Sunday, July 31, 2011

Comparing Baseball Parks

Last night we went to the Harrisburg Senators to see them play a AA game.  Compared to other minor league stadiums we have been to in the past this one was OK but not great.

Getting into parking before the game took a bit of time.  We finally got let into a lot close to the stadium for $3 - which is considerably cheaper than the Rivercats.   And getting out of the stadium was ok.

The stadium holds about 7000 people and last night's game had more than 6000.  On the whole the crowd was engaged in the contest.  Indeed, one or two of the guys behind us gave the right fielder a load of guff that we thought was a bit excessive.

Food at the place was not especially inventive.  The jumbo hot dogs were mediocre.  Many baseball stadiums have some kind of local specialty food - but this park had nothing to write home about.  Beer was pretty cheap - $7 for  jumbo can.

We've been to a number of minor league parks including the Stockton Ports (A).  Last year we went to the Isotopes stadium and found a) it was easy to get into; b) had some interesting food (including Bananas Foster) and c) had some pretty good baseball.  This place had one out of three.

Saturday, July 30, 2011

Reflections on Term Limits

I belong to a Facebook group that is composed of current and former political types that was originally started by one of the premier political consultants and is now maintained by his daughter.  One description of the group is diverse - the political philosophies of the members are pretty wide.    A recent report by a researcher at the Center for Governmental studies showed that at least on the issue of term limits there is almost uniformity on one issue - whether term limits, as they were enacted in California were a good idea.   Most of my colleagues in the group say no.  Indeed, the leader of the group wrote her dissertation on the subject.
There are common themes in the opposition.  For example, most of the members say that elections should be left up to the voters - i.e. they argue that if voters want to keep someone in office for a long time, they should be able to.   And indeed like many political arguments there is some merit to that position.   The Center’s report  summarized the conventional wisdom on term limits.   This week, the group had a lot of posts on term limits.  
Since the implementation of term limits began in 1996 there have been some common criticisms.  First, there is pretty high turnover in the legislature.   The report found that 241 members over the fifteen years since the initiative really took effect have been moved out.   At the same time, members have less expertise on the intricacies of the legislative process.  Anyone with long experience in the process can point to a member who knew the insides and out of an area.   There are also the lapses in process.  The legislature has a set of rules which are often breached in this new era. The leadership decisions, especially in the Assembly, are convoluted.  One needs to make a move for Speaker in the first two years of a six year stay.  Finally, besides the Speakership, there is the constant shuffling of politicians.  One can see in California a constant game of changing places much of it brought about by term limits.   
There are also some problems with the legislative process that have developed in a more pronounced way since term limits took effect but which there is considerable evidence that the developments are coincident rather then caused by the measure.  Two of the most common are the increased influence of staff and lobbyists in the political process.  That effect has been profound in California (which has term limits) but is also evident in Washington where there are no term limits.
What is often overlooked are the positive aspects of term limits.  From the report and from my perspective there are three.  First, more members are experienced in local politics.   Near the end of the non-term limited era many legislators came from legislative staff.  That is no longer true. The new class of members are more knowledgable about their districts.   Second, the average age of legislators has increased a bit.  They come to the process with more experience as elected officials.      Finally, there are more Latinos in the legislature - their numbers have grown four fold.   Some opponents suggest that would have happened anyway and that could be possible.
Every public policy has positive and negative results; and although I recognize the problems created by the initiative on balance I think the positives have outweighed the negatives.   There is an assumption by many that policy wonks make better legislators, and while I like members who know something about the areas in which I work, most of the issues in the political system are less conditioned on technical issues than on political allocations. At the same time, while the era prior to term limits created some members with expertise, it also created some roadblocks.  Some members stayed well beyond their time. My favorite example was a member who began his service in the 1930s and ended it in the late 1990s.
One branch of economics offers some insights on the issues raised by term limits.  public choice economics is a branch that was originated by James Buchanan (for which he won the Nobel in Economics in 1986) and Gordon Tullock.   Writers on legislative issues argue that the first role of any politician is to win re-election.  e.g. Politicians do not give up their self interest when they are elected to office.   By limiting member tenure we encouraged them to look even more aggressively for their next job.   The idea that there would be “citizen” politicians if Proposition 140 passed was silly based on the theory building in Public Choice.  At the same time, public choice has a body of literature that describes limits in political systems that are made to curtail some of the negative qualities of self-interest.  Aaron Wildavsky called those decisions “no-ing thyself.”   Term limits are one of those which have the potential to curb some of the distortions in the system that happened when member tenure was conditioned by redistricting. 
So where do I agree with my colleagues?  First, while I think the benefits of term limits outweigh the costs, I believe the system could improve a lot if the proposal by many to limit membership in the legislature to 12 years, without regard to where the term(s) are served were adopted.   That might improve the leadership process in the Assembly.   The influence of lobbyists and staff may be a problem without a solution.  Slightly longer terms might give some members more independence but that speculation is by no means certain.

Tuesday, July 26, 2011

Journalistic Priests - Not a Metaphor That Should Become Reality

On Sunday the program Beyond the Beltway had a journalist on who decried the decline of the journalistic "priesthood."   DuMont's program is presented on a local radio station here on Sunday afternoon and often when I am coming home from an afternoon workout I tune it in.   The premise is a) DuMont is an Illinois political junkie and b) he invites a variety of guests on to talk politics.   By variety he goes for variations in political stripes.   On Sunday's program he had a democrat, republican and a reporter whose name (according to the show summary) was Jim Camden, who is a veteran political columnist.

Camden argued for the good old days when there were only three networks and a small group of journalists who had been trained "like physicians" could determine what was appropriate to put before us as news.   Indeed, the news business is messier today than it was at some time in the past.   And you can count on inaccuracies in reporting.   Camden's ideal world existed only in part.  True, some reporters then went to schools of journalism. I would not count their training as rigorous as physicians but they did learn how to write a story.  True, many reporters withheld stories they thought were outside the bounds of appropriate news.  The question is did the public benefit from having the high priesthood?

On balance the current system is better.   Many reporters have been shown to have a significant bias in their reporting.  One need only bring up cases like Dan Rather's dismissal from CBS, where one of the priesthood created a story out of thin air or coverage by journalistic temples like the New York Times and Newsweek that consistently use "christian" and "conservative" as an epithet, to defeat the characterization.

The US began with a robust mix of reporting - some of it outrageous.   The "priesthood" that the reporter idealized was a relatively brief (thankfully) period in our history. Nick Gillespie and Matt Welch (in the Washington Examiner - which is a good example of one kind of new journalism) make the case to "citizen" journalists they comment "Name a subject that dominant city newspapers have walked away from covering intensely -- statehouse politics, high school sports, local crime -- and you'll find some entrepreneurial characters filling the void with gusto." 

If markets work in all sorts of other places why not ideas?   But then I would guess that the reporter  who wants a return to the "priesthood" does not like markets in many places.

Sunday, July 24, 2011

Getting the numbers right on unemployment

In an earlier post on growth in Medicaid as a percent of GDP one reader suggested that the trend line in unemployment is down.   And indeed since mid-2009 the line has been generally down (the graph here is from the Bureau of Labor Statistics).   My reader's point was really not focused on the post about Medicaid but it is important to respond to it none-the-less.

Employment numbers are complicated.  The unemployment rate connotes a figure derived from dividing the number of all unemployed individuals by the number of people in the workforce.   Seems simple but that number does not include those people who either voluntarily or involuntarily have taken themselves out of the workforce.  It is also a crude measure and thus does not differentiate between people who are fully employed and those that have, for reasons of the current macro situation, chosen to take a job below their skill level.  

There are many ways to compute the true unemployment rate in the country.  One (presented from a Financial Times graph) is to look at the of the US population that is employed.  And for this recession, even after the NBER announced that the recession had ended, the recovery has been described by all stripes of economists as a "jobless" recovery.  Some economists like Paul Krugman suggest that has happened because there was not enough of an intervention in the economic from stimulus packages.   Others argue (and I would agree) that part of the problem came from not too little government intervention but too much.  Regardless, the numbers are what they are - this recovery has had a puny recovery in the number of Americans employed.  That is a problem of significance.

The Bee's Jihad Against Term Limits

The Sacramento Bee's main editorial today is against term limits.   It is an odd statement against.    In the inset they present four things that term limits seem to have caused - they include 241 members have turned over since 1996 (if you take that as an average per year that is 13 members per year - that is a turnover rate of less than 20%); the numbers of members who were over fifty grew significantly; sixty eight percent of legislators had prior experience at the local level; and the percentage of Latino legislators grew by more than fourfold.  My God!!!  Horrors.   The legislature has been transformed to include more senior and experienced people who are tied to their local communities AND we increased diversity.

The Bee's editorial seems to ignore those positive effects and go back the argument that the evils of term limits as they have been harping on since the initiative passed in the early 1990s.   They argue that staffers and lobbyists have more influence in the process than they did before the passage of Proposition 140.   And that is true.   But look at Congress, where there are no term limits.   I guess by the Bee's logic there is less influence of lobbyists in Washington than in Sacramento and that staff is less important there than here.  Huh.  

Any public policy offers positive and negative effects.   If the Bee had any credible arguments against the influence of lobbyists in the political process or the increasing ability of legislative staff to determine outcomes - they explain how to solve the problem. Those problems are real - but they were not caused by term limits by themselves. The editorial offers nothing except support for  a change which would allow members to serve in one body for twelve years - and that might be a good idea.

Tax Demagogue

Grover Norquist (Harvard BA and MBA) who is head of Americans for Tax Reform, was quoted in the WSJ on Friday with his definition of acceptable limits on the tax pledge.   He said  If a tax-reform plan would raise more revenues than current rates – i.e. the Bush-era rates that are now in effect – then it’s a tax increase. “Present tax policy is what you should go by,” 

Mr. Norquist's definition is a bit much to take even for one like me who believes that taxes should be very hard to raise.   In part it is because his definition would have rejected the most effective tax reform bill in recent history - the 1986 Tax Act.   

No one with a sane mind can believe that the current income tax system is working.  The Tax Foundation's most recent estimates suggest that about 24% of the revenues collected by the IRS are compliance costs - the additional burden that taxpayers face in trying to work their way through all the thatch that has been created to aid this or that activity.  In the current year that is worth $350 billion (estimated).     That is not chump change.

The 1986 Tax Act exchanged lowered top rates (from 50% to 28%) for a lot of pruning of deductions, exclusions and credits.   The costs of compliance were less third of today's in current dollars.  (Unfortunately the Tax Foundation's estimates of compliance costs do not go back to 1986.  The estimates stop at 1990.)   The reality is that taxes as a percentage of GDP and nominal tax revenues both went up after the 1986 Act.   But the tradeoff was clear the bill created a more efficient tax system.   That is a tradeoff that today's policy makers should relish but Mr. Norquist doesn't seem to get it.   

Mr. Norquist evidently has never read Adam Smith on Taxation.    Smith had four maxims on the ideal tax system including   "IV. Every tax ought to be contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state."  But then at least Mr. Norquist is consistent.  He also opposes ending the ethanol subsidy in the tax code.   Why anyone takes him seriously is beyond me.

Saturday, July 23, 2011

Productivity in Agriculture, Manufacturing and Government

In June economist Mark Perry did a post on his blog wondering why the decline in agricultural jobs had not been given the same notice that the decline in manufacturing jobs has been given in the media.   It is a good question - but part of the point of the post was that both sectors have experienced significant increases in productivity over the the last several decades.   What would the chart on public employees look like?

At the federal level we know that we employ just under 2 million employees including military.   According to the Census California employs about 350,000 people.   One of the frequent complaints about the state is that compared to other states or countries we do not have "enough" public employees based on per capita comparisons; when population grows the number of public employees should grow proportionally.   But why?  Shouldn't we expect government to experience the same kinds of productivity gains that agriculture and manufacturing have experienced?

A couple of other considerations.   During the early part of this year a number of writers published data showing that public employees were paid more generously than their private sector counterparts based on salary and benefits - the unfunded liabilities in public pensions were just one part of that puzzle.  At the same time scholarly articles on the economics of bureaucracies suggest that in downturns bureaucracies actually decrease productivity by reducing their commitment to the very services they are hired to provide. 

The suggestion that government should grow at the same pace as population seems to be one of those suppositions that disappears when one thinks a bit about the logic.

Wednesday, July 20, 2011

The little things of life

This morning we did an E-waste divestiture which included 5 printers, four monitors, a ton of cables and other odd stuff including some old time things like Paperport which was an early electronic fax machine.  I am sure that some of the printers were still functional but because of advances in technology they were simply no longer useful.  Technology continues to advance and every once in a while we need to clean out.   I did keep my Osborne computer which was the first computer I owned.

One of the reasons we got into this mode was because when we had the video security installed the installer (who rated a C- at best for his proficiency) asked if we had a VGA monitor - turns out we have three that work - but he could not figure out how to deal with them.  I began to rummage around and found all this forgotten techno junk and decided to pitch it.   We found a recycler who would pick it up for free and we were off to the races.

But there is a second part to the story.  As I was cleaning out the room we use downstairs for storage I also found an envelope that I evidently brought home from when we cleaned out my aunt's house.  It included all the personal stuff that my aunts had kept that came from either me or my kids.  There was a copy of my son's birth announcement (now 29) and a couple of thank you notes from my daughter to the aunts for a gift or two (one very juvenile and one written when she was probably in college).  There were pictures of the kids as they grew up.  In short a series of "snapshots (photos and archival material) of our family that my aunts had chosen to keep.

When we cleaned out my aunts' house we threw out a lot of junk - but the stuff that mattered (seemingly most to them) was the four sets (I have three siblings) of stuff that by itself was not very important but when collected showed a connection to these to family members who my kids knew only slightly.

Tuesday, July 19, 2011

More on the Fraud that is Obamacare

In preparing for a discussion on budget issues for a class I am teaching in August and September I ran across a paper on the growth of state spending produced by the Mercatus Center at George Mason University by Matthew Mitchell.

Mitchell makes the point that state government grew at a considerably faster rate than either the federal government or the private sector - but he also focuses on Medicaid and suggests that a good deal of the expense growth at the state level has come from the growth in costs of Medicaid.   Further his paper suggests that even discounting for the underlying growth in medical costs, that Medicaid even outstripped that lofty rate.   The chart at the left is not from him but shows the robust growth as a percentage of GDP that Medicaid has experienced since its creation.   Remember that a fundamental premise of Obamacare was a substantial expansion of Medicaid.  

Monday, July 18, 2011

Swann Security - Video Camera for the Home

About a month ago, after a while of reading up on the systems, I purchased a Swann Video Security system for the home from Fry's.   The experience I have had so far has been mixed.

The good points.   Swann's video works as advertised.   It is a 400 line system and it captures video on a DVR from eight vantage points around our house.   While better resolution would be a plus, the level of view is plenty good to be able to see what you want to see.   The software used for remote access actually allows you to capture photos of various camera positions.   The photo at the left is one of our front door and about the level of resolution you get on the phone application - although the live video is even clearer.

The bad points.  I have two complaints with my experience so far.  One relates to the Fry's installers and one to the system.   The Fry's installers (it took two - one to put in the system and one to link it to the network) were subpar.   The guy who installed the system did not clean up after himself very well and did not fill in drilled holes.  That is just sloppy.   The network guy began by criticizing Apple - yammering about how hard it was to work with that platform.   When I bought the system I specifically bought it because Swann advertises that the system works with the iPhone and iPad for remote access.   I ended up buying a separate monitor and router (which probably was not necessary) just to get the job done. After the purchase I went to our network consultant and asked him both about the criticism and also about the need to put the security on a separate router.  He said both were basically silly comments.  It also took the network guy two trips.   I would give the Fry's installers a C- in performance.  That is a stark contrast from the level of information and helpfulness that we got from the sales person.

The Swann software is adequate but not much more.   The software has no documentation that I can find on the site and while it works on the iPad it has not been optimized for the iPad.

I think the Swann system is pretty good.  Now that the wires and network are set up it should be fairly simple to modify the system as the technology improves.  So all in all this is a pretty good system to add another level of peace of mind to our home.

Tuesday, July 12, 2011


A story that developed in the last few days is endemic of the state of political discourse in the US today.   Congressman Paul Ryan was having dinner with two friends at a restaurant called Bistro Bis.  An assistant professor at Rutgers (Susan Feinberg - who teaches a course on Love and Money) was having dinner at a table near his and saw that Ryan's table was having a bottle of wine.   She snooped and found it be a bottle of Jayer-Gilles 2004 Echezeaux Grand Cru.  That goes for $350 per bottle in the restaurant and the professor was incensed.  She immediately tattled to a lefty blog called Talking Points and yammered "We were just stunned," said Feinberg, who e-mailed TPM about her encounter later the same evening. "I was an economist so I started doing the envelope calculations and quickly figured out that those two bottles of wine was more than two-income working family making minimum wage earned in a week." (not sure why her economics background -actually a PhD in Business Administration from Minnesota- was necessary to do the calculations) So the fussbudget clicked off a couple of pictures of the wine bottle and sent them to her post.    She immediately assumed the worst, perhaps based her disagreements with the Ryan budget proposals.  After all she fumed, why should he spend money on expensive wine when the "safety net" is being ripped out for the less fortunate.

But even the Tabloid mode of Ms. Feinberg was not enough.  As she was leaving the restaurant after consuming an $80 bottle of wine at her own table, she decided she should lecture the Congressman on his companions and his dinner choices.   That resulted in a confrontation between the Ryan table and Feinberg and her husband.   Her judgement about the events seems to have been at least mildly impaired  "I wasn't drunk, but I was certainly emboldened to speak my mind."

First to the facts.   Ryan did not order the wine but did pay for one bottle of it, although according to friends he would have been embarrassed at the cost of the wine.  He is notoriously cheap.    But second, why would this fussbudget believe it is appropriate to interpose herself in this private dinner?   Indeed, she has a right to snap photos with her cell phone.  But if she decides to become a public scold, wouldn't the based standards of decency require her to discover the facts before spouting off?

Feinberg is obviously not the only one. When you look at her CV she has a credible research record.  But her political bias, if indeed it was not the booze speaking, violated good taste.  Bloggers on the right have shown a similar lack of sense of decorum.    Wouldn't the public policy process be improved if we did not spent more time on the substance and less on the personal lives of political figures?   Evidently the Assistant Professor never learned the rule - just because you can does not mean you should.

Sunday, July 10, 2011

What do High Speed Rail and Public Pensions have in common?

In the last few weeks there has been a lot of news about both.   The BEE this morning estimated that by the end of next year, California will have spent (blown) about $630 million on high speed rail - not on getting it but on planning it.  The BEE also presented a story which detailed that of the 226 retirees from the Sacramento Area into the Teacher's Retirement System (STRS);46%  of those had at least a 10% boost in their salaries in the last three years of service.  That boost means bigger dollars in retirement.   The Sacramento County Office of Education had 14 pensioners during the period and 11 of those had at least a 10% jump in pay.   Evidently those increases were not related to significantly improved performance of students.  Nor is it likely that they had anything to do with funding levels available for the classroom. A lot of this finagling came from a provision added to law during the Davis Administration which allows public employees to choose their best year rather than an average of their last three.  As the BEE has pointed out that has led to a lot of monkey business.

Critics of the coverage on the HSR project yammer that this is all about progress.   Critics of the coverage on pensions point out that not every retiree gets big bucks.  The first is speculation, the second true - but neither are really relevant to the real story here.

Both of these stories are classic examples of what economists call "rent seeking" - extracting value out of something by transferring costs to another.   Unfortunately, the boondogglers for the HSR project and the ones for the pension nonsense have the same target in mind.  Yup, the taxpayer.   Concentrate the benefits.  In the case of HSR - to the consultants who are making all those plans without a future.  In the case of pensions, to the public employees who are reaping the lifelong benefits.     The other side of rent seeking is to disburse the costs.   No one sees the small amount of additional cost to their tax bills because of a project which is unlikely to ever be successful.  Nor will people be able to calculate the incremental cost of all those inflated pensions to individual taxpayers.

When government grows to large, it becomes easier and easier to play hide the peanut.  Unfortunately, at some point the financing source of that game, the taxpayers, will figure it out.  When they do they are likely to just say no.  They should.

Confirmation of a Joke

In Mexico there is a joke that goes as follows:

What do you call a person who speaks two languages - Bilingual
What do you call a person who speaks three languages - Trilingual
What do you call a person who speaks one language - North American (US)

I found a website which visualizes the joke called Bonkers World - the data they admit is not scientific - but from my perspective it is accurate.  Very funny - well done!

The Cats Come Back

On July 6 the Rivercats set a new record for the club - 9 straight losses.   All three were one run games.  Two  were extra inning games we lost by one run. They went into a four game series with Las Vegas, the second place team in the division.   And in a compact three day-four game series they went 4-4 (8-1,11-4, 11-7 and 7-5).   That gave us identical ten game records with Las Vegas (4-6) but put us 8 games up in the division going into the All Star break.

The All Star break will involve 30 players from the league - thirteen are chosen by players, managers and fans and the rest are chosen by the league office. The Cats on the team are Anthony Recker, Willie Eyre and Eric Sogard.  We get back into it on Thursday against the Grizzlies in Sacramento.  We've had a rough time against the bottom huggers this season, losing five of the last seven games.

Tuesday, July 05, 2011

The Cats Current Decline

Last night marked the seventh loss in a row for the Rivercats and the first extra innings loss for the club.  We were not short of hits(11) but a single in the 10th made it into a loss.   Like the last home game on the third, we scored early but again our opponents scored last.   We have had some roster changes but on the whole the club should not have had this slump.  Better now than later.  

One other note.  We are tied with Round Rock and Reno at 50-34, 16 games over and 5 games up on Las Vegas.   Fresno stands at 35-50 or just about opposite us.  In the next few days we play a lot of games against Fresno - two more there, then a set against Las Vegas (there) then the break for the Allstar game and then four back in Sacramento against Fresno.

Monday, July 04, 2011

I just do not know where to begin..

A colleague of mine on the SC faculty recommended a book by Richard Wilkinson and Kate Pictkett called "The Spirit Level, Why Greater Equality Makes Societies Stronger" so on the trip to Chicago and Ann Arbor I read it.   The premise of the book is that economic inequality in societies makes for less unity, poorer health and a wealth of other societal maladies.

The book is divided into two parts.  I suspect the last three chapters, which make standard left of center arguments on reducing carbon usage in developed societies and (although they make a head fake to an alternative) increasing taxation on the wealthy is always a good idea, were written before the first ones.  I will admit that I was at least intrigued whether the authors could come up with a reasonable argument on their premise.   The rest of the book (which is actually the first thirteen chapters) is a dreadful use of spurious correlations.  The authors caution us repeatedly that the data is so carefully constructed and checked with all the chi squares a person could muster.   But all that careful statistical work and curve fitting is for naught, when you examine the premises carefully, it looks like a lot of data fitting to prove a point.

The authors suggest that income inequality is smaller in places like Sweden, Norway, and Japan and in states like Vermont and New Hampshire and therefore those countries and those states are healthier with better achievements in all sorts of societal indicators.   They counterfactuals are for places like the US (surprise!) whose income inequality has grown significantly in the last 30 years (based on a measure which looks like a rough Gini Coefficient) and whose societal health based on measures of morbidity, education and crime are poor compared to their shining examples.   But their positive examples have one thing in common.    Two quick facts - Blacks and Hispanics make up just 2.5% of the population in Vermont.   The number of immigrants in Japan amounts to a bit less than 2% and as many sources suggest a good portion of those are of Japanese descent.

Lest anyone have a doubt about my feelings on immigration (and if they do they have not been reading this blog) I understand the key opportunities that immigration offers for the country.  Over the weekend Intel published data that 70% of the winners of their talent competition were children of foreign born parents.  Immigration presents problems for any society including potential changes in health, income and education statistics.  But the long term trend, if we continue to offer the opportunities of the American system, far outweigh the momentary costs.

The book reminded me a lot of Malthus' An Essay on the Principle of Population.   Indeed it has a lot of the same flaws.  Malthus' argument was that population would outrun innovation.   But his book, meant to influence Parliament's consideration of a poor law, missed two major points.  First, it did not anticipate the development of the steel plow. (That might have been hard because its' first edition predated the steel plow by about three decades.)   When the plow was put into use, crop yields skyrocketed and Malthus' original premise was disproven.   As Julian Simon pointed out repeatedly, Malthusians of all types consistently under-estimate the power of innovation and as importantly the ability of humans to overcome bad circumstances, if given the opportunity.

The second flaw of Malthus was data driven.  According to some accounts Malthus based his theory on population trends in the US.  (Remember his book was first published in 1798.)   Some suggest that Benjamin Franklin actually gave him the data.   Malthus, I am sure using the same kind of heartfelt correlations used in the Spirit Level, missed the fact that a major force in US population growth during the period under study was fueled by immigration.  The chart at the right is for growth in immigration from 1820 to 2009.   Notice the two big sets of spikes - notice from about 1900 to 1930 there is an almost continuous spike in immigration. (Save for a drop caused by WWI).  The downward trend which began before 1930 was caused by public policies that were designed to harass immigrants (The Palmer Raids were on example of these policies.)  The second spike begins in the 1980s.   Think about how historians from the left describe both periods.   The first is described as an era of unbridled capitalism.  Not surprisingly, so is the second.  Both had significant trends toward a reduction of economic equality in society as a whole.  The rich, indeed, did seem to get richer.  But as those immigrants, many of whom came with little education, were assimilated, those differences became smaller.

The 1980s spike is different for two reasons.   First, it is larger in terms of total numbers.  There is not good data on whether the population was less well educated than the first but there is at least pretty good speculation that it was.    But second, government intervened in a number of horrible ways in the second.  Some are pointed out in the Spirit Level like increased levels of incarceration and decline in educational effectiveness. But many others, which would be in the playbook of the authors as positives, are ignored.  One conclusion is that those policies adopted during the second period of may be inhibiting the very opportunities that brought many of those immigrants to our shores.

Besides immigration there is another trend, which coincidentally works with immigration.  In both periods the originators of technological innovations were rewarded immensely by the market system.  But very quickly the distribution of rewards, at least in the first period, moved down the income ladder.  The reality of the middle part of the twentieth century was not that we brought down the super rich of the roaring twenties by taxing them but by bringing up the lower and middle class.   One need only look at the creature comforts (larger houses, more appliances) that those innovations brought to the entire society over a fairly short period.

There are differences in the second period.  First, there are a lot more lawyers and financial types involved.   It is unclear whether all those "symbol manipulators" were rewarded for contributing to the new economy or were simply rent seekers that put a drag on growth.   Second, the expansion of government during the second period may represent an excess burden which is hard to calculate.  Some of the best laid statutes may actually be impeding the dispersion of wealth that happened in the middle of the twentieth century.

There is finally a very silly chapter in the book on the consumption of envy.  The authors try to make the case that consumption during the last period was brought about by envy.  People were duped into keeping up with the Joneses and forced into higher and higher levels of debt.  They bought all those Hummers when they would have preferred a Prius.   I thought Galbraithian arguments had been laughed out of polite conversation years ago.  But evidently they are staging a revival, at least in this book.   Indeed, savings during the "evil" period went down in the US (although there is a legitimate argument that some of the statistics were a bit bogus - for example the Japanese calculations on savings include some things which the US do not) but even if the data is true, what is the cause?   Did the meltdown come from envy - keeping up with the Joneses - or from a series of flawed public policies which encouraged over consumption of purchased housing?  The book never once mentions the change in the way capital gains were counted for housing, nor the expansions of leverage in Fannie Mae and Freddie Mac, nor the pressures from such shining congressional lights (lites?) as Barney Frank and Chris Dodd for expansions in the application of the Community Redevelopment Act.

As I said, I just do not know where to begin.   But from my perspective, the combination of Malthus and Galbraith in one book was just a bit much.

Sunday, July 03, 2011

Midwest Conversations

One of my habits is to do itinerant talk with strangers.   These conversations are a good way for me to take the pulse of the areas I am in.  So for the last couple of days I have been chatting up both the people we were visiting and people in restaurants.   I am interested in how people are feeling about the current situation.  This kind of survey is admittedly not scientific but as I do it more and more I can at least have an idea about things.

So how did the conversations go?   First, there were a couple of distinct groups.  The first, in Chicago, were probably McCain voters in 2008.  One of my wife's cousins is in the grocery business.  The general response around the table on Thursday night was that the President has been a disaster.   Not surprising based on their expected voting patterns.  But the intensity of the response was high.  I did not get the same sense from conversations with people in 2008 (not these same people).

The second group of people were in Michigan.  They were partially from my wife's family at a wedding and in conversations with people in the hotel we stayed at.   It is pretty clear that most of the Michiganders I spoke with had been with Obama in 2008.   They are not there now.   One person in the health industry described the President as a "disaster."   He was worried that the health care plan adopted by Congress would help to destroy the health care system.  He said we needed to do something; but this was the wrong thing.   When we went to the wedding in the afternoon, I had the chance to speak to several people.  It was clear that most of the guests at the wedding had been Obama supporters and now they were more open to alternatives.  They were concerned that the stimulus package was simultaneously overly expansive and ineffective.   They were bothered that some people were able to escape irresponsible obligations encountered in the real estate boom and bust.   I have the sense that real estate is not as big a topic as it is in either coast.  (The data also seems to confirm that.)  They understand that the "recovery" that the President keeps talking about has not come to Michigan yet; although one Ford worker said she thought the company had begun to build back.

So well before most decent people think about politics I came to two conclusions.  The GOP voters I spoke with seem to remain as fired up as they were in 2010.   The dems and independents are open to listening to someone besides the person they voted for in 2008.   But it is clear to me that the GOP should be careful in messaging.  The 2012 election will be about economics (as many recent ones have been).  If the GOP nominates a social conservative with no economic credentials the President will have a good shot.  If they nominate someone who has something credible to say about economics and growth, they will have a good shot at making Obama a Jimmy Carter redux.

The second conclusion I found, from a couple of people including one former reporter who is now making a business for online news, is that traditional news sources are received with increasing skepticism.  The networks and talk shows which once held sway are becoming less and less relevant.  Rush is becoming a relic.  So are his left and right clones.

Modern Wedding

For the past couple of days we have been in the midwest visiting my wife's family and attending the wedding of a niece.

One of the points of discussion was whether my mother in law would be able to attend.  She had recent eye surgery and thought with the combination of the heat and humidity of the summer in Michigan and still recovering from the surgery that the trip would be too much.  (It was about 100 degrees yesterday and very humid so not exactly ideal conditions for anyone.)

But she wanted to be there.   We came up with a solution which was partially successful.   We used my laptop to do an iChat connection so she could sit in back of the outdoor ceremony and watch and listen to the proceedings.   I say it was partially successful.   The Internet connection was seemingly at the limit of its capabilities and so the picture had a tendency to pixelate and freeze.   We'll make up for that with a couple of hundred pictures.   And as broadband and video conferencing continues to advance - those kinds of problems will be lessened.   But it was a reasonable attempt.

Saturday, July 02, 2011

Paul Krugman, Fantasies

On an NPR program this morning the host had a discussion with Paul Krugman about the deficit and the debt ceiling.  Krugman claims that a) we would be better off by going deeper into debt and re-creating the Works Progress Administration and b) that the debt ceiling is a meaningless construct.   What gets me about Krugman (and as you have seen in previous posts he annoys me a lot) is that he begins with moral outrage and like his buddy Robert Reich then lets his own biases trump evidence.

So let me offer a counter to both ideas.   Many on the left claim that the Roosevelt programs brought the country back from the brink of economic collapse.   The trouble with the argument is that it is not true.  The downturn in economic activity that began in the late 1920s has some parallel to the current period.  Included in that parallel was the actions of a GOP president (in the 20s Hoover and in the 2008-9 downturn Bush) who did a lot of what Krugman argues for.   All the spending in both periods had little positive effect in getting us out of the downturn; indeed some economists argue that the programs actually exacerbated the problem.  Krugman than argues that WWII brought us out of the depression.   (Although there was a slight uptick in 1937-38.)  Problem is that WWII merely substituted one type of consumption for another.  The real growth came after WWII as the GIs came back into the market and consumption began to grow.   Many of the FDR economists near the end of WWII argued (incorrectly) that the returning GIs would be a damper on economic growth.   The first two and a half years of this "recovery" offer a remarkably similar pattern to the earlier period.   We've lost 2.1 million jobs with the Trillions we have spent and the housing market continues to implode.  Gee, if we did more of this things would be even better.

Then you get to the debt doesn't matter argument.  Krugman points out that a) our debt ratios are low compared to other periods (especially WWII) and countries (for example Great Britain for most of the 20th Century) and b) that the debt ceiling is probably unconstitutional.   The second argument is speculative so let's deal with the first.   If you look at the percentage of GDP that the debt represents (assuming that it is right to include the government to government debt) it has risen very quickly in the last several years - fast during the end of the Bush Administration and accelerating in the first couple of years of Obama.  Krugman would ignore the unfunded liabilities of Social Security and federal pensions - but that is just nonsense.  The workforce is aging and we have fewer taxpayers paying in to the systems than we did and escalating projected expenditures.   That is not a good situation.  

At what point do the ratios begin to be troublesome?  Who knows.  But it is clear that the trendline is against us.   Krugman estimates the national debt at $10 trillion (actually it is closer to $15) and our shrunken GDP would soon not be able to handle the debt service needed to handle the debt.  At some point, and most conservatives believe it will be sooner rather than later, the debt becomes crushing and even if a lot of the debt is owed to ourselves we begin to need to make significant changes.  Krugman may be a supporter of the reverse Stockman thesis (discussed a few days ago).   Although he thought debt was troubling in the Bush era, he now believes it is inconsequential.   What gets me the most about Krugman is his smugness.   But people who have been listening to him for a long time understand that all of his views on domestic economics are colored by his partisan views.

Tech Bubble 2?

The plans announced by Zynga to do an IPO for a billion dollars seems like a stretch - but based on other internet startups like Linked In they may well raise the capital.   Zynga offers a series of interactive games that are supported by ads.   I first learned about them when I found Fish Wrangler.   The game has you fishing for an invented set of fish in an invented set of environments.   I lasted about six weeks on the game and then grew tired of the interaction.  Even though you advanced in levels the underlying premises of the game were constant.

Mark Pincus, the Zynga CEO commented "Play is one of life's big macros - it's an activity people love to do and do often," and so like his predecessors in the earlier tech boom he justified his pricing based on the appeal.  But I suspect the company will either have to continue to spin new and better games or will be a transitional phenomena.    I now play two Zynga games; Mafia Wars and Bejeweled Blitz.   The premise of Bejeweled is a simple game like Tetris.  The wrinkle on this variation is that you score points only for a minute.   There are online and offline versions.  Remember, that based on other IPOs of a similar type a $1 billion IPO could equal a $10 billion valuation - that is a lot of dough.

But the bread and butter of the franchise are the simulations and there I think there is a problem.  I have lasted on Mafia Wars for about a year.  The simulation is that you are a Mafia Don who starts in New York and then branches out to Italy, Brazil, Bangkok and Cuba and Las Vegas and Moscow.   Each has a set up phase and then a series of challenges.   But from my perspective the game has some serious limitations.  For example, it is impossible to leverage capital from one market to another - any good crime boss would use resources from one to build another.  I have just under 200 members of my "mob" - but what I have noticed is that a good number of the real ones (you can collect "default dons") no longer play.   The average length of commitment seems to be about the same as Fish Wrangler.

The revenue comes from three sources.  Each game has some spiffs that you can buy (in Mafia Wars reward points) that allow you to progress more quickly.  For the reported 168 million users I am not sure how many actually spend real dough.  I have not.   The company also does some ad support but I suspect that revenue is probably tiny.  Finally, they have released some offline games that you can buy as APPs.  In that arena there is a lot of competition.

I am not knocking the franchise.  The games probably have some appeal for younger people than me that lasts a bit longer.  But I do wonder whether the valuation is a bit north of reality.

Friday, July 01, 2011

The Reverse Stockman Theory

About half way into the first term of Ronald Reagan the President's budget director, David Stockman, dropped out of his position as budget director and "admitted" that the "real" plan had been to "starve the beast" - i.e. to create large enough deficits that the Congress would be forced to reduce government to balance the budget.  Stockman made a mini-career, after being one of the proponents of supply side theory, to become one of the leader critics.

One could make the reverse argument for the current president.  The huge expansion of spending through the stimulus bill and expansions of health care and financial regulation were indeed a plot to increase the share of GDP going to the government so quickly that Congress would be forced to increase taxes enough to cover the deficit.

There is no doubt that Mr. Reagan aspired to reduce the size of government.   Likewise, there is no mistaking that Mr. Obama would relish a larger role for government.   But like the earlier thesis by Stockman, I do not believe the world is as simple as that.   The dynamics of politics in a republic tend to put a damper on ambitions that are outside the norm.