Tuesday, December 29, 2009

Party of No prevents President from filling critical TSA slot

Perhaps the Transportation Security Administration (TSA) could have improved on the Bush-era screening policies if Republicans in the Senate had allowed a vote to confirm President Obama's nominee.

Sen. Jim DeMint (R-SC) has had a "hold" on the nomination of Erroll Southers to head the TSA since early December.
The attempted bombing of a Detroit-bound flight has re-ignited debate in the Senate over President Obama's nominee for chief of the Transportation Security Administration, which has been without a permanent leader since Obama took office.

It took the president eight months to nominate someone for the post, but that nomination has since been held up by objections from Republican Sen. Jim DeMint, who fears nominee Erroll Southers will unionize TSA screeners.
Mr. Southers has appeared for confirmation hearings before two committees who recommended his nomination. He has also written to Sen. DeMint to assure him that he won't make any decisions that would compromise security.

Sen. DeMint, however, continues to play politics and petulantly insists on an unambiguous yes or no answer. After all, that is the prerogative of a single senator, especially one who sees personally gumming up Senate business as a virtue.

In the meantime, the TSA remains without a permanent administrator.

Inconsistent reporting on housing prices

I was surfing through the business web-sites this morning and came across two contradictory headlines regarding the just-released S&P Shiller/Case housing price numbers.

CNNMoney.com reports "Bad news for housing: Prices flattening."
Home price gains earlier this year flattened out in October, according to a report issued Tuesday.

The S&P/Case Shiller Home Price index, covering 20 of the largest metropolitan areas in the nation, was unchanged in October, after four consecutive months of gains. The index is down 7.3% from 12 months earlier.
The CNNMoney story buttresses this interpretation with the following negative quote from David Blitzer from S&P.
The turnaround in home prices seen in the spring and summer has faded ... Coming after a series of solid gains, these data are likely to spark worries that home prices are about to take a second dip.
However, Bloomberg.com cheerily reports "Home prices in 20 U.S. Cities rose for the fifth month" (emphasis added).
Home prices in 20 U.S. cities rose in October for a fifth consecutive month, putting the housing market and economy farther along the path to recovery.

The S&P/Case-Shiller home-price index increased 0.4 percent from the prior month on a seasonally adjusted basis, after a 0.2 percent rise in September, the group said today in New York. The gauge was down 7.3 percent from October 2008, the smallest year- over-year decline since October 2007. The median forecast of economists surveyed by Bloomberg News anticipated a 7.2 percent drop.

Did prices go up or go down? Is the news good or bad?

Both stories draw from the same press release from S&P which states
Data through October 2009, released today by Standard & Poor’s for its S&P/Case-Shiller Home Price Indices ... show that the annual rate of decline of the 10-City and 20-City Composites improved compared to last month’s reading. This marks approximately nine months of improved readings in these statistics, beginning in early 2009.
The difference in the stories seems to come down to different numbers in the press release (and in the case of CNNMoney, some selective quoting).

The S&P press release indicates that the seasonally-adjusted 10- and 20-city indices rose in October but the unadjusted indices did not. If we are going to read month-to-month changes, we should focus on the seasonally-adjusted numbers.

Also, the quote from David Blitzer actually comes from the press release. The full quote is
The turn-around in home prices seen in the Spring and Summer has faded with only seven of the 20 cities seeing month-to-month gains, although all 20 continue to show improvements on a year-over-year basis. All in all, this report should be described as flat... Coming after a series of solid gains, these data are likely to spark worries that home prices are about to take a second dip. Before jumping to conclusions, recognize that the one time that happened at the beginning of the 1980s, Fed policy saw dramatic reversals, which is very different from the stable and consistent Fed policy we have today. Further, sales of existing homes – those included in the S&P/Case-Shiller Home Price Indices – have been very strong in recent months, working off the inventories of houses for sale. At the same time, housing starts remain weak, fears that the market will be swamped by a wave of foreclosures are heard and government programs aimed at the housing market will expire in the first half of 2010.
Blitzer's quote is much more nuanced and conditional than the CNNMoney reporter lets on. Blitzer interprets the data as "flat," but also indicates that the "worries" about a "second dip" are not likely to play out.

CNNMoney's reporting seems to be incomplete and misleading. The CNNMoney story never mentions the seasonally-adjusted numbers and quotes selectively.

Monday, December 28, 2009

System of an almost downed airliner

On CNN's State of the Union program yesterday, Homeland Security Secretary, Janet Napolitano, was discussing the near-tragedy on Northwest flight 253 over the Christmas holiday and barfed up this whopper, "one thing I'd like to point out is that the system worked."

This was perhaps the stupidest spin since then FEMA Director Michael Brown (also part of the Homeland Security Department; what is it with these folks?) said that things in New Orleans in the immediate aftermath of Hurricane Katrina were "going relatively well."

A system that allowed enough explosive onto an airliner to bring it down most definitely did not work.

We can all praise the heroism of the passengers and crew.

It is also possible that the existing security measures made things just difficult enough that the bomber could not operate his device.

However, the fact remains that the "system" allowed an identified security threat to carry explosive material onto a plane.

When asked about that threat, Sec. Napolitano replied,
...you have to understand that you need information that is specific and credible if you are going to actually bar someone from air travel. He was on a general list, which over half a million people, everybody had access to it. But there was not the kind of credible information, in the sense derogatory information, that would move him up the list.
So why didn't he get an extra search? What good is a "general list" if it doesn't at least lead to additional screening?

The Secretary has some 'splaing to do. She should begin by retracting yesterday's remarks. If she continues to stand by those remarks, the President should show her to the nearest exit.

UPDATE (12/28/2009 11:25 a.m.): Sec. Napolitano has now come out and said "Our system did not work in this instance ... Nobody is happy or satisfied with that. An extensive review is underway."

Wednesday, December 23, 2009

Amphitheater proliferation

Did someone in the Triad clip a 2-for-1 coupon for amphitheaters?

At the end of October, the Greensboro City Council discovered that a $95,000 amphitheater was being constructed on land next to the Greensboro Coliseum complex.

However, already in the planning stages was the Triad Park Amphitheater. Now, the Forsyth and Guilford County commissioners have given the WAR Memorial Foundation permission to raise money for the Triad Park Amphitheater and an accompanying "Carolina Field of Honor."

As if two amphitheaters aren't too many already, the new WAR Memorial Foundation project risks not only being confused with the Coliseum Complex project, which is being built next to somewhat crumbly War Memorial Auditorium (which itself is located along War Memorial Drive) but also being confused with the decidedly crumbly War Memorial Stadium.

Haven't our war veterans experienced enough of this type of incoherent "planning?" Let's honor them by restoring the memorials that have already been erected to first-class status.

Monday, December 21, 2009

Not making the grade in C++

Looks like the upcoming knowledge-based economy might not be so knowledgeable.
Nationally, the portion of schools that offer an introductory computer science course has dropped from 78 percent in 2005 to 65 percent this year, and the corresponding decline in AP courses went from 40 to 27 percent, according to a survey by the Computer Science Teachers Association.

In the spring, the College Board, citing declining enrollment, canceled its AP computer science AB class, the more rigorous of its two courses in the subject.

The result of sporadic or skimpy computer science training is that a generation of teenagers great at using computers will be unlikely to play a role in the way computer technology shapes lives in the future, said Chris Stephenson, executive director of the New York-based Computer Science Teachers Association.
That's okay, computer programming is a crap job anyway.

Friday, December 18, 2009

NC confirms double-dipping

The Program Evaluation Division (PED) of the NC General Assembly has now investigated the double-dipping in the NC wetland mitigation programs.

The PED describes in detail how credits for the same 46 acres of preserved land were purchased twice by the state--once as wetlands credits for the Department of Transportation and then later as nutrient offset credits for the Department of Environment and Natural Resources (DENR).

The PED determined that of the $911,000 that the DENR spent on the "new" nutrient offset credits, $698,372 paid for credits on land that had already been preserved. The PED also determined that another 18 acres remains available for further double-dipping.

Besides the double-dipping itself, one of the most appalling items in the report was a statement by a DENR Assistant Secretary, who wrote that
Approval of the EBX buffer/nutrient offset bank did not impose additional costs on taxpayers. The ability to use nutrient offset credits from an established stream and wetland restoration site made those credits less expensive.
By such logic are dead parrots and the Brooklyn Bridge sold.

The Assistant Secretary seems not to realize that that expenditure bought absolutely no additional environmental benefits to the taxpayers of North Carolina. The money was completely wasted; it has evaporated; it protects nothing, and it can't be used to protect anything. The state would have been better off if the DENR had taken 698,372 dollar bills, shredded them, and then used resulting fluff to insulate its headquarters or to stuff the Assistant Secretary's empty head.

The only positive from the report was that the DENR has issued a moratorium on most future "double" transactions and has drafted rules to prohibit this in the future.

Wednesday, December 16, 2009

It's not easy being green--part III

Energy-efficient traffic lights may be hazardous to your health.
Cities around the country that have installed energy-efficient traffic lights are discovering a hazardous downside: The bulbs don't burn hot enough to melt snow and can become crusted over in a storm — a problem blamed for dozens of accidents and at least one death.

Freshman, can you spare a dime?

Pittsburgh considers a 1 percent tax on student tuitions to fund the city's retirement system.
The mayor of Pittsburgh calls it the “Fair Share Tax.” But to officials at the city’s 10 colleges and universities and many of their 100,000 students, it is anything but.

On Wednesday, the City Council is expected to give preliminary approval to Mayor Luke Ravenstahl’s proposal for a 1 percent tuition tax on students attending college in Pittsburgh, which he says will raise $16.2 million in annual revenue that is needed to pay pensions for retired city employees. Final Council action will be on Monday.
In principle, a tax on students is fair. While students contribute to the economy of a city and pay some taxes directly (sales taxes) and indirectly (property taxes through their landlords), they also require services. An average annual tax of $162 doesn't seem unreasonable for those services.

Of course, the students did not contribute to the retirement shortfall, so tying the increase to retirement funding is an economic head scratcher (a political explanation is that the mayor and city council are pandering to older voters at the expense of younger non-voters). Ultimately, however, the revenue is fungible (increased payments to the retirement system reduce other budgetary pressures).

Fungibility also applies to the colleges and universities. The likely alternative to a tuition tax would be "voluntary" payments by the institutions to the city. Some of the costs of those payments would be passed on to the students in the form of higher net tuition.

Students elsewhere who think that they are avoiding this "tax" should think again. Many institutions have arrangements with their local communities to make payments in lieu of taxes. Seen or unseen, these costs enter students' tuition bills.

Less fair in the tax proposal is the distribution of the tax burden across institutions. Students pay only a portion of the costs of their educations through tuition. Institutions receive funding from federal, state, and private sources. The effective tax burden will be highest for institutions that are the most tuition dependent. It will be relatively low for institutions that receive large portions of their revenue from the state or from endowment support.

If Pittsburgh goes through with this, look for other cities to follow its example.

Tuesday, December 15, 2009

What Sarah worry?

Citizen Sarah Palin last week
But while we recognize the occurrence of these natural, cyclical environmental trends, we can't say with assurance that man's activities cause weather changes.
Gov. Sarah Palin in 2008
Alaska’s climate is warming. While there have been warming and cooling trends before, climatologists tell us that the current rate of warming is unprecedented within the time of human civilization. Many experts predict that Alaska, along with our northern latitude neighbors, will warm at a faster pace than any other areas, and the warming will continue for decades.
Citizen Sarah Palin discussing Climate-gate and the alarmist conclusions among "so-called" experts
With the publication of damaging e-mails from a climate research center in Britain, the radical environmental movement appears to face a tipping point. The revelation of appalling actions by so-called climate change experts allows the American public to finally understand the concerns so many of us have articulated on this issue...

...the documents show that there was no real consensus even within the CRU crowd. Some scientists had strong doubts about the accuracy of estimates of temperatures from centuries ago, estimates used to back claims that more recent temperatures are rising at an alarming rate.
Gov. Palin alarmingly in 2008
Although many of our coastal and river communities have flooded in the past, they have become more vulnerable as permafrost and shore ice that once protected their shores has been lost to warming temperatures...

Approximately 6,600 miles of Alaska’s coastline and many of the low-lying areas along the state’s rivers are subject to severe flooding and erosion...

Flooding and erosion affect 184 out of 213, or 86 percent, of Alaska Native
villages to some extent.
Citizen Palin criticizing unilateral measures
Unlike the proposals China and India offered prior to Copenhagen -- which actually allow them to increase their emissions -- President Obama's proposal calls for serious cuts in our own long-term carbon emissions.
Gov. Palin proposing unilateral measures
The Sub-Cabinet will also be making recommendations to me on how Alaskans can save energy and reduce their greenhouse gas emissions. One of our workgroups, called “Government Leads by Example” will be looking at ways federal, state and local governments can save the taxpayers money while reducing government’s carbon footprint.
Eugene Robinson writes more about Sarah then and now, but you get the idea.

Doonesbury on labor and sports economics

Today's Doonesbury addresses questions at the intersection of labor and sports economics.

Saturday, December 12, 2009


In a video-taped message, a spokes-coward for Al Qaeda offered "condolences" to the many innocent Muslim victims of its violence.

A simple and more effective way to express genuine condolences would be to for Al Qaeda stop the slaughter of innocents altogether, including its violence directly targeting Muslims.

If that is too radical a notion for Al Qaeda, its murderers could start with the more modest steps of not hiding behind their women's skirts and under their children's beds.

Friday, December 11, 2009

Tragic collision

The News Observer has a horrible story about a mother who lost her two children and was injured herself when her SUV was struck by a train at an at-grade railroad crossing.

From the report, the SUV was in the crossing when the gates went down and then unable to get out.

The crossing has been the scene of another fatal accident and 11 accidents total since 1975.

The tragedy should be a reminder to drivers to NEVER enter an intersection or crossing that they can't clear. I can't count the number of times that I've seen cars in Greensboro creep into active railroad crossings in stopped traffic only to be stuck until the cars ahead of them moved. In those situations, the drivers might as well have painted bright red targets on their cars.

In heavy traffic, drivers should judge whether they can make it ALL THE WAY through an intersection. If they can't, they should stop short of the intersection and wait for it to clear.

Trailing cars coming up to a crossing should try to leave room for careless drivers to back up; they shouldn't crowd the intersection.

Operation Lifesaver gives the following advice
Never drive around lowered gates — it's illegal and deadly. If you suspect a signal is malfunctioning, call the 1-800 number posted on or near the crossing signal or your local law enforcement agency.

Never race a train to the crossing — even if you tie, you lose.

Do not get trapped on the tracks. Only proceed through a highway-rail grade crossing if you are sure you can completely clear the crossing without stopping. Remember, the train is three feet wider than the tracks on both sides.

If your vehicle ever stalls on a track while a train is coming, get out immediately and move quickly away from the tracks in the direction from which the train is coming. If you run in the same direction the train is traveling, when the train hits your car you could be injured by flying debris. Call your local law enforcement agency for assistance.

At a multiple track crossing waiting for a train to pass, watch out for a second train on the other tracks, approaching in either direction.

ALWAYS EXPECT A TRAIN! Freight trains do not follow set schedules.

Be aware that trains cannot stop quickly. Even if the locomotive engineer sees you, a freight train moving at 55 miles per hour can take a mile or more to stop once the emergency brakes are applied. That's 18 football fields!

Do not be fooled — the train you see is closer and faster moving than you think. If you see a train approaching, wait for it to go by before you proceed across the tracks.

When you need to cross train tracks, go to a designated crossing, look both ways, and cross the tracks quickly, without stopping. Remember that it isn't safe to stop closer than 15 feet from a rail.
It's likely that yesteday's tragedy was preventable; that's a sad conclusion that will haunt the mother forever.

Sadder still, it's a tragedy that's likely to be repeated many more times until drivers become more aware.

Wednesday, December 9, 2009

Money for Nothing

Mark Knopfler had it wrong. EBX didn't have to learn to play the guitar or learn to play them drums. All it had to do was write a proposal, and it got its "money for nothing."

The News Observer has a follow-up story this morning that suggests that there isn't much urgency in the state government to address the double-payments problem.

Officials with the Department of Environment and Natural Resources have characterized the payment as the result of a regulatory loophole that they now want to close. But they also acknowledge that they support double payments in some cases when a restoration project enhances streams and the land alongside them. These projects are built by the state and by private companies.

EBX officials say the company should be entitled to the $911,000 because the state has supported double payments on the other restoration projects...

Chrissy Pearson, Perdue's communications director, said that the governor has been aware of the double-dipping concerns and told her Budget Reform and Accountability Commission to tackle the issue earlier this year.

"She told me quite bluntly that this process doesn't make sense to her and she does want some answers as to whether the groups involved in this type of work are working as efficiently and effectively as possible," Pearson said.

We can speed this along for the governor. The answers are "no" and "no."

Pollution mitigation projects often yield benefits that extend beyond the affected site. Although intended to address one type of pollution, they can sometimes address several. Economists refer to these extra benefits as positive externalities, or spillovers (especially apt for projects to reduce stream pollution). The externalities make the project all the more valuable from a social perspective.

The presence of externalities could explain why the state might prioritize one project over another. It might also explain why the state might be willing to pay more initially.

However, the state's responsibility is to get these benefits at the lowest possible cost. It should drive the best bargain possible initially. And under no circumstances, should it pay a second (or third or fourth) time for work that has already been performed.

Any "regulatory loophole" that allows double payments should be closed. In the meantime, no new double-payments contracts should be written, and existing contracts should be reviewed to see if the state can terminate them.

Tuesday, December 8, 2009

Double the costs but with none of the benefits of the other leading brand

The Raleigh News Observer reports that the North Carolina Department of Environment and Natural Resources is paying a Maryland company, EBX, nearly $1 million for pollution mitigation work that the company had already done and for which it had already been paid $1.8 million.
This year, state environmental officials agreed to pay a Maryland company nearly $1 million for its work to help rid the Neuse River Basin of tons of nitrogen, which pollutes drinking water.

Here's the catch for North Carolina taxpayers: The state Department of Transportation paid $1.8 million for the same work several years ago. Yet the new deal appears to be legal.

The state Department of Environment and Natural Resources entered into a $911,000 contract with EBX to remove more than 100,000 pounds of nitrogen during the next 30 years from the Neuse basin, the water source for many communities in the region, and to restore a Neuse tributary.

EBX won the contract with a bid lower than its competitors. The other contractors soon realized why: EBX was claiming the nitrogen reductions from two sites created several years earlier in Johnston and Wayne counties. The two sites were part of $11 million in contracts from the N.C. Department of Transportation in 2000 and 2002 to replace wetlands and streams destroyed for road projects.

The $911,000 would not create a new wetland or a patch of vegetation to absorb nitrogen runoff, which has been linked to fish kills and algae blooms in one of the nation's most endangered rivers. EBX would collect the money for administrative work and for continued monitoring at its existing sites.
We should all be so lucky to get paid twice for the same work.

EBX might not quite be making double the money, but it is making a mint.

Maybe EBX can claim these swamps, er, I mean wetlands, as carbon offsets and collect even more money.

It's not moral being green

Slate has a fascinating article this morning about how acting "green" may lead people to behave less morally.

The article describes results from a set of two-stage experiments that examined how exposure to green items and the purchase of green items affected subsequent "moral" behavior. In first stage of the "exposure" experiment, subjects were asked to evaluate items from a hypothetical on-line store. In this set-up, subjects were randomly assigned to stores that varied in the number of green and conventional goods that they carried. In the first stage of the "purchase" experiment, subjects were also randomly assigned to stores with different numbers of green goods but tasked with making purchases from the assigned store.

In the second stage of each experiment, subjects then played a dictator game in which they were given a small amount of money to allocate anonymously between themselves and somebody else. In these games, the amount of money that a subject gives to someone else is a sign of economic altruism (other- or giving-oriented preferences). A purely selfish person would keep all the money for himself or herself, while a person who has strong concerns about fairness, others' well-being, or the appearance of these things gives some money away.

In the exposure experiment, the researchers found that subjects who were exposed to green goods gave more in the dictator game (behaved more altruistically) than those who were just exposed to conventional goods. The result is consistent with a "demonstration effect" in which exposure to good behavior prompts people to incorporate that norm into their subsequent behavior.

The really interesting result, however, came in the purchase experiment. Subjects who made green purchases gave less money in the dictator game than people who made conventional purchases.

The researchers followed these experiments up with another in which subjects were randomly assigned to purchase green or conventional goods and then given a task that tested their honesty. Once again, purchasing green goods was associated with less moral behavior.

The experiments are highly artificial, and some of the differences in moral behavior were very marginal. However, the results are consistent with a type of "licensing" in which performing one moral act gives people latitude to act less morally later. Licensing itself is consistent with people having preferences over moral and selfish acts and balancing their behavior across these acts.

This type of moral accounting could explain other phenomena, such as people's behavior in church parking lots. After an hour of prayer, reflection, and fellowship, congregants cut each other off and curse each other in the parking lot. An hour devoted to a higher purpose gives them license to act like jerks the minute they get behind the wheel.

In the experiment and the parking lot examples, the moral behavior comes first. However, the sequence could also be reversed. You could think of cases where people atone for immoral acts by subsequent moral acts (you honk at the idiot in the parking lot who is letting everyone pull out in front of him and then atone next Sunday by fixing pancakes for the homeless). In either order, people mentally keep track of moral credits and balance them across one another.

A broader implication of the findings is that there are limits to the amount of "good behavior" that society can get people to engage in. If the government or some other authority incentivizes or mandates one type of good behavior, people will conform in that dimension but compensate by acting poorly in some other dimension.

As my Mom is fond of saying, "I guess we just can't have nice things."

Friday, December 4, 2009

Hidden good news in the monthly employment report

This morning's jobs report from the Bureau of Labor Statistics had the good news that the rate and absolute levels of unemployment both declined, on a seasonally adjusted basis, from October to November. The estimated unemployment rate fell from 10.2 percent to 10.0 percent, and the estimated number of unemployed people fell from 15.7 million to 15.4 million.

At the same time, the estimated number of people with jobs increased. The employment figure from the monthly household survey rose by 227,000, the first increase since April and the largest increase since April 2008.

Now it's time to bring in Dan Brown. Hidden in the report is some additional good news. Employment figures from the previous months' establishment surveys are revised as additional data comes in. Last month, the BLS reported that payroll employment levels in September and October were 131.0 million and 130.8 million, respectively. In its latest report, the BLS has revised those figures up to 131.1 million and 131.0 million. The revisions sharply trim the job losses that had been reported earlier (instead of losing 400,000 jobs between August and October, it now appears that the losses were closer to 250,000).

The preliminary payroll jobs figure for November is 131.0 million, which is unchanged from the upwardly revised October figure.

The figures indicate that the employment recession may also be bottoming out, if so, this would be a great holiday present.

Thursday, December 3, 2009

Risking the state retirement system

The News Observer reports on a new in-state investment pool for the state retirement system.
State Treasurer Janet Cowell is starting a $250 million equity fund to invest in North Carolina companies with two goals in mind: make money for the state pension fund and create jobs in North Carolina.

Cowell's office is scheduled next week to announce the investment firm that will manage the fund.

The legislature this year passed a law, at Cowell's request, giving her more flexibility in managing pension fund investments so she could establish the Innovation Fund. The fund is set up to invest up to $250 million in companies that have "significant operations in North Carolina," according to the request for proposals from investment firms.
Before posting further, I should disclose that I am currently enrolled in the state pension system, so I've got a dog in this particular fight. However, anyone who is a North Carolina taxpayer also has a stake.

At first glance, the proposal looks great. Investments inside North Carolina offer a potential two-fer in that the retirement system could reap the investment returns, while the investments themselves add to the state's economy and tax base.

However, a closer examination reveals serious downsides.

The primary goals of the pension fund manager should be to maximize the fund's returns while minimizing risks associated with those returns. Prudent fund management provides security to current and future retirees who depend on the fund. It also reduces costs to taxpayers who are ultimately on the hook for the obligations of the fund.

Absent this special fund, nothing prevents the Treasurer from investing in North Carolina companies and projects--so long as they meet the retirement system's other objectives. If an investment, inside or outside North Carolina, can yield a competitive return, the Treasurer should be on it.

However, by setting a firm dollar amount of $250 million, the state is indicating that the Treasurer wouldn't have found this many worthwhile in-state projects through its normal procedures. This suggests that the state is going to invest in at least some in state projects with returns that are less than competitive. Either the policy is pointless ($250 million would have been invested anyway) or it results in over-investing.

Besides possibly failing to maximize its returns, the state is also going against the other principle of sound investment, which is to diversify risks. The retirement system is funded through individual deductions, taxpayer contributions, and investment returns. In times when the state economy hits a bad patch (and what are the chances of that ever happening?), the revenues available from taxpayers dry up. However, the investment returns available elsewhere might not decline or at least not decline by as much. By investing more within the state, the retirement fund ties its returns more closely to the state economy, reducing the opportunities for diversification and increasing risks and volatility. A fund manager should want these revenue streams to be less correlated, not more correlated.

A cautionary example of the dangers of correlated risks is an employee whose stock is entirely or mostly invested in the company that she works for. If the company goes bust, the worker not only lose her job but also her investment. Ask a former employee of Enron whether he or she is happy that so much of the employees' retirement funds was tied up with that company.

The policy also sends a bad message to other states, which might also be encouraged to concentrate their investments at home. If additional states pursue these types of approaches, the funds available to North Carolina companies from other states could be reduced.

Finally, the approach is ripe for abuse. North Carolina elects its Treasurer. Companies and workers who might directly benefit from the retirement system's investments would have the opportunity to contribute to the Treasurer's election. The Treasurer should face political pressure to make the best investments; however, she should not be beholden to particular groups.

My hope is that this is indeed a pointless policy and that the Treasurer is just trying to get good P.R. for investments that she would have made anyway. Unfortunately, her description of this plan doesn't sound that way.

Wednesday, November 25, 2009

RDU: where the wild things are

From this morning's News Observer:
RDU officials have noted a marked increase in recent months in the number of coyotes crossing the paths of taxiing airplanes. The critters can wreak havoc, causing delays in takeoffs and landings. In September, an American Eagle jet struck a coyote on a runway. No one was injured.
A coyote was struck by a jet, and no one was injured. That's some coyote.

Friday, November 20, 2009

Applying Bayes' theorem to breast cancer screening

Bayes' theorem gives the formula that statisticians use for calculating conditional probabilities.

Suppose that you have two events A and B that have joint probabilities. From Bayes' theorem, the probability that A occurs given that B has occurred, Prob(A|B) is

Prob(A|B) = Prob(B|A)*Prob(A)/Prob(B)

where Prob(B|A) is the probability that B occurs given A, Prob(A) is the unconditiional probability of A occurring, and Prob(B) is the unconditional probability of B occurring.

Let's apply this to cancer screening. According to the American Cancer Society, the unconditional probability that a woman who is age 40 develops breast cancer by the time she is 50 is 1.44 percent.

Suppose that we had a screening test for breast cancer that gave a positive result 100 percent of the time that breast cancer is present. That is, let's assume that the test never generates a false negative. However, let's also assume that there is a small chance, say 5 percent, of false positives.

From these figures, the probability of a randomly screened 40-year-old woman receiving a "positive" result is

Prob(Pos. test) = Prob(Pos. test|Cancer)*Prob(Cancer)
+ Prob(Pos. test|No cancer)*Prob(No cancer)
= 1.0*.0144 + .05*(1-.0144) = .0637

And the probability that a woman with a positive test has cancer is
Prob(Cancer|Pos. test) = Prob(Pos. test|Cancer) * Prob(Cancer) / Prob (Pos. test)
= 1.0 * .0144 / .0637 = .226

In this case, a positive test means that the woman has only a one-in-four chance of actually having cancer. She is much less likely to have cancer than to not have it.

The test provides information. Without the test, the woman would have only known about a 1-in-70 chance.

However, because of the very low underlying rate of cancer, the test yields many more false positives than true positives (three times as many). Many, many more women without cancer are tested and subject to false positives.

Suppose that the same test is used for a 50 year old woman. According to the American Cancer Society, the woman would have a 2.39 percent chance of developing cancer over the next ten years. The probability that she has cancer given a positive result from our hypothetical test is 33 percent. So, the rate of false positives drops from one in four to one in three.

To be clear, these examples are not arguments for doing away with testing. However, they do show some of the limitations associated with even a very good test and some of the excess costs associated with routine testing.

Tuesday, November 17, 2009

You've come a long way baby

You needed that college admission. And you were the best qualified. But they had to give it to a man because of a gender quota. Is that really fair?
Inside Higher Ed reports
The U.S. Commission on Civil Rights has started an inquiry into the extent to which liberal arts colleges discriminate against female applicants in an attempt to minimize gender imbalances in the student body. On Friday, the commission agreed on a set of colleges -- primarily in the Washington area -- to investigate, but declined to release a full list.

The issue is an extremely sensitive one for liberal arts colleges, many of which in recent years have worried about their gender ratios reaching points (60 percent female is commonly cited) where they face difficulty in attracting both male and female applicants. Generally private undergraduate colleges have the legal right to consider gender in admissions. They were specifically exempted from the admissions provisions of Title IX of the Education Amendments of 1972.

Cost benefit in cancer screening

The U.S. Preventive Services Task Force has issued a stunning recommendation. It recommends against routine screening mammographies for women 40-49 years old with no other risk factors for breast cancer and recommends only biennial mammographies for women 50-74 years old. It also recommends against teaching women how to self-examine.

The recommendations reverse those made by the same group in 2002.

The task force reviewed evidence from numerous studies in making its recommendation.

It concluded that there is a benefit to regular screening mammographies; the evidence demonstrates that they reduce cancer mortality among women aged 40 and over. The benefits increase with age. So, the task force's recommendation will likely contribute to a higher death rate.

However, the task force cited new evidence that the mortality benefits were exceedingly small. For every 1,903 women aged 40-49 who were given the opportunity for annual screening, only one cancer death would be avoided. For women aged 50-59, the ratio was 1,339 to one. The new evidence was largely responsible for the change in recommendations.

The task force balanced this small but undeniable benefit against "moderate" costs and harms from screening.
The harms resulting from screening for breast cancer include psychological harms, unnecessary imaging tests and biopsies in women without cancer, and inconvenience due to false-positive screening results. Furthermore, one must also consider the harms associated with treatment of cancer that would not become clinically apparent during a woman's lifetime (overdiagnosis), as well as the harms of unnecessary earlier treatment of breast cancer that would have become clinically apparent but would not have shortened a woman's life. Radiation exposure (from radiologic tests), although a minor concern, is also a consideration.
The task force found no benefit from self-exams but some of the same harms as mammographies.

An interesting thought experiment is to consider how the recommendations might change yet again if a less expensive but more accurate screening technology is developed (the recommendations do compare film, digital, and MRI screenings). A technology that reduced the screening costs and led to more true positives and fewer false positives could well tip the balance back in favor of additional screenings.

With the current technology, however, the "rational" approach is to cut back on screeings.

What's not in my wallet

I got home last night to find a letter from Sears kindly informing me that the interest rate on my seldom-used Sears card was going up to "the U.S. Prime Rate plus 21.99%." Effectively, that was going to make the interest rate just a bit over 25% and well into usury territory, so much for the "softer side of Sears."

I can take a hint. I cancelled the card shortly thereafter.

This morning CNN.money reports
One in four consumers plan to pay with cash this holiday season, according to a new survey by the National Retail Federation. That's up 9.1% from a year ago.

That's not too surprising considering both credit card companies and consumers have reined in usage during the Great Recession.

Another 42.5% of holiday shoppers plan to use primarily debit or check cards, a 2.5% increase from last year, the survey found.

Credit card usage, meanwhile, is expected to fall by 10.1% to 28.3%.
The story doesn't mention changes in rates but does mention that "credit usage will remain weak until unemployment starts to fall, economists say." Credit usage will also remain weak while interest rates are sky high.

Many other card customers will see notices like this as a result of the Credit Card Accountability, Responsibility, and Disclosure Act of 2009, which bans some types of rate increases and "gotcha" fees. Issuers are rushing to raise rates before the provisions kick in this winter (or sooner if Congress gets its way).

It just goes to show that these types of regulations are like squeezing on a balloon. Squish down on one fee and another pops out. At least the new rules have the benefit of simplifying card provisions and making usurious rates easier to spot.

Thursday, November 12, 2009

CNN at 7 p.m. may soon be worth watching again

Hurray! The grouch is gone.

No, not Oscar, that other trashy malcontent, Lou Dobbs.

Dobbs has quit CNN, raising the channel's on-air IQ by several points in the process.

Dobb's ill-informed rants (he calls it "advocacy journalism") have grated for years and made the 7 p.m. CNN slot unwatchable. His screeds against immigration and trade were bad enough. But this year, the emperor was laid bare when he persisted in questioning President Obama's citizenship.

Maybe it's time to tune into CNN after dinner again.

Wednesday, November 11, 2009

Veterans Day 2009

It's raining, windy and gray in Greensboro this morning, somber weather for an especially sad Veterans Day. This year's remembrance occurs with battles in Afghanistan growing bloodier, with troops still serving in large numbers in Iraq, and in the wake of the senseless tragedy at Ft. Hood.

A memorial service was held yesterday at Ft. Hood. The President attended and gave a wonderful speech that focused less on the terrible violence and more on the lives and contributions of the troops themselves.
Your loved ones endure through the life of our nation. Their memory will be honored in the places they lived and by the people they touched. Their life's work is our security, and the freedom that we all too often take for granted. Every evening that the sun sets on a tranquil town; every dawn that a flag is unfurled; every moment that an American enjoys life, liberty and the pursuit of happiness -- that is their legacy.
Later in the speech, he linked the sacrifices of the Ft. Hood victims with a more general charge for Veterans Day.
It's a chance to pause, and to pay tribute -- for students to learn the struggles that preceded them; for families to honor the service of parents and grandparents; for citizens to reflect upon the sacrifices that have been made in pursuit of a more perfect union.

For history is filled with heroes. You may remember the stories of a grandfather who marched across Europe; an uncle who fought in Vietnam; a sister who served in the Gulf. But as we honor the many generations who have served, all of us -- every single American -- must acknowledge that this generation has more than proved itself the equal of those who've come before.

We need not look to the past for greatness, because it is before our very eyes.

This generation of soldiers, sailors, airmen, Marines and Coast Guardsmen have volunteered in the time of certain danger. They are part of the finest fighting force that the world has ever known. They have served tour after tour of duty in distant, different and difficult places. They have stood watch in blinding deserts and on snowy mountains. They have extended the opportunity of self-government to peoples that have suffered tyranny and war. They are man and woman; white, black, and brown; of all faiths and all stations -- all Americans, serving together to protect our people, while giving others half a world away the chance to lead a better life.
If you have the time, I encourage you to read the speech in its entirety.

Thursday, November 5, 2009

Census shenanigans blocked

The Washington Post reports

Senate Democrats Thursday blocked a GOP attempt to require next year's census forms to ask people whether they are U.S. citizens.

The proposal by Louisiana Republican Sen. David Vitter was aimed at excluding immigrants from the population totals that are used to figure the number of congressional representatives for each state. Critics said Vitter's plan would discourage immigrants from responding to the census and would be hugely expensive. They also said that it's long been settled law that the apportionment of congressional seats is determined by the number of people living in each state, regardless of whether they are citizens. A separate survey already collects the data.
The article quotes Sen. Vitter,
"The current plan is to reapportion House seats using that overall number, citizens and noncitizens ... I think that's wrong. I think that's contrary to the whole intent of the Constitution and the establishment of Congress as a democratic institution to represent citizens."
Instead of "thinking" that he knows what the Constitution says, Sen. Vitter should actually read the document, specifically the 14th Amendment, which states
Representatives shall be apportioned among the several States according to their respective numbers, counting the whole number of persons in each State, excluding Indians not taxed.
The word "persons" is purposeful. Other language in the 14th Amendment, including language that describes how representatives and electors may be proportioned in other ways, explicitly mentions citizens.

The decennial census is due to go out early next year. Sen. Vitter's proposal would have increased the cost of the count, delayed the census, and reduced compliance (further raising costs). Moreover, citizenship information is already asked of 3 million households from all 50 states and DC each year (including census years) as part of the American Community Survey (ACS).

Although the proposal was blocked, Sen. Vitter had the support of 38 other Republican senators who were equally willing to waste money and monkey with the decennial census.

This is the best the Republicans could offer?

Last Friday, Rep. Boehner, the Republican minority leader, promised "over the coming days, you're going to hear an awful lot about the specifics of what we would do to lower the cost of health insurance in America and really do this in a step-by-step gradual process."

In the same interview, Rep. Boehner went on to discuss differences in the Democratic and Republican approaches to expanding coverage and addressing pre-existing conditions, saying
Most of the 36 million that they say they're going to cover already have access to some type of government program, or even their employer program, or have chosen just not to have health insurance. When you really boil this down, there are about seven or eight million people in America, those with pre-existing conditions, those who are what I would describe as the working poor, and some early retirees who have a difficult time getting health insurance. We can help those people get health insurance and still bring down the cost of health insurance for the 85 percent of Americans who have it and think they pay too much for it.
Well the specifics are now here. Rep. Boehner and the Republicans this week unveiled their bill, the preamble of which states
The purpose of this Act is to take meaningful steps to lower health care costs and increase access to health insurance coverage (especially for individuals with preexisting conditions)...
For a bill that's supposed to help 7-8 million vulnerable people, the bill at best does precious little and at worst actually harms those who need insurance most.

First, the 219-page bill only uses the word "preexisting" three times: in the preamble, in a section title, and in a provision ordering the General Accountability Office to do a study. You would think that legislators concerned "especially for individuals with preexisting conditions" could bring themselves to mention those conditions a few more times.

Second, a CBO analysis of the bill indicates that by 2019 (ten years from now) it will only increase insurance coverage "by about 3 million relative to current law," far short of the 7-8 million cited by Rep. Boehner. The legislation would leave 52 million people uninsured; one out of every six nonelderly residents would lack insurance. Rep. Boehner did promise a "gradual" approach, but this is ridiculous.

Third and most importantly, the bill will likely hurt many of those who need help the most. From the same CBO analysis
...some provisions of the legislation would tend to decrease the premiums paid by all insurance enrollees, while other provisions would tend to increase the premiums paid by less healthy enrollees or would tend to increase premiums paid by enrollees in some states relative to enrollees in other states.
As an example of how the distribution of costs and enrollment might change under the Republican plan, the CBO states
For example, states that loosened rating rules in the market for individually purchased insurance to allow premiums to vary more on the basis of age would cause premiums for older people to increase and premiums for younger people to decrease. With other factors held equal, fewer older people (who tend to have higher health care costs) and more young people (who tend to have lower health care costs) would then sign up for coverage, and the improved average health status of insured people would lower average premiums; at the same time, the pool of people without health insurance would end up being less healthy, on average, than under current law.
The Republican plan does lower average costs for people who will have insurance. However, it does this in part by changing the mix of people with insurance, bringing in people who are younger and healthier and driving out people who are older and unhealthier.

Fourth, the Republican plan also reduces average premiums by reducing the types of services that would need to be covered in plans--that is, by reducing the quality of coverage. The CBO writes that provisions in the plan would
encourage states to reduce the number and extent of benefit mandates that they impose, and provisions that would allow individuals or affiliated groups to purchase insurance policies in other states that have less stringent mandates.
In short, insurance premiums go down because the insurance covers less.

The plan does have some good features, such as requirements for the government to improve electronic record-keeping and some extra funding for fraud investigations. However, in keeping with the Republicans' gradual and incremental approach, these could be enacted subsequently.

The bottom line is that the Republican plan is no substitute for the Democratic plan. The Republican plan doesn't even live up to Rep. Boehner's own diminished promises or its own preamble.

Wednesday, November 4, 2009

U.S. lags further behind in infant mortality

The Centers for Disease Control (CDC) have released figures that show that infant mortality rates in the U.S. exceed many other countries in the world. In the latest CDC analysis, which uses 2005 data, the U.S. ranked a disappointing 30th. So much for our world-leading medical expenditures buying us better health outcomes.
The United States international ranking in infant mortality fell from 12th in the world in 1960, to 23rd in 1990 to 29th in 2004 and 30th in 2005. After decades of decline, the United States infant mortality rate did not decline significantly from 2000 to 2005.
Some have argued that infant mortality rates cannot be compared across countries because of differences in the ways that births are registered (some countries don't count very early or very low weight births as "live" births).

The CDC report acknowledges these differences but concludes
There are some differences among countries in the reporting of very small infants who may die soon after birth. However, it appears unlikely that differences in reporting are the primary explanation for the United States’ relatively low international ranking. In 2005, 22 countries had infant mortality rates of 5.0 or below. One would have to assume that these countries did not report more than one-third of their infant deaths for their infant mortality rates to equal or exceed the U.S. rate. This level of underreporting appears unlikely for most developed countries.
Even so, the detailed analyses in the CDC report focus on European countries, most of whom use the same reporting standard that the U.S. does, and limit the comparisons to mortality among infants with a gestational age of 22 weeks or more.

The CDC analyses indicate that
The main cause of the United States’ high infant mortality rate when compared with Europe is the very high percentage of preterm births in the United States.
However, the report also shows that the U.S. has one of the highest mortality rates for infants born at or near full term (after 36 weeks). For instance, the report compares births between the U.S. and Sweeden. If the U.S. had Sweeden's gestational age distribution, the U.S. infant mortality rate would be about a third lower than it is. However, even this adjusted birth rate would be 30 percent higher than Sweeden's. Put another way, differences in gestational age distributions account for two-thirds of the difference in infant mortality rates between the U.S. and Sweeden, but the remaining one-third is due to higher gestation-specific mortality rates in the U.S.

Tuesday, November 3, 2009

Lunch with Paul Krugman

I type this post with the hand that just shook Paul Krugman's hand...

Krugram is in town to give a talk as part of the Bryan Lecture Series. He also gave a lecture on the current economic crisis this morning at UNCG and then went out to lunch with faculty from the Economics Department.

The talk this morning began with a discussion of how the trends in world output in the current crisis initially mirrored those from the late 1920s but subsequently recovered (unlike the earlier decline). Krugman then moved on to discuss how the failure of the financial system, especially the "shadow banking system," contributed to the crisis, how the crisis was similar to Japan's lost decade, how we managed to avoid even worse outcomes, and how hard the recovery is likely to be.

The talk followed a lot of what Krugman has written in his columns. For instance, he discussed the important roles of deposit insurance, conventional monetary policy, and automatic fiscal stabilizers. There was a lot of emphasis on the limits of monetary policy--the liquidity trap--and how the Fed has adopted some unconventional policies, such as buying commercial paper in addition to government securities. Although Krugman also predicted a slow employment recovery, he didn't spend a lot of time talking about a follow-on stimulus package. He did, however, discuss how difficult it would be to return to healthy employment numbers with the policy tools that were currently being deployed.

Lunch afterward was an absolute blast. With all the questions being fired at him, it was a wonder that he got any time to eat.

All-in-all, it was the sort of day economists really enjoy.

Sickening employment policies

The New York Times reports this morning on how the spread of H1N1 and other illnesses is assisted by crummy sick leave policies.
Public health experts worried about the spread of the H1N1 flu are raising concerns that workers who deal with the public, like waiters and child care employees, are jeopardizing others by reporting to work sick because they do not get paid for days they miss for illness.
Firms clearly face a dilemma with these policies. On the one hand, sick leave helps to curb the spread of illnesses among employees, possibly raising output (or at least reducing losses associated with illness). On the other hand, sick leave promotes absenteeism (e.g., people calling in "well"). Economists call this "moral hazard," which in this case translates loosely as "if you offer it, they will cough."

An underlying problem is that firms cannot completely observe employees' health. It's difficult for a firm to determine whether an employee really is sick, and requiring employees to submit independent documentation of an illness is costly and impractical.

There is also a good possibility that firms and employees undervalue this benefit. A contagious disease is a classic example of a negative externality--a economic harm whose costs aren't fully borne by the immediate parties. Workers fail to consider the harm that they are causing their coworkers and others by showing up sick; firms fail to consider the harm that their sick employees may be causing customers, commuters, and others.

As an estimated 39 percent of workers lack sick leave, there's some evidence that sick leave is under-provided.

Even when sick leave is available, firms sometimes discourage its use. The Times article describes the policies of, who else, Walmart.
At Wal-Mart, when employees miss one or more days because of illness or other reasons, they generally get a demerit point. Once employees obtain four points over a six-month period, they begin receiving warnings that can lead to dismissal.

In addition, when Wal-Mart employees call in sick, their first day off is not a paid sick day (although workers can use a vacation day or personal day), but the second and third days are paid.
In this case, Walmart imposes a cost in terms of demerit points and lost personal/vacation leave for sick days, creating a clear disincentive to using those days.

In the end, the choices come down to having employees use too many sick days or too few. This employee's vote would be for too many.

Thursday, October 29, 2009

Return to growth

The advance figures for 3rd quarter Gross Domestic Product (GDP) were released this morning, and they indicate that the U.S. economy grew at a annual rate of 3.5 percent.

The growth appeared to be spread over most sectors of the economy with durable goods expenditures (mostly motor vehicles), investment (mostly inventory changes), and federal government spending leading the way. Exports were up strongly, but imports rose even faster, meaning that trade was a net negative. Spending by state and local governments was also down.

The figures mean that the economy has turned the corner and that the Great Recession has ended, at least for now. While the news is good, it's important to remember that the level of output is still substantially (2.3 percent) below where it was a year ago. Foreclosures, bankruptcies, and bank failures continue to mount. Unemployment is expected to continue rising into next year. And at some point the government has to take its foot off the fiscal and monetary accelerator pedals.

It will be a while yet before the growth in the economy translates into better outcomes for many businesses and households.

Still, a recovery beats the alternative, nu?

Thursday, October 15, 2009

$13 billion pander to seniors

This morning's consumer price report brought good news to consumers, or so you'd think. The Department of Labor reported that its consumer price index for all urban consumers was 1.2 percent lower than a year ago. This means that, on average, the goods that people are buying cost less.

The news is especially good for seniors and others living on fixed incomes. When prices are lower, those incomes go farther and can purchase more. Other things held constant, it's as if someone on a fixed income received at 1.2 percent raise. Given the high and rising unemployment, falling wages, and other financial problems that many other households are facing, a 1.2 percent increase in living standards should be good news.

Instead, however, seniors are complaining because for the first time in more than 30 years, there will be no cost of living increase in Social Security payments. The real value of those payments will increase, but the nominal value will be flat.

As a group, seniors are doing better than others in this economy. In its most recent income and poverty estimates, the Census Bureau reported that the median, inflation-adjusted income for households headed by people aged 65 and over rose 1.2 percent from 2007 to 2008, while the median real income for other households fell 3.3 percent. Over the same period, the poverty rate for people 65 and over was unchanged at 9.7 percent, while the poverty rate for younger people rose and was higher (in 2008, 19 percent of children and 11.7 percent of non-elderly adults were in households below the poverty line). And, older people have near-universal health insurance coverage, while more than one out of six younger people (including one out ten children) is uninsured.

Enter the Obama administration with an expensive "solution" to a non-existent problem
President Obama on Wednesday attempted to preempt the announcement that Social Security recipients will not get an increase in their benefit checks for the first time in three decades, encouraging Congress to provide a one-time payment of $250 to help seniors and disabled Americans weather the recession.

Obama endorsed the idea, which is expected to cost at least $13 billion, as the administration gropes for ways to sustain an apparent economic rebound without the kind of massive spending package that critics could label a second stimulus act.
Through a quirk in the cost-of-living formula which only adjusts benefits up and never down, Social Security recipients have effectively gotten a raise. However, President Obama wants to give them another in a Mini-Me version of a stimulus package.

The administration's proposal also raises the question of what it will do in future years. There is a good possibility that prices will remain flat for another year, leading to no cost of living adjustment next year. At that point, not only would another "emergency" increase be needed then but the increase would have to be larger to prevent nominal incomes from going down. So $250 this year could become an even larger amount next year. Also, at some point the emergency will pass, but politicians will be confronted the problem of how to cut the "temporary" increases. It's hard to see how these increases won't someday find their way into the baseline benefit calculations and become permanent.

Without a doubt, many elderly households are enduring economic hardships. However, on average, elderly households will see their living standards improve under the current cost of living formula. The average non-elderly household can't say the same. It violates every reasonable notion of fairness to ask households whose circumstances are getting worse to contribute more to households whose circumstances are getting better.

A fairer and more affordable approach would be to target assistance to the specific types of elderly households that are likely to fall through the gaps in the various cost of living formulas. An example would be households that are just coming on to Social Security this year--these households are not protected from Medicare increases. A targeted benefit for genuinely disadvantaged households can be justified. A $250 payment to all elderly households cannot.

Nevertheless, the political pressure for an unneeded hand-out is likely to prove irresistible. Kids, start saving those $5 birthday checks from Grandma and Grandpa, the government will be asking for them (and a whole lot more) in another few years.

Wednesday, October 14, 2009

Goodbye Captain Lou

CNN reports

Legendary wrestling figure Captain Lou Albano, perhaps best known for his association with pop singer Cyndi Lauper, died Wednesday, according to World Wrestling Entertainment.
As the clip shows, his association extended to the group NRBQ.

Tuesday, October 13, 2009

Republican budget busting

Sen. Johnny Isakson two weeks ago on the Senate floor:
Those are the two things Republicans don't want, which is more debt to bankrupt our children and grandchildren and more taxes.
Sen. Isakson today:
Those purchasing new homes would be eligible for an $8,000 tax credit under legislation to be introduced by Sen. Johnny Isakson (R-Ga.).

Isakson will offer the tax break for homebuyers as an amendment to legislation extending unemployment benefits, according to his office.

Isakson’s measure would greatly expand an $8,000 tax credit included in the $787 billion economic stimulus package Congress approved earlier this year. That credit expires at the end of November.

The new measure would keep the credit at $8,000, but would make all homebuyers eligible, instead of limiting it to those purchasing their first home. It would also double the income limits on those eligible to win the credit to $150,000 for an individual and $300,000 for a couple.

This would greatly increase the cost of the tax credit at a time when the government is dealing with record budget deficits.
Okay, one out of two isn't so bad. Apparently, "bankrupt(ing) our children and grandchildren" is okay, so long as it involves extending a tax credit to households making up to $300,000 per year.

The current tax credit costs about $15 billion per year. Sen. Isakson's proposal could easily double those costs.

Congress needs to look at ways to close the budget gap, not add to it.

Monday, October 12, 2009

Guns do kill people

Two tragedies in the last week remind us that guns in the home are dangerous things. Today CNN links to a story about a man who shot his fiancee on the eve of their wedding, mistaking her for an intruder. Late last week, several news outlets reported on the story of a gun-toting soccer mom who ended up becoming the victim of a murder-suicide by her husband.

Although the circumstances of these cases were unusual, family-related, self-inflicted, and accidental gun deaths are not.

The Centers for Disease Control (CDC) tracks detailed statistics for violent deaths--deaths "resulting from either the intentional use of physical force or power against oneself, another person, or a group or community, or the unintentional use of a firearm"--in 16 states. The CDC's latest report covers 2006.

Although the report is limited to 16 states, the included states come from every region of the country and cover just over a quarter of the U.S. population, so they are broadly, though not completely, representative. There are also limitations (see p. 15) in the underlying information. Data are missing or inconsistent for some reports. Data also come from initial reports and are not reconciled with later information, such as prosecutions.

In the 16 states that were examined, there were more suicides involving guns (4,410) than all types of homicides or deaths involving legal intervention (4,343). Overall, identified suicides accounted for 56 percent of violent deaths; of the suicides, just over half involved a gun. Of the much smaller number of murder-suicides (166 suicides with 194 additional victims), nearly five-sixths involved a gun. To this list of mayhem, you can also add 101 accidental gun deaths.

The annual death toll from suicides and accidents involving guns in just these 16 states works out to one and a half 9-11s. If the figures can be extrapolated to the rest of the country, the national total would be approximately six 9-11s.

The total number of people killed (by guns and otherwise) in self-defense and by law enforcement pales in comparison. The number of such deaths in the 16 states was just 234.

The sad fact is that guns in the home are much more likely to be used by the owner against himself or herself or against another family member, partner, or friend than against an intruder.

Friday, October 9, 2009

"Principled" opposition to health reform

It's pretty obvious that at least some of the opposition to the President's health care agenda is racially motivated.
When you walk into the Georgia Peach Oyster Bar in Paulding County, you feel like you've walked into a different era.

Behind the pool tables stands a mannequin in a Klu Klux Klan costume, but it's what's outside of the Patrick Lanzo's restaurant that has some people angry.

Lanzo put up a sign that reads "Obama's plan for health-care: N*&%*r rig it."

The audacity of hope

I woke up to the news that President Obama had won the Nobel peace prize. After checking the calendar to make sure that I hadn't slept until April 1, I started trying to think how that could have happened. To quote Dr. Suess, I puzzled and puzzled 'til my puzzler got sore.

Sure Obama has united parts of this country, mostly the Republican parts that are united in opposition to health care, a better climate, and evolution.

And sure he's pursuing more peaceful policies, such as keeping only some of the detainees in Guantanamo and having predator drones fire missiles at wedding rehearsal dinners instead of actual wedding parties.

Heck, one of these days he may even make a decision about what we're going to do in Afghanistan.

But once you get past there, the resume really thins out.

In the end, the answer that I come to is that the Nobel committee has awarded the equivalent of one of those self-esteem trophies that the last place kids' soccer team gets at its Fuddruckers end-of-season banquet. You can almost hear them saying, "Way to be there Barry!"

Wednesday, October 7, 2009

Incentivizing poverty

It appears that North Carolina is preparing to pay economic incentives to a company that will provide 375 jobs that pay wages near the poverty level.

The Raleigh News & Observer reports
A Roxboro parachute manufacturer is on a hiring binge to fill 375 jobs and meet a major order for the U.S. Army.

North American Aerodynamics plans to increase its work force from 45 people to about 420 by next year to rush out parachutes for use in Afghanistan. It is investing $900,000 for a new factory.

The creation of jobs on that scale during a recession is so unusual in Person County that the company qualified for as much as $600,000 in state and local incentives, although the jobs will pay considerably less than the county average. The average wage will be $23,834, well below the Person County average of $31,824.
The poverty threshold this year for a family of four is $22,050. If the average wage is $23,834, it is very likely that some of the jobs will pay less than the poverty level. Even at $23,834, four-person households with no other income would qualify for food stamps, free school lunches and breakfasts, subsidized medical care, and the Earned Income Tax Credit.

The news story indicates that the company will need roughly five years to fulfill its contract. Once that contract ends, the extra jobs could well be gone.

With alarmingly high unemployment and only the faintest signs of economic growth, North Carolina needs jobs. Also, jobs need to be available at different skill levels. Nevertheless, $600,000 in incentives for poverty-level employment that may only last a few years is a bad investment.

Thursday, October 1, 2009

Will's "national commission"

In his Washington Post column today, George Will, cites some recent news stories and research that seemingly contradict expectations regarding global warming. Will impugns scientists who disagree with his take on the data.

For instance, Will muses about a scientist who is quoted in a news article as saying that evidence from one controversial study (Will conveniently ignores the controversey) might be misused or misrepresented by opponents (as Will does). Will also accuses a new scientific report that indicates greater long-term warming as being "strident," as if the report were written in reaction to the recent news articles (Will writes this way; the scientists did not).

Will ends his column with a call for "a national commission appointed to assess the evidence about climate change." Will either overlooks or ignores that the United States has had a series of independent, non-partisan, expert commissions that have studied and continue to study climate issues. The commissions have been organized under the auspices of the National Research Council of the National Academy of Sciences (NAS). The current, ongoing commission is the Committee on America's Climate Choices.

The most recent assessment and summary of the evidence from the NAS reports as follows.
There is a growing concern about global warming and the impact it will have on people and the ecosystems on which they depend. Temperatures have already risen 1.4°F since the start of the 20th century—with much of this warming occurring in just the last 30 years—and temperatures will likely rise at least another 2°F, and possibly more than 11°F, over the next 100 years. This warming will cause significant changes in sea level, ecosystems, and ice cover, among other impacts. In the Arctic, where temperatures have increased almost twice as much as the global average, the landscape and ecosystems are already changing rapidly.

Most scientists agree that the warming in recent decades has been caused primarily by human activities that have increased the amount of greenhouse gases in the atmosphere (see Figure 1). Greenhouse gases, such as carbon dioxide, have increased significantly since the Industrial Revolution, mostly from the burning of fossil fuels for energy, industrial processes, and transportation. Carbon dioxide levels are at their highest in at least 650,000 years and continue to rise.

There is no doubt that climate will continue to change throughout the 21st century and beyond, but there are still important questions regarding how large and how fast these changes will be, and what effects they will have in different regions. In some parts of the world, global warming could bring positive effects such as longer growing seasons and milder winters. Unfortunately, it is likely to bring harmful effects to a much higher percentage of the world’s people. For example, people in coastal communities will likely experience increased flooding due to rising sea levels.

The scientific understanding of climate change is now sufficiently clear to begin taking steps to prepare for climate change and to slow it. Human actions over the next few decades will have a major influence on the magnitude and rate of future warming. Large, disruptive changes are much more likely if greenhouse gases are allowed to continue building up in the atmosphere at their present rate. However, reducing greenhouse gas emissions will require strong national and international commitments, technological innovation, and human willpower.
It takes another type of willpower to ignore recommendations of an independent, expert panel composed of the nation's top scientists.

Wednesday, September 30, 2009

Time is money, except at universities

The Raliegh News & Observer reports that North Carolina Central University recently discovered that it had under-calculated its student activity fee--by one cent. With 8,501 students, the university stood to lose a whopping $85.01.

NCCU's solution? Bill each student one cent and tell them to pay up.

After a rumor circulated that students would be fined if they didn't make good on their bills, students started queuing at the bursar's office with their pennies.

A one-cent bill is ridiculous and is the ultimate example of a policy that ignores costs and only considers benefits.

For the sake of argument, assume that it takes exactly a day for one clerk, making $20,000 per year, to process all 8,501 payments. A day of the clerk's time comes out to $80 (more if you consider any benefits that the university has to pay to the clerk). So, under an absolute best case scenario, the one cent increase ends up being a wash.

If you add it the value of bad publicity, ill will, and time administrators now have to spend addressing complaints, NCCU loses on the deal.

This calculation, however, ignores the externality that the university imposes on the students in terms of lost time. Assume that students all pay their bills in person and that it takes each student an average of 10 minutes to walk to and from the bursar's office and to stand in line to pay the bill. If we value each student's time at the minimum hourly wage of $7.25, the cost per student is roughly $1.20 to pay the bill, and the cost to the student body is just over $10,000. If it takes the students longer to pay the bills or if their time is worth more, the costs go up.

Of course, students could have cut these costs by mailing their pennies. First class postage costs 44 cents; an envelop costs 5 cents, and it takes a few minutes (say 2) to fill out the bill and address the envelop. Again valuing the students' time at the minimum wage, the per student cost comes out to 73 cents, and the total cost tops $6,200.

So under some very generous assumptions, the university would incur at least $80 in costs and impose an added $6,200 to $10,000 in costs on its students, all to bring in $85.01.

Recognizing its mistake, the university has changed its policy and will apply the one cent increase to next semester's bills. However, don't look for the university to dock any administrator's salary for the inconvenience he or she caused.

Monday, September 28, 2009

Do reporters actually read these reports?

The Science section of the CNN index page (archived here) links to a story today about about a report by the Economics of Climate Adaptation Working Group. The title on CNN's link says, "Report blames warming for 800K deaths." The story itself opens with
The last fifty years have borne witness to a spate of climate related disasters across the world causing over 800,000 fatalities and $1 trillion in economic loss.

Those stark facts come from the Economics of Climate Adaptation (ECA) Working Group, a group of NGOs and corporations that has produced a report warning that if countries do not take active steps to build resilience to climate change soon, they are likely to suffer even larger economic losses in the coming decades.

According to the ECA report published on September 14, climate catastrophes have risen in direct proportion to global temperatures over the last several years.
The report does indeed list those figures, but the CNN story misinterprets them. First of all, the 800,000 deaths and $1 trillion in damages come from all weather-related natural disasters. Unlike the CNN story, the ECA is careful to avoid describing these as "climate-related" consequences but rather uses the figures to indicate how vulnerable countries are. Indeed, the report states (p. 20)
Many economies, then, are susceptible to significant damage from today’s climate – even without factoring in the possible future impacts of climate change and the potential growth of populations and asset value in vulnerable locations. Unfortunately, these factors could well heighten the vulnerability of many countries and regions.
Worse, the CNN story misses a key consideration in the ECA report. In particular, the ECA report emphasizes how population growth and development make the world more vulnerable to weather disasters.
By multiplying the overall pool of population and economic value, this pattern of growth increases the scale of losses from weather and climate. In many cases it has also heightened humankind’s vulnerability to the weather, for example by increasing population and value concentrations in coastal cities, and by degrading natural systems that historically have absorbed some extreme weather. Most of the increase in loss from weather disasters over the past two decades can be attributed to socio-economic factors.
Read the last sentence in that quote again and try to figure out how CNN came to the conclusion that climate changes caused the losses.

The misreporting by CNN is a shame. It detracts from an important story about how climate change may cause significant and unequally distributed economic hardship in the future. It also detracts from an analysis of how countries and communities can adapt their development policies to minimize the consequences of climate change.

What CNN should have reported are the actual conclusions of the report, which are
  • although the exact local consequences of global warming are uncertain, we know enough about the potential consequences that we can plan precautions;

  • the potential harms of global warming are enormous; of the eight countries the ECA studied, it found that likely economic losses would range from 1 to 12 percent of GDP by 2030 with much worse outcomes being possible;

  • many cost-effective precaution and adaptation measures are available; and

  • the adaptation measures can strengthen economic development in any case.
The report should be read by national and local governments, including Greensboro's.

Thursday, September 17, 2009

CBO estimates of the economy-wide impacts of climate change legislation

The Congressional Budget Office (CBO) has released a comprehensive analysis of The Economic Effects of Legislation to Reduce Greenhouse-Gas Emissions. The analysis looks at the GDP impacts of climate change and of the pending Cap and Trade Bill (H.R. 2454). It also discusses some policy considerations.

The main points that the report makes are that

  • The expected harms to the U.S. economy over the next 40 years from unchecked climate change are likely to be very modest. Harms by 2100 are also likely to be relatively modest, perhaps in the range of 3 percent of GDP. However, harms become larger when non-economic outcomes are considered. Also, there are risks of catastrophic changes have to be considered.

  • The expected costs to the U.S. economy from H.R. 2454 are also likely to be modest, on the order of .25 to .75 percent of GDP by 2020 and 1 to 3.5 percent by 2050. While these amounts might appear to be, well, immodest, they have to be compared to the overall expected growth in GDP. For instance, the CBO projects that GDP will be 2 1/2 times larger in 2050 than it is now.

  • Considered just in terms of the measureable economic effects between now and 2050, climate change doesn't pass a cost-benefit test. However, the comparison becomes more favorable when non-economic harms and harms after 2050 are considered.
The report also points out that
  • "Climate change is an international problem." The harms extend beyond the U.S. so that policy changes here have benefits inside and outside the U.S. As importantly, however, the benefits of U.S. policy changes are constrained by the changes taken by other countries.

    This raises standard public goods problems. One the one hand, if other countries don't act, U.S. actions won't make an appreciable difference in climate change. Worse, a go-it-alone policy could exaccerbate the economic harms as carbon-intensive economic activity moves to less-regulated economies. On the other hand, if other countries do act, the U.S. could benefit without any changes on its own. Because of this, no country has incentives to act independently. A coordinated approach is needed.

  • A cap and trade policy is relatively efficient in terms of minimizing costs associated with reduction in greenhouse gases. However, a carbon tax policy could be more efficient still. Each type of policy involves certainties and uncertainties. The carbon tax leads to a predictable price change, but we can't be sure how much carbon output will respond. A cap and trade policy leads to more certainty about how much carbon output will change but less certainty about prices and costs. Given that climate change is a long-term problem, the costs of carbon output uncertainty are likely to be smaller than price uncertainty.
All in all, the report suggests several ways the H.R. 2454 can be improved. With the legislation still awaiting Senate action, there are also opportunities for improvement.

Chairman's Mark misses the mark

A well-known joke in statistics goes,
If you stick your left foot in a bucket of ice and your right foot in a bucket of scalding water, the law of averages says you should be pretty comfortable.
So too go some types of political compromise, including Sen. Max Baucus' proposal on insurance reform.

The fundamental flaw of the proposal is that it combines Democrats' calls for personal insurance mandates with Republican-friendly provisions that reduce subsidies, eliminate employer mandates, water-down public alternatives, and increase insurance pricing flexibility. If enacted, the legislation will require people to purchase insurance without providing affordable alternatives. Middle class families could be required to pay up to 13 percent of their income in insurance costs or face up to a $3,800 penalty.

Requiring families to purchase health insurance (or partially self-insure through health savings accounts and catastrophic policies) makes sense. Bad health happens. When it does, society, rightly, will not completely turn its back. One way or the other, some care is going to be provided, and people should make reasonable contributions toward this care.

However, such a mandate in turn requires that an affordable option be available or that people be provided the resources to make a purchase. These types of considerations underlie the proposed expansion of Medicaid for households with incomes below 133 percent of the poverty line and the proposed provision of subsidies for those with incomes between 133 and 400 percent of the poverty line. Unfortunately, the subsidies in Sen. Baucus' proposal aren't especially generous enough given the types of insurance that are likely to be available.

Middle-class families will feel the squeeze, and too many are likely to experience hardships under this proposal.

There are two alternative ways to fix this legislation. One alternative is to drop the personal insurance mandate. The expansion of Medicaid, the availability of subsidies, and the limited penalty on large employers who fail to provide insurance will lead to more coverage. Some other provisions, such as the restrictions on how insurance companies can treat pre-existing conditions, will also make insurance more attractive. The U.S. would achieve more insurance coverage, just not universal coverage for all of its citizens.

The other alternative is keep the personal insurance mandate but provide reasonable means for people to purchase insurance. The easiest way to accomplish this would be to keep the present schedule of subsidies but allow anyone who is under age 65 and who wants to purchase insurance to do so through Medicaid--that is, to make Medicaid available essentially at cost. Other more-costly options are to expand subsidies, provide a robust public alternative, or expand employer mandates.

Absent either of these fixes, Sen. Baucus' proposal should be rejected.