This Week In Business and Politics

1. The United States and China agree to coordinate a response if North Korea moves forward with a proposed rocket launch.



2. The United States paid the Afghanistan government $50,000 for every person murdered in the Kandahar Massacre.


3. The Republican Party ramped up efforts to overturn Barack Obama's health-care reform bill on its second anniversary.  The Supreme Court will begin to hear argument for and against the bill today.


4. The African Union deployed 5,000 soldiers to capture or kill head of the a Ugandan guerrilla group Joseph Kony.  His Lord's Resistance Army abducts children and has been accused of murder, mutilation, and crimes against humanity.



5. The Financial Services Committee of the US House of Representatives received a memo quoting the former treasurer of defunct broker MF Global.  The memo stated that Jon Corzine personally ordered the transfer of customer's money to a brokerage account with JP Morgan Chase.



6. President Barack Obama nominated current President of Dartmouth College Jim Yong Kim to be the head of the World Bank.


7. The United Nations appoints Richard Bennett to advocate for the interests of Tibetan citizens  The appointment ended a one-month hunger strike by three Tibetans in the shadow of the UN headquarters in New York City.


8. A tax plan put forth by President Obama will raise $47 billion over ten years according to an analysis conducted by the Joint Committee on Taxation.  The so-called "Buffett Rule" will ensure that millionaires pay more taxes to make up for abolishing the alternative minimum tax on middle-income earners.


9. Apple announced it will return $45 billion of cash to shareholders over the next three years.  The company will tentatively pay a quarterly dividend in the amount of $2.65 per share.  While the yield is a modest 1.8% of the stock price, it will mark the first time Apple has ever paid a dividend.



10. UPS agrees to purchase competitor TNT Express for $6.8 billion.  The next large business opportunity for UPS lies in delivering drugs and medical devices to patients' doors.



11. India's government proposed a retroactive tax on foreign takeovers of Indian assets.  The measure is aimed at Britain's Vodafone, which has been in dispute with the Indian government over billions of dollars in capital-gains tax on its 2007 acquisition of an Indian mobile-phone company.    

What are Prediction Markets?

Many complex concepts in finance are not understood by the general population and prediction markets are one example.  The purpose of this blogpost will be to discuss the various characteristics of a prediction market and provide you with resources to learn further about this type of future contract.  Outside of one course taught by Dr. Koleman Strumpf at the University of Kansas, prediction markets are not taught in business schools across America.     

A prediction market is a version of a futures market in which the payoff depends on the potential outcomes of future events.  For example, a market might be created with the question, “What seed will KU receive in the NCAA tournament?”  Participants in the market can then bet on whether KU will be assigned a 1,2,3, or 4 or lower seed by the NCAA tournament selection committee.  Suppose when the market opens, probability of KU receiving a #1 seed is 25%, and you purchase a contract worth $25.  If KU ends up receiving a #1 seed, you will receive $100 because there is a 100% chance the Jayhawks will  have a #1 seed going into the tournament.  

Even if you don’t understand how prediction markets function, it is important to realize the ends for which these markets can be used.  Primarily, prediction markets are used to aggregate information and harness the “wisdom of crowds”.  Companies can use prediction markets to accurately forecast future events.  Participants in prediction markets are usually driven by the motivation of profits.  This profit incentive leads individuals to do research before purchasing contract.  Therefore, the generated information is generally accurate.       

In his book The Wisdom of Crowds, James Surowieki wrote about prediction markets and opportunities to harness the wisdom of crowds to make decisions.  Standard contracts in prediction markets are based on binary events in which something either will or will not happen.  Contracts can be written unknown future events in sports, business, politics, and basically everything in between.  The price a trader is willing to pay can be thought of as the probability an event will occur.  For instance, if a participants in a political prediction market collectively believe that President Obama has a 50% chance of being re-elected, the price of purchasing a contract for the President’s successful re-election will be $50.  

   

If you’d like to know more about prediction markets, you can read James Surowieki’s book The Wisdom of Crowds and read this blogpost from GeekCity.

Here's a selection of popular online prediction markets:

Intrade

Betfair

Iowa Electronic Markets

Speaker Review: Martin Jacques

On a recent Friday night, I found the free time to watch a TED talk by British economist Martin Jacques.  He eloquently examined the rise of China as a global economic force.  In May, I will be visiting China on a shortened study abroad trip organized by the Institute for International Business.  Here are the key takeaways from his lecture.  

China will continue to change the world

China’s population is 1.3 billion, and within a decade, it will have the largest economy in the world.  For the first time in the modern era, a developing country will have the world’s largest economy.  

We should not assume that modernity equates to Westernization.

China will remain very different than the West.  We should not attempt to understand China in Western terms. We cannot understand China by using Western concepts.  Attempting to comprehend China through a Western lense is the reason why we consistently misunderstand China. 

China is not a nation-state, but a civilization state.

In China, family, Confucian values, and role of the state are shaped by culture rather than the state.  China is enormous in terms of geography and population, therefore decentralized.  However, the most important political value for the Chinese is unity.  We were wrong about our prediction on the downfall of Hong Kong in 1997 because we had a nation-state mentality.  China consists of one civilization yet many systems.

The Chinese state

Jacques pointed out that the state is given a special significance as embodiment of Chinese civilization.  The government is viewed as patriarch of the family, and therefore, its influence is embedded in society in a different way that the West.  The state’s authority flows into the economy and public infrastructure.

Unlike the West, the power of the Chinese state has not been challenged for 1000 years.    

America must respond accordingly.

The world will be shaped by cultures we do not understand and are unfamiliar with.  Given the rise of China and India, civilizations and cultures that didn’t have a voice now will have representation.  

This Week in Politics and Business

The world has been a busy place in the past week.  Here's what you need to know to stay informed on current affairs.

1. The nationwide average for gasoline prices rose for the 26th straight day Sunday.

2. Vladimir Putin claims a victory in Russia's presidential election despite allegations of widespread fraud.  In an article for a Russian newspaper, president-elect Putin called for former Soviet states to form a "Eurasian Union" for economic purposes, but denied the move as an attempt to rebuild the Soviet Union.

3. The cleanup in the aftermath of tornadoes that claimed 37 lives continues.  On Friday, a total of 90 tornadoes were reported across Kentucky, Indiana, Alabama, Georgia, and Ohio. 

4. North Korea agreed to suspend its uranium-enrichment in Yongbyon and further testing of weapons and long-range missiles.  The agreement mark a breakthrough between America and North Korea.  In exchange, the US will provide at least 240,000 tons of food to the impoverished country.  

5. Australian prime minister Julia Gillard easily defeated Kevin Rudd in a Labor Party ballot that contested her leadership. The party has been torn by in-fighting since Ms Gillard’s ousting of Mr Rudd as prime minister in 2010.

6. Egypt will hold presidential elections following pressure from citizens.  The first round will be held on May 23rd and 24th, with run-offs scheduled for mid-June. Final results are expected on June 21st. The election will probably mark the end of military rule.

7. Republican candidate Mitt Romney won the Michigan and Arizona primaries.  Although the margin of victory was narrow over Rick Santorum in Michigan, Romney managed to win his home state.  On March 6th, 10 primaries will be held in what has become known as Super Tuesday. 

8. American's GDP growth rate was revised to 3% for the last three months of 2011, up from an initial estimate of 2.8%. Banks in America expanded their lending by $130 billion in the period, the biggest quarterly increase in four years, while losses from loans fell to their lowest since the start of 2008. The data were taken as more evidence that the American economy is on the rebound.

9. The Dow Jones Industrial Average closed above 13,000 for the first time since May 2008 and the NASDAQ reached a new 11-year high.

10. In his annual letter to shareholders, Warren Buffett answered some questions about who would succeed him as boss of Berkshire Hathaway. The 81-year-old investor suggested that a successor has been chosen, as Berkshire-Hathaway's board was “enthusiastic” about “an individual to whom they have had a great deal of exposure”.  He didn’t name the person, keeping people guessing about the candidates.

11.  In the last quarter of 2011, India's economy grew 6.1%.  It was the slowest rate of growth in three years, and put pressure on the Indian Central Bank to lower interest rates.

This Week In Business and Politics

1. Commodity trader Glencore and mining company Xstrata announced the details of a proposed $90 billion merger.  The announcement came after Xstrata revealed a 20% increase in profits in 2011.  The newly formed company will be the world's largest exporter of coal for power plants and the largest producer of zinc.  Tentatively, Glencore would own 55% of the new enterprise.

2. Multinational natural resource corporation Rio Tinto announced a record annual profit of $15.5 billion.  However, the company also booked an $8.9 billion expense related to the falling value of aluminum.

3. BP posted a 38% spike in quarterly profit at $7.7 billion and increased its shareholder dividend for the first time since the 2010 oil well disaster in the Gulf of Mexico.  However, the company is preparing for oil spill lawsuits, which are expected to start later this month.  CEO Bob Dudley said on Tuesday that the company is ready to settle approximately 600 civil lawsuits.

4. Online coupon company Groupon announced its first set of public quarterly earnings after its initial public offering.  Instead of netting a profit, the company revealed it suffered a $43 million loss.  The markets reacted to the negative news by sending the price of Groupon shares downward.

5. China and Russia blocked a UN Security Council resolution that condemned the violence in Syria and called for President Bashar Assad to step down.  The government crackdown on protestors has become increasingly bloodier over the past 2 weeks, leaving thousands dead in the rebel-held area of Homs.  The United States has closed its embassy and several European countries have withdrew their ambassadors from the country.

6. Egyptian officials announced that 43 charity workers, including 19 Americans will be put on trial for illegally receiving foreign funds.  The capital city Cairo continued to experience protests between police and demonstrators following the deaths of 74 people in clashes at a soccer game in Port Said.

7. Republican presidential candidate Rick Santorum won party caucuses in Colorado, Minnesota, and Missouri while Mitt Romney easily defeated challengers in Nevada.

Homilies of Cardinal DiNardo and Archbishop Dolan

Earlier this week, I returned from the March for Life in Washington D.C. where, in addition to the March itself, I had the opportunity to listen to Cardinal DiNardo deliver an awe-inspiring homily to over 20,000 Catholic pilgrims in the Basilica of the National Shrine of the Immaculate Conception.  His words resonated with me primarily because he stood strong against the blatant anti-life efforts of Health and Human Services and the Obama Administration.  Last week, the President Obama restated that many religious institutions would be required to fund contraception including abortifacient birth control pills as part of their health insurance coverage.  

“We are nearing the 40th anniversary of Roe versus Wade,” Cardinal DiNardo preached.  “53 million children have lost their lives since then; millions of men and women have lives that will never be the same because of their tragic choices.  Our embrace of life must be clear...Disturbing news came to us Friday from HHS and the Obama Administration: it fundamentally repeated the mandate that sterilization and contraception must be included in virtually all health plans.  Never before in our US history has the federal government forces citizens to directly purchase what violates our beliefs.”

Archbishop and Cardinal-elect Timothy Dolan added another point that hits all pro-lifers hard: 

“From a human point of view, we may be tempted to surrender, when our government places conception, pregnancy, and birth under the ‘Center for Disease Control,’ when chemically blocking conception or aborting the baby in the womb is considered a ‘right’ to be subsidized by others who abhor it.”

America in 2012: Economy and Jobs

Last night, I watched a town hall meeting featuring presidential candidate Mitt Romney.  I'd never seen him speak outside of a formal debate, yet his polished demeanor was very impressive.  He came across as genuine and knowledgeable, especially when he spoke about the direction of the US economy.  Now, I am not expressing my endorsement for Mr. Romney quite yet, but his ideas are a step in the right direction to pulling the American economy out of its funk.

During the 2008-2009 recession, the unemployment rate almost doubled from around 5% to 9.8%, and it hovers around 9% as we enter 2012.  Economic policy makers recognized the sharp rise in unemployment and introduced a stimulus package along with an unprecedented rise in government spending.  To spend money, the government took on more debt to the extent that everyone is now wondering whether America will ever be capable of paying down its enormous federal debt.  The increase in the size of government has meant higher tax rates and more regulations on individuals and corporations.  Businesses have cut back on hiring new employees due to uncertainty about the the future of regulations in the economy.    

Instead of accepting responsibility and moving forward, Americans are playing the blame game.  The Occupy Movement has targeted the wealthiest 1% of Americans as those guilty of dampening economic growth.  The argument is that taxing the richest Americans will partially solve the soaring federal debt.  The reality is that the best way to alleviate long-term government deficits is to reduce spending.  Businesses will not want to hire if there is discussion of increasing corporate tax rates or even keeping corporate tax rate around 35%.  Other policy discussions such as repealing the Patient Protection and Affordable Care Act, which has been popularized as Obamacare, have become a subject for debate among Republican candidates.  There is no question that this legislation has frozen hiring as businesses wait to see what economic consequences lie within.  What other legislation has made businesses concerned?  The Dodd-Frank Act was enacted in 2010 to ensure that the financial industry is heavily regulated with new provisions on hedge funds, new definitions of accredited investors, and required reporting by all public companies on the disparity between salaries of the CEO and median employees.  Yet the recent demise of MF Global is a piece of evidence against the success of the the Dodd-Frank Act.    

I certainly don't claim to have all the answers, but I'm not alone in thinking that America cannot take 4 more years of these harmful economic policies.  Letting entrepreneurs create business without worrying about the massive burdens on raising capital is a step in the right direction.  Ending unnecessary and disastrous regulations will also help America as we emerge from this recession.  

Kim Jong Il Dead

Kim Jong Il, the former second-generation dictator of North Korea, died Saturday of heart failure.  He was the General Secretary of the only political party in Korea, Chairman of National Defense, and Supreme Commander of the Korean People’s Army.  Since July 1994, he was without question the most powerful man in North Korea. 

In all likelihood, his unknown third son Jong Un will succeed him as the leader of a country that recently acquired nuclear weapons.  The North Korean economy is among the worst in the world, less than three percent the size of its southern counterpart.  The United Nations and United States have imposed economic sanctions as a result of North Korea’s refusal to abandon its nuclear weapon developments.  In 2009, Kim Jong Il oversaw the testing of a nuclear device and a ballistic missile capable of striking Tokyo.  In 2010, North Korea attacked South Korean naval vessels and shelled South Korean islands, killing soldiers and civilians. 

Last year, Kim Jong Il finalized his succession plan for his son Kim Jong Un to take over.  Jong Un stood at his father’s right side during a military parade the next month, wearing a black suit with a mandarin collar similar to the style worn by his grandfather, the founder of North Korea after World War II.  

Since 1994, Kim Jong Ill and his government created a cult of personality to the nation’s 24 million citizens.  The average income of North Koreans is less than a dollar a day, but they adored their “Dear Leader”.  Yet by most accounts, the early life of the future dictator was anything but grand.  After the elder Kim took power in 1948, Kim Jong Ill’s younger brother drowned and his mother died.  His father remarried and the boy fought often with his stepmother and half-brothers.  By the time he graduated from a university named after his father, he had developed a reputation as a impulsive womanizer who loved fast cars.  

Until the early 1970s, North Korea’s communist economy performed well relative to the capitalist system adopted by rival South Korea.  However, early in Kim’s reign, South Korea’s economy flourished while North Korea remained hesitant to open the country to the open market.  Kim consistently ignored advice to open the nation to tourism, citing the concern that tourists would be able to identify North Korea’s defense system.  When Kim took power in 1994, Russia and other communist countries on the Eastern European bloc had shed communism and no longer sent foreign aid to Kim’s government.  That meant China was the remaining source of international commerce, accounting for 83% of North Korea’s foreign trade operations in 2010 according to the Seoul-based Korea Trade and Investment Promotion Agency.

How Accounting Environments Differ Internationally

Accounting is the language of business, but what happens when you expand your business into areas that speak different languages?  What happens when the language of business is not the same in one country as it is in another?  Differences in accounting procedures and reporting policies can pose significant problems for international businesses.

Just as a country’s business environment is reflective of the cultural, legal, and political factors within a country, so are the accounting standards.  For example, in the United States and United Kingdom, accounting procedures are developed by independent boards such as the UK Accounting Standards Board and FASB (Financial Accounting Standards Board).  Each board works with professional accounting groups to determine which policies and practices are optimal.  The result has been the so-called generally accepted accounting practices (GAAP) that provide a true and fair view of a firm’s performance based on the standards agreed upon by these professional boards.  GAAP are flexible, and often times, accountants have leeway to exercise their professional judgment in reporting a firm’s performance.  


Conversely, countries that use code law are likely to codify their national accounting procedures.  For example, France’s code law system and longstanding tradition of a powerful central government have impacted the decision for French firms to use a national uniform chart of accounts.  In this system, all corporate accounting records must be officially registered with the government.  Larger French firms are also required to publish a “social balance sheet” that outlines treatment and compensation of employees.

International political ties are important factors in determining a country’s accounting procedures.  Most members of the former British empire have adopted the accounting principles of the United Kingdom while former colonies of France and the Netherlands have opted to use those of their previous rulers.  For instance, the accounting procedures of the Phillippines closely mirror those of the United States because the US controlled that economy from 1898 to 1946.

The important takeaway is that political, cultural, legal, and economic forces can have a remarkable impact on accounting systems internationally.  These forces affect the way accountants treat different accounting issues, impact a firm’s reported profits, the value of firm’s assets, the firm’s tax liability, and its decision to begin or continue operations in a country.

Russian Politics: Putin and Medvedev Look To Swap Jobs

Here’s the latest part of Vladimir Putin’s resume:
-Prime Minister 1999-2000
-President 2000-2008
-Prime Minister 2008-Present
-President ???

The embattled Putin will run for president next year, having already earned the endorsement of current president Dmitry Medvedev.  The Constitution has been changed to allow anyone to serve two consecutive six-year terms even if that individual has previously served as president.  The election will be held in March, and many people expect Putin to return to the Kremlin with ease. 

As for Mr. Medvedev?  He will likely take over Mr. Putin’s position as prime minister.  This merry go round can be viewed in two ways.  First, the whole thing looks like a joke.  Despite holding the junior title of prime minister, Mr. Putin still pulls the strings in Russian politics.  The issue is not whether he will stay in power, but how will do it.  Second, the probable job swap will likely be viewed by Russians as a victory for Russian democracy.  The letter of the constitution is being obeyed, and the two most popular politicians can remain in positions of power.  Mr. Medvedev can continue to liberate Russia from bureaucracy and corruption and promote a high-tech answer to Silicon Valley, to be built at Skolkovo outside Moscow.  Mr. Putin can reclaim the presidency which signals stability and steadiness. 

Vladimir Putin has harassed and jailed opponents and confiscated their energy and media assets since coming to power.  Under his direction, elections always seem to favor those in power.  I predict the upcoming ones will be no different. 

Indeed, Russia faces many challenges in the upcoming years.  A stagnant economy, pervasive corruption, and a war in the north Caucasus highlight the struggles facing Russia.  The country’s economy is currently dependent upon natural resource extraction.

A Sincere Thank-You To Philadelphia Mayor Michael Nutter

Finally, a community leader not afraid to tell the truth at the expense of appearing politically incorrect!

If you’ve been keeping up on current events recently, you know that there have been a string of mob attacks in the city of Philadelphia.  Using text messages and Twitter, these mobs have assaulted tourists and looted departments stores in Center City, an upscale shopping district in Philadelphia.  The “flash mobs”, as they are being referred to as, have been common, with the unruly packs of African-American juveniles targeting individuals in the heart of the City of Brotherly Love.  

The Mayor of Philadelphia Michael Nutter, dished out a dose of tough love earlier this week.  Mr. Nutter, who is an African-American himself, made his points loud and clear from the pulpit at his local Baptist church on Sunday:

“Take those doggone hoodies down, especially in the summer.  Pull your pants up and buy a belt ‘cause no one wants to see your underwear or the crack of your butt.

If you walk into somebody’s office with your hair uncombed and a pick in the back, and your shoes untied, and your pants half down, tattoos up and down your arms and on your neck, and you wonder why somebody won’t hire you?  They don’t hire you ‘cause you look like you’re crazy.  You have damaged your race.”

Mr. Nutter correctly asserted that the problem starts with the parents.  He admonished parents for sending checks and giving money without spending time with their kids, calling them “human ATMs”.  He then called men who don’t even provide financial support “sperm donors”.  

Not only is Mr. Nutter calling out these gang members and parents for their actions, he is also introduced measures to deal with the disturbances:

-He’s beefing up the police in certain neighborhoods and enlisting volunteers to help.

-He’s imposed a 9 PM curfew for anyone under the age of 18, unless out with a parent or guardian, to be continued until the start of school.

-He’s introduced a series of escalating fines for parents of children caught on the street after the curfew.

-He’s extended the hours of 20 city recreation centers.

There have been some questions about the costs incurred to implement these initiatives.  The city of Philadelphia has been able to minimize the costs of these measures due to an outpouring of support from community leaders and other individuals getting actively involved against the mobs.  “This is not just a police department issue or problem, and it will not be solved just by the police department. This is a community issue.”

My thoughts on the concerns of increased costs in a tough economy--the monetary costs of the preventative steps are far less than the impact to Philadelphia’s reputation (and medical expenses) when an innocent pedestrian gets his skull fractured by a disruptive teenage mob. 

Foreign Affairs Update

The world has been a busy place in the past week.  The international response to debt crisis in the United States is only the tip of the iceberg of what is happening across the globe.  Here's an update from five countries on current events. 

-Syria

The global movement Amnesty International is an non-governmental organization whose mission is for every person to enjoy all the rights enshrined in the Universal Declaration of Human Rights.  Yesterday, Amnesty International denounced the United National Security Council response to the massacres in Syria as “completely inadequate” and “deeply disappointing”.  The measure passed the Security Council was drafted by the United Kingdom, France, Germany ,and Portugal.  Syrian President Al-Assad has continued a deadly crackdown on protestors.  In the city of Hama, dozens have been killed in the past week.  AI has received the names of more than 1,500 people said to have been killed since the pro-reform protests started in mid-March.   

“The U.N.’s response is completely inadequate,” said Jose Luis Diaz, Amnesty International’s representative to the United Nations.  “After more than four months of violent crackdown on predominantly peaceful dissent in Syria, it is deeply disappointing that the best the Security Council can come up with is a limp statement that is not legally binding and does not refer the situation to the International Criminal Court.”

-Saudi Arabia

Child marriage is widespread across the Arab nation of Saudi Arabia, largely due to the absence of a minimum age marriage law.  With no laws in place to establish the minimum age for marriage, young girls are often forced to marry older men for dowry or other personal motives.  This unregulated practice has led to girls as young as 8 years old to be married to men old enough to be their grandfathers.  

After many years of protest both domestically and internationally, the Saudi Arabian government has expressed an intention to set a minimum age for marriage.  Keep in mind, women in Saudi Arabia are not allowed to drive, travel abroad, or undergo surgery without the permission of a male relative.  

-China

The Chinese Dagong Global Credit Rating downgraded the United States credit rating from A+ to A with a negative outlook.  The official Xinhua news agency said on Wednesday, “The months-long tug of war between Democrats and Republicans...failed to diffuse Washington’s debt bomb for good, only delaying an immediate detonations by making the fuse an inch longer.”

China currently holds $3.2 trillion US dollars in foreign exchange reserves as of the end of June, making it the largest holder of US Treasury Bills.  China’s central bank said it would continue to diversify its foreign currency investments, which is a sign that there is little confidence in the United States government in Beijing.    

-Egypt

Former Egyptian President Hosni Mubarak left the town of Sharm el-Sheikh to return to Cairo for his trial.  There are images circulating of him lying ashen-faced on a hospital bed inside a metal cage with his two sons.  He pleaded innocent to charges of corruption and complicity in the killing of protestors at the start of his trial.  It marked the first time Egyptians have seen Mubarak since February 10, when he gave a uncooperative address in which he refused to resign.  

-Mexico

In Ciudad Juarez, the economy is thriving despite a global recession.  Jobs are being created and the city is exporting more goods to the United States than ever before.  Car part factories, and credit card reader refurbishers are the two main bases of industry in the city of 1.5 million people.  Because of its proximity to the United States border, the time it takes factories in Ciudad Juarez to ship the parts to America is short.  Also, factory wages are roughly $10 per day, which is far cheaper than those across the border in El Paso, Texas.

Congressman Paul Ryan on The President's Lack of A Budget

I read an excellent opinion piece in the Wall St. Journal by Rep. Paul Ryan from Wisconsin.  Even though he passes the blame off on the Democrats, President Obama, and Congress, Rep. Ryan makes some accurate assessments on how healthcare spending could potentially force the United States government into an irreversible bankruptcy.  Mr. Ryan serves as chairman of the House Budget Committee, which is responsible for writing the overall budget plan for the year and reviewing all bills and resolutions to the budget.  Here’s a few soundbites from his article.

On the Democrats

“Ever since they abused the budget process to jam their healthcare takeover through Congress last year, the Democrats have simply done away with serious budgeting altogether.”

“The president and his party’s leaders have refused to submit specific, credible budget plans that tackle health-care costs while restoring economic growth.  Unwilling to reconsider their failed bureaucratic approaches to health and retirement security, the Democrats can only propose tax increases, and lots of them”

On President Obama

“Since then (February), he has offered a lot of rhetoric but no real plan to avoid a spending-driven debt crisis.  His speeches and press conferences are no substitutes for actual budgets with specific numbers and independently verified projections of future deficits and debt.”

“Even the president seems to understand that the status quo of these (healthcare) programs is unsustainable.  As he put it during a press conference on July 11, ‘If you look at the numbers, then Medicare in particular will run out of money, and we will not be able to sustain that program no matter how much taxes go up.’  On this point, Mr. Obama and I couldn’t agree more.  Where we disagree is over how best to confront this problem.”

On Congress

“Even though Congress has cut spending by a significant amount, it still hasn’t dealt with the drivers of our debt- primarily federal spending on health care.  The math is scary, yet simple: In the years ahead, spending on programs such as Medicare, Medicaid, and the Democrat’s new health care entitlements is projected to skyrocket relative to the size of the economy, even as federal spending on everything else is projected to decline.”

On alternatives to the Healthcare Bill

“There is a better way-structural reforms that empower patients with greater choices and increase the role of competition in the health-care marketplace.”

On The Relationship between Federal Revenues and Costs

“The Congressional Budget Office’s latest Long-Term Outlook in June estimated that total tax revenues would have to double by mid-century in order to finance our current spending path.”

The United States Government and Cost Control

With the debt ceiling date approaching in a dangerously short amount of time (we’re talking hours here), the Senate, House of Representatives, and the President must come to an agreement so the United States does not default on its loans.  Currently, the plans under consideration for slashing government spending are a step in the right direction, but the billions of dollars of promised  cuts are vague and lack specificity.

I recently took a managerial accounting class at the University of Kansas, and I believe the government should utilize some of the cost-cutting principles I learned in this course.  Because private firms face competition, these companies must constantly improve their production and engineering processes to keep earning money.  The government has no competition, so it is insulated from such forces.

First, costs must be broken down into cost pools, which are “buckets” in which costs are accumulated as they relate to a single activity.  Then, cost drivers are exactly what propels costs accumulated in the cost pools.  Most government agencies do not utilize managerial accounting to track the costs of their expenditures--costs are not subdivided into cost pools.  Furthermore, most government agencies don’t have the ability to track these kinds of costs--cost drivers are not identified.  The costs are scattered across many budget line items and multiple agencies, making it an absolute nightmare to put the puzzle pieces together.  As a result, nobody knows how much it costs the government to perform the basic functions.  

Firms rely on cost information to make decisions on how and when to reallocate resources.  Corporations have the ability to readjust spending monthly where as changing the United States government budget takes years to push through the molasses of special interest groups and bureaucracies.  It is very difficult to dismantle an existing government program even if it is inefficient.  It is also hard to measure performance.

I recommend that the government consider adopting the principles of cost management.  This demanding process is not easy, but it will lead to effective cost-cutting.  Managers of government agencies need to be given greater pliability to reallocate resources more easily. 

8 Awesome Free Politics and Economics Open Courses From Yale, UC Berkeley, Utah State, and Khan Academy

OpenCourseWare is a phenomenon of the 21st Century.  Due to the advent and proliferation of the Internet, a virtual learning environment has been created, one which spans across physical communities.  Essentially, you can take online courses for free without having to worry about grades or writing long essays.  The material is distributed by highly prestigious universities, but you don’t typically receive access to faculty members.  Nevertheless, OpenCourseWare is a brilliant way to expand your knowledge on topics that interest you.  Today, I am posting 8 courses in politics and economics that might strike your fancy.

1. Introduction to Political Philosophy (Yale)

Course Description: This course is intended as an introduction to political philosophy as seen through an examination of some of the major texts and thinkers of the Western political tradition. Three broad themes that are central to understanding political life are focused upon: the polis experience (Plato, Aristotle), the sovereign state (Machiavelli, Hobbes), constitutional government (Locke), and democracy (Rousseau, Tocqueville). The way in which different political philosophies have given expression to various forms of political institutions and our ways of life are examined throughout the course.

2. Capitalism: Success, Crisis, and Reform (Yale)

Course Description: In this course, we will seek to interpret capitalism using ideas from biological evolution: firms pursuing varied strategies and facing extinction when those strategies fail are analogous to organisms struggling for survival in nature. For this reason, it is less concerned with ultimate judgment of capitalism than with the ways it can be shaped to fit our more specific objectives – for the natural environment, public health, alleviation of poverty, and development of human potential in every child. Each book we read will be explicitly or implicitly an argument about good and bad consequences of capitalism.

3. Financial Markets (Yale)

Course Description: Financial institutions are a pillar of civilized society, supporting people in their productive ventures and managing the economic risks they take on. The workings of these institutions are important to comprehend if we are to predict their actions today and their evolution in the coming information age. The course strives to offer understanding of the theory of finance and its relation to the history, strengths and imperfections of such institutions as banking, insurance, securities, futures, and other derivatives markets, and the future of these institutions over the next century.

4. Financial Theory (Yale)

Course Description: This course attempts to explain the role and the importance of the financial system in the global economy.  Rather than separating off the financial world from the rest of the economy, financial equilibrium is studied as an extension of economic equilibrium.  The course also gives a picture of the kind of thinking and analysis done by hedge funds.

5. International Economics (Utah State University)

Course Description: This course provides a broad overview of international trade theory, policy, and international finance. Students who master this material will be better able to work in and make contributions to organizations (e.g., business firms) involved in international trade and finance issues.

6. Intermediate Macroeconomic Theory (UC Berkeley)

Note: you have to click on the playlist tab, then scroll down to "International and Area Studies 107" to access the lectures for this course.

The University of California, Berkeley is the preeminent public research and teaching institution in the nation. From classic literature to emerging technologies, the curricula of our 130 academic departments span the wide world of thought and knowledge. Supported by the people of California, the university has embraced public service as an essential part of its mission since 1868.

7. Politics, Strategy, and Game Theory (UCLA)

Course Description: This course is an introduction to study of strategic interaction in political applications. Use of game theory and other formal modeling strategies to understand politics are also studied in order to gain a better understanding of politics at large.

8. Credit Crisis (Khan Academy)

Course Description: Videos on the causes and effects of the credit crisis/crunch.