Friday, December 28, 2012

An Unexpected Surprise

This afternoon I had a meeting in Vallejo (in California) and we agreed to meet at a place called Sac's Tasty Hotdogs.  (Located at 2445 Springs Road in Vallejo.)  We located it on Yelp.

It is not a fancy place.  It only has about 30 seats inside (in warmer weather there is an outside eating area).   The menu is limited - hotdogs, chili, chips, and soft drinks.   The service is friendly.

Now about the food.   For $3.35 you get a first rate, all beef hotdog with sliced or chopped onions, sliced tomatoes, relish, mustard.   We got there about 11:30 and by the time we got seated, there was a line coming out the door. That lasted for more than an hour - but the service was always friendly.  No frills.  But great food.  Good enough so that I would stop there again on my way between my home and the Bay Area.   Well worth the stop.

Tuesday, December 25, 2012


"An entitlement is  a guarantee of access to benefits based on established rights or by legislation. A "right" is itself an entitlement associated with a moral or social principle, such that an "entitlement" is aprovision made in accordance with legal framework of a society. Typically, entitlements are laws based on concepts of principle ("rights") which are themselves based in concepts of social equality or enfranchisement."  That is the WIKI definition -( and it is about as succinct at one can make it.  The chart at the right shows the growth in entitlement costs.

But there is a deeper issue here which the WIKI does not highlight enough.  There are two kinds of entitlements.   The first are created as if they were a traditional contract.   Social Security is an entitlement based on a series of direct payments over a lifetime of work.   It is pretty clear that Social Security and a number of other like minded systems (public pensions for example) are systems that could work if the recipients were willing to pay the appropriate amount to fund the projected benefits.   The problem is the political class is great at growing these things without regard to prudent thought about contributions versus future costs.

The second kind of entitlement is one created simply by one's membership in a society.   That entitlement is based on the notion of a merit good.   In essence, society will be better if we provide an adequate amount of something, for example like food to people who cannot afford it (in California now known as Cal Fresh but formerly called food stamps) or education for people who cannot afford it (Pell Grants).   Both of those entitlements are designed to make society a little better but they are open ended spending commitments.   In recent years these kinds of entitlements have grown tremendously.    It is hard to assume that the tremendous growth in the use of food stamps was caused entirely by the recession.  So the whole notion of entitlement may produce some deeper societal consequences.

As I have watched the discussions on the fiscal cliff develop I have thought a lot about both types of entitlements.   From my perspective both are corruptive to the creation of a just society.   It is easy to think about alternatives to the first kind of entitlements - Jose Piñera, the Chilean economist, gave us a map for improving Social Security and other programs like it decades ago.

Traditionally the second kind of entitlements can be controlled by two methods.   First, they can be budgeted on a traditional basis.  Figure out how much we want to spend on these programs and keep to that budget. In extraordinary times we could agree to spend a bit more, which might be paid back in flush times.  Second, the benefit could be divided by the number of applicants - in very tough times that would mean a small amount of benefit.

A better way to think about both kinds of entitlements would be to decide whether it is better to put the benefit on a sound financial basis that covers both current needs and appropriate actuarial assumptions in the future(like what is trying to be done for public employee pensions).    A second way to improve the current situation is to privatize the benefit and the financing.   Government serves as the rule maker, but not the administrator.   Many of the best proposals for Social Security are based on that principle.  Make the system more like an IRA, with a defined contribution level which is limited to an approved list of investments.   Make a separate provision for the small number of people whose benefits are not realized either because of bad luck or even imprudence.

The moral hazard of entitlements is that individuals begin to believe that simply by being a member of society they are due something.   That separates the concept of rights offered by society from the inherent responsibilities of being a member of society.  The President's rap (You did not build this) is an example of that separation.   But there is a second hazard.   Entitlements encourage politicians of all political stripes to use governmental authority to play one part of society against another with the idea that benefits will accrue to one group and costs will be borne by another.

Friday, December 21, 2012

Nibiru and the Fiscal Cliff

OK, so on the date that Nibiru (that mythical planet which did not crash into the earth) did not come, the fiscal cliff moved one step closer.   Last night Speaker of the House John Boehner was unable to get his caucus to adopt a proposal that the President had already been poised to veto.   he picture at the right is of the "Mayan" weather forecast but the way the MSM speaks about the impending fiscal cliff it could also be about the state of DC politics.   In both cases the coverage is a bit overblown.

What has been amazing to me is that the left (Obama and beyond) have not had their feet held to the fire yet by the supposedly objective media.  Ultimately, Boehner and the President have moved a bit on their initial positions but the MSM seem to think the real discussion here is about revenue only or revenue and a tiny amount of spending cuts.   What we should be having a national discussion on is just how much of our GDP should be extracted to run the federal government.   The long term goal here should be to get us a lot closer to the 18-19% that it has been for the last couple of decades.

There seem to be several sticking points.   The difference between raising rates on taxpayers making $400,000 and $1,000,000 (Obama and the left would prefer the lower number).  There has certainly been movement here - the President started at raising rates on incomes of $200,000 and the Speaker rejected any raise in rates.   Both sides would limit the use of deductions for the highest income taxpayers.  They both seem to have agreed to raise rates to 20% on capital gains.  Although some of the hard left would prefer no capital gains differential.

The President has dropped his plan to extend the Social Security rate cut.  So it seems for sure that rate will go up on January 1.  And in my opinion, it should.   They seem to have agreed on modifying the COLA for Social Security to an index that would rise a bit slower and has an assumption that when prices rise in one area people substitute consumption of other products.   That seems like real progress.   Where they remain apart is the Boehner proposal to gradually raise the eligibility age for Medicare to 67.   That was done in the 1983 compromise for Social Security benefits and seems like an eminently reasonable change to Medicare.

The gulf on Estate Taxes is pretty large.  The President would like to both raise rates (to 45%) and lower limits (to $3.5 million) while Boehner would like to keep rates and set the exclusion at $5 million.  While I believe the Speaker's plan is appropriate, this seems like an issue where the difference could be split and then indexed.

But on spending there is still a lot of work to be done.  For example, according to the NYT about a quarter of the Administration's reductions in spending come from an economic assumption of lowered payments on the national debt.   While it is probable that interest costs will decline as a result of less spending, rates for federal borrowing are unlikely to remain at their depressed rates for the next decade. The President also wants some more money spent NOW on infrastructure and extended unemployment benefits.   Both of those should be paid for with more reductions in other government spending.

So our next sighting of fiscal Nibiru will be after Santa comes.  If you are interested the NYT has an option for figuring out how to reduce the deficit.  A graphic of my solution is presented to the left.

Ultimately I hope that the political class - in this case I mean a lot more than one group of GOP members in the House that stopped Plan B from moving forward - will act responsibly to reduce the deficit before the fiscal cliff happens.  Both sides should be looking for three things - real spending reductions, some revenue increases, and an overall plan that will reduce the percentage of the GDP going to the federal government.   Some members of the GOP have a problem with any revenue increase but more democrats have a problem with an real reductions in spending.   If they cannot act like grownups then I say we should let the cliff happen.

Tuesday, December 18, 2012

Customs vs. the TSA

I am always amazed how some public agencies can function better than others.  This morning as I was coming back into the country, I landed in Los Angeles and went through the customs process in about 25 seconds.   I am a part of Global Entry which is a project from US Customs which allows travelers who submit personal data to get through the process of reentering the country with minimal fuss and bother.   It is a successor to a system that did not work very well but for the couple of years but the Customs Service worked to perfect it.   Since the new program was adopted, it has simplified my life.  I give them a bit of personal data and they get me through the process.  You go through a line, stick your passport in a machine, give a photo and fingerprints, answer the usual questions and voila you are through the lines.  I have used the service in five different airports and in each the system works well.  Bravo for the Customs Service!!!!!

But then I got to the TSA part of the process.  As I think happens in all countries, you are required to reenter security after you have cleared customs to board a domestic flight.   I am not sure what it is about LAX but the TSA staff there is beyond horrible.   They represent the worst of a bad situation.

When I fly, because I fly a lot, I am allowed to go through the "expedited" line. (I am a priority traveller.)   But at LAX the TSA seems to delight in being bureaucratic.   Even with the special status the line this morning took about 30 minutes to get through.

LAX is so bad that when I come to the LA area I make it a point not to fly to LAX.

Sandy Hook and the State of Public Discourse

I am a member of a group on Facebook which is made up of current and former political types.   This morning I posted something from Ezra Klein which presented two graphs one from Mother Jones which shows a shocking (my terminology) increase in gun violence and another from a contributor to Reason which shows the trend to be more flat.   As someone who spent a good part of his career on public policy issues I am always interested in seeing whether we can use data to understand how to make a situation better.   Here are a couple of things that we know.  First, compared to OECD countries, the US (see the first chart) has a higher level of gun ownership than other developed countries.   But second, gun ownership in the last several decades has decreased from about 50% of households to about 35% of households.   Simultaneously, the number of gun laws has increased significantly.   There is a perception, supported by the Mother Jones data that even with the decline in gun ownership and increase in laws, that gun violence - especially the type of violence in Aurora or Sandy Hook - is up.
So if you are aghast at the tragedy that unfolded in Connecticut, but you are aware of the underlying logic of the Second Amendment, how should the discourse go forward?   So this morning I posted to the Facebook group the article offered by Ezra Klein.   From my perspective more there is something missing from the debates about how to deal with this issue from the absolutists on both sides.   We need to do some good old fashioned clear headed thinking about how to reduce risks to society, especially school children.   The most realistic answer does not lie in the absolute positions of either gun antagonists nor gun advocates.

As I have thought about it we seem to have been able to let some guns slip through to people who should not have them.  Indeed, a couple of articles have suggested ways to tighten restrictions on gun ownership for people with mental problems, that on first glance seem eminently reasonable.  From my perspective, it would also be reasonable (although not something we should do in statute) for television networks to quit four walling tragedies like this.   I would prefer that the perpetrators of these kinds of things are referred to as "loon" or "nut case" but never with their names.  I am sick and tired of the endless coverage that every network does on people who had the most remote contact with the shooter - "Yes I was at a Dunkin' Donuts about two years ago and the guy behind me looked a lot like the shooter and I could tell he was deranged...."    

From my perspective we need not pass a bunch of laws which are not likely to solve the problem.   But as I have looked at the commentary on Facebook about this event, I've seen both sides devolve to the legislative kabuki which will not begin to solve the problem.    Perhaps the most odd response to my original post came from someone in the group who said - (quoted in its entirety)...

oops the rest of this is: trajedy and say hey stats show no prob, it's God punishing us for a woman's right to choose or gay marraige, stop. Children are dying. George, Ben and Thomas never could conceiv ably foressen asswault weapons. Maybe we should all be allowed to have hand grenades and bazookas. Afterall, they arms too.

The American political system depends on civil discourse.  From my perspective this issue suggests that we have lost a lot of what we need to work on common problems.

The UC Logo fiasco

Well the University of California finally recognized the obvious and cancelled the new logo.   The administration "suspended" the monstrosity but I think I know what that means.  I hesitated in writing about it while the issue was hot because it was a story which just kept expanding.

Here are some thoughts.

#1 - One wag commented that UC was flushing California down the toilet. There were tons of other comments - many with a good deal less respect.   Evidently more than 50,000 people signed a petition against the new logo.   Our Lieutenant Governor agued that rather than rearranging the logo the University should be thinking about how to fund this great university.  I do not alway agree with Newsom - but on this issue - he was spot on.

#2 - The University, if indeed it needed a new more web friendly design, could have exercised its role as a public university that has a couple of superb design programs - have sponsored a statewide competition.  I am not sure whether senior UC officials have ever read James Suroweicki's excellent book on the Wisdom of Crowds but they should have.  It is available in paperback and online.  Well worth the read.

#3 - This pointed out, as if there were need to do it again, that the university, like much of higher education has not spent a lot of time thinking carefully about how UC fits into society.    Any organization that would refer to itself as "the University" needs some deportment classes.

Mexico at the end of 2012

I had a short visit to Mexico City on Sunday and Monday and have three distinct impressions.   They are not presented in any order of importance.  The first picture is of the "angel" on Reforma- which is an important public monument.  Next to it is the Sheraton Maria Isabel - which was the scene of riots in the past and next to that is the American embassy.  So Reforma is one of the centers of the city - although compared to when I first came to the country - Mexico City now has a lot of centers.   So here are three impressions --

#1 - Mexico is enthusiastic - That may be an odd way to describe it but in the last couple of trips to the country in all sorts of places from the Yucatan to Xalapa to Aguascalientes to Mexico City - I have failed to notice the ennui that seems to pervade the American psyche at this point.   Mexico did not suffer the kind of economic dump that we did beginning at the end of 2007.   The peso has remained in the 12-13:1 range and all over the country there are signs of growing prosperity.  The middle class is visible and growing.

That does not mean that Mexico is silly with its enthusiasm.  There are real problems.  On this trip I only noticed one officer with the face mask described in a post I did from Xalapa.  He was in the airport this morning and I wanted to get a picture because both he and his drug sniffing dog were wearing masks.  The dog's was more of a muzzle.  But for obvious reasons I did not try to take a picture.

I am not a big fan of Mexico City - it is very large and very complex. (I am not generally a fan of big cities.)   This time I stayed in the Reforma area (more about that later).    I got caught up in the annual Coca Cola Caravan and so my cab driver was unable to drop me at my hotel - which precipitated a walk of some length.   But as I walked I saw families coming back from seeing the parade - as with many social events there were all ages coming back fathers, mothers, grandparents all taking a hand in bringing the little ones back.

The hotel I stayed in (Holiday Inn Express) was superb and inexpensive - it had both a good breakfast for free and free internet and it is close to many things including a big shopping mall next door.   The shops along the Reforma (I walked to my appointments on Monday) were open and seemingly prosperous.   So enthusiasm is one word to describe the spirit.   At earlier times I've understood cynicism but that at least for now seems a bit muted.

The second picture is of no particular importance except that it is the desk which I have used at the United Club many times over the last twenty years.   At one point I was stuck in the airport for about 20 hours- when a flight was delayed - so this desk is very familiar.

#2 - Mexico is changing - the Mexico City airport is a good example - almost every time I fly through there there is some new wrinkle.   On Sunday night I was stuck in the customs line with a young woman who is doing a Deloitte project studying the feasibility of creating an APP for online grocery shopping through Walmart.  That would have been unthinkable even five years ago but the internet is becoming ubiquitous.   I now spend a lot of time on Skype with colleagues and friends in Mexico.  Telmex - keep your damn monopoly - it no longer matters. (Unless of course you want a land line.)

The path from landing through customs seems to take a slightly different path each time I come through the airport.   Each time I come to Mexico there are new places where both cellular and internet are more widely available.  AT&T has set up a new plan (which is great) to give you 80 minutes of talk time in Mexico for $30.  I generally turn off data in Mexico because it can be very expensive but that is no longer a big problem - pop into many shops and there is free wireless.

Last night we went to a VIP theater - which I have described before (good food and drink and premium seating) and saw a recently released movie.   While not all of Hollywood's pictures get there - the blockbusters do.  Action and Disney are still sure sellers in Mexico.   We saw a movie called the Words (which in Spanish was translated into the Secret) which was actually pretty good.

#3 - Mexico has become a partner not a client - when I first came to Mexico I had the distinct impression that many of the US-Mexican relationships were more like clients than partners.   I think that is a lot less true.    Yesterday, I met with the Secretary-General of an education organization and was impressed at how informed he was about developments in the US and Europe.   We talked about several initiatives that he is thinking about with the new government and beyond and he had some interesting perspectives.  I also met with an attorney who is working on a big case in another part of the country.   He had spent a lot of time thinking about how his case might operate in other countries.

Saturday, December 15, 2012

Bill Moore

On Thursday, a mentor, friend and colleague died as a result of the effects of Lupus.   I first came to know him when he became President of the Association that I worked for.   I was the runner up.  The board chose him because they wanted to get on a different tack than his predecessor had chosen to take the group.    We quickly figured out how to work together, I think quite well and continued that collaboration for six years before he retired and then beyond as I succeeded him.   During that time he taught me more about management and leadership than I had understood in all of my previous work.

Bill spent a career in higher education after completing a PhD.  He went to the University of Redlands (where he served on the board for a couple of terms) and then taught there and began a rise in university administration.   His last job before I met him was at Chabot College in the Bay Area.

He had a several skills - which I continue to try to emulate (some more effectively than others).  One was an ability to listen.  It is strange that the old admonition all of us heard as kids (God gave you two ears and one mouth for a reason) is not followed more closely.   Bill was the exception to the rule and had a special skill in keeping that standard.  He also had a remarkable ability to synthesize what he had heard.   About ten years after I succeeded him, I asked him to come back and help us with some strategic planning.   I asked him to go around with our board and gather information and then join us in a retreat to help us think about next steps.  At the meeting he did a remarkable job of bringing together 20 or so opinions into a thread that we could work with.   I was working with a board earlier in the week, in my role as a consultant, and thought of how I have tried (imperfectly) to emulate what I watched in that role.   It is a lesson I keep thinking about.   Finally he had a nice touch of being able to synthesize what he had heard - to continue to bring people together.

One of his key roles during his tenure was working on a revision of the California Master Plan for Higher Education.   That required a set of meetings in five or six venues - often with similar but not exactly the same participants.   In the end we came out of that process with something that was useful to our members.

Bill had a good sense of humor.   Early in his tenure he had played a trick on me - I am not sure what it was.   But I decided to get him back.   At the time we had second or third generation Macintoshes.  He would commute to the Bay Area each day so would leave on most days by about 5:30.  I went into his office after he had left and wrote a short Applescript which would start up an Application (I've forgotten the name) which made noises of a woman in hot passion.  I thought it would be funny when he started up on the following Monday - but little did I know.  My office was next to his and he came in that morning and immediately got on a conference call with the straight laced President of the University of California (David Gardner).    He sat down, started the call and then flipped on his computer which immediately began to make the noise - as I rushed in laughing he was red-faced and trying frantically to shut the thing down.

Bill introduced me to two other things for which I am grateful.  He served on a corporate board (including a role as the chair and then as an emeritus member) and I succeeded him on it.  For the first several years he offered valuable advice and counsel on the culture of the board.   It was much appreciated.

But then there is fly fishing.   Each summer Bill would take a month off to go to Montana and fish near West Yellowstone. It was a way of keeping balance.  He eventually built a house there and after retiring there spent about six months a year there.   He was passionate about fishing.   And little by little I have been drawn into the sport.   The three pictures are in Montana, near his house and in a place that both of us loved to fish in Wyoming.

One thing Bill and I did not share was politics.  He was a New Republic Democrat and I am not.   We had some spirited discussions about issues of the day.   We did share a passion for one political issue - the improvement of opportunities for all students in higher education.  In one of his last notes to me he said he had moved to his new home to help balance out the voting.  (Obviously in his half year home in Napa his vote did not make a difference.)  In one his last notes to me Bill explained why he moved from his "beloved" California - "We left CA not so much in anger as in sadness.  It seems bent on becoming a banana republic, the same status as the country seems headed for if the idiots in Washington cannot bring themselves to understand the difference between governance and campaigning."   On that we could agree!

Bill asked that his ashes be divided between his new favorite spot at the Swann and on the Madison where he fished for many years.

Tuesday, December 04, 2012

Customer Service? Not from

Over Thanksgiving we went to LA to visit my daughter and her family and my mother in law.   We used to do the reservation.   We wanted a hotel which is literally a block away from my daughter's house.   We chose it for the location.   The search term used was EAGLE ROCK, CA.   Eagle Rock is a suburb of LA but a recognized region of LA.   When you search on Mapquest you get the area as a separate part of LA.

When the options came up the top listing for the brand we were looking for was on Colorado Avenue, which is where the hotel we were looking for is located.   So I reserved the hotel.  We've stayed at the hotel previously and I remembered the approximate price, noted the hotel was on the street we had stayed at before.  I even looked at the other options including a hotel from another chain which is right down the street. The location of the place we wanted to stay is located on the map with the purple dot.  The place where the search engine placed us was nine miles away. (note the city of the alternate location is the city of Pasadena).   These kinds of problems are minor but annoying.   I discovered that the price you could get from is no better than a number of other booking services or by going directly to the chain in question.   What's more I tested a couple of the other booking services to see whether they would do the same thing and found that when I searched for one city the top response was for that city.

I immediately wrote and complained.   I had been explicit in my request and the search engine over-rode the request.  They came back to me within one day with the following response -

"We apologize for the inconvenience, we are committed to providing our customers with quality hotel reservations and superior service. We consider your feedback to be very valuable. We have noted the information you provided and escalated this to the appropriate department. Rest assured that we will look into this matter. "

I expected that after an appropriate review they would come back to me again with a response which explained why their search algorithm could ignore my request.   But almost two weeks after their initial response I have heard nothing.   Can you guess whether I will use again any time soon?

Wednesday, November 28, 2012


I loved the new movie on Lincoln from Steven Spielberg.   In the credits is says it is based on the Doris Kearns Goodwin book Team of Rivals which is a stunningly good book about Lincoln's use of his cabinet.  I am not sure how they made that connection except to the notion that both discuss Lincoln.

This movie is ostensibly about Lincoln's effort to get the 13th Amendment passed before the end of the Civil War and before his second inaugural.   There are many high points to the movie including a short segment where Lincoln justifies why a Constitutional Amendment is critical even with the Emancipation Proclamation.  But there are other high points too.  Daniel Day Lewis as Lincoln is convincing.  Some of the reviewers have questioned whether the voice Lewis uses is appropriate - I think it is.

The supporting players including David Staithairn as William Seward, Tommy Lee Jones as Thaddeus Stevens and Bruce McGill as Edward Stanton all turn in fine performances.  Sally Field does a pretty good job of looking haggard as Mary Todd Lincoln.

What was also interesting was the depiction of the lobbyists that Seward and Lincoln used to obtain passage in the House of Representatives.  When this legislative battle took place the Senate had already passed the proposal (which then went to the states for ratification).  There were only 193 members of the House in that Congress with a heavy weight toward GOP members.  Lincoln had to round up a group of lame duck democrats and other minor party members to win the day.   I think this is the first movie I have ever seen that puts the role of lobbyist in a positive light.

There are two other highlights of the movie.  The first is the costuming.   I usually don't notice things like that but all of the characters look like they are a part of that time.   The second is the ending where they do a flashback to part of Lincoln's second inaugural address.  All in all this is an entertaining and informative movie.

Tuesday, November 27, 2012

Constructing the Algorithm of College Costs

There is a lot of writing about college costs these days. The American Council on Education, for example, recently published a booklet by the two authors of the superb book, "Why Does College Cost so Much?"  attempting to explain the rather precipitous increases in tuition prices. They presented a fair amount of data and their conclusion was that the trend line on costs was declining although still faster than the underlying rate of inflation.  Over at the Hardwick Day site (One of the best consulting firms on enrollment management that among its peers has pioneered in encouraging its clients to think about enrollment questions more broadly than simply attracting students)  the President Emeritus of St. Lawrence University writes that the business model for higher education is broken. In the late 1990s I served as a member of the National Commission on College Costs, so this is an area of intense intellectual interest.
Figure from the Hardwick Day Article (mentioned above)

Colleges and universities, as the National Commission pointed out, have not paid enough attention to costs.  Part of that is their design and governance structures.   And part of it comes from what William Massey, formerly of Stanford, called the lattice effect.   Colleges and universities are constantly trying to improve themselves to the next level - in this case keeping up with the Joneses costs real dough.

All the discussion of college costs seems to have discounted two important issues.   First, many in higher education seem to be oblivious to the cost curve.  They believe that the inherent value of higher education will continue to trump the problem.   Many in those camp cite the College Board figures that suggest a college degree is worth something north of a million dollars more in lifetime earnings than a high school diploma.   Things are changing however.   The financing model for higher education is being changed quickly - that is especially true for public institutions which have seen concurrent increases in tuitions and decreases in state funding. (Not unrelated factors)   At the same time alternatives to the traditional four year degree have been popping up in all sorts of places - while many of those alternatives are downright nonsense - others have real credibility.

The second issue is more basic.   In the last decade (or more) one disturbing trend has been an escalation in the number of non faculty personnel compared to faculty.      From my perspective the trend has two causes - demands of the consumers and the costs of compliance.   Just like the car you buy is not your father's auto - the college education you purchase is not your father's college education.   Students expect all sorts of amenities that my generation did not.   Surprisingly some of the functions have been outsourced (bookstores and food service being prominent).  Even with those changes there are more people serving students who are not engaged in teaching.

Administrative creep has also been caused by the costs of compliance.   Governmental mandates to do all sorts of things have been escalating even faster than college costs.   Some of those things are simply a reflection of the changes in demand that all of us have asked for.   But a good many are attempts by all levels of government to substitute their judgment for the judgment of higher education professionals.   So higher education is asked to compile all sorts of reports on everything from how they use student aid to how they store chemicals.   Unfortunately, even when higher education recognizes a problem the heavy hand of government steps in to create a new and often redundant form of disclosure.   The last revision of the Federal Higher Education Act, had very little new funding in it but more than 170 new reporting requirements.   Reducing the problem of regulatory overburden won't eliminate the cost curve but it will help.

Friday, November 23, 2012

Enough with Chicken Little

Is College Worth It?

The Atlantic did a post on a recent speech by Bill Gates which presented a lot of data about colleges and universities and their current problems.   As Gates points out governmental support for colleges and universities is declining and the declines are being covered in part by increased loans and fees.  Default rates, by the way Mr. Gates, are unsurprisingly rising.    At the same time graduation rates are, to use an inappropriate term, crappy.  If you go to a community college you have a 30% chance of getting a degree in three years.   The numbers just about double when you attend a four year institution for twice the time.   Gates also points out that we are falling behind many nations in our supply of college educated workers and that by sometime in the near future we will be something like 22 million degrees short.

I hate to be jaded here but anyone with the least bit of sense, knows those numbers.   There has been a lot of writing in recent months about a) Why it is not worth going to college (Peter Theil, for example), or why there are plenty of alternatives to a traditional four year degree (Udacity, Coursera, etc.)   What one would hope is that Mr. Gates, no college graduate himself, would do is not yammer about the problems but actually begin to think about solutions.

What annoys me most about this presentation is that he concentrates on public universities.   Indeed, they are about 80% of the market.   But were Mr. Gates the least bit creative he might have thought about different delivery and pricing mechanisms that would require less government spending, allow more options for students and improve the abysmal stats on things like graduation.

Another Kind of Immigrant

Last night as we were celebrating Thanksgiving with our daughter and her family, I was reminded of something that should challenge all people who call themselves educators.   In 2001, writer Marc Prensky coined the term digital native and digital immigrant.   He argued that those of us who grew up in the era before digital technology became ubiquitous are "immigrants" that speak with an accent.  

I think of myself as a pretty digitally literate person.  But after dinner my son in law called his family in Oregon and his family huddled around an iPhone to FaceTime with them and exchange greetings of the day.   They had a fine conversation.

The point is not that they used Face Time but that their instinctive notion was to call visually (although I would have probably tried it on my iPad first for a bigger picture and a better video experience.   Our granddaughter, who is a very literate 2 year old, was engaged and chatty with her other grandparents and cousins and uncles and aunts.   Every time I use FaceTime or my wife uses SMS, we do it with a bit of wonder.  But we are, after all, immigrants.

Another example, about a year ago I was in Mexico City at a restaurant, with my iPad.   It had been hooked into WIFI in the restaurant for another purpose.   All of a sudden the iPad rang and there was a four year old calling his "boppy" on Face Time.  He had secured his father's phone and knew how to ring me up.

One of the issues that these two parents confront is how to make sure that their child is educated in a way that helps her develop in the world in which they reside.   We've had some long discussions about the challenges there.   And there are many.  Fortunately, these kids are comfortable bridging between traditional things like story books and new things like digital media and even at times in serving as translators for their immigrant grandparents.

Saturday, November 17, 2012

Two Thoughts about the GOP

It seems there is no shortage of advice for the GOP these days after they lost the Presidential election against a weak candidate (on paper) and a chance to retake the US Senate. In both cases the GOP did not get the job done.

Until 2012 no President has been re-elected to a second term with a smaller majority of the vote, with unemployment at the range it is today and with negative polling about the direction of the country like it is today - that is until 2012. What has annoyed me about all this soul searching is that it has been done a lot by individuals who do not have the best interests of conservatives at heart.

One writer to the NYT said "Republicans would have to offer something beyond the “government is bad” mantra that alienates many of these potential constituents, an economic program more credible than trickle-down tax cuts, and backward-looking social policies." Steve Lopez of the LA Times said to California Republicans that their future was bleak without a "major makeover." Sarah Westwood, who describes herself as a lonely college republican at GWU says the GOP can't win unless they get the attention of young people.  A bunch of guys on something called Red State Update says lose Fox News and the Laffer Curve (which they describe as nutty economics - wonder what they think about Keynesian economics!)  Former NYC Mayor Ed Koch argues "The lesson for the Republicans is they will never win future presidential elections unless and until their platform accommodates diversity of opinion on hot-button issues such as abortion, same-sex marriage and use of medical or recreational marijuana. " (Wonder how he feels about the diversity of opinion in the Democratic Party Platform on these issues.)   So there is no shortage of advice.

Brett Stephens (Earth to GOP; Get a Grip) of the WSJ who argued in the early part of the year that Romney would win the nomination and lose the race says that the GOP should back off on the Gay Marriage issue and on Immigration. Stephens predicted early in the cycle that the GOP would not win. And his advice was pretty much on point.

All this weltschmerzing has made me dizzy.   Andrew Kohut (Misreading Election 2012) from Pew has a slightly different take than the rest of the crowd.   He suggests that Romney did not do as bad as some of the others claim.  Kohut points out that a) Romney never did connect with voters and b) that the GOP did better with several groups than in previous elections.

So where does that leave the GOP?  Should conservatives be bringing out the sack cloth or should they do some more careful reshaping?   From my perspective, while I agree with some of the critics about gays and immigrants and a few other issues.   I also believe that to shape an electoral strategy conservatives need to weed out the weenies like Todd Aiken. - however, there is a bigger theme that is more important.   What is wrong with the current crop of "progressives" - from my view they want to destroy liberty.   What is wrong with the some in conservative circles - they also want to destroy liberty.  They both believe that the state can actually solve a set of problems.   But a lot of young voters understand that yammering about what people do in the privacy of their homes, and what we can do with people who want to come to this country are simply different sides of the issue of whether we as Americans believe that the federal government will be able to make wiser choices about health care than individuals.   Conservatives need to look at public policy issues through the lens of liberty.


We discovered a small restaurant in Fair Oaks that is worth the trip.  It is called Fabians Italian Bistro.  There are a lot of bistros in California (originally a neighborhood restaurant with a relatively simple menu and modest prices) that are not worth a damn.  They are able to combine haughty service with lousy food.

We've been to Fabians twice in the last week.  We've had four dishes - A butternut squash in burnt butter, a chicken piccata, a risotto and mac and cheese.   Each were special.  Tonight I had a Brussels Sprouts appetizer with a pinch of blue cheese and pancetta.  Exceptional.   Last week I had a home made soup that was magnificent.

But the place is even better because of the service.  The servers are polite, funny and they know their stuff.   But they don't hand out a lot of gourmet terms that mere mortals do not understand.

There is one small problem with the place.  The deserts are up to the quality of the entrees but the portions are generous enough that you will need to avoid the excellent bread to have enough room to try them.

Fabian's is in the Almond Orchard Center on the corner of Fair Oaks and Madison.  The Almond Orchard is one of those unassuming small shopping centers.   Don't be fooled. It is close to where we live but  it is worth the trip it you cannot call it your local bistro.

Tuesday, November 13, 2012

Only smaller

I got my iPad Mini today.  You might ask why I would buy a mini when I already have a regular sized iPad.   Those of you who know me would not ask such a question.  The Mini is even more portable.   A bit larger than the last Newton but a hell of a lot more reliable.   All the same apps; a bit better connectivity (I got the WIFI model); a larger screen face than most of its competitors; a brilliant display (great for reading but like a paperback); battery life is exceptional.

SO compared to the new iPad 4 - no A6 chip; and fewer pixels per inch - but same great connectivity.   So would I buy one?  Yes, and I did.

Did I mention that as a result of the smaller size, it is also incredibly light?

Monday, November 12, 2012

Thoreau on Entitlement Reform

Over the weekend my daughter and her husband visited us and as often happens we had a couple of discussions about politics.  My daughter and her husband are strong supporters of the president.   As readers of this blog have already found out I begin my thoughts of government subscribing the the notion first advanced by Thoreau in Civil Disobedience in which he said in part -
"I HEARTILY ACCEPT the motto, — "That government is best which governs least";(1) and I should like to see it acted up to more rapidly and systematically. Carried out, it finally amounts to this, which also I believe, — "That government is best which governs not at all"; and when men are prepared for it, that will be the kind of government which they will have. Government is at best but an expedient; but most governments are usually, and all governments are sometimes, inexpedient."  (Emphasis added)

I am not against government for a very limited number of things, just skeptical that if we get too exuberant in figuring out how much more government can do, we risk profound unintended consequences (although I suspect some of the consequences are intended by those who would extend governmental power).    

My daughter and her husband base their expressions of support for government on two premises.  First, is an assumption about improving equity in society.   While my wife and I have been relatively successful in life, there are those in society that have not and in a just society we need to as Dickens says in a Christmas Carol "it is more than usually desirable that we should make some slight provision for the Poor and Destitute, who suffer greatly at the present time.  Many thousands are in want of common necessaries; hundreds of thousands are in want of common comforts, sir."  Who could be against that?   Well, me for instance.

A just society should make provision for the poor and destitute, but there are what economists call moral hazards when you err too much in one direction.   People react to incentives and if you diminish the benefits of prudent behavior people may be less prepared to make provisions for themselves.   Social security is a prime example where a well intentioned program distorted individual choices ending up eliminating possibilities for some benefits to society and even reducing the possible individual benefits that most people could expect to receive.

I am an advocate of privatizing Social Security, in much the way that Jose Pinéra did in Chile and which many other countries have proposed.   The privatized system has a couple of benefits for society.   First, it creates a capital pool which the existing paygo method does not.   Those assets could also create a larger benefit and a legacy to ones heirs.     Over my working life between employer and employee contributions to Social Security I contributed more than $330,000.   That produces a monthly "benefit" of about $2500.   Had that money been invested in a conservatively managed pool of stocks and bonds (similar to the options in programs like tuition savings plans or IRAs) the value of those contributions would have tripled.   At a payout rate of 4% my monthly benefit would increase by more than $800 per month.  Even if I agreed that we would make a payment to others that might amount to 10% to cover the needs of people in society who make poor choices, I would still have a much better result by having government set the rules rather than running the program.   From any reasonable interpretation, the current system (where benefits are reduced and there is no residual) is a sucker's bet.   The chart at the left shows inflation adjusted returns for the Dow Jones Industrial Average.    If you begin at 1900 that increase is 100 times the 1900 amount - even if you adjust for inflation (which is about 28X) the return is still huge.   Retirement savings have a very long time to grow because our cycle of work is a very long time.  

There are plenty of ways to make provision for people who are either unable to invest for themselves or who are simply unlucky.   But the bottom line is that the private alternative would provide greater security while at the same time producing a huge capital pool for investments that society needs.  IF you do not believe it, simply look at the transformation in places like Chile.

But there is a second argument raised by both my daughter and her husband.   There are a lot of people who receive government assistance, even me and my wife.   And indeed we do receive payments.    But again lets look at the facts. My return on the Old Age Survivors and Disability Insurance have been mildly negative when compared to a reasonably diversified portfolio of investments. As demographics continue to turn against the younger participants in the system, they believe they will never receive benefits.   That is a bad deal for all.

There is also the question of Medicare.   And indeed the math here is also negative.   Over my working life I paid in just under $100,000 in tax payments to the health insurance part of Social Security. (Again remember to at least double the amount paid in based on an assumption that had the money been invested to term we would have a capital pool that would at least match some reasonable investment index.)   But Medicare is not free to recipients.   My wife and I now pay a monthly premium for parts A-D and advantage coverage of about $1000 per month.   When I left my last full time employer, my health insurance coverage was costing my employer (for covering both of us) a bit more than $1500 per month.  Add in the money already paid in and the cost of coverage is at best about equal to what I would pay in a market based solution.

Market based solutions need not be harsh to the less fortunate.  I come back to my original point, the risk of relying too much on government is that in the words of Thoreau government run solutions can be "inexpedient" for both the individuals and society.

Thursday, November 08, 2012

Thoughts on the Big Issue on the California Ballot

I've spent the week as a Citizen Leader on Campus at the University of the Pacific.   That involves attending a group of classes and offering a couple of lectures.  I went there as an undergraduate and there are a lot of changes.   Most of them are positive.

One the questions I got in one of my lectures was about why someone who had spent his time in and around education could express doubts about the Governor's proposal to raise income and sales taxes to fill the hole in the budget created by the absurd budget assumptions in the budget that was adopted last year.

California has had a continuing problem in balancing its budget. Some commentators have argued that the problem was created when our former Governor repealed the fee on vehicle licenses that left a gap in the budget.   At the time I argued that the VLF was annoying but unimportant.  In essence what that Governor had done is give each of us a small reduction in taxes (which most of us did not notice) in exchange for a less stable revenue base.  

I was critical of the then Governor because I think he took the short term popular decision which cost us in the long term.   I think the same can be argued for this Governor and Proposition 30. California, before the passage of Proposition 30, has a revenue structure that is volatile in the extreme.   (As illustrated in the two charts to the left - which only go up to 2002-03 - note the volatility in revenues has done nothing but increase.)    The volatility comes from how people at the higher end make their money.   Most people assume that income taxes come from salary.   But as you go up the income scale income becomes more complex.   People begin to earn income from non-salary things like investments.   So income is income right?   Not exactly.   Salaries are pretty stable over time.   But investment income is much more volatile for two reasons.   First, risk capital is just that.  It involves risk.   But second, investors can decide when to claim the income when their investments go up in value.  If I have a big profit I can decide when to realize it.

There are some tax theorists that argue that we should begin to recognize what is called accreted income.  Accreted income includes things like the unrealized value of investments.   Indeed, at the beginning of the 1986 Tax Act discussions, a group of tax economists actually proposed something very close to that as a way to reform taxes.  They relied on an important book called An Expenditure Tax (Nicholas Kaldor) that many of us had to read in graduate school.   When President Reagan saw that proposal coming from his appointed task force he immediately recognized that what might be ideal in theory is often absurd in practice.   In the end, the 1986 tax act lowered rates and broadened the base of the tax system rather than including things like accreted income.  It was a wise decision.

So when you rely on high income taxpayers to bear the greatest burden, you commit to a more volatile revenue system and when planning for long term funding of programs, that is not a good idea.  Remember that under our current income tax system, the highest income taxpayers bear a disproportionate share of the burden (as they should under a progressive system) but since individuals can determine when to take income, the trick is to devise a system that encourages individuals to make more consistent tax payments.    In the end that means making hard decisions about broadening the base of tax systems (with fewer deductions and credits) and lower rates (which encourages more people to simply pay the tax rather than timing decisions in investments based on tax policy).

Governor Brown could have done the brave thing - which would have been to propose tax reform (which admittedly is not an easy task) but which would have reduced the volatility in the system and thus been a better long term fix of our budget problem.  

There are two other burdens created by Proposition 30 which also contributed to my opposition.   First, as you raise rates (to have California become one of the highest rate systems in the country and also one of the most complicated income tax systems in the country) high income taxpayers will make a decision to leave California for fundamentally more friendly tax climates.   Lose high income taxpayers and you reduce volatility, but you also lower the income tax base.   In the long term that does not bode well for the state's revenue structure.  Indeed, in the last few years we have seen a steady stream of very high income taxpayers leave the state.   But the Governor also proposed to increase sales taxes (again making our sales taxes were already among the highest in the nation).  

I understand the revenue models that project how much the state will collect with these new taxes but I am skeptical.  And more importantly, as rates for both income and sales taxes go up, the state becomes less friendly to attract new businesses and residents.    Who knows what the long term will bring?   Last year California actually grew at a slightly higher rate than the rest of the US (2.0 v 1.8%) but over the last decade California's wonderful growth engine has been tarnished.

The supporters of Proposition 30 could argue that our schools are in a horrible place - and indeed California's education system is in shambles compared to where it was earlier in our history.   They could point to the work of Charles Tiebout - who argued decades ago that people choose areas based on amenities not tax systems and better education coupled with our beautiful climate would allow us to have slightly higher tax regimes than less desirable places to live (like our neighbors to the east - Nevada).   But this is an argument about degrees.

From my perspective, Governor Brown took the easier path - ignore fundamental tax reform and tax the "rich."   It remains to be seen whether that easy path will actually solve the long term problems that the state faces.

Wednesday, November 07, 2012

Thoughts on the Election

Last night's election seems to have been a pretty significant victory for the Democrats.  The GOP campaign push, which at the beginning of the year looked like significant gains in the US Senate evaporated starting with the unfortunate Todd Akin but extending into states like Indiana, Wyoming and Montana.    The Romney campaign which had some very good issues did not seem able to exploit them.

So what happened?

1) Demographics can no longer be ignored by the GOP - As the percentage of White voters in the electorate continues to drop, the GOP has failed to generate interest in especially Hispanic voters.   That is in part based on their lack of a reasonable stance on immigration.   The option here is change or die.
2) I am skeptical about revenues and even more skeptical about the efficacy of tax policies adopted in California.  The Governor's Proposition 30 passed with a big vote from LA County.  The voters bought his argument of a gun to the head of the schools.  But I remain skeptical whether the revenue estimates that are projected ($6 billion) will solve the budget deficit that California has faced for the last decade or so.   What is more troubling is the notion that California does not need to reform its tax system which now can claim the highest sales tax in the nation and an income tax system which has punishing incentives for investors.   If the revenues are not realized I would expect the Governor to come back with some other proposal which also involves taxes.   Ultimately to make California a better place we will need to do a lot of work on the tax system including simplification and base broadening.   At the same time we need to blow up things like Proposition 98.  Schools deserve a priority in funding but Proposition 98 has not provided anything close to the guarantee that was promised.
3) Californians are bizarre - On Tuesday Californians voted to reduce the stringency of the Three Strikes Law but refused to stop the death penalty.   Both measures were conceived on the notion of saving taxpayer dollars (it is likely that eliminating the death penalty would have larger long term effects).   We refused (rightly I believe) to adopt a byzantine new set of regulations for regulating genetically modified food.  At the same time we adopted new measures against "human" trafficking which from my perspective look equally labyrinth like.

California also seems to have given a two thirds majority to democrats in both the Assembly and the Senate.  That kind of supermajority is likely to advance to the kind of mercantilist policies that have made other lefty paradises hell on earth.   I wonder how long it will take the voters to recognize what they have wrought.  The unfortunate situation is that the GOP in California died a few years ago and so there is no realistic opposition.

4) The Fiscal Cliff may be in better shape than before the election - Right after the election two of our leaders (Boehner and the President) at least made noises about figuring out how to think about our problems from both sides of the aisle.   The Minority and Majority Leaders of the Senate (which is supposed to be the mature body in Congress) echoed the sounds of the petulant children we have come to expect.   One scenario that was discussed last night was to let the country fall off the cliff so that and changes in tax policy would not be scored - but the risks and consequences could be substantial - especially if they fail to achieve the macro goals (partial pun intended).
5) Conservative Talk Radio needs to rethink their memes - The Salem Radio network seems to be all GOP all the time.  While there are some very interesting people on the station at times, others seem simply there to pimp for the current GOP candidate or issue of the day.   I would argue that a lot of the legacy media and the new lefty cable channels (MSNBC) are just as bad.   And in the end while I do not disagree with the idea that ideological media is useful, it needs to get some better perspective.
6) Breaking Precedents - When the Redskins lose in their last game before the election.  The Ruling Party loses.  Ditto for a president with a smaller margin than the first election.   Both of those were not upheld in this cycle.  But then there is the meme about Presidential coattails affecting the House more than the Senate and that one seems not to have been upheld either.

So what happens next?   1) We will continue to have crappy economic growth AND that will even be worse in California based on our new tax regime. That will not improve until we understand that government should revert back to a smaller percentage of the GDP.  2) The optimist in me says the politicians will finally realize that we should be working on the deficit.  The pessimist in me says to buy property in Mexico.  3) Big Bird is safe, at least for now, but I still believe that he should find his own dimes rather than taking tax dollars.

Funny things - the WSJ had two great posts in James Taranto's Best of the Web - One a Romney Haiku -  He did do better 
     Than 47% 
     But not by enough

The second thing he comments was the split voters made in battleground states (voting for the president versus their votes for House members) - 

Here's how the new House delegation breaks down for each swing state with 9 or more electoral votes, with Republicans counted first: Colorado 4-3, Florida 17-9 (with 1 yet uncalled), Michigan9-5, North Carolina 9-3 (1 uncalled), Ohio 12-4, Pennsylvania 13-5, Virginia 8-3, Wisconsin 5-3.  Voters, even in the battleground states, really do not want a unified government.

Friday, November 02, 2012

It is Deja Vu but this time the Press is not calling him on it

At the first conclusion of the Iraq War, the then President piloted a jet on to an aircraft carrier and proclaimed that we had vanquished the terrorists.   Today the current president is making a similar claim - He said Al Quaida is on the "run."  

Indeed, during this administration Osama Bin Laden was finally located and exterminated.   But as we saw on the eleventh anniversary of 9/11, Al Quaida and all its various factions still has the ability to attack a US embassy (technically a consulate) and the current president and his administration have shown a marked propensity to be unable to respond in a timely or helpful manner.   But on both cases, the claim by the President and the failure to act - the legacy media seems strangely silent.

Just like his helicopter ride over New Jersey, the President's media events seem to outrank his ability to govern.  I am not surprised by this disparity but I am disappointed that the media seems to lack any sense of objectivity.

Monday, October 29, 2012

The Major Impediment to Bipartisanship

One of the most cogent criticisms of President Obama has been his failure to work with the GOP in Congress.   Indeed, the Healthcare bill is unique among landmark pieces of legislation in the country's history because it attracted no GOP support.   The President's supporters have argued that it is those nasty old Tea Party members but there is a much clearer explanation for the President's failures.   The Senate, under the "leadership" of Senator Harry Reid has simply refused to consider any legislation from the House that Mr. Reid did not want to hear.

The criticism of the President's lack of bipartisanship before the 2010 election is probably even more on the Democratic leaders in both houses.  But as you can see from the list at the right (published in an editorial in the WSJ this morning) at least ten pieces of legislation passed by the House, never got a hearing in the Senate. they never even got a hearing.  Consider what might have happened if the President had leaned on Reichs Kommandant Reid to hear some of the bills.   First, the normal political process could have been advanced a bit.  Senators love their independence so they would have considered the bills and modified them - either in large ways or small.   Then there would have been a conference committee and more modifications.   Even if there had been one or two bad ideas (in the eyes to the Democrats) that got through, the President would still have the veto power.

Ultimately, if the GOP did not play under those rules they could rightly have been branded obstructionists.   My suspicion is that even the hardest line conservatives would have recognized the need to engage.  But the President and Reid refused to give the wisdom of our Constitutional system a chance.   And the President and his buddies simply continued to whine about how nasty the GOP can be.    That obstructionism may contribute to the President's defeat and it would not have been an issue had the President had a bit more trust in the complex design of our system.    That is a real lacking for someone who bills himself as a "constitutional law professor."

In this case you cannot blame this on Obama

Last night, as we try to do each Sunday, we had dinner with my son and his family.    We went to a Macaroni Grill - for those of you not from California, think Olive Garden with better food.  It is a modestly upscale restaurant (with some great dishes and efficient and pleasant service).   But when we came in the place was almost empty - on a Sunday night.   Very often on Sunday evenings at about 7 one needs to wait for a table but last night we got in immediately.

My immediate hunch was that this was economically related.   This is a mildly upscale place and we had not been into a MG for a while - I thought - "The economy is still not robust and people are staying home.   But my initial hunch was wrong.   When I asked the waiter he said this was dead for a Sunday and that he actually let some of his staff leave early because business was so slow.   But the explanation was quite simple - most families were home watching the Giants get to inning 37 to beat the Detroit Tigers in a sweep of the World Series.

However, there is one footnote here.   As we were leaving we were given four discount coupons that one can open on the next visit to get a discount or a cash prize.  Evidently, places like this still need to work on keeping business.

I am not a Giants fan but those 37 innings were some of the most exciting that I have seen in the last several years.   The Giants played as a team with the help of at least two former Rivercats pitchers (Zito and Casilla) and the enthusiasm of fans from all of Northern California.

Sunday, October 28, 2012

Krugman's Utter Nonsense (but then I repeat myself)

NYT scribbler Paul Krugman wrote in his blog that anyone who questions the methodology used by NYT writer and statistical guru Nate Silver is an "attack on objectivity."   Well, at least Krugman is consistent; consistently wrong.

Nate Silver is a sports nut and a math whiz.   In the 2008 election he had worked for the Daily Kos and developed a set of statistical models which had remarkable accuracy. He missed on state on the electoral map and called all 35 senate races in that year.   This year, he is pretty clear that he agrees with the modeling (a lot less sophisticated) on Intrade which suggests that the president has a 63.2% chance of winning re-election.   Silver's current odds suggest a larger chance for the President (74.6%). Both forecasts (one based on money "invested" by political junkies and the other by Silver's methodology) show that the President seems to have regained some support after the first debate.
But Krugman yammers "Yet the right — and we’re not talking about the fringe here, we’re talking about mainstream commentators and publications — has been screaming “bias”! They know, just know, that Nate must be cooking the books. How do they know this? Well, his results look good for Obama, so it must be a cheat. Never mind the fact that Nate tells us all exactly how he does it, and that he hasn’t changed the formula at all." Except like most of what Krugman writes, most of his claims are untrue.  Silver has explained the factors he uses but not the specific weightings he uses in each of the states. 

Krugman seems to have been reacting to an article on National Review Online by Josh Jordan titled Nate Silver's Flawed Model.   Jordan makes two comments in the article.  First, he suggests that to come up with his forecasts Silver weights his results, in a way that seems to favor Obama.   The methodology which Silver developed involves some subjectivity - how much weight does one assign to various polls in various states.   Those could be done to come up with a result or because of his own judgments.    Jordan then goes on to suggest that Silver is openly rooting for an Obama victory.  Indeed, in 2008 the Obama campaign shared private polling data with Silver.

I read the Jordan article and thought he raised some interesting questions about Silver's process.  Obviously (and I think reasonably) Silver has not let others peek under the hood.   So the formulas in his algorithm are unknown.   Ultimately, we will know in about ten days whether Silver was a flash in the pan or whether he developed an interesting set of formulas that project election results.  

From my perspective there are two things that are pretty clear in this election cycle.   First, polling is flawed at this point.   A smaller proportion of voters have land lines so getting responses is tougher than it once was.   At the same time we have seen a proliferation of polls - some of which have questionable reliability.  Not all polls are equal.    

Second, 2012 is not 2008.  The President has had a devil of a time getting his approval numbers to get near 50%.  (Silver's macro formulas for 2008 and this year rely on the president's favorability ratings (below 50%), economic growth (less than 2%) and then a whole bunch of other stats including polls and historical voting patterns.    In 2008, there was never much of a question who would win.   That is not true in this year.   At the same time there is that annoying fact every president who won re-election raised his votes in the second election.  If Obama wins, that is unlikely to happen.  No GOP candidate has ever won the Presidency without winning Ohio and at least the RCP averages on the state suggest a small Obama lead.   Silver could be correct about the outcome this year, or he could be wrong, but I will guarantee you that whatever the result, there will be some discussion about whether one can construct a reliable predictive model on elections that will last over time.

I have a friend who is an economist who uses economic data to project presidential elections.  He confided to me a month or so ago that while his model has been accurate in the last ten elections, and that this year projects a Romney victory, he had less confidence in the results this year.

Krugman is unwilling to admit that some prognosticators could have flaws in their models.  He, among all people should understand the frailty of any kind of prognosticators - even former Enron consultants.