Robert Cherry's New Book on Welfare Reform

Oxford University Press has just published Robert Cherry's new book on welfare reform, Welfare Transformed. The book has already been praised by those who are left of center as well as Ron Haskins who was the Republican point person on welfare reform in the 1990s and was a Bush appointee as well.

In addition, Bob tells me that he has just come out with a book, Rethinking Poles and Jews: Troubled Past, Brighter Future, published by Rowman & Littlefield. The Polish embassy is paying for a Polish translation.

Robert Cherry, who is my colleague and friend at Brooklyn College, is an imaginative and creative scholar, and I am looking forward to reading both of his books.

Warren Buffett Should Stay within His Circle of Competence

Today's New York Sun notes that while Warren Buffett complains that he is taxed too little on $46 million in income, his actual economic income last year, including unrealized capital gains, was more than $10 billion dollars. The reason is the unrealized appreciation in Berkshire Hathaway stock, which meant more than $10 billion to Buffett this year. I own four "B" shares that have climbed to $3,621 each this year so I have probably made $1,500 in unrealized appreciation. Tip money compared to a billionaire, but bless Buffett's soul.

Curiously, Buffett argues that public hedge funds and equity funds should be taxed more heavily. Presumably he includes his firm, Berkshire Hathaway. Buffett argues that because hedge fund managers are earning hundreds of millions in salaries, there should be special taxes on hedge fund managers since in many cases they pay lower taxes than those of us who count our earnings in the lowly thousands.

Those New Yorkers who have managed to survive the New York diaspora (the rest having been driven out by "humane" policies of the kind that Mr. Buffett advocates) hear about the hedge fund billionaires. They are obnoxious, boorish, greedy and, in a phrase, nouveaux riche.

Envy is natural in a free society. Success is sometimes out of proportion. This was true in the 19th century with the success of Standard Oil and John D. Rockefeller, and it was true in the twentieth century with the success of A&P, which was prosecuted for anti-trust and price fixing between the 1930s and 1950s. This also has occurred in the case of the hedge fund managers. But there is a difference. Unlike Standard Oil and A&P, hedge fund managers rely on government to profit and have not been particularly innovative in developing new products or new management methods, as did John D. Rockefeller and A&P's Hartford brothers.

Apologists for hedge fund managers, such as Weekly Standard, claim that private equity and hedge funds improve the management of firms that they buy and then resell. This claim is nonsensical. It is well known that corporate acquistions mostly destroy shareholder value in the long run. If you were to limit your investing to stocks of firms that private equity and hedge fund firms have taken off the market and then made public again my hunch is that you will be spending your retirement holding a tin cup. Mark Sirower's book Synergy Trap explains why outsiders do not make good managers. As well, Hayek noticed that management is primarily a matter of knowledge specific to time and place. Outsiders such as financiers lack specific knowledge. The most famous private equity deal involving Henry Kravis and RJR Nabisco that was immortalized in Barbarians at the Gate ended up a financial embarrassment because KKR held onto it.

Federal corporate welfare has made private equity managers, including Warren Buffett, rich. Corporate welfare takes the form of artificially low interest rates that the Fed has pursued since the 1980s. I have previously blogged that hedge fund managers, such as the Carlyle Group's William E. Conway, are well aware that Keynesian monetary policies that liberal economists and the New York Times advocate have spurred enormous profits for hedge funds and have amounted to a transfer from mainstream America to the financial community. There are other beneficiaries of Keynesian re-distribution, to include corporations, universities, mortgage payers and, of course, Warren Buffett. Those who benefit from low interest rates, which stimulate demand for unproductive investment such as $120,000 to study with Paul Krugman or $800,000 for for a condominium in Bayshore, Long Island naturally favor inflationary policies. These include Buffett, Krugman and hedge fund managers. No wonder Buffett, Gates, etc. are all liberals who support left-wing economic policies.

Buffett's father was a hard-money Republican. When Buffett was a student at Penn, he was photographed riding an elephant. However, the elephant must have smacked him upside his head with his trunk, because Buffett switched to the Democrats. Although Buffett is the greatest investor who ever lived, he lacks competence with respect to policy issues. In investing, Buffett argues that you should only invest in areas in which you have expertise, i.e., are within what he calls your "circle of competence". Perhaps he should take his own advice, and avoid advocating frivolous tax policies.

Congestion Tax No, Fee Yes

I met Saul Weprin, who was David Weprin's father, in 1991 when I briefly worked on the staff of the New York State Assembly. Saul, who later became speaker, was chair of the ways and means committee.

David Weprin is a member of the New York City Council. He has an op ed in the June 25 NY Sun about Mayor Bloomberg's plan to tax vehicles that enter mid-town Manhattan. He argues that the tax will cost commuters as much as $2,000 per year and firms as much as $5,000 per year, devastating them financially and forcing them to take the subway, which Weprin does not mention is in terrible shape after 70 years of city and state management.

Weprin is right that Mayor Bloomberg ought not to raise taxes when the bulk of industry has already fled New York and the rest is likely to do so. Weprin is wrong if the tax is really a use fee aimed to capture the costs that motor vehicles impose on the public in the form of congestion and pollution. A nation-wide use fee would be preferable to a tax aimed to shield the Mayor's wealthy friends from traffic.

Mayor Bloomberg's congestion tax proposal needs to be viewed in light of the paradoxes and unintended effects that government subsidies create. In the 1930s the city took possession of the previously private subways and allowed them to deteriorate. In the 1950s and 1960s, the federal and state governments, coordinated by Robert Moses, subsidized interstate highway construction and guaranteed loans for suburban single family home construction. New York City responded to the deterioration of its tax base because of "white flight" (that resulted from the federal subsidies to interstate highways and single family homes) by raising taxes. By the 1970s, the city was in a major state of deterioration. This is evident in movies made from 1965 to 1990 or so, such as Martin Scorsese's Taxi Driver.

Subsequently, the city had a rebirth that Mayor Koch conceived and that was delivered under the Giuliani administration whereby increased emphasis on law enforcement, subsidies to real estate developers, high taxes and low-quality services maintained an equilibrium of special interest pressure groups (unions, service industries, the welfare industry). The Koch-Giuliani model permitted the very affluent to develop the city into a consumer center but also permitted those on welfare to to remain. Those with jobs that led to average or above-average incomes (ninety percent of the American population) left, with some continuing to work in the city as commuters. High-margin service firms could continue to function, but many of their employees could not afford rent, which, even in nearby places like Brooklyn and Hoboken that were once butts of jokes, is now often five times the national average.

Now, Mayor Bloomberg suggests a commuter tax that would dissuade vehicles from entering the city without addressing the stratospheric taxes and other city policies that have forced firms to leave and that encourage commuters to avoid the subways.

If commuters choose to take the subways instead of driving, they will incur significant psychic costs. If commuters choose to drive, they will have to pay the congestion tax on top of the already very high taxes. This is likely to stimulate further exodus of business from the city as commuters demand higher pay to compensate for the increased costs (psychic or financial) of commuting.

While avoiding taxes, the nation should consider road-use fees to fund all highway and local street use. There is no reason why the public should subsidize drivers and consumers of trucked merchandise. However, such a fee should be applied based on computer monitor-based charges and should not favor one economic class over others, as Mayor Bloomberg's proposal would. Heavier drivers and trucks should pay larger fees. Those who do not have cars and who consume less, i.e., the poor, should not subsidize the wealthy.

The Kahlil Gibran High School is a Symptom of a Failed Education System

I would like to again compliment Alicia Colon on her courage in confronting the Kahlil Gibran High School controversy. The New York Sun has been on the forefront of a wide range of difficult battles, to include Kahlil Gibran. The fact that the MSM and left wing activists have attacked Ms. Colon is a tribute to her courage and good judgment.

The Kahlil Gibran High School is a symptom of the Bloomberg administration's incompetent schools administration. In today's schools, students are no longer competently taught to read, write and do arithmetic. Instead, they are taught to identify with their ethnic backgrounds; have high self-esteem; and to hate the United States. The Kahlil Gibran High School is a symptom of the absence of competent education. That the Bill and Melinda Gates foundation have funded the social justice high schools is consistent with Microsoft's stock performance since 2000. Bill Gates fiddles with boondoggles such as the social justice high schools while Microsoft burns.

Parents ought to demand better and more objective outcomes assessment for schools, to include the social justice schools, on up through the college level. Better outcomes assessment would include tracking entering students' and graduates' achievement through objectively normed entry and exit tests. This is already done by the Educational Testing Service and the SATs, but needs to be generalized to elementary, high school, college and graduate levels, with the mean entry (for elementary schools multiple level) and exit results, (including quartiles and standard deviations) tabulated and published publicly per institution to determine whether each school is more or less successful in developing skills.

Furthermore, students' career progress post graduation should be sampled and tracked, and schools evaluated based on subsequent career outcomes, with sample outcomes also publicly published per school. Public revelation of the mean job outcomes such as income, with quartiles and standard deviations of graduates per school is not information that many educators at any level want to make public.

Recently, Candace de Russy, some other associates and I discussed the possibility of a conference to discuss emerging fiduciary duties for university trustees. The Sun has done an excellent job of bringing related problems to light, for example when the Sun published pictures of the Columbia trustees on its editorial page.

My hope is that part of this conference would involve consideration of trustees' duty to demand assessment in order to understand institutional performance, just as directors of corporations are expected to demand accurate financial data. That the former board of education, Mayor Bloomberg, schools chancellor and the colleges have not implemented such a system convinces me that there are major gaps in governance and management. This spills over into frivolous abuses such as likely occur at the social justice high schools.