Archive for June, 2012

Governor McDonnell takes the low road in UVA Board appointments

June 30, 2012

Following the debacle over the firing of the President of the University of Virginia by a Board of Governors acting secretively and deceitfully, the Board reversed itself last week and unanimously reinstated President Sullivan. The Governor then had a wonderful opportunity to discipline the Board for seriously bad behavior.

The University Rector, Helen Dragas, the Lucifer at the center of the entire shoddy episode, was under consideration for re-appointment, together with three other Kaine-appointed members of the Board. McDonnell fumbled the ball in the red-zone and reappointed Dragas to the Rectorship and re-appointed  two out of the three other members whose first terms had expired.

Every new appointment to the Board made by Governor McDonnell is a big contributor to his 2009  election campaign.  So money continues as the book of all power in the Commonwealth of Virginia. In my judgment, by these actions, Governor McDonnell has excluded himself from serious consideration as Governor Romney’s running mate in the November 2012 elections.

Shame on him!

A second Roberts’ ‘switch in time that saves nine’

June 29, 2012

During the mid-1930s, the phrase  ‘four horsemen’ was employed to describe Pierce Butler, Willis Van Devanter, George Sutherland, and James McReynolds, four justices of the Supreme Court who consistently opposed New Deal legislation. Originally employed by critics of those justices, the phrase evoked the legendary Four Horsemen of the Apocalypse.

Justice Owen Josephus Roberts had joined a conservative depression-era Court identified with entrepreneurial liberty and skeptical of government regulation of business.  Serving on a Court now deeply divided by new FDR appointments – notably Charles Evans Hughes and Benjamin Cardozo – Owen Roberts’ vote was pivotal in the struggle between the conservative majority and FDR. As conservative opposition to New Deal legislation intensified, the Court’s attitude towards federal economic legislation hardened, and Justice Owens increasingly joined the persistent conservative majority.

The Court’s successfulopposition to New Deal legislation led to the 1937 battle over Roosevelt’s court-packing plan. FDR proposed to appoint five additional members to the nine-member Court – all of whom would have been Democrats. In response to this threat Roberts apparently softened his attitude towards the New Deal. 

In 1937, in a ‘switch in time that saved nine’,  Justice Owens joined a new majority in upholding a state minimum wage law in West Coast Hotel v. Parrish (1937). FDR’s court-packing plan died in the U.S. Senate, but Owen Roberts’ switch, followed by conservative retirements and new FDR appointments to the Court, ushered in half a century of Supreme Court deference to progressive legislation.

On June 28, 2012, Chief Justice Roberts – in a second dramatic switch thay may have saved yet another nine, led a five to four majority in ruling that the individual insurance mandate – the lynchpin of Obamacare – was constitutional, albeit under the Tax Clause rather than the Commerce Clause of the Constitution. If Chief Justice Roberts sustains this pivotal shift from a conservative to a progressive agenda, the United States may be on the edge of yet another era of court deference to progressive legislation.

President Obama can no longer campaign on a record of not imposing federal tax increases on poor Americans. The insurance mandate imposes perhaps the highest ever tax increase on the group of Americans who choose not to purchase health insurance from 2014 onwards. And most of these Americans will be relatively poor. No doubt the master-spinner will spin this tax in such a way as to avoid vote losses among the affected group.

With Obamacare ruled constitutional – with minor exceptions regarding the imposition of Medicaid expansion on the states – the only way to avoid it now is outright repeal. That sets a very high bar, requiring a House majority, a Senate filibuster-proof majority, and a presidential signature. Unless November 2012 provides landslide victories for the Republican Party, this battle is now over, and should not divert attention from the major economic reforms required to vault the United States back onto a high growth, high-employment trend line.

Of course, the economic drag implicit in Obamacare is a major additional obstacle imposed on the nation by the second Justice Roberts and his four progressive colleagues.  Roberts, I suspect,  is a name extremely unlikely to find its way into the Hall of Fame occupied by the nation’s greatest justices.

Rent-seeking in Egypt: from Mubarak to the Military and the Muslim Brotherhood

June 27, 2012

“We will never know how much Hosni Mubarak might have stolen.  One so-called expert has even put the wealth of the deposed president of Egypt and his family at more than $40 billion, which would make him one of the world’s richest men, alongside Carlos Slim, Bill Gates and Warren Buffet…Whatever the true extent of the Mubarak family fortune, it stands in stark contrast to the lot of most Egyptians.  Gross domestic product per capita in Egypt is a mere $2,500.” John Kay, Lessons on rent-seeking from Hosni Mubarak to Louis XIV’, Financial Times, June 27, 2012

The real damage imposed on Egypt by Hosni Mubarak is not the wealth that he stole from his  fellow countrymen.  The real cost of his kleptocracy is the economic system that he installed to access those transfers.  For that economic system destroyed opportunities for others to generate wealth, not only for themselves, but for the population as a whole. A kleptocracy functions through licensing systems designed to prevent enterprise that might challenge the privileges of those who have paid off the kleptocrat.

As a  consequence, individuals who might otherwise have become successful entrepreneurs choose instead to operate within the political system, rent-seeking for wealth transfers rather than profit-seeking through wealth creation.  That is the tragedy of Hosni Mubarak’s corruption.

The tragedy will not end with Mubarak’s removal from office. The lessons of his rule have been learned well by his successors. The Egyptian military has now plundered much of what is left of Egyptian graft and surely will not release it to the uncertainties of free market forces. The Muslim Brotherhood is mired in socialism and corruption and will compromise with the military to take a small share of the spoils. The Egyptian people will find their circumstances worsened rather than improved by an Arab Spring that will quickly turn into a Winter of rent-seeking Discontent.

Koch Brothers force Ed Crane out of CATO

June 26, 2012

The Cato Institute and billionaire brothers Charles and David Koch reached an agreement yesterday that ends their legal dispute for control over the nation’s pre-eminent libertarian think tank.  The agreement dissolves the controversial stockholder arrangement that seemingly fell under Koch control following the death of William A. Niskanen in 2011.  The price for the agreemeent are the heads of Ed Crane and Bill Niskanen’s widow, Kathryn Washburn, both of whom will exit the Cato Board of Directors and of Charles Koch, whose formal board role is now accomplished.  Ed Crane will also retire from the presidency of Cato within six months, while still at the peak of his performance. 

The agreement unquestionably downgrades the independence and long-term intellectual integrity of the Cato Institute. I know from close personal experience, both at  the Institute for Humane Studies, and at George Mason University’s Mercatus Center, that when the Kochs gain control over any program they abuse their power. Intellectually, they may consider themselves to be supporters of individual liberty. Practically, they behave as dictators, ruthlessly manipulating the agencies that they control in pursuit of fluid objectives of their own.

The new President of Cato, former BB & T chief executive, John Allison, has promoted free market thinking through a variety of charitable endowments. Intellectually, he is unproven, a successful banker rather than an accomplished thinker.  He offers to the Cato Institute the freedom of the boat without a compass – except that David Koch will assuredly have both hands on the tiller and big brother’s guiding voice in his ear.

Prior to the announced changes in board composition, Cato was evenly balanced between Koch and non-Koch board members. Details of the new board are not yet available. Almost certainly, the  new members will appointed after the departure of Crane, Washburn and Charles Koch from the board.  David Koch, now returning as a Cato donor after years of  donation drought, will play an influential role in making appointments. The Board of Directors will fall firmly under Koch control.  And the Cato Institute will quickly learn – just as the Institute for Humane Studies learned in the late 1990s, and just as GMU’s Mercatus Center learned during the late 2000s  – that the Koch Brothers rule, not through the invisible hand of the market,  but through the very visible boot of crude politics.

Let me close this column by saluting Ed Crane and his wonderful Cato team. They have served this nation well over several decades.  Scrupulously  honest, and of the highest integrity, Ed Crane and his team have demonstrated that it is possible to live in close proximity to the center of government while maintaining the highest standards of scholarship.

Eternal vigilance is the price of liberty!

BRAVO!

Privatize the University of Virginia

June 25, 2012

“Each of you  (board members) is unquestionably dedicated to the University and its mission and given generously of your time and talent.  Each of you loves the University and wants to make the right long-term decisions for this University that holds world-wide acclaim.  Each of you was appointed by Governor Kaine or me because of your success and wisdom as leaders and managers and your demonstrated devotion to the University and the Commonwealth.”  Robert F. McDonnell, Governor of the Commonwealth of Virginia, Letter dated June 22, 2012

No doubt the Governor’s above statement contains elements of the truth. Fundamentally, however, it represents a terminological inexactitude.  For the most part, members of the Board of Visitors of the University of Virginia purchased their way onto that board by generously funding the 2005 and the 2009  electoral campaigns of Governors Kaine and McDonnell. They chose the winning candidate and received a prestigious board membership reward.  That reward is then coined into network contacts that accrue wealth to their business ventures, law practices etc.

Whether or not the individual board members have any understanding of the business model that underpins the university that they rule is ultimately a matter of chance. Whether or not they have any love of scholarship again depends on the roll of the gubernatorial dice.  None of them, to be sure, will have ever published a significant  piece of scholarship, or directed a doctoral student to the successful completion of his dissertation.  Many of them will be grubbing around in realty development projects, ambulance-chasing attorney offices, hedge fund offices, and the like. Some of them may not have read a serious book in decades. Governors look at their campaign coffers and then throw the die high in adding and subtracting members to the board.

“I am absolutely …dedicated to the reform effort to keep our colleges and universities competitive and excellent….I have championed an increase of $350 million of new funding for our colleges and universities to reverse a decade of disinvestment.”  Robert F. McDonnell, ibid.

You are dreaming, Governor McDonnell. To all intents and purposes any organization that secures only 6 per cent of its total annual budget from the Commonwealth of Virginia is effectively privatized. Such is the current position of the University of Virginia.  Privatized with respect to funding but bureaucratized with respect to its governance is a disastrous business model, Governor as I am sure that you profoundly appreciate.

So recognize economic reality and cut the University loose from Virginia politics. Allow it to confirm Thomas Jefferson’s original vision by moving right up the Ivy League ranking as a premier non-profit institution.  Allow it to compete with Harvard, Yale and Princeton, with a Board of Visitors dripping with world-class business and academic talent. Do not constrain it to the lower echelons of the academy by burdening its governance with the Helen Dragas’s and the Mark Kington’s of  Virginia’s second tier or worse levels of business acumen.

I am sure that you believe in laissez-faire capitalism, Governor McDonnell. Recognize reality, and cut the remaining 6 per cent from the UVA budget in order to set Mr. Jefferson’s academical village completely free from state control.

U.S. Congress riddled with insider trading corruption

June 24, 2012

When the senior executives of U.S. corporations trade stock in their companies on the basis of insider information, they risk lengthy jail sentences for criminal behavior.  If the United States was a country governed by the rule of law, the political classes would be governed by the same laws.  Unfortunately, the United States is a country governed by the rule of men, not the rule of law. So the political classes are free to make themselves wealthy via virtually unconstrained insider trading.

“One-hundred-thirty members of Congress or their families have traded stocks collectively worth hundreds of millions of dollars in companies lobbying on bills that came before their committees, a practice that is permitted under current ethics rules, …  The lawmakers bought and sold a total of between $85 million and $218 million in 323 companies registered to lobby on legislation that appeared before them, according to an examination of all 45,000 individual congressional stock transactions contained in computerized financial disclosure data from 2007 to 2010. Almost one in every eight trades – 5,531 – intersected with legislation.  The 130 lawmakers traded stocks or bonds in companies as bills passed through their committees or while Congress was still considering the legislation.  The party affiliation of the lawmakers was almost evenly split between Democrats and Republicans, 68 to 62.”   Dan Keating, David S. Fallis, Kimberly Kindy and scott Higham, ‘Legislators traded millions in stock they could impact’, The Washington Post, June 24, 2012

Many of my columns illustrate the venality of politicians, arguably the worst species to inhabit the planet, the most amoral, the greediest for personal wealth, stolen from their constituents, and the least fazed in pursuing endeavors prohibited, by their own laws, to other members of their nation. Insider trading is just one more despicable abuse of political power.

Any politician who fails to assemble his assets in a blind trust for the duration of his term of office should be removed from Congress forever. To achieve such a goal is extremely difficult, because the foxes are already patrolling the corridors of the hen house.

Not much of a Midsummers Day message, I am afraid, folks. If ever you find yourself walking within contamination distance of the U.S. Capitol, make sure that you bathe thoroughly with antiseptic soap when you return home!

It’s the U.S. banks and the money supply, stupid

June 23, 2012

“During the 1992 presidential campaign, former President Clinton’s rallying cry was ‘It’s the Economy, Stupid.’  He sang it to perfection and won the election.  Today, the smart politicians (and economists) should realize that ‘It’s the Money Supply, Stupid.’  ” Steve H. Hanke, ‘It’s the money supply, stupid.’ GlobeAsia, July 2012

Steve Hanke tells only half the truth in his fascinating article. He focuses on aggregate statistics on the amount of money circulating in the U.S. economy without acknowledging that this statistic is a money market equilibrium based on forces of demand as well as supply.  Nevertheless, his analysis is important, not least because it draws attention, albeit indirectly, into the role played by insolvent and illiquid banks in prolonging the current economic downturn.

1. What counts as money?

Money takes the form of various types of financial assets that are used for transaction purposes and as a store of value.  Money created by a monetary authority – notes, coins, and banks’ deposits at the monetary authority – represents the monetary base of an economy, sometimes called high-powered money. This category is imbued with the greates moneyness of all the categories of financial assets that are called money. The monetary base is ready to use wherever goods and services are exchanged for money.

In addition, there are many other financial assets, running from bank deposits at the commercial bank to short-term private securities, that possess varying degrees of moneyness. These other assets, in varying degrees, are substitutes for money, depending on the opportunity costs associated with exchanging them for base money. Note that when we sum these assets to the base to obtain an aggregate money statistic, they should not receive the same weights as the base. The weight indeed should decline the greater the opportunity cost of exchanging a particular financial asset for the base. Steve Hanke refers to the weight adjusted measure of money as ‘Divisia’ and recommends using the broadest measure available, namely Divisia 4. The divisia measure is composed of publicly-produced money (the base) and privately-produced money (the financial institutions).

2.  What is happening to Divisia 4 money?

This is where Hanke’s story bcomes interesting. In August 2008,  base money, provided by the Federal Reserve amounted to just 5 percent of Divisia 4 money.  The remaining 95 per cent was privately produced by financial institutions, including the banks. Since August 2008, the supply of publicly-produced money has more than tripled while privately-produced money has shrunk by 12.5 per cent.  This has resulted in a decline in Divisia 4 money of almost 2 per cent. So in June 2012, base money has increased from 5 to 15  per cent of Divisia 4 money. 

Should the earlier relationship between base and non-base money re-emerge (i.e. should the so-called money multiplier attaain its earlier magnitude) massive inflation would occur unless the Federal Reserve somehow could claw back the monetary base by two-thirds of its present size (without wrecking the economy).

3.  Why is Divisia 4 so low?

That is the $64,000 question. In these columns I have argued that money supply is playing the major role in this suppressed equilibrium between supply and demand. The major banks and financial institutions in the United States had played themselves into insolvency or massive illiquidity by September 2008. They should have been liquidated, cleansing their failure and allowing new banks to emerge unemcumbered by past debt.

Government bailouts prevented that solution. In consequence, banks and financial institutions are unable or unwilling to lend to small businesses and to finance consumer borrowing. This constrains the money multiplier and significantly retards economic recovery.

Secondly, because of uncertainties raised by poor Keynesian macro-policies on the part of the Obama administration, money demand has been lowered within the private sector. There is, if you will, a capital strike afoot against the Obama administration, right across the business sector.

If Obama is tossed out of office in November 2012, the capital strike will disappear and a significant increase in money demand will occur. At that point, investors who have protected themselves against inflation will fare well. Others will suffer greatly.

So Moody’s downgrading of five of the six biggest U.S. banks on June 21, 2012, will further reduce the Divisia 4 monetary equilibrium, will further retard economic recovery, and should, if voters are sufficiently alert, hammer the final nails into Barack Obama’s one-term presidential coffin on November 6, 2012.

The downgrading may also set in motion market cleansing forces that lead to bank liquidations and provide the basis for a sustainable long-term recovery on the basis of competitive-  instead of crony-capitalism throughout the U.S. financial sector.

 

 

 

Moody’s bank downgrades exacerbate price tag on ‘too-big-to-fail’

June 22, 2012

On June 21, 2012, Moody’s Investors Service downgraded its ratings on five of the six largest U.S. banks, as measured by assets. The lower ratings will raise the companies’ borrowing costs, will affect how they raise new capital, and will deprive them of trading revenues. The banks involved are: Bank of America, Citigroup, Goldman Sachs, Morgan Stanley and JP Morgan Chase.  The sixth bank, omitted from scrutiny because its investment trading section was smaller than the others, is Wells Fargo.

Five of these six large banks were essentially insolvent in September 2008, and should have been forced into liquidation. Only JP Morgan Chase was solvent and sufficiently liquid to ride out the storm.  The weak – if not politically corrupt –  administrations of George W. Bush and Barack Obama labeled the failed banks ‘too-big-to-fail’, subjected them to stress tests rigged by Treasury Secretary Geithner so that they would pass, and allowed them to continue as brain-dead dinosaurs that drag down the United States economy.

Moody’s, however, has brushed away expensive lobbying by the too-big-to-fail banks and has belatedly administered medicine that the U.S. government has corruptly evaded.  The downgrades administered tell us a lot about the fragile status of the banks involved. Let us review exactly what has been imposed, bearing in mind that Ba1 designates junk status and the line down to Ba1 from where the various downgrades commenced is as follows:-

Aa3>A1>A2>A3>Baa1>Baa2>Baa3>Ba1(junk)

JP Morgan Chase: downgrade two notches from Aa3 to A2

Goldman Sachs: downgrade two notches from A1 to A3

Morgan Stanley: downgrade two notches from A2 to Baa1

Citigroup: downgrade two notches from A3 to Baa2

Bank of America: downgrade one notch from Baa1 to Baa2.

Note that not one of these behemoths started off anywhere near a AAA rating. Two of the five banks, Citigroup and Bank of America, are now rated by Moody’s at only two notches above junk status.  Lest readers choose to believe that Moody’s has it in for these banks, I should mention that the regular markets downgraded each of these banks months ago.

Ratings derived from the banks’ credit default swap spreads – which serve as an indicator of their perceived riskiness – anticipated Moody’s downgrade by more than a full calendar year.  Morgan Stanley, for example,  was trading at Baa3 – below its new Moody’s rating – as early as May 2011.  As usual, the markets anticipate the rating agencies.

In tomorrow’s column, I shall indicate the consequences of the federal government bailing out these loser banks for economic performance economy-wide. The only good news that I can purvey is that actions hopefully do have consequences. Obama’s bank  bail-out philosophy predictably will confine him to a single term in the White House. And that will be a blessing indeed!

In praise of Angela Merkel

June 21, 2012

Seemingly a majority of governments in the eurozone, together with the flailing administration of President Barack Obama in the United States, have ranged themselves against the economic philosophy enunciated by German Chancellor, Angela Merkel. They castigate her as the gravedigger of the Western economic system. 

Of course, one expects no less from hydraulic Keynesians – the dinosaurs of political economy – whose rent-seeking careers are totally dependent on the growth of government and  the monotonic expansion of government debt. Criticism of Chancellor Merkel, however, extends well beyond this twilight zone of political economy. Almost every nation that is unwilling to live within its means has it in for one of the few nations  (the UK is another such exception) willing to tighten its belt and to spend only what it earns.

Let me be absolutely clear on the key complaint. There is no austerity anywhere in the eurozone, other than in Germany. Surely there is no austerity in the United States. Let me illustrate.

According to Eurostat, in 2011, Ireland ran a budget deficit of 13 per cent of gross domestic product, Greece 9 per cent, Spain 8.5  per cent, France 5 per cent, the Netherlands 5 per cent, Italy 4 per cent and Portugal 4 per cent. Each and every one of these deviants was in breach of the Maastricht Treaty constraint that budget deficits should never exceed 3 per cent of gross domestic product. These countries were not suffering from austerity. They were reveling in unconstrained profligacy as a consequence of  cheap money.

As a consequence of a lengthy history of such profligacy – of nations living well beyond their means – public debt across the eurozone now tops 90 per cent of gross domestic product.

Why has Angela Merkel’s Germany performed so much better than the above-listed deviants?  The statistics supply the answer. During the decade of the euro, German unit-labor costs rose by a mere 7 per cent. In Italy they soared by 30 per cent, in Spain by 35 per cent, and in wretched Greece by 42 per cent. 

Germans responded to eurozone rules by reforming their institutions and improving the quality of their labor markets. The deviants responded to cheap money by relying on cheap money to lavish their populations with social transfers and public sector wage increases  that their governments  could not conceivably afford.

Because money became cheap under the euro, profligacy became easy. This was never meant to occur.  Monetary union was to make money more expensive – the Bundesbank way. That was the rationale for the no-bailout clause in the Maastricht  Treaty.

Angela Merkel did her homework; the deviants failed to follow her example.  It’s your fault, Merkel, they all whine. Why ever did you do your homework. Your success exposes our failures, and we will not stand for it!

Stand by your good principles, Chancellor Merkel, and force the deviants to comply with the rules, if they desire the eurozone to survive. Ultimately you will call their bluff, partly because they know that you are right, partly because without your bailouts they have no other option.

Yes, some corrupt politicians will justifiably lose their elections as they have to tighten the government belt. I suspect that Barack Obama will be an early example. They deserve to be evicted from offices that they have abused in an easy search for rationally ignorant votes. The electoral sheep – in the United States no less than across the eurozone –  thankfully will not remain rationally ignorant when the German wolf is snarling at their tails.

Hat Tip: Joseph Joffe, ‘I come to praise Ms Merkel not to bury her’, Financial Times, June 20, 2012

A failure of governance at the University of Virginia: follow the money

June 20, 2012

Since writing yesterday’s column, details are emerging that strongly support my judgment that the governance failure at the University of Virginia is politically grounded. However, the political failure does not appear to be centered on any conflict between Democrats and Republicans. Rather it is grounded on money, the mother’s milk of all politics and on ignorance, which is the price of appointing unqualified  individuals to boards of governance.

First let me outline a startling absence in the career backgrounds of the 16 members of the Board of Visitors at UVA.  Not one board member is employed, or has ever been employed, in the higher education sector. That in itself is an appalling indictment of the appointment skills of Governors Mark Warner,  Tim Kaine and Bob McDonnell. 

The Rector, Helen Dragas, appointed buy Kaine in 2008, is a realter and Virginia Beach developer.  She comes from a family of successful real estate developers and is CEO of a successful Virginia Beach development company founded by her father. So she does not even earn the kudos of establishing her own company.  However, she surely has plenty of dollars to throw around on gubernatorial elections.  Kaine was a fortunate recipient of Dragas monies.

The Vice Rector, Mark Kington, who yesterday had the decency to resign half way through his appointed term, is a man with a long history of  throwing money into gubernatorial elections in a hunt for prestigious board appointments. He first won an appointment to the UVA Board of Visitors  in 2002 from then-Governor, Mark Warner, a former business partner,  whose campaign he had helped to bankroll, in the tune of $131,000.  In 2006, Kington switched parties and gambled $90,000 on the  the Republican gubernatorial-hopeful, Jerry Kilgore, who lost to Democrat, Tim Kaine. Naturally, Kington lost his seat on the board. Recovering from this temporary setback, Kington, poured $176,000 into the 2010 campaign coffers of Bob McDonnell.  Surprise, surprise, Kington was returnd to the board in 2010. Kington has made his money in capital management and he has plenty of it to throw around. Since 1997, he has expended $465,000  in a bipartisan fashion on Virginia candidates. Whatever it takes to secure that coveted  board appointment is his evident cynical political  philosophy.

Dragas and Kington merit such detailed evaluation because they were the two key players in ousting UVA President Teresa Sullivan after only two years in office.  They campaigned against her under a curtain of secrecy, excluding many board members from their discussions until days before the ouster decision, never formally calling a board meeting to determine the most significant decision that any Board of Visitors will ever record. They are just the sort of self-seeking fat cats that should never play a significant role in the future of a great university. Of course, grateful governors would not necessarily agree with my assessment.

The remainder of the board, evidently, are spineless creatures – elsewise they would never have tolerated such a campaign of secrecy, without opening up board deliberations to the public arena. Their backgrounds are far removed from academia. One is the CEO of Houston’s largest beer distributor, one is the son of TV evangelist, Pat Robertson, at least two are successful realtors, three are employed in the health care industry, and the remainder are a mix of successful attorneys and successful business men and women. All of them have plenty of money to throw into the political arena. None of them has any seriously relevant knowledge of the academy.

It turns out that every member of the Board of Visitors is a business simpleton,  each pushing for the President to rush into online rather than classroom instruction. If that is a business model for a university, it is one destined to take down a leading institution of higher education. Online instruction is an offering attractive to individuals who cannot gain entry into mainstream universities. The University of Phoenix – with a graduation rate of 5 per cent of its students – is the model for online education. Anyone pressing for online instruction in a major university is either stupid or criminally ill-informed about the nature of higher education. My guess is that the UVA Board of Visitors is a natural political  blend of both these negative qualities.

Not a single member of the Board holds a doctoral degree in any discipline. And we are talking here about one of the nation’s foremost universities. The UVA faculty should rise up and demand that they be tossed out of office and replaced by fully-qualified substitutes. I have no doubt that Thomas Jefferson would have politely pushed each and every current member of the board off the campus of his beloved academical village.

Follow the money is the fundamental  public choice hypothesis that explains behavior in political markets. Here is yet another example of the power of that hypothesis. When this occurs under the shadow of Monticello, one can only imagine with horror what happens at lesser state universities.


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