Confused about capital taxes? Here it is,,,,

by wchurchill Fri Dec 29th, 2006 at 03:38:50 AM EST

We have had a number of diaries recently where this issue has come up--Sachs on the "Nordic" vs. "Anglo-Saxon" model and UPDATED: "Shareholder value" is wrongly interpreted, just to name two.  It seems to me that sometimes we have discussions on at ET where we have real disagreements on the issues, and other times we have arguments because we don't share a common understanding, or common terminology.  I think this is one of those issues, so I thought I would try to lay out a framework, and ask for dialogue from ET members to see if we might agree on the framework first, and then let the debates proceed.  And I would like to add that there are many contributors here that understand this issue as well or better than I--so I'm not trying to play instructor, but rather lay out a "strawman" for others to contradict, agree with, or whatever.

First just to lay out some terminology.  Capital refers to an individual's investment of his money in something like his home, a piece of property, or into a business,,,just as examples.  Capital taxes refer to any tax on the gain an individual gets from his investment in capital.  I'm going to mainly focus on an investment in a business, since that is what our discussions mainly focus on.  Typically if you invest, say $100,000, in a business, you are obviously doing that hoping your money will grow,,,,and you forego spending that $100,000 on, for example, a vacation or whatever today.  One way of achieving a financial gain on your investment, is to hold onto that investment for a period of time,,say 10 years,,,and then sell it.  And let me revert to a piece of property as an example--you buy it for $100,000 in 1995, and sell it for $200,000 in 2005.  You have a gain, which is typically called a capital gain, of $100,000.  And in I believe all western economies that gain is subject to a "capital gains tax".

If you made that $100,000 investment in a business, rather than a property, the business,,,depending upon its business policies, might choose to pay you a share of the earnings of the business--and let's say your share of the earnings might be $6,000, and the business policy is to pay half of those earnings to investors (shareholders), so you would be paid $3000, and it would normally be called a dividend.  And this dividend, since it is paid every year, would be taxed at some rate--let's call it a dividend tax rate.  And if you sold your shares in that business at the end of 10 years for, let's say, $180,000, you would pay a capital gains tax rate on the $80,000 gain. Both the capital gains tax and the dividend tax are considered taxes on capital.

If you wanted to invest your money, you could also loan it, either to a bank that will pay you a rate of interest, or you could buy a bond--that is a promise to pay a certain amount for a number of years and then give you your money back.  typically here you get an annual payment on the bond, or monthly from the bank, or whatever, and it's called interest income.  this interest income may be taxed at a different rate, depending on your country.

Just to complete this picture from a tax standpoint, another way of making money is of course from working every day and earning ordinary income--basically your salary, bonus, etc.  And this "ordinary income" is subject to different tax rates, usually progressive (the more you make the higher rate you pay) and depending upon the country.

I distinguish these four ways of making money because they are different, and typically they are taxed differently.  so we have taxes on capital gains, dividends, interest, and ordinary income--sometimes depending on the country, they may be the same tax rates or different tax rates.  

The investment in capital, a business or a piece of property, adds a complexity to investment and taxes.  first, using property as an example, you generally take a risk, because the price of that property could go up or down.  Let's say you buy a property for $100,000.  When you sell the property, let's say 10 years later and the property has gone up to a $200,000 value, there is clearly a $100,000 gain, and you have the cash, so you pay "capital gains tax".  But, at the end of the 5th year, you would have a piece of property worth some estimated value--say $150,000--but who is to say what it's worth, and if someone wanted to tax you on that "theoretical gain", how would you pay it?  You haven't sold it, so you would have to come up with the money somewhere else.  As a result, I'm not aware of any governments trying to tax you on an estimated gain on your property.  
this same logic of gains on capital carries over to an investment in a business, and an investment in buying stock (shares) in a business.  If an investor continues to hold a share he has bought in a business, he is not taxed on any "estimated" gain while he hold it.  Instead he is taxed on the gain when he sells the share, and gets money in return--and the cash is available to pay a "capital gains" tax.

this is where the goals of equal distribution of income,,,,and the goal of making the economy run well,,,divurge.  to make the economy run well, you would like investment monies, capital, to move to the most promising business areas.  So from a country's point of view, if an industry is slowing in growth, say the buggy whip industry 100 years ago, because automobiles are taking over, you would like people to move their money from the buggy whip industry to the auto industry,,,,and fuel that growth in your country to create jobs,,etc, etc.  And for now, let's just note that investor's are influenced by the "capital gains" tax rate as they think about selling buggy whip shares and buying auto shares.  If there is a 0 capital gains tax rate, that money moves very quickly.  If there is a 40% tax rate, it moves more slowly.  Example, $100,000 initially invested in buggy whips can be sold for $200,000,,,,with 0 tax, the whole $200,000 moves into the new fast growing industry, and the investor perceives himself as still having a $200,000 investment.  If in the same situation there is a 40% tax on the capital gain, the choice is to sell the buggy whips,,,pay $40,000 on the capital gain,,,,and invest $160,000 in autos--lowering his investment value to $160,000.  Clearly selling and paying the tax is the right thing to do, in retrospect,,,,but just recognize that buggywhips versus autos may not be so clear "in the moment",,,,and some hold onto the buggy whips----while another country's investors may move funds into their auto industry.

So for a country to grow its economy, a 0 capital gains tax puts no financial obstacles in the invesor's mind, and allows the money to move to the fast growth areas.

However, clearly a 0% tax on capital gains flies in the face of equal distribution of income.  After all, who has the money to make the largest investments in business, or property,,,capital,,,it's those with the money--either inherited or earned.  The poor may benefit in the sense of growing economies, but it's not going to give equal distribution of income,,,not at all.  Now you might say the idiot that can't see autos are going to replace buggy whips deserves to lose his money--and there is some truth in that.  But remember, this is an extreme example, seen in retrospect where we all know the answer.  Suffice it so say that higher capital gains tax rates slow down the movement of money from one industry to another--potentially to the benefit on one country versus another.

So that's the dilemma--balancing the needs for a fast growing economy with investment dollars going to the new growth industries, from the older slowing industries,,,,versus the desire to have more equality of income.  

I was going to write more on related issues such as dividends, but I'm a little worried that I may be boring some of you to tears, or appearing like a pedant,,,,so I think I'll wait to see if there are comments, or encouragement or arguments, or whatever. [Editor's note: Laurent GUERBY made some excellent points in the comments that lead me to try to make some points more effectively. I'm not arguing for a 0 capital gains tax. I was trying show the impact of various tax rates on investor's decisions, by using the extremes. But it would have been better if I used both the high and low extremes, rather than the 40% in my example. So let me use a 90% capital gains tax to better make the point. A parenthetical remark would be that this high of a capital gains tax would significantly lower investments. But in our example of the $100,000 investment having a $100,000 gain, the 0 tax example means the investor has no tax impediment to moving his $200,000 from buggy whips to autos. With a 90% tax on the capital gain, the investor pays $90,000 in taxes, and is left with $110,000 to invest in autos. A much harder decision, imho, as he looks at having either a $200,000 investment in buggywhips or a $110,000 investment in autos--(no fair using your 20/20 hindsight here). Laurent also correctly makes the point that the tax part of the decision is only one element of the decision.

My model is that money will move where the after tax perceived gain compared to perceived risk is the most interesting in the investor mind. So it's the relative gain between strategies that's important, as long as the tax rate is not 100%, I'd say it won't change the speed of moving capital between places where it doesn't earn anything (or loose) and places where it earns something. To me factors like information and transparency to the investor and fees are what is important for money moving speed, not taxes.

I don't agree with this point as extremely as it is made, as he says "not taxes",,,,,but also says "where the after tax perceived gain".... Taxes are a very important part of the after-tax gain, and therefore an important element--and increasingly important as the capital gains tax is raised higher. Perhaps Laurent would agree,,but even if not, I thank him for his input, and hope this note is helpful.]

"NUTS"

by wchurchill Sat Dec 23rd, 2006 at 02:21:47 PM EST

When I saw Sven's diary on Nuts, I recalled that "Nuts" is a somewhat famous quote from our past.  So, I read his diary expecting a completely different story.  I laughed and saw some irony with another "nuts" story, which has a Christmas connection, and a European/American connection.  From the first item on my Google search "nuts WWI" that described the story, though it turns out it was WWII

"NUTS"

Battle for Bastogne

Suddenly it was Hell.  Encircled since December 20, the people of the Ardennes had their mind set on the first Christmas since the liberation of Belgium, but it was not to be.. The Massive power of the German artillery weapons was unleashing destructive power on the American positions in the Belgian Ardennes. More than 250.000 soldiers, accompanied by over 1.000 tanks started their march through the Ardennes. The goal, First take Bastogne, as they headed for the Meuse river, with the intentions to push to the north of Belgium to take Antwerp and its militarily strategic harbor, with the hopes of turning the tide of the War in Europe.

What had started out as an advance to contact and destroy the enemy had now become a defensive operation out of necessity. The morning of 20 December, 1944, saw the 501st maintaining a defensive sector across Bizory, Neffe, and the small village of Mont. Enemy Artillery and flat trajectory fire was heavy, indicating strong enemy concentrations. In the biggest action of the day F Company repelled a very heavy enemy attack, consisting of a reinforced company of infantry and armor on the ground northeast of Bizory.
Specialist 5 Michael R. Fishcher 50th Military History Detachment, Bozeman Montana

The town of Bastogne had been bombed by the massive German army from the 18th of December. The town  was defended by the 101st Airborne Division under the command of General A.C. McAuliffe. During a six day period, Bastogne underwent an unimaginable siege. Nearby, neighbouring villages of Neffe, Marvie and Champs horrible battles raged during which weary soldiers from both armies fell in the cold snow in hills of the Ardennes. At 11.25 am on December the 22nd, the Germans ask the Commander at Bastogne to surrender. General McAuliffe's answer, though short, was heard loud and clear and became the rallying cry that echoed throughout the military and the world.. The message was simply "NUTS"
During the next 3 days the siege continued, until the Germans successfully overtake the Kessler farmhouse on their way to Arlon, just a stones throw from Bastogne. The city lay heavily bombarded on the eve, and throughout Christmas Day. However, during the following days the 5th Panzer division under General H.E.von Manteuffel failed to take the city, the brave "101" persisted.

The Germans demanded Bastogne's surrender. Brigadier General Anthony McAuliffe's replied, "Nuts." The Germans did not understand, so the Americans explained that "Nuts" meant "go to Hell" The Germans redoubled their efforts to destroy Bastogne and its "Besieged Bastards." They did not succeed.
705th Tank Destroyer Battalion

In the meantime, help was on the way. General George Patton's, 3th Army, turned it's entire force of 250,000 men, north.  With a forced march, amid a miserable winter storm, provided the fastest and most dramatic rescue in military history. Bastogne was freed and on the 26th and 27th of December the 101st Airborne Division in Bastogne received its first reinforcements. However, on the 29th the Germans launch a new attack on the city. Thousand of soldiers hold man-to-man fights in the woods around the city. Finally, the Germans, weakened, and abandoned their positions. On January the 14th 1945 they retreated from Foy, a village 5 Km outside of Bastogne, leaving behind thousands of dead and a completely destroyed city.
"White Christmas Red Snow...
As the ground shook under the impact of the heavy shelling, the snow covered battlefield soon became an spectrum of bright flares and deafening explosions and machine-gun tracers .... The attack was on, it was Christmas Day already, lying face down in the bottom of my icy foxhole, I remember praying both in English and Spanish."
Ed Peniche, DMOR 502d Infantry 101st Abn. Division.

Let it be remembered that on that Christmas eve 1944, as the war rained terror on the city, the Lufftwaffe bombed Bastogne not once, but twice. Yet, on that unholy night, history has recorded, an unforgettable Holy mass took place in the town, as wounded Airborne soldiers shed tears as "Silent Night" was sung, and the German POWs were visited by General A.C. McAuliffe himself. When he entered, they were singing "Stille Nacht" and " O Tannenbaum".
He wished them a Merry Christmas!

What is $1 billion, really? Wow, it's due to open source

by wchurchill Sun Dec 17th, 2006 at 02:19:36 AM EST

I was outraged, as I'm sure many of you were, with a recent post that the CEO of United Healthcare was getting a $1.2 billion stock option gain.  But then I saw this and wondered if I was just totally retro.

Web kid with attitude says sucks to $1bn
Paul Durman

AT 22, Mark Zuckerberg, a Harvard dropout, is being labelled as the next Bill Gates. But even the Microsoft founder might have hesitated before blowing the chance of a $1.6 billion (£819m) offer for his fledgling business.

Zuckerberg, founder of the Facebook social networking website, has told Yahoo!, the internet giant, that $1 billion is not enough to sell out. Now leaked documents suggest that Yahoo! was willing to raise its bid to $1.6 billion.

Facebook, which he launched as a service for Harvard students in 2004, has become the seventh busiest website on the internet, and with 13m users is the second biggest social network in America.

It has also become popular on British campuses, partly because it allows users to ensure that only people from their own university or place of work are put in touch.

And then I thought of all the football and baseball players signing $100 million contracts--outrageous,,,or am I to feel bad for them.  And Oprah is now worth more than $1 billion.  And that's just the Western World,,,,how about Saddam's family, or Arafat's wife,

Although Suha did not deny receiving the money, she has accused Prime Minister of Israel Ariel Sharon of publicising the story and just said "what is wrong if a husband is sending money to his wife"?.

I'm beginning to think Suha got shafted.

What should be done with this Web Kid, the United healthcare CEO, Suha and Saddam's family--and all these new Chinese and India billionaires?

What next in Iraq? Double down?

by wchurchill Sun Dec 17th, 2006 at 01:58:46 AM EST

Double down?

In return, the US military would commit extra troops to hunting down Sunni insurgents and provide security for the terrorised Shi'ite community.

Jack Keane, a retired general and former army deputy chief of staff who also saw Bush last week, believes that the US military is capable of restoring order in Baghdad, given enough troops. "The notion that we can't provide protection for people in one of the capital cities of this world is just rubbish," he said.

Up to 20,000 new troops could be sent to Iraq, while 20,000 who were set to return to America could remain. The plan would incorporate elements of the "80% solution" favoured by Dick Cheney, the vice-president -- so-called because of the combined Shi'ite and Kurdish population of Iraq -- which involves a tilt towards the Shi'ites at the expense of the minority Sunni community.

The protection for Shi'ites will not be offered, however, if the government of Nouri al-Maliki continues to turn a blind eye to Sadr's death squads. It must also be combined, the generals say, with a power-sharing deal to draw in the Sunni community as well as US economic investment.

"Nobody thinks success is likely now," said Biddle. "It's a question of how grave the consequences of a withdrawal will be. If you think they are grave, as I do, then the idea of `double down' or quit (a blackjack term) offers the only chance of success. It is not great but it is not zero."

 Obviously we can't hear the discussions on this, so we're at a disadvantage.  But I can't see how this could work--just thinking of all the years of death and destruction in Northern Ireland (not a perfect analogy, and others here will undoubtedly have better ones), with a firmly entrenched insurgency.

To Sven and David: Send George the plan!

A little early, but

by wchurchill Sun Dec 10th, 2006 at 03:37:27 PM EST

Merry Christmas

Milton Friedman led to no depressions

by wchurchill Mon Dec 4th, 2006 at 04:27:58 PM EST

We have a lot to thank Milton Friedman for, in improving our daily lives in an economic sense.  This is an excellent article by Jeremy Siegel. He deserves tremendous credit for providing the intellectual tools to prevent depressions such as started in 1929, and went on and on:

Preventing Depression

Friedman's massive work with Anna Schwartz, The Monetary History of the United States, had the most important impact on monetary policy. The key chapter in this tome is "The Great Contraction," in which Friedman showed how the Federal Reserve bungled its mandate to stabilize the banking system after the stock market collapse.

Friedman didn't deny that the stock crash of October, 1929 caused an economic slowdown. But the real culprit that caused the Great Depression was the collapse of the banking system caused by the failure of the Federal Reserve to stabilize the supply of credit.

Friedman showed that the Fed did have the power to expand credit, but was afraid to do so since the Fed governors were worried about re-igniting the speculation that brought about the stock market boom for which they were roundly blamed. They failed to realize the disastrous implications of the collapse of the financial system.

History has confirmed Friedman's conclusions. After the stock market plunged a record 22% on October 19, 1987, Greenspan flooded the system with credit and stated that he was ready to lend money to any financial institution that was experiencing difficulties. The same promise was made after 9-11. This calmed the financial markets and sharply reduced the impact of the stock market on economic activity.

Friedman's influence had international reach. The Bank of Japan maintained the integrity of its banking system after the Japanese bubble collapsed in the early 1990s. The 80% decline in the Japanese stock prices and real estate values that took place between 1990 and 2002 did not trigger a financial panic or depression since the Bank of Japan maintained the liquidity its financial system.

<snip>

But Milton Friedman convincingly showed that there was no inherent flaw in the capitalist system. It was the Fed's failure to save the banking system that led to the Great Depression. Had Friedman not revealed the faults of the early central bankers, it is unlikely that modern central banks would have achieved the success they enjoy today.

It has often been said that Keynes saved capitalism by showing politicians a way out of the Great Depression by expanding the role of government within the framework of a capitalist economy. But Friedman did Keynes one better. He showed that we can prevent a Depression and avoid inflation by exercising proper monetary control without expanding the government's power and controls.

It's an article worth reading.

A Continuing Joke, The UN Human Rights Commission

by wchurchill Sat Dec 2nd, 2006 at 02:50:15 AM EST

Susposedly reformed, this committee continues to embarrass the UN, providing more and more ammunication to those who question the value of both the committee, and the larger body.

The council was challenged to speak up forcefully against the wanton slaughter of civilians in the Darfur region of Sudan, which the UN has called the world's worst humanitarian disaster. Would it dare pass a sharply worded resolution, from the European Union and Canada, demanding that the Sudanese government prosecute those responsible for killing and raping civilians in Darfur? Would it slap the blame where it belonged, on the government for unleashing the brutal militiamen known as the janjaweed?

Nope. The vote was 22-20 against. Then the council meekly passed a weak-kneed version favored by several African countries.

Certainly credibility is lost when the only condemnations for human rights violations have been against Israel, which I believe has happened six times.  Smell a rat?  Kofi Annan does.

The council is dominated by countries that have so far sided with China, Cuba and other oppressive regimes. In its first six months, there has been no significant council criticism of any government but Israel.

Even UN Secretary General Kofi Annan sounded peeved on Wednesday. He warned the council not to play the same political games as its defunct predecessor. And he pointedly noted the council's obsessive focus on Israel so far. "There are surely other situations, besides the one in the Middle East, which would merit scrutiny by a special session.... I would suggest that Darfur is a glaring case in point," he said in a statement.

25 years of AIDS and cure remains elusive

by wchurchill Fri Dec 1st, 2006 at 04:33:38 PM EST

While the cure remains elusive, the effort to discover and innovate continues.  HIV drug treatments and tests have improved over 20-plus years, but vaccine is still the Holy Grail.  Today is Word AIDS day, so there is quite a bit of press coverage.  Efforts continue for prevention (mainly vaccines); cures; and a midway point of making the disease a chronic, rather than deadly disease--ie. easier to manage the disease, but still lead a normal life.  

This is one of many good articles published today, this one with a focus on industry efforts.

Researchers from the drug companies Merck (up $0.34 to $44.85, Charts), Sanofi-Aventis, VaxGen, GlaxoSmithKline (up $0.52 to $53.65, Charts) and Wyeth (up $0.10 to $48.38, Charts) are trying to discover the elusive vaccine. The 40 million people who are currently living with HIV would not benefit from a vaccine, but it would help guard against the spread of new infections, estimated at three million a year.

After more than 20 years of research, condoms -- not vaccines -- are still the most effective way of preventing the spread of HIV among sexually active people.

<snip>

In one of the more recent developments, the Food and Drug Administration approved Atripla in July, a once-a-day combination HIV treatment from Bristol-Myers Squibb (down $0.11 to $24.72, Charts), Merck and Gilead that consolidates and simplifies the often-complex AIDS drug regimens. And before the end of 2006, Pfizer (up $0.16 to $27.65, Charts) plans to file its experimental AIDS drug Maraviroc with the FDA, which could be used to halt or slow the viral spread.

Personally I'm a little sceptical regarding vaccines, since vaccines generally administer a very low dosage of the disease itself, allowing the body to fight it off and form anti-bodies that will hopefully fight off the disease if the body comes into contact with it again.  The problem is, a "very low dosage" of some of today's vaccines will actually cause a small percentage of people to develop the real disease--ex. flu vaccines.  So does that mean with an AIDS vaccine, some people would actually get the disease via the vaccine--what a horrible thought.  However, I don't have strong clinical background, nor expertise in vaccines, so someone with more experience may want to add to, or correct this view.

On the other hand, I'm personally surprised at the progress with some of the drugs, and even more surprised that these drugs have been packaged in different clinical regimens that now allow many AIDS victims to lead pretty normal lives.  For a disease to come out of nowhere with such catastrophic human results, and reach the level of treatment that it has today--well, I just wouldn't have expected that 15 years ago.  That being said, it's still a horrible disease, needing new and improved treatment modalities, and vastly improved methods of providing them to 3rd world countries.  Just as an example,

On World AIDS Day, the U.N. health agency warned that the HIV/AIDS epidemic in Asia could worsen if governments fail to step up efforts to stop the spread of the virus. VOA's Heda Bayron reports from our Asia News Center in Hong Kong U.N. officials say more than eight million people in Asia have HIV/AIDS and the number is rising.

I would recommend both articles as a good read.

God's chosen people

by wchurchill Mon Nov 27th, 2006 at 11:49:03 AM EST

This seems to be quite a controversy that we have hardly heard of, at least I haven't, in the US.  I found the following from the Booman Tribune on a Google search.  I'm not a member at Booman, and I'm not sure of the rules of crossposting or how it's done.  But here is a snippet and the link

Jostein Gaarder, Aftenposten 05.08.06

From the Norwegian by Sirocco
There is no turning back. It is time to learn a new lesson: We do no longer recognize the state of Israel. We could not recognize the South African apartheid regime, nor did we recognize the Afghan Taliban regime. Then there were many who did not recognize Saddam Hussein's Iraq or the Serbs' ethnic cleansing. We must now get used to the idea: The state of Israel in its current form is history.

We do not believe in the notion of God's chosen people. We laugh at this people's fancies and weep over its misdeeds. To act as God's chosen people is not only stupid and arrogant, but a crime against humanity. We call it racism.

Limits to tolerance

There are limits to our patience, and there are limits to our tolerance. We do not believe in divine promises as justification for occupation and apartheid. We have left the Middle Ages behind. We laugh uneasily at those who still believe that the God of flora, fauna, and galaxies has selected one people in particular as his favorite and given it funny stone tablets, burning bushes, and a license to kill.

We call child murderers 'child murderers' and will never accept that such have a divine or historic mandate excusing their outrages. We say but this: Shame on all apartheid, shame on ethnic cleansing, shame on every terrorist strike against civilians, be it carried out by Hamas, Hizballah, or the state of Israel!

Unscrupulous art of war

We acknowledge and pay heed to Europe's deep responsibility for the plight of the Jews, for the disgraceful harassment, the pogroms, and the Holocaust. It was historically and morally necessary for Jews to get their own home. However, the state of Israel, with its unscrupulous art of war and its disgusting weapons, has massacred its own legitimacy. It has systematically flouted International Law, international conventions, and countless UN resolutions, and it can no longer expect protection from same. It has carpet bombed the recognition of the world. But fear not! The time of trouble shall soon be over. The state of Israel has seen its Soweto.

I haven't had time to thoroughly read and digest the translated article.  My first take is that though I see some interesting points in the article, it seems to ignore the most fundamental fact about Israel--most of their neighbors would destroy them in a heartbeat if they could.  Iran has expressed their desire to achieve just that,,,,oh and btw are coincidently developing nuclear weapons and delivery systems.  I know we have different points of view on this site regarding Israel and Iran--but doesn't it therefore seem like a great topic for discussion?

If others agree, here's a diary for discussion.  On the other hand, if anyone with better crossposting knowledge than I wants to put something together, please do so,,,,my feelings won't be hurt.  (Also my apologies if I have missed a diary on this, or commentary.  I haven't been able to keep up as much as I'd like the last several months.)

A FOOT IN THE KITCHEN DOOR

by wchurchill Sun Nov 26th, 2006 at 01:06:05 PM EST

As Barrera rattles off tips in Spanish about cheese thickness and dough preparation, he looks into the eyes of his hard-working charges, who are drenched in tomato sauce and sweat. And he worries. Hardly any of them speak English. Many seem locked into low-paying jobs that leave little time for learning the language or other work skills.

In one form or another, that is the conundrum facing Chicago's largest and fastest-growing immigrant group, the Mexicans. As this historic wave of immigrants remakes the economic, cultural and political landscape, experts and civic leaders say the region's future is tied to their fate.

I found this to be an excellent article in the Chicago Tribune showing in very human terms some of the issues the US confronts with the current incredibly poorly designed immigration program.  This is one area where I have some hope in the political process.  An unlikely trio of President Bush, Senator Kennedy, and Senator McCain have a program which includes a Guest Worker program, that hopefully, would allow it to fix most of the current ills, and with some compassion for "illegals" that are currently here, and hoepfully other glaring issues.

Microcredit pioneer gets Nobel for peace

by wchurchill Fri Oct 13th, 2006 at 02:51:20 PM EST

This is a very interesting award to a profit seeking capitalistic company.

The Nobel Peace Prize was awarded Friday to the Grameen Bank of Bangladesh and its founder, Muhammad Yunus, for pioneering work in pulling millions of women out of poverty through small loans.
The prize lends heft to an idea already gaining ground in antipoverty circles: that capitalist methods can be more effective in curbing poverty than traditional grant-giving by governments and bodies like the World Bank.

It's an acknowledgement that capitalism can be a force for good, if, as with most things, used in the proper way.

The award "is fitting acknowledgment that the ways of the market are not necessarily evil, that markets can be harnessed as forces of good if done properly," said Nachiket Mor, executive director of Icici Bank, India's largest private-sector lender. Mor manages about $550 million in microcredit, the small loans modeled on the Grameen model.
The Norwegian Nobel Committee cited Yunus and Grameen for their "efforts to create economic and social development from below.
"Loans to poor people without any financial security had appeared to be an impossible idea," the citation read. "From modest beginnings three decades ago, Yunus has, first and foremost through Grameen Bank, developed microcredit into an ever more important instrument in the struggle against poverty."
Since its creation in 1983, Grameen has issued small loans worth $5.72 billion. It turned a profit in all but three years. Last year, it earned $15 million.

One of the strategic keys in this business was the following:

In 1983, Yunus formalized his loan portfolio as Grameen Bank, which experts say employs a fundamental innovation in credit: Instead of managing risk by taking collateral, Grameen made borrowers, almost always women, take out loans in groups of five. Each would thus be guaranteeing the other women's dependability; the threat of being shamed by their peers was often enough to deter those considering a default.

I would recommend reading the entire article.

Dow Jones sets new all time high last week

by wchurchill Sat Oct 7th, 2006 at 02:37:33 PM EST

It's certainly worth noting that this best known of US stock indices reached a new all time high last Tuesday

The best-known measure of the stock market, the Dow Jones industrial average of 30 major stocks, rose 0.49 percent yesterday to squeak past a closing high that was set in January 2000 amid a technology-driven market boom.

As you know from my previous diaries, I have a generally optimistic view of the prospects for both the US economy and the US stock markets (and the world economy and markets, for that matter).
-The American economy is slowing down this quarter, and likely next.  That was necessary as inflation had been edging up, and the Fed responded with 17 straight interest rate hikes.  There is some concern that they overdid it,,,,continuing with a couple of hike even after seeing data of the slowing economy.  But concensus view seems to be there will be a soft landing, not a recession, and then return to strong growth.  Good news for Europe and the world economy as well.
-The markets seem to accept that inflation has been controlled.  The 10 year Treasury had risen to 5.25% with some concern over inflation and Fed hikes, but has now fallen back to below 4.75% as those concerns have receded.  This is an historically low interest rate environment, which is extremely positive for economic growth and for the stock markets.
-There are always different views on the future,,,that is what makes a market.  But I believe the more optimistic scenarios that have consistently called for a Dow closing the year above 12,000, and for continued growth at least until early 2010.  It won't be straight line growth, that rarely happens--there are always bumps in the road.  But all major US indices will more than double over that time period.
-It seems very unlikely to me that the disaster views of the US housing market and a crash into recession held by some on this site will occur.  Certainly there will be, already is, a slowing in these markets, with previous hot markets being hardest hit.  Prices will fall somewhat, but not the 30-50% overall market prices that would occur in a true crash.

Innovation,,,,what is it?

by wchurchill Mon Oct 2nd, 2006 at 12:15:42 PM EST

I began writing this as a comment in the INSEAD's World Business thread.  The issue is what should count as an innovation, and as I wrote I thought this is an issue that clouds, confuses, some of our discussions more broadly.  In particular there can be quite a difference in the way people with a science background think of this, and people with an economic/business background think of this.  

we are talking past each other on this one because we each have a different definition of "innovation".  Wikipedia is really very helpful on the subject, with a long thoughtful article, looking at it from many dimensions and referencing a number of thinkers in the field with different perspectives.  

I certainly accept that there are different levels of innovation.  Some are major discoveries, and redefine a scientific field--I'm not a scientist but maybe the initial integrated circuit would qualify here.  Or perhaps the first cardiovascular catheter, that opened the door to treating diseases of the heart by manuveuring catheters through the blood vessels, rather than cutting open the chest, stopping the heart, oxygenating the blood offline, and surgically fixing the heart.

Going on with the cardiology example, another breakthrough that fits with these catheters, but depends on them, has been stents--metal structures that are put in place through the catheters, and placed and left in the vessels to provide support and decrease the tendency of the vessel to close (restenosis).  More recently drugs have been put on the stents, and the result is to have even better results in keeping the vessels open (lower rates of stenosis).  Perhaps the stents and the drugs on the stent are lower in the sense of redefining a field, since they depend on the first insight.  

Then there is a category of innovation below these--lower in the sense of being as much of a breakthrough idea as the above original cardiology catheter, stent, and drug on a stent.  But very valuable in the sense of making the original products far better.  The original catheters were quite clugey, and difficult to use.  Access was difficult, the different blockages in the vessels would stump the catheter.  the docs had to spend a long time on the procedures.  Over time, new materials, new designs of the catheter (different tips on the end of the catheter, thinner walls that allow thinner catheters and therefore access to smaller vessels, etc, etc.),,,,a host of "improvements",,,have made these products incredible tools in the hands of cardiologists treating patients.  

All of these different levels of innovation have been needed to attain the high levels of patient care that we have today with this basic procedure.  All of them have been required to reach the goals of improving patient care, at the lowest cost--and of course the cycle goes on.
From Wikipedia

In economics, business and government policy,- something new - must be substantially different, not an insignificant change. In economics the change must increase value, customer value, or producer value. Innovations are intended to make someone better off, and the succession of many innovations grows the whole economy.

and

The term innovation may refer to both radical or incremental changes to products, processes or services. The often unspoken goal of innovation is to solve a problem. Innovation is an important topic in the study of economics, business, technology, sociology, and engineering.

I think some of our discussions get confused because some are thinking of the term innovation as a radical breakthrough (perhaps the science background group) and others are thinking of the term in the context of problem solving, resulting in new products, which includes both radical and incremental changes (perhaps the econ/business group--well, me, anyway).  

IMO, both views of the definition have merit.  Each is appropriate in their different fields.  Clearly breakthrough scientific advances are to be acknowledged and awarded as unique human achievements.  But in the field of business and economics, these breakthrough ideas often need to be modified and improved over time before they can be introduced into the market as products and services that solve problems for people.  These incremental changes, modifying the base idea, are often required to allow problem solving to happen for customers.  (and then of course the product needs to be manufactured, marketed, distributed, maybe customer training, etc--all of those other tasks required to actually achieve the value.)

Beating high oil prices

by wchurchill Sun Oct 1st, 2006 at 12:55:29 PM EST

People are very creative when it comes to reacting to changes in prices.  And these changes come in some unique and creative ways.  Even in the area of oil and energy.  All the car--without all the fuss.  High gas prices, insurance costs, loan payments drive more city dwellers to ditch their wheels and turn to self-service car-sharing operations.  This is an old idea, that has been around in a lot of different forms since the 1970's--more in California and Europe.  

the wheels belonged to self-service car-sharing operations that have begun salting vehicles for hire in parking spots across the city. Customers access the cars by waving computer-coded smart cards over the windshield, making the rental experience about as simple as a trip to the neighborhood ATM.

The tab comes to about $8 to $9 an hour, insurance and gas included.

"When you sit and figure out the cost of car payments, parking, gas and insurance, it just seems this is a lot cheaper way to get around," said Pawlowski, a consultant who sold her old Saturn last summer.

What strikes me as unique now, is the prices are high enough, and the potential savings high enough, that it has drawn investment from entrepreneurs, backed by venture capitalists.  In the US, this ability to expand this service with investment dollars from entrepreneurs will at least give it a broader chance to see if it is something Americans find to be a good service.  

Car sharing is a relatively new transportation niche, distinct from car rental agencies that cater to business and vacation travelers. It's geared toward urban commuters who know their way around a bus or train schedule, many of whom keep a seldom-used car at home.

The concept has spread to 57 cities and more than 100,000 customers in the U.S. and Canada in a decade. Venture capitalists are pouring money into car sharing, and two nationwide chains have sprung up. One of them, Boston-based Zipcar, recently entered the Chicago market. The city is also home to a 4-year-old service called I-GO, run by the non-profit Center for Neighborhood Technology.

While I-GO and Zipcar have ambitious expansion plans, their combined fleets in Chicago number fewer than 200 vehicles. That's puny compared to the 1.3 million registered passenger cars parked on city streets or in garages each night.

But transportation experts think high gas prices could catalyze the car-sharing industry, setting it up for a big takeoff in congested urban centers where the expense and hassle of vehicle ownership can often trump the convenience.

Personally I doubt it will be a huge business, but it could be niche business that offers one more way for consumers to somewhat conveniently meet their needs, and spend their money on something other than gas, cars, and related auto expenses.

US: Where You Live Linked to Life Expectancy

by wchurchill Tue Sep 12th, 2006 at 02:10:42 PM EST

News summaries of a very interesting study conducted at Harvard on  life expectancy in the US are becoming available, [from Examiner.comhttp://www.examiner.com/a-277987~Where_You_Live_Linked_to_Life_Expectancy.html].

Where you live, combined with race and income, plays a huge role in the nation's health disparities, differences so stark that a report issued Monday contends it's as if there are eight separate Americas instead of one.

Asian-American women living in Bergen County, N.J., lead the nation in longevity, typically reaching their 91st birthdays. Worst off are American Indian men in swaths of South Dakota, who die around age 58 - three decades sooner.

Millions of the worst-off Americans have life expectancies typical of developing countries, concluded Dr. Christopher Murray of the Harvard School of Public Health.

I don't recall reading such a thorough study on the social and cultural impacts on health and longevity before, so I found the news summaries very interesting, and hope to find the full report.  Some of the findings seem to be rather intuitive, but still, great to have some documentation that can be reviewed.

Health disparities are widely considered an issue of minorities and the poor being unable to find or afford good medical care. Murray's county-by-county comparison of life expectancy shows the problem is far more complex, and that geography plays a crucial role.

"Although we share in the U.S. a reasonably common culture ... there's still a lot of variation in how people live their lives," explained Murray, who reported initial results of his government-funded study in the online science journal PLoS Medicine.

Consider: The longest-living whites weren't the relatively wealthy, which Murray calls "Middle America." They're edged out by low-income residents of the rural Northern Plains states, where the men tend to reach age 76 and the women 82.

Yet low-income whites in Appalachia and the Mississippi Valley die four years sooner than their Northern neighbors.

Also interesting;

The study also highlights that the complicated tapestry of local and cultural customs may be more important than income in driving health disparities, said Richard Suzman of the National Institute on Aging, which co-funded the research.

"It's not just low income," Suzman said. "It's what people eat, it's how they behave, or simply what's available in supermarkets."

Murray analyzed mortality data between 1982 and 2001 by county, race, gender and income. He found some distinct groupings that he named the "eight Americas:"

Exposed again; Joe Wilson & Valerie Plame

by wchurchill Sat Sep 2nd, 2006 at 03:31:04 PM EST

Though this sordid story provided some significant embarrassment for the Bush administration, and some great fun reading the saga, it has always been a sick commentary on American journalism.  The problem is that this Vogue Magazine publicity seeking couple had a story that was based on a lie, and it was clearly documented as a lie.  See quotes from Wikipedia at end of diary regarding Wilson's lies.

Ms. Plame's cover as an agent was actually blown by former deputy secretary of state Richard L. Armitage, far from a neocon, Bush supporter of the Iraqi war.

It follows that one of the most sensational charges leveled against the Bush White House -- that it orchestrated the leak of Ms. Plame's identity to ruin her career and thus punish Mr. Wilson -- is untrue. The partisan clamor that followed the raising of that allegation by Mr. Wilson in the summer of 2003 led to the appointment of a special prosecutor, a costly and prolonged investigation, and the indictment of Vice President Cheney's chief of staff, I. Lewis "Scooter" Libby, on charges of perjury.

And the WaPo story closes with :

Nevertheless, it now appears that the person most responsible for the end of Ms. Plame's CIA career is Mr. Wilson. Mr. Wilson chose to go public with an explosive charge, claiming -- falsely, as it turned out -- that he had debunked reports of Iraqi uranium-shopping in Niger and that his report had circulated to senior administration officials. He ought to have expected that both those officials and journalists such as Mr. Novak would ask why a retired ambassador would have been sent on such a mission and that the answer would point to his wife. He diverted responsibility from himself and his false charges by claiming that President Bush's closest aides had engaged in an illegal conspiracy. It's unfortunate that so many people took him seriously.

Wilson and Plame may love their celebrity set pictures in Vogue magazine, but they are indeed shameless.

this is not to suggest that Libby and the Bush administration are blameless.  Liddy is charged with lying during the investigation, among other charges.  WaPo's short article documents the errors and alleged illegalities.

Tao, Daily Meditations, a book review by example

by wchurchill Sat Sep 2nd, 2006 at 02:43:39 PM EST

Farmers

Plain country folk with rounded bodies,
Skin turning to bronze in the valley heat.
Why talk to them about Tao?
They eat when they are hungry,
They sleep when they are sleepy.
Even a sage with infinite permutations
Could not match their simplicity.

the Tao--Chapter 29

by wchurchill Wed Aug 16th, 2006 at 03:15:47 AM EST

(I started writing this within another diary to rg, in an exchange, which was really a two level exchange,,,one political,,,and another different, around the Tao.  I thought maybe others would like to see it, and perhaps respond, so I'm making it a diary.  rg and I have had political discussion, yet at the same time shared Tao verses--they have been independent (IMHO), so please don't read into this a political point of view.)

Comment intended to rg: I love to read the Tao, and comparing the different translations is great fun, for those of us that can't read the original.  I'll put the Steven Mitchel version below yours; your version bolded:

Trying to control the world?
I see you won't succeed.
Do you want to improve the world?
I don't think it can be done.

T'ien hsia shen ch'i
The world is a spiritual vessel
And cannot be controlled.
The world is sacred.
It can't be improved.
If you tamper with it, you'll ruin it.
If you treat it like an object, you'll lose it.

Those who control, fail.
Those who grasp, lose.
Some go forth, some are led,
Some weep, some blow flutes,
Some become strong, some superfluous,
Some oppress, some are destroyed.
There is a time for being ahead,
a time for being behind:
a time for being in motion,
a time for being at rest;
a time for being vigourous,
a time for being exhausted;
a time for being safe,
a time for being in danger.

Therefore the Sage
Casts off extremes
Casts off excess,
Casts off extravagance.
The Master sees things as they are,
without trying to control them.
She lets them go their own way,
and resides at the center of the circle.

What was accomplished with the Israeli/Hezbollah war?

by wchurchill Mon Aug 14th, 2006 at 03:54:15 AM EST

Olmert's Israeli government is coming under fire for his handling of both the war and the ceasefire.  

The weekend's news about expanded operations in Lebanon and Prime Minister Ehud Olmert's acceptance of a United Nations resolution calling for a cease-fire gave politicians on both the Right and the Left reasons to attack the government.

The cease fire seems a little tenuous at this point, but it's probably reasonable to assume it will happen over the next several days, though likely with some continued fighting.  But the attack on Olmert is likely to be withering, and from all sides for his centrist party:

"Olmert is not fit to stay in power, he won't last one day longer," Hendel said. "The ministers should listen to [Hizbullah leader Hassan] Nasrallah's satisfaction with the cease-fire to understand how bad it is for Israel."

MK Silvan Shalom (Likud) said the cease-fire was one of the worst Israel had ever been offered. He said Israel would not achieve any of its goals,,,,,,

Who Fights For Lebannon?

by wchurchill Fri Jul 21st, 2006 at 02:58:14 PM EST

My understanding is that the invasion has begun, and that several Israeli brigades are now operating in southern Lebanon.  Obviously I don't know how accurate that is,,,,maybe it's old news and they've been there for a while, or maybe it's inaccurate information.  But it made this article commenting on Lebannon very relevant for me.  

More than a week of Israeli airstrikes have pounded Hezbollah targets, but have also, tragically, killed Lebanese civilians. It's unclear how many rockets Hezbollah has left, but it's likely to be a considerable number. Now a full-blown Israeli ground invasion of Lebanon is hinted. Israel may calculate that it is the only way to effectively push Hezbollah far from the Israel border and silence the rocket fire into Israeli towns.

But that carries huge risks. And the pressure to stop the violence is growing.

On Thursday, UN Secretary General Kofi Annan called for an immediate halt to the escalating conflict, echoing the words of Lebanon's prime minister, Fuad Siniora.

Israel faces a tough choice. If it invades, it faces the bitter prospect of a protracted war that will likely create more sympathy for Hezbollah among the Lebanese. But if it accepts a cease-fire, Hezbollah is still there, still holding kidnapped Israeli soldiers, having burnished its credentials as a real power in the region. Hezbollah's leaders will have trumped the Lebanese government and shown the world that they--and by extension, Syria and Iran--are running the country.

And that would be a disastrous outcome.

Lebanon, with the UN's help, finally expelled most Syrian troops and agents last year. That was an inspirational moment for the country. Its success as a democracy is crucial to reshaping the Middle East.

In particular I found this discussion about the merits, or capabilities, of the Lebannon political will or military power to remove Hezbollah forces from the country to be interesting.  

But Siniora's government has been unable or unwilling to move on a UN directive to disarm Hezbollah and station its own army on the border with Israel.

At a meeting of foreign diplomats, including U.S. Ambassador Jeffrey Feltman, Siniora ripped the nations that have resisted putting pressure on Israel to halt its military operations. "Is this what the international community calls self-defense?" "Is this the price we pay for aspiring to build our democratic institutions?" No, it is, unfortunately, the price Lebanon is paying for permitting Hezbollah, a part of the government, to pursue its own belligerent foreign policy.

Lebanon has some 70,000 troops doing ... what? The standard explanation is that the government is too weak, too divided, and that ordering the Army to disarm Hezbollah in the south could kindle another civil war.

For me, this has always sounded like a pretty strong argument.  How could this young country, just trying to put in infrastructure do this?  

But UN envoy Terje Roed-Larsen said in an April report that the Lebanese army could take up positions in southern Lebanon. "The Lebanese Army Command has informed me that it faces no operational constraints in creating a presence in the south ... but has not received political instructions to take such action," he wrote.

Israel faces a tough choice--but Lebanon does too. Doing nothing may bring the same result as doing something: the fall of the government, a possible resurgence of civil war. But this is a government born to unite and defend Lebanon for all its citizens. Hezbollah fights for Syria and Iran. Who fights for Lebanon?

It's an interesting point that the outcome may be the same under either choice that Lebannon made.

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