Something not about the failure of Obamacare

OK, I admit it I am often a people watcher.   At the end of this year I am spending a lot of time in Mexico.  For the next couple of days I am in Veracruz and Xalapa and then after that for most of the last two weeks I will be in San Miguel de Allende.   On this trip I am working with a good friend who is the rector of a university in Xalapa.

Last night he met me at the Veracruz airport, we had a late (actually very late) dinner and then this morning went to the Paroquia which is required duty in Veracruz.   The food in the Paroquia is not great but this is a classic meeting place for this part of Mexico - it is a classic (as opposed to Starbucks or Peet's) coffee shop.

While we were having breakfast I noticed the lady in the picture.  She was well dressed and alone.   Over the time we were eating and talking, I noticed her order first a plate that looked like Machacha.  She took a plate from the serving counter and carefully divided the portion in two and then covered the half she did not eat.   She did the same with a plate of fruit and some cheesecake.  

After we had been there for a while a man who could have been a son came and sat down at the table and she got up and began to talk to him with a great deal of authority.  (For example, she pointed her finger at him.)   But he did not eat any of the half portions.  He then got up and left.  As we left she had cleared her bill but I did not see her make any attempt to put the food in a "roadie."   What do you think the rest of the story is?   Is she the mother of the owner, checking up on her boy.   Did she recently lose her husband?  Does she have an eating disorder?

On Friday night we stayed in a hotel that is down near the port called the Emporio.   The hotel has recently been refurbished.  It was quite comfortable and is right next to the Paroquia.    There was a lot of wind last night and so all night long because of a poor seal on the door I heard a whooping noise - after a while it just sounded like white noise.

Several years ago we stayed in a charming hotel in San Juan Puerto Rico called the Hotel Normandie - which I enjoyed a lot.   That hotel was built by an engineer from Puerto Rico who met his wife on a ship called the Normandie.   Since we stayed at it the hotel has been through a couple of owners.   It is even a bit more art deco than the Emporio - but both are evocative of a time when hotels were elegant.

At some point I will get back to policy related comments but I have grown tired of repeating the obvious errors of the ACA - which the President and his former governor of Kansas - who is now secretary of commerce (and therefore well qualified to take over a substantial portion of the US economy) seem to think is operating just fine.   But at least until the end of the year I am content to write about this visit to Mexico and the one yet to come.

By the way my wife sent me a newsflash that the President had been voted the fifth best president in US history.   Reagan and Lincoln were voted #1; 23 presidents tied for second; 17 tied for third; Carter was fourth and Obama came in fifth.   Made me smile if it were not so true.

The Hobby Lobby Case

This week the Supreme Court accepted two cases which could become a fundamental base for a new understanding of the role of government.    The President's Senior Advisor argued in an article on HuffPost that  A Woman's Health Care Decisions Should Be in Her Own Hands, Not Her Boss's.  That is something I agree with totally.   But then Valerie Jarrett perverts her own argument by assuming that if the government mandates something it should also be able to impose its values on individual employers.  There I disagree.  The two cases accepted were  Sebelius v. Hobby Lobby Stores, Inc. (13-354); and Conestoga Wood Specialties Corp. v. Sebelius (13-356).   The left has argued that this is a "radical" change in the way law is interpreted by adding individual rights to corporate ones.  Jarrett seems to think that the ACA should have imposed a common set of standard on employers not individuals (although there is indeed an individual mandate) and seems to ignore that the individual mandate, if interpreted in her broad reading, coercive.

Jarrett writes "Ensuring the full freedom of women as health care consumers to access essential preventative health services is a vital component of the Affordable Care Act (ACA). And nowhere are health decisions more personal or essential to keep in their hands, than those regarding reproductive health. The ACA was designed to ensure that health care decisions are made between a woman and her doctor, and not by her boss, or Washington politicians."   Unfortunately the ACA goes several steps further.

Could government conceivably require health insurers to add certain coverages for health policies?  Of course.  That is especially true if the government is providing the service.  But should government be able to force employers, who have formed in a corporate structure primarily in response to  our tax laws, to offer coverage which violates their religious beliefs?  I think not.

I am not an attorney.   But I believe that the four justices who voted to overturn the ACA in the courts are most likely to be joined by the Chief Justice, who wrote the convoluted opinion which formed the basis for upholding the ACA.  It is also pretty clear that the four justices who concurred with Roberts' decision are unlikely to change.  So we will be stuck with another 5-4 decision.

Ultimately, there are plenty of alternatives to the mandate and to the one size fits all philosophy of Jarrett.   I wonder whether Jarrett has ever tried to think about what Hayek called the "fatal conceit" - ultimately centralized solutions like Obamacare will fail because they ignore the rich diversity of the human experience.

This story has another twist.  What I have not seen is a set of suits challenging the President's arbitrary and capricious implementation of the law he challenged.   I am not sure where there is any authority for a Chief Executive to selectively over-rule provisions of an enacted law so blatantly.   His delay of the employer mandate and now other provisions without direct congressional authorization is a testament to the complexity of implementing this Leviathan - yet no where in the statute does he have the authority to delay those provisions that are hard to implement - especially when the delays are timed in such a manner as to sweep the problems under the rug until after the 2014 elections.

Leaders Then and Now

For the past couple of months I have been reading the last volume of the Manchester biography of Winston Churchill and Churchill's own History of the English Speaking Peoples simultaneously.   If you have the stamina they should best be read together.    Who else would attempt to explain history in a coherent manner from Roman times to the end of the Victorian age in four volumes but Churchill?   Manchester, in this volume, chronicles Churchill from the beginning of WWII to the end of his life in one big book.

If you want to know how many times Sir Winston burped in 1943 you can probably find it in the Last Lion - the detail is comprehensive.   I did not read the earlier volumes and thus cannot be sure whether this kind of detail was a result of Manchester's writing style or of his ultimate collaborator (the last volume was finished after Manchester died).    But at times the style can be mind-numbingly boring - even for a Churchill fan like me.   I think the book is at its best when he talks about Churchill's work in Parliament and especially of his Fulton Missouri speech.   There are some great quotes (Clement Atlee was described as a "sheep in sheep's clothing.")   What you find is that Churchill could be brilliant and petulant at the same time.  That being said, he had a tremendous capacity for conscientious work and clear thinking.   While he was wrong often he was also right about a lot of things.

The History of the English Speaking Peoples is a survey of great breadth.  It gets some of the history wrong (for example, I think his appreciation for Hamilton is a bit distorted) but on the whole he paints a picture on why even with a very bloody political history staffed by an interesting group of characters, there is something exceptional about our shared history.  In spite of the President's comments about lots of exceptional histories in the world - I think Churchill makes a good case that our history is indeed unique.

What I was struck with most was the comparisons of Churchill (and his descriptions of the great leaders in his history and Manchester's even) with leaders of today.   Clearly, Churchill thought he should be taken seriously and had a sense that what he was doing was important.   But the difference with today's leaders is that he also thought it was a great idea to actually accomplish something.   He could be a bitter partisan but at the same time he figured out how to actually get things done.  He tried to be at the center of things but he also tried to work collaboratively.  Churchill understood the beginnings of polling but he was never driven in his leadership decisions to be guided by polls.    Can you think of any US political leader who is not driven to consult the Ouija board of polling?

Confronting a Cliche

First, please excuse my long delay in posting.   I am tired of writing about the train wreck that is Obamacare - which is odd in itself - this is a train wreck that keeps on getting worse.    So yesterday I went up on the Trinity river in Northwest California to fish for Steelhead.

The cliche is "the worst day of fishing is better than the best day of working..."

Steelhead are an interesting fish.   They are bigger than trout (mostly) and are very spooky - the best conditions to fish for them are pretty miserable.  When the water is cold and clear, they are very tough to catch.   The Trinity is a tributary of the Klamath river and is a total of about 165 miles.   For Northwest California it has been pretty dry.  So the water yesterday was very low and very clear.   In the time that I have fished the Trinity I have averaged two fish a day - which is actually pretty good - although that average is a bit misleading between days when I landed 4 fish and days when I landed none - I've never had a so so day on the Trinity.

On Saturday, there were evidently a lot of fishermen on the river - so going into Sunday was not promising - low water, clear, pounded heavily the day before - not promising.   And indeed, the promise came true.   I got one or two nibbles but landed nothing.  At one point the outside air was cold enough so that the guides on my fishing pole were clogged with ice.   But the Trinity is very responsive - if they get some good rain before the end of the year - the fishing will come back quite well.

But was it a good day?   There is another cliche that many fishermen use - there is a difference between fishing and catching.   We had a pretty good fishing day - but a lousy catching day.   It was great to be outside in one of the prettiest rivers in the US.   I got to work on technique yesterday under a lot of different conditions.   We had a great guide (Brian Kohlman from Confluence Outfitters).   I got to go up with my son and introduce him to fly fishing - he has been a gear guy before.   And that was fun.

But was it better than the best day of work?   Not really.  It was different, fun, challenging.  But certainly not better.   But the skills you gain on a day like this are many - patience is one of the biggest.   And that then can make even the worst day of work a bit better.

An interesting twist

I have a son in law who works for Disney so we often
talk about the changing nature of the movie business.  On Monday, when I was in Mexico City, I went to a Cinépolis - which is a big movie chain there.  We saw Gravity in 3D which was actually pretty good.

A couple of years ago I wrote about VIP theaters - where you get very comfortable seating and a very good range of food and beverages for a premium price.   That innovation is finally coming to the US in limited cities.

But on Monday I also noticed this Kiosk.   It has digital images of all of the movies available and a patron simply slides in a credit card and makes a choice and you get your tickets.   No lines, no confusion.

The next logical step is to adapt this to a smartphone application which will simply avoid the capital cost of the Kiosk.   The difference between this and a service like Fandango is that it does not involve any service charge - although the Fandango charge is certainly nominal.

I have not seen this kind of ticket dispenser in the US - although it could well be being used in some cities.   Movie theaters need to continue to think about what will bring people into the theater - ease of entry and an enhanced experience will both keep them in business.

Some initial impressions of the iPad Air

Yesterday morning I went out to one of the two Apple stores in the region to pick up my new iPad Air.   I have some comments about the actual device but have two other comments before that.

First, Apple did something different for this upgrade.  When you went on the site (as I did at midnight) you could choose to have the thing delivered or you could use in store pickup.  When you got to the store there were two lines.   One for people who had not purchased in advance and one for those who had.   It took me about 15-20 minutes to get my device and walk out of the store.

One other interesting thing I found about this upgrade.   I decided to go to the 128 Gig model.  I thought I was outside the norm.  At least for this store, as I spoke with people in line and as I talked with the person who delivered my iPad - the 128 model with a Cellular connection seems to be pretty popular - followed by the 32 gig model.   I guess if you want capacity - you pay the extra $100 (from the 64 gig model) and get the larger model.   I wonder if those dynamics will continue as the product rolls out - I doubt it.   Two of the people I spoke with in the store were buying ones for Christmas presents and both bought the 32 gig model.   One other thing - only 1 person I spoke with wanted the WIFI model.  I will be interested to see how these numbers shake out over time.

Second, as you walk out of this particular Apple store there is a kiosk for the Surface tablet.   They also set up lines but as you can see - there was not one.  That pretty much describes the success of the Windows alternative.  (Snarky Comment)

On to the review of the iPad Air.   I have not had a chance to test things like battery life - although I believe Walt Mossberg's stress test which argued that battery life is even a bit better.   And I am in the process of deciding which Apps I want to keep on this new one.  I also am not a stickler for things like Pixels.   The screen on my now former iPad was great - this one is also great although it has more pixels per inch - but I am not sure whether I can actually see the improvement enough to care about it.

Today I will give you three quick impressions and then work with it for a week for a more comprehensive review.    #1 - Form factor - the new model is indeed a lot lighter.   But it is also physically smaller.  The Air is 9.4" X 6.6"  versus the 9.5" X 7.31" for the earlier model.  It is also thinner and lighter by about a half a pound.   Yet the screen size is the same.   That will make this a lot easier to use for things like reading a book on an airplane than my earlier model.   I think the new Air may cut into sales of the mini- simply because it is a bigger experience with only about a quarter of a pound more in weight.  In one sense this new model feels like a Kindle 2 in my hand - very comfortable.

#2 - Speed -  From my initial side by sides (I am in the process of stripping my old model down to give to my son) the Air is noticeably faster in doing everything.  Everything.  It switches between Apps better.  It loads materials in Apps more quickly.   I have read the benchmarks but many times benchmark test results are less clear when you actually use the device.   But this is simply faster, a difference that is not technical but noticeable.

#3 - Connectivity - One of the selling points of the new model was a redesign of the WIFI and Cellular antennas.   I will be interested to see when I take this out of the country but at least here, doing the things I do now - everything about signal strength seems to be better.   WIFI actually pops up quicker and in some simple tests I seem to be able to get slight (or great in some places) better WIFI signal.

When I have used it for a while I will give you some more thoughts.

Whats wrong with Supercats for Health Insurance?

Before the ACA consumers had the opportunity to buy the equivalent of a "super cat" policy to cover only the extraordinary costs of health care.   Insurance is an agreement between the company and the insured.  There are two key concepts about insurance - frequency and severity.   Some insured events happen often, others not so much.   Some insured events are expensive and others are not.  A third idea one needs to understand about insurance is the concept of retention (Retention = deductible) which is really the amount of risk you are willing to bear.   In many cases people are willing to bear small and frequent risks from their own resources and hoping to have an insurance pool cover those larger costs that occur infrequently.

Think a bit about your car.   You can reduce the cost of insuring your car by increasing the level of risk you are willing to accept -for example if you raise your collision deductible you can lower your out of pocket costs that you pay to an insurance company.  But when accidents occur you have to pay out more on each incidence.  Thus, there are two implicit bets being made by people who raise their deductibles.  First, they believe that over the long term the net savings in premium by accepting a higher deductible will be greater than the costs incurred by auto accidents.   At the same time the make an assumption that they can bear the costs of the large expense when it comes.  

In health insurance, younger customers who do not have a lot of health problems can save a lot of money by buying a high deductible policy.   The attachment point for these can be a lot or a little - but the assumption is that day to day costs of health are borne out of pocket.   So doctor visits are not covered but major operations probably would be.

One size does not fit all in health insurance.   It has some characteristics that are similar to life insurance - as you age benefits are more likely to be paid out.   But as with life insurance some older individuals might choose to forgo full coverage of insurance.  One of the dynamics of the ACA is that it allows (and indeed even potentially encourages) individuals to postpone making a decision on health care costs because no person can be denied coverage.  Depending on one's income and situation in life it might be most economical to not sign up for Obamacare until you are faced with a catastrophic event.

Yesterday the President described the high deductible policies as "junk" - that is utter nonsense - although some of these policies are certainly less useful than others many are designed to meet consumer needs.  An implicit assumption in the President's logic is that all people who buy high deductible policies are unintelligent consumers.   In reality people who buy these policies are like the rest of the population - heterogeneous.    Some are young and don't use the system much.   Some are not wealthy and they are likely to be served by the expansions in Medicaid.  But many have made a wise decision of postponing spending on health care to accomplish other things.   They have more money in their pockets that they can use for other purposes.

There is plenty of evidence that the expansion of insurance and governmental interventions has increased cost structures in health care.  Many doctors have begun to reject both Medicare and Medicaid patients.  I have found that in some medical offices if you came in before the ACA and offered to pay cash (and thus allow a medical office to not go through the forms process) they would offer you a discount over their normal fees.

A wiser course when the ACA was being considered would have been to allow some of these "super cat" policies - that might have been acceptable even if those consumers were required to sign a disclosure (as one does in lending transactions) acknowledging the types of risks being assumed by the purchaser.   But the majority that passed the bill would have none of it.  And the Secretary charged with implementing it went about her work in the most doctrinaire manner possible.

A new definition of accountability

I must say that after I read reports of the HHS Secretary's testimony yesterday I had to go back to the dictionary. She said "Hold me accountable for the debacle. I'm responsible," - So what does the dictionary say - "the fact or condition of being accountable; responsibility."

So did the Secretary say  assure those people who counted on the promises that she and the President made would be fulfilled? (If you like your current policy you can keep it)  Uh, no.

So did the Secretary suggest that she had an answer to fix the problem of many current policy holders experiencing huge increases in premium?  Uh, no.

So did she say they would fix the process by which a massive new complex consumer website was allowed to go live without adequate testing?  Uh, no.

So I am confused.   What does taking responsibility mean?  When Harry Truman was President he said "The buck Stops here."  For the Secretary, the words are clear but the substantive actions are not.  In the Nanny World view of the Secretary being accountable means making decisions for others that you do not feel they are competent to make on their own.

The Absurd Dynamics of Obamacare

Ezra Klein of the Washington Post's Wonk blog has been furiously trying to find a pony in the load of errors that is Obamacare at this point.   He did a post yesterday which argued that the ACA's policy was actually pretty good - despite the news of the computer screw ups.   He presented a diagram and called it the Obama Trilemma - which argues that the ACA is trying to balance three different issues in health insurance.

When you think about the diagram at the right it which comes from his article, it looks simple - but the simplicity makes all three legs inaccurate.  That is true in part because it oversimplifies the problems associated with trying to advance health care coverage.

Take each of the three legs of the triangle.   Affordability is a concept that is, in this instance, in the eyes of the beholder.   What is the right percentage of income that a person should bear to be covered?   That answer is different for the poor and the rest of us.  Accessibility is a bit clearer - although in this case because of the mandate - accessibility is not voluntary.   Is a comprehensive policy one which meets the current needs of a policy holder or one which covers all eventualities?   If you decide to define it as the latter, then the costs for many consumers will be significantly in excess of what they would pay under a less regulated market.

There are actually four markets that the ACA is trying to cover - the group policy (where individuals are covered for health costs by a policy issued by an employer), the individual (where individuals buy coverage on their own), Medicare and Medicaid.   Medicare is relatively straight forward - individuals are covered for a basic policy and have the option to purchase at additional expense a broader set of coverages.  Although it is financially unsound, we at least understand how it works.   The case that was made to expand Medicaid was that it was not accessible to a broad enough range of individuals (that depends a lot on how flexible the individual and group markets are) and on your definition of equity - in this case the Congress chose to define the standard quite liberally (400% of the poverty rate calculated by the Federal Government).

The real problem comes on accessibility for the individual and group markets.   If comprehensiveness is too broad then insurance companies are likely to reduce their spread of risk or raise their prices to cover those new costs.   Remember that the President repeatedly told us that "If you like your current policy, nothing will change."   That turns out not to have been true.  Comprehensiveness for the supporters of the ACA is defined by someone else - In 1993 Hillary Clinton commented "We just think people will be too focused on saving money and they won't get the care for their children and themselves that they need"   So much for consumer choice.   Here is the situation for one such policy holder who had her choices reduced by the ACA -

I'm one of those 7 to 12 "millions" who has had an individual "policy"- in Texas, no less- for 10+ years. Premiums with my current Ins.Co.- BCBS- are going up 25% for an individual "Silver level" policy. What am I gaining/losing ? Mental health coverage (thankfully, don't need); better Rx coverage (I think- but maybe not); no lifetime policy maximum ( mine was $1MM); maternity care (Umm, at 60, don't need it); had 80% major med/ co-insurance-BUT- no maximum out of pocket. With a Silver plan, I'm down to 70% "co-insurance" but a "cap" on out of pocket at $6250. Is it a "good deal" for me, assuming no catastrophic health crisis ? No. But neither was/has been my private, individual policy of 10+ years- Over $7,000 a year before co-pays & deductibles for "benefits" that have averaged out to less than $500 a year. 
I "get" shared sacrifice; I get getting the under served/poor into a system that treats before a crisis (and out of the ER- which as a Taxpayer, I am paying for directly- via my property taxes here in Dallas); I get convincing the young invincibles that nothing is free forever. 

Evidence is coming in fast and furious that a lot of people covered in the individual market are being dropped or are facing huge increases in costs.   The numbers at this point are in the millions.  Sara Kliff - who writes on healthcare for the WP, commented that between half and three quarters of the buyers in the individual market are going to be dropped.  She says that is because the plans do not meet the standards of the ACA.   In reality the numbers look to be a lot larger, in part because some of the group market is also being affected and many group policy holders are facing significant cost increases.  One administration person called the 5% (probably a low number) insignificant.

There is one other twist in the program which has long term implications.   There was an implicit tradeoff in the ACA  - we could afford to expand the coverage in the Medicaid part of the system IF we got people who were currently uncovered to buy coverage.   Evidence from the successful sites like Oregon is that the vast majority of "purchasers" are signing up for Medicaid.   That makes the economics of the program even less favorable.

The ACA, at least in California Covered, which I investigated for a friend, has lots of choices - from bronze, to silver, to gold plans - offered by a number of providers.  That seeming choice is not realized when you add in all of the mandated services.   Costs even for a minimum policy may not be reasonable except for a person who is getting a government subsidy.

If we can ever get to trying to fix this mess (after the incompetent computer code is adjusted) we might begin to think about a system which offers a shopping basket rather than a package for consumers.

Two Ways to Look At Christmas

I have a friend who is an ardent Emailer.  She often sends out inspiring and interesting posts.   But this morning she left me flat with a suggestion that instead of buying something made in China that we buy American.   In this globalized world the sentiment is nice but actually not helpful to our own interests in the US.

Her post, suggested that you do things like going to a local restaurant and leaving a big tip (nice sentiment for the server); getting a gift certificate for your barber; a health club membership - or other things which seemingly buy local.

But the curmudgeon in me could not resist responding.  The premise of the argument suggests that we should buy American and close out all those foreign products.  But I go back to David Ricardo who had a much more Christmasy idea called comparative advantage that suggests that it is often better to allow a country or firm to produce a good or service if they can do it with either lower cost or lower opportunity cost.

Let's look at the purchase of a cellular phone compared to a health club membership.   If a cell phone costs about $200 very little of the value is produced by the manufacturing process.   By allowing your Christmas gift list to get that Chinese made phone you do a couple of things.  First, you encourage the creation of higher end jobs in the American economy - think of the difference between the wages of a health club employee or a designer or engineer who figures out how to make all those new features.  Second, you are helping to build another economy in the world where (as their economy develops) they will have a whole lot more buyers who want things like American designed cellular phones.

Now consider some of the consequences of buying that health club membership.   If cellular phones are manufactured in China could it be possible that all those workout machines are also made outside the US - the US has (until recently - more on that later) been losing manufacturing jobs.   Think of how overjoyed you 15 year old - or even your spouse would be with a mundane Christmas gift like a certificate to a barber - almost as good as a pair of socks.

Finally, there is that stubborn thing about changes in comparative advantage.  In the last couple of years, comparative advantage on manufacturing many things has come back to the US.  It seems that our stronger productivity has helped us to bring back jobs on shore - and those jobs pay pretty well.  So the best strategy for Christmas giving seems almost the opposite of what my good friend forwarded to me.   But then that is often how economics thinking works out.

A thoroughly misleading statistic

Earlier this week the Census Bureau released numbers which I found to be significantly misleading.   The headline stated that 49% of Americans get government benefits.  82.5 million Americans receive Medicaid benefits (that is about one in four).  Almost 50 million receive Social Security payments.  An equal number received food stamps.  46 million get Medicare.  20 million receive SSI.  13 million receive subsidized housing.  5 million receive unemployment benefits.  3 million get Veterans benefits.  And about 360,000 receive Railroad Retirement.  (The chart at the right is from the WSJ)

Here is my problem with the number.   I have color coded two types of programs - those which require a contribution (where the government serves as a bank) and those which do not.  In many cases the programs that are contributory are a horrible deal.  For example, over my career my employers and I contributed almost $350,000 to Social Security and almost $100,000 to Medicare taxes.   If you simply net present valued those contributions my current Social Security benefit would be at least double what I am receiving.  And more importantly I would have a net asset to pass on to my heirs.   Medical insurance would be a lot more expensive but would still provide better benefits if the program were a true contributory scheme.

Some of those programs in black are set up like a risk pool.  So, for example, every wage earner pays a percentage of wage to unemployment insurance.  During my career I never had to use the insurance, but had I been unemployed I could have cushioned the problems of not having a wage while I looked for another job.   But some things that are called insurance are not.  FICA (or Social Security) is called insurance but it is not.   The structure of Social Security where one generation pays for another (thus if the number of contributors begins to be smaller than the number of recipients) is unsound financially but in no way is it insurance.   Many of the problems of these "benefit" programs could be solved by making part of the payments we all make into a savings program and part into a welfare payment for those who have been less fortunate.   That is what places like Chile have done and it immediately put their program on a sound footing.

By confusing the notion of benefits you begin to confuse the basic role(s) of government.  There are now 15 million more people receiving food stamps than there were at the start of the recession and the number continues to grow.  At the same time I am concerned that the rollout of the ACA will increase the recipients of non-contributory benefits.   Clearly, as a society we need to provide for those who cannot provide for themselves.   But we should not make two errors that I believe the stories about the Census numbers do.   First, we should not aggregate the data between programs run by government that are (at least in theory) supported by contributions and those where support for individuals receive benefits without direct contributions.  Second, if we really want to focus on those with legitimate needs then we need to think about ways to assure that those programs which are contributory all the maximum flexibility to the contributors to get the best yield on their contributions.  

Combining contributory and welfare benefits together distorts reality and makes a bad deal for both the contributor and the recipient. If you carry the logic of this statistic to its conclusion then every time I drive on a road, which I pay for with income and gas taxes I am getting a benefit from government.   Government then becomes the creator of all benefits.   That certainly is not a way to advance a free society.

5 Things that Most Writers missed in the Apple Announcement on Tuesday

There has been a lot of comparison between Steve Jobs and Tim Cook in their announcement style.   One of the things I have come to appreciate is that Cook is a very different type of salesman.   First, he seems to know that the best presentations are not based on a personality but a product.   Such were the announcements in Tuesday's event.

The press was not as excited as I was about what the announcements included.

Here are some things I thought were significant:

1) The New iPads - What is most important here are not the incremental improvements (the new models will boast an improved (dual) WIFI antenna, and in the case of the full size model - about half a pound less in weight.   The addition of more LTE bands will make these devices more useful across borders.   There are more pixels in both models - I think the screen is already pretty good - but this will make it a bit better.  Then there are the processors (see number 2).    For the last year, I have brought only my iPads on short business trips.   That becomes even more likely in the future. 

When the iPad was first introduced a lot of the critics yammered about the lack Adobe Flash - quite frankly I do not miss it.  With all the new stuff that is even more true.

There are plenty of other Tablets and Phones for people who do not want to be in the Apple environment (or ecosystem) - but both the hardware and the software integration (see below) makes it less likely that current users will bolt.

1a) Laptops - The major change in the laptops of Apple is to introduce Flash and eliminate hard disks - that is also true for the Pro.   That adds a ton of speed to this monster.  

2) Processors - The iPad processors both include the A7 chip and the M7 Coprocessor - just like the new 5S phone - all new iPads will now have 64 bit processor capability.    Compared to roll outs of earlier new chipsets on other platforms - that means that in less than a year all of the Mac Tablets and phones will be operating near the edge in capabilities.   

3) Software - In my opinion the biggest announcement was that some of the best software on Macs is now FREE.   Mavericks - which is a nice update of the laptop/desktop operating system is a free update.   But so are core applications like Pages, Numbers, Keynote and iPhoto and iMovie.  Ultimately now when you buy an Apple product - it is useful immediately and as long as you own it.

About two years ago I quit using the Microsoft Office Suite - I never liked Powerpoint and Excel and Word got big and complex.  The Apple alternatives were as functional but simpler to use.

Microsoft, with Windows 8 has tried to do the same kind of integration but there is a major difference.  Both for Windows and the Android operating systems - not everyone is using the current system.   Within a very short time since the introduction of iOS 7 - about two thirds of the devices that could have upgraded to the new system.

Mavericks also does some back processing for earlier models and will help increase things like battery life and graphics usage.   So your older model of a Mac (I have a two year old Air) actually adds some functionality.   Things like Safari and Maps have also been improved.   So when it was released it went on all my laptops and desktops.   The Software downloads were quick and simple.

4) Integration - The new introduction of iBooks on to the Lap/Desktops means that a lot of scholarly work can be more easily done on the Apple platform - you can copy material from a book and then drop it into a document you are reporting.   There is not an absolute integration (for example it does not allow one to use formal footnotes - in any one of the footnote formats.   But that feature is a significant improvement for people like me who no longer read hardbound books.

5) Cloud Integration - One of the problems I have had with my clients over the last two years has been the necessity to convert a document into a PDF to send it to people who use an alternative operating system.     With all of the iWork Applications one can now send a document into the Cloud and then allow anyone that you authorize to edit it.    I have had to use the Google alternative at times and found it very clunky.   From a short use of the new cloud based Apps - that is not true for documents, spreadsheets and presentations created on the Apple platform.

Reporting the news and other fantasies

The WP noted earlier in the week that the government shutdown and the cumulative effect of all the uncertainty in government policy had cost the US economy a whopping $700 billion since 2010.   But when you go to the source (which is the Peter G. Peterson Foundation) you find that the report actually makes a very different set of claims.   The Report claims the following:

#1 - The Perils of Fiscal Uncertainty (which include the inability of our leaders to establish long term policies on spending and taxes) has lowered GDP growth by .3% per year since 2009 at the same time unemployment has been kicked up by .6%.

#2 - The partial shutdown could cost .3% in fourth quarter growth.

#3 - The Debt Ceiling uncertainty has also created the possibility (with two different scenarios) that dampens employment demand and thus reduces GDP growth.

#4 - The reductions in discretionary spending have dampened growth by .7% and increased unemployment by .8%.

Some of the conclusions are quite questionable.  For example for #4 to be correct one would have to accept a fairly significant economic multiplier for government spending.   My own conclusion is that the reductions in government spending when they coincide with reductions in uncertainty and a long term reduction in deficits would lead to significant economic growth.

When you read the full report (which is a mere 14 pages) you find that it continues a long established notion from the Peterson Foundation - the current fiscal regime is unsustainable.  We need to balance revenues and expenditures.   Early in the report it suggests that

Economists agree that failure to shrink prospective deficits and debt will bestow significant economic consequences and risks on future generations. Federal deficits drive up interest rates, “crowding out” private investment. If government borrowing supports consumption (e.g., through Social Security and major health programs) rather than public investment, the nation’s overall capital stock declines, undermining our standard of living. The process is slow but the eventual impact is large.2 In addition, accumulating debt raises the risk of a fiscal crisis. No one can say when this might occur but, unlike crowding out, a debt crisis could develop unexpectedly once debt reached high levels.

At no place in the report is the figure of $700 billion mentioned.   The report clearly supports ending the uncertainty and not unsurprisingly seems to argue that while revenues might be a part of any solution to the set of problems - expenditure reductions and a more stable tax policy would significantly improve growth.   Clearly, the Foundation suggests that we need to come to a resolution about the appropriate role of government (and in past publications they have argued that). 

Unfortunately, polarized government has fostered a systemic refusal—or inability—to legislate sensible long-run policies to address U.S. fiscal imbalances. While there is disagreement over the terms of the inter-temporal trade-off implied by the requisite fiscal contraction, the political battle centers on the distributive role of government in society. Intransigence over that issue, combined with the annual need to appropriate funding for defense and other discretionary federal programs while avoiding sovereign default, has driven Congress and the Administration to adopt short-sighted, sometimes seemingly arbitrary policies. The number of temporary tax provision set to expire at the end of each year has risen dramatically over the past two decades.

The WP claims that the sum total of all the figures above amounts to a 3% loss in GDP.    No rational economist can think that if you sum the effects of the four perils that they do not interact.   What the Post has done, in my opinion quite irresponsibly, is to trumpet a number which is dubious at best.   There are part of the Peterson report that I agree with - we need to fix the budget.   But the right fix is not simply to raise taxes to equal our long term and unsustainable commitments.

What Happens to Former Treasury Secretaries?

I have always wondered what happens to former high ranking government officials.   I now know - in this morning's email batch I got the following communication -

DEPARTMENT OF INT'L AFFAIRS
(Office of the Under Secretary)
1500 Pennsylvania Avenue NW,
Washington D.C. 20220.
barr.billbrown@yahoo.com.au

Urgent Attention,

I am Mr.Timothy F. Geithner, Under Secretary for International Affairs of the United States Treasury Department and was sworn in as the 75th Secretary of the United States Department of the Treasury in a ceremony attended by President Barack H. Obama, and Vice President Joseph R. Biden Jr., see below:http://www.treas.gov/organization/bios/geithner-e.shtml

Following series of complains from Citizens of the United States as well as Citizens of Other Countries In Europe over the Discrepancies and fraudulent ways in which fund transfers are handled by Africans which has made it impossible for a lot of People to claim their Winning or Inheritance funds from most African Countries due to frauds and illegal activities, A decision was reached recently by the United States Treasury Department under the authority of the White House to compel African Financial bodies (Banks) to urgently release all funds of American and European citizens that are trapped in most Banks and Courier Companies in Africa. It was discovered that some bureaucratic bottlenecks was put by these Banks and Couriers to make it impossible for beneficiaries to claim their funds so that they will fraudulently divert those funds to their private accounts.

Consequent upon the aforementioned, I was personally mandated to handle this matter to ensure that all funds of our Citizens and others which are fraudulently being trapped in African Banks are urgently retrieved and paid to the actual Beneficiaries under a legal manner. Our team of experts were delegated to Benin Republic, Nigeria, Ivory Coast and Ghana for this task and we discovered your File NO: BR227/9005666/00 as unclaimed fund.It was discovered that officials of the Bank has only put up illegal requirements in order to make it difficult for you to claim your fund.The United States Department of Treasury has retrieved all Files of illegal transactions and we will be working under a legitimate arrangement to ensure that you follow the normal process to receive your fund.

You are requested to Re-confirm the following information to Barr. Bell Danny by e-mail: barr.billbrown@yahoo.com.au

1. SURNAME.............
2. OTHER NAMES......................
3. PHONE NUMBER AND FAX.................
4. ADDRESS...................
5. AMOUNT TO BE CLAIMED: $36.500,000.00 USD
6.OCCUPATION.............
7.COUNTRY...........
8.AGE............

Be informed that the above information will only enable us to make due confirmation.  We shall ensure that normal process is followed to ensure that your fund gets to you without delay.Contact Barr. Bill Brown who is right in Benin Republic as the Legal Practitioner to United States Department of Treasury e-Mail below: (email: barr.billbrown@yahoo.com.au)

Warm Regards
Mr. Timothy F. Geithner
(Under Secretary)

After spending a term in a high government office, they transition into the lucrative world of money transfer, Jamaican psychics and Viagra sales.   It is also interesting to me that Mr. Geithner in his new position has such a close working relationship with African banks.  I wonder if as he is working with this project he is thinking about Benining the Benin (No? I guess that would be too much of a pun).  I also wonder whether the grammar and diction of this new unit for the Treasury is actually worse than the normal government writing (based on the level of discourse during the shutdown I guess this is just the way they speak in Washington).   I guess with the government shutdown the Barrister Mr. Brown cannot use his normal .gov address.    My my, what you learn from reading your email.

Ending the Shutdown and Next Steps

The WP seems to think Everything is Groovy as a result of the agreement that was hammered out on Wednesday and immediately signed by the President.

The deal did a couple of things - which I believe could have been done a couple of weeks ago.  First, it established a conference committee on the budget (which will report by mid-December) - that gives a chance to air the issues surrounding how much we are spending in the federal budget. It might also set up the possibility that some long term issues (like an alternative CPI for entitlement adjustments and tax reform) might be put on a more reliable path.   Second, it increases the rigor for needs assessment for subsidies under the ACA.  If the site is ever able to be fixed (calling the Federal process in building the website gross incompetence is being kind) that should reduce the cost curve.   The medical device tax and some of the other issue are still in the program but that could change in the budget conference committee.   Third, it moved the deadlines for the debt limit and the budget down the road a bit.

The WP was giddy.  Their defaultometer (above) uses the variables to the right.   The WP argues that the financial indicators are a reliable index of whether the markets believe that a default is likely.   Pardon me, but the indicators are baloney and temporal.   At the same time the directionality has no reliable scale.   If the VIX (the volatility index) moved by a larger number than the one in the table - would that be a more positive sign?   Is a move from 40-41 on the economic confidence index a significant move?   What utter nonsense.   But that is the way Washington "thinks" and the WP is merely a reflection of the pre-Copernican world of DC - where everything revolves around the political class.

So are the pundits right about the GOP taking a shellacking in this episode?   I think the answer is yes and no.  (Sounds like an economist doesn't it?)   One of the clear winners here was the Minority Leader of the Senate - McConnell was able, in spite of an increasingly bitter environment with the Majority Leader to figure out a way to bring us back from the brink.   I think the brink was a bit over rated.   The absurd estimates of the shutdown ($700 billion) are just that, absurd.   But from my perspective the shutdown accomplished very little.   Salon called the GOP experience their "Alamo."   But wiser heads have concluded that the seeming precipitous decline in GOP fortunes was not permanent.    One need only look at the right-wrong direction polling (where 13% of those polled think we are headed in the right direction) to believe that with proper attention the GOP could make some progress in 2014 on both key issues and on holding the House and increasing margins in the Senate.

The long term equation for the GOP is actually pretty simple (although not without perils).   Obamacare is unlikely to be loved by almost anyone in the next year.    Economic growth is not likely to move significantly in the right direction.   If the budget conference committee actually reduces the long term curve of spending then prospects should improve.  At the current time the differences between the Senate and House versions of the defense and non defense discretionary parts of the  budget are about $100 billion apart ($967 vs $1058).   That does not sound like a lot.  (We need to update Everett Dirksen's quip - "A hundred billion here and a hundred billion there and you soon have real money.")

But all is not glistery either for the GOP.   Parts of the GOP are doctrinaire they want all of their goals immediately.   That is true of the Dems (especially on the almost religious adherence to increasing taxes) also but since the media highlights the negatives in the GOP - that can become a problem.   There are some of the loons who are arguing that they should do a primary against several of the members in both houses who tried to work out a deal.  

Ultimately, the end result of this agreement is not as bad as it could have been.  At the same time the progress on the budget and reducing the negative effects of Obamacare were not as significant as it could have been.  If the far extreme budget hawks can look to the long game - conservatives could make some great progress in 2014 and possibly (if they can show some patience and get some thoughtful candidates through the nominations process) 2016.

Humor Abuse

For about 20 years we lived in a neighborhood in Sacramento called Curtis Park.   About a year after we moved into the neighborhood the local school closed for earthquake safety reasons.   The moron city councilman at the time suggested that they convert the facility into a drug rehab center - and the neighborhood rose up.   He eventually became mayor but the locals stopped his nonsensical idea.

The neighborhood had an odd mix of people - tradespeople like carpenters and plumbers and heavy duty political types.   Ultimately, the school was acquired by a newly formed 501c3 called the Sierra Curtis Neighborhood Association and was rehabbed with sweat equity.  The people who knew the building trades helped the rest of us paint and plumb the place and when we needed political activity (some idiot opposed a beer and wine license) those of us in the political trades scared the hell out of the thumper who wanted to oppose our request for the license.   At one point a group of us sat down with the pastor who was opposing our liquor license - arrayed against him were the lobbyists for the ACLU, Standard Oil, the independent colleges and the committee consultant for the Governmental Operations Committee - we growled at him and he folded.  Such were the resources in the neighborhood.

But in order to fund all the improvements we did a series of fund raisers.  We got Taj Mahal to come and present a concert in the 200 person school theater.  We also developed something around Halloween called the pumpkin toss where people built catapults to hurl pumpkins.   But the major fund raiser for three years was the Pickle Family Circus.  It was a one ring circus that was started in San Francisco by a guy named Larry Pisoni.   His son, Lorenzo, developed a one person show called Humor Abuse which is a superb retrospective on his experience growing up as a clown.  Lorenzo started with the troupe very young and eventually became a regular performer - ending up at Vassar and then in a career that has been mostly in show business.

The Pickle Family Circus was formed in the mid-1970s and lasted for a while and then became a permanent part of a center in San Francisco on circus skills.   They worked with community groups like Sierra Curtis.  The deal was simple - they got the gate and the neighborhood group got the concessions.  If you got a good crowd - and it was on the group to raise the crowd - you got a lot of people frequenting the concessions and you made dough.   In one year the Sierra Curtis Association made more than $30,000 over a weekend.   Lorenzo started as a clown when he was about 2 and performed actively all across the country and in a few venues outside of the US until he was about high school age.

Humor Abuse is a series of personal reflections but also a set of five or six extended skits - one on how to fall down stairs; one on timing (where he walks through the stage while a group of 30 pound sand sacks drop very close to him); one which is a reprise of his father's opening routine which uses a series of helium balloons; and one of a clown diving from a high ladder into a bucket of water.   Each of the skits uses pantomime with great effect - but the commentary is also very interesting.  The performance was special to us because my wife was one of the coordinators of two of the Pickle Family performances for Sierra Curtis - but Pisoni is such a gifted entertainer that even if you did not know the history - it would be an enjoyable 90 minutes.  We did know the history so it was extra special.

Pisoni is also doing a Kickstarter which has six days to go but has been successfully funded.  The goal is to produce a video of the performance.  At the higher levels you actually get the ability to download a video of the performance.

The performance is being presented at the Mark Taper forum in LA until early November, where we saw it last night.  Pisoni is a gifted clown but an equally talented story teller.  If you are in LA you should try to get tickets; if not you should support the Kickstarter to get a copy of the performance on video.

Captain Phillips

On Friday night we went to the opening night of Captain Phillips - the new Tom Hanks movie about the capture of an American container ship by Somalian pirates in 2009.   Hanks is pretty busy right now because one of the previews was of a movie which is going to come out around Christmas called "Saving Mr Banks" which is the story of how Walt Disney coaxed the author of Mary Poppins to put her book(s) into a film.   (That looks like an entertaining movie, which I have heard something about because my son in law works for Disney.)  Captain Phillips is a bit long - although I am not sure how it could have been cut.  Almost from the time the ship gets underway, it is an intensely entertaining movie.  After we saw the movie I read up on the four Somalians who played the pirates.  They were found in a casting call in Minneapolis and play their parts with a convincing menace.  The movie is shot in a somewhat jerky style which adds to the intensity - but the plot is well thought out and gripping.   We thoroughly enjoyed it.

Interestingly, there are two side notes to the story.   US merchant ships were prohibited from carrying firearms and so for a while were good targets of pirates.  (Another gun free zone.)  There was some thought that the merchant seamen would do more harm than good with weapons.  As pirate incidents began to increase cargo vessels were reequipped to lock down major parts of the boat.   As depicted in the movie - ships were also equipped with firehoses which made it much harder to board a ship.   In 2010 that no arms requirement was changed and American flag vessels can now include defensive weapons. Other countries have followed suit.   The number of pirate incidents has declined significantly and it is unclear whether the incident depicted in Captain Phillips (where three of the four pirates were killed by Navy seals) or the ability to rearm these vessels contributed to that decline.

What Comes Next in Higher Education?

At the end of September I spoke at a convocation at Universidad Autonoma de Aguascalientes, which is a fine public university in Mexico - My talk was called Does Minerva have the Udacity to Change Higher Education?  The title did not translate well - so I had to spend part of my time explaining my title.  My premise was that higher education is in a state of tremendous (Clayton Christensen calls this "disruptive") change.   What is unique about the current situation is the multiplicity of issues facing the sector.   I named five alliterative issues (cost, certification, competency, completions, and computing) and then added a G one - governance.

The cost issue is not worldwide - but the rest are.   Universities around the world are dealing with assuring that their graduates are competent to do what they have been educated to do.  None have been very good at assuring that people who start programs actually finish them in a reasonable period of time and in reasonable numbers.   Institutions both within their realm and outside of it are attempting to figure out which institutions are reliable collaborators - in essence to certify capabilities - that can be done through government (many countries impose a ministry of education to set those standards) or through voluntary or quasi voluntary processes like accreditation.  Universities are ultimately a set of networks - which is one of the reasons I am a skeptic about how many of the for profits work.  (They do not seem to care about that aspect of higher education.)   Finally, there is the big issue of computing - technology according to its most vibrant supporters and the biggest skeptics is changing the way universities deliver their products.  There have been big claims about Multiple Open Online Courses (I am mostly a skeptic here) and some expansive predictions about the role of everything from star professors to cellphones in changing the way courses are delivered - some of which might come true.   The last variable in my matrix was governance - colleges in the US and in many other places around the world have a unique structure for making decisions that often involves faculty, students, administrators and a board of directors - all of whom have overlapping responsibilities.   As the other factors come into play, governance will be an important other consideration.

In the last couple of years I have been involved in some of the innovative efforts, including working on the creation of a regionally accredited university that is online and offers an undergraduate degree for $12,000 and accepts to federal aid.  But I am convinced that a good deal of the rhetoric about change is just that; rhetoric.   But that does not mean that universities will look like they did when I started as an undergraduate in the 1960s.   What is most interesting to me is the parallel tracks of change that are happening - so let me make five predictions about the next few years.

#1 - There will be many paths to an education but most will include some time in a university and much of that will be on a campus.  Thus, while virtual campuses will be important - so too will physical campuses.
#2 - At least in the US, cost will continue to be an important variable - but policy makers will continue to confuse cost and price.   
#3 - The more government gets into the process of requirements and oversight, the less successful universities will be.   The last reauthorization of the Higher Education Act in the US was a horrible piece of legislation - with more than 100 new requirements and very little new financial support.  That is likely to be a pattern which continues and if a reduction in requirements can be substituted for a reduction in funding - that might not be a bad deal.
#4 - Sorting out what constitutes a student, a course, and a degree will take some time and effort.  But each of those concepts is undergoing change at a rapid rate.
#5 - Those institutions that understand that they are (in the words of former USC President Steve Sample) "lifelong and worldwide" and build a model which reflects those visions - will prosper.

None of those predictions is especially novel.

The audience in Aguascalientes was interested - although a lot of the students were especially interested in how they could be in the inaugural class in Minerva University.  But in the end we had a good discussion about all these factors of change.   Mexico has advanced rapidly in the last couple of decades with an increasing percentage of young people beginning and completing degrees.   The old bromide about "living in interesting times" is certainly true for higher education all around the globe.   For institutions that celebrate in attire that was first designed in the Twelfth Century that is pretty amazing.

Reflections on Gridlock

I've been struck in this current (or continuing) political fight how unable the political class seems to be able to look for a solution on both the budget and the debt ceiling.   There are many causes but no one seems to be working toward a solution.   But the discussions in the media have been less than helpful.

Here are some thoughts - 
#1 - Each side seems intent on talking to itself - Here is how a left of center friend described the stalemate in a Facebook post - "This is a fight they have lost nearly 50 times in Congress, in a national election, and in the Supreme Court. Democrats have compromised by offering a measure that included $72 billion in annualized across-the-board spending cuts to keep the government open. The Senate passed this legislation multiple times before the government closed. " This friend is normally a very reasoned person but the post strikes me as ignoring some major issues.    Let me parse the statements a bit.  This is a fight they have lost nearly 50 times in Congress, in a national election, and in the Supreme Court.  I am not sure where the number 50 comes from but my friend ignores the fact that the ACA (if that indeed is the base of the problem) was adopted by an extraordinary set of procedures without a single vote from the GOP; the immediate election after the bill was adopted saw massive losses for the democrats mostly attributed to the one bill; the Supreme Court's decision on the constitutionality of the measure was actually a 4:4:1 decision. It is one which is not likely to be in the replay roll of SCOTUS.   All of this suggests that the ACA could use some adjustments to build a broader political base.  Democrats have compromised by offering a measure that included $72 billion in annualized across-the-board spending cuts to keep the government open.   That assumes that the supposed $72 billion actually solved the deficit - but it (which even with the reductions from the top) continues to be among the largest in our history.  More needs to be done on both the level of government spending and reducing the debt.   The Senate passed this legislation multiple times before the government closed.   So far the leader of the Senate has been the most strident in opposing any substantive discussion about changes in the ACA.  When you listen to the pundits of the right - they echo tired phrases - as tired as the ones of my friend on the left.

#2 - The Political Class seems to think this is a silly game not serious business - Wonkblog actually created a Daily Default Dashboard (See illustration above) which is based on a series of questionable financial indicators.   Even that seems to indicate that the level of projected tension in Washington is not high at this point.   They figure they can screw around for a couple of more days and then get credited with the save.   Joel Kotkin points out in a recent column "This has been a golden era for the nation's capital, perhaps the one place that never really felt the recession. Of the nation's 10 richest counties, seven are in the Washington area. In 1969, notes liberal journalist Dylan Matthews, wages in the D.C. region were 12 percent higher than the national average; today, they are 36 percent higher. Matthews ascribes this differential not so much to government per se, but on the huge increase in lobbying, which has nearly doubled over the past decade."  Kotkin argues that all this has lead to a divide in the country that is not just left/right but between the Washington elites and the rest of us.   The GOP may be leading the way but everyone's reputation is taking a hit - at some point we will rise up and say enough shenanigans.

#3 - So what about the debt ceiling and the CR? - Yesterday the President said he will begin to negotiate when the House passes a clean CR and debt limit increase.   He seemed also to say that it is unusual to negotiate on something like the debt limit - (one of his favorite lines - the debt limit increase is merely confirming what Congress has already authorized).   But those premises are false on a number of points.   First, since 1962 the debt limit has been raised 74 times (according to the Center for American Progress - hardly a conservative mouthpiece).   Our debt held by the public amounts to about two thirds of our national product which is the highest it has been in almost sixty years.   In prior periods things like Gramm-Rudman-Hollings and PayGo have been included in debt limit adjustment agreements.  Debt limit votes have proven a good time to elicit spending reductions and controls.  Doing what the President proposes would expose about half the country to more unbridled spending.

Interest on the debt is about 6% of the total federal expenditures.   So the claim that if the debt ceiling is not increased we will default are nonsense.  Organizations like Moody's have pointed out the absurdity of the claim - in a CNBC interview the CEO of Moody's said  “It is extremely unlikely that the Treasury is not going to continue to pay on those securities, hopefully it is unlikely that we go past October 17 and fail to raise the debt ceiling, but even if that does happen, then we think that the U.S. Treasury is still going to pay on those Treasury securities,” he added.   The best estimate of the effects of the lack of a CR (continuing resolution - which is a short term fix necessary because the Congress cannot actually pass a real budget) has on governmental programs is about 17% (thus 83% of the government is still operating).  The President has a lot of discretion in deciding which things stay open. So if we default it will be done by the President much in the same way that the Administration has chosen which things to call non-essential.  So far the President has chosen a standard policy of making the pain visible.   But as we saw at the WWII memorial - many people are beginning to understand the politics of closures.

#4 - So what is the fight actually about? -.   Note that in the last five years, partially as a result of the recession but not entirely, the percentage of the economy dedicated to federal spending is significantly above what it was prior to this president.   Revenues have begun to trend back to their normal levels (at under 20% of GDP) but the deficit is still large because the expenditure side of the budget is still considerably larger than it has been at any time in our history.  Note the projected "drop" brings the budget back to 4-6% over where it has been and that is in a time when war expenditures are going down.  As mentioned above, that is also true for that our total national debt (both what is represented in internal transfers and what is owned by the public) is the highest it has ever been.

Ultimately, I believe the American people want something less from government.  They've shown a reluctance to raise taxes to the levels necessary to fund all the things the Administration wants to do.  They've also shown a great deal of well deserved grumpiness about the implementation of the ACA.    One other issue - unlike prior fights on this issue - while the right is taking a beating - so is the President.   An NBC/WSJ poll in September found that a small majority of Americans disapprove of Obama's handling of the economy (52%).   By a 2:1 margin Americans do not want to raise the debt ceiling.   At the time the respondents supported the GOP notions on working on the deficit by a 12 point margin.  Another major poll about the same time said by a 20% margin that they disapproved of the President's handling of the economy.   And more importantly 40% thought the economy would be worse off a year from now.  52% of the respondents believe that the economy is in bad (bad, very bad or terrible) shape.

#5 - How will it all come out? - see The Paul Masson Theory of Legislating - I've taught a course on legislative practice over the last couple of decades in which I lay out about a half dozen rules that I came to understand in the four decades that I worked in Washington and Sacramento.  The Paul Masson Rule is simple - legislators will make no decision until they have to (riffing off the old commercial - we will sell no wine before its time).   My suspicion is that they will begin to talk in the next couple of days and come to a resolution within a day or two of the supposed deadline when the debt ceiling will begin to pinch - that might be as late as the 20th but certainly before Halloween.

The Hardly Strictly Bluegrass through the lens of Garrett Hardin

One of the rights of passage for young economists is to read a mostly dystopic essay by Garrett Hardin called the "Tragedy of the Commons."   Hardin argued that if things were not properly gated (or priced) they would be used inappropriately.  Allow people to use an open field to graze sheep (the commons) and they will mostly wreck it.  There is some truth to what Hardin had to say but like most writers of his type there is also something very wrong about his basic idea.   Wired writer Chris Anderson raised the more logical part of the "commons" problem in his book called "Free" - but there is a darker side of the "commons" problem which lead Hardin to project all kinds of environmental disasters.  There I think he was mostly wrong.   If you did not go - or even if you did and missed acts there is a great Webcast Archive of some of the Performances.

Yesterday we went to the 13th edition of Hardly Strictly Bluegrass - which is a music festival originally funded by Warren Hellman and held in Golden Gate Park.   The music is a bit eclectic - although many of my generation would understand the reference - performers ranged from Boz Scaggs to Louden Wainwright III to Allison Krause.   HSB venues are nestled into a half dozen niches in the park.   It is organized pretty well, for what it is.   So what you get is hardly, strictly bluegrass.

 This was the first time I had been to one and I was stuck with several impressions.

#1 - There are two choices for this - follow the performers or follow the venue.   We chose a venue and stayed the day to hear the groups as they moved through.   We chose something called the Rooster Stage - which is in a small area bounded by two hills.   We did not want to sit in the sun and thus sat up in one of the high areas.   The benefit of staying on one venue is you do not have to deal with the crowds much.   The cost is there are a lot of good acts in each of the venues.   As we were walking out to go to dinner Allison Krause showed up on the Banjo Stage and did a nice short set.  And we got to hear her as we walked along. The simple answer seems to have been the venue choice is the better, just for the reduction in hassle; but choose the right venue.

#2 - At least where we were, the crowd was not really there to listen to the music.   Almost immediately we recognized that the crowd, which was overwhelmingly young and white, was there to hang out.   The music was a precipitator but not a motivator.  That was unfortunate, but it seemed to prevail in the venue for the entire afternoon.   There was constant chatter which was loud enough so if you wanted to listen to the musicians you could not.

#3 - There were a set of inconsistent ethics - This may be an odd comment but I think it is correct.   For the most part, unlike many events like this, the crowd was pretty good at picking stuff up.   Fans that either brought or bought food, carried out the wrappers and cans.   That was not true for some beer cans (Coors cans seemed to be the ones most neglected) but most people actually cleaned up after themselves.  But the crowd did not respect space very well.   As we were coming back on Bart an HSB visitor complained that she had staked out a space in one venue very early in the morning to be able to see a particular set of performers but as the day wore on  people came and stood in front of her.  So she was not rewarded for her effort.  The clods seemed to be oblivious to her space.  So in one sense, part of the commons problem (trash removal) was disproven.   At the same time, another part - the chatter and the inability to respect reasonable boundaries - was true.  Hardin, like his original paper, was about half right.


#4 - Impressions of San Francisco -  The HSB has a normal melange of people you expect to see in San Francisco including lots of tattoos (I wonder how those people will ever get hired), piercings (ditto), and Doc Martins with fancy dresses.   Those do not bother me - although they are different.   I think that many of those choices, made in the name of individual expression, when you see such a large group together, are evidence that many are just another form of conformity.

And as you would expect at any large street event there were the usual band of eccentrics.   The picture to the right is of a guy who between acts would sell poetry readings.   He had a patois which was funny (at least the first two times you heard it.)

Riding back on the Muni - there was a good and happy crowd.  (We had to go on the Freeway, to BART, to Muni and then a lot of walking.)  It was, for the most part, a pretty mellow crowd.

#5 - Entrepreneurial spirit lives - In the middle of the afternoon a guy with dread knots came by with a cooler.  The guy had purchased coconuts with the husk off and was carrying a large bottle of rum and a machete.  He was lop the top off (with a bit of panache)  the coconuts and allow the buyer to sip out some of the coconut milk and then he would refill it with rum.  The deal was $10 - which based on other prices was certainly reasonable.   In the space of about an hour working the crowd he sold about 20 of these concoctions.   I was impressed by his enterprise.   He had a mix of showmanship and entrepreneurial talent that was pretty nifty.