Monday, April 20, 2015

“Why not let student-athletes pay taxes?” The Colorado Springs Business Journal, April 17-23, 2015, 25.



Let Student-Athletes Pay Taxes

As tax season comes to a close and all the standard complaints against the IRS is heard, there are some who might be more than happy to pay taxes, if they only got paid for their services.

Student-athletes aren’t paid, despite the fact that March Madness has netted their respective 32 universities about $1 billion with around 30 million viewers for the championship game. Total viewing of all the games was larger than the 2015 Super Bowl of 120 million. 

The NCAA remains steadfast in its reasoning for not “professionalizing” collegiate sports, claiming athletes aren’t “employees,” but instead amateurs. Given the amount of money involved here, many find this stance both unfair and hypocritical.

The designation of student-athlete is also a legal ploy that shields universities from paying any compensation for injuries while playing for the team; no workers’ compensation can be claimed or granted to “non-employees.”

Unlike the competition to attract student-athletes, coaches’ salaries at high profile institutions are rising to levels seen only in professional sports. In basketball, just look at Mike Krzyzewski of Duke at $9.7 million, Rick Pitino of Louisville at $5.8 million, and John Calipari of Kentucky at $5.5 million. In football, note the compensation of Nick Saban of Alabama at $7.3 million, Bob Stoops of Oklahoma at $5.25 and Jim Harbaugh at Michigan $5 million.

True, only about 10 Division I athletic programs are profitable, according to most reports, but the accounting used for this assessment is always problematic. Even so-called “losing” programs can attract alumni contributions and help significantly with freshmen recruitment in ways difficult to measure, but that surely exist.

Assuming that university presidents will never collectively decide to turn their “professional” athletic programs into truly amateur ones, where the love of sports and student spirit reign, is there a middle ground between these two poles?

From its inception with Adam Smith, economic literature has always tried to keep a core of moral values afloat so as to justify private property, for example, and market exchanges.
Given the sheer size of the collegial athletic market, is there any moral ground for outlawing student compensation? Academic scholarships are usually counted as a compensation but in fact carry with them very low marginal cost (of having one more student in a class when 30 others are already paying).

If the outright payment to athletes is inappropriate, how about establishing a personal account for each athlete and contributing to it $50,000 annually. If an athlete plays for four years, his/her account reaches $200,000 (plus interest) and s/he has a nice nest-egg upon graduation.

Given that only 2% of student-athletes ever make it to the professional leagues, the other 98% may at least have some financial compensation for their contributions to the coffers of their Alma Maters.

As for injuries, student-athletes should be added to university employees’ plans, so that their treatment and rehabilitation over the years will be covered by proper insurance. If it’s good enough for the coaches, why not extend it to their players?

The University of Texas (Austin) athletic revenue for 2012-13 was in excess of $165 million; a million or two set aside for graduating athletes would easily allow the program to retain its overall net profits.

Since there is no reasonable economic argument against sharing the revenue of athletic programs with those on whose backs success is achieved, and since there is no moral argument against it either, what is the obstacle to this common sense proposal?

Perhaps it’s the myth of amateurs competing solely for the love of the sport, as if this competition is happening in an economic vacuum and all amateur athletes share the same motivation.

Or it may harken back to gladiators who competed in the arenas for their lives, and if lucky enough, for their freedom. True, athletes are not slaves in the technical or legal sense of the term, but on an economic level, they are treated as such.

Even if we solve the financial dimension, what about the “student” part of the designation? The hypocrisy here is even more upsetting. From Ronald Smith’s Pay for Play (2010) to Jay Smith & Mary Willingham’s Cheated (2015), it becomes clear that athletes’ education is compromised.

It’s not only scandalous that student-athletes are cheated out of their rightful share of the money they earn for their universities, it’s even more alarming that they are exploited for their talents with complete disregard to their academic work.

If 98% of student-athletes never make it to the professional arena, and if they lack the skills higher-education is supposed to provide them with, what are they supposed to do?
We should let student-athletes pay taxes, it’s the right thing to do!

Raphael Sassower is professor of philosophy at UCCS. He can be reached at rsassower@gmail.com See previous articles at sassower.blogspot.com
        

Tuesday, March 24, 2015

“How should America’s banks be tested?” The Colorado Springs Business Journal, March 20-26, 2015, 23.



How Should Banks be Tested?

What do tests really test? This may seem a silly philosophical question, but educators and government agencies are keen to figure this out.

My concern here isn’t with education, but with banking. Usually the banks do the testing: Are you credit-worthy? What’s your score?

Any one of us who ever took out a car loan, house mortgage, or business loan knows what obstacles we had to overcome to be found “worthy” of a loan, passing a test.

We should recall that if banks borrow money from federal sources at around 0.25% and just charge twice as much, 0.5%, then their gross profit is 100%! Charging 2.5% (and paying only 0.25%) provides 1,000% gross profit margin. Wouldn’t you want to own a bank?

But banks must pass tests, too: according to a government “stress test,” 31 of the largest US banks somehow passed: in case of a financial crisis, they seem to have enough cash reserves to manage their leveraged portfolios.

Given that Forbes claims that just five banks control more than half of the $15 trillion of the financial industry, the test of 31 banks ranges close to 80% of financial assets. More tests will be coming, so there may be some unexpected surprises in the next few weeks.

We have heard since the Great Recession by Republicans and Democrats alike that without a healthy banking system our economy would collapse, so this should be good news to all Americans, no?

What would you say if I told you that all my students always pass my courses? Wouldn’t you suspect grade-inflation, low standards, or simply academic incompetence?

Passing is passing, and if all students or banks deserve to pass the test, why quibble? Isn’t the Millennia Generation big on giving trophies in athletic contests even to losers for just showing up?

Well, if everyone on Wall Street seems delighted with banks, it’s because self-congratulation is part of game, making sure that the banking welfare system (with government subsidies and bailouts) shields bankers from Main Street and pesky regulators.

But, the cozy and perhaps too intimate bond financial institutions enjoy with their regulators—and the politicians who enjoy their campaign largesse—isn’t shared by everyone.

Most surprisingly, the naysayers don’t only include the Occupy Wall Street members of yesteryear or the Tea Party when its members objected to the banking bailout; instead, it’s the Oracle of Omaha, Warren Buffett, who has had some nasty comments about the financial industry, despite (or because of) his intimate knowledge of its leaders and their practices.

Reuters reports that in his latest letter to his shareholders, he said: “Periodically, financial markets will become divorced from reality—you can count on that . . . never forget that 2+2 will always equal 4. And when someone tells you how old-fashioned that math is—zip up your wallet, take a vacation and come back in a few years to buy stocks at cheap prices." Instead of reflecting reality, Wall Street is mired in fantasy.

As The New York Times reported only days ago, Buffett mockingly calls the “the Street’s denizens” “money-shufflers” who “don’t come cheap” and who have “expensive tastes.” Does he really mean it? 

When your personal fortune is $72 billion and your tastes remain relatively upper-middle-class, you can say whatever you want. Are these just cheap shots? Or is there an argument here? And if there is one, is it an economic or moral one?

When Buffett laces his Letter with a description of Wall Street bankers as those who “are always ready to suspend disbelief when dubious maneuvers are used to manufacture rising per-share earnings, particularly if these acrobatics produce mergers that generate huge fees for investment bankers,” then it’s clear that economics is at the heart of his critique.

At one point, Buffett argues that “Investment bankers, being paid as they are for action, constantly urge acquirers to pay 20 percent to 50 percent premiums over market price for publicly held businesses. The bankers tell the buyer that the premium is justified for ‘control value’ and for the wonderful things that are going to happen once the acquirer’s C.E.O. takes charge.” But, this isn’t true; they mislead.

So, if you are confused about why new mortgages aren’t spurring the housing market even though mortgage rates are at historical low levels, or if you are puzzled why business loans aren’t as easily obtained as expected, just remember: if a bank borrows at 0.25% and invests in US Treasury bonds that yield (February 28, 2015) 4.79%--why bother with risky lending to the public it’s supposed to serve?

Have the banks passed your financial, not to mention moral test?

Raphael Sassower is professor of philosophy at UCCS. He can be reached at rsassower@gmail.com See previous articles at sassower.blogspot.com




Tuesday, March 3, 2015

“ROTC program sets good example,” The Colorado Springs Business Journal, February 27-March 5, 2015, 19.



Military Jobs: A Case Study

Whether the debates are about higher education or the Greek default on its debt, they seem to revolve around the question of job creation. The message has been part of the political landscape since the Great Depression, and is bound to preoccupy the upcoming presidential election.

What does it really mean to create jobs? It could mean opening a little shop or restaurant, a garage or salon, and hiring people to help run the operation.

In such cases, it is presumed that the new employee was unemployed before—otherwise this would only mean job transfer rather than job creation.

Economists and politicians alike promote this idea of job creation as a means towards economic growth, a way to increase the economic pie so that it can feed more mouths.
The appeal of job creation isn’t limited to economic growth, but also includes the presumption that every new job necessarily means one less welfare recipient. If you have a job, you won’t collect unemployment benefits.

But here, too, there is as much an economic justification as a moral one: the newly employed will become productive members of society, earning their keep rather than remaining lazy dependents on the welfare state.

The moral argument ends up being about fairness, as candidate Mitt Romney was overheard to have claimed: 47% of Americans who don’t pay taxes will never understand a) how the system really works, b) how they are a drag on the economy, and c) why they don’t count.

In the name of preserving jobs, Governor Hickenlooper went hat in hand to plead for the retention of the military presence at Fort Carson. But does it matter what kind of jobs are we talking about? Are there better or worse jobs, well-paying or below-poverty jobs?

The recent announcement of Walmart that it’ll increase wages to 40% of its employees was greeted with cheers around the nation. It even agreed not to have its employees “on call,” and provide them with regular schedules.

To some extent, this is progress. It has been well documented that Walmart employees have cost taxpayers $6.2 billion in Medicaid costs and other welfare programs, like food stamps (Forbes, 4/15/14). So, if Walmart pays its employees more in wages, America’s support of its employees decreases.

Not all jobs are alike, and some, like the Walmart ones, can be costly to the public at large. We should carefully examine the facts before we applaud a policy change.

What about marijuana jobs in Colorado, now that recreational consumption is as legal as medical use? No matter how much the leaders of Colorado Springs dislike the idea, I’d venture to say that the jobs created in this industry pay better than at Walmart, and thus contribute positively to the state’s economy.

If you have a moral objection to pot jobs in comparison to Walmart jobs, we are having a different conversation: no longer about job creation but about morality. Is the morality of Walmart—outsourcing overseas and poverty-level wages—superior to that of the pot industry, where chilling with a joint increases food consumption?

If we remove moral judgment about which industry is better than the other, perhaps the debate can focus on the economy itself. And if economic health is the goal—sustainability and/or growth—we might turn to the military for advice.

No, I’m not suggesting that we all apply for military service or that we should expect the armed forces to ensure the economic health of the nation; it has enough on its plate.
Yet, the military is a successful welfare system developed over a century: educating young men and women, training them, and preparing them for civilian jobs and careers.

The ROTC program is a model of sensible investment in the future of students who become officers and then serve in the military. Why not replicate it for all other national needs, from teachers and engineers, to nurses and scientists?

What if corporate America identified young college students, paid for their education, and then signed them to work for them at reduced rates for the first few years of their careers until they repaid for their education?

If the military can do this efficiently—a government agency by any definition—couldn’t the private sector do it even better? From hospitals to technology startups we can envision a crop of dedicated and highly qualified young students eager to contribute to their country’s wellbeing.

Incidentally, this would of course reduce student debt which right now overshadows mortgage debt. Win-win? Too good to be true? If tried, this experiment can be as good as the military one, and perhaps more popular for those not interested in warfare.

Raphael Sassower is professor of philosophy at UCCS. He can be reached at rsassower@gmail.com See previous articles at sassower.blogspot.com