Thoughts of Employment Testing and Liability

Recently, Yaron Brook published interesting commentary about the Aunt Becky college admissions scandal.  He shared an anecdote about a conversation with company executives about why they don’t test job candidates in order to qualify them for employment.

Here is Brook’s video clip:

I think that his observations missed an important issue related to liability for equal employment practices.

Qualification testing for employment had previously been common, but it was destroyed by federal employment law in that a test created a burden upon the employer to demonstrate that it was racially neutral. Thus a requirement of a college degree became a racially neutral standard for protecting hiring practices from lawsuits. Subsequent court rulings have weakened that federal bias against employment tests, but HR departments that are more about legal compliance are not adapting to new opportunities.

Where are we today? Companies want third-party certification to qualify candidates for employment. This has been growing in IT and with the PMP. More is needed but employers still need to be hands-off about the development of these certifications to avoid potential liability.

In my experience, these third-party certifications are flawed in that there are still people without the ability that accumulate credentials and people with ability who are too busy working to accumulate credentials.

Federal laws and regulations related to equal employment policy need to be modernized [segregration ended more than 50 years ago] in order to allow HR compliance departments to become the leads in identifying the talent that is needed by today’s companies.

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How MoSCoW Can Fix America’s Spending Problem

In the past several years, I have been working on managing a multitude of requirements within a government project so that the objective was achieved on time and on budget. The lessons learned about setting and enforcing priorities are principles that scale to address our federal spending problem at the highest level and back down through all departments, agencies, programs, and projects.

I think that we have general agreement in our Congress and country that (1) the federal government as a whole spends too much money, and (2) that every item of federal spending has a constituency that says there is not enough spending on that particular issue. The math in that contradiction does not work as more plus more equal a worse spending problem.

Almost every idea for more government spending in isolation can achieve a majority of popular support, so that it is essential to take a more global view of spending in light of the actual constraints of revenue and availability of borrowing from private investors. The Office of Management and Budget (OMB) and congressional budget committees are supposed to be responsible for taking such a perspective, but that have been corruptly misguided by the political driver of using the budget as a vehicle to manage the distribution of political patronage in our modern Spoils System.

If the correction of the overspending problem is to be achieved as a goal, there are two directing concepts that are required a hierarchical codification for prioritization and a standard to guide it other than the ephemeral advantage of the political class and its key constituencies (a.k.a. factions in the dialect of Madison). This principled solution is in stark contradiction to the political lies offered as solutions such as a balanced budget amendment, line item veto, term limits, and extracting every penny from the “rich” as regardless of the political kabuki in the end our Congress must make hard choices about spending as in what not to spend.

In establishing the standard to guide the prioritization, we must level setting and agree upon a particular true observable fact from reality. Every item of federal spending is rooted in the issue that “we” must do something about a problem; however, the federal government is not and never has been the only mechanism for “we” to act. Independent of government, we are guaranteed freedom of association, which “we” have use to solve problems without government through private charities and businesses; anyone who advocates for a solution to a problem can privately use this right, regardless of a sanction of the majority, to freely cooperate with a like minded “we.” Further, in the genius of our federal system, most solutions that actually requiring a government action, to protect individual rights and subordinated retaliatory force to objective law, are implemented by our state and local governments. Thus, a federal government solution is not required for every “we” must.

Embedded in this recommendation is a particular goal that I have for our federal government and I hope that you share…I want our federal government to be a great organization that achieves extraordinary results, which I mean in the sense identified by Jim Collins in his popular book _Good to Great_. Key to the development of a great organization is the development of a Hedgehog Concept, which Collins defines as the intersection between the answers to three questions that I paraphrase for this purpose as:

  1. What can the government organization be the best in the world at?
  2. What fuels the health, vitality, and durability of the government organization?
  3. What is the government organization deeply passionate about?

My answers to those questions are, and upon thoughtful consideration I am confident that you will agree:

  1. Within the constraints of our Constitution, it is best in the actual world (as opposed to a Utopian fantasy) at protecting the individual rights of American citizens.
  2. Capitalism, a political system that protects individual rights, is the fuel of America.
  3. As found in the Declaration of Independence, the federal government is passionate about the individual’s right to life, liberty, and the pursuit of happiness.

As a purpose for our standard of prioritization of federal spending, federal government is an organization that must focus upon, within the context of our Constitution, protecting the individual rights of American citizens so that they are each free to independently exercise their virtue to enhance their life and achieve their own happiness. In applying this standard to issues of prioritization, all of Collins’ Hedgehog questions still apply, especially related to whether the federal government is the best in the world to act and spend in solving the underlying problem consistent with its purpose.

As for the hierarchical codification of prioritization, I have found Agile’s MoSCoW prioritization to be effective at prioritizing a large number of government requirements within a constrained environment, such as limited time and money. In general, there are four tiers with easily understood labels: Must Have, Should Have, Could Have, and Won’t Have; which for our immediate purpose relates to whether a budget item will be in the budget or be completely defunded. Prioritization is done from the perspective of the customer, which we have expressed for this purpose in our standard for guiding prioritization, essentially the purpose. Further, the particular definition of each level is affected by the nature of the project, which for our purpose is budgeting federal spending in a period of transition from overspending to appropriate spending.

To be useful as a consistent and shared prioritization, each level of prioritization must be explicitly defined in writing. Related to prioritizing federal spending so that overall spending is reduced through elimination or possibly deferral of particular spending items:

  • MUST HAVE: Only spending by the federal government on this line item can meet the standard and must be funded at some level in order to subordinate retaliatory force to objective law (for example: military spending).
  • SHOULD HAVE: While others could be better than the federal government at achieving the purpose through spending, legacy government policy and laws have destroyed or handicapped other actors so that a transition plan, including substantially reforming existing laws, is requirement (for example: Social Security, which has a substantial unfunded future liability that will result in an automatic cut to future benefits).
  • COULD HAVE: Only spending by the federal government on this line item can meet the standard but funding is optional/contingent in competition with higher concurrent spending priorities (for example: security improvements at US Embassies).
  • WON’T HAVE: These items could be achieved outside of federal spending without substantial legislative revision such as only program elimination and possibly block granting funding to states for a fixed transition time period (for example: the Corporation for Public Broadcasting can be immediately eliminated with Patreon, Kickstarter, and their like privately free to solve the legacy financing problem).

In the first year of use, this federal budgeting prioritization plan could eliminate WON’T HAVE spending and save on COULD HAVE spending by either deferral, reduction, or elimination. In later years, transition plans for SHOULD HAVE spending will reduce federal liabilities and spending over a period defined by law. Future wish list spending proposal would be subjected to the same prioritization to control spending growth. Additionally, the prioritization concept should be used within the departments and agencies to prioritize their spending, which will help controlling for mission creep and rooting out waste, fraud, and abuse.

At this point, you may ask, “How do you know that this plan would work?” While I could cite my professional experience, that success does not address the scaling question, so instead I will point to Albert Gallatin. He was Jefferson’s Secretary of the Treasury, who used the same prioritization to not only balance the budget, but also cut taxes and pay off half the federal debt by eliminating excessive Federalist spending from the prior Administration. Gallatin’s prioritized fiscal discipline enabled Jefferson to seize the opportunity of the Louisiana Purchase.

Contrary to claims that there are no viable solutions, this prioritization concept has already been demonstrated to work in controlling overspending on both the small and large scale, in both the private sector and government. The real question is “Do you really care about reducing federal spending or are you counting on dying before the consequences of our profligacy?” If the later, my daughter literally hates you personally for your irresponsibility in leaving your debts for her to pay. If the former, the above is a real, effective, and simple solution, so go forth and use it.


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NFL Anthem Protesters vs. Constitutional Rights

Colin Kaepernick has failed. More than a year ago, he started the anthem protests in the NFL by creating a spectacle through either sitting or taking a knee during the national anthem before the game. It is said that he did so to draw attention to a critical issue, but instead he has distracted from conversations that were already active long before his protest.

What issue is the cause? Based upon the conversations that we are having now, it is either:

  1. The unchallenged assertion that independent contractors have a right to engage in political activism at their workplace on issues unrelated to their workplace; and
  2. Debating whether it is un-American to intentionally disrespect symbols of America, like the anthem and the flag, as part of expressing your contempt for the current state of America either in general or on a particular issue.

On the first, try it yourself at your job, in front of your customers, and then it should not be too hard to learn the answer. On the later, this is a long settled issue allowing for individual freedom. However, neither were what Kaepernick wanted us to discuss, so epic fail.

Let us go back to his original statement to understand Kaepernick’s issue; he said:

I am not going to stand up to show pride in a flag for a country that oppresses black people and people of color. To me, this is bigger than football and it would be selfish on my part to look the other way. There are bodies in the street and people getting paid leave and getting away with murder.

While he generally cites oppression against racial minorities, the expressed motivating detail is that police officers who shoot citizens are not being convicted of crimes.

Before the kneeling Kaepernick of pig-cop socks fashion, the issue of our fellow citizens being shot by our police officers was a subject of substantial public attention and debate as it is a vital issue of justice. However, he actually took the air out of that debate as it was distracted into a false free speech debate that had nothing to do with the government suppression of speech until President Trump put the bully back into the bully pulpit.

Returning again to Kaepernick’s orginial issue, cops are not being convicted for shooting citizens. Why not? In exercising their actual constitutional rights to a fair trial, due process of law, and trial by jury, the accused police officers have not been found guilty. Note that these same constitutional rights protected NFL stars like Ezekiel Elliot, Ray Lewis, and OJ Simpson when they were accused of crimes. Further, this deprecation of constitutional rights in favor of ideologically preferred outcomes was evident in the recently overturned Obama Administration policy that used Title IX to deny men accused of rape on campus of their due process rights.

Given his explicit use of SJW trigger words and his love of Cuban communist fashion, I have to consider his comments within the context of the regressive left political movement. Thus, Kaepernick’s objective is to create for cops the type of arbitrary system lacking due process that NFL Commissioner Roger Goodell applies to review of player conduct. He advocates that reviews of police shootings come to an ideologically predetermined outcome by throwing out our constitutional protections for the accused, which have benefited all Americans regardless of skin color.

While Kaepernick appears to have gone full SJW, I do not think that is true of all the NFL kneelers, whose motivation are probably as diverse and disintegrated as a survey of any group of leftist protesters. Thus, despite being highly educated and playing a cerebral sport, by doing protest kabuki instead of using their words, these NFL players are failing to add to the discussion of the issue of cops shooting citizens.

I hope that we can dismiss this cult-of-personality distraction and get back to talking about real policy.

  • How should cops be armed?
  • Do we have enough non-lethal options to subdue resisting or threatening suspects?
  • Is there sufficient federal involvement related to review and prosecution of such shooting?
  • Is greater independence of prosecutors, such as being from the state Attorney General’s office, required in such shootings?
  • How can technology better collect evidence of police conduct?
  • How do laws related to drugs and domestic disputes increase risks of such shootings?
  • Do failures in psychological treatments increase risks of such shootings?
  • Does the post release treatment of felons, including related to reduced employment opportunities, increase risks of such shooting?
  • And much much more…
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The Rights of Bastards Reconsidered, On Govt Compelling a Man to Pay Child Support

Previously, years ago, I had posted about the propriety of the government forcing a man to pay child support with an emphasis on bastard children. At that time, I emphasized that the child had a right to support from its parents Everything that I wrote was correct from the perspective of applying current legal considerations, but that a government can take that means is not the same as saying that it should to the exclusion of alternate means for protecting the same essential rights. Further consideration of current facts has led me to altering my stance about what is the correct government policy.

Why the emphasis on bastards? It is one of those edge cases that both raises the most theoretical objections and has in reality had widespread devastating impacts on men and children around the world. Further, in using that particular word, it emphasizes the long legal history of this particular problem.

I think that it is without substantial controversy to say that government has an obligation to protect the individual rights of a child when such are violated by the parent(s). Fundamentally, those individual rights of an actual existing child (as opposed to an incomplete non-viable embryo or fetus) are based upon his or her right to life. When such issues are brought before a court for a decision, the court must act in a legal manner for the best interest of the child.

Currently, the government’s policies related to the enforcement of child support are discriminatory and in some cases shocking to our sense of ordered liberty. On the later, with judicial passivity, a government acting in its own financial interests can order a man who is not the father to pay child support based upon the mother’s perjury or error as a means of recovering government expenses related to welfare. Technical means exist, through DNA testing, to prove paternity or the lack thereof but the courts do not protect the rights of an accused man by insisting on such evidence in these civil cases before issuing an order. In a return to the days of foundlings, in order to protect a child from harm by the mother, laws allow a woman to just drop off their child at designated public facilities or grandparent(s) without her retaining a legal financial obligation to the child; yet, a man has no unilateral method to renounce his financial obligation to the child regardless of his inability to pay.

Related to the best interests of the child, despite public policy compelling men to pay child support (including in the cases of bastards), the outcomes for children raised by single mothers are appalling with substantially increased future chances of education failure, criminality, and poverty.

Given these unjust and discriminatory policies that are leading to future life failures for the child, substantial changes are required if the government is to act to protect the child’s right to life. Part of that has to be removing financial incentives for the government to act against the best interest of the child related to collection of child support enforcement fees and reimbursements for welfare payments.

When a mother (or other legal guardian) comes before the court to request an order of child support for her bastard child (and perhaps for any child including in cases of divorce), this should be founded upon her admission that she is unable to provide the financial support that the child requires consistent with its rights, which may be determined by the court to be a false claim. Upon DNA evidence that the man is the bastard’s father, who was not so by being a clinical sperm donor, the man should be presented by the court with five options:

  1. Unless is he barred by his criminal history using the best interest standard from doing so, assume full legal custody of the child, if he is able to pay to care for the child (possibly with family assistance),
  2. Unless is he barred by his criminal history using the best interest standard from doing so, assume shared (half time) legal custody of the child, if he is able to pay to care for the child (possibly with family assistance), and have no additional child support payment to be made to the mother,
  3. Claim and demonstrate fraud, theft of sperm, or rape by the mother related to the conception of the child and receive neither penalty nor order of support,
  4. Make a mutually agreed financial settlement contract, which will have equal legal standing to any other contract, with the mother that will prohibit future new child support claims by the mother, or
  5. Renounce the child and pay a penalty equal to the price of three abortions into a private fund that aids indigent pregnant women with the cost of an abortion.

In the event that the man selects option 5, in order to protect the best interest of the child, the mother should lose custody of the child to the state unless family members of either the mother or father pledge in court to be guarantors for the financial support of the child, such terms by family members could include transferring legal custody to them and from the mother.

As an aside, it is fully proper based upon our right to free association for individuals to use public knowledge of a man’s renouncing of his child as reason to discriminate against him. As part of a background check, as an indicator of the man’s character or reliability, such could be grounds to discriminate in employment, housing, and credit score (thus, this should not be prohibited by law). As a service, It could also be legal for a dating website to flag this information in a man’s profile or deny the man access to the platform. Further, a government agency could make access to this information easier as is done with sex offenders.

This legal change should apply retroactively to vacate existing child support obligations and erase unpaid child support balances; however, there should be no refund of payments already made. Some fathers may choose to voluntarily continue these payments. Other parents may come to some new mutually agreed upon arrangement. If the mother is still unable to support her child, then she can return to court under the new paradigm.

The child support argument about the propriety in our age of sexual equality and legal abortions for a father having to pay money to a mother is superfluous. For bastards, the issue is the government acting legally in the child’s best interest in order to protect its individual rights. The current system of child support is failing children and destroying the lives of the father without benefit to the child. The presumption that a child is better off with a parent who can not afford to care for them has been a demonstrable failure. When parents, and their families, are unable to care for a child, a court order against a father for child support payments that cannot be paid is no aid to protecting the child’s individual rights.

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Thoughts on the Political Violence in Charlottesville

The recent political violence in Charlottesville has left me angry and sad. The ideas inspiring the violence are symptomatic of a concerning shift in our culture not just in the US but throughout the West.

The loss of life and injuries that were inflicted are appalling. The initiation of force through political violence has ABSOLUTELY NO legitimate role in our constitutional republic; NEVER as we have guaranteed freedom of speech.

In the criminal car attack, Heather Heyer lost her life. Additionally, while actively attempting to protect our fellow citizens’ constitutional rights to speech, assembly, and association, state troopers H. Jay Cullen and Berke M.M. Bates, died in a helicopter accident. Further, dozens of others were injured in fighting between opponents and in the criminal car attack. Political violence destroys, cripples, and maims the lives of actual people, which is why we freely engage in protected political speech.

Thankfully, the driver in the car attack against marchers has been captured and charged. There is a rhetorical debate about whether this was a terrorist attack, including both Democrat and Republican officials stating unequivocally that is was a terrorist attack. Yet, instead of being charged with capital murder for the death of Heather Heyer as would happen in an act of terrorism, the driver has been charged with second degree murder. Which is it, was he a terrorist or not? If he was a terrorist, the driver should be eligible for death row, because that is what we do by law to terrorists in Virginia.

For me, the question of terrorism has an additional question related to required action. Where is the terrorist organization to be destroyed? If he is like a Unibomber, then the organization is a future one that the terrorist hopes to inspire. Evidence for such intent by him…a manifesto? Related to his potential affiliation with an existing terrorist organizations, is there evidence for one? By reports, the driver has been associated with the ideas of white racism and Nazism, but is there a group of other terrorists to round up?

Some have expressed doubts that the Klansman, neo-Nazis, and white racists were true representations of those who intended to speak in Emancipation Park before their speech was violently suppressed by the counter-protesters. Jason Kessler, the organizer of the event, spoke explicitly as a white racist in his announcing press conference; thus, I think that it is beyond dispute that white racism was the explicit motivation for the event that attracted racists. Yet, the Southern Poverty Law Center and others have reported that Kessler had been an Obama supporter and an Occupy activist. Either the philosophical differences between the SJWs and the white racists isn’t as big as they proclaim or Kessler hasn’t changed sides, but tricked the Klan, neo-Nazis, and white racists into a trap. I expect that it is the former.

To be clear, Klansmen, neo-Nazis, and white racists are the enemies of America. Whereas America is an ideologically founded country focused upon individualism and the protection of individual rights, those other groups are fundamentally collectivist and anti-individual. Yet, as vile and evil as those ideas are, adherents of those ideas have the free speech rights that they would deny to others. When they go beyond speaking to violating the rights of individuals through the initiation of force, then they are subject to criminal punishment.

Now that we have reiterated the obvious that selfish citizens oppose these racists, does that mean that we are on the side of the SJWs, Antifa, Black Lives Matter, and assorted others in the counter-protest group? NO!! (Caveat: there were normal nice people in the crowd opposing the vile white racists, but they were effectively filler and not the leaders and organizers who framed the messaging.) That crowd is also full of racists, who are collectivists with hatred for individualism. Ideologically their unifying themes include hatred of reason, hatred of the Enlightenment, hatred of individual flourishing, hatred of America, and a love of human sacrifice (not in the Aztec sense, but in the Comte and Kant sense).

One of the things that struck me from the Faith Goldie video of the car attack was that the SJWs, et al marchers were celebrating that they had suppressed the free speech rights of the white racists. While I in no way intend to excuse the car attack, how ignorant and naive does one have to be to think that there would not be a violent retaliation eventually from historically violent groups like the Klan and neo-Nazis? Allowing such detestable groups to speak has the effect of keeping political action to speech and not violence. Leading up to this event, Antifa has been repeatedly engaging in escalating political violence (including destruction of property, suppression of speech, and physical attacks) without effective restraint by the police in areas controlled by Democrats.

For years, the SJWs and their allies have been invoking the strawmen of white racists and fascists especially against opponents who did not deserve such slurs. The consequence of this irrational posturing has been to actually resurrect the Klan, poke the dormant neo-nazis, and inspire new white racism in the ignorant young, who had become sick and tired of being rhetorically pilloried by racist SJWs.

It is fitting that this violence occurred in a college town, because it is public education that facilitated the creation of this political violence. Beginning with primary and secondary schools that teach that political violence is practical, that principles do not matter, that feelings are superior to facts, and that the purpose of learning is political indoctrination. Meanwhile, the rise of the SJWs on campus has led to corruption throughout our culture, the growing politicization of our lives, the subjugation of civil society, and the Puritanical attack upon free speech and against heterodox ‘thought crimes.’

Government has not only failed our citizens in education, but at this event they utterly failed to keep the peace. Government officials claim that they were well prepared. However, witnesses report that the police passively allowed the fight to break out between the opposing groups of racists both by poorly establishing boundaries between the groups and being inactive in the face of breaking violence. Given that the effect of this violence was to suppress the speech of the white racists, it should be investigated as to whether city officials were complicit, violated the court order, and intentionally deprived these despicable white racists of their civil rights.

What is a selfish citizen to do?

  • Personally, denounce the racists on both sides.
  • Challenge public officials and political candidates who associate themselves with the racists on either side.
  • In discussions, champion the ideas of American individualism, including freedom, as they are the antiseptic for the alien German ideas (Hegel) that are the ideological foundations of the collectivists of each side.
  • Object when others make excuses for the actions and ideas of the SJWs, Antifa, and the assorted white racists, including the Alt-Right and Identitarians.

Extra point, unfortunately, this comment is coded for those who are familiar with DIM: While I am not going to develop the idea in detail in this post, in viewing the cultural impact (much more than just politics) of the SJWs, I have begun to think of them as an emerging M2 (see DIM Hypothesis), which is a disturbing cultural shift from our current D1. While it requires research, my hypothesis is that they are integrating around Michel Foucault’s ideas around power, which were based upon his observations of the mentally ill. While Peikoff expected a rise of M2 from the religious right, some have disputed that and said that the ‘Left’ were a bigger problem today. My view is that when the culture shifts to M2 that there will be many alternative misintegrated options that will be there in the beginning but that the most effectively violent of those options may prevail in a contest. In Charlottesville, we see the SJWs and vile white racists demonstrate that their opposed ideas will be contested with violence.

Related posts:


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Stupid Teachers – Our Synonym Problem

Douglas R. Burgess Jr. authored an op-ed in the New York Times , which stated that piracy is by definition terrorism. Reading it, I wanted to SCREAM! It reflected one of the critical problems with fighting terrorism, the inability that most people and government officials have in defining it; consequently, everything is terrorism and nothing is terrorism.

In this error, Burgess made the oft-repeated mistake of diminishing the scope of terrorism to a criminal justice issue that fit nicely within his narrow point. But that has to be a rant for a different day, as this post deals with a different insidious evil that threatens to destroy our republic, the incompetence of public school teachers.

In general, why is it that we can not effectively define terrorism? It is linked to the broader problem that we have trouble objectively defining anything.

This epistemological handicap is not an accident, but by design. Further, this invasive weed has a common source that should be pulled root and branch.

The common element is how we learned to define words back in school. Think back to learning your vocabulary lists. How did you do it? Encouraged by your teacher and the evaluation tools, what was the short cut that you chose to use to make the task easier? Close your eyes for a moment and really think back.

I expect that you attempted to learn each definition using the briefest terms, and most frequently as a single word synonym. Consequently, many words tend to all mean the same thing without distinction; like seeing piracy as terrorism. Almost like Orwellian Newspeak, some words lose their utility as they become indistinct; “Freedom is Slavery.”

However, definitions have two components, the genus and differentia. Through an emphasis on synonyms in learning vocabulary, the genus is being retained; however, the differentia is being lost. Thus, teaching vocabulary by this shortcut is gross negligence and incompetence by educators.

Consider this problem in the context of terrorism and the oft-repeated phrase ‘one mans terrorist is another mans freedom fighter.’ Our common definitions have been so corrupted by this epistemological error that we cannot distinguish a terrorist from a freedom fighter in public debate. It is more than this one issue in our corrupted public dialogue; from just recent news:

  • reducing the increase in spending is synonymous with cutting spending,
  • cutting taxes is synonymous with spending,
  • transfer payments to those that do not pay taxes is synonymous with a tax rebate, and
  • market dysfunction caused by government regulation is synonymous with a consequence of excess freedom.

Are public school teachers just evil? Probably not, they are just incompetent. In general, the worst students who advance to and graduate from college, become teachers. With generation after generation of incompetent teachers, the problem becomes progressively worse.

Where did this problem start? In philosophy, of course.

Several years, I was explaining this idea about synonym education and its consequence while chatting before a lecture by a visiting professor. In her lecture about the tie between a particular philosophical perspective and current politics, the professor discussed how this philosophy’s methodology included an effort to erase and deny the importance of differences. That philosophy is Pragmatism, which established progressive education in our public schools and guides the methodology of our current political leadership, both Republican and Democrat.

What can a selfish citizen do?

  1. If you have not recently done so, I recommend that you read Dr. Tara Smith’s article “The Menace of Pragmatism,” which was the basis for the previously mentioned lecture which included the subtitle, “How Aversion to Principle is Destroying America.”
  2. Whenever you hear an idea or person described as pragmatic, lookout, stop, and think; what important differentiating characteristics are they attempting to erase?
  3. Give thoughtful consideration over whether public school teachers merit the deference and respect that they receive.
  4. Don’t forget the differentia in your definitions.

Extra Point: Below is the old 2009 video from which the text for this post was revised.

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Deflating the Student Loan Bubble with Better Risk Management

The student loan market is broken again: too much student debt, too many defaults, and large write-offs pending as a result of income contingent repayment. Not that it was ever fixed, but it’s gonna blow again to hemorrhage real costs across the federal balance sheet.

Back in 2008, as the first step in the financial crisis, the Bush Administration led the federal government to take over the private elements of the student loan industry. Today, talks of evil banks continue, but student loan lending is done by the federal government and the “evil bank” is actually the Department of Education. Thanks to an overindulgent Pelosi Congress in 2007, education credit has been easy and plentiful without serious consideration of risks; this error has been costing both the students and the taxpayers.

Previously, there were three legs helping to manage risk in the federal student loan system:

  1. state and regional guarantors who would absorb defaults and collect debts before the Department would take losses,
  2. a risk share penalty against external lenders on defaulted loan, and
  3. loss of access to all Title IV program dollars for schools having a quarter or more of their students default in three consecutive years.

Now, there are no intermediary guarantors and no external lenders to limit federal exposure to losses; as a risk to taxpayers, it is worse than the bad old days of FISL in the 1970s as if nothing had been learned from that mistake. Further, currently, schools will not lose access to federal loans and Pell grants until they have had three consecutive years of 30% or more defaults per year.

The Department of Education has reported that the cohort default rate for FY13 is 11.3%, which is down from 14.7% in FY10.  There are several problems with this calculation that underreports the true impact of bad debt, including:

  • a changing definition of default,
  • the possibility of gaming the numbers by delaying defaults so that they are not counted in the numerator,
  • not accounting for future loses due to income contingent repayment, and
  • measuring rates by people and not dollars.

Thus, the Department of Education is not measuring the taxpayers’ actual loss risks with those cohort default rate numbers.

While my solution to the risk of losses to taxpayers and the harm identified by former students is to sell the loan portfolio and fully privatize student loans, I lost that argument in 2008. Given this terribly flawed government financing of post-secondary education, what could be done to address the already evident problems before the taxpayers make the politicians pay the price for this bad government policy? Better risk management as a lender by the Department of Education, which will require statutory changes by the current Congress.

So what are the risks to be managed better:

  • Post-secondary costs have grown through gold-plating on campuses due to the abundant financing provided by the federal government.
  • Students are borrowing more than a reasonable person would expect for them to be able to repay.
  • The lives of former students are being crippled by student loan debt when it comes to marriage, family, independent households, and employment.
  • Students are getting degrees unrelated to available future employment, which contradicts the idea of borrowing and lending as an investment.

Related to these problems, the stupid long-standing Republican idea on the legislative committees has been to implement federally mandated cost controls to slow tuition increases. Sorry Comrade, but that is an ineffective five year plan.

However, it is easy enough to manage immediately by reusing existing concepts and data. The idea is simply: no new government student loans to students enrolled in majors with historically high rates of underperforming loan assets based upon modernizing the long standing Department of Education cohort default rate sanctions.

Previously, the government attributed the risk of default to underperforming schools and the government cut off bad actors from future federal financing to reduce defaults. Now, we can use a similar default rate strategy, but instead target rates by the Major Course of Study (MCS); thus, if history majors or hair stylists have had unacceptably high rates of underperforming loans, then stop loaning them money.

How could this work? Using existing Department of Education data, and without delay, calculate a cohort rate for each of the past 10 years to identify the rate of underperforming assets [including all defaults (non-payment, death, disability, and bankruptcy) and assets with income contingent repayment terms); the equation would simply be the current outstanding principle balance on underperforming assets as of the end of the fiscal year divided by total disbursed loan amount (less school refunded amounts) entering repayment during the cohort year.

If an MCS’s bad asset cohort rate for any one of the prior 10 years is more than 10%, then no new federal student loans in the new school year for students with that MSC, but their students would still retain access to all other Title IV programs. If psychology majors or education majors have not been repaying their loans timely, then the federal government will stop making new loans for that major. Note that the threshold rate can be set by the Congress differently than 10% according to how much loss risk the Congress has the stones to embrace or more reasonably based upon the loans’ interest rates.

How does this help the Department of Education manage its loss risk?

  • It can immediately stop investing good money after bad.
  • Schools that are dependent upon federal loan financing will shift their educational focus into areas that will benefit future earnings for current and future students.
  • Schools will be impacted immediately by the negative consequences of their high costs, which should inspire greater frugality on expenses such as on-campus recreation facilities and activities.
  • Schools could develop effective education programs to encourage students and parents to pay unsubsidized accrued loan interest during the interim period before loan repayment.
  • Some schools could attempt to reduce their costs so that students can cover their bills with other Title IV programs, but not loans.
  • Accreditation bodies and professional organizations have a role to work across schools to improve performance and to weed out ineffective programs.
  • Students and parents can use the published rates to better understand risks associated with a MCS and debt choices, including the potential to lose access to future student loans before their program has completed.
  • Schools and other interested organization can help reduce the historical rate of bad assets by refunding to students that were not benefited by their education, educational intervention to rehabilitate bad assets, and interventions to increase job placements for former students with bad loans.

Some people may object to this new risk management policy, because of their feels; sorry, it is simply math. However, there are two salves that can be offered for their feels:

  1. federal loan repayment profits are supposed to finance Pell Grant entitlements so bad loans hurt the poor, and
  2. consider the suffering of the former students under the current destructive federal student loan program.

The below brief documentary offers testimonials about how federal student loan debt has crushed these individuals’ lives. Not loaning students more money than they could hope to repay will be a good start to preventing government created hardship.

What are the lessons to be learned for selfish citizens from this incremental transitional proposal?

  • Moving from the current bad government programs to private solutions will likely require a transition period.
  • Current laws substantially diminish the actual value of government assets, so that simply selling them can require the government to take losses, which are often hidden in pension costs and debt.
  • As part of the transition, current laws can be changed to increase the value of government assets for potential sale.
  • Early transition of failed government programs leveraging market discipline can help initiate corrections to irrational behaviors, caused by irrational government price signals, so as to mitigate disruptive transition impacts.
  • The negative impacts of failed government programs affect the lives of real people and those costs should be publicized with correct attribution to the guilty government program.
  • Sometimes the confluence of governmental problems (student loan losses and unfunded guaranteed pension liabilities) create unusual opportunities for reform and privatization, because they exist as concurrent problems requiring immediate solutions, without additional government money, from the same legislative committee.
  • There is a substantial recidivism risk to offering incremental reform to some temporal government program problems, like the above. Legislators may assume that, instead of full privatization, old errors can be renewed later after the crisis has passed, because of feels (aka irrationalism). This has been historically true of the “public-private” partnership that had been the student loan industry…private means subordinated to public ends until the private was consumed.
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