at least five years of service. Members are eligible for a pension at age 50 if they have completed 20 years of service, or at any age after completing 25 years of service.

According to the Congressional Research Service (CSR), “because of the uncertain tenure of congressional service… FERS was designed to provide a larger benefit for each year of service to Members of Congress and congressional staff than to most other federal employees. Members of Congress also become eligible for retirement annuities under CSRS and FERS at an earlier age and with fewer years of service than most other federal employees.”

Nice! Can you image that, “…because of the uncertain tenure of congressional service…” have our elected representatives seen what is happening to the average American and their uncertain futures given the gross mismanagement and lack of fiscal disciple displayed by our elected representatives.

According to the CRS the Age and Length of Service Requirements for each of the four possible retirement plans for Congress is as follows:

Retirement Under CSRS. Four retirement scenarios are possible for Members covered by CSRS or the CSRS Offset Plan:

  1. Retirement with an immediate, full pension is available to Members age 60 or older with 10 years of service in Congress, or age 62 with five years of civilian federal service, including service in Congress.
  2. Retirement with an immediate, reduced pension is available to Members aged 55 to 59 with at least 30 years of service. It is also allowed if the Member separates for a reason other than resignation or expulsion after having completed 25 years of service, or after reaching age 50 and with 20 years of service, or after having served in nine Congresses.
  3. Retirement with a deferred, full pension is available if the Member leaves Congress before reaching the minimum age required to receive an immediate, unreduced pension and delays receipt until reaching the age at which full benefits are paid. A full pension can be taken at age 62 if the Member had five through nine years of federal service, or at age 60 if the Member had at least 10 years of service in Congress. At the time of separation, the Member must leave all contributions in the plan in order to be eligible for the deferred pension.
  4. Retirement with a deferred, reduced pension is available to a Member at age 50 if he or she retired before that age and had at least 20 years of federal service, including at least 10 years as a Member of Congress

Retirement Under FERS. There are four possible retirement scenarios for Members who are covered by FERS:

  1. Retirement with an immediate, full pension is available to Members at age 62 or older with at least five years of federal service; at age 50 or older with at least 20 years of service; and at any age to Members with at least 25 years of service.
  2. Retirement with an immediate, reduced pension is available at age 55 to Members born before 1948 with at least 10 years of service. The minimum age will increase to 56 for Members born from 1953 through 1964 and to 57 for those born in 1970 or later.
  3. Retirement with a deferred, full pension is available at age 62 to former Members of Congress with at least five years of federal service.
  4. Retirement with a deferred, reduced pension is available at the minimum retirement age of 55 to 57 (depending on year of birth) to a former Member who has completed at least 10 years of federal service. The pension annuity will be permanently reduced if it begins before age 62.

Well, hopefully you get the point……our elected representatives have made sure to enrich themselves while at the same time calling on the American people to sacrifice and extend, once again, their retirement age. Do you believe the Members of Congress would extend their retirement age for the sake of the national good?

So during the silly season of elections possibly we could have a moderator at one of the debates ask the following question of the respective candidates, “Will you advocate for the retirement age of Member of Congress to conform to the retirement age of the people who pay your salary?”  But why stop there, possibly they could be asked and their response placed on the record if they would support a Constitutional amendment that would forever prohibit Congress from passing any legislation from which the Members of Congress would be exempt. One can hope!

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Because They Can!

As many of us in the 99% are acutely aware, the economic rebound from the worst financial crisis since the great depression is tepid at best. The unemployment numbers continue to drift downward, albeit at a snail’s pace. The official unemployment rate stood at 8.9 percent at the end of October 2011 and five months later we are at 8.2 percent. While the downward sloping trend line for unemployment is encouraging the pace of job recoveries appears to have stalled and since January of 2012 has hovered around 8.3 to 8.2 percent.

According to the Bureau of Labor Statistics, the average hourly earnings for all employees on private nonfarm payrolls rose by 5 cents, or 0.2 percent, to $23.39 and the hourly earnings of private-sector production and nonsupervisory employees rose by a whopping 3 cents, (yes, you read correctly- 3 cents per hour) to $19.68 in March 2012.

The continued stagnation in the employment ranks of the average American got me to thinking about a recent announcement from one of America’s largest multinational companies Proctor & Gamble (P&G) the maker of such consumer staples as Tide, Charmin, and Gillette.   Back in February of 2012, the Chief Financial Officer of P&G, Jon Moeller, stated they would eliminate 1600 non-manufacturing jobs by June of this year thereby saving $240 million annually. Moreover, P&G earlier in 2012 announced the elimination of 2700 shelf stocking jobs from its payroll through an “outsourcing plan” which is politically correct subterfuge language that generally means the employees were fired, possibly rehired by a contract company, albeit at a lower wage rate and probably with less in less benefits, to include health benefits, if any, at all.

Jon Moeller, CFO, concluded his remarks about the ongoing downsizings and hiring freezes by stating, and I quote, “We’re examining all areas of cost in every business, including product design, manufacturing, logistics and marketing spending.” The comments by the CFO of P&G, once again, got me to thinking about P&G and if indeed all areas of cost had in fact been examined and what that might have entailed for those that occupy the executive suite, the Board members, and one employee related to Jon Moeller, the person responsible for examining all areas of cost at P&G.

Executive Compensation

Investigating the numbers produced by P&G and available in their annual Proxy Statements I found the following regarding executive compensation; surprise surprise….it increased  for five of the six Named Executive Officers. Remember earlier where the Bureau of Labor found that the average workers’ hourly wage increased by a whopping 3 cents to $19.68! Well, just look at the absolute and percentage increase in the total compensation of the P&G senior management over the last few years provided in Table 1.  If Mr. McDonald, CEO of P&G, worked 24 hours per day, 365 days per year his hourly total compensation would equal $1847.95; quite a dramatic difference from the $19.68 for the average Joe!

TABLE 1. P&G Executive Compensation

While Mr. Moeller claims to have examined all areas of cost it appears the total compensation of the Named Executive Officers (NEOs) escaped any serious scrutiny given that five of the six NEOs all had increases in their total compensation packages and one remained relatively flat. The data derived from the company’s public SEC filings reveals that as rank and file P&G employees were being outsourced and hiring freezes put in place that senior management increased their compensation while firing low level employees.

Additionally, the wife of Jon Moeller is employed as a Vice President-Global Packaging of P&G with total compensation of $750,000, quite a sum for a VP of packaging. Would P&G care to reveal anyone in a comparable position and their level of compensation? Does Mr. Moeller really want us to believe that no one in some emerging market economy has the technical skills for that position at a tenth of the price?

Non-Employee Directors Compensation

The total compensation paid to P&G non-employee Directors in fiscal year 2010-2011 totaled $2.4 million dollars. In 2007 the annual retainer fees for non-employee directors’ was increased from $75,000 to $100,000 or 33 percent.

Table 2.  Non-Employee Directors Compensation

The total non-employee Director compensation would have been higher had it not been for the resignation of Rajat K. Gupta, the businessman accused of securities fraud and conspiracy, and two other directors elected in late 2010 and early 2011 and therefore received only a prorated portion of their Director’s compensation.  Additionally, the number of non-employee directors’ changed over the time period. By way of example, in the 2007-2008 period P&G had 14 non-employee directors whereas in 2010-2009 P&G had 12 and in the current period they numbered 11 which suggests the average non-employee directors’ compensation increased each year as well.

In conclusion, over the last five years the total number employees at P&G has decreased from approximately 136,000 in 2006 to 127,000 at the end of 2010 while both the directors and senior managers have increased their levels of compensation.  While management of  P&G has every legal right to  continue to operate in this fashion quite possibly the American public comprising the 99% might think twice next time about purchasing that box of Tide or Gillette razors and send a strong and unequivocal message to the senior managers of P&G.

Posted in Economic Inequality, Executive Compensation | Leave a comment

The Seeds of Disingenious Economic Conflict

When one envisages conflict quite often strife of a personal nature comes to mind. However, in today’s milieu of interconnectedness facilitated by the ever increasing technological enhancements to communications we find ourselves not only involved in human conflict of untold proportions but an evolving economic conflict brewing on the horizon, albeit a disingenuous one!

The arrival of the “great financial collapse” which began in the summer of 2007 was hurried by the avarice of the financial oligarchs and their unholy alliance with the ruling although clueless elite in Washington. The pursuit of financial gain for the few at the expense of the many is nothing new in the world’s economies. The Harvard historian Niall Ferguson offered an eloquent and authoritative treatise on the history of financial calamity and malfeasance from the time of antiquity.

The contemporary economic conflict that is fermenting has its origins in the recent financial collapse with each country attempting to maintain its sovereignty and grow its way out of the economic tsunami that originated in the shallow water of the United States….specifically the financial sector of the U. S. economy. The financiers’ greed and penchant for the quick non-productive buck has placed the global economy of Main Street on the precipice of financial ruin and has resulted in the great recession of 2008-2009.

So what pray tell are the economic conflicts we should be so worried about? Well, first, the United States is limping along economically and the pace of job creation is dismal ….hence the ten percent plus unemployment rate in our economy.  Secondly, as countries attempt to grow their way out of the financial malaise they are inclined to adopt protectionist behaviors which begets additional protectionist behaviors until the tipping point is reached resulting in a dramatic shift to the left for the global aggregate demand curve.

The self-appointed experts and financial pundits would have us believe the protagonist of the ensuing conflict are the varieties of foreign currency regimes and currency valuations especially the increasingly polemic rhetoric around the Renminbi and the United States dollar exchange rate. According to Timothy Geithner, (yes the man responsible for the IRS…. yet did not pay his taxes….. and yes, the man partially responsible for the current financial debacle when prostrate at the feet of Robert Rubin and Lawrence Summers when Glass- Steagall was repealed under Clinton, ….and yes the man who was President of the New York Federal Reserve Bank when Wall Street was permitted to lever itself , in some cases 40 to 1) the current Treasury Secretary postulates the culprit of the United States current economic crisis  rests on a bilateral currency exchange rate discrepancy.  Simply have China revalue their currency and all our ills will go away. Speak about a disingenuous and spurious argument…did we not hear similar rhetoric from all the self-appointed “experts” in the 1980s when Japan’s currency, the yen, was also believed to be undervalued against the dollar. Last I looked, the trade imbalance with Japan continued to remain large even in the face of the yen’s dramatic appreciation against the dollar. Yet here we are, approximately $12 trillion dollars in debt, a current budget deficit expected to reach $1.8 trillion dollars, and GDP growth that is both jobless and anemic…….and it is all due to a bilateral currency exchange rate. Yeah right!

So what is missing in this current debate and looming economic conflict….possibly some common sense? What if we ask different questions…would that better frame the debate?  Why not ask the following:

  1. Why do the Washington elite continue to encourage a hollowing-out of our domestic production capabilities and continue to champion inappropriate tax policies that encourage consumption at the expense of investment?
  2. Why do the Washington elite continue to spend when they know we are simply adding to the financial burden of the current and future generations of Americans?
  3. Why do the Washington elite permit corporations to outsource jobs knowing that the financial burden in transfer payments to support the unemployed is disproportionally placed on the shoulders of the working class and not the corporations responsible for the layoffs?
  4. Why do the Washington elite permit almost 100% of the economic benefits derived from twenty years of growth in productivity to accrue to the top 10% of earners in America while the wages of the middle class have been stagnant over this same period?
  5. Why do the Washington elite permit CEOs to walk away with hundreds of millions of dollars in bonuses and then decry the working person in the United States a minimum wage of $7.25 per hour?

The simple answer is because they CAN! We have a populace that appears more concerned with the rants of a twit judge on some TV show about talent than about the economic and even worse, humanitarian conflicts. Moreover, we have a system that provides very little in the way of real choice given the constraints of a two party system. We have a capitalist system that has been hijacked by the ruling elite resulting in regulatory capture where profits are privatized while losses are socialized. And lastly, we have a system that has elevated the professions of economists and econometricians, social scientists, to heights equivalent to real science and have perpetuated their policy positions as infallible.

To quote a popular aphorism….”what we have here is a failure to communicate.” The failure on the part of our elected officials to communicate the economic reality they have placed the American people in; their failure to exhibit a lack of leadership in proposing realistic and necessary budgetary constraints; and the failure of the American people to take action, by what ever means necessary, to overturn the egregious economic policies imposed on the masses by the ruling elite attendant to their regulatory capture of our political system.

What we have here is a failure in leadership…..Amen!

Posted in Crony Capitalism, Economic Inequality | 1 Comment