Wednesday, April 29, 2009

More on Senator Specter (O-PA)

From the Hill Newspaper on March 17 (this year) - the newest member of the Opportunist Party made a pretty definitive statement- " (The Democrats) are trying very hard for the 60th vote. Got to give them credit for trying. But the answer is no.

I'm not going to discuss private talks I had with other people who may or may not be considered influential. But since those three people are in the public domain, I think it is appropriative to respond to those questions.

I am staying a Republican because I think I have an important role, a more important role, to play there. The United States very desperately needs a two-party system. That's the basis of politics in America. I'm afraid we are becoming a one-party system, with Republicans becoming just a regional party with so little representation of the northeast or in the middle atlantic. I think as a governmental matter, it is very important to have a check and balance. That's a very important principle in the operation of our government. In the constitution on Separation of powers." That was then.

In a then in 2001 he took a quite different stance in relation to the change made by Senator Jeffords from Vermont - "If somebody wants to change parties, they can do that. But that kind of instability is not good for governance of the country and the Senate."

When Jeffords made the switch, it had the effect of changing control of the Senate. And at the time Specter proposed a rule change which would punish such switches. In this case the change does not make a change in the leadership of the Senate.

Tuesday, April 28, 2009

Arlen Specter - Good Riddance

Arlen Specter announced today that he is no longer a republican. Specter in his statement said "Last year, more than 200,000 Republicans in Pennsylvania changed their registration to become Democrats. I now find my political philosophy more in line with Democrats than Republicans." Gee that is a surprise.

I say good riddance. Matt Yglesias called Specter a "flippity floppity opportunist" I think he is just more of a unapologetic pandering low life bottom feeder who deserves to be defeated next year when he runs for re-election. He would probably have lost the primary he faces. If the democrats are smart they will reject him.

But there is one other caution here. The GOP, or at least what most people think of the GOP is an increasingly irrelevant party. Real fiscal conservatives were aghast at the flamboyant way W threw money (other people's money) around. Real libertarians were annoyed at W's intrusions into our lives. People who are interested in have a conservative option were bothered that the GOP standard bearer last year showed little ability to debate ideas - something that Reagan showed a propensity for. So goodbye Mr. Specter, and good riddance.

Monday, April 27, 2009

Churchill would understand this... Proposition 1A

Churchill once said "democracy is the worst of all governmental systems, until you consider all of the other alternatives." That is about the way I feel about 1A. In both sales taxes and income taxes California's taxes are already among the highest in the country. If you vote for this initiative it will continue those rates for a couple of extra years. The rainy day fund in the proposal is complicated and criticized as being ineffectual.

But the alternative - which both the Democrats and the Republicans supported is even less likable. Part of the budget mess in Sacramento is based on the general economic decline in the country. We need some time to think about alternatives for the long term. Part of that should come from the Tax Commission (created by the Speaker and the Governor and populated with some pretty good people) who I hope will take their job seriously - not looking for the narrow political fix but for some ideas about how the state should raise revenue that are less injurious of capital than the existing system (which has wild fluctuations based on how options and capital gains are going). I believe both political parties acted irresponsibly - the democrats because they reject any restrictions on spending and the republicans because they reject any change in taxes. Both are wrong.

If 1A is not adopted it is likely that the legislature (11% approval) and the Governor (slightly over 30% approval) will go into another self reinforcing set of feedback loops without addressing the issues that all Californians would like our elected leaders to deal with. If it does beat the odds, the politicians will have the opportunity for a very slight amount of breathing room to be able to begin to think about the long term. Thomas P.M. Barnett in his wonderful book Great Powers: America and the World After Bush makes the argument that some generations are better at entrepreneurship and others better at the machinations of government. The boomer's generation of politicians have pretty conclusively demonstrated that they were more adept at entrepreneurial pursuits. That is not an entirely thrilling conclusion for a boomer who has spent a good deal of his career working around politics but looking at both boomer presidents - it is not a hard conclusion to draw.

One wonders whether the voters are inclined to give the political establishment a bit of slack on this set of proposals. The most recent Survey USA poll suggests not. But the solution most imperfectly crafted gives a faint glimmer of hope that if they do we might bring the political process back from the way it's been to the way it should be.

A Thing of Beauty

Saturday was opening day for Trout season in California. We went up to the Little Truckee. We went to some wild water - which requires a bit of a hike. But the payoff is well worth it. Fewer fishermen. And wild trout. We had a very nice morning. Wild trout are supposed to be more vibrant in their coloration than planted ones. The picture of my second catch of the day is a good example of that type of extra beauty. The first fish of the day was a 21" rainbow with a very distinct red color on its sides. Unfortunately that photo got the fish in a partial shadow so you could not see the fish as well. My third fish for the day was a brown of about 19".

For those who are interested in this type of stuff - the fish was caught with a 20 Blue Nelson and a rigging that had a pivot ring between the leader and the tippit. That is something that I had not done before and it seems to the fly to the fish a bit better. We used an indicator and a couple of different kinds of upper flies.

Sunday, April 26, 2009

Almost 8 Hours, 22 innings, 2 runs, 2 ejections = two great games

For the last two days the Rivercats have had two games against the Blue Jays affiliate, the Las Vegas 51s. Today's game went a full 13 innings. I had to look up what the longest game in history was - 33 innings - Triple A - International League (1981 - Pawtucket Red Sox and Rochester Red Wings - 33 innings). Today's game went almost four hours, and last nights just a touch under. In both games the Cats won at the end of the game - by one run each (two total). We left 13 men on base including a lot in scoring position. Today they out hit us (6-9) but we were more effective in getting our guys across the plate. Last night we out hit them 14-11. Thus, over both days we had a total of 20 hits - so did they. In the end today Munson's sacrifice fly allowed us to score in the bottom of the 13th to end the game.

There is a lot of season left and we clearly need to work on our offense. But our fielding is better than last year. One other footnote. Last night the 51s manager was ejected - it was one of those situations where the manager went out to beef the first base umpire - but he continued to talk until he got thrown out. Today a 51 got ejected because he beefed the home plate umpire. It was clear he struck out. The batter (Ruiz) thought he had not struck out. WRONG! He complained and the home plate guy threw him out.

Saturday, April 25, 2009

Exciting at Any Time

The Final Scoreboard
Originally uploaded by drtaxsacto
We had an old friend from DC days with us tonight at the Rivercats game where they welcomed the Las Vegas 51s - the Blue Jays affiliate (no longer Dodgers). This was one of those games where we kept coming back. In the seventh inning we were down 6-4 only to bring it back in the bottom of the 7th. Then they came back in the 8th with two to tie and we followed up with one in the bottom of the 8th. Cameron was then able to hold on in the ninth - but not without some drama. With the game the Cats are back to one over .500

Friday, April 24, 2009

There's an AP for that

Apple announced this morning that the 1 billionth application (1,000,000,000) application was downloaded from the AP store on iTunes this morning. My mix of aps for my iPhone includes about a dozen games but a lot of very useful innovations including two which help me remember where I parked.

The ubiquity of the iPhone seems to build on itself. As more people are using the phone - more APs seem to appear. I re-check the AP store a couple of times a month to see if there is something new. The Update feature also allows me to get all the changes in the APs I own. There have been a few APs that I thought I would use and have discarded but that is the exception not the rule - initially thin APs become more useful as they are upgraded.

Over the last nine months I have noticed three things about the AP store. First, there are tons of free upgrades. So a semi-useful application becomes more useful after its initial release. The development time between versions is a lot quicker than for a normal application for a computer. Second, the inherent social nature of the phone seems to be an increasing part of all applications - so more and more are using locational and social networking technologies to improve the application. Third, the news features of APs are increasingly useful. I use both Bloomberg and the WSJ applications a lot. When I am in a hearing that is boring I will use the time to review both applications and catch up on news.

Thursday, April 23, 2009

Smart New Math

A friend on Facebook put me on to New Math a site which has an interesting way of presenting ideas. I particularly liked his treatment of taxes but there are lots of other equations - want to find out how the Easter Bunny relates to Santa Claus, or what the formula for laughter is - this is the site. He produces a new one each Monday. But there is a warning - Craig Damrauer, the mind behind the site, has produced a lot of very interesting equations. If you go to the site you will not be able to visit for just one.

Wednesday, April 22, 2009

Strategies for the Special

The ad campaigns are beginning to come out for the Special Election in California on May 19. A friend who is a distinguished political consultant and also a supporter child abuse prevention posted on the new ad on Proposition 1-D. He called the ad "devastatingly effective."

At the same time the supporters of the propositions have posted a combined ad that recommends voting for all six measures as a group and in 30 seconds makes a case that they are a package. In normal times that strategy might work. It may not this time. If opponents of the diversion strategy can create doubt on one of the measures then it is likely that they might be able to turn the tide. And if one begins to fall, they all will begin to crumble. (Except 1-F).

But there is a case to be made that the stick together strategy could also work. 1-F is clearly popular. The case made for the rest of them suggests that they will help to fund schools and set a spending limit that the "politicians can't violate." If that message gets through then the individual issues, like 1-D will be lost in the noise. It is still unclear how grumpy the voters are and that could determine the future of all of these issues.

Sunday, April 19, 2009


My older grandson and I went on a hike today. It was loads of fun. I have been talking up climbing Mt. Lassen with him in the summer. When I was a bit older than he is now I went up it with my family and got a great sense of accomplishment. So today we wanted to try out hiking. We went near our house for about 90 minutes. My grandson did fabulously. Before we went we got something to drink and some Gourmet Cookies. (Essential for a hike)

He decided he wanted to take along all of the following - a still camera, a video camera, a journal and the food and drink. I had three different routes - a long and a short and an in between. In the end he chose a route that I had not thought of - about 4 or 5 miles with a couple of big hills. We stopped along the way to allow him to write in his journal, to drink some Gatorade and eat some cookies. We had planned to call my wife and have her pick us up - but when we got back up to the top of the hill we decided to walk back to the house (stopping of course to play on the swings and also to look at the Vernal Pools). Because we got some late rain this year, the Pools are especially wonderful this year. They are a natural condition in areas where the soil has a high clay content. The Spring rains accumulate in hollows and then as the water dries - wild flowers appear.

We had a good time this afternoon. I normally hike a lot faster - but he helped me to slow down and enjoy the day.

Saturday, April 18, 2009

Jonathan Chait and the Economist yammer

In a recent edition of the Saturday Review Jonathan Chait did a long and quite unfair review of Amity Schlaes excellent history of the Great Depression. He tries to argue that Shlaes is sloppy in her scholarship and makes conclusions that most of the economics profession disagrees with. The Economist took a similar tack in their recent edition. The question about whether there is full consensus about the causes of the Great Depression and the efficacy of FDRs policies. In a 1995 article in the Journal of Economic History the following conclusion was offered -

"On top of the profession's lack of agreement about the genesis of the Great Depression, there is a disagreement about the effect of the New Deal. In fact, the economists in the sample are almost evenly divided on the question of whether or not when taken "as a whole, government policies of the New Deal served to lengthen and deepen the Great Depression."

Schlaes seems to be pretty much in the mainstream of a very healthy debate. One wonders why Chait and the Economist are so twitterpated about Schlaes book.

Lardos and United

On the 16th United instituted a new policy for obese flyers with three options. First, if the flight is not full - the gate people will try to find a place on the plane with two adjacent seats. Second, if it is full the portly flyer will have to upgrade to First or Business - with wider seats. If that does not work they will get bumped.

CNN carried a story where some of the commentary talked about "civil rights" and "discrimination."

Well as someone who flies on United a lot (a 1K Flyer) I say HURRAH! This is not an issue of rights or discrimination it is a matter of comfort for less portly flyers.

Tom Dillon

Thomas Aquinas College is a place with a mission. It is one of a few colleges in the country that works from a great books curriculum. It is a conservative place. It is Catholic and follows doctrine with a lot more fidelity than some of its sister institutions that also claim a Catholic heritage or inspiration. A lot of its graduates go into the priesthood. Others go on to graduate school. It is set in Santa Paula, California.

For most of its history, and for the last 18 years its president was a soft spoken and thoughtful guy named Tom Dillon. Tom personally kept the place afloat for a good portion of its history. He spent a good deal of his life on the road raising money for this place with a very distinctive vision. Six weeks ago the college dedicated its chapel. At the fall convocation for the event Tom commented “This community of learning, which is a community of friends dedicated to the fostering of intellectual virtue, is an ideal place in which to cultivate your sense of wonder and to strive for wisdom. Let us, then, begin this 38th year of Thomas Aquinas College with the determination that it will be the best yet in our history.”

This is a college whose curriculum is set carefully. It is also a place of intellectual intensity.

I worked with Tom on a couple of projects. He was an inspiration. He believed in civil debate. But that did not mean he was willing to compromise his beliefs. We worked to get them eligible for the state grant program and also in a series of controversies relating to the regional accrediting agency, which needed to widen its definition of academic freedom a bit. Tom and this little institution was never politically correct. But it was always respectful of those to the left of it who chose a different path.

Tom was killed in an auto accident while attending a meeting in Ireland of colleges based on Aquinas' teachings. He will be missed.

Transitions in Higher Education

Last fall when a group of college presidents convened for their annual meeting there was a pervasive sense of angst among them. The downturn in the economy was just setting in. All of them talked about freezes and budget adjustments. Some were worried about the Fall 2009 class. That feeling has accelerated a bit this spring. But as I have talked to people on campuses there have been some decidedly mixed signals. Applications to many places are up substantially. But enrollment commitments are slightly down for this time of the year. Many places are still in the worried mode. At the same time the federal stimulus package has (and will) pump lots of new student aid and research dollars into institutions. The losses in endowments, which seem to have affected the most affluent in more severely will take a couple of years to work through budgets. It is a strange time.

Thursday, April 16, 2009

A picture worth repeating

As I have noted previously I am not a fan of the proposals of the Center for Budget and Policy Priorities but they do some pretty interesting data. The example at the left (which is from CBO data) is a good example. But it needs some translation. #1 - In recent years we've spent more on Defense - in part because of the war in Iraq and in part because of the the Department of Homeland Security. #2 - Interest on the National Debt - by any calculation will begin to crowd out other areas of the budget as it grows in coming years. #3 - Ditto for Social Security and Medicare - don't believe that is funded from a trust fund or a lock box or anything similar. #4 - Notice that research dollars and spending on education amounts to about 5% of the budget. Most of that money should work like R&D expenditures in a company budget. Those levels are not likely to advance us much in those areas.

Reporting the News

Yesterday in 820 venues across the country there were "Tea Parties" to protest a bunch of things. The one in Sacramento had a crowd that the Highway Patrol estimated at 5000 - although from the pictures the crowd might have been larger.

Paul Krugman dismissed this movement as a bunch of right wing crazies. Others on the left offered similar epithets. The right praised the events as a rekindling of the spirit of the original Boston Tea Party. Some have claimed this was a plot foisted on us by the Fox News Network. The Sacramento Bee's Steve Weigand wrote a confused or biased (it depends a lot on how the lead is taken) story on the Sacramento event.

My take on this movement is a bit different. I think there are a couple of parts and from my view it is not clear whether the parts will be able to work together. Part of the group is the tax portion of the conservative coalition. In California that is typified by the Howard Jarvis movement. The Jarvis people were the original sponsors of Proposition 13 which brought moderation in property tax increases and depending on where you sit did a couple of other things. If you are a supporter of expansive government 13 destroyed the ability of government to function. If you appreciate the devastating effect that the prior regime on property taxes had on many homeowners, you believe 13 stopped rapacious tax increases on homeowners. One thing which everyone could agree on is that 13 spawned a new era in citizen initiatives. I believe that whether you like those measures or not - in sum total they do not make for a very coherent set of policies.

A second part of the movement is a group of people who are concerned about the stimulus package(s). They see bailouts for corporations and lots of pork and are not at all sanguine that the spending will boost the economy. They're tired of the way that Washington and Sacramento operate. The recent PPIC polling, showing an 11% approval rating for the legislature is one indicator. While the Jarvis people are mostly Republicans - the people in this group are far more diverse in their political approaches.

Krugman and some of his kin sound to me a lot like whistlers in the dark. They understand the potential power of this group - if its elements were to coalesce and they are scared. They should be. But it remains to be seen whether the group has any long term potential or whether these 820 town halls were more than just a protest of one day.

Wednesday, April 15, 2009

The realities of early season AAA ball

Last night the Cats performed marvelously. Although they got a ton of hits and only four runs - they fielded the ball well and ultimately won. For once in my life I was sympathetic with the umpires - they have to stand out in the cold for the whole game - and did I mention it was cold.

Today was an 11:35 game - Jackie Robinson day in baseball - when all the players in the majors wear #42 in honor of Robinson. From the box score at Raley Field the Cats stunk the place up. What is great about the team now is their relatively good fielding. Their hitting could improve. But we've also seen a couple of good pitchers (even great pitchers). A couple of years ago the team began to jell in June.

Our returning skipper has exhibited two traits early in the season that are curious. The first is a very conservative base running style. He coaches third base and will often hold a runner when it seems almost obvious that if he took him home he would have a high percentage chance of scoring. The second is the tendency to fill up first base by pitching to a batter so that he can get more action in the fielding. In a couple of instances - especially in Sunday's game - I thought he made the wrong call. As one of my seatmates commented - Tony D was playing the odds - but I calculated the odds a bit differently. But then that may be a good reason why I am not the skipper.

Tax Reality

Today is income tax day. There will be more than 750 tea parties around the country. But the Center for Budget and Policy Priorities (I am not always a fan of their stuff) published a graph (which is actually from the Tax Policy Center) using Treasury data which shows the tax burden for median income families. A couple of comments are in order. First, notice that the highest burden was in the late 1970s. Second, there has been a lot of work in the Congress on equity issues and those policies seem to have reduced the burden on median income families significantly. Third, a comparable chart for those below the median would have an even more significant drop. We now have a large number of "taxpayers" who do not pay federal income taxes. In my mind the closest analogy to that was in the very early years of the income tax where the threshold for taxes was high - excluding most citizens.

By the way, the tax compliance cost to us all (how much it costs for us to file our taxes) has been estimated by Joel Slemrod at a cool $85 billion.

.500 Early Season

The Cats tied their record up last night against Portland - with a ton of hits but only four runs. But it was the coldest I have ever experienced at a Rivercats game. Everyone was bundled up. I got there late because of a dinner and left early and I was not even at Dodger stadium. My seatmates left before I did - when they left I bundled up in a blanket and was still cold. But the Cats looked pretty good. Two more games at home (today a day game and then tomorrow) and than not back for about a week. I will miss the next two games but there is still a lot (64 games) to look forward to.

Saturday, April 11, 2009

How reliable are Washington interest groups?

In September 2003, a coalition made up of three Washington groups decried the then current deficits. The groups in the joint statement were the Committee for Economic Development, The Concord Coalition and the Center for Budget and Policy Priorities. CED describes itself as "the best of business thinking." Their website says "CED believes that the primary cause of America's long-term federal budget problem is the acceleration of entitlement spending. " The Concord Coalition is a project of two former Washington insiders (Pete Peterson and Warren Rudman). Their website comments on the current budget using the following language "On the plus side, it calls for significant deficit reduction, improves transparency, and reflects a commitment to paying for new initiatives. The downside risk is that many things have to go right for the plan to work. The economic assumptions are optimistic, as are the assumed savings from winding down the war in Iraq. " They do project that interest spending in the budget would go from 5% of the budget to 12%. The Center for Budget and Policy Priorities is an admittedly left of center group. It claims on its website "The Center on Budget and Policy Priorities is one of the nation’s premier policy organizations working at the federal and state levels on fiscal policy and public programs that affect low- and moderate-income families and individuals."

What is surprising to me is that none of these groups seems to have anything substantive about the risks associated with the projected budget deficits proposed by the administration. One would expect CBPP not to have anything - their view of the world seems to have never met a tax they did not like nor a non-defense reduction they could support. Concord actually had a part in a movie called IOUSA which describes the perils of out of control spending. But it strikes me as odd that they could be silent with the current budget projections when they were so alarmed in 2003 with deficit projections much much smaller.

Hurray for Goldman Sachs

At the end of the week the firm of Goldman Sachs indicated they would pay their TARP money back. Seems they a) were healthier than the people in Washington thought they were and b) understood how truly horrible partners the government makes in the private sector. GM and Chrysler will soon understand this, if they do not already.

I am an investor in a small startup bank in California. Their directors made an initial determination to apply for eligibility for TARP bucks but wisely chose not to accept any of the boodle. I congratulated them too!

Press Coverage then and now

This graphic from the Heritage Foundation shows actual and projected deficits at the federal level. During the Bush Administration there was a lot of journalistic howling about the huge increases in the level of deficit and debt. They look pretty pale (even in the graph) compared to the Obama Administration's numbers. Yet, the press has accepted these huge increases with nary a peep.

The Obama people could counter with at least three counter explanations to justify these new projections. 1) The current deficits (Because of the economic situation) are mandatory - the Bush deficits were created by discretionary activities (especially the war they did not agree with). 2) When (that should be an if) the economy recovers the projections will look a lot better. 3) Longer term investments (like infrastructure) have been neglected by recent administrations and these types of "investments" will pay off in the long term (think buying a bridge that will last for years).

The reality is that even if economic conditions are as bad as the Administration claims they are (which is a highly questionable assumption) a good deal of this additional spending will not help change the situation (that assumes of course that you believe the additional spending will have a positive effect).

The dynamics of reduced deficits depend on two highly questionable assumptions. First, that the additional spending now will create long term and dynamic economic growth. Remember, a good deal of the Obama administration's dream list of policies (for example the increase in capital gains rate) are likely to dampen economic growth. Depending on the type of regulation imposed on the financial system - those policies could also significantly restrict the upside during recovery. But second, any assumption about future growth must be conditioned on the long term fixed costs in debt service added by these huge deficits. Our amount of borrowing, and thus our amount of debt repayment requirements, will go up significantly.

The third justification could even have some truth to it, but only if a significant proportion of the new spending were dedicated to long term capital projects. That simply does not seem to be the case.

This is not a case for an alternative to the current Administration. While the McCain people had some good ideas (especially key elements of the health plan which their candidate seemed incapable of explaining) it is likely that they would have been as exuberant as Obama's people in proposing big new and costly programs.

Friday, April 10, 2009

The Math of 158 and 45

Over the last few years the Financial Accounting Standards Board (158) and the Government Accounting Standards Board have issued rules which require their charges to account for the future value of defined benefit pension systems. Both rules have created some grumpiness but a new article in the Atlantic gives a good perspective of the scale of the problem in each sector. The FASB rules cover some 34 million workers and are about $10 billion out of whack. Part of that problem is related to the declines in the financial markets. The private sector's response to the problem has been to restructure their pensions so that more workers are covered by defined contribution plans (the company then shares no risk on pensions) and by funding their liabilities. A corporate board on which I serve has done a series of moves to assure that their pensions are in compliance with the 158 requirements. It is a moving target, but the board has grappled with the issue.

The article points out that the problem on the GASB side could reach north of $1 trillion covering employees that number something a bit more than 22 million. To give you an idea of scope that means that the GASB covered employers are facing a problem that is 154 times larger than the FASB employers. There is one other difference. If the FASB people screw up there is something called the Pension Benefit Guaranty Corporation, which is tasked with protection those pensions. The equivalent of the PBGC is the taxpayer. Is that what they call one of those "public private partnership?"

Thursday, April 09, 2009

Opening Night

The Rivercats opened their 2009 season tonight after a 43 minute rain delay. It rained throughout most of the game which was called at the end of the eighth. They opened the season with 16 returning players from 2008. Did I mention that conditions were miserable? That paralleled the first opener ten years ago.

As happens every season, it was great to simply see our seatmates after several months off. There are 71 home games left. Tonight's loss had some good points (including pitching in the first four innings by Vince Mazzaro. It had one horrible call by the third base umpire - at which I said in a loud voice "That is the worst call of the season." Which was true but may also be true for a a good part of the remaining season.

The Cats lost 9-4 tonight with Kevin Cameron getting the loss - he deserved it. The Rainiers busted it open in the sixth and came back even stronger in the seventh. This is the start of a long home stand - eight games - all from the Northwest - Tacoma and then Portland. Did I mention the conditions were miserable?

Candyman or Thief?

The Sacramento Bee's front page story today about how "most area lawmakers push projects, defend process" to get more federal dollars to their districts But their math is screwy. Two democrats, Mike Thompson and Doris Matsui, asked for a ton of dough for their districts ($402 and $453 million respectively), two republicans wanted a bit less (Wally Herger, $215 million and Dan Lungren $211 million). Tom McClintock asked for $0, because he opposes the system. One can bet that because of who is in the majority, the final distribution of the booty will be in about the same proportions.

There are two ways to look at the current system. First, it could be seen as a typical ward healer arrangement - which all elected officials should participate in. We've reduced legislators from thinking about the big issues that face us to becoming distributors of largesse. Since the system has grown up, the quality of legislating has gone down. Polling on the quality of elected officials has certainly reflected our opinions of the quality of the declining quality of their work. All of us can see the math. We send them $1 and they give us back (as Californians) about 80¢ - only a fool would take that deal. We're about 15% under the average "return" of federal dollars compared to other states in the west. That is made even more odd because although the federal government controls just over 29% of the land in the US, they control more than 45% in California.

The big "winners" in this race are states with small populations and lots of federal installations (Maine $1.41 and Alaska $1.81) and the south (MIssissippi $2.02, Alabama $1.63 and Louisiana $1.85). Are those the kinds of places we want to be like? The calculations do not include things like interest on the debt, which would further diminish the return to each state.

The alternative view is one that McClintock seems to reflect, we would all be better off if we did not have the system of earmarks. The problem with that approach is that many Americans have come to rely on the "constituent services" that congressional offices perform. I am willing to bet that Mr. McClintock does not eschew those staff to perform those functions.

Will Rogers once said "Be thankful we're not getting all the government we're paying for. " In this generation we are paying a lot more and getting a lot less.

Wednesday, April 08, 2009

Airline Irony

As I was coming back from Mexico today, I waited for my last flight. The schedule board, in my humble opinion, had some subtle elements of irony. Notice the juxtaposition of all four flights (delayed) versus the more generalized claim of ON TIME. This is not a criticism of this particular airline or its relative inattention to schedule but rather a larger sense of the joys of travel in 2009.

Three Impressions of Mexico

For almost two decades I have been working in Mexico on a variety of projects. I spent the first two days of the week in Aguascalientes and Mexico City. I can tell you that I was advised by some friends in California not to take the trip. As I was going to the airport yesterday, a son of a good friend in Aguascalientes said he was worried about the misperceptions created by news coverage on the drug violence in the country. I was pleased that he seemed to have the impression so right. But here are three impressions in no particular order. (The photo was taken from the back of one friend's house - we sat out back and watched what he described as an event that happens most evenings - the color and intensity was wonderful.)

Agusacalientes - I first got to know the city, called El Corazón de Mexico or the heart of Mexico, when a friend went back there to start a university. I did a project in the early stages of the current governor to advise him about how to be a successful executive. When I first met the guy(the Governor not my friend) I thought he could be a future president of Mexico. He has not been a successful elected official. That is a disappointment. We did a series of sessions with his key advisors talking about the development of a program - the Governor had very talented people who believed in him. And he let them down.

My friend met me at the airport and expressed concern about safety in the city. Drug violence has even reached cities like Aguascalientes. Aguascalientes has always been a safe haven. The state to the north has had a larger share of problems - but the pervasiveness of the drug problem is disturbing.

We had a good visit and put the first touches on a project to link academics and industrialists in an innovative way. My friend and his family are wonderful. He has an intelligent spouse and four kids who seem to work together well. We had a wonderful relaxed evening at their house on Monday night talking with another friend who is working on a new business (see below) and with the former mayor of the city. I found the former mayor to be thoughtful. He is the kind of person that any country would be lucky to have as a political leader.

My friend has four kids - two boys and two girls - three of them were off doing missions (a tradition in Mexico of helping the poor during holy week) so I got a chance to speak with one of the sons in depth. He is just finishing his degree and we talked about what he wants to do next. We discussed a couple of business opportunities. He talked about a rabbit ranch. He had done some analysis about how such an operation could be profitable. (There are many elements in the business even though rabbit is not a staple of the Mexican diet.) We talked about how to stress test his business plans and I suspect I will see a better developed plan the next time I see him.

Business Opportunities On Monday night I had a chance to catch up with another friend who also worked at a university. He told me that he may be going back to academe but he is now working with a company that imports grain to Aguascalientes from Canada. He then divides the grain into two types - some is repackaged for domestic (Mexican) consumption. But another part of it is shipped for export to Central and South America. Because of the Free Trade agreements between Mexico and some of the countries they are exporting to, the net savings to the Canadian growers is 20% over what it would cost to ship the grain directly from Canada to the final point of sale. The entrepreneurial spirit lives. Aguascalientes looks like it has been hit by the economic downturn a bit more than places like Xalapa. But I saw lots of activity in the downtown.

Maturing Sons - Last night I had a lunch with one of our "Mexican sons." Over the time I have worked in Mexico my wife and I have "adopted" a half dozen young Mexicans - we've provided them coaching and a neutral place to talk about their goals and ambitions. This particular young man worked in a university and talked for a couple of years about completing his doctorate. He was a lawyer as an undergraduate. For a period of about two years every time I saw him he would complain that he did not know how to write a dissertation. Twice I spent a good part of a day working through an outline with him. When he came to me the third time, I was really grumpy with him. I went through some of the issues he was interested in writing about and then told him - that was the last time I would do that. For more than six months I did not hear from him about the doctorate. Then I got an invitation to his defense. I read the dissertation and he did some first rate work on a part of economics that we had discussed (Public Choice theory) but not exactly what we had discussed in his formative stages. He then took a job with a middle sized institution first as a dean and then as a rector. He has been a rector for a bit less than a year. I was impressed with his thoughts on his new job. He seems to be working through a lot of complex issues in the institution. I think he has a vision about where he wants the place to go. I was truly proud to see how this young man's career is developing.

So those are my impressions. One of the things that has intrigued me about Mexico since I first started going there is the potential. Contrary to some popular impressions in the US, the people I have worked with are extraordinarily resourceful. The crisis of the drug wars seemed to be on everyone's mind. But there was strong support for what the President (Calderon) is trying to do. There was also a renewed sense of optimism about the US-Mexico relationships. A couple of my friends spoke highly of our Secretary of State but I think the people I spoke with felt some positive movement that they did not feel during the Bush administration.

Drunks, Keys and Public Policy

There is the old story about the drunk looking for his keys at night near a lamp-post because that is where the light is. It seems that a lot of our security policy uses the same logic.

This morning as I was being inspected twice to get through the airport at Mexico City and SFO, I wondered whether anyone in Washington has thought, even hastily, about the lead story in the WSJ, also this morning. It seems that the experts have found an increasing number of security breaches in key public entities like power grids and water systems. Think for a moment about the billions of dollars and millions of hours of wasted time that we have imposed upon ourselves to stop a repeat of 9/11. Yet it is highly unlikely that terrorists would try to do a repeat performance. Terrorists don't do encores.

This morning, I had a small amount of a leather preparation substance, used to recondition my briefcase, which I ultimately left in my hotel room after over dabbing the material on the briefcase and throwing some of it into a 3M rag (placed in a plastic bag). I was able to carry the liquid through "security" because it was not in a larger than 3 oz bottle. (Although the substance was the same as it had been in the bottle. But the bottle was too large. The post 9/11 rules say I cannot take that kind of stuff on an airplane because it came in a container larger than 3 oz. I passed by the airport vendors of Tequila and while I would have liked to buy a bottle, I knew I had to transfer in SFO and thus could not bring a liter of liquid through the second security point.

There is one area of the economy that has thrived under the new requirements in airports - those businesses including massage and high end goods and actually good restaurants - that are now available to those of us that are held captive waiting for our flights because we had to get there early enough to get through the lines. But then there is that chart on the front page of the WSJ. We don't seem to be doing much to respond to a real threat. I guess I should be confident about the misapplication of resources to a prior threat.

Monday, April 06, 2009

Constantine Papadakis

In an era when many figures in higher education are smaller than life there came a Greek named Taki Papadakis. I first met Taki a couple of years ago when the institution that he led (Drexel University in Philadelphia) was trying to decide whether to come to the Sacramento area. The first time I met him he told me "I tend to over promise and over deliver." I never found that statement to be untrue.

Taki did some wonderful things for Drexel but what impressed me more than that list of accomplishments (adding a couple of schools, raising a fair amount of money, increasing the reputation of the university) were two other things that I encountered in working with him on the Sacramento project. First, he built a team for his core management that is smart and independent. As I encountered his key staff they spent little time in thinking about how to conform but they spent a lot of time in trying to figure out how to advance the university they worked for. Second, in the discussion of the possibility that Drexel would come to the Sacramento region, Taki and his staff helped his board through a complex decision. They engaged their board to think about this potential option not as a done deal but as an opportunity. At the same time they dug deep into the Sacramento community to understand the possibility for the University but also for the community. He looked at life as a set of chances and he imbued that into his staff and board. Many leaders in higher education want to hold on to the status quo but Taki thought life had to be lived with a strong view of the future.

I had the chance to work with Taki for a short time. I was impressed with his energy; but I was more impressed with his ability to motivate people to do their best. I feel gifted that I got that chance. But I am also convinced that his real legacy was not his ability to push the envelope for its own sake but the ability to encourage many around him to strive for something a bit better than now.

Sunday, April 05, 2009

Tarnish on the Oracle of Omaha

The Sacramento Bee this morning reported about how Warren Buffett is making money out of TARP, several of his investments will make money by the bailout policies of the former and current administration. I wonder why the story is important.

Buffett has been one of the premier investors of our time. A good deal of his success has come from governmental policies. His investments include a lot of regulated industries (including insurance, banking, and utilities). Another part of his success has been conditioned on the tax policies relating to inheritance. Some of his best buys have been family owned businesses that faced the inordinate costs of taxes on inheritance. But he has also been a thoughtful investor - looking always for sound investment principles. Berkshire's manufactured housing investment is not in the soup in its financing arm because it did not loosen its standards for borrowers. (That is disclosed in his annual report which I read each year - although as an investor in the company since 1987 I have never been to his Annual Meeting). But some of his biggest failures including his ill-fated investment in US Air - were also in regulated industries.

Buffett's principles (and his partner Charles Munger too) go back to the wisdom of Benjamin Graham, the legendary professor at Columbia, who wrote two of the best books on investing ever - which have one simple principle - investments should be based on the underlying value of the company.Graham taught one generation of investors directly and a bunch more through his writing to recognize those principles.

I've been a bit concerned in recent years about Buffett's public pronouncements. In some cases, like his comments on tax policy, I found his ideas a bit self serving. But his vision for sound principles is not diminished. He called the fraud at Fannie Mae (where he was a big investor at one point) early. His annual report this year (available at Berkshire Hataway's Company Site includes a discussion of derivatives that points out both the benefits and risks of these instruments. He comes out for mark to market in this report - on his continuing quest for transparency. But during the S&L crisis both he and Munger pointed out the folly of both the industry and government policies. On balance, even with his press status, his insights could have helped economic policy makers make better decisions - even if he chose to use the knowledge of how financial institutions work to benefit his own investors. His career, since taking over Berkshire, has been to look at all types of investments - and the core has always been in financially related and regulated industries. His benefit from TARP is in no way conditioned on the size of his holdings, except that the company takes very large positions.

I am not sure why the Bee chose to report the obvious in their Sunday edition. But the larger picture is much more interesting.

Friday, April 03, 2009

Smart Money Does not Seem to Be

Jack Hough, a writer at "Smart Money" in the most recent issue, made the "Case Against College." He argues that if two friends from similar backgrounds make different choices about college (Bill goes, Ernie does not) - that the numbers suggest that the more economic choice is to not invest in college and to save the money you would have spent.

But the choice that Hough sets up is absurd on its face. First, the unemployment rate for high school graduates is twice that of college graduates (according to a survey in April 2008 - the rate was 15.4% for high school graduates versus 7.4% for college graduates). That number only increases when you control for college graduates who stay out of things like "liberal studies."
Second, making the assumption that an eighteen year old will a) have the money they would have invested in college and b) would have invested it prudently - is just plain silly. Third, and although this data is becoming a bit more suspect, the rate of wage growth for college graduates has been considerably higher than for high school graduates. In the last couple of decades the level of wages for high school graduates has been declining in real terms. Another problem with his analogy is to think about which person Ernie or Bill is more likely to have disposable income to save. If college were not so valuable, why do so many countries try to emulate our model of fairly wide ranges of opportunities?

Ultimately, what a college degree offers is a wider set of options. Does it always pay off in economic terms - no. But are the odds a whole lot higher for a person who pursues a college degree or chooses the Alice in Wonderland option that Hough suggests - the answer there is not even close. I wonder a) if Hough went to college (of course he did) but b) It looks like he never bothered to study economics.

Thursday, April 02, 2009

Tea Parties

On April 15 there is a movement that may be a first test of the ambitious agenda of President Obama - the map shows the number of Tea Party protests scheduled around the country. What is unclear at this point is a) how many people will show up at these events and b) whether the message is a unified one. On the Tea Party site the rationale for this program is stated thusly "America is on the brink of another revolution. In a new American Tea Party, citizens across the USA are beginning to protest giant government programs that reach deep into their pockets. These programs create huge economic burdens on American families and threaten their livelihood now and into the future." That could encompass traditional conservatives who would be opposed to any increase in taxes to populists who object to bailing out companies that have failed. From looking at the various sites, it is unclear whether an attempt will be made to reconcile these divergences.

Regardless, there is some information that suggests that the support for bailouts is declining rapidly. Less rapid but still declining is support for the entire Administration package on stimulus. Ditto for the proposals to add taxes. Ditto for the all encompassing view of the role of government. It will be interesting to see whether this movement can coalesce around a uniform set of priorities. But the underlying level of grumpiness with the political class is now palpable.

Wednesday, April 01, 2009

The Realities of the G-20

For a long time we've heard that it is somehow immoral that the US consumes a large portion of the World's product. We hear that the US is a small part of total population while we consume an "inordinate" percentage of the world's goods and output. Some of those critics have taken the next logical step that the right solution to this "problem" is to have us consume less. But from my perspective, that has always been an unsatisfying answer.

The G-20 which began its meetings today, which includes the economies of Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States is a reflection of an alternative way to think about the world. It grew out of the G-7 who were for a long time referred to as the most developed nations of the world. But as NPR suggested this morning the G-20 will now represent about half of the world's GDP. That is a big change from even a decade ago.

The upper chart is how many think of this issue - or they array the population of the world with per capita incomes. Somehow many observers think that the BLUE countries are somehow taking from the other countries that are not blue. They see life and the world economy in a zero sum vision - if one country advances others will not. The better way to look at it is in the lower chart, which shows over time that some nations consumed different shares of the world economy. Ultimately we should be thinking about shrinking the US share by growing the other shares.