The mostly uncritical role of the press

In this day before the Budget Apocalypse I have been watching with amusement how uncritically the press corps (with some notable exceptions) has accepted the claims of the Obama Administration on what would happen if the tiny little red piece of the budget were taken away.

Even the Washington Post could not take all of the baloney that the Administration officials have been trying to peddle.   For example, in an article titled Sequester Spin Gets Ahead of Reality the Capitol's lapdog paper found that claims by many administration officials were just plain nonsense.    What was odd about the story is that the WP appended the White House's fanciful list of cuts to the article as somehow to atone for the sin of actually doing some reporting.

According to David Jackson of USA Today, the Administration actually has threatened WP reporter for pointing out that the original idea for the sequester came from Obama.   But the sloppy reporting on this issue has not been completely one sided.   The Defense Department takes an inordinate hit in this game compared to its current share of the budget.   But part of the cuts come from the net savings of winding down our commitment in Iraq and Afghanistan.   Wonkblog presented two charts yesterday which give a good picture of this effect.

After each demobilization since Korea military spending has taken a downturn.   That is to be expected.   The second chart shows more graphically the increase and reductions related to our commitment to Afghanistan and Iraq.   This is not a debate about whether the initial commitment or the strategy for withdrawal was the best policy but it does present a pretty good picture of how those commitments affected the budget.

The reality of this budget fight seems to be lost on almost everyone in Washington.   According to the Administration's budget projections, over the next ten years tax revenue is projected to rise at  7.6% per year.   Spending is expected to grow at 5% per year although there are considerable uncertainties in those projections - Social Security, Medicare and Medicaid are projected to grow at 5.8%, 6.6% and 8.5% respectively.   Net interest is projected to grow by 14.2% (the underlying assumption here is for some pretty significant optimism about the progress of rates over the period - if those are wrong - that could balloon even more).

We should be appalled at the attempts to create hysteria by many senior people in the Administration.  The release of felons by the DHS and all the other claims and actions for this very tiny percentage of the federal budget in projected spending is caused in part by the permanent nature of campaigns (which this administration has taken to new levels) and by the significant innumeracy of most people in the press.

Wilkins Micawber should be there to advise our political class much as he did David Copperfield in Dickens' classic - he told young Copperfield “My other piece of advice, Copperfield, you know. Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene, and—and, in short, you are for ever floored. As I am!”   I am not a fan of blighted blossoms or withered leaves.

Reality

A couple of years ago I discovered a some topical comics from Australia who make fun of the news.  Clarke and Dawe recently released a video (you can subscribe to them on YouTube) of how interviews on TV news actually work.    This is very funny stuff, even if you do not know Australian politics.

Beyond the sequester

The Pew Center for the States published some data on the tax and grant implications of the upcoming sequester.   I have reproduced a couple of their graphs because they present some of the best data on where the reductions might take place.  They are certainly better than the Administration's terror sheets discussed yesterday.   The first shows the effects of cuts in federal grants by state (you can click on the link to see the calculations in detail.

Not surprisingly California is in the bottom third of the reductions (at 6.1%) in part because we are a donor state.   We pay more in taxes than we receive back in federal "largesse."

But the Pew data presents some other interesting projections.   California does pretty well, in part because the state suffered such a high percentage of the base closings in the 1990s we seem better prepared than the states that were able to keep bases.   You should note that the sequester was built with a substantial portion of the total cuts being taken from defense - even though defense spending amounts to only about 20% of the federal budget.

What surprises me about the Pew figures is in states where there is a substantial federal presence -some do quite well.  So between federal lands control and military bases one would expect that Hawaii and Alaska would be whacked - but according to the data - they are not.

After we get through this melodrama we need to begin to think about what changes should be done in the federal budget to make these kinds of idiotic decisions less possible.   Wonkblog published a set of eleven recommendations published by Brookings  - one would not be surprised by the proposals.   For example they tout the virtues of a carbon tax.   And they generally start with the notion that the government is bereft of revenues.   But there are some interesting proposals in the lot including a significant restructuring of the mortgage interest deduction and the idea of an automatic IRA.  There are some wrinkles in the proposal (like a cap on the rate at which 401k accounts can be used).   But if we are to ever get away from gridlock we need to begin to look at ways to restructure the budget.

From my perspective there are two immediate changes that need to be considered.  The first would limit  the percentage of federal expenditures to GDP.   From my perspective that might be in the range of one dollar of GDP in five. (20%) That would be slightly higher than the long term trend over the last couple of decades but also significantly lower than the percentage that the Obama administration would like to push us to.   At the same time, we should de-thatch the tax code for both personal and corporate taxes.   That means broadening the base and lowering rates.   The new system would actually produce more revenue, if structured correctly.   Brookings suggests a VAT (Value Added Tax) at 5% and the worry I have for such a proposal is that it would be an add on to the current income tax.   So I would be reluctant to see such a proposal adopted - but base broadening and rate reduction could be done immediately and would offer almost instantaneous results.

Most Americans realize that the Kabuki that is going on around sequester is one of those Washington games that the political class thinks is subtle and intricate and the rest of us think is idiotic.    The sooner that our hired help understands the disconnect and begins to work on the real budget problems, the better.

Chicken Little and Molehills

Yesterday the Obama Administration released their list of reductions by state if the sequester kicks in, as it now looks like it will.   Included in the California totals  were several things that caught my interest.   According to the sheet Head Start, the program to offer early childhood education for disadvantaged kids, would lose 8,200 spaces.  When you look at the statistics from the California Head Start Association there are more than 111,000 kids served by the program.     Before I discuss the actual numbers for one program I should discuss something about the sequester. It was initiated because the people we hire to run the government could not make responsible budget decisions - what Aaron Wildavsky once called "No-ing Thyself"     The reductions were established to reduce the level in the growth of governmental spending across the board over an extended period.    At the time this idea was first hatched, the political class told us "don't worry, this will be just the incentive for us to make wiser decisions - it will never come to this."    Two things should be obvious.   First, the political class has demonstrated once again that they cannot act responsibly.   And second, just because the sequester becomes reality does not mean that our political leaders could not come together and make some more responsible reductions.

But let's look a bit closer at Head Start in California.   According to the Census Bureau 6.7% of our population is under 5 years old - the eligibility standard for Head Start.    That means there are about 2.5 million kids - and 111,000 are currently served by Head Start.  (Do the math about 4.4% of the kids under 5 in the state are served by the program.)  By the way in the "Golden State" 14.4% of the population lives below the poverty line.

Nothing would stop the political class either before March 1 or after it from making responsible reductions.   I do not know how many kids are actually assisted by Head Start (I know the number of clients but do not know how effective the program is) but could we not find $82 billion in a multi-trillion budget which was fluff?   Even if we run the scenario out for the full decade could we not find reductions that most reasonable people could agree to?   But then I think about the people we hire to make those decisions.

ADDENDUM - Last September, as a part of the process of setting up sequestration the Administration published a list of reductions including a $2 million reduction for the Drug Intelligence Center.   But as Reason's Mike Riggs pointed out yesterday the DIC was closed about three months before the report was issued.   So much for transparency or accuracy.   

Fiduciary Responsibilities, denied

BOTH STATEMENTS ARE FROM WIKIPEDIA -A fiduciary is a legal or ethical relationship of trust between two or more parties. Typically, a fiduciary prudently takes care of money for another person. One party, for example a corporate trust company or the trust department of a bank, acts in a fiduciary capacity to the other one, who for example has funds entrusted to it for investment. In a fiduciary relationship, one person, in a position of vulnerability, justifiably vests confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in some matter. In such a relation good conscience requires the fiduciary to act at all times for the sole benefit and interest of the one who trusts.

When a fiduciary duty is imposed, equity requires a different, arguably stricter, standard of behavior than the comparable tortious duty of care at common law. It is said the fiduciary has a duty not to be in a situation where personal interests and fiduciary duty conflict, a duty not to be in a situation where his fiduciary duty conflicts with another fiduciary duty, and a duty not to profit from his fiduciary position without knowledge and consent. A fiduciary ideally would not have a conflict of interest. It has been said that fiduciaries must conduct themselves "at a level higher than that trodden by the crowd"^[3] and that "[t]he distinguishing or overriding duty of a fiduciary is the obligation of undivided loyalty."^{[4] (Emphasis added in RED)}

The California Public Employee Retirement voted to divest itself of Sturm, Ruger and Smith and Wesson, both manufacturers of politically troubled, but legal products (Firearms).   The chart above presents the investment results for both companies.   Ruger is in Green and Smith and Wesson are in Blue.  Both companies have out performed the S&P over the last five years.  Ruger actually also offers a modest dividend.  I own a Ruger and so am somewhat biased on the product.   But that is not me as an investor.

The firearms companies are not ones that I follow actively.  So there may be very good reasons to sell both stocks.  Ruger is a $500 million company and Smith and Wesson are about twice that size.   Both are in high margin businesses.  But both are also in the political wilderness now.   And their long term financial viability, based on a quick look at their balance sheets suggest they are stable companies.   But this decision smells of politics of the moment.  CALPERS has some long term problems in funding the future needs of state employees.   Getting into politics is not where this major retirement system should go.

Be Careful What You Wish For

When Jack Lew first proposed the idea of a sequester - an automatic set of spending cuts which would force Congress to make a decision about deficit reduction it was a semi-serious attempt to deal with the deficit.   But it was structured to give the GOP more heartburn than the Democrats.   It was unbalanced as to where reductions would take place.   The Heritage Foundation did a good graph on where the cuts are targeted.    (see below)

About half of the cuts are in defense, and there is no way that decision was not intentional.  It is unclear whether all the doomsday scenarios that have been bandied about will become real.  Yesterday, the President did a press conference which tried to deflect blame on the sequester where he said "So these cuts are not smart.  They are not fair.  They will hurt our economy.  They will add hundreds of thousands of Americans to the unemployment rolls.  This is not an abstraction — people will lose their jobs.  The unemployment rate might tick up again."   That is typical of this president, create the problem and then blame the opposition.  It would be wonderful if anyone in the Administration could act like a grownup.  But perhaps that is too much to ask for in DC at this point.    For the President, "tax reform" is raising rates but not improving the tax system.   You can see the balance that he believes in by looking at how the cuts in the sequester fall.    He has added to the mix by suggesting that all of the cuts will first come on things that people actually receive from government.   At some point the American people will understand that the "Washington Monument" strategy is pure crap.   Any competent executive could figure out how to get $85 billion out of a multi-trillion budget without inconveniencing anyone.   The subsequent year reductions could also be focused on where there is excess.   But of course that is not the game that the President is playing.

From my perspective there are two issues here.   First, is the President's claim about what the effects of the sequester will be, correct?   There the answer is simple, no.   Were the President serious he would be working hard to get the parties, including his own, behind a series of balanced alternatives.  I think he believes that the media will protect him from any blame on this, if there are consequences to these cuts.   From my perspective the effects of the cuts are much less than most Washington wonks have suggested.   Indeed, the media will protect him - but at some point the American people will see through the media wall and will begin to hold all of Washington responsible for their nonsense.

The second issue is more important.  Erskine Bowles and Alan Simpson have produced a revised  plan for reducing the deficit which is a lot more balanced.  They proposed an approach which is less reliant on tax increases and more reliant on spending reductions than the President seems to support.  At the same time, from my perspective, the revenue increases would seem to be focused not on raising rates but on reforming the tax code.  

In the original Simpson-Bowles plan there was an attempt to improve the code by cutting out a lot of the thatch that has grown up since the 1986 Reform Act.   That plan reduced a lot of sacred cows in the code but would have also produced a much simplified process for most taxpayers and lower rates.   Both of those changes would improve the prospects of economic growth.   Like the original plan I expect that there will be some parts of the final proposal that I will not like - but one has to look at the whole picture.   And from that perspective, the new outline looks like a creative and helpful step.

From my perspective we have three choices before us.   The best among them is the balance that Simpson Bowles seems to offer.   While I think we are taxed enough - I am more than willing to increase revenues in the quest of simplification of the Byzantine tax system.   The second best is to allow the sequester to take effect.  The first year cuts (which would take place on March 1) amount to a bit less than $100 billion.   There are many I do not like, the defense reductions over the course of the sequester are horrible policy. In the second alternative, Congress could always modify the longer term proposals.   The least best is the one advanced by the President - which basically starts with the assumption that spending a higher percentage of GDP through the government is a good way to revitalize the economy.

The IOC Betrayal of the Olympic Tradition

The International Olympic Committee has proposed to end Wrestling as an olympic sport in the 2020 games.  It boggles the mind that these morons would make that decision (in secret) while upholding such classic sports as synchronized swimming.   The first olympics had wrestling - indeed, when you think of the olympics the image that first comes to mind is wrestlers.

I will readily admit to bias here.   When I was in high school I first ran track and cross country.   I may still hold my school's record for one of the slowest 1320s (three laps of the track) recorded in history.   But when I discovered wrestling I found something exciting.    High school wrestling at the time had three periods of three minutes each.  In the first the wrestlers met each other standing up; in the second and third each wrestler is given the "advantage" - even though the whole match takes nine minutes or less it requires stamina and agility.   My first wrestling coach, who was not the brightest bulb in the world, once exhorted his team that if we wanted to be good wrestlers "We had to be agility!"   But my second coach taught us a lot about the determination that wrestling requires.   The sport is based on individual achievement.

The IOC spokesmouth claimed the decision was not what "was wrong with wrestling" but more a process of "renewing and renovating" the olympic program.     Really, Badminton stays in a Wrestling is dropped?

Utter Nonsense

 In a column this morning for Wonkblog,Ezra Klein published the following graph as a justification for raising the minimum wage.   So here is the "logic" - labor's share of income is falling as corporate profits have risen which argues for a higher minimum wage.  Bonehead thinking would be a nice way to describe this thinking.

Mr. Klein fails to recognize the tremendous increases in productivity that have occurred since 1970 - wouldn't that fact alone change the ratio of labor income to corporate profits?  But then there is the added notion that by raising the minimum wage one will get resources to the most productive parts of the labor market.

Wow, is that graph anything more than the juxtaposition of one evil of the left (corporate profits) with a statistic so aggregated as to not tell us much about anything?

Bragging Rights

On August 11 of 2011, I bought a Fitbit.  Tonight, 533 days later, I surpassed 5000 miles of walking during that time - so over that year and some I have walked an average of 9 miles a day or about 19,000 steps a day. (More than 10.5 million steps total).

The first version of the Fitbit was destroyed by washing it - then a couple were destroyed by breaking them apart.   The new version of the device has only one piece and so is unlikely to be broken apart.

The product allows you to synch this with the net (using a bluetooth connection).  I've been over 25,000 steps in a day 137 days and over 30,000 steps in a day 44 times.   My highest number of steps in a day was 40,705 and my highest mileage in a day was 19.28 miles.

Is there media bias? Duh.

The coverage of the State of the Union was almost as odd as Obama's speech.  On the one hand the President proposed to increase the minimum wage - which based on the best evidence possible suggests that only  $1 in $7 actually goes to poor people.   He also argued for an expansion of a program (Head Start) where most of the research suggests that the effects of this tripling of current federal spending wears off by the third grade.   There was almost no analysis of whether these programs or proposals would actually be successful in achieving a good public policy goal.  Yet the speech was covered in initial stories and then in a couple of follow up stories about his barnstorming trips to pimp his programs.     

You might ask what the coverage of the response offered by the loyal opposition has been.   No there has not been a detailed recitation of the premises of promises of the speech.  Indeed, in some cases like the Sacramento Brochure (the much diminished local paper offered in my home town) the coverage was a) the GOP gave a response and b) the Speaker actually consumed water during the speech.  Even the NYT did not carry a transcript of the Rubio Speech.   Somehow a number of papers found a way to print the transcript of the President's speech.   Indeed about the only coverage the Times gave the speech by Rubio was an opinion piece (which is what most of the coverage of both speeches actually was) which sniffed that Rubio " followed the Republican rebranding strategy by rephrasing the party’s grand old policies without offering any new ideas."   The local paper here only covered that Mr. Rubio drank water and then speculated on what the political effect of water consumption was on public policy.  It is not hard to understand why an increasing number of Americans are no longer consuming the propaganda of the mainstream media.

What do we know about the Minimum Wage

One of the proposals in the President SOTU was to increase the minimum wage to $9 per hour, that would raise it from $7.25 which was last raised in 2009.   There is a considerable body of research that suggests either a strong or weak correlation of increases with youth unemployment.  Some like Brown , Kohen and Gilroy argue that there is a linear relationship, especially for teenagers.  (a 10% increase in the minimum results in a 3% drop in the number of teenagers employed).  The Institute for Industrial and Labor Relations has published a couple of papers which discount that - but at this point those studies are a bit outside the consensus of most economics research. So I thought it would be a good idea to understand something more about who benefits from increases in the minimum wage and who loses.   So here are some handy bullet points.

#1 - Reality Check - A full time worker earns a bit over $15,000 if paid at the minimum wage.   The President's proposal would increase that to $18,720.   In reality, that boost will not things much.   The HHS Guidelines for poverty are presented in the chart at the right.

#2 - Young people make up about 12% of the hourly workforce but make up 50% of the people who receive the minimum wage. 40% of the people who earn minimum wages live with a parent or relative.  About 7% of part time workers versus less than 2% of full time workers earn the minimum wage.  The average household income where a minimum wage earner is present is $47,023. (Hardly a family in poverty)

#3 - 13 states have a minimum higher than federal law while 4 states have a minimum lower than the federal standard and 5 states have no minimum wage law. Puerto Rico, Guam and the US VI have lower minimum wage laws.

#4 - So who gets the minimum wage?  From Bureau of Labor Statistics there are two types of employees.  The first are workers in particular industries - food preparation; farming, fishing and forestry; building maintenance; and personal care industries.   Some of those occupations have an expectation of tips, others do not.   Some have a very high incidence of part time workers and first time employees (food preparation for example).   One statistic that jumps out is that the vast majority of workers at the minimum wage receive a wage increase in the first 12 months of employment.

#5 - According to the BLS "the youth employment-population ratio for men was 51.9 percent, and the ratio for women was 48.4 percent. The ratio for whites was 53.5 percent, compared with 

38.9 percent for blacks, 37.4 percent for Asians, and 46.5 percent for Hispanics."   

#6 - The CBO did a study of the last increase in the minimum wage and found that only about 14% of 

the increase went to poor families.   That suggests an inefficient way to achieve the President's stated 

goal.

So what are we to draw from all this?   First, the minimum wage may indeed depress opportunities for 

young people who actually want to work.   Second, there may be a very slight improvement for a very small cohort of workers, although many (or most)  of those workers are not supporting a family.   With 

those two conclusions one wonders why the President would highlight the proposal so much.    The 

answer is obvious - this issue is not really about economics.   But then we already knew that.

The State of of State of the Union Speeches and Responses

Last night's State of the Union was a remarkable event on many counts. It was not a particularly good speech, unless you believe that we need a lot of more government.  It was remarkable, in part, because with the response offered by the GOP it presented us with two views of where the nation should go.  (Note the Youtube videos of both speeches can be found by clicking on the highlight.)

But first some history.   Washington and Adams traipsed up to Capitol Hill and made the speech and then Wilson (trying to get out of the shadow of TR did too) but all the presidents between Adams and Wilson simply sent their remarks up for review.    FDR changed the name of this annual meeting to The State of the Union.  One other historical footnote - according to at least one source, the longest SOTU was given by Coolidge.

I bring up these facts with three things in mind.  First, for a good part of our history, this annual ritual was not deemed a media event.  The chart above, sent by a friend shows where many in the press (and probably most presidential aides - regardless of who is president - believe how the speech is thought out.  As a policy event, the SOTU is not important.   Most of what is said in these things is good for wrapping fish the next day.   LBJ's first SOTU had about the same number of promises that the President had last night but the country was in a different mood.  Typical of the overhype of the SOTU was the breathless headline in the Sacramento Bee - "Obama Offers Plan to Rebuild America."   Second, the role of responder (last night held by Senator Rubio) is a relatively new one.   One of my democratic friends huffed that the Senator seemed to not even listen to the President's speech.  Well, duh.   The role of this speech is not to do a point by point rebuttal.   This is not a presidential debate.   It is to lay out an alternative view of how government should function.   From my perspective Rubio did a superb job in that role.   He was clear and focussed on how his vision was different from the laundry list of new programs and spending that the President offered.  Many of the news stories covered Rubio's drink of water.   I actually listened to the speech - there were some great lines in the address.  Third, the contrast between the two visions is clearer than it has been for many years.  Obama's conclusion is that the state of the union is stronger (and will be stronger) because of more government - Rubio argued that more government will not make the country stronger (and indeed that our last crisis was caused in part by horrible policies from Washington).   If you cut away from all the nonsense that the media coverage tries to convey, that is a pretty good summary of where the American political system is today.

Extending the Absurd to it Most Logical Conclusion

Investor's Business Daily did a column this morning called "The Federal Deficit Chart That Should Embarrass The Budget Hawks."   I am not sure why it should bring smiles to our faces but the author, one Jed Graham (who also authored a book called "A Well Tailored Safety Net: Social Security and Old Age Risk Sharing" - more on that later) seems to be one of those offshoots called a "deficit denier."  Ezra Klein was quick to republish this fanciful drawing in the WP.

Graham revels in the fact that the deficit (as a percentage of GDP) is falling faster (by 50%) than it did in the 1990s.   He also boldly asserts (without any evidence) that "History suggests that there's little good to be gotten from cutting the deficit much faster than 1% of GDP per year. "

Mr. Graham should be reminded that the real problem of out out of control spending is not the momentary deficit but the accumulated debt.  Here is another chart that might explain the problem.   Note that nothing good happens when the ratio of GDP to accumulated debt exceeds 100%.    Over the last four years, the growth of accumulated debt - contributed to be the colossal increases in annual deficits produced in the last four years - has been substantial.  It is also important to understand that the chart at the right does not include the accumulated unfunded liabilities for all sorts of long term entitlements.

His book on Social Security seems to be an argument that any of the problems of the program can be handled.   That is true, if we take care with both thinking carefully about the issues and then taking corrective actions.  

Both Klein and Graham caution us that reducing federal spending will encourage the economy to contract.   So if you carry the logic forward, increasing spending by government will increase GDP - or to carry the logic to its' most reliable conclusion - if we had the government spend 100% of the GDP we would have almost unlimited economic growth.

More on the Bubble

In this morning's WONKBLOG from the Washington Post (Ezra Klein is a pretty good source of lots of information - albeit much of it from the left side of the spectrum) there are a couple of charts which should give college leaders some pause.    Last September Fortune did a story on the the earnings of 25-34 year olds who are recent college graduates.   For the sixth year in a row the average income declined.   Indeed last September the data suggested that in inflation adjusted terms from 2005 the average declined by $10,000 - from $64,500 to $54,500.

The Progressive Policy Institute, which is a left of center think tank, has done a couple of posts on the current situation for college graduates.   At a time when student loan debt surpasses consumer debt, the numbers are not good.   Earnings peaked in 2005 but have followed a pretty solid rate of decline.   The volume of student loans is terrifying.  During the 1990s the volume went from $23 billion to $55 billion.   But during the last decade the volume increased again- this time to $113 billion.   As a reminder, unlike most other consumer debt, those loans are not dischargeable.

Here is a second chart which should also give any educational leader pause.   Labor market participation rates have been declining for the 18-34 market at all levels of education since 2007.   The decline has been most precipitous for high school graduates but even at the college level participation is down.

There is a deeper set of questions here.   Since the mid-1960s colleges and universities have touted the value of a college degree.  The College Board has been especially vigorous in arguing that a degree was worth more than a million dollars over a lifetime compared to the earnings of a high school diploma holder.   Some of us have argued that the argument was a false one on a number of counts.  First, the raw numbers did not account for the foregone earnings that the four years of college (or more in many cases) cost.   But second and more importantly, some of us argued that the earnings differential was highly variable.   The most recent survey of the National Council on Colleges and Employers presents some interesting discipline specific data.   Choice of major does make a big difference in earnings.   I suspect that were one to track labor market participation rates by discipline, there would also be a significant differential.

Note that on average Humanities and Social Science graduates earn more than $20,000 less on average than engineering or computer science graduates.   Note the NACE data and the PPI data are slightly different perhaps based on sampling differences.  But also note that I reject the idea that someone should direct student choices into disciplines.  

There is one other dilemma in this discussion.  Beginning in the 1960s the education based income differential between high school and college graduates began to grow.   Most observers argued that happened because of the increased demands of the workforce - skills requirements for many jobs began to increase.   I thought that was not demonstrated in the data.   More likely, employers (and this is true all around the world) began to value a high school graduate less.   Real earning for high school graduates have taken a dump in real terms (adjusted for inflation) for a couple of decades.    But here is the final (and in my mind most interesting) twist.    Beginning in 2011 the first wave of boomers began to retire.   Based on census data - that generation is actually a bit better educated than the current one.   Thus, one would expect that in the next few years, as this wave begins to build, relative earnings for recent college graduates should begin to rise as employers scramble to fill positions that were formerly held by (boomer) college graduates.  

What should the National Council on Scouting do?

I was an Eagle scout, as were my brothers and my father.  I often think of the oath I took when I became a scout - "On my honor I will do my best, To do my duty to God and my country and to obey the Scout Law;To help other people at all times; To keep myself physically strong,mentally awake, and morally straight."  It is a pretty good code to live by.

Yesterday the National Council of the Boy Scouts deferred a decision to allow local units of the scouts to decide on whether homosexuals should be allowed to be members or leaders of the organization.   They have come to that precipice because a number of national funders including Intel and UPS have said either change your ban or lose our support.

Back in 2000 the Supreme Court in a decision from New Jersey (Boy Scouts of America v. Dale, No. 99-699) came to a correct decision - that a private organization had the right to establish rules for membership.   What the court did not say is that in exercising that right there might not be consequences.  By holding to their current ban they may risk losing lots of funds - but more importantly they may be missing a more important issue.

The National Council debated a rule which would have upheld a principle of subsidiarity - allowing local councils to establish their own rules.  

The real question that the National Council should deal with is whether a leader or a scout can keep to the oath and still be gay.   When you put it in those terms the issue is almost laughable; of course they can.   So the real question that the National Council should debate in May is whether to allow local units of their organization to have slightly different rules for membership.

More than 70% of all scout units are formed in or around religious organizations.  Churches are good places for scout troops to form.   In some cases those religious ties are very deep and in others they are marginal.  We should be very careful about stepping on the religious beliefs of others.  At the same time those scouting councils that do not support the ban on gays should be free to act.   Perhaps that very act might encourage scout councils to discuss the effects of the ban - it certainly would help scouts and their leaders live up to the "mentally awake" part of the oath.

So let's assume for a moment that the National Council decides to take the step they discussed yesterday or to go a bit further and eliminate the ban entirely.   Whatever they decide they need to be aware that any youth organization, no matter what its rules, needs to train leaders on the issues of abuse - blanket restrictions are not good enough.  

There is a collateral organization in scouting called the Order of the Arrow. It is an honorary group attached to the scouts.   I was also a member of that.  One of the initiations that you did when you joined OA was spend a day in silence.   Remembering that day might be a good idea for both sides in this debate.  We need to be a bit more conversant with the rich variety of experience in the US and be ready to understand that as Madison argued in Federalist #10 - those differences in the fabric of the country actually strengthen it.

Caption Contest (no prizes offered)

When the White House released the attached photo I was struck with a lot of questions.

First as the National Shooting Sports Foundation commented the President's stance is all wrong.   He shoots left and yet he seems to be shooting squared off - with  improperly balanced weight.  (Having spent some of my time in college shooting skeet off the back porch of my college fraternity with a hand skeet launcher - we did not use either (as my grandson calls them) "ear muffins" or glasses.

But as I thought about it also had several possible captions for this photo.  (In no particular order.)

#1 - The President takes the memo from the Justice Department seriously (which authorizes drones to kill American citizens with even sketchy details about their activities).

#2 - The President demonstrates a shotgun using alternative power (steam ).

#3 - The President playing golf with Dick Cheney.

#4 - Quick, who believes that anyone will be convinced of the President's commitment to the Second Amendment by this shoddy political photo?

#5 - Shameless publicity photo #47,243.

#6 - Rambamo

#7 - The President listening to Clint Eastwood's rap to the empty chair.

#8 - At least he is able to buy ammunition.

#9 -  Note the President's shotgun has a 15 shell clip in the stock.

#10 - Mr. President, I do not think this gun will reach the House of Representatives from the White House lawn.

Feel free to add your own.

The California Comeback

In the last few days, Texas Governor Rick Perry has been touting the benefits of living in Texas (as opposed to California).   Perry ran for President, although not very credibly.  But in the $24K he spent on ads in California radio markets he says that Texas is a lot more friendly to business than California.   His ad campaign gave me pause for a couple of reasons.

First, I've been to Texas and while I agree that it has a better business climate, much of the state is not a place I would want to be (even with the California propensity to regulate and to tax).

But Second, and even more important, as California Common Sense has pointed out, is our ability to forecast revenues which ain't that hot.   California Common Sense is an interesting group.  It is a Stanford based nonprofit that is trying to improve the data about California government.  Since they were formed they have had a couple of very interesting short issue briefs on a variety of subjects.

One of the more recent ones dealt with how really lousy the revenue estimates from the Department of Finance have been.  Consider this interesting fact - since 1997-98 the professional forecasters have been within a 2% margin of error for their January estimates (the ones used to estimate the original budget) only twice. Let me reiterate that with emphasis - in more than a decade of tries our paid professionals who think about how much money we will gain from taxes have been within a pretty small margin of error ONLY TWICE!  One would expect that a 2% margin of error would be a pretty low bar to pass..  But in six of those years they were close to 10% off (either too optimistic or too pessimistic).   That kind of record could probably be obtained by using a group of chimps from the San Diego Zoo.

Admittedly, revenue forecasting is a tough business.   But the record of the Department of Finance is laughable.  So here is a chart from their report on revenue estimating.  It sort of looks like a set of random guesses.

What can you conclude about these substantial forecasting errors.   I think there are three things.  First, revenue estimating is like a lot of other economic forecasting tasks - very tough.  Even with that caveat, the DOF estimators are not particularly skilled at figuring out how much dough the state will have in the coming fiscal year.   Second, a good deal of the problem has been created by the increasing reliance of the state on highly volatile sources of revenue - i.e. the more you rely on  the income tax to fund activities, the less able you will be to estimate actual revenues.    Finally,  part of the reason that this task is so hard is that income is a highly discretionary concept.   People at the highest ranges of income are able to time their receipt of income more than the normal wage earner.   By raising rates on the highest income earners, one would expect that volatility would increase even more.   Even without that variable, the point that Governor Perry offers is that California, through its bizarre regulatory and tax climate is becoming less and less receptive to entrepreneurs.   The Governor (ours not Perry) sniffed today that Governor Perry was off base in making the commercials - maybe he was.   But the point about the stifling nature of our tax and regulatory environment cannot be ignored.

In defense of a dumb remark

Last week on the morning program of William Bennett, former Secretary of Education and now radio talk show host, the newly elected governor of North Carolina argued that he wanted to change the way universities in the state are funded.   He commented “So I’m going to adjust my education curriculum to what business and commerce needs to get our kids jobs as opposed to moving back in with their parents after they graduate with debt," McCrory said, adding, "What are we teaching these courses for if they're not going to help get a job?"    The answer to his last question is not as simple as either he or his critics imagine.

Before I discuss the Governor's remarks I must comment that I have never been much of a fan of Bill Bennett.   I believe he was a ham handed Secretary of Education who often betrayed conservative principles in search of power for the office.   While I think much of his writing has been interesting, I am not sure his radio talk show is a place to get out ideas as complex as what should higher education be doing.

I found myself thinking the Governor's ideas were a bit off - but not completely.  Immediately, a part of the educational establishment went bananas.   An editorial in the Technician sputtered that "the Governor is on the cusp of singlehandedly destroying the UNC school system." 

The Charlotte Observer said- "The truth is, university graduates ought to be prepared enough to consider more than one option. And the idea of a good education is to teach people to think."  The Observer also trotted out two former political aides to Newt Gingrich and Ronald Reagan who argued that the Governor's remarks were a "violation" of conservative principles.

I have a mixed reaction to the comments of both sides.   First, I think they lack nuance.   The Governor missed some real things that are going on which support his general idea and the critics hyped up too much about what the Governor actually said.  There is plenty of research that suggests that the effects of college seem to be a lot less than advertised.   Employers complain that the very nature of the liberal arts (to get people to think critically) is lacking in many graduates.   

Second,  I am a big advocate of the liberal arts writ large but in many implementations become an opponent.   The Governor made specific reference to a couple of disciplines which, from my perspective, are of questionable value.   Some areas of study are not really trying to find out more about an area but have become opportunities to advocate for a particular point of view.   That is true in some of the new fields, many have the word "studies" after their name are engulfed in a veil of political correctness. But that problem is not limited to the "studies" disciplines - one need only look at the diversions in the Modern Language Association to see that the problem is pervasive in many of the liberal arts.  At the same time I benefitted from breadth offered by the liberal arts and appreciate that some of the material I thought was worthless at 18 has become more valuable to me over time.   

Third, I am skeptical of straight vocational training.  Many politicians argue that we should be training more people for specific jobs.   While skills (including both manual and intellectual) are important the process of training may be a bit more difficult than most people think.    A good example came to me in the early 1970s when I was working for a project in Washington, D.C.   I visited one of the best technical training schools in the country in Oklahoma.   As I was doing the tour, I noticed a room with a set of students learning how to run key punch machines.  I asked the president of the institution, why that was important - I had just installed a set of magnetic tape typewriters (the first word processors) in a unit of the White House and thought that this new technology might make punch cards obsolete.   He responded "NCR offered us a bunch of machines and we could not refuse."   With advances in technology it is hard to predict what kinds of technical skills will be necessary even five years from now.

The key to any kind of education, be it technical or university, is to assure that graduates are able to respond to an ever changing environment.  That means a lot more writing, a lot more exercises in critical thinking and perhaps less involvement with majors that sound good on paper.   But the strength of our system of higher education is that we have a rich mix of opportunities.

Read more here: http://www.newsobserver.com/2013/01/30/2644482/mccrory-misfires-in-his-comments.html#storylink=cpy

The Superbowl

Most Superbowls don't live up to their names.   Often the games are lopsided and boring.  The 49ers had more yards (468 to 367) but came up short in time of possession and in score (31-34).   With a halftime score at 21-6 and with a superb start for the Baltimore Ravens at the beginning of the second half - the game looked like a blowout until two 49er touchdowns in the third quarter turned the game into a game.   It came down to a non-call in the end of the fourth quarter where there seemed to be offsetting illegal contact between Crabtree and Smith.   In the end the failure to complete the pass allowed the Ravens to win the game.

There were a lot of backstories on this game.  Certainly, the final game of a long career for Ray Lewis brought a lot of emotion.  Lewis had 17 seasons - all of them for the Ravens.  That is not all that common in any professional sport.  Another sidelight is the fact that one of Lewis' children is named Raven.

The 49ers are a young team and are likely to be in contention next year.  

The halftime show was trashy.  There was a long delay of the game while the "Super"dome in New Orleans had to put a couple of pennies in their fuse boxes to get the lights back on.  But all in all it was a wonderful game.

One other highlight needs mentioning.   I heard from several friends in Mexico that there was high interest in the game there.   From what they said, there was stronger support for the 49ers.   Last night immediately after the game I had a call from a friend in Xalapa who is a priest and he said his community had watched the game.

Doing my part for environmentalism, too....

This week we became an electronic household in one other area - newspapers.   Both papers (the WSJ and the Sacramento Bee) now will only come electronically.   I've read the WSJ electronic edition for several years.   It is probably one of the best implementations of an electronic paper I have seen.

We decided to go electronic for a couple of reasons.   First, the pile of papers that accumulates over a week is huge.   Some people revel in it.  We did not.   Second, in spite of deteriorating quality, the Bee chose to raise its prices significantly this year by adding in a digital subscription to its annual price.   When given the option between taking a paper we are not very fond of at a higher price or taking the electronic edition only - it was an easy choice.

There are some major differences between the two subscriptions.   Let's deal with the problems first.  When I first thought about going electronic on the WSJ, I called their subscription office and inquired about the cost of an electronic subscription.   They quoted me a price.   But when I asked about what it would cost for the electronic and print editions together, with my applicable discounts, the price was exactly the same.   So what I am now forced to do is to suspend home delivery once every sixty days.

The Bee uses a a software platform called Olive.   On the Olive website it intones newspapers to "create new revenue streams using your existing content."   Evidently, if I am an example of what happens using their software, the claim is not accurate.   From my perspective the underlying platform is at best, clunky.  There is no underlying understanding of the different nature of a digital read.   And at least at this point, there is no digital content beyond an image of the print edition.  Olive's implementation is microfiche brought up to date.  From my perspective, not very inventive.

There are good things about both papers, besides the reduction in clutter.  The WSJ adds a lot of content over the day and also has a series of video interviews that are often interesting and quick.  It is a mixture between TV news and print news.   They also add a lot of extra photos and graphics.   The Bee edition is quite readable and the navigation between sections is good.  But clearly, if the Bee wants to stay in this business (or indeed stay in business), it needs to step up its game a bit.  In both settings, I get the content in a more efficient way, that I can get to anywhere I have an internet connection without the newsprint on my fingers.

In the late 1990s I was at a monetary conference in Mexico where the late editor of the WSJ, Bob Bartley, was a participant.   As we were going to lunch one day, I told him that I liked the electronic edition and wondered whether it was costing them revenue.  He looked at me and said, "do you still take the print edition?" I said "Yes."   He said, "Then we are making $40 a year off you that we did not before."  That may have been true then, but it is clearly not true now.

I think I understand the very tough nature of the Newspaper business today.   At one point a WSJ person that I work with claimed that the cost of delivering the home edition amounted to 35¢ per day.  If that is true, the revenues derived from my subscription largely would consume the delivery cost.   That does not sound like a very good economic model (even if you assume that the advertising revenue and other spiffs continue).   But like many other industries, the news business is beset by the challenge to innovate or disappear.   In my view, while I read a lot of bloggers, even with the obvious biases of many papers, I still prefer to have a vibrant press.