Sunday, June 30, 2013

Some replies to Wretched Excess.

First, thanks for the comments.  Here is what two readers said -- What do you suggest we do? This law is being abused. A letter campaign? The restaurant association could impact a move to grandfather buildings of a,certain age or type. Just a thought.
7:19 AM
There needs to be laws passed that in such cases the plaintiff can not receieve any awards for the suit and that the owner has the option to rectify the situation at a low cost or recieve some kind of tax break to meet the compliance. It is a shame there is so much greed. Cause and effect. 
8:37 AM
Let me offer some responses, which may not have been clear in the original post.   From my perspective the ADA has been abused.   As my two commenters seem to suggest - there is support for assuring reasonable access.  Both the attorney and the plaintiff in this case are abusing the system.   I understand their "moral outrage" but from my view their protestations are contrived.   Based on the number of suits that the plaintiff has filed since the first of the year, it looks an awful lot like he has made it his "profession" to seek out places that are outside ADA standards.   

In the past there have been some alternatives suggested.   First, there are just too many bad incentives for both plaintiffs and attorneys.   One idea, which the trial bar opposes vigorously (for obvious reasons based on the rents they receive from the current system) - is to establish the British principle of loser pays.  If a suit is unsuccessful the plaintiff should be required to bear all the costs of the suit.  In this case the defendant was probably not in compliance with the ADA - I think that was for some obvious reasons.  So she would have lost a suit, based on the news stories and my experience at the restaurant.  I do not believe she was being unreasonable, but I believe the house did not meet ADA standards.   

In this case, however, there is an additional step.   Where there is no obvious pecuniary loss (from my perspective the plaintiff in this case did not suffer any loss except the possibility of eating at the place) the plaintiff should be barred from receiving any compensation.    That would lessen the incentive for lawyers to take on these kinds of cases and it would certainly stifle the small industry of constant plaintiffs.

A second possible change would be to introduce the concept of reasonableness.   The Lake Forest Cafe was (since it is after the last day the place was to be open) a successful but I suspect not a lucrative business.  I suspect, based on the age of the house, that ADA compliance would have eliminated any profitability for the place.   Enforcement of the ADA provisions should have perhaps two considerations.   First, what would the impact of enforcing ADA standards on the business in relation to the operating profits of the place?    Any competent cost accountant could be able to translate a business' books to understand whether putting in ADA compliant restrooms and ramps would be in any way reasonable.    Second, in deciding whether an ADA enforcement is reasonable the process should take into account are there reasonable alternatives within a reasonable distance to the place.   If there are not, then the business should be given a reasonable period of time to come into compliance assuming that the changes are economically feasible.   

If the defendant were undertaking substantial renovations to the place, then it might be appropriate to consider the implementation of ADA compliant entrances and restrooms.

I think everyone understands that for new construction the ADA standards add costs - but those costs spread out over the life of the building are OK to achieve the objective of assuring that the disabled have a chance to experience all the things that others can.   When the compliance is a retrofit, some alternatives need to be thought about.    That is both reasonable and fair.

From my discussions with people about this case, I think most Americans believe the disabled should have access to places, wherever possible.   But I think they are like I am annoyed that the system can be gamed as this case seems to have been so that the end result is either compensation to two people (the plaintiff and the attorney) who probably could care less about the Lake Forest Cafe and the loss of an institution to the community.

Friday, June 28, 2013

No-ing thyself - Aaron Wildavsky's notion applied to Tax Reform

Aaron Wildavsky was a remarkable scholar.   My experience with his work began as an undergraduate when I read one of his first books (The Politics of the Budgetary Process).   But it kicked into high gear during my doctoral studies.  One of my professors suggested that part of completing a doctorate was to be an active member of the scholarly community.   That was harder then than it is now but I none-the-less tried to do it.   I wrote a paper on power relationships which mentioned Wildavsky and so I sent him a copy of the paper.   He sent it back with some comments.   But I discovered that I also became part of his network.   Almost until he died I became a pre-reader of some of his books.   He wrote a book on risk theory and also one on taxation and expenditure.   In both cases I got a very early draft.   I made minor comments on the risk book - because I was just getting into the area - I now serve on an insurance company board and actually helped to set up a specialized insurance company based in part on some of the things I learned in his book.   But the one on taxation and expenditure I did a lot of comments - tax and finance were two key areas so I had a lot to say.   The version I got was a draft (an early one) and when he published the final one, it became a mainstay in the area.   I asked my professor (who had made the original suggestion) and he said "Yeah, the way Aaron writes books is he does some preliminary research, sends a draft out to a lot of people and then is great at reading the comments and synthesizing new ideas from all the people he sent the manuscript to" in essence we served as unpaid research assistants.

I mention that because about the time one of the ideas that Wildavsky was suggesting was to "No" thyself.   The idea was simple - establish elements in a fiscal constitution which would prevent wild and crazy excesses.   The 2/3 vote requirement in Proposition 13 is a good example of the principle.

This week the Chair and Vice Chair of the Senate Finance Committee (Max Baucus and Orrin Hatch) proposed a new twist on the idea.   They sent out a dear colleague letter which suggested that they wanted to start the process of tax reform.   And that rather than picking and choosing which elements should stay in the code, they would begin with the principle that everything would go out, everything!   If someone could make the case for something to stay in - they would consider it - but as a starting point everything would go out and every provision in the code would have to justify its existence.   If a provision cannot prove that it helps to grow the economy or make the code fairer or promotes some other important policy objective - it goes and stays out.

The code is now 74,000 pages/ 9 million words.   A George Mason Mercatus Center report suggested that tax compliance costs us all about a trillion dollars each year.   The complexity also loses something close to half a trillion annually in under or unreported income.   So simplification would be a big boost for all of us.

If the two senators are successful they might be able to halve the top rate for personal income taxes.    Most political observers have argued that the tax code is too tough to tackle because benefits are concentrated and costs are diffuse.  But this approach would put everything on an equal footing.   One wonders whether this is a variation on the strategy played in 1986 when the most significant tax bill of the last half century was adopted or whether this is simply a dodge.   For those who care about the real costs of the current code (and I count myself in that lot) this would be a good starting point.

There are two elements which argue against 2013 being 1986.   First, in 1986 you had a president who was willing to fight for the principle of simplification - against the opposition and members of his own party.   He also recognized that allies can come from strange places like Oregon (Bob Packwood), New Jersey (Bill Bradley) and Chicago ward politics (Dan Rostenkowski) and even Massachusetts local politics (Tip O'Neill).    Second, 1986 saw two things we may not have now - a House committed in part to significant reform (Bill Camp the chair of Ways and Means may be that person) and some public pressure for simplification.  

Were all the stars to align we might have the opportunity to put together a reprise of 1986 - which brought about more revenue and significant prospects for economic growth.  Most likely if this were to begin to advance it would be in an even numbered year (2014); but I would still say this bold no-ing thyself is a long shot.

Thursday, June 27, 2013

A Blog should be interactive

Earlier in the week I wrote about the closing of the Lake Forest Cafe, a Folsom landmark for the past 30 years that until the 30th operated in a 100+ year old house.   I made the point that while I support the substance of the Americans with Disabilities Act that a lawsuit offered by a person who seems to file a lot of them supported by a plaintiff's attorney who is making her living doing this offends me.   In economics that is often called "rent seeking."

The post generated a lot of readers, a big jump from my normal readership.  But no comments.

There are several possible explanations for the jump in readership.   

1) I was especially eloquent that day.   (Yeah, right)
2) I struck a nerve with local readers.   The owner who made a brief comment for the local Folsom paper but also had a great comment on her website which actually describes the homey nature of her soon to be closed business.   My wife and I have been occasional customers of the place.  The owner made the following statement on her website -

Lake Forest Cafe began as my dream over 25 years ago. I imagined a restaurant where people would feel comfortable and safe enough to enjoy and linger over good honest food. It would be a place of style where people would love to eat. Today, as in the past, my dedicated staff and I strive to fulfill my dream.

I sincerely hope your time at Lake Forest Cafe will be enjoyable.

That is one of those mission statements, that based on our experience, actually explains what the owner was trying to (and mostly did) accomplish.   From my perspective, the lawsuit was indeed a Wretched Excess.  I read the pleading and also the news account, I did not talk to any of the interested parties.  I also did some research on the plaintiff and the number of suits he has filed since the first of the year. (It is a lot.)
3) The disabled community thought that I was either fair or unfair in my description of this suit in particular and the broader issue of the appropriateness of private rights of action in the ADA.  (Which has been a high point of discussion in legislatures over the duration of the act.)
4) The Plaintiff's bar thinks I picked on them by using their own words and comparing them to not very admirable types.  (Gee that is a first.)
5) A group of students was given this URL for an assignment on how bloggers think.

Whatever the reason, none of you has made a comment.    As the introduction suggests, I write this blog on politics and economics and whatever else tickles my fancy.   I am a big fan of the Rivercats so I even write about them.  But I have two requests to all these new readers.   First, feel free to make a comment either positive or negative.   I spent a career as a lobbyist and some am quite comfortable with people who have differing opinions from mine.   But second, if you were intrigued by the original post on the Lake Forest Cafe, feel free to stop by again.

Wednesday, June 26, 2013

Voter Nullification

The SCOTUS decisions on Gay Marriage came to a result that I ultimately agree with but at least in the California decision (on Prop 8) their method of coming to the decision was wrong on many counts.   Marriage has traditionally been a state policy issue.   Indeed, numerous states have expressed support and opposition to gay marriage.    The decision declaring that Congress over-stepped on DOMA is consistent with a strong federal union.

In the Windsor decision they rightly argue that the two plaintiffs from New York were denied equal protection by DOMA.   But in California, the voters of the state expressed an opinion on California law not once but twice.   The first time they adopted an amendment it was done with a substantial percentage.   In the Prop 8 (Hollingsworth) decision the margin was much more narrow.

The political establishment declined to exercise their constitutional responsibility and so the supporters of Proposition 8 took up the cause of defense.   The court threw the challenge of the decision of the 9th circuit out by arguing that the plaintiffs did not have "standing" to pursue the issue.   But when your elected officials decline to carry out their Constitutional duties the voters who supported Proposition 8 (I did not) are left without a voice.  Justice Roberts ignored that question in his majority opinion.

Roberts' arguments sound a lot like the discredited notion of nullification where some states have claimed in the past an ability to nullify some federal enactments that they do not agree with.   Only in this case, the nullification is to destroy a key principle of voter passed initiatives - the supremacy of the people over the officials that we have temporarily chosen to work for us.

What might have happened if the court had upheld the right of the people to express their opinion on this matter beyond the ballot box?   The structure that is inherent in the initiative is the underlying ability of the people to intervene when their elected officials chose not to.   The initiative process is the supremacy of the people has been vanquished to the whims of currently elected officials.   Recent polling indicates that if gay marriage would be on a ballot anytime in the future California voters would contradict their earlier judgments.

Those upholding the opinions expressed above, i.e. the ability of voters to protect their supremacy, included an odd mix that included  Kennedy and Sotomayor as well as Alito and Thomas.   Affirming a popular position while denigrating a more substantive principle is not very judicious.

150 years ago it begins to get interesting

For the last couple of years I have been using an iPad app called Civil War Today.  It is a very interactive APP for people interested in the progress of the Civil War - beginning yesterday, the Civil War becomes especially interesting.  The Civil War started in April of 1861 and the APP allows you to follow the developments day by day. The South was making a major assault into Pennsylvania that culminates in the Battle of Gettysburg which is over the Fourth of July.   It may be the low point in the war for the North.   The Governor of Pennsylvania (Andrew Curtin) called for 60,000 militiamen to be upped into service to defend the state.  General Jubal Early was in Gettysburg and took over the town.   Hooker at this time was in Maryland but heading north. Lee's Army of Northern Virginia was also heading north.  At this point in the war there had been 138,000 Northern casualties and 159,000 Southern ones.   The City of Carlisle had been evacuated.

What has always impressed me about the period is how primitive life actually was.   All of the casualties on those hot summer days, including all of the farm animals that were killed had to be removed from this small little town by physical effort.    Remember that this was a Pennsylvania summer and there were thousands of casualties in this relatively small and rural area.

The picture at the left shows Confederate troops in front of the house of one resident of Gettysburg.   It is a truly remarkable time in our history.   The APP brings this time alive through pictures, discussions, letters, newspapers of the time and even games.   It was one of the best APPs I have bought.

Tuesday, June 25, 2013

Wretched Excess

The Americans with Disabilities Act was one of those laws that was passed with good intentions.   But a story in the local Folsom paper suggests why it its original intent has been perverted by legal trolls.

The Lake Forest Cafe is a restaurant that was built out of an old house.  It has always been a marginal business.   The space is limited and it was open for limited hours.   But for the regulars of the place it is a down home place for brunch.  (They serve breakfast and lunch, at least until June 30).  They're closing because one of the troll law firms who specialize in ADA suits.

One their site the firm claims - "The Moore Law Firm, P.C. was founded in 1993 by attorney K. Randolph Moore on the belief that every United States citizen is entitled to the protection of his or her constitutional rights.  One of those rights is the ability to access public accommodations (businesses, restaurants, movie theaters and the like) regardless of one's disability.  The Americans with Disabilities Act of 1990 ("ADA") and related California law empowered the attorneys at the Moore Law Firm to end discrimination against persons with disabilities, and we have achieved wide-spread positive change in communities throughout California."   This type of firm makes a living by searching for businesses that are out of compliance with the ADA and then suing the owners.     The attorney who filed the suit, one Tanya Moore, went to Santa Clara Law school.   Evidently Ms. Moore did not take a course in Constitutional Law - the ADA is statutory.

The ADA was adopted by Congress more than two decades ago.  And for the first few years, there were a lot of enforcement actions against large businesses and others to encourage compliance.   But since the Act was passed, fewer and fewer establishments are not in compliance so firms like the Moore firm troll for clients.   Most of what they do is sue to get a settlement.   The Plaintiff in this case is one Robert Kalani, who seems to have teamed up with the Moore Law firm on other ADA related cases (see for example a case filed in April of this year) in at least one other case.  If you check out recent filings of Mr. Kalani you see that he has made a nice little niche for himself in the last several months suing a variety of businesses in the Sacramento area.  From the filings he also seems to have been involved in lawsuits outside of the area.  Seems like he and his troll lawyer(s) have made a nice business of lawsuits.

The bounty that these trolls are able to reap comes from the structure of the suits.   The suits are almost impossible to defend, indeed, the Lake Forest Cafe (or an earlier case in a small restaurant called the Squeeze Inn) facility is quirky.   It is after all an old house.  It is unlikely that the house could be refitted to meet the ADA requirements without significant cost.   On new construction ADA compliance adds some additional cost but on rehab the costs can be huge.   If the defendant loses they end up having to pay their own lawyer, the plaintiff's lawyer, any settlement costs and court costs.    So many businesses end up settling. 

There are plenty of places for Mr. Kalani to get breakfast, even a hearty one, in a stones throw from the soon to be closed cafe.   Congratulations Ms. Moore and Mr. Kalani - while this lawsuit was not successful you did help to build unemployment in the area and to destroy a decent place for an informal brunch.

Saturday, June 22, 2013

Two forces that have extended unemployment in this recession.

Lee E. Ohanian is a UCLA professor who has written a couple of papers exploring why this economic decline has had a much slower recovery.   In some research that he did for the St. Louis Fed he argues that one of the reasons why employment has been slow to recover is the implicit subsidy caused by a lengthening process of foreclosure.    Over the last decade the foreclosure process has gotten longer in part because of the legal process and in part because of the numbers.   So the process that used to take three months now can take eighteen.

Ohanian and his UCLA colleague Kyle F. Herkenhoff argue that the lengthened process of foreclosure offers the equivalent of an shadow unemployment compensation payment.   In essence the lack of a requirement to maintain housing payments, based on the average mortgage, offers a subsidy of about $9000 per year.

Beginning in 2005 the fraction of mortgages held by the unemployed began to take a sharp upturn rising from about 2-7% by 2009.   Their paper estimated that the increased time has held down employment by a third to a half percent.   That would not have brought down unemployment to pre-recession numbers but it would have helped.

When coupled with the extended unemployment benefits that seem to be a policy choice in every recent downturn, the ability to encourage people back to work is significantly diminished.

The influence of public policy on the duration and even severity of recessions has been a common topic of discussion over the last few years from economists like Robert Higgs to writers like Amity Schlaes.  Ohanian's work adds some fuel to the fire about what Gordon Tullock called the "theory of public bads."

Just Plain Fun

Last night we went to the opening of the Fair Oaks Theater Festival's summer season to see the Pajama Game.   The show is an adaptation of a musical that first appeared in the mid-1950s.   It was made into a movie in 1957 with John Raitt and Doris Day.

The story is about a strike at a pajama factory called Sleep Tite. A new factory superintendent comes in and falls in love with the leader of the union grievance committee.

The play has a slew of songs you would recognize.  The cast is quite good and the choreography was fun.

FOTF is a local cooperative venture between the Fair Oaks Recreation and Parks Department and American River College.  It is presented in the Veteran's Memorial Amphitheater under the stars and last night was a perfect night for such a performance.

FOTF also has a local character to it.   It is open seating and if you want to rent a seat cushion (the wood benches are a bit hard) it is 50¢.  The FOTF also has very reasonably priced refreshments including wine and beer.   It is a fun evening.

Wednesday, June 19, 2013

Would you buy a used recession from this guy?

The Fed released its projections of the future direction of the economy and some smarty pants at the WP did a graph of just how well they have done in the past.

There is an old joke in economics that says "economists have successfully projected 11 of the last 3 recessions" - it turns out that they are not much better at projecting recoveries.

Friday, June 14, 2013

Two points on PRISM

The discussion about PRISM has brought out a lot of commentary. Much of it, described in my two earlier posts on the subject, is silly. But two issues caught my attention in the last couple of days. The first was a WSJ article on whether the PRISM program suffers the statistical risk of being inaccurate. The WSJ has a regular column called the Numbers Guy which often offers remarkable insights about numbers related subjects in the news. This article presented some comments from Biostatisticians about whether the methodology to collect information in PRISM is likely to yield tons of false positives (identifying culprits where none are present). Two quotes will give you an idea about the issue. One PhD candidate in computational ecology wondered on his blog whether PRISM could (based on the algorithm) produce 10,000 false positives for every real hit. Peter F. Thall, a biostatistician at the University of Texas' M.D. Anderson Cancer Center commented that the even if the NSA methodology is "is terribly clever and has a very high sensitivity and specificity, it cannot avoid having an immense false-positive rate,"  That should give one pause, especially if this data is held in perpetuity (and with the rapidly declining cost of storage that is probably the default option).

There is a second issue which I began to think about while I was reading a book called Socialnomics.  The author makes a point about how instantaneous information is and also how important it is for purveyors of information to be genuine.   He cites an example of a college football player who made an inappropriate tweet about President Obama and was immediately sanctioned for his one comment.   The author does not mention the video that hit YouTube for a while of a couple at a campus in the west who were videoed on a rooftop of a campus building having sex.   In both of those cases the students might well have gotten away with something that was a bit outside the norm in earlier years, but no more.   But both are prime examples, of how 140 little characters can affect people's lives.

In earlier times, security agencies were able to get away with impinging on freedoms by simply claiming that they were protecting us.  I am pretty sure that we should be using all sorts of surveillance of potential terrorists, after all, I start with the notion that I have nothing to hide.   At the same time, in this era of instant communication, it would be good and prudent to establish a reliable review process to cross check whether the benefits outweigh the costs.  In the highly charged atmosphere of Washington politics that might be very tough, but it is still necessary.   From all of the commentary to date there is little evidence that this program received more than a scant attention from insiders about key questions about effectiveness and alternatives ways to achieve the results.    Irving Janis, in a book called Groupthink, argued a couple of decades ago that experts tend to fall into conforming errors.   In this age, we need to establish systems which will counterbalance those traps.

Wednesday, June 12, 2013

Strange Bedfellows Indeed

The Snowden kerfluffle has produced a rare congruence of opinion.  House Speaker John Boehner, R-Ohio, called the elusive, 29-year-old former intelligence contractor a "traitor."  Senate Intelligence Committee Chairwoman Dianne Feinstein, D-Calif., also called the disclosure "an act of treason" and said Snowden should be prosecuted.  Just because I think Senator Feinstein has not read it it might be useful to remind us the Constitutional definition - (Article 3, Section 3)  Treason against the United States, shall consist only in levying War against them, or in adhering to their Enemies, giving them Aid and Comfort. No Person shall be convicted of Treason unless on the Testimony of two Witnesses to the same overt Act, or on Confession in open Court. The Congress shall have Power to declare the Punishment of Treason, but no Attainder of Treason shall work Corruption of Blood, or Forfeiture except during the Life of the Person attainted.”
From my perspective we need to separate the disclosure that Snowden did (and the opportunity it presents) with the broader issues of public policy.  Surprisingly ( perhaps even for the first time) I find myself agreeing with the Senate Majority Leader who counseled that it might be a good idea to calm down.

Most Americans understand, perhaps better than officials like Boehner and Feinstein, that we need to have a balance between the need for security and the competing need for privacy.  The Patriot Act was adopted in the heat of the moment and like most other laws, it probably could benefit from some review.  The ranking member on the House Intelligence Committee seems to have gotten this balance right.  In a HUFFPOST article he said. "Congress needs to debate this issue and determine what tools we give to our intelligence community to protect us from a terrorist attack," said Rep. C.A. Dutch Ruppersberger of Maryland, top Democrat on the House Intelligence Committee, and a backer of the surveillance. "Really it's a debate between public safety, how far we go with public safety and protecting us from terrorist attacks versus how far we go on the other side."
Supporting a reasonable review of programs like PRISM, gives nothing to the terrorists and at the same time takes nothing away from our intelligence efforts.  Security types have caused some major changes in the last couple of decades.  Some may be necessary.  But others seem to operate for the benefit/convenience of the security people.  Having a less open society may be necessary in some areas, but those changes should not be agreed to in the heat of the moment and then continued forever.  I am not sure what if anything should be done to the leaker but ignoring this as an opportunity to think about policies with a bit more balance seems prudent. 

Monday, June 10, 2013

It's all about Stickiness

The Keynote for the Worldwide Developers Conference for Apple was done today and from the comments on the blogs - it was ho-hum.  But wait, that story is baloney.

WHAT WAS NEW -   The presenters introduced an upgraded line of Macbook Airs which have increased and impressive battery life.  They also did a preliminary look at a significantly revised Mac Pro.  They also offered a refresh of OS X (now called Mavericks) and the IOS (for mobile devices) now called IOS 7.   They also created a significant competitor to Google Docs and a competitor to Pandora and the other music streaming services.   They did not refresh the iPhone or iPad lines.  None of this is real until the "fall."

WHAT WAS SAID - Tim Cook, Apple's CEO presented some interesting data.   93% of IOS users are on the latest refresh of the IOS.   That compares to about a third of the Android users who are on an operating platform that was first introduced in 2010.  There were some other metrics which suggest that the IOS is a pretty sticky platform.  IOS users are more attached to their devices - they use it more during the day.  The IOS still produces about three quarters of the developer revenue for mobile devices - that should have been music to the ears of the crowd that was listening.

WHAT'S NEW - From my perspective the product announcements were interesting but the software announcements were smart and very good.   The new IOS is integrated with Mavericks so that all of the functions work over all the IOS devices that one uses.  So whichever device you use - integrates all information from each device.  The new environment allows one to use a set of devices that are constantly integrated.  For example, if you do a map search on your laptop, it is immediately integrated into all of your IOS devices.

The Web based iWork is superb - based on the first look.  Google Docs is clunky, at best.  This looks like all the functionality of iWork with a web based product.   In the last two years I have reduced my usage of the Microsoft Office suite because it has grown to overly clunky.  Now that is no longer a problem.

iTunes Radio has the opportunity to bounce Pandora out of the box.   The deal is as follows - with ad support, it is free.   If you use iTunes match, for $25 a year; Pandora is about $10 a month.

But there were still the naysayers.  For example, Yahoo said - "If Apple has been in a funk, it’s an extremely profitable funk. The company earned more than $22 billion in net profit during the six months ended in March. Still, investors worry that the company hasn’t produced any new hits since the iPad, especially with Google’s (GOOG) Android operating system gobbling up market share on mobile devices."  But the comparisons are probably not valid.  Sure there are a lot of Android devices but numbers on customer satisfaction and adoption rates belie whether Android is going to be a dominant platform.

The bottom line is that the WWDC offered some new products and software which are likely to make the IOS platform even more sticky.

WHO IS NEW - One of the key things about WWDC is to understand who Apple is ramping up as a spokesman.  Tim Cook and Phil Shiller both had roles.  But Craig Federighi (Picture above), the software engineer who manages the integration of the IOS and Mavericks had a major role.  He was funny, if not a bit snarky.  He had a couple of good hits on the Android platform and Firefox and yet at the same time he presented a pretty clear picture of where Apple is going.  Johnny Ivy was in the audience but did not have a direct role - I always thought he was a bit new age.   His design genius is unquestioned but the new team was actually pretty good.

SO DID APPLE MAKE THE SALE - As a user of the IOS and OSX - what I saw today was no hardware that I was going to buy.  Although the PRO looks pretty awesome and the new AIR is something I would buy if I had not bought one about a year ago.   But the software improvements did two things - they made my existing devices even more useful and they added some features that look interesting.  IF Apple introduces new versions of Phones and iPads in the fall - then the Fall market will be even more robust.     If they do not, I still have a lot of reasons to not consider the Android alternative.

Edward Snowden

The revelations of the Guardian interviews of Edward Snowden were quite interesting.   According to the news interviews Snowden was a contract employee in Hawaii for Booz, Allen - which once was one of the original consulting firms and is now fundamentally an enterprise whose prime clients are the government.  (A bit like a Government Sponsored Enterprise)

Snowden argued that the system that he outed allows government to surveil anyone at any time.   He describes the potential for this program as "turnkey tyranny."   He argues that with the rapid decline in the cost of storage that it has become simple to collect and store massive amounts of data from all sorts of electronic sources and they do it because that policy represents  "easiest, most efficient, and most valuable" to do the job.   But we should be questioning whether that is job we should be doing.

There are a couple of interesting side notes.   First, according to the Washington Post Snowden is not very well educated, he holds a GED but I suspect his technical skills are well developed.    Second, he enlisted in the Army reserves but was then denied the opportunity to enlist in the Special Forces.   He left the Army after breaking both legs.   What interested me in listening to and reading interviews he has given is that he is quite articulate.   His move was not an impulsive one.

There has been a lot of commentary about whether the Obama administration expanded this program which seems to have been started as a result of the Patriot Act (although it is probable that this kind of monitoring has gone on for a time considerably longer than since the passage of the Act.  Based on comments from experts in the field, they have.  Clearly, what has changed has been the ability of government to store massive amounts of data from phones and the web.

There are two questions here that I think are interesting.  First, did Snowden violate the law?  From the news reports he probably did, technically.  But that is at once not a very interesting question.  The more important one is what reasonable limits should be placed on the ability of the government to collect and use any of the data they collect?   From my perspective, most  people that work in security are cognizant of their intense responsibilities.   But how do you prevent a rogue or a group of rogues from using the collected data.    One of the valid criticisms of J. Edgar Hoover's reign in the FBI was that he collected and used confidential data, supposedly collected for national security purposes, to advance his career and to limit the roles of all sorts of people inside and outside the government.   The PRISM program looks a lot like the Hoover files on steroids.

There are clearly some important public policy questions here.   From the start it has been my opinion that the Patriot Act was sloppily drafted.  Senator Mark Udall commented yesterday  "The ultimate check, the ultimate balance is the American public understanding to what extent their calls are being collected, if only in the sense of metadata," he said. "Let's not have this law interpreted secretly, as it has been for the last number of years." There needs to be a balance between the legitimate need to collect information and the Constitutional guarantees to US Citizens against unreasonable search and seizure.    From what we know about the role of the security agencies in collecting information about the Boston Marathon bombers, their competency in using information is certainly in question.  That does not call for eliminating all data collection but it does call for a thoughtful review of what should be collected and how should it be used.   For that, even if Snowden did break the law, we should not neglect this as an opportunity to step back and see whether "easy, efficient and valuable" is a legitimate policy goal.

Saturday, June 08, 2013

Almost Everything You Know About Proposition 13 is WRONG!

This week marked the 35 Anniversary of the passage of Proposition 13 in California.  The California Taxpayers Association released a report which analyzed what has happened since the measure was first adopted.  It is well worth the read.

When it was under consideration opponents warned that California would crash and burn if the measure were passed.  They suggested that unemployment would increase (it actually was lowered a bit).   They also argued that over time, the burden paid by homeowners would increase relative to business and industrial property.   Finally they suggested that the revenue restraints of the proposition would be unbearable.   Time magazine, a few years ago wailed "But California's woes have a set of deeper reasons: direct democracy run amok, timid governors, partisan gridlock and a flawed constitution have all contributed to budget chaos and people in pain. And at the root of California's misery lies Proposition 13, the antitax measure that ignited the Reagan Revolution and the conservative era."    Contrary to what Time tried to portray every time a politician tries to monkey with the key elements of the proposition - they get their heads handed to them quickly.   Remember the federal government does not have Proposition 13 yet gridlock is as bad or worse than what we live with in Sacramento.   Budget chaos did not come from the Proposition but more from policies adopted by the legislature which combined between a drunken sailor mentality on spending and a confiscatory tax system which has begun to encourage the wealthiest and most productive to leave the state.

So what does the report say.  First, it gives a short history of what caused Proposition 13.   The chart at the right tracks property assessments prior to passage.  They were growing at a healthy clip.   Indeed, for the four years coming up to the June, 1978 election assessments had risen by double digit rates each year.   That was caused by significant improvements in data gathering of assessors and also in several clumsy fixes that the legislature had tried to adopt.   Assessed value rose by 61% in just four years.   The Sacramento sages could not understand why voters were so grumpy.

A second picture emerges by looking at the share of property tax burden borne by Commercial and Industrial property compared to residential real estate.   Remember that most of the legislature's experts thought that because home owners moved more than businesses that the burden would shift. It turns out that since Proposition 13 passed the share of property tax burden borne by residential taxpayers has actually decreased.   Often the justification for supporting a split roll is to address a problem which does not seem to be real.

Let's be clear here.   Since the proposition passed assessed values have exploded from about half a trillion to more than four trillion dollars.   That even takes into account the dip we had from the recession that started in 2007-08.   By any account that is a pretty healthy rate of growth.

There is a third issue with Proposition 13 which is not much of a surprise but it is certainly instructive.  A key marker for a sound tax system is stability of revenues.    Since the passage of Proposition 13 property tax revenues have been relatively stable in terms of growth.   The legislature over the same period of time have had complete discretion over the income tax.  The majority has chosen to make our income tax increasingly progressive - so that the tax relies more and more on fewer and fewer taxpayers.   So compare the red line in the third chart to the blue one.  If you want adequate public services which would you prefer to work with?   The answer should be obvious.

There are some issues with Proposition 13 which could be improved.   For example, because of the way that the Legislature reacted initially local government's ability to meet local needs has been reduced significantly.   The increased  reliance on sales tax revenues by local governments has also produced some distortions in public policy.   Both of those are governance not tax issues.

What is most disappointing about this report is how the opponents of Proposition 13 will continue to ignore the results.  You won't see much coverage of this research in most papers in the state.   It does not confirm their biases.  But you should.   Proposition 13 was a meat axe to a problem facing taxpayers.   But based on the CalTax research - the choice that Californians faced was a meat axe or a bludgeon.

Friday, June 07, 2013

Another Message for the NSA story

The news has been fast and furious about the NSA monitoring of internet and phone accounts.  But one of the funniest responses came from Edward Tufte who twittered yesterday about how bad the NSA did on their slide presentation.

Tufte has taught those of us who use slides (I favor Keynote over Powerpoint) a lot about how to make slide presentations readable and helpful.  But  I personally like the rule first offered by Guy Kawasaki called 10-20-30 Rule (see below to hear Guy give you the rap about the rule) - I have heard Guy use two versions of the rule - 10 Slides - 20 words per page or 20 minutes max for the presentation and no less than 30 point type for anything on the screen (he quotes a funny algorithm - figure out who the oldest person in the room is and divide his age by 2 to figure out the minimum type size).

I am not bothered by the collection of this data in part because they are searching using algorithms that are unlikely to include the things I do.   There is a possibility that could change but not based on the content of the NSA slides.   Because as Kawasaki points out so clearly, if you do not follow the rules (and the NSA presentation violated two of the three) you are a bozo.

I am not worried about getting caught in the bozo's web but I am concerned about whether people who create these types of slides can actually competently figure out who the bad guys are.

Thursday, June 06, 2013

Trolls in the Sandbox

A few days ago the US International Trade Commission issued an order prohibiting Apple from selling a couple of devices that, at this point in the technology cycle, have a very short shelf life.    You may not have heard about the ITC before.   It is one of those government creations designed to help improve competition.  The Commissioners on the ITC are people with little engineering expertise.  They are mostly lawyers.  They were asked, as a court in Europe had earlier been asked to do, to figure out whether Apple stole ideas from Samsung or vice versa.

For every beginning student in Economics or Public Policy - a must read has always been Garrett Hardin's "The Tragedy of the Commons" which was written not by an economist but by an environmentalist.   Hardin argued that the risk to common areas was overuse when there were not sufficient controls on use.  (Have an open field and if you allow citizens around the field to allow their sheep to over graze it, it will soon be degraded.)  Hardin's article (which was originally in Science) is widely discussed.   A couple of years ago another professor, this time one named Michael Heller (a Columbia Law Professor) , wrote something called The Gridlock Economy which presents the counterfactual to Hardin's thesis.   Heller argues that when there is too much ownership in an area we get something he calls the "Tragedy of the Anti-Commons" - where contending parties squabble over arcane points of ownership that are granted by this or that system.   I am not a big fan of Hardin's paper - because there are so many obvious alternatives to solve his problem.   But I think Heller has a point.  The patent system in the US is one such "Anti-Commons" - A good indicator of this trendline can be seen in the number of successful patents.   In 1963 there were about 49,000 successful patent applications, in 2012 there were 277,000.

The problem(s) with the patent system are numerous.   First and foremost, the existing system grants patents unevenly, so if you look at some of those 277,000 patents that have been granted some are very narrow and some are overly broad - it is a hodgepodge of rights that are beginning to cause companies to trip over each other.   Second, there are the "trolls" in the system; firms that go through those thousands of patents (many of which never have a commercial application) and scoop them up then harass legitimate businesses for infringement.   At this point, the most egregious story I have read about them is a company that has gone around to places that offer free WIFI and have asked for compensation for their technology (which they had no part in inventing).  But then third are places like the ITC which seems to be used more for defensive rent seeking than arbitrating legitimate cases of trade infringement.

Some recent data on the incident of rent seekers in patent matters can be seen in the number of lawsuits filed in relation to patents.  The chart at the left shows that the number of lawsuits has doubled in the last six years.   The President has expressed support to curb these kinds of abuses but the proof of whether his proposals are a good idea will be in the final draft of the legislation.   The remarkable thing about the graph is that the red part represents patent trolls. (PAE - Patent Assertion Entities)

In the tech realm all the smart phones and tablets that we have become addicted to operate with many similarities.   But what differentiates the devices is the operating systems.  It is pretty clear to me that a lot of the design of smart phones is evocative of earlier models. The ITC order affects Apple phones that are at the end of their cycle - for example the iPhone 4 which according to Piper Jaffrey accounts for about 1% of the company's revenue - which is likely to decline when the new round of iPhones is announced as early as next week in the Worldwide Developers Conference.  I've watched the evolution of the Windows and Android operating systems.   They have some interesting concepts incorporated in them.   Some, in my opinion, look a lot like the Apple IOS.   And indeed, some of the IOS features look like something first enabled on Android.   Even with those look alikes the market for these devices is not declining.

In earlier times, Apple made a joke of companies ripping off their stuff.  When Windows came out with the look and feel of the Apple Operating system, there was a lot of talk about "Windows, OS 7 (this is when Apple was first offering OS X or 10), implemented poorly."   I am not arguing that there are legitimate reasons why some inventions should be protected for a limited period of time.   But based on the iterations of the Apple/Samsung wars the real inventors of technology are not the engineers that produce these goods that we cannot live without but the lawyers who tie up innovation in arcane squabbles.  Their invention is obscure legal pleadings which often contradict each other and which add to the costs of producing those goods.  That seems a lot like a couple of three year olds throwing sand at each other.

Monday, June 03, 2013

Sophistry ad absurdum

The Chairman of the Federal Reserve went to Princeton to give the Commencement Address and seems to have misunderstood his role.  I've given a number of these addresses and have always taken a fairly modest approach to them. Indeed, I am giving one at a university in Mexico at the end of the month.  I work from three rules.   First, they should be brief.   Graduates and their families are there to celebrate their commencement into a new phase in life not to listen to endless meanderings in erudition.    Second, if possible, they should have a bit of humor.  Third, if you cannot satisfy the second rule, you still need to satisfy the first.
The speech is a series of short explorations (they are even numbered) into a several fields.   One part of his address was remarkably candid, which started  after a short comment on Lily Tomlin and cynicism.   "Honest error in the face of complex and possibly intractable problems is a far more important source of bad results than are bad motives."  One might send him a copy of Hayek's paper on "the knowledge problem" which argues that centralized solutions are doomed to fail because they cannot ever understand the complexity of human perceptions/motivations across the spectrum.   From my experience most players in the political system are motivated by ideology not cynicism but they are also motivated by a sincere belief that their opponents are motivated from ignorance.   Part of the perceived intractability of many problems is the failure to recognize that we often cannot know enough to understand the consequences of our actions and as importantly that our perception of the ability to affect human behavior is far more limited than most in the political system understand.   Adam Smith, in the Theory of Moral Sentiments (what many economists call "his other book"), call the man on the chess board problem.
Where I was bothered by his talk was in his riff climbing on to the "you did not build it" myth.  Admittedly he started out the talk with a nod toward the virtues of striving.   But then he said  “The concept of success leads me to consider so-called meritocracies and their implications. We have been taught that meritocratic institutions and societies are fair. Putting aside the reality that no system, including our own, is really entirely meritocratic, meritocracies may be fairer and more efficient than some alternatives. But fair in an absolute sense? Think about it. A meritocracy is a system in which the people who are the luckiest in their health and genetic endowment; luckiest in terms of family support, encouragement, and, probably, income; luckiest in their educational and career opportunities; and luckiest in so many other ways difficult to enumerate-these are the folks who reap the largest rewards.”   Bernanke does not make an absolute claim on the "you did not build it" riff but in my opinion    Luck always plays a role in life.   But any system which denigrates human effort and ingenuity is designed to fail from the start.   Part of the rationale for establishing equity compensations in a just society is to make some accounting for the role of chance.
Some writers on the left, like the author of Wonkblog, jumped on the "you did not build it" section.  From my view, the speech is worth reading in its entirety (which is why I gave you the link to it above).   But were Bernanke a bit more modest in his expectations for the role of a commencement address - it would have been a much better product.   Come to think of it, his role in making policy at the federal level could have benefited from the same level of modesty.