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March 15, 2010

I think that it is time to reconsider the home mortgage interest deduction. Though it may be presented as the greatest middle class tax advantage, the truth is not so clear. Only about 23 percent of tax filers claim the home mortgage interest deduction. Many don't itemize. Some upper income households rent.

The chart, sourced from IRS data and sorted by the Tax Foundation, makes a pretty compelling argument for dropping the mortgage interest deduction. While people will argue that this is

February 10, 2010

The latest gathering at North Carolina's Institute for Emerging Issues challenged leaders to evaluate how creativity can transform businesses and local communities.  This is an important question in the era of globalization. It attempts to solve a big problem - employment and growth for a  state continues to shed traditional manufacturing jobs.

I believe that these questions also hold relevance for our non-profit community. Non-profits should be engines for innovation, but all too often, their environment put little emphasis on change.  That emphasis may be a product of the funding culture that they work within, but it also reflects how non-profits manage their own entities.

Non-profits should be where we work out problems. They can use their ability to gather funding without having to answer to shareholders.  Is that how it always works? Well, sometimes. Ask yourself - does your non-profit solve new problems, or does it meet needs at lower costs? Does your non-profit reproduce something that could be done by a private business?

The promise of non-profits is that they are freed, by their non-profit status, to produce results without market incentives. They can solve public good problems.  Remember those - the ones that are non-rivalrous and non-excludable? Think of clean air.  Think about "orphan drugs." Think about the application of knowledge.

We need a solution to prevent the onset of tuberculosis in HIV-positive patients.  The market may not find the answer.  Pharmaceutical companies are not putting adequate resources to the task of finding a solution because it is unlikely that such a vaccine would treat consumers with the ability to pay enough for the cost of the research.  Instead, our pharmaceutical companies seek to find the next diet pill or something to treat shortcomings in bed. We have more research spent on baldness than on malaria. Baldness affects older men.  Living to be old is a luxury in many parts of the world.  Moreover, if you have money to spend on resolving baldness, you probably are not someone with really big problems.  Malaria impacts poor children, often those living without adequate housing, and often in developing countries.

The restructuring of North Carolina's workforce is one of these problems. Long-term, the only way that we are going to get to a Creative Workforce is through a commitment over many years to changing how we educate our children. We need to focus on problem solving, and not merely on mastering tasks. Businesses will ultimately benefit from that achievement. Our local economy will benefit. Who pays for the cost of finding those remedies? Who pays the cost of teaching our young people, and re-training our older workers, for a period of time that can legitimately turn around their capacities? The Leandro decision tells us that we are not getting it done. We have a 30 percent dropout rate and a 50 percent drop out rate among minority men.

Bill Gates (at TED, here) wants to know how "we can make a teacher great." It seems like an important problem, he says, but the fact is that we don't spend money on this problem and we really don't even know what factors make



teachers effective. Our workforce's value comes from the top 20 percent, but businesses are increasingly going to where they can find skilled workers.  If our teacher's can't produce, then businesses will go to Bangalore or Vienna or wherever they are located.

Non-profits should go where business won't.  They can solve problems in places where there are not adequate market incentives.  Everyone benefits, because there are instances when no firm will bear the costs of innovation. Venture capital, by contrast, will pay for innovation in some instances - when there is a clear opportunity to make a fortune

February 1, 2010

I am worried about this spring. There are too many things happening all at once. Our nascent recovery is going to be put to the test, and it seems all too likely that it will be hobbled.

Why do I say that? Don't I see that the Dow is well above 10,000? Haven't I noticed that Bank of America trades at 16, and that the rate of increase in the national unemployment rate is leveling off?

Our economy is being driven by stimulus, and a few fumes.  Those fumes include the sudden demand among businesses to restock inventory.  That's not enough, though. The real fuel comes from the forces of intervention.

Among the most important are the efforts by the Federal Reserve to restore some kind of liquidity to mortgage markets.  Last fall, amid all of the uproar over TARP, the Fed announced that it would buy $1.25 trillion in mortgages.  That is almost one-sixth of the national debt for mortgages in 2009.  Well, it was a nice party while it lasted.  All of that demand kept things stable.  It kept money going through the doors at

January 27, 2010

Bank Pay in 2009

Bank pay has never seemed more out of synch with common sense.

November 3, 2009

The green shoots viewpoint on our economy holds that there will be new vitality within our businesses and households as our nation comes out of this recession.  The theory's relevance depends, in part, upon how likely you believe it is that our country is bouncing back.  If you don't put much faith in a higher Dow, and instead use unemployment as your metric, then you probably don't have much reason to worry about the predictive value of green shoots.

Newspapers have traditionally been a cyclical industry whose rise and fall, driven by advertising revenue, corresponds to the health our larger economy. Newspaper ad pages grow when companies feel like consumers are ready to make buying decisions.  They shrink when businesses don't see value, on the margins, of putting their brand before buyers.  If newspaperour economy is going to come back, green shooters might say that newspapers will be on the leading curve of that recovery.

That counters all of the evidence.  Ad pages are still down, and new revenue is going over to online vendors like Yahoo, or Google's Doubleclick.

It is not just the Economy

This would be a sad story if newspapers were just victims of an external problem.  Ah, but that's not the case. 

September 28, 2009

Pacific Capital Bancorp (PCBC) is about to face the music.  In the next several days, significant events may occur that shape the future of PCBC as a going concern.

Shareholders will vote on two questions at the bank's meeting tomorrow.  First, they will have the chance to weigh in on these questions:

  • raise the number of authorized shares from 100 million to 500 million.
  • effect a stock split of at least three-to-one and as much as ten-to-one, with a reduction in shares by a complementary proportion

The reverse stock split might be nothing more than window dressing.  Some hold that a share price below $10

August 13, 2009

In spite of what the government is saying, it might be too early to say that the economy is finally getting back on its feet.

Yesterday, Ben Bernanke and his associates articulated a view that stimulus has taken the economy out of "defcon 1," and that future policy will focus on weaning the US off of government help.  Bernanke, who says that he sees those famous "green shoots,"  indicated that the Treasury will continue to buy securities, but that this should slow or cease by as soon as November.

That is in spite of all kinds of evidence of persistent trouble on Main Street.  How can regulators see light at the end

August 12, 2009

Willy Loman wanted his sons to be well-liked.  Not merely "liked."  Willy struggled to grasp how things were changing in the economy back in the 1950s.  He believed that personal relationships and popularity could overcome a lack of math skills or even a lack of moral integrity.  Willy didn't understand the world back then.  Maybe he would understand it even less, now.

The sudden development of "boomerang employees" marks the abandonment by companies of even the merely "liked" and the competent.

Yesterday, I attended a workshop on the campus of a local technical community college.  During breaks, I

August 6, 2009

In the next two months, political debate will focus on replacing our current health care system with a new one that extends coverage to more people.  We don't know what the new one will look like, or how much it is going to cost.

In the meantime, though, it is worth going into that fray with a clear sense of where we are right now.  One of the baseline assumptions is that employer-sponsored health care, the de facto route for getting insurance for most households, is available for most working people.  Sure, there are those "McJobs" that don't have coverage, but the myth hold that most workers can get care.

Well, most workers can still get care.  But is is a very weak "most."  It is almost better said as "about half."  Although reports about health care in the United States often refer to our system of coverage as "workplace-based," the fact is that millions of working Americans have no plan with their jobs.

In North Carolina, for example, only about 60 percent of workers had employer-sponsored