Thursday, July 26, 2012

Lopez Lomong’s Incredible Odyssey

Running for My Life: One Lost Boy’s Journey from the Killing Fields of Sudan to the Olympic Games By Lopez Lomong with Mark Tabb (Thomas Nelson, 230 pages, $24.99)

Two years ago on a flight from Denver to Des Moines my wife, Jan, had the good fortune of sitting next to a truly remarkable young man. His name is Lopez Lomong and he was on his way to compete in the Drake Relays, one of the premier track and field competitions held annually at Drake University in Des Moines.

Jan was on her way to spend a few days with our daughter who was in her final year of Veterinary School at Iowa State University. When Jan called me that evening she was still feeling the effects of her two hour conversion with Mr. Lomong. She said, “On the plane today I met the most amazing and inspirational person I’ve ever met.”

The remarkable story she heard from Lopez Lomong is now a book titled Running for My Life: One Lost Boy’s Journey from the Killing Fields of Sudan to the Olympic Games. I strongly recommend you read his book and then watch him compete in the London Olympics. He will be running the 5,000 meters for the USA. It will be his second Olympics. At the Beijing Olympics he competed in the 1,500 meter run. His book will have you laughing, crying, and shaking your head in amazement. Lopez Lomong’s odyssey from childhood to the present is a tale for the ages.

His story begins in South Sudan. Sudanese rebels burst into the village’s Sunday worship services and kidnapped all of the children, both girls and boys. All the children were jammed into a truck: “A green canopy covered the top and sides of the truck bed, so I could not see out. Suddenly the tailgate slammed shut and the truck lurched forward. I did not know it at the time, but my childhood had just ended. I was six years old.”

What happened to Lomong has happened to thousands of other children in Africa. They are referred to as “the lost boys.” This is not just man’s inhumanity to man, it is man’s inhumanity to children.

There are many pivotal and improbable moments in Lomong’s story. One is seeing a few minutes of the Atlanta Olympics on a television a few miles from his refugee camp. The event and award ceremony he saw was Michael Johnson winning the 400 meter run during the 1996 Olympics in Atlanta. It was the first time Lomong became aware that running could be a sport. Afterwards Lomong walked back to the refugee camp:

I walked along in the night, staring up at the night sky. The image of Michael Johnson standing on that platform, the letters USA across his chest, weeping openly and without shame, flashed through my head. For a man to react to winning a race in such a manner told me that this had been more than a race. Those letters on his chest and the flag he carried around the track had to be the key. Clearly he was not just running for himself. The gold medal by itself was not enough to bring a real man to tears. No this man, this man with skin like mine, ran for something bigger than himself. That had to be the reason why he wept.… I now had a dream that would change the course of my life: I would be an Olympian.

Moreover, I wanted to run with those same three letters across my chest: USA.


Other than the fact that it came true, his dream was insanely improbable.

Lopez Lomong’s story is a lesson for the rest of us in many ways. This book will give you a new and deeper appreciation for the blessings you have. As a reader comment on Amazon put it, “Read this book and try to feel sorry for yourself.” If your patriotism needs recharging, this book will do it for you. Seeing the world through Lomong’s eyes will change the way you see it through your own. You will not soon forget this book.

It will give you a new appreciation for the importance of family, and not in the narrow sense of the term. Lopez describes numerous times when people around him treated him like family and how he would not have survived and succeeded without them. Lomong now has two sets of loving and devoted parents, an African set and an American set. Lomong has a talent for conveying his feelings and emotions. He is honest and self-effacing. Reading his words will make you feel that you know him well. He has a total lack of bitterness. His optimism and positive attitude are infectious.

At the 2008 Beijing Olympics Lomong was chosen by his teammates to be the flag bearer for the U.S. delegation at the opening ceremonies. Characteristically, he said he didn’t deserve it and tried to decline the honor. His teammates told him he best represented what the Olympics are all about. They didn’t take no for an answer.

The proceeds for his book go to a charity he has established: 4 South Sudan. The four purposes of the foundation are providing clean water, access to education, better farming tools and methods, and basic medicines for people in South Sudan.

God bless you, Lopez Lopepe Lomong, and God speed to you. I hope I have the privilege of meeting you some day.

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Lopez Lomong’s Incredible Odyssey July 26, 2012

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

Thursday, July 19, 2012

Infuriator in Chief

President Obama’s greatest talent seems to be his ability to infuriate his opponents. The latest example is the campaign speech he gave in Roanoke, Virginia last weekend. In that speech he declared, “If you’ve got a business — you didn’t build that. Somebody else made that happen.” The Wall Street Journal opines that, “This burst of ideological candor is already resonating like nothing else Mr. Obama’s said in years.”

Of course, Obama’s explanation of how success happens is absurd, but that’s only part of the story. Also interesting are the motivations and consequences of his remarks. His view is much more than wrong, it is insulting, infuriating, and demeaning to a large portion of the populace.

Obama’s supporters may agree with the views he is expressing. His words may make them more enthusiastic in their support for him, make it more likely they will donate to his campaign, and show up to vote in November.

On the other hand, do those words cost him any votes? Those who are incensed by what he says probably weren’t going to vote for him anyway. When the people who are already angry enough to vote against him get even angrier, are there any consequences? Is he increasing the population of voters who are livid, or is the impact simply redundant?

Coaches tell their professional sports teams to measure their words when talking to sports reporters. They tell them not to say disrespectful things about their upcoming opponents, and not to say something that will end up on their opponents’ locker room bulletin boards. Providing extra motivation for your opponents is never a good idea.

There is a vast difference between Barak Obama’s public persona and his true nature. In other words, his public persona is a fraud. An inherent problem with a fraud is that it is not easy to sustain in the long run. There is a constant tension between the reality and the fraudulent image. An old adage says, “The truth is easy to remember.” The corollary of that is lies are hard to remember. Like bubbles, the truth tends to rise to the surface. What we saw in Roanoke is the real deal Obama. Now and again Obama actually delivers on his promise of transparency.

There is a degree of internal logic to Obama’s world view. In his Roanoke speech he said, “There are a lot of smart people out there — there are a whole bunch of smart people out there.” In other words, there’s no real difference among individuals, therefore, incomes and wealth ought to be equal.

Getting our arms around Barak Obama’s worldview is extremely difficult for those of us who don’t share it. We ask ourselves, how can anyone believe such things? But believe it he does, and the rest of us need to recognize that fact.

Obama is well known for his frequent use of argumentum strawmanium. He makes up grotesque caricatures of his opponents’ policy positions. Included in his Roanoke speech was, “There are some things, like fighting fires, we don’t do on our own. I mean, imagine if everybody had their [sic] own fire service. That would be a hard way to organize fighting fires.” Does he not recognize how insulting and condescending that sounds? Who in the world advocates having his own free-standing fire department? No one is that stupid. It speaks volumes about his opinion of his audience’s intelligence. Being talked down to that way is not a way to win friends and influence people. Obama is incapable of dealing with his opponents’ real arguments, so he describes them in absurd, cartoonish ways. It’s pathetic.

Barak Obama is unquestionably the most divisive U.S. president in modern history. People I never would have suspected have expressed to me an intense resentment and anger about what he has done to the country they love. Two wonderful ladies I know, both age 85, have for the first times in their lives become politically energized. I’m pretty sure neither one of these fine ladies have had this much political anger in all of their lives. I don’t think they are isolated examples. In November we will learn just how many voters share their feelings.

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Infuriator in Chief July 19, 2012

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

Friday, July 13, 2012

The Real Damage Done by High Tax Rates

President Obama has once again put the question of income tax rates on center stage. As a Wall Street Journal headline put it, “Obama Intensifies Tax Fight.” He is apparently hell-bent on making our income tax structure more progressive.

Raising tax rates on upper-income earners is an appealing idea to many people. The President certainly hopes that it is. The most common argument against the idea is that it would diminish the incentive for business owners to invest, hire, and grow their businesses. Although that is all too true, it’s only one kind of damage done by high marginal tax rates. Even if we were not in a recession, more tax progressivity would still be a bad idea.

It’s well known that taxes reduce economic effort. If you want less of something, tax it. That, by itself, reduces wealth creation and economic growth. Less well recognized, however, is that high tax rates misdirect and misallocate economic activity.

A flatter, less progressive income tax rate schedule is an idea that never seems to go away. Perhaps the earliest argument for a flat tax was in Milton Friedman’s 1962 classic, Capitalism and Freedom. Its latest sighting is in what’s called the “Ryan Budget” authored by Congressman Paul Ryan. The official name for his budget plan is “The Path to Prosperity: Restoring America’s Promise.” His proposal advocates only two federal personal income tax rates — 10 and 25 percent. A notable and similar recommendation was part of President Obama’s own deficit reduction team of Erskine Bowles and former senator Alan Simpson. Their “National Commission on Fiscal Responsibility and Reform” recommended federal rates of 8, 14, and 23 percent. Obama totally ignored the Bowles-Simpson recommendations.

High marginal tax rates reduce wealth creation in more ways than is immediately obvious. High tax rates not only reduce incentives overall, they also alter and rearrange incentives. Most of the damage done by excessively high tax rates is hidden from view and almost impossible to measure precisely. Although hidden, the damage is real and significant.

Our wealth is as much dependent on how efficiently we use resources as it is on the quantity of resources we have. The worst damage done by high tax rates is the way they distort decisions in the economy and result in a misallocation of resources.

Higher taxes increase the effort expended in avoiding taxes. When you increase the reward for avoidance, you will get more avoidance. It will follow as the night the day. More decisions will be determined by tax considerations. The result is a less productive economy.

Investing is a process of choosing among alternatives. A generalization that is true in most cases is that money and effort go to where they are most rewarded (or more precisely, where there is the best risk-reward ratio). Different rates of returns attract or repel investment capital.

An economy functions most efficiently and experiences the highest possible growth when resources move to their highest-valued uses. That is the natural tendency in a free market economy. High tax rates, however, significantly distort this tendency. Too often resources move not to where they create the highest economic value, but to where they result in the most tax avoidance. High tax rates reduce the reward for productive spending and increase the reward for wasteful spending. If the tax minimizing choice is the most economically productive it’s a happy accident, and a rare one.

High rates make avoiding the tax an option with a very high rate of return. The higher the tax rate the greater the effort expended to avoid them, the greater the misdirection of economic decisions, and the greater the loss to economy and all its participants. High tax rates result in “overinvestment” in tax avoidance. Overinvestment in one activity means reduced investment elsewhere.

High tax rates also reduce the price or “opportunity cost” of leisure. You could define leisure as wealth non-creation. There’s nothing inherently wrong with choosing more leisure, but it does cost something in terms of output. The higher the tax rate, the lower the price of leisure. More leisure means less wealth creation. High tax rates are equivalent to a subsidy for leisure. Is that really something we want to do? Have we made a policy choice that people work too hard?

ONE CLEAR EXAMPLE of taxes distorting economic choices is the tax on capital gains. The capital gains tax is due only when the gains are “realized.” In other words, only when the appreciated asset someone owns is sold. In most cases the choice to sell something is controlled by the owner. The capital gains tax is the closest thing we have to a voluntary tax, at least in regard to timing.

The voluntary characteristic of the tax on capital gains is why such taxes are especially sensitive to changes in rates. Even more than is the case with other taxes, revenue from changes often move contrary to the changes in rates. Capital gains taxes are the easiest tax to avoid or at least to postpone. In the past whenever capital gains taxes have been reduced there is invariably an increase in the turnover rate of investments and, therefore, many more “realized” gains and increased tax revenue.

There are millions of assets people would like to sell but don’t because they do not want to trigger the tax. Among other things, this prevents people from diversifying their investments as much as they would prefer. Many people have most of their wealth concentrated in one or two assets. Diversification is far and away the most effective way to reduce risk. Consequently, the tax on capital gains results in people bearing an undesired amount of risk.

When tax rates are raised there is almost never a proportional increase in government revenue. Why not? To understand why, it helps to remember that ours is mostly a voluntary exchange economy. Although taxes are not voluntary, the economic transactions you enter into are.

Taxpayers in the top brackets have the most flexibility in how they arrange their incomes, where they reside, and how they invest. This week we learned that the billionaire Denise Rich has renounced her U.S. citizenship in order to avoid U.S. income and estate taxes. In May, Facebook co-founder Eduardo Saverin renounced his citizenship for what many consider the same reasons. Now, rather than getting, for example, 35 percent of these peoples’ incomes and estates, our federal and state treasuries will get zero. California and New York, two states with top income tax rates over ten percent, have experienced out-migration of upper income residents in recent years.

A friend of mine is a chemical engineer for a large biotech firm. For several years he spent much of his time in Singapore overseeing the construction of a major new research and production facility there. When I asked him why the decision was made to build it there rather than the U.S., he answered even before I finished my question: “Taxes.”

Over-investment in tax avoidance is magnified in an environment of tax complexity. Every serious proposal for a flatter income tax schedule has also included tax simplification and the elimination of tax loopholes. Lower rates and a broader base — you can’t have one without the other. It was such a combination that was central to the tax reform President Reagan successfully passed in 1986. Reagan reduced the top income tax bracket from 70 percent to 28 percent. What followed was an extended period of robust economic growth.

A flatter tax rate schedule would increase productivity and economic efficiency. We would all be better off, not just “millionaires and billionaires.” President Obama, however, is far more focused on punishing the rich than he is in growing the economy.

Obama wants the top federal tax bracket to increase from 35 percent to 39.6 percent, the capital gains rate to increase from 15 percent to 20 percent, and the estate tax rate to increase from 35 percent to 45 percent. Buried in Obamacare’s 2,500 plus pages is a totally new 3.8 percent tax on all “unearned income,” which includes interest and dividends from investments, income from rental property, and the sale of single family homes. In other words, if Obama gets his way the top marginal rate will increase from 35 percent to 43.4 percent. That would have a poisonous impact on the economy.

Mitt Romney, on the other hand, wants a top income tax rate of 28 percent, the capital gains rate to be zero for incomes below $200,000, complete repeal of the estate tax, and a complete repeal of Obamacare .

The battle lines have been drawn. May lower rates and the economy be the victors!

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The Real Damage Done by High Tax Rates July 13, 2012

Ron Ross Ph.D. is a former economics professor and author of The Unbeatable Market. Ron resides in Arcata, California and is a founder of Premier Financial Group, a wealth management firm located in Eureka, California. He is a native of Tulsa, Oklahoma and can be reached at rossecon@gmail.com.

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