Saturday, December 31, 2011

Then and now - are we better off because of innovation?

In our household each person has gravitated to certain chores.  One of mine is making the coffee in the morning.  I'm usually the first one up, so it's natural that way. I'm also responsible for buying the coffee beans.  We're Peetniks, two pounds of French Roast every other week.  I used to buy the beans at Espresso Royale, but a few years ago I thought that started to taste not as good as it used to, so I explored alternatives.  Way back when, while I was still single and living in a condo in town, I had a Toshiba coffee maker with a timer. You put in the water and the beans the night before.  At the preset time the thing would grind the beans.  You could wake up to freshly brewed coffee, a bachelors delight. Some friends of mine who went to college at Berkeley were fans of Peets back then.  They'd order a lot of coffee and I'd sometimes get my beans through them.  I remember those beans as extremely oily.  That coffee maker broke down after not too long.  I think the grinder got over worked with the Peets beans.

At that time I thought plain French Roast was a bit metallic in taste so I bought both French Roast and Mocha Java beans  (from the Art Mart or the Walnut Street Tea Company) and mixed the two.  That was before pre-bagged coffee.  The stores had a large plastic bin of each coffee variety and would make a bag for you then and there on the spot.  The result was more pleasing.  When I originally subscribed directly to Peets, I ordered that same mix.  But it seemed to me the Mocha Java was just as oily as the French Roast, so I tried a pot with just French Roast beans and enjoyed that a lot.  We've stuck with the French Roast ever since, getting other coffee beans only when we run short because of hosting guests or over a long weekend where we might make a second pot in the late morning.

When I was growing up I didn't drink coffee at all.  My parents did, however.  They bought coffee in a can, pre-ground.  Remember the coffee commercials from back then?  Savarin featured El Exiente.  Yuban's tag line was - have a cup of Yuban for dessert.  Chock full o'Nuts was the heavenly coffee.  My parents mainly had Maxwell House, where their jingle emulated the sound of coffee being made.   This was in a percolator.  We didn't know about drip brewing coffee back then.  If somebody would have mentioned a glass carafe, that would have conjured up an image of a container for inexpensive wine.  For coffee, the percolator was it.  But it was a messy process and almost surely burnt the coffee. In cleaning up the kitchen, getting rid of the coffee grinds was the least pleasant activity.

My parents put milk in their coffee (or cream when that was available).  It cut the taste and made the coffee more palatable.  When I started to drink coffee, I did likewise. Nowadays though, I drink it black.  I want the coffee to taste (and smell) great by itself.  I don't want dairy products to adulterate the taste.  With freshly brewed Peets, I get just what I want.

I started to think of other examples in a similar vein, of how things have changed in ordinary consumption experiences since I was growing up, where then it was just something part of the landscape and now it is a more intensive experience.   One of those is cooking outside.  We had a built in outside fireplace in the southwest corner of the backyard when I was a kid.  We'd have wood fires in it.  Unlike how it is now, where we get a rick of wood delivered in the fall for our inside fireplace, at my parent's house we simply gathered fallen branches and twigs to use outside.  And the fireplace was for cooking, not for decoration.  We'd have a cookout on a Saturday afternoon when it wasn't too cold outside.  My dad would do the cooking, putting hamburgers and hotdogs into a hand grill, and potatoes directly into the fire.  There was no aluminum foil.   Since the fire would flame up now and then, some hotdogs might get burnt.  The potatoes definitely did.  That added to the charm. 

Contrast this to now, where we have a Weber with a gas starter for the coals and a built in thermometer to see how hot it is under the lid and we cook by a timer, turning the food over by the clock.  The procedure is much more controlled, the flavor more uniformly guaranteed, and we grill now mostly for dinner, doing that many evenings each week in the summer, with a much greater variety of foods cooked this way.  I especially like bell peppers and asparagus cooked on the grill.

Still another example is taking public transportation.  I worked one summer during college (and then the subsequent winter break) near the Battery and took a bus and then two different trains to get to work.  Really, it was the only way to get there.  When I was in grad school I lived about four miles from campus to get an affordable apartment.  I had a car so drove to school most of the time.  When the weather was real bad, however, I rode the 'L' from Howard to Dempster and walked the rest. The same was true when I first came down to Champaign.  I lived in an apartment complex that had outdoor parking only.  I had an old car, the same one from grad school, which we called the ruster-duster.  (It was a Plymouth Duster and the exterior was pretty rusted out.)  When it got too cold, it wouldn't start.  So I took the bus into school.  When I moved to the condo, it had an indoor and heated garage, and by then I was driving a Honda Accord.  I never took the bus after that.

Standard neoclassical economics makes welfare comparisons across regimes by assuming preferences are invariant and then compares the available consumption choices.  On this basis, we're better off now.  One needs to be a little careful making this judgment, because one should account for wealth accumulation in the calculation.  My parents, one an immigrant, the other the child of an immigrant and coming of age during The Great Depression, were prodigious savers.  Without a doubt my wife and I are much more willing to spend on ourselves than my parents did and hence our saving rate is lower.  Nevertheless, we have a comfortable amount of savings.  So, I believe, the neoclassical economics conclusion still holds.

Yet I want to challenge that result, because it doesn't feel right, the economics logic notwithstanding.  I will do so by taking to task the assumption on invariant preferences.  Through habituation and also by subtle social pressures, consumption impacts preference.  And since preference also clearly impacts consumption there is the possibility of a loop in causality.  The cycle can be virtuous, or it can be neutral, or it can be vicious. If we are not better off then the reason, presumably, would be because of some vicious cycle.

Focusing on information and communications technology as the innovation and the social adaptations to those, there's been a bit of a cottage industry in identifying the vicious cycles.  Perhaps the most well known of these is the Nicholas Carr piece, Is Google Making Us Stupid?  More recently is this Timothy Egan essay about the socializing of the mundane details of our lives, Please Stop Sharing. And here is a piece I read just yesterday, The Joy of Quiet, which argues that we should carve out certain times for ourselves, the weekends perhaps, where we should return to a Thoreau-like existence to escape the vicious cycle from being always connected by technology.

In my examples, however, I deliberately avoided considering information technology, because I wanted to point out that the possibility for vicious cycles is much larger and also that the pernicious consequences may be of multiple sorts. So on the one hand there is a tendency toward fetishism or addiction, which seems fairly obvious.  Less obvious, however, is that the more of these sort of behaviors we have, the less resilient we are when the environment doesn't provide the exact fix we're looking for.   One reason I'm not a good traveler is that the coffee in the hotel room doesn't quite do it for me, but I need a cup or two before my shower. Even at the start of the day, I'm a little off kilter.  If you asked my contemporaries whether we are more or less resilient than our parents (this would be an interesting thing to survey on and I'm not aware of anyone having done this particular inquiry) I'd hazard a guess that most would say their parents were more resilient.  In that sense we're a bit spoiled.  We've had too many opportunities. attained too easily.

Then, on the other hand, there is a tendency for our choices to move from democratic to cliquish or even elitist, especially if the latter comes with trying the new.  Taking the bus is democratic.  It is a shared experience by all the riders.   Driving to work, in contrast, one doesn't have to deal with the riffraff, one gets to listen to one's preferred sounds.

Innovation can afford a choice to accept the shared experience or stray away from it.  One of my unanswered questions of childhood is why my parents chose to stay in our house in Bayside instead of move to the suburbs on Long Island.  We had a corner house.  The neighbors who lived diagonally across the street from us did move, to Manhasset, a ritzier neighborhood and a larger house.  They clearly treated the Bayside place as a starter house.  Since the father was a young doctor when they first moved there, it makes sense that as he climbed his career ladder they'd find a different place.  I think a few of my classmates in Junior High had their families move, either for that reason or because they no longer wanted the kids to attend NYC schools.  But my parents didn't make a like choice.  Having managed my mom's finances since my father died, it's less obvious to me that we didn't move because we couldn't afford it, though I really have no idea of what real estate prices were like in the late 1960s - early 1970s, during the time period I'm thinking of, nor do I have any sense of of what their financial portfolio was like then.  Maybe we couldn't have afforded it then.  But maybe it was more that my parents thought of themselves as middle class, not rich or even upper middle class, so they were more comfortable living in a middle class neighborhood, irrespective of how large their savings were at the time. 

I've written a fair amount about the ethical failings of those in the mortgage loan business, making those subprime loans with teaser interest rates at the start but that would balloon upwards thereafter.  But I've not written nearly as much about the people who got those mortgages and purchased the homes that should have been unaffordable to them.  Have such people always existed, but never had opportunities like that before that could give expression in this manner?  Or have we innovated our way into this ludicrousness, too much Lake Wobegon thinking the cause, coupled with a keeping up with the Joneses mentality? 

Based more on feelings rather than on reasoning it through, I believe we live more comfortably than my parents did then, but that they were better off because they had a decent existence and their future and the future of their family was more secure.  In considering the security of existence for my offspring, innovation seems more a wrecking ball than paving a pathway to a new land of plenty.

Now it's time to make the coffee.

Monday, December 26, 2011

The Clever Tippler

Myrna ___ (3 letters)
Nick and Nora's dog (4 letters)

It's now many years since I would do the crossword puzzle on a regular basis.  Yet I've still got recollections from when I did them.  One is about learning words that were puzzle regulars; they had no other use in the vocabulary, as far as I could tell.  Asta was one of those words.  I had never seen the movie starring William Powell and Myrna Loy nor had I read the novel by Dashiell Hammett.  But I did know Asta.  Some years later my wife and I watched one or two of The Thin Man movies on TV, though I don't recall which ones.  I remember it more for the gay repartee than for the story, a pleasing alternative to all those movies with big special effects that the kids seemed to like. This month Turner Classic Movies has been featuring William Powell and a few nights ago they aired all six of The Thin Man movies.  I recorded the first four, on the theory that eventually I would saturate watching those.  I've now watched two of the four and realize I made a mistake not recording the other two.

Robert Osborne's introductions to the films are very helpful.   The first film, The Thin Man, is from 1934.  Incidentally, the title does not refer to the William Powell character but rather to the first murder victim.   The film was intended as a minor work, something to show folks who went to the movies before the feature was shown.  But it was extremely popular in its own right and thereby became a franchise. As Nick and Nora Charles were members of the leisure class and the film debuted at the height of The Great Depression, one might reasonably ask what caused the film's great popularity.  Indeed, the question seems quite relevant today, as the super rich increasing appear as victimizers rather than heroes.  How did the super rich appear to the ordinary Joe during the Great Depression?

The story is first and foremost a whodunnit.  Nick Charles, a former gumshoe, has married Nora, a wealthy heiress.  So while Nick Charles is in a class with Sherlock Holmes, Hercule Poirot, then later Perry Mason and  after that Adrian Monk, destined to solve the mystery, there is the unique aspect in how his relationship to Nora interplays with the rest of the story.  According to Wikipedia Dashiell Hammett's fiction is hard boiled.  Certainly, one would have that impression from viewing The Maltese Falcon.  Yet Powell and Loy play Nick and Nora as light farce, with the occasional quip and more frequent childish facial expression.

When we first confront Powell on the screen he seems a bit tipsy, apparently slurring his words, drink in hand, it's not clear whether he can make out what's going on.  The drinking is a kind of virtuous vice, a fitting activity for one of his station.  His playful devotion to Nora more than makes up for it.  She is his equal in loyalty and disposition.

Nick seemingly knows everyone - the police and many former or current hoodlums.  Among that latter group, he has sent many of them or their friends or relatives up the river.  They don't begrudge Nick for this.  He was a professional doing his work.  He treated them squarely and they got what they deserved.  Nick will drink with anyone, including the hoodlums.  Nora, by association, will do likewise.   She is interested in all things Nick.  Since detective work was so much of his past, she is fascinated by that.  She seems oblivious to the potential danger.

At various times when there is real investigating to be done, he gives her the slip, whether for her own protection or because as an amateur she'll get in the way.  He then appears to be serious minded and all business, in search of essential clues.  Before that, when they are in a social setting, he seems first and foremost to be after a good time.  Yet he is able to take in evidence even then.  In order to make sense of what is really going on, he needs to know everyone's story.  A good chunk of that story he learns en passant while socializing.

The actual police seem if not entirely witless then nevertheless none to bright.  They welcome having Nick as a partner because he is much better than they are at deciphering what the clues actually mean. That intelligence earns Nick respect.  Further, he does not put on airs about the case when he has figure out an important point but says what he means.  Yet there is an easy grace about his demeanor. 

Robert Osborne says that Powell's style of acting went out at the beginning of the 1950s, to be replaced by the realism of Marlon Brando and James Dean.  Undoubtedly, he is correct in that assertion.  The time is ripe, however, for the Nick Charles approach to make a comeback, and not just in the movies.

Monday, December 19, 2011

Taxing Inequality

Of inequality laid bare,
Due to "Occupy" we're aware.

Conservatives don't seem to care.
The system works, they do declare.

The rest of us think it's unfair.
The job market needs big repair.

Our politics makes one despair.
The little guy's voice heard nowhere.

Sunday, December 18, 2011

Moms of Baby Boomers

The essay linked to below is moving and timely.  Like the author, my dad was born in 1913 and passed away quite a while ago.  My mom is still alive, at 91, a Holocaust survivor, a breast cancer survivor,  a tough old bird - as my wife once called her , a line used in this piece to describe a still alive mom of a baby boomer, a fitting classification.  The piece tells much of the story very well, so here I'll only write about the bits it didn't focus on. I base this not just on my own parents but on my wife's too.

When both parents were still alive, the rhythms of routine life became such that both father and mother were highly dependent on the other.  I don't mean this only or even primarily on an emotional level.  I mean this functionally, getting the necessary tasks of existence done - the shopping, the cooking, the balancing the checkbook, the driving to a social activity, having a coherent conversation, and so many other ordinary things.  Together the parents formed a whole.  After the dad passed away, lots of pieces were missing.  Of course there was a huge emotional void in the mom's life.  But there was also a need to fill in with the functions the dad used to provide.  Perhaps some moms who are spry enough can cope and reorient themselves to what comes next.  Neither of our moms could do that.

The other big deal is dementia, which is perhaps partly caused by these demands to cope when the capacity to do so is no longer there, though that's only a guess.  The piece talks about one of the benefits of this extension of life is that the adult children can become closer to their moms.  I can't recall whether that happened or not in the early years immediately following my father's passing.  But nothing like that happens now.  When I visit her, my mom doesn't know who I am or, at least, she can't say my name.  Once in a while I do put the back of my hand on her cheek and she smiles.  I hope this is communication of  a sort, but maybe she would smile just the same if a stranger did that.  I don't know.

My hope is that 35+ years from now when my children are in this situation, with respect to my wife (and maybe with respect to me), they will feel less empty about this than I feel now.  And by then maybe society as a whole will have a more sensible approach  on the financial piece of this.  Outliving your seemingly ample retirement savings is not a good thing.

Tuesday, December 13, 2011

Do we still need commercial publishers?

You have to love disruptive technology (and the humans who create disruption by exploiting the technology).  It really forces you to consider what things need to be maintained, the threat of the technology notwithstanding, and the reasons why that is necessary.  Others might not agree with those reasons, pointing out there may be different ways to achieve the same results.  Who knows how it will really play out?

In an Op-Ed in today's NY Times Richard Russo, an author, has an extended rag against, which is squeezing out independent booksellers, using nefarious business practices to hasten the process.  And with that Amazon is supposedly destroying a literary culture that accompanies the world of the independent bookseller.  Russo wants to hold onto this culture.  So he has cast Amazon as the villain.

I want to respond to that piece, both as occasional consumer of books and as an author of sort of economics content as well as an author wannabe of other content.

* * * * *

After my first year in grad school at Northwestern, I started to watch "serious" films on a somewhat regular basis.  Northwestern had a series in the Norris Center Union.  Facets Multimedia provided many excellent alternative films.  There were other outlets as well to indulge this interest once in a while (The Art Institute, The Biograph).  Given this interest, I became a regular reader of Dave Kehr's column in The Reader.  It seemed to me that my tastes in film were remarkably similar to his (and not that similar to Siskel and Ebert, plus I didn't get a TV till my third year in grad school).  Given that, I used Kehr's column to suggest what films I'd see. 

It is different for me with book reviews now, where I mainly read them as things unto themselves, make a little penetration into the subject matter and then move on, and I have less loyalty to any particular reviewer.  And even the reviewers I revere, I read for their writing of the review, not for their recommendation of the book.  My path into books is more eclectic.  For fiction it is sometimes the gift of a friend that determines it.  Likewise for non-fiction that might be work related, it is sometimes the recommendation of a colleague that triggers the reading.  Or, based on something I read previously, and then some serendipitous incident connecting that with a new work, I begin to read that. 

For me these pathways suffice.  I'm someone who likes to discover things by puttering with them on my own.  Even when we had an independent bookseller in Champaign, Pages for All Ages, a store I frequented with some regularity, I didn't use their expertise to identify titles I (or my children) might want to read.  I only asked for help to locate titles I already knew about in their store.

What about somebody else who would like more hand holding?  Do peer networks solve the problem?  I don't know, but just last week a friend from high school asked for book recommendations on her Facebook wall.  So it seems possible, though it could be simply the blind leading the blind, and therefore ultimately not satisfying.

The University Library here as an online chat function called, Ask A Librarian.  I believe that recent budget cuts have forced reduction in the staffing of this service, but it is still up and running.  The Champaign Public Library has a similar functionality.  In neither case do I believe there has been any analysis of whether the service is being run at the right scale.  For example, perhaps all the CIC member universities could offer a single pooled Ask A Librarian service.  Likewise, perhaps local public libraries from around the state could offered such a pooled service for their readers.  Maybe in this manner an effective service that matches the volume of use could be found.

There is a different matter apart from whether such services can be economical.  In the current conception, those who staff the services remain anonymous to the user and therefore the services are not customized to the user's tastes.  Each transaction is treated as novel, a thing unto itself.  There is no reliance on the history of previous such transactions, so no room for the Librarian to offer up recommendations in advance of the solicited request nor any way to tailor the responses to the particular user.  Russo envisions a bookseller who knows his customers.  This bookseller provides a Yente function between the customers and books yet unread by them.  Teachers, perhaps more than Librarians, might perform this Yente function for their students.  (As universities seek to find ways to be of more value to students and alumni perhaps this role will increase.)   Might there be somebody else to perform the Yente function for those who are no longer students nor alumni heavily tied to their Alma Mater?  If there is does the function need to be tied to selling books? 

Let me use those questions as a way to segue into this arena from the author perspective.  I have essentially two different sites for my economics content, even though they have much the same stuff.  One is The Economics Metaphor.  People find this site mainly by regular Google searches.  (For example, do a search on economics production table.)  The other is the ProfArvan channel in YouTube.  People find those videos (and links to related Excel files) mainly from within YouTube, either by referral or search.  I've gotten the occasional question from viewers there (invariably these are students currently taking microeconomics and not from me).  I've been pretty dutiful in responding.  So far I've not gotten multiple comments from the same person on different videos.  But that certainly seems possible.  The queries I do get refer to content I've created.  But it certainly seems possible that if my videos were reviews of other content that I could get queries of the sort meant for a Yente.

Can the author or the Yente make a living by direct marketing their work in this manner?    Note, I'm not asking if authors like Mr. Russo can make as much as they currently make from their book contracts.  I'm asking whether they can make enough to sustain themselves, and thus whether there is a viable model to do this without Amazon and without a commercial publisher as well.

There seem to me three potential models where this might be possible.
  1. Ad supported content.
  2. A "shareware" approach where users are asked for contributions, perhaps with some additional ways of limiting access to IP addresses after a certain number of page views. 
  3. A "serialization" of free content (certain chapters of the book) where the remaining content is sold in the traditional way. 
It also seems possible to mix and match these approaches.  The first two of these assume Web delivery of the content.  The third allows for the preferred format of the reader.  All three would seem to require some middle player between author and audience and thus a potential for the middle player to monopolize, in the manner that Russo takes Amazon to task.  But, for example, if Google is the provider of ads in alternative (1) and if book publishing in this way represents only a sliver of Google's market for ads in Web content more generally, then the fear of them specifically monopolizing book publishing is less.  In other words, this would be a kind of judo approach and thus might be comparatively immune from the monopolization issue.

I should mention a fourth possible model - which you might call the faculty model.  The content is given away for free, in toto.  The author is hired by an academic institution, as a writer in residence.  The writer earns a salary stream, but doesn't get royalties.  The author does other functions, like giving talks or teaching classes.  The author's reputation presumably is related to the volume of traffic that is generated, as well as by how the work is perceived by certain critical reviewers and Yentes.  I note that at places like Illinois the creation of those YouTube videos would not count as scholarly work for promotion and tenure or for salary review, at present.  So there needs to be some thought of whether it should so count. 

I do not bring up the fourth model to make the case that academia should go this route.  (Under the "textbook model" authors of textbooks don't get to count the work for P&T and salary review but do get the royalties from sales of the textbook.  Personally, I believe the academic institution should be flexible enough to reward this type of content creation, but I do recognize there are decades of tradition steeped in the textbook model to overcome in order to reach that outcome.)  Rather I do it because part of the contractual relationship between author and commercial publisher has to do with risk redistribution.  Typically, the publisher bears much if not all of the downside risk.  For doing this, the publisher receives the bulk of the upside risk.  It might seem that in a salary model the institution bears all the risk.  This is not quite right, however.   Faculty who are "hot" commodities can get hired away by other institutions, which puts pressure on the home institution to match the outside offer.  Either way, the faculty member who generates a strong reputation gets to share in the upside.  Those without tenure are all too well aware of the downside.  And even among the tenured faculty, salaries tend to vary directly with productivity.  This to say that the salary model conceivably offers an alternative approach to the traditional publishing model in the way it handles the risk shifting.  The salary model also *may* take money out of the equation for the author on a more consistent basis and thus allow the author to better focus on the creative aspects of the work.

Traditional publishing provides two other functions that I'm aware of that are not directly related to distribution.  The editing function is probably still indispensable, for any work that is apt to get a sufficiently high volume of readers.  If authors became employees, what would happen to editors?  I really don't know.  But I conjecture that function would be maintained in the way that scholarly journals and societies are currently maintained, with an emphasis on institutional membership.  In other words, the editors would be salaried employees, not of individual academic institutions but rather of consortia in which these institutions are members.

The other function is marketing.  The publishers promote their new releases in a variety of ways.  It seems to me that for established authors, much of this cost is pure dissipation.  The word can easily get around anyway.  This is an argument that if there is ever a move to these direct distribution forms of publishing, it should be the established authors who do it first.

Do up and coming authors need the commercial marketing to get over the hump?  Perhaps they do, but that doesn't mean the publishers will be able to identify an up and coming author.  Last year when I attended the Iowa Summer Writing Festival I had a lengthy but preliminary discussion about this with one of my teachers, Carol.  She said it was virtually impossible for somebody like me with no track record of a successful commercial work to get the attention of a real publisher.  I had to market myself first, in so doing prove some viability by demonstrating an audience, and only then might I get a publisher to take a look.  So there is definitely a chicken and egg problem here.  The publishers won't invest at all in the complete unknown.  That's like throwing money down a whole.  And if I'm right that they really don't need to invest in the very well known, that leaves only that gray area in the middle  - the somewhat known but still not a household name.  But there's likely not too much marketing going into that slice either, because the big bucks are in the very well known.  So do the big marketing there, though unnecessary because word of mouth via social networks are sufficient, as a way to justify getting a big cut of the revenues. 

* * * * *

The textbook market also has the peculiarity that while it is college students who purchase the textbooks, in the main they don't have a choice of which textbook to buy.  They are constrained by which textbook the instructor requires.  The choice left to the students is the outlet from which to buy the required book.  In contrast, students who do come to view my videos are treating then as ancillary content that is not tied to their textbook.  It's for this sort of content where direct marketing makes the most sense.  Further if there were revenues to be made by authors for such content, it would demonstrate a type of failure of textbooks or of the instructors that use them. Or it would show that some topics are just plain hard and implicitly students want more coverage of those particular topics.  (Supporting this view, my number one watched video is on Income and Substitution effects, a topic students traditionally find quite difficult.  In the top top 10 watched videos only the video on Isoquants has more than 50% of the views that the Income and Substitution Effects video has.)

So the demand for ancillary material is for very modular content.  Both iTunes and Amazon market modular content - if it's music.   Perhaps one or both of them will preempt the do-it-yourself market in other media.  Until then, however, maybe some do-it-yourself-ers will succeed at making some bucks off of their own created content, making enough to keep them at it for a while.  I'd like to see that happen.  It would make the entire process much more democratic.

Sunday, December 11, 2011

Would fans have been better off if they hadn't got rid of the Reserve Clause?

The immediate thought that triggered this post come from some of my Facebook friends, who are Cardinals fans.  They've been lamenting the Albert Pujols signing with the Angels.  Without explicitly saying it, they've spent much of their lifetimes being loyal to the team, so why doesn't a player like Pujols reciprocate?  By way of comparison, the Yankees resigned Derek Jeter and Mariano Rivera just a year ago.  Those two will retire in pinstripes, no doubt.  So I can empathize, though I view rooting for a National league team a kind of character flaw. 

Of course, one thing leads to another in our thinking.  Star professional athletes are in the top 0.1% in the income distribution.  I don't begrudge what these athletes make, at least not directly.  It's the indirect effects that makes me wonder.  One related thought is that free agency in the player market caused professional sports franchises to me aggressive about generating revenue, and part of that came through raising ticket prices.  When I was a grad student in the late 1970s and as a young faculty member in the early 1980s, I seem to recall that bleacher ticket prices at Wrigley Field were $3.00, sold on a first come first serve basis, and generally available for weekday games.  Take a look at what the pricing is like today.  (Click on the Bleacher Pricing tab.)  For General Admission tickets there is now priority seating.  The lowest priority seats are $17, slightly more, in my estimation, than the inflation adjusted price from 30 years ago.  The highest tier pricing is more than four times that. 

I really don't know whether at the ballpark revenues count for a significant chunk of team earnings or if it is TV commercials that do that. But I've got the feeling that pro sports ticket pricing created a kind of aura that has spilled over to the College game.  Check out Illini Men's Basketball pricing of tickets for single games.   Tomorrow night's game against Coppin State, which definitely will not sell out, has C level ticket prices at $22.  (C level is the basketball analog of the bleachers in baseball.)  For Big Ten games, that might very well sell out, the C level price is $40. 

Would ticket prices have been much more modest today had the reserve clause persisted?  The argument for is that without the pressure from paying for high profile free agents, teams wouldn't have squeezed the fans so much.  The argument against is that income inequality in the larger society and/or Baumol's Cost Disease, would have driven up the ticket prices anyway.  Look at the price of tickets for Broadway shows or for going to the symphony as away to see the argument against.  My guess is that both factors matter and the effects are about equal.

Then think of some of the madness in sports and ask whether getting rid of the reserve clause had any impact on these behaviors.  Would weight training have become as omnipresent?  Would performance enhancing drugs have so infiltrated the big times sports culture?  Today the Ryan Braun story is the lead article on the site.  Given all that has come before, one has to ask:  how can such behavior persist?  The answer, assuming rational economic actors, is that there is such a huge upside for the player if he doesn't get caught.  It's that upside which justifies taking the risk.  Would there be such an upside if we still had the Reserve Clause?

The syllogism is:  money is power;  power corrupts, so....  We are seeing some of this at root now with the absurd realignment of college sports conferences.  Would maintaining the Reserve Clause had weakened the force of this corruption by substantially lessening the money flow? 

At best one can only guess at an alternative history of sport.  So I intend this piece as enlightened speculation, nothing more.  It is an argument that fettered markets may very well be better than the alternative.  I wonder how many other fans would agree.

Friday, December 09, 2011

Blame it on Women's Lib

America spends more per child on schooling yet gets nowhere near the results of its main competitors.  One of the big reasons why is that in the U.S. teaching is a low status profession with comparatively low wages. 

I believe that my generation was the last to have gotten really excellent teachers on a consistent basis in primary and secondary education.  I went to P.S. 203, a new school at the time, starting in second grade.  I can't recall my second grade teacher (thought maybe it was Mrs. Jacobs).   From third to sixth grade my teachers were Mrs. Minsley, Miss Siepe, Mrs. Stone, and Mr. Sachar.  I recall in third grade Mrs. Minsley having to absorb additional students - our class swelled to something like 42.  While my memory (and student perspective) on this is failing me now, I believe the unusual step was taken to have those students who were skipping 3rd grade to be in that classroom for part of the year.  That year my mom (who is still alive) was recovering from breast cancer.  Somehow, that made me star in the class play as the Sheriff of Hokum County in Bandit Ben Rides Again.  Mrs. Minsley managed it all.  Mrs. Stone was a family friend.  I recall it strange when she and her husband came over to the house, being in her class.  At school she drilled us hard in the multiplication table.  I am grateful for that, even now, though I might not have been too happy about it at the time.  In case the point isn't obvious, most of the teachers were women.  It was unusual to have a male teacher in grade school.   Further, with the exception of Miss Siepe who got married sometime around then, most of them were very experienced.  Teaching was their profession, not just a stopover till they started a family. 

I haven't kept track of my contemporaries in any significant way, but I don't know anyone who became a teacher in grade school.  Several became college professors. So it's not teaching per se that was taboo.  Many of my contemporaries were encouraged to be either doctors or lawyers - enter a profession that offered a good and stable income. 

So people my age who went to public school have a form of cognitive dissonance.  Their education served them well, but they made careers for themselves elsewhere.  They can't understand.  If the system worked then, why doesn't it work now?  

When I taught an honors seminar in fall 2009 I had one student, male, who wanted to become a math teacher.  He grew up in Chicago, not the suburbs.  That was unusual in itself.  I think his dad was a policeman, but on that I'm not sure.  He was a very balanced kid, with high aspirations like the rest of them, but also quite easy going.   One or two other kids were thinking of teaching for a while a la Teach for America, but that was as a stopover, not a career.

If we are really to mend the system the way this article suggests, there are a lot of cultural changes that would need to take place.  I'm skeptical that we can do this.  But we should try.

Wednesday, December 07, 2011

Innovations and Snake Oil

The passing of Steve Jobs has occasioned a lot of reflection about innovation in America and around the globe, what it looks like when it works well, and those aspects of the environment that have made society fertile for such development.  To see where we are as part of an ongoing trajectory, it is useful to reconsider innovations from the past.

Getting on the bandwagon, I've got a bit of this in this PowerPoint Presentation uploaded to Google Docs.  (Either download the PowerPoint file at the link or go to the Actions menu at the bottom of the screen and create a copy.  Then go the View menu and click Show Speaker Notes.)  It starts on slide 15:  The Music Industry - A Selected History.  Actually, the title is something of a misomer, since the focus is not on the music itself but rather on how recorded audio content gets distributed and how people listen to that.  There is also the issue of how people become aware of new content to purchase. There was much technical innovation in the 50 years that the mini presentation covers (starting at the time of Elvis with record players and 45 rpm discs and ending with the iPod and the iTunes Music Store).  The upshot of the presentation is to show that what came next was dependent on many predecessors in conception as it improved on that legacy, enhancing the user experience, and with the iPod in particular, saving an industry that many thought was permanently disrupted.

One might hope that all sectors of the economy proceed over time in this manner, where successive innovation leads to triumph of one sort or another, even if there is disruption and substantial stress from time to time as social issues seem to swamp technical progress or entirely retard it, on the one hand, or when drastic innovation creates a new set of social issues, on the other.  The crises notwithstanding, we have faith that well thought through innovation will triumph.  For example, read Dr. Berwick's Pink Slip, a tribute about the recent head of the Centers for Medicare and Medicaid Services, a recess appointment by President Obama.  Berwick just stepped down because his 18 months were up.  He accomplished a lot in that short period, applying W. Edwards Deming techniques of continuous quality improvement and cost reduction to the delivery of health care.
Health insurers and hospitals, who had generally thought of Medicare as little more than a stodgy, bureaucratic insurer, began to see it in a different light as well, as Medicare staffers, trained as “improvement coaches,” began to share ideas and push for simple, sensible steps that would, for instance, keep people with chronic medical problems from having to be constantly readmitted to the hospital.
It makes you want to believe in the art of the possible. One wonders whether it is only a matter of the will to do so. 

And yet such belief may be our undoing.  Read this moving, full of disillusionment piece, Why School Choice Fails, written by someone from a majority-black community in Washington DC. The piece personalizes the arguments that Diane Ravitch made in The Death and Life of the Great American School System.  Then consider much of for-profit education.  It is growing rapidly, much of it online.  There appear to be the makings of a bubble.  Read this piece, Virtually Educated, about for-profit education in K12, or this longer piece on the same subject, How Online Learning Companies Bought America's Schools.  It has the feel of the subprime loan market of the early 2000s.  It seems to be a way to make a quick buck off of public funds.  Innovation here is used as a cover, while underfoot is the old shell game, peddling snake oil.

Capitalism seems capable of producing both.  There are examples of of successive innovation in a sector, seemingly as reliable as Moore's Law.  Yet there are other examples of markets that are apt to implode in the near future, as a result of all the chicanery that has occurred heretofore.  I would argue, however, that we're seeing a lot more of the snake oil selling than we used to.  Let's say for the moment that's true.  The question is why.  Is real innovation that much harder to achieve now?  Are opportunities to rip off other people increasingly present?  Have our social mores weakened? 

I am particularly interested in what seems all to common to me - selling snake oil to ourselves.  In this well worthwhile video (it is long, 90 minutes), Joe Nocera reports that he talks regularly with Jamie Dimon, Lloyd Blankfein, and other leaders of the major investment houses, and based on those conversations they are in complete denial about their culpability for the financial crisis.  Students who want good grades, irrespective of whether they've learned the subject matter, are eerily similar in their denial.  I too do something likewise - the diet will start tomorrow.

Was it always such or have things changed of late?  Perhaps we need to talk more about attempts at innovation that end up stuck in the mud, or about alpha tests that produce less than promising results.  You can't sell snake oil unless somebody else wants to buy it. 

Monday, December 05, 2011

After further review...

...the play on the field stands.

This is a sour grapes post about the Giants-Packers game.   It was entertaining and the outcome was in doubt till the end, so it was good viewing.  And this is the third week in a row where I got to watch the Giants on TV.   Before that I was complaining that they are never on in, here in the Midwest.  So I should count my lucky stars.   Of those games, this is the first one I watched in full, except for the first touchdown by the Giants.  Fox thought it necessary to show the end of the Denver game.  I suppose Tim Tebow is an interesting story line, but the schedule had the Giants game starting at 3:15.  They did show that first score on replay, somewhere during the first half.

After watching for a while, I had the feeling the refs were in the Packers pocket. It seemed as if all the calls went their way.  Tom Coughlin threw the flag twice.  Both times, the refs ruled the play stands.  Actually, on those I think Coughlin was wrong, but it set the tone for later.  It turns out that they review all scoring plays, without the coaches having to ask for that.  On one of the Packers' scores, the receiver juggled the ball the entire way through the endzone and then dropped it, without ever having possession.  That wasn't just my opinion.  The announcers said the same thing.  Then they went to commercial.  When they came back, they were saying the receiver had control of the ball for a moment with his left hand.  The play on the field stands.  But the receiver never had control.

The Giants pass rush was pretty effective.  They sacked Rodgers three times.  It really should have been four times.  The Giants got to Rodgers for a big loss on third down.  The Packers has something like 70% efficiency on third down, so this was a bid deal play.  But a penalty was called on the Giants - contact with the receiver beyond 5 yards of the scrimmage line.  This was an incredibly ticky-tack penalty, just a light bump, and entirely unrelated to the play.  The announcers noted that on the next play there was more contact, but nothing called.

The Packers are the better team.  They dropped several passes on perfectly thrown balls. That helped keep it close.  But you change the two plays I discussed and the Giants win this game.

The Giants play Dallas next week.  That game will probably determine which team makes the playoffs.  I wonder if they'll show it here.

Saturday, December 03, 2011

Observations on PowerPoint Compatible Online Presentation Software...

...and some work arounds.

I am teaching a new course this spring - the economics of organizations.  It is intended as an upper level undergraduate class.  In trying to think through what I'd do for the class and how to approach it pedagogically, I thought of the debrief I had with students at the conclusion of a behavioral economics class I taught last spring.  One comment that stuck with me, several students echoed the thought, was that they wanted me to lecture more.  In the second half of the course I had students do team presentations and that took a good chunk of time.  They wanted me to present instead.

There is a related idea that we didn't discuss in that debrief.  The issue is whether to attempt Socratic dialog with the students, with a lively audience it is a style I prefer, or if instead do straight presentation, with only a few minutes for questions at the end.  When I tried Socratic dialog in the behavioral class, I would get the following.  After I posed a question several students would raise their hand.  I'd call on one of those, then another, and another, etc.  Each student would venture their own opinion, but no student seemed to react to what other students had said previously.  The effect was not so much Socratic dialog as it was a type of on the spot polling. While once in a while I did want that, mostly I didn't.  Yet my instinct is to call on a student if their hand is raised.  But I really do want flow to the discussion and this practice wasn't promoting flow.  So this time around I'm considering straight presentation.  And if one does that, there has to be something on the screen to complement the talk, doesn't there?

I've not done a straight presentation like this for a while, and I got to thinking what I'd like to do.  It also occurred to me that last year I had a lot of churn in the class enrollment during the first two weeks of the semester.  It would be good for those who add the class in the second week to be able to catch by going through the presentation materials on their own.  So I finally settled on an approach that does PowerPoint slides in the spirit of the Lessig Method, and then uses the speaker notes part of the PowerPoint for longish text descriptions of what is going on.

In the slide area itself there would be a title - I think that is useful in navigation - but then mostly images.  Once in a while I'd write a sentence or two as summary of what was done on previous slides.  I'd take the images from the Internet and link back to the source.  This is a way to show attribution and also allows those who are curious to learn more about the particular subject with which the image is concerned. 

I wanted delivery for the face to face class session that I will lead as well as for asynchronous access by students, both those at the live session and those who missed it.  And then it occurred to me that perhaps this is not a bad way to have students make a presentation as an alternative to a term paper.  I still haven't decided whether I'll do that or not, but I do like the general idea that the instructor models for the students activities that the students ultimately perform.  So in considering tools that might be employed I opted for ones students would have ready access to as well, meaning they are freely available, other than PowerPoint itself.

Regarding logistics, I used to have a good feel for that and had ready answers for the time.  I no longer do.  But I do have the questions I believe should be addressed.  So I will list those below.
  • Does it matter if the presentation is only available for download?  Does online delivery of the document afford advantages in and of itself?
  • Do the students have PowerPoint or compatible software on their own computers?  
  • If students are taking notes on the presentation, do they care whether the notes are bundled with the presentation itself?  
  • Do the students use a Tablet as their primary mode of accessing this type of content?  
Depending upon how you answer these questions, there are either several solutions that work well or none whatsoever.   I should also note that I have an original iPad but I don't have Keynote on it.  I'm a cheapskate now so I probably won't get it.  But I'd like to know how it works as a possible solution.  Even if Tablet delivery is an issue now, we should be forward thinking about what will be possible in the near future.

With that I tried the following:
  1. SCRIBD,
  2. Converting the PowerPoint with speaker notes to Word (and then to PDF),
  3., and
  4. Google Presentation.  
I will try to briefly describe the experience with each, making judgments along the way based entirely on my goals with the presentation.  Where I'm negative, it is because my goals can't be met with the tool.  That doesn't mean the tool is not very functional in other respects.

SCRIBD - the slides come in fine and look good.  The speaker notes don't seem to come in at all or, at the least, I couldn't figure out how to do that.  It does allow download of the original PowerPoint file.  So this tool wasn't suitable for online viewing, but might be used as an archive of the file for download.

Converting PowerPoint with speaker notes to Word - The conversion makes the slide into an image, with text below the image.  The links that were in the slide are lost this way.  As a last resort a pdf version might be needed if students are to view on a Tablet, but otherwise this is not the way to go. - accepts both .ppt and .pptx formats for upload.  That's a plus.  It maintains links in images.  That's another plus.  And there is a tab for the speaker notes that are below the presentation.  That's also good.  There are ads.  That's a minus.  And though comments are allowed, those are meant for the entire presentation.  So they can't be used the way students would want, for note taking.   A peculiarity I experienced with slideshare is that while the presentation would work fine in Chrome, the navigation buttons were missing in Firefox.  A work around to this is to convert the presentation to slidecast, as is done for this presentation.  In a slidecast, an audio file is synced with the presentation.  This can be done with either voice or music files in mp3.  The former are accepted for upload into slideshare.  That latter must come from elsewhere on the Internet.  In this case I used a Chopin Mazurka in C# Minor available at  When in slidecast mode there is a play button for the entire presentation in the center and there are buttons for advancing the slide or going back.  Those buttons do show up in Firefox.  Alas, the speaker notes don't advance with the slides in slidecast mode.  The speaker notes do advance when using the slide advance button. is a flash based product.  It doesn't work on the iPad.

Google Presentation - Google didn't like the .pptx file I uploaded but it would take a .ppt version fine.  Here I'm speaking about converting the file to Google presentation.  One can upload any format and leave it that way without converting, using Google simply as an archive.  Google presentation doesn't allow links for images (why not?) so if you want those links you need to put a text box below the image and then link the text.  I found this mildly annoying but if you know you are going to use this it's not a terrible work around.   One feature of Google Docs that I really like is the ability to make the url available to all but otherwise not listed, so people won't stumble on it.  In this particular case the issue is making a Fair Use argument for utilizing the images that are in the presentation. The case is stronger if the presentation isn't generally available.   The presentation mode that users access is not good enough, in my view.  However, using the Actions menu at the bottom of the screen, users with a Google docs account of their own can create a copy of the presentation for themselves.  You can try that with this presentation. With a presentation of their own, users can access the speaker notes, via the View menu.  Speaker notes show up on the right, instead of below the presentation.  I prefer below, but what Google does is adequate, though the user cannot adjust the width of the notes window.  Users can also download the original .ppt file.  Google Presentation doesn't appear to have a comment function (though Documents and Spreadsheets do).  I don't understand this as regular PowerPoint has a comment function under the Review tab.  But students can take notes by marking up the slides themselves in the copy of the presentation, say by using a different font color.  They can also do this in the speaker notes area.

It is hard to tell the future trajectory of these products, but if I were guessing I'd expect to expire in a few years, the issue with the controls in Firefox an indicator that it is not keeping up with new versions of the browser.  I don't really understand whether Flash itself now has a limited lifetime but if so probably won't survive.  I would like to see competitors with Google, simply because I don't like the thought of being too dependent on any one company.  (This is quite distinct from the privacy concern that some have articulated about using Google products.)  So I'd like to see SCRIBD become more fully functional, closer in nature to the original PowerPoint itself.  And if there isn't the copyright concern, then I'd like to see us make content publicly available and discoverable.  The latter means search engines do need to find the content.  They clearly won't if the content is a file.  Web delivery is certainly a plus there.

Regarding this latter functionality, it would be nice if the tools gave each slide it's own url (anchor) built off the url for the entire presentation.   Then referrals could point to a particular slide.  That would be much more powerful.

Monday, November 28, 2011

A view from the ten percent but not the one percent

I liked Bill Keller's column today, a snip of which is below.  There is a sort of Gresham's Law for economists in the Internet era.  The bad drives out the good.  It's definitely true and an important point.

Yet paying attention only to the good economists is not enough.  There are questions about the economic morass that economists normally don't dwell on too much.  One is about fairness.  Another is about obligation.  Should we take Thoreau as a model?   When we consult our consciences they may suggest that is the right path.  But truthfully, if I can use myself as a case in point, I don't want to live in the woods and I don't think I'm capable of that. 

Even with that admission, however, there's probably a lot more my family can do without, some of which we pay for directly out of our pockets.  So I, for one, wouldn't mind if the Bush tax cuts expire for people in my tax bracket.  Our marginal rate is 28%.  If it were the year 2000 regarding tax brackets for everyone, but our income was as it is in 2011, our marginal rate would be 36%.  We would need to adjust to that, but we  could.  (I did a quick calculation of the difference in tax owed under this scenario assuming an AGI of $180,000.  I don't know what our AGI is, but I'm guessing we're in that ballpark.  In that calculation the taxes increase by almost $7,000.) 

I had thought that if there were enough like-minded people at around the same level of income that making that known would shame those at higher income levels to also be willing to contribute that much more.  I still wish that to be true.  It is why there is this Facebook group, For a More Compassionate and Saner America.  But that group didn't grow like weeds, as I originally hoped.  Occupy Wall Street has been infinitely better at capturing people's attention and raising the issues of unfairness and income inequality in our society.

So in this post I would like to show solidarity with that movement.  And beyond that I'd like to suggest resolution of the big economic issues, as they make sense to me, where the economic issues are tied to the ethical issues, the increase in the income tax for people who can afford it an example of what I have in mind.  

Debt Forgiveness

The Right is captivated by the magnitude of the National Debt and the fear that it will bury us, or bury our children, or bury our children's children.  There is some basis for that fear, but not in the way it is depicted by the Right.  However, there is another problem that has been well aired over the last several months, which we in the ten percent can do something about more immediately. This regards privately held debt, particularly with respect to housing and in student loans.  Some fraction of the principal needs to be absorbed by the taxpayer, as long as the loan satisfies certain criteria.  The economist Ken Rogoff has recommended a general inflation to address the problem  (inflation reduces the value of the debt in real terms), because he doesn't believe a more direct solution is politically feasible.  We should go for that direct solution and recognize that those who can fund it will shoulder a good chunk of the burden.

In the case of housing, the criteria should include: fraction that the house is under water, number of periods that the mortgage has been delinquent, past and current income of the debtor.  The most troubled loans, those nearest to foreclosure, should be targeted first, provided the occupants do have a decent source of income.  The aim of the program is that after forgiveness and a refinancing of the mortgage to current low rates, the occupants should be able to stay in the home and make future payments.  It makes no sense to forgive debt only to then have subsequent default, as I wrote here

In many cases the income requirement won't be met.  What then? There has been a fair amount of discussion that many of these current borrowers should in the future become renters and leave the issue of paying off the mortgage to the landlord.  I would like to see the arithmetic on this regarding how the likely rents compare to current mortgage payments.  And I would like to know: what will keep the rents modest over time?  So I have my doubts that a move to a rental model alone solves the problem.  Maybe it does, but I'd like to see the analysis.  At the link I provided there is an analysis from the perspective of investors who purchase underwater mortgages and convert those units to rental properties. We need an analysis from the perspective of the current occupants.

I should point out here that this is why a jobs program is so important.  The jobs issue and the housing debt issue are tied at the hip.  It's why I can't understand not attempting a latter day version of  the WPA.  In turn, there seems to be some consensus for a Federal Investment Bank, which would oversee and provide financing for such projects.   Sure, making private sector jobs would be a good thing.  But, clearly, that's not happening fast enough.  Let's make public sector jobs in the meantime, as many as we can, and keep doing so till until the economy recovers. 

It also needs to be admitted, up front, that a debt forgiveness program will not preclude foreclosures entirely.  That shouldn't be the aim of such a program.  Rather the aim should be twofold.  First, the goal is to keep as many current occupants in their home as is possible.  Second, troubled assets on bank balance sheets need to be resolved.  In some cases the resolution will be by some forgiveness financed by taxpayers and new smaller loans replacing the trouble loans that should be healthy.  In other cases there will be foreclosure and mortgage holders will have to write down the value of those assets.  Clearing up the bank balance sheets should loosen credit for small business and those seeking mortgages in the future.  The tightness of the credit market for such borrowers has been a major impediment to economic growth. 

Turning to students loans, for those covering tuition and fees at accredited not-for-profit institutions, a partial forgiveness program is in order.  The program should be targeted at students of modest income and, if below age 26, those whose parents are also of modest income. This would be a near term solution to the hyperinflation in tuition issue that as a result means high quality education is no longer accessible by students of modest means.  It would serve as a prelude to a longer term solution, that needs to keep costs in check while keeping quality of education high, at least for qualified students of modest income.  As health care reform was the target of the first Obama administration, higher education reform surely will be the target of future administrations. There is not a quick and dirty solution to this.  Elsewhere I suggested that a salary cap system might be in order.  But nobody else seems to be talking about that so it is not in the offing.

Loans should not be forgiven at all for people who could have self-financed their education but took the loans simply because payments could be deferred till after graduation.  So the means testing on such a program is important.

A different but related issue regards predatory practices of some for-profit higher education institutions that admit unqualified students who are eligible for federally sponsored student loans and grants.  There is a piece in Wednesday's Chronicle of Higher Education on the issue.  That piece refers to this GAO report.  Even if the students are the victims of these predatory practices, having their hopes raised only to eventually drop out or get a diploma mill degree that has no value on the job market, loan forgiveness is not the right solution here.  That would be like pouring fuel on a fire.  Better to go after these institutions hard, force them to pay heavy fines and/or rebate tuition they have already received. The predation needs to come to an end.  As much as we might feel sympathy for the victims, our remedies should not prolong the problem.

Entitlement Reform

There are two distinct issues at root that need to be addressed.  The first is the increase in life expectancy, especially for those who've done white collar work.  This means that current beneficiaries receive their benefits over a longer period of time than beneficiaries 70 years ago.  The system needs to be recalibrated as a consequence.  The second is that there is confusion on whether the primary purpose of these programs is as insurance against low income when people retire or if it is meant as a payback for contributions made while working, irrespective of the person's income.  There is a third concern that is more of an accounting matter, but I raise it here because it has influenced discussion of the programs in the political arena.  The issue is whether each program must balance receipts and expenditures or if balance needs to happen only overall, i.e., a balanced federal budget but where individual programs may run surplus or be in deficit.

Social Security and Medicare are actually quite different on these fronts.  Social Security is near to in balance and does act like an income insurance program.  Depending on when the individual retires, there is an income limit where if income exceeds the limit social security benefits are reduced on a fractional basis for each additional dollar earned.  This is precisely how an income insurance program should work.

There are three possible controls to adjust in the recalibration process on Social Security.  (I'm assuming no adjustments are made to benefits.)  First is the tax rate; second is the maximum income subject to taxation; and third is the retirement age.  Because of the income insurance aspect of Social Security, if you work sufficiently while above the retirement age, you will receive no Social Security benefit. For this reason I favor leaving the retirement age as is, with the following caveat.  The applicable income limit currently applies to wage income.  Dividends and capital gains are not included in the calculation.  They should be.

The Social Security tax is a flat tax - up to the limit.  The rate applies to employees and then again to employers.  Self-employed individuals pay both the employee and employer shares.   Raising the rates would put a hardship on lower income earners.  That is a bad idea.

A better adjustment, in my view, would be to raise the income limit rather substantially.  If high income earners do live longer, they should contribute more.  This type of adjustment would do that.  It also is in accord with the idea that those who can afford it do pay more in taxes to help out those who are less well to do.  So this is also a matter of fairness.

Medicare is a different animal, in large part because while working most people get their health insurance through their employer.  Not discussed very often, but something that is frightening about Republican proposals on Medicare reform, particularly the Ryan proposal, is that both employer provided health care and Medicare as it is currently constituted is not experience rated according to the health history of the insured.  Premiums that are collected from employers as well as the employee contribution are tied only to the average health risk of all those insured.  Likewise, this is true for Medicare.  Contributions depend on income, but not on health history.

A private market, however, will price health insurance based on perceived risk, and the individual's health history clearly matters for this.  This makes health insurance unaffordable for those who've been in bad health.  It is why single payer, something we should have but don't, is preferred. One of the unfortunate aspects about the political rhetoric in the time immediately before the Affordable Care Act was enacted, is this Market for Lemons aspect of health insurance was not brought to light.  Alas, we won't have single payer and in what I write in the next few paragraphs, I assume single payer is not possible to address the issues.

Medicare is much more out of balance than Social Security.  With Medicare, the hyperinflation of health care costs exacerbates the issues created by longer life expectancy.  So much of the solution will rest on controlling health care expenditure, particularly near end of life.  It will also be about controlling income of health care service providers.  Both of those issues have been discussed elsewhere, so I won't repeat that discussion here.  Instead I will discuss something that hasn't gotten any attention but should.  The revenues needed to support Medicare are inadequate.  Those revenues need to be enhanced.

Unlike Social Security, there is no income limit on the Medicare component of FICA.  But the Medicare tax rate is less than one quarter of the Social Security tax rate.  Either Medicare rates must go up or additional taxes must be raised for Medicare from a different source.  The question is how to do this without over burdening people with modest incomes. 

I favor two different ideas to address the the revenue shortfall issue.  First, working people who do get employer provided health insurance, even if they make a direct contribution to that heath insurance, should be required to treat the employer contribution as income for tax purposes and pay income taxes on it that are returned to the Medicare trust fund. There are several reasons for this.  Employees may be less than fully aware even of their own contribution to health insurance because that is something that is withheld from their paycheck at first.  They never receive the income and don't explicitly write a check to cover their own contribution.  Employees have no obvious way of learning the magnitude of the employer contribution.  One clear way to do this would be to have that amount reported on W-2 forms.  Further, employees would become sensitized to the full cost of their health insurance, by paying income taxes on the employer contribution.  Then there is the fact that currently the Medicare tax is a flat tax, but this way the employer contribution would be taxed differently depending on the individual's marginal tax bracket.  This idea will raise eyebrows.  It may seem like a step back from the social contract.  But given the imbalance, it is necessary.

Second, historically there has been a separation between payroll taxes and income taxes, with only the former used to finance Medicare.  The first idea is beginning to eliminate that separation.  It is not sufficient in itself.  The second idea is to further use the income tax to help finance Medicare, perhaps raising marginal tax rates beyond the Clinton rates, if necessary.  In this way adequate revenue can be raised to pay for Medicare.  It also means, in particular, that senior citizens who generate sizable income will continue to pay for Medicare, well after they have "retired."  It may mean that we stop using the word "entitlement,"  which I believe has taken on a pernicious connotation, as if there is a right to health care without having to pay for it.  In our society as a whole, we have to own up to the fact that the benefits need to be paid for.

Means Testing

There are three points I'd like to make here.  First, the extended family needs to provide some self-insurance for family members.  An example, currently being discussed, is that many college grads who have been unable to find a job have gone back home to live with mom and dad.  As a partial explanation for why the economy is not growing faster, this is of course bad news.  The demand for housing, in particular, is less as a consequence.  But from a social insurance perspective, this is very good news.  When things are bad family members should take care of each other, if they can.  This means that when government benefits are means tested it is really income of the extended family that should be measured.  When one generation is well to do while another is not, the source of social insurance should be from within the extended family, not from the government.

Second, there needs to be self-insurance by individuals done over time.  The traditional vehicle for doing this is via personal savings.  The low saving rate in our society makes people particularly vulnerable to hard luck.   A higher saving rate should be encouraged.  One way to do this would be to instead of using current income only as a measure of means, use a 5-year moving average of income as a preferred measure, as I suggested here.  When incomes are rising, this means the person's taxes rise less quickly than income, so there is an ability to save the residual.  It also means, however, when incomes are falling the person is on the hook for obligations and can anticipate that, even as income falls.  This provides a motive for the precautionary savings.

Third, means testing may very well become a two-sided concept in the future, where if income inequality persists to the extent it does now, then those above a certain income threshold find themselves facing an imposed obligation that the rest of us don't face.  This obligation would be something like a charitable contribution, but with the difference that the giver doesn't get to specify the use.   Here I'm thinking in particular of funding public schools, where the property tax mechanism almost guarantees there won't be decent schools for all, so that too many low income students are denied a decent education.  This fact itself is eroding the notion we call the American Dream.  Why have this sort of means testing rather than make the income tax system more progressive?  The answer is that the current arrangement has tax collection severed from how tax revenues are spent, with Congress responsible for the latter.  There are very few of us who believe Congress has acted responsibility with respect to its spending authority.  And the current process is fraught with problems due to lobbying, so the rich get to manipulate how tax revenues are spent for their own benefit.  The proposed solution then is to carve out some areas of spending, public education is a very good place to start, and obligate those who are above the income threshold to help make the system better and more equal.


I would like to see more mainstream economists make their policy recommendation based on a mixture of economics orthodoxy and ethical considerations.  Whether left or right, I believe this would bring us closer to consensus on what we should be doing.  There is a tendency for economists to eschew the ethical issues - that's not their department.  The biggest lesson we can learn from Occupy Wall Street is that we must deal with the ethical issues squarely, as we look for economic solutions.

Saturday, November 19, 2011

Math as a gateway to creativity

The operative questions in this post are two.  First, can we teach all students math in the way we teach elite students math?  Second, if we can, why don't we?

Math can be about intuition and the spark from an idea that has potential.  Math can also be drudge, slugging through a lot of notation that is not enlightening, perhaps learning algorithmic procedures with no other motivation to do so other than that it will be on the test.  One might think there is a clear division between the two, though I believe otherwise.  While on occasion results may appear immediately to the bright student, verification is a staged procedure and one needs to work through the steps.  More often, even the bright student discovers the result only after working through several preliminary results.  The intuition is at hand at the beginning, to suggest this is a good path to try.  Or the intuition may appear only after some faulty alternatives have been attempted.  Elite students learn this linking between spark and process and develop intellectual confidence this way.  If it is well learned it becomes enjoyable to do and the student wants to continue to employ the approach even in non-math pursuits.  One reason I like to write blog posts is that the exploration of ideas that appear as I compose, Donald Murray calls it writing to learn, feels like working a math problem, as does the pre-writing I do before getting to the keyboard. 

In the nature/nurture debate about what drives individual performance, I don't want to rule out the nature component entirely, but here I do want to focus on the nurture bits.  I was an elite math student and I will use my recollections to illustrate, both how that came about and the advantages that education conferred.  Much of this happened outside of regular math classes, either in entirely social situations or in academic situations that were available only to elite students.

The earliest memories are from grade school and I have two distinct ones that come to mind.  Students who bought the hot lunch ate in the cafeteria.  Students who brought their lunch ate in the auditorium.  I don't recall which grade this was but I sat together with a few classmates in the auditorium and one of them would quiz the rest of us as follows.  x plus y equals some number.  x minus y equals some other (smaller) number.  What are x and y?  We did these for the fun of it only, at least as far as I could tell.  And I was definitely a follower here.  I don't remember what got me to sit with these boys, nor what drove the leader to ask these questions.  But what is obvious to me now is that this social interaction was early preparation for algebra, which I take makes for a stumbling block for many kids.  For me it was a breeze.

The other memory is of my sister getting tutoring at home.  She is five years older than I am and so was many grades ahead of me.  The way our house was set up, the logical place for the tutoring session was in the dining room, which we otherwise didn't use too often.  Sometimes I would sit in the living room and listen to the tutoring.  For a while this was science tutoring.  Later it was math tutoring done by a different tutor.  I don't remember specific math I picked up this way, but it was again early exposure to things I would see later. 

Perhaps the bigger deal is that the math tutor was Mrs. Joffe, who would become my eighth grade math teacher.  When I was in her class she remembered me from earlier and was insightful enough and kind enough to suggest I join the math team.  I wouldn't have done this on my own.  At the time I thought of myself as a social studies guy.  (My dad was a lawyer.)  The school had some current events magazine that I did join myself as an extracurricular activity. Some of the other kids on the math team had done it in seventh grade too (and I recall them eventually going to Bronx High School of Science, even though it was a schlep from where we lived in Bayside).

The math team was a world unto itself, with a culture of its own and a linkage to people who were a year ahead of me in school.  (My school was converting from a junior high school to an intermediate school.  So I graduated from there after eighth grade.  The other school we had our math meets with was still a junior high school at the time.)  This exposure to bright kids a year ahead indirectly is like getting a big gold star.  It really conveys a sense that you belong there and creates an expectation that you should follow a similar path to what these people were doing.  Also, the math team established for me a connection between doing math and playing chess, which would become important in high school. 

I next did math team in eleventh grade, with the coach my ninth grade math teacher, Mr. Conrad.  Ultimately, I took two other classes from him, analytic geometry and trig, which most college bound students take, and math team workshop, a specialty class aimed at preparing us for the competitions and for working exotic problems.  Near the end of one marking period, I recall playing him a game of Twixt for my course grade in the math team workshop.  I'd get a 90 if I won but only a 75 if I lost.  Not that long ago I found this Math League Web site.  My teacher was one of the co-founders of Math League.  So I contacted him via that site and asked if he recalled the Twixt game.  He did and said he didn't pull any punches in playing me.  He was a tournament bridge player and quite competitive about these sort of games.  By the way, I did get a 90 in the class.

Prior to and during math team there was another activity that was similar, but not done in a timed way, called the Problem of the Week.  A non-typical algebra or geometry problem was posted on the bulletin board outside the Math Department office.  Students were invited to submit their proposed solution.  This was done for the fun of it, not for the credential.  Doing these, in my view, is similar to working a very hard Sudoku.  The procedure to solve the problem is not automatic.  One has to discover it.  My favorite one of these that I recall is the modified donkey theorem.  Two triangles are congruent if angle, side, side, equals angle, side, side as long as angle is the largest angle of the triangle.

How does one go about proving such a result?  There is a trick, of sorts.   Someone on the math team is apt to figure this out on his own but many other students would not, because it simply wouldn't occur to them to do this.  The trick is to draw the triangles adjacent and sharing a common side (one of the sides that are equal).  It turns out that using the side that is opposite that largest angle is what you want.  That's not a full construction, but it is enough that a bright student should be able to figure out the rest.  I've written a chapter of my book Guessing Games entitled Guessing in Math that argues students should be taught to work such problems.  Many people should be able to do so.  Alas, those who see math only as a drudge would view such a goal as outside their capabilities or as a painful thing to do, rather than a reward in itself, which it rightfully is.

I suppose many people hit a wall with math.  They find themselves in a class that seems over their head and don't feel comfortable about working through their difficulties, with no confidence that they can put in sufficient effort to overcome their lack of understanding.  I first experienced this sort of thing at the HCCSIM, the Hampshire College summer program in math.  I was a member of their very first cohort, forty years ago.   I took a class in number theory/abstract algebra done in an intuitive way sans textbook.  The program was for six weeks.  For the first two weeks or so I was doing fine in this class and keeping up with the daily homework.  But by week three I started to find it difficult and didn't know what to do about it, so floundered thereafter.  I don't believe I was alone in this.  There were three or 4 geniuses in the class and a few others who were keeping up even at the end, but the rest of us were not treading water.  During the last two weeks of the program I took a class on probability, which was more do-able. 

Looking back at the time I think there were two things going on that explain the trouble.  First, abstract algebra for me was not as much fun as geometry, because with the algebra I didn't yet have the mental equivalent of drawing pictures, so we were taught some structure without much intuition.  There was some intuition - doing arithmetic modulo a prime number gives an example of a non-ordered field - but in other cases there wasn't.  I don't know if I first heard this at Hampshire or only later in college taking abstract algebra, but there was encouragement to not rely on the examples because they might include features that don't generalize.  That proved hard for me.  I wanted the examples.  Previously I had found most math fairly immediate.  This was the first instance where I didn't.

The other thing was how the day was scheduled and not putting in enough time to make up for my shortcomings.  Mornings were filled with class.  In the afternoon you could do your homework.  But it was good to get some physical activity and I often played tennis in the afternoon and there was a very popular volleyball game after dinner.  Later in college I learned that figuring things out takes as long as it takes.  Sometimes that can be quite a while.  Hitting a wall may make you less inclined to put in the time, though I think in my case then I simply didn't understand it was necessary.

Nonetheless there were some very large positives from the Hampshire experience.  It gave a much better sense of what would be next academically, much more so than high school ever could.  One of my college roommates at MIT, Neil, also was in the Hampshire program.  (Our other roommate was from Jamaica High School, where my mother taught; she introduced us.)  It's much easier going away to college already knowing some people there before you start.

Each of us had some math inclination.  We took a few classes together.  MIT at the time offered some special topics courses for freshmen that were for half the credit of a regular course.  We took one on Calculus Theory, taught by A.P. Mattuck, which developed our intuitions about infinite series. At the start of this class Neil was ahead of me in figuring out things.  I believe that by the end of the course I had caught up.  It was the first time taking a class where I was aware of my own growth in understanding things at a deeper level, the first class where my intuition noticeably improved.  We took another course from Mattuck the next semester - linear differential equations.  This is Mattuck 33 years later giving the first lecture in the regular differential equations class.  He was a wonderful and dedicated teacher.

I started to have some emotional problems sophomore year and in the math classes I took then - abstract algebra and analysis - I found myself in a situation similar to what I had experienced in Hampshire.  I had a strong feeling of needing to get into a different environment, one where there was more diversity of interest.  At MIT I was too much like everyone else.  I ended up transferring to Cornell for the second semester.  I still was a math major there, but math occupied a smaller part of my life.

I did eventually did learn how to break through the wall in a topology class taught by George Cooke.  One factor in this breakthrough clearly was his teaching and the high motivation he provided.  I found his problem sets very intriguing.  He didn't use a textbook at all and in class he encouraged us to talk our way through the abstract concepts, our imprecision with language a demonstration that we did not yet fully understand what we were being taught.  Another factor was that I did this course entirely on my own, not knowing the other students in the class ahead of time and doing the problem sets in isolation.  A third factor was that I was not overwhelmed by other school work so over the weekend I could put in a full day of thinking through the homework and doing only that.  And a fourth factor was the prior experience.  I believe the earlier failure was fully necessary for this later success.

When I went to graduate school at Northwestern in economics, after having very little economics at Cornell, I felt an enormous deficiency in background relative to my classmates.  I was determined to make that up and worked harder than I had ever done previously during that first quarter at NU.  Spending most evenings in the reserve room of the Library till at least 9 pm,  I did learn I was capable of making such an intensive commitment.  Yet I soon became aware that I was better prepared than most of my classmates.  I could think about the economics deeply, because that's how I had been trained to think about the math.

Indeed it is because math thinking is such good preparation for other thinking that I believe we should make effective math thinking a primary goal in our education system.  I'm not talking about how well students do on the math SAT or other standardized tests they take earlier in their school careers.  I'm talking about whether students can creatively find the right path to solve a complex math problem.   Because the SAT is essentially a speed test it can't possibly measure the ability to find a path that will only be uncovered after hours of thought.  At best it can test whether a path can be found in under a minute.  Certainly that is better than not finding the path at all, but this notion that path finding is always a quick hitter activity is pernicious.  It is much better to know whether the student will persist till the path is found.  The SAT doesn't measure persistence at all.

In teaching the student we should be encouraging that sort of effort.  Elite students receive that encouragement, in a variety of different ways.  Can't we find at least some ways to offer it to the rest?