Your Federal Monetary Policy at Work

virginia_endowments2by James A. Bacon

Pension funds and individual savers aren’t the only groups finding it difficult to generate decent investment returns in the current near zero-interest rate environment. Data gathered from 812 colleges and universities show that participating institutions returned an average of only 2.4% (net of fees) in 2015, contributing to a decline in their long-term, 10-year average return from 7.1% to 6.3%.

“This year’s long-term return figure is well below the median 7.5 percent that most endowments report they need to earn in order to maintain their purchasing power after spending, inflation and investment management cost,” states the press release announcing the results of the National Association of College and University Business Officers-Commonfund study of university endowments’ financial performance.

Investment returns were down for all asset classes: domestic equities, alternative strategies, fixed income, international equities, and short-term securities/cash. This is what comes of a Federal Reserve Board policy of quantitative easing that has driven down interest rates to near-zero levels for more than seven years now. There has been too much money chasing too few sound investments, creating asset bubbles around the world that now are deflating — along with financial returns. While Fed policy benefits the world’s largest borrower, the United States federal government ($19 trillion in debt and counting), it punishes savers, which includes state pension funds, private pension funds, insurance companies, and Americans saving for retirement.

For every percentage point shaved off the interest rate curve, Uncle Sam saves about $190 billion a year. (Other borrowers benefit, too, such as buyers of houses and cars.) But savers are punished. That’s a major reason state pension funds are in crisis. They’re always playing catch-up to ever-falling investment yields.

America’s universities are another victim of Fed policy. Collectively, their endowments hold assets valued at $528 billion. A 0.8% decline in return on investment amounts to $4.5 billion. Translated into Virginia terms, an 0.8% decline in return on the $16 billion in Virginia university endowments amounts to almost $130 million. That’s right, Fed policy is costing Virginia universities $130 million a year — and nobody knows about it, and nobody talks about it.

““FY2015’s lower average 10-year return is a great concern,” NACUBO President and Chief Executive Officer John D. Walda said. “On average, institutions derive nearly 10 percent of their operating funds from their endowments. Lower returns may make it even tougher for colleges and universities to adequately fund financial aid, research, and other programs that are very reliant on endowment earnings and are vital to institutions’ missions. ”

Higher ed bears most of the responsibility for runaway costs and tuition, but it isn’t responsible for declining investment returns. Next year is not likely to get any better. The U.S. stock market is down, international stocks are down, commodity prices are down, and interest rates remain depressed. Even hedge fund managers are losing money.  Most likely, Virginia colleges and universities will take another hit, and it doesn’t take a Larry Sabato to predict that they will respond by boosting tuitions and begging the General Assembly for more money.

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48 responses to “Your Federal Monetary Policy at Work”

  1. Cville Resident Avatar
    Cville Resident

    For another perspective: The lack of returns is due to a global recession which is a product of the unintended consequences of the U.S. fracking policy. Oversupply of oil has created a chain reaction in commodities (which have fallen like a stone) which hammers emerging markets which then hammers U.S. domestic corporations that had been feeding off easy returns in EMs.

    1. Cville, I’m sorry, that explanation doesn’t hold water. Fracking affects energy prices only. The drop in commodity prices applies across the board, especially to metals. The reason is twofold: (a) the slowdown in the Chinese economy, which reduces demand for the commodities, and (b) the overbuilding of natural-resource supplies, especially in developing countries, which was financed indirectly by the Fed’s quantitative easing. It is certainly true that China contributed to the global asset bubble through its own massive credit expansion. But the Fed was a major contributor.

      Are you seriously suggesting that Quantitative Easing is NOT the major cause behind low interest rates and depressed returns on investment for the U.S. economy?

      1. Cville Resident Avatar
        Cville Resident

        But let’s remember when oil prices are going up, it takes only a percentage point of “undercapacity” from the major reports to send prices rising. The oil market was/is not really used to imbalances. Fracking has changed the equation (along, to a much smaller degree, with the tiny rise in alternative energy sources). Energy jobs are great jobs that are high paying and have plenty of spillover effects worldwide. I don’t think anyone ever considered just how much extra supply would affect the industry.

        Of course QE caused low interest rates, that’s what the policy set out to do. But asset bubbles? The problem I have with that theory is that I keep seeing (for years now) P/Es in the 16-19 range in the U.S. I don’t see any evidence of a bubble in real estate or private equity either.

        As I wrote yesterday, I don’t believe depressed returns have anything to do with the Fed or the private sector. I think we’re witnessing a very fundamental change in how the global economy operates…it’s not the “top 1%”, but we’re headed to a world where the top fourth will “work” and the rest will basically consume and pursue cottage industries/short terms projects/artistic projects, etc.

    2. Bernanke is not saying Fracking policy is a key economic parameter is he? Fracking was a technical innovation that was well underway before the 2008 Great Recession. Rather what is happening in the energy markets seems to be the classic boom and bust cycle, when high energy prices spur development of new opportunities which in turn eventually flood the market. The last time this happened (mid-1980’s) we got SUV’s out of it.

      I am hoping low energy prices bring back some of the many jobs we sent overseas.

  2. Cville Resident Avatar
    Cville Resident

    Also worth noting that we have seen the evisceration of classical economics in the past decade. No greater proof than the world’s 3d largest economy:

    1. Cville, actually we have seen the triumph of classic economics (of the Austrian school variety), which predicted the asset bubbles that did in fact occur and now, as predicted, are popping. Call it the BRICs bubble, created by U.S. banks shoveling cheap money into developing economies, over-investing in natural resource extraction to supply China. China’s economy slowed, and the bubble burst.

  3. Cville Resident Avatar
    Cville Resident

    Classical economics has always maintained that government budget deficits suck liquidity out of the economy. That then leads to higher interest rates (lack of money to lend in the private sector).

    Japan has not had a balanced budget since 1994. In some of those years, it has run an enormous budget deficit. Yet its interest rates continue to plummet and investors worldwide continue to gobble up Japanese gov’t bonds.

    Japan has also tried to stimulate its economy over and over through gov’t spending in the past 21 years. According to classical economics, that’s supposed to lead to inflation (and hyperinflation with the types of deficits Japan’s been running in relation to its GDP). And yet, Japan has been in a deflationary spiral for a decade.

    How is that not a 21 year refutation of classical economics? This isn’t “Denmark” (a tiny country). Rather it was the 2nd and is now the 3d largest economy in the world for these 21 years. Surely the “laws” of classical economics would apply to such a big portion of the global economy.

    My point is: Classical economists have long held that economics is akin to science and law…hence the “law” of supply and demand. What we’ve been finding out for a long while is that a lot of other things (demographics, a service economy rather than manufacturing/agricultural, psychology, gov’t trust, innovation, super educated workforces, etc.) have a lot more effect on the economy than taxes, gov’t budgets, and regulation. Those pieces don’t have nearly the effect on the global economy like they did when the world was largely a manufacturing/agricultural economy. Just as the rules changed a lot from the agricultural to manufacturing dominant economy, the rules have changed a lot since we’ve gone from manufacturing to a services/tech dominant economy. Go to any world class economics faculty nowadays, and you’ll hardly find anyone who buys into the classical argument. There are aspect that still hold true, but it is not even really a blueprint for the folks at UChicago any longer. Behavioral economics, higher health and education levels, and financial institutions are the big areas of study b/c in our current economy, they have much bigger impacts than a gov’t budget deficit or a regulation.

    1. LarrytheG Avatar

      Cville has it right…. I think… Japan is not the only economy affected by the liquidity issue – it’s starting to affect Europe also… and as Cville opines – changing paradigms of Ag, and manufacturing… e.g. automation, the advent of internet, cell phones, drones, big data… the sharing economy are all changing the game in ways that we do not yet fully understand

      WSJ opined today – ” Don’t Panic Over Falling Inflation Expectations”

      ” Alarms are ringing over how much expected inflation has fallen in recent months. Bond markets are betting that five to 10 years from now, inflation will be roughly half the Fed’s 2% target. The University of Michigan reports on household expectations today; its last survey found long-term expectations hit an all-time low earlier this month.

      This has unsettled some Federal Reserve policy makers and many outside analysts, because low expectations can be self-fulfilling. It’s fueled calls for the Fed to stop raising rates, or even cut them.

      But the drop may be misleading: It is heavily driven by falling oil and gasoline prices. While inflation is too low, the reality is not nearly as bad some in the market think, and they could be in for an unpleasant surprise if oil prices stabilize or head higher.”

      Some in the Austrian “school” are basically is opposed to the Feds involvement at all in monetary and fiscal policy – from the get go and you see book titles like ” A History of Central Banking and the Enslavement of Mankind” and articles entitled ” The Liquidity-Trap Myth”.

      no serious fiscal policy folks who actually are involved in actual policy – subscribes to the tenets of the Austrian School.. but you’ll find some truly rabid academic ones at the Koch-funded Mercatus Center at George Mason.

      In my view – we already have economies that work like these folks advocate – they’re called 3rd world… with minimal govt involvement in fiscal and monetary policy and the clear effects of it –

      but don’t let that stop the adherents… of theory… they do believe what they do believe…

  4. LarrytheG Avatar

    re: ” America’s universities are another victim of Fed policy.”

    total BS – this phenomena is occurring worldwide right now from Asia to Europe.

    A “thinking” person would want to know more …about why… doncha know…

    ideological zealots always have the same simple-minded answer … bad bad government..

  5. Let’s see now. The Fed declared that it would implement quantitative easing to drive down interest rates. One of its tools was to inject hundreds of billions of dollars of liquidity into the financial system. Where did that money go? Any ideas, folks? Did it have no impact whatsoever? Once that liquidity did its job of lowering interest rates, did it just disappear?

    Obviously not. One of the places the money went was into energy company junk bonds. The fracking bubble was a classic bubble, and billions of dollars of junk bonds will be defaulted upon. So, yes, C-ville, fracking is part of the explanation of what’s going on (although only one part), and it also is a manifestation of Fed policy.

    But only in Larry World, where federal interventions in the economy have only upside and no downside, it is possible to credit the Fed for rescuing the economy from economic collapse without conceding the possibility that is massive intervention has absolutely no unforeseen or undesirable consequences.

    But regardless of where the liquidity went, the Fed did succeed in driving down interest rates. Does anyone disagree with that? And depressing interest rates benefited debtors (specifically the U.S. Treasury) at the expense of savers. Seriously, does anyone deny that?

    1. LarrytheG Avatar

      drive down interests rates? are you kidding? how about getting a link that says that – from an authoritative source please not your right wing rags.

      never said only upsides – dispute the idiocy and mythology in some folks “explanations” while totally ignoring substantiate dialogue from real economists doing real policy.

      the FACT is that what is going on – is a worldwide phenomena that is affecting many other countries with very varying kinds of monetary and fiscal policies and the nexus has more to do with what Cville is talking about as opposed to the perennial anti-govt neanderthals who find no real dynamic that they cannot blame on govt.

      you guys had no cred Jim – it’s all about how bad govt is – from stem to stern – and your only solution seems to be to go back to a 3rd world type
      economic policy.


      read David Brooks column this morning – he “gets” it: I warn you – it’s for grownups..

      The Governing Cancer of Our Time
      David Brooks David Brooks FEB. 26, 2016

      New York Times or WSJ –

      We live in a big, diverse society. There are essentially two ways to maintain order and get things done in such a society — politics or some form of dictatorship. Either through compromise or brute force. Our founding fathers chose politics.

      Politics is an activity in which you recognize the simultaneous existence of different groups, interests and opinions. You try to find some way to balance or reconcile or compromise those interests, or at least a majority of them. You follow a set of rules, enshrined in a constitution or in custom, to help you reach these compromises in a way everybody considers legitimate.

      The downside of politics is that people never really get everything they want. It’s messy, limited and no issue is ever really settled. Politics is a muddled activity in which people have to recognize restraints and settle for less than they want. Disappointment is normal.

      But that’s sort of the beauty of politics, too. It involves an endless conversation in which we learn about other people and see things from their vantage point and try to balance their needs against our own. Plus, it’s better than the alternative: rule by some authoritarian tyrant who tries to govern by clobbering everyone in his way.

      As Bernard Crick wrote in his book, “In Defence of Politics,” “Politics is a way of ruling divided societies without undue violence.”

      there’s more – read the rest

    2. LarrytheG Avatar

      Jim – QE2 was not about driving interest rates down – it was about what to do if the policy of driving interest rates down- was not effective and interest rates were already near bottom..



      right now , some countries are considering or have gone to “negative” interest rates at the Central Bank level.. think about what that means…

      and get back..

  6. Cville Resident Avatar
    Cville Resident

    Mr. Bacon,

    I sometimes wonder why you put up with Larry and I! ha ha

    No, I don’t dispute that QE’s mission was to lower interest rates and thus stimulate investments in equities. My disagreement with your argument is what is causing low returns. I don’t think it’s bubbles, rather, I think the economy is shifting towards an economy with very little need for labor. That’s going to require a massive rethinking of all aspects of humanity including returns on investment.

    Anyway, I hope you never take anything that I say in a personal manner. I always enjoy this blog and the dialogue it creates.

  7. TooManyTaxes Avatar

    A very interesting discussion, & the issue of how much labor the economy needs to function is fascinating. I’ll add the question: If we will not need near as much human labor inputs to the U.S. economy, why are we importing large amounts of totally unskilled labor?

    Another factor that gums up the works is the ability of the financial sector to create its own supply & demand by betting short term on fluctuations in prices.

    1. Cville Resident Avatar
      Cville Resident

      A good question….however, I’d posit that so much of the undocumented labor is for short term tasks (help build a house, clean a house, harvest a crop). I don’t think that everything will be done by robots. But I think manufacturing will be 90% automated by 2025. Unskilled labor will consist of short term tasks like those I listed. So far, native Americans don’t seem to want to do those jobs.

      For those that scoff at that notion, I know a dairy farmer in Southside Virginia. He imports labor. When I asked him why, he said that the non-native labor was much more dependable. The native labor that he’s tried over the past decade was almost always addicted to a substance or otherwise undependable. One canary in the coal mine about unskilled labor (native or non-native)….he’s automated part of his process. So automation is even starting to drill down to agriculture at this point.

  8. LarrytheG Avatar

    again I agree with Cville.. the world of “labor” as we know it is changing in monumental ways that govt and institutions are slow to adapt to .

    in terms of undocumented – agree again . these are mostly menial labor jobs and even they are being somewhat automated and the reason they still come (though in far reduced numbers than reality) is that there is MORE labor than there is labor jobs available… those at the bottom of the education scale are become a larger and larger group fighting for fewer and fewer jobs…

    WE – the folks in this country should NOT be 1. fighting for low labor jobs nor 2. pining away from the return of manufacturing – not going to happen.

    the path forward is more education – more than our k-12 is offering and actually more than standard 4-yr generic degrees are offering also.

    it’s TECHNICAL skills BOTH 4-year and 2-year and manycannot get there with the current k-12 offered at most schools and especially so the non-4yr college-bound.. those folks are DOOMED and so are we with the entitlement costs if we don’t get our minds straight about this and SOON and it OUGHT TO HAVE NOTHING TO DO with “left” and “right” politics unless we continue to make it so.

  9. Cville Resident Avatar
    Cville Resident

    Here’s a good letter from Warren Buffet. Go to the bottom of page 7 and he explodes the “2% annual growth is bad” argument:

    If you read the letter, you’ll see what I’m talking about. If you’re in the top 25-33% in cognitive skills, the next few decades will be great if there’s 2% annual growth b/c those gains will almost all go to them. It’s a much better deal for them than a 3% annual growth rate whose gains are spread out over 80-100% of the population. Now, is that fair? No. But is it going to be reality unless a Sanders type is elected? Yep. Until everyone, regardless of ideology, is ready to confront this structural imbalance of as CrazyJD put it “engineers and managers” doing everything (and reaping the returns) while the rest get the table scraps, the gulf is only going to get wider. But….my guess is that the top quarter to third will see their standard of living explode while the bottom 2/3 fantasize about clownish characters like Trump and Carson “bringing back the old days.”

    1. TooManyTaxes Avatar

      One factor no one is addressing is government as America’s overhead. I’m not arguing we don’t need any government or government employees. But they have a cost. And if you build in Cville’s model where fewer and fewer have the education and skills needed, as well as happen to be in the right profession/company/industry, those overhead costs will be passed along to the those in the economy not so well placed.

      Let’s look at overhead. Fairfax County Public Schools are losing a lot of teachers with 5-20 years experience because of salaries. It’s not total compensation, because the health benefits are more generous than the feds’ and teachers get a separate county pension as well as VRS. But, bottom line, many want cash in the paycheck.

      FCPS is proposing to adjust their pay upward with a cost of $40 M. But at the same time, FCPS is proposing to give everyone, teachers and non-teachers about a 4.5% raise instead of concentrating the money on experienced teachers; freezing pay for non-teachers who have virtually no turnover; and using realistic pay boosts. Federal employees got 1.3% for 2016, and Obama’s budget for FY17 uses 1.7% for civilian and military. Meanwhile, the COLA for Social Security and federal retirees for 2016 was Zero. Put 1.7% in the budget (instead of 4.5%) and much of the $40 extra money for senior teachers can be funded out of the proposed 3% increase in the transfer from the County to the Schools. We need to reduce American’s overhead by making government more efficient and getting its pension costs in line with those in the private and federal sectors.

      1. LarrytheG Avatar

        TMT – you’re kind of deep in the Fairfax weeds here…

        what is wider – regional, Va picture on education?

        and is your point about teacher the same point about “overhead”?

        If the public – leaders – agree that education needs to get better – I see that as one of the jobs that people can train for… that and health care and the knowledge economy…

        1. TooManyTaxes Avatar

          Larry, my discussion of Fairfax County was intended as an example only. And, like it or not, government’s costs are an overhead that is not passed along evenly. I believe a good case can be made that those at the top are often (not 100%) able to pass along many of the costs of government in the form of lower wages, fewer hires, less expansion.

          I’m not arguing for government to go away; just to be managed and controlled.

    2. LarrytheG Avatar

      re: ” Now, is that fair? No. But is it going to be reality unless a Sanders type is elected? Yep. Until everyone, regardless of ideology, is ready to confront this structural imbalance of as CrazyJD put it “engineers and managers” doing everything (and reaping the returns) while the rest get the table scraps, the gulf is only going to get wider. ”

      Well Bernie wants free college ..which is widely condemned as “socialist” and a fiscal fail –

      but here’s the reality – and I do mean the reality:

      ” Why you can get a free college education in Germany but not in California”

      Germany’s commitment to higher education is so strong that even Americans can get a free college degree in the country.

      Meanwhile in California, the Cal State University system might soon consider annual tuition hikes, a further reversal of the state’s 1960 education masterplan that established access to tuition-free college for California students.

      In Germany, students do have to pay some registration fees each semester — they vary from campus to campus, but usually average about 250 euros (about $273 according to current conversion rates), said Nina Lemmens, the North America director for the German Academic Exchange Service. That’s less than $600 each year, a paltry fee compared to CSU’s $5,472 annual fees.”

      I’m not advocating this for everyone no matter the degree … but for Americans to call Sanders proposal as “socialist” – at the least – we need to look at the other OECD countries… and – RECOGNIZE that kids in Europe DO NOT graduate from College 30K in debt…

      so “socialism” is the least of OUR problems… our kids are making SOMEONE quite well off… and end up paying it off over a good part of their working lives.. while kids in Germany grow up – get health care – and find a decent paying job in the 21st century global economy.

      Meanwhile back at the US ranch- we’r hating life… with the drama queens predicting the end of life as we know it… etc, etc, drool.. retch… gag…

    3. The only thing Buffet’s letter explodes is the last shred of respect I had for him. The Oracle of Omaha drives around in an old car but quickly hops on his private jet when he needs to fly. He loves companies that “return value to shareholders”, that’s billionaire – speak for using their cash flow to raise dividends and buy back their own shares (rather than using the cash for innovation, invention and expansion).

      Buffet is as much a media invention as Thurston Howell III. Now he claims 2% GDP growth is good because, over decades, the compounding effect will add up to a lot of money. He seems to forget that 3% GDP growth would have have a compounding effect and add up to a lot more money. I can only guess that he made his remarks in an effort to excuse the miserable economic results in the US over the last 10 years. After all, master manipulators like Warren Buffet do remarkably well under the current eco-political regime of big money and special interests controlling American politics. If that regime generates insufficient economic growth for Americans as a whole to prosper – who cares? “Let them eat cake” Warren may be saying as he rockets across the sky in his private jet marveling at the fact that a greedy billionaire has managed to convince most people that he is a Grandfatherly figure who has everybody’s best interests at heart.

  10. LarrytheG Avatar

    it’s really sad that a nation that got to be America – cannot and will not accept and deal with the realities that are in play ….

    Conservatives talk about the “entitlement mentality” and people wanting free goodies – but they’re not really thinking about the folks who just want a good old lifetime career manufacturing or similar type job.

    too many feel they are “entitled” to a good job… because they’re “good folk” … who love their facebook and netflix….and NFL/NASCAR and hate “leftists” and nanny state govt.

    “just give me my job and health insurance and leave me alone”….so I can go buy my “Don’t Tread on me” license plate and handgun….

    1. In Larry’s typically bizarre way he manages to stumble into a small patch of foggy truth. The so-called conservatives in Virginia are absolutely addicted to an entitlement mentality funded by intra-state wealth transfers. They wander through rural and small town Virginia mocking Bernie Sanders while funneling a river of money from Virginia’s urban areas to their constituents. At least Bernie Sanders is honest about his plans. He’s confused, misguided and often makes factual errors in his comments but he seem honest. Virginia’s conservatives are confused, misguided and often make factual errors but are anything but honest. They are running an epic con job on the people of Virginia.

      1. TooManyTaxes Avatar

        But the RoVA bandits could not pull off their schemes without the cooperation of the well-educated, but often just plain dumb, denizens of NoVA. I wish I had a nickel for every time I’ve heard a discussion about the inherent unfairness of the LCI formula to NoVA localities followed by a statement that the solution is to pour more money through the LCI to benefit Fairfax County.

        I also hold Warren Buffett in disregard. The only thing he cares about is Warren Buffett.

        1. No doubt about the stupidity of many in NoVa. However, most of them consider themselves liberal and adhere to the doctrine of trying to put out any and all fires by pouring money into the flames. You kind of get what you expect from NoVa liberals.

      2. Don, you’re right about Bernie, but I think you misunderstand the political economy of the transfer of wealth from NoVa to rural Virginia. The main transfer of wealth consists of the state formula for aiding local school districts, which penalizes Northern Virginia localities and benefits rural Virginia counties. No question, this does represent a major transfer of wealth, and I don’t blame you for the way you feel about it. But the redistribution formula was the handicraft mainly of Governor Wilder and fellow Democrats. Northern Virginia Democrats actively supported the measure, as I recall.

        I suppose you could argue that Virginia conservatives are guilty of not resurrecting the issue and repealing the formula. Good luck with that. It would make Picket’s Charge look like a day in the park. I don’t see conservatives as running a con job. Rather, they’ve conceded defeat.

        1. TooManyTaxes Avatar

          One of the big problems in adjusting LCI is Prince William County. It does comparatively well under the existing formula and, as such, strongly opposes change. Those delegates and senators will be missing from any attempt to change the formula in the GA.

          I’ve been telling my “don’t rock the boat” friends in Fairfax County for years that the only solution is to sue the state over the LCI. It discriminates by failing to account for the differences in cost of living and the high number of non-English speaking kids in NoVA schools.

          A trial court in Indiana ruled that state’s formula discriminated against growing suburban districts. The rest of the state freaked out and the legislature made some formula adjustments.

          NoVA residents get crapped on because they enable the behavior – year after year after year.

        2. I don’t think the wealth transfer stops with schools. I think it also holds for roads, jails, law enforcement, etc. Schools are on your radar because the formula is public and overt. I’d like to see the same clarity applied to all other major categories of spending. I strongly suspect that just about everything is lopsided.

          Augusta County votes over 70% for Romney in 2012. They have a real estate tax of 56 cents per hundred dollars. Fairfax County has a real estate tax of $1.09 per $100.

          Augusta County: “About 4.20% of families and 5.80% of the population were below the poverty line, including 6.40% of those under age 18 and 6.60% of those age 65 or over.”

          Fairfax County: “About 3.00% of families and 4.50% of the population were below the poverty line, including 5.20% of those under age 18 and 4.00% of those age 65 or over.”

          Some will say that Fairfax has a much higher median income. True. But, Fairfax also has much, much higher assessed values for homes. Average home price in Augusta is $222,272. Fairfax is $475,500.

          Augusta average = .0056 * $222,272 = $1,244
          Fairfax average = 1.09 * $475,500 = $5,182

          Median household income, Augusta: $43,045
          Median Fairfax household income: $81,050

          So, Fairfax averages 4.2X higher real estate taxes but has 1.9X higher median household income.

          Where are the arch conservative Romney supporters in Augusta County refusing to accept this unfair wealth transfer from elsewhere?

        3. Cville Resident Avatar
          Cville Resident

          But didn’t McDonnell have the opportunity to rebenchmark LCI in favor of NoVa/Hampton Roads after the real estate crash? As I recall he chose not to rebenchmark.

          1. TooManyTaxes Avatar

            Cville – I think you are confusing McDonnell with Kaine. As he was leaving office, Kaine’s budget proposed to freeze the LCI. The scheduled adjustment recognized the big drop in real estate values in Fairfax County and would have increased state aid to Fairfax County and, by operation of the formula and fixed amount of state dollars, reduced payments other places – just like it is intended to do.

            I worked with a broad coalition of people from both parties and legislators from both parties to persuade McDonnell to reject Kaine’s proposal and allow the LCI to operate as intended.

        4. Good comments. Let’s just continue to ensure those well-intended but naive NoVA PTAs can’t supplement the State formula funds available in their kids’ schools or even their local school board allocations with any locally raised PTA donations.

      3. LarrytheG Avatar

        also as Don has pointed out – the roads in RoVa – the miles and miles of secondary roads that makes Virginia the 3rd largest state in terms of DOT-maintained roads are , in fact, socialism also.

        The new pipeline corridors – are – socialism… you have the govt taking land from people and giving it to private companies for the “greater good” – if that’s not socialism what is?

        you guys live in denial of this because you think what we already have is not socialism.. i.e. it’s can’t be because “we are not a socialist country”.

        this is funny!!!!

        1. There is no such thing as socialism. Alternately, everywhere is socialist.

          The question is what percentage of a nation’s GDP is spent by the government. Somewhere on the continuum of 0% to 100% you start to get socialism. US – 41.6%, Germany – 45.4%, France – 56.1%. Source: Wikipedia.

          My rough opinion is that a country becomes socialistic between 45 – 50%.

          Bernie’s confusion starts with countries like Denmark, which he correctly perceives to be well along the spectrum toward socialism (in government taxing and spending, Denmark is not a planned economy per se). Denmark has been lowering its top tax rate over recent years but it’s still a very high 55 – 57%. Danes have few deductions and start paying that tax rate at an income of about $55,000.

          In 2011 Denmark had a median household income of about $26,000 (using the PPP calculation to adjust for costs of living), the US is about $40,000. Following the Danish model, after eliminating tax deductions, the US would start applying the top tax bracket on households making about $82,000 per year.

          Why does Denmark make so many of its citizens pay such high taxes? Because that’s the only way to fund the programs. There just aren’t enough rich people to foot the bill.

          Sanders’ plans would expand government spending by about 1/3 and cost $18T over ten years. So, we’d hit about 52% of GDP spent by government and we’d be quite clearly into my socialist range. Unfortunately, Bernie’s proposed new taxes only cover $6.8T of the $18T. He simply says other taxes will have to be found. Yes, they will and they will be taxes on the middle class. Why? That’s the only way to raise that level of money.

          Sanders also forgets the gross incompetence of government in the US. Between the “politicians for life”, the special interests, gerrymandering, lobbyists, etc – does anybody really think our present government can be trusted to effectively spend the additional money Bernie wants to take from us? I certainly don’t.

          1. LarrytheG Avatar

            if folks are going to throw around the “socialism” word – they need to define what it is -and what it’s not… with some kind of consistent criteria beyond arbitrary political picking and choosing.

            I say there are 200 countries in the world and it’s pretty easy to see where the govt is providing things like roads, public education, water/sewer, healthcare , pipeline/powerline/rail…rights of ways, etc. and not.

            the idea that we’re “trending” towards it without defining what that is – is ludicrous… and ..really just dishonest but it’s the politics right now.

            Bernie supports single payer LIKE THEY HAVE in the REST OF THE OECD world where they pay, on average, 1/2 what we do AND he supports “free” college LIKE THEY DO in GERMANY…. where, by the way – they DON’T have humongous govt-funded college loans that are sucked up by crony and predatory education providers…

            what’s the difference ?

            we spend 10 times more on “defense” than OECD and Germany… more than all of them COMBINED – PLUS Russia and CHINA and North Korea!!!!

            THAT”s where we spend our money INSTEAD of what OECD spends it on -healthcare and education.

            its the simple truth and our folks refuse to admit it and instead prefer to demonize “socialism’.

            we make choices but we’re too dishonest to admit that we do.

          2. LarrytheG Avatar

            re: ” The question is what percentage of a nation’s GDP is spent by the government. Somewhere on the continuum of 0% to 100% you start to get socialism. US – 41.6%, Germany – 45.4%, France – 56.1%. Source: Wikipedia.”

            this is comical.. Don…

            subtract out the expenditures for “national defense” and THEN compare… !!!! Remember it’s NOT just DOD –

            In this country we do not even count the VA as DOD – we say the DOD is an”entitlement”. We say that Homeland security is not DOD. That NASA, DOE, the CIA/NSA/DMA/ is _not_ DOD…

            a full trillion dollars of our budget goes to DOD + DOD- lite…

            what do you think Miltary satellites are? How about ship reactors and nuke weapons? do you think they’re “DOD” even though they’re called NASA and DOE?

          3. LarrytheG Avatar

            Don – when you want to talk about “socialism” that costs too much money – check out Singapore which has health care coverage for EVERY person at 1/3 what we pay.

            and tell me that it’s “too much”.

            or perhaps – let’s propose that we do what Singapore is doing and no – it’s not a “small” country with “different” Demographics – it has a REAL plan that WILL scale up to a country like this one and the real problem is that while Jim and company will blather on and on about “ideas” and “theories” about “free market” health care of which there are no examples on earth – other than 3rd world economies – he never once has highlighted how the Singapore health care system works or suggest that it’s MORE than a theory and thus MORE worthy of considering because it actually does have a track record – both in terms of cost – AND effectiveness as Singapore has one of the best longevity measures in the world as well as one of the best infant mortality rates in the entire world.

            So I CHALLENGE Jim and “you guys” to put up or shut up on this issue.

            the continual use of the “socialism” word to describe any OECD health care system as “socialism” that we don’t want and cannot afford is just bogus and disingenuous in the extreme.

            why not AT LEAST – report on at least ONE OECD health system besides “Denmark”?

            and if you REALLY want your eyes opened – check out this chart of who rates the highest on health care:


  11. LarrytheG Avatar

    Oh geeze guys.. surely you have heard and seen the Baggers with signs that say “Hands off my Medicare”!

    and student loans?

    how about employer-provided insurance which the Feds effectively discount the cost of with 40% tax breaks as well as HIPPA laws that prohibit denial of pre-existing conditions and also require everyone get charged the same premium regardless of health status.. complete socialism… that the free market would never do – and, in fact, never did for folks who worked full time but did not get employer-provided.

    then we have eminent domain that provides public roads and pipelines.. public airports, TSA security, etc.

    and yes – where in the US Constitution does it require the states to provide public education ?

    what exactly is Bernie offering that almost all OECD countries around the world from Europe to Asia to Australia/New Zealand to Canada does not provide?

  12. LarrytheG Avatar

    and this is a gift to Bacon – to his main point:

    G20 to say world needs to look beyond ultra-easy policy for growth

    The world’s top economies declared on Saturday that they need to look beyond ultra-low interest rates and printing money to shake the global economy out of its torpor, while renewing their focus on structural reform to spark activity.

    A communique from the Group of 20 (G20) finance ministers and central bankers flagged a series of risks to world growth, including volatile capital flows, a sharp fall in commodity prices and the potential “shock” of a British exit from the EU.

    “The global recovery continues, but it remains uneven and falls short of our ambition for strong, sustainable and balanced growth,” said the communique, issued at the end of a two-day meeting in Shanghai.

    “Monetary policies will continue to support economic activity and ensure price stability … but monetary policy alone cannot lead to balanced growth.”


    Divisions have emerged among major economies over the reliance on debt to drive growth and the use of negative interest rates by some central banks, such as in Japan.

    Germany had made it clear it was not keen on new stimulus, with Finance Minister Wolfgang Schaeuble saying on Friday the debt-financed growth model had reached its limits.

    “It is even causing new problems, raising debt, causing bubbles and excessive risk taking, zombifying the economy,” he said.

    you’re welcome Jim

  13. Larry, just a reminder of what that free college education in Germany buys you. Not as much as the United States. If Bernie tried to introduce European-style higher ed to the United States, the colleges would erupt in open rebellion. They would never accept the expense cuts.

    1. LarrytheG Avatar

      and Jim – what is wrong with that? isn’t that essentially the “free” Community College option?

      why do you assume that “free” means “all you get eat” to start with?

      we want stripped down – basic college for all… preferably only the subjects that lead directly to a job that is in demand in the economy.

      when you argue against – why don’t you lay out what you are FOR – as well as what you are AGAINST – INSTEAD of being against EVERYTHING – no if, ands, or buts?

      you play too much in the ideological realm and not near enough on policy solutions, guy

      I’ve been for core academic and user/parent fees for everything else – K-12 and college for a LONG TIME .

      and you?

  14. LarrytheG Avatar

    re: ” If Bernie tried to introduce European-style higher ed to the United States, the colleges would erupt in open rebellion. They would never accept the expense cuts.”

    so let me get this straight Jim. If Bernie supports European style higher ed he gets characterized as a socialist – even though it’s those that call him socialist that would never “accept” the stripped down proposal?

    what kind of convoluted logic is that?

    oh wait….

    good grief!! so Bernie is the “leftist” for supporting stripped-down and the guys who would never accept it are the true Conservatives?

    please tell me this is not what you are saying… please..

  15. LarrytheG Avatar

    ” They would never accept the expense cuts.”

    but Bernie is the socialist ???


    would you like to re-think or re-phrase?


  16. Cville Resident Avatar
    Cville Resident

    This looks to be all academic. Have you guys checked out the Super Tuesday polls? I was on RealClearPolitics tonight…my God, Trump is set to sweep on Tuesday. I was shocked at how well he is polling everywhere. What a nightmare. There’s a case to be made for a freer economy and a change of course in certain policy areas. But Trump’s not that guy. I can’t believe this is about to happen. Hell, I may go vote for Rubio on Tuesday just to stop Trump (and I’m not even Republican).

    I think we’re in for four more years of Obama’s economic policies (with Hillary in the White House). I don’t see her deviating much, if any, from his stands.

    1. Trump is a protest vote and people are protesting. I don’t want to vote for Trump but if it comes down to Hillary the Criminal vs Donald the Bobbastic I’ll vote Trump,

    2. LarrytheG Avatar

      I don’t think it’s “academic” to accuse Sanders of socialism when what he is really proposing is basic college for all at far lower cost that traditional out-of-control all-you-can-eat college that is driving students into deep debt …. that’s even WORSE than “socialism.” and worse it’s disingenuous and hypocritical because our system right now is actually incentivizing expensive , decades-long debt for generic college when we could be incentivizing the German model – stripped down college that leads to a job – and let the student and parents decide what extras they want to pay for instead of having taxpayers subsidize loans.

      Our problem is that we refuse to deal with the realities.. we want something that is not fiscally sustainable and we want to – at the same time blame the less fortunate as entitlement “takers”…

      we’re screwed up.

  17. LarrytheG Avatar

    I think this is so ironically rich … after 7 years of FOX misleading the rubes – we got Trump… he IS their SON!

    they’ve drunk the kool-aid .. actually the anti-govt swill has flowed so freely it’s oozing out of folks pores… and they’re going to burn the system down if they can… and we’re all along for the ride!

    Hillary will definitely be sworn in – in an orange jumpsuit … no question!

    I figure a serious number of folks will cross ballot.. in Va for good and evil but mostly dumb reasons… yes..

    Rubio has decided he’s going to be a real patriot.. either he’s gonna be the hero or he’s going to be a martyr…

    You gotta admit two things :

    1. – this is by far the most interesting and entertaining election in most of our respective lifetimes …and

    2. -people are seriously re-acquainting themselves with the concept of govt as we know it – in the good ole USA.. something that perhaps too many were fine with being on auto-pilot – until now and ultimately maybe that’s exactly what needed to happen… because no matter your politics – people clearly do care – and are even passionate about it …
    worse things could happen.. but at the moment I have to admit, I’m struggling and trying to keep an optimistic perspective!

    and really why should we worry anyhow even if Trump gets in because in the end he is going to get the VERY BEST PEOPLE to run the country and I have no doubt what-so-ever that we’ll have a very real version of Apprentice and you know … it will be

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