Wednesday, October 8, 2014

Can you imagine that politicians have mortgaged our future? Say it ain't so.

I am shocked do you hear, SHOCKED!

The New York Times wrote on October 6 that there is a problem with the Tobacco Master Settlement Agreement (November, 1998). If you remember that far back the deal was that 46 States had an agreement that exempted the tobacco industry from legal liability for any harm caused by tobacco use. For this exemption the tobacco companies agreed to make annual payments,forever, to fund anti-smoking and public health programs. The tobacco companies “guaranteed” a minimum of $206 billion during the first 25 years.

The only problem with the agreement was that the states were not required to use the money as intended. Of course we can trust government to do what it tells us it will do without a written agreement.

Can't we?

Maybe not since of the money that the tobacco companies gave the states only a very small part has gone to anti-smoking and public health programs.

In Alaska some $3.5 million was spent on shipping docks. In New York $700,000 went for a sprinkler system at a public golf course and $24 million went for a county jail and office building. Oh yes, in North Carolina $42 million went to tobacco farmers for modernization and marketing (huh?).

Now 12 governments (9 states - Alaska, California, Iowa, Michigan, New Jersey, New York, Ohio, Rhode Island and West Virginia, plus Washington, D.C., Puerto Rico and Guam to be exact) felt that they needed the money faster than the annual payments were scheduled to pay so they used the future payments, read mortgaged, as collateral for bonds. About these “capital appreciation” bonds...they defer all interest payments and repayments for about 50 years and there is no plans in place concerning how the bonds will be repaid (in a lump sum). Just so you will know most of the legislators who approved this use of the tobacco funds will be dead or retired by that time (we can only hope).

Just checking the numbers (thanks to Jim Estes who wrote the article) that the 12 governments issued $22.6 billion in bonds, receiving $573.2 million in cash (that low price is because who is going to buy something that is next to worthless). With the wonders of compound interest these 12 governments will have to repay $67.1 billion. One prime example is the state of Michigan that will have to repay 1,800 times the amount it borrowed.

You may ask who would buy these bonds if they knew they can't be repaid? The answer is that the majority of the bonds are held by banks and mutual funds. Remember the housing bubble/bust? These banks and mutual funds are betting that the state and/or federal government will bail out these bonds with more future settlement payment. Remember the forever part of the settlement, from the tobacco industry that includes a little help from our friends (the U.S. taxpayer). The problem is that the tobacco industry is in a state of decline and many analysts see that a big default in the settlement payments will happen in the future so it looks like the taxpayers will get stuck with the bill.

Who is going to make money of this deal? For the most part it will be the investment bankers who convinced the state politicians that some money in the treasury now is better than any future consequences. I wonder how much money was kicked back into political campaigns from the investment bankers?

BTW, a report shows that 1.9% of the states settlement payments and tobacco taxes was spent on prevention programs this year. I am surprised that it was that much.


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Thursday, October 2, 2014

Are women being oppressed in our colleges and universities?

A bit of data (2013) on Graduate School Education from the Council of Graduate Schools. I will leave you to draw your own conclusions after you look the following over.

Here is the data on Doctoral Degrees awarded by field and gender in 2013:

These are the fields that are very closely represented by both men and women: Arts and Humanities - 47.7% male – 52.3% female, Biological, Agricultural Sciences – 48.7% male – 51.3% female, and Business – 55% male – 45% female.

The following are the fields that are not closely represented: Education – 32.3% male – 67.7% female, Health Sciences – 28.3% male – 71.7% female, Public Administration – 35.8% male – 64.2% female, Social and Behavioral Sciences – 38.2% male – 61.8% female.

How about what we call the 'Hard' sciences STEM [Science, Technology, Engineering, and Math? Engineering – 76.9% male – 23.1% female, Mathematics and Computer Sciences – 74.2% male – 25.8% female, Physical Sciences – 65.3% male – 34.7% female.

By the way, the total awarded Doctoral Degrees in all fields are 47.8% male and 52.2% female.

Master's Degrees are about the same except that the total awarded degrees are 40.8% male and 59.2% female. The big difference is Health Sciences, 19.5% male and 80.5% female, Education, 23.4% male and 76.6% female, and Public Administration, 22.5% male and 77.5% female. In the STEM majors the numbers are about the same as for Doctoral Degrees awarded.

Just a few other bits of information about men and women in graduate schools across the U.S. For the fifth year in a row, women have earned a majority of doctoral degrees. According to the Department of Education, 2009 marked the year when men officially became the “second sex” in higher education by earning a minority of college degrees (this at all college levels from associate's degrees to doctoral degrees). Also, in 2013, there were 137.5 women enrolled in graduate school for every 100 men. From this we see that men are underrepresented in graduate school enrollment overall, men received fewer masters and doctoral degrees than women, and men were underrepresented in 7 of 11 graduate fields of study (master's and doctoral level).

I have seen no calls for government studies, or increased government funding to address this significant gender disparity. There was, in 2009, an executive order that created the “White House Council on Women and Girls” but I have heard no talk about an executive order for a “White House Council on Men and Boys”.

Now Walter Williams did ask, and I am paraphrasing here, if the folks that value diversity see any female under representation as a problem or as proof of some type of gender discrimination what do these same folks plan to do about the over representation of women in higher education? Is this not the same injustice but just from the other side?

Regards, and thanks to Mark Perry for pointing me to this thought,


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Tuesday, September 23, 2014

Focus on the right stats!

If my pitcher gives up 5 runs a game during the first five inning, and then is pulled and my offense has scored 20 runs, he is likely to notch a "win".

On the other hand if my other pitcher gives up 1 earned run a game (for a complete 9 innings) and my offense scores nothing, he will lose the game.

Which pitcher would you rather have?

That is why one should ignore the win-loss statistic in evaluating pitchers.

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Friday, September 19, 2014

Quid pro quo

Something for something or this for that. This is what we all think of when we here the Latin phrase "Quid pro quo". It is most used when talking about markets and the free exchange of goods by free individuals. Where do you think that the English pound got its common (slang) name of quid from?

But what are we really saying? The American Heritage Dictionary now defines quid pro quo as "an equal exchange or substitution". This implies that we have a legitimate exchange that for all purposes is effectively equal. The word substitution associated with quid pro quo comes from the 1700s when apothecaries used the term to describe the substitution of one ingredient for another which suggested a functional equivalent between the two.

Does this really work in the market? Not as I can see because a legitimate exchange of goods between individuals is defined such that each person who is involved in the exchange is "made better off than before and not just as well off."

This type of muddy thinking places blinders on people as to the mutual benefits created by unequal exchanges.

Remember that in the market, the people involved in the exchanges are doing so voluntarily.

And to quote Gary M. Galles, professor of economics at Peperdine University and author of Faulty Premises, Faulty Policies (2014) and Apostle of Peace (2013): "Viewing voluntary exchanges as involving equal values leaves people blind to the mutual benefits created by even “unequal” exchanges. This mistake has also fathered a cornucopia of damaging restrictions on voluntary arrangements. It defames voluntary market arrangements. And it falsely inflates coercive government arrangements by ignoring the harm inherently imposed on unwilling parties when an outside authority presumes to know more about the value of the items exchanged than do the parties who agreed to the exchange in the first place." (Remember that most government is in power because of involuntary arrangements.)

"The misunderstanding created by the idea of "equal value" produces the opposite of a beneficial quid pro quo from society’s perspective: It destroys vast amounts of wealth in exchange for enabling theft."


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Thursday, September 18, 2014

The Professor Complains About CEO Pay

Just a quick note about the 1%......

Former Labor Secretary Robert Reich works at the University of California-Berkeley and has a teaching schedule of one class. The class is Public Policy 260 and meets on Monday for two hours. This does not include his preparation time or his office hours. Professor Reich is paid, for this grueling work load, $242,613 a year (2013). This works out to $2,500 an hour for those of you worried that Professor Reich might not be getting minimum or a living wage. Now this also works out to about what an adjunct college professor gets paid for teaching a 15 week, one semester, class ($2,700 according to the AAUP report).

You now ask "Why do you bring this up Jerry when you never complain about the exorbitant pay those greedy CEOs get and how the income inequality gap between the CEOs and the ordinary worker has gotten to almost 300-to-1 (It was only 20-to-1 fifty years ago)."

My answer is that I don't really care how much Professor Reich is paid by UCB except that Professor Reich, on the days he is not teaching (4 days a week), is on the lecture circuit where he get a speaking fee of $40,000 for a one-hour talk (this includes Q&A, first class travel for two people from California, hotel accommodations for up to two nights, ground transportation, meals and incidentals).

The reason I bring this up is that Professor Reich, for the most part, talks about how CEOs get paid too much and that the workers that produce don't get paid enough.

Again let me say that it is great that Professor Reich can command what the market will bear for teaching and public speaking, and that is what economics is all about. Selling what you produce by the sweat of your brow.

Let's consider the numbers. The average CEO earned about $176,400 last year (government numbers and not something I pulled out of thin air), got an increase in salary less than the average worker, and earned only about 5 times more than the average worker (not 300 times more).

If you crunch the numbers you will find that Professor Reich makes about 36% more than the average CEO for teaching his two hours a week (I taught some at the University of Oklahoma and for a two hour class I would spend about 5 hours in prep time, follow up time, and office hours for each hour I taught) so I think I can safely say that Professor Reich does not put in the 50 to 60 hours that a CEO puts in each week nor does he live under the pressure of worrying that his business will fail if he does not make the correct decisions (guesses wrong in other words). Also, if Professor Reich gives just six one hours speeches a year (and he gives more than that I hear) then his income is near $500,000 thus putting him in with the evil 1% that we hear so much about.

Again I applaud the good professor for his success, I just consider him a bit hypocritical.


BTW - And yes, I understand that UCB keeps Professor Reich on because of his name and the prestige that he brings to the school and not because his teaching of one class is worth a quarter of a million dollars. Still I have to wonder just what it is that the Professor does that is worth that amount of money?

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Monday, September 15, 2014

May the Road rise up to Kick you in the Ass!

The Irish Blessing says:

"May the road rise up to meet you

May the wind be always at your back

May  the sun shine warm upon your face

And the rain fall soft upon your fields

And until we meet again

May God hold you in the palm of his hand"


If you are "lucky" enough to experience all these "good tidings", you are unlikely to be lucky enough to build the kind of "grit" required to succeed. Being unlucky; finding yourself at the wrong place at the wrong time; missing the "advantages" of riches (think Paris Hilton), will actually make you tougher and more resilient than all those "weenies" with whom you compete.  

May the Road rise up to Kick you in the Ass!  You will be stronger and reach much further as a result.


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Should a business that blow-dries hair require as much regulation as for medical technicians?

I have written before about occupational licenses and I may have given the impression that I am against all occupational licenses. Let me clear up that notion. I think that many occupational licenses are necessary to protect consumers' health and safety. On the other hand, I also think that governments commonly require licenses for jobs that do not seem to meet the health and safety standards. Using common sense, most of us would not consider some of these licenses necessary.

Occupational licensing is meant to be a beneficial exchange between the proper balance of freedom and order. Licensing is something that is done to advance public health and safety and to prevent fraud but it has been and is increasingly being used by old-guard interests to restrict entry into business of new competitors and reduce competition. This reduction in competition leads to higher prices and fewer options for consumers.

Some examples of business that must have licenses to operate are shampoo apprentices, florists, salvage vehicle dealers, equine massage therapists, and natural-hair braiders. Requiring licenses in this and many other fields is a misuse of public policy which favors the politically-connected.

The most recent attempt to block competition involves the ride-sharing services Uber and Lyft. Across the U.S. (and in Europe) the existing taxi and limo companies are attempting to use local government to keep Uber and Lyft out of the market. Miami, Chicago, Denver, Oklahoma City, are being asked to block or restrict ride-sharing by the incumbents. In Pittsburgh the only two taxi companies pushed the Mayor and the Public Utility Commission (the licensing authority) to have police write tickets to anyone giving a ride for pay that was not certified by the PUC. The Mayor, for the present time, has blocked this move. The PUC has granted temporary permission to operate.

The 2012 study “License to Work” detailed how licensing “often does not line up with the public health or safety risk it poses”. In the study of the 102 occupations licensed in the 50 states and D.C., “66 occupations have greater average license burdens than emergency medical technicians. The average cosmetologist spends 372 days in training; the average EMT only 33.”

Aside from costing consumers' more for some services and reducing the choices of the consumers, workers are hit with costly requirements including government-determined schooling, test, and paying fees before entering into a business. Several studies show that female-dominated business have some of the biggest and most irrational licensing requirements which prevents low and middle income women (financially-vulnerable) from starting to work their way up the economic ladder. An example of this is a new business in Iowa that does hair blow-drying. It may be closed because the workers do not hold a cosmetology license (2,100 hours of education and training and state testing required for the license). Other examples are a number of African hair-braiding business across the U.S. that have been shut down because of the same cosmetology requirements and licensing as a florist before one can arrange flowers for pay.

An interesting report from Jared Meyer at e21 (The Manhattan Institute) states that when small business owners are surveyed the top complaint is government licensing and permitting (even more so than taxes).

One way that licensing and permitting impacts the economy, according to economist Morton Kleiner, is that “licensing results in 2.85 million fewer jobs with an annual cost to consumers of $203 billion.”

What can be done? Under Ronald Reagan new rules at the federal level were instituted that demanded “Evidence-based justification” for any new rule. This review process is not perfect and has not been used as much as it should but it has encouraged efficiency and it has prevented more harm (somewhat). It seems to me that this type of regulatory review law should be passed in each state. Maybe you could suggest it to your state Representative, or someone who is looking for a job as your state Representative, the next time he or she shows up at your door looking for your vote.
Will this solve all the problems? No! But maybe it will start the ball rolling?


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