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Teri Bernstein, MBA, CPA has been teaching full time in the Business Department of Santa Monica College since 1985.  Prior to that, she worked in Internal Audit and Special Financial Projects for the 1984 Los Angeles Olympics, CBS, Inc., and Coopers & Lybrand (which is now part of PricewaterhouseCoopers).  She attended the University of Michigan and Wayne State University.

  • California dream or tragic corruption?

    image from Two widely divergent opinions are expressed in the linked article. Corruption and collusion are alleged by those supporting one side of this issue. Fairness is alleged by those supporting the other side. In any event, the issue--a loan program for California high school graduates without U.S. citizenship--highlights how divergent opinions can be when money is involved. The communication techniques on both sides of the issue can be identified and analyzed by a critically-thinking reader. What arguments are emotional? What arguments are fact-based? How are hyperbole used by each side? Identify, for each side, the selection of only those facts that support their position. Demographic predictions for the state of California--and their implications for business--seem to have been ignored by both sides. Nevertheless, demographics are usually a major factor in the business economy. Source: " Senator Lara Announces the California Dream Loan Program–College Loans for Illegal Aliens " by Stephen Frank, California Political News and Views, April 4, 2014. F ollow up: Putting your personal feelings aside, analyze the positions taken in the linked article with respect to principles of business communication. What effect might SB 1210 have on small business in California? Read the demographic data on Report P-1(Race) as you form your thesis. Comment on the communication techniques used by those posting comments to the linked article.
  • The Income Gap: How to fix it

    image from Robert Reich , U-C Berkeley professor and noted economist, is a huge fan of the middle class. Therefore, income equality is an issue that he has a lot to say about. And--unlike Thomas Piketty --Reich does not believe we are doomed. Some major factors which influence his position include the following actions which need to be taken to counteract the income gap: Make work pay. If a minimum wage of $15 per hour were attached to the fast-growing fields of hospitality, restauranteurism, and tourism, this would make a huge difference. According to Reich, " No American who works full time should be in poverty. " Unionize Low Wage Workers . Unions gave the middle class clout, and unions are now the only way that low-wage workers can face off against global competiion. Invest in eduation. This might seem like a no-brainer, but education costs money and the uneducated sometime do not have a voice in policy decisions. According to Reich, " Education should not be thought of as a privae investiment; it is a public good that helps both individuals and the economy. " Invest in infrastructure . This means road, public transportation, decent rents in places near to work, affordable utilities, education from age 3-23. Everything. America is behind on investing in these basic, business-supporting needs. Pay for these investments with higher taxes on the wealthy . According to Reich, " Between the end of World War II and 1981 (when the wealthiest were getting paid a far lower share of toalt nation income), the highest marginal federal income tax rate never fell below 70 percent, and the effective rate (including tax deductions and credits) hovered around 50%. But with Ronal Regan's tax cut of 1981, followed by George W. Bush's tax cuts of 2001 and 2003, the taxes on top incomes wer slashed, and tax loopholes favoring the wealthy were widened ." M ake the payroll tax progressive . Since payroll taxes are 40% of government revenues, shouldn't they be progressive, if that is an American value? Government could exempt the first $15,000 of income from these taxes for a start. R aise the estate tax and eliminate the “stepped-up basis” for determining capital gains at death . OUCH. This one would personally hurt me, but I have to admit that inherited wealth is not really fair. Taxing wealth that has not been personally earned is actually a very good idea--especially as far as adjusting for income inequality is concerned. Fist step : reduce the taxable threshold on inherited wealth from $5.34 million down to $1 million. How many people is that going to hurt? And those that it does "hurt"--can they afford it? Stepped up basis inequality : Here is how the current rule works: If my parents sell their house before they die, they are subject to tax on the increase in its worth since they bought it. But...if it is in their estate, it passes to their heirs at the value it had the day they died. The increase in capital worth that occurred while they were alive is NEVER TAXED. Is that fair? Constrain Wall Street : Resurrect the Glass-Steagall Act in full and restrict the size of banks--back to the 1975 level ideally. (Fat chance). Give all Americans a share in future economic gains. According to Reich, one thing that aggravates the inequality is that, " The richest 10 percent of Americans own roughly 80 percent of the value of the nation’s capital stock; the richest 1 percent own about 35 percent. " He advises that," As the returns to capital continue to outpace the returns to labor, this allocation of ownership further aggravates inequality. Ownership should be broadened through a plan that would give every newborn American an “opportunity share” worth, say, $5,000 in a diversified index of stocks and bonds—which, compounded over time, would be worth considerably more. The share could be cashed in gradually starting at the age of 18 ." RADICAL. Get big money out of politics. If corporations, with multi-thousand...and now multi-million dollar contributions to lawmakers allowed didn't control our political representatives, average Americans might have a voice. the Supreme Court's Citizens United decision made that impossilbe. But a Constitutional Amendment (according to Elizabeth Warren) or at least full disclosure (still possible under current Supreme Court direction, but not yet mandated by law) would be a step in the right direction. Is there a chance to reign in income equality? What are we willing to do to make that a reality? Source: " Robert Reich: 10 ways to close the inequality gap: The former secretary of labor on American society's single greatest obstacle -- and what we can do about it , " by Robert Reich, the Salon , May 13, 2014. F ollow up: What are some of the highlights of Robert Reich's resume? Are you inclined to listen to his ideas because of this resume, or reject...
  • Lying with statistics: how to read the labor graphs

    Note: You can't really play the video, it is a screenshot [due to an embed FAIL]. The Video is linked at NYT On the first Friday of the month, the labor report comes out. The airwaves, business print, and internet sites are full of conclusions and spin. But what does it all mean? In fact, the statistics--and the way they are presented--can be very misleading. The "margin of error" in the reports could mean that EITHER one of the following two graphs would be accurate, based on the exact same set of data: OR..using the SAME data, the jobs report could look like this! What is the difference? The statistical swing is partly the result of the unknowns and seasonal fluctuations. Is the job increase or decrease the result of holiday hirings or layoffs? Are people slow to start looking for work again? Or... has there been a sampling error in the data presented? [Note: the sampling error of a few hundred thousand jobs in question is a small percentage of the 130 million jobs in the economy, but the sampling error is extrapolated as though it represents the economy as a whole.] In addition, one month of data can't really tell you what the trend is. The problem is: the Labor Report and the analysts who read the report influence stock traders. Traders influence the market...So misleading labor statistics can really skew the real-life results of financial trading based on the labor analysis. Also, the voting public can be influenced by "trends" that don't really have a basis in reality. One reason for this is that each one of us, as a human being, has a brain that is wired to make sense of whatever data we we are more comfortable coming to a wrong conclusion than we are with hanging out with random, meaningless data. All we can do is be aware of the problem, and try not to take action on data that we don't really understand. Sources: " How Not to be Misled by the Jobs Report , " by Neil Irwin and Kevin Quealy, the New York Times , May 2, 2014. F ollow up: According to the article, what conclusions CAN be drawn from the latest Bureau of Labor Statistics Report?
  • What "the 1% don't want you to know": Paul Krugman on Thomas Piketty

    image is from an interview at, via VIMEO According to Paul Krugman 's analysis of newly observed changes in the structure of the U.S. economy, if you are not part of a family in which you will get a piece of inherited wealth--you and your own heirs are doomed. Not only will you never be rich--you and your family will become poorer with each those with inherited family wealth become richer. The focal point of the interview linked above between Bill Moyers and Paul Krugman is the new book by Thomas Piketty of the Paris School of Economics: Capital in the Twenty-First Century . In the book Piketty delineates how 67% of the increase in the top-heavy distribution of wealth that has occurred since the 1970's is the result of huge raises given to corporate executives. These huge salaries, combined with tax and other governmental policies in the U.S., have created the perfect storm for the formation of an oligarchical economic structure that has now become hard-wired and institutionalized. Krugman makes the additional point that wealth is now so concentrated that it is invisible to most of the public--the shear size of the fortunes are out of the realm of what the average person can understand in terms of wealth management. The impact of this wealth concentration on middle and lower income people in the United States is much more pronounced than it is in Europe because governmental policies in Europe create a higher standard of living for the poorest 20% by providing health care, higher minimum wage and other income and social service support. book image from Krugman experienced reading Piketty's book as as "Eureka!" moment, as it showed how radically the economic structure had changed when analyzed over the long term. The book also pointed out that o nce wealth is held in the hands of the oligarchical few, it becomes nearly impossible to change the laws to tax the wealthy at a greater rate. The concentrated wealth has gained control over public policy as well. Can the situation be changed--to favor real competition and the growth of small businesses and the middle class? I'm going to read the book to find out... Source: " Bill Moyers w/Paul Krugman: “What the 1% Don't Want You to Know ” " by bobswern, the Daily Kos , April 18, 2014. F ollow up: According to Paul Krugman, what forces might counter the oligarchical situation which we now find ourselves in? [this is about 18 minutes into the interview] What is the "high r, low g" economy that Krugman refers to? According to Bill Moyers and tax analysts, how many times greater are top management salaries more than low income workers, based on recent tax data?
  • Foreign shoppers in the United States

    image from When American shoppers choose to shop in one state vs another--it is probably only the tax rate they are looking to get a deal on, as most product prices are similar. Moreover, this price dodge will even out in the end, as state taxes have to be paid in the state the product is going to be USED, anyway. But product prices between countries can change a lot. Here are some examples: Slingbox 350 : When it goes on sale in Mexico it will cost $75 more than it costs in the U.S. This is possibly because of the way things are taxed, but also because there is less competition among electronics dealers in Mexico. Apple computers : These can cost $500 more in the United Kingdom than in the U.S. And iPads can cost $160 more. Car tires : Black Friday sales on car tires brought Canadians over the border for bargains. Adobe software : According to the article it is " cheaper to fly to the U.S. and back to buy Adobe's software than it is to buy it in Australia" Some products, such as Photoshop, cost $1700 more overseas. Middlemen try to create other buying opportunities for foreigners: image from Source: " Why Foreign Consumers Shop In the U.S, " by Jeff Tyler, Marketplace Morning Report on American Public Media , March 7, 2014. Follow up: What products are cheaper for Americans overseas? What international laws may be violated in some of the travel-and purchase transactions? Can the workarounds be justified ethically?
  • Jobs added in February: what does it mean?

    [View: gew/utility/ :550:0] Link to video from Bloomberg , via LA Times. How can the number of jobs increase by 175,000 in the last the same time the unemployment rate ALSO goes up by .1%? And is this news good or bad? Part of analyzing labor reports is looking at what had been since 150,000 new jobs had been predicted by economists, the increase of 25,000 more than had been predicted is a positive outcome. 162,000 of the new jobs were private sector jobs and 13,000 of the new jobs were government jobs. The unemployment rate was expected to stay flat at 6.6%, but it did increase to 6.7%. Is this because more people than were expected to look for work were entering the job market? Is it because the bad weather decreased job opportunities or eliminated some part time jobs? The Labor Report is filled with statistics, but not many answers. Other factors measured include: The percentage of people in the workforce The length of the average workweek in hours Average hourly earnings (which were at $24.31/hr in February) Source: " Economy adds 175,000 jobs in February; unemployment rate up to 6.7% " by Jim Puzzangherra, Los Angeles Times , March 7, 2014. Follow up: How much has the bad weather affected the employment rates, according to the video? What employment sector LOST jobs in February? How would you explain this loss?
  • "Bull Market's 5th Birthday" may be its last...

    It seems as though the celebration of five years of a Bull Market , which I wrote about last week, was the last bit of stock market cheer we might be hearing for a while. Investors seem to be responding to several negative economic factors, and the Standard & Poor's 500 stock index is down 5.8% since January 15th.The S&P 500 index was at 1741.89 at the end of trading on Monday, February 3rd. Some of the negative economic factors include: the pullback of "quantitative easing" by the Fed, which stimulated the money supply the global response to the change in U.S. monetary policy a manufacturing industry survey released on February 3rd (whose "bad" numbers were a result of this winter's bad weather) Observers are now awaiting the market's response to the employment numbers which will be released later this week, on Friday, February 7th. Source: " As Recovery Looks Weak, Stocks Take a Deep Dive ," by Nathaniel Popper, The New York Times Dealbook, February 4, 2014. Follow up: What is the annualized percentage decrease, based on the 5.8% number noted above, that might be projected if the current bear trend goes unchecked? [Hint: it is an appallingly large number, and it is unlikely that the market will continue to plunge at the rate it has been falling over the last 2 weeks. Nevertheless, it is an interesting number to compute, to put the percentage in an annualized perspective.]
  • "Fragile Five"...what does THAT mean?

    Image from The "Fragile Five": Turkey, Brazil, India, South Africa and Indonesia. These are emerging-economy nations that have become too dependent on investments from foreign countries. The recent change in the U.S. government's stimulus policy has resulted in less availability of investment money. Much of this money flowed into these fragile emerging economies. The most recent event that has caused concern among global economic observers occurred this week: Turkey raised interest rates by 4.25%. This was followed by an interest rate increase by India...and then another by South Africa. The higher rates are meant to attract foreign investment. But now that investment funds are not as available as they were, the underlying value of the business investment becomes a more important factor in determining where an investment might be made. Sources: "‘ Fragile Five’ Is the Latest Club of Emerging Nations in Turmoil " by Landon Thomas, Jr., New York Times , January 28, 2014. " South Africa joins battle against sell-off "by Alanna Petroff, , January 29, 2014. Follow up: Research another important acronym for global business observers: BRIC. What countries does that acronym stand for? How have the economies of those countries fared? What does the bar graph in the attached article from the New York Times indicate for the Fragile Five versus the BRIC countries?
  • Income inequality

    [View: utility/ :550:0] video from mediaMatters. com Income inequality may be the greatest problem that current and future generations of Americans face. It matters little who is to blame. It is important to identify and act on the what can be done about it. It is interesting to see how one's perspective can change when one's circumstances change. If a person is doing really well, sometimes they think that income inequality is not an issue. But if they lose their job, or become disabled all of us who are lucky to live so long...grow old--the principle "I've got mine...too bad if you don't have yours" doesn't seem to be the best way to go. Source: " Fox Doesn't Believe In Income Inequality But Still Blames Obama For It ," by Tyler Hansen, Media , January 14, 2014. Follow up: What are your thoughts about income inequality? Are you a "have" or a "have-not"? What about your parents or grandparents? Do you think that solutions to this perceived problem should be implemented? Who should be in charge? What should the governing values be?
  • China way ahead of U.S. in stimulating the economy

    image from " Move over, Janet Yellen and Ben Bernanke. Step aside, Mario Draghi and Haruhiko Kuroda. When it comes to monetary stimulus, Zhou Xiaochuan, the longtime governor of the People’s Bank of China, has no rivals ." This is a quote from the NYT article about how the Chinese government's uses of economic stimuli have strengthened the Chinese economy at a far higher level--and more effective level--than the U.S. government has helped U.S. businesses. China has pumped 300% of the money that was available in 2006 into the Chinese economy in 2013. No wonder Chinese production and sales have had such a growth spurt! Nevertheless, there are differences in the ways that this stimulus works. In the U.S. the government pumps money into the economy by buying bonds. In China, government pumps money into the economy by " issuing more renminbi to bankroll its purchase of hundreds of billions of dollars a year in currency markets to minimize the appreciation of the renminbi against the dollar and keep Chinese exports inexpensive in foreign markets. " That amounts to considerable support. However, now, there is talk of reining in that support...and doing so without damaging the economy. The People's Bank of China and the Chinese government are moving slowly on this one. Source: " With China Awash in Money, Leaders Start to Weigh Raising the Floodgates ," by Keith Bradsher, The New York Times, January 15, 2014. Follow up: What are your thoughts about government stimulating the economy? Support your position with multiple internet sources. How has government stimulus helped China? Would that approach have worked the same way in the U.S.? Why or why not?
  • Should bicyclists and hybrid drivers pay more taxes?

    image by Justin Sullivan/Getty Image Fuel tax revenues help fund road maintenance and expansion...but if a person is biking or driving an electric car--they aren't paying as much in fuel taxes. So much for the " unforeseen consequences " of a decision to be more sustainable. How can a tax loss like this one be replaced? ...Maybe by creating a new tax on mileage, or on bike usage? It may be hard to measure, but the use of roads by vehicles possibly could be a tax that is shared equitably...or should it? Should gas-guzzlers pay more than the energy efficient? Do bikes "use" roads at the same rate that cars do? Should trucking for business logistics be stuck with all of the liability for road maintenance? There are so many questions regarding the equitable distribution of taxes, but there is no question that cities and counties responsible for road maintenance are feeling the effects of the shortfall in tax revenues. . Jay Friedland (Plug In America 's legislative director) has remarked that several states are imposing special fees on electric cars and hybrids. It will be interesting to see how manufacturers of electric vehicles and other business advocates for sustainable transportation respond to the intent to raise taxes or fees for those opting for "the high road" with respect to energy consumption. Sources: " Bicyclists and hybrid drivers should pay more taxes ,"by Queena Kim, Marketplace--American Public Media, December 31, 2013. Follow up: Do you think bicyclists should pay more taxes? Why or why not? What about drivers of hybrid vehicles? Are you a cyclist or hybrid-driver? Does your own situation influence your opinion? If so, how could you use your own perspective to influence a marketing campaign, one way or the other with respect to energy-saving transportation alternatives?
  • Bitcoin Explained

    The five-year birthday for Bitcoin is January 3rd, 2014. Bitcoin's "daddy" is a group of hackers named "Satoshi Nakamoto." Five years ago "Nakamoto" set up the currency to be outside of any government's control. Bitcoin's software is set up to allow anonymous currency transactions. According to the explanatory essay that accompanied the currency's launch, bitcoin's purposes included: a protest against the government-controlled currency values that could be undercut by the issuance of an unlimited number of currency units easing the transfer of funds globally, directly from individual to individual empowering smaller economies avoiding transfer fees from near-monopolies like Western Union, or bank wire transfer fees allowing private transactions--sometimes involving products that are normally regulated by governments, such as weapons and drugs. Many libertarians were attracted to the independent-of-government aspects of bitcoin. And some financiers have invested in bitcoin as they might hedge investments in any "foreign" currency. But to bitcoin enthusiasts, such as Elizabeth Ploshay, bitcoin not just money, it's "a movement." Tradehill co-founder Ryan Singer has opined that just as email supplanted snail-mail...bitcoin will supplant traditional banking. One source of information for those wishing to keep up with this rapidly changing currency platform is Bitcoin magazine, which has the stated mission to be “the most accurate and up-to-date source of information, news and commentary about bitcoin.” Source: " The Bitcoin Ideology, " by Alan Feuer, the New York Times, December 14, 2013. Follow up: Have you been involved in a bitcoin transaction? Do you have an account? What do you see as the plusses and minuses of this online currency? Would you consider "investing" in bitcoin? Why or why not? What does "P2P" mean?
  • Permanent economic slump is the new business as usual

    image from Is the depressed economy the new normal? So it seems. The new term used to describe this depressed economy is: "secular stagnation". It is being used to describe "a persistent state in which a depressed economy is the norm, with episodes of full employment few and far between ," Lawrence Summers spoke at a the International Monetary Fund's (IMF) most recent research conference, and he made the point that the markers that created the financial crisis of 2008 are in the past...but our economy has not yet recovered. Summers made the point that mild depression is the new normal. He suggested that there was not significant pressure to move beyond this lukewarm state. Paul Krugman has some additional tidbits that reinforce this point: Household debt relative to income: While it was stable from 1960 to 1985, it rose a lot through 2007 (when the financial crisis hit). Nevertheless, this rise in debt did not boost the economy. brief periods of prosperity occur only due to bubbles and rampant but unsustainable borrowing. underlying this might be slowed population growth, but even the baby boomer secondary boom did little to spur the kind of growth the initial boom seemed to trigger. Fewer kids mean fewer new households, which inhibits housing growth, a major driver of our economy. trade deficits with other countries make things worse. Without compelling evidence indicating otherwise, it seems that this slump is the new normal. Source: " A Permanent Slump?, " by Paul Krugman, New York Times, November 18, 2013. Follow up: What do you think? Is economic stagnation the new normal? What are the pros and cons?
  • $10.10 national minimum wage a possibility

    image from Representative George Miller and Senator Tom Harkin introduced a bill earlier this year to increase the federal minimum wage $10.10 per hour. (This works out to $20,200 annually for full time work.) Currently the national minimum wage is $7.25 ($14,500 a year). The news at this point is that the White House is now making the passage of this bill a priority. Small businesses often oppose increases to the minimum wage, so a coalition of politicians has made the bill more palatable by phasing in the increase over two years, and allowing a special break of up to $500,000 in expansion investments to be fully deductible. Ironically, it is the largest employers (e.g. Walmart) that benefit most from a lower minimum wage. And it is the U.S. taxpayer that foots the bill in support services to families of the working poor. A minimum wage of $14,500 per year for full time work still leaves families under the poverty level. (The national poverty level for a family of four is $23,550 in 2013...and the new minimum wage would still generate less). Representative George Miller, left, and Senator Tom Harkin Image taken by Bill Clark, CQ Roll Call for Getty Images Source: " $10 Minimum Wage Proposal Has Growing Support From White House " by Catherine Campell and Steven Greenhouse, New York Times , November 6, 2013. Follow up: What is your current wage or salary rate? What is the minimum hourly wage you'd imagine would support a decent lifestyle in your city or town? What effect does the minimum wage have on the economy? List the positives and negatives.
  • Fed announces plan to continue economic stimulus

    image from The Federal Reserve announced Wednesday that it would continue its economic stimulus program--that is, it would keep buying $85 billion of Treasury and mortgage-backed securities each month. It also planned to keep the short term interest rates near zero. The purpose of this program is to stimulate hiring and investment, and to keep the economy moving. Ironically, the market responded by by losing ground--the Dow Jones average dropped over 61 points. Nevertheless, the Fed does not intend to stop its stimulus program any time soon...not until at least March of 2014. The term of Ben Bernanke, Chairman of the Federal Reserve Board , ends in February. cartoon from the New Yorker , Oct 7, 2013 Source: " Market Slips as Economic Stimulus Goes On ," by the Associated Press, via the New York Times , October 30, 2013. Follow up: What is the purpose or function of the Federal Reserve Board? What is the current controversy surrounding the possible future Chairperson, Janet Yellen?
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