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.