Friday, May 29, 2009

Creating jobs and employing people, or, Bastiat x 100 

A project that costs $100 million (though I'd guess this number probably doesn't include the land costs) to save almost $1 million a year? There's a name for that�a lousy investment. And creating 200 jobs? Not really. The project employed 200 people. Not the same thing.
Russ Roberts discussing this solar panel project that is supposed to also reduce the same amount of pollution as 4,000 new cars, out of a total cars sold in the U.S of over nine million annually. (Hey, I thought government was trying to sell more cars?) I originally spotted this on David Strom's Twitter feed.

I'm often reminded in these explanations of "jobs created or saved" of the Steve Martin line on how to be a millionaire. �(After reading the transcript, I thought "I just found Tim Geithner's accountant.") �Anyone can create a job; the Kirby salesman who pours dirt on your carpet creates a job for a guy with a vacuum cleaner. �But to do that, you first have to destroy value by soiling the carpet. �Government can create jobs by burying banknotes in bottles in coal mines, but even if they print the notes it eventually destroys value through the inflation tax. �

The Administration has put out (under watchful sheriff Joe Biden's signature) a list of 100 projects for 100 days of the ARRA. �I think this one might be #84. �Here's a couple others:

#15 links to a Nashua (NH) Telegraph article which features a road firm that says it was going to lay off 75 workers until they got some Uncle Sugar:
Continental Paving, Mark Charbonneau's family-run business, landed a $10 million contract to reconstruct and pave a section of the F.E. Everett Turnpike in Bedford, as part of a larger project to connect the highway with Manchester-Boston Regional Airport.

Continental's contract came out of a $130 million package of stimulus money targeted to build and repair highways and bridges in New Hampshire.

The $10 million contract and the ability of similar companies to land stimulus-funded work enabled Continental to keep its 300-person staff intact, Charbonneau said. Without any stimulus-driven projects, the many companies in the state's road construction industry would have been competing for fewer contracts, and Continental would have had to lay off 75 workers, he said. ...

Continental Paving is only one of a few New Hampshire companies that at this time can concretely measure whether the economic stimulus package will keep as many as 16,000 people working in the Granite State.
I drove that road very recently. The road is there, it works just fine. NH has a 6.3% unemployment rate, well below the national average. �And how long will that work last? �What's the added value of the repaved, reconstructed road? �And why do we believe Mr. Charbonneau has "concretely measured" the impact of the economic stimulus? �He really was laying 75 workers off? �For how long? �The money comes out to $133,333 a job "saved". �Again, like the solar panels, seems like a lot of money for a job that probably takes a few months, to reconstruct and pave a road that already works.

#49 is a story about jobs saved at Anderson Windows of Bayport, MN, where the plant is bringing back 250 of 560 workers laid off last winter...�
...a move made possible in part by the tax credit for energy-efficient home improvements. Andersen Windows also cites the first-time homebuyer credit as another factor, as this tax credit helps to get existing homes off the market so that builders can start building again.
�But the company has laid off workers five times since 2007, and shed over 4,000 jobs. �It was possible that come April, the company would have called back some of those workers; according to KARE 11, only fifty of the job cuts were permanent, all of those in the office and management staff. It instead recalled them in March (at least 180 of them.) �How long were those jobs going to be gone if there was no stimulus? �

Gary Gross works on #6. �$22 million is being used to restore some engines are cars for Amtrak. �
At best, the restoration projects will keep union people already working for Amtrak busy a little while. Because people understand that the money that�s spent on this project is onetime money, the efffect will be limited. People that get this type of money understand that this money won�t come in month after month.
He's right, and that's good work, Padewan.

I'd encourage other readers to go out and find the stories behind the other 96-97 projects Sheriff Biden is trolling for the media to use. �Dig in and ask yourself: �What value is created? �What value was destroyed? �How many of the jobs created are temporary jobs and how many are permanent? �What happens after the project is completed? �

Many years ago it was said:
Let us get to the bottom of things. Money creates an illusion for us. To ask for co-operation, in the form of money, from all the citizens in a common enterprise is, in reality, to ask of them actual physical co-operation, for each one of them procures for himself by his labor the amount he is taxed. Now, if we were to gather together all the citizens and exact their services from them in order to have a piece of work performed that is useful to all, this would be understandable; their recompense would consist in the results of the work itself. But if, after being brought together, they were forced to build roads on which no one would travel, or palaces that no one would live in, all under the pretext of providing work for them, it would seem absurd, and they would certainly be justified in objecting: We will have none of that kind of work. We would rather work for ourselves.

Having the citizens contribute money, and not labor, changes nothing in the general results. But if labor were contributed, the loss would be shared by everyone. Where money is contributed, those whom the state keeps busy escape their share of the loss, while adding much more to that which their compatriots already have to suffer. ...

As a temporary measure in a time of crisis, during a severe winter, this intervention on the part of the taxpayer could have good effects. It acts in the same way as insurance. It adds nothing to the number of jobs nor to total wages, but it takes labor and wages from ordinary times and doles them out, at a loss it is true, in difficult times.

As a permanent, general, systematic measure, it is nothing but a ruinous hoax, an impossibility, a contradiction, which makes a great show of the little work that it has stimulated, which is what is seen, and conceals the much larger amount of work that it has precluded, which is what is not seen.
Apply this, young Jedi, to the hundred.

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One more reason not to have passed the DFL budget 

North Dakota is cutting its income tax rates by about an eighth across the board. Corporate rates too. Think Governor Pawlenty knows the Maryland story?

I hope the governor is watching New Jersey, where a fight over a flat tax is going on in the Republican primary. I don't like the Lonegan proposal only because there should be a zero rate up to some income level. (As you might have told yesterday, I'm an old Hall-Rabushka supporter.) Governor Pawlenty, should he decide to run for a third term, could make fundamental reform -- one bracket, not three or four as the DFL proposed -- the cornerstone of the next campaign.

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Keep yer britches on: Nobody's replacing the dollar standard (yet) 

My dear friend Ed Morrissey opines yesterday that perhaps, just perhaps, the end of the "American Economic Era" is at hand.
Warning signs abound. Earlier this month, the Treasury discovered that demand had significantly decreased for its long-term bonds. In order to get buyers at its regular auction � the device by which the United States runs on deficit spending � it had to hike the interest rates it pays the bondholders. It signaled a lack of confidence in America's ability to sustain its debt expansion, which has the effect of worsening it through heavier debt service payments on the bonds they managed to sell.

That reinforcing cycle of cascading debt has analysts worried enough to openly discuss downgrading U.S. debt. Financial Times reported this week that Standard and Poor has already done that for Great Britain's foreign debt, issuing a �negative� rating that will require more generous interest terms in order to sell bonds in international markets. The same kind of deficit spending in the United States will eventually trigger a re-evaluation of the U.S. credit, as the United States and United Kingdom face similar debt spirals with no end in sight.
Now to be fair, Ed explains back on HotAir that "I allowed my imagination to run" and "I like to engage in a little speculative thinking," and that's great. I suppose I've done some of that on this blog. �But it's worth kicking the tires on this idea to understand what happened and why.

First, as regards the S&P warning, let us recall that these are the people who botched the rating of mortgages. �As Bob McTeer observes, the rating agencies cannot be discussing credit risk of sovereign debt: �It doesn't exist. �It has the ability to print non-interest-bearing money to extinguish its interest-bearing debt. �S&P might be saying something about inflation risk or interest rate risk, as McTeer acknowledges, but this isn't what rating agencies do. �Their ratings only speak to default risk, which doesn't happen with inflation. �(There are some that will conflate default with repudiation via inflation. �But officially, there's not been a default even in 1933. �And note that the preceding never applies to countries who, because of their inflationary tendencies, issue debt in foreign currencies.)

Second, nobody ever thought that central banks would continue to finance U.S. budget deficits ad infinitum, as they had in the previous administration. �Brad Setser seems to have the scoop on this: �The demand for U.S. assets has dried up because central banks overseas no longer have money to invest.
Looking at the 12m change actually understates the swing in central bank demand. In the first quarter of 09, the outstanding stock of longer-term Treasuries rose by $278 billion. Central banks � according to the Treasury data � only bought $25 billion of longer-term Treasuries (all in March, and likely mostly short-term notes). China only bought $15 billion (all in March). Over that time period, central banks bought $85 billion in short-term Treasury bills, including $32 billion from China.
Joshua Sharf thinks the Chinese are making a strategic investment in the U.S. economy, and Dallas Fed President Richard Fisher says all the Chinese talk about is monetizing the debt, but as I speculated a few months ago their motives are a little more basic: �They have no place else to turn. �And we know that China has had a decline in demand for bonds generally because their trade surplus has dried up in the global recession (even U.S. trade deficits with China have shrunk a little.) �China is warning now that they are not expecting to export as much capital as in the recent past.

This post should not be construed to minimize the potential damage done to the U.S. economy from high budget deficits and a rising debt-to-GDP ratio. �But the trouble for us is less than for other countries (including the U.K.) because there's no alternative to the dollar as a reserve currency, until someone builds it. �And that's not likely to happen as long as other countries have credit woes foremost on their minds.

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Thursday, May 28, 2009

Congratulations Little Falls High! 

Winners of the Council for Economic Education's Economics Challenge 2009.
Phillips Academy and Little Falls High School defeated more than 2,000 teams from across the country to become the champions in the 2009 National Economics Challenge Finals sponsored by the Council for Economic Education and the Goldman Sachs Foundation.

Student teams from high schools across the country competed as finalists and traveled to New York to compete to win in one of two divisions. Students enrolled in advanced placement, international baccalaureate and honors economics courses were quizzed in the Adam Smith Division, while those enrolled in single semester general economics classes faced-off in the David Ricardo Division. The teams had each previously won state and regional competitions. Over 8,000 high school students in 34 teams competed in the Spring of 2009 to advance to the championship series.

"Teams were required to answer rigorous questions about complex economic concepts and theories of micro- and macroeconomics, international economics, and current events in an oral quiz bowl tournament style." Congratulations to Luke Leblanc, Elizabeth Hauer, Cody Richner, Jacob Devine and their teacher Tom Stockard for bringing the trophy to Central Minnesota!

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VAT plus 

While I was a graduate student I was a "gopher" for a conference on Reaganomics. One of my assignments was to drive Jerry Jordan, then a member of the Reagan Council of Economic Advisers, to the airport after his speech. I had decided that as part of my job I should try to know something about each person I was driving around, have some questions prepared. The value-added tax was a topic at that time, so I asked him whether the Council was doing any work on VAT. His reply was no, because while there might be some sympathy for it within the administration, they would only propose it as a substitute for the income tax. Their fear, he said, was that Congress would use it as a complement to the income tax.

He was just off by 27 years or so...

With budget deficits soaring and President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax.

Common around the world, including in Europe, such a tax -- called a value-added tax, or VAT -- has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity.

(h/t: Andy.) As a substitute, the VAT has advantages and disadvantages. Technically, VAT works like a tax on production: the amount of GDP produced in an economy is equal to the value added by humans at all levels of the production process. since in the aggregate total production should equal total income

VATs tend to be rather messy in practice; many flat tax proposals have descended from the original Hall-Rabushka tax plan from the early 1980s. (It was, in fact, part of the discussion at the Reaganomics conference.) William Gale from the Urban Institute has a short primer. One should note that flat tax, VAT and the Fair Tax are three entirely different proposals. But unlike the other two, the proposal of VAT here would be a complication of the tax system that doesn't create any tax reform. There is unlikely to be any tradeoff of income for VAT, since it appears the reason the Obama administration is exploring it is to get additional revenue.

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Understanding MN bank reports 

The FDIC reported out first quarter bank results, including these for Minnesota. Twin Cities Business Journal is reporting a drop in profits of 65% over first quarter 2008, but this should be taken with some caution. When banks report income, they must include in their figures any charge-offs they take for anticipated loan losses.

Return on assets, though, fell in Minnesota to 0.56% from 1.18% a year ago. Yields on loans are falling faster than their cost of funds, which is squeezing profits somewhat, and then you add to it larger charge-offs (for the uninitiated: a bank puts money aside in anticipation of losses on loans that are deteriorating; it then draws on that fund if the loan defaults as anticipated.)
The quality of loans held by Minnesota�s banks continued to decline. Net charge-offs as a percentage of total loans and leases were .94 percent, compared to .74 percent in the fourth quarter of 2008 and .48 percent in the first quarter of last year. Noncurrent loans and loans as a percentage of total loans and leases was nearly 3 percent, compared to 2.6 percent in the fourth quarter of 2008 and 1.5 percent in the first quarter of last year.
Total loans of Minnesota banks fell from $80 billion a year ago to $54 billion now (deposits fell much less, from $62b to $56b.) The share of assets that were mortgages fell from 42% to 21% in the period. Equity capital has fallen from $8.2 to $7.1 billion in the same time.

This isn't bad, and it certainly isn't WaMu bad. But it isn't good for Minnesota when loans at its banks decline by a third. (That's different than saying credit in Minnesota declined by a third -- many of us get credit from institutions in other states.)

What is interesting about this period is that we have had only 8 commercial banks close, so many banks are restructuring while their leverage ratios have not moved very much. It appears that, as much as anything, the banks are going through this process in an orderly fashion. Bloomberg reports as well that banks' riskiness is now being better perceived by other market participants, so that weak banks are being charged higher rates than healthier ones. This is improving credit conditions:
U.S. companies have sold a record $600 billion of bonds so far this year, up from about $500 billion in the same period of 2007, according to data compiled by Bloomberg. Rates on 30-year fixed mortgages are about 1.8 percentage points more than 10- year Treasuries, down from 3.27 percentage points in December. ...

While financial markets are improving, more than 60 U.S. financial institutions have collapsed over the past two years, according to Bloomberg data. In its latest quarterly survey of senior loan officers, the Fed found that more than 70 percent of respondents said bad loans will rise should the economy progress �in line with consensus forecasts.�
And if all this talk about green shoots doesn't pan out... perish the thought.

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Tuesday, May 26, 2009

Watch your step! 

Even after recent turbulence, the Dow Jones Industrial Average is up roughly 30% since its low in March. It is natural for you to feel happy or relieved about that. But Benjamin Graham believed, instead, that you should train yourself to feel worried about such events.

At this moment, consulting Mr. Graham's wisdom is especially fitting. Sixty years ago, on May 25, 1949, the founder of financial analysis published his book, "The Intelligent Investor," in whose honor this column is named. And today the market seems to be in just the kind of mood that would have worried Mr. Graham: a jittery optimism, an insecure and almost desperate need to believe that the worst is over. ...

Stocks have suddenly become more expensive to accumulate. Since March, according to data from Robert Shiller of Yale, the price/earnings ratio of the S&P 500 index has jumped from 13.1 to 15.5. That's the sharpest, fastest rise in almost a quarter-century. (As Graham suggested, Prof. Shiller uses a 10-year average P/E ratio, adjusted for inflation.)

Over the course of 10 weeks, stocks have moved from the edge of the bargain bin to the full-price rack. So, unless you are retired and living off your investments, you shouldn't be celebrating, you should be worrying.

Jason Zweig today. Graph source Doug Short.


Beware the do-gooders 

In four short paragraphs, we get a veritable cornucopia of crap.
We tend to believe that the United States is the best place to live. And of all of these United States, Minnesota is the best of the best. Collectively, we want opportunity and education, quality health care and transportation systems, as well as readily available police and fire protection.

So why can�t we agree on how to pay for these things that we all use? Our Legislature last week presented the state with a two-year budget that is balanced and fair. It taxes those who can afford it the most and includes cuts to spending where possible. Our governor says he will veto this bill and cut spending according to his own whim.

This no tax policy favors the rich at the expense of the rest of the state.

Gov. Tim Pawlenty spends much of his time with the top 2.5 percent (by income) of the population of Minnesota. Is this why his tax policy favors them? Is it because his experience is different from the majority of Minnesotans?
Where do we start with this?
"We tend to believe"? �Why hedge this? �Are you suggesting that this might be a wrong belief?
  1. "Collectively"? �What is there about the belief in opportunity and freedom, the ability to develop your human capital (education), and quality health care, that is a collective belief? �These are things I believe in as a person, as an individual. �
  2. And yes, I know you didn't write "freedom". �I meant to ask, why not? �
  3. Is it the "collectively" meant that the writer had concluded already that the only way to provide for those things he's listed we want is to use the state to buy them.
  4. "Our Legislature last week presented the state with a two-year budget that is balanced and fair." �Well no they didn't unless you are referring to the two-hour budget on Monday night which didn't technically pass by midnight and which Times' executive editor John Bodette said "doesn't work" as a budget. �(I agree with Gary on the rest of John's column.)
  5. "It taxes those who can afford it the most" always means "it taxes those I've decided can afford it the most." �It means "we won, so we get to take your money." �(Seems I've heard this before. �Why yes, yes I did.) �By the way, 77% of Americans disagree with needing more taxes.
The rest of this column describes this leftist's visit with the local group GRIP, a long time point of discussion on this blog (here and here). �But in this article he keeps coming back to this "business leaders" and "2.5% (by income)" point like all business leaders are somehow rich. Did he ever talk to a business leader? �And who are they? �Try reading the Survey of Business Owners from the US Census and you would learn:
  • 15% of them are seniors;
  • half of them don't have a college degree;
  • almost a fifth of them are veterans; and
  • most of them don't make much money (check out this graph).
But that group is not the favored group right now. �We read for the remaining 500 or so words of the article about an "ecumenical" group that seems to have no place for 20 million or so business owners. �Isabel Paterson once noted:
Most of the harm in the world is done by good people, and not by accident, lapse, or omission. It is the result of their deliberate actions, long persevered in, which they hold to be motivated by high ideals toward virtuous ends.

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Understanding local multipliers 

A city in Rhode Island -- state unemployment rate: 11.1% -- is finding out stimulus dollars don't really stick in their town.
Paula Daigneau makes $18.60 an hour directing traffic for the repaving of Main Road in Tiverton, a town of 15,000 in eastern Rhode Island. She says that�s twice what she would have earned doing chores on a friend�s farm.

�The jobs were getting pretty limited,� said Daigneau, 51, a flagger who signals drivers with a sign she pivots from �Stop� to �Slow.�

Daigneau and 31 full-time co-workers are beneficiaries of President Barack Obama�s $787 billion spending program aimed at reviving the U.S. economy. To Michael D�Ambra, president of the construction company that landed the $2.4 million contract, the Main Road project shows the effort is succeeding.

�It appears that the stimulus is doing its job,� D�Ambra said. �It�s putting people to work.�

To critics, the Tiverton project, which is scheduled to end in September, illustrates the stimulus program�s weaknesses: They say it may be creating too few jobs, too slowly, for too short a time.

Once the stimulus money is spent, �that�s the end of it,� said Harry Staley, chairman of the Rhode Island Statewide Coalition, a group that advocates responsible government spending. He said he�s concerned that the money is going to �projects that are not in fact critical� and won�t provide a long-lasting boost to the economy.
How much of the $2.4 million stays in Tiverton? �A lot of this depends on how much add-on spending goes into the project. �A road gets torn up, so local businesses lose work in the short run. �
National Grid Plc, which distributes electricity and natural gas, is doing gas line maintenance as Main Road is resurfaced, but that work would have been done anyhow and hasn�t required any new hiring, said company spokesman David Graves. National Grid�s U.S. headquarters is in Westborough, Massachusetts.

The road workers, from Rhode Island and nearby Massachusetts, aren�t spending much money in Tiverton because most pack their lunches for their 30-minute lunch break, said D�Ambra, the construction company�s head.

Aside from renting an office and buying fuel, �I don�t think we really bring a lot of dollars and cents into that town,� said D�Ambra, whose company is based in Warwick, Rhode Island, about 35 miles from Tiverton.

�What the project�s going to mean to me is short-term, we may lose business,� said Doreen Rapoza, co-owner of the Hair Reflections salon. �But after, it may do well because more people will be walking with sidewalks.�
Many people driving I-94 this month have begun to experience road delays as well (one trip to Plymouth from St. Cloud at midday was 45 minutes longer due to construction near Rogers), a cost which is not factored into the multiplier calculation. �Neither is the lost business of Ms. Rapoza. �The federal government isn't as worried about where the job creation happens (Massachusetts and Rhode Island voters both vote for president) but the impact on towns is very uneven. �

Cf. Cogan, Cwik, Taylor and Wieland [Feb. 2009].

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Monday, May 25, 2009

Those who knew "live free or die" 

I finally got around to finishing the Imprimis for April, which was the much-heralded Mark Steyn address "Live Free or Die." �Steyn lives in New Hampshire and the phrase appears on our license plates. �"Our" is a tenuous connection; I left the state in 1979. �But many years later on a visit I drove Mrs. S up to the Bennington Battle Monument, which was the site of General John Stark's great defeat of the Hessians attempting to resupply Burgoyne in Saratoga in 1775. �Stark, who is New Hampshire's greatest military leader and author of the title of Steyn's talk, said to his troops before the battle,�"There are your enemies, the Red Coats and the Tories. They are ours, or this night Molly Stark sleeps a widow!"

Many widows (and some widowers) awake this morning to Memorial Day, whose spouses fallen understood the rest of Stark's more famous motto -- given late in his life from his Derry home -- "Live free or die: Death is not the worst of evils." It is a very basic reaction to force, to coercion. It was well understood by these students in the picture above (thanks to Gateway Pundit) that the option of living under the heel of government is so unacceptable that life itself is a worthy offering in trade for freedom. Steyn writes of a European author:
Mr. Oscar van den Boogaard ... was reflecting on the accelerating Islamification of the Continent and concluding that the jig was up for the Europe he loved. �I am not a warrior, but who is?� he shrugged. �I have never learned to fight for my freedom. I was only good at enjoying it.�
Today we honor not just those who learned how to fight unlike Mr. van den Boogaard but those who knew that there were worse options than the sword, and give thanks to those families who balance their honor and their loss.

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Friday, May 22, 2009

T Paw, WSJ, Veto Pen 

Friday's opinion page in the Wall Street Journal (WSJ) has a terrific article (note: subscription required) on our governor, Tim Pawlenty - top of the page! The author, Kimberley A. Strassel, begins the article with this classic, Minnesota quote:
"'Minnesota nice' comes in two forms: first, gracious hospitality; second, smiling stubborness. Republican Gov. Tim Pawlenty this week delivered his spendthrift legislature a humiliating tast of the latter. You betcha."
The DFL is identified plainly as the irresponsible player in the budget process, holding the DFL accountable for their ludicrous suggestions including: "... a new top income tax rate of 9% (the 4th highest in the US); across-the-board income tax increases; sales taxes on internet downloads; the end of the local property tax cap (enacted only in 2008); alcohol taxes; cigarette taxes; eliminating the deduction for an organ donation (no joke); and killing the mortgage interest deduction."

This opinion is a great read. The close includes a suggestion to Congressional Republicans that they might start looking up north for fiscal responsibility. "It is the fundamental tenet of our party, and the conservative coalition more broadly. If we don't have that, we are nothing."

Thank you, T Paw!

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Just a quick thought on LEI 

Leading economic indicators were up 1% for April, and some reports indicate that this means the recession will ease. Not so fast. We are better off than many other countries (as James Kwak noted), but out of the woods is a stretch. We would want to see a sustained increase in LEI for a few months before we even forecasted an end to the recession is "soon". CBO director Doug Elmendorf is still pouring cold water on the economic outlook. I'm a little confused over his statement that somehow we get growth in the second half of 2009 but no improvement to unemployment until the second half of 2010. You can only get GDP growth by an increase in some inputs or by an increase in productivity, and their last economic forecast included a deceleration of productivity growth to 1.4% from 1.8%. What's going to increase GDP if not a pickup in employment? Investment?

The Fed forecast for GDP continues to revise downward, by the way.


There may be more trickle down 

Bloomberg reports on the trickle-down of Bear Stearns.
Cavonberry�s, Yang�s 46th Street shop near the headquarters of the New York firm taken over by JPMorgan Chase & Co., once bustled with finance workers jostling to buy a barbeque chicken chopped salad and bottled water for $12. �They used to be turning them away at the door,� Irace said.

Last week, slow enough that one cashier instead of the usual two operated the register at midday, Yang tallied up the ripple effect of the financial slump that cost Bear Stearns its independence: He negotiated a $4,000 monthly decrease in rent with Sierra Realty Corp., to $17,000, and is spending 35 percent less a week with Fischer Foods of New York Inc. for such things as artichokes and ham.

�Since January, everything�s dead,� said Yang, 52.

The biggest Wall Street crisis since the Great Depression isn�t just a setback for New York or bankers. The finance industry�s contraction may wipe out $185 billion in wages and profits, or $600 for every man, woman and child in the U.S., according to Thomas Philippon, a finance professor at New York University�s Stern School of Business. The trail of reduced income affects car mechanics, waiters, sports teams, hair stylists, jewelers, housecleaners and watch repair shops.
Says one person in the story, "�The higher your income, the more in services you consume. You don�t iron your own shirt.� But what if some of that income is coming from reasons other than one's own skill? Philippon's research shows for example that maybe half of the wage premium in financial services was due to deregulation (greater returns to skill in exploiting a more risky environment), so that the share of financial services in GDP rose more than expected by historical experience. He argues that roughly 700,000 jobs needed to be lost in insurance and finance to get back to those levels. The data in the graph above are not strictly comparable because they include real estate, which Philippon doesn't seem to include.

My colleague Rich MacDonald and I have puzzled over this for awhile: How is it that the bottom seems to fall out of finance, and yet only 5% of jobs in the area have been lost from the Dec 2007 peak in the business cycle? Based on what I see in the BLS data, insurance employment has not even fallen 50,000, and the Bloomberg article puts finance job losses at about 250,000. So we have a ways to go to get back to a 2001-level financial world, at least in terms of employment.


When you cap credit cards, who pays? 

When you limit credit cards, you can expect that fewer people will get credit cards. �And which people will that be?
Risky borrowers usually are a cash cow for credit-card issuers, thanks to hefty fees and interest rates. But some of that revenue will dry up after President Obama signs new credit-card legislation Friday.

...The law will restrict some fees, limit certain interest-rate increases and require companies to provide more disclosure to customers. It is yet another headache for the credit-card industry, already battered by rising delinquencies and defaults because of the recession.

...Credit-card companies are trying to decide how to recalibrate their portfolios to reflect the coming changes. Industry executives say that credit is likely to become less available, particularly to risky borrowers, and more fees likely will be loaded into the front end of the account, rather than being assessed after a customer falls behind on payments.
For many young people, this will mean less credit (credit scores depend in part on credit history.) The students in my money and banking class, where we read about this issue yesterday, were very split on the issue. Many think people should just have to save for their expenditures, or pay cash. Others felt it was an undue burden -- banks and customers are quite willing to accept the terms and conditions of subprime credit cards, so why should government interfere. It was an interesting discussion.

For my own comments, I outsource to Don Boudreaux. �For my students who might be reading, see also Tim Schilling.


Thursday, May 21, 2009

Side replies to bishops post 

There were many great comments made on my reflection on the bishops' letter. It's not an easy thing to discuss, and I would point out that those who disagree with many of my posts are on conventional ground in arguing against me there. Let me add a couple of points made to me from outside that chat.

My former producer Matt Reynolds pointed me to the story of Zacchaeus (from Luke 19.) Worth remembering that Jesus called him by name and asked to stay with him without any demands made. Zacchaeus was a tax collector (a private function in the Roman empire; Zacchaeus probably was a subcontractor for one rather than one himself: on this the Bible isn't so clear) but who wants to hear Christ's teachings. When called he repents of his sins of his own volition, consistent with the observation I put forth for the rich man in Matthew 19.

An ELCA pastor notes for me Luther's doctrine of the two kingdoms; I'd heard of this before but not spent much time reading it. The kingdom of the left is the worldly kingdom, ruled by law and man's reasoning powers. The kingdom of the right is God's, ruled through faith and His grace. Government is therefore divinely ordained, but operates in a world where the Devil also roams. We can't just accept every government action as being the result of God's left hand. So we should ask the bishops: What is it about requiring non-Christians to pay taxes that allows us to preach Christ crucified and resurrected and the grace of God?

He also tells me to look at Philippians 4:17, in which Paul thanks the church in Philippi for the gifts they send him, which had been the most generous of all of his churches. "Not that I seek the gift, but I seek the fruit that abounds to your account." Paul clearly is laying out how he is not collecting the money for himself (Paul too having the experience of tax collection is certainly sensitive to the perception!) but that it develops a generous heart in the people who give. Is it possible that paying taxes creates character in the citizenry? I dare say not.

Many thanks to Mitch for his notice of my earlier article; their discussion was equally enlightening.

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Concerning absolutely nothing 

Mrs. S is an avid reader of obituaries, and one thing that will always stand out is the appearance of someone dying who was more than 100 years old. Two days ago, three tributes -- the newspapers now sell you space for your full obit; all they list is a when and where if you don't pay -- appeared for three women all of this county who were 103, 106 and 108. These were women who had memories of both World Wars, who lived through the Depression as full adults, etc. You wondered how the world seemed different to them.

The oldest of the three had this written about her:
She was very appreciative of every kindness shown to her. She included everyone�s needs in her prayers daily. None of her visitors could ever leave Knute Nelson Home without receiving Hortulana�s special blessing, � May St. Christopher go with you and may your Holy Guardian Angel watch over you wherever you go�.

Hortulana passed away on May 18, 2009 at the age of 108. She had been living at Knute Nelson Memorial Home since 1996, where she had been receiving excellent care.
And I thought, 1996? This woman was 95 when she went into the nursing home. And then lived thirteen years more. An angel must have watched over them.

Many of us are going to live longer now. I'm blessed with good genes, as three of my grandparents lived into their 90s and my parents are still in good health (though my dad eschews green bananas.) Life extension technologies get better and better. I don't think we'll be as curious about a 108-year-old woman who seemed to enjoy life as a housewife and partner to her husband as we are now. Is that a good or bad thing?


Tuesday, May 19, 2009

College Graduating Teachers Flunk Basic Math 

We have all heard the complaints about how poorly American children perform on standardized tests. We are aware that most industrialized nations score better than Americans on international tests, especially in math and science. We also know that high school graduation rates average around 70% nationally.

The key question is: WHY?

For 35+ years our educational institutions have focused on the child, the ego, the self-esteem, the more or less intangibles of education. In the process we have dumbed down our curriculum standards. Then we send people who never learned the basics, to college to study more empty material, and return them to the classroom.

Students who do not learn what is critical to know pay for this lack of knowledge when they discover that the real world actually has demands. These test results from the MA Department of Elementary and Secondary Education licensing exam for aspiring teachers are appalling:
only 27 percent of the more than 600 candidates who took the test passed [the elementary mathematics section].
This is robbery. We are cheating our children, parents, taxpayers, employers, and short changing the future for all.

What to do? Upgrade the education curriculum at all levels with content courses: real geography, real science, regular English, real math courses and perhaps, a foreign language. Extend the instruction time at least an hour a day. It is time we return to standards of the past - why? They worked.

The purpose of public education was to provide access to solid curriculum for all. When we remove the content and standards from all classrooms, not only are we denying the opportunity for students to learn, we are creating a society in which only the elite will succeed and by default, create an underclass that will not succeed.


Scary line of the day 

I�m advocating 6 percent inflation for at least a couple of years. It would ameliorate the debt bomb and help us work through the deleveraging process.

Ken Rogoff, who with Greg Mankiw is advocating higher inflation. Rogoff was the IMF's chief economist until recently.

There is certainly something to be said for allowing inflation to work through a financial crisis; Charles Kindleberger thought as much. But in a world where many countries have central banks using inflation targeting, what would it mean for a central bank to explicitly raise the target for the purpose of financial stability? Presumably the inflationists would not agree with Marvin Goodfriend's comment in the article that raising inflation means you get a recession later to move the target back to 2% or what-have-you. But I'm not convinced Rogoff or Mankiw have really thought that through yet.


Job creation collapse 

Third quarter 2008 data for gross job gains and gross job losses is out this morning. The only sector that added jobs in Q3 was health and education (which is a strong sector up here in St. Cloud as well.) What is telling in the data for Minnesota (see Tables 5 and 6 infra.) is that the rate of gross job creation collapsed in 2008 from 6.5% of the workforce in September 2007 to 5.7% in September 2008. In the 2001 recession, the rate of gross job losses increased by much more (from 7.3% in 2000Q4 to 8.1% in 2001Q3; so far we've gone from 6.5% in 2007Q4 to 6.9% in 2008Q3.) The rate of gross job losses is relatively constant over the period.

Firms are not hiring more; could it be their expectations about future tax liabilities? We don't have data before 1992, so it's hard to do more than wonder.


"Civility took a beating" in "an act of defiant irresponsibility" 

The DFL was jamming through a close-of-session tax bill and Republicans were screaming, not so much at the content of the 33-page bill, they didn�t have time to worry about content. They were screaming about the style. Rammed, jammed, slammed. You name it, the DFLers were doing it. Their timing, their discipline was extraordinary. Parliamentary procedure, civility took a beating....

But as the clock moved to 11:55, decorum was blown away.

The tax bill was introduced. Republican Sen. Julianne Ortman was speaking, trying to ask a question about the bill.

Sen. Jim Metzen, the president of the Senate, spoke over her.

�We adjourn at 12,�� he said. �We�re going to vote this bill.��

Now it was complete chaos.

Republican Sen. Dick Day left his seat and started collecting Senate rule books from his Republican colleagues.

�We don�t need these anymore!�� he yelled.

As the DFLers voted, Senate minority leader Dave Senjem was yelling into his mike.

�Senator Ortman has the floor!��

�I don�t recognize you,�� Metzen was saying.

The Senate DFLers passed the bill. Republicans didn�t vote. It was midnight, maybe a shade after midnight.

�Motion to adjourn,�� yelled Metzen over the din of angry Republicans.

There was a 43-0 vote to adjourn.

...The DFLers unloaded months of frustration. In what many will see as an act of defiant irresponsibility, they got to say that they balanced the budget in a responsible way. It�s so responsible DFL leaders were trying to say, with straight faces, that maybe Pawlenty will see the wisdom of it and sign it.

Doug Grow. Quem Jupiter vult perdere, dementat prius.

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Iran's REAL Nuclear Goals 

This article in today's WSJ, outlines the moves being made by Iran to obtain the necessary components for very accurate missile strikes. These financial maneuvers, designed to hide acquisition of critical components, provide proof that the current US ostrich approach when it comes to Iran is innocent at best and very, very damaging to people of the free world. These two paragraphs summarize the situation:

Back when the Bush Administration was warning about Iran's nuclear progress, or its deadly meddling in Iraq, the typical Democratic and media response was to treat the Islamic Republic as innocent until proven guilty. This month, Democrat Robert Morgenthau supplied the proof.

In testimony to the Senate Foreign Relations Committee that was largely ignored by the media, the legendary Manhattan District Attorney opened a window on how Iran is secretly obtaining the ingredients for an arsenal of mass destruction.
One can continue to behave naively or one can grow up and recognize the real world. Thank goodness Dick Cheney is trying to awaken those who refuse to believe that there are people who want to destroy all of us, regardless of our rhetoric. It would be nice if the DC Democrats and the mainstream media would pay attention and realize what is at stake.

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Baby DNA Protected, For Now 

For those of you following the fight to protect our DNA from government intervention, this year's efforts worked. At 2:02 AM I received the following announcement from Twila Brase, President of the Citizens' Council on Healthcare. (emphasis mine).

Good Morning!

It's 1:15 a.m. and I want to report the good news. We won! The gavel came down at midnight, the Minnesota legislature adjourned in the nick of time, and the Baby DNA warehousing bill to repeal genetic privacy and DNA ownership rights at birth, never came up for a vote!

This is your success!

Your citizen petitions, the many people who attended the legislative hearings, your emails and phone calls to legislators, the Sue Jeffers show on KTLK, CCHC's new Protect Baby DNA cards, the Glenn Beck Program, Reps. Tom Emmer and Mary Liz Holberg, Sen. David Hann's great questions during the Senate hearing, the "Do NOT Repeal Genetic Privacy" stickers we all wore, my opportunity to speak at the Tea Party, our meeting with Governor Pawlenty, the CCHC report on newborn screening and eugenics, the filing of the lawsuit against the Department, local TV news coverage (esp. WCCO-TV), the prayers of many people, and the unexpected informational hearing on genetic privacy led to this success.

Governor Pawlenty helped too. His budgeting ultimatum and declaration of no special session changed everything. The focus became the budget, health care cuts, and taxes. Assuming he meant it, there will not be a special session and our lives, liberty, property�and the genetic privacy law�are safe for another eight months.

The House and Senate Baby DNA bills (HF1341/SF1478), remain "alive" until next session because the legislature functions in a 2-year cycle. Plenty will be done before then on our side and on theirs...which could change entirely how the battle over who owns our genetic code looks when the state legislature returns on February 4, 2010.

We'll keep you apprised. There will be several events that you may want to participate in between now and then as we work to secure dismantling of the State and Mayo Clinic's DNA warehouses, require the Health Department to follow the law (informed consent requirements) and secure DNA property rights in law.

But this morning, I and the members of the CCHC Board of Directors want to thank you for helping us preserve and protect genetic privacy rights, informed written consent rights, human research subject rights, parent rights and DNA property rights for all Minnesotans!

Thank you!

Twila Brase
Citizens' Council on Health Care
A short summary is this: many children, including those born recently, have their DNA taken from them without parental consent. Preventing the taking of DNA at the present time is difficult but still doable. For now, we have averted a major violation of privacy and freedom.

We can make a difference - this time, we did. Thank you to all. If you want to get more involved with this group and legislation, please feel free to contact Twila. She has done yeoman's work on this effort. She understands the more the government gets into our lives, the less freedom we have.


Monday, May 18, 2009

Some Weekend Thoughts: Health Care, Notre Dame 

It's been a very hectic few weeks but things are finally settling down a bit. I thought I'd voice a few opinions on two issues of the day: Nationalized Health Treatment and Obama at Notre Dame. The only relationship between the two is Obama's confidence that he has all answers to all problems and can talk both sides of an issue in the same speech.

First, national health care. The leftist Democrats want us to be more like Europe, with its nationalized health care. It worked fine when their population was young and relatively homogeneous. No longer is it young and no longer is it homogeneous. The workforce is declining as are birthrates. So, how can it continue? Rationing? Yes.

The Democrats tell us they can provide a government run health system that will cut cost yet they ignore one of the key costs but our health care system: Lawsuits. IF the US were to go to a "loser pays" tort system on medical lawsuits (maybe all lawsuits for that matter), the cost of medical practice insurance would plummet. We would no longer need extraneous tests to protect doctors from being sued because they "didn't do everything to ____________, insurance rates would drop and given our ingenuity, medical services would improve, costs would decline - all without government intervention.

Can we go this route? Not with Democrats in power - one of their largest source of funds is from tort (ie sue them) attorneys.

The second issue is Obama at Notre Dame. I have to hand it to him and his cronies. Getting an honorary degree from Notre Dame, while supporting abortion and even die after surviving a botched abortion is a real coup. Then again, perhaps Notre Dame is not the Catholic institution I was raised to believe it was.

This article in the American Thinker is excellent. It describes how the Catholic universities have morphed left along with most of the public institutions. I wonder how many current attendees at Harvard, Yale, Princeton, etc. know that their universities originally were religious institutions. I left the Catholic Church a long time ago but still respect its liturgy, basic beliefs, and strength when it functions as the institution it could be. It is a sad day when a US President who holds the social and theological view that Obama holds, is given the award he got Sunday.

Where is the backbone of any belief system that holds people accountable for their actions?

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A tweeted weekend 

I probably used Twitter more than ever this weekend in arguing a few points with people over the budget discussions. You'd be better off following that trail to find out what I said. A few points of summary:
  1. I doubt the DFL really thought either override vote would pass. It was theatrics and nailing a few positions down for the 2010 elections, particularly on the GAMC line-item veto. Expect what Gary calls the Fine Whine Tour over the next sixteen months. Certainly the reporting over the weekend over the "somberness" and crying of DFL legislators over the vote indicates this.
  2. Pawlenty spokesman Brian McClung (via Twitter) says legislative leaders are to be at the Governor's mansion in the next twenty minutes. There was this odd conflict last night over who was supposed to call who next after the governor dropped a plan on the DFL late Saturday night. One side said the governor's representative said they'd be in touch, the other side said the DFL would sleep on it and call back. Reminded me of teen love and phone standoffs that often happen therein. Besides, I doubt the DFL was going to do anything before getting their override votes. (UPDATE: Politics in Minnesota reporter says meeting delayed to 12:15 at DFL request: unclear why a delay.)
  3. The DFL seems still to be in denial over the recessionary effects of a tax increase. The least recessionary thing they could have done was to do something with the governor's tobacco bonds, but because that cuts revenue for them to spend in later years they don't want to do that. So they are stuck using a tired Keynesian argument that tax increases are less harmful than government spending increases. This is a better argument at national than subnational levels of government. Speaker Kelliher and the two tax committee chairs really needs to read Feldstein and Vaillant before talking about this again.

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Coffee-spitting line of the weekend 

Speed Gibson:
Know what I think of the DFL lecturing us about ethics? Pull my finger.

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Error bands for accountability 

A number of people have been commenting on the new graph that's shows how the outturn of the unemployment rate compares to what the Obama Administration forecasted back when they were pushing for passage of the stimulus bill. (For a different way to tell the same story, look at Jim Hamilton's post this weekend on industrial production.) I like how Greg Mankiw tells this story best:
What does this mean? One interpretation is that the fiscal stimulus has failed to achieve what Team Obama thought it would. Another interpretation is that the baseline was worse than they believed at the time. I am confident the report authors would adopt the second interpretation. If so, that fact is consistent with what I said in a previous post: In light of the shifting baseline, it is impossible to hold the administration accountable for whether its policies are achieving their intended effects.

To be clear, this lack of accountability is not a feature on this specific administration but is, instead, a reflection of the inherent uncertainties associated with macroeconomics. The administration, however, has not been particularly forthright in admitting to this lack of accountability. Indeed, the act of releasing quarterly reports on how many jobs have been "created or saved" gives the illusion of accountability without the reality.
As somebody famously said, it's difficult to make predictions, particularly about the future. Anyone who has done economic forecasting would tell you how many pitfalls there are in providing precision from which to make a "created or saved" statement. Ed Leamer in his EconTalk interview with Russ Roberts made the case forcefully that the most important part of the forecast isn't the point estimate but the error band around the forecast. And it's even more difficult to define that 95% confidence interval when the size of the stimulus dwarfs by 3 or 5 sigmas any stimulus within the sample for which you estimated your multiplier of 1.56 or whatever. The Administration's estimates said only that there was "substantial" variability about the forecast, and yet it continues to use a $93,333 of government spending = one job calculation as if jobs were something you could buy off a shelf.

(And speaking of shelves, next time I teach graduate forecasting, I will take off the shelf and the class will read Leamer's new book. I'm only up to page 120 or so, but it's tremendous.)


Friday, May 15, 2009

But whose morals, Excellency? 

I obtained last night a copy of a letter that reinforces the Lutheran Coalition for Public Policy in Minnesota's bishops' letter from March. It was sent out to all Lutheran pastors in at least one synod this week. "Lutheran" in this case represents the ELCA branch, so you LCMS and WELS folks can relax, or shake your heads, or both. From the first link (the second letter):
All six Minnesota bishops of the ELCA signed on to a letter encouraging Minnesota legislators and the Governor to �allow us all to be a part of determining a future for Minnesota in which dignity and value of each one of us is upheld. The challenge is not just yours � it�s ours.� ... They followed up with an April 16 visit with legislative leaders and Governor Pawlenty to convey with their presence that �the budget is a moral document that reflects the choices we make for our life together. The measure of our moral fiber as a people is how we treat those who need our help the most.�
As I pointed out in the post this morning, the budget at some point becomes Governor Pawlenty's responsibility, in particular at that moment when the Legislature discharged its duties and sent bills forward to him. There were listening tours, testimony and negotiations, and then a swift tax bill that Pawlenty vetoed. Given the tone of the rest of the LCPPM's letter, I daresay they would not agree with the veto:
Join the chorus of concerned people of faith and voice your support for a moral budget. Here�s how:
  1. Contact your state representative and state senator and say that �We are not afraid of tax increases if it means poor people who are sick can get health care, families who lose their homes find shelter, and children are cared for.� ...
  2. Pass this message along to your friends and family and urge them to take action.
  3. Write a letter to the editor and submit it to your newspaper and/or your church newsletter. If you or someone you know relies on Minnesota�s network of health and human services, tell that story.
Now let me not pretend to be a religious scholar. But I sit in church each week and attend Bible study. I've worked as well as a church treasurer. If we had members, or neighbors, or recent immigrants to our town that we thought were in need, what would we do? There would be a sermon, and then there would be the offering. If we wanted extra money to help, we may pass the offering plates around a second time and designate those funds for those in need. It would be reinforced with the many, many verses in the Bible that ask us as believers to help the poor.

If the bishops thought the best way to help the poor was to give the state more revenue, I do not see any restriction that would prevent them from passing the plate while saying "our government needs more money. We are told to render unto Caesar that which is Caesar's, and so we think at this time you should as a believer give more to our government. We will mail it in for them." As the treasurer, I could send a check to the state. (Here's a form you'll need. You're welcome.)

But this is not what the bishops seek. They wish to ask the state to compel non-believers into contributing to causes believers seek to fund. They remind me of the quote that inspired Amity Shlaes' great book, as written many years ago by William Graham Sumner.
The type and formula of most schemes of philanthropy or humanitarianism is this: A and B put their heads together to decide what C shall be made to do for D. The radical vice of all these schemes, from a sociological point of view, is that C is not allowed a voice in the matter, and his position, character, and interests, as well as the ultimate effects on society through C's interests, are entirely overlooked. I call C the Forgotten Man. For once let us look him up and consider his case, for the characteristic of all social doctors is, that they fix their minds on some man or group of men whose case appeals to the sympathies and the imagination, and they plan remedies addressed to the particular trouble; they do not understand that all the parts of society hold together, and that forces which are set in action act and react throughout the whole organism, until an equilibrium is produced by a re-adjustment of all interests and rights. They therefore ignore entirely the source from which they must draw all the energy which they employ in their remedies, and they ignore all the effects on other members of society than the ones they have in view. They are always under the dominion of the superstition of government, and, forgetting that a government produces nothing at all, they leave out of sight the first fact to be remembered in all social discussion - that the State cannot get a cent for any man without taking it from some other man, and this latter must be a man who has produced and saved it. This latter is the Forgotten Man.
Bishop A and Bishop B (and W, X, Y, and Z, in the case of this letter) want to compel nonbeliever C to do for poor D what they won't ask believers F, G, H &c. to do by the offering plate. They do so under the guise that "a budget is a moral document".

And my budget is, in fact, a statement of the morals of my own family. My church's budget is a statement of the morals of my church. The government is not a church, or a family. The government's budget is not a statement of the entire society's morals. It is a compulsion of the majority upon the minority.

Where, dear bishops, is that compulsion a "moral statement" directed in the Bible?

I recall only that when the rich man heard he could not enter the kingdom of heaven without sacrificing all his earthly possessions, "he went away sad, because he had great wealth" ... and Christ let him go. The bishops are not so inclined.

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Hurry up the white flag 

The University of North Dakota has announced that, unless the two Sioux tribes of the state agree before October 1 to the use of their tribal name for a period of at least thirty years, the university will end its use of the Fighting Sioux mascot.
Today, Thursday, May 14, the North Dakota State Board of Higher Education passed the following unanimous motion:

"Consistent with the terms and conditions of the October 26, 2007 Settlement Agreement entered into with the NCAA, the Board directs UND officials to retire the 'Sioux' nickname and logo, effective October 1, 2009. Full retirement of the nickname and logo shall be completed no later than August 1, 2010. In the event a new nickname and logo is adopted by UND, they shall not violate the NCAA policy regarding Native American nicknames, mascots and imagery.

UND is further directed to undertake actions consistent with the Settlement Agreement to protect its intellectual property rights in the 'Fighting Sioux' nickname and mark. UND is further directed to address the imagery at Ralph Engelstad Arena and other venues pursuant to the terms, conditions and timelines set forth in the Settlement Agreement. ...

UND President Robert Kelley seems resigned to the fate of the nickname. On Say Anything, the timing of this event is questioned, since one band of Sioux had already agreed to the nickname. The other one has a tribal council blocking a referendum on the issue. "The Whistler" at Say Anything wonders:
According to the timeline set up by the Board of Higher Education the committee was supposed to work on this issue for the rest of the year. When the Attorney General negotiated the terrible settlement with the NCAA he said that he and the governor would meet with the tribes to settle this matter. Of course they never did. Specifically John Hoeven isn�t going to address a controversial subject if he can possibly duck it.

This committee headed by Grant Shaft was formed last year and met one time. According to their schedule they were to meet four times.

They only met once. Grant Shaft says that the Summit league membership was on the line. The Summit league said that wasn�t the case. So why did they have to decide now.

The settlement with the NCAA was set up so that the Fighting Sioux name would just go away without the local self-appointed elites being blamed.

But then something happened. A local group on the Spirit Lake Tribe decided they didn�t agree with the elites. They like the name. They brought it to a vote on the reservation and it passed overwhelmingly.

That left getting a vote of the members of the other Sioux Tribe in the state.

That�s why there was a hurry. The Board of Higher Education was afraid that members of the Standing Rock Tribe would force a vote and approve of the nickname. And then where would those self-appointed elites be?
On the SCSU campus a promotional weekly of "SCSU in the News" announced this as a victory ... for SCSU:
For 16 years a number of St. Cloud State students, faculty, staff and administrators pushed the University of North Dakota to cease using its �Sioux� nickname and logo, arguing they are racially hostile and abusive. The end game in that long battle may be near. On May 14, the North Dakota State Board of Higher Education ordered UND to retire the 'Sioux' nickname and logo, effective Oct. 1, 2009. ...

St. Cloud State involvement in the controversy includes a campus ban on using the logo and nickname in university-produced publications, an NCAA resolution, protests at athletic contests involving UND teams and classroom curricula. Among our leaders on this issue were former presidents Robert O. Bess and Roy Saigo, Athletics Director Morris Kurtz and Sudie Hofmann, professor of human relations and multicultural education.
Let's summarize, then: A group of elitists at the NCAA, at one time headed by President Saigo, lobbies to force a competing athletic program to abandon a long-used mascot. The mascot uses the name of a Native American tribe, one band of which approves of the mascot, the other of which is blocked from voting in a referendum on the mascot. The elitists then take the blocked vote as a sign that they have done the right thing and compel a university to end its long tradition. President of that university is left to make apologies and ask for kindness from those whose wishes were trumped by the elites. (I have no idea of Pres. Kelley agrees with the Board's decision; at any rate he's made the best of a raw deal.)

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What leaders do 

It is worth contemplating the anxious reaction of the DFL leadership to Governor Pawlenty's announcement last night that he'll use his line item veto powers to balance the budget if he does not get agreement with them before Sunday. Within hours of his announcement DFL House Speaker Margaret Anderson Kelliher sent a letter to the governor. (Thanks to Politics in Minnesota for posting copies of many of these letters.)
According to your press availability this afternoon, your latest offer to solve our budget deficit implies that you will sign the budget bills sent to you by the House and Senate, and then proceed to unilaterally unallot portions of the state budget. As you clearly have been planning this course of action for some time, Minnesotans have a right to know how you plan to proceed with your unallotment strategy. It is best if this offer can be fully vetted in a public forum.
She attempts to personalize this by crossing out "Governor Pawlenty" and handwriting "Tim", which I think is rather arrogant as well as her demand in the next paragraph that "an immediate meeting of the Legislative Advisory Commission must be convened" so they can dress down the chief executive officer of the state.

Which is what he is. To re-use a rapidly wearing out phrase, elections have consequences. He is not a king, he is the duly elected governor of this state, and he earned therefore the right to the line-item veto. To put it in sports terms, "scoreboard."

When my boss makes a decision after hearing five months of discussion, and after having received a memo from me, I do not call it arrogant for him to decide not to do exactly as my memo suggests. The CEO gets to make the final decision. And that's exactly what Governor Pawlenty told her in response last night:
You characterized my announcement this afternoon as an "offer". It was not an offer, it was a decision.
The CEO does not react to the anxious demands of his or her organization. He leads; he makes decisions. He leaves the door open to discuss those decisions but does not relinquish his executive rights. What many have praised in President Obama has been coolness in leadership, a firm vision of what he wants to do and a determination to do it. I don't like what he's doing, but I have to tip my cap to his public stylings (as opposed to his private thuggery.) Governor Pawlenty is displaying at this moment that same cool hand: "The budget will be balanced; no endgame shenanigans or uncertainty of a shutdown or special session. There will be no tax increases; get on with your lives."

Leaders lead.

If the Legislature intended to have further discussions it could have held these bills from the Governor until such time as a revenue agreement was reached. They offered these bills to induce an endgame where they could negotiate the revenues ex post. I don't write my household budget by writing down all the expenditures I want first and then figure out how to pay for them. I write my budget listing income first and then what I can afford. (Do you write a budget? Here's an example of how. Note what's on top.) They have made a hash of the session, a vacuum into which Pawlenty has had no problem stepping forward. The blame for their fate is in the mirror into which they stare nervously this morning as they wonder what they'll say when they take their end-of-session flyaround on Tuesday.

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Thursday, May 14, 2009

Crossing a line 

Apparently the DFL made a mistake. �They sent all their spending bills piecemeal to the governor, for which he thanks them. �If they don't want to establish any new revenue he likes, fine.
Turning the heat up to a boil in the closing days of the legislative session, Republican Gov. Tim Pawlenty said today that he would use his powers of line-item veto and unallotment to balance a state budget facing a $4.6 billion deficit.

Pledging there would be no government shutdown or special legislative session, Pawlenty said that every bill sent to him by the DFL-controlled Legislature would be subject to his surgical veto pen, likely beginning with a massive Health and Human Services bill awaiting his signature.

"There is a key principle at stake here. You can't spend more than you have. The DFL-majority just did that," said Pawlenty, flanked by Republican legislators at a Capitol news conference. "In these economic times, the people of Minnesota want to see decisive action. We're going to take action to make sure this session ends on time with a balanced budget."
When the legislature sends an instant tax bill they know he would veto, and when they refuse a compromise offer, the DFL doesn't turn the heat up to a boil"; only when the Governor uses his Constitutional powers to balance a budget they won't does the water bubble: It's not just the balance sheet that's bankrupt at the STrib.

The Governor has been clear that there will be no tax increases, as repeated in his statement this afternoon. �When Speaker Kelliher calls Pawlenty "Governor Stand-Alone" she is wrong: �There are enough Republicans in the House to make the Governor's pledge stick. �The DFL has not only to find the three Republicans to flip, they still have Rep. Pelowski in their way. �If the Republicans thought Pawlenty was doing this just to burnish his presidential credentials, why would they show such solidarity?

They tried the lights-on gambit, but this lies on the ground in ashes now. �The DFL has been told its window of opportunity closes Sunday. �The ensuing panic will be fun to watch. �I wonder if the Patriot will let us have a live Sunday show?

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Hey student, stop breathing 

Here's a fun story with just one thing missing. �See if you can figure it out.
The mayor of Providence wants to slap a $150-per-semester tax on the 25,000 full-time students at Brown University and three other private colleges in the city, saying they use resources and should help ease the burden on struggling taxpayers.

Mayor David Cicilline said the fee would raise between $6 million and $8 million a year for the city, which is facing a $17 million deficit.

If enacted, it would apparently be the first time a U.S. city has directly taxed students just for being enrolled.

The proposal is still in its early stages. But it has riled some students, who say it would unfairly saddle them with the city's financial woes and overlook their volunteer work and other contributions, including money spent in restaurants, bars and stores.

...Cities often look for revenue from universities to compensate for their tax-exempt status, and many schools already make voluntary payments to local governments. Providence's four private schools _ Brown, Providence College, Johnson & Wales University and the Rhode Island School of Design _ agreed in 2003 to pay the city nearly $50 million over 20 years.

The idea of a student head tax has been floated before in other cities, generally to start discussions about collecting money from universities in lieu of taxes.
I believe that "floated idea" has another name, not sure, think it starts with "black" and ends in "mail". � The article notes that this shakedown does not take in students at public schools. �The reason the mayor's office gives for this tax is that their property isn't taxed. �Yes, because they are tax exempt as non-profits.

Most universities do "economic impact statements" of what kinds of revenues are brought into the towns or cities in which they reside. �When we last did one at SCSU, it was estimated that we were responsible for about 3% of the local economy. �(St. Cloud is about $7 billion in local production.) �Our students are not as well off as those at Brown or PC (Johnson and Wales is a school for the hospitality industry; those students may or may not be from upper income families) and at 25,000 students Brown probably does even more. �Are there additional costs of having higher education in your town from, say, a furniture manufacturer? �Probably so. �But are there additional benefits? �Can people in the city use the university library? �Attend cultural events on campus? �Those benefits are hard to capture in a benefit-cost story.

I suspect the reason for the tax is that it's easy to do.

Oh, and the missing part? �Click the link and read the story again. �Which party is this mayor a member of? �


Wednesday, May 13, 2009

Thanks for last night 

I am again away from home today and lecturing so posting is light. �I had a front-row seat for three amazing minds talking to a room of more than 1000 great listeners of AM 1280 the Patriot. �It was the first time I had ever seen Bill Bennett, who is much funnier than I had remembered and every bit as intelligent as I imagined from his books. �I also thank the commissioner of the NARN, Hugh Hewitt, for recognition from the stage. �It was great to see so many listeners. �Let's hope we can do this again soon.

Oh, Prager? �My only regret is that he was never my professor of Marxism. �I would have learned so much more.

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Backwards budgeting 

Did not the DFL try this before?
State legislators planned to take final votes on five major budget bills today, covering everything from K-12 education to ethanol subsidies to flood protection.

But the bills won't settle the session. Pawlenty hasn't said whether he'll accept them. And there's still a budget hole lawmakers haven't figured out how to fill.
So we're going to send all the bills that require money to be spent and not the bill that identifies where that money comes from? I am teaching people this week about how to teach about family budgeting. I promise you, at no point do I teach "figure out your mortgage, savings, insurance, food, and entertainment expenses before you figure out your income.

They did this very same thing in 2007, which led to a special session. Pawlenty would not sign spending bills then without the source of funds identified. � The endgame ended up in favor of Pawlenty.

Stupidity is the DFL doing the same thing over and over and expecting a different outcome.

Andy notes that the tax bill may not even reach an override vote. �Read the blow-by-blow from Gary for more.

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Tuesday, May 12, 2009

Short note 

I'm out of pocket most of the day today, but to just let you know that the 100 days of Obama tour comes through Minneapolis tonight and tickets are still available at the door. Doors open at 7 and the three tenors of Salem -- Bennett, Prager and Hewitt -- begin at 7:30. Hope to see you there.

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Monday, May 11, 2009

The cost of "get Pawlenty" (UPDATE: Pawlenty compromise spurned) 

Speed Gibson makes good points about the DFL legislature's failures of the current session, and pins the tails on the right donkeys: Kelliher and Pogemiller.
Both of these leaders are incompetent. So are their lieutenants, Taryl Clark and Tony Sertich. They've had two years to learn their jobs, but the events this past week show no tangible improvement. Again, forget the policies and proposals for the moment. Look at the process and the resulting lack of progress. When even the normally undemanding media is openly complaining, even the DFL must admit they have a problem.

Look at this $ 992 million tax bill, just announced. Gone, suddenly gone, are the "thoughtful" Senate and House bills that made their way through weeks of deliberation. All that work for nothing, replaced by something hurriedly cobbled together, a bill they could have written in January. It needn't have waiting for the February forecast, but OK, they could have written it March. Instead, we see it in May, with two weeks left in the session. I have to believe even a few in the DFL were surprised and disappointed by this. ...

To my untrained mind, this session has only one real purpose for the DFL: get Pawlenty. That's what the "listening" tours were about. That's what all this posturing the past two months has been about. And now it's May, crunch time. As this new tax bill concedes, operation "Get Pawlenty" is headed for the rocks.

What Pogemiller and Kelliher don't understand is that they're no match for Pawlenty in a political duel. They have only their strength in numbers, and those numbers should seriously think about who they're following and why.
Gary Gross is calling it "seat of the pants taxation":

As a result of the DFL�s infighting, they were forced to take the step of rewriting the Tax Increase Bill from scratch, passing it through the House and Senate, then have Gov. Pawlenty veto it before he headed out for the Annual Governor�s Walleye Opener on White Bear Lake.

What�s worse is that the DFL hasn�t shown any inclination towards finding cost savings. There�s no denying that they�ve figured out cuts but that�s a different story. Cutting budgets just means that you�re cutting spending and services. Finding cost savings means that you�re cutting spending but keeping service levels the same.

The tactic of "get Pawlenty" has focused on his proposal to pull future tobacco settlement revenues forward to cover some current spending that the governor has decided cannot be reformed in the way Gary describes. What the governor does is say "look, I can't cut a billion more here in this biennium: too much, too fast, and unwise in a recession. What I can do is pull money into this biennium and get you to spend less later when the economy improves." A smaller reform, details TBA, starting two years from now. It's not a great plan in my opinion, but it's not bad. (Better would be to identify what you're cutting later, rather than letting the Legislature figure it out for you.)

But the only other options are to find current cuts without cutting services, as Gary describes it, or raise taxes. When Sen. Bakk defeated Rep. Lenczewski in conference and got this tax bill -- which the governor declared DOA before they even passed it -- the leadership put itself in a box: It has said it won't accept the tobacco bonds while agreeing with Pawlenty that the last billion can't be cut. It therefore must act contrary to wishes of its own national leadership either to raise taxes or cut spending in E-12. If it thinks it can do that and also "get Pawlenty", they have yet to show how.

UPDATE AND BUMP: Just before I left I checked the comments email box and got this at the bottom of a statement from Marty Seifert (I assume this is a summary by House GOP caucus staff -- I haven't seen an official letter):
Also today, Governor Pawlenty made the first significant offer to bring the session to an on-time close. In a letter to the Legislature, the governor said he would accept the Senate DFL's position of not funding the budget reserve, accept the House's desire for a larger K-12 education shift, and halve his proposal for appropriation bonds. Democrats responded by calling the offer "not responsible" even though two of the three parts are DFL initiatives. By rejecting their own proposals, Democrats are making it awfully difficult to bring this session to a close by May 18.
We might need a corollary to the rule of holes: when you've painted yourself into a corner, stop painting! Because the DFL is still working that brush.

And they might still want to remedy this year's deficit.

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Let's review 

A little humor to end the day. We had wondered if they curved the test, and it turns out the answer is "yes".

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Best two paragraphs I read today 

In barely four months, Barack Obama has nudged the United States toward a future in which government will be bigger and more assertive -- where taxes will be higher and government unions more powerful -- where legal rights are less secure and contracts more uncertain.

In California, he is pushing a state toward the fiscal edge in order to favour a union ally. At Chrysler, he has put at risk the security of every contract in the country to please another union.

David Frum this morning. And now let's see what Obama does to 16,000 Chrysler retirees who aren't in the union. Not sure they'd all fit in Rattner's interrogation room.

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A context for 150,000 jobs 

We have had a little fun poking at the "save or create" distinction, and I expect more now given CEA chair Christina Romer's note that the administration does not expect positive job growth in 2009. But what is lacking in my view is a context for what 150k jobs means.

In short, the 150,000 jobs is a gross number. That is, the employment change reported last Friday represents a net figure; it represents the total number of workers hired minus the total number of jobs lost (through either separations -- layoffs or firings -- or through workers quitting.) BLS collects that data. It is reported more slowly than the Current Employment Survey and Current Population Survey that form the unemployment rate and the payroll employment estimates. They are, in fact, the way we check to see if those two surveys need any correction.

One of those is JOLTS, for Job Openings and Labor Turnover Survey. It tells us that 4.36 million workers were hired into a job in February and 4.825 million workers separated from their jobs in that month. 150,000 jobs is 0.15 million, so that it represents 3-4% of one month's total jobs generated by ARRA. It appears from the most recent data that the problem is not job shedding but that most businesses simply stopped hiring in the fourth quarter. (Why? Interesting question that we should defer.)

The other survey is Business Employment Dynamics, which comes from a quarterly census of employers. It has a much longer lag time, so the most recent data comes from the first half of 2008. These are quarterly measures, and the same institution can expand in one month and contract the next so there are many cancellations in the lower-frequency series. Nevertheless, in the second quarter of 2008 there were 7.3 million jobs created in expanding or new businesses and 7.8 million jobs lost in contracting or closing businesses. And as I showed on Friday this is a pretty shallow period for job losses.

Ed Morrissey points to this chart that the stimulus is not helping as the Romer CEA argued three months ago and calls for a new CEA. It's a shame -- Prof. Romer most certainly knows how to tell the story of gross versus net jobs. Why won't she explain? I expect it's because to show how little government can really do to change the jobs picture would damage the omnipotence that the Administration tries to project. The concession today is at least a beginning to provide some of that context, but she has much, much more to do.

P.S. In the New York Times article linked in the first paragraph Robert Reich argues that we would need a 4.5% GDP growth rate to reduce unemployment. Yet the CBO is saying the potential GDP growth rate is 2.7% and slowing. Reich's number seems high to me.


Sunday, May 10, 2009

Liberal Justice Ginsburg Cries, "More Women on US Supreme Court" 

The USA Today article, Ginsburg: Court needs another woman by Joan Giskupic discusses Justice Ruth Bader Ginsburg's concern over the fact that she is the only woman on the US Supreme Court. Having lived through much of the complaining feminists era, I have a different take on appointments to the US Supreme Court.

President Obama and Justice Ginsburg seem to be saying that a Supreme Court Justice should function like a legislator, that is, determining "What kind of social policy should the US have?"

But, there are two huge problems with this line of thinking. First, a committee of nine people appointed for life is an inadequate group to be representative of over 300,000,000 people. Because the Founders understood the risk in giving too much power to judges, the US Constitution calls for the legislative branch to be much bigger than the judicial branch. And, the legislative branch members are to be elected by the people far more frequently than appointing judges for life terms.

Second, the US Supreme Court takes up and decides about 150 cases each year. These cases encompass only a fraction of the public policy issues that courts across the nation address. These cases that make it to the Supreme Court are in a very real sense, arbitrary because they reflect special facts of how the legal parties in a particular case interacted.

Thus, this does not mean that Supreme Court cases are representative of how things happen in the broader quilt of our 300,000,000+ person society.

For Justice Ginsburg to say, "the 'worst part' is the image of a single woman at the high projects, particularly to young people visiting the court: "Young women are going to think, 'Can I really aspire to that kind of post?'"

To which I reply, "Yes you can. You 'aspire' but that does not mean you succeed in attaining the goal." Women equal men in law schools and have for many years but this mantra of "equality" ignores the basic differences in humans. We all have talents but no two of us are alike - that is why we have our Constitution, a most enduring document designed to protect people and focus on the law (vs. tribe, religion, sex, etc.).

Does Justice Ginsburg want a female, or a liberal female? Would she support US Court of Appeals for the District of Columbia Justice Janice Rogers Brown, a dark-skinned conservative?

Sunday's article by Boston Globe columnist, Jeff Jacoby, also discusses this issue here.

My wish for the Supreme Court, and all other courts, is the appointment of people who know the US Constitution, our law. A basic tenet we have failed to teach our youth for decades is that the Rule of Law is a key reason the western world thrived. One's success was determined by work and an equal application of the law. There are and always will be exceptions but in general, we have been able to push human life spans and prosperity for more people beyond anything ever imagined by people just a century ago.

Purposely our Founders separated church and state. Purposely they designed a system that so far provides the most equal treatment for all in a judicial sense.

If the "law" reverts to decisions based on tribe, race, sex or religion, all of us will lose.

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Happy Mother's Day 

To all our readers and families, Happy Mother's Day! It's a beautiful day to celebrate!

Mother's Day was begun in 1912 by Anne Jarvis who selected the second Sunday in May to honor individual mothers (hence the singular possessive "Mother's") and trademarked the phrase "Mother's Day". President Wilson began to include the day in official documents. If you go here , you can read some of the history of the special day which is celebrated at different times of the year in other countries. While there are feminists who would like to abolish the holiday, many of us know women, now deceased, who would be considered feminists for their achievements. We also know that it was our moms who at some point in our lives made that tough call, made us do something we didn't want to do (clean our rooms??? or more), and were there when everything was heading south.

They showed us that we do not need to do everything alone, that there would be someone there to help.

Thank you mom, grandma.



Saturday, May 09, 2009

Minnesota Campaign School 

Today I attended a campaign strategy session sponsored by the American Majority. My purpose in attending was to assess the quality of the material and the instructors.

We are very fortunate in MN's Second Congressional District (of which I am chair) to have a number of people interested in running for elective office this year and 2010. Key concerns, particularly for first-time candidates, are how and where to get information as to organization, communications, volunteers, fundraising, etc.

After spending the day in class, I can confidently say that I was very impressed - across the board - with the pace, content, ideas, and focus of the sessions. The Faulkner Strategies group provided the materials and the instructors. Their delivery is lively, fast paced and yet, full of valuable information. I would highly recommend anyone considering a run for office - from dog catcher on up, to go to this location on website of the American Majority to get on the mailing list for the next class. Attending it may be the best political investment you can make.


Friday, May 08, 2009

Tomorrow on the Final Word (and the David Strom Show) 

I will take my normal turn on the David Strom Show a week late this week talking about the economy. I would tell you there's plan for what we'll talk about but this is not true. Whatever comes out of David's mouth, I react to. This usually turns out well.

Then on the Headliners with Mitch and Ed and on the Final Word, we're auctioning off two spots in the DAV of Minnesota golf outing with the Final Word. I and a special NARN participant will join two winners of the auction for golf at the Wilds, a beautiful course in Prior Lake. All proceeds go to disabled veterans, a great cause, and while I am not a good golfer I can be quite entertaining. Dial in and make bids starting at 1pm to 651-289-4488 and then listen to AM 1280 the Patriot at 4:50 to see if you've won! (Actually, we hope you'll listen all afternoon.)

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A bit less painful 

Many are commenting on the fact that this month's employment figures were boosted by temporary government jobs for Census workers. Let us look instead at one-month changes in private employment, above. We're still losing jobs, and while we're beginning to lose at a slower rate we're still shedding at a much faster rate than last October. This isn't the same thing as stabilizing, as Richard Moody of Forward Capital noted. Industrial durable goods were hardest hit in the manufacturing sector, while we're also seeing a decline in general office work:
The professional and business services industry lost 122,000 jobs in April. This industry has shed an average of 139,000 jobs per month since October 2008. Half of the April decline occurred in temporary help services.

Casey Mulligan notes that productivity is still rising, which he believes will end up creating an upward revision to first quarter GDP. Meanwhile, James Hamilton looks at the initial unemployment claims data and thinks there's about an 85% chance the worst is behind us. That could mean just that Tufnel's amp is back to 10.


Crime pays 

The group of non-TARP creditors to Chrysler is dead.

�After a great deal of soul-searching and quite frankly agony, Chrysler�s non-TARP lenders concluded they just don�t have the critical mass to withstand the enormous pressure and machinery of the US government,� Thomas E. Lauria, ... the lead lawyer for the group. �As a result, they have collectively withdrawn their participation in the court case.�

Thomas Cooley asks "Why would private capital get involved when the rules of the game are so capricious?" Megan McArdle dispenses with several other arguments than that the Obama Administration screwed everyone to make Chrysler a present for the UAW. At least, Cooley responds, they'll now have to eat their own cooking. When it comes to teachers' unions, it's the kids who get the short end.


You've got taxes! 

Details are emerging of a new tax plan from the Minnesota DFL leadership, dropped this morning into a conference committee "without any discussion" according to Republican sources. The details I have at this time are for about a billion dollars, half of which comes from a new 9.0% personal income tax charged on income over $250k for married couples filing jointly ($141,250 for singles and $212,500 for marrieds filing separately -- updated via Andy). An increase in tax on all varieties of alcohol and a surtax on "excess (?)" interest income on credit cards makes up the rest. $585 million of that money goes to E-12 education and the remainder to HHS.

There's a press conference of the Republican legislative leaders happening probably about now. More details as I get them.

UPDATE: Conference report is up. Larry Schumacher finds it odd.
I've never seen a bill that wraps both taxing and spending provisions together, and neither have the other two reporters on staff here who've covered the Minnesota Legislature in the past.
Yes, but it puts two powerful lobbies in play to campaign for a tax increase. (Not like they hadn't already.) For them, it's not "you've got taxes!" but "you've got OPM!"

UPDATE 2: Found an email in a folder I wasn't watching this morning from the House Republican Caucus. They note on this bill:

UPDATE LAST: As expected, Pawlenty calls it DOA:
The end of the session is rapidly approaching. I understand the DFL majority is poised to pass a hastily processed and ill considered letter tax increase proposal.

If you insist on passing such legislation, I respectfully request you send it to me today so I can veto it immediately and leave a maximum number of days for better legislation to be considered and passed.
Rep. Marty Seifert via Twitter notes that all Republicans plus Rep. Gene Pewlowski voted against the measure, which passed 86-47.

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Where does a bear hold a press conference? 

When it's Barry Bear, you'd think the answer was "any place he wants." And given they don't want to get treated like a non-TARP creditor, network executives are trying not to say this too loudly. But we get a lesson in opportunity costs from today's Hollywood Reporter:
By and large, they personally forked out for his campaign, they voted for him, and they know he is capable of boosting TV ratings just by making an appearance.

But executives at the Big Four broadcast networks are seething behind the scenes that President Obama has cost them about $30 million in cumulative ad revenue this year with his three primetime news conference pre-emptions.

Now top network execs quietly are hoping that Fox's well-publicized rejection of the president's April 29 presser will serve as precedent for denying future White House requests for prime airtime.

"We will continue to make our decisions on White House requests on a case-by-case basis, but the Fox decision gives us cover to reject a request if we feel that there is no urgent breaking news that is going to be discussed," said one network exec, who, like all, would not speak for attribution fearing repercussions from the administration.

"If the president wants to make it tough for your network, he can," the exec added.

Another network executive confided, "Nobody wants to take on the White House, so we'll have to tiptoe through this."
The graph shows that there are diminishing returns to the press conferences as well, but the exclusives on talk shows are quite valuable for them, so you have another reason to not anger the Obamas.

Clearly the networks carry press conferences for something other than revenue maximization. Network news is mainly for prestige. But like any other good, prestige competes for resources with other goods, like profit. Fox has a #1 cable news station that allows it to try to serve both goals better than the other networks can, so its loss of prestige of the news conference is lower.

They put Michelle Obama in soft places like Sesame Street. Why you wouldn't parade her around on the bigger shows is beyond me. I would think the ad revenue books would be enough to keep the President's spin show on prime time.

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Wednesday, May 06, 2009


Representative Pat Garofalo of Farmington wondered about six weeks ago about "integration aid", without some people being sure what it's used for:
In 2005 the legislative auditor performed an audit of state integration funding program and found a number of problems.

For example, the purpose of funding is not clear � some school staff believed its purpose was to alleviate racial imbalances, other thought the funding was to close the achievement gap, noted the auditor,

Other findings were that neither school districts nor the state adequately assessed the program, and racial concentrations in some schools receiving the funding continued to increase.
Rep. Mindy Greiling, DFL chair of the K-12 Funding Committee said everyone knows it's broken and suggested it be capped. Why would you keep this going?

Today Rep. Garofalo repeated the charge and added more examples as the K-12 bill heads towards completion. I assume this to mean the integration program is still intact.
  • After school soccer, $3,000
  • Art Exhibit: supplies, consultants and �artifacts�, $7,500
  • Collaborative coordinator, $43,000
  • Cultural liaison officer, salary & benefits, $125,000
  • Culturally responsive teacher training, $15,000
  • Equity coach, $74,000
  • Ethnic celebrations, $3,000
  • Field trip scholarships, $10,000
  • 5th grade kindness retreat, $5,000
  • Food and snacks for ethnic celebrations, $4,000
  • Integration program coordinator, $99,000
  • Secretary to IPC, $57,600
  • Newcomers program teacher, $113,000
  • Pen pal book club, $3,500
  • 6 step hip hop program, $2,000
Is a six-step hip hop program meant to teach people how to hip-hop or like hip hop Anonymous, a six-step program to stop hiphopoholics? (That was fun to write, thanks for asking!) I don't think $5,000 is enough to pay for a fifth grade kindness retreat -- you ever work with fifth graders? Oy!

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Sentence of the day 

"I'm ready for my 'personalized' tax rate now." -- Cliff Asness, whose $20 billion business in portfolio management is likely to be as threatened as these nine remaining Chrysler holdouts. No names or phone numbers, but the nice Ohio DMV lady should be able to help.

UPDATE: Foreshadowing?

FURTHER UPDATE: Don Boudreaux posts from Federalist #44 (Monroe):
The sober people of America are weary of the fluctuating policy which has directed the public councils. They have seen with regret and indignation that sudden changes and legislative interferences, in cases affecting personal rights, become jobs in the hands of enterprising and influential speculators, and snares to the more-industrious and lessinformed part of the community. They have seen, too, that one legislative interference is but the first link of a long chain of repetitions, every subsequent interference being naturally produced by the effects of the preceding. They very rightly infer, therefore, that some thorough reform is wanting, which will banish speculations on public measures, inspire a general prudence and industry, and give a regular course to the business of society.
From your mouth to Barack Peron's ear!


Tuesday, May 05, 2009

Bullying works 

Bloomberg reports that the group of dissidents holding Chrysler debt that are being compelled to surrender their legally obtained rights is shrinking.
JPMorgan Chase & Co., the largest lender on the loan, found the holdouts last week held about 10 percent of its value, less than $700 million. Now those still in the group, who plan to oppose the auction at a hearing today, own only about $300 million, the holdouts said in a bankruptcy court filing.

In the filing, the lenders told the judge in charge of Chrysler�s bankruptcy that the carmaker�s plan to auction its best assets later this month was unfair because it prevents creditors from using claims like a loan to make a non-cash bid.

�The proposed sale is not an arms� length bargain but rather is tainted by government domination and control,� the group said in the filing in U.S. Bankruptcy Court in New York....

The group asked U.S. Bankruptcy Judge Arthur Gonzalez not to reveal the identities of its members, after he ordered them yesterday to do so by today. Thomas Lauria, a lawyer for the group, told the judge some of his clients had received death threats after being identified.

Those named publicly include OppenheimerFunds Inc., Perella Weinberg Capital Management LP�s Xerion hedge fund and Stairway Capital Advisors. Perella withdrew its sale objection last week.

In their request, filed today in Manhattan court, the lenders said some joined only with the promise of anonymity and would leave if they were forced to reveal their identities.
It appears the Administration is using the ACORN bus tour trick to good effect. (Remember these guys? The Administration has now upgraded its posse to the White House press corps.)

Ed Morrissey notes that the story of Tom Lauria we told over the weekend has now been verified by others present. If the press would like to not look completely sycophantic, it should hunt down car czar Steve Rattner and get him on record denying that this happened in light of three people saying it did.

P.S. It's worth noting that this President also supported another perversion of bankruptcy law in its attempt at the mortgage cramdown, which the Senate rejected last week. So my characterization of this as an Obama violation of the rule of law is part of a pattern, not a one-off action. John Fund, in this morning's Political Diary from the Wall Street Journal (subscription req'd) states that bank opposition to the provision was strong and withstood another Chicago pol:
The key to the opposition's success was the refusal of major banks to cut a deal with Senate Majority Whip Dick Durbin, who told the banks that things would go even worse for them if they didn't knuckle under. The bill's opponents responded by contacting local banks and chambers of commerce in the home states of many Democrats. In turn, the local folks pointed out just how serious an abrogation of the rule of law the foreclosure bailout would represent.
On Chrysler, alas, the feds are using compliant TARP-drunk banks to do their bidding in dividing and conquering non-bank creditors.

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Fore privatization 

Tom Steward of the Freedom Foundation of Minnesota has been making some noise with his scorecard of municipal golf courses. �Many of them make losses, and if one was to use the yellow pages test developed by Stephen Goldsmith of Indianapolis you certainly wouldn't think muni courses were a good use of public dollars.

But to take one example, the Becker course (#5 on Tom's list) is largely funded by the revenues from Sherburne County coal burner operated by Xcel. �It looks like a loss because the City of Becker operates it as a separate enterprise. �It puts all the costs out for people to see, but you don't see all the revenue. �For instance, the third nine-hole tract was developed later, and about fifty homes and condos are built around there. �The property value is higher because of the course, and thus so are the tax revenues. �But those revenues aren't shown in enterprise revenues.

Revenues from the coal burner also fund a huge community center down the street from the Pebble Creek course. �That's not an enterprise;�parks are just held in a parks & recreation budget and unlisted. �According to a former city official I spoke with the loss on the community center is greater than for Pebble Creek. �But few of us would hold up a park and say "it has to pay for itself." �Public recreational space is likely to be underprovided.

The better point the FFM article makes is that there are so many other courses available against whom these muni courses compete. �For that very same reason, there isn't much of a market for these courses if you did privatize them. �The opportunity cost of the land devoted to golf, and the funds tied up in the course do not show up on any statement, but they are quite real. �

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A study in contrasts 

A juxtaposition of a Dane Smith column and certain other items (other items are the unitalicized, with links infra):

Something may be wrong with our education system if so many citizens can confuse the legitimacy of the original Boston "tea party," a tax protest preceding the Revolutionary War against a despotic undemocratic monarchy, and the taxes today that are imposed by the most legitimate, democratic and representative governments the world has ever known.

ACORN, an activist group that turned in 90,000 completed voter registration forms in Clark County for last year's election, violated state law by setting mandatory quotas for workers who canvassed neighborhoods looking for people to register to vote, according to the state attorney general's office.

...Canvassers were required to register at least 20 people a day, and could be fired if they didn't, officials said. ACORN also instituted a bonus program called "blackjack" or "21 plus" in which a worker could earn an extra $5 per shift by registering 21 or more people.

Improvements in civics education might help more people understand at least the possibility of a relationship between taxes and the overall quality of life in society, and the idea of common good.

Thankfully, polls consistently show that most Minnesotans have a reasonable understanding and acceptance of government taxing and spending.

Minnesotans have little taste for higher taxes that would hit most people's pocketbooks, but two-thirds would offer up the wallets of richer folks to help solve the state's budget woes, a Star Tribune Minnesota Poll has found.

When it comes to a broader increase -- income tax hikes for most Minnesotans -- nearly 60 percent said that would be unacceptable.

Half of the poll respondents said they think the state should use a combination of unspecified tax increases and spending cuts to help erase the state's $4.6 billion deficit, while another 40 percent said the balancing should be achieved primarily through spending cuts alone. Only 4 percent favored squaring the books primarily with tax increases.

"I don't know why people should be punished for being successful," said Sarah Dawdy, 61, a retired business manager in Pequot Lakes. "For me, that's totally against what the free enterprise system is.
...Surveys also have shown that about 60 to 70 percent of Minnesotans favor a balanced approach to our historic $6 billion budget shortfall, or a mix of cuts and reasonable revenue increases. Polls also have shown Minnesotans also support income-tax increases on the top tiers, and especially so if it goes to education and property-tax reductions.
A government that robs Peter to pay Paul can always depend on the support of Paul. 26% of Minnesotans pay no federal income tax, likely also no state income tax.

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Monday, May 04, 2009

Shrugging off to Brazil 

A friend sent me this link to a video report of a Ford plant in Brazil. It's quite impressive in its integration of suppliers and even shipping; there's practically no inventory. The most striking line in the video is the last: Ford would like to build this kind of plant in America, but can't because of the UAW.

Stephen Karlson describes how the Chrysler bankruptcy is going to harm the ability of Ford or any other car company from engaging in this kind of innovation:
...this is bad for employees of other companies that will not grow as rapidly as resources those companies might otherwise have claim on flow instead to the legacy car companies; this is also bad for younger employees of the legacy car companies, who will have to face yet another round of difficulties thirty years from now. We see the people spared termination notices at Chrysler. We do not see the job offers from employers that never start up. We do not see the tax collections from those businesses, in the states that are more conducive to business than Michigan.
Obama's quick sale has at least been put on 36 hour hold. (UPDATE: Ed Morrissey posts the motion filed to delay the quick sale.) Irwin Stelzer points out one way in which Atlas might shrug after this latest end-run around the rule of law:

Obama is pressuring the some 20 "speculators" who are holding out to accept the crumbs that he's offering. But there is more here at stake than the money immediately involved. As George Schultze, managing member of Schultze Asset Management, a hedge fund, told The Wall Street Journal, "This is about contract and bankruptcy law, and upholding agreements -- which is important in the grand scheme of things."

It certainly is. For one thing, the president is counting on some of these "speculators" to partner with the Treasury and take a big stake in the toxic assets that are preventing the big banks from resuming normal lending. Unprotected by a rule of law, these investors will sit on their assets, rather than partner with a government that might some day decide, after the fact, that they made too much money, or should bear a larger portion of any losses than they had signed on to do.

More broadly, if lenders know that any deals they strike can be overturned by a president who, like Langella/Nixon, can do things that are otherwise illegal because he decides "they are in the interest of the nation," they'll raise the price they charge for their money -- and not only when lending to the government.

And let me remind, this is not about some principle Obama is upholding. He decided to vilify these senior creditors for $250 million. Bloomberg reports:
Obama�s team had first offered secured lenders $2 billion for their $6.9 billion in loans, and then raised the offer to $2.25 billion. In a game of chicken, the holdouts asked for $2.5 billion, and Obama�s patience ran out.
As "Francisco D'Anconia" once observed, "It's the person who would sell his soul for a nickel, who is loudest in proclaiming his hatred of money..." As to the claim of one lawyer that his people were threatened, the White House denies it, but John Carney doesn't buy the denial.

P.S. On a more local, Minnesota note, see Speed Gibson on another group of NIMPPs (Not In My Pension PlanS)

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Sports leagues have been trying to clamp down on the drafting of too-young men to play professionally. We expect that any attempt to behave in this cartelized way is defeated by someone outside the cartel taking advantage of either too-high prices for output or too-low prices for the inputs. The NBA not long ago instituted a rule that required players to spend a year after high school graduation before they can be drafted. Thus, for example, Derrick Rose spent a year in college before joining the Chicago Bulls. Having watched him almost destroy my Celtics single-handed (and I agree with Bill Simmons that the only thing that kept him from doing it was his own coach), is there any doubt that the year at the University of Memphis was a transfer of wealth from Rose to Memphis?

One guy has figured out a way not to pay the freight for some university. Meet Jeremy Tyler, a high school junior who is a very gifted 6'11" hoops star:
Tyler... announced that he was going to not only forgo college, but also to skip his senior year of high school, to turn pro. And I'm not talking about the NBA. Tyler is heading to Europe to play professional basketball and is expected to earn a six figure starting salary. His plan is to gain professional experience until he is eligible for the NBA draft in 2011.

On a cost-benefit-analysis, Tyler is making a great decision. He is giving up zero income for his senior year of high school, and missing out on a measly scholarship package (worth approximately $50,000) from the college of his choice, which he certainly doesn't intend to graduate. During those two years, Tyler will earn at least $150,000 more (probably closer to a quarter million) than he would have if he played another year of high school and a year in college -- due to the NBA's rule that you have must sit out one year post-high school. Not to mention the fact that he stands a good chance to improve his pro stock by playing against better talent in international pro ball, as opposed to dominating high school kids, as well as potential paydays from endorsement deals.
If you'd like to see Tyler's talent, he has (like most HS stars) a video of his prowess on YouTube. I'd call that "dominating". He's got feelers from teams in Spain, Italy and Israel. And he and his family have thought this through.

He and his father are bracing for an establishment backlash that fails to appreciate their motivation, determination and appreciation of the intrinsic value of education. They think most of it will be designed to protect the billion-dollar business of amateur basketball.

�It�s just the old way of doing things and no one wants to swallow the pill of change,� [father] James Tyler said. �Basketball is an American sport and they want the kids to go through the channels. And I think there is so much money generated in collegiate sports that they don�t want that interrupted.

�It�s a double standard.�

It's not without risk. The risk of injury is everywhere (and I can't tell you if the medical care Tyler would get in Europe if he was injured would be better or worse than in the States), so the relative risk here is that he cannot hide his shortcomings by playing against weaker competition, since the European professional leagues are largely better.

Keep your eyes out for Brandon Jennings in next month's NBA draft -- he too went to Europe. But at least he played his senior year of high school in the States. If Tyler is successful, Jennings may regret that lost year of income.

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Colleges not immune 

Bloomberg ran a story Friday that shows how private schools got caught up in the financial ease of the mid-2000s and now stand near extinction. Its lead example is Simmons College:

Simmons, founded in 1899, educates a mix of 1,900 female undergraduates and 2,800 graduate students. Its women-only undergraduate liberal arts program accepts 56 percent of applicants; top-tier schools accept fewer than 20 percent. Simmons has five graduate schools, from the 200-student School of Management to the 1,100-student College of Arts & Sciences Graduate Studies.

Colleges like Simmons -- mainly undergraduate schools offering some master�s degree programs -- are in the worst financial shape, according to Kneedler�s analysis. They turned to borrowing for the amenities they used to entice students to small programs. Now, they�re drowning in debt, Kneedler says.

Simmons President Helen Drinan says she hopes the new building and accreditation in March by the Association to Advance Collegiate Schools of Business will make it easier to market the School of Management to prospective students. The school hired Deloitte LLP�s higher education advisory unit to suggest ways to navigate its current bind and to find further savings.

If these ideas don�t work, the business school may have to go co-ed or abandon its emphasis on MBAs to focus on undergraduate business degrees.

Drinan bets Simmons won�t have to go that route. It should be able to keep its undergraduate enrollment steady and increase students in its graduate programs, including the business school, she says.

�If that school cannot grow, then we have another decision to make,� she says. �There�s been a lot of political anxiety around campus over the fact that the School of Management is a relatively small program. Now we�re in a position to say, �Let�s run with it.��

Like the housing bubble, Simmons�s woes started with easy credit. The school borrowed more than $140 million, tripling its debt in the seven years through 2008. It added classrooms connected via wireless networks. It renovated its library. And it spruced up its student center with a coffee bar and mix-your- own-milkshake cafeteria.

�That was a pretty bold borrowing strategy,� Kneedler says.

Simmons followed suit as U.S. colleges jacked up tuition by an average of 3 percent above inflation every year. It counted on a rising endowment, parents� bull-market-fed wealth and burgeoning private loans that more than doubled student debt from 1998 to 2008.

Simmons raised annual tuition and living expenses to $41,500 in 2008, 22 percent above the $34,132 average for private colleges. Sarah Lawrence College in Bronxville, New York, the costliest U.S. school, charged $53,166 last year.

Then credit markets collapsed. Simmons -- and even better- known schools such as nearby Boston University -- felt the aftershocks. Like many now-struggling companies and municipalities, Simmons had sold variable-rate bonds and hedged against rising interest rates through swap agreements, which fixed interest costs for the school.

When rates fell, Simmons owed more than $10 million on the swaps. When it refinanced the bonds, it had to accept more than triple the interest rate it had been paying before the crisis. Drinan expects to settle the swap with bankrupt Lehman Brothers Holdings Inc. at a lower cost.

Wall Street provided the tools for schools to take advantage of cheap credit. Bankers introduced college finance executives to the interest-rate swaps and similar innovations that are now costing colleges, says Andrew Evans, vice president for finance at Wellesley College in Massachusetts.

I have a niece at Simmons and thus more than a passing interest in the school. It's a common story though: In a period of easy credit, inexperienced investors are lured to take on risks for which they are ill-suited and ill-prepared, in part to keep up with competitors or neighbors. When the investments turn against the neophyte, bad things happen. And like many other businesses, colleges have to retrench, figure out how to survive. In Simmons case, its undergraduate programs, which are highly regarded in New England, are not the revenue generators that graduate programs can be.

Most businesses would, in an environment like this, be led to increase their efficiency, but you see damn little of it. A new report on colleges and cost control included two quotes from a survey of college faculty (both teaching in four-year schools):
I think there are maybe some things we could do at the margin to improve our efficiency a little bit, but I think huge moves in the direction of cost-effectiveness are going to translate into watered-down quality.

This drive for business efficiency is not necessarily compatible with good education.
It's not just recalcitrant or resistant faculty. Inside Higher Ed noted last week that presidents and chief budget officers all believe they've done all they can, all the efficiencies have been achieved already. So we will try to cram more students into a classroom maybe (in my own department where I schedule about fifty classes a semester, our limit is set mostly by room size and where we have rooms with the technology the faculty want to teach with -- you're welcome to wonder why labor gets to pick its own technology) but cutting away unessential programs just isn't on the radar. Like Simmons, most schools are doubling down on expanding programs that sell to the over-30 crowd, many of whom come with dollars from their employers. (Thus their chase of AACSB accreditation.)

That will work well if the economy turns around and the employers can put dollars in their managers' hands to get additional training and MBAs. But universities traditionally have been countercyclical businesses; to save itself, some of these schools are making themselves more pro-cyclical.


Friday, May 01, 2009

Send your complaints to Blogger 

Sorry for no posting yesterday. �There were posts there, but Google provides about as much support for Blogger as wet tissue paper. �By the time you read this, there should be posts below.


The sanction of the victim 

I found utterly contemptible this statement from President Obama yesterday while addressing the filing of bankruptcy by Chrysler.
While many stakeholders made sacrifices and worked constructively, I have to tell you some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting. I don't stand with them. I stand with Chrysler's employees and their families and communities. I stand with Chrysler's management, its dealers and its suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars. I don't stand with those who held out when everybody else is making sacrifices. And that's why I'm supporting Chrysler's plans to use our bankruptcy laws to clear away its remaining obligations so the company can get back on its feet and onto a path of success.
The group was spooked enough yesterday to put out an unsigned statement of their position. Today in the filing in bankruptcy court we know something of who these thugs who "held out for the prospect of an unjustified taxpayer-funded bailout" are:
Many others bought the debt on the prospect of making money. In so doing they enabled those who might have been burdened by Chrysler debt to receive something now for their bonds: Those buyers provided liquidity to an illiquid market. Those investors are now being vilified by an administration who wanted to use political muscle, having Congressmen call them "vultures" who "will now be dealt with accordingly in court."

Many bought the debt knowing that bankruptcy was possible. They did so under the expectation that the rule of law would apply in America, that their place in line under bankruptcy law was purchased with that debt. President Obama's ire over their unwillingness to give away that place in line -- a place purchased by those endowments and foundations and pensions not for themselves but for students, pensioners and grant recipients -- is an indication that the president thinks his noble ends are superior to theirs. And Rep. Dingell joins him in hoping for what? the equivalent of hoping these creditors end up in a cell with a guy named Butch? And for what? The Journal explains:
The Chrysler creditors at least represent teachers, pensioners and retirees, among others. The Administration is advancing its own social and political agenda through its ever-deeper entanglement with Chrysler and General Motors. That explains why the government is giving 55% of the new Chrysler to the UAW's retiree-benefit trust, a junior creditor, while those ahead of the trust in line get a mere 30 cents on the dollar.
The president is trained in the law and understands the rights senior creditors have. He may hope he gets a better deal in bankruptcy court, but if the creditors are able to force liquidation, the 2012 Republican nominee can remind Detroit that Obama let this go to bankruptcy court because he wouldn't give these creditors an extra $250 million for a right they had paid for.

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If $14 billion "creates or saves" 150,000 jobs... 

...what would it cost to return to full employment?

During our conversation yesterday about the President's claim that he has "saved or created" 150,000 jobs, we highlighted a quote from yesterday's testimony from CEA chair Christina Romer:
I have been told by the Office of Management and Budget that approximately $75 billion in spending under the ARRA has been obligated and almost $14 billion in outlays have already occurred. During the first 100 days in office, which the Administration marked yesterday, we estimate that the ARRA has already saved or created 150,000 jobs.
Many have pointed out in comments to that post that this comes out to $14,000,000,000/150,000 = $93,333.33 per job. And assuming as we did yesterday that they are connecting government spending to jobs via a multiplier and some imputation of GDP growth to job creation, it got me to wonder, what would it take to create full employment?

The full employment rate of unemployment (technically, NAIRU or the Nonaccelerating Inflation Rate of Unemployment) is 5.2%. (Their calculations are in spreadsheets found here.) The last data on the size of the labor force is for 154,048,000 workers, so 5.2% of that is 8,010,496. Current estimate of unemployment from that same source is 13,161,000, so we have about 5.1 million people who we would call "excess unemployment".

If spending $14 billion of some future taxpayers' money "creates or saves" 150,000 jobs, then is the path to full employment just spending enough to "create or save" 5,100,000 jobs? If the CEA chair really believed her calculations, why would she not ask for the immediate expenditure of $480.7 billion? The president could then hold a press conference and say "we have restored full employment", and she can do the math for JEC the next morning. Seems simple enough to me; she is welcome to the above script if she would like the help, gratis. What's wrong with that calculation?

(Of course, they spent much more than that. This is because they think that without stimulus more job losses are in the offing. They need to "create or save" those too. They're from the Obama Administration, of course, so they're here to help save or create a job you didn't even know you were losing yet. It's in the math donchaknow.)

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