Is it a pay-to-play scheme?

Is it illegal? Is it even wrong? These questions are asked about the intermingling of the Clinton Foundation and Hillary’s official activities as Secretary of State. Each side has its own vastly different viewpoint. There is no doubt that people attempted to use their favored position as Foundation donors to make contacts with government officials. Their purposes are varied and somewhat unclear. But in general either they had a favor to ask or they wished an opportunity to express their opinion on some matter of importance to them. So far, there is no evidence that these contacts directly achieved anything of value. Hence the Clinton camp claims that there is no wrong doing.

But that misses a crucial point that can be best illustrated by this example. Let us suppose that a businessman is wooing potential investors for an important project. They are reluctant because he doesn’t have a successful track record and they don’t know if they can trust his claims. In the midst of a negotiating session, he says that he must leave because he has a meeting with the Secretary of State. They are impressed but wary that this might be just another flamboyant claim. Then he offers for one of them to accompany him to meet this high government official. Naturally they decline, viewing it as a likely imposition, but now they do see this businessman in a new light. Clearly he is a man of importance with high government contacts. Perhaps becoming his partner is a worthwhile investment after all.

IMG_0544Of course this example is contrived but it does illustrate how simply having access can be very valuable even if it produces nothing directly tangible. Both Hillary and Bill are well aware of this and they exploited it to gain Foundation donations and lucrative speaking engagements. In my opinion, the case is clear. This is wrong even though it might not violate the law. While it is true that such slimy influence peddling is common in Washington, that doesn’t change the fact that it is morally repulsive.

If Hillary has been doing this deliberately with full awareness of these issues, she is morally degenerate. If she has only overstepped bounds inadvertently and with the best of intentions, then she is too oblivious to be trusted with any serious responsibilities. Neither possibility speaks well for her ambition to become our next President.

Recently the Clintons announced that they will sever relations with their foundation if Hillary is elected President. They phrase this as an attempt to eliminate any possible perception of impropriety, not as an admission that there is something wrong to be remedied. That is obtuse. This is not an issue of mistaken perceptions. If their intentions are pure then they should terminate the foundation forthwith, not wait until they have achieved their political ambitions. The Clinton Foundation has done a lot of good work and that should not be forgotten. One possibility is to turn over all of its activities to another active international charitable group, such as the Bill & Melinda Gates Foundation. Nothing would be lost except a money pit for the Clintons and a dangerous pothole in Hillary’s road to the Presidency.

The Cost of Higher Education

Stei111202Higher education is fast becoming essential for a comfortable future life, and it is even faster becoming unaffordable except for the rich. Horror tales abound of students graduating with crushing debts. Just today there was a story of a student approaching graduation with a good degree in a STEM field but with $190,000 in debt. When asked about her feeling about the future, she answered succinctly, “I am scared.

However there is a problem with this picture. In fact, overwhelming debt is not the price of a good education. It is the cost of poor choices. This might be excusable if the information needed to avoid this problem were hard to find, but it is not. Can you use a computer to search the Internet? If not, you aren’t prepared for college anyway. But if so, you can easily find excellent colleges that are relatively affordable, at least in the sense of minimizing your debt load.

There are good schools, with representatives in virtually every state, where a high quality education can be obtained for less than $11,000 per year, and many for much less than that. I picked this limit for discussion because it results in a workable debt load while truly opening the field for a quality education in any field of interest. This is the “net cost of attendance“, which is a far better measure than the published tuition and fee costs.

Total cost of attendance” is the yearly sum of tuition and required fees, books and supplies, room and board, and incidental expenses. The net cost subtracts from that the average amount of federal, state/local government, or institutional grant or scholarship aid. Even accounting for inflation, this may result at worst in a large but manageable debt, especially if the college major is chosen with a judicial eye on earning potential. And this doesn’t even account for any contributions that a student can make from work or savings.

This claim is not an idle boast. Here are just a few examples. The University of Massachusetts – Boston, actually in Amherst, has a national recognition and vast resources. Its net cost is $10,575. University of North Carolina – Charlotte has a similar academic reputation to the better known campus at Chapel Hill and is the state’s principal research university. Its net cost is $10,442. Stanford University is one of the nation’s elite universities and it deserves this reputation. Its net cost is $10,109. San Diego State University is well-regarded and is considered by Forbes to be among our most entrepreneurial universities. Its net cost is $9,856. Indiana University – Kokomo is smaller than its Bloomington counterpart but offers a similarly top-class education, with a student-to-faculty ratio of just 18:1. Its net cost is $9,834. As I’ve said, this just scratches the surface.

Advanced degrees, often almost essential in certain fields, entail more than the standard 4-year course of study and hence add to the debt burden. However it is usually possible to obtain graduate fellowships or other university-sponsored work that will minimize this cost. Moreover, there is the possibility of using the baccalaureate degree as entrance to your field in a company that helps sponsor graduate education for its employees.

If you are a good student with the grades and resume that can gain you entrance into our elite universities, the picture is even rosier. Both of the two top 10 universities that I attended make a firm offer that no qualified applicant will be unable to attend for purely financial reasons. They will make up the shortfall no matter how large, with the understanding that the student and her parents will contribute what they reasonably can.

The bottom line is that, as is often the case, financial difficulties are often self-imposed. But there is a hidden but important issue. Don’t just assume that this major investment of money and time will necessarily lead you to a life of plenty and the ability to support a family. A major in Elizabethan literature is its own reward but not likely in financial terms. Even some STEM majors are now at risk to technology advance, as I have discussed before. Make smart decisions.

The Dismal Science and Uncomfortable Truths

The day after Christmas, Bernie Sanders posted on Twitter: “You have families out there paying 6, 8, 10 percent on student debt but you can refinance your homes at 3 percent. What sense is that?”

I can’t imagine a more representative comment from the Dunderhead School of Economics (DSE). Is it possible that he really doesn’t see why there is a difference? Suppose he was making such loans from his own pocket, and not as a charitable contribution. Would he really charge the same rate for a secured loan to someone with a solid financial rating as he would to a young person with no resources and uncertain prospects? If so, he wouldn’t do it for long. And soon it would be he who would need to find a charity to buy his “three hots and a cot”.


If we are speaking of charity, why charge any interest rate at all? Why not take these loans out of private hands and dispense the funds directly from government coffers. After all this is an investment in one of our most precious resources, one that could return a large profit to the community in years to come.

But then one might ask if that is really the best use of our finite resources. Should we invest in the relative few who are educating themselves for a likely prosperous life or should we provide vital support to the many in dire need of food, housing and medical care? If you say we should do both, I can safely assume that you are also an alumnus of the good old DSE. Try taking a short refresher course in Opportunity Cost. Or better yet, read the original source material in Austrian economist Friedrich von Wieser’s book Theorie der Gesellschaftlichen. I am sure an English translation of this classic is in your local library.

Citizens United Strikes Again!


superpacWhile not yet an announced candidate for 2016, Jeb Bush is reportedly breaking new ground for how a campaign will be run. If he follows through, this will change things forever. His idea, widely reported in the press, is to delegate much of what campaign organizations traditionally do to his super PAC, Right to Rise. This will skirt very closely to the prohibition against coordination between a campaign and outside organizations, but with discipline he might pull it off.

In essence, the official campaign will concentrate on activities that require the direct participation of the candidate. Essentially anything else could be delegated, like phone banks, get out the vote operations, direct mail, TV advertising, etc. The advantage is money. The super PAC can raise unlimited cash from people, corporations, and advocacy groups, and its reporting requirements are illusory. The strictly limited campaign can then undertake activities that are less expensive. The difficulty is to avoid conflict between these parallel organizations and to present a cohesive message. However, from what I hear about the way staffing is planned, this has a real chance of succeeding. Law suits are likely but at the worst Bush can delay them in the already sluggish courts until their effects are moot.

This is the logical consequence of the Citizens United decision, which opened the spigots of unrestricted campaign money by corporations, unions, and other such associations. If it succeeds, others might try it this time but everyone will in 2020 and beyond. We will see campaigns run directly by the Koch brothers, Sheldon Adelson, and the like. In a sense, this is more open and forthright than the current farcical masquerade that pretends that super PACs are independent expressions of citizen participation. But it also exposes Citizens United for what it does to our political system, and perhaps that might lead to reining it in. I hope so.

A Financial Conundrum

The last time I checked, the highest rated sovereign debt instruments of Germany, Austria, Finland, France, Belgium and the Netherlands are selling at negative interest rates. Talk about capital risk! Buyers are assured of a loss even compared to stuffing their cash in a mattress. And these buyers include some large funds run by experienced investment managers.

So why are they doing that? Is there something going on in the EU that investors should worry about? It is true that Swiss banks also pay negative interest rates, but at least they might offer the “advantage” of being able to hide money from tax collectors.

The Oracle of the Fed

yellinWell, the Fed has spoken again, and it is as obscure as always. Yellin and her fellow Governors keep moving the boundary markers for taking monetary action. I think employment has them mystified. They initially set a target of 6%, which was the classic full employment level. As employment participation dwindled, they reset to 5.6-5.7%, then 5.5%, and it is now 5.0-5.2%.

We are evolving to an economy where many who would be expected to work simply don’t seek or need full-time employment. This shows up at young ages and in older ones too, for both of which there are adequate support cushions from family and government programs. Still by all prior standards we should have had demand pressure leading to wage growth and it isn’t happening. Meanwhile inflation stubbornly keeps threatening to drop from its current anemic level. That shouldn’t coincide with our exploding federal deficits, but it is. Something fundamental has changed and the Fed — plus everyone else — doesn’t understand it yet.

Regardless, GDP growth, inflation and employment are really not what is holding back the Fed. They are scared witless of the prospects, already in progress, for a strengthening dollar. That is a bit puzzling because a strong dollar is not necessarily bad news. In a strong economy it is actually a blessing. One must conclude that the Fed is suspicious that our economy is far more fragile than the data seem to imply.

But of course, the Oracle of the Fed always speaks obscurely, so who knows what they are really thinking?