Friday, December 16, 2011

Haves, Have-Nots Both Losing To Inflation

In 1971, a U.S. Army private's basic pay was $3,936 per year. Today, a private's basic pay is $19,739.  When adjusted for inflation, the 1971 Army private was paid more than his modern counterpart. 

Today, one gallon of gasoline costs 10 times more than it did in 1971. After adjusting for improved average automobile mileage rates, fuel per mile driven costs five times as much as it did in 1971. 

The U.S. Bureau of Labor Statistics recently released a chart showing that the purchasing power of $1 in 1971 has decreased to a mere 18 cents today. The dollar went off the gold standard in August 1971. Inflation is the cause for the dollar's devaluation.

People don't readily realize the withering effects of four decades of inflation because habits change and comparable goods aren't always available.  For example, television has changed drastically.  You cannot compare a 1971 tube-type color TV to a 2011 high-definition, flat screen TV.  Home video recording was not available in 1971.  Nor were programming packages with 100+ channels.

Fixed base, rotary dial telephones have evolved into cellular phones. The personal computer did not exist 40 years ago. Medical technology — the MRI scan for one — also was impossible before the silicon chip. And GPS satellites have replaced paper road maps to direct motorists to their destinations.

Automobile costs are hard to compare.  On one hand, modern autos are a bargain when it comes to routine maintenance such as replacing tires, brakes and batteries.  On the other hand, the cost of repairing a fender bender can easily total a modern car. 

There are many comparables that have not changed.  Jack Daniels whiskey is one. Disposable diapers are another. Anything made with 100 percent cotton. Aspirin. An 8-pound sledgehammer. One food economist recently calculated that Thanksgiving dinner with all the trimmings would cost 13 percent more this year than in 2010.  Plywood, framing lumber, copper wire, pipe and concrete are pretty much the same although new houses are generally bigger. Amenities and furnishings have changed, but a one-bedroom apartment is still a one-bedroom apartment.

Over the decades, the Department of Labor has collected a tremendous amount of data while tracking the prices of everything we buy.  The bean counters at the DOL face obstacles in determining the "market basket" of goods and services on which to base the Consumer Price Index.  Sometimes, the CPI calculation can overstate inflation.  If Brand X, a market basket staple, goes up in price, the consumer may very well switch to Brand Y, which sells at a cheaper price. Compiling the CPI also misses coupon shoppers and special sales. 

The CPI market basket includes food and fuel.  Due to their "weight" in the basket, an increase in either cost can ratchet the CPI upward very quickly. Elected politicians do not like this, especially in an election year. Since 2000, our government has relied more and more on the Federal Reserve Price Consumption Expenditure, or PCE, index to measure inflation. The PCE does not consider "core inflation," better known as food and fuel. 

Despite its own shortcomings, the CPI is useful and more relevant to everyday living than the PCE. 

In my opening example using an Army private making $3,936, he would need $22,000 today to stay even with inflation. His high school classmate who took a construction job at $8,000 per year would need $44,725 to stay even.

In 1971, the contractor made twice what the soldier did. In 2011, he still makes twice as much. But look how the gap in nominal dollars between the two has grown from $4,064 in 1971 to $22,725 presently. 

Year after year for 40 years, inflation has clawed away at an annual rate of 4.5 percent. Through pay raises and COLAs, wages have increased to try to keep up with inflation. But as you can see, the compounding effect of incremental percentage increases has led to the wide gulf in nominal dollars between the private and the contractor.

The populists' view of the inflation indexing phenomenon has led them to see America as a nation of haves and have-nots.  In reality, however, wealth measured in inflation-devalued dollars becomes an illusion of wealth. Even the haves are falling behind.

Next year, it appears that both political parties will gin up class warfare rhetoric to win elections.  I hope that the American people will have the good sense to realize that inflation is the enemy, not the haves who resist tax increases or the have-nots who want more income redistribution.

Friday, November 18, 2011

The Battle Beween North, South Continues

I was born in Clarksburg, well south of the Mason-Dixon Line, but not far enough south to be considered a Southerner.  I was born two blocks away from where Stonewall Jackson drew his first breath and one block further from the Stonewall Jackson Hotel.  Still, Clarksburg never has been a Southern town, not in any sense of its Virginia roots or the Old South in general. 

But I did learn what it’s like to live as a Southerner when I went to college in Virginia.  Richmond may have been the capitol of the Confederacy, but Lexington (my college town) was the sacred burial ground of the Old South.  Both General Robert E. Lee and Stonewall Jackson are buried in Lexington. 

To live as a Southerner requires one to learn the riddles of Southern life.  And there are a few distinct riddles that only a Southerner’s mindset can solve.

The riddle that stands out in my experience is: How many Southerners does it change a light bulb?

Forthrightly, the answer is “One.”  Southerners are as dexterous as any folk, and due to the humid heat of the Old South, Southerners work effortlessly to change their light bulbs so as not to work up more of a sweat than is necessary.

The changing of the bulb is a riddle rather than a question because changing a light bulb in the Old South is a ritual.  While one Southerner can physically change the bulb, the ritual is not complete unless a handful of Southerners congregate to wax nostalgic about the faithful service that the old light bulb gave them.

Perhaps this riddle of the Old South stuck in my mind more than the others because Lexington, the burial ground of Lee and Jackson, was still a place where visitors congregated to praise the service of these two men.  Even Yankees who loathed the Confederacy and its stand on slavery have been overheard praising Lee and Jackson as generals and absolving them of their participation in the hostilities.

I was reminded of my Old South education the other day when I went to the hardware store to buy light bulbs.  I could not find a 100-watt bulb anywhere.  The clerks all told me the same thing—that the old bulbs were not being re-stocked because the new bulbs that look like corkscrews are soon to be the law of the land.

Then it hit me like a bowl of day-old grits served cold.  I will be losing all of my old, Edison-style light bulbs.  Their warmth, a warmth that can only be created by heating a tungsten filament, will soon disappear, possibly forever.  Their warmth, a warmth that 100 watts of electricity adds to man-made global warming, is the reason the government has turned on my old friends.

This global warming fever is the handiwork of Al Gore, a supposed son-of-the-south who bought into Yankee Imperialism just to meet haughty women on his Facebook page.  To genteel Southerners, he is their Aaron Burr, a traitor to the light bulb cause.  Some of my esteemed Virginia friends (all from old families I might add) mock Al Gore by referring to him as “Aaron Brrrrrr!”, and then they shiver in disgust.

My visit to the hardware store resulted in my buying a corkscrew bulb that advertised itself as “equivalent” to a 100 watt bulb.  What posh!  A hollow corkscrew full of inert gas pales in comparison to Edison’s tungsten masterpiece.

And whoever heard of a light bulb coming with instructions?  Well, these globe-saving corkscrews do.  It seems they contain mercury and you aren’t supposed to toss them in the garbage can.  The instructions tell the buyer to call a toll-free number or visit a website to learn the disposal rules.

After I read the instructions for disposing this gaseous imposter, I fixed myself a pitcher of mint juleps and celebrated John Barleycorn’s gift to mankind.  The same government that now outlaws Edison’s light bulbs tried outlawing whiskey.  Prohibition was a great boon for Yankee bootleggers and Canadian distilleries, but we Southern bourbon drinkers eventually won that war.  To this day, NASCAR reenacts our battle tactics.

All that the Yankees really want is more tax revenue—Prohibition proved that.  If we agreed to a $2.00 per Edison bulb carbon tax, the Aaron Brrrrrs of this world would declare victory and give us back our tungsten bulbs.

If we win the light bulb war, maybe we could get our old showerheads back and enjoy a cascade of hot water.  Maybe we could buy commodes that flush like they mean it.  And just maybe, we could again buy washing machines that use enough water to launder our clothes.

The tungsten light bulb shall rise again, so sayeth the South.

Friday, October 28, 2011

Keypunched Confessions of an Untaxed Millionaire

I was a millionaire who paid next to nothing in taxes. I used to laugh it off. But when my president began chastising millionaires for not paying more in taxes, my conscience and my patriotism forced me to regret my greedy ways.

It did not help that Warren Buffett was cheering on President Obama and the White Whine Party to oppose Tea Party millionaires who want to keep their money. The pendulum had swung.

My saga began in late November 2010, when the Social Security Administration notified me that my 2009 income was $1,967,732.00. This amount is wrong; I will explain why later. But wouldn't you know? The SSA picked the one year of my tax-paying life that I didn't make more than a million dollars to say that I did!

(Serious readers take note: The previous sentence contains a wild exaggeration.)

I thought a fool's thought. I thought it would be a simple matter to correct SSA's records.

I went to the SSA website, downloaded Form 561-U2, and filed a request for reconsideration on Dec. 9. I even attached information from my tax return to make SSA's job easier.

I did not hear a word from SSA until March 9. Then, SSA replied that the error was due to incorrect information sent to them by the Internal Revenue Service. The letter also instructed me that it was my responsibility — not the SSA's — to contact the IRS and have it correct the error.

This is government at its finest. You wait three months only to be redirected to another government agency.

My next step was to call the IRS to seek advice. After explaining the situation, I was told that the error was mine; that I had keypunched the wrong number when I e-filed my return. The blame game ended, however, when I told the agent that I only file paper returns. Therefore, if it was a keypunch error, it was an IRS keypunch error — not mine.

After considerable study, the IRS called back and advised me to file an amended return. I asked how I could file an amended return when there was nothing to amend. My return, after all, was correct.

The agent then recommended that I dump the problem on the Kansas City office. That's where I had filed my paper return, and perhaps the Kansas City office could override the IRS computer.

It was May 23 when I wrote the Kansas City IRS office. They acknowledged my letter with their standard "45-day letter", which means "Don't expect any action for 45 days."

I got another 45-day letter.

I had the feeling that I was locked in a Twilight Zone curiosity shop that sold grandfather clocks. And for the worse, the clocks chimed but once every three months.

On Sept. 7, the IRS informed me that it had corrected the error. However, the agency failed to send me a transcript that I could forward to the SSA office. To get a copy of the corrected transcript, I had to call an agent. The waiting time alone was 45 minutes, and it took as long for the agent to correct the IRS computer record.

The SSA advised me on Oct.7 that their records had been corrected. It took 10 months and probably 50 hours of my time to correct a split-second keypunch error.

At the outset, I was amazed that the IRS data input system would allow such an obvious error. A clerk had entered a line item ($19,143.00) without inserting the decimal point. Thus, my income was inflated by $1,914,300.00. Bells and whistles should have gone off when this happened.

In this age of precision scanners, why is the IRS relying on keypunch clerks? It's not like Google hired monks to keypunch all of those library books!

The SSA and IRS computers obviously talk to each other. Why couldn't the SSA initiate my request? The SSA should have forced the issue if for no other reason than to discover how junk data from IRS corrupted its database.

Between the SSA, IRS and yours truly, at least 100 man hours were spent correcting this mistake. Maybe even 200 man hours. Maybe 300 man hours.

Like the taxpayers, the IRS and SSA workers are every bit as overwhelmed. It's no wonder. What I went through this year is a case study in poor management of both data and personnel.

To President Obama (and Warren Buffett), I would offer this advice. Before you criticize taxpayers at any level, you should go to the IRS and look under the hood. The search engine that you rely on needs repaired.

Friday, October 14, 2011

In a Colorful World, Sometimes Black and White Tells the Best Story

Netflix has changed its mind again!  Netflix had planned to offer streaming video and then create a new service (Qwikster) to offer DVD rentals.  Now the Qwikster plan has been shelved.

When Netflix went wobbly last month, I switched my movie rental business to a startup company called Bliter.com.  Bliter only offers Black & White films.  But even Bliter has undergone a change. 

Recently, Bliter’s subscribers made it clear that this genre of films is actually White & Black, not Black & White.  So Bliter, bowing to pressure, changed its name to Whackster.

“The Third Man” and “Citizen Kane” are considered by many critics to be the best films ever made.  Both are B&W; both also feature Orson Welles and Joseph Cotten.  Had they been shot in color, these films would be failures.

There is something intriguing about B&W cinematography.   “Gaslight”, a thoroughly scary thriller starring Charles Boyer and Ingrid Bergman, relies on the mysteriously dimming gas lights in Bergman’s town house.  B&W film accents the low lighting.  Color film just can’t do this.

Thanks to B&W, Joseph Cotten is even more evil as a serial killer in Alfred Hitchcock’s “Shadow of a Doubt.”  Can you imagine Hitchcock’s “Psycho” in color? 

Not all B&W films are murder mysteries.  Gary Cooper played Marshall Will Kane in the western, “High Noon.”  Cary Grant played an overwhelmed nephew in the comedy, “Arsenic and Old Lace.”  Humphrey Bogart stayed one step ahead of the Nazis in wartime “Casablanca.” 

David O. Selznick won Best Picture Oscars in 1939 and 1940 for “Gone with the Wind” and “Rebecca”, respectively.  Selznick obviously knew his media.  GWTW had to be filmed in color; “Rebecca” had to be filmed in B&W.

B&W films add a touch of grit to the plot.  Compare “The Bedford Incident” (Richard Widmark) to “The Hunt for Red October” (Sean Connery) or “Crimson Tide” (Gene Hackman).  “The Bedford Incident” (B&W) keeps you on edge throughout; you feel the chill of the North Atlantic in this Cold War submarine chase.

Elmore Leonard’s short story, “3:10 To Yuma”, was first made into a movie in1957.  Starring Glenn Ford and Van Heflin, the movie evolves as a morality play which is accented by B&W cinematography.  The 2007 remake of the same name is in color, and not surprisingly, it is gunplay for gunplay’s sake.  Russell Crowe and Christian Bale are sadly diminished by the relentless carnage.

Blood really shows up in color.  Maybe that’s why directors avoid B&W nowadays. 

Color film has its place.  I cannot imagine “Lawrence of Arabia” or “Bridge on the River Kwai” not being filmed in color.  Yet, Sir David Lean, the director of those masterpieces, shot “Oliver Twist” and “Great Expectations” in B&W.

Steven Spielberg did choose B&W for “Schindler’s List”.  Can you imagine a color version?  But for the life of me, I cannot understand why he didn’t rely on B&W for “Jaws” and “Saving Private Ryan.”  The choice is so obvious.

David O. Selznick would have used B&W.  So would have Sir David Lean.  There, the “Davids” have it!

The studio system ruled the B&W era.  For all of their faults, the studios gave us some interesting pairings of leading men and leading ladies (Claude Rains and Bette Davis, Humphrey Bogart and Lauren Bacall, et al.)  If the studio system still ruled, there would be five “Meryl Streeps” instead of one.  However, I am not sure that any of today’s leading men could match even Fred MacMurray (“Double Indemnity” with Barbara Stanwyck), let alone Clark Gable. 

From the 1930s through the 1950s, actors knew how to act.  They acted with their eyes, facial tics, and hand movements as well as with the way they delivered their lines.  Eli Wallach was 92 when he appeared in 2010’s “Wall Street: Money Never Sleeps.”  Though he has few lines, he is constantly acting—flinching and using his walking stick—while the rest of the cast just spouts rhetoric.

B&W also brought us the horror genre.  Claude Rains was the “Invisible Man” (by H. G. Wells.)  John Barrymore, Frederic March and Spencer Tracy have all starred as “Dr. Jekyll and Mr. Hyde” (by Robert Louis Stevenson.)  Wells and Stevenson understood that the true horror is the evil lurking inside of us, not an otherworldly creature.  B&W film allows for the transformation in ways that color cannot.

B&W rules!



Ten recommended B&W films:
  • The Night of the Hunter (1955)
  • Lured (1947)
  • Deception (1946)
  • Ball of Fire (1941)
  • Sunset Blvd. (1950)
  • Grand Hotel (1932)
  • Our Man in Havana (1962)
  • Advise and Consent (1962)
  • The Big Heat (1953)
  • Hobson’s Choice (1954)

Friday, September 9, 2011

Finding the Next Tesla in a Dumbed-Down Society

Nikola Tesla, a Serb by birth, immigrated to America in 1884. He was 28. His education transcript listed “some college.” Mr. Tesla may have been fortunate to have ignored pursuing a college degree for his true genius might have been “dumbed-down” had he mastered the knowledge of electricity as was known and taught at the time.

Tesla’s inventions were critical to creating the alternating current electrical system that powers the world. He conceived the first electric induction motor in 1882. Then he went on to develop equipment needed to operate the electrical grid.

Tesla also mastered radio wave transmission. Although Guglielmo Marconi is considered father of the radio, Marconi’s work had more to do with the successful commercialization of radio than the underlying physics of radio waves that Tesla proved. Tesla demonstrated radio transmission a decade earlier than did Marconi. Tesla transmitted radio waves through the Earth as well as through the atmosphere.

Nikola Tesla was born at the right time. Had he been born 10 years earlier, he never would have met and worked with George Westinghouse (Westinghouse Electric Co.) to build the alternating current electrical system. Had Tesla been born 10 years later, America would have already accepted Thomas Edison’s plan to electrify America with the direct current system that Edison’s inventions were built around.

When Tesla and Westinghouse electrified the 1893 Chicago World’s Fair with alternating current and fluorescent lighting, the die was cast. AC power would be the electrical standard.

What amazes me most about Tesla’s work is that he transmitted electrical energy without wires as early as 1891. His laboratory was lit by fluorescent bulbs. But there were no wires, and the bulbs had no electrodes.

Steve Jobs, the brains behind the Apple Gadget & Widget Co., recently announced his retirement. Immediately, he was hailed by the business press as the greatest American genius since Thomas Edison.

Oh, puhleeeze.

The next time you wet your pants in excitement because your iPad or iPhone found a hotspot, consider for a moment that wireless technology is 120 years old. Nikola Tesla not only dreamed of making every spot on Earth a “hot spot,” but he envisioned wireless-powered trains, ships and vehicles. Tesla’s goal was to use the electrical charges in the ground, in the seas and in the atmosphere as the “grid.”

As usually happens, the constant inventor (ala Tesla) meets two roadblocks. First, technology cannot keep up with the inventor’s mind. And second, the investors want to milk the old patents for all they are worth. Society is then dumbed-down to accept the status quo.

Some of you, especially the disciples of Steve Jobs, are accusing me of blasphemy; I can hear you because I have a tPhone (Tesla phone.) No matter how much you adore Steve Jobs, he is no Nikola Tesla. Steve Jobs, like Nikola Tesla, was a college dropout. End of comparison.

Nor is Steve Jobs the next Tesla. But if Steve Jobs is the best candidate that we have to consider, then how do we find the next Tesla in our dumbed-down society?

My talking about electric currents and electric gadgets is nebulous. So allow me to re-phrase my question in a more practical sense. How do we find the next Red Adair in our dumbed-down society?

On April 20, 2010, a BP oil well in the Gulf of Mexico caught fire and exploded. It took five months to resolve the oil leakage. Throughout the five-month period, it was obvious that neither the oil industry nor the government had a man like Red Adair to rely on — a man who instinctively knew how to tame an oil well fire.

When Saddam Hussein set fire to Kuwait’s oil wells, environmentalists the world over declared that the flames would burn for years. Wrong again, Greenies. Red Adair extinguished more than 100 fires in short order.

Red Adair also should get credit for extinguishing all of Kuwait’s oil well fires. During Red’s career, he hit a slow spell when there were no oil well fires. So he decided to manufacture equipment based on his designs and sell the equipment to his competitors.

Red Adair dropped out of high school.

In our dumbed-down society, Nikola Tesla and Red Adair could never get jobs of importance. They would have no certificates from the Wizard of Oz to vouch for their genius. And neither of these men would suffer the ignominy of dumbing himself down just to get a foot in the door.

I predict that battery makers will be profitable for a long time to come. And I predict that President Obama will continue to promote non-flammable energy.

Friday, August 12, 2011

The Dollar Is More Than Worth Its Weight In Gold

The year was 1970, and I had mastered the mysteries of Money & Banking, a core course for Economics majors.  In retrospect, the Money & Banking course that I took was rather simplistic compared to what has happened since in the banking system.

In 1970, the dollar was backed by gold.  Banks controlled almost all the money.  Banks were open from 9 am to 3 pm on weekdays and until noon Saturdays.  If you wanted money, you went to the bank.

The gold that backed the dollar was stored at Fort Knox, Kentucky.  We knew the gold was there because we watched as James Bond and Pussy Galore thwarted Auric Goldfinger’s evil plan to ruin our gold.  The dollar was as good as gold.

In 1971, everything I learned about the dollar came to an end.  The United States unilaterally ended conversion of the dollar to gold.  The dollar became fiat currency—money backed only by government decree.

In 1933, President Franklin D. Roosevelt ordered the American people to surrender their gold certificates, gold bullion and gold coins to the U. S. Treasury.  They were paid $20.67 per ounce.  A year later, FDR signed the Gold Reserve Act of 1934 which priced gold at $35.00 per ounce.  The official price of gold remained at $35.00 per ounce until President Richard M. Nixon decoupled the dollar and gold on August 15, 1971.

When Kings got into trouble in the past, they called in the coins, melted them down, added an alloy, and issued new coins at the same face value.  This is known as inflation.  FDR did the kingly thing, only he did it with a pen filled with ink. 

President Nixon had little choice but to end the gold standard.  The nation’s inflation rate was rising to 6%.  If foreign governments had demanded payment in gold bullion, the gold reserve would have been drained.  There was also a fear that the Soviet Union and South Africa were sitting on huge gold reserves and would use their suspected hoards to destabilize western currencies.

The gold standard that backed the dollar from 1934 to1971 was, in reality, a fiction.  The official price of gold was arbitrarily determined by a president who was desperate to expand the money supply and stave off deflation.  That the official price of one ounce of gold remained at $35.00 through World War II and the great economic expansion of the 1950s and 1960s tells us that gold remained arbitrarily valued.  The increase in our gold reserves during the period never matched the increase in the nation’s money supply.

Even valued at today’s high price, gold would be inadequate to back even the dollar.  All of the gold ever mined is believed to be worth less than ten trillion dollars at the current market price.  Gold would have to be valued many, many, many times higher to reflect its scarcity if used to back the world money supply.

When viewed in hindsight, one can make the argument that all money is fiat money.  Money has always been worth what the king said it was.  Gold and silver bullion reserves only give the appearance of underlying value.

During the past few years, investors have been buying gold bullion and gold coins.  “Gold has never been worth zero!” is a popular ad slogan.  Investors believe that gold will only rise in value because they mistakenly believe that gold is a standard of value.

Gold is neither priced by its scarcity nor by its cost of production.  Gold pricing in today’s market differs very little from the Dutch tulip mania in the 1600s.  Gold is priced by speculators who see no end to its rise.  Gold hoarding is the latest fad, the latest asset bubble.

Gold has always mystified mankind.  It is the one metal that does not rust or tarnish.  When the Great Pyramid of Egypt is reduced to a pile of sand, the gold in Pharaoh’s tomb will be as shiny as the day it was crafted—assuming it’s still there.  Gold has an eternal quality like nothing else on Earth.

To possess gold leads to avarice.  Stories of avarice and greed abound in the Bible (Exodus), literature (Silas Marner), film (Treasure of the Sierra Madre) and history (Pizarro and the Incas).  And most people believe there is a huge treasure of gold just waiting to be discovered (Lost Dutchman mine and El Dorado.)

If history is an indicator, then it seems that one thing is certain: Just when you get ready to enjoy your gold wealth, someone takes it away.
     
   
Web links
http://www.wellsfargonevadagold.com/confiscation-order.pdf
http://www.enotes.com/major-acts-congress/gold-reserve-act
http://www.pbs.org/wgbh/commandingheights/shared/minitextlo/ess_nixongold.html

Friday, July 22, 2011

Less Is More When it Comes to Congress

There once was a time when Congress did nothing and the nation prospered. From 1997 to 2007 — a full decade — the federal minimum wage remained at $5.15 per hour. Then Congress screwed up in a way only Congress can by mandating three successive increases.

In 2007, the federal minimum wage increased 13.6 percent to $5.85. In 2008, the wage increased 12 percent to $6.55. And in 2009, the wage rose 10.7 percent to $7.25 where it currently remains. All totaled, Congress jumped the federal minimum wage 41 percent from July 2007 to July 2009 — a two-year period.

The 2008 increase kicked in just a month before the financial panic in August of that year. The 2009 increase kicked in as the charts showed the bottom falling out of the economy. But of course, the rising unemployment rate during this period was just a coincidence.

When Congress hikes the minimum wage, that increase drives up wage rates across the board. A worker who made $7.25 per hour in 2006 felt pretty good making 41 percent more than the minimum wage. However, in July 2009, the same worker needed $10.15 per hour to have felt so good.

Unlike Congress, businesses cannot wave wands and escalate payroll wages by 41 percent in two years.

Congress enacted a series of unemployment benefit extensions when the recession started. These benefits can run for 99 weeks. But that was of no matter because Congress convinced itself that spending trillions of stimulus dollars would re-start the economy, and that the unemployed would all be back at work in two years.

We now know that plan did not work. Nevertheless, employers have been stuck with a big bill for unemployment insurance premiums.

Congress enacted the Davis-Bacon Act in 1931 mandating “prevailing wages” on federally funded projects. This gem of legislation has never been anything but a sham and a swindle. But it persists, and President Obama’s shovel-ready projects never got started, in part, because of these artificially high wage rates.

President Franklin Roosevelt pioneered shovel-ready projects — literally. The Works Progress Administration handed out shovels to unemployed men and told them to start leanin’ or start shovelin’. These “lean” and hungry diggers were never paid Davis-Bacon wage rates, however.

And then there was the passage of Obama Care — the national health insurance plan that Rep. Nancy Pelosi, D-Calif., promised to read after it passed. No one knows how much this insurance plan will cost employers.

If a company can afford a K Street lobbyist, it gets a waiver for its group health plan. For companies without such influence, they become prisoners of Obama Care and all of its unknowns.

Congressional meddling with private sector employment law has created massive unemployment. Perhaps for the worse, this meddling has chilled hiring for years to come.

The unemployment rate is trending upward again. If $3 trillion of deficit spending didn’t prime the pump, then a double-dip recession is a real possibility.

The recent job creation report was a big disappointment to the experts who follow these numbers. For June, an expected 90,000 jobs created turned out to be 18,000. For May, the jobs created were revised downward to 25,000. Numbers like these suggest that businesses are only replacing turnover, not expanding.

Businesses would hire workers if consumers started buying more. When UPS recently was asked if it planned to hire additional workers, the company’s spokesman answered, “Packages equal people.” That is a qualified “No.”

Consumers aren’t spending for two reasons. Their houses have dropped in value. And the corn-ethanol subsidies have driven up fuel and food prices. Consumers can’t borrow against their biggest asset. Consumers are spending more of their limited disposable income on food and fuel.

As I recall, the housing bubble and its subsequent collapse had something to do with Congress and its red-handed stepchildren — Freddie Mac and Fannie Mae.

As I recall, Congress loves corn. So much so, that the Capitol’s privies are stocked with bushel baskets full of corn cobs.

The mess we are in has been caused by Congress. Congress needs to quit meddling. Congress needs to take a lesson from the past — do nothing for 10 years.

But this Congress apparently won’t sit on its thumbs. This is a shovel-ready Congress. This Congress is determined to dig an even deeper hole.

Thursday, June 16, 2011

Can Americans Pay Down Our Debt?

How much is 1 trillion of anything? Let's count McDonald's burgers.

McDonald's sold its 100 billionth burger in 1993 and changed the sign to read "Billions and Billions Sold." The best guess I could find is that McDonald's now sells 4.6 billion burgers per year -- call it 5 billion. Thus, McDonald's has yet to sell 200 billion burgers.

At the current sales rate of 5 billion per year, McDonald's will not sell its 1 trillionth burger until the year 2173. Nobody alive today will witness the event.

If you exchange one McDonald's burger for each dollar of America's $14 trillion debt, then you're looking at a payoff date sometime in 4773 A(fter) D(igestion).

One trillion is such a huge number that the human mind cannot put it into perspective.

The human mind can understand one billion. McDonald's began franchising in 1953 and sold its billionth burger in 1963. McDonald's hit the 5 billion mark in 1969 and the 20 billion mark in 1976. People can understand 1 billion in total or even the rate of 1 billion per year.

Fortunately, we have computers that can count trillions as easily as people count fingers. Computers can easily design and compare an infinite number of plans to pay off the national debt.

Paying off a loan, however, is more than a math problem. A borrower must have that intangible quality -- integrity -- to honor the debt. If the borrower will not honor the debt, that's that.

It is my considered opinion that the American people do not have the integrity to honor the national debt. I cannot prove that Americans are as morally bankrupt as they are financially bankrupt. But I can provide events that draw me to this conclusion.

Fifty years ago, General Motors was the world's leading automaker. GM also excelled at building locomotives and diesel engines. GM was a powerhouse; its stock was as blue as a blue chip could be.

But then, GM rested on its laurels and eventually borrowed and overextended itself until the company had to declare bankruptcy in 2009. Blame it on the Corvair and Ralph Nader if you want, but GM's management forgot how to compete.

In many respects, GM's path to poverty mimics the nation's plight.

GM's Chapter 11 bankruptcy, though big, was not so big that the courts couldn't restructure the company. Bigger companies already had been through the system. But this time, the White House stepped in to override the bankruptcy court and dictate the terms of recovery.

Under bankruptcy law, the secured creditors are paid first. They have first dibs on the assets. In GM's case, the secured creditors were thrown a bone and told to take it or leave it.

The president of the United States all but ordered the nationalization of GM, a publicly owned company, and there was hardly a peep of protest. Forget tradition. Forget the "rule of law" that politicians always crow about. Forget the term "secured debt."

Federal bankruptcy laws were reformed in 1979. The laws were trying to keep up with the times. Bankruptcy was no longer something to be ashamed of. Bankruptcy filings were increasing, and the system needed reforming to speed reorganizations and liquidations.

Bill McLaughlin, former CEO of CB&T bank, explained to me in the mid-1980s that the bankruptcy law had become a "management tool." He was as right as he was succinct.

When the housing bubble popped, people walked away from their mortgages without regret. And the mortgage markets are still a long way off from normalizing.

From the White House to the poor house, Americans have shown they will not honor their debts. Can you expect with any reasonable assurance that Americans will pay off $14 trillion in Treasury Notes?

I could be wrong. We could have a turnaround. Or we could have another Pearl Harbor -- an event that stirs us to greatness. America does have a history of doing the impossible and doing it well.

I personally believe that $14 trillion is so big that it is mathematically impossible to pay it back in a reasonable time period. But I could be as wrong as wrong can be on this, too. I may be a finger-counting relic trying to conceptualize 1 trillion while ignoring the power of computers.

And I could be way off in predicting when McDonald's sells burger No. 1 trillion. You just never know about making burger predictions. What if people in India had a change of attitude about their sacred cows?

Friday, May 20, 2011

Even Ken Jennings Can Be Replaced By a Machine

In my last column, I touched on automation as a reason for improved workplace safety.  Perhaps we should revisit automation as a job killer.  This is not new.  The most famous automation story is the Luddite Revolt of 1811 when English weavers set about to destroy newly-invented looms run by Jacquard’s punched card system.

Eli Whitney introduced the cotton gin in 1794.  Whereas Jacquard’s machine replaced highly-skilled workers, Whitney’s machine replaced unskilled labor.  And further, the cotton ginning machine did more to guarantee consistent quality than increase production.  Hence, there was no revolt in America’s cotton belt.

Automation, nevertheless, continues its march.  We accept it because it works.

When I visited the T. L. Smith factory in Milwaukee in the late 1970s, I expected to see machinists standing at their lathes turning out parts for Telsmith rock crushers.  I always admired machinists and their ability to hone steel.  But on that day in Milwaukee, the machinists were sitting in lawn chairs, reading the paper and drinking coffee.  The machine tools were made by Cincinnati Milacron and, like Jacquard’s loom, were operated by a punched tape drive.

Fixed machines performing repetitive tasks are the easiest machines to automate.  Machines that move in space and time present much more of a challenge.  But the advent of global positioning satellites has made that task less difficult.

In the last few years, highway contractors have been fitting bulldozers with GPS receivers and computers.  The highway construction plans are digitized in three dimensions and loaded into the onboard computer.  The GPS controls tell the computer where the bulldozer is on the X and Y axes.  A laser reference light provides the elevation reference (Z axis).

Studies indicate that computer-controlled bulldozers are up to 50% more efficient and use some 40% less fuel than their human-operated peers.  The savings are obvious.  Two bulldozers do the work of three; each bulldozer uses 30 gallons less fuel per shift.

Companies like Caterpillar are now designing bulldozers that will be totally operated by other machines.   The bulldozer of the future won’t require an OSHA-approved, rollover-proof, soundproofed and air-conditioned operators cab.

The automated bulldozer always knows where it is in space, and it does not rely on a survey crew to set grade stakes as reminders.  So the need of the surveyor has diminished.  But surveying work has already diminished for another reason—the work of a four-man survey crew 30 years ago is now done by one man with an electronic instrument.

Machinists.  Bulldozer operators.  Surveyors.  These are just three good-paying occupations that have to compete with machines.

We have the technology to replace air traffic controllers.  Unfortunately, we will tolerate sleeping Luddites until an air disaster forces our government to have the will to do so.

When Boeing and Airbus began designing aircraft with seats for two pilots, a joke circulated around the industry.  It went: The new planes are so sophisticated that the cockpit only needs two seats—one for the pilot and one for a dog.  The pilot’s job is to feed the dog.  The dog’s job is to bite the pilot if he reaches for the controls.

We’ll never see this happen because we think all pilots are like “Sully” Sullenberger.  But the point of the joke remains.

Now that human medical scans are digitized, why do we need a radiologist to read the image?  We don’t.  The computer can read the image as soon as it is taken.  The computer can see pixels that the human eye cannot.

Is there a limit to replacing humans with machines?

In February, the game show Jeopardy staged a contest pitting an IBM computer vs. the two biggest Jeopardy winners on record.  The computer won.

Impressively.

Many faithful fans derided the computer as having an unfair edge—it could beep the beeper faster than a human.  Well, so what?

Others derided the computer by saying that Jeopardy was essentially a memory test, and that a computer could memorize everything in print.  Well, so what?

Jeopardy is a trivia test, not a simple memory exam.   Remembering trivial facts is a very human pursuit.  Programmed by humans to win a human game show, the computer displayed a degree of human intuition.

Is this not the same underlying concept as programming the Jacquard loom’s punched cards to weave patterns that are pleasing to the eye?

Machines will only become smarter.  Machines will take away more human occupations.  So what will humans of the future do for work?

John Henry (and Ken Jennings), we feel your pain.

Friday, April 22, 2011

How Many Ladders Does it Take to Keep a Workplace Safe?

April 28 marks the 40th anniversary of OSHA, the Occupational Safety and Health Administration. I was never convinced that the nation needed OSHA.

In 1971, I attended a seminar to learn how the new OSHA law applied to highway construction. The first topic discussed was the chapter of regulations on trenches. We learned that any excavated trench 3 feet deep or deeper required escape ladders spaced every 25 feet.

If a 3-foot-deep trench collapses, the angle of repose of the fallen earth will limit the depth of the dirt and rock in the center of the trench to a foot or less. In a trench that is 4 feet wide or wider, there would be no dirt in the center. Regardless, escape ladders were required.

This “3 foot rule” brought laughter. Well, the men with calloused hands laughed very hard. Those with clean fingernails just giggled nervously but knew not why.

The instructor then directed us to the chapter on ladders. There was page after page of regulations on how to build a ladder. The key language here was that ladders must be 6 feet long or longer.

A 4-year-old child who has ridden the playground teeter-totter knows about fulcrums, but not the architects of OSHA. With this revelation, the laughter was over. It had become crystal clear that the OSHA rules had been written and approved by desk jockeys with no work experience and no common sense.

OSHA required trucks and heavy equipment to have back-up alarms. Every time the machine backed up, the alarm beeped to warn everyone.

Good idea in conference room theory. Not always so good in practice. In a congested area like a highway cut, with three vehicles backing up at the same time (a common event), the alarms confuse everyone. The alarms echo off the walls of a cut, the same as they would in a canyon.

I never have been in favor of back-up alarms. For one thing, back-up alarms lull you into a false sense of security. If the alarm fails to work, and that does happen, you may get run over while waiting to hear a horn beep. When one works around heavy equipment, staying alert is the only safe option.

At the 1971 seminar, we also reviewed the chapter on fire extinguishers. Never have I read a document so vague and so confusing. The only conclusion I could draw was for a business to buy a lot of fire extinguishers and hope they had enough of them when OSHA showed up.

Because OSHA required so many fire extinguishers in the workplace, the agency must have thought that, in case of fire, the workers would play hero, grab fire extinguishers and fight the fire until they were overcome by smoke. I thought it was counter-productive for a safety agency to expect everyday workers to fight fires.

Before OSHA, few fire extinguishers were sold, and the sellers were relegated to peddler status. After OSHA, fire extinguisher peddlers became very successful businessmen.

In February, a congressional committee called OSHA to task for being a job killer. Assistant Labor Secretary David Michaels defended OSHA by saying: “…there is clear evidence that OSHA’s commonsense regulations have made working conditions in this country today far safer than 40 years ago …, while at the same time protecting American jobs.”

Then he went purple, claiming that “OSHA standards … drive technological innovation, making industries more competitive.”

As proof, OSHA reverts to statistics. They cite that workplace injuries per 100 workers have dropped dramatically since 1972. This is a fool’s errand, comparing the workplace of 1972 to the current workplace.

The accident rates fell because we either exported the dirty, dangerous jobs overseas or replaced domestic workers with automated, robotic machinery. For example, comparing the American auto plant of 1972 with today’s plant is like comparing apples to kumquats. (Credit Japan, not OSHA.)

Not just manufacturing has been automated. Computers answer telephones; computers operate other machines. ATMs have replaced thousands of bank tellers. We explore Mars with a robot. And so on.

Injury lawsuits have done more to improve workplace safety than anything OSHA has done. The Mandolidis decision in 1978 alone sent a message to companies to either automate the equipment, export the dangerous jobs or be sued out of existence.

Forty years of OSHA rules notwithstanding, humans are as accident-prone as ever. The demands of the marketplace and resulting advances in technology have made jobsites safer.

The government is broke. OSHA is a luxury we cannot afford.

Happy birthday, OSHA.

Double check your fire extinguishers before blowing out the candles.

Friday, March 25, 2011

Double Secret Probation Couldn't Stop Animal House Or Meth

“There was panic in the parlours and howling in the halls,
There was crying in the cow-sheds and shrieking in the stalls”
From Mr. Toad’s song in “Toad of Toad Hall”

The above passage by A. A. Milne reminds me of our state government whenever the subject of controlling meth labs comes up.  In 2005, the meth lab panic caused our legislature to put Sudafed behind the druggist’s counter.  This bold move was going to deny meth lab chemists their magic ingredient.

Well, if one stupid law doesn’t do the trick, then it’s time to invoke “double secret probation.”

In the just-completed 2011 session, the legislature went all out.  HB2946 made Sudafed (and several related over-the-counter medicines) a Schedule III drug which can only be prescribed by a physician.  The bill passed the House with a large majority.  The Senate deadlocked in a tie.  Double secret probation failed.

Let’s pause for a moment and consider some common sense.  Doctors are busy.  Doctors don’t have the time to prescribe FDA-approved, over-the-counter medicines to everyone who gets the sniffles.  But if they did have the time, they would charge for an office visit and examination. 

Those who argued in favor of HB2946 would have you believe that doctors would call in a prescription for Sudafed whenever asked.  The logic of this defense fails because the doctor is no longer writing a prescription for over-the-counter Sudafed.  Under HB2946, the doctor would be prescribing a Schedule III drug, and it is terribly na├»ve to expect a doctor to “call it in.”

Politicians favoring HB2946 were quick to blame Big Pharma for lobbying against the bill.  Big Pharma was accused of wanting to sell drugs above all else.  While Big Pharma’s motives are just that, I still believe that Big Pharma was on the right side in this debate. 

When the legislature first voted to control the sale of Sudafed in 2005, the noble body was treating all Sudafed buyers as if they were meth lab operators or suppliers.   Think about it.  All Sudafed consumers were restricted to buying 3 packs of pills per month; the only reason being is that such a limit would deny meth labs of a needed chemical.

You want Sudafed?  Then, you’re guilty of something.  And the beauty (in the state’s eyes) is that the state doesn’t even have to make a case against you.  The state restricted Sudafed because the state said it will end up in a meth lab and that’s that.


Airline passengers are now presumed to be smugglers or underwear bombers.  Hence, everyone boarding a plane has to submit to an unreasonable, and humiliating, search.

Schoolchildren are presumed to have contraband or weapons on their person or in their lockers.  Hence, schools are locked down, police sometimes patrol the hallways, and pity the poor child that has medicated cough drops without permission of the US Surgeon General.

Did you know that the Combat Methamphetamine Epidemic Act of 2005 is Title VII of the anti-terrorism USA PATRIOT Act?  Of course you don’t.  Who has time to read the USA PATRIOT Act, a law that strips away our constitutional rights when it comes to illegal searches, illegal wiretaps, and any other form of illegal police snooping.

During the debate on HB2946, did you ever hear the Combat Methamphetamine Epidemic Act of 2005 mentioned?  Of course you didn’t.  Who wants to be reminded of another law that failed to win a single battle in the War on Drugs?  If we keep being reminded of failed drug laws, then we might lose faith in our government.

So let me see if I understand this.  The state wants to control meth labs.  The 2005 West Virginia law failed to do that.  The federal USA PATRIOT Act failed to do that.  The federal Combat Methamphetamine Epidemic Act of 2005 failed as well.  But this time is different; if only doctors can prescribe Sudafed in West Virginia, then the problems of meth labs will go away.

Yes, that all sounds logical to me. 

Consider this:  The US Army occupies Afghanistan but is ordered to ignore the poppy fields and heroin crop.  In February, three people in Harrison County died from heroin overdoses.  And our state legislature is focused on Sudafed?

The road to Hell is paved with good intentions.  And along the way, the billboards all bear the same message:  “There Ought To Be a Law.”

Monday, March 7, 2011

Court Deserves Praise for Annexation Ruling

The Supreme Court of Appeals of West Virginia recently issued a ruling regarding the procedures that a city is required to follow when annexing property without an election, or what is more commonly known as a shoestring annexation. In the past, this process has ignored the rights of property owners abutting the highways used to extend city limits.

In Doering, et al v. City of Ronceverte, the court reversed the annexation of Stoney Glen subdivision into the city of Ronceverte. The city chose to follow the right-of-ways of three state highways (the shoestring) and then lasso the subdivision.

Writing for the court, Justice Menis Ketchum does an admirable job in explaining that property owners abutting certain state roads own the land under the roadway, and that the roadway is built on an easement. This is particularly true with the county road system that the state took over from the counties in 1933. Referring to the testimony of a Division of Highways right-of-way manager, Justice Ketchum wrote:

“… in the absence of documentation to the contrary, the holdings so acquired by the state were in the form of easements and right-of-ways, with titles to the underlying fee remaining with owners whose property abutted the roads.”

The Supreme Court ruled that certain property owners abutting roads leading to Stoney Glen were “… voters and freeholders of the annexed territory but were unlawfully excluded from the annexation process …” The court has made the correct ruling in this case, and the justices should be applauded.

But you won’t hear any hand clapping in city halls or county courthouses. You can rest assured that no county commission has ever considered property rights as set forth in Doering in past shoestring annexations.

I won’t say that the Supreme Court has opened a can of worms, but it has opened a can of Vienna sausages, a food that a late farmer friend of mine derisively called “lips and noses.”

The Greenbrier County Circuit Court previously ruled the land owners abutting the road lacked standing to file their lawsuit, and further, that these land owners “… failed to demonstrate any significant ownership of the property being annexed …”  Doering corrects these errors.

The county tax assessor does not discriminate the easement from the underlying land. Thus, the landowner is taxed for land he cannot use for his purposes. In the aggregate, this amounts to a hefty property tax bill. Typically, a county road easement is 30 feet wide. For every 1,000 miles of county roads, there are 3,636 acres of land covered by a road easement.

Indirectly, Doering may have opened the question as to whether land taken by an effectively perpetual, county road easement, the use of which is controlled by the state, is taxable by the state.

The determination of who owns the land under our roadways is often confusing. As mentioned above, most of the county roads follow easements over private lands. There are exceptions, however. For example, sections of the Staunton-Parkersburg Turnpike in Randolph County (built in the 1840s) reverted to county roads when U.S. 250 replaced part of the turnpike using a different route.

Modern roads such as interstates and Appalachian Corridor highways are built on land condemned by and purchased by the state. Again, there are exceptions. Appalachian Corridor D follows, but not always, U.S. 50 from Clarksburg to Parkersburg. U.S. 50 follows, but not always, the Northwest Turnpike from the 1830s.

You can hire the best lawyer in the state to examine the title to your land, and that lawyer won’t be able to find all the property records regarding highway ownership. Some records are located in the local courthouse. The Division of Highways exclusively maintains some other records. Some records are located in Virginia courthouses or the state capitol at Richmond. And some records are lost to time because the courthouse in West Virginia or Virginia burned to the ground.

The state, then, should use Doering as an impetus to reconcile its highway land records and make those records available to the public at the appropriate courthouse record room. This reconciliation is needed.

As of this writing, the city of Clarksburg and the Division of Highways are at loggerheads as to who owns portions of Chestnut Street in that city. In 1863, the mayor of Clarksburg knew whether Chestnut Street was a city street, an easement or a Virginia turnpike. Why is this now a mystery?

Property rights are an integral part of democracy and capitalism.

In reversing Doering, the Supreme Court deserves praise, especially since this ruling recognizes the standing of property owners in an annexation without election.

Friday, February 4, 2011

Leaders May Promise Jobs, But Not Workers

A West Virginia election is a lot like the game of musical chairs. There is a great fanfare of trumpets. Then, all of the incumbent politicians who have been sitting on folding chairs jump up and run around in circles until the tooting stops. Occasionally, a chair will be removed from the dance floor, and one politician will have to go home or take a politically appointed job.

In our last election — the one for the open U. S. Senate seat — no chairs were removed, and every politician involved ended up in a different chair. Once everyone was seated, the “sitants” thanked the voters for voting and then joined together to sing a chorus of “We must create jobs.”

Let’s be positive for a moment. Let’s give the new senator, the new acting governor and the new legislative leaders the benefit of the doubt. Let’s ignore history and assume that West Virginia politicians can actually create jobs.

The thought has occurred to me that if 10,000 private sector jobs were created, there might not be anyone here to fill them. The reason is due to the demographics of our state’s population. West Virginia’s population has several negatives that could thwart an attempt to create even a modest 10,000 jobs.

The state’s population peaked in 1950 and has never recovered. West Virginia went from six congressional districts in the 1950s to the present three after the 1990 census. These three lost seats in the House of Representatives (and the influence their seniority might bring) could very well make the difference in keeping the U. S. Environmental Protection Agency from shutting down the state’s coal and electric power industries.

Influence in the nation’s capital does correlate to a state’s economy. West Virginia is more likely to lose another House seat in the foreseeable future than gain one.

West Virginia’s population has the third-highest median age — 40.6 reported in 2008. Even more telling is that the state ranked second in its share of population older than 65 at 15.6 percent. For the most part, people over 62 are considered out of the work force in any survey measuring the available workers for new business start-ups. Even though the 62-plus crowd (19.2 percent of the state’s population) tends to be dependable and productive, the fact remains that they are the most expensive employees to hire.

On the other end of the age curve, people aged 21 and younger (25.3 percent of the state’s population) are considered to have little or no meaningful work experience. When added to the over-62 population segment, some 45 percent of West Virginia’s population is not considered available for hire.

The 2000 census reported that 14.8 percent of West Virginia residents had a bachelor’s degree or higher as compared to the national average of 24.4 percent. The Lumina Foundation for Education recently reported that West Virginia has the fewest college graduates among working adults (ages 25-64). Even more depressing is the 54 percent of working adults with a high school degree.

The 2000 census reported that 22.5 percent of West Virginians were disabled as compared to a national average of 16.4 percent.

For 2009, West Virginia’s obesity rate has been estimated at 31.7 percent, the third highest in the nation. Obesity correlates to the overall healthiness of the work force.

West Virginia revamped its jails and maximum-security prison during the past 20 years. These facilities have been overcrowded for some time. Given the newness of our jail system and given how fast it overfilled paints an unflattering picture of the state’s 25-64 age group, the most likely people to be locked up. The experts predict a need to almost double the regional jail cells in the coming decade.

The last demographic worth considering is substance abuse among people aged 25 to 50, the prime work force. No single statistic adequately reflects the extent of drug abuse and alcoholism in West Virginia. But the numbers that we can find point to high rates of addiction. For example, there are nine for-profit methadone clinics in the state.

When the recession began in 2008, the state’s unemployment rate was 3.7 percent, or 29,800 unemployed. Assuming the recession ends and the state unemployment rate returns to the 4 percent level, it would be next to impossible to find workers to fill 10,000 new jobs.

I will give the politicians credit where credit is due for creating jobs in a recession. Total state and local government employment increased from 122,900 to 129,700 (17.34 percent of the non-farm work force) during 2010.

Just what we needed — another 6,800 government employees.

Friday, January 7, 2011

We're in a Deep Hole ... and Still Digging

The number one song in America is "Ninety-nine Unemployment Checks in the Mail" (sung to the tune of "Ninety-nine Bottles of Beer"). The catchy lyrics, written by Rep. Nancy Pelosi, got much more air play than traditional holiday music during the past few weeks.

Before long, West Virginia lawmakers will be singing Nancy's song and raising unemployment compensation premiums. The popularity of "ninety-nine weeks of unemployment checks" has drained the fund (again). For the second time in two years, politicians will raise premiums rather than cut benefits, arguing that you cannot put a price on compassion.

Extending unemployment benefits to 99 weeks may seem compassionate, but creating a long-term dole is a cruel hoax. Here are some fallacies about the dole.

Fallacy 1: The unemployed are required to accept suitable employment offers; they may reject unsuitable employment and continue to draw benefits. "Suitable" employment generally means a comparable or better job.

In a recession, the suitable jobs disappear first, e.g., the housing industry is in a deep downturn. If there is less demand for oak flooring, then there is less demand for Appalachian oak lumber. The local sawyer is laid off, as are most sawyers within a 50-mile radius.

There are no suitable jobs for the local sawyer. The sawyer has a choice between working for less money or drawing unemployment. He will probably choose the latter, even though he could earn more money by taking a lesser job because unemployment compensation has been sold as an entitlement similar to paid vacation.

Fallacy 2: Week 100 arrives, and jobless benefits expire. The unemployed worker accepts lesser employment. When he returns to work, he finds out that technology has changed the workplace. When he last worked, he was proficient using Windows XP. Now he has to learn Windows 7 just to get up to speed in this "lesser" job.

Spending two years away from the modern workplace guarantees that one's work skills will deteriorate. Not only does technology change, but so do markets. And in week 100, our unemployed subject very well may accept a job description that did not even exist when he last worked.

Fallacy 3: A middle-aged worker drawing the maximum, or near-maximum, jobless benefit can get by financially. But the worker has lost two of his most productive work years if he takes that route. The worker will not realize the cost of his "two-year vacation" until he reaches his 50s. Then he learns one of life's cruel ironies -- he doesn't have the stamina that he did in his 30s. He also will learn that businesses want to hire 30-somethings but avoid hiring 50-somethings.

This worker also will learn the hard way that the money he saved when he was 30 has grown in value. The money he saves at age 55 will grow very little before he retires.

Fallacy 4: When unemployment premiums go up, there is less money for a business to spend on equipment, facilities, wages and benefits. Politicians don't seem to understand the macro effect of this tax increase. Indeed, politicians seem to have tunnel-vision regarding unemployment compensation premiums as evidenced when Rep. Pelosi declared that unemployment checks stimulated economic development because the unemployed spend all of that money.

There is no economic theory -- not even Marxism -- that says long-term unemployment stimulates a nation's economy.

Fallacy 5: This is the "Atlas Shrugged" effect. Productive, well-run businesses are taxed to pay for these long-term unemployment benefits. Rep. Pelosi's philosophy regarding long-term unemployment benefits reads like a scene out of Ayn Rand's novel. As the novel suggests, you can only bleed the productive businesses for so long before they rebel and move their production to lower cost states or overseas.

Fallacy 6: After the unemployed worker has slept in for three weeks, he has gotten out of the routine of going to work. You cannot measure this effect like you could lost earnings, but most people will lose, or greatly diminish, their sense of self-worth the longer their idleness continues.

The Legislature raised unemployment premiums 50 percent in 2009. We've blown through that money in less than two years. So, will the coming premium increase be even higher?

West Virginia has been down this road before. Some 20 years ago, the state borrowed heavily from the federal unemployment fund. To pay the federal loan back, the state taxed workers and businesses alike for about four years.

Yes, Nancy, unemployment checks do stimulate the economy -- in the worst ways possible.