Is Universally Free Community College a Good Idea?


President Obama has just proposed that two years of community college be free for all Americans “willing to work for it.”  Forty percent, or about nine million, of today’s college students are enrolled at one of America’s more than 1100 community colleges which have an average annual tuition of $3800.  First estimates are that such a program would cost about $6 billion per year when fully implemented. The advantages of such a program are:

  • The biggest advantage is to greatly increase college enrollments especially for the low-income, minority and first generation college students who typically attend community colleges.
  • It will make a contribution toward solving the college affordability issue. With tuition averaging $9,139 at public four-year colleges and universities and $31,231 at private institutions, students unsure of their future plans can start out with much lower expenses before deciding if they really want a four year degree. Equally important, it will put pressure on four-year institutions to do a better job of controlling their costs and focusing more strongly on what they do best.
  • Finally, such a plan will put great pressure on expensive for-profit educational institutions, whose primary source of income is from federal student loans, to demonstrate much more clearly their true educational value. Community colleges are likely to expand their course offerings under a big influx of new students and expand into specialized practical subjects where the for-profit institutions now have a virtual monopoly.

There is, of course, one nitty-gritty little thing to be concerned about with such an ambitious new education program.  How is it going to be paid for in our current era of high federal deficits and exploding debt?
I think there are two ways to approach this question.  First of all, the federal education budget is quite large, $141 billion for FY 2014.  We should be able to trim other education programs in order to pay for this new initiative.  This kind of budget discipline, which is absolutely necessary, might require cutting back the President’s proposal in order to reduce its cost.  This is quite appropriate.
There will always be good ideas for new programs which could prove to be quite valuable.  But they will need to be implemented very efficiently!

The President Plays Small Ball


As reported in today’s New York Times, ”Personal Tack by Obama in an Effort to Aid Parents”, the President held an all-day conference yesterday for working families, saying that

  • “Family leave, child care, workplace flexibility, a decent wage – these are not frills – they are basic needs.”
  • “There is only one developed country in the world that does not offer paid maternity leave. And that is us. And that is not the list you want to be on by your lonesome.”
  • “We need you to tell Congress, don’t talk about how you support families: actually support families.”


The economic journalist, Robert Samuelson, pointed out in the Washington Post a few days ago, ”The Jobs Mystery”, that even though our unemployment rate has now dropped to 6.3%, there are still 9.8 million officially unemployed people, plus an additional 7 million who would like a job but are not looking.  There are also 7.3 million part-time workers who would like longer hours.  This gives a really quite shocking total of 24.1 million unemployed or underemployed workers.
Granted we had a bad recession which was not the President’s fault, but it ended in June 2009, a full five years ago.  In the meantime his administration has done much to retard economic growth (passing ObamaCare and the Dodd-Frank Act) and little, besides huge deficit spending, to boost it.  He and the Democratic Party should be held responsible for this neglect and they probably will be.
One thing which would do a lot to boost economic growth is apparently contrary to liberal ideology and therefore off the discussion table.  I am referring to fundamental, broad-based tax reform whereby individual tax rates would be lowered across the board, but in a revenue neutral manner, by closing or greatly shrinking the loopholes and deductions which primarily benefit the wealthy.  The two-thirds of Americans who do not itemize their tax deductions would get a big boost in take home pay.  Since they are primarily middle and lower income workers whose wages have been stagnant since the recession began, they will tend to spend this extra income, thereby giving the economy a big boost.
If the President were to sincerely ask the House Republican leadership to work with the Democratic Party to boost economic growth, something along this line could be acted upon.  This is the way to really aid families.  Why doesn’t he do it?

What Is the State of the U.S. Economy?


On the eve of the President’s State of the Union address, the New York Times gives an answer to this question in today’s paper, “Obama’s Puzzle: Economy Rarely Better, Approval Rarely Worse”.  The charts below do show the basic trends all moving in the right direction.  But is this good enough?
CaptureThe unemployment rate is moving steadily downward but it is still a high 6.7% almost five years after the recession ended in June 2009.  And this is with a labor participation rate of only 58.6%, which is historically very low.
The budget deficit is dropping but is still unsustainably high.  In the five years, 2009 – 2013, deficits have totaled $6 trillion dollars.  As soon as interest rates return to their historical average of 5%, interest on this $6 trillion in new debt alone will total $300 billion per year, forever!  Furthermore, the Congressional Budget Office, the most credible source of budget information, predicts that the deficit is likely to resume an inexorable climb within a few years as baby boomers retire in ever greater numbers, rapidly driving up entitlement costs.
Economic growth was stronger than expected in the last quarter of 2013 and this is a good sign.  But it has averaged only about 2% since the recession ended which is very low by historical standards, in a post recessionary period.
The point is, do we really need to settle for such mediocre performance: a stagnant economy, high unemployment and massively accumulating debt?  Should we just declare that in a highly competitive global economy with an ever higher premium on information and technology, that we just can’t do any better than we already are?  Isn’t there some way to make our economy grow faster in order to provide more and higher paying jobs?
I think that the answer to this last question is an emphatic yes!  In fact, this is what my blog is all about.  Just read some of the other recent posts and let me know if you disagree with what I am saying!

More on Inequality: What Does the Data Mean?

In yesterday’s Wall Street Journal, the economist Robert Grady addresses “Obama’s Misguided Obsession With Inequality”.  The basic problem is that an important Congressional Budget Office report in 2011, “ Trends in the Distribution of Household Income Between 1979 and 2007”, is easy to misrepresent and misinterpret.  Here are three basic pieces of data from the CBO report:
Capture3CaptureCapture1The first chart shows that yes, between 1979 and 2007 the rich did indeed get richer relative to the rest of the population.  The second chart shows, however, that median household income increased by 62% during this same time period.  And the third chart shows that all five income groups made substantial gains at the same time.
As Mr. Grady says, “Here is the bottom line.  In periods of high economic growth, such as the 1980s and 1990s, the vast majority of Americans gain and have the opportunity to gain.  In periods of slow growth, such as the past four and a half years since the recession officially ended, poor people and the middle class are hurt the most, and opportunity is curbed. … The point is this: If the goal is to deliver higher incomes and a better standard of living for the majority of Americans, then generating economic growth – not income inequality or the redistribution of wealth – is the defining challenge of our time.”
So then, what is the best way to address income inequality?  Should we concentrate on raising taxes on the rich and increasing spending on social programs like we have done in the last five years?  Or should we rather concentrate on speeding up economic growth, as Mr. Grady says, in order to create more jobs and more opportunities for advancement?
Compare the enormous growth in the period from 1979 to 2007 with the stagnation of the past five years.  Isn’t it obvious which is the better way to proceed?

Is a ‘Do Nothing’ Congress Really a Serious Problem?

Today’s Omaha World Herald reprints the article “Get-nothing-done Congress is disrespectful to democracy” by the Baltimore Sun writer, Andrew Yarrow.  Mr. Yarrow says that “the 112th Congress, which ended in 2012, passed fewer bills than any Congress in recent memory, and the current 113th Congress is on track to do just as badly.  …  What Congress does do often seems patently ridiculous.  …  We need to … ramp up public pressure to get something done, rather than just fight.”
But is the problem just to do something, anything, or is it rather to do something worthwhile?  And what if there is a fundamental disagreement, as there is today, about what is worthwhile?  One party thinks that the way to boost the economy and speed up the recovery is to increase artificial stimulus (government spending) and to pay for it by raising taxes on the rich.  The other party is appalled by the $6 trillion in deficit spending racked up so far by the current administration and wants to slam on the brakes.  Each side is working as hard as it can to prevail, especially by discrediting and embarrassing the other side.  How do you resolve a dispute like this?
There is really only one person who has the clout and visibility to get this done and that is the President.  But when the President is the divider-in-chief, spending much of his time and effort proposing unsound economic and fiscal policies, intended primarily for short term political gain, what is the other party supposed to do?  Acquiesce by passing new laws that will just make things worse?  Or by standing firm on principle and hoping that the general public will be able to understand and appreciate its opposition to bad policies?
This is the situation which we are currently in.  It makes for a difficult and unpleasant time.  The economy is slowly recovering from the Great Recession on its own.  Let’s hope that this trend continues and that we can muddle through our present political predicament.

The National Significance of the Municipal Pension Crisis

The New York Times reported yesterday that “Chicago Sees Pension Crisis Drawing Near”.  “A crushing problem lurks behind the signs of economic recovery in Chicago: one of the most poorly funded pension systems among the nation’s major cities. … The pension fund for retired Chicago teachers stands at risk of collapse.”
William Daley, former chief of staff for President Obama and now a Democratic candidate for governor of Illinois says that “Anyone who thinks that this is just a problem on paper, those are the same people who looked at Detroit 20 years ago and said, ‘Don’t worry about it, we can handle it.’”  Chicago Mayor, Rahm Emanuel, another former chief of staff for President Obama, says that “What the system needs is a hard, cold, dose of honesty.  I understand the anger.  I totally respect it.  You have every right to be angry because there were contracts voted on.  People agreed to something.  But things get updated all the time.”
Just as Chicago and Illinois need a cold dose of honesty about the public pension crisis in that city and state, so does our entire country need a cold dose of honesty about our national fiscal crisis.  Shall we wait 20 years or until this problem explodes in our faces (or our children’s faces), or shall we start to deal with it now, while we can still proceed in a rational manner?
Our current public debt (on which we pay interest) is now $12 trillion.  With artificially low interest rates, we are paying “only” $250 billion annually in interest on this debt. When interest rates resume their historical average of 5%, our annual interest rate will jump to $600 billion.  Where will we find an additional $350 billion per year for interest payments alone?  Will we take it from entitlements, from social services for the poor, from our defense budget?  Or will we just increase our deficit even more to pay for it?  It will have to come from somewhere!
Wake up, America!  Learn from the municipal pension crisis.  Now is the time to get things straightened out.  Further procrastination will have dire consequences.

What Is the Best Way to Reform the Tax Code?


In today’s New York Times it is reported that President Obama, “Obama Proposes Deal Over Taxes and Jobs”, proposes “a cut in corporate tax rates in return for a pledge from Republicans to invest in more programs to generate middle class jobs.”  Reducing the top corporate tax rate from 35% to 28%, for example, balanced by tightening tax deductions and loopholes, would raise additional revenue on a one time basis as companies switch from one tax system to another.  It is this new one time revenue which would be spent on the president’s priorities.
The President’s proposal has given a boost to Senator Max Baucus and Representative David Camp, the chairs of Congress’s tax writing panels, “Lonely Bipartisan Push to Overhaul Tax Code Finally Gets Noticed”, who are working together to construct a broad based, pro-growth, plan to reform the entire tax code, for both individuals and corporations.
Which is the better way to proceed?  What is the best way to boost the economy? Revamping only the corporate tax structure to raise new tax revenue for public spending projects?  Or by eliminating as many deductions and loopholes as possible over all in order to enact the lowest possible tax rates for both individuals and corporations?
To me the answer is obvious.  It is investment, risk taking and entrepreneurship which create the most jobs for the long term.  The best way to stimulate the private economy is with the lowest possible tax rates for all.  It is unfortunate that the President will not accept this basic economic truth and work with Congress in a bipartisan manner to move the economy forward and create more jobs.