Governmental Art/Humanities/Broadcasting is to Art/Humanities/Broadcasting as Chickens are to Watermelons

Among the priorities of the budget cutting bill first proposed in the house are the elimination of subsidies for the National Endowments of the Arts and the Humanities and for the Corporation for Public Broadcasting.  When it was first started (1966)the National Endowment for the Arts had a budget of just under $3 million.  It now has a budget of about $167 million. The Humanities endowment is a bit larger at $171.  The Corporation for Public Broadcasting gets $460 million.  While the final bill is probably not going to go that far, the question is should it?

The argument for all three activities is fundamentally one on merit goods.  A merit good, in the formal language of public finance, is one which would not be produced in enough quantity absent governmental support.   From my perspective that has always been a very slippery slope.

For me there are two questions.  Absent governmental support would the things like the arts and humanities or "intelligent" discussion of events and trends be present.?  The answer to that one is simple.  Since the creation of NPR the variety of programming has exploded.  The proliferation of the arts has been significant in both depth and breadth.  Ditto potentially for the humanities - although admittedly that may be harder to demonstrate.

But then the second question is does governmental support add something that absent the support would be lost to society.  Here the advocates for governmental funding try to make a case.  But from my perspective it is hard to demonstrate that having several hundred million applied to broadcasting, the arts and humanities has actually enriched the mix.   More importantly there is the moral hazard that comes with any governmental funding - does it have the potential to distort the provision of that good or service?  In this, there is pretty clear evidence that the addition of funding has done little if anything to enhance and may well have impeded truly innovative activity.

A Washington Examiner column today summed up the question quite well.  We consume a lot of things that government does not subsidize.  The History Channel, ESPN, even CNN - in essence I do not care whether they have a particular ideological focus (as I believe CNN and the History Channel often do) but having neutrality does not necessarily merit public funding.

The opposite side of the case is also true.  While the NEH and NEA and CPB can demonstrate some positive effects of governmental funding, it is hard to imagine that elimination of that very small percentage of support - either for public broadcasting, or the arts or the humanities - would mean elimination of the function.  It should be about choices and we should choose to defund all three.

The Ultimate Nanny Stater

In Article 2, Section 1 of the California Constitution it states that "All political power is inherent in the people. Government is instituted for their protection, security, and benefit, and they have the right to alter or reform it when the public good may require." That is a pretty clear statement about the role of the people in making decisions that are important to government and society. When that language was revised in the 1911 Constitution it was with the express desire to remind the political class that their jobs were subject to review.


We are a couple of days away from the self imposed deadline to allow the voters of California to vote on whether to extend taxes that were imposed a couple of years ago. There is plenty of evidence that at least a couple of GOP members in both houses have tried to think about things that could be traded in exchange for allowing the voters to exercise their Constitutional responsibility. If they negotiated in earnest they might get significant pension reform (in a state where conservative estimates suggest our public system is a couple of billion out of whack), or adjustments in programs that seem wasteful, or more accountability or even a hard spending cap.


But the man pictured at the left doesn't want the voters to express their collective opinion. Grover Norquist is the head of Americans for Tax Reform (in Washington, D.C.). He has helped to impede those discussions because many of the GOP members fear the kinds of retribution he has threatened even if they simply allow a vote on taxes. Ultimately, the goal for all Californians should be to get the budget under control, to bring some more rational decision making on how we spend dough in the state government. But Mr. Norquist thinks we are able to make good decisions and so perpetuates California as the Nanny State.

Little

For the first time in our marriage we are without an animal in the house.  A couple of years ago we lost our dog Molly to cancer.  Then we lost our cat Teddy to old age.  But all along there was Little.   By the time we put her down this morning she was deaf and blind in one eye. She was no longer able to clean herself adequately so the hair on her back was matted. She was 24 years old - based on most conversion charts that made her about 112 in cat years.  But even with all those infirmities (and a few more I did not mention) she was an important part of our life.

A continuing theme

Last week there was a renewal of a debate that is always present when thinking about higher education.   This time it was between Bill Gates and Steve Jobs.  But seventy years ago it was between a Mexican government official and a Mexican scholar.


The debate is about what purpose should higher education serve.   The focus is how much should the state's needs be a goal for higher education.   Antonio Caso and his opponent argued about it.  His opponent suggested that all of higher education should be an instrument of state policy.  If the government was socialist then the institutions should teach socialist principles.  Caso argued that was nonsense - higher education should attempt to discover knowledge and expand human capacities.


Gate's remarks to the National Governor's Association were a bit less expansive than Caso's opponent but they landed on the need to tie goals in higher education to state goals.  Gates commented "The amount of subsidization is not that well-correlated to the areas that actually create jobs in the state -- that create income for the state.  Now, in the past it felt fine to just say, 'OK, we’re over all going to be generous with this sector,' ” he continued. “But in this era, to break down and really say, ‘What are the categories that help fill jobs and drive that state economy in the future?’ -- you’ll find that it’s not across the board in terms of everything that the state subsidizes in higher education.”


When Jobs participated in the announcement of the iPad2 he offered a much broader theme, which mirrors his commencement remarks at Stanford in 2005. (The link to the video is presented in the link.)   In that address he described three opportunities he had in life where things took a wrong turn and yet he benefitted from the event.  In the announcement about the new iPad he commented that Apple's DNA required " technology married with liberal arts, married with the humanities, that yields us the result that makes our heart sing and nowhere is that more true than in these post-PC devices"


Ultimately, from my perspective, higher education needs to pay attention to what is important in society - it needs to be cognizant that its graduates must become employed.  At the same time if its graduates are simply tools of their professions then both the graduates and society are made poorer.   

Tijuana and Daily Life

On Thursday I visited one of our affiliate universities in Tijuana.  The University is about to celebrate its fiftieth anniversary - which is relatively old for a Mexican private university.  It is among the best universities in Mexico.   They've spent the last several years working toward American accreditation - and I have every confidence that they will be granted that status in the next few months.

I was struck with two impressions beyond the very positive impressions of the university.  First, although the link between San Diego and Tijuana is among the most vibrant economic relationships of two cities across the border, it is severely constrained by the border system back into the US.  My host got me back to the airport in San Diego early because the act of crossing the border can be quite variable.  We got across in 90 minutes but she told me that the wait can often be three hours or longer.  Thus, for people who work in San Diego, the daily commute can be quite uncertain.  And thousands of people go back and forth daily.  There is no direct flight from California to Tijuana - one could get there by flying first to Mexico City - but that seems absurd.

Second, as I have had in every visit to Mexico in the last year, we talked a lot about security.  Tijuana has had some very violent incidents in the last two years relating to the drug wars.  Many of my friends in California wondered why I would go to Tijuana.  But one of my host summed it up quite clearly.  She said, every morning I get up, pray a bit (which she would do because she is Catholic) and then go to work.  She said there are places in the city that she does not go - like any large city.  But she clearly had decided not to let the situation deter her from being a productive professional.    She also seemed resigned to the fact that the border crossing was just one of those costs of daily life - which were not going to deter her from advancing the knowledge and reputation of her university.   For me that was an inspiration.

Overhang

One of the oddest things about this part of the economic cycle has been how slow the recovery has been.  Even with massive (one might even call  them monumental) amounts of infusions of liquidity the unemployment rate remains well above 9% and the level of under-employment (which many think is a better indicator of the state of the economy) is even higher.

Here might be part of the explanation.  Of all the mortgages in the country - better than one in five have negative equity.   In five states the numbers are all above 31% (Nevada - 66.5%, Arizona - 48.6%, Florida - 45.5%, Michigan - 37.6%, and California - 31.6%).   Normally, as we go out of a recession, housing helps to lead the way but the overhang from the excesses of Fannie and Freddie and CDOs has put a damper on that by a lot.  Consider that the net effect of all these changes has been to wipe out six years of price appreciation.   That means that when workers want to move from one area in the country where there are no jobs to one where there are jobs, the consideration of that loss of equity limits the abilities of families to make decisions based on mobility.

de Tocqueville Comes True

Alexis de Tocqueville came to the US in the 1840s and as a result of the trip and the observations he gathered wrote a stunning book called Democracy in America.  In the book he commented that one of the risks of the new American system was the potential that the system could evolve negatively if a group discovered that they could get someone else to pay for their requests.

It seems to me that is exactly what the fight in Wisconsin is all about.  A fight by the way that is replicated many times over in other states, including California.  We've set up a system where employees bargain against no one.  Politicians have a natural propensity to kick the can down the road and thus offer huge concessions to their employees (who they are supposedly bargaining with) that do not have to be paid immediately.   Thus, provisions like support of pensions and health benefits can be added, with the politician knowing that the bill will not come due while the politician is serving.  Thus, in the fat times of the early part of the last decade, when market returns were up, wild assumptions about both long term returns on portfolios and long term costs of benefits were accepted as gospel.   What is worse, there is an extra incentive for politicians because they can reap huge contributions to help their own aspirations go forward.  And, even better, because of agency shop, those contributions are involuntarily extracted from the employees.   It has all the elements of a perfect storm.

The model was replicated from benefits programs like Social Security where for generations politicians have offered benefits far in excess of what the system could bear, simply on the notion that the bill would come due later.   Well, now the bills are coming due.

While Democracy in America was insightful on defining the problem we now face, it was not very good at thinking up solutions.  But Federalist #51 has a pretty good way to do that.  To wit  - "But the great security against a gradual concentration of the several powers in the same department, consists in giving to those who administer each department the necessary constitutional means and personal motives to resist encroachments of the others. The provision for defense must in this, as in all other cases, be made commensurate to the danger of attack. Ambition must be made to counteract ambition. The interest of the man must be connected with the constitutional rights of the place. It may be a reflection on human nature, that such devices should be necessary to control the abuses of government. But what is government itself, but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself. A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions."

This is a map of the US from TaxProf Blog which is a graphic representation of what lawyers earn compiled by each county.  The greens are the lowest average wage ($40,820 to $65,000 and $65k-85k) and the blues and reds are the highest ($125-145K and $145-192).  

What interests me about the numbers are two things.  First, the general wage for lawyers in most of the country is not huge.  But second, look at the concentration of blues and reds in California.   There is an old joke about that - "California has more lawyers and New Jersey has more toxic waste dumps; explain why."   New Jersey got first choice.

One more thing about Mexico

On Monday I had lunch in a small restaurant in Progresso which is a seaside town near Merida.   Progresso is becoming a resort.  When I first visited there it was a sleepy town next to the gulf but there looks to be a lot of building going on in the area.

The restaurant had excellent fresh fish - I am a big fan of mojo de ajo - a simple grilled fish with lots of garlic - and theirs was excellent.

But if you look in the right you will see a kid selling candies.  To his immediate left is a sign on the door which says "Prohíben a los vendedores de entrar en este restaurante"

Carbonite

After hearing ads for it for about a year, I signed up for Carbonite - which is a web based back up service. For $55 per year you get (according to their ad) simple, secure, unlimited and automatic back-up.   In the three months I have had the service it has not lived up to its ads.

I have a big desktop machine at home that has 2 Terabytes of hard disk space.  (Admittedly, all that is not filled.)  I began the back up in mid-december.  Based on my own tests of speed, a 35 MB video file should take about 2 minutes.   Based on a reasonable conversion the entire back up should have taken about 41 days.   We are now 70 days into the process of back up and the remaining files to be backed up are more than half the contents of the computer (which is less than half of the total capacity).    They say, after you have signed up, that the backups are slowed for big files.

A second problem is their technical support.  After about 45 days I called and asked why the system was not even close to finishing.  I got a support guy who could barely speak English.  His answers were mechanical and not helpful.

I finally went out and bought a 2 Terabyte Western for $85.  On my mac, I was asked if I wanted to use this as a Time Capsule device.   The initial backup took overnight.   The drive will continuously back up versions as long as I have it attached.  From my perspective that is simple and secure.   It isn't the cloud but it could be simply by taking the drive with me or by storing it in a fire secure enclosure.

The alternative is a service called Mozy - which is a bit more expensive (although not much) and seems to upload at as much as four times the speed.  From my experience I would not recommend Carbonite.

Disturbing Trends

I find three recent events similar in nature and find them troubling.  They are

1) The decision by the Wisconsin democrats in legislature to take off to prevent a vote on a bill which has generated controversy.

2) The decision by the Obama administration to ignore its responsibility to defend the Defense of Marriage Act (and in a similar vein for the Governor and AG of California to decline to defend Proposition 8).

3) The decision by the Majority Leader of the US Senate to demand that current spending levels are the equivalent of a freeze.

The third could be described as politics - although in an earlier post today I described it as irresponsible politics.  There is a lot of discussion about what the appropriate mix of revenues and expenses should be at the federal level.  But I believe it is an abdication of responsibility for Mr. Reid to make no serious attempt to balance the budget.

The second issue is one where I am basically in opposition to the position that the elected officials are required to defend.  But in both cases, there is a legitimate argument on the other side.   The voters and the Congress have expressed a clear opinion as as the country's chief legal officer, it should be the AGs responsibility to either act in defense of the act or to appoint a special counsel who could pursue the position.  Simply ignoring the enactment because you disagree with it is wrong.  It also belies a poor understanding of the nature of separation of powers.  If the Administration does not like DOMA, as I do not - then it should seek to change it in the legislative process but simply ignoring it IMHO sets the administration up in a quasi judicial role.  That is a very bad precedent.

The most troubling demonstration of abdication of responsibility is the walkout of the Wisconsin democrats.  I happen to agree with the approach of Governor Walker.  The public pension time bomb across the country is huge.   Something must be done and very quickly.  I suspect that the democrats, were they willing to engage, would be able to modify the provisions of the governor's proposal.  But they cannot do that simply by sitting in the corner.

In each of these examples, elected public officials have refused to carry out their responsibilities - the ones they were elected (or in the US AGs position were appointed) to fulfill.  I wonder at what point some citizen will take the role of attempting to hold these officials to account.  

Game Over?

The Bee has a story in this morning's paper about the possible impact of the departure of the Sacramento Kings - arguably the most incompetently run franchise in the NBA.  They have a picture of a billboard put up by one firm which says - GAME OVER - If the Kings leave we all lose.  Mayor Kevin Johnson says that the arena generates about (one wonders how close about is) $1 million in property taxes annually.  Based on the loan that is owed the city, that hole could be covered for more than 70 years when the current owners are required to pay Sacramento back for the loan they got a couple of years ago. If they leave us the current loan accelerates and they also owe us a prepayment penalty.  Clearly the region would event revenues and salaries but based on recent attendance to the games they would not lose a lot of event revenue.   With a bit of creative thinking they could provide some other amenities for the city that would be less of a joke.   Perhaps they could use half of the proceeds from the loan repayment to get the city to think about how to attract a better franchise or even to think about some non-professional sports options.


But then there is the speculation about the loss of the prestige of 13-41 Kings (the second worst record in the NBA) leaving.  "The loss to Sacramento would be devastating. There's no doubt about it," said Michael Meczka who is described as an "economic consultant" but seems to be in the business of chatting up the value of sports franchises to cities. Some people might call his operation sports pimping. 


If the existing arena were shaped up a bit, it might attract all sorts of shows and concerts.   The head of the Chamber of Commerce says when you do not have a professional sports franchise you are a second tier city.  What absolute nonsense.  Is Las Vegas second tier?   Conversely, is Charlotte or Houston first tier simply because they have sports franchises?


The NBA owners are greedy.  The franchises offer profits to the owners and lousy salaries to all but the NBA stars and a few of the managers.  They do very little for economic development except for this fanciful notion of "prestige."   When did it become mandatory to have a professional sports franchise to be a major city?    There is a second problem here also. Big time sports keeps claiming that they deserve a piece of the public fisc.  Why?  In Europe the large soccer teams are all private enterprises.  Many are even publicly traded companies.  


We should be brave enough not to take the bait of the NBA threats or the phony analysis of people like Meczka and wish them great luck in Anaheim or wherever they end up.  But first get them to pay us back the money they owe.

The Deficit is Only an Abstraction to the Majority Leader of the Senate

Harry Reid, who has spent the last couple of weeks trying to embrace the current deficit by proposing to "freeze" spending at current (inflated) levels commented yesterday "It is time to drop the threats and ultimatums, and work together on a path forward," the Nevada Democrat said in a statement. "I am asking Speaker Boehner to simply take the threat of a government shutdown off the table, and work with us to negotiate a responsible, long-term solution.”    I realize that the Administration can take all the usual steps (like making the most visible shutdowns first) but I suspect in a state where foreclosure has become the common house sale and where economic growth is a projection that Nevada's voters would choose to shut it down.

More Reflections on Mexico

The American perception on Mexico is a bit daft.  For example, the drug problem is mostly in the north of the country.  But many Americans are worried about the whole country.  One of the deans I worked with yesterday expressed concern that many Americans are worried about coming to Merida.  From my perception and actually from the data - Merida is a very safe place.

They also do not have a good idea about the depth and breadth of the Mexican attraction to technology.  WIFI spots in big and small towns are ubiquitous.  Compared to five years ago when many towns only had dial up service.  This morning as I was waiting for my flight to Mexico City, I counted five other passengers working with their iPads. (Lots of other computers too but I was counting iPads).

Then there is the electronic WSJ.  It seems that I cannot get it in Mexico.  I am not quite why that would be but it must be something about how it is delivered to my iPad.

Some reflections on Mexico

For the last three days I have been in Merida in the Yucatan Peninsula.   Most Americans know the region from Cancun.  I've never been there but I have done a lot of work in the city of Merida and in a couple of other areas.   One of the affiliate universities that I have worked with is called Universidad del Mayab.  It is a superior place.  We were working on building some connections with California colleges and universities.

Over the last dozen or so years we have done a series of projects in the area related to research and governance- bringing together scholars and politicians to discuss best practices. On this trip I had three interviews (TV, Radio and Newspaper).  I also got to meet the Mayor of Merida.  In the last few years a lot of women have entered political life.  The Mayor is an architect named Angelica Araujo Lara.  I was impressed with her command of the issues.   We also had lunch in Progresso - which is a beach town not far from Merida, but missed meeting the mayor there.

I have not been to the Mayab for a couple of years and am impressed by the growth in the place.  They seem to be working hard on making the place a bit larger but also in making it better.  I had the chance to meet with deans of each school and to talk about how to make connections and also with a small group of students who would like to come to California to talk about government.

I stayed in the Fiesta Inn.  One innovation there is a better way to charge for the internet.   They charge $175 pesos for 24 hours usage.  But that 24 hours can be done at any time of your stay.   So I ended up paying about four dollars a day for internet coverage.  That seems like a fair price.  I get really annoyed by American hotels who charge outrageous fees for internet services.

Today I went to an archeological site called Dzibilchaltun (ZIB-ILL-SHAWL-TOON) which means stones with words on it.  The top photo (I did not take either) is of the observatory.  The Mayans were pretty smart about astronomy but interestingly they failed at this site because they could not deal with a three year drought.   The bottom photo is of a Cenote which shows how smart the Mayans were on water - at least until the drought.  I will have some more photos up when I get my own pictures off my camera.   I will also have some more comments on the site.

I also had dinner at a hacienda near Merida - this particular hacienda produced henequen.

A stunning public conversation

This video from the Heritage Foundation is a real demonstration of the differences in perception and message between the public employee unions and the average taxpayer.   Governor Walker's proposal would make significant changes in the way Wisconsin public employees deal with their employer but it would also set some balance that has not been present in many states for a very long time.  Public employee pensions and benefits are significantly out of the market.  So, indeed, are their salaries.    This is a superb demonstration of how the issue is being formed.

Waterloo for the Public Employee Unions

The Public Employee Unions seem to have mis-judged the mood of the country.  As reported in the Bee and other papers a Clarus Poll suggests that the fight that public employee unions are waging in Wisconsin may not be winning them friends.   In response to the question - "Do you think government employees should be represented by labor unions that bargain for higher pay, benefits and pensions... or do you think government employees should not be represented by labor unions?"

Even with the margin of error (+/- 3%) the Wisconsin Governor seems to have the upper hand.  Even in the Northeast public employee unions are not popular.  The ratios in the rest of the country are 2:1 against.

Governor Walker, the Public Employee Unions and Reality

Former Senator Russ Feingold characterized Governor Scott Walker's proposal to change the way public employee unions can engage in collective bargaining in the following manner  “The notion this is about the budget is a complete sham … This is about an agenda of destroying unions,”  That sounds pretty terrible until one understands exactly what the Governor has actually proposed.


The state's deficit is more than 10% of the budget, which puts it below the average among all states but still at a significant shortfall.  So what is the attempt to destroy unions actually proposing to do?   Green Bay's paper describes the proposal in much less shrill terms.  It would require "nearly all state, local and school employees to pay half the cost of their pensions and at least 12.6% of their health care premiums."


Lets get some numbers here.  According the the Bureau of Labor Statistics, the average health care benefit cost for public employers was $4.65 compared to $2.94 in the private sector.  That is on top of an average wage premium for hourly compensation which is significant.  Here is a chart from the BLS comparing the relative costs of compensation for public and private employees.

Notice that health care costs are a third higher for public employees.  Notice also that pension costs are more than double for public employees (and remember that few private employees have defined benefit plans for their retirement).


From my perspective, the Governor's request to require public employees to pay a slightly larger share of their health and retirement costs is not only reasonable but necessary.   Wisconsin's deficit at about 12% of the budget is by no means the largest in the country. But the point is if every employee in the private sector is paying a portion of their health and pension costs, why should we not ask the same of the public employees?


Much of the press coverage has been that the Governor is trying to eliminate the possibility that public employees can bargain for wages.  That is simply not true.   Were it true, I believe that a high percentage of voters would support that broader restriction on the rights of public employees.  If the question were phrased "Is it appropriate for us to require public employees to shoulder more of their health care and retirement costs?", my suspicion is that a huge majority would say "why not?"


Feingold's statement, which is parallel to a lot of other democrats, including the President, is a huge distortion of reality.   He was called to account in the last election.  Those shills for the public employee unions should also be held to a standard of truth that most of the media is unwilling to require.

Spending

The Mercatus Center at George Mason does a lot of interesting research.  They published the following trendline on federal spending as a percentage of GDP.

There are at least three conclusions from the chart.

#1 - When the GOP took over congress in 1994 spending was restrained.
#2 - As the GOP got more comfortable in its position, that restraint began to abate.
#3 - When the Dems took congress spending grew rapidly.

There are also a couple of bonus ideas:
#1 - Both the final year of Bush and the first two years of Obama showed the risks of unbridled spending.
#2 - If you run the spending against economic growth from the beginning of the recession you cannot help but be compelled by the notion that when government spends a substantial part of the economy the positive effects of counter-cyclical spending is diminished.   (Admittedly some believe that the effects were always over-rated but there is little demonstration that all that dough we paid out for things like shovel ready projects and cash for clunkers did anything to lessen the effects of the recession - except of course to put mountains of debt on the backs of future generations.)

Obama Budget: Budget as Trabbant:Automobile

President Obama released his "budget" proposal yesterday.  But its resemblance to a budget is only distant.  The dictionary defines a budget thusly -
budget |ˈbəjit| noun   •an estimate of income and expenditure for a set period of time : keep within the household budget. | [as adj. ]a budget deficit.• an annual or other regular estimate of national revenue and expenditure put forward by the government, often including details of changes in taxation.• the amount of money needed or available for a purpose : they have a limited budget.Well indeed the President's proposal does present some very rough estimates of income and expenditure for the coming fiscal year and according to the second standard it does propose some increases in taxation.   But where it fails most completely is in its assumptions about how much debt the country can accept.   During the Bush administration the President was (rightly in my opinion) criticized for producing $400 billion deficits.  After all, it was just a few years before those deficits that federal spending first surpassed $1 Trillion.   But Obama takes us to new heights.  He proposes in his "restrained" budget to raise our debt from the current $15 trillion (about equal to annual economic output) to $25 trillion by 2020.   Doesn't anyone in Washington understand the definition of a "limited budget"  limited |ˈlimitid| adjectiverestricted in size, amount, or extent; few, small, or short