Post Pandemic, US States and Cities Need Better Plans to Reduce Income Inequality

According to Forbes, "In 1965, America's top 1% controlled about 10% of the nation's after-tax income. That number has now grown to over 15%. The average CEO-to-worker pay ratio had increased from 20-1 in 1965 to a whopping 312-1 in 2017. And middle-class real wage growth has been stagnant for decades."

Presidential candidates have also weighed in on the fast-growing income inequality in the US. Senator Bernie Sanders talked about "Tax on Extreme Wealth" with a proposal for an ultra-wealthy tax ranging between 2% and 8%. Andrew Yang, another presidential candidate, ran on implementing a universal basic income of $1,000/month for every American adult over the age of 18. 

Given this widening income gap between rich and poor and stagnant wages for the middle class, we need some serious socio-economic re-engineering. Here are some:

1. Implement Laureate Yunus' Microcredit Model to Create Economic Opportunities in Inner Cities –- Most inner cities in the US lack good economic opportunities resulting in poverty, often rampant poverty. Thousands of bright people are stuck in poverty in inner cities due to state and local governments' inability to create meaningful economic opportunities. One-size-fits-all economic model does not work there; instead, local governments should try Laureate Yunus' Microcredit Economic Model, thus financially empowering the local entrepreneurs (who "are too poor to qualify for traditional bank loans") to turn their neighborhoods around. Though this bottom-up economic model was developed for impoverished villages in third world countries, it has tremendous potential for our inner cities. 

  

2. Let the Private Sector Develop a Fair and Equitable Property Tax Assessment System –- Property tax is often the primary source of revenue for Cities and Towns. The poorly built or haphazard assessment systems tend to be highly regressive, thus heavily favoring the rich. Under such a biased system, the poor and middle-class homeowners subsidize the upscale and high-end properties. Therefore, the growing and prospering cities and towns around the country must consider outsourcing this crucial public task to the private sector or developing it in collaboration with the private sector, so it becomes truly fair and equitable. Ideally, the development and managing of this task must be entrusted to the private sector. An unfair system uproots seniors and minorities and often pushes the middle class off the cliff. 

3. Build more Long-term Care Facilities, not Jails and Prisons –-People committing the so-called "serious crimes" must be sent to high-security long-term care centers under the care of qualified psychologists and psychiatrists. The young and reinvented cities around the country should rethink and redefine crime and punishment from a moral high ground. The lack (perhaps the absence of) of economic opportunities often forces poor people to commit petty offenses, resulting in additional jail terms. Instead of sending them to jails, they should be assigned to the local clergies, rabbis, and imams to perform community service. Similarly, in a civilized world, juvenile detention centers' building does not pass the muster of moral hazards. 

4. Make College Education Free for STEM Students – This country needs to emphasize science and technology education to maintain global championship. Government colleges must provide free STEM education to all qualified poor students. Students must compete and qualify for the available seats to get into the free STEM programs, ensuring the best and brightest acceptance. Students pursuing other essential disciplines like nursing, teaching, etc. must receive tuition subsidies as well. All other majors (e.g., business, humanities, etc.), irrespective of the students' financial needs, must pay full tuition, thereby forcing the otherwise needy to pursue vocational education in line with the market demand. 

  

5. Richest 1% Needs to Accept the Generational Reset – The wealthiest 1% now owns 50.1% of the world's wealth. Given this absurd concentration of wealth, we need this 1% to be self-convinced (like Mr. Warren Buffett) that they are just temporary custodians of their wealth. They must, therefore, come to terms with the generational reset, meaning, at the end of their lives, they must return a sizable portion, if not all, of their wealth to society, pulling tens of thousands out of abject poverty each year. In other words, the success or failure of this country is now mostly dependent on them. If they are honest and honorable enough to accept this harsh reality, the citizenry's advancement will gleefully continue; absent this, millions more will continue to drift away in utter poverty. 

Of course, the 99% must also learn to put the country's interest ahead of their own. So, the rich and poor alike must come to terms with the generational reset, voluntarily returning a big part, if not all, of overall wealth to society. 

-Sid Som

homequant@gmail.com

Post Pandemic, Developing Countries must Improve Existing Economic Models

Income inequality has been growing by leaps and bounds in developing countries. While some of those countries are creating more billionaires every year, millions and millions of people are stuck in utter poverty, without any light at the end of the tunnel. They can break out of this vicious cycle by revisiting and renewing the existing economic models, emphasizing exploring and inventing forward-looking growth and income opportunities for the so-called 99%. 

To properly explore growth opportunities, developing countries should start at the national level, gradually drilling down to the state, local, and individual (yes, individual) levels. The onus is on all of us. A renewed "private-public partnership" economic growth model would be ideal for developing countries... 

1. Develop Basic Infrastructure with Private Cooperation. A developing country with well-developed infrastructure can attract more high quality foreign and domestic investments than their counterparts who are struggling to ramp up their infrastructure. Therefore, instead of selling out their natural resources, developing countries should intensify the development and expansion of necessary infrastructure by enticing private companies (well-known local and foreign) to provide the leadership in that sector. For example, those companies could be encouraged to build new toll highways and bridges, railroads, metro, and light rail, ports, airports, rural electrification, telecommunications, etc. shouldering all costs in return for all revenues (at pre-negotiated resell rates) from those projects for the first 15 to 20 years. 

2. Entice Neighbors to Follow the Successful Example. Of course, with the rising prosperity comes the border issue. A good leader sets examples that the neighboring countries spontaneously follow. Today, we live in a world of economic cooperation and free trade, so building a Chinese wall around the country's border does not lead to lasting economic prosperity. Instead, the prospering countries must encourage the weaker neighbors to follow the successful example and shore up their necessary infrastructure, paving the way for a concerted regional revitalization and growth by avoiding the refugee problem from the neighboring countries.

3. Develop Regional Economic Zones. As the regional renewal gains momentum, countries must work together on creating their economic zones, letting goods and services flow freely across borders without the costly and unnecessary taxes, tariffs, and other financial barriers. With economic zones in place, it would be easier to convince corporations to build toll-ways, bridges, waterways, etc. across borders, offering better scalability and enhanced economy of scale. Developing countries must experiment with and use (macroeconomic) growth models that are sustainable. G-7s down to BRICS must aid and cooperate with the developing countries that become signatories to an international economic model emphasizing regional growth, renewal, cooperation, and development of industrial zones.  

4. Create Tax and tariff-free Enterprise Zones. With the rapid growth and expansion of the necessary infrastructure, countries will need to set up tax-free or, at least, tax-abated enterprise zones around the country. It does not make sense to build all infrastructures around a handful of big cities, making them even more overcrowded. It must be a distributed and decentralized economic model, emphasizing enterprise zones, including affordable housing. 10-15 year tax abatement is an excellent incentive to attract an array of significant and diverse groups of companies worldwide, vertically integrated with the growing infrastructures. A decentralized model would help people live close to their roots – an ideal way to keep employee turnover and absenteeism low, with morale always high. 

5. Invite Private for-profit to Build Institutes of Higher Technical Education. As those countries start to develop the service sector (atop the manufacturing industry), a steady flow of qualified employees with higher technical education would be needed. Again, instead of the local governments getting involved and controlling this layer of education, the private for-profit companies could be invited to build and run the institutes, with initial concentrations in enterprise zones, as an added enticement. While the acceptance must always be merit-based, governments must significantly subsidize all economically disadvantaged students to avoid implementing a quota system down the road. 

While local governments should refrain from running all non-essential services (which they should outsource to the private sector), they must be involved in properly managing their natural resources and all essential services like military, law and order, taxes, primary education, healthcare, clean water, etc. The developing countries built on moral (not religious) high grounds are more attractive to investors. For example, in many third world countries in Africa, Asia, and Latin America, young women do not have equal access to education (which is a crime against humanity!). "Equal access to education" is a primary metric all foreign companies must use in evaluating the investment climate of a developing country. 

Stay safe!

-Sid Som

homequant@gmail.com

Coronavirus Outbreak – It's a Somber Day around the World as it Reaches Two More Unfortunate Milestones

Today (6/28) is a very somber day for the world. The coronavirus pandemic has hofficially hit two new milestones, causing 10M infections and claiming 500K lives, worldwide. 

Out of the 6M closed cases, 500K (8%) have died, while the remaining 5.56M (92%) have recovered. Fortunately, of the 4M active cases, only 1% are in serious-to-critical condition, while the remaining 99% are suffering from mild condition.

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Of the hardest-hit countries in the world (see above table), the USA tops the list with 2.63M cases (26%), followed by Brazil, Russia and India with 1.3M (13%), 634K (6%) and 549K (5%), respectively. The UK occupies the distant fifth position with 311K (3%). 

After the virus had allegedly originated and infected one province in China, it quickly spread to some European countries, followed by the US and Asia. Though the virus hit South America quite late, Brazil, Peru, and Chile are already in the top ten countries. Similarly, India and Mexico are the two more recent large-scale victims. 

In line with the number of cases, the USA also own 25.5% of all deaths thus far, followed by Brazil, the UK and Italy. France, Italy and the UK have recorded the highest death rates, ranging between 14% to 18%. Spain used to be alongside its European counterparts, but there has been some confusion about its reporting in June so the rate has fallen below 10%. Mexico has also been facing high death rate at 12%. Despite 634K cases, Russia's low 1.4% death rate has been met with significant skepticism. 

Brazil, Mexico and Chile have been registering very high positivity rates, followed by Peru, Pakistan and Iran. Brazil's 46% positivity rate is simply menacing. While the UK, Russia and Spain have meaningfully increased per capita testing, registering above 100K each, some of the developing countries like Brazil, India and Mexico have lagged far behind.

These 500K people didn't deserve to die. Sadly!

Stay safe! 

Data Sources: https://www.worldometers.info/coronavirus/

-Sid Som

homequant@gmail.com

Coronavirus Outbreak – Alabama Faces a Powerful Surge

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The surge that started in late May has still been plaguing Alabama relentlessly, without any signs of abatement on the horizon. On the other hand, the current surge in Alabama is nowhere as ominous as in Arizona, California, Florida and Texas.

Highlights...

1. Between 4/1 and 6/27, the total cases surged from 1,121 to 35,083 -- a whopping 3,030% jump. In June alone, 17,063 new cases have been added, far exceeding the 10,165 new cases added in May when the surge was somewhat under control. 

2. As expected, the average daily cases also more than tripled between April and June, from 202 to 651, with all of the multi-modal points vastly eclipsing the linear trend-line. The slope of the 7-day moving average also confirms the rapid surge.

3. Likewise, between 4/1 and 6/27, the death toll jumped from a mere 17 to 919, escalating a heart-breaking 5,300%. There is the silver lining though: The rate of growth in caseloads has been exceeding the growth in death tolls, as evidenced by the logarithmic slope, rather than the linear slope, in the regression graph. The high r-squared value even confirms that the death rate has been tapering off.

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4. Alabama's death rate of 2.6% is significantly lower than the current national average of 4.9%. Compared to its neighboring hotbeds, its low death rate has been sandwiched between Mississippi and Missouri on one hand and Arkansas and Tennessee on the other. Its active case rate is also currently lower than the national rate.   

5. Unfortunately, Alabama not only owns the highest positivity rate among the five hotbeds in the region, but it also has a higher rate than the national average. Moreover, its testing credentials are also sub-par compared to some of its neighbors, as well as the national average. 

Data Sources:
https://www.worldometers.info/coronavirus/
https://en.wikipedia.org/wiki/COVID-19_pandemic_in_Alabama

-Sid Som
homequant@gmail.com

Post Pandemic, Property Tax must be Replaced with Middle-Class Friendly Progressive Consumption Tax

Most homeowners believe the current property tax system is inherently regressive, meaning the middle class heavily subsidizes the rich. Others think it's the most significant annual harassment they have to endure. Rich folks owning expensive homes are not too bothered as the system favors them. It is more or less the opposite of the income tax system, where the top 1% pays 40% of all federal taxes. 

Property tax is one of the main reasons seniors and minorities are uprooted from their neighborhoods. Unfortunately, single-family residences ("SFR") are the most significant investments for most Americans, and local governments usually control them via their primary revenue tool, property tax. 

So, what are some of those middle-class-friendly progressive replacement revenue sources?

1. Introduce Million-dollar Home Sales Surtax. Since the upscale and expensive homeowners would be a big beneficiary of the phase-out (followed by no property taxes), the million-dollar home sales must carry additional progressive surtaxes. It must not be a one-size-fits-all blanket rate; instead, it must be progressive because of the savings – for example, sale price $1M to $2M @2.00%, $2M to $3M @2.25%, $3M to $5M @2.50%, $5M to $10M @2.75%, $10M+ @3.00%, etc., etc. While eliminating property taxes will make the high-end housing market more liquid, introducing sales surtax (coupled with higher short-holding transfer taxes) will gradually de-incentivize gamers, stabilizing this volatile segment. 

2. Introduce Higher Transfer Taxes for Gamers and Flippers. At the point of sale, shorter holding periods (say, up to 2 years) must carry much higher transfer taxes, so the traders and flippers are separated from the homeowners. It's a clear moral hazard case when the local assessors treat primary homeowners and gamers alike. While gamers are entitled to compete and buy, they must be treated as investors if they sell within the shorter window. Of course, certain consumer exceptions (e.g., job-related relocation, medical emergency, etc.) must be factored in as long as the home's use as primary residence could be proven. 

3. Introduce Higher Sales and Transfer Taxes on Income-producing SFRs. Regarding sales and transfer taxes, single-family homes occupied as primary residences must be treated differently from investor purchases for conversion to rentals. At the point of sale, those investors must pay higher sales taxes (add-on sales surtax). During the last recession, many institutions bought and converted millions of single-family homes into rentals, creating a new "SFR Rental" industry. Unlike people's primary residences, these are income-producing properties and must be treated as such. Even during the years of property tax phase-out, they must be treated as a sub-class of the multi-family, paying higher sales, property, and transfer taxes than the primary residences.

4. Counties must Claim their Share of Taxes from Airbnb. Like Uber, Airbnb has become mainstream and competes with the commercial lodging industry, potentially lowering the latter's occupancy rates and, consequently, the government's hotel tax revenues. Under these circumstances, states must ensure that Airbnb collects and returns all taxes to their respective states and, in turn, to the originating counties. Given the rising popularity of Airbnb, this tax revenue will grow exponentially in the coming years. This new-found tax revenue will far exceed the lost hotel tax revenue, but it will also generate new taxes in smaller markets where hotels/motels are generally in short supply. 

5. Implement Surtax on Luxury Durable Goods. To save $5K to $150K on property taxes at the front end and capped SALT deductions at the back end, homeowners would be amenable to the proposed durable goods surtax. Unlike involuntary property taxes, consumption taxes are more humane – families can budget and plan for these expenditures. Since the basic, durable goods impact the middle class, the rate must be lower, say 2 to 3%, followed by the luxury and ultra-luxury durable goods, with progressively higher rates. While counties would be allowed to charge different rates, non-resident tariff provisions must exist. Countries with lower rates must collect the differentials from the non-resident purchasers (from the reciprocating counties) with higher rates. 

Lastly, massive savings will be generated from the closure of Assessment offices. Hundreds of employees work in large cities and counties (Assessor's office, Assessment Review, Data Collection, Mapping, Valuation and Valuation Modeling, Customer Service, Exemptions, Public Relations, Outreach, Attorneys, etc.). Eliminating those high-paying jobs will save local governments tens of millions in salaries and benefits. Additionally, those offices' closures will save significant sums in rent, utilities, security, maintenance, IT, web, telecom services, etc.

So, it's about time we phase out this mostly unfair and inequitable property tax system and replace it with a series of middle-class friendly progressive consumption taxes, thus freeing homeowners from local government control clutches.

Stay safe!

-Sid Som, MBA, MIM

homequant@gmail.com

Post Pandemic, Local Governments must Cut Costs by Outsourcing Non-essential Services instead of Hiking Taxes

Most people still define outsourcing as "shipping out" services (hence, American jobs) to highly specialized companies in other countries, especially to the front-runners like China, India, and Mexico. But that's only half the story. The other half of the story is that many great American companies provide very similar services at very competitive rates.

Post pandemic, as local governments (counties, cities, towns, etc.) re-open, they will do themselves a big favor if they start outsourcing some-to-most of their "non-essential" services to a host of great American companies. Since these companies tend to have much better systems in place than the local governments can ever envision and implement, the outsourcing will immensely improve data privacy and handling of sensitive records.

It will be a win-win, meaning those government services would be more efficient while lessening the taxpayers' financial burden. Today, given the dire straights most local governments are faced with, labor unions and civil service commissions will be a lot more amenable to outsourcing non-essential services than ever before. 

While many 62+ employees (62 is the first qualifying age for social security benefits) with medical conditions would naturally take early retirement, government agencies can also offer early retirement incentives to all 50+ employees to lessen the jolt from outsourcing. No denying that it won't be pretty or perfect to start with, but as employees get used to outsourcing, they will be more accepting. 

Now, let's differentiate between essential and non-essential services. The vital services include law enforcement, public health, public schools, public transportations, public works, corrections officers, firefighters, social services, sanitation, office management, budget, etc. The non-essential services comprise property assessment, assessment review, tax collection, information technology, DMV, parks and recreation, public housing and rental processing, youth and elderly services, hospital billing, building maintenance (government office buildings, school, hospitals, public libraries, public parking, etc.), women's and homeless shelters, etc. Here are some non-essential services that would make good outsourcing candidates:

1. Employee Benefits, Payroll, and Time Processing –- These are some of the most commonly outsourced functions in the private sector. While some small and mid-size local governments have already been outsourcing these functions, the large cities and counties are still far behind. These functions generally return the best bang for the buck when bundled across essential and non-essential services; for instance, there is hardly any difference between the processing of payrolls for law enforcement and the assessment office. 

2. Tax Collection and Processing -– Local sales taxes, local income taxes, commercial rent taxes, sanitation taxes, water district taxes, tolls, etc. may be bundled and outsourced to companies specializing in this domain. In many local governments, these taxes are often managed and collected by separate units under different verticals, thus wasting significant taxpayer dollars on redundant or inefficient services that could easily be grouped or combined. 

3. Property Data, Assessment, and Tax Collection –- This is the local juggernaut that needs serious considerations. If the counties need to single out one function to begin the "outsourcing" experimentation, this is the one – no two ways about it! This juggernaut has two separate umbrellas: (a) Property Data, Mapping and Assessment, and (b) Assessment Review and Settlements. Both services can be outsourced to the same company, creating a centrally responsible authority. The leading consulting firms like Accenture, Boston Consulting, Deloitte, EY, KPMG, McKinsey, PwC, etc. could quickly provide such outsourcing services. 

4. Information Technology (IT) and Help-Desk Services –- IT service is the most common service in the private sector that gets outsourced to specialized global players like Accenture, IBM, Capgemini, TCS, Infosys, etc. Likewise, local governments should also consider outsourcing these services to such well-known companies. Even within the same local government, IT services are heavily duplicated among various agencies, so outsourcing will help minimize redundancy and duplications and help achieve higher efficiency, cost improvement, and scalability.

5. Public Parking Maintenance and Traffic Ticket Processing –- Private operators like Laz are already managing numerous public garages and surface lots for government agencies. Similarly, many private companies help the government process parking and traffic tickets. Because these companies use cutting-edge technologies, they also continually upgrade them to remain competitive. Some of them also provide general (parking) building and lot maintenance services and arrange for renovation and reconstruction services. 

One of the most critical areas is the out-of-control property taxes that heavily favor the rich at the poor and middle-class expense. The minorities and seniors suffer the most, often to the extent that they are ousted from their roots. Therefore, the umbrella of property assessment and taxes should be the mother of all local governments' outsourcing. 

Now is the time to emancipate the maxed-out taxpayers. Any tax hike to save non-essential services and their employees could be the kiss of death for the current administration.

Finally, Congress should bail out State and Local governments if -- and only if -- they pledge to outsource at least 80% of all "non-essential" services to the American companies.

Stay safe!

-Sid Som

homequant@gmail.com

Post Pandemic, Congress must Phase out H1-B Work Visas

Studies show that almost 2 million H-1B visas have been distributed between 2000 and 2019. 

The H-1B visa program allows employers to hire foreigners to work in jobs that require highly specialized knowledge and a bachelor's degree or higher. The current annual cap, as set by Congress, is 85,000. Though it's a temporary non-immigrant visa (valid up to 6 years), tens of thousands have been allowed to adjust to permanent status with green cards.  

How to Reduce Dependence on H-1B – A 5-Point Solution...

1. Provide corporations significant Tax Benefits to hire local STEM graduates. Instead of incentivizing US corporations to hire more H-1B workers, the federal government should allow them considerable tax incentives to engage the local STEM (Science, Technology, Engineering, and Math) graduates at the prevailing rate. This particular tax incentive should last, say, up to five years (or the employee's longevity, whichever comes first), thus vastly negating the incentive to hire foreign workers at a reduced rate. This tax incentive will also encourage future STEM students, foreseeing a fast-leveling playing field. Without this assurance, it would be challenging to entice local students to venture into the STEM field. Today, the qualified American workers are training their far-less skilled foreign counterparts to take their jobs. 

2. Introduce higher educational qualifications for H-1B applicants. According to the Congressional mandate, 65,000 H-1B applicants need only bachelor's degrees while another 20,000 require master's or higher. Unfortunately, a bachelor's degree in SE Asia (which accounts for 80%+ applicants) is not equivalent to a US bachelor's. To effectively meet the US standard, Congress should consider transposing the degree requirements, meaning 65,000 applicants with master's + and 20,000 with bachelors. It makes no sense to displace a truly qualified American degree-holder with a much less capable foreign degree-holder. That is why the replacement wages tend to be much lesser for foreign workers. Since H-1B is meant for the highly skilled foreign workers, Congress should gradually move to an all master's + requirement, at least leveling the playing field.

3. Until Higher Educational Requirements are established, Congress must insist on degree evaluation by the ETS (and other entities). While Congress debates on upping the ante on degree requirements, it must require that the foreign degrees are adequately vetted and evaluated. The well-known education evaluation organizations like the Educational Testing Service (ETS) should perform the necessary vetting, forcing the sponsoring organizations to prove that their candidates satisfy the US educational requirements. This independent yet straightforward step will surgically (identify and) disqualify many applicants from the export-oriented private schools as they will not meet the US degree requirements. Ideally, Congress must additionally require all applicants to pass a US-administered standardized test (good for three years), along the lines of Foreign Medical Graduates Exam (FMGE). 

4. The Sponsoring Companies must be incentivized to recruit Foreign Students Graduating from major US Universities first. International students graduating from the major US Colleges and Universities are more valuable candidates for these unfilled jobs than their all-foreign counterparts. There are other advantages to this hiring approach too:

(a) No need for the equivalency assessment;

(b) Since the vast majority of them undergo internship or practical training in the US, they are already used to the requirements of the American workplace and work ethics;

(c) Graduates from the major US schools are at least as good as the best and brightest from foreign nations;

(d) They will command the prevailing wages, negating the arbitrage described above that many sponsors have been trading on;

(g) Better English proficiency (both verbal and written) and so forth.

5. Let the Annual H-1B Quotas steadily decline as we promote STEM Education. If we switch to merit-based immigration, H-1B will be a thing of the past. Whether that comes to pass or not, the rapid and aggressive promotion of STEM education will steadily lower the quotas. Hopefully, the current 85,000 level would decline by 20,000 annually, leading to a total phase-out in 5 years. If we can promote STEM education in keeping with the labor force's needs, this phase-out could take place even sooner. Of course, the promotion (of the positives) of STEM education must start early in high school so that students are always in the know of the unrestricted domain of opportunity the STEM universe offers. 

Stay safe!

-Sid Som

homequant@gmail.com

Coronavirus Outbreak – as Winter sets in, South Africa Experiences a Rapid Surge

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The outbreak in South Africa has gained significant momentum in June, as the daily cases and deaths are surging at a much faster pace than in April and May. 

Considering that South Africa is located in Southern Hemisphere where winter has just set in, this surge could have been further exasperated by the normal winter allergy and flu season.

Highlights...

1. In the last 30 days, the total number of cases surged from 22,583 (5/24) to 106,108 (6/23) -- a whopping 470% increase. Worse yet, in June alone, the total cases jumped another 309%. On 5/1, the total cases stood at a mere 5,951. 

2. The daily average caseload in May was 872, while in June thus far it has almost quadrupled to 3,192. Unfortunately, in last ten days, the average has further skyrocketed to 4,037, proving the intensity of the recent surge.

3. The death toll moved up at a much faster pace than the total cases. In less than two months, the death toll escalated from 116 (5/1) to 2,102 (6/23) -- a heartrending 2,000% increase.  In June so far, the death toll has tripled from 705 to 2,102. 

4. The daily average death tolls are more telling. In May, the daily average was 19, while it has more than tripled to 62 in June. The trend has been upward as the average in last ten days has moved up to 69.The graphs show both are trending up linearly in tandem. The 7-day moving averages are confirming the trends as well.

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5. Though the death and positivity rates are still low, South Africa has the highest per capita cases in Africa at 1,790, while Egypt, a far more populous country, is a distant second at 568. Considering that South Africa is the most technologically advanced country in Africa, it has a very poor per capita testing credentials at 23.3K.    

The surge in South Africa is being closely monitored by the public health professionals around the world as the scenario could be duplicated in winter months in countries in Northern Hemisphere.

Stay safe!

Data Sources:
https://www.worldometers.info/coronavirus/
https://en.wikipedia.org/wiki/COVID-19_pandemic_in_South_Africa


-Sid Som
homequant@gmail.com

Post Pandemic, Student Loans must be Labor-force Friendly

According to the recent PISA scores, which measure the necessary skills (reading, math, and science) of 15-year-olds, the US ranked 30th in Math among the 38 OECD countries – nothing to write home about, right? We need a sea change in the way our colleges work. In doing so, we need to rethink and reinvent the qualification criteria for student loans. Here are some suggestions: 

1. Interest Rates on Student Loans must be tied to SAT Scores and APs. Obtaining student loans should be no different than securing home loans. Let's face it: Two prospective homebuyers (mortgage applicants) with 600 and 800 FICO scores, respectively, will be offered vastly different mortgage interest rates, down payment requirements, and origination fees (points) by the same bank. Similarly, interest rates on student loans should be a function of the SAT and AP scores (these are comparative metrics while the general academic records aren't). Those scoring 1,580 (out of 1,600) on the SAT and complete six APs with all 5's must be eligible for a much lower interest rate than their counterparts scoring 1,300 on the SAT completes three APs with all 3's. This merit-based system will incentivize everyone to do well academically from the get-go, making the loan program a student loan scholarship program.

2. Sallie Mae must publish SAT/AP-based Student Loan Rates to provide Transparency. Sallie Mae, the largest student loan provider, and other large providers like Citi, Nelnet, Wells, etc. must develop and publish SAT/AP-based rates to educate students regarding high scores' advantages. If the high school students (starting in sophomore) are taught that high score equals low rates, they would be working harder, thus gradually bumping up the curve, making the system globally more competitive. Of course, unlike mortgage rates that change daily, the proposed SAT/AP-based student loan rates would be revised annually based on the new data trends (i.e., improving scores). Hopefully, the rate chart would be prominently displayed in all high school cafeterias as a constant reminder that a little extra push would go a long way. 

3. Interest Rates on Student Loans must be Significantly Higher for Lateral education (education for the sake of education). When students stay back in schools and continue to take unrelated courses aimlessly (e.g., 2nd/3rd major or 2nd Master's, etc.), lenders must discourage such loans by charging significantly higher interest rates related to those credits. If students plan on co-concentrating (e.g., finance and applied math), they must declare their intention right at the outset while applying for loans, thus locking in their preferred rates throughout the period, as well as to avoid having to pay a significantly higher rate down the road for the "co" in the form of a second major. Frequently, meaningful co-concentrations help job-seekers narrow down the competition. Likewise, many employers prefer those graduates as they bring in genuinely complementary knowledge.

4. Interest-free Student Loans must be provided to All STEM Candidates. Instead of enticing foreign STEM graduates with visa adjustments, we must learn to nurture our own. And, it must start with an awareness movement in the middle and high school. At the core of this movement lies the marketing of the female students' awareness in that they have "equal access" to this career domain. Until and unless our young ladies are convinced of equal access, we will have no choice but to depend on the foreign employees. In promoting STEM education, teachers and counselors must also explain to the students that 10's of thousands of STEM jobs remain unfilled and, as a result, our "volume" employers are forced to hire foreign employees to fill in those slots. Interest-free student loans could be a big incentive to entice more students to look into this colossal career domain. 

   

5. Ideally, a moratorium on student loans is needed for business and humanities majors. Due to the easy access to student loans, far too many students – relative to the aggregate market demand – continue to major in business and humanities, resulting in significant disguised unemployment all across the country, arguably reaching a point of moral hazard. To reduce the incidence of such disguised unemployment, we need a moratorium on such student loans for some time, at least 5 to 7 years, thus allowing enough time to get the excess market supply meaningfully absorbed while the wage level rises back up to the point of equilibrium. Absent student loans for business and humanities, only a small percentage of the future student population –- mostly from the well-to-do families and foreigners –- will opt for these majors. 

Last but not least, STEM Students in State Schools must qualify for Financial Aid ahead of all others. In addition to interest-free student loans, STEM students must receive financial aid ahead of their counterparts. Given the urgent need for STEM graduates in our economy, it does not make much sense to treat all economic needs equally. At this point, college education must be compared with and treated like government services, meaning essential education (like essential government services) must always receive higher weights and protections than the not-so-essential education (like non-essential government services). 

Simply put, STEM education must be declared, protected, and promoted as "essential" education. Ceteris paribus, the qualified STEM student population, must get the first shot at the pool of financial aid, and the residual will then be distributed to the other disciplines depending on the needs of the labor force. 

Again, it's high time that we make our student loan programs more labor-force friendly. Our students deserve better.

Stay safe!

-Sid Som

homequant@gmail.com