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

May 8 is Mother’s Day in America and in the rest of the world. Here’s a special gift for all mothers.

Animal Kingdom Mothers

In this section I will share stories of three mothers in the animal kingdom that are an interesting complement to subsequent stories of human mothers.

1. Mother Fish’s Unbelievable Love

The following is a well-established fact. A fish lays eggs that ultimately give birth to hundreds of hatchlings. The father fish, in a practice known as filial cannibalism, then attempts to kill all of them. Demonstrating her infinite love, the mother fish desperately tries to save them, but succeeds in saving very few. There is no obvious explanation of the father fish’s behavior, except that because of this killing spree, the world maintains a healthy fish population.

Does this dastardly act on the part of the father fish glorify the indisputable love of the mother fish for her children?

2. A Mother Monkey’s Love

Most female and some male animal species love their babies deeply, especially when they are very young, but this bond eventually weakens. It has been shown, however, that years later they remember them when they are reunited.

African researchers designed an experiment to test the limits of an animal mother’s love. A mother monkey and her newborn child were placed in a closed cage connected to an electric heater. As the cage’s temperature was slowly raised, the mother monkey placed the baby on her shoulders so it would be shielded from the heat. When the heat ultimately became unbearable, the mother monkey placed her baby on the floor and climbed on top of it.   

What does this research show about the limits of a mother’s love?

3. Confusing the Mother Cow    

                                                                                                         

In India, milk suppliers face a unique problem, because a cow with a newborn baby withholds giving milk until it can sense that the baby cow is ready to drink her milk. However, that creates a problem for the milk suppliers, because the common practice is for the baby cow to be taken away from its mother right after birth so that the mother won’t get too attached to it. 

As a result of this practice, the baby cow is not fed, so it dies in just a few days. After its death, the milk suppliers solve their problem by stuffing the baby cow until it looks real and alive. It is then paraded before the mother cow as if it was alive, and then placed at the mother cow’s udder. This chicanery works perfectly every time.

Have you ever heard of such a unique form of mother’s love?

Human Mothers

1. Mother Waiting for Drowned Child

In 1941 I personally experienced the following incident that took place in a Calcutta village that had a popular pond where people came to bathe and swim. My friend, Ram, and I did not swim, so we were prohibited from even coming close to the pond.

One day, curiosity got the better of Ram, so he slipped out of his home at night and went to the pond. Once there, he reached down to touch the water, toppled over into the pond and drowned. His body was recovered the next day.

The story did not end there. Ram’s mother convinced herself that Ram was still under the water, unable to find his way out because of darkness. So, each night she would light a candle, walk to the pond, sit down on the shore, and wait for Ram to see the light. Ram’s mother was still repeating her candle routine for Ram when I left the village a year and a half later.

Was that a sign of mother’s love or a mental disorder?

2. Mother Who Was Not

This is a story of a rich Muslim girl named Pakeeza, who lived in Pakistan, which, until 1947, was part of northern India. Pakeeza’s parents sent her to Louisiana State University to earn her Ph.D. degree. There she met, and subsequently fell in love with, Hind, another LSU student, who observed the Hindu religion. Both ultimately recognized the inherent risk of continuing their relationship because of the conflicts between their two religions experienced by their parents. So, they decided to end their relationship.

That did not go well, since neither could concentrate on their studies, and they realized that eventually they would flunk out, which was not an option. So, Pakeeza decided to visit her parents in Pakistan to convince them that times had changed and that they should give their blessing to Pakeeza and Hind resuming their relationship.

The visit turned out to be a total disaster. Pakeeza’s family threw her suitcase out onto the street and warned her never to return. Their family relationship was permanently ended.  

Once back at LSU, Pakeeza and Hind decided that they would defy the wishes of their parents and get married. In addition, Pakeeza reluctantly decided that, although she would never give up her right to become a mother, she would never become a mother. To date, she has kept her word, although we will never know if she has had second thoughts.

Is this a unique form of mother’s love? You tell me.

3. Mother’s Impossible Decision

The following story still gives me goose bumps. I heard about it in 1965 when, with a United Nation’s passport, I was allowed to visit Hanoi, Viet Nam, as a tourist. As was generally the case, during the rainy season Hanoi’s rivers flooded, which resulted in multiple injuries and deaths. During that year’s rainy season, one river overwhelmed the town, drowning scores of people. In one case, a mother was swept into the river with her two children. She held on to the children’s hands, hoping that someone would come to her aid, but no one did.

Then the inevitable happened. Eventually, the mother could no longer hold on to two children, so she had no choice but to let one of them go and drown.  

No one knows how the mother decided which child she would let go of, knowing the child would drown. If you have any ideas, please let me know.

4. My mother, Taru Mittra

In 1957, when I visited my mother before permanently leaving for America, I expected her to plead with me to reconsider my decision, or at least agree to visit the U.S. for only a year or two. I could not have been more wrong. Her goodbye message to me was crisp, profound, and life changing.  

HAPPY MOTHER’S DAY

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Charles Gauck professionally edited this blog and made valuable suggestions for improvement. However, the author takes full responsibility for the contents of this blog. 

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 Feedback

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Thank you.

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

Occasionally I enjoy sharing with you some of my life’s incidents, some hilarious, others shocking. Even though they are personal, I hope these blogs help you forget the world’s problems, at least for a little while.

1. LOBSTER DINNER

The year was 1989, and the place was Tokyo. After presenting a paper at a special meeting of Certified Financial Planners, the meeting host took all the attendees to dinner at a famous ocean-side restaurant. The scene was breathtaking, and the weather was like you’d expect in Hawaii.

After spending an hour and a half being offered a variety of drinks, which was the Japanese custom (I don’t drink so I had Sprite), we were ready for dinner. The host bragged that the restaurant was famous for fresh lobster, so he took the liberty of ordering it for everyone. Frankly, I was miffed, because my customary dinner time was long over, but that didn’t seem to matter.

While waiting for our dinner, which I understood would take at least another half hour, the group ordered more drinks, and we all (with one exception) enjoyed that time immensely.

Finally, the dinner was served. But rather than serving dinner in a conventional manner, the server brought a portable oven and a cooking bowl containing heated oil, and carefully placed them at the center of the table. That made me curious as to what was going to happen next.

Well, after the server left, the restaurant’s famous chef brought in a live lobster and a sharp knife, and placed them next to the cooking bowl. The host then told me that, as an honored guest, I would have the distinct pleasure of cutting out parts of the live lobster, frying them, and then serving them to the dinner guests. How could you get lobster any fresher than that?

Blame me all you want, but that did it for me. In fact, the impact of that gruesome offer by the chef was so upsetting that I refused to have lobster that evening and, as a further result, I have never had lobster again. Not surprisingly, the host was deeply offended that I did not appreciate the opportunity to help prepare and serve fresh lobster.

2.  MY FIRST LECTURE AS A PROFESSOR

The date was September 3, 1961, and the place was the University of Florida, Gainesville. I had completed all of my Ph.D. requirements, but had not yet formally received my degree. Considering this to be a minor technicality, Dr. Clem Donovan, head of the Economics Department, nevertheless granted me permission to teach two courses in Economics.

I can’t begin to tell you how excited I was to teach my first class. Of course, I was nervous as well, since I was concerned that I could make a blunder and make a fool of myself. So, I sat in a corner of the classroom before the class started and reviewed my lecture notes until I had virtually memorized the entire lecture.

At 9:50 a.m., barely ten minutes before the class was to begin, I went to the rest room. When I came out of the rest room and started walking back to the classroom, I was approached by someone I assumed was a student, who started the following conversation:

Student: Professor Mittra, please don’t be nervous. All of your students are a bunch of good kids. We will not give you any trouble at all.

Me: I am deeply offended. I am well prepared for my class and am ready to deliver an outstanding lecture. What makes you think I will be nervous?

Student: Are you sure you are not nervous about teaching your first class?

Me: I am quite confident about delivering a fine lecture and can guaranty that you are dead wrong.

Student:  Really? Then why the heck did you just come out of the ladies rest room?

3.  MY COMMAND OF FRENCH

In 1966, I had a stopover in Paris on my way from Bombay to Detroit. As luck would have it, I had been required to pass proficiency tests in two foreign languages, and I had selected French and Spanish. So, given my proficiency in French, I felt confident visiting a French restaurant, reading a French menu, and speaking French when ordering my dinner.

Once seated in the restaurant, I picked up the menu, which was written in French (English was not yet that popular in France and there was no English menu available) and instantly felt nervous. I could not identify a single menu item I felt confident ordering, so I had no choice but to arbitrarily select one menu item. Here is how my conversation with the waiter went:

Me: I would like to order this item, pointing to it on the menu.

Waiter: No, no, monsieur.

Me : What do you mean, no? I am the guest and I will order whatever I want.

After repeating this conversation several times, the waiter left in disgust and brought over the restaurant manager, who solved the mystery instantly. The menu item I had selected read: This special fish dinner is not available on Fridays.

You can imagine the embarrassent I felt at that point, but before I could say anything, the manager calmed me down by saying that he, too, had a similar experience in New York when he went to a restaurant and struggled ordering because of his limited knowledge of English. In the end, that evening turned out to be delightful because the manager ultimately invited me to a private dining room for a gala dinner, and we had a ball.

4.  RETURN FLIGHT FROM LUXUR, EGYPT

In 1995, I had the rare opportunity to visit Cairo, Egypt, and take a cruise on the Nile River. It was an experience I will never forget, what with the breathtaking view of the river, the Egyptian music, and a great Egyptian dinner, accompanied by an English-speaking guide to make sure that we didn’t miss anything.

After completing a tour of Cairo and the surrounding area, our tour guide told us that no visit to Egypt would be complete without a visit to Luxor, a city on the east bank of the Nile River in southern Egypt. It’s on the site of ancient Thebes, the pharaohs’ capital at the height of their power, during the 11^th century B.C. Today’s city surrounds two huge, ancient monuments – the graceful Luxor Temple and the Karnak Temple. On a gorgeous spring day we flew from Cairo to Luxor, where I was mesmerized by the grandeur of the monuments, especially so because they were still standing relatively undamaged. We stayed there for the night and toured additional sites the next day.

After completing our tour, we headed to the Luxor airport to catch our 4:00 p.m. flight to Cairo. The guards at the airport, afraid of terrorism, did not allow us to bring anything with us once we checked our luggage, passed inspection, and entered the “safe area.” Fortunately, the safe area had a restaurant where passengers could safely buy food and drink to take on the airplane. It was there that I met Cary, a tourist from Salt Lake City, and we spent time chatting about our experiences in Luxor.

Finally, at 3:30 p.m. we were asked to walk from the terminal to the airplane; there were no buses. But as soon as we started walking toward the plane, a security guard rushed toward us and stopped Cary, who had the following conversation with the guard:

Cary: Why are you stopping me from boarding the airplane?

Guard: You are carrying a water bottle that could contain an explosive capable of blowing up the airplane. We can’t risk that happening.

Cary: What? I bought the water bottle from your safe area restaurant, and was told that I was permitted to take it with me. So what’s the problem now?

Guard: We suspect terrorism and can’t take that risk.

Cary: Okay, I will throw it away. Will that satisfy you?

Guard: No, sir, it could still blow up; but if you drink from the bottle, then we could let you go.

At that point, Cary drank the water and started to proceed to the airplane; but he was stopped again.

Guard: The water you drank could still blow you up, so you have to wait here for four hours so we can be sure that the water was safe. 

I left Luxor without knowing what happened to Cary. But once back in Detroit, I called him to find out. He told me that after he waited for four hours and was declared safe, he was told that planes flew between Luxor and Cairo every other day, so since he had missed his plane that day, he would have to stay there for two more days before he could return to Cairo. Cary reported that two days later he returned to the airport to fly to Cairo. This time he made sure not to buy anything from the safe area restaurant or other shops, and his return flight was smooth and enjoyable.

Years later I was told that the Luxor airport rules had completely changed, and that it had become permissible to carry onto the airplane a water bottle bought at the safe area restaurant. Hearing that, I was tempted to check out if it was really true, but the thought quickly passed. Who knows; perhaps they now have restrictions on, say, American Levis, Adidas shoes, or who knows what else?

5.  MISSED FLIGHT IN SAN FRANSISCO

If this has never happened to you, you may not be able to fully grasp the gravity of the situation, so please read on.

It was the summer of 1994, and my wife and I traveled from Detroit to San Francisco to attend a family wedding. Everything went well, and we thoroughly enjoyed our visit. After the wedding, we took a cab and checked into a motel near the airport. Our next day’s flight was at 6:00 a.m., and considering that the flight from San Francisco (SF) was reportedly full, we didn’t want to miss it so, as an extra precaution, before going to bed I made sure that the airport van would be there on time to drive us to the airport. 

The next morning we went to the motel lobby and found the van waiting outside. After loading our luggage, the driver asked if he could be excused for five minutes to deal with a personal matter. Since we were the only passengers going to the airport at that time, I agreed.

Well, guess what? The driver drove off with our luggage and never returned. The motel manager frantically searched for the driver, first by calling his cell phone and then his home phone, but got no response. At that point I started sweating; we had lost our luggage and also missed our flight. The motel manager offered us a free night’s stay in the motel, but that did not solve our problem, so we just sat on the sofa near the front door and prayed for a miracle.

That miracle occurred at around 9:00 a.m., when the van driver showed up out of nowhere with our luggage and, without explaining why he had disappeared, nonchalantly offered to take us to the airport. I subsequently heard that the driver had fallen asleep and did not wake up until 9:00 a.m.

After we arrived at the airport, we learned that all direct flights to Detroit were full for three days. So, our best option was to take a plane to Miami, and then fly to Detroit, with another stopover in Washington, D.C. That convoluted series of flights, however, came with the good news that the airline would not charge us additional for this indirect flight.

The flights from SF to Miami, and then to Washington, D.C, went well. But because of technical difficulties there, our flight to Detroit was cancelled, and we had to wait for another eight hours to catch the next plane to Detroit. It seemed like a nightmare that our trip from SF to Detroit, which should have taken 4-1/2 hours, took 28 hours! I wondered if the pony express could have done better.

But wait! We were not done receiving good news. We did not have to haul our luggage from the Detroit terminal to our car in the parking lot, because our luggage was lost. The airline promised that if they ever found it, which was not a certainty, they would deliver it to our home at no additional charge. What a relief!

I have flown all over the world, from New Zealand and Australia to Alaska, and many places in between, but for sure, I have never had experiences like we encountered on this trip. 

Bottom Line.

I hope you enjoyed this blog as much as I did writing it. Let me know if you would like for me to write more of these blogs to entertain you.

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Travis Smith provided technical support for this article. Charles Gauck professionally edited this blog and made valuable suggestions for improvement. However, the author takes full responsibility for the contents of this blog. 

Posted in Uncategorized | Leave a reply

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 Feedback

If you enjoy reading these blogs and would like to share them with friends you like, and especially those you don’t like, please have them sign up at sid.mittra1@gmail.com. If you wish to share your thoughts on this or any other blog, you can do so by emailing me at sid.mittra1@gmail.com.

Thank you.

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

At last I have stumbled on a perfect topic for a blog: Expected outlook for the U.S. economy during the balance of 2022. No matter what I predict, the situation will be different. What a deal!

On a more serious note: Today my objective is to creatively rearrange the forecasts published by government and reputable pubic agencies, so that you can appreciate the real-life picture of where we are headed.

I will divide this blog into three parts. In Part I I will present the factors that identify positive signs of where the economy is headed. In Part II I will discuss factors negatively affecting the economy. Finally, in Part III, I will merge the first two parts and present my views on the subject.

PART I

THE GOOD

Growth of GDP

Currently, the U.S. economy is impacted by three major factors, each of which is unique. First, we are still under the grips of the COVID-19 pandemic, although its strength has considerably weakened. Second, the Ukrainian war shows no signs of ending, which is getting the U.S. progressively more involved in another foreign war. Third, the inflation rate, which surpassed the 40-year high in January of this year, represents a vastly different trend than we have previously experienced.

But those factors don’t tell even half of the story. As of the end of the first quarter of 2022, we had reached virtually full employment at a rate faster than we have ever before achieved. Consumer demand for goods and services is robust. Corporate profits are roaring back.  As profits soar, business investment keeps up with demand, positively contributing to the GDP. Finally, during the height of the pandemic, businesses were compelled to develop new technology to cope with the changed environment. That trend continues, as evidenced by a consistent growth in labor productivity.

So, putting it all together, traditional forecasters like The Conference Board predict that GDP growth this year will remain relatively robust. That means that a 3% GDP growth rate, which has traditionally been considered heathy, appears to be a safe bet.

Pent-Up Consumer Demand

An unprecedented result of the pandemic was the placing of trillions of dollars of spending money in the hands of consumers, who did not have the opportunity to spend the money because of massive lockdowns and other restrictions. As the pandemic slowly disappears and the lockdown restrictions are lifted, consumers are spending all this accumulated money. These expenditures have resulted in the buying of consumer durable goods and homes, as well as the resumption of travel and other leisure-related activities. The fact that the economy is reaching near-full employment only strengthens that trend. Collectively, these facts are clearly positive signs of healthy economic growth.

Federal Reserve vis-à-vis Government Relationship

Something rarely discussed by the news media is the cozy relationship that has developed over the years between the Federal Reserve and the government. The Fed was originally created as an independent body, responsible only for maintaining the value of the dollar, and it was given the monetary policy tools to accomplish that objective. All that is still in place, albeit with a major difference.

For quite some time now the Fed has also become active in helping the government achieve its fiscal policy objectives. For example, during the pandemic, the government was anxious to put trillions of dollars of spendable money in the hands of consumers, and the Fed played a major role in helping the government achieve its objective by regularly buying billions of dollars of government bonds, and dropping the Federal funds rate to near zero. This Fed-government relationship should be viewed as a major change in their ongoing relationship.

Massive Government Debt

Not too long ago, a common belief was that it is a good idea for the U.S. government to live within its means, and that government debt should increase only as necessary to deal with a serious financial crisis. That idea seems to have been obliviated, which is a good thing, especially when it comes to dealing with the pandemic. The government has borrowed extensively to fight the pandemic, which has resulted in government debt exceeding 130% of GDP. Regardless of the potential consequences of such an unprecedented increase in government debt, this justifiable borrowing has allowed, and continues to allow, the government to adopt multiple trillion dollar stimulus plans, thereby helping the economy experience a healthy rebound.

PART II

THE BAD

Inflation Fiasco

At the top of everyone’s list of bad news is inflation, which has reached a 40-year high and shows no signs of abating. Consumers are especially sensitive to the high prices of gas, groceries and transportation, although price increases on other everyday consumer goods are also common. 

Okay, you say, that’s all well and good. But we’ve had inflation before and the Fed succeeded in solving it, so what’s the big deal now? The answer is: Plenty. Here are some vexing issues that are unique to the current situation.

1). This inflation is not just a U.S. problem. Prices are skyrocketing worldwide, so the Fed alone cannot be expected to solve the problem.

2). A totally unique cause of the current inflation is the pandemic, which has distorted our generally accepted pricing mechanism. Normally, inflation surfaces because the demand for consumer goods exceeds the supply. The problem is usually solved by limiting the money in the hands of consumers, and encouraging producers to increase the supply of consumer goods to meet the consumer demand.

Today’s inflation, however, is vastly different. The pandemic led the government, over the last two years, to provide consumers with trillions of dollars of spendable money, while simultaneously blocking their ability to spend the money due to nationwide lockdowns. But now that the lockdowns have been lifted, this money is being spent at a rate we have rarely seen. So, the only way to deal with this unique problem is to let it play out without the help of “traditional” monetary policy actions. That policy does appear to be an abject failure, doesn’t it?

3). Another unique factor contributing to the current inflation is the supply chain problem. That is a political issue that also cannot be solved by implementing traditional monetary policy actions.

4). European Crisis. One of the key concerns associated with the Russia-Ukraine war is that Russia is a major supplier of oil to European and other nations.  Russia produces about 12% of the global supply of crude oil. The war has already disrupted this supply chain, as is evidenced by the fact that gas prices in the U.S. have, on average, exceeded $4.00 per gallon. Only now, shaken by the national outcry of its “hands off” policy, has the government has taken some measures that have brought the average price of gas down to slightly below $4.00 per gallon. Some details about this topic follows:

a). Europe’s heavy dependence on, and inability to access, Russian natural gas may result in the European Union’s economy experiencing slower growth—or, in the extreme case, a recession. The EU is a major trading partner of the U.S., accounting for more than 15% of U.S. exports. On top of any EU demand for U.S. exports, any appreciation in the value of the dollar, as a result of its relative safety, will make U.S. goods more expensive and less competitive. Both of these factors would reduce the contribution of exports to GDP growth in the U.S.

b). Although some of Russia’s crude oil production might be curtailed because of sanctions imposed by the U.S. and its allies, Russia might be able to skirt the sanctions by various means. As a result, the demand for Russia oil is likely to remain strong in the short run, and gas prices may well remain in the stratosphere for the balance of the year.

PART III

THE UNPREDICTABLE

As you might have realized, I have not addressed other information on this subject recently published by the government and other sources; but I believe that I have covered most of the elements essential for me to make a valued judgment.

I predict that we will plough through the balance of the year without triggering a recession. Still, the journey will be onerous, especially because of the factors discussed above.

And so, applying a typical grading system, I will give our performance an A-. However, I am afraid that, because this is a mid-term election year, Americans are more likely to assign our performance a C-. Regardless, it will not be pretty, that’s for sure.

What do you think?

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Travis Smith provided technical support for this article. Charles Gauck professionally edited this blog and made valuable suggestions for improvement. However, the author takes full responsibility for the contents of this blog. 

Posted in Uncategorized | Leave a reply

_________________________________________________________________________

Feedback

If you enjoy reading these blogs and would like to share them with friends you like, and especially those you don’t like, please have them sign up at sid.mittra1@gmail.com. If you wish to share your thoughts on this or any other blog, you can do so by emailing me at sid.mittra1@gmail.com.

Thank you.

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

(Note: This is an important issue which no one wishes to discuss. Fortunately, Roger Wingelaar, editor of my column when I published for the Oakland Press, has produced a special blog for our valued readers. I hope you find this column thought-provoking. Sid Mittra)

Are newspapers biased? 

Of course they are, they are the product of people who are imperfect and biased. Only God is unbiased.

So if bias is inherent in what we journalists create, why does this debate go on so?

The problem is that most journalists believe they are unbiased. They see themselves as mostly perfect, (but they are unsure of the ethics of their competitors.)

I did not think of myself as biased when I was a young journalist. But the realization grew the longer I corrected reporters about the need to present both sides.

One of my mentors used to say: “The function of newspapers is to raise hell and report the news.” That is what I did and I enjoyed every minute. I was doing something exciting and important with a smart bunch of coworkers. Not to mention the adrenaline rush every day at deadline.

As I progressed into a curmudgeon, it dawned on me that newsrooms had a distinct liberal bias.

It was understandable because young journalists were drawn to the profession for the same reasons — they wanted to fix what was wrong and they were willing to crusade for change even though newsroom pay was notoriously poor. 

So at least part of bias is group think. If everyone in a newsroom leans toward liberal, the acceptance of liberal bias as the norm becomes difficult to oppose. And when conservatives are scarce, no objections are raised when their side is left out of reporting. Presenting both sides in a story is called balance, or allowing both sides of an issue to be heard. The most common response to my requests to reporters that opposing opinions were needed to balance their report is that reporters did not know any conservatives, or that conservatives declined to speak to reporters because they were concerned they would be misquoted or misunderstood.

Bias also manifests itself in topics determined to be worthy of coverage and those considered unworthy. 

Take for example the New York Post’s reporting on Hunter Biden’s laptop. The Post, which is often dismissed as a tabloid, and was therefore unreliable. Which was the mainstream media’s reaction to what was a blockbuster story — they ignored it. The timing was remarkable, just before a presidential election the media ignored evidence that the son of a candidate was shopping his family connections in Ukraine, China and others.

This was bias by exclusion.

And while bias was becoming more pronounced, the opportunities to read unbiased news were shrinking.

By the turn of the century, a sea change in technology destroyed the need for delivered paper news and advertising. The internet and social media created something like the penny press and yellow journalism of the 1800s.

When anyone can publish and editing is scarce, the difference between truth and fiction grows even more blurred. And sensational news is one of the few kinds that draw followers in social media.

Meanwhile, the surviving newspapers had to compete to stay relevant. They faced declining readership, loss of ad revenue and shrinking news budgets.

Cuts to newsroom budgets often targeted editors, who were seen as extraneous. After all, if the goal is more news, then more of those dwindling budgets should be reserved for writers. 

But editors were the ones keeping the reporters focused on truth and fairness.

What evolved were just a few national newspapers that defined what was news.

Even the New York Times (“All the news that is fit to print”) is limited in the amount of space devoted to news. Which means that NYT editors decide what is fit and what is not. And despite claims of fairness, bias plays a part in such decisions.

On the opposite side, the Wall Street Journal  enjoys poking fun at the NYT for what they choose not to print.

But WSJ is after all a business newspaper. It delves into political and international reporting because business leaders, owners and investors realize they need comprehensive news to make profitable decisions.

WSJ likes to present itself as the only national newspaper that makes a point of presenting both sides. In contrast to the others, it is biased in favor of conservatives and Republicans, which reflects their readers.

The Washington Post and NYT are predictably biased in favor of liberal politics and progressive social ideas. 

Let me go out on a limb here and say that no newspaper or national news source can ignore half the people and expect to be considered a purveyor of news that serves everyone.

CNN and Fox News have carved out niches, and it is understood which one supports Democrats and liberals and which one backs Republicans and conservatives.

It is a return to the past when newspapers declared their allegiance to Whig or Democrat parties.

So the question is not, is the media biased? But rather, why don’t these media outlets fess up and just declare their political allegiances on their mastheads? 

************************************************************************

Roger Wingelaar is a self-taught journalist who edited small and medium newspapers throughout mid-America for over 30 years.

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

You are undoubtedly familiar with common superstitions ranging from sneezing, to black cats, to Friday the 13^th. But in this blog, I would like to share with you five unique superstition stories from around the world. Arguably, these stories stretch the accepted definition of superstition, but they still underscore the “true spirit” of that ominous word.

Superstition in America

It was December 1969, and  I had just been promoted to full professor at Oakland University in Rochester, Michigan. The same year, I was invited to present a paper at the annual meeting of the American Economic Association in New York City. Since my university was covering all of my travel and hotel expenses, I got the bright idea of renting a van and taking my family with me for a vacation in New York. After my wife agreed with my idea, I got carried away and invited the family of Andy Cohen (not his real name), a fellow professor, to join us so that both of our two families could vacation together. Not surprisingly, the Cohens quickly agreed.

On December 27, I rented a large van that could easily accommodate our two families and decided to have it washed before loading our luggage. But guess what? Unexpectedly, the car wash equipment shattered the rear view mirror on the passenger’s side of the van. Petrified, I approached the car wash owner who denied any responsibility for the damage to the mirror.      

So, there I was with a serious dilemma. The van was still drivable, so that was not an issue. But I knew that the Cohens were a highly superstitious family, and that they would immediately cancel their travel plans if I told them about the incident at the car wash. After thinking about it for a while, for better or for worse, I decided not to tell the Cohens about the incident.

Our two close families agreed that vacationing together in New York turned out to be the best vacation we ever had, especially since money was never an issue. Our children had a ball visiting zoos and theme parks and eating hamburgers to their hearts’ content, and we parents loved watching them enjoy themselves.

We returned home on January 2, exhausted but thrilled. I found it particularly amusing when Andy Cohen said he could not have planned a better vacation than the one they just had. At that point, all I could think was, what about the well-accepted superstition that breaking glass is an omen of bad luck to follow?

Perhaps you have the answer.   

Superstition in Bangladesh

A strange superstition exists in the remote village of Anandakati (not its real name) in Bangladesh, which was part of India before the partition of India. The superstition is that anyone foolish enough to visit the cremation area (where dead bodies are burned on a funeral pyre) alone at night would be killed by evil ghosts. No one had dare test the superstition, so it remained unchallenged.

One day, however, a fight broke out in Anandakati between two groups, one of which believed in the superstition and the other of which rejected it as a total myth. The fighting stopped when Harish, the leader of the opposition group, made a scary offer. He announced that at midnight on Amavasya day (the no moon day) he would go to the cremation area carrying a large screw. Once there, he would drill the screw into the ground and then leave, proving beyond a shadow of a doubt that the superstition was a total myth.

As planned, on that moonless night, Harish headed for the cremation area, promising to return and celebrate his survival with a large cup of his favorite tea and “singara and pantua,”  favorite Indian snacks. 

The next morning, fearing the worst, the two opposing groups went to the cremation area to find out what had transpired. They found Harish lying on the ground, dead, presumably killed by a ghost. That unequivocally proved to the group of superstition believers once and for all that the centuries-old superstition was real and valid. 

Then, as the opposition group started to leave the cremation area, one of them noticed something revealing. Harish had, in fact, managed to drill the screw firmly into the ground. It appeared, however, that since it was pitch dark that night because there was no moon, when he knelt down to drill the screw into the ground, he must have accidentally drilled the screw through his dhoti, a long sarong, which prevented him from getting up. In the opinion of the opposition group, that’s all that was needed to shock, and instantly kill, Harish, which meant that the ghosts had not killed him.

This story has an interesting ending. Even today in Anandakati, a fight occasionally breaks out between groups believing in, and those opposing the superstition. The believers are sure that the superstition was responsible for Harish’s death; but the opponents argue that since Harish could have died naturally of a heart attack, this one incident fails to prove that the superstition is valid. 

Is it any wonder that people like these are sometimes called inscrutable Orientals? 

Superstition in China

For centuries, a very different superstition has prevailed in China. Foot binding was a Chinese custom that involved breaking and lightly binding the feet of young girls in order to change the shape and size of their feet. It was a painful practice that limited the mobility of the girls when they grew up to be women, and resulted in lifelong disabilities. Despite this inhumane treatment of girls, the Chinese believed in the superstition and felt that it was a status symbol for women to have bound feet, and a mark of feminine beauty.

The practice of foot binding varied over time, and by region and social class. The practice originated among court dancers in the 10^th century during China’s Five Dynasties and Ten Kingdoms, and gradually became popular among the elite during the Song dynasty. Eventually, foot binding spread to lower social classes, and arguably improved women’s marriage prospects.

As despicable as this practice was, the superstition continued unabated for centuries. Then, in the late 19^th century, Christian missionaries and Chinese reformers challenged the practice; but it was not until the early 20^th century that the practice began to phase out.

I don’t know about you, but it makes me sick to think that such an evil superstition was allowed to survive for centuries.  

Superstition in Brazil

Alberto Romeo was planning to travel to New Orleans to visit Tulane University, which had awarded him a fellowship to study engineering.  Romero’s family was very excited about what this would mean for his future prospects.

Tulane University, New Orleans

In Brazil, as in many other South American countries, it is a superstition that a black cat crossing one’s path could lead to bad outcomes. On the day that he was to fly to New Orleans, as Romero was approaching the taxi that would take him to the airport, a black cat crossed his path. Unfortunately for Romero, his family had seen the black cat crossing his path, and they felt that the incident clearly signaled an ominous outcome that should not be ignored.  As a result, Romero’s father advised him to postpone his trip for one week.  Romero readily agreed. He sent an urgent note to Dr. John Donovan (not his real name), dean of the Tulane School of Engineering, explaining that a black cat had crossed his path just prior to his planned departure for New Orleans, and that this bad omen meant that he would have to delay his trip by a week. Dean Donovan responded with the following letter:

Dear Mr. Romero,

Thank you for honestly explaining the reason for postponing your arrival at the university. While we respect your beliefs, we cannot conduct our operations on the basis of such a superstition. Therefore, on the advice of the Fellowship Committee, we have cancelled your fellowship and have awarded it to the next deserving candidate. We wish you all the best.

Signed: John Donovan

Dean, School of Engineering

Well, after many unsuccessful attempts to get another fellowship from a U.S. university, Romero became convinced that, because of this blemish on his record, he would never succeed in getting another fellowship. But that didn’t stop him from trying, or from attempting to find the black cat responsible for his dilemma.

Superstition in India

Ashish Kumar, along with his wife and son, Ram, lived in the northern city of Banaras (U.P.), where Ashish worked for a successful business. His lucrative corporate position allowed him to send Ram to Banaras Hindu University (BHU), which at that time was unquestionably the best engineering school in India, comparable to MIT in the U.S. Once Ram graduated from BHU, his success as an engineer was virtually assured. He could likely find a job anywhere in India, and any prospective employer would gladly pay him his desired salary. 

Ram respected his father’s advice, so after he graduated from BHU, Ram consulted his father for advice regarding his job search. That’s when Ram was made aware of the existence of a strange superstition that was common in India. This is how Ram’s conversation with his father went:

Ram: Father, you know that I can get any job located anywhere I want. So how should I go about landing the best job?

Father: Yes, son, you are right about that. But we have a family tradition (carefully avoiding using the word superstition) we firmly believe in. It is your duty to stay with or near me so you can take care of me until I die.

Ram: That would create a serious problem. In order to get the kind of job I want and deserve, I must move to a big city like New Delhi or Bombay. There is nothing available here that I want.

Father: What is more important to you, your job or your respect for our age-old family tradition?

Ram: But that is a silly superstition we should never believe in. Can’t you see that?

Father: You think I spent all that money to send you to BHU so you could talk to your father like that? I hope you will think about what I have just said and eventually change your mind.

Ram felt that he could not ignore his family’s superstition, so he eventually gave in. Unfortunately, since he was over-qualified, no one in Banaras would hire him, fearing that he would not stay on the job for long. This is where the story gets really interesting.   

After months of applying for jobs in Banaras, Ram managed to get one miserable offer from an archaic business that churned oil from mustard seeds by using a bull:

This story ended as strangely as it started. Ram’s father lived for another 25 – yes 25 – years, during which time Ram was duty-bound to stay in Banaras. After that, it was too late for him to land another job, so he continued to work at the oil churning business. By that time, Ram was married and had a son, Akash, who also believed in the family superstition. As a result, Akash found a job in a nearby city. Then he and Ram’s family moved there, and Akash worked there until he retired as a glorified clerk. 

Interestingly, I too, had a personal experience with this same age-old superstition. In keeping with this superstition – or family tradition – after getting my undergraduate degree, I stayed with my family in Kanpur while working as a clerk in a local bank. But after two years I realized that this was just a superstition with no real basis and that I needed to reject it. So, I moved away from my family and settled down in Bombay (now Mumbai), a city far away from Kanpur. Eventually, I mustered up sufficient courage to leave my family behind in India and move permanently to the U.S. Understandably, I was the object of considerable criticism from my relatives for making this decision, but I prevailed.

It’s been 65 years since I moved to the U.S. Still, on occasion, I wonder what would have been the consequence if I had honored my family’s age-old Indian tradition and never dared to make the move I did. 

Bottom Line

Superstitions are fun to talk about, as long as we don’t take them seriously. If you ever make that mistake, you will have to live with the consequences. And I guarantee you that won’t be much fun.

_________________________________________________________________________

Travis Smith provided technical support for this article. Charles Gauck professionally edited this blog and made valuable suggestions for improvement. However, the author takes full responsibility for the contents of this blog. 

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Thank you.

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

I am writing this blog on March 14, 2022. Daylight savings time having disturbed my sleep, I woke up at 4:00 a.m. and headed to my study room. Soon I had an interesting idea – that I would review what the media had been talking about a month or so ago. So I went to my archives and created a list of news headlines that appeared on February 5, just over five weeks ago. 

NEWS MEDIA HEADLINES ON FEBRUARY 5, 2022

Okay, we had our fun looking at all the financial terms appearing in media headlines on just one day, and now it’s time to get back to some serious discussion. In this blog I will present 10 financial terms frequently used by the news media. I hope you will find this discussion informative. 

Economic Growth 

A. Basic Concept

The health of the economy is measured by calculating the Gross Domestic Product (GDP), which is the monetary measure of our national wealth. If the GDP continues to increase at a reasonable pace (3 to 4%) our economy will be functioning well.  

Of course, GDP is an abstract number that does not explain in personal terms things like our prevailing living conditions, quality of health care, educational system, climate control, absence of violence, respect for civil rights, and above all, happiness or lack thereof.

That being said, GDP is the best measure we currently have to assess the wealth of our nation. So it is important that we understand what it represents.  

B. Standard Definition

Economic growth is the increase in our country’s newly produced goods and services. Few of us realize the number and variety of goods and services our country produces. These include not only basic items like food, clothing and transportation, but also a wide range of more sophisticated items like capital goods, technological products and new inventions. The challenge is how to accurately measure the value of only the goods and services produced during a given year (and not the value of previously produced goods and services). Fortunately, statisticians have devised a method that accurately measures the value of these goods and services. This technique involves a two-step process. 

Step 1. Realizing that it is virtually impossible to measure the value of these newly produced goods and services, their approach was to measure the quantifiable expenditures on these goods and services. Although expenditures on goods manufactured and services provided in prior years have to be estimated and deducted from the total, that is a manageable task. 

Step 2. For practical reasons, our expenditures are divided into four categories: consumer expenditures; capital expenditures by the business sector; government expenditures; and expenditure associated with net exports (exports minus imports). The total of these expenditures is published as the GDP for a given year. An annual increase in GDP of 3 to 4% signals that an economy is healthy. 

C. A Caveat

Since savings represent negative expenditures, savings are treated as an unwarranted activity. Instead, consumption expenditures, which account for almost 70% of GDP, are encouraged and even glamorized. The result is that savings in America are lower than in any other industrialized nation. 

The proper way to look at savings is to recognize that, although it is true that savings initially reduce consumption expenditures, when these savings are ultimately loaned to the business sector, which converts them into investment expenditures, GDP goes up by a like amount. So, consumers need to understand that their personal savings, which are essential to help them build a more secure financial future, do not negatively affect the GDP.

Government Debt 

The total amount of money owed by the U.S. Government to domestic and foreign entities is called the government or public debt. Increases in public debt over time reflect borrowing due to government deficit spending. In January 2022, for instance, the U.S. public debt was $30.01 trillion, $2.23 trillion more than a year earlier, when it was $27.78 trillion. 

The definition of public debt is relatively simple, but the implications of a huge public debt are not. However, there is no consensus on this issue. One view is that the ability of the government to issue debt has been central to building a truly democratic society, supporting private financial markets and sustaining economic growth. Equally important, proponents of this view assert that the rise in public debt since 2007 can be attributed to the global financial crisis of 2007-08, the COVID-19 pandemic, and the Ukraine conflict. Under this view, since public debt is financed by issuing U.S. dollars, which can be printed at will, the size of the debt should not be a major concern. 

An opposing view vehemently objects to a large (greater than GDP) public debt. Proponents of this view maintain that there is no such thing as a free lunch and that, by incurring such a large public debt, we are abandoning financial discipline and shifting the burden of debt repayment to our children and grandchildren. 

The disagreement over the appropriate size of the public debt continues, with the proponents of each view remaining firm in their convictions. 

Inflation 

Inflation is a measure of the increase in the price of goods and services. The main causes of inflation are either an increase in the production cost of goods (cost push) or an increase in the demand for goods (demand pull). 

Fortunately, in 1914, legislators had the foresight to delegate the responsibility for controlling persistent inflation solely to the Federal Reserve. That worked well until the Great Depression of the 1930s shattered the economy. At that time the federal government pitched in to supplement the Fed’s efforts to revive the economy. Since then, the burden of controlling inflation and recession has remained the joint responsibility of the Federal Reserve and the federal government. 

Much has changed since this Fed/government partnership aimed at controlling inflation was established. For instance, for some time the Fed has been buying and holding government and other types of securities to help the government manage inflation, something the founding fathers never imagined. 

Complicating the issue of inflation is the fact that new factors contributing to inflation are surfacing with amazing frequency. Examples include the COVID-19 pandemic, supply chain disruptions, political conflicts in Europe, and much more. It will be some time before a new method of controlling today’s inflation is conceived.

Federal Funds Rate

The federal funds rate is the interest rate that banks charge each other to borrow excess reserves overnight. Banks must maintain at the Federal Reserve minimum reserves in proportion to their deposits, which is known as their reserve requirement. When a bank has surplus deposits above its reserve requirements, it may lend those funds overnight to other banks that are experiencing a reserve deficit.

The federal funds rate is set based upon a target rate recommended by the Federal Reserve through its Federal Open Market Committee (FOMC). The actual federal funds rate that applies to these overnight loans can be higher or lower than the Federal Reserve’s target rate.

Bond Yield Curve

A concept that confuses some investors is the bond yield curve, which many people find complicated. Perhaps the following examples will help.

Assume you buy a 15-year, $1,000 bond paying annual interest of $50. If you hold the bond until maturity, your annual return on this investment would be 5% ($50/$1,000). No confusion there. But what if you got really lucky and bought the same bond for $500 (don’t you wish). Then your annual return on this investment would be 10% ($50/$500). This real return is known as the bond’s yield. 

A bond’s yield curve is a line that plots interest rates, or yields if you prefer, associated with bonds of similar credit quality but differing maturity dates. Bonds with longer maturities carry higher yields. Therefore, as a general rule, the bond yield curve slopes upwards, and is an indication of the direction of future interest rate changes and economic activity.

Inverted Yield Curve

An inverted yield curve on the other hand, represents a market condition in which long-term bonds have lower yields than short-term bonds of the same credit quality. This results in a bond yield curve with a negative slope.  In such cases, investors show a preference for short-term over long-term bonds. This is taken as a strong indicator of a future recession and negative future economic activity. 

Unemployment

Of all the economic terms that are frequently used by policymakers and economists, none is misunderstood more than unemployment. There are several reasons for this, with the emotional factor topping the list. In our capitalist society, anyone unable to find a job is treated as a failure, and the system is blamed for creating such an inhumane condition. 

The truth is that natural unemployment contains four components: structural, cyclical, frictional and seasonal unemployment. Some of these components are voluntarily, created by the people seeking better paying jobs or moving to more desirable locations. These people are nonetheless considered unemployed. As a result, it is easy to see why zero unemployment is both unattainable and undesirable. In fact, the government considers an unemployment rate of 3%  to be consistent with full employment.  

Stock Dividend

The term stock dividend creates some confusion on two fronts. First, unlike bonds, which pay interest, not all stocks pay dividends, and some never pay dividends. Second, stock dividends are not paid in cash, but are paid in the form of additional shares of the issuing company’s stock. That allows the company to preserve its cash reserves, while still rewarding its stockholders with a return on their investment. 

For example, assume that a company declares a stock dividend of 5% by issuing five additional shares for every 100 shares owned by existing shareholders. After this dividend payment, the number of outstanding shares would increase, thereby diluting the company’s future earnings per share.

 NASDAQ Composite vs. S&P 500 vs. DJIA

These names may seem like tongue twisters, but that is the easy part. Many investors can’t distinguish between these three indexes and, more importantly, few can explain which one is more relevant to them. There are three main differences among the Nasdaq Composite, the S&P 500, and the Dow Jones Industrial Average. 

The first one relates to their coverage universe and the market sectors that are part of each index. The Nasdaq Composite and the S&P 500 indexes include more companies in different sectors than the DJIA. Another difference is their method of assigning weight to the individual companies included in their indexes. Each of the Nasdaq Composite and the S&P 500 weighs the companies included in its index based upon market capitalization, whereas the DJIA weighs the companies included in its index based upon each company’s stock price. The final difference is the criteria used to select the companies included in the respective indexes. The DJIA is more value-oriented and uses a mix of quantitative and qualitative factors in determining whether a given stock should be included in its index.

According to Investopedia, valuations of the three indexes are highly correlated, and all three generally rise or fall together. But the extent of rise or fall differs for each index. More specifically, if an investor wants to invest in a broad range of stocks, then the S&P 500 is a good choice. But if an investor’s objective is to invest in an index that mirrors the stock prices of well-established blue-chip stocks, then the DJIA is a good choice. Finally, if an investor prefers the tech sector, the Nasdaq Composite is the best choice.  

Stock Market Crash

Some market specialists have recently been hinting about a possible stock market crash. It is therefore useful to know how to identify a market crash and, more importantly, how to prepare for it if and when it occurs.

Unlike bear and bull markets, both of which are precisely defined, a market crash has no specific definition. So the best way to define it is to use a popular adage: It is hard to describe a giraffe; but you know instantly when you see one. 

A market crash occurs when broad market indexes register double digit declines, spreading panic and euphoric responses among investors, who then engage in a widespread market selloff that pushes the market down even further. Doom and gloom spread quickly and stock prices collapse precipitously. 

A market crash can also be caused by the bursting of a speculative bubble or the occurrence of a catastrophic event. Other factors that can cause a market crash include a prolonged period of rising stock prices and excessive economic optimism. During such a period company price/earnings ratios exceed long-term averages, and investors use excessive leverage to fund stock purchases. Even a deep depression can be caused by a stock market crash. 

When a market crash is firmly established, the Federal Reserve and the federal government join forces to institute extraordinary measures to restore normal market conditions. The Fed typically reduces interest rates, halts trading or adjusts normal market rules. The government, in turn, provides liquidity to markets, specifically to the financial sector. Lawmakers often enact measures to address the underlying economic factors that led to the crash.

A market crash can ultimately lead to a deep depression.

Bottom Line

I hope that this brief review of the 10 terms frequently used by the media will be of some help when you read articles on the economy and the stock market. You may want to consider filing this blog away for future reference. 

______________________________________________________________________________

Travis Smith provided technical support for this article. Charles Gauck professionally edited this blog and made valuable suggestions for improvement. However, the author takes full responsibility for the contents of this blog. 

Posted in Uncategorized | Leave a reply

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Thank you.

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

PART I

INTRODUCTION

In 1969, I was promoted to full professor and granted tenure at Oakland University in Rochester, Michigan. That gave me the confidence I needed to pursue a novel method of teaching undergraduate students about life. With the permission and blessings of my dean, I was allowed to devote the last 10 minutes of each class to sharing with my students my personal experiences, as well as other stories that imparted valuable life lessons. Over time, this technique turned out to be very popular, and the University administration encouraged me to continue the practice.

During my teaching career, I compiled a lot of these stories, four of which became so popular that I repeated them multiple times. In this blog I will share them with you.

PART II

VALUABLE LIFE LESSONS

One: LIFE AND A CAN OF BEER

I heard this story from Dr. John Webb, my economics professor when I was a graduate student at the University of Florida.

One day in class, Professor Webb stood before a table on which he had placed several items. He first picked up a large, empty mayonnaise jar and proceeded to fill it with golf balls. He then asked us if the jar was full. We agreed that it was.

He then picked up a box of pebbles and poured them into the jar. He gently shook the jar, and the pebbles rolled into the open spaces between the golf balls. He then asked us again if the jar was full. Again we agreed that it was.

He next picked up a box of sand and poured it into the jar. Of course, the sand filled up the empty spaces in the jar. He asked once more if the jar was full. We responded with a unanimous “yes.”

Finally, he poured two cans of beer into the jar, effectively filling any remaining empty space in the jar. We laughed.  “Now,” he said, as the laughter subsided, “I want you to recognize that this jar represents your life. The golf balls are the important things – your family, your children, your health, your friends, your favorite passions – things that, if everything else was lost and only they remained, your life would still be full. The pebbles are the other things that matter, such as your job, your house, your car. The sand is everything else – the small stuff.”

“If you put the sand into the jar first,” he continued, “there is no room for all of the pebbles and golf balls. The same goes for life. If you spend all of your time and energy on the small stuff, you will never have room for the things that are important to you. Pay attention to the things that are critical to your happiness. Play with your children. Take time to get medical checkups. Take your partner out to dinner. Play another 18 holes of golf. There will always be time to clean the house and fix the garbage disposal. Take care of the golf balls first, the things that really matter. Set your priorities. The rest is just sand.”

At that point I raised my hand and inquired what the beer represented. The professor smiled and replied, “I’m glad you asked. It just goes to show that no matter how full your life may seem, there’s always room for a couple of beers.”

Professor Webb concluded the story with the following lesson: When things in your life seem almost too much to handle, when 24 hours in a day are not enough, remember the mayonnaise jar . . . and the beer.

Two: POWER OF GIVING

The second story, which describes a real life situation, is equally powerful.

A man named Fleming was a poor Scottish farmer. One day, while working in his field, he heard a cry for help coming from a nearby bog. He left what he was doing and ran to the bog. There, mired up to his waist in black muck, was a terrified boy, screaming and struggling to free himself. Fleming saved the boy from what could have been a slow and terrifying death. The next day, a fancy carriage pulled up to Fleming’s modest homestead, and an elegantly dressed nobleman stepped out and introduced himself as the father of the boy Fleming had saved.

“I want to repay you,” said the nobleman, “You saved my son’s life.”

“No, I can’t accept payment for what I did,” Fleming replied waving off the offer.

At that moment, Fleming’s son appeared. “Is that your son?” the nobleman asked. “Yes,” Fleming replied.”

“I’ll make you a deal. Let me provide him with the level of education my own son will enjoy. If the boy is anything like his father, he’ll no doubt grow up to be a man we both will be proud of.”

And that he did. Fleming’s son attended the very best schools and, in time, graduated from St. Mary’s Hospital Medical School in London. Later in life, he became Sir Alexander Fleming, the discoverer of penicillin.

Years later, the nobleman’s son, who Fleming had saved from the bog, was stricken with pneumonia. What saved his life this time? Penicillin, of course.

The name of the nobleman? Lord Randolph Churchill. His son’s name? Sir Winston Churchill.

Three: Seven Magic Elephants Exploring the Process of Creativity

The third story was written by Margo LaGattuta of Rochester, Michigan. Margo was a master of the written word. She was the author of four published books, the winner of the 2005 Mark Twain Prize for American Humor, and the editor of multiple anthologies. The following story of hers was undoubtedly the most popular of all the stories I shared with my students.  

It’s a new year, and we are given another chance to start our lives anew.  We want to be better this year, more creative, more productive.  The problem is getting started.  Whatever we want to create in our lives can happen if we follow seven easy concepts.  This idea came to me years ago when I saw an ad in a magazine for “Seven Magic Elephants.”  For only $3.98 I could have my every wish come true – wealth, health, romance and happiness.  These seven ivory elephants, the ad said, would bring luck to the person who possessed them, so I decided to look for a series of seven concepts (or elephants) of the creative process.  This way I could remind myself how to be creative when my ideas dry up.  Here are the seven empowering concepts I discovered:

Concept 1 – INTENTION

Creativity begins with a wish and a plan.  There must always be a longing combined with intent to begin any creative idea.  Holding the elephants in our hands allows us to begin to name the possibilities.  We begin with small choices and a bit of magic.  This is the brainstorming stage, the “What do I want in my wildest dreams?” elephant.  It’s the blank page or canvas, but it needs a concrete place to begin.  So begin by writing down an intention.  What do you really want to create?

Concept 2 – TIME

The next elephant is time, an obvious but rarely honored ingredient in creativity.  We make time for nearly everything visible in our lives, but this is the invisible one.  It is the time before any measured outcome.  Often we try to take our creative time from what is left when we have accomplished the necessities of life.  But we then discover there is no time left.  It helps to commit one day a week, or one weekend a month, for incubation and creative projects, and stick to it.  Even if you spend the afternoon staring out the window and doodling, taking the time gives focus, and soon you will have begun.

Concept 3 – LOVE

Love, particularly self-love, is an elephant of empowerment.  It is difficult because with anything that is bold or new there is always risk.  The voice of the critic in our head says, “Who do you think you are?”  Creativity takes an act of audacious authority, which can only come from self-esteem.  There must also be the desire to make something happen, the love of the idea itself.  Believing in ourselves and what we are doing is a paradoxical dance of amazement, a kind of love/fear mambo.  It is what drives us on to face the elephants to come.

Concept 4 – ENERGY

This elephant is the fire cracker that explodes a project into motion, the leap of faith that overcomes all obstacles.  It comes in a burst of electricity or a quiet urgency.  It is the red cardinal to a bird watcher, who must sit very still to notice its presence.  It’s a zoom, a flash of insight, a theatrical drum roll and should be seized and honored.

Concept 5 – FEAR

Once we’ve processed all the other elephants, this is the big challenge.   Fear of failure (or worse, fear of success) can stop any idea cold.  This elephant says, “Give up,” and triggers any fear that lingers in the memory bank of loss.  This is where most of us stop.  Standing up to it takes digging in our proverbial heels.  Yet, in this stage of the birth process, the doorway to the delivery room, there is no turning back, no easy way out, and no one else can help.  The only way out is through.

Concept 6 – LETTING GO

This is the nothing elephant – the time when it seems like we’ve failed for sure, and we don’t know what to do.  It’s the time of total surrender to the process.  If we think we had control before, we are now certain we have none.  We need to meditate, or clear our mind of all thought, let go of all agendas.  This is a very secret place, where something we never expected can come in.  This is where a creative leap can take place.  We can make a change that makes it work.

Concept 7 – BIRTH

The brand new elephant resembles its parents yet has the look of an original.  The idea in its infancy still trembles.  We need the nothing element to become still enough to even recognize this elephant.  We rejoice and stand in awe.  The birth of any new project is as painful as it is joyous.  And there is hard work ahead, involving wish, time, love, energy, fear and letting go.  The circle of elephants goes on into infinity.  What a gift to know we hold them all in the palms of our hands.

Four: Words in the English Language

This one does not fit the description of a story, since it consists only of the ten most powerful words in the English language. However, I am persuaded to include it here because over the years these words were repeated by my students more times than I dare to count.

These ten two-letter words are as follows:

IF IT IS TO BE, IT IS UP TO ME.

BOTTOM LINE

I hope you found the stories I presented in this blog both valuable and enjoyable. If you have similar stories that you wish for me to share with my readers, please send them to me. Thank you.

__________________________________________________________________________

 Charles Gauck professionally edited this blog and made valuable suggestions for improvement. However, the author takes full responsibility for the contents of this blog. 

Posted in Uncategorized | Leave a reply

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

Part One

John (name changed), a long time reader of our blogs recently approached me with the following request: “Sid, for a month track the free investment advice published by market experts and then tell me what you have learned.” Intrigued, I did just that, covering the period February 10 through March 10. Here is what I discovered:

FREE ADVICE ON INVESTING IN STOCK MARKET

I am truly amazed by the wide range of free advice imparted by investment professionals. Looks like the only thing that’s left for me to add is the priceless lesson I learned in 1957 on the first day of my university graduate course on investment. It goes like this: 

Buy stock. Sell it when it goes up. If it doesn’t go up, don’t buy it.

By the way, if you already know where to find investment information you are looking for, please quit reading this blog and go golfing. For the rest of you, I have valuable advice for you.

Part Two

In this blog I will provide the theoretical foundation for answers to three critical questions every stock market investor must ask. In doing so I will remember that my task is to present complex economic and finance processes in lay terms. Please let me know if I succeeded in my mission.

Q1. What is the right price for the stock I am interested in buying? More importantly, how do I know when the stock I own has become overvalued?

A1. The concept that answers this question is known as the Price/Earnings (P/E) ratio. Here are the steps needed to get the result.

Buying a stock

1. When you buy a stock, you get nothing but a piece of paper of no intrinsic value. What you are really after is to buy a piece of the company which issued the stock.

2. In buying a stock, you are, in fact, buying the future earning capacity of the company. This is calculated by estimating today’s present value of all of the company’s future expected earnings.

3. The beauty here is that you can calculate this number by grouping companies of all sizes and earning capacity.

4. The ratio of the current price and future earnings is the P/E ratio assigned to that company. Of course, more information about this company and others in the same industry is needed for a more thorough analysis. But that does diminish the importance of the P/E ratio.

5. The bottom line is that the P/E ratio of a stock identifies its fair price. For instance, if the earnings are $1 and the prevailing P/E ratio of companies in that industry is, say 15, then the fair price of that stock is $15 (15X1= $15). If you can buy it for less, it is a bargain.

6. You want to buy financially sound companies that offer a good return on investment or ROI. The P/E ratio helps you achieve that objective.

Selling a stock

Selling a stock is a mirror reflection of buying a stock. When the P/E ratio moves above its normal expected price, emotions aside, it is time to consider selling it. Of course, there are other considerations for investors, but that is a different story.

Q. 2. I hear that S&P 500 stocks have never lost a penny. In fact, over the long run it has provided the best returns. Then why all this fuss about buying other investments and having the burden of managing them?

Your thinking is flawed by a misunderstanding of the critical variable, risk. So, let me explain.

The theory of finance defines risk as the possibility that the outcome of an investment would be different from the expected return. According to this definition, even a gain is treated as risk, which flies in the face of our common understanding of the word.

That being said, a S&P 500 portfolio, or any other portfolio for that matter, is risky. You assume that risk by owning one of these portfolios. Put differently, the fact that S&P 500 has established such a stellar record over the long run does not mean that it is not a risky portfolio. More importantly, if you own it, then you should be fully compensated for assuming that risk.

The investment theory measures the risk, or fluctuations, of a portfolio by measuring its standard deviation. The higher the standard deviation,, the higher the reward needed to compensate for assuming that risk. In essence, then, the risk and reward of owning a portfolio are interrelated. Management of this risk is at the heart of efficiently managing your investments.

3. Now I know that there is risk even in owning the stock market which I had erroneously assumed as risk-free. But how do I know the amount of compensation I should demand both for assuming the market risk as well as for my sacrifice to part with my money for a period of time?

4. That is the best question you have ever asked me. A crisp answer to your question is given by the mathematical equation:  ERi​=Rf​+βi​(ERm​−Rf​). But please relax. I am not going to burden you with this gobbledygook. Instead, I will explain this complex theoretical concept in lay terms so you can grasp its power. I merely presented this equation here just so you can have fun.

The answer to your basic question is based on a powerful concept known as the Capital Asset Pricing Model, or CAPM, invented by William Sharpe, the Nobel Prize winner in Economics. It answers your question by introducing beta (β) which helps determine the compensation you deserve for assuming the stock market risk. It also uses another symbol (Rf​) that measures the compensation you deserve for loaning your investment money.

Here’s is an example that should clarify the concept.  Assume you wish to buy ABC stock for $100 per share today that pays 5% annual dividend. The stock has a beta (riskiness) of 1.3, which is 0.3 times higher than the market risk of 1. The risk-free rate is 3% which represents the compensation for parting with your money. Finally, you expect the market to advance in value by 8% per year.

Based on the CAPM formula your appropriate return from this investment should be 9.5%. That is, if you do not receive that return, then you were not compensated for the additional risk you took in investing in that portfolio.

This is the most powerful tool investors have to invest in the market and assume risks. Risk takers can create a portfolio that has a beta of more than 1 (more than market risk). Similarly, risk averse investors can create a portfolio with a beta of less than 1 (less than market risk). Clearly, the lower the beta the lower the overall return expected from that portfolio and lower the risk of the portfolio.

Bottom Line

In this blog I have explained in simple terms several relatively complex issues that might be of help in understanding what these are designed to do. Hope I have achieved my objective.

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Travis Smith provided technical support for this article. Charles Gauck professionally edited this blog and made valuable suggestions for improvement. However, the author takes full responsibility for the contents of this blog. 

Feedback

If you’re enjoying what you’re reading, please consider recommending it to 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.

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

Part 1: Fun and Games

Let’s have fun playing a few interesting money games. Ready?

Game 1. Invest one cent (yes, one cent) into a special account that doubles your money every day. How much money would you have in that account on the 31^st day?

If you answered more than one million dollars, you are right on the money.

Game 2. Invest $10,000 into an index fund that generates a 7% annual return. Ignoring taxes, what would the value of this account be in 70 years?

If your answer is $1,280,000, you are right again.

Game 3. Assume Bob is 22 years old. Each year until he turns 65, he invests $10,000 in an S&P 500 index fund.  His friend Bill starts investing at age 25, but invests $15,000 annually in the same fund, and also quits investing at age 65. Who will have more money in his investment account at age 65?

Did you say Bob? Wow! You got it right this time as well.

Congratulations on your investment knowledge!  I hope to build on that knowledge in this blog by reviewing for you some tax saving strategies that you may or may not be aware of.

Part 2: Tax Savings and Long-term Growth of Money

You are undoubtedly aware that the long-term capital gains tax rate – which is the tax rate paid on gains from the sale of investments held for 12 or more months – is substantially lower than the ordinary income tax rate.  However, you may not be able to point out that taxes do not apply in the case of Game 1 above, where a one cent investment that doubles each day (daily compound rate of 100%) becomes a million dollars in 31 days.  In this blog I will address that issue, and much, much more.

• Long-term Capital Gains (LTCG) Tax Rates                                                                             

Long-term capital gains are taxed at a rate of 0%, 15% or 20%, depending upon the taxpayer’s taxable income and marital status. In addition, there is now a 3.8% net-investment surtax on both long-term and short-term capital gains for married couples who earn more than $250,000, and singles who earn more than $200,000.

As an example, let’s assume that you sold an investment with a LTCG of $100,000.  If your LTCG tax rate is 15%, and your marginal ordinary income tax rate is 33%, your tax on this LTCG would be $15,000, compared to $33,000 if the ordinary income tax rate applied.  If you wisely invest this $18,000 “savings,” and earn an average of 7% per year, excluding taxes, this amount would grow to more than half a million dollars over the next 50 years. Not a bad deal is it?

Hopefully you can now see how investing at a compound rate, coupled with the advantageous LTCG tax rate, a sound practice is.  And when you realize that both Game 1 and Game 2 above would make the hypothetical investor a millionaire, this practice looks even more attractive.

• Tax-Deferred Retirement Planning

Another tax saving strategy is to put the maximum amount allowed each year into a retirement fund like a 401(k) or IRA. The reason is well-known. During the time the money remains in the retirement account, taxes on any gains are deferred. As a result of not having to pay taxes on any such gains, there is more money – so called “tax money” – in your retirement account to grow over time.

However, this tax deferral comes to an end when you turn 72, known as the Required Minimum Distribution (RMD) age when, whether or not you need the money, each year you must withdraw from your retirement account a designated amount and pay ordinary income taxes (no LTCG tax magic here) on the withdrawal. Even so, the financial benefit of being able to retain that deferred tax money for 30 or 40 years would far exceed the ordinary income taxes you would have to pay on your RMDs.

• Reduce LTCG Taxes                                                                 

Although the LTCG tax rate is fixed, as noted below, you can still be creative in reducing your long-term capital gains.

Each year you can analyze your investment portfolio’s long-term investments to see if some of them have performed poorly and could be sold at a loss. If so, you can accomplish two things by selling these investments.  First, you can get rid of the poorly performing investments and second, you can use the losses incurred to offset any LTCG resulting from the sale that year of other investments.

If your losses from the sale of poorly performing assets exceed your LTCGs for that year, you can carry those losses over to the next tax year to help offset any LTCGs realized that year.

• Avoid Paying Taxes on Charitable Donations

That sounds like a pipe dream, doesn’t it? But for those who are charitably-inclined and wish to donate retirement account assets to a charity, there is no better deal around.

The strategy I am referring to is possible because a person is allowed to transfer directly to a qualified charitable organization, retirement plan assets with a market value of up to $100,000 – yes, $100,000 – but pay no taxes at all on the amount transferred.  On the other hand, the amount transferred would be subject to ordinary income taxes if you withdrew it and donated the after-tax amount to the charity (different tax rules apply to charitable donation). For example, if a person in the 33% marginal tax bracket withdraws $100,000 from a retirement account, the after-tax amount available for gifting to the charity would be $67,000, considerably less than the charity would receive if the retirement plan assets were transferred directly to the charity.

An added advantage of such direct asset transfers of retirement plan assets is that the value of the assets transferred reduces the taxpayer’s RMD for that year, which reduces the taxpayer’s tax liability for that year – by $33,000 in the above example.  What a deal!  There is one caveat, however.  Direct asset transfers to charitable organizations do not qualify as tax deductible charitable donations.

Part 3: Popular Tax Reduction Opportunities

In this part, I will briefly identify six additional tax reduction opportunities.

• Mortgage Interest Deduction

Taking advantage of the mortgage interest deduction can save homeowners a lot of money over the years because it allows them to deduct mortgage interest paid on the first $1 million – $750,000 in the case of homeowners who purchased homes after December 15, 2017 – of mortgage debt.  The deduction is also available for interest paid on second home mortgages.  Claiming the mortgage interest deduction requires that the homeowner itemize tax deductions.

• Tax Break on Home Sales

Married couples filing jointly who sell a home are exempt from paying taxes on gains of up to $500,000, provided that the home was their primary residence for at least two out of the last five years.

• Saver’s Tax Credit

This nonrefundable tax credit is available to eligible taxpayers who contribute to traditional and/or Roth IRAs and to certain employer or government sponsored retirement plans.  The credit is worth either 10%, 20% or 50% (depending upon income levels) of a taxpayer’s eligible contributions, which are capped at $2,000 for those filing as a head of household, and $4,000 for married couples filing jointly.  The credit cannot exceed the amount of tax owed.

• American Opportunity Tax Credit

This tax credit applies to qualified education expenses associated with the first four years of a student’s education after graduating from high school.  Eligible students (or their parents) can claim a credit of 100% of the first $2,000 spent on school expenses plus 25% of the next $2,000 spent, for a maximum of $2,500.  To qualify for the credit, a taxpayer’s modified adjusted gross income must be $80,000 or less ($160,000 or less in the case of married taxpayers filing jointly).

• Lifetime Learning Credit

This nonrefundable tax credit of up to $2,000 per year is available to taxpayers who satisfy the income limitations of the American Opportunity Tax Credit but do not claim it.  The credit applies to education expenses paid to any educational institution offering higher education beyond high school, and there is no limit on the number of years the credit can be claimed.

• Tax Benefits for Older Taxpayers

1. Employees age 50 and older can add an additional $6,500 (for a total of $27,000) to the amount they can contribute to certain employer retirement plans.
2. Individuals age 50 and older can make an additional $1,000 annual contribution into their traditional and Roth IRA accounts.
3. Individuals age 55 and older can make an additional $1,000 annual contribution into their Health Savings Accounts.
4. Single taxpayers age 65 and older qualify for an increase in the standard deduction from $12,950 to $14,700.

Bottom Line

Hopefully, at least some of the tax saving tools discussed in this blog will be new to you and, if they apply to you, you will research them or consult with your tax advisor to take advantage of them.  In any event, remember that you learned about them by reading this blog.

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Travis Smith provided technical support for this article. Charles Gauck professionally edited this blog and made valuable suggestions for improvement. However, the author takes full responsibility for the contents of this blog. 

Feedback

If you’re enjoying what you’re reading, please consider recommending it to 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.

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

It appears that the news media is determined to convince us that America Is Falling Apart at the Seams.

In order to find out if our readers feel differently, I invited them to share a personal story that provided an example of the title of this blog. I am impressed by the responses I have received thus far.   In this blog I will share with you three responses that have been selected by our Board of Advisors. Additional responses will be published in future blogs.

First Example

Harold Evensky

NY SUBWAY

When the kids were young, we took a trip to the Big Apple. I don’t remember where we were heading, but it was during rush hour and the subway traffic was terrific. As we approached the turnstiles to enter the subway, my young children, David and Elizabeth, were behaving less than perfect. Frustrated, I hollered and rushed them through the turnstiles, and we managed to board the subway. That was the good news. The bad news was that soon after the subway took off, I realized I did not have my wallet. Panicked, as we did not have much money and what little we had was in my wallet, I told Jeanne to take the kids and go back to the hotel and I hopped the next subway to return to our original departure point. I searched high and low around the turnstiles and checked with the ticket agent, but no wallet.

Horribly depressed, I headed back to our hotel. When I got to our room I used my key. It didn’t work and no one answered my knock. Completely befuddled, I continued to try my key and continued knocking, all to no avail. I finally went downstairs to check with the desk. There I discovered I was at the wrong hotel. I was obviously depressed. Turns out there are lots of Marriott hotels in New York City. I eventually made it to the right room and we all sat around really depressed and ordered pizza and planned on returning home.

Not long afterwards the phone rang and someone asked if I was Harold Evensky. I said yes and can I help you. He said: “No but I think I can help you. I found a wallet and I believe it’s yours. It was sitting on top of a subway turnstile.” It seems in my frustration with getting the kids through the turnstile, I had my wallet in my hand and set it on the turnstile.

This extraordinarily kind gentleman asked where we were. I explained we were at the Marriott Hotel and he said he would bring me my wallet. When he showed up I asked how he found me. He said he figured that based on the money in my wallet we were staying at a nice hotel, probably in Manhattan, so he had called dozens of hotels until he found one that said it had a Harold Evensky registered. I took the money out of my wallet and offered him half of it as a reward. He was a pattern cutter at a textile company and obviously had limited resources, but he refused my offer. I was beside myself grateful and asked if there was anything I could do to thank him and he said maybe sending him a package of good coffee. Well, indeed I did for many years. I also wrote a letter to the president of the company he worked for and he wrote me that they had a big ceremony to honor him.

They don’t make many people like that. 

My Wallet

Second Example

Katy Koontz

There are so many, but one seems to stand out for me today.

When I was pregnant several decades ago, I had preterm labor and had to stay in bed day and night, laying totally flat. It was extremely disheartening, frustrating, and even a bit frightening (because if the baby had been born early, she may not have lived or would have had several problems). This was my first and only pregnancy, so I had nothing to compare my experience to.

My friends in the neighborhood had planned to give a surprise baby shower for me and another friend in the neighborhood who was pregnant at the same time. On the day they’d chosen, they did indeed give our friend a surprise shower, but of course I was home in bed and did not know anything about it, let alone that it was originally supposed to be for me as well.

After they’d opened our friend’s gifts, they packed up the food and decorations and more gifts (these for me) and they all walked down the street to my house. My mother was staying with me to help out that week, and they’d let her know what was happening. So when they arrived, she let them in and they all trooped upstairs to my bedroom, where they set up all the decorations and the food and the presents. It was amazing—I couldn’t come to my own baby shower, so they brought it to me. It was just what I needed that day, because when I woke up, I felt particularly sad about my situation.

I’m still friends with all of these wonderful women, 28 years later, although only three of us still live in the neighborhood. My daughter was born safely when I was barely full term, so it all turned out well. She’s planning to get married later this year, and several of these women will be guests at the wedding. I feel incredibly blessed!

Third Example

Robert Skubic

The year was 1998. Emily, age five, had a lifetime fear of people other than her immediate core family. Once Emily’s parents received a warm request to visit friends, a married couple whose ages were near the ages of Emily’s four grandparents, with whom she continued to be quite shy.

Was this particular evening invitation predestined?

Circumstances necessitated that Emily join her parents that night of fortune, where she met, for the first time, Bani. Emily was most gently welcomed into the home of this gracious woman so elegantly dressed in a flowing garment. Bani, throughout their entire time together, with a quiet calmness, lavished personal, eye searching attention upon Emily’s behavior and words. As time passed into a couple of hours of gathering together, Bani sensed a tiring state coming over Emily. Pausing the conversation, Bani, alone on her couch, focused an offer to Emily of inviting words and gestures to come into her arms for rest. To the amazement of Emily’s parents, she got up, went promptly to Bani’s waiting embrace and snuggled comfortably there for the remainder of their visit. This was a first time occurrence, and one even noticed subsequently by Emily’s aunts when she wasn’t screaming in their presence. Emily was forevermore changed into a trusting and affectionate child, becoming the caring high school teacher she is today, for the wellbeing of the young people she encounters daily.    Bravo Bani for making the difference in one young girl’s life, leading to inspiring others exponentially in the grace of kindness.

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Travis Smith provided technical support for this article. Charles Gauck professionally edited this blog and made valuable suggestions for improvement. However, the author takes full responsibility for the contents of this blog. 

Feedback

If you’re enjoying what you’re reading, please consider recommending it to 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.