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.

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.

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.

Broder joins the dump Rangel bandwagon

David Broder, welcome aboard the dump Rangel bandwagon.

Broder writes in his column this morning

Rangel ... has been busy of late revising and amending the record, backing and filling, using buckets of Wite-Out as he discovers or remembers properties he has owned in New York, New Jersey, Florida, the Dominican Republic and God only knows where else -- and has forgotten or neglected to fully report on the required forms, not to mention the income from them. Oops!

Rangel recently even discovered bank accounts that no one in the world, apparently including him, knew he had. One was with the Congressional Federal Credit Union; another was with Merrill Lynch -- each valued between $250,000 and $500,000. He somehow neglected to mention these accounts on his congressional disclosure forms, which means, if you can believe it, that when he signed the forms, he did not notice that maybe $1 million was missing.

...There is something wrong with Charlie Rangel. Either he did not notice that he was worth about twice as much as he said he was -- which is downright worrisome in a congressional leader -- or he thinks that he's above the law, which is downright worrisome in a congressional leader.

Democrats keep Rep. Rangel as a committee chair--the tax writing committee, no less--at their own peril. Democrats regained the majority in the House of Representatives in 2006 in no small part due to public disgust at Republican corruption. Several Democrats, including Rep. Rangel, seemed determined to wallow in that same mud pit.

A change in tactics and a tactical victory against Al Qaeda

The New York Times reports that one of the top Al Qaeda leaders in Africa, Saleh Ali Saleh Nabhan, was killed on Monday. What's especially remarkable about the operation, though, was that Nabhan was killed directly by U.S. special forces.

American commandos killed one of the most wanted Islamic militants in Africa in a daylight raid in southern Somalia on Monday, according to American and Somali officials, an indication of the Obama administration’s willingness to use combat troops strategically against Al Qaeda’s growing influence in the region.

According to the article, the use of U.S. forces may have been a necessity. There may not have been time to organize an air strike or a missile launch.

However, it may reflect a shift in strategy, with the U.S. being willing to risk soldiers' lives to minimize civilian casualties.

Either way, U.S. forces succeeded in ridding the world of a key terrorist, one responsible for bombing an Israeli hotel and possibly collaborating on the bombings of American embassies in the late 1990s.

Certainly not the "party of know"

At a recent town hall meeting, Republican Senator Jim Inhofe, told his Oklahoma constituents about his enlightened opposition to health care legislation.

"I don't have to read it, or know what's in it. I'm going to oppose it anyways," he said.

UPDATE: In the spirit of bipartisanship, Fred Gregory has pointed out the Democratic chairman of the House Judiciary Committee also suffers from a reading deficiency.

Protection racket

In the musical version of Les Miserables, Monsieur Thenardier, the innkeeper, sings about the creative extras he charges his guests

Charge 'em for the lice, extra for the mice
Two percent for looking in the mirror twice
Here a little slice, there a little cut
Three percent for sleeping with the window shut
When it comes to fixing prices
There are a lot of tricks he knows
How it all increases, all them bits and pieces
Jesus! It's amazing how it grows!

Bank executives seem to share Thenardier's billing philosophy.

The New York Times reported yesterday on automatic overdraft protection that is included with many debit cards.

When Peter Means returned to graduate school after a career as a civil servant, he turned to a debit card to help him spend his money more carefully.

So he was stunned when his bank charged him seven $34 fees to cover seven purchases when there was not enough cash in his account, notifying him only afterward. He paid $4.14 for a coffee at Starbucks — and a $34 fee. He got the $6.50 student discount at the movie theater — but no discount on the $34 fee. He paid $6.76 at Lowe’s for screws — and yet another $34 fee. All told, he owed $238 in extra charges for just a day’s worth of activity.

Mr. Means, who is 59 and lives in Colorado, figured employees at his bank, Wells Fargo, would show some mercy since each purchase was less than $12. In addition, a deposit from a few days earlier would have covered everything had it not taken days to clear. But they would not budge.

Banks and credit unions have long pitched debit cards as a convenient and prudent way to buy. But a growing number are now allowing consumers to exceed their balances — for a price.

Overdraft coverage is essentially a loan from the debit card issuer. When the customer attempts to "overdraw" an account (take more money out than is there), the card issuer has two options: to reject the payment or let the customer run a negative balance. Overdrafts are temporary negative balances, usually for limited amounts.

Some banks, such as ING, simply charge the going interest rate for the negative balance. Most banks, however, charge a fee for initially making each overdraft (in Mr. Means' case, $34) AND charge daily fees for continuing the overdraft.

There are other forms of overdraft protection. For example, some banks will let you link your debit card account to a savings account or a credit card. If you overdraw the debit card account, the bank will move funds from the linked account--usually for a fee.

Overdraft coverage can be useful, as it allows customers to make necessary purchases that they might not otherwise be able to make.

However, this convenience usually comes at a cost--the high fees that most banks charge. For a customer with a credit card, the interest rate on that card is typically much lower than the overdraft fee.

Also, debit card users with automatic overdraft coverage are seldom informed that they are about to overdraw their accounts. They only find out when they are contacted about the fee.

Worse, the Times article points out that banks will rearrange the sequence of transactions to maximize their fees.

Ralph Tornes, who lives in Florida, is pursuing a lawsuit against Bank of America for charging him nearly $500 in overdraft fees in 2008 after it rearranged his purchases from largest to smallest. In May 2008, for instance, Mr. Tornes had $195 in his account when he made two debit purchases for $8 and $13; the bank also processed a bill payment of $256.

He claims that Bank of America took his purchases out of chronological order and ran the biggest one through first. So instead of paying $35 for one overdraft fee, he was stuck with three, for a total of $105.

The fees have become a huge source of revenue for the banks.

In all, $27 billion in fee income flows from covering overdrafts from debit card purchases, A.T.M. transactions, checks and automatic payments for bills like utilities; an additional $11.5 billion arrives from bounced checks and other instances in which banks refuse to pay overdrafts...

Because of this, banks are fighting reasonable regulations on this activity.

The most sensible regulation is to give consumers the explicit choice to elect this coverage on their accounts. At that time, consumers would be informed of the fees and limits associated with the service. If the feature is as convenient and useful as the banks claim, people should be glad to sign up for the service.

Another sensible regulation would be to require banks to book purchases and withdrawals chronologically.

Ultimately, however, caveat emptor. Consumers are in the best position to avoid these fees by making sure that they have adequate balances before using their cards. They should also shop around for banks and credit unions that don't charge these fees.

Qubein's rhetorical math doesn't add up

Several months ago, Moody's Investor Services downgraded bonds that High Point University floated in 2001 from a Baa2 rating to Ba2, meaning that it had judged the bonds to have a "substantial credit risk." Higher education financing is a sensitive issue in Greensboro because of the recent problems of Greensboro College and budget cut-backs at the two large public institutions.

This morning, our local newspaper finally got around to asking the president of HPU, Nido Qubein, about Moody's downgrade.

Qubein used some fascinating rhetorical math in his response. He is quoted

You want to know how seriously I take it? On a scale from 1 to 10, I’d give it a negative 2.

Let's unpack the math. The lowest point on Qubein's scale should represent not paying any attention to the rating (ignoring it and not taking it seriously at all). That would be an appropriate response if the rating is pure noise or doesn't affect any university operations.

Qubein, however, assigned it a "negative 2?" Does this mean that he is treating it unseriously? Maybe he suspects that Moody's is punking him?

Alternatively, Qubein could be indicating that Moody's is way off base in its assessment (with somewhat off base being a zero on this scale and completely off base being a negative one). The negative number might further suggest that Qubein's response as doing exactly the opposite of whatever Moody's would recommend.

Maybe the negative number means a different type of unseriousness--the rating is so bad that it just drives Qubein crazy.

True to his own ranking, Qubein's subsequent responses in the article never acknowledge the underlying problems that led to the rating or the consequences that stem from it.

The underlying problems are a growing amount of debt for the university, a hit to the endowment because of the financial crisis, and a dependence on tuition and student growth for financing.

Qubein dismisses these all. For example, the large debt is "an investment in the future." The article points to rising tuitions and enrollment growth, but the financial model requires still higher tuitions and more growth.

In terms of the consequences, Qubein states that HPU was recently able to float an additional $40 million, but he does not indicate what the financing costs were.

The faculty, staff, and students of HPU deserve a serious response to an independent rating agency's serious assessment of increased risk. President Qubein's lack of seriousness is troubling.

Academic dishonesty

Over the weekend, the Washington Post published an article about a master's/J.D. thesis that the Republican candidate for governor of Virginia, Robert McDonnell, wrote in 1989. The thesis, titled "The Republican Party's Vision for the Family: The Compelling Issue of the Decade," concludes with a 15-point plan to support family values. Among the points are:

(2) Make adherence to constitutional interpretivism, a covenant view of marriage and family, and a deep respect for parental authority, the first areas of scrutiny in the selection of federal and state judges. (emphasis added)

(8) Fight any attempts to redefine family by allowing special rights for homosexuals or single-parent unwed mothers.

(9) Fight the use of federal funds for state sex-education programs or school-based health clinics giving abortion referrals, contraceptives, and family planning.

Elsewhere in the thesis, McDonnell recommends that "every level of government" should discriminate against "cohabitors, homosexuals, or fornicators," adding that "the cost of sin should fall on the sinner not the taxpayer."

He criticizes Supreme Court decisions that extended privacy to married couples who wanted to obtain contraception and eventually to the sexual behavior of unmarried people. He also criticizes working mothers, seeming to link their work to "materialism" and "feminism" rather than the needs of families.

His conclusion also warns that "A people who reject the importance of the family in its God-ordained covenantal form must assuredly reap the consequences."

McDonnell now counters that he should not be judged "on a decades-old academic paper I wrote as a student during the Reagan era and haven't thought about in years." However, he does want to acknowledge the law degree that resulted from that thesis and recently brought up the thesis as an example of his thinking on welfare policy.

The "just a student" excuse is also misleading. McDonnell was 34 when he wrote the thesis and was in the process of pursuing his second graduate degree. Moreover, as a thesis, the "academic paper" had to be presented to a committee. It also most likely was repeatedly revised and eventually defended. The thesis was supposed to be a serious piece of scholarship.

In addition, McDonnell began his legislative career just three years after completing his degree. And many of the points from his thesis were elements of his campaign and legislative career.

The story has some personal interest because at the same time that McDonnell was completing his thesis, I was working on my dissertation on family work-life issues. Two of the chapters from the dissertation were eventually published, and the resulting articles continue to be cited. With nearly 20 additional years of research and policy experience, I can see flaws in those analyses and would certainly make improvements if I were starting over. However, I wouldn't dismiss the articles as "academic exercises."

McDonnell can't have it both ways. If he continues to hold the same strong, religiously-oriented views on family policy, he should say so. If those views have changed, he should explain which ones have changed and why. This, of course, supposes that he engaged in serious scholarship and policy advocacy in the first place.