December 23, 2008
Enjoy life and don't waste your time with pettiness and unnecessary grief.
December 22, 2008
The following appeared as a letter to the editor, written by a 13 years old, in the Concord Monitor. Madeleine, bravo on your impeccable logic and clear thinking, know if we can only teach those elected to Congress to think like Madeleine. Nah, if they could think clearly then they would not have run for office in the first place :-)
ETHANOL IS STUPID
We have been polluting our world too much. Naturally, we have tried to do something about it. What we use to create energy is the big problem, so people have tried to come up with a new, renewable energy source that is easily obtained. We have already figured out several non-polluting techniques: wind, water and solar power. But another attempt is not working out so well: ethanol. The problems start at the very beginning.
Most ethanol is made from corn. However, that corn must be supplied in enormous quantities, and corn is used in much food for humans and animals. If we use corn for fuel, more will need to be grown, on huge farms receiving government subsidies. We are paying extra so that our food can be used for fuel.
The corn is grown using chemical fertilizer, which is awful for the environment. Most pesticides are made from petroleum, exactly what ethanol is supposed to be preventing the use of. Also, the machinery on big farms needs massive quantities of gas.
The next step is even worse. The corn, grown with petrochemicals, must be distilled in factories to become ethanol. These factories need to get their energy from somewhere, and that somewhere is fossil fuels. It takes about nine-tenths of a gallon of fossil fuel to make a gallon of ethanol. Ethanol pollutes the environment about the same amount as if we just used fossil fuel.
To add insult to injury, ethanol is not as efficient as fossil fuel. In short, ethanol is stupid. It just doesn't do what it's supposed to do - namely, reduce our carbon footprint. Our government needs to start focusing its attention elsewhere. Wind, water and solar energy could use some boosting.
December 08, 2008
The rise of Islamic Banking over the past 40 years into an institutional financial structure spread over the globe has been a phenomenon that has attracted lots of interest. As is often the case whenever a new idea arises it s rise is associated with many falsehoods, half truths and unfulfilled promises. The whole concept of Islamic Banking rests on 4 Qoranic verses that speak against Ribaa (2275-81; 3:130-2; 4:161 and 30:39). Although the Arabic word Ribaa does not mean interest rate yet the four schools of Islamic jurisprudence have interpreted Ribaa to imply interest rates. In the opinions of many that interpretation could easily have been usury. In that case the idea of “Islamic Banking” would no longer appear to be inviolable.
The Islamic Development Bank, the largest Islamic Bank, is a breath of fresh air in the stultified field of economic development. How appropriate it is to give interest free loans to the developing nations instead of burdening them with huge debt service and strict conditionalities a la World Bank and the IMF. But this idea of interest free banking which rests strongly on the two sources of (1) Ijma, Consensus, and (2) Qiyas, analogy, becomes more problematic in other areas.
".. many techniques that the interest-free banks are practicing are not either in full conformity with the spirit of Shari’ah or practicable in the case of large banks or the entire banking system. Moreover, they have failed to do away with undesirable aspects of interest. Thus, they have retained what an Islamic bank should eliminate. "
The current Sharia prohibition on Ribaa renders consumption loans very difficult to structure and as a result the practice of financing trips and personal purchases under Islamic Banking rules becomes harder to structure and implement. Furthermore, a real challenge of Islamic Banking is the ability to develop effective tools that Central Banks can employ in transacting their monetary policies.
November 25, 2008
In Epilogue II of War and Peace, which often goes unread, Tolstoy berates modern Historians who “ought to be studying not the manifestations of power but the causes which create power” if they are to provide a “description of the flux of humanity and of peoples”. Alas they act “like a deaf man answering questions no one has put to him.” This serious methodological defect highlighted by Tolstoy over a hundred and fifty years ago is still often committed not only by historians but by many of their colleagues in the social sciences. The results of such flawed cognitive processes dominate the field of Economic Development, Environmental Studies and what passes for analysis in the ubiquitous phenomenon of Globalization to name just three areas.
One illustration of the shortcomings of such models can be seen clearly in the efforts of The Group of Industrialized Countries, G 8, to deal with the ever spiraling level of poverty and deprivation on the African continent. The G 8 decided in 2005 to stem this downward cycle by lending its strong approval to the UK’s “Commission for Africa” plan spearheaded by the then Chancellor of the Exchequer Gordon Brown and the support of the PM Tony Blair in addition to the rather lukewarm support of the US administration. Fundamentally, the plan was based around the idea that a write off of the debt of the countries in question is the prescription for leading these countries out of poverty and dependency. Unfortunately, this scheme of increased money grants has been tried before with dire results.
The level of sincerity of the G8 nations is not questioned; their ability to differentiate between “manifestations” and “causes” is. There is no doubt that if an individual/country/institution has a lighter burden of financial liabilities, then they would be better of temporarily. But if the initial conditions that resulted in the debt in the first place have not been removed, then do we have any right to expect a different outcome the next time around? Of course not. Since it is safe to assume that neither countries nor individuals within countries will freely choose to live under inhumane conditions of deprivation, misery and squalor, then such outcomes are imposed on the unlucky recipients by a set of rules that demand such outcomes. Outcomes do not just happen; they are dictated by the prevailing social, economic and political structure; by the mode of production. Outcomes change only if we make changes to the world system.
Environmental studies is another field that is replete with policy suggestions that commit the fallacy that Tolstoy warned against. Despite the clear conclusions of large scale scientific studies that global ecological resources are under severe stress the global community and the United Nations proceed to work on peripheral issues . We have chosen to address symptoms instead of causes when we know that any meaningful relief demands a fundamental change in the conduct of economic, social and political affairs. Anything short of a radical change in the architecture of the world system is a palliative measure that would be doomed to fail and to only aggravate the problem that it was intended to resolve.
Whether it is global warming, the ever shrinking rain forest, desertification, endangered ocean fisheries, urbanization , water scarcity, pollution or declining biodiversity, just to name a few of the major environmental issues, it is clear that all of these problems are generated as a result of the global community’s unrestrained obsession with material accumulation. Again the solution is clear and obvious but the global community chooses to concentrate on “manifestations” instead of the real “cause”, economic growth. But to renounce growth and advocate redistribution is an unrealistic expectation from within the confines of the current paradigm that is constructed on the unrealistic assumptions of infinite growth and an economy that is not subject to any form of ecological constraints.
Globalization is yet another area whose analysis lacks distinction between symptom and cause. Recommendations and policy suggestions emphasize the superficial aspects of the phenomenon in question, proceed to describe in great detail its outer appearances, then conclude that globalization’s demands must always be accommodated since the process of globalization is inevitable and even irreversible. No attempt is made to explain the cause of globalization, its ultimate goal or whether that end is worthwhile. Globalization, to this group, is the order of the day, it can never do any harm and it must be unquestionably accommodated. A slight variation of the above admits to the possibility of generating unpleasant outcomes from the globalization process but believes that the structure is amenable to adjustment. It believes that reform could produce globalization with a human face thus creating a win-win solution for all stakeholders. This level of analysis is equally unsatisfactory since it does not delve into a meaningful analysis of the reason globalization arose, what is its reason d’être and whether it is amenable to reform.
Globalization in its entire facets, political, social, cultural and economic, is ultimately the result of a unique project due to the nature of capital accumulation on a world scale and the need for capital to dominate and homogenize. As production and consumption become alienated from their local surroundings, then this pursuit of global commodification will result in delocalization, desocialization and deterritorialization. Globalization results in less diversity, less control and a loss of identity. None of these unhealthy effects of globalization can be eliminated if globalization is maintained.
Change, if it is to come, will only occur when the victims decide to take action in order to vanquish the world system that has produced an environmentally unhealthy ecosystem and a humanly unjust society.
November 22, 2008
What is art? And, what is the artist responsibility, if any, to the community? Well, this is the general topic of discussion on this faculty-student retreat conference this weekend. Needless to say, we haven't reached a consensus. Like art, the discussions are all over the place. What I find fascinating is that there's such an effort to define art! I'm not sure this is necessary or even practical.
For me, art should be a personal definition. If society values something because it has a special meaning or whatever it does to inspire, provoke,challenge, etc., it's fine. I don't see a necessity to define something that doesn't seem to want to define the physical world. Since it means different things to different people, then let's leave it at that.
October 22, 2008
We're paid to have a professional opinion. We've spent lots of time & energy thinking, researching, formulating theories and views. Yes, we don't always agree--and that's good. But, we do exchange our ideas in the currency of reason. An intellectually honest person has to accept the evidence and the rhyme of reason.
There are several issues that divide our society, namely on matters of politics and religion, and, in the US, science! Take the latter, for example. There's a consensus in the scientific community on most important subjects, like evolution--one of the strongest scientific theories we've got. Should we, as educator, shy away from offering an opinion? The earth is not a few thousand years old as many Americans (and sadly several leaders) believe. Should we say, "well, there are two sides to this story"?!!!
Personally I think we've given too much respect to views and people who don't deserve any. There's widespread ignorance, so by often avoiding controversy or challenging false ideas we allow ignorance to persist. The academia should be a place for free discussion and learning. Often you learn by revising, amending, and accepting the reasonable. Some of our great successes as a human species came because some brave persons challenged the status quo and the "wisdom" of the "tried & true."
Being objective doesn't mean we can't have a strong opinion or that we shouldn't express it for the fear of offending others. The earth isn't flat; it's old and wasn't created in 7 days. This is a scientific fact and until someone with a better argument and evidence to back it up comes along, this view is a fact!
October 06, 2008
August 16, 2008
I believe good thinkers are leaders too. Hopefully, we teachers and the schools can facilitate such rational, creative thinking and by doing so to develop leaders. Those who don't know (either by choice or not) tend to be followers and more likely to be manipulated by the simplistic arguments of demagogues who want to be leaders of a flock of sheep.
I can't tell you how many times I've heard students say, "it's just a theory," meaning "it's an opinion," when they refer to scientific theories. Take, for example, the theory of evolution--one of the strongest body of knowledge we have--that is supported by tons of evidence from across several disciplines. This scientific theory competes for acceptance with creationism or intelligent design! I think it's losing right now!
I don't know if anti-intellectualism is winning in America, but Susan Jacoby--Age of American Unreason--thinks so. It's close-mindedness that impedes progress. And, don't tell me that our politics don't reflect this. How else can you explain a president who believes that "the jury on evolution is still out"? Or, serious presidential candidates accept superstition to science? Or, why worry about the environment & our planet when Jesus has saved us all (only if..) or will save us when Armageddon! [yes, the majority of Americans believe that Jesus will return sometime in their lifetime!]
Education is more than memorizing stuff. It's not indoctrination. It's the developed ability to be a learned person who can think critically, connect the dots, and ultimately accept reality.
June 27, 2008
Those who have chosen to emphasize the failure of personal rectitude of the borrowers by their failure to exercise proper caution and by agreeing to overextend their available resources miss the point. They conveniently dismiss the possibility that the consumers have always been willing, ready and able to throw caution to the wind if the opportunity of great financial gains presented itself.
And so the real question is not why is it that consumers acted “irresponsibly” by agreeing to take on risk that they could not handle; the real issue is to find out what were the conditions that led the financial institutions to lure the unsuspecting consumer to carry excessive debt burden.
Furthermore, the reason the crisis could not be contained had nothing to do with the borrowers and everything to do with the fancy financial packaging and creative marketing techniques that the debt originators resorted to. The urge to come up with the new and, in retrospect, unsound methods of debt financing was driven by greed; the urge to participate in amassing what appeared to be easy - though albeit- unethical profits , arose from the excess liquidity injected into the global financial markets by the major central banks.
This crisis is essentially a result of the developments in the world since Neo- Liberalism became the major guiding philosophy. Without the forces of globalization, at least globalized capital, then the financial institutions would not have been able to borrow, lend and collateralize then borrow, lend and collateralize again.
The triumph of the market economy in the mid 1980’s set in motion the forces that gave us the Asian contagion of 1997-99 and the current financial meltdown that exploded on the scene in the US in August 2007 and whose final effects have not been felt yet. Make no mistake about it, the whole world will be affected by this crisis and all individuals will be called upon to carry part of the cost of this debacle. The nay sayers go so far as to predict that this crisis carries within it the seeds that will lead to the total collapse of the international financial system.
This irresponsible behavior of encouraging households to assume debt beyond their means in order to “mint” huge profits from packaging these mortgages into collateralized securities of dubious quality has resulted in creating conditions that do not augur well for the world economy. The drive to enrich the few has bankrupted the many, not because of the irrationality of the borrower, but mainly because of the totally unregulated economy which permitted unfettered socially destructive behaviour.
How are we to explain the element of surprise and unpreparedness that seems to have accompanied this crisis? This is one event that should not have been difficult to foresee, especially by the originators. Since many of the loans and mortgages were made to look artificially appealing through teaser rates, it should have been reasonable to expect the originators to plan for the consequences of a sudden rise in the cash flow required of the borrowers to service the assumed debt once the teaser rates were set upwards. An upward setting of the interest rates resulted in a larger debt service burden for the same size loans and it should have been clear that the additional sums of money required to finance the newly set rates had to be found somewhere. But since it was also obvious that wages were stagnant, these additional monies had to come from reallocating the relatively constant flow of income.
The implications of an additional debt service burden combined with relatively stagnant wages and negative personal savings rate are close to devastating. The only way that the additional debt service payments can be made is to spend less on food, transportation, medical care and other expenditures that are deemed to be necessary. This was a classic case of a “wealth effect” in the reverse. It is estimated that the $1 trillion worth of contracts that were reset in the period 2007-08 resulted in an increase of 31% of the cash flow requirement to service the debt in question. Those who found the additional money did so by reallocating their expenditures and those that did not went into foreclosure. In both counts the economy suffered domestically and globally.
Easy money policies increased the availability of liquidity to the originators but these funds had to be lent if profits were to be derived from the easy money policies. That could be accomplished only through an increased volume of transactions. Unfortunately, the originators followed the path of least resistance by appealing to the sector of the economy that is the most vulnerable and the one with the most pent-up demand. During 1994 only 5% of total US mortgages were classified as sub-prime but by 2006 that proportion had risen to over 20%. Studies suggest that the same was true of the UK and also of Spain. This demand for homes was not difficult to understand since the governments own figures demonstrate that the majority of households during the early part of the 2000’s had become worse off in real terms.
It is true that the US economy had grown during that period, but most of that growth stayed at the top of the pyramid. The trickle down effect failed to materialize. What ensued is nothing else but the immoral pursuit of profits at the expense of the weak and vulnerable and the irrational belief that this time it is different: the music will never stop and no one will be caught holding the hot potato and no chair to sit on. Ironically the financial institutions that took the most risk and that profited most from the new financial instruments are the ones who were caught unprepared and thus had to take numerous write offs, recognize large losses and seek to improve their depleted capital base. That was done to a large extent through the acceptance of the oil producing countries’ sovereign funds to provide the needed capitalization. And so the easy money policies that were adopted in the first place to help avert an economic slow down initiated by terrorist attacks and to finance a war precipitated by fundamentalists on both sides has led to appreciably higher fuel prices which helped the accumulation of huge sovereign funds that were used to save the system.
Unfettered markets, as promulgated by the US, turned out to be their own best enemy in this case. They helped bring about an unplanned and unanticipated redistribution of wealth that does not favour the developed economies. So maybe the markets do work in a perverse way by eventually promoting a more even wealth distribution among nation states. But there should be a more civilized way of attaining the ultimate objective of equality without recourse to these periodic but devastating shocks to the system.
May 28, 2008
2) Oil was and remains cheap (yes at $4 a gallon) because the energy return on energy invested (EROI--my thing) in getting it was very high and remains fairly high.
3) Nevertheless EROI is declining – this has many economic effects.
4) The EROI for any conceivable substitute to oil is far less than oil for the foreseeable future.
5) Hence there is no possible substitute, qualitatively and quantitatively, for oil.
6) We are using oil 4 to 5 times faster than we are finding it.
7) Therefore we are just using up our remaining oil reserves, faster or slower depending in part upon economic growth.
8) Increased drilling historically has NOT led to increased oil finding or production.
9) Food prices and availability, subprime mortgages and Wall Street are all tightly related to oil availability and price.
10) Discretionary income in the US is declining and is likely to virtually disappear in the future as more and more of the output of our society is dedicated to the dollars and energy that must be used to get the energy required to run the economy. We must plan for this.
11) Efficiency is important but over rated (long story). It is not a silver bullet.
12) Most oil exporting countries cannot lower prices much as their own population growth requires the oil revenues for public programs. The money does not go only for luxury.
13) All of these issues were laid out very clearly by geologists and ecologists more than 30 years ago but were suppressed by economists who believe too much in markets and technology. The world is finite, we must adjust accordingly.
May 26, 2008
I have always found it sad and amusing at the same time that very few, if any, practice praxis. It seems that individual humans are endowed with an uncanny ability to ask others to abide by certain principles that they hold themselves to be exempt from. The sad thing about the above is that, more often than not, they do not realize the logical absurdity of their position.
These seminal contradictions are found across all fields and they span all regions. One of the most absurd positions is to be found among the practitioners of the new religion of environmentalism. Often the strongest advocates of the need to act in an ecofriendly way are the rich and the wealthy. They campaign for alternative clean energy, take a strong stand against industrial farming and demonstrate to prevent deforestation.
Each of the above is a noble goal in itself but the irony is that those who are the most vocal in their demands are often the largest abusers of what they want us to protect. Many of these advocates who favour a smaller footprint are the most extravagant consumers. They are more often than not the ones who take the ski trips to far away places, live in homes of over 5000 Sf, but with an expensive PV system on the roof, subscribe to every imaginable magazine and do their food shopping at WholeFoods.
The same phenomenon is to be observed among those who advocate high tariffs against imported goods. They are the jet set that drives the Benzes, Beemers in addition to the Lexuses and Infinitis. This is often the same crowd who is worried about the trade deficit and wants measures that would reduce the availability of Chinese made goods at Wal Mart as long as the availability of the $50,000.00 Patek Phillip watches , the $2,000.00 Gucci hand bags and the $500.00 Italian shoes is not reduced.
This disconnect between what we say that we want and what we do has become so widely spread as to not spare anyone. Infamous Judge Robert Bork [linked story] whose failed nomination to the Supreme Court preoccupied the nation for months has written, lectured and campaigned vigorously against frivolous suits brought up by individuals against corporations and other large institutions. What is unbelievable is that the same judge, Bork, slipped as he was leaving the dais at Yale University during one of his appearances and he promptly sued the University for negligence and for physical pain and psychological traumas. The same person who has campaigned tirelessly against frivolous law suits brought one himself asking for a million dollars in compensation. Ironically he denied, with a straight face, the contradiction when he was confronted with it.
I guess that frivolity is in the eye of the beholder.
May 24, 2008
It's been an interesting semester with lots of work in the end, as per usual, but now it's over. I had a good experience over all. I like teaching, and, I dare say, most of my students seem to enjoy my classes. I encourage critical thinking and thoughtful discussion--something of a rarity in colleges today. Accumulating information without putting it into proper context is good for passing exams but it doesn't necessarily promote an understanding. Connecting the dots is often a skill that's lacking among Americans but also among too many college students.
Of course, it's the subject matter that allows for such a conversation. My subject is Political Science so I talk about political theories, ideologies, the information (?!) media, American political institutions, etc. But, I'm a science fan too. I'm a scientist in that I accept the scientific way as the most powerful tool we have for knowledge! The scientific method is a specific process, a methodology, of analyzing evidence, forming theories that explain & predict, and always keeping the door open to revision--when better data or a theory are available.
The process is very important and much is invested in it. The process of finding and analyzing evidence and then puting it in order. The conclusion comes later. It is not the other way around it as many people seem to be doing. That is, they first form a "conclusion" which is something they like, and then they try to find any piece of supporting evidence to their thesis. Any contradictory evidence that falls outside their narrow frame (of mind) is discarded! Obviously, this is not an appropriate for knowing stuff; it may be good for escaping reality and/or feeling better for a while, but it is not a tool for learning.
I can't tell you how many times I had to explain--which is good, because at least we are talking about it--what a scientific theory is about. Such a theory is not a hunch, a guess, an opinion! The theory of evolution is perhaps controversial in the minds of the ignorant, but it is one of the strongest scientific theories we have. Modern genetics and technology have confirmed its tenets and have piled on more supporting data upon the tons of evidence we have from fossils, and other observations. Unfortunately, more Americans (US) believe in creation than evolution! In other words, more people believe that human beings were made in their present form rather recently than humanoids having evolved over hundreds of thousands of years! And, this in a society that has been at the forefront of technology, science, and freedom of information!
I like Richard Dawkins's explanation:
"We have two theories, A and B, both trying to explain the same phenomenon. Theory A fails in some particular. Theory B must be right, even if theory A is supported by loads of evidence and theory B is supported by no evidence at all...
Nevertheless, if you can find one phenomenon, call it X, for which, as far as you can see, theory A cannot provide an explanation, you therefore conclude theory B must be right....
What kind of logic is that?"
If you want to understand the physical world, logic is imperative. But, I think, you have to have some courage to face reality even it is unpleasant. You develop courage by having confidence in yourself and your ability to think & analyze. I believe good thinkers are leaders too. Hopefully, we teachers and the schools can facilitate such rational, creative thinking and by doing so to develop leaders. Those who don't know (either by choice or not) tend to be followers and more likely to be manipulated by the simplistic arguments of demagogues who want to be leaders of a flock of sheep.
May 17, 2008
Paul Ehrlich the author of the Population Bomb and a staunch advocate that planet earth is overpopulated and that there are limits to growth had a wager with Julian Simon who was just the opposite. He believed that science and technology will always deliver and that there is no limit to the level and intensity of human activity.
Mr. Simon argued that if the bleak view held by Mr. Ehrlich is accurate then the prices of commodities will go up from the resulting scarcity. But he does not think that will happen because human ingenuity will find substitutes to prevent that from occurring. Ultimately they agreed to keep track of the prices of five commodities; tin, copper, chromium, nickel and tungsten; over a ten year period. That was agreed upon during 1980 and by 1990 all the prices were lower than 10 years ago even in nominal terms. Paul Ehrlich wrote a check to Mr. Simon and suggested another bet but Julian Simon turned down the offer.
As is often the case Mr. Ehrlich turned out to be correct in his pessimism but his mistake was in limiting the bet to ten years only. A recent recalculation of what has transpired over the past 28 years shows very clearly that the prices of each of the five commodities in question has increased , both in real and nominal terms significantly. So yes Julian Simon won the wager over the first ten years while the caution about excessive demand and limits to growth as advocated by Paul Ehrlich is the real winner.
Overconsumption began long time ago
Another illustration that demonstrates the prescience of Paul Ehrlich can be found in the recent study released by the University of London’s’ London School of Hygiene and Tropical Disease in which they calculate that obesity is a serious contributor to Climate Change because of the additional food that needs to be consumed, the energy needed to grow the food and the additional energy required to transport obese people. Again what the authors of that study seem to have conveniently neglected is he formula developed by Paul Ehrlich and used by most serious students of environmental degradation namely that the environmental impact is very much determined by our chosen lifestyles.
Instead of discovering the detrimental impact of SUV’s, incandescent light bulbs, air travel, large homes, diets, fashion, war (just to name a few) and now obesity one at a time Paul Ehrlich admonished us more than forty years ago that what is needed in order to avoid the ecological and environmental abyss is a radical change in our life styles and not one item at a time. Will we recognize the significance of the moral imperative to act and act now or are we going to wait one more time until it is too late to act.
May 13, 2008
Is Harvard Just a Tax-Free Hedge Fund?
According to the Wall Street Journal, Massachusetts legislators are studying a plan to levy a 2.5% annual tax on the portion of college endowments that exceed $1 billion. The high-wage union workforce with lifetime employment contracts and restrictive work rules tenured faculty is not amused.
Harvard’s official response is pretty funny:
Kevin Casey, a spokesman for Harvard, said the proposal would hurt Massachusetts and colleges because it would damage “stable bedrock institutions” that have helped shield the region from the worst of the economic slowdown.
But why isn’t this statement true of, say, Akamai, Biogen and Raytheon?
I’ve purposely picked companies with close ties to MIT and Harvard, because one could argue that universities create spin-offs that ultimately create corporate profits to be taxed. But large tech companies do the same; many successful companies are in the fourth or fifth generation of this process. Should Fairchild Semiconductor be free of paying corporate income tax because employees left to create Intel, or should this tax benefit revert to AT&T because a group of employees left Bell Labs to start Fairchild?
Which brings to mind another obvious question: why do endowed universities get tax breaks that other corporations don’t get in the first place?
It claims to be in the business of serving humanity through the creation and dissemination of knowledge, but Biogen claims to “transform scientific discoveries into advances in human healthcare”. That sounds pretty good, too. If you think of Harvard as a corporation, it had an income statement in FY 2007 with about $2.2 billion of revenues (tuition, sponsored research contracts, and so on) and about $3.2 billion of expenses, and therefore had to move about $1 billion from the endowment to make up the difference in order to run at basically break-even. In other words, it’s a big institution, but hey, it doesn’t make any money and has to survive on the kindness of donors, even if these donations are channeled through an endowment.
But this isn’t quite the whole picture.
The overall Harvard corporation gets to make money through investment returns on its endowment (or, more precisely, the General Investment Account, which currently includes about $6 billion of investable assets in operational accounts in addition to the $34 billion endowment) that doesn’t get reported as revenue. Last year, Harvard made more than $7 billion of tax-free investment income.
So if you just think about how much cash went into the shoebox and how much came out of it, a more accurate accounting for Harvard for FY 2007 would, in rough numbers, be a lot more like the following:
Receipts = $2 billion of operating revenue + $7.3 billion of investment income + $0.6 billion of gifts to the endowment = ~$10 billion.
Operating costs = ~$3 billion.
Profit = $10 billion – $3 billion = ~$7 billion.
This explains why Harvard’s net assets increased about $7 billion in 2007, from about $35 billion to about $42 billion.Viewed purely in terms of economics, Harvard is really a $40 billion tax-free hedge fund with a very large marketing and PR arm called Harvard University that has the job of raising the investment capital and protecting the fund’s preferential tax treatment.
The trick is that this hedge fund can’t remit earnings to investors, and has to keep them in the company’s account, renaming these retained earnings as an “endowment”. So how do the insiders extract value from this business? One way is by giving themselves cushy jobs that pay a ton of dough. Those who manage Harvard’s money are well-paid.
The prior investment head, Jack Meyer, left after criticism of a compensation plan that paid some investment management professionals more than $35 million each in a single year. In spite of this, investment professionals often leave the Harvard Management Company because they can make yet more money as partners in private equity groups or hedge funds. Of course, the qualification of running Harvard’s pool of assets can be leveraged to get exactly such jobs – those who do this are called “Crimson Puppies” – while in the meantime enjoying a somewhat more relaxed work-life balance, and not having to do the hard work of actually raising the fund.
The worker bees in the marketing department (i.e., the faculty) are also quite well-paid. The average Harvard professor now has a salary of about $185,000 per year. Professors in the right disciplines, such as business, can reportedly double their salaries through outside consulting and other income sources. In 1980, the salary of a Harvard professor was about 5.5 times the average US per capita income; today, $185,000 is about 7 times the average national per capita income, and can often be leveraged into much higher actual annual compensation.
When tax-advantaged non-profits start to accumulate billions of dollars of cash through investment gains, and the insiders seem to be doing very well, it creates legitimate pressure for some legal changes. There is a broad range of alternatives: capital gains taxes on investment income, directly taxing the endowment, placing limitations on employee compensation, and forcing the distribution of a fixed percentage of the endowment are all obvious choices. Sanctimonious talk about “the mission of the university” is not likely to stop this; unfortunately, giving lots of money to Democratic politicians very well might.
May 06, 2008
Pete Singer is essentially a utilitarian philosopher who argues that we have a moral obligation to reduce pain and increase happiness. This fundamental principle led him to oppose , in the strongest way, the idea that animals are to be raised in order to be slaughtered for human consumption. It is also important to make it very clear that , to the est of my knowledge, his argument for animal liberation does not rest on any intrinsic rights of the animals but instead is based on the fact that we do not have the right to make any living creature suffer if it is within our power to avoid that suffering. As a result Mr. Singer would sanction slaughtering animals if that can be accomplished without causing pain to the animal.
All of the above rushed through my mind during the Kentucky Derby last Saturday. I will be the first to admit that I know nothing about horses and why they run but it seems to me that horses are trained to run and endure pain for the sake of our entertainment? My very simple question then is the following: Do we have the right to subject any animal to pain and possibly death as long as we enjoy the spectacle? Maybe it is time to reevaluate the cruel use of animals in any capacity that is designed to entertain humans by forcing the animals to endure pain. Maybe it is time to declare horse racing an illegal activity just like cock fighting. Should animals perform for our pleasure? It is time to enlarge the circle of animal liberation as to encompass all human activities that impact animal welfare whether that be laboratories, slaughter houses, circus cages or horse races just to name a few.
May 05, 2008
The efforts to protect the ideals on which the nation was founded upon were disintegrated as the plans of government officials began to deviate from those American rights--life, liberty and the pursuit of happiness. Moreover, citizens' calls for defending those rights were often met with disdain by White House officials, including the Supreme Court-appointed president. These officials who resisted to deliver reasonable answers on people's concerns regarding civil liberties. The war on terror became the war of terror, as Americans feared that their problems were overlooked by the Bush administration.
However, now that the country's next step lie in the outcome of the upcoming presidential elections, Americans are looking for political leaders to stop solving problems for other people outside the country and deliver policies that are more focused on domestic issues, such as hunger and poverty.
The US government has tried to reach out to dozens of countries, helping them alleviate poverty and hunger. However, the same government is neglecting to feed it own citizens. With the status as the world’s superpower, the United States holds the highest rank in childhood poverty amongst all members of the Organization for Economic Cooperation and Development (OECD)--with an estimated amount of twelve million American children [Scherrer, 2001].
In addition, there are roughly “35.5 million people [living] in households considered to be food-insecure” within our borders. Given this, it does not take a genius to realize that there is something wrong. American officials need to take action in their country before trying to feed everyone else.
However, the problem of hunger and poverty in the country is commonly dismissed in the midst of superpower business. In fact, there are some that argue against the importance of such issues, claiming that there are plans already addressing these matters and that there is no need to constantly create new policies. Yet, the problem with this view is that it fails to identify those policies supposedly dealing with this domestic crisis.
On the other hand, in order to raise awareness, the United Nations’ Economic and Social Commission for Asia and the Pacific (ESCAP), under the Universal Declaration of Human Rights, calls for all civil societies to provide comprehensive policy to deal with poverty and hunger. But, how can we develop a better understanding of the problem and form appropriate policies? Further, good policy to solve a problem often requires funds, but if there are no funds to make practical solutions possible,then what do we do?
For this, I think, it is important begin to at least implement the plans that already exist. The government needs to take the system of “Food Stamps, Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), and the National School Lunch and School Breakfast programs” and expand them. There are many Americans who have fallen through the safety net. Our government needs to find those people, or to make essential services available to them.
The federal government has set the poverty level at $19,350 for a family of four--which is not much. The average wealth has gone up but the median income has stagnated. There is a need for the better distribution of our resources.
Recognizing the importance of education for the improvement of the problem of poverty and hunger, one can not forget to ask political leaders to take a look at the plan set forth by the Millennium Development Goal (MDG). The eradication of “extreme Hunger and Poverty” is not about handing out money to the poor, rather it is about creating opportunities for improvement.
Today, 33.3 percent of the youth in the US are facing dramatic situations resulting from unemployment. Therefore, there needs to be a way create opportunities out of this unfortunate reality. The Presidential elections may bring great changes to the country; hopefully new policies to meet the needs of the American people. We need leaders that will address the issues of our concerns. The issues of poverty and hunger are very important and we should start solving this problem starting with out own poor first.
April 29, 2008
I read this article in the Times. I think it was also on Digg. I have heard no less than 3 co-workers discussing the same New York Times article about a charter school in New York. The basic premise of the newly approved charter school is that the best teachers turn out the most well educated students, and the way to attract the best teachers is to pay them well. “Well” meaning, well paid--in absolute terms--not relatively “well paid for teachers.” The starting salary is $125,000. The implications of this are far more significant than what is covered in the short article.
I say it is brilliant. Schools with the highest needs, which are usually in areas with the smallest tax base, are bleeding young, quality teachers. Teachers fresh out of school, inexperienced, head to these schools for a couple years and then look for a position in a higher paying district. Once they are equipped to best teach, they leave.
The profession of teaching struggles to attract smart, edgy career seekers because it is seen as a life of self-punishing service, in constant financial struggle. There is no way, regardless of talent and performance, for a teacher to make a salary that allows for a comfortable life in a major city. There is just no way to make a life in New York (or San Francisco or L.A. or Chicago, etc.) on $40,000. How could I ever buy a house on that? Granted, experienced teachers in my district make $70-80,000--which makes home-ownership more realistic. But going into teaching, while requiring a master’s degree, will never produce the salary that pursuing a career in i-banking, or engineering, or law will.
Teachers rely on a union to protect them from the district (government) and the administration. So by diminishing the administration, there is one less force attacking them. Then, in theory, if they are doing a good job (which is significantly easier with adequate compensation, for a variety of reasons, need I list them?) good teachers shouldn’t need the protection of a union. After all shouldn’t the students and parents protect them? And the bad teachers… well they will be fired. They will not be worth $125,000 a year to tax payers. But the good teachers can let their art in a classroom speak for itself.
There are more problems in the education system in this country than passengers on the Titanic. But paying teachers well is perhaps one step towards fixing at least one or two of the existing problems.
April 28, 2008
But, besides this, if we are all patriots and want to support this country called the United States of America, then the question is: how much everyone should chip into to pot? According to earnings and ability to pay? Is that fair? Whatever you think, this is not how it's done here.
This investor who gambled made $4 billion a year, just as much as all teachers in the NY City public schools made collectively! But, the super-rich have their capital gains taxed at 15% whereas teachers (and other workers) are taxed at twice or more this rate!
Here's an article by Alternet that makes the case. You may disagree with the author's conclusion and suggestions, but the facts remain the facts.
"The United States has the highest inequality rate in the developed world. 28 million Americans -- almost 1 in 10 -- are using food stamps. The average worker has seen virtually no real increase in wages since 1970.
Some hedge fund managers made over a billion dollars last year. Hedge fund manager John Paulson, who made a clever bet against subprime mortgages, made close to $4 billion.
How much is 4 billion dollars? If you work as a sales clerk in a retail store, you'd have to work 200,000 YEARS to make 4 billion dollars.
If you have a steady $50,000 a year job as a laborer and work for 50 years, in all that time you'd make as much as the hedge fund manager gets in one hour at the office."
April 12, 2008
The Politics of Tax & Spend and the Role of Government. Pay Your Taxes But Ask for Accountability too!
As humans see the benefit of organizing themselves into a civil society--hopefully with a good social contract--the question arises of what the role of the government should be. I think it should be to protect and empower the commonwealth, that is, for the benefit of the greatest number of people possible. Yes, of course, I recognize the principle of protecting the minorities, however small they are, so you can not exploit the few for the benefit of the many either. This philosophical (and I maintain, practical) approach to the role of government is one of the important differences between the progressives and the conservatives today. But, in order for our government to do all the good things for us, it needs money, hence the ..dreadful taxes.
Have you noticed who has the strongest voice against taxes? Those who are better off. They usually get their way of tax breaks and lower taxation as a percentage and ability to pay. This week, NOW produced an excellent piece on the tax policies many states have embraced--policies that place most of the tax burden on those who can least afford it! See, for example, what NOW discovered in Alabama [click on the link to watch the NOW video] one of the most regressive states in the US, where a family of four with as low income as $12,600 has to pay taxes.
The connection to poverty & hunger is crystal clear. Next Friday, the farm bill expires and Congress is working on a new one. In light of our huge budget deficit, this farm bill is "the most lavish subsidies in American history" the Wall Street Journal has decried! The Senate Majority Leader Reid (D-NV) has acknowledged that the insurance companies and the commodities industry are the two most powerful groups that carry great influence with both parties in Congress. Most of the farm subsidies go to rich farmers, big corporations-- a practice which is both wasteful and unethical. This is one of the many cases where we have to stop and think, and ultimately call it as it is.
The smaller government advocated by conservatives means a big enough government to maintain a trough that feeds the few, but small enough that cannot regulate, inspect, and ensure a more fair distribution of the public wealth! This is the bottom line. Oh, OK, there's an exception regarding the size of the government: those conservatives that want the government to be strong enough to shove down our throats a particular religious morality they advocate.Why is there so much hunger in the US today? Why do we increase the farm subsidies to the rich farmers [there's a fight to limit payments to farmers making up to a $1 mil. instead of the present $2.5 ceiling] but we don't increase food stamps to poor Americans? Most rural poor that get food stamps have little food after the 3rd week of the month. We're talking about working people here, who simply do not make enough to feed their families.
There's a great hunger in rural America, 35 million of out citizens, but this is not even an issue discussed in the current presidential race! Bill Moyers has another excellent piece on the farm bill this week. Cash Cows and Cowboy Starter Kits from EXPOSÉ illustrates, some of the subsidies in the current iteration of the bill don't go to the stereotypical small American farmer — or even to farmers at all. See how the farm bill gives billions to people who don't farm, or "drought aid" to people who didn't suffer any drought conditions! Or, how people got money from the space shuttle explosion over Texas for a bogus "livestock compensation"!!!
Poverty exists in the US and it's bigger than we want to admit or pay attention to.There's another class, the missing class, of the near-poor. Katherine S. Newman has a great book on this subject. This video explains more about those Americans who are also forgotten, who live on the margins of the mainstream economy, and on the edge of economic disaster. We can cut hunger in the US by half in one year by eliminating the waste in just one area: farm subsidies. But, we need leadership and political commitment. Oh, yes, we also need a politically educated public, and that Americans start behaving as they are in the economic scale not as they'd like to be or "see" themselves in the undetermined future.
We should have a serious discussion on the role of the government and to dispel some misconceptions about the infallibility of capitalism. The free marketplace is a great but imperfect mechanism and like a good car needs to maintained and occasionally steered in the right direction. We have to examine ways make it work for the commonwealth and not to privatize the profit while we socialize the risk. There is no rational or moral argument to continue doing what we've been doing on many levels of public policy. We should start with our intense focus on being very militaristic and the costs associated with such a strategy, and move on to allocation of resources and benefits in our commonwealth.
March 18, 2008
February 20, 2008
My father’s past mumbling echoes in my mind as I think back to all the times I’ve asked him for a few bucks to grab a cup of coffee before school or work. As he’d fork over the cash, I would always hear the same story—how a cup of coffee used to be ten cents and it is outrageous that my extra large regular from Dunkin Donuts cost almost $2.25 (I wonder if the story would have been more exaggerated if I was a Starbucks latte lover instead). It was a ritual that came standard when asking to borrow money for almost anything. In recent years, the latest and greatest version has been about the price of gasoline and the cringing thought of giving me two twenty dollar bills and hoping that it would be enough to fill my itty-bitty thirteen gallon tank. I never thought the day would come so soon when I would share the same sick feeling with my father every time I pull up to the pump.
In 2001, being among the sixteen year olds who experienced a bad license picture for the first time, I clearly remember the gas price posted when pulling in the station after the landmark event: $1.26 per gallon. Luckily, the Gulf station down the road from my apartment, now seven years later, is one of the cheapest places to gas up in the county at $3.17. Twenty minutes south to the next town where my parents live, it’s a whopping $3.39. Just the fact the price is over three dollars amazes me—over two dollars for that matter. How did this happen?
It all started with one name we all know: Enron! In 2000, the Enron Loophole Act was passed with the original intent of deregulating energy futures trading facilitated by the now defunct “Enron Online.” This loophole has been taken advantage of, causing the energy commodity markets to be dubbed “dark” by the lack of oversight, and creating excessive speculation and energy price manipulation. The price for crude and heating oil, gasoline, natural gas, and propane effects every American in their day to day lives.
My parents are a perfect example. Both are retired and living on fixed income, which is significantly smaller now compared to when they first entered retirement five years ago. Now with the surge in heating oil prices, they have become considerably more conservative: so layer up because your hand will be cut off if you dare touch the thermostat. But seriously, the oil bill took up a large chunk of their monthly budget this winter and it shows by their new pattern of spending autonomously. I cant grocery shop in my mother’s pantry anymore because it is starting to look as pathetically bare as mine, filled with minimal generic brand necessities. It should never have come to this!
Why hasn’t anything been done to correct this major problem that has been an infection in our economy for so long? There are a handful of reasons, but here is what I think is the big answer: the Commodity Futures Trading Commission (CFTC), who would be responsible for regulating actions in the energy commodity markets has been severely crippled by a significant decrease in funding, resulting in insufficient resources necessary to do its job effectively. Even worse, the advisory committees assigned to the CFTC commissioners are conquered by financial players, who depend on the little oversight, and do not include the vital input of the majority—consumers and small businesses.
At least Congress has taken notice of these shenanigans in recent months. Last June, a bipartisan report came out of the Senate Permanent Subcommittee on Investigations acknowledging price distortions in the energy futures market, being supported by “a broken regulatory system that has left our energy markets vulnerable to any trader with sufficient resources to alter energy prices for all market participants.”
Thank you, Senator Carl Levin, for bringing this to the Senate floor and introducing the Close the Enron Loophole Act in September. You started the ball rolling, so please continue it down the right path to quickly cover the entire hole. By next winter, I expect to be able to visit my parents in a toasty warm house.
The current White House administration has been widely utilizing private security companies. Currently many of the top officials in Iraq are protected, not by the United States military, but by Blackwater USA, a private security company. This is a result of a push towards military privatization by former Secretary of Defense Donald Rumsfeld and Vice President Dick Cheney. While in office Cheney had plans to weaken the pentagon’s power, and outsource some of their jobs to the private sector. With the market ripe for the taking, Blackwater owner Erik Prince stepped up to the job. Paul Bremer’s, former director of reconstruction in Iraq, arrival in Iraq in 2003 gave Rumsfeld the perfect reason to utilize Blackwater in the war. Blackwater was given a contract for all of Bremer’s security.
The White House and Department of Defense are bending, twisting, and sometimes outwardly breaking laws in order to accommodate Blackwater, all with complete disregard for public opinion. Their inability, or rather lack of desire, to regulate Blackwater remains dangerous because the Blackwater Contractors remain without liability for their actions. Bremer protected them under order 17, of his 100 orders made while in Iraq, providing them immunity from persecution. Essentially there are thousands of armed contractors in Iraq without any responsibility for their actions, and the Bush Administration finds this to be perfectly legal. A September 2007 shooting by Blackwater contractors who opened unprovoked fire on Iraqi citizens is further proof of the detrimental affects this type of military brings with it. The Blackwater men are being paid double and triple what the United States military makes, and is being held accountable for nothing.
Furthermore Blackwater is being given no bid “sweetheart contracts”. Given the country’s current economic problems it seems highly suspect that the government is handing out billion dollar contracts without putting them out to bid. Bidding out the contract would be far more economically sound, but Prince’s donations to the Republican Party seem to prevent this from happening.
Iraq is not the only place private security has been used by the United States. Blackwater’s involvement in Hurricane Katrina is suspicious at best. Where was the National Guard and Military? Even if it was necessary for extra help in the beginning why didn’t Blackwater leave after local law enforcers were able to control the situation? And the most important question is where was FEMA? The people of New Orleans had suffered a massive natural disaster and lacked everything needed to sustain life. These people were hungry, hungry people need food, not guns. Especially not guns attached to mercenaries. The fact that Blackwater was deployed on American soil begs the question just how much power does Erik Prince have over the current administration?
Looking to the future, Blackwater is currently courting NATO and the UN to get contracts that would allow them to go into Darfur. This speaks directly to the ineffectiveness of UN peacekeeping troops. It is yet another example of sending a private security company somewhere it does not belong. The growth of such a powerful private army could be extremely dangerous, with their loyalties not being national, but to one person.
In order to fix these problems the United States needs to scale back on the use of private contractors and take a look at revamping the Military in order to meet its needs. The cost now may be high, but the risk of allowing private contractors to be responsible for American safety is higher. Prince has already been giving too much control and as long as Blackwater remains in bed with the Republican Party, this situation will only continue to get worse.