One dilemma of modern life

My wife and I were talking about what to do with our grandson tomorrow. She would like to go to school for a couple of hours and I said, I could probably take him to a movie. We looked at the G rated movies - Cheaper by the Dozen, Chicken Little, Pride and Prejudice, Chronicles of Narnia, Legend of Zorro and Yours, Mine and Ours. Some of those would not be appropriate for a three year old even without the gore and sex. Mason is three, smart and verbal - but we debated whether Narnia (which I really enjoyed) would be appropriate for him.

So I looked up Cheaper by the Dozen - which we saw when my wife and daughter sat through the interminable King Kong - and which we thought was mildly entertaining. The "critics" gave it a D. Then I read the people's critics reviews. I found two things interesting about their reviews. First, some were as well written as the professionals. But second, their general rating was a B. My own rating was a bit lower. The movie was formulaic. It had the required percentage of slapstick gags. It had the love interest (or several) between the two competing families. It had some pet tricks. It had some mildly off color humor. But in the end it told a story that all ages could enjoy.

I am not sure I understand the ratings system. And, at least for me, a PG and a G are about the same. But it seems to me that people who understand the business would do a bit of market research. The critics and the film companies seem to want to push stuff at us that does well critically. Were I in the same business I think I would try for a different marker.

A Tax on Celebrities

In the mid-1930s when California adopted the personal income tax - the celebrities ran a campaign against the new personal income tax. When I was doing my dissertation I found a political brochure by something called the "Committee to Save California Jobs" - in it the claim was made that the then new income tax would lose key jobs in the state - like those for "cooks, butlers and chauffers." Were the tax not eliminated - the celebrities would leave California for less taxed locations. That convinced me that celebrity political types were mostly daffy. Not all, but most. The initiative actually lost in 1936 (with arguments like that it is indeed a surprise).

Think of the salutory effects if celebrities were made to live by their own expressed principles. Then in the Weekly Standard, about six months ago, P.J. O'Rourke made for a new tax policy --

"The greatest pleasure of running a country (although no politician will admit it) is getting to tax people. We Republicans decry exactions and imposts and espouse minimal outlay by the sovereign power. But we control all three branches of government. This won't last forever. Let's have some fun while we can. Moreover, the federal deficit is -- contrary to all Republican principles --huge. Even the most spending-averse among us wouldn't mind additional revenue.

America's media and entertainment industry has a gross (as it were) revenue of $316.8 billion a year. If we subtract the income derived from worthy journalism and the publishing of serious books, that leaves $316.8 billion. Surely this money can be put to a more socially useful purpose than reportage on the going forth and multiplying of Britney Spears....

I suggest, therefore, a Celebrity Tax with a low-end base rate of, mmm, 100 percent. Furthermore, let's make the tax progressive to get some Democrats on board. (Probably not including Hillary, Ted, and Barney Frank. They'll be working nights and weekends to pay up.) Given the modest talent of current celebrities and the immodest example they set for impressionable youth, we'll call it a "Value Subtracted Tax," or, better, a "Family Value Subtracted Tax." And it will be calculated on the celebrity's net worth."

What a concept!

The World is flat.

A couple of months ago I began a post on Tom Friedman's wonderful book The World is Flat) and I never got around to finishing the post. There were a couple of things that prevented me, besides procrastination. The first was a genuine desire not to just regurgitate the substance. Friedman ties together some important ideas that link the fast process of technology with globalization of commerce. Those that understand the trends will prosper and those that do not will not. Second, I was a bit bothered that Friedman does not seem to clearly recognize the forebearers including writers like Kenichi Ohmae (a whole bunch of great books on the then increasing borderless economies) and Kevin Kelly (his original writing on New Rules for the New Economy gave many of us a first look at the possibilities of technology - in a speculative manner that now are realities in Friedman's book).

But the book is one of the most important business books in a long time. I gave it to my daughter's boy friend today as a Christmas present. It reminded me of how important the ideas are and what a great contribution that Freidman offered us all. In November I heard Friedman give his summary of his book. It was really quite good. He is good at explaining the ten trends he thinks are changing the way we interact - including things like WIFI and just in time practices. He is planning to go to business school in the Fall. This would be a good place to begin thinking about the themes that will occupy him for the next couple of years wherever he is accepted.

Hitchcock Presents

I've had a bad cold for the last couple of days and so have been mostly consigned to bed. One of the gifts I got for Christmas was a set of the first season of Hitchcock's show that ran for about a decade. There are 39 episodes, sans commercials. I was surprised by how good some of them are. They seem to have picked out some big stars of the day as well as some people who would be stars later. John Casavettes was very young when he played an escaped con. Each of the stories ends with a twist. For example, in the Casavettes story, he breaks into a house with a woman alone after breaking out of prison. At one point he forces her to answer the phone and she speaks to her mother. Unfortunately for Casavettes, who is feeding her the responses, she is deaf. So as he is leaving he is caught.

Barry Fitzgerald is also the star of their Christmas story. He gets out of prison as a hard core crimminal but the only job his social worker can get for him is as a santa. He meets a tought kid who covets a toy airplane. Barry has words with the kid - who said he intends to steal it. Barry instead, in a senseless act of kindness, and in an attempt to convert the kid off his own path, steals the plane and delivers it on Christmas eve - only to be caught immediately. But his social worker comes down and covers his tracks for him and gets him out. A nice story.

The best one so far has been the one on Lizzie Borden. Every child knows the song about Lizzie Borden but this one speculates that Emma Borden, Lizzie's sister, actually did the crimes. That led me to a web search to find out about the crime. It seems that the story on Hitchcock, included many of the important details of the case. The story became sort of a Doctorowed history. It includes a pushy female reporter who discovers where Lizzie hid the axe. (In the real case the axe seems to have been burned). There is an interesting twist because the reporter is from the Sacramento Record. (Not a paper in Sacramento but one in Stockton).

The series in total is an interesting melange of very good plays with a twist and run of the mill 1950s drama. But what is also interesting is that they get better as you go through the year - they seem to have learned how to work thourgh a thirty minute format. If you like Hitch, the introductions and conclusions are worth seeing on their own. They have a consistently wry sense of irony. One other thing strikes me about the series. As a bonus feature, they have a short presentation on how the series was developed. It seems to have worked on a very small staff. Seems very different from what I understand about today in television.

Why is it so complicated to get simple taxes?

At the end of each year, I go through a ritual where I pay property taxes and estimated federal and state income taxes. Property taxes in the state are pretty simple - based on a formula - 1% of market value and then 2% a year. Income taxes are not. We tried in 1986 to simplify the income tax and did a reasonable job of it but it now seems obvious that the time has come to cut away part of the thicket.

So where is all the thicket? In my view the most likely is the Alternative Minimum Tax or the AMT. The AMT was created to assure that some very small portion of the taxpayers paid their fair share. So, after you have done all of your calculations on deductions and credits you then do a second calculation to discover whether you paid your share. If not, then you get to add in this extra amount. What has happened in the last several years is the AMT has begun to bite with a vengeance capturing more and more people in its net.

Adam Smith warned about the potential perils of an income tax in the Wealth of Nations. But because it worked well as a revenue source in the 20th century there is strong support for keeping it. There is a tension here between fairness and simplicity. If you take into account the manifold variations in lifestyle and circumstance you will have a fair system but it won't be simple. On the other hand if you want something simple - perhaps a straight percentage tax on all income - it can be simple but does it stay fair?

So how do you solve this question? In my mind, the President's commission on tax reform came pretty close. They zapped the AMT in exchange for lowered rates and for other changes in the code which some people think are hallowed ground. The proposal would suggest that you can only deduct mortgage interest for something like the median house price in your area. Thus, the code would become neutral on housing. If you wanted the 40 room neo-gothic mansion - and had to borrow tons of dough for it you would not get subsidized. You would get a credit for the mortgage only to the extent that it does not exceed the regional average cost of housing. The proposal also takes a whack at charitable contributions by putting a floor on them and then move the item above the line so that all taxpayers could take advantage of that provision. Both of those changes are likely to get a lot of traditional interest groups very grumpy. And the "law of the few" could make this fight a very tough one. When a benefit is provided to society that is diffuse at the expense of a benefit that is concentrated - the concentrated one often wins. That is based on the notion that most people will not see or think about a diffuse benefit but those who hold the concentrated one will scream at any variation in the way they are compensated. Unfortunately, as we learned in 1986 real tax reform depends on a good mix of leadership and commitment. Which Jeff Birnbaum and Alan Murray so brilliantly demonstrated in Showdown at Gucci Gulch. In this era, although the changes would help us all, there may not be the same level of either leadership or commitment.

Progress/Congress

An old joke said - what is the opposite of progress? The answer is congress. The Senate has voted to eliminate the Byrd amendment. You may remember that this amendment by former KKK member Sheets Byrd "protects" companies from "foreign dumping" - in reality what it does is set up protectionist walls by collecting tariffs that are then sent directly to the companies claiming the dumping. Somehow in the logic of Senator Sheets this kind of legilsating makes sense - even though it makes us less competitive and rewards industries who whine to the government instead of trying to compete. The amendment would take effect in two years - that is way to long - but if that is the price to get rid of the monster porkbarrel then so be it.

The difference between fishing and catching

Some of the Scenery on the Delta, originally uploaded by drtaxsacto.

Today I went out with some friends on the San Joaquin delta to do some bass fishing. Need to be sure to tell you that this was a day of fishing not catching.

One of the best things about days like this is that the difference between a day of catching and fishing is mitigated by the scenery. Today we saw a couple of fish, a sea otter, some herons, a red hawk, and lots of sight like the above. The rain came a couple of times - at the end of the day quite hard. Oh, by the way, we did not even get a bite. It was cold - so no one was getting much action but ours was zero.

It was cold, I was pleased to have some long johns. But it was also quite relaxing. The subtleties of color and water and wind presented a canvas that was worth the look even without the fish. (although I can say, that days with catching are also nice.

The True Spirit of Christmas

Mason and the Tree, originally uploaded by drtaxsacto.

When we got our Christmas tree this year, Mason spent a good deal of time, while his dad was cutting down our especially wonderful and monster sized tree, just being a kid. He played in the dirt. He actively went through the farm looking for trees his size and for the one we actually chose. The actual tree we got this year was about 15' with a huge trunk and with lots of wonderful branches. But after we had made the selection he looked around for things to fascinate him. As all boys his age he was interested in the pebbles on the gravel road. He was interested in the other people. He was interested in the vast varieties of dirt samples - the size and color and muddiness which are often lost on adults. But he did not miss all those things. And what is more he brought us into his explorations. Showing us all those things with the wonder that they should be due.

The State of Capital in the US

Over the Thanksgiving weekend I had a discussion with one brother about the current economic situation. He commented that he was concerned about the twin deficits of trade (current fund) and government. I told him I was less concerned. Over the next couple of weeks we have had a lot of email exchanges about the issue.

His concern is that we seem to be "buying more than we sell" abroad and seem to be giving up some key industries. He is also concerned that the federal deficit is, if anything, understated. On that I agree. However, the situation is a bit more complex.

On the trade deficit, we do have a continuing problem with buying lots of stuff from other people in the world. A lot of the democrat critics seem to think that somehow it would be better to get shirts made in the US instead of where they are made now. And that we would be much better off as a result of keeping a lot on industries in our midst and our country. I think that is wrong for a number of reasons. First, is measurement. I am not sure we actually have an accurate count of the whereget and wheregone of trade. About a third of the total current fund balance is intercompany transfers. When GM makes a Suburban in Leon that shows up as a deficit. At the same time I am not sure that the numbers we collect accurately count the number of idea moves and their value. A recent book from the World Bank makes that point - and I will deal with that in a later post - but we are quickly moving from the physical production (which we are not as good at) to the intellectual production of goods. Those, at this point, have a much higher return. A second broad issue in my thinking relates to demographics. The US has been a huge importer of people. More than Europe. More than Asia. That has done a couple of things for us - it has created some new complexities of life through languages and customs that seem out of place. But at the same time it has lowered our demographic profile at a time when places like most of Europe and China are experience demographic imbalances. Europe has an aging population and a welfare system run amok. China has an aging population and an imbalance of males to females. In the long term neither trend is helpful to economic growth. Thus, I think the net gains from trade are significant - we are transitioning into an economy (if not already there) where mobility of capital is real and consistent. In the long term that can mean some greater variability but the net benefit outweighs the net potential risks. It seems silly to me to think about trying to get back the auto or steel jobs or other industries that have moved to off shore. At the same time we need to be energetic in promoting better educational opportunities to assure that we continue to be at the forefront of new areas of economic growth. Both of us agree that we have not been as good at that in the last couple of years as we should have been.

On the federal deficit, there are two trends. I do not think we have properly accounted for some potential liabilities including the new Medicare program and Social Security (curiously my brother thinks with "minor" changes the Social Security problem will go away). But at the same time, I think some of the contributors to the deficit are justified - the efforts in Iraq - if successful - will pay some significant dividends. (I realize that is an if). I liked Bush's emphasis on creating an "ownership" society although wish he would have put a bit more political muscle into his proposals. I am also worried, as I have commented before, that this president has been a bit too willing to allow new types of federal spending to be created on his watch.

On the whole I am less worried about the trade deficit and concerned about the federal budget deficit than my brother. He speculates that the long term problems will increase interest rates significantly and could produce a round of pretty agressive inflation. I think we have positioned ourselves a bit better than he does. There are risks ahead but I believe they are managable. The World Bank book makes some interesting comments including one that capital is not simply a set of physical assets but it is also (economic) climate and the intangibles that are created when people have the opportunity to be creative.

WIREYAPS

The controversy about the Bush administration's use of monitoring of phone conversations in the US seems to have created quite a storm. One wonders what the real issues are here. Last Thursday the NYT published a long story on the program which, by all press accounts, goes back to 2002. In that year the Administration captured a top Al Qaeda operatives computers and cell phones and ran traces on all of the numbers on both. They began to do two things with that information. First, they did some surveilance of phone calls and other communications that took place on foreign soil. Second, and this is where the controversy started, they also did some surveilance of people on American soil. It is unclear whether this involves a lot of US citizens or merely people who are on American soil.

As I understand it, the government has the power under something called the Foreign Intelligence Surveilence Court to ask for warrants to review cell phones and emails - and that, based on the public record, these proceedings are a) secret and b) almost overwhelmingly in favor of the government position. Thus, it is puzzling why the administration chose not to use this process. The FSIC uses a lower level of proof for a crimminal warrant than a traditional crimminal court. But for some reason the administration chose not to use that procedure.

In 2003 the ranking Senate democrat on the intelligence committee questioned whether this new procedure was a good idea. One of the interesting things is that Rockefeller has declined to comment on the story but the usual suspects like Senator Levin has chosen to yap about this.

I am worried about massive extensions of powers by the government and it seems odd to me that the adminstration chose to use this new authority without going through the FSIC process - which seems to be quite accommodating. However, at the same time many of the loudest critics seem to have little regard for the very real peril that Americans face as a result of a worldwide terrorist network. On balance, while I am skeptical of the procedure, I think a lot of the yapping about it seems based more on the commenter's hatred of the president than on some sound policy basis.

The president did a good job last night and today in making his case. We do live in dangerous times. While we should be cautious about massive extensions of governmental power, we need to be able to keep up with the technologies of the terrorists. They have shown a real willingness to use all sorts of new technologies to chase down their looney goals. All of the weltschmerzing about the Patriot Act have been mostly silly. The perils of the Act have been more perceived than real. Librarians are not being jailed or victimized. For the most part, except for the constant presence of the TSA in airports, most people don't realize any negative effects of the Patriot Act. We did find out that FEMA is no better prepared than before as a result of Katrina. But that is another longer and more complex story. (The MSM did an abysmal job of reporting the basic facts about the disaster including the fact of who was really hurt in the tragedy.) But all of the baloney about how terrible the Patriot Act could have been have been classic chicken little exaggerations.

The Congress should extend the Patriot Act before they go home for Christmas. They should also lower the level of rhetoric a bit. The terrorists are bad guys. We should take them seriously. They are not a single regime - but neither have they been provoked by our intervention in Iraq. If the insurgents in Iraq are not successful and if the Iraquis are successful in creating a democratic state in the Middle East, it will send a powerful message to the other beacons of terrorism. We need to lower the rhetoric a lot on this but I think the President is mostly right here. I am not worried about my phone calls and emails and if I did send something to Abdul or call him - it might not be a bad idea to monitor it.

The last issue to discuss is whether this is a Nixon redux issue. People like Senator Levin seem to think it is. Bush (Nixon) is being portrayed as doing stuff in the clandestine arena without regard for the law. Some in the press also seem to see this scenario. But his press conference today belies that setting. I thought the President's defense of his tactics was quite strong and his ultimate argument that announcing the program widely would allow the terrorists the ability to shift tactics is true. But some on the left want to think about reliving Nixon forever.

Another Reason for Optimism

The first post in this blog was about the first round of voting in Iraq. At the time, it was a remarkable event. Yesterday's voting seemed quite usual. The Iraqui people for the third time in less than a year went to the polls in very heavy numbers and chose a set of representatives. Are the people who were chosen going to be all American supporters? Of course not. But has this important area of the world taken another step toward something important? Yes. One of the best comments I heard from one person there yesterday was the remark "Every voter took a shot in the heart at the insurgents."

WAMU Baloney

I've recently begun an exercise in replacing my bank. I've used WAMU for the past 15 years but they seem to have become infected with businospeak. For example, in a letter that was completely unresponsive to my question they said

I appreciate you letting us know your feedback so that we may work to
improve our service and operations. To ensure this situation is
addressed, I've forwarded your comments appropriately.

There are many choices in banking today, and Washington Mutual is glad
to have you as a customer. Since we strive to provide premier customer
service during every interaction, we believe acting on your feedback is
critical to our success. I hope you find your future interactions with
us, whether by phone, via email, in person, or at an ATM, reflect that
commitment to service.

Does some business consultant actually think that will elicit a positive response from customers? Or is this really a high end joke?

Hooray for the Big Box Stores (Jib Jab's sorry attempt at misinformation)

Jib Jab became famous in the last election as a site to do parities. There most recent post is silly but in a negative way. It is called Big Box Mart - the premise is that a) big box stores exploit overseas labor and b) big box stores somehow encourage people to overconsume, c) that big box stores ultimately take American jobs and thus reduce the standard of living in the country. Normally, with something like this I would post a link to the site - but this one is so false - if you want to find the nonsense, simply Google it.

Do places like Walmart exploit foreign labor? Ultimately, Walmart and other big box retailers are examples of a good division of labor. We move jobs that we can no longer compete on out of the country for jobs that pay a lot more. Textiles moved from the US, where the domestic industries failed on two points - to keep up with technology and to regulate wages compared to what other countries were offering for the same work. The jobs went first to Mexico and then to Asia (mostly China). But if you look at my home state - the remaining jobs in the field are higher paying - LA is a design center - designs are created and then shipped somewhere else for production. The workers in the other location are better off because they have jobs that are higher paying by local standards- but ultimately so are the workers here. The American workers can purchase key items (and even some discretionary ones) for better prices. That sounds like a win-win. Sure, there are transition costs. The American workers in the industries that did not keep up are displaced. But how would the logic of the song have us solve the problem? Over pay American workers? Have American consumers over pay for their goods - when they can get them on the world market much cheaper?

Then the question of overconsumption comes in. Many of the big box stores have larger quantities of goods they sell - the Costco 40 pound can of chili is legendary. One of the assumptions originally about these stores was that bulk reduced price. What has been happening recently is a more subtle set of markets being created. The volume still produces reductions in price for many goods but the industrial sizes are no longer necessary. Would the writers on Jib Jab want to substitute their consumer preferences for those of the consumers at a big box store? Who is to say that the old distribution system - where choices were limited and prices were higher was better?

A good deal of this argument comes from the most inefficient producers or stores. I can go into my local Barnes and Noble or Borders and find almost any book. I can find a sales clerk who knows a lot about the wide range of books in the store. I can do the same thing on line at Amazon (an electronic big box). Would I be better off if I could only buy books at the small local store? Near my office 20 years ago there was a great bookstore called Levinsons - for years I would buy books from them - they did a great job at searching books out for me (obscure economics titles for example). But now I can go on Amazon and get the same level of service for a cheaper price. What is wrong with that?

Finally, there are the questions - if we continue to overpay for some types of work is the economy richer or will this movement of jobs ultimately reduce the standard of living in the country? By allowing freer trade are we worse off? The key to success in any country, in this globalized environment, rests not on the inherent kinds of protectionism advocated in the song but on the pillars of education (assuring that your population is educated), tax policy (and other governmental policy) that encourages investment in new enterprises, and open markets (that allow us to sell our goods overseas and us to find the best price for goods anywhere in the world). That is a pretty simple paradigm. If we do not follow it we will be worse off.

Ultimately, the economies where high paying jobs will be the standard, will follow those rules - not some silly notion that it is possible to hold on to a single set of economic conditions that do not apply to today.

Generosity

Yesterday I was in LA with some colleagues from Spain. About five years ago, in Rome, I met a guy from a Catholic university in Madrid named Universidad Francisco de Vittoria. A few months ago he wrote and said they would like to visit California and several institutions they could possibly work with on exchanges. We put together a set of meetings in LA and the Bay Area that had strong programs in areas they were interested in. They ranged in size from USC to Cogswell Polytechnic College (a couple of hundred students). UFV has large programs in communications and film and so we also are having them visit Mount Saint Marys and the Art Center College of Design and Menlo.

The first two visits were very good, everyone was cordial. But what struck me was the unexpected. We were on the Loyola Marymount campus (a wonderful film school and also a great communications school) and were walking around the campus. We went into the film school and popped in on the dean - who was temporarily out of the office and so simply walked throught the building to look at the labs. We found two professors in their offices and they were kind enough to spend about a half an hour showing our guests both the animation labs and the sound stages and to talk about the program at LMU. We talk often about the personal nature of independent higher education - and that extra care that the two professors showed our group reinforced that principle quite well.

All the people here are frauds

Tonight California executed Tookie Williams. The Governor, earlier in the day, refused clemency in a detailed statement that was actually pretty good and very thorough. I was in LA tonight with some colleagues from Spain. After I dropped them at dinner, I had to circle back to the airport to pick up a college president who had flown down to meet them. What struck me the most was how three radio hosts made a mockery of this event. John and Ken(the afternoon hosts) and then John Ziegler (From 640 KFI) were almost gleeful in their commentary about the pending execution. At one point they commented that all the people there were frauds. Indeed that was true. The three were gleeful at being able to point out that luminaries like Jesse Jackson could not name any of the victims of this quadruple murderer. Jackson is a fraud and a buffoon. But the irony of saying that all the people there were frauds was seemingly lost on them. Because they were (are) frauds too.

Eugene McCarthy

In a post at DailyPundit DailyPundit Bill Quick does a short rememberance titled Ave Atque Vale (Hale and Farewell) on the Senator from Minnesota who brought down a president.

I have a slightly different take. In 1964, I was a county youth chairman for Goldwater. But in 1968 I worked hard for McCarthy in the same county. Johnson, and McNamara and Rostow - were the precipitating events for both decisions. I thought, and actually still think, that they eased us into a war with hubris and deception, and then refused to make a real commitment to the outcome. It seemed (and seems now) such a horrible waste. I thought BMG was actually a pretty good guy. During the campaign he came to San Joaquin county twice and I met him both times. He was down to earth and really quite a figure. Reagan also came to the county and gave "the speech" - which I was impressed with at the time that is what began his race for national office. -When he died I reread it and was not as impressed. Goldwater had an easy laugh and a western manner. By 1970 I was working in the US Senate and ran into Goldwater in the halls. BMG had just come back into the Senate- where he stayed for another three terms. I saw him about the time he retired and he was really frail. His writing and speaking were a lot the same.

In 1968, as we continued to get deeper into the war - without admitting it - McCarthy came on strong. He came to the county in the late spring and I helped organize a rally for him. I had the chance to shake his hand and actually speak with him for a couple of minutes. He was thoughtful and very pleasant with a wry sense of humor.

Both campaigns were blessed with a lot of energy - different types of people - the Goldwater included a lot of libertarians but also a lot of silver haired old righties. The McCarthy included a lot of counter culture people but also a lot of libertarians. When the RFK campaign came into town it was clear that the raggle taggle group that had been involved in McCarthy's campaign would not be able to hold on to the state. Kennedy came to Stockton and literally sucked the wind out of the McCarthy campaign.

That is not bad nor good. What McCarthy did was to energize (or at least give us who were against the policy in Vietnam a vehicle). I wrote my senior thesis on a theory by James MacGregor Burns on presidential power. My professor liked my research - but because I criticized Burns theory (that a president can get anything he really wants) he wrote a long criticism of it. On March 31 when LBJ gave his speech, I actually drove over to the professor's house and when he opened the door - he said with a grin, I know why you are here and I am not going to change your mark.

Both BMG and McCarthy were from an era before handlers. The brief time I met both gave me a pretty good idea of who they were as people. They were both independents. Remember that BMG was one of the delegation that asked Nixon to resign and was turned off after he left the Senate by the rise of the Christian right. McCarthy was often a surprise. In 1980 he endorsed Reagan over Carter. I think both had a sense of themselves. That is certainly lacking in many of today's elected officials.

Workforce development

There is a big push toward workforce development in California - whatever that means. A number of the political players in Sacramento are trying to develop new ways to get people into the workforce. In the old days that was called vocational training. I met one of those people on the street yesterday and had a discussion with him about the issues - being someone who represents colleges, I guess I am supposed to have an opinion.

Indeed, I do have an opinion. Beginning with the Steiger Act in 1978, I have seen a lot of federal money get poured into the policy dejour in this area. For the most part they have shown little effect. I remember in the early 1970s going to one of the finest vocational training schools in the country (in Oklahoma) and watching a group of students working on NCR key punch machines. I asked the director, why? (I had recently worked in the White House and had installed something revolutionary called the MTST (Magnetic Tape Selectric Typewriter) which was a first generation of a word processor - and thought that punch cards would soon be converted into electronic information on a tape. So I thought the way of the key punch was soon out.) The director replied - we use these because NCR gave them to us.

So how do you get a prepared workforce? The responses are pretty simple. First, create a tax system that incentivizes capital - a low capital gains rate (and even low or no taxation on savings) is the first step. Create the energy for entrepreneurs to invest. Second, provide some funding for basic research. The engines of NASA and the NSF and NIH are pretty strong. Third, encourage all students to learn some basic skills including algebra. But it certainly is not by training people for this generation's jobs. We simply don't need a lot more key punch operators even if the vendors are giving us free stuff.

The AP on Corruption in Politics

The AP released a poll this morning on corruption in politics. It suggests that the American people are pretty skeptical that ethics and politics exist together in the current environment. Just over 50% of the responses think corruption in politics is a very serious question (88% think it is somewhat or more serious). Almost half believe that either a moderate number of politicians or everyone is involved in corruption. And by about equal numbers (36% to 33%) think one side or the other (democrats or republicans) have greater ethics. The story goes on to recount the Abramahoff, Delay, and Frist allegations and the Cunningham evidence (since he has admitted his crimes).

I think the poll mixes rotten apples and oranges. There is plenty of evidence that there are some serious bad apples in the current mix. But the corruptions are more subtle than a little influence peddling or bribe taking. Had the question been asked about the American perception on the increasing role of set asides - you would have seen significant revulsion against that process. Yet most of the political class would not see that as an ethical question. Ditto for the pervasive role of some lobbyists - a permanent class of allies or enemies. The American people would say we did not hire you guys to go to Washington or Sacramento and buddy up to a single group. I also suspect that were the same set of questions to be asked about the ethics of journalists or other professions that you might get similar high responses.

Responsible Talk Radio

Last night as I was driving home I switched to KFBK which is one of two or three talk radio stations on the Sacramento dial. The host, Marc Williams, was blabbering about the Tookie Williams case. He made two claims that seemed totally outrageous. The first, that Mr. Williams, whose case is being considered by the Governor for clemency, continues to direct killings by the Crips - the gang he helped to found. And second, the Williams (the one on death row) met the Governor and has established some kind of relationship that will eventually result in his pardon (the issue here is clemency not pardon). Neither charge has any basis in fact - but evidently the Williams on the radio is so against the Williams in prison (who seems to have had at least some positive effect on kids and gang members and who probably deserves clemency) that he will say anything.

Today, the pot and pan bangers in LA on KFI made some outrageous claims about the 48 CD race in which an American Independent Party candidate is running against a GOP candidate. John Campbell, who is currently a state senator and running for congress and favored to win, is running against a guy who left the GOP a couple of years ago to join the permanently minority party of the AIP. His single issue is immigration. The pot and panners - John and Ken - have made increasingly silly comments about immigration over the last six months - evidently in a desparate attempt to gain the entire share of xenophobes to their listening audience. Again, claims which are demonstratably false.

Then there comes John Kerry who makes the silly claim that US soldiers are doing "terrorist" activities in Iraq as part of their efforts in the country to find and get insurgents.

I guess we have come to an era where the limits of responsible commentary - based on any standards of decency - are simply ignored.

Blog Awards

The Weblog Awards are up at http://weblogawards.org/. What is amazing to me about the effort is not that there is a formal awards process - good thing, American thing (awards and all) but that as I looked through the categories I find most useful - I knew only a few of the nominees. That shows a very dynamic marketplace for all kinds of ideas. You may want to check it out for two purposes. First, it would be good to vote for a favorite (I like Taxprof blog for best law blog). But second, look through the categories and the links to find some new sources.

It is not just the military

Secretary Rumsfield, in his remarks to John Hopkins students commented today -

We have arrived at a strange time in this country where the worst about America and our military seems to be so quickly taken as truth by the press and reported and spread around the world -- with little or no context or scrutiny -- let alone correction or accountability -- even after the fact. Speed it appears is often the first goal, not accuracy, not context.

Unfortunately, while his commentary on the military coverage and the misreporting in the Middle East, his remarks were true for most of what the MSM calls news.

Backbone in Intelligent Design (of the tax code)

No, I do not want to get into the discussion on intelligent design in relation to evolution. But it seems that another area where intelligent design could be helpful would be in the tax code. Since the last major overhaul of the federal code (1986) we have allowed the code to be brought back to complexity. That is especially true for something called the Alternative Minimum Tax (or AMT). The AMT is one of those idiotic ideas that could only be thought of in Washington. The "logic" goes like this. We will create two tax codes - the first is the basic structure but if we think you do not pay enough tax under that one then we will create a second code with slightly higher rates and you will be taxed under that one. Instead of having the integrity to create a tax code with all the provisions in the right place - our lawmakers created a sort of code. The theory behind this provision was that if your use of many of the most popular provisions in the code was too vigorous - then we will tax you more. But of course, that is not the way the thing has worked. It was originally designed for the mythical taxpayer who is agressive in using "tax preferences" but as the code has continued it increasingly is attacking more and more taxpayers.

The president's tax reform panel looked at the AMT and declared it was bad. So they set out to solve the problem by eliminating it. If the proposal is adopted, it will require some adjustments. For example, the deduction of state and local taxes will go away. So will part of the deduction for mortgage interest (based on a calculation of what most people pay for housing). In both cases the panel is using some of the language of many tax theorists - why should we subsidize local government taxes or huge purchases of housing? The panel also establishes a 1% floor on charitable giving but moves it above the line. Thus, in order to qualify your charitable giving, you have to give at least 1% of your income to charitable causes but then the provision applies to all taxpayers. All of those changes yield some slight changes in rates (including some further reductions in the rate for capital income) and the elimination of the AMT. In my mind, that is a pretty good tradeoff. Sure there will be some people who whine about a lot of the provisions but that is a pretty fair balance.

The president's staff announced today however that they would take a year to build support for the ideas in the plan before trying to advance it. One wonders whether this will be the same team that has done such a good job of building support for the policy in Iraq and the same team that did such a wonderful job of building support for privitization of social security accounts. The president, at the beginning of this term, aruged that he had built up some political capital and that it was his intention to spend it to achieve his goals. But in the cases of Iraq and Social Security he has let the other side define the terms of the debate. Based on the first year of his second term, he seems to have been very good at spending that capital without any real or even apparent investment. That makes his announcement on the tax reform panel this morning look like a strategic retreat. That is a real disappointment.

When Reality Resembles Film

One of the pleasures of the last six months has been Netflix - a really great service. It does not have every movie but a pretty good selection of them - and it allows you to have three out at a time - no time limit. Send one back and get the next one on your list.

Last night I saw a movie about Terry Gilliam trying to make the film of Don Quixote. Orson Welles tried it long ago and failed but as you watch this documentary (called Lost in LaMancha) you see an allegory for what Cervantes was writing about 500 years ago. Gilliam is a very talented director. But between some odd plans and some very bad luck - he looked like he was tilting at windmills on this project. He started without a clear plan - chose a face that looked absolutely perfect for Don Quixote and Johnny Depp for Sancho Pancha. But between an inadequate financing, poorly organized plans and lousy luck - the film was never made. Or was it? Was this a documentary of the type like Spinal Tap? Were we spoofed?

Consultant Roles in Disasters

This morning's NYT had an interesting article about the role of consultants in addressing Hurricane Katrina. The story started like this

It was Thursday, Sept. 1, three days after Hurricane Katrina had ripped across the Gulf Coast. As New Orleans descended into horror, the top aides to Gov. Kathleen Babineaux Blanco of Louisiana were certain the White House was trying to blame their boss, and they were becoming increasingly furious.

"Bush's numbers are low, and they are getting pummeled by the media for their inept response to Katrina and are actively working to make us the scapegoats," Bob Mann, Ms. Blanco's communications director, wrote in an e-mail message that afternoon, outlining plans by Washington Democrats to help turn the blame back onto President Bush.

With so much criticism being directed toward the governor, the time had come, her aides told her, to rework her performance. She had to figure out a way not only to lead the state through the most costly natural disaster in United States history, but also to emerge on top somehow in the nasty public relations war.

Blanco released a ton of information over the weekend which included the exchanges above and others. Interestingly they released this mound of information only to the traditional media.

I had a couple of questions when I read the story. #1 - Why should any public official spend so much time trying to "win a PR war"? Bush's people were doing the same thing. But wouldn't it have been better to just do the job of responding to the disaster? #2 - Why should the Governor of LA think this was a complete disclosure if she only puts this stuff out to the media? Is there some idea about getting them to do the right story? Or is there an assumption that the average citizen does not have the same right to know as the media?

These consultants are always fighting the wrong war (concentrating on image not substance) - but always at our expense. Seems like an extremely bad bargain. But then we knew that.

I guess because they did so well with oil for food we should give them the internet

The following was the opening statement of the declaration of the First UN Summit on the information society that was held in Geneva in 2003 - "We, the representatives of the peoples of the world, assembled in Geneva from 10-12 December 2003 for the first phase of the World Summit on the Information Society, declare our common desire and commitment to build a people-centred, inclusive and development-oriented Information Society, where everyone can create, access, utilize and share information and knowledge, enabling individuals, communities and peoples to achieve their full potential in promoting their sustainable development and improving their quality of life, premised on the purposes and principles of the Charter of the United Nations and respecting fully and upholding the Universal Declaration of Human Rights."

So then the second meeting of this august group was held in a country that routinely censors internet traffic. In that meeting the Secretary General that brought us graft from oil for food in Iraq said - "The United States deserves our thanks for having developed the Internet and making it available to the world. It has exercised its oversight responsibilities fairly and honourably. I believe all of you agree that day-to-day management of the Internet must be left to technical institutions, not least to shield it from the heat of day-to-day politics. But I think you also all acknowledge the need for more international participation in discussions of Internet governance issues. The question is how to achieve this. So let those discussions continue."

Well thanks a lot Kofi, but no thanks. To suggest that there is not current international participation in the governance of the internet is absurd. To suggest that the UN is the place to convene those discussions is even more absurd.

Zero Sum Politics

What do the Governor's recent defeat on four initiatives and the federal transportation bill have in common? They represent a move toward zero sum politics. Here is how they work. A fundamental assumption in this new mode is that anything I win is something that someone else will lose. In recent years our political system has been infected with that as a base - regardless of who was in charge. The demublicans and the repulicrats do it the same way. Politics becomes a part of a tribal exercise where the benevolent official drops a bit of largesse on the grateful constituents. At the federal level that means that set asides are king - no longer is legislation thought about in broader policies but more about what how many goodies like "bridges to nowhere" can be cobbled together to get 50%+1.

So how does the failure of the Governor's initiatives work into that framework? As I see it, in two ways. First, one of the major reasons why the Governor failed was because of his political advisors, who spent a lot of time talking their boss into doing the fight, even more time in collecting outrageous fees, and not so much time in thinking about how to advance the issues that seem to have been deemed important by the populace - at least according to a couple of polls. The consultants looked at the political landscape as first an opportunity to enrich themselves and second as a landscape where the evil portions of the other side could be paid back for the alleged or assumed indiscretions. That second condition, looking at the world as a series of permanent enemies, is also important to this new condition.

Public Choice economics taught us a long time ago that there are not many places in the society where zero sum conditions actually prevail. Ultimately the gains from interactions are mostly positive some. If we structure the economy correctly, that is certainly true. But if we look at the world as a set of instances where the only way to win is for someone else to lose, we will make poorer choices. Plus we will destroy whatever semblance of broader public purposes that should be at the base of public decisions. Thus, the more we use this lens the less able we will be to find those positive synergies that benefit us all.

What are the causes? There are probably many - the increasing rise of political consultants who look at the world in terms of their next client. But so too is the role of the new media - who believes that every story should be covered 24/7. The increasing insulation of political figures is also a factor in producing these result. Politicians live in a cocoon - they hear from consultants and speak only to safe groups -all the time with an eye toward how the world will look on the news (even though fewer and fewer people get their information from the news).

The trend is self-reinforcing. The more we do it, the more both sides react in kind. We care less about the process and more about the short term results. In the long term, and maybe not that long, that is a surefire prescription for destroying the political system in this country. It is a scary thought.

Illegal Shots

IMG_6377.JPG, originally uploaded by drtaxsacto.

When we first started going to Mexico, we found that most museums had two kinds of admissions. The first was for people without cameras. The second was for people with cameras. Usually the entry fee was increased by something in the range of 30 to 50 pesos for entry if you wanted to photograph the inside. You were always urged to not use flash in the inside to protect many of the antiquities.

In the last year or so that seems to have changed. Many museums run by the history commission are now prohibiting inside photos. In the Secret Convent of Santa Monica (in Puebla), for example, you are allowed to take photos in the garden, which is quite pleasant, but not anywhere else. I walked in and took a bunch of photos in the garden and then was followed closely for the rest of the visit to make sure I did not snap any illegal shots. It was almost Chaplanesque, the guard following me at about six paces back. I would move into a room the guard would follow. At one point I moved into a room and then out - almost in a dance with the guard. The photo above is one of the areas where photos were prohibited. (although at this point I had not been informed of the prohibition).

What nonsense. The museums do not have enough revenue to publish slide sets or books on the subjects. Those are common in Europe. So you are left with the option of following the requirements or breaking them. There are plenty of better alternatives - assuming that one of the reasons for these changes is the recognition that too many flash photos will deteriorate especially the paintings.

Museums could lead photo safaris with a guide for an extra fee a couple of times a day. People who wanted to photograph the interiors could go through the museum with a guide who would begin the tour with an explanation of how to use your camera without a flash. Or they could hire a photographer to go through and catch the key sites and then post them to a secure website with a fee attached. But the alternative now seems to deprive the museums of extra income and to encourage photographers to steal a couple of shots.

Interestingly, the policy does not seem to be operational in Mexican church sites. There are some magnificent sites in each city and when visiting a new place, the first place we tend to go is to the churches. It is sad that a bureaucratic approach like this ruins the experience of visiting a museum and deprives the museum of key income to maintain their treasures. Such is the way of bureaucracies.

The Delights of Travel

IMG_6616.JPG, originally uploaded by drtaxsacto.

For the last week or so (longer for me) my wife and I have been away from home. First, to Puebla to see some friends in Mexico and then to Prescott to see my wife's family. The variations were remarkable. This is but one of the shots I took of the high desert sunset. In the space of about 30 minutes the sky did a show for us that was absolutely wonderful. As we drove back to Phoenix on Saturday we saw the Alpha of the process and caught a few shots of that.

My sister in law seems well established in Prescott - she has a good group of friends - including a guy who makes custom boots (of course - in about a year my pair will be done) and contributes to the music and arts scene in the small city. She is contemplating moving further to Snowflake - for the life of me I cannot understand why one would move out of a supportive environment as she has now.

As discussed in a previous post, we also had a great time in Puebla. One of the people we visited is in the process of starting a new business (a Restaurant) in the city of Xalapa. When we were down we saw the proofs of his menus. The fare will be varied. The design is elegant. Every detail has been planned down to the last item. We hope it will be very successful.

Ultimately, the trip was made better not by what we went to see but by who.

The Fraud of George Regas versus the IRS

The Internal Revenue service recently created controversy by threatening All Saints Episcopal Church in Pasadena with loss of exempt status as a result of a sermon given by the rector emeritus a few days before the 2004 election titled "If Jesus debated Senator Kerry and President Bush" You should read the sermon before you judge whether the IRS is justified in its actions. It seems that most people who have come to the parish's support have not. The sermon can be found at this address. The premise of the address is a good one. What would Jesus say about some of the key issues in the election? Regas began the discussion with a seeming joke, where he quipped that it was not his intention to tell people how to vote - he quoted himself saying that sometimes his thoughts were perceived as "You go your way and I'll go God's way." As you read his remarks it is impossible to take his joke as anything but a sorry double entendre.

I would ask, as did Regas, what is the appropriate Christain response on the war in Iraq? Regas also asked about the issue of abortion, which seems both appropriate and useful. In both cases, Christian doctrine offers some interesting challenges. There is a good case to be made that the war in Iraq is not a "just war." In that case Bush, and to a lesser extent Kerry (because who knew where he stood on that issue) would not reflect the teachings of Jesus. There is certainly also a Christian case for the war, although the vast majority of practicing Christians would not be on that side. On the issue of abortion he could have raised whether support for abortion is appropriate to the teachings of Jesus. Again there may be a case for abortion in Christian doctrine and he could have made that case. Were this a fair discussion, Jesus might also ask both men whether their adherence to Christian principles was real. Clearly, Kerry is prohibited from receiving the sacraments of his church as a result of his actions in the political realm. But Christian teachings present a high standard for political players. Regas gave both men a pass by saying they were both dedicated Christians.

That example and others suggests that Regas' intent was not to offer an exploration of Christian doctrine as a focus for thinking about the election but rather a clear statement against Bush. One could have little doubt that Regas is advocating a particular point of view in the election that oversteps the bounds in holding exempt status. Regas clearly was attempting to skirt the requirements for exempt status.

Even with that assumption, there are several questions that I have about the threat of the IRS. First, on that same Sunday in many historically Black churches around the country, so called Black leaders were urging parishioners to vote for Kerry. The IRS has not done anything about that. In some evangelical parishes the case was being made for Bush. But in both cases the IRS seems to have ignored those actions, which seem similar to the ones by Regas. Why? Second, as you read the vast majority of sermons in the website there a plenty that many Christians would disagree with, but the consistent messages in those sermons are about Christian doctrine. Does one infraction represent a valid pattern to revoke exempt status? Finally, is this kind of playing with the requirements of exempt status going to lead to a lessening of support for the the principle of exempt status? A recent report by the Tax Foundation poses some serious questions about the public goods created by the charitable deduction. The kind of advocacy that Regas engaged in is something that could reduce support for the deduction itself - which has been a basic part of the tax code since its inception.

Christians should be involved in the electoral process, and a serious discussion of the teachings of Jesus as they relate to election issues of the day would be a welcome message a couple of days before the election. But Regas' polemic did not come close to meeting that standard. Had I the power, I would not revoke a parish's exempt status for the ravings of one preacher but I would hope that the parish and the one preacher would recognize their responsibilities to help protect exempt status.

Netiquette

I have a big pet peeve on a couple of lists I am on. One person sends out a message that is for something like scheduling a meeting. Then everyone responds to all readers. If there are 20 people to be scheduled on the meeting, I probably get sixty emails clogging my mailbox. What I am interested in is the final outcome not all the other baloney. AARGH!

Who tells the story - The Role of Ideology in History

For the last couple of days I have been in Puebla, Mexico with my wife and some friends. We spent a good deal of time planning two events that will take place in 2006 but we also had the chance to see the African Safari in Puebla (AFRICAM) and to see Fort Loreto which is a national historical museum of the battle of Cinco de Mayo. The battle is one of important myth in Mexican society. The young general who won against a larger but probably less organized force from European nations is a hero in the country, although not as well known as some later figures. The Europeans were trying to collect a debt of about $70 million. General Zaragoza won the fight with cunning and superior tactics. Unfortunately, about four months after the victory he died visiting his troops (and also some fallen French troops) from the inevitable cholera that was omnipresent in battlefields of the time.

In the history of Mexico there are a couple of periods where the government attempted to starve off religious expression. I had heard and read about the Christero movement – where overt religious practice was absolutely outlawed. Several years ago I was in a small town called Naolinco where there is a memorial to a priest who was murdered during the movement for celebrating a baptism in public.

Before we went to the fort we went to a place in the city of Puebla called the secret convent, which during the Christero period was hidden from view for a very long time. When the convent was discovered by the government (in 1934) its assets were “donated” to the state. Before that however, for a period of about 70 years the nuns lived in secrecy. The official existence of the community was never acknowledged. The description of how the convent became a state museum was not entirely satisfying. We then went to the fort.

What was most striking about the fort was a painting at the end of the museum – not for what it includes (it is a fairly ordinary piece of Mexican heroic muralismIt is an image of the periods in Mexican history that threw off the chains – of 1521, and 1862, and 1910. But what was missing the portrayal was 1810. The first Mexican revolution was led by a priest, Miguel Hildago, who took over a granary (the Aldondiga) in GUanajuato, held it for a while. When the Spaniards took it back they beheaded the four major figures in the insurrection and placed their heads on posts at the four corners. In the city of Guadajara there is another piece of heroic muralism that depicts Hildago.

I was struck in the commentary at both the secret convent and the fort, how easily the history could be modified to reflect on prevailing opinion. Perceptions are important in history. Dick Gregory once said "We used to root for the Indians against the cavalry, because we didn't think it was fair in the history books that when the cavalry won it was a great victory, and when the Indians won it was a massacre. " In this case the tellers of the story in Puebla leave out some important details.

Wise Choices

On the way to the airport for our trip we had our grandson Mason in the car with us. We saw a Santa image on a billboard and both his parents and grandparents reminded him about Santa’s impending visit and how Christmas ultimately is about “wise choices” - kids who make wise choices get visited by Santa and those that do not , do not. After this didactic exercise, I began to sing in a funny voice (at least in my opinion). From his chair in the back, Mason commented, “Grampa, that was not a wise choice!”

Biological versus Mechanistic determinism

In the last two weeks I have been traveling a lot. On the east coast a couple of times and then in LA. For two Saturdays in a row I was able to come home, change clothes and then go right back out on the Sunday morning - this morning to Puebla and then back on Wednesday to Prescott Arizona. One of the ways I keep myself sane on this type of travel is my iPod but the other is with reading. In the last two weeks I have polished off four books. I am currently in the middle of one by Ray Kurzweil - who has written a lot about technology. The new one is called the Singularity. It suggests that the convergence of biological and computing technologies will soon sweep us up in some profound changes - in all things that we do.

Concidentially, last weekend I was thinking about Peter Drucker. I met him in 2001 at a symposium we created for the new staff of President Vicente Fox. We did the seminar at Claremont and Drucker agreed to be the opening presentation. I introduced him (briefly - what can you say about someone who has had such a profound effect on people's thinking) and then he began to speak. Our focus was making the office of the president and therefore Mexican government better so he had a wide area to talk about. I was at once captured by his seemingly ponderous speech. He spoke very deliberately. But as I listened I thought about the points he was making. In the hour he was with us he offered at least a dozen insights. Like that, in an article in the Atlantic several years before, he wrote about how the (then) coming internet bubble was just like a series of other technological jumps in history. He described in detail, in that article how each succeeding technology had followed a fairly predictable path of innovation, excitement, over-promise, but then integration. Drucker showed his understanding of both the trends in innovation and their ability to build on each other.

When he wrote about economics he had the same kind of sensitivity. He understood, as I think Keynes and many macroeconomists did not, that the economy is not a set of mechanistic processes.

When he wrote about organizations he did so without blandishment. I thought he was looney about the future of universities - he argued that they would not survive. But he looked critically at all sorts of things - from matrix organizations, to corporate pay (he thought it was often outrageous), to the effects of trade. In the same way I saw him at Claremont, he offered a long career of written insights.

Kurzweil argues that the convergence of biology and technology goes through a series of steps each building on the other and that ultimately these trends will begin to work together to change the way we do things. In the beginning of the book he offers a series of charts that explains the pace of change. He also argues that our basic tendency is to work from an assumption that change is linear rather than logrithmic. Kurzweil argues in the early part of the book that the rate of change in these two areas will be so profound that it will soon outrun our ability to comprehend them. That could be either nirvana or some hell on earth postulated by innumerable science fiction writers.

There is a lot to think about in his book. His description of how things change and how they interact sounds a lot to me like an idea I discussed in February (19) on a cycle of innovation first proposed by David Kessler. Regardless of whether Kurzweil has both the direction and the magnitude of the changes there is tons of interesting materials and charts in the book that would be worth the price - even without the provoking theory.

The Singularity can be found at Amazon.

Balancing the Budget Redux(Reflux)

Quick quiz -
What is the most important legislative priority near the end of the 2005 Congress? Extension of the Patriot Act? Tax Reform? Reducing the deficit?
Trade Policy? Reauthorizing the Higher Education Act? Establishing a rational policy or policy rationale for drilling for oil in the Alaska wilderness? Reducing agricultural subsidies? Setting up a more reasonable procedure to limit set asides in appropriations bills? Confirming Judge Alito? Raising member's salaries by $3100? The war on terror? Thinking about infrastructure? K-12 educational standards/policy? Environmental policies? Transportation policy? Social security reform? Making changes in charitable regulations (to respond to the American University problems and others)? Medicare reform? Establishing a better health care system? Copyright reform?

Admittedly many of those would generate a healthy debate about the right course to take. Some probably should not even be on the federal agenda. But the one issue that generates universal support in Congress is patently obvious. Or should that be painfully obvious?

Federalist #10 as a Guide for Today

In Federalist #10 Madison argues to avoid the "passions of the people" - ultimately a representative system is designed to assure that only the best ideas make it through the public policy funnel. But in today's political environment - Madison's suggestion is largely forgotten. Consider the following examples -

#1 - The Congress says it is serious about reducing the deficit - yet the debate in Congress is not about actual reductions but about the contrast between social programs and tax cuts for the "rich". When the Congress does eliminate the bridge to nowhere - which is simply the most visible and blatant example of pork barrel politics - it does not even eliminate the spending merely eliminates the couple of hundred million for the bridge but continues the money dedicated to Alaska. So from a bridge to nowhere we have evolved to simply throwing money down an unobligated rathole. Were we thinking rationally we would work first on those things where we have some level of consensus. Set asides which is a growing problem at the federal level - a more sophisticated way for politicians to extract rent - should be one area where in tight times we should be willing to reign in. But that does not seem to be possible.

#2 - The current debates in academe on creationism versus environmentalism evidence a lot of extreme thought. While some of the creationists have argued positions in the absurd - on some campuses to even raise questions about evolution. I am bothered by the people who want to teach a theory as gospel whether it is biblical or biological. A good part of the process in higher education should be to get people to listen a bit better - a point made in the inaugural address by the new president of Whittier last Saturday. In areas where proof is not possible - we should be taking some time to consider alternative explanations. What I understand about the most reasonable sides of evolution theory does not prevent one from believing in a supreme being - but why the level of passion here?

#3 - Abortion has become an absolute right. Any deviation from that principle is considered terrible. Why should it be harder for a young woman to get an aspirin at school than an abortion? If the law is going to intrude into an area with this kind of sensitivity - would it not be better to set some reasonable limits that are close to where the majority of people think the issues should be resolved?

#4 - The Bush lied, people died and its variations - The administration's foray into implementing the Bush doctrine clearly has some alternative points of view. But the real question that anyone should answer is not whether Bush misrepresented the truth of getting us into the position we are in but what is the appropriate exit strategy - how do we complete the task or withdraw without making the situation worse? The key people in the administration did not get into this position lightly we should not allow our political system to keep the debate at fevered pitch where no light shines on the key things we need to think about.

There are many other areas where we are stuck in unproductive debates on areas where we get mired into the all heads talk at once motif of tragedy TV. But our system will soon lose favor if we keep the level of discussions in these (and other) areas at the yada, yada, yell, yell stage.

Ponies and AOL

I am reading There Must Be a Pony in Here Somewhere which is writer Kara Swisher's take on the AOL-Time Warner Merger (Debacle). It is a remarkable book. She has a keen understanding of the hype of the tech bubble, the hubris of Case and Levin and others, the lack of touch with the Main Street Media, and the interactions of some remarkably improbable personalities. What's more she puts it in an entertaining fashion that makes a great story. Had I not been one of the shareholders that was screwed by the deal (I hate big mergers) it would be even better.

You can find it at Amazon (also in paperback) - it would make a great Christmas gift for anyone in your life who is interested in technology or mergers or life!

Budget Nonsense Redux

The leading minds of Congress have come up with a way to reduce the budget. Eliminate the funding for the bridge to nowhere - only that idiotic expenditure that would cost the equivalent of buying a lear jet for every citizen who would benefit from it. So far so good. But remember this is Congress. The next step is to keep the funding in and direct it to Alaska. The net result - appropriations keep the same. The problem of "projects" (what members are calling set asides because they think we are wise to the negative sides of the set asides term) is not helped in even a little sense. Only Congress could think this was a solution.

Fighting Back

Sometimes it takes a long time to respond. Beginning about a decade ago a group of Members of Congress began to bash higher education for their "runaway costs" - never mind that Congressional spending makes higher education seem like a piker here - but they began to natter a lot. They asked a group of higher education experts, including me, to do a National Commission and the Commission spent three months (the time alloted) and came up with a pretty good report. The conclusions said - a) Colleges are not well organized to think about costs but b) they have done some stuff on controlling costs and c) they should do more. Soon after that the National Association of Business Officers (NACUBO) convened a group which tried to develop a methodology to count college costs. With more than 3000 institutions that is not a small task but they worked hard for a couple of years and devised a pretty good methodology to explain college costs. What you are able to explain you are better able to control. Colleges and universities then began a two stage effort in this area- first, many began to think differently about costs -and the multiple causes of increasing costs. But second, states began to lower their level of subsidy to state supported universities (in the same way that universities in Europe were being treated) and so the price of higher education (which most people confuse with cost) began to rise.

But the Members of Congress continued to press on. In the bill which reauthorizes the Higher Education Act, they inserted a set of price controls - not that is what they called them but that is what they are. They also responded by adding some new bureaucratic requirements on things like transfer of credit among institutions - which again is complicated as a result of the diversity of institutions.

Last week at my Association's retreat we had a discussion of the current state of the reuthorization bill. One of my presidents drafted an op ed over the weekend which summarizes in a forceful way - why the idea of price controls by any structure - is a bad one. Let's hope that Members of Congress begin to think more carefully about how things should work.
Fat chance for that.

Thinking about the Special Election

OK So the Terminator lost a big one. The voters pretty clearly said no to governing by intiative. So how did this happen - how did Arnold reverse his numbers in such a short time (73->37) and what should he do about it?

Jack Pitney, the astute professor at Claremont McKenna College, argued in a speech yesterday that the roots of the Governor's problem came from some missed signals. The public employee unions realized after the 2004 elections that not a single legislative seat changed hands and therefore the Governor was not as all powerful as he was once thought to be. The Governor's staff then compounded the problem by proposing poorly written intiatives especially in public pension reforms (the state attorney's unit just agreed to a change that is very close to what the Governor was seeking).

How does the Governor get out of this? I think his initial strategy is pretty good -admit your mistake and try to govern. Pitney suggested that offers him a pretty good set of options - if the dems stonewall him he can run against that next year. If they adopt the reforms he can claim credit.

Dan Weintraub suggested in his blog earlier in the week that the dems would be smart to propose solutions in all of the areas that the Governor sought reform - pensions, spending, employee political contributions (probably expand it to corporate checkoffs), teacher tenure, and redistricting (limited to the next census). From the initial responses by them Perata seems to get that. Nunez does not.

This seems to offer a pretty clear way for the political establishment to move forward. The ratings for the legislature are even lower than the Governor's so their apparent and real movement would probably bring cheers from all around. What a novel idea - the political players actually trying to craft not a position but a solution. Would it be too much to hope for?

Balancing the budget

One Seattle paper posed the current mess in Washington as between a $54 billion reconciliation - that falls heavily on students and $70 billion in tax cuts. What a crock. With that kind of question you will always get the wrong answer. There are a couple of things going on here. First, revenue growth is exceeding expense growth at the federal level by healthy margins - in part that is a result of the tax cuts - especially as they relate to capital issues. But wouldn't the questions be better posed by asking Congress to cut back a lot on setasides - pick out the money that was put into projects like bridges to nowhere and we could easily accomplish the revenue goals of reconciliation without cutting into necessary programs or deteriorating our tax structure in relation to the rest of the world.

The url for the cartoon is http://seattlepi.nwsource.com/horsey/viewbydate.asp?id=1288 - I did not hot link it because I think the tradeoff posed in it is what is wrong with the choices we are making at the federal level.

OK, so who was right?

In an earlier post, I wrote about the potential differences in polling practices. The risks of variant polls is misinformation in the political system. In theory, widely disparate polls could also influence who comes to the polls. One of the major pollsters had the integrity to publish a temperature assessment of how well each of them did. Survey USA did a compilation of the accuracy of the polls in the Special Election. Their totals were as follows -

For the big 4 propositions (73-77) the margin of error was was pretty different.

POLLSTER AVG. ERROR
Field 3.36
SurveyUSA 5.32
PPIC 5.76
Stanford/KN 5.96
Polimetrix 6.24
LA Times 7.44

The numbers varied a bit when comparing the average margin of error by the number of propositions polled.
POLLSTER ERROR (Number of propositions polled)
SurveyUSA 5.32 (5)
Field 6.05 (8)
Polimetrix 7.20 (7)
LA Times 7.85 (8)
Stanford/KN 8.80 (8)
PPIC 9.57 (7)

When one looks at the 3 outlyer propositions (78-80) one would think that accuracy would be improved. If you look at the Secretary of State's election maps (the red/blue splits) you find that the bottom three had a pretty resounding thumping. Also, the real interest and financing came to the first five (73-77). But that assumption is not necessarily true.

The results raise two additional questions - which are fundamentally more interesting than the level of error (although that is pretty interesting). First, we do not know the directions of the error (although with the newcomer Stanford poll there was a relatively consistent error on the side of overestimating support). My suspicion is that two of the leading pollsters were pretty consistently off in estimating the conservative vote. That could be a function of two things either sample error or turnout - there is considerable evidence that conservatives in Southern California did not vote in normal numbers. The second issue is more important. With more than 40% of the voters casting absentee ballots we do not know whether the polls in the last two weeks had any influence on the final results. Both issues could be a good topic for a student of politics to write on in a dissertation or for someone with a little time and a calculator to work through.

The Special Election - decline in democracy

This morning I voted early in the California Special Election. The Field Poll suggested that a 43% turnout was expected. But what is unexpected is that 40% of that turnout will be absentee. About a decade ago, I had a dinner with some friends and Daniel Patrick Moynihan. It was a remarkable event. The good Senator came a bit late, proceeded to consume an enormous amount of libations and keep everyone at the table in rapture. The purpose of the dinner was to discuss tax issues as they related to higher education. But DPM started out with an absolutely fascinating discussion, with a winsome look in his eye, about the history of the franchise in the US. Somewhat tongue in cheek, he lamented the change that happened when America adopted the Australian (secret) ballot. Prior to its adoption in the mid-19th century voters were required to go to their town square or hall and cast their vote in the open. DPM suggested that the secret ballot somehow reduced the real benefits of expressing one's preference in public - of standing for one's beliefs. In the last several years states have made it easier to exercise the franchise in a number of ways - first by allowing citizens to register much later in the process and then by allowing people to claim the need for an absentee ballot for any reason. One wonders whether those small changes have even in a minor way reduced the genuine impact of voting.

In my household, without evidence of voting on an election day all 18 and older residents do not eat. In this election three of the four voters in the household chose to cast their ballot absentee.

On another topic - Dan Weintraub (the Sacramento Bee Political Columnist extraordinary) yesterday posted something on an issue first raised in the literature of Public Choice Economics. Some in the field argue that it is irrational to vote for a number of reasons. First, if you take the time to learn the issues - and lots of people do not - your potential effect on the election is so small that the investment of time has an exceedingly marginal payoff. Second, few elections are close so the investment you make in elections seems to be time wasted - ultimately your ability to influence the course of events is small. As I have thought about those arguments over the years - I have come to reject them. Here is why. Sure there are uninformed voters and sure most elections are not close. But, here is why the assumption is flawed. Take my example. I am known among a group of voters as someone who is pretty well informed. People actually seek me out on elections. My best guess is that among that group I have between 15 and 20 people who ask my advice. Assuming that at least the repeat customers are influenced by my suggestions (why would they come back if they were not?) then my fraction of the voting population is significantly higher than one vote.

The first post in this blog was about the Iraqui elections in January, 2005. It is important to remember that in spite of the "tsunami of lies and distortions" that was piled on California voters in this election, exercising the franchise, whether in the public square, with a purple thumb or in an absentee ballot is a critical function that differentiates us from many other societies.

The state of veracity in Senator Sot's view.

Meet the press had the following exchange on Sunday.

MR. RUSSERT: You talked about Iraq. There's a big debate now about whether or not the data, the intelligence data, was misleading and manipulated in order to encourage public opinion support for the war. Let me give you a statement that was talked about during the war. "We know [Iraq is] developing unmanned vehicles capable of delivering chemical and biological warfare agents...all U.S. intelligence experts agree they are seek nuclear weapons. There's little question that Saddam Hussein wants to develop them. ... In the wake of September 11th, who among us can say with any certainty to anybody that those weapons might not be used against our troops, against allies in the region? Who can say that this master of miscalculation will not develop a weapon of mass destruction even greater--a nuclear weapon. ..."

Are those the statements that you're concerned about?

SEN. KENNEDY: Well, I am concerned about it, and that's why I believe that the actions that were taken by Harry Reid in the Senate last week when effectively he said that we are going to get to the bottom of this investigation, this had been kicked along by the Intelligence Committee, by Pat Roberts for over two years. And Harry Reid did more in two hours than that Intelligence Committee has done in two years. And the American people are going get this information.

And it's important that they get this information about how intelligence was misused because of the current situation. It's important to know where we've been, but it's important to know where we are today, because we're facing serious challenges over in Iran. We're facing serious challenges in North Korea. And we cannot have a government which is going to manipulate intelligence information. We've got to get to the bottom of it, and that is what the Democrats stood for on the floor of the United States Senate last week. That was a bold stroke, one that has the overwhelming support of the American people. It's about time they get the facts on it. They haven't got the facts to date. They deserve them, and they'll get them.

MR. RUSSERT: But, Senator, what the Democrats stood for on the floor of the Senate in 2002--let me show you who said what I just read: John Kerry, your candidate for president. He was talking about a nuclear threat from Saddam Hussein. Hillary Clinton voted for the war. John Edwards, Joe Lieberman, John Kerry. Democrats said the same things about Saddam Hussein. You, yourself, said, "Saddam is dangerous. He's got dangerous weapons." It wasn't just the Bush White House.

Hypocrisy lives, but then why are we not surprised?

An insight about the issue of college costs

In 1997 I served on the National Commission on College Costs. It is an issue that has generated a lot of political discussion and not a lot of solutions. Part of the problem is the confusion (either actual or intentional) that politicians seem to have between price and cost. Price is what families see when they apply to college - which is often discounted for various purposes including financial need. Cost is the amount that all of the resource inputs added together comes to. In higher education cost and price are always different AND no student in the country ever pays the cost of education. Thus, as economist Gordon Winston (from Williams) pointed out about a decade ago - colleges do not set their prices based on cost (a business person sets the price based on cost plus an expected profit) rather they set their price add a subsidy (including a need based component and a non-need based component) and the sum of price and subsidy equals cost. That is a result of the way higher education has formed itself but it makes solutions to this problem a bit more complex.

Yesterday, I was at a Lumina Foundation invited conference on College Costs. Pat Callan, who has had a long career in a number of positions on higher education policy pointed out that the issue is really not subject to technical solutions but rather the issue is a political problem. The problem with political solutions is there is an inevitable move toward standardization - political solutions look to one best way to solve an issue. But as a recent survey in the Economist pointed out the strength of the American system of higher education - which according to them has 17 of the top 20 research universities in the world - is that it is not a system - it has a diverse set of alternatives to serve a variety of student needs.

John Engler, the former governor of Michigan, suggested that one beginning solution would be a disclosure system similar to Sarbanes Oxley which would provide a greater level of clarity for consumers of higher education. That is a pretty good idea. The National Association of College and University Business Officers (NACUBO) spent a couple of years after the National Commission's report constructing a method to assess the cost (not price) of an undergraduate education. More universities should use the methodology. It won't solve the problem - but in this era of accountability it might lessen the chatter about costs. Colleges and universities need to think more proactively about how their costs work - in the current equation (described above) there is not a chance to make those kinds of evaluations in a consistent manner. Many college and universities boards and administrations have done some good work on figuring out how to hold down costs but more needs to be done. Disclosures in a consistent manner may be the first step.

So who has it right

On Tuesday California will vote on four propositions that are supported by the Governor - I have discussed them previously but basically - Proposition 74 would extend the time for attaining teacher tenure, 75 would prohibit public employee unions from collecting money for political activity without the express consent of members, 76 would adopt a new way to deal with budget shortfalls and would smooth revenues, 77 would change the way districts are drawn. Two (75 and 77) have been on the ballot previously and lost.

But here is how four different polls project votes

LA Times 74: 45-47 75: 40-51 76: 31-60 77: 34-56
Field 74: 44-50 75: 40-50 76: 32-60 77: 35-51
PPIC 74: 46-48 75: 46-46 76: 30-62 77: 36-50
SurveyUSA 74: 49-50 75: 50-49 76: 49-49 77: 44-53
Stanford/Knowledge Networks 74: 53-47 75: 64-36 76: 45-55 77: 55-45

The first three use a standard polling method with slight variations in sample. The last two use differing methodologies - one an electronic phone survey and one a web based response mechanism.

The question is who will be closest and why the wide variations? Assuming that each poll was taken with integrity - the differences might be explained by a) sample, b) methodology or c) some changes in society which make the first three general methods a bit less reliable than the last two (or vice versa).

One wonders if the first three are on the mark whether the Governor will be damaged goods in the coming year. The conventional wisdom says yes - but a lot of that depends on who is 2006 opponent will be. This will be interesting to see.

Joseph Wilson lied

This morning, before I left on a trip I read yet another statement by Joseph Wilson the former ambassador where he reasserts that the Bush White House lied on the Niger connection to Iraq. What is most troubling about this, besides the impression that he is passionately dedicated to opposing the Iraq policy, is that his continued lying in public goes unchallenged. Doesn't anyone read how the former Niger prime minister has said that the Iraqui trade mission where they asked to get closer relations was in his mind only related to the purchase of uranium - doesn't seem like oil would be a big buy for Iraq.
The media coverage of all sides of this story seems lax (at best) or malevolent.

There are several things that the media seems to conviently forget. First, beginning in 1999 the intelligence communities of several nations seemed to believe that Iraq was moving to WMDs - that turned out to be a bluff - but it was one that almost every nation fell for. Second, Wilson came back from the trip partially set up by his wife (he did have some credentials to be in Africa and did know something about the Middle East so it wasn't a complete fraud) and the Senate Intelligence Committee report seems to say that the CIA thought his report reinforced the notion that the Iraquis were going after WMDs. Third, if the Wilson's neighbors knew what Valerie Plame Wilson did for a living it is hard to believe that the administration's efforts to discredit a critic were outing an agent. Fourth, the rationale for going to war with Iraq included the possibility of WMDs but it also included a lot of other notions (read Ws second inaugural which was preceeded by several policy speeches where he laid out the broader purposes of the war).

But what bothers me the most about this story is not that a White House official is accused of lying to a grand jury - I am confident that the legal system will be able to sort out the issues there. Why in the world would a person like Wilson - with such obvious and unrelenting passion on one side be quoted as a reliable source?

Pension Nonsense

Roger Lowenstein wrote a book on the failure of Log Term Capital Management and a series of other books on economics related topics. A number of years ago he wrote a pretty good book on Warren Buffett. But in the NYT today he wrote an article that lacks a lot, called the End of Pensions, he argues (correctly) the the pension system is broken. He goes into great detail about the development of pension systems and their underlying assumptions. There are promises made but not promises kept. But there his comments veer off a bit. He describes the multiple moral hazards of a system that offers a guarantee in payout that is backed by insurance -

"In such situations, individuals are tempted to take more risk than is healthy for the group; economists, in a glum appraisal of human nature, call it "moral hazard." In effect, America's pension system has been a laboratory demonstration of moral hazard in which the insurance may end up bankrupting the system it was intended to save. Given that pension promises do not come due for years, it is hardly surprising that corporate executives and state legislators have found it easier to pay off unions with benefits tomorrow rather than with wages today. Since the benefits were insured, union leaders did not much care if the obligations proved excessive. During the previous decade especially, when it seemed that every pension promise could be fulfilled by a rising stock market, employers either recklessly overpromised or recklessly underprovided - or both - for the commitments they made."

He does a great description of the problems facing both corporate and government pensions - both rely on the hazards that he describes so well. But where I disagree with his analysis is in his assumptions about causes and solutions. Corporate and political leaders tended to use the Cole Porter theory of financing/politics - accentuate the positive and decentuate the negative. Thus, in both places where the guarantee was offered they promised more than they could deliver and relied on the future to correct their mistakes. But implicit in his discussion is an assumption that if you take away the guarantee that individuals will not be able to recognize their future risks. That is the explicit assumption of defined contribution plans - set reasonable limits for savings, allow the savings to accumulate tax free, and (*in the best plans) give the savers lots of information about alternatives so they can plan best for their future. The assumption that Lowenstein makes is that "people are imperfect savers" (although he also makes an implicit assumption about the errors/hazards in government and corporate defined benefit plans.

Ultimately, it should be possible to improve individual performance in savings. Defined benefit plans were made under the assumptions that the payout for a pensioner would be Hobbesian (mostly short but the rest of Hobbes seems to have been true - cruel and brutish) - if that assumption were ever true with all the extensions in life - the assumption is no longer true. What is the better policy - to try to fix the numerous hazards in defined benefit plans or to move as quickly as possible to defined contribution plans with some serious attempts to encourage the informational improvements that will increase the possibility of making individuals less imperfect savers? We shouldn't try to reform a system fraught with hazards - the better alternative would be to use the best alternative for today's times.