A Tax System That Works!

My last blog was about comments President Eisenhower made when he was leaving office. He handed over the reins of government to John Fitzgerald Kennedy. I was impressed with his comments, but wanted to continue my thoughts on a tax system that works.

I have heard what Eisenhower’s tax rates were, 91%, and the first thing I thought about was what did people actually pay during his Presidency? I was born in 1950, so I really didn’t care, but my parents did. So I did a little research on the issue. First, let’s look at the marginal tax rate, or the percentage tax applied to one’s income. And for the sake of the inequality discussion, let’s focus just on the top income earners.

Under Dwight D. Eisenhower, the Marginal Tax Rate on regular income for wage earners over $400,000 was 92% at the beginning and 91% at the end of his Presidency. The highest rate was 94% during FDR’s Presidency. Nothing changed under JFK, While during Lyndon B. Johnson’s Presidency over $400,000 was taxed at a rate of 91%, while over $200,000 was taxed at 72.25%.

During Richard Nixon’s Presidency the tax for anyone making over $200,000 was 77% initially but reduced to 70%. Following Nixon was Gerald Ford, who did not change anything, however, it is interesting to note the Long-term capital gains tax rose to 39.875% during this time. It has not been that high since. During Jimmy Carter’s Presidency the amount taxed at the top rate was $215,400 and the rate was 70%. When Ronald Reagan took over he restructured the top tax rate from 69.125% on income over $215,400, to 28% on all income over $29,750. Now that is a significant tax cut. I think this is problematic, and I do not think it is fair to tax someone who makes a multimillion-dollar income the same amount I pay.

What did George H.W. Bush do in response to his “read my lips, no new taxes?” He raised taxes, at least on those who made more that $86,500. They paid a 31% marginal tax rate. When Bill Clinton took over The tax rate for those making $288,500 rose to 39.6%, and George W. Bush lowered that tax rate for those who make over $357,000 to 35%. During President Obama’s time in office there has been no real change to the tax rate, which stays close to the 35%.

Obviously over the 50 years since the time of Eisenhower the marginal tax rates on the wealthy have changed quite a bit. But it got me thinking about what the wealthy actually paid? This is called the effective tax rate. In other words after deductions how much do the wealthy pay?

In 1953 the effective tax rate for those who made $200,000 to $500,000 was 45.9%. If you made $500,001 – $1,000,000 your effective tax rate was 46.3%. If your made $1,000,001 and above your rate was 49.3%. In 1961, we are looking at 27.2%, 29.1%, and 31.5%. However, what the wealthy are effectively paying today is significantly less than the marginal rates. Especially when long-term capital gains taxes are at 15%. According to Joseph Thorndike and Martin Sullivan that those who made more than $100,000 paid less than 5% of the taxes collected in the United States during the 50’s. “A far smaller share of what the wealthiest shoulder today.”

However, we also need to understand what was going on in the world during Eisenhower’s time. American primacy was at an all time high. There was not a lot of opportunity outside of the U.S. There was competition from Europe, but it was still recovering from WWII. Japan had not recovered yet, thus U.S. manufacturing was leading the world, thus creating wealth for many people who owned the means of production.

Today we have an integrated global economy. Now the wealthiest can follow John Galt wherever he leads. Thus there is more of a push for lower tax rates, and when corporations buy companies in other countries and move headquarters to tax shelters we hear cries and accusations of being unpatriotic.

I am a firm believer that we need as little government intervention in our lives as possible. I also believe that government will take more no matter how much we give. But I also believe that in order to hold someone accountable to actions taken, or not taken, one needs something to be kept simple that one can understand it. This is where I think our tax system needs to change.

Why do we need marginal tax rates and effective tax rates? Why not have a simple flat tax. Why don’t we try establishing rates like these:
$400,001 and above: 45%
$200,001 to $400,000: 40%
$100,000 to $200,000: 20%
$50,000 to $99,999: 15%
$25,000 to $49,999: 5%
0 to $24,999: 0

We then charge a 20% on all long-term capital gains, and a corporate tax rate of 18% on all income generated by the company anywhere in the world. The question in my mind can we guess how much government revenue would this generate? In 2012 the top 1% had an income of $1,976,738,000,000. If we tax that at 45%, the revenue would be $889,532,100,000. The top 1-5% earn $1,354,206,000,000. This will result in $541,682,400,000. The top 6 -10% earn $996,955,000,000 if taxed at 20% will result in $1,993,910 in revenue. The top 10% to 25% earn $1,933,778,000,000 and if we tax those at a flat rate of 15% there will be a revenue of $290,066,700,000. Just in the top 25% the total tax revenue would be a total of $1.7 Trillion. This would be a 70% increase in revenue, and remember these are 2012 numbers. Add on to this corporate and capital gains taxes, and we have a system that will more than pay for it’s self and pay off our debt.

I don’t know if everyone would like this, but it could be a start. And with a simple flat tax we can pay for the programs we need to have in place. Will we be more like Sweden? I don’t know! But we do need to do something different. The current system is not working well enough and we are mortgaging the future of our grand children in the process.

And that is my thought for the day!

Lessons From Eisenhower

I have heard so many people say Eisenhower was this, or he was that. It is usually in the context of discussing how the tax rate for the wealthy was at 91% (However, I wonder how much they actually paid?). First of all, I think if they actually paid .91 for every dollar they make they are being cheated. I think all of us should hold our government accountable for the amount of money they spend. A great example is the state of Washington. We have incurred increased fuel taxes, property taxes, among others, and in the paper the other day it was reported that in 2017 there will be another budget shortfall. We have given the government more, but it still wants even more from us. Don’t get me wrong we do need to pay for government, but we also need to make sure the money is being spent wisely. Now let’s get back to the discussion I wanted to write about.

Eisenhower was out President from 1953 through 1961. He was a very popular President His top five accomplishments were, keeping America at peace, ending the Korean war, balancing the budget (not once, but three times), sponsoring and signing into law the Federal Aid Highway Act, and sponsoring and signing the Civil Rights Bill of 1957. However, I found his final speech before handing the Presidency over the John F. Kennedy very interesting. Following are some important elements I gleaned while reading his speech.

First, his relationship with congress started out bad, but ended up being one of cooperation working together for the national good. To me that seems critical for a good leader. Having the ability to create a shared vision that people can come to consensus. This doesn’t mean there is no debate, but there is recognition of a common good that all are working towards.

He described the United States as the “strongest, most influential, and most productive country in the world.” Remember, World War II had ended, the Asian and European supply chains were devastated, and we had emerged as a technological behemoth. This was the time of Eisenhower’s Presidency. An integrated global economy had not developed at this time, although there was trade, but it was nothing like today, nor did India and China have the technology and manufacturing capability that it does today. Basically we were the only game in town.

His desire was for the United States to “use its power for the interests of world peace.” This should be our common desire. Last week, Paris had a horrible event, and we were praying for Paris, but this week we have Mali, we should be praying for Mali too. May our political interests never be skewed just to the few!

I think every Republican and Democrat should be reminded of the next comment. In response to the many issues and needed actions he stated, “But each proposal must be weighed in light of the broader consideration: the need to maintain balance in and among national programs.” He identified this necessary balance as being between several elements: public and private economy, national and individual duties, and current and future needs. “Good judgment seeks balance and progress; lack of it eventually finds imbalance and frustration.” Come on Congress; let’s find some balance. Let’s figure out how to move forward in a manner where all can find the ability to be better next year than this.

The following comment I found extremely interesting, especially as a child of the 60’s. “In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought by the military/industrial complex. The potential for the rise of misplaced power exists and will persist.” This danger is still prevalent today. Whether it is large corporations, large Unions, or some other elite, we must all pay attention. All that is needed is for good people to do nothing.

Eisenhower continued to warn America, “Today, the solitary inventor, tinkering in his shop, has been overshadowed by task forces of scientists in laboratories and testing fields, In the same fashion, the free university, historically the fountainhead of free ideas and scientific discovery, has experienced a revolution in the conduct of research. Partly because of the huge costs involved, a government contract becomes virtually a substitute for intellectual curiosity. For every old blackboard there are now hundreds of new electronic computers.” It seems to me he is warning of the influence of power associated with the purse strings.

It doesn’t matter who that powerful person is, “Yet, in holding scientific research and discovery in respect, as we should, we must be alert to the equal and opposite danger that public policy could itself become the captive of the scientifictechnological elite.” He seems to be identifying several entities that could destroy Democracy. When an individual or group has access and influence based on relational cronyism, Democracy fails.

And finally, “You and I, and our government – must avoid the impulse to live only for today, plundering, for our own ease and convenience, the precious resources of tomorrow. We cannot mortgage the material assets of our grand children without risking the loss also of the political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow.” Amen to this. My generation has been the plunderer. It is time to think about the future that we want to pass on. I have eight grandchildren, another on the way, and I want them to have a meaningful life.

All of us must pay attention to the elements that Eisenhower warned us about.

And that is my thought for today!

What A Stunner!

There have been several events to occur that last few weeks that could be described by this phrase. However, it was the Rhonda Rousey headline that got my attention. I mean, there is the French tragedy, the issues of free speech on our campuses, and the upcoming Presidential election; all of which is worthy of comment and I am sure I will eventually tackle them. But for now, I want to discuss the Rousey event.

I have to admit I pay little if any attention to UFC. I think it is a barbaric sport, and I find it uncomfortable to watch. However, there are some who enjoy it, and I am not criticizing those folks, just stating my own preference. I exercise my power of choice to turn it off, or not watch it. This is my philosophy about a lot of things. I make my own decisions on what I buy or watch on TV or in the movies.

However, I am always interested when someone is described as dominant, because they are heading for a great fall, especially if they begin to believe what the press writes about them. There is always someone faster and stronger. That may have been what happened with Rousey.

Jason Gay in the WSJ made a comment that I think is very true, “Her aura will be different now –she is no longer indestructible – but this also means we should get to see the good stuff, the fortitude and will you don’t always see when everything’s fun and shiny and the planet seems to spin for you. Now we get to find out what’s really there. Now we learn more about Ronda Rousey and the UFC.”

I agree with Jason Gay’s statement because it is a universal truth. It is not what we are like when things are going well that demonstrates our true character; it is what we do when we fail, or when something bad happens to us that defines us.

In the world of entrepreneurs failure is a reality. Entrepreneurs are like baseball players. In baseball, a batting average of .300 is a good number. Have you ever thought about what that means? That means that 2/3 of the time the batter has failed. However, the batter comes back and tries again. Entrepreneurs are like that they fail but keep on going, at least the entrepreneurs with a sustainable track record.

Therefore, the lesson from Ronda is not that she failed and turned out not to be as dominant as once thought, but coming back and trying harder next time. Maybe! Maybe the lesson is with all of her other endeavors, movies, books, etc., that she has done her job in the UFC arena, and now can go on and raise awareness for something else? I don’t know Ronda Rousey, so I can’t answer that question for her. Only she can!

Now we watch. Obviously if she chooses to pursue a rematch, there will be a lot of money involved. And, other fighters have lost and come back to win, so there is precedence. It is her choice and not ours. Personally, I think she will fight again, and she will be victorious. We’ll see!

Now lets apply this to leadership. Good leaders are like this; they get knocked down, but keep their wits about them, get up and keep moving forward. There may be adjustment, new direction, but they will always move forward. There is a quote from Teddy Roosevelt that I think illustrates this well:

It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes up short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself for a worthy cause; who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory not defeat.

So Ronda, I hope you rise up and defeat your foes. This will be a great example to the many young people who look up to you. Your foes may be UFC fighters, or it may be new foes in other arenas, but rise up and be victorious. Quiet those “cold and timid souls who know neither victory or defeat.”

Personally, I want to be one of those folks that tried, failed, tried, but kept on moving forward. Ronda and Teddy thank you for some great lessons. I hope we all get it, and stop the tendency in our society to choose the easy road that is wide and leading to destruction.

And that is my thought for the day!

A Fading Faith In Capitalism

Wow! It has been several months since I have sat down to write something down. The semester has been very busy, and many events have occurred. There have been moments of great stress and moments of wonderful elation. I continue to grow as a person, teacher, and man. The lessons have been many and varied, but I would not trade them for anything.

Today I have renewed my desire to blog. I have realized that I just need to commit to writing. If I don’t, I won’t. You might ask, why now? What did he read to get himself going again? It was a Wall Street Journal article titled “A Fading Faith In Capitalism.” As I read it, I have to agree. The issue of economic inequality is eroding the confidence we once had in our economic system to the point that many are willing to accept something else. To me this is troubling.

The author, Tim Montgomerie, has created a very interesting argument about the reducing faith in economics. He discussed how other countries see Capitalism. He analyzed data collected by the firm YouGov for the “London-based Legatum Institute.” It appears the people in India have a high level of confidence about their future. 50% of the people surveyed felt that the next generation will “probably be richer, safer, and healthier than the last.” Thailand was next at 42%, 39% in Indonesia, 29% in Brazil, 19% in the U.K., and 14% in Germany. What I found most interesting was the data for the United States. Only 14% of the people surveyed in the United States felt like the next generation will be richer, etc.

However, as Angus Deaton argues in his book, the world is getting richer and healthier. So, is the feeling that the next generation will not be better a reality or is it a figment of a populist belief created by the media?

According to the World Bank Data, 100,000 people are being lifted out of poverty each day. Also, “natural disasters are killing fewer people and fewer crops are failing.” Hmm, in the United States our unemployment numbers are being reduced, and the numbers I saw this morning give an indication that the workforce participation rate has slightly improved. As a result the Fed will probably raise interest rates.

Despite all of this improvement, 55% of Americans think the rich get richer and the poor get poorer. 65% of us “think most big businesses have dodged taxes, bought favors, or polluted.” And only 49% of us “think free enterprise is better at lifting people out of poverty than government.” On one hand I need to ask, what would you replace a system of free enterprise with? But on the other, I have to say that these reflect very real events.

I tend to agree with Winston Churchill who once said “that capitalism is the absolute worst economic system – except for all the others that have been tried time to time.” I also share John Mackey’s concern about the “sustainability of the free enterprise system if large numbers of voters come to think of businesses as basically a bunch of psychopaths running around trying to line their own pockets.”

But what can business leaders do to change this misconception about business? First of all, business leaders need to be concerned about this. There is nothing more ubiquitous than business. As much as people want to deny this, we are all involved with the practice of exchange. Something so critical to our society must be done correctly. Business leader’s actions should reflect ethical practices. Business leaders must demonstrate responsibility to all of its stakeholders. I truly believe that if business worked at limiting pollution, we would have EPA regulation than what we have and we would have a more pristine environment. Business is not some inhuman entity it is organizations run by people.

I believe, as John Mackey does, that business should focus on both maximizing purpose and profit. I do realize that one cannot please everyone, but moving towards this type of business model is the right thing to do. Montgomerie states that Southwest Airlines, Google, and Whole Foods are three companies that are living a mission that represents a triple-bottom-line mentality. Doing and portraying a social and economic purpose will do much to repair the bad press that free enterprise has earned.

There are many examples of very large companies, and their lobbyists, that give free enterprise a bad name. And as Montgomerie properly states, “many big businesses see close connections with government as part of their purpose and as a blessing rather than a curse.” I agree with the writer because crony capitalism destroys free enterprise and its benefits. I also agree with Joseph Stiglitz who has coined the phrase “socialism for the rich,” to describe the process of government protecting the market status of certain businesses.

Montgomerie argues that the first thing needed to change the perception people have in this country about free enterprise is to ensure the same rules apply to all. I agree! “For capitalism to enjoy the public’s confidence, we need a system where the rich can get poorer as well as the poor richer.”

As I read this article I thought about Robert Reich’s movie, Inequality for All. There is this great interview with Warren Buffet who states that his paying of a 13% tax rate for his capital gains is a travesty, which I agree. The deck has been stacked for too long and we need to restore a level playing field system to the market. I do think the rich will play a role in this. They, whoever they are, will need to see their responsibility to their neighbor. Many have.

Montgomerie ends his article with the question, “Which capitalists are still popular?” Each year, YouGov attempts to identify the most popular person in the world. The last two years it has been Bill Gates, who is now known as a “transformational philanthropist.” I really like that phrase.

So what is my take away? First of all, dogmatic arguments of how we are to fix our nation, liberals saying we need to create higher taxes and redistribute income and conservatives saying we need to reduce taxes even more, have got to stop. Both of you are stupid and unless you start talking and figuring out how to do this we won’t improve. Attacking a system that has allowed so many in our country and the world to have better lives is counterproductive, but we must redeem the system from the evils that have emerged. And I used the word evil on purpose. I totally agree with Montgomerie’s concluding paragraph, “Those who are determined to restore faith in capitalism won’t just champion figures like Bill Gates and John Mackey. They will be tough on the crony capitalists who cheat emissions regulators or fix financial markets. When capitalism is seen to be both fair and effective, it can be popular again.”

We have a lot of work to do, but you know what, we can do it. I am very hopeful that we can find free market solutions to social problems, and we can have an effective government that operates as a suitable referee to ensure the game of business is played fairly.

And finally, this is my thought for the day!

George and Harriet: Social Entrepreneurs

Over the last three years I have told anyone who will listen that business has an incredible amount of power to create positive social change. I am constantly reading articles and books that help me to see what is possible, instead of focusing on the despair around us. I am a glass half-full kind of person, and my blog today will reinforce that characteristic.

Although I will be quoting Arthur Brooks this morning, from the American Enterprise Institute (a conservative think tank), I also love reading what Robert Reich has to say on income inequality. The reason I do this is an attempt to find common ground. Brooks does a good job in his book, The Conservative Heart: How to Build a Fairer, Happier, and More Prosperous America, describing what I think is the common ground between liberal and conservative perspectives on the needs of the poor in our country.

Brooks lays out what he calls “five simple facts” concerning our current situation:
1. “Our nation is leaving the vulnerable behind, and Americans rightly find this as unacceptable.”
2. “The War on Poverty has not been successful, and the last seven years have made things dramatically worse.”
3. “Americans know these facts and are instinctively skeptical of conventional large government welfare policies.”
4. “While conservatives have criticized those outmoded policies, they have offered little in the way of alternatives.”
5. “Americans have concluded this is because conservatives don’t really care about the poor.”

I am not too sure I would say the LBJ’s war on poverty is a complete failure, but we have spent $22 Trillion on this war. We do have the same level of poverty as in the past, around 15%, and the most vulnerable are the people most affected by this lack of change. The data shows us that inequality is getting worse with the top economic quintile reaping the greatest rewards, while the poor are still living in the same conditions as the great depression. I do agree with Brooks when he states, “Instead of real solutions and genuine hope, those stuck at the bottom today have been offered class resentment and presidential sloganeering about the evils of rich people and political conservatives.” Although I am tired of liberal sloganeering, I am also tired of conservative sloganeering about the evils of immigration and building walls.

So, what are the solutions? First, I don’t think we should get rid of social programs. Although I don’t think government is the most efficient way of handling things, it does provide a service. Eliminating food stamp programs, and other social help is not what we need. However, if we are only using hand-outs then we are creating a dependency on government which is counter-productive to self-sufficiency and initiative.

As I read the story of Dallas Davis, I was convinced concerning the power of work; work that provides a living wage. Dallas Davis was homeless in New York City. He ended up on drugs and in prison. He would eventually end up meeting George McDonald, who, in response to the death of a homeless woman, started an organization that was both a homeless shelter and a job-training program. “Homeless men – many coming straight from prison – would live in a converted Harlem schoolhouse; learn to work and earn; stay clean and sober; and graduate, ready to enter society as value-creating, values-conscious individuals.” The goal is to help these men “reclaim their lives through the dignity of real, valuable, honest to goodness work.”

Comparing previous shelters with the Doe Fund, Dallas stated, “They always told me what they could do for me. But this was the first time I was told what I could do for myself.” Since 1990, 22,000 people “have reclaimed their lives.” I am curious, though, how many men had to be dismissed from the program?

George and Harriet McDonald began by treating these men as human beings. These men were not invisible; they were seen and treated with respect. One way they did this was by remodeling the Harlem schoolhouse into a warm and welcoming facility, with “a wood-paneled library, classrooms with computers, a recreation room with a big screen TV, and a beautiful patio that overlooks the Harlem River.” This was contrary to what government officials recommended, these officials told the McDonalds that if they made the facility too nice people would not want to leave.

As I read this story, and the principles the McDonalds said they follow, I was convinced that Social Entrepreneurship is an important business activity in the future. So what are those principles? They are Social Entrepreneurs. The following comments describe the principles that the McDonald’s felt were important.

First, people are assets, not liabilities. Liabilities are something we try to eliminate, whereas assets are something we try to develop. The McDonalds saw people sleeping in parks as dormant assets that could improve society. The McDonalds saw people “as assets to society, which meant they can create value denominated however you wish – which is what it means to be made in God’s image.”

Second, “work is a blessing, not a punishment.” Some will go back to the fall and say that due to the fall of Adam and Eve we were punished and sentenced to working by the sweat of our brow. The only problem with that is Adam and Eve worked prior to the fall, they tilled the garden. So work is meant to be a blessing. Work is meant to accompany dignity, and dignity is a result of our choices to be productive.

The third lesson is very interesting. “Values matter most in lifting people up.” I was interested in what values “Ready, Willing, and Able” pass on to the people in this program? Honesty and integrity are primary. Anyone in the program needs to be truthful. Another value is thrift. The Doe Fund, Ready, Willing, and Able; deducts mandatory savings from the men’s paychecks. This money goes into a savings account. This helps each of the men who leave the program to have a nest egg. Another value is personal responsibility. The are required to show up for work every day, and “pay a modest rent out of their pay.“ Doe Fund is teaching these men how to be a head of a household. Lastly, they are learning how to be sober. Obviously drug tests are a part of being in this program, if someone fails they are not kicked out of the program, they lose privileges. There is a strong level of accountability between the men. These men are required to sign a contract which lays out expectations. “The trainees agree to abide by these values. In exchange, the Doe Fund promises to pay, house, and feed them, provide work, education, job placement, and graduate services after they depart.”

The last lesson, that I think is most important, “Help is important, but hope is essential.” George McDonald stated that, “his clients arrive having faced unimaginable hardships, incredible violence, bleak, soul-crushing circumstances from the time they were little children.” Talk about conditioning, and feeling trapped, while wondering why the so-called American dream has passed them by.

I am going to end this blog with a couple of quotes that I found very interesting. In response to values, Brooks states, “Creating a separate set of moral standards according to socioeconomic status is not an act of mercy. It is a crime against the poor. It is an abdication of our social duty to hold one another accountable. It is shameful that our self-styled elites are so afraid to preach the very secrets to success they so readily practice in their own lives.” I have worked hard all my life to achieve what I have achieved, but I also recognize that I have had opportunities that others do not have. So our mission impossible, which George and Harriet accepted, is to create opportunity for people to improve themselves.

The last quote is in response to the comment that those who live in poverty and despair have no ability to capture the so-called American dream. “This is why our approach to helping the poor over the past fifty years has been so destructive: It reinforces learned helplessness instead of combating it. Dozens of assistance programs that seem sensible in isolation add up to an overarching message that nobody intended to convey: You can’t do it, so we’re going to carry you.” This seems to me to reinforce disparity rather than combat it.

Sometimes I get concerned about my students and their inability to connect the dots. There are extremely concerned with the situation of the poor and marginalized, rightfully so, but I think they want to rely too much on government programs instead of creating opportunity for the poor and marginalized. Unwittingly, they are reinforcing what they are fighting against. Don’t get me wrong, I think we need social programs to help those who cannot help themselves, and we need to have hand up programs to help people find the dignity so needed to create value in their own lives. So, as usual the truth lies somewhere in the middle.

And that is my thought for the day!

Thoughts On Entrepreneurship

Summer is winding down. School is ready to start. A change in leadership, which seems to be really good, an unexpected loss of a colleague, starting of new programs, and revising old ones, all point to a very interesting, and difficult, year.

Christine Tokonitz, a faculty member, friend, and colleague, died suddenly yesterday. She was the brains behind our Health Care Administration program, and the heart of our department. She will be missed. Dr. Reginald Nichols is my new boss, and if my meetings with him over the last few weeks are any indication of his leadership skills, I am a happy camper. He is an incredible leader who will help our school rise to its potential.

I am looking forward to the many improvements I have devised for my classes this year. However, the one I want to focus on this morning is the Capstone course for the Social Entrepreneurship major. I don’t want our program to end up like the Moxie Center for Student Entrepreneurship at the University of California. It closed at the end of the June, “having finally run out of other people’s money.” I read about this during my morning reading time.

It appears that a San Diego philanthropist named Irwin Moxie donated $1 million to fund student start-ups. According to Ken Kuang “UCSD no doubt sees the Moxie Center’s 2 ½ year run as a great success.” It helped many young entrepreneurs bring their ideas to implementation. The only problem was the Center did not sustain itself. “The Moxie Center, while promoting the entrepreneurial spirit was run like a charity, in that it didn’t seek any returns on its investments in student’s enterprise.” When I read this, I felt like I awoke out of a deep sleep. Wow, this makes total sense.

Ken Kuang illustrated this failure by noting how the Center was not teaching the students about win-win. “Win-win means that both parties in a transaction come out of it feeling satisfied that they got a fair shake.” What this means is the school should have been investing in these students with the expectation of a return. However, Kuang pointed out some other deficiencies.

It appears that the center was not emphasizing the right things related to running a strong business. Things like profit-and-loss statements, “covering payroll taxes, worker’s compensation, and other basic costs.” There also seemed some issues with understanding overhead costs and how much to pay one’s self. As I read this editorial I pondered what to do with our Social Entrepreneurship program?

Ken’s comments about growing up in China really got me thinking. “Too many U.S. business schools are focused on producing future leaders for big corporations and Wall Street firms – not equipping people to venture out on their own.” I think this makes sense. However, it has been my experience that most students don’t want to venture out on their own.

Ken stated that business schools in China are focused on “the basics of running a small business and how to create a profitable company. They want to pull as many people out of poverty in as short a time as possible, and they know the rising tide will lift the most boats is the small business community.” This is why I think our Social Entrepreneurship program is so important.

Mr. Kuang is doing something about this need in San Diego. He and a few other entrepreneurs are creating internships for budding entrepreneurs. His actions have me thinking. Any entrepreneurial program should involve action learning not just theoretical discussions. I also think the connecting of entrepreneurs with mentors is critical. However, I also think the practice of gift giving is not a good thing. I think a program needs to teach the student about dealing with investors.

I have already made changes to the Capstone project for this year, that I think will improve the process, and now I am planning to do more, which I am sure I will write about over the next few weeks. I am very excited the Social Entrepreneurship program, and I know it will be even better this year. I guarantee it.

And that is my thought for the day!

A Conservative Heart: Almost

I admit it. I love to read. I just purchased Arthur Brook’s new book “The Conservative Heart: How to Build A Fairer, Happier, And More Prosperous America.” I read some quotes from the book, and decided it deserves a look. Brooks creates an argument that the solution to poverty involves “meritocratic fairness.” I like meritocracy, but I do think there are some system issues that need to be addressed so meritocracy can flourish.

I just watched a YouTube explanation of how the Prison-Industrial Complex is being used to maintain the unfair status quo of our social class system. The Prison-Industrial Complex is a “job-creator” and uses “inmate labor to do provide services, thus creating a huge profitmaking endeavor for those that privately own the prisons. The Prison-Industrial System builds fat bank accounts on the backs of inmates for individuals “who are motivated by making profit rather than solely by punishing or rehabilitating criminals or reducing crime rates. Several social activist groups believe this profit making has led to the huge increase in the prison industry and the number of people incarcerated. Most of these folks come from poor inner city situations that continue to exacerbate the problem of poverty in our inner cities. Thus, I agree with what William Galston proposal in today’s paper to create a different debate around this subject of income inequality.

Galston began by describing various solutions for income inequality. “The liberals want to use the government to promote greater financial equality for its own sake; conservatives believe that rewards should follow hard work and merit.” In my opinion truth usually lies somewhere between two extremes, and in this case the truth is in the middle.

First of all, what are the facts? We have been fighting poverty for 50+ years, and what do we have to show for it? Have people’s economic condition improved? The Pew Charitable Trust did a study to see what is happening to people in our country? Are they socially mobile? The study published in 2012 noted that 43% of individuals raised in the bottom income 20% stay there. It also showed, according to Galston, that 70% are stuck below the middle. “By contrast, 40% of those raised at the top stay there, and 63% stay above the middle.” About 4% of people studied actually rose to the top from the bottom. These statistics look at our overall society, what about Blacks?

Galston describes the results as follows, “For African-Americans, the odds of rising are even worse. Fifty-five percent of them born at the bottom stay there, and fully 75% fail to make it into middle class.” The study also shows that 65% of Blacks are born into the bottom income quintile, while only 11% of white Americans are born there.

Income statistics, according to Galston are also very interesting. Men who are born into the bottom quintile will probably earn $34,000 per year, while men born in the top 20% can expect a paycheck of around $105,000 per year. Women have a similar pay gap from $41,000 to about $118,000.

As interesting as those numbers are, the set of numbers that really caught my attention involved single mothers. Richard Reeves was quoted as showing that “50% of children born at the bottom of the income ladder to single mothers end up there as adults, versus only 17% of children born poor but raised by married parents.” 27% of those children raised by a single mother made it to middle class or higher, “compared with 59% of those raised by married parents.”

These numbers are interesting, but, as Arthur Brooks points out, when you set up a system where all of the poor are located in one geographical area, and the families are all led by single mothers, “you compound the disadvantage.” Look at reservations today, the living conditions are atrocious, but we don’t do anything about it.

I go back to my original conclusion there needs to be a partnership between business, government, and the community to create opportunities. I agree with Galston’s comment “Equal opportunity in the U.S. is an aspiration, not a fact.” Therefore, we need to work together to create a level playing field for all to earn their way up the ladder. The community needs to help families be strong, but to do this poor families need resources, which involves the government. But for people to climb the ladder there needs to be jobs. Businesses need to stop looking for cheap labor overseas and recreate living wage jobs here so people can earn a better life.

I don’t believe anyone wants to be given social mobility. I think people want to be able to achieve it through their own labor but it does seem to be a bit more difficult in this day and age.

As President Obama noted, “The American people’s frustration… is rooted in their own daily battles to make ends meet…. The nagging sense that no matter how hard they work, the deck is stacked against them…the fear that their kids won’t be better off than they were… and lack of upward mobility that has jeopardized middle class America’s basic bargain: that if you work hard, you have a chance to get ahead.”

So as Galston ends his editorial, “Conservatives are right to say that if families were stronger, government would be less necessary. But when families are weak and lack resources, either government steps in or children don’t have a fair chance to succeed.” There are many examples across the United States that demonstrates how a partnership between Business, Government, and the Community can work. So instead of fighting lets get in done.

And that is my thought for the day!