Internet Gambling: Recent Legislative Activity

A story in today's BNA Electronic Commerce & Law Report mentions the actions of the House Judiciary Committee last Thursday (May 25) in reporting out to Congress two bills dealing with Internet Gambling.

The first, HR 4777, passed out of committee 25-11. This bill, known as the Internet Gambling Prohibition Act, amends the federal Wire Act (18 U.S.C. 1084) to include internet activities. It also prohibits gambling establishments from accepting payments from the U.S. in connection with unlawful gambling activity.

The text can be found here: http://thomas.loc.gov/cgi-bin/query/F?c109:1:./temp/~c109TEnTli:e10171

Of course, one problem is that the online gaming establishment will be offshore, and probably not within the jurisdiction of U.S. courts. In that case, the bill provides for a procedure for relief against an "interactive computer service" that is limited to disabling a link to the site. I am not certain how this will be done, or whether this has any hope of being effective from a technological standpoint. The fact that about 1/3 of the committee voted against this bill may suggest some reservations about enforceability, or it may represent some discomfort with expanding limits on internet gambling.

Significantly, this bill does not "ban" internet gambling: that issue is left to the states and the tribes. But query: will this bill in fact expand Internet gambling by allowing tribal authorization?

This bill merits further study and careful watching.

The other bill, HR4411, is the "Unlawful Internet Gambling Enforcement Act of 2006". This bill also makes it illegal to accept payments for unlawful gambling transactions, and it also imposes obligations on electronic payment systems to identify and block prohibited transactions. According to the BNA report, this bill came out on a voice vote.

The text of HR4411 can be found here: http://thomas.loc.gov/cgi-bin/query/F?c109:2:./temp/~c109k8Sh4N:e32244

Congress has toyed with provisions like these since 2003, but so far there has been little movement. The fact that these bills have made it out of committee suggests that there may be interest in doing something about this growing phenomenon, which is estimated at $12 billion in patron losses for 2005. However, it remains to be seen how the votes will stack up, and moreover how the gaming establishment will deal with these bills. More to come on this.

EAM

Memorial Day Thoughts

We just finished a quiet evening with family in celebration of Memorial Day. I am blessed to have a father and father-in-law who served in World War II and Korea, respectively. Unlike many of their close friends, they were able to come home, start families, and live through the life we know as the American Dream. Thanks goes out to both of them, and at the same time we remember their fallen colleagues who did not make it home.

I spoke a little with my daughter, Caroline, about the meaning of Memorial Day. Occasionally I listen to talk radio, and one of the prominent hosts this week has been having some fun with the fact that college graduates don’t know the National Anthem. So, I figured I would see how well my girls knew it. They did just fine. And of course, we talked about what it meant to live in the “land of the free, and the home of the brave.” The fact that we have brave people like my father and father-in-law allows us to live in the land of the free.

Caroline, who is eight years old, offered this observation about the death of her grandfathers’ friends during wartime: “In a way, their death could have been good, in the sense that it made their friends mad enough to kill their enemies. Revenge is not good, but in times like that it can be important in winning a war, like World War II, Korea, or Vietnam.”

I was a little surprised at this prescient view of life and death from an eight-year-old mind. She is right, of course. And no doubt she got some sense of this from listening to stories from her grandfather. (And her understanding that revenge is not good no doubt comes from Sunday School.)

We must make sure every generation remembers the cost of freedom. If we think carefully and circumspectly about that cost, we are less likely to turn it into a license to be an idiot. And we could certainly do with more circumspection these days.

A Happy Memorial Day to all who live in the land of the free, and the home of the brave.

EAM

Global Warming and Hurricanes: Contestable links

An article in the May 29, 2006 Washington Times brings out the competing claims for truth underlying the recent “documentary” on global warming that is being promoted by former Vice President Al Gore.

http://www.washtimes.com/world/20060529-124851-7254r.htm

The contestable science behind global warming and hurricanes was mentioned on these pages several months ago.
http://economictrends.blogspot.com/2005/10/more-on-global-warminghurricanes.html

This recent piece points out that correlations to an increasing hurricane frequency may depend on where you look – there may be more in the Atlantic, but fewer in the Pacific, so when you take the total into account (after all, we are talking about “global” warming, aren’t we?) the net result is even.

I continue to cast a skeptical eye on the dramatic claims about global warming and, in particular, what should be done about it. If you have any reliable sources in this area, feel free to post them in comments.

EAM

Charity Auction for Buffett Item Promotes Online Casino

A story in Friday’s USA Today online reports that online casino Goldenpalace.com placed the winning bid for a ukulele offered by Warren Buffett. The proceeds of $11,211 will benefit Children’s Hospital in Omaha.
http://www.usatoday.com/money/2006-05-26-buffett_x.htm?csp=34

This looks like a nice gesture by the Goldenpalace.com firm, but I doubt it is charitably motivated. This Antiguan firm may well care about children in Omaha, but I would bet that this purchase is oriented toward promoting its business, which is clearly illegal in many states and arguably illegal under federal law. (Some in Congress would like to clarify this position, but oddly enough this legislation seems to languish and die – at least it has done so since 2003.)

According to the article, Goldenpalace.com will put the ukulele in a traveling museum it takes around the United States, along with some of the other unusual items it has purchased in recent months. This traveling museum is a clever way to promote a business without actually “aiding and abetting” an illegal activity, which itself could give rise to criminal liability.

I doubt that Mr. Buffett, who has gone on the record as opposing gambling, did not consider the possibility that his generous gift would end up giving significant publicity to a firm of this nature - publicity that would otherwise cost a lot more than the $11,211 it bid for the item.

EAM

Commodity Markets and Government Disruptions

In recent months, we have seen volatility in energy prices. Crude oil reached a peak of $75/barrel, but has now retreated below $70. Natural gas shows an even greater range, as it has now fallen to around $6/mcf, less than half the peak prices experienced this past winter.

Markets work. Higher prices drive changes in consumer demand, including conservation or product changes. For example, rental car companies now offer reduced rates on low-mileage alternatives, reflecting weaker consumer demand for gas-guzzling vehicles. Automakers are bringing to market more smaller, fuel efficient vehicles. On the supply side, higher prices create incentives for production, including the production of substitute goods. This all works wonderfully well if the process is not disrupted.

Unfortunately, politicians feel the need to disrupt these processes. The predominance of their own interests in preserving their power base, sometimes at the expense of the longer-term wellbeing of the republic, leads them to pander to what they perceive to be the popular demands in the marketplace. Targeting big business is good politics, even when the price increases are beyond their control. (An excellent piece in National Review Online by Thomas Nugent, reminds us that no one gave credit to the gas company executives when natural gas prices dropped dramatically. It can be found here:
http://article.nationalreview.com/?q=NWExN2Q4OTc4OTgxNWRjZmE4ZGY0MTA3NzNlMTlhY2Y=

Recently the FTC produced a report that showed that oil companies were not manipulating the marketplace or behaving inappropriately in connection with recent increases in gasoline prices. (Drs. Goss and Thompson and I showed the same thing in Nebraska in a report published by the Nebraska Attorney General’s office this past January.) However politicians of both parties, including longstanding supporters of the industry, could not resist the opportunity to wave cautionary flags (at the least) or continue bashing oil company executives.

Sometimes the disruptions come indirectly, though, through choosing the next alternative source of technological innovation or substitute product. We have been critical on these pages over tax incentives and credits for hybrid vehicles, which do not make economic sense even at these gasoline prices. However, tax credits for purchase make it easier for people to make the statement that they are “green” and supporters of a cleaner environment and for makers of these vehicles laugh all the way to the bank -- all at taxpayers' expense.

Ethanol production has gained significant political clout as oil prices have increased and politicians want to claim credit for providing the solution. (As previously discussed, attempts to claim credit for job production are laughable. Yet this persists, as shown on the front page of today’s Omaha World-Herald. The Iowa edition highlights the clash over job-creation claims by democratic gubernatorial candidate.) Senator Grassley, ever sensitive to the corn-growing significance of Iowa (which used to be known as the “Tall Corn State”), is now being joined by his colleague across the aisle, Senator Clinton. (Hmm, could this have anything to do with the Iowa caucuses? Or are they planting corn in New York?) (The Des Moines Register story on Sen. Clinton's change of heart can be found here:

http://desmoinesregister.com/apps/pbcs.dll/article?AID=/20060524/BUSINESS01/605240359/1030

Ethanol is a nice idea, as it does create a fuel from a renewable resource that is readily available. Moreover, the production process creates byproducts, including animal feed, that are useful (and in fact, feeding animals is a big part of the reason we grow so much corn.) The run-up in petroleum prices may even make this economical – but for the most part government incentives are propping up this production over the longer term. While this production provides a boost to rural communities and increases corn prices, one wonders about the long-term effects of this distortion of market forces. In the long-run, ethanol is probably not a viable substitute good for petroleum, particularly if oil prices moderate as many expect will happen.

In the meantime, corn producers will likely reap some benefits from the establishment support of the ethanol bandwagon. Corn markets are affected by many factors, including weather and export demands, and longer term futures prices for corn have increased significantly over the past several months. (A chart available at the Chicago Board of Trade site (www.cbot.com) will show this graphically - but I cannot figure out how to paste it in blogger. ) Decembe 2007 corn - a crop that will not even be planted for another 11 months, has risen from the $2.50 level in Marcy 2005 to $3.11 today. The strong upward trend suggests what the market believes about this commodity. If oil prices continue their slide, it is not at all clear that the emphasis on expanding ethanol will persist. This current situation may present some hedging opportunities for corn producers, who can lock in significant profits at these price levels.

EAM

The Verdict in the Enron Case: Some Unintended Consequences?

I watched on Thursday as government lawyers, news commentators, and former Enron employees celebrated the guilty verdict against Lay and Skilling. Judging by the general celebratory atmosphere that attended the jury’s announcement, it appears that virtually the entire American public believes that the two corporate executives had it coming. Many are proclaiming that beyond justice, the verdict was just what the markets need. It sends a clear message to corporate America that no one and no company is so powerful that it need not play by the rules, rules that are intended to protect investors and employees from unscrupulous CEO’s and executives. The result will be increased investor confidence in markets and increased confidence on the part of American citizens in big business and Wall Street. All of this is good for business, economic growth, and jobs.

Leaving aside the issue of whether the jurors in fact constituted Mr. Lay’s and Mr. Skilling’s peers (and were therefore qualified to pronounce a judgment based on an accurate understanding of the responsibilities, span of control, and limitations that come with being a corporate executive), I am nonetheless not so sanguine about the effect of the verdict. I admit that very little information is yet available, but early indications are that the jury did not find Lay and Skilling guilty based on the evidence that they knew about Enron’s true financial situation, rather they were convicted on the notion that they _should_ have known. If that is the case, then just what might an ambitious and aspiring corporate executive conclude?

Here is what I would conclude. First, the risks involved in being a corporate executive have just been made a lot higher. Maybe it’s not worth it, unless the salary on offer is higher. So much for helping to lower executive compensation. Second, if one accepts the risk (and the higher salary), one still needs to protect oneself. Since the standard is no longer what one does (or did) know but what one should know, me thinks that many new executives are likely to opt for a more hands-on management style (read micro-management). The last I checked that is a recipe for corporate stagnation, and that is not good for business, growth, jobs, or investor confidence. Third, many will calculate that no salary is high enough to compensate for the increased risk involved in corporate management. Consequently, the best and brightest will increasingly opt for other than careers in business.

Just some thoughts from a skeptic.

Inflation: How Bad Is It?

Last week the Bureau of Labor Statistics released data on consumer prices for April. Unfortunately, the numbers were not comforting on the inflation front with year-over-year growth of more than 3 percent in the overall consumer price index (CPI) and more than 2 percent in the core CPI (excluding food and energy). Investors did not take this news well with the stock market moving downward since that release. Of course the reason for this negative outlook for investors was the renewed belief that the Federal Reserve (Fed) will continue to raise interest rates in the months ahead to quell this "excessive" inflation.

The Fed has now raised short-term interest rates by 4 percent in the past 2 years. However, even with the Fed’s foot on the brakes, and rapidly rising energy prices, the U.S. economy continues to expand at a breakneck pace. Not surprisingly, we are recording some pass through of higher energy prices with transportation firms adding surcharges that are showing up in supply prices.

The prices-paid index for April from our survey of purchasing managers in 9 states rose for the second straight month to 79.1 from March’s 78.6 and February’s 74.3.
www.outlook-economic.com

Last week Fed chief Bernanke issued a more positive short-term interest rate outlook. Given the budding inflation that we are seeing in our survey and in other regional and national data, I expect the Fed to continue to raise rates in the months ahead. I place the likelihood of Fed rate increase at more 70 percent at its June meeting. Higher short and long term interest rates have failed to slow even construction in the region as individuals and businesses undertake projects in anticipation of even higher rates in the months ahead.

The Fed has indicated that future rate changes will be data driven. So what data should investors be watching for early indications of Fed actions. Here are data releases that you should pay special attention to:
1. The employment report released on June 2 (http://www.bls.gov),
2. The CPI released on June 14 (http://www.bls.gov) and
3. The yield on the 10-year U.S. Treasury (http://finance.yahoo.com).
4. On June 1, we will release our regional ISM report (http://www.outlook-economic.com) while the national ISM will release the equivalent national report (http://www.ism.ws). Keep an eye on the prices-paid index for signs of inflation and the overall index for an expanding economy.
5. The next release of retail sales on June 13th (http://www.census.gov) will be an important gauge of consumer spending.

EPG

Iran and Russia’s Collapsing Stock Market

Russian stock markets have been having a bad time in the last several weeks. The benchmark RTS Index dropped 25 percent from an all-time high of 1,766 points on May 6. The worst day came on Monday this week, when Russian markets lost about $62.6 billion in value, the RTS falling to 1,318 points, a 9 percent tumble. Russia’s energy companies were not spared in the sell-off. Gazprom, the state-owned natural gas monopoly and Russia’s largest company by market capitalization, lost 12.5% of its value, while oil companies LUKoil and Surgutneftegaz lost 8.8 % and 11.1% respectively, and UES, the electrical monopoly, lost 9%.

The losses make May the second worst month in the history of the RTS. The worst month was April 2004 when the market fell 34% on news that the government was investigating Yukos, formerly the country’s largest private oil company, on charges of tax evasion.

Market analysts blame the losses on two factors: 1) rising global interest rates (particularly in the US and Western Europe) and 2) the US-Iran standoff. Both have motivated western investors to look for less risk and motivated a sell-off of stocks in emerging markets. (India’s stock market lost 10% of its value last week.)

Despite higher interest rates, Russia’s markets are likely to rebound on the strength of its energy sector. Continued high energy prices will entice western investment in Russian markets. However, the vigor with which they do so may be undermined by the global instability fueled by worries over Iran. Ironically, Russia has contributed to the problem. Pursuing a foreign policy intended to maintain high energy prices by keeping trouble spots simmering, it has undermined western efforts to impose meaningful sanctions on Tehran.

Happy Taxpayers Association

I could not pass up the opportunity to comment on this story, which comes from the Reuters news service. A group of 250 Finns have joined the Happy Taxpayers Association. Their goal: to focus on all the services that Finlanders get from paying the highest taxes in the E.U.

http://today.reuters.com/news/newsarticle.aspx?type=oddlyEnoughNews&storyid=2006-05-23T122448Z_01_L22608759_RTRUKOC_0_US-FINLAND-TAXES.xml&src=rss&rpc=22

I know some of my friends are in the Optimist club, but these folks seem more positive than normal. Lest you worry that something has been put into the drinking water by government officials, I'm happy to report that the Taxpayer's Association of Finland, which focuses on lobbying for tax cuts, has 190,000 members.

EAM

Barbaro and Bernardini

I have noted with interest the outpouring of sentiments and support for the recovery of Barbaro, that magnificent horse who was seriously injured in Saturday's Preakness Stakes.
This goodwill and support is heartwarming, to say the least. We all hope and pray for a speedy recovery for this horse.

Did you notice who owned the winning horse, Bernardini? You can find the answer here. http://en.wikipedia.org/wiki/Bernardini

Hint: Congress just told a company from his country that it couldn't be trusted to manage port operations. I guess racing horses involves a different kind of risk, no?

Absolute Truth is Worrisome?

"President Bush's certitude about what he believes in, and the division between good and evil, is, I think, different," said Albright, who has just published a book on religion and world affairs. "The absolute truth is what makes Bush so worrying to some of us."
Thus spoke former Secretary of State Madelyn Albright in an article posted yesterday: www.cnn.com/2006/POLITICS/05/22/albright.bush.reut/index.html

Secretary Albright contrasts President Bush to her former bosses, Bill Clinton and Jimmy Carter, whom she says are free from this putative sin of the integration of one’s faith into one’s actions. And of course, she thinks an absent faith is best when it comes to public affairs.

First, her distinctions about religious influences in the lives of her bosses, Clinton and Carter, ring hollow. Doing a quick search in Westlaw news services, there are many stories involving Clinton and the Bible. Consider this story from Sonya Ross of the A.P. on January 30, 1999:
“The Bible on President Clinton's desk is always open to the book ofGalatians, chapter 6,
verse 9, ready to read in case the troubles start to eat at him: 'Let us not be weary in
well-doing, for in due season we shall reap if we faint not.'

When that same verse recently rolled off a minister's lips in Buffalo,N.Y., Clinton's face
shone with surprise. He declared the moment one that'I will remember all my life.' Later,
he grasped the preacher's hands andthanked him, twice. In the president's spiritual struggle, one year after the publicrevelation of his affair with Monica Lewinsky shredded his personal life,he taps an informal network of ministers who pray for him or offer himadvice. Aides
study his mood, alerting that network when they believe anencouraging phone call or letter would be in order.”
***
That does not sound like a person whose faith is disconnected from his official duties. Of course, we could say the same for Jimmy Carter. I have no doubt his belief in “blessed are the peacemakers …” from the Beatitudes had an influence in his desire to bring peace to the Middle East at Camp David. He attempted to use his faith to help the poor and the weak. We can disagree about whether his policies were effective toward those ends, but it is quite clear that he was trying to do what he believed was right, and that religious principles influenced those beliefs.

Secretary Albright also seems uncomfortable with a belief in right and wrong, good and evil. But I fail to see how this is a good thing. Those who refuse to believe in these concepts also tend to wish not to be bound by them in their own lives. In the process of weighing their own interests in the balance, they find it easy to take away the interests of others “for the greater good.” Much evil has been done in the name of seeking the greater good by people who abandon absolutes.

Secretary Albright, like many on the left who profess tolerance, is simply using this criticism as a tool for political gain. She doesn’t like the war in Iraq, and criticism of the President's religious convictions is just another way to advance the anti-war position. In fact, she singles out this quote from the President's address at the 2004 Republican convention as an example of his "over-the-top" rhetoric: "We have a calling from beyond the stars to stand for freedom."


The concepts of freedom and liberty relied upon here are dimensions of human dignity, which many find to be rooted in religious concepts. The Declaration of Independence reflects this tradition that some rights are endowed by our Creator; what is so wrong with recognizing this in our public discourse? We might all do well to remember this language uttered by one of our former Presidents:
“Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe to assure the survival and the success of liberty.” (This is found on JFK’s tomb.)

I don’t deny that working out the particulars of this grand statement can be a complex task.
But I don’t see the kind of commitment that JFK articulated coming from critics of the administration. And I think we could all use a little wisdom from above to help us to see the light on this and many other issues.

EAM

A Protest in Name Only: Rice to Boston College

I am not normally comfortable indulging in political arguments. However the latest idiocy surrounding Condoleezza Rice's commencement speech at Boston College deserves at least a note from college professors.

Today, the National Public Radio network reported that an adjunct professor of English at Boston College had resigned his position in protest of Secretary Rice's commencement speech. As a tenured college professor, I was not aware that an adjunct professor could resign after the end of the academic term. An adjunct professor's position is, by definition, temporary and exists from semester to semester. Since Boston College's spring commencement ended the semester, all adjunct professor's positions on campus ended. What bravery!! Nice try and I'll bet that professor will be pontificating again in the Fall semester.

EPG.

Rural Economy Perks Up

The Survey of the Mainstreet Economy for May indicates strengthening in the economies of the non-urban, agriculturally dependent portions of the seven-state survey area for the month. However, retail sales remain weak across non-metro areas of the seven states.
Bank presidents and CEOs in the region, which includes the rural and non-urban portions of Colorado, Iowa, Kansas, Missouri, Nebraska, South Dakota and Wyoming, reported expanding economic conditions as the overall index increased to 54.5, its highest level this year, up from April’s 48.0, and above growth-neutral 50.0.

For more details go to: http://www.outlook-economic.com/MainstreetEconomy.html

Bankers reported that farm land prices continue to grow with a May reading of 60.9, up slightly from April’s very healthy of 60.4. Craig Brewster, President of Butte State Bank in Butte, Nebraska said that, “In our area we have two different land values. The dryland and pasture in Boyd County, Neb., has maintained about the same value. The irrigated land in Holt County, Neb., has seen a decrease in land values. The decrease in irrigated land values in Holt County is due to energy cost.”

Furthermore, drought conditions are having a negative impact of farm land prices in some areas. President Mike Bass of the First National Bank of Hugo, Colorado, said, “The drought continues in our area. Our winter wheat crop is starting to suffer from a lack of moisture.”
Farm equipment sales dropped below 50.0 for the second straight month to 43.5. Higher farm costs related to energy prices continues to cut into farmers’ willingness to buy new farm equipment. More than 30 percent of bankers reported that higher energy prices were having a significant impact on farm operations. “Farmers are switching to all-electric irrigation systems to minimize diesel and natural gas inputs,” said President John Schmaderer of Tri-County Bank in Stuart, Neb. Only four percent of survey participants reported that higher energy prices were affecting business operations in their area.

Hiring in the rural areas strengthened dramatically to 62.1 from April’s 39.4. Job growth was much stronger in Wyoming and Colorado where higher energy prices are positively affecting growth. Bankers in Kansas and Missouri reported downturns in hiring while CEOs in Nebraska, South Dakota and Iowa detailed solid upturns in hiring. “Mainstreet is doing fair to good. A new ethanol plant in Northwest Kansas will be up and running. Two more are being built,” reported Joe Kennedy, CEO of the First National Bank in Frankfort, Kansas.

May home sales were weak and the availability of homes in many areas is restraining growth. President Charlie Walsh of Burlington Iowa’s Farmers & Merchants Banks and Trust said, “I believe, interest rates will continue to rise. Homes sales are down due to a lack of homes in the housing market. Our certificates of deposits are up due to a special we had during the month of March 2006.”

Confidence abounds in rural areas that have ties to energy production, especially ethanol. “We have some potential good job growth on the horizon. We have a biodiesel plant that will become operational in March 2007,” said Dale Torpley, President of Federation Bank in Washington, Iowa.

CEO Steven Lane of Security Savings Bank in Farnhamville, Iowa, added, “The building of two ethanol plants in the area has stimulated new jobs at a better pay scale. Seems to give everyone a brighter attitude.”

Banking conditions remained robust with expansions in loan volume, checking deposits and certificates of deposits with indices of 74.2, 57.6 and 59.1, respectively.
Looking six months out, bankers see future conditions even stronger than current conditions with a May confidence index 62.1, up from April’s 54.3 and March’s stable 51.6.

Responses to two specific May survey questions showed that:
* About 4 percent of CEOs expect higher energy prices to significantly affect businesses operations compared to over 30 percent that anticipate escalating energy costs to significantly impact farm operations.
* Almost 61 percent of CEOs report that their area is not vulnerable to corporate re-structuring as recently experienced by Newton, Iowa with the announced closure of the Maytag plant.

The Russian Diaspora and Russian Economic Growth

In a recent article published in Post-Soviet Affairs (vol. 22, no. 2, 2006, pp. 90-98), Gérard Roland constests the widely-held view that despite rising oil revenues the Russian economy has been slowing down. Arguing instead that Russia has been experiencing steady growth, he challenges the notion that investor concerns stirred up by the breakup of oil giant Yukos - a goodly portion of which subsequently was purchased by the state-owed gas monopoly, Gazprom - have seriously undermined the Russian economy. Roland makes the case by pointing out that GDP and private consumption have been on the rise since the first quarter of 2003, during which time government consumption has remained flat. While much of this owes to world oil prices, he points out that GDP has been growing across a number of non-energy sectors.

Roland contends that these positive trends together with an improved unemployment rate, a strong fiscal surplus, and low inflation portend continued growth in spite of increasing corruption and a decrease in Russia’s competitive ranking (as well its rankings on protection of property rights and judicial independence). Nonetheless, not all is rosy. While the outlook for the mid-term appears good, prospects for the future are clouded by, among other things, Russia’s demographic problem.

Virtually every one of the world’s most developed economies is faced with a similar challenge, but Russia’s is quite a bit worse on a number of dimensions. For starters, the average life span of a male is now less than 59 years, and the average number of children borne by a Russian female is below 1.35. If this continues, the country will have lost one-sixth to one-fifth of its current population by 2050.

In order to sustain economic growth, Roland predicts that Russia will have to open its doors to mass immigration by Turkic-speaking Muslims from Central Asia. I quite doubt that it will look in that direction. During the Soviet era, central planners were quite concerned by the prospect of core Slavic areas, Russia among them, being overwhelmed by Central Asian peoples. The Russian population, as well as the country’s elites, remain firmly opposed to such an occurrence.

A more likely source of replacement population is the Russian diaspora. During the Soviet era, Russians moved to virtually every corner of the empire to provide a loyal and well educated work force in the defense industrial sector, a sector that thoroughly dominated the economy. Upon the breakup of the Soviet Union, these Russians became citizens of a “foreign” country, often unwillingly so. While many of them have since immigrated to Russia, millions remain outside of Russia’s borders, providing the country with a population reservoir for the future.

Russia is loath to tap this reservoir at present as it provides the country with a “fifth column” of sorts in those states immediately bordering it. While not directly involved in subversive activity, the Russian diaspora remains largely unassimilated in many of these states. Further, the diaspora provides a conduit for Russian business (and state influence) to maintain a major presence in places such as Ukraine, Estonia, Latvia, Moldova, Georgia, Azerbaijan, Kazakhstan, and Uzbekistan. However, were Moscow to engage in a concerted effort to entice a sizeable portion of this diaspora to leave for jobs inside Russia, not only would the Russian economy be strengthened, but the resulting migration potentially would constitute a brain-drain that would leave many countries economically more dependent on Russia, among them Ukraine and the Central Asian states.

Things I Learned Today About "Rain Parkas"

In my law school classes, I am often learning things from my students. Legal education is really a great enterprise for this reason. When you put together a group of interesting and bright people and start asking questions, you are bound to come up with some new perspectives on the world. This presents the possibility of something new every time we meet.

One of our cases today involved a dispute among partners about the obligations they owe to one another over new business opportunities. One of the litigants wanted to sell "rain parkas", but his partners nixed the idea. A "rain parka" struck me as an odd product indeed. In my mind, a parka is a heavy coat designed for cold weather - usually lined with fur or, perhaps in more modern versions, with some material with similar insulating properties. If you are wearing a parka, chances are you aren't worried about rain - you are worried about snow and ice.

And when I google the term parka, among the first entries is the "parka pages", which feature cold people standing in snow with a sports car with a T-Top in the background. You can check out their site here: http://www.foundmark.com/pers/parka.html
(Apparently if you wear these warm outfits, you can comfortably get your Corvette stuck off the road in a snow drift. But I would advise people not to try this at home. And I would also tell the woman in this picture to either wear a hat or put her hood up before she catches cold.)

But of course, some of my students tell me this is not what a rain parka means at all. They say a rain parka is something you wear with a hood, and it keeps you dry. It has nothing to do with fur or insulation. Since the partnership was in Oregon, then it make perfect sense to sell that to camping folks. But to my mind, this is a rain coat. Others chimed in that this was not a parka, it is a poncho. But then again, a poncho is not supposed to have arms, is it?

One of my very bright students (whom I will identify as Ms. D) sent me this website to confirm her views about the existence and commercial viability of rain parkas: http://www.onlinesports.com/pages/I,OLY-CL215P-3.html
As she points out in her lean and accurate comment: "No fur."

Of course, just because we find a website does not mean it contains the truth. After all, there could be a vast conspiracy of people hijacking the term parka for commercial exploitation, and thereby deprecating the content of our language. So I had to go to Merriam Webster to see what they say in this situation:

"Etymology: Aleut, from Russian dialect, ultimately from Nenets (Samoyedic language of northern Russia)1 : a hooded fur pullover garment for arctic wear2 : a usually lined fabric outerwear pullover or jacket."
http://www.m-w.com/dictionary/parka

Darn - they had to put that term "usually" in the second definition. So, I learned something new. Thanks to Ms. D for the new perspective. But I still think if you are in Alaska or Siberia and you call the yellow raincoat you are wearing a "parka", they will laugh to themselves and know that you aren't from there.

Happy Friday to all.
EAM

Kiddie Tax Change

One provision in the tax bill signed by President Bush yesterday increases the age at which the so-called kiddie tax applies from 14 to 18. Under prior law, unearned income of minor children under age 14 was potentially taxable at the parents' tax rate, thus limiting the extent of tax savings that could be achieved by gifting investment assets to children.

The extension of preferred rates on long term capital gains and qualified dividends helps take some of the sting out of this rule. To the extent that a child's taxable rate on long term capital gains or qualified dividend income would otherwise only be five percent, gains above an exempt amount ($850 tax free, plus $850 more taxed at the child rate) are taxed at the parents' tax rate, which is likely to be 15 percent. For short-term capital gains and interest, however, the rate differential from the child (as low as 10%) to the parent (up to 35%) is much more significant.

In terms of tax planning, I recommend an excellent article in the May 17, 2006 Wall Street Journal by Jonathan Clements, "Teen Angst: How the New Tax Law Court Hurt Your College-Savings Plan". It can be found at page D1.

One important point that is worth mentioning about this provision: It is retroactive. Thus, if you sold a stock for your 14 year old this year, thinking you were past the effects of the kiddie tax and that the youngster would pay a five percent rate, not your fifteen percent rate, you may be surprised to learn that the bill applies to taxable years ending after December 31, 2005. (See section 510(d) of the bill.) Waiting may be hazardous, however, with the market acting like it has the past few days. And of course, if you wait past 2010, you may face yet higher taxes on capital gains, as these preferential rates expire then.

EAM

A Detour on the Journey of Life

I'm going to go off on one of my rabbit trails this evening to discuss a personal experience that had some meaning to me. If this is not your cup of tea, then tune in again later. I'll be back on message regarding other "questions of policy and value within the public domain" soon enough. (I owe this phrase to one of my heroes, Prof. Jon Ericson, whom I hope tunes in from time to time.)

My family took me on a short journey yesterday, which was altogether unplanned. My wife found our minivan sitting quietly in the garage with a pool of pink fluid underneath. She was not shocked, since she had seen the same thing the day before after receiving assurances that the matter was fixed. Hoping the third time would be a charm, she took the vehicle back to the repair shop and called me.

That's where my detour begins: I was needed to take them from the shop to the Bethany Lutheran Home in Council Bluffs, where she and the kids were going to put on a short program for the residents. I did not plan this trip, but I left my work and gathered my cheery kids, along with their violins, music, and dance costumes, into my small car. The journey was on. I was not expecting much, and in fact I was a little miffed that the mechanic's work had not been completed as desired. Although I always like to see the kids growing through experiences like this one, I did not realize that I was about to expand a little, too.

The folks at Bethany are wonderful. They do a great job working with people in their oldest and most vulnerable years. The residents soon began to assemble, sometimes shuffling, sometimes rolling, into place in the dining room. After a short message from a visiting pastor (who spoke on abiding in God's love - something which no doubt means different things depending on the stages of one's life), the music began. It was not the best music from a technical standpoint, as young violinists still have much to learn. But hearing (or just seeing) music played by a child is an intangible benefit that cannot be duplicated though a CD version of world-class artists. The residents liked it, and they politely applauded after each number. The smiles on their faces displayed their joy in that moment.

In the middle stage of life, you find yourself focusing much on doing and achieving. This is not necessarily a bad thing, as you have gifts to share with the world and you need to make your light shine, not hide it under a bushel. Our season of productivity may not be as long as we would like, and we need to make hay when the sun shines.

But for many of these folks at Bethany, that time of doing and achieving had passed. They were now in a stage where the treasure they accumulated and the status they achieved presumably meant less to them. Their primary physical needs were being met, and a big part of their life goals and desires involved having people who loved them nearby, a prospect that for many was, I am sad to say, not realized as often as it could have been.

I'm glad for this experience. Sometimes the detours we are taken upon become the most memorable parts of the trip. We need to remember how fragile and brief life can be, as we focus on our doing and achieving. Loneliness pervades the lives of many of our seniors. If you know an older person who cannot get out much any longer, would you please visit him or her this week? I think the experience may be a blessing to you. It is likely to be a bright spot in an another person's life. And of course, we may be that other person in a few years.

EAM

Another Attempt to Punish Big Oil

In the latest act of political vengeance on the oil and gas industry, legislation sponsored by Rep. McDermott (D-WA) and Senator John Kerry (D-MA) would exempt these industries from participating in the tax benefits under section 199 of the Code. (A story on this appears on the Tuesday, May 16 edition of the BNA Daily Tax Report.)

Section 199 was enacted in 2004 to provide tax incentives for domestic production activities by allowing a deduction (ranging from 3 percent in 05-06 to 9 percent in 2010) from qualified production activities income. When our previous incentive system for taxing export income was found to be a discriminatory trade practice by the WTO, Congress decided to come up with something different. Instead of targeting exports, it includes all kinds of domestic production activity within the scope of this benefit. (Some taxpayers do get shut out, though – self-employed entrepreneurs – more to come on this in a later post.)

Section 199 is complicated and cumbersome to apply – it would be much better to simply lower tax rates and call it good. I would be happy to see it gone from the Code and to substitute instead lower tax rates for everyone. But for the time being, this is the world in which we live.

Kerry and McDermott are howling that these tax benefits will go to big oil and gas companies, which are now hugely profitable owing to recent spikes in commodity prices. So, they would like to take away these benefits in an effort to impose higher tax rates upon them.

Politicians have been relentless in their pursuit of ways to punish these companies for being profitable. The have tried windfall profits taxes (roundly criticized by many, including my colleague Ernie Goss in a recent post:
http://economictrends.blogspot.com/2006/04/windfall-profits-tax-is-bad-for.html)

and the removal of eligibility for the LIFO inventory method (which I covered in “Not on Your LIFO: Stealth Taxes on Oil, here:
http://economictrends.blogspot.com/2006/02/not-on-your-lifo-stealth-taxes-on-oil.html


Policymakers should remember: Oil was only $10 just a few years ago, and these companies were hurting then. These cycles ebb and flow. There will probably be lean years again in the future. It makes no sense to change tax policy for this industry when their golden period may well be for a limited time only. McDermott’s argument that oil companies were not part of the export subsidy provisions that section 199 replaced is also not persuasive – neither are most of the taxpayers who will benefit from this provision.

Let’s change the scenario a little. Suppose that wheat farmers in Washington State had a good year and grew a decent crop after seven lean years, and that wheat prices go sky high due to drought elsewhere. A wheat farmer may be sitting on 100,000 bushels of wheat that is worth maybe $5 a bushel instead of $3. Would anyone suggest imposing a special tax on their “windfall” or taking away some deductions to increase their tax rates? I don’t think so. (And since farmers are "my people", I should certainly hope not!)

EAM

Cuno: Another Example of Job-related Boasting

Yesterday’s decision by the U.S. Supreme Court in Daimler-Chrysler v. Cuno (May 15, 2006) dashed the hopes of opponents of state legislative practices granting special tax incentives to induce companies to locate in their jurisdiction. These groups see the tax competition inherent in these state practices as part of a "race to the bottom", which ends up harming the local tax base and enriching corporate coffers. (And they are probably right.) They are raising a challenge under the Commerce Clause, contending that this practice discriminates in favor of companies locating in their state. The Sixth Circuit bought that argument, and the issue was ultimately before the Supreme Court in a case being watched carefully in the tax and business communities.

As suggested in an earlier post in this blog,
http://economictrends.blogspot.com/2005/10/supreme-court-watch-cuno.html
the standing issue presented an important alternative for the Court not to reach the substance of the Commerce Clause claims. The standing question involved whether these taxpayers, by virtue of their status as persons generally affected by the credit provisions granted had a basis to challenge the law.

The Supreme Court said they did not, and I think they made the right call. As the Court explained, the case or controversy requirement imposed as a precondition for jurisdiction had important origins in the structure of the government. The court quoted from Chief Justice John Marshall on this point:

“If the judicial power extended to every question under the constitution it would involve almost every subject proper for legislative discussion and decision; if to every question under the laws and treaties of the United States it would involve almost every subject on which the executive could act. The division of power [among the branches of government] could exist no longer, and the other departments would be swallowed up by the judiciary." 4 Papers of John Marshall 95 (C. Cullen ed. 1984).

Standing is the doctrine that enforces the limitation of this requirement. Broad taxpayer standing has the potential to move what should be a legislative matter into the realm of the courts, which can then substitute their judgment on what amounts to fundamental political issues. Of course, since a Commerce Clause challenge was involved, there would always be the chance for Congress to speak on the issue in order to clarify the powers of the states to enact incentive provisions if they wanted to do so. However, getting them to act can also be problemtic, as we have witnessed in many respects during the past year.

The most appropriate approach for getting rid of tax incentives is to convince your legislators not to enact them. There are many examples where these provisions end up affecting a location decision, but where the real cost of employment created (in terms of foregone taxes) is ridiculously high. (For a list of some incentive provision packages, I found this website:
http://www.siteselection.com/ssinsider/incentive/archive.htm You may find it interesting.)

However, it is tempting to perform an end-run around the legislature. Getting them to act in the interests of an informed citizenry is difficult. In fact, this relates to my post earlier today. If the legislators continue to claim that they are creating jobs by offering tax incentives for companies to locate in their jurisdictions, and taxpayers continue to believe them and vote them into office again (or into higher office, where responsibility for these decisions is now on someone else’s desk), we will continue to have irrational behavior in the incentives area. The jobs they are creating, in this case, are being paid for with public money. Whether that turns out to be a good deal or not may not be known for some time -- and by then the people have forgotten and the legislator is in a higher position because people believed his or her boasting about job creation.

I do think it is important to create a competitive and stable tax environment, which when combined with hard-working people with a solid and sensible legal system will be an effective incubator for entrepreneurial activity. I think this is a valid campaign issue. But that is a different position from making claims about creating jobs. Be careful out there, folks.

EAM

Ethanol Pioneers and Job Creators?

Here in Nebraska, the political engines have long been running leading up to the primary votes that occurred this past week. Hotly contested races in the Republican camps, including the race for the U.S. Senate, filled the airwaves with political ads. In contrast, Senator Nelson, the incumbent, could watch from the sidelines.

Now that the dust has settled and the candidates are looking towards November, we see some new ads coming out from Senator Nelson. The current ad sponsored by the Democratic Party strikes a chord with me that I will mention here. As you might guess, this was not beautiful music.

The ad is built around an ethanol theme, describing the senator as an “ethanol pioneer” during his term as Nebraska governor who created 3,500 jobs. He further describes a vision for the future in which Nebraska cornfields will replace foreign oil. (A nice idea, but not a feasible one.)

Let me first say I am not a Nebraska voter, and I have respect for Senator Nelson. I'm not writing this to campaign for anyone, or against anyone, in the senate race. But I do want to make a comment or two about the ad which relates directly to the themes of this blog.

As for production values, I guess showing the senator in a Carhart jacket and flannel shirt in the fields at harvest time makes for a good political image. I confess I don’t know how an “ethanol pioneer” is supposed to dress – I would suggest that a lab coat might have been more appropriate. On the other hand, since ethanol is grain alcohol (which has quite ancient origins), I would guess that an Egyptian outfit might also be fitting for an ethanol pioneer. (Too much identification with being an “ethanol pioneer” can also get you in trouble, especially if you drive.)

But apart from that, the point that really troubles me is the claims by politicians – and Senator Nelson is surely not the only one – that they create jobs. Perhaps their longstanding terms in office have given them a form of myopia that prevents them from seeing the real entrepreneurs who invest their capital in risky ventures to create jobs. In spending our money, they mistakenly think that they created jobs. And when they all talk this way, perhaps they start to believe it.

If we hired a corporate treasurer to write our company’s checks, and that treasurer said he or she created jobs, we would shake our heads in disbelief. We should do the same for politicians when they make these claims. At most, they can create a positive business climate where they don’t stop people from taking risks and expanding the economy. Maybe "create jobs" is a shorthand way of saying that in the compressed framework of a tv ad, but I still don't like it.

Let me end on a positive note for Senator Nelson. He did support the Republican majority in the Senate in voting for the most recent tax bill, which included provisions reducing capital gain and dividend taxes for two more years, as well as extension for AMT relief. That was a good decision, in my view.

Sadly, some Republicans did not support that bill, including Sen. Lincoln Chafee (R(INO) – RI). I have mentioned his primary election contest from Mayor Steve Laffey in prior blogs. Laffey's campaign site can be found here: http://www.electlaffey.com/site/index.php

EAM

Gambling Kids: Some Nebraska Figures

An AP story reports increasing rates of gambling behaviors among Nebraska kids. Even though Nebraska does not have casinos in state, as does neighboring Iowa, Nebraska children are nevertheless exposed to gambling through other media, including television programs on poker, as well as potentially through the Internet.

Surveys of sixth, eighth, tenth and twelfth graders showed increasing participation in gambling in 2005 vs. 2003. The 2005 figures indicate that 46 percent of high school seniors had gambled in the past year (including betting on sports, cards, or games of skill, or playing the lottery or bingo for money), up from 37 percent in 2003. Movingdown as young as sixth graders, the figures for 2005 are still at a hefty 28 percent, also up from 2003. It should be noted that this study excludes kids in Omaha and Lincoln, Nebraska’s two largest cities. So, if you think the rural kids are doing better than the urban kids, you’ll want to adjust your assessment accordingly. The story with figures can be found here:
http://www.fremontneb.com/articles/2006/05/13/ap-state-ne/d8hj3gno1.txt
(I received the link via e-mail from an individual involved in monitoring gambling statistics.)

A single incident of gambling behavior in the past year, as measured in this survey, does not necessarily mean that these kids have a gambling problem. But it does seem odd indeed that more than one fourth of sixth graders had gambled on something. And the fact that nearly half of seniors had gambled also suggests a penchant for risk-taking, which is likely to continue into adulthood.

Media influences, such as the world poker tour, undoubtedly have some effect on children. Some parents think nothing of having poker nights for their teenage kids. After all, at least they are at home where they can watch them. But I would not be so sure this is entirely safe. You may recall the story of the Lehigh University student who got involved in internet poker and ultimately, out of desperation, turned to robbing a bank to cover his losses. This is an extreme example, but every journey starts with a first step, and this one is apparently beginning when kids are very young.

If there is this much interest in gambling among young people, I would think that our schools should be picking up on this cue and turning it into a teaching moment. Unfortunately, it is hard to discourage conduct that is pervasive in the adult world. But think of the possibilities to teach statistics, probability, and other useful mathematical concepts. I think that a few statistics lessons could go a long way toward changing behaviors among those who are rational and capable of processing risk-analysis of their behavior.

Unfortunately, that kind of cool assessment is developmentally difficult for young minds. Parents need to keep on top of this development. Legislators should also take notice of the kind of message they may send in this area through state gambling policies, including those involving the lottery. Personally, I would rather see a group of young statisticians who believed in working, earning and expanding the economic pie (maybe in economic analysis like our colleague Ernie) than a new population of gamblers looking to take money from someone else. There is a difference.
EAM

HR 4297: A Short Reprieve for Taxpayers

On May 10, the House voted 244-185 to approve the conference report on HR 4297. This tax bill will now go to the Senate (which had previously voted 66-31 to approve a similar measure in February). It includes a two-year extension (through 2010) of preferential rates on capital gains and dividends, as well as a one-year extension on relief from the AMT.

For those who follow this blog, we have commented frequently on these tax issues. The extension is welcome, but this kind of incremental change is troubling nevertheless. It would be far better to have a solid and stable tax base than to have one held hostage by demagoguery every couple of years. But this is a start.

There are also other goodies in this bill, including extension of $100K of expensing for small business, as well as deductions for education that were set to expire in 2005, including the above-the-line deduction for college tuition and a special provision allowing expensing of certain expenditures for teachers.

More to come on this.

Bill text can be found here:
http://thomas.loc.gov/cgi-bin/bdquery/z?d109:h.r.04297:

The House Ways and Means Committee site is here:
http://waysandmeans.house.gov/ResourceKits.asp?section=2333

EAM

Appreciating Nurses (Hooray for My Sister)

Yesterday I traveled to Des Moines to celebrate an award for my sister, Marcia, who is one of the “100 Great Nurses of Iowa”. This is the second annual awards ceremony of this kind, and it was a great privilege to attend.

Nurses from across the state nominate their colleagues to receive this award. I happened to be able to meet five of my sister’s colleagues from Spencer Memorial Hospital in Spencer, Iowa. They are all great people and great nurses in their own right, and meeting them added to the significance of this award. They said some very nice things about my sister, which confirms why I am so proud of her commitment, sense of caring, and competence. (We mustn’t ever forget the last one – I don’t care how much people care if they are doing the wrong things.)

Nurses are the primary caregivers in our medical system; it cannot function without them. And if you have ever been a patient, you know that while the doctors deliver expert technical services, it is the nurse who is there for you and ensures that your needs are met. I have always felt that nurses have a special calling from God, as it takes a rare person to deal capably and compassionately with those who are weak and sick.

Ceremonies like these are important, as they allow us to express our collective appreciation not only for the profession, but for the individuals who are important in our lives. We all spend so much time working, and it is important to feel appreciated in what we do. Appreciation from the right people can enable us to keep going when we might otherwise quit; the absence of appreciation is a huge source of discouragement.

So, show some appreciation today! And if you can, especially show some kindness to a nurse. They are the unsung heroes of the medical community, and I’m very proud of my sister’s contributions in that area.

EAM

High Textbook Costs: Call Your legislator?!?

Yesterday’s Wall Street Journal included a letter from my former accounting theory professor, Dr. Harry Wolk, on the topic of the high cost of textbooks. He was commenting on an article by Shearon Roberts, “Costly Textbooks Draw Scrutiny of Lawmakers” (4/25/06), which explained how complaints about high textbook costs are drawing responses from legislators with regards to state university systems. This included a measure in Virginia urging state universities to “discourage [professors] from switching to newer, more expensive texts that don’t differ substantially from the old ones.”

I had missed this article, though comments from my own students keep me aware of high costs. As with other matters of pricing, however, government meddling is likely to do little, and it may accomplish more harm than good. I value access to the most current information available, which is often difficult to accomplish through books given their long production schedules. I’m not sure why legislators would want to tell professors not to be as up to date as possible.

Dr. Wolk, whom I respect and admire immensely, suggested another approach based on compensating authors and publishers by imposing additional royalties in the used book markets. I cannot agree that this solution would be effective. Among other things, it would require an expanded bureaucracy to enforce such rights on additional sales, when we have a hard enough time doing that on the first sale. (Students would simply sell back to students, or on E-bay, for example, to avoid these costs.)

A tighter policy on examination copies might also make sense for publishers. These books may end up in the used book market through the unethical practice of reselling, which does deprive authors and publishers of the reward for their work.

However, one overlooked solution deserves attention: the distribution of books in electronic form. Despite the rapid advancement of technology, it puzzles me that we have not seen a market for electronic content downloadable and usable by students. This would allow the most up-to-date content, without all of the distribution costs and raw materials costs associated with producing the book. Licenses could even be granted for specific periods, thus avoiding Dr. Wolk’s concerns about losing out on royalties and possibly expanding the payment for usage.

My pal, Troy Johnson, who is one of our first-rate librarians here, is an expert on electronic books. You might take a look at his website, http://www.geocities.com/bibliofuture/ebooks/ which focuses on this topic. I think there is room for innovation here. And Dr. Wolk, sorry to disagree with you, though I do so with respect for one who has taught me much.

EAM

Innovation through Private Initiatives

One of the events at the LSPI conference this past week was held at Bucerius Law School in Hamburg. (See www.law-school.de ) Bucerius has the distinction of being the only private law school in Germany. This seems strange to American ears, where public and private institutions have long been contributing diverse educational opportunities. The entrance of Bucerius into the educational mix (beginning in the year 2000) has injected some new competitive and creative energy into the German system, which is bound to help everyone.

The President of Bucerius, Dr. Karsten Schmidt, gave a brief explanation of the law school and its place in the German legal education system. There are 42 state-run schools located in various cities in Germany, each of which (like our state university systems) have a responsibility to admit a certain percentage of their students from the local regions. I had the privilege of meeting two professors from these state-supported schools, and they were both most impressive. From all indications, these schools have high-quality faculty. However, with the pressure associated with admitting students from a particular region, there is always the possibility that you are not recruiting the strongest possible student body. (There is no reason to believe one region will have higher test scores and stronger candidates than others.) And student populations at some schools are large - as many as 4500 law students in one institution.

Student quality is an important indicator of the strength of any educational program. I am reminded of a quote I learned when I lived in Georgia, which was attributed to Gov. George Busbee: “If you want better prisons, give me better prisoners.” I can’t find the original source on that quote, but the sentiment behind it makes a good deal of sense: institutions reflect the quality of the people who are in them. (For those interested in knowing something more about Busbee, I found this site: http://www.georgiaencyclopedia.org/nge/Article.jsp?id=h-595)

As a private School, Bucerius can be highly selective in admissions. It admits the top 100 candidates chosen on the basis of a written application and an oral interview. (The interview is a solid idea, as it reflects the reality that people are more than their paper records; evaluating all the skills and talents of a person is highly costly, but it is important if you wish to choose the most qualified candidates.) These students are also willing to pay for the opportunity to study at Bucerius: tuition is around 3000 Euros per trimester, or about 36,000 Euros for the four year program. (Legal education in Germany is an undergraduate program.) However, tuition alone is not sufficient to support the program: Bucerius enjoys the support of a private foundation, as well as gifts from leading banks and law firms (including U.S. firms like Latham & Watkins). Thus, private firms believe in their concept.

Bucerius also offers a masters degree in law and business, which is quite attractive. The director, Cliff Larsen, was gracious enough to meet with us and explain this program. This one-year program (at tuition of 15,000 Euros) operates on the principle that law is closely related to economics and business, and effective actors in business communities require interdisciplinary and international understanding. Students are required to spend time studying in another country, and to facilitate this practice Bucerius has developed exchange relationships with other universities, including some in the United States. It is a great concept, which I believe will be quite successful. (Support from law firms and investment banks suggest the marketplace agrees.)

As one of the professors at a state school observed, this program will induce the state-supported schools to rethink how they can best compete for quality students. For example, one possibility might involve offering a specialization that will attract top quality students from other regions. Competition brings some uncertainty and discomfort, but that discomfort has the potential to bring a better experience for all students. It is kind of like a shirt I saw the other day being worn by a student athlete. It said: “Pain is just the sign of weakness leaving your body.” A bit extreme, perhaps, but I like the edginess.

So, you are wondering, why is this column reading like an advertisement? In short, I am delighted to see a private institution becoming a catalyst for this kind of change. We see private institutions acting so often in the United States that we often forget the power of their influence and the richness that they add in terms of fostering change and innovation. Observing this change in another country opened my eyes to that powerful force. And I hope this force is with each of us (along with the "possibility of yes" mentioned on Friday, credited to my articulate friend Anna).


EAM

The Possibility of Yes!

I just returned from an international conference on the Legal, Security, and Privacy Issues in Informational Technology (LSPI). The conference was held in Hamburg, Germany, and it attracted a truly international cast of participants from addresses spanning six continents. I met extraordinary people, and I learned much about the common struggles in different countries over law and technology issues. In the process, I gained some new perspectives on my own country.

I intend to cover several aspects of the conference over the next few days. For now, let me just mention some general observations that arose out of this experience.

The world is smaller than ever; we have opportunities to communicate and interact that were impossible only a few years ago. Innovations in language, technology, and politics are coalescing to make this possible.

English is becoming the new lingua franca. Despite the fact that the conference was in Germany and most participants were from non-English-speaking countries, everyone spoke English. Most of the local people in Hamburg did as well. A librarian at the Max Planck Institute provided a statistic that suggests why this is so: there are 34 languages in Europe that are spoken by at least 2 million persons. It is impossible to have mastery of all these languages, and English is emerging as a sensible common denominator for those who interact with people from other countries -- which happens to include just about everyone.

Technology also brings us together. Despite the fact that we had different linguistic and cultural beginnings, we all had an interest in business development and the utilization of the Internet as a part of the commercial realm. The common desire to explain and adapt technology and to interconnect with other countries is driving people to communicate, just as those who engaged in shipping and trade would otherwise do so.

The freedom and opportunity to travel, wrought by new political openness and economic progress, also allows us to come together. Our conference included participants from China (mainland, Hong Kong, and Taiwan), as well as from former Soviet sattelite countries. Though the topic of freedom in China created some interesting tensions, the possibility of dialogue on these points was amazing - and clearly not possible only a few years ago.

One evening several of us ventured out for a walk along the Alster lake, a prominent feature in Hamburg. Seated around the table were conference participants from Australia, Greece, Turkey, Germany (one born in the East, one in the West), the U.K., Poland, Iceland, the Netherlands, and the U.S. I reveled in the freedom and the rare opportunity to be in Germany, eating white asparagus and potatoes, and drinking French and German beverages, with such an interesting group of companions. Though we came from different backgrounds and cultures, we had much to share and to enjoy.

Late that evening, I walked back to the hotel with Anna, a researcher from Poland. (Yes, we walked late at night in a large city. I am pleased to report we had not the slightest basis for fear in doing so. In the U.S., we have theoretical freedom to do that, but the absence of security makes that freedom impractical. We have much work to do on this front.)

Anna made this observation about the United States: “It seems like a place where there is always the possibility of yes.” I was floored by this description, which seemed to capture the value of openness to ideas and to opportunity that we value in our country. Hopefully, this same value is emerging elsewhere. Given the choice, wouldn’t you choose to do business with people who valued the “possibility of yes”, i.e., who wanted to give you what you needed, and would break down barriers to do so?

I will close by saying hello to my new international friends from LSPI, and to express a special gratitude to Anna at the University of Gdansk for this wonderful observation. I hope we can all live up to the ideal of living with the “possibility of yes” in mind.

EAM

The Slow, Agonizing Death of the Establishment Media

Critics have long charged the major television networks and the print media, lead by The New York Times, with a decidedly anti-market bias. One would have thought that the establishment media might have responded with more balanced coverage if for no other reason than to satisfy their customer base. Instead, they have merely substituted more (biased) opinion for information, further irritating their critics. Not surprisingly, the establishment media has suffered a substantial loss of market share to alternative news sources. It seems that the media’s anti-market bias has blinded it to the realities of the market.

Apparently giving up any hope of reaching most of educated America, the media’s response has been to “dumb-down” its coverage to gain market share. Listening to the major news networks today is much like attempting to catch a glimpse of the Olympics through all the sappy personal interest stories. Instead of hearing economists explain the reasons for rising gas prices, we are treated to snippets of conversations with individuals expressing their frustration while pumping gas. There is precious little news content left. The same is increasingly true on the pages of The New York Times, The Washington Post, and USA Today. The latter recently carried a front page story that begins with the personal travails suffered by individuals as a result of gas prices. Some local channel operators have confided in me that the de facto education level of the target audience for network and local news is 8th grade (or lower)! It can’t be much higher for the print media.

Educated Americans hungry for information are increasingly turning to the internet and highly specialized news sources. As a consequence, the establishment media is becoming more and more irrelevant to those who lead the country. This may partially account for why their business coverage is becoming increasingly more hostile (and less informative).

Darfur: The Failure of Multilateralism

Since the invasion of Iraq, the U.S. has been in the throes of a heated debate over the extent to which it can, and should, engage in unilateral action. Neconservatives inside and outside of the Bush Administration have argued that the world finds itself in a unipolar moment. That is, the United States is a global hegemon whose leadership and active involvement are required if major international problems are to be resolved. Those opposed to the Neoconservative position have responded forcefully that this may well be the case, but the United States can not afford to act unilaterally. It must constrain itself to act multilaterally and within international institutions such as the United Nations whenever possible. They contend that the United States engagement in Iraq has come at great cost to the country owing to the international opposition that the intervention has engendered.

Now comes Darfur where the Arab Islamist regime in Sudan is engaged in a genocide against black Muslims. The United States has thus far constrained itself to act within multilateral institutions. The result? Over 200,000 are thought to be dead and over a million displaced thus far. The actual figures are likely to be considerably higher.

Darfur reminds one of Kosovo where the United States had to provide the leadership to help the hapless Europeans put an end to the violence. In Kosovo, the United States was able to get NATO to act. In Darfur, it appears we might not get anyone to act.

When the international community can not muster the determination to act multilaterally, should the United States simply let problematic situations continue unabated? The Bush Administration’s opponents would appear to answer “yes" because the cost of unilateralism is too high. The United States is not only facing the question in Darfur but in Iran as well, and it is likely to have to decide in other important regions in the near to mid-term. Isn't the cost of multilateralism too high when it results in paralysis?

Are There Any Conservatives Left?

We may be witnessing the demise of the Conservative movement. If so, it is not collapsing in the face of mounting evidence that its core postulates have been proven wrong, rather it appears to be embracing liberal positions uncritically. Indeed, the current crop of conservative leaders seems unable to remember just what the movement’s core postulates might be.

Judging by the actions of the allegedly conservative majority in Congress as well as the President, it would appear that the movement is in full retreat. In the not so distant past, Ronald Reagan argued that “The most terrifying words in the English language are: I’m from the government, and I’m here to help.” The Gipper was stating a core conservative principle, that we the people are better able to resolve problems than a government geographically (and culturally!) far removed from us.

In the wake of rising gas prices, one would be hard pressed to hear even a hint of such sentiments. Instead of reminding Americans that government involvement in the economy will only make matters worse by delaying market incentives that will result in competitive alternatives to oil, the Senate majority leader (alá Bill O’Reilly) declares that “big oil” is gouging the consumer, and the President calls for an investigation into that very possibility. Other Senate Republicans propose a $100 rebate, and House Republicans snarl that something must be done (by the government). While the President is right that we are “addicted to oil,” he seems only to have (federal) government programs in mind as the solution.

It is liberals who are supposed to decry Big Business as self-interested and aloof from the common man. It is conservatives who decry Big Government as self-interested, corrupt, and aloof from the common man. In fact, while market forces hold Big Business accountable, nothing holds Big Government accountable. As Ronald Reagan told us, “The nearest thing to eternal life we will ever see on this earth is a government program.” Interestingly, the only businesses that can assure themselves of near eternal life are those that attach themselves to government regulatory commissions and oversight boards. It is the only way they can escape accountability (in the same way that bureaucrats do). Republicans would do well to remember this. Markets work, government doesn’t.

Even when there are no market solutions to a problem, Big Government is not the answer. Conservatives contend that it is always best to leave the effort to local authorities where initiative on the part of citizens is still possible. There is nothing about the federal government from its personnel system to its management system that permits initiative. Those best able to deal with issues in an efficient and rational manner are those most directly affected by them. Big Government only gets in the way when it tries to direct or manage affairs. If it can do anything at all, it can merely provide support, and even that may prove difficult for the armies of federal bureaucrats to figure out how to do.

Recent evidence of this was provided by Katrina. The federal government’s ability to move massive amounts of paperwork was only matched by the hapless state government of Louisiana. Relief came only to those areas with relatively competent local authorities. That did not include New Orleans. Unfortunately, instead of seeing in the disaster vindication of a core principle, Republicans cowed, calling for building a better, more efficient FEMA! When did conservatives begin to believe that a government bureaucracy in Washington, D.C. could be made into an efficiently operating machine?!

If Republicans can offer no other solution to problems than that offered by Democrats – that is, Big Government - then Democrats will likely return to power in one or both houses in Congress in the fall elections. After all, they are the ones who have consistently defended Big Government's ability to resolve a wide variety of issues (in the face of overwhelming evidence to the contrary). So, aren’t they in the best position to make it work?

The truth is that we expect too much of government. Washington simply can not do all that we want it to, and the Republic needs to recognize this, but it won’t if conservative Republicans do not once again make the point clearly, and sharply, that “government is not the solution, it is the problem!” If they do, they stand a chance of holding on to both houses of Congress in fall.