Economics Professor Explains

Sid Mittra, Emeritus Professor

About Sid Mittra

Sid Mittra, PhD, CFP®, is emeritus professor of finance in Michigan and the recipient of the Albert Nelson Marquis Lifetime Achievement Award 2017, for achieving career longevity and demonstrating unwavering excellence in his chosen fields. A past member of the Certified Financial Planning (CFP) Board, Sid features in several prestigious listings, including International Authors’ Who’s Who, American Men of Science, and Who’s Who in Finance and Industry. He is also widely quoted in Money magazine, Kiplinger’s Personal Finance, Financial Advisor, and other magazines and newspapers.

SHOULD WE URGE THE WEALTHY TO GIVE? OR JUST TAKE WEALTH FROM THEM?

Posted on December 22, 2020 by Sid Mittra

Sid Mittra
Ph.D., Economics
Emeritus Professor, OU, Michigan

Recently I read an article (Yahoo Finance, December 5, 2020) in which the author quoted the following interesting statistics to confirm that the problem of growing inequality in America is getting worse.

Since March 18, when the coronavirus pandemic started having a major impact in America, through November 24, the net worth of U.S. billionaires increased by $1 trillion. Mind you, this took place during a time when tens of millions lost their jobs, 276,000 people died of the coronavirus, 14 million people got infected with the coronavirus, and lines at food banks exceeded those seen during the Great Depression.

During this time, 29 billionaires doubled their net worth, 47 new people became billionaires, the net worth of Elon Musk and Jeff Bozos grew by more than $100 billion and $70 billion, respectively, and Quicken Loans founder and Chairman Dan Gilbert saw his net worth grow by a whopping 575%.

Currently, the net worth of the top 1% of Americans is $34.23 trillion, whereas that of the bottom 50% is only $2.08 trillion. Stated another way, the top 1% of Americans have 16.5 times more net worth than the bottom 50%. By comparison, in 1989, the net worth of the top 1% was $4.81 trillion, which was only 6.3 times more than the $0.76 trillion net worth of the bottom 50%. Since you probably already knew about this wealth inequality, I’m sure you are wondering why we should talk about it again. Okay, here’s my response.

President-elect Biden’s Game Plan

Implementation of Biden’s game plan will, of course, be materially impacted by the outcome of Georgia’s senate races. For purposes of this discussion, however, we will assume that the Senate is equally divided between Democrats and Republicans, which means that the Democratic vice president will have the deciding vote in the Senate. With that in mind, here are some of the key features of Biden’s game plan that have been widely publicized:

1. Increase taxes for those earning more than $400,000, including raising the top rate back to 39.6%.
2. For those earning more than $1 million, apply the same tax rate to both their investment income and other income.
3. Modify the rules applicable to 401(k) plans to encourage more participation by low wage earners.
4. Increase the corporate tax rate to 28%.
5. Impose a 21% minimum tax on all foreign earnings of U.S. companies.
‌6. Impose a tax penalty on corporations that ship jobs overseas.
7. Impose a 15% minimum tax on all corporations.

Give or Take: A Digression

At this point, let me share with you an interesting story. Many years ago, during my visit to a small town in Arizona, I came across two newly opened candy stores across a busy street from each other. What caught my attention was the long line in front of one store, whereas hardly anyone waited in front of the other store. Both stores seemed to be selling the same candy, had relatively the same appearance, and had female sales clerks who both looked young and attractive.

This definitely piqued my curiosity, so I watched the drama for hours but could not find any valid reason for such a discrepancy. Finally, one day after the stores closed, I approached the clerk in the busy store and asked her if she could explain the discrepancy, but she refused. However, after assuring her that I would not divulge her secret to anyone, and that I would be willing to pay her for sharing her secret, she finally acquiesced. Here’s how she put it:

“We use a standard measuring scale to weigh the candy being sold. For example, when a customer orders one pound of candy, I place the appropriate metal weight on one side of the scale, and on the other side of the scale I load the candy. While loading the candy I make sure that it initially weighs less than one pound. As the customer watches, I keep adding more candy to the scale until both sides are balanced. This is my secret, which by the way, contradicts our basic training, which is to place more candy on the scale than is ordered, and then start removing candy until both sides are balanced.”

“I still don’t get it,” I said inquisitively.

The clerk continued: “Even though both the clerk in the other store and I are selling our customers candy weighing exactly the same amount, because of my unique practice, my customers perceive that I am giving them more for their money. In the case of the other store, customers see the clerk removing candy from the scale, so they perceive that they are not getting as much for their money.”

I was rendered speechless.

Back to Biden’s Game Plan

Now I will make my point. It is my understanding that many people perceive that Democrats always take money away from the rich and give it to the poor, most of them undeserving, whereas they perceive that Republicans let successful people keep more of the money they earn. So long as these perceptions persist, even if Democrats have a majority in both houses of Congress, Biden will have a tough time selling his economic agenda to the general public. As a result, Biden’s challenge is to convince the rich that they are giving away their money for a greater cause rather than that the government is taking away their hard earned wealth.

Consider, for instance, the millions of dollars of charitable donations made every year by billionaires and millionaires like Bill Gates, Warren Buffet, Mike Bloomberg, George Soros, Chuck Feeney, Pierre Omidyar, Paul Allen and a host of others. None of them has an issue dispensing this money because it is a voluntary donation. Contrast that with Biden’s plan to increase the highest marginal tax rate from 37% to 39.6%. Even if this plan only affects the very rich, the mere mention of this plan is sufficient to start an uproar among the very rich. Why? Because in this case the government is taking away rich people’s money involuntarily.

New Thinking of Give or Take Option

Hardly anyone doubts that a redistribution of wealth is urgently needed to slow down the untenable concentration of wealth among a few. However, for Biden to have any chance of achieving the many objectives he has outlined, he must convince the wealthy to think of higher taxes not as a way to take from them, but as a way for them to give for the benefit all Americans, including the wealthy.

I do not have the background to professionally comment on this issue. So as a layman I would present here two examples of how to start this journey toward utopia.

Since the pandemic is on everyone’s mind, it is best to start there. Darrell M. West, senior fellow at the Brookings Institution has said: “So if we really want to get the economy growing, we have to have inclusive policies that help everybody, regardless of income.” This provides the opportunity to convince the wealthy that it is in their best interest to support the government’s efforts to beat the pandemic and shore up the economy so everyone can benefit from it. If the wealthy buy into this “inclusive” argument, then the government will have succeeded in convincing them that it is using a “give away” rather than the “take away” approach to implement its policies.

In the case of the stock market, it is no secret that, despite the pandemic, the market has risen to all-time highs, and a continued rise in stock prices is predicted for 2021 and beyond. Against this background, consider the following: Currently, only 52.6% of Americans invest in the stock market, and that includes 401(k) plan investments. If the 401(k) plan investors are excluded, my guess is that only about 33% of Americans are serious stock market investors. Looked at another way, only 20% of Americans own 92% of stock market shares, which means that a vast majority of Americans are literally left out of the country’s best wealth creation vehicle.

Interestingly, this lack of participation in the stock market by the majority creates a unique opportunity for the wealthy to support a nationwide program to encourage more people to invest in the stock market. The kicker is that, in this case, no one is taking money away from the wealthy. In fact, by supporting an effort to encourage more people to invest in the stock market, rich people would be creating even more opportunities for themselves. So, in essence, by supporting such an effort, the wealthy shift their view from “take away” to “give away,” and in doing so create a win-win situation for all Americans.

Bottom Line

What I have just suggested sounds good in theory; but that leaves out the central question: “Who is best suited to successfully sell this virtually impossible theme to the American people?” To that, my answer is simple: Didn’t we just elect a new president with unique compromising skills and experience to pull all sides together?

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HELP! MY FINANCIAL PLAN NEEDS TWEEKING

Posted on December 14, 2020 by Sid Mittra

Sid Mittra
Ph.D., Economics
Emeritus Professor, OU, Michigan

Introduction

It is, or should be, that time of the year when it is appropriate to review your year-end financial situation and make adjustments, if needed, to adapt to the rapidly-changing economic environment. It is, of course, a complex task; hence it is best handled by a certified financial planner (CFP). If you already have one, the tutorial in this blog – and the accompanying charts – will help you carry on an intelligent conversation with your planner. If, however, you wish to perform the task yourself, this tutorial will help assure that you review all major aspects of your financial plan. If you conduct your own review, I recommend that you also consult any authoritative financial planning textbook to educate yourself on what is needed to perform this arduous task. I am most familiar with Sid Mittra, et.al., Practicing Financial Planning: For Professionals and CFP Aspirants, SAGE Publications India Pvt. Ltd, 2016.

In this blog I will use the acronym S-E-C-U-R-I-T-Y to cover all of the major financial planning areas you need to review:

                                     S: Security through Risk Management Planning
                                     E: Educational Planning
                                     C: Cash and Budgetary Planning
                                     U: Ultimate Disposition through Estate Planning
                                     R: Retirement Planning
                                     I: Investment Planning
                                     T: Tax Planning
                                     Y: Year-end Financial Review

SECURITY

S: Safety through Risk Management Planning

Risk is a fundamental aspect of life. Every day we are faced with the potential for a loss or injury. Acknowledging this reality, our objective should shift from trying to avoid all risk exposures to “risk management,” a fundamental aspect of comprehensive financial planning.

The risk management process comprises several discrete steps. The first step involves understanding your overall risk tolerance and your financial ability to absorb any loss. In this regard, you or your financial planner should take the following steps: 1) Identify the nature and causes of potential risks. 2) Assess the probability of loss and quantify the dollar amount involved. 3) Understand the weaknesses and gaps in your current risk management plan. 4) Evaluate alternative methods for handling exposures. 5) Develop a strategy and risk management plan. 6) Implement the risk management plan. 7) Monitor the situation. The risks you identify are best managed by using the technique of risk transfer, which involves buying appropriate insurance to transfer the risk to an insurance company as shown in Chart 1. Financial planners are familiar with all of these types of insurance policies and, if needed, can consult insurance professionals for assistance in picking the best policies to satisfy your needs.

SECURITY

E: Educational Planning

Most Americans consider a college education extremely important – and understandably so. It broadens a person’s perspective of the world, widens his or her appreciation of all that it offers, enhances self-esteem, and significantly increases lifetime earning power. Unfortunately, when it comes to college costs, “what goes up just keeps going up.” For instance, assuming an annual inflation rate of five percent, by 2030-31 the four-year cost of a college education for today’s newborns will be more than $220,000 for in-state college tuition, fees and room and board at a typical public university. If a newborn is destined for a prestigious private university, the four-year cost will likely be over $543,000. This, of course, is for just one child. This cost, multiplied by the number of children in a family, is sufficiently scary to make most parents throw up their hands in despair. So, the message about education funding is clear: Whether a family expects to incur college costs in the next decade or within a few short years, the best way to address the issue of funding these costs is to start the planning process today – because the sooner the planning process begins, the better. Vehicles families should consider as a means to save for college costs include the following:

Uniform Gifts to Minors Act (UGMA)
Uniform Transfers to Minors Act (UTMA)
Coverdell Education Savings Account
Section 529 Plans
A variety of other plans available for educational planning

SECURITY

C: Cash and Budget Management

Effective cash management has two primary objectives: 1) Maintain a cash reserve sufficient to meet emergency needs, such as illness, injury, death, or possible unemployment. 2) Systematically set aside and maintain a cash balance earmarked for investment. The three primary components of cash management are budgeting, cash flow analysis, and planning. These components are a prerequisite to the development of a comprehensive personal financial plan.

As a general rule, people adhering to a monthly budget consider savings to be an important component of the budget and part of a systematic savings planning strategy. This strategy involves the creation of specific plans to generate the required savings and invest them in a way to achieve net worth goals. Chart 2 presents a format for creating a Net Worth Statement.

SECURITY

U: Ultimate Disposition through Estate Planning

Estate planning is highly complex and, if possible, should be done by an estate planning attorney. Chart 3 illustrates how assets are transferred to beneficiaries upon death. A review of this chart before meeting with an attorney will help you have an informed discussion regarding your preferences for the distribution of your assets upon your passing. Four terms you might like to become conversant with before talking with an attorney are:

Wills
Trusts
Gifts
Life Insurance

SECURITY

R: Retirement Planning

Of all the many strategies needed to meet different financial objectives, none are more complex than those relating to retirement planning. This is because, for many people, retirement seems far away, and in these uncertain times, planning for the distant future might seem virtually impossible. However, no matter how far away retirement age seems to be at the moment, preparation for that day should begin now. If you have a qualified financial planner to advise you on retirement planning, you have taken an important first step. It is important, however, that you have an understanding of the terms presented in this section so that you can have a meaningful discussion of retirement planning issues with your planner. If you intend to handle your own retirement planning, this section will help you identify important issues you should consider.

Chart 4 lists a variety of instruments available for retirement planning. Not all of them are relevant for everyone. So you may wish to limit your study to those that are applicable to you. The objective here is to make sure that you are taking advantage of all the benefits, tax breaks and convenient savings plans available to you. In order to do so, you need to become familiar with each plan that interests you. Chart 5 shows possible options for covering your anticipated retirement expenses, which it is assumed will be less than your preretirement expenses.

SECURITY

I: Investment Planning

Investment planning is a complex and often overwhelming task; but the basic definition

of investment planning is relatively simple: The development and creation of an investment portfolio designed to achieve your short and long-term investment objectives. A successful planning process will result in an investment portfolio that reflects a delicate balance between:

Risk and return
Concentration and Diversification
Current Income and Growth
Taxable and Tax-advantage Products
Liquid and Non-liquid Investments.

This is a challenging goal that can best be achieved with the help of a qualified financial planner.

An overview of the concept of investment planning is presented in Chart 6. The investment planning process involves taking five major steps: 1) Identification of investment goals. 2) Determination of your risk tolerance level. 3) Articulation of your investment preferences. 4) Analysis of your current investment portfolio. 5) Reallocation of your current investment portfolio. These steps can serve as a convenient check list for completing the investment planning process.

SECURITY

T: Tax Planning

The sweeping changes brought about by the tax law changes enacted during the past 25 years successfully reduced income tax rates for some taxpayers. However, depending on their state of residence and income level, the majority of taxpayers work from January to May each year just to pay their taxes. In fact, even though the highest federal income tax bracket is currently only 37 percent, federal, state, city and local income taxes and the FICA tax may combine to take more than half of a person’s annual income. Even worse, since budgetary problems facing federal and local governments today are escalating, and taxes are their major source of revenue, tax rates could increase in the future, taking an ever-increasing bite out of individual incomes. In such an environment, it is important to make financial decisions that do the following: 1) Utilize all allowable deductions to reduce taxes. 2) Develop tax planning strategies to minimize long-term tax liability. 3) Consider tax implications of the financial decisions.

Although completing a standard tax return could be fairly simple, implementing the three tax planning strategies listed above can be complex. However, it is worth becoming familiar with these strategies so you can have a meaningful conversation with your financial planner or utilize them when handling your own tax planning. Chart 7 presents the basic income tax structure that can be used as a guide for tax planning.

SECURITY

Y: Year- end Financial Review

This is the final stage of the financial planning process. Although there is no universally approved format that is best for completing a year-end financial review, you might consider using the format shown on Chart 8, which is generally used by financial planners to prepare a year-end financial review.

Bottom Line

In this blog I have presented a convenient format for reviewing your financial plan. In this connection, an important caveat is in order. If you wish to take actions before the end of 2020, then this is the time to make a move. Otherwise, the task of reviewing your financial plan can be conveniently postponed until the holidays are over.

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IN SEARCH OF RATIONAL EXUBERANCE

Posted on December 5, 2020 by Sid Mittra

Sid Mittra
Ph.D., Economics
Emeritus Professor, OU, Michigan

I am really puzzled. No matter how many blogs I publish on the stock market, readers keep asking for more. Since there is so much interest in understanding the market’s current behavior, in this blog, I will discuss a few of the little-known mysteries surrounding the market and its behavior. I hope you will find my new approach interesting and, hopefully, informative.

Dow Jones Industrial Average

Here’s a recent conversation between several stock market enthusiasts:

Person 1: How did the market do today?

Person 2: The Dow Jones Industrial Average just crossed 30,000 for the first time. It is exciting.

Person 3: As an index for the stock market, the Dow was discarded a long time ago. It was replaced by the Standard & Poor’s 500 Index. In case you did not notice, the S&P 500 Index has also been making new all-time highs. Additionally, the Nasdaq Composite Index, that represents more tech-dependent stocks, has also recently hit several record all-time highs.

Person 4: S&P 500? Nasdaq? Never heard of either of them. And to tell you the truth, I would rather stick to the Dow that I am familiar with and strongly believe reflects the market.

This conversation clearly demonstrates that, while the Dow (the Dow Jones Industrial Average) is not the only stock market index – and may not be the most accurate one – it is still widely recognized as the leading index. In fact, it is extensively used even by the professionals.

Consider the fact that, in 2009, as the economy was recovering from suffering its worst recession, the Pew Research Center conducted a survey to determine how people felt about the impact of the financial crisis. Interestingly, this survey did not ask people about the Federal Reserve’s lending rate, the 10-year Treasury bond yield, the bulging foreign debt, or even the S&P 500 Index. It just asked how people felt about the disappearing financial crisis, as measured by the Dow. Need I say more?

Market’s Historical Performance

On November 24, 2020, the Dow closed at a record high 30,046.24. This new milestone came just shy of four years after the Dow closed above 20,000 for the first time. And, if you don’t recall, the Dow was only 6,469 in March 2009. This means the Dow has more than quadrupled in value in a little over 10 years.

Most confusing of all is that the Dow crossed 30,000 despite a host of highly negative factors: i) a global pandemic, unlike anything we’ve seen in over 100 years, was still raging across the world; ii) the U.S. had just suffered through its worst recession on record; iii) the rate of unemployment was still well above healthy norms; iv) the sitting President had lost his bid for reelection; and v) racial tensions were rattling the country.

Is this the new norm for the stock market’s behavior? You tell me.

High Stock Prices

A time-tested way to determine if stocks are reasonably priced is to compare average stock prices with average earnings, known as the P/E Ratio.

The 10-year average P/E ratio for the stock market is 15.6, while the 5-year average is 17. 4. The current P/E ratio, by comparison, is 21.7. (is this forward-looking or backwards looking P/E ratio that you cite?)

So now the question is, how do we interpret these facts? Optimists will confidently point out that since most of the stock market growth has been recorded during periods of higher than average P/E ratios, this is not a matter of concern. By contrast, pessimists will caution that since stocks are grossly overvalued, it is best to stay away from this market.

Who is right? Only time will tell. In the meantime, extreme caution is advised.

Stock Market’s Irrational Exuberance

In a 1996 speech, Alan Greenspan, the former Chair of the Federal Reserve, used the term irrational exuberance to caution against the burgeoning internet bubble in the stock market. Since then, irrational exuberance has become synonymous with the occurrence of inflated stock prices associated with bubbles, which ultimately pop and can lead to market panic. Recent behavior of the market seems to fit that description.

If you still find that conclusion hard to accept, then consider this: On June 8, 2020, the World Health Organization made an ominous pronouncement about the world’s worsening pandemic situation. With such a dire prediction by this international body, you’d expect the market to nosedive, right? Not a chance. On that same day, the stock market rally continued for a fourth consecutive week. Or to put it another way, the S&P 500 was back to where it was at the beginning of 2020, wiping out a 33 percent decline between February 20 and March 23, 2020, the worst decline in the S&P 500’s history.

Here’s another image that sheds light on the stock market’s irrational behavior. Initially, the market totally ignored the pandemic, even when devastating signs were everywhere. Then, all of a sudden, the market collapsed when the pandemic hit Europe with a vengeance. After that, the market began recovering, even when the pandemic was seriously affecting the U.S. economy. Lately, as we hear that half a million people may die by Inauguration Day because of the pandemic, and each day 200,000 people are becoming infected with the coronavirus, the market is behaving as if complete recovery of the economy in the near future is preordained.

So, I conclude this section by asking the following question: If this is what irrational exuberance looks like, then how do you develop a rationally exuberant policy to deal with this untenable situation?

The Bottom Line

As a general rule, in this last section I summarize what I believe to be the rational basis for handling a difficult problem. However, having presented all the relevant facts about the stock market’s behavior, I confess that in this case I have not succeeded in my mission.

That being said, here is my conclusion. On the one hand, I believe that the stock market’s behavior has been, and continues to be, somewhat rational. I say this because I notice that the market has responded to the economic fundamentals by placing less emphasis on the pandemic crisis and more on the development of vaccines, the existence of pent up consumer demand, the establishment of new government leadership committed to getting the economy up to speed, and the clear demonstration of the economy’s ability to handle the pandemic relatively well.

On the other hand, Nobel Prize winners Paul Krugman and Robert Schiller have convincingly argued that the link between stock prices and economic fundamentals have been anything other than loose.

And with this, I rest my case.

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If you’re enjoying what you’re reading, please consider recommending it the friends you like (and also to those you don’t like). They can sign up at sid.mittra1@gmail.com. If you want to share your thoughts on this or any other blog, or on my blogs in general, please email me at sid.mittra1@gmail.com.

MAKING SENSE OF MARKET AND ECONOMY IN THE TIME OF CORONAVIRUS

Posted on November 26, 2020 by Sid Mittra

Sid Mittra
Ph.D., Economics
Emeritus Professor, OU, Michigan

So how do I feel about the erratic behavior of our stock market? Awed and perplexed. My response does you a lot of good, doesn’t it?

Okay, let me try putting my views in image form. Assume that you are traveling on a six-lane highway. The rush hour traffic in your lane is moving at a snail’s pace, as you’d expect at that time of the day. Your radio is tuned in to your favorite music station, you have a cup of Starbucks coffee, and are chugging along slowly. Suddenly, without warning, the car in front of you jumps over the median and lands on the other side of the highway. This reckless driver speeds off, headed the wrong way against the oncoming traffic.

In this improbable image, you represent the U.S. economy, and the reckless driver represents the behavior of the stock market. If you are still puzzled, let me unpack this mysterious bundle for you.

In 2020, the U.S. economy has been overshadowed by the COVID-19 pandemic. During the first three quarters, the gross domestic product (GDP) declined 3.5%, and the GDP is likely to be flat in the fourth quarter. And yet, from the beginning of 2020 through the third week of November, the stock market (as represented by the S&P 500 Index) has increased by more than 10%. Even if you acknowledge that in the short run (day to day or week to week) the stock market can behave erratically, it is puzzling that eleven months has not been a sufficiently long period of time for the stock market to reflect the economy.

In this blog I will attempt to solve this puzzle by presenting the good, the bad, and the ugly of the stock market vis-à-vis the economy. Please let me know if you disagree with my analysis.

A. THE GOOD

Economy and the Stock Market

No matter how frequently we are reminded, we tend to forget that the economy is not the stock market. In fact, in one sense, the economy provides a lagging indicator, whereas the stock market serves as a predictive indicator. For instance, GDP quarterly figures indicate how the economy performed during the recent past. By contrast, stock prices reflect the market’s expectation regarding whether corporate profits are expected to grow or decline over the next six to twelve months.

The following examples illustrate this point. Although there are many factors that can affect corporate profits, the following three are playing a critical role in the current optimistic stock market: 1) Potential widespread availability of COVID-19 vaccines. 2) Businesses reopening after vaccines become available. 3) The Federal Reserve promising to maintain low interest rates and expand the money supply when needed.

Big Tech and “Stay-at-Home” Stocks

Notwithstanding the far-reaching negative impact of the pandemic on the U.S. economy in 2020, with the exception of the second quarter, the GDP faired reasonably well. The reason for this seemingly contradictory behavior lies in the exceptional performance of the Big Tech and “Stay-at-Home” stocks.

The five Big Tech companies – Apple, Amazon, Facebook, Google and Microsoft – rely heavily on technology and hence their operations are affected little, if at all, by the pandemic. In fact, the more the economy shuts down, the more we depend on these companies. And it’s not just technology. Scores of other companies are thriving because they cater to the needs of families that are staying at home during the pandemic. Think Peloton bikes instead of the gym and Zoom calls instead of meeting in person.

A New Brighter Horizon

Fortunately, the year 2020 is leaving behind a whole bunch of uncertainties that have been plaguing us. These include the following: 1) The likely early availability of a COVID-19 vaccine is no longer in question. Pfizer and Moderna are at the forefront of vaccine development, and other companies appear close behind. 2) The uncertainty of the presidential election is finally behind us. 3) The risk of a global trade war seems to be disappearing from the international scene. 4) A likely split Congress gives hope that the radical elements of Joe Biden’s agenda will never see the light of day. So, to put it succinctly, the outlook for the country appears to be much brighter than it was only a few months ago.

Dividends are Surprisingly Resilient

With the stock market taking a nose dive in March 2020, the GDP shrinking a whopping 31% during the second quarter, and the economic outlook turning bleak, dividend payouts were expected to be among the prime casualties of the recession caused by the coronavirus pandemic. Surprisingly, that did not materialize. As Howard Silverblatt, senior index analyst for S&P Index, predicts it, in 2020 dividends will decline by only -0.67%. What caused this surprising turnaround? Here’s is a plausible explanation.

Silverblatt solves this mystery with one word: liquidity. Corporations have been sitting on huge amounts of cash. That balance was further supplemented by a variety of stimulus programs launched during the year. On top of that, the Federal Reserve explicitly announced that it would keep interest rates near zero, and increase the money supply whenever it felt the need for it. And as if that is not enough, corporations took advantage of the low interest rates by selling bonds, added further to the pile of liquid cash.

This, then, is the background against which corporations decided to maintain their previous rates of dividend payments, thereby achieving the nearly-impossible goal of preventing these payments recording a marked decline due to the negative impact of coronavirus on the market and the economy.

Current Economic Slowdown Defies Previous Patterns

The pandemic continues to have a devastating effect on portions of the economy: the travel industry, small businesses that require human interaction, fitness centers, and movie theaters. And yet, this time the nature of the recovery appears to be far different from the typical V-shaped recoveries experienced in 2008 and in other past recessions.

Here are some reasons for the difference: 1) The earlier than expected availability of one or more COVID-19 vaccines can be expected to result in an upward trend in the economy around the middle of next year. 2) The 2008 recession was caused by the burst of the housing bubble and the excessive build-up of household debt that required years to recover. In sharp contrast, during this pandemic slump households have much lower debt, along with a lot of pent-up consumer demand created by the national lockdowns. In addition, many people who didn’t lose their jobs accumulated lots of cash that they are likely to spend at the slightest sign of economic recovery.

Economist Paul Krugman, reflecting this optimistic view, has opined: “All of this suggests to me that spending will surge once the pandemic subsides and people feel safe to go out and about, just as spending surged in 1982 when the Federal Reserve slashed interest rates. And this in turn suggests that Joe Biden will eventually preside over a soaring, ‘morning in America’ type recovery.”

B. THE BAD

Unfortunately, a balanced view of the current situation must also recognize that a great deal of what we are faced with is downright bad. Some of it is to be expected, but there is also a likely reversal of upward trends that began only a few weeks ago. Below are a few examples of what is bad with the current situation.

Unemployment Picture is Getting Worse

During the second week of November, unemployment insurance claims jumped by 18,000 to 743,000, reversing the recent downward trend. There was also a sizeable increase in claims for Pandemic Unemployment Assistance. The latest outbreak of COVID-19 cases and the resulting restrictions and shutdowns imposed by states and cities make the deteriorating unemployment situation look much worse, with no end in sight in the near future.

Big Industries are Affected

Until now, the ill effects of the pandemic appeared to be concentrated on previously discussed parts of our economy. This is no longer the case. With the latest COVID-19 outbreak shattering all previous records, large companies are once again keeping employees at home and making difficult corporate decisions. The CDC has already advised people not to travel for Thanksgiving, and the prospect for a robust Christmas and New Year’s is grim.

Pandemic Employment Assistance

In December, the Pandemic Unemployment Assistance program will end for 7.3 million recipients, potentially forcing many of them to wait in long food bank lines. An additional 4.6 million people will be cut off from Pandemic Emergency Unemployment Compensation, which kicks in when state employment benefits run out. In California, for example, nearly 45 percent of workers have filed for unemployment benefits since March, including 83 percent of the Black labor force. Many of those workers are back on the job, but the end of the above two programs will still adversely affect 750,000 Californians.

High Stock Valuations

According to Factset’s John Butters the forward 12-month price-earnings ratio for the S&P 500 is 21.7. By contrast, the P/E ratio for 5-year average is 17.4 and the ten-year average is 15.6. These statistics suggest that at the present time stocks are grossly overvalued and investors should be cautious in buying and holding stocks as long as these overvalued conditions exist.

That said, there also exists a strong argument that suggests that such a conclusion might be short-sighted. For instance, as Myles Udland, a seasoned reporter for Yahoo Finance has noted, “valuations often spend extended periods of time far above average while spending very little time trading near their averages.” In fact, record shows that much of the stock market gains were recorded during periods of higher than normal P/E ratios.

Given this scenario the bottom line is clear: investors should exercise caution in investing in the stock market.

C. AND THE UGLY

Much as I would like to avoid writing this section, my commitment to present a balanced view of the problem precludes me from doing so.

On top of the list of what could go wrong is the unprecedented political nightmare. We are in uncharted territory, and how things will eventually pan out is anybody’s guess. It is against my policy to get involved in political discussions, so I will have to leave it at that.

There are other things that could also go wrong. We are basing much of our hope on the successful distribution of COVID-19 vaccines to 350 million Americans; but concern over the effectiveness of these vaccines, and the challenge of establishing an orderly distribution plan create uncertainties that could prove ugly.

Finally, even though the GDP is expected to grow at a healthy rate in 2021, it is likely that the long-term effects of the potential bankruptcies of many small businesses, and the devastating impact of the pandemic on the service industry and other sectors, will cast a large shadow on the economic recovery.

THE BOTTOM LINE

By nature, I am admittedly the world’s eternal optimist. I therefore predict that, in the long run, we will fully recover from the pandemic’s effects, and once again America will become an undisputed leader of the free world.

I know some of you might dispute my optimism by quoting the famous words of British economist John Maynard Keynes, uttered on May 4, 1913: “In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.”

I respond, without equivocation, that the long term I have in mind is relatively short, and I am convinced that we will all be there to celebrate it.

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HOW ICONIC VIOLINIST ITZHAK PERLMAN FORCED ME OUT OF MY HOUSE AND ONTO A SUMMER ROAD TRIP

Posted on November 24, 2020 by Sid Mittra

Sid Mittra
Ph.D., Economics
Emeritus Professor, OU, Michigan

Part I

A Fairy Tale

The place was Rochester, Michigan. The day was Sunday, April 6, 1970. The time was 5:29 p.m. I was in my Oakland University office in North Foundation Hall, deeply engrossed in working on my next book, trying to prove that the university made the right decision in simultaneously granting me an early promotion to a full professorship, with life tenure. Suddenly the phone rang, shattering my concentration. I answered the phone, assuming that my wife, Bani, wanted to know what time I would come home for dinner.

“Hello, Professor Mittra. This is Bill, Associate Dean of the Music Department. How are you doing today?”

I responded in an angry tone: “Sir, you’ve got the wrong person. I am in the Economics Department and know nothing about music. Goodbye.”

“Sid, don’t hang up. I know who you are and I do want to talk to you. I want to make you an incredible offer that you could not possibly refuse. So, please hear me out.”

Then, without waiting for a response, Bill kept talking: “Itzhak Perlman — I hope you know this world renowned violinist — is coming to Oakland University as a special guest of our Music Department. He is going to stay here for eight weeks.”

Itzhak Perlman

Still anxious to end this meaningless conversation, I advised Bill that, although I was impressed by his success in getting Perlman to Oakland, I am not into music and would rather not carry on this conversion any further.

That’s when Bill threw me a curve ball. This is how he put it:

“Here is my offer. It is not generally known that Perlman is paralyzed from the waist down and is wheelchair bound. We would like him to stay in one of our university subdivision homes. I understand that you live in our subdivision at 721 McGill Drive. Your house has a double-door entrance, which is precisely what he needs for wheelchair access. So, if you let us rent your home from June 15 to August 15 and, during that time, take a long vacation with your family, we will make it worth your while to accept our offer.”

Replica of our home at 721 McGill Drive
Our home had a specially built double door (not shown here)

After I caught my breath, I responded: “Bill, your offer is too good to be true. However, since my family is affected, I need to consult with my wife before making a final decision.”

Let me add here an important caveat. In 1970 when this conversation took place, I had never heard of Perlman. That is because at that time he was beginning to gain some reputation as a performer and he had started to accept invitations from various institutions to grow his reputation. But just to find out what kind of a musician Perlman had eventually turned out to be, I did a Google search in 2020 and discovered the following. And that made me feel very happy.

”Itzhak Perlman is an Israeli American violinist, conductor, and music teacher. Perlman has performed worldwide, in venues that have included a State Dinner at the White House honoring Queen Elizabeth II, and at the Presidential Inauguration of President Obama. He has conducted the Detroit Symphony Orchestra, the Philadelphia Orchestra, and the Westchester Philharmonic. In 2015, he was awarded the Presidential Medal of Freedom.”

That night I had an intense debate with Bani about Bill’s offer. She said that while she was always fully supportive of all my decisions, in this case she didn’t think she could deal with all that would be involved during an eight week period away from home, traveling all the time, no less. Still, in the end, based upon my seriously flawed sense of adventure, I was inclined to accept the offer.

The next day I did more checking, which revealed that we did not have a family member or friend who would be willing to accommodate our family for several weeks if we needed shelter on short notice. Even staying in inexpensive motels for two months would certainly be cost prohibitive for us. So, our only viable option appeared to be to drive around in our vehicle, carrying a portable tent, staying on camp grounds, and cooking dinner in the great outdoors. Our family had never done any of that, and the thought of pulling it off for such a long period scared the devil out of me.

The last issue we faced related to our transportation. We had a 1968 VW station wagon that was much smaller than American station wagons. I figured that if I carried our luggage and tent on a roof top carrier, then the VW’s cargo space would be sufficient for the kids (Rita, age 7, and Robert, age 4) to have a comfortable space for playing and sleeping.

In the end, I convinced myself that the chance of seeing America through this unique lens provided a once-in-a-lifetime opportunity that we could not afford to pass up. So, over Bani’s objections, I decided to accept the offer.

The next day I signed a contract with the university. Bill generously added a special clause to the contract providing that if I needed more money to pull it off, he would gladly oblige. With that assurance, we were on the verge of traveling around the country in a unique fashion.

Part II

Journey into the Unknown

The first day

On June 12, we packed our bags, loaded them, along with dry food, large bags of chips and bottled water into the VW, and began our dream trip. I had AAA maps with me (there was no GPS in those days) to guide me. Even if I did get lost, I thought, so what? One thing we had plenty of, was time.

The first day turned out to be very eventful, but not in the way you might suspect. From Michigan we headed west through Illinois into Iowa before we stopped for the evening.

However, the drama that unfolded inside the car during that first day’s drive was truly novel. In those days, there were no laws against passengers riding in the cargo space without seat belts, so initially the kids had a ball playing monopoly (there were no iPads or cell phones in those days either), and having fun to their hearts’ content. However, after a few hours the novelty wore off and they started fighting with each other. Suddenly Rita screamed: “Mom, he is kicking me.” To that, Robert retorted: “She is exaggerating. I just touched her with my foot.” At that point, Bani reached back from the front seat, grabbed Robert and had him sit down on her lap. With no seat belts required and no rules against carrying a child on one’s lap on the front seat, Bani’s bold action created a new baby sitting technique that may have preserved our sanity.

Settling down for the evening provided another challenge. Although I had practiced putting up a tent at home, it proved to be a difficult job. After the tent was in place, I unloaded our luggage and helped Bani prepare dinner. While we were busy taking care of these chores, the kids had been enjoying the swings in a nearby playground and having a ball getting some much needed physical exercise. Once dinner was ready, we sat around a camp fire and enjoyed our meal under twinkling stars. The truth be known, everything we did felt awkward and could have been done better; but after a day of stressful driving, no one seemed to care. Through all of this, of course, Bani’s calm and reassuring demeanor played a significant role in making it a day to remember.

Finally, it was bedtime. The children were already fast asleep and Bani was still cleaning up after dinner. I lay down on my bed and said a thankful prayer: “Thank God, one day is over, and only 55 more days to go.”

Rest of the trip

I would need many blogs to share in detail all the unique experiences we had on this trip. Our route took us across the northern tier of states, into Canada, to the west coast, down the west coast, across the southern U.S., and north along the east coast to Washington, D.C., before we headed back to Michigan. Our unique memories from this trip will last a lifetime.

Despite space constraints, however, I would be remiss if I did not invite you to visit my memory palace standing tall on four strong pillars. Two of these pillars represent scary experiences while the third one is amusing, and the fourth pillar is downright hilarious. So please join me as we visit my memory palace together.

Pillar One. Calgary, Canada. We had made reservations at a campsite in Calgary, which we had heard was unparalleled. When we arrived at the campsite, it looked like a sprawling big city with tents all over the place. The difference was that, unlike a city, there were no marked street signs and there were no street lights. That meant that if we got lost at night, there would be no way to find our tent until the next morning. The only good news was that we were allowed to park the VW next to our tent, as if that was of any help.

After arriving at the campsite and unloading the VW, we put up the tent and allowed the kids time to enjoy the playground, after which Bani cooked dinner in the open air oven. Everything went like clockwork. Around 10:00 p.m. we decided to call it a day. It was pitch dark outside and I reminded myself not to leave the tent at night for any reason.

It was around midnight when Bani woke me up to report that she heard a strange noise coming from outside the tent. Irritated, I told her that we had nothing anyone would want to steal so she should stop imagining things and go back to sleep. She woke me up again a few minutes later with the same observation. This time, I grudgingly picked up a flash light and carefully opened the tent door. I was shocked to see two glowing red eyes of a grizzly bear staring at me.

Grizzly bear outside our tent in Calgary

Luckily, my flashlight did the trick. The bear didn’t like it and slowly walked away. That did not placate Bani, who was so petrified by the incident that she insisted that we move to the VW for the rest of the night. This time I acquiesced. We made beds for the kids in the cargo space, and Bani and I prepared to sleep on the two reclining front seats. It was very uncomfortable, but at least we were safe, or so we thought.

As we were dozing off, the bear came back, and started pushing against the VW, trying to topple it. Not having any other options, while sweating profusely, I prayed to God for a miracle. Fortunately, after three failed attempts over an hour’s time, the bear decided to move on, presumably to annoy someone else.

God must have listened to my prayer.

Pillar Two. Las Vegas. This was our first visit to Las Vegas, so Bani and I decided to leave the kids with a babysitter in our hotel and spend the evening at a casino, enjoying a night of extravagance.

Bani had never gambled, so she was apprehensive about losing money. I suggested that she might not mind losing $25.00 (a significant amount for us in those days) and that she should gamble that amount to her heart’s content. In the meantime, I planned to go around the casino taking pictures and doing a little gambling. We agreed to meet in the lobby after two hours. I could sense that Bani was both excited and apprehensive about her pending gambling adventure.

I returned to the lobby as planned but could not find Bani. Not knowing where to look, I frantically searched for her at the gaming tables and surrounding areas, but had no luck finding her. Finally, in desperation, I asked an employee to help me locate her. When he heard that this was the first time Bani had been there to gamble, he suggested that I look for her in the slot machine section.

I was blown away when I saw her sitting in front of a slot machine, pulling the lever each time she put a dime in the slot. I noticed that she was down to 20 cents. She explained that when she was down to $1.00, she won a whole bunch of dimes, which kept her going; but now that she was down to 20 cents, she would soon be done.

Then something miraculous happened. She put in her last dime, pulled the lever, and whoosh! The slot machine began spewing out dimes in great numbers and didn’t stop until coins were falling onto the floor. A casino employee came forward, collected all the dimes, and weighed them. He then handed Bani $50.00 and congratulated her for winning big. She looked at me and said: “Waawee, I got my original money back and won an additional $25.00, which is exactly the amount we need to pay the babysitter. What an evening that turned out to be.

Pillar Three. Grand Canyon. Driving around the Grand Canyon was a thrilling and mesmerizing experience. It was early afternoon when we arrived, so we had plenty of time to enjoy that wonder of nature.

While driving around the canyon, I noticed a road descending down into the canyon. Thinking that it would be fun to have a closer look at the canyon, I entered that road. There were no signs (remember, it was 1970), but that did not concern me.

As the road descended, I noticed that the slope was very gentle, but there was no way to turn around. After a while I began to get anxious as we had travelled quite a distance and soon would be near the bottom; but since there was no choice I kept driving with trepidation.

As we neared the bottom, I felt the VW pulling suddenly to the right. I discovered that the right rear tire was leaking air. Oh my goodness, I thought, what did I get us into? My helpless family was in the car. I had no way to contact anyone (no cell phones in those days). It was getting dark, and soon I would have a flat tire making the car inoperable, and I still didn’t see a place to turn around. Oh God, is that how it is all going to end for my family? I took a deep breath and let it all out. Then I started driving slowly again, still going down toward the bottom of the canyon.

Suddenly, the miracle I had been silently praying for did occur. I saw a place to turn around. Encouraged, I pressed on the accelerator and started a fast climb, with the rear tire still leaking air. Luckily, in about 12 minutes, before I had a totally flat tire, I was able to get to the top of the canyon. Once there, I located a near-empty parking lot, parked the VW, and without saying a word to the family, placed my head on the steering wheel and passed out.

When I eventually woke up, I heard a cassette of the kids’ favorite music playing loudly. Bani had joined the kids in the cargo space and opened a big bag of Lay’s Doritos and three bottles of Coke. All three of them were laughing out loud and having a ball. Surprisingly, they showed no signs of distress and were behaving as though they were determined to enjoy the best possible party with Mom, even if Dad did not care to join them.

Pillar Four. Washington, D.C. Our final stop on this trip was in Washington, D.C., the nation’s capital. Since this was going to be our first family visit, I made a special effort to glorify this city by describing in some detail its major attractions, including the following, some of which I hoped we could visit: the Lincoln Memorial, the Washington Monument, the White House, the U. S. Capitol, the Thomas Jefferson Memorial, and the National Mall. I also pointed out that there are other unique attractions, such as Madame Tussauds wax museum, the Library of Congress and the Smithsonian’s National Zoo, home of the koala bears. I don’t know how much the kids absorbed from my enthusiastic lecture but, in the end, I sure felt talked out.

Fortunately, as soon as I finished talking, Bani took over. Realizing that the kids were getting somewhat bored with my monotonous speech, she attempted to perk them up by making them this unusual offer: “Since you kids have been really good during this entire trip, we will give you a special gift. You can decide which places you wish to visit. Remember, we are only going to be here for a little over half a day, so you need to choose carefully.”

What followed then was nothing short of an ear shattering response. Both kids screamed at the top of their voices: “The Zoo!”

My reaction to that was instantaneous. I slammed on the brakes, parked the VW on the side road and retorted: “I won’t allow you to skip all the great places I just described. I just won’t.”

Rita’s response to my denial was powerful: “Dad, you have taught us to always keep our promises. You promised that we could decide what places we wished to visit.”

“So I did,” I responded almost silently, as I realized that the score was settled for good.

The kids had the best day of their lives at the National Zoo. They visited the cubby holes of the lions, the tigers, the giraffes, the monkeys, the swans, the parrots, and a host of other animals we don’t normally see. But their biggest thrill was cuddling the koala bears that had recently been loaned to the Zoo by China. We realized that, at the end of the day, there was a lot more for the kids to see and enjoy, but we had no choice but to call it a day and head back to our motel.

The next morning as we were ready to leave, Robert pleaded in the most innocent voice: “Dad, I know you are going to say NO, but can we visit the koala bears one more time? I forgot to say goodbye to my favorite bear.”

That broke my heart.

Fortunately, this incident ended well. As soon as we returned home, I rushed to my study room and wrote the following note (I didn’t have a computer at that time) to be mailed the next day:

August 16, 1970

Director, Guinness World Records,

Please officially recognize the fact that the Mittra Family is the first family in the world that, on its first visit to Washington, D.C., did what no other

family has done – missed visiting any of the following of the nation’s capital’s famous attractions: the Lincoln Memorial, the Washington Monument, and the White House.

Not surprisingly,I am still waiting for the Guinness folks to publish our family’s story; but I am sure that they will eventually get around to it. After all, as the saying goes – it ain’t over ‘til it’s over.

Bottom Line

I’m sure you’d like to know my takeaway from this fairy tale. Bani and I had significantly different reactions. While I have extensively traveled around the country, I had never seen America through this unique lens. I saw scores of places I’d never otherwise have visited, met people from all over the world, witnessed the difference between traveling through Canada and the U.S., and accomplished all of this on someone else’s dime, without costing me a penny of my own money. In my judgment, this qualifies the adventure as a true fairy tale.

As for Bani, the most important thing she remembered was how it ended. After we returned home, she avoided seeing the kids, except for meal time, for a whole month. She swore that she could relive that experience any day, any time.

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WHEN FEDERAL RESERVE’S CREATION OF EVEN FOUR TRILLION DOLLARS IS NOT ENOUGH

Posted on November 23, 2020 by Sid Mittra

November 22, 2020

Sid Mittra
Ph.D., Economics
Emeritus Professor, OU, Michigan

Fed up with Fed, a most venerable democratic institution? Whatever for?

If you really want to know, it is for failing to boost the economy with $4 trillion, especially when the economy needed it most. Let that amount sink in for a second:

$4,000,000,000,000

If this is not an unpardonable sin, then what is?

Okay, enough of this rigmarole. It’s time to get down to serious business.

Basic Economic Theory

Basic economic theory establishes a well-defined relationship between the government and the Federal Reserve. The government is responsible for establishing fiscal policy, consisting of spending the money it raises through taxes and borrowing for specific purposes. The Fed then uses various tools – changing the cost of borrowing money and buying and selling various investments – to control the money supply, and maintain the value of the country’s currency.

Secret of Money Multiplier

A critical element of the Fed’s power – technically known as money multiplier – is not obvious. Simply put, it refers to the fact that the Fed can use this money multiplier power to generate as much as, say, $10 for every dollar it is given to manage.

Here’s how it works. When the Fed loans $100 to a member bank, it deposits the money into a checking account, increasing the money supply by $100, because checking accounts are considered part of money supply. When the bank loans out a portion of that money – say $80 – to a borrower, that money gets deposited in a different checking account, increasing the money supply by an additional $80. As this process repeats itself, that initial $100 loan can ultimately put as much as $1,000 into the economy via increases in the money supply.

Here’s how that works:

This process continues until no more new deposits are made. At that point, the total increase in the money supply due to one $100 loan by the Fed would approach $1,000. Interestingly, this phenomenon is sometimes referred to as the Fed’s power to create new money out of thin air.

The Market Crash

On March 9, 2020, all hell broke loose with the following news: Stock Market Crash: The End Game Approaches.The culprit? COVID-19, of course. As is always the case, during a crisis of this nature, traditional theory is modified to combat the current crisis. This situation was no exception. As Paul McCulley, formerly of Pimco put it: “It’s an epic moment in terms of breaking down the orthodoxy of church-and-state separation of the fiscal and monetary authority.”

In March 2020, a hastily put-together stimulus package included $454 billion reserved for the Treasury to cover the Fed’s plan to make less than sterling loans. Under this protective umbrella, the Fed could feel secure in lending that money and generating as much as $10 for every dollar it loaned, or a total of approximately $4 trillion. Equally important, this stimulus package did not put a limit on the number of bonds the Fed could buy, which created the possibility of future problems. It also let the Fed purchase securities that were not Treasury bonds. In my opinion, this major change in the relationship between the Treasury and the Fed could prove to be extremely radical and dysfunctional in the long run.

The stimulus package was put together in March. And yet, to date, less than $20 billion in loans – yes, less than $20 billion – have been made.

Who Is to Blame?

The honest answer is: Everyone and no one. “Oh great,” you say, “that does me a lot of good, doesn’t it?” I hear you.

The $454 billion was allocated to cover the losses expected from granting less than sterling loans the Fed was expected to make. But the bad news suddenly turned into good news. Confidence reemerged in the financial markets, which did not require that amount of loans. Fed Chairman Jerome Powell said in late July that the Fed hadn’t done as much lending as it had anticipated. That was largely because the announcement of a plan to buy corporate bonds, municipal bonds and short-term debt restored confidence to those markets. “So we didn’t turn out to need the kind of funding that we thought we would,” Mr. Powell said.

A Treasury spokesperson’s email echoed that sentiment: “The extraordinary Federal Reserve response supported by Treasury’s equity capital has played a vital role in restoring liquidity and funding to credit markets, and enhancing the flow of credit to American businesses, households, nonprofit organizations, and state and local governments.”

Bottom Line

The final question is this: If things are so good, then why does everything sound so bad? The answer is beautifully summarized by former Treasury Department economist Ernie Tedeschi: “Here we are negotiating another fiscal package, and we have this money just sitting there.”

Well, as the saying goes, “It ain’t over ‘til it’s over.”

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LEARNING ABOUT LIFE FROM BRUSHES WITH DEATH

Posted on November 18, 2020 by Sid Mittra

Sid Mittra
Ph.D., Economics
Emeritus Professor, OU, Michigan

Let me begin with a caveat: If you think the details of my near-death experiences described below will make you feel uncomfortable, feel free to move directly to the lessons presented in the boxed inserts.

After experiencing each of the four nightmarish near-death experiences (one of them in a metaphorical sense), I vowed never to revisit them. That changed, however, when I became a nonagenarian. Each event carries a valuable life lesson.

Age 14, Agra, India

The traditional horoscope prepared for me at birth in 1930 had an ominous prediction: I would not live beyond age 15. Since most people in India at that time believed in these predictions, the die was cast.

At age 14 I got infected with typhoid fever. Most cases lasted for two weeks, but a few abnormal cases could be fatal. Of course, everyone prayed for a fast recovery, but, given my horoscope prediction, they expected the worst.

Surprisingly, I did survive, but my fever lingered on for an unprecedented 131 days. Over time I fully recovered and resumed my normal life. (The fever did cause the failure of a vital organ that was not detected until two decades later.)

Just imagine my predicament. Each day during the 4½ month period (which seemed like an eternity) I lay flat in my bed without any medical treatment or hope of recovery, fearing that I would not wake up the next day. But the truth be told, what hurt me most was my family’s praying to God to let me go peacefully.

Age 28, Gainesville, Florida

Shortly after arriving in Gainesville, Florida, to begin my graduate studies, I was directed to get a routine health checkup. Since I had just completed a similar checkup in Bombay a few weeks back, I figured this would not be an issue for me.

Unfortunately, the checkup turned out to be anything but routine. The doctor found an extremely high level of creatinine, presumably caused by the typhoid fever I had years earlier. Based on that finding, the doctor predicted that, since my kidneys had failed, it was impossible for me to continue my graduate studies. What’s more, he advised that my life itself might be short-lived. He concluded by saying that, upon submission of his medical report, my fellowship would be instantly terminated, and I would be immediately sent home. His diagnosis was literally a death warrant.

I recall instantly falling on my knees and begging the doctor not to report the test results to the university authorities. I pleaded in a shivering voice: “I spent seven long years planning to come to America and risked my life by traveling here with only $8.00 in my pocket. I don’t want to lose everything I worked so hard for.”

“Sorry Sid,” replied the doctor, “I have no other choice in this matter.”

I continued begging: “The doctor in Bombay did not have to conduct this special test and gave me a clean bill of health. So I beg you to ignore this test and give me a clean health report.” Unfortunately, all of this begging was met with stunned silence, and I left the doctor’s office expecting the worst.

Over the ensuing days, however, I learned that my fellowship had not been terminated. The doctor must have felt pity for me and ultimately decided to give me a clean health report.

Age 29, Valdosta, Georgia

As will shortly become clear, this next near-death experience occurred only in a metaphorical sense. But it sure felt real to me.

After concluding my preliminary exams in 1959, I decided to travel from Gainesville to the International Monetary Fund in Washington, D.C., to collect material for my Ph.D. dissertation. With transportation cost being a major concern, I arranged to share a ride with Ann Fletcher, a white lady working in our university library, who was planning to drive to Washington, D.C., to visit her relatives.

On a beautiful afternoon in June, we left Gainesville for our nation’s capital. As we were passing through Valdosta, Georgia, that night, a police officer stopped her car. The officer pointed out that she broke the law by riding with a black person. The officer asked me to get into his car and directed Ann to leave Georgia immediately for her own safety. Ann protested, but got nowhere with the officer.

When we arrived at the county jail, the officer asked me to get out and follow him. He put me in a filthy jail cell without any furniture, locked it, and then left, saying: “I will take care of you.” I interpreted that to mean that I had only a few hours to live.

At 2:30 a.m. the officer was back. He opened the cell door and asked me to follow him. It may have been only a short distance from the jail cell to what I expected was the death chamber, but it felt like I was traversing the entire length of the Great Wall of China.

Well, at that point, something strange happened. As the officer approached the jail’s entrance gate, the gate keeper opened it and the officer continued walking through it. As I followed close behind him, I said silently: “Oh great, it looks like my execution will now take place in the middle of the street for everyone to see.” But to my utter surprise, nothing like that happened. The officer quietly handed me over to a middle-aged, nicely-dressed white gentleman standing by a Chevrolet.

“Good evening, Sid,” said the man in a warm, friendly voice, “I am Pastor Lewis of the First Baptist Church in Valdosta. Ann Fletcher called me to explain what had happened to you. I moved quickly and arranged for your release. I will now take you to my home tonight where you can have a hot meal and get a few hours of sleep. Tomorrow, the officer will come by to take you to a Greyhound bus that will take you to your destination in Washington, D.C.”

I was stupefied and my mind went numb.

After we settled down in Pastor Lewis’ cozy kitchen, his wife served me sandwiches, potato chips, and a Coke. As I dug in, Pastor Lewis stated pensively: “Sid, what happened this evening is a sad commentary on all of us as a nation. But someday when you get over the pain we’ve caused you, I hope you realize that you had nothing to do with the way these people treated you. Tonight, they expressed their stark fear, their insecurity, and their inability to accept who we really are. We are all equal in front of God. That is what our religion teaches us, and that is the truth that will ultimately triumph.”

The next day the officer came by and took me to the Greyhound Bus Station, and after that everything turned out according to my original plan.

This near-death (that’s what I believed was going to happen) experience taught me four powerful lessons.

Age 68, Detroit, Michigan

One afternoon in June 1998, I drove to St. John’s Hospital for a routine annual checkup. During the exam, the doctor startled me by issuing a near-death warrant. He said that all of my major and minor heart arteries were blocked, and the only way to save my life was to undergo immediate triple by-pass surgery, which was scheduled for the next day. However, the surgeon failed to ask if I was on a blood thinner medication, which I was. This failure ultimately resulted in a potential disaster.

The next afternoon, after a five hour surgery, I was transferred to the ICU, but not for long. Because of my use of a blood thinner, bleeding from the surgery could not be stopped and my death seemed imminent. As a result, the surgeon obtained my family’s permission for me to have a second open heart surgery, an extremely risky proposition. My life hung in the balance.

After the second surgery, I was again transferred to the ICU and hooked up to a life-saving ventilator, and I began flirting with death.

What I am now sharing with you sounds like a fiction, but honestly this is my best recollection.

I recall that, after the surgery, I got well and was delighted when they sent me back home. But home turned out to be a strange palace where a God-like Figure (GF) was waiting for me.

GF: Welcome, Sid! I have been waiting for you.

Me: I am puzzled. I thought I was going home, but I don’t recognize you or this place.

GF: This is heaven, your new home.

Me: What? You mean I died?

GLP: I wouldn’t quite put it that way. You are starting a new life here.

Me: But I don’t want to be here. I love my family and want to be with them.

GF: I’m willing to send you back home, but only on one condition. Once you are there, your primary objective must be to do everything you can to build a better world. I realize that this is a monumental decision. So I suggest that you settle down in the next room and take all the time you need before deciding what you want to do. Please come back to me only after you have made your final decision.

I spent four days reflecting on my predicament. Once done, I went back to the palace and told the GF that I wanted to go back home to my family and that I agreed to devote my life to making the world a better place in any way I can. He was mighty pleased with my commitment and sent me back home to begin my new life.

As soon as I arrived back home, I opened my eyes and saw Robert, my son, and Bani, my wife, standing beside me. At this point, Robert spoke.

Robert: Hi, Dad, how are you doing? Do you know where you are?

Me: Of course I do. I returned home, promising to make this a better world.

Robert knew instantly that I was hallucinating. So just to make sure, he asked me a few pointed questions and I answered all of them logically. But I learned later that all of my answers were totally disjointed and confusing. That scared the daylights out of Robert. At one point he cut me short.

Robert: Dad, I think you are very tired and should rest now. After all, you have been totally out for four days, so it is natural for you to be tired and confused.

Me: What did you say? I was out for four days! Huh?

Robert: Of course, you didn’t wake up for four days. Don’t you believe me?

Me: Oh yes, and I do remember what I was doing for four days. It all makes sense now.

From this most unusual, and fictional-sounding experience. I learned two powerful lessons.

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UNTANGLING GDP GROWTH

Posted on November 15, 2020 by Sid Mittra

Sid Mittra
Ph.D., Economics
Emeritus Professor, OU, Michigan

A few days ago I received the following note from a total stranger:

Hi Sid, even though you don’t know me, I read your blogs and enjoy them. I hope you don’t mind my asking you for a favor. Recently my girlfriend I had a conversation about our impressive GDP growth and we feel we are on the same page. But I wanted to know if we are missing something.

Here’s how we talked:

Me: I just heard on the news that the economy grew by 33%. Wow! I also heard that no other country in the world has ever grown at that rate.

Friend: But I heard that our GDP dropped substantially in the second quarter.

Me: Oh, all that was wiped out by this latest growth. But look: Our GDP is about $21 trillion. So 33% of $21 trillion is almost $7 trillion. I can’t even fathom such a huge growth in one year. And to recognize that we grew so much during pandemic speaks volumes of how strong our economy is.

Friend: You got that right. I hope that the rest of the world is admiring us.

I froze in my tracks when I read this note. I take great delight in simplifying complex concepts so people can understand what these concepts really mean. But when I received this note I felt truly ashamed of myself. Is that the best I can do? Fortunately, there was no return address to the note, so that saved my day.

Quiz Time

Let’s take a quiz to find out how well we understand the numbers that are being thrown at us.

1 GDP 2019: $21 trillion	2. Third Quarter, 2020 GDP: 7.2%
3. Second quarter 2020 GDP:-32.9%	4. Annualized growth, 3rd. Qr.‘20: 33.1%
5. GDP first 3 qr., 2020: down 3.5%	6. Unemployment gain: 10 million
7. Unemployment Loss in April ’20: 20.5 million	8. Worst GDP decline in history: 2^nd Qr. ‘20
9. Shortest recession in history: 2020	10. Total Foreign debt crossing GDP: 2019

Now pick the correct answer from the following choices:

A. All of these are incorrect answers	B. Some of these answers are correct, while other are incorrect
C. All answers are correct	D. Only GDP numbers are correct
E. Only unemployment numbers are correct	F. Only #8 is correct
G. There is no single correct answer	H. Only #9 is correct
I. Only #4 is correct	J. Only # 2 is correct

Please pick your best answer here ______. Also, so as not spoil your fun, I have noted the correct answer at the bottom of this blog. But, please, no peeking until after you have picked your answer.

Back to Basics

Although much of what I am going to say here is generally known, there is some value to addressing these related issues so the confusing items never get a chance to raise their ugly head.

GDP

The gross domestic product (GDP) consists of four major expenditures: consumption, investment, government, and net exports. During a given year, one or more of these expenditures must go up for the GDP to record a positive growth for the year. The GDP registers a decline when net expenditures decline.

In 2019, the U.S. GDP was around $21 trillion. Frequently, such a staggering amount is also the basis of an additional confusion. For instance, the claim that a 10% growth in India’s GDP is more than three times better than a 3% US GDP growth is utterly misleading. A 3% growth of US GDP is approximately $630,000,000 that dwarfs any growth in India’s GDP. This fact should always be borne in mind when making a judgment about the health of the US GDP, relative to the GDP of other countries.

Quarterly growth rate

This is the source of massive confusion. Here are two statements. 1. The 3^rd quarter GDP growth rate was 7.2%. 2) Annualized third quarter growth rate was 33.1%. These statements may lead a person to erroneously conclude that the GDP growh rate in 2020 will be 33.1%. That is an absurd conclusion, since the realistic GDP growth rate might well be a slightly negative in 2020

Here’s how to clear the confusion. During the 3^rd quarter, the GDP growth rate was measured by comparing the GDP on July 1 with the GDP on September 30, the beginning and the end of the quarter. And the number was accurately determined as 33.1%. But what created such a massive difference between the third quarter growth rate and the flat annual growth rate expected in 2020? The jury is still out. But it can be safely concluded that the three major factors what lead to such a phenomenon growth rate during the third quarter were as follows: 1. Decline in the second quarter GDP growth rate smashed all previous records, resulting in a very low GDP number at the beginning of the third quarter. 2. The government’s stimulus package had a major positive impact on the GDP. 3. During the third quarter, American businesses rapidly started to open, thereby increasing both consumption and business expenditures to an impressive high level.

But wait! We are not yet done explaining the confusion. We learned that the third quarter’s annualized growth rate was 33.1%. What does this mean, if not the fact that the 2020 GDP annual growth rate will also be 33.1% (after all, we used the expression, “annualized,” didn’t we?)

Here’s the answer: If the GDP grew at the third quarter rate during all the other quarters, then the annualized GDP growth rate would be 33.1%. But we already know that the GDP declined during the first two quarters and could conceivably decline during the fourth quarter as well. If so, then the conclusion that the annual GDP growth rate would equal 33.1% would be seriously flawed, if not baseless.

Unemployment Numbers

Here’s another major source of confusion. During the third quarter, it is reported that 10 million new jobs were created. While that is a true statement, its interpretation is grossly distorted. The first and second quarter lockdowns forced workers to stay home and manage their finances with money generated by unemployment compensation and past savings. Then, during the third quarter, the government’s stimulus package was released and many businesses rapidly opened their doors, inviting the laid off workers back to their old work places. For these and other related reasons, the creation of 10 million new jobs should never be confused with a healthy increase in job growth due to normal increases in consumption and investment expenditures resulting from the rebounding of the economy.

Will the true GDP stand up?

First, a big surprise. Notwithstanding all the hoopla that surrounded the 33.1% growth rate during the third quarter, for the year (three quarters) GDP is down by almost 3.5%. And although the fourth quarter GDP growth rate is still unknown, it can be safely assumed that for the year 2020 GDP growth rate will either be flat or slightly negative. This assumption is based on the fact that the economy in the third quarter was 3.5% smaller than at the end of 2019, before the pandemic. By comparison GDP shrank 4% over the entire year and a half of the Great Recession a decade ago. This does put everything into proper perspective, doesn’t it?

Bottom Line

What we have learned about GDP thus far, then, is not too bad of a performance. This conclusion is based on the fact that this year we did register the shortest recession on record (really true), and the economy continues to chug along despite facing serious head winds due to myriads of pandemic and other related problems. Special Note: The correct answer to the quiz is (c).

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ESTATE PLANNINNG NEEDS URGENT REVIEW

Posted on November 10, 2020 by Sid Mittra

Sid Mittra
Ph.D., Economics
Emeritus Professor, OU, Michigan

The conclusion of the 2020 presidential election has brought to the forefront the need for a thoughtful review of your estate plan. To that end, we are reproducing below a timely article by Julius Giarmarco, J.D., Senior Partner of a prestigious law firm in Michigan.

Julius H. Giarmarco, J.D., LL.M

Impact of the 2020 Election on Estate Planning

President Elect Joe Biden has provided some information about his plans to modify the tax treatment of decedents and their estates. He has signaled that he supports raising estate taxes and changing the taxation of capital assets upon death.

GIFT AND ESTATE TAX EXEMPTION

The first change would be to increase the estate tax. Currently, the gift and estate tax exemption amount is at an all-time high: $11.58 million per person and $23.16 million for a married couple in 2020. These amounts are indexed annually for inflation. The Trump tax cuts doubled the exemption from prior levels, but only until they sunset on January 1, 2026. Under President Elect Biden, the sunset of the Trump gift and estate tax exemption amount could be retroactive to the beginning of 2021, which is why some individuals are seeking to use their exemptions by year end. In other words, President Elect Biden’s proposal would reduce the exemption to its pre-Trump tax cut level of $5.49 million per person, adjusted annually for inflation. Any amounts above this lower exemption amount would be subject to a 40% estate and gift tax. There is also speculation that the gift and estate tax exemption might be reduced to the $3.5 million / $7 million levels proposed by the Obama Administration. This is particularly so if the Democrats also win control of the Senate.

STEP -UP IN BASIS

The second change would repeal the present “step-up in basis” rule. Under current law, the income tax basis of assets owned by a decedent at the time of death generally are increased (stepped-up) to their fair market value. The basis step-up enables heirs to sell inherited assets free of capital gains taxes on appreciation that occurred prior to the decedent’s death. The repeal of the step-up in basis could prove very costly over time to heirs of appreciated property at all income levels, not just the wealthiest. Therefore, individual taxpayers may wish to consider triggering capital gains prior to the end of the year — because of the possible loss of the stepped-up basis and because President Elect Biden has proposed to increase the top capital gains tax rate to 39.6% (the same as his proposed top ordinary income tax rate).

USE IT OR LOSE IT

Although you cannot control the tax climate at the date of your death, strategic gifting prior to a change in the law could have a significant positive effect on the overall tax liability faced by your family. Gifting assets outright or in trust now, while the exemption levels are still at their historic highs, essentially allows you to “lock in” these high exemption amounts. Sophisticated estate planning techniques may also allow you to leverage this exemption using valuation discounts and other planning strategies which may be especially effective in the current environment of low interest rates and falling asset values.

While there are a number of possible techniques individuals may implement in 2020, a popular technique among our married clients is the Spousal Lifetime Access Trust (SLAT). A SLAT is an irrevocable trust that allows a married person to give assets to his or her spouse and/or descendants. The beneficiary-spouse may receive distributions of income and principal from those assets, typically at the discretion of the trustee. This strategy removes the assets from the grantor-spouse’s estate while still affording access through the beneficiary-spouse as long as the parties are married and the beneficiary-spouse is living. The potential access may make married couples more comfortable with making a large gift and utilizing the current exemption.

101 W. Big Beaver Road, 10^th Floor, Troy, MI 48084-5280
Phone (248) 457-7200 Email: jhg@disinherit-irs.com

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TIRED OF POLITICS? TRY MY TALES FOR COMIC RELIEF

Posted on October 29, 2020 by Sid Mittra

Sid Mittra
Ph.D., Economics
Emeritus Professor, OU, Michigan

I don’t know about you, but I am up to my ears in election news. So, how about spending the next few minutes relaxing and having a good laugh.

In this blog I will share seven stories with you. Some are funny, while others are unbelievable. But I can assure you that they are all true, because I have been directly or indirectly involved in each of them.

Story 1: Venezuelan Experiences

In this section I will share three incidents I encountered in Caracas, Venezuela.

A. After arriving in Caracas, in accordance with their established social custom, I went to pay my respects to Dr. Jorge Ahumada, Director of Planning, who had engaged me as an economic consultant. When I arrived at his residence and rang the doorbell, a distinguished looking lady, who I assumed was Mrs. Ahumada, opened the door and greeted me: “Buenos tardes, Senor, Que gusto de verlo, Cómo está usted?”(Good afternoon, sir, what a pleasure to see you, how are you?) That indicated to me that the lady spoke no English. But she did recognize me and kept talking as if I was fluent in Spanish.

True, I had studied Spanish as a second language for my Ph.D. program and could understand most of it only if it was spoken clearly and deliberately. And even though the wife spoke very fast, I could make out that she was praising Caracas for its beauty, world-class beaches and the year-round 75 degrees weather, and clear, blue skies. That was fine with me since I didn’t have to answer any questions.

That suddenly changed when she asked a question that suggested she knew I was an economist. She asked, in Spanish: “How old is the economics profession?” Although that sounded strange, out of politeness, and assuming that she was asking for the date of the birth of modern economics (Adam Smith, Wealth of Nations, 1776), I answered: “200 years.”

Right then, her husband appeared. But before he could greet me, his wife told him about our conversation and he burst out laughing. Once he got a hold of himself, Dr. Ahumada explained it this way: when my wife asked you how old you were (a polite custom in Venezuela), and you answered, 200 years, she was very impressed to see that, even at that old age, you looked sooooo young.

B. My wife Bani and I went to a popular restaurant for dinner, but discovered that no one spoke English there. I ordered beef steak, a popular dish in Venezuela. Unfortunately, each time I ordered the dish using different expressions, the waiter simply responded: “Ay que lastima senor, yo no entiendo.” (What a shame, sir, I do not understand.)

Finally, exasperated, Bani decided to use a novel approach. She drew the picture of a bull on a dinner napkin, and handed it over to the waiter and said: “We want that.”

That seemed to work. After saying, “Houra Yo entiendo” (Now I understand), the waiter sprinted back to the kitchen and brought us two tickets for the next Sunday’s bull fight.

C. When I was in Caracas as a consultant to the Government of Venezuela, I was permitted to bring a Chevrolet Impala for my personal use. Little did I realize that an ordinary car like an Impala was considered a priceless car in Venezuela.

One day upon returning from lunch, I parked my car at the curb and started to walk to my office. Just then I was horrified to see a man enter my car, even though I had locked it, and speed away. Feeling helpless, I ran into my office and pleaded with my colleague, Juan Pablo, to help. He drove me around to look for my car. Having no luck, Juan took me to the police station to report the theft of my car. The experience I had there was priceless.

It was 2:00 p.m. when I arrived at the police station, but the police officer was not yet back from his “siesta” (three hour lunch break). After he returned to the police station at 3:00 p.m. he waited another hour before calling me at 4:00 p.m.

Officer: Senor, where are you from?

Me: I am from the United States.

Officer: No, no, I mean where were you born?

Me: I was born in India.

Officer: Mama mia, senor. Those Indian girls, ae que tan bonita (how beautiful they are).

Me: Forget about Indian girls. They were beautiful yesterday and they will be beautiful tomorrow. Can we please talk about my car?

Officer: Car, what car? Why didn’t you tell me you had come here to talk about your car?

At that point, if I had not been at the police station with the officer, I might have been tempted to choke him.

Me: Officer, my car was stolen from in front of my office. Please hurry up and see if you can find the culprit.

Officer: Sure. What kind of car is it?

Me: It is a Chevrolet Impala.

Officer: Aye caramba, que lastima. (My goodness, what a shame.) Your car was stolen over three hours ago. By this time, the thief is crossing the Colombian border where Impalas bring much more money.

Me: But still, can’t you try to catch him, just in case he is still in Caracas?

Officer: Sorry, senor, it is five o’clock, my time to go home. Please come back tomorrow and I will file a complaint. But remember, Indian girls are tan bonita (gorgeous).

I returned to the police station the next day to lodge a formal complaint. My car was never found.

Story 2: Tales of my University Students

In this section I will share two short incidents relating to my university students.

A. Only once did I risk losing my tenure at the university; but it had nothing to do with my performance or behavior. Here is what happened.

While grading the final exam for my senior investment course, I was shocked to find two papers with identical answers to all the essay questions. In those days, professors routinely proctored their exams to prevent such incidents. But I implicitly trusted my students and intentionally sat outside the classroom while the students took their exams. As a result, I was fully responsible for causing this problem.

My pressuring the students to confess was unsuccessful, as each student professed innocence. I then had to report the situation to the Dean, who eventually turned the matter over to a special committee in charge of professors’ conduct. My tenure hung in the balance.

One day, out of sheer desperation, I shared this incident with Harvey Susskind, a senior in my economics course. It worked. Harvey solved the mystery by pointing out the way each student answered one of the questions.

Student 1: I don’t know the answer.

Student 2: I don’t know the answer either.

Harvey saved my tenure.

B. I worked closely with Bill Bailey when he was struggling with his courses. After he graduated from the university, I helped him get admitted to law school. I then lost contact with him; but one day I was pleasantly surprised to receive from him the following letter.

Professor Mittra, let me thank you for helping me become a lawyer. And now the reason for writing this letter. Since you are the one who is responsible for getting me into what I consider a lousy profession – as evidenced by the two legal decisions summarized below – I plan to sue you; just kidding.

Charlotte, North Carolina. A lawyer purchased a box of very rare and expensive cigars, and then insured them against, among other things, fire. Within a month, having smoked his entire stockpile of these great cigars and without yet having made even his first premium payment on the policy, the lawyer filed a claim against the insurance company. In his claim, the lawyer stated that the cigars were lost “in a series of small fires.” The insurance company refused to pay, citing the obvious reason, that the man had consumed the cigars in the normal fashion. The lawyer sued, and WON!

The judge agreed with the insurance company that the claim was frivolous. The judge nevertheless stated that the lawyer’s insurance policy insured the cigars against loss by fire, without defining what is considered to be unacceptable “fire,” and it was therefore obligated to pay the claim.

Rather than endure a lengthy and costly appeal process, the insurance company accepted the ruling and paid $15,000 to the lawyer for his loss of the cigars lost in the “fires.” But the story did not end there. After the lawyer cashed the check, the insurance company had him arrested on 24 counts of ARSON!!!

With his own insurance claim and testimony from the previous case used against him, the lawyer was convicted of intentionally burning his insured property and was sentenced to 24 months in jail and a $24,000 fine.

3. Lucerne, Switzerland, Cable Car Journey

In August 1985, I took a cable car ride in Pilatus, Lucerne. I can’t adequately describe the breathtaking scenery surrounding me as I glided over the sun drenched, fluffy snow. As if that was not enough, I was mesmerized when friendly birds felt comfortable sitting on my shoulders and eating out of my hand. No wonder they call this place “Heaven on Earth.”

Then something happened that shattered my dream-like experience. Without forewarning, my cable car crashed into another cable car. (I don’t know how two cable cars came so close to each other.) I noticed that there was a young gentleman in the other cable car who was also shaken up. Fortunately, neither of us was hurt in this accident. We soon caught our breath and the following conversation took place:

Me: Hello, I am Sid Mittra. I am a professor at a Michigan university in America and am sightseeing in Switzerland.

Him: Hello, my name is David Johannes. I am from South Africa.

Me: You look awfully young (he looked like a 16-year-old kid) to be traveling alone. Are you sightseeing here?

Him: Yes. After I was admitted to the mission in Johannesburg, I received a scholarship to spend two years at a mission in Illinois. I decided to spend a couple of days in Switzerland before going to the U.S.

We sat helpless in our jammed cable cars, talking about our respective lives. I recalled that South Africa had not yet gained independence (Mandela became president in 1994), and the country was still under apartheid rules. We sat helpless in our jammed cable cars, talking about our respective lives. Since David was attending a mission and was clearly different from the “typical South African whites” who ruled the country for a long time, it was fascinating to hear from him how blacks had been living there for centuries, and how the privileged whites felt about ruling an African nation. At one point, David made a rare confession: “Professor Mittra (he didn’t address a stranger by his first name), much as I try to treat the blacks in my country as equals, because of their cultural and behavioral differences, I can’t make any headway. This is one thing I am hoping the mission in Illinois will teach me how to do.”

I don’t know how long we talked while sitting in our jammed cable cars. But when they finally pried open our cable car doors so that we could exit the cable cars, I wished they hadn’t succeeded so we could have talked some more.

Let my wish to remain stuck in the jammed cable cars a little longer be the biggest joke of the day.

4. Visit to Santorini

In 1978, I took a Mediterranean cruise that made eight stops, with the longest stop being in Santorini, where the mountain top provided a spectacular view. The concierge warned us, however, that the trip to the mountain top involved steep mountain climbing, so it was advisable to hitch a ride.

Upon my arrival at the base of the mountain, I noticed something strange – a bunch of people waiting with donkeys by their side. Puzzled, I approached the man in front.

Me: Where can I find a ride to go to the mountain top?

Man: My donkey will take you to the mountain top and bring you back.

Me: You’ve got to be kidding. I am not going to ride a donkey.

Man: That’s what we have.

Inasmuch as I had a shortness of breath problem, I decided to give in and approached the donkey.

Man: No, mister, you cannot ride on my donkey until it approves of you as a passenger. So, if you want to hire me, I will ask my donkey if he wishes to give you a ride.

I literally blew up. After I calmed down, assuming that it was just a stupid ritual, I agreed. The man then asked the donkey (really, I am not kidding) if it wanted to take me to the mountain top. The donkey looked at me and then shook its head in rejection.

Man: Sorry mister, my donkey doesn’t want to take you. But don’t worry. I have another weaker, ugly looking donkey who might accept you. Do you want me to ask him?

That did it. I mustered sufficient strength to climb up to the mountain top and enjoy the spectacular view. But the euphoria I felt was insufficient to erase the humiliation I felt after having been rejected by an ugly donkey.

5. Writing Ph.D. Dissertation

Dr. Allen Sievers, my dissertation advisor, liked my research work. But he was critical of my poor writing skills. One day when I felt I had had enough, I said: “Dr. Sievers, please believe me that I am trying my best to improve my writing skills. But you don’t seem to realize that English is a most difficult language to master.”

Recognizing that his criticisms were having a negative effect on me, Dr. Sievers said in a comforting voice: “Calm down, Sid, you are doing just fine.”

He then commented jokingly that English is in fact the easiest language to master. To prove his point, he handed me a piece of paper and said: “Read this aloud. You will notice that all the words are misspelled; and yet, you will have no difficulty reading and understanding it.

Here’s the note he asked me to read:

6. Joke for Financial Planning Clients

Once I entered a frivolous contest that required participants to produce a funny story to be shared with financial planning clients before starting a serious meeting. It was claimed that clients react better when they feel relaxed when discussing their financial problems. The prize for this contest was two first class airline tickets to the Bahamas. Not too shabby, I thought?

I won the contest. Here is my winning story.

One sunny morning, two people took off from Encinitas, California, in a hot air balloon, headed for Bangor, Maine. They were well equipped to fly the several days required to reach their destination.

Unfortunately, things did not turn out as planned. Shortly after they took off, dense fog surrounded them. Feeling helpless, they continued to float aimlessly.

After the fog cleared, they found themselves floating over a football field, where one person was standing alone.

A man in the balloon screamed: “Where are we?”

The person on the field responded: “You are in a hot air balloon, sir.”

At that point, the man in the balloon who had asked the question said: “By golly, I never would have thought that we would find a financial planner standing on a football field.”

The other man in the balloon said: “That’s ludicrous. The person down there is so far below that you can’t tell if it is a man or a woman. How then can you be sure that the person is a financial planner?”

“Well,” said the first man: “The person, whom we shall assume is a man, did four things that convinced me that he is indeed a financial planner. First, he spoke without thinking. Second, he answered correctly, but only as far as that went. Third, he was outstanding in the field. Fourth, the answer he gave us didn’t do us a damn bit of good.”

But my experience did not end there. After having waited for a while for my airline tickets to arrive, I called the office of the person who ran the contest. I was told that he was vacationing in the Bahamas and nobody in the office had no idea of the tickets I won.

7. Handling a Medical Emergency

In 1966, my son Robert, who was six months old, needed urgent medical care. I rushed him to an urgent care clinic, where we had to wait until the doctor was free.

It was around 9:40 p.m. when the doctor got around to examining Robert and prescribing a medication. The doctor cautioned me that the only drug store open at that time of night was going to close by 10:00 p.m., and if I wanted to get the medication that night, I should rush to get there. By the time I left the doctor’s office it was already 9:50 p.m., and I was at least 20 minutes away from the drug store. My only option was to call the drug store.

When the phone was answered with a polite “Hello,” I spoke rapidly, emphasizing that my son desperately needed a prescription filled that night, but that I was still 20 minutes away from the store. I pleaded with the man to keep the store open until I got there. In my excitement, I spoke for almost five minutes, during which time the man listened patiently.

After I was done speaking, the man spoke in a distinguished voice: “Mister, when you first called me and I answered ‘Hello,’ I told you everything I know about medicine. I work as a janitor here, and I was about to close the store when you called.”

But the story ends well. That night my son did not get the medicine he urgently needed. But today he is a renowned surgeon, having been selected multiple times by Best Doctors in America.

Bottom Line

I hope you had as much fun reading these stories as I had narrating them to you. Let us now pray together for the development of a safe, effective, widely available COVID vaccine and an end to the current pandemic.

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