The Trabant in the US - Green jobs and bailouts

The announcement today about the third failure of a company that the Obama administration bet on made me begin to think about the effects of this administration's industrial policy.   These guys believe they can actually pick winners - companies that will produce what they think consumers will buy and will conform to their narrow vision of markets.   Ener1 cost the American taxpayer $118 million; Beacon Power cost the taxpayers another $43 million and Solyndra cost us $528 million.  In the State of the Union the President claimed that he wanted to produce a lot more "Steve Jobs."   You may remember that the former Apple CEO once said "If Henry Ford had asked consumers what they wanted he would have heard faster horses."   That is exactly the point.     From the record this set of policies has not produced even mildly positive results.

Frederic Bastiat discussed the "seen and the unseen" (knowing that some choices result in tradeoffs which are not properly accounted for).   So look at the major bet that this Administration.   The original cost of the bailout of GM and Chrysler was estimated at $80 billion.   The government owns 500 million shares of GM at this point (about a third of the total capitalization).   The government pushed GM to produce an electric car (the Volt) which to this point has been something of a colossal failure (about 6000 units sold).


During the coming campaign you will hear the Administration claim that its bailout of the auto industry saved 1 million jobs.   Voters should not let them get away with those claims.  Would the American auto industry have gone away if the government had not injected $80 billion dollars?   It is not clear what would have happened.  Ford certainly would have remained and if the market had been able to operate some remnant of GM or Chrysler would have survived.   But the distorting effects of the bailout remain.  The chart is Ford (blue) v GM (red) since the start of the administration.   Some stock traders argue that GM's price is partially depressed because of the worry that investors have for the company - with a third of their outstanding shares being held by the government.

Would the economy continued to spiral down, as the Administration's inside and outside commentators claim or would we have had a more normal recovery curve?   We'll never know.  But the failures in having the government pick winners in other parts of the economy does not suggest a positive result.

Warren Buffett - Mercantilist

Think a bit about the proposed Buffett Rule.     He argues that for "tax fairness" we should raise rates for the richest taxpayers (there is some dispute about what "the richest" actually means).   Buffett has had a pretty good run but look at how he made Berkshire Hathaway the company it is.

He had the good sense to rigorously look for companies, especially family owned companies, that were in need of a change in leadership.  Many of his most successful investments were in places like Borsheim's which was a mid-sized family run firm in the midwest that needed a transaction to get the family out of confiscatory estate taxes.   Then there was his touting of Fannie Mae - where he was a very heavy investor.   Not all of his investments have been based on utilizing government policy, but many have been.  

Classic mercantilism was linked more to foreign trade - mercantilists were granted special favors by the state to run a particular good or franchise.   But the key principle was the use of state power to alter the market.   Estate taxes, when utilized effectively as Buffett has done, are as close to a mercantilist grant as you can come.  Higher income tax rates would also have the effect of altering behaviors.  They would encourage fewer taxpayers to take risks in the marketplace.   With the diminished importance of estate taxes, they would also encourage more high wealth individuals to consider complex strategies to avoid taxes.

Facebook Ads and Nonsense

Sometimes Facebook ads amuse me.  Take this one "Congressman Garamendi is working to rebuild U.S. manufacturing, to 'Make it in America' again. Like to hear what he is doing for jobs." "Congressman Garamendi is working to rebuild U.S. manufacturing, to 'Make It In America' again. Like to hear what he's doing for jobs."  
Congressman Garamendi was first elected to public office in 1974 - he then served in the California legislature for 16 years (including a stint as Senate leader) - during that time he ran for a couple of other offices including a couple of unsuccessful runs for Governor.  He was the state's first elected insurance commissioner.  (A job that many of us believe should not be elected.)  And during that first service he made some controversial decisions that many believe were questionable (at best).   He left that to join the Clinton administration in the Department of the Interior.   He came back for a second dip at Insurance Commissioner.   From that biography he has spent his entire career on the public payroll (he was actually a Peace Corps volunteer before he began to run for office).


Prior to his first election he was in the family cattle ranch in a small city east of Sacramento.  He serves on the Natural Resource and Armed Services Committees in the House.  He holds a BA from Berkeley and a Harvard MBA.


None of this is to run down his record as a public servant.   But I simply cannot see anything in his background that would qualify him to understand even the basics of manufacturing.   So just how is he "working" except to propose yet another set of new laws?  I purposely did not include a link to this - it will only encourage more silliness.

Is the President Real?

In the State of the Union, the President made the claim that he would work to find common ground with his GOP colleagues.    Taxes are a place where the President could walk the walk.   The President claims it is essential to increase rates on high income taxpayers.  He clearly would like to raise a bit more tax revenue.   But if he were serious about this he might take some of the ideas of former GOP Presidential candidate Jon Huntsman and reduce rates and eliminate deductions and credits.

When that was last done (1986) a couple of things happened.  First, tax revenues increased.  Second, rich people (the guys that Obama wants to target) actually paid more taxes.

If he is using this as a political ploy - then he will not try to think about how to co-opt the GOP - we get gridlock and lousy tax policy and he thinks he can win re-election with that nonsense.

Setting the Record Straight

In 2007 one of the better movies was about a debate team from a historically Black college (HBCU) called Wiley College.  The movie, produced by Oprah Winfrey, told the story of a dedicated professor (Melvin B. Tolson) and his efforts to get his debate team some recognition among predominantly white colleges in 1935.   It ends with Wiley being invited to Harvard.   Trouble is the story is not true.   Wiley did have a superb debate team in that era.  And they did do some debates including one at USC.  For some reason the writers of the movie thought moviegoers could not understand anything but Harvard.   That debate will be replayed, according to the Bee, in Wiley, Texas.

Chris Medina, Wiley's director of forensics commented "I think it is an incredible opportunity for the two teams to get together once again. We owe a debt of gratitude to USC for being groundbreakers in allowing us, an HBCU, to really, at that point, achieve legitimacy.  They were one of the few white colleges that would debate with us."

The article goes on to say that while there was not a national debate championship at the time USC was a powerhouse.

Harry Truman he is not

Last night's State of the Union was an odd mix.  Clearly the President has decided to tack left to assure his re-election.  At the same time he tried (I believe unsuccessfully) to invoke the 1948 campaign of Harry Truman.


Near the end of his address he used a Lincoln quote that may come back to haunt him.  He said he believed in the sixteenth president's maxim "That government should do for people only what they cannot do better by themselves, and no more.”


The focus of the whole speech was "fairness."  As the President defined that term he envisaged a much more activist government.   When you poll the American people about the issues of fairness a lot of the responses depend heavily on how the term is discussed.   The State of the Union was announced by the President's handlers as the opening salvo in the 2012 campaign.   It sounded a lot like one.  Obama's tone was more combative than 2008, which I think was a conscious decision.   It may or may not work.


The contrast here will be interesting.  Whoever the GOP nominee is will need to present an alternative message of fairness.  Obama's is based on more government and more income redistribution.   Neither is especially popular at this point.  Were I advising the GOP nominee I would keep bringing up Lincoln's quote and then ask - did more government actually help?  Was the stimulus successful?  Did all those new regulations (show a picture of a year's worth of federal regulations) actually help get things fairer?   Do you really trust the elites (media and government) to solve your problems?  I think the President will have a hard time running on his record.


One other theme which I found odd.  He suggests that the rich should pay more to solve the deficit problem.  Any candidate from the other side would be able to point to the sorry state of European economies (who have relatively high tax regimes) as a response to the goodness of that strategy.


Every election is about the middle 20%.  A lot of where that group will go in the coming election depends on which narrative they choose.  At this point in the campaign, neither story is well cemented.  But based on prior elections the more the President is perceived as veering left, the less successful he is likely to be.  


I fully expect a lot more twists in this story over the next few months.

Wishes and Care

Yesterday's rather stunning win by former Speaker Gingrich raises two sets of questions.  First, why did he win?   And second, what happens next?

A lot of my friends on the left have been quite smug about the results.   They believe (as the picture from one Facebook post suggests) that Gingrich will be easy to defeat.   As I thought about both the results and the next steps in this race, I believe there is a lot to suggest that the smugness is misplaced.  In politics be careful what you wish for - you may get it.

Why did Gingrich win?  There are two possible explanations on why he won.  The first, which many pundits have advanced, is that the vote was a confirmation that Romney is not acceptable to a large portion of the GOP electorate.   That may well be true. But it may not explain why Gingrich won.  There is a second and much more credible reason that Gingrich won - his response to the first question of the debate on the nineteenth to John King (ABC).   The nation was buzzing about revelations about comments by Gingrich's former wives.  (The kind of smut which many in the media cannot wait to publish, especially about conservatives.)  Instead of cowering, Gingrich took on King (who by the way has served as a useful foil more than once in this season).  The exit polls suggest that the former speaker got a goodly percentage of last minute voters.   His Thursday night performance may have clinched the deal.

The President believes that he will be successful by appealing to "fairness" but his definition of fairness includes significant redistribution - which seems to appeal to only about 40% of the population.  You'll hear an opening salvo in his State of the Union on Tuesday night.  But I think a "Give em hell, Harry redux" campaign might well be a hard sell to the American people.  The President is counting on the low numbers of congress to make his case.  The problem is his numbers are not significantly better. Tracking polls suggest that by an almost 2:1 margin voters disapprove of Obama's job as president.

 The remaining voters find the idea of redistribution, in the way the President would implement it, appalling.     An alternative way to get to the populist base was presented in a speech given by Sarah Palin in Indianola which received precious little coverage.   Palin slammed the "elitists" in the media and the political class.   Gingrich's stunt ignited the same kind of visceral response.   If the GOP candidate can make this election about the role of the elites - the President's assured election will be very much in doubt.    There is a large enough fraction of the electorate that is a) skeptical of his performance and b) distrustful of his definition of "fairness" that could make his tack to the left a colossal mistake.

What happens next?  Predicting the future in this year is especially tough.   But from my perspective there are at least three different scenarios that might happen.   First, Romney might win Florida and this momentary block in his path to the nomination would soon be forgotten.   Were this to happen it is hard to make a case that Romney could motivate the same anti-elite notions that Gingrich seems to have stirred up.   From my view, Obama might well prefer to have Romney because it fits into his campaign story.  At this point, Romney has a pretty significant lead in polling.  But the upset in South Carolina could have changed things.

Second, Florida produces another Gingrich win.   In that case Gingrich has a chance to become the nominee.  Depending on who he chooses for VP, he could have a shot at defeating the President with a populist from the right campaign.  I think that is the least likely scenario.

Third, Florida results are not dispositive.   In that case we could see some new candidates emerging.   Clearly, Gingrich has significant liabilities along with his assets and his seeming sparking of populist notions.  Romney, in many ways like his dad, seems unable to close the deal on his nomination.   At the same time, a lot of GOP leaders are saying privately that Romney may not be as strong a candidate as they would like.

2012 is fundamentally different from 2008.    If it becomes apparent that the President's numbers do not improve, it might well draw in candidates from unexpected places.   It might also lead to a deadlocked convention and a dark horse emerging from the convention.

At this point I do not believe that Gingrich will be the nominee.   But from my perspective the President is a far cry from closing the deal.

What is lacking in today's political class

One of my occupations for the last couple of years has been to read and comment on a Facebook group called the Wheelspinners - which is a selection of former reporters, political consultants and others who range in political philosophy from right to left.    This morning one of our reporters mused about what is different about today's political class.  He suggested that three of Reagan's key staff people (Ed Meese, Lyn Nofziger and Jim Baker) were  "not only helpful in understanding what was going on but also to be genuinely good people."   He lamented that the GOP of that time had leaders like Everett Dirksen,Thurston Morton, Margaret Chase Smith, George Aiken, Hugh Scott and Clifford Case.   He concluded that what  "we need most is some adults in the political equation and not petulant poseurs."


There was a lot that I agreed with in the post.  I actually worked with a couple of those senators (especially Aiken when I worked for the other Vermont senator at the time).   But there are a couple of assumptions that I think were flawed.   First, I think one of the key variables in the Reagan team was that they understood the difference between principles and policies.  Reagan had a series of well developed (although many democrats then and now belittled them) principles which guided his actions.   And I think he was rarely willing to compromise principle.  He was even willing often to make statements that many in the political class found troubling (for example - Mr. Gorbachev, Tear down this wall!)   But he was willing and able to compromise policies.  The 1986 Tax Act is a superb example - Reagan started with a couple of principles (lower rates) but was willing to change policies that had been cornerstones of GOP politicians.  I think many politicians today lack a set of clear principles.


The second slight disagreement I had with the post is that I think part of the people he mentioned (including Hugh Scott and Everett Dirksen) were classic politicians.  Their first goal was to get elected and re-elected.   I am not sure that they started, as I believe Reagan did, with a set of principles.   I think the need to be re-elected has often trumped politicians who start with principles.


Third, I think the post ignores (he went on to lambast the Tea Party people) that the ideologues inhabit both sides of the aisle.  How many democrats in the national leadership would dare to violate the absolute right of choice on the abortion issue?


It is a dilemma that all of us should think about.  One of the promises of the current president was that he would try to work with the other side.  He clearly has not tried to do that.  We would have had a much better set of policies (health care, economic recovery, financial regulation) had he simply followed his original promise.  Had the President done that I think he would be in the position of being almost unbeatable.   


In my opinion, although many GOP theorists believe that the President will win, this election is still undecided.  The last couple of days of the GOP debates, may have begun to turn a tide against a strong GOP nominee.   The original point of the reporter's note is still worth considering.

Crossover Artist

Johnny Otis died on Tuesday.  Many will not remember the author of "Willie and the Hand Jive" or the launcher of a number of big singing careers (Big Mama Thornton, Etta James - to name two).  He grew up in Berkeley.  He was white but was closely associated with Rhythm and Blues. Most people thought he was Black.  Over his life he did varied things - he was an artist, worked for Merv Dymally (former California Lieutenant Governor), he even helped his son sell organic vegetables.   He was married to his wife for 70 years.   In one of the articles about him he was quoted as saying "The music isn't just the notes, it's the culture — the way grandma cooked, the way grandpa told stories, the way the kids walked and talked,"   Here he is with the Three Tons of Joy. (One of his backup groups)   What I liked about him was (as one friend said) "he never seemed to get bogged down."

The Keystone Decision

So the President is going to run against Congress - he has read about the Truman campaign.  There are a lot of GOP buddies who believe this BS will be successful.  But today the president, after 40 months of review, said the (evil) GOP did not give his State Department enough time to evaluate whether creating 20,000 jobs would be a good idea.   (Hint: Mr. President- indeed it would be.)

What a crock - I hope that the 20% of the American people who are up for grabs in any election will not be taken in by this very bad decision.  I guess the President believes in more windmills.  Don Quixote had more sense.

Bureaucratic Carcinogens

I am in the Bay Area for a board meeting and stayed in a hotel last night.  On the desk I found a Prop 65 warning.   Prop 65 was a bit of silliness created by former Senator Tom Hayden - which was designed to warn us about possible carcinogens in our daily life.

This warning cautioned me to be worried about a) Second Hand Smoke (except it is illegal to smoke in a hotel in California); Transportation Related Exposures (I guess it is not a good idea to sleep with an exhaust pipe running in my room); Furnishings and Electrical Components (yeah, sure there are some things which taken in enough quantity have been shown to have a link with cancer.  Wait, I brought in three devices - my cellphone, iPad and iPhone - all three emit low level signals that some paranoids think may be linked to cancer - ooh.); Combustible Sources - all sorts of things like heating elements may have a remote link to cancer); and finally Food and Beverage Service (my God, if I eat or drink something I may get cancer?  Got to stop that.

The point is here that this two page disclosure is utter nonsense.  Some of the perils which might be real are prohibited by California law.   Others are simply the paranoid rant of whack jobs that see danger in every day life.  I wonder how much cancer risk I had in touching the paper which was created using solvents and other chemicals, when taken in very high doses, cause cancer.     The mind shudders.

Jon Huntsman and the GOP

Yesterday Former Utah Governor Jon Huntsman dropped out of the race for the GOP nomination.   In one sense that is not very important - the Governor never really caught on with a large portion of the GOP.   In another his withdrawal makes the nomination of former Governor Romney all the more likely.

But there are at least two reasons why his announcement was very important.   First, while nothing is inevitable in politics, the winnowing of the field of candidates will shine even more harsh light on the also-rans like Gingrich and Perry.  And it should.   There is a subtle divide between the positive effects that the primary race has had on the front-runner (Romney is a better candidate now than when he started) and the negative effects that continued shots could have on the fall campaign.  All of the Super-Pac money that is being spent now to develop snappy videos will be re-broadcast like political acid reflux by the Obama campaign.  In one sense it gives Romney a chance to try out themes but in the other Gingrich and Perry are just adding ammo to the other side.

The second is more subtle.   A major issue in this campaign should be tax policy.   Since 1986 our tax system has grown fat with preferences and complexities.   From my perspective Huntsman had a better tax plan than any other GOP candidate.   (While I do not agree with every part of the plan - it is very strong in its consistency and general direction.)   His plan would have lowered rates by eliminating deductions and credits; eliminated the Alternative Minimum Tax; Reduced the corporate rate by ten points - to 25% (to bring us more in line with other developed countries); introduced a territorial system of taxation which when coupled with his proposal to implement a tax holiday for repatriating capital back to the US would have simplified the business taxation for multi-nationals; and finally he would have reduced taxation on capital gains and dividends to zero.

Romney's plan looks a lot more like a committee document.  He would maintain current rates for both individual taxes and capital gains, interest and dividends.  And would eliminate those taxes for people under $200,000 income.   He would eliminate the "death tax."  Finally he would do the same shift from worldwide to territorial taxes for multinationals.   The three major differences between the plans are the elimination of inheritance taxes (Romney) and the carve out for incomes below $200,000 for interest, capital gains and dividends and Romney's plan does not attempt to dethatch the code (which is in sore need of cleanup).   Let's hope after the primary contests are over that Romney at least looks at the good ideas of another candidate.

Thinking about the Economics Debate in the Coming Election

Based on some recent polling by Gallup the economy will be at the forefront of what is bothering the American voter in 2012.   Indeed, Gallup suggested in a release of polling data today that the President faces a "challenging" re-election climate.   Only Bill Clinton's approval rating was lower at this point in the re-election cycle among modern presidents.  Obama is six points under where George H.W. Bush was in 1992 on the percentage of voters that is satisfied with the direction of the country.   Obama's rating on the economic confidence index is sixty points below where George W. Bush 43 was at the same time in the election cycle.  And the mention of the economy at the most important issue facing the nation is ten points higher for this president than it was for George H.W. Bush in 1992.   Polls do not make elections so a lot could happen between now and November.

If the economy is going to be at the center of this election - what are some good sources to think about the issue?   In the last year I have found two E-books which I think are superb.   The first is Tyler Cowen's   (George Mason University) The Great Stagnation.   Cowen argues that for at least the last several decades the American economy has picked what he describes as the "low hanging fruit" of innovation.  He suggests that without some pretty good research we are likely to plod along at tiny rates of economic growth.  The consequences of that are huge.  First, we have assumed a higher level of growth to fund social programs in government and that surplus, if reduced, will not be available.   Second, we risk having an increasing portion of the workforce being outside it.

The other book is by two MIT economists (Erik Brynhjolfsson and Andrew McAfee) Race Against the Machine .  Those authors take a slightly different approach.  They argue that we may be reaching something that Norbert Weiner argued for six or so decades ago - namely machines are taking away jobs at a faster rate than technology is creating new ones (and even if that is not true - technology is dislocating some formerly well paid employees).   As with any disruptive technology cycle the rewards to the innovators seem disproportionate to one group.

Both books are well written and inexpensive (less than $8 for both!) and somewhat interactive - so for example in the MIT book if you see a reference you can click to see the original research from which the point was made.   What is fascinating about them is that they have some common threads.   First, while both argue we are going through a significant set of changes, neither is completely pessimistic.   Second, both argue that part of the solution to dilemma posed in the book is increased education.  

Ideological Pap or Substance

In an article in the New York Times yesterday titled "What the Right Gets Right" Thomas Edsall responded to an earlier question about what conservatives understand.   He asks in the second paragraph "What insights, principles and analyses does this movement have to offer that liberals and Democrats might want to take into account?"   It is a good question.  Unfortunately, Mr. Edsall seems predisposed to ignore the answers.

He began the article with his interest in an "intriguing and unexpected debate" about the dangers of what Joseph Schumpeter called "creative destruction."  I do not believe that the nattering in the GOP primary about Governor Romney's role at Bain Capital is actually a substantive debate.   It is an example of increasingly desperate candidates like Gingrich trying to bring back the limelight to themselves.  There may be a reason to discuss the long term implications of the changing face of the economy (indeed two recent short E-books do just that - The Great Stagnation (Tyler Cowen) and Race Against the Machine (Erik Brynjolfsson and Andrew McAfee) - both can be purchased for less than $8.)

Even if the discussions about Bain Capital are indeed substantive, Edsall ignores some very good information.   He had posed the question to conservative think tanks like Heritage - how would conservatives deal with issues like unemployment, government benefits or "losers" in the new economy.  Heritage was diligent enough to send him a set of policy papers which he said "evaded the question and in my view amounted to ideological pap."   Well Mr. Edsall what then would you describe as substance?

Take one issue - unemployment - which you listed first.   The first paper from Heritage was in my opinion, a good discussion of why extending unemployment benefits actually exacerbates the problem of unemployment.   If he had bothered to read the paper instead of reacting to it, he would discover that the heritage people actually argue that the extension of unemployment benefits to 99 weeks increases unemployment by .5-1.5% and actually increases the duration of unemployment by five to eleven weeks.  The paper even quotes one of President Obama's economists in support of their research.   Had the conservative approach been followed unemployment might actually have been lower today.

Edsall's solution to his problem is to consult with a bunch of intellectuals from the left.  They came up with some characterizations that were interesting but were opinions not " insights, principles and analyses .. that liberals and Democrats might want to take into account?"   Ultimately, the divisions in the American political system would be improved a bit if both sides bothered to read what the other lays down as analysis.  

Investment Nonsense

The Investment Risk/Reward Triangle

On the weekends many radio stations offer a set of infomercials often about health or investments.  Much of what these hosts say is absolute nonsense.   For example,  today I was driving to the gym and heard one Sacramento station investment advisor claim he had figured out a way to get away from the "traditional tradeoff between risk and return."

All investments involve uncertainty.  If I invest in a stock or a piece or real estate or a work of art - will the value increase or decrease?   Generally speaking, investors demand a "risk premium" for investments that involve a higher degree of risk.  Thus, in situations like a new business, investors demand a higher rate of return than in an established and well understood business with a long history.

The diagram at the right is a good conceptual tool to explain how this works.   Think of the diagram as a bucket for projected returns.   If you put $1 into the bucket you have a chance of increasing the value of that dollar or losing it.   The two axes of the picture (horizontal and vertical) represent the dynamics of investments.  The Horizontal Axis represents the relative security of an investment.  Keep it in the green zone and you will get the expected rate of return.  Put it in the red and you will lose it.   In reality there are very few purely safe investments, even when you give up return.   The Vertical Axis represents rate of return.  At the bottom of the axis you can expect very little return but relative surety that you will get your money back; at the top a very large return.   What the diagram suggests is that if you want a very high rate of return, you have to be willing to expect that your investment will not pay off, a large percentage of the time.

The "guru's" magic bullet was time.   He yammered on that by laddering maturities you can increase yield without risk.  Well duh - but don't be so sure.  Any competent professional always includes time as one of the variables on risk.  The problem is solving the time part of the risk equation is especially complex right now.

At the right you can see what most people would call a normal yield curve - the yield increases as you stretch out to a longer maturity (thanks Investopedia!)    Note - yield curves can do all sorts of strange things including flattening (where the amount of money you receive for an investment does not vary based on the time of investment) or even inverting (where you get a higher yield for a shorter maturity).

A key challenge in today's environment is your expectations of inflation.   For the last several years the premium given to longer investments has been pretty modest.  So for example, the current returns on Treasuries give you .1% for a month and 2.91% for 30 years.    But the risk that the 30 year investor pays is huge.  If inflation begins to rear its head at all - the dollars you will get paid back with will be worth a lot less than the ones you paid in - so even though you will be getting a bit less than 3% on your investment to maturity - the value of those dollars will be less.

The Hosanna Tabor Decision

The decision yesterday by the Supreme Court in a major First Amendment case relating to hiring was stunning in several ways.   First, unlike several other SCOTUS decisions this one was unanimous; and it included two concurring opinions - from Justice Thomas and a joint one from Justices Alito and Kagan.

The main decision was written by the Chief Justice and is superbly clear.  Evidently, Constitutional Law is not a required course for EEOC lawyers.   In trying to persecute this small church related school the EEOC had made some outrageous claims.  The facts of the case are simple.   A teacher for a small Lutheran school in Michigan took a leave for a health issue (Narcolepsy).  The school hires two types of teachers - lay teacher and "called" teachers.  The latter were assumed, in addition to their teaching responsibilities to have special training and were required to perform religious functions in the school.  The school expressed a preference for "called" teachers.  While the "called" teachers performed many of the same functions that the lay teachers did - they were clearly different in terms of training and function.   The complainant came back to the school and reported for work, but school officials said they believed she was not ready.  She demanded that the school officials sign a written document that she had reported for work.  One of the tenets of this branch of Lutheranism argued that individuals should solve their disputes without resorting to the courts.  Clearly the complainant did not want to follow that tenet.   After the complainant said she would file an EEOC action the school board fired her.

The opinion makes it clear that both sides of the First Amendment support the school's point of view.  Robert's opinion argues that on the side of the Establishment Clause that the American system is clearly different from the British one.  He argues that at the founding of the Republic that a clear implication was that we rejected the Act of Supremacy - which was adopted when Henry VIII wanted to break from Rome and set himself up as the head of the church in England.  The American story is quite different.  Government is proscribed from involving itself in governance issues.

The opinion repeatedly argues that the Free Exercise Clause gives wide latitude to religious organizations in who they shall choose.  The EEOC had made the specious argument that Hosanna Tabor and the local chapter of the Junior Chamber of Commerce are functionally equivalent and the opinion makes quick work of that bit of twaddle.

Perhaps the most interesting part of the decision is the concurring opinion offered by Justices Alito and Kagan.    They make a strong case that in order to exercise their religious rights religious organizations and associations need to be able to make their own decisions about what constitutes a minister (which the concurrence even argues is not a proper title in many religious organizations).

Some observers have minimized the importance of this decision.  In reality the unanimity and the clarity of the arguments against the expansive views of the EEOC will make this decision an often cited case.

The New Hampshire Primary

The first primary in the nation (Iowa is a caucus system) produced at least seven conclusions in my mind.  They include:

#1 - In 2008 John McCain received 37.1% of the vote and Romney received 31.6%.  This year Romney seems to have been above 39%.  Put another way Romney improved his standing by almost 8%. Romney broke out of the 25% that most of his opponents thought he was stuck in.
#2 - Newt Gingrich and Rick Perry got about 11% between them; time to reconsider their runs.  A couple of 2008 candidates had the good sense to pull out.  Gingrich will continue to try to be a spoiler.  The longer he stays in, the less he will be a national figure.
#3 - Ron Paul went from just under 8% to 23% - that is a pretty good rate of growth.  What this suggests is that there is a substantial part of the GOP electorate that does not want government to grow.  If Romney wants to win in November - he will need to message to them.  I suspect that most of Paul's looney ideas - like disengaging from the world - do not have a large following.   But his economics will be an important part of any potential winning coalition.
#4 - Surprisingly, more than half of the voters choose a Mormon candidate; so much for the fantasy that voters are wary of Mormons.   There is, indeed, a group of Christian voters who will not vote for a Mormon.  One hopes that at least some of them will follow Dennis Prager's dictum - he would vote for a candidate with similar political views even if he disagreed with a candidate's theology.  I suspect most American voters will not be in the camp that automatically rejects a person for his religious beliefs.  Romney also beat Santorum even among Evangelicals. (According to Exit Polls)
#5 - Huntsman's results were a bit under where many observers thought they would be.   I suspect he will not be the final candidate but he may give Romney some room to adjust his messages.   Gingrich will continue to be the bitchy loser he has been for the last two weeks.   But let's see what Huntsman can do in South Carolina.   Romney's tax message is in need of some significant modification and Huntsman may give him a chance to do that.
#6 - Voters in this primary were down a bit from 2008.  But the majority of voters are looking for someone who can be competitive against Obama and two thirds of the voters with that need - chose Romney.  But according to the WSJ only about half of the voters here called themselves conservatives.  In next week's race almost two thirds of them are.  Romney got a larger percentage of the voters that are angry about Obama (Fox news exit polls) - that is significant.
#7 - The debates are building interest in the race.  A high percentage of voters who made their minds up late were influenced by the debates.   In spite of the absurd performance by George Stephanopolous.

Hotel TVs

I stay in hotels a lot.  In the first 9 days of this year I have been in hotel rooms for a third of them.   But as time has gone on I am less likely to turn on the TV.   There are a couple of reasons.   Most hotels now have some form of WIFI so when I get back to my room I am often more interested in using my laptop than in watching the TV - even though most hotel TVs are flatscreen and high resolution.   Second, most hotel TVs have a set of options most of which I do not find appealing.  They include some relatively recent movies (I carry a half dozen movies a want to watch on my iPad); a soft porn channel; a set of games (have them on my laptop or my iPad); and regular TV channels.  Even though many have a guide somewhere in the room - it is always a hassle to flip through the 30 or so channels that are a mix of local and national (CNN, ESPN 1-7, Fox, etc) that quite frankly I do not watch at home.  SO when I get back to my room the TV does not go on because it is not worth the hassle.  I wonder what percentage of hotel guests never turn on their TV.

An odd bit of logic

Yesterday I moderated a forum on higher education issues and was struck by one of the comments of one of the panelists.  One of the issues we discussed was whether the current model for financing higher education is broken.  There are a lot of indicators - college tuitions have risen pretty steadily at a rate higher than the CPI or even health care prices for a sustained period; last October student debt began to exceed all consumer debt.   But my colleague argued that "we changed student loan policy so that private loans are no longer necessary."  When the Obama Administration came in one of their immediate priorities was to eliminate the private role in student loans.   There were plenty of problems to point to.   Financial aid administrators were getting lots of fancy perks;  the banks were making pretty dandy fees.   But as I thought about it the more absurd the statement became.  Some parts of higher education were recruiting ill-prepared students to take classes based on their eligibility for student loans.

There are obvious alternatives between a state regulated model like we had when the federal government issued guarantees and offered banks fees to run a program and a complete government takeover.   The risks of the government takeover are huge.   The government will have even more authority over colleges and universities because they have exclusive control over who is able to borrow money.  A good example of that came this summer in the budget fight when the subsidy that is offered to graduate students while they are in school was eliminated.   In the next round of budget adjustments it is highly probable that undergraduates will also lose the subsidy so their net cost of borrowing will rise.   But it doesn't stop with loan policy - when you receive lots of money from the feds they also express an interest in all sorts of other things colleges and universities do that are not related to student financing.

The other model is to either let the market solve the problem of student loan finance or to introduce some modest regulations which help to define the marketplace for student loans (one is the complete free market the other would be akin to licensing that goes on for securities dealers).   The opponents of the market approach would argue that there will not be sufficient loan capital for students to attend college.   If the market is actually viable - that possibility is small.

The more I thought about my colleague's comments, the more I was reminded of Aeroflot or the Trabant. Both were examples of state run enterprises.   With all the turmoil we've had since the Carter Administration eliminated the government role in selecting winners and losers in the airline industry, it is hard to argue that consumers are not way better off in terms of options.  The same would probably apply to student loans.

Some thoughts about the Employment Numbers

The Labor Department released the jobs numbers today and they suggest that for both November (revised upward) and December +200k the jobs picture is improving.   Indeed, the lead in many of the stories about the numbers was that unemployment has dropped to 8.5%.   On the other hand, labor market participation rates continue to be low by historical standards.   When the President was inaugurated the participation rates were in the mid-sixties; currently they are in the high-fifites.   Were we judging employment using the participation rates as a guide the unemployment rate would be just under 11%.

There are a couple of possible explanations for these seemingly divergent numbers.   First, the long extensions of unemployment benefits could be dampening the incentive to find a job.   In essence our generosity is depressing the real jobs picture.  Some economists actually believe that is a better alternative than instituting a less generous unemployment benefit (I am not one of those). Second, we are going through what Norbert Weiner suggested almost sixty years ago - a restructuring of the economy to prior participation rates will never be achieved again.  When you look at some of the tech startups the demand for workers is significantly smaller than for more traditional manufacturing concerns.   Indeed, traditional manufacturing concerns are hiring fewer workers to do more.   Third, some have speculated that the Boomers are beginning to retire in significant numbers and that we may be moving into a Japan of the 1990s economy where labor market participation is artificially depressed.   I am sure there are some other explanations.

The question is what do we do about this from a policy sense?   If the first explanation is correct, the easiest economic issue is to bring unemployment benefits back to a shorter duration.  (That seems, in this election year, entirely impossible politically.)   If the second explanation is correct, you might create some incentives to go into new areas where jobs would be created.  (Although the history of government programs being able to solve those problems is not at all robust.)   If the third one is true (and from my perspective it is the least credible) then you look at the Japanese example and hope that we can be more creative than they have been.

The third option also seems less credible as a result of the relative paucity of the boomer's savings.  For the most part they were not very good savers and the dips in 2008/9/10 wrote down a substantial portion of the prior retirement capital.   So if it is true, we are likely to have a very large dependent class with us for a lot of time.   I don't know what the answer is but I do believe more people should be trying to craft an answer.

Warhorse

In the 1930s there were a series of movies made with an inanimate object as the vehicle for a group of stars to perform in short stories around a theme.   My favorite is If I had a Million (1932) where a dying millionaire becomes a benefactor to a group of major Hollywood stars of the time (it works so well that the millionaire has a miraculous recovery!).   The most recent movie I can remember of this type is the Yellow Rolls Royce (1964) which revolves around three owners of a car.

Steven Spielberg has reinvented the genre with Warhorse, but this time it involves the stories of several people and a horse.   The movie is very entertaining.   It begins in Ireland when a tenant farmer acquires a thoroughbred horse at auction when he should have bought a plow horse.  The son trains the horse to do some amazing things.   But eventually it is sold to become an army horse in WWI.

The movie is a melodrama in the best sense of the word.  You know how it will come out.  But each of the stories is engaging and the characters, for the most part are well crafted.   The ending is a bit retro (think Gone with the Wind) but even with that it was an enjoyable experience.

Christophobic Columnists

One of the increasingly less successful taunts used by the left is to defame people with whom they disagree.   A prime example of that came from a column in today's Sacramento Bee where William Endicott, a former editor who should know better, tried to ascribe "homophobia" to the leader of the Fremont Presbyterian Church.  


On the First of January the Bee had a story about a gay man who committed suicide.  The man, Thomas Panniccia, was evidently one of the first members of the Armed Forces to declare publicly that he was gay.   On the anniversary of his declaration he committed suicide.   The pastor, Donald Baird, of Panniccia's church was described in the article as his "mentor, friend and pastor."   Fremont is one of many protestant churches that has struggled with the issues of gay marriage and ordination of gays.   Baird is pretty clear - "If a church loses its integrity, it ceases to be a church," Baird said. "The world changes. God's word doesn't."   Obviously , there are some who take a much more flexible view of scripture - who believe that they can update the Bible to suit their personal biases or current political views.   There is plenty of evidence that one of the reasons that mainline protestant denominations continue to lose members is that many of their leaders seem almost cavalier with their scripture.


Pannicia was, according to the story an important part of the parish. He had a job as an outreach coordinator, which he got after he moved to Sacramento and was laid off from his computer job.    The pastor's son said the veteran was an important part of the family of the parish - he was "truly accepted and comfortable."   One of the tenets of the parish, based on their interpretation of scripture, is that no person should engage in sexual relations without being married.   According to the article Pannicia accepted that tenet.   He clearly could have found another church, if he disagreed with it.  Baird said "I'm not homophobic. I know people have this view that evangelicals hate gays, and that's not true. We don't. We hate sin, and we are all sinners."   When I read the story, I thought here is an interesting set of issues, and a religious leader who is struggling with his job of leading a Christian flock.


Endicott uses the quote from Baird without reflecting a bit on it and then goes on to suggest that it suggests that Baird believes "being born gay is a sin."  I am not sure how he discerned this unless he is indeed scared of Christians or Christophobic.   Part of any religious denomination is a set of tenets which help us to become better people.   Reverend Baird's church, or at least a substantial portion of its members, do not accept sexual relations outside of marriage - either heterosexual or homosexual.  Their focus is not status, but behavior.   The commandments say thou shall not steal, if someone does not subscribe to that are they robophobic?   Of course not. 


I've met Mr. Endicott a couple of times and I suspect he is, if he carries any religious views, on the left.   But tolerance does not seem to be a strong suit for him.  I took away from the first story a compelling description of how two Christians struggled with trying to live their lives appropriately.   Endicott's column today suggests that he did not spend the same amount of care that the original author did with the issues raised by this tragedy.

The Iowa Caucuses

Last night's 8 vote margin for Mitt Romney suggests an interesting spring - but an eventual result.   I came away with five conclusions about the state of the GOP primaries.

1. First, Romney needs to figure out how to engage effectively with the evangelicals.   Clearly, he has not.   2. Second, the GOP voters here were energized.  You can say a lot about whether the margin was too close or just enough - but the fact is there were a lot of people participating in the caucuses.   One does not feel the same amount of energy on the left.
3. Third,  Bachman and Perry are history.  (Gingrich should be, but he proved again that his mouth sometimes exceeds his mind.)
4. Fourth, I doubt whether Paul will run in a third party spoiler role - there are a couple of considerations .  His son has a promising career in the GOP but only if the dad knows when to bow out of the race but not the party.   At the same time, the string for Paul looks worse not better.   A lot of people have commented that Romney is a 25% candidate - but the same could be said of Paul (only with a slightly lower number). Some of those voters will never be satisfied without Paul but a lot will look for a candidate who does not seek to expand government.  If Romney can make that point - he will be successful.
5.  As soon as it is clear that Romney is the candidate watch the democrats begin to unload negatively - the professionals believe that negative campaigning works (as evidenced even in the last few weeks in Iowa) but there is good reason to believe that negative attacks by Obama may not be successful.   His future depends more on whether the American people change their mood about his lack of success in solving our economic problems than in cleverly crafted campaign ads.

Priorities

I had an interesting day today - the second time I have fished for Steelhead on the Trinity and I caught (and released) four with a good friend and an excellent guide from Confluence Outfitters.   Tonight was the Iowa caucuses and it seems that former Senator Santorum won the thing but Romney was a strong second.  There are two realities here.  First, Ron Paul - after committing a lot of time and energy to the state came in a dismal third but ahead of both Newt Gingrich and Rick Perry.  Seems I had a much better day than most of the GOP field.  I think, assuming that Romney wins New Hampshire that he becomes the closest thing to a nominee possible.  


Tomorrow the California Legislature reconvenes for the beginning of the second year of a two year term. For the first time since 1974, I will not be there to work on stuff.   Again, even though I only fished for one day - ditto for the California Legislature.

Most conflicted bowl game....

I am not a big fan of the BCS.  This year my most conflicted bowl game was the Fight Hunger Bowl - played in a baseball stadium.  It matched UCLA versus Illinois.  Both teams had losing seasons.  Neither deserved any postseason play - UCLA was humiliated by USC and Illinois after winning several of its initial games with 0-6 for the end of the season. UCLA had a coach who was fired (and should have been) before the game - named Rick Neuheisel, who was a jerk.  There were two competing themes here - I wanted the interim coach to win (because it would help to further repudiate Neuheisel's tenure. (Although the Illinois coach was also fired for losing six straight at the end of the season.)  At the same time an operating assumption for me is that my second favorite college football team is whoever is playing UCLA (or Notre Dame and since they lost their non-important bowl game already) - Illinois should be favored.   There was another conflict, Illinois has a very good linebacker with my name.  I generally support a Pac-12 team over an opponent although I also root for an independent college over a public (No choice here).  So what's a fella to do?

Calling the Fight Hunger Bowl cheesy is just too easy.   The game started with a coin toss using an Oreo Cookie (great way to fight hunger).  Then UCLA got held to 18 rushing yards.

In the end the Illini defeated the Bruins 20-14 but if the BCS had any legitimacy neither team would have been able to humiliate college football in the post season.  When is the NCAA going to understand that a playoff system would be fairer and better for all concerned.   The Fight Hunger Bowl? - come on.