Sunday, October 30, 2005

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.

Forbes "Attack of the Blogs"

Daniel Lyons in the mid-November edition of Forbes has an article called Attack of the Blogs. I am not sure what he is trying to get at. He details, mostly business related, a set of blogs and blog tactics that have been used to discredit companies. In one case he talks about an anonymous blogger that went after a company with false allegations. OK, so something that Forbes claims is growing by 100,000 per day would certainly have some bad or irresponsible actors. But here is the rub. The blogger that Lyons focusses on is in court facing some pretty serious civil action. It did take a bit of detective work to hunt this seeming scumbag down but in the end the issue got before the courts. And no, the vehicle for the blog (in this case Yahoo or Google) were not willing to give the scum up.

Lyons does not give a fair or accurate portrayal of the blogosphere. Do blogs offer something between the daily diaries of a bunch of people and vicious hit sites? Of course. Why not cover the the whole story?

Saturday, October 29, 2005

Deep in the Heart of Taxes

As I was reading TaxProf Blog this morning (thanks again Professor Caron!) I saw a poll on "priorities that I thought was interesting. PEW takes these periodic soundings that may actually mean nothing but may also be accurate (how is that for a bold statement).

The results were as follows -

What ways would you favor to reduce the deficit? The respondents are given three ways - increase taxes, reduce military spending and reduce domestic spending. The last version of this was done in March. In the current survey just 26% of our fellow Americans would raise taxes (down from 31%), while 36% would reduce military spending (up just a tiny bit) and 47% would lower domestic spending (down from 54%). What that says to me is a) the American people are less convinced of our political leader's ability to make intelligent decisions but the largest fraction of voters would cut domestic spending first. What does that say about Pork Busters? How do you think Congress will respond? What do you think the American people would do if there were a serious discussion in Congress about spending reductions/tax increases? I think they might handle it a bit better than our politicians.

Friday, October 28, 2005

The Decline of Talk Radio (An exploration that many people might believe is redundant)

This evening I drove home and dialed around on the radio. A year ago I was a pretty regular listener of KFBK but on the 7-10 segment they put on a guy who has a large opinion of himself, his name is Mark Williams. But Williams is one of those guys who gives talk radio a bad name. Some might argue that is a redundant phrase, but when I have had a long day I enjoy seeing what somebody else has to say. In the mornings I listen to a mix that includes Laura Ingram (she is also a bit full of herself but also has some fun bits) and Air America - I wonder how long the pathetic Al Franken and his band of buddies will survive - it certainly is not something done for entertainment.

Since Williams became the regular host in the evening I avoid the station. I usually listen to other stations including a station that carries Dennis Prager at that time of night. Prager has some interesting guests. I disagree with a lot of what he has to say but I've found a number of interviews very interesting. So on the drive home I listen. But in the fall on Friday nights the station covers high school football (in the Spring and Summer they are the Rivercats station) and I am not into that. So by chance I went back to Williams.

I guess Williams gets part of his material from the John Doolittle playbook. Doolittle is a GOP powerhouse who is opposed to the redistricting measure - supposedly because he thinks it will lead to more GASP moderate GOP members. That is one of those political explanations that does not meet the scratch and sniff test. From Doolittle's first election (where he beat a long time democrat from Sacramento for a state senate seat) he has always tried to build his own advantage on redistricting. He worked with some fairly liberal democrat operatives to try to build an incumbent protection plan. He spends most of his time scheming how to make his political position stronger and how to build his organization but not a lot of time thinking about key issues of our day. At one point, when he was my congressman he had the audacity to send (at taxpayer expense) a newsletter that said he was trying to oppose the career politicans (as if someone who has made his entire career from politics is not one). Luckily, in the last redistricting we got moved out of his district and into one with someone who actually thinks a bit more broadly.

Williams got on to 77 and argued that it could well result in producing a panel to draw districts that includes only people that fit the most negative stereo types of GOP rath. (Think of the bogeymen that a rabid GOP partisan would think of) It was offensive from at least two views. First, the chances, when a random selection system is used of getting three people of the same type is virtually nil - are the no-nothings revived from the 1800s? But second, the more obvious response to the idiotic argument of Mr. Williams is to compare it to the present situation - could three of the worst kinds of retired judges (pick your poison) do a better less self interested job in drawing districts than the current system with the self interested players like Doolittle who always scheme to pick their voters? You bet.

Let's Check in a couple of weeks

The final PPIC poll in California has the following results for each of the big four propositions and Proposition 73. Here is the question and the current reading. Does not sound right to me - but let's see ---

“Proposition 74 is called the Public School Teachers Waiting Period for Permanent Status and Dismissal
Initiative... If the election were held today, would you vote yes or no on Proposition 74?”*
Proposition 74 (teacher tenure), 46% yes, 48% no

“Proposition 75 is called the Public Employee Union Dues, Restrictions on Political
Contributions, Employee Consent Requirement Initiative.... If the election were
held today would you vote yes or no on Proposition 75?”*
Proposition 75 (use of union dues), 46% yes, 46% no

“Proposition 76 is called the State Spending and School Funding Limits Initiative Constitutional
Amendment.... If the election were held today, would you vote yes or no on Proposition 76?”
Proposition 76 (spending and funding limits), 30% yes, 62% no

“Proposition 77 is called the Redistricting Initiative Constitutional Amendment...
If the election were held today, would you vote yes or no on Proposition 77?” *
Proposition 77 (redistricting), 36% yes, 50% no

“Proposition 73 is called the Waiting Period and Parental Notification before Termination
of Minor’s Pregnancy Initiative Constitutional Amendment.... If the elewere held today, would you vote yes or no on Proposition 73?”*
And for Proposition 73 (Parental notification) 42% yes, 48% no

Thursday, October 27, 2005

More on Peggy Noonan - Is it really that bleak?

As I have thought about the issues raised by Peggy Noonan in the previous post I am not sure I can agree with the full impact of the statement. Sure, some or even most elites have done what Noonan suggests. But there are some really important counter examples of elites that have taken their social responsibilities seriously. USC in the last decade has shown a continuous and deep commitment to the neighborhood where the University is located. They do thousands of hours of community service. They have adopted five local schools and are conscientiously working on improvements in those schools. They are doing all sorts of experiental learning bringing students into areas like tutoring or health and dental care to helping students think about building community institutions. And that example is replicated in a number of other colleges and universities as close as the Mount St. Mary's Doheny Campus, or a long list of others around the state.

The more important question raised about Noonan's commentary is OK - so the elites (or a significant subgroup) have given up in their normal role. So how do we change that situation? That should be the real question.

Peggy Noonan on Lack of Wheels on the Elite's Trolleys

In a column on the Opinion Journal of the WSJ, Peggy Noonan writes about the "separate peace" that seems to be extant among the elites. It is well worth the read. The lack of connectedness could be because of the rise of the principal agent problem or could be because we did not stress the social responsibility of elites or could be because of the moral hazards of Blackberrys/Cell Phones, or simply because the acceleration of alternatives has limited our ability to comprehend (because we can doesn't mean we should - or is it the other way around?). Her most telling point is

"Our elites, our educated and successful professionals, are the ones who are supposed to dig us out and lead us. I refer specifically to the elites of journalism and politics, the elites of the Hill and at Foggy Bottom and the agencies, the elites of our state capitals, the rich and accomplished and successful of Washington, and elsewhere. I have a nagging sense, and think I have accurately observed, that many of these people have made a separate peace. That they're living their lives and taking their pleasures and pursuing their agendas; that they're going forward each day with the knowledge, which they hold more securely and with greater reason than nonelites, that the wheels are off the trolley and the trolley's off the tracks, and with a conviction, a certainty, that there is nothing they can do about it."

Stefan Linder, in a very slim volume of a couple of decades ago, called the Poverty of the Leisure Class, wrote that society will evolve after we got the food problem solved, into a quest for detachment. When I read it I thought he was right. But the question may be a bit more elegant - the right level of leisure (detachment from the grind) or the right level of engagement may be the challenge of our age.

Noonan's entire piece is well worth reading and pondering, in between the cellphone and Blackberry maintenance.

Wednesday, October 26, 2005

Harriet Meirs and Disaster Relief

In the middle of the depression Washington instituted a law to restrict the hiring of Black workers that was ostensibly promoted to pay labor "prevailing wages" The law came about as one of the most troubling things to come out of the depression. Its major sponsor wanted to keep out "colored" workers who would depress the wages of union workers.

In the Northridge earthquake in California, Governor Wilson got things done because he suspended a series of these types of requirements so that repairs could take place. But not the Bush administration - they now want to reinstitute Davis Bacon (read union pork) for the Gulf Coast. I just do not get it. Does Bush believe in the market? Does Bush oppose quotas?

Shame on Judge Wapner - the People's Court no more

Before Judge Judy there was this white haired old guy on TV that started the People's Court where insigificant legal disputes could be resolved in front of this seemingly objective judge. If you ever thought that about Judge Wapner - abolish the thought. Yesterday he released a campaign ad against Proposition 77. The tag line was that by taking away the ability of elected officials to choose their own constituents (that is not exactly how the now Scum Judge phrased it) we would be taking away YOUR (the voters) ability to choose members.


Tuesday, October 25, 2005

Two more ballot issues - redistricting and paycheck protection

There are two very compelling issues on the ballot - 75 - which would prohibit public employee unions from collecting political contributions without express permission and 77 which would redraw the way we draw districts for the Assembly and the Senate and Congress.

75 is a lead pipe YES. We've discussed the principal agent problem of public employee unions in other spaces. Why in the world should public employee unions be able to finance this with involuntary "contributions"? The unions argue that corporations can distribute contributions without shareholder consent - and that is true. But the argument is silly. Were the unions to ask for the same requirement for all unions and corporations - it would probably pass. If the unions really represent their member's interests they will get all the dough they need. In the corporate issue - no stockholder is required,in California, to buy a company stock (as public employees are compelled to join a union). YES YES YES

77 would set up an absurd process to select three retired justices who have never held partisan office (assuming a judge is not a partisan office) to draw district boundaries for Assembly, Senate and Congressional districts. This is the blind pig theory of drawing districts - i.e. that a blind pig could do a better job than the legislature. In this case, however, dubious the proposition in other applications, this one is true. The outrageous power grabs that happen when elected officials choose their voters (as happened in 2000 and 1980) should simply no longer be tolerated. Were there a better way to do this I would consider it - but without a change we will continue to allow the politicos to choose us - that seems backwards. YES YES YES

Monday, October 24, 2005

Teacher Tenure

One of the ballot measures on November 8 would change the way California tenures teachers. It would extend the period from 2 - 5 years. At the same time it would allow a teacher during that period to be dismissed with two bad reviews.

The common perceptions about the public schools and their inability to be successful with children are filled with misinformation. For example, IMHO, the teacher training that is currently done in the state does a pretty good job of training teachers. Yet, there is constant chatter about how lousy schools of education are. By implication then the schools train lousy teachers. I am not sure where this urban myth got started but in my experience it is simply wrong. The teacher training programs in independent colleges, UC and CSU are on the whole pretty good. If they are so good why do we have a) turnover (compared to people in other professions) and b) so many lousy teachers?

A) The teaching profession is a strange one. First, as opposed to most other professions teachers are less autonomous. Second, while medicine involves a lot of study and then a long apprenticeship (intern and residency) teaching requires a relatively short education program (about a year) and apprenticeship (about a year). At the same time, there are numerous ways to get into the profession without going through the process. You can do a program based in a school district or simply enter on something approaching an emergency credential. How would you like it if your surgeon had been able to enter the profession on a similar whim? My guess is that the alternative programs have higher turnover and lesser quality. There is some reason, however, to have the ease of entry for at least some positions - you get a lot of young graduates who want to offer some kind of service for a couple of years before going on to something else professionally.

B) Why do we have so many lousy teachers? To the extent that we have lousy teachers it is in part because of the ease of entry (which the Governor's proposal would abate to some degree) and in part because of the absolute iron clad control of the unions. Want to make the profession better, decrease the uniformity in the system - allow a range of educational practices to be tried.

So what should one do about the Governor's proposal to extend teacher tenure? (Proposition 74)? The lengthening of the probationary period would make a marginally better system for the selection and retention of teachers - although again one wonders how tenure in other professions works - does anyone but judges have the equivalent of tenure? But more important would be to lessen the iron clad control of teacher unions (you can help to do that by eliminating public employee unions absolute control of dues for political purposes - Proposition 75) and by assuring that large monolithic school districts get divided and every student has a range of educational options (introduce market based choices).

The standard in any election should be vote no unless there is an overwhleming reason to vote yes. But on this one there is also the inclination to look at the marginal step. Without some greater effort at changing some of the other constraints - this does not seem compelling.

Political Pond Scum

In this election season, at least in California, you see silly claims every day. For example, a group claims that the proposed redistricting initiative would GASP allow the voters to have ultimate authority over who gets to sit in what seat and GASP their might be some GASP confusion. Or in that Mecca where politics never stops professional harpie Joan Claybrook released a report that the proposed changes in rules for overland truck drivers would result in GASP more accidents and then she cites a study (read political tract) as her source - which when you read the thing says nothing of the sort.

What bothers me about this situation (and indeed does not surprise me) is how these supposed stories are covered. The headlines on the Prop 77 story are "Prop 77 could create quirks" and the follow headline is "Prop 77 could be disruptive, foes say" - How about an alternative "Opponents of Proposition 77 try to throw up some kultursmog"? - the headline would make about as much sense. Proposition 77 would change the way things are done (probably mostly for the good). But do we really allow the opponents to again slyly claim that as Walter Cronkite suggested a couple of weeks ago we are too dumb to make decisions about our future?

At least in the Claybrook story (she serves one incompetent term as the head of consumer safety and then gets to preach to us for the rest of her life?) the attempt to manipulate is pointed out. Dan Walters, the long time political columnist for the Bee points out that Claybrook's claim that "Too many trucks on the highways are sweatshops on wheels," is really just a political attempt to oppose a regulation.

Sunday, October 23, 2005


Mason with his pumpkin, originally uploaded by drtaxsacto.

This is a photo of our grandson Mason - who is three. Today he carved his first pumpkin. My wife and I were upstairs and he called up to us and when we did not come down fast enough he came up excitedly and then brought us down to show his creation. He turned out the lights and was delighted to see his creation with all of its awesome properties.

This morning before I went to teach the final day of a class at USC he came into our bedroom and beckoned me to read him a story - one of his current favorites is called Seven Eggs. He can count well above that - although he does not recognize all his numbers. He also has begun to recognize the letters in his name, although N is still a bit of a stretch. I started to read him the book in Spanish and he would have none of it. When I finished I had to trade off with his dad or I would have been late to the class. What a wonderful age!

Is there a Republican Crackup?

In the last few weeks I have gotten a lot of email about the republican crackup - the signs are all there - the Meir nomination, the indictment of Delay, the standing of the President and the Governor, yada yada yada.

Well, if wishes were....

In a recent New Yorker article the following was argued trying to explain the success of the GOP over the last decade (the article goes on to say that the dems will succeed by "nationalizing the campaign") the writer said -

"Part of the movement’s success came from its ability to pursue common goals in spite of divisions—between pro-business libertarians and social conservatives, tax cutters and deficit hawks, intellectuals and evangelicals, millionaires and the white working class. But Bush’s philosophy of corporate conservatism—more Harding than Reagan; not anti-government, just anti-good-government, with a tone of authoritarian piety and legislation written by lobbyists—has shown that Republican unity was always based less on intellectual coherence than on a willingness to keep one’s mouth shut."

Well, I respectfully disagree. The risk that the dems have is their rigid ideological conformity. (Name me more than a couple of delegates to the Democrat convention who espouse anything but the party line on abortion rights or a raft of other issues). I think the risk that the GOP faces is that a number of people including the religious right have tried at various times to require ideological conformity. Look at Bill Kristol and the Governor - both have disagreements with the President yet both would support him on some key issues and feel free to disagree on others. Can you name that kind of diversity in the democrat ranks? It is hard to find that. I think the peril that the GOP faces is that we have some people who are demanding that kind of lockstep.

The second problem faced by the dems is their complete lack of ideas. The problem with nationalizing the campaign is they have to present their national ideas - they cannot run against - they need to run for and besides a series of ideas that most Americans reject (affirmative action, more spending, bizarre social beliefs) they have nothing. Were they to be able to get back to the Scoop Jackson premises - a strong defense with a coherent military and diplomatic policy and a moderate domestic agenda that was not bogged down with groups - they would kick the GOPs butt. But I am convinced that they do not have a clue about how to do that. Look at the Corzine race - where Forrester has begun to stop the notion of a coronation. Look at the race in Virginia - until the dems quit pimping for their constituents they will continue to lose.

But the GOP should not gloat about those perceived weaknesses in the opposition - there are indeed some very good democrats. The GOP has shown a marvelous propensity to concentrate on the idiotic - the more they look like a different kind of constituency party (to the religious right or whatever other group that makes them up) and less like a place where ideas are tolerated - then the voters may say - we think that the dems are the lesser of two evils - right now the out of the mainstream ideas of many dems have made many say they are the evil of two lessers.

Hugo Grotius and California Politics

Hugo Grotius was a 17th century philosopher (1583-1645) who helped develop the theory of natural law as well as the scribe who wrote one of the first books on international law. So how does he help us think about politics in California (and possibly on a larger stage)?

In De Jure belli ac pacis (1625) he wrote about the conditions of a bargain between two nations. He suggested that either everything was all right with the world (and so the agreement should stand) or things have changed (and so the agreement should be renegotiated). When you look at California politics the second condition seems to be present. There are at least two trends that would argue for that change. First, is the demographics of the state. During the last two decades of the 20th century we (Californians) imported more human beings than all of Europe. (Not entirely surprising since our economy is bigger than any of their countries) That leads to some interesting results - we are a very different place than when I grew up. We often trip over ourselves because of the range of backgrounds and languages that we have in the state - but the assumptions about how to make decisions and what decisions we should make may be altered by all those new people. Second trend is technology. Here California leads and follows. Over about the same time period as the first trend we have changed our economy so that computers, biotech, entertainment, foreign trade and professional services now are the ascendant parts of the economy. We have also changed how technology affects our lives. Admittedly a lot of countries or regions are ahead of us in some technologies - A good part of Asia is ahead of the entire US in broadband deployment. Other areas are ahead of us in deployment of newer cellular technologies (few other countries live with a couple of standards in place rather than one). And there are some omnious signs that the growth in new technologies are going to some other areas of the world.

But the deployment of communications technology - of blogs(of course first on the list), cell phones, text messaging, cable and the rapid deployment of biotech and nanotech -the possibilities here are vast - suggests that things are changing and will change more still. Ray Kurzweil, the gifted writer who brought us a series of interesting books on technology, has just published a weighty tome - Singularity - that argues that the speed at which technology has been deploying is in the process of changing basic conditions of life through the deployment of GNR (genetics, robotics and nanotech - this book has been reviewed elsewhere and is well worth reading and admittedly my summary is a gloss of the substance here).

So with all this good news, why are we stuck with grumpiness about our political system both in California and the US (I would also argue that the problem extends a lot of other places too - look at the election in Germany as but one example)? Some have argued like DeTocqueville did that in democratic systems we are unwilling as citizens to make the hard choices - we want all the goodies but do not want to pay for them. I think that is baloney.

More appropriately I think we come back to the kinds of choices that we are presented with. Our political system produces leaders whose incentive is to produce Cole Porter (or Amilcare Puviani - who wrote the Theory of Fiscal Illusion) like choices - Accentuate the positive, decentuate the negative (and recently don't look for Mister Inbetween). Politicians and their advisors ask us to make choices that they think will help them get reelected. They also assume a world that no longer is - while they use the new media - they seem to think that most people get their news from old media sources.

If we are empowered in the consumer marketplace, then at some point, we will no longer accept the old way of doing things in the political marketplace. That will lead to probably more substantive initiatives trying to define the constraints of the system (with a lot of gotcha ones thrown in by the politicians trying to make a point or a simple advantage). At the same time we will demand, as we have begun to demand in other areas, more real transparency in our leaders and in their decisions.

Friday, October 21, 2005

A twofer

Yesterday in the US Senate, the Pro Tem (Senator Ted "Porkbarrel" Stevens) suggested that if the absurd "Bridge to Nowhere" which for a mere couple of hundred million dollars will connect Ketchikan with an island of 50 people threatened he would resign from the Senate, or be carried out on a stretcher (the reports say both, if that piece of pork were excised from the docket of federal spending. Senator Tom Coburn(Oklahoma) pushed an amendment that is part of the Porkbusters effort. Unfortunately, only 15 of Coburn's colleagues supported the amendment. Seemed like a pretty good deal on both counts. Stevens has been in the Senate for 37 years and looks at federal spending as some kind of augmentation to his bank account. Don't you think with the price of oil these days that the good citizens of Alaska could find a way to fund this folly? By the way the bridge to nowhere will only cost the American taxpayer 32 times what we originally paid the Russians for all of the state.

Tuesday, October 18, 2005

Seven thoughts on the potential Associate Justice

I have not written about the Meirs nomination on my blog because I am genuinely uncertain about how it should come out. Here are seven propositions that suggest where I am on the issue:
1) All of the Eastern elites whining about the pedigree of her education is baloney. Academic pedigree and intellect are not the same thing. Clearly we want someone who can handle the nuances of law - but all that intellect still brought us the Kelo decision. In that case Stevens, J., Kennedy, Souter, Ginsburg, and Breyer (all Harvard) supported trashing the Constitution and , O'Connor, Rehnquist, Scalia Thomas.(some of the non-Harvard people) upheld property rights. In that case pedigree did not count for much. Of the current justices six did Harvard law and one each Yale and Northwestern - one might think that the court could benefit from a bit wider educational mix. There are two PBKs and two Rhodes Scholars in the group - which suggests the kind of company that needs to be kept.
2) Why has the administration claimed so loudly that she is there because she is a good "woman" - I thought this was an administration that was not committed to quotas.
3) I am bothered by her lack of judicial experience although impressed with her business law background. We have had some notable people who did not have prior judicial experience but some of those examples became some of the most political justices on record. On the other hand - some with limited experience have turned out to be great.
4) I am skeptical that a position as a White House Counsel should be a track to the Court - I did not like it when Fortas was nominated for a judicial position and believe that the role as the President's lawyer presents some fundamental conflicts that may not be able to be resolved (even with the assumption that she would recuse herself on matters of the Bush administration where she had a role). Fortas BTW was considered to be chief and dropped from consideration when scandals about "speaking" fees became public.
5) I am bothered by the sanctimony of most members of the Senate Judiciary Committee. The President should have the ability to nominate someone who conforms to his political views - the judgment on qualifications should be on the ability to perform the job not on either left or right litmus tests - but the current odd situation prevents a conservative from offering up someone with a trail that could be audited. Arlen Specter is an embarrassment. The standard that was applied on Breyer and Ginsberg should be followed on all nominees but unfortunately it will not be. If Schumer wants to nominate people for the court he should run for president.
6)I am worried about stealth nominees. Souter is an embarrassment. No one should want someone like him again. But the fractiousness of the current setting in the Senate makes that ever more possible. I think the Senate could sniff out a Bork (who I thought was unsuited for the court) without going to a stealth.
7) I am somewhat indifferent to the nominee's professional record in the Texas bar and other opportunities like "meals on wheels" - she may be a very good person but I am not sure what leadership in the profession or service in community organizations leads you that then qualifies you for the court. Ultimately, the best justices are ones who can think about complex problems and interpret the Constitution's guidelines. They are not legislators (or should not be).

Editorials can appear almost anywhere....

In an article in the Sacramento Bee this morning there was the following headline - Lungren raises double what Matsui pulls in. But then you read the story and you find out that Lungren indeed raised $123,000 in the last quarter compared to Matsui's $56,000. But Doris has $252,000 in the bank compared to Lungren's $204,000. The followup headline is even more curious - Doolittle to face a challenger in the primary - it turns out that a city councilman from Auburn has raised $9400 and loaned himself another $10,000 leaving him with $4400 in the bank. Doolittle has raised $66,000 during the same period and has $210,000 in the bank. But then there is the clincher - Mike Thompson - who represents part of the Bee's readership area has raised $150,000 during the period and has $857,000 in the bank.

Quick - without looking can you guess which party each of the people is from and whether in the Doolittle district whether the Bee is favorably disposed to the Congressman?

Hint - the Bee is almost religious in it devotion to candidates from the Democrat party.

Sunday, October 16, 2005

The Bus is Here

Yesterday afternoon we lost a friend to lupus. She'd had had it for a very long time. But even to the end she was in many ways an inspiration. Lupus is a cruel disease. It shows itself in many ways, it masks other diseases. But it can be unrelenting and it was with Suzie.

A couple of stories are key. They are in no particular order but taken together they explain why she was such a wonderful person. When Jerry and Suzie were married they came to Washington, D.C., where we were living, to spend their honeymoon. That was around Thanksgiving and so they came with us to my wife's uncle's farm. They still talk about the homesick girl who joined them one year. It was probably the first time Suzie had been that far away from home. I first met Jerry at UOP, he was a fraternity brother from Clovis, CA. He built a couple of businesses in his career from very small to very large. He is a wonderful promoter - of civic causes and business ventures. But after college he met this wonderful Serbian woman. As noted before her trip to D.C. she probably had not been out of Fresno County. But that did not limit her view of the world. She had a good sense of value in people.

Right before they were married I went back into the White House. Something everyone does when they get there is call their buddies using the White House operators. You can ask them to call a person in a city and they will search until they find them even with the most general of instructions. I had them run down Jerry - probably at 4 AM Califronia time. Evidently when they got through to him he rejected their entreaties the first couple of times - when I finally got him on the phone he asked me what I was calling about and I said in the Seinfeldesque response "nothing."

Jerry and I were fraternity brothers. Whenever we would get together part of the discussion was about our exploits. Suzie would wonder whether Jerry could ever have done "that" - indeed he did(or we did!). They built a first house in Fresno using some historic sugar pine logs. Then they moved to a larger place in Sanger - with a lake. It was a beautiful site. Suzie kept her family close - so her dad, after he retired, set up a shop in their garage.

A day before our daughter was born, Jerry and Suzie came for a visit in Sacramento, we had a long tradition of arriving and saying at our arrival, "the Bus is here." It was a standing family joke. So they showed up, and Suzie looked at my wife who was then 9 months pregnant and started to laugh. She said "I never thought I would see you like this! " At the dinner we had a few too many strawberry daquiris - for a couple of years after that we brought her strawberries.

Suzie's parents were also wonderful - big hearted, generous. It was impossible to visit their house without getting fed or something to drink, if you were there for more than a couple of hours the cycle would be repeated. Suzie carried on that tradition. Even when she was feeling lousy - which was a good part of the last 20 years at least, she would rally and cook a meal or make sure that we felt welcome. We always did.

We vacationed a couple of times with them and Suzie's parents. On one trip to Yosemite we stayed in tent cabins and did all the tourist things in the park. Suzie's mom and dad (who was a farmer and cement contractor) seemed to always find someone they knew. On that trip we also found a couple of small Sierra pine sprouts. Suzie's mother took the sprouts home. On our next visit down to Fresno we found they had taken the sprout to a small seedling. Suzie's mom gave the seedling to our son Peter. When we built our new house in Fair Oaks, we planted that seedling. The next picture on the blog is how that seedling looks today.

For several years we spent New Years with their family. The tradition was that one person would dress up as baby new years. The year I got the task I put on a striking red speedo. It was quite a sight.

Jerry has a tremendously optimistic constitution and Suzie had the same. When she learned she had the disease- which manifests itself in so many curious ways - she began to promote fund raising to fund research. They did a series of fund raisers in town and around the state. She went through some horrible times with all sorts of invasive medical procedures but I never heard her complain. The last time we visited, she had to be rushed to the Stanford medical center, we busied ourselves for the day - including making a CD of photos of their two Great Danes. Suzie came back from a day at the hospital and her first question was had we had lunch.

Before they moved to the coast both sons got married - Suzie rallied for each of the weddings - which were held at their house in Sanger. (A rural suburb of Fresno) They were wonderful affairs. Generous, not over stated and lots of fun. One son started his own business near us and has made it a success. The other started a karate school in Fresno.

Even as Suzie's disease progressed they got to travel a bit to lots of places. But the threat of an incident was always present. But it never got her down - she could be tired or wiped out - but I never heard her complain.

A couple of years ago Jerry retired from the business he had built from scratch and they moved from Fresno County to a place near the ocean - Suzie could not stand the summer heat. When he retired he sent me a note that annoyed me (as only a good friend can do) attached to the press release announcing his transition was a hand scrawled not "I beat you!" They moved to a beautiful house on the Pacific and made it better by cutting down some trees that blocked the view and then to a second one with an even better view. Jerry could not resist building some more things. He helped to start a wondeful community oriented bank in Fresno County - that will continue to help build the business community there. He helped to bring the Giants Triple A affiliate to Fresno. He began service on a couple corporate boards providing his expertise to help some family owned firms to work out the inevitable problems that family owned firms always have. Ironically, I was in Mexico this week speaking at a conference whose primary focus was corporate governance and we spent a lot of time discussing the challenges of family owned businesses - I had made a note in my mind to figure out how to get Jerry into their orbit - he would provide some wonderful expertise. The university I was at is beginning a center on family businesses and he could help them think out what issues are most important. I am sorry we did not see more of them in recent years. We had a great visit there a bit over a year ago. We had talked about going back down this summer and then got bogged down in the routines of life. That is something none of us should do.

Suzie's Tree

Suzie's Tree, originally uploaded by drtaxsacto.

This is a picture of Suzie's tree that grew from a seedling. See the next story - The bus is here - for an explanation.

Trojans in the Pit

One of the oldest rivalries in college football is the one between Notre Dame and USC. There is a joke among Trojans (and probably the Irish) that your second favorite team in college football is who ever is playing the Irish. But playing in South Bend is extra special. On Friday night they produced more than 45,000 fans for their pep rally. The field is designed to intimidate opponents - there is no space between the fans and the field and the sides are high - so the noise can be intense. This year the Irish didn't cut the grass which slows down the run. All of their tactics in the pit are to move the advantage to the Irish side. Yesterday the whole game was more intense than I have ever heard it.

As a USC alum (Doctorate there) I have watched lots of games for the last twenty five years in this rivalry with great interest. We were there when USC broke the streak of losing to ND in the early 1990s. That was a good game. One also says that in a USC season the coach is made or broken on one game (possibly 2 - UCLA).

This year is special for any Trojan - we have won two national championships in football in a row. (Although at some point I will argue that the whole system of national championships is absurd). So everyone is gunning for the Trojans. We've got a coach who has a genuine gift for coaching college kids - when you go by the training field in the fall on campus late in the evening you can see him working on individual skills with players well after practice. We''ve got an array of offensive (Bush, White, Leinart) and defensive weapons (Jarrett, Rucker and a few more and a couple who have been sidelined) that are pretty impressive. We've got a QB who decided to stay in school and finish his degree just to come back for this year (in most of the football powers of the south he would have been in the NFL - that is another story - most of the powerhouses of the south don't bother to care about graduating their "student" athletes.)

As a Trojan fan you are used to second half finishes. The Trojans (or more correctly Matt Leinart) won the game in the last 3 seconds by a mere 3 points. It was the last play of the game and we were at the goal line. We could have tried for the field goal to tie it and go into overtime. But that is not the way the Trojans play. According to at least one news report, Leinart and Reggie Bush talked it over - Matt was supposed to spike the ball to stop the clock and give them a bit more time (although according to press reports Coach Pete gave him the choice)- but Matt and Reggie decided to go for it.

SC has a lot riding on this season. They have a long (one game longer now) winning streak. They have a good shot at a third national title. So the win was extra special.

The picture is of my son and his son and me at the Stanford game last year. Last January Pete and I also went to the Orange Bowl and had a great time. Our hotel was Soonerville and the night before the Sooners were quite boastful. Pete and I went into the bar and heard a lot of trashtalk about how powerful the Sooners were. (I kept wanting to make the pun about the laters - but that is another story). The morning after the game there were two changes in the hotel - the Sooner fans were very quiet and the only jerseys and sweat shirts were Burgundy and Gold. That was quite an experience. But so was this game.

One other odd thing about yesterday. We had to leave the game at halftime (we were watching it on TV) to go to a memorial service for a good friend. It was a warm reflection on a guy who made a tremendous contribution to making college possible for millions of students by developing and growing a scholarship program for the State of California. In the background and inside the house, because one of his son in laws is a Trojan, was a TV. The service ended with about 7 minutes left in the game. We sat by the window, about a half dozen of us of varying ages like children outside a toy shop. At 5 minutes one of us said, lets go in and watch the last 5. We evidently made a bit of noise so that in the last two minutes the crowd had doubled. Those last two minutes were some of the most exciting I have ever seen in college football.

There are still a couple of tough games ahead including UCLA and Cal. And there are several games where our rival will simply be pumped up to knock off our streak (28) games or our hope for the chance at the third title. But yesterday was worth savoring.

Saturday, October 15, 2005

The Iraqui Referendum on the Constitution

I've read lots of commentary about the election on the proposed constitution.

Here are exerpts from three coverages -

the New York Times -

The mood on the streets of many Iraqi cities, even in Shiite areas, appeared markedly less enthusiastic than they were on Jan. 30, when millions of Iraqis braved an onslaught of violence to cast ballots and celebrate in a vast outpouring of pro-democratic sentiment. On Saturday, streets were noticeably sparse of pedestrians, polling centers were less busy, and voters exhibited little overt enthusiasm. "I sense that the turnout will be lower this time," said Zainab Kudir, the chief poll worker at the Marjayoun Primary School in a predominantly Shiite neighborhood in Baghdad. "People feel their needs have not been met. There is no security. There are no jobs."

Local comment - News filing from a local translated into English -

Iraq vote turnout may exceed 10 million. Turnout in Iraq's constitutional referendum may have reached 10 million voters, or nearly two thirds of those registered, a member of Iraq's Electoral Commission said after polls closed. "I think it could be more than 10 million, I think, I hope," Farid Ayar, one of seven commissioners on the Electoral Commission, said on Saturday. "I was thinking that maybe we could get around 11 million voters. But Iraqis are getting more used to going and voting now, so perhaps it was a little bit quieter ... and it was Ramadan," he said, referring to the Muslim fasting month. If 10 million of the eligible 15.5 million voters cast ballots, that would give a turnout of around 65%, higher than the 58% recorded in January's election, the first held after Saddam Hussein's overthrow.


Voting was quiet, calm, and steady at the polling station we visited just south of Basra. There was not the excitement of January's election, but there was still an atmosphere of celebration among Iraq's Shias as they waited to vote. One man said with a big grin that he was very happy to be able to take part in the referendum - only the second time in decades that Iraqis have been able to cast a democratic ballot.

Which one is correct or accurate - the clear trend seems to be the middle one - more people voting - not the exuberance of January but more people exercising their franchise. Some differences between the Sunni and Shia areas. One wonders why the NYT would be so negative. Actually, one does not wonder. My real wonder is why anyone would look at their coverage for anything more than what it is - an apologia for a point of view rather than reportage.

Friday, October 14, 2005

A really fun site on Internet Hoaxes

I was roaming the Internet this afternoon and found a site which lists a number of hoaxes including a terrific list of hoax sites on the internet.

You can find the site, which includes things like the Nigerian Email Conference, Baby Smasher (using a changing table in restrooms for getting rid of unwanted babies) at Internet Hoaxes

Adventures in Mergers

As regular readers of this blog understand I am not a big fan of most mergers. The HP-Compaq deal is an example of the kind of idiocy that agents take outside of the interests of shareholders and even employees. But in today's LA Times there is a story about a new venture by another greed bug - this time former Time Warner CEO Gerald Levin. Levin and Steve Case cooked up a deal to merge Time Warner - the legacy media company, with AOL - the then flailing giant of new media. It was not as silly a deal as the HP-Compaq deal - although most postmortems suggested that Levin and Case convinced the markets, albeit temporarily of the tremendous synergies and goodwill inherent in the combination.

But it turns out that after Levin got booted, he and a partner started a clinic called Moonview Sanctuary, a place to fleece other folks who have too much money (the fee is a cool $175K annually) or too little brains. Levin is a "spiritual advisor" with such words of wisdom as "You feel blissful. A lot of people would cry but not out of sadness......" There is 12 step and eye movement desensitization and art therapy and a raft of other real and imagined therapies. The place sounds like one of the many places in California that give us the reputation of being the Granola state. Wouldn't it serve Levin's conscience just to give back some of the booty that his grandiose plans and schemes back to the shareholders who got screwed in the process of merger.

Thursday, October 13, 2005

Was Schumpeter Wrong?

One of the classic arguments in economics is Austrian economist Joseph Schumpeter's discussion of "creative destruction" which suggested that as new technologies come on line they destroy the old order. But a paper I just found on the internet by Amar Bhidé suggests that Schumpeter did not get it right. A good deal of innovation in society comes from products and services which do not replace existing products or services. Amar Bidhé, in a paper written in 2004 (then published in a book later that year),does a good analysis of why Schumpeter's arguments may be a bit outdated. He suggests that many new technologies are actually additive. While, for example, mainframe purchases are a smaller percentage of a larger market, they are still an important part of the total computer market. It is an interesting twist to an old argument

Do Agents Screw Up the Works?

There is a line of discussion in the economics literature on principal agents. Fundamentally they are people who work in a particular are and influence how things come out - often in unexpected and negative ways.

Think about these three examples -

1) In the last few years or maybe a decade the role of managers has changed in corporate affairs - they have successfully exploited the value of corporations to themselves at the expense of shareholders. Many boards go right along with the shift. Why in the world should Carly Fiorina be due anything for her work with HP beyond her salary - yet in the last year she got not only a bonus but also paid to leave. Don't limit it to Carly (*a favorite topic here) but think about the yahoos at Worldcom, Enron, Adelphia.
2) Politicians once thought for themselves but agents or advisors have taken up the role of running the system - so for many major political figures there is a person behind the Carville or Rove - the problem is that some of these advisors help raise campaign contributions and then give the politician only about half of what they raise back and take the rest as fees. Doesn't that influence the ferocity and duration of political issues and the diminished liklihood of trying to come to the center? The problem is exacerbated by the way we draw district lines so that even though we raise money in tons we still have safe districts.
3) The public employee unions have invaded the political system to negotiate with politicians after giving them loads of bucks. Thus we are left with relatively rich pension systems and other work constraints. Even less responsive than corporate negotiations - the real responsibility is somewhere lost in the "negotiations" the workers negotiate with officials who a) have little or no responsibility to pay the bill for their decisions and are probably going to be gone by the time the bill comes through.

In the next to the last book that Mancur Olson did he talked about the problem of increasing negotiations in the systems we all work with and the transaction costs therein - but in my mind - that problem is deteriorated by the types of agents working in behalf of someone but getting someone else to pay the bill. Wonder how we could reduce those problems?

Friday, October 07, 2005

Revealed Wisdom

A friend sent me the following today - I liked it

"Don't worry about the world coming to an end today. It's already tomorrow in Australia." (Charles Schultz)

Thursday, October 06, 2005

Walter Cronkite Shows he is Stuck on Stupid

, originally uploaded by drtaxsacto.

I don't normally watch Larry King - lord knows there is little reason to do that. But last night his guest showed the arrogance that has led his former network and its media pals to irrelevence. The former voice of CBS news commented that we (Americans) were too stupid to elect our president and other officials.

As I thought about his comments, I wondered whether this was a recent infliction or whether it had been with us for more than five years. I thought about the picture, widely published at the time by the Washington Post and other news media, of him floating off Martha's Vineyard with then president Clinton. I also wondered whether Cronkite is really that dumb or whether he just thought nobody ever listens to Larry King. The formerly mainstream media has operated on an assumption that they can tell us reality and that we will buy it. Walter, if you have not looked recently we are not buying that anymore.

Wednesday, October 05, 2005

Discoveries in Mexico

One of the questions I have had in the time I have been working in Mexico has been the absence of two amenities that are common in many American hotels of similar quality. I have yet to find a place with an alarm clock or a connection to the internet that was easily available. I stayed at a place called the Araiza in Mexicali. It had both. That was much appreciated.

Tuesday, October 04, 2005

Renewing old friends

A bit more than a decade ago I began to work in Mexico - it came about because I received a folder from my predecessor that included a business card with an email address on it. The card was from the then president of CETYS - a private university in Baja California. Move forward to today and I met with the current rector and his current staff - to talk about possible areas of collaboration. We had a good discussion. Were CETYS in California - just a couple of miles away - it would surely be a part of my association. It looks and feels like a good place that cares about students.

The rector taught me an equation - E= I*F. Education is the product of information (all the things you learn - the facts) times formation (all the things that should happen in the best places of education - the clubs, the values, the sports, etc). Have E without both parts and you get something considerably less useful. I like the clarity of that thought.

Monday, October 03, 2005

More on Google and Embracing the Free

There are a series of stories in this morning's news that would not normally tie together. For example - Digital music sales have tripled (to $790 million for the first half of the year - WSJ) or Google's plans to offer free WIFI in San Francisco (WSJ again) or The European Commission plans to digitize Europe's audio and visual memory (CNET news).

Each of these are a part of a much larger story which involves two story lines. First, the distribution networks that we have relied on in the recent past have changed. Digital music is now easier for consumers than CDs - just as we saw two decades ago when vinyl was passe - there are new ways to buy music and people have accepted them with vigor. The music industry clings to the notion that they continue to control the industry in the way they have previously. They're wrong. If they screw up the pricing system which iTunes has imposed on the market - one simple price - they will ultimately understand how precarious their position is. Google understands that free WIFI is not actually free. Phone and cable companies can try to resist the new system with old regulatory schemes. Again, they will either innovate or lose out. For all of the other problems with the European Union - someone there seems to get the power of digital archives. Second, with the change in the distribution networks also comes a change in pricing - ultimately, just as we learned with movies to videos to netflix to whatever - there is more money to be made in the new systems - but the old line providers may not be adroit enough to be able to maintain their positions. In the end, sometimes new systems start with the free - but ultimately, if there is value in an economic chain pricing will follow - it may not be the way the old folks did it - but it will come.

The Google Library Project

The Wall Street Journal weighed in this morning on the Google project to digitize several university libraries. As Google has proposed it they would digitize the contents of libraries like Stanford, Oxford and Harvard. These digital books would be available and searchable on the internet. However, if the work is still under copyright, only limited portions of the work would be available to researchers. The Google project also would allow authors to "opt out" if they did not want their works included while still under copyright. But as it should, it clearly puts the bias toward fair use and then to disclosure into the public domain when the copyright expires.

The WSJ came down against the project under the rationale that "thou shalt not steal" - contrasting that with Google's own mantra "Don't be evil." In this case the WSJ is simply wrong. Copyright laws in the US, especially since the adoption of the Digital Millennium Copyright Act, have been lopsided against reasonable fair use. Google's project will help to protect library materials and widen their use. For those works that are under copyright, there could well be increased visibiity, simply because of the materials being included in this database. During the period of the copyright the author would be protected and probably would also be made slightly more visible.

This area is often referred to as "intellectual property" and that is a handy shorthand. But the analogy is not complete. Property here is created for public consumption - first in a pecuniary sense and then ultimately to be offered to the public for its use. When this idea was being debated Madison and Jefferson argued whether such limits would encourage enough people to produce works - there was a lot of discussion about how much incentive would be necessary. Authors and other producers of this "property" should be fairly compensated but not to the expense of public debate and discussion.

The original purposes of the copyright laws were to increase public availability - ultimately materials that were copyrighted were to be put into the public domain but current law extends that period beyond any reasonable standard. In addition, recent adjustments to the law have continued to extend those guarantees each time a copyright runs out. Thus, works that were originally copyrighted for a limited period in the 1920s have had their grants of exclusivity extended beyond anything contemplated when the work was first done. That is unreasonable and short sighted.

Google's project is a good idea. The WSJ is simply shortsighted on this issue.