Amnesty good for me but not for thee

Want to make a Republican apoplectic and to receive a stern lecture on incentives? Suggest a compromise that somehow involves a path to citizenship or permanent residency for some of the 11 million or so unauthorized immigrants aliens in this country.

Someone mentioned Newt Gingrich's musings about a pathway to citizenship for some long-term immigrants to Republican Representation Brian Bilbray, causing him to spew

They don’t understand that talking about amnesty to reduce illegal immigration is about as logical as somebody saying, ‘Let’s drill a hole in the bottom of a boat to let the water out.’ You’re going to cause a whole new wave of illegal immigration.

Rep. Bilbray even criticized the mere discussion of these proposals.

It’s sending a signal to the world that a candidate for president, or worse, the president himself, has announced that if you break the law and come to this country illegally — if you risk your life or be one of those who die along the border and try to come to the country illegally, we will reward you if you come in here ... Everyone who is given a job and any elected official who is announcing to the world that Washington and the federal government is going to reward illegal immigration are part and parcel to the problem of sending a clear and defining message. Even Newt Gingrich would say that our problem is that we’ve sent mixed messages in the past and that’s enticed people to come here and be here illegally.

Once you get past the spittle and snarling, Rep. Bilbray and other Republicans seem to be making the point that amnesties, even partial ones, create some awful incentives. While the policy addresses some immediate concerns, it also creates future problems if the next set of people considering whether to enter and stay in the country without authorization come to expect periodic amnesties.

So if amnesties encourage such bad behavior, why are Republicans (regrettably abetted by some "centrist" Democrats) advocating a one-year, no-strings-attached, "olly olly oxen free," tax amnesty for multinational corporations who have hidden their revenues in other countries?

Specifically, corporations are allowed to defer taxes on profits that are held abroad. The tax amount, which would generally equal the different between the applicable U.S. tax rate and what the corporation pays in the country where the profits are initially parked, is only due when the company brings the money back into the country. Instead of this eventual amount, Republicans are proposing a special low-low rate of as little as 5.25 percent if corporations rebate the money now. Rep. Bilbray (the same don't-you-idiots-understand-incentives guy) has even submitted a bill that would temporarily reduce the tax rate to zero.

Republicans main argument about the tax amnesty is which hostage to take to pass one--the payroll tax break that is due to expire this year or the broader set of Bush-era tax cuts that are due to expire next year.

Absent from those arguments, however, is any discussion of the bad incentives that tax amnesties create. One reason why corporations delay repatriating money to the U.S. is the possibility of a lower tax rates, including special amnesty deals, in the future. There's precedent for this thinking because a similar "one time" amnesty was granted in 2004. And consistent with the incentives argument, multinational corporations greatly increased the amounts of profits that they stashed overseas following the 2004 amnesty. If a similar policy were enacted today, the professional staff of the Joint Committee on Taxation predict that the bad incentives would lead to a net cost of $79 billion over 10 years.

When human beings are concerned, these policies are nasty "amnesties." When corporations are concerned, they're "holidays." Go figure.

Diminishing returns along the border

Arrests of people crossing the border with Mexico have fallen to historic lows. The Washington Post reported on Saturday

The Border Patrol apprehended 327,577 illegal crossers along the U.S.-Mexico border in fiscal year 2011, which ended Sept. 30, numbers not seen since Richard Nixon was president, and a precipitous drop from the peak in 2000, when 1.6 million unauthorized migrants were caught. More than 90 percent of the migrants apprehended on the southwest border are Mexican.

...“We have reached the point where the balance between Mexicans moving to the United States and those returning to Mexico is essentially zero,” said Jeffrey Passel, a senior demographer at the Pew Hispanic Center, whose conclusion was shared by many migration experts.

Yet the Obama administration continues to deploy 1,200 National Guard troops along the border, mostly for show.

President Obama’s decision last year to send 1,200 National Guard troops to the U.S.-Mexico border may have been smart politics, but a growing number of skeptics say the deployment is an expensive and inefficient mission that has made little difference in homeland security

The rules of engagement, rightly, limit the role of the National Guard to observation. The net effect, however, is that the troops increase the cost of securing the border by about $110 million per year but have little impact on security itself. The Post story continues

In an August report on the costs and benefits of an increased role for the Defense Department along the U.S.-Mexico border, the Government Accountability Office told Congress that it takes three people to do the job of one: two Guard soldiers to spot an illegal crosser and one federal agent to catch him.

Since 9/11, the United States has greatly strengthened its fence along the border. It has also doubled the number of Border Patrol agents, with predictable effects on border crossings and apprehensions.

At a time when the military is already strained and where the government is looking to save every penny that it can, an ineffective $110 million National Guard "troop surge" along the border seems especially wasteful and a bad return on investment. President Obama should end the deployment at the end of this year and allow the troops to return to their home states and bases.

Profiles in cravenness

Juan Williams writes in The Hill about Mitt Romney and Newt Gingrich being for health insurance mandates before they were against them.

What do Newt Gingrich and Mitt Romney, the leading contenders for the Republican presidential nomination, have in common?

Long before President Obama, both supported an idea they now pretend to spurn — the idea of requiring people to buy health insurance.

As recently as 2009, Romney publicly supported, the “individual mandate” for buying health insurance. And as recently as last month one of Gingrich’s websites still endorsed the “mandate” for all Americans earning more than $50,000 annually.

...At the CNN debate this October in Las Vegas, Gingrich took a swipe at Romney over the former Massachusetts governor’s healthcare plan that requires citizens in the Bay State to buy health insurance. Romney shot back: “Newt, we got the idea of individual mandate from you.”

Gingrich responded: “You did not get that from me. You got that from the Heritage Foundation.”

They are both correct on this revealing point. The Heritage Foundation, the influential conservative think tank, first developed the idea of an individual mandate for healthcare in the late 1980s. That is how deeply this idea is tied to conservative thinkers.

Romney used the Heritage policy in developing his Massachusetts healthcare law. That reform contained the dreaded individual mandate.

And Gingrich supported the federal mandate as an alternative to Hillary Clinton’s healthcare reform package when he was Speaker in the 1990s.

There seem to be few former policy "stands" these two won't gainsay to appease the Tea Party crowd.

Solving thorny problems, like health care reform, requires the courage to lead and to stand up for potentially upsetting positions. The late Sen. Paul Tsongas' name for politicians like Gingrich and Romney seems apt--pander bears.

Some perspective on Food Stamp fraud

Households that receive benefits from the Supplemental Nutrition Assistance Program (SNAP, formerly the Food Stamp Program) usually fly under the radar, but recently they've received a lot of unflattering (and misleading) attention.

For example, an article in the Washington Examiner was breathlessly headlined "Maryland, Virginia at top of nation for food stamp fraud."

Maryland ranks second and Virginia fifth in the amount of taxpayer dollars wasted on food stamp fraud.

For every $100 in benefits, Maryland gave out $6.11 to people who weren't eligible -- amounting to about $60 million, according to fiscal 2010 data from the U.S. Department of Agriculture. Virginia gave out $5.04 to ineligible recipients, or about $70 million, and the District ranked 21st, doling out $3.76 in overpayments. The national average was $3.05.

But local investigators are examining a shrinking percentage of recipients for fraud -- and very few offenders are prosecuted -- even as government spending on the welfare program, which helps needy families pay for groceries, soars to record highs.

Analysts say fraud is increasingly going undetected, as most states have fewer resources to devote to the oversight of food stamps for more than 45 million Americans.

Earlier this week, Republican presidential candidate Newt Gringrich reportedly said

...more Americans today get food stamps than before. And we now give it away as cash -- you don't get food stamps. You get a credit card, and the credit card can be used for anything. We have people who take their food stamp money and use it to go to Hawaii. They give food stamps now to millionaires because, after all, don't you want to be compassionate?

The stories by the Washington Examiner and Mr. Gingrich suggest that there is rampant fraud in the SNAP program. It might surprise both of them to learn that administrative errors and fraud in the SNAP have decreased substantially over time and now appear to be at record lows. In 2010 the GAO reported

The national payment error rate reported for SNAP, which combines states’ overpayments and underpayments to program participants, has declined by 56 percent from 1999 to 2009, from 9.86 percent to a record low of 4.36 percent.

The administrative error rate for FY 2010 in the SNAP was lower still at 3.81 percent. The error rate is a problem, but it is much lower than other organizations. For example, improper payment errors in the Medicare fee-for-service program in 2011 were 8.6 percent, and errors in the Medicare Advantage program were 11 percent. And even these error rates are far lower than rates for major private health insurers, which the American Medical Association estimated were 19.3 percent in 2011.

In contrast to the implication by the Washington Examiner article, the fraud rate is different from and much likely lower than the error rate. Administrative errors occur for many reasons, including case-worker errors. In FY 2009, 843,000 suspected SNAP fraud cases were investigated by state authorities. Only about a quarter of these were determined to actually involve fraud, and the amount of fraud identified came to just over $100 million (compared to total overpayments of $1.8 billion).

Trafficking in SNAP benefits also has decreased; the 2010 GAO report indicated that

FNS estimates indicate that the national rate of food stamp trafficking declined from about 3.8 cents per dollar of benefits redeemed in 1993 to about 1.0 cent per dollar during the years 2002 to 2005.

Over this same period, the SNAP became much more efficient. In FY 2003, $5.0 billion, or 19 cents out of every dollar spent on SNAP, went to administrative overhead. By FY 2009 (the last year for which full figures are available), the overhead rate had fallen to just under 12 cents per dollar. The available evidence* indicates that the overhead expense rate is now closer to 10 cents. Again, some perspective is worthwhile. Private health insurers have complained that overhead caps of 15 to 20 percent (Medical Loss Ratio minimums of 80-85 percent) under the Affordable Care Act are too onerous.

The improvements in program performance have come at a time when the SNAP has expanded significantly. In the year before the expansions under the Republican-signed 2002 farm bill, the SNAP (then Food Stamp Program) served 19.1 million people. In FY 2010, it served 40.3 million.

It's questionable whether additional administrative expenses in the SNAP would be worthwhile. In FY 2009, the states and federal government spent $6.6 billion administering the SNAP, while the total estimated overpayments were $1.8 billion and the total estimated underpayments were about $0.4 billion. At this point, each additional dollar of administrative expenses seems to reduce the value of administrative errors by less than a dollar.

A program that serves 40 million people is going to turn up some problems, including some egregious ones. Indeed, errors and abuses in the SNAP cost taxpayers and potential recipients billions. Nevertheless, the available evidence indicates that the SNAP run with less proportional administrative cost, with fewer proportional errors, and lower rates of fraud than other private and public programs.

While we can't say for certain how many people are taking unfair advantage of the SNAP, we can identify two: the Washington Examiner and Newt Gingrich.

* States and the federal government share the expenses of administering the SNAP approximately 50-50. For FY 2010, we have the federal expenses but not the state expenses. The federal overhead rate was approximately 5 cents per dollar.

Santa came early with November's job report

For the first time in a while, the monthly job report was solidly positive. The estimated, seasonally-adjusted unemployment rate from the household survey fell to 8.6 percent, the lowest that figure has been since March of 2009. The proportion of the civilian, non-institutionalized population that was working rose to 58.5 percent, the best that figure has been in 8 months.

The improvement in the unemployment rate is a positive development. However, while many more people reported working last month, a portion of the drop in unemployment was due to an unexpected drop in the number of people in the labor force. The proportion of people in the labor force (people working or actively looking for work) fell to 64 percent, which keeps the number near 30-year lows).

The preliminary figures from the establishment survey indicate that 120,000 non-farm jobs were added on a seasonally-adjusted basis in November, while revisions to the figures for September and October added another 72,000 jobs. Altogether, the number of jobs in the current report was nearly 200,000 higher than the number reported in the previous report.

More working Americans is good news heading into the holiday season. Hopefully, many more people will be working before long.

Job-killing regulations

Want a great example of a job-killing regulation? Take a look at the new immigration law that Alabama Republicans enacted. Last week, the law's provision requiring police to detain undocumented foreigners netted an executive from Mercedes-Benz. CNN reports

Fierce critics of Alabama's controversial new immigration law -- and one of its staunchest supporters -- are pointing to the arrest of a German Mercedes-Benz executive last week to make their case.

Police in Tuscaloosa, Alabama, pulled the man over because of a problem with the tag on the rental car he was driving, and then detained him when he didn't have proper identification on hand, according to Alabama's homeland security director.

What could be more business friendly?

You better believe that foreign and multinational businesses are going to think twice before setting up shop in Alabama and other states with similar provisions.

North Carolina's job recession continues

Yet another month has passed, and we're left to ask "where are the jobs that Republicans promised with their tax-cutting austerity budget?"

This morning, the Department of Labor released its monthly report on state employment and unemployment. Compared to the rest of the country, North Carolina continues to under-perform.

The state's seasonally-adjusted unemployment rate edged down from 10.5 percent in September to 10.4 percent in October. In June, the month before the Republican budget went into effect, the unemployment rate was 9.9 percent. Also, a substantial part of October's decline was due to 3,500 North Carolinians leaving the labor market and thus no longer being counted as part of the unemployed.

On a seasonally-adjusted basis, the state added a measly 5,500 jobs in October. On net, private sector jobs were unchanged--the slight gain in jobs came from the partial recovery of state and local government jobs. The number of jobs continues to be substantially lower than this spring and to largely reflect net changes in public employment.

After overriding the Governor's veto of their budget in June, the Republicans bragged

In November 2010, the people of North Carolina used the ballot box to send a message to North Carolina lawmakers: State government must reduce costs and regulation on the people, so that they can create jobs and prosperity. Years of overspending by Democrats had given North Carolina the highest tax rates in the Southeast and a budget shortfall of at least $3 billion. High taxes were killing jobs.

...Our budget contains the largest tax rate cut in the history of North Carolina. It makes our state more competitive with our neighbors again. It puts almost $1.5 billion back in to the hands of hard working North Carolinians.

Funny thing about those job-killing high taxes, they were associated with thousands more jobs than the low-tax, competitive Nirvana that Republicans created.

Businesses and wealthy North Carolina households now enjoy lower taxes than they did last year, and they are using that bonanza to create...well, not much of anything at all.

$12.4 million grant sits unused while state Republicans dither

North Carolina recently received a $12.4 million federal grant to help set up its health insurance exchange, but the grant is going unused because Republicans refuse to meet to provide the go ahead.

Millions in federal money has gone unspent for weeks because legislators have put off talking to the state Department of Insurance about how a national health insurance grant will be used.

Lawmakers dropped discussion of the $12.4 million grant from the Oct. 27 agenda of a high-powered group called the Joint Legislative Committee on Governmental Operations. Agencies must consult with the committee, which House Speaker Thom Tillis and Senate leader Phil Berger run, before spending grant money in certain circumstances.

The money is for the state to do prep work for a health benefit exchange that the federal health insurance law would require of all states by 2014. With no grant money to support it, most of the work at the state Department of Insurance and the N.C. Institute of Medicine on the exchange has stopped.

Health insurance exchanges were a feature of both the Republican and Democratic proposals on health care reform and rightly so because the exchanges will increase the availability, transparency, and efficiency of health insurance. There is no good reason not to begin planning for how to set up the state's exchange.

The approach is also counter-productive to Republican goals because it increases the chances that North Carolina will have to operate under a possible federal exchange program rather than a North-Carolina-run and tailored program.

In addition, the delay hurts North Carolina economically. The $12.4 million would provide an economic boost to a state that sorely needs it. Over the last year, North Carolina has effectively had no job growth, and last month, the state had the dubious distinction of leading the nation in job losses. Given that sorry record, you would think that the Republicans would feel some urgency to get the money into the economy.

Instead, much like they did with the federal unemployment money, Republicans are engaged in a senseless, self-defeating, job-killing delay.

Insider trading by Congress?

An article earlier this year by a Georgia State University researcher and colleagues in the electronic journal, Business and Politics, uncovered evidence that suggests that Congressional representatives may have been financially benefiting from insider information.

We measure abnormal returns for more than 16,000 common stock transactions made by approximately 300 House delegates from 1985 to 2001. Consistent with the study of Senatorial trading activity, we find stocks purchased by Representatives also earn significant positive abnormal returns (albeit considerably smaller returns). A portfolio that mimics the purchases of House Members beats the market by 55 basis points per month (approximately 6% annually).

As the blurb indicates, the study produced results that were consistent with an earlier analysis of Senators' stock returns, and some of you may recall an earlier insider financial transaction by a panicked Sen. Burr.

The evidence from the latest study is suggestive but far from convincing. First, the evidence is indirect; the authors don't examine insider trading directly but instead try to infer it from stock returns.

Second, the study includes evidence that counters the insider trading argument. For example, the authors found that stock returns were high for junior members of Congress but not for senior members. To the extent that insider knowledge and influence increase with seniority, we might expect the opposite relationship to hold.

Diminishes us all

The New York Times reports on the disreputable and fraudulent actions of a Dutch researcher.

A well-known psychologist in the Netherlands whose work has been published widely in professional journals falsified data and made up entire experiments, an investigating committee has found. Experts say the case exposes deep flaws in the way science is done in a field, psychology, that has only recently earned a fragile respectability.

The identified offenses may have occurred in another discipline and another country, but they damage the scientific enterprise everywhere.

In principle, all of the studies that scientists conduct and publish should be replicable. In practice though, replication rarely occurs, is often impossible, and seldom gets attention or credit if it is conducted. Because of this, the modest amounts of credibility and respect that scientific conclusions muster owe greatly to scientists' reputations for reporting research accurately. Put another way, much (possibly too much) of science relies on trust.

Sadly, researchers like this particular Dutch psychologist treat science as a confidence game. Equally sadly, the psychologist has a lot of company in the scientific community.

We're number one! (in killing jobs)

The austerity budget of North Carolina's Republican-led General Assembly continues to kill jobs. The Bureau of Labor Statistics reported today that on a seasonally-adjusted basis North Carolina's unemployment rate rose in September to 10.5 percent and its nonfarm payroll employment fell by 22,200 jobs. North Carolina had the dubious distinction of leading the nation in job losses.

In March of this year, unemployment was at 9.7 percent, and there were 3.890 million jobs in the state. Through September, three months into the Republicans' fiscal-year 2012 budget, unemployment has now climbed to 10.5 percent, while nonfarm payroll employment has dropped to 3.863 million jobs.

North Carolina continues to underperform relative to the rest of the county. In September, the national unemployment rate was 9.1 percent, and the country added just over 100,000 jobs. Since March, the country has added nearly 600,000 jobs. National job growth hasn't been spectacular, but there has been steady job growth for more than a year. In contrast, North Carolina's job situation has deteriorated.

One way a local crisis pregnancy center misrepresents medical risks

The NARAL Pro-Choice North Carolina Foundation has recently conducted an audit study of crisis pregnancy centers in North Carolina. The study found that that the centers tend to give inaccurate and incomplete information, that few had medically-trained staff (though that didn't stop staff from dressing up like medical professionals), and that some encouraged women who might still be considering terminating their pregnancies to wait to see if a natural miscarriage occurred. The report has sparked a lively conversation at Ed Cone's blog.

To get some perspective on how these centers are presenting themselves, I thought that it would be worthwhile to look at the web-site that is run by the local Greensboro Pregnancy Care Center (GPCC). The web-site encourages women to "consider their choices" and says specifically to women considering abortion that "it is good you are taking the time to do some research before you make your final decision because there are risks, just as there are with any other medical procedure, and you are wise to weigh them."

Below is the information that the GPCC offers about the abortion pill, Mifepristone, and about drug-induced abortions.

This drug is only approved for women up to the 49th day after the start of their last menstrual period. Some doctors may prescribe this drug up to 63 days after the last menstrual period, but this is not an FDA approved method of use. The procedure usually requires three office visits. On the first visit, the woman is given pills to cause the death of the embryo. Two days later, if the abortion has not occurred, she is given a second drug which causes cramps to expel the embryo. The last visit is to determine if the procedure has been completed. The abortion pill will not work in the case of an ectopic pregnancy.

An ectopic pregnancy is a potentially life-threatening condition in which the embryo lodges outside of the uterus, usually in the fallopian tube. If not diagnosed early, the tube may burst, causing internal bleeding and in some cases, the death of the woman.

Women are being instructed to use the abortion pills in a manner not approved by the FDA. This includes using it beyond 49 days of pregnancy and using it vaginally. A number of women who have used the abortion pill have died due to sepsis (full body infection).

The information, while scary and intimidating, is factually accurate and is similar in a lot of respects to the more detailed cautions on the Food and Drug Administration's (FDA's) web-site.

The GPCC, however, omits one crucial bit of context--the risks are exceedingly rare. How rare? According to the FDA, the risk of any complications whatsoever is about 0.15% (about 150 in 100,000), and the risk of dying is about 0.001% (slightly less than 1 in 100,000). Put another way, about one woman per year dies shortly after taking Mifepristone.

Numbers like this can be hard to interpret, so let's compare them to some other risks.

For instance, what are the risks associated with popping an aspirin or another NSAID pain reliever? A 1998 study in the American Journal of Medicine reported

Conservative calculations estimate that approximately 107,000 patients are hospitalized annually for nonsteroidal anti-inflammatory drug (NSAID)-related gastrointestinal (GI) complications and at least 16,500 NSAID-related deaths occur each year among arthritis patients alone.

Without information on the number of people who take aspirin, it's hard to re-express this number as a rate. But even if we use the entire U.S. population as a base, the risk of death from taking aspirin is at least 5 times higher than taking Mifepristone.

A more relevant comparison is the risk of death from child birth, that is, maternal mortality. The independent and nonprofit health care accreditation and certification organization, the Joint Commission, reports

According to the National Center for Health Statistics of the Centers for Disease Control and Prevention, in 2006, the national maternal mortality rate was 13.3 deaths per 100,000 live births.

...“Maternal deaths are the tip of the iceberg for they are a signal that there are likely bigger problems beneath – some of which are preventable,” says Dr. Callaghan. “It is important to consider the women who get very, very sick and do not die, because for every woman who dies, there are 50 who are very ill, suffering significant complications of pregnancy, labor and delivery.” For 1991 through 2003, the severe morbidity rate in the U.S. for severe complications and conditions associated with pregnancy was 50 times more common than maternal death. Understanding these experiences could affect how care is delivered as well as health policy.

Women who continue their pregnancies to term are 13 times more likely to die than women who take Mifepristone.

What does the GPCC say about pregnancy?

During pregnancy, your body goes through many changes. Some common symptoms of early pregnancy include a missed period, nausea, breast tenderness, frequent urination, tiredness and mood swings.

Other than listing some questions women might have, the GPCC mentions no other medical complications or risks with pregnancy. Medically, it all sounds like a refreshing walk through the park.

Readers can decide with the GPCC's highly selective reporting, which lists but does not quantify the mortality risks of Mifepristone but which omits the risks of pregnancy, is misleading.

If the GPCC really wants women to "weigh" the risk, why does it only put information on one side of the scale?

Will BofA lose money over its $5 debit card fee?

In introductory economics, we teach that when the price of a product goes up, the demand for that specific product goes down. When Bank of America (BofA) announced its new $5 debit card fee for certain types of accounts and effectively raised the price on those accounts, those well-known economic laws kicked in, though possibly to BofA's advantage.

This morning's Charlotte Observer reports on the predictable and intuitive result--customers are leaving BofA for credit unions.

Charlotte-area credit unions have seen an increase in phone calls and new members in the last two weeks as people upset about new fees at big banks look for new places to park their money.

Several credit unions have launched advertising campaigns promoting their fee-free offerings, hoping to capitalize on the wave of consumer discontent since Bank of America announced its $5 monthly debit card fee late last month.

"It's been wonderful," said Nicol Morris, chief operating officer of the Charlotte Metro Federal Credit Union, which has about 33,000 members.

She said the credit union saw a 350 percent increase in online account creation, along with a 90 percent increase in calls.

"They are extremely fed up with the continued talk about fees, whether it's in regard to checking or the debit card fee," she said.

The loss of customers is undoubtedly bad news for BofA and surely must have been anticipated by its management.

Nevertheless, the new fee might still improve BofA's bottom line and leave BofA laughing all the way to, well, um, itself.

Some of the other things that we teach in introductory economics is that the sizes of the responses matter and that you have to consider all of the responses.

To the first point, the loss of customers might not be that large--that is, the demand response might be inelastic. Some simple, completely made-up numbers can help to illustrate. Suppose that the new fee adds 20 percent to BofA's revenues from the average basic checking account but that the new fee also causes 10 percent of the accounts to close. In this (made-up) example, BofA's total revenues on basic accounts go up by 8 percent (it gets 20 percent more revenue on the 90 percent of accounts that stay with the bank but loses 10 percent of its initial revenue from the accounts that close).

With respect to the sum of responses, BofA appears to be steering its existing basic-service customers toward other more-profitable services. From another article in the Charlotte Observer

Bank of America CEO Brian Moynihan said Tuesday that a recently announced $5 monthly debit-card fee is a way to encourage people to bring more of their "banking relationships" to the Charlotte-based bank.

The comments were among Moynihan's first responses to the debit-card fee, which has drawn a significant outcry from consumers and politicians since it was announced late last month.

"When we look at the profile of customers who have their entire banking relationship with us and those that don't, a lot of people can qualify, will qualify and do qualify not to pay the fees...," Moynihan said on a conference call with analysts to discuss the bank's quarterly earnings report.

"The issue is when people split their relationship and use our convenience and our access and our 18,000 ATMs ... and our online banking products and all that and yet have their relationship elsewhere," he said.

"That is tough for us to afford to provide and... be competitive. And so the fees are to get people to bring more of their relationships, and we're comfortable that we'll end up in a good dynamic there."

Debit-card users will not have to pay a fee if they have at least $5,000 in a linked savings account, a mortgage or a substantial investment account with Bank of America.

The new fee will cause some people to substitute away from basic services toward other BofA services. Also, BofA's creepy "relationship" language is telling.

The "relationships" themselves not only represent additional streams of revenues but also represent ways of reducing future demand responses. It turns out that breaking up is hard to do, especially when those "relationships" are with your bank.

Each "relationship" that BofA establishes with its customers, is one additional "relationship" that would have to be terminated in order to leave for another bank or credit union. If a customer has set up automatic deposits and automatic bill-paying, he or she would need to go through the hassle of changing each of these "relationships" before leaving for good. Instead of one change in service, there would now be multiple changes. People aren't formally locked into an account. However, it becomes much harder to leave, especially given people's predisposition toward behavioral inertia.

In the end, the sizes of these responses--the loss of customers versus the gain of per-customer revenues and the tie-in effects--will determine whether BofA comes out ahead. At this point, it would be premature to count BofA out, and you better believe that other banks (and geeky economists) are watching carefully.

Farmer Stanley

If you you thought that Wall Street's pre-crash gambling binge couldn't get any kookier, you should read Bloomberg's story on Morgan Stanley's investments in Ukrainian farm land.

Iowa native Justin Bruch marveled at the opportunity when Morgan Stanley (MS) called in late 2007 to recruit him for an unusual assignment.

The New York bank, flush with $7.5 billion in fiscal 2006 profit -- the biggest in its history -- was going to be farming 11 parcels on the steppes of Ukraine. The commodities team wanted Bruch, a redhead with meaty hands who’d been farming all his life, to manage one of them.

...Morgan Stanley gave up on farming in Ukraine in July 2009, abandoning the initiative in the middle of a harvest. It bought out its local partner, Aleksandr Mamontenko, then sold Enselco to an investment firm based in Jersey in the Channel Islands, at what people familiar with the situation say was a loss. All told, Morgan Stanley put about $30 million into Enselco through loans, according to Igor Bobrov, who was hired in 2008 to be Enselco’s chief financial officer and later became its CEO. Hugh Fraser, a London-based Morgan Stanley spokesman, says bank officials declined to comment for this story.

Morgan Stanley’s failed gamble in Ukraine shows how Wall Street firms, in the last gasp of a debt-fueled bull market, strayed further from their traditional business of advising companies and underwriting stock sales to embrace diverse projects with unfamiliar risks.

The story is a great example of how Wall Street, enabled by its own creative debt instruments, pursued ever more speculative returns towards the end of the financial bubble. While conservatives continue to blame the Community Reinvestment Act, Fannie Mae and Freddie Mac for these types of shenanigans, Morgan Stanley's foray into Ukrainian farming shows that none of these were necessary. An under-regulated and over-leveraged Wall Street was quite capable of causing a financial disaster on its own, thank you.

Thom Tillis, class warrior

North Carolina's Republican House Speaker Thom Tillis' recently had this to say to a Madison County audience about poor families on public assistance.

By gosh, we come back in 2013 ... I don't know if we'll go as far as Florida, but if you're receiving government assistance and every once in a while we want to do random drug tests, done on a fair basis, I think we should do it.

When you go in and you see a woman in a wheel chair, she's from here, she's from Asheville who's on the brink of losing her benefits and you know that Health and Human Services are sending checks to a woman who has chosen to have three or four kids out of wedlock, then at some point you need to say "first kid, we'll give you a pass; second, third, fourth kid, you're on your own."

And start, say what we have to do is find a way to divide and conquer the people who are on assistance. We have to show respect for that woman who has cerebral palsy and had no choice in her condition, that needs help, and we should help. And we need to get those folks to look down at these people who choose to get into a condition that makes them dependent on the government, and say, at some point, you’re on your own.

Rep. Tillis now claims that he made a "poor choice of words," but the entire statement was of a piece. Moreover, the statements that we need to drug test, "divide and conquer," and "look down at" poor people" were just some of the appalling comments that Rep. Tillis offered.

In the same talk, Rep. Tillis made these observations and policy prescriptions for the unemployed and work-disabled.

Folks, I don't know if any of you are out of work or have ever been out of work. Nobody spends 50 hours a week looking for a job. Now they may spend 50 hours a week thinking about looking for a job, and then they may go and apply, and then they may go and do an interview. My guess is that every single person who is out of work over a seven-day period has 10-15 hours they can give back to the community. And if they're an out-of-work teacher, that's a mentor in a school. If they're out-of-work healthcare provider, it is volunteering and having their time recorded in a health care clinic where they're certified and they can provide services. And if you're going to get government assistance, we know you have that time, and we think you ought to do it.

...I feel very strongly that, there, that, the, that people need to have that responsibility and that sense of obligation for if you're getting... We give people 99 weeks of unemployment benefits in this state, 99 weeks. And quite honestly if you're on workers comp, you may not be able to do the job that was physically demanding but you may be able to sit somewhere and be a mentor to somebody or something else. It's just giving people some sense of being more productive. That's how, that's how we become more competitive and more productive as a country.

Those lazy teachers and public health care providers that Rep. Tillis and his colleagues just fired, they're not really looking for work ("nobody spends 50 hours looking for a job"), and they need to pay us back for all the free time that they've been given. That lady from Asheville in the wheelchair, well, she can just "sit somewhere and be a mentor." "Every single person who is out of work has 10-15 hours (a week) they can give back to the community" and effectively pay back the rest of us who are lucky enough to still have jobs.

In Rep. Tillis' eyes, many of the poor--single mothers, the unemployed, the injured--are f***ing moochers who not only deserve every bit of misfortune that have received but also owe the rest of us for the meager crumbs that we, through the government, have thrown their way.

And Rep. Tillis has promised that when he and his reactionaries "come back in 2013," they'll be after those last few crumbs.

Texas consumers and taxpayers suffer after malpractice "reform"

Conservatives tout caps on malpractice awards as a good medicine for the health care system and for bringing down health costs. However, a new report by the consumer organization, Public Citizen, shows that many health care outcomes in Texas got worse after 2003 when that state capped non-economic damages in malpractice cases.

From the report

• Medicare spending in Texas has risen far faster than the national average. Per-enrollee spending for Medicare’s two main programs ranked second-highest in Texas among the 50 states in 2009. In 2003, Texas ranked seventh. In light of the steep reduction in litigation that has occurred in Texas since 2003, these figures contradict the theory that medical malpractice litigation is driving health care costs.
  
• Medicare spending specifically for outpatient services in Texas has risen even more steeply compared to national averages.
  
• Premiums for private health insurance in Texas have risen faster than the national average.
  
• The percentage of Texans who lack health insurance has risen, solidifying the state’s dubious distinction of having the highest uninsured rate in the country.

The report gives evidence that doctors and insurance companies benefited, but those benefits didn't get passed on to consumers or to taxpayers generally.

Greensboro's latest goodwill ambassador

Greensboro residents are spreading their good cheer far and wide. The city's latest goodwill ambassador received the following praise from the Hickory Daily Record.

Blind rage caused a Greensboro man to put three lives at risk while driving down a Hickory street.

Raymond Morris Patterson, 32, was arrested after he admitted to crashing his girlfriend’s car – on purpose – while she was driving. His 7-year-old son was in the back seat at the time. He was strapped into a child safety seat.

Way to pay it forward Greensboro!

A very solid jobs report

The headlines from today's monthly national jobs report are likely to focus on the unemployment rate stagnating at a still-too-high 9.1 percent, but a closer read of the report shows some signs for optimism.

The unemployment rate is defined as the ratio of (a) people who are not working but looking for work (the government's definition of unemployed) to (b) the sum of people who are working and people who are unemployed (the government's definition of being in the "labor force"). The rate changes as more people become employed. Over the last two months, the number of people who report being employed has increased by 364,500 a month. But the rate also changes as people decide to look for work. Over the last two months, the number of people in the labor force has grown by just under 400,000 people per month, which is twice as fast as population growth.

As a result of these changes, the percentage of the adult population that is now in the labor force has edged up over the last two months to 64.2 percent, and the percent of the adult population that is employed has edged up to 58.3 percent. However, when the numbers of adults who are employed and adults who are actively looking for work both grow, the unemployment rate can stagnate.

The modest growth in the percentages of the adults working and looking for work is a hopeful sign, while the fact that these percentages remain lower than a year ago is a discouraging one.

The other optimistic components of the monthly jobs report are the growth of just over 100,000 establishment-reported payrolls in September and upward revisions of job growth in July and August. Last month's job report estimated that jobs grew by 85,000 in July and were unchanged in August; this month's report estimates that July's increase was 127,000 and August's was 57,000. The growth in the number of jobs would have been even larger had it not been for the elimination of 65,000 public sector jobs over the last three months. The government reports that more than half a million local government jobs have been eliminated since September 2008, a significant drag on overall employment and on economic growth.

Overall, the job growth numbers, while far from outstanding, provide some hope that the country may dodge a double-dip recession. The country remains in a very deep hole, but for this month, at least, it doesn't seem to be digging any deeper.

Corporate entitlement

Entitlement seems to start at the top.

Bank of America's CEO defended his bank's new $5 fee on debit cards on Wednesday, saying that customers and shareholders understand the bank has a "right to make a profit."

...Moynihan (BofA's CEO) said that the bank will talk to its customers, teammates and shareholders and "they'll understand what we're doing -- understand we have a right to make a profit."

I'm sure that BofA's CEO and some of its shareholders sincerely believe that their company has this right, but they should not expect any such understanding from their customers or "teammates" (especially the 30,000 "teammates" who are about to be kicked to the curb).

BofA has a limited right to pursue success and to pursue profits; it can't, for instance, pursue profits through restraints of trade or collusion. But even these rights are different from any rights "to make a profit."

BofA's entitlement attitude in this $5 debit card fee debacle has been clear from the beginning. The new regulations that cap debit card interchange fees leave plenty of room for reasonable profits from BofA and other large banks, while protecting merchants from the excessive fees that these banks had been able to charge because of their size and market power. Indeed, banks in other countries have remained profitable despite facing much lower caps on interchange fees.

These reasonable profits weren't enough, and BofA is now trying to reach into its poorer customers' pockets (the richer customers are, of course, "entitled" to free debit-card use) for an extra $5 a month.

BofA has every right to ask this sum from its customers. It also has a right to bad-mouth the government and to deflect attention.

Customers, however, have the right to change their behavior to avoid the fee. Given BofA's behavior, the safest route would seem to choose a less-entitled financial institution. Just avoiding debit-card purchases with your BofA card (paying cash) is another.

Changes in customer behavior might not be enough to cure BofA of its entitlement mentality (the entitlement force is strong with this one). Changes in customer behavior would though send an appropriate signal.

Yes, but how about the international ranking of education researchers

Civitas Review touts a recent study that allegedly "exposes the myth of suburban schools." But it seems that the study actually exposes the myth of competent George W. Bush Presidential Center education researchers.

The study in question, the Global Report Card sponsored by the George W. Bush Presidential Center, compares the test score distributions of individual schools and school districts to international distributions. However, because states don't all use the same tests, the study uses a normalizing procedure. The study's web-site describes its procedure

The calculations begin by evaluating the distributions of student achievement at the state, national, and international level. To allow for direct comparisons across state and national borders, and thus testing instruments, we map all testing data to the standard normal curve using the appropriate student level mean and standard deviation. We then calculate at the lowest level of aggregation by estimating average district quality within each state. Each state's average quality is evaluated then using national testing data. And finally, the average national quality is determined using international testing data. Essentially, this re-centers our distribution of district quality based upon the relative performance of the individual state when compared to the nation as a whole as well as the relative performance of the nation when compared to our economic competitors.

For example, the average student in Scarsdale School District in Westchester County, New York scored nearly one standard deviation above the mean for New York on the state's math exam. The average student in New York scored six hundredths of a standard deviation above the national average of the NAEP exam given in the same year, and the average student in the United States scored about as far in the negative direction (-.055) from the international average on PISA. Our final index score for Scarsdale in 2007 is equal to the sum of the district, state, and national estimates (1+.06+ -.055 = 1.055). Since the final index score is expired in standard deviation units, it can easily be converted to a percentile for easy interpretation. In our example, Scarsdale would rank at the seventy seventh percentile internationally in math.

This may be an example of the "new math," but it looks like the index number should be 1.005, not 1.055.

There are other problems with the methodology. A big one is that it normalizes standard deviations in the distribution of test scores across countries and states. Consider a hypothetical state that was successful in improving test scores and in "closing the achievement gap," that is, the state improved test scores among all students but improved them more for students in the bottom of the test score distribution than for students in the top. The standard deviation (measure of dispersion) for its test scores would fall. The Global Report Card, however, uses standard deviations as its unit of measure. The effect would be that school districts within this state would be evaluated on a different standard than school districts in other states.

Another problem is that the methodology does not account for the characteristics of students, such as numbers of students who enter with limited native-language proficiency.

So, beyond the obvious goof on the web-site, there's a lot about this report (and Civitas reporting) that doesn't add up.