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1. Sweatshop Video of the Day I. A surprising and inspiring 2012 TED Talk above on the alleged exploitation of Chinese factory workers, who we are told lead miserable and bleak lives making iPhones, Coach handbags and Nike running shoes in factory sweatshops for rich Americans. Author Leslie T. Chang explains why that’s a completely false and disrespectful narrative. Here’s an excerpt:
Across China, there are 150 million workers, one third of them women, who have left their villages to work in the factories, the hotels, the restaurants and the construction sites of the big cities. Together, they make up the largest migration in history, and it is globalization, this chain that begins in a Chinese farming village and ends with iPhones in our pockets and Nikes on our feet and Coach handbags on our arms that has changed the way these millions of people work and marry and live and think. Very few of them would want to go back to the way things used to be.
Certainly, the factory conditions are really tough, and it’s nothing you or I would want to do, but from their perspective, where they’re coming from is much worse, and where they’re going is hopefully much better, and I just wanted to give that context of what’s going on in their minds, not what necessarily is going on in yours.
HT: Bob Wright
2. Sweatshop Video of the Day II. In the Learn Liberty video above, you’ll learn from UC-San Diego professor Matt Zwolinski about the “Top 3 Ways Sweatshops Help The Poor Escape Poverty.”
3. Sweatshop Cartoon of the Day. A sweatshop cartoon classic, first featured on CD back in 2007.
4. Sweatshop Quotation of the Day I:
Closing sweatshops and forcing Western labor and environmental standards down poor people’s throats in the third world does nothing to elevate them out of poverty. Instead, it forces poor people to buy a lot of rich man’s toys, like clean air, clean water, and leisure time. If clean air and leisure time don’t strike you as extravagant luxuries, that’s because Americans – even the poorest of us – are so rich these days that we’ve forgotten what true poverty is like. But chances are your great-great-grandparents could have told you what it’s like: when you’re truly poor, you can’t afford things like clean air. Nobody in 1870 America worried about the environment.
~Economist Steven E. Landsburg, from his book “More Sex is Safer Sex: The Unconventional Wisdom of Economics.”
5. Sweatshop Quotation of the Day II:
Well-meaning American university students regularly campaign against sweatshops. But instead, anyone who cares about fighting poverty should campaign in favor of sweatshops, demanding that companies set up factories in Africa. If Africa could establish a clothing export industry, that would fight poverty far more effectively than any foreign aid program. American students should stop trying to ban sweatshops, and instead campaign to bring them to the most desperately poor countries.
~Nicholas Kristof’s 2006 NY Times op-ed “In Praise of the Maligned Sweatshop.”
6. Sweatshop Quotation of the Day III:
I’m glad that many Americans are repulsed by the idea of importing products made by barely paid, barely legal workers in dangerous factories. Yet sweatshops are only a symptom of poverty, not a cause, and banning them closes off one route out of poverty. At a time of tremendous economic distress and protectionist pressures, there’s a special danger that tighter labor standards will be used as an excuse to curb trade.
Among people who work in development, many strongly believe (but few dare say very loudly) that one of the best hopes for the poorest countries would be to build their manufacturing industries. But global campaigns against sweatshops make that less likely. The best way to help people in the poorest countries isn’t to campaign against sweatshops but to promote manufacturing there.
~Nicholas Kristof’s 2009 NY Times op-ed “Where Sweatshops Are a Dream.”
7. Child Labor Quotation:
As any historian could tell you, no society has ever pulled itself out of poverty without putting its children to work. Back in the early 19th century, when Americans were as poor as Bangladeshis are now, we were sending out children to work at about the same rate as the Bangladeshis are today. Having had the good fortune to get rich first, Americans can afford to give Bangladeshis a helping hand, and there are plenty of good ways for us to do that. Denying Third Worlders the very opportunities our ancestors embraced, whether through fullfledged boycotts or by insisting on health and safety standards they can’t afford to meet, is not one of those ways.
~Steven E. Landsburg, from his blog “The Big Questions.”
Adjusting for transfers and taxes reduces income inequality between highest and lowest quintiles by 50%
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As a follow-up to my post on Saturday about the new CBO study on the “Distribution of Household Income and Federal Taxes, 2011,” the table above shows how income inequality between the highest and lowest income quintiles changes when we account for: a) transfer payments and b) federal taxes. Here’s a summary:
1. When we compare “Average Market Income” (labor income, business income and capital gain income), the average household in the highest income quintile received 15.1 times more income in 2011 ($234,700) than the lowest income quintile ($15,500).
2. After adjusting for government transfers, the average household in the highest quintile received only 10 times more before-tax income ($245,700) in 2011 than the average household in the lowest one-fifth ($24,600).
3. After adjusting for both government transfers and federal taxes paid, the average household in the top quintile received less than 8 times more after-tax income ($188,200) than the average household in the bottom 20% ($24,100).
Bottom Line: Almost half of the income inequality between the highest and lowest household quintiles disappears when we adjust for government transfer payments and federal taxes. Before taxes and transfers, the average income of a household in the top 20% is 15.1 times greater than the income of a household in the lowest quintile, but that ratio drops to only 7.8 times after adjusting for transfers and taxes. Much of the discussion on income inequality focuses on income differences before taxes and before transfers, and this analysis above shows how dramatically those adjustments can impact a comparison between high and low income US households.
New CBO study shows that ‘the rich’ don’t just pay their ‘fair share,’ they pay almost everybody’s share
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The Congressional Budget Office (CBO) just released its annual report on “The Distribution of Household Income and Federal Taxes” analyzing data through 2011 on American household’s: a) average “market income” (a comprehensive measure that includes labor income, business income, and income from capital gains), b) average household transfer payments (payments and benefits from federal, state and local governments including Social Security, Medicare and unemployment insurance), and c) average federal taxes paid by households (including income, payroll, corporate, and excise taxes). Some of the key findings of the CBO analysis are displayed in the table above, with the data organized by household income quintiles. The data in the first five rows above appear in the CBO report (from Tables 1 and 4), and rows 6-8 above have been calculated separately based on data from the first four rows in the table.
The CBO report received attention and commentary this week from John Merline at Investor’s Business Daily (“New CBO Report Explodes Tax Fairness Myths”), Reason’s Nick Gillespie (“3 Charts About Income Inequality, Transfers, and Taxes”), AEI’s Jim Pethokoukis (“Here is what’s really happening to middle-class incomes and inequality”), Heritage Foundation’s Curtis Dubay (“The Richest 1 Percent of Americans Pay 24 Percent of Federal Taxes”) and former economist Paul Krugman (“Why the One Percent Hates Obama”).
Some additional analysis and commentary will be provided here that reveal a yet-to-be discussed major implication of the CBO report – almost the entire burden: a) of all transfer payments made to American households and b) of all non-financed government spending, falls on just one group of Americans – the top one-fifth of US households by income. That’s correct, the CBO study shows that the bottom three income quintiles representing 60% of US households are “net recipients” (they receive more in transfer payments than they pay in federal taxes), the second-highest income quintile pays just slightly more in federal taxes ($14,800) than it receives in government transfer payments ($14,100), while the top 20% of American “net payer” households finance 100% of the transfer payments to the bottom 60%, as well as almost 100% of the tax revenue collected to run the federal government. Here are the details of that analysis.
The figures in Row 6 in the table above (and displayed in the graph above) show the amount of federal taxes paid by the average household in each income quintile minus the average amount of government transfers received by those households in 2011. For each of the three lower income quintiles, their average government transfer payments exceeded their federal taxes paid by $8,600, $12,500, and $9,100 respectively, and therefore the entire bottom 60% of US households are “net recipients” of government transfer payments. Averaged across all three lower income quintiles, we could say that the lowest 60% of American households by income received an average transfer payment of about $10,000 in 2011. And because the government has no money of its own, where did those transfer payments come from to finance the “net recipient” households? Where else, but from the top two income quintiles, and realistically almost exclusively from Americans in the highest quintile.
Specifically, the average household in the fourth quintile paid slightly more in federal taxes ($14,800) than it received in transfer payments ($14,100) in 2011, making the average household in the second-highest income quintile a “net payer” household in the amount of $700 in 2011. Basically, households in the fourth income quintile paid enough in taxes to cover their transfer payments, and then made a minor contribution of $700 on average to help cover the transfer payments of the “net recipient” households in the bottom 60% and make a small contribution to the federal government’s other expenditures.
But the major finding of the CBO report is that the households in the top income quintile are the real “net payers” of the US economy. The average household in the top one-fifth of American households by income paid $57,500 in federal taxes in 2011, received $11,000 in government transfers, and therefore made a net positive contribution of $46,500. The second-highest income quintile basically just barely covers its transfer payments, so it’s really the top 20% of “net payer” households that are financing transfer payments to the entire bottom 60% AND financing the non-financed operations of the entire federal government.
Here’s another way to think about the burden of the “net payer” top income quintile. The average household in that income quintile made a contribution net of transfers in 2011 in the amount of $46,500. That would be equivalent to the average household in the top quintile writing four checks: 1) one check in the amount of $8,600 that would cover the average net transfer payments of a household in the bottom quintile, 2) another check for $12,500 to cover the average net transfers of a household in the second lowest quintile, 3) a third check in the amount of $9,100 to cover the average net transfer payments to a household in the middle income quintile, and 4) then finally writing a check for the balance of $16,300 that would go directly to the federal government, which for the households in the quintile as a whole would have covered almost 100% of the non-financed federal government spending in 2011. So except for a small contribution net of transfers in the amount of $700 from the average household in the fourth quintile, the highest income quintile is basically financing the entire system of transfer payments to the bottom 60% AND the entire operation of the federal government. And yet don’t we hear all the time that “the rich” aren’t paying their fair share of taxes and that they need to shoulder a greater share of the federal tax burden? Hey, they (the top 20%) are already shouldering almost the entire federal tax burden along with almost the entire system of entitlements and transfer payments! And that’s not “fair” enough already?
The chart above shows another way that the CBO data reveal an extremely unequal distribution of government transfer payments and federal taxes by displaying the ratio of “dollars received in government transfers per dollar paid in federal tax revenues” by income quintile in 2011 (these data are from row 8 in the table above). The average household in the lowest quintile received $9,100 in government transfer payments in 2011 and paid only $500 in federal taxes, for a ratio of $18.20 in transfer payments for every $1.00 paid in federal taxes that year. In contrast, the average household in the top income quintile received $11,000 in government transfers in 2011, but paid $57,500 in federal taxes, for a ratio of 19 cents in government transfer payments per dollar paid in federal taxes. This analysis is a further illustration that the bottom three quintiles are “net recipient” households that received more than $1 in government transfer payments for every $1 paid in federal taxes in 2011, while households in the fourth quintile were minor “net payers” in 2011 and received slightly less than a dollar in transfer payments on average ($0.95) for every $1 paid in federal taxes. “Net payers” in the top quintile received only $0.19 in government transfer payments per $1 paid in federal taxes in 2011.
This final chart shows average tax rates by quintile in 2011, both before and after government transfer payments. The blue bars in the chart show the average tax rates by income quintile from the CBO report (Table 4) and are also displayed in the top table above in row 5, calculated by dividing federal taxes paid (row 4) into “Before Tax Income” (row 3, Market Income + Government Transfers). Adjusting for government transfers received, the brown bars in the chart are calculated by dividing “federal taxes paid minus government transfers received” (row 6 in the table) into Before-Tax Income (row 3), and show average tax rates by income quintile after government transfers. For example, the average “net recipient” household in the lowest income quintile received a “negative tax” payment of $8,600 in 2011, had an average before-tax income of $24,600, for a negative tax rate of 35%. Reflecting their “net recipient” status, all three lower income quintiles had negative average tax rates in 2011, and only the “net payer” households in the top two income quintiles had positive after-transfer tax rates of 0.7% for the second-highest quintile and 18.9% for the top quintile. This further demonstrates that after transfer payments, households in the bottom 60% are “net recipients” with negative income tax rates, while only the top two “net payer” income quintiles had positive tax rates after transfers in 2011.
Bottom Line: We hear all the time from President Obama, Warren Buffett, Robert Reich, and various other Democrats and liberal pundits that “the rich” aren’t paying their fair share and need to be taxed more. For example, last year Obama reiterated his belief that the wealthiest Americans still aren’t paying their “fair share” of taxes. He said “Obviously, there is still more to do when it comes to reducing our debt. And I’m willing to do more, as long as we do it in a balanced way that doesn’t put all the burden on seniors or students or middle class families, but also asks the wealthiest Americans to contribute and pay their fair share.”
The CBO study released this week provides ample evidence that the richest Americans are paying their “fair share” of federal taxes. In fact, the richest 20% of Americans by income aren’t just paying a share of federal taxes that would be considered “fair” — it goes way beyond “fair” — they’re shouldering almost 100% of the entire federal tax burden of transfer payments and all other non-financed government spending. What’s probably not so fair is that the bottom 60% isn’t just getting off with a small tax burden or no tax burden – the bottom 60% are net recipients of transfer payments from the top 20% to the tune of about $10,000 per household in 2011. So maybe what the CBO report shows is that we should be asking whether or not the bottom 60% are paying their fair share when they’re not paying anything – they’re net recipients of transfer payments that come from “the richest” 20% of American households. When the top 20% of US households are financing almost 100% of the transfer payments to the bottom 60% and financing almost the entire non-financed operating budget of the federal government, I’d say “the rich” are paying beyond their fair share of the total tax burden, and we might want to start asking if the bottom 60% of “net recipient” households are really paying their fair share.
HT: I owe the inspiration for this post to Morgan Frank, who provided the original idea, discussed the development of the main ideas, and also suggested several of the charts above.
Update: As Morgan points out in the comments, it’s important to note for the discussion here that the US has the most progressive tax system among all OECD countries, see the Tax Foundation president Scott Hodge’s article “No Country Leans on Upper-Income Households as Much as US.” Specifically, the top ten percent of American households pay 45.1% of all income taxes (both personal income and payroll taxes combined), which is the highest of any of the 24 countries in the OECD and far above the 31.6% average. Adjusting for the income share of the top ten percent, the US has the highest ratio of tax share (45.1%) to income share (33.5%) for the top decile of 1.35 times, compared to the OECD average of 1.11.
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The current market capitalization of Apple, Inc. is approaching $670 billion, which is an increase of almost 33% and $165 billion from its $505 billion valuation at the beginning of this year. That means that just one American company – Apple, Inc. – is now worth more than the entire stock markets of Russia ($553 billion market capitalization), Mexico ($538 billion) and Malaysia ($523 billion), according to data from the World Federation of Exchanges, see chart above. If Apple’s phenomenal growth continues, it could surpass the market capitalization of Singapore’s stock market by next year.
See a related Bloomberg report here.
Economic Lesson: Never underestimate the size, power and dynamism of the US economy and its ability to foster and nurture American-based corporations that grow in market value to levels that exceed the entire stock markets of countries like Russia and Mexico.
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Oil drillers in North Dakota pumped out 1.18 million barrels of oil per day (bpd) in September, setting another new monthly all-time record high for the state’s crude oil production (see blue line in top chart), according to oil production data released this afternoon by North Dakota’s Department of Mineral Resources. September marked the sixth straight month that daily oil production in the Peace Garden State exceeded one million barrels. Another important production milestone was reached in September, as average daily crude oil output from the state’s shale-rich Bakken oil fields topped one million bpd for the fourth straight month (see brown line in top chart), as the Bakken recently joined an elite group of only ten oil fields in world history whose daily output topped one million barrels at peak production. Oil production in the Bakken has increased more than 7X over the last 5 years, from only 158,000 bpd in September 2009 to 1.18 million bpd in September of this year, with accumulated Bakken production reaching the one billion barrel milestone in August of this year.
Here are some other highlights of North Dakota’s record-setting oil output in September:
1) The state’s average daily oil production increased in September by 27% (29% for Bakken oil) compared to a year ago. Remarkably, in less than three years, oil production in North Dakota has more than doubled from 547,326 bpd in January 2012 to 1.18 million bpd in September.
2) Due to improvement in drilling technologies, the daily oil produced from each well in North Dakota averaged 104 barrels in September (132 barrels per well in the Bakken), setting a new record state high. In 2009, the daily oil per well in North Dakota was only 52 barrels, so the productivity of oil extraction in the state has doubled in only five years.
3) For the 3rd consecutive month, North Dakota’s oil production in September represented more than 13% of all US crude oil, another new milestone for the Peace Garden State. Five years ago in August of 2009, North Dakota produced only 4.3% of total US crude oil output, and the state’s oil production was about half of oil production in both California and Alaska. Due to the phenomenal growth of oil output in the shale-rich Bakken oil fields, North Dakota surpassed California and Alaska in 2012 to become the country’s No. 2 largest oil-producing state and now produced 13.5% of all US crude oil in September.
4) In dollar terms, the oil produced in North Dakota in September had a daily market value of $110 million at the average oil price during the month of $93.21 per barrel for West Texas Intermediate (WTI). For the entire month of September, that would put the market value of North Dakota oil at $3.3 billion, slightly below the $3.6 billion all-time monthly record high for the dollar value of the state’s oil output set in July.
5) The Bakken oil fields in western North Dakota produced more than one million bpd in September for the fourth straight month (see brown line in chart), setting a new all-time monthly output record, which also represented a new record high 94.5% of the state’s monthly oil production. In contrast, the Bakken region produced less than 9% of the state’s oil output at the beginning of 2007, before breakthrough drilling techniques (hydraulic fracturing and horizontal drilling) were able to tap into a bonanza of unconventional oil in the shale-rich areas of western North Dakota. As mentioned above, the Bakken now joins an elite group of only ten super-giant oil fields worldwide to ever produce more than a million barrels of oil per day at peak production, and just surpassed one billion barrels of accumulated total production.
Bottom Line: September was another stellar month in “Saudi Dakota,” with average daily oil production surpassing one million barrels for the fifth straight month, and establishing yet another new record high for the state’s oil output at 1.18 million bpd. The state’s shale-rich Bakken oil field reached an important energy milestone by producing more than a million barrels a day in September for the fourth consecutive month.
The shale boom continues to make the Peace Garden State America’s most economically successful state – with growth in employment and personal income that lead the nation, the lowest state jobless rate in the country for the last 69 months starting in January 2009 (2.9% in September), an enviable state budget surplus of more than $1 billion, the highest state GDP growth in 2013 of 9.7%, strong housing and construction markets (state permits for single-family homes are on track to set a new record this year of more than 7,000, which is double the number of permits issued two years ago in 2012), thousands of landowners who have become millionaires from oil and gas royalties (estimated oil royalty payments of $16.5 million every day in September, at 15% of the approximately $110 million in market value calculated above), jobless rates in 17 of the state’s 53 counties at or below 2.0% in September (with Williams and Dunn counties at only 0.8%, the lowest county jobless rate in America), and starting hourly wages at the Williston, ND Walmart of $17.20 — 2.4 times the state’s minimum wage of $7.25.
North Dakota’s economic success, job creation, housing construction boom, and energy-based prosperity is being driven by the development of the state’s vast energy resources, especially the vast oceans of shale oil in the state’s Bakken region which have become accessible recently with the twin technologies of fracking and horizontal drilling. The Peace Garden State, along with Texas, are the shining stars of The Great American Energy Boom, which continues to be the strongest sector of the US economy and gives us the best reason to be optimistic about the future of the US economy. Carpe oleum.
Minneapolis Public Schools’ solution to racial disparities in student suspensions? Impose racial quotas
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In a more sane world, what would be the appropriate response by public school administrators when a minority group of students is disproportionately suspended for disruptive behavior that frequently compromises and jeopardizes the learning experience for the majority of students? Investigate why that group is so disproportionately disruptive and disorderly? Increase the severity of the consequences for disruptive behavior? Impose greater standards of discipline with a lower tolerance for bad behavior? All of these seemingly logical responses are being overlooked by the Minneapolis Public School system in favor a completely different approach — eliminate the racial “disproportionality” of disruptive behavior by “administrative fiat” with racial quotas as outlined in this press release last week:
Minneapolis Public Schools (MPS) Superintendent Bernadeia Johnson announced her intent to eliminate the nonviolent [racial] suspension gap by 2018. To achieve this, MPS must aggressively reduce the disproportionality between black and brown students and their white peers every year for the next four years. This will begin with a 25% reduction in [racial] disproportionality by the end of this school year; 50% by 2016; 75% by 2017; and 100% by 2018.
Moving forward, every suspension of a black or brown [but not white or Asian] student will be reviewed by the superintendent’s leadership team. The school district aims to more deeply understand the circumstances of suspensions with the goal of providing greater supports to the school, student or family in need. This team could choose to bring in additional resources for the student, family and school.
Here’s how the Star Tribune reported it:
Minneapolis public school officials are making dramatic changes to their discipline practices by requiring the superintendent’s office to review all suspensions of students of color. The change comes amid intensifying scrutiny of the way Minneapolis public schools treat minority students and in the wake of new data showing black students are 10 times more likely to be sent home than white students.
Superintendent Bernadeia Johnson said she wants to “disrupt that in any way that I can.” “The only way I can think of doing that is to take those suspensions back to the individuals and try and probe and ask questions,” Johnson said Friday. “Changing the trajectory for our students of color is a moral and ethical imperative, and our actions must be drastically different to achieve our goal of closing the achievement gap by 2020,” Johnson said.
In other words, the strategy is “shoot the messenger,” impose racial quotas, define deviancy down, promote the soft bigotry of low expectations and victimology, play the race card, increase tolerance and understanding of disruptive behavior, and probably bring Reverends Al Sharpton and Jesse Jackson to town for a march or demonstration.
In a post at National Review (“Racial Double Standard for Minneapolis School Discipline“) Roger Clegg made this important point:
This sort of racial discrimination is blatantly illegal. What’s more, the children who will be hurt the most when badly behaving students are not disciplined will be their classmates — who are themselves likely to be “black or brown.”
In response to that post, Hans Bader, senior attorney at the Competitive Enterprise Institute, left this comment:
Racial quotas in school discipline are based on the false assumption that student misconduct is evenly distributed across all racial categories. But the murder rate is ten times higher among black teens than among white teens, and the homicide rate is six times higher among the African-American population than among the white population.
The chart above illustrates why there might be a “disproportionality” of black student suspensions in the Minneapolis Public Schools – black youth tend to disproportionately engage in disorderly and criminal behavior in relation to their share of the youth population based on the most recent FBI crime data for 2013. While blacks represent 13.2% of the US population, black teens under 18 are responsible for a significantly disproportionately greater share of teen criminal offenses – 35.5% of all reported teen crimes (2.7 times greater than the black share of the population), 57.3% of all teen murders (4.3 times the black share of the population), almost 72% of all teen robberies (5.5 times the black share of the population), and more than 44% of all teen aggravated assaults and disorderly conduct offenses (3.4 times the black share of the population). In contrast, the white, Hispanic and Asian under-18 year teen shares of criminal offenses last year were lower than their shares of the general population.
What if US law enforcement agencies like the Minneapolis Police Department followed the approach of the Minneapolis Public Schools? It might look like this:
Minneapolis Police Department (MPD) Chief of Police Janeé Harteau announced her intent to eliminate the racial criminal arrest gap by 2018. To achieve this, MPD must aggressively reduce the disproportionality of arrests between black and brown criminal offenders and their white peers every year for the next four years. This will begin with a 25% reduction in the racial disproportionality of arrests by the end of this year; 50% by 2016; 75% by 2017; and 100% by 2018.
Moving forward, every arrest of a black or brown (but not white or Asian) citizen will be reviewed by the Police Chief’s leadership team. By 2018, the racial disproportionality gap for arrests in the city of Minneapolis will be eliminated and black, brown, white and Asian criminals will be arrested and convicted in exact proportion to their shares of the city’s population. Arrest rates that exceed any ethnic groups’ share of the Minneapolis population will be considered unacceptable – exact racial proportionately of criminal arrests will be strictly enforced and maintained.
If you correctly think that type of racial and social engineering approach wouldn’t work for a law enforcement agency like the Minneapolis Police Department, then it certainly won’t work either for the Minneapolis Public Schools in its approach to the racial disparity in student suspensions.
Update: Thomas Sowell had this to say in one of his recent columns:
The most cynical of these bogey man ploys is Attorney General Holder’s threats of legal action against schools that discipline a “disproportionate” number of black boys. Unless you believe that black boys cannot possibly be misbehaving more often than Asian American girls, what does this political numbers game accomplish?
It creates another racial grievance, allowing Democrats like Holder to pose as rescuers of blacks from racist dangers. The real danger is allowing disruptive students in ghetto schools to destroy the education of other black students — in a world where education is the only hope that most ghetto youngsters have for a better life. Sacrificing these young people’s futures, in hopes of gaining some additional black votes today, is as cynical and fraudulent as it gets.