Unexpected

My son took his oldest son and me to a Monster Truck Rally last night at Arco Arena. He kept where we were going a secret.  It turned out to be both fun and interesting.   Here are five reflections on the event.

#1 - Monster Trucks are loud (duh) -  The event is held in an arena and the trucks develop as many as 1500 horsepower using an engine that runs on alcohol (burns cooler).  The engine is in the back and the driver sits in a cage in the front.   The jumps are impressive.  My son told me that in a larger arena that the jumps are larger and there is more speed.

#2 - The crowd probably does not attend the opera (duh, too) - My son pointed out that before the recession that the crowds at these events were larger - a partial evidence of who this recession has hit.  The tickets are $20-40 so bringing a family, with treats and souvenirs could be an expensive evening.  But there were a lot of families there.   Many of the smaller kids had either ear buds or shooters clips.  The whole show took about three hours with one intermission.   They start with drag races where trucks line up at opposite ends and try to get to the middle first over a load of cars.   Then they had a freestyle competition where the trucks had 90 seconds to do all sorts of maneuvers over the parked cars and jumps and even doing broadies in the center of the ring.   With that size there is not a lot of variation but I was amazed that there were qualitative differences.  

The big attraction is a truck called Grave Digger.  I was not impressed with his performance last night although his truck was the crowd favorite.

#3 - It is a patriotic crowd - They saluted the military and the emergency responders and did a little flag waving before the event.

#4 - The trucks are delicate - Oddly enough the trucks seem to be very delicate.  They have independent suspension and four wheel drive and front and back steering.  And they are balanced to be able to get up in the air and land reasonably well.  At least one of the trucks messed up its steering during one of the events.  The mix of speed and delicacy got me to thinking about how someone would come up with the concept of doing this.  The announcer kept announcing that they have a fuel cutoff valve, perhaps reiterating that there is danger involved.  My son said at one event he went to ties flew off one of the vehicles.  The first 20 rows of the stadium were blocked off.

#5 - Arco Arena is a dump - Coincidentally yesterday the Mayor announced that things were moving forward on a plan for a new arena.  I remain skeptical about the plan on many levels.   Compared to Raley Field, Arco is shoddy.  The wood on the arm rests has not been maintained. I sat in a seat that was not fully operational.  Raley Field takes special care to make sure that the place is maintained.  The NBA has 41 games a season in each arena (or slightly more than half the games in minor league baseball) and the differences between the two stadiums are pronounced.

I still do not get why professional sports franchise owners believe they deserve taxpayer funding.  But if I were a potential investor (and if my tax dollars are potentially going to be involved in building the mediocre Kings a new home they will be) then evidence from Arco is that the owners have not been good managers or stewards.

Blowing the numbers off the doors

IDC released data on the relative market shares of devices in that market space and I believe wisely choose to separate E-Readers and Tablets.  I suggested that separation when the iPad was first introduced.   There is still a strong market for single use devices.  Amazon has been smart about adjusting the price of their device.

Total sales of all the devices in this area are growing but it sure looks like the Tablets will take over the netbook market sooner rather than later.

Finally there are the Apple numbers from the last quarter.  Doubled the profits and sales of both the iPad and the iPhone grew rapidly.   That is an amazing result.   While the news of the illness of Apple CEO Steve Jobs dumped a bit on shares yesterday the prospects for the next couple of quarters on Apple look very strong.

Sargent Shriver

The death of Sargent Shriver yesterday left me with mixed feelings.  Indeed, he had a life well lived.  But from my perspective much of his public life was in direct conflict with policies that I believe are pretty important.  Before WWII he was a supporter of the American First supporter.  He was young and he eventually served in the Navy so that youthful position might be one based on age and not thought.

He also took up the responsibility for President Kennedy to make the Peace Corps something integral to our foreign policy.  The Peace Corps is one of those noble notions that I think in the end has helped our foreign policy for several decades in a modest way.  At the same time it has given a couple of hundred thousand Americans a different picture of the world.

Where I have problems with his legacy came primarily in his work for LBJ on the projects called the War on Poverty.  I've always resisted the expanded notion that politicians have (most of who have no military experience) with conducting wars on issues where guns are not involved.  The War on Poverty was a huge failure.  It spent billions of dollars with little positive effect.

In an interview for Fresh Air, which aired again today, Shriver claimed that the best part of the War on Poverty was changing the political nature of local systems.  But from my perspective, while his initial argument (that local politicians tend to take federal largess and use it for their own purposes) is probably right - the conclusion it lead him to (that federal money will somehow not be tainted when it goes to community leaders) was wrong.   Community Action Councils moved from their initial purposes to become modern day ward healers. Many became centers for new kinds of negotiations.  Public employee unions pressed their demands to these groups and there was simply a substitution of one broker for another - but this time many of the employees were on the public payroll with fat pensions and lousy job descriptions who treated their employment as a sinecure.   The major areas of poverty in the 1960s are often still the same areas of major poverty today.   What the "war" on poverty forgot was the political calculus that Shriver and his comrades failed to recognize.  Had the efforts started from more market based principles the "war" might have had a few more successful battles and we probably would be stuck with a much smaller deficit and a few more really empowered people.

A dry period for blogging

I have not added to my blog for five days, which is quite unlike me.  Frankly, two things have happened.  First, many of the things which have caught my attention have either been well covered elsewhere or are things that I am still trying to think about.    But here are five areas which you might wonder why I have been silent.

The controversy about the shootings in Tuscon, which I wrote about a couple of time, seem to have played out.  My first impression of the President's speech at the memorial service has improved quite a bit since I first read it.  I think he did a great job of being Presidential at that event.

I've also not written about the House action to repeal the Healthcare abomination.  I believe the healthcare bill that the democrats forced through last year is horrible - it will bankrupt the country if it first does not drive down the quality of care in the country.  Which comes first is not clear but both will happen.  But (and this is an area where I am simply an observer) I think that answer is not repeal but reform (mend it don't end it) by doing things like adopting interstate competition, tort reform and a couple of other things.  I think that is the end product of the GOP effort but I believe they first had to go through this process.

I have also not written about Governor Brown's proposed budget.  I understand the wailing that is going on on both sides of the aisle.  But from my perspective of watching the last 40 budget proposals with some attention that it is a realistic approach.   The last administration produced a series of fraudulent proposals that relied on rosy scenarios and BS.  While there are parts of this budget that I do not agree with, I think the proposal is at least realistic.   I hope the Legislature gives it careful consideration.  I may have some comments on that in the next couple of days.

I've been doing a lot of thinking about the evolution of higher education in the state and the nation.  There are some changes afoot.  I am skeptical of Dr. Richard Vedder's claims that we are educating too many people in the US.  His numbers a silly and wrong.  But higher education will need to think carefully about what it needs to do to adjust to new realities.   I've also been trying to think about the proprietary sector of higher education.   We, in the traditional sectors of higher education, have something to learn from the prop schools but we also should not let them get away with silly comments.  They have a role in educating Americans but there are some questions that they need to begin to address.   So I will probably write about this area too.

Finally, I have not written about the long term effects of QE2 (not the ship but the monetary strategy).  I am skeptical but I think there has already been a lot written and most of what the critics have said are things that I agree with.

The State of Aguascalientes

On Monday I was in Aguascalientes, a state right in the middle of Mexico.  I was there to participate in the Final Address of the retiring rector of the autonomous university of the state (Universidad Autonoma de Aguascalientes) and the Inauguration of the new rector.

I began working in Aguascalientes seven or eight years ago when another friend began work on planning a new polytechnic university in the state.  But this was a two fold celebration.  The retiring rector was a thoughtful leader who in his two three year terms built the university in a number of ways.   One of the things  I appreciated most about him was his understanding of universities.  At one point he commented  that universities are really networks and thus they flourish or die based on their relationships.   He wanted his university to create a series of relationships with "sister universities."  We worked on that project but he also worked in other areas of the world and had some success.

I was also there to meet the new Governor and Mayor.  Aguascalientes was one of the first states in the country to move to the National Action Party (PAN) in elections from for the Institutional Revolution Party (PRI), a few years before Vicente Fox was elected.   When the prior governor was elected, I chaired a meeting with his senior staff on governance issues.  That governor, Luis Armando Reynoso, had huge potential.  He hired a cabinet of superb people who had a real mission.  But he quickly devolved in that kind of personal loyalty leadership which has plagued Mexico in many places.  He ended up being expelled from the PAN.   As you fly out of the airport you can look down at one of his to achievements.  He produced a racetrack for cars that is out in the middle of nowhere.   Inside the city, there is the other symbol of his leadership, a half finished hospital.

The new governor, Carlos Lozano de la Torre, has pretty extensive experience in politics. He is an industrial engineer.   He served as the Secretary for Economic Development a couple of times. From my short meeting with him, I was impressed.  I had the sense that unlike his predecessor, he has a good idea of how to move the state forward.  Friends told me he was a superb economic development secretary.

The new mayor is a young lawyer.  I think she has promise.  I had a chance to sit down with her and with one of her policy people, who I was quite impressed with.

The state has some worries.  Drug violence, which is more prevalent in states to the north has escalated.  They have a continual problem with water - most of it comes from the aquifer which is being diminished.    But with a superb university and a promising new governor, I left the state optimistic.

Does Speech Become Less Civil When the Government is Larger?

The odd and continuing discussion about the shootings in Arizona have become bizarre.  But one voice, not from the US seems to have caught the real substance of the issues which started when the left began to try to connect a lunatic with their political opponents.


The Economist commented "Mere minutes after the identity of the alleged Tucson gunman hit the wires, partisans began a reprehensible scramble to out Jared Loughner as ideological kin to their political opponents. Actually, well before that time, some left-leaning opinionators began suggesting that Sarah Palin's now-infamous crosshairs map probably had something to do with the shootings. At the very least, intemperately fiery right-wing rhetoric probably had something to do with creating a cultural "climate" unusually encouraging to would-be assassins. Before anybody really knew anything, some people seemed to have become convinced that if not for the heavy weather of partisan antagonism summoned by intemperate tea-party types, Gabrielle Giffords would not have got a bullet through the brain."


The politicization of events is not new.  When the NY bombing suspect was identified the Mayor of New York speculated ""somebody with a political agenda that doesn't like the health-care bill or something."  Robert Dryfuss, writing for the Nation commented "It may be that the Pakistan-based Taliban, the Tehrik-e Taliban Pakistan (TTP), has quietly established a Connecticut franchise while we weren't looking. That's possible. But it seems far more likely to me that the perpetrator of the bungled Times Square bomb plot was either a lone nut job or a member of some squirrely branch of the Tea Party, anti-government far right. Which actually exists in Connecticut, where, it seems, the car's license plates were stolen."


When government makes up such a high percentage of our economy - the left especially, although not exclusively believes our entire lives are political and normal bounds of discourse are let down.   But part also comes from political correctness.   That manifests itself in two ways.  First, in ignoring the obvious. When Fort Hood happened the NYT and others on the left asked us not to leap to judgment about the perpetrator.   But secondly as a way to reinvigorate  on-going political disputes.   A lot of the discussion on Arizona has been whether anyone should possess a firearm.   In my mind the more essential questions we should be addressing is why even after repeated incidences that the Sheriff of Pima County, who is in part responsible for starting this discussion, failed to exercise his legal authority to restrain a lunatic.  That kind of question should be answered by the voters of Pima County.


That notwithstanding there are legitimate reasons to disagree with one's political opponents.  We do have significant differences in philosophy.   That should not offer license to incite violence.  

Stories with a purpose, not the news

Yesterday's shooting spree in Arizona where a federal judge and five others died was a horrible act.  Vice President Biden's statement about the tragedy was framed properly.  He said ""We do not yet know the motivation behind these shootings. But what we do know is that there is simply no justification, no rationale for such senseless and appalling violence in our society."   Unfortunately, the law enforcement official on the scene, Pima County Sheriff Clarence Dupnik did not have the sense to think before he spoke.  He said ""When you look at unbalanced people, how they respond to the vitriol that comes out of certain mouths about tearing down the government. The anger, the hatred, the bigotry that goes on in this country is getting to be outrageous. And, unfortunately, Arizona I think has become sort of the capital. We have become the Mecca for prejudice and bigotry."   The Sacramento Bee had a story titled "New Focus on Political Vitriol" which seemed to play off the Sheriff's comments.  It quoted the Sheriff then went on to relay a number of details about recent political history that had no correlation to the event yesterday except possibly that the Representative had just gotten through a very close re-election campaign.


What we know about the suspect at this point is that he is deranged.  One of his web postings (on YouTube) ties the Communist Manifesto and hard currency together.  He was evidently thrown out of community college because college officials thought him unbalanced.


What annoys me about the Sheriff's comment is the notion that just because a political figure was the target of the shooting spree, does not assure that this was a political act.

The Zune Tablet

Since the introduction of tablet computers with the iPad this spring, development has been fast and furious.  Software options (APPS) have grown enormously.   There is starting to be a distinct category of iPad apps and at the same time many of the iPhone Apps have been expanded or improved to use the larger screen and other features of the iPad.   There have been a number of alternatives to the iPad based on the Android operating system. There has been some experimentation with a 7" format - which is about the size of a Kindle. So there was some anticipation that Microsoft might get its game back with a new tablet that would be previewed at the Consumer Electronics Show. (CES)


The Financial Times coverage of the newly released Microsoft tablet seemed to mirror most responses - they found the new device wanting.   The FT had a couple of harsh comments.  First, Windows 7 is simply not designed for the environment of tablet computing which does not anticipate a keyboard for most tasks.   The decision to port a desktop system to a tablet was widely criticized.   The Android and iPad devices start with a mobile device platform.


Most of the coverage of the new device was negative.  Computerworld quotes Directions on Microsoft Analyst Michael Cherry as saying "by choosing to port a desktop OS to a tablet in the first place and also to preview something at CES (Windows 8 on ARM chips) that won't be available for at least a year and a half."


Then there is the pricing.  The new device will cost $999.  That is about twice the cost of many of the Android tablets and even the lowest priced iPad.


With a clumsy operating system and higher price what is not to love?

Reading the Constitution

The House of Representatives, as one of the first acts of the current congress read the text of the Constitution into the record this morning.   These kinds of ceremonial events are seen as either a way to set the tone for the session or as a waste of time.  One can figure out who thought what.

But perhaps the most idiotic comment of the day went to Keith Olberman.   I hesitated about whether to credit his absurdity since his dwindling audience makes him even less of a household name than he once was (although MSNBC does confirm that the six people in East Murgatroid, IA still watch him.

Olberman wondered aloud about whether the exercise would include reading of the 3/5 Clause.   In the original Constitution there was a clause which temporarily allowed slaves to be counted as 3/5 of a person in the decennial reapportionment.  Evidently, Mr. Olberman, who often claims to cite constitutional authority for his blatherings, has never bothered to read the document.  In Article V it states "The Congress, whenever two thirds of both Houses shall deem it necessary, shall propose Amendments to this Constitution, or, on the Application of the Legislatures of two thirds of the several States, shall call a Convention for proposing Amendments, which, in either Case, shall be valid to all Intents and Purposes, as part of this Constitution, when ratified by the Legislatures of three fourths of the several States, or by Conventions in three fourths thereof, as the one or the other Mode of Ratification may be proposed by the Congress; Provided that no Amendment which may be made prior to the Year One thousand eight hundred and eight shall in any Manner affect the first and fourth Clauses in the Ninth Section of the first Article; and that no State, without its Consent, shall be deprived of its equal Suffrage in the Senate."

I restate that because as a result of the Thirteenth and Fourteenth Amendments to the Constitution, the 3/5 clause was excised from the Constitution.   When one reads a Constitution into the record presumably they would read a current version.  But evidently Mr. Olberman does not realize that.   He thinks the "living Constitution" (a term coined by Saul Padover) is one where he can interpret the meaning by fiat.  Actually Mr Olberman our Constitution is living because we can amend it; but only using the process in Article V.

Is Ponzi Socialism a redundant concept?

In a column in the New York Post this morning Charles Gasparino discusses what Hayek called the Fatal Conceit.  It is well worth re-reading. Gasparino is a senior correspondent for the Fox Business Network.  He worries that the malaise in Europe could spread here.  It may already have spread.

He discusses the inevitable miscalculations that result from many activities in government.  There are lots of Ponzi elements that we can discover.  In the old Soviet Union you had the five year plans which, like Ponzi's schemes, promised a big payoff in the future.   But bringing examples closer to home there are also plenty.  What about the imbalance of the Social Security "Trust Fund" or the vast underfunding of public employee pensions?   One could also look at most estimates on tax revenues when new ones are enacted.   Or the relative transfers induced by the introduction of public employee bargaining - which seem to have the employees represented on the discussions but not the public.

But if you carry this logic to its limit - all decisions like this are Ponziesque.  So the bright turn of phrase may be redundant.

We should have had this debate in 2001

The Washington Post has an article on the increasing number of airports that a trading the TSA bureaucracy for private airport screening - the Post comments "At issue, airport managers and security experts say, is the unwieldy size and bureaucracy of the federal aviation security system. Private firms may be able to do the job more efficiently and with a personal touch, they argue."


Well, duh, but wouldn't it have been better to have this discussion (remember airport security systems like Israel's that are already private) before the TSA was created?

Roscoe Conkling's Reformers

In this morning's Bee there are a series of articles about how to "reform" California.   I am always reminded of Roscoe Conkling's comment on reform - "Those who fear the attraction that patriotism has for scalawags and scofflaws, have failed to capture the allure of reform."     Reform is always in the eyes of the beholder - but indeed something is wrong with California. 

The Bee - offers a set of six options from which readers are asked to choose is the most important - the options include:

1.  Realign state and local revenues and responsibilities to renovate a system that has become over-centralized.
2. Simplify, broaden and flatten the tax structure for a broader base with lower rates.
3.  Reform the budget process to keep spending within fiscal constraints, including a rainy day fund, long-term and performance-based budgeting.
4. Modify term limits to enhance accountability, decisiveness and quality of the Legislature.
5. Reform initiative process to curb ballot-box budgeting.
6. Streamline regulation in order to promote a better business climate and stimulate job creation, while being careful to protect the environment.

There are two things that attracted my attention on this list.  First, there are some obvious things on the list which would improve state government substantially but are not listed.  For example, how about reforming and reducing public pensions? Their costs were partially abated in the recent reform legislation but we clearly have a crisis based on the costs of providing benefits to public employees that are well in advance of what private sector employees could obtain.

Second, why should people choose only one.  From the list my first TWO choices would be numbers 2 and 6 - to simplify the tax and regulatory burden in the state.   But one without the other would be far less powerful.

California is about to embark on some changes which some might call reform.  Unfortunately, Mr. Conkling's nostrum is not always in clear view.  Those same scalawags and scofflaws that brought us California's decline still have the bully pulpit of reform.   Does that mean we should not try to change the system?  Absolutely not, but we should be cautious around people who claim to want to help us out of our problem.

Barcode reader that saves money

A friend of mine put me on to an iPhone Application called Pic2shop (look for it on iTunes but the link is to the developer's site.  You hold your iPhone on the barcode of an item and when it flashes green it will show you where you can buy it and what various merchants charge for the product.

I've used the App for finding out where I can buy products.  For example, I have been in restaurants and found a wine I liked - scanned the barcode and found prices for the wine.  That is very handy.

But this week I found it even more useful.  I was in Best Buy purchasing a CF card for my daughter and her husband.  They have gotten into digital photography and have my old Canon 10-D.  (A great first generation SLR).   Best Buy's price for a San Disk 8 GIG CF card was $179.99.   I thought that sounded outrageously high.  I did a scan and pulled it up at Walmart for $78.   Best Buy does a price match - so after a supervisor had verified the Walmart price - I saved over $100.  WOW.

Pic2shop is easy to use.  It can also help you find books in libraries and bookstores.  What a great APP.

The King's Speech

Last night we saw the King's Speech with Geoffrey Rush and Colin Furth.   It is an excellent movie that mixes a compelling story with bits of humor.  Geoffrey Rush plays Lionel Logue who was a speech coach in London and Colin Furth plays the future British monarch, the Duke of York (George VI).

George VI stammered and this is the story of the attempts to fix that problem.  Logue worked with the future king from about 1925 after one of his first public speeches.   The story of the movie focuses on Logue's methods, which had been developed working with WWI veterans, and ends with him coaching George VI on one of his first wartime speeches.

What intrigued me about the movie was the immediate tie I had with all of the characters.  Firth and Rush play well off each other but so do all the other characters.   The final speech episode is riveting.

I had not realized that George VI died relatively young, at 56, in part because of his heavy smoking - he was, of course succeeded by his daughter, Elizabeth.   The movie also presents some of the intrigue between the future George VI and his brother (Edward VIII who eventually became the Duke of Windsor after his abdication).  The themes in the movie are developed in a compelling manner.

3 Environmentalist Thoughts

#1 ------Today as I was driving my daughter, her husband and our grand-daughter to the airport we talked about some environmental stuff.  When we picked them up at the airport their car seat had been wrapped in a big plastic bag.  My son in law's comment was they would just get a new wrapper.   (After all as he said, we never let our environmental principles get in the way of our lifestyle.)  Partially as a joke but also as a lesson, I brought the once used bag into their airline.  The first agent was about to throw the thing away but then a second agent picked it up and used it.  Thus, preserving the environment in a tiny way.

#2 ------ The Sacramento Airport authority in the last year or so changed their parking fees.  It once was that if you parked your car  and were there for less than 30 minutes you paid no fee.  The benefit of such a policy was to encourage people not to hover outside the terminals.  That reduced air pollution but it also made the terminals a lot safer.   But then they changed the policy so that now when you drop off people you pay $2 for the first 30 minutes of parking.   Don't get me started on city and county parking lots and their pricing structures.   But it seems to be a silly policy to raise money for the city and the county.

#3 ----- My daughter and I had a discussion about foods - she likes to buy organic produce.  She also talked about her like for Whole Foods.  I am impressed with Whole Foods, even though I remain skeptical about organic foods.   But I speculated that the gross profits for Whole Foods are higher than for other grocery chains (and indeed they are based on margins about a quarter higher than Safeway and almost twelve points better than Kroger).   My daughter thought even with those higher margins she liked shopping there.  I have no problem with John Mackey's marketing strategy  - he discovered a demand that was unfilled and built a series of virtuous circles between growers and buyers to produce something which costs the consumer a little more and earns him a higher margin of profit.   My daughter understood that and was willing to pay for something that did what it said it did.

Fantasy Economics by Paul Krugman

In a column in the Bee this morning Paul Krugman titled "Commodity prices are about finite resources, not US Policy"  Krugman argues that commodity prices have risen by a quarter in the last six months.  The chart to the left presents the data on corn.

I picked corn for a couple of reasons.  First, a good deal of the price is influenced by U.S. policy.  Consider what the price of corn would be if we did not offer the massive subsidies we do for corn ethanol.   Then consider what the price of corn would be if we did not have a Cuban sugar embargo.  Both US policies influence the price of corn in the US. (both would have a tendency to artificially inflate the price of corn relative to where it would be without those policies).

The smaller chart to the right shows corn prices for 2010.

What bothers me most about Krugman's conclusions is a second more fundamental point.  The prices of corn or copper or any other commodity is influenced by many factors including governmental policies.   At the same time, as was amply demonstrated by Julian Simon in the 1980s human beings have an infinite capacity to substitute, if given the opportunity.  Thus, if you don't like the price of corn to sweeten your Wheaties, you can use cane sugar for the same purpose.  Unless of course unless U.S. policy restricts the ability of Americans to buy cane sugar.

There is a third and final point about Krugman's rant here.  We've used the last couple of years to get into more debt, by tremendous amounts.  Most normal economists would argue that all those expansions of money will lead to inflation.   But remember Krugman argued that we were too penurious in our bailouts - he wanted us to print even more money.   That expansion of the money supply, which Krugman thought we did not do enough of, has helped to begin a trend of inflation which Krugman seemed to ignore when he was calling for double the dose of stimulus.

So I guess the conclusion is that ethanol subsidies, trade embargoes and monetary expansion are not U.S policy.

Tiebout Confirmed

A few days ago I did a post on the Census data arguing that the Tiebout hypothesis lives.  The New York Post, being a bit more graphic in their design than I, did a story covered in TaxProfBlog which illustrates the point.

People do vote with their feet when it comes to government services and taxes.  That was the central message of "A Pure Theory of Local Expenditure." (Tiebout's hypothesis - see the earlier post to read the article.)

Freedom Denied

My oldest grandson got a new bike for Christmas.  My son and I picked it out.  When I was his age I got my first bike.  It was a Schwin and painted the same color as our 1955 Buick - green.   The bike gave me an incredible amount of freedom that I had never experienced before.  All of a sudden I could ride to the YMCA - which was a couple of miles away.   When our family moved to Bakersfield a couple of years later, I frequently would go off riding for almost the whole day.  At one point, a friend and I rode out about 20 miles and then turned round and went back.  That offered an accomplishment for me which was kept in my memory.

Our second grandson got his first hot wheels.  When our kids were young they both rode hot wheels all around the neighborhood.  I also built them a wagon - which had a fairly sophisticated steering system and also engraved their names on the side panels.  Some jerk stole the wagon one afternoon we were out.  That probably would not have happened when I was a kid.

Times have changed.  Now before a kid goes out on a bike - they need to get a helmet.  Indeed, we have probably reduced the number of serious injuries on bicycles.  (There were under 800 fatalities on bikes in 2005 which means that per passenger mile fatalities occur about 3-11 times that in cars - which means that even at the higher number bike fatalities are extremely rare.)  Even if you concede the benefits of helmets, it is still a lot less possible for a child to explore with a bike.  This afternoon we took our two grandsons to a park where they could ride around - off the streets.  For the younger one that is logical but when I was that age I might well have been able to ride from my house over to the park with out a worry and without worrying my parents.

So what do you do about those changes?  First, I am (unsurprisingly) resistant to calls for safety on things like bike helmets.  The imposition of state authority may have secondary effects that are greater than the benefits of safer kids.   Second, you end up living with many of those changes because the reality is the apparent safety of earlier times, is simply not present in today's world.   Even with that conclusion, I wonder a bit whether these minor limits on freedom have longer term implications for our future citizens.

The Governor Elect's Decision on the California DC office

California gets 78¢ for each dollar we send in taxes to DC.   According to the latest Tax Foundation computations we are 43rd among the states in receiving federal dough.   When the current governor raised the idea about return, I suggested in a post earlier this year that trying to get to the top of the list was not something most rational people would seek - states near the top are either very small or very poor.

We've got 55 members of congress from the state (including our two senators) plus there are tons of other Californians back there frequently. So Brown's decision to reduce the Washington presence from the current six people to two seems in the right direction.   Bravo.

The President at 24 months

The President held a press conference on Wednesday where he explored a lot of issues.   Presented below are my thoughts on where this president almost two years into his term.

The Deficit -He made something like this point several times "how do we cut spending that we don’t need while making investments that we do need -- investments in education, research and development, innovation, and the things that are essential to grow our economy over the long run, create jobs, and compete with every other nation in the world."  As Ezra Klein said he did not address how to find financial regulation (which seems a bit of an over-reach) and his healthcare bill (which seems a lot of an over-reach).


"I’m also disappointed we weren’t able to come together around a budget to fund our government over the long term."   Part of that problem comes from the way the existing congress acted on issues like earmarks.   Obama has said he is against but used lots of lubricant to try to woo members into supporting his approaches.


The reality of the President's first two years has been a dramatic expansion of the deficit with a lot of silly ideas (from cash for clunkers to shovel ready projects to the extensions of unemployment to almost become a sinecure).


Gay Marriage - He lauded the passage of the elimination of "don't ask, don't tell" which is a good thing.   In one statement he raised a point of view which I think defines his presidency as a typical Chicago ward healer - Describing his continuing support of civil unions he left the door open to move further to the left in saying "But I recognize that from their (gays that he works with or knows) perspective it is not enough, and I think is something that we’re going to continue to debate and I personally am going to continue to wrestle with going forward."  There is more than a simple semantic issue here.   From my perspective the issue comes down to property issues and religious issues.  The property issues can be solved by changing the tax code (federal and state law) and inheritance laws (mostly state laws).  But the religious issue is one where, based on this Administration's intrusions into religious life, I am not at all confident that he would accept religious institutions being able to continue their traditions.   This is a fundamental issue about the appropriate reach of the state.


This is a social issue that affects a portion of the population but where that group has conscientiously attempted to modify common understandings of tradition and law.  Does anyone really care if gays live together - of course not.   Do most Americans support the extension of property rights that are common in marriage to gays - of course.   Can American churches perform religious rights which solemnize the committed relationships between to gay people - absolutely.   But should that be extended to require some groups to recognize relationships that are fundamentally in conflict with religious doctrine?  That is where I think the effort is a bit of an over-reach.


Bipartisanship - About the tax cut bill he said "In the last few weeks, we also came together across party lines to pass a package of tax cuts and unemployment insurance that will spur jobs, businesses, and growth."   The entire bill will not spur jobs.   Based on the record of his other stimulus packages the record on job growth is not good.  But those are philosophical differences.   


Earlier in the year, the President feigned bipartisanship and then forced through a dramatic increase in governmental authority on health issues.   I am hopeful that the bill will be reduced in scope both as a result of the constitutional challenge but also by pruning the monstrosity.   In the next congress he will have to be able to demonstrate that he understands something more about bipartisanship than using it when it is handy.


The Dream Act - The President expressed disappointment about the failure of the Dream Act to pass.  I agree with his position on this measure but as I said a couple of days ago, I think the issue could wait. From my perspective, if the GOP is smart they should allow this idea to become law.


Here is an area where he could work on a bipartisan approach.  But I suspect he will use this as a wedge issue rather than in trying to solve the legitimate problems raised by the Dream Act.


An implicit understanding of lame ducks - The President has a very different understanding of lame ducks than I do.  The 20th Amendment moved the convening of congress back to January to reduce the possibility that people who had been voted out of office would have the chance to make serious law.  And in this congress that principle was violated.  The food safety bill is a good example.   I would have preferred to have the Administration fight a bit harder to eliminate the earmarks and other gimmicks in the Continuing Resolution.


Finally, tax issues - The President continues to push the nonsense about millionaires escaping taxes.  If he is smart he will go back to 1986 and review how President Reagan was able to cobble together a bill which lowered rates for everyone and simplified the tax code.  Class bashing may rev up the base but it does little for improving policy and most voters understand that you do not improve the economy by taking more from a target group.


I was asked a few days ago whether I thought Obama would be re-elected.  I responded that depends on a lot of things we cannot see right now.  Does the GOP have a credible candidate? (at this point no)  Does unemployment fall dramatically? (at this point it does not look like that)  On the current course will the deficit problem begin to be solved?  (It does not look like it)   So the simple answer is - who knows?  But that kind of speculation is better when we know more about all three questions as well as whether the GOP leadership in the House is adroit in raising the issues that brought them their majority.

The Census numbers

So we are more then 308 million and our growth has been slower than in previous decennial reviews of population.  What is more interesting to me is the fact that most of the growth happened in places where there are low tax and less intrusive regulatory schemes.  Not surprisingly the least vigorous growth happened in places where taxes and regulations abound.  According to Michael Barone - "Seven of the nine states that do not levy an income tax grew faster than the national average. The other two, South Dakota and New Hampshire, had the fastest growth in their regions, the Midwest and New England.  Altogether, 35 percent of the nation's total population growth occurred in these nine non-taxing states, which accounted for just 19 percent of total population at the beginning of the decade."

Charles Tiebout wrote a key paper called the "Pure Theory of Local Expenditure" which argued that people vote with their feet by choosing environments (including tax and regulatory regimes) that suit their needs.   California, which in the last couple of decades has grown from a relatively low tax and low regulatory environment to a very high one had some of the most sluggish growth in the country - although not as bad as places in the Rust Belt.   


Gee, Tiebout was right.  All those whiners that decried the extension of lower tax rates at the federal level may need to reconsider their positions.  Even better they might re-think whether all those new regulations are going to make our country more viable or less.  

Yammering about the Higher Education Bubble

Forbes has an article by Jerry Bowyer, who was a founder of the Allegheny Institute on the supposed higher education bubble.  He parallels (and actually quotes) Carnegie Mellon economist Richard Vedder arguing that the return on a college education is not, at this point, positive.  In essence he creates a novel concept called the price earnings ratio for higher education.  The argument is novel, albeit flawed.  He suggests that the cost of attending an institution of higher education for six years (the average time to degree for many public institutions) never actually gets recouped for most students based on the higher projected income that one could expect from an average college degree.

For years the College Board has published data suggesting that the net return to an individual over a lifetime for a college degree is about a million dollars.  (Or in theory, based on a 40 year job expectancy about $25,000 per year.)  The College Board data is accurate but like Vedder and Bowyer's data is a gross miscalculation.  Vedder argues that many people who go to college end up being "under employed." Some indeed are under-employed.  But the average, even if it is beginning to shrink is still higher.  The bubble believers project incomes will grow in a linear fashion over a person's work life.  That is probably not correct - as people seem to go through phases where their initial incomes are not as high as they once were but their long term incomes may actually accelerate as the new college graduates gain experience.  Census data (as presented above) seems to confirm the College Board conclusions.

But the Bubble advocates have lots of flaws in their assumptions.  First, an average degree (either for the bubble theorists or for the College Board) may not exist.  A graduating nurse can expect a beginning salary that is considerably higher than the average wage in America. But one who graduates in ethnic studies may not receive a higher salary.   But even this data is flawed.  A philosophy major may not receive much with a BA but they are more likely to be successful in law school.   So what you take in college can have a huge influence on what you receive in salary.

Second, salary and lifetime earnings are not the same.  Most employment data suggests that a college graduate spends a lot less time in unemployment lines (although the current recession seems to have somewhat contradicted that data) than the average high school graduate.  

Third, A BA may be a gateway to higher earnings.  While there is some reason to suggest that the earnings differential is not as great as it once was for a BA - the differential for advanced degrees seems to be holding.  As they become more common that differential may lessen.  The reality of the last 20 years has been that the value of a high school diploma has diminished in both nominal and real terms.

Fourth, there may be very good non-economic reasons for pursuing a college degree.  

Finally, there are the issues of the appropriate price for higher education and the appropriate distribution of costs.  Paying for college requires a perspective on time (what proportion of funding for higher education should come from savings, current income or leveraging future income through loans) and and also on who should bear the cost.  If the individual is the main beneficiary then they might bear a larger share of the total cost than if the major beneficiary of an educated population is society.  Traditionally, public institutions have been financed by direct contributions from government offered regardless of financial need.  While there can be an argument for continuation of at least a part of that largesse - the low rates of decades ago seem increasingly untenable.   At the same time, when prices were low savings and current income were assumed to be enough to cover education costs.  As prices have risen more and more students are borrowing against expected future earnings.   That makes the purchase of higher education a lot more like buying a house or retirement (a long term capital expenditure) and that may involve some differing assumptions about the current pricing structure.

The Lame Duck Congress

Traditionally a lame duck session (defined by the US Senate as  a session where the Senate "reconvenes in an even-numbered year following the November general elections to consider various items of business") does dribs and drabs that were left over from the preceding two years.   This one is special for two reasons.  First, the configuration of the new congress will be considerably different.  Second, the former majority in the House and the remaining much smaller majority in the Senate was to get their imprint on a number of issues before they are forced out.   Here are a five thoughts on this one.


#1 -  The defeat of the Omnibus Spending Bill was wonderful!  There was so much pork in this measure that it was embarrassing.  Democrats loaded the thing up with earmarks (although some republicans did too) to the point that the dems put in about twice the value of earmarks as the GOP.  Some argue that earmarks are a) only a small part of the budget and b) necessary.   They need to be stopped.  The ability of members to aid their own districts and their buddies just adds to the imperial congress.


#2 - The tax bill, while expensive, was generally good.  As I argued in an earlier post, there are some things in the tax bill that I disagree with and it costs a lot of money but I think it was the right thing to do as an interim measure.  Let's hope both the GOP and the dems work hard to come up with revision of the code which broadens the base but lowers rates (similar to TRA in 1986).


#3 - Don't Ask Don't Tell can wait - The policy was an ill-conceived idea when it was first introduced and passed into law.  I do not have a military background but it seems to me that a person's sexuality should not be an issue in whether they become a soldier.  Overt activity with other soldiers should be limited simply for good management reasons.


#4 - So can the Dream Act and Start - The Dream Act vote was a political ploy.  In my mind illegal aliens who serve in the military or are brought here by their parents and attend high school should have a shot at college.   But that is an issue that needs to be explored.  The Start Treaty could certainly wait until the new congress.     I am not convinced by the opponents who say this is unilateral disarmament but I think the thing should be vetted a bit more.


#5 - The Ernest and Julio Rule - Gallo Wines used to have a slogan - we will sell no wine before its time.   One of my legislative rules is the Gallo rule - legislators will do nothing until they have to.  The record of this congress partially denies that rule.  A good part of the congress, which some have called very productive, was simply the exercise of raw political power.  Part of the reason the American people rose up in such numbers was they perceived that congress had over-reached.   But the rest of the congress was mired in partisan wrangling of huge proportions.  That should not argue that they should rush through a bunch of stuff at the end of the session.

Wolves in Sheep's Clothing

For more than a decade I have been a "decline to state" in terms of party registration.  Today, in New York, a new movement will be announced called No Labels which even includes its' own theme song sung by the R&B singer Akron.   Two Californians will be on the platform, our soon to be former Lieutenant Governor Abel Maldanado and the current Mayor of Los Angeles Antonio Villagarosa.

The ditty that Akron offers says in part "I wish they did not have no labels. There would be more change with no labels."  That is just flat out nonsense.  In the early part of the 20th Century California was designed so that a lot of the major positions in the state were with "no labels" - Mayors, County Supervisors even the Superintendent of Public Instruction all run without an apparent label.  But in reality, all of those people have a label.  Villagarosa, when he was Speaker of the Assembly, was a constant supporter of the public employee unions.  A good part of the deficit we face in the state comes from being entirely too generous to those unions.

Ultimately, politics is a game of ideas.  Who should get taxed?  Who should society choose to help?  How much should we limit the exuberance of the market?   There are fundamental differences in philosophy among all the competing ideas in politics.

What we have too much of in today's political system is not too many labels but too little willingness to consider the seriousness of alternative philosophies - we've lost an ability to listen.  So I won't be a supporter of the No Labels movement but I would join one that reminded politicians of their one mouth and two ears.

More on the Tax Deal

Professor Paul Caron posted a wonderful compilation on the discussion about the tax bill including a meltdown by Keith Olberman of MSNBC.   The battle lines on this compromise are well established.  Ultimately while there are elements that I disagree with, I think this is a pretty good initial step.


There are certainly things to love in the proposal.  From my perspective, the continuation of the Bush tax cuts in their entirety (except for the Estate Tax which is set at a reasonable level with lower rates) is a positive development. There are also things to dislike - namely the increase in the deficit (which may actually be a bit lower than projected if indeed the reductions encourage some additional economic growth) and the extension of unemployment benefits.   The payroll tax holiday is a classic Keynesian stimulus - which I think will have little effect on growth.

I was also pleased to see that the President at least gave nodding support for the Bowles-Simpson approach which would simplify the code by lowering rates and broadening the base.  In the end the discussion we have had for the last couple of weeks on tax policy which looks a lot like Animal Farm (stylized arguments - four legs good, two legs bad) has not produced much sensible about long term tax policy.  But if this forces the political class to revisit this in two years and if it forces a more broad based discussion about how to raise revenues (not increase but how we should collect taxes), then the momentariness of the rate continuations and the increase in the deficit could be seen as a positive development.

Selling Berkshire

In 1987 I bought Berkshire Hathaway at $3785 per share.  This week I sold the position at $120K per share.   That amounts to a bit more than a 30 bagger.  But in the last couple of years I've gotten the distinct impression that the investment potential has declined significantly.

The story of BRK.A begins with the legendary business professor Benjamin Graham who spent his career inspiring students at Columbia.  In the 1920s Graham led a movement to improve the quality of accounting information released by corporations.  His basic insight (in Security Analysis) was that when you buy a stock you are buying a set of assets.  But later on he had a group of students, including Warren Buffett and the founder of the Sequoia Fund, who figured out how to beat the market by applying some basic principles to investing.

Had you bought into Berkshire when Buffett took over the company you would be very wealthy today.  But in the last five years the stock has been a lousy proxy for the S&P.  The CEO has been caught up in becoming a public figure rather than an investor.  So while I admire the past performance of the stock, it's inspiration has been caught up in the hype of being a media figure.

What annoys me the most about Buffett's recent performances has been the hypocrisy.   Buffett has been one of the major proponents of keeping estate taxes high.  Yet, a good deal of his success over his career has been based on finding family owned business and buying them in a way that delays or denies the impact of estate taxes.  Ultimately, sound tax policy should not allow those kinds of manipulations.   We should, as the President's tax deal does, set rates for inheritance in the low range and at a high enough cap so that most taxpayers should not get caught.  One could make a case for the complete elimination of estate taxes but if there is to be a tax it should be lower than it could be next year and at a fairly high exclusion.

In all of his public statements the Sage of Omaha has never acknowledged that part of his wealth has been based on a public policy which hurts people with fewer resources than he has.

The President and Tax Reform

I found the President's remarks on Tax Reform generally positive yesterday.  He commented that he was beginning to think about proposing to simplify the tax code next year in a dual strategy to improve the code and to raise revenue.   That is the approach followed by President Reagan in the 1986 tax act and it was a sound one then.  It would be a sound one now too.

But there are some caution lights on this approach.  The first, could be heard in both the NYT coverage and an NPR piece on it.   There is only one way to simplify the tax code - that is by cutting the thatch out of the code.  The Deficit Reduction Commission proposed to eliminate virtually all of the deductions in the code (save the Charitable Deduction and a Mortgage Interest Deduction for a Principal Residence) which is a good place to start.   But some in the equity crowd have argued a different approach, namely capping in some way the application of deductions for high income taxpayers.   That approach does nothing to reduce the burden of the tax code, indeed, it increases the complexity of the code.  Look at the machinations around the "marriage penalty" to understand the truth of the statement.

Broadening the base is never easy.  But the 1986 process proved it could be successful both politically and economically.  If the President wants to recoup at least some of his clout on economic issues he will need to avoid the people in his administration who see the tax code as an opportunity to foment class warfare.

Busman's Holiday

On Sunday and Monday I was in Austin for a set of meetings.  As I often do when I am in a state capitol I got a chance to tour the Texas Capitol.  The legislative process is a reflection of many things including the buildings we construct to carry out the process.  The Texas Capitol is among the most beautiful I have been in.  It is constructed of red granite but what impressed me more was the use of light in the interior sections of the building.  

The Texas house is huge compared to California and the Senate is smaller.  Texas has a shorter session than we do and it meets every other year.  But if you get to Austin, in addition to checking out the music and the food, schedule some time to tour the Capitol, it will be worth your time.

The Tax Deal

From all of the caterwauling on the left you would have assumed that the President has been pronounced a heretic.   I am not entirely a fan of this compromise.  There are some very good things in the proposal - from my perspective the creation of an estate tax solution which avoids both the confiscatory notions of the left and the fantasies of complete exemption on the right is close to being perfect.  They move to a $5 million limit on estates ($10 million for couples) based on a 35% rate.   While I can certainly make a case for ending the estate tax entirely -this seems like a reasonable place to have policy land.  

I also believe that the acceptance of the rates in the 2001 Tax Act for all taxpayers is an interim solution. Not perfect but about right.   In the long term we need to simplify the entire income tax system and lower rates.  That means broadening the base.  We got some good ideas from the Bowles Simpson proposal but if this gets us off the bash the rich rhetoric and toward a saner discussion of tax reform, then it is a good idea.

I am troubled by the temporary tax holiday on FICA, dropping by 2% the rates for one year.  It is a pretty good stimulus for wage earners but the condition of the Social Security "trust fund" is perilous.  And this simply adds to that problem.

But I am very troubled by the thirteen month extension of unemployment benefits.   I am not sure what an appropriate length for unemployment benefits should be.  But it should not be close to two years.  The tradeoff here is simple.  Make the benefits too generous and you dampen the incentives for seeking employment.  Make them too small and people in real transitions will be faced with calamity.  I do not think they hit the right balance here.

What gives me hope on this is two things.  First, if we can assume that Paul Krugman is wrong (and that is not a hard thing to assume) that there are "no deficit hawks in Congress" and that the new majority will take their role seriously when they convene the next congress, this interim deal is fine.  Second, if the deal causes the far left that has had far too much say in our national policies to go into frenzy, so much the better.  Their class bating rhetoric has worked for too long and finally their bluff was called.  I say let them whimper.

Achieving a balanced budget

This is a follow up to the last post.  We now know that the Deficit Commission was unable to achieve 14 votes to get the Senate to consider its proposals.  On Facebook recently, I have engaged in a lot of banter about whether the Bush era tax cuts should be extended.  That is not the point.  A balanced budget is possible at many levels.  But based on the last election and also some enduring principles, most Americans have rejected in rather strong terms the huge increase in governmental activity - both in the Obama administration but also in more generalized polling.

For the past 30 years we've been able to raise about 18-20% of the GDP to fund the things we have wanted to do in the governmental sector at the federal level.   But a lot of the Washington elites think that percentage should be larger.  It is clear that many in the current administration think we should raise the amount of dough we spend through the feds to something approaching 30%.  

But an alternative way to look, which seems to coincide with the voters, is to decrease the role of government.  Not in the way that most bureaucrats would do it by huge and pro rata cuts in all spending but by making more reasoned choices about what we think we should do using tax dollars.   There are tiny examples - I think, for example, that public radio should not be burdened with governmental support.  Eliminating the CPB and NPR would make no dent in the budget but it would say something about our priorities.   I'd also work to eliminate a lot of the funding for the Smithsonian - a fine institution but prone to bouts of political correctness.  If we want a national museum then let those who want it to be there help fund it - partially with admission fees and partially through fund raising.   While we are at it - why should the Transportation Security Administration have government employees?  If airport security is important why not set the standards and then let the airlines and air travelers figure out how to meet the standards.   All of those potential cuts come from a philosophical approach which starts with a premise that government is not very good at doing things.   I am sure if we started with that debate (what should government do?) we could achieve a balanced budget because then the discussion would be about the appropriate balance not whether millionaires should pay more taxes or the unemployed should be covered with benefits for more than two years.

First Questions on the Deficit Commission and other issues

In the last few weeks we have watched democrats scramble to adjust their position on reauthorizing the Bush tax cuts.  Finally in the last couple of days at least two prominent democrats indicated an interest in raising their ante on tax cuts to exclude people who make less than a million bucks.  This is classic positional bargaining and I hope the GOP leadership says no.  There is a first question that any discussion about the deficit should begin with and it is not what percentage of the taxpayers should pay at the highest rate.  The most important question to answer on this fight is "What percentage of the GDP should be be dedicating to federal activities?"

In the last two years, tax revenues, as a percentage of GDP have dropped from their traditional levels of about 18-20% to below 15%.   At the same time because of all the bailouts our expenditures have risen to close to 25%.  The Deficit Commission has a start which needs to be followed up with vigor - regardless of tax rates.  But the political class, or at least large portions of it, do not seem to understand that truth.

One more twist on the Pay Freeze

There is one other idea that should be added to the mix on the President's proposal.  According to the WSJ since 1997 the number of civilian employees of the federal government has increased by 17%. (or about 300,000 new highly paid employees).   The folly of the limited proposal looks even sillier with that data in tow.


We should not heap comment on the President alone.  Six GOP members of the US Senate just voted against ending earmarks - two were lame ducks (Voinovich and Bennett) - one (Murkowski was just "re-elected" - I will bet Alaskans are proud of that vote) and the rest ( Cochran, Collins,  Inhofe , Lugar, and Shelby (Ala.) were just lame.


Dick Durbin reflected the Washington political class - "I believe I have an important responsibility to the state of Illinois and the people I represent to direct federal dollars into projects critically important for our state and our future. "  What a crock.

The President's Pay Freeze - a small step

The President's proposal for freezing pay for federal workers for the next two years, which would save about $6 billion over the term of the freeze, is welcome.   Average federal pay has been growing in recent years and now is north of $82,000 per year.  That of course does not include the dough that employees get in benefits.   That salary level compares to the median household income in the country in 2009 of about $50,000.  So you can get an idea about how generous we are with those employees.

A lot of recent studies have pointed out that federal pay is considerably higher than the private sector.  And friends of public employees have argued that those reports are flawed because they do not control for the level of education required.  After all the federal government employs a lot of scientists, and engineers and lawyers.  The Federal Times, in a recent article said 45% of federal employees have a college degree. That is about half again as many in the private sector.  That may be another point (do we really need all those highly educated people running our lives? Is the work of government so technical that it requires that level of education? Or more appropriately should it be?).   But that argument is for another day.

On this one look at the impact of the President's proposal on the deficit.  Can't see it?  That is the point.  In addition to the freeze on pay he should be seriously thinking about reducing the number of employees.  When Washington begins to feel this recession, we will know they have begun to understand it a bit better.

Faith - Markets and Government

For the past couple of days we have been visiting our daughter and her husband and my mother in law and my wife's sister.   Friday night at dinner we had a discussion about the book The Big Short: Inside the Doomsday Machine by Michael Lewis.    From all that I have read and heard, the crisis in the housing market has many fathers.  About a year ago we had dinner with the retired CEO of Bank of America who argued that the mortgage crisis came about because of a series of governmental mis-steps including expansion of the tax free treatment of gains for houses, the expansion of leverage of Fannie and Freddie and the widening of the Community Reinvestment Act.   Obviously there is the rest of the story which involves the development of the synthetic instruments, CDOs and the like, by investment houses.  On that side there are a lot of causes besides making the mortgage market more fluid and less tied to an individual banking institution.  Lewis' book tells the investment side of the story pretty well.  But surprisingly he does not mention the role of members of congress (especially Christopher Dodd and Barney Frank) who frustrated the role of regulators who recognized some of the excesses of the Government Sponsored Entities.   The role of the ratings agencies and the bankers who really did not understand their own instruments are high on Lewis' list but there were also the natural tendency of many in the business world to act in their narrow self interest.

But from the perspective of my sister in law at was an assumption that the blame fell all on the private sector and those "greedy" bankers and insurance types.  In reality it was both.   The problem comes from the interaction of the government and private sector.  This chart from the WSJ shows that as we have gone through TARP and all the other supposed efforts to ameliorate the mortgage problem, the length of the average delay in payment for homes in foreclosure has increased rather dramatically.

I understand that I am perpetually skeptical of the efficacy of governmental action to help in many (or even most areas) - but I am always struck to encounter someone who seems to believe the opposite.  Public Choice Economics teaches us that people do not throw off their self interest when they take roles in government.  To assume self interest in the private sector is assumed - but my surprise is that many do not seem to see that does not change when you move things to the government.