The Endgame Is Here

The endgame is here so let's give a shout.
Congress does its best work when time's almost out.

Once dilly dally has been taken off the table,
The incapacitated suddenly become able.

The deadline that's looming focuses attention,
On a bipartisan deal which relieves the tension.

In the Senate the Leader is Harry Reid,
Who'll get the package through with remarkable speed.

Once that is done we should pray to the Lord,
For then Speaker Boehner must fall on his sword.

The Tea Party types will vote against,
Clinging to ideology instead of real world events.

In their way the economy will spin its tail,
Which is why others in the House cannot let the bill fail.

For this to work Boehner must haggle with Nancy,
That's something his party rather doesn't fancy.

Doing the right thing is political hara-kiri.
So forecasting this outcome I'm rather leery.

It's not much comfort to think this is Boehner's swan song.
Surely that's true even if on the rest I'm wrong.

His is a party that's now become split.
In leading the extremists he isn't fit.

And if that's his actual thinking.
He can keep this ship from sinking.

This prognostication is mainly vanity,
For the alternative path is complete insanity.

So on this Saturday morning there is reason to hope
That on Tuesday afternoon Congress doesn't say, "nope."

Calling Mr. Roarke and Tattoo

I thought this scenario, somewhat modified from what Joe Klein writes about, where more Democrats vote for this than Republicans but they do have a majority in the House, is what to hope for but think of it as Fantasy Island. The added part not written about here is that Boehner realizes he can't remain as Speaker for long so openly opposes the right wing of his party for their destructiveness. It's too much to hope for, but it would be the correct thing to do.

Republicans' Debt Ceiling Charade Is Downright Dangerous | Swampland via kwout

The News Hour on UStream

I am posting while watching (really listening only) live. But when I do watch, the image quality is quite good. Since local public TV is under such a gun given the funding situation, this gives something to think about. The show airs at 5PM Central Time, Mon - Fri.

Live video from your Android device on Ustream

In The Soup With The Tea Party

Out of anger and much frustration
Rose the spirited Tea Party Nation.

In the Government they do not trust
Feeling America is going bust.

The problem, you see, is too much spending
Much of it wasteful and never ending.

Of expenditure they want to slash
As the Treasury runs out cash.

They're against raising taxes too.
Don't pay for something you should without do.

That is where they stand in a nutshell.
Plain to them but to others a tough sell.

Care not for multiplier effects,
One of their argument's major defects.

Another way in which they are wrong,
Feelings on this one especially strong.

The social safety net people like.*
Shortfalls should be covered by a tax hike.

There's also the matter of how we grow.
Is it Laissez-Faire from head to toe?

Government spending as foundation,
Cuts against the grain of Tea Party Nation.

Now in the soup on the debt ceiling,
The economy already reeling,

Not just the Tea Party wears a frown
All citizens fear we are going down.

Why the Tea Party is unyielding on the debt ceiling - The Washington Post via kwout

Ingredients for Fascism

My maternal grandfather may have been crazy. In the early 1930s, for no apparent reason, he jumped out of the window of the second floor apartment where they lived in Berlin, injuring himself. My mother said he knew Hitler was coming. My father said he was off his rocker. My mother tended to rationalize her experience as a youngster and a teen. After her childhood she lived with relatives, apparently for safety reasons. Her parents were killed in Auschwitz. My father never met my maternal grandfather. My father knew my mother's siblings and some other of my mom's relatives. My dad was a reasonably sharp cookie, so I don't discount his insight, though sometimes he was too quick to judgment. On this one, there's no way to really know.

I may be going crazy too. For months I've been saying to myself, watching news on TV or reading pieces online, "this feels like fascism." It's not that the storm is here yet, but there are signs of it coming, increasingly evident to me. When I was younger I didn't give much heed to omens and portents. That was astrology or other superstition. I was for science, reasoning based on evidence applied to a theory of how the world works. Now I'm less sure, much less sure. I've come to trust my intuition, for my writing and for making other judgments. If seemingly disparate ideas appear connected, they become so in my mind and I can weave a narrative that ties them together. I am reminded of that line from A Beautiful Mind when John Nash was asked why he didn't resist the schizophrenia when he felt it coming on, he replied something to the effect, "It came to me the same way as my other ideas, so I didn't resist." So too with me on the dawn of a new fascism, whether this feeling is due to genetic disposition, too much idling time, or because what I'm fearful of is real enough.

I will now try to connect the dots. Let the reader judge whether this is delusion or not.

Ours is a time where the pit bull in human form is on the rise, the behavior spreading and increasingly championed. Consider this piece on Joel Klein from Saturday's Times. Klein was sitting directly behind the Murdochs, père et fils, as they testified last week. Evidently, Klein is a valued confidant of the Murdochs. When I first saw this on TV, I found it incongruous and wondered what was going on. The article explains it this way:

Mr. Klein’s dizzying journey, in under a year, from one of the nation’s foremost education reformers to the corporate consigliere for a media titan whose politics are far to the right of his own, has surprised and unsettled many friends and colleagues, who fear that he will be unable to extricate himself from a scandal that shows no sign of abating or, they say, ending well. “This was nothing he could have ever expected,” said Barbara Walters, a longtime friend of Mr. Klein’s.
But in many ways, interviews suggest, his emergence as a dominant figure within the News Corporation is consistent with a biography that combines high-minded legal and social aims — antitrust law and education — with a driving, sometimes overwhelming competitive fire.
“He has a take-no-prisoners attitude,” said Randi Weingarten, who battled Mr. Klein when she was head of the New York City teachers union. “He is a litigator. He is about winning.”

And these pit bulls are not just there for a fight. They fight for a purpose - radical change. Later in the piece it says:

The government’s victory over Microsoft won Mr. Klein legions of admirers, eventually including the company’s co-founder Bill Gates, who became a major donor to New York City schools.

But his unyielding approach and determination to challenge orthodoxy at times inflamed those around him, especially after Mayor Michael R. Bloomberg named him schools chancellor in 2002.

At what was supposed to be a diplomatic introductory lunch with Ms. Weingarten, the head of the city’s teachers union, he asked her how she believed change should be accomplished within the schools.

“Incremental and sustainable,” she replied.

Mr. Klein scoffed. “We need a revolution,” he demanded.

His eight years as schools chancellor formed the foundation for his unlikely friendship with Mr. Murdoch, who holds his own strong views on education reform, which the two began to discuss over regular lunches and dinners with their wives.

The pit bull in human form believes ends justify means. When radical change is the goal, almost anything can be acceptable means. Among the most important is to become aligned closely with a rich and powerful patron who shares similar views. For Klein this was Gates, Bloomberg, and now Murdoch. Ask yourself whether you know of other pit bulls in human form and whether this describes their modus operandi.

From a Darwinian perspective, I find it unsurprising to see the emergence of the pit bull in human form. Of contentious propositions it is often said that reasonable people can disagree. What is less said but equally true is that in large organizations, inevitably chock full of contentious propositions, the disagreements happen frequently and lead to gridlock, which then becomes the norm. Nobody likes gridlock. Those who can cut through it appear a high order species, one of which I am not a member. After the first Learning Technology Leadership Institute where I was a faculty member, held in Madison Wisconsin for a week in July 2007, I wrote this longish post as both a self critique and review of the session. In it I related the goals of the institute to my own job this way:

I don’t feel I’m much of a leader. Leaders have a certain pace for doing things and get things done in tempo. Mostly, I don’t get things done; instead I supervise gridlock. The gap between aspiration and accomplishment for me is huge, the sense of inertia strong. Supervising gridlock is one, unfortunate approach to management all too common nowadays --- post competence era, remember? But supervising gridlock is not leadership.

The pit bull in human form can cut through the gridlock, mainly by force of will. The persona is therefore valued in organizations. Thus creates a cycle, I dare not call it a virtuous, that reinforces the behavior and encourages others to behave likewise. This is the seed.

Now imagine a bunch of pit bulls in human form who have come together because they see things the same way. Of course, the context matters here, the cause of their convergence. Suppose a big part of that comes from feelings of emasculation, to which the natural response is anger. Then you have the necessary material for The Ox-Bow Incident, which you can find on TV now and then in case you haven't seen it. Need help coming up with sources of emasculation nowadays? They seem all around us.

Add to this soup that the media encourages polarization and the media is omnipresent. The polarization encourages bullying as acceptable behavior. Reasonable people in the face of bullying make concessions, creating another cycle.

There is the further problem that the economy is not rebounding. People have invoked the 1930s a lot recently, on the issue of whether fiscal stimulus can get the economy out of its hole. Need I remind the reader that the 1930s marked the rise of fascism? There is a connection.

Sinclair Lewis wrote a book, It Can't Happen Here. Oh, yes it can! Or so it seems to me.

Popular (But False) Economic Myths

As the soap opera on the Debt Ceiling continues I thought I'd write not on that but rather on some of the underlying assumptions that are being battered around as truths but really are complete nonsense.

Balanced Budgets

Personal Budgets

At the level of the individual, the best model is the life-cycle model of Modigliani and Brumberg. The theory posits that earnings over the life-cycle are humped, rising from when the person enters the labor market to middle age, plateauing, and then falling off at or near retirement. Consumption over the life-cycle is flatter than earnings. Early on there is borrowing. In midlife the early loans are paid off and further saving ensues. In latter life there is dissaving where accumulated assets are sold off to finance consumption during retirement. Rough budget balance happens over the life-cycle but not in any single year. Uncertainty regarding future earnings and end of life make it impossible to get more than rough balance. For this reason, rational behavior predicts holding a cushion to self-insure. Bequests may emerge for that reason rather than from a fundamental desire to jump start the next generation. On the flip side, it is possible for people to outlive their estates, an increasingly important problem.

This theory at the individual level coupled with a demographic model of population growth was articulated in the early 1950s and is remarkably robust. At the individual level it predicts that net worth also will be humped and should peak at or near retirement. Some data on net worth confirms that seniors have higher net worth on average than those who are younger and participating in the labor market. That is a good thing and as it should be.

The theory so described makes sense for middle class people who do earn in excess of their reasonable consumption expectations at mid life. The theory breaks down for low wage earners and the unemployed whose income never rises above covering the bare necessities. They do not accumulate at all, even at mid life, and so may have close to zero net worth. Such people live from paycheck to paycheck. So these people are near budget balance - on a monthly (if that is the pay period) basis. Credit markets function much differently for these people. It may allow them to expand consumption temporarily. It may also push them closer to personal bankruptcy. As we all know, a greater fraction of the population is in this second category than was the case 30 years ago because incomes, particularly for those lacking a college degree, have largely stagnated.

Government Budgets

There is the question of whether government budgets can be conceived in a way similar to personal budgets. Let's mention three factors that provide challenges in doing so - changing demographics, uncertain economic growth for the economy as a whole, and the business cycle, which is also hard to predict. Then, of course, there is politics (I like to call it sausage being made.) The life-cycle model relies crucially on the rationality of individual decision making. There is no reason to assume that the sausage produced is the rational outcome of collective decision making. So what I will write here is first aspirational, as if rationality did arise, and only after that will I discuss how the argument should be modified to accommodate politics.

Government receipts will vary over the business cycle. It is sensible that government spending should be flat or perhaps somewhat counter cyclic over the cycle. This means deficits during economic troughs and surpluses during booms. The popular notion of "irresponsible government" almost certainly has things backwards. It is not irresponsible to run a deficit during hard times. It is irresponsible to make long run increases in spending during good times instead of using the the surplus funds to either pay off past debt or to accumulate savings to be spent during the next downturn. Since one business cycle happens over several years, having annual budget balance constitutes an overly constrained solution, one that is the analog to the individual case of a low income person who lives paycheck to paycheck. It may be necessary if the government entity becomes too impoverished, but otherwise is not the ideal solution.

Now lets turn to the making of sausage and the core problem of "excessive exuberance" during booms. Recognizing the problem, it then may make sense to constrain the spending in some way. Budget balance as it is normally conceived, however, doesn't really do that because the problem is fundamentally about over estimating future receipts, using current receipts as the future forecast. (Similarly, during troughs future receipts are under estimated, which is why some want to make draconian spending cuts.) A do-able way to achieve this would be to use a moving average of past receipts, say over the last four years, and tie current spending to that. This would both dampen exuberance and lessen the necessity of cuts during downturns. Further, in the bargaining that happens between government and its employees about wages and benefits, it would help to fix future expectations and so make those agreements more reasonable long term. Do note there is no perfect way to do this. The choice of four years of receipts in the moving average is arbitrary. Business cycles are not uniform in duration. So this is a rough accommodation only, but it is better than annual budget balance as it is normally conceived.

One other point here is the possibility of temporary spending increases that are dictated by other than business cycle reasons. I'm thinking particularly about going to war, such as in Iraq and Afghanistan, but it also might be due to a response to a natural or man-made disaster at a scale well beyond which normal government spending can accommodate. It then might be reasonable to have temporary tax surcharges to finance the increased spending. At present, the model is to deficit finance such spending. Viewed as a sausage being made problem, the issue is whether it is too easy for the politics to generate a solution where spending does increase on a temporary basis without any matching revenue. A tax surcharge makes voters more aware of the opportunity cost of such spending. Politicians then have a different calculation to make, about balancing the necessity of the spending with the unpopularity of the tax increase. In turn, knowing this sort of calculation will arise in the future, they may be more responsible with current day decisions that impact the likelihood of such temporary spending increases down the road. Just as means of illustration, if the clean up of the Gulf Oil spill were financed by a temporary tax increase that was advertised as such, legislators may have been more reticent about subsequently encouraging off-shore drilling or about insisting on tougher safety measures should off-shore drilling be allowed. The deficit finance approach to the problem provides the opposite incentive.

Tax Rates and Economic Growth

Break government spending into three components: (1) investment in the real economy (basic research, education, and infrastructure), (2) social insurance (Medicare, Social Security, Unemployment Insurance, etc.) and (3) military and security. I won't have much to say about the third item. I list it here just to argue that it too is clearly necessary and it needs to be accounted for.

There are three key points to be made in this section.

First, government investment in the real economy promotes economic growth. If such investment were free, we would definitely want more of it. Of course, it is not free and must be paid for - with taxes. The question then is whether we are getting a good balance between such government spending and tax revenue collected and how can one tell. Looking at tax rates only and saying they must be reduced without considering the growth impact of the spending is not a balanced way at addressing the solution. Further, where we are talking about basic research and education, the economic payoff is surely many years down the road while the taxpayer pain is now. This creates a potential for bias and under investment in the public good.

Second, there is the additional impact of lags in policy effects that are not due to the return on investment but rather to how government budgets impact the real economy. Bush 1 raised taxes, but the macroeconomic benefits from that didn't accrue till the Clinton Presidency was well underway. Financial deregulation happened a lot under Clinton, with impacts mainly under Bush 2. Bush 2 lowered taxes.... well you get the idea. These lags are not perfectly predictable. And macroeconomic phenomena are the consequence of multiple causes. But many politicians speak with a certitude about lowering tax rates and promoting economic growth. This is Republican orthodoxy. It is hokum.

Third, on the social insurance front, think of that in conjunction with life-cycle consumption-saving of the individual. For those people who do live in accord with the Modigliani and Brumberg model, it is important to note that social insurance and self-insurance qua savings are substitutes. If social insurance benefits and contributions are cut in equal measure, private savings should increase to offset those reductions. Absent an efficiency argument that says social insurance is more efficient than self-insurance or vice versa, the overall consequence should have no impact on economic growth at all. You can have higher taxes and spending or lower taxes and spending and get the same growth. It is just a relabeling thing; that is all. For those who live from paycheck to paycheck, however, there is a real consequence. This is precisely why government spending cuts borne by the low income in the population should be resisted.

Of course, there is a serious problem now with social insurance. It is not balanced. People can expect to get out much more than they've paid in (particularly on Medicare). Balance does need to be restored, by what I've called "moving the goal posts," done by a combination of means testing the insurance premium or the benefits and raising the retirement age.

Keynesian Stimulus

There is much debate on whether in the presence of high unemployment government spending in excess of tax receipts boosts GDP by increasing aggregate demand and if the answer might be both yes and no because it matters if the stimulus is achieved by raising government spending or by lowering taxes. In political terms, did the Obama stimulus work? Let's grant that the "what if there was no stimulus" scenario can't be laboratory tested, so the answer to the question is necessarily hypothetical. Nonetheless, we can use the life-cycle framework to consider the consequences of the stimulus on individuals. Doing so, there is the further issue to consider of what happens to the economy when a stimulus is applied and unemployment is at normal levels. Again in political terms, the Bush tax cut was also stimulus. Did it work? Is it possible that one of these did work and the other didn't?

Coupled with these questions about stimulus is the proper role of monetary policy (stimulus here refers to fiscal policy). A fairly good case can made that for ordinary business cycle fluctuations monetary policy is the better instrument to use and fiscal policy should focus on long term objectives rather than fine tuning of the economy, because changes are harder to implement and the lags are longer with fiscal policy. The case for fiscal policy to lower unemployment, then, is strongest when interest rates are already near zero and expansionary monetary policy is limited in its effectiveness.

There is also the question on measuring whether a policy was effective by seeing if the consequence is mainly on lowering unemployment or instead mainly on raising inflation. So what I mean here is that an ineffective policy would have consequence neither on unemployment nor on inflation. An effective and good policy would lower unemployment. An effective but pernicious policy would raise inflation. In the late 1970s, when I was in graduate school, the feeling was that both fiscal stimulus and monetary expansion would raise the inflation rate, which would be captured by how fast nominal wages were rising. In the last decade the inflation rate by this measure has been quite modest, but there have been bubbles, most notably in housing, and hyperinflation in certain sectors of the economy, health care for example. You might call this overheating the economy.

When an individual experiences a tax cut, the alternatives are either to spend the additional after tax income or to save it. In a fully rational framework the individual would calculate the increase in lifetime income as a consequence and then adjust current consumption according to the life-cycle model. If the expectation is that government has to raise taxes in the future to pay for the tax cut it is giving now the effect on the individual's lifetime budget constraint is nil so current consumption should remain unchanged and hence the tax cut increases saving. However, the argument here is made under the usual ceteris paribus (all else equal) assumption. If contrary to that assumption the individual experiences substantial capital gains or losses to their wealth, from changes in the stock market or in the values of their homes, that too will effect lifetime wealth and such changes may swamp the direct effect of the stimulus.

We have more history to look at in tracing the consequence of the Bush Tax Cut than in doing likewise for the Obama stimulus. Here is a bit of that history. We had a modest recession in 2001, a consequence of the burst of the dot.com bubble. In that year we had the first of the Bush Tax cuts. The stock market declined well after the official recession ended. It reached it's low in 2003. So people may have thought of the years 2001 - 2003 as gloomy from an economic view. (Of course, 9/11 contributed to that view.) There was a second Bush Tax cut in 2003. The personal saving rate had already drifted down substantially in the 1990s - as the stock market appreciated the saving rate dropped. See the diagram below, which comes from a report out of the San Francisco Fed.

Here is more than 30 years worth of data on personal saving rate, a monthly time series. It is from the St. Louis Fed. There are blips up in the rate, but mainly a downward trend after the second Bush Tax cut until the burst of the housing market bubble, especially during 2004-2007. So my conclusion is that this stimulus was effective, but it was pernicious.

The Great Recession started in 2007 and lasted through 2009. In 2008 the personal saving rate began to rise. This was before the Obama stimulus. It was an individually rational response to the decline in the economy, but unfortunately it was collectively pernicious, due to what is known as the paradox of thrift. The economy needed more spending then, but it was getting less. So it contracted.

The Obama stimulus started in 2009 and there was further stimulus in the lame duck session at the end of 2010, via extension of the Bush Tax cuts and relief on the payroll tax. We know the spending part of the stimulus took a while to work its way through the system. We've seen State governments making painful cuts this past year as the stimulus concluded. Through the third quarter of 2010 personal saving rates were about two points higher than in summer 2008. They have since come down a bit. It is hard to say looking at this what role the Obama stimulus had on those personal saving rates, since they started to rise before he took office. Two possible explanations are: (a) this was in anticipation of the stimulus, in which case it was offsetting the tax cut part and (b) this was anticipation that the economy would worsen as measured by the unemployment rate, which would rise. I don't see how you can parse one explanation from the other based on the information available. We do know the economy has limped along in this interval. But, quite conceivably, it could have gone into free fall with the Great Recession still ongoing. That's impossible to know.

Conclusion

Political rhetoric clearly has its purpose and politicians talking about the economy should be seen as such. But repeat the same phrase again and again and it appears to take on a meaning of truth. It would be better to learn our economics elsewhere and to let long term thinking about the economy and economic policy to disregard these popular myths. Clearly that is not possible in the next couple of weeks but perhaps it will be possible next summer during the election season.

Vanishing of Sensibility and the Middle Class

For the bourgeois and their discreet charm *
Now is the time to sound the alarm.

Familiar surroundings disappear
Done in by politics rather queer.

A Bunuel or Salvador Dali
Would find surreal the Tea Party folly.

The rest of us I'd hazard a guess
Only can see a source of distress.

The middle class is going away,
Allowing the rich to hold full sway.

Right wing dogma inevitably leads
Where all but the rich horribly bleeds.

Push the conclusion to its extreme.
You get the makings of a bad dream.

The alternative is sarcasm.
Between left and right lies a chasm.

That's all there's left to solve the riddle:
Where has gone the sensible middle?

A stage play in case you haven't heard
Congress, the theater of the absurd.

Bonuses for Billionaires - NYTimes.com via kwout

Tempering Subjectivity: Professionalism and Fandom in Punditry and Economics

Fallacies do not cease to be fallacies because they become fashions.

G. K. Chesterton (1874 - 1936)

Are we all so predictable as thinkers that others know what we will say before we say it? I'm afraid that too often the answer is yes. A further concern is that modern communications exacerbates the problem. That encourages us to cast people some people as the good guys, others as the bad guys, and from that emerges sympathy for some ideas and antipathy for contrary views. But this means we rarely look at the weakness in the views we hold nor in the strengths of the counter arguments. That brings thinking and prejudice too close in alignment, in my view.

I developed a habit that dates back to my college days, of looking at the Op-Ed pages in the newspaper first. (At the time, this was to wean me from reading the sports section first. Now I hardly ever read the sports section of the national papers and use ESPN as its own separate source of information.) In the last several months or so I've taken to do that for both the New York Times and the Washington Post. This being Monday, Ross Douthat has his weekly column, usually thoughtful but reliably Conservative. And E.J. Dionne is likewise observant, but from the Liberal perspective. Today each writes about the debt ceiling issue and the performance of the Republicans. Knowing that you can anticipate the scope of their respective columns. They are mostly about confirmation of prior held views. I learn more from Douthat's column, because when I take sides I'm Liberal and I've been doing more of that lately, so I don't always think through how Conservatives rationalize behavior, particularly on whether one owns up to that an error in judgment was made about not taking the "big deal" or if true believe instincts are the rule of the day. In this case Douthat admits the error, though I think he strains too far in giving his explanation. In contrast, Dionne just bashes the Republicans as do nothings, focused on symbolic gestures rather than on governing. Before moving on, let me note here that so far I haven't seen a parallel made between these debt ceiling talks and the so-called "peace process" between Israelis and Palestinians, which as everyone knows hasn't produced a peace. I don't know why that connection isn't being made and made regularly. It seems to me that if the argument were presented that way the Tea Party types in Congress would have to articulate that they prefer gridlock to a negotiated solution because they anticipate winning a significant enough majority in the near future to get what they want. Given such beliefs it would be a rational position, though how they'd come to that belief is something the public really needs to know.

Last week, it occurred to me that this one-sidedness in perceiving how pundits articulate their views had invaded the economics profession very strongly, when on the Charlie Rose Show I heard David Leonhardt refer to Martin Feldstein as a Republican Economist. (He chaired the Council of Economic Advisers under Reagan, but he was not a supply sider at all.)

Regulation as TurboTax - Some Formative Ideas

There's nothing like getting ahead of yourself in the thinking. Yesterday in one of my regular stream-of-consciousness-what-if sessions, I started to feel sorry for the folks at Intuit, the folks who make TurboTax. I've used TurboTax to do my Federal taxes, seemingly forever. (Way back when I used MacInTax, so it's got to be close to 15 years using this sort of product.) Anyway, it occurred to me that if the Gang of Six plan actually passes and we get tax simplification, then it might be that many taxpayer won't need software like TurboTax. They'll simply use the government provided Web form for the data entry they need to do and voila. That's what I do for my State of Illinois return. But the Federal Return is too complex for that at present. Being able to pull information from last year's return speeds things up. Things do change from year to year, but not that much. In terms of the time saved, the software pays for itself many times over. So I like the product for what it does. It would be a shame for a company like Intuit that does a good job with its product to take a significant capital loss, not due to anything it has done but rather because the law has changed. As I said, that's getting ahead of things. But doing that some of my internal wheels start to spin and I get a spark of an idea.

Before getting to it, let me talk about two recent experiences that I think are relevant. The first has to do with being hired back by the University of Illinois to teach this past spring after having retired the previous summer. For reasons I don't understand, it appears that work records for me were purged when I retired. So I had to go through the new hire process, even though I had worked for the University for 30 years. The new hire process is extremely clunky. When I hear politicians talk about burdensome regulation, the new hire process comes to mind. Part of the issue is to verify that I am who I claim to be. So suitable ID needs to be provided. Once that is done, a bunch of bio information needs to be collected. In my case, the retirement system SURS has all this information and the State of Illinois Tax System has much of it, but the University has no mechanism to tap into those sources. So it does all this from scratch. (Fortunately for me, I kept email and Library access, so the process for me was a little shorter than for those who really are new hires.)

The other experience resulted because Carle sold out its pharmacy business (Carle RX) to Walgreens. This meant I needed a new way to renew my prescriptions online. So I had to set up a Walgreens account. They too have to make sure I am whom I claim to be. I don't completely recall the process I went through, but I believe I must have supplied them with a credit card number, because then I had to answer a few questions about where we used to live on Old Church Road. On two out of three of the questions I knew the answers. On the third I guessed. (We use to own a Ford Windstar as the family vehicle, but since then we had a Honda Odyssey and now have a Honda Pilot, which we've had for almost five years. The question was about the model year of the Windstar.) The entire thing took just a few minutes and then my account was created and I ordered my renewal prescription.

From comparing the two experiences, the conclusion is that mainly its not about the regulated activity itself that makes it onerous, but rather its about how the regulation is implemented. And on the implementation front, government provision has a tendency to be clunky because the focus is purely on data collection and not ease of use. The market makes easier to use alternatives because, after all, customers can take their business elsewhere and ease of use matters to get a successful product.

So the idea is to encourage embedding regulation that affects small business into software for doing back office function. Intuit make Quickbooks for small businesses. I've not used it, but I've briefly looked looked at the Website for the product, which advertises that it helps in doing invoicing, tracking expenses, and preparing for taxes. It does not, however, mention non-tax regulations - environmental, human resources, etc. I don't understand why. What would it take for that to happen? The regulations would have to be written and implemented in a way that enabled such embedding. In turn , the providers of such business software could impose de facto standards on the way regulations are implemented, so the providers could incorporate the regulations into their products.

The related issue regards what sort of information business would like to keep track of for their own well being versus information that they only monitor because they are required to do so. If you think of effective regulation primarily as education and then suitable modification of the culture to accommodate the knowledge, this suggest that the software providers can act as middlemen to advocate for where regulation is headed. This assumes that these providers are regularly modifying their products to accommodate emerging business need. Effective regulation should be part of that process, not outside it. This is different than arguing for laissez-faire, which it seems to me is increasingly a know-nothing approach. It is, rather, and argument for regulation lite, by better situating the regulation into the environment businesses actually operate in.

I wonder if others might think this way. After the raising debt ceiling issue is behind us, what else will there be to think about?

Breaking Mad

Tonight is the first episode of season four in the AMC original series Breaking Bad, an odd show that is surprisingly a propos for the times in which we live. I had watched the first three seasons on DVD, using it as a needed distraction while doing the treadmill. The last couple of nights I have watched reruns of season one, partly to rewaken interest in the show, partly to see what I missed the first time through. It isn't that the plot is so elaborate. But the treadmill can be noisy and some of the dialog is hard to follow that way.

Also, since there was a piece on the show in last week NY Times Magazine,
http://www.nytimes.com/2011/07/10/magazine/the-dark-art-of-breaking-bad.html?pagewanted=all
I wanted to see how my impressions of the show compared to what was written in that review. At least for the first several shows, there is quite a divergence.

At core the show is fundamentally about the following question. What does the world look like when we have sensible goals to pursue but regarding means our primary emotion is anger, an emotion we've kept in check most of our lives? Now circumstances have changed and we no longer see a reason to hold it all in. Indeed, the show cherishes its release. Timing-wise, the show has been either incredibly lucky or very smart. The first episode aired in January 2008. The core issue for the show lining up perfectly with the views of small investors as they watched their retirement savings shrivel during the financial meltdown.

I will not review the plot. It is covered well elsewhere. I will only point out that the early episodes have several scenes, not integral to the longer story but meant to illustrate that ordinary people go through many situations where others are obnoxious or uncaring to them. We learn to walk away - the lesser of evils. The angry person, however, doesn't walk away. The angry person aims to get even. When that works, because the anger is tempered with intelligence, there is a sense of satisfaction that (street) justice has been served and also a feeling of exultation, because achieving the outcome required Cojones. The viewer can see the narcotic effect. It is how the main character transforms.

The show also can be taken as social commentary, though superficially it appears to be farce, on two key elements. The main character has lung cancer that appears terminal. The family lives comfortably but are financially not prepared for this calamity and he is the bread winner. So he has a motive to accumulate a lot of money in a hurry. You won't find slow and steady wins the race here. He does not tell his family immediately about the cancer, I suppose because he doesn't how to deal with it. When circumstances make the telling inevitable, the response is to find the best oncologist possible, one who turns out is outside their HMO network, with the treatment prohibitively expensive. He is a middle aged man who is dying. He deserves the best to alter that outcome.

Anger has produced a rise in this man. Without knowing what is in store this season, it appears he is headed for a fall.

Sent from my iPad

How can the Times publish this drivel?

They let these Freshmen Republican Congressmen cast themselves as martyrs without even a mention of taxes as a way to reduce the deficit. It seems to me this is irresponsible reporting.

Freshman House Republicans Worried About Debt, And Not Re-Election - NYTimes.com via kwout

The iPad and the TV

It's not too often that I want to watch TV in the morning, but the last few days ESPN has had extended coverage of the British Open and I am a fan. The pace of golf coverage on TV being what it is, at one commercial break yesterday I instinctively went to get my iPad, to read the paper online and check email. But I found myself writing short messages as well. I wouldn't normally have patience to peck away on the built in keyboard (I have an external keyboard but you can't use it when lounging on the couch), however when you return regularly to watch the golf swings and the putts, the input isn't that unsatisfying. I wrote yesterday's rhyme this way. Maybe I can use it as an excuse for the quality of the verse.

On making blog posts this way, I should point out that the iPad keyboard, which pops up automatically when a text input field is found, can't find the text box for writing a post. So I have taken to email post, which is functional, though I am not trying to put in hyperlinks this way.

Sent from my iPad

The Blight from the Right

Warnings were issued,
Business growth would halt,
Should America on it's debt opt to default.

The parties bargained,
Though to no avail,
Setting up a chance the economy will fail.

A line in the sand,
That came from a pledge
Has frightened the nation and put all near the edge.

The issue at hand,
To bring down the debt,
Needs spending lower and more revenue to get.

The Right however,
Wants no tax increase.
Their agenda calls for much government to cease.

Pursuing this goal,
They've played the bully,
Mistaking public mood, angering them fully.

A balanced approach,
Favored in the polls
Shows moderate voters are for whom the bell tolls.

When this crisis ends,
We voters will shout,
The right wing zanies caused trouble so let's throw them out.

Is this a remake of a movie from the 1990s?

Bluster is losing its luster. It is interesting to see Republican Senators quoted about being blamed, rather than about finding a way out of the morass.

McConnell Warns of Risk to Party, and Country, of Default - NYTimes.com via kwout

Students as Customers

Nothing is simple these days. So it is with teaching and learning in higher education. Given the current furor in Texas over Governor Rick Perry's proposals to "make college more efficient" I thought I'd give my take on the subject, and in this way deliver a post I promised a while back, writing about what I learned from my teaching evaluations. Illinois and Texas are sufficiently similar universities - very large, public, flagship campuses of the state system, highly regarded research oriented institutions - that I believe what I have to say has relevance for there. There are differences of course - Austin is also the state capital while it's not quite a hundred miles between Urbana and Springfield, Texas is a red state while Illinois is a blue one, Texas has been better in the revenue producing sports - but the similarities outweigh the differences.

First, let me tick through a bunch of obvious points. It is virtually impossible to have an honest discussion of these issues in a highly visible public forum because the subject is politically charged and there is fear that if you give an inch they'll take a mile. Given our national politics, the fear is rational. My blog is barely visible these days. So I can afford to be more forthcoming.

College Purpose

On the core objective of college from the student point of view, one can give at least two defensible yet different answers: a) getting the degree and b) learning something of importance while a college student. There is yet a third possibility that may be less defensible but more realistic: c) blowing off steam and learning to be responsible for oneself. Obviously these don't preclude one another, but it does matter where the emphasis lies, especially for defining what it means to be doing the job well.

Competing for Students

The bulk of the undergraduate students are from within the state and for them there aren't close substitutes in quality of school at approximately the same tuition. So to a large extent these students (and there families if the parents are paying tuition) are "captured." The situation is quite different for out-of-state students and the competition for such students is much fiercer.

Measuring Performance

The NCAA maintains a searchable database on graduation rates from the Department of Educations IPEDS-GSR data. If the data are used primarily to benchmark sports team graduation rate performance (better than the institution, same as the institution, etc.) that *may* constitute a reasonable use of the data. In using the data, however, to do cross institution comparisons there is the standard problem of confounding inputs with outputs. It is well understood there is a high correlation between the standardized test scores of students used for admission and graduation rates. That the greater the selectivity of the institution the higher the standardized test scores means graduation rates are apt to be high at highly selective institutions. Both Illinois and Texas fall into this category. That is an input effect. If you compared graduation rates at schools with comparable standardized test scores, that would come closer to comparing outputs. However, schools with higher standards will have lower graduation rates, other things equal. For example, at Illinois the washout rate from Engineering is pretty high (many of those students transfer to other colleges at Illinois). It is necessary to also control for performance standards, if graduation rates are to be used this way to measure the effectiveness of the education. The main take away from this section is that the measurement problem is hard, and people tend to trivialize it.

University Revenues

The share of the cost of education borne out of general tax revenues has been declining for quite a while, while the share covered by tuition has been rising. In this sense what historically was a publicly provided good has been becoming more and more private and that has been happening for quite some time. This is a source of mismatch in expectations between the university, on the one hand, and the students and their families, on the other. (Where the tuition increase is simply an offset for declining revenues from the state, the university is no richer so internally may see little reason to change its practice.) In my opinion, this is the biggest argument for the university to become more "customer centric," though as mentioned in the Competing for Students section, the bulk of the students are captured. Thus the reason to become more customer centric has to do with politics more than with economics.

Difference between Faculty and Campus Perspective

Cash as input is not sufficient for a student. Both diligence and perceptiveness are also necessary in pursuit of their studies. In the abstract, who could disagree with this? The issue is what to do when it is not immediately forthcoming. One can envision two distinct responses - one is to be very demanding of the students, the other is to accommodate the reality of actual student performance. Over the years I've personally struggled with this issue (see the last paragraph on page 2 for a recent recounting) favoring the very demanding approach though it was out of sync with what the department wanted. In my capacity as an administrator, I've observed the reverse for adjunct faculty, who have dumbed down their exams and raised their grade distributions, because their jobs literally depend on getting adequate student satisfaction. Let me conclude this section simply by noting here that there is a clear tension between giving students what they want and certifying their performance.

* * * * *

With this general background, let me turn to my teaching evaluations, and here I will focus on the intermediate microeconomics course only. These evaluations were administered in the ultimate class session before the final.

In the design of the class I took what might be termed "a discovery approach." One can see this in the spreadsheets I designed, each with Excelets aimed to illustrate the economics, where students could perform little experiments by manipulating the parameter values and seeing how the graphs changed and where the more industrious and mathematically inclined students could go several steps further to reverse engineer what was being constructed by looking at the cell entries from which the graphs are plotted as well as the formulas that generate those cell entries. There were also screen movies, to help the students get started with the spreadsheets and to explain the underlying economics. With these inputs, the idea was for the students to explore on their own and learn from that. There were homework problems in Moodle to help the students assess their understanding. If they didn't get those right they could redo them. There were other problems on the exams, which because that's how we administer tests, were one and done.

The description in the previous paragraph represented a compromise necessitated by what I call do-ability. I was making a good bit of this content only a few weeks before the students would use it. So I needed to get it done. And with that I needed a method I could rely on that would produce completed product in a timely manner. I had come up with an alternative method, which I called the Dialogic Approach, where there are spreadsheets designed to simulate Socratic dialog, with "small" questions interspersed in the presentation that the students must answer in order to proceed. The questions would be posed in some short answer format so the responses could readily be evaluated for whether they are correct. The dialogic approach gives more direction to the students on how to proceed and is less open ended than the discovery approach. I have a couple of workbooks done in this approach that I made quite a while ago. My recollection is that each took about a month to make, a lot of which was conceptualizing how to present the material. That was just too slow, so I didn't make dialogic content this time around. But my sense is in moving forward with this stuff I should make more dialogic content because that way the students get more direction, which is desirable, and my time now is ample.

I designed this content with the aim that the course would eventually be taught in a blended format. It was very much a work in progress last spring and further the course hadn't been advertised as blended. So I we meet for the regular time last semester - 80 minutes twice. The above describes about half the course content, what I refer to as the analytic side of the course. There was also a narrative side, based on readings the students would do and blogging about the readings. Some of the readings were essays I had produced, there were a couple of journal articles by famous economists, and we also read Heilbroner's the Worldly Philosophers. The essays and journal articles lined up, more or less, with the spreadsheets so could be seen as a narrative counterpoint to the analytic theory. The Worldly Philosophers did not line up too much, beyond the early chapters on Smith and Ricardo. I intended this from a different vantage. The neoclassical theory that buttresses the analytic approach is essentially static. Even when time is explicitly accounted for that is done with perfect foresight. Likewise, when uncertainty is considered the model assumes all possible contingencies can be described in advance. The classical economists, however, had an essentially dynamic conception. Statics is fine where it simplifies the presentation without changing the message. However, when it does change the message one should be suspicious of it. So I wanted to provide the students with some skepticism about what they were being taught. I also wanted them to become familiar with some of the great economists.

On the analytic side, I knew things were not working well before getting the course evaluations, because the midterm scores had been quite low. One part of the solution to that poor performance, something I wrote about near the end of the semester, was for the students to attend extended office hours and have them talk through their questions and misunderstandings. The vast majority of students didn't do this during the semester and those who did it early on were among the better students in the class. This clearly needs to be a part of any revised version of the course. The question is how to get it done broadly.

But there is an additional question I didn't ask earlier, which is how much is it reasonable to expect that students can progress on their own with the discovery approach? If they don't get very far with the approach, it is because they don't know how to proceed or because they aren't trying? It's not hard to imagine a vicious cycle where each begats the other. The teaching evaluations confirmed there were big problems. In those the students made the culprit my ability to explain things. Many of the evaluations that had comments said something to the effect - he's a really smart guy but he's a really bad teacher. Since the comments were so consistent I have no doubt about the sincerity of the students who made them. Their expectation, apparently, is that if I explained well then they'd be well prepared to do the exam problems. I'm perfectly willing to admit that I'm hard to understand on occasion, either I go quickly during the hard parts or don't illustrate those well. I do wonder though, is that the whole story? Even if I explain it great, don't the students still need to figure it out for themselves as well?

Though there were a few Business students who did well in the class, the majority of the better performers were from disciplines that require a lot of math. What about the non-math students? The course is meant for them too. Yet they don't find the material welcoming. This had been my experience 10 years ago when I last taught the course. Indeed much of my experience this spring parallels earlier teaching experiences, including when I first started 30 years ago. The issue around my intelligence, inability to explain, and making the course too hard were with me then. Since that time I've learned a lot about using the technology and motivating learning, much of which I tried to incorporate into the course. But these core issues have not been resolved. If anything, by trying this "new approach to teaching" (new to how intermediate microeconomics is taught and how most of their other courses are taught as well) I brought out the old issues in their raw form, unmasked by a variety of accommodations that invariably creep into the teaching so the course isn't perceived to be too bad or too hard.

With one or two exceptions, I did not test on the readings and I didn't have essay questions on the exams. The blogging counted for a good chunk of the course credit (40%). In my mind it was an end in itself. The students, however, didn't see it this way. Their comments indicated they view all outside the classroom work as instrumental - preparation for the exams. My approach didn't comport with their views and they were clearly angry that it didn't, particularly that they had to read Heilbroner. Perhaps if they had been adequately prepared for the exams they would have reacted differently to the readings.

Yet the students weren't critical of the analytic content. They took it as a given that they should "learn" that stuff, even if they couldn't relate it well to other things they were being taught in their business courses, and even if a few months later most of this content will have been forgotten. The anger expressed in their evaluations was about not feeling prepared and not getting a high grade.

I've cooled off since I received these evaluations, a few weeks ago. Because I read and commented on all the blog posts, I definitely put in more hours on this course than any other I ever taught. My ego was bruised by the evaluations and my immediate reaction was, why bother? But with a little more distance I can see the results are indicative of some larger issues - with required courses like intermediate microeconomics that act as a barrier for students to move on, with the undergraduate education overall and which purpose the students see as theirs, and with experimenting in teaching approach in an individual course in a culture that otherwise has little such experimenting. And I can see my own aim should be less grandiose and more concrete.

I've not gotten back to making economic content this summer. Having gotten this post out of my system, I'm almost ready to resume.

Tax Expenditures and Other Oxymorons

A couple of nights ago, Martin Feldstein was on Charlie Rose, in a segment with David Leonhardt. They were discussing a way to get a budget cutting deal in Congress that would enable them to raise the Debt Limit. This followed the first segment with Republican Senator Tom Coburn of Oklahoma, which discussed the current negotiations, what Coburn might vote for if the matter were put to a vote, and what Coburn thought of the Grover Norquist no-new-taxes pledge. Coburn is a "reasonable Conservative" who said he agreed with Norquist in principle and on 99% of what Norquist wants, but Coburn left some wiggle room for revenue enhancements from closing loopholes, reducing or eliminating tax expenditures, if you will.

In his segment Feldstein was gentle and I thought clever in the following. First he argued there was essentially no difference if a tax payer, upon buying a solar panel for the roof of his house, gets a deduction for that, from the government directly paying the seller of the solar panel. The economic effect is identical. The latter, however, is an expenditure that Republicans are willing to cut. The former is a negative tax, which the Republicans signed up with Norquist don't seem willing to eliminate. This is a semantic difference without any real economic distinction. Second, Feldstein talked about retaining all the deductions, err....tax expenditures, but capping their cumulative effect, say the maximum would be to reduce Adjusted Gross Income by 2%. Feldstein said he was getting some traction with members of Congress using this argument.

It is fairly easy to see the politics in this. "Leadership" meaning Speaker Boehner, but not Majority Leader Cantor who seems to toe the Norquist line, wants a deal along these lines. Most Democrats will go along on this; their primary concern is with Entitlements. And on that I heard something new (for me) that I found interesting. Social Security was not in the Ryan budget proposal, because there was a sense that President Obama would propose Social Security reform on his own, and they didn't want to preempt (and thereby preclude) such a proposal. If that is really true, more credit should be given to Ryan and his cadre. Healthcare is the other big ticket item. On this, however, the Ryan plan is a political loser. Even Republican Leadership recognizes his.

In today's New York Times Leonhardt has a column where he rails against "Free Lunchism" and argues that the reducing tax expenditures argument is popular among insiders but not with the population as a whole, so the more likely scenario is that the Bush Tax Cuts will expire next year.

Does this get us any closer to making a deal?

RSS Feed Imported in Facebook

It has been several weeks where my RSS feed has not imported, so I have been manually copying over posts from Lanny on Learning Technology. Early this morning, the feed started to work again with a large number of posts coming over. I wonder now whether new posts will come over. For the time being, I will not copy over posts to see.

The Burden Has Been Lifted From His Shoulders

Derek Jeter has gotten his 3000th hit. Look at the box score as of the 7th inning. Maybe he'll go on a tear now.

Tampa Bay Rays vs. New York Yankees - Box Score - July 09, 2011 - ESPN via kwout

Factor in the Aging of Society

The next time I hear people making reference to the Federal budget and the National debt in historical terms (Eugene Robinson does so today in his column, looking mainly at tax revenues as a share of GDP) I will reply, "In historical terms, most people over 75 would be dead. My mom is 90. Give me something to work with the reality of the aging society we live in."

We tend to think of the problems associated with aging and don't give enough credit to the fact that society aging represents success in a fundamental way. People with promise have a much better chance to fulfill it. Mozart died when he was 35, Chopin when he was 39. Leonard Bernstein was 72 when he passed away.

Of course, the promise to contribute and the joy people give one another, old and young, does not preclude in any way the burdens they place on others, particularly the burdens arising because they can no longer fend for themselves.

Philosophically, there are two distinct approaches to address those burdens that differ in regards to who holds the responsibility. In the first the responsibility lies with the individual, who must therefore manage the issue in advance, presumably by accumulating sufficient savings. Then, if those savings prove inadequate, the responsibility falls on the individual's family. With the second the burdens are shared across society. Medicare and Social Security are programs that represent the second approach.

I don't know if the age distribution of society will ever stabilize, but if it did, one might ask what application of the two different philosophies would produce regarding the Federal budget were it to balance over the business cycle. But that answer is far from sufficient. One would also have to ask what it would mean for private budgets that also were in balance over the life cycle. Rarely, if ever, do we put the two together and look at the whole.

One would like social decision making to be data driven. It is hard to argue for the alternative. Yet the available data often don't discriminate well between competing hypotheses, which is unfortunate especially when we feel a need to use the right hypothesis to formulate good policy. A highly relevant issue here is the relationship between income and life expectancy and the relative importance of average income as the fundamental determinant (the Preston Hypothesis) compared to the importance of income distribution. Personally, it is hard to envision that for people who have decent nutrition and access to good medical care why further income increases should matter at all, while for people living in poverty it seems reasonable that increases in income should matter a lot.

Listening to the political rhetoric on these matters one feels trapped in a kind of Orwellian farce. The Republicans are hopeless on this, sounding like Big Brother, particularly on why tax increases aren't good now given the weakness of the economy (while to them spending cuts are fine). The Democrats are also bad in this way, talking about preserving Medicare and Social Security as is, when the pay ins and pay outs are so out of balance, the increase in life expectancy one of the big culprits for why.

If philosophy one is to win, we should be asking how personal saving rates might increase dramatically, as a long term proposition. Who is asking that? If philosophy two is to win, we should be expecting a much higher share of federal spending as a percentage of GDP than it has been historically. Who is arguing for that?

We've painted ourselves into a corner rhetorically where neither philosophy can win.

The best things in life are free and Only The Good Die Young. So we are talking about things that are not the best and people who are not so good - the circumstances the vast majority of us find ourselves in. There. Now can we get on with it and figure out something sensible?

Passing the Buck

Lobbying government to seek favor,
Makes for an activity not to savor.
With fancy gifts or bribes
It's easy to describe.
Yet there's odor and awful flavor.

Big Business Leaves a Deficit Plan to the Politicians - NYTimes.com via kwout

Top Banana Blues

The slidecast below represents the confluence of two different forms I've been playing with. One is the writing of rhymes that criticize/lampoon current events items. In this case, it's about excessive CEO compensation, particularly now when wages are flat and unemployment is high. The other form is writing pieces as a slidecast, with a brief text narrative, images to illustrate the ideas, and a musical number to tie the whole thing together.

In doing this I was partially motivated to reduce verbiage in my rhymes and also to let the rhythm of the lines be dictated by the music more that anything else. One of the discoveries for me doing this is the sense that repetition adds value. In the music that is definitely true with the refrain repeating. It simply hadn't occurred to me to have some repetition in the verse other than in the rhyme scheme itself.

Top banana blues

View another webinar from lannyd

I've thought a little bit about copyright regarding this piece and my tentative conclusions are as follows. A reasonable fair use case can be made, in my view, on the grounds that the piece is educational and should not steal market from any of the creators whose works were used. The copyright issue only really crops up if the piece catches on. If there are no eyeballs going to it, who cares? For the music, Beggar's Blues by Duke Ellington from the album The Okeh Ellington, there already is a rendition by Sonny Greer and his Memphis Men on YouTube. For the images, the slidecast can be paused at any juncture and since the image is linked to the source the viewer can readily find the source. If the piece happens to get some eyeballs, this should only increase the eyeballs on the source works rather than steal from them. Of course, I'm not a lawyer, but this makes sense to me.

Trickle Down

Of Trickle Down
He's been a clown
From the very beginning.

Arthur Laffer
Trickle's staffer
Began tax receipts thinning.

In Trickle's tide
Most boats did slide
Lurching downward and spinning.

Some years later
The telestrator
Says we're in the ninth inning.

While Trickle smiles
Impish with guile
Cause his buddies are winning.

Shows must go on
Even Trickle's con
So we whine while he's grinning.

The Wageless, Profitable Recovery - NYTimes.com via kwout