Saturday, February 05, 2005

2020 Preparations - Step 1: Education

The rest of the world isn't going to turn back the clock so that the U.S. can continue to be unchallenged militarily, economically and intellectually.

It seems to me that the U.S. must begin to adapt to the new rules of engagement. It should be obvious that it is not in our best interest to try to match the ridiculously low wages driving manufacturing out of this country. That would be self-defeating. But we can make it harder for other nations to compete with us intellectually.

I sent the following letter last September and it is one possibility:

Rep. John Boehner, Chairman
Committee on Education and the Workforce
U. S. House of Representatives
2181 Rayburn House Office Building
Washington, D.C. 20515

Subject:Expanding America’s Intellectual Resource

Increasingly, the ranks of our universities PhD programs are being populated with students from other nations. While diversity of opinion, experience, and skills are valuable, I believe that such diversity already exists within the tens of millions of American-born potential PhDs. The fact that a company such as Microsoft feels compelled to seek Chinese PhDs for their research staff while, at the same time, U.S. universities’ PhD programs are so heavily populated with foreign students sends a message to me that our system of education is failing to focus on American intellectual resources: U.S. citizen students.

The point of my concern is this: the U.S. is losing manufacturing and technology jobs to lower cost labor suppliers, and the argument is that this is not serious because these jobs will be replaced by better paying ones based on the U.S. becoming the wellspring of new ideas. There is no guarantee that the foreign PhD students will stay here when booming economies in their native lands offer them the chance to become part of the elite there. I would argue that without support for creating the home-grown expertise, the U.S. eventually may be relegated to just another country that had a glorious past.

I propose a simple incentive to create a more favorable environment for students: allow students who are U.S. citizens at the time they enter a PhD program and who work in the U.S. for five years immediately after receiving their PhDs a tax break. This tax break would be very simple: average the last five years of income prior to receiving the PhD and then average that with the income received over the next five years. For example, if the average income during the last five years of the PhD program was $20,000 and the income over each of the five years following was $100,000 (for simplicity), then the taxable income before any other adjustments would be $120,000/2 or $60,000. At a 25% tax rate, that would be an annual incentive of $10,000 ($100,000 minus $60,000 times 0.25). Over five years, that would be a savings of $50,000 which could be used to offset some of the costs of pursuing a PhD.

This incentive could well be the difference between a U.S. student deciding to pursue a PhD or deciding that the burden of pursuing one is too great.

Unfortunately, Rep. Boehner was too busy to respond or acknowledge receipt of the letter.

If you wish you can also contact Rep. Boehner at:

1011 Longworth H.O.B.
Washington, DC 20515
(202) 225-6205

Or you can simply copy the letter above and send it to Rep. Boehner with your signature.

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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
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Tracking Interest Rates

Tracking Interest Rates


SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."

December 11, 2007 Somehow the Fed misses the obvious.
[Image from:]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)